<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JUNE 27, 1996
REGISTRATION NO. 333-04587
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------
AMENDMENT NO. 1
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.
WHITE & CASE
GOODWIN, PROCTER & HOAR LLP
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. [_]
CALCULATION OF REGISTRATION FEE
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<TABLE>
<CAPTION>
PROPOSED PROPOSED
AMOUNT MAXIMUM MAXIMUM
TITLE OF BEING OFFERING PRICE AGGREGATE AMOUNT OF
SECURITIES BEING REGISTERED REGISTERED(1) PER SHARE(2) OFFERING PRICE(2)(3) REGISTRATION FEE(3)
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<S> <C> <C> <C> <C>
Shares of Common Stock,
no par value................. 5,750,000 shares $28.875 $162,365,000 $55,988
</TABLE>
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(1) Includes up to 750,000 shares of Common Stock issuable upon exercise of an
over-allotment option granted to the Underwriters.
(2) Estimated solely for the purpose of calculating the registration fee in
accordance with Rule 457.
(3) Amount of Registration Fee represents $37,667 paid on May 24, 1996 to
register 3,910,000 shares at a proposed maximum offering price per share
of $27.9375 upon the initial filing of the Registration Statement, plus
$18,321 paid with the filing of this Amendment to register 1,840,000
additional shares at a proposed maximum offering price per share of
$28.875.
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>
CROSS REFERENCE SHEET PURSUANT TO
RULE 501(a) OF REGULATION S-K
<TABLE>
<CAPTION>
ITEM NUMBER AND CAPTION HEADING IN PROSPECTUS
----------------------- ---------------------
<C> <S> <C>
1. Forepart of Registration Statement
and Outside Front Cover Page of
Prospectus....................... Outside Front Cover Page
2. Inside Front and Outside Back
Cover Pages of Prospectus........ Inside Front Cover Page; Outside Back
Cover Page
3. Summary Information, Risk Factors
and Ratio of Earnings to Fixed
Charges.......................... Outside Front Cover Page; Prospectus
Summary; Risk Factors; Policies and
Objectives With Respect to Certain
Activities; Shares Available for
Future Sale
4. Determination of Offering Price... Outside Front Cover Page; Underwriting
5. Dilution.......................... Not Applicable
6. Selling Security Holders.......... Not Applicable
7. Plan of Distribution.............. Outside Front Cover Page; Underwriting
8. Use of Proceeds................... Use of Proceeds
9. Selected Financial Data........... Selected Financial Information
10. Management's Discussion and
Analysis of Financial Condition
and Results of Operations........ Management's Discussion and Analysis
of Financial Condition and Results of
Operations
11. General Information as to
Registrant....................... Prospectus Summary; The Company; The
Hotels and the Proposed Acquisitions;
Formation Transactions; Management;
Glossary
12. Policy With Respect to Certain
Activities....................... Prospectus Summary; Policies and
Objectives With Respect to Certain
Activities; Description of Capital
Stock; Additional Information
13. Investment Policies of Registrant. Policies and Objectives With Respect
to Certain Activities; Prospectus
Summary; The Company
14. Description of Real Estate........ Prospectus Summary; The Hotels and the
Proposed Acquisitions
15. Operating Data.................... The Hotels and the Proposed
Acquisitions
16. Tax Treatment of Registrant and
Its Security Holders............. Prospectus Summary; Federal Income Tax
Considerations
17. Market Price of and Dividends on
the Registrant's Common Equity
and Related Stockholder Matters.. Risk Factors; Market Price for Common
Stock and Dividend Policy; Principal
Shareholders; Federal Income Tax
Considerations; Shares Available for
Future Sale
18. Description of Registrant's
Securities....................... Description of Capital Stock
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
ITEM NUMBER AND CAPTION HEADING IN PROSPECTUS
----------------------- ---------------------
<C> <S> <C>
19. Legal Proceedings.................. The Hotels and the Proposed
Acquisitions--Legal Proceedings
20. Security Ownership of Certain
Beneficial Owners and Management.. Principal Shareholders
21. Directors and Executive Officers... Management
22. Executive Compensation............. Management
23. Certain Relationships and Related
Transactions...................... Prospectus Summary; The Hotels and the
Proposed Acquisitions; Management;
Certain Relationships and Transactions
24. Selection, Management and Custody
of Registrant's Investments....... Outside Front Cover Page; Prospectus
Summary; The Company; The Hotels and
the Proposed Acquisitions; Management;
The Lessees and the Operators;
Policies and Objectives with Respect
to Certain Activities
25. Policies With Respect to Certain
Transactions...................... Risk Factors; Management; Policies and
Objectives with Respect to Certain
Activities
26. Limitations of Liability........... Description of Capital Stock
27. Financial Statements and
Information....................... Prospectus Summary; Selected Financial
Information; Financial Statements
28. Interests of Named Experts and
Counsel........................... Legal Matters; Experts
29. Disclosure of Commission Position
on Indemnification for Securities
Act Liabilities................... Not Applicable
</TABLE>
<PAGE>
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.
SUBJECT TO COMPLETION
PRELIMINARY PROSPECTUS DATED JUNE 27, 1996
LOGO 5,000,000 SHARES
PATRIOT AMERICAN HOSPITALITY, INC.
COMMON STOCK
----------
Patriot American Hospitality, Inc. (collectively with its subsidiaries, the
"Company") is a self-administered real estate investment trust ("REIT") which
owns 33 hotels in 13 states, with an aggregate of 7,538 guest rooms (the
"Hotels"). Since its October 1995 initial public offering (the "Initial
Offering"), the Company has acquired 13 hotels (the "Recent Acquisitions") with
an aggregate of 3,332 guest rooms and has entered into contracts and a letter
of intent to purchase 7 additional hotels with an aggregate of 1,995 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. Twenty-nine 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),
Doubletree(R), Embassy Suites(R) and Hampton Inn(R). See "The Company" and "The
Hotels and the Proposed Acquisitions." Thirty-two of the Hotels are leased to
independent lessees (the "Lessees") under participating leases ("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 June 24, 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)
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<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 $2,500,000, 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.
<PAGE>
[PICTURES]
<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
----
<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
----
<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.................................................... 42
Results of Operations of the Company..................................... 43
Results of Operations of the Lessees..................................... 45
Results of Operations of the Initial Hotels.............................. 48
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
Crown Plaza Ravinia...................................................... 67
Franchise and Brand Affiliations......................................... 67
Employees................................................................ 69
Environmental Matters.................................................... 70
Competition.............................................................. 70
Insurance................................................................ 71
Legal Proceedings........................................................ 71
</TABLE>
i
<PAGE>
<TABLE>
<CAPTION>
PAGE
----
<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 June 24, 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 and Section 21E of the Securities Exchange Act of 1934. 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 33 hotels in 13 states, with an aggregate of 7,538 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 27 full service hotels, 5 limited service hotels and an
executive conference center. Twenty-nine 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), Doubletree(R), Embassy
Suites(R) and Hampton Inn(R). For the twelve months ended March 31, 1996, the
Hotels had an average occupancy of 71.1% and an average daily room rate ("ADR")
of $81.55.
Since the Company's October 1995 initial public offering (the "Initial
Offering"), the Company has acquired 13 hotels (the "Recent Acquisitions") with
an aggregate of 3,332 guest rooms for approximately $216 million and has
entered into contracts and a letter of intent to purchase 7 additional hotels
with an aggregate of 1,995 guest rooms (the "Proposed Acquisitions") for an
aggregate purchase price (excluding acquisition-related expenses) of
approximately $145 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 $250 million line of credit (the "Line
of Credit"). The Company is currently completing due diligence reviews
regarding the Proposed Acquisitions, however no assurances can be made 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 over $361 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"). 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. 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. As
of June 24, 1996, the Company had a debt to total market capitalization ratio
of approximately 17%. 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>
- --------
(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 $216
million in the acquisition of Hotels (including purchase prices and
approximately $3 million in acquisition-related expenses), increasing its room
portfolio by approximately 79%. 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 million in cash. The Company has leased the hotel to Metro
Lease Partners, Inc. ("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 and the addition of 34 new guest rooms on
a penthouse level, increasing the Hotel's room count to 322. The Company has
leased the Hotel to CHC Lease Partners, the lessee for the Company's 20 Initial
Hotels.
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 separate 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").
PROPOSED ACQUISITIONS
The Company has entered into contracts and a letter of intent to purchase the
Proposed Acquisitions for an aggregate purchase price of approximately $145
million. Subject to satisfactory completion of closing conditions, the Company
currently intends to complete all of the Proposed Acquisitions by August 1996,
although no assurances can be made that the Proposed Acquisitions will be
consummated. Assuming completion of the Proposed Acquisitions, the Company will
have invested over $361 million in hotel acquisitions since the Initial
Offering, more than doubling its rooms portfolio to a total of 40 hotels with
9,533 rooms. Set forth below are summary descriptions of the Proposed
Acquisitions.
Wyndham Portfolio. In April 1996, the Company signed a letter of intent to
acquire a portfolio of five Wyndham brand hotels (the "Wyndham Portfolio")
aggregating 1,141 rooms from entities owned primarily by members of the
Trammell Crow family for approximately $95.5 million in cash and $500,000 in
value of OP Units. The Wyndham Portfolio includes the 472-room Wyndham
Greenspoint Hotel located in Houston, Texas; the 191-room Wyndham Garden-
Midtown located in Atlanta, Georgia; 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. The Company intends to lease the hotels in the Wyndham
Portfolio to an entity to be formed by members of the Trammell Crow family (the
"Wyndham Lessee").
The Company anticipates that the Wyndham Portfolio acquisition will be
completed in July 1996. The completion of the transaction is subject to
satisfactory completion of closing conditions, including the delivery of
certain third party consents. In connection with this acquisition, the Company
will agree to maintain at least $22 million of debt on the Wyndham Greenspoint
Hotel until the end of 1999. The Company is negotiating with PaineWebber Real
Estate to extend a single asset mortgage loan of approximately $22 million on
this hotel on economic terms substantially similar to the Line of Credit. If
the Wyndham Portfolio acquisition is completed prior to the closing of the
Offering, the Company intends to fund the remainder of the cash portion of the
purchase price (approximately $73.5 million) through a draw on the Line of
Credit and to repay any funds drawn with a portion of the proceeds of the
Offering. If the Wyndham Portfolio acquisition is completed after the closing
of the Offering, the Company intends to finance the remainder of the cash
portion of the purchase price with a portion of the proceeds of the Offering.
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 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.
4
<PAGE>
The Company is in various stages of negotiations and due diligence review for
the Proposed Acquisitions. Closing of these transactions is subject to
satisfactory completion of the Company's due diligence review and certain other
conditions. 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.
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 $16.5 million to
complete significant renovations at the Crockett Hotel, the Crowne Plaza
Ravinia, the Tremont House Hotel, the Del Mar Hilton, the WestCoast Long Beach
Hotel and Marina and the Doubletree Denver/Boulder. 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 $10.8
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. With
respect to the Wyndham Portfolio, the Company has budgeted approximately $1.9
million in renovations to certain of the hotels which the Company expects to
complete by the end of 1997. Such expenditures will be in addition to capital
expenditure reserves for these properties.
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."
Credit Facility. 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. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations--Liquidity and Capital
Resources."
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) and WestCoast(R). Assuming
completion of the Proposed Acquisitions, the Company will add the Wyndham(TM)
and Wyndham Garden(R) brands to its portfolio.
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 27 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 seven 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(8). Westminster (Denver), CO 180 1985/1992
-----
Subtotal/Weighted
Average........ 6,647
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)(7)... 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.. 7,538
=====
PROPOSED ACQUISI-
TIONS
WYNDHAM PORTFO-
LIO:
Wyndham Greenspoint Hotel(8). Houston, TX 472 1985/1995
Wyndham Garden
Hotel-
Midtown(8)..... Atlanta, GA 191 1987/1994
Wyndham Garden
Hotel(8)....... Novi (Detroit), MI 148 1988/1994
Wyndham Garden
Hotel(8)....... Wood Dale (Chicago), IL 162 1986/1994
Wyndham Garden
Hotel--Las
Colinas(8)..... Irving (Dallas), TX 168 1986
-----
Total/Weighted
Average--
Wyndham
Portfolio..... 1,141
=====
<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(8). 5,461 1,693 78.1 70.65 55.20
-------- ----------------- ------------ ---------- --------------
Subtotal/Weighted
Average........ $208,940 $56,290 71.0% $ 81.67 $58.00
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)(7)... 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.. $237,484 $68,326 71.1% $ 81.55 $58.00
======== ================= ============ ========== ==============
PROPOSED ACQUISI-
TIONS
WYNDHAM PORTFO-
LIO:
Wyndham Greenspoint Hotel(8). $ 18,278 $ 6,113 72.6% $ 82.44 $59.84
Wyndham Garden
Hotel-
Midtown(8)..... 6,465 2,294 73.7 93.74 69.06
Wyndham Garden
Hotel(8)....... 4,025 983 77.3 68.29 52.78
Wyndham Garden
Hotel(8)....... 4,983 1,845 70.7 82.10 58.03
Wyndham Garden
Hotel--Las
Colinas(8)..... 5,709 2,213 75.9 96.22 73.04
-------- ----------------- ------------ ---------- --------------
Total/Weighted
Average--
Wyndham
Portfolio..... $ 39,460 $13,448 73.6% $ 84.45 $62.15
======== ================= ============ ========== ==============
</TABLE>
8
<PAGE>
<TABLE>
<CAPTION>
TWELVE MONTHS ENDED
MARCH 31, 1996
---------------------------------
AVERAGE REVENUE PER
NUMBER DAILY AVAILABLE
OF GUEST AVERAGE RATE ROOM
LOCATION ROOMS YEAR BUILT OCCUPANCY(3) (ADR)(3) (REVPAR)(4)
------------------ -------- ---------- ------------ -------- -----------
<S> <C> <C> <C> <C> <C> <C>
OTHER
PROPOSED ACQUISITIONS
Marriott WindWatch Hotel. Hauppauge, NY 362 1989 76.0% $99.83 $75.88
Bonaventure Resort & Spa. Ft. Lauderdale, FL 492 1981 60.7 88.15 53.49
</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) This Hotel secures the Line of Credit.
(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) 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.
(8) It is anticipated that this hotel will secure the Line of Credit.
(9) The Crowne Plaza Ravinia is not leased. The Company's share of net income
and share of funds from operations (as hereafter defined) 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 Hotels, NorthCoast, an entity owned
by a consortium of investors including principals of WestCoast Hotels and
Sunmakers, and the Doubletree Lessee, a subsidiary of Doubletree Hotels. Upon
the acquisition of the Wyndham Portfolio, the Company also intends to lease
such hotels to the Wyndham Lessee, an entity to be 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 (the "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 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. Upon completion of the acquisition of the Wyndham Portfolio,
the Company intends to lease the Wyndham Portfolio to the Wyndham Lessee, an
entity to be formed by members of the Trammell Crow
10
<PAGE>
family, under Participating Leases that will require the Wyndham Lessee to
maintain a minimum net worth equal to the greater of $3 million or 20% of the
current year's budgeted lease payments for the hotels in the Wyndham Portfolio
(such percentage being subject to adjustment if the parties enter into leases
for additional hotels). The Wyndham Lessee will contract with Wyndham Hotels
Corporation ("Wyndham") to manage each of the hotels in the Wyndham Portfolio.
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 contain cross-default
provisions. The Participating Leases with NorthCoast (except the Hyatt Regency,
Lexington) also contain cross-default provisions. 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. 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 will receive at the closing of the Offering the
opinion of its legal counsel as to its REIT status, which opinion will be 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........................... 23,963,940 shares(1)
Use of Proceeds.........................
To purchase certain of the Proposed
Acquisitions, to reduce amounts
outstanding under the Line of Credit
(including amounts which may be
borrowed prior to the completion of
the Offering to complete certain of
the Proposed Acquisitions), and/or
for general corporate and working
- -------- capital purposes.
(1) Includes 3,485,292 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. Excludes an approximate 17,316 OP Units which may
be issued in connection with the acquisition of the Wyndham Portfolio.
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, acquisition of the Wyndham
Portfolio 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 certain
of the Recent Acquisitions and the Wyndham Portfolio 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 $ 80,864 $ 81,774 $21,290
Income before minority
interest and
extraordinary items... 7,064 8,286 47,078 48,312 13,077
Income before
extraordinary
items(3).............. 6,096 7,128 40,205 41,258 11,168
Net income applicable
to common
shareholders.......... $ 5,359 $ 7,128 $ 40,205 $ 41,258 $11,168
PER SHARE DATA:
Income before
extraordinary items... $ 0.42 $ 0.48 $ 1.96 $ 2.01 $ 0.55
Extraordinary items,
net of minority
interests(3).......... (0.05) -- -- -- --
--------- -------- -------- -------- -------
Net income applicable
to common
shareholders.......... $ 0.37 $ 0.48 $ 1.96 $ 2.01 $ 0.55
========= ======== ======== ======== =======
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 $ 67,812 $ 68,785 $17,831
Cash used in investing
activities(5)......... (306,948) (37,838) (11,233) (11,089) (2,829)
Cash provided by (used
in) financing
activities(6)......... 304,099 32,165 (46,080) (46,080) (11,520)
OTHER DATA:
Funds from
Operations(7)......... $ 9,798 $ 11,634 $ 68,312 $ 69,633 $19,326
Cash Available for
Distribution(8)....... 8,603 10,388 57,846 59,312 16,691
<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 $515,063
Total assets........... 324,224 369,578 578,328
Total debt............. 9,500 50,250 74,366
Minority interest in
Operating Partnership. 41,522 45,485 72,737
Shareholders' equity... 261,778 261,727 417,109
</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 $169,495 $171,700 $43,235
Food and beverage
revenues.............. 8,649 8,240 64,155 64,494 15,674
Conference center
revenue............... 576 645 2,434 2,380 645
Telephone and other
revenue............... 1,732 2,373 15,657 16,116 4,173
------- ------- -------- -------- -------
Total revenue.......... 32,465 36,566 251,741 254,690 63,727
Hotel operating
expenses.............. 20,801 23,050 165,407 167,720 41,971
Participating Lease
payments(2)........... 10,582 12,371 80,864 81,774 21,290
------- ------- -------- -------- -------
Income before Lessee
expenses.............. 1,082 1,145 5,470 5,196 466
Lessee expenses(9)..... 573 599 6,626 6,498 1,410
------- ------- -------- -------- -------
Net income(9).......... $ 509 $ 546 $ (1,156) $ (1,302) $ (944)
======= ======= ======== ======== =======
</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, acquisition of the Wyndham Portfolio 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 23,318,865 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 $216 million in
hotels, increasing its room portfolio by approximately 79%. Additionally, the
Company has entered into contracts and a letter of intent to purchase the
Proposed Acquisitions for an aggregate purchase price of approximately $145
million. Assuming completion of the Proposed Acquisitions, the Company will
have increased its rooms portfolio by approximately 127% 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. During 1996, the maximum amount
available under the Line of Credit was increased. 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 23 of the Hotels and
will be secured by qualifying subsequently acquired hotels that are purchased
with borrowings under the Line of Credit. The Company currently anticipates
that the Doubletree Denver/Boulder and the Wyndham Portfolio will also secure
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 bears 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 3,485,292 OP Units, including an aggregate of
498,589 OP Units issued in connection with the acquisition of the Holiday Inn
Lenox and the WestCoast Portfolio, and 662,391 Preferred OP Units issued in
the Private Placement. The Company intends to issue OP Units with a value of
approximately $500,000 (estimated to be 17,316 OP Units) in connection with
the acquisition of the Wyndham Portfolio. 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 and the WestCoast Portfolio for one year from the
date of issuance 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 by officers and/or directors of PAH Ravinia and
4% of which is held 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, members of PAH Ravinia
management retain 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 directors and management of PAH Ravinia may implement business
policy decisions that would not have been implemented by persons controlled 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 and Proposed
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.
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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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<PAGE>
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
Twenty-nine 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, subject to the Look-Through Ownership Limitation
that 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 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
<PAGE>
THE COMPANY
GENERAL
The Company is a self-administered REIT, which owns 33 Hotels in 13 states,
with an aggregate of 7,538 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 27 full service hotels,
5 limited service hotels and an executive conference center. Twenty-nine 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), Doubletree(R), Embassy Suites(R) and Hampton Inn(R). For the
twelve months ended March 31, 1996, the Hotels had an average occupancy of
71.1% and ADR of $81.55.
Since the Initial Offering, the Company has acquired the 13 Recent
Acquisitions with an aggregate of 3,332 guest rooms for approximately $216
million and has entered into contracts and a letter of intent to purchase the
7 Proposed Acquisitions with an aggregate of 1,995 guest rooms for an
aggregate purchase price (excluding acquisition-related expenses) of
approximately $145 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 is
currently completing due diligence reviews regarding the Proposed
Acquisitions, however no assurances can be made 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 over $361 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. 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. 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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<PAGE>
provides significant financial flexibility. As of June 24, 1996, the Company
had a debt to total market capitalization ratio of approximately 17%. 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, and the proposed acquisition of the Wyndham
Portfolio 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 $16.5 million to complete significant renovations at
the Crockett Hotel, the Crowne Plaza Ravinia, the Tremont House Hotel, the Del
Mar Hilton, the WestCoast Long Beach Hotel and Marina and the Doubletree
Denver/Boulder. 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 $10.8 million in 1996 for capital
improvements and the replacement of F, F & E within the Company's portfolio,
including the
27
<PAGE>
Recent Acquisitions. With respect to the Wyndham Portfolio, the Company has
budgeted approximately $1.9 million in renovations to certain of the hotels
which the Company expects to complete by the end of 1997. Such expenditures
will be in addition to capital expenditure reserves for these properties.
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 81.6% 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 80.6%
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.
28
<PAGE>
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 $216
million in the acquisition of Hotels (including purchase prices and
approximately $3 million in acquisition-related expenses), increasing its room
portfolio by approximately 79%. 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 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 and the addition of 34 guest rooms on a
penthouse level, increasing the Hotel's room count to 322. 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 separate 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.
PROPOSED ACQUISITIONS
The Company has entered into contracts and a letter of intent to purchase
the Proposed Acquisitions for an aggregate purchase price of approximately
$145 million. Subject to satisfactory completion of closing conditions, the
Company currently intends to complete all of the Proposed Acquisitions by
August 1996, although no assurances can be made that the Proposed Acquisitions
will be consummated. Assuming completion of the Proposed Acquisitions, the
Company will have invested over $361 million in hotel acquisitions since the
Initial Offering, more than doubling its rooms portfolio to a total of 40
hotels with 9,533 rooms. Set forth below are summary descriptions of the
Proposed Acquisitions.
Wyndham Portfolio. In April 1996, the Company signed a letter of intent to
acquire the 1,141 room Wyndham Portfolio from entities owned primarily by
members of the Trammell Crow family for approximately $95.5 million in cash
and $500,000 in value of OP Units. In addition, the Company may be obligated
to pay up to $3 million of additional consideration if certain operating
results are achieved at two of the hotels in the Wyndham Portfolio. The
Wyndham Portfolio includes the 472-room Wyndham Greenspoint Hotel located in
Houston, Texas; the 191-room Wyndham Garden-Midtown located in Atlanta,
Georgia; 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. The Company
intends to lease the hotels in the Wyndham Portfolio to the Wyndham Lessee, an
entity to be formed by members of the Trammell Crow family. The hotels in the
Wyndham Portfolio are currently managed by Wyndham and the Wyndham Lessee will
contract with Wyndham to manage the hotels following the acquisition.
The Company anticipates that the Wyndham Portfolio acquisition will be
completed in July 1996. The completion of the transaction is subject to
satisfactory completion of closing conditions, including the delivery of
certain third party consents. In connection with this acquisition, the Company
will agree to maintain at least $22 million of debt on the Wyndham Greenspoint
Hotel until the end of 1999. The Company is negotiating with PaineWebber Real
Estate to extend a single asset mortgage loan of approximately $22 million on
this hotel on economic terms substantially similar to the Line of Credit. If
the Wyndham Portfolio acquisition is completed prior to the closing of the
Offering, the Company intends to fund the remainder of the cash portion of the
purchase price (approximately $73.5 million) through a draw on the Line of
Credit and to repay any funds drawn with proceeds of the Offering. If the
Wyndham Portfolio acquisition is completed after the closing of the Offering,
the Company intends to finance the remainder of the cash portion of the
purchase price with a portion of the proceeds of the Offering.
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 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
30
<PAGE>
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.
The Company is in various stages of negotiations and due diligence review
for the Proposed Acquisitions. Closing of these transactions is subject to
satisfactory completion of the Company's due diligence review and certain
other conditions. 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.
Credit Facility. 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. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations--Liquidity and Capital
Resources."
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) and WestCoast(R). Assuming
completion of the Proposed Acquisitions, the Company will add the Wyndham(TM)
and Wyndham Garden(R) brands to its portfolio.
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
$133.9 million (approximately $154.4 million if the Underwriters' over-
allotment is exercised in full). The Company intends to apply the net proceeds
of the Offering to purchase certain of the Proposed Acquisitions, to reduce
amounts outstanding under the Line of Credit (which amounts have been borrowed
principally to complete the Recent Acquisitions and may be borrowed prior to
the completion of the Offering to acquire certain of the Proposed
Acquisitions), and/or for general corporate and working capital purposes. All
outstanding borrowings under the Line of Credit mature in October 1998 and
currently bear interest at 30-day LIBOR plus 190 basis points per annum. No
prepayment penalties will be required in connection with the prepayment of
amounts outstanding 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 June 24, 1996, the last reported sale price per
share of Common Stock on the NYSE was $28.875 and there were approximately 78
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 $ --
December 31, 1995.............................. $25.75 $23.50 $0.48
March 31, 1996 ................................ $28.75 $25.75 $0.48
June 30, 1996 (through June 24, 1996).......... $29.375 $26.75 $0.48
</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 $ 74,366
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.......................................... 264,503 419,885
Unearned executive compensation net of accumulated amor-
tization................................................ (1,185) (1,185)
Distributions in excess of earnings...................... (1,591) (1,591)
-------- --------
Total shareholders' equity............................... 261,727 417,109
-------- --------
Total capitalization.................................... $357,462 $564,212
======== ========
</TABLE>
- --------
(1) Excludes 3,485,292 shares issuable upon redemption of OP Units or exchange
of Preferred OP Units outstanding prior to the Offering and 17,316 OP Units
expected to be issued in connection with the acquisition of the Wyndham
Portfolio.
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,
acquisition of the Wyndham Portfolio 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 $ 80,864 $ 81,774 $21,290
Interest and other
income................ 513 92 53 132 92
--------- -------- -------- -------- -------
Total revenue......... 11,095 12,463 80,917 81,906 21,382
--------- -------- -------- -------- -------
Expenses:
Real estate and
personal property
taxes and casualty
insurance............. 901 1,082 7,573 7,644 2,002
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 6,067 6,001 1,466
Depreciation and
amortization.......... 2,590 2,838 19,272 19,349 4,857
--------- -------- -------- -------- -------
Total expenses........ 4,187 5,539 37,413 37,506 9,667
--------- -------- -------- -------- -------
Income before equity in
earnings of
unconsolidated
subsidiary, minority
interest and
extraordinary items... 6,908 6,924 43,504 44,400 11,715
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 47,078 48,312 13,077
Minority interest in
Operating
Partnership(6)........ (968) (1,158) (6,873) (7,054) (1,909)
--------- -------- -------- -------- -------
Income before
extraordinary items... 6,096 7,128 40,205 41,258 11,168
Extraordinary items,
net of minority
interest(7)........... (737) -- -- -- --
--------- -------- -------- -------- -------
Net income applicable
to common
shareholders.......... $ 5,359 $ 7,128 $ 40,205 $ 41,258 $11,168
========= ======== ======== ======== =======
PER SHARE DATA:
Income before
extraordinary items... $ 0.42 $ 0.48 $ 1.96 $ 2.01 $ 0.55
Extraordinary items,
net of minority
interest.............. (0.05) -- -- -- --
--------- -------- -------- -------- -------
Net income applicable
to common
shareholders.......... $ 0.37 $ 0.48 $ 1.96 $ 2.01 $ 0.55
========= ======== ======== ======== =======
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 $ 67,812 $ 68,785 $17,831
Cash used in investing
activities(9)......... (306,948) (37,838) (11,233) (11,089) (2,829)
Cash provided by (used
in) financing
activities(10)........ 304,099 32,165 (46,080) (46,080) (11,520)
OTHER DATA:
Funds from
Operations(11)........ $ 9,798 $ 11,634 $ 68,312 $ 69,633 $19,326
Cash Available for
Distribution(12)...... 8,603 10,388 57,846 59,312 16,691
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 $515,063
Total assets.................. 324,224 369,578 578,328
Total debt.................... 9,500 50,250 74,366
Minority interest in Operating
Partnership.................. 41,522 45,485 72,737
Shareholders' equity.......... 261,778 261,727 417,109
</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 $169,495 $171,700 $43,235
Food and
beverage
revenues....... 8,524 7,998 125 242 64,155 64,494 15,674
Conference
center revenue. 576 645 -- -- 2,434 2,380 645
Telephone and
other revenue.. 1,703 2,295 29 78 15,657 16,116 4,173
------- ------- ----- ------ -------- -------- -------
Total revenue... 31,895 35,198 570 1,368 251,741 254,690 63,727
Hotel operating
expenses....... 20,386 22,082 415 968 165,407 167,720 41,971
Participating
Lease
payments(3).... 10,432 11,918 150 453 80,864 81,774 21,290
------- ------- ----- ------ -------- -------- -------
Income before
Lessee
expenses....... 1,077 1,198 5 (53) 5,470 5,196 466
Lessee
expenses(13)... 568 565 5 34 6,626 6,498 1,410
------- ------- ----- ------ -------- -------- -------
Net income
(loss)(13)..... $ 509 $ 633 $ -- $ (87) $ (1,156) $ (1,302) $ (944)
======= ======= ===== ====== ======== ======== =======
</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 23,318,865
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
Patriot American Hospitality, Inc., a Virginia corporation, 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, Inc.,
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, 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 $263,600,000 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 $215,513,000 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.
The Company, through the Operating Partnership and PAH Ravinia, currently
owns 33 hotel properties in 13 states with an aggregate of 7,538 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 27 full service hotels, 5 limited service hotels and an executive
conference center. Twenty-nine 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, 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 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. 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 signed a letter of intent to acquire a portfolio of five
Wyndham branded hotels containing an aggregate of 1,141 guest rooms from
entities owned primarily by members of the Trammell Crow family for
42
<PAGE>
a purchase price of approximately $95,500,000 in cash and $500,000 in value of
OP Units. These hotel properties are located in the Houston, Dallas, Atlanta,
Detroit and Chicago metropolitan areas. The Company anticipates that the
Wyndham Portfolio acquisition will be completed in July 1996, although no
assurances can be made that the acquisition will be completed. The completion
of this transaction is subject to satisfactory completion of closing
conditions, including the delivery of certain third party consents. In
connection with this acquisition, the Company will agree to maintain at least
$22 million of debt on the Wyndham Greenpoint Hotel until the end of 1999. The
Company is negotiating with Paine Webber Real Estate to extend a single asset
mortgage loan of approximately $22 million on this hotel on economic terms
substantially similar to the Line of Credit. If the Wyndham Portfolio
acquisition is completed prior to the closing of the Offering, the Company
intends to fund the remainder of the cash portion of the purchase through a
draw on the Line of Credit and to repay any funds drawn with proceeds of the
Offering. If the Wyndham Portfolio acquisition is completed after the closing
of the Offering, the Company intends to finance the remainder of the cash
portion of the purchase price with a portion of the proceeds of the Offering.
In addition to the proposed acquisition of the Wyndham Portfolio, 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, and the 362-room Marriott WindWatch Hotel in Hauppauge,
New York for a purchase price of approximately $30,000,000 in cash.
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 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.
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 and proposed acquisition of the
Wyndham Portfolio)
Three Months Ended March 31, 1996. Pro forma Participating Lease revenue was
$21,290,000 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 $2,002,000 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 $1,466,000
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 $4,857,000. Pro forma income from an unconsolidated subsidiary was
$1,362,000. The minority interest's share of pro forma income of the Company
was $1,909,000. The resulting pro forma net income applicable to common
shareholders was $11,168,000.
Twelve months ended March 31, 1996. Pro forma Participating Lease revenue was
$81,774,000 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, $25,715,000 is
attributable to Participating Lease revenue from the Recent Acquisitions and
$13,447,000 is attributable to Participating Lease revenue from the Wyndham
Portfolio. Pro forma real estate and personal property taxes and casualty
insurance expense was $7,644,000 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
$6,001,000, including amortization of deferred financing costs associated with
the Line of Credit of $260,000, and pro forma depreciation and amortization was
$19,349,000 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 $7,054,000. The resulting pro forma net income applicable to
common shareholders was $41,258,000.
Year Ended December 31, 1995. Pro forma Participating Lease revenue was
$80,864,000 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, $25,379,000 is
attributable to Participating Lease revenue from the Recent Acquisitions and
$13,083,000 is attributable to Participating Lease revenue from the Wyndham
Portfolio. Pro forma real estate and personal property taxes and casualty
insurance expense was $7,573,000 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
$6,067,000, including amortization of deferred financing costs associated with
the Line of Credit of $260,000, and pro forma depreciation and amortization was
$19,272,000 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 $6,873,000. The resulting pro forma net income applicable to common
shareholders was $40,205,000.
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 $68,312,000 for the year ended December 31, 1995 and
$69,633,000 for the twelve months ended March 31, 1996.
44
<PAGE>
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), 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 and proposed acquisition
of the Wyndham Portfolio)
Three Months Ended March 31, 1996. Pro forma room revenue was $43,235,000 for
the three months ended March 31, 1996, including $22,670,000 for the Initial
Hotels, $13,492,000 for the Recent Acquisitions and $7,073,000 for the Wyndham
Portfolio. 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 67.9% for the
first quarter of 1996. Average daily rates were $83.28 and revenue per
available room was $56.57 for the period.
Pro forma food and beverage revenue was $15,674,000 for the first quarter of
1996, including $7,579,000 for the Initial Hotels, $5,200,000 for the Recent
Acquisitions and $2,895,000 for the Wyndham Portfolio. For the Initial Hotels,
this represented a decrease of $34,000 from the like period in 1995. Conference
center, telephone and other revenue was $4,818,000 for the period, including
$2,740,000 for the Initial Hotels, $1,382,000 for the Recent Acquisitions and
$696,000 for the Wyndham Portfolio. For the Initial Hotels this represented an
increase of $184,000, or 7.2%, over 1995.
Pro forma hotel operating expenses were $41,971,000 for the three months
ended March 31, 1996, including $20,515,000 for the Initial Hotels, $14,670,000
for the Recent Acquisitions and $6,786,000 for the Wyndham Portfolio. 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
65.9%. Pro forma Participating Lease payments were $21,290,000 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
$1,410,000, resulting in a pro forma net loss for the three months ended March
31, 1996 of $944,000.
Twelve Months Ended March 31, 1996. Pro forma room revenue was $171,700,000
for the twelve months ended March 31, 1996 including $86,713,000 for the
Initial Hotels, $59,032,000 for the Recent Acquisitions and $25,955,000 for the
Wyndham Portfolio. Average occupancy for all of the hotels (excluding the
Crowne Plaza Ravinia, which is not leased) was 70.8% for the twelve month
period. Average daily rates were $80.02 and revenue per available room was
$56.67 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 was 71.2%,
the average daily rate was $84.40 and revenue per available room was $60.10 for
the twelve month period. Average occupancy for the Wyndham Portfolio was 73.6%,
the average daily rate was $84.45 and revenue per available room was $62.15 for
the twelve month period.
Pro forma food and beverage revenue was $64,494,000 for the twelve months
ended March 31, 1996. Conference center revenue was $2,380,000 and telephone
and other revenue was $16,116,000 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 $23,170,000 and
telephone and other revenue of $5,772,000 for the twelve months
46
<PAGE>
ended March 31, 1996. The Wyndham Portfolio had pro forma food and beverage
revenue of $10,962,000 and telephone and other revenue of $2,543,000 for the
twelve months ended March 31, 1996.
Pro forma hotel operating expenses were $167,720,000 for the twelve months
ended March 31, 1996. Pro forma hotel operating expenses as a percentage of
total revenue were 65.9%. Pro forma Participating Lease payments were
$81,774,000 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 $60,504,000, which was 68.8% of total revenue. The operating
expenses for the Recent Acquisitions included $1,273,000 of ground lease
expense, or 1.4% of total revenue. Pro forma Participating Lease payments for
the Recent Acquisitions were $25,715,000 for the twelve months ended March 31,
1996. The Wyndham Portfolio had pro forma hotel operating expenses of
$24,742,000, which was 62.7% of total revenue, and pro forma Participating
Lease payments of $13,447,000 for the twelve month period.
Lessee expenses, which on a pro forma basis consist of management fees and
overhead expenses, net of dividend and interest income earned, were $6,498,000,
resulting in a pro forma net loss for the twelve months ended March 31, 1996 of
$1,302,000.
Year Ended December 31, 1995. Pro forma room revenue was $169,495,000 for the
year ended December 31, 1995, including $86,285,000 for the Initial Hotels,
$57,823,000 for the Recent Acquisitions and $25,387,000 for the Wyndham
Portfolio. Average occupancy for all of the hotels (excluding the Crowne Plaza
Ravinia, which is not leased) was 71.4% for the year. Average daily rates were
$78.63 and revenue per available room was $56.14 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 was 71.0%, the average daily rate was
$82.80 and revenue per available room was $58.81 in 1995. Average occupancy for
the Wyndham Portfolio was 73.9%, the average daily rate was $82.55 and revenue
per available room was $60.96 in 1995.
Pro forma food and beverage revenue was $64,155,000 for 1995. Conference
center revenue was $2,434,000 and telephone and other revenue was $15,657,000
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 $22,824,000 and pro
forma telephone and other revenue of $5,680,000 for the year ended December 31,
1995. The Wyndham Portfolio had pro forma food and beverage revenue of
$10,936,000 and pro forma telephone and other revenue of $2,414,000 in 1995.
Pro forma hotel operating expenses were $165,407,000 for the year ended
December 31, 1995. Pro forma hotel operating expenses as a percentage of total
revenue were 65.7%. Pro forma Participating Lease payments were $80,864,000 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 $59,683,000, which was 69.1% of total revenue. The
operating expenses of the Recent Acquisitions included $1,259,000 of ground
lease expense, or 1.5% of total revenue. Pro forma Participating Lease payments
for the Recent Acquisitions was $25,379,000. The Wyndham Portfolio had pro
forma hotel operating expenses of $24,020,000, which was 62.0% of total
revenue, and pro forma Participating Lease payments of $13,083,000.
Lessee expenses, which on a pro forma basis consist of management fees and
overhead expenses, net of dividend and interest income earned, were $6,626,000,
resulting in pro forma net loss for the year ended December 31, 1996 of
$1,156,000.
47
<PAGE>
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 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.
48
<PAGE>
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.
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 $111,200,000 outstanding on the
Line of Credit. The Line of Credit is secured by mortgages on 23 of the Hotels.
Borrowings under the Line of Credit generally bear interest at a rate equal to
the 30-day LIBOR rate plus 1.9%. In connection with one of the Proposed
Acquisitions, the Company is negotiating with Paine Webber Real Estate to
extend a single asset mortgage loan of approximately $22,000,000 on economic
terms substantially similar to the Line of Credit.
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.
As previously discussed in "Proposed Acquisitions," the Company has entered
into contracts and a letter of intent to acquire a total of seven hotels in the
states of New York, Texas, Georgia, Michigan, Illinois and Florida. These
acquisitions are subject to a number of conditions including completion of the
Company's due diligence. The Company currently intends to use proceeds of this
Offering, Line of Credit borrowings and issuances of OP Units 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.
49
<PAGE>
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.
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 $3,300,000 to
complete capital expenditures, excluding renovations, in 1996 for Hotels
acquired subsequent to the Initial Offering, including the WestCoast Portfolio,
the Hyatt Regency Lexington and the Doubletree Denver/Boulder, acquired in
April, May and June 1996, respectively. The $10,800,000 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 and the Doubletree
Denver/Boulder. Total renovation cost is expected to be approximately
$16,500,000 (including approximately $8,500,000 to renovate the Tremont House
Hotel). The Company has spent approximately $900,000 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. With respect to
the Wyndham Portfolio, the Company has budgeted approximately $1,900,000 to
complete renovations at certain of these hotels and expects to complete these
renovations by the end of 1997. Such expenditures will be in addition to
capital expenditure reserves for these properties. 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 describing Percentage
Change in United States
Hotel Room Supply, Demand
and Occupancy (1980-1995).]
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 27 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 seven 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(8). Westminister (Denver), CO 180 1985/1992 5,461 1,693 78.1 70.65 55.20
----- -------- ------- ---- ------- -------
Subtotal/Weighted
Average......... 6,647 $208,940 $56,290 71.0% $ 81.67 $ 58.00
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)(7).... 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.......... 7,538 $237,484 $68,326 71.1% $ 81.55 $ 58.00
===== ======== ======= ==== ======= =======
PROPOSED ACQUI-
SITIONS
WYNDHAM PORTFO-
LIO:
Wyndham
Greenspoint Hotel(8). Houston, TX 472 1985/1995 $ 18,278 $ 6,113 72.6% $ 82.44 $ 59.84
Wyndham Garden
Hotel-Mid-
town(8)......... Atlanta, GA 191 1987/1994 6,465 2,294 73.7 93.74 69.06
Wyndham Garden
Hotel(8)........ Novi (Detroit), MI 148 1988/1994 4,025 983 77.3 68.29 52.78
Wyndham Garden
Hotel(8)........ Wood Dale (Chicago), IL 162 1986/1994 4,983 1,845 70.7 82.10 58.03
Wyndham Garden
Hotel--Las Coli-
nas(8).......... Irving (Dallas), TX 168 1986 5,709 2,213 75.9 96.22 73.04
----- -------- ------- ---- ------- -------
Total/Weighted
Average--Wyndham
Portfolio....... 1,141 $ 39,460 $13,448 73.6% $ 84.45 $ 62.15
===== ======== ======= ==== ======= =======
</TABLE>
53
<PAGE>
<TABLE>
<CAPTION>
TWELVE MONTHS ENDED
MARCH 31, 1996
---------------------------------
AVERAGE REVENUE PER
DAILY AVAILABLE
NUMBER OF AVERAGE RATE ROOM
LOCATION GUEST ROOMS YEAR BUILT OCCUPANCY(3) (ADR)(3) (REVPAR)(4)
-------- ----------- ---------- ------------ -------- -----------
<S> <C> <C> <C> <C> <C> <C>
OTHER PROPOSED ACQUISI-
TIONS
Marriott WindWatch Ho-
tel................... Hauppauge, NY 362 1989 76.0% $99.83 $75.88
Bonaventure Resort &
Spa................... Ft. Lauderdale, FL 492 1981 60.7 88.15 53.49
</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) This Hotel secures the Line of Credit.
(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) 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.
(8) It is anticipated that this hotel will secure the Line of Credit.
(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.
Upon acquisition, the Wyndham Greenspoint Hotel will constitute 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 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.
54
<PAGE>
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 Initial Hotels, the Recent Acquisitions 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)%
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)%
TOTAL RECENT
ACQUISITIONS:
Weighted average
occupancy............ 68.3% 71.0% 4.0% 65.9% 66.6% 1.1%
ADR................... $77.15 $ 82.80 7.3% $ 79.52 $ 86.46 8.7%
Weighted REVPAR....... $52.65 $ 58.81 11.7% $ 52.37 $ 57.59 10.0%
</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>
INITIAL HOTELS:
Bourbon Orleans Hotel--New
Orleans, LA
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, TX
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,
OH
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, TX
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,
MI
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, MI
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, LA
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, TX
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, TX
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, TX
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%
Holiday Inn Northwest--
Houston, TX
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)%
</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
Plaza--Austin, TX
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, TX
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,
FL
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, TX
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, FL
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,
NY
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, OH
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, OH
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%)
CONFERENCE CENTER:
Peachtree Conference
Center--Peachtree
City, GA
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............ 69.8% 71.6% 2.6% 70.6% 68.5% (3.0)%
ADR................... $ 74.55 $ 80.06 7.4% $ 79.20 $ 85.40 7.8%
Weighted REVPAR....... $ 52.01 $ 57.35 10.3% $ 55.91 $ 58.51 4.6%
</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>
WYNDHAM PORTFOLIO:
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 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%
Wyndham Garden-Novi--
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%
TOTAL WYNDHAM PORTFOLIO:
Weighted average occu-
pancy................ 73.5% 73.9% 0.5% 75.8% 74.8% (1.3)%
ADR................... $76.52 $82.55 7.9% $ 83.56 $ 91.12 9.0%
Weighted REVPAR....... $56.23 $60.96 8.4% $ 63.34 $ 68.12 7.5%
OTHER 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..... 62.6% 59.5% (4.9)% 73.3% 78.0% 6.4%
ADR................... $ 86.77 $ 89.86 3.6% $ 128.88 $ 120.19 (6.7)%
REVPAR................ $ 54.35 $ 53.44 (1.7)% $ 93.98 $ 93.73 (0.3)%
TOTAL OTHER PROPOSED
ACQUISITIONS:
Weighted average
occupancy............ 67.2% 66.8% (0.6)% 71.5% 72.9% 2.0%
ADR................... $89.85 $ 94.37 5.0% $113.58 $ 110.60 (2.6)%
Weighted REVPAR....... $60.40 $ 63.03 4.4% $ 81.19 $ 80.61 (0.7)%
TOTAL PROPOSED
ACQUISITIONS:
Weighted average
occupancy............ 70.8% 70.8% -- % 74.0% 74.0% -- %
ADR................... $81.93 $ 87.31 6.6% $ 95.76 $ 99.17 3.6 %
Weighted REVPAR....... $58.01 $ 61.84 6.6% $ 70.85 $ 73.36 3.5 %
</TABLE>
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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, Metro Lease Partners and the
Doubletree Lessee are discussed below. The proposed terms of the Participating
Leases with the Wyndham Lessee are also described 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. "
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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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<PAGE>
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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<PAGE>
(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 lease 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
(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.
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
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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.
OTHER LESSEES
Metro Lease Partners. PA Hunt Valley Investor, L.P. leases the Embassy
Suites, Hunt Valley to Metro Hotels Leasing Corporation 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.
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
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net worth 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, Participating Rent. Base Rent in the Participating Lease with the
Doubletree Lessee will be an amount fixed as a function of the acquisition and
renovation costs incurred by the Operating Partnership for the Hotel, 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. Doubletree Lessee is also required
to pay certain Additional Charges.
Management. 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.
WYNDHAM LESSEE--PROPOSED PARTICIPATING LEASE
Upon completion of the Wyndham Portfolio acquisition, the Operating
Partnership intends to lease the five hotels in the Wyndham Portfolio 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 to enter into a separate master lease agreement with the Wyndham
Lessee which will control all of the Wyndham Participating Leases (the
"Wyndham Master Agreement"). The principal provisions of each Wyndham
Participating Lease will be 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 will be an amount 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 will be
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 CPI and an
additional percentage increase. In the Wyndham Participating Leases, the
Wyndham Lessee will also be required to pay certain Additional Charges.
Wyndham Capitalization. The Wyndham Lessee will be required to maintain a
minimum net worth equal to the greater of (i) $3,000,000 and (ii) 20% of the
projected annual lease payments for the hotels in the Wyndham Portfolio
(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 will be composed of certain components in
specified amounts which generally exclude intangible assets as defined by
GAAP.
Hotel Management. The Wyndham Participating Leases will give the Operating
Partnership the right to approve the terms of any Management Agreement entered
into by the Wyndham Lessee for any of the hotels in the Wyndham Portfolio and
will 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 will 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) will be an event of default under the
applicable Participating Lease.
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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.
FRANCHISE AND BRAND AFFILIATIONS
Twenty-nine 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 fee 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 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 IS A TRADEMARK OWNED BY ITT SHERATON CORPORATION TO COVER
RESTAURANT, COCKTAIL LOUNGE, BAR, HOTEL, MOTEL, RESORT AND MOTOR INN SERVICES
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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 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.
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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.
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.
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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 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.
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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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<PAGE>
. 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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<PAGE>
. 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 48
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 36
G. Terry Huntzicker............ Vice President--Design and Construction 52
John H. Daniels................ Director 68
Leonard Boxer.................. Independent Director 56
John C. Deterding.............. Independent Director 63
Gregory R. Dillon.............. Independent Director 72
Thomas S. Foley................ Independent Director 66
Arch K. Jacobson............... Independent Director 67
</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.
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 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.
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
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<PAGE>
was elected Vice Chairman in 1990. Mr. Dillon served as an Executive Vice
President of Hilton from 1980 until 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
81
<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 incentive stock options
("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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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 June 24, 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 $310,000 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 and the Doubletree Lessee, a
subsidiary of Doubletree Hotels. Upon the acquisition of the Wyndham
Portfolio, the Company also intends to lease hotels to the Wyndham Lessee, an
entity to be 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 separate
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. Upon completion of the acquisition of the Wyndham
Portfolio, the Company intends to lease the Wyndham Portfolio to the Wyndham
Lessee, an entity to be formed by members of the Trammell Crow family, under
Participating Leases that will require the Wyndham Lessee to maintain a
minimum net worth equal to the greater of $3 million or 20% of the current
year's budgeted lease payments for the hotels in the Wyndham Portfolio (such
percentage being subject to adjustment if the parties enter into leases for
additional hotels). The Wyndham Lessee will contract with Wyndham to manage
each of the hotels in the Wyndham Portfolio. At June 25, 1996, Wyndham's
portfolio consisted of 65 hotels operated by Wyndham, 3 franchised
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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 contain cross default
provisions. The Participating Leases with NorthCoast (except the Hyatt
Regency, Lexington) also 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 June 24, 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 June 24, 1996, there were 15,478,648 shares of Common Stock, options
to purchase 737,800 shares of Common Stock, and 3,485,292 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 56,252 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 18,752 are currently exercisable.
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(5) Includes options to purchase 105,000 shares of Common Stock issued to Mr.
Stewart, of which 14,999 are currently exercisable.
(6) Includes options to purchase 77,500 shares of Common Stock issued to Mr.
Ng, of which 10,000 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. In May 1996, the maximum amount
available under the Line of Credit was increased from $165 million to $250
million and certain modifications were made, thereby increasing the Company's
ability to borrow under 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
23 of the Hotels and a mortgage lien on 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
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 June 24, 1996, the Company had outstanding (or reserved for issuance upon
redemption or exchange of OP Units or pursuant to the 1995 Plan) 19,963,940
shares of Common Stock. In addition to OP Units issued to the Company, the
Operating Partnership had outstanding an aggregate of 3,485,292 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 or
exchange of Preferred OP Units issued in connection with the acquisition of
the West Coast Portfolio and the Private Placement, respectively. 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 2,822,901. 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, existing, temporary, and
currently proposed Treasury regulations promulgated under 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 do 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 unrelated business taxable income ("UBTI"). While many investments in
real estate
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generate UBTI, amounts distributed by 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. Nonetheless, 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, and will continue to do so. In any event, the Company believes
that even if any of the Hotel Partnerships were treated as a publicly traded
partnership, no Hotel Partnership will be taxed as a corporation because more
than 90% of the income for each Hotel Partnership should be qualifying income
under section 7704(d) of the Code.
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
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
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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 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 agreed to
pay Paine Webber Real Estate an additional fee in the amount of $500,000 at
such time as the principal amount outstanding under the Line of Credit exceeds
$200,000,000.
In connection with one of the Proposed Acquisitions, the Company is
negotiating with Paine Webber Real Estate to extend a single asset mortgage
loan of approximately $22 million on economic terms substantially similar to
the Line of Credit. If such a loan is extended, the Company will pay Paine
Webber Real Estate a fee in the amount of 1% of the principal amount of such
loan.
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
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. 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 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.
122
<PAGE>
GLOSSARY
Unless the context otherwise requires, the following capitalized terms shall
have the meanings set forth below for the purposes of this Prospectus.
"ACMs" means asbestos-containing materials.
"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 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.
"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.
"Doubletree Hotels" means Doubletree Hotels Corporation, a Phoenix, Arizona-
based hotel management company, and a subsidiary of Doubletree Corporation.
123
<PAGE>
"Doubletree Lessee" means DTR North Canton, Inc.
"Exempt Organizations" means tax-exempt entities.
"F&B" means food and beverage.
"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 Directors" 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.
"LIBOR" means the London Interbank Offered Rate.
"Line of Credit" means the Company's line of credit facility with Paine
Webber Real Estate.
124
<PAGE>
"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.
"MACRS" means modified accelerated cost recovery system of depreciation.
"Management Agreements" means 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 Lease Partners, Inc., 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.
"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.
125
<PAGE>
"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 and Bourbon Orleans Hotel.
"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 income tax regulations promulgated under
the Code.
"UBTI" means unrelated business taxable income.
"VSCA" means the Virginia Stock Corporation Act.
"WestCoast" 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 five hotels in the Wyndham Portfolio.
"Wyndham Portfolio" means the five hotel portfolio consisting of the Wyndham
Greenspoint Hotel, the Wyndham Garden-Midtown (Atlanta, Georgia) the Wyndham
Garden (Novi, Michigan), the Wyndham Garden (Wood Dale, Illinois) and the
Wyndham Garden--Las Colinas (Dallas, Texas).
126
<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, acquisition of the Wyndham Portfolio 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
------------------------------------------------------------
ACQUISITION
OF WYNDHAM
COMPANY INITIAL RECENT PRIVATE PORTFOLIO AND 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) $25,229 (F) $ -- $13,083 $80,864
Interest and other
income................ 513 -- (460)(G) -- -- 53
------- ------- ------- ------- ------- -------
Total revenue.......... 11,095 31,970 24,769 -- 13,083 80,917
------- ------- ------- ------- ------- -------
Expenses:
Real estate and
personal property
taxes, and casualty
insurance............. 901 2,726 (H) 2,249 (H) -- 1,697 7,573
Ground lease expense... -- -- 1,351 (I) -- -- 1,351
General and
administrative........ 607 2,268 (J) 275 (J) -- -- 3,150
Interest expense....... 89 116 11,921 (K) (3,102)(K) (2,957)(K) 6,067
Depreciation and
amortization.......... 2,590 7,448 (L) 6,040 (L) -- 3,194 19,272
------- ------- ------- ------- ------- -------
Total expenses......... 4,187 12,558 21,836 (3,102) 1,934 37,413
------- ------- ------- ------- ------- -------
Operating income....... 6,908 19,412 2,933 3,102 11,149 43,504
Equity in earnings of
unconsolidated
subsidiary............ 156 -- 3,418(M) -- -- 3,574
------- ------- ------- ------- ------- -------
Income before
extraordinary items
and minority
interest.............. 7,064 19,412 6,351 3,102 11,149 47,078
Minority interest...... (968) (2,659)(N) (1,658)(N) (1,326)(N) (262)(N) (6,873)
Extraordinary items,
net of minority
interest.............. (737) 737 (O) -- -- -- --
------- ------- ------- ------- ------- -------
Net income applicable
to common
shareholders.......... $ 5,359 $17,490 $ 4,693 $ 1,776 $10,887 $40,205
======= ======= ======= ======= ======= =======
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
acquisition of the Wyndham Portfolio and 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 $19,156 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, acquisition of the
Wyndham Portfolio 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 16.1%. Subsequent to the Private Placement the minority
interest percentage was 18.4%. 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
------------------------------------------------------------
ACQUISITION
OF WYNDHAM
COMPANY INITIAL RECENT PRIVATE PORTFOLIO AND 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) $24,495 (F) $ -- $13,447 $81,774
Interest and other
income................ 605 -- (473)(G) -- -- 132
------- ------- ------- ------ ------- -------
Total revenue......... 23,558 20,879 24,022 -- 13,447 81,906
------- ------- ------- ------ ------- -------
Expenses:
Real estate and
personal property
taxes, and casualty
insurance............. 1,983 1,795 (H) 2,156 (H) -- 1,710 7,644
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 11,226 (K) (3,066)(K) (2,922)(K) 6,001
Depreciation and
amortization.......... 5,428 4,997 (L) 5,730 (L) -- 3,194 19,349
------- ------- ------- ------ ------- -------
Total expenses........ 9,726 8,192 20,672 (3,066) 1,982 37,506
------- ------- ------- ------ ------- -------
Operating income...... 13,832 12,687 3,350 3,066 11,465 44,400
Equity in earnings of
unconsolidated
subsidiary............ 1,518 -- 2,394 (M) -- -- 3,912
------- ------- ------- ------ ------- -------
Income before
extraordinary items
and minority
interest............. 15,350 12,687 5,744 3,066 11,465 48,312
Minority interest...... (2,126) (1,715)(N) (1,598)(N) (1,341)(N) (274)(N) (7,054)
Extraordinary items,
net of minority
interest.............. (737) 737 (O) -- -- -- --
------- ------- ------- ------ ------- -------
Net income applicable
to common
shareholders......... $12,487 $11,709 $ 4,146 $1,725 $11,191 $41,258
======= ======= ======= ====== ======= =======
Net income per common share.................................................................... $ 2.01
=======
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
acquisition of the Wyndham Portfolio and 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 $19,233 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, acquisition of the
Wyndham Portfolio 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 16.1%. Subsequent to the Private Placement the minority
interest percentage was 18.4%. 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
--------------------------------------------
ACQUISITION
OF WYNDHAM
COMPANY RECENT PRIVATE PORTFOLIO AND COMPANY
HISTORICAL (A) ACQUISITIONS (B) PLACEMENT(C) OFFERING (D) PRO FORMA
-------------- ---------------- ------------ ------------- ---------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
Revenue:
Participating lease
revenue............... $12,371 $5,108 (E) $ -- $3,811 $21,290
Interest and other
income................ 92 -- -- -- 92
------- ------ ----- ------ -------
Total revenue......... 12,463 5,108 -- 3,811 21,382
------- ------ ----- ------ -------
Expenses:
Real estate and
personal property
taxes, and casualty
insurance............. 1,082 470 (F) -- 450 2,002
Ground lease expense... 77 255 (G) -- -- 332
General and
administrative........ 941 69 (H) -- -- 1,010
Interest expense....... 601 2,318 (I) (744)(I) (709)(I) 1,466
Depreciation and
amortization.......... 2,838 1,221 (J) -- 798 4,857
------- ------ ----- ------ -------
Total expenses........ 5,539 4,333 (744) 539 9,667
------- ------ ----- ------ -------
Operating income...... 6,924 775 744 3,272 11,715
Equity in earnings of
unconsolidated
subsidiary............ 1,362 (K) -- -- -- 1,362
------- ------ ----- ------ -------
Income before minority
interest............. 8,286 775 744 3,272 13,077
Minority interest...... (1,158) (301)(L) (345)(L) (105) (L) (1,909)
------- ------ ----- ------ -------
Net income applicable
to common
shareholders......... $ 7,128 $ 474 $ 399 $3,167 $11,168
======= ====== ===== ====== =======
Net income per common
share................ $ 0.48 $ 0.55
======= =======
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
acquisition of the Wyndham Portfolio and 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 $4,828 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, acquisition of the
Wyndham Portfolio 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 16.1%. Subsequent to the Private Placement the minority
interest percentage was 18.4%. 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 certain of the Recent Acquisitions, the acquisition of
the Wyndham Portfolio 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 $208,511 (B) $515,063
Cash and cash equivalents................ 8,098 -- (C) 8,098
Receivables.............................. 3,768 -- 3,768
Inventory................................ 1,219 707 (D) 1,926
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 $208,750 $578,328
======== ======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Line of credit and mortgage debt......... $ 50,250 $ 24,116 (G) $ 74,366
Dividends and distributions payable...... 8,235 -- 8,235
Accounts payable and accrued expense..... 3,881 2,000 (H) 5,881
Minority interest........................ 45,485 27,252 (I) 72,737
Shareholders' equity:
Common stock............................ -- -- --
Additional paid-in capital.............. 264,503 155,382 (J) 419,885
Unearned executive compensation......... (1,185) -- (1,185)
Distributions in excess of earnings..... (1,591) -- (1,591)
-------- -------- --------
Total shareholders' equity.............. 261,727 155,382 417,109
-------- -------- --------
Total liabilities and shareholders' eq-
uity................................... $369,578 $208,750 $578,328
======== ======== ========
</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 proposed
acquisition of the Wyndham Portfolio for $96,970, (including estimated
closing costs) and $500 in value of OP Units. Also reflects the
capitalization of prepaid acquisition costs of $818, net of escrows of
$340. An estimated $707 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......................................... (10,441)
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 and the Wyndham
Portfolio....................................................... (172,984)
Payment of loan costs associated with the modification of the
Line of Credit.................................................. (350)
---------
$ --
=========
</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) Increase represents the following proposed transactions:
<TABLE>
<S> <C>
Indebtedness incurred to acquire certain of the Recent Acquisi-
tions and the Wyndham Portfolio, including mortgage debt of $22
million related to the Wyndham Greenspoint Hotel................. $197,100
Repayment of a portion of the Line of Credit with proceeds of the
Offering and Private Placement................................... (172,984)
--------
$ 24,116
========
</TABLE>
(H) Increase reflects the accrual of a deferred purchase obligation in
connection with the acquisition of certain hotels.
(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...................... (10,441)
Proceeds of the sale of shares in the Private Placement.......... 21,867
Expenses of the Private Placement related to the sales of shares. (419)
--------
$155,382
========
</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 Lease Partners, Inc. ("Metro Lease
Partners" and 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,
generally 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 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
----------------------------------------------
ACQUISITION OF
LESSEE INITIAL RECENT WYNDHAM LESSEE
HISTORICAL (A) OFFERING (B) ACQUISITIONS (C) PORTFOLIO (D) PRO FORMA
-------------- ------------ ---------------- -------------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Revenue:
Room................... $21,508 $65,193 $57,407 $25,387 $169,495
Food and beverage...... 8,649 21,871 22,699 10,936 64,155
Conference center...... 576 1,858 -- -- 2,434
Telephone and other.... 1,732 5,860 5,651 2,414 15,657
------- ------- ------- ------- --------
Total revenue......... 32,465 94,782 85,757 38,737 251,741
------- ------- ------- ------- --------
Expenses:
Departmental costs and
expenses.............. 12,172 35,215 34,768 14,269 96,424
General and administra-
tive.................. 2,714 8,061 7,661 3,589 22,025
Ground lease expense... -- -- 1,259 -- 1,259
Repairs and mainte-
nance................. 1,476 4,456 4,481 1,664 12,077
Utilities.............. 1,320 4,107 3,464 1,618 10,509
Marketing.............. 2,928 8,763 7,185 2,486 21,362
Insurance.............. 191 716 450 394 1,751
Participating lease
payments.............. 10,582 31,970 (E) 25,229 (E) 13,083 (E) 80,864
------- ------- ------- ------- --------
Total expenses........ 31,383 93,288 84,497 37,103 246,271
------- ------- ------- ------- --------
Income before lessee
income (expenses).... 1,082 1,494 1,260 1,634 5,470
Dividend and interest
income................ 198 (F) -- -- -- 198
Management fees........ (536) (1,165)(G) (2,133)(G) (1,680)(G) (5,514)
Lessee general and ad-
ministrative.......... (235) (542)(H) (293)(H) (240)(H) (1,310)
------- ------- ------- ------- --------
Net income (loss)..... $ 509 $ (213) $(1,166) $ (286) $ (1,156)
======= ======= ======= ======= ========
</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 adjustments to the Lessees' results of operations assuming the
acquisition of the Wyndham Portfolio occurred at the beginning of the
period presented.
(E) 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.
(F) 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.
(G) Represents management fees paid to the Operators under the terms of their
respective management agreements with the Lessees.
(H) 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
---------------------------------------------
ACQUISITION
LESSEE INITIAL RECENT OF WYNDHAM LESSEE
HISTORICAL (A) OFFERING (B) ACQUISITIONS (C) PORTFOLIO (D) PRO FORMA
-------------- ------------ ---------------- ------------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Revenue:
Room................... $46,816 $42,951 $55,978 $25,955 $171,700
Food and beverage...... 16,889 14,259 22,384 10,962 64,494
Conference center...... 1,221 1,159 -- -- 2,380
Telephone and other.... 4,105 4,003 5,465 2,543 16,116
------- ------- ------- ------- --------
Total revenue......... 69,031 62,372 83,827 39,460 254,690
------- ------- ------- ------- --------
Expenses:
Departmental costs and
expenses.............. 25,490 23,666 33,914 14,593 97,663
General and administra-
tive.................. 5,720 5,603 7,592 3,837 22,752
Ground lease expense... -- -- 1,273 -- 1,273
Repairs and mainte-
nance................. 3,102 3,036 4,261 1,696 12,095
Utilities.............. 2,868 2,801 3,318 1,666 10,653
Marketing.............. 6,251 5,998 6,751 2,556 21,556
Insurance.............. 420 469 445 394 1,728
Participating lease
payments.............. 22,953 20,879 (E) 24,495 (E) 13,447 (E) 81,774
------- ------- ------- ------- --------
Total expenses........ 66,804 62,452 82,049 38,189 249,494
------- ------- ------- ------- --------
Income (loss) before
lessee income (ex-
penses).............. 2,227 (80) 1,778 1,271 5,196
Dividend and interest
income................ 408 (F) -- -- -- 408
Management fees........ (1,160) (547)(G) (2,147)(G) (1,742)(G) (5,596)
Lessee general and ad-
ministrative.......... (420) (364)(H) (286)(H) (240)(H) (1,310)
------- ------- ------- ------- --------
Net income (loss)..... $ 1,055 $ (991) $ (655) (711) $ (1,302)
======= ======= ======= ======= ========
</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 adjustments to the Lessees' results of operations assuming the
acquisition of the Wyndham Portfolio occurred at the beginning of the
period presented.
(E) 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.
(F) 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.
(G) Represents management fees paid to the Operators under the terms of their
respective management agreements with the Lessees.
(H) 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
------------------------------
ACQUISITION
LESSEE RECENT OF WYNDHAM LESSEE
HISTORICAL (A) ACQUISITIONS (B) PORTFOLIO (C) PRO FORMA
-------------- ---------------- ------------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Revenue:
Room................... $25,308 $10,854 $7,073 $43,235
Food and beverage...... 8,240 4,539 2,895 15,674
Conference center...... 645 -- -- 645
Telephone and other.... 2,373 1,104 696 4,173
------- ------- ------ -------
Total revenue......... 36,566 16,497 10,664 63,727
------- ------- ------ -------
Expenses:
Departmental costs and
expenses.............. 13,318 7,082 3,905 24,305
General and administra-
tive.................. 3,006 1,719 1,156 5,881
Ground lease expense... -- 289 -- 289
Repairs and mainte-
nance................. 1,626 890 457 2,973
Utilities.............. 1,548 676 434 2,658
Marketing.............. 3,323 1,373 737 5,433
Insurance.............. 229 106 97 432
Participating lease
payments.............. 12,371 5,108 3,811 (D) 21,290
------- ------- ------ -------
Total expenses........ 35,421 17,243 10,597 63,261
------- ------- ------ -------
Income (loss) before
lessee income (ex-
penses).............. 1,145 (746) 67 466
Dividend and interest
income................ 210 (E) -- -- 210
Management fees........ (624) (209)(F) (474)(F) (1,307)
Lessee general and ad-
ministrative.......... (185) (68)(G) (60)(G) (313)
------- ------- ------ -------
Net income (loss)..... $ 546 $(1,023) $ (467) $ (944)
======= ======= ====== =======
</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 adjustments to the Lessees' results of operations assuming the
acquisition of the Wyndham Portfolio 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 $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.
