<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JULY 16, 1996
REGISTRATION NO. 333-04587
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- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------
AMENDMENT NO. 2
TO
FORM S-11
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
----------------
PATRIOT AMERICAN HOSPITALITY, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN GOVERNING INSTRUMENTS)
3030 LBJ FREEWAY, SUITE 1500
DALLAS, TEXAS 75234
(214) 888-8000
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
PAUL A. NUSSBAUM
3030 LBJ FREEWAY, SUITE 1500
DALLAS, TEXAS 75234
(214) 888-8000
(NAME AND ADDRESS OF AGENT FOR SERVICE)
----------------
COPIES TO:
GILBERT G. MENNA, P.C. JOHN M. REISS, ESQ.
GOODWIN, PROCTER & HOAR LLP WHITE & CASE
EXCHANGE PLACE 1155 AVENUE OF THE AMERICAS
BOSTON, MASSACHUSETTS 02109 NEW YORK, NY 10036 (212) 819-8247
(617) 570-1433
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after this Registration Statement becomes effective.
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [_] .
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_] .
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [_]
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS
REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH
SECTION 8(A) OF THE SECURITIES ACT OF 1933, AS AMENDED, OR UNTIL THE
REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION,
ACTING PURSUANT TO SAID SECTION 8(A), MAY DETERMINE.
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<PAGE>
SUBJECT TO COMPLETION
PRELIMINARY PROSPECTUS DATED JULY 16, 1996
[LOGO OF PATRIOT 5,000,000 SHARES
AMERICAN APPEARS PATRIOT AMERICAN HOSPITALITY, INC.
HERE] COMMON STOCK
----------
Patriot American Hospitality, Inc. (collectively with its subsidiaries, the
"Company") is a self-administered real estate investment trust ("REIT") which
owns 35 hotels in 13 states, with an aggregate of 8,201 guest rooms (the
"Hotels"). Since its October 1995 initial public offering (the "Initial
Offering"), the Company has acquired 15 hotels (the "Recent Acquisitions") with
an aggregate of 3,995 guest rooms and has entered into contracts to purchase 6
additional hotels with an aggregate of 1,589 guest rooms (the "Proposed
Acquisitions"). The Hotels are primarily full service properties serving both
business and leisure travelers in major United States markets, including
Atlanta, Boston, Cleveland, Dallas, Denver, Houston, New Orleans, San Antonio,
San Diego and Seattle. Thirty-one of the Hotels are operated under franchise or
brand affiliations with nationally recognized hotel companies, including
Marriott(R), Crowne Plaza(R), Radisson(R), Hilton(R), Hyatt(R), Four Points by
Sheraton(R), Holiday Inn(R), WestCoast(R), Wyndham(TM), Wyndham Garden(R),
Doubletree(R), Embassy Suites(R) and Hampton Inn(R). See "The Company" and "The
Hotels and the Proposed Acquisitions." Thirty-four of the Hotels are leased to
independent lessees (the "Lessees") under participating leases (the
"Participating Leases"), which are designed to allow the Company to achieve
substantial participation in revenue growth at the Hotels. Neither the Company
nor its management owns an interest in, or participates in the management of,
the Lessees. See "The Lessees and the Operators."
All of the shares of common stock of the Company (the "Common Stock") offered
hereby are being offered by the Company. The Common Stock is listed on the New
York Stock Exchange (the "NYSE") under the symbol "PAH." On July 10, 1996, the
last reported sale price of the Common Stock on the NYSE was $28.875 per share.
See "Price Range of Common Stock and Distribution History." The Company's
Articles of Incorporation limit the number of shares of Common Stock that may
be owned by any single person or affiliated group. See "Description of Capital
Stock--Articles of Incorporation and Bylaw Provisions."
SEE "RISK FACTORS" BEGINNING ON PAGE 16 FOR CERTAIN FACTORS RELEVANT TO AN
INVESTMENT IN THE COMMON STOCK.
----------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
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<TABLE>
<CAPTION>
Underwriting
Price to Discounts and Proceeds to
Public Commissions (1) Company (2)
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Per Share........................ $ $ $
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Total............................ $ $ $
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Total Assuming Full Exercise of
Over-Allotment Option (3)........ $ $ $
</TABLE>
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(1) See "Underwriting."
(2) Before deducting expenses estimated at $2,700,000, which are payable by the
Company.
(3) Assuming exercise in full of the 30-day option granted by the Company to
the Underwriters to purchase up to 750,000 additional shares of Common
Stock, on the same terms, solely to cover over-allotments. See
"Underwriting."
----------
The shares of Common Stock are offered by the Underwriters, subject to prior
sale, when, as and if delivered to and accepted by the Underwriters, and
subject to their right to reject orders in whole or in part. It is expected
that delivery of the Common Stock will be made in New York City on or about
, 1996.
----------
PAINEWEBBER INCORPORATED
BEAR, STEARNS & CO. INC.
DEAN WITTER REYNOLDS INC.
GOLDMAN, SACHS & CO.
MONTGOMERY SECURITIES
SMITH BARNEY INC.
----------
THE DATE OF THIS PROSPECTUS IS , 1996.
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
<PAGE>
[MAP OF UNITED STATES SHOWING LOCATIONS OF
HOTELS OWNED BY THE COMPANY AND PROPOSED
ACQUISITIONS APPEARS HERE]
<PAGE>
[PICTURE OF WYNDHAM GREENSPOINT HOTEL, HOUSTON, TEXAS]
[PICTURE OF HYATT NEWPORTER HOTEL, NEWPORT BEACH, CALIFORNIA]
[PICTURE OF MARRIOTT WINDWATCH HOTEL, HAUPPAUGE, NEW YORK]
<PAGE>
[PICTURE OF CROWNE PLAZA RAVINIA, ATLANTA, GEORGIA]
[PICTURE OF WESTCOAST PLAZA PARK SUITES, SEATTLE, WASHINGTON]
[PICTURE OF DEL MAR HILTON, DEL MAR (SAN DIEGO), CALIFORNIA]
<PAGE>
TABLE OF CONTENTS
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR
EFFECT TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE
COMMON STOCK OF THE COMPANY AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE
PREVAIL IN THE OPEN MARKET. SUCH TRANSACTIONS MAY BE EFFECTED ON THE NEW
YORK STOCK EXCHANGE, IN THE OVER-THE-COUNTER MARKET OR OTHERWISE. SUCH
STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
<TABLE>
<CAPTION>
PAGE
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<S> <C>
PROSPECTUS SUMMARY........................................................ 1
The Company.............................................................. 1
Developments Since the Initial Offering.................................. 3
Risk Factors............................................................. 6
The Hotels and the Proposed Acquisitions................................. 7
The Lessees and the Operators............................................ 10
Formation Transactions and Benefits to Related Parties................... 11
Distribution Policy...................................................... 11
Tax Status............................................................... 12
The Offering............................................................. 12
Summary Financial Information............................................ 13
RISK FACTORS.............................................................. 16
Dependence on Lessees and
Payments under the Participating Leases................................. 16
Lack of Control Over Operations of the Hotels............................ 16
Risks Associated with the Company's Acquisition of a Substantial Number
of Additional Hotels.................................................... 16
Risks of Leverage; No Limits on Indebtedness............................. 16
Possible Adverse Effects of Shares Available for Future Sale Upon Market
Price of Common Stock................................................... 17
Risk of Investment in Subsidiaries....................................... 17
Limited Operating History................................................ 18
Competition for Management Time.......................................... 18
Conflicts of Interest.................................................... 18
Hotel Industry Risks..................................................... 18
Real Estate Investment Risks............................................. 19
Tax Risks................................................................ 21
Risks of Operating Hotels Under Franchise or Brand Affiliations.......... 22
Limitation on Acquisition and Change in Control.......................... 23
Ability of Board to Change Policies...................................... 23
Adverse Effect of Increase in Market Interest Rates on Price of Common
Stock................................................................... 23
THE COMPANY............................................................... 24
General.................................................................. 24
</TABLE>
<TABLE>
<CAPTION>
PAGE
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<S> <C>
Business Strategy........................................................ 25
The Operating Partnership................................................ 28
DEVELOPMENTS SINCE THE INITIAL OFFERING................................... 29
Recent Acquisitions...................................................... 29
Proposed Acquisitions.................................................... 30
Financing Activities..................................................... 31
New Franchise and Brand Affiliations..................................... 31
USE OF PROCEEDS........................................................... 32
PRICE RANGE OF COMMON STOCK AND DISTRIBUTION HISTORY...................... 33
CAPITALIZATION............................................................ 34
SELECTED FINANCIAL INFORMATION............................................ 35
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS............................................................... 41
Background and Recent Developments....................................... 41
Proposed Acquisitions.................................................... 43
Results of Operations of the Company..................................... 43
Results of Operations of the Lessees..................................... 45
Results of Operations of the Initial Hotels.............................. 47
Liquidity and Capital Resources.......................................... 49
Renovations and Capital Improvements..................................... 50
Inflation................................................................ 50
Seasonality.............................................................. 50
THE HOTEL INDUSTRY........................................................ 51
THE HOTELS AND THE PROPOSED ACQUISITIONS.................................. 52
Supplemental Information Regarding Significant Properties................ 54
The Participating Leases................................................. 59
Crowne Plaza Ravinia..................................................... 67
Franchise and Brand Affiliations......................................... 68
Employees................................................................ 70
Environmental Matters.................................................... 70
Competition.............................................................. 71
Insurance................................................................ 71
Legal Proceedings........................................................ 71
</TABLE>
i
<PAGE>
<TABLE>
<CAPTION>
PAGE
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<S> <C>
FORMATION TRANSACTIONS..................................................... 72
Formation Transactions.................................................... 72
Benefits to Officers, Directors and Primary Contributors.................. 73
Valuation of Interests.................................................... 75
Transfer of Initial Hotels................................................ 75
MANAGEMENT................................................................. 77
Directors and Executive Officers.......................................... 77
Committees................................................................ 79
Executive Compensation.................................................... 80
Option Grants in 1995..................................................... 80
Option Exercises in 1995 and Year End Option Values....................... 81
Compensation Developments................................................. 81
Employment Agreements..................................................... 81
Compensation of Directors................................................. 81
Stock Incentive Plans..................................................... 82
CERTAIN RELATIONSHIPS AND TRANSACTIONS..................................... 85
Relationships Among Officers and
Directors ............................................................... 85
Acquisition of Interests in Certain of the Hotels......................... 85
Sublease and Services Agreement........................................... 85
Employment Agreements..................................................... 85
Interest of Director...................................................... 85
THE LESSEES AND THE OPERATORS.............................................. 86
PRINCIPAL SHAREHOLDERS..................................................... 88
DESCRIPTION OF CAPITAL STOCK............................................... 90
Common Stock.............................................................. 90
Preferred Shares.......................................................... 90
Articles of Incorporation and Bylaw Provisions............................ 90
Business Combinations..................................................... 94
Control Share Acquisitions................................................ 95
Other Matters............................................................. 95
POLICIES AND OBJECTIVES WITH RESPECT TO CERTAIN ACTIVITIES................. 96
Investment Policies....................................................... 96
Financing................................................................. 96
Conflict of Interest Policies............................................. 97
Policies with Respect to Other Activities................................. 98
Working Capital Reserves.................................................. 98
SHARES AVAILABLE FOR FUTURE SALE........................................... 99
PARTNERSHIP AGREEMENT...................................................... 100
Management................................................................ 100
Transferability of Interests.............................................. 100
Capital Contribution...................................................... 100
Redemption Rights......................................................... 101
Registration Rights....................................................... 101
Operations................................................................ 101
Distributions and Allocations............................................. 102
Term...................................................................... 102
Tax Matters............................................................... 102
Preferred OP Units........................................................ 102
FEDERAL INCOME TAX CONSIDERATIONS.......................................... 103
Taxation of the Company................................................... 103
Requirements for Qualification............................................ 104
Failure to Qualify........................................................ 112
Taxation of Taxable U.S. Shareholders..................................... 112
Taxation of Shareholders on the Disposition of the Common Stock........... 113
Information Reporting Requirements and Backup Withholding................. 113
Taxation of Tax-Exempt Shareholders....................................... 113
Taxation of Non-U.S. Shareholders......................................... 114
State and Local Taxes..................................................... 115
Tax Aspects of the Operating Partnership and the Subsidiary Partnerships.. 117
PAH Ravinia............................................................... 119
UNDERWRITING............................................................... 120
EXPERTS.................................................................... 121
LEGAL MATTERS.............................................................. 122
ADDITIONAL INFORMATION..................................................... 122
GLOSSARY................................................................... 123
INDEX TO FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES............ F-1
</TABLE>
ii
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and financial statements appearing elsewhere in this Prospectus.
Unless otherwise indicated, the information in this Prospectus assumes (i) an
offering price per share of Common Stock of $28.875 (which was the last
reported sale price of the Common Stock on the NYSE on July 10, 1996), and (ii)
the Underwriters' over-allotment option is not exercised. Unless the context
requires otherwise, the term "Company," as used herein, includes Patriot
American Hospitality, Inc., PAH GP, Inc. ("PAH GP") and PAH LP, Inc. ("PAH
LP"), each of which is a wholly-owned subsidiary of Patriot American
Hospitality, Inc., and Patriot American Hospitality Partnership, L.P., a
Virginia limited partnership (the "Operating Partnership"). The term "Operating
Partnership," unless the context requires otherwise, includes any subsidiaries
of the Operating Partnership. The offering of Common Stock pursuant to this
Prospectus is referred to herein as the "Offering." See "Glossary" for the
definitions of certain terms used in this Prospectus. This Prospectus contains
forward-looking statements within the meaning of Section 27A of the Securities
Act of 1933, as amended (the "Securities Act") and Section 21E of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"). The Company's
actual results could differ materially from those set forth in the forward-
looking statements. Certain factors that might cause such a difference are
discussed in the section entitled "Risk Factors" starting on page 16 of this
Prospectus.
THE COMPANY
The Company is a self-administered real estate investment trust ("REIT")
which owns 35 hotels in 13 states, with an aggregate of 8,201 guest rooms (the
"Hotels"). The Hotels are diversified by franchise or brand affiliation and
serve primarily major U.S. business centers, including Atlanta, Boston,
Cleveland, Dallas, Denver, Houston and Seattle. In addition to hotels catering
primarily to business travelers, the Hotels include prominent hotels in major
tourist destinations, including New Orleans, San Antonio and San Diego. The
Hotels include 29 full service hotels, 5 limited service hotels and an
executive conference center. Thirty-one of the Hotels are operated under
franchise or brand affiliations with nationally recognized hotel companies,
including Marriott(R), Crowne Plaza(R), Radisson(R), Hilton(R), Hyatt(R), Four
Points by Sheraton(R), Holiday Inn(R), Wyndham(TM), Wyndham Garden(R),
WestCoast(R), Doubletree(R), Embassy Suites(R) and Hampton Inn(R). For the
twelve months ended March 31, 1996, the Hotels had an average occupancy of
71.3% and an average daily room rate ("ADR") of $81.89.
Since the Company's October 1995 initial public offering (the "Initial
Offering"), the Company has acquired 15 hotels (the "Recent Acquisitions") with
an aggregate of 3,995 guest rooms for approximately $277 million and has
entered into contracts to purchase 6 additional hotels with an aggregate of
1,589 guest rooms (the "Proposed Acquisitions") for an aggregate purchase price
(excluding acquisition-related expenses) of approximately $103 million. The
Company purchased the Recent Acquisitions with proceeds from the exercise of
the underwriter's over-allotment option in the Initial Offering and with funds
from its line of credit (the "Line of Credit"). The Company's purchase of each
of the Proposed Acquisitons is subject to the satisfaction of various closing
conditions and, therefore, no assurances can be given that these acquisitions
will be completed. See "Developments Since the Initial Offering--Proposed
Acquisitions." If all of the Proposed Acquisitions are consummated, the Company
will have invested approximately $380 million in hotel acquisitions and more
than doubled its room portfolio since the Initial Offering.
The Company leases each of the Hotels, except the Crowne Plaza Ravinia which
is owned through a special purpose corporation, to lessees that are independent
from the Company (the "Lessees") pursuant to separate participating leases (the
"Participating Leases"). The Crowne Plaza Ravinia acquisition was structured
without a Lessee for reasons specific to the acquisition. The Company
anticipates that future acquisitions will continue to be structured with
Lessees. The Lessees and the special purpose corporation that owns the Crowne
Plaza Ravinia in turn have entered into separate agreements (the "Management
Agreements") with hotel management entities (the "Operators") to operate the
Hotels. Neither the Company nor its management owns an interest in, or
participates in the management of, the Lessees or the Operators, thus avoiding
certain potential conflicts of
1
<PAGE>
interest generally associated with the structure of hospitality REITs. All
Participating Leases between the Company and the Lessees have been negotiated
on an arms length basis.
In connection with the Initial Offering, the Company closed the Line of
Credit with Paine Webber Real Estate Securities Inc. ("Paine Webber Real
Estate"). See "Developments Since the Initial Offering--Financing Activities."
The Company believes market conditions today remain favorable for the
acquisition of hotel properties at attractive returns and, particularly with
respect to full service hotels, at prices significantly below replacement cost.
Accordingly, the Company intends to continue to acquire additional hotels that
meet one or more of its investment criteria. See "The Company--Business
Strategy--Acquisitions." Because the Company's structure is designed to
accommodate multiple lessees, hotel brand owner/operators, major hotel
management companies and hotel franchisors have presented the Company with
opportunities to acquire attractive hotel properties (including properties not
otherwise marketed for sale) and the Company expects such opportunities will
continue. The Company believes its acquisition capabilities are enhanced by the
fact that its capital structure provides significant financial flexibility. The
Company intends to continue to maintain a conservative capital structure and
currently intends to limit consolidated indebtedness to no more than 40% of its
total market capitalization.
The Company was formed to continue and expand the hotel acquisition,
ownership, redevelopment and repositioning business of the Patriot American
Group ("Patriot American"). Patriot American had historically pursued an
investment strategy that emphasized purchasing hotels at attractive prices and
renovating, repositioning and remarketing them to achieve significant revenue
growth and favorable investment returns. From January 1, 1992 to March 31,
1996, approximately $29.7 million was invested in renovations and other capital
improvements to the 20 Hotels acquired by the Company in connection with the
Initial Offering (the "Initial Hotels"). The Initial Hotels achieved
significant growth in occupancy, ADR and room revenue per available room
("REVPAR") from 1993 through 1995, as summarized in the following chart:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, PERCENT
------------------------- CHANGE
1993(1) 1994(1) 1995(2) 1993-1995
------- ------- ------- ---------
<S> <C> <C> <C> <C>
Occupancy.................................... 65.8% 71.0% 72.1% 9.6%
ADR.......................................... $69.14 $72.57 $77.92 12.7%
REVPAR....................................... $45.48 $51.49 $56.20 23.6%
</TABLE>
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(1) For comparative purposes, 1994 and 1993 data includes the results of
operations for the Marriott Troy Hotel, which was acquired on December 30,
1994, and 1993 data also includes results for the pre-acquisition period
for three Initial Hotels acquired by the Company's predecessors in 1993.
(2) Excludes the Recent Acquisitions.
For 1993, 1994, and 1995, average occupancy rates for the U.S. lodging
industry were 63.1%, 64.7% and 65.5%, respectively, according to Smith Travel
Research, Inc. ("Smith Travel"). Management believes the growth in occupancy,
ADR and REVPAR at the Initial Hotels primarily reflects the successful
renovation, repositioning and remarketing strategies of Patriot American, the
superior management and marketing capabilities of the Operators, and the
upswing in the hotel industry caused by a slowing of new hotel construction
nationally and improving economic conditions, following an extended period of
unprofitable industry performance in the late 1980s and early 1990s.
The Company's executive office is located at 3030 LBJ Freeway, Suite 1500,
Dallas, Texas 75234, and its telephone number is (214) 888-8000.
2
<PAGE>
DEVELOPMENTS SINCE THE INITIAL OFFERING
Since the Initial Offering, the Company has benefited from the following
developments:
RECENT ACQUISITIONS
Since the Initial Offering, the Company has invested approximately $277
million in the acquisition of Hotels (including purchase prices and
approximately $3.7 million in acquisition-related expenses), increasing its
room portfolio by approximately 95%. Set forth below are summary descriptions
of the Recent Acquisitions.
Embassy Suites, Hunt Valley, Maryland. In November 1995, the Company acquired
the 223-suite Embassy Suites in Hunt Valley, Maryland outside Baltimore for
approximately $16.0 million in cash. The Company has leased the hotel to Metro
Hotels Leasing Corporation ("Metro Lease Partners").
Crowne Plaza Ravinia, Atlanta, Georgia. In December 1995, PAH Ravinia, Inc.
("PAH Ravinia"), a corporation in which the Company owns a 99.04% interest,
acquired the 495-room Crowne Plaza Ravinia, a hotel located adjacent to Holiday
Inn Worldwide headquarters in the Perimeter Center/Ravinia area of Atlanta,
Georgia. The Company paid approximately $4.5 million in cash for its investment
in PAH Ravinia and advanced to PAH Ravinia an aggregate of $40.5 million in
first and second lien mortgage loans. The Company intends to complete
approximately $2.7 million in renovations to the Hotel following completion of
the Olympic Games.
Tremont House Hotel, Boston, Massachusetts. In January 1996, the Company
acquired the 288-room Tremont House Hotel in Boston, Massachusetts for
approximately $16.5 million in cash. The Company has commenced an extensive
$8.5 million renovation of the Hotel. This project includes renovation of
existing guest rooms and common areas, the addition of 31 new guest rooms on a
penthouse level and the reconfiguration of certain existing rooms resulting in
an expected aggregate room count following completion of the renovation of
approximately 321. The Company has leased the Hotel to CHC Lease Partners.
Holiday Inn Lenox, Atlanta, Georgia. In March 1996, the Company acquired the
297-room Holiday Inn Lenox in the Buckhead section of Atlanta for approximately
$7.3 million in cash and 167,012 units of limited partnership interest in the
Operating Partnership ("OP Units"), valued at approximately $4.7 million at the
closing of the acquisition. The Hotel is leased to CHC Lease Partners.
Del Mar Hilton, Del Mar (San Diego), California. In March 1996, the Company
acquired the 245-room Del Mar Hilton for approximately $14.8 million in cash.
This Hotel is located in suburban San Diego, California, adjacent to the Del
Mar Racetrack and Fairgrounds. The Company has leased the Hotel to CHC Lease
Partners.
WestCoast Portfolio. In April 1996, the Company acquired a six hotel
portfolio (the "WestCoast Portfolio") for approximately $75.6 million in cash
and 331,577 OP Units, valued at approximately $8.8 million at the closing of
the acquisition. The portfolio includes the 194-suite WestCoast Plaza Park
Suites, the 151-room WestCoast Roosevelt Hotel and the 145-room WestCoast
Gateway Hotel, all in Seattle, Washington; the 410-room Hyatt Newporter Hotel
in Newport Beach, California; the 192-room WestCoast Long Beach Hotel and
Marina in Long Beach, California; and the 147-room WestCoast Wenatchee Center
Hotel in Wenatchee, Washington. The Company intends to complete a $1.8 million
renovation of the WestCoast Long Beach Hotel and Marina, and to complete build
out of a restaurant at the WestCoast Plaza Park Suites, converting this Hotel
to a full service property. The Company has leased the hotels in the WestCoast
Portfolio under Participating Leases to NorthCoast Hotels L.L.C.
("NorthCoast"), a recently formed company owned by a consortium of investors
including principals of WestCoast Hotels, Inc. ("WestCoast Hotels"), a major
regional hotel management company based in Seattle, and Sunmakers Travel Group
("Sunmakers"), a major tour and travel company in the Pacific Northwest.
Hyatt Regency, Lexington, Kentucky. In May 1996, the Company acquired the
365-room Hyatt Regency in Lexington, Kentucky for approximately $14.3 million
in cash. The Hotel adjoins Lexington's convention center and the Rupp Arena.
The Company has leased the Hotel to NorthCoast.
3
<PAGE>
Doubletree Denver/Boulder, Westminster (Denver), Colorado. In June 1996, the
Company acquired the 180-room Doubletree Denver/Boulder in suburban Denver,
Colorado for approximately $12.5 million in cash. The Company intends to
complete approximately $950,000 of renovations to the Hotel. The Hotel is the
Company's first Doubletree branded property and first acquisition in the Denver
area. The Company has leased the Hotel to DTR North Canton, Inc. (the
"Doubletree Lessee"), a subsidiary of Doubletree Hotels Corporation
("Doubletree Hotels").
Wyndham Greenspoint Hotel, Houston, Texas; Wyndham Garden-Midtown, Atlanta,
Georgia. In July 1996, the Company acquired the 472-room Wyndham Greenspoint
Hotel located in Houston, Texas and the 191-room Wyndham Garden-Midtown located
in Atlanta, Georgia for approximately $61.0 million in cash and 17,036 OP
Units, valued at approximately $500,000 at the time of the acquisition. The
Company has leased these Hotels to Crow Hotel Lessee, Inc., an entity formed by
members of the Trammell Crow family (the "Wyndham Lessee"). In connection with
this acquisition, the Company agreed to maintain at least $22.0 million of debt
on the Wyndham Greenspoint Hotel until the end of 1999 and Paine Webber Real
Estate has extended a single asset mortgage loan of $22.0 million on this Hotel
(the "Greenspoint Loan").
PROPOSED ACQUISITIONS
The Company has entered into contracts to purchase the Proposed Acquisitions
for an aggregate purchase price (excluding acquisition-related expenses) of
approximately $103 million. The purchase of each of the Proposed Acquisitions
is subject to satisfactory completion of closing conditions, including, with
regard to the acquisition of the three Wyndham Garden Hotels described below,
the waiver or significant reduction of certain prepayment penalties on debt of
the current owners secured by the hotels. No assurances can be given that the
Company will acquire any or all of the Proposed Acquisitions. Assuming
completion of the Proposed Acquisitions, the Company will have invested
approximately $380 million in hotel acquisitions since the Initial Offering,
more than doubling its rooms portfolio to a total of 41 hotels with 9,790
rooms. Set forth below are summary descriptions of the Proposed Acquisitions.
Marriott WindWatch Hotel, Hauppauge (Long Island), New York. In March 1996,
the Company entered into an agreement to acquire the 362-room Marriott
WindWatch Hotel in Hauppauge (Long Island), New York for approximately $30
million in cash. This Proposed Acquisition will represent the Company's first
hotel in the metropolitan New York area.
Bonaventure Resort & Spa, Ft. Lauderdale, Florida. In May 1996, the Company
entered into an agreement to acquire the 492-room Bonaventure Resort & Spa in
Ft. Lauderdale, Florida for approximately $16.2 million in cash and the
assumption of approximately $3.0 million in operating liabilities. The hotel is
situated on 23 acres and is 15 miles west of Ft. Lauderdale International
Airport. Upon completion of the acquisition, the Company intends to complete an
$8.5 million renovation of the hotel and implement a strategic and marketing
plan which will include branding the facility as a Registry Resort and Spa. The
Company currently anticipates that CHC Lease Partners will lease the hotel.
Wyndham Garden Hotels. In July 1996, the Company entered into an agreement to
acquire the 148-room Wyndham Garden located in Novi (Detroit), Michigan; the
162-room Wyndham Garden located in Wood Dale (Chicago), Illinois; and the 168-
room Wyndham Garden-Las Colinas located in Irving (Dallas), Texas
(collectively, the "Wyndham Garden Hotels") for approximately $35.3 million in
cash. The Company currently anticipates that the Wyndham Lessee will lease each
of the Wyndham Garden Hotels.
Valley River Inn, Eugene, Oregon. In July 1996, the Company entered into an
agreement to acquire the 257-room Valley River Inn in Eugene, Oregon for
approximately $18.8 million in cash. The hotel is situated on the banks of the
Willamette River and is adjacent to the Valley River Center Mall. The Company
currently anticipates that NorthCoast will lease the hotel.
In addition to the Proposed Acquisitions, as part of its ongoing business,
the Company continually engages in discussions with public and private real
estate entities regarding possible portfolio or single asset acquisitions.
4
<PAGE>
The Company currently has over $800 million of hotel acquisition opportunities
under review. No assurances can be given that the Company will acquire any of
the hotel opportunities currently under review.
CAPITAL IMPROVEMENTS AND RENOVATIONS
The Company believes a regular program of capital improvements, including
replacement and refurbishment of furniture, fixtures and equipment ("F, F & E")
at the Hotels, as well as the renovation and redevelopment of selected Hotels,
is essential to maintaining the competitiveness of the Hotels and maximizing
revenue growth. The Company has budgeted approximately $17.5 million to
complete renovations at the Crockett Hotel, the Crowne Plaza Ravinia, the
Tremont House Hotel, the Del Mar Hilton, the WestCoast Long Beach Hotel and
Marina, the Doubletree Denver/Boulder, the Wyndham Greenspoint Hotel and the
Wyndham Garden-Midtown. The Company spent approximately $900,000 of this amount
through March 31, 1996 and expects to spend the remainder in 1996 and early
1997. In addition, as part of its ongoing capital improvement program, the
Company has budgeted approximately $11.3 million in 1996 for capital
improvements and the replacement of F, F & E within the Company's portfolio,
including the Recent Acquisitions. The Company's budget for capital
expenditures, exclusive of renovations, exceeds 4.0% of total revenues at the
Hotels in 1996 due to capital expenditures required by certain franchisors and
the Company's decision to accelerate certain capital improvements originally
intended to be completed over a longer period.
FINANCING ACTIVITIES
Private Placement. In May 1996, the Company sold an aggregate of
approximately $40.0 million of equity securities to an institutional investor
that purchased the securities on behalf of two owners (the "Private
Placement"). The securities consisted of 811,393 shares of Common Stock sold at
$26.95 per share and 662,391 preferred OP Units (the "Preferred OP Units") sold
at $27.375 per unit. The Common Stock is of the same class as the Company's
existing Common Stock and is entitled to the same voting and dividend rights as
all outstanding Common Stock. The purchaser is subject to certain restrictions
on the resale of the Common Stock. The Preferred OP Units are entitled to
quarterly distributions equal to 103% of the current quarterly dividends paid
on the Common Stock. Distributions on the Preferred OP Units increase or
decrease concurrently with any changes in Common Stock dividends. Prior to the
third anniversary of issuance, the Preferred OP Units generally will not be
exchangeable for Common Stock, except under certain limited circumstances.
After three years, the holders will have the right to exchange Preferred OP
Units for shares of Common Stock on a one-for-one basis, subject to adjustment
and to an ownership limitation of 4.9% of all outstanding Common Stock. After
10 years, the Company will have the right to exchange all outstanding Preferred
OP Units for shares of Common Stock on a one-for-one basis, subject to
adjustment. See "Partnership Agreement--Preferred OP Units."
Line of Credit. In May 1996, the maximum amount available under the Line of
Credit was increased from $165 million to $250 million and certain other
modifications were made, thereby increasing the Company's ability to borrow
under the Line of Credit. In July 1996, the Line of Credit was further modified
to provide that while the Greenspoint Loan is outstanding, the maximum amount
that the Company may draw on the Line of Credit will be $228 million. The Line
of Credit and the Greenspoint Loan are cross-defaulted. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations--
Liquidity and Capital Resources."
Greenspoint Loan. In July 1996, Paine Webber Real Estate extended the $22.0
million Greenspoint Loan. The entire principal amount under the Greenspoint
Loan matures in October 1998 and bears interest at a rate per annum equal to
30-day LIBOR (as defined in the Glossary) plus 1.90%.
NEW FRANCHISE AND BRAND AFFILIATIONS
With the completion of the Recent Acquisitions, the Company expanded the
franchise and brand affiliations in its portfolio to include Crowne Plaza(R),
Doubletree(R), Embassy Suites(R), Hyatt(R), WestCoast(R), Wyndham(TM) and
Wyndham Garden(R).
5
<PAGE>
RISK FACTORS
AN INVESTMENT IN THE SHARES OF COMMON STOCK INVOLVES VARIOUS RISKS, AND
INVESTORS SHOULD CAREFULLY CONSIDER THE MATTERS DISCUSSED UNDER "RISK FACTORS,"
INCLUDING THE FOLLOWING:
. Dependence upon rental payments from the Lessees for substantially all of
the Company's income, including risks related to the ability of the
Lessees to make rent payments sufficient to permit the Company to make
distributions to its shareholders, the failure or delay in making rent
payments, the failure to effectively manage the Hotels and to meet the
obligations under the franchise agreements, and the limited operating
history of the Lessees.
. Dependence upon the ability of the Lessees and the Operators to manage
substantially all of the Hotels and the fact that, because of REIT
qualification requirements, the Company will have only limited approval
rights with respect to the engagement of future managers of the Hotels.
. Risks associated with the Company's acquisition of a substantial number
of additional hotels since the Initial Offering.
. Risks normally associated with debt financing, including the fact that
there is no limitation on the amount of indebtedness that may be incurred
by the Company, and the risk that the Company will not be able to meet
its debt service obligations, and to the extent that it cannot, the risk
that the Company will lose all or some of its assets.
. Risks associated with the Company's ownership of Hotels through
subsidiaries.
. Potential conflicts of interest between the Company and certain of its
officers and directors related to adverse tax consequences to certain of
the Company's officers and directors upon the sale of certain of the
Hotels, which could lead to decisions with respect to the disposition or
refinancing of such Hotels that do not reflect solely the interests of
the Company's shareholders.
. Risks affecting the hotel industry generally, and the Hotels
specifically, including competition for guests, increases in operating
costs due to inflation and other factors, dependence on business and
commercial travelers and tourism, increases in energy costs and other
expenses of travel, seasonality and the need for future expenditures for
capital improvements and for replacement of F, F & E in excess of
budgeted amounts, all of which could have a material adverse effect on
the Company's Cash Available for Distribution. Cash Available for
Distribution means funds from operations adjusted for certain non-cash
items, less reserves for capital expenditures.
. Risks affecting the real estate market generally, including economic and
other conditions that may adversely affect real estate investments,
including the Hotels, and the Lessees' ability to make rent payments from
the operations of the Hotels, relative illiquidity of real estate,
increases in taxes caused by increased assessed values or property tax
rates, and potential liabilities, including liabilities for unknown or
future environmental problems, all of which could have a material adverse
effect on Cash Available for Distribution.
. Tax risks, including taxation of the Company as a corporation if it fails
to qualify as a REIT, and taxation of the Operating Partnership as a
corporation if it were deemed not to be a partnership and the Company's
liability for federal and state taxes on its income in either such event,
which could have a material adverse effect on Cash Available for
Distribution.
. Potential loss of franchise licenses relating to the franchised Hotels
and varying capital requirements of franchisors that may affect the value
of the Hotels.
. The restriction on ownership of shares of Common Stock intended to insure
compliance with certain requirements related to continued qualification
of the Company as a REIT, and certain other provisions in the Company's
Articles of Incorporation and Bylaws, which may have the effect of
inhibiting a change in control of the Company even where such a change of
control could be beneficial to the Company's shareholders.
6
<PAGE>
THE HOTELS AND THE PROPOSED ACQUISITIONS
The Hotels are diversified by franchise or brand affiliation and product
type, including 29 full service hotels, 5 limited service hotels and an
executive conference center. The Company believes the diversity of its
portfolio moderates the potential effects on the Company of changes in local
market competition or developments affecting specific franchises, hotel markets
or price segments in the hotel industry. The Hotels are located primarily in
major metropolitan areas with convenient access to interstate highways,
commercial airports and other transportation facilities, local business centers
and tourist attractions. The Company's acquisition activities are focused on
full service hotels serving major U.S. business centers and primary tourist
destinations.
Consistent with the Company's acquisition strategy, the Proposed Acquisitions
consist of six full service hotels, all of which are located in major
metropolitan areas, including the Company's first full service hotel
acquisitions in the metropolitan New York and Chicago areas.
The tables on the following pages set forth certain information with respect
to the Hotels and the Proposed Acquisitions.
7
<PAGE>
<TABLE>
<CAPTION>
NUMBER OF
GUEST YEAR BUILT/
LOCATION ROOMS RENOVATED(1)
-------- --------- ------------
<S> <C> <C> <C>
OWNED HOTELS
FULL SERVICE HO-
TELS:
Marriott
Hotel(5)....... Troy, MI 350 1990
Holiday Inn
Select North
Dallas(5)...... Farmers Branch (Dallas), TX 374 1979/1994
Hilton Inn
Cleveland
South(5)....... Independence, OH 191 1980/1994
Crockett
Hotel(5)....... San Antonio, TX 206 1909/1983
Four Points by
Sheraton(5).... Saginaw, MI 156 1984
Bourbon Orleans
Hotel(5)....... New Orleans, LA 211 1800s/1995
Radisson New
Orleans
Hotel(5)....... New Orleans, LA 759 1924/1995
Radisson Hotel &
Suites(5)...... Dallas, TX 198 1986/1994
Radisson Suites
Town &
Country(5)..... Houston, TX 173 1986/1992
Holiday Inn
Aristocrat(5).. Dallas, TX 172 1925/1994
Holiday Inn
Northwest(5)... Houston, TX 193 1982/1994
Holiday Inn
Northwest
Plaza(5)....... Austin, TX 193 1984/1994
Holiday Inn(5).. San Angelo, TX 148 1984/1994
Holiday Inn..... Sebring, FL 148 1983/1995
Fairmount Hotel. San Antonio, TX 37 1906/1994
Embassy Suites
Hunt Valley(5). Hunt Valley, MD 223 1985/1995
Crowne Plaza
Ravinia(5)..... Atlanta, GA 495 1986/1993
Tremont House
Hotel(5)(6).... Boston, MA 288 1925/1988
Holiday Inn
Lenox(5)....... Atlanta, GA 297 1987/1995
Del Mar
Hilton(5)...... Del Mar (San Diego), CA 245 1989
WestCoast
Gateway Hotel.. Seattle, WA 145 1990
WestCoast
Roosevelt
Hotel(5)....... Seattle, WA 151 1929/1987
WestCoast
Wenatchee
Center
Hotel(5)....... Wenatchee, WA 147 1986/1994
Hyatt Newporter
Hotel.......... Newport Beach, CA 410 1962
WestCoast Long
Beach Hotel and
Marina......... Long Beach, CA 192 1976/1987
Hyatt
Regency(5)..... Lexington, KY 365 1977/1992
Doubletree
Denver/Boulder(5). Westminster (Denver), CO 180 1985/1992
Wyndham Greenspoint Hotel(7). Houston, TX 472 1985/1995
Wyndham Garden
Hotel-
Midtown(5)..... Atlanta, GA 191 1987/1994
-----
Subtotal/Weighted
Average........ 7,310
LIMITED SERVICE
HOTELS:
Hampton Inn
Jacksonville
Airport........ Jacksonville, FL 113 1985
Hampton Inn..... Rochester, NY 113 1986
Hampton Inn
Cleveland
Airport........ North Olmsted, OH 113 1986
Hampton Inn..... Canton, OH 108 1985
WestCoast Plaza
Park
Suites(5)(8)... Seattle, WA 194 1990
-----
Subtotal/Weighted
Average........ 641
CONFERENCE CEN-
TER:
Peachtree
Executive
Conference
Center(5)...... Peachtree City (Atlanta), GA 250 1984
-----
Total/Weighted
Average--
Owned Hotels.. 8,201
=====
<CAPTION>
TWELVE MONTHS ENDED MARCH 31, 1996
-----------------------------------------------------------------
(DOLLARS IN THOUSANDS, EXCEPT ADR AND REVPAR)
AVERAGE REVENUE PER
TOTAL PRO FORMA AVERAGE DAILY RATE AVAILABLE ROOM
REVENUE LEASE PAYMENTS(2) OCCUPANCY(3) (ADR)(3) (REVPAR)(4)
-------- ----------------- ------------ ---------- --------------
<S> <C> <C> <C> <C> <C>
OWNED HOTELS
FULL SERVICE HO-
TELS:
Marriott
Hotel(5)....... $ 17,980 $ 5,375 76.0% $103.34 $78.51
Holiday Inn
Select North
Dallas(5)...... 10,178 2,837 69.2 72.24 49.95
Hilton Inn
Cleveland
South(5)....... 8,158 2,343 69.9 84.95 59.36
Crockett
Hotel(5)....... 5,174 2,347 67.4 83.16 56.01
Four Points by
Sheraton(5).... 4,170 1,098 75.9 61.10 46.38
Bourbon Orleans
Hotel(5)....... 7,607 3,557 80.1 115.65 92.62
Radisson New
Orleans
Hotel(5)....... 19,411 5,705 65.8 78.51 51.64
Radisson Hotel &
Suites(5)...... 5,151 1,713 78.0 70.51 54.97
Radisson Suites
Town &
Country(5)..... 4,647 1,823 74.2 79.41 58.88
Holiday Inn
Aristocrat(5).. 4,686 1,520 68.7 82.42 56.60
Holiday Inn
Northwest(5)... 2,926 914 64.0 51.45 32.92
Holiday Inn
Northwest
Plaza(5)....... 6,370 2,395 84.7 81.75 69.24
Holiday Inn(5).. 3,078 977 74.3 57.13 42.43
Holiday Inn..... 2,489 680 57.7 55.10 31.80
Fairmount Hotel. 2,793 643 74.0 148.96 110.19
Embassy Suites
Hunt Valley(5). 6,026 1,900 70.7 80.18 56.68
Crowne Plaza
Ravinia(5)..... 22,254 N/A(9) 75.5 102.04 77.06
Tremont House
Hotel(5)(6).... 9,952 3,001 75.4 89.62 67.60
Holiday Inn
Lenox(5)....... 7,233 2,759 72.8 77.27 56.24
Del Mar
Hilton(5)...... 7,644 1,917 68.4 77.08 52.69
WestCoast
Gateway Hotel.. 2,560 1,236 83.3 51.99 43.32
WestCoast
Roosevelt
Hotel(5)....... 4,049 2,050 74.4 89.75 66.75
WestCoast
Wenatchee
Center
Hotel(5)....... 4,236 824 63.4 59.05 37.41
Hyatt Newporter
Hotel.......... 19,361 3,813 72.3 97.56 70.58
WestCoast Long
Beach Hotel and
Marina......... 3,157 428 49.1 57.03 28.02
Hyatt
Regency(5)..... 12,189 2,742 64.6 80.34 51.92
Doubletree
Denver/Boulder(5). 5,461 1,693 78.1 70.65 55.20
Wyndham Greenspoint Hotel(7). 18,272 6,113 72.6 82.44 59.84
Wyndham Garden
Hotel-
Midtown(5)..... 6,422 2,294 73.7 93.74 69.06
-------- ----------------- ------------ ---------- --------------
Subtotal/Weighted
Average........ $233,634 $64,697 71.2% $ 82.05 $58.41
LIMITED SERVICE
HOTELS:
Hampton Inn
Jacksonville
Airport........ $ 2,037 $ 865 88.8% $ 53.62 $47.59
Hampton Inn..... 2,194 1,099 74.1 69.33 51.37
Hampton Inn
Cleveland
Airport........ 1,902 898 75.8 59.33 44.94
Hampton Inn..... 1,450 640 70.6 49.81 35.16
WestCoast Plaza
Park
Suites(5)(8)... 6,107 3,353 75.3 104.85 78.94
-------- ----------------- ------------ ---------- --------------
Subtotal/Weighted
Average........ $ 13,690 $ 6,855 76.8% $ 71.87 $55.16
CONFERENCE CEN-
TER:
Peachtree
Executive
Conference
Center(5)...... $ 14,854 $ 5,181 59.6% $109.46 $65.18
-------- ----------------- ------------ ---------- --------------
Total/Weighted
Average--
Owned Hotels.. $262,178 $76,733 71.3% $ 81.89 $58.36
======== ================= ============ ========== ==============
</TABLE>
(Notes on following page)
8
<PAGE>
<TABLE>
<CAPTION>
TWELVE MONTHS ENDED
MARCH 31, 1996
---------------------------------
AVERAGE REVENUE PER
NUMBER DAILY AVAILABLE
OF GUEST YEAR BUILT/ AVERAGE RATE ROOM
LOCATION ROOMS RENOVATED(1) OCCUPANCY(3) (ADR)(3) (REVPAR)(4)
----------------------- -------- ------------ ------------ -------- -----------
<S> <C> <C> <C> <C> <C> <C>
PROPOSED ACQUISITIONS
Marriott WindWatch Hotel. Hauppauge, NY 362 1989 76.0% $99.83 $75.88
Bonaventure Resort & Spa. Ft. Lauderdale, FL 492 1981 59.0 90.54 53.41
Wyndham Garden Hotel..... Novi (Detroit), MI 148 1988/1994 77.3 68.29 52.78
Wyndham Garden Hotel..... Wood Dale (Chicago), IL 162 1986/1994 70.7 82.10 58.03
Wyndham Garden-Las
Colinas................. Irving (Dallas), TX 168 1986 75.9 96.22 73.04
Valley River Inn......... Eugene, OR 257 1973 69.2 83.96 58.12
</TABLE>
- --------
(1) The Company defines a renovation as a significant upgrade of guest rooms or
common areas with capital expenditures averaging at least $1,000 per guest
room for limited service hotels and at least $1,500 per guest room for full
service hotels and conference centers. In some cases, renovations occurred
over more than one calendar year. Year renovated reflects the calendar year
in which the most recent of such renovations were completed. Information on
renovations for Recent Acquisitions and Proposed Acquisitions was provided
by prior owners.
(2) Under the terms of the Participating Leases, Lessees are obligated to pay
the greater of Base Rent or Participating Rent plus certain additional
amounts ("Additional Charges"), which vary with the Participating Lease.
(3) The Company calculates Average Occupancy based upon total number of paid
rooms (excluding rooms for which no charge has been made) divided by the
total number of available rooms. Average Daily Rate is calculated using
paid occupied rooms.
(4) REVPAR is determined by dividing room revenue by available rooms for the
applicable period.
(5) The Line of Credit is secured by a first mortgage lien on this Hotel.
(6) The Company intends to increase the room count at this Hotel to
approximately 321 rooms in connection with a planned $8.5 million
renovation. At present, only 283 of the 288 rooms are utilized as guest
rooms.
(7) The Greenspoint Loan is secured by a first mortgage lien on this Hotel. The
Line of Credit is secured by a second mortgage lien on this Hotel.
(8) This Hotel currently contains unused restaurant space. The Company intends
to complete the build out of a restaurant in this space, thereby converting
the Hotel from a limited service to a full service property.
(9) The Crowne Plaza Ravinia is not leased. The Company's share of net income
and share of funds from operations (as defined in the Glossary) from PAH
Ravinia were $3,912,000 and $5,822,000, respectively, on a pro forma basis
for the twelve months ended March 31, 1996.
9
<PAGE>
THE LESSEES AND THE OPERATORS
The Company leases each of the Hotels, except the Crowne Plaza Ravinia, to a
Lessee. The current Lessees are CHC Lease Partners, an entity owned by CHC
International, Inc. ("CHC") and a principal of the Gencom Group ("Gencom");
Metro Lease Partners, an affiliate of Metro Joint Venture, d/b/a Metro Hotels,
a Dallas-based hotel Company ("Metro Hotels"); NorthCoast, an entity owned by a
consortium of investors including principals of WestCoast Hotels and Sunmakers;
the Doubletree Lessee, a subsidiary of Doubletree Hotels; and the Wyndham
Lessee, an entity formed by members of the Trammell Crow family. See
"Developments Since the Initial Offering--Proposed Acquisitions."
CHC Lease Partners. CHC Lease Partners leases the Initial Hotels, the Tremont
House Hotel, the Holiday Inn Lenox, and the Del Mar Hilton from the Company
pursuant to separate Participating Leases that require CHC Lease Partners to
maintain a minimum net worth equal to the greater of (i) $10 million or (ii)
17.5% of the initial projected annual lease payments for all hotels leased by
the Company to CHC Lease Partners. CHC Lease Partners is owned by CHC and a
principal of Gencom. CHC was formed in 1994 to succeed to the hotel and land-
based casino businesses of the Continental Companies and Carnival Corporation.
As of March 31, 1996, CHC had under management 36 hotels with approximately
9,400 rooms located primarily in the United States, as well as in South
America, the Caribbean, Mexico and the Bahamas. Gencom's hotel management
affiliate, GAH, has been among the fastest growing hotel management companies
in the United States in recent years, having increased its number of guest
rooms under management from approximately 1,600 at December 31, 1992 to
approximately 8,600 at March 31, 1996. Specializing in full service properties,
GAH manages 35 hotels throughout the United States. Although CHC owns 50% of
GAH, CHC's hotels and rooms under management presented above exclude hotels
managed by GAH.
CHC Lease Partners has contracted with hotel management subsidiaries of CHC
and GAH to manage the Tremont House Hotel, the Holiday Inn Lenox, the Del Mar
Hilton and 19 of the 20 Initial Hotels. In addition, CHC Lease Partners has
contracted with Metro Hotels to manage the Holiday Inn Select North Dallas.
Metro Lease Partners. The Company leases the Embassy Suites, Hunt Valley to
Metro Lease Partners under a Participating Lease which requires Metro Lease
Partners to maintain a minimum net worth of $515,000, which represents
approximately 25% of estimated Participating Rent for this Hotel in 1996. Metro
Lease Partners has contracted with its affiliate Metro Hotels to manage the
Embassy Suites, Hunt Valley. Metro Lease Partners and Metro Hotels are Dallas-
based hotel companies owned by Walker Harman. As of April 30, 1996, Metro
Hotels had 12 hotels under management with approximately 2,400 rooms located
throughout the United States.
NorthCoast. The Company leases each of the six Hotels in the WestCoast
Portfolio and the Hyatt Regency, Lexington to NorthCoast under separate
Participating Leases which require NorthCoast to maintain a minimum net worth
equal to the greater of approximately $2.9 million or 20% of current year's
budgeted lease payments. NorthCoast is a Seattle-based company owned by a
consortium of investors including principals of WestCoast Hotels and Sunmakers.
As of April 30, 1996, WestCoast Hotels had 20 hotels under management with
approximately 4,100 rooms located primarily on the Pacific Coast.
Doubletree Lessee. The Company leases the Doubletree Denver/Boulder to the
Doubletree Lessee under a Participating Lease that requires the Doubletree
Lessee to maintain a minimum net worth equal to the greater of $400,000 or 20%
of the current year's budgeted lease payments. The Doubletree Lessee is a
subsidiary of Doubletree Hotels, a subsidiary of Doubletree Corporation. The
Doubletree Lessee has contracted with DTM Management Inc., also a subsidiary of
Doubletree Hotels, to manage the Doubletree Denver/Boulder. As of December 31,
1995, Doubletree Corporation managed or franchised 116 hotels with an aggregate
of 30,615 rooms in 32 states, the District of Columbia and Mexico.
Wyndham Lessee. The Company leases the Wyndham Greenspoint Hotel and the
Wyndham Garden-Midtown to the Wyndham Lessee, an entity formed by members of
the Trammell Crow family, under
10
<PAGE>
Participating Leases. The obligations of the Wyndham Lessee under the
Participating Leases are guaranteed by a separate entity formed by members of
the Trammell Crow family (the "Wyndham Guarantor"). The Wyndham Guarantor is
required to maintain a minimum net worth equal to 20% of the current year's
budgeted lease payments for such Hotels (such percentage being subject to
adjustment if the parties enter into leases for additional hotels). The Company
currently intends to lease each of the Wyndham Garden Hotels to the Wyndham
Lessee upon acquisition. The Wyndham Lessee has contracted with Wyndham
Management Corporation, a subsidiary of Wyndham Hotel Corporation (collectively
with Wyndham Management Corporation, "Wyndham"), to manage both the Wyndham
Greenspoint Hotel and the Wyndham Garden-Midtown. At June 25, 1996, Wyndham's
portfolio consisted of 65 hotels operated by Wyndham, 3 franchised hotels and 3
hotels under renovation or construction for a total of 18,484 rooms located in
22 states, the District of Columbia, and the Caribbean.
Holiday Inns, Inc. The Crowne Plaza Ravinia is managed for PAH Ravinia by
Holiday Inns, Inc.
While each Lessee's ability to make lease payments under the applicable
Participating Lease is dependent primarily upon its ability to generate
sufficient cash flow from the operation of the Hotels that it leases, the
minimum net worth requirements are designed to provide a source of funds to
make such payments and to fund operational shortfalls if operating cash flow is
inadequate. The Participating Leases have been negotiated on an arms length
basis. The Participating Leases with CHC Lease Partners and (subject to limited
exceptions) with NorthCoast contain cross-default provisions such that a
default under one Participating Lease is also a default under all Participating
Leases with the same Lessee. Additionally, the Wyndham Garden-Midtown
Participating Lease and the Wyndham Greenspoint Hotel Participating Lease
contain cross-default provisions. The Company generally intends to utilize
similar cross-default provisions when leasing multiple properties to a single
Lessee in the future. The Participating Leases have an average term of
approximately eleven years, with expiration dates staggered between the years
2005 and 2008, subject to earlier termination upon the occurrence of certain
events. See "The Hotels--Participating Leases--Lessee Capitalization" and "The
Lessees and the Operators."
FORMATION TRANSACTIONS AND BENEFITS TO RELATED PARTIES
The Company was formed to continue and expand the hotel acquisition,
ownership, redevelopment and repositioning businesses of Patriot American.
Certain investors in the entities that owned the Hotels acquired by the Company
in connection with the Initial Offering, including members of management,
received certain benefits in connection with the Initial Offering and the
transactions described in this Prospectus under "Formation Transactions" (the
"Formation Transactions").
DISTRIBUTION POLICY
The Board of Directors of the Company has declared a quarterly distribution
of $0.48 per share of Common Stock ($1.92 per share on an annualized basis)
payable on July 30, 1996 to shareholders of record on June 27, 1996. Future
distributions by the Company will be at the discretion of the Board of
Directors and there can be no assurance that any such distributions will be
made by the Company. Distributions by the Company to the extent of its current
and accumulated earnings and profits for federal income tax purposes generally
will be taxable to stockholders as ordinary dividend income. Distributions in
excess of current and accumulated earnings and profits will be treated as a
non-taxable reduction of the stockholder's basis in its shares of Common Stock
to the extent thereof, and thereafter as taxable gain. Distributions that are
treated as a reduction of the stockholder's basis in its shares of Common Stock
will have the effect of deferring taxation until the sale of the stockholder's
shares. The Company has determined that, for federal income tax purposes,
approximately 26% of the $0.48 per share distribution paid for 1995 represented
a return of capital to the stockholders. Given the dynamic nature of the
Company's acquisition strategy and the extent to which any future acquisitions
would alter this calculation, no assurances can be given regarding what percent
of future distributions will constitute return of capital for federal income
tax purposes.
11
<PAGE>
TAX STATUS
The Company will elect to be taxed as a REIT under sections 856 through 860
of the Internal Revenue Code of 1986, as amended (the "Code"), commencing with
its taxable year ending December 31, 1995. With certain exceptions, as a REIT,
the Company is not subject to federal income tax at the corporate level on its
taxable income that is distributed to its shareholders. A REIT is subject to a
number of organizational and operational requirements, including a requirement
that it currently distribute at least 95% of its taxable income. Failure to
qualify as a REIT would render the Company subject to federal income tax
(including any applicable minimum tax) on its taxable income at regular
corporate rates, and distributions to the shareholders in any such year will
not be deductible by the Company. Although the Company does not intend to
request a ruling from the Internal Revenue Service (the "Service") as to its
REIT status, the Company has received the opinion of its legal counsel as to
its REIT status, which opinion is based on certain assumptions and
representations and will not be binding on the Service or any court. Even if
the Company qualifies for taxation as a REIT, however, the Company may be
subject to certain state and local taxes on its income and property. In
connection with the Company's election to be taxed as a REIT, the Company's
Articles of Incorporation impose restrictions on the transfer of shares of
Common Stock. The Company has adopted the calendar year as its taxable year.
See "Risk Factors--Tax Risks," "Risk Factors--Limitation on Acquisition and
Change in Control," "Federal Income Tax Considerations--Taxation of the
Company," "Federal Income Tax Consequences--State and Local Taxes," and
"Description of Capital Stock--Articles of Incorporation and Bylaw Provisions--
Restrictions on Transfer."
THE OFFERING
All of the shares of Common Stock offered hereby are being offered by the
Company.
Common Stock Offered by the Company..... 5,000,000 shares
Common Stock to be Outstanding after
the Offering........................... 23,980,976 shares(1)
Use of Proceeds.........................
To reduce amounts outstanding under
the Line of Credit (which amounts
have been borrowed principally to
complete the Recent Acquisitions)
and/or for general corporate and
- -------- working capital purposes.
(1) Includes 3,502,328 shares issuable at the Company's option upon redemption
of OP Units (or exchange of Preferred OP Units at the holders' option) and
62,255 shares of restricted Common Stock owned by certain executive
officers and directors of the Company. Excludes 1,000,000 shares of Common
Stock reserved for issuance pursuant to the Patriot American Hospitality,
Inc. 1995 Incentive Plan.
12
<PAGE>
SUMMARY FINANCIAL INFORMATION
The following tables set forth historical and pro forma financial information
for the Company and the Lessees, and should be read in conjunction with the
financial statements and notes thereto which are contained elsewhere in this
Prospectus. The pro forma operating information is presented as if the Initial
Offering, Recent Acquisitions, Private Placement and the current Offering had
occurred at January 1, 1995 and is carried forward through each period
presented, and therefore incorporates certain assumptions that are included in
the Notes to the Pro Forma Condensed Consolidated Statements of Operations
included elsewhere in this Prospectus. The pro forma balance sheet data is
presented as if the acquisition of the Recent Acquisitions completed after
March 31, 1996 and the application of the proceeds of the Private Placement and
the current Offering had occurred on March 31, 1996.
PATRIOT AMERICAN HOSPITALITY, INC.
SUMMARY CONSOLIDATED HISTORICAL AND PRO FORMA FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
HISTORICAL PRO FORMA(1)
-------------------------------- --------------------------------------------
PERIOD
OCTOBER 2, 1995
(INCEPTION OF
OPERATIONS) THREE MONTHS YEAR ENDED TWELVE MONTHS THREE MONTHS
THROUGH ENDED DECEMBER 31, ENDED ENDED
DECEMBER 31, 1995 MARCH 31, 1996 1995 MARCH 31, 1996 MARCH 31, 1996
----------------- -------------- -------------- -------------- --------------
(UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
OPERATING DATA:
Participating lease
revenue(2)............ $ 10,582 $ 12,371 $ 75,921 $ 76,733 $19,983
Income before minority
interest and
extraordinary items... 7,064 8,286 46,884 47,993 12,949
Income before
extraordinary
items(3).............. 6,096 7,128 40,039 40,986 11,058
Net income applicable
to common
shareholders.......... $ 5,359 $ 7,128 $ 40,039 40,986 $11,058
PER SHARE DATA:
Income before
extraordinary items... $ 0.42 $ 0.48 $ 1.96 $ 2.00 $ 0.54
Extraordinary items,
net of minority
interests(3).......... (0.05) -- -- -- --
--------- -------- -------- -------- -------
Net income applicable
to common
shareholders.......... $ 0.37 $ 0.48 $ 1.96 $ 2.00 $ 0.54
========= ======== ======== ======== =======
Dividends per common
share................. $ 0.48 $ 0.48
========= ========
Weighted average common
shares and common
share equivalents
outstanding........... 14,675 14,734 20,479 20,479 20,479
========= ======== ======== ======== =======
CASH FLOW DATA:
Cash provided by
operating
activities(4)......... $ 7,618 $ 9,002 $ 66,386 $ 67,235 $17,375
Cash used in investing
activities(5)......... (306,948) (37,838) (10,508) (10,645) (2,684)
Cash provided by (used
in) financing
activities(6)......... 304,099 32,165 (46,082) (46,082) (11,520)
OTHER DATA:
Funds from
Operations(7)......... $ 9,798 $ 11,634 $ 66,886 $ 68,082 $17,988
Cash Available for
Distribution(8)....... 8,603 10,388 57,145 58,205 15,498
Weighted average common
shares and OP units
outstanding........... 17,024 17,107 23,981 23,981 23,981
<CAPTION>
HISTORICAL
-------------------------------- PRO FORMA
DECEMBER 31, 1995 MARCH 31, 1996 MARCH 31, 1996
----------------- -------------- --------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C>
BALANCE SHEET DATA:
Investment in hotel
properties, at cost,
net................... $ 265,759 $306,552 $479,151
Total assets........... 324,224 369,578 541,554
Total debt............. 9,500 50,250 37,277
Minority interest in
Operating Partnership. 41,522 45,485 72,737
Shareholders' equity... 261,778 261,727 416,909
</TABLE>
(Notes on page 15)
13
<PAGE>
LESSEES
SUMMARY COMBINED HISTORICAL AND PRO FORMA FINANCIAL DATA
(IN THOUSANDS)
<TABLE>
<CAPTION>
HISTORICAL PRO FORMA(1)
-------------------------------- -----------------------------------------------
PERIOD
OCTOBER 2, 1995
(INCEPTION) THREE MONTHS TWELVE MONTHS THREE MONTHS
THROUGH ENDED YEAR ENDED ENDED ENDED
DECEMBER 31, 1995 MARCH 31, 1996 DECEMBER 31, 1995 MARCH 31, 1996 MARCH 31, 1996
----------------- -------------- ----------------- -------------- --------------
(UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
FINANCIAL DATA:
Room revenue........... $21,508 $25,308 $158,865 $160,909 $40,549
Food and beverage
revenues.............. 8,649 8,240 61,037 61,364 14,913
Conference center
revenue............... 576 645 2,434 2,380 645
Telephone and other
revenue............... 1,732 2,373 14,807 15,271 3,979
------- ------- -------- -------- -------
Total revenue.......... 32,465 36,566 237,143 239,924 60,086
Hotel operating
expenses.............. 20,801 23,050 156,684 158,799 39,631
Participating Lease
payments(2)........... 10,582 12,371 75,921 76,733 19,983
------- ------- -------- -------- -------
Income before Lessee
expenses.............. 1,082 1,145 4,538 4,392 472
Lessee expenses(9)..... 573 599 5,646 5,509 1,170
------- ------- -------- -------- -------
Net income(9).......... $ 509 $ 546 $ (1,108) $ (1,117) $ (698)
======= ======= ======== ======== =======
</TABLE>
(Notes on page 15)
14
<PAGE>
NOTES TO SUMMARY FINANCIAL INFORMATION
(1) The pro forma information does not purport to represent what the Company's
financial position or the Company's or the Lessees' results of operations
actually would have been if the Initial Offering, Recent Acquisitions,
Private Placement and the current Offering in fact occurred on such date or
at the beginning of the periods indicated, or to project the Company's or
Lessees' results of operations for any future periods.
(2) With respect to the pro forma information, represents participating lease
payments from the Lessees to the Operating Partnership calculated on a pro
forma basis by applying the provisions of the Participating Leases to the
historical revenue of the Hotels as if January 1, 1995 were the beginning
of a lease year.
(3) Pro forma operating results do not include the effect of extraordinary
items reported on an historical basis.
(4) Pro forma cash provided by operating activities represents income before
income allocable to minority interest, plus depreciation and amortization
(including amortization of unearned management stock compensation) less the
non-cash portion of the Company's equity in earnings of unconsolidated
subsidiary. The pro forma amounts do not include adjustments from changes
in working capital resulting from changes in current assets and current
liabilities as there is no historical data available as of both the
beginning and end of each period presented.
(5) On a pro forma basis, cash used in investing activities represents the
approximate 4.0% of hotel revenue which is required to be reserved under
the terms of the Participating Leases for capital improvements and the
replacement and refurbishment of F, F & E.
(6) Pro forma cash used in financing activities represents estimated dividends
and distributions to be paid based on the Company's initial annual dividend
rate of $1.92 per share and an aggregate of 23,318,585 shares of Common
Stock and OP Units outstanding and $1.98 per share on the 662,391 Preferred
OP Units outstanding.
(7) In accordance with the resolution adopted by the Board of Governors of the
National Association of Real Estate Investment Trusts, Inc. ("NAREIT"),
funds from operations represents net income (loss) (computed in accordance
with generally accepted accounting principles), excluding gains (or losses)
from debt restructuring or sales of property, plus depreciation of real
property, and after adjustments for unconsolidated partnerships and joint
ventures. Funds from operations should not be considered as an alternative
to net income or other measurements under generally accepted accounting
principles as an indicator of operating performance or to cash flows from
operating, investing or financing activities as a measure of liquidity.
Funds from operations does not reflect working capital changes, cash
expenditures for capital improvements or principal payments on
indebtedness. Under the Participating Leases, the Company is obligated to
establish a reserve for capital improvements at the Hotels (including the
replacement or refurbishment of F, F & E) and to pay real estate and
personal property taxes and casualty insurance. The Company believes that
funds from operations is helpful to investors as a measure of the
performance of an equity REIT, because, along with cash flows from
operating activities, financing activities and investing activities, it
provides investors with an understanding of the ability of the Company to
incur and service debt and make capital expenditures.
(8) Cash Available for Distribution represents funds from operations, as
adjusted for certain non-cash items (e.g., non-real estate related
depreciation and amortization), less reserves for capital expenditures.
(9) Historical Lessee expenses represent management fees paid to the Operators
and Lessee overhead expenses, net of dividend and interest income earned by
the Lessees. Management fees paid to the Operators are subordinate to the
Lessees' obligations to the Company under the Participating Lease
agreements. Pro forma Lessee net income excludes pro forma dividends on
approximately 300,000 OP Units, which form a portion of the required
capitalization of certain of the Lessees and pro forma interest income
associated with the Lessees' working capital balances.
15
<PAGE>
RISK FACTORS
Prospective investors should carefully consider the following information in
conjunction with the other information contained in this Prospectus before
purchasing Common Stock in the Offering.
DEPENDENCE ON LESSEES AND PAYMENTS UNDER THE PARTICIPATING LEASES
The Company's ability to make distributions to shareholders depends almost
exclusively upon the ability of the Lessees to make rent payments under the
Participating Leases (which is dependent primarily on the Lessees' ability to
generate sufficient revenues from the Hotels). Any failure or delay by the
Lessees in making rent payments may adversely affect the Company's ability to
make anticipated distributions to shareholders. Such failure or delay may be
caused by reductions in revenue from the Hotels or in the net operating income
of the Lessees or otherwise. Although failure on the part of the Lessees to
materially comply with the terms of a Participating Lease would give the
Company the right to terminate such lease, repossess the applicable property
and seek enforcement of the payment obligations under the lease, the Company
would then be required to find another lessee to lease such property. There
can be no assurance that the Company would be able to find another lessee or
that, if another lessee were found, the Company would be able to enter into a
new lease on favorable terms.
LACK OF CONTROL OVER OPERATIONS OF THE HOTELS
The Company also is dependent on the ability of the Lessees and the
Operators to manage the Hotels. To maintain its status as a REIT, the Company
is not able to operate the Hotels or any subsequently acquired properties. As
a result, the Company will be unable to directly implement strategic business
decisions with respect to the marketing of its properties, such as decisions
with respect to the setting of room rates, repositioning of a franchise,
redevelopment of food and beverage operations and certain similar decisions.
RISKS ASSOCIATED WITH THE COMPANY'S ACQUISITION OF A SUBSTANTIAL NUMBER OF
ADDITIONAL HOTELS
The Company is currently experiencing a period of rapid growth. Since the
Initial Offering, the Company has invested approximately $277 million in
hotels, increasing its room portfolio by approximately 95%. Additionally, the
Company has entered into contracts to purchase the Proposed Acquisitions for
an aggregate purchase price of approximately $103 million. Assuming completion
of the Proposed Acquisitions, the Company will have increased its rooms
portfolio by approximately 133% since the Initial Offering. The Company's
ability to manage its growth effectively will require it to select Lessees and
Operators to lease and manage newly acquired hotels. There can be no assurance
that the Company, the Lessees, or the Operators will be able to manage these
additional operations effectively.
RISKS OF LEVERAGE; NO LIMITS ON INDEBTEDNESS
GENERAL
Neither the Company's Bylaws nor its Articles of Incorporation limit the
amount of indebtedness the Company may incur. Currently, the maximum committed
amount available under the Line of Credit is $228 million. Additionally, the
Company has incurred the $22.0 million Greenspoint Loan. See "Developments
Since the Initial Offering--Financing Activities." The Company has utilized
the Line of Credit to finance certain of the Recent Acquisitions and may use
the Line of Credit to fund the acquisition of additional hotels. The Line of
Credit is currently secured by a first mortgage lien on 25 of the Hotels and a
second mortgage lien on the Wyndham Greenspoint Hotel. The Line of Credit will
be secured by qualifying subsequently acquired hotels that are purchased with
borrowings under the Line of Credit. Other Hotels may be added as security for
the Line of Credit depending upon the outstanding balances thereunder. Subject
to the limitations described above, the Company may borrow additional amounts
from the same or other lenders in the future, or may issue corporate debt
securities in public or private offerings. Certain of such additional
borrowings may be secured by properties owned by the Company. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources," "Policies and Objectives with
Respect to Certain Activities--Financing" and "Management."
16
<PAGE>
There can be no assurances that the Company will be able to meet its debt
service obligations and, to the extent that it cannot, the Company risks the
loss of some or all of its assets, including the Hotels, to foreclosure.
Adverse economic conditions could cause the terms on which borrowings become
available to be unfavorable. In such circumstances, if the Company is in need
of capital to repay indebtedness in accordance with its terms or otherwise, it
could be required to liquidate one or more investments in hotel properties at
times which may not permit realization of the maximum return on such
investments.
VARIABLE RATE DEBT
The Line of Credit and the Greenspoint Loan bear interest at a variable
rate. Economic conditions could result in higher interest rates, which could
increase debt service requirements on variable rate debt and could reduce the
amount of Cash Available for Distribution.
POSSIBLE ADVERSE EFFECTS OF SHARES AVAILABLE FOR FUTURE SALE UPON MARKET PRICE
OF COMMON STOCK
Sales of substantial amounts of Common Stock or the perception that such
sales could occur, could adversely affect the prevailing market price for the
Common Stock. The Company has issued an aggregate of 62,255 shares of Common
Stock to certain officers and directors of the Company in connection with the
Initial Offering and pursuant to the Non-Employee Directors' Incentive Plan.
In addition to OP Units issued to the Company, the Operating Partnership has
outstanding an aggregate of 3,502,328 OP Units, including an aggregate of
515,625 OP Units issued in connection with the acquisition of the Holiday Inn
Lenox, the WestCoast Portfolio and the Wyndham Greenspoint Hotel, and 662,391
Preferred OP Units issued in the Private Placement. In the future, the Company
may acquire additional hotels through the issuance of OP Units. OP Units
(other than Preferred OP Units) may be redeemed for cash (or, at the Company's
election, the Company may purchase each OP Unit offered for redemption for one
share of Common Stock). Preferred OP Units may be exchanged for shares of
Common Stock under certain circumstances. See "Developments Since the Initial
Offering--Financing Activities." The Patriot American Hospitality Partnership,
L.P. Partnership Agreement (the "Partnership Agreement") prohibits the
redemption of OP Units until October 2, 1996. In addition, the officers and
directors of the Company and certain other persons have agreed (the "Lock-up
Agreements"), subject to certain limited exceptions, not to offer, sell,
contract to sell or otherwise dispose of any shares of Common Stock (or any
securities convertible into or exercisable for shares of Common Stock)
received in connection with the Initial Offering for periods ranging from one
to two years after the date of the Initial Offering (the "Lock-up Periods"),
without the prior written consent of PaineWebber Incorporated. The Company has
restricted the transfer of OP Units issued in connection with the acquisition
of the Holiday Inn Lenox, the WestCoast Portfolio and the Wyndham Greenspoint
Hotel for one year, one year, and two years from the date of issuance,
respectively, and may similarly restrict the transfer of OP Units issued in
connection with the acquisition of additional hotels. At the conclusion of
these restrictions, all shares of Common Stock issued in connection with the
formation of the Company or acquired upon redemption of OP Units may be sold
in the public market. In addition, 1,000,000 shares of Common Stock are
reserved for issuance pursuant to the Patriot American Hospitality, Inc. 1995
Incentive Plan (the "1995 Plan"). See "Management--Stock Incentive Plans."
RISK OF INVESTMENT IN SUBSIDIARIES
The capital stock of PAH Ravinia is divided into two classes: voting common
stock, 96% of which is owned indirectly by officers and/or directors of the
Company and 4% of which is held indirectly by the Operating Partnership, and
nonvoting common stock, 100% of which is held by the Operating Partnership.
Management's voting common stock represents 0.96% of the economic interest in
PAH Ravinia. However, as the holders of 96% of the voting common stock,
management retains the ability to elect the directors of PAH Ravinia. Although
the Company's stock ownership represents a 99.04% economic interest in PAH
Ravinia, the Company is not able to elect directors and its ability to
influence the day-to-day decisions of PAH Ravinia may therefore be limited. As
a result, the voting stockholders of PAH Ravinia may implement business policy
decisions that would not have been implemented by the Company and that are
adverse to the interests of the Company or that lead to adverse financial
results.
17
<PAGE>
LIMITED OPERATING HISTORY
The Company has been recently organized and has a limited operating history.
There can be no assurance that the Company will be able to generate sufficient
revenue from operations to make distributions to shareholders. The Company
also is subject to the risks generally associated with the formation of any
new business. The Initial Hotels, on a combined basis, experienced net losses
in 1992 and 1994. In addition, certain of the Recent Acquisitions have
experienced historical net losses. There can be no assurance that the Company
will not experience net losses in the future.
COMPETITION FOR MANAGEMENT TIME
Mr. Nussbaum, the Chairman of the Board and Chief Executive Officer of the
Company, will continue to act as chief executive officer of Patriot American,
and, therefore, will be subject to competing demands on his time. Mr. Nussbaum
intends to devote a majority of his time to the business of the Company.
CONFLICTS OF INTEREST
SALE OF HOTELS
Certain officers and directors of the Company or their affiliates may have
had unrealized gain in their interests in certain of the Initial Hotels
transferred to the Company in connection with the Initial Offering. The sale
of such Hotels by the Company may cause adverse tax consequences to such
officers, directors or their affiliates. Therefore, the interests of the
Company, such officers, directors and their affiliates could be different in
connection with the disposition of such Hotels.
CONTINUING ACQUISITIONS AND HOTEL DEVELOPMENT
Affiliates of the Lessees may acquire, develop or manage hotels that compete
with the Company's Hotels. Accordingly, the Lessees' decisions relating to the
operation of the Hotels that are in competition with other hotels owned or
managed by them may not reflect the interests of the Company.
HOTEL INDUSTRY RISKS
OPERATING RISKS
The Hotels are subject to all operating risks common to the hotel industry.
These risks include, among other things, (i) competition for guests from other
hotels, a number of which may have greater marketing and financial resources
than the Company and the Lessees; (ii) increases in operating costs due to
inflation and other factors, which increases may not have been offset in
recent years, and may not be offset in the future by increased room rates;
(iii) dependence on business and commercial travelers and tourism, which
business may fluctuate and be seasonal; (iv) increases in energy costs and
other expenses of travel, which may deter travelers; and (v) adverse effects
of general and local economic conditions. These factors could adversely affect
the Lessees' ability to generate revenues and to make lease payments and
therefore the Company's ability to make expected distributions to
shareholders.
The Company is also subject to the risk that in connection with the
acquisition of hotels it may not be possible to transfer certain operating
licenses, such as food and beverage licenses, to the Lessees or Operators, or
to obtain new licenses in a timely manner in the event such licenses cannot be
transferred. For example, the Lessees are currently attempting to obtain new
alcoholic beverage licenses for the Tremont House Hotel, the Marriot Troy
Hotel and the Four Points by Sheraton in Saginaw, Michigan. Although these
Hotels are providing alcoholic beverages under interim licenses or licenses
obtained prior to the Company's acquisition of these Hotels, there can be no
assurance that these licenses will remain in effect until the Company obtains
new licenses or that new licenses will be obtained. The failure to have
alcoholic beverages licenses or other operating licenses could adversely
affect the ability of the affected Lessees to generate revenues and make lease
payments to the Company.
OPERATING COSTS AND CAPITAL EXPENDITURES; HOTEL RENOVATION
Hotels in general, including the Hotels, have an ongoing need for
renovations and other capital improvements, particularly in older structures,
including periodic replacement or refurbishment of F, F & E.
18
<PAGE>
Under the terms of the Participating Leases, the Company is obligated to
establish a reserve to pay the cost of certain capital expenditures at the
Hotels and pay for periodic replacement or refurbishment of F, F & E and
expects to be similarly obligated with respect to the Proposed Acquisitions.
However, if capital expenditures exceed the Company's expectations, the
additional cost could have an adverse effect on the Company's Cash Available
for Distribution. In addition, the Company has and may continue to acquire
hotels where significant renovation is either required or desirable.
Renovation of hotels involves certain risks, including the possibility of
environmental problems, construction cost overruns and delays, uncertainties
as to market demand or deterioration in market demand after commencement of
renovation and the emergence of unanticipated competition from other hotels.
COMPETITION FOR INVESTMENT OPPORTUNITIES
The Company may be competing for investment opportunities with entities that
have substantially greater financial resources than the Company. These
entities may generally be able to accept more risk than the Company can
prudently manage, including risks with respect to the creditworthiness of a
hotel operator or the geographic proximity of its investments. Competition may
generally reduce the number of suitable investment opportunities offered to
the Company and increase the bargaining power of property owners seeking to
sell.
SEASONALITY
The hotel industry is seasonal in nature. Revenues at certain of the Hotels
are greater in the first and second quarters of a calendar year and at other
of the Hotels in the second and third quarters of a calendar year. Seasonal
variations in revenue at the Hotels may cause quarterly fluctuations in the
Company's lease revenue.
INVESTMENT IN SINGLE INDUSTRY
The Company's current strategy is to acquire interests only in hotels and
related properties. As a result, the Company will be subject to risks inherent
in investments in a single industry. The effects on Cash Available for
Distribution to the Company's shareholders resulting from a downturn in the
hotel industry will be more pronounced than if the Company had diversified its
investments.
REAL ESTATE INVESTMENT RISKS
GENERAL RISKS
The Company's investments are subject to varying degrees of risk generally
incident to the ownership of real property. The underlying value of the
Company's real estate investments and the Company's income and ability to make
distributions to its shareholders is dependent upon the ability of the Lessees
to operate the Hotels in a manner sufficient to maintain or increase revenues
and to generate sufficient income in excess of operating expenses to make rent
payments under the Participating Leases. Income from the Hotels may be
adversely affected by changes in national economic conditions, changes in
local market conditions due to changes in general or local economic conditions
and neighborhood characteristics, changes in interest rates and in the
availability, cost and terms of mortgage funds, the impact of present or
future environmental legislation and compliance with environmental laws, the
ongoing need for capital improvements, particularly in older structures,
changes in real estate tax rates and other operating expenses, adverse changes
in governmental rules and fiscal policies, civil unrest, acts of God,
including earthquakes and other natural disasters (which may result in
uninsured losses), acts of war, adverse changes in zoning laws, and other
factors which are beyond the control of the Company.
VALUE AND ILLIQUIDITY OF REAL ESTATE
Real estate investments are relatively illiquid. The ability of the Company
to vary its portfolio in response to changes in economic and other conditions
is limited. If the Company must sell an investment, there can be no assurance
that the Company will be able to dispose of it in the time period it desires
or that the sales price of any investment will recoup or exceed the amount of
the Company's investment.
PROPERTY TAXES
Each Hotel is subject to real property taxes. The real property taxes on
hotel properties in which the Company invests may increase or decrease as
property tax rates change and as the properties are assessed or reassessed by
taxing authorities. If property taxes increase, the Company's ability to make
expected distributions to its shareholders could be adversely affected.
19
<PAGE>
CONSENTS OF GROUND LESSOR REQUIRED FOR SALE OF CERTAIN HOTELS
The Fairmount Hotel, the Holiday Inn Lenox, the Hyatt Newporter Hotel, the
WestCoast Long Beach Hotel and Marina and the Hyatt Regency, Lexington are
subject to ground leases with third party lessors. In addition, the Company
may acquire hotels in the future that are subject to ground leases. Any
proposed sale of a hotel that is subject to a ground lease by the Operating
Partnership or any proposed assignment of the Operating Partnership's
leasehold interest in the ground lease may require the consent of third party
lessors. As a result, the Company and the Operating Partnership may not be
able to sell, assign, transfer or convey the Operating Partnership's interest
in any such hotel in the future absent the consent of such third parties, even
if such transaction may be in the best interests of the shareholders of the
Company.
ENVIRONMENTAL MATTERS
The Company's operating costs may be affected by the obligation to pay for
the cost of complying with existing environmental laws, ordinances and
regulations, as well as the cost of complying with future legislation. Under
various federal, state and local environmental laws, ordinances and
regulations, a current or previous owner or operator of real property may be
liable for the costs of removal or remediation of hazardous or toxic
substances on, under or in such property. Such laws often impose liability
whether or not the owner or operator knew of, or was responsible for, the
presence of such hazardous or toxic substances. In addition, the presence of
hazardous or toxic substances, or the failure to remediate such property
properly, may adversely affect the owner's ability to borrow by using such
real property as collateral. Persons who arrange for the transportation,
disposal or treatment of hazardous or toxic substances may also be liable for
the costs of removal or remediation of such substances at the disposal or
treatment facility, whether or not such facility is or ever was owned or
operated by such person. Certain environmental laws and common law principles
could be used to impose liability for releases of hazardous materials,
including asbestos-containing materials ("ACMs"), into the environment, and
third parties may seek recovery from owners or operators of real properties
for personal injury associated with exposure to released ACMs or other
hazardous materials. Environmental laws may also impose restrictions on the
manner in which a property may be used or transferred or in which businesses
may be operated, and these restrictions may require expenditures. In
connection with the ownership and operation of the Hotels, the Company, the
Operating Partnership or the Lessees may be potentially liable for any such
costs. The cost of defending against claims of liability or remediating
contaminated property and the cost of complying with environmental laws could
materially adversely affect the Company's results of operations and financial
condition. Phase I environmental site assessments ("ESAs") have been conducted
at all of the Hotels by qualified independent environmental engineers. The
purpose of Phase I ESAs is to identify potential sources of contamination for
which the Hotels may be responsible and to assess the status of environmental
regulatory compliance. The ESAs have not revealed any environmental liability
or compliance concerns that the Company believes would have a material adverse
effect on the Company's business, assets, results of operations or liquidity,
nor is the Company aware of any such liability or concerns. Nevertheless, it
is possible that these ESAs did not reveal all environmental liabilities or
compliance concerns or that material environmental liabilities or compliance
concerns exist of which the Company is currently unaware. The Company has not
been notified by any governmental authority, and has no other knowledge of,
any material noncompliance, liability or claim relating to hazardous or toxic
substances or other environmental substances in connection with any of its
hotels, except as noted below.
Marriott WindWatch Hotel. The Marriott WindWatch Hotel, a Proposed
Acquisition, is in close proximity to a former municipal landfill, which has
been designated as a National Priorities List ("NPL") site by the United
States Environmental Protection Agency ("EPA"). The Hotel property is
downgradient of the NPL site. An environmental consultant retained by the
Company has informed the Company that the current data relating to the NPL
site do not suggest any groundwater contamination from the former landfill has
migrated onto the Hotel property. The environmental consultant has also
informed the Company that it is unlikely that any groundwater contamination
from the former landfill will in the future migrate onto the hotel property
resulting in contaminant levels above applicable action levels. Remediation
activities by the municipality, under the supervision of the EPA and the New
York State Department of Environmental Conservation ("DEC"), are ongoing but
have not yet been completed. The DEC has indicated that it does not intend to
pursue as potentially responsible parties nearby landowners whose property
becomes contaminated as a result of off-site migration from the former
landfill.
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COMPLIANCE WITH AMERICANS WITH DISABILITIES ACT
Under the Americans with Disabilities Act of 1990 (the "ADA"), all public
accommodations are required to meet certain federal requirements related to
access and use by disabled persons. A determination that the Company is not in
compliance with the ADA could result in the imposition of fines or an award of
damages to private litigants. If the Company were required to make
modifications to comply with the ADA, the Company's ability to make expected
distributions to its shareholders could be adversely affected.
UNINSURED AND UNDERINSURED LOSSES
Each Participating Lease specifies comprehensive insurance to be maintained
on each of the Hotels, including liability, fire and extended coverage.
Management believes such specified coverage is of the type and amount
customarily obtained for or by an owner of hotels. Leases for subsequently
acquired hotels will contain similar provisions. However, there are certain
types of losses, generally of a catastrophic nature, such as earthquakes and
floods, that may be uninsurable or not economically insurable. The Company's
Board of Directors and management will use their discretion in determining
amounts, coverage limits and deductibility provisions of insurance, with a
view to maintaining appropriate insurance coverage on the Company's
investments at a reasonable cost and on suitable terms. This may result in
insurance coverage that, in the event of a substantial loss, would not be
sufficient to pay the full current market value or current replacement cost of
the Company's lost investment. Inflation, changes in building codes and
ordinances, environmental considerations, and other factors also might make it
infeasible to use insurance proceeds to replace the property after such
property has been damaged or destroyed. Under such circumstances, the
insurance proceeds received by the Company might not be adequate to restore
its economic position with respect to such property.
ACQUISITION AND DEVELOPMENT RISKS
The Company intends to pursue acquisitions of additional hotels and, under
appropriate circumstances, may pursue development opportunities. Acquisitions
entail risks that investments will fail to perform in accordance with
expectations and that estimates of the cost of improvements necessary to
market and acquire properties will prove inaccurate, as well as general
investment risks associated with any new real estate investment. New project
development is subject to numerous risks, including risks of construction
delays or cost overruns that may increase project costs, new project
commencement risks such as receipt of zoning, occupancy and other required
governmental approvals and permits and the incurrence of development costs in
connection with projects that are not pursued to completion. The fact that the
Company must distribute 95% of its net taxable income in order to maintain its
qualification as a REIT may limit the Company's ability to rely upon lease
income from the Hotels or subsequently acquired properties to finance
acquisitions or new developments. As a result, if debt or equity financing
were not available on acceptable terms, further acquisitions or development
activities might be curtailed or Cash Available for Distribution might be
adversely affected.
TAX RISKS
FAILURE TO QUALIFY AS A REIT
The Company operates in a manner designed to permit it to qualify as a REIT
for federal income tax purposes. The continued qualification of the Company as
a REIT will depend on the Company's continuing ability to meet various
requirements concerning, among other things, the ownership of its outstanding
stock, the nature of its assets, the sources of its income, and the amount of
its distributions to its shareholders. If the Company were to fail to qualify
as a REIT in any taxable year, the Company would not be allowed a deduction
for distributions to shareholders in computing its taxable income and would be
subject to federal income tax (including any applicable minimum tax) on its
taxable income at regular corporate rates. Unless entitled to relief under
certain Code provisions, the Company also would be disqualified from treatment
as a REIT for the four taxable years following the year during which
qualification was lost. As a result, the Company's Cash Available for
Distribution would be reduced for each of the years involved. Although the
Company currently intends to continue to operate in a manner designed to
permit it to qualify as a REIT, it is possible that future economic, market,
legal, tax or other considerations may cause the Board of Directors to revoke
the REIT election. See "Federal Income Tax Considerations."
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ADVERSE EFFECTS OF REIT MINIMUM DISTRIBUTION REQUIREMENTS
In order to qualify as a REIT, the Company is generally required each year
to distribute to its shareholders at least 95% of its net taxable income
(excluding any net capital gain). In addition, the Company is subject to a 4%
nondeductible excise tax on the amount, if any, by which certain distributions
paid by it with respect to any calendar year are less than the sum of (i) 85%
of its ordinary income for that year, (ii) 95% of its capital gain net income
for that year and (iii) 100% of its undistributed income from prior years.
The Company intends to make distributions to its shareholders to comply with
the 95% distribution requirement and to avoid the nondeductible excise tax.
The Company's income consists primarily of its share of the income of the
Operating Partnership, and the Company's Cash Available for Distribution
consists primarily of its share of cash distributions from the Operating
Partnership. Differences in timing between taxable income and Cash Available
for Distribution and the seasonality of the hotel industry could require the
Company to borrow funds on a short-term basis to meet the 95% distribution
requirement and to avoid the nondeductible excise tax. For federal income tax
purposes, distributions paid to shareholders may consist of ordinary income,
capital gains, nontaxable return of capital, or a combination thereof. The
Company provides its shareholders with an annual statement as to its
designation of the taxability of distributions.
Distributions by the Company are determined by the Company's Board of
Directors and depend on a number of factors, including the amount of the
Company's Cash Available for Distribution, the Company's financial condition,
any decision by the Board of Directors to reinvest funds rather than to
distribute such funds, the Company's capital expenditures, the annual
distribution requirements under the REIT provisions of the Code and such other
factors as the Board of Directors deems relevant. See "Federal Income Tax
Considerations--Requirements for Qualification--Distribution Requirements."
FAILURE OF THE OPERATING PARTNERSHIP TO BE CLASSIFIED AS A PARTNERSHIP FOR
FEDERAL INCOME TAX PURPOSES; IMPACT ON REIT STATUS
The Operating Partnership (and each of its Subsidiary Partnerships, as
defined in "Federal Income Tax Considerations") has been structured to be
classified as a partnership for federal income tax purposes. If the Operating
Partnership (or a Subsidiary Partnership) were to fail to be classified as a
partnership for federal income tax purposes, the Operating Partnership (or the
Subsidiary Partnership) would be taxable as a corporation. In such event, the
Company likely would cease to qualify as a REIT for a variety of reasons.
Furthermore, the imposition of a corporate income tax on the Operating
Partnership would reduce substantially the amount of Cash Available for
Distribution. See "Federal Income Tax Considerations--Tax Aspects of the
Operating Partnership and the Subsidiary Partnerships."
RISKS OF OPERATING HOTELS UNDER FRANCHISE OR BRAND AFFILIATIONS
Thirty-one of the Hotels are operated under franchise or brand affiliations.
In addition, hotels in which the Company invests subsequently may be operated
pursuant to franchise or brand affiliations. The continuation of the franchise
licenses relating to the franchised Hotels (the "Franchise Licenses") is
subject to specified operating standards and other terms and conditions. The
continued use of a brand is generally contingent upon the continuation of the
Management Agreement related to that Hotel with the branded Operator.
Franchisors typically inspect licensed properties periodically to confirm
adherence to operating standards. Action on the part of any of the Company,
the Operating Partnership, the Lessees or the Operators could result in a
breach of such standards or other terms and conditions of the Franchise
Licenses and could result in the loss or cancellation of a franchise license.
It is possible that a franchisor could condition the continuation of a
franchise license on the completion of capital improvements which the Board of
Directors determines are too expensive or otherwise unwarranted in light of
general economic conditions or the operating results or prospects of the
affected hotel. In that event, the Board of Directors may elect to allow the
franchise license to lapse. In any case, if a franchise or brand affiliation
is terminated, the Company and the Lessee may seek to obtain a suitable
replacement franchise or brand affiliation, or to operate the Hotel
independent of a franchise or brand affiliation. The loss of a franchise or
brand affiliation could have a material adverse effect upon the operations or
the underlying value of the hotel
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covered by the franchise or brand affiliation because of the loss of
associated name recognition, marketing support and centralized reservation
systems provided by the franchisor or brand owner.
LIMITATION ON ACQUISITION AND CHANGE IN CONTROL
OWNERSHIP LIMITATION
In order for the Company to maintain its qualification as a REIT, not more
than 50% in value of its outstanding capital stock may be owned, directly or
indirectly, by five or fewer individuals (as defined in the Code to include
certain entities). Furthermore, if any shareholder or group of shareholders of
any Lessee owns, actually or constructively, 10% or more in value of the
capital stock of the Company, such Lessee could become a related party tenant
of the Operating Partnership, which would result in loss of REIT status for
the Company. For the purpose of preserving the Company's REIT qualification,
the Company's Articles of Incorporation prohibit direct or indirect ownership
(taking into account applicable ownership provisions of the Code) in excess of
the Ownership Limitation, which prohibits ownership of more than 9.8% of any
class of the Company's outstanding capital stock, subject to the Look-Through
Ownership Limitation, which permits mutual funds and certain other entities to
own as much as 15% of a class of the Company's capital stock in appropriate
circumstances. Generally, the capital stock owned by affiliated owners is
aggregated for purposes of the Ownership Limitation. The Ownership Limitation
could have the effect of discouraging a takeover or other transaction in which
holders of some, or a majority, of the Common Stock might receive a premium
for their Common Stock over the then prevailing market price or in which such
holders might believe to be otherwise in their best interests. See
"Description of Capital Stock--Articles of Incorporation and Bylaw
Provisions--Restrictions on Transfer" and "Federal Income Tax Considerations--
Requirements for Qualification."
PREFERRED STOCK
The Articles of Incorporation authorize the Board of Directors to issue up
to 20,000,000 preferred shares and to establish the preferences and rights of
any shares issued. See "Description of Capital Stock--Preferred Shares." The
issuance of preferred shares could have the effect of delaying or preventing a
change in control of the Company even if a change in control were in the
shareholders' interest. No preferred shares are currently issued or
outstanding.
VIRGINIA ANTI-TAKEOVER STATUTES
As a Virginia corporation, the Company is subject to various provisions of
the Virginia Stock Corporation Act ("the VSCA") that impose certain
restrictions and require certain procedures with respect to certain takeover
offers and business combinations, including, but not limited to, combinations
with interested holders and share purchases from certain holders. Such
provisions may deter takeover attempts or tender offers, including offers or
attempts that may result in the payment of a premium over the market price for
the Common Stock or that a shareholder might otherwise consider in its best
interest. See "Description of Capital Stock--Articles of Incorporation and
Bylaw Provisions."
ABILITY OF BOARD TO CHANGE POLICIES
The major policies of the Company, including its policies with respect to
acquisitions, financing, growth, operations, debt capitalization and
distributions, are determined by its Board of Directors. The Board of
Directors may amend or revise these and other policies from time to time
without a vote of the shareholders of the Company. See "Policies and
Objectives with Respect to Certain Activities."
ADVERSE EFFECT OF INCREASE IN MARKET INTEREST RATES ON PRICE OF COMMON STOCK
One of the factors that may influence the price of the Common Stock in
public trading markets will be the annual yield from distributions by the
Company on the Common Stock as compared to yields on certain financial
instruments. Thus, an increase in market interest rates will result in higher
yields on certain financial instruments, which could adversely affect the
market price of the Common Stock.
23
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THE COMPANY
GENERAL
The Company is a self-administered REIT, which owns 35 Hotels in 13 states,
with an aggregate of 8,201 guest rooms. The Hotels are diversified by
franchise or brand affiliation and serve primarily major U.S. business
centers, including Atlanta, Boston, Cleveland, Dallas, Denver, Houston and
Seattle. In addition to hotels catering primarily to business travelers, the
Hotels include prominent hotels in major tourist destinations, including New
Orleans, San Antonio and San Diego. The Hotels include 29 full service hotels,
5 limited service hotels and an executive conference center. Thirty-one of the
Hotels are operated under franchise or brand affiliations with nationally
recognized hotel companies, including Marriott(R), Crowne Plaza(R),
Radisson(R), Hilton(R), Hyatt(R), Four Points by Sheraton(R), Holiday Inn(R),
Wyndham(TM), Wyndham Garden(R), WestCoast(R), Doubletree(R), Embassy Suites(R)
and Hampton Inn(R). For the twelve months ended March 31, 1996, the Hotels had
an average occupancy of 71.3% and ADR of $81.89.
Since the Initial Offering, the Company has acquired the 15 Recent
Acquisitions with an aggregate of 3,995 guest rooms for approximately $277
million and has entered into contracts to purchase the 6 Proposed Acquisitions
with an aggregate of 1,589 guest rooms for an aggregate purchase price
(excluding acquisition-related expenses) of approximately $103 million. The
Company purchased the Recent Acquisitions with proceeds from the exercise of
the underwriter's over-allotment option in the Initial Offering and with funds
from its Line of Credit. The Company's purchase of each of the Proposed
Acquisitions is subject to the satisfaction of various closing conditions and,
therefore, no assurances can be given that these acquisitions will be
completed. See "Developments Since the Initial Offering--Proposed
Acquisitions." If all of the Proposed Acquisitions are consummated, the
Company will have invested approximately $380 million in hotel acquisitions
and more than doubled its room portfolio since the Initial Offering.
The Company leases each of the Hotels, except the Crowne Plaza Ravinia which
is owned through a special purpose corporation, to independent Lessees
pursuant to separate Participating Leases. The Crowne Plaza Ravinia
acquisition was structured without a Lessee for reasons specific to the
acquisition. The Company anticipates that future acquisitions will continue to
be structured with Lessees. The Lessees and the special purpose corporation
that owns the Crowne Plaza Ravinia in turn have entered into separate
Management Agreements with the Operators to operate the Hotels. Neither the
Company nor its management owns an interest in, or participates in the
management of, the Lessees or the Operators, thus avoiding certain potential
conflicts of interest generally associated with the structure of hospitality
REITs. All Participating Leases between the Company and the Lessees have been
negotiated on an arms length basis.
In connection with the Initial Offering, the Company closed the Line of
Credit with Paine Webber Real Estate. See "Developments Since the Initial
Offering--Financing Activities."
The Company believes market conditions today remain favorable for the
acquisition of hotel properties at attractive returns and, particularly with
respect to full service hotels, at prices significantly below replacement
cost. Accordingly, the Company intends to continue to acquire additional
hotels that meet one or more of its investment criteria. See "--Business
Strategy--Acquisitions." The Company believes its ability to implement its
acquisition strategy is enhanced by the favorable reputation and track record
of the Company as a credible acquiror of hotels and the extensive industry
relationships developed by Patriot American and the Company's management team.
The Company expects that these relationships will provide the Company with
opportunities to purchase selected hotels before active marketing of such
hotels commences. Further, because the Company's structure is designed to
accommodate multiple lessees, hotel brand owner/operators, major hotel
management companies and hotel franchisors have presented the Company with
opportunities to acquire attractive hotel properties (including properties not
otherwise marketed for sale) and the Company expects such opportunities will
continue. The Company believes its acquisition capabilities are enhanced by
the fact that its capital structure
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provides significant financial flexibility. The Company intends to continue to
maintain a conservative capital structure and currently intends to limit
consolidated indebtedness to no more than 40% of its total market
capitalization.
The Company's executive officers have extensive, nationwide experience in
the acquisition, ownership, operation, development and repositioning of each
type of hotel represented in the Company's portfolio. The Company's Chairman
of the Board and Chief Executive Officer, Paul A. Nussbaum, founded Patriot
American in 1991 and has 24 years of real estate industry experience. Thomas
W. Lattin, the Company's President and Chief Operating Officer, has over 25
years of hotel industry experience as an executive and consultant. Rex E.
Stewart, the Company's Executive Vice President and Chief Financial Officer,
has over 20 years of experience in hotel finance and development. Leslie Ng, a
Senior Vice President of Acquisitions, has over eight years of experience in
hotel acquisitions and financing. Michael Murphy, a Senior Vice President of
Acquisitions, has over 15 years of experience in the real estate and hotel
industries. Terry Huntzicker, the Company's Vice President of Construction and
Design has over 30 years of experience in hotel design and construction.
The Company was formed to continue and expand the hotel acquisition,
ownership, redevelopment and repositioning business of Patriot American.
Patriot American had historically pursued an investment strategy that
emphasized purchasing hotels at attractive prices and renovating,
repositioning and remarketing them to achieve significant revenue growth and
favorable investment returns. From January 1, 1992 to March 31, 1996,
approximately $29.7 million was invested in renovations and other capital
improvements to the Initial Hotels. The Initial Hotels achieved significant
growth in occupancy, ADR and REVPAR from 1993 through 1995, as summarized in
the following chart:
<TABLE>
<CAPTION>
PERCENT
YEAR ENDED DECEMBER 31, CHANGE
------------------------- 1993-
1993(1) 1994(1) 1995(2) 1995
------- ------- ------- -------
<S> <C> <C> <C> <C>
Occupancy...................................... 65.8% 71.0% 72.1% 9.6%
ADR............................................ $69.14 $72.57 $77.92 12.7%
REVPAR......................................... $45.48 $51.49 $56.20 23.6%
</TABLE>
- --------
(1) For comparative purposes, 1994 and 1993 data includes the results of
operations for the Marriott Troy Hotel, which was acquired on December 30,
1994, and 1993 data also includes results for the pre-acquisition period
for three Initial Hotels acquired by the Company's predecessors in 1993.
(2) Excludes the Recent Acquisitions.
For 1993, 1994, and 1995, average occupancy rates for the U.S. lodging
industry were 63.1%, 64.7% and 65.5%, respectively, according to Smith Travel.
Management believes the growth in occupancy, ADR and REVPAR at the Initial
Hotels primarily reflects the successful renovation, repositioning and
remarketing strategies of Patriot American, the superior management and
marketing capabilities of the Operators, and the upswing in the hotel industry
caused by a slowing of new hotel construction nationally and improving
economic conditions, following an extended period of unprofitable industry
performance in the late 1980s and early 1990s.
BUSINESS STRATEGY
The Company's primary business objective is to maximize its Cash Available
for Distribution and enhance shareholder value by acquiring additional hotels
that meet one or more of the Company's investment criteria, by participating
in increased revenue from the Hotels and any subsequently acquired hotels
through participating leases and, under appropriate circumstances, by
developing selected additional hotels.
Acquisitions
The Company seeks to acquire additional hotel properties that meet one or
more of its investment criteria as generally described below. As a result of
Patriot American's successful acquisition activities over the past
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several years, the Company believes it possesses a competitive advantage in
market knowledge, technical expertise and industry relationships, which has
enabled it to successfully implement its acquisition strategy on a national
scale. The Company also benefits from the extensive experience and
relationships developed by the members of its management team over the past 20
years. Further, as one of the nation's largest publicly traded hotel REITs,
the Company has access to a wide variety of public and private financing
sources to fund acquisitions, such as the issuance of debt, equity and hybrid
securities, as well as the use of OP Units as consideration where cash is not
appropriate for tax or other reasons. The Line of Credit also enables the
Company to contract for and complete the acquisition of hotels without
financing contingencies.
Management believes the lodging industry in the United States is in the
midst of a continuing recovery from a period of low profitability, which
resulted from high levels of debt financing, over-supply of hotel rooms caused
by overbuilding and economic recession. As a result, the Company believes
opportunities currently exist to acquire hotels at attractive prices and,
therefore, to capitalize further on improving industry conditions and
performance. Generally, hotel acquisition opportunities vary over time by
geographic area and product type. The Company's management is experienced in
the acquisition of hotels of various product types (luxury, full service,
limited service, all-suite hotels, destination resorts and conference centers)
throughout the U.S. This broad-based experience positions the Company to
capitalize on changing hotel industry conditions and market opportunities. The
Company concentrates its investment activities on hotel properties that meet
one or more of the following criteria:
. full service commercial hotels in major U.S. business markets;
. major tourist hotels, destination resorts or conference centers, which
appeal to specific market niches, are well-established in their markets
and offer a full range of amenities and services;
. undervalued hotels, whose performance the Company believes can be
significantly enhanced through market repositioning, redevelopment and
turnaround strategies;
. hotels with sound operational fundamentals that are underperforming due
to a lack of invested capital because they are owned or controlled by
financially distressed owners or involuntary owners that may have
acquired the hotels through foreclosure or settlement;
. hotels that the Company can convert to recognized, successful franchise
or brand affiliations when such affiliations are underrepresented in the
particular geographic region or market area; and
. portfolios of hotels that exhibit some or all of the other criteria
discussed above, where purchasing several hotels in one transaction
enables the Company to obtain a favorable price or to purchase attractive
assets that otherwise would not be available to the Company.
Because the Company is independent of the Lessees and the Operators, the
Company has flexibility with respect to leasing additional hotels, subject to
a limited right of first offer held by CHC Lease Partners. See "The Lessees
and the Operators--Right of First Offer." As a result, hotel brand
owner/operators, major hotel management companies and hotel franchisors have
presented the Company with attractive opportunities to acquire hotel
properties (including properties not otherwise marketed for sale), which then
may be leased back to such entities. The recent acquisitions of Embassy
Suites, Hunt Valley, the Crowne Plaza Ravinia, the WestCoast Portfolio, the
Doubletree Denver/Boulder, the Wyndham Greenspoint Hotel, the Wyndham Garden-
Midtown, and the proposed acquisition of the Wyndham Garden Hotels represent
examples of hotel acquisition opportunities brought to the attention of the
Company by management and franchise companies. The Company expects that hotel
brand owners/operators, major hotel management companies and hotel
franchisors, as well as the Lessees and the Operators, will continue to be a
valuable source of acquisition opportunities for the Company.
Internal Growth
The Company believes the Hotels offer opportunities for revenue and cash
flow growth through effective sales and marketing and efficient operations.
The Lessees and the Operators have demonstrated expertise in hotel operations
and management and possess the human and systems resources necessary to
maximize revenue and
26
<PAGE>
income growth. The business relationships among the Company, the Lessees and
the Operators have been structured to provide the Lessees and the Operators
with incentives to operate and maintain the Hotels leased and operated by them
in a manner designed to maximize revenue growth and increase the Company's
Cash Available for Distribution.
Participating Rent. The Participating Leases are structured to enable the
Company to participate significantly in the growth of room, food and beverage,
telephone and other revenue from the Hotels. The Participating Leases provide
for the Company to receive monthly the greater of Base Rent or Participating
Rent at each Hotel, plus certain Additional Charges as applicable.
"Participating Rent" is determined according to a formula based on varying
percentages of room revenue, food and beverage revenue, telephone revenue and
other revenue at each of the Hotels. These percentages have been negotiated by
the Company and the Lessee on an arms length basis based on historical and
projected operating performance at each of the Hotels. While the terms of the
Participating Leases are revenue-based, such terms have been developed with
consideration to the fixed and variable nature of hotel operating expenses and
changes in operating margins typically associated with increases in revenue.
See "The Hotels--The Participating Leases."
Hotel Operations. Under the Participating Leases, the Lessees and the
Operators are obligated to prepare annual operating budgets, capital budgets
and marketing plans for each Hotel leased and operated by them, which are
subject to the approval of the Company. The Operators regularly measure actual
results from operations against prior years' results and planned budgets to
create an aggressive, goal-oriented approach to the operation of each Hotel
operated by them. The Operators also provide incentive compensation programs
for key members of the sales and operations management staff of the Hotels,
consistent with the Company's goal of increasing Cash Available for
Distribution.
The Operators utilize sophisticated management systems to maximize revenues,
achieve favorable profit margins and ensure consistency and quality of
service. The Company believes the Operators historically have been successful
hotel managers because they apply professional approaches to the fundamental
processes that produce revenue and income, including:
. Detailed operating budgets
. Targeted sales and marketing plans
. Computerized yield management systems
. Sophisticated scheduling and labor management systems
. Automated food and beverage cost control systems
. Networked management information systems
. Employee training and incentive programs
. Guest feedback and quality control systems
Capital Improvements, Renovation and Refurbishment. The Company believes a
regular program of capital improvements, including replacement and
refurbishment of F, F & E at the Hotels, as well as the renovation and
redevelopment of selected Hotels, is essential to maintaining the
competitiveness of the Hotels and maximizing revenue growth. From January 1,
1992 through March 31, 1996, approximately $29.7 million (or an average of
$7,060 per guest room) was spent on renovations and capital improvements at
the Initial Hotels to position them for future growth. Twelve of the Initial
Hotels were renovated during this period. See "The Hotels." The Company has
budgeted approximately $17.5 million to complete renovations at the Crockett
Hotel, the Crowne Plaza Ravinia, the Tremont House Hotel, the Del Mar Hilton,
the WestCoast Long Beach Hotel and Marina, the Doubletree Denver/Boulder, the
Wyndham Greenspoint Hotel and the Wyndham Garden-Midtown. The Company spent
approximately $900,000 of this amount through March 31, 1996 and expects to
spend the remainder in 1996 and early 1997. In addition, as part of its
ongoing capital improvement program, the Company has budgeted approximately
$11.3 million in 1996 for capital improvements and the replacement of F, F & E
within the Company's portfolio, including the Recent Acquisitions.
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<PAGE>
The Participating Leases require the Company to establish aggregate minimum
reserves averaging 4.0% of total revenue for the Hotels (which on a pro forma
basis for the Initial Hotels, for the twelve months ended March 31, 1996,
represented approximately 5.8% of room revenue and an average of $1,200 per
guest room) which are provided by the Company to the Lessees for capital
improvements and the replacement and refurbishment of F, F & E necessary to
maintain the competitive position of the Hotels. Generally, the Company and
the Lessees must agree on the use of funds in these reserves, and the Company
has the right to approve the Lessees' annual and long-term capital expenditure
budgets. While the Company expects its reserves to be adequate to fund
recurring capital needs, the Company may use Cash Available for Distribution
in excess of distributions paid (subject to federal income tax restrictions on
the Company's ability to retain earnings) or funds drawn under the Line of
Credit to fund additional capital improvements, as necessary, including
significant renovations at the Company's hotels. The Company's budget for
capital expenditures, exclusive of renovations, exceeds 4.0% of total revenues
at the Hotels in 1996 due to capital expenditures required by certain
franchisors and to the Company's decision to accelerate certain capital
improvements originally intended to be completed over a longer period.
Development
Due to the current favorable acquisition environment for hotels, the Company
intends to emphasize acquisitions over development in pursuing the Company's
growth objectives. The Company believes in most markets it is possible to
acquire full service hotel properties at values below replacement cost, with
existing or achievable cash flows commensurate with the Company's investment
criteria. However, the Company will evaluate from time to time, and may
undertake, attractive opportunities to develop new hotels or expand existing
hotels. The Company is currently evaluating a potential expansion of the
Doubletree Denver/Boulder by approximately 80 rooms on contiguous land owned
by the Company, however, the Company has made no commitments with respect to
such expansion.
The Company's executive officers have participated in the development of
over 20 hotels and have significant experience in all phases of the
development process, including site selection, franchise selection, hotel
programming and design, zoning and construction management. The Company
believes this management expertise will enhance its hotel development efforts
and its capability to evaluate hotels for acquisition, expansion and
turnaround situations. See "Policies and Objectives with Respect to Certain
Activities--Investment Policies--Development of Hotel Properties." See "Risk
Factors--Changes in Policies."
THE OPERATING PARTNERSHIP
The Company owns an approximately 81.5% interest in the Operating
Partnership, a Virginia limited partnership. The Operating Partnership owns,
directly or through subsidiary partnerships, all of the Hotels (except the
Crowne Plaza Ravinia, which is owned by PAH Ravinia, Inc.) and leases such
hotels to the Lessees. Because of certain state tax considerations, the
Company holds its interest in the Operating Partnership through two wholly-
owned subsidiaries, PAH GP and PAH LP. PAH GP is the sole general partner of
the Operating Partnership and owns a 1.0% general partnership interest in the
Operating Partnership. Through PAH GP, the Company controls the Operating
Partnership and its assets. PAH LP is one of the Operating Partnership's
limited partners (the "Limited Partners") and owns an approximately 80.5%
limited partnership interest in the Operating Partnership. In their capacity
as such, the Limited Partners have no authority to transact business for, or
participate in the management, activities or decisions of, the Operating
Partnership. Upon completion of the Offering, the Company will own indirectly
through PAH GP and PAH LP an approximately 85.4% interest in the Operating
Partnership, consisting of a 1.0% general partner interest and an 84.4%
limited partner interest.
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DEVELOPMENTS SINCE THE INITIAL OFFERING
Since the Initial Offering, the Company has benefitted from the following
developments:
RECENT ACQUISITIONS
Since the Initial Offering, the Company has invested approximately $277
million in the acquisition of Hotels (including purchase prices and
approximately $3.7 million in acquisition-related expenses), increasing its
room portfolio by approximately 95%. Set forth below are summary descriptions
of the Recent Acquisitions.
Embassy Suites, Hunt Valley, Maryland. In November 1995, the Company
acquired the 223-suite Embassy Suites in Hunt Valley, Maryland outside
Baltimore for approximately $16.0 million in cash. The Company has leased the
hotel to Metro Lease Partners. Metro Hotels, a Dallas-based hotel company that
managed the hotel prior to the acquisition and an affiliate of Metro Lease
Partners, manages the Hotel.
Crowne Plaza Ravinia, Atlanta, Georgia. In December 1995, PAH Ravinia, a
corporation in which the Company owns a 99.04% interest, acquired the 495-room
Crowne Plaza Ravinia, a hotel located adjacent to Holiday Inn Worldwide
headquarters in the Perimeter Center/Ravinia area of Atlanta, Georgia. The
Hotel is managed by Holiday Inns, Inc., which managed the Hotel prior to the
acquisition. The Company paid approximately $4.5 million in cash for its
investment in PAH Ravinia and advanced to PAH Ravinia an aggregate of $40.5
million in first and second lien mortgage loans. The Company intends to
complete approximately $2.7 million in renovations to the Hotel following
completion of the Olympic Games.
Tremont House Hotel, Boston, Massachusetts. In January 1996, the Company
acquired the 288-room Tremont House Hotel in Boston, Massachusetts for
approximately $16.5 million in cash. The Company has commenced an extensive
$8.5 million renovation of the Hotel. The project includes renovation of
existing guest rooms and common areas, the addition of 31 guest rooms on a
penthouse level and the reconfiguration of certain existing rooms resulting in
an expected aggregate room count following completion of the renovation of
approximately 321. The Company has leased the Hotel to CHC Lease Partners. The
Hotel is managed by a subsidiary of GAH.
Holiday Inn Lenox, Atlanta, Georgia. In March 1996, the Company acquired the
297-room Holiday Inn Lenox in the Buckhead section of Atlanta for
approximately $7.3 million in cash and 167,012 OP Units, valued at
approximately $4.7 million at the closing of the acquisition. The Hotel is
leased to CHC Lease Partners and is managed by GAH.
Del Mar Hilton, Del Mar (San Diego), California. In March 1996, the Company
acquired the 245-room Del Mar Hilton for approximately $14.8 million in cash.
This Hotel is located in suburban San Diego, California, adjacent to the Del
Mar Racetrack and Fairgrounds. The Company has leased the Hotel to CHC Lease
Partners and GAH manages the Hotel.
WestCoast Portfolio. In April 1996, the Company acquired the six hotel
WestCoast Portfolio for approximately $75.6 million in cash and 331,577 OP
Units, valued at approximately $8.8 million at the closing of the acquisition.
The portfolio includes the 194-suite WestCoast Plaza Park Suites, the 151-room
WestCoast Roosevelt Hotel and the 145-room WestCoast Gateway Hotel, all in
Seattle, Washington; the 410-room Hyatt Newporter Hotel in Newport Beach,
California; the 192-room WestCoast Long Beach Hotel and Marina in Long Beach,
California; and the 147-room WestCoast Wenatchee Center Hotel in Wenatchee,
Washington. The Company intends to complete a $1.8 million renovation of the
WestCoast Long Beach Hotel and Marina, and to complete build out of a
restaurant at the WestCoast Plaza Park Suites, converting this Hotel to a full
service property. The Company has leased the hotels in the WestCoast Portfolio
under Participating Leases to NorthCoast, a recently formed company owned by a
consortium of investors including principals of WestCoast Hotels, a major
regional hotel management company based in Seattle, and Sunmakers, a major
tour and travel company in the Pacific Northwest. WestCoast Hotels manages
each of the hotels in the WestCoast Portfolio except for the Hyatt Newporter
Hotel, which is managed by Hyatt Corporation ("Hyatt").
29
<PAGE>
Hyatt Regency, Lexington, Kentucky. In May 1996, the Company acquired the
365-room Hyatt Regency in Lexington, Kentucky for approximately $14.3 million
in cash. The Hotel, which is subject to a long-term ground lease, adjoins
Lexington's convention center and the Rupp Arena. The Company has leased the
Hotel to NorthCoast and Hyatt manages the Hotel.
Doubletree Denver/Boulder, Westminster (Denver), Colorado. In June 1996, the
Company acquired the 180-room Doubletree Denver/Boulder in suburban Denver,
Colorado for approximately $12.5 million in cash. The Company intends to
complete approximately $950,000 of renovations to the Hotel. The Hotel is the
Company's first Doubletree branded property and first acquisition in the
Denver area. The Company has leased the Hotel to the Doubletree Lessee and DTM
Management Inc., a subsidiary of Doubletree Hotels, manages the Hotel.
Wyndham Greenspoint Hotel, Houston, Texas; Wyndham Garden-Midtown, Atlanta,
Georgia. In July 1996, the Company acquired the 472-room Wyndham Greenspoint
Hotel located in Houston, Texas and the 191-room Wyndham Garden-Midtown
located in Atlanta, Georgia for approximately $61.0 million in cash and 17,036
OP Units, valued at approximately $500,000 at the time of the acquisition. The
Company has leased these Hotels to the Wyndham Lessee and Wyndham manages the
Hotels. In connection with this acquisition, the Company agreed to maintain at
least $22.0 million of debt on the Wyndham Greenspoint Hotel until the end of
1999 and Paine Webber Real Estate has extended the $22.0 million Greenspoint
Loan. See "--Financing Activities--Greenspoint Loan."
PROPOSED ACQUISITIONS
The Company has entered into contracts to purchase the Proposed Acquisitions
for an aggregate purchase price (excluding acquisition-related expenses) of
approximately $103 million. The purchase of each of the Proposed Acquisitions
is subject to satisfactory completion of closing conditions, including, with
regard to the acquisition of the three Wyndham Garden Hotels described below,
the waiver or significant reduction of certain prepayment penalties on debt of
the current owners secured by the hotels. No assurances can be given that the
Company will acquire any or all of the Proposed Acquisitions. Assuming
completion of the Proposed Acquisitions, the Company will have invested
approximately $380 million in hotel acquisitions since the Initial Offering,
more than doubling its rooms portfolio to a total of 41 hotels with 9,790
rooms. Set forth below are summary descriptions of the Proposed Acquisitions.
Marriott WindWatch Hotel, Hauppauge (Long Island), New York. In March 1996,
the Company entered into an agreement to acquire the 362-room Marriott
WindWatch Hotel in Hauppauge (Long Island), New York for approximately $30
million in cash. This Proposed Acquisition will represent the Company's first
hotel in the metropolitan New York area.
Bonaventure Resort & Spa, Ft. Lauderdale, Florida. In May 1996, the Company
entered into an agreement to acquire the 492-room Bonaventure Resort & Spa in
Ft. Lauderdale, Florida for approximately $16.2 million in cash and the
assumption of approximately $3.0 million in operating liabilities. The hotel
is situated on 23 acres and is 15 miles west of Ft. Lauderdale International
Airport. Upon completion of the acquisition, the Company intends to complete
an $8.5 million renovation of the hotel and implement a strategic and
marketing plan which will include branding the facility as a Registry Resort
and Spa. The Company currently anticipates that CHC Lease Partners will lease
and a hotel management subsidiary of CHC will manage the hotel.
Wyndham Garden Hotels. In July 1996, the Company entered into an agreement
to acquire the 148-room Wyndham Garden located in Novi (Detroit), Michigan;
the 162-room Wyndham Garden located in Wood Dale (Chicago), Illinois; and the
168-room Wyndham Garden-Las Colinas located in Irving (Dallas), Texas for
approximately $35.3 million in cash. The Company currently anticipates that
the Wyndham Lessee will lease and Wyndham will manage each of the Wyndham
Garden Hotels.
30
<PAGE>
Valley River Inn, Eugene, Oregon. In July 1996, the Company entered into an
agreement to acquire the 257-room Valley River Inn in Eugene, Oregon for
approximately $18.8 million in cash. The hotel is situated on the banks of the
Willamette River and is adjacent to the Valley River Center Mall. The Company
currently anticipates that NorthCoast will lease and WestCoast Hotels will
manage the hotel.
In addition to the Proposed Acquisitions, as part of its ongoing business,
the Company continually engages in discussions with public and private real
estate entities regarding possible portfolio or single asset acquisitions. The
Company currently has over $800 million of hotel acquisition opportunities
under review. No assurances can be given that the Company will acquire any of
the hotel opportunities currently under review.
FINANCING ACTIVITIES
Private Placement. In May 1996, the Company sold an aggregate of
approximately $40.0 million of equity securities to an institutional investor
that purchased the securities on behalf of two owners. The securities
consisted of 811,393 shares of Common Stock sold at $26.95 per share and
662,391 Preferred OP Units sold at $27.375 per unit. The Common Stock is of
the same class as the Company's existing Common Stock and is entitled to the
same voting and dividend rights as all outstanding Common Stock. The purchaser
is subject to certain restrictions on the resale of the Common Stock. The
Preferred OP Units are entitled to quarterly distributions equal to 103% of
the current quarterly dividends paid on the Common Stock. Distributions on the
Preferred OP Units increase or decrease concurrently with any changes in
Common Stock dividends. Prior to the third anniversary of issuance, the
Preferred OP Units generally will not be exchangeable for Common Stock, except
under certain limited circumstances. After three years, the holders will have
the right to exchange Preferred OP Units for shares of Common Stock on a one-
for-one basis, subject to adjustment and to an ownership limitation of 4.9% of
all outstanding Common Stock. In the event that the Operating Partnership
generates unrelated business taxable income, as defined in section 512 of the
Code ("UBTI") in excess of a threshold amount, the quarterly distributions on
the Preferred OP Units will be increased to account for the tax payable on
such excess UBTI. After 10 years, the Company will have the right to exchange
all outstanding Preferred OP Units for shares of Common Stock on a one-for-one
basis, subject to adjustment.
Line of Credit. In May 1996, the maximum amount available under the Line of
Credit was increased from $165 million to $250 million and certain other
modifications were made, thereby increasing the Company's ability to borrow
under the Line of Credit. In July 1996, the Line of Credit was further
modified to provide that while the Greenspoint Loan is outstanding, the
maximum amount that the Company may draw on the Line of Credit will be $228
million. The Line of Credit and the Greenspoint Loan are cross-defaulted. The
Line of Credit matures in October 1998 and bears interest at a rate per annum
equal to 30-day LIBOR plus 1.90%. No prepayment penalties are required under
the Line of Credit. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations--Liquidity and Capital Resources."
Greenspoint Loan. In July 1996, Paine Webber Real Estate extended the $22.0
million Greenspoint Loan. The entire principal amount under the Greenspoint
Loan matures in October 1998 and bears interest at a rate per annum equal to
30-day LIBOR plus 1.90%. No prepayment penalties are required in connection
with the prepayment of amounts outstanding under the Greenspoint Loan.
NEW FRANCHISE AND BRAND AFFILIATIONS
With the completion of the Recent Acquisitions, the Company expanded the
franchise and brand affiliations in its portfolio to include Crowne Plaza(R),
Doubletree(R), Embassy Suites(R), Hyatt(R), Wyndham(TM), Wyndham Garden(R) and
WestCoast(R).
31
<PAGE>
USE OF PROCEEDS
The net proceeds to the Company from the Offering, after payment of expenses
incurred in connection with the Offering, are estimated to be approximately
$133.7 million (approximately $154.2 million if the Underwriters' over-
allotment is exercised in full). The Company intends to apply the net proceeds
of the Offering to reduce amounts outstanding under the Line of Credit (which
amounts have been borrowed principally to complete the Recent Acquisitions)
and/or for general corporate and working capital purposes. All outstanding
borrowings under the Line of Credit mature in October 1998 and bear interest
at a rate per annum equal to 30-day LIBOR plus 1.90%. No prepayment penalties
are required under the Line of Credit.
Pending the uses described above, the net proceeds will be invested in
interest-bearing accounts and short-term, interest-bearing securities, which
are consistent with the Company's intention to qualify for taxation as a REIT.
Such investments may include, for example, government and government agency
securities, certificates of deposit, interest-bearing bank deposits and
mortgage loan participations.
32
<PAGE>
PRICE RANGE OF COMMON STOCK AND DISTRIBUTION HISTORY
The Company's Common Stock began trading on the NYSE on September 27, 1995,
under the symbol "PAH." On July 10, 1996, the last reported sale price per
share of Common Stock on the NYSE was $28.875 and there were approximately 77
holders of record of the Company's Common Stock. The following table sets
forth the quarterly high and low closing sale prices per share of Common Stock
reported on the NYSE and the distributions paid by the Company with respect to
each such period.
<TABLE>
<CAPTION>
CASH
DISTRIBUTIONS
DECLARED
QUARTER ENDED HIGH LOW PER SHARE
------------- ------- -------- -------------
<S> <C> <C> <C>
September 30, 1995 (from September
27, 1995).......................... $25.625 $ 24.75 N/A
December 31, 1995................... $25.75 $ 23.50 $0.48
March 31, 1996 ..................... $28.75 $ 25.75 $0.48
June 30, 1996....................... $29.625 $ 26.75 $0.48
September 30, 1996 (through July 10,
1996).............................. $30.125 $ 28.875 N/A
</TABLE>
The Company's Board of Directors has declared a quarterly distribution of
$0.48 per share to be paid on July 30, 1996 to shareholders of record on June
27, 1996. Purchasers of Common Stock in the Offering will not receive the
second quarter 1996 dividend in respect of the shares of Common Stock offered
hereby. Future distributions by the Company will be at the discretion of the
Board of Directors and will depend on the Company's financial condition, its
capital requirements, the annual distribution requirements under the REIT
provisions of the Code and such other factors as the Board of Directors deems
relevant. There can be no assurance that any such distributions will be made
by the Company.
Distributions by the Company to the extent of its current and accumulated
earnings and profits for federal income tax purposes generally will be taxable
to stockholders as ordinary dividend income. Distributions in excess of
current and accumulated earnings and profit will be treated as a non-taxable
reduction of the stockholder's basis in its shares of Common Stock to the
extent thereof, and thereafter as taxable gain. Distributions that are treated
as a reduction of the stockholder's basis in its shares of Common Stock will
have the effect of deferring taxation until the sale of the stockholder's
shares. The Company has determined that, for federal income tax purposes,
approximately 26% of the $0.48 per share distribution paid for 1995
represented a return of capital to the stockholders. Given the dynamic nature
of the Company's acquisition strategy and the extent to which any future
acquisitions would alter this calculation, no assurances can be given
regarding what percent of future distributions will constitute return of
capital for federal income tax purposes.
In the future the Company may implement a dividend reinvestment program
under which holders of Common Stock may elect automatically to reinvest
dividends and make additional investments in shares of Common Stock. If a
dividend reinvestment and stock purchase program is implemented, the Company
may, from time to time, repurchase Common Stock in the open market for
purposes of fulfilling its obligations under the program, or may elect to
issue additional shares of Common Stock.
33
<PAGE>
CAPITALIZATION
The following table sets forth the capitalization of the Company as of March
31, 1996 on an historical basis and on a pro forma basis, assuming completion
of the Offering and the use of the proceeds from the Offering as described in
"Use of Proceeds."
<TABLE>
<CAPTION>
MARCH 31, 1996
--------------------
HISTORICAL PRO FORMA
---------- ---------
($ IN THOUSANDS)
<S> <C> <C>
Line of credit and mortgage debt.......................... $ 50,250 $ 37,277
Minority interest......................................... 45,485 72,737
Shareholders' equity:
Preferred Shares, no par value, 20,000,000 shares
authorized,
no shares issued and outstanding........................ -- --
Common Stock, no par value, 200,000,000 shares
authorized,
14,665,935 shares issued and outstanding, and 20,478,648
shares issued and outstanding, as adjusted(1)........... -- --
Paid-in capital.......................................... 264,503 419,685
Unearned executive compensation net of accumulated amor-
tization................................................ (1,185) (1,185)
Distributions in excess of earnings...................... (1,591) (1,591)
-------- --------
Total shareholders' equity............................... 261,727 416,909
-------- --------
Total capitalization.................................... $357,462 $526,923
======== ========
</TABLE>
- --------
(1) Excludes 3,502,328 shares issuable upon redemption of OP Units or exchange
of Preferred OP Units outstanding prior to the Offering.
34
<PAGE>
SELECTED FINANCIAL INFORMATION
The following tables set forth selected historical financial information
and/or selected unaudited pro forma financial information for the Company, the
Lessees and the Initial Hotels.
With respect to the Company, the following tables set forth (i) selected
consolidated historical financial information for the period October 2, 1995
(inception of operations) through December 31, 1995 and the three months ended
March 31, 1996 (unaudited), (ii) selected consolidated historical balance
sheet data as of December 31, 1995, and March 31, 1996 (unaudited),
(iii) selected consolidated unaudited pro forma financial information for the
year ended December 31, 1995, the twelve months ended March 31, 1996 and the
three months ended March 31, 1996, and (iv) selected pro forma balance sheet
data as of March 31, 1996. The selected consolidated historical financial
information for the Company as of December 31, 1995, and for the period
October 2, 1995 (inception of operations) through December 31, 1995, has been
derived from historical financial statements of the Company audited by Ernst &
Young LLP, independent auditors, whose report with respect thereto is included
elsewhere herein.
With respect to the Lessees, the following tables set forth (i) selected
historical operating information for CHC Lease Partners for the period October
2, 1995 (inception) through December 31, 1995 and for the three months ended
March 31, 1996 (unaudited), (ii) selected unaudited historical operating
information for Metro Lease Partners for the period November 15, 1995
(inception) through December 31, 1995 and for the three months ended March 31,
1996, and (iii) selected combined unaudited pro forma operating information
for the Lessees for the year ended December 31, 1995, the twelve months ended
March 31, 1996 and the three months ended March 31, 1996. The selected
historical operating information for CHC Lease Partners for the period October
2, 1995 (inception) through December 31, 1995, has been derived from the
historical financial statements of CHC Lease Partners audited by Price
Waterhouse LLP, independent certified public accountants, whose report with
respect thereto is included elsewhere herein. The selected historical
operating information for Metro Lease Partners has been derived from the
unaudited financial statements of Metro Lease Partners for the periods
indicated.
With respect to the Initial Hotels, the following tables set forth (i)
selected combined historical financial information for the Initial Hotels as
of and for each of the years in the four-year period ended December 31, 1994
and for the period January 1, 1995 through October 1, 1995 and the three
months ended March 31, 1995 (unaudited), and (ii) selected historical
financial information for Troy Park Associates as of and for each of the years
in the four-year period ended December 29, 1994. The selected combined
historical financial information for the Initial Hotels as of December 31,
1994, and for each of the years in the two-year period ended December 31,
1994, and the period January 1, 1995 through October 1, 1995, have been
derived from the historical Combined Financial Statements of the Initial
Hotels audited by Ernst & Young LLP, independent auditors, whose report is
based in part on the reports of Coopers & Lybrand L.L.P., independent
accountants, as set forth in their respective reports thereon for Certain of
the Initial Hotels and Troy Hotel Investors. The financial information for
Troy Park Associates as of December 29, 1994 and for the period January 1,
1994 through December 29, 1994, and the year ended December 31, 1993 has been
derived from the historical financial statements of Troy Park Associates
audited by Coopers and Lybrand L.L.P., independent accountants, as set forth
in their report thereon. Such reports are located elsewhere herein.
The unaudited pro forma operating information is presented as if the Initial
Offering, Formation Transactions, the Recent Acquisitions, Private Placement
and the current Offering had occurred as of the beginning of the period
presented. The unaudited pro forma information does not purport to represent
what the Company's or the Lessees' results of operations would actually have
been if such events and transactions had, in fact, occurred on such date or to
project the Company's or the Lessees' results of operations for any future
period.
The following selected financial information should be read in conjunction
with "Management's Discussion and Analysis of Financial Condition and Results
of Operations" and the financial statements and notes thereto located
elsewhere herein.
35
<PAGE>
PATRIOT AMERICAN HOSPITALITY, INC.
SELECTED CONSOLIDATED HISTORICAL AND PRO FORMA OPERATING AND FINANCIAL DATA(1)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
HISTORICAL(2) PRO FORMA
-------------------------------- -----------------------------------------------
PERIOD
OCTOBER 2, 1995
(INCEPTION OF
OPERATIONS) THREE MONTHS TWELVE MONTHS THREE MONTHS
THROUGH ENDED YEAR ENDED ENDED ENDED
DECEMBER 31, 1995 MARCH 31, 1996 DECEMBER 31, 1995 MARCH 31, 1996 MARCH 31, 1996
----------------- -------------- ----------------- -------------- --------------
(UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
OPERATING DATA:
Revenue:
Participating lease
revenue(3)............ $ 10,582 $ 12,371 $ 75,921 $ 76,733 $19,983
Interest and other
income................ 513 92 53 132 92
--------- -------- -------- -------- -------
Total revenue......... 11,095 12,463 75,974 76,865 20,075
--------- -------- -------- -------- -------
Expenses:
Real estate and
personal property
taxes and casualty
insurance............. 901 1,082 6,928 6,995 1,841
Ground lease expense... -- 77 1,351 1,362 332
General and
administrative(4)..... 607 941 3,150 3,150 1,010
Interest expense(5).... 89 601 3,195 3,160 776
Depreciation and
amortization.......... 2,590 2,838 18,040 18,117 4,529
--------- -------- -------- -------- -------
Total expenses........ 4,187 5,539 32,664 32,784 8,488
--------- -------- -------- -------- -------
Income before equity in
earnings of
unconsolidated
subsidiary, minority
interest and
extraordinary items... 6,908 6,924 43,310 44,081 11,587
Equity in earnings of
unconsolidated
subsidiary............ 156 1,362 3,574 3,912 1,362
--------- -------- -------- -------- -------
Income before minority
interest and
extraordinary items... 7,064 8,286 46,884 47,993 12,949
Minority interest in
Operating
Partnership(6)........ (968) (1,158) (6,845) (7,007) (1,891)
--------- -------- -------- -------- -------
Income before
extraordinary items... 6,096 7,128 40,039 40,986 11,058
Extraordinary items,
net of minority
interest(7)........... (737) -- -- -- --
--------- -------- -------- -------- -------
Net income applicable
to common
shareholders.......... $ 5,359 $ 7,128 $ 40,039 $ 40,986 $11,058
========= ======== ======== ======== =======
PER SHARE DATA:
Income before
extraordinary items... $ 0.42 $ 0.48 $ 1.96 $ 2.00 $ 0.54
Extraordinary items,
net of minority
interest.............. (0.05) -- -- -- --
--------- -------- -------- -------- -------
Net income applicable
to common
shareholders.......... $ 0.37 $ 0.48 $ 1.96 $ 2.00 $ 0.54
========= ======== ======== ======== =======
Dividends per common
share................. $ 0.48 $ 0.48
========= ========
Weighted average common
shares and common
share equivalents
outstanding........... 14,675 14,734 20,479 20,479 20,479
========= ======== ======== ======== =======
CASH FLOW DATA:
Cash provided by
operating
activities(8)......... $ 7,618 $ 9,002 $ 66,386 $ 67,235 $17,375
Cash used in investing
activities(9)......... (306,948) (37,838) (10,508) (10,645) (2,684)
Cash provided by (used
in) financing
activities(10)........ 304,099 32,165 (46,082) (46,082) (11,520)
OTHER DATA:
Funds from
Operations(11)........ $ 9,798 $ 11,634 $ 66,886 $ 68,082 $17,988
Cash Available for
Distribution(12)...... 8,603 10,388 57,145 58,205 15,498
Weighted average common
shares and OP Units
outstanding........... 17,024 17,107 23,981 23,981 23,981
</TABLE>
<TABLE>
<CAPTION>
HISTORICAL
-------------------------------- PRO FORMA
DECEMBER 31, 1995 MARCH 31, 1996 MARCH 31, 1996
----------------- -------------- --------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C>
BALANCE SHEET DATA:
Investment in hotel
properties, at cost, net..... $265,759 $306,552 $479,151
Total assets.................. 324,224 369,578 541,554
Total debt.................... 9,500 50,250 37,277
Minority interest in Operating
Partnership.................. 41,522 45,485 72,737
Shareholders' equity.......... 261,778 261,727 416,909
</TABLE>
(Notes on page 40)
36
<PAGE>
LESSEES
SELECTED HISTORICAL AND COMBINED PRO FORMA FINANCIAL DATA(1)
(IN THOUSANDS)
<TABLE>
<CAPTION>
HISTORICAL(2) COMBINED PRO FORMA
-------------------------------------------------------------- ------------------------------------------
CHC LEASE PARTNERS METRO LEASE PARTNERS
------------------------------ -------------------------------
PERIOD PERIOD
OCTOBER 2, 1995 NOVEMBER 15,
(INCEPTION) 1995 (INCEPTION)
THROUGH THREE MONTHS THROUGH THREE MONTHS YEAR ENDED TWELVE MONTHS THREE MONTHS
DECEMBER 31, ENDED DECEMBER 31, ENDED DECEMBER 31, ENDED ENDED
1995 MARCH 31, 1996 1995 MARCH 31, 1996 1995 MARCH 31, 1996 MARCH 31, 1996
--------------- -------------- ---------------- -------------- ------------ -------------- --------------
(UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
FINANCIAL DATA:
Room revenue.... $21,092 $24,260 $ 416 $1,048 $158,865 $160,909 $40,549
Food and
beverage
revenues....... 8,524 7,998 125 242 61,037 61,364 14,913
Conference
center revenue. 576 645 -- -- 2,434 2,380 645
Telephone and
other revenue.. 1,703 2,295 29 78 14,807 15,271 3,979
------- ------- ----- ------ -------- -------- -------
Total revenue... 31,895 35,198 570 1,368 237,143 239,924 60,086
Hotel operating
expenses....... 20,386 22,082 415 968 156,684 158,799 39,631
Participating
Lease
payments(3).... 10,432 11,918 150 453 75,921 76,733 19,983
------- ------- ----- ------ -------- -------- -------
Income before
Lessee
expenses....... 1,077 1,198 5 (53) 4,538 4,392 472
Lessee
expenses(13)... 568 565 5 34 5,646 5,509 1,170
------- ------- ----- ------ -------- -------- -------
Net income
(loss)(13)..... $ 509 $ 633 $ -- $ (87) $ (1,108) $ (1,117) $ (698)
======= ======= ===== ====== ======== ======== =======
</TABLE>
(Notes on page 40)
37
<PAGE>
INITIAL HOTELS(14)
SELECTED COMBINED HISTORICAL FINANCIAL DATA
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
PERIOD THREE
JANUARY 1, 1995 MONTHS
YEAR ENDED DECEMBER 31, THROUGH ENDED
---------------------------------------- OCTOBER 1, MARCH 31,
1991 1992 1993 1994 1995 1995
----------- -------- -------- -------- --------------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
FINANCIAL DATA:
Room revenue........... $23,654 $ 35,844 $ 57,504 $ 69,969 $65,192 $22,242
Food and beverage
revenue............... 10,354 13,533 20,168 23,770 21,872 7,613
Conference center
revenue............... 1,538 1,794 1,970 2,149 1,858 699
Telephone and other
revenue............... 1,788 2,842 4,660 5,593 5,860 1,857
------- -------- -------- -------- ------- -------
Total revenue........ 37,334 54,013 84,302 101,481 94,782 32,411
Departmental and other
expenses(15).......... 29,287 40,795 61,555 70,888 66,071 21,527
Real estate and
personal property
taxes and casualty
insurance............. 1,519 2,299 3,539 3,786 3,413 1,128
Depreciation and
amortization.......... 3,847 4,243 6,649 8,832 7,694 2,649
Interest expense....... 4,487 5,290 9,609 11,197 11,674 4,904
------- -------- -------- -------- ------- -------
Income (loss) before
sale of assets and
extraordinary item.... (1,806) 1,386 2,950 6,778 5,930 2,203
Gain (loss) on sale of
assets................ -- (12) (41) 170 -- --
Extraordinary item..... -- -- -- -- (1,803) (1,803)
------- -------- -------- -------- ------- -------
Net income (loss)...... $(1,806) $ 1,374 $ 2,909 $ 6,948 $ 4,127 $ 400
======= ======== ======== ======== ======= =======
BALANCE SHEET DATA:
Investment in hotel
properties, net....... $56,327 $103,422 $128,555 $149,034 -- --
Total assets........... 64,103 115,284 144,982 171,119 -- --
Mortgages and other
notes payable......... 47,774 85,624 114,619 131,095 -- --
Capital lease
obligations........... 318 538 803 2,284 -- --
Total partners' and
owners' equity........ 11,895 24,739 14,142 19,262 -- --
OTHER DATA:
Number of hotels (at end
of period)............. 11 16 19 20 20 20
Number of rooms (at end
of period)............. 1,814 3,186 3,857 4,207 4,206 4,207
</TABLE>
(Notes on page 40)
38
<PAGE>
TROY PARK ASSOCIATES
SELECTED HISTORICAL FINANCIAL DATA
(IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------- DECEMBER 29,
1991 1992 1993 1994
----------- ------- ------- ------------
(UNAUDITED)
<S> <C> <C> <C> <C>
FINANCIAL DATA:
Room revenue....................... $ 7,102 $ 7,453 $ 7,966 $ 9,085
Food and beverage revenue.......... 5,612 5,580 6,123 6,387
Conference center revenue.......... -- -- -- --
Telephone and other revenue........ 856 950 1,014 1,076
------- ------- ------- --------
Total revenue.................... 13,570 13,983 15,103 16,548
Departmental and other ex-
penses(15)........................ 10,513 10,840 11,533 12,402
Real estate and personal property
taxes and casualty insurance...... 651 859 818 800
Depreciation and amortization...... 2,231 2,115 2,043 2,207
Interest expense................... 3,245 3,420 3,304 2,368
------- ------- ------- --------
(3,070) (3,251) (2,595) (1,229)
Provision for impairment of as-
sets(16).......................... -- -- -- 11,504
------- ------- ------- --------
Loss before sale of assets and ex-
traordinary item.................. (3,070) (3,251) (2,595) (12,733)
Extraordinary item(17 )............ -- -- 16,655 --
------- ------- ------- --------
Net income (loss).................. $(3,070) $(3,251) $14,060 $(12,733)
======= ======= ======= ========
BALANCE SHEET DATA:
Investment in hotel properties,
net............................... $35,132 $33,447 $31,889 $ 19,497
Total assets....................... 38,126 36,124 35,302 22,384
Mortgages and other notes payable.. 33,867 34,011 20,250 20,048
Capital lease obligations.......... 161 116 65 10
Total partners' and owners' equity
(deficit)......................... 1,967 (1,284) 12,776 43
</TABLE>
(Notes on following page)
39
<PAGE>
NOTES TO SELECTED FINANCIAL DATA
(1) Pro forma amounts as if the Operating Partnership recorded depreciation and
amortization and paid real estate and personal property taxes and casualty
insurance as contemplated by the Participating Leases.
(2) Includes actual results for the Initial Hotels throughout the period and
for the Recent Acquisitions since their respective dates of acquisition by
the Operating Partnership or its subsidiaries.
(3) Represents lease payments from the Lessees to the Operating Partnership in
accordance with the terms of the Participating Leases. Pro forma amounts
are calculated by applying the provisions of the Participating Leases to
the historical revenues of the Hotels as if January 1, 1995 were the
beginning of a lease year.
(4) Pro forma amounts include estimates for legal, accounting, travel and
other expenses associated with operating as a public company.
(5) Pro forma interest expense reflects amortization of deferred financing
costs and interest expense associated with the Line of Credit.
(6) Calculated as approximately 14.6% of the Operating Partnership's income
before extraordinary items on a pro forma basis.
(7) Pro forma operating results do not include the effect of extraordinary
items reported on an historical basis.
(8) Pro forma cash flows provided by operating activities represent income
before income allocable to minority interest, plus depreciation and
amortization (including amortization of unearned management stock
compensation), less the non-cash portion of the Company's equity in
earnings of unconsolidated subsidiary. The pro forma amounts do not include
adjustments from changes in working capital resulting from changes in
current assets and current liabilities as there is no historical data
available as of both the beginning and end of each period.
(9) Pro forma cash used in investing activities represent the approximate 4.0%
of hotel revenue which is required to be reserved under the terms of the
Participating Leases for capital improvements and the replacement and
refurbishment of F, F & E.
(10) Pro forma cash used in financing activities represents estimated
dividends and distributions to be paid based upon the Company's initial
annual dividend rate of $1.92 per share and an aggregate of 23,318,585
shares of Common Stock and OP Units outstanding and $1.98 per share on
the 662,391 Preferred OP Units outstanding.
(11) In accordance with the resolution adopted by the Board of Governors of
NAREIT, funds from operations represents net income (loss) (computed in
accordance with generally accepted accounting principles), excluding
gains (or losses) from debt restructuring or sales of property, plus
depreciation of real property, and after adjustments for unconsolidated
partnerships and joint ventures. Funds from operations should not be
considered as an alternative to net income or other measurements under
generally accepted accounting principles as an indicator of operating
performance or to cash flows from operating, investing or financing
activities as a measure of liquidity. Funds from operations does not
reflect working capital changes, cash expenditures for capital
improvements or principal payments on indebtedness. Under the
Participating Leases, the Company is obligated to establish a reserve for
capital improvements at the Hotels (including the replacement or
refurbishment of F, F & E) and to pay real estate and personal property
taxes and casualty insurance. The Company believes that funds from
operations is helpful to investors as a measure of the performance of an
equity REIT, because, along with cash flows from operating activities,
financing activities and investing activities, it provides investors with
an understanding of the ability of the Company to incur and service debt
and make capital expenditures.
(12) Cash Available for Distribution represents funds from operations, as
adjusted for certain non-cash items (e.g. non-real estate related
depreciation and amortization), less reserves for capital expenditures.
(13) Historical Lessee expenses represent management fees paid to the
Operators and Lessee overhead expenses, net of dividend and interest
income earned by the Lessees. Management fees paid to the Operators are
subordinate to the Lessees' obligations to the Company under the
Participating Lease agreements. Pro forma Lessee net income excludes pro
forma dividends on approximately 300,000 OP Units, which form a portion
of the required capitalization of certain of the Lessees and pro forma
interest income associated with the Lessees' working capital balances.
(14) The combined historical financial data are derived from the combined
financial statements of the Initial Hotels, which include the financial
position and results of operations of the Marriott Troy Hotel from the
date of acquisition (December 30, 1994) only.
(15) Represents departmental costs and expenses, general and administrative,
repairs and maintenance, utilities, marketing and management fees.
(16) Represents a provision for impairment of long-lived assets with respect
to the Marriott Troy Hotel prior to its acquisition in December 1994.
(17) Represents gain resulting from extinguishment of indebtedness related to
the Marriott Troy Hotel in 1993.
40
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
The accompanying discussion and analysis of financial condition and results
of operations is based on the consolidated financial statements of the
Company, the financial statements of CHC Lease Partners, and the combined
historical financial statements of the Initial Hotels and the historical
financial statements of Troy Park Associates, which are included elsewhere in
this Prospectus. The following discussion and analysis should be read in
conjunction with the accompanying financial statements and related notes
thereto.
BACKGROUND AND RECENT DEVELOPMENTS
The Company was formed April 17, 1995 as a self-administered REIT for the
purpose of acquiring equity interests in hotel properties. On October 2, 1995,
the Company completed the Initial Offering of 14,605,000 shares of its Common
Stock and commenced operations. The Company, through its wholly-owned
subsidiary, PAH LP, contributed substantially all of the net proceeds of the
Initial Offering to the Operating Partnership in exchange for an approximate
85.3% limited partnership interest in the Operating Partnership. The Company,
through its wholly-owned subsidiary, PAH GP, is the sole general partner and
the holder of a 1.0% general partnership interest in the Operating
Partnership.
The Operating Partnership used approximately $263,600,000 of the net
proceeds from the Company to acquire the 20 Initial Hotels with a total of
4,206 guest rooms from various entities and to repay existing mortgages and
other indebtedness of the Initial Hotels. In addition, in connection with the
Initial Offering, the Company closed on the Line of Credit with Paine Webber
Real Estate to be utilized primarily for the acquisition of additional hotels,
renovation of certain hotels and for working capital. Since the Initial
Offering, the Company has invested approximately $276,973,000 in the
acquisition of hotel properties (including purchase prices and acquisition-
related expenses).
On November 15, 1995, the Company acquired the 223-suite Embassy Suites
Hotel in Hunt Valley, Maryland for cash of approximately $15,961,000. The
purchase was paid for with a portion of the remaining net proceeds from the
Initial Offering.
On December 1, 1995, PAH Ravinia acquired the 495-room Crowne Plaza Ravinia
in Atlanta, Georgia. The Company paid approximately $4,456,000 for its
investment in PAH Ravinia and loaned to PAH Ravinia an aggregate of
$40,500,000 represented by first and second lien mortgage notes (the "Mortgage
Notes") for the purchase of this Hotel. The investment in PAH Ravinia and
funding of the Mortgage Notes were paid for in part with the remaining net
proceeds from the Initial Offering and in part with borrowings from the
Company's Line of Credit in the amount of $9,500,000.
During the first quarter of 1996, the Company acquired three additional
hotel properties in three states with an aggregate 830 guest rooms. The
Company acquired the 288-room Tremont House Hotel in Boston, Massachusetts on
January 16, 1996, for approximately $16,482,000 in cash. The purchase was
financed primarily with funds drawn on the Line of Credit. On March 4, 1996,
the Company acquired the 297-room Holiday Inn Lenox Hotel in Atlanta, Georgia
and on March 27, 1996, the Company acquired the 245-room Del Mar Hilton in Del
Mar (San Diego), California. The Holiday Inn Lenox Hotel was acquired for
approximately $7,340,000 in cash and 167,012 OP Units valued at approximately
$4,739,000 based upon the market price of the Company's common stock at the
closing of the acquisition. The cash portion of the purchase was funded with a
draw on the Line of Credit. The Del Mar Hilton was acquired for approximately
$14,765,000 in cash. The purchase was also financed primarily with funds drawn
on the Line of Credit.
41
<PAGE>
On April 2, 1996, the Company acquired the six hotel WestCoast Portfolio for
approximately $75,630,000 in cash and 331,577 OP Units, valued at
approximately $8,800,000 at the closing of the acquisition. The portfolio
includes the 194-suite WestCoast Plaza Park Suites Hotel, the 151-room
WestCoast Roosevelt Hotel and the 145-room WestCoast Gateway Hotel, all in
Seattle, Washington; the 410-room Hyatt Newporter Hotel in Newport Beach,
California; the 192-room WestCoast Long Beach Hotel and Marina in Long Beach,
California; and the 147-room WestCoast Wenatchee Center Hotel in Wenatchee,
Washington. The cash portion of the purchase was financed primarily with funds
drawn on the Line of Credit.
On May 22, 1996, the Company acquired the 365-room Hyatt Regency in
Lexington, Kentucky for approximately $14,320,000 in cash. On June 20, 1996,
the Company acquired the 180-room Doubletree Denver/Boulder in Westminster
(Denver), Colorado for approximately $12,520,000 in cash. These purchases were
financed primarily with funds drawn on the Line of Credit.
On July 15, 1996, the Company acquired the Wyndham Greenspoint Hotel located
in Houston, Texas and the Wyndham Garden-Midtown located in Atlanta, Georgia,
containing an aggregate of 663 rooms for approximately $60,960,000 (including
closing costs) in cash and 17,036 OP Units, valued at approximately $500,000
at the closing of the acquisition. In addition, the Company may be obligated
to pay up to $3,000,000 of additional consideration upon the achievement of
certain future operating results at these Hotels. In connection with this
acquisition, the Company has agreed to maintain at least $22,000,000 of debt
on the Wyndham Greenspoint Hotel until the end of 1999 and Paine Webber Real
Estate has extended the $22,000,000 Greenspoint Loan. See "Developments Since
the Initial Offering--Financing Activities--Greenspoint Loan."
The Company, through the Operating Partnership and PAH Ravinia, currently
owns 35 hotel properties in 13 states with an aggregate of 8,201 guest rooms.
The Hotels are diversified by franchise or brand affiliation and serve
primarily major U.S. business centers, including Atlanta, Boston, Cleveland,
Dallas, Denver, Houston and Seattle. In addition to hotels catering primarily
to business travelers, the Hotels include prominent hotels in major tourist
destinations, including New Orleans, San Antonio and San Diego. The Hotels
include 29 full service hotels, 5 limited service hotels and an executive
conference center. Thirty-one of the Hotels are operated under franchise or
brand affiliations with nationally recognized hotel companies.
In order for the Company to qualify as a REIT, neither the Company nor the
Operating Partnership can operate hotels. Therefore, the Operating Partnership
leases each of the Hotels, except the Crowne Plaza Ravinia, to a Lessee
pursuant to separate Participating Leases for staggered lease terms of ten to
twelve years. The Participating Leases provide for the payment of the greater
of Base Rent or Participating Rent, plus certain Additional Charges which vary
with the Participating Lease. Twenty-three of the Hotels are leased to CHC
Lease Partners, the Hotels in the WestCoast Portfolio and the Hyatt Regency
are leased to NorthCoast, the Wyndham Greenspoint Hotel and the Wyndham
Garden-Midtown are leased to the Wyndham Lessee, and Metro Lease Partners and
the Doubletree Lessee each lease one Hotel. The Crowne Plaza Ravinia Hotel
acquisition was structured without a lessee for reasons specific to the
acquisition. As a result, the Company receives its income from this Hotel's
operations as income from an unconsolidated subsidiary instead of lease
income.
The Operating Partnership's, and therefore the Company's, primary source of
revenue is lease payments by the Lessees under the Participating Leases.
Participating Rent is based primarily upon the Hotels' room revenue, and to a
lesser extent, food and beverage, conference center and other revenue. The
Lessees' ability to make lease payments to the Operating Partnership under the
Participating Leases is dependent upon their ability to generate cash flow
from the operation of the Hotels.
The Lessees and PAH Ravinia in turn have entered into separate Management
Agreements with Operators to operate the Hotels. CHC Lease Partners has
entered into Management Agreements whereby 22 of the Hotels are managed by
hotel management subsidiaries of CHC and GAH (all of which are affiliates of
CHC Lease Partners) and one Hotel is managed by Metro Hotels. NorthCoast has
entered into Management Agreements
42
<PAGE>
whereby WestCoast, a hotel management company affiliated with NorthCoast,
manages each of the hotels in the WestCoast Portfolio except the Hyatt
Newporter Hotel. The Hyatt Newporter Hotel and the Hyatt Regency in Lexington
are managed by Hyatt pursuant to separate Management Agreements between
NorthCoast and Hyatt. The Wyndham Greenspoint Hotel and the Wyndham Garden-
Midtown are managed by Wyndham pursuant to separate Management Agreements
between the Wyndham Lessee and Wyndham. Metro Lease Partners has entered into
a Management Agreement with Metro Hotels to manage the Embassy Suites, Hunt
Valley. The Doubletree Lessee has entered into a Management Agreement with
Doubletree Hotels to manage the Doubletree Denver/Boulder. The Crowne Plaza
Ravinia Hotel is being managed by Holiday Inns, Inc. pursuant to a Management
Agreement between PAH Ravinia and Holiday Inns, Inc.
PROPOSED ACQUISITIONS
The Company has entered into contracts to purchase the 492-room Bonaventure
Hotel & Spa in Fort Lauderdale, Florida for a purchase price of approximately
$16,200,000 in cash and the assumption of approximately $3,000,000 in
operating liabilities; the 362-room Marriott WindWatch Hotel in Hauppauge, New
York for a purchase price of approximately $30,000,000 in cash; the three
Wyndham Garden Hotels aggregating 478 rooms located in Novi (Detroit),
Michigan, Wood Dale (Chicago), Illinois, and Irving (Dallas), Texas for
approximately $35,300,000 in cash, and the 257-room Valley River Inn in
Eugene, Oregon for a purchase price of approximately $18,750,000 in cash.
The Company's purchase of each of the Proposed Acquisitions is subject to
the satisfaction of various closing conditions and, therefore, no assurance
can be given that these acquisitions will be completed.
RESULTS OF OPERATIONS OF THE COMPANY
Actual
Three Months Ended March 31, 1996. For the three months ended March 31,
1996, the Company earned $12,371,000 in Participating Lease revenue from the
Lessees, which is net of leasing cost amortization of $23,000. Interest and
other income, which was $92,000 for the period, consisted primarily of
interest income earned on invested cash balances of the Company's capital
improvement reserves. Depreciation and amortization for the period was
$2,838,000. Real estate and personal property taxes and insurance for the
period were $1,082,000 and rent payments on a ground lease were $77,000.
General and administrative expenses were $941,000 (including amortization of
unearned executive compensation of $166,000). The Company reported $601,000 of
interest expense for the period which consisted of $558,000 of interest
incurred on the Line of Credit balance outstanding and $43,000 of amortization
of deferred financing costs. The Company's share of income from an
unconsolidated subsidiary was $1,362,000. The minority interest's share of
income of the Company was $1,158,000 (representing the minority partners'
interest in the Operating Partnership). The resulting net income applicable to
common shareholders was $7,128,000.
For the period October 2, 1995 through December 31, 1995. For the period
October 2, 1995 (inception of operations) through December 31, 1995, the
Company earned $10,582,000 in Participating Lease revenue from the Lessees,
which is net of leasing cost amortization of $23,000. Interest and other
income, which was $513,000 for the period, consisted primarily of interest
income earned on invested cash balances resulting from exercise of the
underwriters' over-allotment option in connection with the Initial Offering.
Depreciation and amortization for the period was $2,590,000. Real estate and
personal property taxes and insurance for the period were $901,000 and general
and administrative expenses were $607,000 (including amortization of unearned
executive compensation of $71,000). The Company reported $89,000 of interest
expense for the period which consists of $62,000 of interest incurred on the
Line of Credit balance outstanding and $27,000 of amortization of deferred
financing costs. The Company's share of income from an unconsolidated
subsidiary was $156,000 and the minority interests' share of income of the
Company was $968,000. The Company reported extraordinary losses
43
<PAGE>
totaling $737,000 (net of the minority interests' share of losses) related to
the pay-off of assumed mortgage debt on hotel properties acquired. The
resulting net income applicable to common shareholders was $5,359,000.
Pro Forma (including Recent Acquisitions)
Three Months Ended March 31, 1996. Pro forma Participating Lease revenue was
$19,983,000 for the three months ended March 31, 1996, which is net of leasing
cost amortization of $23,000. Pro forma real estate and personal property
taxes and ground lease expense were $1,841,000 and $332,000, respectively, for
the quarter. General and administrative expense on a pro forma basis for the
first quarter of 1996 was $1,010,000. Pro forma interest expense was $776,000
including amortization of deferred financing costs associated with the Line of
Credit of $65,000 for the quarter. Pro forma depreciation and amortization
expense was $4,529,000. Pro forma income from an unconsolidated subsidiary was
$1,362,000. The minority interest's share of pro forma income of the Company
was $1,891,000. The resulting pro forma net income applicable to common
shareholders was $11,058,000.
Twelve months ended March 31, 1996. Pro forma Participating Lease revenue
was $76,733,000 for the twelve months ended March 31, 1996, which is net of
leasing cost amortization of $92,000. Of this amount $42,612,000 is
attributable to Participating Lease revenue from the Initial Hotels and
$34,121,000 is attributable to Participating Lease revenue from the Recent
Acquisitions. Pro forma real estate and personal property taxes and casualty
insurance expense was $6,995,000 for the period. Pro forma ground lease
expense was $1,362,000 and pro forma general and administrative expense was
$3,150,000 for the twelve months ended March 31, 1996. Pro forma interest
expense was $3,160,000, including amortization of deferred financing costs
associated with the Line of Credit of $260,000, and pro forma depreciation and
amortization was $18,117,000 for the twelve month period. Pro forma income
from an unconsolidated subsidiary was $3,912,000, an increase of $338,000 or
9.5% over the twelve months ended December 31, 1995, substantially as a result
of an increase in room revenues for the Crowne Plaza Ravinia of $349,000 in
the first quarter of 1996 compared to the first quarter of 1995, a 10.1%
increase. This also reflects an increase in revenue per available room of
13.9% for the first quarter of 1996 compared to the first quarter of 1995 for
this hotel. Real estate and personal property taxes and casualty insurance
expense and ground lease expense all increased only nominally in comparison to
pro forma expense reported for the year ended December 31, 1995. Depreciation
and amortization increased as a result of new capital additions in the fourth
quarter of 1995 and first quarter of 1996. The minority interest's share of
pro forma income of the Company was $7,007,000. The resulting pro forma net
income applicable to common shareholders was $40,986,000.
Year Ended December 31, 1995. Pro forma Participating Lease revenue was
$75,921,000 for the year ended December 31, 1995, which is net of leasing cost
amortization of $92,000. Of this amount $42,402,000 is attributable to
Participating Lease revenue from the Initial Hotels and $33,519,000 is
attributable to Participating Lease revenue from the Recent Acquisitions. Pro
forma real estate and personal property taxes and casualty insurance expense
was $6,928,000 for the year. Pro forma ground lease expense was $1,351,000 and
pro forma general and administrative expense was $3,150,000 for the year ended
December 31, 1995. Pro forma interest expense was $3,195,000, including
amortization of deferred financing costs associated with the Line of Credit of
$260,000, and pro forma depreciation and amortization was $18,040,000 for the
year. Pro forma income from an unconsolidated subsidiary was $3,574,000. The
minority interest's share of pro forma income of the Company was $6,845,000.
The resulting pro forma net income applicable to common shareholders was
$40,039,000.
Funds from Operations
Funds from operations (as defined and computed below) was $9,798,000 for the
period October 2, 1995 (inception of operations) through December 31, 1995 and
$11,634,000 for the three months ended March 31, 1996. On a pro forma basis,
funds from operations was $66,886,000 for the year ended December 31, 1995 and
$68,082,000 for the twelve months ended March 31, 1996.
The Company considers funds from operations to be a key measure of REIT
performance. Funds from operations represents net income (loss) (computed in
accordance with generally accepted accounting principles),
44
<PAGE>
excluding gains (or losses) from debt restructuring or sales of property, plus
depreciation of real property, and after adjustments for unconsolidated
partnerships and joint ventures. Adjustments for the Company's unconsolidated
subsidiary are calculated to reflect funds from operations on the same basis.
The Company has also made certain adjustments to funds from operations for
real estate related amortization and extraordinary losses. Funds from
operations should not be considered as an alternative to net income or other
measurements under generally accepted accounting principles as an indicator of
operating performance or to cash flows from operating, investing or financing
activities as a measure of liquidity. Funds from operations does not reflect
working capital changes, cash expenditures for capital improvements or
principal payments on indebtedness.
The following reconciliation of net income to funds from operations
illustrates the difference between the two measures of operating performance:
<TABLE>
<CAPTION>
PERIOD
OCTOBER 2, 1995 FOR THE THREE
THROUGH MONTHS ENDED
DECEMBER 31, 1995 MARCH 31, 1996
----------------- --------------
(IN THOUSANDS)
(UNAUDITED)
<S> <C> <C>
Net income................................ $ 5,359 $ 7,128
Add:
Minority interest in Operating Partner-
ship.................................... 968 1,158
Extraordinary items, net of minority in-
terest.................................. 737 --
Depreciation of buildings and improve-
ments and furniture, fixtures and equip-
ment.................................... 2,529 2,808
Amortization of franchise fees........... 27 22
Amortization of capitalized lease costs.. 23 23
Adjustment for funds from operations of
unconsolidated subsidiary:
Equity in earnings of unconsolidated sub-
sidiary................................. (156) (1,362)
Funds from operations of unconsolidated
subsidiary.............................. 311 1,857
------- -------
Funds from operations..................... $ 9,798 $11,634
======= =======
The Company's share of funds from opera-
tions.................................... $ 8,456 $10,009
======= =======
Fully diluted weighted average shares and
OP Units outstanding..................... 17,024 17,107
======= =======
Weighted average number of common shares
and common share equivalents outstanding. 14,675 14,734
======= =======
</TABLE>
RESULTS OF OPERATIONS OF THE LESSEES
Actual (for the Three Months Ended March 31, 1996)
CHC Lease Partners. For the three months ended March 31, 1996, CHC Lease
Partners had room revenues of $24,260,000 from the 23 hotels it leases. The
room revenue increase of $2,018,000, or 9.0%, over the quarter ended March 31,
1995, included $1,590,000 from the Recent Acquisitions with the remainder
resulting from a 7.1% increase in average daily room rates offsetting a
decline in occupancy from 74.3% to 70.0% at the Initial Hotels. Food and
beverage, conference center and other revenues were $10,938,000 for the
quarter, including $10,319,000 from the Initial Hotels and $619,000 from the
Recent Acquisitions. Food and beverage revenue declined slightly from the
previous year, from $7,613,000 to $7,579,000 for the Initial Hotels.
Conference center, telephone and other revenue increased by $184,000, or 7.2%
over 1995. Hotel operating expenses were $22,082,000, including $20,514,000
related to the Initial Hotels (compared to $20,039,000 in 1995) and $1,568,000
related to the Recent Acquisitions. Participating Lease payments were
$11,918,000 and net income was $633,000.
Combined Lessees. For the three months ended March 31, 1996, CHC Lease
Partners and Metro Lease Partners had combined room revenues of $25,308,000.
Combined food and beverage, conference center and other revenues were
$11,258,000 for the quarter. Participating Lease payments and hotel operating
expenses were $12,371,000 and $23,050,000, respectively, and net income was
$546,000. Metro Lease Partners reported a net loss after all costs and lease
expenses of $87,000 for the period.
45
<PAGE>
Actual (for the Period October 2, 1995 through December 31, 1995)
CHC Lease Partners. For the period October 2, 1995 (inception) through
December 31, 1995, CHC Lease Partners had room revenues of $21,092,000 from
the Initial Hotels. Food and beverage, conference center and other revenues
were $10,803,000 for the period. Participating Lease payments and hotel
operating expenses were $10,432,000 and $20,386,000, respectively, and net
income was $509,000.
Combined Lessees. For the period October 2, 1995 (inception of CHC Lease
Partners) through December 31, 1995, CHC Lease Partners and Metro Lease
Partners had combined room revenues of $21,508,000. Combined food and
beverage, conference center and other revenues were $10,957,000 for the
period. Participating Lease payments and hotel operating expenses were
$10,582,000 and $20,801,000, respectively, and net income was $509,000.
Combined Pro Forma (including the Recent Acquisitions)
Three Months Ended March 31, 1996. Pro forma room revenue was $40,549,000
for the three months ended March 31, 1996, including $22,670,000 for the
Initial Hotels and $17,879,000 for the Recent Acquisitions. For the Initial
Hotels, this was an increase of $428,000, or 1.9%, over the like period in
1995. Average occupancy for the Initial Hotels was 70.0%, the average daily
rate was $84.61 and revenue per available room was $59.23 for the three month
period. Average occupancy for all of the hotels (excluding the Crowne Plaza
Ravinia, which is not leased) was 68.8% for the first quarter of 1996. Average
daily rates were $84.25 and revenue per available room was $57.96 for the
period.
Pro forma food and beverage revenue was $14,913,000 for the first quarter of
1996, including $7,579,000 for the Initial Hotels and $7,334,000 for the
Recent Acquisitions. For the Initial Hotels, this represented a decrease of
$34,000 from the like period in 1995. Conference center, telephone and other
revenue was $4,624,000 for the period, including $2,740,000 for the Initial
Hotels and $1,884,000 for the Recent Acquisitions. For the Initial Hotels this
represented an increase of $184,000, or 7.2%, over 1995.
Pro forma hotel operating expenses were $39,631,000 for the three months
ended March 31, 1996, including $20,515,000 for the Initial Hotels and
$19,116,000 for the Recent Acquisitions. For the Initial Hotels this was an
increase of $771,000 from 1995. Pro forma hotel operating expenses for all of
the hotels as a percentage of total revenue was 66%. Pro forma Participating
Lease payments were $19,983,000 for the three months ended March 31, 1996.
Lessee expenses, which on a pro forma basis consist of management fees and
overhead expenses, net of actual dividend and interest income earned, were
$1,170,000, resulting in a pro forma net loss for the three months ended March
31, 1996 of $698,000.
Twelve Months Ended March 31, 1996. Pro forma room revenue was $160,909,000
for the twelve months ended March 31, 1996 including $86,713,000 for the
Initial Hotels and $74,196,000 for the Recent Acquisitions. Average occupancy
for all of the hotels (excluding the Crowne Plaza Ravinia, which is not
leased) was 71% for the twelve month period. Average daily rates were $80.53
and revenue per available room was $57.17 for the period. Average occupancy
for the Initial Hotels was 71.1%, the average daily rate was $79.29 and
revenue per available room was $56.34 for the twelve month period. Average
occupancy for the Recent Acquisitions (excluding the Crowne Plaza Ravinia,
which is not leased) was 70.9%, the average daily rate was $82.02 and revenue
per available room was $58.17 for the twelve month period.
Pro forma food and beverage revenue was $61,364,000 for the twelve months
ended March 31, 1996. Conference center revenue was $2,380,000 and telephone
and other revenue was $15,271,000 for the period. The Initial Hotels had pro
forma food and beverage revenue of $30,362,000, conference center revenue of
$2,380,000 and telephone and other revenue of $7,801,000 for the period. The
Recent Acquisitions had pro forma food and beverage revenue of $31,002,000 and
telephone and other revenue of $7,470,000 for the twelve months ended March
31, 1996.
46
<PAGE>
Pro forma hotel operating expenses were $158,799,000 for the twelve months
ended March 31, 1996. Pro forma hotel operating expenses as a percentage of
total revenue were 66.2%. Pro forma Participating Lease payments were
$76,733,000 for the twelve months ended March 31, 1996. The Initial Hotels had
pro forma hotel operating expenses of $82,474,000, which was 64.8% of total
revenue, and pro forma Participating Lease payments of $42,612,000 for the
twelve month period. The Recent Acquisitions had pro forma hotel operating
expenses of $76,325,000, which was 67.7% of total revenue. The operating
expenses for the Recent Acquisitions included $1,273,000 of ground lease
expense, or 1.1% of total revenue. Pro forma Participating Lease payments for
the Recent Acquisitions were $34,121,000 for the twelve months ended March 31,
1996.
Lessee expenses, which on a pro forma basis consist of management fees and
overhead expenses, net of dividend and interest income earned, were
$5,509,000, resulting in a pro forma net loss for the twelve months ended
March 31, 1996 of $1,117,000.
Year Ended December 31, 1995. Pro forma room revenue was $158,865,000 for
the year ended December 31, 1995, including $86,285,000 for the Initial Hotels
and $72,580,000 for the Recent Acquisitions. Average occupancy for all of the
hotels (excluding the Crowne Plaza Ravinia, which is not leased) was 71.5% for
the year. Average daily rates were $79.09 and revenue per available room was
$56.56 for 1995. On a same property basis (including all the Initial Hotels
except the Marriott Troy Hotel which was acquired in December 1994), each of
the Initial Hotels achieved increased room revenue in 1995 compared to 1994
except for the Holiday Inn Northwest Houston. Average occupancy for the
Initial Hotels was 72.1%, the average daily rate was $77.92 and revenue per
available room was $56.20 for 1995. Average occupancy for the Recent
Acquisitions (excluding the Crowne Plaza Ravinia, which is not leased) was
70.8%, the average daily rate was $80.53 and revenue per available room was
$57.00 in 1995.
Pro forma food and beverage revenue was $61,037,000 for 1995. Conference
center revenue was $2,434,000 and telephone and other revenue was $14,807,000
for the year. The Initial Hotels had pro forma food and beverage revenue of
$30,395,000, conference center revenue of $2,434,000 and telephone and other
revenue of $7,563,000 for the year ended December 31, 1995. The Recent
Acquisitions had pro forma food and beverage revenue of $30,642,000 and pro
forma telephone and other revenue of $7,244,000 for the year ended
December 31, 1995.
Pro forma hotel operating expenses were $156,684,000 for the year ended
December 31, 1995. Pro forma hotel operating expenses as a percentage of total
revenue were 66.1%. Pro forma Participating Lease payments were $75,921,000
for the year. The Initial Hotels had pro forma hotel operating expenses of
$81,704,000, which was 64.5% of total revenue, and pro forma Participating
Lease payments of $42,402,000. The Recent Acquisitions had pro forma hotel
operating expenses of $74,980,000, which was 67.9% of total revenue. The
operating expenses of the Recent Acquisitions included $1,259,000 of ground
lease expense, or 1.1% of total revenue. Pro forma Participating Lease
payments for the Recent Acquisitions was $33,519,000.
Lessee expenses, which on a pro forma basis consist of management fees and
overhead expenses, net of dividend and interest income earned, were
$5,646,000, resulting in pro forma net loss for the year ended December 31,
1996 of $1,108,000.
RESULTS OF OPERATIONS OF THE INITIAL HOTELS
For the Period January 1, 1995 through October 1, 1995. The Initial Hotels
had room revenues of $65,192,000 for the period January 1, 1995 through
October 1, 1995. On a same property basis (including all the Initial Hotels
except the Marriott Troy Hotel which was acquired in December 1994), each of
the Initial Hotels achieved increased room revenue in 1995 compared to 1994
except for the Holiday Inn Northwest Houston. Average occupancy was 73.3%, the
average daily rate was $77.15 and revenue per available room was $56.56 for
the period. Food and beverage, conference center and other revenue for the
period was $29,590,000. Departmental and other expenses (departmental costs
and expenses, general and administrative, repairs and
47
<PAGE>
maintenance, utilities, marketing and management fees) for the period were
$66,071,000, which represents 69.7% of total revenue. Income before fixed
expenses (composed of interest expense, real estate and personal property
taxes, insurance, and depreciation and amortization), gain on sale of assets
and extraordinary items was 30.3% of total revenue for the period, comparable
to the 1994 average of 30.1%. Fixed expenses totaled $22,781,000 for the
period, which represented an increase over 1994, due primarily to a one-time
participating debt payment at the Bourbon Orleans Hotel of $1,242,000 as well
as increased interest costs on new indebtedness incurred by the Initial Hotels
in 1995. Net income for the period was $4,127,000 and reflects an
extraordinary loss from debt extinguishment on the Bourbon Orleans Hotel of
$1,803,000.
Comparison of the Years Ended December 31, 1994 and 1993. Room revenue
increased from $57,504,000 to $69,969,000, an increase of $12,465,000 or
21.7%. Of the total increase in room revenue, $5,183,000, or 41.6%, was
attributable to the acquisition of three hotels during 1993. Increases in
average occupancy, from 65.4% to 70.7%, and average room rates, from $68.36 to
$70.24, an increase of 2.7%, also contributed to the increase in room revenue.
On a same property basis, (for the 16 hotels owned or managed during all of
1993 and 1994) room revenues increased $7,282,000 or 13.7%, of which
approximately $2,300,000 was attributable to increases in average daily rates
and approximately $4,982,000 was attributable to increases in occupancy. The
increases in both average daily rates and average occupancy were primarily due
to improving conditions in the U.S. lodging industry, completion of
renovations at certain of the Initial Hotels and increased sales and marketing
efforts. This improvement in room revenues occurred despite the fact that
seven of the Initial Hotels were undergoing renovations during 1993 (none of
which were completed during 1993) and renovations at four of the Initial
Hotels commenced during 1994.
Food and beverage revenue increased from $20,168,000 to $23,770,000, a total
of $3,602,000 or 17.9%. Of the total increase in food and beverage revenue,
$2,019,000, or 56.1%, was attributable to the inclusion of the food and
beverage operations of the three hotels acquired in 1993 for a full year in
1994. On a same property basis, food and beverage revenue increased $1,583,000
or 8.9%, due primarily to increased occupancy. This increase was partially
offset by converting the restaurant operations of the Bourbon Orleans Hotel
from owner operated to a third-party net lease in the fourth quarter of 1994.
Conference center revenue increased from approximately $1,970,000 to
$2,149,000, an increase of $179,000 or 9.0%, due primarily to increased
conference revenue resulting from improvement in the overall business climate.
Telephone and other revenue increased from approximately $4,660,000 to
$5,593,000, an increase of $933,000 or 20.0%. Of the total increase in
telephone and other revenue, $378,000 or 40.5% was attributable to inclusion
of a full year of activity for the hotels acquired in 1993. On a same property
basis, telephone and other revenue increased $555,000 or 12.9%, due primarily
to increased occupancy during the period.
Departmental and other expenses increased from $61,555,000 to $70,888,000,
an increase of $9,333,000 or 15.2%, which represented a decrease as a
percentage of total revenue from 73.0% to 69.9%. As a result, income before
fixed expenses, gain on sale of assets and extraordinary item increased from
27.0% to 30.1% of total revenue. Of the total increase in departmental and
other expenses, $5,737,000 or 61.5% related to the inclusion of a full year of
operations in 1994 for the hotels acquired in 1993. On a same property basis,
departmental and other expenses increased $3,596,000 or 6.4% as a result of
increased operating costs at certain of the hotels. General and administrative
expenses increased $594,000 or 7.7%, while repairs and maintenance and
utilities remained relatively stable. Marketing expenses increased $482,000 or
7.2% as a result of increased marketing efforts at newly renovated hotels.
Management fees increased $362,000 or 12.6% as a result of increased hotel
revenues during the period.
Fixed expenses increased from $19,797,000 to $23,815,000, representing an
increase of $4,018,000 or 20.3%, although fixed expenses as a percent of total
revenue remained constant at 23.5%. Of the total increase in fixed expenses,
$1,645,000 or 40.0% resulted from the inclusion of a full year of activity in
1994 for the three hotels acquired in 1993. On a same property basis,
depreciation and amortization increased $1,446,000 or 23.5% as a result of
improvements made to the hotels during 1993 and 1994. Real estate, personal
property taxes and insurance, remained relatively stable during the period,
while interest expense increased $993,000 or 11.0% as a result of new
indebtedness incurred by certain of the Initial Hotels.
48
<PAGE>
Net income increased from $2,909,000 in 1993 to $6,948,000 in 1994 as the
result of overall improvement in the operations of the Initial Hotels
described above.
LIQUIDITY AND CAPITAL RESOURCES
In May 1996, the maximum amount available under the Line of Credit was
increased from $165,000,000 to $250,000,000 and certain modifications were
made, thereby increasing the Company's ability to borrow under the Line of
Credit. The Company currently has approximately $149,000,000 outstanding on
the Line of Credit. The Line of Credit is secured by first mortgage liens on
25 of the Hotels and a second mortgage lien on the Wyndham Greenspoint Hotel.
Borrowings under the Line of Credit bear interest at a rate per annum equal to
30-day LIBOR plus 1.90%. In connection with the acquisition of the Wyndham
Greenspoint Hotel, the Company has obtained the $22,000,000 Greenspoint Loan
from Paine Webber Real Estate. Borrowings under the Greenspoint Loan bear
interest at a rate per annum equal to 30-day LIBOR plus 1.90%. In July 1996,
the Line of Credit was further modified to provide that while the Greenspoint
Loan is outstanding, the maximum amount that the Company may draw on the Line
of Credit will be $228,000,000. The Line of Credit and the Greenspoint Loan
are cross-defaulted. See "Developments Since the Initial Offering--Financing
Activities--Greenspoint Loan."
In May 1996, the Company sold an aggregate of approximately $40,000,000 of
securities to an institutional investor in the Private Placement. The
securities consisted of 811,393 shares of Common Stock sold at $26.95 per
share and 662,391 Preferred OP Units sold at $27.375 per unit. The Common
Stock is of the same class as the Company's existing Common Stock and is
entitled to the same voting and dividend rights as all outstanding Common
Stock, subject to certain restrictions on the resale of the stock. The
Preferred OP Units are entitled to quarterly distributions equal to 103% of
the current quarterly dividends paid on the Common Stock. Distributions on the
Preferred OP Units increase or decrease concurrently with any changes in
Common Stock dividends. Generally, three years following issuance, the holders
may exchange the Preferred OP Units for shares of Common Stock on a one-for-
one basis, subject to certain adjustments and limitations. After 10 years, the
Company will have the right to exchange all outstanding Preferred OP Units for
shares of Common Stock on a one-for-one basis, subject to adjustment.
In addition, the Company is evaluating other permanent sources of capital,
including equity and long-term debt. It is expected that additional common or
preferred stock offerings will be used both to acquire hotel properties and to
limit the Company's overall debt to market capitalization ratio.
The Company has entered into contracts to acquire the six Proposed
Acquisitions in the states of New York, Michigan, Texas, Illinois, Oregon and
Florida. These acquisitions are subject to various closing conditions and
there can be no assurance that any or all of the Proposed Acquisitions will be
consummated. The Company currently intends to use Line of Credit borrowings to
acquire these assets. While no definitive agreements with respect to the
acquisition of any additional hotels have been entered into, the Company
expects additional acquisitions will be completed during the remainder of
1996, which will be funded through Line of Credit borrowings or permanent debt
or equity financing.
The Company's principal source of cash to meet its cash requirements,
including distributions to its shareholders, is its share of the Operating
Partnership's cash flow. The Operating Partnership's principal source of
revenue is lease payments under the Participating Leases. The Lessees' ability
to make rent payments to the Operating Partnership, and, therefore, the
Company's liquidity, including the ability to make distributions to its
shareholders, is dependent upon the Lessees' ability to generate sufficient
cash flow from operation of the Hotels. The Lessees are current in their
payments to the Company under the Participating Leases.
Cash and cash equivalents as of March 31, 1996 were $8,098,000, including
capital improvement reserves of $1,806,000. Cash flows from operating
activities of the Company was $9,002,000 for the three months ended March 31,
1996, which primarily represents collection of rents under the Participating
Leases, less the Company's operating expenses for the period. Cash flows used
in investing activities in the amount of $37,838,000 resulted from the
acquisition of hotel properties. Cash flows from financing activities of
$32,165,000 was primarily related to $40,750,000 in borrowings on the Line of
Credit, net of dividends and distributions paid during the quarter.
49
<PAGE>
RENOVATIONS AND CAPITAL IMPROVEMENTS
Pursuant to the Participating Leases, the Company is obligated to establish
a reserve for each Hotel for capital improvements, including the periodic
replacement or refurbishment of F, F & E. The aggregate amount of such
reserves averages 4.0% of total revenue, with the amount of such reserve with
respect to each Hotel based upon projected capital requirements of such Hotel.
Management believes such reserves will generally be sufficient to fund
recurring capital expenditures for the Hotels. Capital expenditures, exclusive
of renovations, will exceed 4.0% of total revenues in 1996 for the reasons
described below.
The Company has budgeted $7,500,000 to fund capital expenditures, excluding
renovations, at the Initial Hotels in 1996 and approximately $3,800,000 to
complete capital expenditures, excluding renovations in 1996 for the Recent
Acquisitions. The $11,300,000 total exceeds anticipated reserves in 1996, as
the Company has been required to complete certain capital improvements by
franchisors (in connection with the transfer of franchise licenses) and has
decided to accelerate certain capital improvements which were originally
planned to be completed over a longer period. The budgeted capital
expenditures also include upgrades of telephone systems, other major equipment
purchases and improvements management believes will immediately enhance the
revenue producing capabilities of certain of the Hotels.
In addition to the above expenditures, the Company also has plans to
commence or complete renovation projects at several Hotels during 1996,
including the Crockett Hotel, the Tremont House Hotel, the Crowne Plaza
Ravinia, the Del Mar Hilton Hotel, the WestCoast Long Beach Hotel and Marina,
the Doubletree Denver/Boulder, the Wyndham Greenspoint Hotel and the Wyndham
Garden-Midtown. Total renovation cost is expected to be approximately
$17,500,000 (including approximately $8,500,000 to renovate the Tremont House
Hotel). The Company has spent approximately $900,000 of this amount through
March 31, 1996 and expects to spend the remainder in 1996 and early 1997. The
Company will finance these renovations with draws on its Line of Credit,
operating cash flow in excess of distributions and reserves, and/or through
permanent debt or equity financing. Funding for $1,066,000 of the Crowne Plaza
Ravinia renovation will come from a reserve provided by the seller at the
closing date. The Company attempts to schedule renovations and improvements
during traditionally lower occupancy periods in an effort to minimize
disruption to the hotel's operations. Therefore, the Company does not believe
such renovations and capital improvements will have a material effect on the
results of operations of the Hotels.
INFLATION
Operators of hotels in general possess the ability to adjust room rates
quickly. However, competitive pressures may limit the Lessees' ability to
raise room rates in the face of inflation.
SEASONALITY
The hotel industry is seasonal in nature. Revenues at certain of the Hotels
are greater in the first and second quarters of a calendar year and at other
Hotels in the second and third quarters of a calendar year. Seasonal
variations in revenue at the Hotels may cause quarterly fluctuations in the
Company's lease revenue.
50
<PAGE>
THE HOTEL INDUSTRY
The United States lodging industry is in the midst of a continuing recovery
from an extended period of unprofitable performance in the late 1980s and early
1990s. The Company expects that this broad industry recovery will contribute to
growth in revenues at the Hotels (and hotels subsequently acquired by the
Company) and thus to increases in the Company's Cash Available for
Distribution.
The hotel industry experienced an extended period of unprofitable performance
from 1986 to 1991. The industry downturn resulted from a dramatic increase in
the supply of hotel rooms that significantly outpaced growth in demand. The
growth in supply, which resulted from the development of new hotels, was
supported by the availability of financing from banks, savings and loans,
insurance companies, high yield bonds and various tax incentives. According to
Smith Travel, and as demonstrated in the chart below, total room supply in the
United States increased by 32%, or approximately 750,000 rooms, from 1980 to
1991. Of this increase, approximately 567,000 rooms were added between 1985 and
1991. In all but two of these years (1988 and 1989), increases in supply
substantially exceeded growth in demand. In some years, demand remained flat or
even declined. As a result of this extended supply/demand imbalance, overall
hotel occupancy rates dropped steadily from 70.6% in 1980 to a 20-year low of
60.9% in 1991. The graph set forth below illustrates the relationship between
supply, demand and occupancy. Increases in demand in excess of increases in
supply necessarily result in higher occupancy.
[BAR GRAPH DEPICTING PERCENTAGE CHANGE IN UNITED
STATES HOTEL ROOM SUPPLY VS. DEMAND (1980-1995) APPEARS HERE]
51
<PAGE>
The hotel industry began its recovery in 1992. New hotel construction
declined considerably as lenders who previously supported development focused
on restructurings and foreclosures of existing hotel loans. With minimal new
capital available for hotel construction, the growth in room supply declined
from a high of 4.2% in 1988 to 1.0% in 1993, and averaged approximately 1.3%
from 1993 through 1995. By contrast, room demand has increased with the
improving economy, and average occupancy and room rates have moved steadily
upward. According to Smith Travel, overall hotel occupancy increased from
60.9% in 1991 to 65.5% in 1995. Average room rate growth increased from 1.4%
in 1992 to 4.8% in 1995. Analysts generally expect overall occupancy growth to
be limited in future years, with continuing growth in average room rates.
While the hotel industry's recovery has been broad-based, the Company
expects the greatest continuing growth to occur in the full service segment of
the industry. Accordingly, the Company intends to continue to focus its
acquisition activities primarily on full service hotels. The Company also
believes the hotel industry's difficulties in the 1980's have produced a more
responsible relationship between hotel developers and financing sources. As a
result, the Company expects future additions to hotel supply, particularly in
the full service sector, will be more demand-driven, minimizing the
overbuilding in key markets that characterized supply growth in the late
1980's, and increasing the prospect for profitable hotel industry growth for
the foreseeable future.
THE HOTELS AND THE PROPOSED ACQUISITIONS
The Hotels are diversified by franchise or brand affiliation and product
type, including 29 full service hotels, 5 limited service hotels and an
executive conference center. The Company believes the diversity of its
portfolio moderates the potential effects on the Company of changes in local
market competition or developments affecting specific franchises, hotel
markets or price segments in the hotel industry. The Hotels are located
primarily in major metropolitan areas with convenient access to interstate
highways, commercial airports and other transportation facilities, local
business centers and tourist attractions. The Company's acquisition activities
are focused on full service hotels serving major U.S. business centers and
primary tourist destinations.
Consistent with the Company's acquisition strategy, the Proposed
Acquisitions consist of six full service hotels, all of which are located in
major metropolitan areas, including the Company's first full service hotel
acquisitions in the metropolitan New York and Chicago areas.
The tables on the following pages set forth certain information with respect
to the Hotels and the Proposed Acquisitions.
52
<PAGE>
<TABLE>
<CAPTION>
TWELVE MONTHS ENDED MARCH 31, 1996
-------------------------------------------------------
(DOLLARS IN THOUSANDS, EXCEPT ADR AND REVPAR)
NUMBER AVERAGE REVENUE PER
OF PRO FORMA DAILY AVAILABLE
GUEST YEAR BUILT/ TOTAL LEASE AVERAGE RATE ROOM
LOCATION ROOMS RENOVATED(1) REVENUE PAYMENTS(2) OCCUPANCY(3) (ADR)(3) (REVPAR)(4)
-------- ------ ------------ -------- ----------- ------------ -------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
OWNED HOTELS
FULL SERVICE HO-
TELS:
Marriott
Hotel(5)........ Troy, MI 350 1990 $ 17,980 $ 5,375 76.0% $103.34 $ 78.51
Holiday Inn
Select North
Dallas(5)....... Farmers Branch (Dallas), TX 374 1979/1994 10,178 2,837 69.2 72.24 49.95
Hilton Inn
Cleveland
South(5)........ Independence, OH 191 1980/1994 8,158 2,343 69.9 84.95 59.36
Crockett
Hotel(5)........ San Antonio, TX 206 1909/1983 5,174 2,347 67.4 83.16 56.01
Four Points by
Sheraton(5)..... Saginaw, MI 156 1984 4,170 1,098 75.9 61.10 46.38
Bourbon Orleans
Hotel(5)........ New Orleans, LA 211 1800s/1995 7,607 3,557 80.1 115.65 92.62
Radisson New
Orleans
Hotel(5)........ New Orleans, LA 759 1924/1995 19,411 5,705 65.8 78.51 51.64
Radisson Hotel &
Suites(5)....... Dallas, TX 198 1986/1994 5,151 1,713 78.0 70.51 54.97
Radisson Suites
Town &
Country(5)...... Houston, TX 173 1986/1992 4,647 1,823 74.2 79.41 58.88
Holiday Inn
Aristocrat(5)... Dallas, TX 172 1925/1994 4,686 1,520 68.7 82.42 56.60
Holiday Inn
Northwest(5).... Houston, TX 193 1982/1994 2,926 914 64.0 51.45 32.92
Holiday Inn
Northwest
Plaza(5)........ Austin, TX 193 1984/1994 6,370 2,395 84.7 81.75 69.24
Holiday Inn(5).. San Angelo, TX 148 1984/1994 3,078 977 74.3 57.13 42.43
Holiday Inn..... Sebring, FL 148 1983/1995 2,489 680 57.7 55.10 31.80
Fairmount Hotel. San Antonio, TX 37 1906/1994 2,793 643 74.0 148.96 110.19
Embassy Suites
Hunt Valley(5).. Hunt Valley, MD 223 1985/1995 6,026 1,900 70.7 80.18 56.68
Crowne Plaza
Ravinia(5)...... Atlanta, GA 495 1986/1993 22,254 N/A(9) 75.5 102.04 77.06
Tremont House
Hotel(5)(6)..... Boston, MA 288 1925/1988 9,952 3,001 75.4 89.62 67.60
Holiday Inn
Lenox(5)........ Atlanta, GA 297 1987/1995 7,233 2,759 72.8 77.27 56.24
Del Mar
Hilton(5)....... Del Mar (San Diego), CA 245 1989 7,644 1,917 68.4 77.08 52.69
WestCoast
Gateway Hotel... Seattle, WA 145 1990 2,560 1,236 83.3 51.99 43.32
WestCoast
Roosevelt
Hotel(5)........ Seattle, WA 151 1929/1987 4,049 2,050 74.4 89.75 66.75
WestCoast
Wenatchee Center
Hotel(5)........ Wenatchee, WA 147 1986/1994 4,236 824 63.4 59.05 37.41
Hyatt Newporter
Hotel........... Newport Beach, CA 410 1962 19,361 3,813 72.3 97.56 70.58
WestCoast Long
Beach Hotel and
Marina.......... Long Beach, CA 192 1976/1987 3,157 428 49.1 57.03 28.02
Hyatt
Regency(5)...... Lexington, KY 365 1977/1992 12,189 2,742 64.6 80.34 51.92
Doubletree
Denver/Boulder(5). Westminister (Denver), CO 180 1985/1992 5,461 1,693 78.1 70.65 55.20
Wyndham
Greenspoint Hotel(7). Houston, TX 472 1985/1995 18,272 6,113 72.6 82.44 59.84
Wyndham Garden
Hotel-Mid-
town(5)......... Atlanta, GA 191 1987/1994 6,422 2,294 73.7 93.74 69.06
----- -------- ------- ---- ------- -------
Subtotal/Weighted
Average......... 7,310 $233,634 $64,697 71.2% $ 82.05 $ 58.41
LIMITED SERVICE
HOTELS:
Hampton Inn
Jacksonville
Airport......... Jacksonville, FL 113 1985 $ 2,037 $ 865 88.8% $ 53.62 $ 47.59
Hampton Inn..... Rochester, NY 113 1986 2,194 1,099 74.1 69.33 51.37
Hampton Inn
Cleveland
Airport......... North Olmsted, OH 113 1986 1,902 898 75.8 59.33 44.94
Hampton Inn..... Canton, OH 108 1985 1,450 640 70.6 49.81 35.16
WestCoast Plaza
Park
Suites(5)(8).... Seattle, WA 194 1990 6,107 3,353 75.3 104.85 78.94
----- -------- ------- ---- ------- -------
Subtotal/Weighted
Average......... 641 $ 13,690 $ 6,855 76.8% $ 71.87 $ 55.16
CONFERENCE CEN-
TER:
Peachtree
Executive
Conference
Center(5)....... Peachtree City (Atlanta), GA 250 1984 $ 14,854 $ 5,181 59.6% $109.46 $ 65.18
----- -------- ------- ---- ------- -------
Total/Weighted
Average--Owned
Hotels.......... 8,201 $262,178 $76,733 71.3% $ 81.89 $ 58.36
===== ======== ======= ==== ======= =======
</TABLE>
(Notes on following page)
53
<PAGE>
<TABLE>
<CAPTION>
TWELVE MONTHS ENDED
MARCH 31, 1996
---------------------------------
AVERAGE REVENUE PER
DAILY AVAILABLE
NUMBER OF YEAR BUILT/ AVERAGE RATE ROOM
LOCATION GUEST ROOMS RENOVATED(1) OCCUPANCY(3) (ADR)(3) (REVPAR)(4)
-------- ----------- ------------ ------------ -------- -----------
<S> <C> <C> <C> <C> <C> <C>
PROPOSED ACQUISITIONS
Marriott WindWatch Ho-
tel................... Hauppauge, NY 362 1989 76.0% $99.83 $75.88
Bonaventure Resort &
Spa................... Ft. Lauderdale, FL 492 1981 59.0 90.54 53.41
Wyndham Garden Hotel... Novi (Detroit), MI 148 1988/1994 77.3 68.29 52.78
Wyndham Garden Hotel... Wood Dale (Chicago), IL 162 1986/1994 70.7 82.10 58.03
Wyndham Garden-Las
Colinas............... Irving (Dallas), TX 168 1986 75.9 96.22 73.04
Valley River Inn....... Eugene, OR 257 1973 69.2 83.96 58.12
</TABLE>
- --------
(1) The Company defines a renovation as a significant upgrade of guest rooms
or common areas with capital expenditures averaging at least $1,000 per
guest room for limited service hotels and at least $1,500 per guest room
for full service hotels and conference centers. In some cases, renovations
occurred over more than one calendar year. Year renovated reflects the
calendar year in which the most recent of such renovations were completed.
Information on renovations for Recent Acquisitions and Proposed
Acquisitions was provided by prior owners.
(2) Under the terms of the Participating Leases, Lessees are obligated to pay
the greater of Base Rent or Participating Rent plus Additional Charges,
which vary with the Participating Lease.
(3) The Company calculates Average Occupancy based upon total number of paid
rooms (excluding rooms for which no charge has been made) divided by the
total number of available rooms. Average Daily Rate is calculated using
paid occupied rooms.
(4) REVPAR is determined by dividing room revenue by available rooms for the
applicable period.
(5) The Line of Credit is secured by a first mortgage lien on this Hotel.
(6) The Company intends to increase the room count at this Hotel to 322 rooms
in connection with a planned $8.5 million renovation. At present only 283
of the 288 rooms are utilized as guest rooms.
(7) The Greenspoint Loan is secured by a first mortgage lien on this Hotel.
The Line of Credit is secured by a second mortgage lien on this Hotel.
(8) This Hotel currently contains unused restaurant space. The Company intends
to complete the build out of a restaurant in this space, thereby
converting the Hotel from a limited service to a full service property.
(9) The Crowne Plaza Ravinia is not leased. The Company's share of net income
and share of funds from operations from PAH Ravinia were $3,912,000 and
$5,822,000, respectively, on a pro forma basis for the twelve months ended
March 31, 1996.
SUPPLEMENTAL INFORMATION REGARDING SIGNIFICANT PROPERTIES
Crowne Plaza Ravinia--Atlanta, Georgia. The Crowne Plaza Ravinia is located
on a 10-acre wooded site just off Atlanta's perimeter freeway. The Hotel is
located adjacent to Holiday Inn Worldwide headquarters and directly across the
street from Perimeter Center Mall, one of the Southeast's largest upscale
shopping malls. The 15-story Hotel contains 495 guest rooms, including 29
suites, and three restaurants. The Hotel features a three-story greenhouse
lobby, 20 meeting rooms, a grand ballroom, an amphitheatre, an atrium-style
boardroom, and a Crowne Plaza Club floor. The Company believes that the Crowne
Plaza Ravinia competes effectively in its market because of its desirable
location and superior facilities compared to other hotels which cater
primarily to business travelers. The Hotel has excellent highway access
allowing for easy travel within the Atlanta area.
The Crowne Plaza Ravinia constitutes more than 10% of the aggregate
historical cost basis of the Hotels. The aggregate tax basis of depreciable
real and personal property at the Crowne Plaza Ravinia for federal income tax
purposes was approximately $34.8 million and $5.5 million, respectively, as of
December 31, 1995. Depreciation is computed for federal income tax purposes
using the straight-line method over a 40 year life for the real property and
declining balances methods over lives which range from 5 years to 7 years for
the personal property.
The 1995 realty tax base for the Crowne Plaza Ravinia was $41.51 per $1,000
of assessed value. The total annual tax at this rate for 1995 was
approximately $393,600.
The Company owns a 99% non-voting ownership interest in PAH Ravinia, Inc.,
the entity that owns the Crowne Plaza Ravinia. See "Risk Factors--Risk of
Investment in Subsidiaries."
Wyndham Greenspoint Hotel--Houston, Texas. The Wyndham Greenspoint Hotel is
located at the intersection of Interstate 45 and Sam Houston Parkway, 20 miles
north of downtown Houston and 10 minutes from Houston Intercontinental
Airport. The Hotel is located directly across the street from the Greenspoint
Mall. The 15-story hotel contains 472 guest rooms, including 50 suites, and
features modern gothic architecture and a 45-foot high atrium lobby. The
Company believes that the Hotel competes effectively in its market because of
its desirable location and superior accommodations as compared to competing
business hotels.
The Wyndham Greenspoint Hotel constitutes more than 10% of the aggregate
historical cost basis of the Hotels. The aggregate tax basis of depreciable
real and personal property at the Wyndham Greenspoint Hotel for
54
<PAGE>
federal income tax purposes was approximately $55.3 million and $14 million,
respectively, as of December 31, 1995. Depreciation is computed for federal
income tax purposes using the straight-line method over a 40 year life for the
real property and declining balance methods over nine year lives for personal
property.
The Greenspoint Loan is secured by a first mortgage lien on the Wyndham
Greenspoint Hotel. See "Developments Since the Initial Offering--Financing
Activities--Greenspoint Loan".
The 1995 realty tax rate for the Wyndham Greenspoint Hotel was $29.76 per
$1,000 of assessed value. The total annual tax at this rate was approximately
$785,500.
The following tables sets forth the average occupancy, ADR and REVPAR with
respect to the Recent Acquisitions, the Initial Hotels and the Proposed
Acquisitions. The charts summarize the historical operating performance of the
Initial Hotels for those periods the hotels were owned or managed by the
predecessor entities or their affiliates. In addition, information with
respect to the Marriott Troy Hotel is included for all periods presented.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, THREE MONTHS ENDED MARCH 31,
------------------------- ------------------------------------
Owned Hotels 1994 1995 % CHANGE 1995 1996 % CHANGE
------------ ------ ------- -------- ---------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C>
RECENT ACQUISITIONS:
Crowne Plaza Ravinia--
Atlanta, Georgia
Average occupancy..... 74.8% 75.0% 0.3% 74.9% 77.1% 2.9%
ADR................... $88.72 $ 99.34 12.0% $ 101.90 $ 112.78 10.7%
REVPAR................ $66.40 $ 74.50 12.2% $ 76.36 $ 86.98 13.9%
Embassy Suites Hunt
Valley--Hunt Valley,
Maryland
Average occupancy..... 66.1% 69.8% 5.6% 61.4% 65.0% 5.9%
ADR................... $74.83 $ 79.44 6.2% $ 76.42 $ 79.83 4.5%
REVPAR................ $49.49 $ 55.48 12.1% $ 46.95 $ 51.86 10.5%
Tremont House Hotel--
Boston, Massachusetts
Average occupancy..... 75.6% 75.2% (0.5)% 54.8% 55.9% 2.0%
ADR................... $82.89 $ 88.47 6.7% $ 68.37 $ 75.26 10.1%
REVPAR................ $62.63 $ 66.54 6.2% $ 37.43 $ 42.09 12.4%
Holiday Inn Lenox--At-
lanta, Georgia
Average occupancy..... 63.2% 71.3% 12.8% 69.3% 75.2% 8.5%
ADR................... $63.63 $ 74.31 16.8% $ 75.46 $ 86.90 15.2%
REVPAR................ $40.23 $ 53.01 31.8% $ 52.32 $ 65.34 24.9%
Del Mar Hilton--Del
Mar, California
Average occupancy..... 64.8% 67.1% 3.5% 62.9% 68.1% 8.3%
ADR................... $72.83 $ 75.72 4.0% $ 71.59 $ 77.45 8.2%
REVPAR................ $47.17 $ 50.80 7.7% $ 45.06 $ 52.73 17.0%
Plaza Park Suites
Hotel--Seattle,
Washington
Average occupancy..... 71.6% 78.1% 9.1% 71.7% 60.5% (15.6)%
ADR................... $97.54 $100.92 3.5% $ 87.34 $ 104.68 19.9%
REVPAR................ $69.83 $ 78.81 12.9% $ 62.64 $ 63.36 1.1%
WestCoast Roosevelt
Hotel--Seattle,
Washington
Average occupancy..... 73.1% 73.3% 0.3% 57.0% 61.3% 7.5%
ADR................... $80.90 $ 89.17 10.2% $ 83.00 $ 86.36 4.0%
REVPAR................ $59.11 $ 65.39 10.6% $ 47.27 $ 52.91 11.9%
Hyatt Newporter Hotel--
Newport Beach,
California
Average occupancy..... 65.5% 71.9% 9.8% 74.9% 76.5% 2.1%
ADR................... $93.21 $96.15 3.2% $ 95.19 $ 100.57 5.7%
REVPAR................ $61.06 $69.17 13.3% $ 71.25 $ 76.91 7.9%
WestCoast Gateway
Hotel--Seattle,
Washington
Average occupancy..... 77.5% 82.8% 6.8% 74.7% 76.9% 2.9%
ADR................... $48.95 $ 51.42 5.0% $ 46.84 $ 49.49 5.7%
REVPAR................ $37.94 $ 42.57 12.2% $ 34.97 $ 38.07 8.9%
WestCoast Wenatchee
Center Hotel--
Wenatchee, Washington
Average occupancy..... 62.8% 64.0% 1.9% 55.2% 52.8% (4.3)%
ADR................... $54.06 $ 58.92 9.0% $ 54.85 $ 55.33 0.9%
REVPAR................ $33.95 $ 37.70 11.0% $ 30.26 $ 29.19 (3.5)%
WestCoast Long Beach
Hotel and Marina--Long
Beach, California
Average occupancy..... 50.3% 49.9% (.8)% 48.9% 45.6% (6.7)%
ADR................... $55.72 $ 57.47 3.1% $ 56.15 $ 54.01 (3.8)%
REVPAR................ $28.05 $ 28.70 2.3% $ 27.46 $ 24.61 (10.4)%
</TABLE>
55
<PAGE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, THREE MONTHS ENDED MARCH 31,
-------------------------- ------------------------------------
Owned Hotels 1994 1995 % CHANGE 1995 1996 % CHANGE
------------ ------- ------- -------- ---------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C>
Hyatt Regency--
Lexington, Kentucky
Average occupancy..... 61.7% 63.9% 3.6% 55.2% 58.4% 5.8%
ADR................... $77.41 $ 79.38 2.5% $ 77.62 $ 82.00 5.6%
REVPAR................ $47.75 $ 50.69 6.2% $ 42.87 $ 47.89 11.7%
Doubletree
Denver/Boulder--
Denver, Colorado
Average occupancy..... 82.5% 81.4% (1.3)% 84.0% 70.6% (16.0)%
ADR................... $62.28 $68.93 10.7% $64.13 $70.97 10.7%
REVPAR................ $51.37 $56.13 9.3% $53.84 $50.13 (6.9)%
Wyndham Greenspoint
Hotel--Houston, Texas
Average Occupancy..... 73.3% 72.9% (0.5)% 78.5% 77.1% (1.8)%
ADR................... $ 76.68 $ 81.09 5.8 % $ 83.92 $ 89.05 6.1 %
REVPAR................ $ 56.17 $ 59.13 5.3 % $ 65.88 $ 68.66 4.2 %
Wyndham Garden-
Midtown--Atlanta,
Georgia
Average Occupancy..... 73.5% 72.2% (1.8)% 74.4% 80.5% 8.2 %
ADR................... $ 83.23 $ 90.87 9.2 % $ 92.39 $ 102.82 11.3 %
REVPAR................ $ 61.14 $ 65.57 7.2 % $ 68.74 $ 82.75 20.4 %
TOTAL RECENT
ACQUISITIONS:
Weighted average
occupancy............ 69.1% 71.3% 3.2 % 67.8% 68.5% 1.0 %
ADR................... $ 77.40 $ 82.99 7.2 % $ 80.79 $ 87.74 8.6 %
Weighted REVPAR....... $ 53.48 $ 59.17 10.6 % $ 54.75 $ 60.13 9.8 %
INITIAL HOTELS:
Bourbon Orleans Hotel--New
Orleans, Louisiana
Average occupancy..... 74.3% 81.3% 9.4 % 83.0% 78.3% (5.7)%
ADR................... $107.15 $116.73 8.9 % $ 129.47 $ 125.66 (2.9)%
REVPAR................ $ 79.59 $ 94.84 19.2 % $ 107.44 $ 98.40 (8.4)%
Holiday Inn Select
North Dallas--Farmers
Branch, Texas
Average occupancy..... 72.1% 72.3% 0.3 % 82.2% 69.5% (15.5)%
ADR................... $ 62.10 $ 68.20 9.8 % $ 64.05 $ 79.51 24.1 %
REVPAR................ $ 44.80 $ 49.29 10.0 % $ 52.63 $ 55.27 5.0 %
Hilton Inn Cleveland
South--Independence,
Ohio
Average occupancy..... 70.9% 71.3% 0.6 % 66.5% 61.0% (8.3)%
ADR................... $ 76.45 $ 83.11 8.7 % $ 79.88 $ 88.11 10.3 %
REVPAR................ $ 54.16 $ 59.22 9.3 % $ 53.14 $ 53.77 1.2 %
Crockett Hotel--San
Antonio, Texas
Average occupancy..... 69.3% 67.0% (3.3)% 70.0% 71.4% 2.0 %
ADR................... $ 80.43 $ 83.29 3.6 % $ 83.63 $ 83.14 (0.6)%
REVPAR................ $ 55.73 $ 55.80 0.1 % $ 58.54 $ 59.33 1.3 %
Marriott Hotel--Troy,
Michigan
Average occupancy..... 73.4% 74.4% 1.4 % 70.1% 76.4% 9.0 %
ADR................... $ 97.35 $102.43 5.2 % $ 104.88 $ 108.27 3.2 %
REVPAR................ $ 71.46 $ 76.22 6.7 % $ 73.48 $ 82.71 12.6 %
Four Points by Sheraton--
Saginaw, Michigan
Average occupancy..... 73.5% 75.0% 2.0 % 70.3% 73.8% 5.0 %
ADR................... $ 59.31 $ 61.24 3.3 % $ 60.88 $ 60.29 (1.0)%
REVPAR................ $ 43.60 $ 45.96 5.4 % $ 42.78 $ 44.51 4.0 %
Radisson New Orleans
Hotel--New Orleans,
Louisiana
Average occupancy..... 70.0% 68.7% (1.9)% 73.8% 62.1% (15.9)%
ADR................... $ 69.74 $ 78.69 12.8 % $ 85.20 $ 85.56 0.4 %
REVPAR................ $ 48.82 $ 54.03 10.7 % $ 62.84 $ 53.10 (15.5)%
Radisson Hotel &
Suites--Dallas, Texas
Average occupancy..... 82.2% 80.4% (2.2)% 85.1% 75.2% (11.6)%
ADR................... $ 61.90 $ 66.97 8.2 % $ 64.63 $ 79.12 22.4 %
REVPAR................ $ 50.88 $ 53.83 5.8 % $ 54.98 $ 59.53 8.3 %
Radisson Suites Town &
Country--Houston,
Texas
Average occupancy..... 69.9% 73.1% 4.6% 69.4% 73.5% 5.9%
ADR................... $ 78.95 $ 77.60 (1.7)% $ 77.22 $ 84.52 9.5%
REVPAR................ $ 55.17 $ 56.72 2.8% $ 53.55 $ 62.15 16.1%
Holiday Inn
Aristocrat--
Dallas, Texas
Average occupancy..... 64.0% 69.0% 7.8% 73.2% 71.7% (2.0)%
ADR................... $ 74.43 $ 79.07 6.2% $ 78.15 $ 91.03 16.5%
REVPAR................ $ 47.63 $ 54.57 14.6% $ 57.17 $ 65.28 14.2%
</TABLE>
56
<PAGE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, THREE MONTHS ENDED MARCH 31,
-------------------------- ------------------------------------
Owned Hotels 1994 1995 % CHANGE 1995 1996 % CHANGE
------------ ------- ------- -------- ---------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C>
Holiday Inn Northwest--
Houston, Texas
Average occupancy..... 65.0% 65.5% 0.8% 70.8% 64.8% (8.5)%
ADR................... $ 51.80 $ 51.00 (1.5)% $ 52.72 $ 54.65 3.7%
REVPAR................ $ 33.69 $ 33.39 (0.9)% $ 37.31 $ 35.40 (5.1)%
Holiday Inn Northwest
Plaza--Austin, Texas
Average occupancy..... 77.9% 84.9% 9.0% 86.6% 86.0% (0.7)%
ADR................... $ 72.41 $ 80.03 10.5% $ 78.22 $ 85.04 8.7%
REVPAR................ $ 56.39 $ 67.91 20.4% $ 67.75 $ 73.11 7.9%
Holiday Inn--San Ange-
lo, Texas
Average occupancy..... 70.5% 74.2% 5.2% 71.0% 71.1% 0.1%
ADR................... $ 54.77 $ 56.29 2.8% $ 55.44 $ 59.00 6.4%
REVPAR................ $ 38.62 $ 41.79 8.2% $ 39.33 $ 41.93 6.6%
Holiday Inn--Sebring,
Florida
Average occupancy..... 52.8% 58.0% 9.8% 80.5% 79.0% (1.9)%
ADR................... $ 51.70 $ 52.80 2.1% $ 57.50 $ 64.30 11.8%
REVPAR................ $ 27.32 $ 30.64 12.2% $ 46.28 $ 50.77 9.7%
Fairmount Hotel--San
Antonio, Texas
Average occupancy..... 74.3% 74.9% 0.8% 81.2% 77.6% (4.4)%
ADR................... $135.28 $141.72 4.8% $135.29 $162.85 20.4%
REVPAR................ $100.50 $106.08 5.6% $ 109.90 $ 126.38 15.0%
Hampton Inn Jackson-
ville Airport--
Jacksonville, Florida
Average occupancy..... 91.4% 88.8% (2.8)% 93.4% 93.1% (0.3)%
ADR................... $ 43.83 $ 52.29 19.3% $ 51.47 $ 56.58 9.9%
REVPAR................ $ 40.06 $ 46.45 16.0% $ 48.07 $ 52.64 9.5%
Hampton Inn--Rochester,
New York
Average occupancy..... 76.7% 75.3% (1.8)% 70.8% 66.1% (6.6)%
ADR................... $ 64.22 $ 68.44 6.6% $ 62.96 $ 66.62 5.8%
REVPAR................ $ 49.24 $ 51.52 4.6% $ 44.59 $ 44.06 (1.2)%
Hampton Inn Cleveland
Airport--North
Olmsted, Ohio
Average occupancy..... 73.9% 75.2% 1.8% 63.7% 65.9% 3.5%
ADR................... $ 56.01 $ 58.37 4.2% $ 57.40 $ 61.84 7.7%
REVPAR................ $ 41.38 $ 43.92 6.1% $ 36.58 $ 40.77 11.5%
Hampton Inn--Canton,
Ohio
Average occupancy..... 69.9% 73.8% 5.6% 62.7% 50.0% (20.3)%
ADR................... $ 47.33 $ 48.81 3.1% $ 46.39 $ 51.50 11.0%
REVPAR................ $ 33.09 $ 36.02 8.9% $ 29.07 $ 25.77 (11.4%)
Peachtree Conference
Center--Peachtree
City, Georgia
Average occupancy..... 59.5% 60.4% 1.5% 64.3% 61.0% (5.1)%
ADR................... $103.04 $107.84 4.7% $ 108.91 $ 115.31 5.9%
REVPAR................ $ 61.29 $ 65.11 6.2% $ 70.07 $ 70.29 0.3%
TOTAL INITIAL HOTELS:
Weighted average
occupancy............ 71.0% 72.1% 1.5% 74.3% 70.0% (5.8)%
ADR................... $ 72.57 $ 77.92 7.4% $ 78.97 $ 84.61 7.1%
Weighted REVPAR....... $ 51.49 $ 56.20 9.1% $ 58.70 $ 59.23 0.9%
TOTAL OWNED HOTELS:
Weighted average
occupancy............ 70.1% 71.7% 2.3% 71.1% 69.3% (2.5)%
ADR................... $ 74.89 $ 80.37 7.3% $ 79.82 $ 86.11 7.9%
Weighted REVPAR....... $ 52.46 $ 57.65 9.9% $ 56.78 $ 59.66 5.1%
</TABLE>
57
<PAGE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, THREE MONTHS ENDED MARCH 31,
------------------------------ ------------------------------------
Proposed Acquisitions 1994 1995 % CHANGE 1995 1996 % CHANGE
--------------------- -------- -------- ---------- ---------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C>
PROPOSED ACQUISITIONS:
WindWatch Hotel--
Hauppauge (Long
Island), New York
Average Occupancy..... 73.5% 76.8% 4.5 % 68.9% 65.4% (5.1)%
ADR................... $ 93.45 $ 99.15 6.1 % $ 90.68 $ 93.65 3.3 %
REVPAR................ $ 68.68 $ 76.17 10.9 % $ 62.46 $ 61.20 (2.0)%
Bonaventure Resort &
Spa--Ft. Lauderdale,
Florida
Average Occupancy..... 60.7% 57.7% (4.9)% 71.2% 76.2% 7.0 %
ADR................... $ 89.57 $ 92.66 3.4 % $ 132.33 $ 122.74 (7.2)%
REVPAR................ $ 54.35 $ 53.47 (1.6)% $ 94.27 $ 93.56 (0.8)%
Wyndham Garden--Novi
(Detroit), Michigan
Average Occupancy..... 70.0% 77.5% 10.7 % 74.1% 73.4% (0.9)%
ADR................... $ 60.27 $ 66.37 10.1 % $ 64.50 $ 72.63 12.6 %
REVPAR................ $ 42.17 $ 51.44 22.0 % $ 47.83 $ 53.28 11.4 %
Wyndham Garden--Wood
Dale (Chicago),
Illinois
Average Occupancy..... 72.6% 72.7% 0.1 % 67.5% 59.5% (11.9)%
ADR................... $ 74.83 $ 80.70 7.8 % $ 79.97 $ 86.56 8.2 %
REVPAR................ $ 54.33 $ 58.65 8.0 % $ 53.99 $ 51.54 (4.5)%
Wyndham Garden-Las
Colinas--Irving
(Dallas), Texas
Average Occupancy..... 78.1% 76.3% (2.3)% 79.2% 77.6% (2.0)%
ADR................... $ 83.25 $ 93.67 12.5 % $ 91.82 $ 101.87 10.9 %
REVPAR................ $ 65.02 $ 71.48 9.9 % $ 72.75 $ 79.02 8.6 %
Valley River Inn--
Eugene, Oregon
Average Occupancy..... 69.4% 70.6% 1.7 % 68.0% 62.4% (8.2)%
ADR................... $ 80.92 $ 82.16 1.5 % $ 75.11 $ 82.62 10.0 %
REVPAR................ $ 56.12 $ 58.02 3.4 % $ 51.09 $ 51.55 0.9 %
TOTAL PROPOSED
ACQUISITIONS:
Weighted average
occupancy............ 68.9% 69.5% 0.9 % 71.0% 69.8% (1.7)%
ADR................... $ 83.98 $ 88.66 5.6 % $ 97.88 $ 100.31 2.5 %
Weighted REVPAR....... $ 57.87 $ 61.59 6.4 % $ 69.45 $ 69.98 0.8 %
</TABLE>
58
<PAGE>
THE PARTICIPATING LEASES
The Company leases each of the Hotels, except the Crowne Plaza Ravinia Hotel
which is owned through a special purpose corporation, to a Lessee pursuant to
a separate Participating Lease. The terms of the Participating Leases with
each of CHC Lease Partners, NorthCoast, the Wyndham Lessee, Metro Lease
Partners and the Doubletree Lessee are discussed below. Capitalized terms used
in this section not otherwise defined have the meaning as defined in the
respective Participating Leases or the Lease Master Agreement.
CHC LEASE PARTNERS
The Operating Partnership leases the Initial Hotels, the Tremont House
Hotel, the Holiday Inn Lenox and the Del Mar Hilton to CHC Lease Partners for
staggered terms of between ten and twelve years pursuant to separate
Participating Leases that provide for lease payments equal to the greater of
Base Rent or Participating Rent, plus certain Additional Charges as
applicable. In addition, the Company and CHC Lease Partners have entered into
a Lease Master Agreement (the "Lease Master Agreement"), which sets forth CHC
Lease Partners required capitalization and certain other matters. Each
Participating Lease with CHC Lease Partners' contains the provisions described
below. The following summary is qualified in its entirety by the Participating
Leases and the Lease Master Agreement, filed as exhibits to the Registration
Statement of which this Prospectus is a part.
Participating Lease Terms. The Participating Leases have an average term of
approximately eleven years, with expiration dates staggered between the years
2005 and 2008, subject to earlier termination upon the occurrence of certain
contingencies described in the Participating Leases (including, particularly,
the provisions described herein under "Damage to Hotels," "Condemnation of
Hotels," "Termination of Participating Leases for Failure to Meet Performance
Goals" and "Termination of Participating Leases upon Disposition of Hotels").
Base Rent; Participating Rent; Additional Charges. Each Participating Lease
requires CHC Lease Partners to pay (i) the greater of Base Rent in a fixed
amount or Participating Rent based on certain percentages of room revenue,
food and beverage revenue and telephone and other revenue at each Hotel leased
by it and (ii) certain Additional Charges, including interest accrued on any
late payments. Base Rent and Participating Rent departmental thresholds
increase annually by a percentage equal to the percentage increase in CPI (as
defined in the Glossary) (generally CPI percentage increase plus 0.75% in the
case of the Participating Rent departmental thresholds) compared to the prior
year. With respect to the recently acquired Hotels leased by CHC Lease
Partners, initial Base Rents have been set at higher levels and the CPI
adjustment is limited to cover only certain costs (real estate taxes, etc.)
incurred by the Company. Base Rent is required to be paid monthly in arrears
by the first day of each calendar month, and Participating Rent is payable
monthly in arrears by the tenth day of each calendar month and is calculated
based on the year-to-date departmental receipts as of the end of the preceding
month, and a prorated amount of each of the applicable departmental thresholds
determined based on the month, or portion thereof, of the fiscal year for
which the calculation is being made, and crediting against such amount the
total Participating Rent previously paid for such fiscal year and the
cumulative Base Rent paid for such fiscal year as of the end of the preceding
month. A final adjustment of the Participating Rent for each fiscal year is
made, based on audited statements of revenue for each Hotel.
Other than real estate and personal property taxes, casualty insurance
including loss of income insurance, capital impositions and capital
replacements and refurbishments (determined in accordance with generally
accepted accounting principles) and ground rent (with respect to the Holiday
Inn Lenox), which are obligations of the Company, the Participating Leases
require CHC Lease Partners to make lease payments and pay insurance, all costs
and expenses and all utility and other charges incurred in the operation of
the Hotels leased by it. The Participating Leases also provide for rent
reductions and abatements in the event of damage or destruction or a partial
taking of any Hotel as described under "Damage to Hotels" and "Condemnation of
Hotels. "
59
<PAGE>
CHC Lease Partners Capitalization. CHC Lease Partners is required to
maintain the Minimum Net Worth, as defined, which must be equal to the greater
of (i) $10 million or (ii) 17.5% of the initial projected annual lease
payments for all hotels leased by the Company to CHC Lease Partners. As part
of the Minimum Net Worth, CHC Lease Partners is required to maintain adequate
working capital for the term of the Participating Leases. The balance of the
Minimum Net Worth may consist of OP Units, cash, marketable securities or
shares of Common Stock. Inventory with a value of $1.0 million ($1.4 million
for the first two years of the term of the Participating Leases), which CHC
Lease Partners is not required to return to the Company upon the termination
of the Participating Leases, is included in the calculation of CHC Lease
Partners' Minimum Net Worth. The Minimum Net Worth is available to make
payments under the Participating Leases and to fund operational shortfalls if
operating cash flow is inadequate. In addition to maintaining the Minimum Net
Worth, CHC Lease Partners is not permitted to make payments or distributions
of any kind (other than Base Rent, Participating Rent and Additional Charges
payable to the Company, hotel operating expenses, management fees and other
payments equal to no more than 3.0% of the gross revenue of the hotels leased
by CHC Lease Partners, CHC Lease Partners overhead expenses not to exceed in
any calendar year the interest, dividend and OP Unit distribution income and
capital gains ("Investment Income") of CHC Lease Partners plus $200,000, and
distributions to the owners of CHC Lease Partners of the portion of Investment
Income not used to pay CHC Lease Partners overhead expenses) unless its
Minimum Net Worth exceeds the greater of (i) $11 million or (ii) 17.5% of the
trailing twelve months' actual lease payments for hotels leased to CHC Lease
Partners during all of such period plus the current projected annual lease
payments of the hotels leased to CHC Lease Partners during such period.
Failure by CHC Lease Partners to maintain capitalization in an amount equal to
or greater than the Minimum Net Worth will result in a cross-default of all
leases to which CHC Lease Partners is a party. In the event that the lease for
one or more of the Hotels is terminated (other than as a result of a default
by CHC Lease Partners), the $10 million portion of the Minimum Net Worth
requirement will be reduced on a pro rata basis, provided that if CHC Lease
Partners has leased additional hotels, such pro rata reduction shall be
decreased by the pro rata amount of CHC Lease Partners' Minimum Net Worth
requirement attributable to such additional hotels. The portion of CHC Lease
Partners' capital relied upon to satisfy its Minimum Net Worth requirement may
be invested only in the following: (i) hotel working capital; (ii) investment
grade marketable securities; (iii) shares of Common Stock or OP Units; and
(iv) coinvestments with the Company in specific hotels, if any.
Management Fees. CHC Lease Partners has entered into Management Agreements
with certain subsidiaries of CHC and GAH to manage 19 of the Initial Hotels,
the Tremont House Hotel, the Holiday Inn Lenox and the Del Mar Hilton. These
agreements provide for management fees based upon a percentage of total
revenues at each of the Hotels managed by them. The Management Agreements for
these hotels provide for management fees of 2.50% of total revenues in 1996,
2.75% in 1997, and 3.0% each year thereafter for the remainder of the term of
the Participating Lease. All management fees paid by CHC Lease Partners are
subject to certain limitations related to results of operations of the Hotels
leased by it. The Participating Leases provide that all payments to the
Operators from CHC Lease Partners are subordinate to CHC Lease Partners'
obligations to the Company. CHC Lease Partners has entered into a management
agreement with Metro Hotels for the management of the Holiday Inn Select North
Dallas on substantially the same terms and conditions as the Management
Agreements; however, the management fee payable to Metro Hotels equals 3.0% of
the total revenue at such hotel. Except as described below, in the event of
the termination of any of the Participating Leases with CHC Lease Partners,
the related Management Agreement will also terminate.
Maintenance and Improvements. The Participating Leases obligate the Company
to establish annually a reserve for capital improvements at the Hotels leased
to CHC Lease Partners. The Company and CHC Lease Partners agree on the use of
funds in these reserves, and the Company has the right to approve CHC Lease
Partners' annual and long-term capital expenditure budgets. The aggregate
minimum amount of such reserves averages 4.0% of total revenue for these
Hotels, with the amount of such reserve with respect to each such Hotel based
upon projected capital requirements of such Hotel. The Company, at its
election, may choose to expend more than 4.0% on any Hotel. Any unexpended
amounts remain the property of the Company upon termination of the applicable
Participating Lease. Otherwise, CHC Lease Partners is required, at its
expense, to maintain the
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Hotels leased by it in good order and repair, except for ordinary wear and
tear, and to make repairs (other than capital repairs) which may be necessary
and appropriate to keep such Hotels in good order and repair.
CHC Lease Partners is not obligated to bear the cost of any capital
improvements or capital repairs to the Hotels leased by it. With the consent
of the Company however, CHC Lease Partners, at its expense, may make non-
capital and capital additions, modifications or improvements to the Hotels,
provided that such action does not significantly alter their character or
purposes and maintains or enhances the value of the Hotels. All such
alterations, replacements and improvements are subject to all the terms and
provisions of the Participating Leases and will become the property of the
Company upon termination of the Participating Leases. The Company owns
substantially all personal property (other than inventory, linens and other
nondepreciable personal property) not affixed to, or deemed a part of, the
real estate or improvements on the Hotels, except to the extent that ownership
of such personal property would cause any portion of the rents under the
Participating Leases not to qualify as "rents from real property" for REIT
income test purposes. See "Federal Income Tax Considerations--Requirements for
Qualification--Income Tests."
Insurance and Property Taxes. The Company is responsible for paying for (i)
real estate and personal property taxes (except to the extent that personal
property associated with the Hotels is owned by CHC Lease Partners), (ii)
casualty insurance and (iii) business interruption insurance on the Hotels
leased to CHC Lease Partners. CHC Lease Partners is required to pay or
reimburse the Company for all liability insurance on the Hotels leased by it,
with extended coverage, including comprehensive general public liability,
workers' compensation and other insurance appropriate and customary for
properties similar to the Hotels and with the Company as an additional named
insured.
Events of Default. Events of Default under the Participating Leases and the
Lease Master Agreement include, among others, the following:
(i) the failure by CHC Lease Partners to pay Base or Participating Rent
when due;
(ii) the failure of CHC Lease Partners to pay for required insurance;
(iii) the failure of CHC Lease Partners to maintain the Minimum Net
Worth;
(iv) if CHC Lease Partners shall generally not be paying its debts as
they become due or file a petition for relief or reorganization or
arrangement or any other petition in bankruptcy, for liquidation or to take
advantage of any bankruptcy or insolvency law of any jurisdiction, make an
assignment for the benefit of its creditors, consent to the appointment of
a custodian, receiver, trustee or other similar officer with respect to it
or any substantial part of its assets, be adjudicated insolvent or take
corporate action for the purpose of any of the foregoing; or if a court or
governmental authority of competent jurisdiction shall enter an order
appointing, without consent by CHC Lease Partners, a custodian, receiver,
trustee or other similar officer with respect to CHC Lease Partners or any
substantial part of its assets, or if an order for relief shall be entered
in any case or proceeding for liquidation or reorganization or otherwise to
take advantage of any bankruptcy or insolvency law of any jurisdiction, or
ordering the dissolution, winding-up or liquidation of CHC Lease Partners,
or if any petition for any such relief shall be filed against CHC Lease
Partners and such petition shall not be dismissed within 120 days;
(v) if CHC Lease Partners is liquidated or dissolved or commences
proceedings to effect the same, or ceases to do business or sells all or
substantially all of its assets;
(vi) the failure by CHC Lease Partners to observe or perform any other
term of a Participating Lease and the continuation of such failure for a
period of 30 days after receipt by CHC Lease Partners of notice from the
Company thereof, unless CHC Lease Partners is diligently proceeding to
cure, in which case the cure period will be extended to 180 days; if such
failure cannot be cured within the 180 day period and CHC Lease Partners
continues to act, with diligence, to correct such failure within said 180
days, CHC Lease Partners will be afforded up to an additional 90 days to
cure such failure;
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(vii) if CHC Lease Partners voluntarily discontinues operations of a
Hotel for more than 30 days, except as a result of damage, destruction,
condemnation or force majeure; or
(viii) if an event of default beyond applicable cure periods occurs under
the Franchise License with respect to any Hotel as a result of any action
or failure to act by CHC Lease Partners or its agents (including the
Operators).
In addition, a default of the type described in paragraphs (i) through (v)
above will result in a cross-default of all other Participating Leases to
which CHC Lease Partners is a party.
Indemnification. Under each of the Participating Leases, CHC Lease Partners
indemnifies, and holds harmless, the Company from and against all liabilities,
costs and expenses (including reasonable attorneys' fees and expenses)
incurred by, imposed upon or asserted against the Company on account of, among
other things, (i) any accident or injury to persons or property on or about
the Hotels leased by it, (ii) any misuse by CHC Lease Partners or any of its
agents of the leased property, (iii) any environmental liability caused or
resulting from any action or negligence of CHC Lease Partners (see "The
Hotels--Environmental Matters"); (iv) taxes and assessments in respect of the
Hotels leased by CHC Lease Partners (other than real estate and personal
property taxes and income taxes of the Company on income attributable to such
Hotels and capital impositions); (v) the sale or consumption of alcoholic
beverages on or in the real property or improvements thereon; or (vi) any
breach of the Participating Leases by CHC Lease Partners; provided, however,
that such indemnification will not be construed to require CHC Lease Partners
to indemnify the Company against the Company's own grossly negligent acts or
omissions or willful misconduct.
Assignment and Subleasing. CHC Lease Partners is not permitted to sublet all
or any part of the Hotels leased by it or assign its interest under any of the
Participating Leases, other than to an affiliate, without the prior written
consent of the Company. The Company has generally agreed to consent to any
sublease of a retail portion of the Hotels leased by CHC Lease Partners
(provided such sublease will not cause any Rents to fail to qualify as "rents
from real property" for REIT purposes). No assignment or subletting will
release CHC Lease Partners from any of its obligations under the Participating
Leases.
Participating Lease Modifications. In the event that (i) a Franchise License
is terminated under circumstances that do not constitute an Event of Default
(as described above) or (ii) the Company approves the conversion of a
sublessee of a Hotel into an operating department thereof or vice versa, the
applicable Participating Lease provisions will be modified accordingly.
Damage to Hotels. In the event of damage to or destruction of any Hotel
covered by insurance which then renders the leased property unsuitable for its
intended use and occupancy as a hotel, the Participating Lease shall
terminate, and the Company shall generally be entitled to retain the proceeds
of insurance. In the event that damage to or destruction of a Hotel which is
covered by insurance does not render the leased property unsuitable for its
intended use and occupancy as a hotel, the Company or, at the Company's
option, CHC Lease Partners generally will be obligated to repair or restore
the hotel to substantially the same condition as existed immediately prior to
such damage. In the event of damage to or destruction of any Hotel that is not
covered by insurance, the Company may either repair, rebuild or restore the
hotel (at the Company's expense) to substantially the same condition as
existed immediately prior to such damage or terminate the Participating Lease
on the terms and conditions set forth in such Participating Lease.
Condemnation of Hotels. In the event of a total condemnation of a Hotel, the
relevant Participating Lease will terminate with respect to such hotel as of
the date of taking, and the Company and CHC Lease Partners will be entitled to
their shares of any condemnation award in accordance with the provisions of
the Participating Lease. In the event of a partial taking which does not
render the property unsuitable for its intended use as a hotel, then the
Company or, at the Company's election, CHC Lease Partners shall restore the
untaken portion of the property, and the Company shall contribute to the cost
of such restoration that part of the condemnation award specified for
restoration.
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Termination of Participating Leases for Failure to Meet Performance
Goals. The Company will have the right to terminate the Participating Lease
for a Hotel if the Hotel fails to generate 90% of its annual budgeted room
revenue for any two lease years during the term of the applicable
Participating Lease, unless such failure is caused by an act of God or other
force majeure events, including material, extraordinary economic events not
reasonably foreseeable at the time the annual budget was prepared. In the
event that a Hotel fails to meet this performance goal in any given year, CHC
Lease Partners may cure such failure by paying to the Company the
Participating Rent payment that would have been payable had the hotel
generated 90% of its budgeted room revenue for the applicable period. This
cure payment will not affect CHC Lease Partners' obligations with respect to
Participating Rent for revenue categories other than rooms.
In the event that annual Participating Rent (as calculated using the
applicable Participating Rent formulas) at the Initial Hotels initially is
less than $33.8 million (the "Minimum Participating Rent Standard"), the
Company shall have the option to terminate all of the Participating Leases.
The Minimum Participating Rent Standard will increase by approximately 123% of
the initial Base Rent for subsequently acquired hotels that are leased to CHC
Lease Partners, plus an amount equal to 0.75% annually. The Minimum
Participating Rent Standard will be reduced on a pro rata basis in the event
that any Participating Leases are terminated. The Minimum Participating Rent
Standard is intended to ensure that the Company can retake possession of the
Initial Hotels (and any subsequently acquired hotels leased to CHC Lease
Partners) in the event that Participating Rent payments substantially decline.
Collateralized Capitalization. Until October 1998, $4 million of CHC Lease
Partners' capitalization is pledged to the Company and shall be forfeited by
CHC Lease Partners in the event that during this period, the Participating
Leases are terminated following an event of default or termination for failure
to maintain the Minimum Net Worth or to meet performance goals under one or
more of CHC Lease Partners' leases. A termination of or default under fewer
than all of the Participating Leases will result in a forfeiture of a pro rata
portion of such amount. Such forfeiture will not alter CHC Lease Partners'
obligations in the event of a default, and CHC Lease Partners' total remaining
capitalization will remain available to satisfy such obligations.
Termination of Participating Leases upon Disposition of Hotels. In the event
the Company enters into an agreement to sell or otherwise transfer a Hotel
leased to CHC Lease Partners, the Company, at its option, must either (i) pay
CHC Lease Partners the fair market value of CHC Lease Partners' leasehold
interest in the remaining term of the relevant Participating Lease or (ii)
offer to lease to CHC Lease Partners a substitute hotel or hotels on terms
that would create a leasehold interest in such hotel with a fair market value
equal to or exceeding the fair market value of CHC Lease Partners' remaining
leasehold interest under the relevant Participating Lease.
Termination of Participating Leases upon Change in Tax Laws. In the event
that changes in federal income tax laws allow the Company or a subsidiary or
affiliate to operate hotels directly, the Company has the right to terminate
all, but not less than all, Participating Leases with CHC Lease Partners, in
which event the Company will enter into management contracts with affiliates
of CHC Lease Partners for the terminated hotels at a rate equal to 3% of gross
revenue and upon market terms and conditions to be mutually agreed upon. In
addition, the Company will pay CHC Lease Partners the fair market value of the
remaining term of the Participating Leases, less the fair market value of the
new management agreements to be entered into (assuming terms for such
management agreements equal to the remaining terms of the applicable
Participating Leases).
Franchise Licenses. CHC Lease Partners is the licensee under each of the
Franchise Licenses on the Hotels leased to it. The franchisors have agreed
that upon the occurrence of certain events of default by CHC Lease Partners
under a Franchise License, the franchisors will transfer the Franchise License
for the Hotel to the Company (or its designee) or make other arrangements to
continue the Hotel as part of the franchisor's system. See "Franchise
Agreements."
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Other Lease Covenants. CHC Lease Partners has agreed that during the term of
the Participating Leases it will not engage in any unrelated business
activities. The owners of CHC Lease Partners and their parent entities have
agreed that, for the term of the Participating Leases, any sale of their
interests in CHC Lease Partners or of their hotel management businesses in
general will subject their interest in CHC Lease Partners to a limited fair
market value acquisition right (as defined in the applicable agreement) in
favor of a designee of the Company. In the event that the Company exercises
this right, the non-selling partner of CHC Lease Partners will have the right
to put its interest in CHC Lease Partners to the Company's designee at a price
equal to the fair market value of such interest (as defined in the applicable
agreement). The Participating Leases require CHC Lease Partners to make
available to the Company unaudited quarterly and audited annual operating
information for each hotel leased by CHC Lease Partners.
Inventory. All inventory required in the operation of the Hotels was
transferred to CHC Lease Partners upon acquisition of the Hotel. Upon
termination of a related Participating Lease, CHC Lease Partners shall
surrender the related Hotel together with all such inventory to the Company,
excluding an inventory use allowance averaging approximately $50,000 ($70,000
if the Participating Lease is terminated during the first two years of its
term) at each of the Initial Hotels.
Right of First Offer. CHC Lease Partners has a right of first offer to lease
additional hotels acquired by the Company until October 1997. The right of
first offer does not apply in the event that in the reasonable business
judgment of the Company's Board (a) a different lessee is necessary for the
Company to have the opportunity to acquire the hotel, or (b) CHC Lease
Partners is unqualified or inappropriate to be the lessee of the hotel. Under
the right of first offer, the Company gives CHC Lease Partners written notice
of the economic terms on which it is willing to lease the hotel. CHC Lease
Partners has 30 days following such notice to agree to lease the hotel on such
terms, and, if it fails to do so, the Company may lease the hotel to another
lessee on terms and conditions that are not economically less favorable to the
Company than those offered to CHC Lease Partners. CHC Lease Partners also
shall have the right to lease acquired hotels (on mutually satisfactory terms)
where CHC Lease Partners brings the acquisition opportunity to the Company.
NORTHCOAST
The Operating Partnership leases each of the six Hotels in the WestCoast
Portfolio and the Hyatt Regency, Lexington to NorthCoast for staggered terms
of between ten and twelve years pursuant to separate participating leases (the
"NorthCoast Participating Leases"). The Operating Partnership and NorthCoast
have also entered into a separate master agreement for the lease of the Hotels
other than the Hyatt Regency, Lexington (the "NorthCoast Master Agreement").
The principal provisions of each NorthCoast Participating Lease are
substantially the same as those of the Participating Leases with CHC Lease
Partners summarized above, with specific differences, some of which are
described below.
Base Rent, Participating Rent. In each NorthCoast Participating Lease, the
Base Rent is a fixed amount each year with no formula for adjustments. For the
lease years 1997 and 1998, the prorated monthly installment of Base Rent
payable each month is adjusted up or down by an agreed amount to reflect
seasonal changes. NorthCoast has the option of deferring payment of the first
month of Base Rent, and to pay instead in equal installments through the end
of 1996. NorthCoast is required to pay interest at a rate of 9.75% on any such
deferred Base Rent. Participating Rent is calculated and payable based on
formulas similar in construction to those described in the Participating
Leases with CHC Lease Partners, with annual adjustments of departmental
thresholds determined by a formula based on CPI and an additional percentage
increase agreed to for each lease year. In the NorthCoast Participating
Leases, NorthCoast is also required to pay certain Additional Charges.
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NorthCoast Capitalization. NorthCoast is required to maintain a minimum net
worth which must be equal to the greater of (i) $2,929,000 or (ii) 20% of the
projected annual lease payments for the hotels in the WestCoast Portfolio. The
minimum net worth must be composed of certain components in specified minimum
amounts, including at least 15% in cash or certain cash equivalents. No more
than 25% of the minimum net worth can be composed of the LeParc Interest which
is defined to be a contribution to NorthCoast by Thomas H. Childers of either
a promissory note secured by an interest in LeParc Investment Group, LLC (the
"LeParc Entity") or a direct interest in the LeParc Entity. NorthCoast is
required to maintain ownership of shares of Common Stock or OP Units with a
value of $825,000. North Coast's holdings of shares of Common Stock or OP
Units must be increased upon acquisition of the hotel owned by the LeParc
Entity by the Operating Partnership or if NorthCoast otherwise liquidates its
interest in the Leparc Entity, by the amount of the proceeds of such sale or
liquidation, but not more than an additional $825,000.
Management Fees and Marketing Agreements. NorthCoast has entered into a
Management Agreement for each of the hotels in the WestCoast Portfolio, except
the Hyatt Newporter Hotel, with WestCoast Hotels. The Hyatt Newporter Hotel
and the Hyatt Regency, Lexington are managed by Hyatt under separate
Management Agreements. All management fees payable to WestCoast Hotels from
NorthCoast greater than 1% of hotel revenues are subordinate on a month-to-
month basis to NorthCoast's obligations to the Company. Management fees to
Hyatt are not expressly subordinate to NorthCoast's obligations to the
Company. However, any failure by NorthCoast to make lease payments remains an
event of default under the applicable Participating Lease. The management fees
for the WestCoast Long Beach Hotel and Marina are based on the following
formula: for 1996, the monthly fee is 1% of the prior month's gross room
revenue as defined; for 1997 and thereafter, the monthly fee is 2% of the
prior month's gross room revenue. For each of the other hotels in the
WestCoast Portfolio managed by WestCoast Hotels the annualized management fees
are: for 1996, $26,520; for 1997, $57,600; and for 1998 and thereafter,
$57,600, all increased by a CPI factor. Additionally, NorthCoast has entered
into a joint marketing agreement for each of the WestCoast branded Hotels with
WestCoast Hotel Marketing, Inc., which will receive 2.5% of gross room revenue
as well as certain reservation fees in connection with the use of the
WestCoast brand. For the Hyatt Newporter Hotel, Hyatt receives a management
fee equal to: (a) 3.5% of annual gross revenue (as defined); plus (b) an
additional 0.5% of gross revenue payable only if there is available cash flow
(as defined) greater than the basic 3.5% fee; plus (c) an incentive fee of 10%
of profits (as defined) over $2 million. For the Hyatt Regency Lexington,
Hyatt receives a management fee equal to the greater of (a) 5% of annual gross
revenue (as defined) (not including revenues from meeting rooms and banquets)
plus 3.5% of gross revenue related to meeting rooms and banquets or (b) 20% of
profits (as defined).
Each of the Management Agreements with WestCoast Hotels can be terminated
upon the occurrence of several contingencies, including sale of the Hotel. The
Management Agreements with Hyatt for the Hyatt Newporter Hotel and the Hyatt
Regency, Lexington both predate the Company's purchase of the Hotel and give
Hyatt the right to consent to the sale of the Hotel, which sale would be
subject to the existing Management Agreement.
NorthCoast does not have a right of first offer to lease additional hotels
from the Company.
WYNDHAM LESSEE
The Operating Partnership leases the Wyndham Greenspoint Hotel and the
Wyndham Garden-Midtown to the Wyndham Lessee for an initial term of 10 years
with two five-year renewal options, pursuant to separate Participating Leases
(the "Wyndham Participating Leases"), and has entered into a separate master
lease agreement with the Wyndham Lessee which governs all of the Wyndham
Participating Leases (the "Wyndham Master Agreement"). The principal
provisions of each Wyndham Participating Lease are substantially similar to
those of the Participating Leases with CHC Lease Partners summarized above,
with specific differences, some of which are described below.
Base Rent, Participating Rent. In each Wyndham Participating Lease, the Base
Rent for each Hotel is an amount principally determined based on a percentage
of acquisition and renovation costs incurred by the Operating Partnership for
the Hotel, subject to annual CPI adjustments. Participating Rent is calculated
and
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payable based on formulas similar in construction to those described in the
Participating Leases for CHC Lease Partners, with annual adjustments of
departmental thresholds by a formula based on CPI and an additional percentage
increase. In the Wyndham Participating Leases, the Wyndham Lessee is also
required to pay certain Additional Charges.
Wyndham Capitalization. The obligations of the Wyndham Lessee under the
Participating Leases are guaranteed by the Wyndham Guarantor, a separate
entity formed by members of the Trammell Crow family. The Wyndham Guarantor is
required to maintain a minimum net worth equal to 20% of the current year's
budgeted lease payments for the Hotels leased by the Wyndham Lessee (unless
the total number of rooms in all hotels leased by the parties increases to
above 1,585, in which case the required percentage will decrease to 17.5%).
The minimum net worth is composed of certain components in specified amounts
which generally exclude intangible assets as defined by generally accepted
accounting principles.
Hotel Management. The Wyndham Participating Leases give the Operating
Partnership the right to approve the terms of any Management Agreement entered
into by the Wyndham Lessee and provide that if one of the Wyndham
Participating Leases is terminated, the Operating Partnership will also have
the right to terminate the Management Agreement for that Hotel. The Wyndham
Participating Leases require that management fees under any Management
Agreement be subordinated only to payments of Base Rent to the Operating
Partnership. However, any failure by the Wyndham Lessee to make any lease
payments (Base Rent, Participating Rent or Additional Charges, as applicable)
is an event of default under the applicable Participating Lease.
Additional Covenants. The Wyndham Lessee has covenanted that if any interest
in the Wyndham Lessee is transferred outside the Trammell Crow family, the
Operating Partnership may terminate the Wyndham Participating Leases if, in
the reasonable judgment of the Operating Partnership, the party newly in
control of the Wyndham Lessee is not competent in that capacity or is a
competitor of the Operating Partnership.
The Wyndham Lessee does not have a right of first offer to lease additional
hotels acquired by the Company. The Wyndham Lessee has the right to terminate
the Participating Lease on the Wyndham Greenspoint Hotel or the Wyndham
Garden-Midtown or to purchase the Hotel in question pursuant to a right of
first refusal, in the event that the Operating Partnership elects to sell such
Hotel and the sale is to be made without terminating the applicable
Participating Lease.
OTHER LESSEES
Metro Lease Partners. The Company leases the Embassy Suites, Hunt Valley to
Metro Lease Partners for a term of 12 years pursuant to a Participating Lease
with terms and conditions substantially similar to the Participating Leases
with CHC Lease Partners. Metro Lease Partners is required to maintain a
minimum net worth of $515,000, which represents approximately 25% of estimated
Participating Rent for this Hotel in 1996. Metro Lease Partners does not have
a right of first offer to lease additional hotels acquired by the Company.
Base Rent in the Participating Lease with Metro Lease Partners is a fixed
amount subject to annual adjustments by a formula based on CPI plus 0.75%.
Participating Rent is calculated and payable based on a formula similar in
construction to those described in the Participating Leases for CHC Lease
Partners, with annual adjustments of departmental thresholds by a formula
based on CPI plus 0.75%. Metro Lease Partners is also required to pay certain
Additional Charges.
Metro Lease Partners has covenanted that Metro Lease Partners will remain
wholly owned by Walker G. Harman and that no interest in Metro Lease Partners
or in the Participating Lease will be transferred without the consent of the
Operating Partnership.
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Metro Lease Partners has entered into a Management Agreement with Metro
Hotels for the management of the Embassy Suites, Hunt Valley which provides
for a base management fee equal to 2% of gross revenues. The Management
Agreement also provides for payment of an incentive management fee to Metro
Hotels based upon Net Cash Flow of the hotel, as defined. In the event of a
termination of a Participating Lease for the Embassy Suites, Hunt Valley, the
Management Agreement also will terminate. Under the Management Agreement, all
payments to Metro Hotels by Metro Lease Partners are subordinated on a month
to month basis to all lease payments owed to the Operating Partnership.
Doubletree Lessee. The Operating Partnership leases the Doubletree
Denver/Boulder to the Doubletree Lessee for a term of 10 years pursuant to a
Participating Lease with terms and conditions substantially similar to the
Participating Leases with CHC Lease Partners. The Doubletree Lessee is
required to maintain a minimum net worth equal to the greater of $400,000 or
20% of current year's budgeted lease payments. The Doubletree Lessee does not
have a right of first offer to lease additional hotels acquired by the
Company.
Base Rent in the Participating Lease with the Doubletree Lessee is an amount
principally determined based on a percentage of the acquisition and renovation
costs incurred by the Operating Partnership for the Hotel, with certain
components of Base Rent subject to annual CPI adjustments. Participating Rent
is calculated and payable based on formulas similar in construction to those
described in the Participating Leases for CHC Lease Partners, with annual
adjustments of departmental thresholds by a formula based on the CPI. The
Doubletree Lessee is also required to pay certain Additional Charges.
The Doubletree Lessee has covenanted that no interest in the Doubletree
Lessee will be transferred outside the control of Doubletree Corporation,
provided that, if through merger or sale of assets the Doubletree Lessee
ceases to be controlled by the Doubletree Corporation, the Operating
Partnership may terminate the Participating Lease for the Hotel only if, in
the reasonable judgment of the Operating Partnership, the party newly in
control of the Doubletree Lessee is not competent in that capacity or is a
competitor of the Operating Partnership.
The Participating Lease for this Hotel requires that the Doubletree Lessee
enter into a Management Agreement and allows for a maximum management fee of
3% of gross revenues as defined and requires the Management Agreement may be
terminated if the Participating Lease for this Hotel terminates. The
Participating Lease requires that all payments by the Doubletree Lessee to the
manager of the Hotel above 2% of gross revenues be subordinated to all lease
payments owed to the Operating Partnership for the first two years of the term
until the total lease payments made achieve a defined minimum return. However,
any failure of the Doubletree Lessee to make lease payments remains an event
of default under the Participating Lease.
CROWNE PLAZA RAVINIA
The Crowne Plaza Ravinia, which is owned by an unconsolidated subsidiary of
the Company, is not operated by a lessee. The hotel is being managed by
Holiday Inns, Inc. for a period of 10 years (with two renewal terms of five
years each) pursuant to a management agreement between PAH Ravinia and Holiday
Inns, Inc. Under the terms of the management agreement, Holiday Inns, Inc.
receives base management fees equal to 4% of gross room revenue. A portion of
this fee is subordinated to the payment of a return on PAH Ravinia's invested
capital of 10.5% per annum. The management agreement also provides for payment
of an incentive fee to Holiday Inns, Inc., subject to PAH Ravinia's receipt of
an aggregate 12.5% per annum return on invested capital.
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FRANCHISE AND BRAND AFFILIATIONS
Thirty-one of the Hotels are operated under franchise or brand affiliations
with nationally recognized hotel companies. The Company anticipates that most
of the additional hotel properties in which it invests will be operated under
franchise or brand affiliations. The Company believes the public's perception
of quality associated with a franchisor or brand operator is an important
feature in the operation of a hotel. Franchisors and brand operators provide a
variety of benefits for hotels which include national advertising, publicity
and other marketing programs designed to increase brand awareness, training of
personnel, continuous review of quality standards and centralized reservation
systems.
The Franchise Licenses generally specify certain management, operational,
recordkeeping, accounting, reporting and marketing standards and procedures
with which the Lessees must comply. The Franchise Licenses obligate the
Lessees to comply with the franchisors' standards and requirements with
respect to training of operational personnel, safety, maintaining specified
insurance, the types of services and products ancillary to guest room services
that may be provided by the Lessees, display of signage, and the type, quality
and age of F, F & E included in guest rooms, lobbies and other common areas.
The Franchise Licenses provide for termination at the franchisor's option
upon the occurrence of certain events, including the Lessees' failure to pay
franchise royalties and fees or perform other covenants under the license
agreement, bankruptcy, abandonment of the franchise, commission of a felony,
assignment of the license without the consent of the franchisor, or failure to
comply with applicable law in the operation of the relevant Hotel. Lessees are
not entitled to terminate the Franchise License without receiving the prior
written consent of the Company. The license agreements will not renew
automatically upon expiration. The Lessees are responsible for making all
payments under the franchise agreements to the franchisors. Under the
franchise agreements, the Lessees pay franchise royalties and fees ranging
from 3.5% to 8% of room revenue, except in the case of the Marriott Troy Hotel
where the franchise royalties and fees equals 6% of room revenue and 3% of
food and beverage revenue.
The Lessees' rights relating to branded Hotels are generally contained in
the Management Agreements related to those Hotels. The Lessees do not pay
additional franchise royalties or fees other than those specified in the
Management Agreements for use of the brands. Generally, the Lessees' rights to
use the brands terminate upon any termination of the applicable Management
Agreements.
DOUBLETREE(R) IS A TRADEMARK AND SERVICE MARK OF DOUBLETREE CORPORATION
("DOUBLETREE"). NEITHER DOUBLETREE NOR ANY OF ITS AFFILIATES OR SUBSIDIARIES
HAS ENDORSED OR APPROVED THE OFFERING. A GRANT OF A DOUBLETREE LICENSE FOR
CERTAIN OF THE HOTELS IS NOT INTENDED AS, AND SHOULD NOT BE INTERPRETED AS, AN
EXPRESS OR IMPLIED APPROVAL OR ENDORSEMENT BY DOUBLETREE (OR ANY OF ITS
AFFILIATES OR SUBSIDIARIES) OF THE COMPANY, THE OPERATING PARTNERSHIP, THE
LESSEES OR THE COMMON STOCK OFFERED HEREBY.
FOUR POINTS(R) IS A TRADEMARK OWNED BY ITT SHERATON CORPORATION TO COVER
RESTAURANT, COCKTAIL LOUNGE, BAR, HOTEL, MOTEL, RESORT AND MOTOR INN SERVICES
IN INTERNATIONAL CLASS 42. ITT SHERATON CORPORATION HAS NOT ENDORSED OR
APPROVED THE OFFERING OR ANY OF THE FINANCIAL RESULTS OF THE HOTELS SET FORTH
IN THIS PROSPECTUS. A GRANT OF A FOUR POINTS HOTEL FRANCHISE LICENSE FOR
CERTAIN OF THE HOTELS IS NOT INTENDED AS, AND SHOULD NOT BE INTERPRETED AS, AN
EXPRESS OR IMPLIED APPROVAL OR ENDORSEMENT BY ITT SHERATON CORPORATION (OR ANY
OF ITS AFFILIATES, SUBSIDIARIES OR DIVISIONS) OF THE COMPANY, THE OPERATING
PARTNERSHIP, THE LESSEES OR THE COMMON STOCK OFFERED HEREBY.
HAMPTON INN(R) IS A REGISTERED TRADEMARK OF HAMPTON INNS, INC. NEITHER
PROMUS COMPANIES, INC. ("PROMUS"), NOR THE HAMPTON INN HOTEL DIVISION OF
EMBASSY SUITES, INC. HAS ENDORSED OR APPROVED THE OFFERING OR ANY OF THE
FINANCIAL RESULTS OF THE HOTELS SET FORTH IN THIS PROSPECTUS. A GRANT OF A
HAMPTON INN FRANCHISE LICENSE FOR ANY HOTEL IS NOT INTENDED AS, AND SHOULD NOT
BE INTERPRETED AS, AN
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EXPRESS OR IMPLIED APPROVAL OR ENDORSEMENT BY PROMUS (OR ANY OF ITS
AFFILIATES, SUBSIDIARIES OR DIVISIONS) OF THE COMPANY, THE OPERATING
PARTNERSHIP, THE LESSEES OR APPROVAL OF THE COMMON STOCK OFFERED HEREBY.
HILTON(R), HILTON INN(R) AND THE STYLIZED H(R) ARE REGISTERED TRADEMARKS OF
HILTON HOTELS CORPORATION ("HILTON HOTELS"). NEITHER HILTON INNS, INC. NOR
HILTON HOTELS NOR ANY OF THEIR RESPECTIVE OFFICERS, DIRECTORS, AGENTS OR
EMPLOYEES (COLLECTIVELY, THE "HILTON ENTITIES") SHALL IN ANY WAY BE DEEMED AN
ISSUER OR UNDERWRITER OF THE SHARES OF COMMON STOCK OFFERED HEREBY NOR HAS ANY
OF THE HILTON ENTITIES ENDORSED OR APPROVED THE OFFERING. THE HILTON ENTITIES
HAVE NOT ASSUMED AND SHALL NOT HAVE ANY LIABILITY OR RESPONSIBILITY FOR ANY
FINANCIAL STATEMENTS OR OTHER FINANCIAL INFORMATION CONTAINED HEREIN OR ANY
PROSPECTUS OR ANY WRITTEN OR ORAL COMMUNICATIONS REGARDING THE SUBJECT MATTER
HEREOF. A GRANT OF A HILTON FRANCHISE LICENSE FOR CERTAIN OF THE HOTELS IS NOT
INTENDED AS, AND SHOULD NOT BE INTERPRETED AS, AN EXPRESS OR IMPLIED APPROVAL
OR ENDORSEMENT BY ANY OF THE HILTON ENTITIES (OR ANY OF THEIR AFFILIATES,
SUBSIDIARIES OR DIVISIONS) OF THE COMPANY, THE OPERATING PARTNERSHIP, THE
LESSEES OR THE COMMON STOCK OFFERED HEREBY.