(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-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
THROUGH 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
THROUGH 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 ofPatriot 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 income, 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
$33,369,398 and $35,762,897 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.......... $ 995,495 $ 797,242 $ 724,574
Cash held in escrow................ 608,102 389,979 547,364
Accounts receivable, net of allow-
ance of $90,566, $20,172 and
$21,533 in 1994, 1995 and 1996.... 1,346,115 1,617,331 2,571,960
Due from Operator.................. -- 78,337 78,337
Due from affiliates................ 202,163 1,777 --
Inventories........................ 209,448 223,082 210,236
Prepaid expenses................... 116,075 102,236 194,454
------------ ------------ ------------
Total current assets............. 3,477,398 3,209,984 4,326,925
Property and equipment, net.......... 59,892,656 58,625,865 58,680,998
Cash restricted for property and
equipment........................... 563,203 714,374 655,197
Notes receivable from affiliate...... 587,122 937,242 1,076,363
Other assets......................... 519,830 411,627 389,984
------------ ------------ ------------
Total assets..................... $ 65,040,209 $ 63,899,092 $ 65,129,467
============ ============ ============
LIABILITIES AND PARTNERS' DEFICIT
Current liabilities:
Accounts payable and accrued ex-
penses............................ $ 4,767,077 $ 4,636,169 $ 4,645,826
Due to affiliates.................. 821,451 275,921 483,963
Due to Operators................... 15,076,363 14,952,886 14,973,744
Deposits........................... 101,905 527,905 1,050,286
Current portion of long-term debt.. 16,080,000 18,580,000 38,550,000
------------ ------------ ------------
Total current liabilities........ 36,846,796 38,972,881 59,703,819
Long-term debt, net of current por-
tion................................ 66,664,222 61,433,458 40,449,052
Accrued interest..................... 6,763,928 8,207,379 8,568,242
------------ ------------ ------------
Total liabilities................ 110,274,946 108,613,718 108,721,113
------------ ------------ ------------
Minority interest.................... -- -- --
Commitments and contingencies (see
Note 10)
Partners' deficit.................... (45,234,737) (44,714,626) (43,591,646)
------------ ------------ ------------
Total liabilities and partners'
deficit......................... $ 65,040,209 $ 63,899,092 $ 65,129,467
============ ============ ============
</TABLE>
The accompanying notes are an integral part of these combined financial
statements.
F-117
<PAGE>
WYNDHAM PORTFOLIO HOTELS
COMBINED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, THREE MONTHS ENDED MARCH 31,
------------------------ ------------------------------
1994 1995 1995 1996
----------- ----------- -------------- --------------
(UNAUDITED)
<S> <C> <C> <C> <C>
Revenues:
Rooms................. $23,417,987 $25,386,931 $ 6,504,282 $ 7,072,770
Food and beverage..... 11,223,423 10,935,850 2,869,549 2,895,434
Operating departments. 2,315,892 2,344,466 555,870 683,602
----------- ----------- -------------- --------------
Total revenues...... 36,957,302 38,667,247 9,929,701 10,651,806
----------- ----------- -------------- --------------
Operating costs and ex-
penses:
Departmental expenses:
Rooms................. 5,122,490 5,584,820 1,395,354 1,583,647
Food and beverage..... 7,729,992 7,574,728 1,913,963 2,018,953
Operating departments. 1,181,865 1,109,405 271,241 302,400
Operating expenses:
Administrative and
general.............. 4,323,322 4,034,796 956,041 1,205,677
Management fees....... 1,540,824 1,680,235 411,887 474,014
Sales and marketing... 2,500,286 2,486,083 666,577 737,044
Property operating
costs................ 1,568,920 1,664,462 425,002 456,643
Energy costs.......... 1,623,416 1,617,543 385,744 433,916
Property insurance and
taxes 1,660,105 1,697,108 437,450 450,444
Depreciation and amor-
tization............. 2,692,885 2,377,622 645,416 614,112
Other................. 395,632 187,722 108,905 107,364
----------- ----------- -------------- --------------
Total operating
costs and expenses. 30,339,737 30,014,524 7,617,580 8,384,214
----------- ----------- -------------- --------------
Operating income.... 6,617,565 8,652,723 2,312,121 2,267,592
Interest income......... 36,867 153,613 27,876 32,798
Interest expense........ (8,029,939) (8,477,065) (1,879,927) (1,735,249)
----------- ----------- -------------- --------------
Net income (loss)... $(1,375,507) $ 329,271 $ 460,070 $ 565,141
=========== =========== ============== ==============
</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....................................... $(44,303,105)
Contributions.................................................. 1,053,432
Distributions.................................................. (609,557)
Net loss....................................................... (1,375,507)
------------
Balance at December 31, 1994..................................... (45,234,737)
Contributions.................................................. 696,124
Distributions.................................................. (505,284)
Net income..................................................... 329,271
------------
Balance at December 31, 1995..................................... (44,714,626)
Contributions (unaudited)...................................... 557,839
Net income (unaudited)......................................... 565,141
------------
Balance at March 31, 1996 (unaudited)............................ $(43,591,646)
============
</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)...... $(1,375,507) $ 329,271 $ 460,070 $ 565,141
Adjustments to recon-
cile net income (loss)
to net cash provided
by operating activi-
ties:
Depreciation and amor-
tization............. 2,692,885 2,377,622 645,416 614,112
Amortization of de-
ferred financing
costs................ 143,715 113,000 29,311 17,231
Provision for uncol-
lectible accounts.... 71,670 (70,393) (80,496) 1,360
Accrued interest ex-
pense................ 1,899,936 1,443,450 360,863 360,863
Changes to operating
assets and liabili-
ties:
Accounts receivable... (233,052) (200,823) (302,698) (955,989)
Due from affiliate.... (200,955) 122,049 (56,664) 1,777
Inventories........... 18,399 (13,634) (3,548) 12,846
Prepaid expenses...... 44,763 13,839 (53,709) (92,218)
Cash held in escrow... (226,925) 218,123 353,920 (157,385)
Other assets.......... 12,385 (4,795) (13,550) 256
Accounts payable and
accrued expenses..... 114,446 (130,908) (636,335) 9,657
Deposits.............. (121,918) 426,000 (22,786) 522,381
Due to Operators...... 465,997 (123,477) 95,819 20,858
Due to affiliates..... (478,229) (545,530) 12,799 208,042
----------- ----------- ------------- ---------------
Net cash provided by
operating activi-
ties............... 2,827,610 3,953,794 788,412 1,128,932
----------- ----------- ------------- ---------------
Cash flows from invest-
ing activities:
Purchase of property
and equipment........ (654,510) (1,110,832) (111,998) (665,089)
Cash restricted for
property and equip-
ment................. (429,165) (151,171) (154,760) 59,177
Notes receivable from
affiliate............ (587,122) (350,120) -- (139,121)
----------- ----------- ------------- ---------------
Net cash used in in-
vesting activities. (1,670,797) (1,612,123) (266,758) (745,033)
----------- ----------- ------------- ---------------
Cash flows from financ-
ing activities:
Long-term debt pay-
ments................ (1,742,599) (2,730,764) (703,137) (1,014,406)
Partners' contributed
capital.............. 1,053,432 696,124 -- 557,839
Partners' capital dis-
tributions........... (609,557) (505,284) -- --
----------- ----------- ------------- ---------------
Net cash used in fi-
nancing activities. (1,298,724) (2,539,924) (703,137) (456,567)
----------- ----------- ------------- ---------------
Decrease in cash and
cash equivalents....... (141,911) (198,253) (181,483) (72,668)
Cash and cash equiva-
lents at beginning of
period................. 1,137,406 995,495 995,495 797,242
----------- ----------- ------------- ---------------
Cash and cash equiva-
lents at end of period. $ 995,495 $ 797,242 $ 814,012 $ 724,574
=========== =========== ============= ===============
Supplemental disclosures
of cash flow informa-
tion:
Cash paid for interest. $ 5,529,242 $ 6,972,484
=========== ===========
</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 five partnerships
which own and operate five Wyndham and Wyndham Garden Hotels. 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".
Following is a listing of the entities and the name and location of the
hotel properties:
HOTEL ENTITY
Houston Greenspoint Hotel Associates (a Texas limited partnership,
"Greenspoint")
Novi Garden Hotel Associates (a Texas general partnership, "Novi")
CLC Partnership (a Texas limited partnership, "Las Colinas")
Wood Dale Garden Hotel Partnership (a Texas limited partnership, "Wood
Dale")
Atlanta Midtown Associates (a Texas general partnership, "Midtown")
PROPERTY NAME AND LOCATION
Wyndham Greenspoint Hotel, Houston, Texas
Wyndham Garden Hotels:
Wyndham Novi, Novi (Detroit), Michigan
Wyndham Las Colinas, Irving, Texas
Wyndham Wood Dale, Wood Dale (Chicago), Illinois
Wyndham Midtown Atlanta, Atlanta, Georgia
A controlling interest in each of the above 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.
Certain partnerships which own Wyndham Portfolio Hotels are highly
leveraged. In addition, the Companies' operating liabilities exceed operating
assets by $33,369,398 and $35,762,897 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.
F-121
<PAGE>
WYNDHAM PORTFOLIO HOTELS
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
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 income 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.
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. Cash held in escrow consists primarily of amounts for
taxes and insurance remitted to the lenders which hold mortgages on the hotel
facilities.
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
$376,985 and $263,983 at December 31, 1994 and 1995, respectively, and are
stated net of related amortization. Amortization of deferred
F-122
<PAGE>
WYNDHAM PORTFOLIO HOTELS
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
financing costs is computed using the effective yield method over the lives of
the related loans. The remaining balance consists primarily of security
deposits totaling approximately $142,845 and $147,644 at December 31, 1994 and
1995, respectively, and are stated at cost.
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 liability,
workers' compensation, work related injury and employee medical coverages.
Accrued expenses include the estimated cost for unpaid incurred claims.
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 $377,324 and $366,441 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............................................. $ 9,048,737 $ 9,048,737
Buildings and improvements....................... 62,136,813 62,136,813
Furniture and equipment.......................... 20,287,965 21,398,480
------------ ------------
91,473,515 92,584,030
Less accumulated depreciation.................... (31,580,859) (33,958,165)
------------ ------------
$ 59,892,656 $ 58,625,865
============ ============
</TABLE>
4. MANAGEMENT AGREEMENT 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 ranging from 2004 to 2008. Pursuant to such
management agreements, the Operator receives a base management fee ranging
from 3% to 4% of gross revenues from hotel operations plus an incentive
management fee. The calculation of incentive management fees varies from
management contract to management contract, but is generally based on a
percentage of a hotel's operating profit or the amount by which the hotel's
operating profit exceeds specified performance results. Due to Operators
includes management fees and other expenses payable to the Operator. As
provided for in the management agreement, 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.
F-123
<PAGE>
WYNDHAM PORTFOLIO HOTELS
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
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 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 all of 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.
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.......................................... $1,007,697 $1,172,401
Taxes..................................................... 1,760,899 1,824,173
Accrued interest.......................................... 720,020 662,236
Other..................................................... 1,278,461 977,359
---------- ----------
$4,767,077 $4,636,169
========== ==========
</TABLE>
F-124
<PAGE>
WYNDHAM PORTFOLIO HOTELS
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
7. LONG-TERM DEBT:
Long-term debt consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------
1994 1995
------------ ------------
<S> <C> <C>
Novi--Mortgage loan, a hotel property and equip-
ment is pledged as collateral with additional
collateral pledged by two other hotel properties,
Las Colinas and Wood Dale, bearing interest at
10%, payable monthly at 5% with pay rate increas-
ing 1% per year beginning May 1, 1993, principal
due August 1, 1997. Net cash flow, as defined, is
payable quarterly and is applied first against
accrued and unpaid interest...................... $ 8,428,859 $ 7,626,656
Wood Dale--Mortgage loan, a hotel property and
equipment is pledged as collateral with addi-
tional collateral pledged on another hotel prop-
erty, Novi, bearing interest at 10%, principal
due August 1, 1997............................... 10,520,985 10,520,985
Las Colinas--Mortgage loan, a hotel property is
pledged as collateral with additional collateral
pledged on another hotel property, Novi, bearing
interest at 10%, principal due August 1, 1997.... 11,307,953 11,307,953
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 is
due September 30, 2000........................... 3,266,425 2,417,864
Greenspoint--Mortgage loan, a hotel property is
pledged as collateral, interest payable monthly
at 10.25%. Principal due in monthly installments
of $90,000 plus monthly net cash flows, as de-
fined, beginning September 1994, not to exceed an
aggregate unpaid principal balance of $1,000,000
due January 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 demand
or, if no demand is made, on January 1, 1996. In-
terest payments are limited to cash flow, as de-
fined, and payable within 45 days after the year
end.............................................. 2,500,000 2,500,000
------------ ------------
82,744,222 80,013,458
Current portion of long-term debt................. (16,080,000) (18,580,000)
------------ ------------
Long-term debt, net of current portion............ $ 66,664,222 $ 61,433,458
============ ============
</TABLE>
The Midtown mortgage note payable 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.
The terms of certain mortgage notes require the Companies to remit, to a
real estate tax and insurance escrow and remit 3% of gross revenues to a
furniture, fixtures and equipment reserve. As of December 31, 1994 and 1995,
$563,203 and $714,374 were held in the furniture, fixtures and equipment
reserve and $608,102 and $389,979 in real estate tax insurance escrow,
respectively.
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
F-125
<PAGE>
WYNDHAM PORTFOLIO HOTELS
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
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 mortgage note of Novi is cross-collateralized by the property and
equipment of Wood Dale and Las Colinas. The loan agreements provide that the
net cash flow of Wood Dale and Las Colinas, as defined, be utilized first in
reducing the indebtedness of Novi. Repayments of Novi's indebtedness required
by the Wood Dale and Las Colinas net cash flow computations are being paid
directly by Novi. Payment of each respective entity's debt is guaranteed by
certain partners of each respective entity.
Accrued interest payable to affiliated individuals and entities was
$6,763,928 and $8,207,379 as of December 31, 1994 and 1995, respectively.
Interest expense of the Companies related to notes payable to affiliated
individuals and entities was $1,899,936 and $1,443,950 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............................................................ 49,515,594
1998............................................................ --
1999............................................................ --
2000............................................................ 11,917,864
Thereafter...................................................... --
------------
$ 80,013,458
============
</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 $19,313 and $17,686 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 $181,388, and $189,520 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 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.
F-126
<PAGE>
WYNDHAM PORTFOLIO HOTELS
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
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 income 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 $95,500,000 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
the operating performance of two of the five hotel properties. 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 five hotels is
estimated to be approximately $13.2 million 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-127
<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
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.................................... 525,000
Accountant's fees and expenses................................... 592,000
Blue Sky fees and expenses....................................... 5,000
Legal fees....................................................... 1,032,500
Transfer Agent's fees............................................ 3,500
Miscellaneous expenses........................................... 269,275
----------
Total.......................................................... $2,500,000
==========
</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.
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.
II-1
<PAGE>
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
<TABLE>
<CAPTION>
PAGE
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<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
</TABLE>
II-2
<PAGE>
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
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
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
</TABLE>
II-3
<PAGE>
<TABLE>
<CAPTION>
PAGE
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<S> <C>
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 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>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT
------- -------
<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.
</TABLE>
II-4
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT
------- -------
<C> <S>
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.
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.
5.1 --Form of 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.
10.1(1) --First Amendment to Agreement of Limited Partnership of Patriot
American Hospitality Partnership, L.P.
10.1(2) --Second Amendment to Agreement of Limited Partnership of Patriot
American Hospitality Partnership, L.P.
10.1(3) --Third Amendment to Agreement of Limited Partnership of Patriot
American Hospitality Partnership, L.P.
10.1(4) --Fourth 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).
</TABLE>
II-5
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT**
------- ---------
<C> <S>
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).
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>
II-6
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT**
------- ---------
<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.
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 herein 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
herein 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 --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).
10.28 --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).
10.29 --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).
10.30 --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).
</TABLE>
II-7
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT**
------- ---------
<C> <S>
10.31 --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).
10.32 --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).
10.33 --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).
10.34 --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).
10.35 --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).
10.36 --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).
10.37 --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).
10.38 --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).
10.39 --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).
10.40 --Agreement of Acquisition dated as of April 22, 1996 by and
between PAH Acquisition Corporation and BV Hotel & SPA
Acquisition, LTD.
10.41 --Agreement of Purchase and Sale dated March 15, 1996 by and
between PAH Acquisition Corporation and Colony Hill Associates,
as amended.
10.42 --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.
10.43 --Agreement of Assignment and Assumption dated June 20, 1996
between Doubletree Hotels Corporation and Patriot American
Hospitality Partnership, L.P.
10.44 --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).
</TABLE>
II-8
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT
------- -------
<C> <S>
10.45 --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).
10.46 --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).
10.47 --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).
10.48 --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).
10.49 --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).
10.50 --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).
10.51 --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).
10.52 --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 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).
10.53 --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).
10.54 --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).
10.55 --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).
</TABLE>
II-9
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT
------- -------
<C> <S>
10.56 --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 herein by reference to Exhibit 10.51 to the
Company's Form 10-K for the year ended December 31, 1996, No. 0-
26528).
10.57 --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).
10.58 --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 herein by reference to Exhibit 10.53 to the
Company's Form 10-K for the year ended December 31, 1996, No. 0-
26528).
10.59 --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 herein by reference to Exhibit
10.54 to the Company's Form 10-K for the year ended December 31,
1996, No. 0-26528).
10.60 --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).
10.61 --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).
10.62 --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).
10.63 --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).
10.64 --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).
10.65 --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).
10.66 --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).
10.67 --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).
</TABLE>
II-10
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT
------- -------
<C> <S>
10.68 --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).
10.69 --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).
10.70 --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).
10.71 --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 herein by reference to Exhibit 10.68 to the
Company's Form 10-K for the year ended December 31, 1995,
No. 0-26528).
10.71(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.
10.72 --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).
10.73 --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).
10.74 --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).
10.75 --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).
10.76 --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).
10.77 --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).
</TABLE>
II-11
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT
------- -------
<C> <S>
10.78 --Purchase and Sale Agreement between Patriot American Hospitality
Partnership, L.P. and Forte USA, Inc. for the Long Beach
Travelodge. (Incorporated herein 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 herein 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 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 herein by reference to
Signature Page to the Company's original registration statement
no. 333-64587, dated May 24, 1996)
</TABLE>
- --------
*To be filed by amendment.
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
II-12
<PAGE>
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."
(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-13
<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. 1
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 27th
day of June, 1996.
Patriot American Hospitality, Inc. a
Virginia corporation (Registrant)
/s/ Paul A. Nussbaum
By _____________________________
Paul A. Nussbaum
Chairman of the Board and Chief
Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 1 to the Registration Statement has been signed by the following persons
in the capacities indicated on the 27th day of June, 1996.
Signature Title
/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)
II-14
<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.
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.
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.
5.1 --Form of Opinion of Goodwin, Procter & Hoar llp
8.1 --Form of 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.
10.1(1) --First Amendment to Agreement of Limited Partnership of
Patriot American Hospitality Partnership, L.P.
10.2(2) --Second Amendment to Agreement of Limited Partnership of
Patriot American Hospitality Partnership, L.P.
10.3(3) --Third Amendment to Agreement of Limited Partnership of
Patriot American Hospitality Partnership, L.P.
10.4(4) --Fourth 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).
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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).
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).
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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.
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
herein 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 herein 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 --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).
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10.28 --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).
10.29 --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).
10.30 --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).
10.31 --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).
10.32 --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).
10.33 --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).
10.34 --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).
10.35 --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).
10.36 --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).
10.37 --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).
10.38 --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).
10.39 --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).
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10.40 --Agreement of Acquisition dated as of April 22, 1996 by and
between PAH Acquisition Corporation and BV Hotel & SPA
Acquisition, LTD.
10.41 --Agreement of Purchase and Sale dated March 15, 1996 by and
between PAH Acquisition Corporation and Colony Hill
Associates, as amended.
10.42 --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.
10.43 --Agreement of Assignment and Assumption dated June 20, 1996
between Doubletree Hotels Corporation and Patriot American
Hospitality Partnership, L.P.
10.44 --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).
10.45 --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).
10.46 --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).
10.47 --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).
10.48 --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).
10.49 --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).
10.50 --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).
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10.51 --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).
10.52 --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
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).
10.53 --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).
10.54 --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).
10.55 --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).
10.56 --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 herein by reference to Exhibit 10.51 to the
Company's Form 10-K for the year ended December 31, 1996, No.
0-26528).
10.57 --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).
10.58 --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 herein by reference to Exhibit 10.53 to
the Company's Form 10-K for the year ended December 31, 1996,
No. 0-26528).
10.59 --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 herein by reference to
Exhibit 10.54 to the Company's Form 10-K for the year ended
December 31, 1996, No. 0-26528).
10.60 --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).
10.61 --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).
10.62 --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).
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10.63 --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).
10.64 --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).
10.65 --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).
10.66 --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).
10.67 --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).
10.68 --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).
10.69 --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).
10.70 --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).
10.71 --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 herein by reference to Exhibit 10.68 to the
Company's Form 10-K for the year ended December 31, 1996, No.
0-26528).
10.71(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.
10.72 --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).
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10.73 --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).
10.74 --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).
10.75 --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).
10.76 --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).
10.77 --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).
10.78 --Purchase and Sale Agreement between Patriot American
Hospitality Partnership, L.P. and Forte USA, Inc. for the Long
Beach Travelodge. (Incorporated herein 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 herein by reference to Exhibit 11.1 to the
Company's Form 10-K for the year ended December 31, 1996,
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 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 herein by reference to
signature page to the Company's original registration
statement no. 333-04587, dated May 24, 1996)
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*To be filed by amendment.
<PAGE>
EXHIBIT 4.3
REDEMPTION AND REGISTRATION RIGHTS AGREEMENT
This Redemption and Registration Rights Agreement (this "Agreement") is
entered into as of April 1, 1996 by and between Patriot American Hospitality,
Inc., a Virginia corporation (the "Company") and the persons listed on Schedule
--------
A attached hereto (each a "Holder" and collectively the "Holders").
- -
WHEREAS, each Holder is an investor, directly or indirectly, in one or more
of the Selling Entities named on Schedule B attached hereto;
----------
WHEREAS, the Holders are to receive units of limited partnership interest
("Units") in Patriot American Hospitality Partnership, L.P. (the "Operating
Partnership") pursuant to the purchase agreements listed on Schedule A attached
----------
hereto (the "Purchase Agreements"), which Units 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 follows:
1. Redemption.
(a) Section 8.05 of the First Amended and Restated Agreement of Limited
Partnership of the Operating Partnership dated October 2, 1995, as amended (the
"OP Agreement") governs the redemption of the Units. All capitalized terms used
in this Section 1 and in Sections 2 and 3 of this Agreement without definition
shall have the definition set forth in the OP Agreement. PAH GP, Inc., a
Virginia corporation, is a signatory to this Agreement for purposes of this
Section 1 only.
(b) In the event that the Company or PAH GP, Inc. exercises its right to
purchase the Units under Section 8.05(b) with respect to a Notice of Redemption,
the Company and PAH GP, Inc. each agree to notify a Holder within 10 business
days of PAH GP, Inc.'s receipt of such Holder's Notice of Redemption of PAH GP,
Inc.'s or the Company's election to pay the Cash Amount or the REIT Shares
Amount on the Specified Redemption Date with respect to the Units covered by
such Notice of Redemption.
(c) With respect to the redemption of the Units, the Company and PAH GP,
Inc. each agree not to extend their obligation to pay the Cash Amount beyond the
Specified Redemption Date by the time periods permitted in Section 8.05(d) of
the OP Agreement.
2. Repurchase of Units or Common Stock. Following receipt of a Notice of
Redemption from a Holder, the Company agrees to repurchase the Units or shares
of Common Stock covered by such Notice of Redemption for the Cash Amount under
the following circumstances:
<PAGE>
(a) If the Registration Statement (as defined below) is not declared
effective by the Securities and Exchange Commission within one hundred twenty
(120) days following PAH GP, Inc.'s receipt of the first Notice of Redemption
relating to the Units.
(b) If the Registration Statement is not effective on the sixtieth (60th)
day following PAH GP, Inc.'s receipt of any subsequent Notice of Redemption
relating to the Units.
(c) If Section 8.05 of the OP Agreement is amended in a manner adverse to
the Holders without the Holder's consent.
A Registration Statement will be considered effective for purposes of this
Section 2 if declared effective by the SEC even if subject to suspension as
provided in Section 9 of this Agreement. The time periods specified in Section
2(a) and (b) shall be extended by one day for each day beyond the 10 day limit
specified in Section 8(a) of this Agreement that Holder fails to provide
information as required by Section 8(a).
3. Registration.
(a) Shelf Registration. If, upon the receipt of a Notice of Redemption from
a Holder, the Company elects (in its sole and absolute discretion) to acquire
Units from such Holder by paying the REIT Shares Amount instead of the Cash
Amount, then, the Company shall cause to be filed as soon as practicable
thereafter, a registration statement (a "Shelf Registration Statement") under
Rule 415 under the Securities Act of 1933, as amended (the "Securities Act")
relating to the sale by each of the Holders of their Registrable Shares in
accordance with the terms hereof. As used in this Agreement, the term
"Registrable Shares" means shares of Common Stock issued or to be issued to the
Holders upon redemption or in exchange for the Units issued pursuant to the
Purchase and Sale 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. The Company shall use best efforts to cause such
Shelf Registration Statement to be declared effective by the Securities and
Exchange Commission (the "SEC") for all Registrable Shares as soon as
practicable thereafter. The Company agrees to use best efforts to keep the Shelf
Registration Statement continuously effective until the earliest of (a) the date
on which the Holders no longer hold any Registrable Shares registered under the
Shelf Registration Statement, (b) the date on which all such Registrable Shares
may be sold by the Holders pursuant to Rule 144 promulgated under the Securities
Act or (c) five years following the date upon which such Shelf Registration
Statement first became effective. The Company shall not be required to file and
effect more than one Shelf Registration Statement pursuant to this Section 3(a).
(b) Registration Statement Covering Issuance of Common Stock. In lieu of
the registration rights set forth in Section 3(a) above, the Company may, in its
sole discretion, prior to April 2, 1997 (or such other date as may be required
under applicable provisions of the Securities Act) file a registration statement
(the "Issuance Registration Statement") under
<PAGE>
Rule 415 under the Securities Act relating to the issuance to Holders of shares
of Common Stock upon the redemption or in exchange for such Units. Thereupon,
the Company shall use its best efforts to cause such Issuance Registration
Statement to be declared effective by the SEC for all shares of Common Stock
covered thereby. The Company agrees to use its best efforts to keep the Issuance
Registration Statement continuously effective until five years following the
date upon which such Issuance Registration Statement first became effective. Any
Shelf Registration Statement or Issuance Registration Statement are sometimes
referred to as a "Registration Statement."
4. Registration Procedures.
(a) The Company shall promptly notify each Holder of the effectiveness of
the Registration Statement and shall furnish to each Holder such number of
copies 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 Holders as set forth in the
Registration Statement or (ii) the date on which the Registration Statement
ceases to be effective in accordance with the terms of Section 3. Within fifteen
(15) business days following notice from a Holder, the Company shall file any
supplement or post-effective amendment to the Registration Statement with
respect to such Holder's interests in or plan of distribution of Registrable
Shares that is 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 each 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 each 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 each 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
<PAGE>
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 9 of this Agreement, the
Company shall promptly prepare and furnish to each 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, not misleading.
5. 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 any 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 each 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.
6. 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 system on which the
Common Stock is then traded or quoted. Holders 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
them.
7. Indemnification by the Company. The Company agrees to indemnify each of
the Holders and their respective officers, directors, employees, agents,
representatives and affiliates, and each person or entity, if any, that controls
a 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
a Holder, and any underwriter and any person who controls the underwriter within
the meaning of 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 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, except insofar as and to the extent that such statement or
omission arose out of or
<PAGE>
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 alleged untrue statement or
omission or alleged omission made in such Registration Statement, any such
preliminary prospectus, final prospectus, summary prospectus, amendment or
supplement in reliance upon and in conformity with information furnished to the
Company 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 or alleged
omission if such statement or omission was corrected in such final prospectus.
8. Covenants of Holders. Each of the Holders 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 such 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 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 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 a 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 a Holder
shall be liable under this Section 6 shall not in any event exceed the aggregate
proceeds received by him or it from the sale of the Holder's Registrable Shares
in such registration.
<PAGE>
9. Suspension of Registration Requirement.
(a) The Company shall promptly notify each 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 its best 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 in 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 year. The Company shall notify the Holder of the
existence of any Suspension Event.
(c) Each holder of Registrable Shares whose Registrable Shares are covered
by a Registration Statement filed pursuant to Section 3 hereof agrees, if
requested by 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 Underwritten 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.
10. Black-Out Period. Following the effectiveness of the Registration
Statement and the filings with any state securities commissions, the Holders
agree that they will not effect any sales of the Registrable Shares pursuant to
the Registration Statement or any such filings at any time after they have
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 4(c) or 4(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, which notice shall be
given by the Company not later than five (5) days after the conclusion of any
such Suspension Event or Offering.
<PAGE>
11. 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.
12. Contribution. If the indemnification provided for in Sections 7 and 8
is unavailable to an indemnified party with respect to any losses, claims,
damages, actions, 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 12 exceed the amount that such
indemnifying party would have been obligated to pay by way of indemnification if
the indemnification provided for under Sections 7 or 8 hereof had been available
under the circumstances.
The Company and the Holders agree that it would not be just and equitable
if contribution pursuant to this Section 12 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.
13. No Other Obligation to Register. Except as otherwise expressly provided
in this Agreement, the Company shall have no obligation to the Holders to
register the Registrable Shares under the Securities Act.
14. Amendments and Waivers. The provisions of this Agreement may not be
amended, modified or supplemented without the prior written consent of the
Company and all of the Holders.
15. 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 at the following
address and to the Holder at the address set forth in Schedule A attached hereto
(or ----------
<PAGE>
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 4(b) or Section 8, a 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, TX 75234
Attn: Paul A. Nussbaum, Chairman and
Chief Executive Officer
With a copy to: Goodwin, Procter & Hoar
Exchange Place
Boston, MA 02109
Attn: Gilbert G. Menna, P.C.
In addition to the manner of notice permitted above, notices given pursuant to
Sections 3, 9 and 10 hereof may be effected telephonically and confirmed in
writing thereafter in the manner described above.
16. 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
not be assigned by any Holder and any attempted assignment hereof by any Holder
will be void and of no effect and shall terminate all obligations of the Company
hereunder with respect to such Holder.
17. 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.
18. 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.
19. 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.
20. 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.
<PAGE>
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.
[Remainder of Page Intentionally Left Blank]
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date first written above.
PATRIOT AMERICAN
HOSPITALITY, INC.
_________________________________________
Name:
Title:
For purposes of Section 1 of this Agreement only.
PAH GP, Inc.
_________________________________________
Name:
Title:
<PAGE>
REGISTRATION RIGHTS AGREEMENT
HOLDER SIGNATURE PAGE
Holder:
By:_____________________________________
<PAGE>
EXHIBIT 4.4
REGISTRATION RIGHTS AGREEMENT
This REGISTRATION RIGHTS AGREEMENT is made as of this 15th day of May,
1996, by and between Patriot American Hospitality, Inc., a Virginia corporation
(the "Company"), and LaSalle Advisors Limited Partnership, a registered
investment advisor (the "Investor"), as agent for and for the benefit of a
single client (the "Pecuniary Owner").
RECITALS
WHEREAS, the Company and the Investor (for the benefit of the Pecuniary
Owner and another Client) are parties to a Common Stock Purchase Agreement (the
"Purchase Agreement") of even date herewith; and
WHEREAS, in order to induce the Investor to invest funds in the Company
pursuant to the Purchase Agreement and to induce the Company to enter into the
Purchase Agreement, the Investor and the Company hereby agree that this
Agreement shall govern the rights of the Investor and the Pecuniary Owner to
cause the Company to register shares of the Company's common stock, no par value
per share, purchased pursuant to the Purchase Agreement on behalf of the
Pecuniary Owner (the "Common Stock");
NOW, THEREFORE, THE PARTIES HEREBY AGREE AS FOLLOWS:
I. REGISTRATION RIGHTS
The Company covenants and agrees as follows:
1.1 Definitions.
For purposes of this Section 1:
(a) The terms "register," "registered," and "registration" refer to a
registration effected by preparing and filing a registration statement or
similar document in compliance with the Act, and the declaration or ordering of
effectiveness of such registration statement or document;
(b) The term "Registrable Securities" means (1) the Common Stock issued and
sold to the Investor pursuant to the Purchase Agreement, and (2) any Common
Stock of the Company issued as (or issuable upon the conversion or exercise of
any warrant, right or other security which is issued as) a dividend or other
distribution with respect to, or in exchange for or in replacement of, such
Common Stock, excluding in all cases, however, any Registrable Securities sold
by a person in a transaction in which its rights under this Section 1 are not
assigned;
(c) The term "Act" means the Securities Act of 1933, as amended, or any
successor legislation thereto.
<PAGE>
(d) The term "Holder" shall mean the beneficial holder from time to time of
Registrable Securities.
1.2 Demand Registration.
If the Company shall receive, at any time after the expiration of six (6)
months following the date of issuance of the Common Stock pursuant to the
Purchase Agreement (the "Original Issue Date") during which the Company is not
eligible to use Securities and Exchange Commission Form S-3 ("Form S-3"), and
before the fourth anniversary of the Original Issue Date, one or more written
requests from a Holder that the Company file a registration statement under the
Act covering Registrable Securities then outstanding for which the expected
aggregate offering price to the public net of underwriter's discounts and
commissions, if any, would exceed $1,000,000, then the Company shall use its
reasonable efforts to file as soon as practicable, and shall, in any event, file
within sixty (60) days of the receipt of such request, a registration statement
under the Act covering the Registrable Securities requested to be registered in
such notice and, at the Company's option, all additional Registrable Securities
that were not requested to be registered in such notice, and, shall keep such
registration statement in effect for a period of at least ninety (90) days;
provided, however, that if the Company determines in good faith that, due to
business interests or pending transactions, it would not be in the Company's
best interests to file such registration statement at that time, the Company may
direct that such request for registration be delayed for a period not in excess
of sixty (60) days. The Company shall in no event be required to file more than
two registration statements under this Section 1.2.
1.3 Shelf Registration.
At any time after the expiration of six (6) months following the Original
Issue Date during which the Company is eligible to use Form S-3, if the Company
shall receive a written request from a Holder that the Company file a shelf
registration statement on Form S-3 (or any successor form) under Rule 415 under
the Act (or any successor rule) covering Registrable Securities then
outstanding, then the Company shall use its reasonable efforts to file as soon
as practicable, and shall, in any event, file within sixty (60) days of the
receipt of such request, a shelf registration statement under the Act covering
the Registrable Securities requested to be registered in such notice and, at the
Company's option all additional Registrable Securities that were not requested
to be registered in such notice, and shall maintain the effectiveness of such
registration statement until the earlier of (a) the date immediately following
the date on which all shares registered thereunder have been sold or (b) the
fourth anniversary of the Original Issue Date, subject to Section 1.4; provided,
however, that if the Company determines in good faith that, due to business
interests or pending transactions, it would not be in the Company's best
interests to file such registration statement at that time, the Company may
direct that such request for registration be delayed for a period not in excess
of sixty (60) days.
1.4 Suspension of Registration Statement.
(a) The Company shall promptly notify each Holder of, and confirm in
writing, the issuance by the SEC of any stop order suspending the effectiveness
of the registration
<PAGE>
statement or the initiation of any proceedings for that purpose. The Company
shall use its best 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 its best efforts to cause
the registration statement and any filings with any state securities commission
to become effective or to amend or supplement the registration statement shall
be suspended in the event and during such period as either of the following
circumstances exist: (i) an underwritten primary offering by the Company if the
Company is advised by the underwriters that sale of Registrable Securities under
the registration statement would have a material adverse effect on the primary
offering or (ii) pending negotiations relating to, or consummation of, a
transaction or the occurrence of an event that would require additional
disclosure of material information by the Company in the registration statement
or such filing, 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 inadvisable to cause the
registration statement or such filings 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 in no event will that
suspension exceed 90 days. The Company shall notify the Holder of the existence
and, in the case of circumstances referred to in clause (i) of this Section
1.4(b), nature of any Suspension Event.
1.5 Black-Out Period.
Following the effectiveness of the registration statement and the filings
with any state securities commissions, the Holders agree that they will not
effect any sales of Registrable Securities pursuant to the registration
statement or any such filings at any time after they have received notice from
the Company to suspend sales as a result of the occurrence or existence of any
Suspension Event or so that the Company may correct or update the registration
statement or filing. The Holders may recommence effecting sales of the
Registrable Securities pursuant to the registration statement or such filings
following further notice to such effect from the Company, which notice shall be
given by the Company no later than 5 days after the conclusion of any such
Suspension Event.
II. OBLIGATIONS OF THE COMPANY
Whenever required under Section 1 to effect the registration of any
Registrable Securities, the Company shall, as expeditiously as reasonably
possible but in no event later than the time set forth in Section 1:
(a) Prepare and file with the SEC a registration statement with respect to
such of the Registrable Securities as are set forth in the request, and cause
such registration statement to become effective and use its best efforts to keep
such registration statement effective for the period set forth in Section 1.2 or
1.3, as applicable.
<PAGE>
(b) Prepare and file with the SEC such amendments and supplements to such
registration statement and the prospectus used in connection with such
registration statement as may be necessary to comply with the provisions of the
Act with respect to the disposition of all securities covered by such
registration statement.
(c) Furnish to the Holder such numbers of copies of a prospectus, including
a preliminary prospectus, in conformity with the requirements of the Act, and
such other documents as they may reasonably request in order to facilitate the
disposition of Registrable Securities owned by the Holder (or its assignee).
(d) Use its best efforts to register and qualify the securities covered by
such registration statement under such other securities or Blue Sky laws of such
jurisdictions as shall be reasonably requested by the Investor, provided that
the Company shall not be required in connection therewith or as a condition
thereto to qualify to do business or to file a general consent to service of
process in any such states or jurisdictions.
(e) In the event the registration statement is used in an underwritten
public offering, enter into and perform its obligations under an underwriting
agreement, in usual and customary form, with the managing underwriter of such
offering, provided that the Investor has also entered into and performed its
obligations under such an agreement.
(f) Notify the Holder, at any time when a prospectus relating thereto is
required to be delivered under the Act, of the happening of any event as a
result of which the prospectus included in such registration statement, as then
in effect, includes an untrue statement of a material fact or omits to state a
material fact required to be stated therein or necessary to make the statements
therein not misleading in the light of the circumstances then existing.
III. FURNISH INFORMATION
The Company's obligation to cause any registration statement to become
effective in connection with distribution of any Registrable Securities pursuant
to Section 1 shall be contingent upon the Investor, with reasonable promptness,
furnishing to the Company such information regarding itself, the Registrable
Securities held by it, and the intended method of disposition of such
securities, as shall be required to effect the registration of the Registrable
Securities.
IV. INDEMNIFICATION
In the event of any registration under this Agreement:
(a) To the extent permitted by law, the Company will indemnify and hold
harmless the Investor, the Pecuniary Owner, any underwriter (as defined in the
Act) for the Investor and each person, if any, who controls the Investor, the
Pecuniary Owner or underwriter within the meaning of the Act or the Securities
Exchange Act of 1934, as amended (the "1934 Act"), against any losses, claims,
damages, or liabilities (joint or several) to which they may become subject
under the Act, or the 1934 Act or other federal or state law, insofar as such
losses,
<PAGE>
claims, damages, or liabilities (or actions in respect thereof) arise out of or
are based upon any of the following statements, omissions or violations (each a
"Violation"): (i) any untrue statement or alleged untrue statement of a material
fact contained in such registration statement, including any preliminary
prospectus or final prospectus contained therein or any amendments or
supplements thereto, (ii) the omission or alleged omission to state therein a
material fact required to be stated therein, or necessary to make the statements
therein not misleading, or (iii) any violation or alleged violation by the
Company of the Act, the 1934 Act, any state securities law or any rule or
regulation promulgated under the Act, the 1934 Act or any state securities law;
and the Company will pay to the Investor, underwriter or controlling person, as
incurred, any legal or other expenses reasonably incurred by them in connection
with investigating or defending any such loss, claim, damage, liability, or
action; provided, however, that the indemnity agreement contained in this
subsection (a) shall not apply to amounts paid in settlement of any such loss,
claim, damage, liability, or action if such settlement is effected without the
consent of the Company (which consent shall not be unreasonably withheld), nor
shall the Company be liable in any such case for any such loss, claim, damage,
liability, or action to the extent that it arises out of or is based upon a
Violation which occurs in reliance upon and in conformity with written
information furnished expressly for use in connection with such registration by
the Investor, the Pecuniary Owner, underwriter or controlling person.
(b) To the extent permitted by law, the Investor, as agent for and on
behalf of the Pecuniary Owner, will indemnify and hold harmless, to the extent
of the proceeds received by the Investor, as agent for and on behalf of the
Pecuniary Owner, the Company, each of its directors, each of its officers who
has signed the registration statement, each person, if any, who controls the
Company within the meaning of the Act, any underwriter, any other shareholder of
the Company selling securities in such registration statement and any
controlling person of any such underwriter or other shareholder, against any
losses, claims, damages, or liabilities (joint or several) to which any of the
foregoing persons may become subject, under the Act, or the 1934 Act or other
federal or state law, insofar as such losses, claims, damages, or liabilities
(or actions in respect thereto) arise out of or are based upon any Violation, in
each case to the extent (and only to the extent) that such Violation occurs in
reliance upon and in conformity with written information furnished by the
Investor, as agent for and on behalf of the Pecuniary Owner, expressly for use
in connection with such registration; and the Investor, as agent for and on
behalf of the Pecuniary Owner, will pay, as incurred, any legal or other
expenses reasonably incurred by any person intended to be indemnified pursuant
to this subsection (b) in connection with investigating or defending any such
loss, claim, damage, liability, or action; provided, however, that the indemnity
agreement contained in this subsection (b) shall not apply to amounts paid in
settlement of any such loss, claim, damage, liability or action if such
settlement is effected without the consent of the Investor (which consent shall
not be unreasonably withheld); provided, that, in no event shall any indemnity
under this subsection (b) exceed the gross proceeds from the offering (excluding
underwriting discounts and commissions) received by the Investor, as agent for
and on behalf of the Pecuniary Owner.
(c) Promptly after receipt by an indemnified party under this Section of
notice of the commencement of any action (including any governmental action),
such indemnified party
<PAGE>
will, if a claim in respect thereof is to be made against any indemnifying party
under this Section, deliver to the indemnifying party a written notice of the
commencement thereof and the indemnifying party shall have the right to
participate in, and, to the extent the indemnifying party so desires, jointly
with any other indemnifying party similarly noticed, to assume the defense
thereof with counsel mutually satisfactory to the parties; provided, however,
that an indemnified party (together with all other indemnified parties which may
be represented without conflict by one counsel) shall have the right to retain
one separate counsel, with the fees and expenses to be paid by the indemnifying
party, if representation of such indemnified party by the counsel retained by
the indemnifying party would be inappropriate due to actual or potential
differing interests between such indemnified party and any other party
represented by such counsel in such proceeding. The failure to deliver written
notice to the indemnifying party within a reasonable time of the commencement of
any such action, if materially prejudicial to its ability to defend such action,
shall relieve such indemnifying party of any liability to the indemnified party
under this Section, but the omission so to deliver written notice to the
indemnifying party will not relieve it of any liability that it may have to any
indemnified party otherwise than under this Section. No indemnifying party under
this Agreement shall enter into any settlement or consent to any entry of
judgment which does not include as an unconditional term thereof the giving by
the claimant or plaintiff to the indemnified party of a release from all
liability in respect of such claim or litigation.
(d) If the indemnification provided for in this Section is held by a court
of competent jurisdiction to be unavailable to an indemnified party with respect
to any loss, liability, claim, damage, or expense referred to therein, then the
indemnifying party, in lieu of indemnifying such indemnified party hereunder,
shall contribute to the amount paid or payable by such indemnified party as a
result of such loss, liability, claim, damage, or expense in such proportion as
is appropriate to reflect the relative fault of the indemnifying party on the
one hand and of the indemnified party on the other in connection with the
Violation or Violations that resulted in such loss, liability, claim, damage, or
expense as well as any other relevant equitable considerations. The relative
fault of the indemnifying party and of the indemnified party shall be determined
by reference to, among other things, whether the Violation relates to
information supplied by the indemnifying party or by the indemnified party and
the parties' relative intent, knowledge, access to information, and opportunity
to correct or prevent such Violation.
(e) The obligations of the Company and the Investor, as agent for and on
behalf of the Pecuniary Owner, under this Section shall survive the completion
of any offering of Registrable Securities in a registration statement under
Section 1, and otherwise.
V. EXPENSES OF REGISTRATION
All expenses incurred in connection with any registration, qualification or
compliance pursuant to Section 1, including, without limitation, all
registration, filing and qualification fees, printing expenses, fees and
disbursements of counsel for the Company and expenses of any special audits
incidental to or required by such registration, qualification or compliance
shall be borne by the Company, except that the Company shall not be required to
pay
<PAGE>
underwriters' fees, discounts, commissions, or stock transfer taxes relating to
the Registrable Securities or the fees and disbursements of counsel to the
Holder.
VI. MISCELLANEOUS
6.1 No Other Registration Rights.
The Company hereby represents and warrants that as of the date hereof,
except for the rights granted to the holders of Common Stock pursuant to this
Agreement and the registration rights granted pursuant to the agreements set
forth on Schedule 6.1 hereto, it has not granted registration rights to any
other person.
6.2 Eligibility to Use Rule 144.
The Company agrees to file all materials required to be filed under
Sections 13 and 14 of the 1934 Act so as to enable the Investor to sell
Registrable Securities under Rule 144, as amended, under the Act beginning two
years (or any shorter period as the Rule may allow) after the Original Issue
Date and expiring on the tenth anniversary of the Original Issue Date.
6.3 Successors and Assigns.
The terms and conditions of this Agreement shall inure to the benefit of
and be binding upon the respective successors and assigns of the parties.
Nothing in this Agreement, express or implied, is intended to confer upon any
party other than the parties hereto any rights, remedies, obligations, or
liabilities under or by reason of this Agreement.
6.4 Governing Law.
This Agreement shall be governed by and construed under the laws of the
Commonwealth of Virginia.
6.5 Counterparts.
This Agreement may be executed in two or more counterparts, each of which
shall be deemed an original, but all of which together shall constitute one and
the same instrument.
6.6 Titles and Subtitles.
The titles and subtitles used in this Agreement are used for convenience
only and are not to be considered in construing or interpreting this Agreement.
6.7 Notices.
Unless otherwise provided, any notice required or permitted under this
Agreement shall be given in writing and shall be deemed effectively given (i)
upon personal delivery to the party to be notified, (ii) on the fifth business
day after deposit with the United States Post
<PAGE>
Office, by registered or certified mail, postage prepaid, (iii) on the next
business day after dispatch via nationally recognized overnight courier or (iv)
upon confirmation of transmission by facsimile, all addressed to the party to be
notified at the address indicated for such party on the signature page hereof,
or at such other address as such party may designate by ten (10) days' advance
written notice to the other parties. Notices should be provided in accordance
with this Section at the following addresses:
If to the Investor to:
LaSalle Advisors Limited Partnership
100 East Pratt Street
Baltimore, Maryland 21202
Attn: William K. Morrill, Jr.
Managing Director
with a copy to:
Elizabeth Grieb, Esquire
Piper & Marbury L.L.P.
36 South Charles Street
Baltimore, Maryland 21201
If to the Company, to:
Patriot American Hospitality, Inc.
3030 LBJ Freeway
Suite 1500
Dallas, Texas 75234
Attn: Paul A. Nussbaum, Chairman of the Board
and Chief Executive Officer
with copies to:
Gilbert G. Menna, P.C.
Goodwin, Procter & Hoar LLP
Exchange Place
Boston, Massachusetts 02109-2881
6.8 Expenses.
If any action at law or in equity is necessary to enforce or interpret the
terms of this Agreement, the prevailing party shall be entitled to reasonable
attorneys' fees, costs and necessary disbursements in addition to any other
relief to which such party may be entitled.
6.9 Amendments and Waivers.
<PAGE>
Any term of this Agreement may be amended and the observance of any term of
this Agreement may be waived (either generally or in a particular instance and
either retroactively or prospectively) only with the written consent of the
Company and the holders of a majority of the Registrable Securities then
outstanding. Any amendment or waiver effected in accordance with this paragraph
shall be binding upon each Holder, each future holder of all such Registrable
Securities, and the Company.
6.10 Severability.
If one or more provisions of this Agreement are held to be unenforceable
under applicable law, such provision shall be excluded from this Agreement and
the balance of the Agreement shall be interpreted as if such provision were so
excluded and shall be enforceable in accordance with its terms.
6.11 Entire Agreement.
This Agreement constitutes the full and entire understanding and agreement
between the parties with regard to the subjects hereof.
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Registration Rights
Agreement as of the date first above written.
PATRIOT AMERICAN HOSPITALITY, INC. LASALLE ADVISORS
LIMITED PARTNERSHIP
By: _____________________________ By:________________________________
Paul A. Nussbaum, Chairman William K. Morrill, Jr., Managing
of the Board Director
and Chief Executive Officer
Address: Address:
3030 LBJ Freeway, Suite 1500 100 E. Pratt Street
Dallas, Texas 75234 Baltimore, Maryland 21202
Attn: Paul A. Nussbaum Attn: William K. Morrill, Jr.
Fax: (214) 888-8029 Fax: (410) 347-0612
<PAGE>
EXHIBIT 4.5
REGISTRATION RIGHTS AGREEMENT
This REGISTRATION RIGHTS AGREEMENT is made as of this 15th day of May,
1996, by and between Patriot American Hospitality, Inc., a Virginia corporation
(the "Company"), and LaSalle Advisors Limited Partnership, a registered
investment advisor (the "Investor"), for the benefit of a single client (the
"Pecuniary Owner").
RECITALS
WHEREAS, the Company, Patriot American Hospitality Partnership, L.P. (the
"Partnership") and the Investor (for the benefit of the Pecuniary Owner and
another Client) are parties to a Preferred Unit Purchase Agreement (the
"Preferred Unit Purchase Agreement") and a Common Stock Purchase Agreement (the
"Common Stock Purchase Agreement") of even date herewith (collectively, the
"Purchase Agreements"); and
WHEREAS, in order to induce the Investor to invest funds in the Partnership
and the Company pursuant to the Purchase Agreements and to induce the Company
and the Partnership to enter into the Purchase Agreements, the Investor and the
Company hereby agree that this Agreement shall govern the rights of the Investor
and the Pecuniary Owner to cause the Company to register shares of the Company's
common stock, no par value per share (the "Common Stock") received by the
Investor on behalf of the Pecuniary Owner in exchange for the Partnership's
Preferred Units (the "Preferred Units") pursuant to the Preferred Unit Purchase
Agreement and shares of Common Stock purchased on behalf of the Pecuniary Owner
pursuant to the Common Stock Purchase Agreement;
NOW, THEREFORE, THE PARTIES HEREBY AGREE AS FOLLOWS:
I. REGISTRATION RIGHTS
The Company covenants and agrees as follows:
1.1 Definitions.
For purposes of this Section 1:
(a) The terms "register," "registered," and "registration" refer to a
registration effected by preparing and filing a registration statement or
similar document in compliance with the Act, and the declaration or ordering of
effectiveness of such registration statement or document;
(b) The term "Registrable Securities" means (1) the Common Stock issuable
or issued upon exchange of the Partnership's Preferred Units issued and sold
pursuant to the Preferred Unit Purchase Agreement, (2) the Common Stock issued
and sold to the Investor pursuant to the Common Stock Purchase Agreement, and
(3) any Common Stock of the Company issued as (or issuable upon the conversion
or exercise of any warrant, right or other security which is issued
<PAGE>
as) a dividend or other distribution with respect to, or in exchange for or in
replacement of, such Preferred Units or Common Stock, excluding in all cases,
however, any Registrable Securities sold by a person in a transaction in which
its rights under this Section 1 are not assigned;
(c) The term "Act" means the Securities Act of 1933, as amended, or any
successor legislation thereto.
(d) The term "Holder" shall mean the beneficial holder from time to time of
Registrable Securities.
1.2 Demand Registration.
If the Company shall receive, at any time following the date of issuance of
the Preferred Units and Common Stock pursuant to the Purchase Agreements (the
"Original Issue Date") during which the Company is not eligible to use
Securities and Exchange Commission Form S-3 ("Form S-3"), and before the fourth
anniversary of the Original Issue Date, one or more written requests from a
Holder that the Company file a registration statement under the Act covering
Registrable Securities then outstanding for which the expected aggregate
offering price to the public net of underwriter's discounts and commissions, if
any, would exceed $1,000,000, then the Company shall use its reasonable efforts
to file as soon as practicable, and shall, in any event, file within sixty (60)
days of the receipt of such request, a registration statement under the Act
covering the Registrable Securities requested to be registered in such notice
and, at the Company's option all additional Registrable Securities that were not
requested to be registered in such notice, and, shall keep such registration
statement in effect for a period of at least ninety (90) days; provided,
however, that if the Company determines in good faith that, due to business
interests or pending transactions, it would not be in the Company's best
interests to file such registration statement at that time, the Company may
direct that such request for registration be delayed for a period not in excess
of sixty (60) days. The Company shall not be required to honor a request by the
Investor under this Section 1.2 to register Common Stock to be obtained in
exchange for Preferred Units unless the Holder has given prior notice of its
intent to exchange Preferred Units into the Common Stock sought to be
registered. The Company shall in no event be required to file more than two
registration statements under this Section 1.2.
1.3 Shelf Registration.
At any time following the Original Issue Date during which the Company is
eligible to use Form S-3, if the Company shall receive a written request from a
Holder that the Company file a shelf registration statement on Form S-3 (or any
successor form) under Rule 415 under the Act (or any successor rule) covering
the Registrable Securities then outstanding, then the Company shall use its
reasonable efforts to file as soon as practicable, and shall, in any event, file
within sixty (60) days of the receipt of the request, a shelf registration
statement under the Act covering the Registrable Securities requested to be
registered in such notice and, at the Company's option all additional
Registrable Securities that were not requested to be registered in such notice,
and, shall maintain the effectiveness of such registration statement until the
earlier of (a) the date immediately following the date on which all shares
registered thereunder have been sold or (b) the fourth anniversary of the
Original Issue Date subject to Section 1.4; provided, however, that
<PAGE>
if the Company determines in good faith that, due to business interests or
pending transactions, it would not be in the Company's best interests to file
such registration statement at that time, the Company may direct that such
request for registration be delayed for a period not in excess of sixty (60)
days. The Company shall not be required to honor a request by the Investor under
this Section 1.3 to register Common Stock to be obtained in exchange for
Preferred Units unless the Investor has given prior notice of its intent to
convert the Preferred Units into the Common Stock sought to be registered.
1.4 Suspension of Registration Statement.
(a) The Company shall promptly notify each 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 its best 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 its best efforts to cause
the registration statement and any filings with any state securities commission
to become effective or to amend or supplement the registration statement shall
be suspended in the event and during such period as either of the following
circumstances exist: (i) an underwritten primary offering by the Company if the
Company is advised by the underwriters that sale of Registrable Securities under
the registration statement would have a material adverse effect on the primary
offering or (ii) pending negotiations relating to, or consummation of, a
transaction or the occurrence of an event that would require additional
disclosure of material information by the Company in the registration statement
or such filing, 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 inadvisable to cause the
registration statement or such filings 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 in no event will that
suspension exceed 90 days. The Company shall notify the Holder of the existence
and, in the case of circumstances referred to in clause (i) of this Section
1.4(b), nature of any Suspension Event.
1.5 Black-Out Period.
Following the effectiveness of the registration statement and the filings
with any state securities commissions, the Holders agree that they will not
effect any sales of Registrable Securities pursuant to the registration
statement or any such filings at any time after they have received notice from
the Company to suspend sales as a result of the occurrence or existence of any
Suspension Event or so that the Company may correct or update the registration
statement or filing. The Holder may recommence effecting sales of the
Registrable Securities pursuant to the registration statement or such filings
following further notice to such effect from the Company, which notice shall be
given by the Company no later than 5 days after the conclusion of any such
Suspension Event.
<PAGE>
II. OBLIGATIONS OF THE COMPANY
Whenever required under Section 1 to effect the registration of any
Registrable Securities, the Company shall, as expeditiously as reasonably
possible but in no event later than the time set forth in Section 1:
(a) Prepare and file with the SEC a registration statement with respect to
such of the Registrable Securities as are set forth in the request, and cause
such registration statement to become effective and use its best efforts to keep
such registration statement effective for the period set forth in Section 1.2 or
1.3, as applicable.
(b) Prepare and file with the SEC such amendments and supplements to such
registration statement and the prospectus used in connection with such
registration statement as may be necessary to comply with the provisions of the
Act with respect to the disposition of all securities covered by such
registration statement.
(c) Furnish to the Holder such numbers of copies of a prospectus, including
a preliminary prospectus, in conformity with the requirements of the Act, and
such other documents as they may reasonably request in order to facilitate the
disposition of Registrable Securities owned by the Holder (or its assignee).
(d) Use its best efforts to register and qualify the securities covered by
such registration statement under such other securities or Blue Sky laws of such
jurisdictions as shall be reasonably requested by the Investor, provided that
the Company shall not be required in connection therewith or as a condition
thereto to qualify to do business or to file a general consent to service of
process in any such states or jurisdictions.
(e) In the event the registration statement is used in an underwritten
public offering, enter into and perform its obligations under an underwriting
agreement, in usual and customary form, with the managing underwriter of such
offering, provided that the Investor has also entered into and performed its
obligations under such an agreement.
(f) Notify the Holder, at any time when a prospectus relating thereto is
required to be delivered under the Act, of the happening of any event as a
result of which the prospectus included in such registration statement, as then
in effect, includes an untrue statement of a material fact or omits to state a
material fact required to be stated therein or necessary to make the statements
therein not misleading in the light of the circumstances then existing.
III. FURNISH INFORMATION
The Company's obligation to cause any registration statement to become
effective in connection with distribution of any Registrable Securities pursuant
to Section 1 shall be contingent upon the Investor, with reasonable promptness,
furnishing to the Company such information regarding itself, the Registrable
Securities held by it, and the intended method of disposition of such
securities, as shall be required to effect the registration of the Registrable
Securities.
<PAGE>
IV. INDEMNIFICATION
In the event of any registration under this Agreement:
(a) To the extent permitted by law, the Company will indemnify and hold
harmless the Investor, the Pecuniary Owner, any underwriter (as defined in the
Act) for the Investor and each person, if any, who controls the Investor, the
Pecuniary Owner or underwriter within the meaning of the Act or the Securities
Exchange Act of 1934, as amended (the "1934 Act"), against any losses, claims,
damages, or liabilities (joint or several) to which they may become subject
under the Act, or the 1934 Act or other federal or state law, insofar as such
losses, claims, damages, or liabilities (or actions in respect thereof) arise
out of or are based upon any of the following statements, omissions or
violations (each a "Violation"): (i) any untrue statement or alleged untrue
statement of a material fact contained in such registration statement, including
any preliminary prospectus or final prospectus contained therein or any
amendments or supplements thereto, (ii) the omission or alleged omission to
state therein a material fact required to be stated therein, or necessary to
make the statements therein not misleading, or (iii) any violation or alleged
violation by the Company of the Act, the 1934 Act, any state securities law or
any rule or regulation promulgated under the Act, the 1934 Act or any state
securities law; and the Company will pay to the Investor, underwriter or
controlling person, as incurred, any legal or other expenses reasonably incurred
by them in connection with investigating or defending any such loss, claim,
damage, liability, or action; provided, however, that the indemnity agreement
contained in this subsection (a) shall not apply to amounts paid in settlement
of any such loss, claim, damage, liability, or action if such settlement is
effected without the consent of the Company (which consent shall not be
unreasonably withheld), nor shall the Company be liable in any such case for any
such loss, claim, damage, liability, or action to the extent that it arises out
of or is based upon a Violation which occurs in reliance upon and in conformity
with written information furnished expressly for use in connection with such
registration by the Investor, Pecuniary Owner, underwriter or controlling
person.
(b) To the extent permitted by law, the Investor, as agent for and on
behalf of the Pecuniary Owner, will indemnify and hold harmless, to the extent
of the proceeds received by the Investor, as agent for and on behalf of the
Pecuniary Owner, the Company, each of its directors, each of its officers who
has signed the registration statement, each person, if any, who controls the
Company within the meaning of the Act, any underwriter, any other shareholder of
the Company selling securities in such registration statement and any
controlling person of any such underwriter or other shareholder, against any
losses, claims, damages, or liabilities (joint or several) to which any of the
foregoing persons may become subject, under the Act, or the 1934 Act or other
federal or state law, insofar as such losses, claims, damages, or liabilities
(or actions in respect thereto) arise out of or are based upon any Violation, in
each case to the extent (and only to the extent) that such Violation occurs in
reliance upon and in conformity with written information furnished by the
Investor, as agent for and on behalf of the Pecuniary Owner, expressly for use
in connection with such registration; and the Investor, as agent for and on
behalf of the Pecuniary Owner, will pay, as incurred, any legal or other
expenses reasonably incurred by any person intended to be indemnified pursuant
to this subsection (b) in connection with investigating or defending any such
loss, claim, damage, liability, or action; provided, however,
<PAGE>
that the indemnity agreement contained in this subsection (b) shall not apply to
amounts paid in settlement of any such loss, claim, damage, liability or action
if such settlement is effected without the consent of the Investor (which
consent shall not be unreasonably withheld); provided, that, in no event shall
any indemnity under this subsection (b) exceed the gross proceeds from the
offering (excluding underwriting discounts and commissions) received by the
Investor, as agent for and on behalf of the Pecuniary Owner.
(c) Promptly after receipt by an indemnified party under this Section of
notice of the commencement of any action (including any governmental action),
such indemnified party will, if a claim in respect thereof is to be made against
any indemnifying party under this Section, deliver to the indemnifying party a
written notice of the commencement thereof and the indemnifying party shall have
the right to participate in, and, to the extent the indemnifying party so
desires, jointly with any other indemnifying party similarly noticed, to assume
the defense thereof with counsel mutually satisfactory to the parties; provided,
however, that an indemnified party (together with all other indemnified parties
which may be represented without conflict by one counsel) shall have the right
to retain one separate counsel, with the fees and expenses to be paid by the
indemnifying party, if representation of such indemnified party by the counsel
retained by the indemnifying party would be inappropriate due to actual or
potential differing interests between such indemnified party and any other party
represented by such counsel in such proceeding. The failure to deliver written
notice to the indemnifying party within a reasonable time of the commencement of
any such action, if materially prejudicial to its ability to defend such action,
shall relieve such indemnifying party of any liability to the indemnified party
under this Section, but the omission so to deliver written notice to the
indemnifying party will not relieve it of any liability that it may have to any
indemnified party otherwise than under this Section. No indemnifying party under
this Agreement shall enter into any settlement or consent to any entry of
judgment which does not include as an unconditional term thereof the giving by
the claimant or plaintiff to the indemnified party of a release from all
liability in respect of such claim or litigation.
(d) If the indemnification provided for in this Section is held by a court
of competent jurisdiction to be unavailable to an indemnified party with respect
to any loss, liability, claim, damage, or expense referred to therein, then the
indemnifying party, in lieu of indemnifying such indemnified party hereunder,
shall contribute to the amount paid or payable by such indemnified party as a
result of such loss, liability, claim, damage, or expense in such proportion as
is appropriate to reflect the relative fault of the indemnifying party on the
one hand and of the indemnified party on the other in connection with the
Violation or Violations that resulted in such loss, liability, claim, damage, or
expense as well as any other relevant equitable considerations. The relative
fault of the indemnifying party and of the indemnified party shall be determined
by reference to, among other things, whether the Violation relates to
information supplied by the indemnifying party or by the indemnified party and
the parties' relative intent, knowledge, access to information, and opportunity
to correct or prevent such Violation.
(e) The obligations of the Company and the Investor, as agent for and on
behalf of the Pecuniary Owner, under this Section shall survive the completion
of any offering of Registrable Securities in a registration statement under
Section 1, and otherwise.
<PAGE>
V. EXPENSES OF REGISTRATION
All expenses incurred in connection with any registration, qualification or
compliance pursuant to Section 1, including, without limitation, all
registration, filing and qualification fees, printing expenses, fees and
disbursements of counsel for the Company and expenses of any special audits
incidental to or required by such registration, qualification or compliance
shall be borne by the Company, except: (i) that the Company shall not be
required to pay underwriters' fees, discounts, commissions, or stock transfer
taxes relating to the Registrable Securities or the fees and disbursements of
counsel to the Holder; and (ii) all costs associated with a request for
registration pursuant to Sections 1.2 and 1.3 shall be borne by the Holder if
such Request is made prior to the expiration of six (6) months following the
Original Issue Date.
VI. MISCELLANEOUS
6.1 No Other Registration Rights.
The Company hereby represents and warrants that as of the date hereof,
except for the rights granted to the holders of Common Stock and Preferred Units
pursuant to this Agreement and the registration rights granted pursuant to the
Agreements set forth on Schedule 6.1 hereto, it has not granted registration
rights to any other person.
6.2 Eligibility to Use Rule 144.
The Company agrees to file all materials required to be filed under
Sections 13 and 14 of the 1934 Act so as to enable the Investor to sell
Registrable Securities under Rule 144, as amended, under the Act beginning two
years (or any shorter period as the Rule may allow) after the Original Issue
Date and expiring on the tenth anniversary of the Original Issue Date.
6.3 Successors and Assigns.
The terms and conditions of this Agreement shall inure to the benefit of
and be binding upon the respective successors and assigns of the parties.
Nothing in this Agreement, express or implied, is intended to confer upon any
party other than the parties hereto any rights, remedies, obligations, or
liabilities under or by reason of this Agreement.
6.4 Governing Law.
This Agreement shall be governed by and construed under the laws of the
Commonwealth of Virginia.
6.5 Counterparts.
This Agreement may be executed in two or more counterparts, each of which
shall be deemed an original, but all of which together shall constitute one and
the same instrument.
<PAGE>
6.6 Titles and Subtitles.
The titles and subtitles used in this Agreement are used for convenience
only and are not to be considered in construing or interpreting this Agreement.
6.7 Notices.
Unless otherwise provided, any notice required or permitted under this
Agreement shall be given in writing and shall be deemed effectively given (i)
upon personal delivery to the party to be notified, (ii) on the fifth business
day after deposit with the United States Post Office, by registered or certified
mail, postage prepaid, (iii) on the next business day after dispatch via
nationally recognized overnight courier or (iv) upon confirmation of
transmission by facsimile, all addressed to the party to be notified at the
address indicated for such party on the signature page hereof, or at such other
address as such party may designate by ten (10) days' advance written notice to
the other parties. Notices should be provided in accordance with this Section at
the following addresses:
If to the Investor to:
LaSalle Advisors Limited Partnership
100 East Pratt Street
Baltimore, Maryland 21202
Attn: William K. Morrill, Jr.
Managing Director
with a copy to:
Elizabeth Grieb, Esquire
Piper & Marbury L.L.P.
36 South Charles Street
Baltimore, Maryland 21201
If to the Company, to:
Patriot American Hospitality, Inc.
3030 LBJ Freeway
Suite 1500
Dallas, Texas 75234
Attn: Paul A. Nussbaum, Chairman of the Board and Chief Executive Officer
with copies to:
Gilbert G. Menna, P.C.
Goodwin, Procter & Hoar LLP
Exchange Place
Boston, Massachusetts 02109-2881
<PAGE>
6.8 Expenses.
If any action at law or in equity is necessary to enforce or interpret the
terms of this Agreement, the prevailing party shall be entitled to reasonable
attorneys' fees, costs and necessary disbursements in addition to any other
relief to which such party may be entitled.
6.9 Amendments and Waivers.
Any term of this Agreement may be amended and the observance of any term of
this Agreement may be waived (either generally or in a particular instance and
either retroactively or prospectively) only with the written consent of the
Company and the holders of a majority of the Registrable Securities then
outstanding. Any amendment or waiver effected in accordance with this paragraph
shall be binding upon each Holder, each future holder of all such Registrable
Securities, and the Company.
6.10 Severability.
If one or more provisions of this Agreement are held to be unenforceable
under applicable law, such provision shall be excluded from this Agreement and
the balance of the Agreement shall be interpreted as if such provision were so
excluded and shall be enforceable in accordance with its terms.
6.11 Entire Agreement.
This Agreement constitutes the full and entire understanding and agreement
between the parties with regard to the subjects hereof.
[Remainder of Page Intentionally Left Blank]
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Registration Rights
Agreement as of the date first above written.
PATRIOT AMERICAN HOSPITALITY, INC. LASALLE ADVISORS
LIMITED PARTNERSHIP
By:___________________________ By:__________________________
Paul A. Nussbaum, Chairman William K. Morrill, Jr.,
of the Board and Chief Executive Officer Managing Director
Address: Address:
3030 LBJ Freeway, Suite 1500 100 E. Pratt Street
Dallas, Texas 75234 Baltimore, Maryland 21202
Attn: Paul A. Nussbaum Attn: William K. Morrill, Jr.
Fax: (214) 888-8029 Fax: (410) 347-0612
<PAGE>
EXHIBIT 5.1
June , 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 ("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
purposes 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 Prospectuses, 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>
Patriot American Hospitality, Inc.
June , 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 Prospectuses.
Very truly yours,
GOODWIN, PROCTER & HOAR LLP
<PAGE>
EXHIBIT 8.1
[FORM OF GOODWIN, PROCTER & HOAR LLP TAX OPINION]
July __, 1996
Patriot American Hospitality
3030 LBJ Freeway, Suite 1550
Dallas, TX 75234
Re: Public Offering of 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 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
<PAGE>
Patriot American Hospitality, Inc.
July__, 1996
Page 2
as copies, (iv) the conformity of final documents to all documents submitted to
us as drafts, (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.
<PAGE>
Patriot American Hospitality, Inc.
July__, 1996
Page 3
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 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 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,
Goodwin, Procter & Hoar LLP
<PAGE>
EXHIBIT 10.1
FIRST AMENDED AND RESTATED AGREEMENT
OF LIMITED PARTNERSHIP
OF
PATRIOT AMERICAN HOSPITALITY PARTNERSHIP, L.P.
<PAGE>
TABLE OF CONTENTS
ARTICLE I
DEFINED TERMS.............................................................. 1
ARTICLE II
PARTNERSHIP CONTINUATION AND IDENTIFICATION................................ 9
2.01 Continuation................................................... 9
2.02 Name, Office and Registered Agent.............................. 9
2.03 Partners....................................................... 9
2.04 Term and Dissolution........................................... 9
2.05 Filing of Certificate and Perfection of Limited Partnership... 10
ARTICLE III
BUSINESS OF THE PARTNERSHIP................................................ 10
ARTICLE IV
CAPITAL CONTRIBUTIONS AND ACCOUNTS......................................... 11
4.01 Capital Contributions.......................................... 11
4.02 Additional Capital Contributions and Issuances of
Additional Partnership Interests............................... 11
4.03 Additional Funding............................................. 13
4.04 Capital Accounts............................................... 14
4.05 Percentage Interests........................................... 14
4.06 No Interest on Contributions................................... 14
4.07 Return of Capital Contributions................................ 14
4.08 No Third Party Beneficiary..................................... 15
4.09 Stock Incentive Plans.......................................... 15
ARTICLE V
PROFITS AND LOSSES; DISTRIBUTIONS.......................................... 16
5.01 Allocation of Profit and Loss.................................. 16
5.02 Distribution of Cash........................................... 18
5.03 REIT Distribution Requirements................................. 18
5.04 No Right to Distributions in Kind.............................. 18
5.05 Limitations on Return of Capital Contributions................. 18
5.06 Distributions Upon Liquidation................................. 18
5.07 Substantial Economic Effect.................................... 19
- i -
<PAGE>
ARTICLE VI
RIGHTS, OBLIGATIONS AND
POWERS OF THE GENERAL PARTNER.............................................. 19
6.01 Management of the Partnership.................................. 19
6.02 Delegation of Authority........................................ 22
6.03 Indemnification and Exculpation of Indemnitees................. 22
6.04 Liability of the General Partner............................... 23
6.05 Expenditures by Partnership.................................... 24
6.06 Outside Activities............................................. 24
6.07 Employment or Retention of Affiliates.......................... 25
6.08 General Partner Participation.................................. 25
6.09 Title to Partnership Assets.................................... 25
6.10 Miscellaneous.................................................. 26
ARTICLE VII
CHANGES IN GENERAL PARTNER................................................. 26
7.01 Transfer of the General Partner's Partnership Interest......... 26
7.02 Admission of a Substitute or Successor General................. 27
7.03 Effect of Bankruptcy, Withdrawal, Death or Dissolution
of a General Partner........................................... 28
7.04 Removal of a General Partner................................... 29
ARTICLE VIII
RIGHTS AND OBLIGATIONS
OF THE LIMITED PARTNERS.................................................... 30
8.01 Management of the Partnership.................................. 30
8.02 Power of Attorney.............................................. 30
8.03 Limitation on Liability of Limited Partners.................... 30
8.04 Ownership by Limited Partner of Corporate General
Partner or Affiliate........................................... 30
8.05 Redemption Right............................................... 31
ARTICLE IX
TRANSFERS OF LIMITED PARTNERSHIP INTERESTS................................. 34
9.01 Purchase for Investment........................................ 34
9.02 Restrictions on Transfer of Limited Partnership Interests...... 34
9.03 Admission of Substitute Limited Partner........................ 35
9.04 Rights of Assignees of Partnership Interests................... 36
9.05 Effect of Bankruptcy, Death, Incompetence or Termination
of a Limited Partner........................................... 36
9.06 Joint Ownership of Interests................................... 37
- ii -
<PAGE>
ARTICLE X
BOOKS AND RECORDS; ACCOUNTING; TAX MATTERS................................. 37
10.01 Books and Records............................................. 37
10.02 Custody of Partnership Funds; Bank Accounts................... 37
10.03 Fiscal and Taxable Year....................................... 38
10.04 Annual Tax Information and Report............................. 38
10.05 Tax Matters Partner; Tax Elections; Special Basis
Adjustments................................................... 38
10.06 Reports to Limited Partners................................... 39
ARTICLE XI
AMENDMENT OF AGREEMENT..................................................... 39
ARTICLE XII
GENERAL PROVISIONS......................................................... 40
12.01 Notices....................................................... 40
12.02 Survival of Rights............................................ 40
12.03 Additional Documents.......................................... 40
12.04 Severability.................................................. 40
12.05 Entire Agreement.............................................. 40
12.06 Pronouns and Plurals.......................................... 40
12.07 Headings...................................................... 40
12.08 Counterparts.................................................. 40
12.09 Governing Law................................................. 41
12.10 Guaranty by Company........................................... 41
EXHIBITS
EXHIBIT A - Partners, Capital Contributions and Percentage Interests
EXHIBIT B - List of Initial Hotels
EXHIBIT C - Notice of Exercise of Redemption Right
- iii -
<PAGE>
FIRST AMENDED AND RESTATED AGREEMENT
OF LIMITED PARTNERSHIP
OF
PATRIOT AMERICAN HOSPITALITY PARTNERSHIP, L.P.
RECITALS
Patriot American Hospitality Partnership, L.P. (the "Partnership") was
formed as a limited partnership under the laws of the Commonwealth of Virginia
by a Certificate of Limited Partnership filed with the Clerk of the State
Corporation Commission of Virginia on April 17, 1995. The Partnership is
governed by an Agreement of Limited Partnership dated as of June 1, 1995,
maintained at the offices of the Partnership (the "Original Agreement"). The
current parties to the Original Agreement are Patriot American Hospitality, Inc.
(the "Company"), as the Original General Partner (in such capacity, the
"Original General Partner"), and SEP FBO Paul A. Nussbaum, PANCO Services, Inc.,
William L. Mack, Karim Alibhai, JHD VIII Inc., GSM VIII Inc., PAE Hospitality
Associates, L.P., GAHE Partnership, L.P. and Gencom Executive Plan, L.P., as the
Original Limited Partners (in their capacities as the Original Limited Partners,
the "Original Limited Partners").
The General Partner and the Original Limited Partners desire to (i)
replace the General Partner, (ii) admit additional Limited Partners to the
Partnership and (ii) restate the Original Agreement in its entirety.
AGREEMENT
---------
NOW, THEREFORE, in consideration of the foregoing, of mutual covenants
between the parties hereto, and of other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties hereto
agree to amend the Original Agreement to read in its entirety as follows:
ARTICLE I
DEFINED TERMS
-------------
The following defined terms used in this Agreement shall have the meanings
specified below:
"Act" means the Virginia Revised Uniform Limited Partnership Act, as it
may be amended from time to time.
"Additional Funds" has the meaning set forth in Section 4.03 hereof.
"Additional Limited Partner" means a Person admitted to this Partnership
as a Limited Partner pursuant to Section 4.02 hereof.
<PAGE>
"Additional Securities" means any additional REIT Shares (other than REIT
Shares issued in connection with a redemption pursuant to Section 8.05 hereof)
or rights, options, warrants or convertible or exchangeable securities
containing the right to subscribe for or purchase REIT Shares, as set forth in
Section 4.02(a)(ii).
"Administrative Expenses" means (i) all administrative and operating costs
and expenses incurred by the Partnership, (ii) those administrative costs and
expenses of the General Partner, including any salaries or other payments to
directors, officers or employees of the General Partner, and any accounting and
legal expenses of the General Partner, which expenses, the Partners have agreed,
are expenses of the Partnership and not the General Partner, and (iii) to the
extent not included in clause (ii) above, REIT Expenses; provided, however, that
-------- -------
Administrative Expenses shall not include any administrative costs and expenses
incurred by the Company that are attributable to Properties or partnership
interests in a Subsidiary Partnership that are owned by the Company directly.
"Affiliate" means, (i) any Person that, directly or indirectly, controls
or is controlled by or is under common control with such Person, (ii) any other
Person that owns, beneficially, directly or indirectly, 10% or more of the
outstanding capital stock, shares or equity interests of such Person, or (iii)
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). 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.
"Agreed Value" means the fair market value of a Partner's non-cash Capital
Contribution as of the date hereof as agreed to by the Partners. For purposes of
this Partnership Agreement, the Agreed Value of a Partner's non-cash Capital
Contribution shall be equal to the number of Partnership Units received by such
Partner in exchange for an Initial Hotel or an interest therein or in connection
with the merger of a partnership of which such person is a partner with and into
the Partnership, or for any other non-cash asset so contributed, multiplied by
the Public Offering Price or, if the contribution is made after the date hereof,
the "Market Price" calculated in accordance with the second and third sentences
of the definition of "Cash Amount." The names and addresses of the Partners,
number of Partnership Units issued to each Partner, and the Agreed Value of
non-cash Capital Contributions as of the date hereof is set forth on Exhibit A.
---------
"Agreement" means this First Amended and Restated Agreement of Limited
Partnership.
- 2 -
<PAGE>
"Articles of Incorporation" means the Amended and Restated Articles of
Incorporation of the Company filed with the State Corporation Commission of the
Commonwealth of Virginia, as amended or restated from time to time.
"Captial Account" has the meaning provided in Section 4.04 hereof.
"Capital Contribution" means the total amount of capital initially
contributed or agreed to be contributed, as the context requires, to the
Partnership by each Partner pursuant to the terms of the Agreement. Any
reference to the Capital Contribution of a Partner shall include the Capital
Contribution made by a predecessor holder of the Partnership Interest of such
Partner. The paid-in Capital Contribution shall mean the cash amount or the
Agreed Value of other assets actually contributed by each Partner to the capital
of the Partnership.
"Capital Transaction" means the refinancing, sale, exchange, condemnation,
recovery of a damage award or insurance proceeds (other than business or rental
interruption insurance proceeds not reinvested in the repair or reconstruction
of Properties), or other disposition of any Property (or the Partnership's
interest therein).
"Cash Amount" means an amount of cash per Partnership Unit equal to the
value of the REIT Shares Amount on the date of receipt by the Company of a
Notice of Redemption. The value of the REIT Shares Amount shall be based on the
average of the daily market price of REIT Shares for the ten consecutive trading
days immediately preceding the date of such valuation. The market price for each
such trading day shall be: (i) if the REIT Shares are listed or admitted to
trading on any securities exchange or the NYSE, the sale price, regular way, on
such day, or if no such sale takes place on such day, the average of the closing
bid and asked prices, regular way, on such day, (ii) if the REIT Shares are not
listed or admitted to trading on any securities exchange or the NYSE, the last
reported sale price on such day or, if no sale takes place on such day, the
average of the closing bid and asked prices on such day, as reported by a
reliable quotation source designated by the Company, or (iii) if the REIT Shares
are not listed or admitted to trading on any securities exchange or the NYSE and
no such last reported sale price or closing bid and asked prices are available,
the average of the reported high bid and low asked prices on such day, as
reported by a reliable quotation source designated by the Company, or if there
shall be no bid and asked prices on such day, the average of the high bid and
low asked prices, as so reported, on the most recent day (not more than ten days
prior to the date in question) for which prices have been so reported; provided
--------
that if there are no bid and asked prices reported during the ten days prior to
- ----
the date in question, the value of the REIT Shares shall be determined by the
Company acting in good faith on the basis of such quotations and other
information as it considers, in its reasonable judgment, appropriate. In the
event the REIT Shares Amount includes rights that a holder of REIT Shares would
be entitled to receive, then the value of such rights shall be determined by the
Company acting in good faith on the basis of such quotations and other
information as it considers, in its reasonable judgment, appropriate.
- 3 -
<PAGE>
"Certificate" means any instrument or document that is required under the
laws of the Commonwealth of Virginia, or any other jurisdiction in which the
Partnership conducts business, to be signed and sworn to by the Partners of the
Partnership (either by themselves or pursuant to the power-of-attorney granted
to the General Partner in Section 8.02 hereof) and filed for recording in the
appropriate public offices within the Commonwealth of Virginia or such other
jurisdiction to perfect or maintain the Partnership as a limited partnership, to
effect the admission, withdrawal, or substitution of any Partner of the
Partnership, or to protect the limited liability of the Limited Partners as
limited partners under the laws of the Commonwealth of Virginia or such other
jurisdiction.
"Code" means the Internal Revenue Code of 1986, as amended, and as
hereafter amended from time to time. Reference to any particular provision of
the Code shall mean that provision in the Code at the date hereof and any
successor provision of the Code.
"Commission" means the U.S. Securities and Exchange Commission.
"Company" means Patriot American Hospitality, Inc., a Virginia
corporation.
"Conversion Factor" means 1.0, provided that in the event that the Company
-------- ----
(i) declares or pays a dividend on its outstanding REIT Shares in REIT Shares or
makes a distribution to all holders of its outstanding REIT Shares in REIT
Shares, (ii) subdivides its outstanding REIT Shares, or (iii) combines its
outstanding REIT Shares into a smaller number of REIT Shares, the Conversion
Factor shall be adjusted by multiplying the Conversion Factor by a fraction, the
numerator of which shall be the number of REIT Shares issued and outstanding on
the record date for such dividend, distribution, subdivision or combination
(assuming for such purposes that such dividend, distribution, subdivision or
combination has occurred as of such time), and the denominator of which shall be
the actual number of REIT Shares (determined without the above assumption)
issued and outstanding on such date. Any adjustment to the Conversion Factor
shall become effective immediately after the effective date of such event
retroactive to the record date, if any, for such event; provided, however, that
-------- -------
if the Company receives a Notice of Redemption after the record date, but prior
to the effective date of such dividend, distribution, subdivision or
combination, the Conversion Factor shall be determined as if the Company had
received the Notice of Redemption immediately prior to the record date for such
dividend, distribution, subdivision or combination.
"Event of Bankruptcy" as to any Person means the filing of a petition for
relief as to such Person as debtor or bankrupt under the Bankruptcy Code of 1978
or similar provision of law of any jurisdiction (except if such petition is
contested by such Person and has been dismissed within 90 days); insolvency or
bankruptcy of such Person as finally determined by a court proceeding; filing by
such Person of a petition or application to accomplish the same or for the
appointment of a receiver or a trustee for such Person or a substantial part of
his assets; commencement of any proceedings relating to such Person as a debtor
under any other reorganization, arrangement, insolvency, adjustment of debt or
liquidation law of any jurisdiction, whether now in existence or hereinafter in
effect, either by such Person or by
- 4 -
<PAGE>
another, provided that if such proceeding is commenced by another, such Person
indicates his approval of such proceeding, consents thereto or acquiesces
therein, or such proceeding is contested by such Person and has not been finally
dismissed within 90 days.
"General Partner" means PAH GP, Inc., a Virginia corporation, and any
Person who becomes a substitute or additional General Partner as provided
herein, and any of their successors as General Partner.
"General Partnership Interest" means a Partnership Interest held by the
General Partner that is a general partnership interest.
"Incentive Rights" has the meaning set forth in Section 4.09 hereof.
"Indemnitee" means (i) any Person made a party to a proceeding by reason
of its status as the Company, PAH LP or the General Partner or a director or
officer of the Company, PAH LP, the Partnership or the General Partner, and (ii)
such other Persons (including Affiliates of the Company, General Partner or the
Partnership) as the General Partner may designate from time to time, in its sole
and absolute discretion.
"Independent Directors" 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 lessee of any property of the Company or any Subsidiary
of the Company, (ii) any Subsidiary of the Company, or (iii) any partnership
that is an Affiliate of the Company.
"Initial Hotels" means those properties listed on Exhibit B hereto.
---------
"Limited Partner" means any Person named as a Limited Partner on Exhibit A
---------
attached hereto, and any Person who becomes a Substitute or Additional Limited
Partner, in such Person's capacity as a Limited Partner in the Partnership.
"Limited Partnership Interest" means the ownership interest of a Limited
Partner in the Partnership at any particular time, including the right of such
Limited Partner to any and all benefits to which such Limited Partner may be
entitled as provided in this Agreement and in the Act, together with the
obligations of such Limited Partner to comply with all the provisions of this
Agreement and of such Act.
"Loss" has the meaning provided in Section 5.01(f) hereof.
"Minimum Limited Partnership Interest" means the lesser of (i) 1% or (ii)
if the total Capital Contributions to the Partnership exceeds $50 million, 1%
divided by the ratio of the total Capital Contributions to the Partnership to
$50 million; provided, however, that the Minimum Limited Partnership Interest
-------- -------
shall not be less than 0.2% at any time.
- 5 -
<PAGE>
"Notice of Redemption" means the Notice of Exercise of Redemption Right
substantially in the form attached as Exhibit C hereto.
---------
"NYSE" means the New York Stock Exchange.
"Offer" has the meaning set forth in Section 7.01(c) hereof.
"Offering" means the initial offer and sale by the Company and the
purchase by the Underwriters (as defined in the Prospectus) of REIT Shares for
sale to the public.
"Original General Partner" means Patriot American Hospitality, Inc.
"Original Limited Partners" means SEP FBO Paul A. Nussbaum, PANCO
Services, Inc., William L. Mack, Karim Alibhai, JHD IV Inc., and GSM IV Inc.
"PAH GP" means PAH GP, Inc., a Virginia corporation and wholly-owned
subsidiary of the Company.
"PAH LP" means PAH LP, Inc., a Virginia corporation and wholly-owned
subsidiary of the Company.
"Partner" means any General Partner or Limited Partner.
"Partner Nonrecourse Debt Minimum Gain" has the meaning set forth in
Regulations Section 1.704-2(i). A Partner's share of Partner Nonrecourse Debt
Minimum Gain shall be determined in accordance with Regulations Section
1.704-2(i)(5).
"Partnership Interest" means an ownership interest in the Partnership held
by either a Limited Partner or the General Partner and includes any and all
benefits to which the holder of such a Partnership Interest may be entitled as
provided in this Agreement, together with all obligations of such Person to
comply with the terms and provisions of this Agreement.
"Partnership Minimum Gain" has the meaning set forth in Regulations
Section 1.704- 2(d). In accordance with Regulations Section 1.704-2(d), the
amount of Partnership Minimum Gain is determined by first computing, for each
Partnership nonrecourse liability, any gain the Partnership would realize if it
disposed of the property subject to that liability for no consideration other
than full satisfaction of the liability, and then aggregating the separately
computed gains. A Partner's share of Partnership Minimum Gain shall be
determined in accordance with Regulations Section 1.704-2(g)(1).
"Partnership Record Date" means the record date established by the General
Partner for the distribution of cash pursuant to Section 5.02 hereof, which
record date shall be the same as the record date established by the Company for
a distribution to its shareholders of some or all of its portion of such
distribution.
- 6 -
<PAGE>
"Partnership Unit" means a fractional, undivided share of the Partnership
Interests of all Partners issued hereunder. The allocation of Partnership Units
among the Partners shall be as set forth on Exhibit A, as may be amended from
---------
time to time.
"Percentage Interest" means the percentage ownership interest in the
Partnership of each Partner, as determined by dividing the Partnership Units
owned by a Partner by the total number of Partnership Units then outstanding.
The Percentage Interest of each Partner shall be as set forth on Exhibit A, as
---------
may be amended from time to time.
"Person" means any individual, partnership, corporation, joint venture,
trust or other entity.
"Profit" has the meaning provided in Section 5.01(f) hereof.
"Property" means any hotel property or other investment in which the
Partnership holds an ownership interest.
"Prospectus" means the final prospectus delivered to purchasers of REIT
Shares in the Offering.
"Public Offering Price" shall mean the initial public offering price set
forth in the Prospectus.
"Redeeming Partner" has the meaning provided in Section 8.05(a) hereof.
"Redemption Amount" means either the Cash Amount or the REIT Shares
Amount, as selected by the General Partner or the Company in its sole discretion
pursuant to Section 8.05(b) hereof.
"Redemption Right" has the meaning provided in Section 8.05(a) hereof.
"Regulations" means the Federal Income Tax Regulations issued under the
Code, as amended and as hereafter amended from time to time. Reference to any
particular provision of the Regulations shall mean that provision of the
Regulations on the date hereof and any successor provision of the Regulations.
"REIT" means a real estate investment trust under Sections 856 through 860
of the Code.
"REIT Expenses" means (i) costs and expenses relating to the formation and
continuity of existence of the Company and any Subsidiaries thereof, including
PAH GP and PAH LP, (which Subsidiaries shall, for purposes hereof, be included
within the definition of Company), including taxes, fees and assessments
associated therewith, any and all costs, expenses or fees payable to any
director, officer, or employee of the Company, (ii) costs and expenses relating
- 7 -
<PAGE>
to the public offering and registration of securities by the Company and all
statements, reports, fees and expenses incidental thereto, including
underwriting discounts and selling commissions applicable to any such offering
of securities, (iii) costs and expenses associated with the preparation and
filing of any periodic reports by the Company under federal, state or local laws
or regulations, including filings with the Commission, (iv) costs and expenses
associated with compliance by the Company with laws, rules and regulations
promulgated by any regulatory body, including the Commission, and (v) all other
operating or administrative costs of the Company incurred in the ordinary course
of its business on behalf of or in connection with the Partnership.
"REIT Share" means a share of common stock of the Company, no par value.
"REIT Shares Amount" shall mean a number of REIT Shares equal to the
product of the number of Partnership Units offered for redemption by a Redeeming
Partner, multiplied by the Conversion Factor; provided that in the event the
-------------
Company issues to all holders of REIT Shares rights, options, warrants or
convertible or exchangeable securities entitling the shareholders to subscribe
for or purchase REIT Shares, or any other securities or property (collectively,
the "rights"), then the REIT Shares Amount shall also include such rights that a
holder of that number of REIT Shares would be entitled to receive.
"Service" means the Internal Revenue Service.
"Specified Redemption Date" means the first business day of the month that
is at least 60 business days after the receipt by the Company of the Notice of
Redemption.
"Stock Incentive Plans" means the Patriot American Hospitality, Inc. 1995
Incentive Plan and this Patriot American Hospitality, Inc. Non-Employee
Directors' Incentive Plan, as either such plan may be amended from time to time,
or any stock incentive plan adopted in the future by the Company.
"Subsidiary" means, with respect to any Person, any corporation or other
entity of which a majority of (i) the voting power of the voting equity
securities or (ii) the outstanding equity interests is owned, directly or
indirectly, by such Person.
"Subsidiary Partnership" means any partnership of which the majority of
the limited or general partnership interests therein are owned, directly or
indirectly, by the Partnership.
"Substitute Limited Partner" means any Person admitted to the Partnership
as a Limited Partner pursuant to Section 9.03 hereof.
"Surviving General Partner" has the meaning set forth in Section 7.01(d)
hereof.
"Transaction" has the meaning set forth in Section 7.01(c) hereof.
- 8 -
<PAGE>
"Transfer" has the meaning set forth in Section 9.02(a) hereof.
ARTICLE II
PARTNERSHIP CONTINUATION AND IDENTIFICATION
-------------------------------------------
2.01 Continuation. The Partners hereby agree to continue the Partnership
------------
pursuant to the Act and upon the terms and conditions set forth in this
Agreement.
2.02 Name, Office and Registered Agent. The name of the Partnership shall
---------------------------------
be Patriot American Hospitality Partnership, L.P. The specified office and place
of business of the Partnership shall be 3030 LBJ Freeway, Suite 1500, Dallas,
Texas 75234. The General Partner may at any time change the location of such
office, provided the General Partner gives notice to the Partners of any such
change. The name and address of the Partnership's registered agent is Thurston
R. Moore, Hunton & Williams, Riverfront Plaza, East Tower, 951 East Byrd Street,
Richmond, Virginia 23219. The sole duty of the registered agent as such is to
forward to the Partnership any notice that is served on him as registered agent.
2.03 Partners.
--------
(a) As of the date hereof, the General Partner of the Partnership
shall be PAH GP, Inc., a Virginia corporation. Its principal place of business
shall be the same as that of the Partnership.
(b) Pursuant to Section 6.1 of the Original Agreement, the Partners
hereby consent to admit those persons identified on Exhibit A as Limited
---------
Partners as of the date hereof. The Limited Partners shall be those Persons
identified as Limited Partners on Exhibit A hereto, as amended from time to
---------
time.
2.04 Term and Dissolution.
--------------------
(a) The term of the Partnership shall continue in full force and
effect until December 31, 2050, except that the Partnership shall be dissolved
upon the first to occur of any of the following events:
(i) The occurrence of an Event of Bankruptcy as to a General
Partner or the dissolution, death, removal or withdrawal of a
General Partner unless the business of the Partnership is continued
pursuant to Section 7.03(b) hereof; provided that if a General
-------- ----
Partner is on the date of such occurrence a partnership, the
dissolution of such General Partner as a result of the dissolution,
death, withdrawal, removal or Event of Bankruptcy of a partner in
such partnership shall not be an event of dissolution of the
Partnership if the business of such General Partner is continued by
the remaining partner or
- 9 -
<PAGE>
partners, either alone or with additional partners, and such General
Partner and such partners comply with any other applicable
requirements of this Agreement;
(ii) The passage of 90 days after the sale or other
disposition of all or substantially all of the assets of the
Partnership (provided that if the Partnership receives an
-------- ----
installment obligation as consideration for such sale or other
disposition, the Partnership shall continue, unless sooner dissolved
under the provisions of this Agreement, until such time as such note
or notes are paid in full);
(iii) The redemption of all Limited Partnership Interests
(other than any of such interests held by PAH LP); or
(iv) The election by the General Partner that the Partnership
should be dissolved.
(b) Upon dissolution of the Partnership (unless the business of the
Partnership is continued pursuant to Section 7.03(b) hereof), the General
Partner (or its trustee, receiver, successor or legal representative) shall
amend or cancel the Certificate and liquidate the Partnership's assets and apply
and distribute the proceeds thereof in accordance with Section 5.06 hereof.
Notwithstanding the foregoing, the liquidating General Partner may either (i)
defer liquidation of, or withhold from distribution for a reasonable time, any
assets of the Partnership (including those necessary to satisfy the
Partnership's debts and obligations), or (ii) distribute the assets to the
Partners in kind.
2.05 Filing of Certificate and Perfection of Limited Partnership. The
-----------------------------------------------------------
General Partner shall execute, acknowledge, record and file at the expense of
the Partnership, the Certificate and any and all amendments thereto and all
requisite fictitious name statements and notices in such places and
jurisdictions as may be necessary to cause the Partnership to be treated as a
limited partnership under, and otherwise to comply with, the laws of each state
or other jurisdiction in which the Partnership conducts business.
ARTICLE III
BUSINESS OF THE PARTNERSHIP
---------------------------
The purpose and nature of the business to be conducted by the Partnership
is (i) to conduct any business that may be lawfully conducted by a limited
partnership organized pursuant to the Act, provided, however, that such business
shall be limited to and conducted in such a manner as to permit the Company at
all times to qualify as a REIT, unless the Company otherwise ceases to qualify
as a REIT, (ii) to enter into any partnership, joint venture or other similar
arrangement to engage in any of the foregoing or the ownership of interests in
any entity engaged in any of the foregoing and (iii) to do anything necessary or
incidental to the
- 10 -
<PAGE>
foregoing. In connection with the foregoing, and without limiting the Company's
right in its sole discretion to cease qualifying as a REIT, the Partners
acknowledge that the Company's current status as a REIT inures to the benefit of
all the Partners and not solely to the Company. The General Partner shall also
be empowered to do any and all acts and things necessary or prudent to ensure
that the Partnership will not be classified as a "publicly traded partnership"
for the purposes of Section 7704 of the Code.
ARTICLE IV
CAPITAL CONTRIBUTIONS AND ACCOUNTS
----------------------------------
4.01 Capital Contributions. The General Partner and PAH LP shall
---------------------
contribute to the capital of the Partnership cash in an amount set forth
opposite their names on Exhibit A. The Limited Partners, other than certain of
---------
the Original Limited Partners and PAH LP, shall contribute to the capital of the
Partnership interests in one or more of the Initial Hotels or the partnerships
owning such Initial Hotels as set forth opposite their names on Exhibit A. The
---------
Agreed Values of such Limited Partners' ownership interests in the Initial
Hotels that are contributed to the Partnership are as set forth opposite their
names on Exhibit A.
---------
4.02 Additional Capital Contributions and Issuances of Additional
------------------------------------------------------------
Partnership Interests. Except as provided in this Section 4.02 or in Section
- ---------------------
4.03, the Partners shall have no right or obligation to make any additional
Capital Contributions or loans to the Partnership. The General Partner may
contribute additional capital to the Partnership, from time to time, and receive
additional Partnership Interests in respect thereof, in the manner contemplated
in this Section 4.02.
(a) Issuances of Additional Partnership Interests.
---------------------------------------------
(i) General. The General Partner is hereby authorized to cause
-------
the Partnership to issue such additional Partnership Interests in the form of
Partnership Units for any Partnership purpose at any time or from time to time,
to the Partners (including the General Partner and PAH LP) or to other Persons
for such consideration and on such terms and conditions as shall be established
by the General Partner in its sole and absolute discretion, all without the
approval of any Limited Partners. Any additional Partnership Interests issued
thereby may be issued in one or more classes, or one or more series of any of
such classes, with such designations, preferences and relative, participating,
optional or other special rights, powers and duties, including rights, powers
and duties senior to Limited Partnership Interests, all as shall be determined
by the General Partner in its sole and absolute discretion and without the
approval of any Limited Partner, subject to Virginia law, including, without
limitation, (i) the allocations of items of Partnership income, gain, loss,
deduction and credit to each such class or series of Partnership Interests; (ii)
the right of each such class or series of Partnership Interests to share in
Partnership distributions; and (iii) the rights of each such class or series of
Partnership Interests upon dissolution and liquidation of the Partnership;
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<PAGE>
provided, however, that no additional Partnership Interests shall be issued to
- -------- -------
the General Partner or PAH LP unless either:
(1)(A) the additional Partnership Interests are issued in connection
with an issuance of REIT Shares of or other interests in the Company,
which shares or interests have designations, preferences and other rights,
all such that the economic interests are substantially similar to the
designations, preferences and other rights of the additional Partnership
Interests issued to the General Partner or PAH LP by the Partnership in
accordance with this Section 4.02 and (B) the General Partner or PAH LP
shall make a Capital Contribution to the Partnership in an amount equal to
the proceeds raised in connection with the issuance of such shares of
stock of or other interests in the Company, or
(2) the additional Partnership Interests are issued to all Partners
in proportion to their respective Percentage Interests.
Without limiting the foregoing, the General Partner is expressly authorized to
cause the Partnership to issue Partnership Units for less than fair market
value, so long as the General Partner concludes in good faith that such issuance
is in the best interests of the General Partner and the Partnership.
(ii) Upon Issuance of Additional Securities. After the
--------------------------------------
Offering, the Company shall not issue any additional REIT Shares (other than
REIT Shares issued in connection with a redemption pursuant to Section 8.05
hereof) or rights, options, warrants or convertible or exchangeable securities
containing the right to subscribe for or purchase REIT Shares (collectively,
"Additional Securities") other than to all holders of REIT Shares, unless (A)
the General Partner shall cause the Partnership to issue to the General Partner
and PAH LP, as the Company may designate, Partnership Interests or rights,
options, warrants or convertible or exchangeable securities of the Partnership
having designations, preferences and other rights, all such that the economic
interests are substantially similar to those of the Additional Securities, and
(B) the Company contributes the proceeds from the issuance of such Additional
Securities and from any exercise of rights contained in such Additional
Securities, through the General Partner and PAH LP to the Partnership; provided,
--------
however, that the Company is allowed to issue Additional Securities in
- -------
connection with an acquisition of a property to be held directly by the Company,
but if and only if, such direct acquisition and issuance of Additional
Securities have been approved and determined to be in the best interests of the
Company and the Partnership by a majority of the Independent Directors. Without
limiting the foregoing, the Company is expressly authorized to issue Additional
Securities for less than fair market value, and to cause the Partnership to
issue to the General Partner corresponding Partnership Interests, so long as (x)
the General Partner concludes in good faith that such issuance is in the best
interests of the General Partner and the Partnership, including without
limitation, the issuance of REIT Shares and corresponding Partnership Units
pursuant to an employee stock purchase plan providing for employee purchases of
REIT Shares at a discount from fair market value or employee stock options that
have an exercise price that is
- 12 -
<PAGE>
less than the fair market value of the REIT Shares, either at the time of
issuance or at the time of exercise, and (y) the Company contributes all
proceeds from such issuance, through the General Partner and PAH LP, to the
Partnership. For example, in the event the Company issues REIT Shares for a cash
purchase price and contributes all of the proceeds of such issuance, through the
General Partner and PAH LP, to the Partnership as required hereunder, the
General Partner and PAH LP, as the Company may so designate, shall be issued a
number of additional Partnership Units equal to the product of (A) the number of
such REIT Shares issued by the Company, the proceeds of which were so
contributed, multiplied by (B) a fraction, the numerator of which is 100%, and
the denominator of which is the Conversion Factor in effect on the date of such
contribution.
(b) Certain Deemed Contributions of Proceeds of Issuance of REIT
------------------------------------------------------------
Shares. In connection with any and all issuances of REIT Shares, the Company
- ------
shall contribute all of the proceeds raised in connection with such issuance to
the General Partner and PAH LP, as the Company determines, and in turn, the
General Partner and PAH LP shall make Capital Contributions to the Partnership
of such proceeds, provided that if the proceeds actually received and
-------- ----
contributed by the Company to the General Partner and PAH LP are less than the
gross proceeds of such issuance as a result of any underwriter's discount or
other expenses paid or incurred in connection with such issuance, then the
General Partner and PAH LP shall be deemed to have made Capital Contributions to
the Partnership in the aggregate amount of the gross proceeds of such issuance
and the Partnership shall be deemed simultaneously to have paid such offering
expenses in connection with the required issuance of additional Partnership
Units to the General Partner and PAH LP for such Capital Contributions pursuant
to Section 4.02(a) hereof.
(c) Minimum Limited Partnership Interest. In the event that either a
------------------------------------
redemption pursuant to Section 8.05 hereof or additional Capital Contributions
by the General Partner and PAH LP would result in the Limited Partners (other
than PAH LP), in the aggregate, owning less than the Minimum Limited Partnership
Interest, the General Partner and the Limited Partners shall form another
partnership and contribute sufficient Limited Partnership Interests together
with such other Limited Partners so that the limited partners (other than PAH
LP) of such partnership own at least the Minimum Limited Partnership Interest.
4.03 Additional Funding. If the General Partner determines that it is in
------------------
the best interests of the Partnership to provide for additional Partnership
funds ("Additional Funds") for any Partnership purpose, the General Partner may
(i) cause the Partnership to obtain such funds from outside borrowings, or (ii)
elect to have the General Partner or PAH LP provide such Additional Funds to the
Partnership through loans or otherwise.
4.04 Capital Accounts. A separate capital account (a "Capital Account")
----------------
shall be established and maintained for each Partner in accordance with
Regulations Section 1.704-1(b)(2)(iv). If (i) a new or existing Partner
acquires an additional Partnership Interest in exchange for more than a de
--
minimis Capital Contribution, (ii) the Partnership distributes to a
- -------
- 13 -
<PAGE>
Partner more than a de minimis amount of Partnership property as consideration
----------
for a Partnership Interest, or (iii) the Partnership is liquidated within the
meaning of Regulation Section 1.704-1(b)(2)(ii)(g), the General Partner shall
revalue the property of the Partnership to its fair market value (taking into
account Section 7701(g) of the Code) in accordance with Regulations Section
1.704-1(b)(2)(iv)(f). When the Partnership's property is revalued by the General
Partner, the Capital Accounts of the Partners shall be adjusted in accordance
with Regulations Sections 1.704-1(b)(2)(iv)(f) and (g), which generally require
such Capital Accounts to be adjusted to reflect the manner in which the
unrealized gain or loss inherent in such property (that has not been reflected
in the Capital Accounts previously) would be allocated among the Partners
pursuant to Section 5.01 if there were a taxable disposition of such property
for its fair market value (taking into account Section 7701(g) of the Code) on
the date of the revaluation.
4.05 Percentage Interests. If the number of outstanding Partnership Units
--------------------
increases or decreases during a taxable year, each Partner's Percentage Interest
shall be adjusted to a percentage equal to the number of Partnership Units held
by such Partner divided by the aggregate number of outstanding Partnership
Units. If the Partners' Percentage Interests are adjusted pursuant to this
Section 4.05, the Profits and Losses for the taxable year in which the
adjustment occurs shall be allocated between the part of the year ending on the
day when the Partnership's property is revalued by the General Partner and the
part of the year beginning on the following day either (i) as if the taxable
year had ended on the date of the adjustment or (ii) based on the number of days
in each part. The General Partner, in its sole discretion, shall determine which
method shall be used to allocate Profits and Losses for the taxable year in
which the adjustment occurs. The allocation of Profits and Losses for the
earlier part of the year shall be based on the Percentage Interests before
adjustment, and the allocation of Profits and Losses for the later part shall be
based on the adjusted Percentage Interests.
4.06 No Interest on Contributions. No Partner shall be entitled to
----------------------------
interest on its Capital Contribution.
4.07 Return of Capital Contributions. No Partner shall be entitled to
-------------------------------
withdraw any part of its Capital Contribution or its Capital Account or to
receive any distribution from the Partnership, except as specifically provided
in this Agreement. Except as otherwise provided herein, there shall be no
obligation to return to any Partner or withdrawn Partner any part of such
Partner's Capital Contribution for so long as the Partnership continues in
existence.
4.08 No Third Party Beneficiary. No creditor or other third party having
--------------------------
dealings with the Partnership shall have the right to enforce the right or
obligation of any Partner to make Capital Contributions or loans or to pursue
any other right or remedy hereunder or at law or in equity, it being understood
and agreed that the provisions of this Agreement shall be solely for the benefit
of, and may be enforced solely by, the parties hereto and their respective
successors and assigns. None of the rights or obligations of the Partners herein
set forth to make Capital Contributions or loans to the Partnership shall be
deemed an asset of the
- 14 -
<PAGE>
Partnership for any purpose by any creditor or other third party, nor may such
rights or obligations be sold, transferred or assigned by the Partnership or
pledged or encumbered by the Partnership to secure any debt or other obligation
of the Partnership or of any of the Partners. In addition, it is the intent of
the parties hereto that no distribution to any Limited Partner shall be deemed a
return of money or other property in violation of the Act. However, if any court
of competent jurisdiction holds that, notwithstanding the provisions of this
Agreement, any Limited Partner is obligated to return such money or property,
such obligation shall be the obligation of such Limited Partner and not of the
General Partner. Without limiting the generality of the foregoing, a deficit
Capital Account of a Partner shall not be deemed to be a liability of such
Partner nor an asset or property of the Partnership.
4.09 Stock Incentive Plans. (a) If grants of REIT Shares are made in
---------------------
connection with a Stock Incentive Plan:
(i) The Company, through the General Partner and PAH LP, shall
contribute, as soon as practicable after such grant, to the Partnership (to be
thereafter taken into account for the purposes of calculating any cash
distributable to the Partners), an amount equal to the price, if any, paid to
the Company by the party receiving such REIT Shares;
(ii) The Partnership shall issue to the General Partner and
PAH LP an aggregate number of additional Partnership Units equal to the product
of (1) the number of such REIT Shares issued by the Company, multiplied by (2) a
-------------
fraction, the numerator of which is 100%, and the denominator of which is the
Conversion Factor in effect on the date of such contribution; and
(iii) The General Partner's and PAH LP's Percentage Interest
and the Percentage Interests of the other Limited Partners shall be adjusted as
set forth in Section 4.02.
(b) If stock options granted in connection with a Stock Incentive
Plan are exercised:
(i) The Company, through the General Partner and PAH LP, shall
contribute, as soon as practicable after such exercise, to the Partnership (to
be thereafter taken into account for purposes of calculating any cash
distributable to the Partners), an amount equal to the exercise price, if any,
paid to the Company by the exercising party in connection with the exercise of
the option or warrant;
(ii) The Partnership shall issue to the General Partner and
PAH LP an aggregate number of additional Partnership Units equal to the product
of (1) the number of REIT Shares issued by the Company in satisfaction of such
exercised option or warrant, multiplied by (2) a fraction, the numerator of
-------------
which is 100%, and the denominator of which is the Conversion Factor in effect
on the date of such contribution; and
- 15 -
<PAGE>
(iii) The General Partner's and PAH LP's Percentage Interest
and the Percentage Interests of the other Limited Partners shall be adjusted as
set forth in Section 4.02.
(c) If the Company grants any director, officer or employee share
appreciation rights, performance share awards or other similar rights
("Incentive Rights"), then simultaneously, the Partnership shall grant the
General Partner and PAH LP corresponding and economically equivalent rights.
Consequently, upon the cash payment by the Company to its directors, officers or
employees pursuant to such Incentive Rights, the Partnership shall make an equal
cash payment to the General Partner and PAH LP.
ARTICLE V
PROFITS AND LOSSES; DISTRIBUTIONS
---------------------------------
5.01 Allocation of Profit and Loss.
-----------------------------
(a) General. Profit and Loss of the Partnership for each fiscal year
-------
of the Partnership shall be allocated among the Partners in accordance with
their respective Percentage Interests.
(b) Minimum Gain Chargeback. Notwithstanding any provision to the
-----------------------
contrary, (i) any expense of the Partnership that is a "nonrecourse deduction"
within the meaning of Regulations Section 1.704-2(b)(1) shall be allocated in
accordance with the Partners' respective Percentage Interests, (ii) any expense
of the Partnership that is a "partner nonrecourse deduction" within the meaning
of Regulations Section 1.704-2(i)(2) shall be allocated in accordance with
Regulations Section 1.704-2(i)(1), (iii) if there is a net decrease in
Partnership Minimum Gain within the meaning of Regulations Section 1.704-2(f)(1)
for any Partnership taxable year, items of gain and income shall be allocated
among the Partners in accordance with Regulations Section 1.704-2(f) and the
ordering rules contained in Regulations Section 1.704-2(j), and (iv) if there is
a net decrease in Partner Nonrecourse Debt Minimum Gain within the meaning of
Regulations Section 1.704-2(i)(4) for any Partnership taxable year, items of
gain and income shall be allocated among the Partners in accordance with
Regulations Section 1.704-2(i)(4) and the ordering rules contained in
Regulations Section 1.704-2(j). A Partner's "interest in partnership profits"
for purposes of determining its share of the nonrecourse liabilities of the
Partnership within the meaning of Regulations Section 1.752-3(a)(3) shall be
such Partner's Percentage Interest.
(c) Qualified Income Offset. If a Limited Partner receives in any
-----------------------
taxable year an adjustment, allocation, or distribution described in
subparagraphs (4), (5), or (6) of Regulations Section 1.704-1(b)(2)(ii)(d) that
causes or increases a negative balance in such Partner's Capital Account that
exceeds the sum of such Partner's shares of Partnership Minimum Gain and Partner
Nonrecourse Debt Minimum Gain, as determined in accordance
- 16 -
<PAGE>
with Regulations Sections 1.704-2(g) and 1.704-2(i), such Partner shall be
allocated specially for such taxable year (and, if necessary, later taxable
years) items of income and gain in an amount and manner sufficient to eliminate
such negative Capital Account balance as quickly as possible as provided in
Regulations Section 1.704-1(b)(2)(ii)(d). After the occurrence of an allocation
of income or gain to a Limited Partner in accordance with this Section 5.01(c),
to the extent permitted by Regulations Section 1.704-1(b), items of expense or
loss shall be allocated to such Partner in an amount necessary to offset the
income or gain previously allocated to such Partner under this Section 5.01(c).
(d) Capital Account Deficits. Loss shall not be allocated to a
------------------------
Limited Partner to the extent that such allocation would cause a deficit in such
Partner's Capital Account (after reduction to reflect the items described in
Regulations Section 1.704-1(b)(2)(ii)(d)(4), (5) and (6)) to exceed the sum of
such Partner's shares of Partnership Minimum Gain and Partner Nonrecourse Debt
Minimum Gain. Any Loss in excess of that limitation shall be allocated to the
General Partner. After the occurrence of an allocation of Loss to the General
Partner in accordance with this Section 5.01(d), to the extent permitted by
Regulations Section 1.704-1(b), Profit shall be allocated to such Partner in an
amount necessary to offset the Loss previously allocated to such Partner under
this Section 5.01(d).
(e) Allocations Between Transferor and Transferee. If a Partner
---------------------------------------------
transfers any part or all of its Partnership Interest, the distributive shares
of the various items of Profit and Loss allocable among the Partners during such
fiscal year of the Partnership shall be allocated between the transferor and the
transferee Partner either (i) as if the Partnership's fiscal year had ended on
the date of the transfer, or (ii) based on the number of days of such fiscal
year that each was a Partner without regard to the results of Partnership
activities in the respective portions of such fiscal year in which the
transferor and the transferee were Partners. The General Partner, in its sole
discretion, shall determine which method shall be used to allocate the
distributive shares of the various items of Profit and Loss between the
transferor and the transferee Partner.
(f) Definition of Profit and Loss. "Profit" and "Loss" and any items
-----------------------------
of income, gain, expense, or loss referred to in this Agreement shall be
determined in accordance with federal income tax accounting principles, as
modified by Regulations Section 1.704-1(b)(2)(iv), except that Profit and Loss
shall not include items of income, gain and expense that are specially allocated
pursuant to Section 5.01(b), 5.01(c), or 5.01(d). All allocations of income,
Profit, gain, Loss, and expense (and all items contained therein) for federal
income tax purposes shall be identical to all allocations of such items set
forth in this Section 5.01, except as otherwise required by Section 704(c) of
the Code and Regulations Section 1.704-1(b)(4). The General Partner shall have
the authority to elect the method to be used by the Partnership for allocating
items of income, gain, and expense as required by Section 704(c) of the Code and
such election shall be binding on all Partners.
- 17 -
<PAGE>
5.02 Distribution of Cash.
--------------------
(a) The General Partner shall distribute cash on a quarterly (or, at
the election of the General Partner, more frequent) basis, in an amount
determined by the General Partner in its sole discretion, to the Partners who
are Partners on the Partnership Record Date with respect to such quarter (or
other distribution period) in accordance with their respective Percentage
Interests on the Partnership Record Date.
(b) In no event may a Partner receive a distribution of cash with
respect to a Partnership Unit if such Partner is entitled to receive a dividend
with respect to a REIT Share for which all or part of such Partnership Unit has
been or will be exchanged.
5.03 REIT Distribution Requirements. The General Partner shall use its
------------------------------
reasonable efforts to cause the Partnership to distribute amounts sufficient to
enable the Company to pay shareholder dividends that will allow the Company to
(i) meet its distribution requirement for qualification as a REIT as set forth
in Section 857(a)(1) of the Code and (ii) avoid any federal income or excise tax
liability imposed by the Code.
5.04 No Right to Distributions in Kind. No Partner shall be entitled to
---------------------------------
demand property other than cash in connection with any distributions by the
Partnership.
5.05 Limitations on Return of Capital Contributions. Notwithstanding any
----------------------------------------------
of the provisions of this Article V, no Partner shall have the right to receive
and the General Partner shall not have the right to make, a distribution that
includes a return of all or part of a Partner's Capital Contributions, unless
after giving effect to the return of a Capital Contribution, the sum of all
Partnership liabilities, other than the liabilities to a Partner for the return
of his Capital Contribution, does not exceed the fair market value of the
Partnership's assets.
5.06 Distributions Upon Liquidation.
------------------------------
(a) Upon liquidation of the Partnership, after payment of, or
adequate provision for, debts and obligations of the Partnership, including any
Partner loans, any remaining assets of the Partnership shall be distributed to
all Partners with positive Capital Accounts in accordance with their respective
positive Capital Account balances. For purposes of the preceding sentence, the
Capital Account of each Partner shall be determined after all adjustments made
in accordance with Sections 5.01 and 5.02 resulting from Partnership operations
and from all sales and dispositions of all or any part of the Partnership's
assets. Any distributions pursuant to this Section 5.06 shall be made by the end
of the Partnership's taxable year in which the liquidation occurs (or, if later,
within 90 days after the date of the liquidation). To the extent deemed
advisable by the General Partner, appropriate arrangements (including the use of
a liquidating trust) may be made to assure that adequate funds are available to
pay any contingent debts or obligations.
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<PAGE>
(b) If the General Partner has a negative balance in its Capital
Account following a liquidation of the Partnership, as determined after taking
into account all Capital Account adjustments in accordance with Sections 5.01
and 5.02 resulting from Partnership operations and from all sales and
dispositions of all or any part of the Partnership's assets, the General Partner
shall contribute to the Partnership an amount of cash equal to the negative
balance in its Capital Account and such cash shall be paid or distributed by the
Partnership to creditors, if any, and then to the Limited Partners in accordance
with Section 5.06(a). Such contribution by the General Partner shall be made by
the end of the Partnership's taxable year in which the liquidation occurs (or,
if later, within 90 days after the date of the liquidation).
5.07 Substantial Economic Effect. It is the intent of the Partners that
---------------------------
the allocations of Profit and Loss under the Agreement have substantial economic
effect (or be consistent with the Partners' interests in the Partnership in the
case of the allocation of losses attributable to nonrecourse debt) within the
meaning of Section 704(b) of the Code as interpreted by the Regulations
promulgated pursuant thereto. Article V and other relevant provisions of this
Agreement shall be interpreted in a manner consistent with such intent.
ARTICLE VI
RIGHTS, OBLIGATIONS AND
POWERS OF THE GENERAL PARTNER
-----------------------------
6.01 Management of the Partnership.
-----------------------------
(a) Except as otherwise expressly provided in this Agreement, the
General Partner shall have full, complete and exclusive discretion to manage and
control the business of the Partnership for the purposes herein stated, and
shall make all decisions affecting the business and assets of the Partnership.
Subject to the restrictions specifically contained in this Agreement, the powers
of the General Partner shall include, without limitation, the authority to take
the following actions on behalf of the Partnership:
(i) to acquire, purchase, own, lease and dispose of any real
property and any other property or assets that the General Partner
determines are necessary or appropriate or in the best interests of
the business of the Partnership;
(ii) to construct buildings and make other improvements on the
properties owned or leased by the Partnership;
(iii) to borrow money for the Partnership, issue evidences of
indebtedness in connection therewith, refinance, guarantee, increase
the amount of, modify, amend or change the terms of, or extend the
time for the payment of, any indebtedness or obligation to the
Partnership, and secure such
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<PAGE>
indebtedness by mortgage, deed of trust, pledge or other lien on the
Partnership's assets;
(iv) to pay, either directly or by reimbursement, for all
operating costs and general administrative expenses of the Company,
the General Partner, PAH LP or the Partnership, to third parties or
to the General Partner as set forth in this Agreement;
(v) to lease all or any portion of any of the Partnership's
assets, whether or not the terms of such leases extend beyond the
termination date of the Partnership and whether or not any portion
of the Partnership's assets so leased are to be occupied by the
lessee, or, in turn, subleased in whole or in part to others, for
such consideration and on such terms as the General Partner may
determine;
(vi) to prosecute, defend, arbitrate, or compromise any and
all claims or liabilities in favor of or against the Partnership, on
such terms and in such manner as the General Partner may reasonably
determine, and similarly to prosecute, settle or defend litigation
with respect to the Partners, the Partnership, or the Partnership's
assets; provided, however, that the General Partner may not, without
-------- -------
the consent of all of the Partners, confess a judgment against the
Partnership;
(vii) to file applications, communicate, and otherwise deal
with any and all governmental agencies having jurisdiction over, or
in any way affecting, the Partnership's assets or any other aspect
of the Partnership business;
(viii) to make or revoke any election permitted or required of
the Partnership by any taxing authority;
(ix) to maintain such insurance coverage for public liability,
fire and casualty, and any and all other insurance for the
protection of the Partnership, for the conservation of Partnership
assets, or for any other purpose convenient or beneficial to the
Partnership, in such amounts and such types, as it shall determine
from time to time;
(x) to determine whether or not to apply any insurance
proceeds for any property to the restoration of such property or to
distribute the same;
(xi) to retain legal counsel, accountants, consultants, real
estate brokers, and such other persons, as the General Partner may
deem necessary or appropriate in connection with the Partnership
business and to pay therefor such reasonable remuneration as the
General Partner may deem reasonable and proper;
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<PAGE>
(xii) to retain other services of any kind or nature in
connection with the Partnership business, and to pay therefor such
remuneration as the General Partner may deem reasonable and proper;
(xiii) to negotiate and conclude agreements on behalf of the
Partnership with respect to any of the rights, powers and authority
conferred upon the General Partner;
(xiv) to maintain accurate accounting records and to file
promptly all federal, state and local income tax returns on behalf
of the Partnership;
(xv) to distribute Partnership cash or other Partnership
assets in accordance with this Agreement;
(xvi) to form or acquire an interest in, and contribute
property to, any further limited or general partnerships, joint
ventures or other relationships that it deems desirable (including,
without limitation, the acquisition of interests in, and the
contributions of property to, its Subsidiaries and any other Person
in which it has an equity interest from time to time);
(xvii) to establish Partnership reserves for working capital,
capital expenditures, contingent liabilities, or any other valid
Partnership purpose; and
(xviii) to take such other action, execute, acknowledge, swear
to or deliver such other documents and instruments, and perform any
and all other acts that the General Partner deems necessary or
appropriate for the formation, continuation and conduct of the
business and affairs of the Partnership (including, without
limitation, all actions consistent with allowing the Company at all
times to qualify as a REIT unless the Company voluntarily terminates
its REIT status) and to possess and enjoy all of the rights and
powers of a general partner as provided by the Act.
(b) Except as otherwise provided herein, to the extent the duties of
the General Partner require expenditures of funds to be paid to third parties,
the General Partner shall not have any obligations hereunder except to the
extent that partnership funds are reasonably available to it for the performance
of such duties, and nothing herein contained shall be deemed to authorize or
require the General Partner, in its capacity as such, to expend its individual
funds for payment to third parties or to undertake any individual liability or
obligation on behalf of the Partnership.
6.02 Delegation of Authority. The General Partner may delegate any or all
-----------------------
of its powers, rights and obligations hereunder, and may appoint, employ,
contract or otherwise deal with any Person for the transaction of the business
of the Partnership, which Person may, under supervision of the General Partner,
perform any acts or services for the Partnership as the General Partner may
approve.
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<PAGE>
6.03 Indemnification and Exculpation of Indemnitees.
----------------------------------------------
(a) The Partnership shall indemnify an Indemnitee from and against
any and all losses, claims, damages, liabilities, joint or several, expenses
(including reasonable legal fees and expenses), judgments, fines, settlements,
and other amounts arising from any and all claims, demands, actions, suits or
proceedings, civil, criminal, administrative or investigative, that relate to
the operations of the Partnership as set forth in this Agreement in which any
Indemnitee may be involved, or is threatened to be involved, as a party or
otherwise, unless it is established that: (i) the act or omission of the
Indemnitee was material to the matter giving rise to the proceeding and either
was committed in bad faith or was the result of active and deliberate
dishonesty; (ii) the Indemnitee actually received an improper personal benefit
in money, property or services; or (iii) in the case of any criminal proceeding,
the Indemnitee had reasonable cause to believe that the act or omission was
unlawful. The termination of any proceeding by judgment, order or settlement
does not create a presumption that the Indemnitee did not meet the requisite
standard of conduct set forth in this Section 6.03(a). The termination of any
proceeding by conviction or upon a plea of nolo contendere or its equivalent, or
an entry of an order of probation prior to judgment, creates a rebuttable
presumption that the Indemnitee acted in a manner contrary to that specified in
this Section 6.03(a). Any indemnification pursuant to this Section 6.03 shall be
made only out of the assets of the Partnership.
(b) The Partnership shall reimburse an Indemnitee for reasonable
expenses incurred by an Indemnitee who is a party to a proceeding in advance of
the final disposition of the proceeding upon receipt by the Partnership of (i) a
written affirmation by the Indemnitee of the Indemnitee's good faith belief that
the standard of conduct necessary for indemnification by the Partnership as
authorized in this Section 6.03 has been met, and (ii) a written undertaking by
or on behalf of the Indemnitee to repay the amount if it shall ultimately be
determined that the standard of conduct has not been met.
(c) The indemnification provided by this Section 6.03 shall be in
addition to any other rights to which an Indemnitee or any other Person may be
entitled under any agreement, pursuant to any vote of the Partners, as a matter
of law or otherwise, and shall continue as to an Indemnitee who has ceased to
serve in such capacity.
(d) The Partnership may purchase and maintain insurance, on behalf
of the Indemnitees and such other Persons as the General Partner shall
determine, against any liability that may be asserted against or expenses that
may be incurred by such Person in connection with the Partnership's activities,
regardless of whether the Partnership would have the power to indemnify such
Person against such liability under the provisions of this Agreement.
(e) For purposes of this Section 6.03, the Partnership shall be
deemed to have requested an Indemnitee to serve as fiduciary of an employee
benefit plan whenever the performance by it of its duties to the Partnership
also imposes duties on, or otherwise involves
- 22 -
<PAGE>
services by, it to the plan or participants or beneficiaries of the plan; excise
taxes assessed on an Indemnitee with respect to an employee benefit plan
pursuant to applicable law shall constitute fines within the meaning of this
Section 6.03; and actions taken or omitted by the Indemnitee with respect to an
employee benefit plan in the performance of its duties for a purpose reasonably
believed by it to be in the interest of the participants and beneficiaries of
the plan shall be deemed to be for a purpose which is not opposed to the best
interests of the Partnership.
(f) In no event may an Indemnitee subject the Limited Partners to
personal liability by reason of the indemnification provisions set forth in this
Agreement.
(g) An Indemnitee shall not be denied indemnification in whole or in
part under this Section 6.03 because the Indemnitee had an interest in the
transaction with respect to which the indemnification applies if the transaction
was otherwise permitted by the terms of this Agreement.
(h) The provisions of this Section 6.03 are for the benefit of the
Indemnitees, their heirs, successors, assigns and administrators and shall not
be deemed to create any rights for the benefit of any other Persons.
6.04 Liability of the General Partner.
--------------------------------
(a) Notwithstanding anything to the contrary set forth in this
Agreement, the General Partner shall not be liable for monetary damages to the
Partnership or any Partners for losses sustained or liabilities incurred as a
result of errors in judgment or of any act or omission if the General Partner
acted in good faith.
(b) The Limited Partners expressly acknowledge that the General
Partner is acting on behalf of the Partnership, the Company and the Company's
shareholders collectively, that the General Partner is under no obligation to
consider the separate interests of the Limited Partners (including, without
limitation, the tax consequences to Limited Partners) in deciding whether to
cause the Partnership to take (or decline to take) any actions. In the event of
a conflict between the interests of the shareholders of the Company on one hand
and the Limited Partners on the other, the General Partner shall endeavor in
good faith to resolve the conflict in a manner not adverse to either the
shareholders of the Company or the Limited Partners; provided, however, that for
so long as the Company, through PAH GP and PAH LP, owns a controlling interest
in the Partnership, any such conflict that cannot be resolved in a manner not
adverse to either the shareholders of the Company or the Limited Partners shall
be resolved in favor of the shareholders. The General Partner shall not be
liable for monetary damages for losses sustained, liabilities incurred, or
benefits not derived by Limited Partners in connection with such decisions,
provided that the General Partner has acted in good faith.
- 23 -
<PAGE>
(c) Subject to its obligations and duties as General Partner set
forth in Section 6.01 hereof, the General Partner may exercise any of the powers
granted to it under this Agreement and perform any of the duties imposed upon it
hereunder either directly or by or through its agents. The General Partner shall
not be responsible for any misconduct or negligence on the part of any such
agent appointed by it in good faith.
(d) Notwithstanding any other provisions of this Agreement or the
Act, any action of the General Partner on behalf of the Partnership or any
decision of the General Partner to refrain from acting on behalf of the
Partnership, undertaken in the good faith belief that such action or omission is
necessary or advisable in order (i) to protect the ability of the Company to
continue to qualify as a REIT or (ii) to prevent the Company from incurring any
taxes under Section 857, Section 4981, or any other provision of the Code, is
expressly authorized under this Agreement and is deemed approved by all of the
Limited Partners.
(e) Any amendment, modification or repeal of this Section 6.04 or
any provision hereof shall be prospective only and shall not in any way affect
the limitations on the General Partner's liability to the Partnership and the
Limited Partners under this Section 6.04 as in effect immediately prior to such
amendment, modification or repeal with respect to matters occurring, in whole or
in part, prior to such amendment, modification or repeal, regardless of when
claims relating to such matters may arise or be asserted.
6.05 Expenditures by Partnership. The General Partner is hereby authorized
---------------------------
to pay compensation for accounting, administrative, legal, technical, management
and other services rendered to the Partnership. All of the aforesaid
expenditures (including Administrative Expenses) shall be made on behalf of the
Partnership, and the General Partner shall be entitled to reimbursement by the
Partnership for any expenditure (including Administrative Expenses) incurred by
it on behalf of the Partnership which shall be made other than out of the funds
of the Partnership. The Partnership shall also assume, and pay when due, all
Administrative Expenses.
6.06 Outside Activities. Subject to Section 6.08 hereof, the Articles of
------------------
Incorporation and any agreements entered into by the General Partner or its
Affiliates with the Partnership or a Subsidiary, any officer, director,
employee, agent, trustee, Affiliate or shareholder of the General Partner shall
be entitled to and may have business interests and engage in business activities
in addition to those relating to the Partnership, including business interests
and activities substantially similar or identical to those of the Partnership.
Neither the Partnership nor any of the Limited Partners shall have any rights by
virtue of this Agreement in any such business ventures, interest or activities.
None of the Limited Partners nor any other Person shall have any rights by
virtue of this Agreement or the partnership relationship established hereby in
any such business ventures, interests or activities, and the General Partner
shall have no obligation pursuant to this Agreement to offer any interest in any
such business ventures, interests and activities to the Partnership or any
Limited Partner, even if such opportunity is of a character which, if presented
to the Partnership or any Limited Partner, could be taken by such Person.
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<PAGE>
6.07 Employment or Retention of Affiliates.
-------------------------------------
(a) Any Affiliate of the General Partner may be employed or retained
by the Partnership and may otherwise deal with the Partnership (whether as a
buyer, lessor, lessee, manager, furnisher of goods or services, broker, agent,
lender or otherwise) and may receive from the Partnership any compensation,
price, or other payment therefor which the General Partner determines to be fair
and reasonable.
(b) The Partnership may lend or contribute to its Subsidiaries or
other Persons in which it has an equity investment, and such Persons may borrow
funds from the Partnership, on terms and conditions established in the sole and
absolute discretion of the General Partner. The foregoing authority shall not
create any right or benefit in favor of any Subsidiary or any other Person.
(c) The Partnership may transfer assets to joint ventures, other
partnerships, corporations or other business entities in which it is or thereby
becomes a participant upon such terms and subject to such conditions as the
General Partner deems are consistent with this Agreement and applicable law.
(d) Except as expressly permitted by this Agreement, neither the
General Partner nor any of its Affiliates shall sell, transfer or convey any
property to, or purchase any property from, the Partnership, directly or
indirectly, except pursuant to transactions that are on terms that are fair and
reasonable to the Partnership.
6.08 General Partner Participation. The General Partner agrees that all
-----------------------------
business activities of the General Partner, including activities pertaining to
the acquisition, development or ownership of hotels or other property, shall be
conducted through the Partnership or one or more Subsidiary Partnerships;
provided, however, that the Company is allowed to make a direct acquisition, but
- -------- -------
if and only if, such acquisition is made in connection with the issuance of
Additional Securities, which direct acquisition and issuance have been approved
and determined to be in the best interests of the Company and the Partnership by
a majority of the Independent Directors.
6.09 Title to Partnership Assets. Title to Partnership assets, whether
---------------------------
real, personal or mixed and whether tangible or intangible, shall be deemed to
be owned by the Partnership as an entity, and no Partner, individually or
collectively, shall have any ownership interest in such Partnership assets or
any portion thereof. Title to any or all of the Partnership assets may be held
in the name of the Partnership, the General Partner or one or more nominees, as
the General Partner may determine, including Affiliates of the General Partner.
The General Partner hereby declares and warrants that any Partnership assets for
which legal title is held in the name of the General Partner or any nominee or
Affiliate of the General Partner shall be held by the General Partner for the
use and benefit of the Partnership in accordance with the provisions of this
Agreement; provided, however, that the General Partner shall use its best
-------- -------
efforts to cause beneficial and record title to such assets to be vested in the
Partnership as soon
- 25 -
<PAGE>
as reasonably practicable. All Partnership assets shall be recorded as the
property of the Partnership in its books and records, irrespective of the name
in which legal title to such Partnership assets is held.
6.10 Miscellaneous. In the event the Company redeems any REIT Shares, then
-------------
the General Partner shall cause the Partnership to purchase from the General
Partner and PAH LP a number of Partnership Units as determined based on the
application of the Conversion Factor on the same terms that the Company redeemed
such REIT Shares. Moreover, if the Company makes a cash tender offer or other
offer to acquire REIT Shares, then the General Partner shall cause the
Partnership to make a corresponding offer to the General Partner and PAH LP to
acquire an equal number of Partnership Units held by the General Partner and PAH
LP. In the event any REIT Shares are redeemed by the Company pursuant to such
offer, the Partnership shall redeem an equivalent number of the General
Partner's and PAH LP's Partnership Units for an equivalent purchase price based
on the application of the Conversion Factor.
ARTICLE VII
CHANGES IN GENERAL PARTNER
--------------------------
7.01 Transfer of the General Partner's Partnership Interest.
------------------------------------------------------
(a) The General Partner shall not transfer all or any portion of its
General Partnership Interest or withdraw as General Partner except as provided
in Section 7.01(c) or in connection with a transaction described in Section
7.01(d).
(b) The General Partner agrees that it and PAH LP will at all times
own in the aggregate at least a 20% Percentage Interest.
(c) Except as otherwise provided in Section 6.06(b) or Section
7.01(d) hereof, the Company shall not engage in any merger, consolidation or
other combination with or into another Person or sale of all or substantially
all of its assets, or any reclassification, or any recapitalization or change of
outstanding REIT Shares (other than a change in par value, or from par value to
no par value, or as a result of a subdivision or combination of REIT Shares) (a
"Transaction"), unless (i) the Transaction also includes a merger of the
Partnership or sale of substantially all of the assets of the Partnership as a
result of which all Limited Partners will receive for each Partnership Unit an
amount of cash, securities, or other property equal to the product of the
Conversion Factor and the greatest amount of cash, securities or other property
paid in the Transaction to a holder of one REIT Share in consideration of one
REIT Share, provided that if, in connection with the Transaction, a purchase,
-------------
tender or exchange offer ("Offer") shall have been made to and accepted by the
holders of more than 50% of the outstanding REIT Shares, each holder of
Partnership Units shall be given the option to exchange its Partnership Units
for the greatest amount of cash, securities, or other property which a Limited
Partner would have received had it (A) exercised its Redemption Right and
- 26 -
<PAGE>
(B) sold, tendered or exchanged pursuant to the Offer the REIT Shares received
upon exercise of the Redemption Right immediately prior to the expiration of the
Offer; and (ii) no more than 75% of the equity securities of the acquiring
Person in such Transaction shall be owned, after consummation of such
Transaction, by the General Partner or Persons who were Affiliates of the
Partnership or the General Partner immediately prior to the date on which the
Transaction is consummated.