HOLIDAY INN(R), HOLIDAY INN SELECT(R) AND CROWNE PLAZA(R) ARE REGISTERED
TRADEMARKS OF HOLIDAY INNS FRANCHISING, INC. ("HOLIDAY INNS"). HOLIDAY INNS
HAS NOT ENDORSED OR APPROVED THE OFFERING OR ANY OF THE FINANCIAL RESULTS OF
THE HOTELS SET FORTH IN THIS PROSPECTUS NOR DOES HOLIDAY INNS HAVE ANY
INTEREST IN THE COMPANY, THE LESSEES OR THE COMMON STOCK OFFERED HEREBY,
EXCEPT AS A FRANCHISOR. A GRANT OF A HOLIDAY INN, HOLIDAY INN SELECT OR CROWNE
PLAZA FRANCHISE LICENSE FOR CERTAIN OF THE HOTELS IS NOT INTENDED AS, AND
SHOULD NOT BE INTERPRETED AS, AN EXPRESS OR IMPLIED APPROVAL OR ENDORSEMENT BY
HOLIDAY INNS (OR ANY OF ITS AFFILIATES, SUBSIDIARIES OR DIVISIONS) OF THE
COMPANY, THE OPERATING PARTNERSHIP, THE LESSEES OR THE COMMON STOCK OFFERED
HEREBY.
HYATT(R) IS A REGISTERED SERVICE MARK OF HYATT CORPORATION ("HYATT").
NEITHER HYATT NOR ANY OF ITS OFFICERS, DIRECTORS, AGENTS OR EMPLOYEES SHALL IN
ANY WAY BE DEEMED TO BE AN ISSUER OR UNDERWRITER OF THE OFFERING DESCRIBED IN
THIS PROSPECTUS. HYATT AND ITS OFFICERS, DIRECTORS, AGENTS AND EMPLOYEES HAS
NOT ASSUMED AND SHALL NOT HAVE ANY LIABILITY ARISING OUT OF OR RELATED TO THE
SALE OR OFFER OF SAID SECURITIES, INCLUDING, WITHOUT LIMITATION, ANY LIABILITY
OR RESPONSIBILITY FOR ANY FINANCIAL STATEMENTS, PROJECTIONS OR OTHER FINANCIAL
INFORMATION CONTAINED IN THIS PROSPECTUS.
MARRIOTT(R) IS A REGISTERED TRADEMARK OF MARRIOTT INTERNATIONAL, INC., WHICH
HAS NOT ENDORSED OR APPROVED THE OFFERING OR ANY OF THE FINANCIAL RESULTS OF
THE HOTELS SET FORTH IN THIS PROSPECTUS. A GRANT OF A MARRIOTT FRANCHISE
LICENSE FOR CERTAIN OF THE HOTELS IS NOT INTENDED AS, AND SHOULD NOT BE
INTERPRETED AS, AN EXPRESS OR IMPLIED APPROVAL OR ENDORSEMENT BY MARRIOTT
INTERNATIONAL, INC. (OR ANY OF ITS AFFILIATES, SUBSIDIARIES OR DIVISIONS) OF
THE COMPANY, THE OPERATING PARTNERSHIP, THE LESSEES OR THE COMMON STOCK
OFFERED HEREBY.
RADISSON(R) IS A REGISTERED TRADEMARK OF RADISSON HOTELS INTERNATIONAL,
INC., WHICH HAS NOT ENDORSED OR APPROVED THE OFFERING OR ANY OF THE FINANCIAL
RESULTS OF THE HOTELS SET FORTH IN THIS PROSPECTUS. A GRANT OF A RADISSON
FRANCHISE LICENSE FOR CERTAIN OF THE HOTELS IS NOT INTENDED AS, AND SHOULD NOT
BE INTERPRETED AS, AN EXPRESS OR IMPLIED APPROVAL OR ENDORSEMENT BY RADISSON
HOTELS INTERNATIONAL, INC. (OR ANY OF ITS AFFILIATES, SUBSIDIARIES OR
DIVISIONS) OF THE COMPANY, THE OPERATING PARTNERSHIP, THE LESSEES OR THE
COMMON STOCK OFFERED HEREBY.
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RADISSON SUITES(R) IS A REGISTERED TRADEMARK OF RADISSON HOTELS
INTERNATIONAL, INC., WHICH HAS NOT ENDORSED OR APPROVED THE OFFERING OR ANY OF
THE FINANCIAL RESULTS OF THE HOTELS SET FORTH IN THIS PROSPECTUS. A GRANT OF A
RADISSON SUITES FRANCHISE LICENSE FOR CERTAIN OF THE INITIAL HOTELS IS NOT
INTENDED AS, AND SHOULD NOT BE INTERPRETED AS, AN EXPRESS OR IMPLIED APPROVAL
OR ENDORSEMENT BY RADISSON HOTELS INTERNATIONAL, INC. (OR ANY OF ITS
AFFILIATES, SUBSIDIARIES OR DIVISIONS) OF THE COMPANY, THE OPERATING
PARTNERSHIP, THE LESSEES OR THE COMMON STOCK OFFERED HEREBY.
WESTCOAST(R) IS A TRADEMARK AND SERVICE MARK OF WESTCOAST HOTELS, INC.
("WESTCOAST"). NEITHER WESTCOAST NOR ANY OF ITS AFFILIATES OR SUBSIDIARIES HAS
ENDORSED OR APPROVED THE OFFERING. A GRANT OF A WESTCOAST LICENSE FOR CERTAIN
OF THE HOTELS IS NOT INTENDED AS, AND SHOULD NOT BE INTERPRETED AS, AN EXPRESS
OR IMPLIED APPROVAL OR ENDORSEMENT BY WESTCOAST (OR ANY OF ITS AFFILIATES OR
SUBSIDIARIES) OF THE COMPANY, THE OPERATING PARTNERSHIP, THE LESSEES OR THE
COMMON STOCK OFFERED HEREBY.
WYNDHAM(TM), WYNDHAM GARDEN(R) AND THE WYNDHAM W(TM) LOGO ARE TRADEMARKS OF
WYNDHAM. NEITHER WYNDHAM NOR ANY OF ITS OFFICERS, DIRECTORS, AGENTS AND
EMPLOYEES SHALL IN ANY WAY BE DEEMED AN ISSUER OR UNDERWRITER OF THE SHARES OF
COMMON STOCK OFFERED HEREBY. WYNDHAM AND ITS OFFICERS, DIRECTORS, AGENTS OR
EMPLOYEES HAVE NOT ENDORSED OR APPROVED OF THE OFFERING AND HAVE NOT ASSUMED
AND SHALL NOT HAVE ANY LIABILITY OR RESPONSIBILITY ARISING OUT OF OR RELATED
TO THE OFFER OR SALE OF THE COMMON STOCK OFFERED HEREBY, INCLUDING, WITHOUT
LIMITATION, ANY LIABILITY OR RESPONSIBILITY FOR ANY FINANCIAL STATEMENTS,
PROJECTIONS OR OTHER FINANCIAL INFORMATION CONTAINED IN THIS PROSPECTUS OR ANY
WRITTEN OR ORAL COMMUNICATIONS REGARDING THE SUBJECT MATTER HEREOF.
EMPLOYEES
The Company is self-administered and employs fourteen persons, including
Messrs. Nussbaum, Lattin, Stewart, Ng, Huntzicker and Murphy, and retains
appropriate support personnel to manage its operations in lieu of retaining an
advisor. All persons employed in the operation of the Hotels are employees of
the Operators or their affiliates.
ENVIRONMENTAL MATTERS
Under various federal, state and local laws and regulations, an owner or
operator of real estate may be liable for the costs of removal or remediation
of certain hazardous or toxic substances on such property. Such laws often
impose such liability without regard to whether the owner knew of, or was
responsible for, the presence of hazardous or toxic substances. Furthermore, a
person that arranges for the transportation, disposal or treatment of a
hazardous or toxic substance at a property owned by another may be liable for
the costs of removal or remediation of such substance released into the
environment at that property. The costs of remediation or removal of such
substances may be substantial, and the presence of such substances, or the
failure to promptly remediate such substances, may adversely affect the
owner's ability to sell such real estate or to borrow using such real estate
as collateral. In connection with the ownership and operation of the Hotels,
the Company, the Operating Partnership or the Lessees, as the case may be, may
be potentially liable for such costs.
Phase I ESAs have been performed on all of the Hotels by a qualified
independent environmental engineer. The purpose of the Phase I ESAs is to
identify potential sources of contamination for which the Hotels may be
responsible and to assess the status of environmental regulatory compliance.
The Phase I ESAs include historical reviews of the Hotels, reviews of certain
public records, preliminary investigations of the sites and surrounding
properties, screening for the presence of ACMs, polychlorinated biphenyls
("PCBs") and underground storage tanks, and the preparation and issuance of a
written report. The Phase I ESAs do not include invasive procedures, such as
soil sampling or ground water analysis.
The ESAs have not revealed any environmental liability or compliance concern
that the Company believes would have a material adverse effect on the
Company's business, assets, results of operations or liquidity, nor is the
Company aware of any such liability or concern. Nevertheless, it is possible
that the Phase I ESAs did not
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reveal all environmental liabilities or compliance concerns or that material
environmental liabilities or compliance concerns exist of which the Company is
currently unaware. Moreover, no assurances can be given that (i) future laws,
ordinances or regulations will not impose any material environmental liability
or (ii) the current environmental condition of the Hotels will not be affected
by the condition of the properties in the vicinity of the Hotels (such as the
presence of leaking underground storage tanks) or by third parties unrelated
to the Operating Partnership or the Company.
In reliance upon the Phase I ESAs, the Company believes the Hotels are in
compliance in all material respects with all federal, state and local
ordinances and regulations regarding hazardous or toxic substances and other
environmental matters. The Company has not been notified by any governmental
authority, and has no other knowledge of, any material noncompliance,
liability or claim relating to hazardous or toxic substances or other
environmental substances in connection with any of its Hotels, except as noted
below.
Marriott WindWatch Hotel. The Marriott WindWatch Hotel, a Proposed
Acquisition, is in close proximity to a former municipal landfill, which has
been designated as an NPL site by the EPA. The Hotel property is downgradient
of the NPL site. An environmental consultant retained by the Company has
informed the Company that the current data relating to the NPL site does not
suggest any groundwater contamination from the former landfill has migrated
onto the Hotel property. The environmental consultant has also informed the
Company that it is unlikely that any groundwater contamination from the former
landfill will in the future migrate onto the hotel property resulting in
contaminant levels above applicable action levels. Remediation activities by
the municipality, under the supervision of the EPA and the New York State DEC
are ongoing but have not yet been completed. The DEC has indicated that it
does not intend to pursue as potentially responsible parties nearby landowners
whose property becomes contaminated as a result of off-site migration from the
former landfill.
COMPETITION
The hotel industry is highly competitive. Each of the Hotels is located in a
developed area that includes other hotel properties. The number of competitive
hotel properties in a particular area could have a material adverse effect on
occupancy and ADR of the Hotels or at hotel properties acquired in the future.
The Company may be competing for investment opportunities with entities that
have substantially greater financial resources than the Company. These
entities may generally be able to accept more risk than the Company can
prudently manage, including risks with respect to the creditworthiness of a
hotel operator or the geographic proximity of its investments. Competition may
generally reduce the number of suitable investment opportunities offered to
the Company and increase the bargaining power of property owners seeking to
sell. Further, the Company believes competition from entities organized for
purposes substantially similar to the Company's objectives could increase
significantly if the Company is successful. Affiliates of the Lessees may
acquire, manage or develop hotels that compete with the Company's Hotels.
INSURANCE
The Company carries comprehensive liability, fire, extended coverage and
business interruption insurance with respect to the Hotels, with policy
specifications, insured limits and deductibles customarily carried for similar
properties. The Company will carry similar insurance with respect to any other
properties developed or acquired in the future. There are, however, certain
types of losses (such as losses arising from wars, certain losses arising from
hurricanes and losses arising from other acts of nature) that are not
generally insured because they are either uninsurable or not economically
insurable. Should an uninsured loss or a loss in excess of insured limits
occur, the Company could lose its capital invested in the affected property,
as well as the anticipated future revenues from such property and would
continue to be obligated on any mortgage indebtedness or other obligations
related to the property. Any such loss could adversely affect the business of
the Company. Management of the Company believes the Hotels are adequately
insured in accordance with industry standards.
LEGAL PROCEEDINGS
Neither the Company nor the Operating Partnership is currently involved in
any material litigation nor, to the Company's knowledge, is any material
litigation currently threatened against the Company or the Operating
Partnership. The Lessees and the Operators have advised the Company that they
currently are not involved in any material litigation, other than routine
litigation arising in the ordinary course of business, substantially all of
which is expected to be covered by liability insurance.
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FORMATION TRANSACTIONS
FORMATION TRANSACTIONS
Simultaneously with the closing of the Initial Offering, the Company
consummated the Formation Transactions, which included the following:
. Mr. Nussbaum and certain of his affiliates, together with John H.
Daniels, William L. Mack and Saundra Mann, each of whom are principals of
Patriot American, and Karim Alibhai, a principal of Gencom, established
the Company and the Operating Partnership and were issued an aggregate of
340,836 OP Units in connection with the capitalization thereof.
. The Company sold 14,605,000 shares of Common Stock in the Initial
Offering and contributed substantially all of the net proceeds thereof to
the Operating Partnership. Upon completion of the Initial Offering and
the Formation Transactions, the Company owned an approximately 86.3%
controlling ownership interest in the Operating Partnership.
. The Operating Partnership acquired a 100% interest in each of the Initial
Hotels for an aggregate of approximately 2.0 million OP Units,
approximately $101.2 million in cash and the repayment of approximately
$162.5 million of existing mortgage and other indebtedness on the Initial
Hotels, as follows:
. The Operating Partnership acquired interests in five of the Initial
Hotels from affiliates of Mr. Nussbaum, Chairman and Chief Executive
Officer of the Company, and certain related trusts in exchange for
95,027 OP Units, valued at approximately $2.3 million.
. The Operating Partnership acquired interests in three of the Initial
Hotels from affiliates of Mr. Daniels, a director of the Company, in
exchange for 73,373 OP Units, valued at approximately $1.8 million,
and approximately $156,000 in cash (to pay tax obligations incurred
in connection with the Formation Transactions).
. The Operating Partnership acquired an interest in one of the Initial
Hotels from an affiliate of Mr. Stewart, an officer of the Company,
in exchange for 1,437 OP Units, valued at approximately $35,000.
. The Operating Partnership acquired interests in four of the Initial
Hotels from affiliates of Mr. Mack, a principal of Patriot American
who is not an officer or director of the Company, in exchange for
740,293 OP Units (including 395,747 OP Units issuable to a creditor
of such affiliates pursuant to the terms of a loan related to such
affiliates' interests in the Initial Hotels), valued at approximately
$17.8 million, and approximately $5.6 million in cash (including
approximately $2.9 million attributable to certain business partners
of Mr. Mack who are not affiliated with Patriot American).
. The Operating Partnership acquired interests in three of the Initial
Hotels from affiliates of Ms. Mann, a principal of Patriot American
who is not an officer or director of the Company, in exchange for
73,373 OP Units, valued at approximately $1.8 million, and
approximately $156,000 in cash (to pay tax obligations incurred in
connection with the Formation Transactions).
. The Operating Partnership acquired an interest in one of the Initial
Hotels from a partnership comprised of current and former executives
of Patriot American who are not affiliated with the Company in
exchange for 4,953 OP Units, valued at approximately $119,000.
. The Operating Partnership acquired interests in six of the Initial
Hotels from Mr. Alibhai in exchange for 428,891 OP Units, valued at
approximately $10.3 million, and approximately $525,000 in cash.
. The Operating Partnership acquired interests in ten of the Initial
Hotels from family members of Mr. Alibhai and from Gencom Interests,
Inc., a corporation owned by Mr. Alibhai and members of his family
("Gencom Interests") in exchange for an aggregate of 210,577 OP
Units, valued at
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approximately $5.1 million, and approximately $17.6 million in cash
(approximately $13.8 million of which was used to repay indebtedness
related to such interests, to pay tax obligations and other expenses
incurred in connection with the Formation Transactions and to
capitalize CHC Lease Partners). Gencom Interests also received
approximately $3.9 million in cash as repayment of indebtedness related
to one of the Initial Hotels.
. The Operating Partnership acquired interests in four of the Initial
Hotels from CHC or its affiliates in exchange for 210,693 OP Units,
valued at approximately $5.1 million, and approximately $3.4 million
in cash (to pay tax obligations and other expenses incurred in
connection with the Formation Transactions and to capitalize CHC Lease
Partners).
. The Operating Partnership acquired interests in two of the Initial
Hotels from Apollo Real Estate Investment Fund, L.P. in exchange for
approximately $22.5 million in cash.
. The Operating Partnership acquired interests in 16 of the Initial
Hotels from parties that are unaffiliated with Patriot American, CHC,
Gencom and certain of their affiliates (collectively, the "Primary
Contributors") in exchange for an aggregate of 148,272 OP Units,
valued at approximately $3.6 million, and approximately $47.7 million
in cash.
. CHC and an affiliate of Mr. Alibhai formed CHC Lease Partners, and each
own 50% of the partnership interests in CHC Lease Partners.
. CHC acquired a 50% interest in GAH, one of the Operators, from certain
affiliates of Patriot American for a promissory note in the amount of
$3.75 million.
. The Operating Partnership leased the Initial Hotels to CHC Lease Partners
for staggered terms of ten to twelve years pursuant to separate
Participating Leases, which provide for rent equal to the greater of Base
Rent or Participating Rent, plus certain Additional Charges as
applicable. CHC Lease Partners holds the Franchise License for each
franchised Initial Hotel. CHC Lease Partners contracted with the
Operators to operate 19 of the Initial Hotels under separate Management
Agreements providing for the subordination of the payment of all
management fees to CHC Lease Partners' obligations to the Operating
Partnership.
. The Operating Partnership entered into the Line of Credit.
BENEFITS TO OFFICERS, DIRECTORS AND PRIMARY CONTRIBUTORS
OFFICERS AND DIRECTORS OF THE COMPANY
As a result of the Formation Transactions, officers and directors of the
Company and certain of their respective affiliates received the following
benefits:
. Mr. Nussbaum and certain related trusts received 260,948 OP Units and
affiliates of Mr. Daniels received 83,042 OP Units and approximately
$156,000 in cash (to pay tax obligations incurred in connection with the
Formation Transactions) as consideration for their interests in the
Initial Hotels and in connection with the initial capitalization of the
Operating Partnership. Mr. Stewart received 1,437 OP Units as
consideration for his interest in one of the Initial Hotels. The OP Units
received by Mr. Nussbaum and related trusts, affiliates of Mr. Daniels
and Mr. Stewart (which are redeemable for cash, or at the Company's
option are exchangeable for Common Stock, at any time after October 2,
1997) were valued at approximately $6.3 million, $2.0 million and
$35,000, respectively, and are more liquid than their interests in the
Initial Hotels.
. The 31,250, 18,750 and 9,375 shares of Common Stock owned by Messrs.
Lattin, Stewart and Ng prior to the Offering, for which they paid nominal
consideration, were valued at approximately $750,000, $450,000 and
$225,000, respectively at the time of the Initial Offering. These shares
of Common Stock vest ratably over a three-year period.
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. Messrs. Nussbaum, Lattin, Stewart and Ng were granted options to acquire
250,000, 100,000, 85,000 and 65,000 shares of Common Stock, respectively.
. Each non-employee director received 260 shares of Common Stock and
options to acquire 7,500 shares of Common Stock.
. The Operating Partnership repaid approximately $373,000 of indebtedness
of affiliates of Mr. Daniels related to their interests in the Initial
Hotels.
. The Operating Partnership repaid approximately $900,000 of indebtedness
guaranteed by Mr. Nussbaum.
. In connection with the issuance of title insurance policies on certain of
the Initial Hotels, a title insurance agency owned by Mr. Nussbaum,
certain members of his family and certain related trusts received
approximately $245,000 in fees.
. Certain tax consequences to officers and directors of the Company and
their affiliates and related trusts and other entities from the
conveyance of their interests in the Initial Hotels to the Operating
Partnership were deferred.
PRIMARY CONTRIBUTORS (EXCLUDING OFFICERS AND DIRECTORS OF THE COMPANY)
The Primary Contributors include Messrs. Nussbaum, Mack and Daniels and Ms.
Mann (who are the principals of Patriot American), Mr. Alibhai (who is a
principal of Gencom), CHC and certain of their respective affiliates. Benefits
of the Formation Transactions to Messrs. Nussbaum and Daniels are described
above. As a result of the Formation Transactions, the remaining Primary
Contributors received the following benefits:
. Affiliates of Mr. Mack received 835,245 OP Units (including 395,747 OP
Units issuable to a creditor of such affiliates pursuant to the terms of
a loan related to such affiliates' interests in the Initial Hotels) and
approximately $5.6 million in cash (including approximately $2.9 million
attributable to certain business partners of Mr. Mack who are not
affiliated with Patriot American); and affiliates of Ms. Mann received
83,042 OP Units and approximately $156,000 in cash (to pay tax
obligations incurred in connection with the Formation Transactions) as
consideration for their interests in the Initial Hotels and in connection
with the capitalization of the Operating Partnership. The OP Units
received by such affiliates of Mr. Mack and Ms. Mann were valued at
approximately $20.0 million and $2.0 million, respectively, at the time
of the Initial Offering and are more liquid than their interests in the
Initial Hotels.
. In satisfaction of approximately $8.6 million of indebtedness of
affiliates of Mr. Mack related to a loan entered into in connection with
their interests in the Initial Hotels, the Operating Partnership paid to
a third party lender approximately $6.3 million in cash and 395,747 OP
Units.
. The Operating Partnership repaid approximately $373,000 of indebtedness
of affiliates of Ms. Mann related to their interests in the Initial
Hotels.
. The Operating Partnership repaid an aggregate of approximately $12.5
million of indebtedness guaranteed by affiliates of Mr. Mack.
. Mr. Alibhai received 489,516 OP Units and approximately $525,000 in cash
as consideration for his interests in the Initial Hotels and in
connection with the capitalization of the Operating Partnership. The OP
Units received by Mr. Alibhai were valued at approximately $11.7 million
at the time of the Initial Offering and are more liquid than his
interests in the Initial Hotels. In addition, Gencom Interests, in which
Mr. Alibhai owns a 30% interest, received 210,577 OP Units and
approximately $8.2 million in cash as consideration for its interests in
the Initial Hotels. The OP Units received by Gencom Interests were valued
at approximately $5.1 million at the time of the Initial Offering and are
more liquid than its interests in the Initial Hotels. Gencom Interests
also received approximately $3.9 million in cash as repayment of
indebtedness related to one of the Initial Hotels.
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. The Operating Partnership repaid an aggregate of approximately $10.1
million of indebtedness guaranteed by Mr. Alibhai.
. CHC and its affiliates received approximately 210,693 OP Units and
approximately $3.4 million in cash as consideration for their interests
in the Initial Hotels. The OP Units received by CHC and its affiliates
were valued at approximately $5.0 million at the time of the Initial
Offering and are more liquid than their interests in the Initial Hotels.
. An affiliate of Patriot American in which Messrs. Nussbaum, Mack and
Daniels and Ms. Mann owned equity interests received a promissory note
from CHC in the principal amount of $3.75 million for its interest in
GAH.
. Approximately $1.2 million of indebtedness incurred by affiliates of CHC
in connection with the acquisition of the Peachtree Executive Conference
Center was repaid from the proceeds of the Initial Offering.
. Through its operation of the Initial Hotels pursuant to the Participating
Leases, CHC Lease Partners, which is owned by Mr. Alibhai and CHC, holds
the Franchise Licenses for the Initial Hotels and is entitled to all cash
flow from the Initial Hotels after payment of lease payments under the
Participating Leases and other operating expenses. Pursuant to the
Management Agreements, the Operators, which are affiliates of Gencom or
CHC, are entitled to receive management fees, payable from the cash flow
to CHC Lease Partners, in an amount initially equal to 2.25% of the
revenues at the Initial Hotels operated by them and escalating to 3.0%
over three years.
. Certain tax consequences to the Primary Contributors and their affiliates
from the conveyance of their interests in the Initial Hotels to the
Operating Partnership were deferred.
VALUATION OF INTERESTS
The initial valuation of the Company was determined primarily based upon a
capitalization of the Company's estimated Cash Available for Distribution and
other factors, rather than on the basis of each property's cost or appraised
value.
The purchase prices for the interests acquired by the Company from parties
unaffiliated with the Primary Contributors and from certain affiliates of the
Primary Contributors were determined pursuant to arms length negotiations. The
allocation of consideration among the Primary Contributors was determined
through negotiation and through the Company's determination of the percentage
of estimated adjusted cash flow that was required to pay the Company's
shareholders a specified initial annual distribution rate, which rate was
based upon prevailing market conditions. The allocation of consideration among
the Primary Contributors, in certain instances, also was affected by
performance-oriented structures contained in the applicable contributing
partnership agreements and reallocations of benefits to be derived among
certain of the contributing partners unrelated to capitalization rates or
market values of the Initial Hotels.
TRANSFER OF INITIAL HOTELS
The Company's interest in the Initial Hotels was acquired pursuant to
various agreements. These acquisitions were subject to all of the terms and
conditions of such agreements. The Company assumed all obligations relating to
the Initial Hotels that may arise after the transfer.
The agreements effecting the transfer of the assets or direct or indirect
interests of the partners and other holders of equity in the entities selling
the Initial Hotels contained representations and warranties from each such
person concerning title to the interests being transferred and the absence of
liens or other encumbrances thereon.
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<PAGE>
Mr. Nussbaum, Mr. Alibhai, certain executives of CHC (including Messrs.
Sherwood Weiser and Donald Lefton) and CHC (collectively, the "Indemnitors")
made additional representations with respect to the Company, CHC Lease
Partners and the Initial Hotels in which such Indemnitors hold ownership
interests concerning the operation of such Initial Hotels, environmental
matters and other representations and warranties customarily found in similar
documents and also agreed to indemnify the Company against breaches of such
representations and warranties. These representations and warranties survive
until October 2, 1996. These indemnification obligations are set forth in an
agreement between the Company and the Indemnitors. The Indemnitors (together
with certain principals of Patriot American) pledged (on a sole recourse
basis) approximately 600,000 OP Units (the "Collateral") to secure their
respective indemnification obligations. So long as the indemnified parties
have a valid security interest in the Collateral, their recourse is limited
solely to such Collateral. This agreement also provides that no claims will be
made against any Indemnitor for a breach of the agreement or for certain
litigation claims unless and until the aggregate value of all such claims
exceeds $1.0 million or $150,000, respectively.
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<PAGE>
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The Board of Directors consists of seven members, five of whom are
Independent Directors (as hereafter defined). Each director is elected for a
one year term. The Company currently has six executive officers. Certain
information regarding the directors and executive officers of the Company is
set forth below.
<TABLE>
<CAPTION>
NAME POSITION AGE
---- -------- ---
<S> <C> <C>
Paul A. Nussbaum............... Chairman of the Board and Chief Executive 49
Officer
Thomas W. Lattin............... President and Chief Operating Officer 52
Rex E. Stewart................. Executive Vice President; Chief Financial 48
Officer
Michael Murphy................. Senior Vice President--Acquisitions 39
Leslie Ng...................... Senior Vice President--Acquisitions 37
G. Terry Huntzicker............ Vice President--Design and Construction 52
John H. Daniels................ Director 69
Leonard Boxer.................. Independent Director 57
John C. Deterding.............. Independent Director 64
Gregory R. Dillon.............. Independent Director 73
Thomas S. Foley................ Independent Director 67
Arch K. Jacobson............... Independent Director 68
</TABLE>
Paul A. Nussbaum became Chairman and Chief Executive Officer of the Company
in April 1995. Mr. Nussbaum founded Patriot American in 1991 and has been its
Chief Executive Officer since its inception. Prior to his association with
Patriot American, Mr. Nussbaum practiced real estate and corporate law in New
York for 20 years, the last 12 years of which as chairman of the real estate
department of Schulte Roth & Zabel. He currently serves as a member of the
Board of Directors of the Dallas Community Development Assistance Corporation
and as a member of the Mayor's Task Force on Dallas Corporate Facilities. Mr.
Nussbaum is a member of the Urban Land Institute, the American College of Real
Estate Lawyers and the Advisory Board of the Real Estate Center of the Wharton
School of Business, University of Pennsylvania. Mr. Nussbaum is an overseer of
Colby College, Waterville, Maine and holds a B.A. from the State University of
New York at Buffalo and a J.D. from the Georgetown University Law Center.
Thomas W. Lattin was named President and Chief Operating Officer of the
Company in April 1995. He has over 25 years of experience in the hotel
industry as an executive and consultant. From 1976 through 1983, Mr. Lattin
served as President of the Mariner Corporation, a hotel development and
management company based in Houston, Texas. During his tenure, Mariner's hotel
portfolio of owned and managed properties grew from two hotels to 25 hotels
throughout the Sunbelt states. In 1984, he founded Great West Hotels, a hotel
management and consulting company, and served as President and Chief Executive
Officer through 1987. From 1987 through 1994, he served as the National
Partner of the hospitality industry consulting practice of Laventhol & Horwath
and subsequently as a partner in the national hospitality consulting group of
Coopers & Lybrand L.L.P. In 1994, he joined the Hospitality Group of Kidder,
Peabody & Co. Incorporated as a Senior Vice President and later served as a
Senior Vice President with PaineWebber, following PaineWebber's acquisition of
certain assets of Kidder, Peabody & Co. Mr. Lattin is a contributing author of
an introductory textbook on hotel management, which is used by colleges and
universities worldwide. Mr. Lattin holds a B.S. and M.S. in Hotel Management
from the Cornell School of Hotel Administration. He is a certified public
accountant.
Rex E. Stewart became Executive Vice President and Chief Financial Officer
of the Company in April 1995. From 1993 until joining the Company, he served
as Chief Financial Officer and Treasurer of Metro Joint Venture, an
independent hotel management company based in Dallas, Texas, which currently
manages the Holiday Inn Select North Dallas and the Embassy Suites, Hunt
Valley. He served in the same capacities for Metro Hotels, Inc. from 1986
until 1993. Previously, Mr. Stewart was the Chief Financial Officer of Lincoln
Hotel Corporation, which owned and operated a chain of upscale and luxury
hotels across the United States. Prior to his employment
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<PAGE>
with Lincoln Hotel Corporation, Mr. Stewart was an audit manager with Arthur
Andersen & Co. in Dallas. He holds a B.B.A. from Texas A&M University and an
M.B.A. from the University of Southern California. He is a certified public
accountant.
Michael Murphy became Senior Vice President--Acquisitions of the Company in
April 1996. From 1986 through 1996, Mr. Murphy was Chief Executive Officer and
Founder of The Stonebridge Group, Inc. ("Stonebridge"), a company specializing
in structuring and negotiating capital market financing transactions. Mr.
Murphy graduated from Williams College, Williamstown, Massachusetts and has a
J.D. from Fordham University of Law, New York.
Leslie Ng became Senior Vice President--Acquisitions of the Company in June
1995. From 1992 to June 1995, he served as Senior Vice President, Development
of CHC. From 1987 until 1992, Mr. Ng was Vice President, Real Estate of
Tobishima Associates, Ltd., a multinational real estate investment and
development company. Prior to his association with Tobishima, Mr. Ng was a
management consultant at Deloitte & Touche from 1985 to 1987 and a structural
engineer at Burns and Roe, Inc., an engineering and construction management
company, from 1980 to 1983. Mr. Ng has a B.E. in civil engineering from The
Cooper Union and an M.B.A. from the Wharton School, University of
Pennsylvania.
G. Terry Huntzicker became Vice President--Design and Construction of the
Company in April 1996. Prior to joining the Company, Mr. Huntzicker was a
partner of G&H Interests, Inc., which developed more than $200 million of new
hotels for its own account. Prior to his association with G&H Interests, Inc.,
Mr. Huntzicker held construction management positions with Mariner Interests,
Inc., a Houston-based hotel company, and Holiday Inns, Inc. Mr. Huntzicker has
a B.S. in engineering from Christian Brothers University, Memphis, Tennessee.
John H. Daniels became a director of the Company in October 1995. He has
served as President of The Daniels Group Inc., a real estate development and
management company, since 1984. Mr. Daniels has also served as Vice Chairman
of Patriot American since its inception in 1991. Prior to forming The Daniels
Group Inc., Mr. Daniels served as Chairman and Chief Executive Officer of
Cadillac Fairview Corporation, a publicly held real estate development and
management company. Mr. Daniels has over 40 years of real estate development
and management experience. Mr. Daniels is also a director of Cineplex-Odeon
Corporation, Consolidated H.C.I. Corporation, Samoth Capital Corporation and
Anitech Enterprises Inc. He holds a B.S. in Architecture from the University
of Toronto.
Leonard Boxer became a director of the Company in October 1995. He has been
a partner and chairman of the real estate department of the law firm of
Stroock & Stroock & Lavan in New York, New York since 1987. Previously, he was
a founder and managing partner and head of the real estate department of
Olnick Boxer Blumberg Lane & Troy, a real estate law firm in New York. Mr.
Boxer is a member of the Board of Trustees of New York University Law School.
He is a member of the New York Regional Cabinet of the United States Holocaust
Memorial Museum. He received his B.A. and L.L.B. from New York University.
John C. Deterding became a director of the Company in October 1995. He has
been the owner of Deterding Associates, a real estate consulting company,
since June 1993. From 1975 until June 1993, he served as Senior Vice President
and General Manager of the Commercial Real Estate division of General Electric
Capital Corporation ("GECC"). In directing the real estate activities at GECC,
he was responsible for both domestic and international lending activities,
portfolio purchases, joint ventures, asset management and real estate
securitization. From November 1989 to June 1993, Mr. Deterding served as
Chairman of the General Electric Real Estate Investment Company, a privately
held REIT. He served as Director of GECC Financial Corporation from 1986 to
1993. Mr. Deterding is also a former member and trustee of the Urban Land
Institute. He holds a B.S. from the University of Illinois.
Gregory R. Dillon became a director of the Company in October 1995. He has
been Vice Chairman Emeritus of Hilton Hotels Corporation ("Hilton") since
1993. He has been a director of Hilton since 1977 and was elected Vice
Chairman in 1990. Mr. Dillon served as an Executive Vice President of Hilton
from 1980 until
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<PAGE>
1993. Mr. Dillon was also Executive Vice President of Hilton's franchise
company, Hilton Inns, Inc., from 1971 to 1986. He is a director of the Conrad
N. Hilton Foundation and is a founding member of the American Hotel
Association's Industry Real Estate Financing Advisory Council and the National
Association of Corporate Real Estate Executives (NACORE). In addition to his
undergraduate degree, Mr. Dillon has an L.L.B. from DePaul University.
Thomas S. Foley became a director of the Company in October 1995. He has
been a partner in the Washington, D.C. office of Akin, Gump, Strauss, Hauer &
Feld, L.L.P. since January 1995. From 1965 through 1994, Mr. Foley served 15
terms in the U.S. House of Representatives. Mr. Foley was Speaker of the U.S.
House of Representatives from June 1989 through December 1994. Mr. Foley
currently is a director of the H.J. Heinz Company, and he serves on the Global
Advisory Board of Coopers & Lybrand L.L.P., the Board of Advisors for the
Center for Strategic and International Studies and the Board of Directors for
the Center for National Policy. Mr. Foley received his B.A. and L.L.B. from
the University of Washington.
Arch K. Jacobson became a director of the Company in October 1995. He has
served as President of Jacobson-Berger Capital Group, Inc., a commercial
mortgage banking firm, since 1993. From 1986 to 1993, Mr. Jacobson was
Chairman of Union Pacific Realty Co., a real estate management and development
company. He served in various capacities with the Real Estate Department of
The Prudential Insurance Company from 1955 to 1980 and was President and Chief
Executive Officer of the Prudential Development Company (a subsidiary of the
Prudential Insurance Company) from 1982 to 1986. Mr. Jacobson currently serves
as a director of Walden Residential Properties, Inc., a publicly traded
multifamily apartment REIT. He was formerly a director of La Quinta Limited
Partners, and chaired the committee of independent directors that negotiated
the tender offer for and purchase of that company in 1994. Mr. Jacobson has a
B.S. from Texas A&M University.
COMMITTEES
Audit Committee. The Audit Committee consists of three Independent
Directors: Messrs. Boxer, Dillon and Foley. The Audit Committee makes
recommendations concerning the engagement of independent public accountants,
reviews with the independent public accountants the plans and results of the
audit engagement, approves professional services provided by the independent
public accountants, reviews the independence of the independent public
accountants, considers the range of audit and non-audit fees and reviews the
adequacy of the Company's internal accounting controls.
Compensation Committee The Compensation Committee consists of three
Independent Directors: Messrs. Dillon, Deterding and Jacobson. The
Compensation Committee determines compensation of the Company's executive
officers and administers the Company's 1995 Plan.
Investment Committee The Investment Committee members are Messrs. Deterding
and Jacobson who are Independent Directors and Mr. Daniels who is a non-
employee Director. Mr. Nussbaum, as Chairman of the Board, serves as an ex-
officio member of the committee. The Investment Committee makes
recommendations concerning the acquisition of hotel investments.
The Company may from time to time form other committees as circumstances
warrant. Such committees will have authority and responsibility as delegated
by the Board of Directors.
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<PAGE>
EXECUTIVE COMPENSATION
The Company was organized as a Virginia corporation in April 1995.
Accordingly, the Company did not pay any cash compensation to its executive
officers for the year ended December 31, 1994. The following table sets forth
the base compensation paid to the Chief Executive Officer and to the four most
highly compensated executive officers of the Company other than the Chief
Executive Officer whose base salary, on an annualized basis, and bonus
exceeded $100,000 during the year ended December 31, 1995. Messrs. Huntzicker
and Murphy joined the Company in April 1996 and, consequently, received no
compensation in 1995.
<TABLE>
<CAPTION>
ANNUAL COMPENSATION
-------------------
LONG-TERM
COMPENSATION
NUMBER OF SHARES
NAME POSITION WITH COMPANY BASE SALARY BONUS UNDERLYING OPTION(F)
- ---- -------------------------------------- ----------- ------- --------------------
<S> <C> <C> <C> <C>
Paul A. Nussbaum........ Chairman & Chief Executive Officer $ 45,000(a) (e) 250,000
Thomas W. Lattin........ President & Chief Operating Officer $126,000(b) $33,750 100,000
Rex E. Stewart.......... Executive VP & Chief Financial Officer $ 88,000(c) (e) 85,000
Leslie Ng............... Senior VP--Acquisitions $ 81,000(d) $21,000 65,000
</TABLE>
- --------
(a) Represents amount paid since October 1995 based on an annual salary of
$180,000. Salary prior to October 1995 was paid by Patriot American.
(b) Represents amount paid since April 1995 based on an annual salary of
$175,000.
(c) Represents amount paid since July 1995 based on an annual salary, since
October 1, 1995, of $170,000. Salary prior to July 1995 was paid by Metro
Hotels.
(d) Represents amount paid since June 1995 based on an annual salary, since
October 1, 1995, of $140,000.
(e) Bonus compensation in an amount equal to 25% of Mr. Nussbaum's and 15% of
Mr. Stewart's annual base salary was approved for 1995, but payment of the
bonus was deferred at the election of the executive officer until 1996.
(f) In connection with the Initial Offering, the Company granted incentive
stock options ("ISOs") and nonqualified options to Messrs. Nussbaum,
Lattin, Stewart and Ng to purchase shares of Common Stock. Of the 250,000
options granted to Mr. Nussbaum, 208,340 are nonqualified stock options,
17,361 of which vested on the date of grant and the remainder become
exercisable in eleven quarterly installments, and 41,660 are ISOs which
become exercisable in ten equal annual installments beginning January 1,
1996. Of the 100,000 options granted to Mr. Lattin, 58,340 are
nonqualified stock options, 4,862 of which vested on the date of grant and
the remainder become exercisable in eleven equal quarterly installments,
and 41,660 are ISOs which vest in ten equal annual installments beginning
January 1, 1996. Of the 85,000 options granted to Mr. Stewart, 43,340 are
nonqualified stock options, 3,611 of which vested on the date of grant and
the remainder become exercisable in eleven quarterly installments, and
41,660 are ISOs which vest in ten equal annual installments beginning
January 1, 1996. Of the 65,000 options granted to Mr. Ng, 23,340 are
nonqualified stock options, 1,945 of which vested on the date of grant and
the remainder become exercisable in eleven quarterly installments and
41,660 are ISOs which vest in ten equal annual installments beginning
January 1, 1996.
OPTION GRANTS IN 1995
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
VALUE AT ASSUMED
ANNUAL RATES OF SHARE
INDIVIDUAL GRANTS PRICE FOR OPTION TERM
------------------------------------------------- ---------------------
% OF TOTAL OPTIONS
OPTIONS GRANTED TO EXERCISE EXPIRATION
NAME GRANTED(#) EMPLOYEES IN 1995 PRICE DATE 5% 10%
- ---- ---------- ------------------ -------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Paul A. Nussbaum........ 250,000 50% $24.00 9/27/2005 $3,773,000 $9,562,000
Thomas W. Lattin........ 100,000 20% $24.00 10/25/2005 1,509,000 3,825,000
Rex E. Stewart.......... 85,000 17% $24.00 10/25/2005 1,283,000 3,251,000
Leslie Ng............... 65,000 13% $24.00 10/25/2005 981,000 2,486,000
</TABLE>
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<PAGE>
OPTION EXERCISES IN 1995 AND YEAR END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF UNEXERCISED VALUE OF IN-THE-MONEY
SHARES OPTIONS AT OPTIONS AT
ACQUIRED ON VALUE DECEMBER 31, 1995 DECEMBER 31, 1995(2)
NAME EXERCISE REALIZED(1) # EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE
- ---- ----------- ----------- --------------------------- -------------------------
<S> <C> <C> <C> <C>
Paul A. Nussbaum.......... -- -- 17,361/232,639 $30,382/$407,118
Thomas W. Lattin.......... -- -- 4,862/95,138 $8,509/$166,491
Rex E. Stewart............ -- -- 3,611/81,389 $6,319/$142,431
Leslie Ng................. -- -- 1,945/63,055 $3,404/$110,346
</TABLE>
- --------
(1) No options were exercised in 1995.
(2) Represents the number of shares of Common Stock underlying the options
(excluding options the exercise price of which was more than the market
value of the underlying securities) times the market price at December 31,
1995 of $25.75, minus the exercise price.
COMPENSATION DEVELOPMENTS
In April 1996, the Board of Directors granted stock options to purchase
approximately 180,000 shares of Common Stock to the executive officers, other
employees and key persons of the Company pursuant to the Company's 1995 Plan.
The options generally have an exercise price of $26.875 (the market price of
the Company's Common Stock on the date of grant) and become exercisable in
seven equal installments beginning in April 1997. The Compensation Committee
has retained Deloitte & Touche LLP as a compensation consultant and is
reviewing the compensation structure of the Company. Following consultation
with its consultant, the Compensation Committee is considering grants of
restricted stock pursuant to the Company's 1995 Plan to the Directors,
executive officers, other employees and key persons of the Company. Under the
Company's 1995 Plan, the Compensation Committee has the authority to grant up
to approximately 307,000 stock options and shares of restricted stock. Any
decisions to grant additional stock options or shares of restricted stock will
be made by the independent members of the Company's Board of Directors.
EMPLOYMENT AGREEMENTS
The Company has entered into an employment agreement with Mr. Nussbaum,
pursuant to which Mr. Nussbaum serves as Chairman and Chief Executive Officer
of the Company for a term of three years at an initial annual base
compensation of $180,000, subject to any increases in base compensation
approved by the Compensation Committee. The Compensation Committee has
increased Mr. Nussbaum's salary to $315,000 effective July 1, 1996. Upon
termination of Mr. Nussbaum's employment other than for cause, Mr. Nussbaum
will be entitled to receive severance benefits in an amount to be determined
by the Compensation Committee. In addition, the Company has entered into
employment agreements with Messrs. Lattin, Stewart, and Ng, pursuant to which
Mr. Lattin serves as President and Chief Operating Officer, Mr. Stewart serves
as Executive Vice President and Chief Financial Officer, and Mr. Ng serves as
Senior Vice President--Acquisitions, each for a term of three years, at an
annual base compensation of $175,000, $170,000, and $140,000 respectively,
subject to any increases in base compensation approved by the Compensation
Committee. The Compensation Committee has increased Mr. Lattin's salary to
$236,000 effective July 1, 1996. Upon termination other than for cause, each
of such officers will be entitled to receive severance benefits in an amount
to be determined by the Compensation Committee. Neither Mr. Murphy nor Mr.
Huntzicker has entered into an employment agreement with the Company.
COMPENSATION OF DIRECTORS
Any director who is not an employee of the Company is paid an annual
retainer fee of $12,500. In addition, each such director is paid $1,250 for
attendance at each meeting of the Company's Board of Directors and $750 for
attendance at each meeting of a committee of the Company's Board of which such
director is a member. The annual retainer fee is paid to such directors one-
half in cash and one-half in shares of Common Stock. Meeting fees are paid in
cash. Directors who are employees of the Company do not receive any fees for
their service on the Board of Directors or a committee thereof. In addition,
the Company reimburses directors for their out-of-pocket expenses incurred in
connection with their service on the Board of Directors.
On October 2, 1995, each non-employee director was granted 260 shares of
Common Stock and non-qualified options to purchase 7,500 shares of Common
Stock at an exercise price of $24.00 per share (the Initial
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<PAGE>
Offering price). On May 23, 1996, each non-employee director was granted 220
shares of Common Stock and non-qualified options to purchase 2,500 shares of
Common Stock at an exercise price of $28.38 per share. In addition, on the
date of the annual meeting of the Company's shareholders, beginning with the
annual meeting to be held in 1996, each such non-employee director then in
office will receive a grant of nonqualified options to purchase an additional
2,500 shares of Common Stock at the then current market price, up to an
aggregate number of shares subject to such options of 17,500 per non-employee
director. All options granted to non-employee directors will vest immediately
upon the date of grant. Any non-employee director who ceases to be a director
will forfeit the right to receive any options not previously granted. See "--
Stock Incentive Plans--The Directors' Plan."
STOCK INCENTIVE PLANS
The Board of Directors has adopted, and the Company's shareholders have
approved, the 1995 Plan and the Patriot American Hospitality, Inc. Non-
Employee Directors' Incentive Plan (the "Directors' Plan") for the purposes of
(i) attracting and retaining employees, directors and other service providers
with ability and initiative, (ii) providing incentives to those deemed
important to the success of the Company, and (iii) associating the interests
of these individuals with the interests of the Company and its shareholders
through opportunities for increased stock ownership.
The 1995 Plan
Administration. The 1995 Plan is administered by the Compensation Committee.
The Compensation Committee may delegate its authority to administer the 1995
Plan. The Compensation Committee may not, however, delegate its authority with
respect to grants and awards to individuals subject to Section 16 of the
Exchange Act. As used in this summary, the term "Administrator" means the
Compensation Committee or its delegate, as appropriate.
Eligibility. Each employee of the Company, or an affiliate, or any other
person whose efforts contribute to the Company's performance, including an
employee who is a member of the Board, is eligible to participate in the 1995
Plan. The Administrator selects the individuals who will participate in the
1995 Plan ("Participants") but no person may participate in the 1995 Plan
while he is a member of the Compensation Committee. The Administrator may,
from time to time, grant stock options, stock awards, incentive awards or
performance shares to Participants.
Options. Options granted under the 1995 Plan may be ISOs or nonqualified
stock options. An option entitles a Participant to purchase shares of Common
Stock from the Company at the option price. The option price may be paid in
cash, with shares of Common Stock, or with a combination of cash and Common
Stock. The option price is fixed by the Administrator at the time the option
is granted, but the price cannot be less than 100% for existing employees (85%
in connection with the hiring of new employees) of the shares' fair market
value on the date of grant. The exercise price of an ISO granted to any
Participant who is a Ten Percent Shareholder (as defined below) may not be
less than 110% of the fair market value of the Common Shares on the date of
grant. A Participant is a Ten Percent Shareholder if he owns, or is deemed to
own, more than ten percent of the total combined voting power of all classes
of stock of the Company or a related entity. A Participant is deemed to own
any voting stock owned (directly or indirectly) by the Participant's spouse,
brothers, sisters, ancestors and lineal descendants. A Participant and such
persons are also considered to own proportionately any voting stock owned
(directly or indirectly) by or for a corporation, partnership, estate or trust
of which the Participant or any such person is a shareholder, partner or
beneficiary. Options may be exercised at such times and subject to such
conditions as may be prescribed by the Administrator but the maximum term of
an option is ten years in the case of an ISO or five years in the case of an
ISO granted to a Ten Percent Shareholder.
No employee may be granted ISOs (under the 1995 Plan or any other plan of
the Company) that are first exercisable in a calendar year for Common Stock
having an aggregate fair market value (determined as of the date the option is
granted) exceeding $100,000. In addition, no Participant may be granted
options in any calendar year for more than 250,000 shares of Common Stock.
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<PAGE>
Stock Awards. Participants also may be awarded shares of Common Stock
pursuant to a stock award. A Participant's rights in a stock award shall be
nontransferable or forfeitable or both unless certain conditions prescribed by
the Administrator are satisfied. These conditions may include, for example, a
requirement that the Participant continue employment with the Company for a
specified period or that the Company or the Participant achieve stated,
performance-related objectives. The objectives may be stated with reference to
the fair market value of the Common Stock or the Company's, a subsidiary's or
an operating unit's return on equity, earnings per share, total earnings,
earnings growth, return on capital or return on assets. A stock award that is
not immediately vested and nonforfeitable will be restricted for a period of
at least three years; provided however, that the period shall be at least one
year in the case of a stock award that is subject to objectives based on one
or more of the foregoing performance criteria. No Participant may be granted
stock awards in any calendar year for more than 50,000 shares of Common Stock.
Incentive Awards. Incentive awards also may be granted under the 1995 Plan.
An incentive award is an opportunity to earn a bonus, payable in cash, upon
attainment of stated performance objectives. The objectives may be stated with
reference to the fair market value of the Common Stock or on the Company's, a
subsidiary's or an operating unit's return on equity, earnings per share,
total earnings, earnings growth, return on capital or return on assets. The
period in which performance will be measured will be at least one year. No
Participant may receive an incentive award payment in any calendar year that
exceeds the lesser of (i) 100% percent of the Participant's base salary (prior
to any salary reduction or deferral election) as of the date of grant of the
incentive award or (ii) $250,000.
Performance Share Awards. The 1995 Plan also provides for the award of
performance shares. A performance share award entitles the Participant to
receive a payment equal to the fair market value of a specified number of
shares of Common Stock if certain standards are met. The Administrator will
prescribe the requirements that must be satisfied before a performance share
award is earned. These conditions may include, for example, a requirement that
the Participant continue employment with the Company for a specified period or
that the Company or the Participant achieve stated, performance-related
objectives. The objectives may be stated with reference to the fair market
value of the Common Stock or on the Company's, a subsidiary's or an operating
unit's return on equity, earnings per share, total earnings, earnings growth,
return on capital or return on assets. To the extent that performance shares
are earned, the obligation may be settled in cash, in Common Stock, or by a
combination of the two. No Participant may be granted performance shares for
more than 50,000 shares of Common Stock in any calendar year.
Share Authorization. All awards made under the 1995 Plan are evidenced by
written agreements between the Company and the Participant. A maximum of
1,000,000 shares of Common Stock may be issued under the 1995 Plan. The share
limitation and the terms of outstanding awards shall be adjusted, as the
Compensation Committee deems appropriate, in the event of a stock dividend,
stock split, combination, reclassification, recapitalization or other similar
event.
Termination and Amendment. No option or stock award may be granted and no
performance shares may be awarded under the 1995 Plan after October 25, 2005.
The Board may amend or terminate the 1995 Plan at any time, but, except as set
forth in the immediately preceding paragraph, an amendment will not become
effective without shareholder approval if the amendment increases the number
of shares of Common Stock that may be issued under the 1995 Plan (other than
an adjustment as described above), changes the eligibility requirements or
increases the benefits that may be provided under the 1995 Plan.
Federal Income Taxes. No income is recognized by a Participant at the time
an option is granted. If the option is an ISO, no income will be recognized
upon the Participant's exercise of the option. Income is recognized by a
Participant when he disposes of shares acquired under an ISO. The exercise of
a nonqualified share option generally is a taxable event that requires the
Participant to recognize, as ordinary income, the difference between the
shares' fair market value and the option price.
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A Participant will recognize income on account of a stock award on the first
day that the shares are either transferable or not subject to a substantial
risk of forfeiture. The amount of income recognized by the Participant is
equal to the fair market value of the Common Stock received on that date.
No income is recognized upon the grant of an incentive award. Income equal
to the amount of the bonus payment will be recognized on the date that payment
is made under the incentive award.
A Participant will recognize income on account of the settlement of a
performance share award. A Participant will recognize income equal to any cash
that is paid and the fair market value of Common Stock (on the date that the
shares are first transferable or not subject to a substantial risk of
forfeiture) that is received in settlement of the award.
The employer (either the Company or its affiliate) will be entitled to claim
a federal income tax deduction on account of the exercise of a nonqualified
option, the vesting of a restricted share award, payment under an incentive
award and the settlement of a performance share award. The amount of the
deduction is equal to the ordinary income recognized by the Participant. The
employer will not be entitled to a federal income tax deduction on account of
the grant or the exercise of an ISO. The employer may claim a federal income
tax deduction on account of certain dispositions of Common Stock acquired upon
the exercise of an ISO.
The Directors' Plan
Eligibility. The Directors' Plan provides for the grant of options to
purchase Common Stock and the award of shares of Common Stock to each eligible
director of the Company. No director who is an employee of the Company is
eligible to participate in the Directors' Plan.
Options. Pursuant to the Directors' Plan, in October 1995 each eligible
director who was a member of the Board of Directors as of September 27, 1995,
was awarded nonqualified options to purchase 7,500 shares of Common Stock
(each such director, a "Founding Director"). The options granted to Founding
Directors related to the Initial Offering have an exercise price equal to the
initial public offering price of $24.00 and vested immediately. Each eligible
director who was not a Founding Director (a "Non-Founding Director") will
receive nonqualified options to purchase 7,500 shares of Common Stock upon
election to the Board of Directors. On the date of each annual meeting of the
Company's shareholders, beginning with the shareholders' meeting in 1996, each
non-employee director then in office will receive an additional grant of
nonqualified options to purchase 2,500 shares of Common Stock, with the
maximum aggregate number of shares subject to options to be granted to each
non-employee director being 17,500. The exercise price of options under future
grants will be 100% of the fair market value of the Common Stock on the date
of grant. The exercise price may be paid in cash, cash equivalents acceptable
to the Compensation Committee, Common Stock or a combination thereof. Options
granted under the Directors' Plan are exercisable for ten years from the date
of grant.
Share Awards. The Directors' Plan also provides for the annual award of
shares of Common Stock to each eligible director. The number of shares so
awarded will have a fair market value equal to $6,250 (i.e., one-half of the
initial annual retainer fee otherwise payable to the director). Pursuant to
the Directors' Plan, in October 1995 and May 1996, each Founding Director was
awarded 260 and 220 shares of Common Stock, respectively. See "Compensation of
Directors." Such shares vest immediately upon grant and are nonforfeitable.
Amendment and Termination. The Directors' Plan provides that the Board may
amend or terminate the Directors' Plan, but the Plan may not be amended more
than once every six months other than to comport with changes in the Code, the
Employee Retirement Income Security Act of 1974, or the rules thereunder. An
amendment will not become effective without shareholder approval if the
amendment changes the eligibility requirements or increases the benefits that
may be provided under the Directors' Plan. No options may be granted under the
Directors' Plan after December 31, 2005.
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CERTAIN RELATIONSHIPS AND TRANSACTIONS
RELATIONSHIPS AMONG OFFICERS AND DIRECTORS
Mr. Nussbaum is Chairman of the Board and Chief Executive Officer of the
Company and a director and Chief Executive Officer of Patriot American. Mr.
Daniels is a director of the Company and is a Vice Chairman of Patriot
American.
ACQUISITION OF INTERESTS IN CERTAIN OF THE HOTELS
One or more of Mr. Nussbaum and certain related trusts, affiliates of Mr.
Daniels and Mr. Stewart owned equity interests in certain of the Initial
Hotels. Such persons, trusts and affiliates received an aggregate of 169,836
OP Units and approximately $156,000 in cash (to pay tax obligations incurred
in connection with the Formation Transactions) in exchange for their interests
in certain of the Initial Hotels. Upon exercise of their rights to redeem such
OP Units (which rights are not exercisable until October 2, 1997), such
persons and entities may receive an aggregate of 169,836 shares of Common
Stock or, at the Company's option, cash in the amount of approximately $4.9
million based on the closing price of the Common Stock on July 10, 1996. See
"Partnership Agreement--Redemption Rights." In addition, the Operating
Partnership repaid approximately $373,000 of indebtedness of affiliates of Mr.
Daniels related to such ownership interests and approximately $900,000 of
indebtedness guaranteed by an affiliate of Mr. Nussbaum. For a discussion of
the consideration received by Messrs. Nussbaum, Stewart and Daniels, their
affiliates and related trusts and other entities in connection with the
Operating Partnership's acquisition of the Initial Hotels and the formation of
the Company, see "Formation Transactions." In connection with the issuance of
title insurance policies on certain of the Hotels, a title insurance agency
owned by Mr. Nussbaum, certain members of his family and certain related
trusts has received approximately $315,000 in fees.
SUBLEASE AND SERVICES AGREEMENT
The Company has entered into a sublease and services agreement with an
affiliate of Patriot American, pursuant to which such affiliate provides the
Company with office space and limited support personnel for the Company's
headquarters at 3030 LBJ Freeway, Suite 1500, Dallas, Texas, for an annual fee
of approximately $100,000.
EMPLOYMENT AGREEMENTS
The Company has entered into an employment agreement with Mr. Nussbaum,
pursuant to which Mr. Nussbaum will serve as Chairman and Chief Executive
Officer of the Company for a term of three years at an initial annual base
compensation of $180,000, subject to any increases in base compensation
approved by the Compensation Committee. The Compensation Committee has
increased Mr. Nussbaum's salary to $315,000 effective July 1, 1996. Upon
termination of Mr. Nussbaum's employment other than for cause, Mr. Nussbaum is
entitled to receive severance benefits in an amount to be determined by the
Compensation Committee. In addition, the Company has entered into employment
agreements with Messrs. Lattin, Stewart and Ng, pursuant to which Mr. Lattin
serves as President and Chief Operating Officer, Mr. Stewart serves as
Executive Vice President and Chief Financial Officer and Mr. Ng serves as
Senior Vice President--Acquisitions, each for a term of three years at an
annual base compensation of $175,000, $170,000 and $140,000, respectively,
subject to any increases in base compensation approved by the Compensation
Committee. The Compensation Committee has increased Mr. Lattin's salary to
$236,000 effective July 1, 1996. Upon termination other than for cause each of
such officers are entitled to receive severance benefits in an amount to be
determined by the Compensation Committee.
INTEREST OF DIRECTOR
Thomas S. Foley, a director of the Company, is a partner in Akin, Gump,
Strauss, Hauer & Feld, L.L.P., a law firm that has advised the Company on
certain matters, including Hotel acquisitions.
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THE LESSEES AND THE OPERATORS
The Company leases each of the Hotels, except the Crowne Plaza Ravinia, to
the Lessees. The current Lessees are CHC Lease Partners, an entity owned by
CHC and a principal of Gencom; Metro Lease Partners, an affiliate of Metro
Hotels; NorthCoast, an entity owned by a consortium of investors including
principals of WestCoast Hotels and Sunmakers; the Doubletree Lessee, a
subsidiary of Doubletree Hotels; and the Wyndham Lessee, an entity formed by
members of the Trammell Crow family.
CHC Lease Partners. CHC Lease Partners leases the Initial Hotels, the
Tremont House Hotel, the Holiday Inn Lenox and the Del Mar Hilton from the
Company pursuant to separate Participating Leases that require CHC Lease
Partners to maintain a Minimum Net Worth, as defined, equal to the greater of
(i) $10 million or (ii) 17.5% of the initial projected annual lease payments
for all hotels leased by the Company to CHC Lease Partners. CHC Lease Partners
is owned by CHC and a principal of Gencom. CHC was formed in 1994 to succeed
to the hotel and land-based casino businesses of the Continental Companies and
Carnival Corporation. As of March 31, 1996, CHC had under management 36 hotels
with approximately 9,400 rooms located primarily in the United States, as well
as in South America, the Caribbean, Mexico and the Bahamas. Gencom's hotel
management affiliate, GAH, has been among the fastest growing hotel management
companies in the United States in recent years, having increased its number of
guest rooms under management from approximately 1,600 at December 31, 1992 to
approximately 8,600 at March 31, 1996. Specializing in full service
properties, GAH manages 35 hotels throughout the United States. Although CHC
owns 50% of GAH, CHC's hotels and rooms under management presented above
exclude hotels managed by GAH.
CHC Lease Partners has contracted with hotel management subsidiaries of CHC
and GAH to manage the Tremont House Hotel, the Holiday Inn Lenox, the Del Mar
Hilton and 19 of the 20 Initial Hotels. In addition, CHC Lease Partners has
contracted with Metro Hotels to manage the Holiday Inn Select North Dallas.
Metro Lease Partners. The Company leases the Embassy Suites, Hunt Valley to
Metro Lease Partners under a Participating Lease which requires Metro Lease
Partners to maintain a minimum net worth of $515,000, which represents
approximately 25% of estimated Participating Rent for this Hotel in 1996.
Metro Lease Partners has contracted with its affiliate Metro Hotels to manage
the Embassy Suites, Hunt Valley. Metro Lease Partners and Metro Hotels are
Dallas-based hotel companies owned by Walker Harman. As of April 30, 1996,
Metro Hotels had 12 hotels under management with approximately 2,400 rooms
located throughout the United States.
NorthCoast. The Company leases each of the six Hotels in the WestCoast
Portfolio and the Hyatt Regency, Lexington to NorthCoast under Participating
Leases which require NorthCoast to maintain a minimum net worth equal to the
greater of approximately $2.9 million or 20% of the current year's budgeted
lease payments. NorthCoast is a Seattle-based company owned by a consortium of
investors including principals of WestCoast Hotels and Sunmakers. As of April
30, 1996, WestCoast Hotels had 20 hotels under management with approximately
4,100 rooms located primarily on the Pacific Coast.
Doubletree Lessee. The Company leases the Doubletree Denver/Boulder to the
Doubletree Lessee under a Participating Lease that requires the Doubletree
Lessee to maintain a minimum net worth equal to the greater of $400,000 or 20%
of the current year's budgeted lease payments. The Doubletree Lessee is a
subsidiary of Doubletree Hotels, a subsidiary of Doubletree Corporation. The
Doubletree Lessee has contracted with DTM Management, Inc., a subsidiary of
Doubletree Hotels, to manage the Doubletree Denver/Boulder. As of December 31,
1995, Doubletree Corporation managed or franchised 116 hotels with an
aggregate of 30,615 rooms in 32 states, the District of Columbia and Mexico.
Wyndham Lessee. The Company leases the Wyndham Greenspoint Hotel and the
Wyndham Garden-Midtown to the Wyndham Lessee, an entity formed by members of
the Trammell Crow family, under Participating Leases. The obligations of the
Wyndham Lessee under the Participating Leases are guaranteed by the Wyndham
Guarantor, a separate entity formed by members of the Trammell Crow family.
The Wyndham Guarantor is required to maintain a minimum net worth equal to 20%
of the current year's budgeted lease
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payments for the Hotels leased by the Wyndham Lessee (such percentage being
subject to adjustment if the parties enter into leases for additional hotels).
The Company currently intends to lease each of the Wyndham Garden Hotels to
the Wyndham Lessee upon acquisition. The Wyndham Lessee has contracted with
Wyndham to manage both the Wyndham Greenspoint Hotel and the Wyndham Garden-
Midtown. At June 25, 1996, Wyndham's portfolio consisted of 65 hotels operated
by Wyndham, 3 franchised hotels and 3 hotels under renovation or construction
for a total of 18,484 rooms located in 22 states, the District of Columbia,
and the Caribbean.
Holiday Inns, Inc. The Crowne Plaza Ravinia is managed for PAH Ravinia by
Holiday Inns, Inc.
While each Lessee's ability to make lease payments under the applicable
Participating Lease is dependent primarily upon its ability to generate
sufficient cash flow from the operation of the Hotels that it leases the
minimum net worth requirements are designed to provide a source of funds to
make such payments and to fund operational shortfalls if operating cash flow
is inadequate. The Participating Leases have been negotiated on an arms length
basis. The Participating Leases with CHC Lease Partners and (subject to
limited exceptions) with NorthCoast contain cross-default provisions such that
a default under one Participating Lease is also a default under all
Participating Leases with the same Lessee. Additionally, the Wyndham Garden-
Midtown Participating Lease and the Wyndham Greenspoint Hotel Participating
Lease contain cross-default provisions. Accordingly, either Lessee's failure
to make required lease payments under any of the Participating Leases which
are cross-defaulted will allow the Company to terminate any or all of the
Participating Leases to which such Lessee is a party. The Company intends to
utilize similar cross default provisions when leasing multiple properties to a
single Lessee in the future. The Participating Leases have an average term of
approximately eleven years, with expiration dates staggered between the years
2005 and 2008, subject to earlier termination upon the occurrence of certain
events.
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PRINCIPAL SHAREHOLDERS
The following table sets forth certain information regarding the beneficial
ownership of shares of Common Stock as of July 15, 1996, by (i) each director
of the Company, (ii) each executive officer of the Company, (iii) all
directors and executive officers of the Company as a group and (iv) persons
who own more than 5% of the shares of Common Stock. Except as otherwise
described below, all shares are owned directly and the indicated person has
sole voting and investment power. The number of shares represents the number
of shares of Common Stock that the person holds plus the number of shares of
Common Stock that such person could receive if he redeemed his OP Units under
certain circumstances.
As of July 15, 1996, there were 15,478,648 shares of Common Stock, options
to purchase 737,800 shares of Common Stock, and 3,502,328 OP Units (excluding
OP Units held by subsidiaries of the Company) outstanding.
<TABLE>
<CAPTION>
NUMBER OF SHARES PERCENT OF
NAME OF BENEFICIAL OWNER BENEFICIALLY OWNED(1) CLASS(1)
- ------------------------ --------------------- ----------
<S> <C> <C>
Paul A. Nussbaum............................. 593,001(2) 3.7%
John H. Daniels.............................. 93,522(3) *
Thomas W. Lattin............................. 158,250(4) 1.0
Rex E. Stewart............................... 125,187(5) *
Leslie Ng.................................... 86,875(6) *
G. Terry Huntzicker.......................... 8,000(7) *
Michael Murphy............................... 12,500(8) *
Leonard Boxer................................ 10,480(3) *
John C. Deterding............................ 10,480(3) *
Gregory R. Dillon............................ 10,480(3) *
Thomas S. Foley.............................. 10,480(3) *
Arch K. Jacobson............................. 11,480(3) *
Executive officers and directors as a group
(12 persons)................................ 1,130,735 6.8%
Karim Alibhai................................ 725,145(9) 4.5%
One Westchase Center
10777 Westheimer, Suite 1000
Houston, Texas 77042
Cohen & Steers Capital Management, Inc. ..... 1,111,600(10) 7.2%
757 Third Avenue
New York, New York 10017
</TABLE>
- --------
* Less than 1%.
(1) Assumes that all OP Units held by each person are redeemed for shares of
Common Stock. The total number of shares outstanding used in calculating
the percentage assumes that none of the OP Units held by other persons are
redeemed for shares of Common Stock. Also assumes that all vested and
unvested options to purchase shares of Common Stock are exercised. The
total number of shares outstanding used in calculating the percentage
assumes that no other vested or unvested options held by other persons are
exercised.
(2) Includes options to purchase 325,000 shares of Common Stock issued to Mr.
Nussbaum of which 73,614 are currently exercisable. The number of shares
beneficially owned by Mr. Nussbaum also includes 12,286 OP Units owned by
trusts for the benefit of Mr. Nussbaum's sons. Mr. Nussbaum disclaims
beneficial ownership as to all such OP Units. The number of shares also
includes 15,370 OP Units owned by current and former executives of Patriot
American through a limited partnership of which an affiliate of Mr.
Nussbaum serves as the general partner. Mr. Nussbaum also disclaims
beneficial ownership of these OP Units.
(3) Includes 480 shares of Common Stock and options to purchase 10,000 shares
of Common Stock issued to each non-employee director which are currently
exercisable.
(4) Includes options to purchase 127,000 shares of Common Stock issued to Mr.
Lattin, of which 23,614 are currently exercisable.
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(5) Includes options to purchase 105,000 shares of Common Stock issued to Mr.
Stewart, of which 18,610 are currently exercisable.
(6) Includes options to purchase 77,500 shares of Common Stock issued to Mr.
Ng, of which 11,946 are currently exercisable.
(7) Consists of options to purchase 8,000 shares of Common Stock issued to Mr.
Huntzicker, none of which are currently exercisable.
(8) Consists of options to purchase 12,500 shares of Common Stock issued to
Mr. Murphy, none of which are currently exercisable.
(9) The number of shares beneficially owned by Mr. Alibhai includes an
aggregate of 210,577 OP Units beneficially owned by Gencom Interests, a
family corporation for which he serves as Vice President and of which he
owns 30% of the outstanding capital stock. Mr. Alibhai disclaims beneficial
ownership of these OP Units, except to the extent of his 30% ownership
interest in such corporation. The number of shares also includes 19,375 OP
Units owned by employees of Gencom through a limited partnership of which
Mr. Alibhai serves as the general partner. Mr. Alibhai also disclaims
beneficial ownership of these OP Units.
(10) Beneficial ownership information is based on the Schedule 13G filed by
Cohen & Steers Capital Management, Inc. on February 5, 1996.
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DESCRIPTION OF CAPITAL STOCK
Under its Articles of Incorporation, the Company has the authority to issue
200,000,000 shares of Common Stock and 20,000,000 shares of preferred stock,
no par value (the "Preferred Shares"). No Preferred Shares are outstanding or
will be outstanding immediately after consummation of the Offering.
COMMON STOCK
The holders of shares of Common Stock are entitled to one vote per share on
all matters voted on by shareholders, including elections of directors. Except
as otherwise required by law or provided in any resolution adopted by the
Board of Directors with respect to any series of Preferred Shares, the holders
of such shares exclusively possess all voting power. The Articles of
Incorporation do not provide for cumulative voting in the election of
directors. Subject to any preferential rights of any outstanding series of
Preferred Shares, the holders of shares of Common Stock are entitled to such
dividends as may be declared from time to time by the Board of Directors from
funds available therefor, and upon liquidation will be entitled to receive pro
rata all assets of the Company available for distribution to such holders. All
shares of Common Stock issued in the Offering will be fully paid and
nonassessable, and the holders thereof will not have preemptive rights.
PREFERRED SHARES
The Board of Directors is authorized to provide for the issuance of shares
of Preferred Shares in one or more series, to establish the number of shares
in each series and to fix the designation, powers, preferences and rights of
each such series and the qualifications, limitations or restrictions thereof.
Because the Board of Directors has the power to establish the preferences and
rights of each class or series of Preferred Shares, the Board of Directors may
afford the holders of any series or class of Preferred Shares preferences,
powers and rights, voting or otherwise, senior to the rights of holders of
shares of Common Stock. The issuance of Preferred Shares could have the effect
of delaying or preventing a change in control of the Company.
ARTICLES OF INCORPORATION AND BYLAW PROVISIONS
Restrictions on Transfer
For the Company to qualify as a REIT under the Code, it must meet certain
requirements concerning the ownership of its outstanding shares of capital
stock. Specifically, not more than 50% in value of the Company's outstanding
shares of capital stock may be owned, directly or indirectly, by five or fewer
individuals (as defined in the Code to include certain entities) during the
last half of a taxable year, and the Company must be beneficially owned by 100
or more persons during at least 335 days of a taxable year of twelve months or
during a proportionate part of a shorter taxable year. See "Federal Income Tax
Considerations--Requirements for Qualification." In addition, the Company must
meet certain requirements regarding the nature of its gross income in order to
qualify as a REIT. One such requirement is that at least 75% of the Company's
gross income for each year must consist of rents from real property and income
from certain other real property investments. The rents received by the
Operating Partnership and the Subsidiary Partnerships from the Lessees will
not qualify as rents from real property, which could result in loss of REIT
status for the Company, if the Company owns, actually or constructively, 10%
or more of the ownership interests in any Lessee, within the meaning of
section 856(d)(2)(B) of the Code. See "Federal Income Tax Considerations--
Requirements for Qualification--Income Tests."
Because the Board of Directors believes it is essential for the Company to
continue to qualify as a REIT, the Articles of Incorporation, subject to
certain exceptions described below, provides pursuant to the Ownership
Limitation that no person may own, or be deemed to own by virtue of the
attribution provisions of the Code, more than 9.8% of either (i) the
outstanding shares of any class of Common Stock or (ii) the outstanding
Preferred Shares of any class or series of Preferred Shares (subject to the
Look-Through Ownership Limitation applicable to certain shareholders, as
described below). Any transfer of Common Stock or Preferred Shares that
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would (i) result in any person owning, directly or indirectly, Common Stock or
Preferred Shares in excess of the Ownership Limitation, (ii) result in Common
Stock and Preferred Shares being owned by fewer than 100 persons (determined
without reference to any rules of attribution), (iii) result in the Company
being "closely held" within the meaning of section 856(h) of the Code, or (iv)
cause the Company to own, actually or constructively, 10% or more of the
ownership interests in a tenant of the Company's, the Operating Partnership's
or a Subsidiary Partnership's real property, within the meaning of section
856(d)(2)(B) of the Code, will be null and void, and the intended transferee
will acquire no rights in such shares of Common Stock or Preferred Shares.
Certain types of entities, such as pension trusts qualifying under section
401(a) of the Code, mutual funds qualifying as regulated investment companies
under section 851 of the Code, and corporations, will be looked through for
purposes of the "closely held" test in section 856(h) of the Code. The
Articles of Incorporation allow such an entity under the Look-Through
Ownership Limitation to own up to 15% of the shares of any class or series of
the Company's capital stock, provided that such ownership does not cause any
beneficial owner of such entity to exceed the Ownership Limitation or
otherwise result in a violation of the tests described in clauses (ii), (iii)
and (iv) of the preceding paragraph.
Subject to certain exceptions described below, any purported transfer of
Common Stock or Preferred Shares that would (i) result in any person owning,
directly or indirectly, shares of Common Stock or Preferred Shares in excess
of the Ownership Limitation (or the Look-Through Ownership Limitation, if
applicable), (ii) result in the shares of Common Stock and Preferred Shares
being owned by fewer than 100 persons (determined without reference to any
rules of attribution), (iii) result in the Company being "closely held" within
the meaning of section 856(h) of the Code, or (iv) cause the Company to own,
actually or constructively, 10% or more of the ownership interests in a tenant
of the Company's, the Operating Partnership's or a Subsidiary Partnership's
real property, within the meaning of section 856(d)(2)(B) of the Code, will be
designated as "Shares-in-Trust" and will be transferred automatically to a
trust (a "Trust"), effective on the day before the purported transfer of such
shares of Common Stock or Preferred Shares. The record holder of the Common
Stock or Preferred Shares that are designated as Shares-in-Trust (the
"Prohibited Owner") will be required to submit such number of shares of Common
Stock or Preferred Shares to the Company for registration in the name of the
trustee of the Trust (the "Trustee"). The Trustee will be designated by the
Company, but will not be affiliated with the Company. The beneficiary of the
Trust (the "Beneficiary") will be one or more charitable organizations named
by the Company.
Shares-in-Trust will remain issued and outstanding shares of Common Stock or
Preferred Shares and will be entitled to the same rights and privileges as all
other shares of the same class or series. The Trustee will receive all
dividends and distributions on the Shares-in-Trust and will hold such
dividends or distributions in trust for the benefit of the Beneficiary. The
Trustee will vote all Shares-in-Trust. The Trustee will designate a permitted
transferee of the Shares-in-Trust, provided that the permitted transferee (i)
purchases such Shares-in-Trust for valuable consideration and (ii) acquires
such Shares-in-Trust without such acquisition resulting in another transfer to
another Trust.
The Prohibited Owner with respect to Shares-in-Trust will be required to
repay to the Trustee the amount of any dividends or distributions received by
the Prohibited Owner (i) that are attributable to any Shares-in-Trust and (ii)
the record date of which was on or after the date that such shares became
Shares-in-Trust. Any vote taken by a Prohibited Owner prior to the Company's
discovery that the Shares-in-Trust were held in trust will be rescinded as
void ab initio. The Prohibited Owner generally will receive from the Trustee
the lesser of (i) the price per share such Prohibited Owner paid for the
shares of Common Stock or Preferred Shares that were designated as Shares-in-
Trust (or, in the case of a gift or devise, the Market Price (as defined
below) per share on the date of such transfer) or (ii) the price per share
received by the Trustee from the sale of such Shares-in-Trust. Any amounts
received by the Trustee in excess of the amounts to be paid to the Prohibited
Owner will be distributed to the Beneficiary.
The Shares-in-Trust will be deemed to have been offered for sale to the
Company, or its designee, at a price per share equal to the lesser of (i) the
price per share in the transaction that created such Shares-in-Trust (or, in
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the case of a gift or devise, the Market Price per share on the date of such
transfer) or (ii) the Market Price per share on the date that the Company, or
its designee, accepts such offer. The Company will have the right to accept
such offer for a period of ninety days after the later of (i) the date of the
purported transfer which resulted in such Shares-in-Trust or (ii) the date the
Company determines in good faith that a transfer resulting in such Shares-in-
Trust occurred.
"Market Price" on any date shall mean the average of the Closing Price for
the five consecutive Trading Days ending on such date. The "Closing Price" on
any date shall mean the last sale price, regular way, or, in case no such sale
takes place on such day, the average of the closing bid and asked prices,
regular way, in either case as reported in the principal consolidated
transaction reporting system with respect to securities listed or admitted to
trading on the NYSE or, if the shares of Common Stock or Preferred Shares are
not listed or admitted to trading on the NYSE, as reported in the principal
consolidated transaction reporting system with respect to securities listed on
the principal national securities exchange on which the shares of Common Stock
or Preferred Shares are listed or admitted to trading or, if the shares of
Common Stock or Preferred Shares are not listed or admitted to trading on any
national securities exchange, the last quoted price, or if not so quoted, the
average of the high bid and low asked prices in the over-the-counter market,
as reported by the National Association of Securities Dealers, Inc. Automated
Quotation System or, if such system is no longer in use, the principal other
automated quotations system that may then be in use or, if the shares of
Common Stock or Preferred Shares are not quoted by any such organization, the
average of the closing bid and asked prices as furnished by a professional
market maker making a market in the shares of Common Stock or Preferred Shares
selected by the Board of Directors. "Trading Day" shall mean a day on which
the principal national securities exchange on which the shares of Common Stock
or Preferred Shares are listed or admitted to trading is open for the
transaction of business or, if the shares of Common Stock or Preferred Shares
are not listed or admitted to trading on any national securities exchange,
shall mean any day other than a Saturday, a Sunday or a day on which banking
institutions in the State of New York are authorized or obligated by law or
executive order to close.
Any person who acquires or attempts to acquire Common Stock or Preferred
Shares in violation of the foregoing restrictions, or any person who owned
shares of Common Stock or Preferred Shares that were transferred to a Trust,
will be required (i) to give immediately written notice to the Company of such
event and (ii) to provide to the Company such other information as the Company
may request in order to determine the effect, if any, of such transfer on the
Company's status as a REIT.
All persons who own, directly or indirectly, more than 5% (or such lower
percentages as required pursuant to regulations under the Code) of the
outstanding shares of Common Stock and Preferred Shares must, within 30 days
after January 1 of each year, provide to the Company a written statement or
affidavit stating (i) the name and address of such direct or indirect owner,
(ii) the number of shares of Common Stock and Preferred Shares owned directly
or indirectly, and (iii) a description of how such shares are held. In
addition, each direct or indirect shareholder shall provide to the Company
such additional information as the Company may request in order to determine
the effect, if any, of such ownership on the Company's status as a REIT and to
ensure compliance with the Ownership Limitation.
The Ownership Limitation generally does not apply to the acquisition of
shares of Common Stock or Preferred Shares by an underwriter that participates
in a public offering of such shares. In addition, the Board of Directors, upon
such conditions as the Board of Directors may direct, may exempt a person from
the Ownership Limitation under certain circumstances. The foregoing
restrictions will continue to apply until the Board of Directors determines
that it is no longer in the best interests of the Company to attempt to
qualify, or to continue to qualify, as a REIT.
All certificates representing shares of Common Stock bear a legend referring
to the restrictions described above. All additional certificates representing
shares of Common Stock or Preferred Shares will bear substantially the same
legend.
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The ownership limitations could have the effect of discouraging a takeover
or other transaction in which holders of some, or a majority, of shares of
Common Stock might receive a premium from their shares of Common Stock over
the then prevailing market price or which such holders might believe to be
otherwise in their best interest.
Number of Directors; Removal; Filling Vacancies
The Articles of Incorporation and Bylaws provide that the number of
directors will consist of not less than three nor more than 15 persons, as
determined by the affirmative vote of a majority of the members of the entire
Board of Directors. At all times a majority of the directors shall be
Independent Directors, except that upon the death, removal or resignation of
an Independent Director, such requirement shall not be applicable for 60 days.
Presently there are seven directors, five of whom are Independent Directors.
The shareholders are entitled to vote on the election or removal of directors,
with each share entitled to one vote. The Bylaws provide that, unless the
Board of Directors otherwise determines, any vacancies will be filled by the
affirmative vote of a majority of the remaining directors, though less than a
quorum. The Articles of Incorporation provide that directors may be removed
only by the affirmative vote of the holders of at least 75% of the outstanding
stock of the Company then entitled to vote on the election of the directors at
a special meeting of the shareholders called for such purpose. This provision,
when coupled with the provision of the Bylaws authorizing the Board of
Directors to fill vacant directorships, could temporarily prevent any
shareholder from enlarging the Board of Directors and filling the new
directorships with such shareholder's own nominees. Any directors so elected
shall hold office until the next annual meeting of shareholders.
Special Meetings
Although the VSCA does not give shareholders the right to call a special
meeting of shareholders, the Articles of Incorporation provide that such a
meeting may be called by the written request of shareholders holding 25% of
the outstanding shares of Common Stock.
Limitation of Liability
Pursuant to the VSCA, each director of the Company is required to discharge
his duties in accordance with his good faith business judgment of the best
interest of the Company. In addition, Virginia law provides that a transaction
with the Company in which a director or officer of the Company has a direct or
indirect interest is not voidable by the Company solely because of the
director's or officer's interest in the transaction if (i) the material facts
of the transaction and the director's interest are disclosed to or known by
the directors and the transaction is authorized, approved or ratified by the
disinterested directors, (ii) the material facts of the transaction and the
director's interest are disclosed to or known by the shareholders entitled to
vote and the transaction is authorized, approved or ratified by the
shareholders, or (iii) the transaction is established to have been fair to the
Company.
The Articles of Incorporation and the VSCA contain provisions which require
the Company to indemnify an officer or director against liability incurred in
any proceeding to which he is a party because he is an officer or director if
(i) he conducted himself in good faith, (ii) he believed (A) in the case of
conduct in his official capacity with the Company, that his conduct was in its
best interests, or (B) in all other cases, that his conduct was at least not
opposed to its best interests, and (iii) in the case of any criminal
proceeding, he had no reasonable cause to believe that his conduct was
unlawful.
The Articles of Incorporation of the Company also contain a provision which
eliminates the liability of a director or officer to the Company or its
shareholders for monetary damages for any breach of duty as a director or
officer. This provision does not eliminate such liability to the extent that
the director or officer engaged in willful misconduct or a knowing violation
of criminal law or of any federal or state securities law.
Unless a determination has been made that indemnification is not
permissible, the Articles of Incorporation also permit the Company to make
advances to and reimburse an officer or director for expenses prior to final
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disposition of the proceeding, upon receipt of a written undertaking from the
director or officer to repay the amounts advanced or reimbursed if it is
ultimately determined that he is not entitled to indemnification. The Board of
Directors of the Company also has the authority to extend to any person who is
an employee or agent of the Company, or who is or was serving at the request
of the Company as a director, officer, employee or agent of another entity,
the same indemnification rights possessed by directors and officers, subject
to all of the accompanying conditions and obligations.
The VSCA permits a court, upon application of a director or officer, to
review the Company's determination as to a director's or officer's request for
advances, reimbursement or indemnification. If the court determines that the
director or officer is entitled to such advances, reimbursement or
indemnification, the court may order the Company to make advances and/or
reimbursement for expenses or to provide indemnification.
The Company has purchased and maintains insurance on behalf of all of its
directors and executive officers against liability asserted against or
incurred by them in their official capacities with the Company, whether or not
the Company is required or has the power to indemnify them against the same
liability.
Amendment
The Articles of Incorporation may be amended by the affirmative vote of the
holders of a majority of the outstanding shares of Common Stock, with the
shareholders voting as a class with one vote per share. The Company's Bylaws
may be amended by the Board of Directors or by vote of the holders of a
majority of the outstanding shares of Common Stock.
Operations
The Company is prohibited from acquiring or holding property or engaging in
any activity that would cause the Company to fail to qualify as a REIT.
BUSINESS COMBINATIONS
The VSCA contains provisions restricting "Affiliated Transactions." These
provisions, with several exceptions discussed below, require approval of
Affiliated Transactions (as defined below) between a Virginia corporation and
an Interested Shareholder by an affirmative vote of (A) a majority of the
Disinterested Directors (as defined below) and (B) holders of at least two-
thirds of the voting shares other than shares beneficially owned by the
Interested Shareholder. An Interested Shareholder is any (i) beneficial owner
of more than 10% of any class of its outstanding voting shares or (ii) an
affiliate or associate of the corporation that at any time within the
preceding three years has been an Interested Shareholder of the corporation.
Affiliated Transactions subject to this approval requirement include, without
limitation, (1) mergers and share exchanges with an Interested Shareholder,
(2) dispositions of material corporate assets to or with an Interested
Shareholder not in the ordinary course of business, (3) any guaranty by the
corporation of a material amount of the indebtedness of any Interested
Shareholder not in the ordinary course of business, (4) dispositions to an
Interested Shareholder of a material amount of voting shares of the
corporation except pursuant to a share dividend or the exercise of rights
distributed on a basis affording substantially proportionate treatment to all
holders of the same class or series of voting shares, (5) a dissolution of the
corporation proposed by or on behalf of an Interested Shareholder, or (6) any
reclassification, including, reverse stock split, recapitalization or merger
of the corporation with its subsidiaries which increases the percentage of
voting shares owned beneficially by an Interested Shareholder by more than 5%.
A Disinterested Director means, with respect to a particular Interested
Shareholder, a member of the corporation's board of directors who was (A) a
member on the date on which an Interested Shareholder became an Interested
Shareholder and (B) recommended for election by, or was elected to fill a
vacancy and received the affirmative vote of, a majority of the Disinterested
Directors then on the Board. The statute requires that an Affiliated
Transaction with an Interested Shareholder occurring three years or more after
the Interested Shareholder becomes an Interested Shareholder must be approved
by the affirmative vote of (1) the holders of two-thirds of the voting shares
other than those beneficially owned by the Interested Shareholder or (2) a
majority of the Disinterested Directors.
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The special voting requirements do not apply to Affiliated Transactions
proposed after the three year period has expired if the transaction satisfies
the fair-price requirements of the statute. In general, the fair-price
requirement provides that in a two-step acquisition transaction, the
Interested Shareholder must pay the shareholders in the second step either the
same amount of cash or the same amount and type of consideration paid to
acquire the Virginia corporation's shares in the first step.
None of the foregoing limitations and special voting requirements applies to
a transaction with an Interested Shareholder (i) whose acquisition of shares
making such person an Interested Shareholder was approved by a majority of the
Virginia corporation's Disinterested Directors, (ii) who was an Interested
Shareholder on the date the Company became subject to these provisions by
virtue of its having 300 shareholders of record, (iii) who became an
interested Shareholder as a result of acquiring shares by gift, testamentary
bequest or the laws of descent and distribution or (iv) generally, who became
an Interested Shareholder inadvertently.
These provisions may have the effect of deterring certain takeovers of
Virginia corporations. In addition, the statute provides that, by affirmative
vote of a majority of the voting shares other than shares owned by an
Interested Shareholder, a corporation can adopt an amendment to its Articles
of Incorporation or Bylaws providing that the Affiliated Transactions
provisions shall not apply to the corporation.
CONTROL SHARE ACQUISITIONS
The VSCA also provides that shares acquired in a transaction that would
cause the acquiring person's voting strength to cross any of three thresholds
(20%, 33% or 50%) have no voting rights unless granted by a majority vote of
shares not owned by the acquiring person or any officer or employee-director
of the Company. An acquiring person may require the Company to hold a special
meeting of shareholders to consider the matter within 50 days of its receipt
of the request by such acquiring person to hold such meeting. The Articles of
Incorporation contain a provision exempting any and all acquisitions of the
Company's shares of capital stock from the foregoing provisions of the VSCA.
There can be no assurance that this provision will not be amended or
eliminated in the future.
OTHER MATTERS
The Common Stock is listed on the NYSE, under the symbol "PAH." The transfer
agent and registrar for the Common Stock is American Stock Transfer & Trust
Company.
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POLICIES AND OBJECTIVES WITH RESPECT TO CERTAIN ACTIVITIES
The following is a discussion of the Company's policies with respect to
investment, financing, conflict of interest and certain other activities. The
policies with respect to these activities have been determined by the Board of
Directors of the Company and may be amended or revised from time to time at
the discretion of the Board of Directors without a vote of the shareholders of
the Company, except that (i) changes in certain policies with respect to
conflicts of interest must be consistent with legal requirements and (ii)
certain policies with respect to competition are imposed pursuant to contracts
that cannot be amended without the consent of all parties thereto.
INVESTMENT POLICIES
Investments in Real Estate or Interests in Real Estate
In addition to the Hotels, the Company intends to acquire equity interests
in hotels and related properties throughout the United States and, on a
limited basis, elsewhere in North America. Additional acquisitions could be
made directly or by the Operating Partnership or other entities controlled by
the Company, if any exist. The Company's investment objective is to maximize
its Cash Available for Distribution and enhance shareholder value by acquiring
additional hotels that meet one or more of the Company's investment criteria,
by participating in increased revenue from the Hotels and any subsequently
acquired hotels through participating leases, and, under appropriate
circumstances, by developing selected additional hotels.
Although the Company presently anticipates that additional investments in
hotel properties will be made through the Operating Partnership, additional
investments may be made directly by the Company or other entities controlled
by the Company, if any exist. Such investments may be financed, in whole or in
part, with excess cash flow, borrowings or subsequent issuances of shares of
Common Stock or other securities issued by the Company or entities controlled
by the Company.
Development of Hotel Properties
Although management of the Company currently believes acquisitions of
existing hotel properties provide the best opportunities for growth, the
Company intends to evaluate from time to time, and may undertake, attractive
opportunities to develop new hotels or expand existing hotels. Management
believes it has the capability and the expertise to develop successful hotel,
resort and conference center properties.
Investments in Other Entities
The Company also may participate with other entities in property ownership,
through joint ventures or other types of co-ownership. Equity investments may
be subject to existing mortgage financing and other indebtedness that may have
priority over the equity interest of the Company.
Investments in Real Estate Mortgages and Securities of Other Issuers
While the Company emphasizes equity real estate investments, it may, in its
discretion, invest in mortgage and other real estate interests, including
securities of REITs and other issuers. The Company currently has no limit on
the amount or percentage of assets represented by one investment or investment
type. The Company does not presently intend to invest in securities of REITs
or other issuers. The Company also does not presently intend to trade or
underwrite securities or to make investments for the purpose of exercising
control over other issuers. The Company may invest in participating or
convertible mortgages if it concludes that by doing so it may benefit from the
cash flow or any appreciation in the value of the subject property. Such
mortgages are similar to equity participations, because they permit the lender
to either participate in increasing revenues from the property or convert some
or all of the mortgage to equity.
FINANCING
The Company intends to make additional investments in hotel properties and
may incur indebtedness to make such investments or to meet the distribution
requirements imposed by the REIT provisions of the Code, to the extent that
cash flow from the Company's investments and working capital is insufficient.
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To ensure that the Company has sufficient liquidity to conduct its
operations, including making investments in additional hotel properties and
funding its anticipated distribution obligations and financing costs, the
Company has access to the Line of Credit. Borrowings under the Line of Credit
have been utilized to purchase the Recent Acquisitions, and additional funds
may be used to acquire additional properties. The Company may seek to arrange
other borrowings to fund investments in additional hotel properties or for
other purposes. The Line of Credit is secured by first mortgage liens on 25 of
the Hotels and a second mortgage lien on the Wyndham Greenspoint Hotel. The
Line of Credit will be secured by qualifying subsequently acquired properties
that are purchased with borrowings under the Line of Credit. The Company
intends to limit its consolidated indebtedness to an amount no more than 40%
of the Company's total market capitalization.
Borrowings may be incurred through the Operating Partnership or the Company.
Indebtedness incurred by the Company may be in the form of bank borrowings,
secured and unsecured, and publicly and privately placed debt instruments.
Indebtedness incurred by the Operating Partnership may be in the form of
purchase money obligations to the sellers of properties, publicly or privately
placed debt instruments, financing from banks, institutional investors or
other lenders, any of which indebtedness may be unsecured or may be secured by
mortgages or other interests in the property owned by the Operating
Partnership. Such indebtedness may be recourse to all or any part of the
property of the Company or the Operating Partnership, or may be limited to the
particular property to which the indebtedness relates. The proceeds from any
borrowings by the Company or the Operating Partnership may be used for the
payment of distributions or dividends, working capital, to refinance existing
indebtedness or to finance acquisitions, expansions, additions or renovations
of hotel properties. See "Federal Income Tax Considerations--Requirements for
Qualification--Distribution Requirements."
If the Board of Directors determines to raise additional equity capital, the
Board will have the authority, without shareholder approval, to issue
additional shares of Common Stock or Preferred Shares in any manner (and on
such terms and for such consideration) as it deems appropriate, including in
exchange for property. Existing shareholders have no preemptive right to
purchase shares issued in any such offering, and any such offering might cause
a dilution of a shareholder's investment in the Company.
The Company may make investments other than as previously described,
although it does not currently intend to do so.
CONFLICT OF INTEREST POLICIES
The Company has adopted certain policies and entered into certain agreements
designed to minimize potential conflicts of interest. The Company's Board of
Directors is subject to certain provisions of Virginia law, which are designed
to eliminate or minimize certain potential conflicts of interest. However,
there can be no assurance that these policies always will be successful in
eliminating the influence of such conflicts, and if they are not successful,
decisions could be made that might fail to reflect fully the interests of all
shareholders.
Articles of Incorporation and Bylaw Provisions
The Company's Articles of Incorporation, with limited exceptions, require
that a majority of the Company's Board of Directors be comprised of persons
who are not officers or employees of the Company, affiliates of officers or
employees of the Company or affiliates of any advisor to the Company under an
advisory agreement, any lessee or contract manager of any property of the
Company, any of its subsidiaries, or any partnership which is an affiliate of
the Company (each such person, an "Independent Director"). The Articles of
Incorporation provide that such provisions relating to Independent Directors
may not be amended, altered, changed or repealed without the affirmative vote
of all of the Independent Directors or the affirmative vote of the holders of
not less than 75% of the outstanding shares of capital stock of the Company
entitled to vote. In addition, the Company's Bylaws provide that any action
pertaining to any transaction (a) involving the Company must be approved by a
majority of the directors and (b) in which the Company is purchasing, selling,
leasing or mortgaging any real
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estate asset, making a joint venture investment or engaging in any other
transaction in which an advisor, director or officer of the Company, any
affiliated lessee or affiliated contract manager of any property of the
Company or any affiliate of the foregoing, has any direct or indirect
interest, must be approved by the affirmative vote of a majority of the
Independent Directors.
The Operating Partnership
A conflict of interest may arise between the Company, as a general and
limited partner of the Operating Partnership, and the other Limited Partners
of the Operating Partnership, which may include affiliates of Patriot
American, due to the differing potential tax liability to the Company and the
other Limited Partners from the sale of Hotels to the Operating Partnership
resulting from the differing tax bases of the Company and such affiliates in
such properties. In an effort to address this and other potential conflicts of
interest, the Company's Bylaws provide that the Company's decisions with
respect to the sale of a Hotel purchased from an affiliate of Patriot American
must be made by the Independent Directors. The Partnership Agreement gives PAH
GP, as general partner of the Operating Partnership, full, complete and
exclusive discretion in managing and controlling the business of the Operating
Partnership and in making all decisions affecting the business and assets of
the Operating Partnership.
Provisions of Virginia Law
Pursuant to Virginia law, each director is subject to restrictions relating
to misappropriation of corporate opportunities for himself or his affiliates
which such director learned of solely as a result of his service as a member
of the Board of Directors of the Company. In addition, Virginia law provides
that a transaction with the Company in which a director or officer of the
Company has a direct or indirect interest is not voidable by the Company
solely because of the director's or officer's interest in the transaction if
(i) the material facts of the transaction and the director's interest are
disclosed to or known by the directors and the transaction is approved,
authorized or ratified by the disinterested directors, (ii) the material facts
of the transaction and the director's interest are disclosed to or known by
the shareholders entitled to vote and the transaction is authorized, approved
or ratified by the shareholders, or (iii) the transaction is established to
have been fair to the Company.
POLICIES WITH RESPECT TO OTHER ACTIVITIES
The Company has authority to offer shares of capital stock or other
securities and to repurchase or otherwise reacquire its shares or any other
securities and may engage in such activities in the future. As described under
"Shares Available for Future Sale," the Company may (but is not obligated to)
issue shares of Common Stock to holders of OP Units upon exercise of the
Redemption Rights (as defined below). The Company has not engaged in trading,
underwriting or agency distribution or sale of securities of other issuers,
nor has the Company invested in the securities of other issuers other than the
Operating Partnership for the purpose of exercising control. The Company has
made loans to third parties, including PAH Ravinia and the Lessees. In the
future the Company may make loans to third parties, including, without
limitation, to joint ventures in which it participates. The Company intends to
make investments in such a way that it will not be treated as an investment
company under the Investment Company Act of 1940, as amended.
At all times, the Company intends to make investments in such a manner
consistent with the requirements of the Code for the Company to qualify as a
REIT unless, because of changing circumstances or changes in the Code or in
final, temporary and currently proposed Treasury regulations promulgated under
the Code ("Treasury Regulations"), the Company's Board of Directors determines
that it is no longer in the best interests of the Company to qualify as a
REIT.
WORKING CAPITAL RESERVES
The Company will maintain working capital reserves in amounts that the Board
of Directors determines to be adequate to meet normal contingencies in
connection with the operation of the Company's business and investments.
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SHARES AVAILABLE FOR FUTURE SALE
At July 15, 1996, the Company had outstanding (or reserved for issuance upon
redemption or exchange of OP Units or pursuant to the 1995 Plan) 19,980,976
shares of Common Stock. In addition to OP Units issued to the Company, the
Operating Partnership had outstanding an aggregate of 3,502,328 OP Units. The
shares of Common Stock issued in the Initial Offering are freely tradeable by
persons, other than "Affiliates" of the Company, without restriction under the
Securities Act, subject to certain limitations on ownership set forth in the
Articles of Incorporation. See "Description of Capital Stock--Articles of
Incorporation and Bylaw Provisions--Restrictions on Transfer."
Pursuant to the Partnership Agreement, the Limited Partners, other than PAH
LP received rights (the "Redemption Rights") that enable them to cause the
Operating Partnership to redeem each OP Unit (other than the Preferred OP
Units) in exchange for cash equal to the value of a share of Common Stock (or,
at the Company's election, the Company may purchase each OP Unit offered for
redemption for one share of Common Stock). The Redemption Rights may be
exercised (subject to the Lock-up Agreements), at any time after October 2,
1996. See "Partnership Agreement--Redemption Rights." Pursuant to the purchase
agreement for the Preferred OP Units, the holders of the Preferred OP Units
have the right to exchange their Preferred OP Units for shares of Common Stock
after three years from the date of issuance. See "Developments Since the
Initial Offering--Financing Activities."
With respect to the OP Units issued in connection with the Formation
Transactions and in connection with the acquisition of the Holiday Inn Lenox,
the Company only has the right to elect to purchase such OP Units offered for
redemption for shares of Common Stock pursuant to an effective registration
statement with respect to the issuance of such shares. The Company has agreed
to register shares of Common Stock issuable upon the redemption of OP Units
issued in connection with the acquisitions of the WestCoast Portfolio and the
Wyndham Greenspoint Hotel or the exchange of Preferred OP Units issued in
connection with the Private Placement. The Company may agree with future
sellers of hotel properties to register shares of Common Stock issuable upon
the redemption of OP Units or the conversion of securities convertible into
shares of Common Stock.
The Company has reserved an aggregate of 1,000,000 shares of Common Stock
for issuance under the 1995 Plan. The Company intends to file a registration
statement on Form S-8 with respect to the shares of Common Stock issuable
under the 1995 Plan and the shares of Common Stock issuable under the
Directors' Plan. Shares of Common Stock issued after the effective date of any
such registration statement on Form S-8 upon the exercise of options granted
under the 1995 Plan will be available for sale in the public market without
restriction to the extent that they are held by persons who are not affiliates
of the Company and, to the extent that they are held by affiliates, pursuant
to Rule 144 under the Securities Act, without observance of the holding period
requirement.
The Company's Common Stock trades on the NYSE under the Symbol "PAH". No
prediction can be made as to the effect, if any, that the Offering, or future
sales of shares, or the availability of shares for future sale, will have on
the market price prevailing from time to time. Sales of substantial amounts of
Common Stock, or the perception that such sales could occur, may affect
adversely prevailing market prices of the Common Stock. See "Risk Factors--
Market for Common Stock" and "Partnership Agreement--Transferability of
Interests."
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PARTNERSHIP AGREEMENT
The following summary of the Partnership Agreement, and the descriptions of
certain provisions thereof set forth elsewhere in this Prospectus, is
qualified in its entirety by reference to the Partnership Agreement, which is
filed as an exhibit to the Registration Statement of which this Prospectus is
a part.
MANAGEMENT
The Operating Partnership has been organized as a Virginia limited
partnership pursuant to the terms of the Partnership Agreement. Pursuant to
the Partnership Agreement, PAH GP, a wholly owned subsidiary of the Company,
as the sole general partner of the Operating Partnership (the "General
Partner"), has full, exclusive and complete responsibility and discretion in
the management and control of the Operating Partnership, and the Limited
Partners in their capacity as such have no authority to transact business for,
or participate in the management activities or decisions of, the Operating
Partnership. However, any amendment to the Partnership Agreement that would
(i) affect the Redemption Rights, (ii) adversely affect the Limited Partners'
rights to receive cash distributions, (iii) alter the Operating Partnership's
allocations of income and loss or (iv) impose on the Limited Partners any
obligations to make additional contributions to the capital of the Operating
Partnership, requires the consent of Limited Partners other than PAH LP
holding more than 50% of the OP Units held by such Limited Partners.
TRANSFERABILITY OF INTERESTS
PAH GP and PAH LP may not voluntarily withdraw from the Operating
Partnership or transfer or assign their interests in the Operating Partnership
unless the transaction in which such withdrawal or transfer occurs results in
the Limited Partners' (other than PAH LP) receiving property in an amount
equal to the amount they would have received had they exercised their
Redemption Rights immediately prior to such transaction, or unless the
successors to PAH GP and PAH LP contribute substantially all of their assets
to the Operating Partnership in return for an interest in the Operating
Partnership. A person may not be admitted as a substitute or successor General
Partner unless a majority-in-interest of the Limited Partners (other than PAH
LP) consent in writing to the admission of such substitute or successor
General Partner, which consent may be withheld in the sole discretion of such
Limited Partners. With certain limited exceptions, the Limited Partners may
not transfer their interests in the Operating Partnership, in whole or in
part, without the written consent of the General Partner, which consent may be
withheld in the sole discretion of the General Partner.
CAPITAL CONTRIBUTION
The Company, through PAH GP and PAH LP, contributed to the Operating
Partnership substantially all of the net proceeds of the Initial Offering, in
consideration of which PAH GP received a 1.0% general partnership interest and
PAH LP received approximately a 83.6% limited partnership interest in the
Operating Partnership. The Partnership Agreement provides that if the
Operating Partnership requires additional funds at any time or from time to
time in excess of funds available to the Operating Partnership from borrowing
or capital contributions, the Company may borrow such funds from a financial
institution or other lender and lend such funds to the Operating Partnership
on the same terms and conditions as are applicable to the Company's borrowing
of such funds. Under the Partnership Agreement, the Company generally is
obligated to contribute, through PAH GP and PAH LP, the proceeds of a share
offering as additional capital to the Operating Partnership. Moreover, the
Company is authorized, through PAH GP and PAH LP, to cause the Operating
Partnership to issue partnership interests for less than fair market value if
the Company has concluded in good faith that such issuance is in the best
interests of the Company and the Operating Partnership. If the Company so
contributes additional capital to the Operating Partnership, PAH GP and PAH LP
will receive additional OP Units and their percentage interests in the
Operating Partnership will be increased on a proportionate basis based upon
the amount of the additional capital contribution and the value of the
Operating Partnership at the time of such contribution. Conversely, the
percentage interests of the Limited Partners, other than PAH LP, will be
decreased on a proportionate basis upon the contribution of additional capital
by the Company.
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REDEMPTION RIGHTS
Pursuant to the Partnership Agreement, the Limited Partners, other than PAH
LP, received the Redemption Rights, which enable them to cause the Operating
Partnership to redeem each OP Unit for cash equal to the value of a share of
Common Stock (or, at the Company's election, the Company may purchase each OP
Unit offered for redemption for one share of Common Stock). The Redemption
Rights may not be exercised, however, if and to the extent that the delivery
of Common Stock upon exercise of such rights (regardless of whether the
Company would exercise its rights to deliver Common Stock) would (i) result in
any person owning, directly or indirectly, shares of Common Stock in excess of
the Ownership Limitation (or the Look-Through Ownership Limitation, if
applicable), (ii) result in shares of capital stock of the Company being owned
by fewer than 100 persons (determined without reference to any rules of
attribution), (iii) result in the Company being "closely held" within the
meaning of section 856(h) of the Code, (iv) cause the Company to own, actually
or constructively, 10% or more of the ownership interests in a tenant of the
Company's, the Operating Partnership's or a Subsidiary Partnership's real
property, within the meaning of section 856(d)(2)(B) of the Code, or (v) cause
the acquisition of shares of Common Stock by such redeeming Limited Partner to
be "integrated" with any other distribution of shares of Common Stock for
purposes of complying with the Securities Act. The Redemption Rights may be
exercised (subject to the Lock-up Agreements), at any time after October 2,
1996, provided that not more than two redemptions by any Unitholder may occur
during each calendar year, and each Limited Partner may not exercise the
Redemption Right in respect of less than 1,000 OP Units or, if such Limited
Partner holds less than 1,000 OP Units, all of the OP Units held by such
Limited Partner. Prior to October 2, 1996, the Redemption Right may be
exercised (but only for cash) by a lender to whom any OP Units may have been
pledged, provided that such pledge was permissible in light of the Lock-up
Agreements. In the future, it may become necessary to place additional
restrictions on the exercise of Redemption Rights in order to assure that the
Operating Partnership does not become a "publicly traded partnership" that is
treated as a corporation for federal income tax purposes. See "Federal Income
Tax Considerations--Tax Aspects of the Operating Partnership and the
Subsidiary Partnerships." The aggregate number of shares of Common Stock
issuable upon exercise of the Redemption Rights is 2,839,937. The number of
shares of Common Stock issuable upon exercise of the Redemption Rights will be
adjusted upon the occurrence of share splits, mergers, consolidations or
similar pro rata share transactions, which otherwise would have the effect of
diluting the ownership interests of the Limited Partners or the shareholders
of the Company. See "Shares Available for Future Sale."
REGISTRATION RIGHTS
For a description of the Company's obligation to register shares of its
Common Stock, see "Shares Available for Future Sale."
OPERATIONS
The Partnership Agreement requires that the Operating Partnership be
operated in a manner that enables the Company to satisfy the requirements for
being classified as a REIT, to avoid any federal income or excise tax
liability imposed under the Code and to ensure that the Operating Partnership
will not be classified as a "publicly traded partnership" for purposes of
section 7704 of the Code.
In addition to the administrative and operating costs and expenses incurred
by the Operating Partnership, the Operating Partnership pays all
administrative costs and expenses of the Company, PAH GP and PAH LP (the
"Company Expenses") and the Company Expenses are treated as expenses of the
Operating Partnership. The Company Expenses generally include (i) all expenses
relating to the formation and continuity of existence of the Company, PAH GP
and PAH LP, (ii) all expenses relating to the public offering and registration
of securities by the Company, (iii) all expenses associated with the
preparation and filing of any periodic reports by the Company under federal,
state or local laws or regulations, (iv) all expenses associated with
compliance by the Company, PAH GP and PAH LP with laws, rules and regulations
promulgated by any regulatory body and (v) all other operating or
administrative costs of PAH GP incurred in the ordinary course of its business
on behalf of the Operating Partnership. The Company Expenses, however, do not
include any administrative and operating
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costs and expenses incurred by the Company that are attributable to hotel
properties or partnership interests in a Subsidiary Partnership that are owned
by the Company directly. The Company currently does not own any hotels
directly.
DISTRIBUTIONS AND ALLOCATIONS
The Partnership Agreement provides that the Operating Partnership distribute
cash from operations (including net sale or refinancing proceeds, but
excluding net proceeds from the sale of the Operating Partnership's property
in connection with the liquidation of the Operating Partnership) on a
quarterly (or, at the election of the General Partner, more frequent) basis,
in amounts determined by the General Partner in its sole discretion, to the
partners in accordance with their respective percentage interests in the
Operating Partnership. Upon liquidation of the Operating Partnership, after
payment of, or adequate provision for, debts and obligations of the Operating
Partnership, including any partner loans, any remaining assets of the
Operating Partnership will be distributed to all partners with positive
capital accounts in accordance with their respective positive capital account
balances. If the General Partner has a negative balance in its capital account
following a liquidation of the Operating Partnership, it will be obligated to
contribute cash to the Operating Partnership equal to the negative balance in
its capital account.
Profit and loss of the Operating Partnership for each fiscal year of the
Operating Partnership is generally allocated among the partners in accordance
with their respective interests in the Operating Partnership. Taxable income
and loss will be allocated in the same manner, subject to compliance with the
provisions of Code sections 704(b) and 704(c) and Treasury Regulations
promulgated thereunder.
TERM
The Operating Partnership will continue until December 31, 2050, or until
sooner dissolved upon the (i) bankruptcy, dissolution or withdrawal of the
General Partner (unless the Limited Partners elect to continue the Operating
Partnership), (ii) sale or other disposition of all or substantially all the
assets of the Operating Partnership, (iii) redemption of all limited
partnership interests in the Operating Partnership (other than those held by
PAH LP), or (iv) election by the General Partner.
TAX MATTERS
Pursuant to the Partnership Agreement, the General Partner is the tax
matters partner of the Operating Partnership and, as such, has authority to
handle tax audits and to make tax elections under the Code on behalf of the
Operating Partnership.
PREFERRED OP UNITS
In connection with the Private Placement, the Operating Partnership issued
662,391 Preferred OP Units. The Preferred OP Units pay distributions equal to
103% of the current annual dividend paid on the outstanding Common Stock,
subject to increase or decrease by the dollar amount of any increase or
decrease in the dividend paid on the Common Stock. In addition, if, for any
taxable year of the Operating Partnership ending on or before December 31,
1998, that portion of the Preferred OP Units holder's distributive share of
Operating Partnership taxable income which consists of "unrelated business
taxable income" as defined in section 512(a)(1) of the Code exceeds twenty
percent (the "UBTI Threshold") (any such excess, the "Excess UBTI") then the
Preferred OP Unit holder will be entitled to an additional distribution from
the Operating Partnership with respect to such taxable year equal to the
product of (i) the Excess UBTI multiplied by (ii) the federal tax rate
applicable to the Excess UBTI. Prior to the third anniversary of issuance, the
Preferred OP Units generally will not be convertible into Common Stock, except
under certain limited circumstances. On or after the third anniversary of
issuance, the holders may exchange their Preferred OP Units for shares of
Common Stock on a one-for-one basis, subject to adjustment and to an ownership
limitation of 4.9% of all outstanding Common Stock. After the tenth
anniversary of issuance, the Company may exchange the Preferred OP Units for
shares of Common Stock. The foregoing exchange rights are in lieu of the
conversion rights in the Partnership Agreement, which are not applicable to
the Preferred OP Units, with the exception of the anti-dilution provisions.
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FEDERAL INCOME TAX CONSIDERATIONS
The following is a summary of material federal income tax considerations
that may be relevant to a prospective holder of the Common Stock. Goodwin,
Procter & Hoar llp has acted as counsel to the Company and has reviewed this
summary and is of the opinion that it fairly summarizes the federal income tax
consequences that are likely to be material to a holder of the Common Stock.
The discussion does not address all aspects of taxation that may be relevant
to particular shareholders in light of their personal investment or tax
circumstances, or to certain types of shareholders (including insurance
companies, tax-exempt organizations, financial institutions or broker-dealers,
foreign corporations, and persons who are not citizens or residents of the
United States) subject to special treatment under the federal income tax laws.
The statements in this discussion and the opinion of Goodwin, Procter & Hoar
llp are based on current provisions of the Code, Treasury Regulations, the
legislative history of the Code, existing administrative rulings and practices
of the Service, and judicial decisions. No assurance can be given that future
legislative, judicial, or administrative actions or decisions, which may be
retroactive in effect, will not affect the accuracy of any statements in this
Prospectus with respect to the transactions entered into or contemplated prior
to the effective date of such changes.
EACH PROSPECTIVE PURCHASER IS ADVISED TO CONSULT HIS OWN TAX ADVISOR
REGARDING THE SPECIFIC TAX CONSEQUENCES TO HIM OR HER OF THE PURCHASE,
OWNERSHIP, AND SALE OF THE COMMON STOCK AND OF THE COMPANY'S ELECTION TO BE
TAXED AS A REIT, INCLUDING THE FEDERAL, STATE, LOCAL, FOREIGN, AND OTHER TAX
CONSEQUENCES OF SUCH PURCHASE, OWNERSHIP, SALE, AND ELECTION, AND OF POTENTIAL
CHANGES IN APPLICABLE TAX LAWS.
TAXATION OF THE COMPANY
The Company will make an election to be taxed as a REIT under sections 856
through 860 of the Code. The Company believes that it is organized and
operates in such a manner as to qualify for taxation as a REIT under the Code,
and the Company intends to continue to operate in such a manner, but no
assurance can be given that the Company will operate in a manner so as to
qualify or remain qualified as a REIT.
The sections of the Code relating to qualification and operation as a REIT
are highly technical and complex. The following discussion sets forth the
material aspects of the Code sections that govern the federal income tax
treatment of a REIT and its shareholders. The discussion is qualified in its
entirety by the applicable Code provisions, Treasury Regulations promulgated
thereunder, and administrative and judicial interpretations thereof, all of
which are subject to change prospectively or retrospectively.
In the opinion of Goodwin, Procter & Hoar llp, commencing with the taxable
year ending December 31, 1995, the Company has been organized and operated in
conformity with the requirements for qualification and taxation as a REIT
under the Code, and the Company's proposed method of operation will enable it
to continue to meet the requirements for qualification and taxation as a REIT
under the Code. Investors should be aware, however, that opinions of counsel
are not binding upon the Service or any court. It must be emphasized that
Goodwin, Procter & Hoar llp's opinion is based on various assumptions and is
conditioned upon certain representations made by the Company as to factual
matters, including representations regarding the nature of the Company's
properties, the Participating Leases, and the future conduct of the Company's
business. Moreover, such qualification and taxation as a REIT depends upon the
Company's ability to meet on a continuing basis, through actual annual
operating results, the distribution levels, stock ownership, and other various
qualification tests imposed under the Code discussed below. Goodwin, Procter &
Hoar llp will not review the Company's compliance with those tests on a
continuing basis. Accordingly, no assurance can be given that the actual
results
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of the Company's operation for any particular taxable year will satisfy such
requirements. For a discussion of the tax consequences of failure to qualify
as a REIT, see "Federal Income Tax Considerations--Failure to Qualify."
As a REIT, the Company generally is not subject to federal corporate income
tax on its net income that is distributed currently to its shareholders. That
treatment substantially eliminates the "double taxation" of income (i.e.,
taxation at both the corporate and shareholder levels) that generally results
from investment in a corporation. However, the Company will be subject to
federal income tax in the following circumstances. First, the Company will be
taxed at regular corporate rates on any undistributed REIT taxable income,
including undistributed net capital gains. Second, under certain
circumstances, the Company may be subject to the "alternative minimum tax" on
its items of tax preference. Third, if the Company has (i) net income from the
sale or other disposition of "foreclosure property" that is held primarily for
sale to customers in the ordinary course of business or (ii) other
nonqualifying income from foreclosure property, it will be subject to tax at
the highest corporate rate on such income. Fourth, if the Company has net
income from prohibited transactions (which are, in general, certain sales or
other dispositions of property (other than foreclosure property) held
primarily for sale to customers in the ordinary course of business), such
income will be subject to a 100% tax. Fifth, if the Company should fail to
satisfy the 75% gross income test or the 95% gross income test (as discussed
below), and has nonetheless maintained its qualification as a REIT because
certain other requirements have been met, it will be subject to a 100% tax on
the net income attributable to the greater of the amount by which the Company
fails the 75% or 95% gross income test. Sixth, if the Company should fail to
distribute during each calendar year at least the sum of (i) 85% of its REIT
ordinary income for such year, (ii) 95% of its REIT capital gain net income
for such year, and (iii) any undistributed taxable income from prior periods,
the Company would be subject to a 4% excise tax on the excess of such required
distribution over the amounts actually distributed. Seventh, if the Company
acquires any asset from a C corporation (i.e., a corporation generally subject
to full corporate-level tax) in a transaction in which the basis of the asset
in the Company's hands is determined by reference to the basis of the asset
(or any other asset) in the hands of the C corporation and the Company
recognizes gain on the disposition of such asset during the 10-year period
beginning on the date on which such asset was acquired by the Company, then to
the extent of such asset's "built-in gain" (i.e., the excess of the fair
market value of such asset at the time of acquisition by the Company over the
adjusted basis in such asset at such time), such gain will be subject to tax
at the highest regular corporate rate applicable (as provided in Treasury
Regulations that have not yet been promulgated). The results described above
with respect to the recognition of "built-in gain" assume that the Company
would make an election pursuant to IRS Notice 88-19 if it were to make any
such acquisition.
REQUIREMENTS FOR QUALIFICATION
The Code defines a REIT as a corporation, trust or association (i) that is
managed by one or more directors or trustees; (ii) the beneficial ownership of
which is evidenced by transferable shares, or by transferable certificates of
beneficial interest; (iii) that would be taxable as a domestic corporation,
but for sections 856 through 860 of the Code; (iv) that is neither a financial
institution nor an insurance company subject to certain provisions of the
Code; (v) the beneficial ownership of which is held by 100 or more persons;
(vi) not more than 50% in value of the outstanding capital stock of which is
owned, directly or indirectly, by five or fewer individuals (as defined in the
Code to include certain entities) during the last half of each taxable year
(the "5/50 Rule"); (vii) that makes an election to be a REIT (or has made such
election for a previous taxable year) and satisfies all relevant filing and
other administrative requirements established by the Service that must be met
in order to elect and to maintain REIT status; (viii) that uses a calendar
year for federal income tax purposes and complies with the recordkeeping
requirements of the Code and Treasury Regulations promulgated thereunder; and
(ix) that meets certain other tests, described below, regarding the nature of
its income and assets. The Code provides that conditions (i) to (iv),
inclusive, must be met during the entire taxable year and that condition (v)
must be met during at least 335 days of a taxable year of 12 months, or during
a proportionate part of a taxable year of less than 12 months. The Company
believes that it has issued sufficient Common Stock with sufficient diversity
of ownership to allow it to satisfy requirements (v) and (vi). In addition,
the Company's Articles of Incorporation provide for restrictions regarding
transfer of the Common Stock that are intended to assist the
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Company in continuing to satisfy the share ownership requirements described in
(v) and (vi) above. Such transfer
restrictions are described in "Description of Capital Stock--Articles of
Incorporation and Bylaw Provisions-- Restrictions on Transfer."
For purposes of determining share ownership under the 5/50 Rule, a
supplemental unemployment compensation benefits plan, a private foundation, or
a portion of a trust permanently set aside or used exclusively for charitable
purposes generally is considered an individual. A trust that is a qualified
trust under Code section 401(a), however, generally is not considered an
individual and the beneficiaries of such trust are treated as holding shares
of a REIT in proportion to their actuarial interests in the pension trust for
purposes of the 5/50 Rule.
The Company has two wholly-owned subsidiary corporations, PAH GP and PAH LP.
The Company also may have additional corporate subsidiaries in the future.
Code section 856(i) provides that a corporation that is a "qualified REIT
subsidiary" shall not be treated as a separate corporation, and all assets,
liabilities, and items of income, deduction, and credit of a "qualified REIT
subsidiary" shall be treated as assets, liabilities, and items of income,
deduction, and credit of the REIT. A "qualified REIT subsidiary" is a
corporation, all of the capital stock of which has been held by the REIT at
all times during the period such corporation was in existence. Thus, in
applying the requirements described herein, the Company's "qualified REIT
subsidiaries" are ignored, and all assets, liabilities, and items of income,
deduction, and credit of such subsidiaries are treated as assets, liabilities
and items of income, deduction, and credit of the Company. PAH GP and PAH LP
have been formed as "qualified REIT subsidiaries."
In the case of a REIT that is a partner in a partnership, Treasury
Regulations provide that the REIT will be deemed to own its proportionate
share (based on the REIT's interest in partnership capital) of the assets of
the partnership and will be deemed to be entitled to the gross income of the
partnership attributable to such share. In addition, the character of the
assets and gross income of the partnership will retain the same character in
the hands of the REIT for purposes of section 856 of the Code, including
satisfying the gross income and asset tests, described below. Thus, the
Company's proportionate share of the assets, liabilities and items of income
of the Operating Partnership and the Subsidiary Partnerships are treated as
assets and gross income of the Company for purposes of applying the
requirements described herein.
Income Tests
In order for the Company to maintain its qualification as a REIT, there are
three requirements relating to the Company's gross income that must be
satisfied annually. First, at least 75% of the Company's gross income
(excluding gross income from prohibited transactions) for each taxable year
must consist of defined types of income derived directly or indirectly from
investments relating to real property or mortgages on real property (including
"rents from real property" and, in certain circumstances, interest) or
temporary investment income. Second, at least 95% of the Company's gross
income (excluding gross income from prohibited transactions) for each taxable
year must be derived from such real property or temporary investments, and
from dividends, other types of interest, and gain from the sale or disposition
of stock or securities, or from any combination of the foregoing. Third, not
more that 30% of the Company's gross income (including gross income from
prohibited transactions) for each taxable year may be gain from the sale or
other disposition of (i) stock or securities held for less than one year, (ii)
dealer property that is not foreclosure property and not otherwise eligible
for a regulatory safe harbor, and (iii) certain real property held for less
than four years (apart from involuntary conversions and sales of foreclosure
property). The specific application of these tests to the Company is discussed
below.
Rents received by the Company will qualify as "rents from real property" in
satisfying the gross income requirements for a REIT described above only if
several conditions are met. First, the amount of rent must not be based in
whole or in part on the income or profits of any person; provided, however,
that an amount received or accrued generally will not be excluded from the
term "rents from real property" solely by reason of being based on a fixed
percentage or percentages of receipts or sales. Second, the Code provides that
rents received from a tenant will not qualify as "rents from real property" in
satisfying the gross income tests if the Company, or an owner of 10% or more
of the Company, directly or constructively owns 10% or more of such tenant (a
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"Related Party Tenant"). Third, if rent attributable to personal property,
leased in connection with a lease of real property, is greater than 15% of the
total rent received under the lease, then the portion of rent attributable to
such personal property will not qualify as "rents from real property."
Finally, for rents received to qualify as "rents from real property," the
Company generally must not operate or manage the property or furnish or render
services to the tenants of such property, other than through an "independent
contractor" who is adequately compensated and from whom the Company derives no
revenue. The "independent contractor" requirement, however, does not apply to
the extent the services provided by the Company are "usually or customarily
rendered" in connection with the rental of space for occupancy only and are
not otherwise considered "rendered to the occupant."
Pursuant to the Participating Leases, the Lessees lease from the Operating
Partnership or a Subsidiary Partnership the land, buildings, improvements,
furnishings, and equipment comprising the Hotels (except for the Crowne Plaza
Ravinia Hotel), for periods ranging from 10 to 12 years. The Participating
Leases provide that the Lessees will be obligated to pay to the Operating
Partnership or a Subsidiary Partnership (i) the greater of Base Rent or
Participating Rent (collectively, the "Rents") and (ii) Additional Charges or
other expenses as defined in the Participating Lease Agreements. Participating
Rent is calculated by multiplying fixed percentages by various revenue
categories for each of the Hotels. Both Base Rent and the thresholds in the
Participating Rent formulas will be adjusted for inflation (with the exception
of the hotels in the WestCoast Portfolio for which Base Rent increases as
specified in the NorthCoast Participating Leases). Base Rent accrues and is
required to be paid monthly. Participating Rent is payable monthly, with
monthly adjustments based on actual results.
In order for Base Rent, Participating Rent, and Additional Charges to
constitute "rents from real property," the Participating Leases must be
respected as true leases for federal income tax purposes and not treated as
service contracts, joint ventures or some other type of arrangement. The
determination of whether the Participating Leases are true leases depends on
an analysis of all the surrounding facts and circumstances. In making such a
determination, courts have considered a variety of factors, including the
following: (i) the intent of the parties, (ii) the form of the agreement,
(iii) the degree of control over the property that is retained by the property
owner (e.g., whether the lessee has substantial control over the operation of
the property or whether the lessee was required simply to use its best efforts
to perform its obligations under the agreement), and (iv) the extent to which
the property owner retains the risk of loss with respect to the property
(e.g., whether the lessee bears the risk of increases in operating expenses or
the risk of damage to the property) or the potential for economic gain (e.g.,
appreciation) with respect to the property. In addition, Code section 7701(e)
provides that a contract that purports to be a service contract (or a
partnership agreement) is treated instead as a lease of property if the
contract is properly treated as such, taking into account all relevant
factors, including whether or not: (i) the service recipient is in physical
possession of the property, (ii) the service recipient controls the property,
(iii) the service recipient has a significant economic or possessory interest
in the property (e.g., the property's use is likely to be dedicated to the
service recipient for a substantial portion of the useful life of the
property, the recipient shares the risk that the property will decline in
value, the recipient shares in any appreciation in the value of the property,
the recipient shares in savings in the property's operating costs, or the
recipient bears the risk of damage to or loss of the property), (iv) the
service provider does not bear any risk of substantially diminished receipts
or substantially increased expenditures if there is nonperformance under the
contract, (v) the service provider does not use the property concurrently to
provide significant services to entities unrelated to the service recipient,
and (vi) the total contract price does not substantially exceed the rental
value of the property for the contract period. Since the determination whether
a service contract should be treated as a lease is inherently factual, the
presence or absence of any single factor may not be dispositive in every case.
The Company believes, however, that the Participating Leases are properly
treated as true leases for federal income tax purposes.
Investors should be aware that there are no controlling Treasury
Regulations, published rulings, or judicial decisions involving leases with
terms substantially the same as the Participating Leases that discuss whether
such leases constitute true leases for federal income tax purposes. Therefore,
there can be no complete assurance that the Service will not assert
successfully a contrary position. If the Participating Leases are
recharacterized as
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service contracts or partnership agreements, rather than true leases, part or
all of the payments that the Operating Partnership and the Subsidiary
Partnerships receive from the Lessees would not be considered rent or would
not otherwise satisfy the various requirements for qualification as "rents
from real property." In that case, the
Company likely would not be able to satisfy either the 75% or 95% gross income
tests and, as a result, would lose its REIT status.
In order for the Rents to constitute "rents from real property," several
other requirements also must be satisfied. One requirement is that the Rents
attributable to personal property leased in connection with the lease of the
real property comprising a Hotel must not be greater than 15% of the Rents
received under the Participating Lease. The Rents attributable to the personal
property in a Hotel is the amount that bears the same ratio to total rent for
the taxable year as the average of the adjusted bases of the personal property
in a Hotel at the beginning and at the end of the taxable year bears to the
average of the aggregate adjusted bases of both the real and personal property
comprising the Hotel at the beginning and at the end of such taxable year (the
"Adjusted Basis Ratio"). If a portion of the Rents from a particular hotel
property does not qualify as "rents from real property" because the amount
attributable to personal property exceeds 15% of the total Rents for a taxable
year, the portion of the Rents that is attributable to personal property will
not be qualifying income for purposes of either the 75% or 95% gross income
tests. Thus, if such Rents attributable to personal property, plus any other
nonqualifying income, during a taxable year exceed 5% of the Company's gross
income during the year, the Company would lose its REIT status. With respect
to each Hotel (or interest therein) that the Operating Partnership acquires in
exchange for OP Units, the initial adjusted bases of both the real and
personal property comprising such Hotel generally will be the same as the
adjusted bases of such property in the hands of the previous owner. With
respect to each Hotel (or interest therein) that the Operating Partnership
acquires for cash, the aggregate initial adjusted bases of the real and
personal property comprising such Hotel generally will equal the cash
consideration paid and such bases generally will be allocated among real and
personal property based on relative fair market values. With respect to each
Hotel, the Company believes that the Adjusted Basis Ratio for the Hotel is
less than 15% or that any nonqualifying income attributable to excess personal
property will not jeopardize the Company's ability to qualify as a REIT. The
Participating Leases provide that the Adjusted Basis Ratio for each Hotel
shall not exceed 15%. The Participating Leases further provide that the
Lessees will cooperate in good faith and use their best efforts to prevent the
Adjusted Basis Ratio for any Hotel from exceeding 15%, which cooperation may
include the purchase by Lessee at fair market value of enough personal
property at such Hotel so that the Adjusted Basis Ratio for such Hotel is less
than 15%. Finally, amounts in the Company's reserve for capital expenditures
may not be expended to acquire additional personal property for a Hotel to the
extent that such acquisition would cause the Adjusted Basis Ratio for that
Hotel to exceed 15%. There can be no assurance, however, that the Service
would not challenge the Company's calculation of an Adjusted Basis Ratio, or
that a court would not uphold such assertion. If such a challenge were
successfully asserted, the Company could fail to satisfy the 95% or 75% gross
income test and thus lose its REIT status.
Another requirement for qualification of the Rents as "rents from real
property" is that the Participating Rent must not be based in whole or in part
on the income or profits of any person. The Participating Rent, however, will
qualify as "rents from real property" if it is based on percentages of
receipts or sales and the percentages (i) are fixed at the time the
Participating Leases are entered into, (ii) are not renegotiated during the
term of the Participating Leases in a manner that has the effect of basing
Participating Rent on income or profits, and (iii) conform with normal
business practice. More generally, the Participating Rent will not qualify as
"rents from real property" if, considering the Participating Leases and all
the surrounding circumstances, the arrangement does not conform with normal
business practice, but is in reality used as a means of basing the
Participating Rent on income or profits. Since the Participating Rent is based
on fixed percentages of the gross revenues from the Hotels that are
established in the Participating Leases, and the Company has represented that
the percentages (i) will not be renegotiated during the terms of the
Participating Leases in a manner that has the effect of basing the
Participating Rent on income or profits and (ii) conform with normal business
practice, the Participating Rent should not be considered based in whole or in
part on the income or profits of any person. Furthermore, the Company has
represented that, with respect to other hotel properties that it acquires in
the future, it will not charge rent for any property that is based in whole or
in part on the income or profits of any person (except by reason of being
based on a fixed percentage of gross revenues, as described above).
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A third requirement for qualification of the Rents as "rents from real
property" is that the Company must not own, actually or constructively, 10% or
more of any Lessee. The constructive ownership rules generally provide that,
if 10% or more in value of the stock of the Company is owned, directly or
indirectly, by or for any person, the Company is considered as owning the
stock owned, directly or indirectly, by or for such person. The
Company initially will not own any stock of the Lessees. The Limited Partners
of the Operating Partnership may acquire Common Stock (at the Company's
option) by exercising their Redemption Rights. The Partnership Agreement,
however, provides that a redeeming limited partner may not exercise its
Redemption Right if and to the extent, the delivery of Common Stock upon the
exercise of such rights would cause the Company to own, actually or
constructively, 10% or more of the ownership interests in a tenant of the
Company's, the Operating Partnership's or a Subsidiary Partnership's real
property, within the meaning of section 856(d)(2)(B) of the Code. The Articles
of Incorporation likewise prohibit a shareholder of the Company from owning
Common Stock or Preferred Shares that would cause the Company to own, actually
or constructively, 10% or more of the ownership interests in a tenant of the
Company's, the Operating Partnership's or a Subsidiary Partnership's real
property, within the meaning of section 856(d)(2)(B) of the Code. Thus, the
Company should never own, actually or constructively, 10% of more of a Lessee.
Furthermore, the Company has represented that, with respect to other hotel
properties that it acquires in the future, it will not rent any property to a
Related Party Tenant. However, because the Code's constructive ownership rules
for purposes of the Related Party Tenant rules are broad and it is not
possible to monitor continually direct and indirect transfers of Common Stock,
no absolute assurance can be given that such transfers or other events of
which the Company has no knowledge will not cause the Company to own
constructively 10% or more of the Initial Lessee at some future date.
A fourth requirement for qualification of the Rents as "rents from real
property" is that the Company cannot furnish or render noncustomary services
to the tenants of the Hotels, or manage or operate the Hotels, other than
through an independent contractor who is adequately compensated and from whom
the Company itself does not derive or receive any income. Provided that the
Participating Leases are respected as true leases, the Company should satisfy
that requirement, because the Operating Partnership or a Subsidiary
Partnership, as applicable, is not performing any services other than
customary ones for the Lessees. Furthermore, the Company has represented that,
with respect to other hotel properties that it acquires in the future, it will
not perform noncustomary services with respect to the tenant of the property.
If the Rents from a particular hotel property do not qualify as "rents from
real property" because either (i) the Participating Rent is considered based
on income or profits of a Lessee, (ii) the Company owns, actually or
constructively, 10% or more of a Lessee, or (iii) the Company furnishes
noncustomary services to the tenants of the Hotels, or manages or operates the
Hotels, other than through a qualifying independent contractor, none of the
Rents from that hotel property would qualify as "rents from real property." In
that case, the Company likely would lose its REIT status because it would be
unable to satisfy either the 75% or 95% gross income tests.
In addition to the Rents, the Lessees are required to pay to the Operating
Partnership or a Subsidiary Partnership, as applicable, Additional Charges. To
the extent that Additional Charges represent either (i) reimbursements of
amounts that the Lessor is obligated to pay to third parties or (ii) penalties
for nonpayment or late payment of such amounts, Additional Charges should
qualify as "rents from real property." To the extent that Additional Charges
represent interest that is accrued on the late payment of the Rents or
Additional Charges, such Additional Charges may qualify as "rents from real
property." To the extent such Additional Charges representing interest are not
treated as "rents from real property," they should be treated as interest that
qualifies for the 95% gross income test.
The term "interest" generally does not include any amount received or
accrued (directly or indirectly) if the determination of such amount depends
in whole or in part on the income or profits of any person. However, an amount
received or accrued generally will not be excluded from the term "interest"
solely by reason of being based on a fixed percentage or percentages of
receipts or sales. Furthermore, to the extent that interest from a
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loan that is based on the residual cash proceeds from sale of the property
securing the loan constitutes a "shared appreciation provision" (as defined in
the Code), income attributable to such participation feature will be treated
as gain from the sale of the secured property.
Any gross income derived from a prohibited transaction is taken into account
in applying the 30% income test necessary to qualify as a REIT (and the net
income from that transaction is subject to a 100% tax). The term "prohibited
transaction" generally includes a sale or other disposition (whether by the
Company, the Operating Partnership or a Subsidiary Partnership) of property
(other than foreclosure property) that is held primarily for sale to customers
in the ordinary course of a trade or business. All inventory required in the
operation of the Hotels will be owned by the Lessees under the terms of the
Participating Leases. Accordingly, the Company believes no asset owned by the
Company, the Operating Partnership or a Subsidiary Partnership is held for
sale to customers and that a sale of any such asset will not be in the
ordinary course of business of the Company, the Operating Partnership or a
Subsidiary Partnership. Whether property is held "primarily for sale to
customers in the ordinary course of a trade or business" depends, however, on
the facts and circumstances in effect from time to time, including those
related to a particular property. Nevertheless, the Company will attempt to
comply with the terms of safe-harbor provisions in the Code prescribing when
asset sales will not be characterized as prohibited transactions. Complete
assurance cannot be given, however, that the Company can comply with the safe-
harbor provisions of the Code or avoid owning property that may be
characterized as property held "primarily for sale to customers in the
ordinary course of a trade or business."
The Company will be subject to tax at the maximum corporate rate on any
income from foreclosure property (other than income that would be qualified
income under the 75% gross income test), less expenses directly connected with
the production of such income. However, gross income from such foreclosure
property will qualify under the 75% and 95% gross income tests. "Foreclosure
property" is defined as any real property (including interests in real
property) and any personal property incident to such real property (i) that is
acquired by a REIT as the result of such REIT having bid in such property at
foreclosure, or having otherwise reduced such property to ownership or
possession by agreement or process of law, after there was a default (or
default was imminent) on a lease of such property or on an indebtedness that
such property secured and (ii) for which such REIT makes a proper election to
treat such property as foreclosure property. However, a REIT will not be
considered to have foreclosed on a property where such REIT takes control of
the property as a mortgagee-in-possession and cannot receive any profit or
sustain any loss except as a creditor of the mortgagor. Under the Code,
property generally ceases to be foreclosure property with respect to a REIT on
the date that is two years after the date such REIT acquired such property (or
longer if an extension is granted by the Secretary of the Treasury). The
foregoing grace period is terminated and foreclosure property ceases to be
foreclosure property on the first day (i) on which a lease is entered into
with respect to such property that, by its terms, will give rise to income
that does not qualify under the 75% gross income test or any amount is
received or accrued, directly or indirectly, pursuant to a lease entered into
on or after such day that will give rise to income that does not qualify under
the 75% gross income test, (ii) on which any construction takes place on such
property (other than completion of a building, or any other improvement, where
more than 10% of the construction of such building or other improvement was
completed before default became imminent), or (iii) which is more than 90 days
after the day on which such property was acquired by the REIT and the property
is used in a trade or business which is conducted by the REIT (other than
through an independent contractor from whom the REIT itself does not derive or
receive any income). As a result of the rules with respect to foreclosure
property, if a Lessee defaults on its obligations under a Participating Lease
for a Hotel, the Company terminates the Lessee's leasehold interest, and the
Company is unable to find a replacement lessee for such Hotel within 90 days
of such foreclosure, gross income from hotel operations conducted by the
Company from such Hotel would cease to qualify for the 75% and 95% gross
income tests unless the Company employs an independent contractor to manage
the Hotel. In such event, the Company likely would be unable to satisfy the
75% and 95% gross income tests and, thus, would fail to qualify as a REIT.
It is possible that, from time to time, the Company, the Operating
Partnership or a Subsidiary Partnership will enter into hedging transactions
with respect to one or more of its assets or liabilities. Any such hedging
transactions could take a variety of forms, including interest rate swap
contracts, interest rate cap or floor
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contracts, futures or forward contracts, and options. To the extent that the
Company, the Operating Partnership or a Subsidiary Partnership enters into an
interest rate swap or cap contract to hedge any variable rate indebtedness
incurred to acquire or carry real estate assets, any periodic income or gain
from the disposition of
such contract should be qualifying income for purposes of the 95% gross income
test, but not the 75% gross income test. Furthermore, any such contract would
be considered a "security" for purposes of applying the 30% gross income test.
To the extent that the Company, Operating Partnership or a Subsidiary
Partnership hedges with other types of financial instruments or in other
situations, it may not be entirely clear how the income from those
transactions will be treated for purposes of the various income tests that
apply to REITs under the Code. The Company intends to structure any hedging
transactions in a manner that does not jeopardize its status as a REIT. If the
Company fails to satisfy one or both of the 75% or 95% gross income tests for
any taxable year, it may nevertheless qualify as a REIT for such year if it is
entitled to relief under certain provisions of the Code. Those relief
provisions will be generally available if the Company's failure to meet such
tests is due to reasonable cause and not due to willful neglect, the Company
attaches a schedule of the sources of its income to its return, and any
incorrect information on the schedule was not due to fraud with intent to
evade tax. It is not possible, however, to state whether in all circumstances
the Company would be entitled to the benefit of those relief provisions. As
discussed above in "Federal Income Tax Considerations--Taxation of the
Company," even if those relief provisions apply, a 100% tax would be imposed
with respect to the net income attributable to the excess of 75% or 95% of the
Company's gross income over its qualifying income in the relevant category,
whichever is greater. No such relief is available for violations of the 30%
income test.
Asset Tests
The Company, at the close of each quarter of its taxable year, also must
satisfy two tests relating to the nature of its assets. First, at least 75% of
the value of the Company's total assets must be represented by cash or cash
items (including certain receivables), government securities, "real estate
assets," including, in cases where the Company raises new capital through
stock or long-term (at least five-year) debt offerings, temporary investments
in stock or debt instruments during the one-year period following the
Company's receipt of such capital. The term "real estate assets" includes
interests in real property, interests in mortgages on real property to the
extent the mortgage balance does not exceed the value of the associated real
property, and shares of other REITs. For purposes of the 75% asset
requirement, the term "interest in real property" includes an interest in land
and improvements thereon, such as buildings or other inherently permanent
structures (including items that are structural components of such buildings
or structures), a leasehold in real property, and an option to acquire real
property (or a leasehold in real property). Second, of the investments not
included in the 75% asset class, the value of any one issuer's securities
owned by the Company may not exceed 5% of the value of the Company's total
assets and the Company may not own more than 10% of any one issuer's
outstanding voting securities (except for its ownership interest in the
Operating Partnership, a Subsidiary Partnership, the stock of PAH GP and PAH
LP, or the stock of any other corporate subsidiary with respect to which it
has held 100% of the stock at all times during the subsidiary's existence).
For purposes of the asset requirements, the Company is deemed to own its
proportionate share of the assets of the Operating Partnership and each
Subsidiary Partnership, rather than its partnership interests in the Operating
Partnership and each Subsidiary Partnership. The Company believes that, as of
the date of the Offering, (i) at least 75% of the value of its total assets
are represented by real estate assets, cash and cash items (including
receivables), and government securities and (ii) it does not own any
securities that do not satisfy the 75% asset requirement. In addition, the
Company does not intend to acquire or dispose, or cause the Operating
Partnership or a Subsidiary Partnership to acquire or dispose, of assets in
the future in a way that would cause it to violate either asset requirement.
If the Company should fail to satisfy the asset requirements at the end of a
calendar quarter, such a failure would not cause it to lose its REIT status if
(i) it satisfied all of the asset tests at the close of the preceding calendar
quarter and (ii) the discrepancy between the value of the Company's assets and
the asset requirements either did not exist immediately after the acquisition
of any particular asset or was not wholly or partly caused by such an
acquisition (i.e., the discrepancy arose from changes in the market values of
its assets). If the
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condition described in clause (ii) of the preceding sentence were not
satisfied, the Company still could avoid disqualification by eliminating any
discrepancy within 30 days after the close of the calendar quarter in which it
arose.
Distribution Requirements
The Company, in order to qualify as a REIT, is required to distribute
dividends (other than capital gain dividends) to its shareholders in an amount
at least equal to (i) the sum of (A) 95% of its "REIT taxable income"
(computed without regard to the dividends paid deduction and its net capital
gain) and (B) 95% of the net income (after tax), if any, from foreclosure
property, minus (ii) the sum of certain items of noncash income. Such
distributions must be paid in the taxable year to which they relate, or in the
following taxable year if declared before the Company timely files its tax
return for such year and if paid on or before the first regular dividend
payment after such declaration. To the extent that the Company does not
distribute all of its net capital gain or distributes at least 95%, but less
than 100%, of its "REIT taxable income," as adjusted, it will be subject to
tax thereon at regular ordinary and capital gains corporate tax rates.
Furthermore, if the Company should fail to distribute during each calendar
year at least the sum of (i) 85% of its REIT ordinary income for such year,
(ii) 95% of its REIT capital gain income for such year, and (iii) any
undistributed taxable income from prior periods, the Company would be subject
to a 4% nondeductible excise tax on the excess of such required distribution
over the amounts actually distributed. The Company intends to make timely
distributions sufficient to satisfy all annual distribution requirements.
It is possible that, from time to time, the Company may experience timing
differences between (i) the actual receipt of income and actual payment of
deductible expenses and (ii) the inclusion of that income and deduction of
such expenses in arriving at its REIT taxable income. For example, it is
possible that, from time to time, the Company may be allocated a share of net
capital gain attributable to the sale of depreciated property that exceeds its
allocable share of cash attributable to that sale. In addition, the Company
may incur expenditures (such as repayment of loan principal) that do not give
rise to a deduction. Therefore, the Company may have less cash available for
distribution than is necessary to meet its annual 95% distribution requirement
or to avoid corporate income tax or the excise tax imposed on certain
undistributed income. In such a situation, the Company may find it necessary
to arrange for short-term (or possibly long-term) borrowings or to raise funds
through the issuance of additional shares of common or preferred stock.
Under certain circumstances, the Company may be able to rectify a failure to
meet the distribution requirements for a year by paying "deficiency dividends"
to its shareholders in a later year, which may be included in the Company's
deduction for dividends paid for the earlier year. Although the Company may be
able to avoid being taxed on amounts distributed as deficiency dividends, it
will be required to pay to the Service interest based upon the amount of any
deduction taken for deficiency dividends.
Recordkeeping Requirements
Pursuant to applicable Treasury Regulations, in order to be able to elect to
be taxed as a REIT, the Company must maintain certain records and request on
an annual basis certain information from its shareholders designed to disclose
the actual ownership of its outstanding capital stock. The Company intends to
comply with such requirements.
Partnership Anti-Abuse Rule
The U.S. Department of the Treasury recently issued a final regulation (the
"Anti-Abuse Rule"), under the partnership provisions of the Code (the
"Partnership Provisions") that authorizes the Service, in certain abusive
transactions involving partnerships, to disregard the form of the transaction
and recast it for federal tax purposes as the Service deems appropriate. The
Anti-Abuse Rule applies where a partnership is formed or utilized in
connection with a transaction (or series of related transactions) with a
principal purpose of substantially reducing the present value of the partners'
aggregate federal tax liability in a manner inconsistent with the intent of
the
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Partnership Provisions. The Anti-Abuse Rule states that the Partnership
Provisions are intended to permit taxpayers to conduct joint business
(including investment) activities though a flexible arrangement that
accurately reflects the partners' economic agreement and clearly reflects the
partners' income without incurring any entity-level tax. The purposes for
structuring a transaction involving a partnership are determined based on all
of the facts and circumstances, including a comparison of the purported
business purpose for a transaction and the
claimed tax benefits resulting from the transaction. A reduction in the
present value of the partners' aggregate federal tax liability through the use
of a partnership does not, by itself, establish inconsistency with the intent
of the Partnership Provisions. The Anti-Abuse Rule is effective for all
transactions relating to a partnership occurring on and after May 12, 1994.
The Anti-Abuse Rule contains an example in which a corporation that elects to
be treated as a REIT contributes substantially all of the proceeds from a
public offering to a partnership in exchange for a general partnership
interest. The limited partners of the partnership contribute real property
assets to the partnership, subject to liabilities that exceed their respective
aggregate bases in such property. In addition, some of the limited partners
have the right, beginning two years after the formation of the partnership, to
require the redemption of their limited partnership interests in exchange for
cash or REIT stock (at the REIT's option) equal to the fair market value of
their respective interests in the partnership at the time of the redemption.
The example concludes that the use of the partnership is not inconsistent with
the intent of the Partnership Provisions and, thus, cannot be recast by the
Service. However, the Redemption Rights do not conform in all respects to the
redemption rights contained in the foregoing example. Moreover, the Anti-Abuse
Rule is extraordinarily broad in scope and is applied based on an analysis of
all of the facts and circumstances. As a result, there can be no assurance
that the Service will not attempt to apply the Anti-Abuse Rule to the Company.
If the conditions of the Anti-Abuse Rule are met, the Service is authorized to
take appropriate enforcement action, including disregarding the Operating
Partnership for federal tax purposes or treating one or more of the partners
as nonpartners. Any such action potentially could jeopardize the Company's
status as a REIT.
FAILURE TO QUALIFY
If the Company fails to qualify for taxation as a REIT in any taxable year,
and the relief provisions do not apply, the Company will be subject to tax
(including any applicable alternative minimum tax) on its taxable income at
regular corporate rates. Distributions to the shareholders in any year in
which the Company fails to qualify will not be deductible by the Company nor
will they be required to be made. In such event, to the extent of current or
accumulated earnings and profits, all distributions to shareholders will be
taxable as ordinary income and, subject to certain limitations of the Code,
corporate distributees may be eligible for the dividends received deduction.
Unless entitled to relief under specific statutory provisions, the Company
also will be disqualified from taxation as a REIT for the four taxable years
following the year during which the Company ceased to qualify as a REIT. It is
not possible to state whether in all circumstances the Company would be
entitled to such statutory relief.
TAXATION OF TAXABLE U.S. SHAREHOLDERS
As long as the Company qualifies as a REIT, distributions made to the
Company's taxable U.S. shareholders out of current or accumulated earnings and
profits (and not designated as capital gain dividends) will be taken into
account by such U.S. shareholders as ordinary income and will not be eligible
for the dividends received deduction generally available to corporations. As
used herein, the term "U.S. shareholder" means a holder of Common Stock that
for U.S. federal income tax purposes is (i) a citizen or resident of the
United States, (ii) a corporation, partnership, or other entity created or
organized in or under the laws of the United States or of any political
subdivision thereof, or (iii) an estate or trust the income of which is
subject to U.S. federal income taxation regardless of its source.
Distributions that are designated as capital gain dividends will be taxed as
long-term capital gains (to the extent they do not exceed the Company's actual
net capital gain for the taxable year) without regard to the period for which
the shareholder has held his Common Stock. However, corporate shareholders may
be required to treat up to 20% of certain capital gain dividends as ordinary
income. Distributions in excess of current and accumulated earnings and
profits will not be taxable to a shareholder to the extent that they do not
exceed the adjusted basis of the shareholder's Common Stock, but rather will
reduce
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the adjusted basis of such stock. To the extent that such distributions in
excess of current and accumulated earnings and profits exceed the adjusted
basis of a shareholder's Common Stock, such distributions will be included in
income as long-term capital gain (or short-term capital gain if the Common
Stock has been held for one year or less) assuming the Common Stock is a
capital asset in the hands of the shareholder. In addition, any distribution
declared by the Company in October, November, or December of any year and
payable to a shareholder of record on a specified date in any such month shall
be treated as both paid by the Company and
received by the shareholder on December 31 of such year, provided that the
distribution is actually paid by the Company during January of the following
calendar year.
Shareholders may not include in their individual income tax returns any net
operating losses or capital losses of the Company. Instead, such losses would
be carried over by the Company for potential offset against its future income
(subject to certain limitations). Taxable distributions from the Company and
gain from the disposition of the Common Stock will not be treated as passive
activity income and, therefore, shareholders generally will not be able to
apply any "passive activity losses" (such as losses from certain types of
limited partnerships in which the shareholder is a limited partner) against
such income. In addition, taxable distributions from the Company generally
will be treated as investment income for purposes of the investment interest
limitations. Capital gains from the disposition of Common Stock (or
distributions treated as such) will be treated as investment income only if
the shareholder so elects, in which case such capital gains will be taxed at
ordinary income rates. The Company will notify shareholders after the close of
the Company's taxable year as to the portions of the distributions
attributable to that year that constitute ordinary income, return of capital,
and capital gain.
TAXATION OF SHAREHOLDERS ON THE DISPOSITION OF THE COMMON STOCK
In general, any gain or loss realized upon a taxable disposition of the
Common Stock by a shareholder who is not a dealer in securities will be
treated as long-term capital gain or loss if the Common Stock has been held
for more than one year and otherwise as short-term capital gain or loss.
However, any loss upon a sale or exchange of Common Stock by a shareholder who
has held such stock for six months or less (after applying certain holding
period rules), will be treated as a long-term capital loss to the extent of
distributions from the Company required to be treated by such shareholder as
long-term capital gain. All or a portion of any loss realized upon a taxable
disposition of the Common Stock may be disallowed if other Common Stock is
purchased within 30 days before or after the disposition.
INFORMATION REPORTING REQUIREMENTS AND BACKUP WITHHOLDING
The Company will report to its U.S. shareholders and the Service the amount
of distributions paid during each calendar year, and the amount of tax
withheld, if any. Under the backup withholding rules, a shareholder may be
subject to backup withholding at the rate of 31% with respect to distributions
paid unless such holder (i) is a corporation or comes within certain other
exempt categories and, when required, demonstrates this fact, or (ii) provides
a taxpayer identification number, certifies as to no loss of exemption from
backup withholding, and otherwise complies with the applicable requirements of
the backup withholding rules. A shareholder who does not provide the Company
with his correct taxpayer identification number also may be subject to
penalties imposed by the Service. Any amount paid as backup withholding will
be creditable against the shareholder's income tax liability. In addition, the
Company may be required to withhold a portion of capital gain distributions to
any shareholders who fail to certify their nonforeign status to the Company.
The Service issued proposed regulations in April 1996 regarding the backup
withholding rules. These proposed regulations would alter the current system
of backup withholding compliance. See "Federal Income Tax Considerations--
Taxation of Non-U.S. Shareholders."
TAXATION OF TAX-EXEMPT SHAREHOLDERS
Tax-exempt entities, including qualified employee pension and profit sharing
trusts and individual retirement accounts ("Exempt Organizations"), generally
are exempt from federal income taxation. However, they are subject to taxation
on their UBTI. While many investments in real estate generate UBTI, amounts
distributed by
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the Company to Exempt Organizations generally should not constitute UBTI.
However, if an Exempt Organization finances its acquisition of Common Stock
with debt, a portion of its income from the Company will constitute UBTI
pursuant to the "debt-financed property" rules. Furthermore, social clubs,
voluntary employee benefit associations, supplemental unemployment benefit
trusts, and qualified group legal services plans that are exempt from taxation
under paragraphs (7), (9), (17), and (20), respectively, of Code section
501(c) are subject to different UBTI rules, which generally will require them
to characterize distributions from the Company as UBTI. In addition, in
certain circumstances, a pension trust that owns more than 10% of the
Company's stock is required to treat a percentage of the dividends from the
Company as UBTI (the "UBTI Percentage"). The UBTI Percentage is the gross
income derived by the Company from an unrelated trade or business (determined
as if the Company were a pension trust) divided by the gross income of the
Company for the year in which the dividends are paid. The UBTI rule applies to
a pension trust holding more than 10% of the Company's stock only if (i) the
UBTI Percentage is at least 5%, (ii) the Company qualifies as a REIT by reason
of the modification of the 5/50 Rule that allows the beneficiaries of the
pension trust to be treated as holding stock of the Company in proportion to
their actuarial interests in the pension trust, and (iii) either (A) one
pension trust owns more than 25% of the value of the Company's stock or (B) a
group of pension trusts individually holding more than 10% of the value of the
Company's stock collectively own more than 50% of the value of the Company's
stock.
TAXATION OF NON-U.S. SHAREHOLDERS
The rules governing U.S. federal income taxation of nonresident alien
individuals, foreign corporations, foreign partnerships, and other foreign
shareholders (collectively, "Non-U.S. Shareholders") are complex and no
attempt has been made herein to provide more than a summary of such rules.
PROSPECTIVE NON-U.S. SHAREHOLDERS SHOULD CONSULT WITH THEIR OWN TAX ADVISORS
TO DETERMINE THE IMPACT OF FEDERAL, STATE, AND LOCAL INCOME TAX LAWS WITH
REGARD TO AN INVESTMENT IN THE COMMON STOCK, INCLUDING ANY REPORTING
REQUIREMENTS.
Distributions to Non-U.S. Shareholders that are not attributable to gain
from sales or exchanges by the Company of U.S. real property interests and are
not designated by the Company as capital gains dividends will be treated as
dividends of ordinary income to the extent that they are made out of current
or accumulated earnings and profits of the Company. Such distributions
ordinarily will be subject to a withholding tax equal to 30% of the gross
amount of the distribution unless an applicable tax treaty reduces or
eliminates that tax. However, if income from the investment in the Common
Stock is treated as effectively connected with the Non-U.S. Shareholder's
conduct of a U.S. trade or business, the Non-U.S. Shareholder generally will
be subject to federal income tax at graduated rates, in the same manner as
U.S. shareholders are taxed with respect to such distributions (and also may
be subject to the 30% branch profits tax in the case of a Non-U.S. Shareholder
that is a non-U.S. corporation). The Company expects to withhold U.S. income
tax at the rate of 30% on the gross amount of any such distributions made to a
Non-U.S. Shareholder unless (i) a lower treaty rate applies and any required
form evidencing eligibility for that reduced rate is filed with the Company or
(ii) the Non-U.S. Shareholder files an IRS Form 4224 with the Company claiming
that the distribution is effectively connected income. The Service issued
proposed regulations in April 1996 that would modify the manner in which the
Company complies with the withholding requirement.
Distributions in excess of current and accumulated earnings and profits of
the Company will not be taxable to a shareholder to the extent that such
distributions do not exceed the adjusted basis of the shareholder's Common
Stock, but rather will reduce the adjusted basis of such stock. To the extent
that such distributions in excess of current and accumulated earnings and
profits exceed the adjusted basis of a Non-U.S. Shareholder's shares of Common
Stock, such distributions will give rise to tax liability if the Non-U.S.
Shareholder would otherwise be subject to tax on any gain from the sale or
disposition of his shares of Common Stock, as described below. Because it
generally cannot be determined at the time a distribution is made whether or
not such distribution will be in excess of current and accumulated earnings
and profits, the entire amount of any
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distribution normally will be subject to withholding at the same rate as a
dividend. However, a Non-U.S. Shareholder can file a claim for refund with the
Service for the overwithheld amount to the extent it is determined
subsequently that a distribution was, in fact, in excess of current and
accumulated earnings and profits of the Company.
For any year in which the Company qualifies as a REIT, distributions that
are attributable to gain from sales or exchanges by the Company of U.S. real
property interests will be taxed to a Non-U.S. Shareholder under the
provisions of the Foreign Investment in Real Property Tax Act of 1980
("FIRPTA"). Under FIRPTA, distributions attributable to gain from sales of
U.S. real property interests are taxed to a Non-U.S. Shareholder as if such
gain were effectively connected with a U.S. business. Non-U.S. Shareholders
thus would be taxed at the normal capital gain rates applicable to U.S.
shareholders (subject to applicable alternative minimum tax and a special
alternative minimum tax in the case of nonresident alien individuals).
Distributions subject to FIRPTA also may be subject to a 30% branch profits
tax in the hands of a non-U.S. corporate shareholder not entitled to treaty
relief or exemption. The Company is required to withhold 35% of any
distribution that is designated by the Company as a capital gains dividend.
The amount withheld is creditable against the Non-U.S. Shareholder's FIRPTA
tax liability.
Gain recognized by a Non-U.S. Shareholder upon a sale of his shares of
Common Stock generally will not be taxed under FIRPTA if the Company is a
"domestically controlled REIT," defined generally as a REIT in which at all
times during a specified testing period less than 50% in value of the stock
was held directly or indirectly by non-U.S. persons. The Company believes that
it is a "domestically controlled REIT," and, therefore, sales of shares of
Common Stock are not subject to taxation under FIRPTA. However, because the
shares of Common Stock are traded publicly, no complete assurance can be given
that the Company is actually a "domestically controlled REIT" and no assurance
can be given that the Company will continue to be a "domestically controlled
REIT." Furthermore, gain not subject to FIRPTA will be taxable to a Non-U.S.
Shareholder if (i) investment in the Common Stock is effectively connected
with the Non-U.S. Shareholder's U.S. trade or business, in which case the Non-
U.S. Shareholder will be subject to the same treatment as U.S. shareholders
with respect to such gain, or (ii) the Non-U.S. Shareholder is a nonresident
alien individual who was present in the United States for 183 days or more
during the taxable year and certain other conditions apply, in which case the
nonresident alien individual will be subject to a 30% tax on the individual's
capital gains. If the gain on the sale of Common Stock were to be subject to
taxation under FIRPTA, the Non-U.S. Shareholder will be subject to the same
treatment as U.S. shareholders with respect to such gain (subject to
applicable alternative minimum tax, a special alternative minimum tax in the
case of nonresident alien individuals, and the possible application of the 30%
branch profits tax in the case of non-U.S. corporations).
NON-U.S. SHAREHOLDERS SHOULD BE AWARE THAT LEGISLATIVE PROPOSALS HAVE BEEN
MADE THAT WOULD HAVE SUBJECTED NON-U.S. PERSONS TO U.S. TAX IN CERTAIN
CIRCUMSTANCES ON THEIR GAINS FROM THE SALE OF STOCK IN U.S. CORPORATIONS.
THERE CAN BE NO ASSURANCE THAT A SIMILAR PROPOSAL WILL NOT BE ENACTED INTO LAW
IN A FORM DETRIMENTAL TO FOREIGN HOLDERS OF THE COMMON STOCK.
STATE AND LOCAL TAXES
The Company, PAH GP, PAH LP, the Operating Partnership, a Subsidiary
Partnership or the Company's shareholders may be subject to state and local
tax in various states and localities, including those states and localities in
which it or they transact business, own property, or reside. The state tax
treatment of the Company and the shareholders in such jurisdictions may differ
from the federal income tax treatment described above.
Consequently, prospective shareholders should consult their own tax advisors
regarding the effect of state and local tax laws upon and investment in the
Common Stock.
In particular, the State of Texas imposes a franchise tax upon corporations
that do business in Texas. The Company is organized as a Virginia corporation
and has an office in the State of Texas. PAH LP is organized as
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a Virginia corporation and has no contacts with the State of Texas other than
ownership of its limited partnership interest in the Operating Partnership.
The Operating Partnership is registered in the State of Texas as a foreign
limited partnership qualified to transact business in Texas.
The Texas franchise tax is imposed on a corporation doing business in Texas
with respect to the corporation's "taxable capital" (generally, financial
accounting net worth, with certain adjustments) and its "taxable earned
surplus" (generally, a corporation's federal taxable income, with certain
adjustments) apportioned to the State of Texas. The franchise tax on "net
taxable capital" ("taxable capital" apportioned to Texas) is imposed at the
rate of 0.25% of a corporation's net taxable capital. The franchise tax rate
on "net taxable earned surplus" ("taxable earned surplus" apportioned to
Texas) is 4.5%. The Texas franchise tax is generally equal to the greater of
the tax on "net taxable capital" and the tax on "net taxable earned surplus."
The Texas franchise tax is not applied on a consolidated group basis. Any
Texas franchise tax that the Company, PAH GP or PAH LP is required to pay will
reduce the Cash Available for Distribution by the Company to its shareholders.
A corporation's "taxable capital" and "taxable earned surplus" are
apportioned to Texas based on a fraction, the numerator of which is the
corporation's gross receipts from business done in Texas, and the denominator
of which is the corporation's gross receipts from its entire business. For
purposes of determining the source of gross receipts, dividends and interest
received by a corporation are generally allocated to the domicile of the
debtor or payor. Thus, interest and dividends received by a corporation from
another corporation will not be treated as gross receipts from business done
in Texas unless the payor is incorporated in Texas (although dividends
received from another member of a consolidated group are not taken into
account as a gross receipt or earned surplus for purposes of computing the
franchise tax on net taxable earned surplus). Distributions received from a
partnership by a corporation that is a partner in the partnership will be
included in a corporation's gross receipts for purposes of apportioning the
corporation's "taxable capital" and "taxable earned surplus" to Texas. For
calculating the tax on net taxable capital, receipts reflecting the
corporation's share of net profits from a partnership are apportioned to Texas
if the partnership's principal place of business (the location of its day-to-
day operations) is in Texas; however, if the corporation's share of the gross
receipts from the partnership is treated as revenue of the corporation under
generally accepted accounting principles, then the receipts of the partnership
are apportioned based on normal apportionment rules as if the receipts were
received directly by the corporation. This method is not allowed for
corporations using the federal income tax method. For purposes of the tax on
net earned surplus, receipts are apportioned as though the corporation
directly received the payment.
The office of the Texas State Comptroller of Public Accounts (the
"Comptroller"), the agency that administers the Texas franchise tax, has
issued a regulation providing that a corporation is not considered to be doing
business in Texas for Texas franchise tax purposes merely because the
corporation owns an interest as a limited partner in a limited partnership
that does business in Texas. The same regulation provides, however, that a
corporation is considered to be doing business in Texas if it owns an interest
as a general partner in a partnership that does business in Texas. This
regulation applies only for purposes of the net taxable capital component of
the Texas franchise tax. The Comptroller has not issued a similar regulation
with regard to the net taxable earned surplus component. The Comptroller also
has expressed informally its view that a corporation is not considered to be
doing business in Texas for Texas franchise tax purposes merely because the
corporation owns stock in another corporation that does business in Texas.
In accordance with these pronouncements by the Comptroller, PAH GP is
treated as doing business in Texas because it is the general partner of the
Operating Partnership and the Operating Partnership does business in Texas.
Accordingly, PAH GP is subject to the Texas franchise tax. The Company is
treated as doing business in Texas because it has an office in Texas.
Accordingly, the Company is subject to the Texas franchise tax. However, the
Company's only source of gross receipts for Texas franchise tax purposes is
dividends from its two wholly-owned Virginia subsidiaries, PAH GP and PAH LP.
Since dividends are sourced to the state of domicile of the distributing
corporation for gross receipts apportionment purposes (or are eliminated for
purposes of apportioning taxable earned surplus since they would be paid by an
affiliate) the Company does not anticipate that any significant portion of its
"taxable capital" or "taxable earned surplus" will be apportioned to Texas.
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As a result, the Company's Texas franchise tax liability should not be
substantial. Further, based on the pronouncements by the Comptroller, PAH LP
will not be treated as doing business in Texas merely as a result of its
status as a limited partner of the Operating Partnership. As long as PAH LP is
not otherwise doing business in Texas, PAH LP will not be subject to the Texas
franchise tax.
There can be no assurance that the Comptroller will agree that PAH LP is not
doing business in Texas for Texas franchise tax purposes. First, the
Comptroller could revoke the pronouncements described above and contend that
the activities of PAH LP constitute the doing of business in Texas. Second, it
is not clear whether the Comptroller considers these pronouncements equally
applicable to tax on net taxable earned surplus. Third, the Comptroller could
contend that (i) some activity of PAH LP other than its ownership of a limited
partnership interest in the Operating Partnership will constitute the doing of
business in Texas, despite the avoidance of contacts with the State of Texas,
or (ii) in light of the overall structure of the Company, PAH LP and PAH GP,
the pronouncements otherwise are inapplicable.
The Operating Partnership and the Subsidiary Partnerships are not subject to
the Texas franchise tax under the laws in existence at the time of this
Prospectus. There can be no assurance, however, that the Texas legislature,
which will not meet again in regular session until 1997, will not in the
future expand the scope of the Texas franchise tax to apply to limited
partnerships such as the Operating Partnership or a Subsidiary Partnership.
Gardere & Wynne, L.L.P., special tax counsel to the Company ("Special Tax
Counsel"), has reviewed the discussion in this section with respect to Texas
franchise tax matters and is of the opinion that it accurately summarizes the
Texas franchise tax matters expressly described herein. Special Tax Counsel
expresses no opinion on any other tax considerations affecting the company or
a holder of Common Stock, including, but not limited to, other Texas franchise
tax matters not specifically discussed above.
TAX ASPECTS OF THE OPERATING PARTNERSHIP AND THE SUBSIDIARY PARTNERSHIPS
The following discussion summarizes certain federal income tax
considerations applicable to the Company's direct or indirect investment in
the Operating Partnership and the Subsidiary Partnerships (each of the
Operating Partnership and the Subsidiary Partnerships is referred to herein as
a "Hotel Partnership"). The discussion does not cover state or local tax laws
or any federal tax laws other than income tax laws.
Classification as a Partnership
The Company is entitled to include in its income its distributive share of
each Hotel Partnership's income and to deduct its distributive share of each
Hotel Partnership's losses only if each Hotel Partnership is classified for
federal income tax purposes as a partnership rather than as an association
taxable as a corporation. An organization formed as a partnership will be
treated as a partnership, rather than as a corporation, for federal income tax
purposes if it (i) has no more than two of the four corporate characteristics
that the Treasury Regulations use to distinguish a partnership from a
corporation for tax purposes and (ii) is not a "publicly traded" partnership.
Those four characteristics are continuity of life, centralization of
management, limited liability, and free transferability of interests. A
publicly traded partnership is a partnership whose interests are traded on an
established securities market or are readily tradable on a secondary market
(or the substantial equivalent thereof). A publicly traded partnership will
not be taxed as a corporation, however, if 90% or more of its gross income
consists of "qualifying income" under Section 7704(d) of the Code which
generally includes any income that is qualifying income for purposes of the
REIT 95% gross income test (including rents from real property).
In 1988, the Service issued a notice ("Notice 88-75") providing limited safe
harbors from the definition of a publicly traded partnership in advance of the
issuance of Treasury Regulations. Pursuant to one of those safe harbors (the
"Private Placement Exclusion"), interests in a partnership are not treated as
readily tradable on a secondary market or the substantial equivalent thereof
if (i) all of the partnership interests are issued in a transaction that is
not registered under the Securities Act of 1933, as amended, and (ii) the
partnership does not
have more than 500 partners (taking into account as a partner each person who
indirectly owns an interest in the partnership through a partnership, grantor
trust, or S corporation). Upon the closing of the Initial Offering, each Hotel
Partnership satisfied the Private Placement Exclusion.
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The U.S. Department of the Treasury recently issued final regulations (the
"PTP Regulations") that significantly modified the Private Placement
Exclusion. Under the PTP Regulations, the Private Placement Exclusion does not
apply if the partnership has more than 100 partners at any time during its
taxable year (taking into account as a partner each person who indirectly owns
an interest in the partnership through a partnership, grantor trust, or S
corporation, but only if (i) substantially all of the value of the indirect
owner's interest in the intermediate entity is attributable to the
intermediate entity's interest in the partnership and (ii) a principal purpose
of the tiered arrangement is to permit the partnership to satisfy the 100
partner limitation). According to their terms, the PTP Regulations will not
apply to partnerships operating before December 4, 1995 until the earlier of
January 1, 2006 or the date on which the partnership adds a "substantial new
line of business." Until that time, existing partnerships may rely on the
terms of Notice 88-75.
The Company believes that the Hotel Partnerships have satisfied and
currently satisfy the requirements of the Private Placement Exclusion under
both the terms of Notice 88-75 and the PTP Regulations. In addition, the
Company believes that it has operated and will continue to operate so that
more than 90% of the income for each Hotel Partnership is qualifying income
under section 7704(d) of the Code. Consequently, the Company believes that
none of the Hotel Partnerships will be treated as corporations under the
publicly traded partnership rules.
If for any reason one of the Hotel Partnerships were taxable as a
corporation, rather than as a partnership, for federal income tax purposes,
the Company would not be able to satisfy the income and asset requirements for
REIT status. See "Federal Income Tax Considerations-Requirements for
Qualification-Income Tests" and "--Requirements for Qualification--Asset
Tests." In addition, any change in a Hotel Partnership's status for tax
purposes might be treated as a taxable event, in which case the Company might
incur a tax liability without any related cash distribution. See "Federal
Income Tax Considerations--Requirements for Qualification--Distribution
Requirements." Further, items of income and deduction of such Hotel
Partnership would not pass through to its partners, and its partners would be
treated as stockholders for tax purposes. Consequently, such Hotel Partnership
would be required to pay income tax at corporate tax rates on its net income,
and distributions to its partners would constitute dividends that would not be
deductible in computing such Hotel Partnership's taxable income.
Income Taxation of Each Hotel Partnership and its Partners
Partners, Not the Hotel Partnerships, Subject to Tax. A partnership is not a
taxable entity for federal income tax purposes. Rather, the Company is
required to take into account its allocable share of each Hotel Partnership's
income, gains, losses, deductions, and credits for any taxable year of such
Hotel Partnership ending within or with the taxable year of the Company,
without regard to whether the Company has received or will receive any
distribution from such Hotel Partnership.
Tax Allocations With Respect to Contributed Properties. Pursuant to section
704(c) of the Code, income, gain, loss, and deduction attributable to
appreciated or depreciated property that is contributed to a partnership in
exchange for an interest in the partnership must be allocated for federal
income tax purposes in a manner such that the contributor is charged with, or
benefits from, the unrealized gain or unrealized loss associated with the
property at the time of the contribution. The amount of such unrealized gain
or unrealized loss is generally equal to the difference between the fair
market value of the contributed property at the time of contribution and the
adjusted tax basis of such property at the time of contribution. The
Department of the Treasury recently issued regulations requiring partnerships
to use a "reasonable method" for allocating items affected by section 704(c)
of the Code and outlining several reasonable allocation methods.
Under the partnership agreement for each Hotel Partnership (each a "Hotel
Partnership Agreement"), depreciation or amortization deductions of the Hotel
Partnership generally will be allocated among the partners in accordance with
their respective interests in the Hotel Partnership, except to the extent that
the Hotel Partnership is required under Code section 704(c) to use a method
for allocating tax depreciation deductions attributable to the Initial Hotels
or other contributed properties that results in the Company receiving a
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disproportionately large share of such deductions. In addition, gain on sale
of an Initial Hotel or of a Hotel purchased by a Hotel Partnership, in whole
or in part with interests in the Hotel Partnership will be specially allocated
to the Limited Partners who sold the Hotel to the extent of any "built-in"
gain with respect to such Hotel for federal income tax purposes. Depending on
the allocation method elected under Code section 704(c), it is possible that
the Company (i) may be allocated lower amounts of depreciation deductions for
tax purposes with respect to contributed Hotels than would be allocated to the
Company if such Hotels were to have a tax basis equal to their fair market
value at the time of contribution and (ii) may be allocated taxable gain in
the event of a sale of such Hotels in excess of the economic profit allocated
to the Company as a result of such sale. These allocations possibly could
cause the Company to recognize taxable income in excess of cash proceeds,
which might adversely affect the Company's ability to comply with the REIT
distribution requirements, although the Company does not anticipate that this
event will occur. The Board of Directors has adopted a policy that any
decision to sell a Hotel purchased from an affiliate of Patriot American will
be made by a majority of the Independent Directors. See "Risk Factors--
Conflicts of Interest--Sale of Hotels."
PAH RAVINIA
The Operating Partnership owns directly 100% of the nonvoting stock of PAH
Ravinia, and the Operating Partnership owns indirectly 4% of the voting common
stock of PAH Ravinia. Such stock represents in the aggregate a 99.04% economic
interest in PAH Ravinia. The Operating Partnership also holds a $36 million
first mortgage note on the Crowne Plaza Ravinia and $4.5 million second
mortgage note on such hotel. By virtue of its ownership of OP Units, the
Company is considered to own its pro rata share of such stock and mortgage
notes.
As noted above, for the Company to qualify as a REIT the Company's pro rata
share of the value of the equity and unsecured debt securities of PAH Ravinia
held by the Operating Partnership may not exceed 5% of the total value of the
Company's assets. In addition, the Company may not own more than 10% of the
voting securities of PAH Ravinia. The Company does not own (directly or
indirectly) 10% of the voting securities of PAH Ravinia. In addition, the
Company believes its pro rata share of the value of the equity securities of
PAH Ravinia does not exceed 5% of the total value of the Company's assets. The
Company also believes that the two mortgage notes on the Crowne Plaza Ravinia
held by the Operating Partnership (i) are properly treated as debt for tax
purposes and (ii) are secured by sufficient real property to qualify as "real
estate assets" exempt from the 5% limitation. If the Service were to
successfully challenge these determinations, however, the Company likely would
fail to qualify as a REIT.
PAH Ravinia will not qualify as a REIT and will pay federal, state and local
income taxes on its taxable income at normal corporate rates. Any such taxes
will reduce amounts available for distribution by PAH Ravinia, which in turn
will reduce amounts available for distribution to the Company's stockholders.
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UNDERWRITING
Subject to the terms and conditions in the underwriting agreement (the
"Underwriting Agreement"), the Company has agreed to sell to each of the
Underwriters named below, and each of the Underwriters for whom PaineWebber
Incorporated, Bear, Stearns & Co. Inc., Dean Witter Reynolds Inc., Goldman,
Sachs & Co., Montgomery Securities and Smith Barney Inc. are acting as
representatives of the Underwriters (the "Representatives") has severally
agreed to purchase from the Company, the respective number of shares of Common
Stock set forth opposite their respective names. Under the Underwriting
Agreement, the Underwriters are obligated to purchase all such shares of
Common Stock if any are purchased.
<TABLE>
<CAPTION>
NUMBER OF
SHARES OF
COMMON STOCK
------------
<S> <C>
PaineWebber Incorporated...........................................
Bear, Stearns & Co. Inc............................................
Dean Witter Reynolds Inc...........................................
Goldman, Sachs & Co................................................
Montgomery Securities..............................................
Smith Barney Inc...................................................
---------
Total.......................................................... 5,000,000
=========
</TABLE>
The Representatives have advised the Company that they propose to offer the
Common Stock to the public at the Offering price set forth on the cover page
of this Prospectus and to certain dealers at such price less a concession not
in excess of $ per share of Common Stock. The Underwriters may allow, and
such dealers may re-allow, a discount not in excess of $ per share of Common
Stock on sales to certain other brokers and dealers. After the Offering, the
Offering price, concession and discount may be changed.
The Company has granted to the Underwriters an option, exercisable for 30
days after the date of this Prospectus, to purchase up to 750,000 additional
shares of Common Stock to cover over-allotments, if any, at the Offering
price, less the underwriting discount set forth on the cover page of this
Prospectus. If the Underwriters exercise this option, each of the Underwriters
will have a firm commitment, subject to certain conditions, to purchase
approximately the same percentage thereof which the number of shares of Common
Stock to be purchased by it shown in the foregoing table bears to the Common
Stock initially offered hereby.
The Common Stock has not been qualified for sale under the securities laws
of Canada or any province or territory of Canada. The Common Stock is not
being offered for sale and may not be sold, directly or indirectly, in Canada,
or to any resident thereof, except pursuant to exemptions for qualification
under applicable Canadian federal or provincial law. The Underwriters will not
offer the Common Stock in Canada or to any Canadian resident except pursuant
to an exemption from the requirement to file a prospectus in any province of
Canada of which such offer is made.
In the Underwriting Agreement, the Company has agreed to indemnify the
Underwriters against certain liabilities, including liabilities under the
Securities Act.
The Company has agreed not to offer, sell, contract to sell, grant any
option to purchase or otherwise dispose of any shares of Common Stock, or any
securities convertible into, or exercisable, exchangeable or redeemable for,
shares of Common Stock for a period of 90 days from the date hereof, without
the prior consent of PaineWebber Incorporated.
The Underwriters do not intend to confirm sales to any account over which
they exercise discretionary authority.
The Common Stock is traded on the NYSE under the symbol "PAH." In order to
maintain the requirements for listing the shares of Common Stock on the NYSE,
the Underwriters have undertaken to sell lots of 100 or more shares of Common
Stock.
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In connection with the Initial Offering, the Company closed the Line of
Credit with Paine Webber Real Estate. In connection with the May, 1996
increase in the maximum amount available under the Line of Credit, the Company
paid Paine Webber Real Estate a fee in the amount of $350,000, and the Company
has agreed to pay Paine Webber Real Estate an additional fee in the amount of
$225,000 at such time as the aggregate principal amount outstanding under the
Line of Credit and the Greenspoint Loan exceeds $200,000,000.
In connection with the acquisition of the Wyndham Greenspoint Hotel, Paine
Webber Real Estate has extended the $22.0 million Greenspoint Loan and has
received a fee in the amount of $330,000.
EXPERTS
The Consolidated Financial Statements of Patriot American Hospitality, Inc.
as of December 31, 1995 and for the period October 2, 1995 (inception of
operations) through December 31, 1995 and the related financial statement
schedules included in this Prospectus and the Registration Statement have been
audited by Ernst & Young LLP, independent auditors, as set forth in their
report thereon included elsewhere herein and in the Registration Statement.
The Combined Financial Statements of the Initial Hotels as of December 31,
1994 and for each of the years in the two-year period ended December 31, 1994
and the period January 1, 1995 through October 1, 1995, included in this
Prospectus and the Registration Statement have been audited by Ernst & Young
LLP, independent auditors, as set forth in their report thereon included
elsewhere herein and in the Registration Statement, which is based in part on
the reports of Coopers & Lybrand L.L.P., independent accountants, as set forth
in their respective reports thereon for Certain of the Initial Hotels and Troy
Hotel Investors. The Financial Statements of Buckhead Hospitality Joint
Venture as of December 31, 1995 and for the year then ended and the related
financial statement schedule included in this Prospectus and the Registration
Statement have been audited by Ernst & Young LLP, independent auditors, as set
forth in their report thereon included elsewhere herein and in the
Registration Statement. The Combined Financial Statements of Gateway Hotel
Limited Partnership and Wenatchee Hotel Limited Partnership as of December 31,
1995 and for the year then ended and the related financial statement schedule
included in this Prospectus and the Registration Statement have been audited
by Ernst & Young LLP, independent auditors, as set forth in their report
thereon included elsewhere herein and in the Registration Statement. The
individual Statements of Direct Revenue and Direct Operating Expenses for each
of the Plaza Park Suites Hotel, Roosevelt Hotel and Lexington Hyatt Regency
Hotel for the year ended December 31, 1995 included in this Prospectus and the
Registration Statement have been audited by Ernst & Young LLP, independent
auditors, as set forth in their report thereon included elsewhere herein and
in the Registration Statement. Each of the above referenced financial
statements have been so included in reliance upon such reports given on their
authority as experts in accounting and auditing.
The CHC Lease Partners financial statements as of December 31, 1995 and for
the period inception (October 2, 1995) through December 31, 1995 included in
this Prospectus and the Registration Statement have been so included in
reliance on the report of Price Waterhouse LLP, independent accountants, given
on the authority of said firm as experts in auditing and accounting.
The Financial Statements of Troy Park Associates as of December 29, 1994 and
for the period January 1, 1994 through December 29, 1994 and the year ended
December 31, 1993, the Financial Statements of Newporter Beach Hotel
Investments L.L.C. as of December 31, 1995 and for the period from March 10,
1995 to December 31, 1995 and the Combined Financial Statements of the Wyndham
Portfolio Hotels as of December 31, 1994 and 1995 and for the years then
ended, included in this Prospectus and the Registration Statement have been
audited by Coopers & Lybrand L.L.P., independent accountants, as set forth in
their reports thereon included elsewhere herein and in the Registration
Statement. Such financial statements have been so included in reliance upon
such report given on their authority as experts in accounting and auditing.
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LEGAL MATTERS
The validity of the shares of Common Stock offered hereby will be passed
upon for the Company by Goodwin, Procter & Hoar llp, Boston, Massachusetts, a
limited liability partnership including professional corporations. In
addition, the description of federal income tax consequences contained in the
section of the Prospectus entitled "Federal Income Tax Considerations" is
based on the opinion of Goodwin, Procter & Hoar llp, Boston, Massachusetts,
which will rely, as to all Texas franchise tax matters, upon the opinion of
Gardere & Wynne, L.L.P. Akin, Gump, Strauss, Hauer & Feld, L.L.P., Dallas,
Texas and Washington, D.C. has advised the Company on certain real estate
matters. Thomas S. Foley, a director, is a partner in Akin, Gump, Strauss,
Hauer & Feld, L.L.P. The validity of the shares of Common Stock offered hereby
will be passed upon for the Underwriters by White & Case, New York, New York.
Goodwin, Procter & Hoar llp and White & Case will rely on Hunton & Williams,
Richmond, Virginia as to certain matters of Virginia law.
ADDITIONAL INFORMATION
The Company has filed with the Securities and Exchange Commission a
Registration Statement on Form S-11 (of which this Prospectus is a part) under
the Securities Act with respect to the securities offered hereby. This
Prospectus does not contain all of the information set forth in the
Registration Statement, certain portions of which have been omitted as
permitted by the rules and regulations of the Securities and Exchange
Commission. Statements contained in this Prospectus as to the content of any
contract or other document are not necessarily complete, and in each instance
reference is made to the copy of such contract or other document filed as an
exhibit to the Registration Statement, each such statement being qualified in
all respects by such reference and the exhibits and schedules hereto. For
further information regarding the Company and the shares of Common Stock
offered hereby, reference is hereby made to the Registration Statement and
such exhibits and schedules.
The Registration Statement and the exhibits and schedules forming a part
thereof filed by the Company with the Securities and Exchange Commission (the
"Commission") can be inspected and copies obtained from the Commission at
Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549,
and at the following regional offices of the Commission: 7 World Trade Center,
13th Floor, New York, New York 10048 and Citicorp Center, 500 West Madison
Street, Suite 1400, Chicago, Illinois 60661-2511. Copies of such material can
be obtained by mail from the Public Reference Section of the Commission at
Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549, at prescribed
rates.
The Company is required to file reports and other information with the
Commission pursuant to the Exchange Act, in addition to any other legal or
NYSE requirements. The Company furnishes its shareholders with annual reports
containing consolidated financial statements audited by its independent
certified public accountants and with quarterly reports containing unaudited
condensed consolidated financial statements for each of the first three
quarters of each fiscal year. The Company includes in such reports annual
audited and quarterly unaudited financial statements for the Lessees.
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GLOSSARY
Unless the context otherwise requires, the following capitalized terms shall
have the meanings set forth below for the purposes of this Prospectus.
"ADA" means the Americans with Disabilities Act of 1990, as amended.
"Additional Charges" means certain amounts of money, including interest
accrued on any late payments, that the Lessees are obligated to pay to the
Company in addition to Base Rent or Participating Rent, pursuant to the
Participating Leases.
"Adjusted Basis Ratio" means, for each Hotel, the ratio that the average of
the aggregate adjusted bases of both the real and personal property comprising
the Hotel bears at the beginning and at the end of a taxable year.
"ADR" means average daily room rate.
"ADS" means alternative depreciation system.
"Anti-Abuse Rule" means the proposed regulation issued by the United States
Treasury Department under the Partnership Provisions that would authorize the
Service, in certain "abusive" transactions involving partnerships, to
disregard the form of a transaction and recast it for federal tax purposes as
it deems appropriate.
"Articles of Incorporation" means the Amended and Restated Articles of
Incorporation of the Company.
"Base Rent" means the fixed obligation of the Lessees to pay a sum certain
in monthly rent under each of the Participating Leases.
"Board of Directors" means the Board of Directors of the Company.
"Bylaws" means the Amended and Restated Bylaws of the Company.
"Cash Available for Distribution" means funds from operations adjusted for
certain non-cash items, less reserves for capital expenditures.
"CHC" means CHC International, Inc., a Florida corporation, and its
subsidiaries.
"CHC Lease Partners" means CHC Lease Partners, a Delaware-based general
partnership owned by CHC and a principal of Gencom that leases the Initial
Hotels, the Tremont House Hotel, the Holiday Inn Lenox and the Del Mar Hilton.
"Code" means the Internal Revenue Code of 1986, as amended.
"Commission" means the United States Securities and Exchange Commission.
"Common Stock" means the shares of common stock, no par value, of the
Company.
"Company" means Patriot American Hospitality, Inc., a Virginia corporation,
together with PAH GP, Inc., PAH LP, Inc. and Patriot American Hospitality
Partnership, L.P. and any subsidiaries thereof.
"Comptroller" means the office of the Texas State Comptroller of Public
Accounts.
"CPI" means the United States Consumer Price Index, All Urban Consumers,
U.S. City Average, All Items (1982-84 100).
"Directors' Plan" means the Patriot American Hospitality, Inc. Non-Employee
Directors' Incentive Plan.
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"Doubletree Hotels" means Doubletree Hotels Corporation, a Phoenix, Arizona-
based hotel management company, and a subsidiary of Doubletree Corporation.
"Doubletree Lessee" means DTR North Canton, Inc.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"F, F & E" means furniture, fixtures and equipment.
"FIRPTA" means the Foreign Investment in Real Property Tax Act of 1980, as
amended.
"Formation Transactions" means the principal transactions in connection with
the formation of the Company and the acquisition of the Initial Hotels by the
Operating Partnership.
"Franchise Licenses" means those franchise licenses relating to the
franchised Hotels.
"Funds from operations" means net income (loss) (computed in accordance with
generally accepted accounting principles), excluding gains (or losses) from
debt restructuring or sales of property, plus depreciation of real property,
and after adjustments for unconsolidated partnerships and joint ventures.
"GAH" means GAH-II, L.P. (doing business under the trade name Gencom
American Hospitality) and GAH REIT Management Company, L.P. and their
respective subsidiaries, which are hotel management affiliates of Gencom and
CHC.
"Gencom" means the Gencom group of companies.
"Gencom Interests" means Gencom Interests, Inc., a corporation owned by
Karim Alibhai and members of his family.
"General Partner" means PAH GP, as general partner of the Operating
Partnership.
"Hotel Partnership" means the Operating Partnership or any Subsidiary
Partnership.
"Hotels" means the hotels owned by the Company.
"Hyatt" means Hyatt Corporation.
"Independent Director" means a director of the Company who is not an officer
or employee of the Company, any affiliate of an officer or employee or any
affiliate of (i) any advisor to the Company under an advisory agreement, (ii)
any lessee of any property of the Company, (iii) any subsidiary of the Company
or (iv) any partnership which is an affiliate of the Company.
"Initial Hotels" means the 20 hotels acquired by the Company in the
Formation Transactions.
"Initial Offering" means the Company's initial public offering of 14,605,000
shares of Common Stock in October 1995.
"Lease Master Agreement" means the agreement between the Operating
Partnership and CHC Lease Partners which sets forth the terms of CHC Lease
Partners' required capitalization and certain other matters.
"Lessees" means the entities independent from the Company which lease the
Hotels from the Operating Partnership pursuant to the Participating Leases.
"Limited Partners" means the limited partners of the Operating Partnership.
124
<PAGE>
"LIBOR" means the London Interbank Offered Rate.
"Line of Credit" means the Company's line of credit facility with Paine
Webber Real Estate.
"Lock-up Periods" means the period of time ranging from one to two years
after the Initial Offering for which the officers and directors of the
Company, and certain other persons have agreed, subject to certain limited
exceptions, not to offer to sell, contract to sell or otherwise dispose of
Common Stock (or Securities convertible into shares of Common Stock) without
the prior written consent of PaineWebber Incorporated.
"Look-Through Ownership Limitation" means the ownership of more than 15% of
any class of the Company's outstanding capital stock by mutual funds and
certain other entities.
"Management Agreements" means generally the agreements between the Lessees
and the Operators providing for the management by such Operators of the
Hotels.
"Metro Hotels" means Metro Joint Venture, d/b/a Metro Hotels, a Dallas-based
hotel company that manages the Holiday Inn Select North Dallas and the Embassy
Suites, Hunt Valley.
"Metro Lease Partners" means Metro Hotels Leasing Corporation, a Dallas-
based hotel company that leases the Embassy Suites, Hunt Valley.
"Minimum Net Worth" means the minimum net worth that CHC Lease Partners is
required to maintain under the Lease Master Agreement.
"NAREIT" means National Association of Real Estate Investment Trusts, Inc.
"Non-U.S. Shareholders" means nonresident alien individuals, foreign
corporations, foreign partnerships and foreign trusts and estates.
"NorthCoast" means NorthCoast Hotels L.L.C., a recently-formed company owned
by a consortium of investors including WestCoast Hotels and Sunmakers Travel
Group that leases the hotels in the WestCoast Portfolio and the Hyatt Regency,
Lexington from the Company.
"NorthCoast Master Agreement" means the agreement between the Operating
Partnership and NorthCoast which sets forth certain terms related to
NorthCoast's leasing of hotels from the Operating Partnership.
"NYSE" means the New York Stock Exchange, Inc.
"Offering" means the offering of the shares of Common Stock.
"OP Units" means units of limited partnership interest in the Operating
Partnership, including Preferred Units of limited partnership interest.
"Operating Partnership" means Patriot American Hospitality Partnership,
L.P., a limited partnership organized under the laws of the Commonwealth of
Virginia.
"Operators" means the hotel management entities that operate the Hotels
pursuant to the Management Agreements.
"Ownership Limitation" means the ownership of more than 9.8% of any class of
the Company's outstanding capital stock.
"PAH GP" means PAH GP, Inc., a Virginia corporation and wholly-owned
subsidiary of the Company, which is the sole general partner of the Operating
Partnership.
125
<PAGE>
"PAH LP" means PAH LP, Inc., a Virginia corporation and wholly-owned
subsidiary of the Company, which is a Limited Partner of the Operating
Partnership.
"Participating Leases" mean the operating leases between the Lessees and the
Operating Partnership pursuant to which the Lessees lease certain of the
Hotels from the Operating Partnership.
"Participating Rent" means rent based on percentages of room revenue, food
and beverage revenue and telephone and other revenue payable by the Lessees
pursuant to the Participating Leases.
"Partnership Agreement" means the partnership agreement relating to the
Operating Partnership, as amended and restated.
"Partnership Provisions" means the partnership provisions of the Code.
"Patriot American" means the Patriot American group of companies.
"Preferred Shares" means the shares of preferred stock of the Company, no
par value.
"Preferred OP Units" means the preferred OP Units issued in the Private
Placement.
"Private Placement" means the private placement of the Preferred OP Units
and shares of Common Stock to an institutional investor in May 1996.
"Redemption Rights" means, pursuant to the Partnership Agreement, the rights
of the Limited Partners, other than PAH LP, to cause the Operating Partnership
to redeem their OP Units in exchange for cash or, at the Company's election,
shares of Common Stock.
"REIT" means real estate investment trust as defined in section 856 of the
Code.
"Related Party Tenant" under the Code means, with respect to the Company, a
tenant of which the Company, or an owner of 10% or more of the Company,
directly or constructively owns 10% or more.
"Rents" means, collectively, Base Rent and Participating Rent.
"REVPAR" means room revenue per available room and is determined by dividing
room revenue by available rooms for the applicable period.
"Securities Act" means the Securities Act of 1933, as amended.
"Service" means the U.S. Internal Revenue Service.
"Special Tax Counsel" means Gardere & Wynne, L.L.P., special tax counsel to
the Company.
"Subsidiary Partnerships" means the partnerships owning the Radisson New
Orleans Hotel, the Bourbon Orleans Hotel, the Embassy Suites, Hunt Valley and
the Marriott Hotel, Troy, Michigan.
"Total market capitalization" means the sum of (i) the aggregate market
value of the outstanding Common Stock, assuming full redemption of OP Units in
the Operating Partnership into Common Stock, plus (ii) the total debt of the
Company.
"Treasury Regulations" means the final, temporary and proposed tax
regulations promulgated under the Code.
"UBTI" means unrelated business taxable income.
"VSCA" means the Virginia Stock Corporation Act.
126
<PAGE>
"WestCoast Hotels" means WestCoast Hotels, Inc., a hotel management company
based in Seattle, Washington that manages five of the six Hotels in the
WestCoast Portfolio.
"WestCoast Portfolio" means the six hotel portfolio consisting of the
WestCoast Plaza Park Suites Hotel, the WestCoast Roosevelt Hotel, the
WestCoast Gateway Hotel, the Hyatt Newporter Hotel, the WestCoast Long Beach
Hotel and Marina and the WestCoast Wenatchee Center Hotel.
"Wyndham" means Wyndham Hotel Corporation, a national hotel company based in
Dallas, Texas that manages the Wyndham Greenspoint Hotel and the Wyndham
Garden-Midtown.
"Wyndham Lessee" means Crow Hotel Lessee, Inc., an entity formed by members
of the Trammel Crow family.
"Wyndham Master Agreement" means the agreement between the Operating
Partnership and the Wyndham Lessee which sets forth certain terms related to
the Wyndham Lessee's leasing of hotels from the Operating Partnership.
127
<PAGE>
PATRIOT AMERICAN HOSPITALITY, INC.
INDEX TO FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
PATRIOT AMERICAN HOSPITALITY, INC.:
Pro Forma Condensed Consolidated Statement of Operations for the year
ended December 31, 1995 (unaudited).................................... F-3
Pro Forma Condensed Consolidated Statement of Operations for the twelve
months ended March 31,
1996 (unaudited)....................................................... F-5
Pro Forma Condensed Consolidated Statement of Operations for the three
months ended March 31, 1996 (unaudited)................................ F-7
Pro Forma Condensed Consolidated Balance Sheet as of March 31, 1996
(unaudited)............................................................ F-9
Report of Independent Auditors--Ernst & Young LLP....................... F-11
Consolidated Balance Sheets as of December 31, 1995 and March 31, 1996
(unaudited)............................................................ F-12
Consolidated Statements of Operations for the period October 2, 1995
(inception of operations) through December 31, 1995 and for the three
months ended March 31, 1996 (unaudited)................................ F-13
Consolidated Statements of Shareholders' Equity for the period October
2, 1995 (inception of operations) through December 31, 1995 and for the
three months ended March 31, 1996 (unaudited).......................... F-14
Consolidated Statements of Cash Flows for the period October 2, 1995
(inception of operations) through December 31, 1995 and for the three
months ended March 31, 1996 (unaudited)................................ F-15
Notes to Consolidated Financial Statements.............................. F-16
Financial Statement Schedules:
Schedule III--Real Estate and Accumulated Depreciation................ F-27
Notes to Schedule III................................................. F-28
Schedule IV--Mortgage Loans on Real Estate............................ F-29
LESSEES:
Pro Forma Condensed Combined Statement of Operations for the year ended
December 31, 1995 (unaudited).......................................... F-30
Pro Forma Condensed Combined Statement of Operations for the twelve
months ended March 31, 1996 (unaudited)................................ F-31
Pro Forma Condensed Combined Statement of Operations for the three
months ended March 31, 1996 (unaudited)................................ F-32
CHC LEASE PARTNERS:
Report of Independent Certified Public Accountants--Price Waterhouse
LLP.................................................................... F-33
Balance Sheets as of December 31, 1995 and March 31, 1996 (unaudited)... F-34
Statements of Operations for the period from inception (October 2, 1995)
to December 31, 1995 and for the three months ended March 31, 1996
(unaudited)............................................................ F-35
Statements of Partners' Capital for the period from inception (October
2, 1995) to December 31, 1995 and for the three months ended March 31,
1996 (unaudited)....................................................... F-36
Statements of Cash Flows for the period from inception (October 2, 1995)
to December 31, 1995 and for the three months ended March 31, 1996
(unaudited)............................................................ F-37
Notes to Financial Statements........................................... F-38
INITIAL HOTELS COMBINED FINANCIAL STATEMENTS:
Report of Independent Auditors--Ernst & Young LLP....................... F-42
Report of Independent Accountants--Coopers & Lybrand L.L.P. ............ F-43
Report of Independent Accountants--Coopers & Lybrand L.L.P. ............ F-44
Combined Balance Sheet as of December 31, 1994.......................... F-45
Combined Statements of Operations for the period from January 1, 1995 to
October 1, 1995 and for the years ended December 31, 1994 and 1993 and
for the three months ended March 31, 1995 (unaudited).................. F-46
Combined Statements of Partners' and Owners' Equity for the period from
January 1, 1995 to October 1, 1995 and for the years ended December 31,
1994 and 1993 ......................................................... F-47
Combined Statements of Cash Flows for the period from January 1, 1995 to
October 1, 1995 and the years ended December 31, 1994 and 1993 and for
the three months ended March 31, 1995 (unaudited) ..................... F-48
Notes to Combined Financial Statements.................................. F-49
TROY PARK ASSOCIATES:
Report of Independent Accountants--Coopers & Lybrand L.L.P. ............ F-57
Balance Sheet as of December 29, 1994................................... F-58
Statements of Operations and Partners' Equity for the period from
January 1, 1994 to December 29,
1994 and for the year ended December 31, 1993.......................... F-59
Statements of Cash Flows for the period from January 1, 1994 to December
29, 1994 and for the year ended December 31, 1993...................... F-60
Notes to Financial Statements........................................... F-61
</TABLE>
F-1
<PAGE>
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
BUCKHEAD HOSPITALITY JOINT VENTURE:
Report of Independent Auditors--Ernst & Young LLP...................... F-67
Balance Sheets as of December 31, 1995 and February 29, 1996 (unau-
dited)................................................................ F-68
Statements of Operations for the year ended December 31, 1995, the
three months ended March 31, 1995 (unaudited) and the period January
1, 1996 through February 29, 1996 (unaudited)......................... F-69
Statements of Venturers' Capital for the year ended December 31, 1995
and the period January 1, 1996 through February 29, 1996 (unaudited).. F-70
Statements of Cash Flows for the year ended December 31, 1995, the
three months ended March 31,
1995 (unaudited) and the period January 1, 1996 through February 29,
1996 (unaudited)...................................................... F-71
Notes to Financial Statements.......................................... F-72
Financial Statement Schedule:
Schedule III--Real Estate and Accumulated Depreciation............... F-76
Notes to Schedule III................................................ F-77
GATEWAY HOTEL LIMITED PARTNERSHIP AND WENATCHEE HOTEL LIMITED
PARTNERSHIP--COMBINED FINANCIAL STATEMENTS:
Report of Independent Auditors--Ernst & Young LLP...................... F-78
Combined Balance Sheets as of December 31, 1995 and March 31, 1996 (un-
audited).............................................................. F-79
Combined Statements of Operations for the year ended December 31, 1995,
and the three months ended March 31, 1995 and 1996 (unaudited)........ F-80
Combined Statements of Partners' Capital for the year ended December
31, 1995 and the three months ended March 31, 1996 (unaudited)........ F-81
Combined Statements of Cash Flows for the year ended December 31, 1995
and the three months ended March 31, 1995 and 1996 (unaudited)........ F-82
Notes to Combined Financial Statements................................. F-83
Financial Statement Schedule:
Schedule III--Real Estate and Accumulated Depreciation............... F-89
Notes to Schedule III................................................ F-90
NEWPORTER BEACH HOTEL INVESTMENTS, L.L.C.:
Report of Independent Accountants--Coopers & Lybrand L.L.P. ........... F-91
Balance Sheets as of December 31, 1995 and March 31, 1996 (unaudited).. F-92
Statements of Operations and Members' Equity for the period from March
10, 1995 through December 31, 1995 and the three months ended March
31, 1996 (unaudited).................................................. F-93
Statements of Cash Flows for the period from March 10, 1995 through De-
cember 31, 1995 and the three months ended March 31, 1996 (unaudited). F-94
Notes to Financial Statements.......................................... F-95
PLAZA PARK SUITES HOTEL:
Report of Independent Auditors--Ernst & Young LLP...................... F-100
Statements of Direct Revenue and Direct Operating Expenses for the year
ended December 31, 1995 and the three months ended March 31, 1995 and
1996 (unaudited)...................................................... F-101
Notes to Statements of Direct Revenue and Direct Operating Expenses.... F-102
ROOSEVELT HOTEL:
Report of Independent Auditors--Ernst & Young LLP...................... F-105
Statements of Direct Revenue and Direct Operating Expenses for the year
ended December 31, 1995 and the three months ended March 31, 1995 and
1996 (unaudited)...................................................... F-106
Notes to Statements of Direct Revenue and Direct Operating Expenses.... F-107
LEXINGTON HYATT REGENCY HOTEL:
Report of Independent Auditors--Ernst & Young LLP...................... F-110
Statements of Direct Revenue and Direct Operating Expenses for the year
ended December 31, 1995 and the three months ended March 31, 1995 and
1996 (unaudited)...................................................... F-111
Notes to Statements of Direct Revenue and Direct Operating Expenses.... F-112
WYNDHAM PORTFOLIO HOTELS:
Report of Independent Accountants--Coopers & Lybrand L.L.P. ........... F-116
Combined Balance Sheets as of December 31, 1995 and 1994 and March 31,
1996 (unaudited)...................................................... F-117
Combined Statements of Income for the years ended December 31, 1995 and
1994 and for the three months ended March 31, 1995 and 1996 (unau-
dited)................................................................ F-118
Combined Statements of Changes in Partners' Deficit for the years ended
December 31, 1995 and 1994 and the three months ended March 31, 1996
(unaudited)........................................................... F-119
Combined Statements of Cash Flows for the years ended December 31, 1995
and 1994 and the three months ended March 31, 1995 and 1996 (unau-
dited)................................................................ F-120
Notes to Combined Financial Statements................................. F-121
</TABLE>
F-2
<PAGE>
PATRIOT AMERICAN HOSPITALITY, INC.
PRO FORMA FINANCIAL STATEMENTS
The Company's unaudited Pro Forma Condensed Consolidated Statements of
Operations for the year ended December 31, 1995, the twelve months ended March
31, 1996 and the three months ended March 31, 1996 are presented as if the
Initial Offering, Formation Transactions, Recent Acquisitions, Private
Placement, and current Offering had occurred as of January 1, 1995 and carried
forward through each period presented. Such pro forma information is based in
part upon the Consolidated Statements of Operations of the Company, and the
Pro Forma Condensed Combined Statements of Operations of the Lessees. Such
information should be read in conjunction with the Financial Statements listed
in the Index at page F-1 of this Prospectus. In management's opinion, all
adjustments necessary to reflect the effects of these transactions have been
made.
The following unaudited Pro Forma Condensed Consolidated Statements of
Operations are not necessarily indicative of what actual results of operations
of the Company would have been assuming such transactions had been completed
as of the beginning of the periods presented, nor do they purport to represent
the results of operations for future periods. Further, the unaudited Pro Forma
Condensed Consolidated Statement of Operations for the interim period ended
March 31, 1996 is not necessarily indicative of the results of operations for
the full year.
PATRIOT AMERICAN HOSPITALITY, INC.
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1995
(UNAUDITED)
<TABLE>
<CAPTION>
PRO FORMA ADJUSTMENTS
-----------------------------------------------------------
COMPANY INITIAL RECENT PRIVATE COMPANY
HISTORICAL (A) OFFERING (B) ACQUISITIONS (C) PLACEMENT (D) OFFERING (E) PRO FORMA
-------------- ------------ ---------------- ------------- ------------ ---------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C>
Revenue:
Participating lease
revenue............... $10,582 $31,970 (F) $33,369 (F) $ -- $ -- $75,921
Interest and other
income................ 513 -- (460)(G) -- -- 53
------- ------- ------- ------- ------- -------
Total revenue.......... 11,095 31,970 32,909 -- -- 75,974
------- ------- ------- ------- ------- -------
Expenses:
Real estate and
personal property
taxes, and casualty
insurance............. 901 2,726 (H) 3,301 (H) -- -- 6,928
Ground lease expense... -- -- 1,351 (I) -- -- 1,351
General and
administrative........ 607 2,268 (J) 275 (J) -- -- 3,150
Interest expense....... 89 116 16,621 (K) (3,102)(K) (10,529)(K) 3,195
Depreciation and
amortization.......... 2,590 7,257 (L) 8,193 (L) -- -- 18,040
------- ------- ------- ------- ------- -------
Total expenses......... 4,187 12,367 29,741 (3,102) (10,529) 32,664
------- ------- ------- ------- ------- -------
Operating income....... 6,908 19,603 3,168 3,102 10,529 43,310
Equity in earnings of
unconsolidated
subsidiary............ 156 -- 3,418(M) -- -- 3,574
------- ------- ------- ------- ------- -------
Income before
extraordinary items
and minority
interest.............. 7,064 19,603 6,586 3,102 10,529 46,884
Minority interest...... (968) (2,685)(N) (1,734)(N) (1,339)(N) (119)(N) (6,845)
Extraordinary items,
net of minority
interest.............. (737) 737 (O) -- -- -- --
------- ------- ------- ------- ------- -------
Net income applicable
to common
shareholders.......... $ 5,359 $17,655 $ 4,852 $ 1,763 $10,410 $40,039
======= ======= ======= ======= ======= =======
Net income per common
share................. $ 0.37 $ 1.96
======= =======
Weighted average number
of shares
outstanding........... 14,675 20,479
======= =======
</TABLE>
F-3
<PAGE>
- --------
(A) Represents the Company's historical results of operations from the date of
the Initial Offering, October 2, 1995, through December 31, 1995.
Historical results of operations include revenue and expenses from the
date of acquisition for certain of the Recent Acquisitions (Embassy
Suites, Hunt Valley and Crowne Plaza Ravinia) which were acquired prior to
December 31, 1995.
(B) Represents adjustments to the Company's results of operations assuming the
Initial Offering and Formation Transactions occurred at the beginning of
the period presented.
(C) Represents adjustments to the Company's results of operations assuming the
Recent Acquisitions occurred at the beginning of the period presented.
(D) Represents adjustments to the Company's results of operations assuming the
Private Placement occurred at the beginning of the period presented.
(E) Represents adjustments to the Company's results of operations assuming the
Offering occurred at the beginning of the period presented.
(F) Represents lease payments from the Lessees to the Operating Partnership
calculated on a pro forma basis by applying the provisions of the
Participating Leases to the historical revenue of the Hotels for the
period presented.
(G) Represents the elimination of interest income earned on the proceeds from
the exercise of the underwriters' over-allotment in connection with the
Initial Offering.
(H) Represents real estate and personal property taxes, and casualty insurance
to be paid by the Operating Partnership.
(I) Represents ground lease payments with respect to certain of the Recent
Acquisitions.
(J) Represents salaries, insurance, travel, audit, legal and other expenses
associated with operating as a public company. Also includes annual
amortization of unearned management stock compensation computed on a
straight-line basis over the three-year vesting period.
(K) Represents adjustments to interest expense incurred on the portion of the
borrowings under the Line of Credit which were or are expected to be
repaid with proceeds from the Private Placement and Offering. The proceeds
from the Line of Credit were used, in part, to purchase the Recent
Acquisitions.
(L) Represents depreciation on the Hotels of $17,924 and amortization of $116.
Depreciation is computed using the straight-line method and is based upon
the estimated useful lives of 35 years for buildings and improvements and
5-7 years for furniture and equipment. These estimated useful lives are
based on management's knowledge of the properties and hotel industry in
general. Amortization of franchise fees is computed using the straight-
line method over the terms of the related franchise agreement.
(M) Represents equity in income of the unconsolidated subsidiary which owns
the Crowne Plaza Ravinia Hotel.
(N) Represents the adjustments to minority interest assuming the Initial
Offering, Recent Acquisitions, Private Placement and Offering occurred at
the beginning of the period presented. In connection with the Initial
Offering the minority interest percentage was 13.7%. Subsequent to the
Recent Acquisitions the minority percentage was 16.2%. Subsequent to the
Private Placement the minority interest percentage was 18.5%. Subsequent
to the Offering the minority interest percentage will be approximately
14.6%.
(O) In connection with the Initial Offering and Formation Transactions, the
Company incurred prepayment penalties and charged-off deferred financing
costs associated with mortgage notes which were repaid. These
extraordinary items have been eliminated for purposes of the pro forma
presentation.
F-4
<PAGE>
PATRIOT AMERICAN HOSPITALITY, INC.
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE TWELVE MONTHS ENDED MARCH 31, 1996
(UNAUDITED)
<TABLE>
<CAPTION>
PRO FORMA ADJUSTMENTS
-----------------------------------------------------------
COMPANY INITIAL RECENT PRIVATE COMPANY
HISTORICAL (A) OFFERING (B) ACQUISITIONS (C) PLACEMENT (D) OFFERING (E) PRO FORMA
-------------- ------------ ---------------- ------------- ------------ ---------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C>
Revenue:
Participating lease
revenue............... $22,953 $20,879 (F) $32,901 (F) $ -- $ -- $76,733
Interest and other
income................ 605 -- (473)(G) -- -- 132
------- ------- ------- ------- -------- -------
Total revenue......... 23,558 20,879 32,428 -- -- 76,865
------- ------- ------- ------- -------- -------
Expenses:
Real estate and
personal property
taxes, and casualty
insurance............. 1,983 1,795 (H) 3,217 (H) -- -- 6,995
Ground lease expense... 77 -- 1,285 (I) -- -- 1,362
General and
administrative........ 1,548 1,327 (J) 275 (J) -- -- 3,150
Interest expense....... 690 73 15,870 (K) (3,066)(K) (10,407)(K) 3,160
Depreciation and
amortization.......... 5,428 4,807 (L) 7,882 (L) -- -- 18,117
------- ------- ------- ------- -------- -------
Total expenses........ 9,726 8,002 28,529 (3,066) (10,407) 32,784
------- ------- ------- ------- -------- -------
Operating income...... 13,832 12,877 3,899 3,066 10,407 44,081
Equity in earnings of
unconsolidated
subsidiary............ 1,518 -- 2,394 (M) -- -- 3,912
------- ------- ------- ------- -------- -------
Income before
extraordinary items
and minority
interest............. 15,350 12,877 6,293 3,066 10,407 47,993
Minority interest...... (2,126) (1,741)(N) (1,725)(N) (1,361)(N) (54)(N) (7,007)
Extraordinary items,
net of minority
interest.............. (737) 737 (O) -- -- -- --
------- ------- ------- ------- -------- -------
Net income applicable
to common
shareholders......... $12,487 $11,873 $ 4,568 $ 1,705 $ 10,353 $40,986
======= ======= ======= ======= ======== =======
Net income per common share................................................................... $ 2.00
=======
Weighted average number of shares outstanding................................................. 20,479
=======
</TABLE>
- --------
(A) Represents the Company's historical results of operations from the date of
the Initial Offering, October 2, 1995, through March 31, 1996. Historical
results of operations include revenue and expenses from the date of
acquisition for certain of the Recent Acquisitions (Embassy Suites, Hunt
Valley and the Crowne Plaza Ravinia which were acquired prior to December
31, 1995, and the Tremont House Hotel, Holiday Inn Lenox and the Del Mar
Hilton which were acquired prior to March 31, 1996).
(B) Represents adjustments to the Company's results of operations assuming the
Initial Offering and Formation Transactions occurred at the beginning of
the period presented.
(C) Represents adjustments to the Company's results of operations assuming the
Recent Acquisitions occurred at the beginning of the period presented.
(D) Represents adjustments to the Company's results of operations assuming the
Private Placement occurred at the beginning of the period presented.
F-5
<PAGE>
(E) Represents adjustments to the Company's results of operations assuming the
Offering occurred at the beginning of the period presented.
(F) Represents lease payments from the Lessees to the Operating Partnership
calculated on a pro forma basis by applying the provisions of the
Participating Leases to the historical revenue of the Hotels for the
period presented.
(G) Represents the elimination of interest income earned on the proceeds from
the exercise of the underwriters' over-allotment in connection with the
Initial Offering.
(H) Represents real estate and personal property taxes, and casualty insurance
to be paid by the Operating Partnership.
(I) Represents ground lease payments with respect to certain of the Recent
Acquisitions.
(J) Represents salaries, insurance, travel, audit, legal and other expenses
associated with operating as a public company. Also includes annual
amortization of unearned management stock compensation computed on a
straight-line basis over the three-year vesting period.
(K) Represents adjustments to interest expense incurred on the portion of the
borrowings under the Line of Credit which were or are expected to be
repaid with proceeds from the Private Placement and Offering. The proceeds
from the Line of Credit were used, in part, to purchase the Recent
Acquisitions.
(L) Represents depreciation on the Hotels of $18,001 and amortization of $116.
Depreciation is computed using the straight-line method and is based upon
the estimated useful lives of 35 years for buildings and improvements and
5-7 years for furniture and equipment. These estimated useful lives are
based on management's knowledge of the properties and the hotel industry
in general. Amortization of franchise fees is computed using the straight-
line method over the terms of the related franchise agreement.
(M) Represents equity in income of the unconsolidated subsidiary which owns
the Crowne Plaza Ravinia Hotel.
(N) Represents the adjustments to minority interest assuming the Initial
Offering, Recent Acquisitions, Private Placement and Offering occurred at
the beginning of the period presented. In connection with the Initial
Offering the minority interest percentage was 13.7%. Subsequent to the
Recent Acquisitions the minority percentage was 16.2%. Subsequent to the
Private Placement the minority interest percentage was 18.5%. Subsequent
to the Offering the minority interest percentage will be approximately
14.6%.
(O) In connection with the Initial Offering and Formation Transactions, the
Company incurred prepayment penalties and charged-off deferred financing
costs associated with mortgage notes which were repaid. These
extraordinary items have been eliminated for purposes of the pro forma
presentation.
F-6
<PAGE>
PATRIOT AMERICAN HOSPITALITY, INC.
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 1996
(UNAUDITED)
<TABLE>
<CAPTION>
PRO FORMA ADJUSTMENTS
-------------------------------------------
COMPANY RECENT PRIVATE COMPANY
HISTORICAL (A) ACQUISITIONS (B) PLACEMENT(C) OFFERING (D) PRO FORMA
-------------- ---------------- ------------ ------------ ---------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C>
Revenue:
Participating lease
revenue............... $12,371 $7,612 (E) $ -- $ -- $19,983
Interest and other
income................ 92 -- -- -- 92
------- ------ ----- ------ -------
Total revenue......... 12,463 7,612 -- -- 20,075
------- ------ ----- ------ -------
Expenses:
Real estate and
personal property
taxes, and casualty
insurance............. 1,082 759 (F) -- -- 1,841
Ground lease expense... 77 255 (G) -- -- 332
General and
administrative........ 941 69 (H) -- -- 1,010
Interest expense....... 601 3,446 (I) (744)(I) (2,527)(I) 776
Depreciation and
amortization.......... 2,838 1,691 (J) -- -- 4,529
------- ------ ----- ------ -------
Total expenses........ 5,539 6,220 (744) (2,527) 8,488
------- ------ ----- ------ -------
Operating income...... 6,924 1,392 744 2,527 11,587
Equity in earnings of
unconsolidated
subsidiary............ 1,362 (K) -- -- -- 1,362
------- ------ ----- ------ -------
Income before minority
interest............. 8,286 1,392 744 2,527 12,949
Minority interest...... (1,158) (411)(L) (360)(L) 38 (L) (1,891)
------- ------ ----- ------ -------
Net income applicable
to common
shareholders......... $ 7,128 $ 981 $ 384 $2,565 $11,058
======= ====== ===== ====== =======
Net income per common
share................ $ 0.48 $ 0.54
======= =======
Weighted average
number of shares
outstanding.......... 14,734 20,479
======= =======
</TABLE>
- --------
(A) Represents the Company's historical results of operations for the three
months ended March 31, 1996. Historical results of operations include
revenue and expenses for certain of the Recent Acquisitions (Embassy
Suites, Hunt Valley and the Crowne Plaza Ravinia which were acquired prior
to December 31, 1995, and the Tremont House Hotel, Holiday Inn Lenox and
the Del Mar Hilton which were acquired prior to March 31, 1996).
(B) Represents adjustments to the Company's results of operations assuming the
Recent Acquisitions occurred at the beginning of the period presented.
(C) Represents adjustments to the Company's results of operations assuming the
Private Placement occurred at the beginning of the period presented.
(D) Represents adjustments to the Company's results of operations assuming the
Offering occurred at the beginning of the period presented.
(E) Represents lease payments from the Lessees to the Operating Partnership
calculated on a pro forma basis by applying the provisions of the
Participating Leases to the historical revenue of the Hotels for the
period presented.
F-7
<PAGE>
(F) Represents real estate and personal property taxes, and casualty insurance
to be paid by the Operating Partnership.
(G) Represents ground lease payments with respect to certain of the Recent
Acquisitions.
(H) Represents salaries, insurance, travel, audit, legal and other expenses
associated with operating as a public company. Also includes annual
amortization of unearned management stock compensation computed on a
straight-line basis over the three year vesting period.
(I) Represents adjustments to interest expense incurred on the portion of the
borrowings under the Line of Credit, which were or are expected to be
repaid with proceeds from the Private Placement and Offering. The proceeds
from the Line of Credit were used, in part, to purchase the Recent
Acquisitions.
(J) Represents depreciation on the Hotels of $4,500 and amortization of $29.
Depreciation is computed using the straight-line method and is based upon
the estimated useful lives of 35 years for buildings and improvements and
5-7 years for furniture and equipment. These estimated useful lives are
based on management's knowledge of the properties and the hotel industry
in general. Amortization of franchise fees is computed using the straight-
line method over the terms of the related franchise agreement.
(K) Represents equity in income of the unconsolidated subsidiary which owns
the Crowne Plaza Ravinia Hotel.
(L) Represents the adjustments to minority interest assuming the Initial
Offering, Recent Acquisitions, Private Placement and Offering occurred at
the beginning of the period presented. In connection with the Initial
Offering the minority interest percentage was 13.7%. Subsequent to the
Recent Acquisitions the minority percentage was 16.2%. Subsequent to the
Private Placement the minority interest percentage was 18.5%. Subsequent
to the Offering the minority interest percentage will be approximately
14.6%.
F-8
<PAGE>
PATRIOT AMERICAN HOSPITALITY, INC.
PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
AS OF MARCH 31, 1996
(UNAUDITED)
The unaudited Pro Forma Condensed Consolidated Balance Sheet is presented as
if the acquisition of the Recent Acquisitions completed after March 31, 1996
and the application of the proceeds of the current Offering and the Private
Placement had occurred on March 31, 1996. Such information is based on the
consolidated balance sheet of the Company and should be read in conjunction
with the Consolidated Financial Statements of the Company listed in the Index
at page F-1 of this Prospectus. In management's opinion, all adjustments
necessary to reflect the effects of these transactions have been made.
The following unaudited Pro Forma Condensed Balance Sheet is not necessarily
indicative of what the actual financial position would have been assuming such
transactions had been completed as of March 31, 1996, nor does it purport to
represent the future financial position of the Company.
<TABLE>
<CAPTION>
COMPANY COMPANY
HISTORICAL(A) ADJUSTMENTS PRO FORMA
------------- ----------- ---------
(IN THOUSANDS)
ASSETS
<S> <C> <C> <C>
Net investments in hotel properties...... $306,552 $172,599 (B) $479,151
Cash and cash equivalents................ 8,098 (764)(C) 7,334
Receivables.............................. 3,768 -- 3,768
Inventory................................ 1,219 609 (D) 1,828
Investment in unconsolidated subsidiary.. 4,561 -- 4,561
Notes and other receivables from uncon-
solidated subsidiary.................... 40,866 -- 40,866
Deferred expenses, net................... 1,825 350 (E) 2,175
Prepaid expenses and other .............. 2,689 (818)(F) 1,871
-------- -------- --------
Total assets............................ $369,578 $171,976 $541,554
======== ======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Line of credit and mortgage debt......... $ 50,250 $(12,973)(G) $ 37,277
Dividends and distributions payable...... 8,235 -- 8,235
Accounts payable and accrued expense..... 3,881 2,515 (H) 6,396
Minority interest........................ 45,485 27,252 (I) 72,737
Shareholders' equity:
Common stock............................ -- -- --
Additional paid-in capital.............. 264,503 155,182 (J) 419,685
Unearned executive compensation......... (1,185) -- (1,185)
Distributions in excess of earnings..... (1,591) -- (1,591)
-------- -------- --------
Total shareholders' equity.............. 261,727 155,182 416,909
-------- -------- --------
Total liabilities and shareholders' eq-
uity................................... $369,578 $171,976 $541,554
======== ======== ========
</TABLE>
- --------
(A) Reflects the Company's historical consolidated balance sheet at March 31,
1996, which includes certain of the Recent Acquisitions (Embassy Suites,
Hunt Valley, Crowne Plaza Ravinia, Tremont House Hotel, Holiday Inn Lenox
and the Del Mar Hilton) which were acquired prior to March 31, 1996.
(B) Reflects the acquisitions of the West Coast Portfolio in April 1996 for
cash of $73,630, $8,800 in OP Units and $2,000 of a deferred purchase
obligation. Also reflects the acquisition of the Hyatt Regency, Lexington
in May 1996 for $14,320 in cash, the acquisition of the Doubletree
Denver/Boulder Hotel in June 1996 for $12,520 in cash, and the acquisition
of the Wyndham Greenspoint and Wyndham Garden-Midtown for $60,960 and $500
in value of OP Units. Also reflects the capitalization of prepaid
acquisition costs of $818, net of escrows of $340. An estimated $609 of
the aggregate purchase price has been allocated to inventory.
F-9
<PAGE>
(C) Represents the following proposed transactions:
<TABLE>
<S> <C>
Proceeds of the Offering......................................... $ 144,375
Expenses of the Offering......................................... (10,641)
Proceeds of the Private Placement................................ 40,000
Expenses of the Private Placement................................ (600)
Repayment of outstanding indebtedness under the Line of Credit,
including amounts incurred subsequent to the balance sheet date
for certain of the Recent Acquisitions.......................... (172,784)
Payment of acquisition-related costs for certain hotels.......... (764)
Payment of loan costs associated with the modification of the
Line of Credit.................................................. (350)
---------
$ (764)
=========
</TABLE>
(D) Increase reflects inventory which is being purchased by the Company in
connection with the acquisition of certain hotels.
(E) Increase reflects the capitalization of loan costs associated with the
modification of the Line of Credit.
(F) Decrease represents the capitalization of prepaid acquisition costs to
investment in hotel properties.
(G) Decrease represents the following proposed transactions:
<TABLE>
<S> <C>
Indebtedness incurred subsequent to the balance sheet date to ac-
quire certain of the Recent Acquisitions, including mortgage debt
of $22 million related to the Wyndham Greenspoint Hotel.......... $159,811
Repayment of a portion of the Line of Credit with proceeds of the
Offering and Private Placement................................... (172,784)
--------
$(12,973)
========
</TABLE>
(H) Increase represents the following transactions:
<TABLE>
<S> <C>
Accrual of deferred purchase obligation in connection with the
acquisition of certain hotels...................................... $ 2,000
Accrual of certain liabilities assumed in connection with the
acquisition of certain hotels...................................... 515
-------
$ 2,515
=======
</TABLE>
(I) Represents the following transactions:
<TABLE>
<S> <C>
Proceeds of the sale of OP Units in the Private Placement........ $ 18,133
Expenses of the Private Placement related to the sale of OP
Units........................................................... (181)
Issuance of OP Units to acquire certain hotels................... 9,300
--------
$ 27,252
========
(J) Represents the following transactions:
Proceeds of the Offering......................................... $144,375
Payment of Offering expenses by the Company...................... (10,641)
Proceeds of the sale of shares in the Private Placement.......... 21,867
Expenses of the Private Placement related to the sales of shares. (419)
--------
$155,182
========
</TABLE>
F-10
<PAGE>
REPORT OF INDEPENDENT AUDITORS
To the Board of Directors and Shareholders of Patriot American Hospitality,
Inc.:
We have audited the accompanying consolidated balance sheet of Patriot
American Hospitality, Inc. as of December 31, 1995, and the related
consolidated statements of operations, shareholders' equity, and cash flows
for the period October 2, 1995 (inception of operations) through December 31,
1995. Our audit also included the financial statement schedules listed in the
Index at Item 35(a). These consolidated financial statements and schedules are
the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements and schedules based on our
audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Patriot
American Hospitality, Inc. as of December 31, 1995, and the consolidated
results of its operations and its cash flows for the period October 2, 1995
(inception of operations) through December 31, 1995, in conformity with
generally accepted accounting principles. Also, in our opinion, the related
financial statement schedules, when considered in relation to the basic
financial statements taken as a whole, present fairly in all material respects
the information set forth therein.
Ernst & Young LLP
Dallas, Texas
January 31, 1996, except for Note 13,
as to which the date is March 4, 1996
F-11
<PAGE>
PATRIOT AMERICAN HOSPITALITY, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
1995 1996
------------ -----------
(UNAUDITED)
<S> <C> <C>
ASSETS
Investment in hotel properties, net................... $265,759 $306,552
Cash and cash equivalents (including capital improve-
ment reserves of $1,091 in 1995 and $1,806 in 1996).. 4,769 8,098
Lease revenue receivable.............................. 2,260 2,279
Receivables from selling entities..................... 1,765 1,489
Investment in unconsolidated subsidiary............... 4,263 4,561
Mortgage notes and other receivables from unconsoli-
dated subsidiary..................................... 40,855 40,866
Inventory............................................. 1,035 1,219
Deferred expenses, net of accumulated amortization of
$88 in 1995 and $184 in 1996......................... 1,852 1,825
Prepaid expenses and other assets..................... 1,666 2,689
-------- --------
Total assets...................................... $324,224 $369,578
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Borrowings under line of credit....................... $ 9,500 $ 50,250
Dividends and distributions payable................... 8,154 8,235
Accounts payable and accrued expenses................. 3,179 1,782
Due to unconsolidated subsidiary...................... 91 2,099
Minority interest in Operating Partnership............ 41,522 45,485
Commitments and contingencies......................... -- --
Shareholders' equity:
Preferred stock, no par value, 20,000,000 shares au-
thorized, no shares issued and outstanding......... -- --
Common stock, no par value, 200,000,000 shares au-
thorized, 14,665,935 shares issued and outstanding. -- --
Paid-in capital..................................... 264,808 264,503
Unearned executive compensation, net of accumulated
amortization of $71 in 1995 and $237 in 1996....... (1,351) (1,185)
Distributions in excess of earnings................. (1,679) (1,591)
-------- --------
Total shareholders' equity........................ 261,778 261,727
-------- --------
Total liabilities and shareholders' equity........ $324,224 $369,578
======== ========
</TABLE>
See accompanying notes.
F-12
<PAGE>
PATRIOT AMERICAN HOSPITALITY, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
PERIOD
OCTOBER 2, 1995
(INCEPTION OF THREE
OPERATIONS) MONTHS
THROUGH ENDED
DECEMBER 31, MARCH 31,
1995 1996
--------------- -----------
(UNAUDITED)
<S> <C> <C>
Revenue:
Participating lease revenue...................... $10,582 $12,371
Interest and other income........................ 513 92
------- -------
Total revenue.................................. 11,095 12,463
------- -------
Expenses:
Real estate and personal property taxes and casu-
alty insurance.................................. 901 1,082
Ground lease expense............................. -- 77
General and administrative....................... 607 941
Interest expense................................. 89 601
Depreciation and amortization.................... 2,590 2,838
------- -------
Total expenses................................. 4,187 5,539
------- -------
Income before equity in earnings of unconsolidated
subsidiary, minority interest and extraordinary
items............................................. 6,908 6,924
Equity in earnings of unconsolidated subsidiary.. 156 1,362
------- -------
Income before minority interest and extraordinary
items............................................. 7,064 8,286
Minority interest in Operating Partnership....... (968) (1,158)
------- -------
Income before extraordinary items.................. 6,096 7,128
Extraordinary loss from early extinguishment of
debt, net of minority interest.................. (737) --
------- -------
Net income applicable to common shareholders....... $ 5,359 $ 7,128
======= =======
Net income per common share:
Income before extraordinary items................ $ 0.42 $ 0.48
Extraordinary items.............................. (0.05) --
------- -------
Net income applicable to common shareholders..... $ 0.37 $ 0.48
======= =======
Weighted average number of common shares and common
share equivalents outstanding..................... 14,675 14,734
======= =======
</TABLE>
See accompanying notes.
F-13
<PAGE>
PATRIOT AMERICAN HOSPITALITY, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
UNEARNED DISTRIBUTIONS
NUMBER OF PAID-IN EXECUTIVE IN EXCESS
SHARES CAPITAL COMPENSATION OF EARNINGS TOTAL
---------- -------- ------------ ------------- --------
<S> <C> <C> <C> <C> <C>
Issuance of common
stock, net of offering
expenses............... 14,605,000 $313,170 $ -- $ -- $313,170
Acquisition of interests
from affiliates........ -- (19,357) -- -- (19,357)
Predecessor basis of
interests acquired from
affiliates............. -- 1,840 -- -- 1,840
Issuance of OP Units to
non-affiliates......... -- 9,363 -- -- 9,363
Minority interest at
closing of Offering.... -- (41,670) -- -- (41,670)
Issuance of shares to
executive officers..... 59,375 1,425 (1,422) -- 3
Issuance of shares to
directors.............. 1,560 37 -- -- 37
Net income.............. -- -- -- 5,359 5,359
Amortization of unearned
executive compensation. -- -- 71 -- 71
Dividends declared,
$0.48 per share........ -- -- -- (7,038) (7,038)
---------- -------- ------- ------- --------
Balance, December 31,
1995................... 14,665,935 $264,808 $(1,351) $(1,679) $261,778
Initial public offering
issuance costs
(unaudited)............ -- (305) -- -- (305)
Net income (unaudited).. -- -- -- 7,128 7,128
Amortization of unearned
executive compensation
(unaudited)............ -- -- 166 -- 166
Dividends declared,
$0.48 per share
(unaudited)............ -- -- -- (7,040) (7,040)
---------- -------- ------- ------- --------
Balance, March 31, 1996
(unaudited)............ 14,665,935 $264,503 $(1,185) $(1,591) $261,727
========== ======== ======= ======= ========
</TABLE>
See accompanying notes.
F-14
<PAGE>
PATRIOT AMERICAN HOSPITALITY, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
PERIOD
OCTOBER 2,
1995
(INCEPTION OF
OPERATIONS) THREE MONTHS
THROUGH ENDED
DECEMBER 31, MARCH 31,
1995 1996
------------- ------------
(UNAUDITED)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income.................................... $ 5,359 $ 7,128
Adjustments to reconcile net income to net cash provided by
operating
activities:
Depreciation................................ 2,529 2,808
Amortization of unearned executive
compensation............................... 71 166
Amortization of deferred loan costs......... 27 43
Other amortization.......................... 61 53
Payment of interest on notes receivable from
unconsolidated subsidiary.................. -- 1,064
Equity in earnings of unconsolidated
subsidiary................................. (156) (1,362)
Minority interest in income of Operating
Partnership................................ 968 1,158
Extraordinary items......................... 737 --
Changes in assets and liabilities:
Lease revenue receivable.................... (2,260) (19)
Mortgage notes and other receivables from
unconsolidated subsidiary.................. -- (12)
Deferred expenses........................... (292) --
Prepaid expenses and other assets........... (589) (361)
Accounts payable and other accrued expenses. 1,163 (1,664)
--------- --------
Net cash provided by operating activities. 7,618 9,002
--------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of hotel properties and related
working capital assets....................... (260,665) (38,550)
Improvements and additions to hotel
properties................................... (609) (1,198)
Collection of receivables from selling
entities..................................... -- 354
Prepaid acquisition costs..................... (598) (503)
Investment in mortgage notes receivable from
unconsolidated subsidiary.................... (40,500) --
Advances (to) from unconsolidated subsidiary.. (87) 2,009
Investment in unconsolidated subsidiary....... (4,238) --
Investment in other note receivable........... (101) --
Principal payment received on other note
receivable................................... -- 50
Payment of organization costs................. (150) --
--------- --------
Net cash used in investing activities..... (306,948) (37,838)
--------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from sale of common stock, net of
initial public offering costs................ 314,013 (305)
Borrowings under line of credit............... 9,500 40,750
Payments to acquire interests of affiliates in
the Initial Hotels........................... (18,879) --
Payment of deferred loan costs................ (361) (68)
Prepayment penalties on assumed mortgage
loans........................................ (174) --
Payment of other prepaid expenses............. -- (58)
Dividends and distributions paid.............. -- (8,154)
--------- --------
Net cash provided by financing activities. 304,099 32,165
--------- --------
Net increase in cash and cash equivalents....... 4,769 3,329
Cash and cash equivalents at beginning of
period......................................... -- 4,769
--------- --------
Cash and cash equivalents at end of period...... $ 4,769 $ 8,098
========= ========
Supplemental disclosure of cash flow
information:
Cash paid during the period for interest...... $ -- $ 620
========= ========
</TABLE>
See accompanying notes.
F-15
<PAGE>
PATRIOT AMERICAN HOSPITALITY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
(AMOUNTS AND DISCLOSURES AS OF MARCH 31, 1996 AND FOR THE PERIOD THEN ENDED
ARE UNAUDITED)
1. ORGANIZATION:
Patriot American Hospitality, Inc. (collectively with its subsidiaries, the
"Company"), a Virginia corporation, was formed April 17, 1995 as a self-
administered real estate investment trust ("REIT") for the purpose of
acquiring equity interests in hotel properties. On October 2, 1995, the
Company completed an initial public offering (the "Initial Offering") of
14,605,000 shares of its common stock (including 1,905,000 shares of common
stock issued upon exercise of the underwriters' over-allotment option) and
commenced operations. The offering price of all shares sold was $24.00 per
share, resulting in net proceeds (less the underwriters' discount and Initial
Offering expenses) of approximately $313,170.
Upon completion of the Initial Offering, the Company, through its wholly-
owned subsidiary, PAH LP, Inc., contributed substantially all of the net
proceeds of the Initial Offering to Patriot American Hospitality Partnership,
L.P. (the "Operating Partnership") in exchange for an approximately 85.3%
limited partnership interest in the Operating Partnership. The Company,
through its wholly-owned subsidiary, PAH GP, Inc., is the sole general partner
and the holder of a 1.0% general partnership interest in the Operating
Partnership.
The Operating Partnership used approximately $263,600 of the net proceeds of
the Initial Offering to acquire ownership interests in 20 hotels (the "Initial
Hotels") from various entities (the "Selling Entities") and to repay existing
mortgage and other indebtedness of the Initial Hotels. The remaining Initial
Offering proceeds were used to finance acquisitions of two additional hotel
investments, provide for renovations to existing hotels and for general
working capital. In consideration for the sale of the Initial Hotels, certain
owners in the Selling Entities, including affiliates of the Company, elected
to receive limited partnership units in the Operating Partnership. The
2,324,312 limited partnership units in the Operating Partnership ("OP units")
received by such owners represented an approximate 13.7% equity interest in
the Operating Partnership.
During the first quarter of 1996, the Company acquired three additional
hotel properties, utilizing approximately $32,500 in cash drawn on its Line of
Credit and issuing 167,012 OP Units in connection with the purchases. At March
31, 1996, the Operating Partnership owned interests in 25 hotels and the
Company owned an approximate 85.5% interest in the Operating Partnership.
The Company leases each of its hotels, except the Crowne Plaza Ravinia
Hotel, which is owned through a special purpose corporation, to lessees that
are independent of the Company. The Company leases 23 of its hotel investments
to CHC Lease Partners for staggered terms of ten to twelve years pursuant to
separate participating leases providing for the payment of the greater of base
rent or participating rent, plus certain additional charges as applicable (the
"Participating Leases"). One of the Company's hotels is leased under a similar
Participating Lease agreement to Metro Hotels Leasing Corporation ("Metro
Lease Partners" and herein collectively with CHC Lease Partners, the
"Lessees"). The Crowne Plaza Ravinia Hotel acquisition was structured without
a lessee.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Principles of Consolidation
The consolidated financial statements include the accounts of the Company,
its wholly-owned subsidiaries, PAH GP, Inc. and PAH LP, Inc., and the
Operating Partnership. All significant intercompany accounts and transactions
have been eliminated.
F-16
<PAGE>
PATRIOT AMERICAN HOSPITALITY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE)
Investment in Hotel Properties
The hotel properties are stated at cost. Depreciation is computed using the
straight-line method based upon estimated useful lives of the assets of 35
years for the buildings and improvements and 5 to 7 years for furniture,
fixtures and equipment.
The acquisition of affiliated interests in the Initial Hotels has been
recorded at predecessor cost. Cash payments to acquire the interests of
predecessor owners who are deemed to be affiliates of the Company have been
reflected as a reduction of shareholders' equity in the accompanying
consolidated financial statements.
In accordance with Statement of Financial Accounting Standards No. 121,
Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets
to be Disposed Of, the Company would record impairment losses on long-lived
assets used in operations when events and circumstances indicate that the
assets might be impaired and the undiscounted cash flows estimated to be
generated by those assets are less than the carrying amounts of those assets.
No such impairment losses have been recognized to date.
Repairs and maintenance of hotel properties owned by the Company are paid by
the Lessees. Major renewals and betterments are capitalized.
Cash and Cash Equivalents
All highly liquid investments with an original maturity date of three months
or less when purchased are considered to be cash equivalents.
Investment in Unconsolidated Subsidiary
The Company's investment in PAH Ravinia, Inc. ("PAH Ravinia"), the entity
which owns the Crowne Plaza Ravinia Hotel, is accounted for using the equity
method of accounting. The Company owns an approximately 99% non-voting
interest. The voting interests are owned by a partnership in which the Company
has a 4% interest. The Company's share of the net income of PAH Ravinia is
included in the Company's consolidated statements of operations.
Inventory
Inventory consists of food, beverages, china, linen, glassware and
silverware and is stated at cost (see Note 6).
Deferred Expenses
Deferred expenses consist of organization costs, franchise fees, leasing
costs, and loan costs. Amortization of organization costs is computed using
the straight-line method over five years. Franchise costs are amortized using
the straight-line method over the terms of the related franchise agreements.
Leasing costs are amortized to participating lease revenue over the lives of
the leases. Loan costs related to the Company's line of credit are amortized
to interest expense on a straight-line basis over the three-year term of the
loan.
Prepaid Expenses and Other Assets
Prepaid expenses and other assets consist of prepaid insurance, property
taxes and deposits and pre-acquisition costs associated with hotels under
purchase consideration. Other assets includes a promissory note receivable
from Metro Lease Partners related to its initial capitalization. Monthly
payments of interest only at a rate of 10% per annum are due until maturity on
November 15, 1998. The balance of the note receivable was $101 at December 31,
1995, and $51 at March 31, 1996.
F-17
<PAGE>
PATRIOT AMERICAN HOSPITALITY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE)
Revenue Recognition
The Operating Partnership leases its hotel properties to the Lessees
pursuant to separate Participating Leases. Lease income is recognized when
earned from the Lessees under the Participating Leases.
Earnings per Share
Earnings per share is computed based upon the weighted average number of
shares of common stock and dilutive common stock equivalents outstanding
during the period presented. The per share computations include options to
purchase common stock which were outstanding during the period. The number of
shares outstanding related to the options has been calculated by application
of the "treasury stock" method.
Dividends
The Company intends to pay regular quarterly dividends in order to maintain
its REIT status under the Internal Revenue Code. Payment of such dividends is
dependent upon receipt of distributions from the Operating Partnership.
Stock Compensation
The Financial Accounting Standards Board recently issued Statement 123,
Accounting for Stock-Based Compensation. This Statement, which is effective
beginning in 1996, provides the alternative of adopting Statement 123 or
remaining under the existing requirements of APB 25. The Company has elected
to continue to account for its stock compensation arrangements under the
provisions of APB 25, Accounting for Stock Issued to Employees.
Income Taxes
The Company intends to qualify to be taxed as a REIT under Sections 856
through 860 of the Internal Revenue Code effective with its taxable period
ended December 31, 1995. Under the Internal Revenue Code, if certain
requirements are met in a taxable year, a corporation that is treated as a
REIT will generally not be subject to federal income tax with respect to
income which it distributes to its shareholders. The Company has declared
dividends in excess of its taxable income for 1995, and such dividends were
paid in January 1996. Accordingly, no provision for income taxes has been
reflected in the 1995 consolidated statement of operations. For federal income
tax purposes, 1995 dividends amounted to $0.48 per share, of which 26% is
considered a return of capital.
Earnings and profits which determine the taxability of dividends to
shareholders, differ from net income reported for financial reporting purposes
due to differences for federal tax purposes in the estimated useful lives used
to compute depreciation and the carrying value (basis) of the investment in
hotel properties. Additionally, certain costs associated with the Initial
Offering are treated differently for federal tax purposes than for financial
reporting purposes.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
Concentrations
The Company invests exclusively in hotel properties. The hotel industry is
highly competitive and the Company's hotel investments are subject to
competition from other hotels for guests. Each of the Company's
F-18
<PAGE>
PATRIOT AMERICAN HOSPITALITY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
hotels competes for guests primarily with other similar hotels in its
immediate vicinity and other similar hotels in its geographic market. The
Company believes that brand recognition, location, the quality of the hotel
and services provided, and price are the principal competitive factors
affecting its hotel investments.
In 1995, the Company earned rents under the Participating Leases of $10,582,
(net of leasing cost amortization of $23), of which all but $150 was earned
from the Participating Leases with CHC Lease Partners. In addition, 94% of
future minimum rent amounts due under leases outstanding at December 31, 1995
relate to the Participating Leases with CHC Lease Partners. The Company must
rely on the Lessees to generate sufficient cash flow from operation of the
hotels to enable the Lessees to meet rent obligations under the Participating
Leases.
At December 31, 1995, the Company had cash balances with banks in excess of
the Federal Deposit Insurance Corporation's insured limits totaling $4,666.
Seasonality
The hotel industry is seasonal in nature. Revenues at certain of the Hotels
are greater in the first and second quarters of a calendar year and at other
of the Hotels in the second and third quarters of a calendar year. Seasonal
variations in revenues at the Company's hotels may cause quarterly
fluctuations in the Company's lease revenues.
Interim Unaudited Financial Information
The consolidated financial statements as of and for the three months ended
March 31, 1996 are unaudited; however, in the opinion of management, all
adjustments (consisting solely of normal recurring accruals) considered
necessary for a fair presentation have been included. Operating results for
the three-month period ended March 31, 1996 are not necessarily indicative of
the results that may be expected for a full year.
Reclassifications
Certain prior year amounts have been reclassified to conform to current year
presentation.
3. INVESTMENT IN HOTEL PROPERTIES:
On October 2, 1995, the Company, through the Operating Partnership, used
approximately $263,600 of the net proceeds of the Initial Offering and $47,685
in OP Units (including $38,322 in OP units paid to affiliates) to acquire the
20 Initial Hotels (including certain working capital assets) and repay
existing mortgage and other indebtedness of the Initial Hotels. In connection
with the assumption and repayment of mortgage indebtedness on certain of these
properties, the Company assumed $680 in unamortized deferred financing costs
which were written off upon repayment of the debt, and paid $174 in mortgage
prepayment penalties. These amounts have been reported as extraordinary items
in the accompanying financial statements for the period ended December 31,
1995. At December 31, 1995 and March 31, 1996, the Company has aggregate
receivables of $1,765 and $1,489, respectively, from the Selling Entities
which represents amounts due to the Company relating to the final proration of
current assets acquired in connection with the acquisition of the Initial
Hotels.
On November 15, 1995, the Company, through the Operating Partnership,
completed the acquisition of the Embassy Suites Hotel in Hunt Valley, Maryland
for cash (including closing costs) of approximately $15,951. The purchase was
funded with a portion of the remaining net proceeds from the Company's Initial
Offering.
On January 16, 1996, the Company acquired the 288-room Tremont House Hotel
in Boston, Massachusetts for a purchase price (including closing costs) of
approximately $16,397. The purchase was financed primarily
F-19
<PAGE>
PATRIOT AMERICAN HOSPITALITY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE)
with funds drawn on the Line of Credit. The hotel is leased to CHC Lease
Partners for a period of 11 years pursuant to a Participating Lease.
On March 4, 1996, the Company acquired the 297-room Holiday Inn Lenox in
Atlanta, Georgia for approximately $7,279 in cash plus 167,012 OP Units
(valued at approximately $4,000 based upon the market price of the Company's
common stock on the date of contract). The hotel is subject to a 73-year
ground lease. The cash portion of the purchase price was financed with funds
drawn on the Line of Credit. The hotel is leased to CHC Lease Partners for a
period of 12 years pursuant to a Participating Lease.
On March 27, 1996, the Company also acquired the 245-room Del Mar Hilton
Hotel in San Diego, California for a purchase price (including closing costs)
of approximately $14,872. The purchase was financed primarily with funds drawn
on the Line of Credit. The hotel is leased to CHC Lease Partners for a period
of 11 years pursuant to a Participating Lease.
As of December 31, 1995, the Company, through the Operating Partnership,
owned 21 hotel properties aggregating 4,429 guest rooms. As of March 31, 1996,
the Company, through the Operating Partnership, owns 24 hotel properties
aggregating 5,259 guest rooms. Two properties are located in Florida (261
rooms), two in Georgia (547 rooms), two in Louisiana (970 rooms), one in
Maryland (223 rooms), one in Massachusetts (288 rooms), two in Michigan (506
rooms), one in New York (113 rooms), three in Ohio (412 rooms), one in
California (245 rooms) and nine in Texas (1,694 rooms). In addition, the
Company owns a 99% interest, through an unconsolidated subsidiary, in a 495-
room hotel property located in Georgia (see Note 4).
Investment in hotel properties consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
1995 1996
------------ -----------
(UNAUDITED)
<S> <C> <C>
Land................................................... $ 23,893 $ 27,569
Building and improvements.............................. 218,239 254,249
Furniture, fixtures and equipment...................... 26,156 30,071
-------- --------
268,288 311,889
Less accumulated depreciation.......................... (2,529) (5,337)
-------- --------
$265,759 $306,552
======== ========
</TABLE>
4. INVESTMENT IN AND MORTGAGE NOTES RECEIVABLE FROM UNCONSOLIDATED SUBSIDIARY:
On December 1, 1995, the Company, through the Operating Partnership,
acquired an approximate 99% ownership interest in PAH Ravinia, a Virginia
corporation, for $4,458. PAH Ravinia acquired the 495-room Crowne Plaza
Ravinia Hotel in Atlanta, Georgia (the "Crowne Plaza Ravinia").
As part of the financing for the acquisition of the Crowne Plaza Ravinia,
the Company, through the Operating Partnership, advanced $40,500 to PAH
Ravinia, which is evidenced by two mortgage notes consisting of a $36,000
first mortgage note and a $4,500 second mortgage note. The principal amount of
both notes is due and payable on November 28, 1998. Interest at an annual rate
equal to 10.25% and 12.5% on the first and second mortgage notes,
respectively, is due and payable monthly. All amounts owing under the mortgage
notes will become due and payable upon a sale of the hotel to a third party
purchaser. The mortgage notes are collateralized by deeds of trust on the
Crowne Plaza Ravinia.
F-20
<PAGE>
PATRIOT AMERICAN HOSPITALITY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE)
The Crowne Plaza Ravinia is not operated by a lessee. The hotel is being
managed by Holiday Inns, Inc. for a period of ten years (with two renewal
terms of five years each) pursuant to a management agreement between PAH
Ravinia and Holiday Inns, Inc. Under the terms of the management agreement,
Holiday Inns, Inc. receives base management fees equal to 4% of gross room
revenue, a portion of which is subordinated to the payment of a return on PAH
Ravinia's invested capital, as defined, of 10.5% per annum. The management
agreement also provides for payment of an incentive management fee to Holiday
Inns, Inc., subject to PAH Ravinia's receipt of an aggregate 12.5% per annum
return on invested capital. Under the terms of the management agreement, PAH
Ravinia is required to maintain capital improvement reserves equal to 4.0% of
total revenues.
The following summarizes the financial information for PAH Ravinia:
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
1995 1996
------------ -----------
(UNAUDITED)
<S> <C> <C>
Financial Position:
Total assets....................................... $46,739 $49,154
======= =======
Total liabilities.................................. $42,424 $44,538
======= =======
Total equity....................................... $ 4,315 $ 4,616
======= =======
<CAPTION>
DECEMBER 1,
1995 THREE
(INCEPTION) MONTHS
THROUGH ENDED
DECEMBER 31, MARCH 31,
1995 1996
------------ -----------
(UNAUDITED)
<S> <C> <C>
Summary Operations:
Total revenue...................................... $ 1,737 $ 5,865
======= =======
Gross profit....................................... $ 829 $ 3,563
======= =======
Net loss (income).................................. $ (194)(a) $ 301(a)
======= =======
</TABLE>
- --------
(a) The Company's share of earnings from its unconsolidated subsidiary was
$156 in 1995 and $1,362 in 1996 after elimination of interest expense
related to the mortgage notes payable to the Company.
5. LINE OF CREDIT:
The Operating Partnership has obtained a revolving credit facility of up to
$165,000 (the "Line of Credit") to fund the acquisition of additional hotels,
renovations and capital improvements to hotels and for general working capital
purposes. The Line of Credit is collateralized by a first mortgage lien on
certain of the hotels. As of December 31, 1995 and March 31, 1996, the Company
had $9,500 and $50,250, respectively, outstanding on its Line of Credit.
Additional hotels, including subsequent acquisitions, may be required to be
pledged in order to increase availability under the Line of Credit to the
maximum of $165,000. The Line of Credit, which expires October 1, 1998, bears
interest on the outstanding balance at a rate equal to the 30-day LIBOR rate,
plus 1.90%. LIBOR was 5.69% at December 31, 1995 and 5.31% at March 31, 1996.
The weighted average interest rate incurred by the Company during 1995 and
1996 under this borrowing was 7.71% and 7.40%, respectively.
The agreement requires the Company to maintain certain financial ratios with
respect to liquidity, loan to value and net worth and imposes certain
limitations on acquisitions. The Company is in compliance with such
F-21
<PAGE>
PATRIOT AMERICAN HOSPITALITY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
covenants at December 31, 1995 and March 31, 1996. The unused commitment under
the Line of Credit at December 31, 1995 and March 31, 1996 is $155,500 and
$114,750, respectively, subject to certain restrictions and provisions of the
Line of Credit Agreement.
6. PARTICIPATING LEASES:
The Company has leased the hotels under the Participating Leases to the
Lessees through 2007. Minimum future rental income under these noncancelable
operating leases as of December 31, 1995 for the next five years and
thereafter is as follows:
<TABLE>
<CAPTION>
YEAR RENT AMOUNT
---- -----------
<S> <C>
1996.......................................................... $ 35,889
1997.......................................................... 36,158
1998.......................................................... 36,429
1999.......................................................... 36,702
2000.......................................................... 36,978
2001 and thereafter........................................... 222,116
--------
$404,272
========
</TABLE>
The Participating Leases obligate the Company to establish a reserve for
capital improvements and the replacement and refurbishment of furniture,
fixtures and equipment. The Company and the Lessees agree on the use of funds
in these reserves, and the Company has the right to approve the Lessees'
annual and long-term capital expenditures budgets. The amount of such reserves
are to average 4.0% of total revenues for the hotels. At December 31, 1995 and
March 31, 1996, $1,091 and $1,806, respectively, of cash is reserved for
capital improvements, net of capital improvements made to date.
The Company is responsible for payment of (i) real estate and personal
property taxes on its hotel investments (except to the extent that personal
property associated with the hotels is owned by the Lessees), (ii) casualty
insurance on the hotels and (iii) business interruption insurance on the
hotels. The Lessees are required to pay for all liability insurance on the
Company's hotels, with extended coverage, including comprehensive general
public liability, workers' compensation and other insurance appropriate and
customary for properties similar to the Company's hotels with the Company as
an additional named insured.
Upon acquisition of the Initial Hotels, the Company acquired the hotel
inventories with an estimated fair value of $2,035, which were transferred to
CHC Lease Partners for its use in the operation of the hotels. Under the
Participating Leases. CHC Lease Partners is obligated to return an equivalent
inventory to the Company at the end of the respective lease terms, less
$1,000. The $1,000, which represents a lease inducement, has been recorded as
a reduction in inventory and an increase in deferred expenses and is being
amortized to Participating Lease revenue over the lives of the leases. In
connection with the acquisition of three hotels during 1996, the Company
transferred additional inventory to CHC Lease Partners.
7. COMMITMENTS AND CONTINGENCIES:
Office Lease
The Company has entered into an agreement with an affiliate to provide the
Company with office space and limited support personnel for the Company's
headquarters for an annual fee of approximately $100. The term of the
agreement is through February 1999.
F-22
<PAGE>
PATRIOT AMERICAN HOSPITALITY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
Employment Agreements
At December 31, 1995, the Company has entered into employment agreements
with each of Messrs. Nussbaum, Lattin and Stewart, three of the Executive
Officers of the Company, for a term of three years. The agreements provide for
annual base compensation with any increases approved by the Compensation
Committee of the Board of Directors. Upon termination of employment other than
for cause, the employment agreements provide for severance benefits in an
amount to be determined by the Compensation Committee.
Contingencies
The Company currently is not subject to any material legal proceedings or
claims nor, to management's knowledge, are any material legal proceedings or
claims currently threatened.
8. RELATED PARTY TRANSACTIONS:
As described in Note 4, the Company, through the Operating Partnership,
loaned $40,500 in the form of mortgage notes to PAH Ravinia as part of the
financing for PAH Ravinia's acquisition of the Crowne Plaza Ravinia. The
Company recognized $3 of interest income in 1995 and $11 of interest income
for the three months ended March 31, 1996 related to such mortgage notes
(excluding $351 and $1,064 of such interest eliminated for financial reporting
purposes in 1995 and 1996, respectively). Accrued interest on the mortgage
notes receivable and other receivables from PAH Ravinia at December 31, 1995
and March 31, 1996 was $264 and $366, respectively.