(d) Notwithstanding Section 7.01(c), the Company or the General
Partner may merge with or into or consolidate with another entity if immediately
after such merger or consolidation (i) substantially all of the assets of the
successor or surviving entity (the "Surviving General Partner"), other than
Partnership Units held by the General Partner, are contributed, directly or
indirectly, to the Partnership as a Capital Contribution in exchange for
Partnership Units with a fair market value equal to the value of the assets so
contributed as determined by the Surviving General Partner in good faith and
(ii) the Surviving General Partner expressly agrees to assume all obligations of
the General Partner or the Company, as appropriate, hereunder. Upon such
contribution and assumption, the Surviving General Partner shall have the right
and duty to amend this Agreement as set forth in this Section 7.01(d). The
Surviving General Partner shall in good faith arrive at a new method for the
calculation of the Cash Amount, the REIT Shares Amount and Conversion Factor for
a Partnership Unit after any such merger or consolidation so as to approximate
the existing method for such calculation as closely as reasonably possible. Such
calculation shall take into account, among other things, the kind and amount of
securities, cash and other property that was receivable upon such merger or
consolidation by a holder of REIT Shares or options, warrants or other rights
relating thereto, and to which a holder of Partnership Units could have acquired
had such Partnership Units been redeemed immediately prior to such merger or
consolidation. Such amendment to this Agreement shall provide for adjustment to
such method of calculation, which shall be as nearly equivalent as may be
practicable to the adjustments provided for with respect to the Conversion
Factor. The Surviving General Partner also shall in good faith modify the
definition of REIT Shares and make such amendments to Section 8.05 hereof so as
to approximate the existing rights and obligations set forth in Section 8.05 as
closely as reasonably possible. The above provisions of this Section 7.01(d)
shall similarly apply to successive mergers or consolidations permitted
hereunder.
7.02 Admission of a Substitute or Successor General Partner. A Person
------------------------------------------------------
shall be admitted as a substitute or successor General Partner of the
Partnership only if the following terms and conditions are satisfied:
(a) a majority in interest of the Limited Partners (other than PAH
LP) shall have consented in writing to the admission of the substitute or
successor General Partner, which consent may be withheld in the sole discretion
of such Limited Partners;
(b) the Person to be admitted as a substitute or additional General
Partner shall have accepted and agreed to be bound by all the terms and
provisions of this Agreement by executing a counterpart thereof and such other
documents or instruments as may be required or
- 27 -
<PAGE>
appropriate in order to effect the admission of such Person as a General
Partner, and a certificate evidencing the admission of such Person as a General
Partner shall have been filed for recordation and all other actions required by
Section 2.05 hereof in connection with such admission shall have been performed;
(c) if the Person to be admitted as a substitute or additional
General Partner is a corporation or a partnership it shall have provided the
Partnership with evidence satisfactory to counsel for the Partnership of such
Person's authority to become a General Partner and to be bound by the terms and
provisions of this Agreement; and
(d) counsel for the Partnership shall have rendered an opinion
(relying on such opinions from other counsel and the state or any other
jurisdiction as may be necessary) that the admission of the person to be
admitted as a substitute or additional General Partner is in conformity with the
Act, that none of the actions taken in connection with the admission of such
Person as a substitute or additional General Partner will cause (i) the
Partnership to be classified other than as a partnership for federal income tax
purposes, or (ii) the loss of any Limited Partner's limited liability.
7.03 Effect of Bankruptcy, Withdrawal, Death or Dissolution of a General
--------------------------------------------------------------------
Partner.
- -------
(a) Upon the occurrence of an Event of Bankruptcy as to a General
Partner (and its removal pursuant to Section 7.04(a) hereof) or the death,
withdrawal, removal or dissolution of a General Partner (except that, if a
General Partner is on the date of such occurrence a partnership, the withdrawal,
death, dissolution, Event of Bankruptcy as to, or removal of a partner in, such
partnership shall be deemed not to be a dissolution of such General Partner if
the business of such General Partner is continued by the remaining partner or
partners), the Partnership shall be dissolved and terminated unless the
Partnership is continued pursuant to Section 7.03(b) hereof.
(b) Following the occurrence of an Event of Bankruptcy as to a
General Partner (and its removal pursuant to Section 7.04(a) hereof) or the
death, withdrawal, removal or dissolution of a General Partner (except that, if
a General Partner is on the date of such occurrence a partnership, the
withdrawal, death, dissolution, Event of Bankruptcy as to, or removal of a
partner in, such partnership shall be deemed not to be a dissolution of such
General Partner if the business of such General Partner is continued by the
remaining partner or partners), the Limited Partners, within 90 days after such
occurrence, may elect to reconstitute the Partnership and continue the business
of the Partnership for the balance of the term specified in Section 2.04 hereof
by selecting, subject to Section 7.02 hereof and any other provisions of this
Agreement, a substitute General Partner by unanimous consent of the Limited
Partners. If the Limited Partners elect to reconstitute the Partnership and
admit a substitute General Partner, the relationship with the Partners and of
any Person who has acquired an interest of a Partner in the Partnership shall be
governed by this Agreement.
- 28 -
<PAGE>
7.04 Removal of a General Partner.
----------------------------
(a) Upon the occurrence of an Event of Bankruptcy as to, or the
dissolution of, a General Partner, such General Partner shall be deemed to be
removed automatically; provided, however, that if a General Partner is on the
-------- -------
date of such occurrence a partnership, the withdrawal, death, dissolution, Event
of Bankruptcy as to or removal of a partner in such partnership shall be deemed
not to be a dissolution of the General Partner if the business of such General
Partner is continued by the remaining partner or partners.
(b) If a General Partner has been removed pursuant to this Section
7.04 and the Partnership is continued pursuant to Section 7.03 hereof, such
General Partner shall promptly transfer and assign its General Partnership
Interest in the Partnership to the substitute General Partner approved by a
majority in interest of the Limited Partners (excluding PAH LP) in accordance
with Section 7.03(b) hereof and otherwise admitted to the Partnership in
accordance with Section 7.02 hereof. At the time of assignment, the removed
General Partner shall be entitled to receive from the substitute General Partner
the fair market value of the General Partnership Interest of such removed
General Partner as reduced by any damages caused to the Partnership by such
General Partner. Such fair market value shall be determined by an appraiser
mutually agreed upon by the General Partner and a majority in interest of the
Limited Partners (excluding PAH LP) within 10 days following the removal of the
General Partner. In the event that the parties are unable to agree upon an
appraiser, the removed General Partner and a majority in interest of the Limited
Partners (excluding PAH LP) each shall select an appraiser. Each such appraiser
shall complete an appraisal of the fair market value of the removed General
Partner's General Partnership Interest within 30 days of the General Partner's
removal, and the fair market value of the removed General Partner's General
Partnership Interest shall be the average of the two appraisals; provided,
--------
however, that if the higher appraisal exceeds the lower appraisal by more than
- -------
20% of the amount of the lower appraisal, the two appraisers, no later than 40
days after the removal of the General Partner, shall select a third appraiser
who shall complete an appraisal of the fair market value of the removed General
Partner's General Partnership Interest no later than 60 days after the removal
of the General Partner. In such case, the fair market value of the removed
General Partner's General Partnership Interest shall be the average of the two
appraisals closest in value.
(c) The General Partnership Interest of a removed General Partner,
during the time after default until transfer under Section 7.04(b), shall be
converted to that of a special Limited Partner; provided, however, such removed
-------- -------
General Partner shall not have any rights to participate in the management and
affairs of the Partnership, and shall not be entitled to any portion of the
income, expense, profit, gain or loss allocations or cash distributions
allocable or payable, as the case may be, to the Limited Partners. Instead, such
removed General Partner shall receive and be entitled only to retain
distributions or allocations of such items that it would have been entitled to
receive in its capacity as General Partner, until the transfer is effective
pursuant to Section 7.04(b).
- 29 -
<PAGE>
(d) All Partners shall have given and hereby do give such consents,
shall take such actions and shall execute such documents as shall be legally
necessary and sufficient to effect all the foregoing provisions of this Section.
ARTICLE VIII
RIGHTS AND OBLIGATIONS
OF THE LIMITED PARTNERS
-----------------------
8.01 Management of the Partnership. The Limited Partners shall not
-----------------------------
participate in the management or control of Partnership business nor shall they
transact any business for the Partnership, nor shall they have the power to sign
for or bind the Partnership, such powers being vested solely and exclusively in
the General Partner.
8.02 Power of Attorney. Each Limited Partner hereby irrevocably appoints
-----------------
the General Partner its true and lawful attorney-in-fact, who may act for each
Limited Partner and in its name, place and stead, and for its use and benefit,
to sign, acknowledge, swear to, deliver, file and record, at the appropriate
public offices, any and all documents, certificates, and instruments as may be
deemed necessary or desirable by the General Partner to carry out fully the
provisions of this Agreement and the Act in accordance with their terms, which
power of attorney is coupled with an interest and shall survive the death,
dissolution or legal incapacity of the Limited Partner, or the transfer by the
Limited Partner of any part or all of its Partnership Interest.
8.03 Limitation on Liability of Limited Partners. No Limited Partner shall
-------------------------------------------
be liable for any debts, liabilities, contracts or obligations of the
Partnership. A Limited Partner shall be liable to the Partnership only to make
payments of its Capital Contribution, if any, as and when due hereunder. After
its Capital Contribution is fully paid, no Limited Partner shall, except as
otherwise required by the Act, be required to make any further Capital
Contributions or other payments or lend any funds to the Partnership.
8.04 Ownership by Limited Partner of Corporate General Partner or
------------------------------------------------------------
Affiliate. No Limited Partner shall at any time, either directly or indirectly,
- ---------
own any stock or other interest in the General Partner or in any Affiliate
thereof, if such ownership by itself or in conjunction with other stock or other
interests owned by other Limited Partners would, in the opinion of counsel for
the Partnership, jeopardize the classification of the Partnership as a
partnership for federal income tax purposes. The General Partner shall be
entitled to make such reasonable inquiry of the Limited Partners as is required
to establish compliance by the Limited Partners with the provisions of this
Section.
- 30 -
<PAGE>
8.05 Redemption Right.
----------------
(a) Subject to Sections 8.05(b), 8.05(c), 8.05(d), 8.05(e) and
8.05(f), on or after the date which is one year after the closing of the
Offering, each Limited Partner, other than PAH LP, shall have the right (the
"Redemption Right") to require the Partnership to redeem on a Specified
Redemption Date all or a portion of the Partnership Units held by such Limited
Partner at a redemption price equal to and in the form of the Cash Amount to be
paid by the Partnership. The Redemption Right shall be exercised pursuant to a
Notice of Redemption delivered to the Partnership (with a copy to the General
Partner) by the Limited Partner who is exercising the Redemption Right (the
"Redeeming Partner"); provided, however, that the Partnership shall not be
obligated to satisfy such Redemption Right if the Company and/or the General
Partner elects to purchase the Partnership Units subject to the Notice of
Redemption pursuant to Section 8.05(b); and provided, further, that no Limited
Partner may deliver more than two Notices of Redemption during each calendar
year. A Limited Partner may not exercise the Redemption Right for less than
1,000 Partnership Units or, if such Limited Partner holds less than 1,000
Partnership Units, all of the Partnership Units held by such Partner. The
Redeeming Partner shall have no right, with respect to any Partnership Units so
redeemed, to receive any distribution paid with respect to Partnership Units if
the record date for such distribution is on or after the Specified Redemption
Date.
(b) Notwithstanding the provisions of Section 8.05(a), a Limited
Partner that exercises the Redemption Right shall be deemed to have offered to
sell the Partnership Units described in the Notice of Redemption to the General
Partner and the Company, and either of the General Partner or the Company (or
both) may, in its sole and absolute discretion, elect to purchase directly and
acquire such Partnership Units by paying to the Redeeming Partner either the
Cash Amount or the REIT Shares Amount, as elected by the General Partner or the
Company (in its sole and absolute discretion), on the Specified Redemption Date,
whereupon the General Partner or the Company shall acquire the Partnership Units
offered for redemption by the Redeeming Partner and shall be treated for all
purposes of this Agreement as the owner of such Partnership Units. If the
General Partner and/or the Company shall elect to exercise its right to purchase
Partnership Units under this Section 8.05(b) with respect to a Notice of
Redemption, they shall so notify the Redeeming Partner within five Business Days
after the receipt by the General Partner of such Notice of Redemption. Unless
the General Partner and/or the Company (in its sole and absolute discretion)
shall exercise its right to purchase Partnership Units from the Redeeming
Partner pursuant to this Section 8.05(b), neither the General Partner nor the
Company shall have any obligation to the Redeeming Partner or the Partnership
with respect to the Redeeming Partner's exercise of the Redemption Right. In the
event the General Partner or the Company shall exercise its right to purchase
Partnership Units with respect to the exercise of a Redemption Right in the
manner described in the first sentence of this Section 8.05(b), the Partnership
shall have no obligation to pay any amount to the Redeeming Partner with respect
to such Redeeming Partner's exercise of such Redemption Right, and each of the
Redeeming Partner, the Partnership, and the General Partner or the Company, as
the case may be, shall treat the transaction between the General Partner or the
Company, as the case may be, and the Redeeming Partner for federal income tax
purposes as a
- 31 -
<PAGE>
sale of the Redeeming Partner's Partnership Units to the General Partner or the
Company, as the case may be. Each Redeeming Partner agrees to execute such
documents as the General Partner may reasonably require in connection with the
issuance of REIT Shares upon exercise of the Redemption Right.
(c) Notwithstanding the provisions of Section 8.05(a) and 8.05(b), a
Limited Partner shall not be entitled to exercise the Redemption Right if the
delivery of REIT Shares to such Partner on the Specified Redemption Date by the
General Partner or the Company pursuant to Section 8.05(b) (regardless of
whether or not the General Partner or the Company would in fact exercise its
rights under Section 8.05(b)) would (i) result in such Partner or any other
person owning, directly or indirectly, REIT Shares in excess of the Ownership
Limitation or the Look-Through Ownership Limitation, if applicable, (as defined
in the Articles of Incorporation) and calculated in accordance therewith, except
as provided in the Articles of Incorporation, (ii) result in REIT Shares being
owned by fewer than 100 persons (determined without reference to any rules of
attribution), except as provided in the Articles of Incorporation, (iii) result
in the Company being "closely held" within the meaning of Section 856(h) of the
Code, (iv) cause the Company to own, directly or constructively, 10% or more of
the ownership interests in a tenant of the General Partner's, the 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 REIT Shares by such
Partner to be "integrated" with any other distribution of REIT Shares for
purposes of complying with the registration provisions of the Securities Act of
1933, as amended (the "Securities Act"). The General Partner or the Company, in
their sole discretion, may waive the restriction on redemption set forth in this
Section 8.05(c); provided, however, that in the event such restriction is
-------- -------
waived, the Redeeming Partner shall be paid the Cash Amount.
(d) Any Cash Amount to be paid to a Redeeming Partner pursuant to
this Section 8.05 shall be paid on the Specified Redemption Date; provided,
--------
however, that the Company or the General Partner may elect to cause the
- -------
Specified Redemption Date to be delayed for up to an additional 180 days to the
extent required for the Company to cause additional REIT Shares to be issued to
provide financing to be used to make such payment of the Cash Amount.
Notwithstanding the foregoing, the Company and the General Partner agree to use
their best efforts to cause the closing of the acquisition of redeemed
Partnership Units hereunder to occur as quickly as reasonably possible.
(e) In the event that the General Partner permits the pledge of a
Limited Partner's Partnership Units to a lender, the General Partner may agree
to allow such lender, upon foreclosure of such Partnership Units, to redeem such
Partnership Units prior to the expiration of the one-year period described in
section 8.05(a); provided, that any such redemption shall be effected by the
Partnership in the form of the Cash Amount.
- 32 -
<PAGE>
(f) Notwithstanding any other provision of this Agreement, the
General Partner shall place appropriate restrictions on the ability of the
Limited Partners to exercise their Redemption Rights as and if deemed necessary
to ensure that the Partnership does not constitute a "publicly traded
partnership" under section 7704 of the Code. If and when the General Partner
determines that imposing such restrictions is necessary, the General Partner
shall give prompt written notice thereof (a "Restriction Notice") to each of the
Limited Partners, which notice shall be accompanied by a copy of an opinion of
counsel to the Partnership which states that, in the opinion of such counsel,
restrictions are necessary in order to avoid the Partnership being treated as a
"publicly traded partnership" under section 7704 of the Code. Any such
restriction shall become effective on the later of (i) the fifth business day
after the Restriction Notice is received by the Limited Partner or (ii) the date
on which the regulations under section 7704 of the Code that would cause the
Partnership to be classified as a "publicly traded partnership" become
effective.
8.06 Registration.
------------
(a) Payment of REIT Shares Amount. In the event that the General
-----------------------------
Partner or the Company elects to acquire a Redeeming Partner's Partnership Units
by paying to such Partner the REIT Shares Amount, such shares will be issued
pursuant to an effective registration statement under the Securities Act.
(b) Shelf Registration of the Common Stock. Prior to or on the first
--------------------------------------
date upon which the Partnership Units owned by any Limited Partner may be
redeemed (or such other date as may be required under applicable provisions of
the Securities Act), the Company agrees to file with the Securities and Exchange
Commission (the "Commission"), a shelf registration statement on Form S-3 under
Rule 415 of the Securities Act (a "Registration Statement"), or any similar rule
that may be adopted by the Commission, with respect to all of the shares of
Common Stock that may be issued upon redemption of such Partnership Units
pursuant to Section 8.05 hereof ("Redemption Shares"). The Company will use its
best efforts to have the Registration Statement declared effective under the
Securities Act. The Company need not file a separate Registration Statement, but
may file one Registration Statement covering Redemption Shares issuable to more
than one Limited Partner. The Company further agrees to supplement or make
amendments to each Registration Statement, if required by the rules, regulations
or instructions applicable to the registration form utilized by the Company or
by the Securities Act or rules and regulations thereunder for such Registration
Statement.
(c) Listing on Securities Exchange. If the Company shall list or
------------------------------
maintain the listing of any shares of Common Stock on any securities exchange or
national market system, it will at its expense and as necessary to permit the
registration and sale of the Redemption Shares hereunder, list thereon, maintain
and, when necessary, increase such listing to include such Redemption Shares.
- 33 -
<PAGE>
ARTICLE IX
TRANSFERS OF LIMITED PARTNERSHIP INTERESTS
------------------------------------------
9.01 Purchase for Investment.
-----------------------
(a) Each Limited Partner hereby represents and warrants to the
General Partner, to the Company and to the Partnership that the acquisition of
his Partnership Interests is made as a principal for his account for investment
purposes only and not with a view to the resale or distribution of such
Partnership Interest.
(b) Each Limited Partner agrees that he will not sell, assign or
otherwise transfer his Partnership Interest or any fraction thereof, whether
voluntarily or by operation of law or at judicial sale or otherwise, to any
Person who does not make the representations and warranties to the General
Partner set forth in Section 9.01(a) above and similarly agree not to sell,
assign or transfer such Partnership Interest or fraction thereof to any Person
who does not similarly represent, warrant and agree.
9.02 Restrictions on Transfer of Limited Partnership Interests.
---------------------------------------------------------
(a) Subject to the provisions of 9.02(b), (c) and (d), a Limited
Partner may offer, sell, assign, hypothecate, pledge or otherwise transfer all
or any portion of his Limited Partnership Interest, or any of such Limited
Partner's economic rights as a Limited Partner, whether voluntarily or by
operation of law or at judicial sale or otherwise (collectively, a "Transfer")
with or without the consent of the General Partner. The General Partner may
require, as a condition of any Transfer, that the transferor assume all costs
incurred by the Partnership in connection therewith.
(b) No Limited Partner may effect a Transfer of its Limited
Partnership Interest, in whole or in part, if, in the opinion of legal counsel
for the Partnership, such proposed Transfer would require the registration of
the Limited Partnership Interest under the Securities Act of 1933, as amended,
or would otherwise violate any applicable federal or state securities or blue
sky law (including investment suitability standards).
(c) No transfer by a Limited Partner of its Partnership Units, in
whole or in part, may be made to any Person if (i) in the opinion of legal
counsel for the Partnership, the transfer would result in the Partnership's
being treated as an association taxable as a corporation (other than a qualified
REIT subsidiary within the meaning of Section 856(i) of the Code), (ii) in the
opinion of legal counsel for the Partnership, it would adversely affect the
ability of the Company to continue to qualify as a REIT or subject the Company
to any additional taxes under Section 857 or Section 4981 of the Code, or (iii)
such transfer is effectuated through an "established securities market" or a
"secondary market (or the substantial equivalent thereof)" within the meaning of
Section 7704 of the Code.
- 34 -
<PAGE>
(d) No transfer of any Partnership Units may be made to a lender to
the Partnership or any Person who is related (within the meaning of Regulations
Section 1.752- 4(b)) to any lender to the Partnership whose loan constitutes a
nonrecourse liability (within the meaning of Regulations Section 1.752-1(a)(2)),
without the consent of the General Partner, which may be withheld in its sole
and absolute discretion, provided that as a condition to such consent the lender
-------- ----
will be required to enter into an arrangement with the Partnership and the
General Partner to exchange or redeem for the Cash Amount any Partnership Units
in which a security interest is held simultaneously with the time at which such
lender would be deemed to be a partner in the Partnership for purposes of
allocating liabilities to such lender under Section 752 of the Code.
(e) Any Transfer in contravention of any of the provisions of this
Article IX shall be void and ineffectual and shall not be binding upon, or
recognized by, the Partnership.
9.03 Admission of Substitute Limited Partner.
---------------------------------------
(a) Subject to the other provisions of this Article IX, an assignee
of the Limited Partnership Interest of a Limited Partner (which shall be
understood to include any purchaser, transferee, donee, or other recipient of
any disposition of such Limited Partnership Interest) shall be deemed admitted
as a Limited Partner of the Partnership only upon the satisfactory completion of
the following:
(i) The assignee shall have accepted and agreed to be bound
by the terms and provisions of this Agreement by executing a
counterpart or an amendment thereof, including a revised Exhibit A,
---------
and such other documents or instruments as the General Partner may
require in order to effect the admission of such Person as a Limited
Partner.
(ii) To the extent required, an amended Certificate evidencing
the admission of such Person as a Limited Partner shall have been
signed, acknowledged and filed for record in accordance with the
Act.
(iii) The assignee shall have delivered a letter containing the
representation set forth in Section 9.01(a) hereof and the agreement
set forth in Section 9.01(b) hereof.
(iv) If the assignee is a corporation, partnership or trust,
the assignee shall have provided the General Partner with evidence
satisfactory to counsel for the Partnership of the assignee's
authority to become a Limited Partner under the terms and provisions
of this Agreement.
(v) The assignee shall have executed a power of attorney
containing the terms and provisions set forth in Section 8.02
hereof.
- 35 -
<PAGE>
(vi) The assignee shall have paid all reasonable legal fees of
the Partnership and the General Partner and filing and publication
costs in connection with its substitution as a Limited Partner.
(vii) The assignee has obtained the prior written consent of
the General Partner to its admission as a Substitute Limited
Partner, which consent may be given or denied in the exercise of the
General Partner's sole and absolute discretion.
(b) For the purpose of allocating Profits and Losses and
distributing cash received by the Partnership, a Substitute Limited Partner
shall be treated as having become, and appearing in the records of the
Partnership as, a Partner upon the filing of the Certificate described in
Section 9.03(a)(ii) hereof or, if no such filing is required, the later of the
date specified in the transfer documents or the date on which the General
Partner has received all necessary instruments of transfer and substitution.
(c) The General Partner shall cooperate with the Person seeking to
become a Substitute Limited Partner by preparing the documentation required by
this Section and making all official filings and publications. The Partnership
shall take all such action as promptly as practicable after the satisfaction of
the conditions in this Article IX to the admission of such Person as a Limited
Partner of the Partnership.
9.04 Rights of Assignees of Partnership Interests.
--------------------------------------------
(a) Subject to the provisions of Sections 9.01 and 9.02 hereof,
except as required by operation of law, the Partnership shall not be obligated
for any purposes whatsoever to recognize the assignment by any Limited Partner
of its Partnership Interest until the Partnership has received notice thereof.
(b) Any Person who is the assignee of all or any portion of a
Limited Partner's Limited Partnership Interest, but does not become a Substitute
Limited Partner and desires to make a further assignment of such Limited
Partnership Interest, shall be subject to all the provisions of this Article IX
to the same extent and in the same manner as any Limited Partner desiring to
make an assignment of its Limited Partnership Interest.
9.05 Effect of Bankruptcy, Death, Incompetence or Termination of a Limited
---------------------------------------------------------------------
Partner. The occurrence of an Event of Bankruptcy as to a Limited Partner, the
- -------
death of a Limited Partner or a final adjudication that a Limited Partner is
incompetent (which term shall include, but not be limited to, insanity) shall
not cause the termination or dissolution of the Partnership, and the business of
the Partnership shall continue if an order for relief in a bankruptcy proceeding
is entered against a Limited Partner, the trustee or receiver of his estate or,
if he dies, his executor, administrator or trustee, or, if he is finally
adjudicated incompetent, his committee, guardian or conservator, shall have the
rights of such Limited Partner for the purpose of settling or managing his
estate property and such power as the
- 36 -
<PAGE>
bankrupt, deceased or incompetent Limited Partner possessed to assign all or any
part of his Partnership Interest and to join with the assignee in satisfying
conditions precedent to the admission of the assignee as a Substitute Limited
Partner.
9.06 Joint Ownership of Interests. A Partnership Interest may be acquired
----------------------------
by two individuals as joint tenants with right of survivorship, provided that
such individuals either are married or are related and share the same home as
tenants in common. The written consent or vote of both owners of any such
jointly held Partnership Interest shall be required to constitute the action of
the owners of such Partnership Interest; provided, however, that the written
-------- -------
consent of only one joint owner will be required if the Partnership has been
provided with evidence satisfactory to the counsel for the Partnership that the
actions of a single joint owner can bind both owners under the applicable laws
of the state of residence of such joint owners. Upon the death of one owner of a
Partnership Interest held in a joint tenancy with a right of survivorship, the
Partnership Interest shall become owned solely by the survivor as a Limited
Partner and not as an assignee. The Partnership need not recognize the death of
one of the owners of a jointly-held Partnership Interest until it shall have
received notice of such death. Upon notice to the General Partner from either
owner, the General Partner shall cause the Partnership Interest to be divided
into two equal Partnership Interests, which shall thereafter be owned separately
by each of the former owners.
ARTICLE X
BOOKS AND RECORDS; ACCOUNTING; TAX MATTERS
------------------------------------------
10.01 Books and Records. At all times during the continuance of the
-----------------
Partnership, the Partners shall keep or cause to be kept at the Partnership's
specified office true and complete books of account in accordance with generally
accepted accounting principles, including: (a) a current list of the full name
and last known business address of each Partner, (b) a copy of the Certificate
of Limited Partnership and all certificates of amendment thereto, (c) copies of
the Partnership's federal, state and local income tax returns and reports, (d)
copies of the Agreement and any financial statements of the Partnership for the
three most recent years and (e) all documents and information required under the
Act. Any Partner or its duly authorized representative, upon paying the costs of
collection, duplication and mailing, shall be entitled to inspect or copy such
records during ordinary business hours.
10.02 Custody of Partnership Funds; Bank Accounts.
-------------------------------------------
(a) All funds of the Partnership not otherwise invested shall be
deposited in one or more accounts maintained in such banking or brokerage
institutions as the General Partner shall determine, and withdrawals shall be
made only on such signature or signatures as the General Partner may, from time
to time, determine.
- 37 -
<PAGE>
(b) All deposits and other funds not needed in the operation of the
business of the Partnership may be invested by the General Partner in investment
grade instruments (or investment companies whose portfolio consists primarily
thereof), government obligations, certificates of deposit, bankers' acceptances
and municipal notes and bonds. The funds of the Partnership shall not be
commingled with the funds of any other Person except for such commingling as may
necessarily result from an investment in those investment companies permitted by
this Section 10.02(b).
10.03 Fiscal and Taxable Year. The fiscal and taxable year of the
-----------------------
Partnership shall be the calendar year.
10.04 Annual Tax Information and Report. Within 75 days after the end of
---------------------------------
each fiscal year of the Partnership, the General Partner shall furnish to each
person who was a Limited Partner at any time during such year the tax
information necessary to file such Limited Partner's individual tax returns as
shall be reasonably required by law.
10.05 Tax Matters Partner; Tax Elections; Special Basis Adjustments.
-------------------------------------------------------------
(a) The General Partner shall be the Tax Matters Partner of the
Partnership within the meaning of Section 6231(a)(7) of the Code. As Tax Matters
Partner, the General Partner shall have the right and obligation to take all
actions authorized and required, respectively, by the Code for the Tax Matters
Partner. The General Partner shall have the right to retain professional
assistance in respect of any audit of the Partnership by the Service and all
out-of-pocket expenses and fees incurred by the General Partner on behalf of the
Partnership as Tax Matters Partner shall constitute Partnership expenses. In the
event the General Partner receives notice of a final Partnership adjustment
under Section 6223(a)(2) of the Code, the General Partner shall either (i) file
a court petition for judicial review of such final adjustment within the period
provided under Section 6226(a) of the Code, a copy of which petition shall be
mailed to all Limited Partners on the date such petition is filed, or (ii) mail
a written notice to all Limited Partners, within such period, that describes the
General Partner's reasons for determining not to file such a petition.
(b) All elections required or permitted to be made by the
Partnership under the Code or any applicable state or local tax law shall be
made by the General Partner in its sole discretion.
(c) In the event of a transfer of all or any part of the Partnership
Interest of any Partner, the Partnership, at the option of the General Partner,
may elect pursuant to Section 754 of the Code to adjust the basis of the
Properties. Notwithstanding anything contained in Article V of this Agreement,
any adjustments made pursuant to Section 754 shall affect only the successor in
interest to the transferring Partner and in no event shall be taken into account
in establishing, maintaining or computing Capital Accounts for the other
Partners for any purpose under this Agreement. Each Partner will furnish the
Partnership with all information necessary to give effect to such election.
- 38 -
<PAGE>
10.06 Reports to Limited Partners.
---------------------------
(a) As soon as practicable after the close of each fiscal quarter
(other than the last quarter of the fiscal year), the General Partner shall
cause to be mailed to each Limited Partner a quarterly report containing
financial statements of the Partnership, or of the Company if such statements
are prepared solely on a consolidated basis with the Company, for such fiscal
quarter, presented in accordance with generally accepted accounting principles.
As soon as practicable after the close of each fiscal year, the General Partner
shall cause to be mailed to each Limited Partner an annual report containing
financial statements of the Partnership, or of the Company if such statements
are prepared solely on a consolidated basis with the Company, for such fiscal
year, presented in accordance with generally accepted accounting principles. The
annual financial statements shall be audited by accountants selected by the
General Partner.
(b) Any Partner shall further have the right to a private audit of
the books and records of the Partnership, provided such audit is made for
Partnership purposes, at the expense of the Partner desiring it and is made
during normal business hours.
ARTICLE XI
AMENDMENT OF AGREEMENT
----------------------
The General Partner, without the consent of the Limited Partners, may
amend this Agreement in any respect; provided, however, that the following
-------- -------
amendments shall require the consent of Limited Partners (other than PAH LP)
holding more than 50% of the Percentage Interests of the Limited Partners (other
than PAH LP):
(a) any amendment affecting the operation of the Conversion Factor
or the Redemption Right (except as provided in Section 8.05(d) or 7.01(d)
hereof) in a manner adverse to the Limited Partners;
(b) any amendment that would adversely affect the rights of the
Limited Partners to receive the distributions payable to them hereunder;
(c) any amendment that would alter the Partnership's allocations of
Profit and Loss to the Limited Partners; or
(d) any amendment that would impose on the Limited Partners any
obligation to make additional Capital Contributions to the Partnership.
- 39 -
<PAGE>
ARTICLE XII
GENERAL PROVISIONS
------------------
12.01 Notices. All communications required or permitted under this
Agreement shall be in writing and shall be deemed to have been given when
delivered personally or upon deposit in the United States mail, registered,
postage prepaid return receipt requested, to the Partners at the addresses set
forth in Exhibit A attached hereto; provided, however, that any Partner may
--------- -------- -------
specify a different address by notifying the General Partner in writing of such
different address. Notices to the Partnership shall be delivered at or mailed to
its specified office.
12.02 Survival of Rights. Subject to the provisions hereof limiting
------------------
transfers, this Agreement shall be binding upon and inure to the benefit of the
Partners and the Partnership and their respective legal representatives,
successors, transferees and assigns.
12.03 Additional Documents. Each Partner agrees to perform all further
--------------------
acts and execute, swear to, acknowledge and deliver all further documents which
may be reasonable, necessary, appropriate or desirable to carry out the
provisions of this Agreement or the Act.
12.04 Severability. If any provision of this Agreement shall be declared
------------
illegal, invalid, or unenforceable in any jurisdiction, then such provision
shall be deemed to be severable from this Agreement (to the extent permitted by
law) and in any event such illegality, invalidity or unenforceability shall not
affect the remainder hereof.
12.05 Entire Agreement. This Agreement and exhibits attached hereto
----------------
constitute the entire Agreement of the Partners and supersede all prior written
agreements and prior and contemporaneous oral agreements, understandings and
negotiations with respect to the subject matter hereof.
12.06 Pronouns and Plurals. When the context in which words are used in
--------------------
the Agreement indicates that such is the intent, words in the singular number
shall include the plural and the masculine gender shall include the neuter or
female gender as the context may require.
12.07 Headings. The Article headings or sections in this Agreement are for
--------
convenience only and shall not be used in construing the scope of this Agreement
or any particular Article.
12.08 Counterparts. This Agreement may be executed in several
------------
counterparts, each of which shall be deemed to be an original copy and all of
which together shall constitute one and the same instrument binding on all
parties hereto, notwithstanding that all parties shall not have signed the same
counterpart.
- 40 -
<PAGE>
12.09 Governing Law. This Agreement shall be governed by and construed in
-------------
accordance with the laws of the Commonwealth of Virginia.
12.10 Guaranty by Company. The Company unconditionally and irrevocably
-------------------
guarantees to the Limited Partners the performance by the General Partner and
PAH LP of the respective obligations of the General Partner and PAH LP under
this Agreement. This guaranty is exclusively for the benefit of the Limited
Partners and shall not extend to the benefit of any creditor of the Partnership.
[Remainder of Page Intentionally Left Blank]
- 41 -
<PAGE>
IN WITNESS WHEREOF, the parties hereto have hereunder affixed their
signatures to this First Amended and Restated Agreement of Limited Partnership,
all as of the ____ day of ___________, 1995.
WITHDRAWING GENERAL PARTNER:
---------------------------
PATRIOT AMERICAN HOSPITALITY, INC.
By: _______________________________
Name:
Title:
GENERAL PARTNER:
---------------
PAH GP, INC.
By: _______________________________
Paul A. Nussbaum
Chairman of the Board and Chief
Executive Officer
LIMITED PARTNERS:
----------------
PAH LP, INC.
By: _______________________________
Paul A. Nussbaum
Chairman of the Board and Chief
Executive Officer
- 42 -
<PAGE>
PANCO SERVICES, INC.
By: _______________________________
Paul A. Nussbaum
President
SEP FBO PAUL A. NUSSBAUM
By: _______________________________
Name:
Title:
GSM VIII INC.
By: _______________________________
Saundra Mann
President
JHD VIII INC.
By: _______________________________
John H. Daniels
President
_______________________________
WILLIAM L. MACK
- 43 -
<PAGE>
_______________________________
KARIM ALIBHAI
PAM BOURBON ORLEANS LIMITED
PARTNERSHIP
By: PAM Bourbon Orleans, Inc., its
general partner
By: _______________________________
William L. Mack
President
PAM 1776 GUARANTOR LIMITED PARTNERSHIP
By: PAM 1776 Guarantor, Inc., its
general partner
By: _______________________________
William L. Mack
President
PAM CLARION LIMITED PARTNERSHIP
By: PAM Clarion, Inc., its
general partner
By: _______________________________
William L. Mack
President
- 44 -
<PAGE>
ROSS TREVOR NUSSBAUM 1993 TRUST
By: _______________________________
Name:
Title:
CRAIG RADLEY NUSSBAUM 1993 TRUST
By: _______________________________
Name:
Title:
METRO SUMMIT INVESTORS, INC.
By: _______________________________
Name:
Title:
W-L SUMMIT, INC.
By: _______________________________
Donald E. Lefton
President
- 45 -
<PAGE>
M-TROY PARTNERS, L.P.
By: M-Troy, Inc., its general partner
By: _______________________________
William L. Mack
President
PAM SAN ANGELO LIMITED PARTNERSHIP
By: PAM San Angelo, Inc., its general
partner
By: _______________________________
William L. Mack
President
SAN ANGELO VENTURES, L.P.
By: San Angelo Ventures, Inc., its
general partner
By: _______________________________
Name:
Title:
- 46 -
<PAGE>
PAE 1993 ASSOCIATES, L.P.
By: PAE 1993 Associates Operating
Corporation, its general partner
By: _______________________________
Paul A. Nussbaum
President
_______________________________
SHERWOOD M. WEISER
_______________________________
DONALD E. LEFTON
_______________________________
W. PETER TEMLING
_______________________________
THOMAS F. HEWITT
_______________________________
PETER L. SIBLEY
- 47 -
<PAGE>
TOWN & COUNTRY VENTURES, INC.
By: _______________________________
Name:
Title:
CROCKETT VENTURES, INC.
By: _______________________________
Name:
Title:
ARNSON INVESTMENT COMPANY
By: _______________________________
Lawrence C. Sherman
Attorney-in-Fact
_______________________________
LAWRENCE C. SHERMAN
_______________________________
BENNETT YANOWITZ
_______________________________
GEORGE E. SPRINGER, JR.
By Lawrence C. Sherman, Attorney-in-Fact
- 48 -
<PAGE>
_______________________________
JEFFREY J. SPRINGER
By Lawrence C. Sherman, Attorney-in-Fact
_______________________________
RICHARD ROSNER
By Lawrence C. Sherman, Attorney-in-Fact
_______________________________
MORLEE A. ROTHCHILD
By Lawrence C. Sherman, Attorney-in-Fact
_______________________________
ROBERT J. VALERIAN
By Bennett Yanowitz, Attorney-in-Fact
_______________________________
DONALD F. BERCU, TRUSTEE UNDER WILL OF
ROGER A. BERCU, TRUST B
By Lawrence C. Sherman, Attorney-in-Fact
_______________________________
JACQUELINE BERCU
By Lawrence C. Sherman, Attorney-in-Fact
_______________________________
MALCOLM A. BRAHMS
By Lawrence C. Sherman, Attorney-in-Fact
- 49 -
<PAGE>
_______________________________
ROGER H. BROWN
By Lawrence C. Sherman, Attorney-in-Fact
_______________________________
HENRY LOWENTHAL
By Lawrence C. Sherman, Attorney-in-Fact
RAND DEVELOPMENT COMPANY
By: _______________________________
Lawrence C. Sherman
Attorney-in-Fact
_______________________________
JOSEPH B. WHITE
By Lawrence C. Sherman, Attorney-in-Fact
WEISER AND LEFTON JACKSONVILLE, INC.
By: _______________________________
Donald E. Lefton
President
CHC INTERNATIONAL, INC.
By: _______________________________
Name:
Title:
- 50 -
<PAGE>
_______________________________
WARREN WEISER
_______________________________
ARLENE MENDELSON
_______________________________
LAURANS A. MENDELSON
W-L ROCHESTER, INC.
By: _______________________________
Donald E. Lefton
President
MILTON M. HOWARD TRUST UNDER
AGREEMENT DATED JULY 31, 1978, AS
AMENDED
By: _______________________________
Milton M. Howard
Trustee
- 51 -
<PAGE>
ARTHUR HOWARD LIVING TRUST UNDER
AGREEMENT DATED DECEMBER 31, 1975
By: _______________________________
Arthur Howard
Trustee
_______________________________
ROBERT C. SMITH
_______________________________
VINCENT M. SULLIVAN
ARTEMIS INVESTISSEMENT SARL
By: _______________________________
Name:
Title:
- 52 -
<PAGE>
PAE HOSPITALITY ASSOCIATES, L.P.
By: PAE Hospitality Operating Corporation,
its general partner
By: _______________________________
Paul A. Nussbaum
President
GENCOM EXECUTIVE PLAN, L.P.
By: KA Management Company, L.L.C.
By: _______________________________
Karim Alibhai
President
- 53 -
<PAGE>
NORTH COAST ROCHESTER LIMITED
PARTNERSHIP
By: W-L Rochester, Ltd., its general partner
By: W-L Rochester, Inc., its general partner
By: _______________________________
Donald E. Lefton
President
CHC LEASE PARTNERS
By: CHC Reit Lessee Corp., its general partner
By: _______________________________
Name:
Title:
By: Gencom Lessee, L.P., its general partner
By: Gencom Hospitality Company, L.L.C., its
general partner
By: _______________________________
Karim Alibhai
President
- 54 -
<PAGE>
JHD GUARANTOR INC.
By: _______________________________
John H. Daniels
President
JHD VI ASSOCIATES
By: JHD VI Inc., its general partner
By: _______________________________
John H. Daniels
President
- 55 -
<PAGE>
GSM GUARANTOR INC.
By: _______________________________
Saundra Mann
President
GSM VI INC.
By: _______________________________
Saundra Mann
President
- 56 -
<PAGE>
_______________________________
WALKER G. HARMAN
_______________________________
REX E. STEWART
_______________________________
WALTER ROEBUCK
_______________________________
WILLIAM REYNOLDS
57
<PAGE>
Exhibit 10.1(1)
Patriot American Hospitality Partnership, L.P.
First Amendment to
First Amended and Restated
Agreement of Limited Partnership
This First Amendment is made as of March 5, 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 (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 Persons listed on Schedule A attached hereto (the
----------
"Contributors") have made the Capital Contributions to the Partnership
enumerated on such Schedule in connection with that Agreement of Purchase and
Sale between PAH Acquisition Corporation and Buckhead Hospitality, J.V. dated
January 31, 1996; and
WHEREAS, the General Partner desires to accept such Capital Contributions
and, to the extent such Contributors are not original Limited Partners, to admit
the Contributors to the Partnership as Additional Limited Partners.
NOW THEREFORE, the General Partner has undertaken to take certain actions
as follows:
Section 1. Admission of Additional Limited Partners.
----------------------------------------
(a) Each of the Contributors have made the Capital Contributions set forth
on Schedule A. The General Partner hereby accepts such Capital Contributions. In
----------
consideration of these Capital Contributions and pursuant to Section 4.02(a)(i)
of the Partnership Agreement, the General Partner hereby admits each Contributor
who is not an Original Limited Partner as an Additional Limited Partner of the
Partnership.
(b) The admission of each Contributor who is not an Original Limited
Partner as an Additional Limited Partner shall become effective as of the date
of this First Amendment, which will also be the date upon which the names of
such Contributors are 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 each of the
Contributors the number of Partnership Units set forth next to such
Contributor's name on Schedule A.
----------
<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.
[Remainder of Page Intentionally Left Blank]
2
<PAGE>
IN WITNESS WHEREOF, the General Partner has executed this First Amendment
as of the date first written above.
GENERAL PARTNER
PAH GP, INC.
--------------------------------------
By: Paul A. Nussbaum
Its: Chairman of the Board and
Chief Executive Officer
3
<PAGE>
EXHIBIT 10.1(2)
Patriot American Hospitality Partnership, L.P.
Second Amendment to First Amended
and Restated Agreement of Limited Partnership
This Second Amendment is made as of March 27, 1996 by PAH GP, Inc., a
Virginia corporation, as general partner (the "General Partner") of Patriot
American Hospitality Partnership, L.P., a Virginia partnership (the
"Partnership") and as attorney-in-fact for each of the limited partners of the
Partnership (collectively, the "Limited Partners") for the purpose of amending
the First Amended and Restated Agreement of Limited 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 General Partner desires to amend the Partnership Agreement to
clarify the holding period for Partnership Units to be issued to Additional
Limited Partners contained in Section 8.05 and to clarify the registration
provisions contained in Section 8.06; and
WHEREAS, the General Partner has determined that such amendment is not
adverse to the Limited Partners.
NOW, THEREFORE, in consideration of the mutual covenants herein contained,
and other good and valuable consideration, the receipt and sufficiency of which
is hereby acknowledged, the parties hereto agree as follows:
1. The first sentence of Section 8.05(a) of the Partnership Agreement is
amended to read as follows:
"Subject to Sections 8.05(b), 8.05(c), 8.05(d), 8.05(e) and 8.05(f), each
Limited Partner, other than PAH LP, shall have the right (the "Redemption
Right"), on or after the first anniversary of the date on which he acquires
Partnership Units (or such later or earlier date as shall be determined in the
sole and absolute discretion of the General Partner at the time of the issuance
of the Partnership Units), to require the Partnership to redeem on a Specified
Redemption Date all or a portion of the Partnership Units held by such Limited
Partner at a redemption price equal to and in a form of the Cash Amount to be
paid by the Partnership."
2. Section 8.06 of the Partnership Agreement is amended to read as
follows:
"(a) Payment of REIT Shares Amount. In the event that the General
-----------------------------
Partner or the Company elects to acquire from a Redeeming Partner Partnership
Units issued to such Redeeming Partner prior to March 27, 1996 (the "Registrable
Units") by paying to such Partner the REIT Shares Amount, such shares will be
issued pursuant to an effective registration statement under the Securities Act.
<PAGE>
(b) Shelf Registration of the Common Stock. Prior to or on the first
--------------------------------------
date upon which the Registrable Units owned by any Limited Partner may be
redeemed (or such other date as may be required under applicable provisions of
the Securities Act), the Company agrees to file with the Securities and Exchange
Commission (the "Commission"), a shelf registration statement on Form S-3 under
Rule 415 of the Securities Act (a "Registration Statement"), or any similar rule
that may be adopted by the Commission, with respect to all of the shares of
Common Stock that may be issued upon redemption of such Registrable Units
pursuant to Section 8.05 hereof ("Redemption Shares"). The Company will use its
best efforts to have the Registration Statement declared effective under the
Securities Act. The Company need not file a separate Registration Statement, but
may file one Registration Statement covering Redemption Shares issuable to more
than one Limited Partner. The Company further agrees to supplement or make
amendments to each Registration Statement, if required by the rules, regulations
or instructions applicable to the registration form utilized by the Company or
by the Securities Act or rules and regulations thereunder for such Registration
Statement.
(c) Listing on Securities Exchange. If the Company shall list or
------------------------------
maintain the listing of any shares of Common Stock on any securities exchange or
national market system, it will, at its expense and as necessary to permit the
registration and sale of the Redemption Shares hereunder, list thereon, maintain
and, when necessary, increase such listing to include such Redemption Shares."
2. Except as specifically amended hereby, the Partnership Agreement shall
remain in full force and effect in all other respects.
[Remainder of Page Intentionally Left Blank]
1
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Amendment to be executed
as of the day and year first written above.
GENERAL PARTNER
PAH GP, INC.
/s/ Paul A. Nussbaum
----------------------------
By: Paul A. Nussbaum
Its: Chief Executive Officer
LIMITED PARTNERS
By: PAH GP, INC., as attorney-in-fact for each
of the Limited Partners
/s/ Paul A. Nussbaum
----------------------------
By: Paul A. Nussbaum
Its: Chief Executive Officer
2
<PAGE>
EXHIBIT 10.1(3)
Patriot American Hospitality Partnership, L.P.
Third Amendment to
First Amended and Restated
Agreement of Limited Partnership
This Third Amendment is made as of April 1, 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 Persons listed on Schedule A attached hereto (the
----------
"Contributors") have made the Capital Contributions to the Partnership
enumerated on such Schedule; and
WHEREAS, the General Partner desires to accept such Capital Contributions
and to admit the Contributors to the Partnership as Additional Limited Partners.
NOW THEREFORE, the General Partner has undertaken to take certain actions
as follows:
Section 1. Admission of Additional Limited Partners.
----------------------------------------
(a) Each of the Contributors have made the Capital Contributions set forth
on Schedule A. The General Partner hereby accepts such Capital Contributions. In
----------
consideration of these Capital Contributions and pursuant to Section 4.02(a)(i)
of the Partnership Agreement, the General Partner hereby admits each Contributor
as an Additional Limited Partner of the Partnership.
(b) The admission of each Contributor as an Additional Limited Partner
shall become effective as of the date of this Second Amendment, which will also
be the date upon which the names of such Contributors are 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 each of the
Contributors the number of Partnership Units set forth next to such
Contributor's name on Schedule A.
----------
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.
<PAGE>
IN WITNESS WHEREOF, the General Partner has executed this First Amendment
as of the date first written above.
GENERAL PARTNER
PAH GP, INC.
--------------------------------
By: Thomas W. Lattin
2
<PAGE>
EXHIBIT 10.1(4)
Patriot American Hospitality Partnership, L.P.
Fourth Amendment to
First Amended and Restated
Agreement of Limited Partnership
This Fourth Amendment is made as of May 15, 1996 by PAH GP, Inc., a
Virginia corporation, as general partner (the "General Partner") of Patriot
American Hospitality Partnership, L.P., a Virginia limited partnership (the
"Partnership"), and as attorney-in-fact for each of the limited partners of the
Partnership (collectively, the "Limited Partners") 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 General Partner desires to create a class of Preferred
Limited Partner Units of the Partnership;
WHEREAS, the General Partner has determined that such amendment is not
adverse to the Limited Partners;
WHEREAS, the Persons listed on Exhibit A attached hereto (the
---------
"Contributors") have made the Capital Contributions to the Partnership
enumerated on such Exhibit; and
WHEREAS, the General Partner desires to accept such Capital Contributions
and to admit the Contributors to the Partnership as Additional Limited Partners.
NOW, THEREFORE, the General Partner undertakes to implement the following
amendments to the Partnership Agreement pursuant to the authority granted to the
General Partner under Section 4.02(a) of the Partnership Agreement:
Section 1. Amendment to text of Partnership Agreement.
------------------------------------------
Article I, Defined Terms is amended to add the following definitions of
"Preferred Unit" and "Preferred Unitholder" and to replace the current
definitions of "Partnership Unit" and "Percentage Interest" with the definitions
of those terms described below. All other terms defined in Article I shall
remain in full force and effect.
"Partnership Unit" means a fractional, undivided share of the Partnership
Interests of all Partners issued hereunder (and includes any Preferred Units).
The allocation of Partnership Units among the Partners shall be as set forth on
Exhibit A, as may be amended from time to time.
- ---------
<PAGE>
"Percentage Interest" means the percentage ownership interest in the
Partnership of each Partner, as determined by dividing the Partnership Units
owned by a Partner (including any outstanding Preferred Units) by the total
number of Partnership Units outstanding (including any outstanding Preferred
Units). The Percentage Interest of each Partner shall be as set forth on Exhibit
-------
A, as may be amended from time to time. For purposes of applying Section
- -
5.02(a), a Partner's Percentage Interest shall be calculated with the
modifications provided in section 5.02(a)(2).
"Preferred Unit" means a limited partnership interest represented by
fractional, undivided share of the Partnership Interests of all Partners issued
hereunder which has the rights, preferences and other privileges designated
herein. The allocation of Preferred Units among the Partners shall be set forth
on Exhibit A, as may be amended from time to time.
---------
"Preferred Unitholder" means a limited partner that holds Preferred Units.
Article IV shall be amended to add paragraph (d) to section 4.02, as follows:
4.02 Additional Capital Contributions and Issuances of Additional
------------------------------------------------------------
Partnership Interests.
- ---------------------
(d) Exchange of Preferred Units.
---------------------------
(i) In the event the General Partner or the Company acquires
Preferred Units from the Preferred Unitholders (in exchange for cash
or REIT Shares), the Partnership shall, as soon as practicable
thereafter, exchange each Preferred Unit held by the General Partner
or the Company for such number of Partnership Units which are not
designated as Preferred Units, as determined by the Conversion
Factor then in effect.
(ii) In the event the Company qualifies under the Department of
Labor regulations as a "real estate operating company" or a "venture
capital operating company" and has the authority to issue preferred
capital stock having the same designations, preferences and other
rights as the Preferred Units, all such that the economic interests
of the preferred stock are substantially similar to those of the
Preferred Units, in the sole and absolute discretion of the Company,
each Preferred Unit will be immediately converted into one share of
preferred stock having the same designating preferences and other
rights as the Preferred Units. Notwithstanding the foregoing, as a
condition to such conversion the Company shall deliver to each
Preferred Unitholder who so requests a legal opinion, in form and
substance reasonably satisfactory to the Preferred Unitholder, as to
the Company's qualification as a "real estate operating company" or
a "venture capital operating company."
1
<PAGE>
Article V is amended as follows:
Section 5.02(a) of the current Agreement is deleted and replaced with the
following:
5.02 Operating Distributions.
-----------------------
(a) Except as otherwise provided in Section 5.06, cash available for
distribution by the Partnership shall be distributed as follows:
(1) First, if there are any Preferred Units outstanding on any
record date for payment of a dividend on the REIT Shares, the
General Partner shall distribute to the Preferred
Unitholder(s) of record on such date (concurrently with the
payment of such REIT Share dividend) an amount with respect to
each such Preferred Unit equal to the Preferred Distribution
Amount.
(2) Second, the General Partner shall distribute any remaining
cash available for distribution on a quarterly (or, at the
election of the General Partner, more frequent) basis, in an
amount determined by the General Partner in its sole
discretion, to the Partners who are Partners on the
Partnership Record Date for such quarter (or other
distribution period) in accordance with their respective
Percentage Interests on the Partnership Record Date. For
purposes of this Section 5.02(a)(2), Percentage Interests
shall not include any Preferred Units.
A new Section 5.08 is added to the end of Article V of the Agreement as
follows:
5.08 Additional Distributions Provisions and Definitions Relating to
---------------------------------------------------------------
Preferred Units.
---------------
Notwithstanding any other provision to the contrary in this
Agreement, as long as there remain any Preferred Units outstanding, the
following additional distribution provisions and definitions shall apply.
(a) "Preferred Distribution Amount" shall mean, for any quarter or other
period with respect to which a REIT Share dividend is paid and a
distribution is required to be made pursuant to Section 5.02(a)(1),
an amount equal to the sum of the following: (i) such amount that if
it were the sole amount distributed on a Preferred Unit pursuant to
Section 5.02(a)(1) for such quarter or other period would provide
the Preferred Unitholder with a distribution on such Preferred Unit
equal to 103% of the corresponding REIT Share dividend to be paid
for such quarter or other period plus (ii) the UBTI Adjuster, if
any, required to be paid during such quarter or other period
pursuant to Section 5.08(b).
2
<PAGE>
Notwithstanding the foregoing, the aggregate Preferred Distribution
Amount with respect to any Preferred Unitholder shall not exceed the
Preferred Unitholder's Capital Account balance (after reducing such
balance to reflect the items described in Regulations section
1.704-1(b)(ii)(2)(d)(4), (5) and (6) and after increasing such
Capital Account balance to reflect such Preferred Unitholder's
shares of Partnership Minimum Gain and Partner Nonrecourse Debt
Minimum Gain), determined as of the date of the relevant
distribution.
(b) "UBTI Adjuster." If, for any fiscal year of the Partnership, the
amount of a Preferred Unitholder's distributive share of UBTI
exceeds 20% of the aggregate amount of income and gain allocated to
such Preferred Unitholder for the fiscal year, (any such excess
referred to as the "Excess UBTI" for such fiscal year) the Preferred
Unitholder shall be entitled to an additional distribution from the
Partnership (each such distribution a "UBTI Adjuster") on account of
such Excess UBTI equal to the product of (i) the Excess UBTI
multiplied by (ii) the Applicable Rate; provided, however, that in
the case of any fiscal year beginning on or after January 1, 1999, a
Preferred Unitholder shall be entitled to receive a UBTI Adjuster
only for the Excess UBTI that arises in the first fiscal year
beginning after January 1, 1999 for which the Preferred Unitholder
has Excess UBTI, and such Preferred Unitholder shall not be entitled
to a UBTI Adjuster for Excess UBTI in any other fiscal year
beginning on or after January 1, 1999. The "Applicable Rate" means
the marginal federal income tax rate applicable to UBTI of the
Preferred Unitholder for the fiscal year during which the
corresponding Excess UBTI arises with respect to such Excess UBTI,
assuming for this purpose that the Preferred Unitholder has no UBTI
from any source other than the Partnership and taking into account
the character of such income. "UBTI" for a fiscal year means
"unrelated business taxable income" within the meaning of section
512(a)(1) of the Code, as determined in accordance with the
"Schedule K-1" of the Preferred Unitholder for such fiscal year;
provided, however, that for purposes of determining Excess UBTI and
the amount of any UBTI Adjuster, it shall be assumed
(notwithstanding any determination to the contrary or the fact that
a greater amount of UBTI may appear on the Schedule K-1) that the
Partnership and its subsidiary partnerships as of the date hereof
meet the requirements of section 514(c)(9)(B)(vi)(III) of the Code,
unless the failure to satisfy such requirements results from
amendments made to the partnership agreement of the Partnership or
any such subsidiary partnership without the consent of the Preferred
Unitholders subsequent to the issuance of the Preferred Units. Any
UBTI Adjuster required to be paid as a result of Excess UBTI for a
fiscal year shall be distributed concurrently with the Partnership
distribution immediately following the Preferred Unitholder's
receipt of the Schedule K-1 for the fiscal year in which the Excess
UBTI arises and shall be included in the computation of the
Preferred Distribution Amount for the quarter or other distribution
period for which such distribution is made.
3
<PAGE>
Article VI shall be amended by replacing section 6.10 with the following:
6.10 Miscellaneous. In the event the Company redeems any REIT Shares or
-------------
securities convertible into or redeemable or exchangeable for REIT Shares, then
the General Partner shall cause the Partnership to purchase from the General
Partner and PAH LP a number of Partnership Units as determined based on the
application of the Conversion Factor on the same terms that the Company redeemed
such securities. Moreover, if the Company makes a cash tender offer or other
offer to acquire REIT Shares or securities convertible into or redeemable or
exchangeable for REIT Shares, then the General Partner shall cause the
Partnership to make a corresponding offer to the General Partner and PAH LP to
acquire an equal number of Partnership Units held by the General Partner and PAH
LP. In the event any REIT Shares or securities convertible into or redeemable or
exchangeable for REIT Shares are redeemed by the Company pursuant to such offer,
the Partnership shall redeem an equivalent number of the General Partner's and
PAH LP's Partnership Units for an equivalent purchase price based on the
application of the Conversion Factor.
Article VIII is amended to include section 8.05(g), as follows:
8.05 Redemption Right.
----------------
(g) Notwithstanding any other provision of this Agreement, the
holders of Preferred Units shall not have the Redemption Right specified in
section 8.05.
Article IX is amended by replacing section 9.02(a) with the following:
(a) Subject to the provisions of 9.02(b), (c) and (d), a Limited
Partner may offer, sell, assign, hypothecate, pledge or otherwise transfer all
or any portion of his Limited Partnership Interest or any of such Limited
Partner's economic rights as a Limited Partner, whether voluntarily or by
operation of law or at judicial sale or otherwise (collectively, a "Transfer")
with or without the consent of the General Partner; provided however that upon
--------
Transfer of any Preferred Units, the holder thereof shall not be entitled to the
additional UBTI Adjuster distribution as set forth in Section 5.08(b). Any
assignee or transferee of a Limited Partnership Interest pursuant to this
Section 9.02(a) may only become a substitute Limited Partner pursuant to Section
9.03 hereof. The General Partner may require as a condition of any Transfer,
that the transferor assume all costs incurred by the Partnership in connection
therewith.
Article XI shall be amended to add paragraph (e) and section 11.02 as follows:
(e) Notwithstanding anything to the contrary contained herein, in the
event that (i) the Company or any of its corporate subsidiaries engages in any
merger, consolidation or
4
<PAGE>
other combination with or into another Person in which securities of the Company
are being issued, acquired, converted or exchanged, (ii) the Company engages in
the sale of all or substantially all of its assets, or (iii) the Company engages
in a reclassification, recapitalization or change in the outstanding shares of
its stock (other than a change in par value or from par value to no par value,
or as a result of a subdivision or combination as described in the definition of
Conversion Factor) which results in the holders of REIT Shares receiving cash,
securities or other property (any of the events listed in clauses (i), (ii) or
(iii) hereinafter referred to as a "Transaction"), the General Partner (or its
successor or transferee) may amend the provisions of this Agreement (including,
without limitation, the definition of Conversion Factor) in any respect in
connection with such Transaction (regardless of whether the amendment alters or
changes the distributions to a Limited Partner or a Limited Partner's Redemption
Rights) without obtaining the consent of any Limited Partner; provided that
either (i) in connection with the Transaction, the Limited Partners are offered
the opportunity to receive for each Partnership Unit held by them an amount of
cash, securities, or other property equal to the product of the Conversion
Factor and the amount of cash, securities or other property, if any, paid to a
holder of one REIT Share as a result of the Transaction, or (ii) the Company or
its corporate subsidiary is the acquiror in such Transaction and the holders of
the REIT Shares of the Company are not receiving cash, securities, or other
property in such Transaction.
Section 11.02 shall be added as follows:
11.02 Voting Rights of Preferred Unitholders.
--------------------------------------
The holders of record of Preferred Units shall not be entitled to
vote on any matter on which Limited Partners are entitled to vote, or on any
other matters, provided that the holders of Preferred Units shall have the right
to vote as a separate class of Partnership Units on the following, each of which
shall require the consent of holders of record of Preferred Units representing
more than 50% of Preferred Units:
a) Any amendment that would adversely affect the rights of the
Preferred Unitholders to receive the distributions payable to
them hereunder;
b) Any amendment that would alter the Partnership's allocations
or Profit and Loss to the Preferred Unitholders; or
c) Any amendment that would impose on the Preferred Unitholders
any obligation to make additional Capital Contributions to the
Partnership.
Section 2. Admission of Additional Limited Partners.
----------------------------------------
(a) Each of the Contributors has made the Capital Contributions set forth
on Schedule A and has executed the Limited Partner Signature Page attached
----------
hereto. The General Partner hereby accepts such Capital Contributions. In
consideration of these Capital
5
<PAGE>
Contributions and pursuant to Section 4.02(a)(i) of the Partnership Agreement,
the General Partner hereby admits each Contributor as an Additional Limited
Partner of the Partnership.
(b) The admission of each Contributor as an Additional Limited Partner
shall become effective as of the date of this Fourth Amendment, which will also
be the date upon which the names of such Contributors are recorded on the books
and records of the Partnership.
Section 3. Issuance of Partnership Units. Pursuant to Section 4.02(a)(i)
-----------------------------
of the Partnership Agreement, the General Partner hereby issues to each of the
Contributors a certificate in substantially the form attached hereto as Exhibit
-------
B representing the number of Preferred Units set forth next to such
- -
Contributor's name on Exhibit A.
---------
Section 4. 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.
[End of Page]
6
<PAGE>
IN WITNESS WHEREOF, the General Partner has executed this Fourth Amendment
as of the date first written above.
GENERAL PARTNER
PAH GP, INC.
--------------------------------------
By: Thomas W. Lattin
LIMITED PARTNERS
By: PAH GP, Inc. as attorney-in-fact
for each of the Limited Partners
--------------------------------------
By: Thomas W. Lattin
7
<PAGE>
EXHIBIT 10.24
LEASE AGREEMENT
DATED AS OF JUNE 21, 1996
BETWEEN
PATRIOT AMERICAN HOSPITALITY PARTNERSHIP, L.P.
AS LESSOR
AND
DTR NORTH CANTON, INC.
AS LESSEE
Doubletree Hotel (formerly Ramada Hotel), Westminster, Colorado
<PAGE>
TABLE OF CONTENTS
-----------------
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..................................................... 17
3.1 Rent..................................................... 17
3.2 Confirmation of Percentage Rent.......................... 24
3.3 Additional Charges....................................... 25
3.4 No Set Off............................................... 26
3.5 Annual Budget............................................ 26
3.6 Books and Records........................................ 27
3.7 Performance Failures..................................... 27
3.8 Changes in Operations.................................... 29
3.9 Allocation of Revenues................................... 29
ARTICLE IV IMPOSITIONS.............................................. 29
4.1 Payment of Impositions................................... 29
4.2 Notice of Impositions.................................... 30
4.3 Adjustment of Impositions................................ 30
4.4 Utility Charges.......................................... 30
ARTICLE V NO TERMINATION, ABATEMENT................................ 31
5.1 No Termination, Abatement................................ 31
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........................................... 33
7.1 Condition of the Leased Property......................... 33
7.2 Use of the Leased Property............................... 33
ARTICLE VIII LEGAL REQUIREMENTS....................................... 35
8.1 Compliance with Legal and Insurance Requirements......... 35
8.2 Legal Requirement Covenants.............................. 35
8.3 Environmental Covenants.................................. 35
ARTICLE IX MAINTENANCE AND REPAIRS.................................. 38
9.1 Maintenance and Repair................................... 38
ARTICLE X ALTERATIONS.............................................. 39
10.1 Alterations.............................................. 39
i
<PAGE>
10.2 Salvage.................................................. 40
10.3 Lessor Alterations....................................... 40
ARTICLE XI LIENS.................................................... 40
11.1 Liens.................................................... 40
ARTICLE XII PERMITTED CONTESTS....................................... 41
12.1 Permitted Contests....................................... 41
ARTICLE XIII INSURANCE................................................ 42
13.1 General Insurance Requirements........................... 42
13.2 Replacement Cost......................................... 44
13.3 (Intentionally omitted).................................. 44
13.4 Waiver of Subrogation.................................... 44
13.5 Form Satisfactory, etc................................... 44
13.6 Increase in Limits....................................... 45
13.7 Blanket Policy........................................... 45
13.8 Separate Insurance....................................... 45
13.9 Reports On Insurance Claims.............................. 45
ARTICLE XIV DAMAGE AND RECONSTRUCTION................................ 46
14.1 Insurance Proceeds....................................... 46
14.2 Reconstruction in the Event of Damage or Destruction
Covered by Insurance..................................... 46
14.3 Reconstruction in the Event of Damage or Destruction Not
Covered by Insurance or When Insurance Proceeds are Not
Available................................................ 46
14.4 Lessee's Property and Business Interruption Insurance.... 48
14.5 Abatement of Rent........................................ 48
ARTICLE XV CONDEMNATION............................................. 48
15.1 Definitions.............................................. 48
15.2 Parties' Rights and Obligations.......................... 49
15.3 Total Taking............................................. 49
15.4 Allocation of Award...................................... 49
15.5 Partial Taking........................................... 49
15.6 Temporary Taking......................................... 50
ARTICLE XVI DEFAULTS................................................. 50
16.1 Events of Default........................................ 50
16.2 Remedies................................................. 52
16.3 Waiver................................................... 53
16.4 Application of Funds..................................... 53
ARTICLE XVII LESSOR'S RIGHT TO CURE................................... 53
17.1 Lessor's Right to Cure Lessee's Default.................. 53
ARTICLE XVIII REIT LIMITATIONS......................................... 54
18.1 Personal Property Limitation............................. 54
18.2 Sublease Rent Limitation................................. 54
18.3 Sublease Lessee Limitation............................... 54
ii
<PAGE>
18.4 Lessee Ownership Limitation.............................. 54
18.5 Director, Officer and Employee Limitation................ 55
ARTICLE XIX HOLDING OVER............................................. 55
19.1 Holding Over............................................. 55
ARTICLE XX INDEMNITIES.............................................. 56
20.1 Indemnification.......................................... 56
ARTICLE XXI SUBLETTING AND ASSIGNMENT................................ 57
21.1 Subletting and Assignment................................ 57
21.2 Attornment............................................... 59
21.3 Management Agreement..................................... 59
ARTICLE XXII ESTOPPEL CERTIFICATES.................................... 60
22.1 Officer's Certificates; Financial Statements; Lessor's
Estoppel Certificates and Covenants...................... 60
ARTICLE XXIII INSPECTIONS.............................................. 61
23.1 Regular Meetings; Lessor's Right to Inspect.............. 61
ARTICLE XXIV NO WAIVER................................................ 62
24.1 No Waiver................................................ 62
ARTICLE XXV CUMULATIVE REMEDIES...................................... 62
25.1 Remedies Cumulative...................................... 62
ARTICLE XXVI SURRENDER................................................ 62
26.1 Acceptance of Surrender.................................. 62
ARTICLE XXVII NO MERGER................................................ 62
27.1 No Merger of Title....................................... 62
ARTICLE XXVIII CONVEYANCE BY LESSOR..................................... 63
28.1 Conveyance by Lessor..................................... 63
28.2 Lessor May Grant Liens................................... 63
ARTICLE XXIX QUIET ENJOYMENT.......................................... 65
29.1 Quiet Enjoyment.......................................... 65
ARTICLE XXX NOTICES.................................................. 65
30.1 Notices.................................................. 65
ARTICLE XXXI APPRAISALS............................................... 66
31.1 Appraisers............................................... 66
ARTICLE XXXII (Intentionally deleted).................................. 66
ARTICLE XXXIII (Intentionally deleted).................................. 66
iii
<PAGE>
ARTICLE XXXIV MEMORANDUM OF LEASE...................................... 67
34.1 Memorandum of Lease...................................... 67
ARTICLE XXXV LESSEE CAPITALIZATION REQUIREMENTS....................... 67
35.1 Lessee's Net Worth....................................... 67
35.2 Lessee's Cash............................................ 68
35.3 Verification of Net Worth................................ 68
35.4 Change of Control........................................ 69
35.5 Other Business Activities................................ 69
35.6 Non-Competition.......................................... 69
ARTICLE XXXVI LESSOR'S OPTION TO TERMINATE............................. 70
36.1 Lessor's Option to Terminate Lease....................... 70
ARTICLE XXXVII FRANCHISE AGREEMENT, DOUBLETREE HOTEL
STANDARDS AND GROUND LEASES............................. 71
37.1 Compliance with Franchise Agreement, Doubletree Hotel
Standards and Ground Leases.............................. 71
ARTICLE XXXVIII CAPITAL EXPENDITURES,.................................... 73
38.1 Capital Expenditures..................................... 73
ARTICLE XXXIX LESSOR'S DEFAULT......................................... 74
39.1 Lessor's Default......................................... 74
ARTICLE XL ARBITRATION.............................................. 75
40.1 Arbitration.............................................. 75
40.2 Alternative Arbitration.................................. 75
40.3 Arbitration Procedures................................... 76
ARTICLE XLI TRADE-OUTS............................................... 76
ARTICLE XLII MISCELLANEOUS............................................ 77
42.1 Miscellaneous............................................ 77
42.2 Transition Procedures.................................... 77
42.3 Waiver of Presentment, etc............................... 78
42.4 Standard of Discretion................................... 78
42.5 Action for Damages....................................... 78
42.6 Conversion Costs......................................... 78
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
Exhibit E - Renovation Work
iv
<PAGE>
LEASE AGREEMENT
THIS LEASE AGREEMENT (hereinafter called "Lease"), made as of the 21st day
-----
of June, 1996, by and between PATRIOT AMERICAN HOSPITALITY PARTNERSHIP, L.P., a
Virginia limited partnership (hereinafter called "Lessor"), and DTR NORTH
------
CANTON, INC., an Arizona 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
---------------
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
(f) all existing leases of the Leased Property (including any security
deposits or collateral held by Lessor pursuant thereto).
1
<PAGE>
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. The term of this Lease (the "Term") shall commence, if at all, on
----
the date of Lessor's acquisition (the "Acquisition") of fee simple title to 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 by December 31, 1996, this Lease shall terminate
and be of no further force and effect.
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, Lessee
shall pay to Lessor in immediately available funds a sum equal to the amount of
all cash, working capital funds, bank accounts, house banks and similar accounts
existing at or with respect to the Leased Property as of the Commencement Date
and transferred to Lessor, and in consideration of such payment Lessee shall be
entitled to retain all such cash and other accounts for its own use.
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 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.
----------- -----------
2
<PAGE>
Actual 1996 Initial Base Rent: As defined in Section 3.1(a).
----------------------------- --------------
Additional Charges: As defined in Section 3.3.
------------------ -----------
Additional Fixed Rent: As defined in Section 3.1(d).
--------------------- --------------
Additional Land: That certain parcel of land located adjacent to the
----------------
Facility which is described on Exhibit A, Page A-2 and included in the Leased
-------------------
Property. Lessor shall have no obligation to acquire the Additional Land. In the
event Lessor does not acquire fee title to the Additional Land and the ground
lease for the Additional Land terminates, the Additional Land shall no longer be
a part of the Leased Property.
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.
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.
---------
Approval: As defined in Section 42.4.
-------- ------------
Approved Financial Institution: As defined in Section 35.2.
------------------------------ ------------
Award: As defined in Section 15.1(c).
----- ---------------
3
<PAGE>
<PAGE>
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.
------------------ -------------- ---------
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) nonalcoholic 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, 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(e).
---------- --------------
Capital Budget: As defined in Section 3.5.
-------------- -----------
Capital Expenditures: Amounts advanced to pay the costs of Capital
---------------------
Improvements.
Capital Expenditures Reserve: An amount equal to 4% of Gross Revenues for
------------------------------
each Lease Year, to be accrued 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,
4
<PAGE>
roads, sidewalks, public lighting fixtures, utility lines, storm sewers drainage
facilities, and similar improvements.
Capital Improvements: Subject to 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: As defined in Section 35.2.
---- ------------
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.
---------------- ------------
Condemnation, Condemnor: As defined in Section 15.1.
----------------------- ------------
Consolidated Financials: For any fiscal year or other accounting period for
-----------------------
Lessee and its consolidated Subsidiaries (and, if required by Section 35.3(b),
---------------
for Doubletree Hotels 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 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 a so-called "Big Six" firm of
independent certified public accountants. Consolidated Financials of Lessee
shall be prepared on the basis of a December 31 fiscal year, or on such other
basis as Lessor shall designate.
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.
5
<PAGE>
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).
Conversion Costs: Those costs and expenses incurred by Lessor to convert
-----------------
the Facility to a Doubletree Hotel.
Cumulative Monthly Portion: As defined in Section 3.1(c)(ii).
-------------------------- ------------------
Date of Taking: As defined in Section 15.1(b).
-------------- ---------------
Deferred Rent: As defined in Section 3.1(d).
------------- --------------
Doubletree Hotels: Doubletree Hotels Corporation, an Arizona corporation.
-----------------
Doubletree Standards: Nationwide standards established by Doubletree Hotels
--------------------
for hotels comparable to the Facility which utilize the Doubletree 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
Doubletree Standards as used in this Lease shall not 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
Doubletree 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 which would change a hotel from a three
(3) star hotel to a four (4) star hotel). The foregoing examples are
illustrations only of the types of changes the magnitude of which would
constitute an upgrade and are not necessarily intended to imply that any such
example defines the Facility.
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 (including, without limitation, those involving
Hazardous Materials) 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.
Environmental Laws: All applicable federal, state and local 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,
6
<PAGE>
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.
---------------- ------------
Excess Mortgage: A mortgage, deed to secure debt or similar lien against
----------------
the Leased Property (or any portion thereof) for which all of the following
conditions are met: (i) the Leased Property is the only real property collateral
for the loan secured by such mortgage, deed to secure debt or similar lien
instrument; (ii) the principal amount secured by such mortgage, deed to secure
debt or similar lien instrument (whether by itself or when added to the
outstanding balance of any outstanding superior mortgage, deed to secure debt or
similar lien instrument) exceeds seventy percent (70%) of the fair market value
of the Leased Property as determined as of the day on which Lessor grants such
mortgage, deed to secure debt or similar lien instrument; and (iii) neither
Lessor nor the Company has recourse liability (whether as borrower, guarantor or
otherwise) for the indebtedness secured by the mortgage, deed to secure debt or
similar lien instrument.
Existing Condition: As defined in Section 8.3(b).
------------------ --------------
7
<PAGE>
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).
---------------- -----------------
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 Factor: As defined in Section 3.1(e).
----------------- --------------
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, 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 nonalcoholic beverages.
Franchise Agreement: Any franchise agreement or license agreement with a
--------------------
franchisor under which the Facility is operated.
8
<PAGE>
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 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, or any political subdivision of any of the foregoing.
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 defined 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), 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 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 operation of 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.
9
<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), 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; excluding, however,
Real Estate Taxes and Personal Property Taxes which are to be paid by Lessor
pursuant to the terms of this Lease. 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
10
<PAGE>
imposed with respect to the sale, exchange or other disposition by Lessor of any
Leased Property or the proceeds thereof.
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 Nonconsumable Inventory: 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 "Inventories of Merchandise" and "Inventories of Supplies"
---------
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 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 or hereafter enacted and in force, including (a) all laws, rules
or regulations pertaining to the environment, occupational health and safety and
public health, safety or welfare, and (b) any laws, rules or regulations that
may (1) require repairs, modifications or alterations in or to the Leased
Property or (2) in any way adversely affect the use and enjoyment thereof; 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
11
<PAGE>
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.
Lessee: The Lessee designated on this Lease and its permitted successors
------
and assigns.
Lessee Indemnified Party: Lessee, any Affiliate of Lessee, 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 (excluding, for purposes of
calculating Rent, all interest and penalties thereon caused by the failure of
Lessor to timely pay such items) plus (b) the amount to be accrued 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.
-------------------- ------------
12
<PAGE>
Manager: As defined in Section 21.3.
------- ------------
Market Decline: As defined in Section 3.7(b).
-------------- --------------
Measurement Date: As defined in Section 3.1(e).
---------------- --------------
Migration: As defined in Section 8.3(b).
--------- --------------
Minimum Net Worth: As defined in Section 35.1.
----------------- ------------
Minimum Return: An amount, computed on an annual basis and after provision
--------------
for the payment of Lessor Obligations, equal to 10% of the Renovation Costs and
the Total Hotel Cost.
Monthly Revenues Computation: As defined in Section 3.1(c).
---------------------------- --------------
Mortgage: As defined in Section 28.2.
-------- ------------
Net Worth: As defined in Section 35.1.
--------- ------------
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 or an Affiliate of 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 an Affiliate of Lessee 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.
------------
13
<PAGE>
Percentage Rent: As defined in Section 3.1(c).
--------------- --------------
Performance Failure: A Revenue Performance Shortfall, a Market Decline or a
-------------------
Profit Decline.
Person: Any Government, natural person, corporation, partnership 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).
-------------- --------------
RCRA: The Resource Conservation and Recovery Act, as amended.
----
Real Estate Taxes: All real estate and other ad valorem taxes, including
-----------------
general and special assessments (including, without limitation, all assessments
for public improvements or benefits, whether or not commenced or completed prior
to the date hereof and whether or not completed within the Term), if any, which
are imposed upon the Land, the Leased Improvements, the Fixtures and Lessor's
and Lessee's estates in any easements, rights and appurtenances relating to the
Land and the Leased Improvements, in each case whether general or special,
ordinary or extraordinary, or foreseen or unforeseen, in every character
(including all interest and penalties thereon caused by any failure in payment
by Lessor). Real Estate Taxes shall also include all other taxes imposed in lieu
of real estate taxes as described in the preceding sentence. Real Estate Taxes
shall not include taxes on the property of Lessee or its tenants, licensees,
concessionaires, agents or contractors, including, without limitation, on
Inventory.
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.
14
<PAGE>
Renovation Costs: An amount equal to those costs and expenses incurred with
----------------
respect to the renovation work to be performed by or on behalf of Lessor and
preliminarily described on Exhibit E attached hereto. Such renovation work to be
---------
performed by or on behalf of Lessor shall not exceed $950,000.00 unless
otherwise agreed in writing by Lessor and Lessee. Exhibit E is a preliminary
---------
schedule of renovation work and shall be subject to final approval by Lessor and
Lessee.
Rent: Collectively, the Initial Base Rent, Fixed Base Rent, Percentage
----
Rent, and Additional Charges.
Revenue Audit: As defined in Section 3.2(b).
------------- --------------
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.
- ---------
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.
Subordination Period: As defined in Section 21.3.
-------------------- ------------
15
<PAGE>
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").
----------
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.
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.
Temporary Usage: As defined in Section 37.1(d).
--------------- ---------------
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 aggregate of all costs and expenses paid or accrued
----------------
by Lessor (i) in connection with the initial acquisition, leasing and financing
of the Facility, including, without limitation, the purchase price for the
Facility, 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, not to exceed
$12,500,000.00 in the aggregate, (ii) in connection with the acquisition of the
Additional Land of the type described in (i) above, (iii) for Capital
Expenditures which are funded from sources other than and in excess of the
Capital Expenditures Reserve and are made pursuant to Section 10.3(a), but not
---------------
pursuant to those described in the first sentence of Section 10.3 or Section
-----------------------
10.3(b) and (iv) in connection with converting the Facility to a Doubletree
- -------
Hotel.
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.
Unavoidable Occurrence: The occurrence of strikes, lockouts, labor unrest,
----------------------
inability to procure materials, power failure, acts of God, governmental
restrictions, enemy action, civil commotion, fire, casualty, condemnation or
other similar causes beyond the reasonable control of Lessee, provided, that any
such occurrence is an extraordinary (as opposed to a routine or
16
<PAGE>
cyclical) material event that was not reasonably foreseeable when the then
applicable Annual Budget was prepared.
Uneconomic for its Primary Intended Use: A state or condition of the
-------------------------------------------
Facility such that in the good faith judgment of Lessor, exercised reasonably,
the Facility cannot be reconstructed or repaired within a reasonable period of
time after the damage or loss, so as to be capable of being operated on a
commercially practicable basis for its Primary Intended Use.
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.
Units: As defined in Section 35.1.
----- ------------
Unsuitable for its Primary Intended Use: A state or condition of the
-------------------------------------------
Facility such that in the good faith judgment of Lessor, exercised reasonably,
the Facility cannot be reconstructed or repaired within a reasonable period of
time after the damage or loss, so as to be capable of functioning as an
integrated hotel facility consistent with standards applicable to a well
maintained and operated 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 Renovation Costs for the Initial Rent Period, plus
(y) the Total Hotel Cost as of December 31, 1996, times eight percent (8%).
17
<PAGE>
(iii) To the extent that the Actual 1996 Initial Base Rent
(herein so called) 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 all or a portion of such difference was not paid
as Percentage Rent, Lessee shall be entitled to a credit against the
next ensuing payments of Fixed Base Rent or Percentage Rent. 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 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 commencing January 1, 1997
(the "First Fixed Year") and for each Lease Year thereafter shall be
----------------
an amount equal to the sum of (a) Lessor Obligations for the First
Fixed Year, plus (b) an amount equal to the product of the sum of (x)
the Renovation Costs, plus (y) the Total Hotel Cost, times eight
percent (8%). The Fixed Base Rent for the First Fixed Year (Lease Year
1997) is herein called the "Initial Year Fixed Base Rent").
----------------------------
(ii) Estimates of Fixed Base Rent for the First Fixed Year 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 Actual 1997 Fixed Base Rent is more than the Fixed
Base Rent actually paid by Lessee to Lessor for the First Fixed Year,
and all or any portion of such additional rent 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 1997 Fixed Base Rent is less than the amounts actually paid in
respect to the Fixed Base Rent actually paid and all or any portion of
such difference was not paid as Percentage Rent, Lessee shall be
entitled to a credit against the next ensuing payments of Fixed Base
Rent or Percentage Rent. The adjustments, computations and payments,
if any, contemplated by this subparagraph 3.1(b)(ii) shall be made and
concluded on or before January 31, 1998.
(iii) 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 which such rent has accrued; provided,
however, that (a) Actual 1996 Initial Base Rent and Fixed Base Rent
shall be prorated on a per diem basis as to any Lease Year which is
less than twelve (12) months, (b) the first and last monthly payments
of Actual 1996 Initial Base Rent and Fixed Base Rent shall be prorated
on a per diem basis as to any partial month, and (c) payments of
Actual 1996 Initial Base Rent and 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.
18
<PAGE>
(iv) For purposes of calculating Initial Base Rent for 1996 and
Fixed Base Rent for 1997, (a) the parties shall assume a straight line
draw of the Renovation Costs over the renovation period in 1996 and
1997, as applicable, and (b) the eight (8%) return on Renovation Costs
determined pursuant to Sections 3.1(a)(ii)(b) and 3.1(b)(i)(b) shall
---------------------------------------
apply to Renovation Costs only during the portions of the applicable
year after which such Renovation Costs are deemed to be drawn, as
determined by (a) above.
(v) 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 (i) as set forth
in subparagraph (e) below and (ii) for Capital Expenditures which are
funded from sources other than and in excess of the Capital
Expenditures Reserve and are made pursuant to Section 10.3(a), but not
---------------
pursuant to those described in the first sentence of Section 10.3 or
---------------
Section 10.3(b).
---------------
(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 the case may be, paid by Lessee to
Lessor for the Lease Year to date
less
(3) An amount equal to the Additional Fixed Rent
paid by Lessee to Lessor for the Lease Year to date as
calculated pursuant to Section 3.1(d)
--------------
less
(4) 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:
19
<PAGE>
(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 (Lease
-----------------------------------------
Year 1996)," "First Tier Room Revenue Percentage (Lease
---------- -----------------------------------------
Years 1997-1999)," "First Tier Room Revenue Percentage
---------------- ----------------------------------
(Remainder of Term)," "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 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 First Tier Room Revenue
Percentage (Lease Year 1996) or First Tier Room Revenue
Percentage (Lease Years 1997 - 1999), or First Tier Room
Revenue Percentage (Remainder of Term), as the case may be,
of 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 Second Tier Room
Revenue Percentage of 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 Third Tier Room Revenue
Percentage of 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 First Tier Food Sales
Percentage of the Cumulative Monthly Portion of all year to
date Food Sales and Beverage Sales up
20
<PAGE>
to (but not exceeding) the Cumulative Monthly Portion of
the Annual Food Sales Break Point,
(5) an amount equal to the Second Tier Food Sales
Percentage of 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 Other Income Percentage
of 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 days in
the Lease Year divided by (B) 365, 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) Additional Fixed Rent. For the Subordination Period (as defined in
----------------------
Section 21.3), Lessee's total rent obligation shall equal at least the Minimum
- ------------
Return. During the Subordination Period, Lessee shall pay to Lessor as
Additional Fixed Rent (herein so called), Lessee's net cash flow from the Leased
Property after allowing for a two percent (2%) management fee only until Lessor
has received, through the payment of Initial Base Rent, Fixed Base Rent,
Percentage Rent and/or Additional Fixed Rent, the Minimum Return. Any shortfall
between the Minimum Return and the total rent paid to Lessor for the
Subordination Period ("Deferred Rent") shall accrue and shall be payable after
-------------
the payment of Initial Base Rent or Fixed Base Rent, and shall be deemed to have
been paid from time to time, to the extent of any annual Percentage Rent
otherwise payable before deducting such Deferred Rent pursuant to Section 3.1(c)
--------------
during the remaining Term of this Lease. In any event, any outstanding balance
of Deferred Rent shall be paid upon the termination of this Lease.
(e) 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. 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. 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,
21
<PAGE>
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
less
An amount equal to the Additional Fixed Rent paid by Lessee to Lessor
for the applicable Lease Year as calculated pursuant to Section 3.1(d)
--------------
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 (Lease Year 1996) or First Tier Room Revenue
Percentage (Lease Years 1997 - 1999), or First Tier Room
Revenue Percentage (Remainder of Term), as the case may be,
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,
(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.
22
<PAGE>
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 at the time 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.
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 January 1, 1998, 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 (1) the prior year's
Fixed Base Rent, plus (2) the product of (aa) an amount
equal to (x) the prior year's Fixed Base Rent multiplied by
the CPI Factor, less (y) the prior year's Fixed Base Rent
times (bb) the Fixed Rent 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.
(3) The term "Fixed Rent Factor" shall mean a
percentage computed by dividing the actual Lessor
Impositions plus the Lessor Insurance Costs for the First
Fixed Year by the Actual 1997 Fixed Base Rent.
(4) For example, if the prior year's Fixed Base
Rent was $500,000.00, the CPI Factor was 1.03 and the Fixed
Rent Factor is .20, then the Fixed Base Rent for the Lease
Year in question would be $503,000.00: $500,000 + [($500,000
X 1.03 - $500,000) X .2].
(ii) For each Lease Year during the Term commencing January 1,
1998, 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 shall be increased as follows:
(1) The new Annual Room Revenues Break Points in the Revenues
Computation described above for the Lease Year commencing January 1, 1998, 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; and -----
23
<PAGE>
(2) The new Annual Food Sales Break Point in the Revenues
Computation described above for the Lease Year commencing January 1, 1998, 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.
- -----
(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 (e).
(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 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. Lessor shall provide Lessee with a copy of
any such audits. If any Lessor's Audit discloses a deficiency in the
24
<PAGE>
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 1%, 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 3%, 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 20% of such deficiency. In the event the Revenue Audit
discloses an overpayment by Lessee, 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. 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 applicable laws, regulations and
government requirements.
(d) The obligations of Lessee and Lessor 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) all other amounts, liabilities, obligations
and Impositions that Lessee assumes or agrees to pay under this Lease, and (b)
in the event of any failure on the part of Lessee to pay any of those items
referred to in clause (a) 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)
and (b) 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
25
<PAGE>
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, (ii) in the event Lessee has failed to pay the amount of such
installment, within ten (10) days after receipt by the Lessee of Notice from
Lessor, provided that after Lessor has given one (1) such Notice in a Lease
Year, the ten (10) days' Notice and cure period shall not be required for the
remainder of such Lease Year, 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. 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, together with
the assumptions, in narrative form, forming the basis of such schedules.
(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) 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.
(e) Lessee's reasonable estimate for each month of the Lease Year of
Percentage Rent, including Room Revenues, Food Sales, Beverage Sales and Other
Income.
26
<PAGE>
Lessor shall have thirty (30) days after the date on which it receives
the Annual Budget to review, approve, disapprove or change the entries and
information appearing in 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(e) 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 this Section
-------
3.5 with respect to Capital Expenditures and the Capital Budget, 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 with
-----------
respect to Capital Expenditures and the Capital Budget.
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 Phoenix, Arizona, Cincinnati,
Ohio, or such other locations in the continental United States of America where
accounting services are performed by Lessee or on Lessee's behalf and shall be
available to Lessor and its representatives and its auditors or accountants, at
all reasonable times 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 Lessor and shall not be removed from the Facility
or Lessee's offices without Lessor's prior written approval. Lessee shall be
entitled to make copies 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, commencing
with the Lease Year beginning January 1, 1998, the RevPAR Yield Index of the
Leased Property as of
27
<PAGE>
the end of such Lease Year shall have declined by more than fifteen (15)
percentage points from the Leased Property's RevPAR Yield Index at the beginning
of the Term, such decline shall constitute a Market Decline (herein so called)
under this Lease except to the extent such failure is caused by an Unavoidable
Occurrence. 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.
(b) If, with respect to any Lease Year during the Term, commencing
with the Lease Year beginning January 1, 1998, the ratio of Gross Operating
Profit to Gross Revenues is less than twenty percent (20%), such event shall
constitute a Profit Decline (herein so called) under this Lease, provided,
however, the foregoing shall not constitute a Profit Decline to the extent (and
only to the extent) that the decline results from an Unavoidable Occurrence,
generally prevailing market conditions (including those affecting the hotel
industry generally) which affect hotels of comparable quality and service to
that of the Facility which are located within five (5) miles of the Facility, or
major renovations which materially reduce the availability of rooms at the
Facility. 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.
- ------------
(c) Upon the occurrence of a Performance Failure, 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 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.
28
<PAGE>
3.8 Changes in Operations. Without Lessor's prior written consent, Lessee
---------------------
shall not (i) provide food and/or beverage operations at the Facility if not
presently provided, (ii) discontinue any food and/or beverage operations which
are presently provided, or (iii) convert a subtenant, licensee or concessionaire
to an operating department of the Facility or vice-versa.
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
shall be paid by Lessor before any fine, penalty, interest or cost may be added
for non-payment), before any fine, penalty, interest or cost may be added for
nonpayment, 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. 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 which is the obligation of Lessee 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
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. -------
- ---
29
<PAGE>
(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. Lessee shall file all Personal
Property Tax returns in such jurisdictions where it is legally required to so
file. 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. 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 for reimbursement of Personal Property Taxes by
Lessee to Lessor 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 operation of the Leased Property during the Term.
30
<PAGE>
ARTICLE V
NO TERMINATION, ABATEMENT
5.1 No Termination, Abatement. Except as otherwise specifically provided in
-------------------------
this Lease, 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, nor shall the obligations of Lessee 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. 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 including by reason of an Event of Default; provided,
however, nothing in this Section 5.1 shall preclude Lessor or Lessee from
-----------
enforcing its remedies pursuant to Section 16.2 or Article XXXIX, respectively.
------------ -------------
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, (i) Lessee shall purchase from
Lessor all Consumable Supplies at the Facility for their fair market value, and
(ii) Lessor shall transfer to Lessee all Nonconsumable Inventory located at the
Facility on the Commencement Date (the "Initial Nonconsumable Inventory"). At
-------------------------------
all times during the Term, Lessee shall maintain Inventory consistent with the
amount of inventory which is customarily maintained in a hotel of the type and
character of the Facility and is otherwise required to operate the Leased
Property in the manner contemplated by this Lease and in compliance with the
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
31
<PAGE>
(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 set forth on such list 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 equal to the Initial Nonconsumable Inventory,
plus the value of any additional Nonconsumable Inventory that Lessee shall
obtain from Lessor subsequent to the date of this Lease, which Nonconsumable
Inventory shall be free and clear of all liens except those created by Lessor.
Consumable Supplies shall be purchased by and shall be the property of Lessee
and Lessee shall have no obligation to surrender such Consumable Supplies to
Lessor upon the expiration or earlier termination of the Term.
(c) Lessor and Lessee agree that, for federal income tax purposes, the
transfer of the Initial Nonconsumable Inventory from Lessor to Lessee upon
commencement of the Term shall be treated as a sale of the Initial Nonconsumable
Inventory 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 which finances Doubletree Hotels Corporation with
a lien on 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. 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. Lessor shall waive its
lien on Lessee's Personal Property to the extent such lien violates a negative
covenant to any non-Affiliate lender of Lessee or of Doubletree Hotels
Corporation.
32
<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. Except as otherwise specifically
provided herein, 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. 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 will 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.
Lessor agrees to use its reasonable efforts to cooperate with Lessee in Lessee's
obtaining and maintaining such permits, licenses and approvals.
(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
33
<PAGE>
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 the Franchise Agreement, (3) not terminate or amend in any respect
the 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) Subject to Lessor's obligations hereunder with respect to Capital
Improvements and Capital Expenditures and to the last sentence of Section
-------
38.1(b), 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.
(f) 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
(subject to Lessor's obligations with respect to Capital Improvements and
Capital Expenditures and to the last sentence of Section 38.1(b)) and all
---------------
collective bargaining and other agreements applicable to such employees. Upon
the expiration or earlier termination of this Lease, 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 or other rights to such employees, all without liability to Lessor or
the Hotel, or any other owner, lessee or manager of the Hotel. 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,
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 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 or earlier termination of this Lease, any
owner, manager or lessee of the Hotel shall have the right, but not the
obligation, to extend offers of employment to some or all of such employees on
such terms and conditions as are determined solely in such party's discretion.
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. Lessee shall indemnify, defend and
hold harmless Lessor, the Hotel, and any other owner, lessee or manager of the
Hotel, 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
34
<PAGE>
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.
ARTICLE VIII
LEGAL REQUIREMENTS
8.1 Compliance with Legal and Insurance Requirements. Subject to Sections
------------------------------------------------- --------
8.2 and 8.3 and Article XII relating to permitted contests and Lessor's
- ----------- -----------
obligations with respect to Capital Improvements and Capital Expenditures and to
the last sentence of Section 38.1(b), 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 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 to all
Legal Requirements, unless the same are finally determined by a court of
competent jurisdiction to be unlawful (and Lessee shall 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 of which Lessee has been notified in
writing or of which an executive officer of Lessee and/or the property manager
of the Facility is aware; (2) all pending or overtly threatened 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
been notified in writing or of which an executive officer of Lessee and/or the
property manager of the Facility is aware; (3) all Releases of which Lessee has
been notified in writing or of which an executive officer of Lessee and/or the
property manager of the Facility is aware, in amounts required to be reported or
remediated under Environmental Laws at, on, in, under or in any way affecting
the Leased Property, or any Release at, on, in or under any property adjacent to
the Leased Property of which Lessee has been notified in writing or of
35
<PAGE>
which an executive officer of Lessee and/or the property manager of the Facility
is aware; and (4) all facts, events or conditions of which Lessee has been
notified in writing or of which an executive officer of Lessee and/or the
property manager of the Facility is aware, which notice indicates or which
executive officer or property manager is aware 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 WHICH ARISE OR ACCRUE DURING THE PERIOD BETWEEN THE
COMMENCEMENT DATE AND THE DATE LESSEE COMPLETELY VACATES THE LEASED PROPERTY,
except to the extent that the same (i) are caused by the intentionally wrongful
or grossly negligent acts of Lessor Indemnified Parties or grossly negligent
failures to act of Lessor, or (ii) result from 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 property other than the
Leased Property but affecting the Leased Property (a "Migration"), or (iii)
---------
Lessor fails to make funds available to remediate an Existing Condition or
Migration if and as required below, provided that such exclusions shall not
apply to the extent that an Existing Condition or Migration has been exacerbated
by Lessee's wrongful or negligent acts, or by Lessee's wrongful or negligent
failures to act if and only if Lessee is obligated to act pursuant to the
following sentence. Lessee shall respond to an Emergency Situation relating to
such Existing Condition or Migration in a manner that would be expected of a
prudent lessee under similar circumstances. With respect to non-Emergency
Situations, Lessee may require Lessor to perform any mitigation or remediations
to the extent such remediation or mitigation requires the expenditure of Capital
Expenditures and to the extent Lessee is not otherwise liable for the payment of
such Capital Expenditures under this Section 8.3(b). Notwithstanding the
--------------
provisions of Section 38.1(b) hereof, as to expenditures required to mitigate or
---------------
remediate Existing Conditions or Migrations which constitute Capital
Expenditures (other than Capital Expenditures for which Lessee is liable under
this Section 8.3), Lessor shall pay for such Capital Expenditures without
-----------
affecting Lessor's obligations to make available funds in or to continue to
accrue the Capital Expenditures Reserve; however, to the extent (but only to the
extent) that it will not materially and adversely affect the five (5) year
Capital Budgets, Lessor shall receive a pro rata credit for such Capital
Expenditures against amounts which Lessor is obligated to accrue for the Capital
Expenditures Reserve. Any dispute regarding the effect of such Capital
Expenditures on the five (5) year Capital Budget and any credit therefor against
accruals under the Capital Expenditures Reserve may be resolved by arbitration
pursuant to Section 40.2. Lessee shall not be deemed to have acted or failed to
------------
have acted wrongfully or negligently if any such action it takes or fails to
take is taken or not taken in accordance with the written advice of a licensed
professional environmental engineer Approved in writing by Lessor, or such
action (or inaction) is Approved in writing by Lessor.
(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 to the extent
(but only to the extent) that the same were caused by or exacerbated by Lessor's
failure to make funds available to remediate an Existing Condition or Migration
if and as required above after Notice to Lessor that such remediation is
required.
36
<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 Lessee 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
37
<PAGE>
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 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 to make Capital
Expenditures available for Capital Improvements as set forth in Article XXXVIII,
---------------
unless caused by Lessee's negligence or willful misconduct or that of its
employees, contractor or agents (but subject to Section 13.4), Lessor shall be
------------
required to make all Capital Expenditures. 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.
Lessee
38
<PAGE>
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.
(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 and any
ground lessor(s) 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 during the entire Term) or damage by
--------------
casualty or Condemnation (subject to the terms of Articles XIV and XV and
-------------------
Lessor's obligations hereunder with respect to making Capital Improvements and
Capital Expenditures).
ARTICLE X
ALTERATIONS
10.1 Alterations. Subject to first obtaining the written approval of
-----------
Lessor, which approval shall not be unreasonably withheld, and to first
obtaining any required written approval from a Holder, 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 or Lessor 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
reasonably 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.
39
<PAGE>
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 and additions to the Leased
Property required in connection with (i) Emergency Situations, (ii) Legal
Requirements, (iii) maintenance of the Franchise Agreement or of Doubletree
Standards, as applicable, and (iv) the performance by Lessor of its obligations
under this Lease. Lessor shall have the right to make other alterations and
additions subject to Lessee's consent, but such consent shall not be withheld,
(a) if such alterations or additions are to be made prior to the last
twenty-four (24) months of the Term and such alterations or additions will
materially increase Gross Revenues and are not replacements of depreciated
assets (such as recarpeting due to wear and tear which are otherwise included
within Lessor's obligations under this Lease) and such alterations or additions
will 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, or (b) if
Lessor agrees not to add the cost of such alterations or additions to Total
Hotel Cost and such alterations or additions will 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. All such work unless necessitated by Lessee's
acts or omissions or unless otherwise required to be performed by Lessee under
this Lease (in which event work shall be paid for by Lessee) shall be performed
at Lessor's expense, in compliance with all Legal Requirements, in a good and
workmanlike manner 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. Lessor and Lessee shall each have the right, in
addition to its other rights and remedies under this Lease and applicable law,
to refer to arbitration as provided for in Section 40.2 hereof any disagreement
------------
arising out of the provisions of this Section 10.3.
------------
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 resulting from the action or inaction of Lessee, 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 resulting from the action or
inaction of 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
40
<PAGE>
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 to
be satisfied by Lessee hereunder 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 operate to relieve
Lessee from its obligations hereunder and 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 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.
41
<PAGE>
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 insured as its interests may
appear, and the Manager shall also be named as an additional insured as its
interests may appear under the coverages described in Sections 13.1(a)(iv)
--------------------
through (xi). 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 the 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 the "Special Form" (formerly "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 the "Special 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 the "Special 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 the "Special 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
42
<PAGE>
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 Lessor, 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
workman's compensation claims to the extent required by applicable
state laws;
(vii) Comprehensive form vehicle 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 occurrence; and
(xi) 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.
(b) Responsibility for Insurance. Lessee shall obtain the
-------------------------------
insurance and pay the premiums for the coverages described in Sections
--------
13.1(a)(iv) through (x), 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)(xi) 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 (x). The party responsible for the premium for any
- --------------------------------
insurance coverage shall also be responsible for any
43
<PAGE>
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 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(a)(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 reasonably satisfactory to Lessor and shall satisfy the
requirements of any ground lease, mortgage, security agreement or other
financing lien on the Leased Property and of the 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, thirty (30)
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
44
<PAGE>
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, allowed to
expire 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 the
Franchise Agreement and of any ground lease, 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.
45
<PAGE>
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 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 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
shall with all reasonable dispatch, following payment of the insurance proceeds,
restore the Leased Property 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. Lessee shall replace and restore any of Lessee's Personal
Property to the same condition as existed immediately before the damage or
destruction and otherwise in accordance with the terms of this Lease.
(c) If the Leased Property is to be restored in accordance 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 agree to contribute any excess amounts needed
------------
to restore the Leased Property.
14.3 Reconstruction in the Event of Damage or Destruction Not Covered by
---------------------------------------------------------------------
Insurance or When Insurance Proceeds are Not Available.
- ------------------------------------------------------
(a) If during the Term the Leased Property is materially damaged or
destroyed by a risk not covered by the insurance described in Article XIII, or
------------
if the Holder or any ground lessor(s) will not make the proceeds of such
insurance available to Lessor for restoration of the
46
<PAGE>
Facility, unless in either event such damage or destruction renders the Facility
Unsuitable or Uneconomic for its Primary Intended Use, Lessor at its option
shall within a reasonable time after the casualty either (i) at Lessor's sole
cost and expense, restore the Leased Property 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 (ii) terminate
this Lease.
(b) In the event (but only in the event) a Holder or any ground lessor
does not make the proceeds of insurance available to Lessor for restoration of
the Facility following a casualty which does not render the Facility Uneconomic
or Unsuitable for its Primary Intended Use and therefore this Lease is
terminated by Lessor, then Lessee shall have a one time Right of First Refusal
(herein so called) to lease from Lessor any hotel upon the Leased Property which
Lessor constructs within eighteen (18) months following termination of this
Lease. Lessor shall provide Notice to Lessee of any bona-fide third party offers
("Offer") to lease such hotel which Lessor wishes to accept. Lessee shall then
-----
have the one time right to elect to lease such hotel upon the same terms and
conditions as are set forth in the Offer by delivering its written notice of
such election to Lessor within ten (10) business days after receipt of Lessor's
notice. If Lessee timely notifies Lessor that Lessee elects to exercise its
Right of First Refusal, Lessor and Lessee shall enter into a lease within ten
(10) business days after Lessee's election to exercise its Right of First
Refusal upon the terms and conditions set forth in this Lease with such
modifications as are necessary to reflect the terms and conditions of the Offer.
If Lessee fails to timely execute and deliver the lease to Lessor, or fails to
timely exercise the Right of First Refusal, Lessor shall be free to lease such
hotel to such prospective lessee or, to any other prospective lessee, on
substantially the same material terms and conditions as are contained in the
Offer (subject to the penultimate sentence of this Section 14.3(b)) within a
period of 180 days. If the prospective lessee offering to lease such hotel does
not execute a lease upon substantially the same terms and conditions as are set
forth in the bona fide offer and Lessor does not lease such hotel to another
prospective lessee upon substantially the same terms and conditions as are set
forth in the bona fide offer (subject to the penultimate sentence of this
Section 14.3(b)) within such 180 day period, Lessee's rights pursuant to this
Right of First Refusal shall be revived. If the prospective lessee offering to
lease such hotel executes a lease upon substantially the same terms and
conditions as are set forth in the bona fide offer (subject to the penultimate
sentence of this Section 14.3(b)) or if Lessor leases such hotel to another
prospective lessee upon substantially the same terms and conditions as are set
forth in the bona fide offer within such 180 day period, Lessee's rights under
the Right of First Refusal shall automatically terminate. 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
lessee are willing to enter into a lease. Lessee agrees that Lessor and the
lessee proposing to lease such hotel shall not be precluded from making changes
to the Offer during lease negotiations so long as such changes are the result of
arm's-length negotiations between Lessor and such prospective lessee and not the
result of bad faith and collusion insofar as Lessee's interests are concerned
and such changes do not make the proposed lease substantially more favorable to
such lessee then the terms set forth in the Offer. If Lessee exercises its Right
of First Refusal, Lessee may not thereafter revoke such exercise.
(c) If the cost of such uninsured damage or destruction is not
material, Lessor shall, at Lessor's sole cost and expense, restore the Leased
Property to substantially the same condition as existed immediately before the
damage or destruction and otherwise in accordance
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with the terms of the Lease, and this Lease shall not terminate as a result of
such damage or destruction. For purposes of this Section, "material" and similar
references shall mean, in Lessor's reasonable judgment, damage costing in excess
of $200,000 to repair or restore.
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. Lessee shall replace and restore any of Lessee's
Personal Property to the same condition as existed immediately before the damage
or destruction and otherwise in accordance with the terms of this Lease.
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
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 in excess of 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, and
is not covered by Lessor's loss of income insurance required to be maintained by
Lessor pursuant to Article XIII above, 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.
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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
-------------------
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 and Lessee are entitled but elect not to
terminate this Lease as provided in Section 15.3, then Lessor shall, with all
------------
reasonable dispatch and to the extent that the Holder permits the application of
the Award therefor and the Award to be contributed to restoration as provided in
this Section 15.5(a) 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
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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, the full amounts of 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 remaining
balance, if any, of the Award made for such Condemnation for temporary use or
occupancy allocable to the Term (after payment of Initial Base Rent or Fixed
Base Rent, as applicable, and Additional Charges), shall be deemed to be Room
Revenues based upon the Break Points in effect at the time of such temporary
taking without any further adjustment of such Break Points pursuant to Section
-------
3.1(e) for such temporary period for the purpose of calculating the Percentage
- ------
Rent payable hereunder during such temporary taking. 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 an institutional trustee designated by Lessor or to an
institutional 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 or the Condemnor, 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 twice in any
Lease Year and that any third 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
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(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 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 180 days of Lessor's Notice to
Lessee, which 180-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 or any Manager which is an Affiliate of Lessee 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, 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 sixty (60) days; or
(e) if Lessee or, without Lessor's prior written consent, any Manager
which is an Affiliate of Lessee 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; 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 the Franchise Agreement or any ground lessor(s) 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
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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 the Franchise Agreement or any ground lease in effect;
(i) if an Event of Default occurs under any Other Leases; or
(j) if Lessee fails to remedy a breach of Section 35.1 and/or 35.2
---------------------------
within ten (10) days after an executive officer of Lessee obtains knowledge of
such a breach; or
(k) if there is a breach of any of the provisions of Sections 35.3,
35.4 or 35.5. ---------------
- ------------
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 knowing and
---------------
intentional failure by an executive officer of Lessee to observe or perform any
term, covenant or condition of this Lease.
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.
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 (1) 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; (2) 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; (3) 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 twelve percent (12%) 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 twelve percent (12%) per
annum; and (4) 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 and 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
52
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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 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
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 or any ground lease, 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
------------
reasonable 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
53
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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 notwithstanding, Lessee shall not sublet the Leased Property or enter
into any licenses or concessions or 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, licensee 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 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 Lessor 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 Lessor to own,
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directly or indirectly, a 10% or more interest in Lessee within the same meaning
of the same Section as modified by Section 7704(d)(3)(B) of the Code, or any
similar or successor provision 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 any similar or successor provisions thereto.
Further, 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.
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
Doubletree Corporation. 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
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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 negligence of Lessor or its agents,
employees, contractors or invitees when actually performing alterations or other
Capital Improvements which are not obligations of Lessee and are not performed
or supervised by Lessee on behalf of Lessor, and excluding those resulting from
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 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 shall indemnify, save harmless and defend Lessee
Indemnified Parties from and against all liabilities, obligations, claims,
damages, penalties, causes of action, costs 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 (b) any failure on the part of Lessor to perform or comply with
any of the terms of this Lease.
(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
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(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 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) In addition, 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 agrees that it shall not assign this Lease (except in
connection with a transfer of all or substantially all of the assets of
Doubletree Hotels Corporation, in which event Section 35.4 shall be applicable)
------------
or hereafter sublease all or any part of the Leased Property without first
obtaining the written consent of Lessor. 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 reasonably satisfactory to Lessor, shall be delivered promptly to
Lessor.
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(b) Lessee acknowledges that this Lease is a lease of nonresidential
real property and therefore agrees that Lessee, as the debtor in possession, or
the trustee for Lessee (collectively "the Trustee") in any proceeding under
-----------
Title 11 of the United States Bankruptcy Code relating to Bankruptcy, as amended
(the "Bankruptcy Code"), shall not seek or request any extension of time to
---------------
assume or reject this Lease or to perform any obligations of this Lease which
arise from or after the order of relief.
(c) If the Trustee proposes to assume or to assign this Lease or
sublet the Premises (or any portion thereof) to any person which shall have made
a bona fide offer to accept an assignment of this Lease or a subletting on terms
acceptable to the Trustee, the Trustee shall give Lessor, and lessors and
mortgagees of Lessor of which Lessee has notice, written notice setting forth
the name and address of such person and the terms and conditions of such offer,
no later than twenty (20) days after receipt of such offer, but in any event no
later than ten (10) days prior to the date on which the Trustee makes
application to the Bankruptcy Court for authority and approval to enter into
such assumption and assignment or subletting. Lessor shall have the prior right
and option, to be exercised by written notice to the Trustee given at any time
prior to the effective date of such proposed assignment or subletting, to
receive an assignment of this Lease or subletting of the Premises to Lessor or
Lessor's designee upon the same terms and conditions and for the same
consideration, if any, as the bona fide offer made by such person, less any
brokerage commissions which may be payable out of the consideration to be paid
by such person for the assignment or subletting of this Lease.
(d) The Trustee shall have the right to assume Lessee's rights and
obligations under this Lease only if the Trustee: (a) promptly cures or provides
adequate assurance that the Trustee will promptly cure any default under this
Lease; (b) compensates or provides adequate assurance that the Trustee will
promptly compensate Lessor for any actual pecuniary loss incurred by Lessor as a
result of Lessee's default under this Lease; and (c) provides adequate assurance
of future performance under this Lease. Adequate assurance of future performance
by the proposed assignee shall include, as a minimum, that: (i) any proposed
assignee of this Lease shall provide to Lessor an audited financial statement,
dated no later than six (6) months prior to the effective date of such proposed
assignment or sublease with no material change therein as of the effective date,
which financial statement shall show the proposed assignee to have a net worth
equal to at least the Minimum Net Worth, or, in the alternative, the proposed
assignee shall provide a guarantor of such proposed assignee's obligations under
this Lease, which guarantor shall provide an audited financial statement meeting
the requirements of (i) above and shall execute and deliver to Lessor a guaranty
agreement in form and substance acceptable to Lessor; and (ii) any proposed
assignee shall grant to Lessor a security interest in favor of Lessor in all
furniture, fixtures, and other personal property to be used by such proposed
assignee in the Leased Property. All payments required of Lessee under this
Lease, whether or not expressly denominated as such in this Lease, shall
constitute rent for the purposes of Title 11 of the Bankruptcy Code.
(e) The parties agree that for the purposes of the Bankruptcy Code
relating to (a) the obligation of the Trustee to provide adequate assurance that
the Trustee will "promptly" cure defaults and compensate Lessor for actual
pecuniary loss, the word "promptly" shall mean that cure of defaults and
compensation will occur no later than sixty (60) days following the filing of
any motion or application to assume this Lease; and (b) the obligation of the
Trustee to compensate or to provide adequate assurance that the Trustee will
promptly compensate
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Lessor for "actual pecuniary loss", the term "actual pecuniary loss" shall mean,
---------------------
in addition to any other provisions contained herein relating to Lessor's
damages upon default obligations of Lessee to pay money under this Lease and all
attorneys' fees and related costs of Lessor incurred in connection with any
default of Lessee in connection with Lessee's bankruptcy proceedings).
(f) Any person or entity to which this Lease is assigned pursuant to
the provisions of the Bankruptcy Code shall be deemed, without further act or
deed, to have assumed all of the obligations arising under this Lease and each
of the conditions and provisions hereof on and after the date of such
assignment. Any such assignee shall, upon the request of Lessor, forthwith
execute and deliver to Lessor an instrument, in form and substance acceptable to
Lessor, confirming such assumption.
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
---------------------
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 of the identity of any manager of the Facility (the
"Manager") which is not an Affiliate of Lessee. Lessor hereby acknowledges that
-------
either Doubletree Hotels Corporation or DT Management, Inc., each an Affiliate
of Lessee, will be the Manager. The Management Agreement shall provide, among
other things, that (i) the management fee shall not exceed three percent (3%) of
Gross Revenues, (ii) 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, and (iii) all fees and other
amounts payable by Lessee to the Manager for the period ending twenty-four (24)
full calendar months after the Commencement Date (the "Subordination Period"),
--------------------
in excess of two percent (2%) of Gross Revenues shall be fully subordinate to
Rent and other amounts payable by Lessee to Lessor hereunder until such time as
Lessor has received for the Subordination Period Initial Base Rent, Fixed Base
Rent, Additional Fixed Rent and/or Percentage Rent (determined on an annualized
basis) in an amount equal to the Minimum Return.
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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 either audited or unaudited, 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;
--------------
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(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 the 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.
(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 or Lessor'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 stock or 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.
ARTICLE XXIII
INSPECTIONS
23.1 Regular Meetings; Lessor's Right to Inspect.
-------------------------------------------
(a) Lessee agrees that if requested by Lessor the general manager, the
controller, the director of marketing, the asset manager and, if specifically
requested by Lessor, the director of food and beverage and the chief engineer
for the Facility will meet at the Facility 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 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.
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(c) Lessee will provide customary 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.
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.
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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. Lessor shall promptly notify Lessee of any such
conveyance. If Lessee is not reasonably satisfied that the new owner is a
capable, reliable and qualified Person of good reputation and character which
has the financial capability to fulfill Lessor's obligations hereunder, or, if
in Lessee's reasonable judgment, the new owner is a competitor of Lessee, Lessee
may terminate this Lease upon ninety (90) days' Notice to Lessor given within
thirty (30) days after Lessee receives a Notice of such conveyance. A
"competitor of Lessee" shall mean a Person which, or an Affiliate of which,
manages hotels bearing the brand name of such Person or an Affiliate of such
Person (such as Wyndham, Marriott or Hyatt). In the event Lessor conveys the
Leased Property in accordance with this Section 28.1 and Lessee exercises its
------------
option to terminate in accordance therewith, Lessee shall not be entitled to any
compensation for early termination of this Lease.
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 or otherwise. Except for an
Excess Mortgage, 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 adversely and in any material respect 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.
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(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 adversely in any material respect any rights of Lessee under 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 any
Holder of whom Lessee has been given written notice of such Holder's status as a
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 foreclosure 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,
provided, however, that this Lease shall continue to be in full force and
effect, the times for commencing or prosecuting such foreclosure or other
proceedings shall be extended for the period of such prohibition. The provisions
of this Section 28.2(c) shall not be construed to limit or affect Lessee's right
---------------
to make payments or perform acts for the account and at the expense of Lessor in
accordance with the provisions of Section 39.1(a) or Lessee's right to offset
---------------
against Rent or other charges due under this Lease in accordance with the
provisions of Section 39.1(a).
---------------
(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 as provided above.
(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
- -------
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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 adversely in any material respect 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 (as well as to any Holder pursuant to
Section 28.2(d)) and (ii) if to Lessee or Doubletree Hotels at Doubletree Hotels
- ---------------
Corporation, 410 N. 44th Street, Suite 700, Phoenix, Arizona 85008-6572
Attention: William L. Perocchi and David L. Stivers, or to such other address or
addresses as either party may hereafter designate. Personally or by express mail
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.
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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.
ARTICLE XXXII
(Intentionally deleted)
ARTICLE XXXIII
(Intentionally deleted)
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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
LESSEE CAPITALIZATION REQUIREMENTS
35.1 Lessee's Net Worth. Lessee shall be obligated to maintain at all times
------------------
during the Term a Net Worth in an amount at least equal to the greater of (a)
Four Hundred Thousand and No/100 Dollars ($400,000.00), or (b) twenty percent
(20%) of the aggregate projected annual Initial Base Rent or Fixed Base Rent, as
applicable, and Percentage Rent for the Leased Property and the Other Leased
Properties, shown from time to time on the Annual Budgets for the Leased
Property last approved by Lessor pursuant to Section 3.5 of this Lease and the
-----------
similar annual budgets last approved by Lessor pursuant to Section 3.5 or
-----------
similar sections of the Other Leases (the "Minimum Net Worth"). For the Lease
-----------------
Year 1996 and until new annual budgets are approved by Lessor, the Minimum Net
Worth of Lessee required hereunder shall be Four Hundred Thousand and No/100
Dollars ($400,000.00). As used herein, "Net Worth" shall mean the excess of
total assets over total liabilities, total assets and total liabilities each to
be determined in accordance with GAAP, excluding, however, from the
determination of total assets: (a) goodwill, organizational expenses, research
and development expenses, trademarks, trade names, copyrights, patents, patent
applications, and other similar intangibles; (b) all deferred charges that are
not required to be capitalized in accordance with GAAP or unamortized debt
discounts and expense; (c) treasury stock; (d) as to Lessee, but not as to
Doubletree Hotels, securities which are not readily marketable or are not listed
on a major recognized securities exchange, except for limited partnership units
in the Lessor registered in the name of the Lessee ("Units"); (e) any write-up
-----
in the book value of any asset resulting from a revaluation thereof; (f) this
Lease and the Other Leases; and (g) any items not included in clauses (a)
through (f) above that are treated as intangibles in conformity with GAAP.
Without limiting the foregoing exclusions, assets which may be included in the
Net Worth of Lessee shall be limited to Cash and Working Capital (the excess of
current assets over its current liabilities, both as determined in accordance
with GAAP), readily marketable securities which are listed on major, recognized
securities exchanges and Units. However, subject to Section 35.2, Lessee may
------------
include in its assets, for purposes of its Net Worth, promissory notes payable
to Lessee from Doubletree Hotels Corporation, an Arizona corporation
("Doubletree Hotels") provided such notes shall be (i) in form satisfactory to
-----------------
Lessor, (ii) delivered and endorsed to Lessor in a manner satisfactory to
Lessor, and (iii) collaterally assigned to Lessor as security for Lessee's
obligations under this Lease by a security agreement satisfactory to Lessor and
provided that Doubletree Corporation continues to be a publicly held and traded
company and Doubletree Hotels continues to be controlled directly by Doubletree
Corporation, each with (i) a Net Worth (excluding the working capital of any
hotels, other than the Facilities subject to this Lease and to the Other Leases)
at least equal to the Minimum Net Worth, and (ii) current assets in excess of
current liabilities (each determined in accordance with GAAP but excluding the
working capital of any hotels other
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than the Facilities subject to this Lease and to the Other Leases) at least
equal to the amount of such notes.
35.2 Lessee's Cash. On the date hereof Lessee shall have Cash in the amount
-------------
of at least $100,000.00, and Lessee shall at all times hereafter maintain an
adequate amount of Working Capital to operate the Facility and any Facilities
subject to Other Leases. As used herein, "Cash" shall mean (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 a substantial U.S. financial institution that
is satisfactory to Lessor (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. As used
herein, "Working Capital" shall mean the excess of the Lessee's current assets
over the Lessee's current liabilities, both as determined in accordance with
GAAP.
35.3 Verification of Net Worth.
-------------------------
(a) In addition to the Consolidated Financials of Lessee to be
delivered to Lessor pursuant to Section 22.1, Lessee shall deliver to Lessor,
------------
together with such Consolidated Financials of Lessee, a certificate of Lessee's
chief financial officer in form reasonably required by Lessor (the "Financial
---------
Officer's Certificate"), certifying the Net Worth and Cash of Lessee as of the
- ---------------------
date of the Consolidated Financials of Lessee being delivered concurrently
therewith and stating that Lessee is in compliance with its obligations under
Sections 35.1 and 35.2 of this Lease, or if not, so stating and including the
- ----------------------
reasons therefor. Lessor shall have the right from time to time and at any time
to have an independent certified public accountant selected by Lessor perform an
audit or other review of the books and records of Lessee to verify the amount of
Lessee's Net Worth and Cash, and Lessee shall cooperate with Lessor in
connection therewith. If Lessor audits or reviews the amount of Lessee's Net
Worth and Cash shown in the last Financial Officer's Certificate delivered to
Lessor, and such audit or review discloses that either the Net Worth or Cash of
Lessee as of such date certified is one percent (1%) or more less than the
amount shown on the Financial Officer's Certificate or that the statements in
such Financial Officer's Certificate regarding Lessee's compliance with those
obligations under Sections 35.1 or 35.2 is otherwise materially incorrect, then
---------------------
in addition to any other rights and remedies of Lessor, Lessee shall pay for the
cost of the audit or review. Otherwise, Lessor shall bear the cost of the audit
or review.
(b) In the event Lessee utilizes promissory notes of Doubletree Hotels
to satisfy its Minimum Net Worth requirements, Doubletree Hotels shall (and
Lessee shall cause Doubletree Hotels to) deliver to Lessor, at such time as
Lessee delivers to Lessor its Consolidated Financials, (i) a certificate of
Doubletree Hotels' chief financial officer or its corporate controller in form
reasonably required by Lessor, certifying the Net Worth, current assets and
current liabilities of Doubletree Hotels as of the date of the Consolidated
Financials delivered by Lessee and stating that Doubletree Hotels and Lessee are
in compliance with
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Section 35.1 of this Lease, or if not, so stating and including the reasons
- -------------
therefor, and (ii) the most recent Consolidated Financials of Doubletree Hotels
and Doubletree Corporation.
35.4 Change of Control. Lessee represents and warrants that it is an
------------------
Arizona corporation all of whose outstanding capital stock is owned by
Doubletree Hotels and that all of the outstanding capital stock of Doubletree
Hotels is owned by Doubletree Corporation, a Delaware corporation, whose shares
are listed on NASDAQ. 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 by, Doubletree Hotels. Lessee also agrees
that throughout the Term Doubletree Hotels shall be controlled directly by
Doubletree Corporation and that no holder of the outstanding capital stock of
Doubletree Hotels shall be "a competitor of Lessor" as defined below. However, a
merger or a transfer of all or substantially all of the stock or assets of
Doubletree Hotels which results in Doubletree Hotels ceasing to be wholly owned
and controlled by Doubletree Corporation 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(s) owning and controlling Doubletree Hotels 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
Lessor'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.
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. Without Lessor's prior written consent, neither
---------------
Lessee nor any Affiliate thereof shall, during the Term hereof, acquire,
construct, operate, lease, franchise, license or manage any hotel which uses a
Doubletree name brand within a five (5) mile radius of the Leased Property.
Without Lessor's prior written consent, neither Lessee nor any Affiliate thereof
shall, during the term hereof, acquire, construct, operate, lease, license or
manage any hotel within a two (2) mile radius of the Leased Property; provided,
however, the foregoing two (2) mile restriction shall not apply to (i) a hotel
acquired in a chain acquisition which does not use a Doubletree brand name, (ii)
Candlewood Hotel Company, L.L.C. so long as it is not controlled by or under
common control with Doubletree Hotels Corporation, (iii) shareholders of
Doubletree Corporation which are Affiliates but which are not controlled by or
under common control with Doubletree Hotels Corporation, including, without
limitation, the General Electric Pension Trust or (iv) hotels in which the
General Electric Pension Trust has an interest which are not operated, leased or
managed by Doubletree Hotels Corporation or an Affiliate thereof controlled by
or under common control with Doubletree Hotels Corporation.
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ARTICLE XXXVI
LESSOR'S OPTION TO TERMINATE
36.1 Lessor's Option to Terminate Lease.
----------------------------------
(a) In the event (i) Lessor consummates a bona fide contract to sell
the Leased Property to a non-Affiliate, (ii) of a Tax Law Change resulting in
Lessor's determination to terminate this Lease, or (iii) Lessee fails to lease
from Lessor a total of not less than five (5) hotels (including the Facility) by
the third (3rd) anniversary of the Commencement Date then in any of such events
Lessor may terminate the Lease by (i) giving not less than ninety (90) days
prior Notice to Lessee of Lessor's election to terminate the Lease upon the
closing under such contract, (ii) upon not less than ninety (90) days' prior
written Notice to be given within ninety (90) days after the effective date of
the Tax Law Change, or (iii) not less than ninety (90) days' Notice after the
third anniversary of the Commencement Date, but before forty two (42) months
following the Commencement Date, in the event Lessee has failed to lease a total
of not less than five (5) hotels. 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, 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 the fair market value of Lessee's leasehold estate hereunder as of
the closing of the sale of the Leased Property 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 that have an aggregate fair market
value of no less than the fair market value of the leasehold estate created by
this Lease, both such values as determined as of the closing of the sale of the
Leased Property. Lessee may, in the exercise of its good faith judgment,
reasonably exercised, reject a proposed substitute leasehold estate or
combination of substitute leasehold estates having a fair market value of no
less than the fair market value of Lessee's leasehold estate hereunder (a
"Comparable Lease"), 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 three (3) years during which Lessor shall be allowed to propose other
Comparable Leases to Lessee. If Lessee rejects two (2) additional Comparable
Leases during such three-year period, Lessor shall have no obligations to Lessee
with respect to compensation for the early termination of this Lease. In the
event Lessor and Lessee are unable to agree upon the fair market value of
Lessee's leasehold estate or replacement leasehold estate, it shall be
determined by appraisal using the appraisal procedure set forth in Article XXXI.
------------
(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, Lessor and Lessee (or an Affiliate of Lessee) shall enter
into a new management agreement for the Facility for a term equal to the
remaining Term of this Lease and
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a management fee equal to three percent (3%) of Gross Revenues, and containing
other terms consistent with those for comparable hotels. The fair market value
of such new 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 new
management agreement shall be projected for the remaining Term of this Lease on
the basis which is most reasonable under the circumstances. In the event Lessor
and Lessee are unable to agree on any provisions of the new management
agreement, the matter shall be referred to arbitration as provided for in
Section 40.1 hereof.
- ------------
(d) Lessee shall not be entitled to any compensation for early
termination of its leasehold estate under this Article XXXVI because of Lessee's
-------------
failure to lease a total of not less than five (5) hotels from Lessor by the
third anniversary of the Commencement Date. Lessor and Lessee shall endeavor in
good faith to have Lessee lease at least five (5) hotels from Lessor by such
date.
(e) Notwithstanding anything to the contrary herein, in the event of
termination of this Lease other than by reason of an Event of Default (and other
than by reason of or the expiration of the stated Term of this Lease), in
addition to any other sums payable by Lessor to Lessee, Lessor shall be
obligated to compensate Lessee for the early termination of its leasehold estate
by paying to Lessee (or offsetting against Lessee's obligation to pay Deferred
Rent) an amount equal to the amount of Deferred Rent not paid to Lessor at the
time of the termination of the Lease.
(f) 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 and a new
management agreement, the appraiser shall discount all future income, expenses
and fees to the then present value at a rate of twelve percent (12%) per annum.
ARTICLE XXXVII
FRANCHISE AGREEMENT, DOUBLETREE HOTEL STANDARDS
AND GROUND LEASES
37.1 Compliance with Franchise Agreement, Doubletree Hotel Standards and
-------------------------------------------------------------------
Ground Leases.
- -------------
(a) To the extent any of the provisions of a Franchise Agreement or a
ground lease 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 such Franchise Agreement and/or ground lease, except to the extent
that Lessee is prevented from complying with such Franchise Agreement or ground
lease because of Lessor's breach of its obligations to comply with Article
-------
XXXVIII and subject to the last sentence of Section 38.1(b), or the failure of
- ------- ---------------
Lessor to pay or perform as required by such ground leases, ground rents, Lessor
Impositions and Lessor Insurance Costs and to pay and perform any other
obligations that would have to be paid or performed by Lessor under this Lease
if there were no ground leases. It is the intent of the parties hereto that
Lessee
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shall comply in every respect with the provisions of any Franchise Agreement and
ground leases so as to avoid any default thereunder during the term of this
Agreement provided, however, the obligation to pay or perform as required by
such ground leases, ground rents, Lessor Impositions and Lessor Insurance Costs
and to pay and perform any other obligations that would have to be paid or
performed by Lessor under this Lease if there were no ground leases encumbering
the Leased Property, shall be the obligation of Lessor, and not of Lessee.
(b) Lessee shall not enter into, terminate or enter into any
modification of any Franchise Agreement without in each instance first obtaining
Lessor's written consent.
(c) 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. Further, in the event of an early
termination of this Lease due to an Event of Default by Lessee, Lessor may
recover from Lessee the cost of the filing and application fees incurred as a
result of obtaining a new franchise with comparable marketing attributes and
name recognition as Doubletree, as well as transaction fees including, but not
limited to, reasonable attorneys' fees.
(d) During the Term of this Lease, the Facility shall be operated as a
Doubletree Hotel without a franchise agreement. Notwithstanding the absence of a
franchise agreement, Lessee shall, and shall be entitled to, operate the
Facility utilizing the Doubletree name, logo and other applicable trademarks and
trade names, Doubletree's reservation system, marketing and advertising services
and other services provided by Doubletree Hotels and its Affiliates to
comparable Doubletree Hotels. If this Lease is terminated for any reason, Lessor
or its designee shall have the right, at the option of Lessor, to enter into a
franchise agreement with Doubletree Hotels, to continue to operate the Facility
as a Doubletree Hotel and to use the Doubletree Hotel name, logo and other
applicable trademarks or trade names, Doubletree's reservation system, marketing
and advertising services and other services provided by Doubletree Hotels and
its Affiliates to comparable Doubletree hotels for up to six (6) months
following the termination (the "Temporary Usage"). Such franchise agreement
---------------
shall include fees (excluding any management fees) utilized and charged by
Doubletree Hotels in franchise agreements on a systemwide basis for comparable
hotels operating under the Doubletree name which utilize the Doubletree name and
services of Doubletree Hotels utilized by the Facility. However, the franchise
agreement for such Temporary Usage may be terminated by Lessor or its designee
on thirty (30) days' Notice to Doubletree Hotels and the franchise agreement
shall not impose standards for the Facility greater than those applicable to the
Facility at the time of termination of this Lease. If the termination of this
Lease is due to an Event of Default by Lessee, Lessor may offset any fees or
other sums payable to Doubletree Hotels under the franchise agreement against
sums owed by Lessee to Lessor hereunder.
(e) Lessor shall promptly furnish to Lessee any default notices
received by Lessor under any ground leases. Without the prior written consent of
Lessee, Lessor shall not modify any ground leases in a manner which materially
increases Lessee's obligations or which materially and adversely affect Lessee's
rights under this Lease.
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ARTICLE XXXVIII
CAPITAL EXPENDITURES
38.1 Capital Expenditures.
--------------------
(a) Commencing July 1, 1997, Lessor shall be obligated to accrue the
Capital Expenditures Reserve. Upon written request by Lessee to Lessor stating
the specific use to be made and subject to the reasonable approval thereof by
Lessor, 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, but not compounded, 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) Except as specifically provided otherwise in Section 8.3(b),
--------------
Lessor's obligation to make Capital Expenditures 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 in Lessor's sole discretion; provided,
however, that if additional Capital Expenditures are required to meet Emergency
Situations, comply with Legal Requirements or comply with Doubletree Standards,
Lessor shall make such amounts available and, to the extent (but only to the
extent) that it will not materially and adversely affect the five (5) year
Capital Budgets, Lessor shall receive a pro rata credit therefor against amounts
which Lessor is obligated to accrue for the Capital Expenditures Reserve. 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. Without
limiting Lessor's obligations under Section 38.1(a) with respect to amounts
---------------
accrued in the Capital Expenditures Reserve and whether or not reference is made
to this Article XXXVIII, to the extent that Lessee's obligations under this
---------------
Lease (including, without limitation, the obligations set forth in Sections 7.2,
-------------
8.1, 8.2, 8.3 and 9.1 and in Article XXXVII) require Lessee to perform or pay
- --------------------- --------------
for Capital Improvements and Lessor fails to provide Capital Expenditures
therefor, such obligations of Lessee shall be correspondingly diminished.
(c) 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.
(d) Lessor shall perform or have performed on behalf of Lessor the
renovation work described in the definition of Renovation Costs in accordance
with the final budget therefor to be agreed upon by Lessor and Lessee. Lessor
shall pay the Renovation Costs. The cost thereof shall be in addition to, and
shall not reduce, the Capital Expenditures Reserve. Lessor
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shall not be obligated to expend more than $950,000.00 for Renovation Costs
unless Lessor expressly agrees in writing to do so in connection with its
Approval of the final budget for the Renovation Work.
(e) Any dispute regarding the application of the first or last
sentences of Section 38.1(b) may be resolved by arbitration pursuant to Section
40.2. --------------- -------
- ----
ARTICLE XXXIX
LESSOR'S DEFAULT
39.1 Lessor's Default.
----------------
(a) It shall be a breach of this Lease if Lessor fails to observe or
perform any term, covenant or condition of this Lease 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 within 180 days of such Notice which 180-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. 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 Other 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 other Charges due hereunder unless otherwise expressly provided in this
Lease.
(b) If Lessor shall in good faith dispute the occurrence of any Lessor
Default 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 Other 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 Other 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
74
<PAGE>
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, (iii) any
liability of Lessor for payment of compensation for the early termination of
Lessee's leasehold estate under Article XXXVI because of a sale of the Leased
-------------
Property, and (iv) 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 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 any nationally recognized accounting
- ----
firm with a hospitality division of which Lessor or an Affiliate of Lessor is
not a significant client 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.