9. MINORITY INTEREST
The Operating Partnership has 2,324,312 and 2,491,324 OP Units outstanding
as of December 31, 1995 and March 31, 1996, respectively (excluding OP Units
held by the Company). Pursuant to the Operating Partnership's limited
partnership agreement, the limited partners of the Operating Partnership,
including certain affiliates of the Company, received rights (the "Redemption
Rights") that enable them to cause the Operating Partnership to redeem each OP
Unit in exchange for cash equal to the value of a share of common stock (or,
at the Company's election, the Company may purchase each OP Unit offered for
redemption for one share of common stock). The Redemption Rights generally may
be exercised at any time after October 2, 1996. However, certain holders of OP
Units, including directors and officers of the Company, are restricted from
exercising their Redemption Rights for periods ranging from one to two years
after the closing of the Initial Offering. The OP Units issued in connection
with the acquisition of the Holiday Inn Lenox have similar restrictions on
transfer for one year from the date of issuance. The number of shares of
common stock issuable upon exercise of the Redemption Rights will be adjusted
for share splits, mergers, consolidations or similar pro rata transactions,
which would have the effect of diluting the ownership interests of the limited
partners of the Operating Partnership or the shareholders of the Company.
10. SHAREHOLDERS' EQUITY:
Capital Stock
The Company's board of directors has authorized the issuance of up to
20,000,000 shares of preferred stock in one or more series. The number of
shares in each series and the designation, powers, preferences and rights of
each such series and the qualifications, limitations or restrictions thereof
have not been established. As of March 31, 1996, no preferred stock was
issued.
The Company was initially capitalized through the issuance of 1,425 shares
of no par value common stock to three of the Company's executive officers for
which the executive officers paid nominal consideration. In connection with
the Initial Offering, the Company declared an approximate 41-to-1 stock split
of its outstanding common shares, resulting in the issuance of an additional
57,950 shares of common stock to such executive officers. The aggregate value
of $1,425 (based upon the initial public offering price of $24.00 per share),
less
F-23
<PAGE>
PATRIOT AMERICAN HOSPITALITY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
cash received of $3, has been recorded as unearned executive compensation and
was initially amortized over the five-year vesting period. In response to an
independent consultant review of executive compensation in March 1996, the
Board of Directors elected to accelerate the vesting period for the shares of
common stock held by three of the Company's executive officers. The vesting
period was reduced from five years to three years and the amortization period
of the unearned executive compensation was revised accordingly.
In October 1995, the Company completed its Initial Offering of 14,605,000
shares. In December 1995, the Company also issued an aggregate 1,560 shares of
common stock to its non-employee directors in payment of one-half of their
annual retainer (as provided for in the directors' stock incentive plan
described in further detail below). As of December 31, 1995 and March 31,
1996, the Company has 14,665,935 shares of common stock outstanding.
On December 20, 1995, the Company declared a $0.48 per common share dividend
to holders of record on December 29, 1995. Concurrent with the dividend
declaration, the Operating Partnership authorized distributions in the same
amount. The dividend and distributions were paid on January 30, 1996.
On March 26, 1996, the Company declared a $0.48 per common share dividend to
holders of record on March 29, 1996. Concurrent with the dividend declaration,
the Operating Partnership authorized distributions in the same amount. The
dividend and distributions were paid on April 30, 1996.
Stock Incentive Plans
The Company has adopted the 1995 Incentive Plan (the "1995 Plan") and the
Non-Employee Directors' Incentive Plan (the "Directors' Plan") for the purpose
of (i) attracting and retaining employees, directors and others, (ii)
providing incentives to those deemed important to the success of the Company,
and (iii) associating the interests of these individuals with the interests of
the Company and its shareholders through opportunities for increased stock
ownership.
The 1995 Plan. Under the 1995 Plan, employees of the Company are eligible to
receive stock options, stock awards or performance shares, subject to certain
restrictions. All awards under the 1995 Plan are determined by the
Compensation Committee of the Board of Directors and a maximum of 1,000,000
shares of common stock may be issued under the 1995 Plan. Upon completion of
the Initial Offering, 500,000 options were granted to purchase shares of
common stock of the Company. Each option is exercisable at an amount equal to
the initial public offering price of $24.00 per share. Of the options granted,
27,780 vested immediately, while the remaining options become exercisable at
various dates through January 1, 2005. As of March 31, 1996, no options had
been exercised.
The Directors' Plan. The Directors' Plan provides for the award of common
shares to each eligible non-employee director of the Company. Each eligible
director who was a member of the Board as of September 27, 1995, was awarded
nonqualified options to purchase 7,500 shares of common stock on that date
(each such director, a "Founding Director"). The options granted to Founding
Directors have an exercise price equal to the initial public offering price of
$24.00 and vested immediately. Each eligible director who was not a Founding
Director (a "Non-Founding Director") will receive nonqualified options to
purchase 7,500 shares of common stock upon their election to the Board. On the
date of each annual meeting of the Company's shareholders, beginning with the
shareholders' meeting in 1996, each non-employee director then in office will
receive an additional grant of nonqualified options to purchase 2,500 shares
of common stock, with the maximum aggregate number of shares subject to
options to be granted to each non-employee director being 17,500. The exercise
price of options under future grants will be 100% of the fair market value of
the common stock on the date of grant. The exercise price may be paid in cash,
cash equivalents acceptable to the Compensation Committee, common stock or a
combination thereof. Options granted under the Directors' Plan are exercisable
for ten years from the date of grant. As of March 31, 1996, no options had
been exercised.
F-24
<PAGE>
PATRIOT AMERICAN HOSPITALITY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE)
The Directors' Plan also provides for the annual award of common stock to
each eligible director in payment of one-half of the annual retainer of $13
payable to each such director. The number of shares awarded will be determined
based upon the fair market value of the stock at the date of the grant. Such
shares vest immediately upon grant and are nonforfeitable. In 1995, 1,560
common shares with an aggregate value of $37 were granted to the Founding
Directors.
11. FAIR VALUE OF FINANCIAL INSTRUMENTS:
Statement of Financial Accounting Standards No. 107 requires disclosure
about the fair value for all financial instruments, whether or not recognized,
for financial statement purposes. Disclosure about fair value of financial
instruments is based on pertinent information available to management as of
December 31, 1995 and March 31, 1996. Considerable judgment is necessary to
interpret market data and develop estimated fair value. Accordingly, the
estimates presented herein are not necessarily indicative of the amounts which
could be realized on disposition of the financial instruments. The use of
different market assumptions and/or estimation methodologies may have a
material effect on the estimated fair value amounts.
Management estimates that the fair value of (i) accounts receivable,
accounts payable and accrued expenses approximate carrying value due to the
relatively short maturity of these instruments; (ii) the notes receivable
approximate carrying value based upon effective borrowing rates for issuance
of debt with similar terms and remaining maturities; and (iii) the borrowings
under the Line of Credit approximate carrying value as the Line of Credit
accrues interest at floating interest rates based on market.
12. NONCASH INVESTING AND FINANCING ACTIVITIES:
October 2, 1995 (inception of operations) through December 31, 1995:
<TABLE>
<S> <C>
In connection with the Initial Offering and acquisition of the Initial
Hotels, the following assets and liabilities were assumed:
Deferred expenses, net of write-off of deferred financing costs
of $679........................................................ $ 127
Prepaid expenses and other assets............................... 313
Accrued real estate and personal property taxes................. (1,102)
In connection with the Company's investment in unconsolidated sub-
sidiary:
Accrued stock subscription...................................... $ (220)
Accrued receivables from unconsolidated subsidiary, net of
payables of $43................................................ 354
In connection with the Initial Offering and acquisition of the
Initial Hotels:
Predecessor basis of interests acquired from affiliates......... $ 1,840
Issuance of OP Units to non-affiliates.......................... 9,363
Distribution of note receivable as consideration................ (479)
Minority interest at closing of the Initial Offering............ (41,670)
Accrued Initial Offering costs.................................. (843)
Dividends and distributions declared and payable.................. $ 8,154
Issuance of shares to directors................................... $ 37
Accrued acquisition and other costs............................... $ 28
Three Months Ended March 31, 1996:
In connection with the acquisition of hotel properties, the following assets
and liabilities were assumed:
Receivables from selling entities............................... $ (78)
Prepaid expenses and other assets............................... (151)
Accounts payable and accrued liabilities........................ 267
Issuance of OP Units in connection with the acquisition of hotel
properties....................................................... $ 4,000
</TABLE>
F-25
<PAGE>
PATRIOT AMERICAN HOSPITALITY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE)
13. SUBSEQUENT EVENTS:
Hotel Properties Acquired
On January 16, 1996, the Company acquired the 288-room Tremont House Hotel
in Boston, Massachusetts for a purchase price (including closing costs) of
approximately $16,397. The purchase was financed primarily with funds drawn on
the Line of Credit. The Tremont House Hotel is leased to CHC Lease Partners
for a period of 11 years pursuant to a Participating Lease.
On March 4, 1996, the Company acquired the 297-room Holiday Inn Lenox in
Atlanta, Georgia for approximately $7,279 in cash, plus 167,012 OP Units
(valued at approximately $4,000 based upon the market price of the Company's
common stock on the date of contract). The hotel is subject to a 73-year
ground lease. The cash portion of the purchase price was financed with funds
drawn on the Line of Credit. The hotel is leased to CHC Lease Partners for a
period of 12 years pursuant to a Participating Lease. On March 27, 1996, the
Company acquired the 245-room Del Mar Hilton Hotel in San Diego, California
for a purchase price (including closing costs) of approximately $14,872. The
purchase was financed primarily with funds drawn on the Line of Credit. The
hotel is leased to CHC Lease Partners.
In April 1996, the Company acquired a six-hotel portfolio with a total of
1,239 guest rooms located in Washington and California for an aggregate
purchase price of approximately $84,500, including a deferred purchase
obligation of $2,000. The purchase was funded with proceeds from the Company's
Line of Credit and the issuance of 331,577 OP Units (valued at approximately
$8,800 based on the market price of the Company's common stock on the date of
contract). These hotels are leased to NorthCoast L.L.C., a newly formed
Seattle-based hotel company.
Line of Credit
In April 1996, the maximum amount available under the Line of Credit was
increased from $165,000 to $250,000 and certain modifications were made
thereby increasing the Company's ability to borrow under the Line of Credit.
Potential Acquisitions
The Company has entered into non-binding purchase and sale agreements to
acquire the 365-room Hyatt Regency in Lexington, Kentucky for a purchase price
of approximately $14,000, the 492-room Bonaventure Hotel & Spa in Fort
Lauderdale, Florida for a purchase price of approximately $16,200 (plus the
assumption of certain operating liabilities) and the 362-room Marriott
WindWatch Hotel in Long Island, New York for a purchase price of approximately
$30,000. In addition, the Company has entered into a letter of intent
agreement to acquire a portfolio of five Wyndham and Wyndham Garden hotels
containing an aggregate 1,141 guest rooms for a purchase price of
approximately $96,000. The Wyndham hotel properties are located in the
Houston, Dallas, Atlanta, Detroit and Chicago metropolitan areas. The
acquisition of these or any other properties is subject to a number of
contingencies, including, among other things, the satisfactory completion of
the Company's due diligence investigation of the hotels, the negotiation of a
definitive acquisition agreement and obtaining financing and/or Line of Credit
lender approval, as applicable. Accordingly, there can be no assurance that
the acquisition of any of these properties will be consummated.
Private Placement
In May 1996, the Company sold an aggregate of approximately $40,000 of
securities to an institutional investor, who purchased the securities on
behalf of two owners. The securities consisted of 811,393 shares of common
stock sold at $26.95 per share and 662,391 Preferred OP Units (the "Preferred
OP Units") sold at $27.375 per unit. The common stock is of the same class as
the Company's existing common stock and is entitled to the same voting and
dividend rights as all outstanding common stock, subject to certain
restrictions on the resale of the stock. The Preferred OP Units are entitled
to quarterly distributions equal to 103% of the quarterly dividends paid on
the common stock. Generally, three years following issuance, the Preferred OP
Units may be converted into shares of common stock on a one-for-one basis,
subject to certain limitations. After 10 years, all outstanding Preferred OP
Units will be converted into common stock.
F-26
<PAGE>
PATRIOT AMERICAN HOSPITALITY, INC.
SCHEDULE III--REAL ESTATE AND ACCUMULATED DEPRECIATION
AS OF DECEMBER 31, 1995
(IN THOUSANDS)
<TABLE>
<CAPTION>
COST CAPITALIZED
SUBSEQUENT TO GROSS AMOUNTS AT WHICH CARRIED
INITIAL COST ACQUISITION AT CLOSE OF PERIOD(A)
-------------------- ----------------- ----------------------------------
BUILDINGS BUILDINGS BUILDINGS
AND AND AND ACCUMULATED YEAR
DESCRIPTION ENCUMBERANCES LAND IMPROVEMENTS LAND IMPROVEMENTS LAND IMPROVEMENTS TOTAL DEPRECIATION(C)(D) BUILT
----------- ------------- ------- ------------ ---- ------------ --------- ------------------------ ------------------ -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
FULL SERVICE
HOTELS:
Bourbon Orleans
New Orleans,
Louisiana....... (b) $ 1,942 $ 14,209 $ $ $ 1,942 $ 14,209 $ 16,151 $ 99 1800s
Holiday Inn
Select North
Dallas
Farmers Branch,
Texas........... (b) 3,045 15,786 3,045 15,786 18,831 126 1979
Hilton Cleveland
Independence,
Ohio............ (b) 2,760 12,264 2,760 12,264 15,024 102 1980
Crockett Hotel
San Antonio,
Texas........... (b) 1,936 12,130 1,936 12,130 14,066 96 1909
Marriott Hotel
Troy, Michigan.. (b) 1,790 29,220 1,790 29,220 31,010 211 1990
Four Points by
Sheraton
Saginaw,
Michigan........ (b) 773 6,451 773 6,451 7,224 49 1984
Radisson Hotel
New Orleans,
Louisiana....... (b) 2,463 23,630 2,463 23,630 26,093 136 1924
Radisson Hotel &
Suites
Dallas, Texas... (b) 1,011 8,276 1,011 8,276 9,287 59 1986
Radisson Town &
Country
Houston, Texas.. (b) 655 9,725 655 9,725 10,380 69 1986
Aristocrat Hotel
Dallas, Texas... (b) 144 7,806 144 7,806 7,950 54 1925
Holiday Inn
Northwest
Houston, Texas.. (b) 333 2,324 333 2,324 2,657 17 1982
Holiday Inn
Northwest Plaza
Austin, Texas... (b) 1,424 9,323 1,424 9,323 10,747 67 1984
Holiday Inn
San Angelo,
Texas........... (b) 428 3,982 428 3,982 4,410 29 1984
Holiday Inn
Sebring,
Florida......... 626 2,387 626 2,387 3,013 19 1983
Fairmont Hotel
San Antonio,
Texas........... -- 2,957 -- 2,957 2,957 21 1906
Embassy Suites
Hunt Valley,
Maryland........ 529 13,872 529 13,872 14,401 51 1985
LIMITED SERVICE
HOTELS:
Hampton Inn
Jacksonville,
Florida......... 285 4,355 285 4,355 4,640 32 1985
Hampton Inn
Rochester, New
York............ 104 7,829 104 7,829 7,933 54 1986
Hampton Inn
Cleveland
Airport
North Olmsted,
Ohio............ 236 5,483 236 5,483 5,719 39 1986
Hampton Inn
Canton, Ohio.... 350 4,315 350 4,315 4,665 33 1985
CONFERENCE
CENTER:
Peachtree Exec.
Conf. Center
Peachtree City,
Georgia......... (b) 3,059 21,915 3,059 21,915 24,974 145 1984
------- -------- ---- ---- --------- ---------- ---------- ------
$23,893 $218,239 $-- $-- $ 23,893 $ 218,239 $ 242,132 $1,508
======= ======== ==== ==== ========= ========== ========== ======
<CAPTION>
DATE OF
DESCRIPTION ACQUISITION
----------- -----------
<S> <C>
FULL SERVICE
HOTELS:
Bourbon Orleans
New Orleans,
Louisiana....... 1995
Holiday Inn
Select North
Dallas
Farmers Branch,
Texas........... 1995
Hilton Cleveland
Independence,
Ohio............ 1995
Crockett Hotel
San Antonio,
Texas........... 1995
Marriott Hotel
Troy, Michigan.. 1995
Four Points by
Sheraton
Saginaw,
Michigan........ 1995
Radisson Hotel
New Orleans,
Louisiana....... 1995
Radisson Hotel &
Suites
Dallas, Texas... 1995
Radisson Town &
Country
Houston, Texas.. 1995
Aristocrat Hotel
Dallas, Texas... 1995
Holiday Inn
Northwest
Houston, Texas.. 1995
Holiday Inn
Northwest Plaza
Austin, Texas... 1995
Holiday Inn
San Angelo,
Texas........... 1995
Holiday Inn
Sebring,
Florida......... 1995
Fairmont Hotel
San Antonio,
Texas........... 1995
Embassy Suites
Hunt Valley,
Maryland........ 1995
LIMITED SERVICE
HOTELS:
Hampton Inn
Jacksonville,
Florida......... 1995
Hampton Inn
Rochester, New
York............ 1995
Hampton Inn
Cleveland
Airport
North Olmsted,
Ohio............ 1995
Hampton Inn
Canton, Ohio.... 1995
CONFERENCE
CENTER:
Peachtree Exec.
Conf. Center
Peachtree City,
Georgia......... 1995
</TABLE>
See accompanying notes to this schedule on the following page.
F-27
<PAGE>
PATRIOT AMERICAN HOSPITALITY, INC.
NOTES TO SCHEDULE III
(IN THOUSANDS)
<TABLE>
<CAPTION>
PERIOD
OCTOBER 2, 1995
THROUGH
DECEMBER 31,
1995
---------------
<S> <C>
(a)Reconciliation of Real Estate:
Balance at beginning of period..................................... $ --
Additions during period:
Acquisitions..................................................... 242,132
Improvements..................................................... --
--------
Balance at end of period........................................... $242,132
========
(b) This hotel collateralizes the Company's Line of Credit which had an
outstanding balance of $9,500 at December 31, 1995.
(c)Reconciliation of Accumulated Depreciation:
Balance at beginning of period..................................... $ --
Depreciation for period.......................................... 1,508
--------
Balance at end of period........................................... $ 1,508
========
(d) Depreciation is computed on buildings and improvements based upon
a useful life of 35 years.
</TABLE>
F-28
<PAGE>
PATRIOT AMERICAN HOSPITALITY, INC.
SCHEDULE IV--MORTGAGE LOANS ON REAL ESTATE
AS OF DECEMBER 31, 1995
(IN THOUSANDS)
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT OF
LOANS
SUBJECT TO
PERIODIC FACE CARRYING DELINQUENT
INTEREST MATURITY PAYMENT PRIOR AMOUNT OF AMOUNT OF PRINCIPAL OR
DESCRIPTION RATE DATE TERMS LIENS MORTGAGES MORTGAGES(A) INTEREST
----------- -------- ----------------- -------------- ------- --------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
10.25% November 28, 1998 Monthly None $36,000 $36,000 None
payments of
Promissory note, interest only
collateralized by a are required.
first lien deed of Principal
trust on the Crowne payable in
Plaza Ravinia full at
Hotel. maturity.
12.5% November 28, 1998 Monthly $36,000 4,500 4,500 None
payments of ------- -------
Promissory note, interest only
collateralized by a are required.
second lien deed of Principal
trust on the Crowne payable in
Plaza Ravinia full at
Hotel. maturity.
$40,500 $40,500
======= =======
</TABLE>
- --------
(a) Reconciliation of Mortgage Loans on Real Estate for the period October 2,
1995 (inception of operations) to December 31, 1995:
<TABLE>
<S> <C>
Balance at beginning of period.................................... $ --
New mortgage loans................................................ 40,500
-------
Balance at end of period.......................................... $40,500
=======
</TABLE>
For federal income tax purposes, the aggregate cost of investments in
mortgage loans on real estate is the carrying amount as disclosed in the
schedule.
F-29
<PAGE>
LESSEES
PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1995
(UNAUDITED)
<TABLE>
<CAPTION>
PRO FORMA ADJUSTMENTS
-------------------------------
LESSEE INITIAL RECENT LESSEE
HISTORICAL (A) OFFERING (B) ACQUISITIONS (C) PRO FORMA
-------------- ------------ ---------------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Revenue:
Room................... $21,508 $65,193 $72,164 $158,865
Food and beverage...... 8,649 21,871 30,517 61,037
Conference center...... 576 1,858 -- 2,434
Telephone and other.... 1,732 5,860 7,215 14,807
------- ------- ------- --------
Total revenue......... 32,465 94,782 109,896 237,143
------- ------- ------- --------
Expenses:
Departmental costs and
expenses.............. 12,172 35,215 44,033 91,420
General and administra-
tive.................. 2,714 8,061 9,930 20,705
Ground lease expense... -- -- 1,259 1,259
Repairs and mainte-
nance................. 1,476 4,456 5,498 11,430
Utilities.............. 1,320 4,107 4,460 9,887
Marketing.............. 2,928 8,763 8,687 20,378
Insurance.............. 191 716 698 1,605
Participating lease
payments.............. 10,582 31,970 (D) 33,369 (D) 75,921
------- ------- ------- --------
Total expenses........ 31,383 93,288 107,934 232,605
------- ------- ------- --------
Income before lessee
income (expenses).... 1,082 1,494 1,962 4,538
Dividend and interest
income................ 198 (E) -- -- 198
Management fees........ (536) (1,165)(F) (2,965)(F) (4,666)
Lessee general and ad-
ministrative.......... (235) (542)(G) (401)(G) (1,178)
------- ------- ------- --------
Net income (loss)..... $ 509 $ (213) $(1,404) $ (1,108)
======= ======= ======= ========
</TABLE>
- --------
(A) Represents the historical results of operations of CHC Lease Partners from
October 2, 1995 (inception) and Metro Lease Partners results of operations
from November 15, 1995 (inception) through December 31, 1995.
(B) Represents adjustments to the Lessee's results of operations assuming the
Initial Offering and Formation Transactions occurred at the beginning of
the period presented.
(C) Represents adjustments to the Lessee's results of operations assuming the
Recent Acquisitions occurred at the beginning of the period presented.
(D) Represents Participating Lease payments calculated on a pro forma basis by
applying the provisions of the Participating Leases to the historical
revenue of the Hotels.
(E) Includes dividend income on approximately 250,000 Units in the Operating
Partnership which form a portion of the required capitalization of CHC
Lease Partners. Pro forma amounts exclude additional dividend income of
approximately $456,000 (based upon the Operating Partnership's
distributions to date) expected to be earned on approximately 300,000
Units held by certain Lessees, and pro forma interest income earned on
invested cash balances.
(F) Represents management fees paid to the Operators under the terms of their
respective management agreements with the Lessees.
(G) Represents pro forma overhead expenses, which include an estimate of the
Lessees' salaries and benefits, professional fees, insurance costs and
administrative expenses.
F-30
<PAGE>
LESSEES
PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
FOR THE TWELVE MONTHS ENDED MARCH 31, 1996
(UNAUDITED)
<TABLE>
<CAPTION>
PRO FORMA ADJUSTMENTS
-------------------------------
LESSEE INITIAL RECENT LESSEE
HISTORICAL (A) OFFERING (B) ACQUISITIONS (C) PRO FORMA
-------------- ------------ ---------------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Revenue:
Room................... $46,816 $42,951 $71,142 $160,909
Food and beverage...... 16,889 14,259 30,216 61,364
Conference center...... 1,221 1,159 -- 2,380
Telephone and other.... 4,105 4,003 7,163 15,271
------- ------- ------- --------
Total revenue......... 69,031 62,372 108,521 239,924
------- ------- ------- --------
Expenses:
Departmental costs and
expenses.............. 25,490 23,666 43,375 92,531
General and administra-
tive.................. 5,720 5,603 10,103 21,426
Ground lease expense... -- -- 1,273 1,273
Repairs and mainte-
nance................. 3,102 3,036 5,276 11,414
Utilities.............. 2,868 2,801 4,358 10,027
Marketing.............. 6,251 5,998 8,300 20,549
Insurance.............. 420 469 690 1,579
Participating lease
payments.............. 22,953 20,879 (D) 32,901 (D) 76,733
------- ------- ------- --------
Total expenses........ 66,804 62,452 106,276 235,532
------- ------- ------- --------
Income (loss) before
lessee income (ex-
penses).............. 2,227 (80) 2,245 4,392
Dividend and interest
income................ 408 (E) -- -- 408
Management fees........ (1,160) (547)(F) (3,032)(F) (4,739)
Lessee general and ad-
ministrative.......... (420) (364)(G) (394)(G) (1,178)
------- ------- ------- --------
Net income (loss)..... $ 1,055 $ (991) $(1,181) $ (1,117)
======= ======= ======= ========
</TABLE>
- --------
(A) Represents the historical results of operations of CHC Lease Partners from
October 2, 1995 (inception) and Metro Lease Partners results of operations
from November 15, 1995 (inception) through March 31, 1996.
(B) Represents adjustments to the Lessee's results of operations assuming the
Initial Offering and Formation Transactions occurred at the beginning of
the period presented.
(C) Represents adjustments to the Lessee's results of operations assuming the
Recent Acquisitions occurred at the beginning of the period presented.
(D) Represents Participating Lease payments calculated on a pro forma basis by
applying the provisions of the Participating Leases to the historical
revenue of the Hotels.
(E) Includes dividend income on approximately 250,000 Units in the Operating
Partnership which form a portion of the required capitalization of CHC
Lease Partners. Pro forma amounts exclude additional dividend income of
approximately $336,000 (based upon the Operating Partnership's
distributions to date) expected to be earned on approximately 300,000
Units held by certain Lessees, and pro forma interest income earned on
invested cash balances.
(F) Represents management fees paid to the Operators under the terms of their
respective management agreements with the Lessees.
(G) Represents pro forma overhead expenses, which include an estimate of the
Lessees' salaries and benefits, professional fees, insurance costs and
administrative expenses.
F-31
<PAGE>
LESSEES
PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 1996
(UNAUDITED)
<TABLE>
<CAPTION>
PRO FORMA ADJUSTMENTS
---------------------
LESSEE RECENT LESSEE
HISTORICAL (A) ACQUISITIONS (B) PRO FORMA
-------------- --------------------- ---------
(IN THOUSANDS)
<S> <C> <C> <C>
Revenue:
Room....................... $25,308 $15,241 $40,549
Food and beverage.......... 8,240 6,673 14,913
Conference center.......... 645 -- 645
Telephone and other........ 2,373 1,606 3,979
------- ------- -------
Total revenue............. 36,566 23,520 60,086
------- ------- -------
Expenses:
Departmental costs and ex-
penses.................... 13,318 9,660 22,978
General and administrative. 3,006 2,509 5,515
Ground lease expense....... -- 289 289
Repairs and maintenance.... 1,626 1,169 2,795
Utilities.................. 1,548 941 2,489
Marketing.................. 3,323 1,847 5,170
Insurance.................. 229 166 395
Participating lease pay-
ments..................... 12,371 7,612 (C) 19,983
------- ------- -------
Total expenses............ 35,421 24,193 59,614
------- ------- -------
Income (loss) before les-
see income (expenses).... 1,145 (673) 472
Dividend and interest in-
come...................... 210 (D) -- 210
Management fees............ (624) (476)(E) (1,100)
Lessee general and adminis-
trative................... (185) (95)(F) (280)
------- ------- -------
Net income (loss)......... $ 546 $(1,244) $ (698)
======= ======= =======
</TABLE>
- --------
(A) Represents the historical results of operations of CHC Lease Partners and
Metro Lease Partners for the three months ended March 31, 1996.
(B) Represents adjustments to the Lessee's results of operations assuming the
Recent Acquisitions occurred at the beginning of the period presented.
(C) Represents Participating Lease payments calculated on a pro forma basis by
applying the provisions of the Participating Leases to the historical
revenue of the Hotels.
(D) Includes dividend income on approximately 250,000 Units in the Operating
Partnership which form a portion of the required capitalization of CHC
Lease Partners. Pro forma amounts exclude additional dividend income of
approximately $24,000 (based upon Operating Partnership's distributions to
date) expected to be earned on approximately 300,000 Units held by certain
Lessees, and pro forma interest income earned on invested cash balances.
(E) Represents management fees paid to the Operators under the terms of their
respective management agreements with the Lessees.
(F) Represents pro forma overhead expenses, which include an estimate of the
Lessees' salaries and benefits, professional fees, insurance costs and
administrative expenses.
F-32
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Partners of CHC Lease Partners:
In our opinion, the accompanying balance sheet and the related statements of
operations, partners' capital and of cash flows present fairly, in all
material respects, the financial position of CHC Lease Partners at December
31, 1995, and the results of its operations and its cash flows for the period
(inception) October 2, 1995 to December 31, 1995 in conformity with generally
accepted accounting principles. These financial statements are the
responsibility of the Partnership's management; our responsibility is to
express an opinion on these financial statements based on our audit. We
conducted our audit of these statements in accordance with generally accepted
auditing standards which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management,
and evaluating the overall financial statement presentation. We believe that
our audit provides a reasonable basis for the opinion expressed above.
PRICE WATERHOUSE LLP
March 4, 1996
Miami, Florida
F-33
<PAGE>
CHC LEASE PARTNERS
BALANCE SHEETS
(IN THOUSANDS)
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
1995 1996
------------ -----------
(UNAUDITED)
<S> <C> <C>
Current Assets:
Cash and cash equivalents........................... $ 9,385 $10,182
Accounts receivable, net of allowance for doubtful
accounts of $142 in 1995 and $188 in 1996.......... 5,833 6,684
Inventories......................................... 2,136 2,401
Prepaid expenses.................................... 441 1,009
------- -------
Total current assets.............................. 17,795 20,276
Investments........................................... 5,100 5,100
Deposits.............................................. 71 115
------- -------
Total assets...................................... $22,966 $25,491
======= =======
LIABILITIES AND PARTNERS' CAPITAL
Current Liabilities:
Accounts payable.................................... $ 2,202 $ 2,253
Accrued rent due to Patriot American Hospitality
Partnership, L.P. ................................. 2,260 2,279
Due to affiliates, net.............................. 138 511
Accrued payroll..................................... 2,219 2,271
Taxes payable....................................... 1,556 1,795
Guest deposits...................................... 958 1,829
Accrued expenses and other liabilities.............. 2,012 2,478
------- -------
Total current liabilities......................... 11,345 13,416
Due to Patriot American Hospitality Partnership, L.P.. 1,035 1,219
Lease inducement...................................... 977 954
------- -------
Total liabilities................................. 13,357 15,589
Commitments and contingencies (Note 2)................ -- --
Partners' capital..................................... 9,609 9,902
------- -------
Total liabilities and partners' capital........... $22,966 $25,491
======= =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-34
<PAGE>
CHC LEASE PARTNERS
STATEMENTS OF OPERATIONS
(IN THOUSANDS)
<TABLE>
<CAPTION>
INCEPTION
(OCTOBER 2, 1995) THREE
TO MONTHS ENDED
DECEMBER 31, MARCH 31,
1995 1996
----------------- ------------
(UNAUDITED)
<S> <C> <C>
Revenue:
Room........................................... $21,092 $24,260
Food and beverage.............................. 8,524 7,998
Conference center.............................. 576 645
Telephone and other............................ 1,703 2,295
------- -------
Total revenue................................ 31,895 35,198
------- -------
Expenses:
Departmental costs and expenses................ 11,949 12,765
Participating lease payments................... 10,432 11,918
General and administrative..................... 2,655 2,883
Repairs and maintenance........................ 1,436 1,544
Utilities...................................... 1,290 1,496
Marketing...................................... 2,865 3,174
Insurance...................................... 191 220
------- -------
Total expenses............................... 30,818 34,000
------- -------
Income before lessee income (expense)........ 1,077 1,198
------- -------
Dividend and interest income................... 198 210
Management fees................................ (536) (597)
Lessee general and administrative expenses..... (230) (178)
------- -------
Total lessee expense......................... (568) (565)
------- -------
Net income................................... $ 509 $ 633
======= =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-35
<PAGE>
CHC LEASE PARTNERS
STATEMENTS OF PARTNERS' CAPITAL
(IN THOUSANDS)
<TABLE>
<S> <C>
Initial capitalization at inception..................................... $9,100
Net income.............................................................. 509
------
Balance, December 31, 1995.............................................. 9,609
Net income (unaudited).................................................. 633
Distribution (unaudited)................................................ (340)
------
Balance, March 31, 1996 (unaudited)..................................... $9,902
======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-36
<PAGE>
CHC LEASE PARTNERS
STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
INCEPTION
(OCTOBER 2, 1995) THREE
TO MONTHS ENDED
DECEMBER 31, MARCH 31,
1995 1996
----------------- ------------
(UNAUDITED)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income.................................... $ 509 $ 633
Adjustments to reconcile net income to net
cash provided by operating activities:
Recognition of lease inducement............. (23) (23)
Provision for losses on accounts receivable. 142 46
Changes in assets and liabilities:
(Increase) decrease in:
Accounts receivable......................... (3,282) (897)
Inventories................................. (101) 255
Prepaid expenses and other assets........... (178) (544)
Increase (decrease) in:
Accounts payable............................ 1,306 51
Accrued rent due to Patriot American
Hospitality Partnership, L.P. ............. 2,260 19
Due to affiliates........................... 138 373
Accrued payroll............................. 1,219 52
Taxes payable............................... 1,265 239
Guest deposits.............................. (182) 871
Accrued expenses and other liabilities...... 1,517 (674)
------- -------
Net cash provided by operating activities....... 4,590 401
------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquired cash at inception and under new
operating leases ............................ 795 736
------- -------
Net cash provided by investing activities....... 795 736
------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Initial capitalization........................ 4,000 --
Partnership distribution...................... -- (340)
------- -------
Net cash provided by (used in) financing
activities..................................... 4,000 (340)
------- -------
Net increase in cash and cash equivalents....... 9,385 797
Cash and cash equivalents at beginning of
period......................................... -- 9,385
------- -------
Cash and cash equivalents at end of period...... $ 9,385 $10,182
======= =======
SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING AND
FINANCING ACTIVITIES:
Initial capitalization in units of limited
partnership interest......................... $ 5,100
=======
Assumption of assets and liabilities upon
consummation of participating lease
agreements with Patriot American Hospitality
Partnership, L.P.
Acquired cash............................... $ 795 736
Inventories................................. 2,035 336
Other assets................................ 3,027 68
Lease inducement............................ (1,000) --
Due to Patriot American Hospitality
Partnership, L.P. ......................... (1,035) (320)
Other liabilities........................... (3,822) (820)
------- -------
Net assets.................................. $ -- $ --
======= =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-37
<PAGE>
CHC LEASE PARTNERS
NOTES TO FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)
(AMOUNTS AND DISCLOSURES AS OF MARCH 31, 1996 AND FOR THE PERIOD THEN ENDED
ARE UNAUDITED)
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
ORGANIZATION
CHC Lease Partners, was formed as the initial lessee to lease and operate
certain hotels owned by Patriot American Hospitality Partnership, L.P. (the
"Operating Partnership"). Patriot American Hospitality, Inc. (the "Company"),
through its subsidiaries, owns approximately 86.3% of the Operating
Partnership at December 31, 1995 and 85.5% at March 31, 1996. CHC Lease
Partners, a general partnership, is owned jointly by CHC REIT Lessee Corp., a
wholly owned subsidiary of CHC International, Inc. ("CHC") and by an affiliate
of a principal of the Gencom group of companies. CHC Lease Partners began
operating twenty hotels (the "Initial Hotels") on October 2, 1995.
Each hotel is leased by the Operating Partnership to CHC Lease Partners
under separate participating operating lease agreements which contain cross-
default provisions. These leases, which require CHC Lease Partners to maintain
a minimum net worth and adequate working capital, have an average term of
eleven years, and require payment of the greater of (1) minimum base rent or
(2) participating rent based upon certain percentages of room revenue, food
and beverage revenue, conference center revenue and telephone and other
revenues of each of the Initial Hotels.
The Initial Hotels consist of fifteen full service hotels, four limited
service hotels and one executive conference center. Seventeen of the twenty
Initial Hotels are operated under franchise licenses with nationally
recognized hotel companies. The cost of obtaining the franchise licenses is
paid by the Operating Partnership and the continuing franchise fees are paid
by CHC Lease Partners. Franchise and related fees generally range from 3.5% to
8.0% of room revenues for Initial Hotels under franchise licenses.
In January 1996 and March 1996, CHC Lease Partners and the Operating
Partnership entered into three operating leases for three hotels which were
acquired by the Operating Partnership. The leases are substantially similar to
the other participating lease agreements between CHC Lease Partners and the
Operating Partnership. As of March 31, 1996, CHC Lease Partners operates
twenty-three hotels.
At March 31, 1996, the hotels leased by CHC Lease Partners consist of
eighteen full service hotels, four limited service hotels and one executive
conference center. Nineteen of the twenty-three hotels are operated under
franchise licenses with nationally recognized hotel companies.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
These financial statements have been prepared in accordance with generally
accepted accounting principles. Significant accounting policies are summarized
below.
Accounting Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenue and expenses during the
reporting period. Actual results could differ from those estimates.
Fiscal Year
CHC Lease Partners' fiscal year ends on November 30, however, these
financial statements have been prepared as of and for the period inception
(October 2, 1995) to December 31, 1995 and as of and for the three months
ended March 31, 1996.
F-38
<PAGE>
CHC LEASE PARTNERS
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS)
Cash and Cash Equivalents
All highly liquid investments with an original maturity date of three months
or less when purchased are considered to be cash equivalents.
Inventories
Inventories, consisting of food, beverages, china, linens, silverware and
glassware, are principally stated at the lower of cost (generally first-in,
first-out) or market.
Investments
Investments consist of 250,001 units of limited partnership interest in the
Operating Partnership ("OP Units"). The OP Units are subject to redemption
rights which may be exercised, subject to certain restrictions, at any time
after October 2, 1996, to cause the Operating Partnership to redeem each OP
Unit for cash equal to the value of a share of Company common stock or, at the
Company's election, the Company may purchase each OP Unit offered for
redemption for one share of Company common stock. In addition, the OP Units
are also subject to additional restrictions as to transfer until October 2,
1997. Under the participating lease agreements CHC Lease Partners has
collaterally assigned 166,668 OP Units to the Operating Partnership. The OP
Units are stated at lower of cost or market based upon the fair market value
of Company common stock with an appropriate discount for any restrictions
imposed on the OP Units.
Revenue Recognition
Revenue is recognized upon performance of hotel-related services and
delivery of food and beverages. Credit evaluations are performed and an
allowance for doubtful accounts is provided against accounts receivable which
are estimated to be uncollectible.
Income Taxes
Under the provisions of the Internal Revenue Code and applicable state
income tax law, CHC Lease Partners is not subject to taxation on income. The
federal and state income tax consequences of CHC Lease Partners' profits and
losses accrue to the partners.
Concentration of Credit Risk
Financial instruments which potentially subject CHC Lease Partners to
concentrations of credit risk consist principally of cash balances with banks
in excess of Federal Deposit Insurance Corporation ("FDIC") insured limits,
accounts receivable from hotel customers and investments in OP Units. CHC
Lease Partners places its cash with high quality financial institutions,
however, at December 31, 1995 and March 31, 1996 CHC Lease Partners has cash
balances with banks in excess of FDIC insured limits. Management believes the
credit risk related to these deposits is minimal. Concentrations of credit
risk with respect to accounts receivable from hotel customers are limited due
to the large number of customers and their dispersion across many hotels and
geographies. Concentrations of credit risk with respect to investments in OP
Units exist to the extent of potential fluctuations in the value of Company
common stock. Management believes the credit risk related to the OP Units is
minimal.
Fair Value of Financial Instruments
The following notes summarize the major methods and assumptions used in
estimating fair values of financial instruments:
F-39
<PAGE>
CHC LEASE PARTNERS
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS)
Cash and Cash Equivalents. The carrying amount approximates fair value due
to the relatively short period to maturity of these instruments.
Investments. The fair value of the OP Units is estimated based upon the
quoted market price of Company common stock less a discount of approximately
15% for the restrictions imposed on the OP Units. The carrying amount of the
OP Units approximates fair value.
Interim Unaudited Financial Information
The financial statements as of and for the three months ended March 31, 1996
are unaudited; however, in the opinion of management, all adjustments
(consisting only of normal recurring accruals) considered necessary for a fair
presentation have been included. Operating results for the three-month period
ended March 31, 1996 are not necessarily indicative of the results that may be
expected for a full year.
2. COMMITMENTS AND RELATED PARTY TRANSACTIONS:
CHC Lease Partners at December 31, 1995 has future lease commitments to the
Operating Partnership under the participating lease agreements through the
year 2007. Minimum future rental payments under these noncancellable operating
leases are as follows:
<TABLE>
<CAPTION>
YEAR ENDING DECEMBER 31 AMOUNT
- ----------------------- --------
<S> <C>
1996................................................................... $ 34,079
1997................................................................... 34,334
1998................................................................... 34,592
1999................................................................... 34,851
2000................................................................... 35,113
Thereafter............................................................. 208,746
--------
$381,715
========
</TABLE>
CHC Lease Partners incurred base rents of $6,801 and participating rents of
$3,654 during the period inception (October 2, 1995) to December 31, 1995 and
incurred base rents of $7,321 and participating rents of $4,620 during the
three months ended March 31, 1996. Of the total rent incurred during 1996,
approximately $617 related to three leases which commenced during the first
quarter. At December 31, 1995 and March 31, 1996, CHC Lease Partners owed the
Operating Partnership $2,260 and $2,279, respectively, for rents under the
terms of the participating leases.
Under the participating lease agreements, CHC Lease Partners is obligated to
return to the Operating Partnership at the end of each lease term the
inventory at each of the Initial Hotels less a total of $1,000. Such amount is
considered a lease inducement and is recorded as a reduction to participating
lease payments over the lives of the participating lease agreements. As of
December 31, 1995, the balance of the lease inducement and the inventory due
to the Operating Partnership were $977 and $1,035, respectively, and at March
31, 1996 these amounts were $954 and $1,219, respectively.
CHC Lease Partners has entered into management agreements with hotel
management subsidiaries of CHC and GAH-II, L.P. ("GAH"), an affiliate of CHC
and the Gencom group of companies, to perform all management functions
necessary to operate 19 of the 20 Initial Hotels as of December 31, 1995, and
22 of the 23 hotels as of March 31, 1996. The terms of these agreements range
from ten to twelve years with management fees due based upon a percentage of
gross revenue of each of the hotels leased ranging from 2.25% to 2.50%,
escalating to 3.0% over a two-to-three year period. The fees under these
management agreements are subordinate to CHC Lease Partners' obligations to
the Operating Partnership under the participating lease agreements. If, after
payment of management fees at the contract rate, CHC Lease Partners would be
deficient in participating lease payments to the Operating Partnership under
any of the participating lease agreements in any year, CHC and GAH would be
required to refund and forego management fees for each of the hotels which are
deficient in participating lease payments. If after the management fees are
refunded and foregone, CHC Lease Partners would
F-40
<PAGE>
CHC LEASE PARTNERS
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS)
still be deficient in participating lease payments under any of the
participating lease agreements, CHC and GAH would be required to pay CHC Lease
Partners up to 50% of the management fees earned by CHC and GAH respectively,
except for one CHC managed hotel. Management fees incurred under these
management agreements were $460 during the period inception (October 2, 1995)
to December 31, 1995 and $516 for the three months ended March 31, 1996.
Included in due to affiliates, net at December 31, 1995 were amounts for
management fees under these management agreements due from CHC and owed to GAH
of $46 and $43, respectively. At March 31, 1996, amounts owed to CHC and GAH
under these management agreements were $27 and $309, respectively.
CHC Lease Partners fully reimburses CHC for office space it occupies within
the corporate offices of CHC and for the payroll and related costs CHC
administers on behalf of CHC Lease Partners. These costs amounted to $141 for
the period inception (October 2, 1995) to December 31, 1995 and $149 for the
three months ended March 31, 1996. At December 31, 1995 and March 31, 1996,
the amount due CHC for these costs was $141 and $175, respectively.
During the three months ended March 31, 1996, CHC Lease Partners made
distributions to its partners of $340.
3. PRO FORMA FINANCIAL INFORMATION (UNAUDITED):
The unaudited pro forma statements of operations are presented as if the
leases and the operation of the Initial Hotels had commenced on January 1,
1994. The unaudited pro forma statements of operations are not necessarily
indicative of what the actual results of operations of CHC Lease Partners
would have been assuming such operations had commenced as of January 1, 1994,
nor do they purport to represent the results of operations for future periods.
Pro forma lessee expenses represent management fees and estimated lessee
overhead expenses and exclude dividend income on 250,001 OP Units and interest
income associated with working capital balances.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------
1994 1995
----------- -----------
(IN THOUSANDS)
<S> <C> <C>
Revenue:
Rooms............................................... $ 79,054 $ 86,284
Food and beverage................................... 30,157 30,396
Conference center................................... 2,149 2,434
Telephone and other................................. 6,669 7,563
----------- -----------
Total revenue..................................... 118,029 126,677
----------- -----------
Expenses:
Departmental costs and expenses..................... 45,527 47,164
Participating lease payments........................ 37,985 42,402
General and administrative.......................... 10,029 10,715
Repairs and maintenance............................. 5,886 5,892
Utilities........................................... 5,497 5,397
Marketing........................................... 10,241 11,628
Insurance........................................... 958 908
----------- -----------
Total expenses.................................... 116,123 124,106
----------- -----------
Income before lessee expenses......................... 1,906 2,571
Lessee expenses....................................... (2,087) (2,473)
----------- -----------
Net income (loss)................................... $ (181) $ 98
=========== ===========
</TABLE>
4. SUBSEQUENT EVENTS:
During the first quarter of 1996, CHC Lease Partners and the Operating
Partnership entered into two operating leases for two hotels which were
acquired by the Operating Partnership. The leases are substantially similar to
the other participating lease agreements between CHC Lease Partners and the
Operating Partnership. The base rent for the two hotels should total
approximately $4,721 for 1996, subject to completion of planned renovations
and other activities.
F-41
<PAGE>
REPORT OF INDEPENDENT AUDITORS
To the Partners and Owners of the Initial Hotels:
We have audited the accompanying combined balance sheet of the Initial
Hotels (described in Note 1) as of December 31, 1994, and the related combined
statements of operations, partners' and owners' equity, and cash flows for the
period January 1, 1995 through October 1, 1995 and for the years ended
December 31, 1994 and 1993. These combined financial statements are the
responsibility of the management of the Initial Hotels. Our responsibility is
to express an opinion on these financial statements based on our audits. We
did not audit the financial statements of certain of the Initial Hotels and
Troy Hotel Investors, which statements reflect total assets constituting 37%
of the combined total assets as of December 31, 1994 and total revenues
constituting 41%, 32% and 35% of the combined total revenues for the period
January 1, 1995 through October 1, 1995 and for the years ended December 31,
1994 and 1993, respectively. Such financial statements were audited by other
auditors whose reports have been furnished to us, and our opinion, insofar as
it relates to the amounts included for such hotels, is based solely on the
reports of such other auditors.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits and the reports of other
auditors provide a reasonable basis for our opinion.
In our opinion, based on our audits and the reports of other auditors, the
financial statements referred to above present fairly, in all material
respects, the combined financial position of the Initial Hotels as of
December 31, 1994, and the combined results of their operations and their cash
flows for the period January 1, 1995 through October 1, 1995 and for the years
ended December 31, 1994 and 1993, in conformity with generally accepted
accounting principles.
Ernst & Young LLP
Dallas, Texas
February 16, 1996
F-42
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Partners, Owners and Affiliates of Certain of the Initial Hotels and
CHC International, Inc.:
We have audited the accompanying combined balance sheet of Certain of the
Initial Hotels (as described in Note 1) as of December 31, 1994, and the
related combined statements of operations, equity (deficit), and cash flows
for the period from January 1, 1995 to October 1, 1995 and for the years ended
December 31, 1994 and 1993. These combined financial statements are the
responsibility of the management of Certain of the Initial Hotels. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the combined financial position of Certain of the
Initial Hotels as of December 31, 1994, and the combined results of their
operations and their cash flows for the period from January 1, 1995 to October
1, 1995 and for the years ended December 31, 1994 and 1993, in conformity with
generally accepted accounting principles.
Coopers & Lybrand L.L.P.
Fort Lauderdale, Florida
January 15, 1996
F-43
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the General Partners Troy Hotel Investors:
We have audited the accompanying balance sheet of Troy Hotel Investors (a
limited partnership) as of October 1, 1995 and the related statements of
income, partners' equity and cash flows for the period from January 1, 1995
through October 1, 1995. These financial statements are the responsibility of
the management and owners of Troy Hotel Investors. Our responsibility is to
express an opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. These standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Troy Hotel Investors as of
October 1, 1995 and the results of its operations and its cash flows for the
period from January 1, 1995 through October 1, 1995 in conformity with
generally accepted accounting principles.
As discussed in Note 9, the Partnership sold substantially all of its assets
and liabilities on October 2, 1995. The financial statements do not reflect
the effects of the sale. The partners intend to dissolve the Partnership
in 1996.
Coopers & Lybrand L.L.P.
Pittsburgh, Pennsylvania
January 17, 1996
F-44
<PAGE>
INITIAL HOTELS
COMBINED BALANCE SHEET
DECEMBER 31, 1994
(IN THOUSANDS)
<TABLE>
<S> <C>
ASSETS
Investment in hotel properties:
Land............................................................... $ 17,122
Building and improvements.......................................... 115,529
Furniture and equipment............................................ 50,105
--------
182,756
Less accumulated depreciation...................................... (33,722)
--------
Net investment in hotel properties................................... 149,034
Cash and cash equivalents............................................ 8,290
Cash held in escrow.................................................. 3,148
Accounts receivable, net, including receivables from affiliates of
$753................................................................ 5,086
Inventories.......................................................... 1,126
Deferred expenses, net............................................... 2,947
Prepaids and other assets............................................ 1,488
--------
$171,119
========
LIABILITIES AND PARTNERS' AND OWNERS' EQUITY
Mortgages and other notes payable, including $800 due to an affili-
ate................................................................. $131,095
Capital lease obligations............................................ 2,284
Accounts payable, trade.............................................. 6,294
Accrued expenses and other liabilities............................... 5,348
Amounts due to affiliates............................................ 6,836
--------
151,857
Commitments and contingencies........................................ --
Partners' and owners' equity......................................... 19,262
--------
$171,119
========
</TABLE>
See accompanying notes.
F-45
<PAGE>
INITIAL HOTELS
COMBINED STATEMENTS OF OPERATIONS
(IN THOUSANDS)
<TABLE>
<CAPTION>
PERIOD
JANUARY 1, THREE
YEARS ENDED 1995 MONTHS
DECEMBER 31, THROUGH ENDED
----------------- OCTOBER 1, MARCH 31,
1993 1994 1995 1995
------- -------- ---------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C>
Revenue from hotel operations:
Room................................ $57,504 $ 69,969 $65,192 $22,242
Food and beverage................... 20,168 23,770 21,872 7,613
Conference center................... 1,970 2,149 1,858 699
Telephone and other................. 4,660 5,593 5,860 1,857
------- -------- ------- -------
Total revenue..................... 84,302 101,481 94,782 32,411
------- -------- ------- -------
Expenses:
Departmental costs and expenses..... 33,362 38,461 35,850 11,806
General and administrative.......... 8,407 9,716 8,895 2,686
Repairs and maintenance............. 4,835 5,288 4,455 1,419
Utilities........................... 4,544 4,920 4,107 1,307
Marketing........................... 7,342 8,764 8,769 2,821
Management fees paid to affiliates.. 3,065 3,739 3,995 1,488
Interest expense.................... 9,609 11,197 11,674 4,904
Real estate and personal property
taxes, and insurance............... 3,539 3,786 3,413 1,128
Depreciation and amortization....... 6,649 8,832 7,694 2,649
------- -------- ------- -------
Total expenses.................... 81,352 94,703 88,852 30,208
------- -------- ------- -------
Income before sale of assets and
extraordinary item............... 2,950 6,778 5,930 2,203
Gain (loss) on sale of assets....... (41) 170 -- --
------- -------- ------- -------
Income before extraordinary item.. 2,909 6,948 5,930 2,203
Extraordinary item--loss on extin-
guishment of debt.................. -- -- (1,803) (1,803)
------- -------- ------- -------
Net income........................ $ 2,909 $ 6,948 $ 4,127 $ 400
======= ======== ======= =======
</TABLE>
See accompanying notes.
F-46
<PAGE>
INITIAL HOTELS
COMBINED STATEMENTS OF PARTNERS' AND OWNERS' EQUITY
(IN THOUSANDS)
<TABLE>
<CAPTION>
NET COMBINED
EQUITY
------------
<S> <C>
Balance, December 31, 1992......................................... $ 24,739
Net income....................................................... 2,909
Cash contributions............................................... 8,587
Cash distributions............................................... (22,093)
--------
Balance, December 31, 1993......................................... 14,142
Net income....................................................... 6,948
Capital contributions............................................ 9,239
Distribution of receivables from partners........................ (200)
Cash distributions............................................... (10,867)
--------
Balance, December 31, 1994......................................... 19,262
Net income....................................................... 4,127
Capital contributions............................................ 268
Contribution of debt to capital.................................. 4,145
Redemption of partner interests.................................. (8,021)
Cash distributions............................................... (9,261)
--------
Balance October 1, 1995............................................ $ 10,520
========
</TABLE>
See accompanying notes.
F-47
<PAGE>
INITIAL HOTELS
COMBINED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
PERIOD
JANUARY 1, THREE
YEARS ENDED 1995 MONTHS
DECEMBER 31, THROUGH ENDED
------------------ OCTOBER 1, MARCH 31,
1993 1994 1995 1995
-------- -------- ---------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVI-
TIES:
Net income........................ $ 2,909 $ 6,948 $ 4,127 $ 400
Adjustments to reconcile net in-
come to net cash provided by op-
erating activities:
Depreciation and amortization... 6,649 8,832 7,694 2,649
Amortization of deferred loan
costs.......................... 189 167 225 58
Amortization of discount on note
payable........................ 468 429 172 171
Expenses financed by term debt.. -- -- 250 250
Loss (gain) on sale of assets... 41 (170) -- --
Loss on extinguishment of debt.. -- -- 1,803 1,803
Changes in assets and liabilities,
net of effects of hotel property
change in ownership:
Cash held in escrow............. 14 27 (189) (2)
Accounts receivable, net........ (762) (910) (1,459) (2,073)
Inventories..................... 135 (61) 16 (33)
Prepaid and other assets........ (243) (28) (2) (1,041)
Accounts payable and other ac-
crued expenses................. 2,264 1,331 1,083 (252)
Payables to affiliates.......... (187) 288 (332) 72
-------- -------- ------- -------
Net cash provided by operating
activities................... 11,477 16,853 13,388 2,002
-------- -------- ------- -------
CASH FLOWS FROM INVESTING ACTIVI-
TIES:
Restricted funds (reserved) used
for acquisition of property and
equipment........................ 422 (487) 55 189
Acquisition of hotel properties... (9,518) (8,055) -- --
Improvements and additions to ho-
tel properties................... (8,065) (7,610) (4,665) (1,253)
Proceeds from the sale of assets.. -- 254 -- --
Hotel property change in owner-
ship............................. (4,498) -- -- --
Payment of organizational costs... (514) -- -- --
-------- -------- ------- -------
Net cash used in investing ac-
tivities..................... (22,173) (15,898) (4,610) (1,064)
-------- -------- ------- -------
CASH FLOWS FROM FINANCING ACTIVI-
TIES:
Proceeds from issuance of
mortgages and other notes
payable.......................... 26,918 9,192 13,217 12,500
Principal payments on mortgages
and other notes payable.......... (6,048) (5,944) (11,257) (9,888)
Payment of financing costs........ (114) (439) (320) (279)
Payments on capital lease obliga-
tions............................ (97) (275) (1,319) (1,181)
Proceeds from advances from affil-
iates............................ 4,219 -- 75 --
Payments on advances from affili-
ates............................. -- (53) (561) (695)
Proceeds from loans from affili-
ates............................. 403 -- -- --
Payments on loans from affiliates. (563) (372) (317) --
Capital contributions............. 8,587 9,239 268 33
Distributions paid................ (22,093) (10,867) (9,261) (1,529)
-------- -------- ------- -------
Net cash provided by (used in)
financing activities......... 11,212 481 (9,475) (1,039)
-------- -------- ------- -------
Net change in cash and cash equiva-
lents.............................. 516 1,436 (697) (101)
Cash and cash equivalents at begin-
ning of period..................... 6,338 6,854 8,290 8,290
-------- -------- ------- -------
Cash and cash equivalents at end of
period............................. $ 6,854 $ 8,290 $ 7,593 $ 8,189
======== ======== ======= =======
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION:
Cash paid during the period for in-
terest............................. $ 8,842 $ 10,240 $10,816 $ 4,805
======== ======== ======= =======
</TABLE>
See accompanying notes.
F-48
<PAGE>
INITIAL HOTELS
NOTES TO COMBINED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)
(AMOUNTS AND DISCLOSURES FOR THE PERIOD ENDED MARCH 31, 1995 ARE UNAUDITED)
1.ORGANIZATION, INITIAL PUBLIC OFFERING AND BASIS OF PRESENTATION:
Organization
Patriot American Hospitality, Inc. (the "Company") is a Virginia corporation
which was created to own, through wholly-owned subsidiaries, an approximately
86.3% general and limited partnership interest in Patriot American Hospitality
Partnership, L.P., a Virginia limited partnership (the "Operating
Partnership"). On October 2, 1995, the Operating Partnership acquired from
various entities (the "Selling Entities") twenty (20) operating hotel
properties (collectively, the "Initial Hotels"). Sixteen of the 20 Initial
Hotels were acquired from Selling Entities owned jointly or individually by
Patriot American (or its principals) ("Patriot American"), CHC International,
Inc. ("CHC") and the Gencom group of companies ("Gencom," and collectively
with CHC and Patriot American, the "Primary Contributors"). The four remaining
hotels were acquired from Selling Entities not affiliated with the Primary
Contributors. Following is a listing of the Initial Hotels.
<TABLE>
<CAPTION>
NUMBER
OF MONTH/YEAR
SELLING ENTITY PROPERTY NAME/LOCATION ROOMS ACQUIRED
-------------- ---------------------- ------ ----------
<S> <C> <C> <C>
FULL SERVICE HOTELS:
Bourbon Orleans Invest- Bourbon Orleans Hotel--New Orleans,
ors, LP................ Louisiana 211 8/92
Summit AP Partners, LP.. Holiday Inn Select North Dallas--
Farmers Branch, Texas 374 8/93
Quarry Inn Company...... Hilton Inn Cleveland South--
Independence, Ohio 191 N/A(2)(3)
Crockett Hospitality, Crockett Hotel--San Antonio, Texas
Inc.................... 206 5/90
Troy Hotel Investors, Marriott Troy Hotel--Troy, Michigan
LP..................... 350 12/94
Tri-City Associates..... Four Points by Sheraton--Saginaw,
Michigan 156 N/A(2)(3)
1500 Canal Street In- Radisson New Orleans Hotel--New
vestors, LP............ Orleans, Louisiana 759 9/92
Chartwell Properties, Radisson Hotel & Suites--Dallas, Texas
Inc.................... 198 2/90
Town & Country Hospital- Radisson Suites (Town & Country)--
ity, Co................ Houston, Texas 173 11/89
Main Street Hospitality, Holiday Inn Aristocrat--Dallas, Texas
LP..................... 172 11/92
290 Ventures, LP........ Holiday Inn Northwest Plaza--Houston,
Texas 193 9/90
Travis Real Estate Holiday Inn Northwest Plaza--Austin,
Group, JV.............. Texas 193 1/92
San Angelo Hospitality, Holiday Inn--San Angelo, Texas
LP..................... 148 1/93
Sebring Hospitality, LP. Holiday Inn--Sebring, Florida 148 8/93
Fairmount Hospitality, Fairmount Hotel--San Antonio, Texas
LP..................... 37 10/92
-----
3,509
-----
LIMITED SERVICE HOTELS:
Hotel Group of Jackson- Hampton Inn Jacksonville Airport--
ville, JV.............. Jacksonville, Florida 113 1985(1)(3)
North Coast Rochester Hampton Inn--Rochester, New York
Limited Partnership.... 113 1986(1)(3)
Great Northern Inns Com- Hampton Inn Cleveland Airport--North
pany, L.P.............. Olmsted, Ohio 113 N/A(2)(3)
North Coast Inns Co. Hampton Inn--Canton, Ohio
Ltd.................... 108 N/A(2)(3)
-----
447
-----
EXECUTIVE CONFERENCE
CENTER:
MWL Peachtree........... Peachtree Executive Conference
Center--Peachtree City, Georgia 250 4/93(3)
-----
4,206
=====
</TABLE>
- --------
(1) Constructed by the current owner.
(2) See Basis of Presentation for a discussion of these Initial Hotels which
were not owned by the Primary Contributors or their affiliates.
(3) Collectively "Certain of the Initial Hotels".
The Operating Partnership purchased the Initial Hotels from the Selling
Entities for an aggregate purchase price of approximately $311,000. The owners
of the Selling Entities received cash and/or units of limited partnership
interest in the Operating Partnership as consideration for the hotels. See
Initial Public Offering below.
F-49
<PAGE>
INITIAL HOTELS
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS)
Upon acquisition, all of the Initial Hotels were leased to CHC Lease
Partners, a general partnership owned jointly by CHC and an affiliate of a
principal of Gencom, pursuant to separate participating leases (the
"Participating Leases"). Under the terms of the Participating Leases, CHC
Lease Partners is obligated to pay the greater of (1) minimum base rent or (2)
participating rent based upon certain percentages of room revenue, food and
beverage revenue, conference center revenue and telephone and other revenue of
each of the Initial Hotels. The Participating Leases have an average term of
approximately eleven years.
CHC Lease Partners contracted with hotel management subsidiaries of CHC and
with GAH-II, L.P. ("GAH") to manage 19 of the Initial Hotels and Metro Hotels
Joint Venture manages the remaining Initial Hotel (collectively, the
"Operators"). Under the terms of these management agreements the Operators are
required to perform all management functions necessary to operate the Initial
Hotels.
Initial Public Offering
The Company filed its registration statement with the Securities and
Exchange Commission which became effective September 27, 1995 pursuant to
which the Company completed an initial offering (the "Initial Offering") of
14,605,000 shares of its common stock to the public (including 1,905,000
shares of common stock issued upon exercise of the underwriters' over-
allotment option). The Initial Offering price of all shares sold in the
Initial Offering was $24.00 per share, resulting in net proceeds (less the
underwriters' discount and offering expenses) of approximately $313,170.
Upon completion of the Initial Offering, the Company contributed, through
its wholly-owned subsidiaries, substantially all of the net proceeds of the
Initial Offering to the Operating Partnership in exchange for an approximately
86.3% partnership interest in the Operating Partnership. The Operating
Partnership then used the proceeds from the Company to acquire the Initial
Hotels from the Selling Entities, to finance certain capital improvements and
for general working capital. Rather than receiving cash for their entire
interests in the Selling Entities upon the sale of the Initial Hotels, the
Primary Contributors and certain third-party sellers elected to receive
limited partnership interests in the Operating Partnership aggregating an
approximately 13.7% equity interest in the Operating Partnership.
Basis Of Presentation
The accompanying financial statements are presented on a combined basis
because subsequent to October 1, 1995, these properties are wholly-owned by
the Operating Partnership and because 19 of the 20 Initial Hotels included in
the combination were either owned or managed by one of the Primary
Contributors or their affiliates prior to the Operating Partnership's
acquisition. For those hotels owned by the Primary Contributors or their
affiliates, the accompanying combined financial statements include the results
of operations subsequent to the date of acquisition of each respective hotel.
For those hotels managed by the Primary Contributors or their affiliates, the
combined financial statements include the results of operations for all
periods presented (since these hotels were managed by the Primary Contributors
or their affiliates during all periods).
The Marriott Hotel was acquired by one of the Primary Contributors on
December 30, 1994. The accompanying financial statements include the financial
position and results of operations of the Marriott Hotel from the date of
acquisition.
The accompanying financial statements have been prepared for the period from
January 1, 1995 to October 1, 1995, (the day before the acquisition of the
Initial Hotels by the Operating Partnership) and for the years ended December
31, 1993 and 1994. Unless otherwise specified, all references to a year in the
financial statements are for the periods stated above.
F-50
<PAGE>
INITIAL HOTELS
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS)
Management believes that these combined financial statements result in a
more meaningful presentation and thus appropriately reflect the historical
financial position and results of operations of the predecessor of CHC Lease
Partners. All significant inter-entity transactions have been eliminated in
the combined presentation.
Interim Unaudited Financial Information
The combined statements of operations and cash flows for the three months
ended March 31, 1995 are unaudited; however, in the opinion of management, all
adjustments (consisting solely of normal recurring accruals) considered
necessary for a fair presentation have been included.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Cash Equivalents
All highly liquid investments with an original maturity date of three months
or less when purchased are considered to be cash equivalents.
Cash Held in Escrow
Cash held in escrow consists primarily of amounts for taxes and insurance
remitted to the lenders which hold the mortgages on the hotel facilities.
Concentration of Credit Risk
At December 31, 1994, the Initial Hotels have cash balances with banks in
excess of the Federal Deposit Insurance Corporation's insured limits totalling
$5,385.
Inventories
Inventories, consisting of food, beverages, china, linens and glassware, are
stated at the lower of cost (generally, first-in, first-out) or market.
Initial Hotel Properties
The Initial Hotel properties are stated at the lower of cost or net
realizable value. Depreciation is computed using the straight-line method
based upon the following estimated useful lives:
<TABLE>
<CAPTION>
YEARS
-----
<S> <C>
Buildings and improvements......................................... 30-40
Furniture and equipment............................................ 5-7
</TABLE>
In accordance with Statement of Financial Accounting Standards No. 121,
Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets
to be Disposed Of, management of the Initial Hotels records impairment losses
on long-lived assets used in operations when events and circumstances indicate
that the assets
F-51
<PAGE>
INITIAL HOTELS
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS)
might be impaired and the undiscounted cash flows estimated to be generated by
those assets are less than the carrying amount of those assets. No such
impairment losses have been recognized to date.
Maintenance and repairs are charged to operations as incurred; major
renewals and betterments are capitalized.
Deferred Expenses
Deferred expenses consist primarily of franchise fees, organization costs
and deferred loan costs. Amortization of franchise fees is computed using the
straight-line method over the terms of the related franchise agreements.
Organization costs are amortized on a straight-line basis over five years.
Deferred loan costs are amortized to interest expense on a straight-line basis
over the term of the loan.
Income Taxes
The Selling Entities are not subject to federal or state income taxes;
however, they must file informational income tax returns and the partners or
shareholders must take income or loss of the Selling Entities into
consideration when filing their respective tax returns.
Revenue Recognition
Revenue is recognized as earned. Ongoing credit evaluations are performed
and an allowance for potential credit losses is provided against the portion
of accounts receivable which is estimated to be uncollectible. Such losses
have been within management's expectations.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
3. MORTGAGES AND OTHER NOTES PAYABLE:
Mortgage Loans
Mortgage loans payable is comprised of 21 loans as of December 31, 1994,
each of which are generally collateralized by a first lien deed of trust and
assignment of rents. Mortgage loans payable consists of both interest-only and
amortizing loans which mature at various dates through November 2011. Seven of
the mortgage loans totalling $81,103 as of December 31, 1994 and $84,686 as of
March 31, 1995 have fixed interest rates ranging from 6.0% to 12.0%. Variable
rate mortgage loans payable at December 31, 1994 and March 31, 1995 total
approximately $47,029 and $49,238, respectively. Interest rates on the
variable rate debt are generally based on prime or LIBOR rates which were 8.5%
and 6.0%, respectively, at December 31, 1994 and were 9.0% and 6.1%,
respectively, at March 31, 1995. Certain of the mortgage obligations are
personally guaranteed by certain partners of the Selling Entities.
Other Notes Payable
Other Notes Payable is comprised of six notes as of December 31, 1994 and
March 31, 1995 totaling $2,963 and $6,083, respectively. The proceeds from the
notes were used to finance improvements to certain hotels. The notes, which
mature at various dates through December 31, 2004, bear interest at rates
ranging from 7.5% to 14%. Certain of the notes are guaranteed by owners.
F-52
<PAGE>
INITIAL HOTELS
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS)
Debt Extinguishment
All of the outstanding mortgage and other notes payable described above were
repaid on October 2, 1995 from the proceeds of the Initial Offering.
The Bourbon Orleans Hotel was purchased subject to a mortgage note in the
amount of $9,345 held by the Resolution Trust Corporation ("RTC"). Due to the
non-interest bearing feature of the loan, the mortgage note payable and the
carrying amount of the property were discounted in the amount of $3,220 using
an imputed interest rate of approximately 7.5%. The loan provided for payment
to the RTC equal to 25% of the net proceeds from sale or refinancing of the
property.
In February 1995, the owner refinanced the hotel and the RTC note payable
was retired, prior to scheduled maturity, for $7,588. The excess of the
reacquisition price over the net carrying amount of the debt of $5,785,
resulted in a loss on extinguishment of $1,803, which is presented as an
extraordinary item in 1995. Additionally, interest expense in 1995 includes
$1,242 paid to the RTC for its share of the net refinancing proceeds. The new
loan, in the amount of $12,500, accrued interest at the LIBOR Index, with
monthly payments of interest only due for the first twelve months.
Additionally, the loan proceeds were used to retire other indebtedness of
the hotel of approximately $2,480 and to purchase equipment leased under
capital leases of approximately $1,290.
In March 1995, the Radisson New Orleans Hotel obtained an extension of a
$500,000 note payable due January 1995. The terms of the loan remained
unchanged except for an extension of the loan maturity date to December 2,
1995.
4. COMMITMENTS AND CONTINGENCIES:
Franchise Agreements
Under the terms of hotel franchise agreements expiring at various dates
through July 2013, annual payments for franchise royalties, reservation and
advertising services are due for 17 of the 20 Initial Hotels. Fees are
computed based upon percentages of gross room revenue. Such fees were
approximately $1,598, $2,458, $2,315, and $875 for 1993, 1994 and 1995, and
the three months ended March 31, 1995, respectively. Certain of these
agreements require the franchisee to establish reserves for property
improvements, replacement of furniture and equipment or payment of property
taxes and insurance. The 17 hotels will continue to be operated under
franchise agreements with the same franchisors with remaining terms in excess
of ten years.
Operating Leases
Equipment, vehicles and land are leased under noncancelable operating lease
agreements expiring at varying intervals through July 2069. Following is a
schedule of future minimum rental payments required under these leases as of
December 31, 1994:
<TABLE>
<CAPTION>
YEAR AMOUNT
---- ------
<S> <C>
1995.............................................................. $ 543
1996.............................................................. 419
1997.............................................................. 309
1998.............................................................. 219
1999.............................................................. 140
2000 and thereafter............................................... 4,000
------
$5,630
======
</TABLE>
F-53
<PAGE>
INITIAL HOTELS
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS)
Rental expense was approximately $397, $504, $489 and $178 for 1993, 1994
and 1995, and the three months ended March 31, 1995, respectively.
Capital Leases
The Initial Hotels lease furniture, fixtures and equipment under capital
lease agreements expiring at varying intervals through December 1999.
Depreciation of assets recorded under capital leases is included in
depreciation and amortization in the accompanying combined financial
statements. Future minimum payments under capital lease obligations as of
December 31, 1994 are as follows:
<TABLE>
<CAPTION>
YEAR AMOUNT
---- ------
<S> <C>
1995............................................................. $ 730
1996............................................................. 684
1997............................................................. 637
1998............................................................. 578
1999............................................................. 235
------
Total Minimum lease payments..................................... 2,864
Less: amounts representing interest.............................. (580)
------
Present value of minimum lease payments.......................... $2,284
======
</TABLE>
Contingencies
Certain entities included in the Initial Hotels are subject to various legal
proceedings and claims that arise in the ordinary course of business. These
matters are generally covered by insurance. While the resolution of these
matters cannot be predicted with certainty, management believes that the final
outcome of such matters will not have a material adverse effect on the
financial position or results of operations of the Operating Partnership or
the Company, notwithstanding potential insurance recovery.
5. RELATED PARTY TRANSACTIONS:
After the Initial Offering described in Note 1, the Operators of 19 of the
Initial Hotels are hotel management subsidiaries of CHC, and GAH, an entity
affiliated with CHC and Gencom. Prior to the Initial Offering, seven of the
Initial Hotels were operated by CHC and six were operated by GAH. In addition,
five of the remaining Initial Hotels were operated by affiliates of the
Selling Entities.
The hotels were operated under management agreements expiring through August
2003, and terms included management fees generally ranging from 2% to 5% of
revenue. In addition, certain of the hotels provided for the payment of
incentive management fees based on achievement of specified performance
criteria as defined in the individual management agreements. In certain cases
accounting fees ranging from $1 to $3 per month, asset management fees ranging
from $2 to $3 per month, and construction supervisory fees ranging from 5% to
10% of the total cost incurred for capital improvements were also due.
F-54
<PAGE>
INITIAL HOTELS
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS)
Fees paid to affiliated entities for management (including asset and
incentive management fees) and other services provided to the Initial Hotels
are as follows:
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
MARCH 31,
1993 1994 1995 1995
------ ------ ------ ------------
<S> <C> <C> <C> <C>
Management fees............................... $2,766 $3,068 $3,512 $1,287
Incentive management fees..................... 273 605 374 184
Asset management fees......................... 26 66 109 17
Construction supervisory fees................. 170 313 80 --
Accounting and other fees..................... 107 367 116 94
------ ------ ------ ------
$3,342 $4,419 $4,191 $1,582
====== ====== ====== ======
</TABLE>
Accounting and other fees are included in general and administrative costs
and construction supervisory fees are included in buildings and improvements
in the accompanying financial statements. Unpaid fees are included in amounts
due to affiliates.
Certain of the Selling Entities have received working capital loans or
advances from owners or their affiliates. These loans bear interest at rates
ranging from 5% to 14% at December 31, 1994 and mature at various dates
through March 1997. The advances are non-interest bearing and are generally
due on demand. Loans and advances from owners and their affiliates of $5,598
and $560, respectively, at December 31, 1994 are included in amounts due to
affiliates. Interest expense related to these loans is $385, $649, $182, and
$136 for 1993, 1994 and 1995, and the three months ended March 31, 1995,
respectively. In addition, certain of the Selling Entities have made non-
interest bearing advances to affiliates totalling $753 at December 31, 1994.
Loans and advances from affiliates were repaid in connection with the
Offering.
6. CHANGES IN OWNERSHIP:
In April 1993, Peachtree Executive Conference Center ("Peachtree") was
acquired from an unaffiliated third party. This transaction resulted in a net
increase in the net assets of the property of approximately $4,498. Peachtree
has been managed by an affiliate of CHC during all periods presented and,
therefore, the accompanying financial statements include the results of
operations of Peachtree both prior to and subsequent to the change in
ownership.
In January 1995, the partnership owning the Radisson New Orleans Hotel
redeemed the limited partnership interest of a minority partner based upon a
negotiated purchase price of $4,249 and bought out the existing management
contract of the hotel operator in exchange for notes payable aggregating
$4,499. The notes were repaid in connection with the Offering.
In June 1995, one of the Primary Contributors acquired the interests of his
partners in the Holiday Inn Northwest Houston. In connection with this
acquisition, an affiliated entity acquired all the assets and certain
liabilities in exchange for a note payable to the seller, which wraps around
the underlying first mortgage and certain other indebtedness of the seller.
The amount of the note payable in excess of the underlying indebtedness of
$3,772 has been reflected as a redemption of partner interests in the
accompanying financial statements.
F-55
<PAGE>
INITIAL HOTELS
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS)
7. FAIR VALUE OF FINANCIAL INSTRUMENTS:
Statement of Financial Accounting Standards No. 107 requires disclosure
about fair value for all financial instruments whether or not recognized, for
financial statement purposes. Disclosure about fair value of financial
instruments is based on pertinent information available to management as of
December 31, 1994. Considerable judgment is necessary to interpret market data
and develop estimated fair value. Accordingly, the estimates presented herein
are not necessarily indicative of the amounts which could be realized on
disposition of the financial instruments. The use of different market
assumptions and/or estimation methodologies may have a material effect on the
estimated fair value amounts.
Cash Equivalents
Management estimates that the fair value of cash equivalents approximate
carrying value due to the relatively short maturity of these instruments.
Mortgages and Other Notes Payable
Management estimates that the fair value of mortgages and other notes
payable approximate carrying value based upon the Initial Hotels' effective
borrowing rate for issuance of debt with similar terms and remaining
maturities.
8. NON CASH INVESTING AND FINANCING ACTIVITIES:
During the years ended December 31, 1993 and 1994, the Selling Entities
incurred capital lease obligations of $368 and $1,746, respectively, in the
acquisition of equipment.
The Holiday Inn Select North Dallas was acquired in 1993 subject to a
mortgage note payable of $8,793.
During 1994, receivables of $200 were distributed to a current owner. In
December 1994, an affiliate of one of the Primary Contributors acquired
substantially all of the assets of the Marriott Hotel, subject to mortgage and
other indebtedness of $14,679.
During 1995, a note payable to an affiliate of one of the Primary
Contributors was converted to an additional equity interest in the owner of
the Peachtree Executive Conference Center in the amount of $4,145.
During 1995, partners' interest in two hotels were redeemed for notes
payable totaling $8,021.
F-56
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the General Partners Troy Park Associates:
We have audited the accompanying balance sheet of Troy Park Associates (a
limited partnership) as of December 29, 1994 and the related statements of
operations and partners' equity and cash flows for the period from January 1,
1994 to December 29, 1994 and for the year ended December 31, 1993. These
financial statements are the responsibility of the Partnership's management.
Our responsibility is to express an opinion on these financial statements
based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
As discussed in Note 1, the Partnership sold substantially all of its assets
and liabilities on December 30, 1994. As a result of the sale, the Partnership
recorded a provision for impairment of long-lived assets of $11,503,536 in the
accompanying financial statements. The accompanying financial statements have
been prepared through the date prior to the sale of the Hotel. The partners
intend to dissolve the Partnership in 1995.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Troy Park Associates as of
December 29, 1994, and the results of its operations and its cash flows for
the period from January 1, 1994 to December 29, 1994 and for the year ended
December 31, 1993 in conformity with generally accepted accounting principles.
Coopers & Lybrand L.L.P.
Pittsburgh, Pennsylvania
February 7, 1995
F-57
<PAGE>
TROY PARK ASSOCIATES
(A LIMITED PARTNERSHIP)
BALANCE SHEET
DECEMBER 29, 1994
(IN THOUSANDS)
<TABLE>
<S> <C>
ASSETS
Property and equipment, net............................................ $19,497
Restricted cash........................................................ 758
Receivables, net....................................................... 975
Inventories............................................................ 148
Prepaid expenses and other............................................. 274
Deferred expenses, net................................................. 83
Due from related parties............................................... 649
-------
Total assets......................................................... $22,384
=======
LIABILITIES AND PARTNERS' EQUITY
Long-term debt......................................................... $20,048
Accounts payable trade................................................. 167
Due to related parties................................................. 939
Accrued expenses....................................................... 1,105
Customer deposits...................................................... 72
Capital lease obligations.............................................. 10
-------
Total liabilities.................................................... 22,341
Partners' equity....................................................... 43
-------
Total liabilities and partners' equity............................... $22,384
=======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-58
<PAGE>
TROY PARK ASSOCIATES
(A LIMITED PARTNERSHIP)
STATEMENTS OF OPERATIONS AND PARTNERS' EQUITY
FOR THE PERIOD FROM JANUARY 1, 1994 TO DECEMBER 29, 1994 AND
FOR THE YEAR ENDED DECEMBER 31, 1993
(IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 29,
1993 1994
------------ ------------
<S> <C> <C>
Revenue:
Room revenue.............. $ 7,966 $ 9,085
Food and beverage......... 6,123 6,387
Other..................... 1,014 1,076
------- --------
Total revenue........... 15,103 16,548
------- --------
Expenses:
Property operating costs
and expenses............. 2,361 2,798
Food and beverage......... 4,573 4,814
General and administra-
tive..................... 1,113 1,189
Repairs and maintenance... 528 598
Utilities................. 578 577
Advertising, promotion and
franchise fees........... 1,648 1,667
Management fees........... 604 617
Interest expense.......... 3,304 2,368
Real estate, personal
property taxes and insur-
ance..................... 818 800
Depreciation and amortiza-
tion..................... 2,043 2,207
Equipment rent............ 128 142
Provision for impairment
of long-lived assets..... -- 11,504
------- --------
Total expenses.......... 17,698 29,281
------- --------
Net loss before extraordi-
nary item.................. (2,595) (12,733)
Extraordinary item--extin-
guishment of debt.......... 16,655 --
------- --------
Net (loss) income........... 14,060 (12,733)
Partners' equity (deficit):
Beginning of period....... (1,284) 12,776
------- --------
End of period............. $12,776 $ 43
======= ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-59
<PAGE>
TROY PARK ASSOCIATES
(A LIMITED PARTNERSHIP)
STATEMENTS OF CASH FLOWS
FOR THE PERIOD FROM JANUARY 1, 1994 TO DECEMBER 29, 1994 AND
FOR THE YEAR ENDED DECEMBER 31, 1993
(IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 29,
1993 1994
------------ ------------
<S> <C> <C>
OPERATING ACTIVITIES:
Net income (loss).................................. $ 14,060 $ (12,733)
Adjustments to reconcile net income (loss) to net
cash provided by operating activities:
Provision for impairment of long lived assets.... -- 11,504
Gain on extinguishment of debt................... (16,655) --
Interest expense financed by term debt........... 2,755 --
Amortization of loan costs....................... 191 122
Depreciation and amortization.................... 2,043 2,207
Interest earned on restricted funds.............. (7) --
Changes in assets and liabilities:
Cash in escrow................................... (51) (75)
Accounts receivable.............................. (321) 16
Inventories...................................... 2 (32)
Prepaids and other............................... (127) 93
Accounts payable, trade.......................... (237) 96
Accrued interest payable......................... (1,814) (111)
Accrued expenses................................. 195 48
Customer deposits................................ (20) 40
Due from related parties......................... -- (527)
-------- ---------
Net cash provided by operating activities...... 14 648
-------- ---------
INVESTING ACTIVITIES:
Purchase of equipment, furniture and fixtures...... (277) (289)
Funds restricted for future acquisition of property
and equipment..................................... (460) (496)
Restricted funds used for property and equipment... 355 289
Interest earned on restricted funds................ 7 --
-------- ---------
Net cash used in investing activities.......... (375) (496)
-------- ---------
FINANCING ACTIVITIES:
Increase in deferred financing fees................ (953) (29)
Proceeds from issuance of debt..................... 20,250 --
Payments on long-term debt......................... (20,111) (202)
Payment on capital leases.......................... (52) (56)
Payments on advances from related parties.......... 806 --
-------- ---------
Net cash used in financing activities.......... (60) (287)
-------- ---------
Net decrease in cash and equivalents................. (421) (135)
Cash and equivalents, beginning of period............ 556 135
-------- ---------
Cash and equivalents, end of period.................. $ 135 $ --
======== =========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for interest............................... $ 2,172 $ 2,357
======== =========
</TABLE>
Noncash activities:
Accrued interest of $2,755 on a term loan was converted to principal during
1993.
The accompanying notes are an integral part of these financial statements.
F-60
<PAGE>
TROY PARK ASSOCIATES
(A LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Basis of Presentation
Troy Park Associates (TPA) is a limited partnership with ITH-THO Associates
(ITH-THO), as general partner, and Interstate/Troy Associates (ITA), as
limited partner. The partners of ITH-THO are Interstate Hotels Corporation
#1018 (IHC #1018), which is owned by a partner of ITA, as general partner, and
ITA, as limited partner.
TPA owns the Troy Marriott Hotel (Hotel) located in Troy, Michigan, which
opened in March 1990. The Hotel is a 350-room property operated by Interstate
Hotels Corporation #204 (IHC #204), as agent, pursuant to a management
agreement effective November 1, 1988. IHC #204 is an affiliate of ITA and ITH-
THO. The financial statements include all of the transactions of TPA and of
the Hotel.
On September 30, 1994, a purchase and sale agreement was entered into
between TPA and Troy Hotel Investors, L.P. (THI) to sell all the assets of the
Hotel, except for approximately $263 in accounts receivable, and all the
related liabilities of the Hotel, except for the second mortgage and the
advances from partners of $133, to THI for $7,250. The partners of THI are AP-
GP Troy Hotel Partners, L.P. (AP-GP) and IHC #1018, as general partners, and
AP/Troy Hotel Partners, L.P. (AP/Troy), Hilltop Investment Partnership, L.P.
(HIP), and IHC Associates, L.P. (IHA), as limited partners. AP-GP is an
affiliate of AP/Troy, the holder of the second mortgage (Note 6). HIP and IHA
are affiliates of ITA and ITH-THO. The sale was consummated effective December
30, 1994. The partners intend to dissolve the Partnership in 1995.
As a result of the sale of the Hotel, TPA recorded a provision for
impairment of long-lived assets of $11,504 in the 1994 statement of operations
and partners' equity for the difference between the book value of the assets
and liabilities sold and the sale price.
The accompanying financial statements have been prepared for the period from
January 1, 1994 to December 29, 1994, the day before the sale of the Hotel,
and for the year ended December 31, 1993. Unless otherwise specified, all
references to a year in the financial statements are for the periods stated
above.
Inventories
Inventories are stated at the lower of cost or market, with cost determined
using the first-in, first-out (FIFO) method of accounting.
Property and Equipment
Prior to December 29, 1994, property and equipment were recorded at cost and
were depreciated primarily on the straight-line method over their estimated
useful lives. Expenditures for maintenance and repairs were expensed as
incurred. The cost and the related accumulated depreciation applicable to
property no longer in service were eliminated from the accounts and any gain
or loss thereon was included in operations.
Deferred Expenses
Deferred expenses consist of loan acquisition costs, initial franchise fees
and preopening costs which are being amortized on the straight-line basis over
periods ranging from 5 to 25 years.
F-61
<PAGE>
TROY PARK ASSOCIATES
(A LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS)
Cash and Cash Equivalents
For purposes of the statements of cash flows, all unrestricted, highly
liquid investments purchased with a maturity of three months or less are
considered to be cash equivalents. No collateral or other security is provided
on cash deposits, other than $100 of deposits for each financial institution
insured by the Federal Deposit Insurance Corporation.
Income Tax Status
Partnerships are not subject to state and federal income taxes. Accordingly,
net income or loss and any available tax credits are allocated to the partners
in proportion to their income and loss rates of participation.
Balance Sheet Presentation
The balance sheet of TPA is presented as unclassified to conform to industry
practice for real estate entities.
Reclassifications
Certain amounts in the 1993 financial statements have been reclassified to
conform to the presentation adopted in 1994.
2. RELATED PARTY TRANSACTIONS:
The Hotel is operated as a Marriott Hotel pursuant to a franchise agreement
(Agreement) dated July 18, 1989 between IHC #204, as franchisee, and Marriott
International, as franchisor. The initial term of the Agreement is 25 years
and can be extended, by the mutual consent of the parties and on the then
current terms of Marriott International franchise agreements, for five
successive five-year terms. The Agreement requires ongoing fees, which
comprise royalty expense in the statements of operations and partners' equity,
amounting to 6% of room revenues and 3% of certain food and beverage revenues.
In addition, other fees paid to Marriott International include a national
advertising campaign fee of .8% of room revenues, as well as fees for a
national reservation system, networking, honored guest awards and other
promotional programs. These other fees amounted to approximately $848 in 1994
and $838 in 1993.
Prior to December 23, 1993, the management agreement discussed in Note 1
provided for a management fee of 4% of gross revenues on the first $30,000 of
gross revenues earned by the Hotel. Pursuant to the mortgage payable agreement
discussed in Note 6, the management agreement was amended to provide for a
management fee of 3% of gross revenues and an incentive fee, payable annually
in arrears, of .5% of gross revenues if operating profit before debt service
exceeds $3,000. The management fees earned by IHC #204 were approximately $526
in 1994 and $604 in 1993. Incentive fees totaling approximately $83 were
earned during 1994. There were no incentive fees earned during 1993.
Additionally, the management agreement and franchise agreement provide that
cash from operations be restricted for the future acquisition or for the
replacement of property and equipment based on a percentage of gross hotel
revenues each year (3% in 1994 and 1993). Similar restrictions apply to
interest earned on such funds.
Travel, telephone, legal, computer and other direct expenses approximating
$73 and $70 were recorded during 1994 and 1993, respectively, for services
provided for or expenses incurred on behalf of the Hotel by Interstate Hotels
Corporation (IHC), an affiliate of IHC #204.
F-62
<PAGE>
TROY PARK ASSOCIATES
(A LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS)
Continental Design and Supplies, Inc. (CDS), which is also an affiliate of
IHC #204, provides the Hotel with certain services related to the purchase of
equipment and gift shop merchandise. In connection with these services, the
Hotel is charged a fee based on percentage of the price of equipment purchased
and gift shop revenues. Such fees incurred by the Hotel amounted to
approximately $6 in 1994 and $21 in 1993.
At December 29, 1994, noninterest bearing advances amounting to $133 were
payable to a current partner and to a former partner of ITA. These advances
are payable on demand.
In 1993, TPA received an advance of $806 from IHC which remained at December
29, 1994. No interest was paid on the advance in 1994 or 1993. In addition,
included in amounts receivable was $166 of amounts advanced to IHC. Such
amount was repaid in January 1995.
3. INVENTORIES:
Inventory as of December 29, 1994 was composed of $33 food, $53 beverage and
$62 general supplies.
4. PROPERTY AND EQUIPMENT:
Property and equipment consisted of the following at December 29, 1994:
<TABLE>
<S> <C>
Land............................................................ $ 3,175
Building and improvements....................................... 30,566
Furniture, fixtures and equipment............................... 5,406
-------
39,147
Less accumulated depreciation................................... 8,884
Provision for impairment of long-lived assets................... 10,766
-------
$19,497
=======
</TABLE>
As a result of the sale of the Hotel on December 30, 1994, the Partnership
recorded a provision for impairment for the difference between the book value
of assets and liabilities sold and the sale price. See Note 1 for further
discussion.
5. DEFERRED EXPENSES:
The components of deferred expenses at December 29, 1994 and their
amortization periods were as follows:
<TABLE>
<S> <C>
Preopening costs (5 years)....................................... $1,192
Loan acquisition costs (5 to 7 years)............................ 860
Franchise fees (25 years)........................................ 105
------
2,157
Less accumulated amortization.................................... 1,336
Provision for impairment......................................... 738
------
$ 83
======
</TABLE>
F-63
<PAGE>
TROY PARK ASSOCIATES
(A LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS)
6. TERM DEBT AND CAPITAL LEASE OBLIGATIONS:
Term debt and capital lease obligations consisted of the following at
December 29, 1994:
<TABLE>
<S> <C>
First mortgage.................................................. $12,798
Second mortgage................................................. 7,250
Capital lease obligations for various equipment at imputed in-
terest rates of 10.5% to 11% due in 1995....................... 10
-------
$20,058
=======
</TABLE>
In December 1993, TPA borrowed $13,000 on a first mortgage and $7,250 on a
second mortgage and paid $20,111 of the proceeds to extinguish the outstanding
principal balance of $33,162 and accrued interest of $3,604 on its then term
loan and release all collateral and any claims or rights arising under the
term loan agreement. The extinguishment resulted in a gain of $16,655 which is
presented as an extraordinary item in the 1993 statement of operations and
partners' equity. The first mortgage accrues interest at a rate of 425 basis
points over the LIBOR rate and is payable in varying monthly principal and
interest payments. The LIBOR rate in effect at December 29, 1994 was 5.98%.
The mortgage obligation matures on January 1, 2001 when all unpaid principal
and interest amounts will be due and payable.
The first mortgage agreement also provides for excess cash flow, as defined,
to be applied to the prepayment of the debt in the event that certain minimum
coverage ratios of net income to debt service expense are not maintained.
There were no prepayments required during 1994 or 1993.
Additionally, the first mortgage agreement requires TPA to transfer certain
amounts into an escrow account to be used for payments of insurance and taxes.
The second mortgage is with AP/Troy. The second mortgage accrued interest,
which was payable quarterly, at 90% of net cash flows, as defined, until such
interest rate equaled a rate of 15%; at 75% of net cash flows until such
interest rate equaled a rate of 25% and at 65% of net cash flows thereafter.
Under the terms of the loan agreement, the second mortgage was convertible to
90% equity interest in the partnership if certain conditions, as described in
the mortgage agreement, were met by July 1, 1994. The agreement matured July
1, 1994 and was extended to the earlier of 30 days following the satisfaction
of the conditions or January 1, 1995. These conditions were not met and on
September 30, 1994, TPA entered into a sales agreement with THI to sell the
Hotel. As discussed in Note 1, the Hotel was sold on December 30, 1994 and the
note was paid with the proceeds from the sale of the Hotel.
Two of the partners and an affiliate of one of the partners of TPA have
provided certain financial guarantees not to seek protection under bankruptcy
or other similar laws.
The mortgage agreements contain certain restrictive covenants including
limitations on the assumption of additional indebtedness, changes in the
partnership agreements and changes of the managing agent of the Hotel (IHC
#204).
The first and second mortgages are collateralized by substantially all of
the assets of the Hotel, not specifically collateralizing the capital lease
obligations.
F-64
<PAGE>
TROY PARK ASSOCIATES
(A LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS)
Aggregate scheduled maturities of term debt and capital lease obligations
for the next five years ending December 31, 1999 are as follows:
<TABLE>
<S> <C>
1995............................................................. $ 7,464
1996............................................................. 247
1997............................................................. 274
1998............................................................. 304
1999............................................................. 338
Thereafter....................................................... 11,431
-------
$20,058
=======
</TABLE>
7. OPERATING PROFIT:
Operating profit, by department, was as follows:
<TABLE>
<CAPTION>
1993 1994
------ ------
<S> <C> <C>
Rooms...................................................... $6,211 $7,054
Food and beverage.......................................... 1,550 1,572
Gift shop.................................................. 39 33
Telephone.................................................. 241 307
Other...................................................... 150 173
------ ------
$8,191 $9,139
====== ======
</TABLE>
8. EMPLOYEE BENEFITS:
The Hotel participated in the following employee benefit plans sponsored by
IHC:
The Interstate Hotels Corporation Employee Health and Welfare Plan (and
related Trust) provides employees of IHC and certain of its affiliates
including IHC #204 (the Company) with group health insurance benefits. The
group policies provide for a "minimum premium plan" whereby IHC is self-
insured for certain benefits, subject to certain individual claim and
aggregate maximum liability limits.
For the period January 1, 1994 through July 31, 1994, the Hotel paid a
premium to the Trust based on the estimated conventional premium. Effective
August 1, 1994, the Hotel paid the premiums directly to IHC. These premiums
may be prospectively adjusted to consider actual claims experience. The Hotel
incurred expenses of approximately $245 in 1994 and $194 in 1993 related to
the plan. The Trust is exempt from federal income tax under Section 501(c)(8)
of the Internal Revenue Code as a voluntary employees' beneficiary
association.
The Company maintains a defined contribution savings plan for all employees.
Eligibility for participation in the plan is based on the employee's
attainment of 21 years of age and on the completion of one year of service
with the Company. Employer contributions are based on a percentage of employee
contributions. Participants may make voluntary contributions to the plan of up
to 6% of their compensation, as defined. The Hotel incurred expenses of
approximately $60 in 1994 and $46 in 1993 related to the plan.
The Company sponsors certain other employee benefit plans, which change from
time to time, but generally provide for incentive bonuses and deferred
compensation to certain key employees of IHC #204 and the Hotel. These
compensation awards are dependent on the Hotel's performance and other
established criteria. The Hotel incurred expenses of approximately $150 in
1994 and $117 in 1993 related to these plans.
F-65
<PAGE>
TROY PARK ASSOCIATES
(A LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS)
9. OPERATING LEASES:
The Hotel accounts for various equipment leases as operating leases. Total
rental expense amounted to approximately $142 in 1994 and $128 in 1993. The
following is a schedule of future minimum lease payments under these leases:
<TABLE>
<CAPTION>
YEAR AMOUNT
---- ------
<S> <C>
1995.............................................................. $ 59
1996.............................................................. 35
1997.............................................................. 14
----
$108
====
</TABLE>
F-66
<PAGE>
REPORT OF INDEPENDENT AUDITORS
To the Board of Directors and Shareholders of Patriot American Hospitality,
Inc.
We have audited the accompanying balance sheet of Buckhead Hospitality Joint
Venture, a Texas Joint Venture, as of December 31, 1995, and the related
statements of operations, venturers' capital, and cash flows for the year then
ended. Our audit also included the financial statement schedule listed in Item
35(a) of this Registration Statement. These financial statements and schedule
are the responsibility of the Joint Venture's management. Our responsibility
is to express an opinion on these financial statements and schedule based on
our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Buckhead Hospitality Joint
Venture, a Texas Joint Venture, as of December 31, 1995 and the results of its
operations and its cash flows for the year then ended, in conformity with
generally accepted accounting principles. Also, in our opinion, the related
financial statement schedule, when considered in relation to the basic
financial statements taken as a whole, presents fairly in all material
respects the information set forth therein.
Ernst & Young LLP
Dallas, Texas
March 5, 1996
F-67
<PAGE>
BUCKHEAD HOSPITALITY JOINT VENTURE
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31, FEBRUARY 29,
1995 1996
------------ ------------
(UNAUDITED)
<S> <C> <C>
ASSETS
Investment in hotel property, at cost
Building and improvements.......................... $ 750,127 $ 750,127
Furniture and equipment............................ 1,318,684 1,385,527
---------- ----------
2,068,811 2,135,654
Less accumulated depreciation........................ (262,646) (297,389)
---------- ----------
Net investment in hotel property..................... 1,806,165 1,838,265
Cash and cash equivalents............................ 225,015 1,204,531
Cash held in escrow deposits......................... 60,176 60,176
Accounts receivable, net............................. 152,612 140,835
Inventories.......................................... 12,159 10,978
Deferred expenses, net of accumulated amortization of
$58,552 in 1995 and $61,585 in 1996................. 75,372 72,339
Prepaids and other assets............................ 117,563 115,774
---------- ----------
$2,449,062 $3,442,898
========== ==========
LIABILITIES AND VENTURERS' CAPITAL
Mortgage note payable................................ $1,393,750 $1,381,250
Capital lease obligations............................ 71,028 67,579
Accounts payable, trade.............................. 181,566 156,529
Advance deposits..................................... 186,274 871,222
Accrued expenses and other liabilities............... 147,904 308,155
Due to affiliate..................................... 20,680 37,858
---------- ----------
2,001,202 2,822,593
Commitments.......................................... -- --
Venturers' capital................................... 447,860 620,305
---------- ----------
$2,449,062 $3,442,898
========== ==========
</TABLE>
See accompanying notes.
F-68
<PAGE>
BUCKHEAD HOSPITALITY JOINT VENTURE
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
PERIOD
THREE MONTHS JANUARY 1,
YEAR ENDED ENDED 1996 THROUGH
DECEMBER 31, MARCH 31, FEBRUARY 29,
1995 1995 1996
------------ ------------ ------------
(UNAUDITED)
<S> <C> <C> <C>
Revenue from hotel operations:
Rooms................................. $5,746,314 $1,398,638 $1,170,013
Food and beverage..................... 635,785 163,908 114,641
Telephone and other................... 438,602 106,473 95,645
---------- ---------- ----------
Total revenue....................... 6,820,701 1,669,019 1,380,299
---------- ---------- ----------
Expenses:
Departmental costs and expenses....... 2,122,507 436,552 467,542
General and administrative............ 753,945 153,877 134,913
Repairs and maintenance............... 302,288 69,433 51,012
Utilities............................. 250,333 59,069 51,708
Marketing............................. 753,918 195,419 138,203
Management fees paid to affiliates.... 341,035 83,442 69,150
Interest expense...................... 197,469 45,544 30,533
Real estate and personal property
taxes and insurance.................. 226,141 61,248 50,776
Land lease rent....................... 1,045,137 259,736 177,318
Depreciation and amortization......... 186,948 36,849 36,699
---------- ---------- ----------
Total expenses...................... 6,179,721 1,401,169 1,207,854
---------- ---------- ----------
Net income.............................. $ 640,980 $ 267,850 $ 172,445
========== ========== ==========
</TABLE>
See accompanying notes.
F-69
<PAGE>
BUCKHEAD HOSPITALITY JOINT VENTURE
STATEMENTS OF VENTURERS' CAPITAL
<TABLE>
<S> <C>
Balance at December 31, 1994........................................ $(193,120)
Net income.......................................................... 640,980
---------
Balance at December 31, 1995........................................ 447,860
Net income (unaudited).............................................. 172,445
---------
Balance at February 29, 1996 (unaudited)............................ $ 620,305
=========
</TABLE>
See accompanying notes.
F-70
<PAGE>
BUCKHEAD HOSPITALITY JOINT VENTURE
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
PERIOD
THREE MONTHS JANUARY 1,
ENDED 1996 THROUGH
DECEMBER 31, MARCH 31, FEBRUARY 29,
1995 1995 1996
------------ ------------ ------------
(UNAUDITED)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income............................ $ 640,980 $267,850 $ 172,445
Adjustments to reconcile net income to
net cash provided by operating
activities:
Depreciation and amortization....... 186,948 36,849 36,699
Amortization of deferred loan costs. 9,047 1,616 1,077
Write-off of refinancing fees....... 160,750 -- --
Changes in operating assets and
liabilities
Cash held in escrow................. 29,582 -- --
Accounts receivable................. 59,955 (36,506) 11,777
Inventories......................... (752) 614 1,181
Prepaid and other assets............ 2,129 (12,031) 1,789
Accounts payable and accrued
expenses........................... (35,845) 47,811 135,214
Advance deposits.................... 118,874 37,782 684,948
Payables to affiliates.............. 5,941 15,668 17,178
---------- -------- ----------
Net cash provided by operating
activities....................... 1,177,609 359,653 1,062,308
---------- -------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES
Improvements and additions to hotel... (448,695) (35,052) (66,843)
---------- -------- ----------
Net cash used in investing
activities....................... (448,695) (35,052) (66,843)
---------- -------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES
Principal payments on mortgage and
other notes payable.................. (129,663) (37,636) (12,500)
Payments on capital lease obligations. (16,247) (1,585) (3,449)
Payments of refinancing fees.......... (160,750) -- --
Payments on advances from affiliate... (61,053) -- --
---------- -------- ----------
Net cash used in financing
activities....................... (367,713) (39,221) (15,949)
---------- -------- ----------
Net increase in cash and cash
equivalents............................ 361,201 285,380 979,516
Cash (cash overdraft) and cash
equivalents at beginning of period..... (136,186) (136,186) 225,015
---------- -------- ----------
Cash and cash equivalents at end of
period................................. $ 225,015 $149,194 $1,204,531
========== ======== ==========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION
Cash paid during the period for
interest............................... $ 204,530 $ 60,036 $ 29,456
========== ======== ==========
NONCASH INVESTING AND FINANCING
ACTIVITIES
Property and equipment financed under
capital leases......................... $ 87,275 $ 42,506 $ --
========== ======== ==========
</TABLE>
See accompanying notes.
F-71
<PAGE>
BUCKHEAD HOSPITALITY JOINT VENTURE
NOTES TO FINANCIAL STATEMENTS
(AMOUNTS AND DISCLOSURES AS OF MARCH 31, 1995 AND FEBRUARY 29, 1996 AND THE
PERIODS THEN ENDED ARE UNAUDITED)
1. ORGANIZATION
On November 9, 1993, Buckhead Hotels, Inc. (BHI), and Buckhead Ventures,
Inc. (BVI), formed the Buckhead Hospitality Joint Venture (the "Venture"), a
Texas Joint Venture to acquire, own, and operate the Holiday Inn--Lenox Hotel,
a full-service 297-room hotel located in Atlanta, Georgia (the "Hotel"). BHI
and BVI each own 50% of the Joint Venture, of which BHI is the managing
venturer.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Cash and Cash Equivalents
All highly liquid investments with an original maturity date of three months
or less when purchased are considered to be cash equivalents.
Cash held in Escrow
Cash held in escrow consists primarily of amounts escrowed for taxes.
Inventories
Inventories, consisting of food and beverages, are stated at the lower of
cost (generally, first-in, first-out) or market.
Hotel Property
The hotel property is stated at the lower of cost or net realizable value.
Depreciation is computed using the straight-line method over the estimated
useful lives of the assets of 40 years for building and improvements and seven
years for furniture and equipment.
In accordance with Statement of Financial Accounting Standards No. 121,
Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets
to be Disposed Of, the Venture would record impairment losses on long-lived
assets used in operations when events and circumstances indicate that the
assets might be impaired and the undiscounted cash flows estimated to be
generated by those assets are less than the carrying amounts of those assets.
No such impairment losses have been recognized to date by the Venture.
Capitalization Policy
Maintenance and repairs are charged to operations as incurred; major
renewals and betterments are capitalized.
Deferred Expenses
Deferred expenses consist of loan costs and organizational costs.
Organizational costs are being amortized on a straight-line basis over a five
year period. Deferred loan costs are amortized to interest expense on a
straight-line basis over the life of the related note payable.
Income Taxes
The Venture is not subject to federal or state income taxes; however, it
must file informational income tax returns and the venturers must take income
or loss of the Venture into consideration when filing their respective tax
returns.
F-72
<PAGE>
BUCKHEAD HOSPITALITY JOINT VENTURE
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
Revenue Recognition
Revenue is recognized as earned. Ongoing credit evaluations are performed
and an allowance for potential credit losses is provided against the portion
of accounts receivable which is estimated to be uncollectible. Such losses
have been within management's expectations.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
Concentration of Credit Risk
At December 31, 1995 and February 29, 1996, the Venture had cash balances
with a bank in excess of the Federal Deposit Insurance Corporation's insured
limit by $25,323 and $1,097,573, respectively.
Interim Unaudited Financial Information
The accompanying financial statements as of February 29, 1996 and for the
three months ended March 31, 1995 and the period January 1, 1996 through
February 29, 1996 are unaudited; however, in the opinion of management, all
adjustments (consisting solely of normal recurring accruals) considered
necessary for a fair presentation have been included. The results of interim
periods are not necessarily indicative of the results to be obtained for a
full year.
3. MORTGAGE NOTE PAYABLE
Mortgage note payable consists of a note payable to General Innkeeping
Acceptance Corporation (GIAC), collateralized by a leasehold deed and security
agreement on substantially all of the Venture's assets. Interest is payable
monthly at a rate of prime plus 3.5%. At December 31, 1995 and February 29,
1996, the prime rate was 8.5% and 8.25%, respectively. In addition to
interest, a loan administration and servicing fee equal to .25% per annum of
the outstanding balance is payable monthly to GIAC.
Principal payments of $6,250 are due monthly, with the remaining balance
payable due upon maturity at September 1, 2001. The scheduled principal
payments as of December 31, 1995 are as follows:
<TABLE>
<CAPTION>
YEAR AMOUNT
---- ----------
<S> <C>
1996............................................................ $ 75,000
1997............................................................ 75,000
1998............................................................ 75,000
1999............................................................ 75,000
2000............................................................ 75,000
Thereafter...................................................... 1,018,750
----------
$1,393,750
==========
</TABLE>
In 1995, the Venture paid $160,750 of loan fees while negotiating a possible
refinancing of their debt. The Venture elected not to execute the refinancing,
therefore the related fees were expensed in full and are included in general
and administrative expense in the accompanying financial statements.
4. VENTURERS' CAPITAL
At inception, each venturer contributed $325,000. The Joint Venture
agreement requires that each venturer make matching pro rata additional
contributions, provided that no venturer should be obligated to make
F-73
<PAGE>
BUCKHEAD HOSPITALITY JOINT VENTURE
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
contributions in excess of $100,000 in any fiscal year. No contributions were
made during 1995 or during the period ended February 29, 1996.
Net income of the Joint Venture is allocated to BHI and BVI in accordance
with the Joint Venture agreement.
Distributions of cash from operations are to be made in accordance with the
Joint Venture ownership interests after the close of each six-month period,
subject to any restrictions imposed by loan agreements and after creating such
reasonable reserves as the Venturers' deem appropriate. No distributions were
made in 1995 or during the period ended February 29, 1996.
5. COMMITMENTS
Franchise Agreement
Under the terms of the hotel franchise agreement expiring in August 2009,
payment for royalty fees, marketing fees, reservation fees and other fees are
payable monthly. Fees are generally computed based on percentages of gross
revenues. Additionally, monthly computer system fees and terminal maintenance
fees are payable monthly to Holiday Inns Franchising, Inc. pursuant to
additional agreements. Total fees incurred for these services during the year
ended December 31, 1995, the three months ended March 31, 1995 and the period
January 1, 1996 through February 29, 1996 were approximately $406,000,
$100,917 and $69,064, respectively.
Capital Lease Obligations
The Venture leases equipment under capital lease agreements expiring on
varying intervals through 1999. Depreciation of assets recorded under capital
leases is included in depreciation and amortization in the accompanying
financial statements. Future minimum payments under capital lease obligations
as of December 31, 1995 are as follows:
<TABLE>
<CAPTION>
YEAR AMOUNT
---- --------
<S> <C>
1996............................................................. $ 29,403
1997............................................................. 29,403
1998............................................................. 15,824
1999............................................................. 11,298
--------
85,928
Less: amounts representing interest.............................. (14,900)
--------
Present value of minimum lease payments.......................... $ 71,028
========
</TABLE>
Land and Operating Leases
Land and equipment are leased under noncancellable operating leases expiring
at varying intervals through June 2069. The land lease provides for annual
increases in the lease payments based upon changes in the Consumer Price
Index.
F-74
<PAGE>
BUCKHEAD HOSPITALITY JOINT VENTURE
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
Future minimum payments required under these leases as of December 31, 1995
(excluding future CPI adjustments) are as follows:
<TABLE>
<CAPTION>
YEAR AMOUNT
---- -----------
<S> <C>
1996........................................................... $ 1,067,722
1997........................................................... 1,065,807
1998........................................................... 1,064,000
1999........................................................... 1,064,000
2000........................................................... 1,064,000
Thereafter..................................................... 72,884,000
-----------
$78,209,529
===========
</TABLE>
Rental expense incurred during the year ended December 31, 1995, for the
three months ended March 31, 1995 and during the period from January 1, 1996
through February 29, 1996 under these leases was approximately $1,070,333,
$269,428 and $180,884, respectively.
6. RELATED PARTY TRANSACTIONS
The Hotel is operated by BHI. The Joint Venture agreement provides for a
monthly management fee of 5% of gross income, of which 3.5% is paid to BHI and
the remaining 1.5% is paid to BVI. Due to affiliates at December 31, 1995 and
February 29, 1996 represents accrued management fees.
Accounting and other fees of $3,000 per month are paid to Westminster
Hotels, an affiliate of BHI. These fees are included in general and
administrative expenses in the accompanying financial statements.
During 1995, the Venture repaid 1994 advances of $61,053 from Chartwell
Properties Joint Venture, an affiliate of BHI.
7. FAIR VALUE OF FINANCIAL INSTRUMENTS
Statement of Financial Accounting Standards No. 107 requires disclosure
about fair value for all financial instruments whether or not recognized, for
financial statement purposes. Disclosure about fair value of financial
instruments is based on pertinent information available to management as of
December 31, 1995. Considerable judgment is necessary to interpret market data
and develop estimated fair value. Accordingly, the estimates presented herein
are not necessarily indicative of the amounts which could be realized on
disposition of financial instruments. The use of different market assumptions
and/or estimation methodologies may have a material effect on the estimated
fair value amounts.
Management estimates that the fair value of (i) accounts receivable,
accounts payable, advanced deposits and accrued expenses approximate carrying
value due to the relatively short maturity of these instruments; (ii) mortgage
notes payable approximate carrying value based upon the Venture's effective
borrowing rate for issuance of debt with similar terms and remaining
maturities; (iii) capital lease obligations approximate carrying value based
on the Venture's effective borrowing rate for financing the purchase of
similar equipment under similar terms.
8. SUBSEQUENT EVENT
On March 5, 1996, the Venture sold the Hotel and related assets to Patriot
American Hospitality Partnership, L.P. ("Patriot") for approximately $7.2
million in cash and 167,012 limited partnership units in Patriot with a value
of approximately $4.0 million on the date of contract.
F-75
<PAGE>
BUCKHEAD HOSPITALITY JOINT VENTURE
SCHEDULE III--REAL ESTATE AND ACCUMULATED DEPRECIATION AS OF DECEMBER 31, 1995
<TABLE>
<CAPTION>
COST CAPITALIZED
SUBSEQUENT TO GROSS AMOUNTS AT WHICH
INITIAL COST ACQUISITION CARRIED AT CLOSE OF PERIOD (A)
----------------- ----------------- ---------------------------------
ACCUMULATED DATE
BUILDING & BUILDING & BUILDING & DEPRECIATION OF
DESCRIPTION ENCUMBRANCES LAND IMPROVEMENTS LAND IMPROVEMENTS LAND IMPROVEMENTS TOTAL (B)(C) ACQUISITION
----------- ------------ ---- ------------ ---- ------------ --------------------------------------------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Holiday Inn--
Lennox.......... $1,393,750 $-- $680,000 $-- $70,127 $ -- $ 750,127 $ 750,127 $39,410 1993
</TABLE>
See accompanying notes to this schedule on the following page.
F-76
<PAGE>
BUCKHEAD HOSPITALITY JOINT VENTURE
NOTES TO SCHEDULE III
<TABLE>
<S> <C>
(a)Reconciliation of Real Estate:
Balance at January 1, 1995......................................... $709,577
Additions during year:
Acquisitions....................................................... --
Improvements....................................................... 40,550
--------
Balance at December 31, 1995....................................... $750,127
========
(b)Reconciliation of Accumulated Depreciation:
Balance at January 1, 1995......................................... $ 21,249
Depreciation expense............................................... 18,161
--------
Balance at December 31, 1995....................................... $ 39,410
========
(c)Depreciation is computed on the straight-line method over an esti-
mated useful life of 40 years
</TABLE>
F-77
<PAGE>
REPORT OF INDEPENDENT AUDITORS
To the Board of Directors and Shareholders of
Patriot American Hospitality, Inc.
We have audited the accompanying combined balance sheet of the Gateway Hotel
Limited Partnership and Wenatchee Hotel Limited Partnership (the
"Partnerships") as of December 31, 1995 and the related combined statements of
operations, partners' capital and cash flows for the year then ended. Our
audit also included the financial statement schedule listed in Item 35(a) of
this Registration Statement. These combined financial statements and schedule
are the responsibility of management of the Partnerships. Our responsibility
is to express an opinion on these combined financial statements and schedule
based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, the combined financial statements referred to above present
fairly, in all material respects, the combined financial position of the
Partnerships as of December 31, 1995 and the combined results of their
operations and their cash flows for the year then ended, in conformity with
generally accepted accounting principles. Also, in our opinion, the related
financial statement schedule, when considered in relation to the basic
financial statements taken as a whole, presents fairly in all material
respects the information set forth therein.
Ernst & Young LLP
Dallas, Texas
March 1, 1996, except for Note 7,
as to which the date is April 2, 1996
F-78
<PAGE>
GATEWAY HOTEL LIMITED PARTNERSHIP AND WENATCHEE HOTEL LIMITED PARTNERSHIP
COMBINED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
1995 1996
------------ -----------
(UNAUDITED)
<S> <C> <C>
ASSETS
Investment in hotel properties, at cost:
Land............................................... $ 1,781,500 $ 1,781,500
Buildings and improvements......................... 8,139,143 8,141,102
Furniture and equipment............................ 2,384,047 2,402,139
----------- -----------
12,304,690 12,324,741
Less accumulated depreciation........................ (2,641,501) (2,799,334)
----------- -----------
Net investment in hotel properties................... 9,663,189 9,525,407
Cash and cash equivalents............................ 481,898 159,059
Accounts receivable, net............................. 323,974 356,127
Inventories.......................................... 37,558 41,599
Deferred expenses, net of accumulated amortization of
$558,092 in 1995 and $567,509 in 1996............... 265,094 309,984
Prepaid and other assets............................. 35,463 6,373
----------- -----------
$10,807,176 $10,398,549
=========== ===========
LIABILITIES AND PARTNERS' CAPITAL
Mortgages and other notes payable.................... $ 9,870,215 $ 9,815,674
Accounts payable and accrued liabilities............. 404,354 466,551
Due to affiliates.................................... 132,082 125,000
----------- -----------
10,406,651 10,407,225
Commitments.......................................... -- --
Partners' capital.................................... 400,525 (8,676)
----------- -----------
$10,807,176 $10,398,549
=========== ===========
</TABLE>
See accompanying notes.
F-79
<PAGE>
GATEWAY HOTEL LIMITED PARTNERSHIP AND WENATCHEE HOTEL LIMITED PARTNERSHIP
COMBINED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED MARCH 31,
DECEMBER 31, ----------------------
1995 1995 1996
------------ ---------- ----------
(UNAUDITED)
<S> <C> <C> <C>
Revenue from hotel operations:
Rooms................................... $4,275,525 $ 856,663 $ 892,814
Food and beverage....................... 2,177,558 523,820 471,271
Telephone and other..................... 358,520 83,191 83,773
---------- ---------- ----------
Total revenue......................... $6,811,603 $1,463,674 $1,447,858
---------- ---------- ----------
Expenses:
Departmental costs and expense.......... 3,178,873 737,552 730,409
General and administrative.............. 771,821 178,052 207,167
Repairs and maintenance................. 233,196 56,218 59,748
Utilities............................... 266,819 67,019 74,887
Marketing, including $106,888, $21,417
and $22,320, respectively, paid to
affiliates............................. 352,562 71,902 92,365
Management and consulting fees paid to
affiliates............................. 185,750 40,625 166,097
Interest expense........................ 839,685 207,948 197,356
Real estate and personal property taxes,
and insurance.......................... 182,234 52,000 46,775
Depreciation and amortization........... 654,144 169,184 162,755
---------- ---------- ----------
Total expenses........................ 6,665,084 1,580,500 1,737,559
---------- ---------- ----------
Net income (loss)......................... $ 146,519 $ (116,826) $ (289,701)
========== ========== ==========
</TABLE>
See accompanying notes.
F-80
<PAGE>
GATEWAY HOTEL LIMITED PARTNERSHIP AND
WENATCHEE HOTEL LIMITED PARTNERSHIP
COMBINED STATEMENTS OF PARTNERS' CAPITAL
<TABLE>
<S> <C>
Balance at December 31, 1994........................................ $ 454,006
Cash distributions.................................................. (200,000)
Net income.......................................................... 146,519
---------
Balance at December 31, 1995........................................ $ 400,525
Cash distributions (unaudited)...................................... (119,500)
Net loss (unaudited)................................................ (289,701)
---------
Balance at March 31, 1996 (unaudited)............................... $ (8,676)
=========
</TABLE>
See accompanying notes.
F-81
<PAGE>
GATEWAY HOTEL LIMITED PARTNERSHIP AND
WENATCHEE HOTEL LIMITED PARTNERSHIP
COMBINED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED MARCH 31,
DECEMBER 31, --------------------
1995 1995 1996
------------ --------- ---------
(UNAUDITED)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss)......................... $ 146,519 $(116,826) $(289,701)
Adjustments to reconcile net income to net
cash provided by
(used in) operating activities:
Depreciation and amortization........... 654,144 169,184 162,755
Amortization of deferred loan costs..... 23,548 5,888 4,495
Changes in operating assets and
liabilities:
Accounts receivable..................... (139,761) (71,038) (32,153)
Inventories............................. 1,279 (1,643) (4,041)
Deferred expenses....................... -- -- (54,307)
Prepaid and other assets................ (19,693) 7,439 29,090
Accounts payable and accrued
liabilities............................ 10,297 101,566 62,197
Due to affiliates....................... (160,287) 14,922 (7,082)
--------- --------- ---------
Net cash provided by (used in)
operating activities................. 516,046 109,492 (128,747)
--------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Improvements and additions to hotel
properties............................... (123,402) (7,948) (20,051)
--------- --------- ---------
Net cash used in investing activities. (123,402) (7,948) (20,051)
--------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Principal payments on mortgages and other
notes payable............................ (252,997) (61,286) (54,541)
Advances from affiliate................... 17,289 -- --
Advances to affiliate..................... (50,000) (50,000) --
Repayment of advances from affiliate...... 140,000 -- --
Cash distributions paid................... (200,000) -- (119,500)
--------- --------- ---------
Net cash used in financing activities. (345,708) (111,286) (174,041)
--------- --------- ---------
Net increase/(decrease) in cash and cash
equivalents.............................. 46,936 (9,742) (322,839)
Cash and cash equivalents beginning of
period..................................... 434,962 434,962 481,898
--------- --------- ---------
Cash and cash equivalents end of period..... $ 481,898 $ 425,220 $ 159,059
========= ========= =========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION:
Cash paid during the period for interest.. $ 809,496 $ 202,060 $ 174,007
========= ========= =========
</TABLE>
See accompanying notes.
F-82
<PAGE>
GATEWAY HOTEL LIMITED PARTNERSHIP AND
WENATCHEE HOTEL LIMITED PARTNERSHIP
NOTES TO COMBINED FINANCIAL STATEMENTS
(AMOUNTS AND DISCLOSURES FOR THE THREE MONTHS ENDED
MARCH 31, 1995 AND 1996 ARE UNAUDITED)
1. ORGANIZATION AND BASIS OF PRESENTATION
Organization
The Gateway Hotel Limited Partnership owns the WestCoast Gateway Hotel (the
"Gateway Hotel") located in Seattle, Washington. The Gateway Hotel is a full
service hotel with 145 guest rooms, approximately 625 square feet of meeting
space and one food and beverage outlet located next to the hotel which is
leased to a third party. WestCoast Hotels, Inc. constructed the Gateway Hotel,
which commenced operations in August 1990.
During July 1991, Wenatchee Hotel Limited Partnership acquired the WestCoast
Wenatchee Center Hotel (the "Wenatchee Hotel") in Wenatchee, Washington, which
is centrally located between the Columbia River and Cascade Mountains. The
Wenatchee Hotel is a full-service hotel with 147 guest rooms and one food and
beverage outlet. The Wenatchee Hotel is located next to the Wenatchee Center
(the "Center") which offers approximately 40,000 square feet of convention,
banquet and meeting space. The Center is managed by the Wenatchee Hotel
Limited Partnership.
The Gateway Hotel Limited Partnership and the Wenatchee Hotel Limited
Partnership are collectively referred to as the "Partnerships" and the Gateway
Hotel and Wenatchee Hotel are collectively referred to as the "Hotels."
Basis of Presentation
The accompanying financial statements are presented on a combined basis
since the Partnerships are owned in part and managed by owners or affiliates
of WestCoast Hotels, Inc. All significant intercompany transactions have been
eliminated in the combined presentation.
Interim Unaudited Financial Information
The accompanying combined financial statements as of March 31, 1996 and for
the three months ended March 31, 1995 and 1996 are unaudited; however, in the
opinion of management, all adjustments (consisting solely of normal recurring
adjustments) necessary for a fair presentation of the combined financial
statements have been included. The results of interim periods are not
necessarily indicative of the results to be obtained for a full year.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Cash and Cash Equivalents
All highly liquid investments with an original maturity date of three months
or less when purchased are considered to be cash equivalents.
Inventories
Inventories, consisting of food and beverage, are stated at the lower of
cost (generally, first-in, first-out) or market.
F-83
<PAGE>
GATEWAY HOTEL LIMITED PARTNERSHIP AND
WENATCHEE HOTEL LIMITED PARTNERSHIP
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
Hotel Properties
The Hotels are stated at the lower of cost or net realizable value.
Depreciation is computed using the straight-line method based upon the assets'
estimated useful lives which range from 31 to 39 years for buildings and
improvements, and 5 to 10 years for furniture and equipment.
In accordance with Statement of Financial Accounting Standards No. 121,
Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets
to be Disposed Of, the Partnerships would record impairment losses on long-
lived assets used in operations when events and circumstances indicate that
the assets might be impaired and the undiscounted cash flows estimated to be
generated by those assets are less than the carrying amounts of those assets.
No such impairment losses have been recognized to date.
Capitalization Policy
Maintenance and repairs are charged to operations as incurred; major
renewals and betterments are capitalized.
Deferred Expenses
Deferred expenses consist primarily of deferred loan costs and pre-opening
costs. Deferred loan costs are amortized to interest expense on a straight-
line basis over the term of the respective loan. Pre-opening costs are
amortized on a straight-line basis over five years.
Income Taxes
The partnerships are not subject to federal or state income taxes; however,
they must file informational income tax returns and the partners must take
income or losses of the partnerships into consideration when filing their
respective tax returns.
Revenue Recognition
Revenue is recognized as earned. Ongoing credit evaluations are performed
and an allowance for potential credit losses is provided against the portion
of accounts receivable which is estimated to be uncollectible. Such losses
have been within management's expectations.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
Concentration of Credit Risk
At December 31, 1995 and March 31, 1996, the Partnerships have cash balances
and other short term investments with banks in excess of the Federal Deposit
Insurance Corporation's insured limits totaling $335,288 and $19,996,
respectively.
Seasonality
The hotel industry is seasonal in nature. Generally, revenues at the Hotels
are greater in the second and third quarters of a calendar year.
3. MORTGAGES AND OTHER NOTES PAYABLE
The Partnerships have mortgages and other notes payable with interest rates
ranging from 7.96% to 9.72%. Interest costs totaled $788,517 for the year
ended December 31, 1995 and $202,060 and $192,863 for the three months ended
March 31, 1995 and 1996, respectively.
F-84
<PAGE>
GATEWAY HOTEL LIMITED PARTNERSHIP AND
WENATCHEE HOTEL LIMITED PARTNERSHIP
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
Mortgage Loans Payable
Mortgage loans payable is comprised of three loans as of December 31, 1995
and March 31, 1996, and mature at various dates through May 31, 2021. Two of
the mortgage loans payable totaling $8,909,593 as of December 31, 1995 have
fixed rates of interest ranging from 7.96% to 8.0% and are collateralized by a
first lien deed of trust and assignment of rents. The remaining mortgage loan
payable totaling $110,000 is a non-interest bearing loan scheduled to mature
May 31, 1996 and is secured by a second lien deed of trust and assignment of
rents. As of December 31, 1995, approximately $6,860,000 of the mortgage
obligations were personally guaranteed by certain partners of the
Partnerships.
Other Notes Payable
Other notes payable is comprised of three notes as of December 31, 1995,
totaling $850,622. The proceeds from the notes were generally used to finance
improvements to the Wenatchee Hotel. The notes, which mature at various dates
through May 31, 2021, bear interest at rates ranging from 9.00% to 9.72%.
Certain of the notes totaling approximately $509,000 are personally guaranteed
by the partners.
The scheduled principal payments related to the outstanding mortgage loans
payable and other notes payable at December 31, 1995 are as follows:
<TABLE>
<CAPTION>
YEAR AMOUNT
---- ----------
<S> <C>
1996............................................................ $ 768,786
1997............................................................ 211,129
1998............................................................ 5,711,141
1999............................................................ 47,835
2000............................................................ 52,151
2001 and thereafter............................................. 3,079,173
----------
$9,870,215
==========
4. COMMITMENTS
Operating Leases
Equipment and vehicles are leased under noncancelable operating leases
expiring at varying intervals through August 1999. The following is a schedule
of future minimum rental payments required under these leases as of December
31, 1995:
<CAPTION>
YEAR AMOUNT
---- ----------
<S> <C>
1996............................................................ $ 57,338
1997............................................................ 31,251
1998............................................................ 18,564
1999............................................................ 6,286
----------
$ 113,439
==========
</TABLE>
Rental expense, which totaled $80,637 for the year ended December 31, 1995,
and $19,909 and $18,149 for the three months ended March 31, 1995 and 1996,
respectively, is included in general and administrative expenses in the
accompanying financial statements.
F-85
<PAGE>
GATEWAY HOTEL LIMITED PARTNERSHIP AND
WENATCHEE HOTEL LIMITED PARTNERSHIP
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
Reservation Agreement
The Partnerships have entered into agreements with a national hotel company
to provide the Hotels with a national reservations system. The agreements are
for terms of ten years expiring in November 2001, which coincide with the term
of the joint marketing agreement with an affiliate, and provide for a
reservation fee based on the prior year's experience rating. Reservation fees,
which totaled $54,813 for the year ended December 31, 1995, and $6,079 and
$4,007 for the three months ended March 31, 1995 and 1996, respectively, are
included in departmental costs and expenses in the accompanying financial
statements.
Restaurant and Other Lease Agreements
The Gateway Hotel has an agreement with a third party to lease the
restaurant facilities adjacent to the hotel for an initial term of ten years
expiring in July 2000, with an option to extend the lease three consecutive
times for a period of five years each. The tenant may terminate the agreement
upon 90 days written notice. The agreement provides for monthly lease payments
equal to the greater of 5.25% of gross sales, as defined, or $6,016 adjusted
annually for the increase in the Consumer Price Index ("CPI"). The tenant is
to reimburse Gateway Hotel for a portion of the real estate taxes, as defined
in the agreement, and also provides for a monthly allowance of $500 to the
Gateway Hotel to promote the restaurant. Income from the restaurant lease
totaled $103,286 for the year ended December 31, 1995, and $23,838 and $23,853
for the three months ended March 31, 1995 and 1996, respectively, and is
included in telephone and other income in the accompanying financial
statements.
Additionally, the Gateway Hotel leases space for an antenna to a third
party. The lease expires November 30, 1997 and has an option to extend for
three consecutive periods of five years each, with monthly lease payments of
$700. Income from this lease totaled $8,400 for the year ended December 31,
1995, and $2,100 for the three months ended March 31, 1995 and 1996, and is
included in telephone and other income in the accompanying financial
statements.
Franchise Agreement
In 1992, the Wenatchee Hotel acquired the right to use a licensed trade mark
associated with the operation of its restaurant. The agreement, with an
initial term of two years, automatically renews for successive one year
periods unless Wenatchee Hotel is in default of the agreement. Monthly royalty
fees equal to 2% of the restaurant's gross sales, as defined, are paid by the
hotel under this agreement. Royalty fees, which totalled $27,053 for the year
ended December 31, 1995, and $6,776 and $5,976 for the three months ended
March 31, 1995 and 1996, respectively, are included in departmental costs and
expenses in the accompanying financial statements.
Management Contract for Convention Center
The Wenatchee Hotel has entered into an agreement with the City of Wenatchee
(the "City") to provide management services for the Wenatchee Center,
including marketing and space rental for meetings, conferences and banquets.
The agreement, which commenced in October 1980, provides for an initial term
of seven years and the option to extend the agreement for three consecutive
periods of seven years each. The Wenatchee Hotel pays the City fees based on
the greater of $50,000 annually, adjusted for the increase in CPI, or a
percentage of gross revenues as follows: (1) 10% of catering revenue, (2) 10%
of alcoholic beverages revenue, up to $150,000, and 15% thereafter, (3) 25% of
revenue from space rental, and (4) 25% of vending and other miscellaneous
revenue.
Fees paid to the City totaled $119,086 for the year ended December 31, 1995,
and $26,684 and $24,627 for the three months ended March 31, 1995 and 1996,
respectively, and are included in general and administrative expenses in the
accompanying financial statements.
F-86
<PAGE>
GATEWAY HOTEL LIMITED PARTNERSHIP AND
WENATCHEE HOTEL LIMITED PARTNERSHIP
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
Labor Agreement
Effective August 1, 1994, the Wenatchee Hotel entered into an agreement with
Local 400 of the Spokane Hotel Employees and Restaurant Employees Union which
outlines contract wages and working conditions for all Wenatchee Hotel
employees. The agreement expires July 31, 1997.
5. RELATED PARTY TRANSACTIONS
The Hotels are currently operated under management agreements with WestCoast
Hotels, Inc., a company affiliated through common ownership.
The Gateway Hotel's management agreement provides for a term of 20 years
expiring December 2008. Management fees are based on 4% of gross revenues, as
defined. Additionally, the Gateway Hotel has contracted with an affiliate to
provide the Gateway Hotel with certain consulting and marketing services. The
agreement provides for a monthly consulting fee equal to 1.5% of gross sales,
as defined.
The Wenatchee Hotel's management agreement provides for a term of 5 years
expiring November 1996, with management fees of $4,000 per month. Management
fees for the three months ended March 31, 1996 include $100,000 in
discretionary management fees paid to an affiliate.
The Partnerships have entered into a joint marketing agreement with an
affiliate to use the name "WestCoast" and the related commercial symbols and
to advertise and promote the WestCoast Hotels. The agreements are for terms of
ten years and provide for a monthly marketing fee equal to 2.5% of gross room
sales, as defined.
Fees paid to affiliates are summarized as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED MARCH 31,
DECEMBER 31, ------------------
1995 1995 1996
------------ ------------------
<S> <C> <C> <C>
Management Fees............................ $148,182 $40,625 $143,597
Consulting Fees............................ 37,568 -- 22,500
Marketing Fees............................. 106,888 21,417 22,320
-------- -------- ---------
$292,638 $62,042 $188,417
======== ======== =========
</TABLE>
Non-interest bearing advances were made to an affiliate during 1994 and 1995
totaling $90,000 and $50,000, respectively, which were repaid in 1995.
The Gateway Hotel has a note payable to an affiliate which provided working
capital for the hotel, with an outstanding balance of $125,000 at December 31,
1995. The note is non-interest bearing and matures on December 31, 1996. The
note payable is included in due to affiliates in the accompanying financial
statements.
6. FAIR VALUE OF FINANCIAL INSTRUMENTS
Statement of Financial Accounting Standards No. 107 requires disclosure
about fair value for all financial instruments whether or not recognized, for
financial statement purposes. Disclosure about fair value of financial
instruments is based on pertinent information available to management as of
December 31, 1995 and March 31, 1996. Considerable judgment is necessary to
interpret market data and develop estimated fair value. Accordingly, the
estimates presented herein are not necessarily indicative of the amounts which
could be realized on disposition of financial instruments. The use of
different market assumptions and/or estimation methodologies may have a
material effect on the estimated fair value amounts.
F-87
<PAGE>
GATEWAY HOTEL LIMITED PARTNERSHIP AND
WENATCHEE HOTEL LIMITED PARTNERSHIP
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
Management estimates that the fair value of (i) accounts receivable,
accounts payable and accrued liabilities approximate carrying value due to the
relatively short maturity of these instruments, and (ii) mortgages and other
notes payable approximate carrying value based upon the Partnerships'
effective borrowing rate for issuance of debt with similar terms and remaining
maturities.
7. SUBSEQUENT EVENT
On April 2, 1996, the Partnerships sold the Hotels to Patriot American
Hospitality Partnership, L.P. ("Patriot") for an aggregate purchase price of
approximately $18,715,000, including 48,355 limited partnership units in
Patriot with a face value of $1,283,825 on the date of contract. Additionally,
the terms of the Purchase agreement provide for the payment to the
Partnerships of up to $465,400 in additional consideration upon the
achievement of certain operating results in 1997.
F-88
<PAGE>
GATEWAY HOTEL LIMITED PARTNERSHIP AND WENATCHEE HOTEL LIMITED PARTNERSHIP
SCHEDULE III--REAL ESTATE AND ACCUMULATED DEPRECIATION
AS OF DECEMBER 31, 1995
<TABLE>
<CAPTION>
COSTS CAPITALIZED GROSS AMOUNTS AT
SUBSEQUENT WHICH CARRIED AT
INITIAL COST TO ACQUISITION CLOSE OF PERIOD(A)
----------------------- ---------------------- ----------------------------------- ACCUMULATED
BUILDINGS & BUILDINGS AND BUILDINGS AND DEPRECIATION
ENCUMBRANCES LAND IMPROVEMENTS LAND IMPROVEMENTS LAND IMPROVEMENTS TOTAL (B)(C)
DESCRIPTION ------------ ---------- ------------ -------- ------------- ---------- ------------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
West Coast
Gateway Hotel
Seattle,
Washington....... $5,995,992 $1,307,500 $5,014,616 $-- $ 32,874 $1,307,500 $5,047,490 $6,354,990 $ 807,558
Wenatchee Center
Hotel Wenatchee,
Washington....... 3,023,601 474,000 2,774,346 -- 317,307 474,000 3,091,653 3,565,653 440,261
---------- ---------- ---------- -------- -------- ---------- ---------- ---------- ----------
Total........... $9,019,593 $1,781,500 $7,788,962 $-- $350,181 $1,781,500 $8,139,143 $9,920,643 $1,247,819
========== ========== ========== ======== ======== ========== ========== ========== ==========
<CAPTION>
YEAR
BUILT/
DATE OF
ACQUISITION
DESCRIPTION -----------
<S> <C>
West Coast
Gateway Hotel
Seattle,
Washington....... 1990
Wenatchee Center
Hotel Wenatchee,
Washington....... 1991
Total...........
</TABLE>
See accompanying notes.
F-89
<PAGE>
GATEWAY HOTEL LIMITED PARTNERSHIP AND
WENATCHEE HOTEL LIMITED PARTNERSHIP
NOTES TO SCHEDULE III
<TABLE>
<S> <C>
(a)Reconciliation of Real Estate:
Balance at December 31, 1994..................................... $8,121,137
Additions during the year........................................ 18,006
----------
Balance at December 31, 1995..................................... $8,139,143
==========
(b)Reconciliation of Accumulated Depreciation:
Balance at December 31, 1994..................................... $ 989,907
Depreciation expense............................................. 257,912
----------
Balance at December 31, 1995..................................... $1,247,819
==========
(c) Depreciation is computed on the straight line method over
estimated useful lives which range from 31 to 39 years.
</TABLE>
F-90
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Members
Newporter Beach Hotel Investments L.L.C.
We have audited the accompanying balance sheet of Newporter Beach Hotel
Investments L.L.C. (a limited liability company) (the "Company") as of
December 31, 1995, and the related statements of operations and members'
equity and cash flows for the period from March 10, 1995 to December 31, 1995.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements
based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Newporter Beach Hotel
Investments L.L.C. (a limited liability company) as of December 31, 1995, and
the results of its operations and its cash flows for the period from March 10,
1995 to December 31, 1995, in conformity with generally accepted accounting
principles.
Coopers & Lybrand L.L.P.
Newport Beach, California
March 8, 1996
F-91
<PAGE>
NEWPORTER BEACH HOTEL INVESTMENTS L.L.C.
(A LIMITED LIABILITY COMPANY)
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
1995 1996
------------ -----------
(UNAUDITED)
<S> <C> <C>
ASSETS:
Property and equipment, net........................... $ 7,137,057 $ 7,076,140
Cash and cash equivalents............................. 1,511,398 1,900,354
Receivables, net of allowance for doubtful accounts of
$35,000.............................................. 1,365,055 1,393,719
Inventories........................................... 78,172 72,545
Prepaid expenses and other assets..................... 195,987 301,907
Deferred expenses, net................................ 332,760 311,842
----------- -----------
Total assets...................................... $10,620,429 $11,056,507
=========== ===========
LIABILITIES AND MEMBERS' EQUITY:
Note payable.......................................... $ 4,943,367 $ 4,901,594
Accounts payable...................................... 711,276 717,437
Accrued payroll....................................... 584,429 393,780
Accrued vacation...................................... 290,804 305,815
Customer deposits..................................... 315,619 293,485
Accrued expenses...................................... 77,541 51,247
----------- -----------
Total liabilities................................. 6,923,036 6,663,358
----------- -----------
Commitments and contingencies
Members' equity....................................... 3,697,393 4,393,149
----------- -----------
Total liabilities and members' equity............. $10,620,429 $11,056,507
=========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-92
<PAGE>
NEWPORTER BEACH HOTEL INVESTMENTS L.L.C.
(A LIMITED LIABILITY COMPANY)
STATEMENTS OF OPERATIONS AND MEMBERS' EQUITY
<TABLE>
<CAPTION>
FOR THE
PERIOD FROM
MARCH 10, FOR THE THREE
1995 THROUGH MONTHS ENDED
DECEMBER 31, MARCH 31,
1995 1996
------------ -------------
(UNAUDITED)
<S> <C> <C>
Revenues:
Rooms............................................. $ 8,412,969 $2,869,650
Food and beverage................................. 6,198,045 1,719,750
Telephone and other............................... 1,096,057 324,853
----------- ----------
Total revenues.................................. 15,707,071 4,914,253
----------- ----------
Expenses:
Rooms............................................. 1,971,810 669,133
Food and beverage................................. 4,364,206 1,225,471
Telephone......................................... 321,122 97,186
Lease expense..................................... 789,055 252,721
Other departmental expenses....................... 313,729 86,369
General and administrative........................ 1,031,958 368,174
Management fees................................... 752,754 190,426
Advertising and promotion......................... 1,316,742 419,435
Utilities......................................... 478,574 112,610
Repairs and maintenance........................... 1,205,650 361,267
Real estate, personal property taxes and insur-
ance............................................. 471,835 148,732
Interest.......................................... 362,167 89,282
Depreciation and amortization..................... 630,076 197,691
----------- ----------
Total expenses.................................. 14,009,678 4,218,497
----------- ----------
Net income...................................... 1,697,393 695,756
Members' equity, beginning of period................ -- 3,697,393
Cash contributions.................................. 3,000,000 --
Cash distributions.................................. (1,000,000) --
----------- ----------
Members' equity, end of period...................... $ 3,697,393 $4,393,149
=========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-93
<PAGE>
NEWPORTER BEACH HOTEL INVESTMENTS L.L.C.
(A LIMITED LIABILITY COMPANY)
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE
PERIOD FROM
MARCH 10, FOR THE THREE
1995 THROUGH MONTHS ENDED
DECEMBER 31, MARCH 31,
1995 1996
------------ -------------
(UNAUDITED)
<S> <C> <C>
Cash flows provided (used) by operating activities:
Net income........................................ $ 1,697,393 $ 695,756
Depreciation and amortization expense............. 630,076 197,691
Adjustments to reconcile net income to net cash
provided (used) by operating activities (net of
the effects of the acquisition discussed in
Note 2):
Receivables, net................................ (1,213,839) (28,664)
Inventories..................................... 8,722 5,627
Prepaid expenses and other assets............... (13,045) (105,920)
Accounts payable................................ 711,276 6,161
Accrued expenses................................ 570,057 (201,932)
Customer deposits............................... 31,728 (22,134)
----------- ----------
Net cash provided by operating activities..... 2,422,368 546,585
----------- ----------
Cash flows used by investing activities:
Cash paid for hotel acquisition................... (6,837,450) --
Expenditures for property and equipment........... (814,256) (115,856)
----------- ----------
Net cash used by investing activities......... (7,651,706) (115,856)
----------- ----------
Cash flows provided (used) by financing activities:
Cash contributions by members..................... 3,000,000 --
Cash distributions to members..................... (1,000,000) --
Proceeds from note payable........................ 5,000,000 --
Principal payments on note payable................ (56,633) (41,773)
Expenditures for loan acquisition costs........... (202,631) --
----------- ----------
Net cash provided (used) by financing activi-
ties......................................... 6,740,736 (41,773)
----------- ----------
Net increase in cash.......................... 1,511,398 388,956
Cash and cash equivalents, beginning of period...... -- 1,511,398
----------- ----------
Cash and cash equivalents, end of period............ $ 1,511,398 $1,900,354
=========== ==========
Supplementary Disclosure of Cash Flow Information:
Cash paid during the period for interest.......... $ 362,167 $ 89,282
=========== ==========
Cash paid during the period for taxes............. $ 800 $ --
=========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-94
<PAGE>
NEWPORTER BEACH HOTEL INVESTMENTS L.L.C.
(A LIMITED LIABILITY COMPANY)
NOTES TO FINANCIAL STATEMENTS
FOR THE PERIOD FROM MARCH 10, 1995 THROUGH DECEMBER 31, 1995
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Basis Of Presentation:
Newporter Beach Hotel Investments L.L.C. (the "Company") was formed in the
State of Washington on December 28, 1994 as a limited liability company
pursuant to the terms of the Limited Liability Company Agreement of Newporter
Beach Hotel Investments L.L.C. The primary purpose of the Company is to
acquire for investment and operation the Hyatt Newporter (the "Hotel") and
conduct other business activities related to the Hotel. The Company will
continue until the earlier of December 28, 2024, the unanimous agreement of
the members to dissolve the Company or the sale or other disposition of
substantially all of the assets of the Company. In general, members are not
personally liable for any debts or losses of the Company that exceed their
respective capital contributions, except as discussed in Note 6, and Company
losses are allocated to the members in proportion to their capital
contributions. As of December 31, 1995, the Company's members consisted of
December Investments L.L.C. (55%), Aspen Orange L.L.C. (27.5%) and WestCoast
Acquisitions, Inc. (17.5%).
As discussed in Note 2, the Company acquired the Hotel on March 10, 1995
from CSL Newporter, Ltd., whose general partner, Columbia Savings and Loan
Association, was in receivership of the Resolution Trust Corporation. The
accompanying financial statements include all of the transactions of the
Company and of the Hotel as of December 31, 1995 and for the period between
March 10, 1995 through December 31, 1995.
Interim Financial Information (Unaudited):
The financial statements at March 31, 1996, and for the three months then
ended, are unaudited but include all adjustments (consisting of normal
recurring accruals only) which management considers necessary to present
fairly the Company's financial position as of March 31, 1996, and the results
of operations and cash flows for the three months then ended.
Management Estimates:
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Property And Equipment:
Property and equipment are stated at cost. Maintenance and repairs are
charged to operations as incurred. Upon retirement or other disposal, the
asset cost and related accumulated depreciation are removed from the accounts,
and the net amount less any proceeds, is charged or credited to income. The
Company provides for depreciation on the straight-line method over the
following estimated useful lives of the respective assets:
<TABLE>
<CAPTION>
YEARS
-----
<S> <C>
Buildings and improvements.......................................... 24-39
Furniture, fixtures and equipment................................... 5
</TABLE>
The Company periodically reviews the Hotel property to determine if its
carrying costs will be recovered from future operations and, accordingly,
whether a reduction in carrying value should be recorded. No such reductions
have occurred to date.
F-95
<PAGE>
NEWPORTER BEACH HOTEL INVESTMENTS L.L.C.
(A LIMITED LIABILITY COMPANY)
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
FOR THE PERIOD FROM MARCH 10, 1995 THROUGH DECEMBER 31, 1995
Cash And Cash Equivalents:
Cash and cash equivalents consist primarily of cash in banks and money
market funds. All highly liquid investments with a maturity date of three
months or less when acquired are considered to be cash equivalents.
Inventories:
Inventories are stated at the lower of cost or market, with cost determined
using the first-in, first-out (FIFO) method of accounting.
Deferred Expenses:
Deferred expenses consist of hotel acquisition costs and loan origination
fees which are being amortized on the straight-line basis over five years,
which approximates the effective interest method.
Income Taxes:
The Company is treated as a partnership for federal and state income tax
purposes. No provisions have been made for federal and state income taxes in
the accompanying financial statements since such taxes, if any, are the
responsibility of the respective members.
Revenue Recognition:
Revenue is recognized as earned. Ongoing credit evaluations are performed
and an allowance for potential credit losses is provided against the portion
of accounts receivable which is estimated to be uncollectible. Such losses
have been within management's expectations.
Impact Of New Accounting Standards:
In March 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 121, "Accounting for the Impairment of Long
Lived Assets and for Long Lived Assets to be Disposed Of." This statement is
effective for financial statements for fiscal years beginning after December
15, 1995. Management believes that adoption of this standard will not have a
material effect on the financial position or results of operations of the
Company.
2. ACQUISITION:
On March 10, 1995, the Company purchased the Hotel, a 410-room hotel in
Newport Beach, California, pursuant to a Purchase and Sale Agreement effective
January 17, 1995 for $7,100,000. The acquisition has been accounted for by the
purchase method of accounting and, accordingly, the purchase price has been
allocated to the assets acquired and the liabilities assumed based on the
estimated fair values at the date of acquisition as determined by the
Company's management. The estimated fair values of assets and liabilities
acquired in conjunction with this acquisition are summarized as follows:
<TABLE>
<S> <C>
Property and equipment........................................ $6,889,000
Receivables, net.............................................. 151,216
Inventories................................................... 86,894
Prepaid expenses and other assets............................. 182,942
Deferred expenses............................................. 194,006
Accrued liabilities........................................... (382,717)
Customer deposits............................................. (283,891)
----------
Net cash paid for acquisition............................. $6,837,450
==========
</TABLE>
F-96
<PAGE>
NEWPORTER BEACH HOTEL INVESTMENTS L.L.C.
(A LIMITED LIABILITY COMPANY)
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
FOR THE PERIOD FROM MARCH 10, 1995 THROUGH DECEMBER 31, 1995
In conjunction with this acquisition, the Company obtained a $5,000,000 note
payable as discussed in Note 6.
The operating results of this acquisition are included in the Company's
results of operations from the date of acquisition, March 10, 1995.
3. PROPERTY AND EQUIPMENT:
Property and equipment, net consisted of the following at December 31, 1995:
<TABLE>
<S> <C>
Building and improvements..................................... $5,093,538
Furniture, fixtures and equipment............................. 2,609,718
----------
7,703,256
Less, Accumulated depreciation................................ (566,199)
----------
$7,137,057
==========
4. INVENTORIES:
Inventories consisted of the following at December 31, 1995:
Food.......................................................... $ 27,283
Beverage...................................................... 50,889
----------
$ 78,172
==========
5. DEFERRED EXPENSES:
Deferred expenses, net consisted of the following at December 31, 1995:
Hotel acquisition costs....................................... $ 346,637
Loan origination fees......................................... 50,000
----------
396,637
Less, Accumulated amortization................................ (63,877)
----------
$ 332,760
==========
</TABLE>
6. NOTE PAYABLE:
The Company has a $5,000,000 note payable which is collateralized by a deed
of trust on the real and personal property reflected in the accompanying
balance sheet caption "property and equipment, net." This note is subordinate
to the lien of the Ground Lease discussed in Note 7. In addition, the note
payable is guaranteed by the members of the L.L.C. described in Note 1. The
note payable generally bears interest at the lender's prime rate plus .5%
(8.375% at December 31, 1995) and matures on April 1, 2000. Principal and
interest is payable in monthly installments sufficient to repay the unpaid
principal balance of the note in 300 months. Since the note payable matures on
April 1, 2000, a substantial portion of the note will be due on the maturity
date.
The related loan agreement contains various financial and nonfinancial
covenants that, among other things, require the Company to maintain a current
ratio of 1.25 to 1.00 and limit the aggregate amount of capital expenditures
that can be made by the Company. As of December 31, 1995, the Company was in
compliance with all covenants.
F-97
<PAGE>
NEWPORTER BEACH HOTEL INVESTMENTS L.L.C.
(A LIMITED LIABILITY COMPANY)
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
FOR THE PERIOD FROM MARCH 10, 1995 THROUGH DECEMBER 31, 1995
At December 31, 1995, the note payable had an outstanding principal balance
of $4,943,367 and there was no accrued interest payable.
The scheduled principal payments related to the note payable are as follows
as of December 31, 1995:
<TABLE>
<S> <C>
1996........................................................... $ 104,627
1997........................................................... 123,648
1998........................................................... 134,411
1999........................................................... 146,110
2000........................................................... 4,434,571
----------
$4,943,367
==========
</TABLE>
7. COMMITMENTS AND CONTINGENCIES:
Hyatt Agreement:
In conjunction with the acquisition of the Hotel described in Note 2, the
Company executed an Assignment and Assumption of Management Agreement on March
10, 1995 with CSL Newporter Ltd. to assume a June 9, 1989 management agreement
with Hyatt Corporation ("the Hyatt Agreement"). The Hyatt Agreement expires on
December 31, 1999, with four ten-year renewal periods. The Hyatt Agreement
provides for the payment of a management fee to Hyatt Corporation consisting
of a basic fee of 3.5% of gross receipts, as defined in the Hyatt Agreement,
an additional basic fee of .5% of gross receipts, as defined in the Hyatt
Agreement, and an incentive fee of 10% of the amount by which profit, as
defined in the Hyatt Agreement, exceeds $2,000,000. Management fees pursuant
to the above were $690,254 during the period from March 10, 1995 through
December 31, 1995.
In addition, the Hyatt Agreement provides for the allocation of certain
advertising, marketing and reservation related expenses incurred by Hyatt
Corporation to all hotels within the Hyatt chain. These expenses are allocated
based on the total rooms available during the year. In addition, Hyatt
Corporation bills the Hotel on a monthly basis for systems support, training
and human resources related programs and other expenses that directly benefit
the Hotel. During the period from March 10, 1995 through December 31, 1995,
the Hotel incurred expenses of $275,199 related to these allocations, and, at
December 31, 1995, $3,819 is owed to Hyatt Corporation related to these
allocations.
The Hyatt Agreement also requires that a fund for the replacement of and
additions to the Hotel's furniture, fixtures and equipment be maintained in an
interest bearing account. Per the terms of the Hyatt Agreement, the Hotel is
required to fund this account in amounts equal to 4% of gross receipts, as
defined in the Hyatt Agreement, through July 16, 1996, and 5% of gross
receipts, as defined in the Hyatt Agreement, thereafter. As of December 31,
1995, the balance in this account is $3,553 and is included in cash and cash
equivalents in the accompanying balance sheets.
WestCoast Agreement:
The Company also has a management agreement with WestCoast Hotels, owner of
WestCoast Acquisitions, Inc. (the "WestCoast Agreement"). Under the terms of
the WestCoast Agreement, WestCoast Hotels provides certain consulting,
accounting and administrative services to the Company for a monthly management
fee of $6,250. Management fees paid pursuant to this agreement totaled $62,500
during the period from March 10, 1995 through December 31, 1995, and as of
December 31, 1995, $6,250 is owed to WestCoast Hotels.
F-98
<PAGE>
NEWPORTER BEACH HOTEL INVESTMENTS L.L.C.
(A LIMITED LIABILITY COMPANY)
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
FOR THE PERIOD FROM MARCH 10, 1995 THROUGH DECEMBER 31, 1995
Ground Lease:
In conjunction with the acquisition of the Hotel described in Note 2, the
Company executed an Assignment and Assumption of Ground Lease on March 10,
1995 with CSL Newporter Ltd. to assume an operating lease for the rental of
land on which the Hotel is situated. The term of the lease is for the period
through December 31, 2048 and the lease is subject to an escalation clause for
each five-year period based on the Consumer Price Index, not to exceed 8% per
year compounded annually for the five years then ending. In addition, the
lease requires the Hotel to pay a percentage of its annual sales, as defined
in the related lease agreement, with minimum annual lease payments of
$722,000.
Upon expiration of the term of this lease, or any earlier termination caused
by default or breach by the Company, as defined in the lease agreement, the
Company is required to surrender the leased land and all improvements
constructed and installed thereon. Removable furniture, fixtures and equipment
is required to be returned to the Company by the lessor.
8. FAIR VALUE OF FINANCIAL INSTRUMENTS:
Statement of Financial Accounting Standards No. 107 requires disclosure
about fair value for all financial instruments whether or not recognized, for
financial statement purposes. Disclosure about fair value of financial
instruments is based on pertinent information available to management as of
December 31, 1995. Considerable judgment is necessary to interpret market data
and develop estimated fair value. Accordingly, the estimates presented herein
are not necessarily indicative of the amount which could be realized on
disposition of the financial instruments. The use of different market
assumptions and/or estimation methodologies may have a material effect on the
estimated fair value amounts.
Cash Equivalents:
Management estimates that the fair value of cash equivalents approximate
carrying value due to the relatively short maturity of these instruments and
their high liquidity.
Note Payable:
Management estimates that the fair value of the note payable approximates
carrying value based upon the Company's effective borrowing rate for issuance
of debt with similar terms and remaining maturities.
Customer Deposits:
Management estimates that the fair value of customer deposits approximates
carrying value based on their short-term nature.
9. CREDIT RISK:
At December 31, 1995, the Company had cash balances in financial
institutions that were in excess of the federally-insured limit of $100,000.
10. SUBSEQUENT EVENT:
In March 1996, the Company and Patriot American Hospitality Partnership,
L.P. executed a Purchase and Sale Agreement that provides for the sale of the
Hotel in exchange for $16,998,000 in cash.
F-99
<PAGE>
REPORT OF INDEPENDENT AUDITORS
To the Board of Directors and Shareholders ofPatriot American Hospitality,
Inc.
We have audited the accompanying Statement of Direct Revenue and Direct
Operating Expenses of the Plaza Park Suites Hotel (the "Property") for the
year ended December 31, 1995. This statement is the responsibility of the
Property's management. Our responsibility is to express an opinion on this
statement based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the Statement of Direct Revenue and
Direct Operating Expenses is free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the Statement of Direct Revenue and Direct Operating Expenses. An audit also
includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall presentation of the
Statement of Direct Revenue and Direct Operating Expenses. We believe that our
audit provides a reasonable basis for our opinion.
The accompanying Statement of Direct Revenue and Direct Operating Expenses
has been prepared for the purpose of complying with the rules and regulations
of the Securities and Exchange Commission for inclusion in the registration
statement on Form S-11 of Patriot American Hospitality, Inc. as described in
Note 1, and is not intended to be a complete presentation of the Property's
revenue and expenses.
In our opinion, the statement referred to above presents fairly, in all
material respects, the direct revenue and direct operating expenses as
described in Note 1 of the Plaza Park Suites Hotel for the year ended
December 31, 1995, in conformity with generally accepted accounting
principles.
Dallas, Texas
February 28, 1996, except for Note 5, Ernst & Young LLP
as to which the date is April 2, 1996
F-100
<PAGE>
PLAZA PARK SUITES HOTEL
STATEMENTS OF DIRECT REVENUE AND DIRECT OPERATING EXPENSES
<TABLE>
<CAPTION>
YEAR ENDED THREE MONTHS ENDED MARCH 31,
DECEMBER 31, -----------------------------
1995 1995 1996
------------ -------------- --------------
(UNAUDITED)
<S> <C> <C> <C>
Direct revenue from hotel opera-
tions:
Rooms............................. $5,551,569 $ 1,087,970 $ 1,112,808
Food and beverage................. 73,439 11,295 5,373
Telephone and other............... 456,159 105,515 112,074
---------- -------------- --------------
Total direct revenue............ 6,081,167 1,204,780 1,230,255
---------- -------------- --------------
Direct operating expenses:
Departmental costs and expenses... 1,605,769 365,298 374,212
General and administrative........ 452,216 89,288 129,133
Repairs and maintenance........... 194,862 40,345 44,843
Utilities......................... 154,010 39,365 38,333
Advertising and promotion......... 333,277 80,368 72,811
Consulting and marketing.......... 120,000 30,000 30,000
Real estate and personal property
taxes, and insurance............. 219,912 57,387 64,980
---------- -------------- --------------
Total direct operating expenses. 3,080,046 702,051 754,312
---------- -------------- --------------
Direct revenue in excess of di-
rect operating expenses........ $3,001,121 $ 502,729 $ 475,943
========== ============== ==============
</TABLE>
See accompanying notes.
F-101
<PAGE>
PLAZA PARK SUITES HOTEL
NOTES TO STATEMENTS OF DIRECT REVENUE AND DIRECT OPERATING EXPENSES
(AMOUNTS AND DISCLOSURES FOR THE THREE MONTHS ENDED
MARCH 31, 1995 AND 1996 ARE UNAUDITED)
1. ORGANIZATION AND BASIS OF PRESENTATION
Organization
The Plaza Park Suites Hotel (the "Property"), located in downtown Seattle,
Washington, is a limited-service hotel with 194 rooms and approximately 1,350
square feet of meeting space. The Property is owned by the Plaza Park Suites,
Inc. (the "Corporation"). The Property was constructed in 1989 by the
Corporation in conjunction with a condominium project which is adjacent to the
Property.
Basis of Presentation
The accompanying Statements of Direct Revenue and Direct Operating Expenses
(the "Statements") have been prepared to substantially comply with the rules
and regulations of the Securities and Exchange Commission for business
combinations accounted for as a purchase. The accompanying Statements include
revenue and expenses directly related to the operations of the Property as
reflected in the records of the Property's management company. The
accompanying Statements, rather than full audited financial statements, are
presented for the Property because the Property was acquired from an
unaffiliated third party in a negotiated transaction and the seller would not
provide complete records supporting the historical costs, indebtedness and
equity. Additionally, the Property, along with an adjacent condominium
project, was constructed by the Corporation, which maintains its financial
records for both facilities on a combined basis. Because it was not
practicable to obtain full audited financial statements for the Property, the
presentation does not include all revenue and expenses of the Corporation, as
they relate to the Property, such as: 1) interest or other income earned on
investments, 2) depreciation expense related to long-lived and short-lived
assets (including the Property and related improvements), 3) amortization
expense related to organizational costs or other deferred expenses of the
Corporation, 4) interest expense incurred on indebtedness of the Property and
amortization of deferred loan costs, and 5) certain Corporation related
general and administrative expenses. Therefore, the Statements are not
representative of the actual operations of the Property for the periods
presented. Included in Note 6 is certain unaudited financial information
related to the items discussed above.
Interim Unaudited Financial Information
The accompanying statements of Direct Revenue and Direct Operating Expenses
for the three months ended March 31, 1995 and 1996 are unaudited; however, in
the opinion of management, all adjustments (consisting solely of normal
recurring adjustments) necessary for a fair presentation of the statement of
Direct Revenue and Direct Operating Expenses for these interim periods have
been included. The results of interim periods are not necessarily indicative
of the results to be obtained for a full year.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Capitalization Policy
Maintenance and repairs are charged to operations as incurred; major
renewals and betterments are capitalized.
Revenue Recognition
Revenue is recognized as earned. Ongoing credit evaluations are performed
and an allowance for potential credit losses is provided against the portion
of accounts receivable which is estimated to be uncollectible. Such losses
have been within management's expectations.
Seasonality
The hotel industry is seasonal in nature. Generally, revenue at the Property
is greater in the second and third quarters of a calendar year.
F-102
<PAGE>
PLAZA PARK SUITES HOTEL
NOTES TO STATEMENTS OF DIRECT REVENUE AND DIRECT OPERATING EXPENSES--
(CONTINUED)
3. COMMITMENTS
Operating Leases
Equipment and vehicles are leased under noncancelable operating leases
expiring at varying intervals through June 1999. The following is a schedule
of future minimum rental payments required under these leases as of December
31, 1995:
<TABLE>
<CAPTION>
YEAR AMOUNT
---- -------
<S> <C>
1996............................................................. $35,823
1997............................................................. 33,275
1998............................................................. 2,265
1999............................................................. 863
-------
$72,226
=======
</TABLE>
Rental expense was approximately $7,956 for the year ended December 31,
1995, and $771 and $8,182 for the three months ended March 31, 1995 and 1996,
respectively, and is included in general and administrative expenses in the
accompanying Statements.
Consulting and Marketing Agreement
The Corporation has entered into an agreement with WestCoast Hotels, Inc. to
provide consulting and marketing services to the Property. The agreement,
which is on a month-to-month basis, provides for a monthly fee of $10,000.
Consulting and marketing fees totalled $120,000 for the year ended December
31, 1995, and $30,000 for the three months ended March 31, 1995 and 1996.
Reservation Agreement
The Corporation has entered into an agreement with a national hotel company
to provide the Property with a national reservations system. The agreement
coincides with the marketing agreement and provides for an annual reservation
fee based on the prior year's experience rating. Reservation fees totalled
$20,107 for the year ended December 31, 1995, and $3,503 and $6,836 for the
three months ended March 31, 1995 and 1996, respectively, and are included in
departmental costs and expenses in the accompanying Statements.
4. RELATED PARTY TRANSACTION
The Corporation has entered into a management agreement with Alper
NorthWest, Inc. ("Alper"), a company affiliated with the Corporation, to
manage the operations of the Property. A management fee is currently not paid
to Alper, however Alper is reimbursed for certain executive and accounting
salaries. Total reimbursements to Alper were $84,000 for the year ended
December 31, 1995, and $13,500 and $18,500 for the three months ended March
31, 1995 and 1996, respectively, and are included in general and
administrative expenses in the accompanying Statements.
5. SUBSEQUENT EVENT
On April 2, 1996, the Corporation sold the Property to Patriot American
Hospitality Partnership, L.P. ("Patriot") for approximately $25,328,000 in
cash. Additionally, the terms of the purchase agreement provide for the
payment to the Corporation of up to $672,300 in additional consideration upon
the achievement of certain operating results in 1997.
F-103
<PAGE>
PLAZA PARK SUITES HOTEL
NOTES TO STATEMENTS OF DIRECT REVENUE AND DIRECT OPERATING EXPENSES--
(CONTINUED)
6. UNAUDITED FINANCIAL INFORMATION
The following supplemental financial information has been provided on an
unaudited basis for certain of those expenses which have been omitted from the
accompanying Statements. Supporting information was not provided by the owner.
Additions to furniture, fixtures and equipment ("FF&E") for the Property
totalled $163,000 for the year ended December 31, 1995. Depreciation expense
related to FF&E is computed using the straight-line method based on estimated
useful lives ranging from five to seven years. Estimated depreciation expense
related to FF&E was $367,700 for the year ended December 31, 1995.
Patriot's estimated allocation of the purchase price, including the deferred
purchase consideration, will be $1,515,000 to land, $23,617,300 to building
and improvements, and $868,000 to FF&E. Expected lives for building and
improvements, and FF&E are 35 years and 5 to 7 years, respectively.
F-104
<PAGE>
REPORT OF INDEPENDENT AUDITORS
To the Board of Directors and Shareholders of
Patriot American Hospitality, Inc.
We have audited the accompanying Statement of Direct Revenue and Direct
Operating Expenses of the Roosevelt Hotel (the "Property") for the year ended
December 31, 1995. This statement is the responsibility of the Property's
management. Our responsibility is to express an opinion on this statement
based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the Statement of Direct Revenue and
Direct Operating Expenses is free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the Statement of Direct Revenue and Direct Operating Expenses. An audit also
includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall presentation of the
Statement of Direct Revenue and Direct Operating Expenses. We believe that our
audit provides a reasonable basis for our opinion.
The accompanying Statement of Direct Revenue and Direct Operating Expenses
has been prepared for the purpose of complying with the rules and regulations
of the Securities and Exchange Commission for inclusion in the registration
statement on Form S-11 of Patriot American Hospitality, Inc. as described in
Note 1, and is not intended to be a complete presentation of the Property's
revenue and expenses.
In our opinion, the statement referred to above presents fairly, in all
material respects, the direct revenue and direct operating expenses as
described in Note 1 of the Roosevelt Hotel for the year ended December 31,
1995, in conformity with generally accepted accounting principles.
Ernst & Young LLP
Dallas, Texas
February 26, 1996, except for Note 5, as to which the date is April 2, 1996
F-105
<PAGE>
ROOSEVELT HOTEL
STATEMENTS OF DIRECT REVENUE AND DIRECT OPERATING EXPENSES
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED MARCH 31,
DECEMBER 31, -------------------
1995 1995 1996
------------ --------- ---------
(UNAUDITED)
<S> <C> <C> <C>
Direct revenue from hotel operations:
Rooms....................................... $3,604,244 $ 642,453 $ 727,031
Telephone and other......................... 350,690 70,337 79,595
---------- --------- ---------
Total direct revenue...................... 3,954,934 712,790 806,626
---------- --------- ---------
Direct operating expenses:
Departmental costs and expenses............. 992,244 209,886 236,797
General and administrative.................. 387,770 79,950 101,834
Repairs and maintenance..................... 111,720 29,597 31,867
Utilities................................... 136,214 42,296 50,051
Advertising and promotion................... 132,048 30,462 38,038
Marketing fee paid to affiliate............. 90,106 16,061 18,176
Management and incentive fees paid to affil-
iate....................................... 208,658 33,682 37,165
Real estate and personal property taxes, and
insurance.................................. 108,717 28,537 30,643
---------- --------- ---------
Total direct operating expenses........... 2,167,477 470,471 544,571
---------- --------- ---------
Direct revenue in excess of direct
operating expenses....................... $1,787,457 $ 242,319 $ 262,055
========== ========= =========
</TABLE>
See accompanying notes.
F-106
<PAGE>
ROOSEVELT HOTEL
NOTES TO STATEMENTS OF DIRECT REVENUE AND DIRECT OPERATING EXPENSES
(AMOUNTS AND DISCLOSURES FOR THE THREE MONTHS ENDED
MARCH 31, 1995 AND 1996 ARE UNAUDITED)
1. ORGANIZATION AND BASIS OF PRESENTATION
Organization
The Roosevelt Hotel (the "Property"), located in downtown Seattle,
Washington, is a full-service hotel with 151 guest rooms, approximately 2,400
square feet of meeting space and a restaurant which is leased to a third
party. The Property was constructed in 1929, and was completely renovated in
1987 upon its acquisition by the current owner. The Property is owned by the
Roosevelt Hotel Limited Partnership (the "Partnership").
Basis of Presentation
The accompanying Statements of Direct Revenue and Direct Operating Expenses
(the "Statements") have been prepared to substantially comply with the rules
and regulations of the Securities and Exchange Commission for business
combinations accounted for as a purchase. The accompanying Statements include
revenue and expenses directly related to the operations of the Property as
reflected in the records of the Property's management company. The
accompanying Statements, rather than full audited financial statements, are
presented for the Property because the Property was acquired from an
unaffiliated third party in a negotiated transaction and the sellers would not
allow access to records supporting the historical costs, indebtedness and
equity of the Property. Because it was not practicable to obtain full audited
financial statements for the Property, the presentation does not include all
revenue and expenses of the Partnership, as they relate to the property, such
as: 1) interest or other income earned on investments of the Partnership, 2)
depreciation expense related to long-lived and short-lived assets (including
the Property and related improvements), 3) amortization expense related to
organizational costs or other deferred expenses of the Partnership, 4)
interest expense incurred on indebtedness of the Property and amortization of
deferred loan costs, and 5) certain Partnership related general and
administrative expenses. Therefore, the Statements are not representative of
the actual operations of the Property for the periods presented. Included in
Note 6 is certain unaudited financial information related to the items
discussed above.
Interim Unaudited Financial Information
The accompanying Statements of Direct Revenue and Direct Operating Expenses
for the three months ended March 31, 1995 and 1996 are unaudited; however, in
the opinion of management, all adjustments (consisting solely of normal
recurring adjustments) necessary for a fair presentation of the Statements of
Direct Revenue and Direct Operating Expenses for these interim periods have
been included. The results of interim periods are not necessarily indicative
of the results to be obtained for a full year.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Capitalization Policy
Maintenance and repairs are charged to operations as incurred; major
renewals and betterments are capitalized.
Revenue Recognition
Revenue is recognized as earned. Ongoing credit evaluations are performed
and an allowance for potential credit losses is provided against the portion
of accounts receivable which is estimated to be uncollectible. Such losses
have been within management's expectations.
Seasonality
The hotel industry is seasonal in nature. Generally, revenue at the Property
is greater in the second and third quarters of a calendar year.
F-107
<PAGE>
ROOSEVELT HOTEL
NOTES TO STATEMENTS OF DIRECT REVENUE AND DIRECT OPERATING EXPENSES--
(CONTINUED)
3. COMMITMENTS
Operating Leases
Equipment and vehicles are leased under noncancelable operating leases
expiring at varying intervals through February 1999. The following is a
schedule of future minimum rental payments required under these leases as of
December 31, 1995:
<TABLE>
<CAPTION>
YEAR AMOUNT
---- -------
<S> <C>
1996............................................................... $31,272
1997............................................................... 31,272
1998............................................................... 29,204
1999............................................................... 2,802
-------
$94,550
=======
</TABLE>
Rental expense was approximately $32,491 for the year ended December 31,
1995, and $6,469 and $10,119 for the three months ended March 31, 1995 and
1996, respectively, and is included in general and administrative expenses in
the accompanying Statements.
Reservation Agreement
The Partnership has entered into an agreement with a national hotel company
to provide reservation services to the Property. The agreement is required
under the terms of a joint marketing agreement with an affiliate and provides
for reservation fees based on the prior year's experience rating. Reservation
fees totalled $22,144 for the year ended December 31, 1995 and $5,355 and
$5,865 for the three months ended March 31, 1995 and 1996, respectively, and
are included in departmental costs and expenses in the accompanying
Statements.
Restaurant Management Agreement
The Partnership has an agreement with a third party to manage the restaurant
facilities for an initial term of 125 months expiring May 31, 1998 and an
option to extend the agreement for three periods of five years each. The
Property receives monthly income equal to the greater of 5% of the base rental
of $1,500,000 or 5% of actual gross food and beverage revenue, as defined in
the agreement. Additionally, the agreement provides for reimbursement of a pro
rata portion of certain expenses including real estate and personal property
taxes, insurance and utilities. Total income earned under this agreement was
$102,589 for the year ended December 31, 1995, and $21,327 and $23,994 for the
three months ended March 31, 1995 and 1996, respectively, and is included in
telephone and other income in the accompanying Statements.
4. TRANSACTIONS WITH AFFILIATES
The Partnership has entered into a management agreement with an affiliate to
manage the operations of the Property. The agreement is for a term of ten
years expiring July 31, 1999. Management fees are based on 2.5% of gross
revenue, as defined, with a minimum monthly fee of $5,000. In addition, the
agreement provides for an incentive management fee equal to 5.0% of the
hotel's house profit, as defined, to be paid annually. All unpaid fees bear
interest at a rate of 12% per annum until paid.
The Partnership also has an agreement with the general partner of the
Partnership to provide certain services to the Property. The agreement
provides for monthly fees of 1% of gross revenue, as defined, and 1.5% of net
operating income, as defined.
F-108
<PAGE>
ROOSEVELT HOTEL
NOTES TO STATEMENTS OF DIRECT REVENUE AND DIRECT OPERATING EXPENSES--
(CONTINUED)
The Partnership has entered into a joint marketing agreement with an
affiliate to use the affiliate's name and the related commercial symbols, and
to advertise and promote the Property. The agreement, which expires March 31,
1997, provides for a monthly marketing fee equal to 2.5% of gross rooms sales,
as defined.
Fees paid to affiliates under the agreements described above are as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED MARCH 31,
DECEMBER 31, -------------------
1995 1995 1996
------------ --------- ---------
(UNAUDITED)
<S> <C> <C> <C>
Management fee........................... $ 98,871 $ 17,787 $ 19,853
Incentive management fee................. 109,787 15,895 17,312
General partner fee...................... 106,051 19,994 22,567
Marketing fee............................ 90,106 16,061 18,175
-------- --------- ---------
$404,815 $ 69,737 $ 77,907
======== ========= =========
</TABLE>
One floor of the Property and certain office and storage space is leased to
one of the partners at a monthly rate of $2,000. Income earned totalled
$24,000 for the year ended December 31, 1995, and $6,000 for the three months
ended March 31, 1995 and 1996, and is included in telephone and other income
in the accompanying Statements.
5. SUBSEQUENT EVENT
On April 2, 1996, the Partnership sold the Property to Patriot American
Hospitality Partnership, L.P. ("Patriot") for approximately $15,489,000,
including 31,074 limited partnership units in Patriot with a face value of
$825,014 on the date of contract. Additionally, the terms of purchase
agreement provide for the payment to the Partnership of up to $411,200 in
additional consideration upon the achievement of certain operating results in
1997.
6. UNAUDITED FINANCIAL INFORMATION
The following supplemental financial information has been provided by the
Property's management company on an unaudited basis for certain of those
expenses which have been omitted from the accompanying Statements. Supporting
information was not provided by the owner.
The records of the Property's management company reflect interest expense
related to mortgage and other debt of $623,940, $152,086 and $156,542 for the
year ended December 31, 1995 and the three months ended March 31, 1995 and
1996, respectively. The Partnership incurred owner related expenses of
$182,451 for the year ended December 31, 1995, and $40,829 and $80,508 for the
three months ended March 31, 1995 and 1996, respectively.
Additions to furniture, fixtures and equipment ("FF&E") for the Property
totalled $224,858 for the year ended December 31, 1995. Depreciation expense
related to FF&E is computed using the straight-line method based on estimated
useful lives ranging from five to ten years. Estimated depreciation expense
related to FF&E was $199,615 for the year ended December 31, 1995.
Patriot's estimated allocation of the purchase price, including the deferred
purchase consideration, will be $882,000 to land, $14,565,200 to building and
improvements, and $453,000 to FF&E. Expected lives for the building and
improvements and FF&E are 35 years and 5 to 7 years, respectively.
F-109
<PAGE>
REPORT OF INDEPENDENT AUDITORS
To the Board of Directors and Shareholders ofPatriot American Hospitality,
Inc.
We have audited the accompanying Statement of Direct Revenue and Direct
Operating Expenses of the Lexington Hyatt Regency Hotel (the "Property") for
the year ended December 31, 1995. This Statement is the responsibility of the
Property's management. Our responsibility is to express an opinion on this
statement based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the Statement of Direct Revenue and
Direct Operating Expenses is free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the Statement of Direct Revenue and Direct Operating Expenses. An audit also
includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall presentation of the
Statement of Direct Revenue and Direct Operating Expenses. We believe that our
audit provides a reasonable basis for our opinion.
The accompanying Statement of Direct Revenue and Direct Operating Expenses
has been prepared for the purpose of complying with the rules and regulations
of the Securities and Exchange Commission for inclusion in the registration
statement on Form S-11 of Patriot American Hospitality, Inc. as described in
Note 1, and is not intended to be a complete presentation of the Property's
revenue and expenses.
In our opinion, the statement referred to above presents fairly, in all
material respects, the direct revenue and direct operating expenses as
described in Note 1 of the Lexington Hyatt Regency Hotel for the year ended
December 31, 1995, in conformity with generally accepted accounting
principles.
Ernst & Young LLP
Dallas, Texas
March 1, 1996
F-110
<PAGE>
LEXINGTON HYATT REGENCY HOTEL
STATEMENTS OF DIRECT REVENUE AND DIRECT OPERATING EXPENSES
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED MARCH 31,
DECEMBER 31, ---------------------
1995 1995 1996
------------ ---------- ----------
(UNAUDITED)
<S> <C> <C> <C>
Direct revenue from hotel operations:
Rooms..................................... $ 6,753,465 $1,411,697 $1,600,701
Food and beverage......................... 4,622,156 1,002,684 1,072,485
Telephone and other....................... 527,898 108,526 135,540
----------- ---------- ----------
Total direct revenue.................... 11,903,519 2,522,907 2,808,726
----------- ---------- ----------
Direct operating expenses:
Departmental costs and expenses........... 5,607,430 1,288,974 1,395,698
General and administrative................ 1,097,276 276,321 263,520
Rental expense............................ 689,097 145,659 162,671
Repairs and maintenance................... 539,962 129,381 140,111
Utilities................................. 491,737 108,950 114,306
Advertising and promotion................. 984,163 241,253 240,494
Management and incentive fees paid to af-
filiate.................................. 530,370 113,507 127,778
Real estate and personal property taxes,
and insurance............................ 127,240 38,140 41,614
----------- ---------- ----------
Total direct operating expenses......... 10,067,275 2,342,185 2,486,192
----------- ---------- ----------
Direct revenue in excess of direct oper-
ating expenses......................... $ 1,836,244 $ 180,722 $ 322,534
=========== ========== ==========
</TABLE>
See accompanying notes.
F-111
<PAGE>
LEXINGTON HYATT REGENCY HOTEL
NOTES TO STATEMENTS OF DIRECT REVENUE AND DIRECT OPERATING EXPENSES
(AMOUNTS AND DISCLOSURES FOR THE THREE MONTHS ENDED
MARCH 31, 1995 AND 1996 ARE UNAUDITED)
1. ORGANIZATION AND BASIS OF PRESENTATION
Organization
The Lexington Hyatt Regency Hotel (the "Property"), located in Lexington,
Kentucky, is a full-service hotel with 365 guest rooms and nine suites,
approximately 22,000 square feet of meeting space and a restaurant. The
Property is part of the Lexington Center Complex (the "Complex"), which
includes Civic Center Shops, the Rupp Arena and Heritage Hall. The Property is
leased by Lexington Hotel and Mall Corporation ("LHMC"), a not-for-profit,
non-stock corporate government agency and instrumentality of the Lexington-
Fayette Urban County Government ("LFUCG"). LHMC was formed on November 29,
1990 to acquire and operate certain leasehold interests in the Property, a
retail mall, and a parking facility, all of which are part of the Complex. The
Property is owned by Lexington Center Corporation ("LCC").
Basis of Presentation
The accompanying Statements of Direct Revenue and Direct Operating Expenses
(the "Statements") have been prepared to substantially comply with the rules
and regulations of the Securities and Exchange Commission for business
combinations accounted for as a purchase. The accompanying Statements include
revenue and expenses directly related to the operations of the Property as
reflected in the records of the Property's management company. The
accompanying Statements, rather than full audited financial statements, are
presented for the Property because the Property, along with an adjoining mall
and parking lot, are leased by LHMC, which maintains its financial records for
all three facilities on a combined basis. Because it was not practicable to
separately present complete audited financial statements of the Property, the
presentation does not include all the revenue and expenses recorded by LHMC,
as they relate to the Property, such as: 1) interest or other income earned on
investments of LHMC, 2) depreciation expense related to long-lived and short-
lived assets (including the Property and related improvements), 3)
amortization expense related to organizational costs or other deferred
expenses of LHMC, 4) interest expense incurred on indebtedness of the Property
and amortization of deferred loan costs, and 5) certain LHMC related general
and administrative expenses. Therefore, the Statements are not representative
of the actual operations of the Property for the periods presented. Included
in Note 7, is certain unaudited financial information related to the items
discussed above.
Interim Unaudited Financial Information
The accompanying statements of Direct Revenue and Direct Operating Expenses
for the three months ended March 31, 1995 and 1996 are unaudited; however, in
the opinion of management, all adjustments (consisting solely of normal
recurring adjustments) necessary for a fair presentation of the statement of
Direct Revenue and Direct Operating Expenses for these interim periods have
been included. The results of interim periods are not necessarily indicative
of the results to be obtained for a full year.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Capitalization Policy
Maintenance and repairs are charged to operations as incurred; major
renewals and betterments are capitalized.
F-112
<PAGE>
LEXINGTON HYATT REGENCY HOTEL
NOTES TO STATEMENTS OF DIRECT REVENUE AND DIRECT OPERATING EXPENSES--
(CONTINUED)
Revenue Recognition
Revenue is recognized as earned. Ongoing credit evaluations are performed
and an allowance for potential credit losses is provided against the portion
of accounts receivable which is estimated to be uncollectible. Such losses
have been within management's expectations.
3. COMMITMENTS
Capital Lease Obligations
The Property leases furniture, fixtures and equipment under capital leases
expiring at varying intervals through December 1996. Future minimum lease
obligations as of December 31, 1995 are $67,943.
Operating Leases
Equipment and vehicles are leased under non-cancelable operating lease
agreements expiring at varying intervals through May 1999. The following is a
schedule of future minimum rental payments required under these leases as of
December 31, 1995:
<TABLE>
<CAPTION>
YEAR AMOUNT
---- -------
<S> <C>
1996............................................................. $24,446
1997............................................................. 9,204
1998............................................................. 8,404
1999............................................................. 1,845
-------
$43,899
=======
</TABLE>
Rental expense totalled $122,367 for the year ended December 31, 1995, and
$38,624 and $29,099 for the three months ended March 31, 1995 and 1996,
respectively, and is included in general and administrative expenses in the
accompanying Statements.
Management and Other Agreements
LHMC has an agreement with the Hyatt Corporation to manage the Property. The
agreement expires in 2007 and contains provisions whereby the Hyatt
Corporation may extend the agreement for two additional ten year periods.
Under the terms of the agreement, the Hyatt Corporation receives an annual
basic management fee equal to 5% of gross receipts, except for banquet and
meeting room receipts for which the fee is 3.5%. In addition, in any year that
the Property generates a profit, as defined in the agreement, an amount equal
to the excess of 20% of the profit over the basic fee is payable (none paid
for the year ended December 31, 1995 and the three months ended March 31, 1995
and 1996) to the Hyatt Corporation.
The Property also incurred expenses related to Hyatt Corporate reservation
and chain allocations of $256,500 for the year ended December 31, 1995 and
$63,657 and $65,137 for the three months ended March 31, 1995 and 1996,
respectively, which is included in advertising and promotion in the
accompanying Statements.
4. TRANSACTIONS WITH AFFILIATES
LHMC leases the Property under a 30 year non-cancelable lease expiring in
2007. The lease contains six renewal options for an additional ten years each.
The lease requires monthly rental payments equal to 6% of gross receipts, as
defined in the agreement. In addition, the Property is required to pay 50% of
all cash receipts remaining after the Property's operating expenses, insurance
and debt service. Rent expense totalled $689,097
F-113
<PAGE>
LEXINGTON HYATT REGENCY HOTEL
NOTES TO STATEMENTS OF DIRECT REVENUE AND DIRECT OPERATING EXPENSES--
(CONTINUED)
for the year ended December 31, 1995, and $145,659 and $162,671 for the three
months ended March 31, 1995 and 1996, respectively, and is included in rental
expense in the accompanying Statements.
LHMC also leases a parking facility from LCC on an annual basis for the
Property and an adjoining mall. The lease is automatically renewable for as
long as the Property and mall leases remain in effect. Annual rent expense of
$130,000, payable in equal monthly installments, is due during the first 30
years of the agreement. Rental payments are adjusted annually each January 1
by 33 1/3% of the change in the Consumer Price Index.
The Property's allocated share of the parking facility lease totalled
$87,000 for the year ended December 31, 1995, and $21,750 for the three months
ended March 31, 1995 and 1996, and is included in rental expense in the
accompanying Statements.
In addition, the Property leases restaurant space located within the
Complex, a valet office and storage unit. Rent expense related to the
restaurant, valet office and the storage unit was $57,384, $3,000, and $3,600
for the year ended December 31, 1995, and $14,348, $750, and $900 for the
three months ended March 31, 1995 and 1996, respectively. Rent expense related
to the restaurant and storage unit are included in general and administrative
expense and rent expense related to the valet office is included in
departmental costs and expenses in the accompanying Statements.
The following is a combined schedule of future minimum rental payments
required under the parking facility, restaurant space, valet office and
storage unit leases as of December 31, 1995 (excluding future CPI
adjustments):
<TABLE>
<CAPTION>
YEAR AMOUNT
---- ----------
<S> <C>
1996.......................................................... $ 150,984
1997.......................................................... 150,984
1998.......................................................... 150,984
1999.......................................................... 150,984
2000 and thereafter........................................... 1,207,872
----------
$1,811,808
==========
</TABLE>
5. EMPLOYEE BENEFITS
The Hyatt Corporation maintains a defined benefit savings plan for eligible
employees. LHMC makes annual contributions to the plan equal to 2.1% or 3% of
the participant's annual compensation for hourly and salaried employees,
respectively. In addition, the Hyatt Corporation maintains a 401(k) savings
plan for all eligible employees. Under the 401(k) savings plan, eligible
employees can make pre-tax contributions to the plan ranging from 1-15% of
their annual compensation up to a maximum of $9,240 (subject to certain
exceptions for highly-compensated employees). Eligibility for participation in
both plans is based on the employee's completion of one year of eligible
service, as defined. LHMC made contributions totaling $80,124, $33,124, and
$27,074 for the year ended December 31, 1995, and the three months ended March
31, 1995 and 1996, respectively, which are included in general and
administrative expenses in the accompanying Statements.
6. SUBSEQUENT EVENT
On February 7, 1996, LHMC entered into a contract with Patriot American
Hospitality, L.P. ("Patriot") to sell its leasehold interest in the Property
for approximately $14,000,000.
F-114
<PAGE>
LEXINGTON HYATT REGENCY HOTEL
NOTES TO STATEMENTS OF DIRECT REVENUE AND DIRECT OPERATING EXPENSES--
(CONTINUED)
7. UNAUDITED FINANCIAL INFORMATION
The following supplemental financial information has been provided on an
unaudited basis. Supporting information was not provided by LHMC.
Additions to furniture, fixtures and equipment ("F, F & E") for the Property
totalled $234,000 for the year ended December 31, 1995. Depreciation expense
related to F, F & E is computed using the straight-line method based on
estimated useful lives ranging from five to ten years. Estimated depreciation
expense related to F, F & E was approximately $681,000 for the year ended
December 31, 1995.
Patriot's estimated allocation of the purchase price will be $12,000,000 to
building and improvements, and $2,000,000 to F, F & E. Expected lives for the
building and improvements and F, F & E are 35 years and 5 to 7 years,
respectively.
F-115
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Partners of the
Wyndham Portfolio Hotels:
We have audited the accompanying combined balance sheets of the Wyndham
Portfolio Hotels (as defined in Note 1) as of December 31, 1994 and 1995 and
the related combined statements of operations, changes in partners' deficit,
and cash flows for the two years then ended. These combined financial
statements are the responsibility of the Companies' management. Our
responsibility is to express an opinion on these combined financial statements
based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the combined financial statements referred to above present
fairly, in all material respects, the combined financial position of the
Wyndham Portfolio Hotels as of December 31, 1994 and 1995, and its combined
results of operations and its cash flows for the two years then ended, in
conformity with generally accepted accounting principles.
As discussed in Note 1 to the combined financial statements, certain
partnerships which own Wyndham Portfolio Hotels are highly leveraged. In
addition, the Companies' operating liabilities exceed operating assets by
$31,984,052 and $34,430,419 as of December 31, 1994 and 1995, respectively.
These factors as set forth in Note 1 to the combined financial statements,
raise substantial doubt that certain partnerships which own the Wyndham
Portfolio Hotels will be able to continue collectively or individually as a
going concern. The combined financial statements do not include any
adjustments that might result from the outcome of this uncertainty.
Coopers & Lybrand L.L.P.
Dallas, Texas
June 17, 1996
F-116
<PAGE>
WYNDHAM PORTFOLIO HOTELS
COMBINED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------- MARCH 31,
1994 1995 1996
------------ ------------ ------------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents.......... $ 696,166 $ 553,375 $ 360,153
Accounts receivable, net of allow-
ance of $46,838, $16,017 and
$18,089 in 1994, 1995 and 1996.... 1,028,158 1,304,430 2,025,458
Due from Operator.................. -- 78,337 78,337
Due from affiliates................ 200,729 -- --
Inventories........................ 161,488 173,706 161,692
Prepaid expenses................... 69,625 60,494 124,682
------------ ------------ ------------
Total current assets............. 2,156,166 2,170,342 2,750,322
Property and equipment, net.......... 35,870,309 34,987,868 35,041,103
Cash restricted for property and
equipment........................... 364,809 469,919 304,158
Notes receivable from affiliate...... 587,122 937,242 1,076,363
Other assets......................... 378,587 339,573 329,686
------------ ------------ ------------
Total assets..................... $ 39,356,993 $ 38,904,944 $ 39,501,632
============ ============ ============
LIABILITIES AND PARTNERS' DEFICIT
Current liabilities:
Accounts payable and accrued ex-
penses............................ $ 3,060,996 $ 2,687,425 $ 2,359,223
Due to affiliates.................. 336 -- --
Due to Operators................... 14,926,805 14,825,100 14,929,044
Deposits........................... 72,081 508,236 1,017,528
Current portion of long-term debt.. 16,080,000 18,580,000 38,550,000
------------ ------------ ------------
Total current liabilities........ 34,140,218 36,600,761 56,855,795
Long-term debt, net of current por-
tion................................ 36,406,425 31,977,864 11,325,904
Accrued interest..................... 6,763,928 8,207,379 8,568,242
------------ ------------ ------------
Total liabilities................ 77,310,571 76,786,004 76,749,941
------------ ------------ ------------
Minority interest.................... -- -- --
Commitments and contingencies (see
Note 10)
Partners' deficit.................... (37,953,578) (37,881,060) (37,248,309)
------------ ------------ ------------
Total liabilities and partners'
deficit......................... $ 39,356,993 $ 38,904,944 $ 39,501,632
============ ============ ============
</TABLE>
The accompanying notes are an integral part of these combined financial
statements.
F-117
<PAGE>
WYNDHAM PORTFOLIO HOTELS
COMBINED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, THREE MONTHS ENDED MARCH 31,
------------------------ ------------------------------
1994 1995 1995 1996
----------- ----------- -------------- --------------
(UNAUDITED)
<S> <C> <C> <C> <C>
Revenues:
Rooms................. $13,940,390 $14,757,193 $ 3,980,068 $ 4,387,356
Food and beverage..... 8,049,778 7,818,043 2,119,755 2,133,791
Operating departments. 1,608,974 1,564,214 368,548 502,251
----------- ----------- -------------- -------------
Total revenues...... 23,599,142 24,139,450 6,468,371 7,023,398
----------- ----------- -------------- -------------
Operating costs and ex-
penses:
Departmental expenses:
Rooms................. 2,921,223 3,112,222 810,686 926,079
Food and beverage..... 5,488,125 5,374,532 1,383,131 1,434,644
Operating departments. 850,092 778,405 189,348 217,724
Operating expenses:
Administrative and
general.............. 2,826,947 2,579,186 618,312 833,925
Management fees....... 798,951 831,499 213,890 267,289
Sales and marketing... 1,530,577 1,501,927 426,421 474,360
Property operating
costs................ 1,005,343 1,017,040 281,688 279,137
Energy costs.......... 1,054,077 996,609 220,501 264,451
Property insurance and
taxes................ 1,132,906 1,051,431 278,350 288,094
Depreciation and amor-
tization............. 1,638,770 1,501,820 381,900 396,657
Other................. 151,981 45,061 20,155 42,791
----------- ----------- -------------- -------------
Total operating
costs and expenses. 19,398,992 18,789,732 4,824,382 5,425,151
----------- ----------- -------------- -------------
Operating income.... 4,200,150 5,349,718 1,643,989 1,598,247
Interest income......... 36,817 127,306 18,737 28,276
Interest expense........ (4,839,101) (5,404,506) (1,112,344) (993,772)
----------- ----------- -------------- -------------
Net income (loss)... $ (602,134) $ 72,518 $ 550,382 $ 632,751
=========== =========== ============== =============
</TABLE>
The accompanying notes are an integral part of these combined financial
statements.
F-118
<PAGE>
WYNDHAM PORTFOLIO HOTELS
COMBINED STATEMENTS OF CHANGES IN PARTNERS' DEFICIT
<TABLE>
<S> <C>
Balance at January 1, 1994....................................... $(37,351,444)
Net loss....................................................... (602,134)
------------
Balance at December 31, 1994..................................... (37,953,578)
Net income..................................................... 72,518
------------
Balance at December 31, 1995..................................... (37,881,060)
Net income (unaudited)......................................... 632,751
------------
Balance at March 31, 1996 (unaudited)............................ $(37,248,309)
============
</TABLE>
The accompanying notes are an integral part of these combined financial
statements.
F-119
<PAGE>
WYNDHAM PORTFOLIO HOTELS
COMBINED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, THREE MONTHS ENDED MARCH 31,
------------------------ ------------------------------
1994 1995 1995 1996
----------- ----------- -------------- --------------
(UNAUDITED)
<S> <C> <C> <C> <C>
Cash flows from
operating activities:
Net income (loss)...... $ (602,134) $ 72,518 $ 550,382 $ 632,751
Adjustments to recon-
cile net income (loss)
to net cash provided
by operating activi-
ties:
Depreciation and amor-
tization............. 1,638,770 1,501,820 381,900 396,657
Amortization of de-
ferred financing
costs................ 43,817 43,817 10,954 10,954
Provision for uncol-
lectible accounts.... 32,415 (30,821) (37,956) 2,072
Accrued interest ex-
pense................ 1,899,936 1,443,450 360,864 360,863
Changes to operating
assets and liabili-
ties:
Accounts receivable... (157,897) (245,451) (181,145) (723,100)
Due from affiliate.... (200,429) 200,729 200,729 --
Inventories........... 9,738 (12,218) (3,427) 12,014
Prepaid expenses...... 51,381 9,131 (39,316) (64,188)
Other assets.......... (20,617) (4,800) (13,547) (231)
Accounts payable and
accrued expenses..... (15,097) (373,571) (595,437) (328,202)
Deposits.............. (124,487) 436,155 (11,038) 509,292
Due to Operators...... 345,029 (180,042) 56,286 103,944
Due to affiliates..... (360,186) (336) (376,860) --
----------- ----------- -------------- -------------
Net cash provided by
operating activi-
ties............... 2,540,239 2,860,381 302,389 912,826
----------- ----------- -------------- -------------
Cash flows from invest-
ing activities:
Purchase of property
and equipment........ (433,086) (619,381) (74,530) (450,728)
Cash restricted for
property and equip-
ment................. (350,140) (105,110) (54,157) 165,761
Notes receivable from
affiliate............ (587,122) (350,120) -- (139,121)
----------- ----------- -------------- -------------
Net cash used in in-
vesting activities. (1,370,348) (1,074,611) (128,687) (424,088)
----------- ----------- -------------- -------------
Cash flows from financ-
ing activities:
Long-term debt pay-
ments................ (1,450,000) (1,928,561) (270,000) (681,960)
----------- ----------- -------------- -------------
Net cash used in fi-
nancing activities. (1,450,000) (1,928,561) (270,000) (681,960)
----------- ----------- -------------- -------------
Decrease in cash and
cash equivalents....... (280,109) (142,791) (96,298) (193,222)
Cash and cash equiva-
lents at beginning of
period................. 976,275 696,166 696,166 553,375
----------- ----------- -------------- -------------
Cash and cash equiva-
lents at end of period. $ 696,166 $ 553,375 $ 599,868 $ 360,153
=========== =========== ============== =============
Supplemental disclosures
of cash flow informa-
tion:
Cash paid for interest. $ 2,678,202 $ 4,138,765
=========== ===========
</TABLE>
The accompanying notes are an integral part of these combined financial
statements.
F-120
<PAGE>
WYNDHAM PORTFOLIO HOTELS
NOTES TO COMBINED FINANCIAL STATEMENTS
1. ORGANIZATION:
The combined financial statements include the accounts of two partnerships,
Houston Greenspoint Hotel Associates (a Texas limited partnership,
"Greenspoint") and Atlanta Midtown Associates (a Texas general partnership,
"Midtown"), which own and operate the Wyndham Greenspoint Hotel in Houston,
Texas and the Wyndham Garden-Midtown, a Wyndham Garden Hotel in Atlanta,
Georgia. Patriot American Hospitality, Inc. intends to acquire the hotel
properties operated by these entities which are referred to herein as the
Wyndham Portfolio Hotels or the "Companies."
A controlling interest in each of the Companies is owned by Crow Family
Members. Crow Family Members or "Crow" as used herein represents Mr. and Mrs.
Trammell Crow, various descendants of Mr. and Mrs. Trammell Crow, and various
corporations, partnerships, trusts and other entities beneficially owned or
controlled by such persons.
Greenspoint which is 50% owned by Crow Family Members is also managed by a
related entity. The remaining 50% of Greenspoint is owned by an unaffiliated
limited partnership, whose ownership interest is reflected in these
statements. Allocated losses to these limited partners exceed their original
investments, accordingly, no balance of minority interest is reflected herein.
All significant intercompany balances and transactions have been eliminated
in combination.
The accompanying combined financial statements have been presented on a
going-concern basis which contemplates the realization of operating assets and
satisfaction of operating liabilities in the normal course of business.
The partnerships which own Wyndham Portfolio Hotels are highly leveraged. In
addition, the Companies' operating liabilities exceed operating assets by
$31,984,052 and $34,430,419 as of December 31, 1994 and 1995, respectively.
These factors raise substantial doubt that certain partnerships which own the
Wyndham Portfolio Hotels will be able to continue collectively or individually
as a going concern.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Use of Estimates and Assumptions
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the dates of the financial
statements and the reported amounts of revenues and expenses during the
reporting periods. Actual results could differ from those estimates.
Interim Financial Information
The combined balance sheet as of March 31, 1996, the combined statement of
partners' deficit for the three months then ended, and the combined statements
of operations and cash flows for the three months ended March 31, 1995 and
1996, have been prepared by the Companies without audit. In the opinion of
management, all adjustments (which included only normal, recurring
adjustments) necessary to present fairly the combined financial position at
March 31, 1996, and the combined results of operations and cash flows for all
periods presented have been made. The combined results of operations for the
interim periods are not necessarily indicative of the operating results for
the full year.
F-121
<PAGE>
WYNDHAM PORTFOLIO HOTELS
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
Cash and Cash Equivalents
For purposes of reporting cash flows, all highly liquid debt instruments
with original maturities of three months or less are considered to be cash
equivalents.
The Companies maintain cash and cash equivalents in accounts with various
financial institutions in excess of amounts insured by the Federal Deposit
Insurance Corporation.
Inventories
Inventories consist of food, beverages and supplies and are stated at cost,
which approximates market, with cost determined using the first-in, first-out
method.
Property and Equipment
Buildings are carried at cost and depreciated over forty years using the
straight-line method. Furniture and equipment are recorded at cost and
depreciated using the straight-line method over the estimated useful lives,
which range from seven to nine years. Normal repairs and maintenance are
charged to expense as incurred.
In 1995, the Companies adopted Financial Accounting Standards No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets
to Be Disposed Of." Impairment losses are recognized in operating income as
they are determined.
The Companies periodically review their property and equipment to determine
if carrying costs will be recovered from future operating cash flows. In cases
when the Companies do not expect to recover carrying costs, the Companies
recognize an impairment loss. No such losses have been recognized to date.
Other Assets
Other assets include deferred financing costs totaling approximately
$263,621 and $219,804 at December 31, 1994 and 1995, respectively, and are
stated net of related amortization. Amortization of deferred financing costs
is computed using the effective yield method over the lives of the related
loans. The remaining balance totaling approximately $114,966 and $119,764 at
December 31, 1994 and 1995, respectively, is stated at cost and consists
primarily of security deposits.
Income Taxes
The Companies are partnerships and are not taxable entities. Accordingly,
the combined results of their operations are included in the tax returns of
the partners. The partnership tax returns and the amount of allocable income
or loss are subject to examination by federal and state taxing authorities. If
such examinations result in changes to income or loss, the tax liability of
the partners could be changed accordingly.
Revenue Recognition
Room, food and beverage, telephone and other revenues are recognized when
earned.
Self-Insurance
The Companies are self insured for various levels of general and auto
liability, workers' compensation, work related injury and employee medical
coverages. Accrued expenses include the estimated cost for unpaid incurred
claims.
F-122
<PAGE>
WYNDHAM PORTFOLIO HOTELS
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
Advertising Costs
The Companies participate in various advertising and marketing programs with
a related party. All costs are expensed in the period incurred. The Companies
recognized advertising expense of $117,401 and $104,087 for the years ended
December 31, 1994 and 1995, respectively.
3. PROPERTY AND EQUIPMENT:
Property and equipment consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------
1994 1995
------------ ------------
<S> <C> <C>
Land............................................. $ 2,817,835 $ 2,817,835
Buildings and improvements....................... 41,029,243 41,029,243
Furniture, fixtures and equipment................ 16,662,162 17,281,223
------------ ------------
60,509,240 61,128,301
Less accumulated depreciation.................... (24,638,931) (26,140,433)
------------ ------------
$ 35,870,309 $ 34,987,868
============ ============
</TABLE>
4. MANAGEMENT AGREEMENTS AND RELATED PARTY TRANSACTIONS:
The Companies and Wyndham Hotel Company, Ltd. (the "Operator"), a related
party, entered into management agreements with respect to the hotel properties
that have expiration dates of 2004 (Greenspoint) and 2006 (Midtown). Pursuant
to such management agreements, the Operator receives a base management fee of
3% (Greenspoint) and 4% (Midtown) of gross revenues from hotel operations. In
addition, the Operator receives an incentive management fee on Midtown equal
to 10% of total income after debt service, as defined in the management
agreement. Due to Operators as of December 31, 1994 and 1995 includes $253,217
and $217,170, respectively, of management fees and other expenses payable to
the Operator. As provided for in the management agreements, cash in excess of
amounts required for on-site operations is held in a central account in the
name of an affiliate.
The Companies receive sales and marketing, centralized reservations,
accounting and other support services from affiliates which are reimbursed as
an adjustment to management fees in the normal course of business.
The management agreement of Greenspoint provides for the Caribbean Hotel
Management Company ("CHMC") as the former Operator to advance amounts as
needed for Greenspoint's cash requirements, excluding principal due at
maturity of the Greenspoint debt, on an interest-free basis. As of December
31, 1994 and 1995, Greenspoint owed $14,673,589 and $14,607,930, respectively,
to CHMC related to such advances which is included in due to Operators.
However, cash flow from future hotel operations of Greenspoint may not be
adequate to satisfy the Greenspoint indebtedness to CHMC.
5. NOTES RECEIVABLE--AFFILIATE:
Notes receivable from an affiliate consists of amounts paid by Midtown to a
lender on behalf of Bristol Hotel Associates, Ltd. ("BHA") an affiliate with
debt cross-collateralized by the property of Midtown. The loan bears interest
at prime plus 2%. Interest receivable at December 31, 1994 and 1995 was $9,640
and $25,165, respectively, and is included in accounts receivable. Interest
payments are due semiannually, and the principal balance is due September 30,
2000.
F-123
<PAGE>
WYNDHAM PORTFOLIO HOTELS
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
6. ACCOUNTS PAYABLE AND ACCRUED EXPENSES:
Accounts payable and accrued expenses consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------
1994 1995
---------- ----------
<S> <C> <C>
Accounts payable.......................................... $ 760,699 $ 888,219
Taxes..................................................... 1,133,045 1,145,719
Accrued interest.......................................... 251,391 23,950
Other..................................................... 915,861 629,537
---------- ----------
$3,060,996 $2,687,425
========== ==========
</TABLE>
7. LONG-TERM DEBT:
Long-term debt consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------
1994 1995
------------ ------------
<S> <C> <C>
Midtown--Mortgage loan, a hotel property and
equipment is pledged as collateral, interest pay-
able monthly at variable rates which ranged from
4.78% to 7.55%, and 7.28% to 7.63% during the
years ended December 31, 1994 and 1995. An inter-
est rate hedge comes into effect if the long-term
trigger rate, as defined, exceeds 10.75%. Princi-
pal is due September 30, 2000. Net cash flow, as
defined, is applied to the mortgage principal of
an affiliated cross-collateralized hotel proper-
ty............................................... 9,500,000 9,500,000
Midtown--Note payable to a partner, bearing
interest at a rate consistent with the Midtown
mortgage loan. Payments are limited to cash flow,
as defined, and payable quarterly. Principal and
any unpaid interest is due September 30, 2000.... 3,266,425 2,417,864
Greenspoint--Mortgage loan, a hotel property and
equipment is pledged as collateral, interest pay-
able monthly at 10.25%. Principal due in monthly
installments of $90,000 beginning September 1994,
plus monthly net cash flows, as defined, not to
exceed an aggregate unpaid principal balance of
$1,000,000. The remaining principal is due Janu-
ary 1997......................................... 22,220,000 21,140,000
Greenspoint--Note payable to a related party, col-
lateralized by a subordinated deed of trust,
bearing interest at prime plus 1.25% (9.75% at
December 31, 1995), principal due on demand or,
if no demand is made, on January 1, 1999. Inter-
est payments are limited to cash flow, as de-
fined, and payable within 45 days after the year
end.............................................. 15,000,000 15,000,000
Greenspoint--Note payable to a related party,
bears interest at 10.69%, principal due on Janu-
ary 1, 1996. Interest payments are limited to
cash flow, as defined, and payable within 45 days
after the year end............................... 2,500,000 2,500,000
------------ ------------
52,486,425 50,557,864
Current portion of long-term debt................. (16,080,000) (18,580,000)
------------ ------------
Long-term debt, net of current portion............ $ 36,406,425 $ 31,977,864
============ ============
</TABLE>
The Midtown mortgage loan requires the maintenance of a certain debt
coverage, if debt coverage requirements are not met, quarterly principal
payments of all net operating income, as defined, less interest payable for
the month and less a reasonable reserve not to exceed $200,000 as defined in
the loan agreement are required. If debt coverage is met, then 50% of profits,
as defined, must be remitted to pay principal on the mortgage note of BHA, an
affiliate whose debt is cross collateralized by the property of Midtown. Such
payments are treated as a loan to the affiliate and bear interest at the
lender's prime rate plus 2%. Payments to the lender on behalf of BHA were
$587,122 and $350,120 during 1994 and 1995, respectively.
F-124
<PAGE>
WYNDHAM PORTFOLIO HOTELS
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
The terms of the mortgage notes require the Companies to remit 3% of gross
revenues to a furniture, fixtures and equipment reserve. As of December 31,
1994 and 1995, $364,809 and $469,919 were held in the furniture, fixtures and
equipment reserve.
The mortgage loan agreement of Greenspoint required the Partnership to make
deposits of net cash flows, as defined, into a furniture, fixtures and
equipment reserve from August 1, 1993 through July 31, 1994. Of the total
required deposits of net cash flow from August 1, 1993 through July 1, 1994,
approximately $1,000,000 was used to fund capital expenditures and $880,935
was applied as a principal pay down on the loan. An additional payment of
$119,065 of net cash flows related to August 1994 was also applied to the
principal balance of the loan.
The note payable of Greenspoint to a related party which matured on January
1, 1996 remains outstanding. The Partnership intends to repay this debt with
proceeds of the sale described in Note 11. The related party has guaranteed
$12,000,000 of the Greenspoint mortgage loan.
Accrued interest payable to a related party was $6,993,403 and $8,210,255 as
of December 31, 1994 and 1995, respectively. Interest expense of the Companies
related to notes payable to affiliated individuals was $2,091,069 and
$1,689,612 as of December 31, 1994 and 1995, respectively.
The annual principal requirements for the five years subsequent to December
31, 1995 are as follows:
<TABLE>
<S> <C>
1996............................................................ $ 18,580,000
1997............................................................ 20,060,000
1998............................................................ --
1999............................................................ --
2000............................................................ 11,917,864
Thereafter...................................................... --
------------
$ 50,557,864
============
</TABLE>
8. EMPLOYEE BENEFIT PLANS:
The Companies participate in a 401(k) retirement savings plan. Employees who
are over 21 years of age and have completed one year of service are eligible
to participate in the plan. The Companies match employee contributions up to
4% of an employee's salary. The Companies expensed $4,182 and $6,054 for the
years ended December 31, 1994 and 1995, respectively, related to the plan.
The Companies participate in a self-insured group health plan through a
Voluntary Employee Benefit Association ("VEBA") for their employees. This plan
is funded to the limits provided in the Internal Revenue Code, and liabilities
have been recorded for unpaid claims. Aggregate and stop loss insurance exists
at amounts which limit exposure to the Companies. The Companies have
recognized expenses under the plan of $54,408 and $66,804 for the years ended
December 31, 1994 and 1995, respectively.
9. FAIR VALUE OF FINANCIAL INSTRUMENTS:
The Companies have estimated the fair value of its financial instruments at
December 31, 1995 as required by Statement of Financial Accounting Standards
No. 107. The carrying values of cash and cash equivalents, accounts
receivable, accounts payable and accrued expenses are reasonable estimates of
their fair values. The carrying values of variable and fixed rate debt are
reasonable estimates of their fair values based on their
F-125
<PAGE>
WYNDHAM PORTFOLIO HOTELS
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
discounted cash flows at rates currently available to the Companies for debt
with similar terms and remaining maturities. It is impracticable to estimate
the fair value of debt owed to related parties.
10. COMMITMENTS AND CONTINGENCIES:
Greenspoint utilizes certain operating equipment which it leases under
noncancelable agreements which extend beyond one year. Rent expense associated
with these leases was $599,992 in 1994 and $627,798 in 1995. Following is a
schedule of future minimum rental payments required under these operating
leases having initial or remaining noncancelable lease terms in excess of one
year as of December 31, 1995:
<TABLE>
<S> <C>
1996............................................................. $ 723,991
1997............................................................. 616,675
1998............................................................. 555,152
1999............................................................. 388,669
2000............................................................. 388,669
Thereafter....................................................... 2,923,098
-----------
$ 5,596,254
===========
</TABLE>
The Companies are subject to environmental regulations related to the
ownership of real estate (hotels). The cost of complying with the
environmental regulations was not material to the Companies' combined
statements of operations for either of the two years ended December 31, 1995.
The Companies are not aware of any environmental condition on any of its
properties which is likely to have a material adverse effect on the Companies'
financial statements.
11. SUBSEQUENT EVENT:
The Companies have entered into a letter of intent with Patriot American
Hospitality, Inc., a third party real estate investment trust ("REIT"). This
transaction, if consummated, will result in the sale or contribution of the
Companies' hotel properties, equipment, inventory and other assets to the REIT
for approximately $60,230,000 in cash and $500,000 in value of units of
limited partnership interest in Patriot American Hospitality Partnership,
L.P., with approximately $3,000,000 of additional consideration being
contingent on operating performance. The hotel properties and equipment will
then be leased by the REIT to a newly formed affiliate of the Companies. Each
lease has an initial term of ten years, with two five-year renewal options.
Annual rent will be equal to the greater of base rent as calculated or a
percentage rent which will be calculated based upon performance of the hotel
properties. Base rent for the hotels is estimated to be approximately
$8,100,000 annually. The leases will require the lessee to pay substantially
all hotel operating expenses except for real estate taxes and property
insurance. The proceeds of the sale will not be sufficient to repay all of the
Companies' outstanding debt.
F-126
<PAGE>
[PICTURE OF PEACHTREE EXECUTIVE CONFERENCE CENTER AMPITHEATER]
[PICTURE OF CROWNE PLAZA RAVINIA BALLROOM]
[PICTURE OF WESTCOAST GATEWAY HOTEL, SEATTLE, WASHINGTON]
[PICTURE OF WYNDHM GARDEN HOTEL-MIDTOWN, ATLANTA, GEORGIA]
[PICTURE OF HYATT NEWPORTER HOTEL POOL]
[PICTURE OF HILTON INN, CLEVELAND SOUTH]
<PAGE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY REPRE-
SENTATIONS IN CONNECTION WITH THIS OFFERING OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS AND, IF GIVEN OR MADE, SUCH OTHER INFORMATION OR REPRESENTATIONS
MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR THE UNDER-
WRITERS. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER
SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS BEEN NO
CHANGE IN THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF OR THAT THE INFOR-
MATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO ITS DATE. THIS
PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER
TO BUY ANY SECURITIES OTHER THAN THE REGISTERED SECURITIES TO WHICH IT RE-
LATES. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION
OF AN OFFER TO BUY SUCH SECURITIES IN ANY CIRCUMSTANCES IN WHICH SUCH OFFER OR
SOLICITATION IS UNLAWFUL.
----------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary........................................................ 1
Risk Factors.............................................................. 16
The Company............................................................... 24
Developments Since the Initial Offering................................... 29
Use of Proceeds........................................................... 32
Price Range of Common Stock and Distribution History...................... 33
Capitalization............................................................ 34
Selected Financial Information............................................ 35
Management's Discussion and Analysis of Financial Condition and Results of
Operations............................................................... 41
The Hotel Industry........................................................ 51
The Hotels and the Proposed Acquisitions.................................. 52
Formation Transactions.................................................... 72
Management................................................................ 77
Certain Relationships and Transactions.................................... 85
The Lessees and the Operators............................................. 86
Principal Shareholders.................................................... 88
Description of Capital Stock.............................................. 90
Policies and Objectives with Respect to Certain Activities................ 96
Shares Available for Future Sale.......................................... 99
Partnership Agreement..................................................... 100
Federal Income Tax Considerations......................................... 103
Underwriting.............................................................. 120
Experts................................................................... 121
Legal Matters............................................................. 122
Additional Information.................................................... 122
Glossary.................................................................. 123
Index to Financial Statements............................................. F-1
</TABLE>
----------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
5,000,000 SHARES
[LOGO OF PATRIOT AMERICAN HOSPITALITY, INC. APPEARS HERE]
PATRIOT AMERICAN
HOSPITALITY, INC.
COMMON STOCK
----------------
PROSPECTUS
----------------
PAINEWEBBER INCORPORATED
BEAR, STEARNS & CO. INC.
DEAN WITTER REYNOLDS INC.
GOLDMAN, SACHS & CO.
MONTGOMERY SECURITIES
SMITH BARNEY INC.
----------------
, 1996
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 30. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
Set forth below is an estimate of the approximate amount of the fees and
expenses (other than underwriting commissions and discounts) payable by the
Registrant in connection with the issuance and distribution of the shares of
Common Stock.
<TABLE>
<S> <C>
Securities and Exchange Commission registration fee.............. $ 55,988
NASD filing fee.................................................. 16,737
Printing and mailing expenses.................................... 575,000
Accountant's fees and expenses................................... 630,000
Blue Sky fees and expenses....................................... 5,000
Legal fees....................................................... 1,212,500
Transfer Agent's fees............................................ 3,500
Miscellaneous expenses........................................... 201,275
----------
Total.......................................................... $2,700,000
==========
</TABLE>
ITEM 31. SALES TO SPECIAL PARTIES
See response to Item 32.
ITEM 32. RECENT SALES OF UNREGISTERED SECURITIES
The Company sold 750 and 450 shares of Common Stock to Thomas A. Lattin and
Rex E. Stewart, respectively, on June 7, 1995 for an aggregate price of
$1,200. The Company sold 225 shares of Common Stock to Leslie Ng on June 15,
1995 for an aggregate price of $225. The shares were purchased by
Messrs. Lattin, Stewart and Ng for investment purposes only, and not with a
view to any resale, fractionalization or distribution thereof, and for the
purpose of organizing the Company. The shares were issued by the Company in
reliance on the exemption provided by Section 4(2) of the Securities Act of
1933, as amended (the "Securities Act").
In connection with the capitalization of the Operating Partnership,
affiliates of Mr. Nussbaum, Messrs. Daniels, Alibhai and Mack and Ms. Mann
were issued an aggregate of 340,836 OP Units. The OP Units were acquired for
investment purposes only, and not with a view to any resale, fractionalization
or distribution thereof. The OP Units were issued by the Operating Partnership
in reliance on the exemption provided by Section 4(2) of the Securities Act.
In connection with the acquisition of the Holiday Inn Lenox in March 1996,
the Operating Partnership issued an aggregate of 167,012 OP Units to certain
investors. The OP Units were acquired for investment purposes only, and not
with a view to any resale, fractionalization or distribution thereof. The OP
Units were issued by the Operating Partnership in reliance on the exemption
provided by Section 4(2) of the Securities Act.
In connection with the acquisition of the WestCoast Portfolio in April 1996,
the Operating Partnership issued an aggregate of 331,577 OP Units to certain
investors. The OP Units were issued for investment purposes only, and not with
a view to any resale, fractionalization or distribution thereof. The OP Units
were issued by the Operating Partnership in reliance on the exemption provided
by Section 4(2) of the Securities Act.
In May 1996, the Operating Partnership issued 662,391 OP Units to an
institutional investor for cash. The OP Units were issued for investment
purposes only, and not with a view to any resale, fractionalization or
distribution thereof. The OP Units were issued by the Operating Partnership in
reliance on the exemption provided by Section 4(2) of the Securities Act.
II-1
<PAGE>
In May 1996, the Company issued 811,393 shares of Common Stock to an
institutional investor for cash. The shares of Common Stock were issued for
investment purposes only, and not with a view to any resale, fractionalization
or distribution thereof. The shares of Common Stock were issued by the Company
in reliance on the exemption provided by Section 4(2) of the Securities Act.
In connection with the acquisition of the Wyndham Portfolio in July 1996,
the operating partnership issued an aggregate of 17,036 OP Units to certain
investors. The OP Units were issued for investment purposes only, and not with
a view to any resale, fractionalization or distribution thereof. The OP Units
were issued by the Operating Partnership in reliance on the exemption provided
by Section 4(2) of the Securities Act.
ITEM 33. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Articles of Incorporation of the Company, generally, limit the liability
of the Company's directors and officers to the Company and the shareholders
for money damages to the fullest extent permitted from time to time by the
laws of the Commonwealth of Virginia. The Articles of Incorporation also
provide, generally, for the indemnification of directors and officers, among
others, against judgments, settlements, penalties, fines, and reasonable
expenses actually incurred by them in connection with any proceeding to which
they may be made a party by reason of their service in those or other
capacities except in connection with a proceeding by or in the right of the
Company in which the director was adjudged liable to the Company or in
connection with any other proceeding, whether or not involving action in his
official capacity, in which he was adjudged liable on the basis that personal
benefit was improperly received by him. Insofar as indemnification for
liabilities arising under the Securities Act may be permitted to directors and
officers of the Company pursuant to the foregoing provisions or otherwise, the
Company has been advised that, in the opinion of the Securities and Exchange
Commission, such indemnification is against public policy as expressed in the
Securities Act, and is, therefore, unenforceable.
The Company has purchased director and officer liability insurance for the
purpose of providing a source of funds to pay any indemnification described
above.
The Underwriting Agreement will contain certain provisions pursuant to which
certain officers, directors and controlling persons may be entitled to be
indemnified by the underwriters named therein.
ITEM 34. TREATMENT OF PROCEEDS FROM SHARES BEING REGISTERED
None.
ITEM 35. FINANCIAL STATEMENTS AND EXHIBITS
(a) Index to Financial Statements
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PATRIOT AMERICAN HOSPITALITY, INC.:
Pro Forma Condensed Consolidated Statement of Operations for the year
ended December 31, 1995 (unaudited)................................... F-3
Pro Forma Condensed Consolidated Statement of Operations for the twelve
months ended March 31,
1996 (unaudited)...................................................... F-5
Pro Forma Condensed Consolidated Statement of Operations for the three
months ended March 31, 1996 (unaudited)............................... F-7
Pro Forma Condensed Consolidated Balance Sheet as of March 31, 1996
(unaudited)........................................................... F-9
Report of Independent Auditors--Ernst & Young LLP...................... F-11
Consolidated Balance Sheets as of December 31, 1995 and March 31, 1996
(unaudited)........................................................... F-12
Consolidated Statements of Operations for the period October 2, 1995
(inception of operations) through December 31, 1995 and for the three
months ended March 31, 1996 (unaudited)............................... F-13
Consolidated Statements of Shareholders' Equity for the period October
2, 1995 (inception of operations) through December 31, 1995 and for
the three months ended March 31, 1996 (unaudited)..................... F-14
</TABLE>
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Consolidated Statements of Cash Flows for the period October 2, 1995
(inception of operations) through December 31, 1995 and for the three
months ended March 31, 1996 (unaudited)............................... F-15
Notes to Consolidated Financial Statements............................. F-16
Financial Statement Schedules:
Schedule III--Real Estate and Accumulated Depreciation............... F-27
Notes to Schedule III................................................ F-28
Schedule IV--Mortgage Loans on Real Estate........................... F-29
LESSEES:
Pro Forma Condensed Combined Statement of Operations for the year ended
December 31, 1995 (unaudited)......................................... F-30
Pro Forma Condensed Combined Statement of Operations for the twelve
months ended March 31, 1996 (unaudited)............................... F-31
Pro Forma Condensed Combined Statement of Operations for the three
months ended March 31, 1996 (unaudited)............................... F-32
CHC LEASE PARTNERS:
Report of Independent Certified Public Accountants--Price Waterhouse
LLP................................................................... F-33
Balance Sheets as of December 31, 1995 and March 31, 1996 (unaudited).. F-34
Statements of Operations for the period from inception (October 2,
1995) to December 31, 1995 and for the three months ended March 31,
1996 (unaudited)...................................................... F-35
Statements of Partners' Capital for the period from inception (October
2, 1995) to December 31, 1995 and for the three months ended March 31,
1996 (unaudited)...................................................... F-36
Statements of Cash Flows for the period from inception (October 2,
1995) to December 31, 1995 and for the three months ended March 31,
1996 (unaudited)...................................................... F-37
Notes to Financial Statements.......................................... F-38
INITIAL HOTELS COMBINED FINANCIAL STATEMENTS:
Report of Independent Auditors--Ernst & Young LLP...................... F-42
Report of Independent Accountants--Coopers & Lybrand L.L.P. ........... F-43
Report of Independent Accountants--Coopers & Lybrand L.L.P. ........... F-44
Combined Balance Sheet as of December 31, 1994......................... F-45
Combined Statements of Operations for the period from January 1, 1995
to October 1, 1995 and the years ended December 31, 1994 and 1993 and
for the three months ended March 31, 1995 (unaudited)................. F-46
Combined Statements of Partners' and Owners' Equity for the period from
January 1, 1995 to October 1, 1995 and the years ended December 31,
1994 and 1993 ........................................................ F-47
Combined Statements of Cash Flows for the period from January 1, 1995
to October 1, 1995 and the years ended December 31, 1994 and 1993 and
for the three months ended March 31, 1995 (unaudited) ................ F-48
Notes to Combined Financial Statements................................. F-49
TROY PARK ASSOCIATES:
Report of Independent Accountants--Coopers & Lybrand L.L.P. ........... F-57
Balance Sheet as of December 29, 1994.................................. F-58
Statements of Operations and Partners' Equity for the period from
January 1, 1994 to December 29,
1994 and for the year ended December 31, 1993......................... F-59
Statements of Cash Flows for the period from January 1, 1994 to
December 29, 1994 and for the year ended December 31, 1993............ F-60
Notes to Financial Statements.......................................... F-61
</TABLE>
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<S> <C>
BUCKHEAD HOSPITALITY JOINT VENTURE:
Report of Independent Auditors--Ernst & Young LLP..................... F-67
Balance Sheets as of December 31, 1995 and February 29, 1996 (unau-
dited)............................................................... F-68
Statements of Operations for the year ended December 31, 1995, the
three months ended March 31, 1995 (unaudited) and the period January
1, 1996 through February 29, 1996 (unaudited)........................ F-69
Statements of Venturers' Capital for the year ended December 31, 1995
and the period January 1, 1996 through February 29, 1996 (unau-
dited)............................................................... F-70
Statements of Cash Flows for the year ended December 31, 1995, the
three months ended March 31,
1995 (unaudited) and the period January 1, 1996 through February 29,
1996 (unaudited)..................................................... F-71
Notes to Financial Statements......................................... F-72
Financial Statement Schedule:
Schedule III--Real Estate and Accumulated Depreciation.............. F-76
Notes to Schedule III............................................... F-77
GATEWAY HOTEL LIMITED PARTNERSHIP AND WENATCHEE HOTEL LIMITED
PARTNERSHIP--COMBINED FINANCIAL STATEMENTS:
Report of Independent Auditors--Ernst & Young LLP..................... F-78
Combined Balance Sheets as of December 31, 1995 and March 31, 1996
(unaudited).......................................................... F-79
Combined Statements of Operations for the year ended December 31,
1995, and the three months ended March 31, 1995 and 1996 (unau-
dited)............................................................... F-80
Combined Statements of Partners' Capital for the year ended December
31, 1995 and the three months ended March 31, 1996 (unaudited)....... F-81
Combined Statements of Cash Flows for the year ended December 31, 1995
and the three months ended March 31, 1995 and 1996 (unaudited)....... F-82
Notes to Combined Financial Statements................................ F-83
Financial Statement Schedule:
Schedule III--Real Estate and Accumulated Depreciation.............. F-89
Notes to Schedule III............................................... F-90
NEWPORTER BEACH HOTEL INVESTMENTS, L.L.C.:
Report of Independent Accountants--Coopers & Lybrand L.L.P. .......... F-91
Balance Sheets as of December 31, 1995 and March 31, 1996 (unaudited). F-92
Statements of Operations and Members' Equity for the period from March
10, 1995 through December 31, 1995 and the three months ended March
31, 1996 (unaudited)................................................. F-93
Statements of Cash Flows for the period from March 10, 1995 through
December 31, 1995 and the three months ended March 31, 1996 (unau-
dited)............................................................... F-94
Notes to Financial Statements......................................... F-95
PLAZA PARK SUITES HOTEL:
Report of Independent Auditors--Ernst & Young LLP..................... F-100
Statements of Direct Revenue and Direct Operating Expenses for the
year ended December 31, 1995 and the three months ended March 31,
1995 and 1996 (unaudited)............................................ F-101
Notes to Statements of Direct Revenue and Direct Operating Expenses... F-102
ROOSEVELT HOTEL:
Report of Independent Auditors--Ernst & Young LLP..................... F-105
Statements of Direct Revenue and Direct Operating Expenses for the
year ended December 31, 1995 and the three months ended March 31,
1995 and 1996 (unaudited)............................................ F-106
Notes to Statements of Direct Revenue and Direct Operating Expenses... F-107
</TABLE>
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LEXINGTON HYATT REGENCY HOTEL:
Report of Independent Auditors--Ernst & Young LLP..................... F-110
Statements of Direct Revenue and Direct Operating Expenses for the
year ended December 31, 1995 and the three months ended March 31,
1995 and 1996 (unaudited)............................................ F-111
Notes to Statements of Direct Revenue and Direct Operating Expenses... F-112
WYNDHAM PORTFOLIO HOTELS:
Report of Independent Accountants--Coopers & Lybrand L.L.P. .......... F-116
Combined Balance Sheets as of December 31, 1995 and 1994 and as of
March 31, 1996 (unaudited)........................................... F-117
Combined Statements of Income for the years ended December 31, 1995
and 1994 and for the three months ended March 31, 1996 and 1995
(unaudited).......................................................... F-118
Combined Statements of Changes in Partners' Deficit for the years
ended December 31, 1995 and 1994 and for the three months ended March
31, 1996 (unaudited) F-119
Combined Statements of Cash Flows for the years ended December 31,
1995 and 1994 and for the three months ended March 31, 1996 and 1995
(unaudited).......................................................... F-120
Notes to Combined Financial Statements................................ F-121
</TABLE>
(b) Exhibits:
<TABLE>
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EXHIBIT
NUMBER EXHIBIT
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<C> <S>
1.1 --Form of Underwriting Agreement.
3.1 --Amended and Restated Articles of Incorporation of the Company
(Incorporated by reference to Exhibit 3.2 to the Company's
Registration Statement on Form S-11, No. 33-94612).
3.2 --Amended and Restated Bylaws of the Company (Incorporated by
reference to Exhibit 3.4 to the Company's Registration
Statement on Form S-11, No. 33-94612).
4.1 --Article IV of the Company's Amended and Restated Articles of
Incorporation (Incorporated by reference to Exhibit 3.1).
4.2 --Articles II and VI of the Company's Amended and Restated
Bylaws (Incorporated by reference to Exhibit 3.2).
4.3 --Redemption and Registration Rights Agreement dated April 1,
1996 by and between the Company and the Holders of Units of
Patriot American Hospitality Partnership, L.P. received in
connection with the purchase of the Westcoast Portfolio
(Incorporated by reference to Exhibit 4.3 to Amendment No. 1 to
the Company's Registration Statement on Form S-11, No. 333-
04587).
4.4 --Registration Rights Agreement dated May 15, 1996 by and
between the Company and LaSalle Advisors Limited Partnership to
register shares of the Company's Common Stock (Incorporated by
reference to Exhibit 4.4 to Amendment No. 1 to the Company's
Registration Statement on Form S-11, No. 333-04587).
4.5 --Registration Rights Agreement dated May 15, 1996 by and
between the Company and LaSalle Advisors Limited Partnership to
register shares of the Company's Common Stock and any
additional Common Stock which may be received in exchange for
Patriot American Hospitality Partnership, L.P. Preferred Units
(Incorporated by reference to Exhibit 4.5 to Amendment No. 1 to
the Company's Registration Statement on Form S-11, No. 333-
04587).
4.6 --Registration Rights Agreement dated July 11, 1996 by and
between the Company and Houston Greenspoint Hotel Asssociates,
L.P.
5.1 --Opinion of Goodwin, Procter & Hoar llp.
8.1 --Opinion of Goodwin, Procter & Hoar llp as to Tax Matters.
</TABLE>
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<CAPTION>
EXHIBIT
NUMBER EXHIBIT
------- -------
<C> <S>
8.2 --Opinion of Gardere & Wynne, L.L.P. as to Texas Franchise Tax
Matters.
10.1 --First Amended and Restated Agreement of Limited Partnership of
Patriot American Hospitality Partnership, L.P. (Incorporated by
reference to Exhibit 10.1 to Amendment No. 1 to the Company's
Registration Statement on Form S-11, No. 333-04587).
10.1(1) --First Amendment to Agreement of Limited Partnership of Patriot
American Hospitality Partnership, L.P. (Incorporated by
reference to Exhibit 10.1(1) to Amendment No. 1 to the
Company's Registration Statement on Form S-11, No. 333-04587).
10.1(2) --Second Amendment to Agreement of Limited Partnership of
Patriot American Hospitality Partnership, L.P. (Incorporated by
reference to Exhibit 10.1(2) to Amendment No. 1 to the
Company's Registration Statement on Form S-11, No. 333-04587).
10.1(3) --Third Amendment to Agreement of Limited Partnership of Patriot
American Hospitality Partnership, L.P. (Incorporated by
reference to Exhibit 10.1(3) to Amendment No. 1 to the
Company's Registration Statement on Form S-11, No. 333-04587).
10.1(4) --Fourth Amendment to Agreement of Limited Partnership of
Patriot American Hospitality Partnership, L.P. (Incorporated by
reference to Exhibit 10.1(4) to Amendment No. 1 to the
Company's Registration Statement on Form S-11, No. 333-04587).
10.1(5) --Fifth Amendment to Agreement of Limited Partnership of Patriot
American Hospitality Partnership, L.P.
10.2 --Lease Agreement dated as of October 2, 1995 between Patriot
American Hospitality Partnership, L.P. and CHC Lease Partners
for the Hampton Inn, Canton, Ohio (Incorporated by reference to
Exhibit 10.2 to the Company's Form 10-Q for the quarter ended
September 30, 1995, No. 0-26528).
10.3 --Lease Agreement dated as of October 2, 1995 between Patriot
American Hospitality Partnership, L.P. and CHC Lease Partners
for the Holiday Inn Northwest, Houston, Texas (Incorporated by
reference to Exhibit 10.3 to the Company's Form 10-Q for the
quarter ended September 30, 1995, No. 0-26528).
10.4 --Lease Agreement dated as of October 2, 1995 between Patriot
American Hospitality Partnership, L.P. and CHC Lease Partners
for the Peachtree Executive Conference Center, Peachtree City,
Georgia (Incorporated by reference to Exhibit 10.4 to the
Company's Form 10-Q for the quarter ended September 30, 1995,
No. 0-26528).
10.5 --Lease Agreement dated as of October 2, 1995 between Patriot
American Hospitality Partnership, L.P. and CHC Lease Partners
for the Fairmount Hotel, San Antonio, Texas (Incorporated by
reference to Exhibit 10.5 to the Company's Form 10-Q for the
quarter ended September 30, 1995, No. 0-26528).
10.6 --Lease Agreement dated as of October 2, 1995 between Patriot
American Hospitality Partnership, L.P. and CHC Lease Partners
for the Holiday Inn, Sebring, Florida (Incorporated by
reference to Exhibit 10.6 to the Company's Form 10-Q for the
quarter ended September 30, 1995, No. 0-26528).
10.7 --Lease Agreement dated as of October 2, 1995 between Patriot
American Hospitality Partnership, L.P. and CHC Lease Partners
for the Hampton Inn Jacksonville Airport, Jacksonville, Florida
(Incorporated by reference to Exhibit 10.7 to the Company's
Form 10-Q for the quarter ended September 30, 1995, No. 0-
26528).
10.8 --Lease Agreement dated as of October 2, 1995 between Patriot
American Hospitality Partnership, L.P. and CHC Lease Partners
for the Holiday Inn Northwest Plaza, Austin, Texas
(Incorporated by reference to Exhibit 10.8 to the Company's
Form 10-Q for the quarter ended September 30, 1995, No. 0-
26528).
</TABLE>
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EXHIBIT
NUMBER EXHIBIT
------- -------
<C> <S>
10.9 --Lease Agreement dated as of October 2, 1995 between Patriot
American Hospitality Partnership, L.P. and CHC Lease Partners
for the Hampton Inn Cleveland Airport, Cleveland, Ohio
(Incorporated by reference to Exhibit 10.9 to the Company's
Form 10-Q for the quarter ended September 30, 1995, No. 0-
26528).
10.10 --Lease Agreement dated as of October 2, 1995 between Patriot
American Hospitality Partnership, L.P. and CHC Lease Partners
for the Hampton Inn, Rochester, New York (Incorporated by
reference to Exhibit 10.10 to the Company's Form 10-Q for the
quarter ended September 30, 1995, No. 0-26528).
10.11 --Lease Agreement dated as of October 2, 1995 between Patriot
American Hospitality Partnership, L.P. and CHC Lease Partners
for the Holiday Inn, San Angelo, Texas (Incorporated by
reference to Exhibit 10.11 to the Company's Form 10-Q for the
quarter ended September 30, 1995, No. 0-26528).
10.12 --Lease Agreement dated as of October 2, 1995 between Patriot
American Hospitality Partnership, L.P. and CHC Lease Partners
for the Marriott Hotel, Troy, Michigan (Incorporated by
reference to Exhibit 10.12 to the Company's Form 10-Q for the
quarter ended September 30, 1995, No. 0-26528).
10.13 --Lease Agreement dated as of October 2, 1995 between Patriot
American Hospitality Partnership, L.P. and CHC Lease Partners
for the Radisson Hotel & Suites, Dallas, Texas (Incorporated
by reference to Exhibit 10.13 to the Company's Form 10-Q for
the quarter ended September 30, 1995, No. 0-26528).
10.14 --Lease Agreement dated as of October 2, 1995 between Patriot
American Hospitality Partnership, L.P. and CHC Lease Partners
for the Radisson Hotel, New Orleans, Louisiana (Incorporated
by reference to Exhibit 10.14 to the Company's Form 10-Q for
the quarter ended September 30, 1995, No. 0-26528).
10.15 --Lease Agreement dated as of October 2, 1995 between Patriot
American Hospitality Partnership, L.P. and CHC Lease Partners
for the Sheraton Fashion Square Inn, Saginaw, Michigan
(Incorporated by reference to Exhibit 10.15 to the Company's
Form 10-Q for the quarter ended September 30, 1995, No. 0-
26528).
10.16 --Lease Agreement dated as of October 2, 1995 between Patriot
American Hospitality Partnership, L.P. and CHC Lease Partners
for the Hilton Inn Cleveland South, Independence, Ohio
(Incorporated by reference to Exhibit 10.16 to the Company's
Form 10-Q for the quarter ended September 30, 1995, No. 0-
26528).
10.17 --Lease Agreement dated as of October 2, 1995 between Patriot
American Hospitality Partnership, L.P. and CHC Lease Partners
for the Holiday Inn Select North Dallas, Farmers Branch, Texas
(Incorporated by reference to Exhibit 10.17 to the Company's
Form 10-Q for the quarter ended September 30, 1995, No. 0-
26528).
10.18 --Lease Agreement dated as of October 2, 1995 between Patriot
American Hospitality Partnership, L.P. and CHC Lease Partners
for the Crockett Hotel, San Antonio, Texas (Incorporated by
reference to Exhibit 10.18 to the Company's Form 10-Q for the
quarter ended September 30, 1995, No. 0-26528).
10.19 --Lease Agreement dated as of October 2, 1995 between Patriot
American Hospitality Partnership, L.P. and CHC Lease Partners
for the Holiday Inn Aristocrat, Dallas, Texas (Incorporated by
reference to Exhibit 10.19 to the Company's Form 10-Q for the
quarter ended September 30, 1995, No. 0-26528).
</TABLE>
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EXHIBIT
NUMBER EXHIBIT
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<C> <S>
10.20 --Lease Agreement dated as of October 2, 1995 between Patriot
American Hospitality Partnership, L.P. and CHC Lease Partners
for the Radisson Suites Town & Country, Houston, Texas
(Incorporated by reference to Exhibit 10.20 to the Company's
Form 10-Q for the quarter ended September 30, 1995, No. 0-
26528).
10.21 --Lease Agreement dated as of October 2, 1995 between Patriot
American Hospitality Partnership, L.P. and CHC Lease Partners
for the Bourbon Orleans Hotel, New Orleans, Louisiana
(Incorporated by reference to Exhibit 10.21 to the Company's
Form 10-Q for the quarter ended September 30, 1995, No. 0-
26528).
10.22 --Lease Master Agreement dated as of October 2, 1995 between
Patriot American Hospitality Partnership, L.P. and CHC Lease
Partners (Incorporated by reference to Exhibit 10.22 to the
Company's Form 10-Q for the quarter ended September 30, 1995,
No. 0-26528).
10.23 --Lease Agreement dated as of November 15, 1995 between PA Hunt
Valley Investors, L.P. and Metro Hotels Leasing Corporation for
the Embassy Suites Hotel, Hunt Valley, Maryland (Incorporated
herein by reference to Exhibit 10.23 to the Company's Form 10-K
dated March 29, 1996, No. 0-26528).
10.24 --Lease Agreement dated as of June 21, 1996 between Patriot
American Hospitality Partnership, L.P. and DTR North Canton,
Inc. (Incorporated by reference to Exhibit 10.24 to Amendment
No. 1 to the Company's Registration Statement on Form S-11,
No. 333-04587).
10.25 --Management agreement dated as of December 1, 1995 between PAH
Ravinia, Inc. and Holiday Inns, Inc. for the Holiday Inn Crowne
Plaza Ravinia Hotel, Atlanta, Georgia (Incorporated by
reference to Exhibit 10.24 to the Company's Form 10-K for the
year ended December 31, 1995, No. 0-26528) .
10.26 --Lease Agreement dated as of January 16, 1996 between Patriot
American Hospitality Partnership, L.P. and CHC Lease Partners
for the Tremont House Hotel, Boston, Massachusetts
(Incorporated by reference to Exhibit 10.25 to the Company's
Form 10-K for the year ended December 31, 1995, No. 0-26528).
10.27 --Lease Master Agreement dated as of July 11, 1996 by and
between Patriot American Hospitality Partnership, L.P. and Crow
Hotel Lessee, Inc.
10.28 --Lease Agreement dated as of July 11, 1996 between Patriot
American Hospitality Partnership, L.P. and Crow Hotel Lessee,
Inc. for the Wyndham Greenspoint, Houston, Texas.
10.29 --Lease Agreement dated as of July 11, 1996 between Patriot
American Hospitality Partnership, L.P. and Crow Hotel Lessee,
Inc. for the Wyndham Garden-Midtown, Atlanta, Georgia.
10.30 --Supplemental Representations, Warranties and Indemnity
Agreement dated as of October 2, 1995 by and among CHC
International Inc., Sherwood M. Weiser, Donald E. Lefton, Peter
L. Sibley, Thomas F. Hewitt and W. Peter Temling; Paul A.
Nussbaum, Karim Alibhai, Patriot American Hospitality
Partnership, L.P. and Patriot American Hospitality, Inc.
(Incorporated by reference to Exhibit 10.23 to the Company's
Form 10-Q for the quarter ended September 30, 1995, No. 0-
26528).
10.31 --Agreement dated as of July 14, 1995 by and between Patriot
American Hospitality Partnership, L.P. and the limited partners
of Quarry Inn Company for the Hilton Inn Cleveland South,
Cleveland, Ohio (Incorporated by reference to Exhibit 10.24 to
the Company's Form 10-Q for the quarter ended September 30,
1995, No. 0-26528).
</TABLE>
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<CAPTION>
EXHIBIT
NUMBER EXHIBIT
------- -------
<C> <S>
10.32 --Agreement dated as of July 14, 1995 by and between Patriot
American Hospitality Partnership, L.P. and North Coast
Rochester Limited Partnership for the Hampton Inn, Rochester,
New York (Incorporated by reference to Exhibit 10.25 to the
Company's Form 10-Q for the quarter ended September 30, 1995,
No. 0-26528).
10.33 --Agreement dated as of July 14, 1995 by and between Patriot
American Hospitality Partnership, L.P. and Hotel Group
Jacksonville Joint Venture for the Hampton Inn Jacksonville
Airport, Jacksonville, Florida (Incorporated by reference to
Exhibit 10.26 to the Company's Form 10-Q for the quarter ended
September 30, 1995, No. 0-26528).
10.34 --Agreement dated as of July 14, 1995 by and between Patriot
American Hospitality Partnership, L.P. and Great Northern Inns
Company for the Hampton Inn Cleveland Airport, Cleveland, Ohio
(Incorporated by reference to Exhibit 10.27 to the Company's
Form 10-Q for the quarter ended September 30, 1995, No. 0-
26528).
10.35 --Agreement dated as of July 14, 1995 by and between Patriot
American Hospitality Partnership, L.P. and Tri-City Hotel
Associates and Tri-City Hotel Company for the Sheraton Fashion
Square Inn, Saginaw, Michigan (Incorporated by reference to
Exhibit 10.28 to the Company's Form 10-Q for the quarter ended
September 30, 1995, No. 0-26528).
10.36 --Agreement dated as of July 14, 1995 by and between Patriot
American Hospitality Partnership, L.P. and North Coast Inns Co.
Ltd. for the Hampton Inn, Canton, Ohio (Incorporated by
reference to Exhibit 10.29 to the Company's Form 10-Q for the
quarter ended September 30, 1995, No. 0-26528).
10.37 --Agreement, dated as of July 14, 1995, between Patriot American
Hospitality Partnership, L.P., and Great Northern Inns Company,
for the Hampton Inn Cleveland Airport, Cuyahoga County, Ohio
(Incorporated by reference to Exhibit 10.30 to the Company's
Form 10-Q for the quarter ended September 30, 1995, No. 0-
26528).
10.38 --Agreement, dated as of July 14, 1995, between Patriot American
Hospitality Partnership, L.P., and the limited partners of the
Quarry Inn Company (Incorporated by reference to Exhibit 10.31
to the Company's Form 10-Q for the quarter ended September 30,
1995, No. 0-26528).
10.39 --Agreement, dated as of July 14, 1995, between Patriot American
Hospitality Partnership, L.P., and the limited partners of
North Coast Inns Co. (Incorporated by reference to Exhibit
10.32 to the Company's Form 10-Q for the quarter ended
September 30, 1995, No. 0-26528).
10.40 --Agreement, dated as of July 14, 1995, between Patriot American
Hospitality Partnership, L.P., and the limited partners of Tri-
City Hotel Associates (Incorporated by reference to Exhibit
10.33 to the Company's Form 10-Q for the quarter ended
September 30, 1995, No. 0-26528).
10.41 --Agreement of Purchase and Sale dated as of September 12, 1995
between Sebring Hospitality, L.P. and Patriot American
Hospitality Partnership, L.P. for the Holiday Inn, Sebring,
Florida (Incorporated by reference to Exhibit 10.34 to the
Company's Form 10-Q for the quarter ended September 30, 1995,
No. 0-26528).
10.42 --Agreement of Purchase and Sale dated as of September 12, 1995
between Travis Real Estate Group Joint Venture and Patriot
American Hospitality Partnership, L.P. for the Holiday Inn-NW
Austin, Austin, Texas (Incorporated by reference to Exhibit
10.35 to the Company's Form 10-Q for the quarter ended
September 30, 1995, No. 0-26528).
10.43 --Agreement of Acquisition dated as of April 22, 1996 by and
between PAH Acquisition Corporation and BV Hotel & SPA
Acquisition, LTD. (Incorporated by reference to Exhibit 10.40
to Amendment No. 1 to the Company's Registration Statement on
Form S-11, No. 333-04587).
</TABLE>
II-9
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT
------- -------
<C> <S>
10.44 --Agreement of Purchase and Sale dated March 15, 1996 by and
between PAH Acquisition Corporation and Colony Hill Associates,
as amended (Incorporated by reference to Exhibit 10.41 to
Amendment No. 1 to the Company's Registration Statement on Form
S-11, No. 333-04587).
10.45 --Agreement letter regarding Strategic Alliance to acquire and
lease Wyndham Hotels dated April 10, 1996 by and among Patriot
American Hospitality, Inc., Wyndham Hotels and Resorts and
various partnerships (Incorporated by reference to Exhibit 10.42
to Amendment No. 1 to the Company's Registration Statement on
Form S-11,
No. 333-04587).
10.46 --Contribution Agreement dated as of July 11, 1996 between PAH
Acquisition Corporation and Houston Greenspoint Hotel Association
for the Wyndham Greenspoint, Houston, Texas.
10.47 --Agreement of Purchase and Sale dated as of July 11, 1996 between
PAH Acquisition Corporation and Atlanta Midtown Associates for
the Wyndham Garden-Midtown, Atlanta, Georgia.
10.48 --Agreement of Purchase and Sale dated as of July 11, 1996 between
PAH Acquisition Corporation and Wood Dale Garden Hotel
Partnership for the Wyndham Garden, Wood Dale, Illinois.
10.49 --Agreement of Purchase and Sale dated as of July 11, 1996 between
PAH Acquisition Corporation and Novi Garden Hotel Associates for
the Wyndham Garden, Novi, Michigan.
10.50 --Agreement of Purchase and Sale dated as of July 11, 1996 between
PAH Acquisition Corporation and CLC Limited Partnership for the
Wyndham Garden-Las Colinas, Irving, Texas.
10.51 --Agreement of Assignment and Assumption dated June 20, 1996
between Doubletree Hotels Corporation and Patriot American
Hospitality Partnership, L.P. (Incorporated by reference to
Exhibit 10.43 to Amendment No. 1 to the Company's Registration
Statement on Form S-11, No. 333-04587).
10.52 --Option for Exchange Agreement dated as of July 10, 1995 by and
among Patriot American Hospitality Partnership, L.P., Patriot
American Hospitality, Inc. and the partners of Fairmount
Hospitality, G.P. (Incorporated by reference to Exhibit 10.36 to
the Company's Form 10-Q for the quarter ended September 30, 1995,
No. 0-26528).
10.53 --Option for Exchange Agreement dated as of July 10, 1995 by and
among Patriot American Hospitality Partnership, L.P., Patriot
American Hospitality, Inc. and the partners of Main Street
Hospitality, G.P. (Incorporated by reference to Exhibit 10.37 to
the Company's Form 10-Q for the quarter ended September 30, 1995,
No. 0-26528).
10.54 --Option for Exchange Agreement dated as of July 10, 1995 by and
among Patriot American Hospitality Partnership, L.P., Patriot
American Hospitality, Inc. and the partners of 290 Ventures, L.P.
(Incorporated by reference to Exhibit 10.38 to the Company's Form
10-Q for the quarter ended September 30, 1995, No. 0-26528).
10.55 --Option for Exchange Agreement dated as of July 10, 1995 by and
among Patriot American Hospitality Partnership, L.P., Patriot
American Hospitality, Inc. and the partners of Crockett
Hospitality Company. (Incorporated by reference to Exhibit 10.39
to the Company's Form 10-Q for the quarter ended September 30,
1995, No. 0-26528).
</TABLE>
II-10
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT
------- -------
<C> <S>
10.56 --Option for Exchange Agreement dated as of July 10, 1995 by and
among Patriot American Hospitality Partnership, L.P., Patriot
American Hospitality, Inc. and the partners of Town & Country
Hospitality Co. (Incorporated by reference to Exhibit 10.40 to
the Company's Form 10-Q for the quarter ended September 30, 1995,
No. 0-26528).
10.57 --Option for Exchange Agreement, as amended, dated as of July 14,
1995 by and among Patriot American Hospitality Partnership, L.P.,
Patriot American Hospitality, Inc., Bourbon Orleans Operating
Corporation, Bourbon Ventures, Inc., and the partners of Bourbon
Orleans Investors, L.P. (Incorporated by reference to Exhibit
10.41 to the Company's Form 10-Q for the quarter ended September
30, 1995, No. 0-26528).
10.58 --Option for Exchange Agreement, as amended, dated as of July 15,
1995, by and among Patriot American Hospitality Partnership,
L.P., a Virginia limited partnership, Patriot American
Hospitality, Inc., Summit AP-GP Partners, L.P., and the partners
of Summit AP Partners, L.P. (Incorporated by reference to Exhibit
10.42 to the Company's Form 10-Q for the quarter ended September
30, 1995, No. 0-26528).
10.59 --Option for Exchange Agreement, as amended, dated as of June 14,
1995, by and among Patriot American Hospitality Partnership,
L.P., Patriot American Hospitality, Inc., AP-GP Troy Hotel
Partners, L.P., and Interstate Hotels Corporation #1018
(Incorporated by reference to Exhibit 10.43 to the Company's Form
10-Q for the quarter ended September 30, 1995, No. 0-26528).
10.60 --Option for Exchange Agreement, dated as of July 10, 1995, by and
among Patriot American Hospitality Partnership, L.P., Patriot
American Hospitality, Inc., and the partners of Chartwell
Properties J.V. (Incorporated by reference to Exhibit 10.44 to
the Company's Form 10-Q for the quarter ended September 30, 1995,
No. 0-26528).
10.61 --Option for Exchange Agreement, dated as of July 14, 1995, by and
among Patriot American Hospitality Partnership, L.P., Patriot
American Hospitality, Inc., and the partners of MWL Peachtree,
Ltd. (Incorporated by reference to Exhibit 10.45 to the Company's
Form 10-Q for the quarter ended September 30, 1995, No. 0-26528).
10.62 --Option for Exchange Agreement, as amended, dated as of July 14,
1995, by and among Patriot American Hospitality Partnership,
L.P., Patriot American Hospitality, Inc., 1500 Canal Street
Acquisition Corporation (Incorporated by reference to Exhibit
10.46 to the Company's Form 10-Q for the quarter ended September
30, 1995, No. 0-26528).
10.63 --Option for Exchange Agreement, as amended, dated as of July 14,
1995, by and among Patriot American Hospitality Partnership,
L.P., Patriot American Hospitality, Inc., San Angelo Hotel
Operating Corporation, and the partners of San Angelo Ventures,
L.P. (Incorporated by reference to Exhibit 10.47 to the Company's
Form 10-Q for the quarter ended September 30, 1995, No. 0-26528).
10.64 --Agreement of Purchase and Sale dated as of October 20, 1995
between Patriot American Hospitality Partnership, L.P. and MIF
Realty, L.P. related to the purchase of the Embassy Suites
(Incorporated by reference to Exhibit 10.51 to the Company's Form
10-K for the year ended December 31, 1996, No. 0-26528).
10.65 --Agreement of Purchase and Sale between Patriot American
Hospitality, Partnership, L.P. and Metric-Holiday Ravinia Joint
Venture (Incorporated by reference to Exhibit 2.1 to the
Company's Form 8-K dated December 1, 1995, No. 0-26528).
10.66 --Agreement of Purchase and Sale dated as of December 8, 1995
between Patriot American Hospitality Acquisitions Corporation and
THR, Inc. related to the purchase of the Tremont House Hotel
(Incorporated by reference to Exhibit 10.53 to the Company's Form
10-K for the year ended December 31, 1996, No. 0-26528).
</TABLE>
II-11
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT
------- -------
<C> <S>
10.67 --Agreement of Purchase and Sale dated as of January 31, 1996
between Patriot American Hospitality Acquisitions Corporation and
Buckhead Hospitality, J.V. related to the purchase of the Holiday
Inn Lenox Hotel (Incorporated by reference to Exhibit 10.54 to
the Company's Form 10-K for the year ended December 31, 1996, No.
0-26528).
10.68 --Employment Agreement dated as of October 2, 1995 by and between
Patriot American Hospitality, Inc. and Paul A. Nussbaum
(Incorporated by reference to Exhibit 10.48 to the Company's Form
10-Q for the quarter ended September 30, 1995, No. 0-26528).
10.69 --Employment Agreement dated as of October 2, 1995 by and between
Patriot American Hospitality, Inc. and Thomas W. Lattin
(Incorporated by reference to Exhibit 10.49 to the Company's Form
10-Q for the quarter ended September 30, 1995, No. 0-26528).
10.70 --Employment Agreement dated as of October 2, 1995 by and between
Patriot American Hospitality, Inc. and Rex E. Stewart
(Incorporated by reference to Exhibit 10.50 to the Company's Form
10-Q for the quarter ended September 30, 1995, No. 0-26528).
10.71 --Employment Agreement dated as of October 2, 1995 by and between
Patriot American Hospitality, Inc. and Leslie Ng (Incorporated by
reference to Exhibit 10.51 to the Company's Form 10-Q for the
quarter ended September 30, 1995, No. 0-26528).
10.72 --Agreement Not to Compete dated as of October 2, 1995 by and
between (i) Patriot American Hospitality Partnership, L.P., and
Patriot American Hospitality, Inc., on the one hand, and (ii)
Paul A. Nussbaum, in his individual capacity, on the other hand
(Incorporated by reference to Exhibit 10.52 to the Company's Form
10-Q for the quarter ended September 30, 1995, No. 0-26528).
10.73 --Agreement Not to Compete dated as of October 2, 1995 by and
between (i) Patriot American Hospitality Partnership, L.P., and
Patriot American Hospitality, Inc., on the one hand, and (ii)
Thomas W. Lattin, in his individual capacity, on the other hand
(Incorporated by reference to Exhibit 10.53 to the Company's Form
10-Q for the quarter ended September 30, 1995, No. 0-26528).
10.74 --Agreement Not to Compete dated as of October 2, 1995 by and
between (i) Patriot American Hospitality Partnership, L.P., and
Patriot American Hospitality, Inc., on the one hand, and (ii) Rex
E. Stewart, in his individual capacity, on the other hand
(Incorporated by reference to Exhibit 10.54 to the Company's Form
10-Q for the quarter ended September 30, 1995, No. 0-26528).
10.75 --Agreement Not to Compete dated as of October 2, 1995 by and
between (i) Patriot American Hospitality Partnership, L.P., and
Patriot American Hospitality, Inc., on the one hand, and (ii)
Leslie Ng, in his individual capacity, on the other hand
(Incorporated by reference to Exhibit 10.55 to the Company's Form
10-Q for the quarter ended September 30, 1995, No. 0-26528).
10.76 --Patriot American Hospitality, Inc. 1995 Incentive Plan
(Incorporated by reference to Exhibit 10.56 to the Company's Form
10-Q for the quarter ended September 30, 1995, No. 0-26528).