------------
75
<PAGE>
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 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 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.
76
<PAGE>
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, including 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 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, unless Lessor rejects
one or more of such leases, contracts, concession agreements or other agreements
in writing within thirty (30) days following the date of
77
<PAGE>
termination of this Agreement in which event the agreement or agreements so
rejected 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, a copy 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 equal to the Initial
Nonconsumable Inventory, 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.
42.6 Conversion Costs. Upon the Commencement of the Term, Lessor shall
----------------
convert or cause to be converted or shall reimburse the prior owner of the
Facility for converting the Facility to a Doubletree Hotel; provided, however,
Lessor shall not be required to expend more than $200,000 for such purpose. The
Conversion Costs expended by Lessor shall be included in Total Hotel Cost.
78
<PAGE>
THIS PAGE INTENTIONALLY LEFT BLANK
79
<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., a Virginia limited
partnership
By: PAH GP, Inc., its General Partner
By:______________________________
Name:____________________________
Title:___________________________
LESSEE:
------
DTR NORTH CANTON, INC., an Arizona
corporation
By:_____________________________________
Name:___________________________________
Title:__________________________________
DOUBLETREE HOTELS:
-----------------
DOUBLETREE HOTELS CORPORATION, an Arizona
corporation, executes this Lease solely to
agree to be bound by the provisions of
Section 30.1, as it pertains to notices from
------------
Doubletree Hotels, Sections 35.3(b) and
37.1(d) --------------------
-------
By:_____________________________________
Name:___________________________________
Title:__________________________________
80
<PAGE>
EXHIBIT 10.40
Execution Copy
ACQUISITION
AGREEMENT
by and between
BV HOTEL & SPA ACQUISITION, LTD.,
as Seller
and
PAH ACQUISITION CORPORATION,
as Buyer
DATED FOR IDENTIFICATION: APRIL 22, 1996
EFFECTIVE DATE: _____________, 1996
[To be Completed by the Title Company]
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
ARTICLE 1 DEFINED TERMS............................................................... 1
ARTICLE 2 AGREEMENT OF PURCHASE AND SALE.............................................. 8
ARTICLE 3 PURCHASE PRICE.............................................................. 8
3.1 Purchase Price.............................................................. 8
3.2 Earnest Money Deposit....................................................... 9
3.3 Payment of Purchase Price................................................... 9
3.4 FIRPTA Compliance........................................................... 9
3.5 Assumption of Assumed Operating Liabilities and Assignment of
Receivables................................................................. 10
ARTICLE 4 TITLE AND SURVEY............................................................ 11
4.1 Title Binder................................................................ 11
4.2 Title Policy................................................................ 11
4.3 Survey...................................................................... 11
4.4 Review of Survey and Title Binder by Buyer.................................. 12
4.5 Seller's Obligations and Rights to Cure Buyer's Objections to Title......... 13
ARTICLE 5 REPRESENTATIONS, WARRANTIES, COVENANTS, AND
AGREEMENTS OF SELLER.................................. 14
5.1 Representations and Warranties of Seller.................................... 14
5.2 Covenants and Agreements of Seller.......................................... 16
ARTICLE 6 REPRESENTATIONS AND WARRANTIES OF BUYER..................................... 22
ARTICLE 7 CONDITIONS PRECEDENT TO BUYER'S PERFORMANCE................................. 23
7.1 Performance of Seller's Obligations......................................... 23
7.2 Satisfaction of Buyer's Objections to Survey and/or Title Binder............ 23
7.3 Breach of Seller's Representations, Warranties, Covenants, and
Agreements.................................................................. 23
7.4 No Condemnation............................................................. 23
7.5 Buyer's Investigation....................................................... 23
7.6 Estoppel Certificates....................................................... 24
7.7 Adverse Change.............................................................. 24
7.8 Hazardous Materials......................................................... 24
7.9 Opinion of Seller's Counsel................................................. 24
7.10 Quit-Claim Documents........................................................ 24
7.11 Criterion's Performance..................................................... 25
7.12 Change in Facts Certified in Buyer's Certificate............................ 25
</TABLE>
i
<PAGE>
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
7.13 Buyer's Right to Waive Conditions Precedent................................. 25
7.14 Termination if Conditions Precedent not Satisfied or Waived................. 25
ARTICLE 8 CONDITION PRECEDENT TO SELLER'S PERFORMANCE................................. 26
8.1 Performance of Buyer's Obligations.......................................... 26
8.2 Buyer's Certificate......................................................... 26
8.3 Termination if Condition Precedent not Satisfied............................ 26
ARTICLE 9 CLOSING..................................................................... 27
9.1 Date and Place of Closing................................................... 27
9.2 Postponement of Closing by Buyer or Seller.................................. 27
9.3 Items to be Delivered at the Closing........................................ 27
9.4 Closing of the Books........................................................ 30
9.5 Possession and Closing...................................................... 33
9.6 Costs of Closing............................................................ 33
9.7 Intentionally Deleted....................................................... 33
9.8 Notification to Tenants..................................................... 33
ARTICLE 10 DEFAULTS AND REMEDIES....................................................... 33
10.1 Seller's Defaults; Buyer's Remedies......................................... 33
10.2 Buyer's Default; Seller's Remedies.......................................... 34
10.3 Special Default Provision................................................... 34
ARTICLE 11 LOSS OR DAMAGE.............................................................. 35
11.1 Casualty Loss............................................................... 35
11.2 Effect of Elections......................................................... 35
11.3 Effect of Buyer's Withdrawal................................................ 36
11.4 Appraisal of Damage......................................................... 36
ARTICLE 12 BROKERAGE INDEMNITY......................................................... 36
ARTICLE 13 Intentionally Deleted....................................................... 36
ARTICLE 14 MISCELLANEOUS............................................................... 37
14.1 References.................................................................. 37
14.2 Annexes..................................................................... 37
14.3 Captions.................................................................... 37
14.4 Number and Gender of Words.................................................. 37
14.5 Construction................................................................ 37
14.6 Notices..................................................................... 37
14.7 Governing Law............................................................... 39
</TABLE>
ii
<PAGE>
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
14.8 Performance of Agreement.................................................... 39
14.9 Venue....................................................................... 39
14.10 Entirety and Amendments..................................................... 39
14.11 Multiple Counterparts....................................................... 39
14.12 Parties Bound............................................................... 39
14.13 Risk of Loss................................................................ 39
14.14 Further Acts................................................................ 40
14.15 Expiration.................................................................. 40
14.16 Time of the Essence......................................................... 40
14.17 No Recordation.............................................................. 40
14.18 Tax Consequences............................................................ 40
14.19 Management.................................................................. 40
14.20 No Shop Clause.............................................................. 40
14.21 Radon Disclosure............................................................ 40
14.22 Bulk Sale................................................................... 41
14.23 Seller's Expense............................................................ 41
14.24 Annexes..................................................................... 41
</TABLE>
iii
<PAGE>
ACQUISITION AGREEMENT
This Acquisition Agreement is made and entered into by and between Seller
(as hereinafter defined) and Buyer (as hereinafter defined).
ARTICLE 1
DEFINED TERMS
The terms used in this Agreement with their initial letters capitalized,
shall, unless the context otherwise requires, have the meanings set forth below:
(a) "Agreement" means this Acquisition Agreement by and between Seller
and Buyer.
(b) "Assigned Receivables" has the meaning given to such term in
Section 3.5 below.
- -----------
(c) "Assignment" means the form of Blanket Bill of Sale and Assignment
of Furniture, Fixtures, Equipment, Consumables, Trade Names, Equipment Leases,
Service Agreements, Warranties, Guarantees, Licenses, Permits and Tenant Leases
attached hereto as Annex E.
(d) "Assignment and Assumption Agreement" has the meaning given the
such term in Section 3.5.
-----------
(e) "Assumed Operating Liabilities" has the meaning given to such term
in Section 3.5 below.
-----------
(f) "Buyer" means PAH Acquisition Corporation, a Virginia corporation,
or its assigns permitted hereunder.
(g) "Buyer's Certificate" means a certificate executed by Buyer in the
form of Annex G attached hereto.
-------
(h) "Buyer's Title Objection Notice" has the meaning given to such
term in Section 4.4.
-----------
(i) "Closing" means the consummation of the purchase of the Property
by Buyer from Seller in accordance with the terms and provisions hereof.
(j) "Closing Date" means the date on which the Closing will be held.
(k) "COBRA Act" has the meaning given to such term in Section 9.4.
-----------
<PAGE>
(l) "Consumables" means all food and beverages (including alcoholic
and non-alcoholic), engineering, maintenance, and housekeeping supplies,
including soap, cleaning materials and matches; laundering and toilet supplies
provided to guests as part of the hotel services; stationery and printing; and
other supplies of all kinds, whether used, unused, or held in reserve storage
for future use in connection with the ownership maintenance or operation of, or
the services provided by the hotel operated at the Project, owned by Seller and
located on the Land as of the Closing Date.
(m) "Criterion" means Criterion Hotel Management Corp., a
____________________________, with offices at 3250 Mary Street, Miami, Florida
33133, Seller's current property manager.
(n) "Criterion Management Agreement" means the existing agreement
between Seller, as owner, and Criterion, as manager, pursuant to which Criterion
operates the Project.
(o) "Cut-Off Time" has the meaning given to such term in Section 9.4.
-----------
(p) "Deed" means a warranty deed in the form attached hereto as Annex
D. -----
- -
(q) "Earnest Money Deposit" means that portion of the Purchase Price
deposited by Buyer in escrow with the Title Company at the time and in the
amount specified in Section 3.2, plus all interest which may accrue thereon,
-----------
including any Letter of Credit (as hereinafter defined) and the proceeds
thereof.
(r) "Effective Date" means the date on which this Agreement is fully
executed, which shall for all purposes in this Agreement be the date on which
the Title Company acknowledges receipt of (i) a copy of this Agreement executed
by Buyer, Seller, Criterion and West Merchant with all changes to the
typewritten portion of this Agreement initialled by Buyer and Seller, (ii) the
Earnest Money Deposit, (iii) a fully executed certificate from Seller in the
form of Annex C hereto, (iv) an executed Buyer's Certificate dated no earlier
-------
than six (6) business days prior to the date this Agreement is executed by
Buyer, and (v) two (2) original sets of fully executed and acknowledged
counterparts of the Quit-Claim Documents (one (1) set thereof providing for PAH
Acquisition Corporation, as the grantee thereunder, and one (1) set thereof
containing a blank space for the name of the grantee thereunder); provided,
however, that Buyer and Seller acknowledge and agree that if the Effective Date
has not occurred on or prior to the date that is ten (10) business days after
the date the Title Company receives the fully executed Agreement as provided in
clause (i) preceding, the Earnest Money Deposit, if previously delivered, shall
be returned to Buyer, this Agreement shall be null and void and neither Buyer or
Seller shall have any further obligations hereunder.
(s) "Employee List" means a list of the name and position of all
employees of Seller as of the Effective Date; and the name, position and current
rate of compensation, bonuses, incentive compensation and other benefits, of
each such employee for the current
2
<PAGE>
employment year of each such employee (showing the commencement and expiration
dates of each such employment year) and each and every increase in the rate or
terms of such compensation with respect to any such individual made in the last
twelve (12) months; and any oral or written agreements or understandings between
Seller and any of its employees or their representatives which affect the wages,
hours, benefits or working conditions of Seller's employees listed in such
Employee List which are not listed in the Employee Plan List.
(t) "Employee Plan List" means a list of every respective individual
or group bonus, deferred compensation, pension, profit-sharing, retirement,
stock option or purchase, hospitalization, insurance, vacation, or other
employee benefit plan and other benefits of Seller at the Effective Date,
including without limitation every (i) "employee pension benefit plan", as such
term is defined in Section 3(2) of ERISA, including any "multi-employer plan" as
such term is defined in Section 3(37) of ERISA; and (ii) "employees welfare
benefit plan" as defined in Section 3(1) of ERISA.
(u) "Environmental Claims" shall include, without limitation: claims,
demands, suits, causes of action for personal injury, death, or property damage;
actual or threatened damages to natural resources; claims for the recovery of
response costs, or administrative or judicial orders directing the performance
of investigations, response or remedial actions under any Environmental Law; a
requirement to implement "corrective action" pursuant to any restitution,
contribution or equitable indemnity to third parties or any governmental agency;
fines, penalties, liens against property; claims for injunctive relief or other
orders or notices of violation from federal, state or local agencies or courts;
and, with regard to any present or former employees, tenants or guests, exposure
to or injury from Environmental Conditions.
(v) "Environmental Conditions" means conditions of the environment,
including the ocean, natural resources (including flora and fauna), soil,
surface water, ground water, any actual or potential drinking or water supply,
subsurface strata, or air, including ambient air, relating to or arising out of
the use, handling, storage, treatment, recycling, generation, transportation,
release, spilling, leaking, pumping, pouring, emptying, discharging, injecting,
escaping, leaching, disposal, dumping or threatened release of Hazardous
Materials from, in, on, or onto the Property.
(w) "Environmental Expenses" means any liability, loss, cost or
expense including, without limitation, costs of investigation, cleanup, remedial
or response action, the costs associated with posting financial assurances for
the completion of response, remedial or corrective actions, the preparation of
any closure or other necessary or required plans or analyses, or other reports
or analyses submitted to or prepared by regulating agencies, including the cost
of health assessments, epidemiological studies and the like, retention of
engineers and other expert consultants, legal counsel, capital improvements,
operation and maintenance, testing and monitoring costs, power and utility
costs, taxes or fees, and administrative costs incurred by any governmental
agency or person.
3
<PAGE>
(x) "Environmental Noncompliance" means, but is not limited to: (1)
the Release of any Hazardous Material into the environment, any storm drain,
sewer, septic system or publicly owned treatment works, in violation of any
effluent or emission limitations, standards or other criteria or guidelines
established by any Environmental Law; (2) any noncompliance of physical
structure, equipment, process or premises with the requirements of building or
fire codes, zoning or land use regulations or ordinances, conditional use
permits and the like; (3) any noncompliance with federal, state or local
requirements governing occupational safety and health; (4) any operations,
procedures, designs, and the like at or on the Property which do not conform to
the statutory or regulatory requirements of any Regulation (including land use
regulations and ordinances) intended to protect public health, welfare and the
environment; (5) the failure to have obtained permits, licenses, variances or
other governmental authorizations necessary for the legal use and/or operation
of any equipment, process, or any activity at the Property; and (6) the
operation and/or use of any process or equipment in violation of any permit
condition, schedule of compliance, administrative or court order and the like,
as any of the foregoing may be applicable to the Property.
(y) "Equipment Leases" means any equipment leases or contracts for
use, operation, maintenance or lease-purchase of any furniture, fixtures,
equipment or personal property located at the Project, whether capital or
operating, together with all amendments thereto.
(z) "ERISA" means the Employee Retirement Income Security Act of 1974,
as amended.
(aa) "FF&E" means all furniture, fixtures, equipment, vehicles,
machinery, apparatus, appliances, and other articles of depreciable personal
property owned by Seller and located on the Land, or used in the ownership,
operation and maintenance of the Project including, without limitation, all
fixtures, furniture, furnishings, fittings, equipment, machinery, apparatus,
appliances, china, glassware, linens, silverware, and uniforms owned by Seller
and used in the ownership, operation, and maintenance of the Project, exclusive,
however, of the Consumables.
(bb) "Hazardous Materials" means any substance, matter, material,
waste, solid, liquid, gas, or pollutant, the generation, storage, disposal,
handling, recycling, release (or threatened release), treatment, discharge, or
emission of which is regulated, prohibited, or limited under: (1) the Resource
Conservation and Recovery Act, as amended by the Hazardous and Solid Waste
Amendments of 1984, as now or hereafter amended ("RCRA") (42 U.S.C. Sections
----
6901 et seq.), (2) the Comprehensive Environmental Response, Compensation and
Liability Act, as amended by the Superfund Amendments and Reauthorization Act of
1986, as now or hereafter amended ("CERCLA") (42 U.S.C. Sections 9601 et seq.),
------
(3) the Clean Water Act, as now or hereafter amended ("CWA") (33 U.S.C. Sections
---
1251 et seq.), (4) the Toxic Substances Control Act, as now or hereafter amended
("TSCA") (15 U.S.C. Sections 2601 et seq.), (5) the Clean Air Act, as now or
----
hereafter amended ("CAA") (42 U. S. C. Sections 7401 et seq.), (RCRA, CERCLA,
---
CWA, TSCA and CAA are collectively referred to herein as the "Federal
-------
4
<PAGE>
Environmental Laws"), (6) any local, state or foreign law, statute, regulation,
- ------------------
or ordinance analogous to any of the Federal Environmental Laws, and (7) any
other federal, state, local, or foreign law (including any common law), statute,
regulation, or ordinance regulating, prohibiting, or otherwise restricting the
placement, discharge, release, threatened release, generation, treatment, or
disposal upon or into any environmental media of any substance, pollutant, or
waste which is now or hereafter classified or considered to be hazardous or
toxic to human health or the environment. All of the laws, statutes, regulations
and ordinances referred to in subsections (6) and (7) above, together with the
Federal Environmental Laws are collectively referred to herein as "Environmental
-------------
Laws". The term "Hazardous Materials" shall also include, without limitation,
- ---- -------------------
(a) gasoline, diesel fuel, fuel oil, motor oil, waste oil, and any other
petroleum hydrocarbons, including any additives or other by-products associated
therewith, (b) asbestos and asbestos-containing materials in any form, (c)
polychlorinated biphenyls, (d) any substance the presence of which on the
Property: (x) requires reporting or remediation under any Environmental Law; (y)
causes or threatens to cause a nuisance on the Property or poses or threatens to
pose a hazard to the health or safety of persons on the Property; or (z) which,
if it emanated or migrated from the Property, could constitute a trespass,
nuisance or health or safety hazard to persons on adjacent property.
Notwithstanding the foregoing, the term "Hazardous Materials" shall not include
cleaning fluids and other similar operating supplies normal and customary for
the operation of a hotel to the extent that (i) same are located at the Project
in such normal and customary quantities and in compliance with all Environmental
Laws and all other applicable Regulations, (ii) no permit or other governmental
authorization is required in connection therewith, and (iii) same are not
disposed of at the Project.
(cc) "HSR Act" has the meaning given to such term in Article 6.
---------
(dd) "Inspection Period" has the meaning given to such term in Section
7.5. -------
- ---
(ee) "Land" means the land situated in Broward County, Florida, more
particularly described on Annex A, together with all and singular the rights
-------
pertaining to such land, including, without limitation, any right, title, and
interest of Seller in and to any and all adjacent streets, roads, alleys, or
rights-of-way.
(ff) "Letter of Credit" has the meaning given to such term in Section
3.2. -------
- ---
(gg) "Notice" has the meaning given to such term in Section 14.6.
------------
(hh) "Notification" means any summons, citation, directive, order,
claim, litigation, pleading, investigation, proceeding, judgment, letter, or any
other written or oral communication from any governmental instrumentality, any
entity or any individual, concerning any intentional or unintentional act or
omission which has resulted in or which may result in any Environmental
Noncompliance or Environmental Claim.
(ii) "Operating Agreements" mean all franchise agreements, licenses,
management agreements, service contracts and other operating agreements and
contracts relating
5
<PAGE>
to the ownership and/or operation of the Project, including, without limitation,
any agreements relating to the use by the Project and its guests of any golf
course, tennis facility or other off-site amenities, and any collective
bargaining agreement pertaining to the Project.
(jj) "Permitted Exceptions" means those exceptions or conditions
disclosed in the Title Binder to which Buyer does not object in accordance with
Section 4.4.
- -----------
(kk) "Personal Property" means all tangible and intangible personal
property of every kind and character owned by Seller, located on, attached to,
or used in connection with the Project (including, without limitation, computer
programs, books and records, sales and marketing files, customer lists,
historical files and all other records normally and customarily maintained by
the operator of a hotel); the plans, specifications, blueprints, maps, and
surveys of the Property, or any part thereof; Seller's interest in all licenses
or permits with respect to the Property; Seller's interest in all warranties or
guaranties relating to the Project, or any portion thereof; the abstract of
title, and, subject to the provisions of the Deed, Seller's interest in the
existing policy of title insurance, covering the Property; exclusive, however,
of the Assigned Receivables, the FF&E, Consumables, Trade Names and Equipment
Leases. The term "Personal Property" shall not include any policies of fire,
-----------------
hazard or liability insurance held or maintained by Seller, each of which shall,
subject to Article 11 below, be expressly retained by Seller.
----------
(ll) "Project" means the buildings and improvements comprising the
approximately 502 key hotel facility known as the "Bonaventure Hotel & Spa,"
situated on the Land.
(mm) "Property" means, collectively, the Land, the Tenant Leases, the
Project, the FF&E, the Consumables, the Personal Property, and Trade Names.
(nn) "Proration Date" has the meaning given to such term in Section
9.4. -------
- ---
(oo) "Purchase Price" means the total consideration to be paid by
Buyer to Seller for the purchase of the Property, as more fully described in
Article 3 hereof.
- ---------
(pp) "Qualified Designee" shall, at Buyer's election, mean Buyer's
lessee, property manager or other designee; provided, however, that at or prior
to Closing, Buyer shall provide Seller with evidence, reasonably acceptable to
Seller, that such designee has a net worth, calculated pursuant to generally
accepted accounting principles, equal to or in excess of $5,000,000.00.
(qq) "Quit-Claim Documents" means collectively, a quit-claim deed, in
the form of Annex K-I attached hereto, and a quit-claim bill of sale, in the
---------
form of Annex K-II attached hereto, executed and acknowledged by the each of the
----------
Quit-Claim Parties.
6
<PAGE>
(rr) "Quit-Claim Parties" means each of the entities listed on Annex
K-III attached hereto. -----
- -----
(ss) "Regulation" means any regulation, decree, code, ordinance, rule,
or law of any federal, state, municipal, or other governmental instrumentality,
including Environmental Laws.
(tt) "Release" means releasing, spilling, leaking, pumping, pouring,
emitting, emptying, discharging, ejecting, escaping, leaching, disposing,
seeping, infiltrating, draining, or dumping of any Hazardous Material. This term
shall be interpreted to include both the present and past tense, as appropriate.
(uu) "Seller" means BV Hotel & Spa Acquisition, Ltd., a Florida
limited partnership.
(vv) "Seller's Title Objection Response" has the meaning given to such
term in Section 4.5.
-----------
(ww) "Shadow Management" has the meaning given to such term in Section
5.2 below. -------
- ---
(xx) "Survey" means the survey of the Property prepared by the
Surveyor in accordance with the terms and provisions of Section 4.3.
-----------
(yy) "Surveyor" means a Registered Public Surveyor or a Registered
Professional Engineer duly and currently licensed by the State of Florida, and
approved by Buyer and the Title Company.
(zz) "Tenant Estoppel Certificate" means a certificate from each
lessee under a Tenant Lease in the form of Annex J (including such additions or
-------
modifications thereto as Buyer may have requested pursuant to Section 5.2(d)
below). --------------
(aaa) "Tenant Leases" means all leases or occupancy agreements for
space in the Project, together with all rents, issues, profits, and deposits
thereunder.
(bbb) "Title Binder" a commitment by the Title Company to issue an
ALTA Owner's Policy of Title Insurance, Form B-1992 issued by the Title Company
on behalf of the Title Underwriter in accordance with the terms and provisions
of Section 4.1.
-----------
(ccc) "Title Company" means Commonwealth Land Title Insurance
Company-National Title Services, 14643 Dallas Parkway, Suite 770, Lock Box 61,
Dallas, Texas 75240, Attention: Bruce J. Caldwell, Jr.
7
<PAGE>
(ddd) "Title Policy" means the Owner's Policy of Title Insurance
issued by the Title Company on behalf of the Title Underwriter in accordance
with the terms and provisions of Section 4.2.
-----------
(eee) "Title Review Period" has the meaning given to such term in
Section 4.4.
- -----------
(fff) "Title Underwriter" means Commonwealth Land Title Insurance
Company.
(ggg) "Trade Names" means any trade names, service marks, and goodwill
and any intangible assets related to such trade names, service marks or goodwill
currently owned by the Seller and relating to the Project.
(hhh) "WARN Act" has the meaning given to such term in Section 9.4.
-----------
(iii) "West Merchant" means West Merchant Bank Limited, the holder of
the mortgages and related liens currently encumbering the Project.
ARTICLE 2
AGREEMENT OF PURCHASE AND SALE
For and in consideration of One Hundred and No/100 Dollars ($100.00) in
hand paid by Buyer to Seller (for which amount the parties bargained and agreed
to as independent consideration for Seller's execution and delivery of this
Agreement, and which amount shall be retained by Seller notwithstanding any
other provision of this Agreement) and upon the terms and conditions hereinafter
stated, Seller hereby sells and agrees to convey the Property to Buyer, and
Buyer, in reliance upon the warranties and representations of Seller herein
contained, and subject to the conditions precedent herein contained, hereby buys
and agrees to take the Property from Seller. If this Agreement is ever construed
to be an option agreement, Buyer and Seller agree that the consideration paid by
Buyer to Seller as described above shall be independent consideration for such
option. Based upon such consideration and the mutual covenants of Buyer and
Seller herein contained, Seller agrees that any such option granted to Buyer is
irrevocable and Seller shall not terminate the option without the prior written
consent of Buyer except as may be expressly provided for herein.
ARTICLE 3
PURCHASE PRICE
3.1 Purchase Price. The Purchase Price to be paid by Buyer to Seller for
the Property shall be equal to Sixteen Million Two Hundred Thousand and No/100
Dollars
8
<PAGE>
($16,200,000.00). Except as herein expressly provided to the contrary, the
Purchase Price shall not be adjusted prior to, at or after the Closing.
3.2 Earnest Money Deposit. On or prior to the Effective Date, and as a
condition to the effectiveness hereof, Buyer shall deliver the Earnest Money
Deposit to the Title Company, and the Earnest Money Deposit shall thereafter be
held by the Title Company in escrow to be applied or disposed of by it as herein
provided. The Earnest Money Deposit shall be Five Hundred Thousand and No/100
Dollars ($500,000.00). The Earnest Money Deposit shall be invested by the Title
Company in its name in an interest bearing account through a bank or other
financial institution approved by Buyer and West Merchant. If the purchase and
sale hereunder is consummated in accordance with the terms and provisions
hereof, the Earnest Money Deposit shall at the election of Buyer, either be
refunded to Buyer at Closing or be applied to the cash portion of the Purchase
Price at the Closing. In all other events, the Earnest Money Deposit shall be
disposed of by the Title Company as herein provided. If the Closing occurs,
interest on the Earnest Money Deposit shall be paid to the Buyer. In all other
circumstances, interest on the Earnest Money Deposit shall be paid to the party
to whom the Earnest Money Deposit is paid. At Buyer's election, the Earnest
Money Deposit may be in the form of an irrevocable letter of credit (the "Letter
------
of Credit") in the amount of Five Hundred Thousand and No/100 Dollars
- ---------
($500,000.00), issued by Bank One, Texas, N.A. or another financial institution
reasonably acceptable to Seller and West Merchant, naming the Title Company as
the beneficiary and expiring no earlier than forty-five (45) days after the
scheduled Closing Date. The Letter of Credit shall provide that it will be
funded to the Title Company upon presentation of the Letter of Credit to the
issuer thereof accompanied by both (a) a draft and (b) an affidavit from an
officer of either Seller or West Merchant stating that (i) Buyer is in default
of its obligations under this Agreement and that West Merchant is entitled to
the proceeds of the Letter of Credit or (ii) that the expiration date of the
Letter of Credit is within thirty (30) days and same has not been extended or
replaced with a substitute Letter of Credit having an expiration date that is
not within thirty (30) days. The form of Letter of Credit attached hereto as
Annex H, is approved by Seller. The Letter of Credit shall be returned to Buyer
- -------
if, as and when Buyer is for any reason entitled to a return of the Earnest
Money Deposit. If Buyer delivers the Letter of Credit to the Title Company but
wrongfully fails to complete the purchase of the Property, then Seller may
request that the proceeds of the Letter of Credit be paid to the Title Company
and disbursed according to the terms of this Agreement.
3.3 Payment of Purchase Price. Subject to the provisions of Section 3.4,
-----------
the Purchase Price shall be payable to West Merchant, for Seller's account, by
federal funds wire transfer or other means approved by West Merchant in writing,
to such account or accounts as West Merchant shall designate.
3.4 FIRPTA Compliance. If Seller is not a "foreign person," as defined in
the federal Foreign Investment in Real Property Tax Act of 1980 and the 1984 Tax
Reform Act, as amended, then at or prior to the Closing Seller will deliver to
Buyer a certificate in the form of Annex C so stating. If Seller is a "foreign
-------
person" or if Seller fails to deliver the required certificate at or prior to
the Closing, then in either such event the payment of the Purchase Price
9
<PAGE>
to Seller at the Closing will be adjusted to the extent required to comply with
the withholding provisions of the federal tax law; and although the amount
withheld will still be paid at the Closing by Buyer, it will be retained by a
mutually acceptable escrow agent for delivery to the Internal Revenue Service
together with the appropriate federal tax law forwarding forms (and with copies
being provided both to Seller and to Buyer). The following parties are hereby
approved as mutually acceptable escrow agents in the event that withholding is
warranted in accordance with the immediately preceding sentence (listed in order
of decreasing preference): the Title Company, the Buyer's "independent CPA"
(i.e., a certified public accountant who is associated with an independent CPA
----
firm), the Buyer's "outside counsel" (i.e., a licensed attorney who is
----
associated with an independent law firm), the Seller's "independent CPA," the
Seller's "outside counsel," and a mutually acceptable financial institution.
3.5 Assumption of Assumed Operating Liabilities and Assignment of
Receivables.
(a) As used in this Section 3.5 the term "Assumed Operating
----------- -----------------
Liabilities" means all accounts payable for goods and services and other
- -----------
liabilities incurred by Seller in connection with the normal and customary
operation of the Property prior to the Closing including all so called "trade
payables", which, under generally accepted accounting principles, would be
reflected as liabilities on the Seller's balance sheet as of the Closing Date
and which remain outstanding on the Closing Date including those items listed on
Annex M-I hereto, but expressly excluding those items listed on Annex M-II
- --------- ----------
hereto. If the Property is operated at a loss between the Effective Date and the
Closing Date and does not generate sufficient revenues to pay current
liabilities and liabilities from prior periods, such liabilities shall not,
solely for that reason, be excluded from Assumed Operating Liabilities.
(b) At Closing, Buyer, or at Buyer's election, a Qualified Designee,
shall assume the Assumed Operating Liabilities. The Purchase Price contemplates
this assumption and no adjustment shall be made to the Purchase Price as a
result of this assumption. Seller makes no representation or warranty with
respect to the Assumed Operating Liabilities. At Closing, Seller and Buyer, or
at Buyer's election, a Qualified Designee, shall execute and deliver an
"Assignment and Assumption Agreement" (herein so called) in the form of Annex B
----------------------------------- -------
hereto, to evidence this assumption.
(c) At Closing, Seller shall assign to Buyer, or its lessee, property
manager or other designee (as Buyer shall specify) all accounts receivable,
prepaid items, credits, reserve accounts and escrow accounts of every kind and
character (including, without limitation, any furniture, fixture and equipment
reserve and any ad valorem or other tax reserve) and all other account balances
and receivables of seller which, as of the Closing Date, under generally
accepted accounting principles, would be reflected as assets on Seller's balance
sheet (the "Assigned Receivables"). The Purchase Price contemplates this
--------------------
assignment and no adjustment shall be made to the Purchase Price as a result of
this assignment. Seller makes no representation or warranty with respect to the
Assigned Receivables. At Closing Seller and Buyer, or at Buyer's
10
<PAGE>
election, a Qualified Designee, shall execute and deliver the Assignment and
Assumption Agreement, to evidence this assignment.
ARTICLE 4
TITLE AND SURVEY
4.1 Title Binder. Within ten (10) days after the Effective Date, Buyer, at
Buyer's cost and expense, shall obtain a current Title Binder. The Title Binder
shall be the commitment of the Title Company to issue an Owner's Policy of Title
Insurance, ALTA Form B-1992, in favor of Buyer, in the amount of the Purchase
Price, covering title to the Property (including easements, tenements,
hereditaments, rights, licenses, privileges, and appurtenances) on or after the
Effective Date, showing title in the name of the Seller, subject only to (a) the
Permitted Exceptions, (b) real estate taxes, assessments, water, sewer and
related charges (i) which to the extent constituting Assumed Operating
Liabilities, may or thereafter may be liens against the Property, or (ii) which
are not due and payable at the date of issuance of the Title Binder, (c)
Seller's existing mortgages and other liens, charges, claims, and encumbrances
of a definite or ascertainable amount, all of which shall be paid off by Seller
and released at Closing, and (d) matters which the Title Binder states will be
removed upon presentation by Seller of a seller's ALTA Statement (modified so
that the liabilities of Seller thereunder shall not exceed the liabilities of
Seller as set forth in this Agreement, and which ALTA Statement shall be
presented by Seller at Closing and which matters shall be removed from the Title
Policy at Closing). Within the period hereinabove specified in this Section 4.1,
-----------
Buyer, at Buyer's cost and expense, shall also obtain from the Title Company
complete and legible copies of all recorded or filed documents shown on the
Title Binder as conditions or exceptions to title to the Property, including
liens, and a certificate from the Title Company (or such other certificates as
may be acceptable to Buyer) stating that a search has been made of both the
state and county records wherein financing statements and security agreements
are filed under the Uniform Commercial Code of the state in which the Property
is located and that such search indicates that no security interests or liens of
any kind or nature, including, but not limited to, any equipment financing or
leasing arrangements, are claimed by any person against the Property, or any
part thereof. The Title Binder shall at Buyer's option, subject to the Title
Company's willingness to issue same, also contain an extended coverage
endorsement over all general or preprinted exceptions and all such other
endorsements, in such forms as Buyer may request. The Title Binder, including
each of the endorsements, shall be in form, substance and execution satisfactory
to Buyer.
4.2 Title Policy. At the Closing, Buyer, at Buyer's sole cost and expense,
shall obtain the Title Policy. The Title Policy shall be issued by the Title
Company on behalf of the Title Underwriter, subject only to Permitted Exceptions
(but not subject to matters (c) or (d) of Section 4.1 above or taxes other than
-----------
those specified in clause (b) of Section 4.1 above), in form and substance, and
-----------
containing such coverages, endorsements, and negotiated additional changes and
endorsements as set forth in the Title Binder (including, without limitation,
such deletions,
11
<PAGE>
changes and endorsements as provided in Section 4.5), dated concurrent with
-----------
Closing and showing title to be in Buyer or its assignee or nominee.
4.3 Survey. Within ten (10) days after the Effective Date, Buyer, at
Buyer's cost and expense, shall obtain six (6) copies of the Survey. The Survey
shall be dated after the Effective Date, and contain a surveyor's certificate in
favor of Buyer, Buyer's lender, and the Title Company and such other parties as
Buyer shall designate in form and substance satisfactory for, among other
things, deletion of the standard survey exception from the Title Policy and
consistent with and as required by this Section 4.3. The Survey shall (a) show
-----------
the location on the Property of all improvements, fences, evidences of abandoned
fences, lakes, ponds, creeks, streams, rivers, easements, roads, and rights of
way; (b) identify and show the dimensions of all easements and rights-of-way by
reference to recording information applicable to the documents creating such
easements or rights-of-way which have been recorded with the office of the
recorder for such documents in the County where the Property is located except
for those easements and rights of way which by their nature are not locatable on
the Survey; (c) show any encroachments onto the Property from an adjacent
property, and any protrusions into any easement or restricted area within the
Property, or any adjoining property; (d) locate all existing improvements (such
as buildings, power lines, fences and the like) and show the relationship
thereof by distances to the perimeter of the Property, the building lines, and
street lines; (e) locate and show the width of all dedicated public streets or
other roadways providing access to the Property, including all curb cuts and all
alleys; (f) locate all setback lines and similar restrictions covering or
affecting the Property or any part thereof and any violations of such
restrictions; (g) show thereon a legal description of the boundaries of the
Property by metes and bounds or other appropriate legal description; (h) show
the square footage of the footprint of each separate building; and (i) show all
parking spaces located on the Property (including handicapped spaces), together
with a total count of all such parking spaces. The Surveyor shall certify on the
Survey that (i) the survey was made on the ground; (ii) there are no visible or
recorded easements, discrepancies, conflicts, encroachments, or overlapping of
improvements except as shown on the Survey; (iii) the Survey shows all visible
or recorded easements or rights-of-way across or affecting the Property or any
other easements or rights-of-way of which the Surveyor has been advised,
including, without limitation, those matters affecting title reflected in the
Title Binder except those easements and rights of way which by their nature are
not locatable on the Survey; (iv) the Survey shows the location of all
buildings, structures and other improvements situated on the Property; (v) the
Survey conforms to and has been prepared in accordance with the "Minimum
Standard Detail Requirements for ALTA/ACSM Land Title Surveys" jointly
established and adopted by ALTA and ACSM in 1992, and include items 1, 2, 3, 4,
6, 7(a), 7(b)(1), 7(b)(2), 7(c), 8, 9, 10, 11 and 13 on Table A thereof 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; (vi) all streets abutting
the Property and all means of ingress to and egress from the Property have been
completed, dedicated,and accepted for public maintenance by Broward County,
State of Florida; (vii) the Property is not located within the 100-year flood
plain or other Special Flood Hazard Area designated or identified by FEMA or
shown on any FIRM Maps produced by FEMA; (viii) the Survey is a true, correct
and accurate representation of the
12
<PAGE>
Property; and (ix) such other matters as may be required by the Title Company to
allow it to issue the Title Policy in accordance with Section 4.2.
-----------
4.4 Review of Survey and Title Binder by Buyer. Buyer shall have a period
of ten (10) days (the "Title Review Period") after receipt of the last of the
-------------------
Title Binder, legible copies of the documents referred to therein as conditions,
exceptions, or reservations to title to the property, and other matters
delivered pursuant to Section 4.2, and the Survey, to review such items and to
-----------
deliver in writing such objections as Buyer may have to anything contained or
set forth in the Survey, in the documents, or in the Title Binder ("Buyer's
-------
Title Objection Notice"). Additionally, with respect to any updated Title Binder
- ----------------------
containing additional exceptions to title or requirements, Buyer shall have ten
(10) days from receipt thereof to deliver a supplemental Buyer's Title Objection
Notice. Any such items to which Buyer does not timely object in a Buyer's Title
Objection Notice shall be deemed to be Permitted Exceptions.
4.5 Seller's Obligations and Rights to Cure Buyer's Objections to Title. If
exceptions to the title to the Property have been raised in the Title Binder
other than Permitted Exceptions or, if the Survey does not conform to the
requirements specified in Section 4.3, and if Buyer delivers written objections
-----------
thereto to Seller in a Buyer's Title Objection Notice, then Seller shall have
the right, but except as hereinafter provided, not the obligation, prior to the
Closing Date, to satisfy such objections at Seller's sole cost and expense.
Within ten (10) days after receipt of a Buyer's Title Objection Notice, Seller
shall notify Buyer in writing as to which objections Seller shall cure and,
subject in all respects to the next sentence of this Sentence 4.5, which
------------
objections, if any, Seller is not willing to cure ("Seller's Title Objection
------------------------
Response"). Notwithstanding the foregoing, if any of Buyer's title objections
- --------
consist of delinquent taxes (other than those which are Assumed Operating
Liabilities), mortgages, deeds of trust, security agreements, construction or
mechanics' liens (excluding any construction or mechanic's lien filed before, on
or after the Effective Date in connection with any liability existing on or
after the Effective Date and constituting an Assumed Operating Liability), tax
liens or other liens or charges which are not Assumed Operating Liabilities and
which are in a fixed sum, are capable of computation as a fixed sum, same shall
be paid by Buyer from the proceeds otherwise payable to Seller but, if any of
the foregoing were created by an instrument executed by Seller after the
Effective Date, to that extent, notwithstanding anything herein to the contrary,
Seller, at its expense, shall be obligated to pay, discharge and cure same at or
prior to Closing. Seller shall also be obligated, at Seller's expense, prior to
Closing, to satisfy any objection raised in Buyer's Title Objection Notice
which, pursuant to Seller's Title Objection Response, Seller has agreed to cure.
Further, Seller shall use its good faith efforts without the requirement of the
expenditure of money (other than nominal postage, delivery, telephone and other
similar charges) to cure all title objections contained in Buyer's Title
Objection Notice. If Seller fails or refuses to cure any title objections
contained in Buyer's Title Objection Notice, Buyer shall have the right but not
the obligation to terminate this Agreement and receive a refund of the Earnest
Money Deposit. Notwithstanding anything to the contrary herein or in Section
-------
4.4, Buyer shall have the right to negotiate with the Title Company additional
- ---
deletions from and additional changes and endorsements to the Title Binder, but
no such additional deletions, changes or endorsements shall require any further
undertakings from Seller.
13
<PAGE>
ARTICLE 5
REPRESENTATIONS, WARRANTIES, COVENANTS, AND
AGREEMENTS OF SELLER
5.1 Representations and Warranties of Seller. Seller represents and
warrants to Buyer (and to any and all assignees of Buyer permitted hereunder) as
to the following as of the date this Agreement is fully executed and as of the
Closing Date, except where specific reference is made to another date or dates,
in which case such date or dates will be applicable:
(a) If Seller is a corporation, that it is duly incorporated, validly
existing, and in good standing under the laws of the State of its incorporation
and the State in which the Property is located with corporate power and
authority to own, lease, operate, and sell the Property, and to enter into this
Agreement; and if Seller is a partnership, that it is duly formed and validly
existing as a general or limited partnership (as the case may be) under the laws
of the State of its formation and the State in which the Property is located
with partnership power and authority to own, lease, operate, and sell the
Property, and to enter into this Agreement.
(b) The execution, delivery, and performance of this Agreement by
Seller has been duly and validly authorized by all necessary action of Seller.
(c) Except as required pursuant to the HSR Act, the WARN Act, the
COBRA Act or consents required in connection with transfers of the Project's
permits and licenses, including, without limitation, the existing liquor
license, no consent, waiver, approval, or authorization of, or filing,
registration, or qualification with, or notice to, any governmental
instrumentality or any other entity or person (including without limitation, its
directors or shareholders if Seller is a corporation, or its partners, if Seller
is a Partnership) is required to be made, obtained, or given by Seller in
connection with the execution, delivery, and performance of this Agreement. The
joinder of no entity or person other than Seller will be necessary to convey the
Property fully and completely to Buyer upon Closing.
(d) The execution, delivery, and performance of this Agreement by
Seller, will not conflict with, or with or without notice or the passage of
time, or both, result in a breach of, any of the terms or provisions of, or
constitute a default under, any indenture, mortgage, loan agreement, or
instrument to which Seller is a party or by which Seller or Seller's property is
bound, any applicable Regulation, or any judgment, order, or decree of any court
having jurisdiction over Seller or Seller's properties. Without limiting the
generality of the foregoing, the performance of this Agreement by Seller will
not require the consent of the holder of any lien encumbering the Property which
has not been obtained by Seller.
(e) This Agreement (i) has been duly executed and delivered by Seller
and (ii) constitutes a legal, valid, and binding obligation of Seller,
enforceable against Seller in
14
<PAGE>
accordance with the terms hereof, except as enforceability hereof may be limited
by bankruptcy, insolvency, or reorganization laws or to applicable principles of
equity.
(f) There are no attachments, executions, assignments for the benefit
of creditors, or voluntary or involuntary proceedings in bankruptcy, or under
any other debtor relief laws (i) contemplated by Seller, (ii) pending against
Seller, or (iii) of which Seller has received written notice, pending against
the Property.
(g) Seller has and, at the Closing Date, Seller will have and will
convey to Buyer fee simple title to the Property, free and clear of all
conditions, exceptions, and other matters which Seller is obligated to remove
pursuant to Section 4.5 hereof.
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(h) Intentionally deleted.
(i) Intentionally deleted.
(j) Intentionally deleted.
(k) To Seller's knowledge, Seller has not failed to disclose any fact
necessary to make any of Seller's warranties and representations not misleading
in any material respect; provided, however, the foregoing representation and
warranty is not intended to broaden or expand any other representation or
warranty of Seller provided elsewhere in this Section 5.1.
-----------
(l) Intentionally deleted.
(m) Since November 1, 1995, Seller has not (i) distributed any cash or
other property to its partners (whether by dividend or distribution, and whether
as a return of capital, a return on capital or otherwise), excluding, however,
any cash that was transferred from the Project's operating or reserve accounts
prior to November 1, 1995, (ii) made any payments or transfers of funds
whatsoever to any party affiliated with Seller or any of Seller's partners,
excluding, however, any fees or other payments due and payable to Criterion
pursuant to the Criterion Management Agreement which accrued and were payable
solely with respect to periods of time after November 1, 1995 or (iii) executed
any instrument amending, modifying or supplementing the Criterion Management
Agreement.
(n) Intentionally deleted.
Seller expressly acknowledges and agrees that (i) Buyer (and any assignee
of Buyer permitted hereunder) is and will be relying upon the representations
and warranties of Seller as aforesaid, (ii) the same are a material inducement
to Buyer to enter into this Agreement and to any assignee of Buyer to accept an
assignment of Buyer's rights and obligations hereunder, (iii) all such
representations and warranties (excluding those contained in Section 5.1(g)
--------------
above which shall not survive Closing) shall survive the delivery of the Deed
and the consummation of this transaction for a period of six (6) months
following the delivery of the Deed, and (iv) except as
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provided in the last sentence of this Section 5.1, shall not be affected by any
-----------
investigation or inspection, actual knowledge, verification, or approval either
by Buyer, any assignee of Buyer, or anyone acting on behalf of any of the
foregoing. Seller agrees to, and does hereby, indemnify Buyer and any and all
assignees from Buyer, and hold them harmless from and against any and all
liability, loss, cost, or expense (including reasonable attorney's fees, but
excluding consequential damages) arising out of or in any way connected with any
misrepresentation or breach of warranty or covenant of Seller contained in this
Agreement of which Seller is notified within six (6) months following the
delivery of the Deed of which Buyer did not have actual knowledge on the Closing
Date.
For purposes of this Section 5.1, Seller shall be deemed to have received
-----------
notice if Seller has received a written instrument containing the substance of
such information, but Seller shall not be deemed to have received notice solely
as a result of Criterion's receipt of any notice in its capacity as agent for
Seller.
5.2 Covenants and Agreements of Seller. Seller covenants and agrees with
Buyer (and any and all assignees of Buyer) as follows:
(a) Within ten (10) days after the Effective Date, Seller, at
Criterion's cost and expense (which shall be expressly excluded from Assumed
Operating Liabilities), will cause Criterion to deliver to Buyer to the extent
that same exist and are in possession of Seller or Criterion or are otherwise
readily available to Criterion, true, correct, and complete copies (or where
specifically indicated, original counterparts) of the following:
(i) An original, current rent roll in the same form as that
attached hereto as Annex F, certified by Seller to be true, correct, and
-------
complete as of the date of delivery.
(ii) All Tenant Leases with respect to the Property, including
any and all modifications, supplements, or amendments thereto, and evidence
sufficient to allow Buyer to determine the "base amount" or "base year" of any
common area maintenance charges, ad valorem taxes, or any other charges which,
under the Tenant Leases, are to be paid by the tenants on the basis of increases
in such charges over such "base."
(iii) All Equipment Leases encumbering the Project on the
Effective Date.
(iv) Copies of all Operating Agreements pertaining to the Project
which are then in effect.
(v) An original, current inventory of all FF&E and Consumables on
hand, each certified by Seller to be true, correct, and complete as of the date
of delivery.
(vi) All warranties and guaranties relating to the Property, or
any part thereof, or to the FF&E or Personal Property.
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(vii) All financial statements prepared by or at the request of
Seller for the Property for any period after January 1, 1992, certified by
Criterion to be true, correct, and complete as of the date of delivery.
(viii) All permits with respect to the ownership and operation of
the Property, including, but not limited to, building permits, certificates of
occupancy, and Permits; all notices received by or in the possession of Seller
or Criterion from governmental instrumentalities with respect to any such
permits or compliance of the Property with any Regulations, and any response
thereto from or in the possession of Seller; and all materials, including
applications, ordinances and legal opinions, in the possession of Seller
relating to the zoning and platting of the Property.
(ix) All fire, hazard, liability, and other insurance policies
currently in force with respect to the Property.
(x) Real estate and personal property tax statements with respect
to the Property for the last three (3) full calendar years, as well as the name
of any tax service or valuation consultant employed by Seller with respect to
the Property during the last three (3) years.
(xi) All leasing or other commission agreements with respect to
the Property.
(xii) The "as-built" plans and specifications with respect to the
Property.
(xiii) Intentionally deleted.
(xiv) All written reports of any compliance or regulatory audit,
inspection, or investigation of the structural, soil, or environmental condition
of the Property ordered by or in the possession of Seller including, without
limitation, any report relating to the compliance of the Property with the
Americans With Disabilities Act.
(xv) Any other documents or reports ordered by or in the
possession of Seller that are material to the physical, economic, or legal
condition of the Property.
(xvi) The Employee List and Employee Plan List. In no event shall
Seller, and/or any affiliate of Seller offer post-closing employment to, or
accept post-closing employment from any employee listed on the Employee List for
a period of one (1) year after the Closing.
(xvii) Any other documents or reports ordered by or in the
possession of Seller that are material to the physical, economic, or legal
condition of the Property.
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(b) Seller will promptly cause Criterion to advise Buyer in writing of
any changes, additions, or deletions, or modifications in or to any of the
materials to be delivered to Buyer pursuant to Section 5.2(a), and will cause
--------------
Criterion to provide Buyer with true, correct, and complete copies of such
changes, additions, deletions, or modifications.
(c) From the Effective Date until the Closing Date or earlier
termination of this Agreement, Seller will cause Criterion to cooperate fully
with Buyer in the conduct of Buyer's due diligence. Seller will permit Buyer,
any current and prospective lenders to Buyer, and the agents, attorneys,
accountants, and representatives of all of the foregoing, upon reasonable notice
to tenants under the Tenant Leases (but without having to obtain further
approval), to enter upon and inspect the Property, all premises leased to
tenants, all mechanical equipment, systems, and fixtures forming a part thereof,
and all books and records with respect to the Property and its operations
located at the Property or otherwise within the possession of Seller or
Criterion. Seller will permit Buyer, any current and prospective lenders to
Buyer, and the agents, attorneys, accountants, and representatives of all of the
foregoing, at no cost or expense to Seller, to audit and make extracts from such
books and records, to review tax returns and accountants work papers relating to
the Property and its operation, as well as all sales files and maintenance
records, and to conduct such investigations, tests, or inspections as Buyer
deems appropriate including, without limitation, intrusive sampling studies to
ascertain whether or not there are any Hazardous Materials on, in, or under the
Property. In conducting any such entry, investigation, test, or inspection, no
party permitted entry hereunder will unreasonably interfere with the operation
of the Property or the peaceable possession by individual tenants of their
respective premises. If, in the conduct of any such investigations, tests, or
inspections, any party discovers facts or conditions which by Regulation it must
report or otherwise disclose to any third party (including, without limitation,
to any governmental instrumentality), Seller agrees that such party may make
such required report or disclosure without any liability whatsoever to Seller.
Additionally, promptly following the execution of this Agreement, Seller shall
cause Criterion to provide to Buyer's representatives and independent account
firm access to financial and other information relating to the Property in the
possession of or otherwise available to Seller and/or Criterion which would be
sufficient to enable Buyer's representatives and independent accounting firm to
prepare audited financial statements for 1993, 1994 and 1995 in conformity with
generally accepted principles and to enable them to prepare such statements,
reports or disclosures as Buyer may deem necessary or advisable. Criterion shall
provide to Buyer'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
cause Criterion to authorize any attorneys who have represented Seller or
Criterion in material litigation pertaining to or affecting the Property to
respond, at Buyer's expense, to inquiries from Buyer'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 and 1995
have been audited, promptly after the execution of this Agreement Seller shall
cause Criterion to provide Buyer with copies of such audited financial
statements and shall cooperate with Buyer's representatives and independent
public accountants to enable them to contact the auditors who prepared such
audited financial statements and to obtain, at Buyer's expense, a reissuance of
such audited financial statements.
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<PAGE>
(d) Not less than thirty (30) days prior to the scheduled Closing
Date, Seller will cause Criterion as agent for Seller, to deliver to each tenant
under the Tenant Leases the request letter in the form attached hereto as Annex
-----
I (including such additions or modifications thereto as Buyer may request based
- -
upon its review of the Tenant Leases), and will cause Criterion to use its best
efforts to cause each tenant to execute and deliver to Buyer a Tenant Estoppel
Certificate on or before the Closing Date.
(e) On or before the Closing Date, Seller will cause Criterion to
furnish to Buyer and the Title Company all information necessary to compute any
prorations required hereunder and/or to schedule, quantify, audit and determine
all Assumed Operating Liabilities as herein required.
(f) From the Effective Date until the Closing Date or earlier
termination of this Agreement, Seller shall, to the extent of available funds
from the operation of the Project, at its sole cost and expense, cause Criterion
to:
(i) Operate the Property diligently and in the ordinary course of
its business and maintain Consumables at or above the inventory levels existing
on the Effective Date.
(ii) Promptly (and in any event, prior to the Closing) correct or
repair any condition on or about the Property revealed by any of Buyer's
inspections or tests made hereunder to be inconsistent with Seller's warranties
and representations.
(iii) Keep, maintain, and repair the Property in a good and
presentable condition and comply with all Regulations affecting the Property.
(iv) Keep, observe, and perform its obligations as landlord under
the Tenant Leases, and not terminate or cause the termination of any Tenant
Lease except as the result of the default of the tenant thereunder.
(v) Not enter into any written or oral contract or other
agreement that will not be fully performed by Seller on or before the Closing
Date or that will not be cancelable by Buyer without liability on or after the
Closing Date, without the prior written consent of Buyer.
(vi) Not to enter into any Tenant Leases for the Project or
amend, alter, modify, or extend any existing Tenant Lease for the Project
without obtaining Buyer's prior written consent.
(vii) Advise Buyer promptly of any litigation, arbitration, or
administrative hearing before any governmental instrumentality concerning or
affecting the Property which is instituted or threatened after the date hereof.
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<PAGE>
(viii) Not take, or omit to take, any action that would have the
effect of violating any of the representations, warranties, covenants, and
agreements of Seller contained in this Agreement.
(ix) Not sell, assign, or convey any right, title, or interest
whatsoever in or to the Property or any portion thereof, or create (other than
with respect to Assumed Operating Liabilities and mechanic's or materialmen's
liens which accrue and/or are filed as a result of any non-payment thereof) any
lien, encumbrance, or charge thereon without promptly discharging the same.
(x) Advise Buyer promptly (i) upon obtaining knowledge that a
Release has occurred at or upon the Property and/or (ii) upon receipt of a
Notification pertaining to the Property.
(xi) Maintain in full force and effect all fire, hazard,
liability and other insurance policies in effect for the Property on the
Effective Date.
(xii) Cooperate in all reasonable respects with Buyer's efforts
to obtain all necessary licenses and permits to allow the sale of alcoholic
beverages at the Project upon Closing. In the event Buyer is unable to obtain
the necessary permits prior to Closing, Seller shall cause Criterion to
cooperate with Buyer in all reasonable respects (including, without limitation,
at Buyer's request, entering into any lawful lease and/or management arrangement
with respect to alcoholic beverage service) in order to permit Buyer to lawfully
operate the Project after Closing based upon the existing liquor licenses and
permits until such time as Buyer is able to obtain same, subject to Buyer's
agreement to indemnify and hold Seller and Criterion harmless in connection
therewith.
(xiii) Permit Buyer to locate one or more employees of Buyer at
the Property on a twenty-four (24) hour per day basis to observe operations and
thereby perform Shadow Management of the Property. As used herein, the term
"Shadow Management" shall mean that Buyer's designated employee(s) shall have
-----------------
continuous access to all books, customer lists, sales and other records, as well
as all financial and other information referenced in Section 5.2(a) above, shall
--------------
have access to and, on request, be granted interviews with the general manager,
senior staff and other employees at the Property, shall, to the extent
reasonably practical, be consulted on all significant operational decisions made
by the general manager and/or senior staff and shall have the right to review
all prior and future bookings (meeting room and food and beverage), purchase
orders,and other operational matters and agreements accepted and/or entered into
by Seller and/or Criterion. Notwithstanding the foregoing, except as elsewhere
provided in this Agreement to the contrary, the granting to Buyer of such Shadow
Management rights shall not give Buyer any rights to control the operation of
the Project and/or approve any decisions of the employees of the Project and
Buyer shall not have any liability whatsoever for the actions of the employees
of the Project and/or the operations of the Project during such period.
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<PAGE>
(xiv) Operate the Project in substantially the same manner as
operated prior to the Effective Date; provided, however, that subject the
payment to be made pursuant to Section 3.3 if, as and when Closing occurs,
-----------
Seller shall not, and shall instruct Criterion not to make any payments to West
Merchant under the indebtedness secured by the Property (whether principal,
interest, penalties or otherwise).
(xv) Except as provided in Section 5.2(f)(xiv) preceding, pay all
normal and customary operating expenses of the Property in the ordinary course
of business as same become due and payable.
(xvi) Neither distribute, nor permit Criterion on its behalf to
distribute any cash or other property to Seller's partners (whether by dividend
or distribution, or whether as a return on capital, a return of capital or
otherwise) excluding, however, any cash that was transferred from the Project's
operating or reserve accounts prior to November 1, 1995, nor make any payments
or transfers of funds whatsoever to any party affiliated with Seller or any of
Seller's partners, excluding, however, any fees or other payments due and
payable to Criterion under the Criterion Management Agreement which accrue and
are payable solely with respect to the period of time from the Effective Date
through the Closing Date.
(xvii) Cause Criterion to apply all operating income of the
Project, first to payment of the operating expenses described in Section
-------
5.2(f)(xv) above and, thereafter, to the reduction of the Assumed Operating
- ----------
Liabilities.
(xviii) At Closing, Seller, at no cost to Buyer, shall cause the
Criterion Management Agreement to be terminated by execution of a termination
agreement; provided, however, that any indemnity or similar provisions of the
Criterion Management Agreement which survive such termination shall (a) to the
extent constituting Assumed Operating Liabilities, be assumed pursuant to
Section 3.5 above, and (b) to the extent not constituting Assumed Operating
- -----------
Liabilities, survive as a contractual claim against Seller (but not as a claim
against Buyer or the Project).
(xix) Not (a) pay to Criterion any sums pursuant to the Criterion
Management Agreement (whether as deferred payments, penalty payments,
termination fees, incentive fees, base fees or otherwise) other than
reimbursable expenses and management fees which accrue and are payable with
respect to the period of time from the Effective Date through the Closing Date
or (b) execute any document amending, modifying or supplementing the management
agreement for the Property between Seller and Criterion.
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ARTICLE 6
REPRESENTATIONS AND WARRANTIES OF BUYER
Buyer represents, warrants, covenants, and agrees with Seller as to the
following as of the date this Agreement is fully executed and as of the Closing
Date, except where specific reference is made to another date or dates, in which
case such date or dates will be applicable.
(a) Buyer is a corporation, validly existing, and in good standing
under the laws of the State of Virginia with all necessary power and authority
to own, lease, operate, and purchase the Property, and to enter into this
Agreement.
(b) The execution, delivery, and performance of this Agreement by
Buyer has been duly and validly authorized by all necessary action of Buyer.
(c) No consent, waiver, approval, or authorization of, or filing,
registration, or qualification with, or notice to, any governmental
instrumentality or any other person is required to be made, obtained, or given
by Buyer in connection with the execution, delivery, and performance of this
Agreement.
(d) The execution, delivery, and performance of this Agreement by
Buyer, will not conflict with, or with or without notice or the passage of time,
or both, result in a breach of, any of the terms or provisions of, or constitute
a default under, any indenture, mortgage, loan agreement, or instrument to which
Buyer is a party or by which Buyer or Buyer's property is bound, any applicable
Regulation, or any judgment, order, or decree of any court having jurisdiction
over Buyer or Buyer's properties.
(e) This Agreement has been duly executed and delivered by Buyer and
constitutes a legal, valid, and binding obligation of Buyer, enforceable against
Buyer in accordance with the terms hereof, except as enforceability hereof may
be limited by bankruptcy, insolvency, or reorganization laws or to applicable
principles of equity.
(f) There are no attachments, executions, assignments for the benefit
of creditors, or voluntary or involuntary proceedings in bankruptcy, or under
any other debtor relief laws contemplated by or pending or threatened against
Buyer.
(g) Pursuant to the current position of the staff of the Pre-Merger
Notification Office of the Federal Trade Commission, no filing is required under
the Hart-Scott-Rodino AntiTrust Improvements Act of 1976 (the "HSR Act") in
-------
connection with this Agreement or the Closing hereunder. Buyer agrees to and
does indemnify Seller from any fine or penalty resulting from any failure of
Buyer to comply with the HSR Act in connection with this Agreement or the
Closing hereunder.
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ARTICLE 7
CONDITIONS PRECEDENT TO BUYER'S PERFORMANCE
7.1 Performance of Seller's Obligations. Buyer shall not be obligated to
perform any of Buyer's obligations under this Agreement that are to be performed
on or prior to Closing unless, within the designated time period, Seller, at the
cost and expense of the party herein designated, has furnished or caused to be
furnished to Buyer all items required to be furnished to Buyer pursuant to other
sections of this Agreement, and such other documents as are required or
customarily delivered in order to effect the transfer of property similar to the
Project to Buyer at for the Closing; provided, however, Buyer shall give Seller
five (5) days' written notice of the necessity for obtaining such other
documents.
7.2 Satisfaction of Buyer's Objections to Survey and/or Title Binder. Buyer
shall not be obligated to perform any of Buyer's obligations under this
Agreement that are to be performed on or prior to Closing if Seller fails to
cure any of Buyer's objections made in accordance with Section 4.4, or if the
-----------
Title Company fails to deliver to Buyer the Title Policy in the form provided in
Section 4.2 or if the search performed or obtained by Buyer pursuant to Section
- ----------- -------
9.4(g) below does not reflect that no security interests or liens are claimed by
- ------
any person against the Property or any part thereof other than those to be
released at Closing.
7.3 Breach of Seller's Representations, Warranties, Covenants, and
Agreements. Buyer shall not be obligated to perform any of Buyer's obligations
under this Agreement that are to be performed on or prior to Closing unless all
the representations and warranties by Seller set forth in Section 5.1 of this
-----------
Agreement are true and correct as of the date this Agreement is fully executed
and as of the Closing Date, and unless Seller on or prior to the Closing Date
has met, complied with, and performed any conditions, covenants, or agreements
on Seller's part required by the terms of this Agreement.
7.4 No Condemnation. Buyer shall not be obligated to perform under this
Agreement if on the Closing Date any portion of the Property has been condemned
or sold under threat of condemnation, or is the subject of a condemnation
proceeding by a governmental authority with the power and authority to condemn
such portion of the Property.
7.5 Buyer's Investigation. Buyer shall not be obligated to perform under
this Agreement if on or before forty (40) days after the Effective Date (the
period of time from the Effective Date until such time being herein referred to
as the "Inspection Period"), Buyer has delivered written notice to Seller that
-----------------
Buyer, in its sole and absolute discretion, finds any matter reflected in the
documents delivered to Buyer pursuant to Section 5.2(a), or discovered by Buyer
--------------
or its lender in connection with Buyer's inspection of the Property including,
without limitation, Buyer's audit of the financial statements and other books
and records of the Project, Buyer's physical inspections of the Project and any
structural, mechanical and/or environmental inspection of the Project performed
by or on behalf of Buyer or its lender, pursuant to this Agreement, to be
unsatisfactory in Buyer's sole and absolute discretion. Upon the delivery of
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such notice, (i) this Agreement shall terminate, (ii) the Title Company shall
return the Earnest Money Deposit to Buyer, and (iii) the parties shall be fully
released and discharged from any liability or obligations hereunder each to the
other. Notwithstanding the foregoing, or anything else herein to the contrary,
the Inspection Period shall be extended by one (1) day for each day after the
date that is twenty (20) days after the Effective Date that Buyer or the Title
Company is not in receipt of the executed original legal opinion(s) of counsel
to the Quit-Claim Parties as provided for in this Agreement and the Buyer's
Certificate; provided, however, in no event shall the failure of the receipt of
such legal opinion(s) cause the Inspection Period to be extended by more than a
total of an additional fifty (50) days.
7.6 Estoppel Certificates. Buyer shall not be obligated to perform any of
Buyer's obligations under this Agreement that are to be performed on or prior to
Closing unless on or before the Closing Date, Buyer receives from each tenant
under the Tenant Leases a Tenant Estoppel Certificate substantially in the form
attached hereto as Annex J. Within a reasonable time after receiving any Tenant
-------
Estoppel Certificate which is not satisfactory to Buyer, Buyer shall not notify
Seller of such fact.
7.7 Adverse Change. Buyer shall not be obligated to perform any of Buyer's
obligations under this Agreement that are to be performed on or prior to Closing
if any document or notice delivered to Buyer pursuant to Section 9.3(a), is
--------------
found by Buyer, in Buyer's reasonable discretion, to reflect a material adverse
change in the condition or operation of the Property (exclusive, however, of
seasonal decreases in bookings or inventory levels).
7.8 Hazardous Materials. Buyer shall not be obligated to perform any of
Buyer's obligations under this Agreement that are to be performed on or prior to
Closing if any inspection and/or sampling results conducted by Buyer to
ascertain whether there are any Hazardous Materials on, in, or under the
Property and/or whether any Release has occurred on, in or under the Property
indicates the presence and/or occurrence thereof which either (a) is material
and of which Buyer did not have actual knowledge prior to the expiration of the
Inspection Period, or (b) occurred after the expiration of the Inspection
Period.
7.9 Opinion of Seller's Counsel. Buyer shall not be obligated to perform
any of Buyer's obligations under this Agreement that are to be performed on or
prior to Closing unless Seller's counsel delivers to Buyer a legal opinion with
respect to the matters covered in Sections 5.1(a), 5.1(b) and 5.1(e)(i), and
--------------- ------ ---------
counsel to the Quit-Claim Parties deliver to Buyer and the Title Company one or
more legal opinions as to the authority of the Quit-Claim Parties to execute and
deliver the Quit-Claim Documents and the enforceability of the Quit-Claim
Documents; each such opinion being in form and substance satisfactory to Buyer
and Buyer's counsel in their reasonable discretion.
7.10 Quit-Claim Documents. Buyer shall not be obligated to perform any of
Buyer's obligations under this Agreement that are to be performed on or prior to
Closing unless (i) the Title Company has received and is unconditionally
prepared to release and record fully executed and appropriately acknowledged
original counterparts of the Quit-Claim Documents and has also
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received one or more opinions of counsel to the Quit-Claim Parties in the form
described in the Buyer's Certificate and in form and content acceptable to the
Title Company and (ii) the Title Company is prepared to issue the Title Policy
free from any exception related to the litigation that is the subject of the
Quit-Claim Documents or any other litigation or forfeiture proceeding of any
kind or character with respect to the Seller or the Property, or to which the
Seller is a party.
7.11 Criterion's Performance. Buyer shall not be obligated to perform any
of Buyer's obligations under this Agreement that are to be performed on or prior
to Closing unless, within the designated time period Criterion, at the cost and
expense of the party herein provided, has (i) furnished or caused to be
furnished to Buyer all items required to be furnished to Buyer by Criterion, and
(ii) performed all obligations that Criterion is hereunder required to perform,
including, without limitation, the agreements of Criterion contained in the
Consent and Joinder attached to this Agreement.
7.12 Change in Facts Certified in Buyer's Certificate. Buyer shall not be
obligated to perform any of Buyer's obligations under this Agreement that are to
be performed on or prior to Closing if (i) any fact or circumstance certified,
or to be certified by Buyer in the Buyer's Certificate changes after the
Effective Date such that the certification made, or to be made by Buyer is no
longer accurate, (ii) Buyer delivers written notice of such changed fact or
circumstance to Seller and the Quit-Claim Parties and (iii) the Quit-Claim
Parties do not accept such changed fact or circumstance and authorize the Title
Company to release the Quit-Claim Documents notwithstanding such changed fact or
circumstance.
7.13 Buyer's Right to Waive Conditions Precedent. Buyer may, at Buyer's
sole option, elect to waive any of the conditions precedent to performance of
its obligations hereunder contained in this Article 7 by giving written notice
---------
to Seller of its election to waive any such condition precedent at any time on
or before the Closing Date. If Buyer elects to waive any such condition
precedent, this Agreement shall continue in full force and effect, and the
obligations of Buyer and Seller hereunder shall be unaffected by such waiver,
except that such condition that shall have been so waived shall no longer be a
condition to this Agreement.
7.14 Termination if Conditions Precedent not Satisfied or Waived. If any of
the conditions precedent to the performance of Buyer's obligations specified in
this Article 7 have not been satisfied by Seller or waived by Buyer, then Buyer
---------
may, by written notice delivered to Seller, as Buyer's sole and exclusive remedy
(unless the existence of such fact or circumstance independently provides an
additional remedy to Buyer pursuant to any other provision of this Agreement)
terminate this Agreement on the Closing Date (or earlier if Buyer determines
that any condition precedent herein cannot be satisfied prior to the Closing
Date). On such termination, the Earnest Money Deposit shall be forthwith
returned to Buyer by the Title Company on receipt of written notice from Buyer
that is not contested in writing by Seller within five (5) days of Seller's
receipt (or deemed receipt) of a copy thereof, that the conditions precedent to
the performance of Buyer's obligations hereunder have not been satisfied by
Seller or waived by Buyer, which written notice need not be accompanied by any
other document or consent of any other party hereto. However, Seller shall, on
written request from Buyer, and
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<PAGE>
provided that Seller is not then in good faith disputing Buyer's determination
that Seller has failed to perform hereunder as provided above, promptly issue
such instructions as may be reasonably required to cause the Title Company to
return the Earnest Money Deposit to Buyer and, thereafter, the parties hereto
shall have no further obligations hereunder, one to the other.
ARTICLE 8
CONDITION PRECEDENT TO SELLER'S PERFORMANCE
8.1 Performance of Buyer's Obligations. Seller shall not be obligated to
perform under this Agreement unless Buyer has performed all of Buyer's
obligations under this Agreement including payment of the Purchase Price.
8.2 Buyer's Certificate. Seller shall not be obligated to perform under
this Agreement (i) if Buyer fails to execute and deliver to Seller the Buyer's
Certificate for reasons other than as hereinafter provided in clause (ii), or
(ii) if Buyer notifies Seller of a changed fact or circumstance certified, or to
be certified in the Buyer's Certificate pursuant to Section 7.12 above and, as a
------------
result, Buyer fails to deliver the Buyer's Certificate and the Quit-Claim
Parties do not accept such changed fact or circumstance and authorize the Title
Company to release the Quit-Claim Documents notwithstanding such changed fact or
circumstance.
8.3 Termination if Condition Precedent not Satisfied. If the conditions
precedent to the performance of Seller's obligations hereunder have not been
satisfied by Buyer in accordance with Sections 8.1 and 8.2, or waived by Seller,
--------------------
then Seller, as its sole and exclusive remedy, by written notice delivered to
Buyer, may terminate this Agreement on the Closing Date. On such termination,
the Earnest Money Deposit shall either (i) if such termination is pursuant to
Section 8.1 or Section 8.2(i) above, be delivered to Seller by the Title Company
- ----------- --------------
on receipt of written notice from Seller, that is not contested in writing by
Buyer within five (5) days of Buyer's receipt (or deemed receipt) of a copy
thereof, that the conditions precedent to the performance of Seller's
obligations hereunder have not been satisfied by Buyer or waived by Seller,
which written notice need not be accompanied by any other documents or consent
of any other party hereto (however, Buyer shall, on written request from Seller,
and provided that Buyer is not then in good faith disputing Seller's
determination that Buyer has failed to perform hereunder as provided above,
promptly issue such instructions as may be reasonably required to cause the
Title Company to release the Earnest Money Deposit to Seller), or (ii) if such
termination is pursuant to Section 8.2 (ii) above, be delivered to Buyer by the
----------------
Title Company (and, as provided in Section 7.14 above, Seller shall execute such
------------
documents as are necessary to effect such release).
26
<PAGE>
ARTICLE 9
CLOSING
9.1 Date and Place of Closing. The Closing hereunder shall take place in
the offices of Buyer's legal counsel in Dallas, Texas. The Closing Date shall be
the date that is sixty (60) days after the Effective Date, or, at the election
of Buyer, any earlier date provided that Buyer provides Seller with five (5)
days prior notice of such earlier date.
9.2 Postponement of Closing by Buyer or Seller. Buyer may, at its option,
postpone the Closing if on the Closing Date Buyer has made objections in
accordance with Section 4.4 that have not been cured or waived, or if the Title
-----------
Company has advised that it is not able to issue the Title Policy in accordance
with Section 4.2 on the Closing Date, then, at Buyer's sole option, the Closing
-----------
may be postponed not less than five (5) nor more than thirty (30) days to such
date as may be designated by Buyer in a written notice to Seller, and such
postponed date shall then be the Closing Date. Seller may, at Seller's option,
postpone the Closing if on the Closing Date, Seller (i) has failed to cure any
objection to title which pursuant to Section 4.5 above Seller has agreed and/or
-----------
is obligated to cure, other than the release of the liens benefitting West
Merchant (for which no extension shall be granted), (ii) Seller is diligently
and continuously endeavoring to cure such objection, and (iii) Buyer, in its
sole discretion, is not willing to waive such title defect, then, at Seller's
option, the Closing may be postponed not less than five (5) nor more than thirty
(30) days to such date as may be designated by Seller in a written notice to
Buyer, and such postponed date shall then be the Closing Date.
9.3 Items to be Delivered at the Closing.
(a) Seller. At the Closing (except where another time or place is
herein expressly provided), Seller shall deliver to Buyer, at Seller's sole cost
and expense (except as herein specifically provided to the contrary), each of
the following items:
(i) Intentionally deleted.
(ii) The Deed, duly executed and acknowledged by Seller, and in
form for recording, conveying title to the Property to Buyer as provided in
Section 4.5 above.
- -----------
(iii) The Assignment, duly executed by Seller, conveying title to
the FF&E, Consumables, Personal Property and the Tenant Leases to Buyer or its
lessee, property manager or other designee (as Buyer shall specify), subject to
the Permitted Exceptions and all other matters or documents. The Assignment
shall, among other things:
(1) Convey to Buyer or its lessee, property manager or other
designee (as Buyer shall specify) all of the Tradenames, FF&E and Consumables.
27
<PAGE>
(2) Transfer to Buyer or its lessee, property manager or
other designee (as Buyer shall specify) all of Seller's interest as landlord in
the Tenant Leases encumbering the Project as of the Closing Date. However, Buyer
shall not assume any losses, liabilities, costs (including reasonable attorney's
fees), expenses, penalties, judgments, claims, causes of action, or demands of
any kind or character arising or occurring under the Tenant Leases prior to the
Closing Date to the extent same are not Assumed Operating Liabilities, and same
shall remain the liabilities of Seller, who shall satisfy same.
(3) Subject to the following sentence, transfer to Buyer or
its lessee, property manager or other designee (as Buyer shall specify) all of
Seller's interest in the Equipment Leases encumbering the Project on the Closing
Date. After the expiration of the Inspection Period, if Buyer has not exercised
its termination rights under this Agreement, Seller shall cause Criterion to
take such actions, to terminate any Equipment Leases which Buyer notifies Seller
in writing that Buyer desires to have terminated, and any and all fees or
expenses associated with the termination of such Equipment Leases shall for all
purposes under this Agreement be Assumed Operating Liabilities. However, Buyer
shall not assume any losses, liabilities, costs (including reasonable attorney's
fees), expenses, penalties, judgments, claims, causes of action or demands of
any kind or character arising or occurring under such Equipment Leases prior to
the Closing Date to the extent same are not Assumed Operating Liabilities, and
same shall remain the liabilities of Seller, who shall satisfy same.
(4) Subject to the following sentence, assign to Buyer or
its lessee, property manager or other designee (as Buyer shall specify) all
Operating Agreements. After the expiration of the Inspection Period, if Buyer
has not exercised its termination rights under this Agreement, Seller shall
cause Criterion to take such actions, to terminate any Operating Agreements
which Buyer notifies Seller in writing that Buyer desires to have terminated,
including, without limitation, the existing management agreements with
Criterion, and any and all fees or expenses associated with termination of such
Operating Agreements, other than the existing management agreement with
Criterion which shall be terminated at no cost to Buyer, shall for all purposes
under this Agreement be Assumed Operating Liabilities. However, Buyer shall not
assume any losses, liabilities, costs (including reasonable attorney's fees),
expenses, penalties, judgments, claims, causes of action or demands of any kind
or character arising or occurring under such Operating Agreements prior to the
Closing Date to the extent same are not Assumed Operating Liabilities, and same
shall remain the liabilities of Seller, who shall satisfy same.
(5) Assign to Buyer or its lessee, property manager or other
designee (as Buyer shall specify) all warranties and guarantees pertaining to
the Project.
(iv) A current rent roll in the same form as that attached hereto
as Annex F, duly certified by Criterion.
-------
(v) Intentionally deleted.
28
<PAGE>
(vi) Evidence satisfactory to the Title Company that all
necessary corporate, partnership, or other action on the part of Seller has been
taken with respect to the execution and delivery of this Agreement and the
consummation of the transaction contemplated hereby so that all of such
documents are or will be validly executed and delivered and will be binding upon
the Seller.
(vii) Intentionally deleted.
(viii) Unless previously provided to Buyer in connection with its
inspection and approval of the Property, deliver, or cause Criterion to deliver
to Buyer at the Project a complete set (to the extent possessed by Seller or
Criterion) of all architectural, mechanical, electrical, plumbing, drainage, and
similar plans and specifications used in the construction of the Project; all
books and records pertaining to the Property customarily maintained on the site;
and all promotional brochures, forms, leases, posters, signs, stationery, and
similar items which relate to or are used by Seller in the conduct of its
business on the Property.
(ix) If not previously delivered to Buyer, or if any fact
represented in such previously delivered certificate has changed, a current
fully executed certificate in the form attached hereto as Annex C.
-------
(x) A certificate certified by Seller to the effect that all
representations and warranties by Seller to Buyer pursuant to this Agreement are
true, correct, and complete in all material respects as of the Closing Date. The
foregoing certificate shall, by its terms, survive Closing for a period of six
(6) months.
(xi) Cause Criterion to deliver to Buyer at the Project all keys,
passwords, access cards, combinations, codes and other similar entry or control
devices with respect to the Project.
(xii) Intentionally deleted.
(xiii) Fully executed and acknowledged counterparts of the
Assignment and Assumption Agreement.
(xiv) The fully executed and acknowledged Quit-Claim Documents
and the opinion(s) of counsel to the Quit-Claim Parties in the form described in
the Buyer's Certificate.
(xv) Such proof as Buyer may reasonably require with respect to
Seller's compliance with all bulk sales laws or similar statutes if such
statutes are applicable to this transaction).
29
<PAGE>
(xvi) All additional documents and instruments which counsel to
Buyer may reasonably determine are necessary to effect the transfer of the
Property to Buyer as provided in this Agreement.
(b) Buyer. At, or at Buyer's election, prior to the Closing, Buyer
shall deliver to Seller:
(i) The Purchase Price which shall be adjusted solely as and to
the limited extent herein specifically provided.
(ii) At least four (4) business days prior to the scheduled
Closing Date, a fully executed counterpart of the Buyer's Certificate dated no
earlier than six (6) business days prior to the scheduled Closing Date and the
opinion of counsel to Buyer as required pursuant to the Buyer's Certificate.
(iii) At least ten (10) days prior to the scheduled Closing Date,
a notice addressed to the Title Company, Seller and the Quit-Claim Parties,
specifying the scheduled Closing Date.
(iv) Fully executed counterparts of the Assignment and Assumption
Agreement.
9.4 Closing of the Books. The "Cut-Off Time" as used herein shall mean
------------
12:01 A.M. on the day of Closing (the "Proration Date"). Notwithstanding the
--------------
assumption of the Assumed Operating Liabilities and the assignment of the
Assigned Receivables, at Closing, if requested by Buyer, Seller shall cause
Criterion to cooperate with Buyer's efforts to close the Project's books as of
the Cut-Off Time. As a result, and in furtherance thereof, the following
calculations and adjustments shall be made at the Closing:
(a) Revenues, Cash and Receivables. Buyer or its lessee, property
manager or other designee (as Buyer shall specify) shall be assigned all room
revenues for rooms occupied at the Project on the night preceding the morning of
the Proration Date. All other revenues from the Project through and including
the last full business day prior to the Proration Date shall be included in the
Assigned Receivables. At Closing, Seller shall assign to Buyer (i) the petty
cash funds at the Project as of the Cut-Off Time, and (ii) the guest ledger as
of the Cut-Off Time for guests staying at the Project on the Closing Date as
well as all cash, checks, and other funds, and all receivables (whether in the
form of notes or other security) located at the Project or pertaining to the
Project as of the Cut-Off Time as well as all balances on deposit to the credit
of Seller with banking institutions on the Closing Date. In connection with
Seller's assignment of the Assigned Receivables, Seller shall also assign to
Buyer or its lessee, property manager or designee (as Buyer shall specify) all
rights to collect all other receivables for such assignee's own account. If
Seller receives revenues from the Project on or after the Closing Date Seller
shall immediately remit said revenues to Buyer.
30
<PAGE>
(b) Consumables. At the Closing, Seller shall transfer to Buyer or its
lessee, property manager or other designee (as Buyer shall specify), and Buyer
or its lessee, property manager or other designee (as Buyer shall specify) shall
accept from Seller with all faults, all of the Consumables. Consumables will
only be used in the ordinary course of Project operations between the date
hereof and the Closing Date and the level of Consumables will not be less than
the levels located at the Project on the Effective Date.
(c) Tenant and Room Deposits. Seller shall assign to Buyer or its
lessee, property manager or other designee (as Buyer shall specify) all security
deposits held by Seller pursuant to Tenant Leases and all deposits held by
Seller in connection with future use of the Project by third parties, including
but not limited to banquet deposits, room deposits and other similar
reservations deposits.
(d) Real Estate Taxes. All unpaid real estate and personal property
taxes attributable to the Project on the Closing Date shall be included in the
Assumed Operating Liabilities. Seller shall cause Criterion to cooperate with
Buyer in connection with the payment by Buyer, at Closing, from the cash
balances included in the Assigned Receivables, of all ad valorem taxes as are
due and payable as of the Closing Date.
(e) Utility Charges. All utility charges attributable to the Project
through and including the day preceding the Closing Date (except for those
utility charges payable by tenants in accordance with the Tenant Leases) shall
be included in the Assumed Operating Liabilities. Seller shall assign to Buyer
or its lessee, property manager or other designee (as Buyer shall specify) any
deposits Seller has with any of the utility services or companies servicing the
Project if Buyer or its lessee, property manager or other designee (as Buyer
shall specify) elects such assignment or Buyer or its lessee, property manager
or other designee (as Buyer shall specify) may arrange with all utility services
and companies servicing the Project to have accounts started in the name of
Buyer or its lessee, property manager or other designee (as Buyer shall specify)
as of the Closing Date.
(f) Operational Payments. Buyer or its Qualified Designee shall be
responsible for the costs of all employees of the Project employed immediately
prior to the Closing including all costs, expenses, health coverage, benefits,
sick leave, vacation time, wages, salaries, unemployment coverage, pensions and
employee liabilities, withdrawal liabilities and any and all other matters
relating to the Project. However, in no event shall Buyer have any obligation to
retain and/or hire any employee(s) of Seller or Criterion. In any event, Buyer
or its Qualified Designee shall be responsible for any severance payments, any
and all liability whatsoever to employees of Seller or Criterion pursuant to the
provisions of 29 U.S.C. 2101 et. seq. (the so called "WARN Act"), the health
--------
insurance provisions of the Consolidated Omnibus Budget Reconciliation Act (29
U.S.C. 1161-1168) (the so called "COBRA Act") or any other liability arising by
---------
reason of Buyer's failure to retain or rehire any employees of the Project who
were employed immediately prior to the Closing, and Buyer, or at Buyer's
election, its Qualified Designee, shall indemnify Seller from any fine or
penalty resulting under the WARN Act or the COBRA Act in connection with the
Closing hereunder.
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<PAGE>
(g) Equipment Leases and Operating Agreements. Any amounts prepaid or
payable under any Equipment Leases or Operating Agreements pertaining (or any
other prepaid items) to the Project shall be assigned to Buyer, or its lessee,
property manager or other designee (as Buyer shall specify) at the Closing. At
or prior to Closing, Buyer will obtain at Buyer's expense, a certificate from
the Title Company (or such other certificates as may be acceptable to Buyer)
stating that a search has been made of both the state and county records wherein
financing statements and security agreements are filed under the Florida Uniform
Commercial Code from the date of any prior search to the Closing Date and that
such search indicates that no security interests or liens of any kind or nature,
including, but not limited to, any equipment financing or leasing arrangements,
are claimed by any person against the Property, or any part thereof.
(h) Trade Payables. Accrued and unpaid trade payables as of the
Closing Date shall be included in the Assumed Operating Liabilities.
(i) Excise, Transfer, Sales and Occupancy Taxes. Buyer shall be
responsible for the payment of any transfer taxes and recording fees imposed
with respect to the transaction contemplated by this Agreement and shall
indemnify and hold harmless Seller from the payment of such transfer taxes and
recording fees. Buyer shall be responsible for any sales taxes imposed with
respect to this transaction and shall indemnify and hold harmless Seller from
the payment of such sales taxes. Except as provided to the contrary on Annex
-----
M-II, unpaid hotel occupancy and/or use taxes as of the Closing Date and any and
- ----
all other taxes assessed by any city, county, state or other governmental entity
for all periods prior to Closing shall be included in the Assumed Operating
Liabilities. Buyer shall be responsible for all hotel occupancy and/or use taxes
and any and all other taxes assessed by any city, county, state or other
governmental entity for all periods from and after Closing and shall indemnify
and hold Seller harmless from and against any claims arising from the failure to
timely discharge such taxes.
(j) Guest Baggage. Any baggage or other property of departed guests
held by Seller as security for unpaid accounts receivable shall be left at the
Project on the Closing Date. All baggage of guests not so held as security which
has been checked with or left in the care of Seller, shall be inventoried,
sealed, and tagged jointly by Criterion and Buyer.
(k) Safety Deposit Boxes. On the Closing Date Seller shall cause
Criterion to deliver to Buyer or its lessee, property manager or other designee
(as Buyer shall specify) all keys to the safe deposit boxes on the Property and
all receipts and agreements relating to such safe deposit boxes, which receipts
shall contain the name and room number of each depositor. On the Closing Date
Seller shall cause Criterion to send written notice to guests on the Property
who have safe deposit boxes, advising them of the sale of the Property to Buyer
and the procedures to be followed pursuant to this Section 9.4(k) and requesting
--------------
the removal and verification of the contents thereof within three (3) days after
the Closing Date. All such removals and certifications during said three (3)
days shall be under the supervision of a representative of Buyer and Criterion.
Boxes of guests who have not responded to such written notice shall be listed at
the end of such three (3) day period. Said boxes shall be opened in the
32
<PAGE>
presence of a representative of Buyer and Criterion and the contents recorded.
Any such property so recorded, and thereafter remaining in the hands of Buyer
shall be the responsibility of Buyer and Buyer shall indemnify and hold Seller
harmless against any liability for such property.
9.5 Possession and Closing. Possession of the Property shall be delivered
to Buyer by Seller at the Closing, subject to rights of tenants under the Tenant
Leases.
9.6 Costs of Closing. Each of Buyer and Seller shall pay their respective
legal fees in connection with the negotiation, documentation and closing of this
transaction.
9.7 Intentionally deleted.
9.8 Notification to Tenants. Seller and Buyer covenant and agree to execute
at Closing, a written notice of the acquisition of the Property by Buyer, in
sufficient copies for transmittal to all tenants and to other parties affected
by the sale and purchase and properly addressed to all such tenants and other
parties. Such notices shall be prepared by Criterion on Seller's behalf and
shall be in form and substance acceptable to the Buyer and Seller, notifying the
addressees of the sale and transfer and containing appropriate instructions
relating to the payment of future rentals, the giving of future notices, and
other matters reasonably required by Buyer or required by law. The notices shall
specify the amount of each tenant's security deposit, if any, and that the
security deposit has been delivered to Buyer. Unless a different procedure is
required by applicable law, in which event such law shall be complied with,
Buyer agrees to transmit such letters to the tenants promptly after the Closing.
ARTICLE 10
DEFAULTS AND REMEDIES
10.1 Seller's Defaults; Buyer's Remedies.
(a) Seller's Defaults. Seller shall be deemed to be in default
hereunder if (i) any of Seller's warranties or representations set forth herein
is or becomes untrue at any time on or before the Closing Date, or (ii) Seller
fails to meet, comply with, or perform any covenant, agreement, or obligation on
its part required within the time limits and in the manner required in this
Agreement.
(b) Buyer's Remedies. If Seller is deemed to be in default hereunder
Buyer may, at Buyer's sole option, and, as Buyer's sole and exclusive remedy, do
any one of the following: (i) terminate this Agreement by written notice
delivered to Seller on or before the Closing Date; or (ii) enforce specific
performance of this Agreement against Seller, in which event Buyer shall (except
to the extent Seller is obligated to cure any title defect pursuant to Section
-------
4.5 above) be deemed to have accepted Seller's title to the Property. The
- ---
provisions of this Section 10.1(b) shall not limit Buyer's remedies against
---------------
Seller following Closing for any
33
<PAGE>
default under those representations, warranties, covenants and/or indemnities of
Seller which survive Closing.
(c) Return of Earnest Money Deposit. Upon the occurrence of any event
deemed to be a default by Seller hereunder, the Earnest Money Deposit shall be
forthwith returned to Buyer by the Title Company upon receipt of written notice
from Buyer (not contested by Seller as provided in Section 7.14 above) that
------------
Seller has defaulted under this Agreement, which written notice need not be
accompanied by any other document or consent of any other party hereto. If the
Earnest Money Deposit is to be returned to Buyer in accordance with this Section
-------
10.1, provided that Seller is not in good faith contesting such return as
- ----
provided in Section 7.14 above, Seller shall promptly, on written request from
------------
Buyer, execute and deliver such documents as may be required to cause the Title
Company to return the Earnest Money Deposit to Buyer.
10.2 Buyer's Default; Seller's Remedies.
(a) Buyer's Default. Buyer shall be deemed to be in default hereunder
if (i) any of Buyer's warranties or representations set forth herein is or
becomes untrue at any time on or before the Closing Date, or (ii) Buyer fails to
perform any covenant, agreement or obligation on its part to be performed for
any reason other than a default by Seller hereunder or termination of this
Agreement prior to Closing.
(b) Seller's Remedy. If Buyer is deemed to be in default hereunder
prior to Closing, Seller, as Seller's sole and exclusive remedy for such
default, shall be entitled to the Earnest Money Deposit, which shall be
forthwith delivered to Seller by the Title Company upon receipt of written
notice from Seller that is not contested in writing by Buyer within five (5)
days of Buyer's receipt (or deemed receipt) of a copy hereof, that Buyer has
defaulted under this Agreement, which notice need not be accompanied by any
other document or consent of any other party hereto. Buyer and Seller agree that
such sum shall be liquidated damages for a default of Buyer hereunder because of
the difficulty, inconvenience, and uncertainty of ascertaining actual damages
for such default. If Seller notifies Buyer and the Title Company that Seller is
entitled to the Earnest Money Deposit in accordance with this Section 10.2, and
------------
Buyer is not then in good faith disputing Seller's determination that Seller is
entitled to the Earnest Money Deposit, Buyer agrees to deliver, on written
request of Seller, such instructions as may be reasonably necessary to cause the
Title Company to deliver the Earnest Money Deposit to Seller.
10.3 Special Default Provision. Notwithstanding anything in Section 10.1
------------
above or elsewhere herein to the contrary, to the extent that any provision of
this Agreement other than Section 4.5 expressly delegates to Criterion the
-----------
performance of any of Seller's obligations or duties (i.e., where Seller has
---
agreed "to cause" Criterion to perform any action or covenant by use of such
words or other words of similar meaning), (i) Criterion agrees to and shall be
obligated to use its best efforts to endeavor to timely preform such covenant or
obligation, and (ii) if such obligation or covenant is not timely performed by
either Seller or Criterion (a) Buyer shall not have the right to seek specific
performance of such obligation or covenant by Seller or to pursue
34
<PAGE>
any claim for damages against Criterion, and (b) Buyer shall have the right (x)
to exercise its termination remedy pursuant to Section 10.1 above, and/or (y) to
------------
seek specific performance of such obligation or covenant by Criterion to the
extent that the performance thereof is within the control of Criterion.
ARTICLE 11
LOSS OR DAMAGE
11.1 Casualty Loss. The Property shall be delivered to Buyer on the Closing
Date in as good condition as presently exists, ordinary wear and tear only
excepted. If the Property or any part thereof shall be damaged or destroyed by
fire or other casualty prior to the Closing Date, Seller shall deliver written
notice of such fire or other casualty to Buyer, and
(a) If the reasonable cost to repair such damage is One Hundred
Thousand and No/100 Dollars ($100,000.00) or less, Buyer, at its option, may
either (i) cause Seller to promptly commence and continuously pursue to
completion the restoration of the Property to the condition in which it existed
immediately prior to such loss or damage, or (ii) cause Seller to both (I)
assign to Buyer at Closing the proceeds and/or right to receive the proceeds of
all insurance carried by Seller with respect to such fire or other casualty and
(II) pay to Buyer, at Closing, an amount equal to the applicable deductible(s)
under the insurance policies in question. Buyer shall make its election within
fifteen (15) days after written notice of the occurrence of the casualty.
(b) If the reasonable cost to repair such loss or damage is more than
One Hundred Thousand and No/100 Dollars ($100,000.00), Buyer, at its option, may
either (i) cause Seller to both (I) assign to Buyer at Closing the proceeds
and/or right to receive the proceeds of all insurance carried by Seller with
respect to such fire or other casualty and (II) pay to Buyer, at Closing, an
amount equal to the applicable deductible(s) under the insurance policies in
question; or (ii) withdraw from this transaction. Buyer shall make its election,
before the later of fifteen (15) days after its receipt of notice of the
occurrence of such fire or other casualty or ten (10) days after its receipt of
the report of the appraiser (if an appraiser is appointed as hereinafter
provided).
Any election made by either party hereunder shall be in writing and, to be
effective, must be delivered to the other party by the times specified.
11.2 Effect of Elections. If Buyer fails to make an effective election
under Section 11.1(a), Buyer shall be deemed to have selected Section
-------------- -------
11.1(a)(ii). If Buyer fails to make an effective election under Section 11.1(b),
- ----------- ---------------
Buyer shall be deemed to have selected Section 11.1(b)(i). If the loss is
------------------
covered by Section 11.1(a), or if Buyer selects (or is deemed to have selected)
---------------
Section 11.1(b)(i), then the obligations of the parties hereunder shall not be
- ------------------
affected by reason of such loss or damage, Buyer shall have no right to withdraw
from this transaction by
35
<PAGE>
reason of such loss or damage, and Seller shall take all action and/or execute
all documents reasonably requested by Buyer, before or after Closing, to collect
and/or transfer the right to collect any applicable insurance proceeds.
11.3 Effect of Buyer's Withdrawal. If Buyer selects Section 11.1(b)(ii),
-------------------
then Buyer shall be entitled to the return of the Earnest Money Deposit, and the
parties shall be fully released and discharged from any liability or obligation
hereunder each to the other.
11.4 Appraisal of Damage. If within fifteen (15) days after the occurrence
of such loss or damage the parties are unable to agree as to the reasonable cost
of the repair or restoration thereof, Buyer shall appoint an independent
appraiser to ascertain such reasonable cost. Buyer and Seller share equally the
cost of such appraisal and the report of such independent appraiser shall be
conclusive to determine such cost for this Article 11.
----------
ARTICLE 12
BROKERAGE INDEMNITY
Seller hereby represents and warrants to Buyer that it has not contacted or
entered into any agreement with any real estate broker, agent, finder, or any
other party in connection with this transaction, and that it has not taken any
action which would result in any real estate broker's, finder's, or other fees
or commissions being due or payable to any party with respect to the transaction
contemplated hereby. Buyer hereby represents and warrants to Seller that Buyer
has not contacted or entered into any agreement with any real estate broker,
agent, finder, or any other party in connection with this transaction, and that
it has not taken any action which would result in any real estate broker's,
finder's, or other fees or commissions being due or payable to any party with
respect to the transaction contemplated hereby. Each party hereby indemnifies
and agrees to hold the other party harmless from any loss, liability, damage,
cost, or expense (including reasonable attorneys' fees) resulting to the other
party by reason of a breach of the representation and warranty made by such
party herein. Notwithstanding anything to the contrary contained herein, the
indemnities set forth in this Article 12 shall survive the Closing.
----------
ARTICLE 13
Intentionally Deleted
36
<PAGE>
ARTICLE 14
MISCELLANEOUS
14.1 References. All references to "Article," "Articles," "Section," or
"Sections" contained herein are, unless specifically indicated otherwise,
references to Articles and Sections of this Agreement.
14.2 Annexes. All references to "Annexes" contained herein are references
to annexes attached hereto, all of which are made a part hereof for all
purposes.
14.3 Captions. The captions, headings, and arrangements used in this
Agreement are for convenience only and do not in any way affect, limit, amplify,
or modify the terms and provisions hereof.
14.4 Number and Gender of Words. Whenever herein the singular number is
used, the same shall include the plural where appropriate, and words of any
gender shall include each other gender where appropriate.
14.5 Construction. The parties acknowledge that each party and its counsel
have reviewed and revised this Agreement and that the normal rule of
construction to the effect that any ambiguities are to be resolved against the
drafting party shall not be employed in the interpretation of this Agreement or
any amendments or annexes hereto.
14.6 Notices. Whenever this Agreement requires or permits any consent,
approval, notice, request or demand from one party to the other (collectively,
"Notice"), such Notice must be in writing to be effective and shall be effective
------
on the date such Notice sent by a party hereto or legal counsel to a party
hereto (which Notice from legal counsel to a party shall be binding on the party
represented by such legal counsel and shall be deemed Notice from the party
represented by such legal counsel) is actually received by the addressee. The
following shall be prima facia evidence of actual receipt of Notice by the
addressee: (a) if mailed, by a United States certified mail return receipt,
signed by the addressee or the addressee's agent or representative, (b) if by
telegram, by a telegram receipt signed by the addressee or the addressee's agent
or representative, (c) if hand delivered (including delivery by any overnight or
other delivery service), by a delivery receipt signed by the addressee or the
addressee's agent or representative, or (d) if sent by facsimile transmission,
with confirmation of receipt at the facsimile number to which it was sent. Each
party's initial address for delivery of any Notice is designated below, but any
party from time to time may designate a different address for delivery of any
Notice by delivering to the other party Notice of such different address;
provided, however, neither party may designate an address for delivery of Notice
not located within the United States. Each party hereto covenants and agrees to
mail copies of any Notice to the parties
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designated to receive copies of any Notice on the signature page hereof, but the
failure of the addressee for any copy actually to receive such copy shall not
render the Notice ineffective.
If to Buyer: PAH Acquisition Corporation
3030 LB Freeway, Suite 1500
Dallas, TX 75234
Attention: John P. Bohlmann
(fax) 214/888-8029
Copies to: Gardere & Wynne, L.L.P.
3000 Thanksgiving Tower
1601 Elm Street
Dallas, Texas 75201-4761
Attention: Clifford J. Risman
(fax) 214/999-4667
If to Seller: BV Hotel & Spa Acquisition, Ltd.
c/o Itex, Inc.
Suite 208, 1428 Brickell Avenue
Miami, Florida 33131
Attention: Adolfo Malave
(fax) 305/381-8537
Copies to: Rubin, Baum, Levin, Constant,
Freidman & Bilzin
2500 First Union Financial Ctr.
Miami, Florida 33131-2336
Attention: Martin A. Schwartz
(fax) 305/374-7593
and to: West Merchant Bank Limited
33-36 Gracechurch Street
London, England EC 3V OAX
Attention: Ian Beckman
(fax) 011-44-171-283-6871
and to: Dewey Ballantine
1301 Avenue of the Americas
New York, New York 10019-6092
Attention: Stephen R. MacDonald
(fax) 212/ 259-6333
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14.7 Governing Law. This Agreement is being executed and delivered, and is
intended to be performed, in the State of Florida, and the laws of such State
shall govern the validity, construction, enforcement, and interpretation of this
Agreement, unless otherwise specified herein.
14.8 Performance of Agreement. The obligations under the terms of the
Agreement are performable in Broward County, Florida, and any and all payments
under the terms of the Agreement are to be made in Broward County, Florida.
14.9 Venue. The parties hereto consent and agree that venue of any action
brought under this Agreement shall be in Broward County, Florida, if the venue
of such action is legally permissible in such county.
14.10 Entirety and Amendments. This Agreement embodies the entire agreement
between the parties and supersedes all prior agreements and understandings, if
any, relating to the Property, and may be amended, supplemented or modified only
by an instrument in writing executed by the party against whom enforcement is
sought and, if enforcement is sought against the Seller, also executed by West
Merchant.
14.11 Multiple Counterparts. This Agreement may be executed in a number of
identical counterparts. If so executed, each of such counterparts is to be
deemed an original for all purposes, and all such counterparts shall,
collectively, constitute one agreement, but, in making proof of this Agreement,
it shall not be necessary to produce or account for more than one such
counterpart.
14.12 Parties Bound. This Agreement shall be binding upon and inure to the
benefit of Seller and Buyer, and their respective heirs, personal
representatives, successors, and assigns. Buyer may, prior to Closing, assign
all its rights and obligations under this Agreement to Patriot American
Hospitality Partnership, L.P. or any other entity wholly owned, directly or
indirectly, by Patriot American Hospitality Partnership, L.P. and/or its general
partner, PAH GP, Inc. provided that such assignee executes a Buyer's Certificate
dated no more than six (6) business days prior to the scheduled Closing Date and
delivers same to the Seller at least four (4) business days prior to the
scheduled Closing Date and adds to such Buyer's Certificate a statement as to
the type of entity and its ownership structure. Seller agrees that if Buyer
assigns its rights to this Agreement, such assignment will have the effect of
fully releasing Buyer without any further documentation to evidence the same.
Notwithstanding the previous sentence, upon any such assignment, Seller further
agrees to execute any such documents as Buyer may require to effectuate Seller's
intent of releasing Buyer from any and all liability with regard to the
Agreement. Buyer agrees to accept performance of Seller's obligations hereunder
(other than the execution of documents) from West Merchant and/or Criterion.
14.13 Risk of Loss. Subject to the provisions of Article 11, risk of loss
----------
or damage to the Property, or any part thereof, by fire or any other casualty
from the Effective Date up to the Closing Date will be on Seller and,
thereafter, will be on Buyer.
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14.14 Further Acts. In addition to the acts and deeds recited herein and
contemplated to be performed, executed, and/or delivered by Seller and Buyer,
Seller and Buyer agree to perform, execute, and/or deliver or cause to be
performed, executed, and/or delivered at the Closing or after the Closing any
and all such further acts, deeds, and assurances as may be necessary to
consummate the transactions contemplated hereby.
14.15 Expiration. The offer of Buyer extended by the delivery of this
Agreement to Seller shall be automatically revoked unless Seller shall execute
at least four (4) original counterparts of this Agreement and deliver all four
(4) original counterparts to the Title Company on or before 5:00 p.m., on the
date which is five (5) business days after the date on which Buyer has executed
this Agreement.
14.16 Time of the Essence. It is expressly agreed by the parties hereto
that time is of the essence with respect to this Agreement.
14.17 No Recordation. In no event shall any party hereto file or record
this Agreement or any memorandum hereof in the real property records.
14.18 Tax Consequences. There shall be no recourse by an party hereto
against any other party hereto because the execution or consummation of this
Agreement (or any of the transactions contemplated herein) has or does not have
any particular federal or state income tax consequences to such party as
contemplated by such party.
14.19 Management. Within five (5) days after the Effective Date, Seller
shall cause Criterion to deliver to Buyer a current copy of the management
agreement for the Project between Seller and Criterion, which, pursuant to this
Agreement, will be terminated effective as of Closing Date. It shall be Buyer's
sole responsibility to provide for the management of the Project after the
Closing.
14.20 No Shop Clause. Seller for itself and its affiliates covenants and
agrees not to market the Project or any equity investment or other form of
participation therein or to accept any so called "back-up" contracts or other
similar agreements for the sale of the Project or any other equity investment or
other form of participation therein while this Agreement is in effect unless any
such discussions are conducted after the disclosure of the existence of this
Agreement and any such so-called "back-up" contracts or other agreements
expressly provide (i) that the parties thereto recognize this Agreement and (ii)
that same are unconditionally subordinate to this Agreement and Buyer's rights
hereunder.
14.21 Radon Disclosure. In accordance with Section 404.056(7) of Florida
Statutes, Buyer is advised that radon is a naturally occurring radioactive gas
that, when it has accumulated in a building in sufficient quantities, may
present health risks to persons who are exposed to it over time. Levels of radon
that exceed federal and state guidelines have been found in buildings in
Florida. Additional information regarding radon and radon testing may be
obtained from your county public health unit. The foregoing disclosure is
provided to comply with state law and is
40
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for informational purposes only. Seller has not conducted radon testing with
respect to the Property and specifically disclaims any and all representations
and warranties as to the absence of radon gas or radon producing conditions in
connection with any building and the Property.
14.22 Bulk Sale. It shall be the obligation of Seller to comply with any
bulk sale requirements, statutes, laws, ordinances and regulations promulgated
with respect thereto, if any, in the sate in which the Property is located, or
in or by any governmental entity having jurisdiction with respect thereto. The
provisions of this Section 14.22 shall survive the Closing of the transaction
-------------
contemplated hereby.
14.23 Seller's Expense. Whenever the term "at Seller's expense" or any
similar term is used herein, such term shall mean that the liability or
obligation in question shall be paid or satisfied by Seller at or prior to
Closing via Seller's expenditure or use of funds other than funds or account
balances included (or that would otherwise be included) within the definition of
Assigned Receivables.
14.24 Annexes. The following Annexes are attached hereto and made a part
hereof for all purposes:
Annex A Description of Land
Annex B Form of Assignment and Assumption Agreement
Annex C FIRPTA Certificate
Annex D Form of Deed
Annex E Form of Assignment
Annex F Form of Rent Roll
Annex G Form of Buyer's Certificate
Annex H Form of Letter of Credit
Annex I Tenant Request Letter
Annex J Estoppel Certificate
Annex K-I Form of Quit-Claim Deed
Annex K-II Form of Quit-Claim Bill of Sale
Annex K-III List of Quit-Claim Parties
Annex L Intentionally Deleted
Annex M-I Items included in Assumed Operating Liabilities
Annex M-II Items excluded from Assumed Operating Liabilities
DATED FOR IDENTIFICATION: APRIL 22, 1996
EXECUTED as hereinafter set forth on the Signature Page attached
hereto.
41
<PAGE>
SIGNATURE PAGE
ATTACHED TO AND MADE A PART OF
ACQUISITION AGREEMENT
DATED FOR IDENTIFICATION
APRIL 22, 1996
BY AND BETWEEN
BV HOTEL & SPA ACQUISITION, LTD.,
AS SELLER, AND
PAH ACQUISITION CORPORATION,
AS BUYER
BUYER:
PAH ACQUISITION CORPORATION,
a Virginia corporation
By: _________________________________
Date Executed: ____________ Name: _______________________________
Place Executed: ___________ Title: ______________________________
SELLER:
BV HOTEL & SPA ACQUISITION, LTD.,
a Florida limited partnership
By: BV HOTEL & SPA ACQUISITION, INC.,
a Florida corporation,
its general partner
By: _________________________________
Date Executed: ____________ Name: _______________________________
Place Executed: ___________ Title: ______________________________
42
<PAGE>
AGREEMENT OF TITLE COMPANY
In accordance with this Agreement, the undersigned (the Title Company
referred to in this Agreement), located at 14643 Dallas Parkway, Suite 770, Lock
Box 61, Dallas, Texas 75240, Attention: Mr. Bruce J. Caldwell, Jr., hereby
acknowledges the receipt of (i) one (1) fully executed copy of this Acquisition
Agreement, (ii) the Earnest Money Deposit, (iii) one (1) fully executed
counterpart of a certificate from the Seller in the form of Annex C hereto, (iv)
-------
one (1) fully executed Buyer's Certificate, and (iv) the executed and
acknowledged Quit-Claim Documents. Additionally, upon its receipt of such
opinions of counsel to the Quit-Claim Parties as are required by the Title
Company in connection with the Quit-Claim Documents, the Title Company shall
notify each of Buyer and Seller of such receipt.
The Title Company hereby agrees to hold the Earnest Money Deposit and the
Quit-Claim Documents in escrow as escrow agent for the benefit of Seller and
Buyer and to dispose of the Earnest Money Deposit and the Quit-Claim Documents
in strict accordance with the terms and provisions of this Agreement (including,
without limitation, presentation of the Letter of Credit to the issuer thereof
when (i) this Agreement authorizes such presentation, (ii) Seller and/or West
Merchant request such presentation and (iii) Seller and/or West Merchant provide
the necessary draft and affidavits as provided in Section 3.2).
-----------
TITLE COMPANY:
COMMONWEALTH LAND TITLE
INSURANCE COMPANY
By: _________________________________
Name: _______________________________
Title: ______________________________
43
<PAGE>
CONSENT AND JOINDER OF WEST MERCHANT
This Agreement is executed and joined in by West Merchant, solely in its
capacity as holder of a mortgage on the Property and solely for the benefit of
Buyer, not Seller, for the purpose of inducing Buyer to execute this Agreement
and of evidencing West Merchant's (i) consent to all provisions of this
Agreement, excluding Section 5.2(f)(xiv) and excluding any amendment to, or
-------------------
modification of this Agreement not consented to in writing by West Merchant,
(ii) irrevocable agreement (notwithstanding the commencement and/or pendency of
any foreclosure, bankruptcy, receivership or other similar proceeding with
respect to Seller and/or the Property, or any deed in lieu of foreclosure or
other similar proceeding (each of the foregoing, a "Foreclosure/Bankruptcy
----------------------
Proceeding")) to execute and deliver at Closing, all documents and instruments
- ----------
required by the Title Company to the extent such documents and instruments are
necessary in order to release all liens held by West Merchant and encumbering
all or any portions of the Property (which documents and instruments shall not
discharge any indebtedness secured by such liens), which delivery shall be made
to the Title Company subject to the terms of an escrow delivery letter from West
Merchant to the Title Company which shall condition release of such documents
upon the consummation of the Closing under this Agreement and upon the Title
Company being unconditionally ready, willing and able, notwithstanding the
pendency of any Foreclosure/Bankruptcy Proceeding, pursuant to Section 3.3 of
-----------
this Agreement, to deliver $16,200,000.00 in immediately available funds, to
West Merchant (an escrow delivery letter which satisfies the foregoing
conditions being herein referred to as a "Satisfactory Escrow Letter"), (iii) if
--------------------------
West Merchant or its designee has acquired title to the Property by deed in lieu
of foreclosure prior to the Closing Date established pursuant to this Agreement,
irrevocable agreement (notwithstanding the commencement and/or pendency of any
Foreclosure/Bankruptcy Proceeding) to execute and deliver (or to cause such
designee to execute and deliver, as the case may be) at Closing, all quitclaim
deeds and quitclaim bills of sale (each of which shall disclaim the making of
any representations or warranties by West Merchant or such designee) required by
the Title Company in order to convey the Property to Buyer and/or its permitted
assigns, which delivery shall be made to the Title Company subject to the terms
of a Satisfactory Escrow Letter, provided, however, that this clause (iii) shall
not affect the limitations set forth in clause (vii) below with respect to the
acceptance of a deed in lieu of foreclosure, (iv) irrevocable agreement not to
acquire any direct ownership interest in Patriot American Hospitality, Inc. or
Patriot American Hospitality Partnership, L.P. while this Agreement is in
effect, (v) representation and warranty to Buyer that since November 1, 1995
West Merchant has not received from or on behalf of Seller any payments of
interest, principal or penalties in connection with the debt held by West
Merchant and secured by a lien against the Property, (vi) representation and
warranty to Buyer that West Merchant has never received, and is not now holding,
any ad valorem or other tax escrows with respect to the Property, and (vii)
irrevocable agreement not to file or otherwise commence any foreclosure,
involuntary bankruptcy, receivership, or other similar proceeding with respect
to Seller or the Property, or to accept a deed in lieu of foreclosure, unless
determined by West Merchant, in its reasonable judgment, to be necessary to
preserve and protect the Project from material harm (it being understood that
the continuance of operating losses or seasonal decreases in bookings at the
Project shall not, by itself, be deemed to constitute material harm),
44
<PAGE>
provided, however, that this clause (vii) shall not limit or affect the rights
of West Merchant in any action or proceeding which is not initiated or commenced
by West Merchant. The provisions of clauses (i), (ii), (iii), (iv) and (vii) of
the immediately preceding sentence shall terminate on the earlier to occur of
the termination of this Agreement or the Closing. The provisions of clauses (v)
and (vi) of this Agreement shall (a) if the Closing occurs pursuant to this
Agreement, survive the Closing for a period of six (6) months and (b) if this
Agreement terminates prior to the occurrence of the Closing, terminate and be of
no further force or effect six (6) months after such termination of this
Agreement, except as to any breach thereof of which Buyer has given West
Merchant written notice, at the address provided in Section 14.6 of the
------------
Agreement, prior to the expiration of the applicable six (6) month period. The
provisions of this Consent and Joinder are solely for the benefit of Buyer and
do not inure to the benefit of, and may not be relied upon for any purpose by,
Seller, except that, (x) prior to the earlier of the Closing or the termination
of this Agreement, Seller may, solely for the purpose of consummating the
Closing under this Agreement and for no other purpose whatsoever, rely upon the
provisions of clauses (i) and (ii) of the first sentence of this Consent and
Joinder and (v) clause (x) above shall not limit or affect the rights of West
Merchant after the earlier of the Closing or the termination of this Agreement.
It is expressly understood that, by its execution of this Consent and Joinder,
West Merchant does not (a) assume any liability as a co-obligor of Seller or any
other person or entity under this Agreement or under any documents or
instruments given by Seller or any other person or entity, (b) guarantee any
covenants, agreements, representations or warranties of Seller or any other
person or entity under this Agreement or under any documents or instruments
given by Seller or any other person or entity or (c) except as expressly set
forth in clauses (i) through (vii), inclusive, of the first sentence of this
Consent and Joinder, give any assurance with respect to any covenants,
agreements, representations or warranties of Seller or any other person or
entity under this Agreement or under any documents or instruments given by
Seller or any other person of entity.
WEST MERCHANT BANK LIMITED,
a merchant bank organized under the
laws of England
By: _________________________________
Name: _______________________________
Title: ______________________________
45
<PAGE>
CONSENT AND JOINDER OF CRITERION
This Agreement is executed and joined in by Criterion for the purpose of
inducing Seller and Buyer to execute this Agreement and of evidencing
Criterion's (i) consent to this Agreement, (ii) irrevocable agreement to perform
for the benefit of Buyer, and without cost to Buyer, but subject in all respects
to Section 10.3, the obligations and duties herein delegated by Seller to
------------
Criterion, (iii) irrevocable agreement to deliver, at Closing, without charge or
fee of any kind, but subject in all respects to Section 10.3, all documents and
------------
instruments required by Buyer or the Title Underwriter in order to terminate the
Criterion Management Agreement and unconditionally waive all claims against the
Property in connection therewith, (iv) waiver of all past, current and future
fees and other claims against Seller in connection with the management of the
Property, save and except fees and other payments accruing and payable under the
Criterion Management Agreement for the period of time from the date of this
Agreement through the Closing Date which, to the extent not paid prior to
Closing, shall constitute Assumed Operating Liabilities, and claims under any
indemnity or similar provisions of the Criterion Management Agreement (which (a)
to the extent constituting Assumed Operating Liabilities, shall be assumed
pursuant to Section 3.5, and (b) to the extent not constituting Assumed
-----------
Operating Liabilities, shall survive as a contractual claim against Seller [but
not as a claim against Buyer or the Project, any such claim against Buyer or the
Project being hereby waived if, as and when Closing occurs]) (v) representation
and warranty to Buyer that since November 1, 1995 Criterion has neither received
any fees or other payments from Seller other than base management fees accruing
and payable pursuant to its management agreement for the Property with respect
to periods of time after November 1, 1995 nor amended or modified its management
agreement for the Property and (vi) agreement that in no event shall Criterion
and/or any affiliate of Criterion (other than Buyer's lessee in connection with
the post-closing operation of the Project) offer post-closing employment to, or
accept post-closing employment from any employee listed on the Employee List for
a period of one (1) year after the Closing. The provisions of this Consent and
Joinder shall survive the Closing for a period of six (6) months.
CRITERION HOTEL MANAGEMENT CORP.,
a ___________________________________
By: _________________________________
Name: _______________________________
Title: ______________________________
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<PAGE>
Exhibit 10.41
PURCHASE AND SALE AGREEMENT
This Purchase and Sale Agreement is made effective as of the 15th day of
March, 1996, between COLONY HILL ASSOCIATES, a New York limited partnership
("Seller") and PAH Acquisition Corporation, a Virginia corporation ("Buyer").
RECITALS
--------
I. Seller owns certain real and personal property consisting of a 362-room
hotel, with restaurants, lounges and other facilities, known as Marriott
WindWatch Hotel located at 1717 Vanderbilt Motor Parkway, Hauppauge, Suffolk
County, New York (the "Hotel").
A. On February 20, 1991, an involuntary petition was filed under Chapter 11
of Title 11 of the United States Code (the "Bankruptcy Code") against Seller and
on November 6, 1991 Seller consented to the entry of an order for relief under
Chapter 11 of the Bankruptcy Code in the United States Bankruptcy Court for the
Eastern District of New York (the "Bankruptcy Court" or the "Court"), Case No.
891-80665-20. Seller has remained in possession of its property and management
of its property as a debtor-in-possession.
B. Seller desires to sell, and Buyer desires to purchase, the Hotel, on the
terms and conditions hereinafter set forth.
NOW THEREFORE, in consideration of the premises and the mutual covenants
and agreements herein contained, and for other good and valuable consideration,
the receipt and sufficiency of which are hereby acknowledged, the parties agree
as follows:
AGREEMENTS
----------
1. Sale and Purchase of Property. Subject to the terms, conditions and
-----------------------------
provisions of this Agreement, Seller agrees to sell, transfer, deliver and
assign to Buyer at the Closing (as defined in Section 16), and Buyer agrees to
purchase from Seller at the Closing, all of Seller's right, title and interest
in and to the following:
(a) The fee estate in that certain real property located in Suffolk
County, New York, and more particularly described in a preliminary Exhibit A to
---------
be attached hereto within 3 days of signature by Seller and incorporated herein
by reference (the "Land"). A final Exhibit A, which shall include the Hotel, the
---------
parking lot and the Hotel grounds but shall exclude the commercial office site
and golf clubhouse, shall be agreed to by Buyer & Seller within 20 days of the
effective date of this Purchase and Sale Agreement.
(b) The buildings, parking areas, structures and improvements situated
on the Land, including without limitation the Hotel (the "Improvements");
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(c) Any and all easements, hereditaments and appurtenances belonging
to or inuring to the benefit of Seller and pertaining to the Land; any strips
and gores adjoining or adjacent to the Land; any land lying in the bed of any
street, road, avenue, way or boulevard, open or proposed, in front of or
adjoining the Land and any award made or to be made in lieu thereof; any award
for damage to the Land by reason of any change of grade in any skeet, road,
avenue, way or boulevard (collectively, the "Additional Land Rights");
(d) Any and all furniture, furnishings, fixtures, machinery,
apparatus, equipment, vehicles, operating stock, appliances, finishes, trade
fixtures, bed linens and towels, telephones, televisions, computers, computer
software (except that with respect to which Marriott International, Inc., the
current manager of the Hotel ("Marriott") has a proprietary interest), bedding,
window treatments, safety equipment, advertising booklets and materials,
brochures, and other tangible items of personalty located upon, associated with,
or used in connection with the operation of the Hotel, subject to depletions,
replacements and additions in the ordinary course of operating the Hotel
excluding, however, any golf carts, golf course maintenance and other golf
equipment (collectively, the "FFE").
(e) Any ground or space leases affecting the Hotel including any
parking leases or other leases used in connection with the Land and/or the
Improvements to which Seller is a party (the "Leases") and the equipment leases
and contracts affecting the Hotel to which Seller is a party (the "Contracts").
A preliminary schedule of the Leases and Contracts will be attached hereto by
March 21, 1996 and a complete schedule will be attached hereto within 20 days of
signature by Seller as Exhibit B and incorporated herein by this reference (the
---------
"Schedule of Leases and Contracts");
(f) Transferable consents, authorizations, variances or waivers,
licenses, permits and approvals from any governmental or quasigovernmental
agency, department, board, commission, bureau or other entity or instrumentality
in respect of the Hotel and any deposits with respect to any of the foregoing,
including, without limitation, those with respect to the foundation, garage,
use, utilities, building, fire, life safety, traffic, and zoning, food and
alcoholic beverages (collectively, the "Licenses") held by Seller, with respect
to the Hotel. A preliminary schedule of the Licenses will be attached hereto by
March 21, 1996 and a complete schedule will be attached hereto within 20 days of
signature by Seller as Exhibit C and incorporated herein by this reference (the
---------
"Schedule of Licenses");
(g) All inventories of supplies used in connection with the operation
of the Hotel, including, without limitation, paper goods, brochures, office
supplies, unopened food and beverage inventory (to the extent the transfer of
same is permissible under applicable law), chinaware, glassware, flatware, table
linens, soap, gasoline, fuel oil, gift shop items, and other operational and
guest supplies located at the Hotel or held elsewhere for use in connection
therewith, subject to depletions, replacements and additions in the ordinary
course of operating the Hotel and excluding items owned by Marriott or held by
Seller on consignment (collectively, the "Inventories");
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(h) All books, records, files, guest, registers, employment records,
maintenance records, rental and reservation records, and other records of a
material nature used or prepared by Seller or its agents in connection with the
operation and maintenance of the Property, (collectively the "Records") to the
extent such items are in the possession of or under the control of Seller or are
the property of Seller, exclusive of (i) original Records which Seller desires
to retain, provided that Seller supplies Buyer with true and complete copies
thereof, and (ii) Seller's income tax and accounting records;
(i) Advance reservations and bookings for the Hotel, as the same may
be amended, canceled and renewed (the "Reservations") and advance deposits made
in respect thereof (the "Reservation Deposits");
(j) Any and all goodwill and other and intangible personal property
associated with the Hotel and/or the operation thereof, including without
limitation, all right, title and interest in the name "WindWatch" and the right
to all property tax refunds, (collectively, the "Intangible Property"),
provided, however, that notwithstanding the preceding nothing contained herein
shall preclude the Seller or any successor owner of the golf course contiguous
to the Hotel from using the name "WindWatch" in connection with the golf course;
(k) Any and all original and supplemental blueprints, plans,
specifications, working drawings, site plans, elevations, surveys, advertising
booklets or materials, brochures, indicia of title, warranties and guarantees,
environmental reports, structural reports, and similar materials of any kind,
character or description, prepared for use in connection with the Hotel and/or
the operation thereof or otherwise relating thereto, to the extent such items
are in the possession or under the control of Seller and are transferable
(collectively. the "Documents"); and
(1) All accounts receivable, the Repair and Equipment Reserve Account
maintained by Seller under the Revised and Restated Hotel Management Agreement
between Seller and Marriott (the "Hotel MA"), the working capital accounts
maintained by Seller pursuant to the Hotel MA and all other similar accounts, if
any, maintained by Seller or its agents to the extent relating to the Hotel
(collectively the "Accounts") excluding the checking account and certificates of
deposit maintained by Seller as a debtor-in-possession at The Greater New York
Bank For Savings (the "DIP Account").
The Land, Improvements and Additional Land Rights are referred to herein
collectively as the "Real Property." The FFE, Contracts, Licenses, Approvals,
Inventories, Records, Leases, Reservations, Reservation Deposits, Accounts,
Intangible Property, and Documents are referred to herein collectively as the
"Personal Property." The Real Property and the Personal Property are referred
to herein collectively as the "Property."
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Notwithstanding the foregoing, the Property will not include any property
owned by Marriott or in which it has a proprietary interest, including without
limitation, proprietary Marriott Software and Marriott's frequent guest list
(the "Excepted Property").
2. Transfer of Property.
--------------------
(a) Seller will transfer title to and possession of the Property to
Buyer at the Closing. Title to the Real Property will be transferred to Buyer by
quitclaim deed prepared by Seller's counsel and approved by Buyer's counsel (the
"Deed") and a quitclaim assignment of any leasehold estates prepared by Seller's
counsel and approved by Buyer's counsel (the "Leasehold Assignment"), subject
only to the matters approved by Buyer in accordance with Section 7. Title to the
FFE and the Inventories will be transferred free and clear of all liens, claims,
interests of third parties and encumbrances (except for purchase money security
interests in leased equipment and any items that are being leased by Seller as
reflected in the Schedule of Leases and Contracts and except for accounts
payable in the ordinary course as permitted in accordance with this Agreement)
pursuant to a quitclaim bill of sale (the "Bill of Sale"). Seller's right, title
and interest in each of the Leases, the Contracts, and the Licenses will be
transferred and assigned to Buyer, and Buyer will assume Seller's obligations
accruing thereunder subsequent to the Closing, pursuant to an assignment and
assumption agreement (the "Assignment and Assumption Agreement") all of the
foregoing to be current on the date of closing and free of all liens, claims,
interests of third parties and encumbrances (except for purchase money security
interests in leased equipment, any items being leased by Seller as reflected in
the Schedule of Leases and Contracts and accounts payable in the ordinary course
as permitted in accordance with this Agreement). In furtherance of the
preceding, Seller will by separate motion to the Bankruptcy Court or under the
Plan (as defined in Section 38 hereof), seek to assume and assign the Leases and
Contracts to Buyer pursuant to Section 365 of the Bankruptcy Code. The
Approvals, the Records, the Reservations, the Reservation Deposits, the
Accounts, the Intangible Property, and the Documents will be transferred to
Buyer by written quitclaim assignment (the "Assignment").
(b) If the transfer of any of the Leases or Contracts material to the
operation of the Hotel (the "Material Contracts") requires the consent of any
party other than Seller, the written consent of such party will be a condition
to Closing unless such condition is waived by Buyer or such assignment is so
ordered by the Bankruptcy Court pursuant to Section 365 of the Bankruptcy Code
prior to Closing. The parties agree to cooperate in obtaining such consents and
effecting such transfers. Buyer agrees to accept the assignment of all Contracts
other than at Buyer's election, Contracts with pre-petition arrearages.
(c) If the transfer of any of the Licenses material to the operation
of the Hotel (the "Material Licenses") requires the approval of any governmental
or quasigovernmental authorities, such approval will be a condition to Closing
unless such transfer is so ordered by the Bankruptcy Court pursuant to Section
365 of the Bankruptcy Court or waived by Buyer. The parties agree to cooperate
in obtaining such approvals and effecting such transfers. The Material Licenses
will be set forth in a written notice to Seller delivered
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by Buyer on or before the tenth (lOth) day after Seller delivers the last of the
Licenses to Buyer and attached hereto as Exhibit D. Transfer fees or similar
---------
charges to be incurred in connection with such consents and transfers will be
borne by the Buyer. If any such approval or order has not been obtained prior to
Closing, and Buyer waives such condition in writing, then, if not prohibited by
applicable law, Seller nevertheless will transfer the Property to Buyer, and the
parties will establish interim arrangements for the full and complete operation
of the Property in the manner it is presently being operated.
(d) Except as otherwise specifically provided herein, the Property is
being conveyed to Buyer free and clear of all liens, claims, interests, taxes,
assessments, security interests, encumbrances, debts, liabilities incurred after
the filing of the involuntary petition other than accounts payable incurred in
the ordinary course of business or current obligations due under Contracts,
Licenses and Leases incurred in the ordinary course of business.
(e) Buyer acknowledges receipt of a copy of the Agreement dated
January 27, 1987 among Seller, Pacific Ventures, Inc., and the Suffolk County
Department of Public Works and the Suffolk County Sewer Agency ("Suffolk")
regarding the development of a sewage treatment plant on a portion of the
Property (the "STP Agreement"). Buyer acknowledges that Suffolk has exercised
its right to require Seller to convey the sewage treatment plant and its related
facilities including pumping stations (the "Plant") to Suffolk and that the sale
of the Property will exclude the Plant. Buyer shall have no right to any
adjustments at Closing on account of the exclusion of the Plant or any matter
relating to the Plant or the STP Agreement. After the Closing, Buyer will
cooperate in assuring that Seller was able to convey the Plant as required by
the STP Agreement.
3. Purchase Price. The total purchase price to be paid (the "Purchase
--------------
Price") by Buyer to Seller for the Property is Thirty Million Dollars
($30,000,000).
(a) On execution of this Contract, Buyer will deposit the sum of Two
Hundred Fifty Thousand Dollars ($250,000.00) in cash or by letter of credit with
Escrow Agent (as defined in Section 4) to be held for Buyer's and Seller's
benefit as provided herein (the "Deposit").
(b) On the first business day following the expiration of the
Inspection Period, but no later than April 12, 1996, Buyer will increase the
Deposit to One Million Dollars ($1,000,000.00) by depositing an additional Seven
Hundred Fifty Thousand Dollars ($750,000) with the Escrow Agent in cash or by
letter of credit. Any interest earned on the Deposit will be considered part of
the Deposit and applied to the Purchase Price in the event the Closing occurs.
(c) At Buyer's election, Buyer may post all or any portion of the
Deposit by a letter of credit in form and substance acceptable to Seller and
issued by a bank approved by Seller in its reasonable discretion.
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(d) At the Closing, Buyer will pay to Seller or its designees the
balance of the Purchase Price in cash, bank or certified check, or wire transfer
of immediately available funds
4. Escrow Agent.
------------
(a) Winick & Rich, P.C. (the "Escrow Agent") will hold the Deposit as
escrow agent for the parties. If all or part of the Deposit is cash, Escrow
Agent will deposit the Deposit in an interest bearing trust account in a bank
acceptable to both parties and will not commingle the deposit with any other
funds. This Agreement will constitute the escrow instructions, however, if
required by Escrow Agent, the parties will execute Escrow Agent's standard form
of escrow instructions, with such changes as may be mutually acceptable to the
parties. In the event of any conflict between such printed form and this
Agreement, the terms of this Agreement will prevail.
(b) The interest (which shall be part of the Deposit) on the Deposit
shall be paid to Seller at Closing (and applied against the Purchase Price) or
to the party entitled to receipt of the Deposit in the event the Closing fails
to occur. At the Closing, the Deposit shall be paid by Escrow Agent to Seller.
If for any reason the Closing does not occur and either party gives notice to
Escrow Agent demanding payment of the Deposit, Escrow Agent shall give prompt
notice to the other party of such demand. If Escrow Agent does not receive
notice of objection from such other party to the proposed payment within ten
(10) business days after giving of such notice, Escrow Agent is hereby
authorized and directed to make such payment. If Escrow Agent does receive such
notice of objection within such ten (10) day period or if for any other reason
Escrow Agent in good faith shall elect not to make such payment, Escrow Agent
shall continue to hold such amount until otherwise directed by notice from the
parties to this Agreement or a final, nonappealable judgment, order or decree of
a court. However, Escrow Agent shall have the right at any time to deposit the
Deposit and the interest thereon with the Clerk of the Bankruptcy Court or the
Clerk of the Court in the county in which the Property is located if the Clerk
of the Bankruptcy Court shall refuse to accept such deposit. The Escrow Agent
shall give notice of such deposit to Seller and Buyer. Upon such deposit or
other disbursement in accordance with the terms of this paragraph, Escrow Agent
shall be relieved and discharged of all further obligations and
responsibilities hereunder.
(c) The Seller and Buyer acknowledge that Escrow Agent is acting
solely as a stakeholder at their request and for their convenience and that
Escrow Agent shall not be liable to either party for any act or omission on its
part unless taken or suffered in bad faith or in willful disregard of this
Agreement or involving gross negligence on the part of Escrow Agent. Seller and
Buyer jointly and severally agree to defend, indemnify and hold Escrow Agent
harmless from and against all costs, claims and expenses (including reasonable
attorney's fees) incurred in connection with the performance of Escrow Agent's
duties hereunder, except with respect to actions or omissions taken or suffered
by Escrow Agent in
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bad faith or in willful disregard of this Agreement or involving gross
negligence on the part of Escrow Agent.
(d) Escrow Agent may act or refrain from acting in respect of any
matter referred to herein in full reliance upon and with the advice of counsel
which may be selected by it and shall be fully protected in so acting or
refraining from action upon the advice of such counsel
(e) Upon receipt of the Deposit, Escrow Agent will acknowledge such
receipt and Escrow Agent's agreement to the provisions of this paragraph by
signing in the place indicated on the signature page of this Agreement.
(f) Escrow Agent may rely upon the genuineness or authenticity of any
document tendered to it by either of the parties, and shall be under no duty of
independent inquiry with respect to any acts or circumstances recited in such
document.
5. Survey. Within two (2) business days of the execution of this Agreement,
------
Buyer will order an ALTA Survey (the "Survey"). To the extent permitted under
Section 7, Buyer will have the right to object to any matter shown on the
Survey. The procedure for Buyer to object to matters shown on the Survey, and
for Seller to cure the same, will be set forth in Section 7.
6. Title Report.
------------
(a) Within two (2) business days of the execution of this Agreement,
Buyer will request a commitment from East Coast Abstract Company and/or such
other title company as it selects (the "Title Company") to issue and deliver to
Buyer, at Buyer's expense (a) a commitment for title insurance (the "Title
Commitment") and (b) a UCC judgment and other search (collectively, the "U.C.C.
Reports"). To the extent permitted under Section 7, Buyer will have the right to
object to any matter affecting title to the Property as shown in the Title
Commitment or the U.C.C. Reports. The procedure for Buyer to object to matters
shown on the Title Commitment or the U.C.C. Reports, and for Seller to cure the
same, will be as set forth in Section 7.
(b) Buyer acknowledges that it has been furnished with a recent Title
Report and survey (collectively the "Title Report"), has reviewed same and has
no objection to any matter affecting title to the Property disclosed therein and
agrees to take title subject to such matters. A copy of the Title Report is to
be attached within 3 days of signature of Seller as Exhibit E.
7. Review Period. Buyer will have until five (5) days after receipt of the
-------------
Survey, the Title Commitment and the U.C.C. Reports (the "Title Review Period"),
within which to review and give Seller written notice (the "Objection Notice")
of its objection (in its
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sole and arbitrary discretion without having to provide any basis therefor) to
any matters contained in Survey, the Title Commitment, and the U.C.C. Reports
affecting title to, or the condition of, the Property or any part thereof not
shown in the Title Report. In the event Buyer fails to give Seller an Objection
Notice within the Title Review Period, then Buyer will be deemed to have
approved all such matters. Seller will have thirty (30) days from receipt of the
Objection Notice to cure all such objections. If Seller is unable or unwilling,
in its sole discretion, to cure such objections, Seller, at any time within said
thirty (30) day period, will provide Buyer with written notice specifying all
such objections that will not be cured (the "Non-Cure Notice"). If Seller
provides the Non-Cure Notice, Buyer may, within fifteen (15) days after receipt
of the Non-Cure Notice, provide written notice of termination to Seller, in
which event this Agreement will terminate, the Deposit will be returned to
Buyer, and the parties will have no further obligations or liabilities
hereunder, except for Buyer's obligations under Section 8(c), 8(e) and 21
hereof. If Buyer fails to provide such notice within said fifteen (15) day
period, Buyer will be deemed to have waived such objections and to have elected
to proceed with the sale without any reduction in the Purchase Price. If any
other exceptions to, or matters affecting, title are created between the dates
of the Survey, the Title Commitment or the U.C.C. Reports, as applicable, and
the Closing which Seller elects not to remove, then Buyer will have the option
to either (a) accept title subject to such exceptions or matters and proceed
with Closing, in which event there will be no reduction in the Purchase Price,
or (b) terminate this Agreement, in which event the Deposit will be returned to
Buyer and the parties will have no further obligations or liabilities hereunder,
except for Buyer's obligation under Sections 8(c), 8(e) and 21.