10.77 --Patriot American Hospitality, Inc. Non-Employee Directors'
Incentive Plan (Incorporated by reference to Exhibit 10.57 to the
Company's Form 10-Q for the quarter ended September 30, 1995, No.
0-26528).
10.78 --Sublease and Services Agreement between Patriot American
Management and Leasing Corporation and Patriot American
Hospitality, Inc. (Incorporated by reference to Exhibit 10.58 to
the Company's Form 10-Q for the quarter ended September 30, 1995,
No. 0-26528).
</TABLE>
II-12
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT
------- -------
<C> <S>
10.79 --Revolving Credit Agreement dated as of October 2, 1995 between
Patriot American Hospitality, L.P., the Company, PAH GP, Inc.,
PA Troy Hospitality Investors, L.P., Bourbon Orleans Investors,
L.P., 1500 Canal Street Investors, L.P., as Borrowers, and
SECORE Financial Corporation, as Lender (Incorporated by
reference to Exhibit 10.68 to the Company's Form 10-K for the
year ended December 31, 1995, No. 0-26528).
10.80(1) --Letter of Amendment to Revolving Credit Agreement dated May 8,
1996 between the Company, Patriot American Hospitality, L.P.,
PAH GP, Inc., PA Troy Hospitality Investors, L.P., Bourbon
Orleans Investors, L.P., 1500 Canal Street Investors, L.P., PA
Hunt Valley Investors, L.P. as Borrowers and Paine Webber Real
Estate Securities Inc., as Lender (Incorporated by reference to
Exhibit 10.71(1) to Amendment No. 1 to the Company's
Registration Statement on Form S-11, No. 333-04587).
10.80(2) --Letter of Amendment to Revolving Credit Agreement dated July
15, 1996 between the Company, Patriot American Hospitality,
L.P., PAH GP, Inc., PA Troy Hospitality Investors, L.P.,
Bourbon Orleans Investors, L.P., 1500 Canal Street Investors,
L.P., PA Hunt Valley Investors, L.P., as Borrowers and Paine
Webber Real Estate Securities, Inc., as Lender.
10.81 --Amended and Restated Purchase Agreement with Joint Escrow
Instructions between Patriot American Hospitality Partnership,
L.P. and Park Plaza Suites, Inc. (Incorporated by reference to
Exhibit 10.1 to the Company's Form 8-K dated April 2, 1996,
No. 0-26528).
10.82 --Amended and Restated Purchase Agreement with Joint Escrow
Instructions between Patriot American Hospitality Partnership,
L.P. and Roosevelt Hotel Limited Partnership (Incorporated by
reference to Exhibit 10.2 to the Company's Form 8-K dated April
2, 1996, No. 0-26528).
10.83 --Amended and Restated Purchase Agreement with Joint Escrow
Instructions between Patriot American Hospitality Partnership,
L.P. and Gateway Hotel Limited Partnership (Incorporated by
reference to Exhibit 10.3 to the Company's Form 8-K dated April
2, 1996, No. 0-26528).
10.84 --Amended and Restated Purchase Agreement with Joint Escrow
Instructions between Patriot American Hospitality Partnership,
L.P. and Newporter Beach Hotel Investments Limited Liability
Company (Incorporated by reference to Exhibit 10.4 to the
Company's Form 8-K dated April 2, 1996, No. 0-26528).
10.85 --Amended and Restated Purchase Agreement with Joint Escrow
Instructions between Patriot American Hospitality Partnership,
L.P. and Wenatchee Hotel Limited Partnership (Incorporated by
reference to Exhibit 10.5 to the Company's Form 8-K dated April
2, 1996, No. 0-26528).
10.86 --Purchase and Sale Agreement between Patriot American
Hospitality Partnership, L.P. and The Phoenix Insurance Company
for the Del Mar Hilton (Incorporated by reference to Exhibit
10.6 to the Company's Form 8-K dated April 2, 1996, No. 0-
26528).
10.87 --Purchase and Sale Agreement between Patriot American
Hospitality Partnership, L.P. and Forte USA, Inc. for the Long
Beach Travelodge (Incorporated by reference to Exhibit 10.7 to
the Company's Form 8-K dated April 2, 1996, No. 0-26528).
11.1 --Statement regarding computation of per share earnings
(Incorporated by reference to Exhibit 11.1 to the Company's
Form 10-K for the year ended December 31, 1995,
No. 0-26528).
21.1 --Subsidiaries of the Registrant.
</TABLE>
II-13
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT
------- -------
<C> <S>
23.1 --Consent of Goodwin, Procter & Hoar llp (included in Exhibits
5.1 and 8.1).
23.2 --Consent of Gardere & Wynne, L.L.P. (included in Exhibit 8.2).
23.3 --Consent of Ernst & Young LLP.
23.4 --Consent of Coopers & Lybrand L.L.P., Fort Lauderdale, Florida.
23.5 --Consent of Coopers & Lybrand L.L.P., Pittsburgh, Pennsylvania.
23.6 --Consent of Coopers & Lybrand L.L.P., Newport Beach, California.
23.7 --Consent of Price Waterhouse LLP.
23.8 --Consent of Coopers & Lybrand L.L.P., Dallas, Texas.
24.1 --Powers of Attorney (Incorporated by reference to Signature Page
to the Company's original Registration Statement on Form S-11,
No. 333-04587, dated May 24, 1996).
</TABLE>
ITEM 36. UNDERTAKINGS
A. Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the provisions referred to in Item 33 of this
Registration Statement, or otherwise, the Registrant has been advised that in
the opinion of the Securities and Exchange Commission such indemnification is
against public policy as expressed in the Act and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the Registrant of expenses incurred or
paid by a director, officer, or controlling person of the Registrant in the
successful defense of any action, suit, or proceeding) is asserted by such
director, officer, or controlling person in connection with the securities
being registered, the Registrant will, unless in the opinion of its counsel
the matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Act, and will be governed by the
final adjudication of such issue.
The undersigned Registrant hereby undertakes to provide to the underwriters
at the closing specified in the Underwriting Agreement certificates in such
denominations and registered in such names as required by the underwriters to
permit prompt delivery to each purchaser.
The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement;
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth
in the registration statement. Notwithstanding the foregoing, any
increase or decrease in volume of securities offered (if the total
dollar value of securities offered would not exceed that which was
registered) and any deviation from the low or high and of the estimated
maximum offering range may be reflected in the form of prospectus filed
with the Commission pursuant to Rule 424(b) if, in the aggregate, the
changes in volume and price represent no more than 20 percent change in
the maximum aggregate offering price set forth in the "Calculation of
Registration Fee" table in the effective registration statement.
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or
any material change to such information in the registration statement."
II-14
<PAGE>
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed
to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed
to be the initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act of
1933, the information omitted from the form of prospectus filed as part of
this registration statement in reliance upon Rule 430A and contained in a
form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Securities Act shall be deemed to be part of this
registration statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities Act
of 1933, each post-effective amendment that contains a form of prospectus
shall be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof."
II-15
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE REGISTRANT
CERTIFIES THAT IT HAS REASONABLE GROUNDS TO BELIEVE THAT IT MEETS ALL OF THE
REQUIREMENTS FOR FILING ON FORM S-11 AND HAS DULY CAUSED THIS AMENDMENT NO. 2
TO THE REGISTRATION STATEMENT TO BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED,
THEREUNTO DULY AUTHORIZED IN THE CITY OF DALLAS, STATE OF TEXAS ON THE 16TH
DAY OF JULY, 1996.
Patriot American Hospitality, Inc. a
Virginia corporation (Registrant)
By /s/ Paul A. Nussbaum
----------------------------------
Paul A. Nussbaum
Chairman of the Board and Chief
Executive Officer
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS AMENDMENT
NO. 2 TO THE REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS
IN THE CAPACITIES INDICATED ON THE 16TH DAY OF JULY, 1996.
<TABLE>
<CAPTION>
SIGNATURE TITLE
<S> <C>
/s/ Paul A. Nussbaum Chairman of the Board and
- ------------------------------------- Chief Executive Officer
Paul A. Nussbaum (Principal Executive
Officer)
/s/ Rex E. Stewart Executive Vice President
- ------------------------------------- and Chief Financial
Rex E. Stewart Officer (Principal
Financial and Accounting
Officer)
Leonard Boxer* Director
- -------------------------------------
Leonard Boxer
Director
- -------------------------------------
John Daniels
John C. Deterding* Director
- -------------------------------------
John C. Deterding
Gregory R. Dillon* Director
- -------------------------------------
Gregory R. Dillon
Director
- -------------------------------------
Thomas S. Foley
Arch K. Jacobson* Director
- -------------------------------------
Arch K. Jacobson
*By /s/ Paul A. Nussbaum
--------------------------
Paul A. Nussbaum
Attorney-in-fact
</TABLE>
II-16
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT PAGE
------- ------- ----
<C> <S> <C>
1.1 --Form of Underwriting Agreement.
3.1 --Amended and Restated Articles of Incorporation of the
Company (Incorporated by reference to Exhibit 3.2 to the
Company's Registration Statement on Form S-11, No. 33-94612).
3.2 --Amended and Restated Bylaws of the Company (Incorporated by
reference to Exhibit 3.4 to the Company's Registration
Statement on Form S-11, No. 33-94612).
4.1 --Article IV of the Company's Amended and Restated Articles of
Incorporation (Incorporated by reference to Exhibit 3.1).
4.2 --Articles II and VI of the Company's Amended and Restated
Bylaws (Incorporated by reference to Exhibit 3.2).
4.3 --Redemption and Registration Rights Agreement dated April 1,
1996 by and between the Company and the Holders of Units of
Patriot American Hospitality Partnership, L.P. received in
connection with the purchase of the Westcoast Portfolio
(Incorporated by reference to Exhibit 4.3 to Amendment No. 1
to the Company's Registration Statement on Form S-11, No.
333-04587).
4.4 --Registration Rights Agreement dated May 15, 1996 by and
between the Company and LaSalle Advisors Limited Partnership
to register shares of the Company's Common Stock
(Incorporated by reference to Exhibit 4.4 to Amendment No. 1
to the Company's Registration Statement on Form S-11, No.
333-04587).
4.5 --Registration Rights Agreement dated May 15, 1996 by and
between the Company and LaSalle Advisors Limited Partnership
to register shares of the Company's Common Stock and any
additional Common Stock which may be received in exchange for
Patriot American Hospitality Partnership, L.P. Preferred
Units (Incorporated by reference to Exhibit 4.5 to Amendment
No. 1 to the Company's Registration Statement on Form S-11,
No. 333-04587).
4.6 --Registration Rights Agreement dated July 11, 1996 by and
between the Company and Houston Greenspoint Hotel Associates,
L.P.
5.1 --Opinion of Goodwin, Procter & Hoar llp.
8.1 --Opinion of Goodwin, Procter & Hoar llp as to Tax Matters.
8.2 --Opinion of Gardere & Wynne, L.L.P. as to Texas Franchise Tax
Matters.
10.1 --First Amended and Restated Agreement of Limited Partnership
of Patriot American Hospitality Partnership, L.P.
(Incorporated by reference to Exhibit 10.1 to Amendment No. 1
to the Company's Registration Statement on Form S-11, No.
333-04587).
10.1(1) --First Amendment to Agreement of Limited Partnership of
Patriot American Hospitality Partnership, L.P. (Incorporated
by reference to Exhibit 10.1(1) to Amendment No. 1 to the
Company's Registration Statement on Form S-11, No. 333-
04587).
10.1(2) --Second Amendment to Agreement of Limited Partnership of
Patriot American Hospitality Partnership, L.P. (Incorporated
by reference to Exhibit 10.1(2) to Amendment No. 1 to the
Company's Registration Statement on Form S-11, No. 333-
04587).
10.1(3) --Third Amendment to Agreement of Limited Partnership of
Patriot American Hospitality Partnership, L.P. (Incorporated
by reference to Exhibit 10.1(3) to Amendment No. 1 to the
Company's Registration Statement on Form S-11, No. 333-
04587).
10.1(4) --Fourth Amendment to Agreement of Limited Partnership of
Patriot American Hospitality Partnership, L.P. (Incorporated
by reference to Exhibit 10.1(4) to Amendment No. 1 to the
Company's Registration Statement on Form S-11, No. 333-
04587).
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT PAGE
------- ------- ----
<C> <S> <C>
10.1(5) --Fifth Amendment to Agreement of Limited Partnership of
Patriot American Hospitality Partnership, L.P.
10.2 --Lease Agreement dated as of October 2, 1995 between Patriot
American Hospitality Partnership, L.P. and CHC Lease Partners
for the Hampton Inn, Canton, Ohio (Incorporated by reference
to Exhibit 10.2 to the Company's Form 10-Q for the quarter
ended September 30, 1995, No. 0-26528).
10.3 --Lease Agreement dated as of October 2, 1995 between Patriot
American Hospitality Partnership, L.P. and CHC Lease Partners
for the Holiday Inn Northwest, Houston, Texas (Incorporated
by reference to Exhibit 10.3 to the Company's Form 10-Q for
the quarter ended September 30, 1995, No. 0-26528).
10.4 --Lease Agreement dated as of October 2, 1995 between Patriot
American Hospitality Partnership, L.P. and CHC Lease Partners
for the Peachtree Executive Conference Center, Peachtree
City, Georgia (Incorporated by reference to Exhibit 10.4 to
the Company's Form 10-Q for the quarter ended September 30,
1995, No. 0-26528).
10.5 --Lease Agreement dated as of October 2, 1995 between Patriot
American Hospitality Partnership, L.P. and CHC Lease Partners
for the Fairmount Hotel, San Antonio, Texas (Incorporated by
reference to Exhibit 10.5 to the Company's Form 10-Q for the
quarter ended September 30, 1995, No. 0-26528).
10.6 --Lease Agreement dated as of October 2, 1995 between Patriot
American Hospitality Partnership, L.P. and CHC Lease Partners
for the Holiday Inn, Sebring, Florida (Incorporated by
reference to Exhibit 10.6 to the Company's Form 10-Q for the
quarter ended September 30, 1995, No. 0-26528).
10.7 --Lease Agreement dated as of October 2, 1995 between Patriot
American Hospitality Partnership, L.P. and CHC Lease Partners
for the Hampton Inn Jacksonville Airport, Jacksonville,
Florida (Incorporated by reference to Exhibit 10.7 to the
Company's Form 10-Q for the quarter ended September 30, 1995,
No. 0-26528).
10.8 --Lease Agreement dated as of October 2, 1995 between Patriot
American Hospitality Partnership, L.P. and CHC Lease Partners
for the Holiday Inn Northwest Plaza, Austin, Texas
(Incorporated by reference to Exhibit 10.8 to the Company's
Form 10-Q for the quarter ended September 30, 1995, No. 0-
26528).
10.9 --Lease Agreement dated as of October 2, 1995 between Patriot
American Hospitality Partnership, L.P. and CHC Lease Partners
for the Hampton Inn Cleveland Airport, Cleveland, Ohio
(Incorporated by reference to Exhibit 10.9 to the Company's
Form 10-Q for the quarter ended September 30, 1995, No. 0-
26528).
10.10 --Lease Agreement dated as of October 2, 1995 between Patriot
American Hospitality Partnership, L.P. and CHC Lease Partners
for the Hampton Inn, Rochester, New York (Incorporated by
reference to Exhibit 10.10 to the Company's Form 10-Q for the
quarter ended September 30, 1995, No. 0-26528).
10.11 --Lease Agreement dated as of October 2, 1995 between Patriot
American Hospitality Partnership, L.P. and CHC Lease Partners
for the Holiday Inn, San Angelo, Texas (Incorporated by
reference to Exhibit 10.11 to the Company's Form 10-Q for the
quarter ended September 30, 1995, No. 0-26528).
10.12 --Lease Agreement dated as of October 2, 1995 between Patriot
American Hospitality Partnership, L.P. and CHC Lease Partners
for the Marriott Hotel, Troy, Michigan (Incorporated by
reference to Exhibit 10.12 to the Company's Form 10-Q for the
quarter ended September 30, 1995, No. 0-26528).
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10.13 --Lease Agreement dated as of October 2, 1995 between Patriot
American Hospitality Partnership, L.P. and CHC Lease Partners
for the Radisson Hotel & Suites, Dallas, Texas (Incorporated
by reference to Exhibit 10.13 to the Company's Form 10-Q for
the quarter ended September 30, 1995, No. 0-26528).
10.14 --Lease Agreement dated as of October 2, 1995 between Patriot
American Hospitality Partnership, L.P. and CHC Lease Partners
for the Radisson Hotel, New Orleans, Louisiana (Incorporated
by reference to Exhibit 10.14 to the Company's Form 10-Q for
the quarter ended September 30, 1995, No. 0-26528).
10.15 --Lease Agreement dated as of October 2, 1995 between Patriot
American Hospitality Partnership, L.P. and CHC Lease Partners
for the Sheraton Fashion Square Inn, Saginaw, Michigan
(Incorporated by reference to Exhibit 10.15 to the Company's
Form 10-Q for the quarter ended September 30, 1995, No. 0-
26528).
10.16 --Lease Agreement dated as of October 2, 1995 between Patriot
American Hospitality Partnership, L.P. and CHC Lease Partners
for the Hilton Inn Cleveland South, Independence, Ohio
(Incorporated by reference to Exhibit 10.16 to the Company's
Form 10-Q for the quarter ended September 30, 1995, No. 0-
26528).
10.17 --Lease Agreement dated as of October 2, 1995 between Patriot
American Hospitality Partnership, L.P. and CHC Lease Partners
for the Holiday Inn Select North Dallas, Farmers Branch, Texas
(Incorporated by reference to Exhibit 10.17 to the Company's
Form 10-Q for the quarter ended September 30, 1995, No. 0-
26528).
10.18 --Lease Agreement dated as of October 2, 1995 between Patriot
American Hospitality Partnership, L.P. and CHC Lease Partners
for the Crockett Hotel, San Antonio, Texas (Incorporated by
reference to Exhibit 10.18 to the Company's Form 10-Q for the
quarter ended September 30, 1995, No. 0-26528).
10.19 --Lease Agreement dated as of October 2, 1995 between Patriot
American Hospitality Partnership, L.P. and CHC Lease Partners
for the Holiday Inn Aristocrat, Dallas, Texas (Incorporated by
reference to Exhibit 10.19 to the Company's Form 10-Q for the
quarter ended September 30, 1995, No. 0-26528).
10.20 --Lease Agreement dated as of October 2, 1995 between Patriot
American Hospitality Partnership, L.P. and CHC Lease Partners
for the Radisson Suites Town & Country, Houston, Texas
(Incorporated by reference to Exhibit 10.20 to the Company's
Form 10-Q for the quarter ended September 30, 1995, No. 0-
26528).
10.21 --Lease Agreement dated as of October 2, 1995 between Patriot
American Hospitality Partnership, L.P. and CHC Lease Partners
for the Bourbon Orleans Hotel, New Orleans, Louisiana
(Incorporated by reference to Exhibit 10.21 to the Company's
Form 10-Q for the quarter ended September 30, 1995, No. 0-
26528).
10.22 --Lease Master Agreement dated as of October 2, 1995 between
Patriot American Hospitality Partnership, L.P. and CHC Lease
Partners (Incorporated by reference to Exhibit 10.22 to the
Company's Form 10-Q for the quarter ended September 30, 1995,
No. 0-26528).
10.23 --Lease Agreement dated as of November 15, 1995 between PA Hunt
Valley Investors, L.P. and Metro Hotels Leasing Corporation
for the Embassy Suites Hotel, Hunt Valley, Maryland
(Incorporated herein by reference to Exhibit 10.23 to the
Company's Form 10-K dated March 29, 1996, No. 0-26528).
10.24 --Lease Agreement dated as of June 21, 1996 between Patriot
American Hospitality Partnership, L.P. and DTR North Canton,
Inc. (Incorporated by reference to Exhibit 10.24 to Amendment
No. 1 to the Company's Registration Statement on Form S-11,
No. 333-04587).
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10.25 --Management agreement dated as of December 1, 1995 between
PAH Ravinia, Inc. and Holiday Inns, Inc. for the Holiday Inn
Crowne Plaza Ravinia Hotel, Atlanta, Georgia (Incorporated by
reference to Exhibit 10.24 to the Company's Form 10-K for the
year ended December 31, 1995, No. 0-26528) .
10.26 --Lease Agreement dated as of January 16, 1996 between Patriot
American Hospitality Partnership, L.P. and CHC Lease Partners
for the Tremont House Hotel, Boston, Massachusetts
(Incorporated by reference to Exhibit 10.25 to the Company's
Form 10-K for the year ended December 31, 1995, No. 0-26528).
10.27 --Lease Master Agreement dated as of July 11, 1996 by and
between Patriot American Hospitality Partnership, L.P. and
Crow Hotel Lessee, Inc.
10.28 --Lease Agreement dated as of July 11, 1996 between Patriot
American Hospitality Partnership, L.P. and Crow Hotel Lessee,
Inc. for the Wyndham Greenspoint, Houston, Texas.
10.29 --Lease Agreement dated as of July 11, 1996 between Patriot
American Hospitality Partnership, L.P. and Crow Hotel Lessee,
Inc. for the Wyndham Garden-Midtown, Atlanta.
10.30 --Supplemental Representations, Warranties and Indemnity
Agreement dated as of October 2, 1995 by and among CHC
International Inc., Sherwood M. Weiser, Donald E. Lefton,
Peter L. Sibley, Thomas F. Hewitt and W. Peter Temling; Paul
A. Nussbaum, Karim Alibhai, Patriot American Hospitality
Partnership, L.P. and Patriot American Hospitality, Inc.
(Incorporated by reference to Exhibit 10.23 to the Company's
Form 10-Q for the quarter ended September 30, 1995, No. 0-
26528).
10.31 --Agreement dated as of July 14, 1995 by and between Patriot
American Hospitality Partnership, L.P. and the limited
partners of Quarry Inn Company for the Hilton Inn Cleveland
South, Cleveland, Ohio (Incorporated by reference to Exhibit
10.24 to the Company's Form 10-Q for the quarter ended
September 30, 1995, No. 0-26528).
10.32 --Agreement dated as of July 14, 1995 by and between Patriot
American Hospitality Partnership, L.P. and North Coast
Rochester Limited Partnership for the Hampton Inn, Rochester,
New York (Incorporated by reference to Exhibit 10.25 to the
Company's Form 10-Q for the quarter ended September 30, 1995,
No. 0-26528).
10.33 --Agreement dated as of July 14, 1995 by and between Patriot
American Hospitality Partnership, L.P. and Hotel Group
Jacksonville Joint Venture for the Hampton Inn Jacksonville
Airport, Jacksonville, Florida (Incorporated by reference to
Exhibit 10.26 to the Company's Form 10-Q for the quarter
ended September 30, 1995, No. 0-26528).
10.34 --Agreement dated as of July 14, 1995 by and between Patriot
American Hospitality Partnership, L.P. and Great Northern
Inns Company for the Hampton Inn Cleveland Airport,
Cleveland, Ohio (Incorporated by reference to Exhibit 10.27
to the Company's Form 10-Q for the quarter ended September
30, 1995, No. 0-26528).
10.35 --Agreement dated as of July 14, 1995 by and between Patriot
American Hospitality Partnership, L.P. and Tri-City Hotel
Associates and Tri-City Hotel Company for the Sheraton
Fashion Square Inn, Saginaw, Michigan (Incorporated by
reference to Exhibit 10.28 to the Company's Form 10-Q for the
quarter ended September 30, 1995, No. 0-26528).
10.36 --Agreement dated as of July 14, 1995 by and between Patriot
American Hospitality Partnership, L.P. and North Coast Inns
Co. Ltd. for the Hampton Inn, Canton, Ohio (Incorporated by
reference to Exhibit 10.29 to the Company's Form 10-Q for the
quarter ended September 30, 1995, No. 0-26528).
</TABLE>
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10.37 --Agreement, dated as of July 14, 1995, between Patriot
American Hospitality Partnership, L.P., and Great Northern
Inns Company, for the Hampton Inn Cleveland Airport, Cuyahoga
County, Ohio (Incorporated by reference to Exhibit 10.30 to
the Company's Form 10-Q for the quarter ended September 30,
1995, No. 0-26528).
10.38 --Agreement, dated as of July 14, 1995, between Patriot
American Hospitality Partnership, L.P., and the limited
partners of the Quarry Inn Company (Incorporated by reference
to Exhibit 10.31 to the Company's Form 10-Q for the quarter
ended September 30, 1995, No. 0-26528).
10.39 --Agreement, dated as of July 14, 1995, between Patriot
American Hospitality Partnership, L.P., and the limited
partners of North Coast Inns Co. (Incorporated by reference
to Exhibit 10.32 to the Company's Form 10-Q for the quarter
ended September 30, 1995, No. 0-26528).
10.40 --Agreement, dated as of July 14, 1995, between Patriot
American Hospitality Partnership, L.P., and the limited
partners of Tri-City Hotel Associates (Incorporated by
reference to Exhibit 10.33 to the Company's Form 10-Q for the
quarter ended September 30, 1995, No. 0-26528).
10.41 --Agreement of Purchase and Sale dated as of September 12,
1995 between Sebring Hospitality, L.P. and Patriot American
Hospitality Partnership, L.P. for the Holiday Inn, Sebring,
Florida (Incorporated by reference to Exhibit 10.34 to the
Company's Form 10-Q for the quarter ended September 30, 1995,
No. 0-26528).
10.42 --Agreement of Purchase and Sale dated as of September 12,
1995 between Travis Real Estate Group Joint Venture and
Patriot American Hospitality Partnership, L.P. for the
Holiday Inn-NW Austin, Austin, Texas (Incorporated by
reference to Exhibit 10.35 to the Company's Form 10-Q for the
quarter ended September 30, 1995, No. 0-26528).
10.43 --Agreement of Acquisition dated as of April 22, 1996 by and
between PAH Acquisition Corporation and BV Hotel & SPA
Acquisition, LTD. (Incorporated by reference to Exhibit 10.40
to Amendment No. 1 to the Company's Registration Statement on
Form S-11, No. 333-04587).
10.44 --Agreement of Purchase and Sale dated March 15, 1996 by and
between PAH Acquisition Corporation and Colony Hill
Associates, as amended (Incorporated by reference to Exhibit
10.41 to Amendment No. 1 to the Company's Registration
Statement on Form S-11, No. 333-04587).
10.45 --Agreement letter regarding Strategic Alliance to acquire and
lease Wyndham Hotels dated April 10, 1996 by and among
Patriot American Hospitality, Inc., Wyndham Hotels and
Resorts and various partnerships (Incorporated by reference
to Exhibit 10.42 to Amendment No. 1 to the Company's
Registration Statement on Form S-11, No. 333-04587).
10.46 --Contribution Agreement dated as of July 11, 1996 between PAH
Acquisition Corporation and Houston Greenspoint Hotel
Association for the Wyndham Greenspoint, Houston, Texas.
10.47 --Agreement of Purchase and Sale dated as of July 11, 1996
between PAH Acquisition Corporation and Atlanta Midtown
Associates for the Wyndham Garden-Midtown, Atlanta, Georgia.
10.48 --Agreement of Purchase and Sale dated as of July 11, 1996
between PAH Acquisition Corporation and Wood Dale Garden
Hotel Partnership for the Wyndham Garden, Wood Dale,
Illinois.
10.49 --Agreement of Purchase and Sale dated as of July 11, 1996
between PAH Acquisition Corporation and Novi Garden Hotel
Associates for the Wyndham Garden, Novi, Michigan.
</TABLE>
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10.50 --Agreement of Purchase and Sale dated as of July 11, 1996
between PAH Acquisition Corporation and CLC Limited
Partnership for the Wyndham Garden-Las Colinas, Irving,
Texas.
10.51 --Form of Agreement of Assignment and Assumption dated June
20, 1996 between Doubletree Hotels Corporation and Patriot
American Hospitality Partnership, L.P. (Incorporated by
reference to Exhibit 10.43 to Amendment No. 1 to the
Company's Registration Statement on Form S-11, No. 333-
04587).
10.52 --Option for Exchange Agreement dated as of July 10, 1995 by
and among Patriot American Hospitality Partnership, L.P.,
Patriot American Hospitality, Inc. and the partners of
Fairmount Hospitality, G.P. (Incorporated by reference to
Exhibit 10.36 to the Company's Form 10-Q for the quarter
ended September 30, 1995, No. 0-26528).
10.53 --Option for Exchange Agreement dated as of July 10, 1995 by
and among Patriot American Hospitality Partnership, L.P.,
Patriot American Hospitality, Inc. and the partners of Main
Street Hospitality, G.P. (Incorporated by reference to
Exhibit 10.37 to the Company's Form 10-Q for the quarter
ended September 30, 1995, No. 0-26528).
10.54 --Option for Exchange Agreement dated as of July 10, 1995 by
and among Patriot American Hospitality Partnership, L.P.,
Patriot American Hospitality, Inc. and the partners of 290
Ventures, L.P. (Incorporated by reference to Exhibit 10.38 to
the Company's Form 10-Q for the quarter ended September 30,
1995, No. 0-26528).
10.55 --Option for Exchange Agreement dated as of July 10, 1995 by
and among Patriot American Hospitality Partnership, L.P.,
Patriot American Hospitality, Inc. and the partners of
Crockett Hospitality Company. (Incorporated by reference to
Exhibit 10.39 to the Company's Form 10-Q for the quarter
ended September 30, 1995, No. 0-26528).
10.56 --Option for Exchange Agreement dated as of July 10, 1995 by
and among Patriot American Hospitality Partnership, L.P.,
Patriot American Hospitality, Inc. and the partners of Town &
Country Hospitality Co. (Incorporated by reference to Exhibit
10.40 to the Company's Form 10-Q for the quarter ended
September 30, 1995, No. 0-26528).
10.57 --Option for Exchange Agreement, as amended, dated as of July
14, 1995 by and among Patriot American Hospitality
Partnership, L.P., Patriot American Hospitality, Inc.,
Bourbon Orleans Operating Corporation, Bourbon Ventures,
Inc., and the partners of Bourbon Orleans Investors, L.P.
(Incorporated by reference to Exhibit 10.41 to the Company's
Form 10-Q for the quarter ended September 30, 1995, No. 0-
26528).
10.58 --Option for Exchange Agreement, as amended, dated as of July
15, 1995, by and among Patriot American Hospitality
Partnership, L.P., a Virginia limited partnership, Patriot
American Hospitality, Inc., Summit AP-GP Partners, L.P., and
the partners of Summit AP Partners, L.P. (Incorporated by
reference to Exhibit 10.42 to the Company's Form 10-Q for the
quarter ended September 30, 1995, No. 0-26528).
10.59 --Option for Exchange Agreement, as amended, dated as of June
14, 1995, by and among Patriot American Hospitality
Partnership, L.P., Patriot American Hospitality, Inc., AP-GP
Troy Hotel Partners, L.P., and Interstate Hotels Corporation
#1018 (Incorporated by reference to Exhibit 10.43 to the
Company's Form 10-Q for the quarter ended September 30, 1995,
No. 0-26528).
10.60 --Option for Exchange Agreement, dated as of July 10, 1995, by
and among Patriot American Hospitality Partnership, L.P.,
Patriot American Hospitality, Inc., and the partners of
Chartwell Properties J.V. (Incorporated by reference to
Exhibit 10.44 to the Company's Form 10-Q for the quarter
ended September 30, 1995, No. 0-26528).
</TABLE>
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10.61 --Option for Exchange Agreement, dated as of July 14, 1995, by
and among Patriot American Hospitality Partnership, L.P.,
Patriot American Hospitality, Inc., and the partners of MWL
Peachtree, Ltd. (Incorporated by reference to Exhibit 10.45
to the Company's Form 10-Q for the quarter ended September
30, 1995, No. 0-26528).
10.62 --Option for Exchange Agreement, as amended, dated as of July
14, 1995, by and among Patriot American Hospitality
Partnership, L.P., Patriot American Hospitality, Inc., 1500
Canal Street Acquisition Corporation (Incorporated by
reference to Exhibit 10.46 to the Company's Form 10-Q for the
quarter ended September 30, 1995, No. 0-26528).
10.63 --Option for Exchange Agreement, as amended, dated as of July
14, 1995, by and among Patriot American Hospitality
Partnership, L.P., Patriot American Hospitality, Inc., San
Angelo Hotel Operating Corporation, and the partners of San
Angelo Ventures, L.P. (Incorporated by reference to Exhibit
10.47 to the Company's Form 10-Q for the quarter ended
September 30, 1995, No. 0-26528).
10.64 --Agreement of Purchase and Sale dated as of October 20, 1995
between Patriot American Hospitality Partnership, L.P. and
MIF Realty, L.P. related to the purchase of the Embassy
Suites (Incorporated by reference to Exhibit 10.51 to the
Company's Form 10-K for the year ended December 31, 1996, No.
0-26528).
10.65 --Agreement of Purchase and Sale between Patriot American
Hospitality, Partnership, L.P. and Metric-Holiday Ravinia
Joint Venture (Incorporated by reference to Exhibit 2.1 to
the Company's Form 8-K dated December 1, 1995, No. 0-26528).
10.66 --Agreement of Purchase and Sale dated as of December 8, 1995
between Patriot American Hospitality Acquisitions Corporation
and THR, Inc. related to the purchase of the Tremont House
Hotel (Incorporated by reference to Exhibit 10.53 to the
Company's Form 10-K for the year ended December 31, 1996, No.
0-26528).
10.67 --Agreement of Purchase and Sale dated as of January 31, 1996
between Patriot American Hospitality Acquisitions Corporation
and Buckhead Hospitality, J.V. related to the purchase of the
Holiday Inn Lenox Hotel (Incorporated by reference to Exhibit
10.54 to the Company's Form 10-K for the year ended December
31, 1996, No. 0-26528).
10.68 --Employment Agreement dated as of October 2, 1995 by and
between Patriot American Hospitality, Inc. and Paul A.
Nussbaum (Incorporated by reference to Exhibit 10.48 to the
Company's Form 10-Q for the quarter ended September 30, 1995,
No. 0-26528).
10.69 --Employment Agreement dated as of October 2, 1995 by and
between Patriot American Hospitality, Inc. and Thomas W.
Lattin (Incorporated by reference to Exhibit 10.49 to the
Company's Form 10-Q for the quarter ended September 30, 1995,
No. 0-26528).
10.70 --Employment Agreement dated as of October 2, 1995 by and
between Patriot American Hospitality, Inc. and Rex E. Stewart
(Incorporated by reference to Exhibit 10.50 to the Company's
Form 10-Q for the quarter ended September 30, 1995, No. 0-
26528).
10.71 --Employment Agreement dated as of October 2, 1995 by and
between Patriot American Hospitality, Inc. and Leslie Ng
(Incorporated by reference to Exhibit 10.51 to the Company's
Form 10-Q for the quarter ended September 30, 1995, No. 0-
26528).
10.72 --Agreement Not to Compete dated as of October 2, 1995 by and
between (i) Patriot American Hospitality Partnership, L.P.,
and Patriot American Hospitality, Inc., on the one hand, and
(ii) Paul A. Nussbaum, in his individual capacity, on the
other hand (Incorporated by reference to Exhibit 10.52 to the
Company's Form 10-Q for the quarter ended September 30, 1995,
No. 0-26528).
</TABLE>
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10.73 --Agreement Not to Compete dated as of October 2, 1995 by
and between (i) Patriot American Hospitality Partnership,
L.P., and Patriot American Hospitality, Inc., on the one
hand, and (ii) Thomas W. Lattin, in his individual
capacity, on the other hand (Incorporated by reference to
Exhibit 10.53 to the Company's Form 10-Q for the quarter
ended September 30, 1995, No. 0-26528).
10.74 --Agreement Not to Compete dated as of October 2, 1995 by
and between (i) Patriot American Hospitality Partnership,
L.P., and Patriot American Hospitality, Inc., on the one
hand, and (ii) Rex E. Stewart, in his individual capacity,
on the other hand (Incorporated by reference to Exhibit
10.54 to the Company's Form 10-Q for the quarter ended
September 30, 1995, No. 0-26528).
10.75 --Agreement Not to Compete dated as of October 2, 1995 by
and between (i) Patriot American Hospitality Partnership,
L.P., and Patriot American Hospitality, Inc., on the one
hand, and (ii) Leslie Ng, in his individual capacity, on
the other hand (Incorporated by reference to Exhibit 10.55
to the Company's Form 10-Q for the quarter ended
September 30, 1995, No. 0-26528).
10.76 --Patriot American Hospitality, Inc. 1995 Incentive Plan
(Incorporated by reference to Exhibit 10.56 to the
Company's Form 10-Q for the quarter ended September 30,
1995, No. 0-26528).
10.77 --Patriot American Hospitality, Inc. Non-Employee Directors'
Incentive Plan (Incorporated by reference to Exhibit 10.57
to the Company's Form 10-Q for the quarter ended September
30, 1995, No. 0-26528).
10.78 --Sublease and Services Agreement between Patriot American
Management and Leasing Corporation and Patriot American
Hospitality, Inc. (Incorporated by reference to Exhibit
10.58 to the Company's Form 10-Q for the quarter ended
September 30, 1995,
No. 0-26528).
10.79 --Revolving Credit Agreement dated as of October 2, 1995
between Patriot American Hospitality, L.P., the Company,
PAH GP, Inc., PA Troy Hospitality Investors, L.P., Bourbon
Orleans Investors, L.P., 1500 Canal Street Investors, L.P.,
as Borrowers, and SECORE Financial Corporation, as Lender
(Incorporated by reference to Exhibit 10.68 to the
Company's Form 10-K for the year ended December 31, 1995,
No. 0-26528).
10.80(1) --Letter of Amendment to Revolving Credit Agreement dated
May 8, 1996 between the Company, Patriot American
Hospitality, L.P., PAH GP, Inc., PA Troy Hospitality
Investors, L.P., Bourbon Orleans Investors, L.P., 1500
Canal Street Investors, L.P., PA Hunt Valley Investors,
L.P. as Borrowers and Paine Webber Real Estate Securities
Inc., as Lender (Incorporated by reference to Exhibit
10.71(1) to Amendment No. 1 to the Company's Registration
Statement on Form S-11, No. 333-04587).
10.80(2) --Letter of Amendment to Revolving Credit Agreement dated
July 15, 1996 between the Company, Patriot American
Hospitality, L.P., PAH GP, Inc., PA Troy Hospitality
Investors, L.P., Bourbon Orleans Investors, L.P., 1500
Canal Street Investors, L.P., PA Hunt Valley Investors,
L.P., as Borrowers and Paine Webber Real Estate Securities,
Inc., as Lender.
10.81 --Amended and Restated Purchase Agreement with Joint Escrow
Instructions between Patriot American Hospitality
Partnership, L.P. and Park Plaza Suites, Inc. (Incorporated
by reference to Exhibit 10.1 to the Company's Form 8-K
dated April 2, 1996, No. 0-26528).
10.82 --Amended and Restated Purchase Agreement with Joint Escrow
Instructions between Patriot American Hospitality
Partnership, L.P. and Roosevelt Hotel Limited Partnership
(Incorporated by reference to Exhibit 10.2 to the Company's
Form 8-K dated April 2, 1996, No. 0-26528).
</TABLE>
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10.83 --Amended and Restated Purchase Agreement with Joint Escrow
Instructions between Patriot American Hospitality
Partnership, L.P. and Gateway Hotel Limited Partnership
(Incorporated by reference to Exhibit 10.3 to the Company's
Form 8-K dated April 2, 1996, No. 0-26528).
10.84 --Amended and Restated Purchase Agreement with Joint Escrow
Instructions between Patriot American Hospitality
Partnership, L.P. and Newporter Beach Hotel Investments
Limited Liability Company (Incorporated by reference to
Exhibit 10.4 to the Company's Form 8-K dated April 2, 1996,
No. 0-26528).
10.85 --Amended and Restated Purchase Agreement with Joint Escrow
Instructions between Patriot American Hospitality
Partnership, L.P. and Wenatchee Hotel Limited Partnership
(Incorporated by reference to Exhibit 10.5 to the Company's
Form 8-K dated April 2, 1996, No. 0-26528).
10.86 --Purchase and Sale Agreement between Patriot American
Hospitality Partnership, L.P. and The Phoenix Insurance
Company for the Del Mar Hilton (Incorporated by reference to
Exhibit 10.6 to the Company's Form 8-K dated April 2, 1996,
No. 0-26528).
10.87 --Purchase and Sale Agreement between Patriot American
Hospitality Partnership, L.P. and Forte USA, Inc. for the
Long Beach Travelodge (Incorporated by reference to Exhibit
10.7 to the Company's Form 8-K dated April 2, 1996, No. 0-
26528).
11.1 --Statement regarding computation of per share earnings
(Incorporated by reference to Exhibit 11.1 to the Company's
Form 10-K for the year ended December 31, 1995,
No. 0-26528).
21.1 --Subsidiaries of the Registrant.
23.1 --Consent of Goodwin, Procter & Hoar llp (included in
Exhibits 5.1 and 8.1).
23.2 --Consent of Gardere & Wynne, L.L.P. (included in Exhibit
8.2).
23.3 --Consent of Ernst & Young LLP.
23.4 --Consent of Coopers & Lybrand L.L.P., Fort Lauderdale,
Florida.
23.5 --Consent of Coopers & Lybrand L.L.P., Pittsburgh,
Pennsylvania.
23.6 --Consent of Coopers & Lybrand L.L.P., Newport Beach,
California.
23.7 --Consent of Price Waterhouse LLP.
23.8 --Consent of Coopers & Lybrand L.L.P., Dallas, Texas.
24.1 --Powers of Attorney (Incorporated by reference to Signature
Page to the Company's original Registration Statement on Form
S-11, No. 333-04587, dated May 24, 1996).
</TABLE>
<PAGE>
EXHIBIT 1.1
<PAGE>
5,750,000 Shares
PATRIOT AMERICAN HOSPITALITY, INC.
Common Stock
UNDERWRITING AGREEMENT
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July __, 1996
PAINEWEBBER INCORPORATED
Bear, Stearns & Co. Inc.
Dean Witter Reynolds Inc.
Goldman, Sachs & Co.
Montgomery Securities
Smith Barney Inc.
As Representatives of the
several Underwriters
c/o PaineWebber Incorporated
1285 Avenue of the Americas
New York, New York 10019
Dear Sirs:
Patriot American Hospitality, Inc., a Virginia corporation (the "Company"),
proposes to sell an aggregate of 5,000,000 shares (the "Firm Shares") of the
Company's common stock, no par value (the "Common Stock"), to you and to the
several other underwriters named in Schedule I (collectively, the
"Underwriters"), for whom you are acting as representatives (the
"Representatives"), in connection with the offering and sale of such Common
Stock. The Company has also agreed to grant to you and the several other
Underwriters an option (the "Option") to purchase up to an additional 750,000
shares of Common Stock (the "Option Shares") on the terms and for the purposes
set forth in Section 1(b). The Firm Shares and the Option Shares are
hereinafter collectively referred to as the "Shares". References to the
"Company" shall be deemed to include the Company, Patriot American Hospitality
Partnership, L.P. (the "Operating Partnership") and any corporate or partnership
subsidiaries owned or controlled, directly or indirectly, by the Company or the
Operating Partnership.
The public offering price per share for the Shares and the purchase price
per share for the Shares to be paid by the several Underwriters shall be agreed
upon by the Company and the Representatives, acting on behalf of the several
Underwriters, and such agreement shall be set forth in a separate written
instrument substantially in the form of Exhibit A hereto (the
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"Price Determination Agreement"). The Price Determination Agreement may take
the form of an exchange of any standard form of written telecommunication among
the Company and the Representatives and shall specify such applicable
information as is indicated in Exhibit A hereto. The offering of the Shares
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will be governed by this Agreement, as supplemented by the Price Determination
Agreement. From and after the date of the execution and delivery of the Price
Determination Agreement, this Agreement shall be deemed to incorporate, and,
unless the context otherwise indicates, all references contained herein to "this
Agreement" and to the word "herein" shall be deemed to include, the Price
Determination Agreement. Unless otherwise defined herein, all capitalized terms
used herein shall have the respective meanings ascribed thereto in the
Prospectus (as defined below).
The Company confirms as follows its agreements with the Representatives and
the several other Underwriters.
1. Agreement to Sell and Purchase. (a) On the basis of the
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representations, warranties and agreements of the Company and the Operating
Partnership herein contained and subject to all the terms and conditions of this
Agreement, the Company agrees to sell to each Underwriter named below, and each
Underwriter, severally and not jointly, agrees to purchase from the Company at
the purchase price per share for the Firm Shares to be agreed upon by the
Representatives and the Company in accordance with Section 1(c) or 1(d) and set
forth in the Price Determination Agreement, the number of Firm Shares set forth
opposite the name of such Underwriter in Schedule I, plus such additional number
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of Firm Shares which such Underwriter may become obligated to purchase pursuant
to Section 8 hereof. If the Company elects to rely on Rule 430A (as hereinafter
defined), Schedule I may be attached to the Price Determination Agreement.
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(b) Subject to all the terms and conditions of this Agreement, the
Company grants the Option to the several Underwriters to purchase, severally and
not jointly, up to 750,000 Option Shares from the Company at the same price per
share as the Underwriters shall pay for the Firm Shares. The Option may be
exercised only to cover over-allotments in the sale of the Firm Shares by the
Underwriters and may be exercised in whole or in part at any time, and on one or
more occasions, on or before the 30th day after the date of this Agreement (or,
if the Company has elected to rely on Rule 430A, on or before the 30th day after
the date of the Price Determination Agreement), upon written or telegraphic
notice (the "Option Shares Notice") by the Representatives to the Company no
later than 12:00 noon, New York City time, at least three and no more than five
business days before the date specified for closing in the Option Shares Notice
(the "Option Closing Date") setting forth the aggregate number of Option Shares
to be purchased and the time and date for such purchase. On the Option Closing
Date, the Company will issue and sell to the Underwriters the number
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of Option Shares set forth in the Option Shares Notice, and each Underwriter
will purchase such percentage of the Option Shares as is equal to the percentage
of Firm Shares that such Underwriter is purchasing, as adjusted by the
Representatives in such manner as they deem advisable to avoid fractional
shares.
(c) If the Company has elected not to rely on Rule 430A, the public
offering price per share for the Firm Shares and the purchase price per share
for the Firm Shares to be paid by the several Underwriters shall be agreed upon
and set forth in the Price Determination Agreement, which shall be dated the
date hereof, and an amendment to the Registration Statement (as hereinafter
defined) containing such per share price information shall be filed before the
Registration Statement becomes effective.
(d) If the Company has elected to rely on Rule 430A, the public
offering price per share for the Firm Shares and the purchase price per share
for the Firm Shares to be paid by the several Underwriters shall be agreed upon
and set forth in the Price Determination Agreement. In the event that the Price
Determination Agreement has not been executed by the close of business on the
fourth business day following the date on which the Registration Statement
becomes effective, this Agreement shall terminate forthwith, without liability
of any party to any other party except that Section 6 shall remain in effect.
2. Delivery and Payment. Delivery of the Firm Shares shall be made to the
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Representatives for the accounts of the Underwriters against payment of the
purchase price in New York Clearing House (next-day) funds by certified or
official bank check to the order of the Company at the office of White & Case,
1155 Avenue of the Americas, New York, New York 10036]. Such payments shall be
made at 10:00 a.m., New York City time, on the third business day (or, if
pricing takes place after 4:00 p.m. New York City time, on the fourth day)
following the date of this Agreement or, if the Company has elected to rely on
Rule 430A, the third business day (or, if pricing takes place after 4:00 p.m.
New York City time, on the fourth day) after the date on which the first bona
fide offering of the Shares to the public is made by the Underwriters or at such
time on such other date, not later than seven business days after the date of
this Agreement, as may be agreed upon by the Company and the Representatives
(such date is hereinafter referred to as the "Closing Date").
To the extent the Option is exercised, delivery of the Option Shares
against payment by the Underwriters (in the manner specified above) will take
place at the offices specified above for the Closing Date at the time and date
(which may be the Closing Date) specified in the Option Shares Notice.
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Certificates evidencing the Shares shall be in definitive form and shall be
registered in such names and in such denominations as the Representatives shall
request at least two business days prior to the Closing Date or the Option
Closing Date, as the case may be, by written notice to the Company. For the
purpose of expediting the checking and packaging of certificates for the Shares,
the Company agrees to make such certificates available for inspection at least
24 hours prior to the Closing Date or the Option Closing Date, as the case may
be.
The cost of original issue tax stamps, if any, in connection with the
issuance and delivery of the Firm Shares and Option Shares by the Company to the
respective Underwriters shall be borne by the Company. The Company will pay and
save each Underwriter and any subsequent holder of the Shares harmless from any
and all liabilities with respect to or resulting from any failure or delay in
paying Federal and state stamp and other transfer taxes, if any, which may be
payable or determined to be payable in connection with the original issuance or
sale to such Underwriter of the Firm Shares and Option Shares.
3. Representations and Warranties of the Company. The Company and the
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Operating Partnership jointly and severally represent, warrant and covenant to
each Underwriter that:
(a) A registration statement (Registration No. 333-04587) on Form
S-11 relating to the Shares, including a preliminary prospectus and such
amendments to such registration statement as may have been required to the
date of this Agreement, has been prepared by the Company under the
provisions of the Securities Act of 1933, as amended (the "Act"), and the
rules and regulations (collectively referred to as the "Rules and
Regulations") of the Securities and Exchange Commission (the "Commission")
thereunder, and has been filed with the Commission. The term "preliminary
prospectus" as used herein means a preliminary prospectus as contemplated
by Rule 430 or Rule 430A ("Rule 430A") of the Rules and Regulations
included at any time as part of the registration statement. Copies of such
registration statement and amendments have been delivered to the
Representatives, and copies of the preliminary prospectus have been
delivered to the Underwriters. If such registration statement has not
become effective, a further amendment to such registration statement,
including a form of final prospectus, necessary to permit such registration
statement to become effective, will be filed promptly by the Company with
the Commission. If such registration statement has become effective, a
final prospectus containing information permitted to be omitted at the time
of effectiveness by Rule 430A will be filed by the Company with the
Commission in accordance with Rule 424(b) of the Rules and Regulations
promptly after execution and delivery of the Price Determination Agreement.
The term "Registration Statement" means the registration
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statement as amended at the time it becomes or became effective (the "Effective
Date"), including financial statements and all exhibits and any information
deemed to be included by Rule 430A. The term "Prospectus" means a prospectus
relating to the Shares in the form first filed with the Commission pursuant to
Rule 424(b) of the Rules and Regulations or, if no such filing is required, the
form of final prospectus included in the Registration Statement at the Effective
Date. No stop order suspending the effectiveness of the Registration Statement
has been issued, and no proceeding for that purpose has been instituted or, to
the knowledge of the Company and the Operating Partnership after due inquiry,
threatened by the Commission or by the state securities authority of any
jurisdiction. No order preventing or suspending the use of the Prospectus has
been issued and no proceeding for that purpose has been instituted or, to the
knowledge of the Company or the Operating Partnership, threatened by the
Commission or by the state securities authority of any jurisdiction.
(b) On the Effective Date, the date the Prospectus is first filed with the
Commission pursuant to Rule 424(b) (if required), on the Closing Date and, if
later, the Option Closing Date and when any post-effective amendment to the
Registration Statement becomes effective or any amendment or supplement to the
Prospectus is filed with the Commission, the Registration Statement and the
Prospectus (as amended or as supplemented if the Company shall have filed with
the Commission any amendment or supplement thereto), including the financial
statements included in the Prospectus, did or will comply with all applicable
provisions of the Act and the Rules and Regulations and will contain all
statements required to be stated therein in accordance with the Act and the
Rules and Regulations. On the Effective Date and when any post-effective
amendment to the Registration Statement becomes effective, no part of the
Registration Statement or any such amendment did or will contain any untrue
statement of a material fact or omit to state a material fact required to be
stated therein or necessary in order to make the statements therein not
misleading. At the Effective Date, the date the Prospectus or any amendment or
supplement to the Prospectus is filed with the Commission and at the Closing
Date and, if later, the Option Closing Date, the Prospectus did not and will not
contain any untrue statement of a material fact or omit to state a material fact
necessary to make the statements therein, in the light of the circumstances
under which they were made, not misleading. The foregoing representations and
warranties in this Section 3(b) do not apply to any statements or omissions made
in reliance on and in conformity with information relating to any Underwriter
furnished in writing to the Company by the Representatives specifically for
inclusion in the Registration Statement or Prospectus or any amendment or
supplement thereto. [The Company and the Operating Partnership acknowledge that
the statements set forth in the first, second and third paragraphs of, and the
chart set
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forth in, the section captioned "Underwriting" in the Prospectus constitute the
only information furnished in writing to the Company by the Representatives or
the Managers specifically for inclusion in the Registration Statement.] The
Company has not distributed any offering material in connection with the
offering or sale of the Shares other than the Registration Statement, the
preliminary prospectus, the Prospectus or any other materials, if any, permitted
by the Act.
(c) The only subsidiaries (as defined in the Rules and Regulations) of the
Company are the subsidiaries listed on Exhibit 3(c) hereto (the "subsidiaries").
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The Company and each of its subsidiaries is, and at the Closing Date will be, a
corporation or limited partnership duly organized or formed, as the case may be,
validly existing and, to the extent applicable, in good standing under the laws
of its jurisdiction of incorporation or formation, as the case may be. The
Company and each of its subsidiaries has, and at the Closing Date will have, all
corporate or partnership power and authority to conduct all the activities
conducted by it, to own or lease all the assets owned or leased by it and to
conduct its business as described in the Registration Statement and the
Prospectus. The Company and each of its subsidiaries is, and at the Closing
Date will be, qualified to do business and in good standing as a foreign
corporation or partnership in all jurisdictions in which it owns or leases real
property or in which the nature of the activities conducted by it makes such
licensing or qualification necessary.
PAH Ravinia, Inc. ("PAH Ravinia") is, and at the Closing Date will be, a
corporation duly organized, validly existing and in good standing under the laws
of the State of Virginia. PAH Ravinia has, and at the Closing Date will have,
all corporate power and authority to conduct its activities, to own or lease all
of its assets and to conduct its business as described in the Registration
Statement and the Prospectus. PAH Ravinia is, and at the Closing Date will be,
qualified to do business and in good standing as a foreign corporation in each
jurisdiction in which it owns or leases real property or in which the nature of
the activities conducted by it makes such licensing or qualification necessary.
Except for the stock or partnership interests in the subsidiaries and the
stock interests in PAH Ravinia, the Company does not own and at the Closing Date
will not own, directly or indirectly, any shares of stock or any other equity or
long-term debt securities of any corporation or have any equity interest in any
firm, partnership, joint venture, association or other entity. Complete and
correct copies of the organizational documents or partnership agreement, as the
case may be, of the Company, the Operating Partnership, the subsidiaries and PAH
Ravinia and all amendments thereto,
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have been delivered to the Representatives, and no changes therein will be made
subsequent to the date hereof and prior to the Closing Date or, if later, the
Option Closing Date.
(d) The outstanding shares of Common Stock have been, and the Shares to be
issued and sold by the Company pursuant to the terms of this Agreement upon such
issuance will be, duly authorized, validly issued, fully paid and nonassessable
and will not be subject to any preemptive or similar rights. The description of
the Common Stock in the Registration Statement and the Prospectus is, and at the
Closing Date will be, complete and accurate in all material respects. Except as
set forth in the Prospectus, the Company does not have outstanding, and at the
Closing Date will not have outstanding, any options to purchase, or any rights
or warrants to subscribe for, or any securities or obligations convertible into,
or any contracts or commitments to issue or sell, any shares of Common Stock,
any shares of capital stock of or limited partnership interest in any subsidiary
or any such warrants, convertible securities or obligations. The offer,
issuance and sale by the Company of 811,393 shares of Common Stock and 662,391
Preferred OP Units in May 1996 was exempt from the registration requirements of
the Act and was made in compliance with applicable state securities, real estate
syndication and blue sky laws.
(e) The financial statements and schedules included in the Registration
Statement or the Prospectus present fairly the financial condition and position
of the respective entity or entities presented and reported on therein as of the
respective dates thereof and the results of operations and cash flows of such
entity or entities for the respective periods covered thereby, all in conformity
with generally accepted accounting principles applied on a consistent basis
throughout the entire period involved, except as otherwise disclosed in the
Prospectus. No other financial statements or schedules of the Company or such
entity or entities are required by the Act or the Rules and Regulations to be
included in the Registration Statement or the Prospectus. Ernst & Young LLP
(the "Accountants"), who have reported on such financial statements and
schedules, are independent accountants with respect to the Company as required
by the Act and the Rules and Regulations. The statements included in the
Registration Statement with respect to the Accountants pursuant to Item 509 of
Regulation S-K of the Rules and Regulations are true and correct in all material
respects. The pro forma financial statements of the Company included in the
Registration Statement and the Prospectus comply in all material respects with
the applicable requirements of Rule 11-02 of Regulation S-X of the Commission
and the pro forma adjustments have been properly applied to the historical
amounts in the compilation of such statements.
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(f) The Company together with its subsidiaries maintains a system of
internal accounting controls sufficient to provide reasonable assurance that (i)
transactions are executed in accordance with management's general or specific
authorization; (ii) transactions are recorded as necessary to permit preparation
of financial statements in conformity with generally accepted accounting
principles and to maintain accountability for assets; (iii) access to assets is
permitted only in accordance with management's general or specific
authorization; and (iv) the recorded accountability for assets is compared with
existing assets at reasonable intervals and appropriate action is taken with
respect to any differences.
(g) Since the respective dates as of which information is given in the
Registration Statement and the Prospectus, except as otherwise stated therein,
(A) there has been no change which, singly or in the aggregate, is materially
adverse to the condition (financial or otherwise), business, properties, net
worth, results of operations or prospects of the Company or the Operating
Partnership, considered as one enterprise, or, to the knowledge of the Company
or the Operating Partnership, any Hotel, whether or not arising in the ordinary
course of business, (B) no casualty loss or condemnation or other adverse event
(which, singly or in the aggregate, is material) has occurred with respect to
any of the Hotels, (C) there have been no acquisitions or other transactions
(including proposed acquisitions) entered into by the Company or its
subsidiaries, considered as one enterprise, other than those in the ordinary
course of business, which are, singly or in the aggregate, material with respect
to such entities, (D) there has been no dividend or distribution of any kind
declared, paid or made by the Company on any class of its capital stock or by
the Operating Partnership with respect to its partnership interests, (E) there
has been no change in the capital stock of the Company PAH Ravinia or the
partnership interests of the Operating Partnership, and no increase in the
indebtedness of the Company, the Operating Partnership or PAH Ravinia, that is,
singly or in the aggregate, material to such entities and (F) there has been no
decline in room revenues or total revenues from hotel operations which would,
singly or in the aggregate, have a material adverse effect on the percentage
lease revenue of the Operating Partnership, the subsidiaries or the Company's
equity interest in PAH Ravinia, in each case as compared with the corresponding
period of the preceding year.
(h) The Company is not an "investment company" or an "affiliated person"
of, or "promoter" or "principal underwriter" for, an "investment company," as
such terms are defined in the Investment Company Act of 1940, as amended.
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(i) Except as set forth in the Registration Statement and the Prospectus,
there are no actions, suits or proceedings pending or, to the knowledge of the
Company and the Operating Partnership, threatened against or affecting the
Company, any of its subsidiaries, PAH Ravinia or any of their respective
partners, directors or officers in their capacity as such, or any of the Hotels,
before or by any Federal or state court, commission, regulatory body,
administrative agency or other governmental body, domestic or foreign, wherein
an unfavorable ruling, decision or finding might, singly or in the aggregate,
materially and adversely affect the Company or any of its subsidiaries or its
condition (financial or otherwise), business, properties, net worth, results of
operations or prospects.
(j) Each of the Company, its subsidiaries and PAH Ravinia has (i) all
governmental licenses [(except liquor licenses, provided, however, that the
Company has made arrangements for the provision of liquor at each of the Hotels
on an interim basis until such liquor licenses are obtained)], permits,
consents, orders, approvals and other authorizations necessary to carry on its
business as described in the Prospectus, and has not received notice of any
proceedings relating to the revocation or modification of any such governmental
license, permit, consent, order, approval or other authorization, (ii) complied
in all material respects with all laws, regulations and orders applicable to it
or its business and (iii) performed all its obligations required to be performed
by it, and is not, and at the Closing Date will not be, in default, under any
indenture, mortgage, deed of trust, voting trust agreement, loan agreement,
bond, debenture, note agreement, lease, contract, land use approval or zoning
agreement or other agreement or instrument (collectively, a "contract or other
agreement") to which it is a party or by which its property is bound or
affected. To the knowledge of the Company and the Operating Partnership and
each of its subsidiaries, no other party under any contract or other agreement
to which it or PAH Ravinia is a party is in default in any respect thereunder.
Neither the Company, any of its subsidiaries nor PAH Ravinia is presently, or at
the Closing Date will be, in violation of any provision of its respective
charter, certificate of incorporation, by-laws or limited partnership agreement,
as the case may be.
(k) No consent, approval, authorization or order of, or any filing or
declaration with, any court or governmental agency or body is required for the
consummation by the Company of the transactions on its part herein contemplated,
except such as have been obtained under the Act or the Rules and Regulations and
such as may be required under state securities or Blue Sky laws or the by-laws
and rules of the National Association of Securities Dealers, Inc. (the "NASD")
in connection with the purchase and distribution by the Underwriters of the
Shares.
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(l) The Company and the Operating Partnership have full corporate or
partnership power and authority to enter into this Agreement. This Agreement
has been duly authorized, executed and delivered by the Company and the
Operating Partnership and constitutes a valid and binding agreement of the
Company and the Operating Partnership and is enforceable against each in
accordance with the terms hereof. The performance of this Agreement and the
consummation of the transactions contemplated hereby will not result in the
creation or imposition of any lien, charge or encumbrance upon any of the Hotels
or any of the other assets of the Company, any of its subsidiaries or PAH
Ravinia pursuant to the terms or provisions of, or result in a breach or
violation of any of the terms or provisions of, or constitute a default under,
or give any other party a right to terminate any of its obligations under, or
result in the acceleration of any obligation under, the organizational documents
or partnership agreement, as the case may be, of the Company, any of its
subsidiaries or PAH Ravinia, any contract or other agreement to which the
Company, any of its subsidiaries or PAH Ravinia is a party or by which the
Company, any of its subsidiaries or PAH Ravinia or any of their respective
properties is bound or affected, or violate or conflict with any judgment,
ruling, decree, order, statute, rule or regulation of any court or other
governmental agency or body applicable to the business or properties of the
Company, any of its subsidiaries or PAH Ravinia.
(m) To the knowledge of the Company and the Operating Partnership, each of
the leases creating a leasehold interest in [insert names of Hotels under lease]
is a valid, subsisting and enforceable lease with such exceptions as are not
material and do not interfere with the use made, and proposed to be made, of any
such Hotel, by the Company, the subsidiaries and the Lessee thereof,
respectively. Each such lease conforms in all material respects to the
description thereof set forth in the Registration Statement and the Prospectus,
and no notice has been given or material claim asserted by anyone adverse to the
rights of the lessee under any of the leases or affecting the right to the
continued possession of the leased property. Except as set forth in the
Prospectus, no person will have an option or right of first refusal to purchase
all or part of any of the Hotels, any interest in any of the Company, the
subsidiaries, the Operating Partnership and PAH Ravinia (other than limited
partnership interests in the Operating Partnership or other assets of the
Company or any interest therein.
(n) Each Hotel other than the Crowne Plaza Ravinia is encumbered by a
lease (each, a "Participating Lease") between the Operating Partnership or other
subsidiary owning or leasing such Hotel (as to each Hotel, the "owner" of such
Hotel), as landlord, and the Lessee of such Hotel, as tenant. Each
Participating Lease is a valid, subsisting and enforceable lease with such
exceptions as are not material and do not
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interfere with the use made, and proposed to be made, of the related Hotel by
the owner of such Hotel and the Lessee of such Hotel. Each Participating Lease
conforms in all material respects to the description thereof set forth in the
Registration Statement and the Prospectus, and no notice has been given or
material claim asserted by anyone adverse to the rights of the owner of the
Hotel encumbered by such Participating Lease or affecting the right to the
continued possession and operation of such Hotel by the Lessee thereof.
(o) The Operating Partnership and the subsidiaries, as the case may be,
have (i) good and marketable (in Texas, good and indefeasible) title in fee
simple to all of the Hotels (except for the Crowne Plaza Ravinia and [insert
names of Hotels under lease]), and (ii) good and marketable leasehold interest
in [insert names of Hotels under lease], in each case free and clear of all
liens, encumbrances, claims, security interests and defects, other than those
referred to in the Prospectus or which will not, singly or in the aggregate, be
material in relation to the business of the Company and its subsidiaries taken
as a whole. All liens, encumbrances, claims, security interests or defects on
or affecting the Hotels which are required to be disclosed in the Prospectus are
disclosed therein. Except as set forth in the Registration Statement and the
Prospectus, to the knowledge of the Company [, after due inquiry,] and the
Operating Partnership (i) the current and intended use and occupancy of each of
the Hotels complies with all applicable codes and zoning laws and regulations,
if any, except for such failures to comply which would not, singly or in the
aggregate, have a material adverse effect on the condition (financial or
otherwise), business, properties, prospects of the Company and its subsidiaries
taken as a whole; and (ii) there is no pending or threatened condemnation,
zoning change, environmental or other proceeding or action that will in any
material respect affect the size of, use of, improvements on, construction on,
or access to the Hotels, except such proceedings or action that would not,
singly or in the aggregate have a material adverse effect on the condition
(financial or otherwise), business, properties, net worth, results of operations
or prospects of the Company and its subsidiaries taken as a whole.
(p) PAH Ravinia has good and marketable title in fee simple to the Crown
Plaza Ravinia Hotel, free and clear of all liens, encumbrances, claims, security
interest and defects other than those referred in the Registration Statement and
the Prospectus or which will not, singly or in the aggregate, be material in
relation to the business of the Company and its subsidiaries taken as a whole or
to PAH Ravinia.
(q) The leasing of the Hotels by each Lessee, has been approved by each
Franchisor. There are no franchise agreements and/or licenses in connection
with the
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Hotels except for the franchise agreements and/or licenses with the Franchisors.
On the Closing Date, the Company will deliver to the Underwriters an estoppel
certificate from the Franchisor for each of the Hotels to the effect that the
assignment of the Franchise Licenses or the entering into of new Franchise
Licenses in connection with the Recent Acquisitions has been approved by each
such Franchisor, the Hotels are in compliance with all of the terms of the
Franchise Licenses and there are no requirements or duties on the part of any
party and no understandings as to any required improvements or other
expenditures in connection with the Hotels in connection with such consents or
the entering into of new Franchise Licenses except as set forth in the
Prospectus. Each Franchise License to which any Lessee is a party is assignable
to the Company or a party designated by the Company and provides that the
Company or a party designated by the Company shall have the right to assume any
duties under the terms of such agreement in the event of a default under the
Franchise License by any such Lessee. [Wyndham Doubletree?]
(r) To the knowledge of the Company and the Operating Partnership, (i) no
lessee, licensee, concessionaire or vendor of any portion of any of the Hotels
is in default under any of the leases or licenses governing such properties and
there is no event which, but for the passage of time or the giving of notice, or
both, would constitute a default under any of such leases or license, except
such defaults that would not, singly or in the aggregate, have a material
adverse effect on the condition (financial or otherwise), business, properties,
net worth, results of operations or prospects of the Company or its subsidiaries
taken as a whole; and (ii) except as set forth in the Prospectus, approvals have
been obtained to assign any such lease or license, to the Company, the Operating
Partnership, the subsidiaries, PAH Ravinia or the Lessee, as applicable, on the
or before Closing Date. Other than payments set forth in the purchase
agreements or contribution agreements pursuant to which the Hotels were acquired
or contributed, none of the Company, the subsidiaries, PAH Ravinia nor, to the
knowledge of the Company and the Operating Partnership [, after due inquiry,]
the Lessee will be required to make payments to, or on behalf of any of the
selling or contributing owners or any other parties other than taxing
authorities in connection with the acquisition of the Hotels.
(s) There is no document or contract of a character required to be
described in the Registration Statement or the Prospectus or to be filed as an
exhibit to the Registration Statement which is not described or filed as
required. All such contracts to which any of the Company, the Operating
Partnership, PAH Ravinia or any subsidiary is a party have been duly authorized,
executed and delivered by such entity, constitute valid and binding agreements
of such entity and are enforceable against the
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<PAGE>
Company, PAH Ravinia, the Operating Partnership or the applicable subsidiary, as
the case may be, in accordance with the terms thereof.
(t) No statement, representation, warranty or covenant made by the Company
or the Operating Partnership in this Agreement or in any certificate or document
required by this Agreement to be delivered to the Representatives was or will
be, when made, inaccurate, untrue or incorrect.
(u) Neither the Company nor any of its directors, officers or controlling
persons has taken, directly or indirectly, any action intended, or which might
reasonably be expected, to cause or result, under the Act or otherwise, in, or
which has constituted, stabilization or manipulation of the price of any
security of the Company to facilitate the sale or resale of the Shares.
(v) No holder of securities of the Company has rights to the registration
of any securities of the Company because of the filing of the Registration
Statement.
(w) The Shares are duly authorized for listing, subject to official notice
of issuance, on the New York Stock Exchange.
(x) Neither the Company, any of its subsidiaries nor PAH Ravinia is
involved in any material labor dispute nor, to the knowledge of the Company
after due inquiry, is any such dispute threatened. To the knowledge of the
Company after due inquiry, no general labor problem exists or is imminent with
the employees of any of the Hotels, the Company, any of the subsidiaries or PAH
Ravinia. To the knowledge of the Company after due inquiry, all applicable
notification requirements in connection with the Worker Adjustment and
Retraining Notification Act ("WARN") have been fulfilled in connection with the
transfer of the Hotels to the Company, the Operating Partnership, PAH Ravinia or
the subsidiaries, as applicable.
(y) Except as disclosed in the Prospectus, the Company the Operating
Partnership, the subsidiaries, PAH Ravinia and the Lessees, as applicable, have
all trademarks, trade names, patent rights, copyrights, licenses, trade secrets,
approvals or governmental authorizations (the "Intangible Rights") necessary to
conduct the business of the Hotels as currently conducted.
(z) The personal property (including, but not limited to, furniture,
equipment, and towels) acquired by the Company, the Operating Partnership, the
subsidiaries or PAH Ravinia, as applicable, in connection with the acquisition
of the Hotels is
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adequate to enable the Company, the subsidiaries, the Operating Partnership, PAH
Ravinia and the Lessees, as applicable, to conduct the business of the Hotels in
the manner in which such operations have normally been conducted. The Company
has provided the Representatives with a replacement schedule for such personal
property which the Company reasonably believes is sufficient to permit the
business of the Hotels to be conducted in the manner in which such business has
been conducted and which will comply with the requirements of the Franchise
Licenses.
(aa) Neither the Company nor any of its subsidiaries nor, to the knowledge
of the Company, any other employee or agent of the Company or any subsidiary,
has made any payment of funds of the Company or any subsidiary or received or
retained any funds in violation of any law, rule or regulation or of a character
required to be disclosed in the Prospectus.
(bb) Title insurance in favor of the mortgagees and the Company, the
subsidairies, the Operating Partnership or PAH Ravinia, as applicable, is in
force with respect to each of the Hotels in an amount not less than the cost of
acquisition of such Hotel.
(cc) Except as disclosed in the Registration Statement or Prospectus,
there are no mortgages, deeds of trust or like encumbrances encumbering any of
the Hotels. The mortgages, deeds of trust and like encumbrances encumbering the
Hotels are not convertible nor will the Company, any of its subsidiaries or PAH
Ravinia hold a participating interest therein and, except as disclosed in the
Registration Statement or Prospectus, such mortgages are not cross-defaulted or
cross-collateralized to any other property.
(dd) Each of the Company and PAH Ravinia maintains property and casualty
insurance in favor of the Company, its subsidiaries and PAH Ravinia, as
applicable, with respect to them and each of the Hotels, in an amount and on
such terms as is reasonable and customary for businesses of the type conducted
by the Company, its subsidiaries and PAH Ravinia. Neither the Company, its
subsidiaries nor PAH Ravinia has received from any insurance company written
notice of any material defects or deficiencies affecting the insurability of any
such Hotels.
(ee) To the knowledge of the Company after due inquiry, each of the Hotels
and the Company, its subsidiaries and PAH Ravinia, (i) is and will be, as of the
Closing Date, in compliance with any and all applicable foreign, Federal, state
and local laws and regulations relating to the protection of human health and
safety, the
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<PAGE>
environment or hazardous or toxic substances or wastes, pollutants or
contaminants ("Environmental Laws"), (ii) has received, or will have received,
as of the Closing Date, all permits, licenses or other approvals required of
them under applicable Environmental Laws to conduct their respective businesses
and (iii) is, and will be as of the Closing Date, in compliance with all terms
and conditions of any such permit, license or approval.
(ff)(i) Except as may be specifically disclosed in the "Phase I"
environmental assessment reports referred to in the Prospectus, to the knowledge
of the Company after due inquiry, neither the Company nor any of the entities
from which the Company, the Operating Partnership, the subsidiaries or PAH
Ravinia acquired any Hotel (the "Selling Entities") has at any time, and, no
other party has at any time, handled, buried, stored, retained, refined,
transported, processed, manufactured, generated, produced, spilled, allowed to
seep, leak, escape or leach, or be pumped, poured, emitted, emptied, discharged,
injected, dumped, transferred or otherwise disposed of or dealt with, Hazardous
Materials (as hereinafter defined) on, to or from the Hotels. The Company does
not intend to use the Hotels or any subsequently acquired properties for the
purpose of handling, burying, storing, retaining, refining, transporting,
processing, manufacturing, generating, producing, spilling, seeping, leaking,
escaping, leaching, pumping, pouring, emitting, emptying, discharging,
injecting, dumping, transferring or otherwise disposing of or dealing with
Hazardous Materials.
(ii) The Company has no knowledge after due inquiry of any seepage,
leak, escape, leach, discharge, injection, release, emission, spill,
pumping, pouring, emptying or dumping of Hazardous Materials into waters on
or adjacent to the Hotels or onto lands from which such hazardous or toxic
waste of substances might seep, flow or drain into such waters.
(iii) The Company has received no notice of, and has no knowledge after
due inquiry of, any occurrence or circumstance which, with notice or
passage of time or both, would give rise to, any claim under or pursuant to
any Environmental Law pertaining to hazardous or toxic waste or substances
on or originating from the Hotels or arising out of the conduct of any such
party, including, without limitation, pursuant to any Environmental Law.
(iv) No environmental engineering firm which prepared "Phase I" or
"Phase II" environmental assessment reports (or amendments thereto) or
physical condition (engineering) reports with respect to the Hotels was
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<PAGE>
employed for such purpose on a contingent basis or has any substantial
interest in the Company, any of the Company's subsidiaries or PAH Ravinia,
to the knowledge of the Company after due inquiry any of the Selling
Entities or the Lessees.
As used herein, "Hazardous Material" shall include, without limitation, any
flammable explosives, radioactive materials, hazardous materials, hazardous
wastes, hazardous or toxic substances, or related materials, asbestos or any
material as defined by any Federal, state or local environmental law, ordinance,
rule, or regulation including, without limitation, Environmental Laws, the
Comprehensive Environmental Response, Compensation, and Liability Act of 1980,
as amended (42 U.S.C. Section 9601, et seq.) ("CERCLA"), the Hazardous Materials
-- ---
Transportation Act, as amended (49 U.S.C. Section 1801, et seq.), the Resource
-- ---
Conservation and Recovery Act, as amended (42 U.S.C. Section 9601, et seq.), and
-- ---
in the regulations adopted and publications promulgated pursuant to each of the
foregoing or by any Federal, state or local governmental authority having or
claiming jurisdiction over the Hotels as described in the Prospectus.
(gg) To the knowledge of the Company and the Operating Partnership after
due inquiry, except as set forth in the physical condition (engineering) reports
obtained for the Hotels in connection with the acquisition of any Hotel and
copies of which have been delivered to PaineWebber Incorporated prior to the
date hereof, there is no material defect in the condition of any Hotel, the
improvements thereon, the structural elements thereof, or the mechanical systems
therein, nor any material damage from casualty or other cause, nor any soil
condition of any such Hotel that will not support all of the improvements
thereon without the need for unusual or new subsurface excavations, except for
any such defect, damage or condition that has been corrected or will be
corrected in the ordinary course of the business of such Hotel as part of its
scheduled annual maintenance and improvement program. The Company and PAH
Ravinia set aside as an unrestricted cash reserve account for capital
expenditures and replacement and refurbishment of furniture, fixtures and
equipment the amount set forth in each participating lease for the Hotels with
such amount averaging 4% of total hotel revenues on a monthly basis for each of
the Hotels. Other than as set forth in the Registration Statement or
Prospectus, neither the Company nor any of its subsidiaries is aware of any
material capital expenditures (other than expenditures for maintenance in the
ordinary course of business) which will be required in connection with any of
the Hotels prior to the third anniversary of this Agreement.
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<PAGE>
(hh) Neither the assets of the Company, its subsidiaries or PAH Ravinia
constitute, nor will such assets, as of the Closing Date, constitute, "plan
assets" under the Employee Retirement Income Security Act of 1974, as amended
("ERISA"). The Company, its subsidiaries and PAH Ravinia are, and as of the
Closing Date will be, in compliance in all material respects with all
presently applicable provisions of the Employee Retirement Income Security Act
of 1974, as amended, including the regulations and published interpretations
thereunder ("ERISA"); no "reportable event" (as defined in ERISA) has occurred
with respect to any "pension plan" (as defined in ERISA) for which the Company
nor any of its subsidiaries would have any liability; neither the Company or
any of its subsidiaries has incurred or expects to incur liability under (i)
Title IV of ERISA with respect to termination of, or withdrawal from, any
"pension plan" or (ii) Sections 412 or 4971 of the Internal Revenue Code of
1986, as amended, including the regulations and published interpretations
thereunder (the "Code"); and each "pension plan" for which the Company would
have any liability that is intended to be qualified under Section 401(a) of
the Code is so qualified in all material respects and nothing has occurred,
whether by action or by failure to act, which would cause the loss of such
qualification.
(ii) Each of the Company, the subsidiaries the Operating Partnership and
PAH Ravinia has been organized and operated, and will continue to operate, in
conformity with the requirements for qualification of the Company as a real
estate investment trust (a "REIT") under Sections 856 through 860 of the
Internal Revenue Code of 1986, as amended (the "Code") and the Company has
filed an election to be taxable as a REIT for its taxable year ended December
31, 1995, and such election has not been terminated. The Company's method of
operation will permit it to continue to meet the requirements for taxation as
a REIT. The Company intends to continue to operate in a manner which would
permit it to qualify as a REIT.
4. Agreements of the Company and the Operating Partnership. The Company
-------------------------------------------------------
and the Operating Partnership jointly and severally agree with the several
Underwriters as follows:
(a) The Company will not, either prior to the Effective Date or
thereafter during such period as the Prospectus is required by law to be
delivered in connection with sales of the Shares by an Underwriter or dealer,
file any amendment or supplement to the Registration Statement or the
Prospectus, unless a copy thereof shall first have been submitted to the
Representatives within a reasonable period of time prior to the filing thereof
and the Representatives shall not have objected thereto in good faith.
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<PAGE>
(b) The Company will use its best efforts to cause the Registration
Statement to become effective, and will notify the Representatives promptly, and
will confirm such advice in writing, (1) when the Registration Statement has
become effective and when any post-effective amendment thereto becomes
effective, (2) of any request by the Commission for amendments or supplements to
the Registration Statement or the Prospectus or for additional information, (3)
of the issuance by the Commission of any stop order suspending the effectiveness
of the Registration Statement or the initiation of any proceedings for that
purpose or the threat thereof, (4) of the happening of any event during the
period mentioned in the second sentence of Section 4(e) that in the judgment of
the Company makes any statement made in the Registration Statement or the
Prospectus untrue or that requires the making of any changes in the Registration
Statement or the Prospectus in order to make the statements therein, in light of
the circumstances in which they are made, not misleading and (5) of receipt by
the Company or any representative or attorney of the Company of any other
communication from the Commission relating to the Company, the Registration
Statement, any preliminary prospectus or the Prospectus. If at any time the
Commission shall issue any order suspending the effectiveness of the
Registration Statement, the Company will make every reasonable effort to obtain
the withdrawal of such order at the earliest possible moment. If the Company
has omitted any information from the Registration Statement pursuant to Rule
430A, the Company will use its best efforts to comply with the provisions of and
make all requisite filings with the Commission pursuant to said Rule 430A and to
notify the Representatives promptly of all such filings.
(c) The Company will furnish to the Representatives, without charge, two
signed copies of the Registration Statement and of any post-effective amendment
thereto, including financial statements and schedules, and all exhibits thereto,
and will furnish to the Representatives, without charge, for transmittal to each
of the other Underwriters, a copy of the Registration Statement and any post-
effective amendment thereto, including financial statements and schedules but
without exhibits.
(d) The Company will comply with all the provisions of any undertakings
contained in the Registration Statement.
(e) On the Effective Date, and thereafter from time to time, the Company
will deliver to each of the Underwriters, without charge, as many copies of the
Prospectus or any amendment or supplement thereto as the Representatives may
reasonably request. The Company consents to the use of the Prospectus or any
amendment or supplement thereto by the several Underwriters and by all dealers
to whom the Shares
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<PAGE>
may be sold, both in connection with the offering or sale of the Shares and for
any period of time thereafter during which the Prospectus is required by law to
be delivered in connection therewith. If during such period of time any event
shall occur which in the judgment of the Company or counsel to the Underwriters
should be set forth in the Prospectus in order to make any statement therein, in
the light of the circumstances under which it was made, not misleading, or if it
is necessary to supplement or amend the Prospectus to comply with law, the
Company will forthwith prepare and duly file with the Commission an appropriate
supplement or amendment thereto, and will deliver to each of the Underwriters,
without charge, such number of copies of such supplement or amendment to the
Prospectus as the Representatives may reasonably request.
(f) Prior to any public offering of the Shares by the Underwriters, the
Company will cooperate with the Representatives and counsel to the Underwriters
in connection with the registration or qualification of the Shares for offer and
sale under the securities or Blue Sky laws of such jurisdictions as the
Representatives may request; provided, that in no event shall the Company be
obligated to qualify to do business in any jurisdiction where it is not now so
qualified or to take any action which would subject it to general service of
process in any jurisdiction where it is not now so subject.
(g) During the period of five years commencing on the Effective Date, the
Company will furnish to the Representatives and each other Underwriter who may
so request copies of such financial statements and other periodic and special
reports as the Company may from time to time distribute generally to the holders
of any class of its capital stock, and will furnish to the Representatives and
each other Underwriter who may so request a copy of each annual or other report
it shall be required to file with the Commission.
(h) The Company will make generally available to holders of its securities
as soon as may be practicable but in no event later than the last day of the
fifteenth full calendar month following the calendar quarter in which the
Effective Date falls, an earnings statement (which need not be audited but shall
be in reasonable detail) for a period of 12 months ended commencing after the
Effective Date, and satisfying the provisions of Section 11(a) of the Act
(including Rule 158 of the Rules and Regulations).
(i) If the transactions contemplated by this Agreement are consummated the
Company will pay, or reimburse if paid by the Representatives, all costs and
expenses incident to the performance of the obligations of the Company under
this Agreement,
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<PAGE>
including but not limited to costs and expenses of or relating to (1) the
preparation, printing and filing of the Registration Statement and exhibits to
it, each preliminary prospectus, the Prospectus and any amendment or supplement
to the Registration Statement or the Prospectus (the "Offering Documents"), (2)
the preparation and delivery of certificates representing the Shares, (3) the
printing of this Agreement, (4) furnishing (including costs of shipping and
mailing) such copies of the Registration Statement, the Prospectus and any
preliminary prospectus, and all amendments and supplements thereto, as may be
requested for use in connection with the offering and sale of the Shares by the
Underwriters or by dealers to whom Shares may be sold, (5) the listing of the
Shares on the New York Stock Exchange, (6) any filings to be made by the
Underwriters with the NASD, and the fees, disbursements and other charges of
counsel for the Underwriters in connection therewith, (7) the registration or
qualification of the Shares for offer and sale under the securities or of such
jurisdictions designated pursuant to Section 4(f), including the fees,
disbursements and other charges of counsel to the Underwriters in connection
therewith, and the preparation and printing of preliminary, supplemental and
final Blue Sky memoranda, (8) fees, disbursements and other expenses of counsel
to the Company and (9) the transfer agent for the Shares.
(j) The Company will not at any time, directly or indirectly, take any
action intended, or which might reasonably be expected, to cause or result in,
or which will constitute, stabilization of the price of the shares of Common
Stock or to facilitate the sale or resale of any of the Shares.
(k) The Company and its subsidiaries will apply the net proceeds from the
offering and sale of the Shares to be sold by the Company in the manner set
forth in the Prospectus under "Use of Proceeds".
(l) During the period of 120 days commencing at the Closing Date, except
pursuant to duly adopted stock option or incentive plans, the Company will not,
without the prior written consent of the Representatives, grant options to
purchase shares of Common Stock at a price less than the public offering price.
(m) Except pursuant to duly adopted stock option or incentive plans, the
Company shall not, for a period of 180 days after the commencement of the public
offering of the Shares, without the prior written consent of PaineWebber
Incorporated, sell, contract to sell or otherwise dispose of any shares of
Common Stock (whether through the issuance or granting of any options, warrants,
commitments, subscriptions, rights to purchase or otherwise).
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<PAGE>
5. Conditions of the Obligations of the Underwriters. In addition to the
-------------------------------------------------
execution and delivery of the Price Determination Agreement, the obligations of
each Underwriter hereunder are subject to the following conditions:
(a) Notification that the Registration Statement has become effective
shall be received by the Representatives not later than 5:00 p.m., New York
City time, on the date of this Agreement or at such later date and time as
shall be consented to in writing by the Representatives and all filings
required by Rule 424 of the Rules and Regulations and Rule 430A shall have
been made.
(b) (i) no stop order suspending the effectiveness of the Registration
Statement shall have been issued and no proceedings for that purpose shall
be pending or threatened by the Commission, (ii) no order suspending the
effectiveness of the Registration Statement or the qualification or
registration of the Shares under the securities or Blue Sky laws of any
jurisdiction shall be in effect and no proceeding for such purpose shall be
pending before or threatened or contemplated by the Commission or the
authorities of any such jurisdiction, (iii) any request for additional
information on the part of the staff of the Commission or any such
authorities shall have been complied with to the satisfaction of the staff
of the Commission or such authorities and (iv) after the date hereof no
amendment or supplement to the Registration Statement or the Prospectus
shall have been filed unless a copy thereof was first submitted to the
Representatives and the Representatives did not object thereto in good
faith, and the Representatives shall have received certificates, dated the
Closing Date and the Option Closing Date (as the case may be) and signed by
the Chief Executive Officer of the Company and the Chief Financial Officer
of the Company (who may, as to proceedings threatened, rely upon the best of
their information and belief), to the effect of clauses (i), (ii) and (iii).
(c) Since the respective dates as of which information is given in the
Registration Statement and the Prospectus, (i) there shall not have been a
change which, singly or in the aggregate, is materially adverse to the
condition (financial or otherwise), business, properties, net worth, results
of operations or prospects of the Company or the Operating Partnership,
taken as a whole, whether or not arising from transactions in the ordinary
course of business, in each case other than as set forth in or contemplated
by the Registration Statement and the Prospectus and (ii) neither the
Company nor the Operating Partnership taken as a whole, shall have sustained
any loss or interference which, singly or in the aggregate, is material with
respect to its business or properties from fire, explosion, flood or other
casualty, whether or not covered by insurance, or from any labor dispute or
any court or legislative or other governmental
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<PAGE>
action, order or decree, which is not set forth in the Registration Statement
and the Prospectus, if in the judgment of the Representatives any such
development makes it impracticable or inadvisable to consummate the sale and
delivery of the Shares by the Underwriters at the initial public offering price.
(d) Since the respective dates as of which information is given in the
Registration Statement and the Prospectus, there shall have been no litigation
or other proceeding instituted against the Company, its subsidiaries, the
Operating Partnership, PAH Ravinia or any of their respective officers or
directors in their capacities as such, or against any of the Hotels, before or
by any Federal, state or local court, commission, regulatory body,
administrative agency or other governmental body, domestic or foreign, in which
litigation or proceeding an unfavorable ruling, decision or finding would,
singly or in the aggregate, materially and adversely affect the condition
(financial or otherwise), business properties, net worth, results of operations
or prospects of the Company and its subsidiaries taken as a whole.
(e) Each of the representations and warranties of the Company and the
Operating Partnership contained herein shall be true and correct in all material
respects at the Closing Date and, with respect to the Option Shares, at the
Option Closing Date, as if made at the Closing Date and, with respect to the
Option Shares, at the Option Closing Date, and all covenants and agreements
contained herein to be performed on the part of the Company or the Operating
Partnership and all conditions herein contained to be fulfilled or complied with
by the Company or the Operating Partnership at or prior to the Closing Date and,
with respect to the Option Shares, at or prior to the Option Closing Date, shall
have been duly performed, fulfilled or complied with.
(f) The Representatives shall have received an opinion, dated the Closing
Date and, with respect to the Option Shares, the Option Closing Date, and
satisfactory in form and substance to counsel for the Underwriters, from
Goodwin, Proctor & Hoar, counsel to the Company, to the effect set forth in
Schedule 5(f).
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(g) The Representatives shall have received an opinion, dated the Closing
Date and, with respect to the Option Shares, the Option Closing Date, and
satisfactory in form and substance to counsel for the Underwriters, from Gardere
& Wynne, L.L.P., special tax counsel to the Company, to the effect set forth in
Schedule 5(g).
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(h) The Representatives shall have received an opinion, dated the Closing
Date and the Option Closing Date, from White & Case, counsel to the
Underwriters, with respect to the Registration Statement, the Prospectus and
this Agreement, which
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<PAGE>
opinion shall be satisfactory in all respects to the Representatives, and such
counsel shall have received such papers and information as they reasonably may
request to enable them to pass upon such matters.
(i) Concurrently with the execution and delivery of this Agreement, or, if
the Company elects to rely on Rule 430A, on the date of the Prospectus, the
Accountants shall have furnished to the Representatives a letter, dated the date
of its delivery, addressed to the Representatives and in form and substance
satisfactory to the Representatives, confirming that they are independent
accountants with respect to the Company as required by the Act and the Rules and
Regulations and addressing certain financial and other statistical and numerical
information contained in the Registration Statement. At the Closing Date and,
as to the Option Shares, the Option Closing Date, the Accountants shall have
furnished to the Representatives a letter, dated the date of its delivery, which
shall confirm, on the basis of a review in accordance with the procedures set
forth in the letter from the Accountants, that nothing has come to their
attention during the period from the date of the letter referred to in the prior
sentence to a date (specified in the letter) not more than five days prior to
the Closing Date and the Option Closing Date which would require any change in
their letter dated the date hereof if it were required to be dated and delivered
at the Closing Date and the Option Closing Date.
(j) Concurrently with the execution and delivery of this Agreement or, if
the Company elects to rely on Rule 430A, on the date of the Prospectus, and at
the Closing Date and, as to the Option Shares, the Option Closing Date, there
shall be furnished to the Representatives an accurate certificate, dated the
date of its delivery, signed by each of the Chief Executive Officer and the
Chief Financial Officer of the Company, in form and substance satisfactory to
the Representatives, to the effect that:
(i) Each signer of such certificate has carefully examined the
Registration Statement and the Prospectus and (A) as of the date of such
certificate, such documents are true and correct in all material respects
and do not omit to state a material fact required to be stated therein or
necessary in order to make the statements therein not untrue or misleading
and (B) in the case of the certificate delivered at the Closing Date and the
Option Closing Date, since the Effective Date no event has occurred as a
result of which it is necessary to amend or supplement the Prospectus in
order to make the statements therein not untrue or misleading in any
material respect.
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<PAGE>
(ii) Each of the representations and warranties of the Company and the
Operating Partnership contained in this Agreement were, when originally
made, and are, at the time such certificate is delivered, true and correct
in all material respects.
(iii) Each of the covenants required herein to be performed by the
Company or the Operating Partnership on or prior to the delivery of such
certificate has been duly, timely and fully performed and each condition
herein required to be complied with by the Company or the Operating
Partnership on or prior to the date of such certificate has been duly,
timely and fully complied with.
(k) The Shares shall be qualified for sale in such states as the
Representatives may reasonably request, each such qualification shall be in
effect and not subject to any stop order or other proceeding on the Closing Date
and the Option Closing Date.
(l) Prior to the Closing Date, the Shares shall have been duly authorized
for listing by the New York Stock Exchange upon official notice of issuance.
(m) [Describe further amendment to the Line of Credit Agreeent with
PaineWebber Real Estate Securities Inc. regarding Greenspoint loan.] An
amendment to the $250 million Line of Credit Agreement with Paine Webber Real
Estate Securities Inc. has been entered into by the parties thereto.
(n) On or before Closing Date, the Company shall have delivered to the
Representatives with respect to each Recent Acquisition:
(i) a copy of the deed or confirmatory deed therefor, naming the
Operating Partnership as the grantee thereunder;
(ii) a policy of title insurance (or a commitment to issue such a
policy) naming the Operating Partnership as named insured and insuring (or
committing to insure) that the Operating Partnership owns fee title to the
real property in an amount not less than the cost of acquisition of such
Hotel, which policy (or commitment) shall be issued by Commonwealth Land
Title Insurance Company or such other title insurance company reasonably
acceptable to the Representatives (any such person or persons, the "Title
Company"), and contain such exceptions to title with respect to each
Property as described in Schedule 5(r) (the "Permitted Exceptions");
-------------
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<PAGE>
(iii) a survey of such Hotel in form satisfactory to the Representatives;
(iv) policies or certificates of insurance relating to such Hotel
evidencing coverages and in amounts customarily obtained by owners of similar
properties in similar locations;
(v) UCC, judgment and tax lien searches in form and substance reasonably
satisfactory to the Company and its counsel confirming that the personal
property comprising a part of the Hotel is subject to no Liens other than
Permitted Exceptions;
(vi) copies of such affidavits, certificates and instruments of
indemnification as shall reasonably be required to induce the Title Company to
issue the policy (or commitment) contemplated in subparagraph (ii) above;
(vii) copies of checks payable to the appropriate public officials in
payment of all recording costs and transfer taxes (or of checks or confirmation
of wire transfers to the Title Company in respect of such amounts) due in
respect of the recording of any instruments recorded in connection with the
acquisition of such Hotels, together with a check or wire transfer for the Title
Company in payment of the Title Company's premium, search and examination
charges, survey costs and any other amounts due in connection with the issuance
of its policy (or commitment);
(viii) An engineering (structural) report from an engineer or engineers and
in a form reasonably satisfactory to the Representatives;
(ix) An environmental "Phase I" assessment from a consultant (and where
such consultant advises that a "Phase II" assessment be made, such "Phase II"
assessment) in a form reasonably satisfactory to the Representatives;
(x) All documentation necessary to effect the transfer of all personal
property in connection with such Hotel to the Company, including a bill of sale
for the furniture, fixtures and equipment, together with checks payable to the
appropriate public officials in payment of all recording costs and transfer
taxes (including sales taxes) due in respect of the transfer of such personal
property; provided that, such payment may be made out of the proceeds of the
Offering; and
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(xi) if such Hotel is subject to an existing mortgage, a letter
agreement dated not earlier than 10 days prior to the Closing Date from
the holder of such existing mortgage indicating that the mortgagor or
grantor under such existing mortgage is not then in default, agreeing to
repayment on the Closing Date of the indebtedness relating to such
mortgage, and indicating the principal amount, accrued interest and
prepayment penalties (if any) required to satisfy all amounts then secured
by such existing mortgage and the additional amount required for each day
after the date of such letter necessary to satisfy all obligations secured
thereby.
(o) The Company shall have furnished to the Representatives such
certificates, in addition to those specifically mentioned herein, as the
Representatives may have reasonably requested as to the accuracy and
completeness at the Closing Date and the Option Closing Date of any statement in
the Registration Statement or the Prospectus, as to the accuracy at the Closing
Date and the Option Closing Date of the representations and warranties of the
Company herein, as to the performance by the Company of its obligations
hereunder, or as to the fulfillment of the conditions concurrent and precedent
to the obligations hereunder of the Representatives. All such opinions,
certificates, letters and other documents will be in compliance with the
provisions hereof only if they are satisfactory in form and substance to you.
The Company will furnish the Representatives with conformed copies of such
opinions, certificates, letters and other documents as the Representatives shall
reasonably request.
6. Indemnification. (a) The Company and the Operating Partnership,
---------------
jointly and severally, will indemnify and hold harmless each Underwriter, the
directors, officers, employees and agents of each Underwriter and each person,
if any, who controls each Underwriter within the meaning of Section 15 of the
Act or Section 20 of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), from and against any and all losses, claims, liabilities,
expenses and damages (including any and all investigative, legal and other
expenses reasonably incurred in connection with, in accordance with subsection
(c) below, and any amount paid in settlement of, any action, suit or proceeding
or any claim asserted), to which they, or any of them, may become subject under
the Act, the Exchange Act or other Federal or state statutory law or regulation,
at common law or otherwise, insofar as such losses, claims, liabilities,
expenses or damages arise out of or are based on any untrue statement or alleged
untrue statement of a material fact contained in any preliminary prospectus, the
Registration Statement or the Prospectus or any amendment or supplement to the
Registration Statement or the Prospectus, or the omission or alleged omission to
state in such document a material fact required to be stated in it or necessary
to make the statements in it not misleading, provided that the Company and the
Operating Partnership will not be liable
-27-
<PAGE>
to the extent that such loss, claim, liability, expense or damage arises from
the sale of the Shares in the public offering to any person by an Underwriter
and is based on an untrue statement or omission or alleged untrue statement or
omission made in reliance on and in conformity with information relating to any
Underwriter furnished in writing to the Company by the Representatives on behalf
of any Underwriter expressly for inclusion in the Registration Statement, any
preliminary prospectus or the Prospectus; provided, further, however, that the
Company and the Operating Partnership shall not be liable to any Underwriter in
respect of any untrue statement or alleged untrue statement or omission or
alleged omission made in any preliminary prospectus to the extent that (i) the
Prospectus did not contain such untrue statement or alleged untrue statement or
omission or alleged omission, (ii) the Prospectus was not sent or given to the
purchaser of the Shares in question at or prior to the time in which the written
confirmation of the sale of such Shares was sent or given to such person, and
(iii) the failure to deliver such Prospectus was not the result of the Company's
non-compliance with its obligations under Section 4(a), (b) and (e) hereof.
[The Company and the Operating Partnership acknowledge that the statements set
forth in the first, second and third paragraphs of, and the chart set forth in,
the section captioned "Underwriting" in the Prospectus constitute the only
information relating to any Underwriters furnished in writing to the Company by
the Representatives specifically for inclusion in the Registration Statement.]
This indemnity agreement will be in addition to any liability that the Company
might otherwise have.
(b) Each Underwriter will indemnify and hold harmless the Company, each
person, if any, who controls the Company within the meaning of Section 15 of the
Act or Section 20 of the Exchange Act, each director of the Company and each
officer of the Company who signs the Registration Statement to the same extent
as the foregoing indemnity from the Company and the Operating Partnership to
each Underwriter, but only insofar as losses, claims, liabilities, expenses or
damages arise out of or are based on any untrue statement or omission or alleged
untrue statement or omission made in reliance on and in conformity with
information relating to any Underwriter furnished in writing to the Company by
the Representatives on behalf of such Underwriter expressly for use in the
Registration Statement, any preliminary prospectus or the Prospectus. This
indemnity will be in addition to any liability that each Underwriter might
otherwise have.
(c) Any party that proposes to assert the right to be indemnified under
this Section 6 will, promptly after receipt of notice of commencement of any
action against such party in respect of which a claim is to be made against an
indemnifying party or parties under this Section 6, notify each such
indemnifying party of the commencement of such action, enclosing a copy of all
papers served, but the omission so to notify such indemnifying party will not
relieve it from any liability that it may have to any indemnified party under
the foregoing provisions of this Section 6 unless, and only to the extent that,
such omission results
-28-
<PAGE>
in the forfeiture of substantive rights or defenses by the indemnifying party.
If any such action is brought against any indemnified party and it notifies the
indemnifying party of its commencement, the indemnifying party will be entitled
to participate in and, to the extent that it elects by delivering written notice
to the indemnified party promptly after receiving notice of the commencement of
the action from the indemnified party, jointly with any other indemnifying party
similarly notified, to assume the defense of the action, with counsel
satisfactory to the indemnified party, and after notice from the indemnifying
party to the indemnified party of its election to assume the defense, the
indemnifying party will not be liable to the indemnified party for any legal or
other expenses except as provided below and except for the reasonable costs of
investigation subsequently incurred by the indemnified party in connection with
the defense. The indemnified party will have the right to employ its own
counsel in any such action, but the fees, expenses and other charges of such
counsel will be at the expense of such indemnified party unless (1) the
employment of counsel by the indemnified party has been authorized in writing by
the indemnifying party, (2) the indemnified party has reasonably concluded
(based on advice of counsel) that there may be legal defenses available to it or
other indemnified parties that are different from or in addition to those
available to the indemnifying party, (3) a conflict or potential conflict exists
(based on advice of counsel to the indemnified party) between the indemnified
party and the indemnifying party (in which case the indemnifying party will not
have the right to direct the defense of such action on behalf of the indemnified
party) or (4) the indemnifying party has not in fact employed counsel to assume
the defense of such action within a reasonable time after receiving notice of
the commencement of the action, in each of which cases the reasonable fees,
disbursements and other charges of counsel will be at the expense of the
indemnifying party or parties. It is understood that the indemnifying party or
parties shall not, in connection with any proceeding or related proceedings in
the same jurisdiction, be liable for the reasonable fees, disbursements and
other charges of more than one separate firm admitted to practice in such
jurisdiction at any one time for all such indemnified party or parties. All
such fees, disbursements and other charges will be reimbursed by the
indemnifying party promptly as they are incurred. An indemnifying party will
not be liable for any settlement of any action or claim effected without its
written consent (which consent will not be unreasonably withheld).
(d) In order to provide for just and equitable contribution in
circumstances in which the indemnification provided for in the foregoing
paragraphs of this Section 6 is applicable in accordance with its terms but for
any reason is held to be unavailable from the Company or the Operating
Partnership on the one hand or the Underwriters on the other, the Company and
the Operating Partnership on the one hand and the Underwriters on the other will
contribute to the total losses, claims, liabilities, expenses and damages
(including any investigative, legal and other expenses reasonably incurred in
connection with, and any amount paid in settlement of, any action, suit or
proceeding or any claim asserted, but after
-29-
<PAGE>
deducting any contribution received by the Company or the Operating Partnership
from persons other than the Underwriters, such as persons who control the
Company within the meaning of the Act, officers of the Company who signed the
Registration Statement and directors of the Company, who also may be liable for
contribution) to which the Company or the Operating Partnership on the one hand
and any one or more of the Underwriters on the other may be subject in such
proportion as shall be appropriate to reflect the relative benefits received by
each. The relative benefits received by the Company and the Operating
Partnership on the one hand and the Underwriters on the other shall be deemed to
be in the same proportion as the total net proceeds from the offering (before
deducting expenses) received by the Company bear to the total underwriting
discounts and commissions received by the Underwriters, in each case as set
forth in the table on the cover page of the Prospectus. If, but only if, the
allocation provided by the foregoing sentence is not permitted by applicable
law, the allocation of contribution shall be made in such proportion as is
appropriate to reflect not only the relative benefits referred to in the
foregoing sentence but also the relative fault of the Company and the Operating
Partnership, on the one hand, and the Underwriters, on the other, with respect
to the statements or omissions which resulted in such loss, claim, liability,
expense or damage, or action in respect thereof, as well as any other relevant
equitable considerations with respect to such offering. Such relative fault
shall be determined by reference to whether the untrue or alleged untrue
statement of a material fact or omission or alleged omission to state a material
fact relates to information supplied by the Company or the Operating Partnership
or Representatives on behalf of the Underwriters, the intent of the parties and
their relative knowledge, access to information and opportunity to correct or
prevent such statement or omission. The Company and the Operating Partnership
and the Underwriters agree that it would not be just and equitable if
contributions pursuant to this Section 6(d) were to be determined by pro rata
allocation (even if the Underwriters were treated as one entity for such
purpose) or by any other method of allocation which does not take into account
the equitable considerations referred to herein. The amount paid or payable by
an indemnified party as a result of the loss, claim, liability, expense or
damage, or action in respect thereof, referred to above in this Section 6(d)
shall be deemed to include, for purpose of this Section 6(d), any legal or other
expenses reasonably incurred by such indemnified party in connection with
investigating or defending any such action or claim. Notwithstanding the
provisions of this Section 6(d), no Underwriter shall be required to contribute
any amount in excess of the underwriting discounts received by it, and no person
found guilty of fraudulent misrepresentation (within the meaning of Section
11(f) of the Act) will be entitled to contribution from any person who was not
guilty of such fraudulent misrepresentation. The Underwriters' obligations to
contribute as provided in this Section 6(d) are several in proportion to their
respective underwriting obligations and not joint. For purposes of this Section
6(d), any person who controls a party to this Agreement within the meaning of
the Act will have the same rights to contribution as that party, and each
officer of the Company who
-30-
<PAGE>
signed the Registration Statement will have the same rights to contribution as
the Company, subject in each case to the provisions hereof. Any party entitled
to contribution, promptly after receipt of notice of commencement of any action
against such party in respect of which a claim for contribution may be made
under this Section 6(d), will notify any such party or parties from whom
contribution may be sought, but the omission so to notify will not relieve the
party or parties from whom contribution may be sought from any other obligation
it or they may have under this Section 6(d). No party will be liable for
contribution with respect to any action or claim settled without its written
consent (which consent will not be unreasonably withheld).
(e) The indemnity and contribution agreements contained in this Section
6 and the representations and warranties of the Company and the Operating
Partnership contained in this Agreement shall remain operative and in full force
and effect regardless of (i) any investigation made by or on behalf of the
Underwriters, (ii) acceptance of any of the Shares and payment therefor or (iii)
any termination of this Agreement.
7. Termination. The obligations of the several Underwriters under this
-----------
Agreement may be terminated at any time on or prior to the Closing Date (or,
with respect to the Option Shares, on or prior to the Option Closing Date), by
notice to the Company from the Representatives, without liability on the part of
any Underwriter to the Company, if, prior to delivery and payment for the Shares
(or the Option Shares, as the case may be), (i) trading in any of the equity
securities of the Company shall have been suspended by the Commission, by an
exchange that lists the Shares or by the National Association of Securities
Dealers Automated Quotation National Market System, (ii) trading in securities
generally on the New York Stock Exchange shall have been suspended or limited or
minimum or maximum prices shall have been generally established on such
exchange, or additional material governmental restrictions, not in force on the
date of this Agreement, shall have been imposed upon trading in securities
generally by such exchange or by order of the Commission or any court or other
governmental authority, (iii) a general banking moratorium shall have been
declared by either Federal or New York State authorities or (iv) any material
adverse change in the financial or securities markets in the United States or in
political, financial or economic conditions in the United States or any outbreak
or material escalation of hostilities or declaration by the United States of a
national emergency or war or other calamity or crisis shall have occurred the
effect of any of which is such as to make it, in the sole judgment of the
Representatives, impracticable or inadvisable to market the Shares on the terms
and in the manner contemplated by the Prospectus.
8. Substitution of Underwriters. If any one or more of the Underwriters
----------------------------
shall fail or refuse to purchase any of the Firm Shares which it or they have
agreed to purchase
-31-
<PAGE>
hereunder, and the aggregate number of Firm Shares which such defaulting
Underwriter or Underwriters agreed but failed or refused to purchase is not more
than one-tenth of the aggregate number of Firm Shares, the other Underwriters
shall be obligated, severally, to purchase the Firm Shares which such defaulting
Underwriter or Underwriters agreed but failed or refused to purchase, in the
proportions which the number of Firm Shares which they have respectively agreed
to purchase pursuant to Section 1 bears to the aggregate number of Firm Shares
which all such non-defaulting Underwriters have so agreed to purchase, or in
such other proportions as the Representatives may specify; provided that in no
event shall the maximum number of Firm Shares which any Underwriter has become
obligated to purchase pursuant to Section 1 be increased pursuant to this
Section 8 by more than one-ninth of the number of Firm Shares agreed to be
purchased by such Underwriter without the prior written consent of such
Underwriter. If any Underwriter or Underwriters shall fail or refuse to
purchase any Firm Shares and the aggregate number of Firm Shares which such
defaulting Underwriter or Underwriters agreed but failed or refused to purchase
exceeds one-tenth of the aggregate number of the Firm Shares and arrangements
satisfactory to the Representatives and the Company for the purchase of such
Firm Shares are not made within 48 hours after such default, this Agreement will
terminate without liability on the part of any non-defaulting Underwriter or the
Company for the purchase or sale of any Shares under this Agreement. In any
such case either the Representatives or the Company shall have the right to
postpone the Closing Date, but in no event for longer than seven days, in order
that the required changes, if any, in the Registration Statement and in the
Prospectus or in any other documents or arrangements may be effected. Any
action taken pursuant to this Section 8 shall not relieve any defaulting
Underwriter from liability in respect of any default of such Underwriter under
this Agreement.
9. Miscellaneous. Notice given pursuant to any of the provisions of this
-------------
Agreement shall be in writing and, unless otherwise specified, shall be mailed
or delivered (a) if to the Company, at the office of the Company, 3030 LBJ
Freeway, Suite 1550, Dallas, Texas 75234, Attention: President, or (b) if to the
Underwriters, to the Representatives at the offices of PaineWebber Incorporated,
1285 Avenue of the Americas, New York, New York 10019, Attention: Corporate
Finance Department. Any such notice shall be effective only upon receipt. Any
notice under Section 7 or 8 may be made by telex or telephone, but if so made
shall be subsequently confirmed in writing.
This Agreement has been and is made solely for the benefit of the several
Underwriters and the Company and of the controlling persons, directors and
officers referred to in Section 6, and their respective successors and assigns,
and no other person shall acquire or have any right under or by virtue of this
Agreement. The term "successors and assigns" as used in this
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<PAGE>
Agreement shall not include a purchaser, as such purchaser, of Shares from any
of the several Underwriters.
Any action required or permitted to be taken by the Representatives under
this Agreement may be taken by them jointly or by PaineWebber Incorporated.
THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE
LAWS OF THE STATE OF NEW YORK.
This Agreement may be signed in two or more counterparts with the same
effect as if the signatures thereto and hereto were upon the same instrument.
In case any provision in this Agreement shall be invalid, illegal or
unenforceable, the validity, legality and enforceability of the remaining
provisions shall not in any way be affected or impaired thereby.
The Company and the Underwriters each hereby irrevocably waive any right
they may have to a trial by jury in respect of any claim based upon or arising
out of this Agreement or the transactions contemplated hereby.
[Remainder of Page Intentionally Left Blank]
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<PAGE>
Please confirm that the foregoing correctly sets forth the agreement among
the Company and the several Underwriters.
Very truly yours,
PATRIOT AMERICAN HOSPITALITY, INC.
By:________________________________________
Title:
PATRIOT AMERICAN HOSPITALITY
PARTNERSHIP, L.P.
By: PAH GP, INC.,
as general partner
By:________________________________________
Title:
Confirmed as of the date first
above mentioned:
PAINEWEBBER INCORPORATED
Acting on behalf of itself and
as the Representative of the other
several Underwriters named in
Schedule I hereof.
PAINEWEBBER INCORPORATED
By:___________________________________
Title:
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<PAGE>
SCHEDULE I
----------
_______ Shares
Patriot American Hospitality, Inc.
----------------------------------
Common Stock
Number of
Name of Firm Shares
Underwriter to be Purchased
----------- ---------------
PaineWebber Incorporated
Bear Stearns & Co. Inc.
Dean Witter Reynolds Inc.
Goldman Sachs & Co.
Montgomery Securities
Smith Barney Inc.
-------
5,000,000
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<PAGE>
EXHIBIT A
---------
PATRIOT AMERICAN HOSPITALITY, INC.
_____________________
Price Determination Agreement
-----------------------------
__________ __, 1996
PAINEWEBBER INCORPORATED
Bear Stearns & Co. Inc.
Dean Witter Reynolds Inc.
Goldman Sachs & Co.
Montgomery Securities
Smith Barney Inc.
As Representatives of the several Underwriters
c/o PaineWebber Incorporated
1285 Avenue of the Americas
New York, New York 10019
Dear Sirs:
Reference is made to the Underwriting Agreement, dated __________ __, 1996
(the "Underwriting Agreement"), among Patriot American Hospitality, Inc., a
Virginia corporation (the "Company"), Patriot American Hospitality Partnership,
L.P., a Virginia limited partnership (the "Operating Partnership"), and the
several U.S. Underwriters named in Schedule I thereto or hereto (the
----------
"Underwriters"), for whom PaineWebber Incorporated, Bear Stearns & Co. Inc.,
Dean Witter Reynolds Inc., Goldman Sachs & Co., Montgomery Securities and Smith
Barney Inc. are acting as Representatives (the "Representatives"). The
Underwriting Agreement provides for the purchase by the Underwriters from the
Company, subject to the terms and conditions set forth therein, of an aggregate
of 5,000,000 shares (the "Firm Shares") of the Company's common stock, no par
value. This Agreement is the Price Determination Agreement referred to in the
Underwriting Agreement.
Pursuant to Section 1 of the Underwriting Agreement, the undersigned agree
with the Representatives as follows:
1. The public offering price per share for the Firm Shares shall be $____.
2. The purchase price per share for the Firm Shares to be paid by the
several Underwriters shall be $____ representing an amount equal to the public
offering price set forth above, less $____ per share.
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<PAGE>
EXHIBIT A
Page 2
The Company represents and warrants to each of the Underwriters that the
representations and warranties of the Company set forth in Section 3 of the
Underwriting Agreement are accurate as though expressly made at and as of the
date hereof.
As contemplated by the Underwriting Agreement, attached as Schedule I is a
----------
completed list of the several Underwriters, which shall be a part of this
Agreement and the Underwriting Agreement.
This Agreement shall be governed by the law of the State of New York.
If the foregoing is in accordance with your understanding of the agreement
among the Underwriters and the Company, please sign and return to the Company a
counterpart hereof, whereupon this instrument along with all counterparts and
together with the Underwriting Agreement shall be a binding agreement among the
Underwriters and the Company in accordance with its terms and the terms of the
Underwriting Agreement.
Very truly yours,
PATRIOT AMERICAN HOSPITALITY, INC.
By:______________________________________
Title:
PATRIOT AMERICAN HOSPITALITY
PARTNERSHIP, L.P.
By: PAH GP, INC.,
as general partner
By:______________________________________
Title:
Confirmed as of the date first
above mentioned:
PAINEWEBBER INCORPORATED
Acting on behalf of itself and
as the Representative of the other
several Underwriters named in
Schedule I hereof.
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<PAGE>
EXHIBIT A
Page 3
PAINEWEBBER INCORPORATED
By:____________________________
Title:
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<PAGE>
EXHIBIT 3(c)
------------
<TABLE>
<CAPTION>
Subsidiaries of the Company
---------------------------
State of
Name Organization
---- ------------
<S> <C>
Patriot American Hospitality Partnership, L.P. Virginia
PAH GP, Inc. Virginia
PAH LP, Inc. Virginia
1500 Canal Street Investors II, L.P. Delaware
Bourbon Orleans Investors II, L.P. Delaware
PAH Acquisition Corporation Virginia
PA Hunt Valley Investors, L.P. Virginia
PA Troy Hospitality Investors, L.P. Delaware
</TABLE>
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<PAGE>
EXHIBIT 5(f)
------------
Form of Opinion of
Goodwin, Proctor & Hoar
Counsel to the Company
--------------------------------------
(i) Each of the Company, the Operating Partnership and the Subsidiaries has
been duly organized and is validly existing as a corporation or partnership, as
the case may be, in good standing (to the extent applicable) under the laws of
its jurisdiction of incorporation, has all corporate or partnership power and
authority to conduct its business as described in the Registration Statement and
Prospectus and is duly qualified to do business in each jurisdiction in which it
owns or leases real property or in which the conduct of its business requires
such qualification, except where the failure to be so qualified, considering all
such cases in the aggregate, does not involve a material risk to the condition
(financial or otherwise), business, properties, prospects or results of
operations of the Company and its subsidiaries taken as a whole; and all of the
issued and outstanding partnership interests of the Operating Partnership have
been duly authorized and validly issued, are fully paid and nonassessable and
are owned of record and, to our best knowledge, beneficially in the percentage
amounts set forth in the Prospectus by PAH GP, Inc. and PAH LP, Inc., free and
clear of all Liens.
(ii) The Registration Statement has become effective under the Act; the
Prospectus has been filed as required by Section 3(a) hereof; and to the best
knowledge of such counsel no stop order suspending the effectiveness of the
Registration Statement has been issued and no proceeding for that purpose has
been instituted or threatened by the Commission.
(iii) The Registration Statement, when it became effective, and the
Prospectus and any amendment or supplement thereto, on the date of filing
thereof with the Commission and at the Closing Date, complied as to form in all
material respects with the requirements of the Act and the Rules and
Regulations, it being understood that no opinion need be expressed as to the
financial statements, schedules, pro forma or other financial data included
therein or omitted therefrom.
(iv) The descriptions in the Registration Statement and Prospectus of
statutes, legal and governmental proceedings, contracts and other documents are
accurate in all material respects and fairly present the information required to
be shown; and such counsel do not know of any statutes or legal or governmental
proceedings required to be described in the Prospectus that are not described as
required, or of any contracts or documents of a character required to be
described in the Registration Statement or
-40-
<PAGE>
EXHIBIT 5(f)
Page 2
Prospectus or to be filed as exhibits to the Registration Statement that are not
described and filed as required.
(v) Each of the Company and the Operating Partnership has all corporate or
partnership power and authority to enter into the Underwriting Agreement, the
Underwriting Agreement has been duly authorized, executed and delivered by the
Company and the Operating Partnership, and is a valid and binding agreement of
each and, subject to applicable bankruptcy and similar laws and to federal or
state securities law (and underlying public policy) limitations on the
enforcement of the indemnification and contribution provisions set forth in such
Agreement, is enforceable against each in accordance with the terms thereof.
(vi) Except as disclosed in the Registration Statement and the Prospectus,
the execution, delivery and performance of the Underwriting Agreement and the
consummation of the transactions therein contemplated will not result in the
creation or imposition of any lien, charge or encumbrance upon any of the assets
of the Company or the Operating Partnership pursuant to the terms or provisions
of, or result in a breach or violation of or a conflict with, any of the terms
or provisions of, or constitute a default or result in the acceleration of any
obligation under, (1) the Articles of Incorporation or By-laws of the Company,
(2) the limited partnership agreement of the Operating Partnership, (3) any
indenture, mortgage, deed of trust, voting trust agreement, loan agreement,
bond, debenture, note agreement or other evidence of indebtedness, lease,
contract or other agreement or instrument filed as an exhibit to the
Registration Statement, or (4) any judgment, ruling, decree, order, franchise,
license or permit known to such counsel or any material statute, rule or
regulation applicable to the business or properties of the Company or the
Operating Partnership (except that such counsel need express no opinion as to
the securities or Blue Sky laws of any jurisdiction);
(vii) No consent, approval, authorization or order of, or filing with, any
federal or state governmental agency or body is required for the consummation of
the transactions contemplated by the Underwriting Agreement, or the issuance and
sale of the Shares by the Company, except such as have been obtained and such as
may be required under state securities laws or the by-laws of the NASD in
connection with the purchase and distribution of the Shares by the Underwriters.
-41-
<PAGE>
EXHIBIT 5(f)
Page 3
(viii) Commencing with the Company's short taxable year ending December
31, 1995, the Company has qualified to be taxed as a "real estate investment
trust" pursuant to Sections 856 through 860 of the Code, and the Company's
current method of operation will enable it to continue to meet the requirements
for qualification and taxation as a "real estate investment trust" under the
Code.
(ix) The Company is not an "investment company" within the meaning of the
Investment Company Act of 1940, as amended.
(x) To such counsel's knowledge, neither the Company, the Operating
Partnership, nor any Subsidiary is in violation of its articles of
incorporation, by-laws or other organizational documents, or its partnership
agreement or certificate of limited partnership, as the case may be, nor is it
in default (nor has an event occurred which with notice or lapse of time or both
would constitute a default or acceleration) in the performance of any
obligation, agreement or condition contained in any indenture, mortgage, deed of
trust, voting trust agreement, loan agreement, bond, debenture, note agreement
or other evidence of indebtedness, lease, contract or other agreement or
instrument (collectively, a "contract or agreement") filed as an exhibit to the
Registration Statement and no such entity is in violation of any judgment,
ruling, decree, order, franchise, license or permit known to counsel or any
material statute, rule or regulation of any court or other governmental agency
or body applicable to the business or properties of the Company or any of its
subsidiaries, which violation or default would have a material adverse effect on
the business, properties, business prospects, condition (financial or otherwise)
or results of operations of the Company and its subsidiaries taken as a whole.
(xi) Such counsel has been advised by the New York Stock Exchange that
the Shares have been duly authorized for listing by the New York Stock Exchange
upon official notice of issuance.
(xii) The information in the Prospectus under the headings "Federal Income
Tax Considerations" and "Shares Available for Future Sale," to the extent that
it constitutes matters of law or legal conclusions, has been reviewed by such
counsel and is accurate and presents fairly all of the information required to
be disclosed therein under the Rules and Regulations.
-42-
<PAGE>
EXHIBIT 5(f)
Page 4
(xiii) To such counsel's knowledge, except as described in the Prospectus,
there are no contracts, agreements or understandings between the Company and any
person granting such person the right (other than rights which have been waived
or satisfied) to require the Company to file a registration statement under the
Act with respect to any securities of the Company owned or to be owned by such
person or to require the Company to include such securities in the securities
registered pursuant to the Registration Statement or in any securities being
registered pursuant to any other registration statement filed by the Company
under the Act.
(xiv) Except as disclosed in the Prospectus, there are no preemptive or
other rights to subscribe for or to purchase, nor any restriction upon the
voting or transfer of, any shares of the Company's Common Stock pursuant to the
Company's organizational documents or any other agreement or instrument known to
such counsel; and there are no preemptive or other rights to subscribe for or to
purchase, nor any restriction upon the voting or transfer of, any partnership
interests in the Operating Partnership pursuant to its partnership agreement, or
any other agreement or instrument known to such counsel.
(xv) The offer, issuance and sale of shares of Common Stock of the
Company and general and limited partnership interests in the Operating
Partnership prior to the Closing Date as described in the Prospectus are exempt
from the registration requirements of the Act and applicable state securities,
real estate syndication and Blue Sky laws.
(xvi) To such counsel's knowledge, except as described in the Prospectus,
there are no legal or governmental proceedings pending to which the Company or
any of its subsidiaries is a party or of which any property or assets owned by
the Company or any of its subsidiaries is subject, which, if determined
adversely to the Company or any of its subsidiaries might have a material
adverse effect on the business, properties, prospects, financial position or
results of operations of the Company and its subsidiaries taken as a whole; and,
to such counsel's knowledge, no such proceedings are threatened or contemplated
by governmental authorities or threatened by others.
(xvii) The Company and each subsidiary has full corporate or partnership
power and authority to own, lease, license and use its properties and assets and
to conduct its business in the manner described in the Registration Statement.
-43-
<PAGE>
EXHIBIT 5(f)
Page 5
In addition, such counsel shall also have furnished to the Representatives a
written statement, addressed to the Representatives and dated the Closing Date,
in form and substance satisfactory to the Representatives, to the effect that
during the preparation of the Registration Statement and Prospectus, such
counsel has participated in conferences with officers, employees and other
representatives of the Company, the Operating Partnership, the Lessee and other
affiliated entities and representatives of the independent public accountants
and the Underwriters and their counsel and, based on the foregoing, no facts
have come to the attention of such counsel which caused it to believe that the
Registration Statement (other than the financial statements and supporting
schedules and other financial information and data included therein or omitted
therefrom, as to which no opinion is expressed), as of the Effective Date,
contained any untrue statement of a material fact or omitted to state a material
fact required to be stated therein or necessary to make the statements therein
not misleading; or that the Prospectus (other than the financial statements and
supporting schedules and other financial information and data included therein
or omitted therefrom, as to which no opinion is expressed), as of its date and
on the Closing Date, contained any untrue statement of a material fact or
omitted to state a material fact required to be stated therein or necessary in
order to make the statements therein not misleading.
In rendering such opinion, such counsel may rely upon certificates of public
officers as to matters governed by the laws of jurisdictions other than
[_________________] or the federal laws of the United States of America, or upon
opinions of counsel reasonably satisfactory to the Underwriters, and as to
matters of fact, upon certificates of officers of the Company; provided that
such counsel shall state that the opinion of any other counsel is in form and
substance satisfactory to such counsel and, in such counsel's opinion, such
counsel and the Representatives are justified in relying on the opinion of other
counsel. Copies of all such opinions of other counsel and certificates shall be
furnished to counsel to the Underwriters on the Closing Date.
-44-
<PAGE>
EXHIBIT 5(g)
------------
[Form of Opinion of
Gardere & Wynne, L.L.P.
Special Tax Counsel to the Company]
-45-
<PAGE>
EXHIBIT 4.6
<PAGE>
REGISTRATION RIGHTS AGREEMENT
This Registration Rights Agreement (this "Agreement") is entered into as of
July 11, 1996 by and between Patriot American Hospitality,Inc., a Virginia
corporation (the "Company") and Houston Greenspoint Hotel Associates, L.P., a
Texas limited partnership (the "Holder").
WHEREAS, the Holder is to receive units of limited partnership interest
("Units") in Patriot American Hospitality Partnership, L.P. (the "Operating
Partnership") pursuant to a Contribution Agreement by and between the Company
and the Holder of even date herewith (the "Contribution Agreement"), which
Units, at the Company's option, may be redeemed for shares of the Company's
common stock, no par value ("Common Stock").
NOW, THEREFORE, in consideration of the mutual promises and agreements set
forth herein, and other valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, the parties hereto hereby agree as follow:
1. Registration.
------------
(a) Piggyback Registration. If at any time while any Registrable
----------------------
Shares (as defined below) are outstanding (without any obligation to do so) the
Company proposes to file a registration statement under the Securities Act of
1933, as amended (the "Securities Act") with respect to an offering of Common
Stock solely for cash (other than a registration statement (i) on Form S-8 or
any successor form to such Form or in connection with any employee or director
welfare, benefit or compensation plan, (ii) on Form S-4 or any successor form to
such Form or in connection with an exchange offer, (iii) in connection with a
rights offering exclusively to existing holders of Common Stock (iv) in
connection with a rights offering exclusively to solely to employees of the
Company or its affiliates, or (v) relating to a transaction pursuant to Rule 145
of the Securities Act, whether or not for its own account (a "Piggyback
Registration Statement"), the Company shall give prompt written notice of such
proposed filing to the Holder. The notice referred to in the preceding sentence
shall offer the Holder the opportunity to register such amount of Registrable
Shares as the Holder may request (a "Piggyback Registration"). Subject to the
provisions of Section 2 below, the Company shall include in such Piggyback
Registration all Registrable Shares requested to be included in the registration
and qualification for sale under the blue sky or securities laws of the various
states and in any underwriting in connection therewith for which the Company has
received a written request for inclusion therein within fifteen (15) calendar
days after the notice referred to above has been given by the Company to the
Holder. The Holder may withdraw all or part of the Registrable Shares from a
Piggyback Registration at any time prior to the effective date of such Piggyback
Registration. If a Piggyback Registration is an underwritten primary
registration on behalf of the Company and the managing underwriter advises the
Company that the total number of shares of Common Stock requested to be
<PAGE>
included in such registration exceeds the number of shares of Common Stock which
can be sold in such offering, the Company will include in such registration in
the following priority: (i) first, all shares of Common Stock the Company
proposes to sell, and (ii) second, up to the full number of applicable
Registrable Shares requested to be included in such registration and, which in
the opinion of such managing underwriter, can be sold without adversely
affecting the price range or probability of success of such offering, which
shall be allocated among the Holder and all other stockholders requesting
registration on a pro rata basis. As used in this Agreement, the term
"Registrable Shares" means shares of Common Stock issued or to be issued to the
Holder upon redemption or in exchange for the Units issued pursuant to the
Contribution Agreement, excluding (A) Common Stock for which a Registration
Statement relating to the issuance or sale thereof shall have become effective
under the Securities Act and which have been issued or disposed of under such
Registration Statement, (B) Common Stock sold pursuant to Rule 144 under the
Securities Act, or (C) Common Stock eligible for immediate sale pursuant to Rule
144 under the Securities Act.
(b) Registration Statement Covering Issuance of Common Stock. In
--------------------------------------------------------
lieu of the registration rights set forth in Section 1(a) above, the Company
may, in its sole discretion, prior to two (2) years from the date of the
issuance of the Units (or such other date as may be required under applicable
provisions of the Securities Act) file a registration statement (the "Issuance
Registration Statement") under Rule 415 under the Securities Act relating to the
issuance to the Holder of shares of Common Stock upon the redemption or in
exchange for such Units. Thereupon, the Company shall use reasonable efforts to
cause such Issuance Registration Statement to be declared effective by the SEC
for all shares of Common Stock covered thereby. Any Piggyback Registration
Statement or Issuance Registration Statement are sometimes referred to as a
"Registration Statement."
2. Registration Procedures:
-----------------------
(a) The Company shall notify the Holder of the effectiveness of the
Registration Statement (including any amendments, supplements and exhibits), the
prospectus contained therein (including each preliminary prospectus), any
documents incorporated by reference in the Registration Statement and such other
documents as the Holder may reasonably request in order to facilitate its sale
of the Registrable Shares in the manner described in the Registration Statement.
(b) The Company shall prepare and file with the SEC from time to
time such amendments and supplements to the Registration Statement and
prospectus used in connection therewith as may be necessary to keep the
Registration Statement effective and to comply with the provisions of the
Securities Act with respect to the disposition of all the Registrable Shares
until the earlier of (i) such time as all of the Registrable Shares have been
disposed of in accordance with the intended methods of disposition by the Holder
as set forth in the Registration Statement, or (ii) the date on which the
Registration Statement ceases to be effective. Within twenty (20) business days
following notice from the Holder, the Company shall file any supplement or post-
effective amendment to the Registration Statement with respect to the Holder's
interests in or plan of distribution of Registrable Shares that is
<PAGE>
reasonably necessary to permit the sale of the Holder's Registrable Shares
pursuant to the Registration Statement and the Company shall file any necessary
listing applications or amendments to the existing applications to cause the
shares to be then listed or quoted on the primary exchange or quotation system
on which the Common Stock is then listed or quoted.
(c) The Company shall promptly notify the Holder of, and confirm
in writing, any request by the SEC for amendments or supplements to the
Registration Statement or the prospectus related thereto or for additional
information. In addition, the Company shall promptly notify the Holder of, and
confirm in writing, the filing of the Registration Statement, any prospectus
supplement related thereto or any post-effective amendment to the Registration
Statement and the effectiveness of any post-effective amendment.
(d) The Company shall immediately notify the Holder, at any time
when a prospectus relating to the Registration Statement is required to be
delivered under the Securities Act, of the happening of any event as a result of
which the prospectus included in the Registration Statement, as then in effect,
includes an untrue statement of a material fact or omits to state any material
fact required to be stated therein or necessary to make the statements therein,
in light of the circumstances under which they were made, not misleading. In
such event and subject to paragraph 7 of this Agreement, the Company shall
promptly prepare and furnish the Holder with a reasonable number of copies of a
supplement to or an amendment of such prospectus as may be necessary so that, as
thereafter delivered to the purchasers of Registrable Shares, such prospectus
shall not include an untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary to make the statements
therein, in light of the circumstances under which they are made, no misleading.
3. State Securities Laws. Subject to the conditions set forth in this
---------------------
Agreement, the Company shall, promptly upon the filing of a Registration
Statement including Registrable Shares, file such documents as may be necessary
to register or qualify the Registrable Shares under the securities or "Blue Sky"
laws of such states as the Holder may reasonably request, and the Company shall
use reasonable efforts to cause such filings to become effective; provided,
--------
however, that the Company shall not be obligated to qualify as a foreign
- -------
corporation to do business under the laws of any such state in which it is not
then qualified or to file any general consent to service of process in any such
state. The Company shall promptly notify the Holder of, and confirm in writing,
the receipt by the Company of any notification with respect to the suspension of
the qualification of the Registrable Shares for sale under the securities or
"Blue Sky" laws of any jurisdiction or the initiation or threat of any
proceeding for such purpose.
4. Expenses. The Company shall bear all expenses incurred in connection
--------
with the registration of the Registrable Shares pursuant to this Agreement.
Such expenses shall include, without limitation, all printing, legal and
accounting expenses incurred by the Company and all registration and filing fees
imposed by the SEC, any state securities commission or the New York Stock
Exchange or, if the Common Stock is not then listed on the New York Stock
Exchange, the principal national securities exchange or national market
<PAGE>
system on which the Common Stock is then traded or quoted. Additionally, the
Holder shall be responsible for any brokerage or underwriting commissions and
taxes of any kind (including, without limitation, transfer taxes) with respect
to any disposition, sale or transfer of Registrable Shares and for any legal,
accounting and other expenses incurred by it. The Holder shall also be
responsible for any expenses incurred by the Company in connection with the
Holder's withdrawal of all or part of the Registrable Shares from a Piggyback
Registration.
5. Indemnification by the Company. The Company agrees to indemnify the
------------------------------
Holder and its officers, directors, employees, agents, representatives and
affiliates, and each person or entity, if any, that controls the Holder within
the meaning of the Securities Act, and each other person or entity, if any,
subject to liability because of his, her or its connection with the Holder, and
any underwriter and any person who controls the underwriter within the meaning
the Securities Act (an "Indemnitee") against any and all losses, claims,
damages, actions, liabilities, costs and expenses (including without limitation
reasonable attorneys' fees, expenses and disbursements documented in writing),
joint or several, arising out of or based upon any untrue or alleged untrue
statement of material fact contained in the Registration Statement or any
prospectus contained therein, or any omission or alleged omission therefrom of a
material fact required to be stated therein or necessary to make the statements
therein, in light of the circumstances under which they were made, not
misleading, except insofar as to the extent that such statement or omission
arose out of or was based upon information regarding the Indemnitee or its plan
of distribution which was furnished to the Company by the Indemnitee for use
therein, provided, further that the Company shall not be liable to any person
who participates as an underwriter in the offering or sale of Registrable Shares
or any other person, if any, who controls such underwriter within the meaning of
the Securities Act, in any such case to the extent that any such loss, claim,
damage, liability (or action or proceeding in respect thereof) or expense arises
out of or is based upon (i) an untrue statement or omission or alleged untrue
statement or omission made in such Registration Statement, any such preliminary
prospectus, final prospectus, summary prospectus, amendment or supplement in
reliance upon and in conformity with written information furnished to the
Company by the Indemnitee expressly for use in connection with the Registration
Statement or the prospectus contained therein by such Indemnitee, or (ii) such
Indemnitee's failure to send or give a copy of the final prospectus furnished to
it by the Company at or prior to the time such action is required by the
Securities Act to the person claiming an untrue statement or alleged untrue
statement or omission if such loss, claim, damage, liability or expense would
not have arisen had such delivery occurred.
6. Covenants of Holder. The Holder hereby agrees (a) to cooperate with
-------------------
the Company and to furnish to the Company within 10 days of request all such
information in connection with the preparation of the Registration Statement and
any filings with any state securities commissions as the Company may reasonably
request, (b) to deliver or cause delivery of the prospectus contained in the
Registration Statement to any purchaser of the shares covered by the
Registration Statement from the Holder, (c) to notify the Company of any sale of
Registrable Securities by the Holder, and (d) to indemnify the Company, its
officers, directors, employees, agents, representatives and affiliates, and each
person, if any, who controls the Company within the meaning of the Securities
Act, and each other person, if
<PAGE>
any, subject to liability because of his connection with the Company, against
any and all losses, claims, damages, actions, liabilities, costs and expenses
arising out of or based upon (i) any untrue statement or alleged untrue
statement of material fact contained in either Registration Statement or the
prospectus contained therein, or any omission or alleged omission to state
therein a material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they were made,
not misleading, if and to the extent that such statement or omission arose out
of or was based upon information regarding the Holder or its plan of
distribution which was furnished to the Company by the Holder in writing
expressly for use therein, or (ii) the failure by the Holder to deliver or cause
to be delivered the prospectus contained in the Registration Statement (as
amended or supplemented, if applicable) furnished by the Company to the Holder
to any purchaser of the shares covered by the Registration Statement from the
Holder. Notwithstanding the foregoing, (i) in no event will the Holder have any
obligation under this Section 6 for amounts the Company pays in settlement of
any such loss, claim, damage, liability or action if such settlement is effected
without the consent of the Holder (which consent shall not be unreasonably
withheld), and (ii) the total amount for which the Holder shall be liable under
this Section 6 shall not in any event exceed the aggregate proceeds received by
it from the sale of the Holder's Registrable Shares in such registration.
7. Suspension of Registration Requirement.
--------------------------------------
(a) The Company shall promptly notify the Holder of, and confirm in
writing, the issuance by the SEC of any stop order suspending the effectiveness
of the Registration Statement or the initiation of any proceedings for that
purpose. The Company shall use reasonable efforts to obtain the withdrawal of
any order suspending the effectiveness of the Registration Statement at the
earliest possible moment.
(b) Notwithstanding anything to the contrary set forth in this Agreement,
the Company's obligation under this Agreement to use reasonable efforts to cause
the Registration Statement and any filings with any state securities commission
to be made or to become effective or to amend or supplement the Registration
Statement shall be suspended in the event and during such period that the
Company is in possession of material, nonpublic information, as to which the
Company has a bona fide business purpose for preserving confidentiality or which
renders the Company unable to comply with SEC requirements (such circumstances
being hereinafter referred to as a "Suspension Event") that would make it
impractical or unadvisable to cause the Registration Statement or such filings
to be made or to become effective or to amend or supplement the Registration
Statement, but such suspension shall continue only for so long as such event or
its effect is continuing but no event will that suspension exceed 60 days. The
Company agrees not to exercise the rights set forth in this Section 7(b) more
than twice in any twelve month period. The Company shall notify the Holder of
the existence of any Suspension Event.
(c) To the extent the Holder's Registrable Shares are covered by a
Registration Statement filed pursuant to Section 1 hereof, the Holder agrees, if
requested by
<PAGE>
the Company in the case of a nonunderwritten offering (a "Nonunderwritten
Offering") or if requested by the managing underwriter or underwriters in an
underwritten offering (an "Underwritten Offering," collectively with
Nonunderwritten Offering, the "Offering"), not to effect any public sale or
distribution of any of the securities of the Company of any class included in
such Offering, including a sale pursuant to Rule 144 or Rule 144A under the
Securities Act (except as part of such Offering), during the 15-day period prior
to, and during the 45-day period beginning on the date of pricing of each
Offering, to the extent timely notified in writing by the Company or the
managing underwriters.
8. Black-Out Period. Following the effectiveness of the Registration
----------------
Statement and the filings with any state securities commissions, the Holder
agrees that it will not effect any sales of the Registrable Shares pursuant to
the Registration Statement or any such filings at any time after it has received
notice from the Company to suspend sales as a result of the occurrence or
existence of any Suspension Event, during any Offering or so that the Company
may correct or update the Registration Statement or such filing pursuant to
Section 2(c) or 2(d). The Holder may recommence effecting sales of the
Registrable Shares pursuant to the Registration Statement or such filings
following further notice to such effect from the Company.
9. Additional Shares. The Company, at its option, may register, under any
-----------------
registration statement and any filings with any state securities commissions
filed pursuant to this Agreement, any number of unissued shares of Common Stock
or any shares of Common Stock owned by any other shareholder or shareholders of
the Company.
10. Contribution. If the indemnification provided for in Sections 5 and 6
------------
is unavailable to an indemnified party with respect to any losses, claims,
damages, action, liabilities, costs or expenses referred to therein or is
insufficient to hold the indemnified party harmless as contemplated therein,
then the indemnifying party, in lieu of indemnifying such indemnified party,
shall contribute to the amount paid or payable by such indemnified party as a
result of such losses, claims, damages, actions, liabilities, costs or expenses
in such proportion as is appropriate to reflect the relative fault of the
Company, on the one hand, and the Holder, on the other hand, in connection with
the statements or omissions which resulted in such losses, claims, damages,
actions, liabilities, costs or expenses as well as any other relevant equitable
considerations. The relative fault of the Company, on the one hand, and of the
Holder, on the other hand, shall be determined by reference to, among other
factors, whether the untrue or alleged untrue statement of a material fact or
omission to state a material fact relates to information supplied by the Company
or by the Holder and the parties' relative intent, knowledge, access to
information and opportunity to correct or prevent such statement or omission;
provided, however, that in no event shall the obligation of any indemnifying
- -------- -------
party to contribute under this Section 10 exceed the amount that such
indemnifying party would have been obligated to pay by way of indemnification if
the indemnification provided for under Sections 5 or 6 hereof had been available
under the circumstances.
The Company and the Holder agree that it would not be just and equitable if
<PAGE>
contribution pursuant to this Section 10 were determined by pro rata allocation
or by any other method of allocation that does not take account of the equitable
considerations referred to in the immediately preceding paragraph.
No indemnified party guilty of fraudulent misrepresentation (within the
meaning of Section 11(f) of the Securities Act) shall be entitled to
contribution from any indemnifying party who was not guilty of such fraudulent
misrepresentation.
11. No Other Obligation to Register. Except as otherwise expressly
-------------------------------
provided in this Agreement, the Company shall have no obligation to the Holder
to register the Registrable Shares under the Securities Act.
12. Amendments and Waivers. The provisions of this Agreement may not be
----------------------
amended, modified or supplemented with the prior written consent of the Company
and the Holder.
13. Notices. Except as set forth below, all notices and other
-------
communications provided for or permitted hereunder shall be in writing and shall
be deemed to have been duly given if delivered personally or sent by telex or
telecopier, registered or certified mail (return receipt requested), postage
prepaid or courier or overnight delivery service to the Company and the Holder
at the following addresses (or at such other address for any party as shall be
specified by like notice, provided that notices of a change of address shall be
effective only upon receipt thereof), and further provided that in case of
directions to amend the Registration Statement pursuant to Section 2(b) or
Section 6, the Holder must confirm such notice in writing by overnight express
delivery with confirmation of receipt:
If to the Company: Patriot American Hospitality, Inc.
3030 LBJ Freeway, Suite 1500
Dallas, Texas 75234
Attn: Paul A. Nussbaum, Chairman and Chief Executive
Officer
With a copy to: Goodwin, Procter & Hoar, LLP
Exchange Place
Boston, Massachusetts 02109
Attn: Gilbert G. Menna, P.C.
If to the Holder: Houston Greenspoint Hotel Associates, L.P.
c/o Crow Family Holdings
3200 Trammell Crow Center
2001 Ross Avenue
Dallas, Texas 75201
Attn: Sue Groenteman
<PAGE>
With a copy to: Locke Purnell Rain Harrell
2200 Ross Avenue, Suite 2200
Dallas, Texas 75201-6776
Attn: Janis H. Loegering
In addition to the manner of notice permitted above, notices given pursuant to
Sections 1.7 and 8 hereof may be effected telephonically and confirmed in
writing thereafter in the manner described above.
14. Successors and Assigns. This Agreement shall be binding upon and
----------------------
inure to the benefit of the successors and assigns of the Company. This
Agreement may be assigned by the Holder in the same manner and to the same
extent that the Holder may transfer Units or Registrable Securities subject to
the Agreement.
15. Counterparts. This Agreement may be executed in any number of
------------
counterparts and by the parties hereto in separate counterparts, each of which
when so executed shall be deemed to be an original and all of which taken
together shall constitute one and the same agreement.
16. Governing Law. This Agreement shall be governed by and construed in
-------------
accordance with the laws of the Commonwealth of Virginia applicable to contracts
made and to be performed wholly within said Commonwealth.
17. Severability. In the event that any one or more of the provisions
------------
contained herein, or the application thereof in any circumstances, is held
invalid, illegal or unenforceable in any respect for any reason, the validity,
legality and enforceability of any such provision in every other respect and of
the remaining provisions contained herein shall not be in any way impaired
thereby, it being intended that all of the rights and privileges of the parties
hereto shall be enforceable to the fullest extent permitted by law.
18. Entire Agreement. This Agreement is intended by the parties as a
----------------
final expression of their agreement and intended to be the complete and
exclusive statement of the agreement and understanding of the parties hereto in
respect of the subject matter contained herein. There are no restrictions,
promises, warranties or undertakings, other than those set forth or referred to
herein, with respect to such subject matter. This Agreement supersedes all
prior agreements and understandings between the parties with respect to such
subject matter.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date first written above.
PATRIOT AMERICAN HOSPITALITY, INC., a
Virginia limited partnership
By:
Name:
Title:
HOUSTON GREENSPOINT HOTEL
ASSOCIATES, L.P., a Texas limited partnership
By: Greenspoint Associates, Ltd., a
__________ limited partnership, its
general partner
By: The New Greenspoint Hotel
Corporation, a _____________
corporation, its general partner
By:
Name:
Title:
<PAGE>
EXHIBIT 5.1
<PAGE>
[LETTERHEAD OF GOODWIN, PROCTER & HOAR LLP APPEARS HERE]
July 16, 1996
Patriot American Hospitality, Inc.
3030 LBJ Freeway, Suite 1500
Dallas, TX 75234
Ladies and Gentlemen:
This opinion is furnished in connection with the registration, pursuant to
the Securities Act of 1933, as amended (the "Securities Act"), of 5,000,000
shares (5,750,000 shares if the underwriters' over-allotment option is exercised
in full)(the "Shares") of Common Stock, no par value per share (the "Common
Stock"), of Patriot American Hospitality, Inc, a Virginia corporation (the
"Company").
In connection with rendering this opinion, we have examined the Articles of
Incorporation, as amended, and the Bylaws, as amended, of the Company; such
records of the corporate proceedings of the Company as we deemed material; a
registration statement on Form S-11 under the Securities Act relating to the
Shares, No. 333-04587, as amended (THE "Registration Statement"), and the
offering prospectus contained therein (the "Prospectus") and such other
certificates, receipts, records and documents as we considered necessary for the
purpose of this opinion.
We are attorneys admitted to practice in The Commonwealth of Massachusetts.
We express no opinion concerning the laws of any jurisdictions other than the
laws of the United States of America and The Commonwealth of Massachusetts.
With respect to matters of Virginia law, we have relied upon the opinion of
Hunton & Williams.
Based upon the foregoing, we are of the opinion that when the shares have
been issued and paid for in accordance with the terms of the Prospectus, the
shares will be legally issued, fully paid and nonassessable shares of the
Company's Common Stock.
The foregoing assumes that all requisite steps will be taken to comply with
the requirements of the Securities Act and applicable requirements of state laws
regulating the offer and sale of securities.
<PAGE>
GOODWIN, PROCTER & HOAR LLP
Patriot American Hospitality, Inc.
July 16, 1996
Page 2
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to the reference to our firm under the caption
"Legal Matters" in the Prospectus.
Very truly yours,
GOODWIN, PROCTER & HOAR LLP
292952.cl
<PAGE>
EXHIBIT 8.1
<PAGE>
[LETTERHEAD OF GOODWIN, PROCTER & HOAR LLP APPEARS HERE]
July 16, 1996
Patriot American Hospitality
3030 LBJ Freeway, Suite 1550
Dallas, TX 75234
Re: Public Offering of up to 5,750,000 shares of Common Stock,
no par value.
Ladies and Gentlemen:
This opinion is delivered to you in our capacity as counsel to Patriot
American Hospitality, Inc. (the "Company") in connection with the Company's
registration statement on Form S-11 filed by the Company with the Securities and
Exchange Commission on May 24, 1996 (No. 333-04587), as amended (the
"Registration Statement"), relating to the public offering of up to 5,750,000
shares of the Company's common stock (the "Offering"). This opinion relates to
the Company's qualification for federal income tax purposes as a real estate
investment trust (a "REIT") under the Internal Revenue Code of 1986, as amended
(the "Code"), for taxable years commencing with the Company's taxable year
ending December 31, 1995.
We have relied upon the representations of an officer of the Company
regarding the manner in which the Company and its affiliates have been and will
be owned and operated. We have neither independently investigated nor verified
such representations, and this opinion is expressly conditioned upon the
accuracy of such representations. We assume that the Company has been and will
be operated in accordance with applicable laws and the terms and conditions of
applicable documents and that the descriptions of the Company and its actual and
proposed activities, operations and governance set forth in the Registration
Statement are true, correct and complete.
In rendering the following opinion, we have examined the Company's Amended
and Restated Articles of Incorporation and the By-Laws of the Company and such
other records, certificates and documents, each as amended, as we have deemed
necessary or appropriate for purposes of rendering the opinion set forth herein.
In rendering the opinion set forth herein, we have assumed (i) the
genuineness of all signatures on documents we have examined, (ii) the
authenticity of all documents submitted to us as originals, (iii) the conformity
to the original documents of all documents submitted to us
as copies, (iv) the conformity of final documents to all documents submitted to
us as drafts,
<PAGE>
GOODWIN, PROCTER & HOAR LLP
Patriot American Hospitality
July 16, 1996
Page 2
(v) the authority and capacity of the individual or individuals who executed any
such documents on behalf of any person, (vi) the accuracy and completeness of
all records made available to us and (vii) the factual accuracy of all
representations, warranties and other statements made by all parties. We also
have assumed, without investigation, that all documents, certificates,
representations, warranties and covenants on which we have relied in rendering
the opinion set forth below and that were given or dated earlier than the date
of this letter continue to remain accurate, insofar as relevant to the opinion
set forth herein, from such earlier date through and including the date of this
letter and that all representations made to the "best knowledge" of any
person(s), or subject to similar qualification, are true and complete as if made
without such qualification.
The opinion set forth below is based upon the Code, the Income Tax
Regulations and Procedure and Administration Regulations promulgated thereunder
and existing administrative and judicial interpretations thereof, all as they
exist at the date of this letter. All of the foregoing statutes, regulations
and interpretations are subject to change, in some circumstances with
retroactive effect; any changes to the foregoing authorities might result in
modifications of our opinion contained herein.
Based upon and subject to the foregoing, and provided that the Company
makes a valid and timely election to be taxed as a REIT and continues to meet
the applicable asset composition, source of income, shareholder diversification,
distribution, record keeping and other requirements of the Code necessary for a
corporation to qualify as a REIT, we are of the opinion that:
1. Commencing with the taxable year ending December 31, 1995, the Company
has been organized and operated in conformity with the requirements
for qualification and taxation as a REIT under the Code, and its
proposed method of operation will enable the Company to continue to
meet the requirements for qualification and taxation as a REIT under
the Code.
2. The statements in the Registration Statement set forth under the
caption "Federal Income Tax Considerations" fairly summarize the
federal income tax consequences that are likely to be material to a
holder of the Company's common stock.
We express no opinion other than that expressly set forth herein.
Furthermore, the Company's qualification as a REIT depends on the Company
meeting, and having met, the
<PAGE>
GOODWIN, PROCTER & HOAR LLP
Patriot American Hospitality
July 16, 1996
Page 3
applicable asset composition, source of income, shareholder diversification,
distribution, record keeping and other requirements of the Code necessary for a
corporation to qualify as a REIT. We have not reviewed and will not review these
operations, and no assurance can be given that the actual operations of the
Company and its affiliates have met or will meet these requirements or the
representations made to us with respect thereto. Our opinion is not binding on
the IRS, and the IRS may disagree with the opinion contained herein. Except as
specifically discussed above, the opinion expressed herein is based upon the law
as it currently exists. Consequently, future changes in the law may cause the
federal income tax treatment of the transactions described herein to be
materially and adversely different from that described above.
We consent to being named as counsel to the Company in the Registration
Statement, to the references in the Registration Statement to our firm and to
the inclusion of a copy of this opinion letter as an exhibit to the Registration
Statement.
Very truly yours,
/s/ Goodwin, Procter & Hoar LLP
Goodwin, Procter & Hoar LLP
<PAGE>
EXHIBIT 8.2
<PAGE>
July 17, 1996
Page 2
(214) 999-4216
July 16, 1996
Patriot American Hospitality, Inc.
3030 LBJ Freeway, Suite 1550
Dallas, Texas
Patriot American Hospitality, Inc.
----------------------------------
Gentlemen:
We have acted as special Texas state tax counsel to Patriot American
Hospitality, Inc., a Virginia corporation (the "Company"), in connection with
the preparation of a registration statement (the "Registration Statement") filed
with the Securities and Exchange Commission on May 24, 1996 (No. 333-04587), as
amended through the date hereof, with respect to the offering and sale (the
"Offering") of up to 5,750,000 shares of common stock, no par value, of the
Company (the "Common Shares"). You have requested our opinion on certain Texas
state tax matters in connection with the Offering.
The Company owns (i) all of the outstanding capital stock of PAH GP, Inc.,
a Virginia corporation ("PAH GP"), PAH LP Inc., a Virginia corporation ("PAH
LP"), and PAH Acquisition Corporation, a Virginia corporation; (ii) an indirect
99.04% non-voting interest in PAH Ravinia, Inc.; (iii) an indirect limited and
general partner interest in Patriot American Hospitality Partnership, L.P. (the
"Operating Partnership"); and (iv) indirect limited and general partner
interests in PA Hunt Valley Investors, L.P., PA Troy Hospitality Investors,
L.P., 1500 Canal Street Investors II, L.P. and Bourbon Orleans Investors II,
L.P. (the "Subsidiary Partnerships"). PAH GP and PAH LP own, respectively, a 1%
general partnership interest and an 80.5% limited partnership interest in the
Operating Partnership. PAH GP owns a 1% general partnership interest and the
Operating Partnership owns a 99% limited partnership interest in each Subsidiary
Partnership. The Operating Partnership currently owns equity interests in
various hotels and associated personal property and intends to acquire interests
in additional hotels in the future (the "Hotels"). The Operating Partnership
owns certain of the Hotels directly and owns certain additional Hotels through
the Subsidiary Partnerships. PAH Ravinia, Inc. owns an equity interest in one
additional Hotel.
The Operating Partnership and the Subsidiary Partnerships lease the Hotels
to the lessees (the "Lessees") pursuant to similar operating leases (the
"Leases"). The current Lessees are
<PAGE>
July 17, 1996
Page 3
CHC Lease Partners, a Delaware general partnership owned by CHC International,
Inc., a principal of Gencom Group; Metro Lease Partners, a Dallas-based hotel
company and an affiliate of Metro Hotels; NorthCoast Hotels L.L.C., an entity
owned by a consortium of investors including principals of WestCoast Hotels,
Inc. (a hotel management company based in Seattle) and Sunmakers Hotel L.L.C.;
DTR North Canton Inc., a subsidiary of Doubletree Hotels Corporation, a Phoenix,
Arizona-based hotel management company; and the Wyndham Lessee, an entity formed
by members of the Trammell Crow family. CHC REIT Management Corporation, a
Florida corporation, GAH REIT Management Company, L.P., a Delaware limited
partnership, TCC Metro, a Texas joint venture, DTM Management, Inc., a
subsidiary of Doubletree Hotels Corporation, WestCoast Hotels, Inc., Holiday
Inns, Inc., Hyatt Corporation, and Wyndham Hotel Corporation (collectively, the
"Operators"), operate the Hotels pursuant to management agreements (the
"Management Agreements") between the Operators and the Lessees.
In connection with the opinions rendered below, we have examined the
following:
1. the Registration Statement, including the prospectus contained
as part of the Registration Statement (the "Prospectus"); and
2. such other documents as we have deemed necessary or appropriate
for purposes of this opinion.
In connection with the opinions rendered below, we have assumed that:
1. each of the documents referred to above has been, or will be,
duly authorized, executed, and delivered; is authentic, if an original, or is
accurate, if a copy; and has not been, and will not be, amended; and
2. each of the Operating Partnership and the Subsidiary Partner-
ships is validly formed under the laws of the state in which it is organized.
For purposes of our opinions, we made no independent investigation of the
facts contained in the documents and assumptions set forth above or the
Prospectus. No facts have come to our attention, however, that would cause us
to question the accuracy and completeness of such facts or documents in a
material way.
Based on the documents and assumptions set forth above and the discussion
in the Prospectus under the caption "Federal Income Tax Considerations - State
and Local Taxes" (which is incorporated herein by reference), we are of the
opinion that the descriptions of the law and the legal conclusions contained in
the Prospectus under the caption "Federal Income Tax Considerations - State and
Local Taxes" are correct in all material respects, and the discussion contained
therein fairly summarizes the Texas state tax considerations that are material
to a
<PAGE>
July 17, 1996
Page 4
holder of the Common Shares.
We will not review on a continuing basis the Company's compliance with the
documents or assumptions set forth above. Accordingly, no assurance can be
given that the Operating Partnership or the Subsidiaries will not be subject to
Texas state taxes in the future, or that the Texas state tax liability of the
Company, PAH GP, or PAH LP will not materially increase.
The foregoing opinions are based on current provisions of the Texas Tax
Code and the rules thereunder, published administrative interpretations thereof,
and published court decisions. The Texas Comptroller of Public Accounts
("Comptroller") has not issued rules or administrative interpretations with
respect to various provisions of the Texas Tax Code relating to the tax
treatment of partnership structures as described in this opinion. No assurance
can be given that the law will not change in a way that will cause the Operating
Partnership or the Subsidiary Partnerships to be subject to Texas state tax, or
to cause the Texas state tax liability of the Company, PAH GP, or PAH LP to
materially increase.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement. We also consent to the references to Gardere & Wynne,
L.L.P. under the captions "Federal Income Tax Considerations - State and Local
Taxes" and "Legal Matters" in the Prospectus. In giving this consent, we do not
admit that we are in the category of persons whose consent is required by
Section 7 of the Securities Act of 1933, as amended, or the rules and
regulations promulgated thereunder by the Securities and Exchange Commission.
The foregoing opinions are limited to the Texas franchise tax matters
addressed herein. No opinions are rendered with respect to any federal tax
matters, any other Texas state tax issues, or to any issues arising under the
tax laws of any state or locality other than Texas. We undertake no obligation
to update the opinions expressed herein after the date of this letter. This
opinion letter is solely for the information and use of the addressees, and may
not be relied upon for any purpose by any other person without our express
written consent.
Very truly yours,
GARDERE & WYNNE, L.L.P.
By:_____________________________
Stephen D. Good, Partner
<PAGE>
EXHIBIT 10.1(5)
<PAGE>
Patriot American Hospitality Partnership, L.P.
Fifth Amendment to
First Amended and Restated
Agreement of Limited Partnership
This Fifth Amendment is made as of July 11, 1996 by PAH GP, Inc., a
Virginia corporation, as general partner (the "General Partner") of Patriot
American Hospitality Partnership, L.P. (the "Partnership"), for the purpose of
amending the First Amended and Restated Agreement of Limited Partnership of the
Partnership dated October 2, 1995 (as amended, the "Partnership Agreement").
All capitalized terms used herein and not defined shall have the respective
meanings ascribed to them in the Partnership Agreement.
WHEREAS, the Person listed on Schedule A attached hereto (the
----------
"Contributor") has made the Capital Contribution to the Partnership as described
in that Contribution Agreement between PAH Acquisition Corporation and Houston
Greenspoint Hotel Associates, a Texas limited partnership (such Capital
Contribution referred to herein as the "Greenspoint Contribution"); and
WHEREAS, the General Partner desires to accept such Capital Contribution
and to admit the Contributor to the Partnership as an Additional Limited
Partner.
NOW, THEREFORE, the General Partner has undertaken to take certain actions
as follows:
Section 1. Admission of Additional Limited Partner.
---------------------------------------
(a) The Contributor has made the Greenspoint Contribution, the Agreed Value
of which is set forth on Schedule A. The General Partner hereby accepts the
----------
Greenspoint Contribution. In consideration of the Greenspoint Contribution and
pursuant to Section 4.02(a)(i) of the Partnership Agreement, the General Partner
hereby admits the Contributor as an Additional Limited Partner of the
Partnership.
(b) The admission of the Contributor as an Additional Limited Partner shall
become effective as of the date of this Fifth Amendment, which will also be the
date upon which the name of such Contributor is recorded on the books and
records of the Partnership.
Section 2. Issuance of Partnership Units. Pursuant to Section 4.02(a)(i)
-----------------------------
of the Partnership Agreement, the General Partner hereby issues to the
Contributor the number of Partnership Units set forth next to such Contributor's
name on Schedule A.
----------
-2-
<PAGE>
Section 3. Amendment to Partnership Agreement. Pursuant to Article XI of
----------------------------------
the Partnership Agreement, the General Partner hereby amends the Partnership
Agreement by deleting Exhibit A in its entirety and replacing it with Exhibit A
--------- ---------
attached hereto.
Section 4. Section 704(c) Election. With respect to the Greenspoint
-----------------------
Contribution, the General Partner has agreed to exercise its discretion as to
elections of allocation methods under Section 704(c) of the Internal Revenue
Code as set forth in Article VII of the Contribution Agreement.
IN WITNESS WHEREOF, the General Partner has executed this Fifth Amendment
as of the date first written above.
General Partner:
PAH GP, INC.
By:
Name:
Its:
Limited Partners:
By: PAH GP, INC, as attorney-in-fact
for each of the Limited Partners
By:
Name:
Title:
298043.c1
-3-
<PAGE>
<TABLE>
<CAPTION>
Schedule A
----------
Name and Address Agreed Value of Capital Number of Partnership
of Contributor Contribution Units Issued to Contributor
- -------------------- ------------------ ---------------------------
<S> <C> <C>
Houston Greenspoint Hotel $500,000 17,036
Associates
c/o Crow Family Holdings
3200 Trammell Crow Center
2001 Ross Avenue
Dallas, Texas 75201
Attn: Sue Groenteman
</TABLE>
-4-
<PAGE>
Exhibit A
298043.c1
-5-
<PAGE>
EXHIBIT 10.27
<PAGE>
LEASE MASTER AGREEMENT
----------------------
THIS LEASE MASTER AGREEMENT (this "Agreement") is made as of this 11th day
of July, 1996, by and between PATRIOT AMERICAN HOSPITALITY PARTNERSHIP, L.P., a
Virginia limited partnership (together with any entity controlled thereby,
"Lessor"), and Crow Hotel Lessee, Inc., a Texas corporation ("Lessee").
RECITALS
--------
A. Lessor is the owner of the hotels listed on Exhibit A attached hereto and
---------
incorporated herein (the "Initial Hotels").
B. Simultaneously with the execution of this Agreement, Lessor has leased
the Initial Hotels to Lessee and, hereafter, the Lessor from time to time may
lease additional hotels to Lessee.
C. The parties hereto desire to enter into this Agreement to set forth
certain agreements relating to the matters set forth herein.
AGREEMENTS
----------
NOW, THEREFORE, in consideration of the premises and other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto agree as follows:
1. Certain Definitions. Unless the context otherwise requires, (a) all
-------------------
capitalized terms not otherwise defined herein shall have the meanings set forth
in the Participating Leases, (b) references to the singular shall include the
plural and vice versa, (c) references to gender shall include all genders, (d)
references to designated "Sections" or other subdivisions are references to the
designated Sections or other subdivisions of this Agreement, (e) all accounting
terms not otherwise defined herein shall have the meanings assigned to them in
accordance with generally accepted accounting principles consistently applied
and (f) the words "herein," "hereof," and "hereunder" and other words of similar
import refer to this Agreement as a whole and not to any particular Section or
other subdivision.
Additional Hotels - shall mean the hotels (if any) other than the Initial
-----------------
Hotels that have been or, as of any pertinent date, are then leased by Lessor to
Lessee pursuant to Participating Leases.
Agreement - shall have the meaning set forth in the Preamble.
---------
Hotels - shall mean, as of any pertinent date or for any pertinent period,
------
the Initial Hotels and those Additional Hotels, if any, which are then leased by
Lessor to Lessee.
-2-
<PAGE>
Initial Hotels - shall have the meaning set forth in the Recitals.
--------------
Lessee - shall have the meaning set forth in the preamble.
------
Lessor - shall have the meaning set forth in the Preamble.
------
Participating Lease - shall have the meaning set forth in Section 2.
-------------------
2. Leasing of the Hotels. Simultaneously with entering into this
---------------------
Agreement, Lessor and Lessee have entered into individual leases for each of the
Initial Hotels. Leases of the Initial Hotels and any Additional Hotels are
hereinafter referred to as "Participating Leases".
3. Tax Adjustment to Participating Leases.
--------------------------------------
(a) The Budgeted Assessed Value (herein so called) for each of the Initial
Hotels is set forth on Exhibit B attached hereto.
---------
(b) To the extent the 1997 assessed value for ad valorem tax purposes with
respect to all or any of the Initial Hotels is greater than the Budgeted
Assessed Value for such Initial Hotel(s), and such differences result in an
aggregate increase in Real Estate Taxes, Lessee shall pay to Lessor in the
manner described in subsection 3(c) below, as an Additional Charge for each
Lease Year during the Term, the lesser of (i) $80,000.00 in the aggregate or
(ii) the aggregate net increase in Real Estate Taxes resulting solely from such
change in assessed value. Such Additional Charge shall be adjusted upward on an
annual basis by the CPI Factor.
(c) Each Initial Hotel's share of the Additional Charge described in
Subsection 3(b) above, if any, shall be determined on a pro rata basis using a
fraction, the numerator of which shall be the difference between (1) the product
of (i) the 1997 actual assessed value for the applicable Initial Hotel, times
-----
(ii) the tax rate for the Initial Rent Period for such Initial Hotel and (2) the
product of (i) the Budgeted Assessed Value for such Initial Hotel, times (ii)
-----
the tax rate for the Initial Rent Period for such Initial Hotel and the
denominator of which shall be the aggregate increase in Real Estate Taxes for
all of the Initial Hotels resulting solely from an increase in 1997 assessed
values for the Initial Hotels over the Budgeted Assessed Values for the Initial
Hotels (without taking into account any decreases in Real Estate Taxes with
respect to any of the Initial Hotels). The result of the foregoing calculation
shall then be multiplied by the lesser of (i) $80,000.00 or (ii) the aggregate
net increase in Real Estate Taxes for the Initial Hotels resulting solely from a
change in assessed value (taking into account any decreases in Real Estate Taxes
with respect to any of the Initial Hotels).
-3-
<PAGE>
EXAMPLE
Assuming the following facts: a. Hotel A - Budgeted Assessed Value = $1,000,000
-------
and actual assessed value = $2,500,000; b. Hotel B - Budgeted Assessed Value =
-------
$1,000,000 and actual assessed value = $900,000. The tax rate for the Initial
Rent Period for all Initial Hotels is .05 and the tax rate for the First Fixed
Year is .06. The net aggregate increase in Real Estate Taxes resulting solely
from a change in assessed value is $70,000 and the aggregate increase in Real
Estate Taxes, without taking into account any decrease in Real Estate Taxes is
$75,000.
Based upon the foregoing example, Hotel A will pay an Additional Charge of
$75,000.
(d) To the extent the 1997 assessed value for ad valorem tax purposes with
respect to all or any of the Initial Hotels is less than the Budgeted Assessed
Value for such Initial Hotel(s), and such differences result in an aggregate
decrease in Real Estate Taxes, the Lessor Obligation's portion of Initial Base
Rent or Fixed Base Rent, as the case may be, shall be adjusted downward in the
manner described in subsection 3(e) below, by the lesser of (i) $80,000.00 in
the aggregate or (ii) the aggregate net decrease in Real Estate Taxes resulting
solely from a change in assessed value.
(e) Each Initial Hotel's share of the decrease in Lessor Obligations
described in Subsection 3(d) above, if any, shall be determined on a pro rata
basis using a fraction, the numerator of which shall be the difference between
(1) the product of (i) the 1997 actual assessed value for the applicable Initial
Hotel, times (ii) the tax rate for the Initial Rent Period for such Initial
-----
Hotel and (2) the product of (i) the Budgeted Assessed Value for such initial
Hotel, times (ii) the tax rate for the Initial Rent Period for such Initial
-----
Hotel and the denominator of which shall be the aggregate decrease in Real
Estate Taxes for all of the Initial Hotels resulting solely from a change in
1997 assessed values for the Initial Hotels, over the Budgeted Assessed Values
for the Initial Hotels (without taking into account any increases in Real Estate
Taxes with respect to any of the Initial Hotels). The result of the foregoing
calculation shall then be multiplied by the lesser of (i) $80,000.00 or (ii) the
aggregate net decrease in Real Estate Taxes for the Initial Hotels resulting
solely from a change in assessed value (taking into account any increases in
Real Estate Taxes with respect to any of the Initial Hotels).
-4-
<PAGE>
EXAMPLE
Assuming the following facts: a. Hotel A - Budgeted Assessed Value = $2,000,000
-------
and actual assessed value = $100,000; b. Hotel B - Budgeted Assessed Value =
-------
$1,000,000 and actual assessed value = $800,000. The tax rate for the Initial
Rent Period for all Initial Hotels is .05 and the tax rate for the First Fixed
Year is .06. The net aggregate decrease in Real Estate Taxes resulting solely
from a change in assessed value is $105,000 and the aggregate decrease in Real
Estate Taxes, without taking into account any increase in Real Estate Taxes is
$105,000. Based upon the foregoing example, each of the Initial Hotels will
have a decrease in Lessor Obligations as follows:
Hotel A - (100,000 * .05)-(2,000,000 * .05)/105,000 = .905 * 80,000 =
$72,381 decrease
Hotel B - (800,000 * .05)-(1,000,000 * .05)/105,000 = .09 * 80,000 =
$7,619 decrease
-------
TOTAL $80,000.00
4. Renovation Budget. Lessor shall fund a renovation budget during the
-----------------
period from the Commencement Date through December 31, 1997, with respect to the
Initial Hotels, in an amount not to exceed $1,000,000 in the aggregate. The
renovation budget shall be allocated between the Initial Hotels equally.
5. Financial Certificates. Each month Lessee shall submit to Lessor an
----------------------
aggregate balance sheet, and detailed profit and loss and cash flow statements
showing the financial position of the Hotels, as at the end of the preceding
month and the results of operations of the Hotels for such preceding month and
the Lease Year to date, together with a written critique of such financial
report, setting forth in narrative form any variations during the preceding
month from the Annual Budgets and including a preview of the Hotel's financial
operations during the current month.
6. Management Agreement. Lessee and the Manager agree that the fees to
--------------------
be paid to the Manager under the Management Agreements covering the Initial
Hotels will at no time be at a rate such that, after the payment of (a) all
projected Gross Operating Expenses (other than management fees), plus (b) actual
management fees, for the Initial Hotels, Lessee would receive in any Lease Year
less than one percent (1%) of the projected aggregate Gross Revenues of the
Initial Hotels for that Lease Year as shown on the projections dated June 21,
1996 attached hereto as Exhibit C and incorporated herein.
---------
7. Miscellaneous.
-------------
(a) Modification, Amendments and Waivers. No modification, amendment
------------------------------------
or waiver of any provision of this Agreement shall be effective unless the same
is in writing and signed by all parties to this Agreement.
(b) Notices. All notices and other communications pursuant to this
-------
Agreement shall be in writing and personally served or mailed as provided in
Article XXX of the Form Participating Lease.
-5-
<PAGE>
(c) Successors and Assigns. The provisions of this Agreement shall be
----------------------
binding upon the parties hereto and all of their successors and assigns and
inure to the benefit of the parties hereto and their permitted successors and
assigns.
(d) Termination. This Agreement shall terminate at such time as all
-----------
of the Participating Leases have terminated.
(e) Governing Law. This Agreement shall be governed by the laws of
-------------
the Commonwealth of Virginia.
(f) Counterparts. This Agreement may be signed in one or more
------------
counterparts, each of which shall be deemed an original, with the same force and
effect as if the signatures thereto and hereto were upon the same instrument.
(g) WAIVER. EACH PARTY WAIVES, TO THE EXTENT PERMITTED BY APPLICABLE
------
LAW, ANY RIGHT TO A TRIAL BY JURY IN ANY PROCEEDINGS BROUGHT BY EITHER PARTY TO
ENFORCE THE PROVISIONS OF THIS AGREEMENT.
(h) Time of the Essence. Time is of the essence of this Agreement.
-------------------
-6-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date first above written.
LESSOR:
PATRIOT AMERICAN HOSPITALITY
PARTNERSHIP, L.P.
By: PAH GP, Inc., its General Partner
By:
Name:
Title:
LESSEE:
CROW HOTEL LESSEE, INC., a Texas
corporation
By:
Name:
Title:
MANAGER:
WYNDHAM MANAGEMENT CORPORATION, a Delaware
corporation, executes this Master Lease
Agreement solely for the purpose of agreeing
to be bound by Paragraph 6 hereof.
By:
Name:
Title:
-7-
<PAGE>
EXHIBIT A
INITIAL HOTELS
Wyndham Greenspoint, Houston, Texas
Wyndham Midtown, Atlanta, Georgia
<PAGE>
EXHIBIT B
BUDGETED REAL ESTATE TAXES
<TABLE>
<CAPTION>
Aggregate R/E Taxes Midtown Atlanta Greenspoint
- ---------------------------------------------------
<S> <C> <C>
1996 $205,000 $864,000
- ---------------------------------------------------
1997 $242,000 $879,000
- ---------------------------------------------------
1998 $254,000 $896,000
- ---------------------------------------------------
1999 $267,000 $922,000
- ---------------------------------------------------
2000 $280,000 $942,000
- ---------------------------------------------------
2001 $294,000 $970,000
- ---------------------------------------------------
2002 $309,000 $999,000
- ---------------------------------------------------
2003 $324,000 $1,029,000
- ---------------------------------------------------
2004 $341,000 $1,060,000
- ---------------------------------------------------
2005 $358,000 $1,092,000
- ---------------------------------------------------
Total $2,874,000 $9,653,000
- ---------------------------------------------------
</TABLE>
<PAGE>
EXHIBIT C
GROSS REVENUE PROJECTIONS
<PAGE>
EXHIBIT 10.28
<PAGE>
LEASE AGREEMENT
DATED AS OF JULY 11, 1996
BETWEEN
PATRIOT AMERICAN HOSPITALITY PARTNERSHIP, L.P.
AS LESSOR
AND
CROW HOTEL LESSEE, INC.
AS LESSEE
(Wyndham Greenspoint, Houston, Texas)
<PAGE>
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
SECTION PAGE
<C> <S> <C>
ARTICLE I LEASE.......................................... -1-
1.1 Leased Property................................ -1-
1.2 Term........................................... -2-
1.3 Initial Transition............................. -2-
ARTICLE II DEFINITIONS.................................... -2-
2.1 Definitions.................................... -2-
ARTICLE III RENT........................................... -16-
3.1 Rent........................................... -16-
3.2 Confirmation of Percentage Rent................ -23-
3.3 Additional Charges............................. -24-
3.4 No Set Off..................................... -25-
3.5 Annual Budget.................................. -25-
3.6 Books and Records.............................. -26-
3.7 Performance Failures........................... -26-
3.8 Changes in Operations.......................... -28-
3.9 Allocation of Revenues......................... -28-
ARTICLE IV IMPOSITIONS.................................... -28-
4.1 Payment of Impositions......................... -28-
4.2 Notice of Impositions.......................... -30-
4.3 Adjustment of Impositions...................... -30-
4.4 Utility Charges................................ -30-
ARTICLE V NO TERMINATION, ABATEMENT...................... -30-
5.1 No Termination, Abatement...................... -30-
ARTICLE VI PROPERTY OWNERSHIP............................. -31-
6.1 Ownership of the Leased Property............... -31-
6.2 Lessee's Personal Property..................... -31-
6.3 Lessor's Lien.................................. -32-
ARTICLE VII CONDITION, USE................................. -32-
7.1 Condition of the Leased Property............... -32-
7.2 Use of the Leased Property..................... -33-
ARTICLE VIII LEGAL REQUIREMENTS............................. -34-
8.1 Compliance with Legal and Insurance
Requirements................................... -34-
8.2 Legal Requirement Covenants.................... -34-
8.3 Environmental Covenants........................ -34-
ARTICLE IX MAINTENANCE AND REPAIRS........................ -36-
9.1 Maintenance and Repair......................... -36-
ARTICLE X ALTERATIONS.................................... -38-
10.1 Alterations.................................... -38-
10.2 Salvage........................................ -38-
</TABLE>
-i-
<PAGE>
<TABLE>
<C> <S> <C>
10.3 Lesser Alterations............................ -38-
ARTICLE XI LIENS......................................... -38-
11.1 Liens......................................... -38-
ARTICLE XII PERMITTED CONTESTS............................ -39-
12.1 Permitted Contests............................ -39-
ARTICLE XIII INSURANCE..................................... -40-
13.1 General Insurance Requirements................ -40-
13.2 Replacement Cost.............................. -42-
13.3 (Intentionally omitted)....................... -42-
13.4 Waiver of Subrogation......................... -42-
13.5 Form Satisfactory, etc........................ -43-
13.6 Increase in Limits............................ -43-
13.7 Blanket Policy................................ -43-
13.8 Separate Insurance............................ -43-
13.9 Reports On Insurance Claims................... -43-
ARTICLE XIV DAMAGE AND RECONSTRUCTION..................... -44-
14.1 Insurance Proceeds............................ -44-
14.2 Reconstruction in the Event of Damage or
Destruction Covered by Insurance.............. -44-
14.3 Reconstruction in the Event of Damage or
Destruction Not Covered by Insurance.......... -45-
14.4 Lessee's Property and Business Interruption
Insurance..................................... -45-
14.5 Abatement of Rent............................. -45-
ARTICLE XV CONDEMNATION.................................. -46-
15.1 Definitions................................... -46-
15.2 Parties' Rights and Obligations.............. -46-
15.3 Total Taking.................................. -46-
15.4 Allocation of Award........................... -46-
15.5 Partial Taking................................ -47-
15.6 Temporary Taking.............................. -47-
ARTICLE XVI DEFAULTS...................................... -48-
16.1 Events of Default............................. -48-
16.2 Remedies...................................... -50-
16.3 Waiver........................................ -51-
16.4 Application of Funds.......................... -51-
ARTICLE XVII LESSOR'S RIGHT TO CURE........................ -51-
17.1 Lessor's Right to Cure Lessee's Default....... -51-
ARTICLE XVIII REIT LIMITATIONS.............................. -52-
18.1 Personal Property Limitation.................. -52-
18.2 Sublease Rent Limitation...................... -52-
18.3 Sublease Lessee Limitation.................... -52-
18.4 Lessee Ownership Limitation................... -53-
18.5 Director, Officer and Employee Limitation..... -53-
</TABLE>
-ii-
<PAGE>
<TABLE>
<S> <C> <C>
ARTICLE XIX HOLDING OVER.................................. -53-
19.1 Holding Over.................................. -53-
ARTICLE XX INDEMNITIES................................... -54-
20.1 Indemnification............................... -54-
ARTICLE XXI SUBLETTING AND ASSIGNMENT..................... -55-
21.1 Subletting and Assignment..................... -55-
21.2 Attornment.................................... -56-
21.3 Management Agreement.......................... -56-
ARTICLE XXII ESTOPPEL CERTIFICATES......................... -57-
22.1 Officer's Certificates; Financial Statements;
Lessor's Estoppel Certificates and Covenants.. -57-
ARTICLE XXIII INSPECTIONS................................... -58-
23.1 Regular Meetings; Lessor's Right to Inspect... -58-
ARTICLE XXIV NO WAIVER..................................... -59-
24.1 No Waiver..................................... -59-
ARTICLE XXV CUMULATIVE REMEDIES........................... -59-
25.1 Remedies Cumulative........................... -59-
ARTICLE XXVI SURRENDER..................................... -59-
26.1 Acceptance of Surrender....................... -59-
ARTICLE XXVII NO MERGER..................................... -59-
27.1 No Merger of Title............................ -59-
ARTICLE XXVIII CONVEYANCE BY LESSOR.......................... -60-
28.1 Conveyance by Lessor.......................... -60-
28.2 Lessor May Grant Liens........................ -60-
ARTICLE XXIX QUIET ENJOYMENT............................... -62-
29.1 Quiet Enjoyment............................... -62-
ARTICLE XXX NOTICES....................................... -62-
30.1 Notices....................................... -62-
ARTICLE XXXI APPRAISALS.................................... -63-
31.1 Appraisers.................................... -63-
ARTICLE XXXII EMPLOYEE MATTERS.............................. -64-
32.1 Employees During the Term..................... -64-
32.2 Employee Matters Upon Termination Due to an
Event of Default or Expiration of the Lease... -64-
32.3 Employee Matters Upon Termination Under
Article XXXVI or Section 38.1(c).............. -64-
ARTICLE XXXIII (Intentionally deleted)....................... -65-
</TABLE>
-iii-
<PAGE>
<TABLE>
<S> <C> <C>
ARTICLE XXXIV MEMORANDUM OF LEASE........................... -65-
34.1 Memorandum of Lease........................... -65-
ARTICLE XXXV CHANGE OF CONTROL, OTHER BUSINESS ACTIVITIES,
NON-COMPETITION............................... -65-
35.1 Intentionally Deleted......................... -65-
35.2 Intentionally Deleted......................... -65-
35.3 Intentionally Deleted......................... -65-
35.4 Change of Control............................. -65-
35.5 Other Business Activities..................... -66-
35.6 Non-Competition............................... -66-
ARTICLE XXXVI LESSOR'S OPTION TO TERMINATE.................. -67-
36.1 Lessor's Option to Terminate Lease............ -67-
ARTICLE XXXVII FRANCHISE AGREEMENT AND WYNDHAM OPERATIONS.... -68-
37.1 Compliance with Franchise Agreement........... -68-
ARTICLE XXXVIII CAPITAL EXPENDITURES.......................... -69-
38.1 Capital Expenditures.......................... -69-
ARTICLE XXXIX LESSOR'S DEFAULT.............................. -70-
39.1 Lessor's Default.............................. -70-
ARTICLE XL ARBITRATION................................... -72-
40.1 Arbitration................................... -72-
40.2 Alternative Arbitration....................... -72-
40.3 Arbitration Procedures........................ -72-
ARTICLE XLI TRADE-OUTS.................................... -73-
ARTICLE XLII MISCELLANEOUS................................. -73-
42.1 Miscellaneous................................. -73-
42.2 Transition Procedures......................... -73-
42.3 Waiver of Presentment, etc. .................. -74-
42.4 Standard of Discretion........................ -75-
42.5 Action for Damages............................ -75-
42.6 Renewal of Term............................... -75-
42.7 Confidentiality............................... -76-
Exhibits:
</TABLE>
Exhibit A - Property Description
Exhibit B - Revenue Percentages and Breakdowns
Exhibit C - Capital Expenditures Policy
Exhibit D-1 - 1996 Base Rent Schedule
Exhibit D-2 - 1997 Base Rent Schedule
Schedule 2.1 - Cash-On-Hand
-iv-
<PAGE>
LEASE AGREEMENT
---------------
THIS LEASE AGREEMENT (hereinafter called "Lease"), made as of the 11th day of
-----
July, 1996, by and between PATRIOT AMERICAN HOSPITALITY PARTNERSHIP, L.P., a
Virginia limited partnership (hereinafter called "Lessor"), and CROW HOTEL
------
LESSEE, INC., a Texas corporation (hereinafter called "Lessee"), provides as
------
follows:
Lessor, in consideration of the payment of rent by Lessee to Lessor, the
covenants and agreements to be performed by Lessee, and upon the terms and
conditions hereinafter stated, does hereby rent and lease unto Lessee, and
Lessee does hereby rent and lease from Lessor, the Leased Property (as
hereinafter defined).
ARTICLE I
----------
LEASE
-----
1.1 Leased Property. The Leased Property (herein so called) is comprised of
---------------
Lessor's interest in the following:
(a) the land described in Exhibit A attached hereto and by reference
---------
incorporated herein (the "Land");
----
(b) all buildings, structures and other improvements of every kind
including, but not limited to, alleyways and connecting tunnels, sidewalks,
utility pipes, conduits and lines (on-site and off-site), parking areas and
roadways appurtenant to such buildings and structures presently or hereafter
situated upon the Land (collectively, the "Leased Improvements");
-------------------
(c) all easements, rights and appurtenances relating to the Land and the
Leased Improvements;
(d) all equipment, machinery, fixtures, and other items of property required
for or incidental to the use of the Leased Improvements as a hotel, including
all components thereof, now and hereafter permanently affixed to or incorporated
into the Leased Improvements, including, without limitation, all furnaces,
boilers, heaters, electrical equipment, heating, plumbing, lighting,
ventilating, refrigerating, incineration, air and water pollution control, waste
disposal, air-cooling and air-conditioning systems and apparatus, sprinkler
systems and fire and theft protection equipment, all of which to the greatest
extent permitted by law are hereby deemed by the parties hereto to constitute
real estate, together with all replacements, modifications, alterations and
additions thereto (collectively, the "Fixtures");
--------
(e) all furniture and furnishings and all other items of personal property
(excluding Inventory and personal property owned by Lessee) located on, and used
in connection with, the operation of the Leased Improvements as a hotel,
together with all replacements, modifications, alterations and additions
thereto; and
<PAGE>
(f) all existing leases of the Leased Property (including any security
deposits or collateral held by Lessor pursuant thereto).
THE LEASED PROPERTY IS DEMISED IN ITS PRESENT CONDITION WITHOUT REPRESENTATION
OR WARRANTY (EXPRESSED OR IMPLIED) BY LESSOR AND SUBJECT TO THE RIGHTS OF
PARTIES IN POSSESSION, AND TO THE EXISTING STATE OF TITLE INCLUDING ALL
COVENANTS, CONDITIONS, RESTRICTIONS, EASEMENTS AND OTHER MATTERS OF RECORD
INCLUDING ALL APPLICABLE LEGAL REQUIREMENTS AND MATTERS WHICH WOULD BE DISCLOSED
BY AN INSPECTION OF THE LEASED PROPERTY OR BY AN ACCURATE SURVEY THEREOF.
1.2 Term.
----
(a) The term of this Lease (the "Term") shall commence, if at all, on the
----
date of Lessor's acquisition (the "Acquisition") of the Leased Property (the
-----------
"Commencement Date") and shall end on the tenth (10th) anniversary of the last
- ------------------
day of the month in which the Commencement Date occurs, unless sooner terminated
in accordance with the provisions hereof. In the event the Acquisition does not
occur, this Lease shall terminate and be of no further force and effect.
(b) Subject to the terms and conditions set forth in Section 42.6, Lessee
shall have the option to extend the Term of this Lease for two (2) additional
terms of five (5) years each.
1.3 Initial Transition.
------------------
(a) Upon the Commencement Date and pursuant to a separate Assignment and
Assumption Agreement, Lessor or the prior owner of the Leased Property shall
transfer and assign to Lessee, and Lessee shall assume, all occupancy agreements
and operating agreements to which the Leased Property remains subject on the
Commencement Date.
(b) As between Lessor and Lessee, Lessor shall be entitled to all income and
shall be responsible for the payment or settlement of all expenses of the Leased
Property accruing prior to the Commencement Date. Lessee shall act as Lessor's
agent for the collection of all such income and shall remit the same to Lessor
promptly upon Lessee's receipt thereof. Lessee shall notify Lessor of all such
expenses and shall act as Lessor's payment agent for such expenses using funds
provided by Lessor from time to time. On the Commencement Date, Lessor shall
transfer to Lessee the Initial Inventory and Cash-On-Hand existing at or with
respect to the Leased Property as of the Commencement Date which was transferred
to Lessor by Seller.
ARTICLE II
-----------
DEFINITIONS
-----------
2.1 Definitions. For all purposes of this Lease, except as otherwise
-----------
expressly provided or unless the context otherwise requires, (a) the terms
defined in this Article have the meanings assigned to them in this Article and
include the plural as well as the singular, (b) all
<PAGE>
accounting terms not otherwise defined herein have the meanings assigned to them
in accordance with GAAP, (c) all references in this Lease to designated
"Articles", "Sections" and other subdivisions are to the designated Articles,
Sections and other subdivisions of this Lease and (d) the words "herein,"
"hereof" and "hereunder" and other words of similar import refer to this Lease
as a whole and not to any particular Article, Section or other subdivision:
Acquisition: As defined in Section 1.2.
----------- -----------
Actual 1996 Initial Base Rent: As defined in Section 3.1(a).
----------------------------- --------------
Actual 1997 Fixed Base Rent: As defined in Section 3.1(b).
--------------------------- --------------
Additional Charges: As defined in Section 3.3.
------------------ -----------
Affiliate: As used in this Lease the term "Affiliate" of a person shall mean
---------
(a) any person that, directly or indirectly, controls or is controlled by or is
under common control with such person, (b) any other person that owns,
beneficially, directly or indirectly, ten percent or more of the outstanding
capital stock, shares or equity interests of such person, or (c) any officer,
director, employee, partner or trustee of such person or any person controlling,
controlled by or under common control with such person (excluding trustees and
persons serving in similar capacities who are not otherwise an Affiliate of such
person). The term "person" means and includes individuals, corporations,
general and limited partnerships, limited liability companies, stock companies
or associations, joint ventures, associations, companies, trusts, banks, trust
companies, land trusts, business trusts, or other entities and governments and
agencies and political subdivisions thereof. For the purposes of this
definition, "control" (including the correlative meanings of the terms
"controlled by" and "under common control with"), as used with respect to any
person, shall mean the possession, directly or indirectly, of the power to
direct or cause the direction of the management and policies of such person,
through the ownership of voting securities, partnership interests or other
equity interests, by contract or otherwise. Affiliate, as used in this Lease,
shall not include Wyndham Hotel Corporation or its subsidiaries.
Agreed Hotel Cost: As defined in Section 3.1(b).
----------------- --------------
Annual Budget: As used in this Lease, the term "Annual Budget" shall mean an
-------------
operating budget and a capital budget prepared by Lessee and approved by Lessor
in accordance with Section 3.5.
-----------
Annual Food Sales Break Point: As defined in Section 3.1(c)(ii) and
----------------------------- ------------------
Exhibit B.
- -------
Annual Room Revenues Break Point(s): As defined in Section 3.1(c)(ii) and
----------------------------------- ------------------
Exhibit B.
- ---------
Annual Room Revenues First Break Point: As defined in Section 3.1(c)(ii) and
-------------------------------------- ------------------
Exhibit B.
- ---------
Annual Room Revenues Second Break Point: As defined in Section 3.1(c)(ii) and
--------------------------------------- ------------------
Exhibit B.
- ---------
<PAGE>
Approval: As defined in Section 42.4.
-------- ------------
Approved Financial Institution: A substantial U.S. financial institution that
------------------------------
is reasonably satisfactory to Lessor.
Award: As defined in Section 15.1(c).
----- ---------------
Base Rate: The prime rate (or base rate) reported in the Money Rates column
---------
or comparable section of The Wall Street Journal as the rate then in effect for
-----------------------
corporate loans at large U.S. money center commercial banks, whether or not such
rate has actually been charged by any such bank. If no such rate is reported in
The Wall Street Journal or if such rate is discontinued, then Base Rate shall
- -----------------------
mean such other successor or comparable rate as Lessor may reasonably designate.
Base Rent Schedule: As defined in Section 3.1(a) and Exhibit D-1 and D-2.
------------------ --------------------------------------
Beverage Sales: Shall mean gross revenue from the sale of (i) wine, beer,
--------------
liquor or other alcoholic beverages, whether sold in a bar or lounge, delivered
to or available in a guest room, sold at meetings or banquets or at any other
location at the Leased Property and (ii) non-alcoholic beverages sold in a bar
or lounge. Such gross revenue constituting Beverage Sales shall include sales
by Lessee and its permitted subtenants, licensees and concessionaires, but
revenues from subleases, licenses or similar arrangements for alcoholic beverage
sales which are entered into by Lessor, by any prior owner of the Leased
Property, or by Lessee in compliance, but only in compliance, with Section 21.1
------------
with parties who are not Affiliates of Lessee, or of Wyndham Hotel Corporation
or its affiliates or subsidiaries, shall be classified as Other Income and shall
only include rents received by Lessee under such existing subleases, licenses or
similar arrangements. Such revenue shall be determined in a manner consistent
with the Uniform System and shall not include the following:
(a) Any gratuity or service charge added to a customer's bill or statement
in lieu of a gratuity which is paid directly to an employee;
(b) Credits, rebates or refunds; and
(c) Sales taxes or taxes of any other kind imposed on the sale of alcoholic
or other beverages.
Break Points: As defined in Section 3.1(c).
------------ --------------
Business Day: Each Monday, Tuesday, Wednesday, Thursday and Friday that is
------------
not a day on which national banks in the City of Dallas, Texas or in the
municipality wherein the Leased Property is located are closed.
CPI Factor: As defined in Section 3.1(f).
---------- --------------
Capital Budget: As defined in Section 3.5.
-------------- -----------
Capital Expenditures: Amounts advanced to pay the costs of Capital
--------------------
Improvements.
<PAGE>
Capital Expenditures Reserve: An amount equal to 4% of Gross Revenues for
----------------------------
each Lease Year, to be set up, funded and maintained by Lessor in accordance
with the provisions of Article XXXVIII hereof.
---------------
Capital Impositions: Taxes, assessments or similar charges imposed upon or
-------------------
levied against the Leased Property for the costs of public improvements,
including, without limitation, roads, sidewalks, public lighting fixtures,
utility lines, storm sewers drainage facilities, and similar improvements.
Capital Improvements: Subject to the limitations on dollar amounts and the
--------------------
affect on the useful life of specified improvements set forth in Exhibit C
---------
attached hereto, improvements to (a) the external walls and internal load
bearing walls (other than windows and plate glass), (b) the roof of the
Facility, (c) private roadways, parking areas, sidewalks and curbs appurtenant
thereto that are under Lessee's control (other than cleaning, patching and
striping), (d) mechanical, electrical and plumbing systems that service common
areas, entire wings of the Facility or the entire Facility, including conduit
and ductware connected thereto, and (e) items of the types described on Exhibit
-------
C attached hereto as "capital". Any dispute as to whether an improvement is a
- -
capital or non-capital improvement shall be resolved by arbitration pursuant to
Section 40.2.
- ------------
Cash: Means (a) cash or other immediately available funds, (b) any debt
----
instrument with a term of up to 12 months that is issued by or backed by the
full faith and credit of the United States, (c) any certificate of deposit with
a term of up to 12 months that is issued by an issuer that, on the date of
issuance and on each date of any renewal or reissuance thereof, is an Approved
Financial Institution, and which instrument is in form and substance
satisfactory to the Lessor, (d) any irrevocable, "clean" letter of credit issued
by an issuer that, on the date of issuance and on each date of any renewal or
reissuance thereof, is an Approved Financial Institution, and which instrument
is in form and substance satisfactory to the Lessor, and (e) a repurchase
agreement with a term of up to ninety (90) days that is binding upon an Approved
Financial Institution, and which agreement is in form and substance satisfactory
to the Lessor.
Cash-on-Hand: All cash, working capital funds and funds in bank accounts
------------
described on Schedule 2.1 attached hereto.
------------
CERCLA: The Comprehensive Environmental Response, Compensation and Liability
------
Act of 1980, as amended.
Claims: As defined in Section 12.1.
------ ------------
COBRA: The Consolidated Omnibus Budget Reconciliation Act of 1985, as
-----
amended.
Code: The Internal Revenue Code of 1986, as amended.
----
Commencement Date: As defined in Section 1.2.
----------------- -----------
Company: Patriot American Hospitality, Inc., a Virginia corporation.
-------
Comparable Lease: As defined in Section 36.1.
---------------- ------------
<PAGE>
Condemnation, Condemnor: As defined in Section 15.1.
----------------------- ------------
Consolidated Financials: For any fiscal year or quarterly accounting period
-----------------------
for Lessee and its consolidated Subsidiaries, statements of operations,
partners' capital and cash flow (or, in the case of a corporation, statements of
operations, retained earnings and cash flow) for such period and for the period
from the beginning of the respective fiscal year to the end of such period and
the related balance sheet as at the end of such period, together with the notes
to any such yearly statement, all in such detail as may be required by the SEC
with respect to filings made by the Company or Lessor, and setting forth in
comparative form the corresponding figures for the corresponding period in the
preceding fiscal year, and prepared in accordance with GAAP and audited annually
(and quarterly if required by the SEC) by Ernst & Young or another so-called
"Big Six" firm of independent certified public accountants designated by Lessor.
Consolidated Financials shall be prepared on the basis of a December 31 fiscal
year of Lessee, or on such other basis as Lessor shall designate. Any cost for
such audit shall be borne by Lessor.
Consumable Supplies: Office supplies, cleaning supplies, uniforms, laundry
-------------------
and valet supplies, engineering supplies, fuel, stationery, soap, matches,
toilet and facial tissues, and such other supplies as are consumed customarily
on a recurring basis in the operation of the Facility, together with food and
beverages that are to be offered for sale to guests and to the public.
Consumer Price Index: The "Consumer Price Index" published by the Bureau of
--------------------
Labor Statistics of the United States Department of Labor, U.S. City Average,
All Item for Urban Wage Earners and Clerical Workers (1982-1984=100).
Crow Family Group: Descendants and Persons controlled by or for the benefit
-----------------
of descendants of Trammell Crow (together with their respective affiliates or in
the case of natural persons, the members of their immediate families).
Cumulative Monthly Portion: As defined in Section 3.1(c)(ii).
-------------------------- ------------------
Date of Taking: As defined in Section 15.1(b).
-------------- ---------------
Emergency Expenditures: Expenditures required to take necessary or
----------------------
appropriate actions to respond to Emergency Situations.
Emergency Situations: Fire, any other casualty, or any other events,
--------------------
circumstances or conditions which threaten the safety or physical well-being of
the Facility's guests or employees or which involve the risk of material
property damage or material loss to the Facility.
Environmental Authority: Any department, agency or other body or component of
-----------------------
any Government that exercises any form of jurisdiction or authority under any
Environmental Law.
Environmental Authorization: Any license, permit, order, approval, consent,
---------------------------
notice, registration, filing or other form of permission or authorization
required under any Environmental Law.
<PAGE>
Environmental Laws: All applicable federal, state, local and foreign laws and
------------------
regulations relating to pollution of the environment (including without
limitation, ambient air, surface water, ground water, land surface or subsurface
strata), including without limitation laws and regulations relating to
emissions, discharges, Releases or threatened Releases of Hazardous Materials or
otherwise relating to the manufacture, processing, distribution, use, treatment,
storage, disposal, transport or handling of Hazardous Materials. Environmental
Laws include but are not limited to CERCLA, FIFRA, RCRA, SARA and TSCA.
Environmental Liabilities: Any and all actual or potential obligations to pay
-------------------------
the amount of any judgment or settlement, the cost of complying with any
settlement, judgment or order for injunctive or other equitable relief, the cost
of compliance or corrective action in response to any notice, demand or request
from an Environmental Authority, the amount of any civil penalty or criminal
fine, and any court costs and reasonable amounts for attorney's fees, fees for
witnesses and experts, and costs of investigation and preparation for defense of
any claim or any Proceeding, regardless of whether such Proceeding is
threatened, pending or completed, that may be or have been asserted against or
imposed upon Lessor, Lessee, any Predecessor, the Leased Property or any
property used therein and arising out of:
(a) the failure to comply at any time with all Environmental Laws applicable
to the Leased Property;
(b) the presence of any Hazardous Materials on, in, under, at or in any way
affecting the Leased Property;
(c) a Release or threatened Release of any Hazardous Materials on, in, at,
under or in any way affecting the Leased Property;
(d) the identification of Lessee, Lessor or any Predecessor as a potentially
responsible party under CERCLA or under any other Environmental Law;
(e) the presence at any time of any above-ground and/or underground storage
tanks, as defined in RCRA or in any applicable Environmental Law on, in, at or
under the Leased Property or any adjacent site or facility; or
(f) any and all claims for injury or damage to persons or property arising
out of exposure to Hazardous Materials originating or located at the Leased
Property, or resulting from operation thereof or any adjoining property.
Event of Default: As defined in Section 16.1.
---------------- ------------
Executive Personnel: The general manager and the hotel manager.
-------------------
Existing Condition: As defined in Section 8.3(b).
------------------ --------------
Facility: The hotel and/or other facility offering lodging and other services
--------
or amenities being operated or proposed to be operated on the Leased Property.
First Fixed Year: As defined in Section 3.1(b)(i).
---------------- -----------------
<PAGE>
FIFRA: The Federal Insecticide, Fungicide, and Rodenticide Act, as amended.
-----
First Tier Food Sales Percentage: As defined in Section 3.1(c)(ii) and
-------------------------------- ------------------
Exhibit B.
- ---------
First Tier Room Revenue Percentage: As defined in Section 3.1(c)(ii) and
---------------------------------- ------------------
Exhibit B.
- ---------
Fixed Base Rent: As defined in Article III.
--------------- -----------
Fixed Rent Period: As defined in Section 3.1(b).
----------------- --------------
Fixtures: As defined in Section 1.1.
-------- -----------
Food Sales: Shall mean (i) gross revenue from the sale of food and non-
----------
alcoholic beverages that are prepared at the Facility and sold or delivered on
or off the Facility by Lessee, its permitted subtenants, licensees, or
concessionaires whether for cash or for credit, including in respect of guest
rooms, banquet rooms, meeting rooms and other similar rooms, and (ii) gross
revenue from the rental of banquet, meeting and other similar rooms. Such gross
revenue constituting Food Sales shall include sales by Lessee and its permitted
subtenants, licensees and concessionaires, but revenues from subleases, licenses
or similar arrangements for food and non-alcoholic beverage sales which are
entered into by Lessor, by any prior owner of the Leased Property, or by Lessee,
in compliance, but only in compliance, with Section 21.1 with parties who are
------------
not Affiliates of Lessee, or of Wyndham Hotel Corporation or its affiliates or
subsidiaries, shall be classified as Other Income and shall only include rents
received by Lessee under such existing subleases, licenses or similar
arrangements. Such revenue shall be determined in a manner consistent with the
Uniform System and shall not include the following:
(a) Vending machine sales;
(b) Any gratuities or service charges added to a customer's bill or
statement in lieu of a gratuity which is paid directly to an employee;
(c) Non-alcoholic beverages sold from a bar or lounge;
(d) Credits, rebates or refunds; and
(e) Sales taxes or taxes of any other kind imposed on the sale of food or
non-alcoholic beverages.
Franchise Agreement: Any franchise agreement or license agreement with a
-------------------
franchisor under which the Facility is hereafter operated, if any.
Furniture and Equipment: For purposes of this Lease, the terms "furniture and
-----------------------
equipment" shall mean collectively all furniture, furnishings, wall coverings,
fixtures and hotel equipment and systems owned by Lessor and located at, or used
in connection with, the Facility, together with all replacements therefor and
additions thereto, including, without limitation, (i) all equipment and systems
required for the operation of kitchens, bars and restaurants, and laundry and
dry cleaning facilities, (ii) office equipment, (iii) dining room wagons,
materials handling equipment, and cleaning and engineering equipment, (iv)
telephone
<PAGE>
and computerized accounting systems, and (v) vehicles.
GAAP: Generally accepted accounting principles as are at the time applicable
----
and otherwise consistently applied.
Government: The United States of America, any city, county, state, district
----------
or territory thereof, any foreign nation, any city, county, state, district,
department, territory or other political division thereof, or any political
subdivision of any of the foregoing having jurisdiction over the Facility,
Lessee or Lessor.
Gross Operating Expenses: For purposes of this Lease, the term "Gross
------------------------
Operating Expenses" shall mean for a period the expenses of the Facility for
such period which are deducted from revenues for purposes of determining
Lessee's "Income Before Fixed Charges" (as such term is commonly used in the
Uniform System) and shall include all salaries and employee expense and payroll
taxes (including salaries, wages, bonuses and other compensation of all
employees of the Facility, and benefits including life, medical and disability
insurance and retirement benefits), insurance costs and expenses, expenditures
described in Section 9.1, operational supplies, utilities, governmental fees and
-----------
assessments, food, beverages, laundry service expense, the cost of Inventory,
license fees, advertising, marketing, reservation systems and any and all other
operating expenses as are reasonably necessary for the proper and efficient
operation of the Facility incurred by Lessee in accordance with the provisions
hereof (excluding, however, (i) federal, state and municipal excise, sales and
use taxes collected directly from patrons and guests or as a part of the sales
price of any goods, services or displays, such as gross receipts, admissions,
cabaret or similar or equivalent taxes, paid over to federal, state or municipal
governments, (ii) the cost of insurance to be provided by Lessor under Article
-------
XIII, (iii) Real Estate Taxes and Personal Property Taxes, and (iv) payments on
- ----
any Mortgage or other security instrument on the Facility); all determined in
accordance with GAAP and the Uniform System.
Gross Operating Profit: For any Lease Year, the excess of Gross Revenues over
----------------------
Gross Operating Expenses.
Gross Revenues: All revenues, receipts, and income of any kind derived
--------------
directly or indirectly by Lessee from or in connection with the Facility whether
on a cash basis or credit, paid or collected, determined in accordance with GAAP
and the Uniform System, excluding, however: (i) funds furnished by Lessor, (ii)
federal, state and municipal excise, sales, and use taxes collected directly
from patrons and guests or as a part of the sales price of any goods, services
or displays, such as gross receipts, admissions, cabaret or similar or
equivalent taxes and paid over to federal, state or municipal governments, (iii)
gratuities, (iv) proceeds of insurance and condemnation, (v) proceeds from sales
other than sales in the ordinary course of business, (vi) all loan proceeds from
financing or refinancings of the Facility or interests therein or components
thereof, (vii) judgments and awards, except any portion thereof arising from
normal business operations of the hotel, and (viii) items constituting
"allowances" under the Uniform System.
Guarantor: TCFH Assurance, L.P., a Texas limited partnership.
---------
Guaranty: That certain Guaranty dated of even date herewith executed by
--------
Guarantor in favor of Lessor.
<PAGE>
Hazardous Materials: All chemicals, pollutants, contaminants, wastes and
-------------------
toxic substances, including without limitation:
(a) Solid or hazardous waste, as defined in RCRA or in any Environmental
Law;
(b) Hazardous substances, as defined in CERCLA or in any Environmental Law;
(c) Toxic substances, as defined in TSCA or in any Environmental Law;
(d) Insecticides, fungicides, or rodenticides, as defined in FIFRA or in any
Environmental Law;
(e) Gasoline or any other petroleum product or byproduct, polychlorinated
biphenyls, asbestos and urea formaldehyde;
(f) Asbestos or asbestos containing materials;
(g) Urea Formaldehyde foam insulation; and
(h) Radon gas.
Holder: Any holder of any indebtedness of the Lessor or any of its
------
Affiliates, any holder of a Mortgage, any purchaser of the Leased Property or
any portion thereof at a foreclosure sale or any sale in lieu thereof, or any
designee of any of the foregoing.
Impositions: Collectively, all taxes (including, without limitation, all ad
-----------
valorem, sales and use, occupancy, single business, gross receipts, transaction
privilege, rent or similar taxes as the same relate to or are imposed upon
Lessee or Lessor or Lessee's business conducted upon the Leased Property),
assessments (including, without limitation, all assessments for public
improvements or benefit, whether or not commenced or completed prior to the date
hereof and whether or not to be completed within the Term), ground rents, water,
sewer or other rents and charges, excises, tax inspection, authorization and
similar fees and all other governmental charges, in each case whether general or
special, ordinary or extraordinary, or foreseen or unforeseen, of every
character in respect of the Leased Property or the business conducted thereon by
Lessee (including all interest and penalties thereon caused by any failure in
payment by Lessee), which at any time prior to, during or with respect to the
Term hereof may be assessed or imposed on or with respect to or be a lien upon
(a) Lessor's interest in the Leased Property, (b) the Leased Property, or any
part thereof or any rent therefrom or any estate, right, title or interest
therein, or (c) any occupancy, operation, use or possession of, or sales from,
or activity conducted on or in connection with the Leased Property, or the
leasing or use of the Leased Property or any part thereof by Lessee. Nothing
contained in this definition of Impositions shall be construed to require Lessee
to pay (1) any tax based on net income (whether denominated as a franchise or
capital stock or other tax) imposed on Lessor or any other person, or (2) any
net revenue tax of Lessor or any other person, or (3) any tax imposed with
respect to the sale, exchange or other disposition by Lessor of any Leased
Property or the proceeds thereof.
<PAGE>
Indemnified Party: Either of a Lessee Indemnified Party or a Lessor
-----------------
Indemnified Party.
Indemnifying Party: Any party obligated to indemnify an Indemnified Party
------------------
pursuant to any provision of this Lease.
Initial Base Rent: As defined in Article III.
----------------- -----------
Initial Inventory and Cash-on-Hand: As defined in Section 6.2(a).
---------------------------------- --------------
Initial Rent Period: As defined in Section 3.1(a).
------------------- --------------
Initial Year Fixed Base Rent: As defined in Section 3.1(b)(i).
---------------------------- -----------------
Insurance Requirements: All terms of any insurance policy required by this
----------------------
Lease and all requirements of the issuer of any such policy.
Inventory: All "Inventory" as defined in the Uniform System, including, but
---------
not limited to, linens, china, silver, glassware and other non-depreciable
personal property, and any property of the type described in Section 1221(1) of
the Code.
Land: As defined in Article I.
---- ---------
Lease: This Lease.
-----
Lease Master Agreement: That certain Lease Master Agreement dated of even
----------------------
date herewith executed by and between Lessor and Lessee, and all amendments
thereto.
Lease Year: Any twelve-month period from January 1 to December 31 during the
----------
Term; provided that the initial Lease Year shall be the period beginning on the
Commencement Date and ending on December 31, 1996, and the last Lease Year shall
be the period beginning on January 1 of the calendar year in which the Term
expires (to the extent any computation or other provision hereof provides for an
action to be taken on a Lease Year basis, an appropriate proration or other
adjustment shall be made in respect of the initial and final Lease Years to
reflect that such periods are less than full calendar year periods).
Leased Improvements; Leased Property: Each as defined in Article I.
------------------------------------ ---------
Legal Requirements: All federal, state, county, municipal and other
------------------
governmental statutes, laws, rules, orders, regulations, ordinances, judgments,
decrees and injunctions affecting either the Leased Property or the maintenance,
construction, use, operation or alteration thereof (whether by Lessee or
otherwise), now existing or hereafter enacted and in force, including all laws,
rules or regulations pertaining to the environment, occupational health and
safety and public health, safety or welfare at the Leased Property; and all
permits, licenses and authorizations necessary or appropriate to operate the
Leased Property for its Primary Intended Use; and all covenants, agreements,
restrictions and encumbrances contained in any instruments, either of record or
known to Lessee (other than encumbrances hereafter created by Lessor without the
consent of Lessee), at any time in force affecting the Leased Property.
<PAGE>
Lessee: The Lessee designated on this Lease and its permitted successors and
------
assigns.
Lessee Indemnified Party: Lessee, any Affiliate of Lessee, Manager, any other
------------------------
Person against whom any claim for indemnification may be asserted hereunder as a
result of a direct or indirect ownership interest in Lessee, the officers,
directors, stockholders, partners, members, employees, agents and
representatives of any of the foregoing Persons and any corporate stockholder,
agent, or representative of any of the foregoing Persons, and the respective
heirs, personal representatives, successors and assigns of any such officer,
director, stockholder, employee, agent or representative.
Lessee's Personal Property: As defined in Section 6.2.
-------------------------- -----------
Lessor: The Lessor designated on this Lease and its respective successors and
------
assigns.
Lessor Impositions: With respect to each Lease Year, an amount equal to the
------------------
aggregate amount of Capital Impositions, Real Estate Taxes and Personal Property
Taxes due and payable for such Lease Year.
Lessor Indemnified Party: Lessor, any Affiliate of Lessor, including the
------------------------
Company, any other Person against whom any claim for indemnification may be
asserted hereunder as a result of a direct or indirect ownership interest in
Lessor, the officers, directors, stockholders, partners, members, employees,
agents and representatives of any of the foregoing Persons and of any
stockholder, partner, member, agent, or representative of any of the foregoing
Persons, and the respective heirs, personal representatives, successors and
assigns of any such officer, director, partner, stockholder, employee, agent or
representative.
Lessor Insurance Costs: The costs to be borne by Lessor for insurance
----------------------
coverages contemplated by Article XIII hereof.
------------
Lessor Obligations: An amount equal to (a) the aggregate amount that Lessor
------------------
is obligated to pay for the Lease Year in question under the terms of this Lease
for Lessor Impositions and Lessor Insurance Costs, as adjusted pursuant to the
terms hereof and the Lease Master Agreement plus (b) the amount to be funded by
Lessor in the Capital Expenditures Reserve for the Lease Year in question.
Lessor's Audit: An audit by Lessor's independent certified public accountants
--------------
of the operation of the Leased Property during any Lease Year, which audit may,
at Lessor's election, be either a complete audit of the Leased Property's
operations or an audit of Room Revenues, Food Sales, Beverage Sales and Other
Income realized from the operation of the Leased Property during such Lease
Year.
Licenses: As defined in Section 42.2.
-------- ------------
Management Agreement: As defined in Section 21.3.
-------------------- ------------
Manager: As defined in Section 21.3.
------- ------------
Market Decline: As defined in Section 3.7(b).
-------------- --------------
<PAGE>
Market Force Majeure Event: As defined in Section 3.7(d).
-------------------------- --------------
Measurement Date: As defined in Section 3.1(f).
---------------- --------------
Migration: As defined in Section 8.3(b).
--------- --------------
Minimum Net Worth: As defined in the Guaranty.
-----------------
Monthly Revenues Computation: As defined in Section 3.1(c).
---------------------------- --------------
Mortgage: As defined in Section 28.2.
-------- ------------
Net Worth: As defined in the Guaranty.
---------
Nonconsumable Inventory: Inventory exclusive of Consumable Supplies.
-----------------------
Notice: A notice given pursuant to Article XXX.
------ -----------
Officer's Certificate: A certificate of Lessee reasonably acceptable to
---------------------
Lessor, signed by the chief financial officer or another officer duly authorized
so to sign by Lessee or a general partner of Lessee, or any other person whose
power and authority to act has been authorized by delegation in writing by any
such officer.
Operating Budget: As defined in Section 3.5.
---------------- -----------
Other Income: All revenues, receipts, and income of any kind derived directly
------------
or indirectly from or in connection with the Facility and included in Gross
Revenues other than Room Revenues, Food Sales or Beverage Sales.
Other Income Percentage: As defined in Section 3.1(c)(ii) and Exhibit B.
----------------------- ------------------ ---------
Other Leased Properties: Shall mean any other hotels, in addition to the
-----------------------
Leased Property, which at the time are the subject of leases in which Lessor or
an Affiliate of Lessor is the landlord and Lessee is the tenant.
Other Leases: Shall mean the leases in effect at the time pursuant to which
------------
Lessor or an Affiliate of Lessor leases to Lessee or the Other Leased
Properties.
Overdue Rate: On any date, a rate equal to the Base Rate plus 5% per annum,
------------
but in no event greater than the maximum rate then permitted under applicable
law.
Payment Date: Any due date for the payment of any installment of Rent.
------------
Percentage Rent: As defined in Section 3.1(c).
--------------- --------------
Performance Failure: A Revenue Performance Shortfall, a Market Decline or a
-------------------
Profit Decline.
Performance Standard: When (a) Initial Base Rent, annualized to reflect
--------------------
ownership of
<PAGE>
the Leased Property for a full calendar year, exceeds eleven percent (11%) of
the sum of (i) $45,000,000 plus (ii) Total Hotel Cost plus (iii) Renovation
---- ----
Costs and (b) Fixed Base Rent for the First Fixed Year exceeds twelve percent
(12%) of (i) $45,000,000 plus (ii) Total Hotel Cost plus (iii) Renovation Costs.
---- ----
Person: Any Government, natural person, corporation, partnership, trust or
------
other legal entity.
Personal Property Limitation: As defined in Section 18.1.
---------------------------- ------------
Personal Property Taxes: All personal property taxes imposed on the
-----------------------
furniture, furnishings or other items of personal property located on, and used
in connection with, the operation of the Leased Improvements as a hotel (other
than Inventory and other personal property owned by the Lessee and/or its
tenants, licensees, concessionaires, agents or contractors), together with all
replacements, modifications, alterations and additions thereto.
Predecessor: Any Person whose liabilities arising under any Environmental Law
-----------
have or may have been retained or assumed by Lessor or Lessee pursuant to the
provisions of this Lease.
Primary Intended Use: As defined in Section 7.2(b).
-------------------- --------------
Proceeding: Any judicial action, suit or proceeding (whether civil or
----------
criminal), any administrative proceeding (whether formal or informal), any
investigation by a governmental authority or entity (including a grand jury),
and any arbitration, mediation or other non-judicial process for dispute
resolution.
Profit Decline: As defined in Section 3.7(c).
-------------- --------------
Purchase Price: $44,000,000.00.
--------------
RCRA: The Resource Conservation and Recovery Act, as amended.
----
Real Estate Taxes: All real estate taxes, including general and special
-----------------
assessments, if any, which are imposed upon the Land and any improvements
thereon.
Release: A "Release" as defined in CERCLA or in any Environmental Law, unless
-------
such Release has been properly authorized and permitted in writing by all
applicable Environmental Authorities or is allowed by such Environmental Law
without authorizations or permits.
Renovation Costs: An amount equal to those costs and expenses, with respect
----------------
to any Capital Improvements, which have been incurred in accordance with the
Lease Master Agreement.
Rent: Collectively, the Initial Base Rent, Fixed Base Rent, Percentage Rent,
----
and Additional Charges.
Revenue Audit: As defined in Section 3.2(b).
------------- --------------
<PAGE>
Revenue Performance Shortfall: As defined in Section 3.7(a).
----------------------------- --------------
Revenues Computation: As defined in Section 3.1(c).
-------------------- --------------
RevPAR Yield Index: As defined in Section 3.7(b).
------------------ --------------
Room Revenues: Gross revenue from the rental of guest rooms, whether to
-------------
individuals, groups or transients, at the Facility, determined in a manner
consistent with the Uniform System, excluding the following:
(a) The amount of all credits, rebates or refunds to customers, guests
or patrons; and
(b) All sales taxes or any other taxes imposed on the rental of such
guest rooms; and
(c) any fees collected for amenities including, but not limited to,
telephone, laundry, movies or concessions.
SARA: The Superfund Amendments and Reauthorization Act of 1986, as amended.
----
SEC: The U.S. Securities and Exchange Commission or any successor agency.
---
Second Tier Food Sales Percentage: As defined in Section 3.1(c)(ii) and
--------------------------------- ------------------
Exhibit B.
- ---------
Second Tier Room Revenue Percentage: As defined in Section 3.1(c)(ii) and
----------------------------------- ------------------
Exhibit B.
- ---------
Seller: Houston Greenspoint Hotel Associates, a Texas limited partnership.
------
State: The State or Commonwealth of the United States in which the Leased
-----
Property is located.
STR Reports: Reports compiled by Smith Travel Research which contain
-----------
historical supply and demand, occupancy, and average rate information for the
Facility and hotels with which it competes.
Subsidiaries: Corporations or other entities in which Lessee owns, directly
------------
or indirectly, 50% or more of the voting rights or control, as applicable
(individually, a "Subsidiary").
----------
Succeeding Year: As defined in Section 3.7(d).
--------------- --------------
Taking: A permanent or temporary taking or voluntary conveyance during the
------
Term hereof of all or part of the Leased Property, or any interest therein or
right accruing thereto or use thereof, as the result of, or in settlement of,
any Condemnation or other eminent domain proceeding affecting the Leased
Property whether or not the same shall have actually been commenced.
<PAGE>
Tax Law Change: A change in the Code (including, without limitation, a change
--------------
in the Treasury regulations promulgated thereunder) or in the judicial or
administrative interpretations of the Code, which in Lessor's determination will
permit Lessor or an Affiliate thereof to operate the Facility as a hotel without
adversely affecting the Company's qualification for taxation as a real estate
investment trust under the applicable provisions of the Code.
Term: As defined in Section 1.2.
---- -----------
Third Tier Room Revenue Percentage: As defined in Section 3.1(c)(ii) and
---------------------------------- ------------------
Exhibit B.
- ---------
Total Hotel Cost: The lesser of (a) $250,000.00, and (b) the aggregate of all
----------------
costs and expenses paid or accrued by Lessor in connection with the initial
acquisition, leasing and financing of the Facility, including, without
limitation, all legal, accounting, engineering, consulting, commissions, title,
escrow, loan and other fees, costs and expenses incurred in connection with the
initial acquisition, leasing and financing of the Facility (whether before or
after the closing) and franchise transfer or new franchise fees; provided,
however, the amounts described in clause (b) shall not include (i) the Purchase
Price, or (ii) any of such costs which were paid or reimbursed by Seller to
Lessor on or before the date hereof.
TSCA: The Toxic Substances Control Act, as amended.
----
Unavoidable Delay: Delay due to strikes, lock-outs, labor unrest, inability
-----------------
to procure materials, power failure, acts of God, governmental restrictions,
enemy action, civil commotion, fire, unavoidable casualty, condemnation or other
similar causes beyond the reasonable control of the party responsible for
performing an obligation hereunder, provided that lack of funds shall not be
deemed a cause beyond the reasonable control of either party hereto unless such
lack of funds is caused by the breach of the other party's obligation to perform
any obligations of such other party under this Lease.
Uneconomic for its Primary Intended Use: A state or condition of the Facility
---------------------------------------
such that in the judgment of Lessor the Facility cannot be operated on a
commercially practicable basis for its Primary Intended Use, such that Lessor
intends to, and shall, cease operations from the Leased Facility.
Uniform System: Shall mean the Uniform System of Accounts for Hotels (8th
--------------
Revised Edition, 1986) as published by the Hotel Association of New York City,
Inc., as the same may hereafter be revised, and as the same is interpreted and
applied by the Lessor's independent certified public accountants in connection
with any Lessor's Audit.
Unsuitable for its Primary Intended Use: A state or condition of the Facility
---------------------------------------
such that in the judgment of Lessor the Facility cannot function as an
integrated hotel facility consistent with standards applicable to a well
maintained and operated hotel comparable in quality and function to that of the
Facility prior to the damage or loss.
Wyndham Standards: Nationwide standards established by Wyndham Hotels for
-----------------
hotels comparable to the Facility which utilize the Wyndham name and which offer
comparable quality, service and amenities as the Facility; provided, however,
that Lessor shall not be obligated to comply with, and the term Wyndham
Standards as used in this Lease shall not
<PAGE>
include, standards which constitute an upgrade of the Facility or its quality,
services and amenities to a different class of hotel (such as, for example, an
upgrade from current Wyndham hotel standards to those of a Ritz Carlton or Four
Seasons, or an upgrade of standards applicable to a Holiday Inn, to those of a
Holiday Inn Crowne Plaza, or an upgrade of standards from a Wyndham Garden to a
Wyndham Hotel).
ARTICLE III
------------
RENT
----
3.1 Rent. Lessee will pay to Lessor in lawful money of the United States of
----
America which shall be legal tender for the payment of public and private debts,
at Lessor's address set forth in Article XXX hereof or at such other place or to
-----------
such other Person, as Lessor from time to time may designate in a Notice, all
Rent contemplated hereby during the Term on the following basis:
(a) Initial Base Rent: During the period (the "Initial Rent Period") ending
----------------- -------------------
on December 31, 1996, Lessee shall pay to Lessor Initial Base Rent (herein so
called) on the following basis:
(i) Initial Base Rent shall be payable on an estimated basis monthly in
arrears on the first day of each month following the month for which Initial
Base Rent has accrued, commencing at the times and in the amounts which are set
forth on the Base Rent Schedule (herein so called) attached hereto as Exhibit D-
---------
1 and made a part hereof for all purposes.
- -
(ii) At the end of the Initial Rent Period or as soon thereafter as may
be reasonably practicable, Lessor and Lessee shall determine the Actual 1996
Initial Base Rent (herein so called) which shall be an amount equal to (a)
Lessor Obligations for the Initial Rent Period plus (b) an amount equal to the
----
product of the sum of (x) the Purchase Price, plus (y) the Renovation Costs
----
incurred for the Initial Rent Period, plus (z) the Total Hotel Cost as of
----
December 31, 1996 times ten percent (10%).
-----
(iii) To the extent that the Actual 1996 Initial Base Rent is more than
the estimated Initial Base Rent actually paid by Lessee to Lessor, and all or a
portion of such additional amount has not been previously paid by Lessee to
Lessor as Percentage Rent, Lessee shall be obligated to pay to Lessor the amount
of such difference. To the extent that the Actual 1996 Initial Base Rent is less
than the amounts actually paid in respect to estimated Initial Base Rent and
installments of Percentage Rent for the Initial Rent Period, and only to the
extent Lessee is not otherwise obligated to pay Percentage Rent for the Initial
Rent Period, Lessee shall be entitled to a credit against the next ensuing
payments of Fixed Base Rent or Percentage Rent; provided, however, if such
overpayment is greater than a monthly payment of Fixed Base Rent, Lessor shall
pay the amount which is over and above the monthly payment of Fixed Base Rent to
Lessee within thirty (30) days after such determination. The adjustments,
computations and payments, if any, contemplated by this subparagraph (a)(iii)
shall be made and concluded on or before January 31, 1997.
(b) Fixed Base Rent: For the period (the "Fixed Rent Period") beginning
--------------- -----------------
<PAGE>
on January 1, 1997 and for each year thereafter during the Term, Lessee shall
pay to Lessor, Fixed Base Rent (herein so called) on the following basis:
(i) Fixed Base Rent for the Lease Year 1997 (the "First Fixed Year")
----------------
shall be an amount equal to the sum of (a) Lessor Obligations for the
Initial Rent Period, annualized to reflect ownership of the Leased Property
for a full calendar year, plus (b) an amount equal to the product of the sum
----
of (x) the Purchase Price, plus (y) the Renovation Costs, plus (z) the Total
----
Hotel Cost as of December 31, 1996 times ten percent (10%). The result of
-----
the foregoing calculation in this Section 3.1(b)(i) shall then be multiplied
by the CPI Factor (hereinafter defined in Section 3.1(f)(i)(2)). The Fixed
Base Rent for the First Fixed Year (Lease Year 1997) is herein called the
"Initial Year Fixed Base Rent". Collectively, the amounts comprising (x),
----------------------------
(y) and (z) above shall be referred to herein as the "Agreed Hotel Cost".
-----------------
For example, if (i) Agreed Hotel Cost were $5,000,000.00, (ii) Lessor
Obligations for the Initial Rent Period on an annualized basis, as if Lessor
owned the Leased Property for a full calendar year, were $100,000.00 and
(iii) the CPI Factor were 1.03, then the Initial Year Fixed Base Rent would
be $618,000.00: [($5,000,000.00 X 10%) plus $100,000.00] X 1.03.
(ii) Estimates of Initial Year Base Rent shall be paid in arrears on
the first day of each month in the amounts set forth in the Base Rent
Schedule attached hereto as Exhibit D-2 and made a part hereof for all
-----------
purposes. At the end of the First Fixed Year or as soon thereafter as is
practicable, Lessor and Lessee shall determine the Actual 1997 Fixed Base
Rent (herein so called) and to the extent that the Actual 1997 Fixed Base
Rent is more than the Initial Year Fixed Base Rent actually paid by Lessee
to Lessor and all or any portion of such additional rent has not been
previously paid by Lessee to Lessor as installments of Percentage Rent for
the First Fixed Year, Lessee shall be obligated to pay Lessor the amount of
such difference within thirty (30) days after such determination. To the
extent that the Actual 1997 Fixed Base Rent is less than the amounts
actually paid in respect to the Fixed Base Rent and installments of
Percentage Rent paid for the First Fixed Year, and only to the extent Lessee
is not otherwise obligated to pay Percentage Rent for the First Fixed Year,
Lessee shall be entitled to a credit against the next ensuing payments of
Fixed Base Rent or Percentage Rent; provided, however, if such overpayment
is in excess of the monthly payment of Fixed Base Rent, Lessor shall pay the
amount which is over and above the monthly payment of Fixed Base Rent to
Lessee within thirty (30) days after such determination. The adjustments,
computations and payments, if any, contemplated by this subparagraph (b)(ii)
shall be made and concluded on or before January 31, 1998.
(iii) The Fixed Base Rent for the Lease Year commencing January 1, 1998
and for each Lease Year thereafter shall be an amount equal to the Actual
1997 Fixed Base Rent, subject to increases as set forth in subparagraph (f)
below. In addition, in the event the Performance Standard is reached, the
Actual 1997 Fixed Base Rent, for purposes of calculating Fixed Base Rent for
the Lease Year commencing January 1, 1998 and for each Lease Year
thereafter, shall be increased by $100,000.00.
(iv) Fixed Base Rent shall be payable in arrears in equal, consecutive
monthly installments, on or before the first day of each month following the
month for
<PAGE>
which such rent has accrued; provided, however, that (a) Initial Base Rent or
Fixed Base Rent shall be prorated as to any Lease Year which is less than
twelve (12) months, (b) the first and last monthly payments of Initial Base
Rent or Fixed Base Rent shall be prorated as to any partial month, and (c)
payments of Initial Base Rent or Fixed Base Rent shall be subject to abatement
where and only where and to the extent expressly provided in this Lease. Such
prorations shall not affect the calculation of Fixed Base Rent for subsequent
Lease Years.
(c) Percentage Rent: In addition to the sums payable pursuant to
---------------
subparagraphs (a) and (b) above, Lessee shall, within ten (10) days after the
last day of each month during the Term hereof, pay to Lessor an amount equal to
the Percentage Rent (herein so called) payable in accordance with the provisions
of this subparagraph (c). Percentage Rent shall be calculated by the following
formula (the "Revenues Computation"):
--------------------
(i) For any calendar month, Percentage Rent shall equal:
(1) An amount equal to the Monthly Revenues Computation (defined
below), for the Lease Year in question
less
(2) An amount equal to the Initial Base Rent or Fixed Base Rent, as
applicable, paid by Lessee to Lessor for the Lease Year to date
less
(3) An amount equal to the Percentage Rent theretofore paid for the
Lease Year in question to date.
(ii) "Monthly Revenues Computation" shall be computed utilizing the
----------------------------
following definitions:
(1) "Cumulative Monthly Portion" shall mean a fraction having as its
--------------------------
numerator the total number of calendar months (including partial months) in
a Lease Year which have elapsed prior to the month in which a monthly
payment of Percentage Rent is due, and having as its denominator the total
number of calendar months (including partial months) in the Lease Year. For
example, the Cumulative Monthly Portion in a 12-month Lease Year for the
January Percentage Rent payment due February 10 will be 1/12 and for the
February Percentage Rent payment due March 10 will be 2/12, and such
progression shall continue for each successive calendar month so that the
Cumulative Monthly Portion for the December Percentage Rent payment due
January 10 of the next Lease Year will be 12/12 or 100%.
(2) "First Tier Room Revenue Percentage," "Second Tier Room Revenue
---------------------------------- ------------------------
Percentage," "Third Tier Room Revenue Percentage," "First Tier Food Sales
---------- ---------------------------------- ---------------------
Percentage," "Second Tier Food Sales Percentage" and "Other Income
---------- --------------------------------- ------------
Percentage" shall mean the percentages corresponding to
----------
<PAGE>
each of such terms as set forth on Exhibit B.
---------
(3) "Annual Room Revenues First Break Point" and "Annual Room
-------------------------------------- -----------
Revenues Second Break Point" shall mean the amount of annual Room
---------------------------
Revenues corresponding to each of such terms as set forth on
Exhibit B.
---------
(4) "Annual Food Sales Break Point" shall mean the amount of
-----------------------------
annual Food Sales and Beverage Sales corresponding to such term as
set forth on Exhibit B.
---------
(iii) The Monthly Revenues Computation shall be the amount obtained by
adding, for the applicable Lease Year the following sums:
(1) an amount equal to the product of (a) the First Tier Room
Revenue Percentage times (b) all year to date Room Revenues up to (but
not exceeding) the Cumulative Monthly Portion of the Annual Room
Revenues First Break Point,
(2) an amount equal to the product of (a) the Second Tier
Room Revenue Percentage times (b) all year to date Room Revenues in
excess of the Cumulative Monthly Portion of the Annual Room Revenues
First Break Point up to (but not exceeding) the Cumulative Monthly
Portion of the Annual Room Revenues Second Break Point,
(3) an amount equal to the product of (a) the Third Tier Room
Revenue Percentage times (b) all year to date Room Revenues in excess
of the Cumulative Monthly Portion of the Annual Room Revenues Second
Break Point,
(4) an amount equal to the product of (a) the First Tier Food
Sales Percentage times (b) the Cumulative Monthly Portion of all year
to date Food Sales and Beverage Sales up to (but not exceeding) the
Cumulative Monthly Portion of the Annual Food Sales Break Point,
(5) an amount equal to the product of (a) the Second Tier
Food Sales Percentage times (b) all year to date Food Sales and
Beverage Sales in excess of the Cumulative Monthly Portion of the
Annual Food Sales Break Point, and
(6) an amount equal to the product of (a) the Other Income
Percentage times (b) year to date revenues from Other Income.
(iv) If the Term begins or ends in the middle of a calendar year, then the
number of months falling within the Term during such calendar year shall
constitute a separate Lease Year. In that event, the Annual Room Revenues First
Break Point, the Annual Room Revenues Second Break Point, and the Annual Food
Sales Break Point (collectively, the "Break Points") shall each be multiplied by
------------
a fraction equal to (A) the number of months (including partial months) in the
Lease Year divided by (B)
----------
<PAGE>
twelve (12), and the Cumulative Monthly Portion for each of the months in
such Lease Year shall be determined as set forth in the definition of
Cumulative Monthly Portion above.
(v) The obligation to pay Percentage Rent shall survive the
expiration or earlier termination of the Term, and a final
reconciliation, taking into account, among other relevant adjustments,
any adjustments which are accrued after such expiration or termination
date but which related to Percentage Rent accrued prior to such
termination date, shall be made not later than sixty (60) days after such
expiration or termination date.
(d) Officer's Certificates. An Officer's Certificate shall be delivered to
----------------------
Lessor monthly setting forth the calculation of the Percentage Rent payment for
the most recently completed month within 10 days after each month of each Lease
Year during the Term and within twenty (20) days following each Lease Year
during the Term for the most recently ended Lease Year. There shall be no
reduction in Initial Base Rent or Fixed Base Rent regardless of the results of
the Monthly or Annual Revenues Computation. Percentage Rent shall be subject to
confirmation and adjustment, if applicable, as set forth in Section 3.2.
(e) Annual Reconciliation of Percentage Rent. Notwithstanding the amounts
----------------------------------------
of Percentage Rent paid monthly pursuant to the formula set forth above, for
each Lease Year during the Term commencing with the Lease Year in which the
Commencement Date occurs, the Percentage Rent payable under this Lease shall be
equal to the amount determined by the following formula:
The amount equal to the Annual Revenues Computation (as defined
below) for the Lease Year in question
less
An amount equal to the Initial Base Rent or Fixed Base Rent, as
the case may be, paid for the applicable Lease Year
equals
Percentage Rent for the applicable Lease Year.
The Annual Revenues Computation (herein so called) shall be the amount obtained
by adding, for the applicable Lease Year, the following sums:
(1) an amount equal to the First Tier Room Revenue Percentage of
Room Revenues for the applicable Lease Year up to (but not exceeding) the
Annual Room Revenues First Break Point,
(2) an amount equal to the Second Tier Room Revenue Percentage
of Room Revenues for the applicable Lease Year in excess of the Annual
Room Revenues First Break Point up to (but not exceeding) the Annual Room
Revenues Second Break Point,
<PAGE>
(3) an amount equal to the Third Tier Room Revenue Percentage
of Room Revenues for the applicable Lease Year in excess of the Annual
Room Revenues Second Break Point,
(4) an amount equal to the First Tier Food Sales Percentage of
Food Sales and Beverage Sales for the applicable Lease Year up to (but
not exceeding) the Annual Food Sales Break Point,
(5) an amount equal to the Second Tier Food Sales Percentage
of Food Sales and Beverage Sales for the applicable Lease Year in
excess of the Annual Food Sales Break Point, and
(6) an amount equal to the Other Income Percentage of revenues
from Other Income for the applicable Lease Year.
If the annual Percentage Rent due and payable for any Lease Year (as shown in
the applicable Officer's Certificate) exceeds the amount actually paid as
Percentage Rent by Lessee for such year, Lessee also shall pay such excess to
Lessor within thirty (30) days following the date such certificate is delivered.
If the Percentage Rent actually due and payable for such Lease Year is shown by
such certificate to be less than the amount actually paid as Percentage Rent for
the applicable Lease Year, Lessee shall be entitled to a credit in the amount of
such overpayment against the next ensuing payment of Fixed Base Rent and/or
Percentage Rent; provided, however, if such overpayment is in excess of the
monthly payment of Fixed Base Rent, Lessor shall pay the amount which is over
and above the monthly payment of Fixed Base Rent to Lessee within thirty (30)
days after such determination. Notwithstanding the foregoing, if the Annual
Revenues Computation is less than the Initial Base Rent or Fixed Base Rent, as
the case may be, for the applicable Lease Year, Lessee shall not be entitled to
any credit or refund.
(f) CPI Adjustments.
---------------
(i) For the Lease Year commencing with the first Lease Year
immediately following the First Fixed Year, and for each Lease Year thereafter
during the Term, the Fixed Base Rent then in effect shall be increased in the
following manner:
(1) The Fixed Base Rent for the Lease Year in question shall
be an amount equal to the prior year's Fixed Base Rent multiplied by
the CPI Factor.
(2) The term "CPI Factor" shall mean a percentage computed by
----------
dividing the Consumer Price Index for the day before the day that the
new Lease Year commences ("Measurement Date") by the Consumer Price
----------------
Index for the day that is twelve months preceding the Measurement
Date.
(ii) For each Lease Year during the Term beginning with the Lease Year
commencing with the First Fixed Year, the Annual Room Revenues First Break Point
and the Annual Room Revenues Second Break Point (together, the "Annual Room
-----------
Revenues Break Points"), and the Annual Food Sales Break Point then included in
- ---------------------
the Revenues
<PAGE>
Computation set forth above, shall be increased as follows:
(1) The new Annual Room Revenues Break Points in the
Revenues Computation described above for the Lease Year commencing with the
First Fixed Year and for the Lease Year following the First Fixed Year, shall be
the product of (i) the Annual Room Revenues Break Points in effect in the most
recently ended Lease Year times (ii) the CPI Factor plus four hundred fifty
-----
(450) basis points. The new Annual Room Revenues Break Point in the Revenues
Computation described above for the Lease Year commencing with the second Lease
Year following the First Fixed Year and for each Lease Year thereafter shall be
the product of (i) the Annual Room Revenues Break Points in effect in the most
recently ended Lease Year times (ii) the CPI Factor plus eighty (80) basis
-----
points; and
(2) The new Annual Food Sales Break Point in the
Revenues Computation described above for the Lease Year commencing with the
First Fixed Year and for the Lease Year following the First Fixed Year, shall be
the product of (i) the Annual Food Sales Break Points in effect in the most
recently ended Lease Year times (ii) the CPI Factor plus four hundred fifty
-----
(450) basis points. The new Annual Food Sales Break Point in the Revenues
Computation described above for the Lease Year commencing with the second Lease
Year following the First Fixed Year and for each Lease Year thereafter during
the Term, shall be the product of (i) the Annual Food Sales Break Point in
effect in the most recently ended Lease Year times (ii) the CPI Factor plus
-----
eighty (80) basis points.
(iii) In no event shall the Fixed Base Rent, the Annual Room
Revenues Break Points or the Annual Food Sales Break Point then in effect be
reduced as a result of any changes in the Consumer Price Index or any
calculations made pursuant to this Subparagraph (f).
(iv) Adjustments calculated as set forth above in the Fixed Base
Rent, Annual Room Revenues Break Points and the Annual Food Sales Break Point
shall be effective on the first day of each calendar Lease Year to which such
adjusted amounts apply. If Fixed Base Rent or Percentage Rent is paid prior to
the determination of the amount of any adjustment to Fixed Base Rent, Percentage
Rent, the Annual Room Revenues Break Points or the Annual Food Sales Break Point
applicable for such period, whether because of a delay in the publication of the
Consumer Price Index for the Measurement Date or because of any other reason,
payment adjustments for any shortfall in or overpayment of Percentage Rent paid
shall be made with the first Fixed Base Rent and Percentage Rent payments due
after the amount of the adjustments are determined.
(v) If (a) a significant change is made in the number or nature
(or both) of items used in determining the Consumer Price Index, or (b) the
Consumer Price Index shall be discontinued for any reason, the Bureau of Labor
Statistics shall be requested to furnish a new index comparable to the Consumer
Price Index, together with information which will make possible a conversion to
the new index in computing the adjusted Fixed Base Rent, Annual Room Revenues
Break Points and Annual Food Sales Break Point hereunder. If for any reason the
Bureau of Labor Statistics does not furnish such an index and such information,
the parties will instead mutually select, accept and use such other index or
comparable statistics on the cost of living in various U.S. cities that is
computed and published by an agency of the United States or a responsible
financial periodical of recognized authority.
<PAGE>
3.2 Confirmation of Percentage Rent.
-------------------------------
(a) Lessee shall utilize, or cause to be utilized, an accounting system
for the Leased Property in accordance with its usual and customary practices,
and in accordance with GAAP and the Uniform System, that will accurately record
all data necessary to compute Percentage Rent, and Lessee shall retain, for at
least three (3) years after the expiration of each Lease Year, reasonably
adequate records conforming to such accounting system showing all data necessary
to conduct Lessor's Audit and to compute Percentage Rent for the applicable
Lease Years.
(b) Lessor shall have the right from time to time by its accountants or
representatives to audit such information in connection with Lessor's Audit, and
to examine all Lessee's records (including supporting data and sales and excise
tax returns) reasonably required to complete Lessor's Audit and to verify
Percentage Rent, subject to any prohibitions or limitations on disclosure of any
such data under Legal Requirements. If any Lessor's Audit discloses a
deficiency in the payment of Percentage Rent, and either Lessee agrees with the
result of Lessor's Audit or the matter is otherwise determined or compromised,
Lessee shall forthwith pay to Lessor the amount of the deficiency, as finally
agreed or determined, together with interest, at the Overdue Rate, from the date
when said payment should have been made to the date of payment thereof;
provided, however, that as to any Lessor's Audit that is commenced more than one
(1) year after the end of any Lease Year, the deficiency, if any, with respect
to such Percentage Rent shall bear interest, at the Overdue Rate, only from the
date such determination of deficiency is made unless such deficiency is the
result of gross negligence or willful misconduct on the part of Lessee, in which
case interest at the Overdue Rate will accrue from the date such payment should
have been made to the date of payment thereof. In addition to the amounts
described above in this Section 3.2(b), if any Lessor's Audit discloses a
--------------
deficiency in the payment of Percentage Rent which, as finally agreed or
determined, exceeds 3%, Lessee shall pay the costs of the portion of Lessor's
Audit allocable to the determination of Gross Revenues (the "Revenue Audit")
-------------
and, if any such deficiency exceeds 5%, Lessee shall also pay, in addition to
interest at the Overdue Rate and the cost of the Revenue Audit as aforesaid, an
amount equal to 25% of such deficiency. In no event shall Lessor undertake a
Lessor's Audit more than three (3) years after the last day of the Lease Year
for which such audit is requested.
(c) Any proprietary information obtained by Lessor pursuant to the
provisions of this Section shall be treated as confidential, except that such
information may be used, subject to appropriate confidentiality safeguards, in
any litigation between the parties and except further that Lessor may disclose
such information to prospective lenders and investors and to any other persons
to whom disclosure is necessary to comply with Legal Requirements.
(d) The obligations of Lessee contained in this Section shall survive the
expiration or earlier termination of this Lease. Any dispute as to the
existence or amount of any deficiency in the payment of Percentage Rent as
disclosed by Lessor's Audit shall, if not otherwise settled by the parties, be
submitted to arbitration pursuant to the provisions of Section 40.2.
------------
3.3 Additional Charges. In addition to the Initial Base Rent, the Fixed Base
------------------
Rent and Percentage Rent, Lessee also will pay and discharge as and when due and
payable the following: (a) any increase in Real Estate Taxes payable pursuant
to Paragraph 3 of the Lease
<PAGE>
Master Agreement, (b) all other amounts, liabilities, obligations and
Impositions that Lessee assumes or agrees to pay under this Lease to Lessor and
(c) in the event of any failure on the part of Lessee to pay any of those items
referred to in clause (a) and/or (b) of this Section 3.3, Lessee also will
-----------
promptly pay and discharge every fine, penalty, interest and cost that may be
added for non-payment or late payment of such items. The items referred to in
clauses (a), (b) and (c) of this Section 3.3 being additional rent hereunder
-----------
shall be referred to herein collectively as the "Additional Charges"). Lessor
------------------
shall have all legal, equitable and contractual rights, powers and remedies
provided either in this Lease or by statute or otherwise in the case of non-
payment of the Additional Charges as in the case of non-payment of the Initial
Base Rent or Fixed Base Rent, as the case may be. If any installment of Initial
Base Rent or Fixed Base Rent, as the case may be, Percentage Rent or Additional
Charges (but only as to those Additional Charges that are payable directly to
Lessor) shall not be paid on its due date, Lessee will pay Lessor within ten
(10) days of demand, as Additional Charges, a late charge (to the extent
permitted by law) equal to the greater of (i) interest computed at the Overdue
Rate on the amount of such installment, from the due date of such installment to
the date of payment thereof, or (b) five percent (5%) of such amount. To the
extent that Lessee pays any Additional Charges to Lessor pursuant to any
requirement of this Lease, Lessee shall be relieved of its obligation to pay
such Additional Charges to the entity to which they would otherwise be due and
Lessor shall pay the same from monies received from Lessee.
3.4 No Set Off. Rent shall be paid to Lessor without set off, deduction or
----------
counterclaim; provided, however, that Lessee shall have the right of offset to
the extent specifically provided in Section 39.1 and the right to assert any
------------
claim or counterclaim in a separate action brought by Lessee under this Lease or
to assert any mandatory counterclaim in any action brought by Lessor under this
Lease.
3.5 Annual Budget. Not later than sixty (60) days prior to the commencement
-------------
of each Lease Year, Lessee shall prepare and submit to Lessor an operating
budget (the "Operating Budget") and a capital budget (the "Capital Budget")
---------------- --------------
prepared in accordance with the requirements of this Section 3.5 and in
-----------
substantially the same form as that previously submitted to Lessor or such other
form as Lessor and Lessee mutually agree. The Operating Budget and the Capital
Budget (together, the "Annual Budget") shall be prepared in accordance with the
-------------
Uniform System to the extent applicable and show by month and quarter and for
the year as a whole in the degree of detail specified by the Uniform System for
monthly statements, and in accordance with the detail level of monthly financial
statements, the following:
(a) Lessee's reasonable estimate of Gross Revenues (including room rates
and Room Revenues) for the forthcoming Lease Year itemized on schedules on a
monthly and quarterly basis as approved by Lessor and Lessee.
(b) An estimate of any amounts Lessor will be requested to provide for
Capital Improvements during the current and the next four (4) Lease Years,
subject to the limitations set forth in Article XXXVIII.
---------------
(c) A cash flow projection.
(d) Lessee's reasonable estimate for each month of the Lease Year of
Percentage Rent, including Room Revenues, Food Sales, Beverage Sales and Other
Income.
<PAGE>
Lessor shall have thirty (30) days after the date on which it receives the
Annual Budget to review, approve or disapprove the Annual Budget. If the
parties are not able to reach agreement on the Annual Budget for any Lease Year
during Lessor's thirty (30) day review period, the parties shall attempt in good
faith during the subsequent thirty (30) day period to resolve any disputes,
which attempt shall include, if requested by either party, at least one (1)
meeting of executive-level officers of Lessor and Lessee. In the event the
parties are still not able to reach agreement on the Annual Budget for any
particular Lease Year after complying with the foregoing requirements of this
Section 3.5, the parties shall adopt such portions of the Operating Budget and
- -----------
the Capital Budget as they may have agreed upon, and any matters not agreed upon
shall be referred to arbitration as provided for in Section 40.2 hereof.
------------
Pending the results of such arbitration or the earlier agreement of the parties,
(i) if the Operating Budget has not been agreed upon, the Leased Property will
be operated in a manner consistent with the prior Lease Year's Operating Budget
without adjustment pursuant to Section 3.1(f) hereof until a new Operating
--------------
Budget is adopted, and (ii) if the Capital Budget has not been agreed upon, no
Capital Expenditures shall be made unless the same are set forth in a previously
approved Capital Budget or are specifically required by Lessor or are otherwise
required to comply with Legal Requirements or to make Emergency Expenditures.
Lessee shall operate the Leased Property consistent with the Annual Budget
and shall promptly report to Lessor in writing any actual or anticipated
deviation from the Operating Budget or Capital Budget of any material or long-
term consequence. In the event that Lessor believes Lessee has failed to
operate the Leased Property in accordance with the provisions of the Annual
Budget as set forth in this Section 3.5, then Lessor, in addition to its other
-----------
rights and remedies under this Lease and under applicable law, shall have the
right to submit to arbitration under Section 40.1 hereof the issue of whether
------------
Lessee has failed to operate the Leased Property in accordance with the
provisions of the Annual Budget as set forth in this Section 3.5.
-----------
Lessee shall also provide to Lessor assumptions, in narrative form forming
the basis of the itemized schedules which are delivered pursuant to Section
-------
3.5(a), estimating Gross Revenues (including room rates and Room Revenues).
- ------
Lessee shall also provide to Lessor with each Annual Budget a narrative
description of the program for marketing and managing the Facility for the
forthcoming Lease Year, including, among other things, details as to competitor
performance, demand analysis, estimated market penetration by market segment,
target accounts, marketing and advertising budgets, changes in personnel
policies, staffing levels, major events plans, franchise issues and other
matters affecting the performance and operation of the Facility, and containing
a detailed budget itemization of proposed expenditures by category and the
assumptions, in narrative form, forming the basis of such budget itemization.
3.6 Books and Records. Lessee shall keep full and adequate books of account
-----------------
and other records reflecting the results of operation of the Facility on an
accrual basis, all in accordance with the Uniform System and GAAP and the
obligations of Lessee under this Lease. The books of account and all other
records relating to or reflecting the operation of the Facility shall be kept
either at the Facility or at Lessee's offices in Dallas, Texas and shall be
available to Lessor and its representatives and its auditors or accountants, at
all reasonable times upon prior notice for examination, audit, inspection, and
transcription. All of such books and records pertaining to the Facility
including, without limitation, books of account, guest records and front office
records, at all times shall be the property of Lessee but shall not
<PAGE>
be removed from the Facility or Lessee's offices without Lessor's prior written
Approval. Upon termination or expiration of this Lease, Lessee shall deliver
copies of all such books and records to Lessor. Lessor shall be entitled to
make copies during the Term of any or all such books and records for its own
files. Lessee's obligations under this Section 3.6 shall survive termination of
-----------
this Lease for any reason.
3.7 Performance Failures.
--------------------
(a) If, with respect to any Lease Year during the Term, Lessee shall fail
to realize from the operation of the Facility an amount equal to at least ninety
percent (90%) of Room Revenues as set forth in the Annual Budget for such Lease
Year, such failure, unless caused by a Market Force Majeure Event, shall
constitute a Revenue Performance Shortfall under this Lease. The existence of a
Revenue Performance Shortfall for any Lease Year shall be determined by Lessor
on the basis of the Officer's Certificate delivered by Lessee to Lessor on or
before January 20 of the subsequent Lease Year pursuant to the requirements of
the first paragraph of Section 3.1(c) and shall be subject to confirmation
--------------
pursuant to Section 3.2.
-----------
(b) If, with respect to any Lease Year during the Term, the RevPAR Yield
Index of the Leased Property as of the end of such Lease Year shall have
declined by more than ten (10) percentage points from the Leased Property's
RevPAR Yield Index at the beginning of the Term, such decline, unless caused by
a Market Force Majeure Event, shall constitute a Market Decline (herein so
called) under this Lease. As used herein, "RevPAR Yield Index," when used with
------------------
respect to the Leased Property, shall mean the percentage amount obtained by
dividing the RevPAR of the Leased Property by the RevPAR of the Leased
Property's Competitive Set, with the terms "RevPAR" and "Competitive Set" having
------ ---------------
the meanings ascribed to them in STR Reports. Lessor and Lessee shall work in
good faith to determine the Competitive Set to be used in the STR Report and, if
Lessor and Lessee are unable to agree, the Competitive Set shall be determined
by Smith Travel Research (or, if it refuses or is unable to do so, by
arbitration pursuant to Section 40.2). The existence of a Market Decline shall
------------
be determined on the basis of a STR Report which contains a full calendar year
calculation of the RevPAR Yield Index of the Leased Property. If STR Reports
are no longer published or do not contain sufficient information for the
determination of a Market Decline, the existence of a Market Decline shall
instead be determined, using the methodology presently employed by STR Reports,
from information on the RevPAR Yield Index of the Leased Property contained in
any other publication selected by Lessor and recognized by the hotel industry as
being an authoritative source of such information or, if no such publication
exists, from an analysis of the RevPAR Yield Index of the Leased Property
conducted at Lessee's expense by any nationally recognized accounting firm with
a hospitality division of which Lessor or an Affiliate of Lessor is not a
significant client.
(c) If, with respect to any Lease Year during the Term, commencing with
the first Lease Year following the First Fixed Year, the ratio of Gross
Operating Profit to Gross Revenues decreases by more than five (5) percentage
points from the immediately preceding Lease Year, such event shall constitute a
Profit Decline (herein so called) under this Lease. With respect to the First
Fixed Year, if the ratio of Gross Operating Profit to Gross Revenues decreases
by more than five (5) percentage points from the Initial Rent Period (annualized
to reflect ownership of the Leased Property for a full calendar year) such event
shall constitute a Profit Decline. The existence of a Profit Decline shall be
determined on the basis of the year-end financial information submitted by
Lessee to Lessor pursuant to
<PAGE>
Article XXII and shall be subject to confirmation by Lessor's Audit.
- ------------
(d) In the event of a Performance Failure, Lessee shall have until the
end of the immediately succeeding Lease Year ("Succeeding Year") to attain the
---------------
necessary level of performance at the Facility such that a Performance Failure
does not then exist with respect to the Succeeding Year. For purposes of
determining whether a Profit Decline has been cured, the ratio of Gross
Operating Profit to Gross Revenues for the Succeeding Year shall be compared to
the ratio of Gross Operating Profit to Gross Revenues for the Lease Year prior
to the Lease Year in which the Profit Decline occurred. Within fifteen (15)
days following the Performance Failure, Lessee shall submit to Lessor a report
which fully documents the circumstances which caused Lessee to incur a
Performance Failure. Further, within ten (10) days after the commencement of
the Lease Year in which Lessee is to attain the necessary level of performance
at the Facility such that a Performance Failure does not then exist with respect
to such Lease Year, Lessee shall submit to Lessor a plan which describes in
reasonable detail the steps Lessee intends to initiate to achieve such
performance. If Lessor objects to such plan, Lessor shall notify Lessee of its
objections, and Lessor and Lessee shall attempt in good faith to agree upon a
plan to remedy the Performance Failure. In the event Lessee is unable to
achieve such performance by the end of the immediately succeeding Lease Year,
then, unless Lessee has taken appropriate actions to achieve such performance,
which efforts were unsuccessful solely because of circumstances outside of the
control of Lessee, including, without limitation, general market decline for
hotels of similar quality and name recognition as the Facility in the proximity
of the Facility or the opening of new full service hotels in the proximity of
the Facility during the Lease Year in question, which hotels are of similar
quality and name recognition as the Facility (herein, a "Market Force Majeure
--------------------
Event", Lessor shall have the right, at Lessor's option, to terminate this Lease
- -----
upon thirty (30) days' notice to Lessee, in which event Lessee shall immediately
surrender the Leased Property to Lessor, and, if Lessee fails to so surrender,
Lessor shall have the right, without notice, to enter upon and take possession
of the Leased Property and to expel or remove Lessee and its effects without
being liable for prosecution or any claim for damages therefor; and Lessee
shall, and hereby agrees to, indemnify Lessor for the total of (1) in the event
that Lessee does not promptly surrender the Leased Property, the reasonable
costs of recovering the Leased Property and all other losses, liabilities and
reasonable expenses incurred by Lessor in connection with Lessee's failure to
surrender; (2) the unpaid Rent earned as of the date of the termination, plus
interest at the Overdue Rate accruing after the due date; and (3) all other sums
of money then owing by Lessee to Lessor. Termination of this Lease and recovery
of the Rent and other amounts as aforesaid shall constitute Lessor's sole remedy
for the Performance Failure, and Lessee shall not be liable to Lessor for
damages arising therefrom. In the event Lessee is unable to attain the necessary
level of performance at the Facility such that a Performance Failure does not
then exist with respect to such Lease Year and alleges such inability was due to
circumstances beyond its control, Lessee shall deliver to Lessor a report
setting forth in reasonable detail the circumstances which were beyond the
control of Lessee which prevented Lessee from attaining the required
performance. If Lessor does not agree that such failure to remedy the
Performance Failure was a result of circumstances beyond the control of Lessee
as provided herein, the disagreement shall be resolved by arbitration pursuant
to Section 40.2.
------------
3.8 Changes in Operations. Without Lessor's prior written consent, which
---------------------
consent shall not be unreasonably withheld so long as Gross Revenues from the
applicable operation will not be negatively impacted, Lessee shall not (i)
provide food and/or beverage operations
<PAGE>
at the Facility if not presently provided, (ii) discontinue any food and/or
beverage services which are presently provided, or (iii) convert a subtenant,
licensee or concessionaire to an operating department of the Facility or vice-
versa. The foregoing shall in no way alter or affect the provisions of Section
-------
21.1 including, without limitation, the requirement that Lessee obtain the prior
- ----
written consent of Lessor in the event Lessee desires to assign this Lease or
sublet all or any part of the Leased Property.
3.9 Allocation of Revenues. In the event that individuals or groups
----------------------
purchase rooms, food and beverage and/or the use of other hotel facilities or
services together or as part of a package, Lessee agrees that revenues shall be
allocated among Room Revenues, Food Sales, Beverage Sales and/or other revenue
categories, as applicable, in a reasonable manner consistent with the historical
allocation of such revenues.
ARTICLE IV
-----------
IMPOSITIONS
-----------
4.1 Payment of Impositions.
----------------------
(a) Subject to Article XII relating to permitted contests, Lessee will
-----------
pay, or cause to be paid, all Impositions (other than Lessor Impositions, which
Lessor hereby covenants to pay before any fine, penalty, interest or cost may be
added for non-payment thereof) before any fine, penalty, interest or cost may be
added for non-payment, such payments to be made directly to the taxing or other
authorities where feasible, and will promptly furnish to Lessor copies of
official receipts or other satisfactory proof evidencing such payments.
Furthermore, Lessee covenants and agrees to pay any and all occupancy and sales
taxes due and payable for the Leased Property attributable to the period prior
to the Commencement Date, and Lessee hereby indemnifies and holds Lessor
harmless from and against any loss, cost, damage or expense resulting from the
non-payment of such taxes attributable to the period prior to the Commencement
Date. Lessee's obligation to pay such Impositions shall be deemed absolutely
fixed upon the date such Impositions become a lien upon the Leased Property or
any part thereof, subject to Lessee's right of contest pursuant to the
provisions of Article XII. If any such Imposition may, at the option of the
-----------
taxpayer, lawfully be paid in installments (whether or not interest shall accrue
on the unpaid balance of such Imposition), Lessee may exercise the option to pay
the same (and any accrued interest on the unpaid balance of such Imposition) in
installments payable during the Term and in such event, shall pay such
installments and any unpaid balance of such Impositions prior to the expiration
or earlier termination of the Term hereof and before any fine, penalty, premium,
further interest or cost may be added thereto.
(b) Lessor, at its expense, shall, to the extent required or permitted by
applicable law, prepare and file all tax returns in respect of Lessor's net
income, gross receipts, sales and use, single business, transaction privilege,
rent, ad valorem, franchise taxes, Real Estate Taxes, Personal Property Taxes,
Capital Impositions and taxes on its capital stock, and Lessee, at its expense,
shall, to the extent required or permitted by applicable laws and regulations,
prepare and file all other tax returns and reports in respect of any Imposition
as may be required by governmental authorities.
(c) If any refund shall be due from any taxing authority in respect of
any
<PAGE>
Imposition paid by Lessee, the same shall be paid over to or retained by Lessee
if no Event of Default shall have occurred hereunder and be continuing. If an
Event of Default shall have been declared by Lessor and be continuing, any such
refund shall be paid over to or retained by Lessor. Any such funds retained by
Lessor due to an Event of Default shall be applied as provided in Article XVI.
-----------
(d) Lessor and Lessee shall, upon request of the other, cooperate with
the other party and otherwise provide such data as is maintained by the party to
whom the request is made with respect to the Leased Property as may be necessary
to prepare any required returns and reports. Lessor, to the extent it possesses
the same, and Lessee, to the extent it possesses the same, will provide the
other party, upon request, with cost and depreciation records necessary for
filing returns for any property classified as personal property. Lessee shall
file all Personal Property Tax returns in such jurisdictions where it is legally
required to so file. Where Lessor is legally required to file Personal Property
Tax returns, Lessee shall provide Lessor with copies of assessment notices in
sufficient time for Lessor to file a protest.
(e) Lessor may, upon notice to Lessee, at Lessor's option and at Lessor's
sole expense, protest, appeal, or institute such other proceedings (in its or
Lessee's name) as Lessor may deem appropriate to effect a reduction of real
estate or personal property assessments for those Impositions to be paid by
Lessor, and Lessee, at Lessor's expense as aforesaid, shall fully cooperate with
Lessor in such protest, appeal, or other action. Lessor hereby agrees to
indemnify, defend, and hold harmless Lessee from and against any claims,
obligations, and liabilities against or incurred by Lessee in connection with
such cooperation. Billings to Lessor for reimbursement of Personal Property
Taxes paid by Lessee shall be accompanied by copies of a bill therefor and
payments thereof which identify the personal property with respect to which such
payments are made. Lessor, however, reserves the right to effect any such
protest, appeal or other action and, upon notice to Lessee, shall control any
such activity, which shall then proceed at Lessor's sole expense. Upon such
notice, Lessee, at Lessor's expense, shall cooperate fully with such activities.
(f) To the extent received by it, Lessee shall furnish Lessor with copies
of all assessment notices for Real Estate Taxes and Personal Property Taxes in
sufficient time for Lessor to file a protest and pay such taxes without penalty.
Lessor shall within thirty (30) days after making such payment furnish Lessee
with evidence of payment of Capital Impositions, Real Estate Taxes and Personal
Property Taxes.
4.2 Notice of Impositions. Lessor shall give prompt Notice to Lessee of all
---------------------
Impositions payable by Lessee hereunder of which Lessor at any time has
knowledge, provided that Lessor's failure to give any such Notice shall in no
way diminish Lessee's obligations hereunder to pay such Impositions, but if
Lessee did not otherwise have knowledge of such Imposition sufficient to permit
it to pay same, such failure shall obviate any default hereunder for a
reasonable time after Lessee receives Notice of any Imposition which it is
obligated to pay during the first taxing period applicable thereto.
4.3 Adjustment of Impositions. Impositions payable by Lessee which are
-------------------------
imposed in respect of the tax-fiscal period during which the Term terminates
shall be adjusted and prorated between Lessor and Lessee, whether or not such
Imposition is imposed before or after such termination, and Lessee's obligation
to pay its prorated share thereof after termination shall survive such
termination.
<PAGE>
4.4 Utility Charges. Lessee will be solely responsible for obtaining and
---------------
maintaining utility services to the Leased Property and will pay or cause to be
paid all charges for electricity, gas, oil, water, sewer and other utilities
used in the Leased Property during the Term.
ARTICLE V
----------
NO TERMINATION, ABATEMENT
-------------------------
5.1 No Termination, Abatement. Except as otherwise specifically provided in
-------------------------
this Lease, (1) Lessee, to the extent permitted by law, shall remain bound by
this Lease in accordance with its terms and shall neither take any action
without the written consent of Lessor to modify, surrender or terminate the
same, nor seek nor be entitled to any abatement, deduction, deferment or
reduction of the Rent, or setoff against the Rent, and (2) the obligations of
Lessee shall not be otherwise affected by reason of (a) any damage to, or
destruction of, any Leased Property or any portion thereof from whatever cause
or any Taking of the Leased Property or any portion thereof, (b) any bankruptcy,
insolvency, reorganization, composition, readjustment, liquidation, dissolution,
winding up or other proceedings affecting Lessor or any assignee or transferee
of Lessor, or (c) for any other cause whether similar or dissimilar to any of
the foregoing other than a discharge of Lessee from any such obligations as a
matter of law. Lessee hereby specifically waives all rights, arising from any
default under this Lease by Lessor which may now or hereafter be conferred upon
it by law to (1) modify, surrender or terminate this Lease or quit or surrender
the Leased Property or any portion thereof, or (2) entitle Lessee to any
abatement, reduction, suspension or deferment of or set off against the Rent or
other sums payable by Lessee hereunder, except as otherwise specifically
provided in this Lease. Except as otherwise specifically provided in this
Lease, the obligations of Lessee hereunder shall be separate and independent
covenants and agreements and the Rent and all other sums payable by Lessee
hereunder shall continue to be payable in all events unless the obligations to
pay the same shall be terminated pursuant to the express provisions of this
Lease or by termination of this Lease other than by reason of an Event of
Default.
ARTICLE VI
-----------
PROPERTY OWNERSHIP
------------------
6.1 Ownership of the Leased Property. Lessee acknowledges that the Leased
--------------------------------
Property is the property of Lessor and that Lessee has only the right to the
possession and use of the Leased Property upon the terms and conditions of this
Lease.
6.2 Lessee's Personal Property.
--------------------------
(a) Upon commencement of the Term, Lessor shall transfer to Lessee all
Nonconsumable Inventory, Consumable Supplies and Cash-on-Hand located at the
Facility on the Commencement Date and transferred to Lessor by Seller (the
"Initial Inventory and Cash-on-Hand"). On the Commencement Date, Lessee shall be
- -----------------------------------
required to ensure that the Leased Property contains (i) a sufficient amount of
Consumable Supplies and Non-Consumable Inventory and (ii) a reasonably adequate
amount of kitchen equipment, bar equipment, refrigeration equipment, furniture,
furnishings, color television sets, carpets, drapes, rugs,
<PAGE>
floor coverings, mattresses, pillows, bedspreads and the like, in each case, to
furnish each guest room substantially consistent with Wyndham Standards and is
otherwise reasonably required to operate the Leased Property in the manner
contemplated by this Lease and in compliance with any Franchise Agreement and
all Legal Requirements. Throughout the Term, Lessee shall be required to
maintain Inventory consistent with Wyndham Standards and is otherwise required
to operate the Leased Property in the manner contemplated by this Lease and in
compliance with any Franchise Agreement and all Legal Requirements. All
Inventory shall be the property of Lessee, subject to Lessee's obligations under
Section 6.2(b). Lessee may (and shall as provided hereinbelow), at its expense,
- --------------
install, affix or assemble or place on any parcels of the Land or in any of the
Leased Improvements, any items of personal property (including Inventory) owned
by Lessee (collectively, the "Lessee's Personal Property"). Lessee may, subject
--------------------------
to the second sentence of this Section 6.2(a) and the conditions set forth in
--------------
Section 6.2(b) below, remove any of Lessee's Personal Property at any time
- --------------
during the Term or upon the expiration or any prior termination of the Term.
All of Lessee's Personal Property, other than Inventory, not removed by Lessee
within thirty (30) days following the expiration or earlier termination of the
Term shall be considered abandoned by Lessee and may be appropriated, sold,
destroyed or otherwise disposed of by Lessor without first giving Notice thereof
to Lessee, without any payment to Lessee and without any obligation to account
therefor. Lessee will, at its expense, restore the Leased Property to the
condition required by Section 9.1(d), including repair of all damage to the
--------------
Leased Property caused by the removal of Lessee's Personal Property, whether
effected by Lessee or Lessor.
(b) Upon the expiration or earlier termination of the Term for any
reason, Lessee shall surrender the Leased Property to Lessor with an amount and
quality of Nonconsumable Inventory, Cash-On-Hand and Consumable Supplies equal
to the Initial Inventory and Cash-On-Hand.
(c) Lessor and Lessee agree that, for federal income tax purposes, the
transfer of the Initial Inventory and Cash-on-Hand from Lessor to Lessee upon
commencement of the Term shall be treated as a sale to Lessee of the Initial
Inventory and Cash-on-Hand for the fair market value thereof (the "Purchase
--------
Price"). The Purchase Price, plus interest thereon at the applicable federal
- -----
rate published pursuant to Section 1274(d) of the Internal Revenue Code of 1986,
as amended, shall be payable in equal monthly installments over the Term and
shall be credited against amounts of Initial Base Rent or Fixed Base Rent, as
the case may be, and Percentage Rent payable under this Lease. Nothing in this
Section 6.2(c) shall be interpreted to give rise to any obligation of Lessee to
- --------------
make any payment to Lessor, but instead this Section 6.2(c) is intended to
--------------
characterize for federal income tax purposes payments otherwise denominated as
Rent as payments of the Purchase Price and interest thereon. Lessor and Lessee
shall determine the Purchase Price in their joint inventory of the Facility to
be conducted within fifteen (15) days of the date hereof.
6.3 Lessor's Lien. To the fullest extent permitted by applicable law,
-------------
Lessor is granted a lien and security interest on all Lessee's Personal
Property now or hereinafter placed in or upon the Leased Property, and such lien
and security interest shall remain attached to such Lessee's Personal Property
until payment in full of all Rent and satisfaction of all of Lessee's
obligations hereunder; provided, however, Lessor shall subordinate its lien and
security interest only to that of any non-Affiliate of Lessee which finances
such Lessee's Personal Property or any non-Affiliate conditional seller of such
Lessee's Personal Property, the terms and conditions of such subordination to be
satisfactory to Lessor in the exercise of
<PAGE>
reasonable discretion. Lessor will execute such subordination agreements
reasonably requested by Lessee to effectuate such subordination. Lessee shall,
upon the request of Lessor, execute such financing statements or other documents
or instruments reasonably requested by Lessor to perfect the lien and security
interests herein granted.
ARTICLE VII
-----------
CONDITION, USE
--------------
7.1 Condition of the Leased Property. Lessee acknowledges receipt and
--------------------------------
delivery of possession of the Leased Property. Lessee has examined and
otherwise has knowledge of the condition of the Leased Property and has found
the same to be satisfactory for its purposes hereunder. Lessee is leasing the
Leased Property "as is", "with all faults", and in its present condition.
Except as otherwise specifically provided herein, Lessee waives any claim or
action against Lessor in respect of the condition of the Leased Property.
LESSOR MAKES NO WARRANTY OR REPRESENTATION, EXPRESS OR IMPLIED, IN RESPECT OF
THE LEASED PROPERTY, OR ANY PART THEREOF, EITHER AS TO ITS FITNESS FOR USE,
DESIGN OR CONDITION FOR ANY PARTICULAR USE OR PURPOSE OR OTHERWISE, AS TO THE
QUALITY OF THE MATERIAL OR WORKMANSHIP THEREIN, LATENT OR PATENT, IT BEING
AGREED THAT ALL SUCH RISKS ARE TO BE BORNE BY LESSEE. LESSEE ACKNOWLEDGES THAT
THE LEASED PROPERTY HAS BEEN INSPECTED BY LESSEE AND IS SATISFACTORY TO IT.
Lessor shall have the right to proceed against any predecessor in title for
breaches of warranties or representations or for latent defects in the Leased
Property, and Lessor shall, if requested by Lessee, assign any such right to
Lessee if and to the extent Lessor determines not to exercise such right. If
either party determines to exercise such right, the other party shall fully
cooperate in the prosecution of any such claim, in Lessor's or Lessee's name,
all at the cost and expense of the prosecuting party, who hereby agrees to
indemnify, defend and hold harmless the other party from and against any claims,
obligations and liabilities against or incurred by such other party in
connection with such cooperation, and who further agrees to apply all amounts
realized from the prosecution of such claim, less its expenses in connection
therewith, to remedy such breach or cure such defect.
7.2 Use of the Leased Property.
--------------------------
(a) Lessor covenants that it will proceed with all due diligence to
obtain and maintain, and Lessee covenants to cooperate with Lessor to obtain and
maintain all permits, licenses and approvals, including, without limitation,
liquor licenses, needed to use and operate the Leased Property and the Facility
under applicable local, state and federal law. Lessee covenants and agrees to
obtain a Life Safety Certificate with respect to the Facility as soon as
reasonably practicable, in any event within the time period imposed by the City
of Houston, Texas and/or the Houston Fire Department for the issuance of same.
In the event that the City of Houston and/or the Houston Fire Department
condition the issuance of such Life Safety Certificate upon the making of any
modifications, alterations and/or repairs to the Facility, Lessee covenants and
agrees to make such modifications, alterations and/or repairs to the Facility
and acknowledges that the cost of same shall not be deemed to be a Capital
Expenditure which otherwise would be funded by Lessor under this Lease.
(b) Lessee shall use or cause to be used the Leased Property only as a
hotel
<PAGE>
facility, and for such other uses as may be necessary or incidental to such use,
or such other use as otherwise approved by Lessor (the "Primary Intended Use").
--------------------
Lessee shall not use the Leased Property or any portion thereof for any other
use without the prior written consent of Lessor. No use shall be made or
permitted to be made of the Leased Property, and no acts shall be done, which
will cause the cancellation of any insurance policy covering the Leased Property
or any part thereof (unless another adequate policy satisfactory to Lessor is
available and Lessee pays any premium increase), nor shall Lessee sell or permit
to be kept, used or sold in or about the Leased Property any article which is
prohibited by law or fire underwriter's regulations. Lessee shall comply with
all of the requirements pertaining to the Leased Property of any insurance
board, association, organization or company necessary for the maintenance of
insurance, as herein provided, covering the Leased Property and Lessee's
Personal Property, which compliance shall be performed at Lessee's sole cost
except to the extent that such compliance requires the performance of a Capital
Improvement or the payment of a Capital Imposition.
(c) Subject to the provisions of Articles XIV and XV, Lessee covenants
------------ --
and agrees that during the Term it will either directly or through an approved
manager (1) operate continuously the Leased Property as a hotel facility, (2)
keep in full force and effect and comply in all material respects with all the
provisions of any Franchise Agreement, (3) not terminate or amend in any respect
any Franchise Agreement without the consent of Lessor, (4) maintain appropriate
certifications and licenses for such use and (5) keep Lessor advised of the
status of any material litigation affecting the Leased Property.
(d) Lessee shall not commit or suffer to be committed any waste on the
Leased Property, or in the Facility, nor shall Lessee cause or permit any
nuisance thereon.
(e) Lessee shall neither suffer nor permit the Leased Property or any
portion thereof, or Lessee's Personal Property, to be used in such a manner as
(1) might reasonably tend to impair Lessor's (or Lessee's, as the case may be)
title thereto or to any portion thereof, or (2) may reasonably make possible a
claim or claims of adverse usage or adverse possession by the public, as such,
or of implied dedication of the Leased Property or any portion thereof.
ARTICLE VIII
------------
LEGAL REQUIREMENTS
------------------
8.1 Compliance with Legal and Insurance Requirements. Subject to Sections
------------------------------------------------ --------
8.2, 8.3(b) and 9.1(b) and Article XII relating to permitted contests, Lessee,
- ---------------------- -----------
at its expense, will promptly (a) comply with all applicable Legal Requirements
and Insurance Requirements in respect of the use, operation, maintenance, repair
and restoration of the Leased Property, and (b) procure, maintain and comply
with all appropriate licenses and other authorizations required for any use of
the Leased Property and Lessee's Personal Property then being made, and for the
proper erection, installation, operation and maintenance of the Leased Property
or any part thereof.
8.2 Legal Requirement Covenants. Subject to Section 8.3, Lessee covenants
--------------------------- -----------
and agrees that (i) the Leased Property and Lessee's Personal Property shall not
be used for any unlawful purpose, and that Lessee shall not permit or suffer to
exist any unlawful use of the Leased Property by others, (ii) Lessee shall
acquire and maintain all appropriate licenses,
<PAGE>
certifications, permits and other authorizations and approvals needed to operate
the Leased Property in its customary manner for the Primary Intended Use, and
any other lawful use conducted on the Leased Property as may be permitted from
time to time hereunder and (iii) Lessee's use of the Leased Property and
maintenance, alteration, and operation of the same, and all parts thereof, shall
at all times conform in all material respects to all Legal Requirements, unless
the same are finally determined by a court of competent jurisdiction to be
unlawful (and Lessee shall use its reasonable efforts to cause all such sub-
tenants, invitees or others to so comply with all Legal Requirements).
8.3 Environmental Covenants. Lessor and Lessee covenant and agree as
-----------------------
follows:
(a) At all times hereafter until Lessee completely vacates the Leased
Property and surrenders possession of the same to Lessor, Lessee shall fully
comply with all Environmental Laws applicable to the Leased Property and the
operations thereon, except to the extent that such compliance would require the
remediation of Environmental Liabilities for which Lessee has no indemnity
obligations under Section 8.3(b). Lessee agrees to give Lessor prompt written
--------------
notice of (1) all Environmental Liabilities; (2) all pending, threatened or
anticipated Proceedings, and all notices, demands, requests or investigations,
relating to any Environmental Liability or relating to the issuance, revocation
or change in any Environmental Authorization required for operation of the
Leased Property of which Lessee has actual knowledge; (3) all Releases of which
Lessee has actual knowledge at, on, in, under or in any way affecting the Leased
Property, or any Release known by Lessee at, on, in or under any property
adjacent to the Leased Property; and (4) all facts, events or conditions that
could reasonably lead to the occurrence of any of the above-referenced matters.
(b) LESSEE WILL PROTECT, INDEMNIFY, HOLD HARMLESS AND DEFEND LESSOR
INDEMNIFIED PARTIES FROM AND AGAINST ANY AND ALL ENVIRONMENTAL LIABILITIES TO
THE EXTENT PERMITTED BY LAW INCLUDING THOSE RESULTING FROM A LESSOR INDEMNIFIED
PARTIES' OWN NEGLIGENCE but excluding those resulting from (i) liabilities,
obligations, claims, damages and penalties resulting from Emergency Situations
arising at the Facility for which Lessor has the express obligation to fund
Capital Expenditures to remediate such Emergency Situations and Lessor has
failed to fund such Capital Expenditures within ten (10) days following written
demand from Lessee to do so, (ii) the negligence of Lessor or its agents,
employees, contractors or invitees when actually performing alterations or other
capital work which are not obligations of Lessee and are not performed or
supervised by Lessee on behalf of Lessor, (iii) the intentionally wrongful acts
or grossly negligent failures to act of Lessor, or (iv) conditions existing at
the Leased Property at the date of this Lease (an "Existing Condition") or from
------------------
Releases or other violations of Environmental Laws originating on adjacent
property but affecting the Leased Property (a "Migration"), provided that such
---------
exclusions shall not apply to the extent that the Existing Condition or the
Migration has been exacerbated by Lessee's act or negligent failure to act (such
exclusions described above herein called "Lessor's Excluded Environmental
-------------------------------
Acts").
- ----
(c) Lessor hereby agrees to defend, indemnify and save harmless any and
all Lessee Indemnified Parties from and against any and all Environmental
Liabilities to the extent that the same were caused by the intentionally
wrongful acts or grossly negligent failures to act of Lessor or are included
within Lessor's Excluded Environmental Acts.
<PAGE>
(d) If any Proceeding is brought against any Indemnified Party in respect
of an Environmental Liability with respect to which such Indemnified Party may
claim indemnification under either Section 8.3(b) or (c), the Indemnifying
-------------- ---
Party, upon request, shall at its sole expense resist and defend such
Proceeding, or cause the same to be resisted and defended by counsel designated
by the Indemnifying Party and approved by the Indemnified Party, which Approval
shall not be unreasonably withheld; provided, however, that such Approval shall
not be required in the case of defense by counsel designated by any insurance
company undertaking such defense pursuant to any applicable policy of insurance.
Each Indemnified Party shall have the right to employ separate counsel in any
such Proceeding and to participate in the defense thereof, but the fees and
expenses of such counsel will be at the sole expense of such Indemnified Party
unless a conflict of interest prevents representation of such Indemnified Party
by the counsel selected by the Indemnifying Party and such separate counsel has
been approved by the Indemnifying Party, which Approval shall not be
unreasonably withheld. The Indemnifying Party shall not be liable for any
settlement of any such Proceeding made without its consent, which shall not be
unreasonably withheld, but if settled with the consent of the Indemnifying
Party, or if settled without its consent (if its consent shall be unreasonably
withheld), or if there be a final, nonappealable judgment for an adversary party
in any such Proceeding, the Indemnifying Party shall indemnify and hold harmless
the Indemnified Parties from and against any liabilities incurred by such
Indemnified Parties by reason of such settlement or judgement.
(e) At any time any Indemnified Party has reason to believe circumstances
exist which could reasonably result in an Environmental Liability, upon
reasonable prior written notice to the Indemnifying Party stating such
Indemnified Party's basis for such belief, an Indemnified Party shall be given
immediate access to the Leased Property (including, but not limited to, the
right to enter upon, investigate, drill wells, take soil borings, excavate,
monitor, test, cap and use available land for the testing of remedial
technologies), Lessee's employees, and to all relevant documents and records
regarding the matter as to which a responsibility, liability or obligation is
asserted or which is the subject of any Proceeding; provided that such access
may be conditioned or restricted as may be reasonably necessary to ensure
compliance with law and the safety of personnel and facilities or to protect
confidential or privileged information. All Indemnified Parties requesting such
immediate access and cooperation shall endeavor to coordinate such efforts to
result in as minimal interruption of the operation of the Leased Property as
practicable.
(f) The indemnification rights and obligations provided for in this
Article VIII shall be in addition to any indemnification rights and obligations
- ------------
provided for elsewhere in this Lease.
(g) The indemnification rights and obligations provided for in this
Article VIII shall survive the termination of this Lease.
- ------------
For purposes of this Section 8.3, all amounts for which any Indemnified
-----------
Party seeks indemnification shall be computed net of (a) any actual income tax
benefit resulting therefrom to such Indemnified Party, (b) any insurance
proceeds received (net of tax effects) with respect thereto, and (c) any amounts
recovered (net of tax effects) from any third parties based on claims the
Indemnified Party has against such third parties which reduce the damages that
would otherwise be sustained; provided that in all cases, the timing of the
receipt or realization of insurance proceeds or income tax benefits or
recoveries from third parties shall
<PAGE>
be taken into account in determining the amount of reduction of damages. Each
Indemnified Party agrees to use its reasonable efforts to pursue, or assign to
Lessee or Lessor, as the case may be, any claims or rights it may have against
any third party which would materially reduce the amount of damages otherwise
incurred by such Indemnified Party.
ARTICLE IX
----------
MAINTENANCE AND REPAIRS
-----------------------
9.1 Maintenance and Repair.
----------------------
(a) Except as provided in Section 9.1(b), Lessee will keep the Leased
--------------
Property and all private roadways, sidewalks and curbs appurtenant thereto that
are under Lessee's control, including windows and plate glass, parking lots,
HVAC, mechanical, electrical and plumbing systems and equipment (including
conduit and ductware), and non-load bearing interior walls, in good order and
repair, except for ordinary wear and tear (whether or not the need for such
repairs occurred as a result of Lessee's use, any prior use, the elements or the
age of the Leased Property, or any portion thereof but subject to the obligation
to make necessary and appropriate repairs and replacements as provided in this
Section 9.1(a), and, except as otherwise provided in Section 9.1(b),
- -------------- --------------
Article XIV or Article XV, with reasonable promptness, make all necessary and
- ----------- ----------
appropriate repairs, replacements and improvements thereto of every kind and
nature, whether interior or exterior ordinary or extraordinary, foreseen or
unforeseen or arising by reason of a condition existing prior to the
commencement of the Term of this Lease (concealed or otherwise), or required by
any governmental agency having jurisdiction over the Leased Property. Lessee,
however, shall be permitted to prosecute claims against Lessor's predecessors in
title for breach of any representation or warranty or for any latent defects in
the Leased Property to be maintained by Lessee unless Lessor is already
diligently pursuing such a claim. All repairs shall, to the extent reasonably
achievable, be at least equivalent in quality to the original work. Lessee will
not take or omit to take any action, the taking or omission of which might
materially impair the value or the usefulness of the Leased Property or any part
thereof for its Primary Intended Use. If Lessee fails to make any required
repairs or replacements after fifteen (15) days notice from Lessor, or after
such longer period as may be reasonably required provided that Lessee at all
times diligently proceeds with such repair or replacement, then Lessor shall
have the right, but shall not be obligated, to make such repairs or replacements
on behalf of and for the account of Lessee. In such event, such work shall be
paid for in full by Lessee as Additional Charges.
(b) Notwithstanding Lessee's obligations under Section 9.1(a) above but
--------------
subject to the limitations on Lessor's obligations for Capital Expenditures
set forth in Article XXXVIII, unless caused by Lessee's negligence or willful
---------------
misconduct or that of its employees, contractor or agents, Lessor shall be
required to make all Capital Expenditures, including those required to maintain
the Facility in accordance with Wyndham Standards. Except as set forth in the
preceding sentence, Lessor shall not under any circumstances be required to
build or rebuild any improvement on the Leased Property, or to make any repairs,
replacements, alterations, restorations or renewals of any nature or description
to the Leased Property, whether ordinary or extraordinary, foreseen or
unforeseen, or to make any expenditure whatsoever with respect thereto, in
connection with this Lease, or to maintain the Leased Property in any way.
Subject to Lessor's obligations under this Section 9.1(b) and Article XXXVIII,
-------------- ---------------
Lessee hereby waives, to the extent permitted by law, the right to make
<PAGE>
repairs at the expense of Lessor pursuant to any law in effect at the time of
the execution of this Lease or hereafter enacted. Lessor shall have the right
to give, record and post, as appropriate, notices of non-responsibility under
any mechanic's lien laws now or hereafter existing with respect to repairs to be
performed by Lessee.
(c) Nothing contained in this Lease and no action or inaction by Lessor
shall be construed as (1) constituting the request of Lessor, expressed or
implied, to any contractor, subcontractor, laborer, materialman or vendor to or
for the performance of any labor or services or the furnishing of any materials
or other property for the construction, alteration, addition, repair or
demolition of or to the Leased Property or any part thereof, or (2) giving
Lessee any right, power or permission to contract for or permit the performance
of any labor or services or the furnishing of any materials or other property in
such fashion as would permit the making of any claim against Lessor in respect
thereof or to make any agreement that may create, or in any way be the basis for
any right, title, interest, lien, claim or other encumbrance upon the estate of
Lessor in the Leased Property, or any portion thereof.
(d) Lessee will, upon the expiration or prior termination of the Term,
vacate and surrender the Leased Property to Lessor in the condition in which the
Leased Property was originally received from Lessor, except as repaired,
rebuilt, restored, altered or added to as permitted or required by the
provisions of this Lease and except for ordinary wear and tear (subject to the
obligation of Lessee to maintain the Leased Property in good order and repair in
accordance with Section 9.1(a) above, as would a prudent owner of comparable
--------------
property, during the entire Term) or damage by casualty or Condemnation (subject
to the obligation of Lessee, if any, to restore or repair as set forth in this
Lease.)
ARTICLE X
---------
ALTERATIONS
-----------
10.1 Alterations. Subject to first obtaining the written Approval of
-----------
Lessor, Lessee may, but shall not be obligated to, make such additions,
modifications or improvements to the Leased Property from time to time as Lessee
deems desirable for its permitted uses and purposes, provided that such action
will not alter the character or purposes of the Leased Property or detract from
the value or operating efficiency thereof and will not impair the revenue-
producing capability of the Leased Property or adversely affect the ability of
the Lessee to comply with the provisions of this Lease. All such work shall be
performed in a first class manner in accordance with all applicable governmental
rules and regulations and after receipt of all required permits and licenses.
If required by Lessor all such work shall be covered by performance bonds issued
by bonding companies reasonably acceptable to Lessor. The cost of such
additions, modifications or improvements to the Leased Property shall be paid by
Lessee, and all such additions, modifications and improvements shall, without
payment by Lessor at any time, be included under the terms of this Lease and
upon expiration or earlier termination of this Lease shall pass to and become
the property of Lessor.
10.2 Salvage. All materials which are scrapped or removed in connection
-------
with the making of repairs required by Articles IX or X shall be or become the
----------- -
property of Lessor or Lessee depending on which party is paying for or providing
the financing for such work.
10.3 Lessor Alterations. Lessor shall have the right, without Lessee's
------------------
consent, to
<PAGE>
make or cause to be made alterations to the Leased Property required in
connection with (i) Emergency Situations, (ii) Legal Requirements, (iii)
maintenance of any Franchise Agreement or of Wyndham Standards, and (iv) the
performance by Lessor of its obligations under this Lease so long as such
alterations do not materially and adversely impair the operating efficiency or
revenue producing capability of the Leased Property or the ability of Lessee to
comply with the provisions of this Lease during the remainder of the Term.
Without Lessee's consent, Lessor shall further have the right, but not the
obligation, to make such other additions to the Leased Property as it may
reasonably deem appropriate during the Term of this Lease. All such work unless
necessitated by Lessee's negligent acts or omissions or unless otherwise
required to be performed by Lessee under this Lease (subject to the Notice and
cure provisions herein) (in which event work shall be paid for by Lessee) shall
be performed at Lessor's expense and shall be done after reasonable notice to
and coordination with Lessee, so as to minimize any disruptions or interference
with the operation of the Facility.
ARTICLE XI
----------
LIENS
-----
11.1 Liens. Subject to the provision of Article XII relating to
----- -----------
permitted contests, Lessee will not directly or indirectly create or allow to
remain and will promptly discharge at its expense any lien, encumbrance,
attachment, title retention agreement or claim upon the Leased Property
resulting from the action or inaction of Lessee, or any attachment, levy, claim
or encumbrance in respect of the Rent, excluding, however, (a) this Lease, (b)
the matters, if any, included as exceptions or insured against in the title
policy insuring Lessor's interest in the Leased Property, (c) restrictions,
liens and other encumbrances which are consented to in writing by Lessor,
(d) liens for those taxes which Lessee is not required to pay hereunder,
(e) subleases permitted by Article XXI hereof, (f) liens for Impositions or
-----------
for sums resulting from noncompliance with Legal Requirements to the extent
Lessee is responsible hereunder for such compliance so long as (1) the same are
not yet delinquent or (2) such liens are in the process of being contested as
permitted by Article XII, (g) liens of mechanics, laborers, suppliers or vendors
-----------
for sums either disputed or not yet due provided that any such liens for
disputed sums are in the process of being contested as permitted by Article XII
-----------
hereof, and (h) any liens which are the responsibility of Lessor pursuant to the
provisions of this Lease.
ARTICLE XII
-----------
PERMITTED CONTESTS
------------------
12.1 Permitted Contests. Lessee shall have the right to contest the
------------------
amount or validity of any Imposition to be paid by Lessee or any Legal
Requirement or any lien, attachment, levy, encumbrance, charge or claim (any
such Imposition, Legal Requirement, lien, attachment, levy, encumbrance, charge
or claim herein referred to as "Claims") not otherwise permitted by Article XI,
------ ----------
by appropriate legal proceedings in good faith and with due diligence (but this
shall not be deemed or construed in any way to relieve, modify or extend
Lessee's covenants to pay or its covenants to cause to be paid any such charges
at the time and in the manner as in this Article provided), on condition,
however, that such legal proceedings shall not cause the sale or risk the loss
of any portion of the Leased Property, or any part thereof, or cause Lessor or
Lessee to be in default under any mortgage, deed of trust,
<PAGE>
security deed or other agreement encumbering the Leased Property or any interest
therein. Upon the request of Lessor, as security for the payment of such Claims,
Lessee shall either (a) provide a bond or other assurance reasonably
satisfactory to Lessor (and satisfactory to any Holder, if Approval thereof is
required by such Holder's Mortgage) that all Claims which may be assessed
against the Leased Property together with interest and penalties, if any,
thereon and legal fees anticipated to be incurred in connection therewith will
be paid, or (b) deposit within the time otherwise required for payment with a
bank or trust company designated by Lessor as trustee upon terms reasonably
satisfactory to Lessor, or with any Holder upon terms satisfactory to such
Holder, money in an amount sufficient to pay the same, together with interest
and penalties thereon and legal fees anticipated to be incurred in connection
therewith, as to all Claims which may be assessed against or become a Claim on
the Leased Property, or any part thereof, in said legal proceedings. Lessee
shall furnish Lessor and any Holder with reasonable evidence of such deposit
within five days of the same. Lessor agrees to join in any such proceedings if
the same be required to legally prosecute such contest of the validity of such
Claims; provided, however, that Lessor shall not thereby be subjected to any
liability for the payment of any costs or expenses in connection with any
proceedings brought by Lessee; and Lessee covenants to indemnify and save
harmless Lessor from any such costs or expenses. Lessee shall be entitled to any
refund of any Claims and such charges and penalties or interest thereon which
have been paid by Lessee or paid by Lessor and for which Lessor has been fully
reimbursed. In the event that Lessee fails to pay any Claims when due or to
provide the security therefor as provided in this paragraph and to diligently
prosecute any contest of the same, Lessor may, upon ten days advance Notice to
Lessee, pay such charges together with any interest and penalties and the same
shall be repayable by Lessee to Lessor as Additional Charges at the next Payment
Date provided for in this Lease. Provided, however, that should Lessor
reasonably determine that the giving of such Notice would risk loss to the
Leased Property or cause damage to Lessor, then Lessor shall only give such
Notice as is practical under the circumstances. Lessor reserves the right to
contest any of the Claims at its expense not pursued by Lessee. Lessor and
Lessee agree to cooperate in coordinating the contest of any Claims.
ARTICLE XIII
------------
INSURANCE
---------
13.1 General Insurance Requirements.
------------------------------
(a) Coverages. During the Term of this Lease, the Leased Property
---------
shall at all times be insured with the kinds and amounts of insurance described
below. This insurance shall be written by companies authorized to issue
insurance in the State. The policies must name the party obtaining the policy as
the insured and the other party as an additional named insured, and the Manager
shall also be named as an additional insured under the coverages described in
Sections 13.1(a)(iv) through (xii). Losses shall be payable to Lessor or Lessee
- -------------------- -----
as provided in this Lease. Any loss adjustment for coverages insuring both
parties shall require the written consent of Lessor and Lessee, each acting
reasonably and in good faith. Evidence of insurance shall be deposited with
Lessor. The policies on the Leased Property, including the Leased Improvements,
Fixtures and Lessee's Personal Property, shall at all times satisfy the
requirements of any Franchise Agreement and of any ground lease, mortgage,
security agreement or other financing lien affecting the Leased Property and at
a minimum shall include:
<PAGE>
(i) Building insurance on an "All Risk" form (including earthquake
and flood in reasonable amounts if and as determined by Lessor) in an amount not
less than 100% of the then full replacement cost thereof (as defined in Section
-------
13.2) or such other amount which is acceptable to Lessor, and personal property
- ----
insurance on an "All Risk" form in the full amount of the replacement cost
thereof;
(ii) Insurance for loss or damage (direct and indirect) from steam
boilers, pressure vessels or similar apparatus, air conditioning systems, piping
and machinery, and sprinklers, if any, now or hereafter installed in the
Facility, in the minimum amount of $5,000,000 or in such greater amounts as are
then customary or as may be reasonably requested by Lessor from time to time;
(iii) Loss of income insurance on an "All Risk" form, in the amount
of one year of the greater of (a) Initial Base Rent or Fixed Base Rent, as
applicable, or (b) Percentage Rent (based on the last Lease Year of operation
or, to the extent the Leased Property has not been operated for an entire 12-
month Lease Year, based on prorated Percentage Rent) for the benefit of Lessor,
and business interruption insurance on an "All Risk" form in the amount of one
year of gross profit, for the benefit of Lessee;
(iv) Commercial general liability insurance, with contractual
indemnity endorsement, with amounts not less than $1,000,000 combined single
limit for each occurrence and $2,000,000 for the aggregate of all occurrences
within each policy year, as well as excess liability (umbrella) insurance with
limits of at least $50,000,000 per occurrence, covering each of the following:
bodily injury, death, or property damage liability per occurrence, personal
injury, general aggregate, products and completed operations, with respect to
Lessee, and "all risk legal liability" (including liquor law or "dram shop"
liability, if liquor or alcoholic beverages are served on the Leased Property)
with respect to Lessor and Lessee;
(v) Fidelity bonds or blanket crime policies with limits and
deductibles as may be reasonably determined by Lessee and approved by Lessor
(such approval not to be unreasonably withheld), covering Lessee's employees in
job classifications normally bonded under prudent hotel management practices in
the United States or otherwise required by law;
(vi) Workers' compensation insurance to the extent necessary to
protect Lessor, Lessee and the Leased Property against Lessee's worker's
compensation claims to the extent required by applicable state laws provided, if
allowed under applicable law, Lessee may opt to non-subscribe to the applicable
worker's compensation act;
(vii) Comprehensive form automobile liability insurance for owned,
non-owned and hired vehicles, in the amount of $1,000,000;
(viii) Garagekeeper's legal liability insurance covering both
<PAGE>
comprehensive and collision-type losses with a limit of liability of $3,000,000
for any one occurrence, of which coverage in excess of $1,000,000 may be
provided by way of an excess liability policy;
(ix) Innkeeper's legal liability insurance covering property of guests
while on the Leased Property for which Lessor is legally responsible with a
limit of not less than $5,000 in any one occurrence or $25,000 annual aggregate;
(x) Safe deposit box legal liability insurance covering property of
guests while in a safe deposit box on the Leased Property for which Lessor is
legally responsible with a limit of not less than $100,000 in any one
occurrence;
(xi) Employers liability insurance with limits of not less than
$500,000 per occurrence; and
(xii) Insurance covering such other hazards (such as plate glass
or other common risks) and in such amounts as may be (A) required by a Holder,
or (B) customary for comparable properties in the area of the Leased Property
and is available from insurance companies, insurance pools or other appropriate
companies authorized to do business in the State at rates which are economically
practicable in relation to the risks covered as may be reasonably determined by
Lessor or Lessee.
(b) Responsibility for Insurance. Lessee shall obtain the insurance and
----------------------------
pay the premiums for the coverages described in Sections 13.1(a)(iv) through
--------------------
(xi), and (xii) to the extent required by Lessee, and Lessor shall obtain the
- ---- -----
insurance and pay the premiums for the coverages described in Sections
--------
13.1(a)(i) through (iii), provided that Lessee shall reimburse Lessor
- ---------- -----
immediately after demand therefor for any premiums paid by Lessor for the
coverages required under Section 13.1(a)(i) to the extent that the premiums
------------------
relate to coverages for property owned by Lessee or coverages which benefit
Lessee. Insurance required by Section 13.1(a)(xii), to the extent such
--------------------
insurance is required by Lessor, shall be obtained and paid for by Lessor to the
extent that it relates to risks of the type covered by the insurance obtained
pursuant to Sections 13.1(a)(i) through (iii), and obtained and paid for by
------------------- -----
Lessee if it relates to risks of the type covered by the insurance obtained
pursuant to Sections 13.1(a)(iv) through (xi), and (xii) to the extent required
-------------------- ---- -----
by Lessee. The party responsible for the premium for any insurance coverage
shall also be responsible for any and all deductibles and self-insured
retentions in connection with such coverages. In the event that either party
can obtain comparable insurance coverage required to be carried by the other
party from comparable insurers and at a cost significantly less than that at
which such other party can obtain such coverage, the parties shall cooperate in
good faith to obtain such coverage at the lower cost and shall allocate the
premiums therefor in accordance with the provisions of the first sentence of
this Section 13.1(b). In addition to the rights set forth in Sections 17.1 and
--------------- -----------------
39.1, if any party responsible for obtaining and maintaining the insurance
- ----
required under this Lease fails to do so or fails to obtain renewals or
substitutions therefor at least fifteen (15) days before such insurance will
lapse, the other party may obtain such insurance and the defaulting party shall
reimburse the party obtaining such insurance for the cost thereof promptly upon
demand, together with interest thereon at the Overdue Rate until such cost is
<PAGE>
repaid by the defaulting party.
13.2 Replacement Cost. The term "full replacement cost" as used herein
---------------- ---------------------
shall mean the actual replacement cost of the Leased Property requiring
replacement from time to time including an increased cost of construction
endorsement, if available, and the cost of debris removal. In the event either
party believes that full replacement cost has increased or decreased at any time
during the Term, it shall have the right to have such full replacement cost
redetermined.
13.3 (Intentionally omitted)
13.4 Waiver of Subrogation. Lessor and Lessee each waive any and all
---------------------
rights of recovery against the other (and against the partners, officers,
employees and agents of the other party) for loss of or damage to such waiving
party or its property or the property of others under its control, to the extent
such loss or damage is covered by, or in the event the responsible party fails
to maintain the required insurance hereunder, would have been covered by the
insurance required to be obtained by such waiving party under Sections
--------
13.1(d)(i) through (iii); provided, however, that this waiver does not apply to
- ------------------------
any rights that either party may have to insurance proceeds from their
respective insurance policies at the time of such loss or damage. In obtaining
policies of property insurance on their respective interests in the personal
property and improvements located in the Leased Property, Lessor and Lessee
shall give notice to their respective insurance carriers that the foregoing
mutual waiver of subrogation is contained in this Lease; and Lessor and Lessee
shall each obtain from their insurance carriers a consent to such waiver.
13.5 Form Satisfactory, etc. All of the policies of insurance referred to
----------------------
in this Article XIII shall be written in a form, with deductibles and by
------------
insurance companies satisfactory to Lessor and shall satisfy the requirements of
any ground lease, management agreement, mortgage, security agreement or other
financing lien on the Leased Property and of any Franchise Agreement. The party
responsible for obtaining any policy shall pay all of the premiums therefor, and
deliver copies of such policies or certificates thereof to the other party prior
to their effective date (and, with respect to any renewal policy, ten (10) days
prior to the expiration of the existing policy), and in the event of the failure
of the responsible party either to effect such insurance as herein called for or
to pay the premiums therefor, or to deliver such policies or certificates
thereof to the other party at the times required, such other party shall be
entitled, but shall have no obligation, after ten (10) days' Notice to the
responsible party (or after less than ten (10) days' Notice if required to
prevent the expiration of any existing policy), to effect such insurance and pay
the premiums therefor, and to be reimbursed for any such premiums upon written
demand therefor. Each insurer mentioned in this Article XIII shall agree, by
------------
endorsement to the policy or policies issued by it, or by independent instrument
furnished to the party not responsible hereunder for obtaining such policy, that
it will give to such party thirty (30) days' written notice before the policy or
policies in question shall be materially altered or canceled.
13.6 Increase in Limits. If either Lessor or Lessee at any time deems the
------------------
limits of the personal injury or property damage under the comprehensive public
liability insurance then carried to be either excessive or insufficient, Lessor
and Lessee shall endeavor in good faith to agree on the proper and reasonable
limits for such insurance to be carried and such insurance shall thereafter be
carried with the limits thus agreed on until further change pursuant to the
<PAGE>
provisions of this Section. If the parties fail to agree on such limits, the
matter shall be referred to arbitration as provided for in Section 40.1.
------------
However, in no event shall such limits fail to satisfy the requirements of any
Franchise Agreement and of any ground lease, management agreement, Mortgage,
security agreement or other financing lien affecting the Leased Property.
13.7 Blanket Policy. Notwithstanding anything to the contrary contained in
--------------
this Article XIII, Lessee or Lessor may bring the insurance provided for herein
------------
within the coverage of a so-called blanket policy or policies of insurance
carried and maintained by Lessee or Lessor; provided, however, that the coverage
afforded to Lessor and Lessee will not be reduced or diminished or otherwise be
different from that which would exist under a separate policy meeting all other
requirements of this Lease by reason of the use of such blanket policy of
insurance, and provided further that the requirements of this Article XIII are
------------
otherwise satisfied.
13.8 Separate Insurance. Neither Lessor nor Lessee shall on its own
------------------
initiative or pursuant to the request or requirement of any third party, take
out separate insurance concurrent in form or contributing in the event of loss
with that required in this Article to be furnished, or increase the amount of
any then existing insurance by securing an additional policy or additional
policies, unless all parties having an insurable interest in the subject matter
of the insurance, including in all cases Lessor, are included therein as
additional insureds, and the loss is payable under such additional separate
insurance in the same manner as losses are payable under this Lease. Each party
shall immediately notify the other party that it has obtained any such separate
insurance or of the increasing of any of the amounts of the then existing
insurance.
13.9 Reports On Insurance Claims. Lessee shall promptly investigate and
---------------------------
make a complete and timely written report to the appropriate insurance company
as to all accidents, all claims for damage relating to the ownership, operation,
and maintenance of the Facility, and any damage or destruction to the Facility
and the estimated cost of repair thereof and shall prepare any and all reports
required by any insurance company in connection therewith. All such reports
shall be timely filed with the insurance company as required under the terms of
the insurance policy involved, and a copy of all such reports shall be furnished
to Lessor.
ARTICLE XIV
------------
DAMAGE AND RECONSTRUCTION
-------------------------
14.1 Insurance Proceeds. All proceeds of the insurance contemplated by
------------------
Sections 13.1(a)(i) and (ii) payable by reason of any loss or damage to the
- ------------------- ----
Leased Property, or any portion thereof, and insured under any policy of
insurance required by Article XIII of this Lease shall be paid to Lessor (or as
------------
required under any Mortgage) and made available, if applicable, for
reconstruction or repair, as the case may be, of any damage to or destruction of
the Leased Property or any portion thereof, and, if applicable, shall be paid
out by Lessor from time to time for the reasonable costs of such reconstruction
or repair upon satisfaction of reasonable terms and conditions specified by
Lessor. Any excess proceeds of insurance remaining after the completion of the
restoration or reconstruction of the Leased Property shall be paid to Lessor.
If neither Lessor nor Lessee is required or elects to repair and restore, and
the Lease is terminated as described in Section 14.2, all such insurance
------------
proceeds shall be
<PAGE>
retained by Lessor except for any amount thereof paid with respect to Lessee's
Personal Property. All salvage resulting from any risk covered by insurance
shall belong to Lessor, except to the extent of salvage relating to Lessee's
Personal Property.
14.2 Reconstruction in the Event of Damage or Destruction Covered by
---------------------------------------------------------------
Insurance.
- ---------
(a) If during the Term the Leased Property is totally or partially
destroyed by a risk covered by the insurance described in Article XIII and
------------
the Facility thereby is rendered Unsuitable or Uneconomic for its Primary
Intended Use, this Lease shall terminate as of the date of the casualty and
neither Lessor nor Lessee shall have any further liability hereunder except for
any liabilities which have arisen prior to or which survive such termination,
and Lessor shall be entitled to retain all insurance proceeds except for any
amount thereof paid with respect to Lessee's Personal Property.
(b) If during the Term the Leased Property is partially destroyed by a
risk covered by the insurance described in Article XIII, but the Facility is not
------------
thereby rendered Unsuitable or Uneconomic for its Primary Intended Use, Lessor
or, at the election of Lessor, Lessee shall restore the Facility at Lessor's
cost in accordance with subsection (c) below to substantially the same condition
as existed immediately before the damage or destruction and otherwise in
accordance with the terms of the Lease, and this Lease shall not terminate as a
result of such damage or destruction. If Lessee restores the Facility, the
insurance proceeds shall be paid out by Lessor from time to time for the
reasonable costs of such restoration upon satisfaction of terms and conditions
specified by Lessor, and any excess proceeds remaining after such restoration
shall be paid to Lessor except for any amount thereof paid with respect to
Lessee's Personal Property. If the insurance proceeds are not adequate to
complete such restoration, Lessor shall fund all such excess costs in accordance
with subsection (c) below.
(c) If the Facility is to be restored in connection with the provisions
of Section 14.2(b) and if the cost of the repair or restoration exceeds the
---------------
amount of proceeds received by Lessor from the insurance required under
Article XIII, Lessor shall contribute any excess amounts needed to restore the
- ------------
Facility prior to requiring Lessee to commence such work. Such difference shall
be made available by Lessor, together with any other insurance proceeds, for
application to the cost of repair and restoration in accordance with the
provisions of
Section 14.2(b).
- ---------------
14.3 Reconstruction in the Event of Damage or Destruction Not Covered by
-------------------------------------------------------------------
Insurance. If during the Term the Facility is totally or materially damaged or
- ---------
destroyed by a risk not covered by the insurance described in Article XIII, or
------------
if the Holder will not make the proceeds of such insurance available to Lessor
for restoration of the Facility, whether or not in either event such damage or
destruction renders the Facility Unsuitable or Uneconomic for its Primary
Intended Use, Lessor at its option shall either, (a) at Lessor's sole cost and
expense, restore the Facility to substantially the same condition it was in
immediately before such damage or destruction and this Lease shall not terminate
as a result of such damage or destruction, or (b) terminate the Lease and
neither Lessor nor Lessee shall have any further liability thereunder except for
any liabilities which have arisen or occurred prior to such termination and
those which expressly survive termination of this Lease. If such damage or
destruction is determined by Lessor not to be material, Lessor may, at Lessor's
sole cost and expense, restore the Facility to substantially the same condition
as existed immediately before the damage or destruction and otherwise in
accordance with the terms of the Lease, and this
<PAGE>
Lease shall not terminate as a result of such damage or destruction.
14.4 Lessee's Property and Business Interruption Insurance. All insurance
-----------------------------------------------------
proceeds payable by reason of any loss of or damage to any of Lessee's Personal
Property and the business interruption insurance maintained for the benefit of
Lessee shall be paid to Lessee; provided, however, no such payments shall
diminish or reduce the insurance payments otherwise payable to or for the
benefit of Lessor hereunder.
14.5 Abatement of Rent. Any damage or destruction due to casualty
-----------------
notwithstanding, this Lease shall remain in full force and effect and Lessee's
obligation to pay Rent required by this Lease shall remain unabated by any
damage or destruction which does not result in a reduction of Gross Revenues.
If and to the extent that any damage or destruction results in a reduction of
Gross Revenues which would otherwise be realizable from the operation of the
Facility, then Lessor shall receive all loss of income insurance and Lessee
shall have no obligation to pay Rent other than the amount of Percentage Rent,
if any, realizable from Gross Revenues generated by the operation of the Leased
Property during the existence of such damage or destruction; provided, however,
that if such damage or destruction was caused by Lessee's gross negligence or
willful misconduct, Lessee shall remain liable for the amount of Rent which
would have been payable hereunder at a rate equal to the average Rent during the
last three preceding 12-month Lease Years (or if three 12-month Lease Years
shall not have elapsed, the average during the preceding 12-month Lease Years or
if one Lease Year has not elapsed, the amount derived by annualizing the
Percentage Rent from the Commencement Date of this Lease), as if such damage or
destruction had not occurred.
ARTICLE XV
-----------
CONDEMNATION
------------
15.1 Definitions.
-----------
(a) "Condemnation" means a Taking resulting from (1) the exercise of any
------------
governmental power, whether by legal proceedings or otherwise, by a Condemnor,
and (2) a voluntary sale or transfer by Lessor to any Condemnor, either under
threat of condemnation or while legal proceedings for condemnation are pending.
(b) "Date of Taking" means the date the Condemnor has the right to
--------------
possession of the property being condemned.
(c) "Award" means all compensation, sums or anything of value awarded,
-----
paid or received on a total or partial Condemnation.
(d) "Condemnor" means any public or quasi-public authority, or private
---------
corporation or individual, having the power of Condemnation.
15.2 Parties' Rights and Obligations. If during the Term there is any
-------------------------------
Condemnation of all or any part of the Leased Property or any interest in this
Lease, the rights and obligations of Lessor and Lessee shall be determined by
this Article XV.
----------
<PAGE>
15.3 Total Taking. If title to the fee of the whole of the Leased Property
------------
is condemned by any Condemnor, this Lease shall cease and terminate as of the
Date of Taking by the Condemnor. If title to the fee of less than the whole of
the Leased Property is so taken or condemned, which nevertheless renders the
Leased Property Unsuitable or Uneconomic for its Primary Intended Use, then
either Lessee or Lessor shall have the option, by notice to the other, at any
time prior to the Date of Taking, to terminate this Lease as of the Date of
Taking. Upon such date, if such Notice has been given, this Lease shall
thereupon cease and terminate. All Initial Base Rent, Fixed Base Rent,
Percentage Rent and Additional Charges paid or payable by Lessee hereunder shall
be apportioned as of the Date of Taking, and Lessee shall promptly pay Lessor
such amounts.
15.4 Allocation of Award. The total Award made with respect to the Leased
-------------------
Property or for loss of rent, or for Lessor's loss of business beyond the Term,
shall be solely the property of and payable to Lessor. Any Award made for loss
of Lessee's business during the remaining Term, if any, for the taking of
Lessee's Personal Property, or for removal and relocation expenses of Lessee in
any such proceedings shall be the sole property of and payable to Lessee. In
any Condemnation proceedings Lessor and Lessee shall each seek its Award in
conformity herewith, at its respective expense; provided, however, neither
Lessor nor Lessee shall initiate, prosecute or acquiesce in any proceedings that
may result in a diminution of any Award payable to the other.
15.5 Partial Taking.
--------------
(a) If title to less than the whole of the Leased Property is condemned,
and the Leased Property is not Unsuitable or Uneconomic for its Primary Intended
Use, or if Lessor is entitled but elects not to terminate this Lease as provided
in Section 15.3, then Lessor or, at Lessor's election, Lessee shall, with all
------------
reasonable dispatch and to the extent that the Holder permits the application of
the Award therefor and the Award is sufficient therefor, restore the untaken
portion of any Leased Improvements so that such Leased Improvements constitute a
complete architectural unit of the same general character and condition (as
nearly as may be possible under the circumstances) as the Leased Improvements
existing immediately prior to the Condemnation. Lessor and Lessee shall each
contribute to the cost of restoration that part of its Award specifically
allocated to such restoration, if any, together with severance and other damages
awarded for the taken Leased Improvements; provided, however, that the amount of
such contribution shall not exceed such cost.
(b) In the event of a partial Taking as described in Section 15.5(a)
---------------
which does not result in a termination of this Lease by Lessor, the Initial
Base Rent or Fixed Base Rent, as applicable, shall be abated in the manner and
to the extent that is fair, just and equitable to both Lessee and Lessor, taking
into consideration, among other relevant factors, the number of usable rooms,
the amount of square footage, or the revenues affected by such partial Taking.
If Lessor and Lessee are unable to agree upon the amount of such abatement
within thirty (30) days after such partial Taking, the matter shall be submitted
to Arbitration as provided for in Section 40.2 hereof.
------------
15.6 Temporary Taking. If the whole or any part of the Leased Property or
----------------
of Lessee's interest under this Lease is condemned by any Condemnor for its
temporary use or occupancy, this Lease shall not terminate by reason thereof,
and Lessee shall continue to pay, in the manner and at the times herein
specified, Initial Base Rent or Fixed Base Rent, as
<PAGE>
applicable, and Additional Charges, but only to the extent of the Award made to
Lessee for such Condemnation allocable to the Term. In addition, to the extent
of the remaining balance, if any, of the Award made for such Condemnation
allocable to the Term (after payment of Initial Base Rent or Fixed Base Rent, as
applicable, and Additional Charges), Lessee shall pay Percentage Rent at a rate
equal to the average Percentage Rent during the last three preceding 12-month
Lease Years (or if three 12-month Lease Years shall not have elapsed, the
average during the preceding 12-month Lease Years). Except only to the extent
that Lessee may be prevented from so doing pursuant to the terms of the order of
the Condemnor, Lessee shall continue to perform and observe all of the other
terms, covenants, conditions and obligations hereof on the part of the Lessee to
be performed and observed, as though such Condemnation had not occurred. In the
event of any Condemnation as in this Section 15.6 described, the entire amount
------------
of any Award made for such Condemnation allocable to the Term of this Lease,
whether paid by way of damages, rent or otherwise, shall be paid (a) directly to
Lessee if the Award is payable by the Condemnor on a monthly basis, or (b) if
payable by the Condemnor less frequently than on a monthly basis, the Award
shall be paid to a trustee designated by Lessor or to the Holder of a Mortgage
and made available to Lessee on terms reasonably satisfactory to Lessor or such
Holder for application pursuant to the provisions of this Section 15.6. Lessee
------------
covenants that upon the termination of any such period of temporary use or
occupancy it will, to the extent that its Award and Lessor's contribution as set
forth below are sufficient therefor, restore the Leased Property as nearly as
may be reasonably possible to the condition in which the same was immediately
prior to such Condemnation, unless such period of temporary use or occupancy
extends beyond the expiration of the Term, in which case Lessee shall not be
required to make such restoration. If restoration is required hereunder, Lessor
shall contribute to the cost of such restoration that portion of its entire
Award that is specifically allocated to such restoration in the judgment or
order of the court, if any.
ARTICLE XVI
------------
DEFAULTS
--------
16.1 Events of Default. Any one or more of the following events shall
-----------------
constitute an Event of Default (herein so called) hereunder:
(a) if Lessee fails to make any payment of Initial Base Rent, Fixed Base
Rent or Percentage Rent within ten (10) days after receipt by the Lessee of
Notice from Lessor that the same has become due and payable, provided that
Lessor shall not be required to give any such Notice more than once in any Lease
Year and that any second or subsequent failure by Lessee during such Lease Year
to make any payment of Initial Base Rent, Fixed Base Rent or Percentage Rent on
the date the same becomes due and payable shall constitute an immediate Event of
Default; or
(b) if Lessee fails to make any payment of Additional Charges within ten
(10) days after receipt by Lessee of Notice from Lessor that the same has become
due and payable; or
(c) if Lessee fails to observe or perform any other term, covenant or
condition of this Lease (other than a Performance Failure) and such failure is
not curable, or if curable is not cured by Lessee within a period of thirty (30)
days after receipt by the Lessee of
<PAGE>
Notice thereof from Lessor, unless such failure is curable but cannot with due
diligence be cured within a period of thirty (30) days, in which case it shall
not be deemed an Event of Default if (i) Lessee, within such thirty (30) day
period, proceeds with due diligence to cure the failure and thereafter
diligently completes the curing thereof within 120 days of Lessor's Notice to
Lessee, which 120-day period shall cease to run during any period that a cure of
such failure is prevented by an Unavoidable Delay and shall resume running upon
the cessation of such Unavoidable Delay, and (ii) the failure does not result in
a notice or declaration of default under any material contract or agreement to
which Lessor, the Company, or any Affiliate of either of them is a party or by
which any of their assets are bound; or
(d) if Lessee, the Guarantor or any Manager shall (i) be generally not
paying its debts as they become due, (ii) file, or consent by answer or
otherwise to the filing against it of, a petition for relief or reorganization
or arrangement or any other petition in bankruptcy, for liquidation or to take
advantage of any bankruptcy or insolvency law of any jurisdiction, (iii) make an
assignment for the benefit of its creditors, (iv) consent to the appointment of
a custodian, receiver, trustee or other officer with similar powers with respect
to it or with respect to any substantial part of its assets, (v) be adjudicated
insolvent, or (vi) take corporate action for the purpose of any of the
foregoing; or if a court or governmental authority of competent jurisdiction
shall enter an order appointing, without consent by Lessee, a custodian,
receiver, trustee or other officer with similar powers with respect to it or
with respect to any substantial part of its assets (the events described in (i)
through (vi) and the immediately preceding clause herein called a "Bankruptcy
-----------
Event"), or if an order for relief shall be entered in any case or proceeding
- -----
for liquidation or reorganization or otherwise to take advantage of any
bankruptcy or insolvency law of any jurisdiction, or ordering the dissolution,
winding-up or liquidation of Lessee, or if any petition for any such relief
shall be filed against Lessee and such petition shall not be dismissed within
ninety (90) days. Notwithstanding the foregoing, with respect to a Bankruptcy
Event with respect to a Manager, an Event of Default shall not be deemed to have
occurred if Lessee finds a replacement Manager, subject to the prior Approval of
Lessor, as soon as reasonably practicable and in no event later than one hundred
twenty (120) days following the occurrence of any of such Bankruptcy Event by
the Manager; or
(e) if Lessee, the Guarantor or any Manager is liquidated or dissolved,
or begins proceedings toward such liquidation or dissolution, or, in any manner,
ceases to do business or permits the sale or divestiture of substantially all of
its assets (a "Dissolution Event"). Notwithstanding the foregoing, Lessee shall
-----------------
be entitled to hire a new Manager, subject to the Approval of Lessor, within
thirty (30) days after Notice from Lessor to Lessee that a Dissolution Event has
occurred with respect to the current Manager, in which event such Event of
Default shall be deemed to have been cured; or
(f) if the estate or interest of Lessee in the Leased Property or any
part thereof is voluntarily or involuntarily transferred, assigned, conveyed,
levied upon or attached in any Proceeding; or
(g) if, except as a result of and to the extent required by damage,
destruction, Condemnation or Unavoidable Delay, Lessee ceases operations on the
Leased Property; or
<PAGE>
(h) if notice of a default or an event of default has been given by the
franchisor under any Franchise Agreement with respect to the Facility on the
Leased Property as a result of any action or failure to act by the Lessee or any
Person with whom the Lessee contracts for management services at the Facility,
which default or event of default is not cured within applicable cure periods
and does not arise from Lessor's breach of any of its obligations under this
Lease which are required to maintain such Franchise Agreement or ground lease(s)
in effect;
(i) if an Event of Default occurs under any or all of the Other Leases;
(j) if an Event of Default occurs under the Lease Master Agreement;
(k) if there is a breach of any of the provisions of Article XXXV and
------------
such breach continues for a period of ten (10) business days after Notice there
of to Lessee; or
(l) if Guarantor fails to perform any of its obligations or breaches
any of its covenants under the Guaranty, including, but not limited to,
Guarantor's obligation to maintain the Minimum Net Worth, and such failure is
not cured within ten (10) business days after Notice to Guarantor.
Notwithstanding anything to the contrary contained in Section 16.1(c), the
---------------
cure periods set forth in Section 16.1(c) shall not apply to any failure by
---------------
Lessee to perform any term, covenant or condition for which a different grace or
cure period is expressly set forth in any other provision of this Lease, and in
either of the foregoing events such failure shall, after the expiration of any
other grace or cure period expressly set forth elsewhere herein, constitute an
immediate Event of Default.
If litigation is commenced with respect to any alleged default under this
Lease, the prevailing party in such litigation shall receive, in addition to its
damages incurred, such sum as the court shall determine as its reasonable
attorneys' fees, and all costs and expenses incurred in connection therewith.
Lessor shall send Wyndham Management Corporation ("Wyndham Management")
------------------
copies of any Notice which Lessor has expressly agreed to send to Lessee
pursuant to this Section 16.1, and to the extent (but only to the extent) Lessee
------------
has been granted an opportunity to cure a default hereunder, Wyndham Management
shall have the simultaneous right to cure any such default by Lessee.
16.2 Remedies. Upon the occurrence of an Event of Default, Lessor shall
--------
have the right, at Lessor's option, to elect to do any one or more of the
following without further notice or demand to Lessee:
(a) terminate this Lease, in which event Lessee shall immediately
surrender the Leased Property to Lessor, and, if Lessee fails to so surrender,
Lessor shall have the right, without notice, to enter upon and take possession
of the Leased Property and to expel or remove Lessee and its effects without
being liable for prosecution or any claim for damages therefor; and Lessee
shall, and hereby agrees to, indemnify Lessor for all loss and damage which
Lessor suffers by reason of such termination, including without limitation,
damages in an amount equal to the total of:
<PAGE>
(i) the reasonable costs of recovering the Leased Property in the
event that Lessee does not promptly surrender the Leased Property, and all other
reasonable expenses incurred by Lessor in connection with Lessee's default;
(ii) the unpaid Rent earned as of the date of termination, plus
interest at the Overdue Rate accruing after the due date until such sums are
paid by Lessee to Lessor;
(iii) the total Rent (including Percentage Rent as determined below)
which Lessor would have received under this Lease for the remainder of the Term,
but discounted to the then present value at a rate of fifteen percent (15%) per
annum, less the fair market rental value of the balance of the Term as of the
time of such default discounted to the then present value at a rate of fifteen
percent (15%) per annum;
(iv) all transaction costs, application fees and conversion costs
associated with obtaining and entering into a franchise agreement with a
franchisor selected by Lessor; and
(v) all other sums of money and damages owing by Lessee to Lessor; or
(b) enter upon and take possession of the Leased Property without
terminating this Lease and without being liable for prosecution or any claim for
damages therefor, and, if Lessor elects, relet the Leased Property on such terms
as Lessor deems advisable, in which event Lessee shall pay to Lessor on demand
the reasonable costs of repossessing and reletting the Leased Property and any
deficiency between the Rent payable hereunder (including Percentage Rent as
determined below) and the rent paid under such reletting; provided, however,
that Lessee shall not be entitled to any excess payments received by Lessor from
such reletting. Lessor's failure to relet the Leased Property shall not release
or affect Lessee's liability for Rent or for damages; or
(c) enter the Leased Property without terminating this Lease and without
being liable for prosecution or any claim for damages therefor and maintain the
Leased Property and repair or replace any damage thereto or do anything for
which Lessee is responsible hereunder. Lessee shall reimburse Lessor
immediately upon demand for any expense which Lessor incurs in thus effecting
Lessee's compliance under this Lease, and Lessor shall not be liable to Lessee
for any damages with respect thereto. Notwithstanding anything herein to the
contrary, Lessee shall not be liable to Lessor for consequential, punitive or
exemplary damages.
The rights granted to Lessor in this Section 16.2 shall be cumulative of every
------------
other right or remedy provided in this Lease or which Lessor may otherwise have
at law or in equity or by statute, and the exercise of one or more rights or
remedies shall not prejudice or impair the concurrent or subsequent exercise of
other rights or remedies or constitute a forfeiture or waiver of Rent or damages
accruing to Lessor by reason of any Event of Default under this Lease.
Percentage Rent for the purposes of this Section 16.2 shall be a sum equal to
------------
(i) the average of the annual amounts of the Percentage Rent for the three 12-
month Lease Years
<PAGE>
immediately preceding the Lease Year in which the termination, re-entry or
repossession takes place, or (ii) if three 12-month Lease Years shall not have
elapsed, the average of the Percentage Rent during the preceding 12-month Lease
Years during which the Lease was in effect, or (iii) if one Lease Year has not
elapsed, the amount derived by annualizing the Percentage Rent from the
effective date of this Lease.
16.3 Waiver. Each party waives, to the extent permitted by applicable law,
------
any right to a trial by jury in any proceedings brought by either party to
enforce the provisions of this Lease, including, without limitation, proceedings
to enforce the remedies set forth in this Article XVI, and to the extent
-----------
permitted by applicable law, Lessee waives the benefit of any laws now or
hereafter in force exempting property from liability for rent or for debt.
16.4 Application of Funds. Any payments received by Lessor under any of
--------------------
the provisions of this Lease during the existence or continuance of any Event of
Default shall be applied to Lessee's obligations in the order that Lessor may
reasonably determine or as may be prescribed by the laws of the State.
ARTICLE XVII
-------------
LESSOR'S RIGHT TO CURE
----------------------
17.1 Lessor's Right to Cure Lessee's Default. If Lessee fails to make any
---------------------------------------
payment or to perform any act required to be made or performed under this Lease
including, without limitation, Lessee's failure to comply with the terms of any
Franchise Agreement, and fails to cure the same within the relevant time
periods, if any, provided in Section 16.1 or elsewhere in this Lease, Lessor,
------------
without waiving or releasing any obligation of Lessee, and without waiving or
releasing any obligation or default, may (but shall be under no obligation to)
at any time thereafter upon Notice to Lessee make such payment or perform such
act for the account and at the expense of Lessee, and may, to the extent
permitted by law, enter upon the Leased Property for such purpose and, subject
to Section 16.2, take all such action thereon as, in Lessor's opinion, may be
------------
necessary or appropriate therefor. No such entry shall be deemed an eviction of
Lessee. All sums so paid by Lessor and all costs and expenses (including,
without limitation, reasonable attorneys' fees and expenses, in each case to the
extent permitted by law) so incurred, together with a late charge thereon (to
the extent permitted by law) at the Overdue Rate from the date on which such
sums or expenses are paid or incurred by Lessor until such sums or expenses are
paid by Lessee to Lessor, shall constitute Additional Charges and shall be paid
by Lessee to Lessor on demand. The obligations of Lessee and rights of Lessor
contained in this Article shall survive the expiration or earlier termination of
this Lease.
ARTICLE XVIII
--------------
REIT LIMITATIONS
----------------
18.1 Personal Property Limitation. Anything contained in this Lease to the
----------------------------
contrary notwithstanding, the average of the adjusted tax bases of the items of
Lessor's personal property that are leased to the Lessee under this Lease at the
beginning and at the end of any Lease Year shall not exceed 15% of the average
of the aggregate adjusted tax bases of the Leased Property at the beginning and
at the end of such Lease Year (the "Personal Property
-----------------
<PAGE>
Limitation"). Lessor and Lessee shall at all times cooperate in good faith and
- ----------
use their best efforts to permit Lessor to comply with the Personal Property
Limitation, which compliance may include, by way of example only and not by way
of limitation or obligation, the purchase by Lessee at fair market value of
personal property in excess of the Personal Property Limitation. All such
compliance shall be effected in a manner which has no material net economic
detriment to Lessee and will not jeopardize the Company's status as a real
estate investment trust under the applicable provisions of the Code. This
Section 18.1 is intended to ensure that the Rent qualifies as "rents from real
- ------------
property," within the meaning of Section 856(d) of the Code, or any similar or
successor provisions thereto, and shall be interpreted in a manner consistent
with such intent.
18.2 Sublease Rent Limitation. Anything contained in this Lease to the
------------------------
contrary notwithstanding, Lessee shall not sublet the Leased Property or enter
into any licenses or concessions or enter into any similar arrangement on any
basis such that the rental or other amounts to be paid by the sublessee
thereunder would be based, in whole or in part, on either (a) the net income or
profits derived by the business activities of the sublessee, license, or
concessionaire, or (b) any other formula such that any portion of the Rent would
fail to qualify as "rents from real property" within the meaning of Section
856(d) of the Code, or any similar or successor provision thereto.
18.3 Sublease Lessee Limitation. Anything contained in this Lease to the
--------------------------
contrary notwithstanding, Lessee shall not sublease the Leased Property to, or
enter into any license, concession or similar arrangement with, any Person in
which the Company owns, directly or indirectly, a 10% or more interest, within
the meaning of Section 856(d)(2)(B) of the Code, or any Person in which Patriot
American Hospitality Partnership, L.P. owns, directly or indirectly, a ten
percent (10%) or more interest within the meaning of the same section as
modified by Section 7704(d)(3)(B) of the Code or any similar or successor
provisions thereto.
18.4 Lessee Ownership Limitation. Anything contained in this Lease to the
---------------------------
contrary notwithstanding, Lessor shall not take, or permit an Affiliate of
Lessor to take, any action that would cause the Company to own, directly or
indirectly, a 10% or more interest in the Lessee within the meaning of Section
856(d)(2)(B) of the Code, or that would cause Patriot American Hospitality
Partnership, L.P. to own, directly or indirectly, a ten percent (10%) or more
interest in the Lessee within the meaning of the same Section as modified by
Section 7704(d)(3)(B) of the Code, or any similar or successor provisions
thereto. Anything contained in this Lease to the contrary notwithstanding,
Lessee shall not take, or permit an Affiliate of Lessee to take, any action that
would cause the Company to own, directly or indirectly, a 10% or more interest
in the Lessee within the meaning of Section 856(d)(2)(B) of the Code, or that
would cause Patriot American Hospitality Partnership, L.P. to own, directly or
indirectly, a ten percent (10%) or more interest in the Lessee within the
meaning of the same Section as modified by Section 7704(d)(3)(B) of the Code, or
any similar or successor provisions thereto. Anything contained in this Lease
to the contrary notwithstanding, Lessee shall not take, or permit an Affiliate
of Lessee to take, any action that would cause Lessee to bear a direct or
indirect relationship to the former owner of the Leased Property within the
meaning of Section 514(c)(9)(B)(iii) of the Code, or that would cause Lessee to
bear a direct or indirect relationship to the Central States, Southeast and
Southwest Areas Pension Fund within the meaning of Section 514(c)(9)(B)(iv) of
the Code. Any transfer of interests in the Lessee pursuant to Section 35.4
------------
shall be deemed to be an action of Lessee for purposes of this Section 18.4.
------------
<PAGE>
18.5 Director, Officer and Employee Limitation. Anything contained in this
-----------------------------------------
Lease to the contrary notwithstanding, Lessor and Lessee shall cooperate to
ensure that (i) no directors, officers or employees of Lessor or the Company
shall be directors, officers or employees of, or own any ownership interest in,
Lessee or any Affiliate thereof (or any Person who furnishes or renders services
to the tenants of the Leased Property, or manages or operates the Leased
Property), and (ii) no directors, officers or employees of Lessee or any
Affiliate thereof (or of any Person who furnishes or renders services to the
tenants of the Leased Property, or manages or operates the Leased Property)
shall be directors, officers or employees of Lessor or the Company.
18.6 Schedule of Stockholders. Upon the Commencement Date, Lessee shall
------------------------
provide to Lessor a schedule of all stockholders who own of record or
beneficially ten percent (10%) or more of the outstanding capital stock of
Lessee. During the Term, Lessee shall promptly provide Lessor with Notice of
any changes in the foregoing schedule. Lessee represents and warrants that as
of the Commencement Date it is not directly or indirectly related to the former
owner of the Leased Property within the meaning of Section 514(c)(9)(B)(iii) of
the Code, or directly or indirectly related to the Central States, Southeast and
Southwest Areas Pension Fund within the meaning of Section 514(c)(9)(B)(iv) of
the Code. Lessee shall from time to time provide such information as Lessor may
reasonably request to verify Lessee's compliance with Section 18.4 and this
------------
Section 18.6.
- ------------
ARTICLE XIX
------------
HOLDING OVER
------------
19.1 Holding Over. If Lessee for any reason remains in possession of the
------------
Leased Property after the expiration or earlier termination of the Term, such
possession shall be as a tenant at sufferance during which time Lessee shall pay
as rental each month two times the aggregate of (a) one-twelfth of the aggregate
Initial Base Rent, or Fixed Base Rent, as applicable, and Percentage Rent
payable with respect to the last Lease Year of the Term, (b) all Additional
Charges accruing during the applicable month and (c) all other sums, if any,
payable by Lessee under this Lease with respect to the Leased Property. During
such period, Lessee shall be obligated to perform and observe all of the terms,
covenants and conditions of this Lease, but shall have no rights hereunder other
than the right, to the extent given by law to tenancies at sufferance, to
continue its occupancy and use of the Leased Property. Nothing contained herein
shall constitute the consent, express or implied, of Lessor to the holding over
of Lessee after the expiration or earlier termination of this Lease.
ARTICLE XX
-----------
INDEMNITIES
-----------
20.1 Indemnification.
---------------
(a) LESSEE WILL PROTECT, INDEMNIFY, HOLD HARMLESS AND DEFEND LESSOR
INDEMNIFIED PARTIES FROM AND AGAINST ALL LIABILITIES, OBLIGATIONS, CLAIMS,
DAMAGES, PENALTIES, CAUSES OF ACTION, COSTS AND EXPENSES (INCLUDING, WITHOUT
LIMITATION, REASONABLE ATTORNEYS' FEES AND EXPENSES), TO THE EXTENT PERMITTED BY
LAW,
<PAGE>
INCLUDING THOSE RESULTING FROM A LESSOR INDEMNIFIED PARTY'S OWN NEGLIGENCE but
excluding those resulting from (the items described in (i) through (iii) herein
called "Lessor Excluded Acts")(i) liabilities, obligations, claims, damages and
--------------------
penalties resulting from Emergency Situations arising at the Facility for which
Lessor has the express obligation to fund Capital Expenditures to remediate such
Emergency Situations and Lessor has failed to fund such Capital Expenditures
within ten (10) days following written demand from Lessee to do so, (ii) the
negligence of Lessor or its agents, employees, contractors or invitees when
actually performing alterations or other capital work which are not obligations
of Lessee and are not performed or supervised by Lessee on behalf of Lessor or
(iii) a Lessor Indemnified Party's gross negligence or willful misconduct,
imposed upon or incurred by or asserted against Lessor Indemnified Parties by
reason of: (a) any accident, injury to or death of persons or loss of or damage
to property occurring on or about the Leased Property or adjoining sidewalks,
during the Term or while the Leased Property is in the possession or control of
Lessee including without limitation any claims under liquor liability, "dram
shop" or similar laws, (b) any past, present or future use, misuse, non-use,
condition, management, operation, maintenance or repair by Lessee or any of its
agents, employees, contractors or invitees of the Leased Property or Lessee's
Personal Property or any litigation, proceeding or claim by governmental
entities or other third parties to which a Lessor Indemnified Party is made a
party or participant related to such use, misuse, non-use, condition,
management, operation, maintenance, or repair thereof by Lessee or any of its
agents, employees, contractors or invitees, including any failure of Lessee or
any of its agents, employees, contractors or invitees to perform any obligations
under this Lease or imposed by applicable law (other than arising out of
Condemnation proceedings), (c) any Impositions that are the obligations of
Lessee pursuant to the applicable provisions of this Lease, (d) any failure on
the part of Lessee to perform or comply with any of the terms of this Lease, and
(e) the nonperformance by Lessee or any of its agents, employees or contractors
of any of the terms and provisions of any and all existing and future subleases
of the Leased Property to be performed by the landlord thereunder.
(b) Lessor will protect, indemnify, hold harmless and defend Lessee
Indemnified Parties from and against all liabilities, obligations, claims,
damages, penalties, causes of action, costs and expenses (including, without
limitation, reasonable attorneys' fees and expenses) imposed upon or incurred by
or asserted against Lessee Indemnified Parties as a result of (a) the gross
negligence or willful misconduct of Lessor arising in connection with this Lease
or the Facility, (b) any failure on the part of Lessor to perform or comply with
any of the terms of this Lease or (c) any Lessor Excluded Acts.
(c) Any amounts that become payable by an Indemnifying Party under this
Section shall be paid within ten (10) days after liability therefor on the part
of the Indemnifying Party is determined by litigation or otherwise, and if not
timely paid, shall bear a late charge (to the extent permitted by law) at the
Overdue Rate from the date of such determination to the date of payment. Any
such amounts shall be reduced by insurance proceeds received and any other
recovery (net of costs) obtained by the Indemnified Party. An Indemnifying
Party, upon request, shall at its sole expense resist and defend any Proceeding,
claim or action, or cause the same to be resisted and defended by counsel
designated by the Indemnifying Party and approved by the Indemnified Party,
which Approval shall not be unreasonably withheld; provided, however, that such
Approval shall not be required in the case of defense by counsel designated by
any insurance company undertaking such defense pursuant to any applicable policy
of insurance. Each Indemnified Party shall have the right to
<PAGE>
employ separate counsel in any such Proceeding, claim or action and to
participate in the defense thereof, but the fees and expenses of such counsel
will be at the sole expense of such Indemnified Party unless a conflict of
interest prevents representation of such Indemnified Party by the counsel
selected by the Indemnified Party and such separate counsel has been approved by
the Indemnifying Party, which Approval shall not be unreasonably withheld. The
Indemnifying Party shall not be liable for any settlement of any such
Proceeding, claim or action made without its consent, which consent shall not be
unreasonably withheld, but if settled with the consent of the Indemnifying
Party, or if settled without its consent (if its consent shall be unreasonably
withheld), or if there be a final, non-appealable judgment for an adversary
party in any such Proceeding, claim or action, the Indemnifying Party shall
indemnify and hold harmless the Indemnified Party from and against any
liabilities incurred by such Indemnified Party by reason of such settlement or
judgement. Nothing herein shall be construed as indemnifying an Indemnified
Party against its own grossly negligent acts or omissions or willful misconduct.
(d) Lessee's or Lessor's liability for a breach of the provisions of
this Article shall survive any termination of this Lease.
ARTICLE XXI
------------
SUBLETTING AND ASSIGNMENT
-------------------------
21.1 Subletting and Assignment.
-------------------------
(a) Subject to the provisions of Article XVIII and Sections 21.2, 21.3
------------- -------------------
and any other express consents, conditions, limitations or other provisions set
forth herein, Lessee shall not assign this Lease or hereafter sublease all or
any part of the Leased Property without first obtaining the written consent of
Lessor. Notwithstanding the foregoing, Lessee may assign its interest in this
Lease, without Lessor's consent, to Wyndham Hotel Corporation or any of its
affiliates, including, without limitation, Wyndham Management, provided such
assignment will not affect (i) material terms of the Management Agreement with
Wyndham Management including, without limitation, the fees payable to the
Manager and the services to be rendered by the Manager, (ii) Wyndham
Management's ability to manage the Leased Property or (iii) Lessor's rights or
Wyndham Hotel Corporation's obligations with respect to Section 37.2. In the
------------
case of a permitted subletting, the sublessee shall comply with the provisions
of Sections 18.2, 18.3, 18.4, 18.5, 18.6, 21.2 and 21.3, and in the case of a
------------------------------------------- ----
permitted assignment, the assignee shall assume in writing and agree to keep and
perform all of the terms of this Lease on the part of Lessee to be kept and
performed and shall be, and become, jointly and severally liable with Lessee for
the performance thereof. In case of either an assignment or subletting made
during the Term, Lessee shall remain primarily liable, as principal rather than
as surety, for the prompt payment of the Rent and for the performance and
observance of all of the covenants and conditions to be performed by Lessee
hereunder. An original counterpart of each such sublease and assignment and
assumption, duly executed by Lessee and such sublessee or assignee, as the case
may be, in form and substance satisfactory to Lessor, shall be delivered
promptly to Lessor.
21.2 Attornment. Lessee shall insert in each future sublease permitted
----------
under Section 21.1 provisions to the effect that (a) such sublease is subject
------------
and subordinate to all of the terms and provisions of this Lease and to the
rights of Lessor hereunder, (b) if this Lease
<PAGE>
terminates before the expiration of such sublease, the sublessee thereunder
will, at Lessor's option, attorn to Lessor and waive any right the sublessee may
have to terminate the sublease or to surrender possession thereunder as a result
of the termination of this Lease, and (c) if the sublessee receives a written
Notice from Lessor or Lessor's assignees, if any, stating that an uncured Event
of Default exists under this Lease, the sublessee shall thereafter be obligated
to pay all rentals accruing under said sublease directly to the party giving
such Notice, or as such party may direct. All rentals received from the
sublessee by Lessor or Lessor's assignees, if any, as the case may be, shall be
credited against the amounts owing by Lessee under this Lease.
21.3 Management Agreement. Lessee shall not enter into any management or
--------------------
agency agreement relating to the management or operation of the Facility or any
modifications to such management or agency agreement (collectively, the
"Management Agreement") without Lessor's prior written Approval of the terms and
- ---------------------
conditions thereof and if the Manager is not an Affiliate of Lessee (or, is not
Wyndham Hotel Corporation or any of its subsidiaries) the identity of any
manager of the Facility (the "Manager"), such Approval not to be unreasonably
-------
withheld. The Management Agreement shall provide, among other things, that (i)
upon termination of this Lease or termination of Lessee's right to possession of
the Leased Property for any reason whatsoever, the Management Agreement may be
terminated by Lessor without liability for any payment due or to become due to
the Manager except as otherwise provided in Section 36.1(c) hereof, and (ii) all
fees and other amounts, excluding reimbursable expenses payable to Manager,
payable by Lessee to the Manager shall be fully subordinate to an amount of Rent
equal to Initial Base Rent and Fixed Base Rent, as the case may be, as increased
from time to time hereunder.
ARTICLE XXII
-------------
ESTOPPEL CERTIFICATES
---------------------
22.1 Officer's Certificates; Financial Statements; Lessor's Estoppel
---------------------------------------------------------------
Certificates and Covenants.
- --------------------------
(a) At any time and from time to time upon not less than fifteen (15)
days Notice by Lessor, Lessee will furnish to Lessor an Officer's Certificate
certifying that this Lease is unmodified and in full force and effect (or that
this Lease is in full force and effect as modified and setting forth the
modifications), the date to which the Rent has been paid, whether to the
knowledge of Lessee there is any existing default or Event of Default hereunder
by Lessor or Lessee, and such other information as may be reasonably requested
by Lessor. Any such certificate furnished pursuant to this Section may be relied
upon by Lessor, any lender, any underwriter and any prospective purchaser of the
Leased Property.
(b) Lessee will furnish the following statements and operating
information to Lessor:
(1) the most recent Consolidated Financials of Lessee within
thirty (30) days after each quarter of any fiscal year (or, in the case of the
final quarter in any fiscal year, the most recent audited Consolidated
Financials of Lessee within sixty (60) days);
<PAGE>
(2) with reasonable promptness, such other information respecting
the financial condition, operations and affairs of Lessee or the Leased Property
(A) as Lessor or the Company may be required or may deem desirable in its
reasonable discretion to file with or provide to the SEC or any other
governmental agency or any other Person, all in the form, and unaudited (or
audited, at Lessor's expense), as Lessor may request in Lessor's reasonable
discretion, (B) as may be reasonably necessary to confirm compliance by Lessee
and its Affiliates with the requirements of this Lease, and (C) as may be
required or requested by any existing, potential or future Holder;
(3) on or before the 15th day of each month, a balance sheet, and
detailed profit and loss and cash flow statements showing the financial position
of the Facility as at the end of the preceding month and the results of
operation of the Facility for such preceding month and the Lease Year to date
(including a comparison to the Operating Budget as approved);
(4) on or before the 15th day of each month, the general manager's
written critique of the financial report submitted pursuant to subsection (3)
immediately above, setting forth in narrative form any variations during the
preceding month from the Annual Budget and including a preview of the Facility's
financial operations during the current month;
(5) on or before the 15th day of each April, July and October
during the Term, an updated estimate for each calendar quarter remaining in the
Lease Year of the information required by Sections 3.5(a) and (e) hereof;
--------------- ---
(6) monthly STR Reports within five (5) days of Lessee's receipt
thereof;
(7) within five (5) days of Lessee's receipt thereof, any
inspection reports received from the franchisor under any Franchise Agreement;
and
(8) upon request by Lessor, copies of all licenses, permits,
occupancy agreements, operating agreements, leases, contracts, inspection
reports, studies, appraisals, assessments, default or other notices and similar
materials and information existing with respect to the Leased Property not
previously delivered to Lessor or an Affiliate of Lessor.
(c) At any time and from time to time upon not less than ten (10) days
notice by Lessee, Lessor will furnish to Lessee or to any person designated by
Lessee an estoppel certificate certifying that this Lease is unmodified and in
full force and effect (or that this Lease is in full force and effect as
modified and setting forth the modifications), the date to which Rent has been
paid, whether to the knowledge of Lessor there is any existing default or Event
of Default on Lessee's part hereunder, and such other information as may be
reasonably requested by Lessee. Any such certificate furnished pursuant to this
Section may be relied upon by Lessee, any lender, any underwriter and any
purchaser of the assets of Lessee.
(d) Lessee covenants to cause its officers and employees, its Manager
and its auditors to cooperate fully and promptly with Lessor and the Company and
with the auditors
<PAGE>
for Lessor and the Company in connection with the timely preparation and filing
of Lessor's and the Company's filings, reports and returns under applicable
federal, state and other governmental securities, blue sky and tax laws and
regulations. Lessor covenants to cause its officers and employees and auditors
to cooperate fully with Lessee and Lessee's auditors in connection with the
timely preparation and filing of Lessee's filings, reports and returns under
applicable federal, state and other governmental securities, blue sky and tax
laws and regulations.
ARTICLE XXIII
--------------
INSPECTIONS
-----------
23.1 Regular Meetings; Lessor's Right to Inspect.
-------------------------------------------
(a) Lessee agrees that a senior level representative of operations of
the Facility (such as the general manager or controller) and if requested by
Lessor, the general manager, will meet with Lessor and its representatives on a
monthly basis throughout each Lease Year in order to discuss all aspects of the
management, maintenance and operation of the Facility.
(b) Lessee shall permit Lessor and its representatives as frequently
as reasonably requested by Lessor, but not more frequently than monthly, to
inspect the Leased Property and Lessee's accounts and records pertaining thereto
and make copies thereof, during usual business hours upon reasonable advance
notice, subject only to any business confidentiality requirements reasonably
requested by Lessee. In conducting such inspections Lessor shall not
unreasonably interfere with the conduct of Lessee's business at the Leased
Property.
(c) Subject to availability, Lessee will provide reasonable gratuitous
accommodations, food and beverage, and other services and amenities to Lessor
and its representatives in connection with all such meetings and inspections.
ARTICLE XXIV
-------------
NO WAIVER
---------
24.1 No Waiver. No failure by Lessor or Lessee to insist upon the strict
---------
performance of any term hereof or to exercise any right, power or remedy
consequent upon a breach thereof, and no acceptance of full or partial payment
of Rent during the continuance of any such breach, shall constitute a waiver of
any such breach or of any such term. To the extent permitted by law, no waiver
of any breach shall affect or alter this Lease, which shall continue in full
force and effect with respect to any other then existing or subsequent breach.
<PAGE>
ARTICLE XXV
------------
CUMULATIVE REMEDIES
-------------------
25.1 Remedies Cumulative. To the extent permitted by law but subject to
-------------------
Article XXXIX and any other provisions of this Lease expressly limiting the
- -------------
rights, powers and remedies of either Lessor or Lessee, each legal, equitable or
contractual right, power and remedy of Lessor or Lessee now or hereafter
provided either in this Lease or by statute or otherwise shall be cumulative and
concurrent and shall be in addition to every other right, power and remedy and
the exercise or beginning of the exercise by Lessor or Lessee of any one or more
of such rights, powers and remedies shall not preclude the simultaneous or
subsequent exercise by Lessor or Lessee of any or all of such other rights,
powers and remedies.
ARTICLE XXVI
-------------
SURRENDER
---------
26.1 Acceptance of Surrender. Other than upon expiration of the Term, no
-----------------------
surrender to Lessor of this Lease or of the Leased Property or any part thereof,
or of any interest therein, shall be valid or effective unless agreed to and
accepted in writing by Lessor and no act by Lessor or any representative or
agent of Lessor, other than such a written acceptance by Lessor, shall
constitute an acceptance of any such surrender.
ARTICLE XXVII
--------------
NO MERGER
---------
27.1 No Merger of Title. There shall be no merger of this Lease or of the
------------------
leasehold estate created hereby by reason of the fact that the same person or
entity may acquire, own or hold, directly or indirectly: (a) this Lease or the
leasehold estate created hereby or any interest in this Lease or such leasehold
estate and (b) the fee estate in the Leased Property.
ARTICLE XXVIII
---------------
CONVEYANCE BY LESSOR
--------------------
28.1 Conveyance by Lessor. Lessor shall have the unrestricted right to
--------------------
mortgage or otherwise convey the Leased Property to a Holder. If Lessor conveys
the Leased Property in accordance with the terms hereof other than to a Holder,
and the grantee or transferee of the Leased Property expressly assumes all
obligations of Lessor hereunder arising or accruing from and after the date of
such conveyance or transfer, Lessor shall thereupon be released from all future
liabilities and obligations of Lessor under this Lease arising or accruing from
and after the date of such conveyance or other transfer as to the Leased
Property and all such future liabilities and obligations shall thereupon be
binding upon the new owner. If Lessee is not reasonably satisfied that the new
owner (a) is not a competitor of Lessee or Manager or (b) is a capable, reliable
and qualified Person of good reputation and character, or (c) has a Net Worth
sufficient to satisfy the Lessor's obligations under this Lease, Lessee (i) may
terminate this Lease upon sixty (60) days' Notice to Lessor given within thirty
(30) days after
<PAGE>
Lessee receives Notice of such conveyance or (ii) shall have a Right of First
Refusal (herein so called) to purchase the Facility on substantially the same
terms and conditions as Lessor intends to sell to such third party. Lessor
shall provide Notice, including all terms and conditions, to Lessee of any bona
fide third party offers to acquire the Facility subject to this Lease which
Lessor desires to accept. Lessee shall then have a period of ten (10) business
days after receipt of such Notice to notify Lessor of its intention to accept or
refuse such offer. In the event Lessee rejects an offer as provided herein,
Lessor may sell the Facility on substantially the same terms and conditions as
were set forth in the Notice within two hundred seventy (270) days after Lessee
rejects such offer. If Lessor fails to consummate the transaction described in
the Notice within such two hundred seventy (270) day period or intends to
consummate such transaction on terms and conditions which are not substantially
the same terms and conditions as were provided in the Notice, Lessor shall so
notify Lessee and Lessee shall have a period of ten (10) business days to accept
or reject a subsequent offer in the manner as provided in this Section 28.1. A
------------
"bona fide third party offer" shall mean either a binding or non-binding letter
of intent or written proposal containing provisions upon which Lessor and the
prospective purchaser are willing to enter into a purchase and sale contract for
the purchase and sale of the Facility subject to this Lease. In the event
Lessee exercises its right of first refusal as provided in this Section 28.1,
such exercise shall constitute an unconditional and binding obligation of Lessee
to purchase the Facility on substantially the same terms and conditions as were
provided in the Notice. If Lessor fails to offer Lessee a Right of First
Refusal under this Section 28.2, Lessee shall have the right to terminate this
------------
Lease and receive the termination fee described in Section 36.1(b) below.
---------------
28.2 Lessor May Grant Liens.
----------------------
(a) Without the consent of Lessee, Lessor may from time to time,
directly or indirectly, create or otherwise cause to exist any lien, encumbrance
or title retention agreement upon the Leased Property, or any portion thereof or
interest therein, or upon Lessor's interest in this Lease, whether to secure any
borrowing or other means of financing or refinancing. This Lease and Lessee's
interest hereunder shall at all times be subject and subordinate to the lien and
security title of any deeds to secure debt, deeds of trust, mortgages, or other
interests heretofore or hereafter granted by Lessor or which otherwise encumber
or affect the Leased Property and to any and all advances to be made thereunder
and to all renewals, modifications, consolidations, replacements, substitutions,
and extensions thereof (all of which are herein called the "Mortgage"), provided
--------
that the Mortgage and all security agreements delivered by Lessor in connection
therewith shall be subject to Lessee's rights under this Lease to receive all
Gross Revenues of the Facility prior to the earlier of the occurrence of an
Event of Default or the date that this Lease is terminated by the Holder of the
Mortgage in the exercise of its remedies thereunder. In confirmation of such
subordination, however, Lessee shall, at Lessor's request, promptly execute,
acknowledge and deliver any instruments which may be required to evidence
subordination to any Mortgage and to the Holder thereof and the assignment of
this Lease and Lessor's rights and interests thereunder to such Holder. In the
event of Lessee's failure to deliver such instruments and if the Mortgage and
such instruments do not change any term of this Lease, Lessor may, in addition
to any other remedies for breach of covenant hereunder, execute, acknowledge,
and deliver the instrument as the agent or attorney-in-fact of Lessee, and
Lessee hereby irrevocably constitutes Lessor its attorney-in-fact for such
purpose, Lessee acknowledging that the appointment is coupled with an interest
and is irrevocable.
<PAGE>
(b) Lessee shall, upon the request of Lessor or any existing,
potential or future Holder, (i) provide Lessor or such Holder with copies of all
licenses, permits, occupancy agreements, operating agreements, leases,
contracts, inspection reports, studies, appraisals, assessments, default or
other notices and similar materials reasonably requested in connection with any
existing or proposed financing of the Leased Property, and (ii) execute, and/or
cause the Manager to execute, as applicable, such estoppel agreements and
collateral assignments with respect to the Facility's liquor license, the
Management Agreement and any of the other aforementioned agreements as Holder
may reasonably request in connection with any such financing, provided that no
such estoppel agreement or collateral assignment shall in any way affect the
Term or affect any rights of Lessee under this Lease or otherwise amend the
provisions of this Lease.
(c) No act or failure to act on the part of Lessor which would entitle
Lessee under the terms of this Lease, or by law, to be relieved of any of
Lessee's obligations hereunder (including, without limitation, its obligation to
pay Rent) or to terminate this Lease, shall result in a release or termination
of such obligations of Lessee or a termination of this Lease unless: (i) Lessee
shall have first given written notice of Lessor's act or failure to act to the
Holder, specifying the act or failure to act on the part of Lessor which would
give basis to Lessee's rights; and (ii) the Holder, after receipt of such
notice, shall have failed or refused to correct or cure the condition complained
of within a reasonable time thereafter (in no event less than sixty (60) days),
which shall include a reasonable time for such Holder to obtain possession of
the Leased Property, if possession is reasonably necessary for the Holder to
correct or cure the condition, or to foreclose such Mortgage, and if the Holder
notifies the Lessee of its intention to take possession of the Leased Property
or to foreclose such Mortgage, and correct or cure such condition. If such
Holder is prohibited by any process or injunction issued by any court or by
reason of any action by any court having jurisdiction or any bankruptcy, debtor
rehabilitation or insolvency proceedings involving Lessor from commencing or
prosecuting foreclosure or other appropriate proceedings in the nature thereof,
the times for commencing or prosecuting such foreclosure or other proceedings
shall be extended for the period of such prohibition.
(d) Lessee shall deliver by notice delivered in the manner provided in
Article XXX to any Holder who gives Lessee written notice of its status as a
- -----------
Holder, at such Holder's address stated in the Holder's written notice or at
such other address as the Holder may designate by later written notice to
Lessee, a duplicate copy of any and all notices regarding any default which
Lessee may from time to time give or serve upon Lessor pursuant to the
provisions of this Lease. Copies of such notices given by Lessee to Lessor
shall be delivered to such Holder simultaneously with delivery to Lessor. No
such notice by Lessee to Lessor hereunder shall be deemed to have been given
unless and until a copy thereof has been mailed to such Holder.
(e) At any time, and from time to time, upon not less than ten (10)
days' notice by a Holder to Lessee, Lessee shall deliver to such Holder an
estoppel certificate certifying as to the information required in Section
22.1(c), and such other information as may be reasonably requested by such
Holder. Any such certificate may be relied upon by such Holder.
(f) Lessee shall cooperate in all reasonable respects, and as
generally described in Section 42.2 of this Lease, with any transfer of the
------------
Leased Property to a Holder
<PAGE>
that succeeds to the interest of Lessor in the Leased Property (including,
without limitation, in connection with the transfer of any franchise, license,
lease, permit, contract, agreement, or similar item to such Holder or such
Holder's designee necessary or appropriate to operate the Leased Property).
Lessor and Lessee shall cooperate in (i) including in this Lease by suitable
amendment from time to time any provision which may be requested by any proposed
Holder, or may otherwise be reasonably necessary, to implement the provisions of
this Article and (ii) entering into any further agreement with or at the request
of any Holder which may be reasonably requested or required by such Holder in
furtherance or confirmation of the provisions of this Article; provided,
however, that any such amendment or agreement shall not in any way affect the
Term nor affect any rights of Lessor or Lessee under this Lease.
ARTICLE XXIX
-------------
QUIET ENJOYMENT
---------------
29.1 Quiet Enjoyment. So long as Lessee pays all Rent as the same becomes
---------------
due and complies with all of the terms of this Lease and performs its
obligations hereunder, in each case within the applicable grace and/or cure
periods, if any, Lessee shall peaceably and quietly have, hold and enjoy the
Leased Property for the Term hereof, free of any claim or other action by Lessor
or anyone claiming by, through or under Lessor and not claiming by, through or
under Lessee, but subject to all liens and encumbrances subject to which the
Leased Property was conveyed to Lessor or hereafter consented to by Lessee or
provided for herein. Lessee shall have the right by separate and independent
action to pursue any claim it may have against Lessor as a result of a breach by
Lessor of the covenant of quiet enjoyment contained in this Section.
ARTICLE XXX
------------
NOTICES
-------
30.1 Notices. All notices, demands, requests, consents Approvals and other
-------
communications ("Notice" or "Notices") hereunder shall be in writing and
personally served or mailed (by express mail, courier, or registered or
certified mail, return receipt requested and postage prepaid), (i) if to Lessor
at Tri West Plaza, 3030 LBJ Freeway, Suite 1500, Dallas, Texas 75234, Attention:
Mr. Thomas W. Lattin and John P. Bohlmann and (ii) if to Lessee at 2001 Ross
Avenue, Suite 3200, Dallas, Texas 75201, Attention: Sue Groenteman, and
Wyndham Management Corporation, 2001 Bryan Tower, Suite 2300, Dallas, Texas
75201, Attn: General Counsel, or to such other address or addresses as either
party may hereafter designate. Personally delivered Notice shall be effective
upon receipt, and Notice given by mail shall be complete at the time of deposit
in the U.S. Mail system, but any prescribed period of Notice and any right or
duty to do any act or make any response within any prescribed period or on a
date certain after the service of such Notice given by mail shall be extended
five days.
<PAGE>
ARTICLE XXXI
-------------
APPRAISALS
----------
31.1 Appraisers. If it becomes necessary to determine the fair market
----------
value or fair market rental of the Leased Property for any purpose of this
Lease, then, except as otherwise expressly provided in this Lease, the party
required or permitted to give Notice of such required determination shall
include in the Notice the name of a person selected to act as appraiser on its
behalf. Within ten (10) days after Notice, Lessor (or Lessee, as the case may
be) shall by Notice to Lessee (or Lessor, as the case may be) appoint a second
person as appraiser on its behalf. The appraisers thus appointed, each of whom
must be a member of the American Institute of Real Estate Appraisers (or any
successor organization thereto) with at least five years experience in the State
appraising property similar to the Leased Property, shall, within ten (10) days
after the date of the Notice appointing the second appraiser, proceed to
appraise the Leased Property to determine the fair market value or fair market
rental thereof as of the relevant date (giving effect to the impact, if any, of
inflation from the date of their decision to the relevant date); provided,
however, that if only one appraiser shall have been so appointed, then the
determination of such appraiser shall be final and binding upon the parties. If
two appraisers are appointed and if the difference between the amounts so
determined does not exceed 5% of the lesser of such amounts, then the fair
market value or fair market rental shall be an amount equal to 50% of the sum of
the amounts so determined. If the difference between the amounts so determined
exceeds 5% of the lesser of such amounts, then such two appraisers shall have
ten (10) days to appoint a third appraiser. If no such appraiser shall have
been appointed within such ten (10) days or within sixty (60) days of the
original request for a determination of fair market value or fair market rental,
whichever is earlier, either Lessor or Lessee may apply to any court having
jurisdiction to have such appointment made by such court. Any appraiser
appointed by the original appraisers or by such court shall be instructed to
determine the fair market value or fair market rental within thirty (30) days
after appointment of such appraiser. The determination of the appraiser which
differs most in the terms of dollar amount from the determinations of the other
two appraisers shall be excluded, and 50% of the sum of the remaining two
determinations shall be final and binding upon Lessor and Lessee as the fair
market value or fair market rental of the Leased Property, as the case may be.
This provision for determining by appraisal shall be specifically enforceable to
the extent such remedy is available under applicable law, and any determination
hereunder shall be final and binding upon the parties except as otherwise
provided by applicable law. Lessor and Lessee shall each pay the fees and
expenses of the appraiser appointed by it and each shall pay one-half of the
fees and expenses of the third appraiser and one-half of all other costs and
expenses incurred in connection with each appraisal.
ARTICLE XXXII
-------------
EMPLOYEE MATTERS
----------------
32.1 Employees During the Term. Lessee acknowledges and agrees that all
-------------------------
employees involved in the use and operation of the Leased Property shall be
employees of Lessee, Manager, or one of their Affiliates and not of Lessor or
any of its Affiliates. Lessee, its Manager, and their Affiliates shall fully
comply with all Legal Requirements and all collective bargaining and other
agreements applicable to such employees.
<PAGE>
32.2 Employee Matters Upon Termination Due to an Event of Default or
---------------------------------------------------------------
Expiration of the Lease. Upon the expiration of this Lease or earlier
- -----------------------
termination of this Lease as a result of an Event of Default hereunder by
Lessee, all such employees shall be terminated or retained by Lessee, Manager or
their Affiliate, as applicable, and Lessee, Manager or their Affiliate, as
applicable, shall provide any required notices required under Legal Requirements
or other rights to such employees, all without liability to Lessor or the
Facility, or any other owner, lessee or manager of the Facility. Payment of all
costs and expenses associated with accrued but unpaid salary, earned but unpaid
vacation pay, accrued but unearned vacation pay, pension and welfare benefits,
COBRA benefits, employee fringe benefits, employee termination payments or any
other employee benefits due to such employees, shall be the sole responsibility
and obligation of and shall be paid when due by Lessee, Manager or their
Affiliate, as applicable. Upon the expiration of this Lease or earlier
termination of this Lease as a result of an Event of Default hereunder by
Lessee, any owner, manager or lessee of the Facility shall have the right, but
not the obligation, to extend offers of employment to some or all of such
employees, excluding the Executive Personnel, on such terms and conditions as
are determined solely in such party's discretion; provided, however, the
Executive Personnel may be hired by any owner, manager or lessee of the
Facility, if such Executive Personnel solicits such employment. Lessee, Manager
or their Affiliate, as applicable, shall provide any notices, coverages or other
rights as shall be required to comply with the medical coverage continuation
requirements of COBRA to any persons who are entitled to such rights by virtue
of the maintenance of any group health plan by Lessee, Manager or their
Affiliate, as applicable, and shall maintain, or cause an affiliate company to
maintain, a group health plan that such person shall be entitled to participate
in for the maximum period required by COBRA. Lessee shall indemnify, defend and
hold harmless Lessor, the Facility, and any other owner, lessee or manager of
the Facility, from and against any and all claims, causes of action,
proceedings, judgments, damages, penalties, liabilities, costs and expenses
(including reasonable attorney's fees and disbursements) arising out of the
employment or termination of employment of or failure to offer employment to any
employee or prospective employee by Lessee, Manager or their Affiliates, or the
failure of Lessee, Manager or any of their Affiliates to comply with the
provisions of this section.
32.3 Employee Matters Upon Termination Under Article XXXVI or Section
----------------------------------------------------------------
38.1(c). Notwithstanding the provisions of Section 32.2, if Lessor terminates
- ------- ------------
this Lease pursuant to the provisions of Article XXXVI, or Lessee terminates
-------------
this Lease pursuant to Section 38.1(c), on and after the effective date of such
---------------
termination, hotel personnel employed by Manager immediately prior to the
effective date of termination will either be employed by Lessor, or its
designee, or Lessor will take such other action with respect to their
employment, which may include notification of the prospective termination of
their employment, so as, in any case, to insure that Manager does not incur any
liability pursuant to the Workers Adjustment Retraining and Notification Act
(the "WARN Act"). In the event Lessor does not provide to Lessee legally
--------
sufficient advance written Notice of such termination or if Lessor, or its
designee does not hire a sufficient number of hotel personnel employed by
Manager to avoid WARN act liability, then Lessor shall pay, when due, all costs
and expenses associated with accrued but unpaid salary, earned but unpaid
vacation pay, COBRA benefits, employee fringe benefits, employee termination
payments or any other employee benefits due to such employees. Lessor shall
indemnify, defend and hold harmless Lessee and Manager from and against any and
all claims, causes of action, proceedings, judgments, damages, penalties,
liabilities, costs and expenses (including reasonable attorney's fees and
disbursements) arising from the failure of Lessor to comply with the provisions
of this Section
-------
<PAGE>
32.3. Further, in the event of a termination of this Lease under the
- ----
circumstances described above in this Section 32.3 and the failure of Lessor to
------------
either give Lessee legally sufficient advance written Notice of such termination
or if Lessor or its designee does not hire a sufficient number of hotel
personnel employed by Manager to avoid WARN Act liability, Lessor shall assume
and does hereby assume, all COBRA liabilities and COBRA obligations to the
Facility's personnel, which Lessee or Manager shall or may incur in connection
with such termination of this Lease, and Lessor hereby agrees to defend,
indemnify and hold harmless Lessee and Manager from and against any and all
claims, causes of actions, proceedings, judgments, damages, penalties,
liabilities, costs and expenses (including, without limitation, reasonable
attorneys' fees and disbursements) relating to or resulting from Lessor's breach
of the foregoing covenant with respect to COBRA matters.
ARTICLE XXXIII
---------------
(Intentionally deleted)
ARTICLE XXXIV
--------------
MEMORANDUM OF LEASE
-------------------
34.1 Memorandum of Lease. Lessor and Lessee shall promptly upon the
-------------------
request of either enter into a short form memorandum of this Lease, in form
suitable for recording under the laws of the State in which reference to this
Lease, and all options contained herein, shall be made. Lessee shall pay all
costs and expenses of recording such memorandum of this Lease.
ARTICLE XXXV
-------------
CHANGE OF CONTROL, OTHER BUSINESS ACTIVITIES, NON-COMPETITION
-------------------------------------------------------------
35.1 Intentionally Deleted.
35.2 Intentionally Deleted.
35.3 Intentionally Deleted.
35.4 Change of Control. Lessee represents and warrants that it is a
-----------------
Texas corporation all of whose outstanding capital stock is owned 51% by D.
Michael Crow and 49% by Harlan R. Crow and Trammell S. Crow. Lessee agrees that
throughout the Term of this Lease, all of the outstanding capital stock of
Lessee shall be owned directly or indirectly by, and Lessee shall be controlled
51% by D. Michael Crow and 49% by Harlan R. Crow and Trammell S. Crow. However,
a merger or a transfer of all or substantially all of the stock or assets of
Lessee which results in Lessee ceasing to be controlled 51% by D. Michael Crow
and 49% by Harlan R. Crow and Trammell S. Crow shall not constitute an Event of
Default. Lessee shall give Lessor prompt Notice of the occurrence of such a
transaction. If such a transaction occurs and if Lessor is not reasonably
satisfied that the Person controlling Lessee is a capable, reliable and
qualified Person of good reputation and character which has the financial
capability to fulfill Lessee's obligations hereunder or, in Lessee's reasonable
judgment, such Person or an Affiliate of such Person is a competitor of Lessor,
Lessor may
<PAGE>
terminate this Lease upon ninety (90) days Notice to Lessor given within one
hundred twenty (120) days after Lessee receives a Notice of the occurrence of
such transaction. A "competitor of Lessor" shall mean a Person which, or an
Affiliate of which, is a real estate investment trust which is or intends to
become publicly held or traded. In the event Lessor exercises its option to
terminate in accordance therewith, Lessee shall not be entitled to any
compensation for early termination of this Lease. Notwithstanding the foregoing
provisions of this Section 35.4, a shareholder of Lessee may transfer all or
------------
part of his interest in Lessee to a Person in the Crow Family Group.
35.5 Other Business Activities. Lessee shall not engage in or incur any
-------------------------
expenses, indebtedness or obligations related to any business or activity,
including without limitation owning, leasing or managing hotels other than the
Facility, that is not directly related to leasing the Leased Property under this
Lease or the Other Leased Properties under the Other Leases.
35.6 Non-Competition.
---------------
(a) Without Lessor's prior written consent, neither Lessee nor any
Affiliate thereof, nor Manager, Wyndham Hotel Corporation or any of their
affiliates or subsidiaries shall, during the Term hereof, acquire, construct,
operate, lease, franchise or manage any luxury hotel which uses a Wyndham brand
name within a five (5) mile radius of the Leased Property.
(b) Lessee, any Affiliate thereof, Manager, Wyndham Hotel Corporation
or any of their affiliates or subsidiaries may acquire, construct, operate,
lease, franchise or manage any non-luxury hotel (including a Wyndham "garden"
hotel) within a three (3) mile radius of the Leased Property; provided, however,
in the event Lessee desires to construct or acquire a non-luxury hotel and offer
to sell all or any ownership interest in any such non-luxury hotel, Lessor shall
have a right of first refusal to purchase such non-luxury hotel or ownership
interest therein pursuant to this Section 35.6(b). Lessee shall provide Notice,
---------------
including all terms and conditions, to Lessor (i) of any bona fide third party
offers to acquire any such non-luxury hotels or ownership interest therein which
Lessee desires to accept and subsequently sell all or any ownership interest
therein and (ii) of any bona fide development opportunities with respect to non-
luxury hotels that Lessee desires to develop and subsequently sell all or any
ownership interest therein. Lessor shall then have a period of ten (10) business
days after receipt of such Notice to notify Lessee of its intention to accept or
refuse such offers. In the event Lessor rejects an offer as provided herein,
Lessee may sell the non-luxury hotel or ownership interest therein on
substantially the same terms and conditions as were set forth in the Notice
within two hundred seventy (270) days after Lessor rejects such offer. If Lessee
fails to consummate either of the transactions contemplated in Section
-------
35.6(b)(i) or 35.6(b)(ii) within such two hundred seventy (270) day period or
- --------- -----------
intends to consummate such transaction on terms and conditions which are not
substantially the same terms and conditions as were provided in the Notice,
Lessee shall so notify Lessor and Lessor shall have a period of ten (10)
business days to accept or reject a subsequent offer in the manner as provided
in this Section 35.6(b). A "bona fide third-party offer" shall mean either a
---------------
binding or non-binding letter of intent or written proposal containing
provisions upon which Lessee and the prospective seller are willing to enter
into a purchase and sale contract. A "bona fide development opportunity" shall
mean either a binding or non-binding letter of intent or written proposal
containing provisions upon which Lessee and the prospective purchaser and/or
<PAGE>
developer of the non-luxury hotel are willing to enter into a development or
sale contract. Lessor shall not have a right of first refusal under this Section
-------
35.6(b) as to "Wyndham" brand name hotels which Lessee, and/or its Affiliates,
- -------
Manager and/or Wyndham Hotel Corporation manage, but do not own, as of the
Commencement Date.
(c) Nothing in this Section 35.6 shall prohibit any of Lessee's
------------
Affiliates, Manager and Wyndham Hotel Corporation and their affiliates and
subsidiaries from (i) continuing to own, operate, lease, franchise or manage
during the Term hereof, any hotels within such five (5) mile radius which such
Persons own, operate, lease, franchise or manage as of the Commencement Date or
(ii) owning, operating, leasing, franchising or managing during the Term hereof,
any extended stay, budget residential suites.
ARTICLE XXXVI
--------------
LESSOR'S OPTION TO TERMINATE
----------------------------
36.1 Lessor's Option to Terminate Lease.
----------------------------------
(a) In the event Lessor enters into a bona fide contract to sell the
Leased Property to a non-Affiliate, or in the event of a Tax Law Change
resulting in Lessor's determination to terminate this Lease, then in either such
event Lessor may terminate the Lease by giving not less than thirty (30) days
prior Notice to Lessee of Lessor's election to terminate the Lease upon the
closing under such contract or upon a date specified by Lessor which is on or
after the effective date of the Tax Law Change. Effective upon such date, this
Lease shall terminate and be of no further force and effect except as to any
obligations of the parties existing as of such date that survive termination of
this Lease and all Rent including Percentage Rent and Additional Charges shall
be adjusted as of the termination date.
(b) As compensation for the early termination of its leasehold estate
under this Article XXXVI because of a sale of the Leased Property, during the
-------------
initial Term only, Lessor shall not more than one (1) year prior to the
anticipated termination date of this Lease and in any event within 180 days of
the closing of such sale, either (i) pay to Lessee (a) reimbursement for
reasonable and customary costs paid to parties unaffiliated with Lessee due to
the termination, (b) reimbursement for the reasonable cost of relocating any
executive level employees of Lessee, including reasonable costs of temporary
housing (not to exceed ninety (90) days), (c) the present value of 75% of the
income Lessee would have derived from the leasehold estate for the unexpired
balance of the initial Term less Rent for the unexpired balance of the initial
Term discounted at a rate of fifteen percent (15%) per annum and (d) interest on
(a), (b) and (c) at the rate of fifteen (15%) percent from the date of
termination of this Lease until paid or (ii) offer to lease to Lessee one or
more substitute hotel facilities pursuant to one or more leases that would
create for the Lessee leasehold estates (a "Comparable Lease") that (a) are able
----------------
to be operated as Wyndham hotels, are not within three (3) miles of a hotel
which offers comparable quality, service and amenities as the hotel that is the
subject of the Comparable Lease which Lessee or Wyndham Management then
operates, (c) are reasonably comparable to the Facility's quality, service and
amenities and (d) have an aggregate fair market value of no less than the fair
market value of the original leasehold estate, both such values as determined as
of the closing of the sale of the Leased Property. The non-compete provisions
set forth in Section 35.6 shall be amended, as appropriate to perpetuate the
------------
intent of Section 35.6 to the hotel subject to the Comparable
------------
<PAGE>
Lease, to reflect the location of a Comparable Lease. Lessee may reject a
Comparable Lease or combination of Comparable Leases, in which event Lessor
shall be entitled to defer the payment due Lessee pursuant to the option
described in (i) above for a period of up to twelve (12) months from the date
Lessee rejects the first Comparable Lease proposed by Lessor pursuant to this
Section 36.1(b) during which Lessor shall be allowed to propose other Comparable
- ---------------
Leases to Lessee. If Lessee rejects two (2) additional Comparable Leases during
such twelve (12) month period, Lessor shall have no further obligations to
Lessee with respect to compensation for the early termination of this Lease. If
Lessor fails to propose two (2) Comparable Leases during such twelve (12) month
period the termination fee described in this Section shall be immediately due
and payable. In the event Lessor and Lessee are unable to agree upon the fair
market value of an original or replacement leasehold estate, it shall be
determined by appraisal using the appraisal procedure set forth in Article XXXI.
------------
The provisions of this Section 36.1(b) shall not be applicable to either Renewal
---------------
Term.
(c) As compensation for the early termination of its leasehold estate
under this Article XXXVI because of a Tax Law Change, (i) Lessor shall, not more
-------------
than one (1) year prior to the anticipated termination date of this Lease and in
any event within ninety (90) days of such termination, pay to Lessee the fair
market value of Lessee's leasehold estate hereunder as of the termination date
of this Lease, and (ii) prior to the anticipated termination date and effective
on the date thereof, Lessee shall assign and Lessor shall assume the existing
management agreement for a term equal to the remaining Term of this Lease on the
basis which is most reasonable under the circumstances. The fair market value of
such assumed management agreement shall be credited against the payment to be
made by Lessor to Lessee pursuant to clause (i) of the immediately preceding
sentence. In calculating such fair market value, fees payable under the assumed
management agreement shall be projected for the remaining Term of this Lease.
(d) For the purposes of this Section, fair market value of the
leasehold estate means, as applicable, an amount equal to the price that a
willing buyer not compelled to buy would pay a willing seller not compelled to
sell for Lessee's leasehold estate under this Lease or an offered replacement
leasehold estate. In computing fair market value of a leasehold estate, the
appraiser shall discount all future income and fees to the then present value at
a rate of fifteen percent (15%) per annum.
ARTICLE XXXVII
---------------
FRANCHISE AGREEMENT AND WYNDHAM OPERATIONS
------------------------------------------
37.1 Compliance with Franchise Agreement. To the extent any of the
-----------------------------------
provisions of a Franchise Agreement impose a greater obligation on Lessee than
the corresponding provisions of this Lease, then Lessee shall be obligated to
comply with, and to take all reasonable actions necessary to prevent breaches or
defaults under, the provisions of a Franchise Agreement, except to the extent
that Lessee is prevented from complying with a Franchise Agreement because of
Lessor's breach of its obligations to comply with Article XXXVIII. It is the
---------------
intent of the parties hereto that Lessee shall comply in every respect with the
provisions of any Franchise Agreement so as to avoid any default thereunder
during the term of this Agreement. Lessee shall not terminate or enter into any
modification of any Franchise Agreement without in each instance first obtaining
Lessor's written consent. Lessor and Lessee agree to cooperate fully with each
other in the event it becomes necessary
<PAGE>
to obtain a franchise extension or modification or a new franchise for the
Leased Property, and in any transfer of a Franchise Agreement to Lessor or any
Affiliate thereof or any other successor to Lessee upon the termination of this
Lease.
37.2 Wyndham Operations. During the Term of this Lease, the Facility shall
------------------
be operated as a "Wyndham" hotel without a franchise agreement. Notwithstanding
the absence of a franchise agreement, Lessee shall, and shall be entitled to,
operate the Facility utilizing the Wyndham name, logo and other applicable
trademarks and trade names, Wyndham's reservation system, marketing and
advertising services and other services provided by Wyndham Hotel Corporation
and its Affiliates ("Wyndham Hotels") to comparable Wyndham hotels. If this
--------------
Lease is terminated for any reason, Lessor or its designee shall have the right,
at the option of Lessor, to assume the management agreement with the Manager for
up to four (4) months and, if such management contract is assumed, the Facility
will continue to be operated as a Wyndham hotel, with the use of the Wyndham
hotel name, logo and other applicable trademarks or trade names, Wyndham's
reservation system, marketing and advertising services and other services
provided by Wyndham Hotels to comparable Wyndham hotels for up to four (4)
months following the termination (the "Temporary Usage"). Lessor or its
---------------
designee shall pay to Wyndham Hotels during the period of the Temporary Usage
(a) the management fees payable to Manager thereunder and (b) the fees charged
by Wyndham Hotels on a systemwide basis for comparable hotels operating under
the Wyndham name which utilize the Wyndham name and services of Wyndham Hotels
utilized by the Facility (the "Trade Name Fees"), unless such termination is due
---------------
to an Event of Default in which event no Trade Name Fee would be payable during
the Temporary Usage period. Such management agreement with the Manager and such
Temporary Usage may be terminated by Lessor or its designee on thirty (30) days'
Notice to Wyndham Hotels.
ARTICLE XXXVIII
----------------
CAPITAL EXPENDITURES
--------------------
38.1 Capital Expenditures.
--------------------
(a) Commencing upon the Commencement Date, Lessor shall be obligated
to fund and maintain in a separate account the Capital Expenditure's Reserve,
which Capital Expenditure Reserve will be commingled with the Capital
Expenditures of the Other Leased Properties and other hotels owned by Lessor and
its Affiliates. Lessor intends to fund to Lessee for Capital Expenditures an
average of 4% of Gross Revenues per year over the Term. Upon written request by
Lessee to Lessor stating the specific use to be made, such funds shall be made
available by Lessor to Lessee for Capital Expenditures set forth in the Capital
Budget; provided, however, that no Capital Expenditures shall be used to
purchase property (other than "real property" within the meaning of Treasury
Regulations Section 1.856-3(d)), to the extent that doing so would cause the
Lessor to recognize income other than "rents from real property" as defined in
Section 856(d) of the Code. Lessor's obligation shall be cumulative and any
amounts that have accrued hereunder shall be payable in future periods for such
uses and in accordance with the procedures set forth herein. Lessee shall have
no interest in any accrued obligation of Lessor hereunder after the termination
of this Lease. All Capital Improvements shall be owned by Lessor subject to the
provisions of this Lease.
(b) Lessor's obligation to make Capital Expenditures available in
respect to
<PAGE>
Capital Improvements and to comply with the provisions of this Lease which may
require the availability of funds for Capital Improvements shall be limited to
amounts available in the Capital Expenditures Reserve and such additional
amounts as Lessor may agree to make available to Lessee in Lessor's sole
discretion; provided, however, that if additional Capital Expenditures are
required to meet Emergency Situations, to satisfy Wyndham Standards or comply
with Legal Requirements, Lessor shall make such amounts available to Lessee and,
to the extent (but only to the extent) that it will not materially and adversely
affect the five (5) year Capital Budget, receive a pro rata credit therefor
against amounts which Lessor is obligated to accrue for the Capital Expenditures
Reserve during the remaining Term of this Lease. Any such credit will be deemed
to have a material adverse effect on the five (5) year Capital Budget if such
Capital Expenditure was not contemplated during the Term and decreases such
Capital Budget by more than 7.5% of the five (5) year Capital Budget. No
arbitration resulting from the failure of Lessor and Lessee to agree on the
Capital Budget shall increase Lessor's obligation for Capital Expenditures
beyond the amounts set forth in the immediately preceding sentence. To the
extent that Lessee's obligations under this Lease (including, without
limitation, the obligations set forth in Sections 7.2, 8.1 and 9.1 and in
----------------- ---
Article XXXVII) are dependent upon the availability of amounts for Capital
- --------------
Expenditures which exceed the amounts that Lessor is obligated to provide
pursuant to this Article XXXVIII, such obligations of Lessee shall be
---------------
correspondingly diminished.
(c) Lessee shall have the right, in addition to any other remedies
Lessee may have under Section 39.1, to terminate this Lease in the event Lessor,
------------
in any Lease Year, fails to fund Capital Expenditures in accordance with
Sections 38.1(a) and (b) within thirty (30) days after requested in writing by
- ------------------------
Lessee; provided, however, (i) such Capital Expenditures shall be contemplated
in the Annual Budget Approved by Lessor, (ii) such Capital Expenditures, or the
Capital Improvements requiring the Capital Expenditures, are not in dispute, and
(iii) such failure continues for ten (10) days after Notice from Lessee to
Lessor stating that Lessor has failed to provide the requested Capital
Expenditures and that if such failure is not remedied within such ten (10) day
period, Lessee is permitted to terminate this Lease. If Lessee intends to
terminate in accordance with this section, Lessee must terminate no later than
sixty (60) days after the ten (10) day cure period provided in the Notice has
elapsed.
(d) Lessor shall have sole authority with respect to the
implementation of all Capital Improvements made pursuant to the requirements of
the Capital Budget. Such authority shall extend both to the plans and
specifications (including matters of design and decor) and to the contracting
and purchasing of all labor, services and materials.
ARTICLE XXXIX
--------------
LESSOR'S DEFAULT
----------------
39.1 Lessor's Default.
----------------
(a) It shall be a breach of this Lease if (i) a Bankruptcy Event or
Dissolution Event occurs with respect to Lessor or (ii) Lessor fails to observe
or perform any term, covenant or condition of this Lease or under the Lease
Master Agreement on its part to be performed and such failure continues for a
period of thirty (30) days after Notice thereof from Lessee, unless such failure
cannot with due diligence be cured within a period of thirty (30)
<PAGE>
days, in which case such failure shall not be deemed a breach if Lessor proceeds
within such thirty (30)-day period, with due diligence, to cure the failure and
thereafter diligently completes the curing thereof. The time within which
Lessor shall be obligated to cure any such failure also shall be subject to
extension of time due to the occurrence of any Unavoidable Delay. If Lessor
does not cure any such failure within the applicable time period as aforesaid,
Lessee may declare the existence of a "Lessor Default" by a second Notice to
--------------
Lessor. Thereafter, subject to the provisions of the following paragraph,
Lessee may (but shall be under no obligation at any time thereafter to) make
such payment or perform such act for the account and at the expense of Lessor.
All sums so paid by Lessee and all costs and expenses (including, without
limitation, reasonable attorneys' fees and court costs) so incurred, together
with interest thereon at the Overdue Rate from the date on which such sums or
expenses are paid or incurred by Lessee until the date paid by Lessor or offset
by Lessee as expressly provided herein, shall be paid by Lessor to Lessee on
demand or Lessee may offset or counterclaim such sums actually paid by Lessee
against Rents or Additional Charges due hereunder. Lessee shall have no right
to terminate this Lease for any Lessor Default and no right, for any such Lessor
Default, to offset or counterclaim against any rent or Additional Charges due
hereunder unless otherwise expressly provided in this Lease.
(b) If Lessor shall in good faith dispute the occurrence of any Lessor
Default (that was not previously arbitrated in favor of Lessee) and Lessor,
before the expiration of the applicable cure period, shall give Notice thereof
to Lessee, setting forth, in reasonable detail, the basis therefor, no Lessor
Default shall be deemed to have occurred and Lessor shall have no obligation
with respect thereto, and Lessee shall have no right to offset or counterclaim
for costs and expenses incurred and paid by Lessee against any Rent or
Additional Charges due hereunder, until final adverse determination thereof,
whether through arbitration or otherwise; provided, however, that in the event
-------- -------
of any such adverse determination, Lessor shall pay to Lessee, or Lessee may
offset or counterclaim against Rent or Additional Charges due hereunder,
interest on any disputed funds at the Base Rate, from the date demand for such
funds was made by Lessee until the date of final adverse determination and,
thereafter, at the Overdue Rate until paid. If Lessee and Lessor shall fail, in
good faith, to resolve any such dispute within ten (10) days after Lessor's
Notice of dispute, either may submit the matter for determination by
arbitration, but only if such matter is required to be submitted to arbitration
pursuant to any provision of this Lease, or otherwise by a court of competent
jurisdiction.
(c) Notwithstanding anything to the contrary contained in this Lease, for
the enforcement of any judgment (or other judicial decree) requiring the payment
of money by Lessor to Lessee by reason of any default by Lessor under this Lease
or otherwise, Lessee shall look solely to the estate and property of Lessor in
the Leased Property and any insurance proceeds under any policies of insurance
maintained by Lessor in accordance with this Lease which are paid on account of
the same circumstances as led to Lessee's judgment, it being intended that no
other assets of Lessor or any of Lessor's Affiliates shall be subject to levy,
execution, attachment or any other legal process for the enforcement or
satisfaction of any judgment (or other judicial decree) obtained by Lessee
against Lessor, except in the following cases: (i) any liability of Lessor for
its own gross negligence, willful misconduct or Environmental Liabilities caused
by affirmative actions of Lessor, (ii) any liability of Lessor for repayment to
Lessee upon the termination of this Lease of any excess payments of Percentage
Rent or Additional Charges for the last Lease Year or part thereof, and (iii) in
the case of a final award of damages against Lessor payable to Lessee, Lessee
may offset the amount of such judgment or award against the Rent next coming due
under this Lease.
<PAGE>
ARTICLE XL
-----------
ARBITRATION
-----------
40.1 Arbitration. Except as set forth in Section 40.2, in each case
----------- ------------
specified in this Lease in which it shall become necessary to resort to
arbitration, such arbitration shall be determined as provided in this Section
-------
40.1. The party desiring such arbitration shall give Notice to that effect to
- ----
the other party, and an arbitrator shall be selected by mutual agreement of the
parties, or if they cannot agree within thirty (30) days of such notice, by
appointment made by the American Arbitration Association ("AAA") from among the
---
members of its panels who are qualified and who have experience in resolving
matters of a nature similar to the matter to be resolved by arbitration.
40.2 Alternative Arbitration. In each case specified in this Lease for a
-----------------------
matter to be submitted to arbitration pursuant to the provisions of this Section
-------
40.2, Lessor shall be entitled to designate HVS Valuation Services; or if the
- ----
foregoing has ceased to do business, any nationally recognized accounting firm
with a hospitality division of which Lessor or an Affiliate of Lessor and Lessee
and Affiliates of Lessee are not significant clients to serve as arbitrator of
such dispute within fifteen (15) days after written demand for arbitration is
received or sent by Lessor. In the event Lessor fails to make such designation
within such fifteen (15) day period, Lessee shall be entitled to designate any
nationally recognized accounting firm with a hospitality division of which
Lessee or an Affiliate of Lessee is not a significant client to serve as
arbitrator of such dispute within fifteen (15) days after Lessor fails to timely
make such designation. In the event no nationally recognized accounting firm
satisfying such qualifications is available and willing to serve as arbitrator,
the arbitration shall instead be administered as set forth in Section 40.1.
------------
40.3 Arbitration Procedures. In any arbitration commenced pursuant to
----------------------
Sections 40.1 or 40.2, a single arbitrator shall be designated and shall resolve
- ------------- ----
the dispute. The arbitrator's decision shall be final and binding on all parties
and shall not be subject to further review or appeal except as otherwise allowed
by applicable law. Upon the failure of either party (the "non-complying party")
-------------------
to comply with his decision, the arbitrator shall be empowered, at the request
of the other party, to order such compliance by the non-complying party and to
supervise or arrange for the supervision of the non-complying party's obligation
to comply with the arbitrator's decision, all at the expense of the non-
complying party. To the maximum extent practicable, the arbitrator and the
parties, and the AAA if applicable, shall take any action necessary to insure
that the arbitration shall be concluded within ninety (90) days of the filing of
such dispute. The fees and expenses of the arbitrator shall be shared equally
by Lessor and Lessee except as otherwise specified above in this Section 40.3.
------------
Unless otherwise agreed in writing by the parties or required by the arbitrator
or AAA, if applicable, arbitration proceedings hereunder shall be conducted in
the State. Notwithstanding formal rules of evidence, each party may submit such
evidence as each party deems appropriate to support its position and the
arbitrator shall have access to and right to examine all books and records of
Lessee and Lessor regarding the Facility during the arbitration.
<PAGE>
ARTICLE XLI
-----------
TRADE-OUTS
----------
41.1 Trade-outs. Lessee shall not enter into any material trade-out
----------
agreements or arrangements (i.e., agreements or arrangements pursuant to which
goods or services are provided to or for the benefit of the Lessee or its
Affiliates or the Facility in exchange for free or reduced rate rooms, food and
beverage services, or other Facility services) without Lessor's prior written
consent. As to any trade-out agreements assigned to and assumed by Lessee from
Lessor or the prior owner of the Leased Property, Lessor and Lessee shall agree
on fair and equitable amounts (or a methodology for determining such amounts) to
be included in Beverage Sales, Food Sales, Other Income and Room Revenues for
purposes of this Lease, including the calculation of Percentage Rent, to take
into account the loss of Gross Revenues, if any, resulting from the rooms or
services provided by the Facility in exchange for the goods or services provided
to Lessee, its Affiliates, or the Facility. If Lessor and Lessee do not reach
agreement as to such amounts (or a methodology for determining such amounts) the
disagreement shall be resolved by arbitration pursuant to Section 40.2. Lessor
------------
shall not unreasonably withhold its consent to a trade-out agreement or
arrangement proposed by Lessee which benefits the Facility provided that the
term of the trade-out agreement does not extend beyond the stated Term of this
Lease and provided that Lessor and Lessee have agreed in writing as to the
amounts (or a methodology for determining such amounts) to be included in
Beverage Sales, Food Sales, Other Income and Room Revenues to take into account
the loss of Gross Revenues, if any, resulting from the rooms or services
provided by the Facility in exchange for the goods or services provided to or
for the benefit of the Facility.
ARTICLE XLII
------------
MISCELLANEOUS
-------------
42.1 Miscellaneous. Anything contained in this Lease to the contrary
-------------
notwithstanding, all claims against, and liabilities of, Lessee or Lessor
arising prior to any date of termination of this Lease shall survive such
termination. If any term or provision of this Lease or any application thereof
is invalid or unenforceable, the remainder of this Lease and any other
application of such term or provisions shall not be affected thereby. If any
late charges or any interest rate provided for in any provision of this Lease
are based upon a rate in excess of the maximum rate permitted by applicable law,
the parties agree that such charges shall be fixed at and limited to the maximum
permissible rate. Neither this Lease nor any provision hereof may be changed,
waived, discharged or terminated except by a written instrument in recordable
form signed by Lessor and Lessee. All the terms and provisions of this Lease
shall be binding upon and inure to the benefit of the parties hereto and their
respective successors and assigns. The headings in this Lease are for
convenience of reference only and shall not limit or otherwise affect the
meaning hereof. This Lease shall be governed by and construed in accordance
with the laws of the State, but not including its conflicts of laws rules. If
any payment required to be made pursuant to this Lease shall become due on a day
which is not a Business Day, such payment shall be made on the next succeeding
Business Day.
42.2 Transition Procedures. Lessee and Manager shall cooperate in good
---------------------
faith to provide access and information to any prospective purchaser or lessee
of the Leased Property
<PAGE>
which may acquire the Leased Property or lease it upon the expiration or
termination of the Term. Upon any expiration or termination of the Term, Lessor
and Lessee shall do the following and, in general, shall cooperate in good faith
to effect an orderly transition of the management or lease of the Facility. The
provisions of this Section 42.2 shall survive the expiration or termination of
------------
this Lease until they have been fully performed. Nothing contained herein shall
limit Lessor's rights and remedies under this Lease if such termination occurs
as the result of an Event of Default.
(a) Transfer of Licenses. Upon the expiration or earlier termination
--------------------
of the Term, Lessee shall use its best efforts (i) to transfer to Lessor or
Lessor's designee all licenses, operating permits and other governmental
authorizations and all contracts with governmental or quasi-governmental
entities, that may be necessary for the operation of the Facility (collectively,
"Licenses"), or (ii) if such transfer is prohibited by law or Lessor otherwise
--------
elects, to cooperate with Lessor or Lessor's designee in connection with the
processing by Lessor or Lessor's designee of any applications for all Licenses,
including Lessee continuing to operate the liquor operations under its licenses
with Lessor or its designee agreeing to indemnify and hold Lessee harmless as a
result thereof except for the gross negligence or willful misconduct of Lessee;
provided, in either case, that the costs and expenses of any such transfer or
the processing of any such application shall be paid by Lessor or Lessor's
designee.
(b) Leases and Concessions. Lessee shall assign or cause to be
----------------------
assigned to Lessor or Lessor's designee simultaneously with the termination of
this Agreement, and the assignee shall assume all leases, contracts, concession
agreements and agreements in effect with respect to the Facility then in
Lessee's name; provided, however, Lessor shall not be obligated to assume and
may reject (i) any operating or service agreements entered into subsequent to
the date hereof which have a term in excess of one year or termination rights
that must be exercised more than sixty (60) days prior to the end of the annual
term, and (ii) equipment leases which were entered into subsequent to the date
hereof and were not previously approved by Lessor (which approval shall not be
unreasonably withheld), in which event the agreement or agreements and/or leases
so rejected shall not be assigned or shall be deemed reassigned and shall remain
the property and responsibility of Lessee.
(c) Books and Records. To the extent that Lessor has not already
-----------------
received copies thereof, copies of all books and records (including computer
records) for the Facility kept by Lessee pursuant to Section 3.6 shall be
promptly delivered to Lessor or Lessor's designee.
(d) Receivables and Payables, etc. Lessee shall be entitled to retain
-----------------------------
all cash, bank accounts and house banks, and to collect all Gross Revenues and
accounts receivable accrued through the termination date. Lessee shall be
responsible for the payment of Rent, all operating expenses of the Facility and
all other obligations of Lessee accrued under this Lease as of the termination
date, and Lessor shall be responsible for all operating expenses of the Facility
accruing after the termination date. Lessee shall surrender the Leased Property
with an amount and quality of Nonconsumable Inventory, Cash-on-Hand and
Consumable Supplies equal to the Initial Inventory and Cash-on-Hand, and Lessor
shall have no obligation to purchase such Nonconsumable Inventory or any other
items of Lessee's Personal Property.
42.3 Waiver of Presentment, etc. Lessee waives all presentments, demands
--------------------------
for
<PAGE>
payment and for performance, notices of nonperformance, protests, notices of
protest, notices of dishonor, and notices of acceptance and waives all notices
of the existence, creation, or incurring of new or additional obligations,
except as expressly granted herein.
42.4 Standard of Discretion. In any provision of this Lease requiring or
----------------------
permitting the exercise by Lessor or Lessee of such party's approval, election,
decision, consent, judgment, determination or words of similar import
(collectively, an "Approval"), such Approval may, unless otherwise expressly
--------
specified in such provision, be given or withheld in such party's sole, absolute
and unreviewable discretion. Any Approval which by the terms of this Lease may
not be unreasonably withheld shall also not be unreasonably delayed.
42.5 Action for Damages. In any suit or other claim brought by either
------------------
party seeking damages against the other party for breach of its obligations
under this Lease, the party against whom such claim is made shall be liable to
the other party only for actual damages and not for consequential, punitive or
exemplary damages.
42.6 Renewal of Term.
---------------
(a) Lessee shall have the right to renew and extend the Term of this
Lease with respect to the Leased Property for the Renewal Term (herein so
called) upon and subject to the following terms and conditions:
(i) Lessee may extend this Lease for up to two (2) Renewal Terms
of five (5) years each by Lessee's giving prior written notice thereof to Lessor
no later than one hundred eighty (180) days prior to the expiration of the
initial Term or the immediately preceding Renewal Term, as the case may be. The
Renewal Term in question shall commence immediately upon the expiration of the
initial Term or the immediately preceding Renewal Term, as the case may be, and
upon exercise of the renewal option, the "expiration date" of the Term shall
automatically become the last day of the Renewal Term in question.
(ii) The exercise by Lessee of the renewal option set forth herein
must be made, if at all, by written notice executed by Lessee and given to
Lessor on or before the date(s) set forth hereinabove, but in no event shall
such notice be effective if given more than two hundred eighty (280) days prior
to the expiration of the initial Term or the immediately preceding Renewal Term,
as applicable. Once Lessee shall exercise any renewal option, Lessee may not
thereafter revoke such exercise. Lessee shall not have the right to exercise any
renewal option if an Event of Default, or default which with the giving of
notice, or lapse of time or both would become an Event of Default if not cured
or Performance Failure has occurred and is outstanding, either at the time
Lessee gives notice of its election to renew, or immediately prior to the
commencement of the Renewal Term in question. Lessee's failure to exercise
timely any renewal option for any reason whatsoever shall conclusively be deemed
a waiver of such renewal option. If Lessee fails or is deemed to have waived its
right to exercise any renewal option granted herein, any renewal option for any
subsequent Renewal Term shall automatically be deemed to have been waived and
relinquished by Lessee.
(iii) Lessee shall take the Leased Premises "as is" for each Renewal
Term and Lessor shall have no obligation to make any improvements or alterations
to
<PAGE>
the Leased Property.
(iv) Fixed Base Rent for each of the first Renewal Term and the second
Renewal Term shall be adjusted upward by:
(1) ten percent (10%) of Capital Expenditures advanced from
sources other than the Capital Expenditures Reserve which have not previously
been included in the calculation of Fixed Base Rent for the initial Term or the
first Renewal Term, as the case may be;
(2) for the first Renewal Term, budgeted increases in Real Estate
Taxes and Lessor Insurance Costs for the initial year of the first Renewal Term
over the amounts for such items which were included in the calculation of Fixed
Base Rent for the initial Term, and for the second Renewal Term, budgeted
increases in Real Estate Taxes and Lessor Insurance Costs for the initial year
of the second Renewal Term over the amounts for such amounts which were included
in the Fixed Base Rent for the first Renewal Term; and
(3) the amount by which four percent (4%) of budgeted Gross
Revenues for the initial year of the first Renewal Term or the second Renewal
Term, as the case may be, exceeds the amount of the Capital Expenditures Reserve
previously included in the calculation of Fixed Base Rent during the initial
Term, or First Renewal Term, as the case may be.
(b) On or before thirty (30) days prior to the date on which Real
Estate Taxes are payable to the relevant taxing authority for each Lease Year
during each Renewal Term. Lessee shall be obligated to pay to Lessor, as
Additional Charges, the amount by which Real Estate Taxes for the year in
question exceed the Real Estate Taxes for immediately preceding Lease Year. The
obligation to pay the increase in Real Estate Taxes shall survive the expiration
or earlier termination of each Renewal Term, and a final reconciliation shall be
made not later than thirty (30) days following the assessment by the relevant
taxing authority for the last Lease Year of each Renewal Term.
(c) With respect to Percentage Rent during the Renewal Term, the
Break Points shall only be multiplied by the CPI Factor, without any additional
marginal percentage.
(d) Except as set forth in this Section 42.6, each Renewal Term
shall be upon the same terms and conditions as are applicable for the initial
Term, including, without limitation, adjustments to Fixed Base Rent as set forth
in Section 3.1(f).
42.7 Confidentiality. Except as hereinafter provided, from and after the
---------------
execution of this Lease until such time as the Term expires, Lessee surrenders
possession of the Leased Property or this Lease is terminated as a result of an
Event of Default, Lessor agrees not to disclose to any party the terms,
conditions and provisions of the Management Agreement with Wyndham Management,
or financial information with respect to the operation of the Facility or
Wyndham Hotel Corporation or its subsidiaries (unless same has been or is to be
disclosed or reported under federal or state laws), except in connection with:
(i) necessary or appropriate disclosure and reporting obligations of Lessor or
the Company under applicable federal or state laws, (ii) dissemination of
information about Lessor or the Company with
<PAGE>
respect to the Facility to its present or potential lenders, investors,
officers, directors, employees, attorneys, accountants, engineers, surveyors,
consultants and partners, (iii) a proposed sale or leasing of the Leased
Property (this exception shall not apply to the Management Agreement or the
financial information with respect to Wyndham Hotel Corporation or its
subsidiaries) and (iv) any litigation involving Wyndham Hotel Corporation or its
subsidiaries, the operation of the Facility or the subject matter of the
Management Agreement.
IN WITNESS WHEREOF, the parties have executed this Lease by their duly
authorized representatives as of the date first above written.
LESSOR:
------
PATRIOT AMERICAN HOSPITALITY
PARTNERSHIP, L.P.
By: PAH GP, Inc., its General Partner
By:
-------------------------------
Name:
-----------------------------
Title:
----------------------------
LESSEE:
------
CROW HOTEL LESSEE, INC., a Texas
corporation
By:
-----------------------------------
Name:
---------------------------------
Title:
--------------------------------
<PAGE>
Exhibit A
PROPERTY DESCRIPTION
--------------------
<PAGE>
Exhibit B
REVENUE PERCENTAGES AND BREAKDOWNS
----------------------------------
FIRST TIER ROOM REVENUE PERCENTAGE: 20%
ANNUAL ROOM REVENUES FIRST
BREAK POINT: $4,900,000
SECOND TIER ROOM REVENUE PERCENTAGE: 60%
ANNUAL ROOM REVENUES SECOND
BREAK POINT: $3,400,000 i.e., $8,300,000
----
minus the Annual
Room Revenues First
Break Point)
THIRD TIER ROOM REVENUE PERCENTAGE: 70%
FIRST TIER FOOD SALES PERCENTAGE: 10%
ANNUAL FOOD SALES BREAK POINT: $2,000,000
SECOND TIER FOOD SALES PERCENTAGE: 20%
OTHER INCOME PERCENTAGE: 35%
EXHIBIT B - Page Solo
<PAGE>
Exhibit C
CAPITAL EXPENDITURES POLICY
---------------------------
A Capital Improvement for which an expenditure is a Capital Expenditure is an
investment in a readily identifiable facility which (1) is held for use or
income rather than for sale or conversion into goods or cash and (2) has a
useful service life in excess of three (3) years.
Capitalization Policy
- ---------------------
If the cost of the capital addition is $2,500 or greater and the items acquired
have an expected service life of more than three (3) years, the expenditure is
capitalized. See "Maintenance and Repairs" for those expenditures which are
expenses without regard to the $2,500 guideline. If the item(s) acquired meet
the more than three (3)-year life criterion, but the total invoice costs are
less than $2,500, the expenditure is considered an expense item.
Replacement - Component Parts
- -----------------------------
If the estimated job or total invoice cost (including parts and labor) of any
particular item or series of items acquired with respect to one particular job
for replacement of the following major building components is under $2,500, the
expenditure is to be expensed to maintenance and repairs:
Heating Equipment - Pumps, boilers, heat exchangers, thermostats, pressure
gauges, alarm devices piping.
Plumbing Equipment - Pumps, meters, sprinkler and fire alarm system,
piping.
Air Conditioning Equipment - Compressors, condensors, motors, cooling
towers, evaporative coolers, piping.
Fire Prevention Equipment - Major fire system sprinklers, smoke detectors.
Power - Transformer, conduits and boxes, panel boards, switches and
outlets.
Betterments
- -----------
If the estimated job or total invoice cost is $2,500 or above, and the
expenditure(s) will enhance the value of and extend by at least three (3) years
the useful life of an asset previously capitalized, then the expenditure should
be capitalized.
Maintenance and Repairs
- -----------------------
The following replacement expenditures are considered maintenance and repairs
and are not subject to the total invoice cost guideline of $2,500.
Repainting of Buildings, Pools, Park Areas (1)(5)
Refinishing of Furniture (1)
Glass Replacement
EXHIBIT C - Page 1 of 2
<PAGE>
Maintenance Service Contracts, such as Yard, Television, Elevator,
Swimming Pool
Wall Paper Vinyl (1)
Reupholstery of Furniture (1)
Replastering (1)
Replacement of Chain Locks, Key Blanks, Keys, Locks, Locksets. Locks and
locksets installed in new doors or offering substantial security
improvements should be capitalized if the invoice is over $2,500
Patching Parking Lot (2)
Roof Repairs (3)
Waterproofing of Lamb Globes and Lightbulbs
Section Replacement for Neon Signs
Caulking and Sealing
Chrome Fittings such as Faucets, Towel Bars, etc. (1)
Toilet and Toilet Seats
Stolen or Damaged Television
Small Parts for Equipment
Landscaping/Plants (4)
Clocks, Clock-Radios or Similar Small Items
1. Expenditures for exterior and interior painting, including
caulking and sealing of the building, wall paper, refinishing of furniture,
replastering, or reupholstering may be capitalized if:
(a) these expenditures are part of a major refurbishment project, or
(b) the cost of these expenditures exceed $5,000 with respect to any
particular item or series of items related to one particular job
and enhance the value of and extend the useful life of the asset
by at least three (3) years.
2. Repairing of parking lots, including resealing and resurfacing,
will be capitalized if the expenditure exceeds $5,000.
3. Replacement of the complete roof or complete section of the roof
(including laying a roof over an existing roof) will be capitalized if total
expenditure exceed $5,000 and it extends the useful life of the roof by at least
three (3) years.
4. If the landscaping is new or replacement of existing interior or
exterior landscaping, exceeds $5,000, is not seasonal landscaping (such as
seasonal flowers) and has a useful life of greater than one (1) year, the cost
of the landscaping can be capitalized.
5. Major overhauls to the pool which exceed $5,000 in cost and extend
the useful life of the asset by at least three (3) years.
All expense items will be expensed to M&R expense line items above GOP.
EXHIBIT C - Page 2 of 2
<PAGE>
Exhibit D-1
1996 BASE RENT SCHEDULE
-----------------------
EXHIBIT D-1 - Page Solo
<PAGE>
Exhibit D-2
1997 BASE RENT SCHEDULE
-----------------------
EXHIBIT D-2 - Page Solo
<PAGE>
EXHIBIT 10.29
<PAGE>
LEASE AGREEMENT
DATED AS OF JULY 11, 1996
BETWEEN
PATRIOT AMERICAN HOSPITALITY PARTNERSHIP, L.P.
AS LESSOR
AND
CROW HOTEL LESSEE, INC.
AS LESSEE
(Wyndham Midtown, Atlanta, Georgia)
<PAGE>
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
<C> <S> <C>
SECTION PAGE
ARTICLE I LEASE.......................................... -1-
1.1 Leased Property................................ -1-
1.2 Term........................................... -2-
1.3 Initial Transition............................. -2-
ARTICLE II DEFINITIONS.................................... -2-
2.1 Definitions.................................... -2-
ARTICLE III RENT........................................... -16-
3.1 Rent........................................... -16-
3.2 Confirmation of Percentage Rent................ -23-
3.3 Additional Charges............................. -24-
3.4 No Set Off..................................... -24-
3.5 Annual Budget.................................. -25-
3.6 Books and Records.............................. -26-
3.7 Performance Failures........................... -26-
3.8 Changes in Operations.......................... -28-
3.9 Allocation of Revenues......................... -28-
ARTICLE IV IMPOSITIONS.................................... -28-
4.1 Payment of Impositions......................... -28-
4.2 Notice of Impositions.......................... -30-
4.3 Adjustment of Impositions...................... -30-
4.4 Utility Charges................................ -30-
ARTICLE V NO TERMINATION, ABATEMENT...................... -30-
5.1 No Termination, Abatement...................... -30-
ARTICLE VI PROPERTY OWNERSHIP............................. -31-
6.1 Ownership of the Leased Property............... -31-
6.2 Lessee's Personal Property..................... -31-
6.3 Lessor's Lien.................................. -32-
ARTICLE VII CONDITION, USE................................. -32-
7.1 Condition of the Leased Property............... -32-
7.2 Use of the Leased Property..................... -33-
ARTICLE VIII LEGAL REQUIREMENTS............................. -34-
8.1 Compliance with Legal and Insurance
Requirements................................... -34-
8.2 Legal Requirement Covenants.................... -34-
8.3 Environmental Covenants........................ -34-
ARTICLE IX MAINTENANCE AND REPAIRS........................ -36-
9.1 Maintenance and Repair......................... -36-
ARTICLE X ALTERATIONS.................................... -37-
10.1 Alterations.................................... -37-
10.2 Salvage........................................ -38-
</TABLE>
-i-
<PAGE>
<TABLE>
<C> <S> <C>
10.3 Lessor Alterations............................. -38-
ARTICLE XI LIENS.......................................... -38-
11.1 Liens.......................................... -38-
ARTICLE XII PERMITTED CONTESTS............................. -39-
12.1 Permitted Contests............................. -39-
ARTICLE XIII INSURANCE...................................... -40-
13.1 General Insurance Requirements................. -40-
13.2 Replacement Cost............................... -42-
13.3 (Intentionally omitted)........................ -42-
13.4 Waiver of Subrogation.......................... -42-
13.5 Form Satisfactory, etc......................... -42-
13.6 Increase in Limits............................. -43-
13.7 Blanket Policy................................. -43-
13.8 Separate Insurance............................. -43-
13.9 Reports On Insurance Claims.................... -43-
ARTICLE XIV DAMAGE AND RECONSTRUCTION...................... -44-
14.1 Insurance Proceeds............................. -44-
14.2 Reconstruction in the Event of Damage or
Destruction Covered by Insurance............... -44-
14.3 Reconstruction in the Event of Damage or
Destruction Not Covered by Insurance........... -45-
14.4 Lessee's Property and Business Interruption.... -45-
14.5 Abatement of Rent.............................. -45-
ARTICLE XV CONDEMNATION................................... -45-
15.1 Definitions.................................... -45-
15.2 Parties' Rights and Obligations................ -46-
15.3 Total Taking................................... -46-
15.4 Allocation of Award............................ -46-
15.5 Partial Taking................................. -46-
15.6 Temporary Taking............................... -47-
ARTICLE XVI DEFAULTS....................................... -47-
16.1 Events of Default.............................. -47-
16.2 Remedies....................................... -50-
16.3 Waiver......................................... -51-
16.4 Application of Funds........................... -51-
ARTICLE XVII LESSOR'S RIGHT TO CURE......................... -51-
17.1 Lessor's Right to Cure Lessee's Default........ -51-
ARTICLE XVIII REIT LIMITATIONS............................... -52-
18.1 Personal Property Limitation................... -52-
18.2 Sublease Rent Limitation....................... -52-
18.3 Sublease Lessee Limitation..................... -52-
18.4 Lessee Ownership Limitation.................... -52-
18.5 Director, Officer and Employee Limitation...... -53-
-ii-
</TABLE>
<PAGE>
<TABLE>
<C> <S> <C>
ARTICLE XIX HOLDING OVER................................... -53-
19.1 Holding Over................................... -53-
ARTICLE XX INDEMNITIES.................................... -54-
20.1 Indemnification................................ -54-
ARTICLE XXI SUBLETTING AND ASSIGNMENT...................... -55-
21.1 Subletting and Assignment...................... -55-
21.2 Attornment..................................... -56-
21.3 Management Agreement........................... -56-
ARTICLE XXII ESTOPPEL CERTIFICATES.......................... -56-
22.1 Officer's Certificates; Financial Statements;
Lessor's Estoppel Certificates and Covenants... -56-
ARTICLE XXIII INSPECTIONS.................................... -58-
23.1 Regular Meetings; Lessor's Right to Inspect.... -58-
ARTICLE XXIV NO WAIVER...................................... -58-
24.1 No Waiver...................................... -58-
ARTICLE XXV CUMULATIVE REMEDIES............................ -59-
25.1 Remedies Cumulative............................ -59-
ARTICLE XXVI SURRENDER...................................... -59-
26.1 Acceptance of Surrender........................ -59-
ARTICLE XXVII NO MERGER...................................... -59-
27.1 No Merger of Title............................. -59-
ARTICLE XXVIII CONVEYANCE BY LESSOR........................... -59-
28.1 Conveyance by Lessor........................... -59-
28.2 Lessor May Grant Liens......................... -60-
ARTICLE XXIX QUIET ENJOYMENT................................ -62-
29.1 Quiet Enjoyment................................ -62-
ARTICLE XXX NOTICES........................................ -62-
30.1 Notices........................................ -62-
ARTICLE XXXI APPRAISALS..................................... -62-
31.1 Appraisers..................................... -62-
ARTICLE XXXII EMPLOYEE MATTERS............................... -63-
32.1 Employees During the Term...................... -63-
32.2 Employee Matters Upon Termination Due to an
Event of Default or Expiration of the Lease.... -63-
32.3 Employee Matters Upon Termination Under Article
XXXVI or Section 38.1(c)....................... -64-
ARTICLE XXXIII (Intentionally deleted)........................ -65-
</TABLE>
-iii-
<PAGE>
<TABLE>
<C> <S> <C>
ARTICLE XXXIV MEMORANDUM OF LEASE............................ -65-
34.1 Memorandum of Lease............................ -65-
ARTICLE XXXV CHANGE OF CONTROL, OTHER BUSINESS ACTIVITIES,
NON-COMPETITION................................ -65-
35.1 Intentionally Deleted.......................... -65-
35.2 Intentionally Deleted.......................... -65-
35.3 Intentionally Deleted.......................... -65-
35.4 Change of Control.............................. -65-
35.5 Other Business Activities...................... -65-
35.6 Non-Competition................................ -66-
ARTICLE XXXVI LESSOR'S OPTION TO TERMINATE................... -67-
36.1 Lessor's Option to Terminate Lease............. -67-
ARTICLE XXXVII FRANCHISE AGREEMENT AND WYNDHAM OPERATIONS..... -68-
37.1 Compliance with Franchise Agreement............ -68-
ARTICLE XXXVIII CAPITAL EXPENDITURES........................... -69-
38.1 Capital Expenditures........................... -69-
ARTICLE XXXIX LESSOR'S DEFAULT............................... -70-
39.1 Lessor's Default............................... -70-
ARTICLE XL ARBITRATION.................................... -71-
40.1 Arbitration.............................. -71-
40.2 Alternative Arbitration.................. -72-
40.3 Arbitration Procedures................... -72-
ARTICLE XLI TRADE-OUTS..................................... -72-
ARTICLE XLII MISCELLANEOUS.................................. -73-
42.1 Miscellaneous.................................. -73-
42.2 Transition Procedures.......................... -73-
42.3 Waiver of Presentment, etc..................... -74-
42.4 Standard of Discretion......................... -74-
42.5 Action for Damages............................. -74-
42.6 Renewal of Term................................ -75-
42.7 Confidentiality................................ -76-
</TABLE>
Exhibits:
Exhibit A - Property Description
Exhibit B - Revenue Percentages and Breakdowns
Exhibit C - Capital Expenditures Policy
Exhibit D-1 - 1996 Base Rent Schedule
Exhibit D-2 - 1997 Base Rent Schedule
Schedule 2.1 - Cash-On-Hand
Schedule 35.6 - Midtown Atlanta Area and Downtown Area
-iv-
<PAGE>
LEASE AGREEMENT
---------------
THIS LEASE AGREEMENT (hereinafter called "Lease"), made as of the 11th day
-----
of July, 1996, by and between PATRIOT AMERICAN HOSPITALITY PARTNERSHIP, L.P., a
Virginia limited partnership (hereinafter called "Lessor"), and CROW HOTEL
------
LESSEE, INC., a Texas corporation (hereinafter called "Lessee"), provides as
------
follows:
Lessor, in consideration of the payment of rent by Lessee to Lessor, the
covenants and agreements to be performed by Lessee, and upon the terms and
conditions hereinafter stated, does hereby rent and lease unto Lessee, and
Lessee does hereby rent and lease from Lessor, the Leased Property (as
hereinafter defined).
ARTICLE I
- ----------
LEASE
-----
1.1 Leased Property. The Leased Property (herein so called) is comprised
---------------
of of Lessor's interest in the following:
(a) the land described in Exhibit A attached hereto and by
---------
reference incorporated herein (the "Land");
----
(b) all buildings, structures and other improvements of every kind
including, but not limited to, alleyways and connecting tunnels, sidewalks,
utility pipes, conduits and lines (on-site and off-site), parking areas and
roadways appurtenant to such buildings and structures presently or hereafter
situated upon the Land (collectively, the "Leased Improvements");
-------------------
(c) all easements, rights and appurtenances relating to the Land
and the Leased Improvements;
(d) all equipment, machinery, fixtures, and other items of property
required for or incidental to the use of the Leased Improvements as a hotel,
including all components thereof, now and hereafter permanently affixed to or
incorporated into the Leased Improvements, including, without limitation, all
furnaces, boilers, heaters, electrical equipment, heating, plumbing, lighting,
ventilating, refrigerating, incineration, air and water pollution control, waste
disposal, air-cooling and air-conditioning systems and apparatus, sprinkler
systems and fire and theft protection equipment, all of which to the greatest
extent permitted by law are hereby deemed by the parties hereto to constitute
real estate, together with all replacements, modifications, alterations and
additions thereto (collectively, the "Fixtures");
--------
(e) all furniture and furnishings and all other items of personal
property (excluding Inventory and personal property owned by Lessee) located on,
and used in connection with, the operation of the Leased Improvements as a
hotel, together with all replacements, modifications, alterations and additions
thereto; and
<PAGE>
(f) all existing leases of the Leased Property (including any
security deposits or collateral held by Lessor pursuant thereto).
THE LEASED PROPERTY IS DEMISED IN ITS PRESENT CONDITION WITHOUT REPRESENTATION
OR WARRANTY (EXPRESSED OR IMPLIED) BY LESSOR AND SUBJECT TO THE RIGHTS OF
PARTIES IN POSSESSION, AND TO THE EXISTING STATE OF TITLE INCLUDING ALL
COVENANTS, CONDITIONS, RESTRICTIONS, EASEMENTS AND OTHER MATTERS OF RECORD
INCLUDING ALL APPLICABLE LEGAL REQUIREMENTS AND MATTERS WHICH WOULD BE DISCLOSED
BY AN INSPECTION OF THE LEASED PROPERTY OR BY AN ACCURATE SURVEY THEREOF.
1.2 Term.
----
(a) The term of this Lease (the "Term") shall commence, if at all,
----
on the date of Lessor's acquisition (the "Acquisition") of the Leased Property
-----------
the "Commencement Date") and shall end on the tenth (10th) anniversary of the
-----------------
last day of the month in which the Commencement Date occurs, unless sooner
terminated in accordance with the provisions hereof. In the event the
Acquisition does not occur, this Lease shall terminate and be of no further
force and effect.
(b) Subject to the terms and conditions set forth in Section 42.6,
Lessee shall have the option to extend the Term of this Lease for two (2)
additional terms of five (5) years each.
1.3 Initial Transition.
------------------
(a) Upon the Commencement Date and pursuant to a separate
Assignment and Assumption Agreement, Lessor or the prior owner of the Leased
Property shall transfer and assign to Lessee, and Lessee shall assume, all
occupancy agreements and operating agreements to which the Leased Property
remains subject on the Commencement Date.
(b) As between Lessor and Lessee, Lessor shall be entitled to all
income and shall be responsible for the payment or settlement of all expenses of
the Leased Property accruing prior to the Commencement Date. Lessee shall act as
Lessor's agent for the collection of all such income and shall remit the same to
Lessor promptly upon Lessee's receipt thereof. Lessee shall notify Lessor of all
such expenses and shall act as Lessor's payment agent for such expenses using
funds provided by Lessor from time to time. On the Commencement Date, Lessor
shall transfer to Lessee the Initial Inventory and Cash-On-Hand existing at or
with respect to the Leased Property as of the Commencement Date which was
transferred to Lessor by Seller.
ARTICLE II
----------
DEFINITIONS
-----------
2.1 Definitions. For all purposes of this Lease, except as otherwise
-----------
expressly provided or unless the context otherwise requires, (a) the terms
defined in this Article have the meanings assigned to them in this Article and
include the plural as well as the singular, (b) all
<PAGE>
accounting terms not otherwise defined herein have the meanings assigned to them
in accordance with GAAP, (c) all references in this Lease to designated
"Articles", "Sections" and other subdivisions are to the designated Articles,
Sections and other subdivisions of this Lease and (d) the words "herein,"
"hereof" and "hereunder" and other words of similar import refer to this Lease
as a whole and not to any particular Article, Section or other subdivision:
Acquisition: As defined in Section 1.2.
----------- -----------
Actual 1996 Initial Base Rent: As defined in Section 3.1(a).
----------------------------- --------------
Actual 1997 Fixed Base Rent: As defined in Section 3.1(b).
--------------------------- --------------
Additional Charges: As defined in Section 3.3.
------------------ -----------
Affiliate: As used in this Lease the term "Affiliate" of a person shall
---------
mean (a) any person that, directly or indirectly, controls or is controlled by
or is under common control with such person, (b) any other person that owns,
beneficially, directly or indirectly, ten percent or more of the outstanding
capital stock, shares or equity interests of such person, or (c) any officer,
director, employee, partner or trustee of such person or any person controlling,
controlled by or under common control with such person (excluding trustees and
persons serving in similar capacities who are not otherwise an Affiliate of such
person). The term "person" means and includes individuals, corporations, general
and limited partnerships, limited liability companies, stock companies or
associations, joint ventures, associations, companies, trusts, banks, trust
companies, land trusts, business trusts, or other entities and governments and
agencies and political subdivisions thereof. For the purposes of this
definition, "control" (including the correlative meanings of the terms
"controlled by" and "under common control with"), as used with respect to any
person, shall mean the possession, directly or indirectly, of the power to
direct or cause the direction of the management and policies of such person,
through the ownership of voting securities, partnership interests or other
equity interests, by contract or otherwise. Affiliate, as used in this Lease,
shall not include Wyndham Hotel Corporation or its subsidiaries.
Agreed Hotel Cost: As defined in Section 3.1(b).
----------------- --------------
Annual Budget: As used in this Lease, the term "Annual Budget" shall mean
-------------
an operating budget and a capital budget prepared by Lessee and approved by
Lessor in accordance with Section 3.5.
-----------
Annual Food Sales Break Point: As defined in Section 3.1(c)(ii) and Exhibit
----------------------------- -------
B.
- -
Annual Room Revenues Break Point(s): As defined in Section 3.1(c)(ii) and
----------------------------------- ------------------
Exhibit B.
- ---------
Annual Room Revenues First Break Point: As defined in Section 3.1(c)(ii)
-------------------------------------- ------------------
and Exhibit B.
---------
Annual Room Revenues Second Break Point: As defined in Section 3.1(c)(ii)
--------------------------------------- -----------------
and Exhibit B.
---------
<PAGE>
Approval: As defined in Section 42.4.
-------- ------------
Approved Financial Institution: A substantial U.S. financial institution
------------------------------
that is reasonably satisfactory to Lessor.
Award: As defined in Section 15.1(c).
----- ---------------
Base Rate: The prime rate (or base rate) reported in the Money Rates column
---------
or comparable section of The Wall Street Journal as the rate then in effect for
-----------------------
corporate loans at large U.S. money center commercial banks, whether or not such
rate has actually been charged by any such bank. If no such rate is reported in
The Wall Street Journal or if such rate is discontinued, then Base Rate shall
- -----------------------
mean such other successor or comparable rate as Lessor may reasonably designate.
Base Rent Schedule: As defined in Section 3.1(a) and Exhibit D-1 and D-2.
------------------ --------------------------------------
Beverage Sales: Shall mean gross revenue from the sale of (i) wine, beer,
--------------
liquor or other alcoholic beverages, whether sold in a bar or lounge, delivered
to or available in a guest room, sold at meetings or banquets or at any other
location at the Leased Property and (ii) non-alcoholic beverages sold in a bar
or lounge. Such gross revenue constituting Beverage Sales shall include sales
by Lessee and its permitted subtenants, licensees and concessionaires, but
revenues from subleases, licenses or similar arrangements for alcoholic beverage
sales which are entered into by Lessor, by any prior owner of the Leased
Property, or by Lessee in compliance, but only in compliance, with Section 21.1
------------
with parties who are not Affiliates of Lessee, or of Wyndham Hotel Corporation
or its affiliates or subsidiaries, shall be classified as Other Income and shall
only include rents received by Lessee under such existing subleases, licenses or
similar arrangements. Such revenue shall be determined in a manner consistent
with the Uniform System and shall not include the following:
(a) Any gratuity or service charge added to a customer's bill or
statement in lieu of a gratuity which is paid directly to an employee;
(b) Credits, rebates or refunds; and
(c) Sales taxes or taxes of any other kind imposed on the sale of
alcoholic or other beverages.
Break Points: As defined in Section 3.1(c).
------------ --------------
Business Day: Each Monday, Tuesday, Wednesday, Thursday and Friday that is
------------
not a day on which national banks in the City of Dallas, Texas or in the
municipality wherein the Leased Property is located are closed.
CPI Factor: As defined in Section 3.1(f).
---------- --------------
Capital Budget: As defined in Section 3.5.
-------------- -----------
Capital Expenditures: Amounts advanced to pay the costs of Capital
--------------------
Improvements.
<PAGE>
Capital Expenditures Reserve: An amount equal to 4% of Gross Revenues for
----------------------------
each Lease Year, to be set up, funded and maintained by Lessor in accordance
with the provisions of Article XXXVIII hereof.
---------------
Capital Impositions: Taxes, assessments or similar charges imposed upon or
-------------------
levied against the Leased Property for the costs of public improvements,
including, without limitation, roads, sidewalks, public lighting fixtures,
utility lines, storm sewers drainage facilities, and similar improvements.
Capital Improvements: Subject to the limitations on dollar amounts and the
--------------------
affect on the useful life of specified improvements set forth in Exhibit C
---------
attached hereto, improvements to (a) the external walls and internal load
bearing walls (other than windows and plate glass), (b) the roof of the
Facility, (c) private roadways, parking areas, sidewalks and curbs appurtenant
thereto that are under Lessee's control (other than cleaning, patching and
striping), (d) mechanical, electrical and plumbing systems that service common
areas, entire wings of the Facility or the entire Facility, including conduit
and ductware connected thereto, and (e) items of the types described on
Exhibit C attached hereto as "capital". Any dispute as to whether an improve-
- ---------
ment is a capital or non-capital improvement shall be resolved by arbitration
pursuant to Section 40.2.
------------
Cash: Means (a) cash or other immediately available funds, (b) any debt
----
instrument with a term of up to 12 months that is issued by or backed by the
full faith and credit of the United States, (c) any certificate of deposit with
a term of up to 12 months that is issued by an issuer that, on the date of
issuance and on each date of any renewal or reissuance thereof, is an Approved
Financial Institution, and which instrument is in form and substance
satisfactory to the Lessor, (d) any irrevocable, "clean" letter of credit issued
by an issuer that, on the date of issuance and on each date of any renewal or
reissuance thereof, is an Approved Financial Institution, and which instrument
is in form and substance satisfactory to the Lessor, and (e) a repurchase
agreement with a term of up to ninety (90) days that is binding upon an Approved
Financial Institution, and which agreement is in form and substance satisfactory
to the Lessor.
Cash-on-Hand: All cash, working capital funds and funds in bank accounts
------------
described on Schedule 2.1 attached hereto.
------------
CERCLA: The Comprehensive Environmental Response, Compensation and
------
Liability Act of 1980, as amended.
Claims: As defined in Section 12.1.
------ ------------
COBRA: The Consolidated Omnibus Budget Reconciliation Act of 1985, as
-----
amended.
Code: The Internal Revenue Code of 1986, as amended.
----
Commencement Date: As defined in Section 1.2.
----------------- -----------
Company: Patriot American Hospitality, Inc., a Virginia corporation.
-------
Comparable Lease: As defined in Section 36.1.
---------------- ------------
<PAGE>
Condemnation, Condemnor: As defined in Section 15.1.
----------------------- ------------
Consolidated Financials: For any fiscal year or quarterly accounting period
-----------------------
for Lessee and its consolidated Subsidiaries, statements of operations,
partners' capital and cash flow (or, in the case of a corporation, statements of
operations, retained earnings and cash flow) for such period and for the period
from the beginning of the respective fiscal year to the end of such period and
the related balance sheet as at the end of such period, together with the notes
to any such yearly statement, all in such detail as may be required by the SEC
with respect to filings made by the Company or Lessor, and setting forth in
comparative form the corresponding figures for the corresponding period in the
preceding fiscal year, and prepared in accordance with GAAP and audited annually
(and quarterly if required by the SEC) by Ernst & Young or another so-called
"Big Six" firm of independent certified public accountants designated by Lessor.
Consolidated Financials shall be prepared on the basis of a December 31 fiscal
year of Lessee, or on such other basis as Lessor shall designate. Any cost for
such audit shall be borne by Lessor.
Consumable Supplies: Office supplies, cleaning supplies, uniforms, laundry
-------------------
and valet supplies, engineering supplies, fuel, stationery, soap, matches,
toilet and facial tissues, and such other supplies as are consumed customarily
on a recurring basis in the operation of the Facility, together with food and
beverages that are to be offered for sale to guests and to the public.
Consumer Price Index: The "Consumer Price Index" published by the Bureau of
--------------------
Labor Statistics of the United States Department of Labor, U.S. City Average,
All Item for Urban Wage Earners and Clerical Workers (1982-1984=100).
Crow Family Group: Descendants and Persons controlled by or for the benefit
-----------------
of descendants of Trammell Crow (together with their respective affiliates or in
the case of natural persons, the members of their immediate families).
Cumulative Monthly Portion: As defined in Section 3.1(c)(ii).
-------------------------- ------------------
Date of Taking: As defined in Section 15.1(b).
-------------- ---------------
Emergency Expenditures: Expenditures required to take necessary or
----------------------
appropriate actions to respond to Emergency Situations.
Emergency Situations: Fire, any other casualty, or any other events,
--------------------
circumstances or conditions which threaten the safety or physical well-being of
the Facility's guests or employees or which involve the risk of material
property damage or material loss to the Facility.
Environmental Authority: Any department, agency or other body or component
-----------------------
of any Government that exercises any form of jurisdiction or authority under any
Environmental Law.
Environmental Authorization: Any license, permit, order, approval, consent,
---------------------------
notice, registration, filing or other form of permission or authorization
required under any Environmental Law.
<PAGE>
Environmental Laws: All applicable federal, state, local and foreign laws
------------------
and regulations relating to pollution of the environment (including without
limitation, ambient air, surface water, ground water, land surface or subsurface
strata), including without limitation laws and regulations relating to
emissions, discharges, Releases or threatened Releases of Hazardous Materials or
otherwise relating to the manufacture, processing, distribution, use, treatment,
storage, disposal, transport or handling of Hazardous Materials. Environmental
Laws include but are not limited to CERCLA, FIFRA, RCRA, SARA and TSCA.
Environmental Liabilities: Any and all actual or potential obligations to
-------------------------
pay the amount of any judgment or settlement, the cost of complying with any
settlement, judgment or order for injunctive or other equitable relief, the cost
of compliance or corrective action in response to any notice, demand or request
from an Environmental Authority, the amount of any civil penalty or criminal
fine, and any court costs and reasonable amounts for attorney's fees, fees for
witnesses and experts, and costs of investigation and preparation for defense of
any claim or any Proceeding, regardless of whether such Proceeding is
threatened, pending or completed, that may be or have been asserted against or
imposed upon Lessor, Lessee, any Predecessor, the Leased Property or any
property used therein and arising out of:
(a) the failure to comply at any time with all Environmental Laws
applicable to the Leased Property;
(b) the presence of any Hazardous Materials on, in, under, at or in
any way affecting the Leased Property;
(c) a Release or threatened Release of any Hazardous Materials on,
in, at, under or in any way affecting the Leased Property;
(d) the identification of Lessee, Lessor or any Predecessor as a
potentially responsible party under CERCLA or under any other Environmental Law;
(e) the presence at any time of any above-ground and/or underground
storage tanks, as defined in RCRA or in any applicable Environmental Law on, in,
at or under the Leased Property or any adjacent site or facility; or
(f) any and all claims for injury or damage to persons or property
arising out of exposure to Hazardous Materials originating or located at the
Leased Property, or resulting from operation thereof or any adjoining property.
Event of Default: As defined in Section 16.1.
---------------- ------------
Executive Personnel: The general manager and the hotel manager.
-------------------
Existing Condition: As defined in Section 8.3(b).
------------------ --------------
Facility: The hotel and/or other facility offering lodging and other
--------
services or amenities being operated or proposed to be operated on the Leased
Property.
First Fixed Year: As defined in Section 3.1(b)(i).
---------------- -----------------
<PAGE>
FIFRA: The Federal Insecticide, Fungicide, and Rodenticide Act, as amended.
-----
First Tier Food Sales Percentage: As defined in Section 3.1(c)(ii) and
-------------------------------- ------------------
Exhibit B.
- ---------
First Tier Room Revenue Percentage: As defined in Section 3.1(c)(ii) and
---------------------------------- ------------------
Exhibit B.
- ---------
Fixed Base Rent: As defined in Article III.
--------------- -----------
Fixed Rent Period: As defined in Section 3.1(b).
----------------- --------------
Fixtures: As defined in Section 1.1.
-------- -----------
Food Sales: Shall mean (i) gross revenue from the sale of food and non-
----------
alcoholic beverages that are prepared at the Facility and sold or delivered on
or off the Facility by Lessee, its permitted subtenants, licensees, or
concessionaires whether for cash or for credit, including in respect of guest
rooms, banquet rooms, meeting rooms and other similar rooms, and (ii) gross
revenue from the rental of banquet, meeting and other similar rooms. Such gross
revenue constituting Food Sales shall include sales by Lessee and its permitted
subtenants, licensees and concessionaires, but revenues from subleases, licenses
or similar arrangements for food and non-alcoholic beverage sales which are
entered into by Lessor, by any prior owner of the Leased Property, or by Lessee,
in compliance, but only in compliance, with Section 21.1 with parties who are
------------
not Affiliates of Lessee, or of Wyndham Hotel Corporation or its affiliates or
subsidiaries, shall be classified as Other Income and shall only include rents
received by Lessee under such existing subleases, licenses or similar
arrangements. Such revenue shall be determined in a manner consistent with the
Uniform System and shall not include the following:
(a) Vending machine sales;
(b) Any gratuities or service charges added to a customer's bill or
statement in lieu of a gratuity which is paid directly to an employee;
(c) Non-alcoholic beverages sold from a bar or lounge;
(d) Credits, rebates or refunds; and
(e) Sales taxes or taxes of any other kind imposed on the sale of food
or non-alcoholic beverages.
Franchise Agreement: Any franchise agreement or license agreement with a
-------------------
franchisor under which the Facility is hereafter operated, if any.
Furniture and Equipment: For purposes of this Lease, the terms "furniture
-----------------------
and equipment" shall mean collectively all furniture, furnishings, wall
coverings, fixtures and hotel equipment and systems owned by Lessor and located
at, or used in connection with, the Facility, together with all replacements
therefor and additions thereto, including, without limitation, (i) all equipment
and systems required for the operation of kitchens, bars and restaurants, and
laundry and dry cleaning facilities, (ii) office equipment, (iii) dining room
wagons, materials handling equipment, and cleaning and engineering equipment,
(iv) telephone
<PAGE>
and computerized accounting systems, and (v) vehicles.
GAAP: Generally accepted accounting principles as are at the time
----
applicable and otherwise consistently applied.
Government: The United States of America, any city, county, state, district
----------
or territory thereof, any foreign nation, any city, county, state, district,
department, territory or other political division thereof, or any political
subdivision of any of the foregoing having jurisdiction over the Facility,
Lessee or Lessor.
Gross Operating Expenses: For purposes of this Lease, the term "Gross
------------------------
Operating Expenses" shall mean for a period the expenses of the Facility for
such period which are deducted from revenues for purposes of determining
Lessee's "Income Before Fixed Charges" (as such term is commonly used in the
Uniform System) and shall include all salaries and employee expense and payroll
taxes (including salaries, wages, bonuses and other compensation of all
employees of the Facility, and benefits including life, medical and disability
insurance and retirement benefits), insurance costs and expenses, expenditures
described in Section 9.1, operational supplies, utilities, governmental fees and
-----------
assessments, food, beverages, laundry service expense, the cost of Inventory,
license fees, advertising, marketing, reservation systems and any and all other
operating expenses as are reasonably necessary for the proper and efficient
operation of the Facility incurred by Lessee in accordance with the provisions
hereof (excluding, however, (i) federal, state and municipal excise, sales and
use taxes collected directly from patrons and guests or as a part of the sales
price of any goods, services or displays, such as gross receipts, admissions,
cabaret or similar or equivalent taxes, paid over to federal, state or municipal
governments, (ii) the cost of insurance to be provided by Lessor under Article
-------
XIII, (iii) Real Estate Taxes and Personal Property Taxes, and (iv) payments on
- ----
any Mortgage or other security instrument on the Facility); all determined in
accordance with GAAP and the Uniform System.
Gross Operating Profit: For any Lease Year, the excess of Gross Revenues
----------------------
over Gross Operating Expenses.
Gross Revenues: All revenues, receipts, and income of any kind derived
--------------
directly or indirectly by Lessee from or in connection with the Facility whether
on a cash basis or credit, paid or collected, determined in accordance with GAAP
and the Uniform System, excluding, however: (i) funds furnished by Lessor, (ii)
federal, state and municipal excise, sales, and use taxes collected directly
from patrons and guests or as a part of the sales price of any goods, services
or displays, such as gross receipts, admissions, cabaret or similar or
equivalent taxes and paid over to federal, state or municipal governments, (iii)
gratuities, (iv) proceeds of insurance and condemnation, (v) proceeds from sales
other than sales in the ordinary course of business, (vi) all loan proceeds from
financing or refinancings of the Facility or interests therein or components
thereof, (vii) judgments and awards, except any portion thereof arising from
normal business operations of the hotel, and (viii) items constituting
"allowances" under the Uniform System.
Guarantor: TCFH Assurance, L.P., a Texas limited partnership.
---------
Guaranty: That certain Guaranty dated of even date herewith executed by
--------
Guarantor in favor of Lessor.
<PAGE>
Hazardous Materials: All chemicals, pollutants, contaminants, wastes and
-------------------
toxic substances, including without limitation:
(a) Solid or hazardous waste, as defined in RCRA or in any
Environmental Law;
(b) Hazardous substances, as defined in CERCLA or in any Environmental
Law;
(c) Toxic substances, as defined in TSCA or in any Environmental Law;
(d) Insecticides, fungicides, or rodenticides, as defined in FIFRA or
in any Environmental Law;
(e) Gasoline or any other petroleum product or byproduct,
polychlorinated biphenyls, asbestos and urea formaldehyde;
(f) Asbestos or asbestos containing materials;
(g) Urea Formaldehyde foam insulation; and
(h) Radon gas.
Holder: Any holder of any indebtedness of the Lessor or any of its
------
Affiliates, any holder of a Mortgage, any purchaser of the Leased Property or
any portion thereof at a foreclosure sale or any sale in lieu thereof, or any
designee of any of the foregoing.
Impositions: Collectively, all taxes (including, without limitation, all ad
-----------
valorem, sales and use, occupancy, single business, gross receipts, transaction
privilege, rent or similar taxes as the same relate to or are imposed upon
Lessee or Lessor or Lessee's business conducted upon the Leased Property),
assessments (including, without limitation, all assessments for public
improvements or benefit, whether or not commenced or completed prior to the date
hereof and whether or not to be completed within the Term), ground rents, water,
sewer or other rents and charges, excises, tax inspection, authorization and
similar fees and all other governmental charges, in each case whether general or
special, ordinary or extraordinary, or foreseen or unforeseen, of every
character in respect of the Leased Property or the business conducted thereon by
Lessee (including all interest and penalties thereon caused by any failure in
payment by Lessee), which at any time prior to, during or with respect to the
Term hereof may be assessed or imposed on or with respect to or be a lien upon
(a) Lessor's interest in the Leased Property, (b) the Leased Property, or any
part thereof or any rent therefrom or any estate, right, title or interest
therein, or (c) any occupancy, operation, use or possession of, or sales from,
or activity conducted on or in connection with the Leased Property, or the
leasing or use of the Leased Property or any part thereof by Lessee. Nothing
contained in this definition of Impositions shall be construed to require Lessee
to pay (1) any tax based on net income (whether denominated as a franchise or
capital stock or other tax) imposed on Lessor or any other person, or (2) any
net revenue tax of Lessor or any other person, or (3) any tax imposed with
respect to the sale, exchange or other disposition by Lessor of any Leased
Property or the proceeds thereof.
<PAGE>
Indemnified Party: Either of a Lessee Indemnified Party or a Lessor
-----------------
Indemnified Party.
Indemnifying Party: Any party obligated to indemnify an Indemnified Party
------------------
pursuant to any provision of this Lease.
Initial Base Rent: As defined in Article III.
----------------- -----------
Initial Inventory and Cash-on-Hand: As defined in Section 6.2(a).
---------------------------------- --------------
Initial Rent Period: As defined in Section 3.1(a).
------------------- --------------
Initial Year Fixed Base Rent: As defined in Section 3.1(b)(i).
---------------------------- -----------------
Insurance Requirements: All terms of any insurance policy required by this
----------------------
Lease and all requirements of the issuer of any such policy.
Inventory: All "Inventory" as defined in the Uniform System, including, but
---------
not limited to, linens, china, silver, glassware and other non-depreciable
personal property, and any property of the type described in Section 1221(1) of
the Code.
Land: As defined in Article I.
---- ---------
Lease: This Lease.
-----
Lease Master Agreement: That certain Lease Master Agreement dated of even
----------------------
date herewith executed by and between Lessor and Lessee, and all amendments
thereto.
Lease Year: Any twelve-month period from January 1 to December 31 during the
----------
Term; provided that the initial Lease Year shall be the period beginning on the
Commencement Date and ending on December 31, 1996, and the last Lease Year shall
be the period beginning on January 1 of the calendar year in which the Term
expires (to the extent any computation or other provision hereof provides for an
action to be taken on a Lease Year basis, an appropriate proration or other
adjustment shall be made in respect of the initial and final Lease Years to
reflect that such periods are less than full calendar year periods).
Leased Improvements; Leased Property: Each as defined in Article I.
------------------------------------ ---------
Legal Requirements: All federal, state, county, municipal and other
------------------
governmental statutes, laws, rules, orders, regulations, ordinances, judgments,
decrees and injunctions affecting either the Leased Property or the maintenance,
construction, use, operation or alteration thereof (whether by Lessee or
otherwise), now existing or hereafter enacted and in force, including all laws,
rules or regulations pertaining to the environment, occupational health and
safety and public health, safety or welfare at the Leased Property; and all
permits, licenses and authorizations necessary or appropriate to operate the
Leased Property for its Primary Intended Use; and all covenants, agreements,
restrictions and encumbrances contained in any instruments, either of record or
known to Lessee (other than encumbrances hereafter created by Lessor without the
consent of Lessee), at any time in force affecting the Leased Property.
<PAGE>
Lessee: The Lessee designated on this Lease and its permitted successors and
------
assigns.
Lessee Indemnified Party: Lessee, any Affiliate of Lessee, Manager, any other
------------------------
Person against whom any claim for indemnification may be asserted hereunder as a
result of a direct or indirect ownership interest in Lessee, the officers,
directors, stockholders, partners, members, employees, agents and
representatives of any of the foregoing Persons and any corporate stockholder,
agent, or representative of any of the foregoing Persons, and the respective
heirs, personal representatives, successors and assigns of any such officer,
director, stockholder, employee, agent or representative.
Lessee's Personal Property: As defined in Section 6.2.
-------------------------- -----------
Lessor: The Lessor designated on this Lease and its respective successors and
------
assigns.
Lessor Impositions: With respect to each Lease Year, an amount equal to the
------------------
aggregate amount of Capital Impositions, Real Estate Taxes and Personal Property
Taxes due and payable for such Lease Year.
Lessor Indemnified Party: Lessor, any Affiliate of Lessor, including the
------------------------
Company, any other Person against whom any claim for indemnification may be
asserted hereunder as a result of a direct or indirect ownership interest in
Lessor, the officers, directors, stockholders, partners, members, employees,
agents and representatives of any of the foregoing Persons and of any
stockholder, partner, member, agent, or representative of any of the foregoing
Persons, and the respective heirs, personal representatives, successors and
assigns of any such officer, director, partner, stockholder, employee, agent or
representative.
Lessor Insurance Costs: The costs to be borne by Lessor for insurance
----------------------
coverages contemplated by Article XIII hereof.
------------
Lessor Obligations: An amount equal to (a) the aggregate amount that Lessor
------------------
is obligated to pay for the Lease Year in question under the terms of this Lease
for Lessor Impositions and Lessor Insurance Costs, as adjusted pursuant to the
terms hereof and the Lease Master Agreement plus (b) the amount to be funded by
Lessor in the Capital Expenditures Reserve for the Lease Year in question.
Lessor's Audit: An audit by Lessor's independent certified public accountants
--------------
of the operation of the Leased Property during any Lease Year, which audit may,
at Lessor's election, be either a complete audit of the Leased Property's
operations or an audit of Room Revenues, Food Sales, Beverage Sales and Other
Income realized from the operation of the Leased Property during such Lease
Year.
Licenses: As defined in Section 42.2.
-------- ------------
Management Agreement: As defined in Section 21.3.
-------------------- ------------
Manager: As defined in Section 21.3.
------- ------------
Market Decline: As defined in Section 3.7(b).
-------------- --------------
<PAGE>
Market Force Majeure Event: As defined in Section 3.7(d).
-------------------------- --------------
Measurement Date: As defined in Section 3.1(f).
---------------- --------------
Migration: As defined in Section 8.3(b).
--------- --------------
Minimum Net Worth: As defined in the Guaranty.
-----------------
Monthly Revenues Computation: As defined in Section 3.1(c).
---------------------------- --------------
Mortgage: As defined in Section 28.2.
-------- ------------
Net Worth: As defined in the Guaranty.
---------
Nonconsumable Inventory: Inventory exclusive of Consumable Supplies.
-----------------------
Notice: A notice given pursuant to Article XXX.
------ -----------
Officer's Certificate: A certificate of Lessee reasonably acceptable to
---------------------
Lessor, signed by the chief financial officer or another officer duly authorized
so to sign by Lessee or a general partner of Lessee, or any other person whose
power and authority to act has been authorized by delegation in writing by any
such officer.
Operating Budget: As defined in Section 3.5.
---------------- -----------
Other Income: All revenues, receipts, and income of any kind derived directly
------------
or indirectly from or in connection with the Facility and included in Gross
Revenues other than Room Revenues, Food Sales or Beverage Sales.
Other Income Percentage: As defined in Section 3.1(c)(ii) and Exhibit B.
----------------------- ------------------ ---------
Other Leased Properties: Shall mean any other hotels, in addition to the
-----------------------
Leased Property, which at the time are the subject of leases in which Lessor or
an Affiliate of Lessor is the landlord and Lessee is the tenant.
Other Leases: Shall mean the leases in effect at the time pursuant to which
------------
Lessor or an Affiliate of Lessor leases to Lessee or the Other Leased
Properties.
Overdue Rate: On any date, a rate equal to the Base Rate plus 5% per annum,
------------
but in no event greater than the maximum rate then permitted under applicable
law.
Payment Date: Any due date for the payment of any installment of Rent.
------------
Percentage Rent: As defined in Section 3.1(c).
--------------- --------------
Performance Failure: A Revenue Performance Shortfall, a Market Decline or a
-------------------
Profit Decline.
Performance Standard: When (a) Initial Base Rent, annualized to reflect
--------------------
ownership of
<PAGE>
the Leased Property for a full calendar year, exceeds eleven percent (11%) of
the sum of (i) $18,730,000 plus (ii) Total Hotel Cost plus (iii) Renovation
---- ----
Costs and (b) Fixed Base Rent for the First Fixed Year exceeds twelve percent
(12%) of (i) $18,730,000 plus (ii) Total Hotel Cost plus (iii) Renovation Costs.
---- ----
Person: Any Government, natural person, corporation, partnership, trust or
------
other legal entity.
Personal Property Limitation: As defined in Section 18.1.
---------------------------- ------------
Personal Property Taxes: All personal property taxes imposed on the
-----------------------
furniture, furnishings or other items of personal property located on, and used
in connection with, the operation of the Leased Improvements as a hotel (other
than Inventory and other personal property owned by the Lessee and/or its
tenants, licensees, concessionaires, agents or contractors), together with all
replacements, modifications, alterations and additions thereto.
Predecessor: Any Person whose liabilities arising under any Environmental Law
-----------
have or may have been retained or assumed by Lessor or Lessee pursuant to the
provisions of this Lease.
Primary Intended Use: As defined in Section 7.2(b).
-------------------- --------------
Proceeding: Any judicial action, suit or proceeding (whether civil or
----------
criminal), any administrative proceeding (whether formal or informal), any
investigation by a governmental authority or entity (including a grand jury),
and any arbitration, mediation or other non-judicial process for dispute
resolution.
Profit Decline: As defined in Section 3.7(c).
-------------- --------------
Purchase Price: $16,730,000.00.
--------------
RCRA: The Resource Conservation and Recovery Act, as amended.
----
Real Estate Taxes: All real estate taxes, including general and special
-----------------
assessments, if any, which are imposed upon the Land and any improvements
thereon.
Release: A "Release" as defined in CERCLA or in any Environmental Law, unless
-------
such Release has been properly authorized and permitted in writing by all
applicable Environmental Authorities or is allowed by such Environmental Law
without authorizations or permits.
Renovation Costs: An amount equal to those costs and expenses, with respect
----------------
to any Capital Improvements, which have been incurred in accordance with the
Lease Master Agreement.
Rent: Collectively, the Initial Base Rent, Fixed Base Rent, Percentage Rent,
----
and Additional Charges.
Revenue Audit: As defined in Section 3.2(b).
------------- --------------
<PAGE>
Revenue Performance Shortfall: As defined in Section 3.7(a).
----------------------------- --------------
Revenues Computation: As defined in Section 3.1(c).
-------------------- --------------
RevPAR Yield Index: As defined in Section 3.7(b).
------------------ --------------
Room Revenues: Gross revenue from the rental of guest rooms, whether to
-------------
individuals, groups or transients, at the Facility, determined in a manner
consistent with the Uniform System, excluding the following:
(a) The amount of all credits, rebates or refunds to customers, guests or
patrons; and
(b) All sales taxes or any other taxes imposed on the rental of such guest
rooms; and
(c) any fees collected for amenities including, but not limited to,
telephone, laundry, movies or concessions.
SARA: The Superfund Amendments and Reauthorization Act of 1986, as amended.
----
SEC: The U.S. Securities and Exchange Commission or any successor agency.
---
Second Tier Food Sales Percentage: As defined in Section 3.1(c)(ii) and
--------------------------------- ------------------
Exhibit B.
- ---------
Second Tier Room Revenue Percentage: As defined in Section 3.1(c)(ii) and
----------------------------------- ------------------
Exhibit B.
- ---------
Seller: Atlanta Midtown Associates, a Texas general partnership.
------
State: The State or Commonwealth of the United States in which the Leased
-----
Property is located.
STR Reports: Reports compiled by Smith Travel Research which contain
-----------
historical supply and demand, occupancy, and average rate information for the
Facility and hotels with which it competes.
Subsidiaries: Corporations or other entities in which Lessee owns, directly
------------
or indirectly, 50% or more of the voting rights or control, as applicable
(individually, a "Subsidiary").
----------
Succeeding Year: As defined in Section 3.7(d).
--------------- --------------
Taking: A permanent or temporary taking or voluntary conveyance during the
------
Term hereof of all or part of the Leased Property, or any interest therein or
right accruing thereto or use thereof, as the result of, or in settlement of,
any Condemnation or other eminent domain proceeding affecting the Leased
Property whether or not the same shall have actually been commenced.
<PAGE>
Tax Law Change: A change in the Code (including, without limitation, a change
--------------
in the Treasury regulations promulgated thereunder) or in the judicial or
administrative interpretations of the Code, which in Lessor's determination will
permit Lessor or an Affiliate thereof to operate the Facility as a hotel without
adversely affecting the Company's qualification for taxation as a real estate
investment trust under the applicable provisions of the Code.
Term: As defined in Section 1.2.
---- -----------
Third Tier Room Revenue Percentage: As defined in Section 3.1(c)(ii) and
---------------------------------- ------------------
Exhibit B.
- ---------
Total Hotel Cost: The lesser of (a) $250,000.00, and (b) the aggregate of all
----------------
costs and expenses paid or accrued by Lessor in connection with the initial
acquisition, leasing and financing of the Facility, including, without
limitation, all legal, accounting, engineering, consulting, commissions, title,
escrow, loan and other fees, costs and expenses incurred in connection with the
initial acquisition, leasing and financing of the Facility (whether before or
after the closing) and franchise transfer or new franchise fees; provided,
however, the amounts described in clause (b) shall not include (i) the Purchase
Price, or (ii) any of such costs which were paid or reimbursed by Seller to
Lessor on or before the date hereof.
TSCA: The Toxic Substances Control Act, as amended.
----
Unavoidable Delay: Delay due to strikes, lock-outs, labor unrest, inability
-----------------
to procure materials, power failure, acts of God, governmental restrictions,
enemy action, civil commotion, fire, unavoidable casualty, condemnation or other
similar causes beyond the reasonable control of the party responsible for
performing an obligation hereunder, provided that lack of funds shall not be
deemed a cause beyond the reasonable control of either party hereto unless such
lack of funds is caused by the breach of the other party's obligation to perform
any obligations of such other party under this Lease.
Uneconomic for its Primary Intended Use: A state or condition of the Facility
---------------------------------------
such that in the judgment of Lessor the Facility cannot be operated on a
commercially practicable basis for its Primary Intended Use, such that Lessor
intends to, and shall, cease operations from the Leased Facility.
Uniform System: Shall mean the Uniform System of Accounts for Hotels (8th
--------------
Revised Edition, 1986) as published by the Hotel Association of New York City,
Inc., as the same may hereafter be revised, and as the same is interpreted and
applied by the Lessor's independent certified public accountants in connection
with any Lessor's Audit.
Unsuitable for its Primary Intended Use: A state or condition of the Facility
---------------------------------------
such that in the judgment of Lessor the Facility cannot function as an
integrated hotel facility consistent with standards applicable to a well
maintained and operated hotel comparable in quality and function to that of the
Facility prior to the damage or loss.
Wyndham Standards: Nationwide standards established by Wyndham Hotels for
-----------------
hotels comparable to the Facility which utilize the Wyndham name and which offer
comparable quality, service and amenities as the Facility; provided, however,
that Lessor shall not be obligated to comply with, and the term Wyndham
Standards as used in this Lease shall not
<PAGE>
include, standards which constitute an upgrade of the Facility or its quality,
services and amenities to a different class of hotel (such as, for example, an
upgrade from current Wyndham hotel standards to those of a Ritz Carlton or Four
Seasons, or an upgrade of standards applicable to a Holiday Inn, to those of a
Holiday Inn Crowne Plaza, or an upgrade of standards from a Wyndham Garden to a
Wyndham Hotel).
ARTICLE III
-----------
RENT
----
3.1 Rent. Lessee will pay to Lessor in lawful money of the United States of
----
America which shall be legal tender for the payment of public and private debts,
at Lessor's address set forth in Article XXX hereof or at such other place or to
-----------
such other Person, as Lessor from time to time may designate in a Notice, all
Rent contemplated hereby during the Term on the following basis:
(a) Initial Base Rent: During the period (the "Initial Rent Period")
----------------- -------------------
ending on December 31, 1996, Lessee shall pay to Lessor Initial Base Rent
(herein so called) on the following basis:
(i) Initial Base Rent shall be payable on an estimated basis
monthly in arrears on the first day of each month following the month for which
Initial Base Rent has accrued, commencing at the times and in the amounts which
are set forth on the Base Rent Schedule (herein so called) attached hereto as
Exhibit D-1 and made a part hereof for all purposes.
- -----------
(ii) At the end of the Initial Rent Period or as soon thereafter as
may be reasonably practicable, Lessor and Lessee shall determine the Actual 1996
Initial Base Rent (herein so called) which shall be an amount equal to (a)
Lessor Obligations for the Initial Rent Period plus (b) an amount equal to the
----
product of the sum of (x) the Purchase Price, plus (y) the Renovation Costs
----
incurred for the Initial Rent Period, plus (z) the Total Hotel Cost as of
----
December 31, 1996 times ten percent (10%).
-----
(iii) To the extent that the Actual 1996 Initial Base Rent is more
than the estimated Initial Base Rent actually paid by Lessee to Lessor, and all
or a portion of such additional amount has not been previously paid by Lessee to
Lessor as Percentage Rent, Lessee shall be obligated to pay to Lessor the amount
of such difference. To the extent that the Actual 1996 Initial Base Rent is less
than the amounts actually paid in respect to estimated Initial Base Rent and
installments of Percentage Rent for the Initial Rent Period, and only to the
extent Lessee is not otherwise obligated to pay Percentage Rent for the Initial
Rent Period, Lessee shall be entitled to a credit against the next ensuing
payments of Fixed Base Rent or Percentage Rent; provided, however, if such
overpayment is greater than a monthly payment of Fixed Base Rent, Lessor shall
pay the amount which is over and above the monthly payment of Fixed Base Rent to
Lessee within thirty (30) days after such determination. The adjustments,
computations and payments, if any, contemplated by this subparagraph (a)(iii)
shall be made and concluded on or before January 31, 1997.
(b) Fixed Base Rent: For the period (the "Fixed Rent Period") beginning
--------------- -----------------
<PAGE>
on January 1, 1997 and for each year thereafter during the Term, Lessee shall
pay to Lessor, Fixed Base Rent (herein so called) on the following basis:
(i) Fixed Base Rent for the Lease Year 1997 (the "First Fixed
----------------
Year") shall be an amount equal to the sum of (a) Lessor Obligations for
the Initial Rent Period, annualized to reflect ownership of the Leased
Property for a full calendar year, plus (b) an amount equal to the
----
product of the sum of (x) the Purchase Price, plus (y) the Renovation
----
Costs, plus (z) the Total HotelCost as of December 31, 1996 times ten
---- -----
percent (10%). The result of theforegoing calculation in this Section
3.1(b)(i) shall then be multiplied by the CPI Factor (hereinafter
defined in Section 3.1(f)(i)(2)). The Fixed Base Rent for the First
Fixed Year (Lease Year 1997) is herein called the "Initial Year
------------
Fixed Base Rent". Collectively, the amounts comprising (x), (y) and
---------------
(z)above shall be referred to herein as the "Agreed Hotel Cost".
-----------------
For example, if (i) Agreed Hotel Cost were $5,000,000.00, (ii)
Lessor Obligations for the Initial Rent Period on an annualized basis,
as if Lessor owned the Leased Property for a full calendar year, were
$100,000.00 and (iii) the CPI Factor were 1.03, then the Initial Year
Fixed Base Rent would be $618,000.00: [($5,000,000.00 X 10%) plus
$100,000.00] X 1.03.
(ii) Estimates of Initial Year Base Rent shall be paid in arrears on
the first day of each month in the amounts set forth in the Base Rent
Schedule attached hereto as Exhibit D-2 and made a part hereof for all
-----------
purposes. At the end of the First Fixed Year or as soon thereafter as is
practicable, Lessor and Lessee shall determine the Actual 1997 Fixed
Base Rent (herein so called) and to the extent that the Actual 1997
Fixed Base Rent is more than the Initial Year Fixed Base Rent actually
paid by Lessee to Lessor and all or any portion of such additional rent
has not been previously paid by Lessee to Lessor as installments of
Percentage Rent for the First Fixed Year, Lessee shall be obligated to
pay Lessor the amount of such difference within thirty (30) days after
such determination. To the extent that the Actual 1997 Fixed Base Rent
is less than the amounts actually paid in respect to the Fixed Base Rent
and installments of Percentage Rent paid for the First Fixed Year, and
only to the extent Lessee is not otherwise obligated to pay Percentage
Rent for the First Fixed Year, Lessee shall be entitled to a credit
against the next ensuing payments of Fixed Base Rent or Percentage Rent;
provided, however, if such overpayment is in excess of the monthly
payment of Fixed Base Rent, Lessor shall pay the amount which is over
and above the monthly payment of Fixed Base Rent to Lessee within thirty
(30) days after such determination. The adjustments, computations and
payments, if any, contemplated by this subparagraph (b)(ii) shall be
made and concluded on or before January 31, 1998.
(iii) The Fixed Base Rent for the Lease Year commencing January 1,
1998 and for each Lease Year thereafter shall be an amount equal to the
Actual 1997 Fixed Base Rent, subject to increases as set forth in
subparagraph (f) below. In addition, in the event the Performance
Standard is reached, the Actual 1997 Fixed Base Rent, for purposes of
calculating Fixed Base Rent for the Lease Year commencing January 1,
1998 and for each Lease Year thereafter, shall be increased by
$200,000.00.
(iv) Fixed Base Rent shall be payable in arrears in equal,
consecutive monthly installments, on or before the first day of each
month following the month for
<PAGE>
which such rent has accrued; provided, however, that (a) Initial Base
Rent or Fixed Base Rent shall be prorated as to any Lease Year which is
less than twelve (12) months, (b) the first and last monthly payments of
Initial Base Rent or Fixed Base Rent shall be prorated as to any partial
month, and (c) payments of Initial Base Rent or Fixed Base Rent shall be
subject to abatement where and only where and to the extent expressly
provided in this Lease. Such prorations shall not affect the calculation
of Fixed Base Rent for subsequent Lease Years.
(c) Percentage Rent: In addition to the sums payable pursuant to
---------------
subparagraphs (a) and (b) above, Lessee shall, within ten (10) days after the
last day of each month during the Term hereof, pay to Lessor an amount equal to
the Percentage Rent (herein so called) payable in accordance with the provisions
of this subparagraph (c). Percentage Rent shall be calculated by the following
formula (the "Revenues Computation"):
--------------------
(i) For any calendar month, Percentage Rent shall equal:
(1) An amount equal to the Monthly Revenues Computation
(defined below), for the Lease Year in question
less
(2) An amount equal to the Initial Base Rent or Fixed
Base Rent, as applicable, paid by Lessee to Lessor
for the Lease Year to date
less
(3) An amount equal to the Percentage Rent theretofore
paid for the Lease Year in question to date.
(ii) "Monthly Revenues Computation" shall be computed utilizing
----------------------------
the following definitions:
(1) "Cumulative Monthly Portion" shall mean a fraction
--------------------------
having as its numerator the total number of calendar months
(including partial months) in a Lease Year which have elapsed prior
to the month in which a monthly payment of Percentage Rent is due,
and having as its denominator the total number of calendar months
(including partial months) in the Lease Year. For example, the
Cumulative Monthly Portion in a 12-month Lease Year for the January
Percentage Rent payment due February 10 will be 1/12 and for the
February Percentage Rent payment due March 10 will be 2/12, and such
progression shall continue for each successive calendar month so
that the Cumulative Monthly Portion for the December Percentage Rent
payment due January 10 of the next Lease Year will be 12/12 or 100%.
(2) "First Tier Room Revenue Percentage," "Second Tier
---------------------------------- -----------
Room Revenue Percentage," "Third Tier Room Revenue Percentage,"
----------------------- ----------------------------------
"First Tier Food Sales Percentage," "Second Tier Food Sales
-------------------------------- ----------------------
Percentage" and "Other Income Percentage" shall mean the percent-
----------- ----------------------
ages corresponding to
<PAGE>
each of such terms as set forth on Exhibit B.
---------
(3) "Annual Room Revenues First Break Point" and
--------------------------------------
"Annual Room Revenues Second Break Point" shall mean the amount of
-------------------- ------------------
annual Room Revenues corresponding to each of such terms as set
forth on Exhibit B.
---------
(4) "Annual Food Sales Break Point" shall mean the amount
-----------------------------
of annual Food Sales and Beverage Sales corresponding to such term
as set forth on Exhibit B.
---------
(iii) The Monthly Revenues Computation shall be the amount
obtained by adding, for the applicable Lease Year the following sums:
(1) an amount equal to the product of (a) the First Tier
Room Revenue Percentage times (b) all year to date Room Revenues up
to (but not exceeding) the Cumulative Monthly Portion of the Annual
Room Revenues First Break Point,
(2) an amount equal to the product of (a) the Second Tier
Room Revenue Percentage times (b) all year to date Room Revenues in
excess of the Cumulative Monthly Portion of the Annual Room Revenues
First Break Point up to (but not exceeding) the Cumulative Monthly
Portion of the Annual Room Revenues Second Break Point,
(3) an amount equal to the product of (a) the Third Tier
Room Revenue Percentage times (b) all year to date Room Revenues in
excess of the Cumulative Monthly Portion of the Annual Room Revenues
Second Break Point,
(4) an amount equal to the product of (a) the First Tier
Food Sales Percentage times (b) the Cumulative Monthly Portion of
all year to date Food Sales and Beverage Sales up to (but not
exceeding) the Cumulative Monthly Portion of the Annual Food Sales
Break Point,
(5) an amount equal to the product of (a) the Second Tier
Food Sales Percentage times (b) all year to date Food Sales and
Beverage Sales in excess of the Cumulative Monthly Portion of the
Annual Food Sales Break Point, and
(6) an amount equal to the product of (a) the Other
Income Percentage times (b) year to date revenues from Other Income.
(iv) If the Term begins or ends in the middle of a calendar
year, then the number of months falling within the Term during such
calendar year shall constitute a separate Lease Year. In that event, the
Annual Room Revenues First Break Point, the Annual Room Revenues Second
Break Point, and the Annual Food Sales Break Point (collectively, the
"Break Points") shall each be multiplied by a fraction equal to (A) the
------------
number of months (including partial months) in the Lease Year divided by
----------
(B)
<PAGE>
twelve (12), and the Cumulative Monthly Portion for each of the months
in such Lease Year shall be determined as set forth in the definition of
Cumulative Monthly Portion above.
(v) The obligation to pay Percentage Rent shall survive the
expiration or earlier termination of the Term, and a final
reconciliation, taking into account, among other relevant adjustments,
any adjustments which are accrued after such expiration or termination
date but which related to Percentage Rent accrued prior to such
termination date, shall be made not later than sixty (60) days after
such expiration or termination date.
(d) Officer's Certificates. An Officer's Certificate shall be
----------------------
delivered to Lessor monthly setting forth the calculation of the Percentage Rent
payment for the most recently completed month within 10 days after each month of
each Lease Year during the Term and within twenty (20) days following each Lease
Year during the Term for the most recently ended Lease Year. There shall be no
reduction in Initial Base Rent or Fixed Base Rent regardless of the results of
the Monthly or Annual Revenues Computation. Percentage Rent shall be subject to
confirmation and adjustment, if applicable, as set forth in Section 3.2.
(e) Annual Reconciliation of Percentage Rent. Notwithstanding the
----------------------------------------
amounts of Percentage Rent paid monthly pursuant to the formula set forth above,
for each Lease Year during the Term commencing with the Lease Year in which the
Commencement Date occurs, the Percentage Rent payable under this Lease shall be
equal to the amount determined by the following formula:
The amount equal to the Annual Revenues Computation (as defined
below) for the Lease Year in question
less
An amount equal to the Initial Base Rent or Fixed Base Rent,
as the case may be, paid for the applicable Lease Year
equals
Percentage Rent for the applicable Lease Year.
The Annual Revenues Computation (herein so called) shall be the amount obtained
by adding, for the applicable Lease Year, the following sums:
(1) an amount equal to the First Tier Room Revenue Percentage
of Room Revenues for the applicable Lease Year up to (but not
exceeding) the Annual Room Revenues First Break Point,
(2) an amount equal to the Second Tier Room Revenue Percentage
of Room Revenues for the applicable Lease Year in excess of the
Annual Room Revenues First Break Point up to (but not exceeding) the
Annual Room Revenues Second Break Point,
<PAGE>
(3) an amount equal to the Third Tier Room Revenue Percentage
of Room Revenues for the applicable Lease Year in excess of the
Annual Room Revenues Second Break Point,
(4) an amount equal to the First Tier Food Sales Percentage
of Food Sales and Beverage Sales for the applicable Lease Year up
to (but not exceeding) the Annual Food Sales Break Point,
(5) an amount equal to the Second Tier Food Sales Percentage
of Food Sales and Beverage Sales for the applicable Lease Year in
excess of the Annual Food Sales Break Point, and
(6) an amount equal to the Other Income Percentage of revenues
from Other Income for the applicable Lease Year.
If the annual Percentage Rent due and payable for any Lease Year (as shown in
the applicable Officer's Certificate) exceeds the amount actually paid as
Percentage Rent by Lessee for such year, Lessee also shall pay such excess to
Lessor within thirty (30) days following the date such certificate is delivered.
If the Percentage Rent actually due and payable for such Lease Year is shown by
such certificate to be less than the amount actually paid as Percentage Rent for
the applicable Lease Year, Lessee shall be entitled to a credit in the amount of
such overpayment against the next ensuing payment of Fixed Base Rent and/or
Percentage Rent; provided, however, if such overpayment is in excess of the
monthly payment of Fixed Base Rent, Lessor shall pay the amount which is over
and above the monthly payment of Fixed Base Rent to Lessee within thirty (30)
days after such determination. Notwithstanding the foregoing, if the Annual
Revenues Computation is less than the Initial Base Rent or Fixed Base Rent, as
the case may be, for the applicable Lease Year, Lessee shall not be entitled to
any credit or refund.
(f) CPI Adjustments.
---------------
(i) For the Lease Year commencing with the first Lease Year
immediately following the First Fixed Year, and for each Lease Year thereafter
during the Term, the Fixed Base Rent then in effect shall be increased in the
following manner:
(1) The Fixed Base Rent for the Lease Year in question
shall be an amount equal to the prior year's Fixed Base Rent
multiplied by the CPI Factor.
(2) The term "CPI Factor" shall mean a percentage
----------
computed by dividing the Consumer Price Index for the day
before the day that the new Lease Year commences
("Measurement Date") by the Consumer Price Index for the day
----------------
that is twelve months preceding the Measurement Date.
(ii) For each Lease Year during the Term beginning with the
Lease Year commencing with the First Fixed Year, the Annual Room Revenues First
Break Point and the Annual Room Revenues Second Break Point (together, the
"Annual Room Revenues Break Points"), and the Annual Food Sales Break Point
--------------------------------
then included in the Revenues
<PAGE>
Computation set forth above, shall be increased as follows:
(1) The new Annual Room Revenues Break Points in the
Revenues Computation described above for the Lease Year commencing with the
First Fixed Year and for each Lease Year thereafter shall be the product of (i)
the Annual Room Revenues Break Points in effect in the most recently ended Lease
Year times (ii) the CPI Factor plus eighty (80) basis points; and
-----
(2) The new Annual Food Sales Break Point in the Revenues
Computation described above for the Lease Year commencing with the First Fixed
Year and for each Lease Year thereafter during the Term, shall be the product
of (i) the Annual Food Sales Break Point in effect in the most recently ended
Lease Year times (ii) the CPI Factor plus eighty (80) basis points.
-----
(iii) In no event shall the Fixed Base Rent, the Annual Room
Revenues Break Points or the Annual Food Sales Break Point then in effect be
reduced as a result of any changes in the Consumer Price Index or any
calculations made pursuant to this Subparagraph (f).
(iv) Adjustments calculated as set forth above in the Fixed
Base Rent, Annual Room Revenues Break Points and the Annual Food Sales Break
Point shall be effective on the first day of each calendar Lease Year to which
such adjusted amounts apply. If Fixed Base Rent or Percentage Rent is paid prior
to the determination of the amount of any adjustment to Fixed Base Rent,
Percentage Rent, the Annual Room Revenues Break Points or the Annual Food Sales
Break Point applicable for such period, whether because of a delay in the
publication of the Consumer Price Index for the Measurement Date or because of
any other reason, payment adjustments for any shortfall in or overpayment of
Percentage Rent paid shall be made with the first Fixed Base Rent and Percentage
Rent payments due after the amount of the adjustments are determined.
(v) If (a) a significant change is made in the number or
nature (or both) of items used in determining the Consumer Price Index, or (b)
the Consumer Price Index shall be discontinued for any reason, the Bureau of
Labor Statistics shall be requested to furnish a new index comparable to the
Consumer Price Index, together with information which will make possible a
conversion to the new index in computing the adjusted Fixed Base Rent, Annual
Room Revenues Break Points and Annual Food Sales Break Point hereunder. If for
any reason the Bureau of Labor Statistics does not furnish such an index and
such information, the parties will instead mutually select, accept and use such
other index or comparable statistics on the cost of living in various U.S.
cities that is computed and published by an agency of the United States or a
responsible financial periodical of recognized authority.
3.2 Confirmation of Percentage Rent.
-------------------------------
(a) Lessee shall utilize, or cause to be utilized, an accounting system
for the Leased Property in accordance with its usual and customary practices,
and in accordance with GAAP and the Uniform System, that will accurately record
all data necessary to compute Percentage Rent, and Lessee shall retain, for at
least three (3) years after the expiration of each Lease Year, reasonably
adequate records conforming to such accounting system showing all data necessary
to conduct Lessor's Audit and to compute Percentage Rent for the applicable
<PAGE>
Lease Years.
(b) Lessor shall have the right from time to time by its accountants or
representatives to audit such information in connection with Lessor's Audit, and
to examine all Lessee's records (including supporting data and sales and excise
tax returns) reasonably required to complete Lessor's Audit and to verify
Percentage Rent, subject to any prohibitions or limitations on disclosure of any
such data under Legal Requirements. If any Lessor's Audit discloses a
deficiency in the payment of Percentage Rent, and either Lessee agrees with the
result of Lessor's Audit or the matter is otherwise determined or compromised,
Lessee shall forthwith pay to Lessor the amount of the deficiency, as finally
agreed or determined, together with interest, at the Overdue Rate, from the date
when said payment should have been made to the date of payment thereof;
provided, however, that as to any Lessor's Audit that is commenced more than one
(1) year after the end of any Lease Year, the deficiency, if any, with respect
to such Percentage Rent shall bear interest, at the Overdue Rate, only from the
date such determination of deficiency is made unless such deficiency is the
result of gross negligence or willful misconduct on the part of Lessee, in which
case interest at the Overdue Rate will accrue from the date such payment should
have been made to the date of payment thereof. In addition to the amounts
described above in this Section 3.2(b), if any Lessor's Audit discloses a
--------------
deficiency in the payment of Percentage Rent which, as finally agreed or
determined, exceeds 3%, Lessee shall pay the costs of the portion of Lessor's
Audit allocable to the determination of Gross Revenues (the "Revenue Audit")
-------------
and, if any such deficiency exceeds 5%, Lessee shall also pay, in addition to
interest at the Overdue Rate and the cost of the Revenue Audit as aforesaid, an
amount equal to 25% of such deficiency. In no event shall Lessor undertake a
Lessor's Audit more than three (3) years after the last day of the Lease Year
for which such audit is requested.
(c) Any proprietary information obtained by Lessor pursuant to the
provisions of this Section shall be treated as confidential, except that such
information may be used, subject to appropriate confidentiality safeguards, in
any litigation between the parties and except further that Lessor may disclose
such information to prospective lenders and investors and to any other persons
to whom disclosure is necessary to comply with Legal Requirements.
(d) The obligations of Lessee contained in this Section shall survive
the expiration or earlier termination of this Lease. Any dispute as to the
existence or amount of any deficiency in the payment of Percentage Rent as
disclosed by Lessor's Audit shall, if not otherwise settled by the parties, be
submitted to arbitration pursuant to the provisions of Section 40.2.
------------
3.3 Additional Charges. In addition to the Initial Base Rent, the Fixed
------------------
Base Rent and Percentage Rent, Lessee also will pay and discharge as and when
due and payable the following: (a) any increase in Real Estate Taxes payable
pursuant to Paragraph 3 of the Lease Master Agreement, (b) all other amounts,
liabilities, obligations and Impositions that Lessee assumes or agrees to pay
under this Lease to Lessor and (c) in the event of any failure on the part of
Lessee to pay any of those items referred to in clause (a) and/or (b) of this
Section 3.3, Lessee also will promptly pay and discharge every fine, penalty,
- -----------
interest and cost that may be added for non-payment or late payment of such
items. The items referred to in clauses (a), (b) and (c) of this Section 3.3
-----------
being additional rent hereunder shall be referred to herein collectively as the
"Additional Charges"). Lessor shall have all legal, equitable and contractual
------------------
rights, powers and remedies provided either in this Lease or by statute or
<PAGE>
otherwise in the case of non-payment of the Additional Charges as in the case of
non-payment of the Initial Base Rent or Fixed Base Rent, as the case may be. If
any installment of Initial Base Rent or Fixed Base Rent, as the case may be,
Percentage Rent or Additional Charges (but only as to those Additional Charges
that are payable directly to Lessor) shall not be paid on its due date, Lessee
will pay Lessor within ten (10) days of demand, as Additional Charges, a late
charge (to the extent permitted by law) equal to the greater of (i) interest
computed at the Overdue Rate on the amount of such installment, from the due
date of such installment to the date of payment thereof, or (b) five percent
(5%) of such amount. To the extent that Lessee pays any Additional Charges to
Lessor pursuant to any requirement of this Lease, Lessee shall be relieved of
its obligation to pay such Additional Charges to the entity to which they would
otherwise be due and Lessor shall pay the same from monies received from Lessee.
3.4 No Set Off. Rent shall be paid to Lessor without set off, deduction or
----------
counterclaim; provided, however, that Lessee shall have the right of offset to
the extent specifically provided in Section 39.1 and the right to assert any
------------
claim or counterclaim in a separate action brought by Lessee under this Lease or
to assert any mandatory counterclaim in any action brought by Lessor under this
Lease.
3.5 Annual Budget. Not later than sixty (60) days prior to the commencement
-------------
of each Lease Year, Lessee shall prepare and submit to Lessor an operating
budget (the "Operating Budget") and a capital budget (the "Capital Budget")
---------------- --------------
prepared in accordance with the requirements of this Section 3.5 and in
-----------
substantially the same form as that previously submitted to Lessor or such other
form as Lessor and Lessee mutually agree. The Operating Budget and the Capital
Budget (together, the "Annual Budget") shall be prepared in accordance with the
-------------
Uniform System to the extent applicable and show by month and quarter and for
the year as a whole in the degree of detail specified by the Uniform System for
monthly statements, and in accordance with the detail level of monthly financial
statements, the following:
(a) Lessee's reasonable estimate of Gross Revenues (including room
rates and Room Revenues) for the forthcoming Lease Year itemized on schedules on
a monthly and quarterly basis as approved by Lessor and Lessee.
(b) An estimate of any amounts Lessor will be requested to provide for
Capital Improvements during the current and the next four (4) Lease Years,
subject to the limitations set forth in Article XXXVIII.
---------------
(c) A cash flow projection.
(d) Lessee's reasonable estimate for each month of the Lease Year of
Percentage Rent, including Room Revenues, Food Sales, Beverage Sales and Other
Income.
Lessor shall have thirty (30) days after the date on which it receives
the Annual Budget to review, approve or disapprove the Annual Budget. If the
parties are not able to reach agreement on the Annual Budget for any Lease Year
during Lessor's thirty (30) day review period, the parties shall attempt in good
faith during the subsequent thirty (30) day period to resolve any disputes,
which attempt shall include, if requested by either party, at least one (1)
meeting of executive-level officers of Lessor and Lessee. In the event the
parties are still not able to reach agreement on the Annual Budget for any
particular Lease Year after
<PAGE>
complying with the foregoing requirements of this Section 3.5, the parties shall
-----------
adopt such portions of the Operating Budget and the Capital Budget as they may
have agreed upon, and any matters not agreed upon shall be referred to
arbitration as provided for in Section 40.2 hereof. Pending the results of such
------------
arbitration or the earlier agreement of the parties, (i) if the Operating Budget
has not been agreed upon, the Leased Property will be operated in a manner
consistent with the prior Lease Year's Operating Budget without adjustment
pursuant to Section 3.1(f) hereof until a new Operating Budget is adopted, and
--------------
(ii) if the Capital Budget has not been agreed upon, no Capital Expenditures
shall be made unless the same are set forth in a previously approved Capital
Budget or are specifically required by Lessor or are otherwise required to
comply with Legal Requirements or to make Emergency Expenditures.
Lessee shall operate the Leased Property consistent with the Annual
Budget and shall promptly report to Lessor in writing any actual or anticipated
deviation from the Operating Budget or Capital Budget of any material or long-
term consequence. In the event that Lessor believes Lessee has failed to operate
the Leased Property in accordance with the provisions of the Annual Budget as
set forth in this Section 3.5, then Lessor, in addition to its other rights
-----------
and remedies under this Lease and under applicable law, shall have the right
to submit to arbitration under Section 40.1 hereof the issue of whether Lessee
------------
has failed to operate the Leased Property in accordance with the provisions of
the Annual Budget as set forth in this Section 3.5.
-----------
Lessee shall also provide to Lessor assumptions, in narrative form
forming the basis of the itemized schedules which are delivered pursuant to
Section 3.5(a), estimating Gross Revenues (including room rates and Room
- --------------
Revenues). Lessee shall also provide to Lessor with each Annual Budget a
narrative description of the program for marketing and managing the Facility for
the forthcoming Lease Year, including, among other things, details as to
competitor performance, demand analysis, estimated market penetration by market
segment, target accounts, marketing and advertising budgets, changes in
personnel policies, staffing levels, major events plans, franchise issues and
other matters affecting the performance and operation of the Facility, and
containing a detailed budget itemization of proposed expenditures by category
and the assumptions, in narrative form, forming the basis of such budget
itemization.
3.6 Books and Records. Lessee shall keep full and adequate books of account
-----------------
and other records reflecting the results of operation of the Facility on an
accrual basis, all in accordance with the Uniform System and GAAP and the
obligations of Lessee under this Lease. The books of account and all other
records relating to or reflecting the operation of the Facility shall be kept
either at the Facility or at Lessee's offices in Dallas, Texas and shall be
available to Lessor and its representatives and its auditors or accountants, at
all reasonable times upon prior notice for examination, audit, inspection, and
transcription. All of such books and records pertaining to the Facility
including, without limitation, books of account, guest records and front office
records, at all times shall be the property of Lessee but shall not be removed
from the Facility or Lessee's offices without Lessor's prior written Approval.
Upon termination or expiration of this Lease, Lessee shall deliver copies of all
such books and records to Lessor. Lessor shall be entitled to make copies
during the Term of any or all such books and records for its own files.
Lessee's obligations under this Section 3.6 shall survive termination of this
-----------
Lease for any reason.
<PAGE>
3.7 Performance Failures.
--------------------
(a) If, with respect to any Lease Year during the Term, Lessee shall
fail to realize from the operation of the Facility an amount equal to at least
ninety percent (90%) of Room Revenues as set forth in the Annual Budget for such
Lease Year, such failure, unless caused by a Market Force Majeure Event, shall
constitute a Revenue Performance Shortfall under this Lease. The existence of a
Revenue Performance Shortfall for any Lease Year shall be determined by Lessor
on the basis of the Officer's Certificate delivered by Lessee to Lessor on or
before January 20 of the subsequent Lease Year pursuant to the requirements of
the first paragraph of Section 3.1(c) and shall be subject to confirmation
--------------
pursuant to Section 3.2.
-----------
(b) If, with respect to any Lease Year during the Term, the RevPAR Yield
Index of the Leased Property as of the end of such Lease Year shall have
declined by more than ten (10) percentage points from the Leased Property's
RevPAR Yield Index at the beginning of the Term, such decline, unless caused by
a Market Force Majeure Event, shall constitute a Market Decline (herein so
called) under this Lease. As used herein, "RevPAR Yield Index," when used with
------------------
respect to the Leased Property, shall mean the percentage amount obtained by
dividing the RevPAR of the Leased Property by the RevPAR of the Leased
Property's Competitive Set, with the terms "RevPAR" and "Competitive Set" having
------ ---------------
the meanings ascribed to them in STR Reports. Lessor and Lessee shall work in
good faith to determine the Competitive Set to be used in the STR Report and, if
Lessor and Lessee are unable to agree, the Competitive Set shall be determined
by Smith Travel Research (or, if it refuses or is unable to do so, by
arbitration pursuant to Section 40.2). The existence of a Market Decline shall
------------
be determined on the basis of a STR Report which contains a full calendar year
calculation of the RevPAR Yield Index of the Leased Property. If STR Reports
are no longer published or do not contain sufficient information for the
determination of a Market Decline, the existence of a Market Decline shall
instead be determined, using the methodology presently employed by STR Reports,
from information on the RevPAR Yield Index of the Leased Property contained in
any other publication selected by Lessor and recognized by the hotel industry as
being an authoritative source of such information or, if no such publication
exists, from an analysis of the RevPAR Yield Index of the Leased Property
conducted at Lessee's expense by any nationally recognized accounting firm with
a hospitality division of which Lessor or an Affiliate of Lessor is not a
significant client.
(c) If, with respect to any Lease Year during the Term, commencing with
the first Lease Year following the First Fixed Year, the ratio of Gross
Operating Profit to Gross Revenues decreases by more than five (5) percentage
points from the immediately preceding Lease Year, such event shall constitute a
Profit Decline (herein so called) under this Lease. With respect to the First
Fixed Year, if the ratio of Gross Operating Profit to Gross Revenues decreases
by more than five (5) percentage points from the Initial Rent Period (annualized
to reflect ownership of the Leased Property for a full calendar year) such event
shall constitute a Profit Decline. The existence of a Profit Decline shall be
determined on the basis of the year-end financial information submitted by
Lessee to Lessor pursuant to Article XXII and shall be subject to confirmation
------------
by Lessor's Audit.
(d) In the event of a Performance Failure, Lessee shall have until the
end of the immediately succeeding Lease Year ("Succeeding Year") to attain the
---------------
necessary level of performance at the Facility such that a Performance Failure
does not then exist with respect to the Succeeding Year. For purposes of
determining whether a Profit Decline has been cured,
<PAGE>
the ratio of Gross Operating Profit to Gross Revenues for the Succeeding Year
shall be compared to the ratio of Gross Operating Profit to Gross Revenues for
the Lease Year prior to the Lease Year in which the Profit Decline occurred.
Within fifteen (15) days following the Performance Failure, Lessee shall submit
to Lessor a report which fully documents the circumstances which caused Lessee
to incur a Performance Failure. Further, within ten (10) days after the
commencement of the Lease Year in which Lessee is to attain the necessary level
of performance at the Facility such that a Performance Failure does not then
exist with respect to such Lease Year, Lessee shall submit to Lessor a plan
which describes in reasonable detail the steps Lessee intends to initiate to
achieve such performance. If Lessor objects to such plan, Lessor shall notify
Lessee of its objections, and Lessor and Lessee shall attempt in good faith to
agree upon a plan to remedy the Performance Failure. In the event Lessee is
unable to achieve such performance by the end of the immediately succeeding
Lease Year, then, unless Lessee has taken appropriate actions to achieve such
performance, which efforts were unsuccessful solely because of circumstances
outside of the control of Lessee, including, without limitation, general market
decline for hotels of similar quality and name recognition as the Facility in
the proximity of the Facility or the opening of new full service hotels in the
proximity of the Facility during the Lease Year in question, which hotels are of
similar quality and name recognition as the Facility (herein, a "Market Force
------------
Majeure Event", Lessor shall have the right, at Lessor's option, to terminate
- -------------
this Lease upon thirty (30) days' notice to Lessee, in which event Lessee shall
immediately surrender the Leased Property to Lessor, and, if Lessee fails to so
surrender, Lessor shall have the right, without notice, to enter upon and take
possession of the Leased Property and to expel or remove Lessee and its effects
without being liable for prosecution or any claim for damages therefor; and
Lessee shall, and hereby agrees to, indemnify Lessor for the total of (1) in the
event that Lessee does not promptly surrender the Leased Property, the
reasonable costs of recovering the Leased Property and all other losses,
liabilities and reasonable expenses incurred by Lessor in connection with
Lessee's failure to surrender; (2) the unpaid Rent earned as of the date of the
termination, plus interest at the Overdue Rate accruing after the due date; and
(3) all other sums of money then owing by Lessee to Lessor. Termination of this
Lease and recovery of the Rent and other amounts as aforesaid shall constitute
Lessor's sole remedy for the Performance Failure, and Lessee shall not be liable
to Lessor for damages arising therefrom. In the event Lessee is unable to attain
the necessary level of performance at the Facility such that a Performance
Failure does not then exist with respect to such Lease Year and alleges such
inability was due to circumstances beyond its control, Lessee shall deliver to
Lessor a report setting forth in reasonable detail the circumstances which were
beyond the control of Lessee which prevented Lessee from attaining the required
performance. If Lessor does not agree that such failure to remedy the
Performance Failure was a result of circumstances beyond the control of Lessee
as provided herein, the disagreement shall be resolved by arbitration pursuant
to Section 40.2.
------------
3.8 Changes in Operations. Without Lessor's prior written consent, which
---------------------
consent shall not be unreasonably withheld so long as Gross Revenues from the
applicable operation will not be negatively impacted, Lessee shall not (i)
provide food and/or beverage operations at the Facility if not presently
provided, (ii) discontinue any food and/or beverage services which are presently
provided, or (iii) convert a subtenant, licensee or concessionaire to an
operating department of the Facility or vice-versa. The foregoing shall in no
way alter or affect the provisions of Section 21.1 including, without
------------
limitation, the requirement that Lessee obtain the prior written consent of
Lessor in the event Lessee desires to assign this Lease or sublet all or any
part of the Leased Property.
<PAGE>
3.9 Allocation of Revenues. In the event that individuals or groups
----------------------
purchase rooms, food and beverage and/or the use of other hotel facilities or
services together or as part of a package, Lessee agrees that revenues shall be
allocated among Room Revenues, Food Sales, Beverage Sales and/or other revenue
categories, as applicable, in a reasonable manner consistent with the historical
allocation of such revenues.
ARTICLE IV
----------
IMPOSITIONS
-----------
4.1 Payment of Impositions.
----------------------
(a) Subject to Article XII relating to permitted contests, Lessee will
-----------
pay, or cause to be paid, all Impositions (other than Lessor Impositions, which
Lessor hereby covenants to pay before any fine, penalty, interest or cost may be
added for non-payment thereof) before any fine, penalty, interest or cost may be
added for non-payment, such payments to be made directly to the taxing or other
authorities where feasible, and will promptly furnish to Lessor copies of
official receipts or other satisfactory proof evidencing such payments.
Furthermore, Lessee covenants and agrees to pay any and all occupancy and sales
taxes due and payable for the Leased Property attributable to the period prior
to the Commencement Date, and Lessee hereby indemnifies and holds Lessor
harmless from and against any loss, cost, damage or expense resulting from the
non-payment of such taxes attributable to the period prior to the Commencement
Date. Lessee's obligation to pay such Impositions shall be deemed absolutely
fixed upon the date such Impositions become a lien upon the Leased Property or
any part thereof, subject to Lessee's right of contest pursuant to the
provisions of Article XII. If any such Imposition may, at the option of the
-----------
taxpayer, lawfully be paid in installments (whether or not interest shall accrue
on the unpaid balance of such Imposition), Lessee may exercise the option to pay
the same (and any accrued interest on the unpaid balance of such Imposition) in
installments payable during the Term and in such event, shall pay such
installments and any unpaid balance of such Impositions prior to the expiration
or earlier termination of the Term hereof and before any fine, penalty, premium,
further interest or cost may be added thereto.
(b) Lessor, at its expense, shall, to the extent required or permitted
by applicable law, prepare and file all tax returns in respect of Lessor's net
income, gross receipts, sales and use, single business, transaction privilege,
rent, ad valorem, franchise taxes, Real Estate Taxes, Personal Property Taxes,
Capital Impositions and taxes on its capital stock, and Lessee, at its expense,
shall, to the extent required or permitted by applicable laws and regulations,
prepare and file all other tax returns and reports in respect of any Imposition
as may be required by governmental authorities.
(c) If any refund shall be due from any taxing authority in respect of
any Imposition paid by Lessee, the same shall be paid over to or retained by
Lessee if no Event of Default shall have occurred hereunder and be continuing.
If an Event of Default shall have been declared by Lessor and be continuing, any
such refund shall be paid over to or retained by Lessor. Any such funds retained
by Lessor due to an Event of Default shall be applied as provided in
Article XVI.
- -----------
(d) Lessor and Lessee shall, upon request of the other, cooperate with
the
<PAGE>
other party and otherwise provide such data as is maintained by the party to
whom the request is made with respect to the Leased Property as may be necessary
to prepare any required returns and reports. Lessor, to the extent it possesses
the same, and Lessee, to the extent it possesses the same, will provide the
other party, upon request, with cost and depreciation records necessary for
filing returns for any property classified as personal property. Lessee shall
file all Personal Property Tax returns in such jurisdictions where it is legally
required to so file. Where Lessor is legally required to file Personal Property
Tax returns, Lessee shall provide Lessor with copies of assessment notices in
sufficient time for Lessor to file a protest.
(e) Lessor may, upon notice to Lessee, at Lessor's option and at
Lessor's sole expense, protest, appeal, or institute such other proceedings (in
its or Lessee's name) as Lessor may deem appropriate to effect a reduction of
real estate or personal property assessments for those Impositions to be paid by
Lessor, and Lessee, at Lessor's expense as aforesaid, shall fully cooperate with
Lessor in such protest, appeal, or other action. Lessor hereby agrees to
indemnify, defend, and hold harmless Lessee from and against any claims,
obligations, and liabilities against or incurred by Lessee in connection with
such cooperation. Billings to Lessor for reimbursement of Personal Property
Taxes paid by Lessee shall be accompanied by copies of a bill therefor and
payments thereof which identify the personal property with respect to which such
payments are made. Lessor, however, reserves the right to effect any such
protest, appeal or other action and, upon notice to Lessee, shall control any
such activity, which shall then proceed at Lessor's sole expense. Upon such
notice, Lessee, at Lessor's expense, shall cooperate fully with such activities.
(f) To the extent received by it, Lessee shall furnish Lessor with
copies of all assessment notices for Real Estate Taxes and Personal Property
Taxes in sufficient time for Lessor to file a protest and pay such taxes without
penalty. Lessor shall within thirty (30) days after making such payment furnish
Lessee with evidence of payment of Capital Impositions, Real Estate Taxes and
Personal Property Taxes.
4.2 Notice of Impositions. Lessor shall give prompt Notice to Lessee of all
---------------------
Impositions payable by Lessee hereunder of which Lessor at any time has
knowledge, provided that Lessor's failure to give any such Notice shall in no
way diminish Lessee's obligations hereunder to pay such Impositions, but if
Lessee did not otherwise have knowledge of such Imposition sufficient to permit
it to pay same, such failure shall obviate any default hereunder for a
reasonable time after Lessee receives Notice of any Imposition which it is
obligated to pay during the first taxing period applicable thereto.
4.3 Adjustment of Impositions. Impositions payable by Lessee which are
-------------------------
imposed in respect of the tax-fiscal period during which the Term terminates
shall be adjusted and prorated between Lessor and Lessee, whether or not such
Imposition is imposed before or after such termination, and Lessee's obligation
to pay its prorated share thereof after termination shall survive such
termination.
4.4 Utility Charges. Lessee will be solely responsible for obtaining and
---------------
maintaining utility services to the Leased Property and will pay or cause to be
paid all charges for electricity, gas, oil, water, sewer and other utilities
used in the Leased Property during the Term.
<PAGE>
ARTICLE V
---------
NO TERMINATION, ABATEMENT
-------------------------
5.1 No Termination, Abatement. Except as otherwise specifically provided in
-------------------------
this Lease, (1) Lessee, to the extent permitted by law, shall remain bound by
this Lease in accordance with its terms and shall neither take any action
without the written consent of Lessor to modify, surrender or terminate the
same, nor seek nor be entitled to any abatement, deduction, deferment or
reduction of the Rent, or setoff against the Rent, and (2) the obligations of
Lessee shall not be otherwise affected by reason of (a) any damage to, or
destruction of, any Leased Property or any portion thereof from whatever cause
or any Taking of the Leased Property or any portion thereof, (b) any bankruptcy,
insolvency, reorganization, composition, readjustment, liquidation, dissolution,
winding up or other proceedings affecting Lessor or any assignee or transferee
of Lessor, or (c) for any other cause whether similar or dissimilar to any of
the foregoing other than a discharge of Lessee from any such obligations as a
matter of law. Lessee hereby specifically waives all rights, arising from any
default under this Lease by Lessor which may now or hereafter be conferred upon
it by law to (1) modify, surrender or terminate this Lease or quit or surrender
the Leased Property or any portion thereof, or (2) entitle Lessee to any
abatement, reduction, suspension or deferment of or set off against the Rent or
other sums payable by Lessee hereunder, except as otherwise specifically
provided in this Lease. Except as otherwise specifically provided in this
Lease, the obligations of Lessee hereunder shall be separate and independent
covenants and agreements and the Rent and all other sums payable by Lessee
hereunder shall continue to be payable in all events unless the obligations to
pay the same shall be terminated pursuant to the express provisions of this
Lease or by termination of this Lease other than by reason of an Event of
Default.
ARTICLE VI
----------
PROPERTY OWNERSHIP
------------------
6.1 Ownership of the Leased Property. Lessee acknowledges that the Leased
--------------------------------
Property is the property of Lessor and that Lessee has only the right to the
possession and use of the Leased Property upon the terms and conditions of this
Lease.
6.2 Lessee's Personal Property.
--------------------------
(a) Upon commencement of the Term, Lessor shall transfer to Lessee all
Nonconsumable Inventory, Consumable Supplies and Cash-on-Hand located at the
Facility on the Commencement Date and transferred to Lessor by Seller (the
"Initial Inventory and Cash-on-Hand"). On the Commencement Date, Lessee shall
- -----------------------------------
be required to ensure that the Leased Property contains (i) a sufficient amount
of Consumable Supplies and Non-Consumable Inventory and (ii) a reasonably
adequate amount of kitchen equipment, bar equipment, refrigeration equipment,
furniture, furnishings, color television sets, carpets, drapes, rugs, floor
coverings, mattresses, pillows, bedspreads and the like, in each case, to
furnish each guest room substantially consistent with Wyndham Standards and is
otherwise reasonably required to operate the Leased Property in the manner
contemplated by this Lease and in compliance with any Franchise Agreement and
all Legal Requirements. Throughout the Term, Lessee shall be required to
maintain Inventory consistent with Wyndham Standards and is
<PAGE>
otherwise required to operate the Leased Property in the manner contemplated by
this Lease and in compliance with any Franchise Agreement and all Legal
Requirements. All Inventory shall be the property of Lessee, subject to
Lessee's obligations under Section 6.2(b). Lessee may (and shall as provided
--------------
hereinbelow), at its expense, install, affix or assemble or place on any parcels
of the Land or in any of the Leased Improvements, any items of personal property
(including Inventory) owned by Lessee (collectively, the "Lessee's Personal
-----------------
Property"). Lessee may, subject to the second sentence of this Section 6.2(a)
- -------- --------------
and the conditions set forth in Section 6.2(b) below, remove any of Lessee's
--------------
Personal Property at any time during the Term or upon the expiration or any
prior termination of the Term. All of Lessee's Personal Property, other than
Inventory, not removed by Lessee within thirty (30) days following the
expiration or earlier termination of the Term shall be considered abandoned by
Lessee and may be appropriated, sold, destroyed or otherwise disposed of by
Lessor without first giving Notice thereof to Lessee, without any payment to
Lessee and without any obligation to account therefor. Lessee will, at its
expense, restore the Leased Property to the condition required by Section
-------
9.1(d), including repair of all damage to the Leased Property caused by the
- ------
removal of Lessee's Personal Property, whether effected by Lessee or Lessor.
(b) Upon the expiration or earlier termination of the Term for any reason,
Lessee shall surrender the Leased Property to Lessor with an amount and quality
of Nonconsumable Inventory, Cash-On-Hand and Consumable Supplies equal to the
Initial Inventory and Cash-On-Hand.
(c) Lessor and Lessee agree that, for federal income tax purposes, the
transfer of the Initial Inventory and Cash-on-Hand from Lessor to Lessee upon
commencement of the Term shall be treated as a sale to Lessee of the Initial
Inventory and Cash-on-Hand for the fair market value thereof (the "Purchase
--------
Price"). The Purchase Price, plus interest thereon at the applicable federal
- -----
rate published pursuant to Section 1274(d) of the Internal Revenue Code of 1986,
as amended, shall be payable in equal monthly installments over the Term and
shall be credited against amounts of Initial Base Rent or Fixed Base Rent, as
the case may be, and Percentage Rent payable under this Lease. Nothing in this
Section 6.2(c) shall be interpreted to give rise to any obligation of Lessee to
- --------------
make any payment to Lessor, but instead this Section 6.2(c) is intended to
--------------
characterize for federal income tax purposes payments otherwise denominated as
Rent as payments of the Purchase Price and interest thereon. Lessor and Lessee
shall determine the Purchase Price in their joint inventory of the Facility to
be conducted within fifteen (15) days of the date hereof.
6.3 Lessor's Lien. To the fullest extent permitted by applicable law, Lessor
-------------
is granted a lien and security interest on all Lessee's Personal Property now or
hereinafter placed in or upon the Leased Property, and such lien and security
interest shall remain attached to such Lessee's Personal Property until payment
in full of all Rent and satisfaction of all of Lessee's obligations hereunder;
provided, however, Lessor shall subordinate its lien and security interest only
to that of any non-Affiliate of Lessee which finances such Lessee's Personal
Property or any non-Affiliate conditional seller of such Lessee's Personal
Property, the terms and conditions of such subordination to be satisfactory to
Lessor in the exercise of reasonable discretion. Lessor will execute such
subordination agreements reasonably requested by Lessee to effectuate such
subordination. Lessee shall, upon the request of Lessor, execute such financing
statements or other documents or instruments reasonably requested by Lessor to
perfect the lien and security interests herein granted.
<PAGE>
ARTICLE VII
------------
CONDITION, USE
--------------
7.1 Condition of the Leased Property. Lessee acknowledges receipt and
--------------------------------
delivery of possession of the Leased Property. Lessee has examined and
otherwise has knowledge of the condition of the Leased Property and has found
the same to be satisfactory for its purposes hereunder. Lessee is leasing the
Leased Property "as is", "with all faults", and in its present condition.
Except as otherwise specifically provided herein, Lessee waives any claim or
action against Lessor in respect of the condition of the Leased Property.
LESSOR MAKES NO WARRANTY OR REPRESENTATION, EXPRESS OR IMPLIED, IN RESPECT OF
THE LEASED PROPERTY, OR ANY PART THEREOF, EITHER AS TO ITS FITNESS FOR USE,
DESIGN OR CONDITION FOR ANY PARTICULAR USE OR PURPOSE OR OTHERWISE, AS TO THE
QUALITY OF THE MATERIAL OR WORKMANSHIP THEREIN, LATENT OR PATENT, IT BEING
AGREED THAT ALL SUCH RISKS ARE TO BE BORNE BY LESSEE. LESSEE ACKNOWLEDGES THAT
THE LEASED PROPERTY HAS BEEN INSPECTED BY LESSEE AND IS SATISFACTORY TO IT.
Lessor shall have the right to proceed against any predecessor in title for
breaches of warranties or representations or for latent defects in the Leased
Property, and Lessor shall, if requested by Lessee, assign any such right to
Lessee if and to the extent Lessor determines not to exercise such right. If
either party determines to exercise such right, the other party shall fully
cooperate in the prosecution of any such claim, in Lessor's or Lessee's name,
all at the cost and expense of the prosecuting party, who hereby agrees to
indemnify, defend and hold harmless the other party from and against any claims,
obligations and liabilities against or incurred by such other party in
connection with such cooperation, and who further agrees to apply all amounts
realized from the prosecution of such claim, less its expenses in connection
therewith, to remedy such breach or cure such defect.
7.2 Use of the Leased Property.
--------------------------
(a) Lessee covenants that it will proceed with all due diligence to obtain
and maintain all permits, licenses and approvals, including, without limitation,
liquor licenses, needed to use and operate the Leased Property and the Facility
under applicable local, state and federal law.
(b) Lessee shall use or cause to be used the Leased Property only as a
hotel facility, and for such other uses as may be necessary or incidental to
such use, or such other use as otherwise approved by Lessor (the "Primary
-------
Intended Use"). Lessee shall not use the Leased Property or any portion thereof
- ------------
for any other use without the prior written consent of Lessor. No use shall be
made or permitted to be made of the Leased Property, and no acts shall be done,
which will cause the cancellation of any insurance policy covering the Leased
Property or any part thereof (unless another adequate policy satisfactory to
Lessor is available and Lessee pays any premium increase), nor shall Lessee sell
or permit to be kept, used or sold in or about the Leased Property any article
which is prohibited by law or fire underwriter's regulations. Lessee shall
comply with all of the requirements pertaining to the Leased Property of any
insurance board, association, organization or company necessary for the
maintenance of insurance, as herein provided, covering the Leased Property and
Lessee's Personal Property, which compliance shall be performed at Lessee's sole
cost except to the extent that such compliance requires the performance of a
Capital Improvement or the payment
<PAGE>
of a Capital Imposition.
(c) Subject to the provisions of Articles XIV and XV, Lessee covenants and
------------ --
agrees that during the Term it will either directly or through an approved
manager (1) operate continuously the Leased Property as a hotel facility, (2)
keep in full force and effect and comply in all material respects with all the
provisions of any Franchise Agreement, (3) not terminate or amend in any respect
any Franchise Agreement without the consent of Lessor, (4) maintain appropriate
certifications and licenses for such use and (5) keep Lessor advised of the
status of any material litigation affecting the Leased Property.
(d) Lessee shall not commit or suffer to be committed any waste on the
Leased Property, or in the Facility, nor shall Lessee cause or permit any
nuisance thereon.
(e) Lessee shall neither suffer nor permit the Leased Property or any
portion thereof, or Lessee's Personal Property, to be used in such a manner as
(1) might reasonably tend to impair Lessor's (or Lessee's, as the case may be)
title thereto or to any portion thereof, or (2) may reasonably make possible a
claim or claims of adverse usage or adverse possession by the public, as such,
or of implied dedication of the Leased Property or any portion thereof.
ARTICLE VIII
-------------
LEGAL REQUIREMENTS
------------------
8.1 Compliance with Legal and Insurance Requirements. Subject to Sections
------------------------------------------------ --------
8.2, 8.3(b) and 9.1(b) and Article XII relating to permitted contests, Lessee,
- ---------------------- -----------
at its expense, will promptly (a) comply with all applicable Legal Requirements
and Insurance Requirements in respect of the use, operation, maintenance, repair
and restoration of the Leased Property, and (b) procure, maintain and comply
with all appropriate licenses and other authorizations required for any use of
the Leased Property and Lessee's Personal Property then being made, and for the
proper erection, installation, operation and maintenance of the Leased Property
or any part thereof.
8.2 Legal Requirement Covenants. Subject to Section 8.3, Lessee covenants
--------------------------- -----------
and agrees that (i) the Leased Property and Lessee's Personal Property shall not
be used for any unlawful purpose, and that Lessee shall not permit or suffer to
exist any unlawful use of the Leased Property by others, (ii) Lessee shall
acquire and maintain all appropriate licenses, certifications, permits and other
authorizations and approvals needed to operate the Leased Property in its
customary manner for the Primary Intended Use, and any other lawful use
conducted on the Leased Property as may be permitted from time to time hereunder
and (iii) Lessee's use of the Leased Property and maintenance, alteration, and
operation of the same, and all parts thereof, shall at all times conform in all
material respects to all Legal Requirements, unless the same are finally
determined by a court of competent jurisdiction to be unlawful (and Lessee shall
use its reasonable efforts to cause all such sub-tenants, invitees or others to
so comply with all Legal Requirements).
8.3 Environmental Covenants. Lessor and Lessee covenant and agree as follows:
-----------------------
(a) At all times hereafter until Lessee completely vacates the Leased
Property and surrenders possession of the same to Lessor, Lessee shall fully
comply with all
<PAGE>
Environmental Laws applicable to the Leased Property and the operations thereon,
except to the extent that such compliance would require the remediation of
Environmental Liabilities for which Lessee has no indemnity obligations under
Section 8.3(b). Lessee agrees to give Lessor prompt written notice of (1) all
- --------------
Environmental Liabilities; (2) all pending, threatened or anticipated
Proceedings, and all notices, demands, requests or investigations, relating to
any Environmental Liability or relating to the issuance, revocation or change in
any Environmental Authorization required for operation of the Leased Property of
which Lessee has actual knowledge; (3) all Releases of which Lessee has actual
knowledge at, on, in, under or in any way affecting the Leased Property, or any
Release known by Lessee at, on, in or under any property adjacent to the Leased
Property; and (4) all facts, events or conditions that could reasonably lead to
the occurrence of any of the above-referenced matters.
(b) LESSEE WILL PROTECT, INDEMNIFY, HOLD HARMLESS AND DEFEND LESSOR
INDEMNIFIED PARTIES FROM AND AGAINST ANY AND ALL ENVIRONMENTAL LIABILITIES TO
THE EXTENT PERMITTED BY LAW INCLUDING THOSE RESULTING FROM A LESSOR INDEMNIFIED
PARTIES' OWN NEGLIGENCE but excluding those resulting from (i) liabilities,
obligations, claims, damages and penalties resulting from Emergency Situations
arising at the Facility for which Lessor has the express obligation to fund
Capital Expenditures to remediate such Emergency Situations and Lessor has
failed to fund such Capital Expenditures within ten (10) days following written
demand from Lessee to do so, (ii) the negligence of Lessor or its agents,
employees, contractors or invitees when actually performing alterations or other
capital work which are not obligations of Lessee and are not performed or
supervised by Lessee on behalf of Lessor, (iii) the intentionally wrongful acts
or grossly negligent failures to act of Lessor, or (iv) conditions existing at
the Leased Property at the date of this Lease (an "Existing Condition") or from
------------------
Releases or other violations of Environmental Laws originating on adjacent
property but affecting the Leased Property (a "Migration"), provided that such
---------
exclusions shall not apply to the extent that the Existing Condition or the
Migration has been exacerbated by Lessee's act or negligent failure to act (such
exclusions described above herein called "Lessor's Excluded Environmental
-------------------------------
Acts").
- ----
(c) Lessor hereby agrees to defend, indemnify and save harmless any and
all Lessee Indemnified Parties from and against any and all Environmental
Liabilities to the extent that the same were caused by the intentionally
wrongful acts or grossly negligent failures to act of Lessor or are included
within Lessor's Excluded Environmental Acts.
(d) If any Proceeding is brought against any Indemnified Party in respect
of an Environmental Liability with respect to which such Indemnified Party may
claim indemnification under either Section 8.3(b) or (c), the Indemnifying
-------------- ---
Party, upon request, shall at its sole expense resist and defend such
Proceeding, or cause the same to be resisted and defended by counsel designated
by the Indemnifying Party and approved by the Indemnified Party, which Approval
shall not be unreasonably withheld; provided, however, that such Approval shall
not be required in the case of defense by counsel designated by any insurance
company undertaking such defense pursuant to any applicable policy of insurance.
Each Indemnified Party shall have the right to employ separate counsel in any
such Proceeding and to participate in the defense thereof, but the fees and
expenses of such counsel will be at the sole expense of such Indemnified Party
unless a conflict of interest prevents representation of such Indemnified Party
by the counsel selected by the Indemnifying Party and such separate counsel has
been approved by the Indemnifying Party, which Approval shall not be
<PAGE>
unreasonably withheld. The Indemnifying Party shall not be liable for any
settlement of any such Proceeding made without its consent, which shall not be
unreasonably withheld, but if settled with the consent of the Indemnifying
Party, or if settled without its consent (if its consent shall be unreasonably
withheld), or if there be a final, nonappealable judgment for an adversary party
in any such Proceeding, the Indemnifying Party shall indemnify and hold harmless
the Indemnified Parties from and against any liabilities incurred by such
Indemnified Parties by reason of such settlement or judgement.
(e) At any time any Indemnified Party has reason to believe circumstances
exist which could reasonably result in an Environmental Liability, upon
reasonable prior written notice to the Indemnifying Party stating such
Indemnified Party's basis for such belief, an Indemnified Party shall be given
immediate access to the Leased Property (including, but not limited to, the
right to enter upon, investigate, drill wells, take soil borings, excavate,
monitor, test, cap and use available land for the testing of remedial
technologies), Lessee's employees, and to all relevant documents and records
regarding the matter as to which a responsibility, liability or obligation is
asserted or which is the subject of any Proceeding; provided that such access
may be conditioned or restricted as may be reasonably necessary to ensure
compliance with law and the safety of personnel and facilities or to protect
confidential or privileged information. All Indemnified Parties requesting such
immediate access and cooperation shall endeavor to coordinate such efforts to
result in as minimal interruption of the operation of the Leased Property as
practicable.
(f) The indemnification rights and obligations provided for in this
Article VIII shall be in addition to any indemnification rights and obligations
- ------------
provided for elsewhere in this Lease.
(g) The indemnification rights and obligations provided for in this
Article VIII shall survive the termination of this Lease.
- ------------
For purposes of this Section 8.3, all amounts for which any Indemnified
-----------
Party seeks indemnification shall be computed net of (a) any actual income tax
benefit resulting therefrom to such Indemnified Party, (b) any insurance
proceeds received (net of tax effects) with respect thereto, and (c) any amounts
recovered (net of tax effects) from any third parties based on claims the
Indemnified Party has against such third parties which reduce the damages that
would otherwise be sustained; provided that in all cases, the timing of the
receipt or realization of insurance proceeds or income tax benefits or
recoveries from third parties shall be taken into account in determining the
amount of reduction of damages. Each Indemnified Party agrees to use its
reasonable efforts to pursue, or assign to Lessee or Lessor, as the case may be,
any claims or rights it may have against any third party which would materially
reduce the amount of damages otherwise incurred by such Indemnified Party.
ARTICLE IX
-----------
MAINTENANCE AND REPAIRS
-----------------------
9.1 Maintenance and Repair.
----------------------
(a) Except as provided in Section 9.1(b), Lessee will keep the Leased
--------------
Property and all private roadways, sidewalks and curbs appurtenant thereto that
are under
<PAGE>
Lessee's control, including windows and plate glass, parking lots, HVAC,
mechanical, electrical and plumbing systems and equipment (including conduit and
ductware), and non-load bearing interior walls, in good order and repair, except
for ordinary wear and tear (whether or not the need for such repairs occurred as
a result of Lessee's use, any prior use, the elements or the age of the Leased
Property, or any portion thereof but subject to the obligation to make necessary
and appropriate repairs and replacements as provided in this Section 9.1(a)),
--------------
and, except as otherwise provided in Section 9.1(b), Article XIV or Article XV,
-------------- ----------- ----------
with reasonable promptness, make all necessary and appropriate repairs,
replacements and improvements thereto of every kind and nature, whether interior
or exterior ordinary or extraordinary, foreseen or unforeseen or arising by
reason of a condition existing prior to the commencement of the Term of this
Lease (concealed or otherwise), or required by any governmental agency having
jurisdiction over the Leased Property. Lessee, however, shall be permitted to
prosecute claims against Lessor's predecessors in title for breach of any
representation or warranty or for any latent defects in the Leased Property to
be maintained by Lessee unless Lessor is already diligently pursuing such a
claim. All repairs shall, to the extent reasonably achievable, be at least
equivalent in quality to the original work. Lessee will not take or omit to
take any action, the taking or omission of which might materially impair the
value or the usefulness of the Leased Property or any part thereof for its
Primary Intended Use. If Lessee fails to make any required repairs or
replacements after fifteen (15) days notice from Lessor, or after such longer
period as may be reasonably required provided that Lessee at all times
diligently proceeds with such repair or replacement, then Lessor shall have the
right, but shall not be obligated, to make such repairs or replacements on
behalf of and for the account of Lessee. In such event, such work shall be paid
for in full by Lessee as Additional Charges.
(b) Notwithstanding Lessee's obligations under Section 9.1(a) above but
--------------
subject to the limitations on Lessor's obligations for Capital Expenditures set
forth in Article XXXVIII, unless caused by Lessee's negligence or willful
---------------
misconduct or that of its employees, contractor or agents, Lessor shall be
required to make all Capital Expenditures, including those required to maintain
the Facility in accordance with Wyndham Standards. Except as set forth in the
preceding sentence, Lessor shall not under any circumstances be required to
build or rebuild any improvement on the Leased Property, or to make any repairs,
replacements, alterations, restorations or renewals of any nature or description
to the Leased Property, whether ordinary or extraordinary, foreseen or
unforeseen, or to make any expenditure whatsoever with respect thereto, in
connection with this Lease, or to maintain the Leased Property in any way.
Subject to Lessor's obligations under this Section 9.1(b) and Article XXXVIII,
-------------- ---------------
Lessee hereby waives, to the extent permitted by law, the right to make repairs
at the expense of Lessor pursuant to any law in effect at the time of the
execution of this Lease or hereafter enacted. Lessor shall have the right to
give, record and post, as appropriate, notices of non-responsibility under any
mechanic's lien laws now or hereafter existing with respect to repairs to be
performed by Lessee.
(c) Nothing contained in this Lease and no action or inaction by Lessor
shall be construed as (1) constituting the request of Lessor, expressed or
implied, to any contractor, subcontractor, laborer, materialman or vendor to or
for the performance of any labor or services or the furnishing of any materials
or other property for the construction, alteration, addition, repair or
demolition of or to the Leased Property or any part thereof, or (2) giving
Lessee any right, power or permission to contract for or permit the performance
of any labor or services or the furnishing of any materials or other property in
such fashion as would permit the making of any claim against Lessor in respect
thereof or to make any agreement
<PAGE>
that may create, or in any way be the basis for any right, title, interest,
lien, claim or other encumbrance upon the estate of Lessor in the Leased
Property, or any portion thereof.
(d) Lessee will, upon the expiration or prior termination of the Term,
vacate and surrender the Leased Property to Lessor in the condition in which the
Leased Property was originally received from Lessor, except as repaired,
rebuilt, restored, altered or added to as permitted or required by the
provisions of this Lease and except for ordinary wear and tear (subject to the
obligation of Lessee to maintain the Leased Property in good order and repair in
accordance with Section 9.1(a) above, as would a prudent owner of comparable
--------------
property, during the entire Term) or damage by casualty or Condemnation (subject
to the obligation of Lessee, if any, to restore or repair as set forth in this
Lease.)
ARTICLE X
----------
ALTERATIONS
-----------
10.1 Alterations. Subject to first obtaining the written Approval of
-----------
Lessor, Lessee may, but shall not be obligated to, make such additions,
modifications or improvements to the Leased Property from time to time as Lessee
deems desirable for its permitted uses and purposes, provided that such action
will not alter the character or purposes of the Leased Property or detract from
the value or operating efficiency thereof and will not impair the revenue-
producing capability of the Leased Property or adversely affect the ability of
the Lessee to comply with the provisions of this Lease. All such work shall be
performed in a first class manner in accordance with all applicable governmental
rules and regulations and after receipt of all required permits and licenses.
If required by Lessor all such work shall be covered by performance bonds issued
by bonding companies reasonably acceptable to Lessor. The cost of such
additions, modifications or improvements to the Leased Property shall be paid by
Lessee, and all such additions, modifications and improvements shall, without
payment by Lessor at any time, be included under the terms of this Lease and
upon expiration or earlier termination of this Lease shall pass to and become
the property of Lessor.
10.2 Salvage. All materials which are scrapped or removed in connection
-------
with the making of repairs required by Articles IX or X shall be or become the
----------- -
property of Lessor or Lessee depending on which party is paying for or providing
the financing for such work.
10.3 Lessor Alterations. Lessor shall have the right, without Lessee's
------------------
consent, to make or cause to be made alterations to the Leased Property required
in connection with (i) Emergency Situations, (ii) Legal Requirements, (iii)
maintenance of any Franchise Agreement or of Wyndham Standards, and (iv) the
performance by Lessor of its obligations under this Lease so long as such
alterations do not materially and adversely impair the operating efficiency or
revenue producing capability of the Leased Property or the ability of Lessee to
comply with the provisions of this Lease during the remainder of the Term.
Without Lessee's consent, Lessor shall further have the right, but not the
obligation, to make such other additions to the Leased Property as it may
reasonably deem appropriate during the Term of this Lease. All such work unless
necessitated by Lessee's negligent acts or omissions or unless otherwise
required to be performed by Lessee under this Lease (subject to the Notice and
cure provisions herein) (in which event work shall be paid for by Lessee) shall
be performed at Lessor's expense and shall be done after reasonable notice to
and coordination with Lessee, so as to minimize any disruptions or interference
with the operation of the
<PAGE>
Facility.
ARTICLE XI
-----------
LIENS
-----
11.1 Liens. Subject to the provision of Article XII relating to permitted
----- -----------
contests, Lessee will not directly or indirectly create or allow to remain and
will promptly discharge at its expense any lien, encumbrance, attachment, title
retention agreement or claim upon the Leased Property resulting from the action
or inaction of Lessee, or any attachment, levy, claim or encumbrance in respect
of the Rent, excluding, however, (a) this Lease, (b) the matters, if any,
included as exceptions or insured against in the title policy insuring Lessor's
interest in the Leased Property, (c) restrictions, liens and other encumbrances
which are consented to in writing by Lessor, (d) liens for those taxes which
Lessee is not required to pay hereunder, (e) subleases permitted by Article XXI
-----------
hereof, (f) liens for Impositions or for sums resulting from noncompliance with
Legal Requirements to the extent Lessee is responsible hereunder for such
compliance so long as (1) the same are not yet delinquent or (2) such liens are
in the process of being contested as permitted by Article XII, (g) liens of
-----------
mechanics, laborers, suppliers or vendors for sums either disputed or not yet
due provided that any such liens for disputed sums are in the process of being
contested as permitted by Article XII hereof, and (h) any liens which are the
-----------
responsibility of Lessor pursuant to the provisions of this Lease.
ARTICLE XII
------------
PERMITTED CONTESTS
------------------
12.1 Permitted Contests. Lessee shall have the right to contest the amount
------------------
or validity of any Imposition to be paid by Lessee or any Legal Requirement or
any lien, attachment, levy, encumbrance, charge or claim (any such Imposition,
Legal Requirement, lien, attachment, levy, encumbrance, charge or claim herein
referred to as "Claims") not otherwise permitted by Article XI, by appropriate
------ ----------
legal proceedings in good faith and with due diligence (but this shall not be
deemed or construed in any way to relieve, modify or extend Lessee's covenants
to pay or its covenants to cause to be paid any such charges at the time and in
the manner as in this Article provided), on condition, however, that such legal
proceedings shall not cause the sale or risk the loss of any portion of the
Leased Property, or any part thereof, or cause Lessor or Lessee to be in default
under any mortgage, deed of trust, security deed or other agreement encumbering
the Leased Property or any interest therein. Upon the request of Lessor, as
security for the payment of such Claims, Lessee shall either (a) provide a bond
or other assurance reasonably satisfactory to Lessor (and satisfactory to any
Holder, if Approval thereof is required by such Holder's Mortgage) that all
Claims which may be assessed against the Leased Property together with interest
and penalties, if any, thereon and legal fees anticipated to be incurred in
connection therewith will be paid, or (b) deposit within the time otherwise
required for payment with a bank or trust company designated by Lessor as
trustee upon terms reasonably satisfactory to Lessor, or with any Holder upon
terms satisfactory to such Holder, money in an amount sufficient to pay the
same, together with interest and penalties thereon and legal fees anticipated to
be incurred in connection therewith, as to all Claims which may be assessed
against or become a Claim on the Leased Property, or any part thereof, in said
legal proceedings. Lessee shall furnish Lessor and any Holder with reasonable
evidence of such deposit within five days of the same. Lessor agrees to join in
any
<PAGE>
such proceedings if the same be required to legally prosecute such contest of
the validity of such Claims; provided, however, that Lessor shall not thereby be
subjected to any liability for the payment of any costs or expenses in
connection with any proceedings brought by Lessee; and Lessee covenants to
indemnify and save harmless Lessor from any such costs or expenses. Lessee shall
be entitled to any refund of any Claims and such charges and penalties or
interest thereon which have been paid by Lessee or paid by Lessor and for which
Lessor has been fully reimbursed. In the event that Lessee fails to pay any
Claims when due or to provide the security therefor as provided in this
paragraph and to diligently prosecute any contest of the same, Lessor may, upon
ten days advance Notice to Lessee, pay such charges together with any interest
and penalties and the same shall be repayable by Lessee to Lessor as Additional
Charges at the next Payment Date provided for in this Lease. Provided, however,
that should Lessor reasonably determine that the giving of such Notice would
risk loss to the Leased Property or cause damage to Lessor, then Lessor shall
only give such Notice as is practical under the circumstances. Lessor reserves
the right to contest any of the Claims at its expense not pursued by Lessee.
Lessor and Lessee agree to cooperate in coordinating the contest of any Claims.
ARTICLE XIII
-------------
INSURANCE
---------
13.1 General Insurance Requirements.
------------------------------
(a) Coverages. During the Term of this Lease, the Leased Property shall at
---------
all times be insured with the kinds and amounts of insurance described below.
This insurance shall be written by companies authorized to issue insurance in
the State. The policies must name the party obtaining the policy as the insured
and the other party as an additional named insured, and the Manager shall also
be named as an additional insured under the coverages described in Sections
--------
13.1(a)(iv) through (xii). Losses shall be payable to Lessor or Lessee as
- ----------- -----
provided in this Lease. Any loss adjustment for coverages insuring both parties
shall require the written consent of Lessor and Lessee, each acting reasonably
and in good faith. Evidence of insurance shall be deposited with Lessor. The
policies on the Leased Property, including the Leased Improvements, Fixtures and
Lessee's Personal Property, shall at all times satisfy the requirements of any
Franchise Agreement and of any ground lease, mortgage, security agreement or
other financing lien affecting the Leased Property and at a minimum shall
include:
(i) Building insurance on an "All Risk" form (including earthquake and
flood in reasonable amounts if and as determined by Lessor) in an amount
not less than 100% of the then full replacement cost thereof (as defined
in Section 13.2) or such other amount which is acceptable to Lessor, and
------------
personal property insurance on an "All Risk" form in the full amount of
the replacement cost thereof;
(ii) Insurance for loss or damage (direct and indirect) from steam
boilers, pressure vessels or similar apparatus, air conditioning systems,
piping and machinery, and sprinklers, if any, now or hereafter installed
in the Facility, in the minimum amount of $5,000,000 or in such greater
amounts as are then customary or as may be reasonably requested by Lessor
from time to
<PAGE>
time;
(iii) Loss of income insurance on an "All Risk" form, in the
amount of one year of the greater of (a) Initial Base Rent or Fixed Base
Rent, as applicable, or (b) Percentage Rent (based on the last Lease Year
of operation or, to the extent the Leased Property has not been operated
for an entire 12-month Lease Year, based on prorated Percentage Rent) for
the benefit of Lessor, and business interruption insurance on an "All
Risk" form in the amount of one year of gross profit, for the benefit of
Lessee;
(iv) Commercial general liability insurance, with contractual
indemnity endorsement, with amounts not less than $1,000,000 combined
single limit for each occurrence and $2,000,000 for the aggregate of all
occurrences within each policy year, as well as excess liability
(umbrella) insurance with limits of at least $50,000,000 per occurrence,
covering each of the following: bodily injury, death, or property damage
liability per occurrence, personal injury, general aggregate, products
and completed operations, with respect to Lessee, and "all risk legal
liability" (including liquor law or "dram shop" liability, if liquor or
alcoholic beverages are served on the Leased Property) with respect to
Lessor and Lessee;
(v) Fidelity bonds or blanket crime policies with limits and
deductibles as may be reasonably determined by Lessee and approved by
Lessor (such approval not to be unreasonably withheld), covering Lessee's
employees in job classifications normally bonded under prudent hotel
management practices in the United States or otherwise required by law;
(vi) Workers' compensation insurance to the extent necessary to
protect Lessor, Lessee and the Leased Property against Lessee's worker's
compensation claims to the extent required by applicable state laws
provided, if allowed under applicable law, Lessee may opt to non-
subscribe to the applicable worker's compensation act;
(vii) Comprehensive form automobile liability insurance for
owned, non-owned and hired vehicles, in the amount of $1,000,000;
(viii) Garagekeeper's legal liability insurance covering both
comprehensive and collision-type losses with a limit of liability of
$3,000,000 for any one occurrence, of which coverage in excess of
$1,000,000 may be provided by way of an excess liability policy;
(ix) Innkeeper's legal liability insurance covering property of
guests while on the Leased Property for which Lessor is legally
responsible with a limit of not less than $5,000 in any one occurrence or
$25,000 annual aggregate;
(x) Safe deposit box legal liability insurance covering property of
guests while in a safe deposit box on the Leased Property for which
Lessor is legally responsible with a limit of not less than $100,000 in
any one
<PAGE>
occurrence;
(xi) Employers liability insurance with limits of not less than
$500,000 per occurrence; and
(xii) Insurance covering such other hazards (such as plate glass
or other common risks) and in such amounts as may be (A) required by a
Holder, or (B) customary for comparable properties in the area of the
Leased Property and is available from insurance companies, insurance
pools or other appropriate companies authorized to do business in the
State at rates which are economically practicable in relation to the
risks covered as may be reasonably determined by Lessor or Lessee.
(b) Responsibility for Insurance. Lessee shall obtain the insurance and
----------------------------
pay the premiums for the coverages described in Sections 13.1(a)(iv) through
--------------------
(xi), and (xii) to the extent required by Lessee, and Lessor shall obtain the
- ---- -----
insurance and pay the premiums for the coverages described in Sections
--------
13.1(a)(i) through (iii), provided that Lessee shall reimburse Lessor
- ---------- -----
immediately after demand therefor for any premiums paid by Lessor for the
coverages required under Section 13.1(a)(i) to the extent that the premiums
------------------
relate to coverages for property owned by Lessee or coverages which benefit
Lessee. Insurance required by Section 13.1(a)(xii), to the extent such insurance
--------------------
is required by Lessor, shall be obtained and paid for by Lessor to the extent
that it relates to risks of the type covered by the insurance obtained pursuant
to Sections 13.1(a)(i) through (iii), and obtained and paid for by Lessee if it
------------------- -----
relates to risks of the type covered by the insurance obtained pursuant to
Sections 13.1(a)(iv) through (xi), and (xii) to the extent required by Lessee.
- -------------------- ---- -----
The party responsible for the premium for any insurance coverage shall also be
responsible for any and all deductibles and self-insured retentions in
connection with such coverages. In the event that either party can obtain
comparable insurance coverage required to be carried by the other party from
comparable insurers and at a cost significantly less than that at which such
other party can obtain such coverage, the parties shall cooperate in good faith
to obtain such coverage at the lower cost and shall allocate the premiums
therefor in accordance with the provisions of the first sentence of this Section
-------
13.1(b). In addition to the rights set forth in Sections 17.1 and 39.1, if any
- ------- ----------------------
party responsible for obtaining and maintaining the insurance required under
this Lease fails to do so or fails to obtain renewals or substitutions therefor
at least fifteen (15) days before such insurance will lapse, the other party may
obtain such insurance and the defaulting party shall reimburse the party
obtaining such insurance for the cost thereof promptly upon demand, together
with interest thereon at the Overdue Rate until such cost is repaid by the
defaulting party.
13.2 Replacement Cost. The term "full replacement cost" as used herein
---------------- ---------------------
shall mean the actual replacement cost of the Leased Property requiring
replacement from time to time including an increased cost of construction
endorsement, if available, and the cost of debris removal. In the event either
party believes that full replacement cost has increased or decreased at any time
during the Term, it shall have the right to have such full replacement cost
redetermined.
13.3 (Intentionally omitted)
13.4 Waiver of Subrogation. Lessor and Lessee each waive any and all
---------------------
rights of
<PAGE>
recovery against the other (and against the partners, officers, employees and
agents of the other party) for loss of or damage to such waiving party or its
property or the property of others under its control, to the extent such loss or
damage is covered by, or in the event the responsible party fails to maintain
the required insurance hereunder, would have been covered by the insurance
required to be obtained by such waiving party under Sections 13.1(d)(i) through
---------------------------
(iii); provided, however, that this waiver does not apply to any rights that
- -----
either party may have to insurance proceeds from their respective insurance
policies at the time of such loss or damage. In obtaining policies of property
insurance on their respective interests in the personal property and
improvements located in the Leased Property, Lessor and Lessee shall give notice
to their respective insurance carriers that the foregoing mutual waiver of
subrogation is contained in this Lease; and Lessor and Lessee shall each obtain
from their insurance carriers a consent to such waiver.
13.5 Form Satisfactory, etc. All of the policies of insurance referred to
----------------------
in this Article XIII shall be written in a form, with deductibles and by
------------
insurance companies satisfactory to Lessor and shall satisfy the requirements of
any ground lease, management agreement, mortgage, security agreement or other
financing lien on the Leased Property and of any Franchise Agreement. The party
responsible for obtaining any policy shall pay all of the premiums therefor, and
deliver copies of such policies or certificates thereof to the other party prior
to their effective date (and, with respect to any renewal policy, ten (10) days
prior to the expiration of the existing policy), and in the event of the failure
of the responsible party either to effect such insurance as herein called for or
to pay the premiums therefor, or to deliver such policies or certificates
thereof to the other party at the times required, such other party shall be
entitled, but shall have no obligation, after ten (10) days' Notice to the
responsible party (or after less than ten (10) days' Notice if required to
prevent the expiration of any existing policy), to effect such insurance and pay
the premiums therefor, and to be reimbursed for any such premiums upon written
demand therefor. Each insurer mentioned in this Article XIII shall agree, by
------------
endorsement to the policy or policies issued by it, or by independent instrument
furnished to the party not responsible hereunder for obtaining such policy, that
it will give to such party thirty (30) days' written notice before the policy or
policies in question shall be materially altered or canceled.
13.6 Increase in Limits. If either Lessor or Lessee at any time deems the
------------------
limits of the personal injury or property damage under the comprehensive public
liability insurance then carried to be either excessive or insufficient, Lessor
and Lessee shall endeavor in good faith to agree on the proper and reasonable
limits for such insurance to be carried and such insurance shall thereafter be
carried with the limits thus agreed on until further change pursuant to the
provisions of this Section. If the parties fail to agree on such limits, the
matter shall be referred to arbitration as provided for in Section 40.1.
------------
However, in no event shall such limits fail to satisfy the requirements of any
Franchise Agreement and of any ground lease, management agreement, Mortgage,
security agreement or other financing lien affecting the Leased Property.
13.7 Blanket Policy. Notwithstanding anything to the contrary contained in
--------------
this Article XIII, Lessee or Lessor may bring the insurance provided for herein
------------
within the coverage of a so-called blanket policy or policies of insurance
carried and maintained by Lessee or Lessor; provided, however, that the coverage
afforded to Lessor and Lessee will not be reduced or diminished or otherwise be
different from that which would exist under a separate policy meeting all other
requirements of this Lease by reason of the use of such
-49-
<PAGE>
blanket policy of insurance, and provided further that the requirements of this
Article XIII are otherwise satisfied.
- ------------
13.8 Separate Insurance. Neither Lessor nor Lessee shall on its own
------------------
initiative or pursuant to the request or requirement of any third party, take
out separate insurance concurrent in form or contributing in the event of loss
with that required in this Article to be furnished, or increase the amount of
any then existing insurance by securing an additional policy or additional
policies, unless all parties having an insurable interest in the subject matter
of the insurance, including in all cases Lessor, are included therein as
additional insureds, and the loss is payable under such additional separate
insurance in the same manner as losses are payable under this Lease. Each party
shall immediately notify the other party that it has obtained any such separate
insurance or of the increasing of any of the amounts of the then existing
insurance.
13.9 Reports On Insurance Claims. Lessee shall promptly investigate and
---------------------------
make a complete and timely written report to the appropriate insurance company
as to all accidents, all claims for damage relating to the ownership, operation,
and maintenance of the Facility, and any damage or destruction to the Facility
and the estimated cost of repair thereof and shall prepare any and all reports
required by any insurance company in connection therewith. All such reports
shall be timely filed with the insurance company as required under the terms of
the insurance policy involved, and a copy of all such reports shall be furnished
to Lessor.
ARTICLE XIV
------------
DAMAGE AND RECONSTRUCTION
-------------------------
14.1 Insurance Proceeds. All proceeds of the insurance contemplated by
------------------
Sections 13.1(a)(i) and (ii) payable by reason of any loss or damage to the
- ------------------- ----
Leased Property, or any portion thereof, and insured under any policy of
insurance required by Article XIII of this Lease shall be paid to Lessor (or as
------------
required under any Mortgage) and made available, if applicable, for
reconstruction or repair, as the case may be, of any damage to or destruction of
the Leased Property or any portion thereof, and, if applicable, shall be paid
out by Lessor from time to time for the reasonable costs of such reconstruction
or repair upon satisfaction of reasonable terms and conditions specified by
Lessor. Any excess proceeds of insurance remaining after the completion of the
restoration or reconstruction of the Leased Property shall be paid to Lessor.
If neither Lessor nor Lessee is required or elects to repair and restore, and
the Lease is terminated as described in Section 14.2, all such insurance
------------
proceeds shall be retained by Lessor except for any amount thereof paid with
respect to Lessee's Personal Property. All salvage resulting from any risk
covered by insurance shall belong to Lessor, except to the extent of salvage
relating to Lessee's Personal Property.
14.2 Reconstruction in the Event of Damage or Destruction Covered by
---------------------------------------------------------------
Insurance.
- ---------
(a) If during the Term the Leased Property is totally or partially
destroyed by a risk covered by the insurance described in Article XIII and the
------------
Facility thereby is rendered Unsuitable or Uneconomic for its Primary Intended
Use, this Lease shall terminate as of the date of the casualty and neither
Lessor nor Lessee shall have any further liability hereunder except for any
liabilities which have arisen prior to or which survive such termination, and
Lessor shall be entitled to retain all insurance proceeds except for any amount
-50-
<PAGE>
thereof paid with respect to Lessee's Personal Property.
(b) If during the Term the Leased Property is partially destroyed by a
risk covered by the insurance described in Article XIII, but the Facility is not
------------
thereby rendered Unsuitable or Uneconomic for its Primary Intended Use, Lessor
or, at the election of Lessor, Lessee shall restore the Facility at Lessor's
cost in accordance with subsection (c) below to substantially the same condition
as existed immediately before the damage or destruction and otherwise in
accordance with the terms of the Lease, and this Lease shall not terminate as a
result of such damage or destruction. If Lessee restores the Facility, the
insurance proceeds shall be paid out by Lessor from time to time for the
reasonable costs of such restoration upon satisfaction of terms and conditions
specified by Lessor, and any excess proceeds remaining after such restoration
shall be paid to Lessor except for any amount thereof paid with respect to
Lessee's Personal Property. If the insurance proceeds are not adequate to
complete such restoration, Lessor shall fund all such excess costs in accordance
with subsection (c) below.
(c) If the Facility is to be restored in connection with the provisions
of Section 14.2(b) and if the cost of the repair or restoration exceeds the
---------------
amount of proceeds received by Lessor from the insurance required under Article
-------
XIII, Lessor shall contribute any excess amounts needed to restore the Facility
- ----
prior to requiring Lessee to commence such work. Such difference shall be made
available by Lessor, together with any other insurance proceeds, for application
to the cost of repair and restoration in accordance with the provisions of
Section 14.2(b).
- ---------------
14.3 Reconstruction in the Event of Damage or Destruction Not Covered by
-------------------------------------------------------------------
Insurance. If during the Term the Facility is totally or materially damaged or
- ---------
destroyed by a risk not covered by the insurance described in Article XIII, or
------------
if the Holder will not make the proceeds of such insurance available to Lessor
for restoration of the Facility, whether or not in either event such damage or
destruction renders the Facility Unsuitable or Uneconomic for its Primary
Intended Use, Lessor at its option shall either, (a) at Lessor's sole cost and
expense, restore the Facility to substantially the same condition it was in
immediately before such damage or destruction and this Lease shall not terminate
as a result of such damage or destruction, or (b) terminate the Lease and
neither Lessor nor Lessee shall have any further liability thereunder except for
any liabilities which have arisen or occurred prior to such termination and
those which expressly survive termination of this Lease. If such damage or
destruction is determined by Lessor not to be material, Lessor may, at Lessor's
sole cost and expense, restore the Facility to substantially the same condition
as existed immediately before the damage or destruction and otherwise in
accordance with the terms of the Lease, and this Lease shall not terminate as a
result of such damage or destruction.
14.4 Lessee's Property and Business Interruption Insurance. All insurance
-----------------------------------------------------
proceeds payable by reason of any loss of or damage to any of Lessee's Personal
Property and the business interruption insurance maintained for the benefit of
Lessee shall be paid to Lessee; provided, however, no such payments shall
diminish or reduce the insurance payments otherwise payable to or for the
benefit of Lessor hereunder.
14.5 Abatement of Rent. Any damage or destruction due to casualty
-----------------
notwithstanding, this Lease shall remain in full force and effect and Lessee's
obligation to pay Rent required by this Lease shall remain unabated by any
damage or destruction which does not result in a reduction of Gross Revenues.
If and to the extent that any damage or
-51-
<PAGE>
destruction results in a reduction of Gross Revenues which would otherwise be
realizable from the operation of the Facility, then Lessor shall receive all
loss of income insurance and Lessee shall have no obligation to pay Rent other
than the amount of Percentage Rent, if any, realizable from Gross Revenues
generated by the operation of the Leased Property during the existence of such
damage or destruction; provided, however, that if such damage or destruction was
caused by Lessee's gross negligence or willful misconduct, Lessee shall remain
liable for the amount of Rent which would have been payable hereunder at a rate
equal to the average Rent during the last three preceding 12-month Lease Years
(or if three 12-month Lease Years shall not have elapsed, the average during the
preceding 12-month Lease Years or if one Lease Year has not elapsed, the amount
derived by annualizing the Percentage Rent from the Commencement Date of this
Lease), as if such damage or destruction had not occurred.
ARTICLE XV
-----------
CONDEMNATION
------------
15.1 Definitions.
-----------
(a) "Condemnation" means a Taking resulting from (1) the exercise of any
------------
governmental power, whether by legal proceedings or otherwise, by a Condemnor,
and (2) a voluntary sale or transfer by Lessor to any Condemnor, either under
threat of condemnation or while legal proceedings for condemnation are pending.
(b) "Date of Taking" means the date the Condemnor has the right to
--------------
possession of the property being condemned.
(c) "Award" means all compensation, sums or anything of value awarded,
-----
paid or received on a total or partial Condemnation.
(d) "Condemnor" means any public or quasi-public authority, or private
---------
corporation or individual, having the power of Condemnation.
15.2 Parties' Rights and Obligations. If during the Term there is any
-------------------------------
Condemnation of all or any part of the Leased Property or any interest in this
Lease, the rights and obligations of Lessor and Lessee shall be determined by
this Article XV.
----------
15.3 Total Taking. If title to the fee of the whole of the Leased Property
------------
is condemned by any Condemnor, this Lease shall cease and terminate as of the
Date of Taking by the Condemnor. If title to the fee of less than the whole of
the Leased Property is so taken or condemned, which nevertheless renders the
Leased Property Unsuitable or Uneconomic for its Primary Intended Use, then
either Lessee or Lessor shall have the option, by notice to the other, at any
time prior to the Date of Taking, to terminate this Lease as of the Date of
Taking. Upon such date, if such Notice has been given, this Lease shall
thereupon cease and terminate. All Initial Base Rent, Fixed Base Rent,
Percentage Rent and Additional Charges paid or payable by Lessee hereunder shall
be apportioned as of the Date of Taking, and Lessee shall promptly pay Lessor
such amounts.
15.4 Allocation of Award. The total Award made with respect to the Leased
-------------------
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<PAGE>
Property or for loss of rent, or for Lessor's loss of business beyond the Term,
shall be solely the property of and payable to Lessor. Any Award made for loss
of Lessee's business during the remaining Term, if any, for the taking of
Lessee's Personal Property, or for removal and relocation expenses of Lessee in
any such proceedings shall be the sole property of and payable to Lessee. In
any Condemnation proceedings Lessor and Lessee shall each seek its Award in
conformity herewith, at its respective expense; provided, however, neither
Lessor nor Lessee shall initiate, prosecute or acquiesce in any proceedings that
may result in a diminution of any Award payable to the other.
15.5 Partial Taking.
--------------
(a) If title to less than the whole of the Leased Property is condemned,
and the Leased Property is not Unsuitable or Uneconomic for its Primary Intended
Use, or if Lessor is entitled but elects not to terminate this Lease as provided
in Section 15.3, then Lessor or, at Lessor's election, Lessee shall, with all
------------
reasonable dispatch and to the extent that the Holder permits the application of
the Award therefor and the Award is sufficient therefor, restore the untaken
portion of any Leased Improvements so that such Leased Improvements constitute a
complete architectural unit of the same general character and condition (as
nearly as may be possible under the circumstances) as the Leased Improvements
existing immediately prior to the Condemnation. Lessor and Lessee shall each
contribute to the cost of restoration that part of its Award specifically
allocated to such restoration, if any, together with severance and other damages
awarded for the taken Leased Improvements; provided, however, that the amount of
such contribution shall not exceed such cost.
(b) In the event of a partial Taking as described in Section 15.5(a)
which does not result in a termination of this Lease by Lessor, the Initial Base
Rent or Fixed Base Rent, as applicable, shall be abated in the manner and to the
extent that is fair, just and equitable to both Lessee and Lessor, taking into
consideration, among other relevant factors, the number of usable rooms, the
amount of square footage, or the revenues affected by such partial Taking. If
Lessor and Lessee are unable to agree upon the amount of such abatement within
thirty (30) days after such partial Taking, the matter shall be submitted to
Arbitration as provided for in Section 40.2 hereof.
------------
15.6 Temporary Taking. If the whole or any part of the Leased Property or
----------------
of Lessee's interest under this Lease is condemned by any Condemnor for its
temporary use or occupancy, this Lease shall not terminate by reason thereof,
and Lessee shall continue to pay, in the manner and at the times herein
specified, Initial Base Rent or Fixed Base Rent, as applicable, and Additional
Charges, but only to the extent of the Award made to Lessee for such
Condemnation allocable to the Term. In addition, to the extent of the remaining
balance, if any, of the Award made for such Condemnation allocable to the Term
(after payment of Initial Base Rent or Fixed Base Rent, as applicable, and
Additional Charges), Lessee shall pay Percentage Rent at a rate equal to the
average Percentage Rent during the last three preceding 12-month Lease Years (or
if three 12-month Lease Years shall not have elapsed, the average during the
preceding 12-month Lease Years). Except only to the extent that Lessee may be
prevented from so doing pursuant to the terms of the order of the Condemnor,
Lessee shall continue to perform and observe all of the other terms, covenants,
conditions and obligations hereof on the part of the Lessee to be performed and
observed, as though such Condemnation had not occurred. In the event of any
Condemnation as in this Section 15.6 described, the entire amount of any Award
------------
made for such Condemnation allocable to the Term of this Lease,
-53-
<PAGE>
whether paid by way of damages, rent or otherwise, shall be paid (a) directly to
Lessee if the Award is payable by the Condemnor on a monthly basis, or (b) if
payable by the Condemnor less frequently than on a monthly basis, the Award
shall be paid to a trustee designated by Lessor or to the Holder of a Mortgage
and made available to Lessee on terms reasonably satisfactory to Lessor or such
Holder for application pursuant to the provisions of this Section 15.6. Lessee
------------
covenants that upon the termination of any such period of temporary use or
occupancy it will, to the extent that its Award and Lessor's contribution as set
forth below are sufficient therefor, restore the Leased Property as nearly as
may be reasonably possible to the condition in which the same was immediately
prior to such Condemnation, unless such period of temporary use or occupancy
extends beyond the expiration of the Term, in which case Lessee shall not be
required to make such restoration. If restoration is required hereunder, Lessor
shall contribute to the cost of such restoration that portion of its entire
Award that is specifically allocated to such restoration in the judgment or
order of the court, if any.
ARTICLE XVI
------------
DEFAULTS
--------
16.1 Events of Default. Any one or more of the following events shall
-----------------
constitute an Event of Default (herein so called) hereunder:
(a) if Lessee fails to make any payment of Initial Base Rent, Fixed Base
Rent or Percentage Rent within ten (10) days after receipt by the Lessee of
Notice from Lessor that the same has become due and payable, provided that
Lessor shall not be required to give any such Notice more than once in any Lease
Year and that any second or subsequent failure by Lessee during such Lease Year
to make any payment of Initial Base Rent, Fixed Base Rent or Percentage Rent on
the date the same becomes due and payable shall constitute an immediate Event of
Default; or
(b) if Lessee fails to make any payment of Additional Charges within ten
(10) days after receipt by Lessee of Notice from Lessor that the same has become
due and payable; or
(c) if Lessee fails to observe or perform any other term, covenant or
condition of this Lease (other than a Performance Failure) and such failure is
not curable, or if curable is not cured by Lessee within a period of thirty (30)
days after receipt by the Lessee of Notice thereof from Lessor, unless such
failure is curable but cannot with due diligence be cured within a period of
thirty (30) days, in which case it shall not be deemed an Event of Default if
(i) Lessee, within such thirty (30) day period, proceeds with due diligence to
cure the failure and thereafter diligently completes the curing thereof within
120 days of Lessor's Notice to Lessee, which 120-day period shall cease to run
during any period that a cure of such failure is prevented by an Unavoidable
Delay and shall resume running upon the cessation of such Unavoidable Delay, and
(ii) the failure does not result in a notice or declaration of default under any
material contract or agreement to which Lessor, the Company, or any Affiliate of
either of them is a party or by which any of their assets are bound; or
(d) if Lessee, the Guarantor or any Manager shall (i) be generally not
paying
-54-
<PAGE>
its debts as they become due, (ii) file, or consent by answer or otherwise to
the filing against it of, a petition for relief or reorganization or arrangement
or any other petition in bankruptcy, for liquidation or to take advantage of any
bankruptcy or insolvency law of any jurisdiction, (iii) make an assignment for
the benefit of its creditors, (iv) consent to the appointment of a custodian,
receiver, trustee or other officer with similar powers with respect to it or
with respect to any substantial part of its assets, (v) be adjudicated
insolvent, or (vi) take corporate action for the purpose of any of the
foregoing; or if a court or governmental authority of competent jurisdiction
shall enter an order appointing, without consent by Lessee, a custodian,
receiver, trustee or other officer with similar powers with respect to it or
with respect to any substantial part of its assets (the events described in (i)
through (vi) and the immediately preceding clause herein called a "Bankruptcy
-----------
Event"), or if an order for relief shall be entered in any case or proceeding
- -----
for liquidation or reorganization or otherwise to take advantage of any
bankruptcy or insolvency law of any jurisdiction, or ordering the dissolution,
winding-up or liquidation of Lessee, or if any petition for any such relief
shall be filed against Lessee and such petition shall not be dismissed within
ninety (90) days. Notwithstanding the foregoing, with respect to a Bankruptcy
Event with respect to a Manager, an Event of Default shall not be deemed to have
occurred if Lessee finds a replacement Manager, subject to the prior Approval of
Lessor, as soon as reasonably practicable and in no event later than one hundred
twenty (120) days following the occurrence of any of such Bankruptcy Event by
the Manager; or
(e) if Lessee, the Guarantor or any Manager is liquidated or dissolved,
or begins proceedings toward such liquidation or dissolution, or, in any manner,
ceases to do business or permits the sale or divestiture of substantially all of
its assets (a "Dissolution Event"). Notwithstanding the foregoing, Lessee shall
-----------------
be entitled to hire a new Manager, subject to the Approval of Lessor, within
thirty (30) days after Notice from Lessor to Lessee that a Dissolution Event has
occurred with respect to the current Manager, in which event such Event of
Default shall be deemed to have been cured; or
(f) if the estate or interest of Lessee in the Leased Property or any
part thereof is voluntarily or involuntarily transferred, assigned, conveyed,
levied upon or attached in any Proceeding; or
(g) if, except as a result of and to the extent required by damage,
destruction, Condemnation or Unavoidable Delay, Lessee ceases operations on the
Leased Property; or
(h) if notice of a default or an event of default has been given by the
franchisor under any Franchise Agreement with respect to the Facility on the
Leased Property as a result of any action or failure to act by the Lessee or any
Person with whom the Lessee contracts for management services at the Facility,
which default or event of default is not cured within applicable cure periods
and does not arise from Lessor's breach of any of its obligations under this
Lease which are required to maintain such Franchise Agreement or ground lease(s)
in effect;
(i) if an Event of Default occurs under any or all of the Other Leases;
(j) if an Event of Default occurs under the Lease Master Agreement;
-55-
<PAGE>
(k) if there is a breach of any of the provisions of Article XXXV and
------------
such breach continues for a period of ten (10) business days after Notice
thereof to Lessee; or
(l) if Guarantor fails to perform any of its obligations or breaches any
of its covenants under the Guaranty, including, but not limited to, Guarantor's
obligation to maintain the Minimum Net Worth, and such failure is not cured
within ten (10) business days after Notice thereof to Guarantor.
Notwithstanding anything to the contrary contained in Section 16.1(c),
---------------
the cure periods set forth in Section 16.1(c) shall not apply to any failure by
---------------
Lessee to perform any term, covenant or condition for which a different grace or
cure period is expressly set forth in any other provision of this Lease, and in
either of the foregoing events such failure shall, after the expiration of any
other grace or cure period expressly set forth elsewhere herein, constitute an
immediate Event of Default.
If litigation is commenced with respect to any alleged default under this
Lease, the prevailing party in such litigation shall receive, in addition to its
damages incurred, such sum as the court shall determine as its reasonable
attorneys' fees, and all costs and expenses incurred in connection therewith.
Lessor shall send Wyndham Management Corporation ("Wyndham Management")
------------------
copies of any Notice which Lessor has expressly agreed to send to Lessee
pursuant to this Section 16.1, and to the extent (but only to the extent) Lessee
------------
has been granted an opportunity to cure a default hereunder, Wyndham Management
shall have the simultaneous right to cure any such default by Lessee.
16.2 Remedies. Upon the occurrence of an Event of Default, Lessor shall
--------
have the right, at Lessor's option, to elect to do any one or more of the
following without further notice or demand to Lessee:
(a) terminate this Lease, in which event Lessee shall immediately
surrender the Leased Property to Lessor, and, if Lessee fails to so surrender,
Lessor shall have the right, without notice, to enter upon and take possession
of the Leased Property and to expel or remove Lessee and its effects without
being liable for prosecution or any claim for damages therefor; and Lessee
shall, and hereby agrees to, indemnify Lessor for all loss and damage which
Lessor suffers by reason of such termination, including without limitation,
damages in an amount equal to the total of:
(i) the reasonable costs of recovering the Leased Property in the
event that Lessee does not promptly surrender the Leased Property, and
all other reasonable expenses incurred by Lessor in connection with
Lessee's default;
(ii) the unpaid Rent earned as of the date of termination, plus
interest at the Overdue Rate accruing after the due date until such sums
are paid by Lessee to Lessor;
(iii) the total Rent (including Percentage Rent as determined below)
which Lessor would have received under this Lease for the remainder of
the Term, but discounted to the then present value at a rate of fifteen
percent (15%) per annum, less
-56-
<PAGE>
the fair market rental value of the balance of the Term as of the time of
such default discounted to the then present value at a rate of fifteen
percent (15%) per annum;
(iv) all transaction costs, application fees and conversion costs
associated with obtaining and entering into a franchise agreement with a
franchisor selected by Lessor; and
(v) all other sums of money and damages owing by Lessee to Lessor; or
(b) enter upon and take possession of the Leased Property without
terminating this Lease and without being liable for prosecution or any claim for
damages therefor, and, if Lessor elects, relet the Leased Property on such terms
as Lessor deems advisable, in which event Lessee shall pay to Lessor on demand
the reasonable costs of repossessing and reletting the Leased Property and any
deficiency between the Rent payable hereunder (including Percentage Rent as
determined below) and the rent paid under such reletting; provided, however,
that Lessee shall not be entitled to any excess payments received by Lessor from
such reletting. Lessor's failure to relet the Leased Property shall not release
or affect Lessee's liability for Rent or for damages; or
(c) enter the Leased Property without terminating this Lease and without
being liable for prosecution or any claim for damages therefor and maintain the
Leased Property and repair or replace any damage thereto or do anything for
which Lessee is responsible hereunder. Lessee shall reimburse Lessor
immediately upon demand for any expense which Lessor incurs in thus effecting
Lessee's compliance under this Lease, and Lessor shall not be liable to Lessee
for any damages with respect thereto. Notwithstanding anything herein to the
contrary, Lessee shall not be liable to Lessor for consequential, punitive or
exemplary damages.
The rights granted to Lessor in this Section 16.2 shall be cumulative of every
------------
other right or remedy provided in this Lease or which Lessor may otherwise have
at law or in equity or by statute, and the exercise of one or more rights or
remedies shall not prejudice or impair the concurrent or subsequent exercise of
other rights or remedies or constitute a forfeiture or waiver of Rent or damages
accruing to Lessor by reason of any Event of Default under this Lease.
Percentage Rent for the purposes of this Section 16.2 shall be a sum equal to
------------
(i) the average of the annual amounts of the Percentage Rent for the three 12-
month Lease Years immediately preceding the Lease Year in which the termination,
re-entry or repossession takes place, or (ii) if three 12-month Lease Years
shall not have elapsed, the average of the Percentage Rent during the preceding
12-month Lease Years during which the Lease was in effect, or (iii) if one Lease
Year has not elapsed, the amount derived by annualizing the Percentage Rent from
the effective date of this Lease.
16.3 Waiver. Each party waives, to the extent permitted by applicable law,
------
any right to a trial by jury in any proceedings brought by either party to
enforce the provisions of this Lease, including, without limitation, proceedings
to enforce the remedies set forth in this Article XVI, and to the extent
-----------
permitted by applicable law, Lessee waives the benefit of any laws now or
hereafter in force exempting property from liability for rent or for debt.
-57-
<PAGE>
16.4 Application of Funds. Any payments received by Lessor under any of
--------------------
the provisions of this Lease during the existence or continuance of any Event of
Default shall be applied to Lessee's obligations in the order that Lessor may
reasonably determine or as may be prescribed by the laws of the State.
ARTICLE XVII
-------------
LESSOR'S RIGHT TO CURE
----------------------
17.1 Lessor's Right to Cure Lessee's Default. If Lessee fails to make any
---------------------------------------
payment or to perform any act required to be made or performed under this Lease
including, without limitation, Lessee's failure to comply with the terms of any
Franchise Agreement, and fails to cure the same within the relevant time
periods, if any, provided in Section 16.1 or elsewhere in this Lease, Lessor,
------------
without waiving or releasing any obligation of Lessee, and without waiving or
releasing any obligation or default, may (but shall be under no obligation to)
at any time thereafter upon Notice to Lessee make such payment or perform such
act for the account and at the expense of Lessee, and may, to the extent
permitted by law, enter upon the Leased Property for such purpose and, subject
to Section 16.2, take all such action thereon as, in Lessor's opinion, may be
------------
necessary or appropriate therefor. No such entry shall be deemed an eviction of
Lessee. All sums so paid by Lessor and all costs and expenses (including,
without limitation, reasonable attorneys' fees and expenses, in each case to the
extent permitted by law) so incurred, together with a late charge thereon (to
the extent permitted by law) at the Overdue Rate from the date on which such
sums or expenses are paid or incurred by Lessor until such sums or expenses are
paid by Lessee to Lessor, shall constitute Additional Charges and shall be paid
by Lessee to Lessor on demand. The obligations of Lessee and rights of Lessor
contained in this Article shall survive the expiration or earlier termination of
this Lease.
ARTICLE XVIII
--------------
REIT LIMITATIONS
----------------
18.1 Personal Property Limitation. Anything contained in this Lease to the
----------------------------
contrary notwithstanding, the average of the adjusted tax bases of the items of
Lessor's personal property that are leased to the Lessee under this Lease at the
beginning and at the end of any Lease Year shall not exceed 15% of the average
of the aggregate adjusted tax bases of the Leased Property at the beginning and
at the end of such Lease Year (the "Personal Property Limitation"). Lessor and
----------------------------
Lessee shall at all times cooperate in good faith and use their best efforts to
permit Lessor to comply with the Personal Property Limitation, which compliance
may include, by way of example only and not by way of limitation or obligation,
the purchase by Lessee at fair market value of personal property in excess of
the Personal Property Limitation. All such compliance shall be effected in a
manner which has no material net economic detriment to Lessee and will not
jeopardize the Company's status as a real estate investment trust under the
applicable provisions of the Code. This Section 18.1 is intended to ensure that
------------
the Rent qualifies as "rents from real property," within the meaning of Section
856(d) of the Code, or any similar or successor provisions thereto, and shall be
interpreted in a manner consistent with such intent.
18.2 Sublease Rent Limitation. Anything contained in this Lease to the
------------------------
contrary
-58-
<PAGE>
notwithstanding, Lessee shall not sublet the Leased Property or enter into any
licenses or concessions or enter into any similar arrangement on any basis such
that the rental or other amounts to be paid by the sublessee thereunder would be
based, in whole or in part, on either (a) the net income or profits derived by
the business activities of the sublessee, license, or concessionaire, or (b) any
other formula such that any portion of the Rent would fail to qualify as "rents
from real property" within the meaning of Section 856(d) of the Code, or any
similar or successor provision thereto.
18.3 Sublease Lessee Limitation. Anything contained in this Lease to the
--------------------------
contrary notwithstanding, Lessee shall not sublease the Leased Property to, or
enter into any license, concession or similar arrangement with, any Person in
which the Company owns, directly or indirectly, a 10% or more interest, within
the meaning of Section 856(d)(2)(B) of the Code, or any Person in which Patriot
American Hospitality Partnership, L.P. owns, directly or indirectly, a ten
percent (10%) or more interest within the meaning of the same section as
modified by Section 7704(d)(3)(B) of the Code or any similar or successor
provisions thereto.
18.4 Lessee Ownership Limitation. Anything contained in this Lease to the
---------------------------
contrary notwithstanding, Lessor shall not take, or permit an Affiliate of
Lessor to take, any action that would cause the Company to own, directly or
indirectly, a 10% or more interest in the Lessee within the meaning of Section
856(d)(2)(B) of the Code, or that would cause Patriot American Hospitality
Partnership, L.P. to own, directly or indirectly, a ten percent (10%) or more
interest in the Lessee within the meaning of the same Section as modified by
Section 7704(d)(3)(B) of the Code, or any similar or successor provisions
thereto. Anything contained in this Lease to the contrary notwithstanding,
Lessee shall not take, or permit an Affiliate of Lessee to take, any action that
would cause the Company to own, directly or indirectly, a 10% or more interest
in the Lessee within the meaning of Section 856(d)(2)(B) of the Code, or that
would cause Patriot American Hospitality Partnership, L.P. to own, directly or
indirectly, a ten percent (10%) or more interest in the Lessee within the
meaning of the same Section as modified by Section 7704(d)(3)(B) of the Code, or
any similar or successor provisions thereto. Anything contained in this Lease
to the contrary notwithstanding, Lessee shall not take, or permit an Affiliate
of Lessee to take, any action that would cause Lessee to bear a direct or
indirect relationship to the former owner of the Leased Property within the
meaning of Section 514(c)(9)(B)(iii) of the Code, or that would cause Lessee to
bear a direct or indirect relationship to the Central States, Southeast and
Southwest Areas Pension Fund within the meaning of Section 514(c)(9)(B)(iv) of
the Code. Any transfer of interests in the Lessee pursuant to Section 35.4
------------
shall be deemed to be an action of Lessee for purposes of this Section 18.4.
------------
18.5 Director, Officer and Employee Limitation. Anything contained in this
-----------------------------------------
Lease to the contrary notwithstanding, Lessor and Lessee shall cooperate to
ensure that (i) no directors, officers or employees of Lessor or the Company
shall be directors, officers or employees of, or own any ownership interest in,
Lessee or any Affiliate thereof (or any Person who furnishes or renders services
to the tenants of the Leased Property, or manages or operates the Leased
Property), and (ii) no directors, officers or employees of Lessee or any
Affiliate thereof (or of any Person who furnishes or renders services to the
tenants of the Leased Property, or manages or operates the Leased Property)
shall be directors, officers or employees of Lessor or the Company.
18.6 Schedule of Stockholders. Upon the Commencement Date, Lessee shall
------------------------
<PAGE>
provide to Lessor a schedule of all stockholders who own of record or
beneficially ten percent (10%) or more of the outstanding capital stock of
Lessee. During the Term, Lessee shall promptly provide Lessor with Notice of
any changes in the foregoing schedule. Lessee represents and warrants that as
of the Commencement Date it is not directly or indirectly related to the former
owner of the Leased Property within the meaning of Section 514(c)(9)(B)(iii) of
the Code, or directly or indirectly related to the Central States, Southeast and
Southwest Areas Pension Fund within the meaning of Section 514(c)(9)(B)(iv) of
the Code. Lessee shall from time to time provide such information as Lessor may
reasonably request to verify Lessee's compliance with Section 18.4 and this
------------
Section 18.6.
- ------------
ARTICLE XIX
------------
HOLDING OVER
------------
19.1 Holding Over. If Lessee for any reason remains in possession of the
------------
Leased Property after the expiration or earlier termination of the Term, such
possession shall be as a tenant at sufferance during which time Lessee shall pay
as rental each month two times the aggregate of (a) one-twelfth of the aggregate
Initial Base Rent, or Fixed Base Rent, as applicable, and Percentage Rent
payable with respect to the last Lease Year of the Term, (b) all Additional
Charges accruing during the applicable month and (c) all other sums, if any,
payable by Lessee under this Lease with respect to the Leased Property. During
such period, Lessee shall be obligated to perform and observe all of the terms,
covenants and conditions of this Lease, but shall have no rights hereunder other
than the right, to the extent given by law to tenancies at sufferance, to
continue its occupancy and use of the Leased Property. Nothing contained herein
shall constitute the consent, express or implied, of Lessor to the holding over
of Lessee after the expiration or earlier termination of this Lease.
ARTICLE XX
-----------
INDEMNITIES
-----------
20.1 Indemnification.
---------------
(a) LESSEE WILL PROTECT, INDEMNIFY, HOLD HARMLESS AND DEFEND LESSOR
INDEMNIFIED PARTIES FROM AND AGAINST ALL LIABILITIES, OBLIGATIONS, CLAIMS,
DAMAGES, PENALTIES, CAUSES OF ACTION, COSTS AND EXPENSES (INCLUDING, WITHOUT
LIMITATION, REASONABLE ATTORNEYS' FEES AND EXPENSES), TO THE EXTENT PERMITTED BY
LAW, INCLUDING THOSE RESULTING FROM A LESSOR INDEMNIFIED PARTY'S OWN NEGLIGENCE
but excluding those resulting from (the items described in (i) through (iii)
herein called "Lessor Excluded Acts") (i) liabilities, obligations, claims,
--------------------
damages and penalties resulting from Emergency Situations arising at the
Facility for which Lessor has the express obligation to fund Capital
Expenditures to remediate such Emergency Situations and Lessor has failed to
fund such Capital Expenditures within ten (10) days following written demand
from Lessee to do so, (ii) the negligence of Lessor or its agents, employees,
contractors or invitees when actually performing alterations or other capital
work which are not obligations of Lessee and are not performed or supervised by
Lessee on behalf of Lessor or (iii) a Lessor Indemnified Party's gross
negligence or willful misconduct, imposed upon or incurred by or asserted
against Lessor Indemnified Parties by reason of: (a) any accident,
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injury to or death of persons or loss of or damage to property occurring on or
about the Leased Property or adjoining sidewalks, during the Term or while the
Leased Property is in the possession or control of Lessee including without
limitation any claims under liquor liability, "dram shop" or similar laws, (b)
any past, present or future use, misuse, non-use, condition, management,
operation, maintenance or repair by Lessee or any of its agents, employees,
contractors or invitees of the Leased Property or Lessee's Personal Property or
any litigation, proceeding or claim by governmental entities or other third
parties to which a Lessor Indemnified Party is made a party or participant
related to such use, misuse, non-use, condition, management, operation,
maintenance, or repair thereof by Lessee or any of its agents, employees,
contractors or invitees, including any failure of Lessee or any of its agents,
employees, contractors or invitees to perform any obligations under this Lease
or imposed by applicable law (other than arising out of Condemnation
proceedings), (c) any Impositions that are the obligations of Lessee pursuant to
the applicable provisions of this Lease, (d) any failure on the part of Lessee
to perform or comply with any of the terms of this Lease, and (e) the
nonperformance by Lessee or any of its agents, employees or contractors of any
of the terms and provisions of any and all existing and future subleases of the
Leased Property to be performed by the landlord thereunder.
(b) Lessor will protect, indemnify, hold harmless and defend Lessee
Indemnified Parties from and against all liabilities, obligations, claims,
damages, penalties, causes of action, costs and expenses (including, without
limitation, reasonable attorneys' fees and expenses) imposed upon or incurred by
or asserted against Lessee Indemnified Parties as a result of (a) the gross
negligence or willful misconduct of Lessor arising in connection with this Lease
or the Facility, (b) any failure on the part of Lessor to perform or comply with
any of the terms of this Lease, or (c) any Lessor Excluded Acts.
(c) Any amounts that become payable by an Indemnifying Party under this
Section shall be paid within ten (10) days after liability therefor on the part
of the Indemnifying Party is determined by litigation or otherwise, and if not
timely paid, shall bear a late charge (to the extent permitted by law) at the
Overdue Rate from the date of such determination to the date of payment. Any
such amounts shall be reduced by insurance proceeds received and any other
recovery (net of costs) obtained by the Indemnified Party. An Indemnifying
Party, upon request, shall at its sole expense resist and defend any Proceeding,
claim or action, or cause the same to be resisted and defended by counsel
designated by the Indemnifying Party and approved by the Indemnified Party,
which Approval shall not be unreasonably withheld; provided, however, that such
Approval shall not be required in the case of defense by counsel designated by
any insurance company undertaking such defense pursuant to any applicable policy
of insurance. Each Indemnified Party shall have the right to employ separate
counsel in any such Proceeding, claim or action and to participate in the
defense thereof, but the fees and expenses of such counsel will be at the sole
expense of such Indemnified Party unless a conflict of interest prevents
representation of such Indemnified Party by the counsel selected by the
Indemnified Party and such separate counsel has been approved by the
Indemnifying Party, which Approval shall not be unreasonably withheld. The
Indemnifying Party shall not be liable for any settlement of any such
Proceeding, claim or action made without its consent, which consent shall not be
unreasonably withheld, but if settled with the consent of the Indemnifying
Party, or if settled without its consent (if its consent shall be unreasonably
withheld), or if there be a final, non-appealable judgment for an adversary
party in any such Proceeding, claim or action, the Indemnifying Party shall
indemnify and hold harmless the Indemnified Party from and against any
liabilities incurred by
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such Indemnified Party by reason of such settlement or judgement. Nothing
herein shall be construed as indemnifying an Indemnified Party against its own
grossly negligent acts or omissions or willful misconduct.
(d) Lessee's or Lessor's liability for a breach of the provisions of this
Article shall survive any termination of this Lease.
ARTICLE XXI
------------
SUBLETTING AND ASSIGNMENT
-------------------------
21.1 Subletting and Assignment.
-------------------------
(a) Subject to the provisions of Article XVIII and Sections 21.2, 21.3
------------- -------------------
and any other express consents, conditions, limitations or other provisions set
forth herein, Lessee shall not assign this Lease or hereafter sublease all or
any part of the Leased Property without first obtaining the written consent of
Lessor. Notwithstanding the foregoing, Lessee may assign its interest in this
Lease, without Lessor's consent, to Wyndham Hotel Corporation or any of its
affiliates, including, without limitation, Wyndham Management, provided such
assignment will not affect (i) the material terms of the Management Agreement
with Wyndham Management including, without limitation, the fees payable to the
Manager and the services to be rendered by the Manager, (ii) Wyndham
Management's ability to manage the Leased Property or (iii) Lessor's rights or
Wyndham Hotel Corporation's obligations with respect to Section 37.2. In the
------------
case of a permitted subletting, the sublessee shall comply with the provisions
of Sections 18.2, 18.3, 18.4, 18.5, 18.6, 21.2 and 21.3, and in the case of a
------------------------------------------- ----
permitted assignment, the assignee shall assume in writing and agree to keep and
perform all of the terms of this Lease on the part of Lessee to be kept and
performed and shall be, and become, jointly and severally liable with Lessee for
the performance thereof. In case of either an assignment or subletting made
during the Term, Lessee shall remain primarily liable, as principal rather than
as surety, for the prompt payment of the Rent and for the performance and
observance of all of the covenants and conditions to be performed by Lessee
hereunder. An original counterpart of each such sublease and assignment and
assumption, duly executed by Lessee and such sublessee or assignee, as the case
may be, in form and substance satisfactory to Lessor, shall be delivered
promptly to Lessor.
21.2 Attornment. Lessee shall insert in each future sublease permitted
----------
under Section 21.1 provisions to the effect that (a) such sublease is subject
------------
and subordinate to all of the terms and provisions of this Lease and to the
rights of Lessor hereunder, (b) if this Lease terminates before the expiration
of such sublease, the sublessee thereunder will, at Lessor's option, attorn to
Lessor and waive any right the sublessee may have to terminate the sublease or
to surrender possession thereunder as a result of the termination of this Lease,
and (c) if the sublessee receives a written Notice from Lessor or Lessor's
assignees, if any, stating that an uncured Event of Default exists under this
Lease, the sublessee shall thereafter be obligated to pay all rentals accruing
under said sublease directly to the party giving such Notice, or as such party
may direct. All rentals received from the sublessee by Lessor or Lessor's
assignees, if any, as the case may be, shall be credited against the amounts
owing by Lessee under this Lease.
21.3 Management Agreement. Lessee shall not enter into any management or
--------------------
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agency agreement relating to the management or operation of the Facility or any
modifications to such management or agency agreement (collectively, the
"Management Agreement") without Lessor's prior written Approval of the terms and
- ---------------------
conditions thereof and if the Manager is not an Affiliate of Lessee (or, is not
Wyndham Hotel Corporation or any of its subsidiaries) the identity of any
manager of the Facility (the "Manager"), such Approval not to be unreasonably
-------
withheld. The Management Agreement shall provide, among other things, that (i)
upon termination of this Lease or termination of Lessee's right to possession of
the Leased Property for any reason whatsoever, the Management Agreement may be
terminated by Lessor without liability for any payment due or to become due to
the Manager except as otherwise provided in Section 36.1(c) hereof, and (ii) all
fees and other amounts, excluding reimbursable expenses payable to Manager,
payable by Lessee to the Manager shall be fully subordinate to an amount of Rent
equal to Initial Base Rent and Fixed Base Rent, as the case may be, as increased
from time to time hereunder.
ARTICLE XXII
-------------
ESTOPPEL CERTIFICATES
---------------------
22.1 Officer's Certificates; Financial Statements; Lessor's Estoppel
---------------------------------------------------------------
Certificates and Covenants.
- --------------------------
(a) At any time and from time to time upon not less than fifteen (15)
days Notice by Lessor, Lessee will furnish to Lessor an Officer's Certificate
certifying that this Lease is unmodified and in full force and effect (or that
this Lease is in full force and effect as modified and setting forth the
modifications), the date to which the Rent has been paid, whether to the
knowledge of Lessee there is any existing default or Event of Default hereunder
by Lessor or Lessee, and such other information as may be reasonably requested
by Lessor. Any such certificate furnished pursuant to this Section may be relied
upon by Lessor, any lender, any underwriter and any prospective purchaser of the
Leased Property.
(b) Lessee will furnish the following statements and operating
information to Lessor:
(1) the most recent Consolidated Financials of Lessee within thirty
(30) days after each quarter of any fiscal year (or, in the case of the
final quarter in any fiscal year, the most recent audited Consolidated
Financials of Lessee within sixty (60) days);
(2) with reasonable promptness, such other information respecting the
financial condition, operations and affairs of Lessee or the Leased
Property (A) as Lessor or the Company may be required or may deem
desirable in its reasonable discretion to file with or provide to the SEC
or any other governmental agency or any other Person, all in the form,
and unaudited (or audited, at Lessor's expense), as Lessor may request in
Lessor's reasonable discretion, (B) as may be reasonably necessary to
confirm compliance by Lessee and its Affiliates with the requirements of
this Lease, and (C) as may be required or requested by any existing,
potential or future Holder;
(3) on or before the 15th day of each month, a balance sheet, and
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detailed profit and loss and cash flow statements showing the financial
position of the Facility as at the end of the preceding month and the
results of operation of the Facility for such preceding month and the
Lease Year to date (including a comparison to the Operating Budget as
approved);
(4) on or before the 15th day of each month, the general manager's
written critique of the financial report submitted pursuant to subsection
(3) immediately above, setting forth in narrative form any variations
during the preceding month from the Annual Budget and including a preview
of the Facility's financial operations during the current month;
(5) on or before the 15th day of each April, July and October during
the Term, an updated estimate for each calendar quarter remaining in the
Lease Year of the information required by Sections 3.5(a) and (e) hereof;
--------------- ---
(6) monthly STR Reports within five (5) days of Lessee's receipt
thereof;
(7) within five (5) days of Lessee's receipt thereof, any inspection
reports received from the franchisor under any Franchise Agreement; and
(8) upon request by Lessor, copies of all licenses, permits,
occupancy agreements, operating agreements, leases, contracts, inspection
reports, studies, appraisals, assessments, default or other notices and
similar materials and information existing with respect to the Leased
Property not previously delivered to Lessor or an Affiliate of Lessor.
(c) At any time and from time to time upon not less than ten (10) days
notice by Lessee, Lessor will furnish to Lessee or to any person designated by
Lessee an estoppel certificate certifying that this Lease is unmodified and in
full force and effect (or that this Lease is in full force and effect as
modified and setting forth the modifications), the date to which Rent has been
paid, whether to the knowledge of Lessor there is any existing default or Event
of Default on Lessee's part hereunder, and such other information as may be
reasonably requested by Lessee. Any such certificate furnished pursuant to this
Section may be relied upon by Lessee, any lender, any underwriter and any
purchaser of the assets of Lessee.
(d) Lessee covenants to cause its officers and employees, its Manager and
its auditors to cooperate fully and promptly with Lessor and the Company and
with the auditors for Lessor and the Company in connection with the timely
preparation and filing of Lessor's and the Company's filings, reports and
returns under applicable federal, state and other governmental securities, blue
sky and tax laws and regulations. Lessor covenants to cause its officers and
employees and auditors to cooperate fully with Lessee and Lessee's auditors in
connection with the timely preparation and filing of Lessee's filings, reports
and returns under applicable federal, state and other governmental securities,
blue sky and tax laws and regulations.
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ARTICLE XXIII
--------------
INSPECTIONS
-----------
23.1 Regular Meetings; Lessor's Right to Inspect.
-------------------------------------------
(a) Lessee agrees that a senior level representative of operations of the
Facility (such as the general manager or controller) and if requested by Lessor,
the general manager, will meet with Lessor and its representatives on a monthly
basis throughout each Lease Year in order to discuss all aspects of the
management, maintenance and operation of the Facility.
(b) Lessee shall permit Lessor and its representatives as frequently as
reasonably requested by Lessor, but not more frequently than monthly, to inspect
the Leased Property and Lessee's accounts and records pertaining thereto and
make copies thereof, during usual business hours upon reasonable advance notice,
subject only to any business confidentiality requirements reasonably requested
by Lessee. In conducting such inspections Lessor shall not unreasonably
interfere with the conduct of Lessee's business at the Leased Property.
(c) Subject to availability, Lessee will provide reasonable gratuitous
accommodations, food and beverage, and other services and amenities to Lessor
and its representatives in connection with all such meetings and inspections.
ARTICLE XXIV
-------------
NO WAIVER
---------
24.1 No Waiver. No failure by Lessor or Lessee to insist upon the strict
---------
performance of any term hereof or to exercise any right, power or remedy
consequent upon a breach thereof, and no acceptance of full or partial payment
of Rent during the continuance of any such breach, shall constitute a waiver of
any such breach or of any such term. To the extent permitted by law, no waiver
of any breach shall affect or alter this Lease, which shall continue in full
force and effect with respect to any other then existing or subsequent breach.
ARTICLE XXV
------------
CUMULATIVE REMEDIES
-------------------
25.1 Remedies Cumulative. To the extent permitted by law but subject to
-------------------
Article XXXIX and any other provisions of this Lease expressly limiting the
- -------------
rights, powers and remedies of either Lessor or Lessee, each legal, equitable or
contractual right, power and remedy of Lessor or Lessee now or hereafter
provided either in this Lease or by statute or otherwise shall be cumulative and
concurrent and shall be in addition to every other right, power and remedy and
the exercise or beginning of the exercise by Lessor or Lessee of any one or more
of such rights, powers and remedies shall not preclude the simultaneous or
subsequent exercise by Lessor or Lessee of any or all of such other rights,
powers and remedies.
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ARTICLE XXVI
-------------
SURRENDER
---------
26.1 Acceptance of Surrender. Other than upon expiration of the Term, no
-----------------------
surrender to Lessor of this Lease or of the Leased Property or any part thereof,
or of any interest therein, shall be valid or effective unless agreed to and
accepted in writing by Lessor and no act by Lessor or any representative or
agent of Lessor, other than such a written acceptance by Lessor, shall
constitute an acceptance of any such surrender.
ARTICLE XXVII
--------------
NO MERGER
---------
27.1 No Merger of Title. There shall be no merger of this Lease or of the
------------------
leasehold estate created hereby by reason of the fact that the same person or
entity may acquire, own or hold, directly or indirectly: (a) this Lease or the
leasehold estate created hereby or any interest in this Lease or such leasehold
estate and (b) the fee estate in the Leased Property.
ARTICLE XXVIII
---------------
CONVEYANCE BY LESSOR
--------------------
28.1 Conveyance by Lessor. Lessor shall have the unrestricted right to
--------------------
mortgage or otherwise convey the Leased Property to a Holder. If Lessor conveys
the Leased Property in accordance with the terms hereof other than to a Holder,
and the grantee or transferee of the Leased Property expressly assumes all
obligations of Lessor hereunder arising or accruing from and after the date of
such conveyance or transfer, Lessor shall thereupon be released from all future
liabilities and obligations of Lessor under this Lease arising or accruing from
and after the date of such conveyance or other transfer as to the Leased
Property and all such future liabilities and obligations shall thereupon be
binding upon the new owner. If Lessee is not reasonably satisfied that the new
owner (a) is not a competitor of Lessee or Manager or (b) is a capable, reliable
and qualified Person of good reputation and character, or (c) has a Net Worth
sufficient to satisfy the Lessor's obligations under this Lease, Lessee (i) may
terminate this Lease upon sixty (60) days' Notice to Lessor given within thirty
(30) days after Lessee receives Notice of such conveyance or (ii) shall have a
Right of First Refusal (herein so called) to purchase the Facility on
substantially the same terms and conditions as Lessor intends to sell to such
third party. Lessor shall provide Notice, including all terms and conditions,
to Lessee of any bona fide third party offers to acquire the Facility subject to
this Lease which Lessor desires to accept. Lessee shall then have a period of
ten (10) business days after receipt of such Notice to notify Lessor of its
intention to accept or refuse such offer. In the event Lessee rejects an offer
as provided herein, Lessor may sell the Facility on substantially the same terms
and conditions as were set forth in the Notice within two hundred seventy (270)
days after Lessee rejects such offer. If Lessor fails to consummate the
transaction described in the Notice within such two hundred seventy (270) day
period or intends to consummate such transaction on terms and conditions which
are not substantially the same terms and conditions as were provided in the
Notice, Lessor shall so notify Lessee and Lessee shall have a period of ten (10)
business days to accept or reject a subsequent offer in the manner as provided
in this Section 28.1. A "bona fide third party offer" shall mean either
------------
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a binding or non-binding letter of intent or written proposal containing
provisions upon which Lessor and the prospective purchaser are willing to enter
into a purchase and sale contract for the purchase and sale of the Facility
subject to this Lease. In the event Lessee exercises its right of first refusal
as provided in this Section 28.1, such exercise shall constitute an
unconditional and binding obligation of Lessee to purchase the Facility on
substantially the same terms and conditions as were provided in the Notice. If
Lessor fails to offer Lessee a Right of First Refusal under this Section 28.2,
------------
Lessee shall have the right to terminate this Lease and receive the termination
fee described in Section 36.1(b) below.
---------------
28.2 Lessor May Grant Liens.
----------------------
(a) Without the consent of Lessee, Lessor may from time to time, directly
or indirectly, create or otherwise cause to exist any lien, encumbrance or title
retention agreement upon the Leased Property, or any portion thereof or interest
therein, or upon Lessor's interest in this Lease, whether to secure any
borrowing or other means of financing or refinancing. This Lease and Lessee's
interest hereunder shall at all times be subject and subordinate to the lien and
security title of any deeds to secure debt, deeds of trust, mortgages, or other
interests heretofore or hereafter granted by Lessor or which otherwise encumber
or affect the Leased Property and to any and all advances to be made thereunder
and to all renewals, modifications, consolidations, replacements, substitutions,
and extensions thereof (all of which are herein called the "Mortgage"), provided
--------
that the Mortgage and all security agreements delivered by Lessor in connection
therewith shall be subject to Lessee's rights under this Lease to receive all
Gross Revenues of the Facility prior to the earlier of the occurrence of an
Event of Default or the date that this Lease is terminated by the Holder of the
Mortgage in the exercise of its remedies thereunder. In confirmation of such
subordination, however, Lessee shall, at Lessor's request, promptly execute,
acknowledge and deliver any instruments which may be required to evidence
subordination to any Mortgage and to the Holder thereof and the assignment of
this Lease and Lessor's rights and interests thereunder to such Holder. In the
event of Lessee's failure to deliver such instruments and if the Mortgage and
such instruments do not change any term of this Lease, Lessor may, in addition
to any other remedies for breach of covenant hereunder, execute, acknowledge,
and deliver the instrument as the agent or attorney-in-fact of Lessee, and
Lessee hereby irrevocably constitutes Lessor its attorney-in-fact for such
purpose, Lessee acknowledging that the appointment is coupled with an interest
and is irrevocable.
(b) Lessee shall, upon the request of Lessor or any existing, potential
or future Holder, (i) provide Lessor or such Holder with copies of all licenses,
permits, occupancy agreements, operating agreements, leases, contracts,
inspection reports, studies, appraisals, assessments, default or other notices
and similar materials reasonably requested in connection with any existing or
proposed financing of the Leased Property, and (ii) execute, and/or cause the
Manager to execute, as applicable, such estoppel agreements and collateral
assignments with respect to the Facility's liquor license, the Management
Agreement and any of the other aforementioned agreements as Holder may
reasonably request in connection with any such financing, provided that no such
estoppel agreement or collateral assignment shall in any way affect the Term or
affect any rights of Lessee under this Lease or otherwise amend the provisions
of this Lease.
(c) No act or failure to act on the part of Lessor which would entitle
Lessee under the terms of this Lease, or by law, to be relieved of any of
Lessee's obligations
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hereunder (including, without limitation, its obligation to pay Rent) or to
terminate this Lease, shall result in a release or termination of such
obligations of Lessee or a termination of this Lease unless: (i) Lessee shall
have first given written notice of Lessor's act or failure to act to the Holder,
specifying the act or failure to act on the part of Lessor which would give
basis to Lessee's rights; and (ii) the Holder, after receipt of such notice,
shall have failed or refused to correct or cure the condition complained of
within a reasonable time thereafter (in no event less than sixty (60) days),
which shall include a reasonable time for such Holder to obtain possession of
the Leased Property, if possession is reasonably necessary for the Holder to
correct or cure the condition, or to foreclose such Mortgage, and if the Holder
notifies the Lessee of its intention to take possession of the Leased Property
or to foreclose such Mortgage, and correct or cure such condition. If such
Holder is prohibited by any process or injunction issued by any court or by
reason of any action by any court having jurisdiction or any bankruptcy, debtor
rehabilitation or insolvency proceedings involving Lessor from commencing or
prosecuting foreclosure or other appropriate proceedings in the nature thereof,
the times for commencing or prosecuting such foreclosure or other proceedings
shall be extended for the period of such prohibition.
(d) Lessee shall deliver by notice delivered in the manner provided in
Article XXX to any Holder who gives Lessee written notice of its status as a
- -----------
Holder, at such Holder's address stated in the Holder's written notice or at
such other address as the Holder may designate by later written notice to
Lessee, a duplicate copy of any and all notices regarding any default which
Lessee may from time to time give or serve upon Lessor pursuant to the
provisions of this Lease. Copies of such notices given by Lessee to Lessor
shall be delivered to such Holder simultaneously with delivery to Lessor. No
such notice by Lessee to Lessor hereunder shall be deemed to have been given
unless and until a copy thereof has been mailed to such Holder.
(e) At any time, and from time to time, upon not less than ten (10) days'
notice by a Holder to Lessee, Lessee shall deliver to such Holder an estoppel
certificate certifying as to the information required in Section 22.1(c), and
---------------
such other information as may be reasonably requested by such Holder. Any such
certificate may be relied upon by such Holder.
(f) Lessee shall cooperate in all reasonable respects, and as generally
described in Section 42.2 of this Lease, with any transfer of the Leased
------------
Property to a Holder that succeeds to the interest of Lessor in the Leased
Property (including, without limitation, in connection with the transfer of any
franchise, license, lease, permit, contract, agreement, or similar item to such
Holder or such Holder's designee necessary or appropriate to operate the Leased
Property). Lessor and Lessee shall cooperate in (i) including in this Lease by
suitable amendment from time to time any provision which may be requested by any
proposed Holder, or may otherwise be reasonably necessary, to implement the
provisions of this Article and (ii) entering into any further agreement with or
at the request of any Holder which may be reasonably requested or required by
such Holder in furtherance or confirmation of the provisions of this Article;
provided, however, that any such amendment or agreement shall not in any way
affect the Term nor affect any rights of Lessor or Lessee under this Lease.
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ARTICLE XXIX
------------
QUIET ENJOYMENT
---------------
29.1 Quiet Enjoyment. So long as Lessee pays all Rent as the same becomes
---------------
due and complies with all of the terms of this Lease and performs its
obligations hereunder, in each case within the applicable grace and/or cure
periods, if any, Lessee shall peaceably and quietly have, hold and enjoy the
Leased Property for the Term hereof, free of any claim or other action by Lessor
or anyone claiming by, through or under Lessor and not claiming by, through or
under Lessee, but subject to all liens and encumbrances subject to which the
Leased Property was conveyed to Lessor or hereafter consented to by Lessee or
provided for herein. Lessee shall have the right by separate and independent
action to pursue any claim it may have against Lessor as a result of a breach by
Lessor of the covenant of quiet enjoyment contained in this Section.
ARTICLE XXX
------------
NOTICES
-------
30.1 Notices. All notices, demands, requests, consents Approvals and other
-------
communications ("Notice" or "Notices") hereunder shall be in writing and
personally served or mailed (by express mail, courier, or registered or
certified mail, return receipt requested and postage prepaid), (i) if to Lessor
at Tri West Plaza, 3030 LBJ Freeway, Suite 1500, Dallas, Texas 75234, Attention:
Mr. Thomas W. Lattin and John P. Bohlmann and (ii) if to Lessee at 2001 Ross
Avenue, Suite 3200, Dallas, Texas 75201, Attention: Sue Groenteman, and
Wyndham Management Corporation, 2001 Bryan Tower, Suite 2300, Dallas, Texas
75201, Attn: General Counsel, or to such other address or addresses as either
party may hereafter designate. Personally delivered Notice shall be effective
upon receipt, and Notice given by mail shall be complete at the time of deposit
in the U.S. Mail system, but any prescribed period of Notice and any right or
duty to do any act or make any response within any prescribed period or on a
date certain after the service of such Notice given by mail shall be extended
five days.
ARTICLE XXXI
-------------
APPRAISALS
----------
31.1 Appraisers. If it becomes necessary to determine the fair market
----------
value or fair market rental of the Leased Property for any purpose of this
Lease, then, except as otherwise expressly provided in this Lease, the party
required or permitted to give Notice of such required determination shall
include in the Notice the name of a person selected to act as appraiser on its
behalf. Within ten (10) days after Notice, Lessor (or Lessee, as the case may
be) shall by Notice to Lessee (or Lessor, as the case may be) appoint a second
person as appraiser on its behalf. The appraisers thus appointed, each of whom
must be a member of the American Institute of Real Estate Appraisers (or any
successor organization thereto) with at least five years experience in the State
appraising property similar to the Leased Property, shall, within ten (10) days
after the date of the Notice appointing the second appraiser, proceed to
appraise the Leased Property to determine the fair market value or fair market
rental thereof as of the relevant date (giving effect to the impact, if any, of
inflation from the date of their
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decision to the relevant date); provided, however, that if only one appraiser
shall have been so appointed, then the determination of such appraiser shall be
final and binding upon the parties. If two appraisers are appointed and if the
difference between the amounts so determined does not exceed 5% of the lesser of
such amounts, then the fair market value or fair market rental shall be an
amount equal to 50% of the sum of the amounts so determined. If the difference
between the amounts so determined exceeds 5% of the lesser of such amounts, then
such two appraisers shall have ten (10) days to appoint a third appraiser. If
no such appraiser shall have been appointed within such ten (10) days or within
sixty (60) days of the original request for a determination of fair market value
or fair market rental, whichever is earlier, either Lessor or Lessee may apply
to any court having jurisdiction to have such appointment made by such court.
Any appraiser appointed by the original appraisers or by such court shall be
instructed to determine the fair market value or fair market rental within
thirty (30) days after appointment of such appraiser. The determination of the
appraiser which differs most in the terms of dollar amount from the
determinations of the other two appraisers shall be excluded, and 50% of the sum
of the remaining two determinations shall be final and binding upon Lessor and
Lessee as the fair market value or fair market rental of the Leased Property, as
the case may be. This provision for determining by appraisal shall be
specifically enforceable to the extent such remedy is available under applicable
law, and any determination hereunder shall be final and binding upon the parties
except as otherwise provided by applicable law. Lessor and Lessee shall each pay
the fees and expenses of the appraiser appointed by it and each shall pay one-
half of the fees and expenses of the third appraiser and one-half of all other
costs and expenses incurred in connection with each appraisal.
ARTICLE XXXII
--------------
EMPLOYEE MATTERS
----------------
32.1 Employees During the Term. Lessee acknowledges and agrees that all
-------------------------
employees involved in the use and operation of the Leased Property shall be
employees of Lessee, Manager, or one of their Affiliates and not of Lessor or
any of its Affiliates. Lessee, its Manager, and their Affiliates shall fully
comply with all Legal Requirements and all collective bargaining and other
agreements applicable to such employees.
32.2 Employee Matters Upon Termination Due to an Event of Default or
---------------------------------------------------------------
Expiration of the Lease. Upon the expiration of this Lease or earlier
- -----------------------
termination of this Lease as a result of an Event of Default hereunder by
Lessee, all such employees shall be terminated or retained by Lessee, Manager or
their Affiliate, as applicable, and Lessee, Manager or their Affiliate, as
applicable, shall provide any required notices required under Legal Requirements
or other rights to such employees, all without liability to Lessor or the
Facility, or any other owner, lessee or manager of the Facility. Payment of all
costs and expenses associated with accrued but unpaid salary, earned but unpaid
vacation pay, accrued but unearned vacation pay, pension and welfare benefits,
COBRA benefits, employee fringe benefits, employee termination payments or any
other employee benefits due to such employees, shall be the sole responsibility
and obligation of and shall be paid when due by Lessee, Manager or their
Affiliate, as applicable. Upon the expiration of this Lease or earlier
termination of this Lease as a result of an Event of Default hereunder by
Lessee, any owner, manager or lessee of the Facility shall have the right, but
not the obligation, to extend offers of employment to some or all of such
employees, excluding the Executive Personnel, on such terms and conditions as
are determined solely in such party's discretion; provided, however, the
Executive Personnel may
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be hired by any owner, manager or lessee of the Facility, if such Executive
Personnel solicits such employment. Lessee, Manager or their Affiliate, as
applicable, shall provide any notices, coverages or other rights as shall be
required to comply with the medical coverage continuation requirements of COBRA
to any persons who are entitled to such rights by virtue of the maintenance of
any group health plan by Lessee, Manager or their Affiliate, as applicable, and
shall maintain, or cause an affiliate company to maintain, a group health plan
that such person shall be entitled to participate in for the maximum period
required by COBRA. Lessee shall indemnify, defend and hold harmless Lessor, the
Facility, and any other owner, lessee or manager of the Facility, from and
against any and all claims, causes of action, proceedings, judgments, damages,
penalties, liabilities, costs and expenses (including reasonable attorney's fees
and disbursements) arising out of the employment or termination of employment of
or failure to offer employment to any employee or prospective employee by
Lessee, Manager or their Affiliates, or the failure of Lessee, Manager or any of
their Affiliates to comply with the provisions of this section.
32.3 Employee Matters Upon Termination Under Article XXXVI or Section
----------------------------------------------------------------
38.1(c). Notwithstanding the provisions of Section 32.2, if Lessor terminates
- ------- ------------
this Lease pursuant to the provisions of Article XXXVI, or Lessee terminates
-------------
this Lease pursuant to Section 38.1(c), on and after the effective date of such
---------------
termination, hotel personnel employed by Manager immediately prior to the
effective date of termination will either be employed by Lessor, or its
designee, or Lessor will take such other action with respect to their
employment, which may include notification of the prospective termination of
their employment, so as, in any case, to insure that Manager does not incur any
liability pursuant to the Workers Adjustment Retraining and Notification Act
(the "WARN Act"). In the event Lessor does not provide to Lessee legally
--------
sufficient advance written Notice of such termination or if Lessor, or its
designee does not hire a sufficient number of hotel personnel employed by
Manager to avoid WARN act liability, then Lessor shall pay, when due, all costs
and expenses associated with accrued but unpaid salary, earned but unpaid
vacation pay, COBRA benefits, employee fringe benefits, employee termination
payments or any other employee benefits due to such employees. Lessor shall
indemnify, defend and hold harmless Lessee and Manager from and against any and
all claims, causes of action, proceedings, judgments, damages, penalties,
liabilities, costs and expenses (including reasonable attorney's fees and
disbursements) arising from the failure of Lessor to comply with the provisions
of this Section 32.3. Further, in the event of a termination of this Lease
------------
under the circumstances described above in this Section 32.3 and the failure of
------------
Lessor to either give Lessee legally sufficient advance written Notice of such
termination or if Lessor or its designee does not hire a sufficient number of
hotel personnel employed by Manager to avoid WARN Act liability, Lessor shall
assume and does hereby assume, all COBRA liabilities and COBRA obligations to
the Facility's personnel, which Lessee or Manager shall or may incur in
connection with such termination of this Lease, and Lessor hereby agrees to
defend, indemnify and hold harmless Lessee and Manager from and against any and
all claims, causes of actions, proceedings, judgments, damages, penalties,
liabilities, costs and expenses (including, without limitation, reasonable
attorneys' fees and disbursements) relating to or resulting from Lessor's breach
of the foregoing covenant with respect to COBRA matters.
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ARTICLE XXXIII
--------------
(Intentionally deleted)
ARTICLE XXXIV
--------------
MEMORANDUM OF LEASE
-------------------
34.1 Memorandum of Lease. Lessor and Lessee shall promptly upon the
-------------------
request of either enter into a short form memorandum of this Lease, in form
suitable for recording under the laws of the State in which reference to this
Lease, and all options contained herein, shall be made. Lessee shall pay all
costs and expenses of recording such memorandum of this Lease.
ARTICLE XXXV
-------------
CHANGE OF CONTROL, OTHER BUSINESS ACTIVITIES, NON-COMPETITION
-------------------------------------------------------------
35.1 Intentionally Deleted.
35.2 Intentionally Deleted.
35.3 Intentionally Deleted.
35.4 Change of Control. Lessee represents and warrants that it is a Texas
-----------------
corporation all of whose outstanding capital stock is owned 51% by D. Michael
Crow and 49% by Harlan R. Crow and Trammell S. Crow. Lessee agrees that
throughout the Term of this Lease, all of the outstanding capital stock of
Lessee shall be owned directly or indirectly by, and Lessee shall be controlled
51% by D. Michael Crow and 49% by Harlan R. Crow and Trammell S. Crow. However,
a merger or a transfer of all or substantially all of the stock or assets of
Lessee which results in Lessee ceasing to be controlled 51% by D. Michael Crow
and 49% by Harlan R. Crow and Trammell S. Crow shall not constitute an Event of
Default. Lessee shall give Lessor prompt Notice of the occurrence of such a
transaction. If such a transaction occurs and if Lessor is not reasonably
satisfied that the Person controlling Lessee is a capable, reliable and
qualified Person of good reputation and character which has the financial
capability to fulfill Lessee's obligations hereunder or, in Lessee's reasonable
judgment, such Person or an Affiliate of such Person is a competitor of Lessor,
Lessor may terminate this Lease upon ninety (90) days Notice to Lessor given
within one hundred twenty (120) days after Lessee receives a Notice of the
occurrence of such transaction. A "competitor of Lessor" shall mean a Person
which, or an Affiliate of which, is a real estate investment trust which is or
intends to become publicly held or traded. In the event Lessor exercises its
option to terminate in accordance therewith, Lessee shall not be entitled to any
compensation for early termination of this Lease. Notwithstanding the foregoing
provisions of this Section 35.4, a shareholder of Lessee may transfer all or
------------
part of his interest in Lessee to a Person in the Crow Family Group.
35.5 Other Business Activities. Lessee shall not engage in or incur any
-------------------------
expenses, indebtedness or obligations related to any business or activity,
including without limitation owning, leasing or managing hotels other than the
Facility, that is not directly related to
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leasing the Leased Property under this Lease or the Other Leased Properties
under the Other Leases.
35.6 Non-Competition.
---------------
(a) Without Lessor's prior written consent, neither Lessee nor any
Affiliate thereof, nor Manager, Wyndham Hotel Corporation or any of their
affiliates or subsidiaries shall, during the Term hereof, acquire, construct,
operate, lease, franchise or manage any luxury hotel which uses a Wyndham brand
name within the Midtown Atlanta Area (as defined on Schedule 35.6 attached
-------------
hereto)
(b) In the event Lessee, any Affiliate thereof, Manager, Wyndham Hotel
Corporation or any of their affiliates or subsidiaries desires to acquire,
construct, operate, lease, franchise or manage any luxury hotel in The Downtown
Atlanta Area (as described on Schedule 35.6 attached hereto, and offer to sell
-------------
all or any ownership interest in any such hotel, Lessor shall have a right of
first refusal to purchase such hotel or ownership interest therein pursuant to
this Section 35.6(b). Lessee shall provide Notice, including all terms and
---------------
conditions, to Lessor (i) of any bona fide third party offers to acquire any
such luxury hotels or ownership interest therein which Lessee desires to accept
and subsequently sell all or any ownership interest therein and (ii) of any bona
fide development opportunities with respect to such luxury hotels that Lessee
desires to develop and subsequently sell all or any ownership interest therein.
Lessor shall then have a period of ten (10) business days after receipt of such
Notice to notify Lessee of its intention to accept or refuse such offers. In
the event Lessor rejects an offer as provided herein, Lessee may sell such hotel
or ownership interest therein on substantially the same terms and conditions as
were set forth in the Notice within two hundred seventy (270) days after Lessor
rejects such offer. If Lessee fails to consummate either of the transactions
contemplated in Section 35.6(b)(i) or 35.6(b)(ii) within such two hundred
------------------ -----------
seventy (270) day period or intends to consummate such transaction on terms and
conditions which are not substantially the same terms and conditions as were
provided in the Notice, Lessee shall so notify Lessor and Lessor shall have a
period of ten (10) business days to accept or reject a subsequent offer in the
manner as provided in this Section 35.6(b). A "bona fide third-party offer"
---------------
shall mean either a binding or non-binding letter of intent or written proposal
containing provisions upon which Lessee and the prospective seller are willing
to enter into a purchase and sale contract. A "bona fide development
opportunity" shall mean either a binding or non-binding letter of intent or
written proposal containing provisions upon which Lessee and the prospective
purchaser and/or developer of such hotel are willing to enter into a development
or sale contract. Lessor shall not have a right of first refusal under this
Section 35.6(b) as to "Wyndham" brand name hotels which Lessee and/or its
- ---------------
Affiliates, Manager and/or Wyndham Hotel Corporation manage, but do not own, as
of the Commencement Date.
(c) Nothing in this Section 35.6 shall prohibit any of Lessee's
------------
Affiliates, Manager and Wyndham Hotel Corporation and their affiliates and
subsidiaries from (i) continuing to own, operate, lease, franchise or manage
during the Term hereof, any luxury hotels within Midtown Atlanta Area which such
Persons own, operate, lease, franchise or manage as of the Commencement Date or
(ii) owning, operating, leasing, franchising or managing during the Term hereof,
any extended stay, budget residential suites.
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ARTICLE XXXVI
--------------
LESSOR'S OPTION TO TERMINATE
----------------------------
36.1 Lessor's Option to Terminate Lease.
----------------------------------
(a) In the event Lessor enters into a bona fide contract to sell the
Leased Property to a non-Affiliate, or in the event of a Tax Law Change
resulting in Lessor's determination to terminate this Lease, then in either such
event Lessor may terminate the Lease by giving not less than thirty (30) days
prior Notice to Lessee of Lessor's election to terminate the Lease upon the
closing under such contract or upon a date specified by Lessor which is on or
after the effective date of the Tax Law Change. Effective upon such date, this
Lease shall terminate and be of no further force and effect except as to any
obligations of the parties existing as of such date that survive termination of
this Lease and all Rent including Percentage Rent and Additional Charges shall
be adjusted as of the termination date.
(b) As compensation for the early termination of its leasehold estate
under this Article XXXVI because of a sale of the Leased Property, during the
-------------
initial Term only, Lessor shall not more than one (1) year prior to the
anticipated termination date of this Lease and in any event within 180 days of
the closing of such sale, either (i) pay to Lessee (a) reimbursement for
reasonable and customary costs paid to parties unaffiliated with Lessee due to
the termination, (b) reimbursement for the reasonable cost of relocating any
executive level employees of Lessee, including reasonable costs of temporary
housing (not to exceed ninety (90) days), (c) the present value of 75% of the
income Lessee would have derived from the leasehold estate for the unexpired
balance of the initial Term less Rent for the unexpired balance of the initial
Term discounted at a rate of fifteen percent (15%) per annum and (d) interest on
(a), (b) and (c) at the rate of fifteen (15%) percent from the date of
termination of this Lease until paid or (ii) offer to lease to Lessee one or
more substitute hotel facilities pursuant to one or more leases that would
create for the Lessee leasehold estates (a "Comparable Lease") that (a) are able
----------------
to be operated as Wyndham hotels, (b) are not within three (3) miles of a hotel
which offers comparable quality, service and amenities as the hotel that is the
subject of the Comparable Lease which Lessee or Wyndham Management then
operates, (c) are reasonably comparable to the Facility's quality, service and
amenities and (d) have an aggregate fair market value of no less than the fair
market value of the original leasehold estate, both such values as determined as
of the closing of the sale of the Leased Property. The non-compete provisions
set forth in Section 35.6 shall be amended, as appropriate to perpetuate the
intent of Section 35.6 to the hotel subject to the Comparable Lease, to reflect
the location of a Comparable Lease. Lessee may reject a Comparable Lease or
combination of Comparable Leases, in which event Lessor shall be entitled to
defer the payment due Lessee pursuant to the option described in (i) above for a
period of up to twelve (12) months from the date Lessee rejects the first
Comparable Lease proposed by Lessor pursuant to this Section 36.1(b) during
---------------
which Lessor shall be allowed to propose other Comparable Leases to Lessee. If
Lessee rejects two (2) additional Comparable Leases during such twelve (12)
month period, Lessor shall have no further obligations to Lessee with respect to
compensation for the early termination of this Lease. If Lessors fails to
propose two (2) Comparable Leases during such twelve (12) month period, the
termination fee described in this Section shall be immediately due and payable.
In the event Lessor and Lessee are unable to agree upon the fair market value of
an original or replacement leasehold estate, it shall be determined by appraisal
using the appraisal procedure set forth in Article XXXI. The
------------
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<PAGE>
provisions of this Section 36.1(b) shall not be applicable to either Renewal
---------------
Term.
(c) As compensation for the early termination of its leasehold estate
under this Article XXXVI because of a Tax Law Change, (i) Lessor shall, not more
-------------
than one (1) year prior to the anticipated termination date of this Lease and in
any event within ninety (90) days of such termination, pay to Lessee the fair
market value of Lessee's leasehold estate hereunder as of the termination date
of this Lease, and (ii) prior to the anticipated termination date and effective
on the date thereof, Lessee shall assign and Lessor shall assume the existing
management agreement for a term equal to the remaining Term of this Lease on the
basis which is most reasonable under the circumstances. The fair market value of
such assumed management agreement shall be credited against the payment to be
made by Lessor to Lessee pursuant to clause (i) of the immediately preceding
sentence. In calculating such fair market value, fees payable under the assumed
management agreement shall be projected for the remaining Term of this Lease.
(d) For the purposes of this Section, fair market value of the leasehold
estate means, as applicable, an amount equal to the price that a willing buyer
not compelled to buy would pay a willing seller not compelled to sell for
Lessee's leasehold estate under this Lease or an offered replacement leasehold
estate. In computing fair market value of a leasehold estate, the appraiser
shall discount all future income and fees to the then present value at a rate of
fifteen percent (15%) per annum.
ARTICLE XXXVII
---------------
FRANCHISE AGREEMENT AND WYNDHAM OPERATIONS
------------------------------------------
37.1 Compliance with Franchise Agreement. To the extent any of the
-----------------------------------
provisions of a Franchise Agreement impose a greater obligation on Lessee than
the corresponding provisions of this Lease, then Lessee shall be obligated to
comply with, and to take all reasonable actions necessary to prevent breaches or
defaults under, the provisions of a Franchise Agreement, except to the extent
that Lessee is prevented from complying with a Franchise Agreement because of
Lessor's breach of its obligations to comply with Article XXXVIII. It is the
---------------
intent of the parties hereto that Lessee shall comply in every respect with the
provisions of any Franchise Agreement so as to avoid any default thereunder
during the term of this Agreement. Lessee shall not terminate or enter into any
modification of any Franchise Agreement without in each instance first obtaining
Lessor's written consent. Lessor and Lessee agree to cooperate fully with each
other in the event it becomes necessary to obtain a franchise extension or
modification or a new franchise for the Leased Property, and in any transfer of
a Franchise Agreement to Lessor or any Affiliate thereof or any other successor
to Lessee upon the termination of this Lease.
37.2 Wyndham Operations. During the Term of this Lease, the Facility shall
------------------
be operated as a "Wyndham" hotel without a franchise agreement. Notwithstanding
the absence of a franchise agreement, Lessee shall, and shall be entitled to,
operate the Facility utilizing the Wyndham name, logo and other applicable
trademarks and trade names, Wyndham's reservation system, marketing and
advertising services and other services provided by Wyndham Hotel Corporation
and its Affiliates ("Wyndham Hotels") to comparable Wyndham hotels. If this
--------------
Lease is terminated for any reason, Lessor or its designee shall have the right,
at the option of Lessor, to assume the management agreement with the Manager for
up to four
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<PAGE>
(4) months and, if such management contract is assumed, the Facility will
continue to be operated as a Wyndham hotel, with the use of the Wyndham hotel
name, logo and other applicable trademarks or trade names, Wyndham's reservation
system, marketing and advertising services and other services provided by
Wyndham Hotels to comparable Wyndham hotels for up to four (4) months following
the termination (the "Temporary Usage"). Lessor or its designee shall pay to
---------------
Wyndham Hotels during the period of the Temporary Usage (a) the management fees
payable to Manager thereunder and (b) the fees charged by Wyndham Hotels on a
systemwide basis for comparable hotels operating under the Wyndham name which
utilize the Wyndham name and services of Wyndham Hotels utilized by the Facility
(the "Trade Name Fees"), unless such termination is due to an Event of Default
---------------
in which event no Trade Name Fee would be payable during the Temporary Usage
period. Such management agreement with the Manager and such Temporary Usage may
be terminated by Lessor or its designee on thirty (30) days' Notice to Wyndham
Hotels.
ARTICLE XXXVIII
----------------
CAPITAL EXPENDITURES
--------------------
38.1 Capital Expenditures.
--------------------
(a) Commencing upon the Commencement Date, Lessor shall be obligated to
fund and maintain in a separate account the Capital Expenditure's Reserve, which
Capital Expenditure Reserve will be commingled with the Capital Expenditures of
the Other Leased Properties and other hotels owned by Lessor and its Affiliates.
Lessor intends to fund to Lessee for Capital Expenditures an average of 4% of
Gross Revenues per year over the Term. Upon written request by Lessee to Lessor
stating the specific use to be made, such funds shall be made available by
Lessor to Lessee for Capital Expenditures set forth in the Capital Budget;
provided, however, that no Capital Expenditures shall be used to purchase
property (other than "real property" within the meaning of Treasury Regulations
Section 1.856-3(d)), to the extent that doing so would cause the Lessor to
recognize income other than "rents from real property" as defined in Section
856(d) of the Code. Lessor's obligation shall be cumulative and any amounts that
have accrued hereunder shall be payable in future periods for such uses and in
accordance with the procedures set forth herein. Lessee shall have no interest
in any accrued obligation of Lessor hereunder after the termination of this
Lease. All Capital Improvements shall be owned by Lessor subject to the
provisions of this Lease.
(b) Lessor's obligation to make Capital Expenditures available in respect
to Capital Improvements and to comply with the provisions of this Lease which
may require the availability of funds for Capital Improvements shall be limited
to amounts available in the Capital Expenditures Reserve and such additional
amounts as Lessor may agree to make available to Lessee in Lessor's sole
discretion; provided, however, that if additional Capital Expenditures are
required to meet Emergency Situations, to satisfy Wyndham Standards or comply
with Legal Requirements, Lessor shall make such amounts available to Lessee and,
to the extent (but only to the extent) that it will not materially and adversely
affect the five (5) year Capital Budget, receive a pro rata credit therefor
against amounts which Lessor is obligated to accrue for the Capital Expenditures
Reserve during the remaining Term of this Lease. Any such credit will be deemed
to have a material adverse effect on the five (5) year Capital Budget if such
Capital Expenditure was not contemplated during the Term and decreases such
Capital Budget by more than 7.5% of the five (5) year Capital Budget. No
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arbitration resulting from the failure of Lessor and Lessee to agree on the
Capital Budget shall increase Lessor's obligation for Capital Expenditures
beyond the amounts set forth in the immediately preceding sentence. To the
extent that Lessee's obligations under this Lease (including, without
limitation, the obligations set forth in Sections 7.2, 8.1 and 9.1 and in
----------------- ---
Article XXXVII) are dependent upon the availability of amounts for Capital
- --------------
Expenditures which exceed the amounts that Lessor is obligated to provide
pursuant to this Article XXXVIII, such obligations of Lessee shall be
---------------
correspondingly diminished.
(c) Lessee shall have the right, in addition to any other remedies Lessee
may have under Section 39.1, to terminate this Lease in the event Lessor, in any
------------
Lease Year, fails to fund Capital Expenditures in accordance with Sections
--------
38.1(a) and (b) within thirty (30) days after requested in writing by Lessee;
- ---------------
provided, however, (i) such Capital Expenditures shall be contemplated in the
Annual Budget Approved by Lessor, (ii) such Capital Expenditures, or the Capital
Improvements requiring the Capital Expenditures, are not in dispute, and (iii)
such failure continues for ten (10) days after Notice from Lessee to Lessor
stating that Lessor has failed to provide the requested Capital Expenditures and
that if such failure is not remedied within such ten (10) day period, Lessee is
permitted to terminate this Lease. If Lessee intends to terminate in accordance
with this section, Lessee must terminate no later than sixty (60) days after the
ten (10) day cure period provided in the Notice has elapsed.
(d) Lessor shall have sole authority with respect to the implementation
of all Capital Improvements made pursuant to the requirements of the Capital
Budget. Such authority shall extend both to the plans and specifications
(including matters of design and decor) and to the contracting and purchasing of
all labor, services and materials.
ARTICLE XXXIX
--------------
LESSOR'S DEFAULT
----------------
39.1 Lessor's Default.
----------------
(a) It shall be a breach of this Lease if (i) a Bankruptcy Event or
Dissolution Event occurs with respect to Lessor or (ii) Lessor fails to observe
or perform any term, covenant or condition of this Lease or under the Lease
Master Agreement on its part to be performed and such failure continues for a
period of thirty (30) days after Notice thereof from Lessee, unless such failure
cannot with due diligence be cured within a period of thirty (30) days, in which
case such failure shall not be deemed a breach if Lessor proceeds within such
thirty (30)-day period, with due diligence, to cure the failure and thereafter
diligently completes the curing thereof. The time within which Lessor shall be
obligated to cure any such failure also shall be subject to extension of time
due to the occurrence of any Unavoidable Delay. If Lessor does not cure any
such failure within the applicable time period as aforesaid, Lessee may declare
the existence of a "Lessor Default" by a second Notice to Lessor. Thereafter,
--------------
subject to the provisions of the following paragraph, Lessee may (but shall be
under no obligation at any time thereafter to) make such payment or perform such
act for the account and at the expense of Lessor. All sums so paid by Lessee
and all costs and expenses (including, without limitation, reasonable attorneys'
fees and court costs) so incurred, together with interest thereon at the Overdue
Rate from the date on which such sums or expenses are paid or incurred by Lessee
until the date paid by Lessor or offset by Lessee as
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<PAGE>
expressly provided herein, shall be paid by Lessor to Lessee on demand or Lessee
may offset or counterclaim such sums actually paid by Lessee against Rents or
Additional Charges due hereunder. Lessee shall have no right to terminate this
Lease for any Lessor Default and no right, for any such Lessor Default, to
offset or counterclaim against any rent or Additional Charges due hereunder
unless otherwise expressly provided in this Lease.
(b) If Lessor shall in good faith dispute the occurrence of any Lessor
Default (that was not previously arbitrated in favor of Lessee) and Lessor,
before the expiration of the applicable cure period, shall give Notice thereof
to Lessee, setting forth, in reasonable detail, the basis therefor, no Lessor
Default shall be deemed to have occurred and Lessor shall have no obligation
with respect thereto, and Lessee shall have no right to offset or counterclaim
for costs and expenses incurred and paid by Lessee against any Rent or
Additional Charges due hereunder, until final adverse determination thereof,
whether through arbitration or otherwise; provided, however, that in the event
-------- -------
of any such adverse determination, Lessor shall pay to Lessee, or Lessee may
offset or counterclaim against Rent or Additional Charges due hereunder,
interest on any disputed funds at the Base Rate, from the date demand for such
funds was made by Lessee until the date of final adverse determination and,
thereafter, at the Overdue Rate until paid. If Lessee and Lessor shall fail, in
good faith, to resolve any such dispute within ten (10) days after Lessor's
Notice of dispute, either may submit the matter for determination by
arbitration, but only if such matter is required to be submitted to arbitration
pursuant to any provision of this Lease, or otherwise by a court of competent
jurisdiction.
(c) Notwithstanding anything to the contrary contained in this Lease, for
the enforcement of any judgment (or other judicial decree) requiring the payment
of money by Lessor to Lessee by reason of any default by Lessor under this Lease
or otherwise, Lessee shall look solely to the estate and property of Lessor in
the Leased Property and any insurance proceeds under any policies of insurance
maintained by Lessor in accordance with this Lease which are paid on account of
the same circumstances as led to Lessee's judgment, it being intended that no
other assets of Lessor or any of Lessor's Affiliates shall be subject to levy,
execution, attachment or any other legal process for the enforcement or
satisfaction of any judgment (or other judicial decree) obtained by Lessee
against Lessor, except in the following cases: (i) any liability of Lessor for
its own gross negligence, willful misconduct or Environmental Liabilities caused
by affirmative actions of Lessor, (ii) any liability of Lessor for repayment to
Lessee upon the termination of this Lease of any excess payments of Percentage
Rent or Additional Charges for the last Lease Year or part thereof, and (iii) in
the case of a final award of damages against Lessor payable to Lessee, Lessee
may offset the amount of such judgment or award against the Rent next coming due
under this Lease.
ARTICLE XL
-----------
ARBITRATION
-----------
40.1 Arbitration. Except as set forth in Section 40.2, in each case
----------- ------------
specified in this Lease in which it shall become necessary to resort to
arbitration, such arbitration shall be determined as provided in this Section
-------
40.1. The party desiring such arbitration shall give Notice to that effect to
- ----
the other party, and an arbitrator shall be selected by mutual agreement of the
parties, or if they cannot agree within thirty (30) days of such notice, by
appointment made by the American Arbitration Association ("AAA") from among the
---
members of its panels who are qualified and who have experience in resolving
matters of a nature similar to
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<PAGE>
the matter to be resolved by arbitration.
40.2 Alternative Arbitration. In each case specified in this Lease for a
-----------------------
matter to be submitted to arbitration pursuant to the provisions of this Section
-------
40.2, Lessor shall be entitled to designate HVS Valuation Services; or if the
- ----
foregoing has ceased to do business, any nationally recognized accounting firm
with a hospitality division of which Lessor or an Affiliate of Lessor and Lessee
and Affiliates of Lessee are not significant clients to serve as arbitrator of
such dispute within fifteen (15) days after written demand for arbitration is
received or sent by Lessor. In the event Lessor fails to make such designation
within such fifteen (15) day period, Lessee shall be entitled to designate any
nationally recognized accounting firm with a hospitality division of which
Lessee or an Affiliate of Lessee is not a significant client to serve as
arbitrator of such dispute within fifteen (15) days after Lessor fails to timely
make such designation. In the event no nationally recognized accounting firm
satisfying such qualifications is available and willing to serve as arbitrator,
the arbitration shall instead be administered as set forth in Section 40.1.
------------
40.3 Arbitration Procedures. In any arbitration commenced pursuant to
----------------------
Sections 40.1 or 40.2, a single arbitrator shall be designated and shall resolve
- ------------- ----
the dispute. The arbitrator's decision shall be final and binding on all parties
and shall not be subject to further review or appeal except as otherwise allowed
by applicable law. Upon the failure of either party (the "non-complying party")
-------------------
to comply with his decision, the arbitrator shall be empowered, at the request
of the other party, to order such compliance by the non-complying party and to
supervise or arrange for the supervision of the non-complying party's obligation
to comply with the arbitrator's decision, all at the expense of the non-
complying party. To the maximum extent practicable, the arbitrator and the
parties, and the AAA if applicable, shall take any action necessary to insure
that the arbitration shall be concluded within ninety (90) days of the filing of
such dispute. The fees and expenses of the arbitrator shall be shared equally
by Lessor and Lessee except as otherwise specified above in this Section 40.3.
------------
Unless otherwise agreed in writing by the parties or required by the arbitrator
or AAA, if applicable, arbitration proceedings hereunder shall be conducted in
the State. Notwithstanding formal rules of evidence, each party may submit such
evidence as each party deems appropriate to support its position and the
arbitrator shall have access to and right to examine all books and records of
Lessee and Lessor regarding the Facility during the arbitration.
ARTICLE XLI
------------
TRADE-OUTS
----------
41.1 Trade-outs. Lessee shall not enter into any material trade-out
----------
agreements or arrangements (i.e., agreements or arrangements pursuant to which
goods or services are provided to or for the benefit of the Lessee or its
Affiliates or the Facility in exchange for free or reduced rate rooms, food and
beverage services, or other Facility services) without Lessor's prior written
consent. As to any trade-out agreements assigned to and assumed by Lessee from
Lessor or the prior owner of the Leased Property, Lessor and Lessee shall agree
on fair and equitable amounts (or a methodology for determining such amounts) to
be included in Beverage Sales, Food Sales, Other Income and Room Revenues for
purposes of this Lease, including the calculation of Percentage Rent, to take
into account the loss of Gross Revenues, if any, resulting from the rooms or
services provided by the Facility in exchange for the goods or services provided
to Lessee, its Affiliates, or the Facility. If Lessor and Lessee do not
-79-
<PAGE>
reach agreement as to such amounts (or a methodology for determining such
amounts) the disagreement shall be resolved by arbitration pursuant to Section
-------
40.2. Lessor shall not unreasonably withhold its consent to a trade-out
- ----
agreement or arrangement proposed by Lessee which benefits the Facility provided
that the term of the trade-out agreement does not extend beyond the stated Term
of this Lease and provided that Lessor and Lessee have agreed in writing as to
the amounts (or a methodology for determining such amounts) to be included in
Beverage Sales, Food Sales, Other Income and Room Revenues to take into account
the loss of Gross Revenues, if any, resulting from the rooms or services
provided by the Facility in exchange for the goods or services provided to or
for the benefit of the Facility.
ARTICLE XLII
-------------
MISCELLANEOUS
-------------
42.1 Miscellaneous. Anything contained in this Lease to the contrary
-------------
notwithstanding, all claims against, and liabilities of, Lessee or Lessor
arising prior to any date of termination of this Lease shall survive such
termination. If any term or provision of this Lease or any application thereof
is invalid or unenforceable, the remainder of this Lease and any other
application of such term or provisions shall not be affected thereby. If any
late charges or any interest rate provided for in any provision of this Lease
are based upon a rate in excess of the maximum rate permitted by applicable law,
the parties agree that such charges shall be fixed at and limited to the maximum
permissible rate. Neither this Lease nor any provision hereof may be changed,
waived, discharged or terminated except by a written instrument in recordable
form signed by Lessor and Lessee. All the terms and provisions of this Lease
shall be binding upon and inure to the benefit of the parties hereto and their
respective successors and assigns. The headings in this Lease are for
convenience of reference only and shall not limit or otherwise affect the
meaning hereof. This Lease shall be governed by and construed in accordance
with the laws of the State, but not including its conflicts of laws rules. If
any payment required to be made pursuant to this Lease shall become due on a day
which is not a Business Day, such payment shall be made on the next succeeding
Business Day.
42.2 Transition Procedures. Lessee and Manager shall cooperate in good
---------------------
faith to provide access and information to any prospective purchaser or lessee
of the Leased Property which may acquire the Leased Property or lease it upon
the expiration or termination of the Term. Upon any expiration or termination
of the Term, Lessor and Lessee shall do the following and, in general, shall
cooperate in good faith to effect an orderly transition of the management or
lease of the Facility. The provisions of this Section 42.2 shall survive the
------------
expiration or termination of this Lease until they have been fully performed.
Nothing contained herein shall limit Lessor's rights and remedies under this
Lease if such termination occurs as the result of an Event of Default.
(a) Transfer of Licenses. Upon the expiration or earlier termination of
--------------------
the Term, Lessee shall use its best efforts (i) to transfer to Lessor or
Lessor's designee all licenses, operating permits and other governmental
authorizations and all contracts with governmental or quasi-governmental
entities, that may be necessary for the operation of the Facility (collectively,
"Licenses"), or (ii) if such transfer is prohibited by law or Lessor otherwise
--------
elects, to cooperate with Lessor or Lessor's designee in connection with the
processing by Lessor or Lessor's designee of any applications for all Licenses,
including
-80-
<PAGE>
Lessee continuing to operate the liquor operations under its licenses with
Lessor or its designee agreeing to indemnify and hold Lessee harmless as a
result thereof except for the gross negligence or willful misconduct of Lessee;
provided, in either case, that the costs and expenses of any such transfer or
the processing of any such application shall be paid by Lessor or Lessor's
designee.
(b) Leases and Concessions. Lessee shall assign or cause to be assigned
----------------------
to Lessor or Lessor's designee simultaneously with the termination of this
Agreement, and the assignee shall assume all leases, contracts, concession
agreements and agreements in effect with respect to the Facility then in
Lessee's name; provided, however, Lessor shall not be obligated to assume and
may reject (i) any operating or service agreements entered into subsequent to
the date hereof which have a term in excess of one year or termination rights
that must be exercised more than sixty (60) days prior to the end of the annual
term, and (ii) equipment leases which were entered into subsequent to the date
hereof and were not previously approved by Lessor (which approval shall not be
unreasonably withheld), in which event the agreement or agreements and/or leases
so rejected shall not be assigned or shall be deemed reassigned and shall remain
the property and responsibility of Lessee.
(c) Books and Records. To the extent that Lessor has not already received
-----------------
copies thereof, copies of all books and records (including computer records) for
the Facility kept by Lessee pursuant to Section 3.6 shall be promptly delivered
-----------
to Lessor or Lessor's designee.
(d) Receivables and Payables, etc. Lessee shall be entitled to retain all
------------------------------
cash, bank accounts and house banks, and to collect all Gross Revenues and
accounts receivable accrued through the termination date. Lessee shall be
responsible for the payment of Rent, all operating expenses of the Facility and
all other obligations of Lessee accrued under this Lease as of the termination
date, and Lessor shall be responsible for all operating expenses of the Facility
accruing after the termination date. Lessee shall surrender the Leased Property
with an amount and quality of Nonconsumable Inventory, Cash-on-Hand and
Consumable Supplies equal to the Initial Inventory and Cash-on-Hand, and Lessor
shall have no obligation to purchase such Nonconsumable Inventory or any other
items of Lessee's Personal Property.
42.3 Waiver of Presentment, etc. Lessee waives all presentments, demands
--------------------------
for payment and for performance, notices of nonperformance, protests, notices of
protest, notices of dishonor, and notices of acceptance and waives all notices
of the existence, creation, or incurring of new or additional obligations,
except as expressly granted herein.
42.4 Standard of Discretion. In any provision of this Lease requiring or
----------------------
permitting the exercise by Lessor or Lessee of such party's approval, election,
decision, consent, judgment, determination or words of similar import
(collectively, an "Approval"), such Approval may, unless otherwise expressly
--------
specified in such provision, be given or withheld in such party's sole, absolute
and unreviewable discretion. Any Approval which by the terms of this Lease may
not be unreasonably withheld shall also not be unreasonably delayed.
42.5 Action for Damages. In any suit or other claim brought by either
------------------
party seeking damages against the other party for breach of its obligations
under this Lease, the party against whom such claim is made shall be liable to
the other party only for actual damages and not for consequential, punitive or
exemplary damages.
-81-
<PAGE>
42.6 Renewal of Term.
---------------
(a) Lessee shall have the right to renew and extend the Term of this
Lease with respect to the Leased Property for the Renewal Term (herein so
called) upon and subject to the following terms and conditions:
(i) Lessee may extend this Lease for up to two (2) Renewal Terms of
five (5) years each by Lessee's giving prior written notice thereof to Lessor
no later than one hundred eighty (180) days prior to the expiration of the
initial Term or the immediately preceding Renewal Term, as the case may be. The
Renewal Term in question shall commence immediately upon the expiration of the
initial Term or the immediately preceding Renewal Term, as the case may be, and
upon exercise of the renewal option, the "expiration date" of the Term shall
automatically become the last day of the Renewal Term in question.
(ii) The exercise by Lessee of the renewal option set forth herein
must be made, if at all, by written notice executed by Lessee and given to
Lessor on or before the date(s) set forth hereinabove, but in no event shall
such notice be effective if given more than two hundred eighty (280) days prior
to the expiration of the initial Term or the immediately preceding Renewal
Term, as applicable. Once Lessee shall exercise any renewal option, Lessee may
not thereafter revoke such exercise. Lessee shall not have the right to
exercise any renewal option if an Event of Default, or default which with the
giving of notice, or lapse of time or both would become an Event of Default if
not cured or Performance Failure has occurred and is outstanding, either at the
time Lessee gives notice of its election to renew, or immediately prior to the
commencement of the Renewal Term in question. Lessee's failure to exercise
timely any renewal option for any reason whatsoever shall conclusively be
deemed a waiver of such renewal option. If Lessee fails or is deemed to have
waived its right to exercise any renewal option granted herein, any renewal
option for any subsequent Renewal Term shall automatically be deemed to have
been waived and relinquished by Lessee.
(iii) Lessee shall take the Leased Premises "as is" for each Renewal
Term and Lessor shall have no obligation to make any improvements or
alterations to the Leased Property.
(iv) Fixed Base Rent for each of the first Renewal Term and the
second Renewal Term shall be adjusted upward by:
(1) ten percent (10%) of Capital Expenditures advanced from
sources other than the Capital Expenditures Reserve which have not
previously been included in the calculation of Fixed Base Rent for the
initial Term or the first Renewal Term, as the case may be;
(2) for the first Renewal Term, budgeted increases in Real
Estate Taxes and Lessor Insurance Costs for the initial year of the first
Renewal Term over the amounts for such items which were included in the
calculation of Fixed Base Rent for the initial Term, and for the second
Renewal Term, budgeted increases in Real Estate Taxes and Lessor Insurance
Costs for the initial year of the second Renewal Term over the amounts for
such amounts
-82-
<PAGE>
which were included in the Fixed Base Rent for the first Renewal Term;
and
(3) the amount by which four percent (4%) of budgeted Gross
Revenues for the initial year of the first Renewal Term or the second
Renewal Term, as the case may be, exceeds the amount of the Capital
Expenditures Reserve previously included in the calculation of Fixed Base
Rent during the initial Term, or First Renewal Term, as the case may be.
(b) On or before thirty (30) days prior to the date on which Real Estate
Taxes are payable to the relevant taxing authority for each Lease Year during
each Renewal Term. Lessee shall be obligated to pay to Lessor, as Additional
Charges, the amount by which Real Estate Taxes for the year in question exceed
the Real Estate Taxes for immediately preceding Lease Year. The obligation to
pay the increase in Real Estate Taxes shall survive the expiration or earlier
termination of each Renewal Term, and a final reconciliation shall be made not
later than thirty (30) days following the assessment by the relevant taxing
authority for the last Lease Year of each Renewal Term.
(c) With respect to Percentage Rent during the Renewal Term, the Break
Points shall only be multiplied by the CPI Factor, without any additional
marginal percentage.
(d) Except as set forth in this Section 42.6, each Renewal Term shall be
upon the same terms and conditions as are applicable for the initial Term,
including, without limitation, adjustments to Fixed Base Rent as set forth in
Section 3.1(f).
42.7 Confidentiality. Except as hereinafter provided, from and after the
---------------
execution of this Lease until such time as the Term expires, Lessee surrenders
possession of the Leased Property or this Lease is terminated as a result of an
Event of Default, Lessor agrees not to disclose to any party the terms,
conditions and provisions of the Management Agreement with Wyndham Management,
or financial information with respect to the operation of the Facility or
Wyndham Hotel Corporation or its subsidiaries (unless same has been or is to be
disclosed or reported under federal or state laws), except in connection with:
(i) necessary or appropriate disclosure and reporting obligations of Lessor or
the Company under applicable federal or state laws, (ii) dissemination of
information about Lessor or the Company with respect to the Facility to its
present or potential lenders, investors, officers, directors, employees,
attorneys, accountants, engineers, surveyors, consultants and partners, (iii) a
proposed sale or leasing of the Leased Property (this exception shall not apply
to the Management Agreement or the financial information with respect to Wyndham
Hotel Corporation or its subsidiaries) and (iv) any litigation involving Wyndham
Hotel Corporation or its subsidiaries, the operation of the Facility or the
subject matter of the Management Agreement.
-83-
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Lease by their duly
authorized representatives as of the date first above written.
LESSOR:
------
PATRIOT AMERICAN HOSPITALITY
PARTNERSHIP, L.P.
By: PAH GP, Inc., its General Partner
By:
----------------------------
Name:
--------------------------
Title:
-------------------------
LESSEE:
------
CROW HOTEL LESSEE, INC., a Texas
corporation
By:
----------------------------
Name:
--------------------------
Title:
-------------------------
-84-
<PAGE>
Exhibit A
PROPERTY DESCRIPTION
--------------------
-85-
<PAGE>
Exhibit B
REVENUE PERCENTAGES AND BREAKDOWNS
----------------------------------
FIRST TIER ROOM REVENUE PERCENTAGE: 20%
ANNUAL ROOM REVENUES FIRST
BREAK POINT: $2,950,000
SECOND TIER ROOM REVENUE PERCENTAGE: 60%
ANNUAL ROOM REVENUES SECOND
BREAK POINT: $4,300,000 i.e., $1,350,000 plus
----
the Annual Room
Revenues First
Break Point
THIRD TIER ROOM REVENUE PERCENTAGE: 70%
FIRST TIER FOOD SALES PERCENTAGE: 5%
ANNUAL FOOD SALES BREAK POINT: $600,000
SECOND TIER FOOD SALES PERCENTAGE: 15%
OTHER INCOME PERCENTAGE: 40%
EXHIBIT B1-Page Solo
<PAGE>
Exhibit C
CAPITAL EXPENDITURES POLICY
---------------------------
A Capital Improvement for which an expenditure is a Capital Expenditure is an
investment in a readily identifiable facility which (1) is held for use or
income rather than for sale or conversion into goods or cash and (2) has a
useful service life in excess of three (3) years.
Capitalization Policy
- ---------------------
If the cost of the capital addition is $2,500 or greater and the items acquired
have an expected service life of more than three (3) years, the expenditure is
capitalized. See "Maintenance and Repairs" for those expenditures which are
expenses without regard to the $2,500 guideline. If the item(s) acquired meet
the more than three (3)-year life criterion, but the total invoice costs are
less than $2,500, the expenditure is considered an expense item.
Replacement - Component Parts
- -----------------------------
If the estimated job or total invoice cost (including parts and labor) of any
particular item or series of items acquired with respect to one particular job
for replacement of the following major building components is under $2,500, the
expenditure is to be expensed to maintenance and repairs:
Heating Equipment - Pumps, boilers, heat exchangers, thermostats, pressure
gauges, alarm devices piping.
Plumbing Equipment - Pumps, meters, sprinkler and fire alarm system,
piping.
Air Conditioning Equipment - Compressors, condensors, motors, cooling
towers, evaporative coolers, piping.
Fire Prevention Equipment - Major fire system sprinklers, smoke detectors.
Power - Transformer, conduits and boxes, panel boards, switches and
outlets.
Betterments
- -----------
If the estimated job or total invoice cost is $2,500 or above, and the
expenditure(s) will enhance the value of and extend by at least three (3) years
the useful life of an asset previously capitalized, then the expenditure should
be capitalized.
Maintenance and Repairs
- -----------------------
The following replacement expenditures are considered maintenance and repairs
and are not subject to the total invoice cost guideline of $2,500.
Repainting of Buildings, Pools, Park Areas (1)(5)
Refinishing of Furniture (1)
Glass Replacement
EXHIBIT G1-Page 1 of 2
<PAGE>
Maintenance Service Contracts, such as Yard,
Television, Elevator, Swimming Pool
Wall Paper Vinyl (1)
Reupholstery of Furniture (1)
Replastering (1)
Replacement of Chain Locks, Key Blanks, Keys, Locks, Locksets. Locks and
locksets installed in new doors or offering substantial security
improvements should be capitalized if the invoice is over $2,500
Patching Parking Lot (2)
Roof Repairs (3)
Waterproofing of Lamb Globes and Lightbulbs
Section Replacement for Neon Signs
Caulking and Sealing
Chrome Fittings such as Faucets, Towel Bars, etc. (1)
Toilet and Toilet Seats
Stolen or Damaged Television
Small Parts for Equipment
Landscaping/Plants (4)
Clocks, Clock-Radios or Similar Small Items
1. Expenditures for exterior and interior painting, including caulking
and sealing of the building, wall paper, refinishing of furniture,
replastering, or reupholstering may be capitalized if:
(a) these expenditures are part of a major refurbishment project, or
(b) the cost of these expenditures exceed $5,000 with respect to any
particular item or series of items related to one particular job
and enhance the value of and extend the useful life of the asset by
at least three (3) years.
2. Repairing of parking lots, including resealing and resurfacing, will
be capitalized if the expenditure exceeds $5,000.
3. Replacement of the complete roof or complete section of the roof
(including laying a roof over an existing roof) will be capitalized if total
expenditure exceed $5,000 and it extends the useful life of the roof by at least
three (3) years.
4. If the landscaping is new or replacement of existing interior or
exterior landscaping, exceeds $5,000, is not seasonal landscaping (such as
seasonal flowers) and has a useful life of greater than one (1) year, the cost
of the landscaping can be capitalized.
5. Major overhauls to the pool which exceed $5,000 in cost and extend the
useful life of the asset by at least three (3) years.
All expense items will be expensed to M&R expense line items above GOP.
EXHIBIT G1-Page 2 of 2
<PAGE>
Exhibit D-1
1996 BASE RENT SCHEDULE
-----------------------
EXHIBIT D-1--Page Solo
<PAGE>
Exhibit D-2
1997 BASE RENT SCHEDULE
-----------------------
EXHIBIT D-2--Page Solo
<PAGE>
EXHIBIT 10.46
<PAGE>
CONTRIBUTION AGREEMENT
between
PAH ACQUISITION CORPORATION
a Virginia corporation
and
("Patriot")
and
HOUSTON GREENSPOINT HOTEL ASSOCIATES, L.P.
a Texas limited partnership
("Greenspoint")
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<C> <S> <C>
ARTICLE I DEFINITIONS
1.1 Definitions................................................. 1
ARTICLE II CONTRIBUTION OF PROPERTY; DEPOSIT; ACCOUNTING FOR
CONTRIBUTION VALUE; TITLE
2.1 Contribution of Property.................................... 8
2.2 Contribution Procedures..................................... 8
2.3 Deposit..................................................... 8
2.4 Submission Matters and Title Information.................... 9
2.5 Conditional Additional Contribution Value................... 12
ARTICLE III GREENSPOINT'S REPRESENTATIONS AND WARRANTIES
3.1 Organization and Power...................................... 13
3.2 Authorization and Execution................................. 13
3.3 Non-contravention........................................... 13
3.4 Title To Real Property...................................... 13
3.5 No Special Taxes............................................ 13
3.6 Compliance with Existing Laws............................... 13
3.7 Personal Property........................................... 14
3.8 Operating Agreements........................................ 14
3.9 Insurance................................................... 14
3.10 Condemnation Proceedings; Roadways.......................... 14
3.11 Actions or Proceedings...................................... 14
3.12 Labor and Employment........................................ 14
3.13 Financial Information and Submission Matters................ 15
3.14 Submission Matters.......................................... 15
3.15 Bankruptcy.................................................. 15
3.16 Hazardous Substances........................................ 15
3.17 Intentionally Deleted....................................... 15
3.18 Occupancy Agreements........................................ 15
3.19 Leased Property............................................. 16
3.20 Americans With Disabilities Act............................. 16
3.21 Structural Condition........................................ 16
3.22 Zoning and Platting......................................... 16
3.23 Access...................................................... 16
3.24 No Commitments.............................................. 16
3.25 Greenspoint Is Not a "Foreign Person"....................... 16
3.26 No Other Property Interests................................. 16
3.27 Investment Representations and Warranties................... 17
3.28 Existing Secured Indebtedness............................... 18
3.29 Space Leases................................................ 18
</TABLE>
i
<PAGE>
<TABLE>
<C> <S> <C>
3.30 Relationship to Certain Parties............................. 18
3.31 LIMITATIONS ON REPRESENTATIONS AND WARRANTIES 18
ARTICLE IV PATRIOT'S REPRESENTATIONS AND WARRANTIES
4.1 Organization and Power...................................... 20
4.2 Authority of Patriot........................................ 20
4.3 Non-contravention........................................... 20
4.4 Litigation.................................................. 20
4.5 Bankruptcy.................................................. 20
ARTICLE V CONDITIONS PRECEDENT
5.1 As to Patriot's Obligations................................. 21
5.2 As to Greenspoint's Obligations............................. 22
5.3 As to Patriot's and Greenspoint's Obligations............... 23
ARTICLE VI COVENANTS OF GREENSPOINT
6.1 Operating Agreements and Occupancy Agreements............... 23
6.2 Warranties and Guaranties................................... 24
6.3 Insurance................................................... 24
6.4 Independent Audit........................................... 24
6.5 Operation of Property Prior to Closing...................... 25
6.6 No Marketing................................................ 26
6.7 Employees................................................... 26
6.8 Prepayment of Existing Secured Indebtedness................. 26
6.9 Required Financing Expenses................................. 26
6.10 Issuance of Units Expenses.................................. 26
6.11 Cooperation on Tax Matters.................................. 27
6.12 Information Regarding and Restrictions on Beneficial Ownership of
Units ...................................................... 27
ARTICLE VII COVENANTS OF PATRIOT
7.1 Required Debt............................................... 27
7.2 Required Financing.......................................... 28
7.3 Indemnity by Patriot........................................ 28
ARTICLE VIII CLOSING
8.1 Closing..................................................... 29
8.2 Greenspoint's Deliveries.................................... 29
8.3 Patriot's Deliveries........................................ 32
8.4 Mutual Deliveries........................................... 33
8.5 Closing Costs............................................... 33
8.6 Revenue and Expense Allocations............................. 33
ARTICLE IX GENERAL PROVISIONS
9.1 Condemnation................................................ 35
</TABLE>
ii
<PAGE>
<TABLE>
<C> <S> <C>
9.2 Risk of Loss................................................ 36
9.3 Absence of Broker........................................... 36
9.4 Bulk Sale................................................... 37
9.5 Confidentiality............................................. 37
9.6 Greenspoint's Accounts Receivable........................... 37
ARTICLE X LIABILITY OF PATRIOT; INDEMNIFICATION BY
GREENSPOINT; DEFAULT; TERMINATION RIGHTS
10.1 Liability of Patriot........................................ 38
10.2 Indemnification by Greenspoint.............................. 38
10.3 Indemnification by Patriot.................................. 38
10.4 Default by Greenspoint/Failure of Conditions Precedent...... 39
10.5 Default by Patriot/Failure of Conditions Precedent.......... 39
10.6 Costs and Attorneys' Fees................................... 40
10.7 Limitation of Liability..................................... 40
ARTICLE XI MISCELLANEOUS PROVISIONS
11.1 Completeness; Modification.................................. 40
11.2 Assignments................................................. 40
11.3 Successors and Assigns...................................... 40
11.4 Days........................................................ 40
11.5 Governing Law............................................... 40
11.6 Counterparts................................................ 40
11.7 Severability................................................ 41
11.8 Costs....................................................... 41
11.9 Notices..................................................... 41
11.10 Escrow Agent................................................ 42
11.11 Incorporation by Reference.................................. 42
11.12 Survival.................................................... 42
11.13 Further Assurances.......................................... 42
11.14 No Partnership.............................................. 43
11.15 Time of Essence............................................. 43
11.16 Signatory Exculpation....................................... 43
11.17 Rules of Construction....................................... 43
</TABLE>
EXHIBITS
- --------
Exhibit A - Land
Exhibit B - Surveyor's Certificate
Exhibit C - Other Properties
Exhibit D - Prospective Subscriber Questionnaire
Exhibit E - Letter Agreement Regarding Lock-up Period
Exhibit F - Intentionally Deleted
Exhibit G - Registration Rights Agreement
Exhibit H - Release Regarding Tax Advice
Exhibit I - Wyndham Comfort Letter
iii
<PAGE>
SCHEDULES
- ---------
Schedule 1 - Authorizations
Schedule 2 - Intentionally Deleted
Schedule 3 - Occupancy Agreements
Schedule 4 - Operating Agreements
Schedule 5 - Existing Secured Indebtedness
Schedule 6 - Personal Property Leases
iv
<PAGE>
CONTRIBUTION AGREEMENT
----------------------
THIS CONTRIBUTION AGREEMENT (this "Agreement") is made as of this 11th day
---------
of July, 1996, between PAH ACQUISITION CORPORATION, a Virginia corporation or
its permitted assigns ("Patriot"), and HOUSTON GREENSPOINT HOTEL ASSOCIATES,
-------
L.P., a Texas limited partnership ("Greenspoint").
-----------
R E C I T A T I O N S:
A. Greenspoint is the owner of that certain real property known as the
"Wyndham Greenspoint, Houston", situate, lying and being in Harris County, State
of Texas.
B. The Operating Partnership is desirous of acquiring such hotel property
from Greenspoint and Greenspoint is desirous of contributing such hotel property
to Patriot, upon the terms and conditions hereinafter set forth.
NOW, THEREFORE, in consideration of premises and in consideration of the
mutual covenants, promises and undertakings of the parties hereinafter set
forth, and for other good and valuable considerations, the receipt and
sufficiency of which is hereby acknowledged by the parties, it is agreed:
ARTICLE I
---------
DEFINITIONS
-----------
1.1 Definitions. The following terms shall have the indicated meanings:
-----------
"Act of Bankruptcy" shall mean if a party hereto or any general
-----------------
partner thereof shall (a) apply for or consent to the appointment of, or the
taking of possession by, a receiver, custodian, trustee or liquidator of itself
or of all or a substantial part of its property, (b) admit in writing its
inability to pay its debts as they become due, (c) make a general assignment for
the benefit of its creditors, (d) file a voluntary petition or commence a
voluntary case or proceeding under the Federal Bankruptcy Code (as now or
hereafter in effect), (e) be adjudicated a bankrupt or insolvent, (f) file a
petition seeking to take advantage of any other law relating to bankruptcy,
insolvency, reorganization, winding-up or composition or adjustment of debts,
(g) fail to controvert in a timely and appropriate manner, or acquiesce in
writing to, any petition filed against it in an involuntary case or proceeding
under the Federal Bankruptcy Code (as now or hereafter in effect), or (h) take
any corporate or partnership action for the purpose of effecting any of the
foregoing; or if a proceeding or case shall be commenced, without the
application or consent of a party hereto or any general partner thereof, in any
court of competent jurisdiction seeking (1) the liquidation, reorganization,
dissolution or winding-up, or the composition or readjustment of debts, of such
party or general partner, (2) the appointment of a receiver, custodian, trustee
or liquidator for such party or general partner or all or any substantial part
of its assets, or (3) other similar relief under any law relating to bankruptcy,
insolvency, reorganization, winding-up or composition
<PAGE>
or adjustment of debts, and such proceeding or case shall continue undismissed;
or an order (including an order for relief entered in an involuntary case under
the Federal Bankruptcy Code, as now or hereafter in effect) judgment or decree
approving or ordering any of the foregoing shall be entered and continue
unstayed and in effect, for a period of 60 consecutive days.
"Advance Bookings" shall mean reservations made by Greenspoint prior
----------------
to Closing for Hotel rooms or meeting rooms to be utilized after Closing, or for
catering services or other Hotel services to be provided after Closing, in the
ordinary course of business.
"Affiliated Company" means any other entity which is, along with a
------------------
party and/or its management company, a member of a controlled group of
corporations or a controlled group of trades or businesses (as defined in
Section 414(b) or (c) of the Internal Revenue Code), any entity which along with
such party and/or its management company is included in an affiliated service
group as defined in Section 414(m) of the Internal Revenue Code, and any other
entity which is required to be aggregated with such party and/or its management
company pursuant to Treasury Regulations under Section 414(o) of the Internal
Revenue Code.
"Applicable Laws" shall mean any applicable building, zoning,
---------------
subdivision, environmental, health, safety or other governmental laws, statutes,
ordinances, resolutions, rules, codes, regulations, orders or determinations of
any Governmental Authority or of any insurance boards of underwriters (or other
body exercising similar functions), or any restrictive covenants or deed
restrictions affecting the Property or the ownership, operation, use,
maintenance or condition thereof.
"Assignment and Assumption Agreement" shall mean one or more
-----------------------------------
assignment and assumption agreements whereby (a) Greenspoint (1) assigns and
Patriot's lessee assumes the Operating Agreements, Space Leases and Personal
Property Leases that have not been terminated prior to Closing in accordance
herewith, (2) assigns all of Greenspoint's right, title and interest in and to
the Intangible Personal Property, to the extent assignable, and (3) indemnifies,
defends and holds Patriot and Patriot's lessee harmless with respect to all
defaults, liabilities, claims, costs and expenses (including, without
limitation, reasonable attorneys' fees) relating to acts or omissions accruing
under such Operating Agreements, Space Lease and Personal Property Leases before
the Closing Date; and (b) Patriot's lessee indemnifies, defends and holds
Greenspoint harmless with respect to all defaults, liabilities, claims, costs
and expenses (including, without limitation, reasonable attorneys' fees)
relating to acts or omissions accruing under such Operating Agreements, Space
Lease and Personal Property Leases from and after the Closing Date.
"Assignment of Occupancy Agreements" shall mean the assignment
----------------------------------
agreement, in recordable form, whereby (a) Greenspoint (1) assigns and Patriot's
lessee assumes all of Greenspoint's right, title and interest in and to the
Occupancy Agreements, and (2) indemnifies, defends and holds Patriot and
Patriot's lessee harmless with respect to all defaults, liabilities, claims,
costs and expenses (including, without limitation, reasonable
<PAGE>
attorneys' fees) relating to acts or omissions accruing under such Occupancy
Agreements before the Closing Date; and (b) Patriot's lessee indemnifies,
defends and holds Greenspoint harmless with respect to all defaults,
liabilities, claims, costs and expenses (including, without limitation,
reasonable attorneys' fees) relating to acts or omissions accruing under such
Occupancy Agreements from and after the Closing Date.
"Authorizations" shall mean all licenses, permits and approvals
--------------
required by any governmental or quasi-governmental agency, body, department,
commission, board, bureau, instrumentality or officer, with respect to the
construction, ownership, operation, leasing, maintenance, or use of the Property
or any part thereof, which Authorizations are more particularly described on
Schedule 1 attached hereto and made a part hereof.
- ----------
"Bill of Sale - Personal Property" shall mean one or more bills of
--------------------------------
sale conveying title to the Tangible Personal Property from Greenspoint to
Patriot (as Patriot shall specify).
"Closing" shall mean the Closing of the purchase and sale of the
-------
Property pursuant to this Agreement and shall be deemed to occur on the Closing
Date.
"Closing Date" shall mean the date on which the Closing occurs.
------------
"Closing Documents" shall mean the documents defined as such in
-----------------
Section 8.1 hereof.
- -----------
"Conditional Additional Contribution Value" shall have the meaning
-----------------------------------------
ascribed to such term in Section 2.5 hereof.
-----------
"Contribution Value" shall mean $44,000,000.00 to be accounted for in
------------------
the manner described in Section 2.2 hereof and subject to adjustment as set
-----------
forth herein.
"Deed" shall mean that certain deed conveying title to the Real
----
Property with special warranty covenants of title from Greenspoint to Patriot,
in recordable form, and subject only to Permitted Title Exceptions. If there is
any difference between the description of the Land, as shown on Exhibit A
---------
attached hereto and the description of the Land as shown on the Survey, the
description of the Land to be contained in the Deed and the description of the
Land set forth in the Title Commitment shall conform to the description shown on
the Survey.
"Deposit" shall mean all amounts deposited from time to time with
-------
Escrow Agent by Patriot pursuant to Section 2.3 hereof. All cash Deposits shall
-----------
be invested by Escrow Agent in a commercial bank or banks acceptable to Patriot
at money market rates, or in such other investments as shall be approved in
writing by Greenspoint and Patriot. The Deposit shall be held and disbursed by
Escrow Agent in strict accordance with the terms and provisions of this
Agreement.
<PAGE>
"Effective Date" shall mean the date this Agreement has been fully
--------------
executed and delivered by all parties hereto.
"Environmental Damages" shall mean all third-party claims, judgments,
---------------------
damages, losses, penalties, fines, liabilities (including, without limitation,
punitive damages and strict liability), encumbrances, liens, costs and expenses
of investigation and defense of any claim, whether or not such is ultimately
defeated, and of any settlement or judgment, of whatever kind or nature,
contingent or otherwise, matured or unmatured, including, without limitation,
attorneys' fees and disbursements and consultants' fees, any of which arise as a
result of the existence of Hazardous Materials upon, about or beneath the
Property or migrating or threatening to migrate from the Property, or as a
result of the existence of a violation of Environmental Requirements pertaining
to the Property.
"Environmental Requirements" shall mean (i) all applicable statutes,
--------------------------
regulations, rules, policies, ordinances, codes, licenses, permits, orders,
approvals, plans, authorizations, and similar items, of all Governmental
Authorities, and (ii) all judicial, administrative and regulatory decrees,
judgments and orders, in each case of (i) and (ii) relating to the protection of
human health or the environment from Hazardous Materials, including, without
limitation: (a) all requirements thereof, including, without limitation, those
pertaining to reporting, licensing, permitting, investigation and remediation of
emissions, discharges, releases or threatened releases of Hazardous Materials
into the air, surface water, groundwater or land, or relating to the
manufacture, processing, distribution, use, treatment, storage, disposal,
transport or handling of Hazardous Materials; and (b) all requirements
pertaining to the protection of the health and safety of employees or the public
from Hazardous Materials.
"Escrow Agent" shall mean Unity Title Company, whose address is 2610
------------
Maxus Energy Tower, 717 North Harwood Street, Dallas, Texas 75201 (telephone
(214) 969-5300, fax (214) 969-5348).
"Existing Secured Indebtedness" means that certain indebtedness
-----------------------------
secured by liens, assignments or security interests, encumbering all or any part
of the Property, which Existing Secured Indebtedness is described on Schedule 5
----------
attached hereto and made a part hereof.
"Financial Information" shall mean the financial information defined
---------------------
as such in Section 3.13 hereof.
------------
"FIRPTA Certificate" shall mean the affidavit of Greenspoint under
------------------
Section 1445 of the Internal Revenue Code, as amended, certifying that
Greenspoint is not a foreign corporation, foreign partnership, foreign trust,
foreign estate or foreign person (as those terms are defined in the Internal
Revenue Code and regulations promulgated thereunder), in form and substance
satisfactory to Patriot.
"Governmental Authority" shall mean any federal, state, county,
----------------------
municipal or
<PAGE>
other government or any governmental or quasi-governmental agency, department,
commission, board, bureau, officer or instrumentality, foreign or domestic, or
any of them, having jurisdiction over Patriot or the Project.
"Greenspoint's Organizational Documents" shall mean the current
--------------------------------------
partnership agreement and certificate of limited partnership and all amendments
thereto of Greenspoint and its general partners.
"Hazardous Materials" shall mean any chemical substance: (i) which is
-------------------
or becomes defined as a "hazardous substance," "hazardous waste," "hazardous
material," "pollutant," "contaminant," or "toxic," "explosive," "corrosive,"
"flammable," "infectious," "radioactive," "carcinogenic," or "mutagenic"
material under any law, regulation, rule, order, or other authority of the
federal, state or local governments, or any agency, department, commission,
board, or instrumentality thereof, regarding the protection of human health or
the environment from such chemical substances including, but not limited to, the
following federal laws and their amendments, analogous state and local laws, and
any regulations promulgated thereunder: the Clean Air Act, the Clean Water Act,
the Oil Pollution Control Act, the Comprehensive Environmental Response,
Compensation, and Liability Act of 1986, the Emergency Planning and Community
Right to Know Act, the Solid Waste Disposal Act, the Resource Conservation and
Recovery Act, the Safe Drinking Water Act, the Federal Insecticide, Fungicide
and Rodenticide Act, and the Toxic Substances Control Act, including, without
limitation, asbestos and gasoline and other petroleum products (including crude
oil or any fraction thereof); (ii) without limitation, which contains gasoline,
diesel fuel or other petroleum hydrocarbons; (iii) without limitation, which
contains drinking biphenyls or asbestos or asbestos-containing materials or urea
formaldehyde foam insulation; or (iv) without limitation, radon gas.
"Hotel" shall mean the 472-room hotel and related amenities located on
-----
the Land.
"Improvements" shall mean the Hotel and all other buildings,
------------
improvements, fixtures and other items of real estate located on the Land.
"Insurance Policies" shall mean all policies of insurance maintained
------------------
by or on behalf of Greenspoint pertaining to the Property, its operation, or any
part thereof.
"Intangible Personal Property" shall mean all intangible personal
----------------------------
property owned or possessed by Greenspoint and used in connection with the
ownership, operation, leasing, occupancy or maintenance of the Property,
including, without limitation, (1) the Authorizations, (2) utility and
development rights and privileges, business records, plans and specifications
pertaining to the Real Property and the Personal Property, (3) any unpaid award
for taking by condemnation or any damage to the Land by reason of a change of
grade or location of or access to any street or highway which was not effective
prior to the Effective Date, and (4) the share of the Rooms Ledger determined
under Section 8.6 hereof, excluding (a) any of the aforesaid rights Patriot
-----------
elects not to acquire, (b) cash reserves for FF&E, taxes
<PAGE>
and insurance, and (c) accounts receivable except for the above described share
of the Rooms Ledger.
"Invested Capital" shall have the meaning ascribed to such term in
----------------
Section 2.5 hereof.
- -----------
"Land" shall mean that certain parcel of real estate lying and being
----
in Harris County, Texas, as more particularly described on Exhibit A attached
---------
hereto, together with all easements, rights, privileges, remainders, reversions
and appurtenances thereunto belonging or in any way appertaining, and all of the
estate, right, title, interest, claim or demand whatsoever of Greenspoint
therein, in the streets and ways adjacent thereto and in the beds thereof,
either at law or in equity, in possession or expectancy, now or hereafter
acquired.
"Lease" means the lease of the Hotel which has been approved by Lessor
-----
and Lessee and is to be entered by Lessor and Lessee in accordance with Section
-------
8.4(d) hereof.
- ------
"Leased Property" shall mean all leased items of Tangible Personal
---------------
Property.
"Lessee" means Crow Hotel Lessee, Inc., a Texas corporation.
------
"Lessor" means Patriot or its assignee.
------
"Manager" shall have the meaning ascribed to such term in Section
------- -------
5.11(e) hereof.
- -------
"Net Rent" shall have the meaning ascribed to such term in Section 2.5
-------- -----------
hereof.
"Occupancy Agreements" shall mean all leases, concession or occupancy
--------------------
agreements in effect with respect to the Real Property under which any tenants
(other than Hotel guests) or concessionaires occupy space upon the Real
Property, which Occupancy Agreements are described on Schedule 3 attached hereto
----------
and made a part hereof.
"Operating Agreements" shall mean all management, service, supply and
--------------------
maintenance contracts, if any, in effect with respect to the Property and all
other contracts (other than the Occupancy Agreements and the Space Lease) that
affect the Property or are otherwise related to the construction, ownership,
operation, occupancy or maintenance of the Property, which Operating Agreements
are described on Schedule 4 attached hereto and made a part hereof.
----------
"Operating Partnership" shall mean Patriot American Hospitality
---------------------
Partnership, L.P., a Virginia limited partnership.
"Other Agreement of Purchase and Sale" means that certain Agreement of
------------------------------------
Purchase and Sale of even date herewith for the Other Property entered into by
Patriot and an affiliate of Greenspoint.
<PAGE>
"Other Lease Agreement" means that certain lease of the hotel to be
---------------------
acquired on the Closing Date by Patriot pursuant to the Other Agreement of
Purchase and Sale between Lessor, as lessor, and Lessee, as lessee.
"Other Property" means that certain hotel described on Exhibit C
-------------- ---------
attached hereto and made a part hereof.
"Owner's Title Policy" shall mean an owner's policy of title insurance
--------------------
issued to Patriot by the Title Company, pursuant to which the Title Company
insures Patriot's ownership of fee simple title to the Real Property (including
the indefeasibility thereof) subject only to Permitted Title Exceptions. The
Owner's Title Policy shall insure Patriot in the amount of the Contribution
Value and shall be reasonably acceptable in form and substance to Patriot.
Patriot may require such deletions of standard exceptions and such title
endorsements as are legally available and customarily required by institutional
investors purchasing property comparable to the Property in the State where the
Property is situated. The description of the Land in the Owner's Title Policy
shall be by courses and distances or by reference to a legal, subdivided lot and
shall be identical to the description shown on the Survey.
"Patriot's Objections" shall mean the objections defined as such in
--------------------
Section 2.4(c) hereof.
- --------------
"Pay-Off Letters" shall have the meaning ascribed to such term in
---------------
Section 5.1(l) hereof.
- --------------
"Permitted Title Exceptions" shall mean those exceptions to title to
--------------------------
the Real Property that are satisfactory to Patriot or deemed satisfactory to
Patriot pursuant to Section 2.4(c) hereof.
--------------
"Personal Property" shall mean collectively the Tangible Personal
-----------------
Property and the Intangible Personal Property.
"Personal Property Leases" shall mean the leases pursuant to which
------------------------
Greenspoint leases the Leased Property, which Personal Property Leases are
described on Schedule 6 attached hereto and made a part hereof.
----------
"Property" shall mean collectively the Real Property and the Personal
--------
Property.
"Real Property" shall mean the Land and the Improvements.
-------------
"Registration Rights Agreement" shall mean the agreement in the form
-----------------------------
of Exhibit G hereto.
---------
"Required Financing" shall have the meaning ascribed to such term in
------------------
Section 7.2 hereof.
- -----------
<PAGE>
"Rooms Ledger" shall mean the final night's room revenue (revenue from
------------
rooms occupied as of 12:01 a.m. on the Closing Date, exclusive of food,
beverage, telephone and similar charges which shall be retained by Greenspoint),
including any sales taxes, room taxes or other taxes thereon.
"Space Leases" shall mean (a) that certain Lease Agreement dated
------------
October 18, 1988, between Wyndham Hotel Company Ltd., as tenant, and Greenspoint
Plaza Limited Partnership, as landlord, regarding certain space in the
Greenspoint Gallery I Shopping Center, as amended and (b) that certain Parking
Easement Agreement by and between Greenspoint Hotel Company and Friendswood
Development Company dated April 22, 1983, regarding the Parking Garage (defined
therein) and other matters, filed of record on May 3, 1983, under Harris County
Clerk's File No. H926706.
"Submission Matters" shall mean all items Greenspoint is required to
------------------
deliver to Patriot or make available to Patriot for its review pursuant to
Section 2.4(a) hereof.
- --------------
"Survey" shall mean the survey defined as such in and prepared
------
pursuant to Section 2.4(c) hereof.
--------------
"Tangible Personal Property" shall mean the items of tangible personal
--------------------------
property consisting of all furniture, fixtures, equipment, machinery and other
personal property of every kind and nature (including cash-on-hand and petty
cash funds) located on or used or useful in the operation of the Hotel and owned
by Greenspoint, including, without limitation, unopened inventories of food and
beverages and the stock of linens, towels, paper goods, soaps, cleaning
supplies, china, glassware, silverware, tablecloths, napkins, television sets,
carpets, drapes, rugs, floor coverings, mattresses, pillows, bed spreads and
miscellaneous guest supplies, engineering cleaning supplies and the like.
"Title Commitment" shall mean the title commitment and exception
----------------
documents defined as such in Section 2.4(c) hereof.
--------------
"Title Company" shall mean Escrow Agent on behalf of Commonwealth Land
-------------
Title Insurance Company or other title insurance underwriter selected by
Patriot.
"UCC Reports" shall mean the reports defined as such in Section 2.4(c)
----------- --------------
hereof.
"Units" shall mean "Partnership Units" in the Operating Partnership,
-----
as defined and described in the partnership agreement of the Operating
Partnership.
"Utilities" shall mean public sanitary and storm sewers, natural gas,
---------
telephone, public water facilities, electrical facilities and all other utility
facilities and services necessary or appropriate for the operation and occupancy
of the Property as a hotel.
"Warranties and Guaranties" shall mean all warranties and guaranties
-------------------------
relating to the Improvements, the Reservation System or the Tangible Personal
Property or any part
<PAGE>
thereof, if any.
ARTICLE II
-----------
CONTRIBUTION OF PROPERTY; DEPOSIT; ACCOUNTING
---------------------------------------------
FOR CONTRIBUTION VALUE; TITLE
-----------------------------
2.1 Contribution of Property. In consideration of, and subject to, the
------------------------
terms and conditions hereinafter set forth, Greenspoint shall contribute to
Patriot the Property.
2.2 Contribution Procedures. When the conditions to Closing set forth in
-----------------------
Article V have been satisfied, the following shall occur and the transaction
- ---------
contemplated hereby will be treated as a contribution to Patriot for federal
income tax purposes:
(a) Contribution of Property. Greenspoint shall contribute the
------------------------
Property to Patriot pursuant to the terms hereof.
(b) Delivery of Units. In consideration of the contribution of the
-----------------
Property to Patriot, Patriot shall deliver to Greenspoint the number of Units
calculated by dividing $500,000.00 by the average of the closing prices of the
common stock of Patriot American Hospitality, Inc. on the New York Stock
Exchange for each of the five (5) business days immediately preceding the
Closing Date and rounding the resulting number of Units to the nearest integer
(.50 rounded down).
(c) Patriot shall assume the Existing Secured Indebtedness, provided
the principal balance of the Existing Secured Indebtedness shall be refinanced
by Patriot as hereinafter provided.
(d) The Deposit shall be refunded to Patriot on the Closing Date if
not sooner returned pursuant to the terms of this Agreement.
2.3 Deposit. Within three (3) days after the execution hereof by both
-------
Greenspoint and Patriot and as a condition precedent to the effectiveness of
this Agreement, Patriot shall deliver to Escrow Agent (i) a wire transfer or
check in the sum of Fifty Dollars ($50.00) payable to the order of Greenspoint
representing the independent consideration for Greenspoint's execution of this
Agreement (which check or the proceeds of which wire transfer shall thereafter
be delivered by Escrow Agent to Greenspoint) and (ii) a demand note in the
amount of $343,749.97 executed by the Operating Partnership, payable to the
order of Greenspoint (the "Deposit"). Escrow Agent shall hold the Deposit
-------
pursuant to the terms, conditions and provisions of this Agreement. The Deposit
shall be either (a) returned to Patriot pursuant hereto, or (b) paid to
Greenspoint pursuant to Section 10.5 hereto.
------------
<PAGE>
2.4 Submission Matters and Title Information.
----------------------------------------
(a) Greenspoint has delivered the following to Patriot:
(1) Copies of the Space Leases and all Occupancy Agreements in
effect as of the date of this Agreement.
(2) To the extent in Greenspoint's possession or reasonably
available to Greenspoint, copies of all Authorizations including, without
limitation, all certificates of occupancy, permits, authorizations,
approvals and licenses issued by Governmental Authorities having
jurisdiction over the Property and copies of all certificates issued by the
local board of fire underwriters (or other body exercising similar
functions) relating to the Property. For the purpose of this Agreement any
Submission Matters in the possession of Greenspoint's management company
shall be deemed to be "reasonably available to Greenspoint."
(3) A complete list of advance reservations and room bookings for
the Property.
(4) Complete copies of all such Operating Agreements.
(5) A schedule setting forth the type and amounts of insurance
coverage maintained by Greenspoint with respect to the Property as of the
date of this Agreement and complete copies of all such Insurance Policies.
(6) To the extent in Greenspoint's possession or reasonably
available to Greenspoint, financial and operating statements for the
Property for the previous three (3) calendar years and the year to date.
(7) The operating and capital expenditure budget for the Property
for the current calendar year and, to the extent in Greenspoint's
possession or reasonably available to Greenspoint, for the previous three
(3) calendar years.
(8) A complete list of all Leased Property and complete copies of
all Personal Property Leases.
(9) To the extent in Greenspoint's possession or reasonably
available to Greenspoint, copies of invoices for all ad valorem taxes and
special assessments assessed against the Property for the current calendar
year and prior three calendar years, either statements for Utilities
payable for the current calendar year and any prior years (if available at
the Hotel or in the Dallas, Texas office of Greenspoint's current manager
of the Hotel) or such other information which Greenspoint may have in its
or Greenspoint's current manager's possession itemizing the payment of
utilities for the Hotel, and any information in Greenspoint's possession or
reasonably available to Greenspoint regarding current renditions or
assessments on the Property or notices
<PAGE>
relative to change in valuation for ad valorem taxes.
(10) To the extent in Greenspoint's possession or reasonably
available to Greenspoint, a complete list of all Warranties and Guaranties
in effect as of the date of this Agreement and complete copies of all such
Warranties and Guaranties.
(11) Copies of all soil tests, structural engineering tests,
masonry tests, percolation tests, water, oil, gas, mineral, radon,
formaldehyde, PCB or other environmental tests, audits or reports, market
studies and site plans related to the Property in Greenspoint's possession
or reasonably available to Greenspoint.
(12) If in Greenspoint's possession or reasonably available to
Greenspoint, Greenspoint will make available to Patriot at the Property or
at the office's of Greenspoint's current manager in Dallas, Texas, copies
of complete sets of all architectural, mechanical, structural and/or
electrical plans and specifications used in connection with the
construction of or alterations or repairs to the Property.
(13) If in Greenspoint's possession or reasonably available to
Greenspoint, Greenspoint will make available to Patriot at the Property or
at the office's of Greenspoint's current manager in Dallas, Texas, copies
of as-built plans and specifications for the Property.
(14) Parking, structural, mechanical or other engineering reports
or engineering studies related to the Property, if any, in Greenspoint's
possession or reasonably available to Greenspoint.
(15) If in Greenspoint's possession or reasonably available to
Greenspoint, copies of any title insurance policies covering the Real
Property and any surveys of all or any portion of the Property.
Until the Closing, Greenspoint shall make available to Patriot, its agents,
auditors, engineers, attorneys, potential lessees and other designees, for
inspection and/or copying, copies of all existing architectural and engineering
studies, surveys, title insurance policies, zoning and site plan materials,
correspondence, environmental audits and reviews, books, records, tax returns,
bank statements, financial statements, advance reservations and room bookings
and function bookings, rate schedules and any and all other materials or
information relating to the Property which are in, or come into, Greenspoint's
possession or control or are otherwise reasonably available to Greenspoint.
(b) Patriot shall give Greenspoint reasonable oral or written notice
of all proposed inspections to be undertaken on the Property. Greenspoint's
prior oral or written consent shall be required (but shall not be unreasonably
withheld or delayed) only as to Patriot's undertaking of invasive testing at the
Property, and such testing and inspections shall be coordinated with the general
manager of the Hotel. Any such inspection or activity shall (i) not
unreasonably interfere with the operation of the Property and (ii) shall be
conducted at
<PAGE>
such times and in such manner as to not unreasonably disturb the guests of the
Hotel. Greenspoint shall have the right to designate a representative to
accompany Patriot's employees, agents, and independent contractors on any such
inspections. Patriot shall indemnify and defend Greenspoint against any loss,
damage or claim for personal injury or property damage arising from the
negligent or willful acts upon the Real Property by Patriot or any agents,
contractors or employees of Patriot. Patriot, at its own expense, shall restore
any damage to the Property caused by any of the tests or studies made by
Patriot. This provision shall survive any termination of this Agreement and a
closing of the transaction contemplated hereby.
(c) Greenspoint has delivered to Patriot, at Greenspoint's sole cost
and expense, two copies to Patriot's attorneys, Akin, Gump, Strauss, Hauer &
Feld, L.L.P., a Survey of the Land and the Improvements, prepared by a Surveyor
licensed to practice as such in the State where the Land is located and
reasonably acceptable to Patriot, bearing a date not earlier than thirty (30)
days from the date of its delivery, containing the certificate attached hereto
as Exhibit B, and substantially conforming to the requirements set forth in such
---------
certificate. Greenspoint has caused the Title Company to furnish to Patriot, at
Greenspoint's sole cost and expense, (i) a title insurance commitment bearing an
effective date subsequent to the date of this Agreement issued by the Title
Company covering the Real Property, binding the Title Company to issue its
Owner's Policy of Title Insurance, in form approved for use in the state where
the Property is located in favor of Patriot, showing title to be held currently
by Greenspoint in a good, indefeasible and insurable condition, together with
legible copies of all documents identified in such title insurance commitment as
exceptions to title certified as true and complete by the Title Company
(collectively, the "Title Commitment"), and (ii) reports of searches of the
----------------
Uniform Commercial Code records of both the county and State in which the
Property is located (collectively, the "UCC Reports") with respect to the state
-----------
of title to the Property. Patriot has notified Greenspoint of any matters shown
on the Survey or identified in the Title Commitment or the UCC Reports that
Patriot is unwilling to accept (collectively, "Patriot's Objections"). If any
--------------------
of Patriot's Objections consist of delinquent taxes, mortgages, deeds of trust,
security agreements, construction or mechanics' liens, tax liens or other liens
or charges in a fixed sum or capable of computation as a fixed sum, then, to
that extent, notwithstanding anything herein to the contrary, Greenspoint shall
be obligated to pay and discharge (or bond against in a manner sufficient to
cause the Title Company to insure over such Patriot's Objections) at or prior to
Closing all of such Patriot's Objections. Greenspoint shall not, after the date
of this Agreement, subject the Real Property to or permit or suffer to exist any
liens, encumbrances, covenants, conditions, restrictions, easements or other
title matters or seek any zoning changes or take any other action which may
affect or modify the status of title without Patriot's prior written consent
unless same are discharged at or prior to Closing. All title matters revealed
by the Title Commitment, UCC Reports and Survey and not objected to by Patriot
as provided above (other than those rendering title defeasible and delinquent
taxes, mortgages, deeds of trust, security agreements and other liens and
charges that are to be paid at Closing as provided above) shall be deemed
Permitted Title Exceptions. Notwithstanding the foregoing, Patriot shall not be
required to take title to the Real Property subject to any matters which may
arise subsequent to the effective date of the Title Commitment, UCC Reports and
Survey examined by Patriot prior to the date hereof. Patriot
<PAGE>
and Greenspoint agree that the Existing Secured Indebtedness is a Permitted
Title Exception.
(d) In connection with the issuance of Units to Greenspoint,
Greenspoint shall deliver to Patriot at Greenspoint's sole cost and expense, the
following information, prepared as of the Effective Date:
(1) depreciation and amortization schedules for the assets
constituting the Property, as kept for both book and tax purposes, showing
original basis and accumulated depreciation or amortization;
(2) basis information (computed for both book and tax purposes,
if different) for all non-depreciable, non-amortizable assets that are
components of the Property;
(3) the adjusted basis of Greenspoint's partners in assets
contributed to Greenspoint;
(4) calculations of the estimated amounts of gain to be realized
and recognized by Greenspoint's partners as a result of the transactions
involving the Property in accordance with this Agreement showing the method
by which such amounts are calculated;
(5) breakouts of basis information for any other balance sheet
accounts of Greenspoint for which information has not been provided
pursuant to the other clauses of this subsection;
(6) the names and number of Greenspoint's partners; and
(7) for each of Greenspoint's partners that is a partnership (or
other entity treated as a partnership for federal income tax purposes), S
corporation or grantor trust (any such entity, a "look-through entity"),
and for each look-through entity that holds an indirect interest in
Greenspoint through other look-through entities, the names and number of
such entity's partners, shareholders or grantors.
2.5 Conditional Additional Contribution Value. The Contribution Value
-----------------------------------------
shall be increased by One Million Dollars ($1,000,000.00) (the "Conditional
-----------
Additional Contribution Value") if, but only if the Net Rent (defined below) for
- -----------------------------
the Property equals or exceeds 11% of Invested Capital (defined below) for
calendar year 1996 on an annualized basis and 12% of Invested Capital for
calendar year 1997. "Net Rent" means total rent paid under the Lease (without
subsidy through reduction of management fees or other contributions by Lessee or
its affiliates) less any amounts payable by the Lessor for taxes, insurance, and
capital reserves, which reserves will equal 4% of Gross Revenues (as such term
shall be defined in the Lease). "Invested Capital" means (i) $45,000,000.00,
plus (ii) the aggregate of all costs and expenses paid or accrued by Patriot,
Lessor and their affiliates in connection with the acquisition and financing of
the Property and leasing of the Hotel, including, without limitation, all legal,
<PAGE>
accounting, engineering, environmental, consulting, commission, title, escrow,
loan, and other fees, costs, and expenses incurred in connection with the
acquisition and financing of the Property and leasing of the Hotel (not to
exceed for this calculation the amount of $250,000), plus (iii) expenditures to
carry out the initial renovation budget for the Property, which, unless
otherwise agreed by Patriot, Patriot American Hospitality, Inc., and
Greenspoint, will not exceed $500,000.00. This Section shall survive the
Closing of the transaction contemplated hereby. In the event the Contribution
Value is increased pursuant to the provisions of this Section 2.4, the Operating
-----------
Partnership shall assume additional nonrecourse indebtedness of Greenspoint to
be designated by Greenspoint in an amount equal to the Conditional Additional
Contribution Value on the later of thirty (30) days after the (i) the final
calculation of Invested Capital or (ii) the final calculation of the Net Rent
for the calendar year 1997. In the event that the Lease is terminated for any
reason, Patriot (its successors or assigns) shall not have any obligation to pay
the Conditional Additional Contribution Value to Greenspoint.
ARTICLE III
------------
GREENSPOINT'S REPRESENTATIONS AND WARRANTIES
--------------------------------------------
To induce Patriot to enter into this Agreement and to acquire the Property
in the manner provided herein, Greenspoint hereby makes the following
representations and warranties with respect to the Property, upon each of which
Greenspoint acknowledges and agrees that Patriot and its permitted assignees are
entitled to rely and have relied:
3.1 Organization and Power. Greenspoint is a limited partnership duly
----------------------
formed, validly existing and in good standing under the laws of the State of
Texas and is qualified to transact business in the State of Texas and has all
requisite powers and all governmental licenses, authorizations, consents and
approvals to carry on its business as now conducted and to enter into and
perform its obligations hereunder and under any document or instrument required
to be executed and delivered on behalf of Greenspoint hereunder.
3.2 Authorization and Execution. This Agreement has been duly authorized
---------------------------
by all necessary action on the part of Greenspoint, has been duly executed and
delivered by Greenspoint, constitutes the valid and binding agreement of
Greenspoint and is enforceable in accordance with its terms. There is no other
person or entity who has an ownership interest in the Property or whose consent
is required in connection with Greenspoint's performance of its obligations
hereunder. The person executing this Agreement on behalf of Greenspoint has the
authority to do so.
3.3 Non-contravention. The execution and delivery of, and the performance
-----------------
by Greenspoint of its obligations under, this Agreement do not and will not
contravene, or constitute a default under any of Greenspoint's Organizational
Documents, any judgment, injunction, order or decree binding upon Greenspoint or
to which the Property is subject, or, to Greenspoint's knowledge, do not and
will not contravene, or constitute a default under, any provision of applicable
law or regulation, any agreement, or other instrument binding upon
<PAGE>
Greenspoint or to which the Property is subject, or result in the creation of
any lien or other encumbrance on any asset of Greenspoint. There are no
outstanding agreements (written or oral) pursuant to which Greenspoint (or any
predecessor to or representative of Greenspoint) has agreed to sell or has
granted an option or right of first refusal to purchase the Property or any part
thereof except for those that will be waived or released at or prior to Closing.
3.4 Title To Real Property. Greenspoint is the sole owner of fee simple
----------------------
absolute title to the Real Property.
3.5 No Special Taxes. Greenspoint has no knowledge of, nor has it
----------------
received any written notice of, any special taxes or assessments relating to the
Property or any part thereof or any planned public improvements that may result
in a special tax or assessment against the Property.
3.6 Compliance with Existing Laws. To Greenspoint's knowledge,
-----------------------------
Greenspoint possesses all Authorizations, each of which is valid and in full
force and effect, and no provision, condition or limitation of any of the
Authorizations has been breached or violated. Greenspoint has no knowledge of
any termination, suspension, modification or limitation affecting any of the
Authorizations. Greenspoint has no knowledge, nor has it received written
notice within the past two (2) years, of any existing or threatened violation of
any provision of any Applicable Laws including, but not limited to, those of
environmental agencies or insurance boards of underwriters with respect to the
ownership, operation, use, maintenance or condition of the Property or any part
thereof, or requiring any repairs or alterations to the Property other than
those that have been made prior to the date hereof, which existing or threatened
violation could have a materially adverse effect on the value, use, insurability
or operation of the Property.
3.7 Personal Property. All of the Personal Property, excluding the Leased
-----------------
Property, being conveyed by Greenspoint hereunder are free and clear of all
liens and encumbrances except for those which will be discharged by Greenspoint
at Closing, and Greenspoint has good and merchantable title thereto and the
right to convey same in accordance with the terms of this Agreement.
3.8 Operating Agreements. To Greenspoint's knowledge, there are no
--------------------
management, service, supply or maintenance contracts in effect with respect to
the Property other than the Operating Agreements. To Greenspoint's knowledge,
Greenspoint has performed in all material respects all of its obligations under
each of the Operating Agreements and there are no defaults under any of the
Operating Agreements. To Greenspoint's knowledge, all other parties to the
Operating Agreements have performed all of their obligations thereunder in all
material respects, and are not in default thereunder in any material respect.
To Greenspoint's knowledge, Greenspoint has received no notice of any intention
by any of the parties to any of the Operating Agreements to cancel the same, nor
has Greenspoint canceled any of same.
3.9 Insurance. To Greenspoint's knowledge, all of Greenspoint's Insurance
---------
Policies
<PAGE>
are valid and in full force and effect and Greenspoint has complied with all
requirements or recommendations of the insurance carriers of the Insurance
Policies.
3.10 Condemnation Proceedings; Roadways. Greenspoint has received no
----------------------------------
written notice of any condemnation or eminent domain proceeding pending or
threatened against the Property or any part thereof. Greenspoint has no
knowledge of any change in the route or width of any street or road adjacent to
or serving the Real Property, and Greenspoint has received no written notice of
any proposed change in the route, grade or width of, or otherwise affecting, any
street or road adjacent to or serving the Real Property.
3.11 Actions or Proceedings. There is no action, suit or proceeding
----------------------
pending or to Greenspoint's knowledge threatened against or affecting
Greenspoint in any court, before any arbitrator or before or by any Governmental
Authority which (a) in any manner raises any question affecting the validity or
enforceability of this Agreement, (b) could materially and adversely affect the
business, financial position or results of operations of Greenspoint or the
Property, (c) could materially and adversely affect the ability of Greenspoint
to perform its obligations hereunder, (d) could create a lien on the Property,
any part thereof or any interest therein, (e) concerns any past or present
employee of Greenspoint or (f) could otherwise adversely affect the Property,
any part thereof or any interest therein or the use, operation, condition or
occupancy thereof.
3.12 Labor and Employment Matters. To Greenspoint's knowledge, neither
----------------------------
Greenspoint nor its management company is a party to any oral or written
employment contracts or agreements with respect to the Property. To
Greenspoint's knowledge, there are no labor disputes or organizing activities
pending or threatened as to the operation or maintenance of the Property or any
part thereof. Neither Greenspoint nor its management company is a party to any
union or other collective bargaining agreement with employees employed in
connection with the ownership, operation or maintenance of the Property. Patriot
shall not have any liability under any pension, profit sharing or welfare
benefit plan that Greenspoint, Greenspoint's management company or any
Affiliated Company may have established with respect to the Property or their or
its employees.
3.13 Financial Information and Submission Matters. To Greenspoint's
--------------------------------------------
knowledge, all of Greenspoint's financial information, including, without
limitation, all books and records and financial statements ("Financial
---------
Information") is correct and complete in all material respects and presents
- -----------
accurately the results of the operations of the Property for the periods
indicated. Since the date of the last financial statement included in
Greenspoint's Financial Information, there has been no material adverse change
in the financial condition or in the operations of the Property.
3.14 Submission Matters. To Greenspoint's knowledge, all Submission
------------------
Matters delivered by Greenspoint to Patriot pursuant to this Agreement are true,
correct and complete in all material respects.
3.15 Bankruptcy. No Act of Bankruptcy has occurred with respect to
----------
Greenspoint.
<PAGE>
3.16 Hazardous Substances. To Greenspoint's knowledge, Greenspoint
--------------------
has not, nor has Greenspoint received any written notice that any previous
owner, tenant, occupant or user of the Property has, engaged in or permitted any
operations or activities upon, or any use or occupancy of the Property or any
portion thereof, for the purpose of or in any way involving the handling,
manufacture, treatment, storage, use, generation, release, discharge, refining,
dumping or disposal of any Hazardous Materials on, under, in or about the
Property in violation of any Applicable Laws. Greenspoint has not received any
written notice that any Hazardous Materials have migrated from or to the
Property upon, about, or beneath other properties in violation of any
Environmental Requirements. To Greenspoint's knowledge, neither the Property
nor its existing or prior uses fail or failed to materially comply with
Environmental Requirements. Greenspoint has no knowledge of any permits,
licenses or other authorizations which are required under any Environmental
Requirements with regard to the current uses of the Property which have not been
obtained and complied with. To Greenspoint's knowledge, neither Greenspoint nor
any prior owner, occupant or user of the Property has received any written
notice concerning any alleged violation of Environmental Requirements in
connection with the Property or any liability for Environmental Damages in
connection with the Property for which Greenspoint (or Patriot after Closing)
may be liable. To Greenspoint's knowledge, no Hazardous Materials are
constructed, deposited, stored or otherwise located on, under, in or about the
Property in violation of any Environmental Requirements. To Greenspoint's
knowledge, there exists no writ, injunction, decree, order or judgment
outstanding, nor any lawsuit, claim, proceeding, citation, summons or
investigation, pending or threatened, relating to any alleged violation of
Environmental Requirements on the Property, or relating to any Environmental
Damages. To Greenspoint's knowledge, no underground or above ground chemical
treatment or storage tanks, or gas or oil wells are located on the Property.
3.17 Intentionally Deleted.
---------------------
3.18 Occupancy Agreements. There are no leases, concessions or occupancy
--------------------
agreements in effect with respect to the Real Property other than the Occupancy
Agreements. Except as specifically provided in the Occupancy Agreements, no
tenant or concessionaire is entitled to any rebates, allowances, free rent or
rent abatement for any period after the Closing of the transaction contemplated
hereby. To Greenspoint's knowledge, Greenspoint has received no notice of any
intention by any of the parties to any of the Occupancy Agreements to cancel the
same, nor has Greenspoint canceled any of same. To Greenspoint's knowledge, no
brokerage commissions or compensation of any kind shall be due in connection
with the Occupancy Agreements, and the rents or revenues to be derived
therefrom.
3.19 Leased Property. To Greenspoint's knowledge, all Personal Property
---------------
Leases are in good standing and free from default.
3.20 Americans With Disabilities Act. To Greenspoint's knowledge,
-------------------------------
Greenspoint has received no written notice that the Property is not in
compliance with the Americans With Disabilities Act.
<PAGE>
3.21 Structural Condition. Except as disclosed in writing by Greenspoint
--------------------
to Patriot and as contained in any engineering reports concerning
the Property delivered to Patriot, to Greenspoint's knowledge, there is no
latent material defect in the Improvements or structural elements thereof,
mechanical systems (including, without limitation, all heating, ventilating, air
conditioning, plumbing, electrical, utility and sprinkler systems) therein, the
utility system servicing the Property and the roofs.
3.22 Zoning and Platting. Greenspoint has no knowledge of any proceeding
-------------------
and has received no written notice of any threatened action or proceeding which
could result in a modification or termination of the present zoning of the
Property. To Greenspoint's knowledge, the Property is properly platted as a
separate lot under Applicable Laws and constitutes a separate tax lot.
3.23 Access. Greenspoint has no knowledge of any pending and has received
------
no written notice of any threatened governmental proceeding which would limit or
result in the termination of the Property's existing access to and from public
streets or roads.
3.24 No Commitments. To Greenspoint's knowledge, no commitments have
--------------
been made to any Governmental Authority, utility company, school board, church
or other religious body, or any homeowners' association or any other
organization, group or individual, relating to the Property which would impose
an obligation upon Patriot to make any contribution or dedication of money or
land or to construct, install or maintain any improvements of a public or
private nature on or off the Property.
3.25 Greenspoint Is Not a "Foreign Person". Greenspoint is not a
-------------------------------------
"foreign person" within the meaning of Section 1445 of the Internal Revenue
Code, as amended (i.e., Greenspoint is not a foreign corporation, foreign
partnership, foreign trust, foreign estate or foreign person as those terms are
defined in the Internal Revenue Code and regulations promulgated thereunder).
3.26 No Other Property Interests. To Greenspoint's knowledge, there
---------------------------
are no property interests, buildings, structures or other improvements or
personal property that are owned by Greenspoint which are necessary for the
operation of the Hotel that are not being conveyed pursuant to this Agreement.
3.27 Investment Representations and Warranties. In the event all or a
-----------------------------------------
portion of the Contribution Value is to be received through the issuance of
Units, Greenspoint represents, warrants and covenants as follows:
(a) Greenspoint understands the risks of, and other considerations
relating to accepting Units in connection with its contribution of the Property
to Patriot. Greenspoint is an "accredited investor" as defined in the
Securities Act of 1933, as amended (the "Securities Act"), and by reason of its
--------------
business and financial experience, together with the business and financial
experience of those persons, if any, retained by it to represent or advise it
with respect to the transaction contemplated by this Agreement, (i) has such
knowledge,
<PAGE>
sophistication and experience in financial and business matters and in making
investment decisions of this type, and it is capable of evaluating the merits
and risks of an investment in the Operating Partnership and of making an
informed investment decision, (ii) is capable of protecting its own interest or
has engaged representatives or advisors to assist it in protecting its interest,
and (iii) is capable of bearing the economic risk of such investment.
Greenspoint agrees that Greenspoint and any direct or indirect owner of
Greenspoint which will receive Units shall complete, execute and deliver to
Patriot on or before the Closing Date (i) the Prospective Subscriber
Questionnaire attached hereto as Exhibit D, and (ii) the letter agreement
---------
attached hereto as Exhibit E.
---------
(b) Greenspoint understands that an investment in the Operating
Partnership involves substantial risks. Greenspoint has been given the
opportunity to make a thorough investigation of the proposed activities of the
Operating Partnership. Greenspoint has been afforded the opportunity to obtain
any information deemed necessary by Greenspoint. Greenspoint confirms that all
documents, records, and books pertaining to its investment in the Operating
Partnership and requested by Greenspoint have been made available or delivered
to Greenspoint. Greenspoint has had an opportunity to ask questions of and
receive answers from the Operating Partnership, or from a person or persons
acting on the Operating Partnership's behalf, concerning the terms and
conditions of the transaction contemplated by this Agreement and its acquisition
of Units. Greenspoint has relied upon, and is making its investment decisions,
solely upon such information as has been provided to Greenspoint in writing by
the Operating Partnership.
(c) The Units to be issued to Greenspoint by the Operating Partnership
will be acquired by Greenspoint for its own account for investment only and not
with a view to, or with any intention of, a distribution or resale thereof, in
whole or in part, or the grant of any participation therein, without prejudice,
however, to Greenspoint's right (subject to the terms of the partnership
agreement of the Operating Partnership) at all times to sell or otherwise
dispose of all or any part of its Units under an exemption from such
registration available under the Securities Act and applicable state securities
laws, and subject, nevertheless, to the disposition of its assets being at all
times within its control. Greenspoint was not formed for the specific purpose
of acquiring an interest in the Operating Partnership.
(d) Greenspoint acknowledges that (i) the Units to be issued to
Greenspoint have not been registered under the Securities Act or state
securities laws by reason of a specific exemption or exemptions from
registration under the Securities Act and applicable state securities laws and,
if such Units are represented by certificates, such certificates will bear a
legend to such effect; (ii) the Operating Partnership's and Patriot's reliance
on such exemptions is predicated in part on the accuracy and completeness of the
representations, warranties and covenants of Greenspoint contained herein; (iii)
such Units, therefore, cannot be resold unless registered under the Securities
Act and applicable state securities laws, or unless an exemption from
registration is available; (iv) there is no public market for such Units; (v)
Units issued to Greenspoint are not transferable without the prior written
consent of PAH GP, Inc. which consent shall not be withheld if PAH GP, Inc.
determines that the transfer of same is a valid private placement under
applicable Federal and State securities
<PAGE>
laws; and (vi) the Operating Partnership has no obligation or intention to
register such Units for resale under the Securities Act or any state securities
laws or to take any action that would make available any exemption from the
registration requirements of such laws. Greenspoint hereby acknowledges that
because of the restrictions on transfer or assignment of such Units to be issued
hereunder set forth in the partnership agreement of the Operating Partnership
and/or in a stock restriction agreement, Greenspoint may have to bear the
economic risk of the investment commitment evidenced by this Agreement and any
Units acquired hereby for an indefinite period of time, and that, under the
terms of the partnership agreement of the Operating Partnership, as it will be
in effect on the Closing Date, Units will not be redeemable at the request of
the holder thereof for cash or (at the option of Patriot American Hospitality,
Inc.) for common stock in Patriot American Hospitality, Inc. prior to the second
anniversary of their issuance.
(e) The address set forth for Greenspoint in Section 11.9 below is the
------------
address of Greenspoint's principal place of business or residence, as
applicable, and Greenspoint has no present intention of becoming a resident of
any country, state or jurisdiction other than the country and state in which
principle place of business or residence, as applicable, is sited.
3.28 Existing Secured Indebtedness. The only debt secured by liens on
-----------------------------
the Property, or any portion thereof, is the Existing Secured Indebtedness. The
Existing Secured Indebtedness is fully prepayable in whole or in part at any
time.
3.29 Space Leases. To Greenspoint's knowledge, Greenspoint has performed
------------
in all material respects all of its obligations under the Space Leases
and there are no defaults under the Space Leases. To Greenspoint's knowledge,
all other parties (whether one or more) to the Space Leases have performed all
of their respective obligations thereunder in all material respects, and are not
in default thereunder in any material respect. To Greenspoint's knowledge,
Greenspoint has received no written notice of any intention by any of the
parties to the Space Leases to cancel the same, nor has Greenspoint canceled the
same.
3.30 Relationship to Certain Parties. To the best knowledge of the
-------------------------------
general partner of Greenspoint, Greenspoint does not have a direct or indirect
relationship to the Central States, Southeast and Southwest Areas Pension Fund
within the meaning of Section 514(c)(9)(B)(iv) of the Internal Revenue Code of
1986, as amended. To the best knowledge of the general partner of Greenspoint,
the list of partners in Greenspoint delivered by Greenspoint to Patriot is true,
correct and complete.
3.31 LIMITATIONS ON REPRESENTATIONS AND WARRANTIES. PATRIOT HEREBY
---------------------------------------------
AGREES AND ACKNOWLEDGES THAT, EXCEPT AS SET FORTH IN THIS ARTICLE 3, OR AS
OTHERWISE EXPRESSLY STATED HEREIN OR IN THE DEED OR IN ANY DOCUMENTS EXECUTED IN
CONNECTION HEREWITH, NEITHER GREENSPOINT NOR ANY AGENT, ATTORNEY, EMPLOYEE OR
REPRESENTATIVE OF GREENSPOINT HAS MADE ANY REPRESENTATION WHATSOEVER REGARDING
THE SUBJECT MATTER OF THIS SALE, OR ANY PART THEREOF,
<PAGE>
INCLUDING (WITHOUT LIMITING THE GENERALITY OF THE FOREGOING) REPRESENTATIONS AS
TO THE PHYSICAL NATURE OR CONDITION OF THE PROPERTY OR THE CAPABILITIES THEREOF,
AND THAT PATRIOT, IN EXECUTING, DELIVERING AND/OR PERFORMING THIS AGREEMENT,
DOES NOT RELY UPON ANY STATEMENT AND/OR INFORMATION TO WHOMEVER MADE OR GIVEN,
DIRECTLY OR INDIRECTLY, ORALLY OR IN WRITING, BY ANY INDIVIDUAL, FIRM OR
CORPORATION EXCEPT THOSE EXPRESSLY CONTAINED HEREIN OR DELIVERED PURSUANT
THERETO OR IN ANY DOCUMENTS EXECUTED IN CONNECTION HEREWITH. EXCEPT AS
OTHERWISE PROVIDED HEREIN, PATRIOT AGREES TO TAKE THE REAL PROPERTY AND THE
PERSONAL PROPERTY "AS IS," AS OF THE DATE HEREOF, REASONABLE WEAR AND TEAR
EXCEPTED. IN ADDITION, EXCEPT AS SET FORTH HEREIN, GREENSPOINT MAKES NO
REPRESENTATION OR WARRANTIES REGARDING THE COMPLIANCE WITH ANY ENVIRONMENTAL
REQUIREMENTS, INCLUDING THE EXISTENCE IN OR ON THE PROPERTY OF HAZARDOUS
MATERIALS. THE PROVISIONS OF THIS PARAGRAPH SHALL SURVIVE THE CLOSING OR ANY
TERMINATION HEREOF.
Each of the representations and warranties contained in this Article III and its
-----------
various subparagraphs are intended for the benefit of Patriot and may be waived
in whole or in part, by Patriot, but only by an instrument in writing signed by
Patriot. All rights and remedies arising in connection with the untruth or
inaccuracy of any such representations and warranties shall survive the Closing
of the transaction contemplated hereby for the period specified below except to
the extent that Greenspoint gives Patriot written notice prior to Closing of the
untruth or inaccuracy of any representation or warranty, or Patriot otherwise
obtains actual knowledge prior to Closing of the untruth or inaccuracy of any
representation or warranty, and Patriot nevertheless elects to close this
transaction. Any such written notice from Greenspoint to Patriot shall state in
the first paragraph thereof and in all capitalized letters that "THIS NOTICE IS
GIVEN PURSUANT TO THE CONTRIBUTION AGREEMENT MADE AS OF JULY 11, 1996 AND
RELATES TO THE UNTRUTH OR INACCURACY OF GREENSPOINT'S REPRESENTATIONS OR
WARRANTIES." Patriot shall be deemed to have actual knowledge of the untruth or
inaccuracy of any representation or warranty only if (i) Patriot receives
written notice from Greenspoint satisfying the foregoing requirements, or (ii)
Paul A. Nussbaum, Thomas W. Lattin, Rex E. Stewart or Leslie Ng has actual
knowledge of any such untruth or inaccuracy. Except to the extent otherwise
expressly provided in the immediately preceding sentence and as provided above,
no investigation, audit, inspection, review or the like conducted by or on
behalf of Patriot shall be deemed to terminate the effect of any such
representations, warranties and covenants, it being understood that Patriot has
the right to rely thereon and that each such representation and warranty
constitutes a material inducement to Patriot to execute this Agreement and to
close the transaction contemplated hereby and to pay the Contribution Value to
Greenspoint.
Whenever the term "to Greenspoint's knowledge" or "known to Greenspoint" is used
in this Agreement or in any representations and warranties given to Patriot at
Closing, such knowledge shall be the actual knowledge of Frank Tongol and Tom
Schmidt, the general manager of the Hotel (the "Key Personnel") after inquiry of
-------------
the Hotel's controller, director of
<PAGE>
food and beverage service and director of sales. Greenspoint shall have no duty
to conduct any further inquiry in making any such representations and
warranties, and no knowledge of any other person shall be imputed to the Key
Personnel. In connection with the representations made in Section 3.16, the
------------
term "to Greenspoint's knowledge" or "known to Greenspoint" shall be deemed to
include, with respect to representations and warranties relating to whether the
Property complies with Environmental Requirements, only those facts that an
experienced, prudent operator and/or manager of real estate properties could
reasonably be expected to know have environmental significance and not such
facts that would be known only to an environmental professional to have
environmental significance.
ARTICLE IV
-----------
PATRIOT'S REPRESENTATIONS AND WARRANTIES
----------------------------------------
To induce Greenspoint to enter into this Agreement and to contribute the
Property to Patriot, Patriot hereby makes the following representations and
warranties, upon each of which Patriot acknowledges and agrees that Greenspoint
is entitled to rely and has relied:
4.1 Organization and Power. Patriot is duly organized, validly existing
----------------------
and in good standing under the laws of the State of Virginia and has all
corporate and/or partnership powers and all governmental licenses,
authorizations, consents and approvals required to carry on its business as now
conducted and to enter into and perform its obligations under this Agreement and
any document or instrument required to be executed and delivered on behalf of
Patriot hereunder.
4.2 Authority of Patriot. This Agreement has been duly authorized by all
--------------------
necessary action on the part of Patriot, has been duly executed and delivered by
Patriot, constitutes the valid and binding agreement of Patriot and is
enforceable in accordance with its terms. The person executing this Agreement
on behalf of Patriot has the authority to do so.
4.3 Non-contravention. The execution and delivery of this Agreement and
-----------------
the performance by Patriot of its obligations hereunder do not and will not
contravene, or constitute a default under, any provisions of applicable law or
regulation, or any agreement, judgment, injunction, order, decree or other
instrument binding upon Patriot or result in the creation of any lien or other
encumbrance on any asset of Patriot.
4.4 Litigation. There is no action, suit or proceeding, pending or to
----------
Patriot's knowledge threatened, against or affecting Patriot in any court or
before any arbitrator or before any Governmental Authority which (a) in any
manner raises any question affecting the validity or enforceability of this
Agreement, (b) could materially and adversely affect the business, financial
position or results of operations of Patriot, and (c) could materially and
adversely affect the ability of Patriot to perform its obligations hereunder.
4.5 Bankruptcy. No Act of Bankruptcy has occurred with respect to
----------
Patriot.
<PAGE>
Wherever the term "to Patriot's knowledge" or "known to Patriot" is used in this
Agreement or in any representations and warranties given to Greenspoint at
Closing, such knowledge shall be the actual knowledge of Paul A. Nussbaum,
Thomas W. Lattin, Rex E. Stewart or Leslie Ng only, without any further inquiry.
ARTICLE V
----------
CONDITIONS PRECEDENT
--------------------
5.1 As to Patriot's Obligations. Patriot's obligations hereunder are
---------------------------
subject to the satisfaction of the following conditions precedent:
(a) Greenspoint's Deliveries. Greenspoint shall have delivered to or
------------------------
for the benefit of Patriot, on or before the Closing Date, all of the documents
and other information required of Greenspoint pursuant to Sections 8.2 and 8.4
--------------------
hereof.
(b) Representations, Warranties and Covenants; Obligations of
---------------------------------------------------------
Greenspoint. All of Greenspoint's representations and warranties made in this
- -----------
Agreement shall be true and correct in all material respects as of the date
hereof and as of the date of Closing as if then made; Greenspoint shall have
performed in all material respects all of its covenants and other obligations
under this Agreement; and none of the following events (or events of similar
magnitude) have occurred which could in Patriot's reasonable judgment,
materially and adversely affect the Property:
(i) a structural failure causing significant human fatalities such as
the structural failure that occurred at the Hyatt Hotel in Kansas City,
Missouri;
(ii) significant human fatalities caused by disease which is
specifically identified with the Property such as the occurrence of
Legionnaires disease associated with the Bellevue Stratford Hotel in
Philadelphia, Pennsylvania; and
(iii) significant human fatalities caused by the failure of
life/safety systems such as the fire which occurred at the MGM Grand Hotel
in Las Vegas, Nevada.
(c) Title Insurance. Receipt by Patriot of an Owner Policy of Title
---------------
Insurance issued by the Title Company subject only to Permitted Title Exceptions
as determined in accordance with Section 2.4 hereof and including, without
-----------
limitation, all applicable deletions of standard exceptions and endorsements
permitted under applicable state law which are customarily required by
institutional investors purchasing property comparable to the Property.
(d) Title to Property. Greenspoint shall be the sole owner of good
-----------------
and indefeasible fee simple title to the Real Property and good and marketable
fee simple title to the Tangible Personal Property, free and clear of all liens,
encumbrances, restrictions, conditions and agreements except for Permitted Title
Exceptions and those to be released at
<PAGE>
Closing.
(e) Condition of Improvements. The Improvements and the Tangible
-------------------------
Personal Property (including but not limited to the mechanical systems,
plumbing, electrical, wiring, appliances, fixtures, heating, air conditioning
and ventilating equipment, elevators, boilers, equipment, roofs, structural
members and furnaces) shall be in the same condition at Closing as they are as
of the date hereof, reasonable wear and tear excepted. Prior to Closing,
Greenspoint shall not have diminished in any material respect the quality or
quantity of maintenance and upkeep services heretofore provided to the Real
Property and the Tangible Personal Property. Greenspoint shall not have removed
or caused or permitted to be removed any part or portion of the Real Property or
the Tangible Personal Property without Patriot's prior written consent unless
the same is replaced, prior to Closing, with a similar item of at least equal
suitability, quality and value, free and clear of any lien or security interest.
(f) Right to Use Wyndham Name. Patriot shall have received a letter
-------------------------
agreement from Wyndham Management Corporation ("Manager"), Lessee's property
-------
manager for the Property, or from the appropriate affiliate of Manager or Lessee
in the form of Exhibit I attached hereto.
---------
(g) Liquor License. There shall be valid liquor licenses, alcoholic
--------------
beverage licenses and other permits and Authorizations necessary to operate the
restaurant, bars and lounges presently located in the Hotel in place and all
such liquor licenses, alcoholic beverage licenses and other permits and
Authorizations shall be held in the names of the operators of such businesses.
Greenspoint agrees to cause the holders of such licenses to execute such
consents and estoppels as reasonably required by Patriot's lender.
(h) Pay-Off Letter. Greenspoint shall have caused to be delivered to
--------------
Patriot the Pay-Off Letters from each and every holder of any portion of the
Existing Secured Indebtedness (collectively called the "Pay-off Letters")
---------------
containing the unpaid principal and accrued interest on the subject indebtedness
as of the date thereof together with a per diem amount of interest following the
date thereof; and containing an unconditional obligation to release any and all
liens, assignments and security interests encumbering the Property upon payment
of the amount of unpaid principal balance of and accrued interest on the subject
indebtedness described therein together with releases of liens.
Each of the conditions contained in this Section are intended for the benefit of
Patriot and may be waived in whole or in part, by Patriot, but only by an
instrument in writing signed by Patriot.
5.2 As to Greenspoint's Obligations. Greenspoint's obligations hereunder
-------------------------------
are subject to the satisfaction of the following conditions precedent:
(a) Patriot's Deliveries. Patriot shall have delivered to or for the
--------------------
benefit of Greenspoint, on or before the Closing Date, all of the documents and
payments required of Patriot pursuant to Sections 8.3 and 8.4 hereof.
--------------------
<PAGE>
(b) Representations, Warranties and Covenants; Obligations of Patriot.
-----------------------------------------------------------------
All of Patriot's representations and warranties made in this Agreement shall be
true and correct in all material respects as of the date hereof and as of the
date of Closing as if then made and Patriot shall have performed in all material
respects all of its covenants and other obligations under this Agreement.
(c) Required Financing. The documents evidencing, securing, governing
------------------
or otherwise pertaining to the Required Financing described in Section 7.2
-----------
hereof (the "Required Financing Documents") shall have been executed and
----------------------------
delivered by Patriot and the closing of such Required Financing shall occur at
the Closing of the transaction contemplated hereby.
(d) Closing Under Other Agreement. Simultaneously with the Closing of
-----------------------------
the transaction contemplated hereby and subject to Patriot's rights set forth in
other sections of this Agreement, Greenspoint or Greenspoint's affiliates or
related entities shall have sold and conveyed to Patriot, and Patriot and/or its
permitted assigns shall have purchased, the Other Property.
Each of the conditions contained in this Section are intended for the benefit of
Greenspoint and may be waived in whole or in part, by Greenspoint, but only by
an instrument in writing signed by Greenspoint.
5.3 As to Patriot's and Greenspoint's Obligations. Patriot's and
---------------------------------------------
Greenspoint's obligations hereunder are subject to the satisfaction of the
following conditions precedent:
(a) Acquisition of Other Property. Simultaneously with the Closing of
-----------------------------
the transaction contemplated hereby, Greenspoint or Greenspoint's affiliate or
related entity shall have sold and conveyed to Patriot and/or its permitted
assigns, and Patriot and/or its permitted assigns shall have purchased, the
Other Property. Patriot at its option may, and Greenspoint shall be obligated
to, waive this condition at the Closing as to the Other Property if a Permitted
Reason (defined below) exists. The term "Permitted Reason" shall mean: (i)
either (a) the presence at the Other Property of any Hazardous Materials and the
abatement or other remediation of such Hazardous Materials with respect to the
Other Property is required by Environmental Requirements, as evidenced by a
letter from a qualified engineer (with a copy of the report of such engineer)
and Greenspoint or its affiliate or related entity which owns the Other Property
is not willing to remediate or abate the condition caused by Hazardous Materials
on or before the Closing Date, or (b) the affiliate or related entity of
Greenspoint which owns the Other Property is either unable or unwilling to
convey fee simple title to the Other Property to Patriot, or (c) a knowing and
intentional breach in any material respect by Greenspoint or its affiliate or
related entity which owns the Other Property or any of Greenspoint's or its
affiliate's or related entity's covenants in the Other Agreement of Purchase and
Sale which breach Greenspoint or its affiliate or related entity is either
unable or unwilling to cure within the time periods provided for in the relevant
Other Agreement of Purchase and Sale and the breach of such covenant could
materially and adversely affect the operation, value, use, marketability or
insurability of title of the Other Property, or (d) the occurrence of an event
of casualty or a condemnation for which Patriot is entitled to terminate
<PAGE>
the Other Agreement of Purchase and Sale and Patriot does in fact terminate the
Other Agreement of Purchase and Sale.
The conditions contained in this Section are intended for the benefit of both
parties hereto and may be waived in whole or in part only by an instrument in
writing signed by both parties.
ARTICLE VI
-----------
COVENANTS OF GREENSPOINT
------------------------
To induce Patriot to enter into this Agreement and to purchase the
Property, and to pay the Contribution Value therefor, Greenspoint covenants and
agrees to the following:
6.1 Operating Agreements and Occupancy Agreements. Greenspoint shall not
---------------------------------------------
change, modify, extend, renew or terminate any existing, or enter into any, new
Occupancy Agreements, Operating Agreements, management agreement, maintenance or
repair contract, supply contract, lease in which it is lessee or other
agreements with respect to the Property, nor shall Greenspoint enter into any
agreements modifying the Operating Agreements or Occupancy Agreements, unless
(a) any such agreement or modification will not bind Patriot or the Property
after the date of Closing or (b) Greenspoint has obtained Patriot's prior
written consent to such agreement or modification. Greenspoint agrees to cancel
and terminate effective as of the Closing Date Greenspoint's management
agreement and any other Operating Agreements which are terminable without
substantial penalty unless Patriot requests in writing prior to the expiration
of the Study Period that one or more remain in effect after Closing. Greenspoint
shall not apply all or any part of the security or damage deposit of a tenant
under any Occupancy Agreement to obligations of such tenant unless such tenant
has vacated its portion of the Property as of the Closing Date. Patriot and
Greenspoint hereby agree that Patriot's lessee shall assume the Operating
Agreements that are not terminated by Patriot (all such Operating Agreements not
so terminated being herein called "Assumed Operating Agreements"). With respect
----------------------------
to the Assumed Operating Agreements, the Lessee shall be required at Closing to
assume all obligations thereunder accruing from and after the Closing Date.
With respect to any other Operating Agreement which Patriot requests in writing
prior to the Closing Date be terminated (herein called the "Terminated Operating
--------------------
Agreements"), (a) upon Patriot's request, Greenspoint shall give notice of
- ----------
termination of such Terminated Operating Agreements to the appropriate party,
and (b) if Greenspoint has no right to terminate same, or if any substantial fee
is due thereunder as a result of such termination, Patriot shall be required to
pay for the payment of the termination charge at Closing.
6.2 Warranties and Guaranties. Greenspoint shall not before or after
-------------------------
Closing release or modify any Warranties and Guaranties, if any, except with the
prior written consent of Patriot.
6.3 Insurance. Greenspoint shall pay all premiums on, and shall not
---------
cancel or voluntarily allow to expire, any of Greenspoint's Insurance Policies
unless such policy is replaced, without any lapse of coverage, by another policy
or policies providing coverage at
<PAGE>
least as extensive as the policy or policies being replaced.
6.4 Independent Audit. Promptly following the execution of this
-----------------
Agreement, Greenspoint shall provide and shall cause its management company to
provide to Patriot's representatives and independent accounting firm access to
financial and other information relating to the Property in the possession of or
otherwise available to Greenspoint, its affiliates or Greenspoint's management
company which would be sufficient to enable Patriot's representatives and
independent accounting firm to prepare audited financial statements for 1993,
1994 and 1995 in conformity with generally accepted accounting principles and to
enable them to prepare such statements, reports or disclosures as Patriot may
deem necessary or advisable and to audit net operating income for the Property.
Greenspoint shall also provide and/or shall cause its management company to
provide to Patriot's independent accounting firm a signed representation letter
which would be sufficient to enable an independent public accountant to render
an opinion on the financial statements related to the Property. Greenspoint
shall authorize and shall cause its management company to authorize any
attorneys who have represented Greenspoint or its management company in material
litigation pertaining to or affecting the Property to respond, at Patriot's
expense, to inquiries from Patriot's representatives and independent accounting
firm. If and to the extent Greenspoint's financial statements pertaining to the
Property for any periods during the years 1993, 1994 or 1995 have been audited,
promptly after the execution of this Agreement Greenspoint shall provide Patriot
with copies of such audited financial statements and shall cooperate with
Patriot's representatives and independent public accountants to enable them to
contact the auditors who prepared such audited financial statements and to
obtain, at Patriot's expense, a reissuance of such audited financial statements.
6.5 Operation of Property Prior to Closing. Greenspoint covenants and
--------------------------------------
agrees with Patriot that, between the date of this Agreement (or such other date
as specified below) and the date of Closing:
(a) Subject to the restrictions contained herein, Greenspoint shall
operate the Property in the same manner in which Greenspoint operated the
Property prior to the execution of this Agreement, so as to keep the Property in
good condition, reasonable wear and tear excepted, and so as to maintain the
existing caliber of the Hotel operations conducted at the Property and the
reasonable good will of all tenants of the Property and all employees, guests
and other customers of the Hotel.
(b) Greenspoint shall maintain its books of account and records in the
usual, regular and ordinary manner, in accordance with sound accounting
principles applied on a basis consistent with the basis used in keeping its
books in prior years.
(c) Greenspoint shall maintain in full force and effect all Insurance
Policies.
(d) Greenspoint shall use and operate the Property in compliance in
all material respects with Applicable Laws and the requirements of any mortgage,
lease, Occupancy Agreement, Operating Agreement and Insurance Policy affecting
the Property.
<PAGE>
(e) Greenspoint shall cause to be paid prior to delinquency all ad
valorem, occupancy and sales taxes due and payable with respect to the Property
or the operation of the Hotel.
(f) Greenspoint shall not permit the inventory of food, beverages,
stock of linens, towels, paper goods, soaps, cleaning supplies, china,
glassware, silverware, table cloths, napkins, miscellaneous guest supplies and
engineering cleaning supplies constituting a portion of the Tangible Personal
Property to be diminished other than as a result of the ordinary and necessary
operation of the Hotel by Greenspoint.
(g) Greenspoint shall not remove or cause or permit to be removed any
part or portion of the Real Property or the Tangible Personal Property without
the express written consent of Patriot unless the same is replaced, prior to
Closing, with similar items of at least equal suitability, quality and value,
free and clear of any liens or security interests.
(h) Greenspoint and Greenspoint's managing agent shall continue to use
its best efforts to take guest room reservations and to book functions and
meetings and otherwise to promote the business of the Property in generally the
same manner as Greenspoint did prior to the execution of this Agreement; and all
advance room bookings and reservations and all meetings and function bookings
shall be booked at rates, prices and charges heretofore customarily charged by
Greenspoint for such purposes, and in accordance with Greenspoint's published
rate schedules. Greenspoint acknowledges that the Contribution Value includes
the transfer of Advance Bookings.
(i) Neither Greenspoint nor Greenspoint's managing agent shall make
any agreements which shall be binding upon Patriot with respect to the Property
or that otherwise cannot be terminated without penalty upon thirty (30) days
notice.
(j) Greenspoint shall promptly deliver to Patriot upon Patriot's
request such reports showing the revenue and expenses of the Hotel and all
departments thereof, together with such periodic information with respect to
room reservations and other bookings, as Greenspoint customarily keeps or
receives internally for its own use.
(k) Greenspoint or Greenspoint's managing agent shall not enter into
any employment agreements which would be binding on Patriot with respect to the
Property.
(l) Greenspoint shall promptly advise Patriot of any litigation,
arbitration or administrative hearing concerning or affecting the Property of
which Greenspoint obtains written notice or of which Greenspoint has knowledge.
6.6 No Marketing. Greenspoint shall not market the Property for sale or
------------
enter into discussions or negotiations with potential purchasers of the
Property.
6.7 Employees. Payment of costs and expenses associated with accrued but
---------
unpaid salary, earned but unpaid vacation pay, accrued but unearned vacation
pay, pension and
<PAGE>
welfare benefits, the Consolidated Omnibus Budget Reconciliation Act of 1985, as
amended ("COBRA") benefits, employee fringe benefits, employee termination
-----
payments or any other employee benefits due to Greenspoint's, or Greenspoint's
management company's employees shall be the sole responsibility and obligation
of and shall be paid promptly by Greenspoint or Greenspoint's management company
and Patriot shall have no liability whatsoever for any such payments and
benefits concerning the employees of Greenspoint or of Greenspoint's management
company. Greenspoint shall indemnify and defend Patriot and its lessee,
management company and affiliates, from and against any and all claims, causes
of action, proceedings, judgments, damages, penalties and liabilities made,
assessed or rendered against Patriot and/or its lessee, management company and
affiliates, and any costs and expenses (including attorneys' fees and
disbursements) incurred by Patriot and/or its lessee, management company and
affiliates, with respect to claims, causes of action, judgments, damages,
penalties and liabilities asserted by such employees arising out of the failure
of Greenspoint or Greenspoint's management company to comply with the provisions
of this Subsection 6.7. This indemnification shall be separate from and in
--------------
addition to the indemnification given by Greenspoint to Patriot in Article X
---------
below. The provisions of this Section 6.7 shall survive the Closing.
-----------
6.8 Prepayment of Existing Secured Indebtedness. Greenspoint agrees to
-------------------------------------------
pay any and all fees, penalties, charges or other costs associated with the
prepayment, in full or in part, of the Existing Secured Indebtedness subsequent
to the Closing Date. The provisions of this Section shall survive the Closing
of the transaction contemplated hereby.
6.9 Required Financing Expenses. Subject to the last sentence of Section
--------------------------- -------
6.10 below, Greenspoint agrees to pay at Closing any and all fees, costs and
- ----
expenses, including, without limitation, reasonable attorneys' fees and
expenses, resulting or arising from, or in any way related to, the Required
Financing (defined below). The provisions of this Section shall survive the
Closing of the transaction contemplated hereby.
6.10 Issuance of Units Expenses. Subject to the last sentence of this
--------------------------
Section 6.10, Greenspoint agrees to pay at Closing any and all fees, costs and
- ------------
expenses, including, without limitation, reasonable attorneys' fees and expenses
resulting or arising from or in any way related to, the issuance of Units to
Greenspoint. The provisions of this Section shall survive the Closing of the
transaction contemplated hereby. Notwithstanding the foregoing, Greenspoint
shall pay the first $50,000.00 of the fees and expenses described in Section 6.9
-----------
and this Section 6.10, and if the total of such fees and expenses exceed
------------
$50,000.00, one-half of the excess shall be paid by Greenspoint and one-half of
the excess shall be paid by Patriot.
6.11 Cooperation on Tax Matters. In connection with the issuance of
--------------------------
Units to Greenspoint, Greenspoint shall provide reasonable assistance to Patriot
to enable Patriot to prepare its tax returns. Greenspoint shall deliver to
Patriot copies of its final federal, state and local tax returns (including
information returns) for the tax year in which the Closing occurs, including any
amendments thereto, and to notify Patriot, in writing, of any audits of such
returns, or of any audits for other tax years that could affect the amounts
shown on the returns for the tax year in which the Closing occurs. Copies of
such returns shall be provided to
<PAGE>
Patriot in draft form at least twenty (20) days before they are filed, and in
final form upon filing. Greenspoint shall also provide to Patriot, promptly
upon receipt, any notice that Greenspoint receives from any of its partners that
such partner(s) intends to prepare its tax returns in a manner inconsistent with
the returns filed by Greenspoint. The parties understand and agree that the tax
returns filed by Greenspoint will be substantially consistent with the
information provided to Patriot pursuant to Sections 2.4(e)(i) through (v)
hereof. The provisions of this Section shall survive the Closing of the
transaction contemplated hereby.
6.12 Information Regarding and Restrictions on Beneficial Ownership of
-----------------------------------------------------------------
Units. From the Effective Date until the Closing, and then so long as
- -----
Greenspoint holds any Units, Greenspoint shall notify Purchaser in writing
promptly upon any change in the identity or number of its partners or of its
indirect partners as identified pursuant to Section 2.4(d)(7), and shall provide
the information called for in Section 2.4(d)(6) and (7) above with respect to
any such change. In addition, so long as Greenspoint holds any Units, without
the prior written consent of Purchaser, Greenspoint shall not (i) admit
additional partners, (ii) permit the transfer of interests in Greenspoint to a
look-through entity (as defined in Section 2.4(d)(7) or (iii) permit any
transfer of interests in Greenspoint if, as a result of the admissions or
transfers described in (i) through (iii) would increase the number of direct or
indirect beneficial owners in Greenspoint by more than 50%. Greenspoint shall
use its reasonable efforts to secure the compliance of any look-through entities
that hold direct or indirect interests in Greenspoint with the requirements of
this Section as if such requirements applied directly to such entities.
Greenspoint acknowledges that the provisions of this Section are imposed to aid
Purchaser in avoiding taxation as a corporation for federal income tax purposes,
agrees that monetary damages may be insufficient to remedy the potential harm
caused by any breach of the provisions of this Section, and agrees that
injunctive relief, including specific performance or other equitable remedy
would be an appropriate remedy. The provisions of this Section shall survive
the Closing of the transaction contemplated hereby.
The foregoing covenants of Greenspoint are for the benefit of Patriot or its
assignee of its permitted rights under this Agreement.
ARTICLE VII
------------
COVENANTS OF PATRIOT
--------------------
7.1 Required Debt. Patriot agrees that from the Closing and continuously
-------------
at all times through 1999, Patriot will have debt that satisfies the criteria
set forth in Section 7.2. Patriot agrees not to dispose of the Property prior to
-----------
December 31, 1999, unless (A) such disposition is structured as a tax-deferred
like-kind exchange under Section 1031 of the Internal Revenue Code of 1986, as
amended, (which exchange will not include any cash consideration to Patriot or
its affiliates in excess of customary costs and expenses incurred by Patriot or
its affiliates in connection with negotiating and closing the acquisition of
replacement property effecting such exchange), and (B) the replacement property
received is encumbered continuously through December 31, 1999, by debt
satisfying the criteria in Section 7.2. Patriot will elect to use the "remedial
-----------
method" for computing allocations of
<PAGE>
income, gain, loss, and deductions attributable to the Property as set forth in
Treasury Regulation (S) 1.704-3(d). The provisions of this Section will survive
the Closing.
7.2 Required Financing. Patriot, or its assignee or affiliate, shall have
------------------
obtained and closed a loan in an amount of at least $22,000,000.00 that is
without recourse to any partner or shareholder of Patriot or its assignee and
that is secured by the Property (the "Required Financing"). The Required
------------------
Financing may consist of a portion of Patriot American Hospitality, Inc.'s or
its affiliates' existing line of credit or other loans so long as such portion
of the line of credit is (A) a nonrecourse liability of the borrower(s) of such
loans for purposes of IRC (S) 752 and Treasury Regulation (S) 1.752-1(a)(2) and
(B) secured only by the Property. Such loan may be cross-defaulted with such
line of credit or other such loan; provided, however, if a default occurs with
respect to such Required Financing which Patriot's lender does not elect to
waive, Patriot or its affiliates will cure the default or replace such loan with
other nonrecourse debt satisfying the requirements of this Section 7.2 not less
-----------
than ten (10) days prior to the date on which Patriot's lender has scheduled the
foreclosure of its lien or other remedial action to obtain possession of the
Property securing the Required Financing. Nothing herein shall limit, prohibit
or affect the ability of Patriot or any of its affiliates, including, without
limitation, the Operating Partnership or Patriot American Hospitality, Inc., to
grant a second lien on the Property to secure obligations of Patriot or any of
its affiliates, including, without limitation, the Operating Partnership or
Patriot American Hospitality, Inc. The provisions of this Section will survive
the Closing. For federal income tax purposes and for all taxable years ended on
or before December 31, 1999, the Operating Partnership agrees to allocate the
Required Financing to Greenspoint to the extent allowable under the provisions
of Treasury Regulations section 1.752-3(a)(1) and (2) and Revenue Ruling 95-41,
1995-1 C.B. 132 (as the same may be modified from time to time). The agreement
of the Operating Partnership in the preceding sentence is referred to as the
"Return Filing Agreement." The Operating Partnership also agrees for all
taxable years ended on or before December 31, 1999 to supply to Greenspoint a
copy of each proposed "Form K-1" with respect to Greenspoint at least fourteen
(14) days prior to the filing of the corresponding federal income tax return of
the Operating Partnership; provided, however, that failure to provide such a
Form K-1 for a taxable year shall not give rise to a claim for indemnification
under Section 7.3 below if the Operating Partnership complies with the Return
-----------
Filing Agreement for such taxable year. Notwithstanding the provisions of
Section 7.3, failure to comply with the Return Filing Agreement with respect to
- -----------
a taxable year shall not give rise to a claim for indemnification under Section
-------
7.3 below if (i) the Operating Partnership supplies the proposed Form K-1 with
- ---
respect to such taxable year to Greenspoint in accordance with the provisions of
the preceding sentence, and (ii) Greenspoint fails to make any objection to such
proposed Form K-1 at least four (4) days prior to the filing of the Operating
Partnership's corresponding federal income tax return.
7.3 Indemnity by Patriot. If Patriot or the Operating Partnership
--------------------
defaults under the obligations imposed under this Article that survive the
Closing, the Operating Partnership agrees to indemnify and hold harmless
Greenspoint and its direct and indirect partners (the "Indemnified Parties")
-------------------
from and against the acceleration of the federal, state and local income
<PAGE>
tax liability (the "Indemnified Tax Liability") resulting from said default,
-------------------------
together with any expenses incurred by the Indemnified Parties as a result of
such default (including, without limitation, attorneys and accountants fees).
The Indemnified Tax Liability shall be the product of (a) times (b) where:
(a) is the difference between
(1) the amount determined by multiplying the aggregate negative
tax capital accounts, maintained for federal income tax purposes, of the
partners of Greenspoint on the Closing Date by 51.6% and
(2) the amount determined pursuant to (1) above, discounted
(using a 15% interest rate) from January 1, 2000 to the date of default by
Patriot); and
(b) is 110%.
The provisions of this Section 7.3 shall survive the Closing.
-----------
ARTICLE VIII
------------
CLOSING
-------
8.1 Closing. The Closing shall occur on a business day designated by
-------
Patriot, with at least five (5) days notice to Greenspoint (which day shall be
no later than July 30, 1996). As more particularly described below, at the
Closing the parties hereto will (i) execute all of the documents required to be
delivered in connection with the transactions contemplated hereby (the "Closing
-------
Documents"), (ii) deliver the same to Escrow Agent, and (iii) take all other
- ---------
action required to be taken in respect of the transactions contemplated hereby.
The Closing will occur at the offices of Akin, Gump, Strauss, Hauer & Feld,
L.L.P., 1700 Pacific Avenue, Suite 4100, Dallas, Texas 75201, or at such other
place as Patriot shall designate by written notice to Greenspoint given at least
five days prior to the Closing. At the Closing, Escrow Agent shall return the
Deposit to Patriot and shall update the title to the Property, Escrow Agent
shall record the Deed, release and date, where appropriate, the Closing
Documents in accordance with the joint instructions of Greenspoint and Patriot.
As provided herein, the parties hereto will agree upon adjustments and
prorations to certain items which cannot be exactly determined at the Closing
and will make the appropriate adjustments with respect thereto. Possession of
the Property shall be delivered to Patriot at the Closing, subject only to
Permitted Title Exceptions and the rights of tenants under the Occupancy
Agreements and guests in possession.
<PAGE>
8.2 Greenspoint's Deliveries. At the Closing, Greenspoint shall
------------------------
deliver, if not previously delivered by Greenspoint pursuant to the terms
hereof, to Escrow Agent all of the following instruments, each of which, where
applicable, shall have been duly executed and, where applicable, acknowledged
and/or sworn on behalf of Greenspoint and shall be dated as of the Closing Date:
(a) The Deed.
(b) The Bill of Sale - Personal Property.
(c) The Assignment and Assumption Agreement to Patriot and/or its
property manager, lessee or other designee (as Patriot shall specify).
(d) The Assignment of Occupancy Agreements together with an estoppel
letter from each of the tenants and concessionaires of Occupancy Agreements
being assigned thereunder (1) identifying each such Occupancy Agreement and
amendments or addenda thereto, or modifications thereof, by which each such
tenant or concessionaire occupies its premises, (2) certifying that there are no
further amendments or modifications thereof, (3) setting forth the amount of
security deposit, if any, (4) certifying that, so far as is known to such tenant
or concessionaire, Greenspoint is not in default under the terms, conditions and
provisions of such Occupancy Agreements, (5) certifying that the tenant or
concessionaire is not due any rebates, offsets or other monies or things of
value thereunder, and (6) certifying as to the status of the rent and concession
payments as of the date of such Occupancy Agreement; provided, however, that if
any tenant refuses to execute an estoppel certificate, Patriot agrees to accept
in lieu thereof, a certificate of Greenspoint as to such matters, qualified to
Greenspoint's knowledge.
(e) An estoppel letter from the landlord under the Space Leases (1)
identifying such Space Leases and amendments or addenda thereto, or
modifications thereof, (2) certifying that there are no further amendments or
modifications thereof, (3) setting forth the amount of security deposit, if any,
(4) certifying that, so far as is known to such landlord, Greenspoint is not in
default under the terms, conditions and provisions of such Space Leases, (5)
certifying that the landlord is not due any rebates, offsets or other monies or
things of value thereunder, and (6) certifying as to the status of the rent and
concession payments as of the date of such Space Leases.
(f) To the extent reasonably available, certificates from the
applicable State taxing authority and local taxing authorities stating that all
occupancy and sales taxes due and payable for the Property have been paid and,
if any such taxes have not been paid, the amount due and payable as of the
Closing Date.
(g) Certificate(s)/Registration of Title for any vehicle owned by
Greenspoint and used in connection with the Property.
(h) Such agreements, affidavits or other documents as may be required
by
<PAGE>
the Title Company to issue the Owner's Title Policy subject only to the
Permitted Title Exceptions and to eliminate such standard exceptions and to
issue such endorsements thereto which may be eliminated and issued under
applicable State law and which are customarily required by institutional
investors purchasing property comparable to the Property.
(i) The FIRPTA Certificate.
(j) All original Warranties and Guaranties in Greenspoint's
possession or reasonably available to Greenspoint.
(k) Appropriate resolutions of the partners of Greenspoint, together
with all other necessary approvals and consents of Greenspoint and such
documentary and other evidence as may be reasonably required by Escrow Agent,
authorizing and evidencing the authorization of (i) the execution on behalf of
Greenspoint of this Agreement and the authority of the person or persons who are
executing the various documents to be executed and delivered by Greenspoint
prior to, at or otherwise in connection with the Closing, and (ii) the
performance by Greenspoint of its obligations hereunder and under such
documents.
(l) A valid, final and unconditional certificate of occupancy for the
Real Property and Improvements, issued by the appropriate Governmental
Authority.
(m) If Patriot is assuming Greenspoint's obligations under any or all
of the Operating Agreements, the originals of such agreements, and with respect
to the material Operating Agreements, consent to the assignment thereof
acknowledged and approved by the other parties to such Operating Agreements to
the extent required by such Operating Agreements.
(n) With respect to the material Personal Property Leases, (1) the
written consent of the lessors of such leases to such assignment, if required by
such Personal Property Leases, and (2) executed originals of all such leases in
Greenspoint's possession or reasonably available to Greenspoint. If any Leased
Property is leased pursuant to a lease which is a capital lease, in accordance
with generally accepted accounting principles, and is not listed on Schedule 6
----------
hereto, Greenspoint shall cancel such capital lease at its expense and convey
good and marketable title to such property (which shall constitute Tangible
Personal Property hereunder) to Patriot free from any lien or encumbrance
pursuant to the Bill of Sale - Personal Property.
(o) The written consent of, or a comfort letter from, Manager or the
appropriate affiliate of Manager or Lessee, in the form of Exhibit I hereto.
---------
(p) Copies of all existing Insurance Policies if same are assumed by
Patriot.
(q) To the extent in Greenspoint's possession or reasonably available
to Greenspoint, originals of the following items (which shall be deemed
delivered by Greenspoint under this Section 8.2 if delivered to the property
-----------
manager at the Hotel): (1) complete sets of
<PAGE>
all architectural, mechanical, structural and/or electrical plans and
specifications used in connection with the construction of or alterations or
repairs to the Property; and (2) as-built plans and specifications for the
Property.
(r) To the extent assignable, a written instrument executed by
Greenspoint, conveying and transferring to Patriot all of Greenspoint's right,
title and interest in any telephone numbers and TWX numbers relating to the
Property, and, if Greenspoint maintains a post office box, conveying to Patriot
all of its interest in and to such post office box and the number associated
therewith, so as to assure a continuity in operation and communication.
(s) Duplicate originals of all agreements, leases, concession
agreements and other instruments affecting the Property and the Hotel and/or
restaurant business conducted thereon.
(t) All current real estate and personal property tax bills in
Greenspoint's possession or under its control.
(u) If available, by delivery to the property manager at the Hotel, a
complete set of all guest registration cards, guest transcripts, guest
histories, and all other available guest information.
(v) A complete list of all advance room reservations, functions and
the like, in reasonable detail so as to enable Patriot to honor Greenspoint's
commitments in that regard.
(w) A list of Greenspoint's outstanding accounts receivable as of
midnight on the date prior to the Closing, specifying the name of each account
and the amount due Greenspoint (which items shall be deemed delivered by
Greenspoint if delivered to property manager of the Hotel).
(x) All books, records, operating reports, appraisal reports, files
and other materials in Greenspoint's possession or control which are necessary
in Patriot's discretion to maintain continuity of operation of the Property
(which items shall be deemed delivered by Greenspoint under this Section 8.2 if
-----------
delivered to the property manager at the Hotel).
(y) A current UCC Report showing no financing statements by
Greenspoint as Debtor covering the Property.
(z) Executed originals of all Occupancy Agreements and, to the extent
available, Authorizations transferred or assigned to Patriot at Closing as
required hereunder (which items shall be deemed delivered by Greenspoint under
this Section 8.2 is delivered to the property manager at the Hotel).
-----------
(aa) A release, in the form of Exhibit H attached hereto, wherein
---------
Greenspoint acknowledges that Patriot has made no representations or warranties
to Greenspoint or any of its partners with respect to the tax treatment of the
transaction described
<PAGE>
in this Agreement desired to be achieved by Greenspoint or any of its partners.
(bb) An opinion from Greenspoint's counsel stating that Greenspoint
has duly authorized, executed and delivered to Patriot this Agreement and all of
the conveyance documents to be delivered by Greenspoint hereunder.
(cc) Any other document or instrument reasonably requested by Patriot
or required hereby.
8.3 Patriot's Deliveries.
--------------------
(a) At the Closing, Patriot shall deliver to Greenspoint any other
document or instrument reasonably requested by Greenspoint or required hereby.
(b) Copies of all documents evidencing the Required Financing, fully
executed by Patriot and the lender thereunder.
(c) Any other document or instrument reasonably required by Patriot
or required hereby.
8.4 Mutual Deliveries. At the Closing, Patriot and Greenspoint shall
-----------------
mutually execute and deliver each to the other:
(a) A final closing statement reflecting the adjustments and
prorations required hereunder and the allocation of income and expenses required
hereby.
(b) Such other documents, instruments and undertakings as may be
required by the liquor authorities of the State where the Property is located,
or of any county or municipality or governmental entity having jurisdiction with
respect to the transfer or issue of liquor licenses or alcoholic beverage
licenses or permits for the Hotel, to the extent not theretofore executed and
delivered.
(c) The Lease.
(d) At or prior to the Closing, Patriot American Hospitality, Inc.
and Greenspoint will enter into a Registration Rights Agreement in substantially
the form attached hereto as Exhibit G.
---------
(e) Such other and further documents, papers and instruments as may
be reasonably required by the parties hereto or their respective counsel.
8.5 Closing Costs. Except as is explicitly provided in this Agreement,
-------------
each party hereto shall pay its own legal fees and expenses. All filing fees
for the Deed and the transfer, recording, sales or other similar taxes and
surtaxes due with respect to the transfer of title shall be paid by Greenspoint.
Greenspoint shall pay for the costs associated with the releases
<PAGE>
of any deeds of trust, mortgages and other financing encumbering the Property
and for any costs associated with any corrective instruments. Greenspoint shall
pay all costs for title searches and all premiums for the issuance of the Title
Policy and all endorsements (other than a zoning endorsement) thereto and
deletions therefrom which are customarily required by institutional investors
purchasing property comparable to the Property. Patriot shall pay all other
costs (except any costs incurred by Greenspoint for its own account) in carrying
out the transactions contemplated hereunder.
8.6 Revenue and Expense Allocations. All revenues and expenses with
-------------------------------
respect to the Property, and applicable to the period of time before and after
Closing, determined in accordance with sound accounting principles consistently
applied, shall be allocated between Greenspoint and Patriot as provided herein.
Greenspoint shall be entitled to all revenue and shall be responsible for all
expenses for the period of time up to but not including the date of Closing, and
Patriot shall be entitled to all revenue and shall be responsible for all
expenses for the period of time from, after and including the date of Closing
(provided that housekeeping costs and the Rooms Ledger for the date of Closing
shall be shared equally between Patriot and Greenspoint). Such adjustments
shall be shown on the closing statements (with such supporting documentation as
the parties hereto may require being attached as exhibits to the closing
statements) and shall increase or decrease (as the case may be) the Contribution
Value. Without limiting the generality of the foregoing, the following items of
revenue and expense shall be allocated at Closing:
(a) Current rents.
(b) Real estate and personal property taxes.
(c) Revenue and expenses under the Operating Agreements to be
assigned to and assumed by Patriot.
(d) Utility charges (including, but not limited to, charges for
water, sewer and electricity).
(e) Value of fuel stored on the Property at the price paid for such
fuel by Greenspoint, including any taxes.
(f) Municipal or other governmental improvement liens, which shall be
paid by Greenspoint at Closing where the work has physically commenced, and
which shall be assumed by Patriot at Closing where the work has been authorized,
but not physically commenced.
(g) Insurance premiums, to the extent the Insurance Policies are
assumed by Patriot.
(h) Permit fees, where transferable.
<PAGE>
(i) All other revenues and expenses of the Property, including, but
not limited to, such things as restaurant, bar and meeting room income and
expenses and the like.
(j) Such other items as are usually and customarily prorated between
purchasers and sellers of hotel properties in the area where the Property is
located.
Patriot shall retain and receive a credit against the Contribution Value for the
total of (i) prepaid rents, (ii) prepaid room receipts and deposits, function
receipts and deposits and other reservation receipts and deposits, (iii)
unforfeited security deposits together with interest thereon held by Greenspoint
under the Occupancy Agreements, and (iv) the value of any complimentary rooms
(based upon the "rack" rate for each room) and any complimentary food or
beverages (based upon the advertised rate for each food and beverage) provided
by Greenspoint from and after 12:01 a.m. on the Closing Date. At Closing,
Greenspoint shall contribute to Patriot in connection with the Hotel, and
Patriot shall acquire from Greenspoint, and the Contribution Value shall be
increased by the face value of the so-called "guest ledger" as mutually approved
by Patriot and Greenspoint for the Hotel of guest accounts receivable payable to
the Hotel as of the check out time for the Hotel on the Closing Date (based on
guests and customers then using the Hotel) both (1) in occupancy from the
preceding night through check out time the morning of the Closing Date, and (2)
previously in occupancy prior to check out time on the Closing Date; provided,
however, that the term "guest ledger" shall not include any accounts receivable
which have been or are to be paid by any means other than a credit card.
Patriot shall not be obligated to acquire such non-credit card accounts
receivable, and Greenspoint shall retain all rights with respect thereto
(including, without limitation, the right to collect same). For purposes of
this Agreement, transfer or sale at face value shall have the following meaning
for the guest ledger: the total of all credit card accounts receivable as shown
on the records of the Hotel, less actual collection costs (i.e., fees retained
by credit card companies), less accounting charges for rooms furnished on a
gratuity or complimentary basis to any hotel staff or as an accommodation to
other parties and less Patriot's one-half ( 1/2) share of the Rooms Ledger.
Greenspoint shall pay or cause to be paid all real estate taxes and special
assessments for the Property due and payable in, or deferred with respect to the
years prior to, the year in which the Closing occurs. All special assessments
pending, levied or due and payable on or prior to the Closing Date shall be paid
by Greenspoint on or before the Closing Date. All subdivision and platting
costs and expenses heretofore incurred by Greenspoint, including, without
limitation, all subdivision exactions, fees and costs and all dedication of land
for parks and other public uses or payment of fees in lieu thereof, shall be
paid by Greenspoint on or prior to the Closing Date.
Greenspoint shall be required to pay all sales, occupancy and liquor taxes and
like impositions currently through the date of Closing and if reasonably
available, deliver evidence of payment of same to Patriot.
Patriot shall not be obligated to collect any delinquent rents, or revenues
accrued prior to the Closing Date for Greenspoint, but if Patriot collects same,
such amounts shall be promptly
<PAGE>
remitted to Greenspoint in the form received.
If accurate allocations cannot be made at Closing because current bills are not
obtainable (as, for example, in the case of utility bills and/or real estate or
personal property taxes) or appeals are pending, the parties shall allocate such
revenue or expenses at Closing on the best available information, subject to
adjustment upon receipt of the final bill or other evidence of the applicable
revenue or expense. The obligation to make the adjustment shall survive the
closing of the transaction contemplated by this Agreement. Any revenue received
or expense incurred by Greenspoint or Patriot with respect to the Property after
the date of Closing shall be promptly allocated in the manner described herein
and the parties shall promptly pay or reimburse any amount due. The proration
provisions of this Agreement shall survive the Closing of the transaction
contemplated hereby for a period of twelve (12) months.
ARTICLE IX
-----------
GENERAL PROVISIONS
------------------
9.1 Condemnation. In the event of any actual or threatened taking,
------------
pursuant to the power of eminent domain, of all or any portion of the Real
Property, or any proposed sale in lieu thereof, Greenspoint shall give written
notice thereof to Patriot promptly after Greenspoint learns or receives notice
thereof. If all or a Substantial Portion (as hereinafter defined) of the Real
Property is, or is to be, so condemned or sold, Patriot shall have the right to
terminate this Agreement pursuant to Section 10.4 hereof. If Patriot elects not
------------
to terminate this Agreement, all proceeds, awards and other payments arising out
of such condemnation or sale (actual or threatened) shall be paid or assigned,
as applicable, to Patriot at Closing. Greenspoint shall not settle or compromise
any such proceeding without Patriot's written consent. If Patriot elects to
terminate this Agreement by giving Greenspoint written notice thereof prior to
the Closing, the Deposit shall be promptly returned to Patriot and all rights
and obligations of Greenspoint and Patriot hereunder (except those set forth
herein which expressly survive a termination of this Agreement) shall terminate
immediately. In the event any portion of the Real Property is affected by a
condemnation, sale or eminent domain action and such condemnation, sale or
eminent domain action does not constitute a Substantial Portion of the Real
Property, this Agreement shall remain in full force and effect without a
reduction in the Contribution Value except as provided below. In the event of
any such condemnation, sale or eminent domain action that does not constitute a
Substantial Portion of the Real Property, Patriot shall be entitled to any and
all claims that Greenspoint may have to condemnation awards or any and all
causes of action with respect to such condemnation, sale or eminent domain
action (all of which shall be assigned by Greenspoint to Patriot at Closing),
and Greenspoint shall credit to Patriot at Closing, by an appropriate adjustment
to the Contribution Value, an amount equal to all payments (if any) theretofore
received by Greenspoint with respect to such condemnation, sale or eminent
domain action. For purposes of this Section 9.1, a "Substantial Portion" shall
----------- -------------------
mean a condemnation of in excess of $1,000,000.00 in value of the Real Property.
This provision shall survive the Closing of the transaction contemplated hereby.
<PAGE>
9.2 Risk of Loss. The risk of any loss or damage to the Property prior
------------
to the recordation of the Deed shall remain upon Greenspoint. If any such loss
or damage which constitutes Substantial Loss or Damage occurs prior to Closing,
Patriot shall have the right to terminate this Agreement pursuant to Section
-------
10.4 hereof. If Patriot elects not to terminate this Agreement, all insurance
- ----
proceeds and rights to proceeds arising out of such loss or damage shall be paid
or assigned, as applicable, to Patriot at Closing and Patriot shall receive as a
credit against the Contribution Value the amount of any deductibles under the
policies of insurance covering such loss or damage. If Patriot elects to
terminate this Agreement by giving Greenspoint written notice thereof prior to
the Closing, the Deposit shall be promptly returned to Patriot and all rights
and obligations of Greenspoint and Patriot hereunder (except those set forth
herein which expressly survive a termination of this Agreement) shall terminate
immediately. In the event any of the Property or any of the items constituting
the Personal Property should be damaged or destroyed as a result of fire or
other casualty and such damage does not constitute Substantial Loss or Damage
and such damage is not repaired prior to Closing, the rights and obligations of
Greenspoint and Patriot hereunder with respect to the Property shall not be
affected by such destruction or damage and Patriot shall accept title to the
Property in its destroyed or damaged condition. In such event, at the Closing,
Patriot shall receive a credit against the Contribution Value equal to the
amount of damage to the Property resulting from such loss or damage. For
purposes of this Section 9.2, "Substantial Loss or Damage" shall mean loss or
----------- --------------------------
damage, the cost for repair of which (as mutually determined by Patriot and
Greenspoint at the time of such loss or damage) exceeds $1,000,000.00. In the
event that Patriot and Greenspoint are unable to agree on the cost of repair of
any Substantial Loss or Damage, then such cost of repair shall be determined by
an insurance adjuster selected by Greenspoint and approved by Patriot, such
approval not to be unreasonably withheld. This provision shall survive the
Closing of the transaction contemplated hereby.
9.3 Absence of Broker. There is no real estate broker involved in this
-----------------
transaction. Patriot warrants and represents to Greenspoint that Patriot has not
dealt with any real estate broker in connection with this transaction, nor has
Patriot been introduced to the Property or to Greenspoint by any real estate
broker, and Patriot shall indemnify Greenspoint and save and hold Greenspoint
harmless from and against any claims, suits, demands or liabilities of any kind
or nature whatsoever arising on account of the claim of any person, firm or
corporation to a real estate brokerage commission or a finder's fee as a result
of having dealt with Patriot, or as a result of having introduced Patriot to
Greenspoint or to the Property. In like manner, Greenspoint warrants and
represents to Patriot that Greenspoint has not dealt with any real estate broker
in connection with this transaction, nor has Greenspoint been introduced to
Patriot by any real estate broker, and Greenspoint shall indemnify Patriot and
save and hold Patriot harmless from and against any claims, suits, demands or
liabilities of any kind or nature whatsoever arising on account of the claim of
any person, firm or corporation to a real estate brokerage commission or a
finder's fee as a result of having dealt with Greenspoint in connection with
this transaction.
9.4 Bulk Sale. Greenspoint shall indemnify Patriot and save and hold
---------
Patriot harmless from and against any claims, suits, demands, liabilities or
obligations of any kind or nature whatsoever, including all costs of defending
same, and reasonable attorneys' fees paid
<PAGE>
or incurred in connection therewith, arising out of or relating to any claim
made by any third party or any liability asserted by any third party that any
applicable bulk sales law or like statute has not been complied with. The
provisions of this Section shall survive the Closing of the transaction
contemplated hereby.
9.5 Confidentiality. Except as hereinafter provided, from and after the
---------------
execution of this Agreement, Patriot and Greenspoint shall keep the terms,
conditions and provisions of this Agreement confidential and neither shall make
any public announcements hereof unless the other first approves of same in
writing, nor shall either disclose the terms, conditions and provisions hereof,
except to persons who "need to know", such as their respective officers,
directors, employees, attorneys, accountants, engineers, surveyors, consultants,
financiers, partners, investors, potential lessees and bankers and such other
third parties whose assistance is required in connection with the consummation
of this transaction. Notwithstanding the foregoing, it is acknowledged that
Patriot is, or is an affiliate of, a real estate investment trust (the "REIT")
----
and the REIT has and will seek to sell shares to the general public;
consequently, Patriot shall have the absolute and unbridled right to disclose
any information regarding the transaction contemplated by this Agreement
required by law or as determined to be necessary or appropriate by Patriot or
Patriot's attorneys to satisfy disclosure and reporting obligations of Patriot
or its affiliates under applicable law. After Closing, Patriot shall be free
to disclose previously confidential information in its sole, unfettered
discretion; provided, however, neither Greenspoint nor Patriot shall issue any
press release regarding the transaction contemplated hereby for the period which
is fourteen (14) days following the Closing Date without the consent of the
other party.
9.6 Greenspoint's Accounts Receivable. It is expressly agreed by and
---------------------------------
between Patriot and Greenspoint that Greenspoint is not hereby agreeing to sell
to Patriot, and Patriot is not hereby agreeing to purchase from Greenspoint, any
of Greenspoint's accounts receivable. All of Greenspoint's accounts receivable
shall be and remain the property of Greenspoint, subsequent to the Closing of
the transaction contemplated hereby. At the Closing, Greenspoint shall prepare
a list of its outstanding accounts receivable as of midnight on the date prior
to the Closing, specifying the name of each account and the amount due to
Greenspoint. Patriot shall hold any funds received by Patriot explicitly
designated as payment of such accounts receivable, in trust, if Patriot actually
collects any such amounts, and shall pay the monies collected in respect thereof
to Greenspoint at the end of each calendar month, accompanied by a statement
showing the amount collected on each such account. Other than the foregoing,
Patriot shall have no obligation with respect to any such account, and Patriot
shall not be required to take any legal proceeding or action to effect
collection on behalf of Greenspoint. It is generally the intention of Patriot
and Greenspoint that although all of Greenspoint's accounts receivable shall be
and remain the property of Greenspoint, still, if any such accounts are paid to
Patriot, then Patriot shall collect same and remit to Greenspoint in the manner
above provided. Nothing herein contained shall be construed as requiring
Patriot to remit to Greenspoint any funds collected by Patriot on account of
Patriot's accounts receivable generated from Hotel operations, even if the
person or entity paying same is also indebted to Greenspoint. Greenspoint
agrees that it shall not bring any legal action to enforce collection of payment
of any accounts receivable against any current tenant of the Property or other
third
<PAGE>
party in a contractual or business relationship with the Property as of the
Closing Date.
ARTICLE X
---------
LIABILITY OF PATRIOT;
---------------------
INDEMNIFICATION BY GREENSPOINT; DEFAULT; TERMINATION RIGHTS
-----------------------------------------------------------
10.1 Liability of Patriot. Except for obligations expressly assumed or
--------------------
agreed to be assumed by Patriot hereunder, Patriot is not assuming any
obligations of Greenspoint or any liability for claims arising out of any act,
omission or occurrence which occurs, accrues or arises prior to the Closing
Date, and Greenspoint hereby indemnifies and holds Patriot harmless from and
against any and all claims, costs, penalties, damages, losses, liabilities and
expenses (including reasonable attorneys' fees) that may at any time be incurred
by Patriot and its affiliates as a result of (1) obligations of Greenspoint not
expressly assumed or agreed to be assumed by Patriot hereunder, or (2) acts,
omissions or occurrences which occur, accrue or arise prior to the Closing Date.
Patriot hereby indemnifies and holds Greenspoint harmless from and against any
and all claims, costs, penalties, damages, losses, liabilities and expenses
(including reasonable attorneys' fees) that may at any time be incurred by
Greenspoint as a result of acts, omissions or occurrences relating to the
Property arising and accruing from and after the Closing Date. The provisions
of this Section shall survive the Closing of the transaction contemplated
hereby.
10.2 Indemnification by Greenspoint. Greenspoint hereby indemnifies
------------------------------
and holds Patriot harmless from and against any and all claims, costs,
penalties, damages, losses, liabilities and expenses (including reasonable
attorneys' fees) that may at any time be incurred by Patriot, whether before or
after Closing, as a result of any inaccuracy or breach by Greenspoint of any of
its representations, warranties, covenants or obligations set forth herein or in
any other document delivered by Greenspoint pursuant hereto except for any
breach or inaccuracy of any representation or warranty as to which Greenspoint
has given Patriot written notice prior to Closing of the untruth or inaccuracy
or of which Patriot otherwise had actual knowledge prior to the Closing and
nevertheless elected to consummate the Closing; provided, however, the foregoing
knowledge limitation on Greenspoint's indemnity shall not limit Patriot's remedy
described in Section 10.4(a)(ii) hereof. The provisions of this Section shall
-------------------
survive the Closing of the transaction contemplated hereby.
10.3 Indemnification by Patriot. Patriot hereby indemnifies and holds
--------------------------
Greenspoint harmless from and against any and all claims, costs, penalties,
damages, losses, liabilities and expenses (including reasonable attorneys' fees)
that may at any time be incurred by Greenspoint, whether before or after
Closing, as a result of any inaccuracy or breach by Patriot of any of its
representations, warranties, covenants or obligations set forth herein or in any
other document delivered by Patriot to Greenspoint pursuant hereto except for
any breach or inaccuracy of any representation or warranty as to which Patriot
has given Greenspoint written notice prior to Closing of the untruth or
inaccuracy or of which Greenspoint otherwise had actual knowledge prior to the
Closing and nevertheless elected to consummate the Closing. The provisions of
this Section shall survive the Closing of the transaction contemplated
<PAGE>
hereby. None of Patriot's indemnities under this Article X include or cover any
---------
of Patriot's obligations under Article VII hereof. Patriot's indemnification of
-----------
Greenspoint pursuant to a default or breach of Patriot's obligations under
Article VII hereof are contained in, and covered solely and exclusively by,
- -----------
Section 7.3 hereof.
- -----------
10.4 Default by Greenspoint/Failure of Conditions Precedent. If any
------------------------------------------------------
condition set forth herein for the benefit of Patriot cannot or will not be
satisfied prior to Closing (other than due to a default by Patriot), or upon the
occurrence of any other event that would entitle Patriot to terminate this
Agreement and its obligations hereunder, and if Greenspoint fails to cure any
such matter or satisfy that condition within ten (10) business days after notice
thereof from Patriot (or such other time period as may be explicitly provided
for herein), Patriot, at its option, may elect (a) to terminate this Agreement,
in which event (i) the Deposit shall be promptly returned to Patriot, (ii) if
the condition which has not been satisfied is a breach of a representation,
warranty or covenant, then Greenspoint shall be obligated upon demand to
reimburse Patriot for Patriot's actual out-of-pocket inspection, financing and
other costs related to Patriot's entering into this Agreement, inspecting the
Property and preparing for a Closing of the transaction contemplated hereby,
including, without limitation, Patriot's attorneys' fees incurred in connection
with the preparation, negotiation and execution of this Agreement, and in
connection with the negotiating and closing of the Required Financing, in
connection with Patriot's due diligence review, audits and preparation for a
Closing up to an aggregate amount of $750,000.00, said amount being the
aggregate limitation for the foregoing costs and expenses for the Hotel and the
Other Properties; provided, however, the foregoing shall not limit or include
the sums which may be payable by Greenspoint pursuant to Section 10.6, and (iii)
------------
all other rights and obligations of Greenspoint and Patriot hereunder (except
those set forth herein which expressly survive a termination of this Agreement)
shall terminate immediately; or (b) elect to proceed to Closing. If Patriot
elects to proceed to Closing and there is either a misrepresentation or breach
of a warranty by Greenspoint (other than a breach of a representation or
warranty of which Patriot had actual knowledge prior to the Closing and
nevertheless elected to consummate the Closing) or the breach of a covenant by
Greenspoint or a failure by Greenspoint to perform its obligations hereunder,
Patriot shall retain all remedies accruing as a result thereof, including, but
not limited to the remedy of specific performance of Greenspoint's covenants and
obligations and the remedy of the recovery of all reasonable damages resulting
from Greenspoint's breach of warranty or covenant.
10.5 Default by Patriot/Failure of Conditions Precedent. If any
--------------------------------------------------
condition set forth herein for the benefit of Greenspoint (other than a default
by Patriot) cannot or will not be satisfied prior to Closing, and if Patriot
fails to satisfy that condition within ten (10) business days after notice
thereof from Greenspoint (or such other time period as may be explicitly
provided for herein), Greenspoint may, at its option, elect either (a) to
terminate this Agreement in which event the Deposit shall be promptly returned
to Patriot and the parties hereto shall be released from all further obligations
hereunder except those which expressly survive a termination of this Agreement,
or (b) to waive its right to terminate, and instead, to proceed to Closing. If,
prior to Closing, Patriot defaults in performing any of its obligations under
this Agreement (including its obligation to purchase the Property), and Patriot
fails to cure any such default within ten (10) business days after notice
thereof from Greenspoint, then
<PAGE>
Greenspoint's sole and exclusive remedy for such default shall be to terminate
this Agreement and retain the Deposit. Greenspoint and Patriot agree that, in
the event of such a default, the damages that Greenspoint would sustain as a
result thereof would be difficult if not impossible to ascertain. Therefore,
Greenspoint and Patriot agree that, Greenspoint shall retain the Deposit as full
and complete liquidated damages and as Greenspoint's sole remedy.
10.6 Costs and Attorneys' Fees. In the event of any litigation or
-------------------------
dispute between the parties arising out of or in any way connected with this
Agreement, resulting in any litigation, then the prevailing party in such
litigation shall be entitled to recover its costs of prosecuting and/or
defending same, including, without limitation, reasonable attorneys' fees at
trial and all appellate levels. The provisions of this Section shall survive
the Closing of the transaction contemplated hereby.
10.7 Limitation of Liability. Notwithstanding anything herein to the
-----------------------
contrary, except in the case of fraud by either party, the liability of each
party hereto resulting from the breach or default by either party or pursuant to
any indemnity provided for in this Agreement shall be limited to actual damages
incurred by the injured party and except in the case of fraud by either party,
the parties hereto hereby waive their rights to recover from the other party
consequential, punitive, exemplary, and speculative damages. The provisions of
this Section 10.7 shall survive the Closing of the transaction contemplated
------------
hereby.
ARTICLE XI
-----------
MISCELLANEOUS PROVISIONS
------------------------
11.1 Completeness; Modification. This Agreement constitutes the
--------------------------
entire agreement between the parties hereto with respect to the transactions
contemplated hereby and supersedes all prior discussions, understandings,
agreements and negotiations between the parties hereto. This Agreement may be
modified only by a written instrument duly executed by the parties hereto.
11.2 Assignments. Patriot shall assign on or before Closing its
-----------
rights hereunder to Patriot American Hospitality Partnership, L.P.; however, any
such assignment shall not relieve Patriot of its obligations under this
Agreement.
11.3 Successors and Assigns. This Agreement shall bind and inure to
----------------------
the benefit of the parties hereto and their respective successors and assigns.
11.4 Days. If any action is required to be performed, or if any
----
notice, consent or other communication is given, on a day that is a Saturday or
Sunday or a legal holiday in the jurisdiction in which the action is required to
be performed or in which is located the intended recipient of such notice,
consent or other communication, such performance shall be deemed to be required,
and such notice, consent or other communication shall be deemed to be given, on
the first business day following such Saturday, Sunday or legal holiday. Unless
otherwise specified herein, all references herein to a "day" or "days" shall
refer to calendar days and not
<PAGE>
business days.
11.5 Governing Law. This Agreement and all documents referred to
-------------
herein shall be governed by and construed and interpreted in accordance with the
laws of the State where the Land is located.
11.6 Counterparts. To facilitate execution, this Agreement may be
------------
executed in as many counterparts as may be required. It shall not be necessary
that the signature on behalf of both parties hereto appear on each counterpart
hereof. All counterparts hereof shall collectively constitute a single
agreement.
11.7 Severability. If any term, covenant or condition of this
------------
Agreement, or the application thereof to any person or circumstance, shall to
any extent be invalid or unenforceable, the remainder of this Agreement, or the
application of such term, covenant or condition to other persons or
circumstances, shall not be affected thereby, and each term, covenant or
condition of this Agreement shall be valid and enforceable to the fullest extent
permitted by law.
11.8 Costs. Regardless of whether Closing occurs hereunder, and
-----
except as otherwise expressly provided herein, each party hereto shall be
responsible for its own costs in connection with this Agreement and the
transactions contemplated hereby, including, without limitation, fees of
attorneys, engineers and accountants.
11.9 Notices. All notices, requests, demands and other communications
-------
hereunder shall be in writing and shall be delivered by hand, transmitted by
facsimile transmission, sent prepaid by Federal Express (or a comparable
overnight delivery service) or sent by the United States mail, certified,
postage prepaid, return receipt requested, at the addresses and with such copies
as designated below. Any notice, request, demand or other communication
delivered or sent in the manner aforesaid shall be deemed given or made (as the
case may be) when actually delivered to the intended recipient.
If to Greenspoint: Houston Greenspoint Hotel Associates, L.P.
c/o Crow Family Holdings
3200 Trammell Crow Center
2001 Ross Avenue
Dallas, Texas 75201
Attn: Sue Groenteman
With a copy to: Locke Purnell Rain Harrell
2200 Ross Avenue, Suite 2200
Dallas, Texas 75201-6776
Attn: Janis H. Loegering
<PAGE>
If to Patriot: PAH Acquisition Corporation
c/o Patriot American Hospitality, Inc.
3030 LBJ Freeway, Suite 1500
Dallas, Texas 75234
Attn: Thomas W. Lattin, President
With a copy to: Akin, Gump, Strauss, Hauer & Feld, L.L.P.
1700 Pacific Avenue, Suite 4100
Dallas, Texas 75201
Attn: Carl B. Lee, P.C. and
Randall M. Ratner, P.C.
If to Escrow Agent: Unity Title Company
717 North Harwood Street
2610 Maxus Energy Tower
Dallas, Texas 75201
Attn: G. Timothy Hardin
or to such other address as the intended recipient may have specified in a
notice to the other party. Any party hereto may change its address or designate
different or other persons or entities to receive copies by notifying the other
party and Escrow Agent in a manner described in this Section.
11.10 Escrow Agent. Escrow Agent referred to in the definition thereof
------------
contained in Section 1.1 hereof has agreed to act as such for the convenience of
-----------
the parties without fee or other charges for such services as Escrow Agent.
Escrow Agent shall not be liable: (a) to any of the parties for any act or
omission to act except for its own willful misconduct; (b) for any legal effect,
insufficiency, or undesirability of any instrument deposited with or delivered
by Escrow Agent or exchanged by the parties hereunder, whether or not Escrow
Agent prepared such instrument; (c) for any loss or impairment of funds that
have been deposited in escrow while those funds are in the course of collection,
or while those funds are on deposit in a financial institution, if such loss or
impairment results from the failure, insolvency or suspension of a financial
institution; (d) for the expiration of any time limit or other consequence of
delay, unless a properly executed written instruction, accepted by Escrow Agent,
has instructed Escrow Agent to comply with said time limit; (e) for the default,
error, action or omission of either party to the escrow. Escrow Agent, in its
capacity as escrow agent, shall be entitled to rely on any document or paper
received by it, believed by such Escrow Agent, in good faith, to be bona fide
and genuine. In the event of any dispute as to the disposition of the Deposit,
the Deposit or any other monies held in escrow, or of any documents held in
escrow, Escrow Agent may, if such Escrow Agent so elects, interplead the matter
by filing an interpleader action in a court of general jurisdiction in the
county or circuit where the Real Property is located (to the jurisdiction of
which both parties do hereby consent), and pay into the registry of the court
the Deposit, or deposit any such documents with respect to which there is a
dispute in the Registry of such court, whereupon such Escrow Agent shall be
relieved and released from any further liability as Escrow Agent hereunder.
<PAGE>
Escrow Agent shall not be liable for Escrow Agent's compliance with any legal
process, subpoena, writ, order, judgment and decree of any court, whether issued
with or without jurisdiction, and whether or not subsequently vacated, modified,
set aside or reversed.
11.11 Incorporation by Reference. All of the exhibits attached hereto are
--------------------------
by this reference incorporated herein and made a part hereof.
11.12 Survival. All of the representations, warranties, covenants and
--------
agreements of Greenspoint and Patriot made in, or pursuant to, this Agreement
shall survive Closing for a period of twelve (12) months and shall not merge
into the Deed or any other document or instrument executed and delivered in
connection herewith (other than those contained in Section 7.3 which shall not
-----------
have any limitation on survival).
11.13 Further Assurances. Greenspoint and Patriot each covenant and
------------------
agree to sign, execute and deliver, or cause to be signed, executed and
delivered, and to do or make, or cause to be done or made, upon the written
request of the other party, any and all agreements, instruments, papers, deeds,
acts or things, supplemental, confirmatory or otherwise, as may be reasonably
required by either party hereto for the purpose of or in connection with
consummating the transactions described herein.
11.14 No Partnership. This Agreement does not and shall not be
--------------
construed to create a partnership, joint venture or any other relationship
between the parties hereto except the relationship of Greenspoint and Patriot
specifically established hereby.
11.15 Time of Essence. Time is of the essence with respect to every
---------------
provision hereof.
11.16 Signatory Exculpation. The signatory(ies) for Patriot and
---------------------
Greenspoint is/are executing this Agreement in his/their capacity as
representative of Patriot or Greenspoint, as the case may be, and not
individually and, therefore, shall have no personal or individual liability of
any kind in connection with this Agreement and the transactions contemplated by
it.
11.17 Rules of Construction. The following rules shall apply to the
---------------------
construction and interpretation of this Agreement:
(a) Singular words shall connote the plural number as well as the
singular and vice versa, and the masculine shall include the feminine and the
neuter.
(b) All references herein to particular articles, sections,
subsections, clauses or exhibits are references to articles, sections,
subsections, clauses or exhibits of this Agreement.
(c) The table of contents and headings contained herein are solely
for convenience of reference and shall not constitute a part of this Agreement
nor shall they affect its meaning, construction or effect.
<PAGE>
(d) Each party hereto and its counsel have reviewed and revised (or
requested revisions of) this Agreement and have participated in the preparation
of this Agreement, and therefore any usual rules of construction requiring that
ambiguities are to be resolved against a particular party shall not be
applicable in the construction and interpretation of this Agreement or any
exhibits hereto.
IN WITNESS WHEREOF, Greenspoint and Patriot have caused this Agreement to
be executed in their names by their respective duly authorized representatives.
PATRIOT:
-------
PAH ACQUISITION CORPORATION, a Virginia
corporation
By:
Name: Michael D. Murphy
Title: Senior Vice President
Date of Execution: July ___, 1996
GREENSPOINT:
-----------
HOUSTON GREENSPOINT HOTEL ASSOCIATES,
L.P., a Texas limited partnership
By: Greenspoint Associates, Ltd., a Texas limited
partnership, its general partner
By: The New Greenspoint Hotel Corporation, a
Texas corporation, its general partner
By:
Name: S.T. Groenteman
Title: Vice President
Date of Execution: July ___, 1996
<PAGE>
RECEIPT OF ESCROW AGENT
-----------------------
Unity Title Company, as Escrow Agent, acknowledges receipt of the
Deposit from Patriot as described in Section 2.3 of the foregoing Contribution
-----------
Agreement, said Deposit to be held pursuant to the terms and provisions of said
Agreement.
DATED this day of , 199 .
UNITY TITLE COMPANY
By:
Name:
Title:
<PAGE>
EXHIBIT A
---------
LAND
All that lot or parcel of land situated in Harris County, Texas, more
particularly described as:
<PAGE>
EXHIBIT B
---------
SURVEYOR'S CERTIFICATE
TO: (NAME OF PATRIOT) AND/OR ASSIGNS, SECORE FINANCIAL CORPORATION, PAINEWEBBER
REAL ESTATE SECURITIES, INC., GOODWIN, PROCTER & HOAR, UNITY TITLE COMPANY AND
COMMONWEALTH LAND TITLE INSURANCE COMPANY:
The undersigned (the "Surveyor") certifies that:
(a) this survey was made on the ground of the property legally described on the
survey or in an attached legal description prepared by Surveyor this date,
and is correct;
(b) there are no discrepancies, conflicts, shortages in area, boundary line
conflicts, encroachments, protrusions, overlapping of improvements,
easements or roadways except as shown on the survey;
(c) this survey correctly shows the location of all buildings, structures,
fences and improvements situated on the property surveyed and the
footprints of such buildings contain approximately ____ square feet;
(d) the property surveyed has direct access to and from the roadways shown on
the survey, which roadways are dedicated public roadways except as
otherwise shown;
(e) this map or plat and the survey on which it is based were made in
accordance with "minimum standard detail requirements for ALTA/ACSM Land
Title surveys", jointly established and adopted by ALTA and ACSM in 1992
and meets the accuracy requirements of an urban survey, as defined therein,
and incudes items 1-4, and 6-11 and 13 in Table A contained therein and
pursuant to the accuracy Standards (as adopted by ALTA and ACSM and in
effect on the date of this certification) of an Urban Survey;
(f) the property surveyed is located within an area having a zone designation
"____" by the Secretary of Housing and Urban Development, on Flood
Insurance Rate Map No. ____, with a date of identification of _________,
for Community No. _______, County, State of _________, which is the current
flood insurance rate map for the community in which said premises is
situated;
(g) the number of parking spaces located on the property is ___________;
(h) all utility services required for the operation of the property surveyed
either (i) enter the property through adjoining public streets, or (ii) the
survey shows the point of entry and location of any utilities which pass
through or are located on adjoining private land and such utility services
enter the property by way of recorded easements;
(i) the property surveyed is not within any wetlands designated on any maps
prepared by the U.S. Army Corps of Engineers of U.S. Department of Game and
Wildlife, and there are no creeks, streams, water courses, or other bodies
of water on the property except as shown on the survey;
(j) the surveyed property and only the surveyed property constitutes one tax
lot and constitutes a single subdivided lot;
(k) Surveyor has reviewed the title commitment dated __________, G.F. No.
________ relating to the property surveyed prepared by Commonwealth Land
Title Insurance Company; and
(l) the existing zoning, use and density classifications are _____________.
The property surveyed and all improvements on the property comply with all
restrictions of record and land use requirements, including limitations and
other requirements or restrictions as to building and tower height and
location, building and structure coverage and depth, setbacks and
sideyards, below grade parking requirements and elevation of other portions
of the improvements,
<PAGE>
including loading docks;
(m) the property contains approximately __________ square feet.
[NAME OF SURVEYOR]
<PAGE>
EXHIBIT C
---------
OTHER PROPERTIES
191-Room Wyndham Midtown Atlanta, Georgia
Seller: Atlanta Midtown Associates
Purchaser: PAH Acquisition Corporation
<PAGE>
EXHIBIT D
---------
Name: ________________________________
PROSPECTIVE SUBSCRIBER QUESTIONNAIRE
Patriot American Hospitality
Partnership, L.P.
3030 LBJ Freeway
Suite 1500
Dallas, TX 75234
___________________________
The units of limited partnership interest (the "Units") of Patriot American
Hospitality Partnership, L.P. (the "Operating Partnership") are being offered
without registration under the Securities Act of 1933, as amended (the
"Securities Act"), and the securities laws of certain states. The Units are
being offered in reliance on an exemption from registration under Regulation D
of the Securities Act ("Regulation D") and similar state law exemptions. To
satisfy the requirements of Regulation D and applicable state law exemptions,
the Operating Partnership must determine whether a prospective unitholder meets
that Regulation D and state law definitions of "accredited investor" before
selling (or, in some states, offering) securities to such person. This
Questionnaire is intended to assist the Operating Partnership in making this
determination.
Please complete, execute and date this Prospective Subscriber Questionnaire
and deliver it to the address set forth above. Your answers will, at all times,
be kept confidential except as necessary to establish that the offering and sale
of the Units will not result in a violation of the registration provisions of
the Securities Act or a violation of the securities laws of any state.
1) To establish the basis of the Subscriber's status as an accredited
investor, please answer the questions set forth below.
a) Is the Subscriber an individual with a net worth (or net worth
with his or her spouse) in excess of $1 million:
Yes No
b) Is the Subscriber an individual with net income (without
including any net income of the Subscriber's spouse) in excess of
$200,000, or joint income with the Subscriber's spouse, in excess
of $300,000, in each of the two most recent years, and does the
Subscriber reasonably expect to reach the same income level in
the current year?
<PAGE>
Yes No
c) Is the Subscriber an employee benefit plan within the meaning of
the Employee Retirement Income Security Act of 1974 (hereinafter
"ERISA") whose decision to invest in the Operating Partnership is
being made by a plan fiduciary which is either a bank, savings
and loan association, insurance company or registered investment
adviser or, alternatively, does the employee benefit plan have
total assets in excess of $5,000,000 or is the employee benefit
plan "self-directed" with investment decisions made solely by
person(s) who answered "Yes" to item 1(a) or 1(b) above?
--
Yes No
d) Is the Subscriber a retirement plan established and maintained by
a state, its political subdivisions, or any agency or
instrumentality of a state or its political subdivisions for the
benefit of its employees with total assets in excess of
$5,000,000?
Yes No
e) Is the Subscriber a trust (including an individual retirement
arrangement formed as a trust or a tax-qualified pension and
profit sharing plan (e.g., a Keogh Plan) formed as a trust but
not subject to ERISA) with total assets in excess of $5,000,000
that was not formed for the specific purpose of acquiring the
Units and whose purchase is directed by a person with such
knowledge and experience in financial and business matters that
such person is capable of evaluating the merits and risks of the
prospective investment?
Yes No
f) Is the Subscriber a corporation, partnership, Massachusetts or
similar business trust or an organization described in Section
501(c)(3) of the Internal Revenue Code that was not formed for
the specific purpose of acquiring the Units and whose total
assets exceed $5,000,000?
Yes No
g) Is the Subscriber one of the following entities:
(i) A "bank" as defined in Section 3(a)(2) of the Securities
Act or any "savings and loan association" or other
institution as defined in Section 3(a)(5)(A) of the
Securities Act, whether acting in an individual or
fiduciary capacity;
<PAGE>
(ii) A "broker/dealer" registered pursuant to Section 15 of the
Securities Exchange Act of 1934, as amended;
(iii) An "insurance company," as defined in Section 2(13) of the
Securities Act;
(iv) An "investment company" registered under the Investment
Company Act of 1940 or a "business development company" as
defined in Section 2(a)(48) of the Investment Company Act
of 1940;
(v) A "Small Business Investment Company" licensed by the U.S.
Small Business Administration under Section 301(c) or (d)
of the Small Business Investment Act of 1958; or
(vi) A "Private Business Development Company" as defined in
Section 202(a)(2) of the Investment Advisers Act of 1940?
Yes No
If yes, then which entity (i.e., (g)(i) through (vi)
above)?
h) Is the Subscriber an entity (other than a trust, but including a
grantor trust) in which all of the equity owners can answer "Yes"
to any one question set forth in Sections 1(a) through 1(g)
immediately above?
Yes No
2) Is the Subscriber acquiring the Units of the Operating Partnership as
a principal for the purposes of investment and not with a view to
resale or distribution?
Yes No
3) By signing this Questionnaire, the Subscriber hereby confirms the
following statements:
a) The Subscriber is aware that the offering of the Units will
involve securities for which no market exists, thereby possibly
requiring an investment to be held for an indefinite period of
time.
b) The Subscriber shall immediately provide the Operating
Partnership with corrected information in the event any
information given herein was untrue.
<PAGE>
c) The Subscriber acknowledges that any delivery of information
relating to the Operating Partnership prior to the determination
by the Operating Partnership of the suitability of the Subscriber
as a Unitholder shall not constitute an offer of Units until such
determination of suitability shall be made.
d) The Subscriber acknowledges that the Operating Partnership will
rely on the Subscriber's representations contained herein as a
basis for exemption from registration.
e) The Subscriber, either alone or with his or her purchase
representative, has such knowledge and experience in financial
and business matters as to be capable of evaluating the risks and
merits of the prospective investment in the Units.
f) The answers of the Subscriber to the foregoing questions are true
and complete to the best of the information and belief of the
undersigned, and the Operating Partnership shall be notified
promptly (and, in particular, upon the acquisition of additional
Units by the Subscriber) of any changes in the foregoing answers.
Signature of Subscriber
(or duly authorized agent)
Title:
Print Name Signed Above
Date
<PAGE>
EXHIBIT E
---------
[Date]
Patriot American Hospitality, Inc.
3030 LBJ Freeway, Suite 1500
Dallas, Texas 75234
Patriot American Hospitality, L.P.
3030 LBJ Freeway, Suite 1500
Dallas, Texas 75234
Ladies and Gentlemen:
In consideration of the Contribution Agreement between PAH Acquisition
Corporation ("Patriot"), and Houston Greenspoint Hotel Associates, L.P.
("Greenspoint"), dated July 11, 1996, pursuant to which Patriot agreed to
acquire certain assets of Greenspoint for consideration including units of
limited partnership interest (the "Units") in Patriot American Hospitality
Partnership, L.P., a Virginia limited partnership (the "Operating Partnership"),
the undersigned hereby agrees that the undersigned will not sell, offer or
contract to sell, grant any option to purchase, pledge, redeem, convert or
otherwise dispose of or transfer any Units until the date that is two (2) years
from the date of the issuance of the Units, and any such transaction prior to
such date shall be null and void and shall not be binding on or recognized by
Patriot or Patriot American Hospitality, Inc. Greenspoint understands and
agrees that (a) following such two (2) year period, Units are not transferable
without the prior written consent of PAH GP, Inc., the general partner of the
Operating Partnership (which consent shall not be withheld if PAH GP, Inc.
determines that the transfer of same is a valid private placement under
applicable Federal and State securities laws), and (b) Patriot American
Hospitality, Inc. (the "Company") is not obligated to issue common stock in the
Company unless that the issuance of such common stock is a valid private
placement of securities and the recipients of such common stock execute and
deliver an investment questionnaire in a form reasonably satisfactory to PAH GP,
Inc.
Very truly yours,
Entities Receiving Units Sign
<PAGE>
EXHIBIT F
---------
INTENTIONALLY DELETED
<PAGE>
EXHIBIT G
---------
REGISTRATION RIGHTS AGREEMENT
This Registration Rights Agreement (this "Agreement") is entered into
as of ___________, 1996 by and between Patriot American Hospitality,Inc., a
Virginia corporation (the "Company") and Houston Greenspoint Hotel Associates,
L.P., a Texas limited partnership (the "Holder").
WHEREAS, the Holder is to receive units of limited partnership
interest ("Units") in Patriot American Hospitality Partnership, L.P. (the
"Operating Partnership") pursuant to a Contribution Agreement by and between the
Company and the Holder of even date herewith (the "Contribution Agreement"),
which Units, at the Company's option, may be redeemed for shares of the
Company's common stock, no par value ("Common Stock").
NOW, THEREFORE, in consideration of the mutual promises and agreements
set forth herein, and other valuable consideration, the receipt and sufficiency
of which are hereby acknowledged, the parties hereto hereby agree as follow:
1. Registration.
------------
(a) Piggyback Registration. If at any time while any
----------------------
Registrable Shares (as defined below) are outstanding (without any obligation to
do so) the Company proposes to file a registration statement under the
Securities Act of 1933, as amended (the "Securities Act") with respect to an
offering of Common Stock solely for cash (other than a registration statement
(i) on Form S-8 or any successor form to such Form or in connection with any
employee or director welfare, benefit or compensation plan, (ii) on Form S-4 or
any successor form to such Form or in connection with an exchange offer, (iii)
in connection with a rights offering exclusively to existing holders of Common
Stock (iv) in connection with a rights offering exclusively to solely to
employees of the Company or its affiliates, or (v) relating to a transaction
pursuant to Rule 145 of the Securities Act, whether or not for its own account
(a "Piggyback Registration Statement"), the Company shall give prompt written
notice of such proposed filing to the Holder. The notice referred to in the
preceding sentence shall offer the Holder the opportunity to register such
amount of Registrable Shares as the Holder may request (a "Piggyback
Registration"). Subject to the provisions of Section 2 below, the Company shall
include in such Piggyback Registration all Registrable Shares requested to be
included in the registration and qualification for sale under the blue sky or
securities laws of the various states and in any underwriting in connection
therewith for which the Company has received a written request for inclusion
therein within fifteen (15) calendar days after the notice referred to above has
been given by the Company to the Holder. The Holder may withdraw all or part of
the Registrable Shares from a Piggyback Registration at any time prior to the
effective date of such Piggyback Registration. If a Piggyback Registration is an
underwritten primary registration on behalf of the Company and the managing
underwriter advises the Company that the total number of shares of Common Stock
requested to be
<PAGE>
included in such registration exceeds the number of shares of Common Stock which
can be sold in such offering, the Company will include in such registration in
the following priority: (i) first, all shares of Common Stock the Company
proposes to sell, and (ii) second, up to the full number of applicable
Registrable Shares requested to be included in such registration and, which in
the opinion of such managing underwriter, can be sold without adversely
affecting the price range or probability of success of such offering, which
shall be allocated among the Holder and all other stockholders requesting
registration on a pro rata basis. As used in this Agreement, the term
"Registrable Shares" means shares of Common Stock issued or to be issued to the
Holder upon redemption or in exchange for the Units issued pursuant to the
Contribution Agreement, excluding (A) Common Stock for which a Registration
Statement relating to the issuance or sale thereof shall have become effective
under the Securities Act and which have been issued or disposed of under such
Registration Statement, (B) Common Stock sold pursuant to Rule 144 under the
Securities Act, or (C) Common Stock eligible for immediate sale pursuant to Rule
144 under the Securities Act.
(b) Registration Statement Covering Issuance of Common Stock. In lieu
--------------------------------------------------------
of the registration rights set forth in Section 1(a) above, the Company may, in
its sole discretion, prior to two (2) years from the date of the issuance of the
Units (or such other date as may be required under applicable provisions of the
Securities Act) file a registration statement (the "Issuance Registration
Statement") under Rule 415 under the Securities Act relating to the issuance to
the Holder of shares of Common Stock upon the redemption or in exchange for such
Units. Thereupon, the Company shall use reasonable efforts to cause such
Issuance Registration Statement to be declared effective by the SEC for all
shares of Common Stock covered thereby. Any Piggyback Registration Statement or
Issuance Registration Statement are sometimes referred to as a "Registration
Statement."
2. Registration Procedures:
-----------------------
(a) The Company shall notify the Holder of the effectiveness of the
Registration Statement (including any amendments, supplements and exhibits), the
prospectus contained therein (including each preliminary prospectus), any
documents incorporated by reference in the Registration Statement and such other
documents as the Holder may reasonably request in order to facilitate its sale
of the Registrable Shares in the manner described in the Registration Statement.
(b) The Company shall prepare and file with the SEC from time to time
such amendments and supplements to the Registration Statement and prospectus
used in connection therewith as may be necessary to keep the Registration
Statement effective and to comply with the provisions of the Securities Act with
respect to the disposition of all the Registrable Shares until the earlier of
(i) such time as all of the Registrable Shares have been disposed of in
accordance with the intended methods of disposition by the Holder as set forth
in the Registration Statement, or (ii) the date on which the Registration
Statement ceases to be effective. Within twenty (20) business days following
notice from the Holder, the Company shall file any supplement or post-effective
amendment to the Registration Statement with respect to the Holder's interests
in or plan of distribution of Registrable Shares that is
<PAGE>
reasonably necessary to permit the sale of the Holder's Registrable Shares
pursuant to the Registration Statement and the Company shall file any necessary
listing applications or amendments to the existing applications to cause the
shares to be then listed or quoted on the primary exchange or quotation system
on which the Common Stock is then listed or quoted.
(c) The Company shall promptly notify the Holder of, and confirm in
writing, any request by the SEC for amendments or supplements to the
Registration Statement or the prospectus related thereto or for additional
information. In addition, the Company shall promptly notify the Holder of, and
confirm in writing, the filing of the Registration Statement, any prospectus
supplement related thereto or any post-effective amendment to the Registration
Statement and the effectiveness of any post-effective amendment.
(d) The Company shall immediately notify the Holder, at any time when
a prospectus relating to the Registration Statement is required to be delivered
under the Securities Act, of the happening of any event as a result of which the
prospectus included in the Registration Statement, as then in effect, includes
an untrue statement of a material fact or omits to state any material fact
required to be stated therein or necessary to make the statements therein, in
light of the circumstances under which they were made, not misleading. In such
event and subject to paragraph 7 of this Agreement, the Company shall promptly
prepare and furnish the Holder with a reasonable number of copies of a
supplement to or an amendment of such prospectus as may be necessary so that, as
thereafter delivered to the purchasers of Registrable Shares, such prospectus
shall not include an untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary to make the statements
therein, in light of the circumstances under which they are made, no misleading.
3. State Securities Laws. Subject to the conditions
---------------------
set forth in this Agreement, the Company shall, promptly upon the filing of a
Registration Statement including Registrable Shares, file such documents as may
be necessary to register or qualify the Registrable Shares under the securities
or "Blue Sky" laws of such states as the Holder may reasonably request, and the
Company shall use reasonable efforts to cause such filings to become effective;
provided, however, that the Company shall not be obligated to qualify as a
- -------- -------
foreign corporation to do business under the laws of any such state in which it
is not then qualified or to file any general consent to service of process in
any such state. The Company shall promptly notify the Holder of, and confirm in
writing, the receipt by the Company of any notification with respect to the
suspension of the qualification of the Registrable Shares for sale under the
securities or "Blue Sky" laws of any jurisdiction or the initiation or threat of
any proceeding for such purpose.
4. Expenses. The Company shall bear all expenses incurred in connection
--------
with the registration of the Registrable Shares pursuant to this Agreement. Such
expenses shall include, without limitation, all printing, legal and accounting
expenses incurred by the Company and all registration and filing fees imposed by
the SEC, any state securities commission or the New York Stock Exchange or, if
the Common Stock is not then listed on the New York Stock Exchange, the
principal national securities exchange or national market
<PAGE>
system on which the Common Stock is then traded or quoted. Additionally, the
Holder shall be responsible for any brokerage or underwriting commissions and
taxes of any kind (including, without limitation, transfer taxes) with respect
to any disposition, sale or transfer of Registrable Shares and for any legal,
accounting and other expenses incurred by it. The Holder shall also be
responsible for any expenses incurred by the Company in connection with the
Holder's withdrawal of all or part of the Registrable Shares from a Piggyback
Registration.
5. Indemnification by the Company. The Company agrees to indemnify the
------------------------------
Holder and its officers, directors, employees, agents, representatives and
affiliates, and each person or entity, if any, that controls the Holder within
the meaning of the Securities Act, and each other person or entity, if any,
subject to liability because of his, her or its connection with the Holder, and
any underwriter and any person who controls the underwriter within the meaning
the Securities Act (an "Indemnitee") against any and all losses, claims,
damages, actions, liabilities, costs and expenses (including without limitation
reasonable attorneys' fees, expenses and disbursements documented in writing),
joint or several, arising out of or based upon any untrue or alleged untrue
statement of material fact contained in the Registration Statement or any
prospectus contained therein, or any omission or alleged omission therefrom of a
material fact required to be stated therein or necessary to make the statements
therein, in light of the circumstances under which they were made, not
misleading, except insofar as to the extent that such statement or omission
arose out of or was based upon information regarding the Indemnitee or its plan
of distribution which was furnished to the Company by the Indemnitee for use
therein, provided, further that the Company shall not be liable to any person
who participates as an underwriter in the offering or sale of Registrable Shares
or any other person, if any, who controls such underwriter within the meaning of
the Securities Act, in any such case to the extent that any such loss, claim,
damage, liability (or action or proceeding in respect thereof) or expense arises
out of or is based upon (i) an untrue statement or omission or alleged untrue
statement or omission made in such Registration Statement, any such preliminary
prospectus, final prospectus, summary prospectus, amendment or supplement in
reliance upon and in conformity with written information furnished to the
Company by the Indemnitee expressly for use in connection with the Registration
Statement or the prospectus contained therein by such Indemnitee, or (ii) such
Indemnitee's failure to send or give a copy of the final prospectus furnished to
it by the Company at or prior to the time such action is required by the
Securities Act to the person claiming an untrue statement or alleged untrue
statement or omission if such loss, claim, damage, liability or expense would
not have arisen had such delivery occurred.
6. Covenants of Holder. The Holder hereby agrees (a) to cooperate with
-------------------
the Company and to furnish to the Company within 10 days of request all such
information in connection with the preparation of the Registration Statement and
any filings with any state securities commissions as the Company may reasonably
request, (b) to deliver or cause delivery of the prospectus contained in the
Registration Statement to any purchaser of the shares covered by the
Registration Statement from the Holder, (c) to notify the Company of any sale of
Registrable Securities by the Holder, and (d) to indemnify the Company, its
officers, directors, employees, agents, representatives and affiliates, and each
person, if any, who controls the Company within the meaning of the Securities
Act, and each other person, if
<PAGE>
any, subject to liability because of his connection with the Company, against
any and all losses, claims, damages, actions, liabilities, costs and expenses
arising out of or based upon (i) any untrue statement or alleged untrue
statement of material fact contained in either Registration Statement or the
prospectus contained therein, or any omission or alleged omission to state
therein a material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they were made,
not misleading, if and to the extent that such statement or omission arose out
of or was based upon information regarding the Holder or its plan of
distribution which was furnished to the Company by the Holder in writing
expressly for use therein, or (ii) the failure by the Holder to deliver or cause
to be delivered the prospectus contained in the Registration Statement (as
amended or supplemented, if applicable) furnished by the Company to the Holder
to any purchaser of the shares covered by the Registration Statement from the
Holder. Notwithstanding the foregoing, (i) in no event will the Holder have any
obligation under this Section 6 for amounts the Company pays in settlement of
any such loss, claim, damage, liability or action if such settlement is effected
without the consent of the Holder (which consent shall not be unreasonably
withheld), and (ii) the total amount for which the Holder shall be liable under
this Section 6 shall not in any event exceed the aggregate proceeds received by
it from the sale of the Holder's Registrable Shares in such registration.
7. Suspension of Registration Requirement.
--------------------------------------
(a) The Company shall promptly notify the Holder of, and confirm in
writing, the issuance by the SEC of any stop order suspending the effectiveness
of the Registration Statement or the initiation of any proceedings for that
purpose. The Company shall use reasonable efforts to obtain the withdrawal of
any order suspending the effectiveness of the Registration Statement at the
earliest possible moment.
(b) Notwithstanding anything to the contrary set forth in this
Agreement, the Company's obligation under this Agreement to use reasonable
efforts to cause the Registration Statement and any filings with any state
securities commission to be made or to become effective or to amend or
supplement the Registration Statement shall be suspended in the event and during
such period that the Company is in possession of material, nonpublic
information, as to which the Company has a bona fide business purpose for
preserving confidentiality or which renders the Company unable to comply with
SEC requirements (such circumstances being hereinafter referred to as a
"Suspension Event") that would make it impractical or unadvisable to cause the
Registration Statement or such filings to be made or to become effective or to
amend or supplement the Registration Statement, but such suspension shall
continue only for so long as such event or its effect is continuing but no event
will that suspension exceed 60 days. The Company agrees not to exercise the
rights set forth in this Section 7(b) more than twice in any twelve month
period. The Company shall notify the Holder of the existence of any Suspension
Event.
(c) To the extent the Holder's Registrable Shares are covered by a
Registration Statement filed pursuant to Section 1 hereof, the Holder agrees, if
requested by
<PAGE>
the Company in the case of a nonunderwritten offering (a "Nonunderwritten
Offering") or if requested by the managing underwriter or underwriters in an
underwritten offering (an "Underwritten Offering," collectively with
Nonunderwritten Offering, the "Offering"), not to effect any public sale or
distribution of any of the securities of the Company of any class included in
such Offering, including a sale pursuant to Rule 144 or Rule 144A under the
Securities Act (except as part of such Offering), during the 15-day period prior
to, and during the 45-day period beginning on the date of pricing of each
Offering, to the extent timely notified in writing by the Company or the
managing underwriters.
8. Black-Out Period. Following the effectiveness of the Registration
----------------
Statement and the filings with any state securities commissions, the Holder
agrees that it will not effect any sales of the Registrable Shares pursuant to
the Registration Statement or any such filings at any time after it has received
notice from the Company to suspend sales as a result of the occurrence or
existence of any Suspension Event, during any Offering or so that the Company
may correct or update the Registration Statement or such filing pursuant to
Section 2(c) or 2(d). The Holder may recommence effecting sales of the
Registrable Shares pursuant to the Registration Statement or such filings
following further notice to such effect from the Company.
9. Additional Shares. The Company, at its option, may register, under
-----------------
any registration statement and any filings with any state securities commissions
filed pursuant to this Agreement, any number of unissued shares of Common Stock
or any shares of Common Stock owned by any other shareholder or shareholders of
the Company.
10. Contribution. If the indemnification provided for in Sections 5 and
------------
6 is unavailable to an indemnified party with respect to any losses, claims,
damages, action, liabilities, costs or expenses referred to therein or is
insufficient to hold the indemnified party harmless as contemplated therein,
then the indemnifying party, in lieu of indemnifying such indemnified party,
shall contribute to the amount paid or payable by such indemnified party as a
result of such losses, claims, damages, actions, liabilities, costs or expenses
in such proportion as is appropriate to reflect the relative fault of the
Company, on the one hand, and the Holder, on the other hand, in connection with
the statements or omissions which resulted in such losses, claims, damages,
actions, liabilities, costs or expenses as well as any other relevant equitable
considerations. The relative fault of the Company, on the one hand, and of the
Holder, on the other hand, shall be determined by reference to, among other
factors, whether the untrue or alleged untrue statement of a material fact or
omission to state a material fact relates to information supplied by the Company
or by the Holder and the parties' relative intent, knowledge, access to
information and opportunity to correct or prevent such statement or omission;
provided, however, that in no event shall the obligation of any indemnifying
- -------- -------
party to contribute under this Section 10 exceed the amount that such
indemnifying party would have been obligated to pay by way of indemnification if
the indemnification provided for under Sections 5 or 6 hereof had been available
under the circumstances.
The Company and the Holder agree that it would not be just and
equitable if
<PAGE>
contribution pursuant to this Section 10 were determined by pro rata allocation
or by any other method of allocation that does not take account of the equitable
considerations referred to in the immediately preceding paragraph.
No indemnified party guilty of fraudulent misrepresentation (within
the meaning of Section 11(f) of the Securities Act) shall be entitled to
contribution from any indemnifying party who was not guilty of such fraudulent
misrepresentation.
11. No Other Obligation to Register. Except as otherwise expressly
-------------------------------
provided in this Agreement, the Company shall have no obligation to the Holder
to register the Registrable Shares under the Securities Act.
12. Amendments and Waivers. The provisions of this Agreement may not
----------------------
be amended, modified or supplemented with the prior written consent of the
Company and the Holder.
13. Notices. Except as set forth below, all notices and other
-------
communications provided for or permitted hereunder shall be in writing and shall
be deemed to have been duly given if delivered personally or sent by telex or
telecopier, registered or certified mail (return receipt requested), postage
prepaid or courier or overnight delivery service to the Company and the Holder
at the following addresses (or at such other address for any party as shall be
specified by like notice, provided that notices of a change of address shall be
effective only upon receipt thereof), and further provided that in case of
directions to amend the Registration Statement pursuant to Section 2(b) or
Section 6, the Holder must confirm such notice in writing by overnight express
delivery with confirmation of receipt:
If to the Company: Patriot American Hospitality, Inc.
3030 LBJ Freeway, Suite 1500
Dallas, Texas 75234
Attn: Paul A. Nussbaum, Chairman and Chief
Executive Officer
With a copy to: Goodwin, Procter & Hoar, LLP
Exchange Place
Boston, Massachusetts 02109
Attn: Gilbert G. Menna, P.C.
If to the Holder: Houston Greenspoint Hotel Associates, L.P.
c/o Crow Family Holdings
3200 Trammell Crow Center
2001 Ross Avenue
Dallas, Texas 75201
Attn: Sue Groenteman
<PAGE>
With a copy to: Locke Purnell Rain Harrell
2200 Ross Avenue, Suite 2200
Dallas, Texas 75201-6776
Attn: Janis H. Loegering
In addition to the manner of notice permitted above, notices given pursuant to
Sections 1.7 and 8 hereof may be effected telephonically and confirmed in
writing thereafter in the manner described above.
14. Successors and Assigns. This Agreement shall be binding upon and
----------------------
inure to the benefit of the successors and assigns of the Company. This
Agreement may be assigned by the Holder in the same manner and to the same
extent that the Holder may transfer Units or Registrable Securities subject to
the Agreement.
15. Counterparts. This Agreement may be executed in any number of
------------
counterparts and by the parties hereto in separate counterparts, each of which
when so executed shall be deemed to be an original and all of which taken
together shall constitute one and the same agreement.
16. Governing Law. This Agreement shall be governed by and construed
-------------
in accordance with the laws of the Commonwealth of Virginia applicable to
contracts made and to be performed wholly within said Commonwealth.
17. Severability. In the event that any one or more of the provisions
------------
contained herein, or the application thereof in any circumstances, is held
invalid, illegal or unenforceable in any respect for any reason, the validity,
legality and enforceability of any such provision in every other respect and of
the remaining provisions contained herein shall not be in any way impaired
thereby, it being intended that all of the rights and privileges of the parties
hereto shall be enforceable to the fullest extent permitted by law.
18. Entire Agreement. This Agreement is intended by the parties as a
----------------
final expression of their agreement and intended to be the complete and
exclusive statement of the agreement and understanding of the parties hereto in
respect of the subject matter contained herein. There are no restrictions,
promises, warranties or undertakings, other than those set forth or referred to
herein, with respect to such subject matter. This Agreement supersedes all prior
agreements and understandings between the parties with respect to such subject
matter.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first written above.
PATRIOT AMERICAN HOSPITALITY, INC., a
Virginia limited partnership
<PAGE>
By:
Name:
Title:
HOUSTON GREENSPOINT HOTEL
ASSOCIATES, L.P., a Texas limited partnership
By: Greenspoint Associates, Ltd., a
__________ limited partnership, its
general partner
By: The New Greenspoint Hotel
Corporation, a _____________
corporation, its general partner
By:
Name:
Title:
<PAGE>
EXHIBIT H
---------
RELEASE REGARDING TAX ADVICE
Patriot American Hospitality, Inc.
Patriot American Hospitality Partnership, L.P.
PAH Acquisition Corporation
Tri West Plaza
3030 LBJ Freeway, Suite 1500
Dallas, Texas 75234
Dear Sirs:
Reference is made to the Contribution Agreement dated as of the date
hereof by and between Patriot American Hospitality Partnership, L.P. and the
undersigned, Houston Greenspoint Hotel Associates, L.P. (the "Contribution
Agreement"). Capitalized terms used without definition in this letter have the
meanings set forth in the Contribution Agreement.
Greenspoint hereby acknowledges that Patriot (which term includes for
all purposes of this letter, the addressees of this letter, their affiliates and
their respective officers, directors, representatives and agents) has not
provided any advice, representations or warranties of any kind to Greenspoint or
to any of its direct or indirect partners as to the federal, state or local tax
treatment of any of the transactions contemplated by the Contribution Agreement.
In part consideration for the mutual covenants, promises and
undertakings set forth in the Contribution Agreement, the receipt and
sufficiency of which is hereby acknowledged, Greenspoint hereby waives and
releases Patriot from any and all claims arising out of or related to a claim
that such advice, representation or warranty has been provided. Further,
Greenspoint hereby agrees to indemnify Patriot and hold Patriot harmless against
any claims by any of its direct or indirect partners arising out of or related
to a claim that such advice has been provided.
HOUSTON GREENSPOINT HOTEL
ASSOCIATES, L.P.
By: Greenspoint Associates, Ltd., a
__________ limited partnership, its
general partner
By: The New Greenspoint Hotel
Corporation, a _____________
corporation, its general partner
<PAGE>
By:
Name:
Title:
<PAGE>
EXHIBIT I
---------
Wyndham Comfort Letter
----------------------
July ____, 1996
Paine Webber Real Estate Securities Inc.,
its successors, assigns, designees and/or affiliates
1285 Avenue of the Americas, 19th Floor
New York, New York 10019
Patriot American Hospitality Partnership, L.P.,
its successors, assigns, designees and/or affiliates
3030 LBJ Freeway, Suite 1500
Dallas, Texas 75234
Re: Management Agreement by and between and assigned to Crow Hotel Lessee,
Inc., a Texas corporation ("Crow"), as amended pursuant to that
certain Assignment, Assumption and Modification Agreement dated as of
____________, 1996, and Wyndham Management Corporation, a Delaware
corporation ("Wyndham") dated _________________, (as amended and
assigned the "Agreement") in connection with the
Hotel located at _____________________ ("Hotel")
Gentlemen:
Wyndham has entered into the above referenced Agreement pertaining to the
operation of the Hotel as a Wyndham Hotel. Patriot American Hospitality
Partnership, L.P., a Virginia limited partnership ("Patriot"), and Paine Webber
Real Estate Securities Inc. ("Paine Webber") have advised us that Paine Webber
and Patriot have entered, or are about to enter, into a loan agreement whereby
Paine Webber's loan will be secured by a first mortgage on the premises on which
the Hotel is situated. Patriot and Paine Webber have requested that we execute
this letter agreement with respect to Patriot's rights in the Agreement.
Wyndham hereby acknowledges and agrees that in the event that the Lease
Agreement by and between Patriot and Crow dated as of even date herewith (the
"Lease") is terminated for any reason (hereinafter referred to as a "Lease
Termination"), then the Agreement may be assumed by any Successor (hereinafter
defined) provided such Successor shall not have any liability under the
Agreement prior to the date of such assumption by such Successor. As used
herein, the term "Successor" shall mean Patriot, Patriot's designee, Paine
Webber, Paine Webber's designee, or any third party purchaser pursuant to a
foreclosure of the mortgage or other proceeding brought to enforce the rights of
the holder of the mortgage or pursuant to a
<PAGE>
deed in lieu of foreclosure or by any other method. If such Successor assumes
the Agreement, the Hotel will continue to be operated as a Wyndham Hotel (or as
a Wyndham Hotel and Resort, if applicable) with the use of the Wyndham Hotel and
Resort name, logo and other applicable trademarks or trade names, Wyndham's
reservation system, marketing and advertising services and other services
provided by Wyndham Hotel Corporation and its affiliates ("Wyndham Hotels") to
comparable Wyndham hotels for up to four (4) months following the date of such
Lease Termination (the "Temporary Usage"). Successor shall pay to Wyndham
during the period of Temporary Usage (a) the management fees payable to Wyndham
under the Agreement attributable to the period of Temporary Usage and (b) the
fees charged by Wyndham Hotels on a systemwide basis for comparable hotels
operating under the Wyndham name which utilize the Wyndham name and services of
Wyndham Hotels utilized by the Hotel (the "Trade Name Fees"), unless such
termination is due to an Event of Default under the Lease (as such term is
defined in the Lease) in which event no Trade Name Fee would be payable during
the Temporary Usage period. Such Temporary Usage may be terminated by such
Successor on thirty (30) days' notice to Wyndham Hotels.
Sincerely,
WYNDHAM MANAGEMENT CORPORATION
By:
Name:
Title:
<PAGE>
SCHEDULE 1
----------
AUTHORIZATIONS
<PAGE>
SCHEDULE 2
----------
Intentionally Deleted
<PAGE>
SCHEDULE 3
----------
OCCUPANCY AGREEMENTS
<PAGE>
SCHEDULE 4
----------
OPERATING AGREEMENTS
<PAGE>
SCHEDULE 5
----------
EXISTING SECURED INDEBTEDNESS
<PAGE>
SCHEDULE 6
----------
PERSONAL PROPERTY LEASES
<PAGE>
EXHIBIT 10.47
<PAGE>
AGREEMENT OF PURCHASE AND SALE
between
PAH ACQUISITION CORPORATION
a Virginia corporation
and
("Patriot")
and
ATLANTA MIDTOWN ASSOCIATES,
a Texas general partnership
("Seller")
<PAGE>
TABLE OF CONTENTS
Page
ARTICLE I DEFINITIONS
1.1 Definitions........................................................ 1
ARTICLE II PURCHASE AND SALE OF PROPERTY; DEPOSIT; PAYMENT OF
PURCHASE PRICE; TITLE
2.1 Purchase and Sale.................................................. 8
2.2 Payment of Purchase Price.......................................... 8
2.3 Deposit............................................................ 8
2.4 Submission Matters and Title Information........................... 9
2.5 Conditional Additional Purchase Price............................. 11
ARTICLE III SELLER'S REPRESENTATIONS AND WARRANTIES
3.1 Organization and Power............................................ 12
3.2 Authorization and Execution....................................... 12
3.3 Non-contravention................................................. 12
3.4 Title To Real Property............................................ 13
3.5 No Special Taxes.................................................. 13
3.6 Compliance with Existing Laws..................................... 13
3.7 Personal Property................................................. 13
3.8 Operating Agreements.............................................. 13
3.9 Insurance......................................................... 13
3.10 Condemnation Proceedings; Roadways................................ 13
3.11 Actions or Proceedings............................................ 13
3.12 Labor and Employment.............................................. 14
3.13 Financial Information and Submission Matters...................... 14
3.14 Submission Matters................................................ 14
3.15 Bankruptcy........................................................ 14
3.16 Hazardous Substances.............................................. 14
3.17 Intentionally Deleted............................................. 15
3.18 Occupancy Agreements.............................................. 15
3.19 Leased Property................................................... 15
3.20 Americans With Disabilities Act................................... 15
3.21 Structural Condition.............................................. 15
3.22 Zoning and Platting............................................... 15
3.23 Access............................................................ 15
3.24 No Commitments.................................................... 15
3.25 Seller Is Not a "Foreign Person".................................. 16
3.26 No Other Property Interests....................................... 16
3.27 Intentionally Deleted............................................. 16
i
<PAGE>
3.28 Intentionally Deleted............................................. 16
3.29 Space Leases...................................................... 16
3.30 Relationship to Certain Parties................................... 16
3.31 LIMITATIONS ON REPRESENTATIONS AND WARRANTIES..................... 16
ARTICLE IV PATRIOT'S REPRESENTATIONS AND WARRANTIES
4.1 Organization and Power............................................ 17
4.2 Authority of Patriot.............................................. 18
4.3 Non-contravention................................................. 18
4.4 Litigation........................................................ 18
4.5 Bankruptcy........................................................ 18
ARTICLE V CONDITIONS PRECEDENT
5.1 As to Patriot's Obligations....................................... 18
5.2 As to Seller's Obligations........................................ 20
5.3 As to Patriot's and Seller's Obligations.......................... 20
ARTICLE VI COVENANTS OF SELLER
6.1 Operating Agreements and Occupancy Agreements..................... 21
6.2 Warranties and Guaranties......................................... 21
6.3 Insurance......................................................... 21
6.4 Independent Audit................................................. 21
6.5 Operation of Property Prior to Closing............................ 22
6.6 No Marketing...................................................... 23
6.7 Employees......................................................... 23
ARTICLE VII INTENTIONALLY DELETED
ARTICLE VIII CLOSING
8.1 Closing........................................................... 24
8.2 Seller's Deliveries............................................... 24
8.3 Patriot's Deliveries.............................................. 27
8.4 Mutual Deliveries................................................. 27
8.5 Closing Costs..................................................... 28
8.6 Revenue and Expense Allocations................................... 28
ARTICLE IX GENERAL PROVISIONS
9.1 Condemnation...................................................... 30
9.2 Risk of Loss...................................................... 31
9.3 Absence of Broker................................................. 31
9.4 Bulk Sale......................................................... 32
9.5 Confidentiality................................................... 32
9.6 Seller's Accounts Receivable...................................... 32
ii
<PAGE>
ARTICLE X LIABILITY OF PATRIOT; INDEMNIFICATION BY SELLER;
DEFAULT; TERMINATION RIGHTS
10.1 Liability of Patriot.............................................. 33
10.2 Indemnification by Seller......................................... 33
10.3 Indemnification by Patriot........................................ 33
10.4 Default by Seller/Failure of Conditions Precedent................. 33
10.5 Default by Patriot/Failure of Conditions Precedent................ 34
10.6 Costs and Attorneys' Fees......................................... 34
10.7 Limitation of Liability........................................... 34
ARTICLE XI MISCELLANEOUS PROVISIONS
11.1 Completeness; Modification........................................ 35
11.2 Assignments....................................................... 35
11.3 Successors and Assigns............................................ 35
11.4 Days.............................................................. 35
11.5 Governing Law..................................................... 35
11.6 Counterparts...................................................... 35
11.7 Severability...................................................... 35
11.8 Costs............................................................. 36
11.9 Notices........................................................... 36
11.10 Escrow Agent...................................................... 37
11.11 Incorporation by Reference........................................ 37
11.12 Survival.......................................................... 37
11.13 Further Assurances................................................ 37
11.14 No Partnership.................................................... 37
11.15 Time of Essence................................................... 37
11.16 Signatory Exculpation............................................. 38
11.17 Rules of Construction............................................. 38
EXHIBITS
- --------
Exhibit A - Land
Exhibit B - Surveyor's Certificate
Exhibit C - Other Properties
Exhibit D - Wyndham Comfort Letter
SCHEDULES
- ---------
Schedule 1 - Authorizations
Schedule 2 - Intentionally Deleted
Schedule 3 - Occupancy Agreements
Schedule 4 - Operating Agreements
Schedule 5 - Intentionally Deleted
Schedule 6 - Personal Property Leases
iii
<PAGE>
AGREEMENT OF PURCHASE AND SALE
------------------------------
THIS AGREEMENT OF PURCHASE AND SALE (this "Agreement") is made as of this
---------
11th day of July, 1996, between PAH ACQUISITION CORPORATION, a Virginia
corporation ("Patriot"), and ATLANTA MIDTOWN ASSOCIATES, a Texas general
-------
partnership ("Seller").
------
R E C I T A T I O N S:
A. Seller is the owner of that certain real property known as the
"Wyndham Midtown, Atlanta, Georgia", situate, lying and being in Fulton County,
State of Georgia.
B. Patriot is desirous of purchasing such hotel property from Seller and
Seller is desirous of selling such hotel property to Patriot, for the Purchase
Price and upon the terms and conditions hereinafter set forth.
NOW, THEREFORE, in consideration of premises and in consideration of the
mutual covenants, promises and undertakings of the parties hereinafter set
forth, and for other good and valuable considerations, the receipt and
sufficiency of which is hereby acknowledged by the parties, it is agreed:
ARTICLE I
----------
DEFINITIONS
-----------
1.1 Definitions. The following terms shall have the indicated meanings:
-----------
"Act of Bankruptcy" shall mean if a party hereto or any general
-----------------
partner thereof shall (a) apply for or consent to the appointment of, or the
taking of possession by, a receiver, custodian, trustee or liquidator of itself
or of all or a substantial part of its property, (b) admit in writing its
inability to pay its debts as they become due, (c) make a general assignment for
the benefit of its creditors, (d) file a voluntary petition or commence a
voluntary case or proceeding under the Federal Bankruptcy Code (as now or
hereafter in effect), (e) be adjudicated a bankrupt or insolvent, (f) file a
petition seeking to take advantage of any other law relating to bankruptcy,
insolvency, reorganization, winding-up or composition or adjustment of debts,
(g) fail to controvert in a timely and appropriate manner, or acquiesce in
writing to, any petition filed against it in an involuntary case or proceeding
under the Federal Bankruptcy Code (as now or hereafter in effect), or (h) take
any corporate or partnership action for the purpose of effecting any of the
foregoing; or if a proceeding or case shall be commenced, without the
application or consent of a party hereto or any general partner thereof, in any
court of competent jurisdiction seeking (1) the liquidation, reorganization,
dissolution or winding-up, or the composition or readjustment of debts, of such
party or general partner, (2) the appointment of a receiver, custodian, trustee
or liquidator for such
1
<PAGE>
party or general partner or all or any substantial part of its assets, or (3)
other similar relief under any law relating to bankruptcy, insolvency,
reorganization, winding-up or composition or adjustment of debts, and such
proceeding or case shall continue undismissed; or an order (including an order
for relief entered in an involuntary case under the Federal Bankruptcy Code, as
now or hereafter in effect) judgment or decree approving or ordering any of the
foregoing shall be entered and continue unstayed and in effect, for a period of
60 consecutive days.
"Advance Bookings" shall mean reservations made by Seller prior to
----------------
Closing for Hotel rooms or meeting rooms to be utilized after Closing, or for
catering services or other Hotel services to be provided after Closing, in the
ordinary course of business.
"Affiliated Company" means any other entity which is, along with a
------------------
party and/or its management company, a member of a controlled group of
corporations or a controlled group of trades or businesses (as defined in
Section 414(b) or (c) of the Internal Revenue Code), any entity which along with
such party and/or its management company is included in an affiliated service
group as defined in Section 414(m) of the Internal Revenue Code, and any other
entity which is required to be aggregated with such party and/or its management
company pursuant to Treasury Regulations under Section 414(o) of the Internal
Revenue Code.
"Applicable Laws" shall mean any applicable building, zoning,
---------------
subdivision, environmental, health, safety or other governmental laws, statutes,
ordinances, resolutions, rules, codes, regulations, orders or determinations of
any Governmental Authority or of any insurance boards of underwriters (or other
body exercising similar functions), or any restrictive covenants or deed
restrictions affecting the Property or the ownership, operation, use,
maintenance or condition thereof.
"Assignment and Assumption Agreement" shall mean one or more
-----------------------------------
assignment and assumption agreements whereby (a) Seller (1) assigns and
Patriot's lessee assumes the Operating Agreements, Space Lease and Personal
Property Leases that have not been terminated prior to Closing in accordance
herewith, (2) assigns all of Seller's right, title and interest in and to the
Intangible Personal Property, to the extent assignable, and (3) indemnifies,
defends and holds Patriot and Patriot's lessee harmless with respect to all
defaults, liabilities, claims, costs and expenses (including, without
limitation, reasonable attorneys' fees) relating to acts or omissions accruing
under such Operating Agreements, Space Leases and Personal Property Leases
before the Closing Date; and (b) Patriot's lessee indemnifies, defends and holds
Seller harmless with respect to all defaults, liabilities, claims, costs and
expenses (including, without limitation, reasonable attorneys' fees) relating to
acts or omissions accruing under such Operating Agreements, Space Lease and
Personal Property Leases from and after the Closing Date.
"Assignment of Occupancy Agreements" shall mean the assignment
----------------------------------
agreement, in recordable form, whereby (a) Seller (1) assigns and Patriot's
lessee assumes all of Seller's
2
<PAGE>
right, title and interest in and to the Occupancy Agreements, and (2)
indemnifies, defends and holds Patriot and Patriot's lessee harmless with
respect to all defaults, liabilities, claims, costs and expenses (including,
without limitation, reasonable attorneys' fees) relating to acts or omissions
accruing under such Occupancy Agreements before the Closing Date; and (b)
Patriot's lessee indemnifies, defends and holds Seller harmless with respect to
all defaults, liabilities, claims, costs and expenses (including, without
limitation, reasonable attorneys' fees) relating to acts or omissions accruing
under such Occupancy Agreements from and after the Closing Date.
"Authorizations" shall mean all licenses, permits and approvals
--------------
required by any governmental or quasi-governmental agency, body, department,
commission, board, bureau, instrumentality or officer, with respect to the
construction, ownership, operation, leasing, maintenance, or use of the Property
or any part thereof, which Authorizations are more particularly described on
Schedule 1 attached hereto and made a part hereof.
- ----------
"Bill of Sale - Personal Property" shall mean one or more bills of
--------------------------------
sale conveying title to the Tangible Personal Property from Seller to Patriot
(as Patriot shall specify).
"Closing" shall mean the Closing of the purchase and sale of the
-------
Property pursuant to this Agreement and shall be deemed to occur on the Closing
Date.
"Closing Date" shall mean the date on which the Closing occurs.
------------
"Closing Documents" shall mean the documents defined as such in
-----------------
Section 8.1 hereof.
- -----------
"Conditional Additional Purchase Price" shall have the meaning
-------------------------------------
ascribed to such term in Section 2.5 hereof.
-----------
"Deed" shall mean that certain deed conveying title to the Real
----
Property with special warranty covenants of title from Seller to Patriot, in
recordable form, and subject only to Permitted Title Exceptions. If there is
any difference between the description of the Land, as shown on Exhibit A
---------
attached hereto and the description of the Land as shown on the Survey, the
description of the Land to be contained in the Deed and the description of the
Land set forth in the Title Commitment shall conform to the description shown on
the Survey.
"Deposit" shall mean all amounts deposited from time to time with
-------
Escrow Agent by Patriot pursuant to Section 2.3 hereof. All cash Deposits shall
-----------
be invested by Escrow Agent in a commercial bank or banks acceptable to Patriot
at money market rates, or in such other investments as shall be approved in
writing by Seller and Patriot. The Deposit shall be held and disbursed by
Escrow Agent in strict accordance with the terms and provisions of this
Agreement.
3
<PAGE>
"Effective Date" shall mean the date this Agreement has been fully
--------------
executed and delivered by all parties hereto.
"Environmental Damages" shall mean all third-party claims, judgments,
---------------------
damages, losses, penalties, fines, liabilities (including, without limitation,
punitive damages and strict liability), encumbrances, liens, costs and expenses
of investigation and defense of any claim, whether or not such is ultimately
defeated, and of any settlement or judgment, of whatever kind or nature,
contingent or otherwise, matured or unmatured, including, without limitation,
attorneys' fees and disbursements and consultants' fees, any of which arise as a
result of the existence of Hazardous Materials upon, about or beneath the
Property or migrating or threatening to migrate from the Property, or as a
result of the existence of a violation of Environmental Requirements pertaining
to the Property.
"Environmental Requirements" shall mean (i) all applicable statutes,
--------------------------
regulations, rules, policies, ordinances, codes, licenses, permits, orders,
approvals, plans, authorizations, and similar items, of all Governmental
Authorities, and (ii) all judicial, administrative and regulatory decrees,
judgments and orders, in each case of (i) and (ii) relating to the protection of
human health or the environment from Hazardous Materials, including, without
limitation: (a) all requirements thereof, including, without limitation, those
pertaining to reporting, licensing, permitting, investigation and remediation of
emissions, discharges, releases or threatened releases of Hazardous Materials
into the air, surface water, groundwater or land, or relating to the
manufacture, processing, distribution, use, treatment, storage, disposal,
transport or handling of Hazardous Materials; and (b) all requirements
pertaining to the protection of the health and safety of employees or the public
from Hazardous Materials.
"Escrow Agent" shall mean Unity Title Company, whose address is 2610
------------
Maxus Energy Tower, 717 North Harwood Street, Dallas, Texas 75201 (telephone
(214) 969-5300, fax (214) 969-5348).
"Financial Information" shall mean the financial information defined
---------------------
as such in Section 3.13 hereof.
------------
"FIRPTA Certificate" shall mean the affidavit of Seller under Section
------------------
1445 of the Internal Revenue Code, as amended, certifying that Seller is not a
foreign corporation, foreign partnership, foreign trust, foreign estate or
foreign person (as those terms are defined in the Internal Revenue Code and
regulations promulgated thereunder), in form and substance satisfactory to
Patriot.
"Governmental Authority" shall mean any federal, state, county,
----------------------
municipal or other government or any governmental or quasi-governmental agency,
department, commission, board, bureau, officer or instrumentality, foreign or
domestic, or any of them, having jurisdiction over Patriot or the Project.
4
<PAGE>
"Hazardous Materials" shall mean any chemical substance: (i) which is
-------------------
or becomes defined as a "hazardous substance," "hazardous waste," "hazardous
material," "pollutant," "contaminant," or "toxic," "explosive," "corrosive,"
"flammable," "infectious," "radioactive," "carcinogenic," or "mutagenic"
material under any law, regulation, rule, order, or other authority of the
federal, state or local governments, or any agency, department, commission,
board, or instrumentality thereof, regarding the protection of human health or
the environment from such chemical substances including, but not limited to, the
following federal laws and their amendments, analogous state and local laws, and
any regulations promulgated thereunder: the Clean Air Act, the Clean Water Act,
the Oil Pollution Control Act, the Comprehensive Environmental Response,
Compensation, and Liability Act of 1986, the Emergency Planning and Community
Right to Know Act, the Solid Waste Disposal Act, the Resource Conservation and
Recovery Act, the Safe Drinking Water Act, the Federal Insecticide, Fungicide
and Rodenticide Act, and the Toxic Substances Control Act, including, without
limitation, asbestos and gasoline and other petroleum products (including crude
oil or any fraction thereof); (ii) without limitation, which contains gasoline,
diesel fuel or other petroleum hydrocarbons; (iii) without limitation, which
contains drinking biphenyls or asbestos or asbestos-containing materials or urea
formaldehyde foam insulation; or (iv) without limitation, radon gas.
"Hotel" shall mean the 191-room hotel and related amenities located on
-----
the Land.
"Improvements" shall mean the Hotel and all other buildings,
------------
improvements, fixtures and other items of real estate located on the Land.
"Insurance Policies" shall mean all policies of insurance maintained
------------------
by or on behalf of Seller pertaining to the Property, its operation, or any part
thereof.
"Intangible Personal Property" shall mean all intangible personal
----------------------------
property owned or possessed by Seller and used in connection with the ownership,
operation, leasing, occupancy or maintenance of the Property, including, without
limitation, (1) the Authorizations, (2) utility and development rights and
privileges, business records, plans and specifications pertaining to the Real
Property and the Personal Property, (3) any unpaid award for taking by
condemnation or any damage to the Land by reason of a change of grade or
location of or access to any street or highway which was not effective prior to
the Effective Date, and (4) the share of the Rooms Ledger determined under
Section 8.6 hereof, excluding (a) any of the aforesaid rights Patriot elects not
- -----------
to acquire, (b) cash reserves for FF&E, taxes and insurance, and (c) accounts
receivable except for the above described share of the Rooms Ledger.
"Invested Capital" shall have the meaning ascribed to such term in
----------------
Section 2.5 hereof.
- -----------
"Land" shall mean that certain parcel of real estate lying and being
----
in Fulton
5
<PAGE>
County, Georgia, as more particularly described on Exhibit A attached hereto,
---------
together with all easements, rights, privileges, remainders, reversions and
appurtenances thereunto belonging or in any way appertaining, and all of the
estate, right, title, interest, claim or demand whatsoever of Seller therein, in
the streets and ways adjacent thereto and in the beds thereof, either at law or
in equity, in possession or expectancy, now or hereafter acquired.
"Lease" means the lease of the Hotel which has been approved by Lessor
-----
and Lessee and is to be entered by Lessor and Lessee in accordance with Section
-------
8.4(d) hereof.
- ------
"Leased Property" shall mean all leased items of Tangible Personal
---------------
Property.
"Lessee" means Crow Hotel Lessee, Inc.
------
"Lessor" means Patriot or its assignee.
------
"Manager" shall have the meaning ascribed to such term in Section
------- -------
5.11(e) hereof.
- -------
"Net Rent" shall have the meaning ascribed to such term in Section 2.5
-------- -----------
hereof.
"Occupancy Agreements" shall mean all leases, concession or occupancy
--------------------
agreements in effect with respect to the Real Property under which any tenants
(other than Hotel guests) or concessionaires occupy space upon the Real
Property, which Occupancy Agreements are described on Schedule 3 attached hereto
----------
and made a part hereof.
"Operating Agreements" shall mean all management, service, supply and
--------------------
maintenance contracts, if any, in effect with respect to the Property and all
other contracts (other than the Occupancy Agreements and the Space Leases) that
affect the Property or are otherwise related to the construction, ownership,
operation, occupancy or maintenance of the Property, which Operating Agreements
are described on Schedule 4 attached hereto and made a part hereof.
----------
"Operating Partnership" shall mean Patriot American Hospitality
---------------------
Partnership, L.P., a Virginia limited partnership.
"Other Agreement of Purchase and Sale" means that certain Contribution
------------------------------------
Agreement of even date herewith for the Other Property entered into by Patriot
and an affiliate of Seller.
"Other Lease Agreement" means that certain lease of the hotel to be
---------------------
acquired on the Closing Date by Patriot pursuant to the Other Agreement of
Purchase and Sale between Lessor, as lessor, and Lessee, as lessee.
"Other Property" means that certain hotel described on Exhibit C.
-------------- ---------
6
<PAGE>
"Owner's Title Policy" shall mean an owner's policy of title insurance
--------------------
issued to Patriot by the Title Company, pursuant to which the Title Company
insures Patriot's ownership of fee simple title to the Real Property (including
the indefeasibility thereof) subject only to Permitted Title Exceptions. The
Owner's Title Policy shall insure Patriot in the amount of the Purchase Price
and shall be reasonably acceptable in form and substance to Patriot. Patriot
may require such deletions of standard exceptions and such title endorsements as
are legally available and customarily required by institutional investors
purchasing property comparable to the Property in the State where the Property
is situated. The description of the Land in the Owner's Title Policy shall be
by courses and distances or by reference to a legal, subdivided lot and shall be
identical to the description shown on the Survey.
"Patriot's Objections" shall mean the objections defined as such in
--------------------
Section 2.4(c) hereof.
- --------------
"Permitted Title Exceptions" shall mean those exceptions to title to
--------------------------
the Real Property that are satisfactory to Patriot or deemed satisfactory to
Patriot pursuant to Section 2.4(c) hereof.
--------------
"Personal Property" shall mean collectively the Tangible Personal
-----------------
Property and the Intangible Personal Property.
"Personal Property Leases" shall mean the leases pursuant to which
------------------------
Seller leases the Leased Property, which Personal Property Leases are described
on Schedule 6 attached hereto and made a part hereof.
----------
"Property" shall mean collectively the Real Property and the Personal
--------
Property.
"Purchase Price" shall mean $16,730,000.00 payable in the manner
--------------
described in Section 2.2 hereof and subject to adjustment as set forth herein.
-----------
"Real Property" shall mean the Land and the Improvements.
-------------
"Rooms Ledger" shall mean the final night's room revenue (revenue from
------------
rooms occupied as of 12:01 a.m. on the Closing Date, exclusive of food,
beverage, telephone and similar charges which shall be retained by Seller),
including any sales taxes, room taxes or other taxes thereon.
"Seller's Organizational Documents" shall mean the current partnership
---------------------------------
agreement and certificate of limited partnership and all amendments thereto of
Seller and its general partners.
"Space Leases" shall mean (a) Substituted Parking Easement Agreement
------------
dated as of August 11, 1989, between Atlanta Midtown Associates, as grantee, and
J. Donald Childress, Jeanne D. Goodwill, Fred W. Klein, Jr., as Trustees of the
J. Donald Childress, Jr.
7
<PAGE>
Trust, Jeanne D. Goodwill and Fred W. Klein, Jr., as Trustees of the McKinley
Camille Childress Trust, Jeanne D. Goodwill and Fred W. Klein, Jr., as Trustees
of the Trevor McNeil Childress Trust, Jeanne D. Goodwill and Fred W. Klein, Jr.,
as Trustees of the Stuart Elizabeth Childress Trust, and Trust Company Bank, as
Trustee, U/A Benjamin T. White, Trustee, U/A Jill V. Childress and J. McDonald
Williams, Trustees U/A J. Donald Childress F/B/O, J. Donald Childress, Jr.,
McKinley Camille Childress and Trevor McNeil Childress, recorded in Book 12713,
Page 326 of the Records maintained by the Fulton County Clerk; and (b) Lease
Agreement dated as of May 24, 1990, between Atlanta Midtown Associates, as
tenant, and J. Donald Childress, Camille Childress Trust, The Trevor McNeil
Childress Trust, The Stuart Elizabeth Childress Trust, and The Irrevocable Trust
dated February 24, 1986, for the benefit of Descendants of J. Donald Childress
and Jill V. Childress, as landlord.
"Submission Matters" shall mean all items Seller is required to
------------------
deliver to Patriot or make available to Patriot for its review pursuant to
Section 2.4(a) hereof.
- --------------
"Survey" shall mean the survey defined as such in and prepared
------
pursuant to Section 2.4(c) hereof.
---------------
"Tangible Personal Property" shall mean the items of tangible personal
--------------------------
property consisting of all furniture, fixtures, equipment, machinery and other
personal property of every kind and nature (including cash-on-hand and petty
cash funds) located on or used or useful in the operation of the Hotel and owned
by Seller, including, without limitation, unopened inventories of food and
beverages and the stock of linens, towels, paper goods, soaps, cleaning
supplies, china, glassware, silverware, tablecloths, napkins, television sets,
carpets, drapes, rugs, floor coverings, mattresses, pillows, bed spreads and
miscellaneous guest supplies, engineering cleaning supplies and the like.
"Title Commitment" shall mean the title commitment and exception
----------------
documents defined as such in Section 2.4(c) hereof.
--------------
"Title Company" shall mean Escrow Agent on behalf of Commonwealth Land
-------------
Title Insurance Company or other title insurance underwriter selected by
Patriot.
"UCC Reports" shall mean the reports defined as such in Section 2.4(c)
----------- --------------
hereof.
"Utilities" shall mean public sanitary and storm sewers, natural gas,
---------
telephone, public water facilities, electrical facilities and all other utility
facilities and services necessary or appropriate for the operation and occupancy
of the Property as a hotel.
"Warranties and Guaranties" shall mean all warranties and guaranties
-------------------------
relating to the Improvements or the Tangible Personal Property or any part
thereof, if any.
<PAGE>
ARTICLE II
-----------
PURCHASE AND SALE OF PROPERTY; DEPOSIT; PAYMENT
-----------------------------------------------
OF PURCHASE PRICE; TITLE
------------------------
2.1 Purchase and Sale. Seller agrees to sell, and Purchaser agrees
-----------------
to purchase, the Property for the Purchase Price and in accordance with, and
subject to, the terms and conditions hereinafter set forth.
2.2 Payment of Purchase Price. The Purchase Price, subject to
-------------------------
adjustment as provided in Section 2.5 below, shall be paid to Seller in the
-----------
following manner:
(a) Purchaser shall receive a credit against the Purchase Price in an
amount equal to the amount of the cash Deposit.
(b) Patriot shall pay the balance of the Purchase Price as adjusted in
the manner specified in Article VIII and as set forth below, to Seller or other
------------
applicable party at Closing by making a wire transfer of immediately available
federal funds to the account of Seller or other applicable party as specified in
writing by Seller.
The parties agree that the Purchase Price shall be allocated between the Real
Property and Personal Property in accordance with the appraisal of the Personal
Property to be obtained by Patriot prior to the Closing.
2.3 Deposit. Within three (3) days after the execution hereof by
-------
both Seller and Patriot and as a condition precedent to the effectiveness of
this Agreement, Patriot shall deliver to Escrow Agent (i) a wire transfer or
check in the sum of Fifty Dollars ($50.00) payable to the order of Seller
representing the independent consideration for Seller's execution of this
Agreement and agreement to provide Patriot with the Study Period (which check or
the proceeds of which wire transfer shall thereafter be delivered by Escrow
Agent to Seller) and (ii) a demand note in the amount of $130,703.00 executed by
the Operating Partnership, payable to the order of Seller (the "Deposit").
-------
Escrow Agent shall hold the Deposit pursuant to the terms, conditions and
provisions of this Agreement. All accrued interest on the Deposit shall belong
to the party entitled to the Deposit pursuant to the terms hereof. The Deposit
shall be either (a) returned to Patriot pursuant hereto, or (b) paid to Seller
pursuant hereto.
2.4 Submission Matters and Title Information.
----------------------------------------
(a) Seller has delivered the following to Patriot:
(1) Copies of the Space Leases and all Occupancy Agreements in
effect as of the date of this Agreement.
(2) To the extent in Seller's possession or reasonably available
to
<PAGE>
Seller, copies of all Authorizations including, without limitation, all
certificates of occupancy, permits, authorizations, approvals and licenses
issued by Governmental Authorities having jurisdiction over the Property and
copies of all certificates issued by the local board of fire underwriters (or
other body exercising similar functions) relating to the Property. For the
purpose of this Agreement any Submission Matters in the possession of Seller's
management company shall be deemed to be "reasonably available to Seller."
(3) A complete list of advance reservations and room bookings for
the Property.
(4) Complete copies of all such Operating Agreements.
(5) A schedule setting forth the type and amounts of insurance
coverage maintained by Seller with respect to the Property as of the date of
this Agreement and complete copies of all such Insurance Policies.
(6) To the extent in Seller's possession or reasonably available
to Seller, financial and operating statements for the Property for the previous
three (3) calendar years and the year to date.
(7) The operating and capital expenditure budget for the Property
for the current calendar year and, to the extent in Seller's possession or
reasonably available to Seller, for the previous three (3) calendar years.
(8) A complete list of all Leased Property and complete copies of
all Personal Property Leases.
(9) To the extent in Seller's possession or reasonably available
to Seller, copies of invoices for all ad valorem taxes and special assessments
assessed against the Property for the current calendar year and prior three
calendar years, either statements for Utilities payable for the current calendar
year and any prior years (if available at the Hotel or in the Dallas, Texas
office of Seller's current manager of the Hotel) or such other information which
Seller may have in its or Seller's current manager's possession itemizing the
payment of Utilities for the Hotel, and any information in Seller's possession
or reasonably available to Seller regarding current renditions or assessments on
the Property or notices relative to change in valuation for ad valorem taxes.
(10) To the extent in Seller's possession or reasonably available
to Seller, a complete list of all Warranties and Guaranties in effect as of the
date of this Agreement and complete copies of all such Warranties and
Guaranties.
(11) Copies of all soil tests, structural engineering tests,
masonry
<PAGE>
tests, percolation tests, water, oil, gas, mineral, radon, formaldehyde, PCB or
other environmental tests, audits or reports, market studies and site plans
related to the Property in Seller's possession or reasonably available to
Seller.
(12) If in Seller's possession or reasonably available to Seller,
Seller will make available to Patriot at the Property or at the office's of
Seller's current manager in Dallas, Texas, copies of complete sets of all
architectural, mechanical, structural and/or electrical plans and specifications
used in connection with the construction of or alterations or repairs to the
Property.
(13) If in Seller's possession or reasonably available to Seller,
Seller will make available to Patriot at the Property or at the office's of
Seller's current manager in Dallas, Texas, copies of as-built plans and
specifications for the Property.
(14) Parking, structural, mechanical or other engineering reports
or engineering studies related to the Property, if any, in Seller's possession
or reasonably available to Seller.
(15) If in Seller's possession or reasonably available to Seller,
copies of any title insurance policies covering the Real Property and any
surveys of all or any portion of the Property.
Until the Closing, Seller shall make available to Patriot, its agents, auditors,
engineers, attorneys, potential lessees and other designees, for inspection
and/or copying, copies of all existing architectural and engineering studies,
surveys, title insurance policies, zoning and site plan materials,
correspondence, environmental audits and reviews, books, records, tax returns,
bank statements, financial statements, advance reservations and room bookings
and function bookings, rate schedules and any and all other materials or
information relating to the Property which are in, or come into, Seller's
possession or control or are otherwise reasonably available to Seller.
(b) Patriot shall give Seller reasonable oral or written notice of all
proposed inspections to be undertaken on the Property. Seller's prior oral or
written consent shall be required (but shall not be unreasonably withheld or
delayed) only as to Patriot's undertaking of invasive testing at the Property,
and such testing and inspections shall be coordinated with the general manager
of the Hotel. Any such inspection or activity shall (i) not unreasonably
interfere with the operation of the Property and (ii) shall be conducted at such
times and in such manner as to not unreasonably disturb the guests of the Hotel.
Seller shall have the right to designate a representative to accompany Patriot's
employees, agents, and independent contractors on any such inspections. Patriot
shall indemnify and defend Seller against any loss, damage or claim for personal
injury or property damage arising from the negligent or willful acts upon the
Real Property by Patriot or any agents, contractors or employees of Patriot.
Patriot, at its own expense, shall restore any damage to the Property caused by
any of the tests or studies made by Patriot. This provision shall survive any
termination of this
<PAGE>
Agreement and a closing of the transaction contemplated hereby.
(c) Seller has delivered to Patriot, at Seller's sole cost and
expense, two copies to Patriot's attorneys, Akin, Gump, Strauss, Hauer & Feld,
L.L.P., a Survey of the Land and the Improvements, prepared by a Surveyor
licensed to practice as such in the State where the Land is located and
reasonably acceptable to Patriot, bearing a date not earlier than thirty (30)
days from the date of its delivery, containing the certificate attached hereto
as Exhibit B, and substantially conforming to the requirements set forth in such
---------
certificate. Seller has caused the Title Company to furnish to Patriot, at
Seller's sole cost and expense, (i) a title insurance commitment bearing an
effective date subsequent to the date of this Agreement issued by the Title
Company covering the Real Property, binding the Title Company to issue its
Owner's Policy of Title Insurance, in form approved for use in the state where
the Property is located in favor of Patriot, showing title to be held currently
by Seller in a good, indefeasible and insurable condition, together with legible
copies of all documents identified in such title insurance commitment as
exceptions to title certified as true and complete by the Title Company
(collectively, the "Title Commitment"), and (ii) reports of searches of the
----------------
Uniform Commercial Code records of both the county and State in which the
Property is located (collectively, the "UCC Reports") with respect to the state
-----------
of title to the Property. Patriot has notified Seller of any matters shown on
the Survey or identified in the Title Commitment or the UCC Reports that Patriot
is unwilling to accept (collectively, "Patriot's Objections"). If any of
--------------------
Patriot's Objections consist of delinquent taxes, mortgages, deeds of trust,
security agreements, construction or mechanics' liens, tax liens or other liens
or charges in a fixed sum or capable of computation as a fixed sum, then, to
that extent, notwithstanding anything herein to the contrary, Seller shall be
obligated to pay and discharge (or bond against in a manner sufficient to cause
the Title Company to insure over such Patriot's Objections) at or prior to
Closing all of such Patriot's Objections. Seller shall not, after the date of
this Agreement, subject the Real Property to or permit or suffer to exist any
liens, encumbrances, covenants, conditions, restrictions, easements or other
title matters or seek any zoning changes or take any other action which may
affect or modify the status of title without Patriot's prior written consent
unless same are discharged at or prior to Closing. All title matters revealed
by the Title Commitment, UCC Reports and Survey and not objected to by Patriot
as provided above (other than those rendering title defeasible and delinquent
taxes, mortgages, deeds of trust, security agreements and other liens and
charges that are to be paid at Closing as provided above) shall be deemed
Permitted Title Exceptions. Notwithstanding the foregoing, Patriot shall not be
required to take title to the Real Property subject to any matters which may
arise subsequent to the effective date of the Title Commitment, UCC Reports and
Survey examined by Patriot prior to the date hereof.
2.5 Conditional Additional Purchase Price. The Purchase Price shall
-------------------------------------
be increased by Two Million Dollars ($2,000,000.00) (the "Conditional Additional
----------------------
Purchase Price") if, but only if the Net Rent (defined below) for the Property
- --------------
equals or exceeds 11% of Invested Capital (defined below) for calendar year 1996
on an annualized basis and 12% of Invested Capital for calendar year 1997. "Net
Rent" means total rent paid under the Lease (without subsidy through reduction
of management fees or other contributions by Lessee or its
<PAGE>
affiliates) less any amounts payable by the Lessor for taxes, insurance, and
capital reserves, which reserves will equal 4% of Gross Revenues (as such term
shall be defined in the Lease). "Invested Capital" means (i) $18,730,000.00,
plus (ii) the aggregate of all costs and expenses paid or accrued by Patriot,
Lessor and their affiliates in connection with the acquisition and financing of
the Property and leasing of the Hotel, including, without limitation, all legal,
accounting, engineering, environmental, consulting, commission, title, escrow,
loan, and other fees, costs, and expenses incurred in connection with the
acquisition and financing of the Property and leasing of the Hotel (not to
exceed for this calculation the amount of $250,000), plus (iii) expenditures to
carry out the initial renovation budget for the Property, which, unless
otherwise agreed by Patriot, Patriot American Hospitality, Inc., and Seller,
will not exceed $500,000.00. This Section shall survive the Closing of the
transaction contemplated hereby. The Conditional Additional Purchase Price shall
be payable on the later of thirty (30) days after the (i) the final calculation
of Invested Capital or (ii) the final calculation of the Net Rent for the
calendar year 1997. In the event that the Lease is terminated for any reason,
Patriot (its successors or assigns) shall not have any obligation to pay the
Conditional Additional Purchase Price to Seller.
ARTICLE III
------------
SELLER'S REPRESENTATIONS AND WARRANTIES
---------------------------------------
To induce Patriot to enter into this Agreement and to acquire the
Property, and to pay the Purchase Price therefor, Seller hereby makes the
following representations and warranties with respect to the Property, upon each
of which Seller acknowledges and agrees that Patriot and its permitted assignees
are entitled to rely and have relied:
3.1 Organization and Power. Seller is a Texas general partnership
----------------------
duly formed, validly existing and in good standing under the laws of the State
of Texas and is qualified to transact business in the State where the Real
Property is located and has all requisite powers and all governmental licenses,
authorizations, consents and approvals to carry on its business as now conducted
and to enter into and perform its obligations hereunder and under any document
or instrument required to be executed and delivered on behalf of Seller
hereunder.
3.2 Authorization and Execution. This Agreement has been duly
---------------------------
authorized by all necessary action on the part of Seller, has been duly executed
and delivered by Seller, constitutes the valid and binding agreement of Seller
and is enforceable in accordance with its terms. There is no other person or
entity who has an ownership interest in the Property or whose consent is
required in connection with Seller's performance of its obligations hereunder.
The person executing this Agreement on behalf of Seller has the authority to do
so.
3.3 Non-contravention. The execution and delivery of, and the
-----------------
performance by Seller of its obligations under, this Agreement do not and will
not contravene, or constitute a default under any of Seller's Organizational
Documents, any judgment, injunction, order or decree binding upon Seller or to
which the Property is subject, or, to Seller's knowledge, do
<PAGE>
not and will not contravene, or constitute a default under, any provision of
applicable law or regulation, any agreement, or other instrument binding upon
Seller or to which the Property is subject, or result in the creation of any
lien or other encumbrance on any asset of Seller. There are no outstanding
agreements (written or oral) pursuant to which Seller (or any predecessor to or
representative of Seller) has agreed to sell or has granted an option or right
of first refusal to purchase the Property or any part thereof except for those
that will be waived or released at or prior to Closing.
3.4 Title To Real Property. Seller is the sole owner of fee simple
----------------------
absolute title to the Real Property.
3.5 No Special Taxes. Seller has no knowledge of, nor has it
----------------
received any written notice of, any special taxes or assessments relating to the
Property or any part thereof or any planned public improvements that may result
in a special tax or assessment against the Property.
3.6 Compliance with Existing Laws. To Seller's knowledge, Seller
-----------------------------
possesses all Authorizations, each of which is valid and in full force and
effect, and no provision, condition or limitation of any of the Authorizations
has been breached or violated. Seller has no knowledge of any termination,
suspension, modification or limitation affecting any of the Authorizations.
Seller has no knowledge, nor has it received written notice within the past two
(2) years, of any existing or threatened violation of any provision of any
Applicable Laws including, but not limited to, those of environmental agencies
or insurance boards of underwriters with respect to the ownership, operation,
use, maintenance or condition of the Property or any part thereof, or requiring
any repairs or alterations to the Property other than those that have been made
prior to the date hereof, which existing or threatened violation could have a
materially adverse effect on the value, use, insurability or operation of the
Property.
3.7 Personal Property. All of the Personal Property, excluding the
-----------------
Leased Property, being conveyed by Seller hereunder are free and clear of all
liens and encumbrances except for those which will be discharged by Seller at
Closing, and Seller has good and merchantable title thereto and the right to
convey same in accordance with the terms of this Agreement.
3.8 Operating Agreements. To Seller's knowledge, there are no
--------------------
management, service, supply or maintenance contracts in effect with respect to
the Property other than the Operating Agreements. To Seller's knowledge, Seller
has performed in all material respects all of its obligations under each of the
Operating Agreements and there are no defaults under any of the Operating
Agreements. To Seller's knowledge, all other parties to the Operating
Agreements have performed all of their obligations thereunder in all material
respects, and are not in default thereunder in any material respect. To
Seller's knowledge, Seller has received no notice of any intention by any of the
parties to any of the Operating Agreements to cancel the same, nor has Seller
canceled any of same.
<PAGE>
3.9 Insurance. To Seller's knowledge, all of Seller's Insurance
---------
Policies are valid and in full force and effect and Seller has complied with all
requirements or recommendations of the insurance carriers of the Insurance
Policies.
3.10 Condemnation Proceedings; Roadways. Seller has received no
----------------------------------
written notice of any condemnation or eminent domain proceeding pending or
threatened against the Property or any part thereof. Seller has no knowledge of
any change in the route or width of any street or road adjacent to or serving
the Real Property, and Seller has received no written notice of any proposed
change in the route, grade or width of, or otherwise affecting, any street or
road adjacent to or serving the Real Property.
3.11 Actions or Proceedings. There is no action, suit or proceeding
----------------------
pending or to Seller's knowledge threatened against or affecting Seller in any
court, before any arbitrator or before or by any Governmental Authority which
(a) in any manner raises any question affecting the validity or enforceability
of this Agreement, (b) could materially and adversely affect the business,
financial position or results of operations of Seller or the Property, (c) could
materially and adversely affect the ability of Seller to perform its obligations
hereunder, (d) could create a lien on the Property, any part thereof or any
interest therein, (e) concerns any past or present employee of Seller or (f)
could otherwise adversely affect the Property, any part thereof or any interest
therein or the use, operation, condition or occupancy thereof.
3.12 Labor and Employment Matters. To Seller's knowledge, neither
----------------------------
Seller nor its management company is a party to any oral or written employment
contracts or agreements with respect to the Property. To Seller's knowledge,
there are no labor disputes or organizing activities pending or threatened as to
the operation or maintenance of the Property or any part thereof. Neither
Seller nor its management company is a party to any union or other collective
bargaining agreement with employees employed in connection with the ownership,
operation or maintenance of the Property. Patriot shall not have any liability
under any pension, profit sharing or welfare benefit plan that Seller, Seller's
management company or any Affiliated Company may have established with respect
to the Property or their or its employees.
3.13 Financial Information and Submission Matters. To Seller's
--------------------------------------------
knowledge, all of Seller's financial information, including, without limitation,
all books and records and financial statements ("Financial Information") is
---------------------
correct and complete in all material respects and presents accurately the
results of the operations of the Property for the periods indicated. Since the
date of the last financial statement included in Seller's Financial Information,
there has been no material adverse change in the financial condition or in the
operations of the Property.
3.14 Submission Matters. To Seller's knowledge, all Submission
------------------
Matters delivered by Seller to Patriot pursuant to this Agreement are true,
correct and complete in all material respects.
3.15 Bankruptcy. No Act of Bankruptcy has occurred with respect to Seller.
----------
<PAGE>
3.16 Hazardous Substances. To Seller's knowledge, Seller has not,
--------------------
nor has Seller received any written notice that any previous owner, tenant,
occupant or user of the Property has, engaged in or permitted any operations or
activities upon, or any use or occupancy of the Property or any portion thereof,
for the purpose of or in any way involving the handling, manufacture, treatment,
storage, use, generation, release, discharge, refining, dumping or disposal of
any Hazardous Materials on, under, in or about the Property in violation of any
Applicable Laws. Seller has not received any written notice that any Hazardous
Materials have migrated from or to the Property upon, about, or beneath other
properties in violation of any Environmental Requirements. To Seller's
knowledge, neither the Property nor its existing or prior uses fail or failed to
materially comply with Environmental Requirements. Seller has no knowledge of
any permits, licenses or other authorizations which are required under any
Environmental Requirements with regard to the current uses of the Property which
have not been obtained and complied with. To Seller's knowledge, neither Seller
nor any prior owner, occupant or user of the Property has received any written
notice concerning any alleged violation of Environmental Requirements in
connection with the Property or any liability for Environmental Damages in
connection with the Property for which Seller (or Patriot after Closing) may be
liable. To Seller's knowledge, no Hazardous Materials are constructed,
deposited, stored or otherwise located on, under, in or about the Property in
violation of any Environmental Requirements. To Seller's knowledge, there exists
no writ, injunction, decree, order or judgment outstanding, nor any lawsuit,
claim, proceeding, citation, summons or investigation, pending or threatened,
relating to any alleged violation of Environmental Requirements on the Property,
or relating to any Environmental Damages. To Seller's knowledge, no underground
or above ground chemical treatment or storage tanks, or gas or oil wells are
located on the Property.
3.17 Intentionally Deleted.
---------------------
3.18 Occupancy Agreements. There are no leases, concessions or
--------------------
occupancy agreements in effect with respect to the Real Property other than the
Occupancy Agreements. Except as specifically provided in the Occupancy
Agreements, no tenant or concessionaire is entitled to any rebates, allowances,
free rent or rent abatement for any period after the Closing of the transaction
contemplated hereby. To Seller's knowledge, Seller has received no notice of
any intention by any of the parties to any of the Occupancy Agreements to cancel
the same, nor has Seller canceled any of same. To Seller's knowledge, no
brokerage commissions or compensation of any kind shall be due in connection
with the Occupancy Agreements, and the rents or revenues to be derived
therefrom.
3.19 Leased Property. To Seller's knowledge, all Personal Property Leases
---------------
are in good standing and free from default.
3.20 Americans With Disabilities Act. To Seller's knowledge, Seller
-------------------------------
has received no written notice that the Property is not in compliance with the
Americans With Disabilities Act.
3.21 Structural Condition. Except as disclosed in writing by Seller
--------------------
to Patriot and as
<PAGE>
contained in any engineering reports concerning the Property delivered to
Patriot, to Seller's knowledge, there is no latent material defect in the
Improvements or structural elements thereof, mechanical systems (including,
without limitation, all heating, ventilating, air conditioning, plumbing,
electrical, utility and sprinkler systems) therein, the utility system servicing
the Property and the roofs.
3.22 Zoning and Platting. Seller has no knowledge of any proceeding
-------------------
and has received no written notice of any threatened action or proceeding which
could result in a modification or termination of the present zoning of the
Property. To Seller's knowledge, the Property is properly platted as a separate
lot under Applicable Laws and constitutes a separate tax lot.
3.23 Access. Seller has no knowledge of any pending and has received
------
no written notice of any threatened governmental proceeding which would limit or
result in the termination of the Property's existing access to and from public
streets or roads.
3.24 No Commitments. To Seller's knowledge, no commitments have been
--------------
made to any Governmental Authority, utility company, school board, church or
other religious body, or any homeowners' association or any other organization,
group or individual, relating to the Property which would impose an obligation
upon Patriot to make any contribution or dedication of money or land or to
construct, install or maintain any improvements of a public or private nature on
or off the Property.
3.25 Seller Is Not a "Foreign Person". Seller is not a "foreign
--------------------------------
person" within the meaning of Section 1445 of the Internal Revenue Code, as
amended (i.e., Seller is not a foreign corporation, foreign partnership, foreign
trust, foreign estate or foreign person as those terms are defined in the
Internal Revenue Code and regulations promulgated thereunder).
3.26 No Other Property Interests. To Seller's knowledge, there are
---------------------------
no property interests, buildings, structures or other improvements or personal
property that are owned by Seller which are necessary for the operation of the
Hotel that are not being conveyed pursuant to this Agreement.
3.27 Intentionally Deleted.
---------------------
3.28 Intentionally Deleted.
---------------------
3.29 Space Leases. To Seller's knowledge, Seller has performed in
------------
all material respects all of its obligations under the Space Leases and there
are no defaults under the Space Leases. To Seller's knowledge, all other
parties (whether one or more) to the Space Leases have performed all of their
respective obligations thereunder in all material respects, and are not in
default thereunder in any material respect. To Seller's knowledge, Seller has
received no written notice of any intention by any of the parties to the Space
Leases to cancel the same, nor has Seller canceled the same.
<PAGE>
3.30 Relationship to Certain Parties. Seller does not have a direct
-------------------------------
or indirect relationship to the Central States, Southeast and Southwest Areas
Pension Funds within the meaning of Section 514(c)(9)(B)(iv) of the Internal
Revenue Code of 1986, as amended.
3.31 LIMITATIONS ON REPRESENTATIONS AND WARRANTIES. PATRIOT HEREBY
---------------------------------------------
AGREES AND ACKNOWLEDGES THAT, EXCEPT AS SET FORTH IN THIS ARTICLE 3, OR AS
OTHERWISE EXPRESSLY STATED HEREIN OR IN THE DEED OR IN ANY DOCUMENTS EXECUTED IN
CONNECTION HEREWITH, NEITHER SELLER NOR ANY AGENT, ATTORNEY, EMPLOYEE OR
REPRESENTATIVE OF SELLER HAS MADE ANY REPRESENTATION WHATSOEVER REGARDING THE
SUBJECT MATTER OF THIS SALE, OR ANY PART THEREOF, INCLUDING (WITHOUT LIMITING
THE GENERALITY OF THE FOREGOING) REPRESENTATIONS AS TO THE PHYSICAL NATURE OR
CONDITION OF THE PROPERTY OR THE CAPABILITIES THEREOF, AND THAT PATRIOT, IN
EXECUTING, DELIVERING AND/OR PERFORMING THIS AGREEMENT, DOES NOT RELY UPON ANY
STATEMENT AND/OR INFORMATION TO WHOMEVER MADE OR GIVEN, DIRECTLY OR INDIRECTLY,
ORALLY OR IN WRITING, BY ANY INDIVIDUAL, FIRM OR CORPORATION EXCEPT THOSE
EXPRESSLY CONTAINED HEREIN OR DELIVERED PURSUANT THERETO OR IN ANY DOCUMENTS
EXECUTED IN CONNECTION HEREWITH. EXCEPT AS OTHERWISE PROVIDED HEREIN, PATRIOT
AGREES TO TAKE THE REAL PROPERTY AND THE PERSONAL PROPERTY "AS IS," AS OF THE
DATE HEREOF, REASONABLE WEAR AND TEAR EXCEPTED. IN ADDITION, EXCEPT AS SET
FORTH HEREIN, SELLER MAKES NO REPRESENTATION OR WARRANTIES REGARDING THE
COMPLIANCE WITH ANY ENVIRONMENTAL REQUIREMENTS, INCLUDING THE EXISTENCE IN OR ON
THE PROPERTY OF HAZARDOUS MATERIALS. THE PROVISIONS OF THIS PARAGRAPH SHALL
SURVIVE THE CLOSING OR ANY TERMINATION HEREOF.
Each of the representations and warranties contained in this Article III and its
-----------
various subparagraphs are intended for the benefit of Patriot and may be waived
in whole or in part, by Patriot, but only by an instrument in writing signed by
Patriot. All rights and remedies arising in connection with the untruth or
inaccuracy of any such representations and warranties shall survive the Closing
of the transaction contemplated hereby for the period specified below except to
the extent that Seller gives Patriot written notice prior to Closing of the
untruth or inaccuracy of any representation or warranty, or Patriot otherwise
obtains actual knowledge prior to Closing of the untruth or inaccuracy of any
representation or warranty, and Patriot nevertheless elects to close this
transaction. Any such written notice from Seller to Patriot shall state in the
first paragraph thereof and in all capitalized letters that "THIS NOTICE IS
GIVEN PURSUANT TO THE AGREEMENT OF PURCHASE AND SALE MADE AS OF JULY 11, 1996
AND RELATES TO THE UNTRUTH OR INACCURACY OF SELLER'S REPRESENTATIONS OR
WARRANTIES." Patriot shall be deemed to have actual knowledge of the untruth or
inaccuracy of any representation or warranty only if (i) Patriot receives
written notice from Seller satisfying the foregoing requirements, or (ii) Paul
A. Nussbaum, Thomas W. Lattin, Rex E. Stewart or Leslie Ng has actual knowledge
of any such
<PAGE>
untruth or inaccuracy. Except to the extent otherwise expressly provided in the
immediately preceding sentence and as provided above, no investigation, audit,
inspection, review or the like conducted by or on behalf of Patriot shall be
deemed to terminate the effect of any such representations, warranties and
covenants, it being understood that Patriot has the right to rely thereon and
that each such representation and warranty constitutes a material inducement to
Patriot to execute this Agreement and to close the transaction contemplated
hereby and to pay the Purchase Price to Seller.
Whenever the term "to Seller's knowledge" or "known to Seller" is used in this
Agreement or in any representations and warranties given to Patriot at Closing,
such knowledge shall be the actual knowledge of Frank Salano (the "Key
---
Personnel") after inquiry of the Hotel's general manager, controller, director
- ---------
of food and beverage service and director of sales. Seller shall have no duty
to conduct any further inquiry in making any such representations and
warranties, and no knowledge of any other person shall be imputed to the Key
Personnel. In connection with the representations made in Section 3.16, the
------------
term "to Seller's knowledge" or "known to Seller" shall be deemed to include,
with respect to representations and warranties relating to whether the Property
complies with Environmental Requirements, only those facts that an experienced,
prudent operator and/or manager of real estate properties could reasonably be
expected to know have environmental significance and not such facts that would
be known only to an environmental professional to have environmental
significance.
ARTICLE IV
-----------
PATRIOT'S REPRESENTATIONS AND WARRANTIES
----------------------------------------
To induce Seller to enter into this Agreement and to sell the
Property, Patriot hereby makes the following representations and warranties,
upon each of which Patriot acknowledges and agrees that Seller is entitled to
rely and has relied:
4.1 Organization and Power. Patriot is duly organized, validly
----------------------
existing and in good standing under the laws of the State of Virginia and has
all corporate and/or partnership powers and all governmental licenses,
authorizations, consents and approvals required to carry on its business as now
conducted and to enter into and perform its obligations under this Agreement and
any document or instrument required to be executed and delivered on behalf of
Patriot hereunder.
4.2 Authority of Patriot. This Agreement has been duly authorized by
--------------------
all necessary action on the part of Patriot, has been duly executed and
delivered by Patriot, constitutes the valid and binding agreement of Patriot and
is enforceable in accordance with its terms. The person executing this
Agreement on behalf of Patriot has the authority to do so.
4.3 Non-contravention. The execution and delivery of this Agreement
-----------------
and the performance by Patriot of its obligations hereunder do not and will not
contravene, or constitute a default under, any provisions of applicable law or
regulation, or any agreement,
<PAGE>
judgment, injunction, order, decree or other instrument binding upon Patriot or
result in the creation of any lien or other encumbrance on any asset of Patriot.
4.4 Litigation. There is no action, suit or proceeding, pending or
----------
to Patriot's knowledge threatened, against or affecting Patriot in any court or
before any arbitrator or before any Governmental Authority which (a) in any
manner raises any question affecting the validity or enforceability of this
Agreement, (b) could materially and adversely affect the business, financial
position or results of operations of Patriot, and (c) could materially and
adversely affect the ability of Patriot to perform its obligations hereunder.
4.5 Bankruptcy. No Act of Bankruptcy has
----------
occurred with respect to Patriot. Wherever the term "to Patriot's knowledge" or
"known to Patriot" is used in this Agreement or in any representations and
warranties given to Seller at Closing, such knowledge shall be the actual
knowledge of Paul A. Nussbaum, Thomas W. Lattin, Rex E. Stewart or Leslie Ng
only, without any further inquiry.
ARTICLE V
---------
CONDITIONS PRECEDENT
--------------------
5.1 As to Patriot's Obligations. Patriot's obligations hereunder are
---------------------------
subject to the satisfaction of the following conditions precedent:
(a) Seller's Deliveries. Seller shall have delivered to or for the
-------------------
benefit of Patriot, on or before the Closing Date, all of the documents and
other information required of Seller pursuant to Sections 8.2 and 8.4 hereof.
--------------------
(b) Representations, Warranties and Covenants; Obligations of Seller.
----------------------------------------------------------------
All of Seller's representations and warranties made in this Agreement shall be
true and correct in all material respects as of the date hereof and as of the
date of Closing as if then made; Seller shall have performed in all material
respects all of its covenants and other obligations under this Agreement; and
none of the following events (or events of similar magnitude) have occurred
which could in Patriot's reasonable judgment, materially and adversely affect
the Property:
(i) a structural failure causing significant human fatalities such as
the structural failure that occurred at the Hyatt Hotel in Kansas City,
Missouri;
(ii) significant human fatalities caused by disease which is
specifically identified with the Property such as the occurrence of Legionnaires
disease associated with the Bellevue Stratford Hotel in Philadelphia,
Pennsylvania; and
(iii) significant human fatalities caused by the failure of
life/safety systems such
<PAGE>
as the fire which occurred at the MGM Grand Hotel in Las Vegas, Nevada.
(c) Title Insurance. Receipt by Patriot of an Owner Policy of Title
---------------
Insurance issued by the Title Company subject only to Permitted Title Exceptions
as determined in accordance with Section 2.4 hereof and including, without
-----------
limitation, all applicable deletions of standard exceptions and endorsements
permitted under applicable state law which are customarily required by
institutional investors purchasing property comparable to the Property.
(d) Title to Property. Seller shall be the sole owner of good and
-----------------
indefeasible fee simple title to the Real Property and good and marketable fee
simple title to the Tangible Personal Property, free and clear of all liens,
encumbrances, restrictions, conditions and agreements except for Permitted Title
Exceptions and those to be released at Closing.
(e) Condition of Improvements. The Improvements and the Tangible
-------------------------
Personal Property (including but not limited to the mechanical systems,
plumbing, electrical, wiring, appliances, fixtures, heating, air conditioning
and ventilating equipment, elevators, boilers, equipment, roofs, structural
members and furnaces) shall be in the same condition at Closing as they are as
of the date hereof, reasonable wear and tear excepted. Prior to Closing, Seller
shall not have diminished in any material respect the quality or quantity of
maintenance and upkeep services heretofore provided to the Real Property and the
Tangible Personal Property. Seller shall not have removed or caused or
permitted to be removed any part or portion of the Real Property or the Tangible
Personal Property without Patriot's prior written consent unless the same is
replaced, prior to Closing, with a similar item of at least equal suitability,
quality and value, free and clear of any lien or security interest.
(f) Right to Use Wyndham Name. Patriot shall have received a letter
-------------------------
agreement from Wyndham Management Corporation ("Manager") in the form of Exhibit
------- -------
D attached hereto and made a part hereof.
- -
(g) Liquor License. There shall be valid liquor licenses, alcoholic
--------------
beverage licenses and other permits and Authorizations necessary to operate the
restaurant, bars and lounges presently located in the Hotel in place and all
such liquor licenses, alcoholic beverage licenses and other permits and
Authorizations shall be held in the names of the operators of such businesses.
Seller agrees to cause the holders of such licenses to execute such consents and
estoppels as reasonably required by Patriot's lender.
Each of the conditions contained in this Section are intended for the benefit of
Patriot and may be waived in whole or in part, by Patriot, but only by an
instrument in writing signed by Patriot.
<PAGE>
5.2 As to Seller's Obligations. Seller's obligations hereunder are
--------------------------
subject to the satisfaction of the following conditions precedent:
(a) Patriot's Deliveries. Patriot shall have delivered to or for the
--------------------
benefit of Seller, on or before the Closing Date, all of the documents and
payments required of Patriot pursuant to Sections 8.3 and 8.4 hereof.
--------------------
(b) Representations, Warranties and Covenants; Obligations of Patriot.
-----------------------------------------------------------------
All of Patriot's representations and warranties made in this Agreement shall be
true and correct in all material respects as of the date hereof and as of the
date of Closing as if then made and Patriot shall have performed in all material
respects all of its covenants and other obligations under this Agreement.
(c) Closing Under Other Agreement. Simultaneously with the Closing of
-----------------------------
the transaction contemplated hereby and subject to Patriot's rights set forth in
other sections of this Agreement, Seller or Seller's affiliate or related entity
shall have sold and conveyed to Patriot, and Patriot and/or its permitted
assigns shall have purchased, the Other Property.
Each of the conditions contained in this Section are intended for the benefit of
Seller and may be waived in whole or in part, by Seller, but only by an
instrument in writing signed by Seller.
5.3 As to Patriot's and Seller's Obligations. Patriot's and Seller's
----------------------------------------
obligations hereunder are subject to the satisfaction of the following
conditions precedent:
(a) Acquisition of Other Property. Simultaneously with the Closing of
-----------------------------
the transaction contemplated hereby, Seller or Seller's affiliates or related
entities shall have sold and conveyed to Patriot and/or its permitted assigns,
and Patriot and/or its permitted assigns shall have purchased, the Other
Property. Patriot at its option may, and Seller shall be obligated to, waive
this condition at the Closing as to the Other Property for which a Permitted
Reason (defined below) exists. The term "Permitted Reason" shall mean: (i)
either (a) the presence at an Other Property of any Hazardous Materials and the
abatement or other remediation of such Hazardous Materials with respect to the
Other Property is required by Environmental Requirements, as evidenced by a
letter from a qualified engineer (with a copy of the report of such engineer)
and Seller or its affiliate or related entity which owns the Other Property is
not willing to remediate or abate the condition caused by Hazardous Materials on
or before the Closing Date, or (b) the affiliate or related entity of Seller
which owns the affected Other Property is either unable or unwilling to convey
fee simple title to the Other Property to Patriot, or (c) a knowing and
intentional breach in any material respect by Seller or its affiliate or related
entity which owns the Other Property or any of Seller's or its affiliate's or
related entity's covenants in the Other Agreement of Purchase and Sale which
breach Seller or its affiliate or related entity is either unable or unwilling
to cure within the time periods provided for in the Other Agreement of Purchase
and Sale and the breach of such covenant could materially and adversely affect
the operation, value, use, marketability or insurability of title of the Other
Property, or (d) the occurrence of an event of casualty or a
<PAGE>
condemnation for which Patriot is entitled to terminate the Other Agreement of
Purchase and Sale and Patriot does in fact terminate the Other Agreement of
Purchase and Sale.
The conditions contained in this Section are intended for the benefit of both
parties hereto and may be waived in whole or in part only by an instrument in
writing signed by both parties.
ARTICLE VI
-----------
COVENANTS OF SELLER
-------------------
To induce Patriot to enter into this Agreement and to purchase the
Property, and to pay the Purchase Price therefor, Seller covenants and agrees to
the following:
6.1 Operating Agreements and Occupancy Agreements. Seller shall not
---------------------------------------------
change, modify, extend, renew or terminate any existing, or enter into any, new
Occupancy Agreements, Operating Agreements, management agreement, maintenance or
repair contract, supply contract, lease in which it is lessee or other
agreements with respect to the Property, nor shall Seller enter into any
agreements modifying the Operating Agreements or Occupancy Agreements, unless
(a) any such agreement or modification will not bind Patriot or the Property
after the date of Closing or (b) Seller has obtained Patriot's prior written
consent to such agreement or modification. Seller agrees to cancel and
terminate effective as of the Closing Date Seller's management agreement and any
other Operating Agreements which are terminable without substantial penalty
unless Patriot requests in writing prior to the expiration of the Study Period
that one or more remain in effect after Closing. Seller shall not apply all or
any part of the security or damage deposit of a tenant under any Occupancy
Agreement to obligations of such tenant unless such tenant has vacated its
portion of the Property as of the Closing Date. Patriot and Seller hereby agree
that Patriot's lessee shall assume the Operating Agreements that are not
terminated by Patriot (all such Operating Agreements not so terminated being
herein called "Assumed Operating Agreements"). With respect to the Assumed
----------------------------
Operating Agreements, the Lessee shall be required at Closing to assume all
obligations thereunder accruing from and after the Closing Date. With respect
to any other Operating Agreement which Patriot requests in writing prior to the
Closing Date be terminated (herein called the "Terminated Operating
--------------------
Agreements"), (a) upon Patriot's request, Seller shall give notice of
- ----------
termination of such Terminated Operating Agreements to the appropriate party,
and (b) if Seller has no right to terminate same, or if any substantial fee is
due thereunder as a result of such termination, Patriot shall be required to pay
for the payment of the termination charge at Closing.
6.2 Warranties and Guaranties. Seller shall not before or after
-------------------------
Closing release or modify any Warranties and Guaranties, if any, except with the
prior written consent of Patriot.
6.3 Insurance. Seller shall pay all premiums on, and shall not
---------
cancel or voluntarily allow to expire, any of Seller's Insurance Policies unless
such policy is replaced, without any lapse of coverage, by another policy or
policies providing coverage at least as extensive as the
<PAGE>
policy or policies being replaced.
6.4 Independent Audit. Promptly following the execution of this
-----------------
Agreement, Seller shall provide and shall cause its management company to
provide to Patriot's representatives and independent accounting firm access to
financial and other information relating to the Property in the possession of or
otherwise available to Seller, its affiliates or Seller's management company
which would be sufficient to enable Patriot's representatives and independent
accounting firm to prepare audited financial statements for 1993, 1994 and 1995
in conformity with generally accepted accounting principles and to enable them
to prepare such statements, reports or disclosures as Patriot may deem necessary
or advisable and to audit net operating income for the Property. Seller shall
also provide and/or shall cause its management company to provide to Patriot's
independent accounting firm a signed representation letter which would be
sufficient to enable an independent public accountant to render an opinion on
the financial statements related to the Property. Seller shall authorize and
shall cause its management company to authorize any attorneys who have
represented Seller or its management company in material litigation pertaining
to or affecting the Property to respond, at Patriot's expense, to inquiries from
Patriot's representatives and independent accounting firm. If and to the extent
Seller's financial statements pertaining to the Property for any periods during
the years 1993, 1994 or 1995 have been audited, promptly after the execution of
this Agreement Seller shall provide Patriot with copies of such audited
financial statements and shall cooperate with Patriot's representatives and
independent public accountants to enable them to contact the auditors who
prepared such audited financial statements and to obtain, at Patriot's expense,
a reissuance of such audited financial statements.
6.5 Operation of Property Prior to Closing. Seller covenants and
--------------------------------------
agrees with Patriot that, between the date of this Agreement (or such other date
as specified below) and the date of Closing:
(a) Subject to the restrictions contained herein, Seller shall operate
the Property in the same manner in which Seller operated the Property prior to
the execution of this Agreement, so as to keep the Property in good condition,
reasonable wear and tear excepted, and so as to maintain the existing caliber of
the Hotel operations conducted at the Property and the reasonable good will of
all tenants of the Property and all employees, guests and other customers of the
Hotel.
(b) Seller shall maintain its books of account and records in the
usual, regular and ordinary manner, in accordance with sound accounting
principles applied on a basis consistent with the basis used in keeping its
books in prior years.
(c) Seller shall maintain in full force and effect all Insurance
Policies.
(d) Seller shall use and operate the Property in compliance in all
material respects with Applicable Laws and the requirements of any mortgage,
lease, Occupancy Agreement, Operating Agreement and Insurance Policy affecting
the Property.
<PAGE>
(e) Seller shall cause to be paid prior to delinquency all ad valorem,
occupancy and sales taxes due and payable with respect to the Property or the
operation of the Hotel.
(f) Seller shall not permit the inventory of food, beverages, stock of
linens, towels, paper goods, soaps, cleaning supplies, china, glassware,
silverware, table cloths, napkins, miscellaneous guest supplies and engineering
cleaning supplies constituting a portion of the Tangible Personal Property to be
diminished other than as a result of the ordinary and necessary operation of the
Hotel by Seller.
(g) Seller shall not remove or cause or permit to be removed any part
or portion of the Real Property or the Tangible Personal Property without the
express written consent of Patriot unless the same is replaced, prior to
Closing, with similar items of at least equal suitability, quality and value,
free and clear of any liens or security interests.
(h) Seller and Seller's managing agent shall continue to use its best
efforts to take guest room reservations and to book functions and meetings and
otherwise to promote the business of the Property in generally the same manner
as Seller did prior to the execution of this Agreement; and all advance room
bookings and reservations and all meetings and function bookings shall be booked
at rates, prices and charges heretofore customarily charged by Seller for such
purposes, and in accordance with Seller's published rate schedules. Seller
acknowledges that the Purchase Price includes the transfer of Advance Bookings.
(i) Neither Seller nor Seller's managing agent shall make any
agreements which shall be binding upon Patriot with respect to the Property or
that otherwise cannot be terminated without penalty upon thirty (30) days
notice.
(j) Seller shall promptly deliver to Patriot upon Patriot's request
such reports showing the revenue and expenses of the Hotel and all departments
thereof, together with such periodic information with respect to room
reservations and other bookings, as Seller customarily keeps or receives
internally for its own use.
(k) Seller or Seller's managing agent shall not enter into any
employment agreements which would be binding on Patriot with respect to the
Property.
(l) Seller shall promptly advise Patriot of any litigation,
arbitration or administrative hearing concerning or affecting the Property of
which Seller obtains written notice or of which Seller has knowledge.
6.6 No Marketing. Seller shall not market the Property for sale or
------------
enter into discussions or negotiations with potential purchasers of the
Property.
6.7 Employees. Payment of costs and expenses associated with accrued
---------
but unpaid salary, earned but unpaid vacation pay, accrued but unearned vacation
pay, pension and
<PAGE>
welfare benefits, the Consolidated Omnibus Budget Reconciliation Act of 1985, as
amended ("COBRA") benefits, employee fringe benefits, employee termination
-----
payments or any other employee benefits due to Seller's, or Seller's management
company's employees shall be the sole responsibility and obligation of and shall
be paid promptly by Seller or Seller's management company and Patriot shall have
no liability whatsoever for any such payments and benefits concerning the
employees of Seller or of Seller's management company. Seller shall indemnify
and defend Patriot and its lessee, management company and affiliates, from and
against any and all claims, causes of action, proceedings, judgments, damages,
penalties and liabilities made, assessed or rendered against Patriot and/or its
lessee, management company and affiliates, and any costs and expenses (including
attorneys' fees and disbursements) incurred by Patriot and/or its lessee,
management company and affiliates, with respect to claims, causes of action,
judgments, damages, penalties and liabilities asserted by such employees arising
out of the failure of Seller or Seller's management company to comply with the
provisions of this Subsection 6.7. This indemnification shall be separate from
--------------
and in addition to the indemnification given by Seller to Patriot in Article X
---------
below. The provisions of this Section 6.7 shall survive the Closing.
-----------
The foregoing covenants of Seller are for the benefit of Patriot or its assignee
of its permitted rights under this Agreement.
ARTICLE VII
------------
INTENTIONALLY DELETED
---------------------
ARTICLE VIII
------------
CLOSING
-------
8.1 Closing. The Closing shall occur on a business day designated by
-------
Patriot, with at least five (5) days notice to Seller (which day shall be no
later than July 30, 1996). As more particularly described below, at the Closing
the parties hereto will (i) execute all of the documents required to be
delivered in connection with the transactions contemplated hereby (the "Closing
-------
Documents"), (ii) deliver the same to Escrow Agent, and (iii) take all other
- ---------
action required to be taken in respect of the transactions contemplated hereby.
The Closing will occur at the offices of Akin, Gump, Strauss, Hauer & Feld,
L.L.P., 1700 Pacific Avenue, Suite 4100, Dallas, Texas 75201, or at such other
place as Patriot shall designate by written notice to Seller given at least five
days prior to the Closing. At the Closing, Patriot shall deliver the Purchase
Price to Escrow Agent, Escrow Agent shall return the Deposit to Patriot and
update the title to the Property, Escrow Agent shall record the Deed, release
and date, where appropriate, the Closing Documents in accordance with the joint
instructions of Seller and Patriot and shall send, by wire transfer, all sums
owing to Seller hereunder to Seller. As provided herein, the parties hereto
will agree upon adjustments and prorations to certain items which cannot be
exactly determined at the Closing and will make the appropriate adjustments with
respect thereto. Possession of the Property shall be delivered to Patriot at
the Closing,
<PAGE>
subject only to Permitted Title Exceptions and the rights of tenants under the
Occupancy Agreements and guests in possession.
8.2 Seller's Deliveries. At the Closing, Seller shall deliver, if
-------------------
not previously delivered by Seller pursuant to the terms hereof, to Escrow Agent
all of the following instruments, each of which, where applicable, shall have
been duly executed and, where applicable, acknowledged and/or sworn on behalf of
Seller and shall be dated as of the Closing Date:
(a) The Deed.
(b) The Bill of Sale - Personal Property.
(c) The Assignment and Assumption Agreement to Patriot and/or its
property manager, lessee or other designee (as Patriot shall specify).
(d) The Assignment of Occupancy Agreements together with an estoppel
letter from each of the tenants and concessionaires of Occupancy Agreements
being assigned thereunder (1) identifying each such Occupancy Agreement and
amendments or addenda thereto, or modifications thereof, by which each such
tenant or concessionaire occupies its premises, (2) certifying that there are no
further amendments or modifications thereof, (3) setting forth the amount of
security deposit, if any, (4) certifying that, so far as is known to such tenant
or concessionaire, Seller is not in default under the terms, conditions and
provisions of such Occupancy Agreements, (5) certifying that the tenant or
concessionaire is not due any rebates, offsets or other monies or things of
value thereunder, and (6) certifying as to the status of the rent and concession
payments as of the date of such Occupancy Agreement; provided, however, that if
any tenant refuses to execute an estoppel certificate, Patriot agrees to accept
in lieu thereof, a certificate of Seller as to such matters, qualified to
Seller's knowledge.
(e) An estoppel letter from the landlord under the Space Leases (1)
identifying such Space Leases and amendments or addenda thereto, or
modifications thereof, (2) certifying that there are no further amendments or
modifications thereof, (3) setting forth the amount of security deposit, if any,
(4) certifying that, so far as is known to such landlord, Seller is not in
default under the terms, conditions and provisions of such Space Leases, (5)
certifying that the landlord is not due any rebates, offsets or other monies or
things of value thereunder, and (6) certifying as to the status of the rent and
concession payments as of the date of such Space Leases.
(f) Certificates from the applicable State taxing authority and local
taxing authorities stating that all occupancy and sales taxes due and payable
for the Property have been paid and, if any such taxes have not been paid, the
amount due and payable as of the Closing Date.
<PAGE>
(g) Certificate(s)/Registration of Title for any vehicle owned by
Seller and used in connection with the Property.
(h) Such agreements, affidavits or other documents as may be required
by the Title Company to issue the Owner's Title Policy subject only to the
Permitted Title Exceptions and to eliminate such standard exceptions and to
issue such endorsements thereto which may be eliminated and issued under
applicable State law and which are customarily required by institutional
investors purchasing property comparable to the Property.
(i) The FIRPTA Certificate.
(j) All original Warranties and Guaranties in Seller's possession or
reasonably available to Seller.
(k) Appropriate resolutions of the partners of Seller, together with
all other necessary approvals and consents of Seller and such documentary and
other evidence as may be reasonably required by Escrow Agent, authorizing and
evidencing the authorization of (i) the execution on behalf of Seller of this
Agreement and the authority of the person or persons who are executing the
various documents to be executed and delivered by Seller prior to, at or
otherwise in connection with the Closing, and (ii) the performance by Seller of
its obligations hereunder and under such documents.
(l) A valid, final and unconditional certificate of occupancy for the
Real Property and Improvements, issued by the appropriate Governmental
Authority.
(m) If Patriot is assuming Seller's obligations under any or all of
the Operating Agreements, the originals of such agreements, and with respect to
the material Operating Agreements, consent to the assignment thereof
acknowledged and approved by the other parties to such Operating Agreements to
the extent required by such Operating Agreements.
(n) With respect to the material Personal Property Leases, (1) the
written consent of the lessors of such leases to such assignment, if required by
such Personal Property Leases, and (2) executed originals of all such leases in
Seller's possession or reasonably available to Seller. If any Leased Property
is leased pursuant to a lease which is a capital lease, in accordance with
generally accepted accounting principles, and is not listed on Schedule 6
----------
hereto, Seller shall cancel such capital lease at its expense and convey good
and marketable title to such property (which shall constitute Tangible Personal
Property hereunder) to Patriot free from any lien or encumbrance pursuant to the
Bill of Sale - Personal Property.
(o) The written consent of, or a comfort letter from, Manager or the
appropriate affiliate of Manager or Lessee, in the form of Exhibit D hereto.
---------
(p) Copies of all existing Insurance Policies if same are assumed by
Patriot.
<PAGE>
(q) To the extent in Seller's possession or reasonably available to
Seller, originals of the following items (which shall be deemed delivered by
Seller under this Section 8.2 if delivered to the property manager at the
-----------
Hotel): (1) complete sets of all architectural, mechanical, structural and/or
electrical plans and specifications used in connection with the construction of
or alterations or repairs to the Property; and (2) as-built plans and
specifications for the Property.
(r) To the extent assignable, a written instrument executed by Seller,
conveying and transferring to Patriot all of Seller's right, title and interest
in any telephone numbers and TWX numbers relating to the Property, and, if
Seller maintains a post office box, conveying to Patriot all of its interest in
and to such post office box and the number associated therewith, so as to assure
a continuity in operation and communication.
(s) Duplicate originals of all agreements, leases, concession
agreements and other instruments affecting the Property and the Hotel and/or
restaurant business conducted thereon.
(t) All current real estate and personal property tax bills in
Seller's possession or under its control.
(u) If available, by delivery to the property manager at the Hotel, a
complete set of all guest registration cards, guest transcripts, guest
histories, and all other available guest information.
(v) A complete list of all advance room reservations, functions and
the like, in reasonable detail so as to enable Patriot to honor Seller's
commitments in that regard.
(w) A list of Seller's outstanding accounts receivable as of midnight
on the date prior to the Closing, specifying the name of each account and the
amount due Seller (which items shall be deemed delivered by Seller if delivered
to property manager of the Hotel).
(x) All books, records, operating reports, appraisal reports, files
and other materials in Seller's possession or control which are necessary in
Patriot's discretion to maintain continuity of operation of the Property (which
items shall be deemed delivered by Seller under this Section 8.2 if delivered to
-----------
the property manager at the Hotel).
(y) A current UCC Report showing no financing statements by Seller as
Debtor covering the Property.
(z) Executed originals of all Occupancy Agreements and, to the extent
available, Authorizations transferred or assigned to Patriot at Closing as
required hereunder (which items shall be deemed delivered by Seller under this
Section 8.2 is delivered to the property manager at the Hotel).
- -----------
<PAGE>
(aa) An opinion from Seller's counsel stating that Seller has duly
authorized, executed and delivered to Patriot this Agreement and all of the
conveyance documents to be delivered by Seller hereunder.
(bb) Georgia Affidavit of Seller's Residence and such other forms
required by the State of Georgia with respect to any out of state Seller's
withholding taxes which may be due with respect to this transaction.
(cc) Any other document or instrument reasonably requested by Patriot
or required hereby.
8.3 Patriot's Deliveries.
--------------------
(a) At the Closing, Patriot shall deliver to Escrow Agent the portion
of the Purchase Price described in Section 2.2 hereof.
-----------
(b) At the Closing, Patriot shall deliver to Seller any other document
or instrument reasonably requested by Seller or required hereby.
(c) Any other document or instrument reasonably required by Patriot or
required hereby.
8.4 Mutual Deliveries. At the Closing, Patriot and Seller shall
-----------------
mutually execute and deliver each to the other:
(a) A final closing statement reflecting the Purchase Price and the
adjustments and prorations required hereunder and the allocation of income and
expenses required hereby.
(b) Such other documents, instruments and undertakings as may be
required by the liquor authorities of the State where the Property is located,
or of any county or municipality or governmental entity having jurisdiction with
respect to the transfer or issue of liquor licenses or alcoholic beverage
licenses or permits for the Hotel, to the extent not theretofore executed and
delivered.
(c) The Lease.
(d) Such other and further documents, papers and instruments as may be
reasonably required by the parties hereto or their respective counsel.
8.5 Closing Costs. Except as is explicitly provided in this Agreement, each
-------------
party hereto shall pay its own legal fees and expenses. All filing fees for the
Deed and the transfer, recording, sales or other similar taxes and surtaxes due
with respect to the transfer of title shall be paid by Seller. Seller shall pay
for the costs associated with the releases of any deeds
<PAGE>
of trust, mortgages and other financing encumbering the Property and for any
costs associated with any corrective instruments. Seller shall pay all costs
for title searches and all premiums for the issuance of the Title Policy and all
endorsements (other than a zoning endorsement) thereto and deletions therefrom
which are customarily required by institutional investors purchasing property
comparable to the Property. Patriot shall pay all other costs (except any costs
incurred by Seller for its own account) in carrying out the transactions
contemplated hereunder.
8.6 Revenue and Expense Allocations. All revenues and expenses with
-------------------------------
respect to the Property, and applicable to the period of time before and after
Closing, determined in accordance with sound accounting principles consistently
applied, shall be allocated between Seller and Patriot as provided herein.
Seller shall be entitled to all revenue and shall be responsible for all
expenses for the period of time up to but not including the date of Closing, and
Patriot shall be entitled to all revenue and shall be responsible for all
expenses for the period of time from, after and including the date of Closing
(provided that housekeeping costs and the Rooms Ledger for the date of Closing
shall be shared equally between Patriot and Seller). Such adjustments shall be
shown on the closing statements (with such supporting documentation as the
parties hereto may require being attached as exhibits to the closing statements)
and shall increase or decrease (as the case may be) the cash amount payable by
Patriot pursuant to Section 2.2 hereof. Without limiting the generality of the
-----------
foregoing, the following items of revenue and expense shall be allocated at
Closing:
(a) Current rents.
(b) Real estate and personal property taxes.
(c) Revenue and expenses under the Operating Agreements to be assigned
to and assumed by Patriot.
(d) Utility charges (including, but not limited to, charges for water,
sewer and electricity).
(e) Value of fuel stored on the Property at the price paid for such
fuel by Seller, including any taxes.
(f) Municipal or other governmental improvement liens, which shall be
paid by Seller at Closing where the work has physically commenced, and which
shall be assumed by Patriot at Closing where the work has been authorized, but
not physically commenced.
(g) Insurance premiums, to the extent the Insurance Policies are
assumed by Patriot.
(h) Permit fees, where transferable.
<PAGE>
(i) All other revenues and expenses of the Property, including, but
not limited to, such things as restaurant, bar and meeting room income and
expenses and the like.
(j) Such other items as are usually and customarily prorated between
purchasers and sellers of hotel properties in the area where the Property is
located.
Patriot shall retain and receive a credit against the Purchase Price for the
total of (i) prepaid rents, (ii) prepaid room receipts and deposits, function
receipts and deposits and other reservation receipts and deposits, (iii)
unforfeited security deposits together with interest thereon held by Seller
under the Occupancy Agreements, and (iv) the value of any complimentary rooms
(based upon the "rack" rate for each room) and any complimentary food or
beverages (based upon the advertised rate for each food and beverage) provided
by Seller from and after 12:01 a.m. on the Closing Date. At Closing, Seller
shall sell to Patriot in connection with the Hotel, and Patriot shall purchase
from Seller, at face value the so-called "guest ledger" as mutually approved by
Patriot and Seller for the Hotel of guest accounts receivable payable to the
Hotel as of the check out time for the Hotel on the Closing Date (based on
guests and customers then using the Hotel) both (1) in occupancy from the
preceding night through check out time the morning of the Closing Date, and (2)
previously in occupancy prior to check out time on the Closing Date; provided,
however, that the term "guest ledger" shall not include any accounts receivable
which have been or are to be paid by any means other than a credit card.
Patriot shall not be obligated to purchase such non-credit card accounts
receivable, and Seller shall retain all rights with respect thereto (including,
without limitation, the right to collect same). For purposes of this Agreement,
transfer or sale at face value shall have the following meaning for the guest
ledger: the total of all credit card accounts receivable as shown on the records
of the Hotel, less actual collection costs (i.e., fees retained by credit card
companies), less accounting charges for rooms furnished on a gratuity or
complimentary basis to any hotel staff or as an accommodation to other parties
and less Patriot's one-half ( 1/2) share of the Rooms Ledger. The purchase
price of said guest ledger, as determined above, shall be paid to Seller at
Closing by a credit to Seller in the computation of the adjustments and
prorations on the Closing Date.
Seller shall pay or cause to be paid all real estate taxes and special
assessments for the Property due and payable in, or deferred with respect to the
years prior to, the year in which the Closing occurs. All special assessments
pending, levied or due and payable on or prior to the Closing Date shall be paid
by Seller on or before the Closing Date. All subdivision and platting costs and
expenses heretofore incurred by Seller, including, without limitation, all
subdivision exactions, fees and costs and all dedication of land for parks and
other public uses or payment of fees in lieu thereof, shall be paid by Seller on
or prior to the Closing Date.
Seller shall be required to pay all sales, occupancy and liquor taxes and like
impositions currently through the date of Closing and if reasonably available,
deliver evidence of payment of same to Patriot.
Patriot shall not be obligated to collect any delinquent rents, or revenues
accrued prior to the
<PAGE>
Closing Date for Seller, but if Patriot collects same, such amounts shall be
promptly remitted to Seller in the form received.
If accurate allocations cannot be made at Closing because current bills are not
obtainable (as, for example, in the case of utility bills and/or real estate or
personal property taxes) or appeals are pending, the parties shall allocate such
revenue or expenses at Closing on the best available information, subject to
adjustment upon receipt of the final bill or other evidence of the applicable
revenue or expense. The obligation to make the adjustment shall survive the
closing of the transaction contemplated by this Agreement. Any revenue received
or expense incurred by Seller or Patriot with respect to the Property after the
date of Closing shall be promptly allocated in the manner described herein and
the parties shall promptly pay or reimburse any amount due. The proration
provisions of this Agreement shall survive the Closing of the transaction
contemplated hereby for a period of twelve (12) months. Seller shall pay or
cause to be paid all real estate and personal property taxes and special
assessments for the Property due and payable in, or deferred with respect to the
years prior to, the year in which Closing occurs, including without limitation
any such amounts which have not been paid, but which are currently being
appealed, and the agreement of Seller in this sentence shall survive the Closing
without limitation.
ARTICLE IX
-----------
GENERAL PROVISIONS
------------------
9.1 Condemnation. In the event of any actual or threatened taking,
------------
pursuant to the power of eminent domain, of all or any portion of the Real
Property, or any proposed sale in lieu thereof, Seller shall give written notice
thereof to Patriot promptly after Seller learns or receives notice thereof. If
all or a Substantial Portion (as hereinafter defined) of the Real Property is,
or is to be, so condemned or sold, Patriot shall have the right to terminate
this Agreement pursuant to Section 10.4 hereof. If Patriot elects not to
------------
terminate this Agreement, all proceeds, awards and other payments arising out of
such condemnation or sale (actual or threatened) shall be paid or assigned, as
applicable, to Patriot at Closing. Seller shall not settle or compromise any
such proceeding without Patriot's written consent. If Patriot elects to
terminate this Agreement by giving Seller written notice thereof prior to the
Closing, the Deposit shall be promptly returned to Patriot and all rights and
obligations of Seller and Patriot hereunder (except those set forth herein which
expressly survive a termination of this Agreement) shall terminate immediately.
In the event any portion of the Real Property is affected by a condemnation,
sale or eminent domain action and such condemnation, sale or eminent domain
action does not constitute a Substantial Portion of the Real Property, this
Agreement shall remain in full force and effect without a reduction in the
Purchase Price except as provided below. In the event of any such condemnation,
sale or eminent domain action that does not constitute a Substantial Portion of
the Real Property, Patriot shall be entitled to any and all claims that Seller
may have to condemnation awards or any and all causes of action with respect to
such condemnation, sale or eminent domain action (all of which shall be assigned
by Seller to Patriot at Closing), and Seller shall credit to Patriot at
<PAGE>
Closing, by an appropriate adjustment to the Purchase Price, an amount equal to
all payments (if any) theretofore received by Seller with respect to such
condemnation, sale or eminent domain action. For purposes of this Section 9.1,
-----------
a "Substantial Portion" shall mean a condemnation of in excess of $250,000.00 in
-------------------
value of the Real Property. This provision shall survive the Closing of the
transaction contemplated hereby.
9.2 Risk of Loss. The risk of any loss or damage to the Property
------------
prior to the recordation of the Deed shall remain upon Seller. If any such loss
or damage which constitutes Substantial Loss or Damage occurs prior to Closing,
Patriot shall have the right to terminate this Agreement pursuant to Section
-------
10.4 hereof. If Patriot elects not to terminate this Agreement, all insurance
- ----
proceeds and rights to proceeds arising out of such loss or damage shall be paid
or assigned, as applicable, to Patriot at Closing and Patriot shall receive as a
credit against the Purchase Price the amount of any deductibles under the
policies of insurance covering such loss or damage. If Patriot elects to
terminate this Agreement by giving Seller written notice thereof prior to the
Closing, the Deposit shall be promptly returned to Patriot and all rights and
obligations of Seller and Patriot hereunder (except those set forth herein which
expressly survive a termination of this Agreement) shall terminate immediately.
In the event any of the Property or any of the items constituting the Personal
Property should be damaged or destroyed as a result of fire or other casualty
and such damage does not constitute Substantial Loss or Damage and such damage
is not repaired prior to Closing, the rights and obligations of Seller and
Patriot hereunder with respect to the Property shall not be affected by such
destruction or damage and Patriot shall accept title to the Property in its
destroyed or damaged condition. In such event, at the Closing, Patriot shall
receive a credit against the Purchase Price equal to the amount of damage to the
Property resulting from such loss or damage. For purposes of this Section 9.2,
-----------
"Substantial Loss or Damage" shall mean loss or damage, the cost for repair of
--------------------------
which (as mutually determined by Patriot and Seller at the time of such loss or
damage) exceeds $250,000.00. In the event that Patriot and Seller are unable to
agree on the cost of repair of any Substantial Loss or Damage, then such cost of
repair shall be determined by an insurance adjuster selected by Seller and
approved by Patriot, such approval not to be unreasonably withheld. This
provision shall survive the Closing of the transaction contemplated hereby.
9.3 Absence of Broker. There is no real estate broker involved in
-----------------
this transaction. Patriot warrants and represents to Seller that Patriot has not
dealt with any real estate broker in connection with this transaction, nor has
Patriot been introduced to the Property or to Seller by any real estate broker,
and Patriot shall indemnify Seller and save and hold Seller harmless from and
against any claims, suits, demands or liabilities of any kind or nature
whatsoever arising on account of the claim of any person, firm or corporation to
a real estate brokerage commission or a finder's fee as a result of having dealt
with Patriot, or as a result of having introduced Patriot to Seller or to the
Property. In like manner, Seller warrants and represents to Patriot that Seller
has not dealt with any real estate broker in connection with this transaction,
nor has Seller been introduced to Patriot by any real estate broker, and Seller
shall indemnify Patriot and save and hold Patriot harmless from and against any
claims, suits, demands or liabilities of any kind or nature whatsoever arising
on account of the claim of any
<PAGE>
person, firm or corporation to a real estate brokerage commission or a finder's
fee as a result of having dealt with Seller in connection with this transaction.
9.4 Bulk Sale. Seller shall indemnify Patriot and save and hold
---------
Patriot harmless from and against any claims, suits, demands, liabilities or
obligations of any kind or nature whatsoever, including all costs of defending
same, and reasonable attorneys' fees paid or incurred in connection therewith,
arising out of or relating to any claim made by any third party or any liability
asserted by any third party that any applicable bulk sales law or like statute
has not been complied with. The provisions of this Section shall survive the
Closing of the transaction contemplated hereby.
9.5 Confidentiality. Except as hereinafter provided, from and after
---------------
the execution of this Agreement, Patriot and Seller shall keep the terms,
conditions and provisions of this Agreement confidential and neither shall make
any public announcements hereof unless the other first approves of same in
writing, nor shall either disclose the terms, conditions and provisions hereof,
except to persons who "need to know", such as their respective officers,
directors, employees, attorneys, accountants, engineers, surveyors, consultants,
financiers, partners, investors, potential lessees and bankers and such other
third parties whose assistance is required in connection with the consummation
of this transaction. Notwithstanding the foregoing, it is acknowledged that
Patriot is, or is an affiliate of, a real estate investment trust (the "REIT")
----
and the REIT has and will seek to sell shares to the general public;
consequently, Patriot shall have the absolute and unbridled right to disclose
any information regarding the transaction contemplated by this Agreement
required by law or as determined to be necessary or appropriate by Patriot or
Patriot's attorneys to satisfy disclosure and reporting obligations of Patriot
or its affiliates under applicable law. After Closing, Patriot shall be free
to disclose previously confidential information in its sole, unfettered
discretion; provided, however, neither Seller nor Patriot shall issue any press
release regarding the transaction contemplated hereby for the period which is
fourteen (14) days following the Closing Date without the consent of the other
party.
9.6 Seller's Accounts Receivable. It is expressly agreed by and
----------------------------
between Patriot and Seller that Seller is not hereby agreeing to sell to
Patriot, and Patriot is not hereby agreeing to purchase from Seller, any of
Seller's accounts receivable. All of Seller's accounts receivable shall be and
remain the property of Seller, subsequent to the Closing of the transaction
contemplated hereby. At the Closing, Seller shall prepare a list of its
outstanding accounts receivable as of midnight on the date prior to the Closing,
specifying the name of each account and the amount due to Seller. Patriot shall
hold any funds received by Patriot explicitly designated as payment of such
accounts receivable, in trust, if Patriot actually collects any such amounts,
and shall pay the monies collected in respect thereof to Seller at the end of
each calendar month, accompanied by a statement showing the amount collected on
each such account. Other than the foregoing, Patriot shall have no obligation
with respect to any such account, and Patriot shall not be required to take any
legal proceeding or action to effect collection on behalf of Seller. It is
generally the intention of Patriot and Seller that although all of Seller's
accounts receivable shall be and remain the property of Seller, still, if any
such
<PAGE>
accounts are paid to Patriot, then Patriot shall collect same and remit to
Seller in the manner above provided. Nothing herein contained shall be
construed as requiring Patriot to remit to Seller any funds collected by Patriot
on account of Patriot's accounts receivable generated from Hotel operations,
even if the person or entity paying same is also indebted to Seller. Seller
agrees that it shall not bring any legal action to enforce collection of payment
of any accounts receivable against any current tenant of the Property or other
third party in a contractual or business relationship with the Property as of
the Closing Date.
ARTICLE X
----------
LIABILITY OF PATRIOT;
---------------------
INDEMNIFICATION BY SELLER; DEFAULT; TERMINATION RIGHTS
------------------------------------------------------
10.1 Liability of Patriot. Except for obligations expressly assumed
--------------------
or agreed to be assumed by Patriot hereunder, Patriot is not assuming any
obligations of Seller or any liability for claims arising out of any act,
omission or occurrence which occurs, accrues or arises prior to the Closing
Date, and Seller hereby indemnifies and holds Patriot harmless from and against
any and all claims, costs, penalties, damages, losses, liabilities and expenses
(including reasonable attorneys' fees) that may at any time be incurred by
Patriot and its affiliates as a result of (1) obligations of Seller not
expressly assumed or agreed to be assumed by Patriot hereunder, or (2) acts,
omissions or occurrences which occur, accrue or arise prior to the Closing Date.
Patriot hereby indemnifies and holds Seller harmless from and against any and
all claims, costs, penalties, damages, losses, liabilities and expenses
(including reasonable attorneys' fees) that may at any time be incurred by
Seller as a result of acts, omissions or occurrences relating to the Property
arising and accruing from and after the Closing Date. The provisions of this
Section shall survive the Closing of the transaction contemplated hereby.
10.2 Indemnification by Seller. Seller hereby indemnifies and holds
-------------------------
Patriot harmless from and against any and all claims, costs, penalties, damages,
losses, liabilities and expenses (including reasonable attorneys' fees) that may
at any time be incurred by Patriot, whether before or after Closing, as a result
of any inaccuracy or breach by Seller of any of its representations, warranties,
covenants or obligations set forth herein or in any other document delivered by
Seller pursuant hereto except for any breach or inaccuracy of any representation
or warranty as to which Seller has given Patriot written notice prior to Closing
of the untruth or inaccuracy or of which Patriot otherwise had actual knowledge
prior to the Closing and nevertheless elected to consummate the Closing;
provided, however, the foregoing knowledge limitation on Seller's indemnity
shall not limit Patriot's remedy described in Section 10.4(a)(ii) hereof. The
-------------------
provisions of this Section shall survive the Closing of the transaction
contemplated hereby.
10.3 Indemnification by Patriot. Patriot hereby indemnifies and
--------------------------
holds Seller harmless from and against any and all claims, costs, penalties,
damages, losses, liabilities and expenses (including reasonable attorneys' fees)
that may at any time be incurred by Seller,
<PAGE>
whether before or after Closing, as a result of any inaccuracy or breach by
Patriot of any of its representations, warranties, covenants or obligations set
forth herein or in any other document delivered by Patriot to Seller pursuant
hereto except for any breach or inaccuracy of any representation or warranty as
to which Patriot has given Seller written notice prior to Closing of the untruth
or inaccuracy or of which Seller otherwise had actual knowledge prior to the
Closing and nevertheless elected to consummate the Closing. The provisions of
this Section shall survive the Closing of the transaction contemplated hereby.
10.4 Default by Seller/Failure of Conditions Precedent. If any
-------------------------------------------------
condition set forth herein for the benefit of Patriot cannot or will not be
satisfied prior to Closing (other than due to a default by Patriot), or upon the
occurrence of any other event that would entitle Patriot to terminate this
Agreement and its obligations hereunder, and if Seller fails to cure any such
matter or satisfy that condition within ten (10) business days after notice
thereof from Patriot (or such other time period as may be explicitly provided
for herein), Patriot, at its option, may elect (a) to terminate this Agreement,
in which event (i) the Deposit shall be promptly returned to Patriot, (ii) if
the condition which has not been satisfied is a breach of a representation,
warranty or covenant, then Seller shall be obligated upon demand to reimburse
Patriot for Patriot's actual out-of-pocket inspection, financing and other costs
related to Patriot's entering into this Agreement, inspecting the Property and
preparing for a Closing of the transaction contemplated hereby, including,
without limitation, Patriot's attorneys' fees incurred in connection with the
preparation, negotiation and execution of this Agreement, in connection with
Patriot's due diligence review, audits and preparation for a Closing up to an
aggregate amount of $750,000.00, said amount being the aggregate limitation for
the foregoing costs and expenses for the Hotel and the Other Properties;
provided, however, the foregoing shall not limit or include the sums which may
be payable by Seller pursuant to Section 10.6, and (iii) all other rights and
------------
obligations of Seller and Patriot hereunder (except those set forth herein which
expressly survive a termination of this Agreement) shall terminate immediately;
or (b) elect to proceed to Closing. If Patriot elects to proceed to Closing and
there is either a misrepresentation or breach of a warranty by Seller (other
than a breach of a representation or warranty of which Patriot had actual
knowledge prior to the Closing and nevertheless elected to consummate the
Closing) or the breach of a covenant by Seller or a failure by Seller to perform
its obligations hereunder, Patriot shall retain all remedies accruing as a
result thereof, including, but not limited to the remedy of specific performance
of Seller's covenants and obligations and the remedy of the recovery of all
reasonable damages resulting from Seller's breach of warranty or covenant.
10.5 Default by Patriot/Failure of Conditions Precedent. If any
--------------------------------------------------
condition set forth herein for the benefit of Seller (other than a default by
Patriot) cannot or will not be satisfied prior to Closing, and if Patriot fails
to satisfy that condition within ten (10) business days after notice thereof
from Seller (or such other time period as may be explicitly provided for
herein), Seller may, at its option, elect either (a) to terminate this Agreement
in which event the Deposit shall be promptly returned to Patriot and the parties
hereto shall be released from all further obligations hereunder except those
which expressly survive a termination of this Agreement, or (b) to waive its
right to terminate, and instead, to proceed to Closing. If, prior
<PAGE>
to Closing, Patriot defaults in performing any of its obligations under this
Agreement (including its obligation to purchase the Property), and Patriot fails
to cure any such default within ten (10) business days after notice thereof from
Seller, then Seller's sole and exclusive remedy for such default shall be to
terminate this Agreement and retain the Deposit. Seller and Patriot agree that,
in the event of such a default, the damages that Seller would sustain as a
result thereof would be difficult if not impossible to ascertain. Therefore,
Seller and Patriot agree that, Seller shall retain the Deposit as full and
complete liquidated damages and as Seller's sole remedy.
10.6 Costs and Attorneys' Fees. In the event of any litigation or
-------------------------
dispute between the parties arising out of or in any way connected with this
Agreement, resulting in any litigation, then the prevailing party in such
litigation shall be entitled to recover its costs of prosecuting and/or
defending same, including, without limitation, reasonable attorneys' fees at
trial and all appellate levels. The provisions of this Section shall survive
the Closing of the transaction contemplated hereby.
10.7 Limitation of Liability. Notwithstanding anything herein to the
-----------------------
contrary, except in the case of fraud by either party, the liability of each
party hereto resulting from the breach or default by either party or pursuant to
any indemnity provided for in this Agreement shall be limited to actual damages
incurred by the injured party and except in the case of fraud by either party,
the parties hereto hereby waive their rights to recover from the other party
consequential, punitive, exemplary, and speculative damages. The provisions of
this Section 10.7 shall survive the Closing of the transaction contemplated
------------
hereby.
ARTICLE XI
-----------
MISCELLANEOUS PROVISIONS
------------------------
11.1 Completeness; Modification. This Agreement constitutes the
--------------------------
entire agreement between the parties hereto with respect to the transactions
contemplated hereby and supersedes all prior discussions, understandings,
agreements and negotiations between the parties hereto. This Agreement may be
modified only by a written instrument duly executed by the parties hereto.
11.2 Assignments. Patriot may assign its rights hereunder to an
-----------
Affiliated Company of Purchase, including, without limitation, Patriot American
Hospitality Partnership, L.P., without the consent of Seller; however, any such
assignment shall not relieve Patriot of its obligations under this Agreement.
11.3 Successors and Assigns. This Agreement shall bind and inure to
----------------------
the benefit of the parties hereto and their respective successors and assigns.
11.4 Days. If any action is required to be performed, or if any
----
notice, consent or other communication is given, on a day that is a Saturday or
Sunday or a legal holiday in the
<PAGE>
jurisdiction in which the action is required to be performed or in which is
located the intended recipient of such notice, consent or other communication,
such performance shall be deemed to be required, and such notice, consent or
other communication shall be deemed to be given, on the first business day
following such Saturday, Sunday or legal holiday. Unless otherwise specified
herein, all references herein to a "day" or "days" shall refer to calendar days
and not business days.
11.5 Governing Law. This Agreement and all documents referred to
-------------
herein shall be governed by and construed and interpreted in accordance with the
laws of the State where the Land is located.
11.6 Counterparts. To facilitate execution, this Agreement may be
------------
executed in as many counterparts as may be required. It shall not be necessary
that the signature on behalf of both parties hereto appear on each counterpart
hereof. All counterparts hereof shall collectively constitute a single
agreement.
11.7 Severability. If any term, covenant or condition of this
------------
Agreement, or the application thereof to any person or circumstance, shall to
any extent be invalid or unenforceable, the remainder of this Agreement, or the
application of such term, covenant or condition to other persons or
circumstances, shall not be affected thereby, and each term, covenant or
condition of this Agreement shall be valid and enforceable to the fullest extent
permitted by law.
11.8 Costs. Regardless of whether Closing occurs hereunder, and
-----
except as otherwise expressly provided herein, each party hereto shall be
responsible for its own costs in connection with this Agreement and the
transactions contemplated hereby, including, without limitation, fees of
attorneys, engineers and accountants.
11.9 Notices. All notices, requests, demands and other
-------
communications hereunder shall be in writing and shall be delivered by hand,
transmitted by facsimile transmission, sent prepaid by Federal Express (or a
comparable overnight delivery service) or sent by the United States mail,
certified, postage prepaid, return receipt requested, at the addresses and with
such copies as designated below. Any notice, request, demand or other
communication delivered or sent in the manner aforesaid shall be deemed given or
made (as the case may be) when actually delivered to the intended recipient.
If to Seller: Atlanta Midtown Associates
c/o Crow Family Holdings
3200 Trammell Crow Center
2001 Ross Avenue
Dallas, Texas 75201
Attn: Sue Groenteman
<PAGE>
With a copy to: Locke Purnell Rain Harrell
2200 Ross Avenue, Suite 2200
Dallas, Texas 75201-6776
Attn: Janis H. Loegering
If to Patriot: PAH Acquisition Corporation
c/o Patriot American Hospitality, Inc.
3030 LBJ Freeway, Suite 1500
Dallas, Texas 75234
Attn: Thomas W. Lattin, President
With a copy to: Akin, Gump, Strauss, Hauer & Feld, L.L.P.
1700 Pacific Avenue, Suite 4100
Dallas, Texas 75201
Attn: Carl B. Lee, P.C. and
Randall M. Ratner, P.C.
If to Escrow Agent: Unity Title Company
717 North Harwood Street
2610 Maxus Energy Tower
Dallas, Texas 75201
Attn: G. Timothy Hardin
or to such other address as the intended recipient may have specified in a
notice to the other party. Any party hereto may change its address or designate
different or other persons or entities to receive copies by notifying the other
party and Escrow Agent in a manner described in this Section.
11.10 Escrow Agent. Escrow Agent referred to in the definition
------------
thereof contained in Section 1.1 hereof has agreed to act as such for the
-----------
convenience of the parties without fee or other charges for such services as
Escrow Agent. Escrow Agent shall not be liable: (a) to any of the parties for
any act or omission to act except for its own willful misconduct; (b) for any
legal effect, insufficiency, or undesirability of any instrument deposited with
or delivered by Escrow Agent or exchanged by the parties hereunder, whether or
not Escrow Agent prepared such instrument; (c) for any loss or impairment of
funds that have been deposited in escrow while those funds are in the course of
collection, or while those funds are on deposit in a financial institution, if
such loss or impairment results from the failure, insolvency or suspension of a
financial institution; (d) for the expiration of any time limit or other
consequence of delay, unless a properly executed written instruction, accepted
by Escrow Agent, has instructed Escrow Agent to comply with said time limit; (e)
for the default, error, action or omission of either party to the escrow.
Escrow Agent, in its capacity as escrow agent, shall be entitled to rely on any
document or paper received by it, believed by such Escrow Agent, in good faith,
to be bona fide and genuine. In the event of any dispute as to the disposition
of the Deposit, the Deposit or any other monies held in escrow, or of any
documents held in escrow, Escrow Agent may, if such Escrow Agent so elects,
interplead the
<PAGE>
matter by filing an interpleader action in a court of general jurisdiction in
the county or circuit where the Real Property is located (to the jurisdiction of
which both parties do hereby consent), and pay into the registry of the court
the Deposit, or deposit any such documents with respect to which there is a
dispute in the Registry of such court, whereupon such Escrow Agent shall be
relieved and released from any further liability as Escrow Agent hereunder.
Escrow Agent shall not be liable for Escrow Agent's compliance with any legal
process, subpoena, writ, order, judgment and decree of any court, whether issued
with or without jurisdiction, and whether or not subsequently vacated, modified,
set aside or reversed.
11.11 Incorporation by Reference. All of the exhibits attached
--------------------------
hereto are by this reference incorporated herein and made a part hereof.
11.12 Survival. All of the representations, warranties, covenants
--------
and agreements of Seller and Patriot made in, or pursuant to, this Agreement
shall survive Closing for a period of twelve (12) months and shall not merge
into the Deed or any other document or instrument executed and delivered in
connection herewith.
11.13 Further Assurances. Seller and Patriot each covenant and agree
------------------
to sign, execute and deliver, or cause to be signed, executed and delivered, and
to do or make, or cause to be done or made, upon the written request of the
other party, any and all agreements, instruments, papers, deeds, acts or things,
supplemental, confirmatory or otherwise, as may be reasonably required by either
party hereto for the purpose of or in connection with consummating the
transactions described herein.
11.14 No Partnership. This Agreement does not and shall not be
--------------
construed to create a partnership, joint venture or any other relationship
between the parties hereto except the relationship of Seller and Patriot
specifically established hereby.
11.15 Time of Essence. Time is of the essence with respect to every
---------------
provision hereof.
11.16 Signatory Exculpation. The signatory(ies) for Patriot and
---------------------
Seller is/are executing this Agreement in his/their capacity as representative
of Patriot or Seller, as the case may be, and not individually and, therefore,
shall have no personal or individual liability of any kind in connection with
this Agreement and the transactions contemplated by it.
11.17 Rules of Construction. The following rules shall apply to the
---------------------
construction and interpretation of this Agreement:
(a) Singular words shall connote the plural number as well as the
singular and vice versa, and the masculine shall include the feminine and the
neuter.
(b) All references herein to particular articles, sections,
subsections, clauses or exhibits are references to articles, sections,
subsections, clauses or exhibits of this Agreement.
<PAGE>
(c) The table of contents and headings contained herein are solely for
convenience of reference and shall not constitute a part of this Agreement nor
shall they affect its meaning, construction or effect.
(d) Each party hereto and its counsel have reviewed and revised (or
requested revisions of) this Agreement and have participated in the preparation
of this Agreement, and therefore any usual rules of construction requiring that
ambiguities are to be resolved against a particular party shall not be
applicable in the construction and interpretation of this Agreement or any
exhibits hereto.
IN WITNESS WHEREOF, Seller and Patriot have caused this Agreement to
be executed in their names by their respective duly authorized representatives.
PATRIOT:
-------
PAH ACQUISITION CORPORATION, a Virginia
corporation
By:
Name: Michael D. Murphy
Title: Senior Vice President
Date of Execution: July ___, 1996
<PAGE>
SELLER:
------
ATLANTA MIDTOWN ASSOCIATES, a Texas
general partnership
By: Crow-Childress #10 Limited
Partnership, a Texas limited
partnership, its general partner
By: Crow Family 1991 Limited
Partnership, a Texas limited
partnership, its general
partner
By: Mill Spring Holdings,
Inc., a Texas corporation
By:
Name: Timothy J. Hogan
Date: Vice President
Date of Execution:
July ___, 1996
<PAGE>
RECEIPT OF ESCROW AGENT
-----------------------
Unity Title Company, as Escrow Agent, acknowledges receipt of the
Deposit from Patriot as described in Section 2.3 of the foregoing Agreement of
-----------
Purchase and Sale, said Deposit to be held pursuant to the terms and provisions
of said Agreement.
DATED this day of , 1996.
UNITY TITLE COMPANY
By:
Name:
Title:
<PAGE>
EXHIBIT A
---------
LAND
All that lot or parcel of land situated in Fulton County, Georgia, more
particularly described as:
<PAGE>
EXHIBIT B
---------
SURVEYOR'S CERTIFICATE
TO: (NAME OF PATRIOT) AND/OR ASSIGNS, PAINEWEBBER REAL ESTATE
SECURITIES, INC., WHITE & CASE, UNITY TITLE COMPANY AND
COMMONWEALTH LAND TITLE INSURANCE COMPANY:
The undersigned (the "Surveyor") certifies that:
(a) this survey was made on the ground of the property legally described on the
survey or in an attached legal description prepared by Surveyor this date,
and is correct;
(b) there are no discrepancies, conflicts, shortages in area, boundary line
conflicts, encroachments, protrusions, overlapping of improvements,
easements or roadways except as shown on the survey;
(c) this survey correctly shows the location of all buildings, structures,
fences and improvements situated on the property surveyed and the
footprints of such buildings contain approximately ____ square feet;
(d) the property surveyed has direct access to and from the roadways shown on
the survey, which roadways are dedicated public roadways except as
otherwise shown;
(e) this map or plat and the survey on which it is based were made in
accordance with "minimum standard detail requirements for ALTA/ACSM Land
Title surveys", jointly established and adopted by ALTA and ACSM in 1992
and meets the accuracy requirements of an urban survey, as defined therein,
and incudes items 1-4, and 6-11 and 13 in Table A contained therein and
pursuant to the accuracy Standards (as adopted by ALTA and ACSM and in
effect on the date of this certification) of an Urban Survey;
(f) the property surveyed is located within an area having a zone designation
"____" by the Secretary of Housing and Urban Development, on Flood
Insurance Rate Map No. ____, with a date of identification of _________,
for Community No. _______, County, State of _________, which is the current
flood insurance rate map for the community in which said premises is
situated;
(g) the number of parking spaces located on the property is ___________;
(h) all utility services required for the operation of the property surveyed
either (i) enter the property through adjoining public streets, or (ii) the
survey shows the point of entry and location of any utilities which pass
through or are located on adjoining private land and such utility services
enter the property by way of recorded easements;
(i) the property surveyed is not within any wetlands designated on any maps
prepared by the U.S. Army Corps of Engineers of U.S. Department of Game and
Wildlife, and there are no creeks, streams, water courses, or other bodies
of water on the property except as shown on the survey;
(j) the surveyed property and only the surveyed property constitutes one tax
lot and constitutes a single subdivided lot;
(k) Surveyor has reviewed the title commitment dated __________, G.F. No.
________ relating to the property surveyed prepared by Commonwealth Land
Title Insurance Company; and
(l) the existing zoning, use and density classifications are _____________.
The property surveyed and all improvements on the property comply with all
restrictions of record and land use requirements, including limitations and
other requirements or restrictions as to building and tower height and
location, building and structure coverage and depth, setbacks and
sideyards, below grade parking requirements and elevation of other portions
of the improvements, including loading docks;
<PAGE>
(m) the property contains approximately __________ square feet.
[NAME OF SURVEYOR]
<PAGE>
EXHIBIT C
---------
OTHER PROPERTY
472-Room Wyndham Greenspoint, Houston, Texas
Seller: Houston Greenspoint Hotel Associates
Purchaser: PAH Acquisition Corporation
<PAGE>
EXHIBIT D
---------
WYNDHAM COMFORT LETTER
July ___, 1996
Paine Webber Real Estate Securities Inc.,
its successors, assigns, designees and/or affiliates
1285 Avenue of the Americas, 19th Floor
New York, New York 10019
Patriot American Hospitality Partnership, L.P.,
its successors, assigns, designees and/or affiliates
3030 LBJ Freeway, Suite 1500
Dallas, Texas 75234
Re: Management Agreement by and between and assigned to Crow Hotel Lessee,
Inc., a Texas corporation ("Crow"), as amended pursuant to that
certain Assignment, Assumption and Modification Agreement dated as of
____________, 1996, and Wyndham Management Corporation, a Delaware
corporation ("Wyndham") dated _________________, (as amended and
assigned the "Agreement") in connection with the Hotel
located at _____________________ ("Hotel")
Gentlemen:
Wyndham has entered into the above referenced Agreement pertaining to the
operation of the Hotel as a Wyndham Hotel. Patriot American Hospitality
Partnership, L.P., a Virginia limited partnership ("Patriot"), and Paine Webber
Real Estate Securities Inc. ("Paine Webber") have advised us that Paine Webber
and Patriot have entered, or are about to enter, into a loan agreement whereby
Paine Webber's loan will be secured by a first mortgage on the premises on which
the Hotel is situated. Patriot and Paine Webber have requested that we execute
this letter agreement with respect to Patriot's rights in the Agreement.
Wyndham hereby acknowledges and agrees that in the event that the Lease
Agreement by and between Patriot and Crow dated as of even date herewith (the
"Lease") is terminated for any reason (hereinafter referred to as a "Lease
Termination"), then the Agreement may be assumed by any Successor (hereinafter
defined) provided such Successor shall not have any liability under the
Agreement prior to the date of such assumption by such Successor. As used
herein, the term "Successor" shall mean Patriot, Patriot's designee, Paine
Webber, Paine Webber's designee, or any third party purchaser pursuant to a
foreclosure of the mortgage or
<PAGE>
other proceeding brought to enforce the rights of the holder of the mortgage or
pursuant to a deed in lieu of foreclosure or by any other method. If such
Successor assumes the Agreement, the Hotel will continue to be operated as a
Wyndham Hotel (or as a Wyndham Hotel and Resort, if applicable) with the use of
the Wyndham Hotel and Resort name, logo and other applicable trademarks or trade
names, Wyndham's reservation system, marketing and advertising services and
other services provided by Wyndham Hotel Corporation and its affiliates
("Wyndham Hotels") to comparable Wyndham hotels for up to four (4) months
following the date of such Lease Termination (the "Temporary Usage"). Successor
shall pay to Wyndham during the period of Temporary Usage (a) the management
fees payable to Wyndham under the Agreement attributable to the period of
Temporary Usage and (b) the fees charged by Wyndham Hotels on a systemwide basis
for comparable hotels operating under the Wyndham name which utilize the Wyndham
name and services of Wyndham Hotels utilized by the Hotel (the "Trade Name
Fees'), unless such termination is due to an Event of Default under the Lease
(as such term is defined in the Lease) in which event no Trade Name Fee would be
payable during the Temporary Usage period. Such Temporary Usage may be
terminated by such Successor on thirty (30) days' notice to Wyndham Hotels.
Sincerely,
WYNDHAM MANAGEMENT CORPORATION
By:
Name:
Title:
<PAGE>
SCHEDULE 1
----------
AUTHORIZATIONS
<PAGE>
SCHEDULE 2
----------
INTENTIONALLY DELETED
<PAGE>
SCHEDULE 3
----------
OCCUPANCY AGREEMENTS
<PAGE>
SCHEDULE 4
----------
OPERATING AGREEMENTS
<PAGE>
SCHEDULE 5
----------
INTENTIONALLY DELETED
<PAGE>
SCHEDULE 6
----------
PERSONAL PROPERTY LEASES
298050.c1
<PAGE>
EXHIBIT 10.48
<PAGE>
AGREEMENT OF PURCHASE AND SALE
between
PAH ACQUISITION CORPORATION
a Virginia corporation
and
("Patriot")
and
WOOD DALE GARDEN HOTEL PARTNERSHIP,
a Texas general partnership
("Seller")
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<C> <S> <C>
ARTICLE I DEFINITIONS
1.1 Definitions.................................................... 1
ARTICLE II PURCHASE AND SALE OF PROPERTY; DEPOSIT; PAYMENT OF
PURCHASE PRICE; TITLE
2.1 Purchase and Sale.............................................. 7
2.2 Payment of Purchase Price...................................... 8
2.3 Deposit........................................................ 8
2.4 Submission Matters and Title Information....................... 8
ARTICLE III SELLER'S REPRESENTATIONS AND WARRANTIES
3.1 Organization and Power........................................ 11
3.2 Authorization and Execution................................... 11
3.3 Non-contravention............................................. 11
3.4 Title To Real Property........................................ 12
3.5 No Special Taxes.............................................. 12
3.6 Compliance with Existing Laws................................. 12
3.7 Personal Property............................................. 12
3.8 Operating Agreements.......................................... 12
3.9 Insurance..................................................... 12
3.10 Condemnation Proceedings; Roadways............................ 12
3.11 Actions or Proceedings........................................ 13
3.12 Labor and Employment.......................................... 13
3.13 Financial Information and Submission Matters.................. 13
3.14 Submission Matters............................................ 13
3.15 Bankruptcy.................................................... 13
3.16 Hazardous Substances.......................................... 13
3.17 Intentionally Deleted......................................... 14
3.18 Occupancy Agreements.......................................... 14
3.19 Leased Property............................................... 14
3.20 Americans With Disabilities Act............................... 14
3.21 Structural Condition.......................................... 14
3.22 Zoning and Platting........................................... 14
3.23 Access........................................................ 14
3.24 No Commitments................................................ 14
3.25 Seller Is Not a "Foreign Person".............................. 15
3.26 No Other Property Interests................................... 15
3.27 Intentionally Deleted......................................... 15
3.28 Intentionally Deleted......................................... 15
3.29 Intentionally Deleted......................................... 15
</TABLE>
i
<PAGE>
<TABLE>
<C> <S> <C>
3.30 Relationship to Certain Parties............................... 15
3.31 LIMITATIONS ON REPRESENTATIONS AND WARRANTIES................. 15
ARTICLE IV PATRIOT'S REPRESENTATIONS AND WARRANTIES
4.1 Organization and Power........................................ 16
4.2 Authority of Patriot.......................................... 17
4.3 Non-contravention............................................. 17
4.4 Litigation.................................................... 17
4.5 Bankruptcy.................................................... 17
ARTICLE V CONDITIONS PRECEDENT
5.1 As to Patriot's Obligations................................... 17
5.2 As to Seller's Obligations.................................... 19
5.3 As to Patriot's and Seller's Obligations...................... 19
ARTICLE VI COVENANTS OF SELLER
6.1 Operating Agreements and Occupancy Agreements................. 20
6.2 Warranties and Guaranties..................................... 21
6.3 Insurance..................................................... 21
6.4 Independent Audit............................................. 21
6.5 Operation of Property Prior to Closing........................ 21
6.6 No Marketing.................................................. 22
6.7 Employees..................................................... 22
ARTICLE VII INTENTIONALLY DELETED
ARTICLE VIII CLOSING
8.1 Closing....................................................... 23
8.2 Seller's Deliveries........................................... 24
8.3 Patriot's Deliveries.......................................... 26
8.4 Mutual Deliveries............................................. 27
8.5 Closing Costs................................................. 27
8.6 Revenue and Expense Allocations............................... 27
ARTICLE IX GENERAL PROVISIONS
9.1 Condemnation.................................................. 30
9.2 Risk of Loss.................................................. 30
9.3 Absence of Broker............................................. 31
9.4 Bulk Sale..................................................... 31
9.5 Confidentiality............................................... 31
9.6 Seller's Accounts Receivable.................................. 32
ARTICLE X LIABILITY OF PATRIOT; INDEMNIFICATION BY SELLER;
DEFAULT; TERMINATION RIGHTS
10.1 Liability of Patriot.......................................... 32
</TABLE>
ii
<PAGE>
<TABLE>
<C> <S> <C>
10.2 Indemnification by Seller..................................... 32
10.3 Indemnification by Patriot.................................... 33
10.4 Default by Seller/Failure of Conditions Precedent............. 33
10.5 Default by Patriot/Failure of Conditions Precedent............ 33
10.6 Costs and Attorneys' Fees..................................... 34
10.7 Limitation of Liability....................................... 34
ARTICLE XI MISCELLANEOUS PROVISIONS
11.1 Completeness; Modification.................................... 34
11.2 Assignments................................................... 34
11.3 Successors and Assigns........................................ 34
11.4 Days.......................................................... 34
11.5 Governing Law................................................. 35
11.6 Counterparts.................................................. 35
11.7 Severability.................................................. 35
11.8 Costs......................................................... 35
11.9 Notices....................................................... 35
11.10 Escrow Agent.................................................. 36
11.11 Incorporation by Reference.................................... 37
11.12 Survival...................................................... 37
11.13 Further Assurances............................................ 37
11.14 No Partnership................................................ 37
11.15 Time of Essence............................................... 37
11.16 Signatory Exculpation......................................... 37
11.17 Rules of Construction......................................... 37
</TABLE>
<TABLE>
<S> <C>
EXHIBITS
- --------
Exhibit A - Land
Exhibit B - Surveyor's Certificate
Exhibit C - Other Properties
Exhibit D - Wyndham Comfort Letter
Exhibit E - Lease
SCHEDULES
- ---------
Schedule 1 - Authorizations
Schedule 2 - Intentionally Deleted
Schedule 3 - Occupancy Agreements
Schedule 4 - Operating Agreements
Schedule 5 - Intentionally Deleted
Schedule 6 - Personal Property Leases
</TABLE>
iii
<PAGE>
AGREEMENT OF PURCHASE AND SALE
------------------------------
THIS AGREEMENT OF PURCHASE AND SALE (this "Agreement") is made as of
---------
this ________ day of July, 1996, between PAH ACQUISITION CORPORATION, a Virginia
corporation ("Patriot"), and WOOD DALE GARDEN HOTEL PARTNERSHIP, a Texas general
-------
partnership ("Seller").
------
R E C I T A T I O N S:
A. Seller is the owner of that certain real property known as the
"Wyndham Wood Dale, Chicago, Illinois", situate, lying and being in DuPage
County, State of Illinois.
B. Patriot is desirous of purchasing such hotel property from Seller
and Seller is desirous of selling such hotel property to Patriot, for the
Purchase Price and upon the terms and conditions hereinafter set forth.
NOW, THEREFORE, in consideration of premises and in consideration of
the mutual covenants, promises and undertakings of the parties hereinafter set
forth, and for other good and valuable considerations, the receipt and
sufficiency of which is hereby acknowledged by the parties, it is agreed:
ARTICLE I
---------
DEFINITIONS
-----------
1.1 Definitions. The following terms shall have the indicated
-----------
meanings:
"Act of Bankruptcy" shall mean if a party hereto or any general
-----------------
partner thereof shall (a) apply for or consent to the appointment of, or the
taking of possession by, a receiver, custodian, trustee or liquidator of itself
or of all or a substantial part of its property, (b) admit in writing its
inability to pay its debts as they become due, (c) make a general assignment for
the benefit of its creditors, (d) file a voluntary petition or commence a
voluntary case or proceeding under the Federal Bankruptcy Code (as now or
hereafter in effect), (e) be adjudicated a bankrupt or insolvent, (f) file a
petition seeking to take advantage of any other law relating to bankruptcy,
insolvency, reorganization, winding-up or composition or adjustment of debts,
(g) fail to controvert in a timely and appropriate manner, or acquiesce in
writing to, any petition filed against it in an involuntary case or proceeding
under the Federal Bankruptcy Code (as now or hereafter in effect), or (h) take
any corporate or partnership action for the purpose of effecting any of the
foregoing; or if a proceeding or case shall be commenced, without the
application or consent of a party hereto or any general partner thereof, in any
court of competent jurisdiction seeking (1) the liquidation, reorganization,
dissolution or winding-up, or the composition or readjustment of debts, of such
party or general partner, (2) the appointment of a receiver, custodian, trustee
or liquidator for such party or general partner or all or any substantial part
of its assets, or (3) other similar relief under any law relating to bankruptcy,
insolvency, reorganization, winding-up or composition or adjustment of debts,
and such proceeding or case
<PAGE>
shall continue undismissed; or an order (including an order for relief entered
in an involuntary case under the Federal Bankruptcy Code, as now or hereafter in
effect) judgment or decree approving or ordering any of the foregoing shall be
entered and continue unstayed and in effect, for a period of 60 consecutive
days.
"Advance Bookings" shall mean reservations made by Seller prior to
----------------
Closing for Hotel rooms or meeting rooms to be utilized after Closing, or for
catering services or other Hotel services to be provided after Closing, in the
ordinary course of business.
"Affiliated Company" means any other entity which is, along with a
------------------
party and/or its management company, a member of a controlled group of
corporations or a controlled group of trades or businesses (as defined in
Section 414(b) or (c) of the Internal Revenue Code), any entity which along with
such party and/or its management company is included in an affiliated service
group as defined in Section 414(m) of the Internal Revenue Code, and any other
entity which is required to be aggregated with such party and/or its management
company pursuant to Treasury Regulations under Section 414(o) of the Internal
Revenue Code.
"Applicable Laws" shall mean any applicable building, zoning,
---------------
subdivision, environmental, health, safety or other governmental laws, statutes,
ordinances, resolutions, rules, codes, regulations, orders or determinations of
any Governmental Authority or of any insurance boards of underwriters (or other
body exercising similar functions), or any restrictive covenants or deed
restrictions affecting the Property or the ownership, operation, use,
maintenance or condition thereof.
"Assignment and Assumption Agreement" shall mean one or more
-----------------------------------
assignment and assumption agreements whereby (a) Seller (1) assigns and
Patriot's lessee assumes the Operating Agreements, Space Lease and Personal
Property Leases that have not been terminated prior to Closing in accordance
herewith, (2) assigns all of Seller's right, title and interest in and to the
Intangible Personal Property, to the extent assignable, and (3) indemnifies,
defends and holds Patriot and Patriot's lessee harmless with respect to all
defaults, liabilities, claims, costs and expenses (including, without
limitation, reasonable attorneys' fees) relating to acts or omissions accruing
under such Operating Agreements, and Personal Property Leases before the Closing
Date; and (b) Patriot's lessee indemnifies, defends and holds Seller harmless
with respect to all defaults, liabilities, claims, costs and expenses
(including, without limitation, reasonable attorneys' fees) relating to acts or
omissions accruing under such Operating Agreements and Personal Property Leases
from and after the Closing Date.
"Assignment of Occupancy Agreements" shall mean the assignment
----------------------------------
agreement, in recordable form, whereby (a) Seller (1) assigns and Patriot's
lessee assumes all of Seller's right, title and interest in and to the Occupancy
Agreements, and (2) indemnifies, defends and holds Patriot and Patriot's lessee
harmless with respect to all defaults, liabilities, claims, costs and expenses
(including, without limitation, reasonable attorneys' fees) relating to acts or
omissions accruing under such Occupancy Agreements before the Closing Date; and
(b) Patriot's lessee indemnifies, defends and holds Seller harmless with respect
to all defaults, liabilities, claims, costs and expenses (including, without
limitation, reasonable attorneys' fees) relating to acts or omissions accruing
under such Occupancy Agreements from and after the Closing Date.
<PAGE>
"Authorizations" shall mean all licenses, permits and approvals
--------------
required by any governmental or quasi-governmental agency, body, department,
commission, board, bureau, instrumentality or officer, with respect to the
construction, ownership, operation, leasing, maintenance, or use of the Property
or any part thereof, which Authorizations are more particularly described on
Schedule 1 attached hereto and made a part hereof.
- ----------
"Bill of Sale - Personal Property" shall mean one or more bills of
--------------------------------
sale conveying title to the Tangible Personal Property from Seller to Patriot
(as Patriot shall specify).
"Closing" shall mean the Closing of the purchase and sale of the
-------
Property pursuant to this Agreement and shall be deemed to occur on the Closing
Date.
"Closing Date" shall mean the date on which the Closing occurs.
------------
"Closing Documents" shall mean the documents defined as such in
-----------------
Section 8.1 hereof.
- -----------
"Cross-Collateralized Properties" shall have the meaning ascribed to
-------------------------------
such term in Section 5.3(b) hereof.
--------------
"Deed" shall mean that certain deed conveying marketable title to the
----
Real Property with special warranty covenants of title from Seller to Patriot,
in recordable form, and subject only to Permitted Title Exceptions. If there is
any difference between the description of the Land, as shown on Exhibit A
---------
attached hereto and the description of the Land as shown on the Survey, the
description of the Land to be contained in the Deed and the description of the
Land set forth in the Title Commitment shall conform to the description shown on
the Survey.
"Deposit" shall mean all amounts deposited from time to time with
-------
Escrow Agent by Patriot pursuant to Section 2.3 hereof. All cash Deposits shall
-----------
be invested by Escrow Agent in a commercial bank or banks acceptable to Patriot
at money market rates, or in such other investments as shall be approved in
writing by Seller and Patriot. The Deposit shall be held and disbursed by
Escrow Agent in strict accordance with the terms and provisions of this
Agreement.
"Effective Date" shall mean the date this Agreement has been fully
--------------
executed and delivered by all parties hereto.
"Environmental Damages" shall mean all third-party claims, judgments,
---------------------
damages, losses, penalties, fines, liabilities (including, without limitation,
punitive damages and strict liability), encumbrances, liens, costs and expenses
of investigation and defense of any claim, whether or not such is ultimately
defeated, and of any settlement or judgment, of whatever kind or nature,
contingent or otherwise, matured or unmatured, including, without limitation,
attorneys' fees and disbursements and consultants' fees, any of which arise as a
result of the existence of Hazardous Materials upon, about or beneath the
Property or migrating or threatening to migrate from the Property, or as a
result of the existence of a violation of Environmental Requirements pertaining
to the Property.
<PAGE>
"Environmental Requirements" shall mean (i) all applicable statutes,
--------------------------
regulations, rules, policies, ordinances, codes, licenses, permits, orders,
approvals, plans, authorizations, and similar items, of all Governmental
Authorities, and (ii) all judicial, administrative and regulatory decrees,
judgments and orders, in each case of (i) and (ii) relating to the protection
of human health or the environment from Hazardous Materials, including, without
limitation: (a) all requirements thereof, including, without limitation, those
pertaining to reporting, licensing, permitting, investigation and remediation of
emissions, discharges, releases or threatened releases of Hazardous Materials
into the air, surface water, groundwater or land, or relating to the
manufacture, processing, distribution, use, treatment, storage, disposal,
transport or handling of Hazardous Materials; and (b) all requirements
pertaining to the protection of the health and safety of employees or the public
from Hazardous Materials.
"Escrow Agent" shall mean Unity Title Company, whose address is 2610
------------
Maxus Energy Tower, 717 North Harwood Street, Dallas, Texas 75201 (telephone
(214) 969-5300, fax (214) 969-5348).
"Financial Information" shall mean the financial information defined
---------------------
as such in Section 3.13 hereof.
------------
"FIRPTA Certificate" shall mean the affidavit of Seller under Section
------------------
1445 of the Internal Revenue Code, as amended, certifying that Seller is not a
foreign corporation, foreign partnership, foreign trust, foreign estate or
foreign person (as those terms are defined in the Internal Revenue Code and
regulations promulgated thereunder), in form and substance satisfactory to
Patriot.
"Governmental Authority" shall mean any federal, state, county,
----------------------
municipal or other government or any governmental or quasi-governmental agency,
department, commission, board, bureau, officer or instrumentality, foreign or
domestic, or any of them, having jurisdiction over Patriot or the Project.
"Hazardous Materials" shall mean any chemical substance: (i) which is
-------------------
or becomes defined as a "hazardous substance," "hazardous waste," "hazardous
material," "pollutant," "contaminant," or "toxic," "explosive," "corrosive,"
"flammable," "infectious," "radioactive," "carcinogenic," or "mutagenic"
material under any law, regulation, rule, order, or other authority of the
federal, state or local governments, or any agency, department, commission,
board, or instrumentality thereof, regarding the protection of human health or
the environment from such chemical substances including, but not limited to, the
following federal laws and their amendments, analogous state and local laws, and
any regulations promulgated thereunder: the Clean Air Act, the Clean Water Act,
the Oil Pollution Control Act, the Comprehensive Environmental Response,
Compensation, and Liability Act of 1986, the Emergency Planning and Community
Right to Know Act, the Solid Waste Disposal Act, the Resource Conservation and
Recovery Act, the Safe Drinking Water Act, the Federal Insecticide, Fungicide
and Rodenticide Act, and the Toxic Substances Control Act, including, without
limitation, asbestos and gasoline and other petroleum products (including crude
oil or any fraction thereof); (ii) without limitation, which contains gasoline,
diesel fuel or other petroleum hydrocarbons; (iii) without limitation,
<PAGE>
which contains drinking biphenyls or asbestos or asbestos-containing materials
or urea formaldehyde foam insulation; or (iv) without limitation, radon gas.
"Hotel" shall mean the 162-room hotel and related amenities located
-----
on the Land.
"Improvements" shall mean the Hotel and all other buildings,
------------
improvements, fixtures and other items of real estate located on the Land.
"Insurance Policies" shall mean all policies of insurance maintained
------------------
by or on behalf of Seller pertaining to the Property, its operation, or any part
thereof.
"Intangible Personal Property" shall mean all intangible personal
----------------------------
property owned or possessed by Seller and used in connection with the ownership,
operation, leasing, occupancy or maintenance of the Property, including, without
limitation, (1) the Authorizations, (2) utility and development rights and
privileges, business records, plans and specifications pertaining to the Real
Property and the Personal Property, (3) any unpaid award for taking by
condemnation or any damage to the Land by reason of a change of grade or
location of or access to any street or highway which was not effective prior to
the Effective Date, and (4) the share of the Rooms Ledger determined under
Section 8.6 hereof, excluding (a) any of the aforesaid rights Patriot elects not
- -----------
to acquire, (b) cash reserves for FF&E, taxes and insurance, and (c) accounts
receivable except for the above described share of the Rooms Ledger.
"Land" shall mean that certain parcel of real estate lying and being
----
in DuPage County, Illinois, as more particularly described on Exhibit A attached
---------
hereto, together with all easements, rights, privileges, remainders, reversions
and appurtenances thereunto belonging or in any way appertaining, and all of the
estate, right, title, interest, claim or demand whatsoever of Seller therein, in
the streets and ways adjacent thereto and in the beds thereof, either at law or
in equity, in possession or expectancy, now or hereafter acquired.
"Lease" means the lease of the Hotel in the form of Exhibit E attached
----- ---------
hereto, which has been approved by Lessor and Lessee and is to be entered by
Lessor and Lessee in accordance with Section 8.4(d) hereof.
--------------
"Leased Property" shall mean all leased items of Tangible Personal
---------------
Property.
"Lessee" means Crow Hotel Lessee, Inc.
------
"Lessor" means Patriot or its assignee.
------
"Manager" shall have the meaning ascribed to such term in Section
------- -------
5.11(e) hereof.
- -------
"Occupancy Agreements" shall mean all leases, concession or occupancy
--------------------
agreements in effect with respect to the Real Property under which any tenants
(other than Hotel guests) or concessionaires occupy space upon the Real
Property, which Occupancy Agreements are described on Schedule 3 attached hereto
----------
and made a part hereof.
<PAGE>
"Operating Agreements" shall mean all management, service, supply and
--------------------
maintenance contracts, if any, in effect with respect to the Property and all
other contracts (other than the Occupancy Agreements and the Space Lease) that
affect the Property or are otherwise related to the construction, ownership,
operation, occupancy or maintenance of the Property, which Operating Agreements
are described on Schedule 4 attached hereto and made a part hereof.
----------
"Operating Partnership" shall mean Patriot American Hospitality
---------------------
Partnership, L.P., a Virginia limited partnership.
"Other Agreement of Purchase and Sale" means any one of those certain
------------------------------------
Other Agreements of Purchase and Sale.
"Other Agreements of Purchase and Sale" means that certain
-------------------------------------
Contribution Agreement and those certain Agreements of Purchase and Sale of even
date herewith for the Other Properties entered into by Patriot and affiliates of
Seller.
"Other Lease Agreements" means those certain leases of the hotels to
----------------------
be acquired on the Closing Date by Patriot pursuant to the Other Agreements of
Purchase and Sale between Lessor, as lessor, and Lessee, as lessee.
"Other Properties" means those certain four hotels described on
----------------
Exhibit C attached hereto and made a part hereof.
- ---------
"Other Property" means any one of those certain four hotels described
--------------
on Exhibit C.
---------
"Owner's Title Policy" shall mean a Form B ALTA owner's policy of
--------------------
title insurance issued to Patriot by the Title Company, pursuant to which the
Title Company insures Patriot's ownership of fee simple title to the Real
Property (including the indefeasibility thereof) subject only to Permitted Title
Exceptions. The Owner's Title Policy shall insure Patriot in the amount of the
Purchase Price and shall be reasonably acceptable in form and substance to
Patriot. Patriot may require such deletions of standard exceptions and such
title endorsements as are legally available and customarily required by
institutional investors purchasing property comparable to the Property in the
State where the Property is situated. The description of the Land in the
Owner's Title Policy shall be by courses and distances or by reference to a
legal, subdivided lot and shall be identical to the description shown on the
Survey.
"Patriot's Objections" shall mean the objections defined as such in
--------------------
Section 2.4(c) hereof.
- --------------
"Permitted Title Exceptions" shall mean those exceptions to title to
--------------------------
the Real Property that are satisfactory to Patriot or deemed satisfactory to
Patriot pursuant to Section 2.4(c) hereof.
--------------
"Personal Property" shall mean collectively the Tangible Personal
-----------------
Property and the Intangible Personal Property.
<PAGE>
"Personal Property Leases" shall mean the leases pursuant to which
------------------------
Seller leases the Leased Property, which Personal Property Leases are described
on Schedule 6 attached hereto and made a part hereof.
----------
"Property" shall mean collectively the Real Property and the Personal
--------
Property.
"Purchase Price" shall mean $13,380,000.00 payable in the manner
--------------
described in Section 2.2 hereof and subject to adjustment as set forth herein.
-----------
"Real Property" shall mean the Land and the Improvements.
-------------
"Rooms Ledger" shall mean the final night's room revenue (revenue from
------------
rooms occupied as of 12:01 a.m. on the Closing Date, exclusive of food,
beverage, telephone and similar charges which shall be retained by Seller),
including any sales taxes, room taxes or other taxes thereon.
"Seller's Organizational Documents" shall mean the current partnership
---------------------------------
agreement and certificate of limited partnership and all amendments thereto of
Seller and its general partners.
"Submission Matters" shall mean all items Seller is required to
------------------
deliver to Patriot or make available to Patriot for its review pursuant to
Section 2.4(a) hereof.
- --------------
"Survey" shall mean the survey defined as such in and prepared
------
pursuant to Section 2.4(c) hereof.
---------------
"Tangible Personal Property" shall mean the items of tangible personal
--------------------------
property consisting of all furniture, fixtures, equipment, machinery and other
personal property of every kind and nature (including cash-on-hand and petty
cash funds) located on or used or useful in the operation of the Hotel and owned
by Seller, including, without limitation, unopened inventories of food and
beverages and the stock of linens, towels, paper goods, soaps, cleaning
supplies, china, glassware, silverware, tablecloths, napkins, television sets,
carpets, drapes, rugs, floor coverings, mattresses, pillows, bed spreads and
miscellaneous guest supplies, engineering cleaning supplies and the like.
"Title Commitment" shall mean the title commitment and exception
----------------
documents defined as such in Section 2.4(c) hereof.
--------------
"Title Company" shall mean Escrow Agent on behalf of Commonwealth Land
-------------
Title Insurance Company or other title insurance underwriter selected by
Patriot.
"UCC Reports" shall mean the reports defined as such in Section
----------- -------
2.4(c) hereof.
- ------
"Utilities" shall mean public sanitary and storm sewers, natural gas,
---------
telephone, public water facilities, electrical facilities and all other utility
facilities and services necessary or appropriate for the operation and occupancy
of the Property as a hotel.
<PAGE>
"Warranties and Guaranties" shall mean all warranties and guaranties
-------------------------
relating to the Improvements or the Tangible Personal Property or any part
thereof, if any.
ARTICLE II
- ----------
PURCHASE AND SALE OF PROPERTY; DEPOSIT; PAYMENT
-----------------------------------------------
OF PURCHASE PRICE; TITLE
------------------------
2.1 Purchase and Sale. Seller agrees to sell, and Purchaser
-----------------
agrees to purchase, the Property for the Purchase Price and in accordance with,
and subject to, the terms and conditions hereinafter set forth.
2.2 Payment of Purchase Price. The Purchase Price, subject to
-------------------------
adjustment as provided in Section 2.5 below, shall be paid to Seller in the
-----------
following manner:
(a) Purchaser shall receive a credit against the Purchase
Price in an amount equal to the amount of the cash Deposit.
(b) Patriot shall pay the balance of the Purchase Price as
adjusted in the manner specified in Article VIII and as set forth below, to
------------
Seller or other applicable party at Closing by making a wire transfer of
immediately available federal funds to the account of Seller or other applicable
party as specified in writing by Seller.
The parties agree that the Purchase Price shall be allocated between the Real
Property and Personal Property in accordance with the appraisal of the Personal
Property to be obtained by Patriot prior to the Closing.
2.3 Deposit. Within three (3) days after the execution hereof
-------
by both Seller and Patriot and as a condition precedent to the effectiveness of
this Agreement, Patriot shall deliver to Escrow Agent (i) a wire transfer or
check in the sum of Fifty Dollars ($50.00) payable to the order of Seller
representing the independent consideration for Seller's execution of this
Agreement and agreement to provide Patriot with the Study Period (which check or
the proceeds of which wire transfer shall thereafter be delivered by Escrow
Agent to Seller) and (ii) a demand note in the amount of $104,531.00 executed by
the Operating Partnership, payable to the order of Seller (the "Deposit").
-------
Escrow Agent shall hold the Deposit pursuant to the terms, conditions and
provisions of this Agreement. The Deposit shall be either (a) returned to
Patriot pursuant hereto, or (b) paid to Seller pursuant hereto.
2.4 Submission Matters and Title Information.
----------------------------------------
(a) Seller has delivered the following to Patriot and
Patriot has approved the following:
(1) Copies of all Occupancy Agreements in effect as of
the date of this Agreement.
<PAGE>
(2) To the extent in Seller's possession or reasonably
available to Seller, copies of all Authorizations including, without
limitation, all certificates of occupancy, permits, authorizations,
approvals and licenses issued by Governmental Authorities having
jurisdiction over the Property and copies of all certificates issued by the
local board of fire underwriters (or other body exercising similar
functions) relating to the Property. For the purpose of this Agreement any
Submission Matters in the possession of Seller's management company shall
be deemed to be "reasonably available to Seller."
(3) A complete list of advance reservations and room
bookings for the Property.
(4) Complete copies of all such Operating Agreements.
(5) A schedule setting forth the type and amounts of
insurance coverage maintained by Seller with respect to the Property as of
the date of this Agreement and complete copies of all such Insurance
Policies.
(6) To the extent in Seller's possession or reasonably
available to Seller, financial and operating statements for the Property
for the previous three (3) calendar years and the year to date.
(7) The operating and capital expenditure budget for
the Property for the current calendar year and, to the extent in Seller's
possession or reasonably available to Seller, for the previous three (3)
calendar years.
(8) A complete list of all Leased Property and complete
copies of all Personal Property Leases.
(9) To the extent in Seller's possession or reasonably
available to Seller, copies of invoices for all ad valorem taxes and
special assessments assessed against the Property for the current calendar
year and prior three calendar years, either statements for Utilities
payable for the current calendar year and any prior years (if available at
the Hotel or in the Dallas, Texas office of Seller's current manager of the
Hotel) or such other information which Seller may have in its or Seller's
current manager's possession itemizing the payment of Utilities for the
Hotel, and any information in Seller's possession or reasonably available
to Seller regarding current renditions or assessments on the Property or
notices relative to change in valuation for ad valorem taxes.
(10) To the extent in Seller's possession or reasonably
available to Seller, a complete list of all Warranties and Guaranties in
effect as of the date of this Agreement and complete copies of all such
Warranties and Guaranties.
(11) Copies of all soil tests, structural engineering
tests, masonry tests, percolation tests, water, oil, gas, mineral, radon,
formaldehyde, PCB or other environmental tests, audits or reports, market
studies and site plans related to the Property in Seller's possession or
reasonably available to Seller.
<PAGE>
(12) If in Seller's possession or reasonably available
to Seller, Seller will make available to Patriot at the Property or at the
office's of Seller's current manager in Dallas, Texas, copies of complete
sets of all architectural, mechanical, structural and/or electrical plans
and specifications used in connection with the construction of or
alterations or repairs to the Property.
(13) If in Seller's possession or reasonably available
to Seller, Seller will make available to Patriot at the Property or at the
office's of Seller's current manager in Dallas, Texas, copies of as-built
plans and specifications for the Property.
(14) Parking, structural, mechanical or other
engineering reports or engineering studies related to the Property, if any,
in Seller's possession or reasonably available to Seller.
(15) If in Seller's possession or reasonably available
to Seller, copies of any title insurance policies covering the Real
Property and any surveys of all or any portion of the Property.
Until the Closing, Seller shall make available to Patriot, its agents, auditors,
engineers, attorneys, potential lessees and other designees, for inspection
and/or copying, copies of all existing architectural and engineering studies,
surveys, title insurance policies, zoning and site plan materials,
correspondence, environmental audits and reviews, books, records, tax returns,
bank statements, financial statements, advance reservations and room bookings
and function bookings, rate schedules and any and all other materials or
information relating to the Property which are in, or come into, Seller's
possession or control or are otherwise reasonably available to Seller.
(b) Patriot shall give Seller reasonable oral or written notice of all
proposed inspections to be undertaken on the Property. Seller's prior oral or
written consent shall be required (but shall not be unreasonably withheld or
delayed) only as to Patriot's undertaking of invasive testing at the Property,
and such testing and inspections shall be coordinated with the general manager
of the Hotel. Any such inspection or activity shall (i) not unreasonably
interfere with the operation of the Property and (ii) shall be conducted at such
times and in such manner as to not unreasonably disturb the guests of the Hotel.
Seller shall have the right to designate a representative to accompany Patriot's
employees, agents, and independent contractors on any such inspections. Patriot
shall indemnify and defend Seller against any loss, damage or claim for personal
injury or property damage arising from the negligent or willful acts upon the
Real Property by Patriot or any agents, contractors or employees of Patriot.
Patriot, at its own expense, shall restore any damage to the Property caused by
any of the tests or studies made by Patriot. This provision shall survive any
termination of this Agreement and a closing of the transaction contemplated
hereby.
(c) Seller has delivered to Patriot, at Seller's sole cost and expense
(and Patriot has approved), two copies to Patriot's attorneys, Akin, Gump,
Strauss, Hauer & Feld, L.L.P., a Survey of the Land and the Improvements,
prepared by a Surveyor licensed to practice as such in the State where the Land
is located and reasonably acceptable to Patriot, bearing a date not earlier than
thirty (30) days from the date of its delivery, containing the certificate
attached hereto
<PAGE>
as Exhibit B, and substantially conforming to the requirements set forth in
---------
such certificate. Seller has caused the Title Company to furnish to Patriot, at
Seller's sole cost and expense (and Patriot has approved), (i) a title insurance
commitment bearing an effective date subsequent to the date of this Agreement
issued by the Title Company covering the Real Property, binding the Title
Company to issue its Owner's Policy of Title Insurance, in form approved for use
in the state where the Property is located in favor of Patriot, showing title to
be held currently by Seller in a good, indefeasible and insurable condition,
together with legible copies of all documents identified in such title insurance
commitment as exceptions to title certified as true and complete by the Title
Company (collectively, the "Title Commitment"), and (ii) reports of searches
----------------
of the Uniform Commercial Code records of both the county and State in which the
Property is located (collectively, the "UCC Reports") with respect to the state
-----------
of title to the Property. Patriot has notified Seller of any matters shown on
the Survey or identified in the Title Commitment or the UCC Reports that Patriot
is unwilling to accept (collectively, "Patriot's Objections"). If any of
--------------------
Patriot's Objections consist of delinquent taxes, mortgages, deeds of trust,
security agreements, construction or mechanics' liens, tax liens or other liens
or charges in a fixed sum or capable of computation as a fixed sum, then, to
that extent, notwithstanding anything herein to the contrary, Seller shall be
obligated to pay and discharge (or bond against in a manner sufficient to cause
the Title Company to insure over such Patriot's Objections) at or prior to
Closing all of such Patriot's Objections. Seller shall not, after the date of
this Agreement, subject the Real Property to or permit or suffer to exist any
liens, encumbrances, covenants, conditions, restrictions, easements or other
title matters or seek any zoning changes or take any other action which may
affect or modify the status of title without Patriot's prior written consent
unless same are discharged at or prior to Closing. All title matters revealed by
the Title Commitment, UCC Reports and Survey and not objected to by Patriot as
provided above (other than those rendering title defeasible and delinquent
taxes, mortgages, deeds of trust, security agreements and other liens and
charges that are to be paid at Closing as provided above) shall be deemed
Permitted Title Exceptions. Notwithstanding the foregoing, Patriot shall not be
required to take title to the Real Property subject to any matters which may
arise subsequent to the effective date of the Title Commitment, UCC Reports and
Survey examined by Patriot prior to the date hereof.
ARTICLE III
-----------
SELLER'S REPRESENTATIONS AND WARRANTIES
---------------------------------------
To induce Patriot to enter into this Agreement and to acquire the
Property, and to pay the Purchase Price therefor, Seller hereby makes the
following representations and warranties with respect to the Property, upon each
of which Seller acknowledges and agrees that Patriot and its permitted assignees
are entitled to rely and have relied:
3.1 Organization and Power. Seller is a Texas general partnership
----------------------
duly formed, validly existing and in good standing under the laws of the State
of Texas and is qualified to transact business in the State where the Real
Property is located and has all requisite powers and all governmental licenses,
authorizations, consents and approvals to carry on its business as now conducted
and to enter into and perform its obligations hereunder and under any document
or instrument required to be executed and delivered on behalf of Seller
hereunder.
<PAGE>
3.2 Authorization and Execution. This Agreement has been duly
---------------------------
authorized by all necessary action on the part of Seller, has been duly executed
and delivered by Seller, constitutes the valid and binding agreement of Seller
and is enforceable in accordance with its terms. There is no other person or
entity who has an ownership interest in the Property or whose consent is
required in connection with Seller's performance of its obligations hereunder.
The person executing this Agreement on behalf of Seller has the authority to do
so.
3.3 Non-contravention. The execution and delivery of, and the
-----------------
performance by Seller of its obligations under, this Agreement do not and will
not contravene, or constitute a default under any of Seller's Organizational
Documents, any judgment, injunction, order or decree binding upon Seller or to
which the Property is subject, or, to Seller's knowledge, do not and will not
contravene, or constitute a default under, any provision of applicable law or
regulation, any agreement, or other instrument binding upon Seller or to which
the Property is subject, or result in the creation of any lien or other
encumbrance on any asset of Seller. There are no outstanding agreements (written
or oral) pursuant to which Seller (or any predecessor to or representative of
Seller) has agreed to sell or has granted an option or right of first refusal to
purchase the Property or any part thereof except for those that will be waived
or released at or prior to Closing.
3.4 Title To Real Property. Seller is the sole owner of fee simple
----------------------
absolute title to the Real Property.
3.5 No Special Taxes. Seller has no knowledge of, nor has it
----------------
received any written notice of, any special taxes or assessments relating to the
Property or any part thereof or any planned public improvements that may result
in a special tax or assessment against the Property.
3.6 Compliance with Existing Laws. To Seller's knowledge, Seller
-----------------------------
possesses all Authorizations, each of which is valid and in full force and
effect, and no provision, condition or limitation of any of the Authorizations
has been breached or violated. Seller has no knowledge of any termination,
suspension, modification or limitation affecting any of the Authorizations.
Seller has no knowledge, nor has it received written notice within the past two
(2) years, of any existing or threatened violation of any provision of any
Applicable Laws including, but not limited to, those of environmental agencies
or insurance boards of underwriters with respect to the ownership, operation,
use, maintenance or condition of the Property or any part thereof, or requiring
any repairs or alterations to the Property other than those that have been made
prior to the date hereof, which existing or threatened violation could have a
materially adverse effect on the value, use, insurability or operation of the
Property.
3.7 Personal Property. All of the Personal Property, excluding the
-----------------
Leased Property, being conveyed by Seller hereunder are free and clear of all
liens and encumbrances except for those which will be discharged by Seller at
Closing, and Seller has good and merchantable title thereto and the right to
convey same in accordance with the terms of this Agreement.
3.8 Operating Agreements. To Seller's knowledge, there are no
--------------------
management, service, supply or maintenance contracts in effect with respect to
the Property other than the Operating Agreements. To Seller's knowledge, Seller
has performed in all material respects all of its obligations under each of the
Operating Agreements and there are no defaults under any of the
<PAGE>
Operating Agreements. To Seller's knowledge, all other parties to the Operating
Agreements have performed all of their obligations thereunder in all material
respects, and are not in default thereunder in any material respect. To Seller's
knowledge, Seller has received no notice of any intention by any of the parties
to any of the Operating Agreements to cancel the same, nor has Seller canceled
any of same.
3.9 Insurance. To Seller's knowledge, all of Seller's Insurance
---------
Policies are valid and in full force and effect and Seller has complied with all
requirements or recommendations of the insurance carriers of the Insurance
Policies.
3.10 Condemnation Proceedings; Roadways. Seller has received no
----------------------------------
written notice of any condemnation or eminent domain proceeding pending or
threatened against the Property or any part thereof. Seller has no knowledge of
any change in the route or width of any street or road adjacent to or serving
the Real Property, and Seller has received no written notice of any proposed
change in the route, grade or width of, or otherwise affecting, any street or
road adjacent to or serving the Real Property.
3.11 Actions or Proceedings. There is no action, suit or proceeding
----------------------
pending or to Seller's knowledge threatened against or affecting Seller in any
court, before any arbitrator or before or by any Governmental Authority which
(a) in any manner raises any question affecting the validity or enforceability
of this Agreement, (b) could materially and adversely affect the business,
financial position or results of operations of Seller or the Property, (c) could
materially and adversely affect the ability of Seller to perform its obligations
hereunder, (d) could create a lien on the Property, any part thereof or any
interest therein, (e) concerns any past or present employee of Seller or (f)
could otherwise adversely affect the Property, any part thereof or any interest
therein or the use, operation, condition or occupancy thereof.
3.12 Labor and Employment Matters. To Seller's knowledge, neither
----------------------------
Seller nor its management company is a party to any oral or written employment
contracts or agreements with respect to the Property. To Seller's knowledge,
there are no labor disputes or organizing activities pending or threatened as to
the operation or maintenance of the Property or any part thereof. Neither
Seller nor its management company is a party to any union or other collective
bargaining agreement with employees employed in connection with the ownership,
operation or maintenance of the Property. Patriot shall not have any liability
under any pension, profit sharing or welfare benefit plan that Seller, Seller's
management company or any Affiliated Company may have established with respect
to the Property or their or its employees.
3.13 Financial Information and Submission Matters. To Seller's
--------------------------------------------
knowledge, all of Seller's financial information, including, without limitation,
all books and records and financial statements ("Financial Information") is
---------------------
correct and complete in all material respects and presents accurately the
results of the operations of the Property for the periods indicated. Since the
date of the last financial statement included in Seller's Financial Information,
there has been no material adverse change in the financial condition or in the
operations of the Property.
3.14 Submission Matters. To Seller's knowledge, all Submission
------------------
Matters delivered by Seller to Patriot pursuant to this Agreement are true,
correct and complete in all material respects.
<PAGE>
3.15 Bankruptcy. No Act of Bankruptcy has occurred with respect to
----------
Seller.
3.16 Hazardous Substances. To Seller's knowledge, Seller has not,
--------------------
nor has Seller received any written notice that any previous owner, tenant,
occupant or user of the Property has, engaged in or permitted any operations or
activities upon, or any use or occupancy of the Property or any portion thereof,
for the purpose of or in any way involving the handling, manufacture, treatment,
storage, use, generation, release, discharge, refining, dumping or disposal of
any Hazardous Materials on, under, in or about the Property in violation of any
Applicable Laws. Seller has not received any written notice that any Hazardous
Materials have migrated from or to the Property upon, about, or beneath other
properties in violation of any Environmental Requirements. To Seller's
knowledge, the Property is not subject to the Environmental Illinois Responsible
Property Transfer Act. To Seller's knowledge, neither the Property nor its
existing or prior uses fail or failed to materially comply with Environmental
Requirements. Seller has no knowledge of any permits, licenses or other
authorizations which are required under any Environmental Requirements with
regard to the current uses of the Property which have not been obtained and
complied with. To Seller's knowledge, neither Seller nor any prior owner,
occupant or user of the Property has received any written notice concerning any
alleged violation of Environmental Requirements in connection with the Property
or any liability for Environmental Damages in connection with the Property for
which Seller (or Patriot after Closing) may be liable. To Seller's knowledge, no
Hazardous Materials are constructed, deposited, stored or otherwise located on,
under, in or about the Property in violation of any Environmental Requirements.
To Seller's knowledge, there exists no writ, injunction, decree, order or
judgment outstanding, nor any lawsuit, claim, proceeding, citation, summons or
investigation, pending or threatened, relating to any alleged violation of
Environmental Requirements on the Property, or relating to any Environmental
Damages. To Seller's knowledge, no underground or above ground chemical
treatment or storage tanks, or gas or oil wells are located on the Property.
3.17 Intentionally Deleted.
---------------------
3.18 Occupancy Agreements. There are no leases, concessions or
--------------------
occupancy agreements in effect with respect to the Real Property other than the
Occupancy Agreements. Except as specifically provided in the Occupancy
Agreements, no tenant or concessionaire is entitled to any rebates, allowances,
free rent or rent abatement for any period after the Closing of the transaction
contemplated hereby. To Seller's knowledge, Seller has received no notice of any
intention by any of the parties to any of the Occupancy Agreements to cancel the
same, nor has Seller canceled any of same. To Seller's knowledge, no brokerage
commissions or compensation of any kind shall be due in connection with the
Occupancy Agreements, and the rents or revenues to be derived therefrom.
3.19 Leased Property. To Seller's knowledge, all Personal Property
---------------
Leases are in good standing and free from default.
3.20 Americans With Disabilities Act. To Seller's knowledge, Seller
-------------------------------
has received no written notice that the Property is not in compliance with the
Americans With Disabilities Act.
<PAGE>
3.21 Structural Condition. Except as disclosed in writing by Seller
--------------------
to Patriot and as contained in any engineering reports concerning the Property
delivered to Patriot, to Seller's knowledge, there is no latent material defect
in the Improvements or structural elements thereof, mechanical systems
(including, without limitation, all heating, ventilating, air conditioning,
plumbing, electrical, utility and sprinkler systems) therein, the utility system
servicing the Property and the roofs.
3.22 Zoning and Platting. Seller has no knowledge of any proceeding
-------------------
and has received no written notice of any threatened action or proceeding which
could result in a modification or termination of the present zoning of the
Property. To Seller's knowledge, the Property is properly platted as a separate
lot under Applicable Laws and constitutes a separate tax lot. To Seller's
knowledge, there is no annexation agreement pertaining to the Property.
3.23 Access. Seller has no knowledge of any pending and has received
------
no written notice of any threatened governmental proceeding which would limit or
result in the termination of the Property's existing access to and from public
streets or roads.
3.24 No Commitments. To Seller's knowledge, no commitments have been
--------------
made to any Governmental Authority, utility company, school board, church or
other religious body, or any homeowners' association or any other organization,
group or individual, relating to the Property which would impose an obligation
upon Patriot to make any contribution or dedication of money or land or to
construct, install or maintain any improvements of a public or private nature on
or off the Property.
3.25 Seller Is Not a "Foreign Person". Seller is not a "foreign
--------------------------------
person" within the meaning of Section 1445 of the Internal Revenue Code, as
amended (i.e., Seller is not a foreign corporation, foreign partnership, foreign
trust, foreign estate or foreign person as those terms are defined in the
Internal Revenue Code and regulations promulgated thereunder).
3.26 No Other Property Interests. To Seller's knowledge, there are no
---------------------------
property interests, buildings, structures or other improvements or personal
property that are owned by Seller which are necessary for the operation of the
Hotel that are not being conveyed pursuant to this Agreement.
3.27 Intentionally Deleted.
---------------------
3.28 Intentionally Deleted.
---------------------
3.29 Intentionally Deleted.
---------------------
3.30 Relationship to Certain Parties. Seller does not have a direct
-------------------------------
or indirect relationship to the Central States, Southeast and Southwest Areas
Pension Funds within the meaning of Section 514(c)(9)(B)(iv) of the Internal
Revenue Code of 1986, as amended.
3.31 LIMITATIONS ON REPRESENTATIONS AND WARRANTIES. PATRIOT HEREBY
---------------------------------------------
AGREES AND ACKNOWLEDGES THAT, EXCEPT AS SET FORTH IN THIS
<PAGE>
ARTICLE 3, OR AS OTHERWISE EXPRESSLY STATED HEREIN OR IN THE DEED OR IN ANY
DOCUMENTS EXECUTED IN CONNECTION HEREWITH, NEITHER SELLER NOR ANY AGENT,
ATTORNEY, EMPLOYEE OR REPRESENTATIVE OF SELLER HAS MADE ANY REPRESENTATION
WHATSOEVER REGARDING THE SUBJECT MATTER OF THIS SALE, OR ANY PART THEREOF,
INCLUDING (WITHOUT LIMITING THE GENERALITY OF THE FOREGOING) REPRESENTATIONS AS
TO THE PHYSICAL NATURE OR CONDITION OF THE PROPERTY OR THE CAPABILITIES THEREOF,
AND THAT PATRIOT, IN EXECUTING, DELIVERING AND/OR PERFORMING THIS AGREEMENT,
DOES NOT RELY UPON ANY STATEMENT AND/OR INFORMATION TO WHOMEVER MADE OR GIVEN,
DIRECTLY OR INDIRECTLY, ORALLY OR IN WRITING, BY ANY INDIVIDUAL, FIRM OR
CORPORATION EXCEPT THOSE EXPRESSLY CONTAINED HEREIN OR DELIVERED PURSUANT
THERETO OR IN ANY DOCUMENTS EXECUTED IN CONNECTION HEREWITH. EXCEPT AS OTHERWISE
PROVIDED HEREIN, PATRIOT AGREES TO TAKE THE REAL PROPERTY AND THE PERSONAL
PROPERTY "AS IS," AS OF THE DATE HEREOF, REASONABLE WEAR AND TEAR EXCEPTED. IN
ADDITION, EXCEPT AS SET FORTH HEREIN, SELLER MAKES NO REPRESENTATION OR
WARRANTIES REGARDING THE COMPLIANCE WITH ANY ENVIRONMENTAL REQUIREMENTS,
INCLUDING THE EXISTENCE IN OR ON THE PROPERTY OF HAZARDOUS MATERIALS. THE
PROVISIONS OF THIS PARAGRAPH SHALL SURVIVE THE CLOSING OR ANY TERMINATION
HEREOF.
Each of the representations and warranties contained in this Article III and its
-----------
various subparagraphs are intended for the benefit of Patriot and may be waived
in whole or in part, by Patriot, but only by an instrument in writing signed by
Patriot. All rights and remedies arising in connection with the untruth or
inaccuracy of any such representations and warranties shall survive the Closing
of the transaction contemplated hereby for the period specified below except to
the extent that Seller gives Patriot written notice prior to Closing of the
untruth or inaccuracy of any representation or warranty, or Patriot otherwise
obtains actual knowledge prior to Closing of the untruth or inaccuracy of any
representation or warranty, and Patriot nevertheless elects to close this
transaction. Any such written notice from Seller to Patriot shall state in the
first paragraph thereof and in all capitalized letters that "THIS NOTICE IS
GIVEN PURSUANT TO THE AGREEMENT OF PURCHASE AND SALE MADE AS OF JULY ___, 1996
AND RELATES TO THE UNTRUTH OR INACCURACY OF SELLER'S REPRESENTATIONS OR
WARRANTIES." Patriot shall be deemed to have actual knowledge of the untruth or
inaccuracy of any representation or warranty only if (i) Patriot receives
written notice from Seller satisfying the foregoing requirements, or (ii) Paul
A. Nussbaum, Thomas W. Lattin, Rex E. Stewart or Leslie Ng has actual knowledge
of any such untruth or inaccuracy. Except to the extent otherwise expressly
provided in the immediately preceding sentence and as provided above, no
investigation, audit, inspection, review or the like conducted by or on behalf
of Patriot shall be deemed to terminate the effect of any such representations,
warranties and covenants, it being understood that Patriot has the right to rely
thereon and that each such representation and warranty constitutes a material
inducement to Patriot to execute this Agreement and to close the transaction
contemplated hereby and to pay the Purchase Price to Seller.
Whenever the term "to Seller's knowledge" or "known to Seller" is used in this
Agreement or in any representations and warranties given to Patriot at Closing,
such knowledge shall be the actual
<PAGE>
knowledge of Dave Johnson - East Region (the "Key Personnel") after inquiry of
-------------
the Hotel's general manager, controller, director of food and beverage service
and director of sales. Seller shall have no duty to conduct any further inquiry
in making any such representations and warranties, and no knowledge of any other
person shall be imputed to the Key Personnel. In connection with the
representations made in Section 3.16, the term "to Seller's knowledge" or
------------
"known to Seller" shall be deemed to include, with respect to representations
and warranties relating to whether the Property complies with Environmental
Requirements, only those facts that an experienced, prudent operator and/or
manager of real estate properties could reasonably be expected to know have
environmental significance and not such facts that would be known only to an
environmental professional to have environmental significance.
ARTICLE IV
----------
PATRIOT'S REPRESENTATIONS AND WARRANTIES
----------------------------------------
To induce Seller to enter into this Agreement and to sell the
Property, Patriot hereby makes the following representations and warranties,
upon each of which Patriot acknowledges and agrees that Seller is entitled to
rely and has relied:
4.1 Organization and Power. Patriot is duly organized, validly
----------------------
existing and in good standing under the laws of the State of Virginia and has
all corporate and/or partnership powers and all governmental licenses,
authorizations, consents and approvals required to carry on its business as now
conducted and to enter into and perform its obligations under this Agreement
and any document or instrument required to be executed and delivered on behalf
of Patriot hereunder.
4.2 Authority of Patriot. This Agreement has been duly authorized
--------------------
by all necessary action on the part of Patriot, has been duly executed and
delivered by Patriot, constitutes the valid and binding agreement of Patriot and
is enforceable in accordance with its terms. The person executing this Agreement
on behalf of Patriot has the authority to do so.
4.3 Non-contravention. The execution and delivery of this
-----------------
Agreement and the performance by Patriot of its obligations hereunder do not and
will not contravene, or constitute a default under, any provisions of applicable
law or regulation, or any agreement, judgment, injunction, order, decree or
other instrument binding upon Patriot or result in the creation of any lien or
other encumbrance on any asset of Patriot.
4.4 Litigation. There is no action, suit or proceeding, pending or
----------
to Patriot's knowledge threatened, against or affecting Patriot in any court or
before any arbitrator or before any Governmental Authority which (a) in any
manner raises any question affecting the validity or enforceability of this
Agreement, (b) could materially and adversely affect the business, financial
position or results of operations of Patriot, and (c) could materially and
adversely affect the ability of Patriot to perform its obligations hereunder.
4.5 Bankruptcy. No Act of Bankruptcy has occurred with respect to
----------
Patriot.
<PAGE>
Wherever the term "to Patriot's knowledge" or "known to Patriot" is used in this
Agreement or in any representations and warranties given to Seller at Closing,
such knowledge shall be the actual knowledge of Paul A. Nussbaum, Thomas W.
Lattin, Rex E. Stewart or Leslie Ng only, without any further inquiry.
ARTICLE V
---------
CONDITIONS PRECEDENT
--------------------
5.1 As to Patriot's Obligations. Patriot's obligations hereunder are
---------------------------
subject to the satisfaction of the following conditions precedent:
(a) Seller's Deliveries. Seller shall have delivered to or for
-------------------
the benefit of Patriot, on or before the Closing Date, all of the documents and
other information required of Seller pursuant to Sections 8.2 and 8.4 hereof,
--------------------
the forms of which have been approved by Patriot.
(b) Representations, Warranties and Covenants; Obligations of
---------------------------------------------------------
Seller. All of Seller's representations and warranties made in this Agreement
- ------
shall be true and correct in all material respects as of the date hereof and as
of the date of Closing as if then made; Seller shall have performed in all
material respects all of its covenants and other obligations under this
Agreement; and none of the following events (or events of similar magnitude)
have occurred which could in Patriot's reasonable judgment, materially and
adversely affect the Property:
(i) a structural failure causing significant human fatalities
such as the structural failure that occurred at the Hyatt Hotel in Kansas
City, Missouri;
(ii) significant human fatalities caused by disease which is
specifically identified with the Property such as the occurrence of
Legionnaires disease associated with the Bellevue Stratford Hotel in
Philadelphia, Pennsylvania; and
(iii)significant human fatalities caused by the failure of
life/safety systems such as the fire which occurred at the MGM Grand Hotel
in Las Vegas, Nevada.
(b) Title Insurance. Receipt by Patriot of an Owner Policy of
---------------
Title Insurance issued by the Title Company subject only to Permitted Title
Exceptions as determined in accordance with Section 2.4 hereof and including,
-----------
without limitation, all applicable deletions of standard exceptions and
endorsements permitted under applicable state law which are customarily required
by institutional investors purchasing property comparable to the Property.
(c) Title to Property. Seller shall be the sole owner of good
-----------------
and indefeasible fee simple title to the Real Property and good and marketable
fee simple title to the Tangible Personal Property, free and clear of all liens,
encumbrances, restrictions, conditions and agreements except for Permitted Title
Exceptions and those to be released at Closing.
(d) Condition of Improvements. The Improvements and the Tangible
-------------------------
Personal Property (including but not limited to the mechanical systems,
plumbing, electrical, wiring,
<PAGE>
appliances, fixtures, heating, air conditioning and ventilating equipment,
elevators, boilers, equipment, roofs, structural members and furnaces) shall be
in the same condition at Closing as they are as of the date hereof, reasonable
wear and tear excepted. Prior to Closing, Seller shall not have diminished in
any material respect the quality or quantity of maintenance and upkeep services
heretofore provided to the Real Property and the Tangible Personal Property.
Seller shall not have removed or caused or permitted to be removed any part or
portion of the Real Property or the Tangible Personal Property without Patriot's
prior written consent unless the same is replaced, prior to Closing, with a
similar item of at least equal suitability, quality and value, free and clear of
any lien or security interest.
(e) Right to Use Wyndham Name. Patriot shall have received a
-------------------------
letter agreement from Wyndham Management Corporation ("Manager") in the form of
-------
Exhibit D attached hereto and made a part hereof.
- ---------
(f) Liquor License. There shall be valid liquor licenses,
--------------
alcoholic beverage licenses and other permits and Authorizations necessary to
operate the restaurant, bars and lounges presently located in the Hotel in place
and all such liquor licenses, alcoholic beverage licenses and other permits and
Authorizations shall be held in the names of the operators of such businesses.
Seller agrees to cause the holders of such licenses to execute such consents and
estoppels as reasonably required by Patriot's lender.
Each of the conditions contained in this Section are intended for the benefit of
Patriot and may be waived in whole or in part, by Patriot, but only by an
instrument in writing signed by Patriot.
5.2 As to Seller's Obligations. Seller's obligations hereunder are
--------------------------
subject to the satisfaction of the following conditions precedent:
(a) Patriot's Deliveries. Patriot shall have delivered to or for the
--------------------
benefit of Seller, on or before the Closing Date, all of the documents and
payments required of Patriot pursuant to Sections 8.3 and 8.4 hereof.
--------------------
(b) Representations, Warranties and Covenants; Obligations of Patriot.
-----------------------------------------------------------------
All of Patriot's representations and warranties made in this Agreement shall be
true and correct in all material respects as of the date hereof and as of the
date of Closing as if then made and Patriot shall have performed in all material
respects all of its covenants and other obligations under this Agreement.
(c) Closing Under Other Agreements. Simultaneously with the Closing
------------------------------
of the transaction contemplated hereby and subject to Patriot's rights set forth
in other sections of this Agreement, Seller or Seller's affiliates or related
entities shall have sold and conveyed to Patriot, and Patriot and/or its
permitted assigns shall have purchased, the Other Properties.
(d) Prepayment Penalties. Either (i) the holder of the first lien
--------------------
encumbering the Property and the Other Properties waives the prepayment
penalties payable pursuant to the first lien loan documents encumbering the
Property and the Other Properties (the "Prepayment Penalties"), or (ii) Seller
--------------------
agrees to pay the Prepayment Penalties, in which event Patriot shall pay
<PAGE>
the lesser of (1) 25% of the Prepayment Penalties charged by such first lien
lender or (2) $200,000.00.
Each of the conditions contained in this Section are intended for the benefit of
Seller and may be waived in whole or in part, by Seller, but only by an
instrument in writing signed by Seller.
5.3 As to Patriot's and Seller's Obligations. Patriot's and Seller's
----------------------------------------
obligations hereunder are subject to the satisfaction of the following
conditions precedent:
(a) Acquisition of Other Properties. Simultaneously with the Closing
-------------------------------
of the transaction contemplated hereby, Seller or Seller's affiliates or related
entities shall have sold and conveyed to Patriot and/or its permitted assigns,
and Patriot and/or its permitted assigns shall have purchased, the Other
Properties. Patriot at its option may, and Seller shall be obligated to, waive
this condition at the Closing as to any or all of the Other Properties for which
a Permitted Reason (defined below) exists. The term "Permitted Reason" shall
mean: (i) either (a) the presence at an Other Property of any Hazardous
Materials and the abatement or other remediation of such Hazardous Materials
with respect to the Property is required by Environmental Requirements, as
evidenced by a letter from a qualified engineer (with a copy of the report of
such engineer) and Seller or its affiliate or related entity which owns the
affected Other Property is not willing to remediate or abate the condition
caused by Hazardous Materials on or before the Closing Date, or (b) the
affiliate or related entity of Seller which owns the affected Other Property is
either unable or unwilling to convey fee simple title to such affected Other
Property to Patriot, or (c) a knowing and intentional breach in any material
respect by Seller or its affiliate or related entity which owns the affected
Other Property or any of Seller's or its affiliate's or related entity's
covenants in an Other Agreement of Purchase and Sale which breach Seller or its
affiliate or related entity is either unable or unwilling to cure within the
time periods provided for in the relevant Other Agreement of Purchase and Sale
and the breach of such covenant could materially and adversely affect the
operation, value, use, marketability or insurability of title of such Other
Property, or (d) the occurrence of an event of casualty or a condemnation for
which Patriot is entitled to terminate the applicable Other Agreement of
Purchase and Sale and Patriot does in fact terminate such Other Agreement of
Purchase and Sale. Patriot understands and agrees that the Property and the
Other Properties located in Novi, Michigan and Las Colinas, Texas (the Property
and such Other Properties being herein called the "Cross-Collateralized
--------------------
Properties") have been cross-collateralized pursuant to mortgages or deeds of
- ----------
trust encumbering the Cross-Collateralized Properties, and that if Patriot
wishes to terminate an Other Agreement of Purchase and Sale covering any of the
Cross-Collateralized Properties, then Patriot must terminate the Other
Agreements of Purchase and Sale with respect to the remaining Cross-
Collateralized Properties.
The conditions contained in this Section are intended for the benefit of both
parties hereto and may be waived in whole or in part only by an instrument in
writing signed by both parties.
<PAGE>
ARTICLE VI
----------
COVENANTS OF SELLER
-------------------
To induce Patriot to enter into this Agreement and to purchase the
Property, and to pay the Purchase Price therefor, Seller covenants and agrees to
the following:
6.1 Operating Agreements and Occupancy Agreements. Seller shall not
---------------------------------------------
change, modify, extend, renew or terminate any existing, or enter into any, new
Occupancy Agreements, Operating Agreements, management agreement, maintenance or
repair contract, supply contract, lease in which it is lessee or other
agreements with respect to the Property, nor shall Seller enter into any
agreements modifying the Operating Agreements or Occupancy Agreements, unless
(a) any such agreement or modification will not bind Patriot or the Property
after the date of Closing or (b) Seller has obtained Patriot's prior written
consent to such agreement or modification. Seller agrees to cancel and
terminate effective as of the Closing Date Seller's management agreement and any
other Operating Agreements which are terminable without substantial penalty
unless Patriot requests in writing prior to the expiration of the Study Period
that one or more remain in effect after Closing. Seller shall not apply all or
any part of the security or damage deposit of a tenant under any Occupancy
Agreement to obligations of such tenant unless such tenant has vacated its
portion of the Property as of the Closing Date. Patriot and Seller hereby agree
that Patriot's lessee shall assume the Operating Agreements that are not
terminated by Patriot (all such Operating Agreements not so terminated being
herein called "Assumed Operating Agreements"). With respect to the Assumed
----------------------------
Operating Agreements, the Lessee shall be required at Closing to assume all
obligations thereunder accruing from and after the Closing Date. With respect
to any other Operating Agreement which Patriot requests in writing prior to the
Closing Date be terminated (herein called the "Terminated Operating
--------------------
Agreements"), (a) upon Patriot's request, Seller shall give notice of
termination of such Terminated Operating Agreements to the appropriate party,
and (b) if Seller has no right to terminate same, or if any substantial fee is
due thereunder as a result of such termination, Patriot shall be required to pay
for the payment of the termination charge at Closing.
6.2 Warranties and Guaranties. Seller shall not before or after Closing
-------------------------
release or modify any Warranties and Guaranties, if any, except with the prior
written consent of Patriot.
6.3 Insurance. Seller shall pay all premiums on, and shall not cancel or
---------
voluntarily allow to expire, any of Seller's Insurance Policies unless such
policy is replaced, without any lapse of coverage, by another policy or policies
providing coverage at least as extensive as the policy or policies being
replaced.
6.4 Independent Audit. Promptly following the execution of this
-----------------
Agreement, Seller shall provide and shall cause its management company to
provide to Patriot's representatives and independent accounting firm access to
financial and other information relating to the Property in the possession of or
otherwise available to Seller, its affiliates or Seller's management company
which would be sufficient to enable Patriot's representatives and independent
accounting firm to prepare audited financial statements for 1993, 1994 and 1995
in conformity with generally accepted accounting principles and to enable them
to prepare such statements, reports or disclosures as Patriot may deem necessary
or advisable and to audit net operating income for the
<PAGE>
Property. Seller shall also provide and/or shall cause its management company to
provide to Patriot's independent accounting firm a signed representation letter
which would be sufficient to enable an independent public accountant to render
an opinion on the financial statements related to the Property. Seller shall
authorize and shall cause its management company to authorize any attorneys who
have represented Seller or its management company in material litigation
pertaining to or affecting the Property to respond, at Patriot's expense, to
inquiries from Patriot's representatives and independent accounting firm. If and
to the extent Seller's financial statements pertaining to the Property for any
periods during the years 1993, 1994 or 1995 have been audited, promptly after
the execution of this Agreement Seller shall provide Patriot with copies of such
audited financial statements and shall cooperate with Patriot's representatives
and independent public accountants to enable them to contact the auditors who
prepared such audited financial statements and to obtain, at Patriot's expense,
a reissuance of such audited financial statements.
6.5 Operation of Property Prior to Closing. Seller covenants and agrees
--------------------------------------
with Patriot that, between the date of this Agreement (or such other date as
specified below) and the date of Closing:
(a) Subject to the restrictions contained herein, Seller shall operate
the Property in the same manner in which Seller operated the Property prior to
the execution of this Agreement, so as to keep the Property in good condition,
reasonable wear and tear excepted, and so as to maintain the existing caliber of
the Hotel operations conducted at the Property and the reasonable good will of
all tenants of the Property and all employees, guests and other customers of the
Hotel.
(b) Seller shall maintain its books of account and records in the
usual, regular and ordinary manner, in accordance with sound accounting
principles applied on a basis consistent with the basis used in keeping its
books in prior years.
(c) Seller shall maintain in full force and effect all Insurance
Policies.
(d) Seller shall use and operate the Property in compliance in all
material respects with Applicable Laws and the requirements of any mortgage,
lease, Occupancy Agreement, Operating Agreement and Insurance Policy affecting
the Property.
(e) Seller shall cause to be paid prior to delinquency all ad valorem,
occupancy and sales taxes due and payable with respect to the Property or the
operation of the Hotel.
(f) Seller shall not permit the inventory of food, beverages, stock of
linens, towels, paper goods, soaps, cleaning supplies, china, glassware,
silverware, table cloths, napkins, miscellaneous guest supplies and engineering
cleaning supplies constituting a portion of the Tangible Personal Property to be
diminished other than as a result of the ordinary and necessary operation of the
Hotel by Seller.
(g) Seller shall not remove or cause or permit to be removed any part
or portion of the Real Property or the Tangible Personal Property without the
express written consent of
<PAGE>
Patriot unless the same is replaced, prior to Closing, with similar items of at
least equal suitability, quality and value, free and clear of any liens or
security interests.
(h) Seller and Seller's managing agent shall continue to use its best
efforts to take guest room reservations and to book functions and meetings and
otherwise to promote the business of the Property in generally the same manner
as Seller did prior to the execution of this Agreement; and all advance room
bookings and reservations and all meetings and function bookings shall be booked
at rates, prices and charges heretofore customarily charged by Seller for such
purposes, and in accordance with Seller's published rate schedules. Seller
acknowledges that the Purchase Price includes the transfer of Advance Bookings.
(i) Neither Seller nor Seller's managing agent shall make any
agreements which shall be binding upon Patriot with respect to the Property or
that otherwise cannot be terminated without penalty upon thirty (30) days
notice.
(j) Seller shall promptly deliver to Patriot upon Patriot's request
such reports showing the revenue and expenses of the Hotel and all departments
thereof, together with such periodic information with respect to room
reservations and other bookings, as Seller customarily keeps or receives
internally for its own use.
(k) Seller or Seller's managing agent shall not enter into any
employment agreements which would be binding on Patriot with respect to the
Property.
(l) Seller shall promptly advise Patriot of any litigation,
arbitration or administrative hearing concerning or affecting the Property of
which Seller obtains written notice or of which Seller has knowledge.
6.6 No Marketing. Seller shall not market the Property for sale or enter
------------
into discussions or negotiations with potential purchasers of the Property.
6.7 Employees. Payment of costs and expenses associated with accrued but
---------
unpaid salary, earned but unpaid vacation pay, accrued but unearned vacation
pay, pension and welfare benefits, the Consolidated Omnibus Budget
Reconciliation Act of 1985, as amended ("COBRA") benefits, employee fringe
-----
benefits, employee termination payments or any other employee benefits due to
Seller's, or Seller's management company's employees shall be the sole
responsibility and obligation of and shall be paid promptly by Seller or
Seller's management company and Patriot shall have no liability whatsoever for
any such payments and benefits concerning the employees of Seller or of Seller's
management company. Seller shall indemnify and defend Patriot and its lessee,
management company and affiliates, from and against any and all claims, causes
of action, proceedings, judgments, damages, penalties and liabilities made,
assessed or rendered against Patriot and/or its lessee, management company and
affiliates, and any costs and expenses (including attorneys' fees and
disbursements) incurred by Patriot and/or its lessee, management company and
affiliates, with respect to claims, causes of action, judgments, damages,
penalties and liabilities asserted by such employees arising out of the failure
of Seller or Seller's management company to comply with the provisions of this
Subsection 6.7. This indemnification
- --------------
<PAGE>
shall be separate from and in addition to the indemnification given by Seller to
Patriot in Article X below. The provisions of this Section 6.7 shall survive
--------- -----------
the Closing.
The foregoing covenants of Seller are for the benefit of Patriot or its assignee
of its permitted rights under this Agreement.
ARTICLE VII
-----------
INTENTIONALLY DELETED
---------------------
ARTICLE VIII
------------
CLOSING
-------
8.1 Closing. The Closing shall occur on a business day designated by
-------
Patriot, with at least five (5) days notice to Seller (which day shall be no
later than August 16, 1996). As more particularly described below, at the
Closing the parties hereto will (i) execute all of the documents required to be
delivered in connection with the transactions contemplated hereby (the "Closing
-------
Documents"), (ii) deliver the same to Escrow Agent, and (iii) take all other
- ---------
action required to be taken in respect of the transactions contemplated hereby.
The Closing will occur at the offices of Akin, Gump, Strauss, Hauer & Feld,
L.L.P., 1700 Pacific Avenue, Suite 4100, Dallas, Texas 75201, or at such other
place as Patriot shall designate by written notice to Seller given at least five
days prior to the Closing. At the Closing, Patriot shall deliver the Purchase
Price to Escrow Agent, Escrow Agent shall return the Deposit to Patriot and
update the title to the Property, Escrow Agent shall record the Deed, release
and date, where appropriate, the Closing Documents in accordance with the joint
instructions of Seller and Patriot and shall send, by wire transfer, all sums
owing to Seller hereunder to Seller. As provided herein, the parties hereto
will agree upon adjustments and prorations to certain items which cannot be
exactly determined at the Closing and will make the appropriate adjustments with
respect thereto. Possession of the Property shall be delivered to Patriot at
the Closing, subject only to Permitted Title Exceptions and the rights of
tenants under the Occupancy Agreements and guests in possession.
8.2 Seller's Deliveries. At the Closing, Seller shall deliver, if not
-------------------
previously delivered by Seller pursuant to the terms hereof, to Escrow Agent all
of the following instruments, each of which, where applicable, shall have been
duly executed and, where applicable, acknowledged and/or sworn on behalf of
Seller and shall be dated as of the Closing Date:
(a) The Deed.
(b) The Bill of Sale - Personal Property.
(c) The Assignment and Assumption Agreement to Patriot and/or its
property manager, lessee or other designee (as Patriot shall specify).
(d) The Assignment of Occupancy Agreements together with an estoppel
letter from each of the tenants and concessionaires of Occupancy Agreements
being assigned thereunder
<PAGE>
(1) identifying each such Occupancy Agreement and amendments or addenda thereto,
or modifications thereof, by which each such tenant or concessionaire occupies
its premises, (2) certifying that there are no further amendments or
modifications thereof, (3) setting forth the amount of security deposit, if any,
(4) certifying that, so far as is known to such tenant or concessionaire, Seller
is not in default under the terms, conditions and provisions of such Occupancy
Agreements, (5) certifying that the tenant or concessionaire is not due any
rebates, offsets or other monies or things of value thereunder, and (6)
certifying as to the status of the rent and concession payments as of the date
of such Occupancy Agreement; provided, however, that if any tenant refuses to
execute an estoppel certificate, Patriot agrees to accept in lieu thereof, a
certificate of Seller as to such matters, qualified to Seller's knowledge.
(e) Intentionally Deleted.
(f) To the extent reasonably available, certificates from the
applicable State taxing authority (including the Illinois Department of Revenue)
and local taxing authorities stating that all income, occupancy and sales taxes
due and payable for the Property or by Seller have been paid and, if any such
taxes have not been paid, the amount due and payable as of the Closing Date.
(g) Certificate(s)/Registration of Title for any vehicle owned by
Seller and used in connection with the Property.
(h) Such agreements, affidavits or other documents as may be required
by the Title Company to issue the Owner's Title Policy subject only to the
Permitted Title Exceptions and to eliminate such standard exceptions and to
issue such endorsements thereto which may be eliminated and issued under
applicable State law and which are customarily required by institutional
investors purchasing property comparable to the Property.
(i) The FIRPTA Certificate.
(j) All original Warranties and Guaranties in Seller's possession or
reasonably available to Seller.
(k) Either (1) appropriate resolutions of the partners of Seller,
together with all other necessary approvals and consents of Seller and such
documentary and other evidence as may be reasonably required by Escrow Agent,
authorizing and evidencing the authorization of (i) the execution on behalf of
Seller of this Agreement and the authority of the person or persons who are
executing the various documents to be executed and delivered by Seller prior to,
at or otherwise in connection with the Closing, and (ii) the performance by
Seller of its obligations hereunder and under such documents, or (2) a legal
opinion of Seller's counsel covering all such matters.
(l) A valid, final and unconditional certificate of occupancy for the
Real Property and Improvements, issued by the appropriate Governmental
Authority.
<PAGE>
(m) If Patriot is assuming Seller's obligations under any or all of
the Operating Agreements, the originals of such agreements, and with respect to
the material Operating Agreements, consent to the assignment thereof
acknowledged and approved by the other parties to such Operating Agreements to
the extent required by such Operating Agreements.
(n) With respect to the material Personal Property Leases, (1) the
written consent of the lessors of such leases to such assignment, if required by
such Personal Property Leases, and (2) executed originals of all such leases in
Seller's possession or reasonably available to Seller. If any Leased Property
is leased pursuant to a lease which is a capital lease, in accordance with
generally accepted accounting principles, and is not listed on Schedule 6
----------
hereto, Seller shall cancel such capital lease at its expense and convey good
and marketable title to such property (which shall constitute Tangible Personal
Property hereunder) to Patriot free from any lien or encumbrance pursuant to the
Bill of Sale - Personal Property.
(o) The written consent of, or a comfort letter from, Manager or the
appropriate affiliate of Manager or Lessee, in the form of Exhibit D hereto.
---------
(p) Copies of all existing Insurance Policies if same are assumed by
Patriot.
(q) To the extent in Seller's possession or reasonably available to
Seller, originals of the following items (which shall be deemed delivered by
Seller under this Section 8.2 if delivered to the property manager at the
-----------
Hotel): (1) complete sets of all architectural, mechanical, structural and/or
electrical plans and specifications used in connection with the construction of
or alterations or repairs to the Property; and (2) as-built plans and
specifications for the Property.
(r) To the extent assignable, a written instrument executed by Seller,
conveying and transferring to Patriot all of Seller's right, title and interest
in any telephone numbers and TWX numbers relating to the Property, and, if
Seller maintains a post office box, conveying to Patriot all of its interest in
and to such post office box and the number associated therewith, so as to assure
a continuity in operation and communication.
(s) Duplicate originals of all agreements, leases, concession
agreements and other instruments affecting the Property and the Hotel and/or
restaurant business conducted thereon.
(t) All current real estate and personal property tax bills in
Seller's possession or under its control.
(u) If available, by delivery to the property manager at the Hotel, a
complete set of all guest registration cards, guest transcripts, guest
histories, and all other available guest information.
(v) A complete list of all advance room reservations, functions and
the like, in reasonable detail so as to enable Patriot to honor Seller's
commitments in that regard.
<PAGE>
(w) A list of Seller's outstanding accounts receivable as of
midnight on the date prior to the Closing, specifying the name of each account
and the amount due Seller (which items shall be deemed delivered by Seller if
delivered to property manager of the Hotel).
(x) All books, records, operating reports, appraisal reports, files
and other materials in Seller's possession or control which are necessary in
Patriot's discretion to maintain continuity of operation of the Property (which
items shall be deemed delivered by Seller under this Section 8.2 if delivered to
-----------
the property manager at the Hotel).
(y) A current UCC Report showing no financing statements by Seller
as Debtor covering the Property.
(z) Executed originals of all Occupancy Agreements and, to the
extent available, Authorizations transferred or assigned to Patriot at Closing
as required hereunder (which items shall be deemed delivered by Seller under
this
Section 8.2 is delivered to the property manager at the Hotel).
- -----------
(aa) An opinion from Seller's counsel stating that Seller has duly
authorized, executed and delivered to Patriot this Agreement and all of the
conveyance documents to be delivered by Seller hereunder.
(bb) Any other document or instrument reasonably requested by
Patriot or required hereby.
8.3 Patriot's Deliveries.
--------------------
(a) At the Closing, Patriot shall deliver to Escrow Agent the
portion of the Purchase Price described in Section 2.2 hereof.
-----------
(b) At the Closing, Patriot shall deliver to Seller any other
document or instrument reasonably requested by Seller or required hereby.
(c) Any other document or instrument reasonably required by Patriot
or required hereby.
8.4 Mutual Deliveries. At the Closing, Patriot and Seller shall mutually
-----------------
execute and deliver each to the other:
(a) A final closing statement reflecting the Purchase Price and the
adjustments and prorations required hereunder and the allocation of income and
expenses required hereby.
(b) Such other documents, instruments and undertakings as may be
required by the liquor authorities of the State where the Property is located,
or of any county or municipality or governmental entity having jurisdiction with
respect to the transfer or issue of liquor licenses or alcoholic beverage
licenses or permits for the Hotel, to the extent not theretofore executed and
delivered.
<PAGE>
(c) The Lease.
(d) Such other and further documents, papers and instruments as may
be reasonably required by the parties hereto or their respective counsel.
8.5 Closing Costs. Except as is explicitly provided in this Agreement,
-------------
each party hereto shall pay its own legal fees and expenses. All filing fees
for the Deed and the transfer, recording, sales or other similar taxes and
surtaxes due with respect to the transfer of title shall be paid by Seller.
Seller shall pay for the costs associated with the releases of any deeds of
trust, mortgages and other financing encumbering the Property and for any costs
associated with any corrective instruments. Seller shall pay all costs for
title searches and all premiums for the issuance of the Title Policy and all
endorsements (other than a zoning endorsement) thereto and deletions therefrom
which are customarily required by institutional investors purchasing property
comparable to the Property. Patriot shall pay all other costs (except any costs
incurred by Seller for its own account) in carrying out the transactions
contemplated hereunder.
8.6 Revenue and Expense Allocations. All revenues and expenses with
-------------------------------
respect to the Property, and applicable to the period of time before and after
Closing, determined in accordance with sound accounting principles consistently
applied, shall be allocated between Seller and Patriot as provided herein.
Seller shall be entitled to all revenue and shall be responsible for all
expenses for the period of time up to but not including the date of Closing, and
Patriot shall be entitled to all revenue and shall be responsible for all
expenses for the period of time from, after and including the date of Closing
(provided that housekeeping costs and the Rooms Ledger for the date of Closing
shall be shared equally between Patriot and Seller). Such adjustments shall be
shown on the closing statements (with such supporting documentation as the
parties hereto may require being attached as exhibits to the closing statements)
and shall increase or decrease (as the case may be) the cash amount payable by
Patriot pursuant to Section 2.2 hereof. Without limiting the generality of the
-----------
foregoing, the following items of revenue and expense shall be allocated at
Closing:
(a) Current rents.
(b) Real estate and personal property taxes.
(c) Revenue and expenses under the Operating Agreements to be
assigned to and assumed by Patriot.
(d) Utility charges (including, but not limited to, charges for
water, sewer and electricity).
(e) Value of fuel stored on the Property at the price paid for such
fuel by Seller, including any taxes.
(f) Municipal or other governmental improvement liens, which shall be
paid by Seller at Closing where the work has physically commenced, and which
shall be assumed by Patriot at Closing where the work has been authorized, but
not physically commenced.
<PAGE>
(g) Insurance premiums, to the extent the Insurance Policies are
assumed by Patriot.
(h) Permit fees, where transferable.
(i) All other revenues and expenses of the Property, including, but
not limited to, such things as restaurant, bar and meeting room income and
expenses and the like.
(j) Such other items as are usually and customarily prorated between
purchasers and sellers of hotel properties in the area where the Property is
located.
Patriot shall retain and receive a credit against the Purchase Price for the
total of (i) prepaid rents, (ii) prepaid room receipts and deposits, function
receipts and deposits and other reservation receipts and deposits, (iii)
unforfeited security deposits together with interest thereon held by Seller
under the Occupancy Agreements, and (iv) the value of any complimentary rooms
(based upon the "rack" rate for each room) and any complimentary food or
beverages (based upon the advertised rate for each food and beverage) provided
by Seller from and after 12:01 a.m. on the Closing Date. At Closing, Seller
shall sell to Patriot in connection with the Hotel, and Patriot shall purchase
from Seller, at face value the so-called "guest ledger" as mutually approved by
Patriot and Seller for the Hotel of guest accounts receivable payable to the
Hotel as of the check out time for the Hotel on the Closing Date (based on
guests and customers then using the Hotel) both (1) in occupancy from the
preceding night through check out time the morning of the Closing Date, and (2)
previously in occupancy prior to check out time on the Closing Date; provided,
however, that the term "guest ledger" shall not include any accounts receivable
which have been or are to be paid by any means other than a credit card.
Patriot shall not be obligated to purchase such non-credit card accounts
receivable, and Seller shall retain all rights with respect thereto (including,
without limitation, the right to collect same). For purposes of this Agreement,
transfer or sale at face value shall have the following meaning for the guest
ledger: the total of all credit card accounts receivable as shown on the records
of the Hotel, less actual collection costs (i.e., fees retained by credit card
companies), less accounting charges for rooms furnished on a gratuity or
complimentary basis to any hotel staff or as an accommodation to other parties
and less Patriot's one-half ( 1/2) share of the Rooms Ledger. The purchase
price of said guest ledger, as determined above, shall be paid to Seller at
Closing by a credit to Seller in the computation of the adjustments and
prorations on the Closing Date.
All real estate taxes and special assessments for the Property, and any
appurtenant rights, if any, and accrued interest, charges or penalties, if any,
in respect thereof (collectively, the "Taxes") for the year in which the Closing
occurs and any prior year, in each case, to the extent the same have not been
paid to, and acknowledged and received by, the applicable taxing authority as of
Closing, shall be prorated between Seller and Patriot so that Seller shall be
responsible for the portion of Taxes applicable to the period of time up to and
through the Closing Date, including all late payment fees, penalties and
interest ("Seller's Allowable Share of Taxes"), and Patriot shall be responsible
for the portion of the Taxes applicable to the portion of the calendar year
commencing after the Closing Date (such latter allocable portion being herein
referred to as "Patriot's Allocable Share of Taxes"). Patriot agrees to pay
Patriot's Allocable Share of Taxes on or prior to their due date(s). Seller
shall be entitled to a proration credit in its favor for that portion of Taxes
paid
<PAGE>
by Seller prior to or at Closing and which is allocable to the period of time
subsequent to the Closing Date. Patriot shall receive a credit to the Purchase
Price at Closing equal to the amount of Seller's Allocable Share of Taxes.
Seller's Allocable Share of Taxes shall be calculated on the basis of the final
bill(s) for Taxes, if available, or, for the period for which same is/are not
available, on the basis of 110% of the product of multiplying times one another
the most recent ascertainable assessed valuation, tax rate and state
equalization factor for the Property. All prorations shall be subject to
reproration after the Closing upon issuance of final bills for one or more of
the Taxes or other charge prorated, and Patriot and Seller each agree to pay to
the other any amount which shall be due and owing as a result of any such
reproration upon receipt of a statement therefor. The provisions of this
paragraph relating to the proration of Taxes shall survive the Closing and shall
not be deemed to merge with the Deed to be delivered by Seller to Patriot
hereunder. All special assessments pending, levied or due and payable on or
prior to the Closing Date shall be paid by Seller on or before the Closing Date.
All subdivision and platting costs and expenses heretofore incurred by Seller,
including, without limitation, all subdivision exactions, fees and costs and all
dedication of land for parks and other public uses or payment of fees in lieu
thereof, shall be paid by Seller on or prior to the Closing Date.
Seller shall be required to pay all sales, occupancy and liquor taxes and like
impositions currently through the date of Closing and if reasonably available,
deliver evidence of payment of same to Patriot.
Patriot shall not be obligated to collect any delinquent rents, or revenues
accrued prior to the Closing Date for Seller, but if Patriot collects same, such
amounts shall be promptly remitted to Seller in the form received.
If accurate allocations cannot be made at Closing because current bills are not
obtainable (as, for example, in the case of utility bills and/or real estate or
personal property taxes) or appeals are pending, the parties shall allocate such
revenue or expenses at Closing on the best available information, subject to
adjustment upon receipt of the final bill or other evidence of the applicable
revenue or expense. The obligation to make the adjustment shall survive the
closing of the transaction contemplated by this Agreement. Any revenue received
or expense incurred by Seller or Patriot with respect to the Property after the
date of Closing shall be promptly allocated in the manner described herein and
the parties shall promptly pay or reimburse any amount due. The proration
provisions of this Agreement, other than the provisions relating to the
proration of Taxes, shall survive the Closing of the transaction contemplated
hereby for a period of twelve (12) months. The provisions relating to the
proration of Taxes shall survive the Closing.
ARTICLE IX
----------
GENERAL PROVISIONS
------------------
9.1 Condemnation. In the event of any actual or threatened taking,
------------
pursuant to the power of eminent domain, of all or any portion of the Real
Property, or any proposed sale in lieu thereof, Seller shall give written notice
thereof to Patriot promptly after Seller learns or receives notice thereof. If
all or a Substantial Portion (as hereinafter defined) of the Real Property is,
or is to be, so condemned or sold, Patriot shall have the right to terminate
this Agreement pursuant
<PAGE>
to Section 10.4 hereof. If Patriot elects not to terminate this Agreement, all
------------
proceeds, awards and other payments arising out of such condemnation or sale
(actual or threatened) shall be paid or assigned, as applicable, to Patriot at
Closing. Seller shall not settle or compromise any such proceeding without
Patriot's written consent. If Patriot elects to terminate this Agreement by
giving Seller written notice thereof prior to the Closing, the Deposit shall be
promptly returned to Patriot and all rights and obligations of Seller and
Patriot hereunder (except those set forth herein which expressly survive a
termination of this Agreement) shall terminate immediately. In the event any
portion of the Real Property is affected by a condemnation, sale or eminent
domain action and such condemnation, sale or eminent domain action does not
constitute a Substantial Portion of the Real Property, this Agreement shall
remain in full force and effect without a reduction in the Purchase Price except
as provided below. In the event of any such condemnation, sale or eminent domain
action that does not constitute a Substantial Portion of the Real Property,
Patriot shall be entitled to any and all claims that Seller may have to
condemnation awards or any and all causes of action with respect to such
condemnation, sale or eminent domain action (all of which shall be assigned by
Seller to Patriot at Closing), and Seller shall credit to Patriot at Closing, by
an appropriate adjustment to the Purchase Price, an amount equal to all payments
(if any) theretofore received by Seller with respect to such condemnation, sale
or eminent domain action. For purposes of this Section 9.1, a "Substantial
----------- -----------
Portion" shall mean a condemnation of in excess of $250,000.00 in value of the
- -------
Real Property. This provision shall survive the Closing of the transaction
contemplated hereby.
9.2 Risk of Loss. The risk of any loss or damage to the Property prior to
------------
the recordation of the Deed shall remain upon Seller. If any such loss or
damage which constitutes Substantial Loss or Damage occurs prior to Closing,
Patriot shall have the right to terminate this Agreement pursuant to Section
-------
10.4 hereof. If Patriot elects not to terminate this Agreement, all insurance
- ----
proceeds and rights to proceeds arising out of such loss or damage shall be paid
or assigned, as applicable, to Patriot at Closing and Patriot shall receive as a
credit against the Purchase Price the amount of any deductibles under the
policies of insurance covering such loss or damage. If Patriot elects to
terminate this Agreement by giving Seller written notice thereof prior to the
Closing, the Deposit shall be promptly returned to Patriot and all rights and
obligations of Seller and Patriot hereunder (except those set forth herein which
expressly survive a termination of this Agreement) shall terminate immediately.
In the event any of the Property or any of the items constituting the Personal
Property should be damaged or destroyed as a result of fire or other casualty
and such damage does not constitute Substantial Loss or Damage and such damage
is not repaired prior to Closing, the rights and obligations of Seller and
Patriot hereunder with respect to the Property shall not be affected by such
destruction or damage and Patriot shall accept title to the Property in its
destroyed or damaged condition. In such event, at the Closing, Patriot shall
receive a credit against the Purchase Price equal to the amount of damage to the
Property resulting from such loss or damage. For purposes of this Section 9.2,
-----------
"Substantial Loss or Damage" shall mean loss or damage, the cost for repair of
--------------------------
which (as mutually determined by Patriot and Seller at the time of such loss or
damage) exceeds $250,000.00. In the event that Patriot and Seller are unable to
agree on the cost of repair of any Substantial Loss or Damage, then such cost of
repair shall be determined by an insurance adjuster selected by Seller and
approved by Patriot, such approval not to be unreasonably withheld. This
provision shall survive the Closing of the transaction contemplated hereby.
<PAGE>
9.3 Absence of Broker. There is no real estate broker involved in this
-----------------
transaction. Patriot warrants and represents to Seller that Patriot has not
dealt with any real estate broker in connection with this transaction, nor has
Patriot been introduced to the Property or to Seller by any real estate broker,
and Patriot shall indemnify Seller and save and hold Seller harmless from and
against any claims, suits, demands or liabilities of any kind or nature
whatsoever arising on account of the claim of any person, firm or corporation to
a real estate brokerage commission or a finder's fee as a result of having dealt
with Patriot, or as a result of having introduced Patriot to Seller or to the
Property. In like manner, Seller warrants and represents to Patriot that Seller
has not dealt with any real estate broker in connection with this transaction,
nor has Seller been introduced to Patriot by any real estate broker, and Seller
shall indemnify Patriot and save and hold Patriot harmless from and against any
claims, suits, demands or liabilities of any kind or nature whatsoever arising
on account of the claim of any person, firm or corporation to a real estate
brokerage commission or a finder's fee as a result of having dealt with Seller
in connection with this transaction.
9.4 Bulk Sale. Seller shall indemnify Patriot and save and hold Patriot
---------
harmless from and against any claims, suits, demands, liabilities or obligations
of any kind or nature whatsoever, including all costs of defending same, and
reasonable attorneys' fees paid or incurred in connection therewith, arising out
of or relating to any claim made by any third party or any liability asserted by
any third party that any applicable bulk sales law or like statute has not been
complied with. The provisions of this Section shall survive the Closing of the
transaction contemplated hereby.
9.5 Confidentiality. Except as hereinafter provided, from and after the
---------------
execution of this Agreement, Patriot and Seller shall keep the terms, conditions
and provisions of this Agreement confidential and neither shall make any public
announcements hereof unless the other first approves of same in writing, nor
shall either disclose the terms, conditions and provisions hereof, except to
persons who "need to know", such as their respective officers, directors,
employees, attorneys, accountants, engineers, surveyors, consultants,
financiers, partners, investors, potential lessees and bankers and such other
third parties whose assistance is required in connection with the consummation
of this transaction. Notwithstanding the foregoing, it is acknowledged that
Patriot is, or is an affiliate of, a real estate investment trust (the "REIT")
----
and the REIT has and will seek to sell shares to the general public;
consequently, Patriot shall have the absolute and unbridled right to disclose
any information regarding the transaction contemplated by this Agreement
required by law or as determined to be necessary or appropriate by Patriot or
Patriot's attorneys to satisfy disclosure and reporting obligations of Patriot
or its affiliates under applicable law. After Closing, Patriot shall be free
to disclose previously confidential information in its sole, unfettered
discretion; provided, however, neither Seller nor Patriot shall issue any press
release regarding the transaction contemplated hereby for the period which is
fourteen (14) days following the Closing Date without the consent of the other
party.
9.6 Seller's Accounts Receivable. It is expressly agreed by and between
----------------------------
Patriot and Seller that Seller is not hereby agreeing to sell to Patriot, and
Patriot is not hereby agreeing to purchase from Seller, any of Seller's accounts
receivable. All of Seller's accounts receivable shall be and remain the
property of Seller, subsequent to the Closing of the transaction contemplated
hereby. At the Closing, Seller shall prepare a list of its outstanding accounts
receivable as of
<PAGE>
midnight on the date prior to the Closing, specifying the name of each account
and the amount due to Seller. Patriot shall hold any funds received by Patriot
explicitly designated as payment of such accounts receivable, in trust, if
Patriot actually collects any such amounts, and shall pay the monies collected
in respect thereof to Seller at the end of each calendar month, accompanied by a
statement showing the amount collected on each such account. Other than the
foregoing, Patriot shall have no obligation with respect to any such account,
and Patriot shall not be required to take any legal proceeding or action to
effect collection on behalf of Seller. It is generally the intention of Patriot
and Seller that although all of Seller's accounts receivable shall be and remain
the property of Seller, still, if any such accounts are paid to Patriot, then
Patriot shall collect same and remit to Seller in the manner above provided.
Nothing herein contained shall be construed as requiring Patriot to remit to
Seller any funds collected by Patriot on account of Patriot's accounts
receivable generated from Hotel operations, even if the person or entity paying
same is also indebted to Seller. Seller agrees that it shall not bring any legal
action to enforce collection of payment of any accounts receivable against any
current tenant of the Property or other third party in a contractual or business
relationship with the Property as of the Closing Date.
ARTICLE X
---------
LIABILITY OF PATRIOT;
---------------------
INDEMNIFICATION BY SELLER; DEFAULT; TERMINATION RIGHTS
------------------------------------------------------
10.1 Liability of Patriot. Except for obligations expressly assumed or
--------------------
agreed to be assumed by Patriot hereunder, Patriot is not assuming any
obligations of Seller or any liability for claims arising out of any act,
omission or occurrence which occurs, accrues or arises prior to the Closing
Date, and Seller hereby indemnifies and holds Patriot harmless from and against
any and all claims, costs, penalties, damages, losses, liabilities and expenses
(including reasonable attorneys' fees) that may at any time be incurred by
Patriot and its affiliates as a result of (1) obligations of Seller not
expressly assumed or agreed to be assumed by Patriot hereunder, or (2) acts,
omissions or occurrences which occur, accrue or arise prior to the Closing Date.
Patriot hereby indemnifies and holds Seller harmless from and against any and
all claims, costs, penalties, damages, losses, liabilities and expenses
(including reasonable attorneys' fees) that may at any time be incurred by
Seller as a result of acts, omissions or occurrences relating to the Property
arising and accruing from and after the Closing Date. The provisions of this
Section shall survive the Closing of the transaction contemplated hereby.
10.2 Indemnification by Seller. Seller hereby indemnifies and holds Patriot
-------------------------
harmless from and against any and all claims, costs, penalties, damages, losses,
liabilities and expenses (including reasonable attorneys' fees) that may at any
time be incurred by Patriot, whether before or after Closing, as a result of any
inaccuracy or breach by Seller of any of its representations, warranties,
covenants or obligations set forth herein or in any other document delivered by
Seller pursuant hereto except for any breach or inaccuracy of any representation
or warranty as to which Seller has given Patriot written notice prior to Closing
of the untruth or inaccuracy or of which Patriot otherwise had actual knowledge
prior to the Closing and nevertheless elected to consummate the Closing;
provided, however, the foregoing knowledge limitation on Seller's indemnity
shall not limit Patriot's remedy described in Section 10.4(a)(ii) hereof. The
-------------------
provisions of this Section shall survive the Closing of the transaction
contemplated hereby.
<PAGE>
10.3 Indemnification by Patriot. Patriot hereby indemnifies and holds
--------------------------
Seller harmless from and against any and all claims, costs, penalties, damages,
losses, liabilities and expenses (including reasonable attorneys' fees) that may
at any time be incurred by Seller, whether before or after Closing, as a result
of any inaccuracy or breach by Patriot of any of its representations,
warranties, covenants or obligations set forth herein or in any other document
delivered by Patriot to Seller pursuant hereto except for any breach or
inaccuracy of any representation or warranty as to which Patriot has given
Seller written notice prior to Closing of the untruth or inaccuracy or of which
Seller otherwise had actual knowledge prior to the Closing and nevertheless
elected to consummate the Closing. The provisions of this Section shall survive
the Closing of the transaction contemplated hereby.
10.4 Default by Seller/Failure of Conditions Precedent. If any condition
-------------------------------------------------
set forth herein for the benefit of Patriot cannot or will not be satisfied
prior to Closing (other than due to a default by Patriot), or upon the
occurrence of any other event that would entitle Patriot to terminate this
Agreement and its obligations hereunder, and if Seller fails to cure any such
matter or satisfy that condition within ten (10) business days after notice
thereof from Patriot (or such other time period as may be explicitly provided
for herein), Patriot, at its option, may elect (a) to terminate this Agreement,
in which event (i) the Deposit shall be promptly returned to Patriot, (ii) if
the condition which has not been satisfied is a breach of a representation,
warranty or covenant, then Seller shall be obligated upon demand to reimburse
Patriot for Patriot's actual out-of-pocket inspection, financing and other costs
related to Patriot's entering into this Agreement, inspecting the Property and
preparing for a Closing of the transaction contemplated hereby, including,
without limitation, Patriot's attorneys' fees incurred in connection with the
preparation, negotiation and execution of this Agreement, in connection with
Patriot's due diligence review, audits and preparation for a Closing up to an
aggregate amount of $750,000.00, said amount being the aggregate limitation for
the foregoing costs and expenses for the Hotel and the Other Properties;
provided, however, the foregoing shall not limit or include the sums which may
be payable by Seller pursuant to Section 10.6, and (iii) all other rights and
------------
obligations of Seller and Patriot hereunder (except those set forth herein which
expressly survive a termination of this Agreement) shall terminate immediately;
or (b) elect to proceed to Closing. If Patriot elects to proceed to Closing and
there is either a misrepresentation or breach of a warranty by Seller (other
than a breach of a representation or warranty of which Patriot had actual
knowledge prior to the Closing and nevertheless elected to consummate the
Closing) or the breach of a covenant by Seller or a failure by Seller to perform
its obligations hereunder, Patriot shall retain all remedies accruing as a
result thereof, including, but not limited to the remedy of specific performance
of Seller's covenants and obligations and the remedy of the recovery of all
reasonable damages resulting from Seller's breach of warranty or covenant.
10.5 Default by Patriot/Failure of Conditions Precedent. If any condition
--------------------------------------------------
set forth herein for the benefit of Seller (other than a default by Patriot)
cannot or will not be satisfied prior to Closing, and if Patriot fails to
satisfy that condition within ten (10) business days after notice thereof from
Seller (or such other time period as may be explicitly provided for herein),
Seller may, at its option, elect either (a) to terminate this Agreement in which
event the Deposit shall be promptly returned to Patriot and the parties hereto
shall be released from all further obligations hereunder except those which
expressly survive a termination of this Agreement, or (b) to waive its right to
terminate, and instead, to proceed to Closing. If, prior to Closing, Patriot
defaults in
<PAGE>
performing any of its obligations under this Agreement (including its obligation
to purchase the Property), and Patriot fails to cure any such default within ten
(10) business days after notice thereof from Seller, then Seller's sole and
exclusive remedy for such default shall be to terminate this Agreement and
retain the Deposit. Seller and Patriot agree that, in the event of such a
default, the damages that Seller would sustain as a result thereof would be
difficult if not impossible to ascertain. Therefore, Seller and Patriot agree
that, Seller shall retain the Deposit as full and complete liquidated damages
and as Seller's sole remedy.
10.6 Costs and Attorneys' Fees. In the event of any litigation or dispute
-------------------------
between the parties arising out of or in any way connected with this Agreement,
resulting in any litigation, then the prevailing party in such litigation shall
be entitled to recover its costs of prosecuting and/or defending same,
including, without limitation, reasonable attorneys' fees at trial and all
appellate levels. The provisions of this Section shall survive the Closing of
the transaction contemplated hereby.
10.7 Limitation of Liability. Notwithstanding anything herein to the
-----------------------
contrary, except in the case of fraud by either party, the liability of each
party hereto resulting from the breach or default by either party or pursuant to
any indemnity provided for in this Agreement shall be limited to actual damages
incurred by the injured party and except in the case of fraud by either party,
the parties hereto hereby waive their rights to recover from the other party
consequential, punitive, exemplary, and speculative damages. The provisions of
this Section 10.7 shall survive the Closing of the transaction contemplated
------------
hereby.
ARTICLE XI
----------
MISCELLANEOUS PROVISIONS
------------------------
11.1 Completeness; Modification. This Agreement constitutes the entire
--------------------------
agreement between the parties hereto with respect to the transactions
contemplated hereby and supersedes all prior discussions, understandings,
agreements and negotiations between the parties hereto. This Agreement may be
modified only by a written instrument duly executed by the parties hereto.
11.2 Assignments. Patriot may assign its rights hereunder to an Affiliated
-----------
Company of Purchase, including, without limitation, Patriot American Hospitality
Partnership, L.P., without the consent of Seller; however, any such assignment
shall not relieve Patriot of its obligations under this Agreement.
11.3 Successors and Assigns. This Agreement shall bind and inure to the
----------------------
benefit of the parties hereto and their respective successors and assigns.
11.4 Days. If any action is required to be performed, or if any notice,
----
consent or other communication is given, on a day that is a Saturday or Sunday
or a legal holiday in the jurisdiction in which the action is required to be
performed or in which is located the intended recipient of such notice, consent
or other communication, such performance shall be deemed to be required, and
such notice, consent or other communication shall be deemed to be given, on the
first business day following such Saturday, Sunday or legal holiday. Unless
otherwise specified
<PAGE>
herein, all references herein to a "day" or "days" shall refer to calendar days
and not business days.
11.5 Governing Law. This Agreement and all documents referred to herein
-------------
shall be governed by and construed and interpreted in accordance with the laws
of the State where the Land is located.
11.6 Counterparts. To facilitate execution, this Agreement may be executed
------------
in as many counterparts as may be required. It shall not be necessary that the
signature on behalf of both parties hereto appear on each counterpart hereof.
All counterparts hereof shall collectively constitute a single agreement.
11.7 Severability. If any term, covenant or condition of this Agreement,
------------
or the application thereof to any person or circumstance, shall to any extent be
invalid or unenforceable, the remainder of this Agreement, or the application of
such term, covenant or condition to other persons or circumstances, shall not be
affected thereby, and each term, covenant or condition of this Agreement shall
be valid and enforceable to the fullest extent permitted by law.
11.8 Costs. Regardless of whether Closing occurs hereunder, and except as
-----
otherwise expressly provided herein, each party hereto shall be responsible for
its own costs in connection with this Agreement and the transactions
contemplated hereby, including, without limitation, fees of attorneys, engineers
and accountants.
11.9 Notices. All notices, requests, demands and other communications
-------
hereunder shall be in writing and shall be delivered by hand, transmitted by
facsimile transmission, sent prepaid by Federal Express (or a comparable
overnight delivery service) or sent by the United States mail, certified,
postage prepaid, return receipt requested, at the addresses and with such copies
as designated below. Any notice, request, demand or other communication
delivered or sent in the manner aforesaid shall be deemed given or made (as the
case may be) when actually delivered to the intended recipient.
If to Seller: Wood Dale Garden Hotel Partnership
c/o Crow Family Holdings
3200 Trammell Crow Center
2001 Ross Avenue
Dallas, Texas 75201
Attn: Sue Groenteman
With a copy to: Locke Purnell Rain Harrell
2200 Ross Avenue, Suite 2200
Dallas, Texas 75201-6776
Attn: Janis H. Loegering
<PAGE>
If to Patriot: PAH Acquisition Corporation
c/o Patriot American Hospitality, Inc.
3030 LBJ Freeway, Suite 1500
Dallas, Texas 75234
Attn: Thomas W. Lattin, President
With a copy to: Akin, Gump, Strauss, Hauer & Feld, L.L.P.
1700 Pacific Avenue, Suite 4100
Dallas, Texas 75201
Attn: Carl B. Lee, P.C. and Randall M. Ratner, P.C.
If to Escrow Agent:Unity Title Company
717 North Harwood Street
2610 Maxus Energy Tower
Dallas, Texas 75201
Attn: G. Timothy Hardin
or to such other address as the intended recipient may have specified in a
notice to the other party. Any party hereto may change its address or designate
different or other persons or entities to receive copies by notifying the other
party and Escrow Agent in a manner described in this Section.
11.10 Escrow Agent. Escrow Agent referred to in the definition thereof
------------
contained in Section 1.1 hereof has agreed to act as such for the convenience of
-----------
the parties without fee or other charges for such services as Escrow Agent.
Escrow Agent shall not be liable: (a) to any of the parties for any act or
omission to act except for its own willful misconduct; (b) for any legal effect,
insufficiency, or undesirability of any instrument deposited with or delivered
by Escrow Agent or exchanged by the parties hereunder, whether or not Escrow
Agent prepared such instrument; (c) for any loss or impairment of funds that
have been deposited in escrow while those funds are in the course of collection,
or while those funds are on deposit in a financial institution, if such loss or
impairment results from the failure, insolvency or suspension of a financial
institution; (d) for the expiration of any time limit or other consequence of
delay, unless a properly executed written instruction, accepted by Escrow Agent,
has instructed Escrow Agent to comply with said time limit; (e) for the default,
error, action or omission of either party to the escrow. Escrow Agent, in its
capacity as escrow agent, shall be entitled to rely on any document or paper
received by it, believed by such Escrow Agent, in good faith, to be bona fide
and genuine. In the event of any dispute as to the disposition of the Letter
Deposit, the Deposit or any other monies held in escrow, or of any documents
held in escrow, Escrow Agent may, if such Escrow Agent so elects, interplead the
matter by filing an interpleader action in a court of general jurisdiction in
the county or circuit where the Real Property is located (to the jurisdiction of
which both parties do hereby consent), and pay into the registry of the court
the Deposit, or deposit any such documents with respect to which there is a
dispute in the Registry of such court, whereupon such Escrow Agent shall be
relieved and released from any further liability as Escrow Agent hereunder.
Escrow Agent shall not be liable for Escrow Agent's compliance with any legal
process, subpoena, writ, order, judgment and decree of any court, whether issued
with or without jurisdiction, and whether or not subsequently vacated, modified,
set aside or reversed.
<PAGE>
11.11 Incorporation by Reference. All of the exhibits attached hereto are
--------------------------
by this reference incorporated herein and made a part hereof.
11.12 Survival. All of the representations, warranties, covenants and
--------
agreements of Seller and Patriot made in, or pursuant to, this Agreement shall
survive Closing for a period of twelve (12) months and shall not merge into the
Deed or any other document or instrument executed and delivered in connection
herewith.
11.13 Further Assurances. Seller and Patriot each covenant and agree to
------------------
sign, execute and deliver, or cause to be signed, executed and delivered, and to
do or make, or cause to be done or made, upon the written request of the other
party, any and all agreements, instruments, papers, deeds, acts or things,
supplemental, confirmatory or otherwise, as may be reasonably required by either
party hereto for the purpose of or in connection with consummating the
transactions described herein.
11.14 No Partnership. This Agreement does not and shall not be construed
--------------
to create a partnership, joint venture or any other relationship between the
parties hereto except the relationship of Seller and Patriot specifically
established hereby.
11.15 Time of Essence. Time is of the essence with respect to every
---------------
provision hereof.
11.16 Signatory Exculpation. The signatory(ies) for Patriot and Seller
---------------------
is/are executing this Agreement in his/their capacity as representative of
Patriot or Seller, as the case may be, and not individually and, therefore,
shall have no personal or individual liability of any kind in connection with
this Agreement and the transactions contemplated by it.
11.17 Rules of Construction. The following rules shall apply to the
---------------------
construction and interpretation of this Agreement:
(a) Singular words shall connote the plural number as well as the
singular and vice versa, and the masculine shall include the feminine and the
neuter.
(b) All references herein to particular articles, sections,
subsections, clauses or exhibits are references to articles, sections,
subsections, clauses or exhibits of this Agreement.
(c) The table of contents and headings contained herein are solely
for convenience of reference and shall not constitute a part of this Agreement
nor shall they affect its meaning, construction or effect.
(d) Each party hereto and its counsel have reviewed and revised (or
requested revisions of) this Agreement and have participated in the preparation
of this Agreement, and therefore any usual rules of construction requiring that
ambiguities are to be resolved against a particular party shall not be
applicable in the construction and interpretation of this Agreement or any
exhibits hereto.
<PAGE>
IN WITNESS WHEREOF, Seller and Patriot have caused this Agreement to be
executed in their names by their respective duly authorized representatives.
PATRIOT:
-------
PAH ACQUISITION CORPORATION, a Virginia
corporation
By:_______________________________________
Name: Michael D. Murphy
Title: Senior Vice President
Date of Execution:__________________, 1996
SELLER:
------
WOOD DALE GARDEN HOTEL PARTNERSHIP, a Texas general
partnership
By: CBP Wood Dale Partnership, its general partner
By: TCF Hotels, L.P., its general partner
By: Mill Spring Holdings, Inc., its
general partner
By:______________________________
Name: S.T. Groenteman
Title: Vice President
Date of Execution: July ___, 1996
<PAGE>
RECEIPT OF ESCROW AGENT
-----------------------
Unity Title Company, as Escrow Agent, acknowledges receipt of the Deposit
from Patriot as described in Section 2.3 of the foregoing Agreement of Purchase
-----------
and Sale, said Deposit to be held pursuant to the terms and provisions of said
Agreement.
DATED this______ day of___________________, 1996.
UNITY TITLE COMPANY
By:__________________________________
Name:________________________________
Title:_______________________________
<PAGE>
EXHIBIT A
---------
LAND
All that lot or parcel of land situated in DuPage County, Illinois, more
particularly described as:
<PAGE>
EXHIBIT B
---------
SURVEYOR'S CERTIFICATE
TO: (NAME OF PATRIOT) AND/OR ASSIGNS, PAINEWEBBER REAL ESTATE SECURITIES, INC.,
WHITE & CASE, UNITY TITLE COMPANY AND COMMONWEALTH LAND TITLE INSURANCE
COMPANY:
The undersigned (the "Surveyor") certifies that:
(a) this survey was made on the ground of the property legally described on the
survey or in an attached legal description prepared by Surveyor this date,
and is correct;
(b) there are no discrepancies, conflicts, shortages in area, boundary line
conflicts, encroachments, protrusions, overlapping of improvements,
easements or roadways except as shown on the survey;
(c) this survey correctly shows the location of all buildings, structures,
fences and improvements situated on the property surveyed and the
footprints of such buildings contain approximately ____ square feet;
(d) the property surveyed has direct access to and from the roadways shown on
the survey, which roadways are dedicated public roadways except as
otherwise shown;
(e) this map or plat and the survey on which it is based were made in
accordance with "minimum standard detail requirements for ALTA/ACSM Land
Title surveys", jointly established and adopted by ALTA and ACSM in 1992
and meets the accuracy requirements of an urban survey, as defined therein,
and incudes items 1-4, and 6-11 and 13 in Table A contained therein and
pursuant to the accuracy Standards (as adopted by ALTA and ACSM and in
effect on the date of this certification) of an Urban Survey;
(f) the property surveyed is located within an area having a zone designation
"____" by the Secretary of Housing and Urban Development, on Flood
Insurance Rate Map No. ____, with a date of identification of _________,
for Community No. _______, County, State of _________, which is the current
flood insurance rate map for the community in which said premises is
situated;
(g) the number of parking spaces located on the property is ___________;
(h) all utility services required for the operation of the property surveyed
either (i) enter the property through adjoining public streets, or (ii) the
survey shows the point of entry and location of any utilities which pass
through or are located on adjoining private land and such utility services
enter the property by way of recorded easements;
(i) the property surveyed is not within any wetlands designated on any maps
prepared by the U.S. Army Corps of Engineers of U.S. Department of Game and
Wildlife, and there are no creeks, streams, water courses, or other bodies
of water on the property except as shown on the survey;
(j) the surveyed property and only the surveyed property constitutes one tax
lot and constitutes a single subdivided lot;
(k) Surveyor has reviewed the title commitment dated __________, G.F. No.
________ relating to the property surveyed prepared by Commonwealth Land
Title Insurance Company; and
(l) the existing zoning, use and density classifications are _____________.
The property surveyed and all improvements on the property comply with all
restrictions of record and land use requirements, including limitations and
other requirements or restrictions as to building and tower height and
location, building and structure coverage and depth, setbacks and
sideyards, below grade parking requirements and elevation of other portions
of the improvements, including loading docks;
(m) the property contains approximately __________ square feet.
___________________________
[NAME OF SURVEYOR]
<PAGE>
EXHIBIT C
---------
OTHER PROPERTIES
1. 168-Room Wyndham Las Colinas, Irving, Texas
Seller: CLC Limited Partnership
Purchaser: PAH Acquisition Corporation
2. 148-Room Wyndham Novi, Detroit, Michigan
Seller: Novi Garden Hotel Associates
Purchaser: PAH Acquisition Corporation
<PAGE>
EXHIBIT D
---------
WYNDHAM COMFORT LETTER
July ___, 1996
Paine Webber Real Estate Securities Inc.,
its successors, assigns, designees and/or affiliates
1285 Avenue of the Americas, 19th Floor
New York, New York 10019
Patriot American Hospitality Partnership, L.P.,
its successors, assigns, designees and/or affiliates
3030 LBJ Freeway, Suite 1500
Dallas, Texas 75234
Re: Management Agreement by and between and assigned to Crow Hotel Lessee,
Inc., a Texas corporation ("Crow"), as amended pursuant to that
certain Assignment, Assumption and Modification Agreement dated as of
____________, 1996, and Wyndham Management Corporation, a Delaware
corporation ("Wyndham") dated _________________, (as amended and
assigned the "Agreement") in connection with the __________ Hotel
located at _____________________ ("Hotel")
Gentlemen:
Wyndham has entered into the above referenced Agreement pertaining to the
operation of the Hotel as a Wyndham Hotel. Patriot American Hospitality
Partnership, L.P., a Virginia limited partnership ("Patriot"), and Paine Webber
Real Estate Securities Inc. ("Paine Webber") have advised us that Paine Webber
and Patriot have entered, or are about to enter, into a loan agreement whereby
Paine Webber's loan will be secured by a first mortgage on the premises on which
the Hotel is situated. Patriot and Paine Webber have requested that we execute
this letter agreement with respect to Patriot's rights in the Agreement.
Wyndham hereby acknowledges and agrees that in the event that the Lease
Agreement by and between Patriot and Crow dated as of even date herewith (the
"Lease") is terminated for any reason (hereinafter referred to as a "Lease
Termination"), then the Agreement may be assumed by any Successor (hereinafter
defined) provided such Successor shall not have any liability under the
Agreement prior to the date of such assumption by such Successor. As used
herein, the term "Successor" shall mean Patriot, Patriot's designee, Paine
Webber, Paine Webber's designee, or any third party purchaser pursuant to a
foreclosure of the mortgage or other proceeding brought to enforce the rights of
the holder of the mortgage or pursuant to a deed in lieu of foreclosure or by
any other method. If such Successor
<PAGE>
assumes the Agreement, the Hotel will continue to be operated as a Wyndham Hotel
(or as a Wyndham Hotel and Resort, if applicable) with the use of the Wyndham
Hotel and Resort name, logo and other applicable trademarks or trade names,
Wyndham's reservation system, marketing and advertising services and other
services provided by Wyndham Hotel Corporation and its affiliates ("Wyndham
Hotels") to comparable Wyndham hotels for up to four (4) months following the
date of such Lease Termination (the "Temporary Usage"). Successor shall pay to
Wyndham during the period of Temporary Usage (a) the management fees payable to
Wyndham under the Agreement attributable to the period of Temporary Usage and
(b) the fees charged by Wyndham Hotels on a systemwide basis for comparable
hotels operating under the Wyndham name which utilize the Wyndham name and
services of Wyndham Hotels utilized by the Hotel (the "Trade Name Fees'), unless
such termination is due to an Event of Default under the Lease (as such term is
defined in the Lease) in which event no Trade Name Fee would be payable during
the Temporary Usage period. Such Temporary Usage may be terminated by such
Successor on thirty (30) days' notice to Wyndham Hotels.
Sincerely,
WYNDHAM MANAGEMENT CORPORATION
By:___________________________
Name:_________________________
Title:________________________
<PAGE>
SCHEDULE 1
----------
AUTHORIZATIONS
<PAGE>
SCHEDULE 2
----------
Intentionally Deleted
<PAGE>
SCHEDULE 3
----------
OCCUPANCY AGREEMENTS
<PAGE>
SCHEDULE 4
----------
OPERATING AGREEMENTS
<PAGE>
SCHEDULE 5
----------
INTENTIONALLY DELETED
<PAGE>
SCHEDULE 6
----------
PERSONAL PROPERTY LEASES
<PAGE>
EXHIBIT 10.49
<PAGE>
AGREEMENT OF PURCHASE AND SALE
between
PAH ACQUISITION CORPORATION
a Virginia corporation
and
("Patriot")
and
NOVI GARDEN HOTEL ASSOCIATES,
a Texas general partnership
("Seller")
<PAGE>
TABLE OF CONTENTS
Page
ARTICLE I DEFINITIONS
1.1 Definitions ................................................ 1
ARTICLE II PURCHASE AND SALE OF PROPERTY; DEPOSIT; PAYMENT OF
PURCHASE PRICE; TITLE
2.1 Purchase and Sale .......................................... 7
2.2 Payment of Purchase Price .................................. 8
2.3 Deposit .................................................... 8
2.4 Submission Matters and Title Information ................... 8
ARTICLE III SELLER'S REPRESENTATIONS AND WARRANTIES
3.1 Organization and Power ..................................... 11
3.2 Authorization and Execution ................................ 11
3.3 Non-contravention .......................................... 11
3.4 Title To Real Property ..................................... 12
3.5 No Special Taxes ........................................... 12
3.6 Compliance with Existing Laws .............................. 12
3.7 Personal Property .......................................... 12
3.8 Operating Agreements ....................................... 12
3.9 Insurance .................................................. 12
3.10 Condemnation Proceedings; Roadways ......................... 12
3.11 Actions or Proceedings ..................................... 13
3.12 Labor and Employment ....................................... 13
3.13 Financial Information and Submission Matters ............... 13
3.14 Submission Matters ......................................... 13
3.15 Bankruptcy ................................................. 13
3.16 Hazardous Substances ....................................... 13
3.17 Intentionally Deleted ...................................... 14
3.18 Occupancy Agreements ....................................... 14
3.19 Leased Property ............................................ 14
3.20 Americans With Disabilities Act ............................ 14
3.21 Structural Condition ....................................... 14
3.22 Zoning and Platting ........................................ 14
3.23 Access ..................................................... 14
3.24 No Commitments ............................................. 14
3.25 Seller Is Not a "Foreign Person" ........................... 15
3.26 No Other Property Interests ................................ 15
3.27 Intentionally Deleted ...................................... 15
3.28 Intentionally Deleted ...................................... 15
3.29 Intentionally Deleted ...................................... 15
i
<PAGE>
3.30 Relationship to Certain Parties ............................ 15
3.31 LIMITATIONS ON REPRESENTATIONS AND WARRANTIES .............. 15
ARTICLE IV PATRIOT'S REPRESENTATIONS AND WARRANTIES
4.1 Organization and Power ..................................... 16
4.2 Authority of Patriot ....................................... 17
4.3 Non-contravention .......................................... 17
4.4 Litigation ................................................. 17
4.5 Bankruptcy ................................................. 17
ARTICLE V CONDITIONS PRECEDENT
5.1 As to Patriot's Obligations ................................ 17
5.2 As to Seller's Obligations ................................. 19
5.3 As to Patriot's and Seller's Obligations ................... 19
ARTICLE VI COVENANTS OF SELLER
6.1 Operating Agreements and Occupancy Agreements .............. 20
6.2 Warranties and Guaranties .................................. 21
6.3 Insurance .................................................. 21
6.4 Independent Audit .......................................... 21
6.5 Operation of Property Prior to Closing ..................... 21
6.6 No Marketing ............................................... 22
6.7 Employees .................................................. 22
ARTICLE VII INTENTIONALLY DELETED
ARTICLE VIII CLOSING
8.1 Closing .................................................... 23
8.2 Seller's Deliveries ........................................ 24
8.3 Patriot's Deliveries ....................................... 26
8.4 Mutual Deliveries .......................................... 27
8.5 Closing Costs .............................................. 27
8.6 Revenue and Expense Allocations ............................ 27
ARTICLE IX GENERAL PROVISIONS
9.1 Condemnation ............................................... 29
9.2 Risk of Loss ............................................... 30
9.3 Absence of Broker .......................................... 30
9.4 Bulk Sale. ................................................. 31
9.5 Confidentiality ............................................ 31
9.6 Seller's Accounts Receivable ............................... 31
ARTICLE X LIABILITY OF PATRIOT; INDEMNIFICATION BY SELLER;
DEFAULT; TERMINATION RIGHTS
10.1 Liability of Patriot ....................................... 32
ii
<PAGE>
10.2 Indemnification by Seller .................................. 32
10.3 Indemnification by Patriot ................................. 32
10.4 Default by Seller/Failure of Conditions Precedent .......... 33
10.5 Default by Patriot/Failure of Conditions Precedent ......... 33
10.6 Costs and Attorneys' Fees .................................. 33
10.7 Limitation of Liability .................................... 34
ARTICLE XI MISCELLANEOUS PROVISIONS
11.1 Completeness; Modification ................................. 34
11.2 Assignments ................................................ 34
11.3 Successors and Assigns ..................................... 34
11.4 Days ....................................................... 34
11.5 Governing Law .............................................. 34
11.6 Counterparts ............................................... 34
11.7 Severability ............................................... 35
11.8 Costs ...................................................... 35
11.9 Notices .................................................... 35
11.10 Escrow Agent ............................................... 36
11.11 Incorporation by Reference ................................. 36
11.12 Survival ................................................... 36
11.13 Further Assurances ......................................... 36
11.14 No Partnership ............................................. 37
11.15 Time of Essence ............................................ 37
11.16 Signatory Exculpation ...................................... 37
11.17 Rules of Construction ...................................... 37
EXHIBITS
- --------
Exhibit A - Land
Exhibit B - Surveyor's Certificate
Exhibit C - Other Properties
Exhibit D - Wyndham Comfort Letter
Exhibit E - Lease
SCHEDULES
- ---------
Schedule 1 - Authorizations
Schedule 2 - Intentionally Deleted
Schedule 3 - Occupancy Agreements
Schedule 4 - Operating Agreements
Schedule 5 - Intentionally Deleted
Schedule 6 - Personal Property Leases
iii
<PAGE>
AGREEMENT OF PURCHASE AND SALE
------------------------------
THIS AGREEMENT OF PURCHASE AND SALE (this "Agreement") is made as of
---------
this ________ day of July, 1996, between PAH ACQUISITION CORPORATION, a Virginia
corporation ("Patriot"), and NOVI GARDEN HOTEL ASSOCIATES, a Texas general
-------
partnership ("Seller").
------
R E C I T A T I O N S:
A. Seller is the owner of that certain real property known as the
"Wyndham Novi, Detroit, Michigan", situate, lying and being in Oakland County,
State of Michigan.
B. Patriot is desirous of purchasing such hotel property from Seller
and Seller is desirous of selling such hotel property to Patriot, for the
Purchase Price and upon the terms and conditions hereinafter set forth.
NOW, THEREFORE, in consideration of premises and in consideration of the
mutual covenants, promises and undertakings of the parties hereinafter set
forth, and for other good and valuable considerations, the receipt and
sufficiency of which is hereby acknowledged by the parties, it is agreed:
ARTICLE I
---------
DEFINITIONS
-----------
1.1 Definitions. The following terms shall have the indicated meanings:
-----------
"Act of Bankruptcy" shall mean if a party hereto or any general
-----------------
partner thereof shall (a) apply for or consent to the appointment of, or the
taking of possession by, a receiver, custodian, trustee or liquidator of itself
or of all or a substantial part of its property, (b) admit in writing its
inability to pay its debts as they become due, (c) make a general assignment for
the benefit of its creditors, (d) file a voluntary petition or commence a
voluntary case or proceeding under the Federal Bankruptcy Code (as now or
hereafter in effect), (e) be adjudicated a bankrupt or insolvent, (f) file a
petition seeking to take advantage of any other law relating to bankruptcy,
insolvency, reorganization, winding-up or composition or adjustment of debts,
(g) fail to controvert in a timely and appropriate manner, or acquiesce in
writing to, any petition filed against it in an involuntary case or proceeding
under the Federal Bankruptcy Code (as now or hereafter in effect), or (h) take
any corporate or partnership action for the purpose of effecting any of the
foregoing; or if a proceeding or case shall be commenced, without the
application or consent of a party hereto or any general partner thereof, in any
court of competent jurisdiction seeking (1) the liquidation, reorganization,
dissolution or winding-up, or the composition or readjustment of debts, of such
party or general partner, (2) the appointment of a receiver, custodian, trustee
or liquidator for such party or general partner or all or any substantial part
of its assets, or (3) other similar relief under any law relating to bankruptcy,
insolvency, reorganization, winding-up or composition or adjustment of debts,
and such proceeding or case shall continue undismissed; or an order (including
an order for relief entered in an involuntary
1
<PAGE>
case under the Federal Bankruptcy Code, as now or hereafter in effect) case
under the Federal Bankruptcy Code, as now or hereafter in effect) judgment or
decree approving or ordering any of the foregoing shall be entered and continue
unstayed and in effect, for a period of 60 consecutive days.
"Advance Bookings" shall mean reservations made by Seller prior to
----------------
Closing for Hotel rooms or meeting rooms to be utilized after Closing, or for
catering services or other Hotel services to be provided after Closing, in the
ordinary course of business.
"Affiliated Company" means any other entity which is, along with a
------------------
party and/or its management company, a member of a controlled group of
corporations or a controlled group of trades or businesses (as defined in
Section 414(b) or (c) of the Internal Revenue Code), any entity which along with
such party and/or its management company is included in an affiliated service
group as defined in Section 414(m) of the Internal Revenue Code, and any other
entity which is required to be aggregated with such party and/or its management
company pursuant to Treasury Regulations under Section 414(o) of the Internal
Revenue Code.
"Applicable Laws" shall mean any applicable building, zoning,
---------------
subdivision, environmental, health, safety or other governmental laws, statutes,
ordinances, resolutions, rules, codes, regulations, orders or determinations of
any Governmental Authority or of any insurance boards of underwriters (or other
body exercising similar functions), or any restrictive covenants or deed
restrictions affecting the Property or the ownership, operation, use,
maintenance or condition thereof.
"Assignment and Assumption Agreement" shall mean one or more
-----------------------------------
assignment and assumption agreements whereby (a) Seller (1) assigns and
Patriot's lessee assumes the Operating Agreements, Space Lease and Personal
Property Leases that have not been terminated prior to Closing in accordance
herewith, (2) assigns all of Seller's right, title and interest in and to the
Intangible Personal Property, to the extent assignable, and (3) indemnifies,
defends and holds Patriot and Patriot's lessee harmless with respect to all
defaults, liabilities, claims, costs and expenses (including, without
limitation, reasonable attorneys' fees) relating to acts or omissions accruing
under such Operating Agreements and Personal Property Leases before the Closing
Date; and (b) Patriot's lessee indemnifies, defends and holds Seller harmless
with respect to all defaults, liabilities, claims, costs and expenses
(including, without limitation, reasonable attorneys' fees) relating to acts or
omissions accruing under such Operating Agreements and Personal Property Leases
from and after the Closing Date.
"Assignment of Occupancy Agreements" shall mean the assignment
----------------------------------
agreement, in recordable form, whereby (a) Seller (1) assigns and Patriot's
lessee assumes all of Seller's right, title and interest in and to the Occupancy
Agreements, and (2) indemnifies, defends and holds Patriot and Patriot's lessee
harmless with respect to all defaults, liabilities, claims, costs and expenses
(including, without limitation, reasonable attorneys' fees) relating to acts or
omissions accruing under such Occupancy Agreements before the Closing Date; and
(b) Patriot's lessee indemnifies, defends and holds Seller harmless with respect
to all defaults, liabilities, claims, costs and expenses (including, without
limitation, reasonable attorneys' fees) relating to acts or omissions accruing
under such Occupancy Agreements from and after the Closing Date.
2
<PAGE>
"Authorizations" shall mean all licenses, permits and approvals
--------------
required by any governmental or quasi-governmental agency, body, department,
commission, board, bureau, instrumentality or officer, with respect to the
construction, ownership, operation, leasing, maintenance, or use of the Property
or any part thereof, which Authorizations are more particularly described on
Schedule 1 attached hereto and made a part hereof.
- ----------
"Bill of Sale - Personal Property" shall mean one or more bills of
--------------------------------
sale conveying title to the Tangible Personal Property from Seller to Patriot
(as Patriot shall specify).
"Closing" shall mean the Closing of the purchase and sale of the
-------
Property pursuant to this Agreement and shall be deemed to occur on the Closing
Date.
"Closing Date" shall mean the date on which the Closing occurs.
------------
"Closing Documents" shall mean the documents defined as such in
-----------------
Section 8.1 hereof.
- -----------
"Cross-Collateralized Properties" shall have the meaning ascribed to
-------------------------------
such term in Section 5.3(b) hereof.
--------------
"Deed" shall mean that certain covenant deed conveying title to the
----
Real Property from Seller to Patriot, in recordable form, and subject only to
Permitted Title Exceptions. If there is any difference between the description
of the Land, as shown on Exhibit A attached hereto and the description of the
---------
Land as shown on the Survey, the description of the Land to be contained in the
Deed and the description of the Land set forth in the Title Commitment shall
conform to the description shown on the Survey.
"Deposit" shall mean all amounts deposited from time to time with
-------
Escrow Agent by Patriot pursuant to Section 2.3 hereof. All cash Deposits shall
-----------
be invested by Escrow Agent in a commercial bank or banks acceptable to Patriot
at money market rates, or in such other investments as shall be approved in
writing by Seller and Patriot. The Deposit shall be held and disbursed by
Escrow Agent in strict accordance with the terms and provisions of this
Agreement.
"Effective Date" shall mean the date this Agreement has been fully
--------------
executed and delivered by all parties hereto.
"Environmental Damages" shall mean all third-party claims, judgments,
---------------------
damages, losses, penalties, fines, liabilities (including, without limitation,
punitive damages and strict liability), encumbrances, liens, costs and expenses
of investigation and defense of any claim, whether or not such is ultimately
defeated, and of any settlement or judgment, of whatever kind or nature,
contingent or otherwise, matured or unmatured, including, without limitation,
attorneys' fees and disbursements and consultants' fees, any of which arise as a
result of the existence of Hazardous Materials upon, about or beneath the
Property or migrating or threatening to migrate from the Property, or as a
result of the existence of a violation of Environmental Requirements pertaining
to the Property.
3
<PAGE>
"Environmental Requirements" shall mean (i) all applicable statutes,
--------------------------
regulations, rules, policies, ordinances, codes, licenses, permits, orders,
approvals, plans, authorizations, and similar items, of all Governmental
Authorities, and (ii) all judicial, administrative and regulatory decrees,
judgments and orders, in each case of (i) and (ii) relating to the protection of
human health or the environment from Hazardous Materials, including, without
limitation: (a) all requirements thereof, including, without limitation, those
pertaining to reporting, licensing, permitting, investigation and remediation of
emissions, discharges, releases or threatened releases of Hazardous Materials
into the air, surface water, groundwater or land, or relating to the
manufacture, processing, distribution, use, treatment, storage, disposal,
transport or handling of Hazardous Materials; and (b) all requirements
pertaining to the protection of the health and safety of employees or the public
from Hazardous Materials.
"Escrow Agent" shall mean Unity Title Company, whose address is 2610
------------
Maxus Energy Tower, 717 North Harwood Street, Dallas, Texas 75201 (telephone
(214) 969-5300, fax (214) 969-5348).
"Financial Information" shall mean the financial information defined
---------------------
as such in Section 3.13 hereof.
------------
"FIRPTA Certificate" shall mean the affidavit of Seller under Section
------------------
1445 of the Internal Revenue Code, as amended, certifying that Seller is not a
foreign corporation, foreign partnership, foreign trust, foreign estate or
foreign person (as those terms are defined in the Internal Revenue Code and
regulations promulgated thereunder), in form and substance satisfactory to
Patriot.
"Governmental Authority" shall mean any federal, state, county,
----------------------
municipal or other government or any governmental or quasi-governmental agency,
department, commission, board, bureau, officer or instrumentality, foreign or
domestic, or any of them, having jurisdiction over Patriot or the Project.
"Hazardous Materials" shall mean any chemical substance: (i) which is
-------------------
or becomes defined as a "hazardous substance," "hazardous waste," "hazardous
material," "pollutant," "contaminant," or "toxic," "explosive," "corrosive,"
"flammable," "infectious," "radioactive," "carcinogenic," or "mutagenic"
material under any law, regulation, rule, order, or other authority of the
federal, state or local governments, or any agency, department, commission,
board, or instrumentality thereof, regarding the protection of human health or
the environment from such chemical substances including, but not limited to, the
following federal laws and their amendments, analogous state and local laws, and
any regulations promulgated thereunder: the Clean Air Act, the Clean Water Act,
the Oil Pollution Control Act, the Comprehensive Environmental Response,
Compensation, and Liability Act of 1986, the Emergency Planning and Community
Right to Know Act, the Solid Waste Disposal Act, the Resource Conservation and
Recovery Act, the Safe Drinking Water Act, the Federal Insecticide, Fungicide
and Rodenticide Act, and the Toxic Substances Control Act, including, without
limitation, asbestos and gasoline and other petroleum products (including crude
oil or any fraction thereof); (ii) without limitation, which contains gasoline,
diesel fuel or other petroleum hydrocarbons; (iii) without limitation,
4
<PAGE>
which contains drinking biphenyls or asbestos or asbestos-containing materials
or urea formaldehyde foam insulation; or (iv) without limitation, radon gas.
"Hotel" shall mean the 148-room hotel and related amenities
-----
located on the Land.
"Improvements" shall mean the Hotel and all other buildings,
------------
improvements, fixtures and other items of real estate located on the Land.
"Insurance Policies" shall mean all policies of insurance maintained
------------------
by or on behalf of Seller pertaining to the Property, its operation, or any part
thereof.
"Intangible Personal Property" shall mean all intangible personal
----------------------------
property owned or possessed by Seller and used in connection with the ownership,
operation, leasing, occupancy or maintenance of the Property, including, without
limitation, (1) the Authorizations, (2) utility and development rights and
privileges, business records, plans and specifications pertaining to the Real
Property and the Personal Property, (3) any unpaid award for taking by
condemnation or any damage to the Land by reason of a change of grade or
location of or access to any street or highway which was not effective prior to
the Effective Date, and (4) the share of the Rooms Ledger determined under
Section 8.6 hereof, excluding (a) any of the aforesaid rights Patriot elects not
- -----------
to acquire, (b) cash reserves for FF&E, taxes and insurance, and (c) accounts
receivable except for the above described share of the Rooms Ledger.
"Land" shall mean that certain parcel of real estate lying and being
----
in Oakland County, Michigan, as more particularly described on Exhibit A
---------
attached hereto, together with all easements, rights, privileges, remainders,
reversions and appurtenances thereunto belonging or in any way appertaining, and
all of the estate, right, title, interest, claim or demand whatsoever of Seller
therein, in the streets and ways adjacent thereto and in the beds thereof,
either at law or in equity, in possession or expectancy, now or hereafter
acquired.
"Lease" means the lease of the Hotel in the form of Exhibit E attached
----- ---------
hereto, which has been approved by Lessor and Lessee and is to be entered by
Lessor and Lessee in accordance with Section 8.4(d) hereof.
--------------
"Leased Property" shall mean all leased items of Tangible Personal
---------------
Property.
"Lessee" means Crow Hotel Lessee, Inc.
------
"Lessor" means Patriot or its assignee.
------
"Manager" shall have the meaning ascribed to such term in Section 5.11
------- ------------
(e) hereof.
- ---
"Occupancy Agreements" shall mean all leases, concession or occupancy
--------------------
agreements in effect with respect to the Real Property under which any tenants
(other than Hotel guests) or concessionaires occupy space upon the Real
Property, which Occupancy Agreements are described on Schedule 3 attached hereto
----------
and made a part hereof.
5
<PAGE>
"Operating Agreements" shall mean all management, service, supply and
--------------------
maintenance contracts, if any, in effect with respect to the Property and all
other contracts (other than the Occupancy Agreements and the Space Lease) that
affect the Property or are otherwise related to the construction, ownership,
operation, occupancy or maintenance of the Property, which Operating Agreements
are described on Schedule 4 attached hereto and made a part hereof.
----------
"Operating Partnership" shall mean Patriot American Hospitality
---------------------
Partnership, L.P., a Virginia limited partnership.
"Other Agreement of Purchase and Sale" means any one of those certain
------------------------------------
Other Agreements of Purchase and Sale.
"Other Agreements of Purchase and Sale" means those certain Agreements
-------------------------------------
of Purchase and Sale of even date herewith for the Other Properties entered into
by Patriot and affiliates of Seller.
"Other Lease Agreements" means those certain leases of the hotels to
----------------------
be acquired on the Closing Date by Patriot pursuant to the Other Agreements of
Purchase and Sale between Lessor, as lessor, and Lessee, as lessee.
"Other Properties" means those certain four hotels described on
----------------
Exhibit C attached hereto and made a part hereof.
- ---------
"Other Property" means any one of those certain four hotels described
--------------
on Exhibit C.
---------
"Owner's Title Policy" shall mean an owner's policy of title insurance
--------------------
issued to Patriot by the Title Company, pursuant to which the Title Company
insures Patriot's ownership of fee simple title to the Real Property (including
the indefeasibility thereof) subject only to Permitted Title Exceptions. The
Owner's Title Policy shall insure Patriot in the amount of the Purchase Price
and shall be reasonably acceptable in form and substance to Patriot. Patriot
may require such deletions of standard exceptions and such title endorsements as
are legally available and customarily required by institutional investors
purchasing property comparable to the Property in the State where the Property
is situated. The description of the Land in the Owner's Title Policy shall be
by courses and distances or by reference to a legal, subdivided lot and shall be
identical to the description shown on the Survey.
"Patriot's Objections" shall mean the objections defined as such in
--------------------
Section 2.4(c) hereof.
- --------------
"Permitted Title Exceptions" shall mean those exceptions to title to
--------------------------
the Real Property that are satisfactory to Patriot or deemed satisfactory to
Patriot pursuant to Section 2.4(c) hereof.
--------------
"Personal Property" shall mean collectively the Tangible Property and
-----------------
the Intangible Personal Property.
6
<PAGE>
"Personal Property Leases" shall mean the leases pursuant to which
------------------------
Seller leases the Leased Property, which Personal Property Leases are described
on Schedule 6 attached hereto and made a part hereof.
----------
"Property" shall mean collectively the Real Property and the Personal
--------
Property.
"Purchase Price" shall mean $5,770,000.00 payable in the manner
--------------
described in Section 2.2 hereof and subject to adjustment as set forth herein.
-----------
"Real Property" shall mean the Land and the Improvements.
-------------
"Rooms Ledger" shall mean the final night's room revenue (revenue from
------------
rooms occupied as of 12:01 a.m. on the Closing Date, exclusive of food,
beverage, telephone and similar charges which shall be retained by Seller),
including any sales taxes, room taxes or other taxes thereon.
"Seller's Organizational Documents" shall mean the current partnership
---------------------------------
agreement and certificate of limited partnership and all amendments thereto of
Seller and its general partners.
"Submission Matters" shall mean all items Seller is required to
------------------
deliver to Patriot or make available to Patriot for its review pursuant to
Section 2.4(a) hereof.
- --------------
"Survey" shall mean the survey defined as such in and prepared
------
pursuant to Section 2.4(c) hereof.
--------------
"Tangible Personal Property" shall mean the items of tangible personal
--------------------------
property consisting of all furniture, fixtures, equipment, machinery and other
personal property of every kind and nature (including cash-on-hand and petty
cash funds) located on or used or useful in the operation of the Hotel and owned
by Seller, including, without limitation, unopened inventories of food and
beverages and the stock of linens, towels, paper goods, soaps, cleaning
supplies, china, glassware, silverware, tablecloths, napkins, television sets,
carpets, drapes, rugs, floor coverings, mattresses, pillows, bed spreads and
miscellaneous guest supplies, engineering cleaning supplies and the like.
"Title Commitment" shall mean the title commitment and exception
----------------
documents defined as such in Section 2.4(c) hereof.
--------------
"Title Company" shall mean Escrow Agent on behalf of Commonwealth Land
-------------
Title Insurance Company or other title insurance underwriter selected by
Patriot.
"UCC Reports" shall mean the reports defined as such in Section 2.4(c)
----------- --------------
hereof.
"Utilities" shall mean public sanitary and storm sewers, natural gas,
---------
telephone, public water facilities, electrical facilities and all other utility
facilities and services necessary or appropriate for the operation and occupancy
of the Property as a hotel.
7
<PAGE>
"Warranties and Guaranties" shall mean all warranties and guaranties
-------------------------
relating to the Improvements or the Tangible Personal Property or any part
thereof, if any.
ARTICLE II
----------
PURCHASE AND SALE OF PROPERTY; DEPOSIT; PAYMENT
-----------------------------------------------
OF PURCHASE PRICE; TITLE
------------------------
2.1 Purchase and Sale. Seller agrees to sell, and Purchaser agrees to
-----------------
purchase, the Property for the Purchase Price and in accordance with, and
subject to, the terms and conditions hereinafter set forth.
2.2 Payment of Purchase Price. The Purchase Price, subject to adjustment
-------------------------
as provided in Section 2.5 below, shall be paid to Seller in the following
-----------
manner:
(a) Purchaser shall receive a credit against the Purchase Price in an
amount equal to the amount of the cash Deposit.
(b) Patriot shall pay the balance of the Purchase Price as adjusted in
the manner specified in Article VIII and as set forth below, to Seller or other
applicable party at Closing by making a wire transfer of immediately available
federal funds to the account of Seller or other applicable party as specified in
writing by Seller.
The parties agree that the Purchase Price shall be allocated between the Real
Property and Personal Property in accordance with the appraisal of the Personal
Property to be obtained by Patriot prior to the Closing.
2.3 Deposit. Within three (3) days after the execution hereof by both
-------
Seller and Patriot and as a condition precedent to the effectiveness of this
Agreement, Patriot shall deliver to Escrow Agent (i) a wire transfer or check in
the sum of Fifty Dollars ($50.00) payable to the order of Seller representing
the independent consideration for Seller's execution of this Agreement and
agreement to provide Patriot with the Study Period (which check or the proceeds
of which wire transfer shall thereafter be delivered by Escrow Agent to Seller)
and (ii) a demand note in the amount of $45,078.00 executed by the Operating
Partnership, payable to the order of Seller (the "Deposit"). Escrow Agent shall
-------
hold the Deposit pursuant to the terms, conditions and provisions of this
Agreement. The Deposit shall be either (a) returned to Patriot pursuant hereto,
or (b) paid to Seller pursuant hereto.
2.4 Submission Matters and Title Information.
----------------------------------------
(a) Seller has delivered the following to Patriot and Patriot has
approved the following:
(1) Copies of all Occupancy Agreements in effect as of the date of
this Agreement.
8
<PAGE>
(2) To the extent in Seller's possession or reasonably
available to Seller, copies of all Authorizations including, without
limitation, all certificates of occupancy, permits, authorizations,
approvals and licenses issued by Governmental Authorities having
jurisdiction over the Property and copies of all certificates issued by the
local board of fire underwriters (or other body exercising similar
functions) relating to the Property. For the purpose of this Agreement any
Submission Matters in the possession of Seller's management company shall
be deemed to be "reasonably available to Seller."
(3) A complete list of advance reservations and room
bookings for the Property.
(4) Complete copies of all such Operating Agreements.
(5) A schedule setting forth the type and amounts of
insurance coverage maintained by Seller with respect to the Property as of
the date of this Agreement and complete copies of all such Insurance
Policies.
(6) To the extent in Seller's possession or reasonably
available to Seller, financial and operating statements for the Property
for the previous three (3) calendar years and the year to date.
(7) The operating and capital expenditure budget for
the Property for the current calendar year and, to the extent in Seller's
possession or reasonably available to Seller, for the previous three (3)
calendar years.
(8) A complete list of all Leased Property and complete
copies of all Personal Property Leases.
(9) To the extent in Seller's possession or reasonably
available to Seller, copies of invoices for all ad valorem taxes and
special assessments assessed against the Property for the current calendar
year and prior three calendar years, either statements for Utilities
payable for the current calendar year and any prior years (if available at
the Hotel or in the Dallas, Texas office of Seller's current manager of the
Hotel) or such other information which Seller may have in its or Seller's
current manager's possession itemizing the payment of Utilities for the
Hotel, and any information in Seller's possession or reasonably available
to Seller regarding current renditions or assessments on the Property or
notices relative to change in valuation for ad valorem taxes.
(10) To the extent in Seller's possession or reasonably
available to Seller, a complete list of all Warranties and Guaranties in
effect as of the date of this Agreement and complete copies of all such
Warranties and Guaranties.
(11) Copies of all soil tests, structural engineering
tests, masonry tests, percolation tests, water, oil, gas, mineral, radon,
formaldehyde, PCB or other environmental tests, audits or reports, market
studies and site plans related to the Property in Seller's possession or
reasonably available to Seller.
9
<PAGE>
(12) If in Seller's possession or reasonably available
to Seller, Seller will make available to Patriot at the Property or at the
office's of Seller's current manager in Dallas, Texas, copies of complete
sets of all architectural, mechanical, structural and/or electrical plans
and specifications used in connection with the construction of or
alterations or repairs to the Property.
(13) If in Seller's possession or reasonably available
to Seller, Seller will make available to Patriot at the Property or at the
office's of Seller's current manager in Dallas, Texas, copies of as-built
plans and specifications for the Property.
(14) Parking, structural, mechanical or other
engineering reports or engineering studies related to the Property, if any,
in Seller's possession or reasonably available to Seller.
(15) If in Seller's possession or reasonably available
to Seller, copies of any title insurance policies covering the Real
Property and any surveys of all or any portion of the Property.
Until the Closing, Seller shall make available to Patriot, its agents, auditors,
engineers, attorneys, potential lessees and other designees, for inspection
and/or copying, copies of all existing architectural and engineering studies,
surveys, title insurance policies, zoning and site plan materials,
correspondence, environmental audits and reviews, books, records, tax returns,
bank statements, financial statements, advance reservations and room bookings
and function bookings, rate schedules and any and all other materials or
information relating to the Property which are in, or come into, Seller's
possession or control or are otherwise reasonably available to Seller.
(b) Patriot shall give Seller reasonable oral or written notice of all
proposed inspections to be undertaken on the Property. Seller's prior oral or
written consent shall be required (but shall not be unreasonably withheld or
delayed) only as to Patriot's undertaking of invasive testing at the Property,
and such testing and inspections shall be coordinated with the general manager
of the Hotel. Any such inspection or activity shall (i) not unreasonably
interfere with the operation of the Property and (ii) shall be conducted at such
times and in such manner as to not unreasonably disturb the guests of the Hotel.
Seller shall have the right to designate a representative to accompany Patriot's
employees, agents, and independent contractors on any such inspections. Patriot
shall indemnify and defend Seller against any loss, damage or claim for personal
injury or property damage arising from the negligent or willful acts upon the
Real Property by Patriot or any agents, contractors or employees of Patriot.
Patriot, at its own expense, shall restore any damage to the Property caused by
any of the tests or studies made by Patriot. This provision shall survive any
termination of this Agreement and a closing of the transaction contemplated
hereby.
(c) Seller has delivered to Patriot, at Seller's sole cost and expense
(and Patriot has approved), two copies to Patriot's attorneys, Akin, Gump,
Strauss, Hauer & Feld, L.L.P., a Survey of the Land and the Improvements,
prepared by a Surveyor licensed to practice as such in the State where the Land
is located and reasonably acceptable to Patriot, bearing a date not earlier than
thirty (30) days from the date of its delivery, containing the certificate
attached hereto
10
<PAGE>
as Exhibit B, and substantially conforming to the requirements set forth in such
---------
certificate. Seller has caused the Title Company to furnish to Patriot, at
Seller's sole cost and expense (and Patriot has approved), (i) a title insurance
commitment bearing an effective date subsequent to the date of this Agreement
issued by the Title Company covering the Real Property, binding the Title
Company to issue its Owner's Policy of Title Insurance, in form approved for use
in the state where the Property is located in favor of Patriot, showing title to
be held currently by Seller in a good, indefeasible and insurable condition,
together with legible copies of all documents identified in such title insurance
commitment as exceptions to title certified as true and complete by the Title
Company (collectively, the "Title Commitment"), and (ii) reports of searches of
----------------
the Uniform Commercial Code records of both the county and State in which the
Property is located (collectively, the "UCC Reports") with respect to the state
-----------
of title to the Property. Patriot has notified Seller of any matters shown on
the Survey or identified in the Title Commitment or the UCC Reports that Patriot
is unwilling to accept (collectively, "Patriot's Objections"). If any of
--------------------
Patriot's Objections consist of delinquent taxes, mortgages, deeds of trust,
security agreements, construction or mechanics' liens, tax liens or other liens
or charges in a fixed sum or capable of computation as a fixed sum, then, to
that extent, notwithstanding anything herein to the contrary, Seller shall be
obligated to pay and discharge (or bond against in a manner sufficient to cause
the Title Company to insure over such Patriot's Objections) at or prior to
Closing all of such Patriot's Objections. Seller shall not, after the date of
this Agreement, subject the Real Property to or permit or suffer to exist any
liens, encumbrances, covenants, conditions, restrictions, easements or other
title matters or seek any zoning changes or take any other action which may
affect or modify the status of title without Patriot's prior written consent
unless same are discharged at or prior to Closing. All title matters revealed by
the Title Commitment, UCC Reports and Survey and not objected to by Patriot as
provided above (other than those rendering title defeasible and delinquent
taxes, mortgages, deeds of trust, security agreements and other liens and
charges that are to be paid at Closing as provided above) shall be deemed
Permitted Title Exceptions. Notwithstanding the foregoing, Patriot shall not be
required to take title to the Real Property subject to any matters which may
arise subsequent to the effective date of the Title Commitment, UCC Reports and
Survey examined by Patriot prior to the date hereof.
ARTICLE III
-----------
SELLER'S REPRESENTATIONS AND WARRANTIES
---------------------------------------
To induce Patriot to enter into this Agreement and to acquire the Property,
and to pay the Purchase Price therefor, Seller hereby makes the following
representations and warranties with respect to the Property, upon each of which
Seller acknowledges and agrees that Patriot and its permitted assignees are
entitled to rely and have relied:
3.1 Organization and Power. Seller is a general partnership duly formed,
----------------------
validly existing and in good standing under the laws of the State of Texas and
is qualified to transact business in the State where the Real Property is
located and has all requisite powers and all governmental licenses,
authorizations, consents and approvals to carry on its business as now conducted
and to enter into and perform its obligations hereunder and under any document
or instrument required to be executed and delivered on behalf of Seller
hereunder.
11
<PAGE>
3.2 Authorization and Execution. This Agreement has been duly authorized
---------------------------
by all necessary action on the part of Seller, has been duly executed and
delivered by Seller, constitutes the valid and binding agreement of Seller and
is enforceable in accordance with its terms. There is no other person or entity
who has an ownership interest in the Property or whose consent is required in
connection with Seller's performance of its obligations hereunder. The person
executing this Agreement on behalf of Seller has the authority to do so.
3.3 Non-contravention. The execution and delivery of, and the performance
-----------------
by Seller of its obligations under, this Agreement do not and will not
contravene, or constitute a default under any of Seller's Organizational
Documents, any judgment, injunction, order or decree binding upon Seller or to
which the Property is subject, or, to Seller's knowledge, do not and will not
contravene, or constitute a default under, any provision of applicable law or
regulation, any agreement, or other instrument binding upon Seller or to which
the Property is subject, or result in the creation of any lien or other
encumbrance on any asset of Seller. There are no outstanding agreements (written
or oral) pursuant to which Seller (or any predecessor to or representative of
Seller) has agreed to sell or has granted an option or right of first refusal to
purchase the Property or any part thereof except for those that will be waived
or released at or prior to Closing.
3.4 Title To Real Property. Seller is the sole owner of fee simple
----------------------
absolute title to the Real Property.
3.5 No Special Taxes. Seller has no knowledge of, nor has it received any
----------------
written notice of, any special taxes or assessments relating to the Property or
any part thereof or any planned public improvements that may result in a special
tax or assessment against the Property.
3.6 Compliance with Existing Laws. To Seller's knowledge, Seller
-----------------------------
possesses all Authorizations, each of which is valid and in full force and
effect, and no provision, condition or limitation of any of the Authorizations
has been breached or violated. Seller has no knowledge of any termination,
suspension, modification or limitation affecting any of the Authorizations.
Seller has no knowledge, nor has it received written notice within the past two
(2) years, of any existing or threatened violation of any provision of any
Applicable Laws including, but not limited to, those of environmental agencies
or insurance boards of underwriters with respect to the ownership, operation,
use, maintenance or condition of the Property or any part thereof, or requiring
any repairs or alterations to the Property other than those that have been made
prior to the date hereof, which existing or threatened violation could have a
materially adverse effect on the value, use, insurability or operation of the
Property.
3.7 Personal Property. All of the Personal Property, excluding the Leased
-----------------
Property, being conveyed by Seller hereunder are free and clear of all liens and
encumbrances except for those which will be discharged by Seller at Closing, and
Seller has good and merchantable title thereto and the right to convey same in
accordance with the terms of this Agreement.
3.8 Operating Agreements. To Seller's knowledge, there are no management,
--------------------
service, supply or maintenance contracts in effect with respect to the Property
other than the Operating Agreements. To Seller's knowledge, Seller has
performed in all material respects all of its obligations under each of the
Operating Agreements and there are no defaults under any of the
<PAGE>
Operating Agreements. To Seller's knowledge, all other parties to the Operating
Agreements have performed all of their obligations thereunder in all material
respects, and are not in default thereunder in any material respect. To Seller's
knowledge, Seller has received no notice of any intention by any of the parties
to any of the Operating Agreements to cancel the same, nor has Seller canceled
any of same.
3.9 Insurance. To Seller's knowledge, all of Seller's Insurance Policies
---------
are valid and in full force and effect and Seller has complied with all
requirements or recommendations of the insurance carriers of the Insurance
Policies.
3.10 Condemnation Proceedings; Roadways. Seller has received no written
----------------------------------
notice of any condemnation or eminent domain proceeding pending or threatened
against the Property or any part thereof. Seller has no knowledge of any change
in the route or width of any street or road adjacent to or serving the Real
Property, and Seller has received no written notice of any proposed change in
the route, grade or width of, or otherwise affecting, any street or road
adjacent to or serving the Real Property.
3.11 Actions or Proceedings. There is no action, suit or proceeding
----------------------
pending or to Seller's knowledge threatened against or affecting Seller in any
court, before any arbitrator or before or by any Governmental Authority which
(a) in any manner raises any question affecting the validity or enforceability
of this Agreement, (b) could materially and adversely affect the business,
financial position or results of operations of Seller or the Property, (c) could
materially and adversely affect the ability of Seller to perform its obligations
hereunder, (d) could create a lien on the Property, any part thereof or any
interest therein, (e) concerns any past or present employee of Seller or (f)
could otherwise adversely affect the Property, any part thereof or any interest
therein or the use, operation, condition or occupancy thereof.
3.12 Labor and Employment Matters. To Seller's knowledge, neither Seller
----------------------------
nor its management company is a party to any oral or written employment
contracts or agreements with respect to the Property. To Seller's knowledge,
there are no labor disputes or organizing activities pending or threatened as to
the operation or maintenance of the Property or any part thereof. Neither
Seller nor its management company is a party to any union or other collective
bargaining agreement with employees employed in connection with the ownership,
operation or maintenance of the Property. Patriot shall not have any liability
under any pension, profit sharing or welfare benefit plan that Seller, Seller's
management company or any Affiliated Company may have established with respect
to the Property or their or its employees.
3.13 Financial Information and Submission Matters. To Seller's knowledge,
--------------------------------------------
all of Seller's financial information, including, without limitation, all books
and records and financial statements ("Financial Information") is correct and
---------------------
complete in all material respects and presents accurately the results of the
operations of the Property for the periods indicated. Since the date of the
last financial statement included in Seller's Financial Information, there has
been no material adverse change in the financial condition or in the operations
of the Property.
3.14 Submission Matters. To Seller's knowledge, all Submission Matters
------------------
delivered by Seller to Patriot pursuant to this Agreement are true, correct and
complete in all material respects.
<PAGE>
3.15 Bankruptcy. No Act of Bankruptcy has occurred with respect to Seller.
----------
3.16 Hazardous Substances. To Seller's knowledge, Seller has not, nor has
--------------------
Seller received any written notice that any previous owner, tenant, occupant or
user of the Property has, engaged in or permitted any operations or activities
upon, or any use or occupancy of the Property or any portion thereof, for the
purpose of or in any way involving the handling, manufacture, treatment,
storage, use, generation, release, discharge, refining, dumping or disposal of
any Hazardous Materials on, under, in or about the Property in violation of any
Applicable Laws. Seller has not received any written notice that any Hazardous
Materials have migrated from or to the Property upon, about, or beneath other
properties in violation of any Environmental Requirements. To Seller's
knowledge, neither the Property nor its existing or prior uses fail or failed to
materially comply with Environmental Requirements. Seller has no knowledge of
any permits, licenses or other authorizations which are required under any
Environmental Requirements with regard to the current uses of the Property which
have not been obtained and complied with. To Seller's knowledge, neither Seller
nor any prior owner, occupant or user of the Property has received any written
notice concerning any alleged violation of Environmental Requirements in
connection with the Property or any liability for Environmental Damages in
connection with the Property for which Seller (or Patriot after Closing) may be
liable. To Seller's knowledge, no Hazardous Materials are constructed,
deposited, stored or otherwise located on, under, in or about the Property in
violation of any Environmental Requirements. To Seller's knowledge, there exists
no writ, injunction, decree, order or judgment outstanding, nor any lawsuit,
claim, proceeding, citation, summons or investigation, pending or threatened,
relating to any alleged violation of Environmental Requirements on the Property,
or relating to any Environmental Damages. To Seller's knowledge, no underground
or above ground chemical treatment or storage tanks, or gas or oil wells are
located on the Property.
3.17 Intentionally Deleted.
---------------------
3.18 Occupancy Agreements. There are no leases, concessions or occupancy
--------------------
agreements in effect with respect to the Real Property other than the Occupancy
Agreements. Except as specifically provided in the Occupancy Agreements, no
tenant or concessionaire is entitled to any rebates, allowances, free rent or
rent abatement for any period after the Closing of the transaction contemplated
hereby. To Seller's knowledge, Seller has received no notice of any intention
by any of the parties to any of the Occupancy Agreements to cancel the same, nor
has Seller canceled any of same. To Seller's knowledge, no brokerage
commissions or compensation of any kind shall be due in connection with the
Occupancy Agreements, and the rents or revenues to be derived therefrom.
3.19 Leased Property. To Seller's knowledge, all Personal Property Leases
---------------
are in good standing and free from default.
3.20 Americans With Disabilities Act. To Seller's knowledge, Seller has
-------------------------------
received no written notice that the Property is not in compliance with the
Americans With Disabilities Act.
3.21 Structural Condition. Except as disclosed in writing by Seller to
--------------------
Patriot and as contained in any engineering reports concerning the Property
delivered to Patriot, to Seller's
<PAGE>
knowledge, there is no latent material defect in the Improvements or structural
elements thereof, mechanical systems (including, without limitation, all
heating, ventilating, air conditioning, plumbing, electrical, utility and
sprinkler systems) therein, the utility system servicing the Property and the
roofs.
3.22 Zoning and Platting. Seller has no knowledge of any proceeding and
-------------------
has received no written notice of any threatened action or proceeding which
could result in a modification or termination of the present zoning of the
Property. To Seller's knowledge, the Property is properly platted as a separate
lot under Applicable Laws and constitutes a separate tax lot.
3.23 Access. Seller has no knowledge of any pending and has received no
------
written notice of any threatened governmental proceeding which would limit or
result in the termination of the Property's existing access to and from public
streets or roads.
3.24 No Commitments. To Seller's knowledge, no commitments have been made
--------------
to any Governmental Authority, utility company, school board, church or other
religious body, or any homeowners' association or any other organization, group
or individual, relating to the Property which would impose an obligation upon
Patriot to make any contribution or dedication of money or land or to construct,
install or maintain any improvements of a public or private nature on or off the
Property.
3.25 Seller Is Not a "Foreign Person". Seller is not a "foreign person"
--------------------------------
within the meaning of Section 1445 of the Internal Revenue Code, as amended
(i.e., Seller is not a foreign corporation, foreign partnership, foreign trust,
foreign estate or foreign person as those terms are defined in the Internal
Revenue Code and regulations promulgated thereunder).
3.26 No Other Property Interests. To Seller's knowledge, there are no
---------------------------
property interests, buildings, structures or other improvements or personal
property that are owned by Seller which are necessary for the operation of the
Hotel that are not being conveyed pursuant to this Agreement.
3.27 Intentionally Deleted.
---------------------
3.28 Intentionally Deleted.
---------------------
3.29 Intentionally Deleted.
---------------------
3.30 Relationship to Certain Parties. Seller does not have a direct or
-------------------------------
indirect relationship to the Central States, Southeast and Southwest Areas
Pension Funds within the meaning of Section 514(c)(9)(B)(iv) of the Internal
Revenue Code of 1986, as amended.
3.31 LIMITATIONS ON REPRESENTATIONS AND WARRANTIES. PATRIOT HEREBY AGREES
---------------------------------------------
AND ACKNOWLEDGES THAT, EXCEPT AS SET FORTH IN THIS ARTICLE 3, OR AS OTHERWISE
EXPRESSLY STATED HEREIN OR IN THE DEED OR IN ANY DOCUMENTS EXECUTED IN
CONNECTION HEREWITH, NEITHER SELLER NOR ANY AGENT, ATTORNEY, EMPLOYEE OR
REPRESENTATIVE OF SELLER HAS
<PAGE>
MADE ANY REPRESENTATION WHATSOEVER REGARDING THE SUBJECT MATTER OF THIS SALE, OR
ANY PART THEREOF, INCLUDING (WITHOUT LIMITING THE GENERALITY OF THE FOREGOING)
REPRESENTATIONS AS TO THE PHYSICAL NATURE OR CONDITION OF THE PROPERTY OR THE
CAPABILITIES THEREOF, AND THAT PATRIOT, IN EXECUTING, DELIVERING AND/OR
PERFORMING THIS AGREEMENT, DOES NOT RELY UPON ANY STATEMENT AND/OR INFORMATION
TO WHOMEVER MADE OR GIVEN, DIRECTLY OR INDIRECTLY, ORALLY OR IN WRITING, BY ANY
INDIVIDUAL, FIRM OR CORPORATION EXCEPT THOSE EXPRESSLY CONTAINED HEREIN OR
DELIVERED PURSUANT THERETO OR IN ANY DOCUMENTS EXECUTED IN CONNECTION HEREWITH.
EXCEPT AS OTHERWISE PROVIDED HEREIN, PATRIOT AGREES TO TAKE THE REAL PROPERTY
AND THE PERSONAL PROPERTY "AS IS," AS OF THE DATE HEREOF, REASONABLE WEAR AND
TEAR EXCEPTED. IN ADDITION, EXCEPT AS SET FORTH HEREIN, SELLER MAKES NO
REPRESENTATION OR WARRANTIES REGARDING THE COMPLIANCE WITH ANY ENVIRONMENTAL
REQUIREMENTS, INCLUDING THE EXISTENCE IN OR ON THE PROPERTY OF HAZARDOUS
MATERIALS. THE PROVISIONS OF THIS PARAGRAPH SHALL SURVIVE THE CLOSING OR ANY
TERMINATION HEREOF.
Each of the representations and warranties contained in this Article III and its
-----------
various subparagraphs are intended for the benefit of Patriot and may be waived
in whole or in part, by Patriot, but only by an instrument in writing signed by
Patriot. All rights and remedies arising in connection with the untruth or
inaccuracy of any such representations and warranties shall survive the Closing
of the transaction contemplated hereby for the period specified below except to
the extent that Seller gives Patriot written notice prior to Closing of the
untruth or inaccuracy of any representation or warranty, or Patriot otherwise
obtains actual knowledge prior to Closing of the untruth or inaccuracy of any
representation or warranty, and Patriot nevertheless elects to close this
transaction. Any such written notice from Seller to Patriot shall state in the
first paragraph thereof and in all capitalized letters that "THIS NOTICE IS
GIVEN PURSUANT TO THE AGREEMENT OF PURCHASE AND SALE MADE AS OF JULY ___, 1996
AND RELATES TO THE UNTRUTH OR INACCURACY OF SELLER'S REPRESENTATIONS OR
WARRANTIES." Patriot shall be deemed to have actual knowledge of the untruth or
inaccuracy of any representation or warranty only if (i) Patriot receives
written notice from Seller satisfying the foregoing requirements, or (ii) Paul
A. Nussbaum, Thomas W. Lattin, Rex E. Stewart or Leslie Ng has actual knowledge
of any such untruth or inaccuracy. Except to the extent otherwise expressly
provided in the immediately preceding sentence and as provided above, no
investigation, audit, inspection, review or the like conducted by or on behalf
of Patriot shall be deemed to terminate the effect of any such representations,
warranties and covenants, it being understood that Patriot has the right to rely
thereon and that each such representation and warranty constitutes a material
inducement to Patriot to execute this Agreement and to close the transaction
contemplated hereby and to pay the Purchase Price to Seller.
Whenever the term "to Seller's knowledge" or "known to Seller" is used in this
Agreement or in any representations and warranties given to Patriot at Closing,
such knowledge shall be the actual knowledge of Dave Johnson - East Region (the
"Key Personnel") after inquiry of the Hotel's general manager, controller,
-------------
director of food and beverage service and director of sales. Seller shall have
no duty to conduct any further inquiry in making any such representations and
<PAGE>
warranties, and no knowledge of any other person shall be imputed to the Key
Personnel. In connection with the representations made in Section 3.16, the
------------
term "to Seller's knowledge" or "known to Seller" shall be deemed to include,
with respect to representations and warranties relating to whether the Property
complies with Environmental Requirements, only those facts that an experienced,
prudent operator and/or manager of real estate properties could reasonably be
expected to know have environmental significance and not such facts that would
be known only to an environmental professional to have environmental
significance.
ARTICLE IV
----------
PATRIOT'S REPRESENTATIONS AND WARRANTIES
----------------------------------------
To induce Seller to enter into this Agreement and to sell the Property,
Patriot hereby makes the following representations and warranties, upon each of
which Patriot acknowledges and agrees that Seller is entitled to rely and has
relied:
4.1 Organization and Power. Patriot is duly organized, validly existing
----------------------
and in good standing under the laws of the State of Virginia and has all
corporate and/or partnership powers and all governmental licenses,
authorizations, consents and approvals required to carry on its business as now
conducted and to enter into and perform its obligations under this Agreement and
any document or instrument required to be executed and delivered on behalf of
Patriot hereunder.
4.2 Authority of Patriot. This Agreement has been duly authorized by all
--------------------
necessary action on the part of Patriot, has been duly executed and delivered by
Patriot, constitutes the valid and binding agreement of Patriot and is
enforceable in accordance with its terms. The person executing this Agreement
on behalf of Patriot has the authority to do so.
4.3 Non-contravention. The execution and delivery of this Agreement and
-----------------
the performance by Patriot of its obligations hereunder do not and will not
contravene, or constitute a default under, any provisions of applicable law or
regulation, or any agreement, judgment, injunction, order, decree or other
instrument binding upon Patriot or result in the creation of any lien or other
encumbrance on any asset of Patriot.
4.4 Litigation. There is no action, suit or proceeding, pending or to
----------
Patriot's knowledge threatened, against or affecting Patriot in any court or
before any arbitrator or before any Governmental Authority which (a) in any
manner raises any question affecting the validity or enforceability of this
Agreement, (b) could materially and adversely affect the business, financial
position or results of operations of Patriot, and (c) could materially and
adversely affect the ability of Patriot to perform its obligations hereunder.
4.5 Bankruptcy. No Act of Bankruptcy has occurred with respect to
----------
Patriot.
Wherever the term "to Patriot's knowledge" or "known to Patriot" is used in this
Agreement or in any representations and warranties given to Seller at Closing,
such knowledge shall be the actual knowledge of Paul A. Nussbaum, Thomas W.
Lattin, Rex E. Stewart or Leslie Ng only, without any further inquiry.
<PAGE>
ARTICLE V
---------
CONDITIONS PRECEDENT
--------------------
5.1 As to Patriot's Obligations. Patriot's obligations hereunder are
---------------------------
subject to the satisfaction of the following conditions precedent:
(a) Seller's Deliveries. Seller shall have delivered to or for the
-------------------
benefit of Patriot, on or before the Closing Date, all of the documents and
other information required of Seller pursuant to Sections 8.2 and 8.4 hereof,
--------------------
the forms of which have been approved by Patriot.
(b) Representations, Warranties and Covenants; Obligations of
---------------------------------------------------------
Seller. All of Seller's representations and warranties made in this Agreement
- ------
shall be true and correct in all material respects as of the date hereof and as
of the date of Closing as if then made; Seller shall have performed in all
material respects all of its covenants and other obligations under this
Agreement; and none of the following events (or events of similar magnitude)
have occurred which could in Patriot's reasonable judgment, materially and
adversely affect the Property:
(i) a structural failure causing significant human fatalities such
as the structural failure that occurred at the Hyatt Hotel in Kansas City,
Missouri;
(ii) significant human fatalities caused by disease which is
specifically identified with the Property such as the occurrence of
Legionnaires disease associated with the Bellevue Stratford Hotel in
Philadelphia, Pennsylvania; and
(iii) significant human fatalities caused by the failure of
life/safety systems such as the fire which occurred at the MGM Grand Hotel
in Las Vegas, Nevada.
(b) Title Insurance. Receipt by Patriot of an Owner Policy of Title
---------------
Insurance issued by the Title Company subject only to Permitted Title Exceptions
as determined in accordance with Section 2.4 hereof and including, without
-----------
limitation, all applicable deletions of standard exceptions and endorsements
permitted under applicable state law which are customarily required by
institutional investors purchasing property comparable to the Property.
(c) Title to Property. Seller shall be the sole owner of good and
-----------------
indefeasible fee simple title to the Real Property and good and marketable fee
simple title to the Tangible Personal Property, free and clear of all liens,
encumbrances, restrictions, conditions and agreements except for Permitted Title
Exceptions and those to be released at Closing.
(d) Condition of Improvements. The Improvements and the Tangible
-------------------------
Personal Property (including but not limited to the mechanical systems,
plumbing, electrical, wiring, appliances, fixtures, heating, air conditioning
and ventilating equipment, elevators, boilers, equipment, roofs, structural
members and furnaces) shall be in the same condition at Closing as they are as
of the date hereof, reasonable wear and tear excepted. Prior to Closing, Seller
shall not have diminished in any material respect the quality or quantity of
maintenance and upkeep services heretofore provided to the Real Property and the
Tangible Personal Property. Seller shall
<PAGE>
not have removed or caused or permitted to be removed any part or portion of the
Real Property or the Tangible Personal Property without Patriot's prior written
consent unless the same is replaced, prior to Closing, with a similar item of at
least equal suitability, quality and value, free and clear of any lien or
security interest.
(e) Right to Use Wyndham Name. Patriot shall have received a letter
-------------------------
agreement from Wyndham Management Corporation ("Manager") in the form of Exhibit
------- -------
D attached hereto and made a part hereof.
- -
(f) Liquor License. There shall be valid liquor licenses, alcoholic
--------------
beverage licenses and other permits and Authorizations necessary to serve
alcohol by room service and to operate the restaurant, bars and lounges
presently located in the Hotel in place and all such liquor licenses, alcoholic
beverage licenses and other permits and Authorizations shall be held in the
names of the operators of such businesses. Seller agrees to cause the holders
of such licenses to execute such consents and estoppels as reasonably required
by Patriot's lender.
Each of the conditions contained in this Section are intended for the benefit of
Patriot and may be waived in whole or in part, by Patriot, but only by an
instrument in writing signed by Patriot.
5.2 As to Seller's Obligations. Seller's obligations hereunder are
--------------------------
subject to the satisfaction of the following conditions precedent:
(a) Patriot's Deliveries. Patriot shall have delivered to or for the
--------------------
benefit of Seller, on or before the Closing Date, all of the documents and
payments required of Patriot pursuant to Sections 8.3 and 8.4 hereof.
--------------------
(b) Representations, Warranties and Covenants; Obligations of Patriot.
-----------------------------------------------------------------
All of Patriot's representations and warranties made in this Agreement shall be
true and correct in all material respects as of the date hereof and as of the
date of Closing as if then made and Patriot shall have performed in all material
respects all of its covenants and other obligations under this Agreement.
(c) Closing Under Other Agreements. Simultaneously with the Closing
------------------------------
of the transaction contemplated hereby and subject to Patriot's rights set forth
in other sections of this Agreement, Seller or Seller's affiliates or related
entities shall have sold and conveyed to Patriot, and Patriot and/or its
permitted assigns shall have purchased, the Other Properties.
(d) Prepayment Penalties. Either (i) the holder of the first lien
--------------------
encumbering the Property and the Other Properties waives the prepayment
penalties payable pursuant to the first lien loan documents encumbering the
Property and the Other Properties (the "Prepayment Penalties"), or (ii) Seller
--------------------
agrees to pay the Prepayment Penalties, in which event Patriot shall pay the
lesser of (1) 25% of the Prepayment Penalties charged by such first lien lender
or (2) $200,000.00.
Each of the conditions contained in this Section are intended for the benefit of
Seller and may be waived in whole or in part, by Seller, but only by an
instrument in writing signed by Seller.
<PAGE>
5.3 As to Patriot's and Seller's Obligations. Patriot's and Seller's
----------------------------------------
obligations hereunder are subject to the satisfaction of the following
conditions precedent:
(a) Acquisition of Other Properties. Simultaneously with the Closing
-------------------------------
of the transaction contemplated hereby, Seller or Seller's affiliates or related
entities shall have sold and conveyed to Patriot and/or its permitted assigns,
and Patriot and/or its permitted assigns shall have purchased, the Other
Properties. Patriot at its option may, and Seller shall be obligated to, waive
this condition at the Closing as to any or all of the Other Properties for which
a Permitted Reason (defined below) exists. The term "Permitted Reason" shall
mean: (i) either (a) the presence at an Other Property of any Hazardous
Materials and the abatement or other remediation of such Hazardous Materials
with respect to the Property is required by Environmental Requirements, as
evidenced by a letter from a qualified engineer (with a copy of the report of
such engineer) and Seller or its affiliate or related entity which owns the
affected Other Property is not willing to remediate or abate the condition
caused by Hazardous Materials on or before the Closing Date, or (b) the
affiliate or related entity of Seller which owns the affected Other Property is
either unable or unwilling to convey fee simple title to such affected Other
Property to Patriot, or (c) a knowing and intentional breach in any material
respect by Seller or its affiliate or related entity which owns the affected
Other Property or any of Seller's or its affiliate's or related entity's
covenants in an Other Agreement of Purchase and Sale which breach Seller or its
affiliate or related entity is either unable or unwilling to cure within the
time periods provided for in the relevant Other Agreement of Purchase and Sale
and the breach of such covenant could materially and adversely affect the
operation, value, use, marketability or insurability of title of such Other
Property, or (d) the occurrence of an event of casualty or a condemnation for
which Patriot is entitled to terminate the applicable Other Agreement of
Purchase and Sale and Patriot does in fact terminate such Other Agreement of
Purchase and Sale. Patriot understands and agrees that the Property and the
Other Properties located in Wood Dale, Illinois and Las Colinas, Texas (the
Property and such Other Properties being herein called the "Cross-Collateralized
--------------------
Properties") have been cross-collateralized pursuant to mortgages or deeds of
- ----------
trust encumbering the Cross-Collateralized Properties, and that if Patriot
wishes to terminate an Other Agreement of Purchase and Sale covering any of the
Cross-Collateralized Properties, then Patriot must terminate the Other
Agreements of Purchase and Sale with respect to the remaining Cross-
Collateralized Properties.
The conditions contained in this Section are intended for the benefit of both
parties hereto and may be waived in whole or in part only by an instrument in
writing signed by both parties.
ARTICLE VI
----------
COVENANTS OF SELLER
-------------------
To induce Patriot to enter into this Agreement and to purchase the
Property, and to pay the Purchase Price therefor, Seller covenants and agrees to
the following:
6.1 Operating Agreements and Occupancy Agreements. Seller shall not
---------------------------------------------
change, modify, extend, renew or terminate any existing, or enter into any, new
Occupancy Agreements, Operating Agreements, management agreement, maintenance or
repair contract, supply contract,
<PAGE>
lease in which it is lessee or other agreements with respect to the Property,
nor shall Seller enter into any agreements modifying the Operating Agreements or
Occupancy Agreements, unless (a) any such agreement or modification will not
bind Patriot or the Property after the date of Closing or (b) Seller has
obtained Patriot's prior written consent to such agreement or modification.
Seller agrees to cancel and terminate effective as of the Closing Date Seller's
management agreement and any other Operating Agreements which are terminable
without substantial penalty unless Patriot requests in writing prior to the
expiration of the Study Period that one or more remain in effect after Closing.
Seller shall not apply all or any part of the security or damage deposit of a
tenant under any Occupancy Agreement to obligations of such tenant unless such
tenant has vacated its portion of the Property as of the Closing Date. Patriot
and Seller hereby agree that Patriot's lessee shall assume the Operating
Agreements that are not terminated by Patriot (all such Operating Agreements not
so terminated being herein called "Assumed Operating Agreements"). With respect
----------------------------
to the Assumed Operating Agreements, the Lessee shall be required at Closing to
assume all obligations thereunder accruing from and after the Closing Date. With
respect to any other Operating Agreement which Patriot requests in writing prior
to the Closing Date be terminated (herein called the "Terminated Operating
--------------------
Agreements"), (a) upon Patriot's request, Seller shall give notice of
- ----------
termination of such Terminated Operating Agreements to the appropriate party,
and (b) if Seller has no right to terminate same, or if any substantial fee is
due thereunder as a result of such termination, Patriot shall be required to pay
for the payment of the termination charge at Closing.
6.2 Warranties and Guaranties. Seller shall not before or after Closing
-------------------------
release or modify any Warranties and Guaranties, if any, except with the prior
written consent of Patriot.
6.3 Insurance. Seller shall pay all premiums on, and shall not cancel or
---------
voluntarily allow to expire, any of Seller's Insurance Policies unless such
policy is replaced, without any lapse of coverage, by another policy or policies
providing coverage at least as extensive as the policy or policies being
replaced.
6.4 Independent Audit. Promptly following the execution of this
-----------------
Agreement, Seller shall provide and shall cause its management company to
provide to Patriot's representatives and independent accounting firm access to
financial and other information relating to the Property in the possession of or
otherwise available to Seller, its affiliates or Seller's management company
which would be sufficient to enable Patriot's representatives and independent
accounting firm to prepare audited financial statements for 1993, 1994 and 1995
in conformity with generally accepted accounting principles and to enable them
to prepare such statements, reports or disclosures as Patriot may deem necessary
or advisable and to audit net operating income for the Property. Seller shall
also provide and/or shall cause its management company to provide to Patriot's
independent accounting firm a signed representation letter which would be
sufficient to enable an independent public accountant to render an opinion on
the financial statements related to the Property. Seller shall authorize and
shall cause its management company to authorize any attorneys who have
represented Seller or its management company in material litigation pertaining
to or affecting the Property to respond, at Patriot's expense, to inquiries from
Patriot's representatives and independent accounting firm. If and to the extent
Seller's financial statements pertaining to the Property for any periods during
the years 1993, 1994 or 1995 have been audited, promptly after the execution of
this Agreement Seller shall provide Patriot with copies of such
<PAGE>
audited financial statements and shall cooperate with Patriot's representatives
and independent public accountants to enable them to contact the auditors who
prepared such audited financial statements and to obtain, at Patriot's expense,
a reissuance of such audited financial statements.
6.5 Operation of Property Prior to Closing. Seller covenants and agrees
--------------------------------------
with Patriot that, between the date of this Agreement (or such other date as
specified below) and the date of Closing:
(a) Subject to the restrictions contained herein, Seller shall operate
the Property in the same manner in which Seller operated the Property prior to
the execution of this Agreement, so as to keep the Property in good condition,
reasonable wear and tear excepted, and so as to maintain the existing caliber of
the Hotel operations conducted at the Property and the reasonable good will of
all tenants of the Property and all employees, guests and other customers of the
Hotel.
(b) Seller shall maintain its books of account and records in the
usual, regular and ordinary manner, in accordance with sound accounting
principles applied on a basis consistent with the basis used in keeping its
books in prior years.
(c) Seller shall maintain in full force and effect all Insurance
Policies.
(d) Seller shall use and operate the Property in compliance in all
material respects with Applicable Laws and the requirements of any mortgage,
lease, Occupancy Agreement, Operating Agreement and Insurance Policy affecting
the Property.
(e) Seller shall cause to be paid prior to delinquency all ad valorem,
occupancy and sales taxes due and payable with respect to the Property or the
operation of the Hotel.
(f) Seller shall not permit the inventory of food, beverages, stock of
linens, towels, paper goods, soaps, cleaning supplies, china, glassware,
silverware, table cloths, napkins, miscellaneous guest supplies and engineering
cleaning supplies constituting a portion of the Tangible Personal Property to be
diminished other than as a result of the ordinary and necessary operation of the
Hotel by Seller.
(g) Seller shall not remove or cause or permit to be removed any part
or portion of the Real Property or the Tangible Personal Property without the
express written consent of Patriot unless the same is replaced, prior to
Closing, with similar items of at least equal suitability, quality and value,
free and clear of any liens or security interests.
(h) Seller and Seller's managing agent shall continue to use its best
efforts to take guest room reservations and to book functions and meetings and
otherwise to promote the business of the Property in generally the same manner
as Seller did prior to the execution of this Agreement; and all advance room
bookings and reservations and all meetings and function bookings shall be booked
at rates, prices and charges heretofore customarily charged by Seller for such
purposes, and in accordance with Seller's published rate schedules. Seller
acknowledges that the Purchase Price includes the transfer of Advance Bookings.
<PAGE>
(i) Neither Seller nor Seller's managing agent shall make any
agreements which shall be binding upon Patriot with respect to the Property or
that otherwise cannot be terminated without penalty upon thirty (30) days
notice.
(j) Seller shall promptly deliver to Patriot upon Patriot's request
such reports showing the revenue and expenses of the Hotel and all departments
thereof, together with such periodic information with respect to room
reservations and other bookings, as Seller customarily keeps or receives
internally for its own use.
(k) Seller or Seller's managing agent shall not enter into any
employment agreements which would be binding on Patriot with respect to the
Property.
(l) Seller shall promptly advise Patriot of any litigation,
arbitration or administrative hearing concerning or affecting the Property of
which Seller obtains written notice or of which Seller has knowledge.
6.6 No Marketing. Seller shall not market the Property for sale or enter
------------
into discussions or negotiations with potential purchasers of the Property.
6.7 Employees. Payment of costs and expenses associated with accrued but
---------
unpaid salary, earned but unpaid vacation pay, accrued but unearned vacation
pay, pension and welfare benefits, the Consolidated Omnibus Budget
Reconciliation Act of 1985, as amended ("COBRA") benefits, employee fringe
-----
benefits, employee termination payments or any other employee benefits due to
Seller's, or Seller's management company's employees shall be the sole
responsibility and obligation of and shall be paid promptly by Seller or
Seller's management company and Patriot shall have no liability whatsoever for
any such payments and benefits concerning the employees of Seller or of Seller's
management company. Seller shall indemnify and defend Patriot and its lessee,
management company and affiliates, from and against any and all claims, causes
of action, proceedings, judgments, damages, penalties and liabilities made,
assessed or rendered against Patriot and/or its lessee, management company and
affiliates, and any costs and expenses (including attorneys' fees and
disbursements) incurred by Patriot and/or its lessee, management company and
affiliates, with respect to claims, causes of action, judgments, damages,
penalties and liabilities asserted by such employees arising out of the failure
of Seller or Seller's management company to comply with the provisions of this
Subsection 6.7. This indemnification shall be separate from and in addition to
- --------------
the indemnification given by Seller to Patriot in Article X below. The
---------
provisions of this Section 6.7 shall survive the Closing.
-----------
The foregoing covenants of Seller are for the benefit of Patriot or its
assignee of its permitted rights under this Agreement.
ARTICLE VII
-----------
INTENTIONALLY DELETED
---------------------
ARTICLE VIII
------------
<PAGE>
CLOSING
-------
8.1 Closing. The Closing shall occur on a business day designated by
-------
Patriot, with at least five (5) days notice to Seller (which day shall be no
later than August 16, 1996). As more particularly described below, at the
Closing the parties hereto will (i) execute all of the documents required to be
delivered in connection with the transactions contemplated hereby (the "Closing
-------
Documents"), (ii) deliver the same to Escrow Agent, and (iii) take all other
- ---------
action required to be taken in respect of the transactions contemplated hereby.
The Closing will occur at the offices of Akin, Gump, Strauss, Hauer & Feld,
L.L.P., 1700 Pacific Avenue, Suite 4100, Dallas, Texas 75201, or at such other
place as Patriot shall designate by written notice to Seller given at least five
days prior to the Closing. At the Closing, Patriot shall deliver the Purchase
Price to Escrow Agent, Escrow Agent shall return the Deposit to Patriot and
update the title to the Property, Escrow Agent shall record the Deed, release
and date, where appropriate, the Closing Documents in accordance with the joint
instructions of Seller and Patriot and shall send, by wire transfer, all sums
owing to Seller hereunder to Seller. As provided herein, the parties hereto
will agree upon adjustments and prorations to certain items which cannot be
exactly determined at the Closing and will make the appropriate adjustments with
respect thereto. Possession of the Property shall be delivered to Patriot at
the Closing, subject only to Permitted Title Exceptions and the rights of
tenants under the Occupancy Agreements and guests in possession.
8.2 Seller's Deliveries. At the Closing, Seller shall deliver, if not
-------------------
previously delivered by Seller pursuant to the terms hereof, to Escrow Agent all
of the following instruments, each of which, where applicable, shall have been
duly executed and, where applicable, acknowledged and/or sworn on behalf of
Seller and shall be dated as of the Closing Date:
(a) The Deed.
(b) The Bill of Sale - Personal Property.
(c) The Assignment and Assumption Agreement to Patriot and/or its
property manager, lessee or other designee (as Patriot shall specify).
(d) The Assignment of Occupancy Agreements together with an estoppel
letter from each of the tenants and concessionaires of Occupancy Agreements
being assigned thereunder (1) identifying each such Occupancy Agreement and
amendments or addenda thereto, or modifications thereof, by which each such
tenant or concessionaire occupies its premises, (2) certifying that there are no
further amendments or modifications thereof, (3) setting forth the amount of
security deposit, if any, (4) certifying that, so far as is known to such tenant
or concessionaire, Seller is not in default under the terms, conditions and
provisions of such Occupancy Agreements, (5) certifying that the tenant or
concessionaire is not due any rebates, offsets or other monies or things of
value thereunder, and (6) certifying as to the status of the rent and concession
payments as of the date of such Occupancy Agreement; provided, however, that if
any tenant refuses to execute an estoppel certificate, Patriot agrees to accept
in lieu thereof, a certificate of Seller as to such matters, qualified to
Seller's knowledge.
(e) Intentionally Deleted.
<PAGE>
(f) To the extent reasonably available, certificates from the
applicable State taxing authority and local taxing authorities stating that all
occupancy and sales taxes due and payable for the Property have been paid and,
if any such taxes have not been paid, the amount due and payable as of the
Closing Date.
(g) Certificate(s)/Registration of Title for any vehicle owned by
Seller and used in connection with the Property.
(h) Such agreements, affidavits or other documents as may be required
by the Title Company to issue the Owner's Title Policy subject only to the
Permitted Title Exceptions and to eliminate such standard exceptions and to
issue such endorsements thereto which may be eliminated and issued under
applicable State law and which are customarily required by institutional
investors purchasing property comparable to the Property.
(i) The FIRPTA Certificate.
(j) All original Warranties and Guaranties in Seller's possession or
reasonably available to Seller.
(k) Either (1) appropriate resolutions of the partners of Seller,
together with all other necessary approvals and consents of Seller and such
documentary and other evidence as may be reasonably required by Escrow Agent,
authorizing and evidencing the authorization of (i) the execution on behalf of
Seller of this Agreement and the authority of the person or persons who are
executing the various documents to be executed and delivered by Seller prior to,
at or otherwise in connection with the Closing, and (ii) the performance by
Seller of its obligations hereunder and under such documents, or (2) a legal
opinion of Seller's counsel covering all such matters.
(l) A valid, final and unconditional certificate of occupancy for the
Real Property and Improvements, issued by the appropriate Governmental
Authority.
(m) If Patriot is assuming Seller's obligations under any or all of
the Operating Agreements, the originals of such agreements, and with respect to
the material Operating Agreements, consent to the assignment thereof
acknowledged and approved by the other parties to such Operating Agreements to
the extent required by such Operating Agreements.
(n) With respect to the material Personal Property Leases, (1) the
written consent of the lessors of such leases to such assignment, if required by
such Personal Property Leases, and (2) executed originals of all such leases in
Seller's possession or reasonably available to Seller. If any Leased Property
is leased pursuant to a lease which is a capital lease, in accordance with
generally accepted accounting principles, and is not listed on Schedule 6
----------
hereto, Seller shall cancel such capital lease at its expense and convey good
and marketable title to such property (which shall constitute Tangible Personal
Property hereunder) to Patriot free from any lien or encumbrance pursuant to the
Bill of Sale - Personal Property.
<PAGE>
(o) The written consent of, or a comfort letter from, Manager or the
appropriate affiliate of Manager or Lessee, in the form of Exhibit D hereto.
---------
(p) Copies of all existing Insurance Policies if same are assumed by
Patriot.
(q) To the extent in Seller's possession or reasonably available to
Seller, originals of the following items (which shall be deemed delivered by
Seller under this Section 8.2 if delivered to the property manager at the
-----------
Hotel): (1) complete sets of all architectural, mechanical, structural and/or
electrical plans and specifications used in connection with the construction of
or alterations or repairs to the Property; and (2) as-built plans and
specifications for the Property.
(r) To the extent assignable, a written instrument executed by Seller,
conveying and transferring to Patriot all of Seller's right, title and interest
in any telephone numbers and TWX numbers relating to the Property, and, if
Seller maintains a post office box, conveying to Patriot all of its interest in
and to such post office box and the number associated therewith, so as to assure
a continuity in operation and communication.
(s) Duplicate originals of all agreements, leases, concession
agreements and other instruments affecting the Property and the Hotel and/or
restaurant business conducted thereon.
(t) All current real estate and personal property tax bills in
Seller's possession or under its control.
(u) If available, by delivery to the property manager at the Hotel, a
complete set of all guest registration cards, guest transcripts, guest
histories, and all other available guest information.
(v) A complete list of all advance room reservations, functions and
the like, in reasonable detail so as to enable Patriot to honor Seller's
commitments in that regard.
(w) A list of Seller's outstanding accounts receivable as of midnight
on the date prior to the Closing, specifying the name of each account and the
amount due Seller (which items shall be deemed delivered by Seller if delivered
to property manager of the Hotel).
(x) All books, records, operating reports, appraisal reports, files
and other materials in Seller's possession or control which are necessary in
Patriot's discretion to maintain continuity of operation of the Property (which
items shall be deemed delivered by Seller under this Section 8.2 if delivered to
-----------
the property manager at the Hotel).
(y) A current UCC Report showing no financing statements by Seller as
Debtor covering the Property.
(z) Executed originals of all Occupancy Agreements and, to the extent
available, Authorizations transferred or assigned to Patriot at Closing as
required hereunder
<PAGE>
(which items shall be deemed delivered by Seller under this Section 8.2 is
-----------
delivered to the property manager at the Hotel).
(aa) An opinion from Seller's counsel stating that Seller has duly
authorized, executed and delivered to Patriot this Agreement and all of the
conveyance documents to be delivered by Seller hereunder.
(bb) Any other document or instrument reasonably requested by Patriot
or required hereby.
8.3 Patriot's Deliveries.
--------------------
(a) At the Closing, Patriot shall deliver to Escrow Agent the portion
of the Purchase Price described in Section 2.2 hereof.
-----------
(b) At the Closing, Patriot shall deliver to Seller any other
document or instrument reasonably requested by Seller or required hereby.
(c) Any other document or instrument reasonably required by Patriot
or required hereby.
8.4 Mutual Deliveries. At the Closing, Patriot and Seller shall mutually
-----------------
execute and deliver each to the other:
(a) A final closing statement reflecting the Purchase Price and the
adjustments and prorations required hereunder and the allocation of income and
expenses required hereby.
(b) Such other documents, instruments and undertakings as may be
required by the liquor authorities of the State where the Property is located,
or of any county or municipality or governmental entity having jurisdiction with
respect to the transfer or issue of liquor licenses or alcoholic beverage
licenses or permits for the Hotel, to the extent not theretofore executed and
delivered.
(c) The Lease.
(d) Such other and further documents, papers and instruments as may
be reasonably required by the parties hereto or their respective counsel.
8.5 Closing Costs. Except as is explicitly provided in this Agreement,
-------------
each party hereto shall pay its own legal fees and expenses. All filing fees
for the Deed and the transfer, recording, sales or other similar taxes and
surtaxes due with respect to the transfer of title shall be paid by Seller.
Seller shall pay for the costs associated with the releases of any deeds of
trust, mortgages and other financing encumbering the Property and for any costs
associated with any corrective instruments. Seller shall pay all costs for
title searches and all premiums for the issuance of the Title Policy and all
endorsements (other than a zoning endorsement) thereto and deletions therefrom
which are customarily required by institutional investors purchasing property
<PAGE>
comparable to the Property. Patriot shall pay all other costs (except any costs
incurred by Seller for its own account) in carrying out the transactions
contemplated hereunder.
8.6 Revenue and Expense Allocations. All revenues and expenses with
-------------------------------
respect to the Property, and applicable to the period of time before and after
Closing, determined in accordance with sound accounting principles consistently
applied, shall be allocated between Seller and Patriot as provided herein.
Seller shall be entitled to all revenue and shall be responsible for all
expenses for the period of time up to but not including the date of Closing, and
Patriot shall be entitled to all revenue and shall be responsible for all
expenses for the period of time from, after and including the date of Closing
(provided that housekeeping costs and the Rooms Ledger for the date of Closing
shall be shared equally between Patriot and Seller). Such adjustments shall be
shown on the closing statements (with such supporting documentation as the
parties hereto may require being attached as exhibits to the closing statements)
and shall increase or decrease (as the case may be) the cash amount payable by
Patriot pursuant to Section 2.2 hereof. Without limiting the generality of the
-----------
foregoing, the following items of revenue and expense shall be allocated at
Closing:
(a) Current rents.
(b) Real estate and personal property taxes (which shall be prorated
as of the Closing Date by the fiscal year method).
(c) Revenue and expenses under the Operating Agreements to be assigned
to and assumed by Patriot.
(d) Utility charges (including, but not limited to, charges for water,
sewer and electricity).
(e) Value of fuel stored on the Property at the price paid for such
fuel by Seller, including any taxes.
(f) Municipal or other governmental improvement liens, which shall be
paid by Seller at Closing where the work has physically commenced (including
future installments), and which shall be assumed by Patriot at Closing where the
work has been authorized, but not physically commenced.
(g) Insurance premiums, to the extent the Insurance Policies are
assumed by Patriot.
(h) Permit fees, where transferable.
(i) All other revenues and expenses of the Property, including, but
not limited to, such things as restaurant, bar and meeting room income and
expenses and the like.
(j) Such other items as are usually and customarily prorated between
purchasers and sellers of hotel properties in the area where the Property is
located.
<PAGE>
Patriot shall retain and receive a credit against the Purchase Price for the
total of (i) prepaid rents, (ii) prepaid room receipts and deposits, function
receipts and deposits and other reservation receipts and deposits, (iii)
unforfeited security deposits together with interest thereon held by Seller
under the Occupancy Agreements, and (iv) the value of any complimentary rooms
(based upon the "rack" rate for each room) and any complimentary food or
beverages (based upon the advertised rate for each food and beverage) provided
by Seller from and after 12:01 a.m. on the Closing Date. At Closing, Seller
shall sell to Patriot in connection with the Hotel, and Patriot shall purchase
from Seller, at face value the so-called "guest ledger" as mutually approved by
Patriot and Seller for the Hotel of guest accounts receivable payable to the
Hotel as of the check out time for the Hotel on the Closing Date (based on
guests and customers then using the Hotel) both (1) in occupancy from the
preceding night through check out time the morning of the Closing Date, and (2)
previously in occupancy prior to check out time on the Closing Date; provided,
however, that the term "guest ledger" shall not include any accounts receivable
which have been or are to be paid by any means other than a credit card.
Patriot shall not be obligated to purchase such non-credit card accounts
receivable, and Seller shall retain all rights with respect thereto (including,
without limitation, the right to collect same). For purposes of this Agreement,
transfer or sale at face value shall have the following meaning for the guest
ledger: the total of all credit card accounts receivable as shown on the records
of the Hotel, less actual collection costs (i.e., fees retained by credit card
companies), less accounting charges for rooms furnished on a gratuity or
complimentary basis to any hotel staff or as an accommodation to other parties
and less Patriot's one-half (1/2) share of the Rooms Ledger. The purchase
price of said guest ledger, as determined above, shall be paid to Seller
at Closing by a credit to Seller in the computation of the adjustments and
prorations on the Closing Date.
Seller shall pay or cause to be paid all real estate taxes and special
assessments for the Property due and payable in, or deferred with respect to the
years prior to, the year in which the Closing occurs. All special assessments
pending, levied or due and payable on or prior to the Closing Date shall be paid
by Seller on or before the Closing Date. All subdivision and platting costs and
expenses heretofore incurred by Seller, including, without limitation, all
subdivision exactions, fees and costs and all dedication of land for parks and
other public uses or payment of fees in lieu thereof, shall be paid by Seller on
or prior to the Closing Date.
Seller shall be required to pay all sales, occupancy and liquor taxes and like
impositions currently through the date of Closing and if reasonably available,
deliver evidence of payment of same to Patriot.
Patriot shall not be obligated to collect any delinquent rents, or revenues
accrued prior to the Closing Date for Seller, but if Patriot collects same, such
amounts shall be promptly remitted to Seller in the form received.
If accurate allocations cannot be made at Closing because current bills are not
obtainable (as, for example, in the case of utility bills and/or real estate or
personal property taxes) or appeals are pending, the parties shall allocate such
revenue or expenses at Closing on the best available information, subject to
adjustment upon receipt of the final bill or other evidence of the applicable
revenue or expense. The obligation to make the adjustment shall survive the
closing of the transaction contemplated by this Agreement. Any revenue received
or expense incurred by Seller
<PAGE>
or Patriot with respect to the Property after the date of Closing shall be
promptly allocated in the manner described herein and the parties shall
promptly pay or reimburse any amount due. The proration provisions of this
Agreement shall survive the Closing of the transaction contemplated hereby for a
period of twelve (12) months.
ARTICLE IX
----------
GENERAL PROVISIONS
------------------
9.1 Condemnation. In the event of any actual or threatened taking,
------------
pursuant to the power of eminent domain, of all or any portion of the Real
Property, or any proposed sale in lieu thereof, Seller shall give written notice
thereof to Patriot promptly after Seller learns or receives notice thereof. If
all or a Substantial Portion (as hereinafter defined) of the Real Property is,
or is to be, so condemned or sold, Patriot shall have the right to terminate
this Agreement pursuant to Section 10.4 hereof. If Patriot elects not to
------------
terminate this Agreement, all proceeds, awards and other payments arising out of
such condemnation or sale (actual or threatened) shall be paid or assigned, as
applicable, to Patriot at Closing. Seller shall not settle or compromise any
such proceeding without Patriot's written consent. If Patriot elects to
terminate this Agreement by giving Seller written notice thereof prior to the
Closing, the Deposit shall be promptly returned to Patriot and all rights and
obligations of Seller and Patriot hereunder (except those set forth herein which
expressly survive a termination of this Agreement) shall terminate immediately.
In the event any portion of the Real Property is affected by a condemnation,
sale or eminent domain action and such condemnation, sale or eminent domain
action does not constitute a Substantial Portion of the Real Property, this
Agreement shall remain in full force and effect without a reduction in the
Purchase Price except as provided below. In the event of any such condemnation,
sale or eminent domain action that does not constitute a Substantial Portion of
the Real Property, Patriot shall be entitled to any and all claims that Seller
may have to condemnation awards or any and all causes of action with respect to
such condemnation, sale or eminent domain action (all of which shall be assigned
by Seller to Patriot at Closing), and Seller shall credit to Patriot at Closing,
by an appropriate adjustment to the Purchase Price, an amount equal to all
payments (if any) theretofore received by Seller with respect to such
condemnation, sale or eminent domain action. For purposes of this Section 9.1, a
-----------
"Substantial Portion" shall mean a condemnation of in excess of $125,000.00 in
-------------------
value of the Real Property. This provision shall survive the Closing of the
transaction contemplated hereby.
9.2 Risk of Loss. The risk of any loss or damage to the Property prior to
------------
the recordation of the Deed shall remain upon Seller. If any such loss or
damage which constitutes Substantial Loss or Damage occurs prior to Closing,
Patriot shall have the right to terminate this Agreement pursuant to Section
-------
10.4 hereof. If Patriot elects not to terminate this Agreement, all insurance
- ----
proceeds and rights to proceeds arising out of such loss or damage shall be paid
or assigned, as applicable, to Patriot at Closing and Patriot shall receive as a
credit against the Purchase Price the amount of any deductibles under the
policies of insurance covering such loss or damage. If Patriot elects to
terminate this Agreement by giving Seller written notice thereof prior to the
Closing, the Deposit shall be promptly returned to Patriot and all rights and
obligations of Seller and Patriot hereunder (except those set forth herein which
expressly survive a termination of this Agreement) shall terminate immediately.
In the event any of the Property
<PAGE>
or any of the items constituting the Personal Property should be damaged or
destroyed as a result of fire or other casualty and such damage does not
constitute Substantial Loss or Damage and such damage is not repaired prior to
Closing, the rights and obligations of Seller and Patriot hereunder with respect
to the Property shall not be affected by such destruction or damage and Patriot
shall accept title to the Property in its destroyed or damaged condition. In
such event, at the Closing, Patriot shall receive a credit against the Purchase
Price equal to the amount of damage to the Property resulting from such loss or
damage. For purposes of this Section 9.2, "Substantial Loss or Damage" shall
----------- --------------------------
mean loss or damage, the cost for repair of which (as mutually determined by
Patriot and Seller at the time of such loss or damage) exceeds $125,000.00. In
the event that Patriot and Seller are unable to agree on the cost of repair of
any Substantial Loss or Damage, then such cost of repair shall be determined by
an insurance adjuster selected by Seller and approved by Patriot, such approval
not to be unreasonably withheld. This provision shall survive the Closing of the
transaction contemplated hereby.
9.3 Absence of Broker. There is no real estate broker involved in this
-----------------
transaction. Patriot warrants and represents to Seller that Patriot has not
dealt with any real estate broker in connection with this transaction, nor has
Patriot been introduced to the Property or to Seller by any real estate broker,
and Patriot shall indemnify Seller and save and hold Seller harmless from and
against any claims, suits, demands or liabilities of any kind or nature
whatsoever arising on account of the claim of any person, firm or corporation to
a real estate brokerage commission or a finder's fee as a result of having dealt
with Patriot, or as a result of having introduced Patriot to Seller or to the
Property. In like manner, Seller warrants and represents to Patriot that Seller
has not dealt with any real estate broker in connection with this transaction,
nor has Seller been introduced to Patriot by any real estate broker, and Seller
shall indemnify Patriot and save and hold Patriot harmless from and against any
claims, suits, demands or liabilities of any kind or nature whatsoever arising
on account of the claim of any person, firm or corporation to a real estate
brokerage commission or a finder's fee as a result of having dealt with Seller
in connection with this transaction.
9.4 Bulk Sale. Seller shall indemnify Patriot and save and hold Patriot
---------
harmless from and against any claims, suits, demands, liabilities or obligations
of any kind or nature whatsoever, including all costs of defending same, and
reasonable attorneys' fees paid or incurred in connection therewith, arising out
of or relating to any claim made by any third party or any liability asserted by
any third party that any applicable bulk sales law or like statute has not been
complied with. The provisions of this Section shall survive the Closing of the
transaction contemplated hereby.
9.5 Confidentiality. Except as hereinafter provided, from and after the
---------------
execution of this Agreement, Patriot and Seller shall keep the terms, conditions
and provisions of this Agreement confidential and neither shall make any public
announcements hereof unless the other first approves of same in writing, nor
shall either disclose the terms, conditions and provisions hereof, except to
persons who "need to know", such as their respective officers, directors,
employees, attorneys, accountants, engineers, surveyors, consultants,
financiers, partners, investors, potential lessees and bankers and such other
third parties whose assistance is required in connection with the consummation
of this transaction. Notwithstanding the foregoing, it is acknowledged that
Patriot is, or is an affiliate of, a real estate investment trust (the "REIT")
----
and
<PAGE>
the REIT has and will seek to sell shares to the general public; consequently,
Patriot shall have the absolute and unbridled right to disclose any information
regarding the transaction contemplated by this Agreement required by law or as
determined to be necessary or appropriate by Patriot or Patriot's attorneys to
satisfy disclosure and reporting obligations of Patriot or its affiliates under
applicable law. After Closing, Patriot shall be free to disclose previously
confidential information in its sole, unfettered discretion; provided, however,
neither Seller nor Patriot shall issue any press release regarding the
transaction contemplated hereby for the period which is fourteen (14) days
following the Closing Date without the consent of the other party.
9.6 Seller's Accounts Receivable. It is expressly agreed by and between
----------------------------
Patriot and Seller that Seller is not hereby agreeing to sell to Patriot, and
Patriot is not hereby agreeing to purchase from Seller, any of Seller's accounts
receivable. All of Seller's accounts receivable shall be and remain the
property of Seller, subsequent to the Closing of the transaction contemplated
hereby. At the Closing, Seller shall prepare a list of its outstanding accounts
receivable as of midnight on the date prior to the Closing, specifying the name
of each account and the amount due to Seller. Patriot shall hold any funds
received by Patriot explicitly designated as payment of such accounts
receivable, in trust, if Patriot actually collects any such amounts, and shall
pay the monies collected in respect thereof to Seller at the end of each
calendar month, accompanied by a statement showing the amount collected on each
such account. Other than the foregoing, Patriot shall have no obligation with
respect to any such account, and Patriot shall not be required to take any legal
proceeding or action to effect collection on behalf of Seller. It is generally
the intention of Patriot and Seller that although all of Seller's accounts
receivable shall be and remain the property of Seller, still, if any such
accounts are paid to Patriot, then Patriot shall collect same and remit to
Seller in the manner above provided. Nothing herein contained shall be construed
as requiring Patriot to remit to Seller any funds collected by Patriot on
account of Patriot's accounts receivable generated from Hotel operations, even
if the person or entity paying same is also indebted to Seller. Seller agrees
that it shall not bring any legal action to enforce collection of payment of any
accounts receivable against any current tenant of the Property or other third
party in a contractual or business relationship with the Property as of the
Closing Date.
ARTICLE X
---------
LIABILITY OF PATRIOT;
---------------------
INDEMNIFICATION BY SELLER; DEFAULT; TERMINATION RIGHTS
------------------------------------------------------
10.1 Liability of Patriot. Except for obligations expressly assumed or
--------------------
agreed to be assumed by Patriot hereunder, Patriot is not assuming any
obligations of Seller or any liability for claims arising out of any act,
omission or occurrence which occurs, accrues or arises prior to the Closing
Date, and Seller hereby indemnifies and holds Patriot harmless from and against
any and all claims, costs, penalties, damages, losses, liabilities and expenses
(including reasonable attorneys' fees) that may at any time be incurred by
Patriot and its affiliates as a result of (1) obligations of Seller not
expressly assumed or agreed to be assumed by Patriot hereunder, or (2) acts,
omissions or occurrences which occur, accrue or arise prior to the Closing Date.
Patriot hereby indemnifies and holds Seller harmless from and against any and
all claims, costs, penalties, damages, losses, liabilities and expenses
(including reasonable attorneys' fees) that may at any time be incurred by
Seller as a result of acts, omissions or occurrences relating to the Property
<PAGE>
arising and accruing from and after the Closing Date. The provisions of this
Section shall survive the Closing of the transaction contemplated hereby.
10.2 Indemnification by Seller. Seller hereby indemnifies and holds Patriot
-------------------------
harmless from and against any and all claims, costs, penalties, damages, losses,
liabilities and expenses (including reasonable attorneys' fees) that may at any
time be incurred by Patriot, whether before or after Closing, as a result of any
inaccuracy or breach by Seller of any of its representations, warranties,
covenants or obligations set forth herein or in any other document delivered by
Seller pursuant hereto except for any breach or inaccuracy of any representation
or warranty as to which Seller has given Patriot written notice prior to Closing
of the untruth or inaccuracy or of which Patriot otherwise had actual knowledge
prior to the Closing and nevertheless elected to consummate the Closing;
provided, however, the foregoing knowledge limitation on Seller's indemnity
shall not limit Patriot's remedy described in Section 10.4(a)(ii) hereof. The
-------------------
provisions of this Section shall survive the Closing of the transaction
contemplated hereby.
10.3 Indemnification by Patriot. Patriot hereby indemnifies and holds
--------------------------
Seller harmless from and against any and all claims, costs, penalties, damages,
losses, liabilities and expenses (including reasonable attorneys' fees) that may
at any time be incurred by Seller, whether before or after Closing, as a result
of any inaccuracy or breach by Patriot of any of its representations,
warranties, covenants or obligations set forth herein or in any other document
delivered by Patriot to Seller pursuant hereto except for any breach or
inaccuracy of any representation or warranty as to which Patriot has given
Seller written notice prior to Closing of the untruth or inaccuracy or of which
Seller otherwise had actual knowledge prior to the Closing and nevertheless
elected to consummate the Closing. The provisions of this Section shall survive
the Closing of the transaction contemplated hereby.
10.4 Default by Seller/Failure of Conditions Precedent. If any condition
-------------------------------------------------
set forth herein for the benefit of Patriot cannot or will not be satisfied
prior to Closing (other than due to a default by Patriot), or upon the
occurrence of any other event that would entitle Patriot to terminate this
Agreement and its obligations hereunder, and if Seller fails to cure any such
matter or satisfy that condition within ten (10) business days after notice
thereof from Patriot (or such other time period as may be explicitly provided
for herein), Patriot, at its option, may elect (a) to terminate this Agreement,
in which event (i) the Deposit shall be promptly returned to Patriot, (ii) if
the condition which has not been satisfied is a breach of a representation,
warranty or covenant, then Seller shall be obligated upon demand to reimburse
Patriot for Patriot's actual out-of-pocket inspection, financing and other costs
related to Patriot's entering into this Agreement, inspecting the Property and
preparing for a Closing of the transaction contemplated hereby, including,
without limitation, Patriot's attorneys' fees incurred in connection with the
preparation, negotiation and execution of this Agreement, in connection with
Patriot's due diligence review, audits and preparation for a Closing up to an
aggregate amount of $750,000.00, said amount being the aggregate limitation for
the foregoing costs and expenses for the Hotel and the Other Properties;
provided, however, the foregoing shall not limit or include the sums which may
be payable by Seller pursuant to Section 10.6, and (iii) all other rights and
------------
obligations of Seller and Patriot hereunder (except those set forth herein which
expressly survive a termination of this Agreement) shall terminate immediately;
or (b) elect to proceed to Closing. If Patriot elects to proceed to Closing and
there is either a misrepresentation or breach of a warranty by Seller (other
<PAGE>
than a breach of a representation or warranty of which Patriot had actual
knowledge prior to the Closing and nevertheless elected to consummate the
Closing) or the breach of a covenant by Seller or a failure by Seller to perform
its obligations hereunder, Patriot shall retain all remedies accruing as a
result thereof, including, but not limited to the remedy of specific performance
of Seller's covenants and obligations and the remedy of the recovery of all
reasonable damages resulting from Seller's breach of warranty or covenant.
10.5 Default by Patriot/Failure of Conditions Precedent. If any condition
--------------------------------------------------
set forth herein for the benefit of Seller (other than a default by Patriot)
cannot or will not be satisfied prior to Closing, and if Patriot fails to
satisfy that condition within ten (10) business days after notice thereof from
Seller (or such other time period as may be explicitly provided for herein),
Seller may, at its option, elect either (a) to terminate this Agreement in which
event the Deposit shall be promptly returned to Patriot and the parties hereto
shall be released from all further obligations hereunder except those which
expressly survive a termination of this Agreement, or (b) to waive its right to
terminate, and instead, to proceed to Closing. If, prior to Closing, Patriot
defaults in performing any of its obligations under this Agreement (including
its obligation to purchase the Property), and Patriot fails to cure any such
default within ten (10) business days after notice thereof from Seller, then
Seller's sole and exclusive remedy for such default shall be to terminate this
Agreement and retain the Deposit. Seller and Patriot agree that, in the event
of such a default, the damages that Seller would sustain as a result thereof
would be difficult if not impossible to ascertain. Therefore, Seller and
Patriot agree that, Seller shall retain the Deposit as full and complete
liquidated damages and as Seller's sole remedy.
10.6 Costs and Attorneys' Fees. In the event of any litigation or dispute
-------------------------
between the parties arising out of or in any way connected with this Agreement,
resulting in any litigation, then the prevailing party in such litigation shall
be entitled to recover its costs of prosecuting and/or defending same,
including, without limitation, reasonable attorneys' fees at trial and all
appellate levels. The provisions of this Section shall survive the Closing of
the transaction contemplated hereby.
10.7 Limitation of Liability. Notwithstanding anything herein to the
-----------------------
contrary, except in the case of fraud by either party, the liability of each
party hereto resulting from the breach or default by either party or pursuant to
any indemnity provided for in this Agreement shall be limited to actual damages
incurred by the injured party and except in the case of fraud by either party,
the parties hereto hereby waive their rights to recover from the other party
consequential, punitive, exemplary, and speculative damages. The provisions of
this Section 10.7 shall survive the Closing of the transaction contemplated
------------
hereby.
ARTICLE XI
----------
MISCELLANEOUS PROVISIONS
------------------------
11.1 Completeness; Modification. This Agreement constitutes the entire
--------------------------
agreement between the parties hereto with respect to the transactions
contemplated hereby and supersedes all prior discussions, understandings,
agreements and negotiations between the parties hereto. This Agreement may be
modified only by a written instrument duly executed by the parties hereto.
<PAGE>
11.2 Assignments. Patriot may assign its rights hereunder to an Affiliated
-----------
Company of Purchase, including, without limitation, Patriot American Hospitality
Partnership, L.P., without the consent of Seller; however, any such assignment
shall not relieve Patriot of its obligations under this Agreement.
11.3 Successors and Assigns. This Agreement shall bind and inure to the
----------------------
benefit of the parties hereto and their respective successors and assigns.
11.4 Days. If any action is required to be performed, or if any notice,
----
consent or other communication is given, on a day that is a Saturday or Sunday
or a legal holiday in the jurisdiction in which the action is required to be
performed or in which is located the intended recipient of such notice, consent
or other communication, such performance shall be deemed to be required, and
such notice, consent or other communication shall be deemed to be given, on the
first business day following such Saturday, Sunday or legal holiday. Unless
otherwise specified herein, all references herein to a "day" or "days" shall
refer to calendar days and not business days.
11.5 Governing Law. This Agreement and all documents referred to herein
-------------
shall be governed by and construed and interpreted in accordance with the laws
of the State where the Land is located.
11.6 Counterparts. To facilitate execution, this Agreement may be executed
------------
in as many counterparts as may be required. It shall not be necessary that the
signature on behalf of both parties hereto appear on each counterpart hereof.
All counterparts hereof shall collectively constitute a single agreement.
11.7 Severability. If any term, covenant or condition of this Agreement,
------------
or the application thereof to any person or circumstance, shall to any extent be
invalid or unenforceable, the remainder of this Agreement, or the application of
such term, covenant or condition to other persons or circumstances, shall not be
affected thereby, and each term, covenant or condition of this Agreement shall
be valid and enforceable to the fullest extent permitted by law.
11.8 Costs. Regardless of whether Closing occurs hereunder, and except as
-----
otherwise expressly provided herein, each party hereto shall be responsible for
its own costs in connection with this Agreement and the transactions
contemplated hereby, including, without limitation, fees of attorneys, engineers
and accountants.
11.9 Notices. All notices, requests, demands and other communications
-------
hereunder shall be in writing and shall be delivered by hand, transmitted by
facsimile transmission, sent prepaid by Federal Express (or a comparable
overnight delivery service) or sent by the United States mail, certified,
postage prepaid, return receipt requested, at the addresses and with such copies
as designated below. Any notice, request, demand or other communication
delivered or sent in the manner aforesaid shall be deemed given or made (as the
case may be) when actually delivered to the intended recipient.
<PAGE>
If to Seller: Novi Garden Hotel Associates
c/o Crow Family Holdings
3200 Trammell Crow Center
2001 Ross Avenue
Dallas, Texas 75201
Attn: Sue Groenteman
With a copy to: Locke Purnell Rain Harrell
2200 Ross Avenue, Suite 2200
Dallas, Texas 75201-6776
Attn: Janis H. Loegering
If to Patriot: PAH Acquisition Corporation
c/o Patriot American Hospitality, Inc.
3030 LBJ Freeway, Suite 1500
Dallas, Texas 75234
Attn: Thomas W. Lattin, President
With a copy to: Akin, Gump, Strauss, Hauer & Feld, L.L.P.
1700 Pacific Avenue, Suite 4100
Dallas, Texas 75201
Attn: Carl B. Lee, P.C. and Randall M. Ratner, P.C.
If to Escrow Agent: Unity Title Company
717 North Harwood Street
2610 Maxus Energy Tower
Dallas, Texas 75201
Attn: G. Timothy Hardin
or to such other address as the intended recipient may have specified in a
notice to the other party. Any party hereto may change its address or designate
different or other persons or entities to receive copies by notifying the other
party and Escrow Agent in a manner described in this Section.
11.10 Escrow Agent. Escrow Agent referred to in the definition thereof
------------
contained in Section 1.1 hereof has agreed to act as such for the convenience of
-----------
the parties without fee or other charges for such services as Escrow Agent.
Escrow Agent shall not be liable: (a) to any of the parties for any act or
omission to act except for its own willful misconduct; (b) for any legal effect,
insufficiency, or undesirability of any instrument deposited with or delivered
by Escrow Agent or exchanged by the parties hereunder, whether or not Escrow
Agent prepared such instrument; (c) for any loss or impairment of funds that
have been deposited in escrow while those funds are in the course of collection,
or while those funds are on deposit in a financial institution, if such loss or
impairment results from the failure, insolvency or suspension of a financial
institution; (d) for the expiration of any time limit or other consequence of
delay, unless a properly executed written instruction, accepted by Escrow Agent,
has instructed Escrow Agent
<PAGE>
to comply with said time limit; (e) for the default, error, action or omission
of either party to the escrow. Escrow Agent, in its capacity as escrow agent,
shall be entitled to rely on any document or paper received by it, believed by
such Escrow Agent, in good faith, to be bona fide and genuine. In the event of
any dispute as to the disposition of the Deposit, the Deposit or any other
monies held in escrow, or of any documents held in escrow, Escrow Agent may, if
such Escrow Agent so elects, interplead the matter by filing an interpleader
action in a court of general jurisdiction in the county or circuit where the
Real Property is located (to the jurisdiction of which both parties do hereby
consent), and pay into the registry of the court the Deposit, or deposit any
such documents with respect to which there is a dispute in the Registry of such
court, whereupon such Escrow Agent shall be relieved and released from any
further liability as Escrow Agent hereunder. Escrow Agent shall not be liable
for Escrow Agent's compliance with any legal process, subpoena, writ, order,
judgment and decree of any court, whether issued with or without jurisdiction,
and whether or not subsequently vacated, modified, set aside or reversed.
11.11 Incorporation by Reference. All of the exhibits attached hereto are
--------------------------
by this reference incorporated herein and made a part hereof.
11.12 Survival. All of the representations, warranties, covenants and
--------
agreements of Seller and Patriot made in, or pursuant to, this Agreement shall
survive Closing for a period of twelve (12) months and shall not merge into the
Deed or any other document or instrument executed and delivered in connection
herewith.
11.13 Further Assurances. Seller and Patriot each covenant and agree to
------------------
sign, execute and deliver, or cause to be signed, executed and delivered, and to
do or make, or cause to be done or made, upon the written request of the other
party, any and all agreements, instruments, papers, deeds, acts or things,
supplemental, confirmatory or otherwise, as may be reasonably required by either
party hereto for the purpose of or in connection with consummating the
transactions described herein.
11.14 No Partnership. This Agreement does not and shall not be construed
--------------
to create a partnership, joint venture or any other relationship between the
parties hereto except the relationship of Seller and Patriot specifically
established hereby.
11.15 Time of Essence. Time is of the essence with respect to every
---------------
provision hereof.
11.16 Signatory Exculpation. The signatory(ies) for Patriot and Seller
---------------------
is/are executing this Agreement in his/their capacity as representative of
Patriot or Seller, as the case may be, and not individually and, therefore,
shall have no personal or individual liability of any kind in connection with
this Agreement and the transactions contemplated by it.
11.17 Rules of Construction. The following rules shall apply to the
---------------------
construction and interpretation of this Agreement:
(a) Singular words shall connote the plural number as well as the
singular and vice versa, and the masculine shall include the feminine and the
neuter.
<PAGE>
(b) All references herein to particular articles, sections,
subsections, clauses or exhibits are references to articles, sections,
subsections, clauses or exhibits of this Agreement.
(c) The table of contents and headings contained herein are solely for
convenience of reference and shall not constitute a part of this Agreement nor
shall they affect its meaning, construction or effect.
(d) Each party hereto and its counsel have reviewed and revised (or
requested revisions of) this Agreement and have participated in the preparation
of this Agreement, and therefore any usual rules of construction requiring that
ambiguities are to be resolved against a particular party shall not be
applicable in the construction and interpretation of this Agreement or any
exhibits hereto.
IN WITNESS WHEREOF, Seller and Patriot have caused this Agreement to be
executed in their names by their respective duly authorized representatives.
PATRIOT:
-------
PAH ACQUISITION CORPORATION, a Virginia
corporation
By:
-------------------------------------
Name: Michael D. Murphy
Title: Senior Vice President
Date of Execution: July ___, 1996
<PAGE>
SELLER:
------
NOVI GARDEN HOTEL ASSOCIATES, a Texas general
partnership
By: Novi Garden Hotel Partners Limited
Partnership, its general partner
By: Novi Garden Hotel Corporation, its
general partner
By:
-------------------------------
Name:
-----------------------------
Title:
----------------------------
Date of Execution: July ___, 1996
<PAGE>
RECEIPT OF ESCROW AGENT
-----------------------
Unity Title Company, as Escrow Agent, acknowledges receipt of the Deposit
from Patriot as described in Section 2.3 of the foregoing Agreement of Purchase
-----------
and Sale, said Deposit to be held pursuant to the terms and provisions of said
Agreement.
DATED this ____ day of _______________________ , 1996.
UNITY TITLE COMPANY
By:
----------------------------------
Name:
--------------------------------
Title:
-------------------------------
<PAGE>
EXHIBIT A
---------
LAND
All that lot or parcel of land situated in Oakland County, Michigan, more
particularly described as:
<PAGE>
EXHIBIT B
---------
SURVEYOR'S CERTIFICATE
TO: (NAME OF PATRIOT) AND/OR ASSIGNS, PAINEWEBBER REAL ESTATE SECURITIES, INC.,
WHITE & CASE, UNITY TITLE COMPANY AND COMMONWEALTH LAND TITLE INSURANCE
COMPANY:
The undersigned (the "Surveyor") certifies that:
(a) this survey was made on the ground of the property legally described on the
survey or in an attached legal description prepared by Surveyor this date,
and is correct;
(b) there are no discrepancies, conflicts, shortages in area, boundary line
conflicts, encroachments, protrusions, overlapping of improvements,
easements or roadways except as shown on the survey;
(c) this survey correctly shows the location of all buildings, structures,
fences and improvements situated on the property surveyed and the
footprints of such buildings contain approximately ____ square feet;
(d) the property surveyed has direct access to and from the roadways shown on
the survey, which roadways are dedicated public roadways except as
otherwise shown;
(e) this map or plat and the survey on which it is based were made in
accordance with "minimum standard detail requirements for ALTA/ACSM Land
Title surveys", jointly established and adopted by ALTA and ACSM in 1992
and meets the accuracy requirements of an urban survey, as defined therein,
and incudes items 1-4, and 6-11 and 13 in Table A contained therein and
pursuant to the accuracy Standards (as adopted by ALTA and ACSM and in
effect on the date of this certification) of an Urban Survey;
(f) the property surveyed is located within an area having a zone designation
"____" by the Secretary of Housing and Urban Development, on Flood
Insurance Rate Map No. ____, with a date of identification of _________,
for Community No. _______, County, State of _________, which is the current
flood insurance rate map for the community in which said premises is
situated;
(g) the number of parking spaces located on the property is ___________;
(h) all utility services required for the operation of the property surveyed
either (i) enter the property through adjoining public streets, or (ii) the
survey shows the point of entry and location of any utilities which pass
through or are located on adjoining private land and such utility services
enter the property by way of recorded easements;
(i) the property surveyed is not within any wetlands designated on any maps
prepared by the U.S. Army Corps of Engineers of U.S. Department of Game and
Wildlife, and there are no creeks, streams, water courses, or other bodies
of water on the property except as shown on the survey;
(j) the surveyed property and only the surveyed property constitutes one tax
lot and constitutes a single subdivided lot;
(k) Surveyor has reviewed the title commitment dated __________, G.F. No.
________ relating to the property surveyed prepared by Commonwealth Land
Title Insurance Company; and
(l) the existing zoning, use and density classifications are _____________.
The property surveyed and all improvements on the property comply with all
restrictions of record and land use requirements, including limitations and
other requirements or restrictions as to building and tower height and
location, building and structure coverage and depth, setbacks and
sideyards, below grade parking requirements and elevation of other portions
of the improvements, including loading docks;
(m) the property contains approximately __________ square feet.
-----------------------------------------
[NAME OF SURVEYOR]
<PAGE>
EXHIBIT C
---------
OTHER PROPERTIES
1. 168-Room Wyndham Las Colinas, Irving, Texas
Seller: CLC Limited Partnership
Purchaser: PAH Acquisition Corporation
2. 162-Room Wyndham Wood Dale, Chicago, Illinois
Seller: Wood Dale Garden Hotel Partnership
Purchaser: PAH Acquisition Corporation
<PAGE>
EXHIBIT D
---------
WYNDHAM COMFORT LETTER
July __, 1996
Paine Webber Real Estate Securities Inc.,
its successors, assigns, designees and/or affiliates
1285 Avenue of the Americas, 19th Floor
New York, New York 10019
Patriot American Hospitality Partnership, L.P.,
its successors, assigns, designees and/or affiliates
3030 LBJ Freeway, Suite 1500
Dallas, Texas 75234
Re: Management Agreement by and between and assigned to Crow Hotel Lessee,
Inc., a Texas corporation ("Crow"), as amended pursuant to that
certain Assignment, Assumption and Modification Agreement dated as of
____________, 1996, and Wyndham Management Corporation, a Delaware
corporation ("Wyndham") dated _________________, (as amended and
assigned the "Agreement") in connection with the Hotel
located at _____________________ ("Hotel")
Gentlemen:
Wyndham has entered into the above referenced Agreement pertaining to the
operation of the Hotel as a Wyndham Hotel. Patriot American Hospitality
Partnership, L.P., a Virginia limited partnership ("Patriot"), and Paine Webber
Real Estate Securities Inc. ("Paine Webber") have advised us that Paine Webber
and Patriot have entered, or are about to enter, into a loan agreement whereby
Paine Webber's loan will be secured by a first mortgage on the premises on which
the Hotel is situated. Patriot and Paine Webber have requested that we execute
this letter agreement with respect to Patriot's rights in the Agreement.
Wyndham hereby acknowledges and agrees that in the event that the Lease
Agreement by and between Patriot and Crow dated as of even date herewith (the
"Lease") is terminated for any reason (hereinafter referred to as a "Lease
Termination"), then the Agreement may be assumed by any Successor (hereinafter
defined) provided such Successor shall not have any liability under the
Agreement prior to the date of such assumption by such Successor. As used
herein, the term "Successor" shall mean Patriot, Patriot's designee, Paine
Webber, Paine Webber's designee, or any third party purchaser pursuant to a
foreclosure of the mortgage or other proceeding brought to enforce the rights of
the holder of the mortgage or pursuant to a deed in lieu of foreclosure or by
any other method. If such Successor
<PAGE>
assumes the Agreement, the Hotel will continue to be operated as a Wyndham Hotel
(or as a Wyndham Hotel and Resort, if applicable) with the use of the Wyndham
Hotel and Resort name, logo and other applicable trademarks or trade names,
Wyndham's reservation system, marketing and advertising services and other
services provided by Wyndham Hotel Corporation and its affiliates ("Wyndham
Hotels") to comparable Wyndham hotels for up to four (4) months following the
date of such Lease Termination (the "Temporary Usage"). Successor shall pay to
Wyndham during the period of Temporary Usage (a) the management fees payable to
Wyndham under the Agreement attributable to the period of Temporary Usage and
(b) the fees charged by Wyndham Hotels on a systemwide basis for comparable
hotels operating under the Wyndham name which utilize the Wyndham name and
services of Wyndham Hotels utilized by the Hotel (the "Trade Name Fees'), unless
such termination is due to an Event of Default under the Lease (as such term is
defined in the Lease) in which event no Trade Name Fee would be payable during
the Temporary Usage period. Such Temporary Usage may be terminated by such
Successor on thirty (30) days' notice to Wyndham Hotels.
Sincerely,
WYNDHAM MANAGEMENT CORPORATION
By:
--------------------------------------
Name:
------------------------------------
Title:
-----------------------------------
<PAGE>
SCHEDULE 1
----------
AUTHORIZATIONS
<PAGE>
SCHEDULE 2
----------
Intentionally Deleted
<PAGE>
SCHEDULE 3
----------
OCCUPANCY AGREEMENTS
<PAGE>
SCHEDULE 4
----------
OPERATING AGREEMENTS
<PAGE>
SCHEDULE 5
----------
INTENTIONALLY DELETED
<PAGE>
SCHEDULE 6
----------
PERSONAL PROPERTY LEASES
<PAGE>
EXHIBIT 10.50
<PAGE>
AGREEMENT OF PURCHASE AND SALE
between
PAH ACQUISITION CORPORATION
a Virginia corporation
and
("Patriot")
and
CLC LIMITED PARTNERSHIP,
a Texas limited partnership
("Seller")
<PAGE>
TABLE OF CONTENTS
Page
ARTICLE I DEFINITIONS
1.1 Definitions ................................................. 1
ARTICLE II PURCHASE AND SALE OF PROPERTY; DEPOSIT; PAYMENT OF
PURCHASE PRICE; TITLE
2.1 Purchase and Sale ........................................... 7
2.2 Payment of Purchase Price ................................... 8
2.3 Deposit ..................................................... 8
2.4 Submission Matters and Title Information .................... 8
ARTICLE III SELLER'S REPRESENTATIONS AND WARRANTIES
3.1 Organization and Power ...................................... 11
3.2 Authorization and Execution ................................. 11
3.3 Non-contravention ........................................... 11
3.4 Title To Real Property ...................................... 12
3.5 No Special Taxes ............................................ 12
3.6 Compliance with Existing Laws ............................... 12
3.7 Personal Property ........................................... 12
3.8 Operating Agreements ........................................ 12
3.9 Insurance ................................................... 12
3.10 Condemnation Proceedings; Roadways .......................... 12
3.11 Actions or Proceedings ...................................... 13
3.12 Labor and Employment ........................................ 13
3.13 Financial Information and Submission Matters ................ 13
3.14 Submission Matters .......................................... 13
3.15 Bankruptcy .................................................. 13
3.16 Hazardous Substances ........................................ 13
3.17 Intentionally Deleted ....................................... 14
3.18 Occupancy Agreements ........................................ 14
3.19 Leased Property ............................................. 14
3.20 Americans With Disabilities Act ............................. 14
3.21 Structural Condition ........................................ 14
3.22 Zoning and Platting ......................................... 14
3.23 Access ...................................................... 14
3.24 No Commitments .............................................. 14
3.25 Seller Is Not a "Foreign Person" ............................ 15
3.26 No Other Property Interests ................................. 15
3.27 Intentionally Deleted ....................................... 15
3.28 Intentionally Deleted ....................................... 15
3.29 Intentionally Deleted ....................................... 15
i
<PAGE>
3.30 Relationship to Certain Parties ............................. 15
3.31 LIMITATIONS ON REPRESENTATIONS AND WARRANTIES ............... 15
ARTICLE IV PATRIOT'S REPRESENTATIONS AND WARRANTIES
4.1 Organization and Power ...................................... 16
4.2 Authority of Patriot ........................................ 17
4.3 Non-contravention ........................................... 17
4.4 Litigation .................................................. 17
4.5 Bankruptcy .................................................. 17
ARTICLE V CONDITIONS PRECEDENT
5.1 As to Patriot's Obligations ................................. 17
5.2 As to Seller's Obligations .................................. 19
5.3 As to Patriot's and Seller's Obligations .................... 19
ARTICLE VI COVENANTS OF SELLER
6.1 Operating Agreements and Occupancy Agreements ............... 20
6.2 Warranties and Guaranties ................................... 21
6.3 Insurance ................................................... 21
6.4 Independent Audit ........................................... 21
6.5 Operation of Property Prior to Closing ...................... 21
6.6 No Marketing ................................................ 22
6.7 Employees ................................................... 22
ARTICLE VII INTENTIONALLY DELETED
ARTICLE VIII CLOSING
8.1 Closing ..................................................... 23
8.2 Seller's Deliveries ......................................... 24
8.3 Patriot's Deliveries ........................................ 26
8.4 Mutual Deliveries ........................................... 27
8.5 Closing Costs ............................................... 27
8.6 Revenue and Expense Allocations ............................. 27
ARTICLE IX GENERAL PROVISIONS
9.1 Condemnation ................................................ 29
9.2 Risk of Loss ................................................ 30
9.3 Absence of Broker ........................................... 30
9.4 Bulk Sale ................................................... 31
9.5 Confidentiality ............................................. 31
9.6 Seller's Accounts Receivable ................................ 31
ARTICLE X LIABILITY OF PATRIOT; INDEMNIFICATION BY SELLER;
DEFAULT; TERMINATION RIGHTS
10.1 Liability of Patriot ........................................ 32
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10.2 Indemnification by Seller ................................... 32
10.3 Indemnification by Patriot .................................. 32
10.4 Default by Seller/Failure of Conditions Precedent ........... 32
10.5 Default by Patriot/Failure of Conditions Precedent .......... 33
10.6 Costs and Attorneys' Fees ................................... 33
10.7 Limitation of Liability ..................................... 33
ARTICLE XI MISCELLANEOUS PROVISIONS
11.1 Completeness; Modification .................................. 34
11.2 Assignments ................................................. 34
11.3 Successors and Assigns ...................................... 34
11.4 Days ........................................................ 34
11.5 Governing Law ............................................... 34
11.6 Counterparts ................................................ 34
11.7 Severability ................................................ 34
11.8 Costs ....................................................... 35
11.9 Notices ..................................................... 35
11.10 Escrow Agent ................................................ 36
11.11 Incorporation by Reference .................................. 36
11.12 Survival .................................................... 36
11.13 Further Assurances .......................................... 36
11.14 No Partnership .............................................. 36
11.15 Time of Essence ............................................. 36
11.16 Signatory Exculpation ....................................... 37
11.17 Rules of Construction ....................................... 37
EXHIBITS
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Exhibit A - Land
Exhibit B - Surveyor's Certificate
Exhibit C - Other Properties
Exhibit D - Wyndham Comfort Letter
Exhibit E - Lease
SCHEDULES
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Schedule 1 - Authorizations
Schedule 2 - Intentionally Deleted
Schedule 3 - Occupancy Agreements
Schedule 4 - Operating Agreements
Schedule 5 - Intentionally Deleted
Schedule 6 - Personal Property Leases
iii
<PAGE>
AGREEMENT OF PURCHASE AND SALE
------------------------------
THIS AGREEMENT OF PURCHASE AND SALE (this "Agreement") is made as of this
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________ day of July, 1996, between PAH ACQUISITION CORPORATION, a Virginia
corporation ("Patriot"), and CLC LIMITED PARTNERSHIP, a Texas limited
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partnership ("Seller").
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R E C I T A T I O N S:
A. Seller is the owner of that certain real property known as the
"Wyndham Las Colinas, Irving, Texas", situate, lying and being in Dallas County,
State of Texas.
B. Patriot is desirous of purchasing such hotel property from Seller and
Seller is desirous of selling such hotel property to Patriot, for the Purchase
Price and upon the terms and conditions hereinafter set forth.
NOW, THEREFORE, in consideration of premises and in consideration of the
mutual covenants, promises and undertakings of the parties hereinafter set
forth, and for other good and valuable considerations, the receipt and
sufficiency of which is hereby acknowledged by the parties, it is agreed:
ARTICLE I
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DEFINITIONS
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1.1 Definitions. The following terms shall have the indicated meanings:
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"Act of Bankruptcy" shall mean if a party hereto or any general
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partner thereof shall (a) apply for or consent to the appointment of, or the
taking of possession by, a receiver, custodian, trustee or liquidator of itself
or of all or a substantial part of its property, (b) admit in writing its
inability to pay its debts as they become due, (c) make a general assignment for
the benefit of its creditors, (d) file a voluntary petition or commence a
voluntary case or proceeding under the Federal Bankruptcy Code (as now or
hereafter in effect), (e) be adjudicated a bankrupt or insolvent, (f) file a
petition seeking to take advantage of any other law relating to bankruptcy,
insolvency, reorganization, winding-up or composition or adjustment of debts,
(g) fail to controvert in a timely and appropriate manner, or acquiesce in
writing to, any petition filed against it in an involuntary case or proceeding
under the Federal Bankruptcy Code (as now or hereafter in effect), or (h) take
any corporate or partnership action for the purpose of effecting any of the
foregoing; or if a proceeding or case shall be commenced, without the
application or consent of a party hereto or any general partner thereof, in any
court of competent jurisdiction seeking (1) the liquidation, reorganization,
dissolution or winding-up, or the composition or readjustment of debts, of such
party or general partner, (2) the appointment of a receiver, custodian, trustee
or liquidator for such party or general partner or all or any substantial part
of its assets, or (3) other similar relief under any law relating to bankruptcy,
insolvency, reorganization, winding-up or composition or adjustment of debts,
and such proceeding or case shall continue undismissed; or an order (including
an order for relief entered in an involuntary
<PAGE>
case under the Federal Bankruptcy Code, as now or hereafter in effect) judgment
or decree approving or ordering any of the foregoing shall be entered and
continue unstayed and in effect, for a period of 60 consecutive days.
"Advance Bookings" shall mean reservations made by Seller prior to
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Closing for Hotel rooms or meeting rooms to be utilized after Closing, or for
catering services or other Hotel services to be provided after Closing, in the
ordinary course of business.
"Affiliated Company" means any other entity which is, along with a
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party and/or its management company, a member of a controlled group of
corporations or a controlled group of trades or businesses (as defined in
Section 414(b) or (c) of the Internal Revenue Code), any entity which along with
such party and/or its management company is included in an affiliated service
group as defined in Section 414(m) of the Internal Revenue Code, and any other
entity which is required to be aggregated with such party and/or its management
company pursuant to Treasury Regulations under Section 414(o) of the Internal
Revenue Code.
"Applicable Laws" shall mean any applicable building, zoning,
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subdivision, environmental, health, safety or other governmental laws, statutes,
ordinances, resolutions, rules, codes, regulations, orders or determinations of
any Governmental Authority or of any insurance boards of underwriters (or other
body exercising similar functions), or any restrictive covenants or deed
restrictions affecting the Property or the ownership, operation, use,
maintenance or condition thereof.
"Assignment and Assumption Agreement" shall mean one or more
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assignment and assumption agreements whereby (a) Seller (1) assigns and
Patriot's lessee assumes the Operating Agreements, Space Lease and Personal
Property Leases that have not been terminated prior to Closing in accordance
herewith, (2) assigns all of Seller's right, title and interest in and to the
Intangible Personal Property, to the extent assignable, and (3) indemnifies,
defends and holds Patriot and Patriot's lessee harmless with respect to all
defaults, liabilities, claims, costs and expenses (including, without
limitation, reasonable attorneys' fees) relating to acts or omissions accruing
under such Operating Agreements and Personal Property Leases before the Closing
Date; and (b) Patriot's lessee indemnifies, defends and holds Seller harmless
with respect to all defaults, liabilities, claims, costs and expenses
(including, without limitation, reasonable attorneys' fees) relating to acts or
omissions accruing under such Operating Agreements, and Personal Property Leases
from and after the Closing Date.
"Assignment of Occupancy Agreements" shall mean the assignment
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agreement, in recordable form, whereby (a) Seller (1) assigns and Patriot's
lessee assumes all of Seller's right, title and interest in and to the Occupancy
Agreements, and (2) indemnifies, defends and holds Patriot and Patriot's lessee
harmless with respect to all defaults, liabilities, claims, costs and expenses
(including, without limitation, reasonable attorneys' fees) relating to acts or
omissions accruing under such Occupancy Agreements before the Closing Date; and
(b) Patriot's lessee indemnifies, defends and holds Seller harmless with respect
to all defaults, liabilities, claims, costs and expenses (including, without
limitation, reasonable attorneys' fees) relating to acts or omissions accruing
under such Occupancy Agreements from and after the Closing Date.
<PAGE>
"Authorizations" shall mean all licenses, permits and approvals
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required by any governmental or quasi-governmental agency, body, department,
commission, board, bureau, instrumentality or officer, with respect to the
construction, ownership, operation, leasing, maintenance, or use of the Property
or any part thereof, which Authorizations are more particularly described on
Schedule 1 attached hereto and made a part hereof.
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"Bill of Sale - Personal Property" shall mean one or more bills of
--------------------------------
sale conveying title to the Tangible Personal Property from Seller to Patriot
(as Patriot shall specify).
"Closing" shall mean the Closing of the purchase and sale of the
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Property pursuant to this Agreement and shall be deemed to occur on the Closing
Date.
"Closing Date" shall mean the date on which the Closing occurs.
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"Closing Documents" shall mean the documents defined as such in
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Section 8.1 hereof.
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"Cross-Collateralized Properties" shall have the meaning ascribed to
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such term in Section 5.3(b) hereof.
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"Deed" shall mean that certain deed conveying title to the Real
----
Property with special warranty covenants of title from Seller to Patriot, in
recordable form, and subject only to Permitted Title Exceptions. If there is
any difference between the description of the Land, as shown on Exhibit A
---------
attached hereto and the description of the Land as shown on the Survey, the
description of the Land to be contained in the Deed and the description of the
Land set forth in the Title Commitment shall conform to the description shown on
the Survey.
"Deposit" shall mean all amounts deposited from time to time with
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Escrow Agent by Patriot pursuant to Section 2.3 hereof. All cash Deposits shall
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be invested by Escrow Agent in a commercial bank or banks acceptable to Patriot
at money market rates, or in such other investments as shall be approved in
writing by Seller and Patriot. The Deposit shall be held and disbursed by
Escrow Agent in strict accordance with the terms and provisions of this
Agreement.
"Effective Date" shall mean the date this Agreement has been fully
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executed and delivered by all parties hereto.
"Environmental Damages" shall mean all third-party claims, judgments,
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damages, losses, penalties, fines, liabilities (including, without limitation,
punitive damages and strict liability), encumbrances, liens, costs and expenses
of investigation and defense of any claim, whether or not such is ultimately
defeated, and of any settlement or judgment, of whatever kind or nature,
contingent or otherwise, matured or unmatured, including, without limitation,
attorneys' fees and disbursements and consultants' fees, any of which arise as a
result of the existence of Hazardous Materials upon, about or beneath the
Property or migrating or threatening to migrate from the Property, or as a
result of the existence of a violation of Environmental Requirements pertaining
to the Property.
<PAGE>
"Environmental Requirements" shall mean (i) all applicable statutes,
--------------------------
regulations, rules, policies, ordinances, codes, licenses, permits, orders,
approvals, plans, authorizations, and similar items, of all Governmental
Authorities, and (ii) all judicial, administrative and regulatory decrees,
judgments and orders, in each case of (i) and (ii) relating to the protection of
human health or the environment from Hazardous Materials, including, without
limitation: (a) all requirements thereof, including, without limitation, those
pertaining to reporting, licensing, permitting, investigation and remediation of
emissions, discharges, releases or threatened releases of Hazardous Materials
into the air, surface water, groundwater or land, or relating to the
manufacture, processing, distribution, use, treatment, storage, disposal,
transport or handling of Hazardous Materials; and (b) all requirements
pertaining to the protection of the health and safety of employees or the public
from Hazardous Materials.
"Escrow Agent" shall mean Unity Title Company, whose address is 2610
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Maxus Energy Tower, 717 North Harwood Street, Dallas, Texas 75201 (telephone
(214) 969-5300, fax (214) 969-5348).
"Financial Information" shall mean the financial information defined
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as such in Section 3.13 hereof.
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"FIRPTA Certificate" shall mean the affidavit of Seller under Section
------------------
1445 of the Internal Revenue Code, as amended, certifying that Seller is not a
foreign corporation, foreign partnership, foreign trust, foreign estate or
foreign person (as those terms are defined in the Internal Revenue Code and
regulations promulgated thereunder), in form and substance satisfactory to
Patriot.
"Governmental Authority" shall mean any federal, state, county,
----------------------
municipal or other government or any governmental or quasi-governmental agency,
department, commission, board, bureau, officer or instrumentality, foreign or
domestic, or any of them, having jurisdiction over Patriot or the Project.
"Hazardous Materials" shall mean any chemical substance: (i) which is
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or becomes defined as a "hazardous substance," "hazardous waste," "hazardous
material," "pollutant," "contaminant," or "toxic," "explosive," "corrosive,"
"flammable," "infectious," "radioactive," "carcinogenic," or "mutagenic"
material under any law, regulation, rule, order, or other authority of the
federal, state or local governments, or any agency, department, commission,
board, or instrumentality thereof, regarding the protection of human health or
the environment from such chemical substances including, but not limited to, the
following federal laws and their amendments, analogous state and local laws, and
any regulations promulgated thereunder: the Clean Air Act, the Clean Water Act,
the Oil Pollution Control Act, the Comprehensive Environmental Response,
Compensation, and Liability Act of 1986, the Emergency Planning and Community
Right to Know Act, the Solid Waste Disposal Act, the Resource Conservation and
Recovery Act, the Safe Drinking Water Act, the Federal Insecticide, Fungicide
and Rodenticide Act, and the Toxic Substances Control Act, including, without
limitation, asbestos and gasoline and other petroleum products (including crude
oil or any fraction thereof); (ii) without limitation, which contains gasoline,
diesel fuel or other petroleum hydrocarbons; (iii) without limitation,
<PAGE>
which contains drinking biphenyls or asbestos or asbestos-containing materials
or urea formaldehyde foam insulation; or (iv) without limitation, radon gas.
"Hotel" shall mean the 168-room hotel and related amenities located on
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the Land.
"Improvements" shall mean the Hotel and all other buildings,
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improvements, fixtures and other items of real estate located on the Land.
"Insurance Policies" shall mean all policies of insurance maintained
------------------
by or on behalf of Seller pertaining to the Property, its operation, or any part
thereof.
"Intangible Personal Property" shall mean all intangible personal
----------------------------
property owned or possessed by Seller and used in connection with the ownership,
operation, leasing, occupancy or maintenance of the Property, including, without
limitation, (1) the Authorizations, (2) utility and development rights and
privileges, business records, plans and specifications pertaining to the Real
Property and the Personal Property, (3) any unpaid award for taking by
condemnation or any damage to the Land by reason of a change of grade or
location of or access to any street or highway which was not effective prior to
the Effective Date, and (4) the share of the Rooms Ledger determined under
Section 8.6 hereof, excluding (a) any of the aforesaid rights Patriot elects not
- -----------
to acquire, (b) cash reserves for FF&E, taxes and insurance, and (c) accounts
receivable except for the above described share of the Rooms Ledger.
"Land" shall mean that certain parcel of real estate lying and being
----
in Dallas County, Texas, as more particularly described on Exhibit A attached
---------
hereto, together with all easements, rights, privileges, remainders, reversions
and appurtenances thereunto belonging or in any way appertaining, and all of the
estate, right, title, interest, claim or demand whatsoever of Seller therein, in
the streets and ways adjacent thereto and in the beds thereof, either at law or
in equity, in possession or expectancy, now or hereafter acquired.
"Lease" means the lease of the Hotel in the form of Exhibit E attached
----- ---------
hereto, which has been approved by Lessor and Lessee and is to be entered by
Lessor and Lessee in accordance with Section 8.4(d) hereof.
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"Leased Property" shall mean all leased items of Tangible Personal
---------------
Property.
"Lessee" means Crow Hotel Lessee, Inc.
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"Lessor" means Patriot or its assignee.
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"Manager" shall have the meaning ascribed to such term in Section
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5.11(e) hereof.
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"Occupancy Agreements" shall mean all leases, concession or occupancy
--------------------
agreements in effect with respect to the Real Property under which any tenants
(other than Hotel guests) or concessionaires occupy space upon the Real
Property, which Occupancy Agreements are described on Schedule 3 attached hereto
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and made a part hereof.
<PAGE>
"Operating Agreements" shall mean all management, service, supply and
--------------------
maintenance contracts, if any, in effect with respect to the Property and all
other contracts (other than the Occupancy Agreements and the Space Lease) that
affect the Property or are otherwise related to the construction, ownership,
operation, occupancy or maintenance of the Property, which Operating Agreements
are described on Schedule 4 attached hereto and made a part hereof.
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"Operating Partnership" shall mean Patriot American Hospitality
---------------------
Partnership, L.P., a Virginia limited partnership.
"Other Agreement of Purchase and Sale" means any one of those certain
------------------------------------
Other Agreements of Purchase and Sale.
"Other Agreements of Purchase and Sale" means those certain Agreements
-------------------------------------
of Purchase and Sale of even date herewith for the Other Properties entered into
by Patriot and affiliates of Seller.
"Other Lease Agreements" means those certain leases of the hotels to
----------------------
be acquired on the Closing Date by Patriot pursuant to the Other Agreements of
Purchase and Sale between Lessor, as lessor, and Lessee, as lessee.
"Other Properties" means those certain four hotels described on
----------------
Exhibit C attached hereto and made a part hereof.
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"Other Property" means any one of those certain four hotels described
--------------
on Exhibit C.
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"Owner's Title Policy" shall mean an owner's policy of title insurance
--------------------
issued to Patriot by the Title Company, pursuant to which the Title Company
insures Patriot's ownership of fee simple title to the Real Property (including
the indefeasibility thereof) subject only to Permitted Title Exceptions. The
Owner's Title Policy shall insure Patriot in the amount of the Purchase Price
and shall be reasonably acceptable in form and substance to Patriot. Patriot
may require such deletions of standard exceptions and such title endorsements as
are legally available and customarily required by institutional investors
purchasing property comparable to the Property in the State where the Property
is situated. The description of the Land in the Owner's Title Policy shall be
by courses and distances or by reference to a legal, subdivided lot and shall be
identical to the description shown on the Survey.
"Patriot's Objections" shall mean the objections defined as such in
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Section 2.4(c) hereof.
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"Permitted Title Exceptions" shall mean those exceptions to title to
--------------------------
the Real Property that are satisfactory to Patriot or deemed satisfactory to
Patriot pursuant to Section 2.4(c) hereof.
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"Personal Property" shall mean collectively the Tangible Personal
-----------------
Property and the Intangible Personal Property.
<PAGE>
"Personal Property Leases" shall mean the leases pursuant to which
------------------------
Seller leases the Leased Property, which Personal Property Leases are described
on Schedule 6 attached hereto and made a part hereof.
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"Property" shall mean collectively the Real Property and the Personal
--------
Property.
"Purchase Price" shall mean $16,120,000.00 payable in the manner
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described in Section 2.2 hereof and subject to adjustment as set forth herein.
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"Real Property" shall mean the Land and the Improvements.
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"Rooms Ledger" shall mean the final night's room revenue (revenue from
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rooms occupied as of 12:01 a.m. on the Closing Date, exclusive of food,
beverage, telephone and similar charges which shall be retained by Seller),
including any sales taxes, room taxes or other taxes thereon.
"Seller's Organizational Documents" shall mean the current partnership
---------------------------------
agreement and certificate of limited partnership and all amendments thereto of
Seller and its general partners.
"Submission Matters" shall mean all items Seller is required to
------------------
deliver to Patriot or make available to Patriot for its review pursuant to
Section 2.4(a) hereof.
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"Survey" shall mean the survey defined as such in and prepared
------
pursuant to Section 2.4(c) hereof.
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"Tangible Personal Property" shall mean the items of tangible personal
--------------------------
property consisting of all furniture, fixtures, equipment, machinery and other
personal property of every kind and nature (including cash-on-hand and petty
cash funds) located on or used or useful in the operation of the Hotel and owned
by Seller, including, without limitation, unopened inventories of food and
beverages and the stock of linens, towels, paper goods, soaps, cleaning
supplies, china, glassware, silverware, tablecloths, napkins, television sets,
carpets, drapes, rugs, floor coverings, mattresses, pillows, bed spreads and
miscellaneous guest supplies, engineering cleaning supplies and the like.
"Title Commitment" shall mean the title commitment and exception
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documents defined as such in Section 2.4(c) hereof.
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"Title Company" shall mean Escrow Agent on behalf of Commonwealth Land
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Title Insurance Company or other title insurance underwriter selected by
Patriot.
"UCC Reports" shall mean the reports defined as such in Section 2.4(c)
----------- --------------
hereof.
"Utilities" shall mean public sanitary and storm sewers, natural gas,
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telephone, public water facilities, electrical facilities and all other utility
facilities and services necessary or appropriate for the operation and occupancy
of the Property as a hotel.
<PAGE>
"Warranties and Guaranties" shall mean all warranties and guaranties
-------------------------
relating to the Improvements or the Tangible Personal Property or any part
thereof, if any.
ARTICLE II
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PURCHASE AND SALE OF PROPERTY; DEPOSIT; PAYMENT
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OF PURCHASE PRICE; TITLE
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2.1 Purchase and Sale. Seller agrees to sell, and Purchaser agrees to
-----------------
purchase, the Property for the Purchase Price and in accordance with, and
subject to, the terms and conditions hereinafter set forth.
2.2 Payment of Purchase Price. The Purchase Price, subject to adjustment
-------------------------
as provided in Section 2.5 below, shall be paid to Seller in the following
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manner:
(a) Purchaser shall receive a credit against the Purchase Price in an
amount equal to the amount of the cash Deposit.
(b) Patriot shall pay the balance of the Purchase Price as adjusted in
the manner specified in Article VIII and as set forth below, to Seller or other
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applicable party at Closing by making a wire transfer of immediately available
federal funds to the account of Seller or other applicable party as specified in
writing by Seller.
The parties agree that the Purchase Price shall be allocated between the Real
Property and Personal Property in accordance with the appraisal of the Personal
Property to be obtained by Patriot prior to the Closing.
2.3 Deposit. Within three (3) days after the execution hereof by both
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Seller and Patriot and as a condition precedent to the effectiveness of this
Agreement, Patriot shall deliver to Escrow Agent (i) a wire transfer or check in
the sum of Fifty Dollars ($50.00) payable to the order of Seller representing
the independent consideration for Seller's execution of this Agreement and
agreement to provide Patriot with the Study Period (which check or the proceeds
of which wire transfer shall thereafter be delivered by Escrow Agent to Seller)
and (ii) a demand note in the amount of $125,938.00 executed by the Operating
Partnership, payable to the order of Seller (the "Deposit"). Escrow Agent shall
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hold the Deposit pursuant to the terms, conditions and provisions of this
Agreement. The Deposit shall be either (a) returned to Patriot pursuant hereto,
or (b) paid to Seller pursuant hereto.
2.4 Submission Matters and Title Information.
----------------------------------------
(a) Seller has delivered the following to Patriot and Patriot has
approved the following:
(1) Copies of all Occupancy Agreements in effect as of the date of
this Agreement.
<PAGE>
(2) To the extent in Seller's possession or reasonably available to
Seller, copies of all Authorizations including, without limitation, all
certificates of occupancy, permits, authorizations, approvals and licenses
issued by Governmental Authorities having jurisdiction over the Property and
copies of all certificates issued by the local board of fire underwriters (or
other body exercising similar functions) relating to the Property. For the
purpose of this Agreement any Submission Matters in the possession of Seller's
management company shall be deemed to be "reasonably available to Seller."
(3) A complete list of advance reservations and room bookings for the
Property.
(4) Complete copies of all such Operating Agreements.
(5) A schedule setting forth the type and amounts of insurance
coverage maintained by Seller with respect to the Property as of the date of
this Agreement and complete copies of all such Insurance Policies.
(6) To the extent in Seller's possession or reasonably available to
Seller, financial and operating statements for the Property for the previous
three (3) calendar years and the year to date.
(7) The operating and capital expenditure budget for the Property for
the current calendar year and, to the extent in Seller's possession or
reasonably available to Seller, for the previous three (3) calendar years.
(8) A complete list of all Leased Property and complete copies of all
Personal Property Leases.
(9) To the extent in Seller's possession or reasonably available to
Seller, copies of invoices for all ad valorem taxes and special assessments
assessed against the Property for the current calendar year and prior three
calendar years, either statements for Utilities payable for the current calendar
year and any prior years (if available at the Hotel or in the Dallas, Texas
office of Seller's current manager of the Hotel) or such other information which
Seller may have in its or Seller's current manager's possession itemizing the
payment of Utilities for the Hotel, and any information in Seller's possession
or reasonably available to Seller regarding current renditions or assessments on
the Property or notices relative to change in valuation for ad valorem taxes.
(10) To the extent in Seller's possession or reasonably available to
Seller, a complete list of all Warranties and Guaranties in effect as of the
date of this Agreement and complete copies of all such Warranties and
Guaranties.
(11) Copies of all soil tests, structural engineering tests, masonry
tests, percolation tests, water, oil, gas, mineral, radon, formaldehyde, PCB or
other environmental tests, audits or reports, market studies and site plans
related to the Property in Seller's possession or reasonably available to
Seller.
<PAGE>
(12) If in Seller's possession or reasonably available to
Seller, Seller will make available to Patriot at the Property or at the
office's of Seller's current manager in Dallas, Texas, copies of complete
sets of all architectural, mechanical, structural and/or electrical plans
and specifications used in connection with the construction of or
alterations or repairs to the Property.
(13) If in Seller's possession or reasonably available to
Seller, Seller will make available to Patriot at the Property or at the
office's of Seller's current manager in Dallas, Texas, copies of as-built
plans and specifications for the Property.
(14) Parking, structural, mechanical or other engineering
reports or engineering studies related to the Property, if any, in Seller's
possession or reasonably available to Seller.
(15) If in Seller's possession or reasonably available to
Seller, copies of any title insurance policies covering the Real Property
and any surveys of all or any portion of the Property.
Until the Closing, Seller shall make available to Patriot, its agents, auditors,
engineers, attorneys, potential lessees and other designees, for inspection
and/or copying, copies of all existing architectural and engineering studies,
surveys, title insurance policies, zoning and site plan materials,
correspondence, environmental audits and reviews, books, records, tax returns,
bank statements, financial statements, advance reservations and room bookings
and function bookings, rate schedules and any and all other materials or
information relating to the Property which are in, or come into, Seller's
possession or control or are otherwise reasonably available to Seller.
(b) Patriot shall give Seller reasonable oral or written notice of
all proposed inspections to be undertaken on the Property. Seller's prior oral
or written consent shall be required (but shall not be unreasonably withheld or
delayed) only as to Patriot's undertaking of invasive testing at the Property,
and such testing and inspections shall be coordinated with the general manager
of the Hotel. Any such inspection or activity shall (i) not unreasonably
interfere with the operation of the Property and (ii) shall be conducted at such
times and in such manner as to not unreasonably disturb the guests of the Hotel.
Seller shall have the right to designate a representative to accompany Patriot's
employees, agents, and independent contractors on any such inspections. Patriot
shall indemnify and defend Seller against any loss, damage or claim for personal
injury or property damage arising from the negligent or willful acts upon the
Real Property by Patriot or any agents, contractors or employees of Patriot.
Patriot, at its own expense, shall restore any damage to the Property caused by
any of the tests or studies made by Patriot. This provision shall survive any
termination of this Agreement and a closing of the transaction contemplated
hereby.
(c) Seller has delivered to Patriot, at Seller's sole cost and
expense (and Patriot has approved), two copies to Patriot's attorneys, Akin,
Gump, Strauss, Hauer & Feld, L.L.P., a Survey of the Land and the Improvements,
prepared by a Surveyor licensed to practice as such in the State where the Land
is located and reasonably acceptable to Patriot, bearing a date not earlier than
thirty (30) days from the date of its delivery, containing the certificate
attached hereto
<PAGE>
as Exhibit B, and substantially conforming to the requirements set forth in such
---------
certificate. Seller has caused the Title Company to furnish to Patriot, at
Seller's sole cost and expense (and Patriot has approved), (i) a title insurance
commitment bearing an effective date subsequent to the date of this Agreement
issued by the Title Company covering the Real Property, binding the Title
Company to issue its Owner's Policy of Title Insurance, in form approved for use
in the state where the Property is located in favor of Patriot, showing title to
be held currently by Seller in a good, indefeasible and insurable condition,
together with legible copies of all documents identified in such title insurance
commitment as exceptions to title certified as true and complete by the Title
Company (collectively, the "Title Commitment"), and (ii) reports of searches of
----------------
the Uniform Commercial Code records of both the county and State in which the
Property is located (collectively, the "UCC Reports") with respect to the state
-----------
of title to the Property. Patriot has notified Seller of any matters shown on
the Survey or identified in the Title Commitment or the UCC Reports that Patriot
is unwilling to accept (collectively, "Patriot's Objections"). If any of
--------------------
Patriot's Objections consist of delinquent taxes, mortgages, deeds of trust,
security agreements, construction or mechanics' liens, tax liens or other liens
or charges in a fixed sum or capable of computation as a fixed sum, then, to
that extent, notwithstanding anything herein to the contrary, Seller shall be
obligated to pay and discharge (or bond against in a manner sufficient to cause
the Title Company to insure over such Patriot's Objections) at or prior to
Closing all of such Patriot's Objections. Seller shall not, after the date of
this Agreement, subject the Real Property to or permit or suffer to exist any
liens, encumbrances, covenants, conditions, restrictions, easements or other
title matters or seek any zoning changes or take any other action which may
affect or modify the status of title without Patriot's prior written consent
unless same are discharged at or prior to Closing. All title matters revealed by
the Title Commitment, UCC Reports and Survey and not objected to by Patriot as
provided above (other than those rendering title defeasible and delinquent
taxes, mortgages, deeds of trust, security agreements and other liens and
charges that are to be paid at Closing as provided above) shall be deemed
Permitted Title Exceptions. Notwithstanding the foregoing, Patriot shall not be
required to take title to the Real Property subject to any matters which may
arise subsequent to the effective date of the Title Commitment, UCC Reports and
Survey examined by Patriot prior to the date hereof.
ARTICLE III
-----------
SELLER'S REPRESENTATIONS AND WARRANTIES
---------------------------------------
To induce Patriot to enter into this Agreement and to acquire the Property,
and to pay the Purchase Price therefor, Seller hereby makes the following
representations and warranties with respect to the Property, upon each of which
Seller acknowledges and agrees that Patriot and its permitted assignees are
entitled to rely and have relied:
3.1 Organization and Power. Seller is a Texas limited partnership duly
----------------------
formed, validly existing and in good standing under the laws of the State of
Texas and is qualified to transact business in the State where the Real Property
is located and has all requisite powers and all governmental licenses,
authorizations, consents and approvals to carry on its business as now conducted
and to enter into and perform its obligations hereunder and under any document
or instrument required to be executed and delivered on behalf of Seller
hereunder.
<PAGE>
3.2 Authorization and Execution. This Agreement has been duly authorized
---------------------------
by all necessary action on the part of Seller, has been duly executed and
delivered by Seller, constitutes the valid and binding agreement of Seller and
is enforceable in accordance with its terms. There is no other person or entity
who has an ownership interest in the Property or whose consent is required in
connection with Seller's performance of its obligations hereunder. The person
executing this Agreement on behalf of Seller has the authority to do so.
3.3 Non-contravention. The execution and delivery of, and the performance
-----------------
by Seller of its obligations under, this Agreement do not and will not
contravene, or constitute a default under any of Seller's Organizational
Documents, any judgment, injunction, order or decree binding upon Seller or to
which the Property is subject, or, to Seller's knowledge, do not and will not
contravene, or constitute a default under, any provision of applicable law or
regulation, any agreement, or other instrument binding upon Seller or to which
the Property is subject, or result in the creation of any lien or other
encumbrance on any asset of Seller. There are no outstanding agreements
(written or oral) pursuant to which Seller (or any predecessor to or
representative of Seller) has agreed to sell or has granted an option or right
of first refusal to purchase the Property or any part thereof except for those
that will be waived or released at or prior to Closing.
3.4 Title To Real Property. Seller is the sole owner of fee simple
----------------------
absolute title to the Real Property.
3.5 No Special Taxes. Seller has no knowledge of, nor has it received any
----------------
written notice of, any special taxes or assessments relating to the Property or
any part thereof or any planned public improvements that may result in a special
tax or assessment against the Property.
3.6 Compliance with Existing Laws. To Seller's knowledge, Seller
-----------------------------
possesses all Authorizations, each of which is valid and in full force and
effect, and no provision, condition or limitation of any of the Authorizations
has been breached or violated. Seller has no knowledge of any termination,
suspension, modification or limitation affecting any of the Authorizations.
Seller has no knowledge, nor has it received written notice within the past two
(2) years, of any existing or threatened violation of any provision of any
Applicable Laws including, but not limited to, those of environmental agencies
or insurance boards of underwriters with respect to the ownership, operation,
use, maintenance or condition of the Property or any part thereof, or requiring
any repairs or alterations to the Property other than those that have been made
prior to the date hereof, which existing or threatened violation could have a
materially adverse effect on the value, use, insurability or operation of the
Property.
3.7 Personal Property. All of the Personal Property, excluding the Leased
-----------------
Property, being conveyed by Seller hereunder are free and clear of all liens and
encumbrances except for those which will be discharged by Seller at Closing, and
Seller has good and merchantable title thereto and the right to convey same in
accordance with the terms of this Agreement.
3.8 Operating Agreements. To Seller's knowledge, there are no management,
--------------------
service, supply or maintenance contracts in effect with respect to the Property
other than the Operating Agreements. To Seller's knowledge, Seller has
performed in all material respects all of its obligations under each of the
Operating Agreements and there are no defaults under any of the
<PAGE>
Operating Agreements. To Seller's knowledge, all other parties to the Operating
Agreements have performed all of their obligations thereunder in all material
respects, and are not in default thereunder in any material respect. To Seller's
knowledge, Seller has received no notice of any intention by any of the parties
to any of the Operating Agreements to cancel the same, nor has Seller canceled
any of same.
3.9 Insurance. To Seller's knowledge, all of Seller's Insurance Policies
---------
are valid and in full force and effect and Seller has complied with all
requirements or recommendations of the insurance carriers of the Insurance
Policies.
3.10 Condemnation Proceedings; Roadways. Seller has received no written
----------------------------------
notice of any condemnation or eminent domain proceeding pending or threatened
against the Property or any part thereof. Seller has no knowledge of any change
in the route or width of any street or road adjacent to or serving the Real
Property, and Seller has received no written notice of any proposed change in
the route, grade or width of, or otherwise affecting, any street or road
adjacent to or serving the Real Property.
3.11 Actions or Proceedings. There is no action, suit or proceeding
----------------------
pending or to Seller's knowledge threatened against or affecting Seller in any
court, before any arbitrator or before or by any Governmental Authority which
(a) in any manner raises any question affecting the validity or enforceability
of this Agreement, (b) could materially and adversely affect the business,
financial position or results of operations of Seller or the Property, (c) could
materially and adversely affect the ability of Seller to perform its obligations
hereunder, (d) could create a lien on the Property, any part thereof or any
interest therein, (e) concerns any past or present employee of Seller or (f)
could otherwise adversely affect the Property, any part thereof or any interest
therein or the use, operation, condition or occupancy thereof.
3.12 Labor and Employment Matters. To Seller's knowledge, neither Seller
----------------------------
nor its management company is a party to any oral or written employment
contracts or agreements with respect to the Property. To Seller's knowledge,
there are no labor disputes or organizing activities pending or threatened as to
the operation or maintenance of the Property or any part thereof. Neither Seller
nor its management company is a party to any union or other collective
bargaining agreement with employees employed in connection with the ownership,
operation or maintenance of the Property. Patriot shall not have any liability
under any pension, profit sharing or welfare benefit plan that Seller, Seller's
management company or any Affiliated Company may have established with respect
to the Property or their or its employees.
3.13 Financial Information and Submission Matters. To Seller's knowledge,
--------------------------------------------
all of Seller's financial information, including, without limitation, all books
and records and financial statements ("Financial Information") is correct and
---------------------
complete in all material respects and presents accurately the results of the
operations of the Property for the periods indicated. Since the date of the last
financial statement included in Seller's Financial Information, there has been
no material adverse change in the financial condition or in the operations of
the Property.
3.14 Submission Matters. To Seller's knowledge, all Submission Matters
------------------
delivered by Seller to Patriot pursuant to this Agreement are true, correct and
complete in all material respects.
<PAGE>
3.15 Bankruptcy. No Act of Bankruptcy has occurred with respect to
----------
Seller.
3.16 Hazardous Substances. To Seller's knowledge, Seller has not, nor
--------------------
has Seller received any written notice that any previous owner, tenant, occupant
or user of the Property has, engaged in or permitted any operations or
activities upon, or any use or occupancy of the Property or any portion thereof,
for the purpose of or in any way involving the handling, manufacture, treatment,
storage, use, generation, release, discharge, refining, dumping or disposal of
any Hazardous Materials on, under, in or about the Property in violation of any
Applicable Laws. Seller has not received any written notice that any Hazardous
Materials have migrated from or to the Property upon, about, or beneath other
properties in violation of any Environmental Requirements. To Seller's
knowledge, neither the Property nor its existing or prior uses fail or failed to
materially comply with Environmental Requirements. Seller has no knowledge of
any permits, licenses or other authorizations which are required under any
Environmental Requirements with regard to the current uses of the Property which
have not been obtained and complied with. To Seller's knowledge, neither Seller
nor any prior owner, occupant or user of the Property has received any written
notice concerning any alleged violation of Environmental Requirements in
connection with the Property or any liability for Environmental Damages in
connection with the Property for which Seller (or Patriot after Closing) may be
liable. To Seller's knowledge, no Hazardous Materials are constructed,
deposited, stored or otherwise located on, under, in or about the Property in
violation of any Environmental Requirements. To Seller's knowledge, there exists
no writ, injunction, decree, order or judgment outstanding, nor any lawsuit,
claim, proceeding, citation, summons or investigation, pending or threatened,
relating to any alleged violation of Environmental Requirements on the Property,
or relating to any Environmental Damages. To Seller's knowledge, no underground
or above ground chemical treatment or storage tanks, or gas or oil wells are
located on the Property.
3.17 Intentionally Deleted.
---------------------
3.18 Occupancy Agreements. There are no leases, concessions or occupancy
--------------------
agreements in effect with respect to the Real Property other than the Occupancy
Agreements. Except as specifically provided in the Occupancy Agreements, no
tenant or concessionaire is entitled to any rebates, allowances, free rent or
rent abatement for any period after the Closing of the transaction contemplated
hereby. To Seller's knowledge, Seller has received no notice of any intention by
any of the parties to any of the Occupancy Agreements to cancel the same, nor
has Seller canceled any of same. To Seller's knowledge, no brokerage commissions
or compensation of any kind shall be due in connection with the Occupancy
Agreements, and the rents or revenues to be derived therefrom.
3.19 Leased Property. To Seller's knowledge, all Personal Property Leases
---------------
are in good standing and free from default.
3.20 Americans With Disabilities Act. To Seller's knowledge, Seller has
-------------------------------
received no written notice that the Property is not in compliance with the
Americans With Disabilities Act.
3.21 Structural Condition. Except as disclosed in writing by Seller to
--------------------
Patriot and as contained in any engineering reports concerning the Property
delivered to Patriot, to Seller's
<PAGE>
knowledge, there is no latent material defect in the Improvements or structural
elements thereof, mechanical systems (including, without limitation, all
heating, ventilating, air conditioning, plumbing, electrical, utility and
sprinkler systems) therein, the utility system servicing the Property and the
roofs.
3.22 Zoning and Platting. Seller has no knowledge of any proceeding and
-------------------
has received no written notice of any threatened action or proceeding which
could result in a modification or termination of the present zoning of the
Property. To Seller's knowledge, the Property is properly platted as a separate
lot under Applicable Laws and constitutes a separate tax lot.
3.23 Access. Seller has no knowledge of any pending and has received
------
no written notice of any threatened governmental proceeding which would limit or
result in the termination of the Property's existing access to and from public
streets or roads.
3.24 No Commitments. To Seller's knowledge, no commitments have been
--------------
made to any Governmental Authority, utility company, school board, church or
other religious body, or any homeowners' association or any other organization,
group or individual, relating to the Property which would impose an obligation
upon Patriot to make any contribution or dedication of money or land or to
construct, install or maintain any improvements of a public or private nature on
or off the Property.
3.25 Seller Is Not a "Foreign Person". Seller is not a "foreign person"
--------------------------------
within the meaning of Section 1445 of the Internal Revenue Code, as amended
(i.e., Seller is not a foreign corporation, foreign partnership, foreign trust,
foreign estate or foreign person as those terms are defined in the Internal
Revenue Code and regulations promulgated thereunder).
3.26 No Other Property Interests. To Seller's knowledge, there are no
---------------------------
property interests, buildings, structures or other improvements or personal
property that are owned by Seller which are necessary for the operation of the
Hotel that are not being conveyed pursuant to this Agreement.
3.27 Intentionally Deleted.
---------------------
3.28 Intentionally Deleted.
---------------------
3.29 Intentionally Deleted.
---------------------
3.30 Relationship to Certain Parties. Seller does not have a direct
-------------------------------
or indirect relationship to the Central States, Southeast and Southwest Areas
Pension Funds within the meaning of Section 514(c)(9)(B)(iv) of the Internal
Revenue Code of 1986, as amended.
3.31 LIMITATIONS ON REPRESENTATIONS AND WARRANTIES. PATRIOT HEREBY
---------------------------------------------
AGREES AND ACKNOWLEDGES THAT, EXCEPT AS SET FORTH IN THIS ARTICLE 3, OR AS
OTHERWISE EXPRESSLY STATED HEREIN OR IN THE DEED OR IN ANY DOCUMENTS EXECUTED IN
CONNECTION HEREWITH, NEITHER SELLER NOR ANY AGENT, ATTORNEY, EMPLOYEE OR
REPRESENTATIVE OF SELLER HAS
<PAGE>
MADE ANY REPRESENTATION WHATSOEVER REGARDING THE SUBJECT MATTER OF THIS SALE, OR
ANY PART THEREOF, INCLUDING (WITHOUT LIMITING THE GENERALITY OF THE FOREGOING)
REPRESENTATIONS AS TO THE PHYSICAL NATURE OR CONDITION OF THE PROPERTY OR THE
CAPABILITIES THEREOF, AND THAT PATRIOT, IN EXECUTING, DELIVERING AND/OR
PERFORMING THIS AGREEMENT, DOES NOT RELY UPON ANY STATEMENT AND/OR INFORMATION
TO WHOMEVER MADE OR GIVEN, DIRECTLY OR INDIRECTLY, ORALLY OR IN WRITING, BY ANY
INDIVIDUAL, FIRM OR CORPORATION EXCEPT THOSE EXPRESSLY CONTAINED HEREIN OR
DELIVERED PURSUANT THERETO OR IN ANY DOCUMENTS EXECUTED IN CONNECTION HEREWITH.
EXCEPT AS OTHERWISE PROVIDED HEREIN, PATRIOT AGREES TO TAKE THE REAL PROPERTY
AND THE PERSONAL PROPERTY "AS IS," AS OF THE DATE HEREOF, REASONABLE WEAR AND
TEAR EXCEPTED. IN ADDITION, EXCEPT AS SET FORTH HEREIN, SELLER MAKES NO
REPRESENTATION OR WARRANTIES REGARDING THE COMPLIANCE WITH ANY ENVIRONMENTAL
REQUIREMENTS, INCLUDING THE EXISTENCE IN OR ON THE PROPERTY OF HAZARDOUS
MATERIALS. THE PROVISIONS OF THIS PARAGRAPH SHALL SURVIVE THE CLOSING OR ANY
TERMINATION HEREOF.
Each of the representations and warranties contained in this Article III and its
-----------
various subparagraphs are intended for the benefit of Patriot and may be waived
in whole or in part, by Patriot, but only by an instrument in writing signed by
Patriot. All rights and remedies arising in connection with the untruth or
inaccuracy of any such representations and warranties shall survive the Closing
of the transaction contemplated hereby for the period specified below except to
the extent that Seller gives Patriot written notice prior to Closing of the
untruth or inaccuracy of any representation or warranty, or Patriot otherwise
obtains actual knowledge prior to Closing of the untruth or inaccuracy of any
representation or warranty, and Patriot nevertheless elects to close this
transaction. Any such written notice from Seller to Patriot shall state in the
first paragraph thereof and in all capitalized letters that "THIS NOTICE IS
GIVEN PURSUANT TO THE AGREEMENT OF PURCHASE AND SALE MADE AS OF JULY ___, 1996
AND RELATES TO THE UNTRUTH OR INACCURACY OF SELLER'S REPRESENTATIONS OR
WARRANTIES." Patriot shall be deemed to have actual knowledge of the untruth or
inaccuracy of any representation or warranty only if (i) Patriot receives
written notice from Seller satisfying the foregoing requirements, or (ii) Paul
A. Nussbaum, Thomas W. Lattin, Rex E. Stewart or Leslie Ng has actual knowledge
of any such untruth or inaccuracy. Except to the extent otherwise expressly
provided in the immediately preceding sentence and as provided above, no
investigation, audit, inspection, review or the like conducted by or on behalf
of Patriot shall be deemed to terminate the effect of any such representations,
warranties and covenants, it being understood that Patriot has the right to rely
thereon and that each such representation and warranty constitutes a material
inducement to Patriot to execute this Agreement and to close the transaction
contemplated hereby and to pay the Purchase Price to Seller.
Whenever the term "to Seller's knowledge" or "known to Seller" is used in this
Agreement or in any representations and warranties given to Patriot at Closing,
such knowledge shall be the actual knowledge of Dave Johnson - East Region (the
"Key Personnel") after inquiry of the Hotel's general manager, controller,
-------------
director of food and beverage service and director of sales. Seller shall have
no duty to conduct any further inquiry in making any such representations and
<PAGE>
warranties, and no knowledge of any other person shall be imputed to the Key
Personnel. In connection with the representations made in Section 3.16, the
------------
term "to Seller's knowledge" or "known to Seller" shall be deemed to include,
with respect to representations and warranties relating to whether the Property
complies with Environmental Requirements, only those facts that an experienced,
prudent operator and/or manager of real estate properties could reasonably be
expected to know have environmental significance and not such facts that would
be known only to an environmental professional to have environmental
significance.
ARTICLE IV
----------
PATRIOT'S REPRESENTATIONS AND WARRANTIES
----------------------------------------
To induce Seller to enter into this Agreement and to sell the Property,
Patriot hereby makes the following representations and warranties, upon each of
which Patriot acknowledges and agrees that Seller is entitled to rely and has
relied:
4.1 Organization and Power. Patriot is duly organized, validly existing
----------------------
and in good standing under the laws of the State of Virginia and has all
corporate and/or partnership powers and all governmental licenses,
authorizations, consents and approvals required to carry on its business as now
conducted and to enter into and perform its obligations under this Agreement and
any document or instrument required to be executed and delivered on behalf of
Patriot hereunder.
4.2 Authority of Patriot. This Agreement has been duly authorized by all
--------------------
necessary action on the part of Patriot, has been duly executed and delivered by
Patriot, constitutes the valid and binding agreement of Patriot and is
enforceable in accordance with its terms. The person executing this Agreement
on behalf of Patriot has the authority to do so.
4.3 Non-contravention. The execution and delivery of this Agreement and
-----------------
the performance by Patriot of its obligations hereunder do not and will not
contravene, or constitute a default under, any provisions of applicable law or
regulation, or any agreement, judgment, injunction, order, decree or other
instrument binding upon Patriot or result in the creation of any lien or other
encumbrance on any asset of Patriot.
4.4 Litigation. There is no action, suit or proceeding, pending or to
----------
Patriot's knowledge threatened, against or affecting Patriot in any court or
before any arbitrator or before any Governmental Authority which (a) in any
manner raises any question affecting the validity or enforceability of this
Agreement, (b) could materially and adversely affect the business, financial
position or results of operations of Patriot, and (c) could materially and
adversely affect the ability of Patriot to perform its obligations hereunder.
4.5 Bankruptcy. No Act of Bankruptcy has occurred with respect to
----------
Patriot.
Wherever the term "to Patriot's knowledge" or "known to Patriot" is used in this
Agreement or in any representations and warranties given to Seller at Closing,
such knowledge shall be the actual knowledge of Paul A. Nussbaum, Thomas W.
Lattin, Rex E. Stewart or Leslie Ng only, without any further inquiry.
<PAGE>
ARTICLE V
---------
CONDITIONS PRECEDENT
--------------------
5.1 As to Patriot's Obligations. Patriot's obligations hereunder are
---------------------------
subject to the satisfaction of the following conditions precedent:
(a) Seller's Deliveries. Seller shall have delivered to or for the
-------------------
benefit of Patriot, on or before the Closing Date, all of the documents and
other information required of Seller pursuant to Sections 8.2 and 8.4 hereof,
--------------------
the forms of which have been approved by Patriot.
(b) Representations, Warranties and Covenants; Obligations of Seller.
----------------------------------------------------------------
All of Seller's representations and warranties made in this Agreement shall be
true and correct in all material respects as of the date hereof and as of the
date of Closing as if then made; Seller shall have performed in all material
respects all of its covenants and other obligations under this Agreement; and
none of the following events (or events of similar magnitude) have occurred
which could in Patriot's reasonable judgment, materially and adversely affect
the Property:
(i) a structural failure causing significant human fatalities such as
the structural failure that occurred at the Hyatt Hotel in Kansas City,
Missouri;
(ii) significant human fatalities caused by disease which is
specifically identified with the Property such as the occurrence of
Legionnaires disease associated with the Bellevue Stratford Hotel in
Philadelphia, Pennsylvania; and
(iii) significant human fatalities caused by the failure of
life/safety systems such as the fire which occurred at the MGM Grand Hotel
in Las Vegas, Nevada.
(b) Title Insurance. Receipt by Patriot of an Owner Policy of
---------------
Title Insurance issued by the Title Company subject only to Permitted Title
Exceptions as determined in accordance with Section 2.4 hereof and including,
-----------
without limitation, all applicable deletions of standard exceptions and
endorsements permitted under applicable state law which are customarily required
by institutional investors purchasing property comparable to the Property.
(c) Title to Property. Seller shall be the sole owner of good and
-----------------
indefeasible fee simple title to the Real Property and good and marketable fee
simple title to the Tangible Personal Property, free and clear of all liens,
encumbrances, restrictions, conditions and agreements except for Permitted Title
Exceptions and those to be released at Closing.
(d) Condition of Improvements. The Improvements and the Tangible
-------------------------
Personal Property (including but not limited to the mechanical systems,
plumbing, electrical, wiring, appliances, fixtures, heating, air conditioning
and ventilating equipment, elevators, boilers, equipment, roofs, structural
members and furnaces) shall be in the same condition at Closing as they are as
of the date hereof, reasonable wear and tear excepted. Prior to Closing, Seller
shall not have diminished in any material respect the quality or quantity of
maintenance and upkeep services heretofore provided to the Real Property and the
Tangible Personal Property. Seller shall
<PAGE>
not have removed or caused or permitted to be removed any part or portion of the
Real Property or the Tangible Personal Property without Patriot's prior written
consent unless the same is replaced, prior to Closing, with a similar item of at
least equal suitability, quality and value, free and clear of any lien or
security interest.
(e) Right to Use Wyndham Name. Patriot shall have received a letter
-------------------------
agreement from Wyndham Management Corporation ("Manager") in the form of Exhibit
------- -------
D attached hereto and made a part hereof.
- -
(f) Liquor License. There shall be valid liquor licenses, alcoholic
--------------
beverage licenses and other permits and Authorizations necessary to operate the
restaurant, bars and lounges presently located in the Hotel in place and all
such liquor licenses, alcoholic beverage licenses and other permits and
Authorizations shall be held in the names of the operators of such businesses.
Seller agrees to cause the holders of such licenses to execute such consents and
estoppels as reasonably required by Patriot's lender.
Each of the conditions contained in this Section are intended for the benefit of
Patriot and may be waived in whole or in part, by Patriot, but only by an
instrument in writing signed by Patriot.
5.2 As to Seller's Obligations. Seller's obligations hereunder are
--------------------------
subject to the satisfaction of the following conditions precedent:
(a) Patriot's Deliveries. Patriot shall have delivered to or for the
--------------------
benefit of Seller, on or before the Closing Date, all of the documents and
payments required of Patriot pursuant to Sections 8.3 and 8.4 hereof.
--------------------
(b) Representations, Warranties and Covenants; Obligations of
---------------------------------------------------------
Patriot. All of Patriot's representations and warranties made in this Agreement
- -------
shall be true and correct in all material respects as of the date hereof and as
of the date of Closing as if then made and Patriot shall have performed in all
material respects all of its covenants and other obligations under this
Agreement.
(c) Closing Under Other Agreements. Simultaneously with the Closing
------------------------------
of the transaction contemplated hereby and subject to Patriot's rights set forth
in other sections of this Agreement, Seller or Seller's affiliates or related
entities shall have sold and conveyed to Patriot, and Patriot and/or its
permitted assigns shall have purchased, the Other Properties.
(d) Prepayment Penalties. Either (i) the holder of the first lien
--------------------
encumbering the Property and the Other Properties waives the prepayment
penalties payable pursuant to the first lien loan documents encumbering the
Property and the Other Properties (the "Prepayment Penalties"), or (ii) Seller
--------------------
agrees to pay the Prepayment Penalties, in which event Patriot shall pay the
lesser of (1) 25% of the Prepayment Penalties charged by such first lien lender
or (2) $200,000.00.
Each of the conditions contained in this Section are intended for the benefit of
Seller and may be waived in whole or in part, by Seller, but only by an
instrument in writing signed by Seller.
<PAGE>
5.3 As to Patriot's and Seller's Obligations. Patriot's and Seller's
----------------------------------------
obligations hereunder are subject to the satisfaction of the following
conditions precedent:
(a) Acquisition of Other Properties. Simultaneously with the Closing
-------------------------------
of the transaction contemplated hereby, Seller or Seller's affiliates or related
entities shall have sold and conveyed to Patriot and/or its permitted assigns,
and Patriot and/or its permitted assigns shall have purchased, the Other
Properties. Patriot at its option may, and Seller shall be obligated to, waive
this condition at the Closing as to any or all of the Other Properties for which
a Permitted Reason (defined below) exists. The term "Permitted Reason" shall
mean: (i) either (a) the presence at an Other Property of any Hazardous
Materials and the abatement or other remediation of such Hazardous Materials
with respect to the Property is required by Environmental Requirements, as
evidenced by a letter from a qualified engineer (with a copy of the report of
such engineer) and Seller or its affiliate or related entity which owns the
affected Other Property is not willing to remediate or abate the condition
caused by Hazardous Materials on or before the Closing Date, or (b) the
affiliate or related entity of Seller which owns the affected Other Property is
either unable or unwilling to convey fee simple title to such affected Other
Property to Patriot, or (c) a knowing and intentional breach in any material
respect by Seller or its affiliate or related entity which owns the affected
Other Property or any of Seller's or its affiliate's or related entity's
covenants in an Other Agreement of Purchase and Sale which breach Seller or its
affiliate or related entity is either unable or unwilling to cure within the
time periods provided for in the relevant Other Agreement of Purchase and Sale
and the breach of such covenant could materially and adversely affect the
operation, value, use, marketability or insurability of title of such Other
Property, or (d) the occurrence of an event of casualty or a condemnation for
which Patriot is entitled to terminate the applicable Other Agreement of
Purchase and Sale and Patriot does in fact terminate such Other Agreement of
Purchase and Sale. Patriot understands and agrees that the Property and the
Other Properties located in Novi, Michigan and Wood Dale, Illinois) (the
Property and such Other Properties being herein called the "Cross-Collateralized
--------------------
Properties") have been cross-collateralized pursuant to mortgages or deeds of
- ----------
trust encumbering the Cross-Collateralized Properties, and that if Patriot
wishes to terminate an Other Agreement of Purchase and Sale covering any of the
Cross-Collateralized Properties, then Patriot must terminate the Other
Agreements of Purchase and Sale with respect to the remaining Cross-
Collateralized Properties.
The conditions contained in this Section are intended for the benefit of both
parties hereto and may be waived in whole or in part only by an instrument in
writing signed by both parties.
ARTICLE VI
----------
COVENANTS OF SELLER
-------------------
To induce Patriot to enter into this Agreement and to purchase the
Property, and to pay the Purchase Price therefor, Seller covenants and agrees to
the following:
6.1 Operating Agreements and Occupancy Agreements. Seller shall not
---------------------------------------------
change, modify, extend, renew or terminate any existing, or enter into any, new
Occupancy Agreements, Operating Agreements, management agreement, maintenance or
repair contract, supply contract,
<PAGE>
lease in which it is lessee or other agreements with respect to the Property,
nor shall Seller enter into any agreements modifying the Operating Agreements or
Occupancy Agreements, unless (a) any such agreement or modification will not
bind Patriot or the Property after the date of Closing or (b) Seller has
obtained Patriot's prior written consent to such agreement or modification.
Seller agrees to cancel and terminate effective as of the Closing Date Seller's
management agreement and any other Operating Agreements which are terminable
without substantial penalty unless Patriot requests in writing prior to the
expiration of the Study Period that one or more remain in effect after Closing.
Seller shall not apply all or any part of the security or damage deposit of a
tenant under any Occupancy Agreement to obligations of such tenant unless such
tenant has vacated its portion of the Property as of the Closing Date. Patriot
and Seller hereby agree that Patriot's lessee shall assume the Operating
Agreements that are not terminated by Patriot (all such Operating Agreements not
so terminated being herein called "Assumed Operating Agreements"). With respect
----------------------------
to the Assumed Operating Agreements, the Lessee shall be required at Closing to
assume all obligations thereunder accruing from and after the Closing Date. With
respect to any other Operating Agreement which Patriot requests in writing prior
to the Closing Date be terminated (herein called the "Terminated Operating
--------------------
Agreements"), (a) upon Patriot's request, Seller shall give notice of
- ----------
termination of such Terminated Operating Agreements to the appropriate party,
and (b) if Seller has no right to terminate same, or if any substantial fee is
due thereunder as a result of such termination, Patriot shall be required to pay
for the payment of the termination charge at Closing.
6.2 Warranties and Guaranties. Seller shall not before or after Closing
-------------------------
release or modify any Warranties and Guaranties, if any, except with the prior
written consent of Patriot.
6.3 Insurance. Seller shall pay all premiums on, and shall not cancel or
---------
voluntarily allow to expire, any of Seller's Insurance Policies unless such
policy is replaced, without any lapse of coverage, by another policy or policies
providing coverage at least as extensive as the policy or policies being
replaced.
6.4 Independent Audit. Promptly following the execution of this
-----------------
Agreement, Seller shall provide and shall cause its management company to
provide to Patriot's representatives and independent accounting firm access to
financial and other information relating to the Property in the possession of or
otherwise available to Seller, its affiliates or Seller's management company
which would be sufficient to enable Patriot's representatives and independent
accounting firm to prepare audited financial statements for 1993, 1994 and 1995
in conformity with generally accepted accounting principles and to enable them
to prepare such statements, reports or disclosures as Patriot may deem necessary
or advisable and to audit net operating income for the Property. Seller shall
also provide and/or shall cause its management company to provide to Patriot's
independent accounting firm a signed representation letter which would be
sufficient to enable an independent public accountant to render an opinion on
the financial statements related to the Property. Seller shall authorize and
shall cause its management company to authorize any attorneys who have
represented Seller or its management company in material litigation pertaining
to or affecting the Property to respond, at Patriot's expense, to inquiries from
Patriot's representatives and independent accounting firm. If and to the extent
Seller's financial statements pertaining to the Property for any periods during
the years 1993, 1994 or 1995 have been audited, promptly after the execution of
this Agreement Seller shall provide Patriot with copies of such
<PAGE>
audited financial statements and shall cooperate with Patriot's representatives
and independent public accountants to enable them to contact the auditors who
prepared such audited financial statements and to obtain, at Patriot's expense,
a reissuance of such audited financial statements.
6.5 Operation of Property Prior to Closing. Seller covenants and agrees
--------------------------------------
with Patriot that, between the date of this Agreement (or such other date as
specified below) and the date of Closing:
(a) Subject to the restrictions contained herein, Seller shall operate
the Property in the same manner in which Seller operated the Property prior to
the execution of this Agreement, so as to keep the Property in good condition,
reasonable wear and tear excepted, and so as to maintain the existing caliber of
the Hotel operations conducted at the Property and the reasonable good will of
all tenants of the Property and all employees, guests and other customers of the
Hotel.
(b) Seller shall maintain its books of account and records in the
usual, regular and ordinary manner, in accordance with sound accounting
principles applied on a basis consistent with the basis used in keeping its
books in prior years.
(c) Seller shall maintain in full force and effect all Insurance
Policies.
(d) Seller shall use and operate the Property in compliance in all
material respects with Applicable Laws and the requirements of any mortgage,
lease, Occupancy Agreement, Operating Agreement and Insurance Policy affecting
the Property.
(e) Seller shall cause to be paid prior to delinquency all ad valorem,
occupancy and sales taxes due and payable with respect to the Property or the
operation of the Hotel.
(f) Seller shall not permit the inventory of food, beverages, stock of
linens, towels, paper goods, soaps, cleaning supplies, china, glassware,
silverware, table cloths, napkins, miscellaneous guest supplies and engineering
cleaning supplies constituting a portion of the Tangible Personal Property to be
diminished other than as a result of the ordinary and necessary operation of the
Hotel by Seller.
(g) Seller shall not remove or cause or permit to be removed any part
or portion of the Real Property or the Tangible Personal Property without the
express written consent of Patriot unless the same is replaced, prior to
Closing, with similar items of at least equal suitability, quality and value,
free and clear of any liens or security interests.
(h) Seller and Seller's managing agent shall continue to use its best
efforts to take guest room reservations and to book functions and meetings and
otherwise to promote the business of the Property in generally the same manner
as Seller did prior to the execution of this Agreement; and all advance room
bookings and reservations and all meetings and function bookings shall be booked
at rates, prices and charges heretofore customarily charged by Seller for such
purposes, and in accordance with Seller's published rate schedules. Seller
acknowledges that the Purchase Price includes the transfer of Advance Bookings.
<PAGE>
(i) Neither Seller nor Seller's managing agent shall make any
agreements which shall be binding upon Patriot with respect to the Property or
that otherwise cannot be terminated without penalty upon thirty (30) days
notice.
(j) Seller shall promptly deliver to Patriot upon Patriot's request
such reports showing the revenue and expenses of the Hotel and all departments
thereof, together with such periodic information with respect to room
reservations and other bookings, as Seller customarily keeps or receives
internally for its own use.
(k) Seller or Seller's managing agent shall not enter into any
employment agreements which would be binding on Patriot with respect to the
Property.
(l) Seller shall promptly advise Patriot of any litigation,
arbitration or administrative hearing concerning or affecting the Property of
which Seller obtains written notice or of which Seller has knowledge.
6.6 No Marketing. Seller shall not market the Property for sale or enter
------------
into discussions or negotiations with potential purchasers of the Property.
6.7 Employees. Payment of costs and expenses associated with accrued but
---------
unpaid salary, earned but unpaid vacation pay, accrued but unearned vacation
pay, pension and welfare benefits, the Consolidated Omnibus Budget
Reconciliation Act of 1985, as amended ("COBRA") benefits, employee fringe
-----
benefits, employee termination payments or any other employee benefits due to
Seller's, or Seller's management company's employees shall be the sole
responsibility and obligation of and shall be paid promptly by Seller or
Seller's management company and Patriot shall have no liability whatsoever for
any such payments and benefits concerning the employees of Seller or of Seller's
management company. Seller shall indemnify and defend Patriot and its lessee,
management company and affiliates, from and against any and all claims, causes
of action, proceedings, judgments, damages, penalties and liabilities made,
assessed or rendered against Patriot and/or its lessee, management company and
affiliates, and any costs and expenses (including attorneys' fees and
disbursements) incurred by Patriot and/or its lessee, management company and
affiliates, with respect to claims, causes of action, judgments, damages,
penalties and liabilities asserted by such employees arising out of the failure
of Seller or Seller's management company to comply with the provisions of this
Subsection 6.7. This indemnification shall be separate from and in addition to
- --------------
the indemnification given by Seller to Patriot in Article X below. The
---------
provisions of this Section 6.7 shall survive the Closing.
-----------
The foregoing covenants of Seller are for the benefit of Patriot or its assignee
of its permitted rights under this Agreement.
ARTICLE VII
-----------
INTENTIONALLY DELETED
---------------------
ARTICLE VIII
------------
<PAGE>
CLOSING
-------
8.1 Closing. The Closing shall occur on a business day designated by
-------
Patriot, with at least five (5) days notice to Seller (which day shall be no
later than August 16, 1996). As more particularly described below, at the
Closing the parties hereto will (i) execute all of the documents required to be
delivered in connection with the transactions contemplated hereby (the "Closing
-------
Documents"), (ii) deliver the same to Escrow Agent, and (iii) take all other
- ---------
action required to be taken in respect of the transactions contemplated hereby.
The Closing will occur at the offices of Akin, Gump, Strauss, Hauer & Feld,
L.L.P., 1700 Pacific Avenue, Suite 4100, Dallas, Texas 75201, or at such other
place as Patriot shall designate by written notice to Seller given at least five
days prior to the Closing. At the Closing, Patriot shall deliver the Purchase
Price to Escrow Agent, Escrow Agent shall return the Deposit to Patriot and
update the title to the Property, Escrow Agent shall record the Deed, release
and date, where appropriate, the Closing Documents in accordance with the joint
instructions of Seller and Patriot and shall send, by wire transfer, all sums
owing to Seller hereunder to Seller. As provided herein, the parties hereto
will agree upon adjustments and prorations to certain items which cannot be
exactly determined at the Closing and will make the appropriate adjustments with
respect thereto. Possession of the Property shall be delivered to Patriot at the
Closing, subject only to Permitted Title Exceptions and the rights of tenants
under the Occupancy Agreements and guests in possession.
8.2 Seller's Deliveries. At the Closing, Seller shall deliver, if not
-------------------
previously delivered by Seller pursuant to the terms hereof, to Escrow Agent all
of the following instruments, each of which, where applicable, shall have been
duly executed and, where applicable, acknowledged and/or sworn on behalf of
Seller and shall be dated as of the Closing Date:
(a) The Deed.
(b) The Bill of Sale - Personal Property.
(c) The Assignment and Assumption Agreement to Patriot and/or its
property manager, lessee or other designee (as Patriot shall specify).
(d) The Assignment of Occupancy Agreements together with an estoppel
letter from each of the tenants and concessionaires of Occupancy Agreements
being assigned thereunder (1) identifying each such Occupancy Agreement and
amendments or addenda thereto, or modifications thereof, by which each such
tenant or concessionaire occupies its premises, (2) certifying that there are no
further amendments or modifications thereof, (3) setting forth the amount of
security deposit, if any, (4) certifying that, so far as is known to such tenant
or concessionaire, Seller is not in default under the terms, conditions and
provisions of such Occupancy Agreements, (5) certifying that the tenant or
concessionaire is not due any rebates, offsets or other monies or things of
value thereunder, and (6) certifying as to the status of the rent and concession
payments as of the date of such Occupancy Agreement; provided, however, that if
any tenant refuses to execute an estoppel certificate, Patriot agrees to accept
in lieu thereof, a certificate of Seller as to such matters, qualified to
Seller's knowledge.
(e) Intentionally Deleted.
<PAGE>
(f) To the extent reasonably available, certificates from the
applicable State taxing authority and local taxing authorities stating that all
occupancy and sales taxes due and payable for the Property have been paid and,
if any such taxes have not been paid, the amount due and payable as of the
Closing Date.
(g) Certificate(s)/Registration of Title for any vehicle owned by
Seller and used in connection with the Property.
(h) Such agreements, affidavits or other documents as may be required
by the Title Company to issue the Owner's Title Policy subject only to the
Permitted Title Exceptions and to eliminate such standard exceptions and to
issue such endorsements thereto which may be eliminated and issued under
applicable State law and which are customarily required by institutional
investors purchasing property comparable to the Property.
(i) The FIRPTA Certificate.
(j) All original Warranties and Guaranties in Seller's possession or
reasonably available to Seller.
(k) Either (1) appropriate resolutions of the partners of Seller,
together with all other necessary approvals and consents of Seller and such
documentary and other evidence as may be reasonably required by Escrow Agent,
authorizing and evidencing the authorization of (i) the execution on behalf of
Seller of this Agreement and the authority of the person or persons who are
executing the various documents to be executed and delivered by Seller prior to,
at or otherwise in connection with the Closing, and (ii) the performance by
Seller of its obligations hereunder and under such documents, or (2) a legal
opinion of Seller's counsel covering all such matters.
(l) A valid, final and unconditional certificate of occupancy for the
Real Property and Improvements, issued by the appropriate Governmental
Authority.
(m) If Patriot is assuming Seller's obligations under any or all of
the Operating Agreements, the originals of such agreements, and with respect to
the material Operating Agreements, consent to the assignment thereof
acknowledged and approved by the other parties to such Operating Agreements to
the extent required by such Operating Agreements.
(n) With respect to the material Personal Property Leases, (1) the
written consent of the lessors of such leases to such assignment, if required by
such Personal Property Leases, and (2) executed originals of all such leases in
Seller's possession or reasonably available to Seller. If any Leased Property
is leased pursuant to a lease which is a capital lease, in accordance with
generally accepted accounting principles, and is not listed on Schedule 6
----------
hereto, Seller shall cancel such capital lease at its expense and convey good
and marketable title to such property (which shall constitute Tangible Personal
Property hereunder) to Patriot free from any lien or encumbrance pursuant to the
Bill of Sale - Personal Property.
<PAGE>
(o) The written consent of, or a comfort letter from, Manager or the
appropriate affiliate of Manager or Lessee, in the form of Exhibit D hereto.
---------
(p) Copies of all existing Insurance Policies if same are assumed by
Patriot.
(q) To the extent in Seller's possession or reasonably available to
Seller, originals of the following items (which shall be deemed delivered by
Seller under this Section 8.2 if delivered to the property manager at the
-----------
Hotel): (1) complete sets of all architectural, mechanical, structural and/or
electrical plans and specifications used in connection with the construction of
or alterations or repairs to the Property; and (2) as-built plans and
specifications for the Property.
(r) To the extent assignable, a written instrument executed by Seller,
conveying and transferring to Patriot all of Seller's right, title and interest
in any telephone numbers and TWX numbers relating to the Property, and, if
Seller maintains a post office box, conveying to Patriot all of its interest in
and to such post office box and the number associated therewith, so as to assure
a continuity in operation and communication.
(s) Duplicate originals of all agreements, leases, concession
agreements and other instruments affecting the Property and the Hotel and/or
restaurant business conducted thereon.
(t) All current real estate and personal property tax bills in
Seller's possession or under its control.
(u) If available, by delivery to the property manager at the Hotel, a
complete set of all guest registration cards, guest transcripts, guest
histories, and all other available guest information.
(v) A complete list of all advance room reservations, functions and
the like, in reasonable detail so as to enable Patriot to honor Seller's
commitments in that regard.
(w) A list of Seller's outstanding accounts receivable as of midnight
on the date prior to the Closing, specifying the name of each account and the
amount due Seller (which items shall be deemed delivered by Seller if delivered
to property manager of the Hotel).
(x) All books, records, operating reports, appraisal reports, files
and other materials in Seller's possession or control which are necessary in
Patriot's discretion to maintain continuity of operation of the Property (which
items shall be deemed delivered by Seller under this Section 8.2 if delivered to
-----------
the property manager at the Hotel).
(y) A current UCC Report showing no financing statements by Seller as
Debtor covering the Property.
(z) Executed originals of all Occupancy Agreements and, to the extent
available, Authorizations transferred or assigned to Patriot at Closing as
required hereunder
<PAGE>
(which items shall be deemed delivered by Seller under this Section 8.2 is
-----------
delivered to the property manager at the Hotel).
(aa) An opinion from Seller's counsel stating that Seller has duly
authorized, executed and delivered to Patriot this Agreement and all of the
conveyance documents to be delivered by Seller hereunder.
(bb) Any other document or instrument reasonably requested by Patriot
or required hereby.
8.3 Patriot's Deliveries.
--------------------
(a) At the Closing, Patriot shall deliver to Escrow Agent the portion
of the Purchase Price described in Section 2.2 hereof.
-----------
(b) At the Closing, Patriot shall deliver to Seller any other document
or instrument reasonably requested by Seller or required hereby.
(c) Any other document or instrument reasonably required by Patriot or
required hereby.
8.4 Mutual Deliveries. At the Closing, Patriot and Seller shall mutually
-----------------
execute and deliver each to the other:
(a) A final closing statement reflecting the Purchase Price and the
adjustments and prorations required hereunder and the allocation of income and
expenses required hereby.
(b) Such other documents, instruments and undertakings as may be
required by the liquor authorities of the State where the Property is located,
or of any county or municipality or governmental entity having jurisdiction with
respect to the transfer or issue of liquor licenses or alcoholic beverage
licenses or permits for the Hotel, to the extent not theretofore executed and
delivered.
(c) The Lease.
(d) Such other and further documents, papers and instruments as may be
reasonably required by the parties hereto or their respective counsel.
8.5 Closing Costs. Except as is explicitly provided in this Agreement,
-------------
each party hereto shall pay its own legal fees and expenses. All filing fees
for the Deed and the transfer, recording, sales or other similar taxes and
surtaxes due with respect to the transfer of title shall be paid by Seller.
Seller shall pay for the costs associated with the releases of any deeds of
trust, mortgages and other financing encumbering the Property and for any costs
associated with any corrective instruments. Seller shall pay all costs for
title searches and all premiums for the issuance of the Title Policy and all
endorsements (other than a zoning endorsement) thereto and deletions therefrom
which are customarily required by institutional investors purchasing property
<PAGE>
comparable to the Property. Patriot shall pay all other costs (except any costs
incurred by Seller for its own account) in carrying out the transactions
contemplated hereunder.
8.6 Revenue and Expense Allocations. All revenues and expenses with
-------------------------------
respect to the Property, and applicable to the period of time before and after
Closing, determined in accordance with sound accounting principles consistently
applied, shall be allocated between Seller and Patriot as provided herein.
Seller shall be entitled to all revenue and shall be responsible for all
expenses for the period of time up to but not including the date of Closing, and
Patriot shall be entitled to all revenue and shall be responsible for all
expenses for the period of time from, after and including the date of Closing
(provided that housekeeping costs and the Rooms Ledger for the date of Closing
shall be shared equally between Patriot and Seller). Such adjustments shall be
shown on the closing statements (with such supporting documentation as the
parties hereto may require being attached as exhibits to the closing statements)
and shall increase or decrease (as the case may be) the cash amount payable by
Patriot pursuant to Section 2.2 hereof. Without limiting the generality of the
-----------
foregoing, the following items of revenue and expense shall be allocated at
Closing:
(a) Current rents.
(b) Real estate and personal property taxes.
(c) Revenue and expenses under the Operating Agreements to be assigned
to and assumed by Patriot.
(d) Utility charges (including, but not limited to, charges for water,
sewer and electricity).
(e) Value of fuel stored on the Property at the price paid for such
fuel by Seller, including any taxes.
(f) Municipal or other governmental improvement liens, which shall be
paid by Seller at Closing where the work has physically commenced, and which
shall be assumed by Patriot at Closing where the work has been authorized, but
not physically commenced.
(g) Insurance premiums, to the extent the Insurance Policies are
assumed by Patriot.
(h) Permit fees, where transferable.
(i) All other revenues and expenses of the Property, including, but
not limited to, such things as restaurant, bar and meeting room income and
expenses and the like.
(j) Such other items as are usually and customarily prorated between
purchasers and sellers of hotel properties in the area where the Property is
located.
<PAGE>
Patriot shall retain and receive a credit against the Purchase Price for the
total of (i) prepaid rents, (ii) prepaid room receipts and deposits, function
receipts and deposits and other reservation receipts and deposits, (iii)
unforfeited security deposits together with interest thereon held by Seller
under the Occupancy Agreements, and (iv) the value of any complimentary rooms
(based upon the "rack" rate for each room) and any complimentary food or
beverages (based upon the advertised rate for each food and beverage) provided
by Seller from and after 12:01 a.m. on the Closing Date. At Closing, Seller
shall sell to Patriot in connection with the Hotel, and Patriot shall purchase
from Seller, at face value the so-called "guest ledger" as mutually approved by
Patriot and Seller for the Hotel of guest accounts receivable payable to the
Hotel as of the check out time for the Hotel on the Closing Date (based on
guests and customers then using the Hotel) both (1) in occupancy from the
preceding night through check out time the morning of the Closing Date, and (2)
previously in occupancy prior to check out time on the Closing Date; provided,
however, that the term "guest ledger" shall not include any accounts receivable
which have been or are to be paid by any means other than a credit card.
Patriot shall not be obligated to purchase such non-credit card accounts
receivable, and Seller shall retain all rights with respect thereto (including,
without limitation, the right to collect same). For purposes of this Agreement,
transfer or sale at face value shall have the following meaning for the guest
ledger: the total of all credit card accounts receivable as shown on the records
of the Hotel, less actual collection costs (i.e., fees retained by credit card
companies), less accounting charges for rooms furnished on a gratuity or
complimentary basis to any hotel staff or as an accommodation to other parties
and less Patriot's one-half ( 1/2) share of the Rooms Ledger. The purchase
price of said guest ledger, as determined above, shall be paid to Seller at
Closing by a credit to Seller in the computation of the adjustments and
prorations on the Closing Date.
Seller shall pay or cause to be paid all real estate taxes and special
assessments for the Property due and payable in, or deferred with respect to the
years prior to, the year in which the Closing occurs. All special assessments
pending, levied or due and payable on or prior to the Closing Date shall be paid
by Seller on or before the Closing Date. All subdivision and platting costs and
expenses heretofore incurred by Seller, including, without limitation, all
subdivision exactions, fees and costs and all dedication of land for parks and
other public uses or payment of fees in lieu thereof, shall be paid by Seller on
or prior to the Closing Date.
Seller shall be required to pay all sales, occupancy and liquor taxes and like
impositions currently through the date of Closing and if reasonably available,
deliver evidence of payment of same to Patriot.
Patriot shall not be obligated to collect any delinquent rents, or revenues
accrued prior to the Closing Date for Seller, but if Patriot collects same, such
amounts shall be promptly remitted to Seller in the form received.
If accurate allocations cannot be made at Closing because current bills are not
obtainable (as, for example, in the case of utility bills and/or real estate or
personal property taxes) or appeals are pending, the parties shall allocate such
revenue or expenses at Closing on the best available information, subject to
adjustment upon receipt of the final bill or other evidence of the applicable
revenue or expense. The obligation to make the adjustment shall survive the
closing of the transaction contemplated by this Agreement. Any revenue received
or expense incurred by Seller
<PAGE>
or Patriot with respect to the Property after the date of Closing shall be
promptly allocated in the manner described herein and the parties shall promptly
pay or reimburse any amount due. The proration provisions of this Agreement
shall survive the Closing of the transaction contemplated hereby for a period of
twelve (12) months.
ARTICLE IX
----------
GENERAL PROVISIONS
------------------
9.1 Condemnation. In the event of any actual or threatened taking,
------------
pursuant to the power of eminent domain, of all or any portion of the Real
Property, or any proposed sale in lieu thereof, Seller shall give written notice
thereof to Patriot promptly after Seller learns or receives notice thereof. If
all or a Substantial Portion (as hereinafter defined) of the Real Property is,
or is to be, so condemned or sold, Patriot shall have the right to terminate
this Agreement pursuant to Section 10.4 hereof. If Patriot elects not to
------------
terminate this Agreement, all proceeds, awards and other payments arising out of
such condemnation or sale (actual or threatened) shall be paid or assigned, as
applicable, to Patriot at Closing. Seller shall not settle or compromise any
such proceeding without Patriot's written consent. If Patriot elects to
terminate this Agreement by giving Seller written notice thereof prior to the
Closing, the Deposit shall be promptly returned to Patriot and all rights and
obligations of Seller and Patriot hereunder (except those set forth herein which
expressly survive a termination of this Agreement) shall terminate immediately.
In the event any portion of the Real Property is affected by a condemnation,
sale or eminent domain action and such condemnation, sale or eminent domain
action does not constitute a Substantial Portion of the Real Property, this
Agreement shall remain in full force and effect without a reduction in the
Purchase Price except as provided below. In the event of any such condemnation,
sale or eminent domain action that does not constitute a Substantial Portion of
the Real Property, Patriot shall be entitled to any and all claims that Seller
may have to condemnation awards or any and all causes of action with respect to
such condemnation, sale or eminent domain action (all of which shall be assigned
by Seller to Patriot at Closing), and Seller shall credit to Patriot at Closing,
by an appropriate adjustment to the Purchase Price, an amount equal to all
payments (if any) theretofore received by Seller with respect to such
condemnation, sale or eminent domain action. For purposes of this Section 9.1,
-----------
a "Substantial Portion" shall mean a condemnation of in excess of $250,000.00 in
-------------------
value of the Real Property. This provision shall survive the Closing of the
transaction contemplated hereby.
9.2 Risk of Loss. The risk of any loss or damage to the Property prior to
------------
the recordation of the Deed shall remain upon Seller. If any such loss or
damage which constitutes Substantial Loss or Damage occurs prior to Closing,
Patriot shall have the right to terminate this Agreement pursuant to Section
-------
10.4 hereof. If Patriot elects not to terminate this Agreement, all insurance
- ----
proceeds and rights to proceeds arising out of such loss or damage shall be paid
or assigned, as applicable, to Patriot at Closing and Patriot shall receive as a
credit against the Purchase Price the amount of any deductibles under the
policies of insurance covering such loss or damage. If Patriot elects to
terminate this Agreement by giving Seller written notice thereof prior to the
Closing, the Deposit shall be promptly returned to Patriot and all rights and
obligations of Seller and Patriot hereunder (except those set forth herein which
expressly survive a termination of this Agreement) shall terminate immediately.
In the event any of the Property
<PAGE>
or any of the items constituting the Personal Property should be damaged or
destroyed as a result of fire or other casualty and such damage does not
constitute Substantial Loss or Damage and such damage is not repaired prior to
Closing, the rights and obligations of Seller and Patriot hereunder with respect
to the Property shall not be affected by such destruction or damage and Patriot
shall accept title to the Property in its destroyed or damaged condition. In
such event, at the Closing, Patriot shall receive a credit against the Purchase
Price equal to the amount of damage to the Property resulting from such loss or
damage. For purposes of this Section 9.2, "Substantial Loss or Damage" shall
--------------------------
mean loss or damage, the cost for repair of which (as mutually determined by
Patriot and Seller at the time of such loss or damage) exceeds $250,000.00. In
the event that Patriot and Seller are unable to agree on the cost of repair of
any Substantial Loss or Damage, then such cost of repair shall be determined by
an insurance adjuster selected by Seller and approved by Patriot, such approval
not to be unreasonably withheld. This provision shall survive the Closing of the
transaction contemplated hereby.
9.3 Absence of Broker. There is no real estate broker involved in this
-----------------
transaction. Patriot warrants and represents to Seller that Patriot has not
dealt with any real estate broker in connection with this transaction, nor has
Patriot been introduced to the Property or to Seller by any real estate broker,
and Patriot shall indemnify Seller and save and hold Seller harmless from and
against any claims, suits, demands or liabilities of any kind or nature
whatsoever arising on account of the claim of any person, firm or corporation to
a real estate brokerage commission or a finder's fee as a result of having dealt
with Patriot, or as a result of having introduced Patriot to Seller or to the
Property. In like manner, Seller warrants and represents to Patriot that Seller
has not dealt with any real estate broker in connection with this transaction,
nor has Seller been introduced to Patriot by any real estate broker, and Seller
shall indemnify Patriot and save and hold Patriot harmless from and against any
claims, suits, demands or liabilities of any kind or nature whatsoever arising
on account of the claim of any person, firm or corporation to a real estate
brokerage commission or a finder's fee as a result of having dealt with Seller
in connection with this transaction.
9.4 Bulk Sale. Seller shall indemnify Patriot and save and hold Patriot
---------
harmless from and against any claims, suits, demands, liabilities or obligations
of any kind or nature whatsoever, including all costs of defending same, and
reasonable attorneys' fees paid or incurred in connection therewith, arising out
of or relating to any claim made by any third party or any liability asserted by
any third party that any applicable bulk sales law or like statute has not been
complied with. The provisions of this Section shall survive the Closing of the
transaction contemplated hereby.
9.5 Confidentiality. Except as hereinafter provided, from and after the
---------------
execution of this Agreement, Patriot and Seller shall keep the terms, conditions
and provisions of this Agreement confidential and neither shall make any public
announcements hereof unless the other first approves of same in writing, nor
shall either disclose the terms, conditions and provisions hereof, except to
persons who "need to know", such as their respective officers, directors,
employees, attorneys, accountants, engineers, surveyors, consultants,
financiers, partners, investors, potential lessees and bankers and such other
third parties whose assistance is required in connection with the consummation
of this transaction. Notwithstanding the foregoing, it is acknowledged that
Patriot is, or is an affiliate of, a real estate investment trust (the "REIT")
----
and
<PAGE>
the REIT has and will seek to sell shares to the general public; consequently,
Patriot shall have the absolute and unbridled right to disclose any information
regarding the transaction contemplated by this Agreement required by law or as
determined to be necessary or appropriate by Patriot or Patriot's attorneys to
satisfy disclosure and reporting obligations of Patriot or its affiliates under
applicable law. After Closing, Patriot shall be free to disclose previously
confidential information in its sole, unfettered discretion; provided, however,
neither Seller nor Patriot shall issue any press release regarding the
transaction contemplated hereby for the period which is fourteen (14) days
following the Closing Date without the consent of the other party.
9.6 Seller's Accounts Receivable. It is expressly agreed by and between
----------------------------
Patriot and Seller that Seller is not hereby agreeing to sell to Patriot, and
Patriot is not hereby agreeing to purchase from Seller, any of Seller's accounts
receivable. All of Seller's accounts receivable shall be and remain the
property of Seller, subsequent to the Closing of the transaction contemplated
hereby. At the Closing, Seller shall prepare a list of its outstanding accounts
receivable as of midnight on the date prior to the Closing, specifying the name
of each account and the amount due to Seller. Patriot shall hold any funds
received by Patriot explicitly designated as payment of such accounts
receivable, in trust, if Patriot actually collects any such amounts, and shall
pay the monies collected in respect thereof to Seller at the end of each
calendar month, accompanied by a statement showing the amount collected on each
such account. Other than the foregoing, Patriot shall have no obligation with
respect to any such account, and Patriot shall not be required to take any legal
proceeding or action to effect collection on behalf of Seller. It is generally
the intention of Patriot and Seller that although all of Seller's accounts
receivable shall be and remain the property of Seller, still, if any such
accounts are paid to Patriot, then Patriot shall collect same and remit to
Seller in the manner above provided. Nothing herein contained shall be
construed as requiring Patriot to remit to Seller any funds collected by Patriot
on account of Patriot's accounts receivable generated from Hotel operations,
even if the person or entity paying same is also indebted to Seller. Seller
agrees that it shall not bring any legal action to enforce collection of payment
of any accounts receivable against any current tenant of the Property or other
third party in a contractual or business relationship with the Property as of
the Closing Date.
ARTICLE X
---------
LIABILITY OF PATRIOT;
---------------------
INDEMNIFICATION BY SELLER; DEFAULT; TERMINATION RIGHTS
------------------------------------------------------
10.1 Liability of Patriot. Except for obligations expressly assumed
--------------------
or agreed to be assumed by Patriot hereunder, Patriot is not assuming any
obligations of Seller or any liability for claims arising out of any act,
omission or occurrence which occurs, accrues or arises prior to the Closing
Date, and Seller hereby indemnifies and holds Patriot harmless from and against
any and all claims, costs, penalties, damages, losses, liabilities and expenses
(including reasonable attorneys' fees) that may at any time be incurred by
Patriot and its affiliates as a result of (1) obligations of Seller not
expressly assumed or agreed to be assumed by Patriot hereunder, or (2) acts,
omissions or occurrences which occur, accrue or arise prior to the Closing Date.
Patriot hereby indemnifies and holds Seller harmless from and against any and
all claims, costs, penalties, damages, losses, liabilities and expenses
(including reasonable attorneys' fees) that may at any time be incurred by
Seller as a result of acts, omissions or occurrences relating to the Property
<PAGE>
arising and accruing from and after the Closing Date. The provisions of this
Section shall survive the Closing of the transaction contemplated hereby.
10.2 Indemnification by Seller. Seller hereby indemnifies and holds
-------------------------
Patriot harmless from and against any and all claims, costs, penalties, damages,
losses, liabilities and expenses (including reasonable attorneys' fees) that may
at any time be incurred by Patriot, whether before or after Closing, as a result
of any inaccuracy or breach by Seller of any of its representations, warranties,
covenants or obligations set forth herein or in any other document delivered by
Seller pursuant hereto except for any breach or inaccuracy of any representation
or warranty as to which Seller has given Patriot written notice prior to Closing
of the untruth or inaccuracy or of which Patriot otherwise had actual knowledge
prior to the Closing and nevertheless elected to consummate the Closing;
provided, however, the foregoing knowledge limitation on Seller's indemnity
shall not limit Patriot's remedy described in Section 10.4(a)(ii) hereof. The
-------------------
provisions of this Section shall survive the Closing of the transaction
contemplated hereby.
10.3 Indemnification by Patriot. Patriot hereby indemnifies and holds
--------------------------
Seller harmless from and against any and all claims, costs, penalties, damages,
losses, liabilities and expenses (including reasonable attorneys' fees) that may
at any time be incurred by Seller, whether before or after Closing, as a result
of any inaccuracy or breach by Patriot of any of its representations,
warranties, covenants or obligations set forth herein or in any other document
delivered by Patriot to Seller pursuant hereto except for any breach or
inaccuracy of any representation or warranty as to which Patriot has given
Seller written notice prior to Closing of the untruth or inaccuracy or of which
Seller otherwise had actual knowledge prior to the Closing and nevertheless
elected to consummate the Closing. The provisions of this Section shall survive
the Closing of the transaction contemplated hereby.
10.4 Default by Seller/Failure of Conditions Precedent. If any condition
-------------------------------------------------
set forth herein for the benefit of Patriot cannot or will not be satisfied
prior to Closing (other than due to a default by Patriot), or upon the
occurrence of any other event that would entitle Patriot to terminate this
Agreement and its obligations hereunder, and if Seller fails to cure any such
matter or satisfy that condition within ten (10) business days after notice
thereof from Patriot (or such other time period as may be explicitly provided
for herein), Patriot, at its option, may elect (a) to terminate this Agreement,
in which event (i) the Deposit shall be promptly returned to Patriot, (ii) if
the condition which has not been satisfied is a breach of a representation,
warranty or covenant, then Seller shall be obligated upon demand to reimburse
Patriot for Patriot's actual out-of-pocket inspection, financing and other costs
related to Patriot's entering into this Agreement, inspecting the Property and
preparing for a Closing of the transaction contemplated hereby, including,
without limitation, Patriot's attorneys' fees incurred in connection with the
preparation, negotiation and execution of this Agreement, in connection with
Patriot's due diligence review, audits and preparation for a Closing up to an
aggregate amount of $750,000.00, said amount being the aggregate limitation for
the foregoing costs and expenses for the Hotel and the Other Properties;
provided, however, the foregoing shall not limit or include the sums which may
be payable by Seller pursuant to Section 10.6, and (iii) all other rights and
------------
obligations of Seller and Patriot hereunder (except those set forth herein which
expressly survive a termination of this Agreement) shall terminate immediately;
or (b) elect to proceed to Closing. If Patriot elects to proceed to Closing and
there is either a misrepresentation or breach of a warranty by Seller (other
<PAGE>
than a breach of a representation or warranty of which Patriot had actual
knowledge prior to the Closing and nevertheless elected to consummate the
Closing) or the breach of a covenant by Seller or a failure by Seller to perform
its obligations hereunder, Patriot shall retain all remedies accruing as a
result thereof, including, but not limited to the remedy of specific performance
of Seller's covenants and obligations and the remedy of the recovery of all
reasonable damages resulting from Seller's breach of warranty or covenant.
10.5 Default by Patriot/Failure of Conditions Precedent. If any
--------------------------------------------------
condition set forth herein for the benefit of Seller (other than a default by
Patriot) cannot or will not be satisfied prior to Closing, and if Patriot fails
to satisfy that condition within ten (10) business days after notice thereof
from Seller (or such other time period as may be explicitly provided for
herein), Seller may, at its option, elect either (a) to terminate this Agreement
in which event the Deposit shall be promptly returned to Patriot and the parties
hereto shall be released from all further obligations hereunder except those
which expressly survive a termination of this Agreement, or (b) to waive its
right to terminate, and instead, to proceed to Closing. If, prior to Closing,
Patriot defaults in performing any of its obligations under this Agreement
(including its obligation to purchase the Property), and Patriot fails to cure
any such default within ten (10) business days after notice thereof from Seller,
then Seller's sole and exclusive remedy for such default shall be to terminate
this Agreement and retain the Deposit. Seller and Patriot agree that, in the
event of such a default, the damages that Seller would sustain as a result
thereof would be difficult if not impossible to ascertain. Therefore, Seller
and Patriot agree that, Seller shall retain the Deposit as full and complete
liquidated damages and as Seller's sole remedy.
10.6 Costs and Attorneys' Fees. In the event of any litigation or dispute
-------------------------
between the parties arising out of or in any way connected with this Agreement,
resulting in any litigation, then the prevailing party in such litigation shall
be entitled to recover its costs of prosecuting and/or defending same,
including, without limitation, reasonable attorneys' fees at trial and all
appellate levels. The provisions of this Section shall survive the Closing of
the transaction contemplated hereby.
10.7 Limitation of Liability. Notwithstanding anything herein to the
-----------------------
contrary, except in the case of fraud by either party, the liability of each
party hereto resulting from the breach or default by either party or pursuant to
any indemnity provided for in this Agreement shall be limited to actual damages
incurred by the injured party and except in the case of fraud by either party,
the parties hereto hereby waive their rights to recover from the other party
consequential, punitive, exemplary, and speculative damages. The provisions of
this Section 10.7 shall survive the Closing of the transaction contemplated
------------
hereby.
ARTICLE XI
----------
MISCELLANEOUS PROVISIONS
------------------------
11.1 Completeness; Modification. This Agreement constitutes the entire
--------------------------
agreement between the parties hereto with respect to the transactions
contemplated hereby and supersedes all prior discussions, understandings,
agreements and negotiations between the parties hereto. This Agreement may be
modified only by a written instrument duly executed by the parties hereto.
<PAGE>
11.2 Assignments. Patriot may assign its rights hereunder to an
-----------
Affiliated Company of Purchase, including, without limitation, Patriot American
Hospitality Partnership, L.P., without the consent of Seller; however, any such
assignment shall not relieve Patriot of its obligations under this Agreement.
11.3 Successors and Assigns. This Agreement shall bind and inure to
----------------------
the benefit of the parties hereto and their respective successors and assigns.
11.4 Days. If any action is required to be performed, or if any notice,
----
consent or other communication is given, on a day that is a Saturday or Sunday
or a legal holiday in the jurisdiction in which the action is required to be
performed or in which is located the intended recipient of such notice, consent
or other communication, such performance shall be deemed to be required, and
such notice, consent or other communication shall be deemed to be given, on the
first business day following such Saturday, Sunday or legal holiday. Unless
otherwise specified herein, all references herein to a "day" or "days" shall
refer to calendar days and not business days.
11.5 Governing Law. This Agreement and all documents referred to herein
-------------
shall be governed by and construed and interpreted in accordance with the laws
of the State where the Land is located.
11.6 Counterparts. To facilitate execution, this Agreement may be
------------
executed in as many counterparts as may be required. It shall not be necessary
that the signature on behalf of both parties hereto appear on each counterpart
hereof. All counterparts hereof shall collectively constitute a single
agreement.
11.7 Severability. If any term, covenant or condition of this Agreement,
------------
or the application thereof to any person or circumstance, shall to any extent be
invalid or unenforceable, the remainder of this Agreement, or the application of
such term, covenant or condition to other persons or circumstances, shall not be
affected thereby, and each term, covenant or condition of this Agreement shall
be valid and enforceable to the fullest extent permitted by law.
11.8 Costs. Regardless of whether Closing occurs hereunder, and
-----
except as otherwise expressly provided herein, each party hereto shall be
responsible for its own costs in connection with this Agreement and the
transactions contemplated hereby, including, without limitation, fees of
attorneys, engineers and accountants.
11.9 Notices. All notices, requests, demands and other communications
-------
hereunder shall be in writing and shall be delivered by hand, transmitted by
facsimile transmission, sent prepaid by Federal Express (or a comparable
overnight delivery service) or sent by the United States mail, certified,
postage prepaid, return receipt requested, at the addresses and with such copies
as designated below. Any notice, request, demand or other communication
delivered or sent in the manner aforesaid shall be deemed given or made (as the
case may be) when actually delivered to the intended recipient.
<PAGE>
If to Seller: CLC Limited Partnership
c/o Crow Family Holdings
3200 Trammell Crow Center
2001 Ross Avenue
Dallas, Texas 75201
Attn: Sue Groenteman
With a copy to: Locke Purnell Rain Harrell
2200 Ross Avenue, Suite 2200
Dallas, Texas 75201-6776
Attn: Janis H. Loegering
If to Patriot: PAH Acquisition Corporation
c/o Patriot American Hospitality, Inc.
3030 LBJ Freeway, Suite 1500
Dallas, Texas 75234
Attn: Thomas W. Lattin, President
With a copy to: Akin, Gump, Strauss, Hauer & Feld, L.L.P.
1700 Pacific Avenue, Suite 4100
Dallas, Texas 75201
Attn: Carl B. Lee, P.C. and Randall M. Ratner, P.C.
If to Escrow Agent: Unity Title Company
717 North Harwood Street
2610 Maxus Energy Tower
Dallas, Texas 75201
Attn: G. Timothy Hardin
or to such other address as the intended recipient may have specified in a
notice to the other party. Any party hereto may change its address or designate
different or other persons or entities to receive copies by notifying the other
party and Escrow Agent in a manner described in this Section.
11.10 Escrow Agent. Escrow Agent referred to in the definition thereof
------------
contained in Section 1.1 hereof has agreed to act as such for the convenience of
-----------
the parties without fee or other charges for such services as Escrow Agent.
Escrow Agent shall not be liable: (a) to any of the parties for any act or
omission to act except for its own willful misconduct; (b) for any legal effect,
insufficiency, or undesirability of any instrument deposited with or delivered
by Escrow Agent or exchanged by the parties hereunder, whether or not Escrow
Agent prepared such instrument; (c) for any loss or impairment of funds that
have been deposited in escrow while those funds are in the course of collection,
or while those funds are on deposit in a financial institution, if such loss or
impairment results from the failure, insolvency or suspension of a financial
institution; (d) for the expiration of any time limit or other consequence of
delay, unless a properly executed written instruction, accepted by Escrow Agent,
has instructed Escrow Agent to comply with said time limit; (e) for the default,
error, action or omission of either party to the
<PAGE>
escrow. Escrow Agent, in its capacity as escrow agent, shall be entitled to rely
on any document or paper received by it, believed by such Escrow Agent, in good
faith, to be bona fide and genuine. In the event of any dispute as to the
disposition of the Deposit, the Deposit or any other monies held in escrow, or
of any documents held in escrow, Escrow Agent may, if such Escrow Agent so
elects, interplead the matter by filing an interpleader action in a court of
general jurisdiction in the county or circuit where the Real Property is located
(to the jurisdiction of which both parties do hereby consent), and pay into the
registry of the court the Deposit, or deposit any such documents with respect to
which there is a dispute in the Registry of such court, whereupon such Escrow
Agent shall be relieved and released from any further liability as Escrow Agent
hereunder. Escrow Agent shall not be liable for Escrow Agent's compliance with
any legal process, subpoena, writ, order, judgment and decree of any court,
whether issued with or without jurisdiction, and whether or not subsequently
vacated, modified, set aside or reversed.
11.11 Incorporation by Reference. All of the exhibits attached hereto
--------------------------
are by this reference incorporated herein and made a part hereof.
11.12 Survival. All of the representations, warranties, covenants and
--------
agreements of Seller and Patriot made in, or pursuant to, this Agreement shall
survive Closing for a period of twelve (12) months and shall not merge into the
Deed or any other document or instrument executed and delivered in connection
herewith.
11.13 Further Assurances. Seller and Patriot each covenant and agree
------------------
to sign, execute and deliver, or cause to be signed, executed and delivered, and
to do or make, or cause to be done or made, upon the written request of the
other party, any and all agreements, instruments, papers, deeds, acts or things,
supplemental, confirmatory or otherwise, as may be reasonably required by either
party hereto for the purpose of or in connection with consummating the
transactions described herein.
11.14 No Partnership. This Agreement does not and shall not be
--------------
construed to create a partnership, joint venture or any other relationship
between the parties hereto except the relationship of Seller and Patriot
specifically established hereby.
11.15 Time of Essence. Time is of the essence with respect to every
---------------
provision hereof.
11.16 Signatory Exculpation. The signatory(ies) for Patriot and Seller
---------------------
is/are executing this Agreement in his/their capacity as representative of
Patriot or Seller, as the case may be, and not individually and, therefore,
shall have no personal or individual liability of any kind in connection with
this Agreement and the transactions contemplated by it.
11.17 Rules of Construction. The following rules shall apply to the
---------------------
construction and interpretation of this Agreement:
(a) Singular words shall connote the plural number as well as the
singular and vice versa, and the masculine shall include the feminine and the
neuter.
<PAGE>
(b) All references herein to particular articles, sections,
subsections, clauses or exhibits are references to articles, sections,
subsections, clauses or exhibits of this Agreement.
(c) The table of contents and headings contained herein are solely
for convenience of reference and shall not constitute a part of this Agreement
nor shall they affect its meaning, construction or effect.
(d) Each party hereto and its counsel have reviewed and revised (or
requested revisions of) this Agreement and have participated in the preparation
of this Agreement, and therefore any usual rules of construction requiring that
ambiguities are to be resolved against a particular party shall not be
applicable in the construction and interpretation of this Agreement or any
exhibits hereto.
IN WITNESS WHEREOF, Seller and Patriot have caused this Agreement to be
executed in their names by their respective duly authorized representatives.
PATRIOT:
-------
PAH ACQUISITION CORPORATION, a Virginia
corporation
By:____________________________________
Name: Michael D. Murphy
Title: Senior Vice President
Date of Execution: July ___, 1996
SELLER:
------
CLC LIMITED PARTNERSHIP, a Texas limited
partnership
By: LB-4, Inc., its general partner
By:_______________________________
Name:_____________________________
Title:____________________________
Date of Execution: July ___, 1996
<PAGE>
RECEIPT OF ESCROW AGENT
-----------------------
Unity Title Company, as Escrow Agent, acknowledges receipt of the Deposit
from Patriot as described in Section 2.3 of the foregoing Agreement of Purchase
-----------
and Sale, said Deposit to be held pursuant to the terms and provisions of said
Agreement.
DATED this _________ day of _____________________________ , 1996.
UNITY TITLE COMPANY
By:___________________________________________
Name:_________________________________________
Title:________________________________________
<PAGE>
EXHIBIT A
---------
LAND
All that lot or parcel of land situated in Dallas County, Texas, more
particularly described as:
<PAGE>
EXHIBIT B
---------
SURVEYOR'S CERTIFICATE
TO: (NAME OF PATRIOT) AND/OR ASSIGNS, PAINEWEBBER REAL ESTATE SECURITIES, INC.,
WHITE & CASE, UNITY TITLE COMPANY AND COMMONWEALTH LAND TITLE INSURANCE
COMPANY:
The undersigned (the "Surveyor") certifies that:
(a) this survey was made on the ground of the property legally described on the
survey or in an attached legal description prepared by Surveyor this date,
and is correct;
(b) there are no discrepancies, conflicts, shortages in area, boundary line
conflicts, encroachments, protrusions, overlapping of improvements,
easements or roadways except as shown on the survey;
(c) this survey correctly shows the location of all buildings, structures,
fences and improvements situated on the property surveyed and the
footprints of such buildings contain approximately ____ square feet;
(d) the property surveyed has direct access to and from the roadways shown on
the survey, which roadways are dedicated public roadways except as
otherwise shown;
(e) this map or plat and the survey on which it is based were made in
accordance with "minimum standard detail requirements for ALTA/ACSM Land
Title surveys", jointly established and adopted by ALTA and ACSM in 1992
and meets the accuracy requirements of an urban survey, as defined therein,
and incudes items 1-4, and 6-11 and 13 in Table A contained therein and
pursuant to the accuracy Standards (as adopted by ALTA and ACSM and in
effect on the date of this certification) of an Urban Survey;
(f) the property surveyed is located within an area having a zone designation
"____" by the Secretary of Housing and Urban Development, on Flood
Insurance Rate Map No. ____, with a date of identification of _________,
for Community No. _______, County, State of _________, which is the current
flood insurance rate map for the community in which said premises is
situated;
(g) the number of parking spaces located on the property is ___________;
(h) all utility services required for the operation of the property surveyed
either (i) enter the property through adjoining public streets, or (ii) the
survey shows the point of entry and location of any utilities which pass
through or are located on adjoining private land and such utility services
enter the property by way of recorded easements;
(i) the property surveyed is not within any wetlands designated on any maps
prepared by the U.S. Army Corps of Engineers of U.S. Department of Game and
Wildlife, and there are no creeks, streams, water courses, or other bodies
of water on the property except as shown on the survey;
(j) the surveyed property and only the surveyed property constitutes one tax
lot and constitutes a single subdivided lot;
(k) Surveyor has reviewed the title commitment dated __________, G.F. No.
________ relating to the property surveyed prepared by Commonwealth Land
Title Insurance Company; and
(l) the existing zoning, use and density classifications are _____________.
The property surveyed and all improvements on the property comply with all
restrictions of record and land use requirements, including limitations and
other requirements or restrictions as to building and tower height and
location, building and structure coverage and depth, setbacks and
sideyards, below grade parking requirements and elevation of other portions
of the improvements, including loading docks;
(m) the property contains approximately __________ square feet.
________________________________________
[NAME OF SURVEYOR]
<PAGE>
EXHIBIT C
---------
OTHER PROPERTIES
1. 148-Room Wyndham Novi, Detroit, Michigan
Seller: Novi Garden Hotel Associates
Purchaser: PAH Acquisition Corporation
2. 162-Room Wyndham Wood Dale, Chicago, Illinois
Seller: Wood Dale Garden Hotel Partnership
Purchaser: PAH Acquisition Corporation
<PAGE>
EXHIBIT D
---------
Wyndham Comfort Letter
----------------------
July ____, 1996
Paine Webber Real Estate Securities Inc.,
its successors, assigns, designees and/or affiliates
1285 Avenue of the Americas, 19th Floor
New York, New York 10019
Patriot American Hospitality Partnership, L.P.,
its successors, assigns, designees and/or affiliates
3030 LBJ Freeway, Suite 1500
Dallas, Texas 75234
Re: Management Agreement by and between and assigned to Crow Hotel Lessee,
Inc., a Texas corporation ("Crow"), as amended pursuant to that
certain Assignment, Assumption and Modification Agreement dated as of
____________, 1996, and Wyndham Management Corporation, a Delaware
corporation ("Wyndham") dated _________________, (as amended and
assigned the "Agreement") in connection with the Hotel located at
_____________________ ("Hotel")
Gentlemen:
Wyndham has entered into the above referenced Agreement pertaining to the
operation of the Hotel as a Wyndham Hotel. Patriot American Hospitality
Partnership, L.P., a Virginia limited partnership ("Patriot"), and Paine Webber
Real Estate Securities Inc. ("Paine Webber") have advised us that Paine Webber
and Patriot have entered, or are about to enter, into a loan agreement whereby
Paine Webber's loan will be secured by a first mortgage on the premises on which
the Hotel is situated. Patriot and Paine Webber have requested that we execute
this letter agreement with respect to Patriot's rights in the Agreement.
Wyndham hereby acknowledges and agrees that in the event that the Lease
Agreement by and between Patriot and Crow dated as of even date herewith (the
"Lease") is terminated for any reason (hereinafter referred to as a "Lease
Termination"), then the Agreement may be assumed by any Successor (hereinafter
defined) provided such Successor shall not have any liability under the
Agreement prior to the date of such assumption by such Successor. As used
herein, the term "Successor" shall mean Patriot, Patriot's designee, Paine
Webber, Paine Webber's designee, or any third party purchaser pursuant to a
foreclosure of the mortgage or other proceeding brought to enforce the rights of
the holder of the
<PAGE>
mortgage or pursuant to a deed in lieu of foreclosure or by any other method. If
such Successor assumes the Agreement, the Hotel will continue to be operated as
a Wyndham Hotel (or as a Wyndham Hotel and Resort, if applicable) with the use
of the Wyndham Hotel and Resort name, logo and other applicable trademarks or
trade names, Wyndham's reservation system, marketing and advertising services
and other services provided by Wyndham Hotel Corporation and its affiliates
("Wyndham Hotels") to comparable Wyndham hotels for up to four (4) months
following the date of such Lease Termination (the "Temporary Usage"). Successor
shall pay to Wyndham during the period of Temporary Usage (a) the management
fees payable to Wyndham under the Agreement attributable to the period of
Temporary Usage and (b) the fees charged by Wyndham Hotels on a systemwide basis
for comparable hotels operating under the Wyndham name which utilize the Wyndham
name and services of Wyndham Hotels utilized by the Hotel (the "Trade Name
Fees'), unless such termination is due to an Event of Default under the Lease
(as such term is defined in the Lease) in which event no Trade Name Fee would be
payable during the Temporary Usage period. Such Temporary Usage may be
terminated by such Successor on thirty (30) days' notice to Wyndham Hotels.
Sincerely,
WYNDHAM MANAGEMENT CORPORATION
By:___________________________
Name:_________________________
Title:________________________
<PAGE>
SCHEDULE 1
----------
AUTHORIZATIONS
<PAGE>
SCHEDULE 2
----------
Intentionally Deleted
<PAGE>
SCHEDULE 3
----------
OCCUPANCY AGREEMENTS
<PAGE>
SCHEDULE 4
----------
OPERATING AGREEMENTS
<PAGE>
SCHEDULE 5
----------
INTENTIONALLY DELETED
<PAGE>
SCHEDULE 6
----------
PERSONAL PROPERTY LEASES
<PAGE>
================================================================================
EXHIBIT 10.80(2)
<PAGE>
July , 1996
Patriot American Hospitality, Inc.
3030 LBJ Freeway, Suite 1500
Dallas, Texas 75234
Attention: Paul A. Nussbaum,
Chairman and Chief Executive Officer
Gentlemen:
Reference is made to: (i) the Revolving Credit Agreement, dated as of
October 2, 1995 (the "Revolving Credit Agreement"), among Patriot American
Hospitality, L.P. ("Patriot"), PA Troy Hospitality Investors, L.P., Bourbon
Orleans Investors, L.P., 1500 Canal Street Investors, L.P., PAH GP, Inc. and
Patriot American Hospitality, Inc. (collectively, the "Original Borrowers") and
Paine Webber Real Estate Securities Inc. (the "Lender"), (ii) the Master
Amendment to Mortgage Loan Documents, dated as of April 1, 1996 (the "First
Master Amendment"), among the Original Borrowers and PA Hunt Valley Investors,
L.P. (collectively, the "Borrowers") and the Lender, and (iii) the letter
agreement dated May 8, 1996 (the "Second Amendment") among the Borrowers and the
Lender. Reference is also made to that certain Mortgage Loan Agreement dated as
of July ___, 1996 (the "Greenspoint Agreement") between the Lender and Patriot,
pursuant to which the Lender has agreed to make a mortgage loan (the
"Greenspoint Mortgage Loan") in the original principal amount of $22,000,000 to
Patriot, which Greenspoint Mortgage Loan is secured by a first mortgage on the
Property known as the Greenspoint Wyndham Hotel. Unless the context otherwise
requires, all capitalized terms used herein shall have the respective meanings
set forth herein, in the Revolving Credit Agreement or in the First Master
Amendment.
The Borrowers and the Lender hereby agree as follows:
1. Upon execution and delivery of this agreement, notwithstanding anything
to the contrary contained in the Revolving Credit Agreement, the First Master
Amendment, the
-2-
<PAGE>
Second Amendment or any of the other Mortgage Loan Documents, until such time as
the Greenspoint Mortgage Loan has been satisfied and discharged in full, the
aggregate maximum outstanding principal amount of Revolving Credit Loans shall
not exceed $228,000,000.
2. From and after execution and delivery of this agreement, the occurrence
of an "Event of Default" as defined or described in the Greenspoint Agreement
shall be and constitute an Event of Default under the Revolving Credit Agreement
and the other Mortgage Loan Documents, and the Lender shall have all rights and
remedies afforded to it under the Revolving Credit Agreement and the other
Mortgage Loan Documents or otherwise at law or in equity in respect of such
Event of Default.
3. The text of Section 6.1(j) of the Revolving Credit Agreement is hereby
amended by adding the following proviso at the end of such Section:
"; provided, however, that from and after the consummation after July
1, 1996 by Patriot Inc. of a public equity offering, the Consolidated
Tangible Net Worth of Patriot L.P. shall never be less than
$350,000,000."
4. Notwithstanding anything to the contrary set forth in the Revolving
Credit Agreement, the First Master Amendment, the Second Amendment or any of the
other Mortgage Loan Documents, it shall be a condition precedent to the next
incurrence of Revolving Credit Loans under the Revolving Credit Agreement
occurring after execution and delivery of this agreement that the Borrowers pay
to the Lender the Additional Transaction Fee in the amount of $500,000. Lender
agrees that a portion of the Transaction Fee (as defined in the Greenspoint
Agreement) in the amount of $275,000 shall be credited against the Additional
Transaction Fee.
5. Effective upon execution and delivery of this agreement, Exhibits C and
D, Schedule One and Schedules A through K annexed to the Revolving Credit
Agreement are deleted in their entirety and replaced respectively with Exhibits
C and D, Schedule One and Schedules A through K annexed hereto.
6. The Greenspoint Mortgage Loan shall be deemed to constitute Non-
Recourse Secured Debt for all purposes under the Revolving Credit Agreement and
the other Mortgage Loan Documents, notwithstanding that recourse may be had to
Patriot under the Greenspoint Mortgage Loan as provided therein.
7. Upon closing of the Greenspoint Mortgage Loan, as additional collateral
security for the obligations of the Borrowers under the Revolving Credit
Agreement and the other Mortgage Loan Documents, Lender shall be granted a
second priority mortgage and assignment of leases and rents on the Greenspoint
Wyndham Hotel, which second priority
-3-
<PAGE>
mortgage and assignment of leases and rents shall be substantially the same as
the Mortgages and the Assignment of Leases (with appropriate modifications to
take account of the second priority nature thereof and of applicable local law).
The Lender and the Borrowers agree that, from and after execution, delivery and
recordation of such subordinate mortgage and assignment of leases and rents, the
Greenspoint Wyndham Hotel shall constitute a "Collateral Property" under the
Revolving Credit Agreement and the other Mortgage Loan Documents (subject to the
Greenspoint Mortgage Loan), but the Greenspoint Wyndham Hotel shall not be added
to the Borrowing Base and shall not constitute a "Borrowing Base Property" as
defined in the Revolving Credit Agreement.
8. Notwithstanding anything to the contrary set forth in the Revolving
Credit Agreement, the First Master Amendment, the Second Amendment or any of the
other Mortgage Loan Documents, any issuance of any debt or equity security,
publicly or privately, or any other borrowing, assumption of debt, contribution
to capital or other transaction by which funds are raised by Patriot or any
other Borrower for the purpose of repaying or refinancing all or any portion of
the Greenspoint Mortgage Loan prior to the Break-up Date shall constitute a
"Subsequent Financing" under Section 7.4 of the Revolving Credit Agreement.
9. Each of the Borrowers agrees to execute and deliver, or cause to be
executed and delivered, to the Lender all other instruments, certificates,
agreements, consents and opinions, and to take, or cause to be taken, such other
actions, in each case as the Lender may reasonably require in order better to
evidence and confirm the terms of this agreement. In furtherance of the
foregoing, each of the Borrowers agrees (i) to execute and deliver, or cause to
be executed and delivered, to the Lender any amendments or modifications to the
Revolving Credit Agreement or the other Mortgage Loan Documents, (ii) to deliver
to the Lender such amendments and/or endorsements to the Title Insurance Policy
with respect to each Collateral Property located in a state or commonwealth
other than Texas, and (iii) to deliver to the Lender legal opinions with respect
to any amendments or other agreements executed pursuant to this paragraph, in
each case to the extent the Lender deems the same to be reasonably necessary
better to evidence and confirm the terms of this agreement. In connection with
the foregoing, the Borrowers jointly and severally agree to pay, or provide for
to the satisfaction of Lender, the payment of all costs and expenses in
connection therewith, including, without limitation, all recordation and filing
fees, taxes, title insurance premiums and reasonable attorney's fees and
expenses.
10. This agreement is limited as specified and other than the specific
modifications contained herein shall not constitute an amendment, modification
or waiver of, or otherwise affect in any way, any other provisions of the
Revolving Credit Agreement, the First Master Amendment, the Second Amendment,
the Note, the Mortgages or the other Mortgage Loan Documents. As modified
hereby, each of the Revolving Credit Agreement, the First Master
-4-
<PAGE>
Amendment, the Second Amendment, the Note, the Mortgages and the other Mortgage
Loan Documents are ratified, affirmed, reaffirmed and confirmed in all respects.
11. This agreement may be executed in any number of counterparts and by
the different parties hereto on separate counterparts, each of which when so
executed and delivered shall be an original, but all of which shall together
constitute one and the same instrument.
12. This agreement shall be governed by and construed in accordance with
the laws of the State of New York, including, without limitation, Section 5-1401
of the General Obligations Law, but otherwise without regard to conflict of law
principles; provided, however, to the extent this letter agreement modifies a
term or provision of a Mortgage Loan Document which by its terms is governed in
whole or in part by the laws of another jurisdiction, such term or provision to
the extent amended hereby shall be governed by an construed in accordance with
the laws of such jurisdiction.
-5-
<PAGE>
If you are in agreement with the foregoing, please cause the enclosed copy
of this agreement to be signed by all of the Borrowers and returned to us.
Very truly yours,
PAINE WEBBER REAL ESTATE
SECURITIES INC.
By:
---------------------------
Name:
Title:
ACCEPTED AND AGREED THIS
__ DAY OF JULY, 1996
PATRIOT AMERICAN HOSPITALITY
PARTNERSHIP, L.P.
By: PAH GP, INC., its sole
General Partner
By:
-----------------------------
Name:
Title:
PA TROY HOSPITALITY INVESTORS, L.P.
By: PAH GP, INC., its sole
General Partner
By:
-----------------------------
Name:
Title:
-6-
<PAGE>
BOURBON ORLEANS INVESTORS, L.P.
By: PAH GP, INC., its sole
General Partner
By:
------------------------------
Name:
Title:
1500 CANAL STREET INVESTORS, L.P.
By: PAH GP, INC., its sole
General Partner
By:
------------------------------
Name:
Title:
PA HUNT VALLEY INVESTORS, L.P.
By: PAH GP, INC., its sole
General Partner
By:
------------------------------
Name:
Title:
PAH GP, INC.
By:
---------------------------------
Name:
Title:
-8-
<PAGE>
PATRIOT AMERICAN HOSPITALITY, INC.
By:
-----------------------------------
Name:
Title:
-9-
<PAGE>
EXHIBIT 21.1
<PAGE>
SUBSIDIARIES OF PATRIOT AMERICAN HOSPITALITY, INC.
State of
Name Organization
---- ------------
Patriot American Hospitality Partnership, L.P. Virginia
PAH GP, Inc. Virginia
PAH LP, Inc. Virginia
1500 Canal Street Investors II, L.P. Delaware
Bourbon Orleans Investors II, L.P. Delaware
PAH Ravinia, Inc. Virginia
PAH Acquisition Corporation Virginia
PA Hunt Valley Investors, L.P. Virginia
PA Troy Hospitality Investors, L.P. Delaware
2
<PAGE>
EXHIBIT 23.3
<PAGE>
EXHIBIT 23.3
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Selected
Financial Information" and the caption "Experts" and to the use of our reports
(a) dated January 31, 1996 (except for Note 13, as to which the date is March
4, 1996) with respect to the consolidated financial statements and financial
statement schedules of Patriot American Hospitality, Inc., (b) dated February
16, 1996 with respect to the combined financial statements of the Initial
Hotels, (c) dated March 5, 1996 with respect to the financial statements and
financial statement schedule of Buckhead Hospitality Joint Venture, (d) dated
March 1, 1996 (except for Note 7, as to which the date is April 2, 1996) with
respect to the combined financial statements and financial statement schedule
of Gateway Hotel Limited Partnership and Wenatchee Hotel Limited Partnership,
(e) dated February 28, 1996 (except for Note 5, as to which the date is April
2, 1996) with respect to the Statement of Direct Revenue and Direct Operating
Expenses of Plaza Park Suites Hotel, (f) dated February 26, 1996 (except for
Note 5, as to which the date is April 2, 1996) with respect to the Statement
of Direct Revenue and Direct Operating Expenses of Roosevelt Hotel, and (g)
dated March 1, 1996 with respect to the Statement of Direct Revenue and Direct
Operating Expenses of Lexington Hyatt Regency Hotel, all of which are included
in Amendment No. 2 to the Registration Statement (Form S-11) and related
Prospectus of Patriot American Hospitality, Inc. for the registration of
5,000,000 shares of its common stock.
Ernst & Young LLP
Dallas, Texas
July 16, 1996
<PAGE>
EXHIBIT 23.4
<PAGE>
EXHIBIT 23.4
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion in this Amendment No. 2 to the Registration
Statement of Patriot American Hospitality, Inc. (Registration No. 333-04587)
on Form S-11 of our report dated January 15, 1996, on our audits of the
financial statements of Certain of the Initial Hotels. We also consent to the
reference to our Firm under the captions "Selected Financial Information" and
"Experts".
Coopers & Lybrand L.L.P.
Fort Lauderdale, Florida
July 15, 1996
<PAGE>
EXHIBIT 23.5
<PAGE>
EXHIBIT 23.5
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion in this Amendment No. 2 to the Registration
Statement of Patriot American Hospitality, Inc. (Registration No. 333-04587)
on Form S-11 of our report dated January 17, 1996, on our audit of the
financial statements of Troy Hotel Investors and our report dated February 7,
1995, on our audits of the financial statements of Troy Park Associates. We
also consent to the reference to our Firm under the caption "Selected
Financial Information" and "Experts".
Coopers & Lybrand L.L.P.
Pittsburgh, Pennsylvania
July 15, 1996
<PAGE>
EXHIBIT 23.6
<PAGE>
EXHIBIT 23.6
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the use in Amendment No. 2 to the Registration Statement of
Patriot American Hospitality, Inc. (the "Company") on Form S-11 of our report
dated March 8, 1996, related to the financial statements of Newporter Beach
Hotel Investments L.L.C. as of December 31, 1995, and for the period from
March 10, 1995 through December 31, 1995. We also consent to the reference to
our firm under the caption "Experts".
Coopers & Lybrand L.L.P.
Newport Beach, California
July 16, 1996
<PAGE>
EXHIBIT 23.7
<PAGE>
EXHIBIT 23.7
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We hereby consent to the use in the Prospectus constituting part of this
Registration Statement on Form S-11 of our report dated March 4, 1996,
relating to the financial statements of CHC Lease Partners, which appears in
such Prospectus. We also consent to the references to us under the headings
"Experts" and "Selected Financial Information" in such Prospectus. However, it
should be noted that Price Waterhouse LLP has not prepared or certified such
"Selected Financial Information."
PRICE WATERHOUSE LLP
Miami, Florida
July 15, 1996
<PAGE>
EXHIBIT 23.8
<PAGE>
EXHIBIT 23.8
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion in this Registration Statement of Patriot
American Hospitality, Inc. on Form S-11 (File No. 333-04587) of our report,
which includes an explanatory paragraph, dated June 17, 1996, on our audit of
the combined financial statements of Wyndham Portfolio Hotels. We also consent
to the reference to our firm under the caption "Experts".
Coopers & Lybrand L.L.P.
Dallas, Texas
July 16, 1996