8. Inspections and Examinations; Condition of Property.
---------------------------------------------------
(a) Buyer will have thirty (30) days following the date hereof (the
"Inspection Period") within which to (i) inspect, review and approve the
Property including, without limitation, Licenses, the Leases, the Contracts, the
Documents, the Records, the condition of the Property, and all financial,
economic and operational information relating to the ownership and operation of
the Property, (ii) to conduct such studies relating to the Property as Buyer may
reasonably require, and (iii) to otherwise determine the economic feasibility of
Buyer's intended use of the Property. In the event that such reviews, approvals,
inspections, and determinations reveal matters that are objected to by Buyer in
its sole and arbitrary discretion without Buyer having to provide any basis
therefor, Buyer, by written notice (the "Termination Notice") delivered to
Seller prior to the expiration of the Inspection Period, may terminate this
Agreement, in which event Buyer will be entitled to a return of the Deposit and
the parties will have no further obligations or liabilities hereunder, except
for Buyer's obligations under Sections 8(c), 8(e) and 21 hereof. If Buyer fails
to provide Seller with a Termination Notice prior to the end of the Inspection
Period, then, subject to any other conditions set forth in this Agreement, Buyer
will be deemed satisfied as of the expiration of the Inspection Period with the
condition of the Property and the operation of the Hotel.
(b) Seller will cooperate with Buyer to permit Buyer and Buyer's
designated agents to make the inspections and examinations authorized by this
Section 8.
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Upon Buyer's request, Seller will promptly provide Buyer and Buyer's designated
agents with access to the Property, the Licenses, the Leases, the Contracts, the
Records and the Documents, including all modifications and amendments thereto
and, to the extent not included therein, any other relevant information as Buyer
may reasonably request and Seller can provide within the scope of the Hotel MA,
including without limitation any and all financial information relating to the
operation of the Hotel, any and all health, building, fire, safety and other
reports of governmental, quasigovernmental, insurance or other entities
concerning the Property or the operation of the Hotel, and any and all
inspection, environmental, structural, engineering and other reports with
respect to the Property and the operation of the Hotel (including those relating
to the heating, ventilation, air conditioning, plumbing, electrical, elevator
and other mechanical systems). All such examinations and inspections will take
place at reasonable times and locations and on reasonable notice and in a manner
which will not interfere with the normal operation of the Hotel and will comply
with the provisions of the Hotel MA. Seller will permit Buyer's agents to make
photocopies of any of such materials and information to the extent not
prohibited by the Hotel MA. Seller will use reasonable efforts to give Buyer
complete and full access to the Property and all such items and information,
throughout the Inspection Period in accordance with the Hotel MA. Nothing
contained in this Agreement shall obligate Seller to commence litigation against
Marriott or incur unreasonable cost or expense in the event that Buyer cannot
gain such access or any information or documents referred to above or herein
during the Inspection Period. In the event access or any information or
documents referred to above or herein is not provided, Buyer's sole remedy for
its inability to obtain the same will be to terminate this Agreement at the end
of the Inspection Period as provided in subsection (a) above.
(c) Buyer agrees that any and all information obtained by Buyer from
such examinations and inspections will be held in confidence with its agents,
representatives and employees and will not be disclosed to anyone by Buyer
without the prior written consent of Seller. In the event this Agreement is
terminated prior to the Closing, Buyer will return to Seller any documents and
other materials received from Seller. Buyer shall indemnify, defend and hold
Seller harmless from any loss, damages, costs or expenses (including reasonable
attorney's fees) arising as a result of Buyer's breach of this provision.
(d) Seller expressly acknowledges that, as part of such inspections
and reviews during the Inspection Period, Buyer, at its sole option and expense,
may elect to conduct engineering, structural, environmental and/or other tests,
studies and audits in order to evaluate the condition of the Property, and that
any such test, audit or study may require that Buyer, or its agents, obtain
samples from the Land or Improvements for analysis, all at reasonable times and
on reasonable prior notice, without interference by Buyer with Seller's business
operations at the Hotel. Copies of all reports and results of all tests will be
delivered to Seller. Buyer agrees to repair promptly any damage resulting from
obtaining such samples.
(e) Buyer will indemnify, defend and hold Seller harmless from any and
all damages, claims, losses, liabilities and expenses, including reasonable
attorneys' fees arising solely from or relating to any such examinations,
inspections, tests, audits or studies
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<PAGE>
conducted by Buyer or its agents, except to the extent such losses, liabilities
and expenses arise solely from any negligent acts or omissions of Seller or its
agents. There shall be no indemnity for anY previously existing conditions.
(f) After receipt of the list of Material Licenses from Buyer, if
Seller reasonably determines that any consent to the transfer of any such
transferable Material Licenses is unlikely to be obtained prior to the Closing,
Seller will notify Buyer within five (5) days. If Buyer does not waive such
consent as a condition to Closing, within three (3) business days of receipt of
Seller's notice, then at anytime thereafter, Seller may elect to terminate the
Agreement and refund the Deposit to Buyer and thereafter the parties shall have
no further obligations or liabilities to each other except for Buyer's
obligations under Sections 8(c), 8(e) and 21 hereof.
9. Prorations and Adjustments. All matters and items which would normally
--------------------------
be prorated, adjusted and apportioned between the parties as of the date of
Closing, including taxes, shall instead be transferred to and assumed by Buyer
including, without limitation, all liabilities and obligations of Seller to
Marriott under the Hotel MA. Buyer acknowledges that the Accounts have been
transferred in lieu of making any prorations or adjustments.
10. Insurance. Until the Closing, Seller agrees to cause to be maintained
---------
in full force and effect its existing fire and extended coverage, public
liability and other insurance.
11. Property of Guests. All baggage or other items checked or left in the
------------------
care of Seller, any safe-deposit boxes containing property of guests and any
items in the "Lost and Found Bin" will be listed in an inventory, prepared in
duplicate and signed by representatives of Seller and Buyer on the date of the
Closing. Buyer will be responsible from and after the Closing for all property
so listed and the contents of the identified safe deposit boxes, and Buyer
agrees to indemnify Seller, its agents, employees, representatives and assigns
against any claims, losses, damages or liabilities, including reasonable
attorneys' fees, relating to, in connection with or arising out of such listed
property and claims relating thereto from and after the Closing. Seller will
remain responsible for such claims arising before the Closing.
12. Taxes. Seller agrees to pay when due all sales taxes, transaction
-----
privilege taxes, occupancy taxes, excise taxes, income taxes and other taxes and
charges which are payable prior to Closing as a result of the ownership or
operation of the Property prior to the Closing. All real estate taxes and
assessments, penalties and interest due for the period ending at 11:59 p.m. on
the day before the Closing will be paid by Seller at or before Closing. Seller
will procure, at Seller's expense, and provide to Buyer at the Closing any and
all certifications from appropriate governmental agencies certifying the payment
of such taxes through the most recent date prior to the Closing for which such
certifications are available. Buyer will pay all sales taxes, transaction
privilege taxes, occupancy taxes, excise taxes,
10
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employment taxes, income taxes and other taxes and charges which are payable
from and after the Closing. Seller will be responsible for all transfer or sales
taxes, if any, which may be payable with respect to the sale of the Property, or
any part thereof, or will obtain a final order from the Bankruptcy Court
providing that the transaction contemplated by this Agreement is exempt from
sales and transfer taxes under Section 1146(c) of the Bankruptcy Code. In regard
to the foregoing obligation, Buyer agrees to give Seller immediate written
notice of any sales tax assessment, including copies of any tax bills, in regard
to the transaction embodied by this Agreement. Seller represents that there are
no tax appeals pending.
13. Employees and Payroll.
---------------------
Seller represents that all employees at the Property are employees of
Marriott and that Seller has no obligations with regard to any employees and
Buyer will not assume any such obligation except to the extent of Seller's
obligations under the Hotel MA.
14. Condemnation and Casualty.
-------------------------
(a) Seller will promptly notify Buyer of any condemnation or
threatened condemnation of the Real Property between the date hereof and the
Closing (the "Condemnation Notice"). If the condemnation or threatened
condemnation would materially and adversely affect the operation of the Hotel in
the reasonable determination of Buyer, then Buyer will have the right to
terminate this Agreement by written notice to Seller within fifteen (15) days
following receipt of the Condemnation Notice. During such fifteen (15) day
period, Seller will provide Buyer with any and all information reasonably
requested by Buyer concerning the condemnation or threatened condemnation,
including information relating to any proposed condemnation award. If Buyer so
terminates this Agreement, the Deposit will be returned to Buyer, and the
parties will have no further obligations or liabilities hereunder, except for
Buyer's obligations under Sections 8(c), 8(e) and 21. If Buyer elects not to
terminate this Agreement or fails to respond to the Condemnation Notice within
such fifteen (15) day period, the purchase contemplated herein will be
consummated without reduction of the Purchase Price within later of ten (10)
days after the expiration of such fifteen (15) day period or on the Closing, in
which event Buyer will be entitled to any condemnation award. Seller will
assign, transfer and set over to Buyer all of Seller's right, title and interest
in and to such condemnation proceeds necessary to give full effect to this
section.
(b) Seller will promptly notify Buyer of any fire or other casualty
affecting the Land between the date hereof and the Closing. As soon as
reasonably possible thereafter, Seller will provide Buyer with written notice of
the nature, extent and cost of all repairs, together with all other information
relating thereto, including all information concerning insurance coverage
therefor (the "Casualty Notice") which repairs will be subject to reasonable
approval of Buyer. If the cost of such repair exceeds $500,000, then Buyer will
have the right to terminate this Agreement by written notice to Seller within
fifteen (15) days
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following receipt of the Casualty Notice. If Buyer so terminates this Agreement
the deposit will be returned to Buyer, and the parties will have no further
obligations or liabilities hereunder, except for Buyer's obligations under
Sections 8(c), 8(e) and 21 hereof. If Buyer elects not to terminate this
Agreement or fails to respond to the Casualty Notice within such fifteen (15)
day period, the purchase contemplated herein will be consummated without
reduction of the Purchase Price within the later of ten (10) days after the
expiration of such fifteen (15) day period or on the Closing, in which event the
insurance proceeds will be used for such repairs and, to the extent necessary,
Seller will assign, transfer and set over to Buyer all of Seller's right, title
and interest in and to such proceeds.
(c) Notwithstanding anything to the contrary contained in this
Agreement, in the event Buyer elects not to terminate this Agreement under
Section 14(a) or Section 14(b), Buyer will be entitled to an additional credit
against the Purchase Price in the amount of any insurance or condemnation
proceeds that are not used or assigned as provided therein, including payment
thereof to any person with a mortgage or other encumbrance on the Real Property.
15. Use of Names. Seller acknowledges that all trade names and service
------------
marks currently being used by Seller in connection with the Hotel (except those
owned by Marriott) are being assigned and transferred to Buyer as part of the
purchase of the Property including, without limitation, but subject to the
provisions of Section l(j) hereof, the name "WindWatch". Buyer acknowledges that
it is acquiring no interest whatsoever in any of the Excepted Property, and
Buyer will have no right to use trade names and service marks owned by Marriott
in connection with the operation of the Hotel subsequent to the Closing unless
Marriott and Buyer enter into an agreement providing otherwise. Seller will
execute and deliver to Buyer any and all documents reasonably requested by Buyer
to effect the assignment and transfer of any trade names and service marks under
this Agreement.
16. Closing. Consummation of the purchase and sale of the Property pursuant
-------
to this Agreement (the "Closing") will take place at the offices of Winick &
Rich, P.C., 919 Third Avenue, New York, New York 10022 July 14, 1996 but in no
event earlier than the earlier of five (5) business days after (a) an order
confirming the Chapter 11 Plan of the Seller becomes a final order or (b) an
order approving this Agreement and the sale contemplated hereunder pursuant to
Section 363 and 365 of the Bankruptcy Code becomes a final order. The provisions
of this Section are subject to the extension rights provided in Sections 7, 14,
16 or 17 hereof. As used in this Agreement the term "final order" shall mean an
order as to which the time to appeal or seek review has expired and as to which
no appeal or any extension thereof shall then be pending or in the event that an
appeal, review or rehearing has been sought, such appeal or other proceeding has
been withdrawn or dismissed with prejudice or such order has been affirmed by
the highest court to which such order was appealed and the time to appeal or to
seek review of such appellate order has expired. In the event (i) the order
confirming the Plan or (ii) the order approving this Agreement and the sale
hereunder pursuant to Section 363 and 365 of the Bankruptcy Code does not become
final by July 14, 1996 either Buyer or Seller may, by written notice to the
other, terminate this
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Agreement in which event Buyer shall receive a refund of the Deposit and the
parties will have no further obligations or liabilities hereunder, except for
Buyer's obligation under Sections 8(c), 8(e) and 21. Except as otherwise
expressly provided in this Agreement, any extension beyond such date will
require the written consent of both parties.
17. Default of Buyer or Seller.
--------------------------
(a) If the purchase and sale of the Property as contemplated herein is
not consummated as a result of Buyer's breach or default under this Agreement
(which breach or default remains uncured for five business (5) days following
written notice thereof from Seller), then Seller, as its sole and exclusive
remedy, may elect to terminate this Agreement by written notice to Buyer and to
receive and retain the Deposit as liquidated damages. In light of the difficulty
of determining Seller's damages in such event, the parties agree that the
Deposit is a fair and reasonable amount to be retained by Seller as liquidated
damages; that such amount is a reasonable estimate of such damages under the
circumstances; and that retention by the Seller of such amount will not
constitute a penalty or forfeiture.
(b) If the purchase and sale of the Property as contemplated herein is
not consummated as a result of Seller's breach or default under this Agreement
(which breach or default remains uncured for five (5) business days following
written notice thereof from Buyer), then Buyer will have the right to terminate
this Agreement by written notice to Seller. Buyer shall have the right of
specific performance in the event of Seller's willful default or willful refusal
to close. If Buyer elects to so terminate this Agreement, the Deposit will be
returned to Buyer, and the parties shall have no further obligations hereunder.
(c) Buyer's obligations under Section 8(c), 8(e) and 21 will survive
any termination under this Section 17.
18. Representations of Seller. Seller represents, warrants and covenants to
-------------------------
Buyer as follows:
(a) Upon obtaining Bankruptcy Court approval: Seller will have full
power to carry out the transactions provided for in this Agreement; the
execution and delivery of this Agreement by Seller and the consummation by
Seller of the transactions contemplated herein will be duly and validly
authorized, and this Agreement will constitute a valid and legally binding
obligation of Seller, enforceable against Seller in accordance with its terms.
Seller and Buyer acknowledge that Seller is required to obtain Bankruptcy Court
approval to carry out the transactions contemplated by this Agreement, as more
particularly set forth herein and in Section 38.
(b) No consent of any governmental agency or authority is required for
the execution of this Agreement by Seller and the consummation of the
transaction contemplated herein, except for (i) Bankruptcy Court approval, (ii)
the order of the
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Bankruptcy approving the Hotel MA having become a final order and (ii) as
otherwise provided in this Agreement.
(c) To Seller's knowledge, there is not existing as of the date of
this Agreement any other agreement, written or oral, under which Seller is or
could become obligated to sell the Property or any portion thereof to a third
party.
(d) To Seller's knowledge, there are no unrecorded leases (other than
the Leases), liens, encumbrances, permits, licenses, restrictions or other
agreements which may affect title, possession, use or occupancy of the Property.
(e) To Seller's knowledge, there are no intended public improvements
which will or could result in any charge being assessed against the Property
which will or could result in a lien thereon.
(f) To Seller's knowledge, there is no pending or contemplated
condemnation of the Real Property or any portion thereof.
(g) To the best of Seller's knowledge, there are no suits,
proceedings, judgments or claims pending or threatened which could materially
affect the Property or the operation of the Hotel except for the Seller's
bankruptcy proceeding, the bankruptcy proceeding of Blydenburgh Properties,
Inc., all matters arising in or reflected in the bankruptcy proceedings, the
pending action brought by CrossLand Savings Bank, N.A., the pending foreclosure
action brought by Paul Kessler and Frank Apudula and those insurance and workers
compensation claims outstanding in the Hotel.
References to the knowledge of Seller under any term or provision of this
Agreement or receipt of written notice by Seller under any term or provision of
this Agreement shall be deemed references to the knowledge of or receipt of
notice by the general partner of Seller.
The foregoing representations will be true as of the date hereof and as of
the date of the Closing.
Except as otherwise expressly provided in this Agreement (i) the Property
is being sold in an "AS IS" condition, and (ii) no representations or warranties
are being made by Seller with respect to the condition of the Property or the
operation thereof. No representation or warranty of Seller contained herein will
survive the Closing.
19. Representations of Buyer. Buyer represents as follows:
------------------------
(a) Buyer is a corporation which is duly organized, validly existing
and in good standing under the laws of the State of Virginia.
14
<PAGE>
(b) Buyer has full power to carry out the transactions provided for in
this Agreement, the execution and delivery of this Agreement by Buyer and the
consummation by Buyer of the transactions contemplated herein has been duly and
validly authorized by all necessary action on Buyer's part, and this Agreement
constitutes a valid and legally binding obligation of Buyer, enforceable against
Buyer in accordance with its terms. Neither the execution and delivery of this
Agreement, nor the consummation by Buyer of the transactions contemplated
hereby, nor compliance by Buyer with any of the provisions hereof will (i)
violate any of its constituent documents, or (ii) violate any order, injunction,
decree, statute, rule or regulation applicable to Buyer or any of its assets or
properties.
(c) No consent of any governmental agency or authority is required for
the execution of this Agreement by Buyer and the consummation of the transaction
contemplated herein, except as otherwise provided in this Agreement.
(d) Buyer is not a party to any bankruptcy or similar proceedings. nor
are there any other matters pending which would affect Buyer's ability to
purchase the Property as provided herein.
(e) Prior to the Closing Buyer shall inspect the Property fully and
completely at its own expense and shall have satisfied itself with respect to
the condition of the Property and the information contained in all Records.
Buyer shall have reviewed the Contracts which it has elected to assume at
Closing and all Licenses, Leases, Records and Documents prior to Closing and
shall have approved the same provided, however that Buyer must assume Seller's
-------- -------
liabilities under all Contracts which Buyer has reviewed unless Seller can
terminate such Contracts without liability.
The foregoing representations will be true as of the date hereof and as of
the date of the Closing.
20. Operation of Hotel.
------------------
(a) Seller will continue operating the Hotel until the Closing in the
same manner as it has been operated over the twelve (12) month period preceding
this Agreement and will arrange for Buyer representatives to visit the Land and
Improvements from time to time after the expiration of the Inspection Period to
observe operations, in accordance with the Hotel MA, including activities
pertaining to reservations, room rates, advertising, promotion, and similar
matters. Seller will maintain or cause Marriott to maintain adequate levels of
FFE and Inventories necessary to so operate the Hotel. After the date hereof,
Seller will not enter into any new Leases, Contracts, agreements, mortgages or
commitments with respect to the Property which would impose obligations on Buyer
and which are not terminable on less than sixty (60) days notice without penalty
or premiums, without Buyer's consent.
15
<PAGE>
(b) Buyer agrees to indemnify and hold harmless Seller, its agents,
employees, representatives and assigns, from and against any and all claims,
losses, damages and liabilities, including reasonable attorneys' fees, arising
out of the operation of the Hotel from and after the Closing.
21. Commissions. Each party represents and warrants that it has not engaged
-----------
or dealt with any broker, finder or any other person or agent, other than Hotel
Partners Inc., who would be entitled to any commission or finder's fee in
connection with the execution of this Agreement or the consummation of the
transactions contemplated hereby. Each party agrees to indemnify and hold the
other party harmless from and against all loss or damage, including reasonable
attorneys' fees, arising out of the breach of such representation and warranty
by the indemnifying party. Buyer will pay Hotel Partners, Inc. its commission,
pursuant to a separate letter agreement with Buyer, only upon Closing and will
indemnify, defend and hold Seller harmless with regard thereto.
22. Conditions to Closing Required by Buyer. In addition to any other
---------------------------------------
conditions set forth elsewhere in this Agreement, the following will be
conditions precedent to the Closing:
(a) All customary levels of FFE and Inventory necessary to operate the
Hotel in the ordinary course will be on hand at the Hotel for delivery to Buyer
at the Closing.
(b) All required written consents, if any, to the transfer and
assignment of the Leases, the Material Contracts, and the Material Licenses will
have been obtained or ordered by the Bankruptcy Court prior to Closing unless
previously waived by Buyer in accordance with Section 8(f) hereof.
(c) The title to the Property at the Closing will be subject only to
the exceptions permitted by Buyer pursuant to this Agreement.
(d) Subject to the provisions of Section 14, the Property will be in
substantially the same physical condition on the date of the Closing as they are
upon execution of this Agreement, ordinary wear and tear excepted.
(e) Seller will have performed, satisfied and complied with all
covenants, agreements and conditions to be performed or complied with by Seller
at or before the Closing and will deliver all agreements and other instruments
required or contemplated by this Agreement.
(f) The representations and warranties of Seller in this Agreement
will be true and correct as of the Closing as if made at the Closing. With
respect to any representation or warranty made to Seller's knowledge, if at
Closing Seller has knowledge that the representation or warranty is untrue, then
this condition will not have been satisfied.
16
<PAGE>
(g) The contingencies set forth in Section 38 hereof shall have been
satisfied.
If the foregoing conditions have not been satisfied by the date scheduled
for the Closing, Buyer will have the option to waive any unsatisfied condition
or to terminate this Agreement, in which event the Deposit will be returned to
Buyer and the parties will have no further obligations or liabilities hereunder,
except for Buyer's obligations under Sections 8(c), 8(e) and 21. If the
foregoing conditions have not been satisfied, or waived by Buyer by the date
scheduled for the Closing and such non-satisfaction is a default or breach by
Seller hereunder, the provisions of Section 17(a) will control.
23. Conditions of Closing Required by Seller. In addition to any other
----------------------------------------
conditions set forth elsewhere in this Agreement, the following will be
conditions precedent to the Closing:
(a) Buyer will have performed, satisfied and complied with all
covenants, agreements and conditions to be performed or complied with by Buyer
at or before the Closing and will deliver all agreements and other instruments
required or contemplated by this Agreement.
(b) The representations and warranties of Buyer in this Agreement will
be true and correct as of the Closing as if made at the Closing.
If the foregoing conditions have not been satisfied by the date scheduled
for the Closing and such non-satisfaction is not a default or breach by Buyer
hereunder, Seller will have the option to waive any unsatisfied condition or to
terminate this Agreement, in which event the Deposit will be returned to Buyer
and the parties will have no further obligations or liabilities hereunder,
except for Buyer's obligations under Sections 8(c), 8(e) and 21. If the
foregoing conditions have not been satisfied by the date scheduled for the
Closing and such non-satisfaction is a default or breach by Buyer hereunder, the
provisions of Section 17(b) will control.
24. Seller's Deliveries at Closing. At the Closing, Seller will deliver or
------------------------------
cause the Escrow Agent to deliver to Buyer the following:
(a) The Deed, the Leasehold Assignment, the Bill of Sale, the
Assignment and the Assumption Agreement.
(b) To the extent available, the originals or copies of the Licenses,
the Leases, the Contracts and the Documents, and the originals or copies of the
Records.
(c) A certification executed by Seller, pursuant to and in full
compliance with Section 1445 of the Internal Revenue Code and the regulations
issued thereunder, declaring that Seller is not a foreign corporation, foreign
partnership, foreign trust
17
<PAGE>
or foreign estate, as those terms are defined in the Internal Revenue Code and
Income Tax Regulations. Seller understands that such certificate may be made
available to the Internal Revenue Service.
(d) A tentative assessment from the New York State Department of
Taxation and Finance sufficient to enable the recording of the Deed and other
instruments at Closing clear of any taxes.
(e) The entry of the Bankruptcy Court's order approving this Agreement
(whether by a plan confirmation order or an order pursuant to Section 363 of the
Bankruptcy Code), and such order's having become a final order.
(f) Possession of the Property, subject to the rights, if any, of
Marriott under the Hotel MA to, among any other rights, manage the Hotel for 120
days after the Closing.
(g) Such other documents and instruments as may be required hereunder
or that are otherwise reasonably necessary for the Closing.
All agreements and instruments to be delivered to Buyer will have been duly
executed and, where appropriate, acknowledged by the parties thereto. The
foregoing is intended as a summary of items to be delivered at the Closing and
will not be construed to limit or waive any obligations of Seller under this
Agreement.
25. Buyer's Deliveries at Closing. At the Closing Buyer will deliver or
-----------------------------
cause the Escrow Agent to deliver to Seller the following:
(a) The sums required under Section 3 and 23.
(b) The Assignment and Assumption Agreement.
(c) Such other documents and instruments as may be required
hereunder or that are otherwise necessary for the Closing.
All agreements and instruments to be delivered to Seller will have been
duly executed and, where appropriate, acknowledged by the parties thereto. The
foregoing is intended as a summary of items to be delivered at the Closing and
will not be construed to limit or waive any obligations of Buyer under this
Agreement.
26. Interpretation. This Agreement will be construed according to its fair
-------------
meaning and neither for nor against any party hereto irrespective of which party
caused the same to be drafted. Each of the parties acknowledges that it has been
or has had the opportunity to be represented by an attorney in connection with
the preparation and execution of this Agreement. Where appropriate, references
to one gender will be deemed to include
18
<PAGE>
any other gender and references to the singular or the plural will be deemed to
include either the singular or the plural.
27. Extensions. Time is of the essence of this Agreement. Any extension of
----------
time granted for the performance of any obligation under this Agreement will not
be considered an extension of time for the performance of any other obligation.
28. Severability. Unenforceability for any reason of any provision of this
------------
Agreement will not limit or impair the operation or validity of any other
provision of this Agreement.
29. Exhibits and Recitals. Each Exhibit attached to this Agreement and each
---------------------
recital is incorporated and made a part of this Agreement by this reference.
30. Notices. All notices, demands, requests and other communications
-------
required or permitted hereunder will be effective when reduced to writing and
either delivered personally or sent by a nationally recognized overnight courier
service, to the appropriate party at the following addresses unless and until a
different address has been designated by written notice to the other party as
provided herein:
If to Seller:
Colony Hill Associates
425 County Road 39A
Suite 103A
Southampton Beach, New York 11968
Attention: John Folks, III
phone: (516) 283-7676
fax: (516) 283-4708
with a copy to:
Winick & Rich, P.C.
919 Third Avenue
New York, New York 10022
Attention: Jeffrey N. Rich, Esq.
phone: (212) 935-9360
fax: (212) 308-5945
19
<PAGE>
If to Buyer:
Patriot American Hospitality, Inc.
3030 LBJ Freeway, Suite 1500
Dallas, Texas 75324
Attn: Leslie Ng
phone: (214) 888-8065
fax: (214) 888-8060
with a copy to:
Schulte Roth & Zabel
900 Third Avenue
New York, New York 10022
Attn: Andrew H. Levy
phone: (212) 756-2480
fax: (212) 593-5955
Any notice hand delivered will be deemed given on the date of delivery. Any
notice sent by overnight courier will be deemed given one (1) day following the
date such notice was properly deposited, prepaid, with such courier for delivery
the following day. The party providing such notice will use its best efforts to
concurrently send a copy thereof by facsimile to the facsimile number set forth
above or to such other facsimile number as has been designated by written notice
as provided herein.
31. Entire Contract. This Agreement represents the entire agreement among
---------------
the parties with respect to the subject matter hereof and supersedes all prior
agreements and understandings of the parties concerning the same. No provision
of this Agreement will be waived or altered or otherwise amended except pursuant
to an instrument in writing signed by the party to be charged and no consent to
any departure by any party from the provisions of this Agreement will be
effective except pursuant to an instrument in writing signed by the party who is
claimed to have so consented and then such consent will be effective only in the
specific instance and for the specific purpose for which given.
32. Additional Instruments. The parties will cooperate with each other to
----------------------
execute and deliver such instruments and documents and take such actions as may
be required, or as a party may reasonably deem desirable, to effectuate the
provisions of this Agreement.
33. Binding Effect. Subject to the provisions of Section 38, this Agreement
--------------
will be binding upon and inure to the benefit of the parties hereto and their
respective successors and assigns.
34. Applicable Law. This Agreement will be governed by and construed in
--------------
accordance with the laws of the State of New York.
20
<PAGE>
35. Captions. The captions of the Sections of this Agreement are inserted
--------
for convenience only and will not control or affect the meaning or construction
of any provisions hereof.
36. Counterparts. This Agreement may be executed in several counterparts,
------------
each of which will be deemed an original but all of which will constitute only
one agreement.
37. Authority. Subject to the requirement that Seller obtain Bankruptcy
---------
Court approval each person signing below represents and warrants that he or she
is fully authorized to execute and deliver this Agreement in the capacity set
forth beneath his or her signature.
38. Seller's Bankruptcy. (a) Within ten (10) days following the expiration
-------------------
of the Inspection Period, Seller will (i) prepare and file a Plan of
Reorganization and Disclosure Statement which will provide for the sale of the
Property and the assumption of any executory contracts pertaining to the use of
the Property (pursuant to 11 U.S.C. ss.365, including without limitation, the
Material Contracts) and their assignment to Buyer pursuant to this Agreement
(the "Plan"), or (ii) will seek court approval of this Agreement in a motion
pursuant to 11 U.S.C. ss.ss.363(b) and (f), and 365 and any other applicable
sections of the Bankruptcy Code ("Motion"). A draft of the (1) the Plan and
Disclosure Statement, or the Application in support of the Motion and (2) the
order confirming the Plan or approving the sale will be provided to Buyer no
later than five (5) days prior to their filing. Buyer shall have prior approval
of the form of the order approving the sale or the order confirming a plan, as
said orders affect Buyer, prior to the submission of such orders to the Court.
Buyer and Seller acknowledge that the parties' obligations to close hereunder
are conditioned upon Seller obtaining the approval of this Agreement by Motion
or confirmation of a Chapter 11 Plan. This Agreement is subject to higher and
better offers only if Seller proceeds by way of Motion pursuant to 11 U.S.C.
ss.363. The Seller shall not entertain any such offer unless (A) such offer is
at least $1,500,000.00 greater than the Purchase Price set forth in this
Agreement, plus the amounts payable by Buyer under Section 3 and Section 23, and
(B) the person making such offer qualifies as a bidder in accordance with the
rules for bidding as set forth in any order of the Court or notice circulated by
the Seller. Seller shall confer with Buyer regarding such bidding procedures and
will incorporate all of Buyer's reasonable requests, but Seller's determination
as to the rules for bidding shall be final. Seller agrees that the bidding
procedures shall require bidders to comply with the following: (1) each bidder
must post a ten (10%) percent downpayment in cash or cash equivalents at the
auction, (2) the closing under any new bid must be scheduled to occur within
thirty (30) days from the the date of the auction, (3) not later than five (5)
days before the auction each bidder must submit its bid in writing and must set
forth the identity of the principals of the bidder and a source of funds
sufficient to allow the bidder to acquire the Property in the time required. The
foregoing information shall be made available to Buyer as soon as practicable
after receipt by Seller. The obligation to close this Agreement will not be
binding upon the parties hereto until a final order approving the Agreement or
confirming the Plan has been entered. Seller shall promptly provide Buyer with
copies of any opposition papers received by Seller.
21
<PAGE>
(b) Within ten (10) business days following the expiration of the
Inspection Period, Seller shall apply to the Bankruptcy Court for an order
approving payment to Buyer of a fee in the amount of $1,000,000.00 to be paid by
Seller to Buyer in the event that the Bankruptcy Court approves, either in
connection with a motion pursuant to 11 U.S.C. ss.363 seeking approval of this
Agreement or a plan of reorganization filed by Seller in its Chapter 11 case
(which plan proposes the sale of the Property to Buyer), the sale of the
Property or any substantial portion thereof to any person or entity other than
Buyer (the "Break-Up Fee Order") and such transaction closes. The fee will only
be payable if this Agreement has not been terminated as a result of Buyer's
default and Buyer is otherwise ready, willing and able to complete the purchase,
provided, however, that in no event shall it be payable if Buyer terminates this
agreement under Section 7 or 8 hereof and Seller has complied with its
obligation hereunder. Seller shall provide Buyer's counsel with drafts of the
papers that will be submitted to the Court in support of the entry of the
Break-Up Fee Order within five (5) business days of the return date of the
motion seeking Bankruptcy Court approval of such Break-Up Fee. Buyer will have
final approval of the form of Break-Up Fee Order, which approval will not be
unreasonably withheld and may appear at the hearing thereon. Seller will also
promptly provide to Buyer copies of any objections filed with respect to the
application for the Break-Up Fee Order, upon their receipt by Seller or its
counsel.
39. Exculpation of Seller's Partners. Seller's partners shall have no
--------------------------------
personal liability hereunder and Buyer agrees to look solely to the Property to
satisfy any claims Buyer may have against Seller.
40. Gains Tax. Buyer and Seller shall cooperate in filing all
---------
questionnaires required to comply with Article 31B of the New York Tax Law
immediately following the expiration of the Inspection Period in order to obtain
the tentative assessment and return required by Section 24(d) hereof.
41. Jurisdiction. Buyer and Seller consent to the jurisdiction of the
------------
Bankruptcy Court to resolve any disputes arising out of or related to this
Agreement.
42. Hart Scott Rodino. Buyer and Seller agree that if a federal Hart Scott
-----------------
Rodino Act filing is required by law, then
22
<PAGE>
Buyer shall bear the cost of such filing, provided, however, that Seller shall,
at its own expense, cooperate with Buyer in producing all information necessary
to complete such filing.
IN WITNESS WHEREOF, the parties have executed this Agreement effective
as the day and year first written above.
"Seller"
COLONY HILL ASSOCIATES,
a New York limited partnership
By:
-------------------------------
Its General Partner
"Buyer"
PAH ACQUISITION CORPORATION,
a Virginia corporation
By:
-------------------------------
Its:
"Escrow Agent"
- ---------------------------------------
Winick & Rich P.C.
23
<PAGE>
Exhibits
--------
EXHIBIT "A" - LAND DESCRIPTION
EXHIBIT "B" - SCHEDULE OF LEASES AND CONTRACTS
EXHIBIT "C" - SCHEDULE OF LICENSES
EXHIBIT "D" - MATERIAL LICENSES
EXHIBIT "E" - TITLE REPORT
24
<PAGE>
AMENDMENT TO PURCHASE AND SALE AGREEMENT
This Amendment to Purchase and Sale Agreement dated as of April 12, 1996
between Colony Hill Associates ("Seller") and PAH Acquisition Corporation
("Buyer").
WHEREAS, Seller and Buyer entered into a Purchase and Sale Agreement (the
"Agreement") dated as of March 15, 1996; and
WHEREAS, Buyer wishes to acquire an additional parcel from Seller and the
parties wish to provide for certain modifications to the Agreement as more fully
provided herein.
NOW THEREFORE, for mutual consideration, the receipt and sufficiency of
which is hereby acknowledged, the parties agree that the Agreement is modified
as set forth in this Amendment. All terms not defined herein have the meaning
assigned to them in the Agreement.
C. In addition to the real property to be conveyed to Buyer under the
Agreement, Seller has agreed to sell and Buyer has agreed to purchase the parcel
outlined on Schedule 1 hereto and marked as the office parcel (the "Office
Parcel"). The exact location of the property line between the Office Parcel and
the Hotel Parcel and the parcels to the south will be subject to agreement with
the purchaser of such parcels (the "Golf Purchaser") as provided in Section 3(c)
below. Buyer and Seller agree that Exhibit A to the Agreement is replaced with
Schedule 1 hereto.
D. The Purchase Price set forth in Section 3 of the Agreement shall be
increased to Thirty Million Two Hundred Thousand Dollars ($30,200,000.00).
E. In addition to the conditions to Closing set forth in Sections 22 and 23
of the Agreement, the following shall also be conditions to Buyer's and Seller's
obligations to close:
1. Seller shall have delivered to Buyer an agreement (the "Reservation
Agreement") reserving a total of 72,399 gallons per day ("GPD") capacity in the
waste water treatment plant owned by Seller and currently servicing the
Property. Such capacity shall be sufficient to continue operating the Hotel
consistent with past usage and to provide additional capacity for (i) a 150 Unit
expansion of the Hotel, (ii) for a 2,900 square foot ballroom expansion, (iii) a
potential 100,000 square foot office building to be constructed on the Office
Parcel and (iv) a 200 seat cafeteria in the office building. The Reservation
Agreement will be substantially similar to the Third-Party Sewer Agreements
currently recorded against the Property and referred to in the Title Report as
<PAGE>
exception numbers 9, 10, 11, 15, 16, 22, 23, and 24 and will provide for (1)
Seller to agree to (i) reserve the sewage treatment capacity levels provided for
herein, (ii) perform all obligations with regard to the Property as are
presently performed by "Owner" under the current Third-Party Sewer Agreements
(iii) retain and assume all obligations presently performed by it as "Owner"
under the current Third-Party Sewer Agreements (other than maintenance of the
sewer lines used by Buyer and the Third-Parties located at the Property), and
(iv) Seller shall allow Buyer to enforce Seller's rights against Third-Parties
with regard to reimbursement for maintenance of Third-Party sewer lines through
the Property and (2) Buyer to agree to (i) pay a minimum operation and
maintenance fee of $1.50 per annum per gallon of reserved capacity for all
constructed Improvements, (ii) construct a Site Sewer System (as defined in the
Third-Party Sewer Agreements) to connect any newly constructed improvements at
the Property to the Plant, (ii) pay a sewer connection fee for newly constructed
improvements and (iv) perform all other obligations of the "Company", as more
particularly set forth in the form of Third-Party Sewer Agreements that will be
used as the basis for drafting the Reservation Agreement. Seller shall provide
Buyer with a letter from the Suffolk County Department of Public Works ("DPW"),
on its behalf and on behalf of the Suffolk County Sewer Agency (the "Sewer
Agency"), acknowledging that the Plant has existing capacity to provide the
sewage treatment capacity levels provided for herein; that such capacity has
been reserved for the Property; and the DPW and Sewer Agency will look to the
Seller and Pacific Ventures, Inc., and not to the Buyer, for the performance of
the obligations retained by the Seller and Pacific Ventures, Inc. under the
Third-Party Agreements and the Reservation Agreement with Buyer.
2. Seller shall have received written approval from the Town of Islip
for a subdivision of the WindWatch property owned by Seller into five separate
parcels: the Hotel Parcel, the golf parcel (the "Golf Parcel"), the residential
parcel (the "Residential Parcel"), the office parcel (the "Office Parcel"), and
the parcel containing the Plant (the "STP Parcel"), which approval shall allow
the continued existing zoning classification and uses of each of the parcels
following the subdivision.
3. Buyer and the Golf Purchaser (or Seller, in the event the Golf and
Residential Parcels are to be retained by Seller and not conveyed to a third
party) shall have agreed on the terms and conditions of agreements (the
"Reciprocal Agreements") pursuant to which Buyer and the Golf Purchaser shall
have resolved the manner in which (i) the property lines between the Golf Parcel
and the Hotel Parcel and between the Residential Parcel and the Hotel Parcel
will be drawn, (ii) appropriate access and parking for the Golf Parcel will be
provided over the Hotel Parcel, (iii) real estate taxes assessed to the
improvements on the parcels are allocated pending the issuance of separate tax
bills for each of the parcels, (iv) the responsibility for rental payments on
the lease of those portions of the parking area located on the Long Island
Lighting Company property is allocated, and (v) access to the Golf Course is
provided to guests of the Hotel.
F. In addition to the deliveries at Closing set forth in Section 24 of the
Agreement, Seller shall (i) deliver a notice of termination of the Hotel MA,
(ii) pay Marriott the termination fee provided for in Section 19.02 of the Hotel
MA out of the proceeds of the sale and (iii) execute and/or deliver the
agreements referred to in Section 3(a) and (b) above.
<PAGE>
G. In addition to the deliveries at Closing set forth in Section 25 of the
Agreement, Buyer shall execute and deliver the agreements referred to in Section
3(a) and (c) above.
H. Notwithstanding anything to the contrary contained herein or in the
Agreement, if Buyer and the Golf Purchaser have not delivered to Seller a final
copy of the agreed form for each of the agreements referred to in Section 3(c)
above by May 10, 1996, then at anytime thereafter Seller may elect to terminate
the Agreement and refund the Deposit to Buyer and thereafter the parties shall
have no further obligations or liabilities to each other except for Buyer's
obligations under Sections 8(c), 8(e) and 21 of the Agreement.
I. Buyer and Seller agree that the Inspection Period provided for in
Section 8 of the Agreement has expired.
J. Schedule 2 hereto is agreed to be Exhibit E to the Agreement.
Notwithstanding anything to the contrary contained in Section 7 of the
Agreement, Buyer and Seller agree that (a) Buyer's right to deliver an Objection
Notice with regard to any matter shown in the Title Commitment as permitted
under Section 7 of the Agreement shall run from the date Buyer received the
Title Commitment, (b) Buyer's right to deliver an Objection Notice with regard
to any matter shown in the Survey as permitted under Section 7 shall run from
the date Buyer receives the Survey and (c) Buyer's right to deliver an Objection
Notice with regard to any matter shown in the U.C.C. Reports as permitted under
Section 7 shall run from the date Buyer receives the U.C.C. Reports. In the
event Buyer fails to give Seller an Objection Notice within the aforementioned
time periods, Buyer will be deemed to have approved all such matters. Seller
will have thirty (30) days from the receipt of the last Objection Notice to cure
all such objections or to deliver the Non-Cure Notice as provided in Section 7.
K. Seller shall cooperate with Buyer in requesting the consent of the
existing mortgagee to the assignment, at closing, of a portion of the existing
mortgage on the Hotel Parcel to a person designated by Buyer. Buyer will pay all
costs imposed by the mortgagee in connection with such request.
L. Except as modified hereby, the Agreement remains in full force and
effect.
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Amendment as of the
date first above written.
SELLER
COLONY HILL ASSOCIATES
By:
----------------------------
General Partner
BUYER
PAH ACQUISITION CORPORATION
By:
----------------------------
Name: Leslie Ng
Title: Senior Vice-President,
Acquisitions
<PAGE>
SECOND AMENDMENT TO PURCHASE AND SALE AGREEMENT
Second Amendment to Purchase and Sale Agreement dated April _ , 1996
between Colony Hill Associated ("Seller") and PAH Acquisition Corporation
("Buyer").
WHEREAS, Seller and Buyer entered into a Purchase and Sale Agreement (the
"P&S Agreement") dated as of March 15 1996, an Amendment ("First Amendment") to
a Purchase and Sale Agreement dated April _, 1996, (the P&S Agreement, as
amended by the First Amendment is hereby referred to as the "Agreement"); and
WHEREAS, the parties wish to provide for the possibility that the Buyer may
enter into a consulting agreement or arrangement with T. John Folks, III and
Paul Fitzpatrick and that any monies paid pursuant to any such consulting
agreement or arrangement be a credit against the Purchase Price set forth in
Section 3 of the Agreement.
NOW, THEREFORE, for mutual consideration, the receipt and sufficiency of
which is hereby acknowledged, the parties agree that the Agreement is modified
as set forth in this Amendment. All terms not defined herein have the meaning
assigned to them in the Agreement.
M. The provisions of Section 3(d) of the Agreement are amended to read as
follows:
<PAGE>
(d) At the closing, Buyer will pay to Seller or its
designees the balance of the Purchase Price in cash, bank or
certified check or wire transfer of immediately available
funds. Buyer and T. John Folks, III and Paul Fitzpatrick
(collectively the "Consultants") may, on or prior to the
Closing, enter into a consulting agreement or arrangement
pursuant to which the Seller may pay to Consultants on or
after Closing an amount up to, but not in excess, of
$300,000. In such event, any amount paid or to be paid to
the Consultants, pursuant to such agreement or arrangement
shall be a credit against the Purchase Price (whether paid
before or after Closing) and shall not be required to be
paid to the Seller on closing.
N. Except as modified hereby, the Agreement remains in full force and
effect.
IN WITNESS WHEREOF, the parties have executed this Amendment as of the
(late first above written:
Dated: New York, New York
April _ , 1996
Sellers:
<PAGE>
COLONY HILL ASSOCIATES
By:
------------------------------
General Partner
Buyer:
PAH ACQUISITION CORPORATION
By:
------------------------------
<PAGE>
THIRD AMENDMENT TO PURCHASE AND SALE AGREEMENT
----------------------------------------------
Third Amendment to Purchase and Sale Agreement dated May_______, 1996
between Colony Hill Associates ("Seller") and PAH Acquisition Corporation
("Buyer").
WHEREAS, Seller and Buyer entered into a Purchase and Sale Agreement
(the "P&S Agreement") dated as of March 15 1996, an Amendment ("First
Amendment") to a Purchase and Sale Agreement dated April _, 1996, and a Second
Amendment to Purchase and Sale Agreement dated May 3, 1996 (the "Second
Amendment"; the P&S Agreement, as amended by the First Amendment and the Second
Amendment, is hereby referred to as the "Agreement"); and
WHEREAS, the Agreement provides for Seller to pay a fee to Marriott
Hotel Corporation ("Marriott") out of the proceeds of the sale:
WHEREAS, prior to closing, Marriott may agree to reduce or waive all
or a portion of such fee and the parties have agreed that Buyer will receive a
credit against the Purchase Price payable under the Agreement equal to the
reduction in the amount of the fee payable by Seller to Marriott.
NOW, THEREFORE, for mutual consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties agree that the
Agreement is modified as set forth in this Amendment. All terms not defined
herein have the meaning assigned to them in the Agreement.
O. A new provision 3(e) is hereby added as follows:
(e) In the event that Seller is released from liability for
payment of all or any portion of the termination fee
provided for in Section 19.02 of the Hotel MA, Buyer will
receive a credit against the balance of the Purchase Price
payable hereunder in amount equal to the reduction in the
termination fee.
P. Seller will deliver a notice terminating the Hotel MA to Marriott at
the Closing if Buyer so elects.
<PAGE>
Q. Except as modified hereby, the Agreement remains in full force and
effect.
IN WITNESS WHEREOF, the parties have executed this Amendment as of
June , 1996.
Seller:
COLONY HILL ASSOCIATES
By:
------------------------------
General Partner
Buyer:
PAH ACQUISITION CORPORATION
By:
------------------------------
9
<PAGE>
THIRD AMENDMENT TO PURCHASE AND SALE AGREEMENT
----------------------------------------------
Third Amendment to Purchase and Sale Agreement dated May __, 1996
between Colony Hill Associates ("Seller") and PAH Acquisition Corporation
("Buyer").
WHEREAS, Seller and Buyer entered into a Purchase and Sale Agreement
(the "P&S Agreement") dated as of March 15 1996, an Amendment ("First
Amendment") to a Purchase and Sale Agreement dated April _, 1996, and a Second
Amendment to Purchase and Sale Agreement dated May 3, 1996 (the "Second
Amendment"; the P&S Agreement, as amended by the First Amendment and the Second
Amendment, is hereby referred to as the "Agreement"); and
WHEREAS, the Agreement provides for Seller to pay a fee to Marriott
Hotel Corporation ("Marriott") out of the proceeds of the sale;
WHEREAS, prior to closing, Marriott may agree to reduce or waive all
or a portion of such fee and the parties have agreed that Buyer will receive a
credit against the Purchase Price payable under the Agreement equal to the
reduction in the amount of the fee payable by Seller to Marriott
NOW, THEREFORE, for mutual consideration, the receipt and sufficiency
of which are hereby acknowledged, the parties agree that the Agreement is
modified as set forth in this Amendment. All terms not defined herein have the
meaning assigned to them in the Agreement.
R. A new provision 3(e) is hereby added as follows:
(e) In the event that Seller is released from liability for
payment of all or any portion of the termination fee
provided for in Section 19.02 of the Hotel MA, Buyer will
receive a credit against the balance of the Purchase Price
payable hereunder in amount equal to the reduction in the
termination fee.
S. Seller will deliver a notice terminating the Hotel MA to Marriott at
the Closing if Buyer so elects.
<PAGE>
T. Except as modified hereby, the Agreement remains in full force and
effect.
IN WITNESS WHEREOF, the parties have executed this Amendment as of
June_____________, 1996.
Seller:
COLONY HILL ASSOCIATES
By:
General Partner
Buyer:
PAH ACQUISITION CORPORATION
By:
<PAGE>
EXHIBIT 10.42
[LOGO]
PATRIOT AMERICAN
April 10, 1996
Wyndham Hotels and Resorts
Attention: Ms. Anne L. Raymond
Executive Vice President & CFO
2001 Bryan Street, Suite 2300
Dallas, Texas 75201-3075
Re: Strategic alliance to acquire and lease Wyndham hotels
Dear Ms. Raymond:
This letter of intent outlines a three-stage strategic alliance between Patriot
American Hospitality, Inc. ("Patriot") and Wyndham Hotels and Resorts
("Wyndham").
1. Stage I. Initially, Patriot's operating partnership subsidiary, Patriot
American Hospitality Partnership, L.P. (the "Operating Partnership") will
acquire the Stage I Hotels from affiliates of Wyndham that hold title (the
"Sellers") and lease the Stage I Hotels to an affiliate of Wyndham ("Lessee").
The principal terms of the Contracts of Sale and the Leases for the Stage I
Hotels are stated in this letter of intent. The "Stage I Hotels" are:
191-Room Wyndham Midtown Atlanta, Georgia
168-Room Wyndham Las Colinas, Irving, Texas
148-Room Wyndham Novi, Detroit, Michigan
162-Room Wyndham Wood Dale, Chicago, Illinois
473-Room Wyndham Greenspoint, Houston, Texas
2. Stage II. As Contracts of Sale are being negotiated for the Stage I Hotels,
Wyndham and Patriot will proceed in good faith to reach agreement on purchase
and lease terms for the following hotels (the "Stage II Hotels"):
239-Room Wyndham Bristol, Washington, D.C.
408-Room Wyndham Northwest Chicago, Illinois
410-Room Wyndham Palm Springs, California
300-Room Wyndham Harbour Island, Tampa, Florida
3. Stage III. Finally, Patriot and Wyndham contemplate joining in an agreement
whereby in the future, proposed additions to Wyndham's portfolio of luxury,
full-service hotels will be presented to Patriot on some preferred basis.
4. Press Releases. None of Patriot, Wyndham, Seller, or Lessee will issue any
public statement about this transaction or relationship without providing the
others a copy of the proposed statement and receiving their prior written
approval of the content; provided, however, such approval right may not be
exercised in any manner that prevents any disclosure required by law or by the
rules of any stock exchange on which securities of any party are traded.
PATRIOT AMERICAN HOSPITALITY, INC.
Suite 1500 3030 LBJ Freeway Dallas, Texas 75234 214/888-8000 Fax 214/888-8020
<PAGE>
Wyndham Hotels and Resorts
April 10, 1996
Page 2
5. Purchase Price. A total of $96,000,000 for the Stage I Hotels allocated as
follows:
<TABLE>
<CAPTION>
<S> <C>
Wyndham Midtown Atlanta $16,730,000
Wyndham Las Colinas $16,120,000
Wyndham Novi $5,770,000
Wyndham Wood Dale $13,380,000
Wyndham Greenspoint $44,000,000
</TABLE>
Except as provided in Paragraph 8(b), the purchase price will be payable in
cash.
6. Performance Payments. The total purchase price may increase if the following
"Performance Payments" are earned:
(a) If the Net Rent for the Wyndham Midtown Atlanta equals or exceeds 11%
of Invested Capital for calendar 1996 on an annualized basis and 12% of Invested
Capital for calendar year 1997, the Seller of that hotel will earn a Performance
Payment of $2,000,000 payable in cash. "Net Rent" means in the case of the
Wyndham Midtown Atlanta, total rent paid under the Lease of the Wyndham Midtown
Atlanta (without subsidy through reduction of management fees or other
contributions by Lessee or its affiliates) less any amounts payable by the
Operating Partnership for taxes, insurance, and capital reserves, which reserves
will equal 4% of gross revenues. "Invested Capital" means in the case of the
Wyndham Midtown Atlanta, (i) $18,730,000, plus (ii) all costs and expenses
incurred by Patriot or its affiliates in connection with the acquisition and
leasing of the Wyndham Midtown Atlanta (not to exceed $250,000), plus (iii)
expenditures to carry out the initial renovation budget for the Wyndham Midtown
Atlanta, which unless otherwise agreed by Patriot and the Seller of the Wyndham
Midtown Atlanta will not exceed $500,000.
(b) If the Net Rent for the Wyndham Greenspoint equals or exceeds 11% of
Invested Capital for calendar 1996 on an annualized basis and 12% of Invested
Capital for calendar year 1997, the Seller of that hotel will earn a Performance
Payment of $1,000,000 payable in cash. "Net Rent" means in the case of the
Wyndham Greenspoint, total rent paid under the Lease of the Wyndham Greenspoint
(without subsidy through reduction of management fees or other contributions by
Lessee or its affiliates) less any amounts payable by the Operating Partnership
for taxes, insurance, and capital reserves, which reserves will equal 4% of
gross revenues. "Invested Capital" means in the case of the Wyndham Greenspoint,
(i) $45,000,000, plus (ii) all costs and expenses incurred by Patriot or its
affiliates in connection with the acquisition and leasing of the Wyndham
Greenspoint (not to exceed $250,000), plus (iii) expenditures to carry out the
initial renovation budget for the Wyndham Greenspoint, which unless otherwise
agreed by Patriot and the Seller of the Wyndham Greenspoint will not exceed
$500,000.
7. Lease Terms. When the Contracts of Sale for the Stage I Hotels are signed by
the Sellers, Lessee will sign an agreement to enter into Leases for each of the
Stage I Hotels with the Operating Partnership when the closings under the
Contracts of Sale occur. The identity, ownership, and management of Lessee must
be acceptable to Patriot, and the Leases must comply fully with federal income
tax requirements applicable to real estate investment trusts. Subject to the
foregoing, the Leases will provide that:
<PAGE>
Wyndham Hotels and Resorts
April 10, 1996
Page 3
(a) Lessee's initial minimum net worth will be $3,000,000. During the terms
of the Leases thereafter, Lessee will maintain a minimum net worth equal to 20%
of the aggregate pro forma annual rents each year under the Leases and any
future leases between Lessee and the Operating Partnership or other affiliates
of Patriot. Up to 50% of the required minimum net worth may consist of demand
notes from Wyndham or other shareholders of Lessee acceptable to Patriot, and
the balance of the required minimum net worth will consist of cash and other
working capital. Once the portfolio of hotels leased by Lessee from the
Operating Partnership includes at least 1,585 hotel guest rooms, the minimum net
worth maintenance requirement will be changed to 17.5% of the pro forma annual
rents each year for so long thereafter as the number of leased hotel guest rooms
exceeds 1,585; provided, however, such change will not result in the reduction
of the required minimum net worth in effect immediately prior thereto.
(b) Rent will equal the greater of base rent or percentage rent, plus
additional rent, and will be determined as follows:
(i) Base rent will equal the sum of (A) 10% of the Rent Computation
Amount, plus (B) ad valorem taxes, insurance premiums payable by the Operating
Partnership, and capital reserves at 4% of gross revenues, all as mutually
agreed on a pro forma basis for calendar year 1996 on an annualized basis. The
Operating Partnership will be responsible for paying ad valorem taxes, certain
insurance premiums, and capital expenditures up to the amount of the 4% capital
reserve. The "Rent Computation Amount" for each Stage I Hotel will equal (C) the
purchase price paid for the hotel, plus (D) all costs and expenses incurred by
Patriot or its affiliates in connection with the acquisition and leasing of the
hotel (but no more than $250,000 per hotel), plus (E) renovation expenditures
actually incurred during the first Lease year (i.e., the first 12 months from
closing) at each Stage I Hotel in accordance with the renovation budget, which
will not exceed $1,900,000 in the aggregate unless otherwise agreed by Patriot
and Wyndham.
(ii) Base rent will be adjusted as follows:
(A) Initially, base rent will be set using a Rent Computation
Amount based on estimated renovation expenditures for 1996 in accordance with
the first Lease year's renovation budget, and at the end of 1996, an appropriate
reconciliation will be made based on actual expenditures in 1996. In 1997, base
rent will be set using a Rent Computation Amount based on the expenditure of the
full agreed amount of the first Lease year's renovation budget, and at the end
of 1997, an appropriate reconciliation will be made based on total actual
expenditures in accordance with such renovation budget.
(B) If the Performance Payment for the Wyndham Midtown Atlanta is
earned, base rent for that hotel will increase in 1998 for that year and all
future years by $200,000 (10% of the applicable Performance Payment). If the
Performance Payment for the Wyndham Greenspoint is earned, base rent for that
hotel will increase in 1998 for that year and all future years by $100,000 (10%
of the applicable Performance Payment).
(C) Base rent will be adjusted annually beginning in 1997 to
reflect increases in the consumer price index.
<PAGE>
Wyndham Hotels and Resorts
April 10, 1996
Page 4
(iii) Percentage rent and break points (including annual
adjustments based on changes in the consumer price index plus any applicable
margin) will be determined as shown on Schedule I to this letter.
(iv) It is anticipated that as the result of the sale of the
Stage I Hotels, the amount of annual taxes on the Stage I Hotels may increase or
decrease from the annual taxes assumed in the lease model used to develop
Schedule I to this letter). The annual taxes assumed in the lease model are
reflected on Schedule II to this letter. This one-time increase or decrease from
assumed taxes as the result of the sale of the Stage I Hotels will occur in 1996
or 1997, depending on the schedule followed by each taxing authority. When the
amount of such one-time increase or decrease in annual taxes is determined for a
particular Stage I Hotel, either (A) the annual base rent will be adjusted
downwards by the amount of such decrease in annual taxes, or (B) additional rent
equal to the amount of such increase in annual taxes will begin to be payable;
provided, however, the arithmetic sum of the downward adjustments in base rent
pursuant to clause (A) plus the additional rent pursuant to clause (B),
expressed in each case on an annualized basis, will not exceed an aggregate
annual amount of $150,000, such limitation to be applied among the Stage I
Hotels at which additional rent may be payable in a reasonable manner to be
agreed to before the Contracts of Sale are signed. For example, if at two of the
hotels there are downward adjustments in base rent of $25,000 and $50,000 per
annum and if at the other three hotels, additional rent begins to accrue at the
rate of $125,000, $75,000, and $50,000 per annum, the arithmetic sum is
$175,000, resulting in the application of such $150,000 aggregate limit to
additional rent payable at three hotels. Once additional rent begins, it will
continue to be payable throughout the remainder of the 10-year primary term of
the applicable Lease; but both the amount of the additional rent and the
$150,000 aggregate limitation will be adjusted annually once each goes into
effect to reflect increases in the consumer price index.
(c) Patriot will fund a renovation budget for the Stage I Hotels,
which will not exceed an aggregate of $1,900,000 in the first Lease year unless
otherwise agreed by Patriot and Wyndham. The budgeted amount will be allocated
among the Stage I Hotels as determined by Patriot based on renovation needs.
(d) The term of each Lease will expire in 10 years. Each Lease will
provide two 5-year extension options that may be exercised by Lessee at its sole
option if the performance standards in Paragraph 7(g) have been met for the
particular hotel at the time each option is exercised. Base rent in each
extension term will be adjusted upwards by (i) 10% of any capital expenditures
from sources other than the 4% capital reserve that have not previously been
included in the calculation of base rent, (ii) any budgeted increase in ad
valorem taxes and insurance premiums for the initial year of the extension term
over the amounts for each item previously included in the calculation of base
rent, and (iii) the amount by which 4% of budgeted gross revenue for the initial
year of the extension term exceeds the amount of the capital reserve previously
included in the calculation of base rent. Percentage rent during each extension
term will be calculated as provided during the 10-year primary term except that
any change in breakpoints from year to year will be computed based on changes in
the consumer price index without any additional marginal percentage. Additional
rent during each extension term will equal the amount by which ad valorem taxes
exceeds the amount of taxes included in base rent during that extension term. In
all other respects, the terms of the Leases will remain unchanged during any
extension term.
<PAGE>
Wyndham Hotels and Resorts
April 10, 1996
Page 5
(e) The Stage I Hotels will be operated and managed as "Wyndham" or
"Wyndham Garden" hotels for fees and on other terms reasonably satisfactory to
Patriot. The management agreements will be subordinated (i.e., both in terms of
termination and management fee payment as to base rent only to the Leases.
(f) Nonpayment of rent or any other breach of one Lease will be a
breach of all other Leases (including any future leases between the Operating
Partnership and Lessee).
(g) If in any year a hotel fails to achieve at least 90% of budgeted
annual room revenues, if the RevPAR yield index (RevPAR of the hotel as a
percentage of the RevPAR of the hotel's initial competitive set [to be mutually
agreed to] as reflected in Smith Travel Research reports) decreases by more than
10 percentage points from the initial RevPAR yield index, or if the ratio of
gross operating profit to gross revenues decreases by more than 5 percentage
points, Lessee will have until the end of the next year in which to achieve the
performance standards described above for such year. If a performance standard
is not achieved by the end of such year, the Operating Partnership may, as its
sole and exclusive remedy, terminate the Lease of the underperforming hotel
unless Lessee has taken appropriate actions to achieve the performance standards
and the inability to achieve the same is the result primarily of circumstances
outside the control of Lessee, including without limitation, general market
decline or new competition entering the market.
(h) A Lease may be terminated if the hotel is sold during the term. If
such termination occurs during the initial 10-year term, Lessee will be entitled
to receive (i) reimbursement for reasonable and customary costs paid to parties
unaffiliated with Wyndham because of the termination, (ii) reimbursement for the
costs of relocation for any executive level employees of the hotel, including
reasonable relocation costs and costs of temporary housing (not to exceed 90
days), and (iii) the fair market value of the profits it would have derived from
the leasehold for the unexpired balance of the initial term either through a
cash payment or through a substitute lease at another hotel that can reasonably
be expected to provide equivalent profits. In computing fair market value for
this purpose, a 15% per annum discount rate will apply, and Lessee's profit will
be deemed to equal 75% of Lessee's leakage. For this purpose, "leakage" will be
computed in the manner reflected in the economic model prepared by Patriot from
which Schedule I to this letter was derived, which model in general terms
computes "leakage" as Lessee's net revenue from operation of a hotel after
payment of rent owing to the Operating Partnership and operating expenses of the
hotel other than management fees. The parties agree that 25% of Lessee's leakage
reasonably approximates the costs of leasing and management that would normally
be charged against leakage for computing profit. Lessee will responsible for
paying termination fees or charges, if any, payable under any hotel management
contract with Wyndham or its affiliates.
(i) Based on the understanding that inventory and cash-on-hand (other
than reserves for FF&E and for taxes and insurance) will be included in the
purchase price, the Operating Partnership will provide to Lessee any inventory
and cash-on-hand received from the Sellers without reimbursement or additional
charge to Lessee. Cash reserves for FF&E, taxes, and insurance will remain the
property of Sellers. On termination or expiration of any Lease, the hotel must
include an equivalent inventory.
<PAGE>
Wyndham Hotels and Resorts
April 10, 1996
Page 6
(j) There will be no noncompetition provision that keeps Wyndham or
its affiliates (other than Lessee) from becoming lessees of hotels owned by
other real estate investment trusts.
8. Contract of Sale Terms. Patriot's subsidiary, PAH Acquisition Corporation
("Purchaser"), will enter into Contracts of Sale with the Sellers on the
following terms:
(a) The purchase price will include the land on which the hotel is situated
and all improvements, fixtures, and tangible and intangible personal property
associated with a hotel (including inventory and cash-on-hand other than cash
reserves for FF&E, taxes, and insurance). Except as otherwise provided in
Paragraph 8(b), each hotel will be conveyed free and clear of all debt and
liens.
(b) Prior to closing, the Seller of the Wyndham Greenspoint will have
received a $500,000 cash capital contribution, and at closing, a $500,000
portion of the purchase price for the Wyndham Greenspoint will be paid by the
issuance of units of limited partnership interest in the Operating Partnership
("OP Units") to the Seller of the Wyndham Greenspoint. One OP Unit will be
deemed to have the same value as the average closing price of one share of
Patriot's common stock on the New York Stock Exchange for the five trading days
immediately preceding closing. If the parties agree before the Contract of Sale
is signed, the amount of such capital contribution and the corresponding amount
of OP Units may be increased. Accordingly, the following special provisions
apply to the Wyndham Greenspoint transaction:
(i) The Wyndham Greenspoint will be conveyed to the Operating
Partnership at closing subject to debt that is immediately payable or prepayable
without premium or other charge in an amount of no more than $43,000,000. The
existing debt will immediately be retired by the Operating Partnership and
replaced by the debt required pursuant to Paragraph 8(b)(ii).
(ii) As a condition to closing, the Operating Partnership must have
obtained and closed a loan in an amount of at least $22,000,000 that is without
recourse to any partner of the Operating Partnership and that is secured by the
Wyndham Greenspoint. The required loan may consist of a portion of the Patriot's
line of credit so long as (A) such portion of the line of credit is a
nonrecourse liability of the Operating Partnership for purposes of IRC ss.752
and Treasury Regulation ss.1.752-1(a)(2), (B) is secured only by the Wyndham
Greenspoint, and (C) is cross- defaulted with the entire line of credit;
provided, however, if default occurs with respect to such loan, the Operating
Partnership will cure the default or replace such loan with other nonrecourse
debt. All legal fees, loan fees, and other out-of-pocket costs and expenses of
providing such loan will be funded at closing by the Seller of the Wyndham
Greenspoint.
(iii) The Operating Partnership will agree that as of the end of each
calendar year through 1999, it will have debt meeting the criteria in Paragraph
8(b)(ii). The Operating Partnership will agree not to dispose of the Wyndham
Greenspoint during any calendar year through 1999, unless (A) such disposition
is structured as a tax-free like-kind exchange under Section 1031 of the
Internal Revenue Code of 1986 (which exchange will not include any cash
consideration in excess of that necessary to defray usual and customary legal
and closing costs and expenses incurred by the Operating Partnership in
connection with such exchange), and (B) the replacement property received is
encumbered as of the end of each calendar year through 1999 by debt meeting the
criteria in Paragraph 8(b)(ii). The Operating Partnership will elect to
<PAGE>
Wyndham Hotels and Resorts
April 10, 1996
Page 7
use the so-called "remedial method" for computing allocations of income, gain,
loss, and deductions attributable to the Wyndham Greenspoint as set forth in
Treasury Regulation ss.1.704-3(d).
(iv) The Operating Partnership must receive appropriate evidence and
assurances that OP Units may be issued to the Seller of the Wyndham Greenspoint
at closing without registration under Federal or state securities laws. The
Operating Partnership will permit the OP Units issued to the Seller of the
Wyndham Greenspoint to be distributed to partners of the Seller after closing if
all legal and contractual conditions and requirements of the Operating
Partnership with respect to such distribution have been satisfied. The limited
partnership agreement of the Operating Partnership provides that on certain
terms and conditions after the expiration of a one- year holding period from
issuance, holders of OP Units will have the option to redeem OP Units for cash,
or at Patriot's sole option, for common stock issued by Patriot. If Patriot
elects to issue common stock in redemption of OP Units, the stock will not be
registered. Patriot will, however, enter into a registration rights agreement on
its standard form providing that subject to any limitations that may be imposed
by Patriot's underwriters, such stock may be included in any subsequent
registration statement that Patriot otherwise elects to put into effect. All
legal fees and other direct expenses of Patriot or the Operating Partnership in
issuing OP Units to the Seller of the Wyndham Greenspoint will be funded at
closing by the Seller of the Wyndham Greenspoint.
THIS IS NOT AN OFFER TO SELL OP UNITS. ANY SUCH OFFER WILL BE MADE, IF
AT ALL, ONLY AFTER RECEIPT OF APPROPRIATE CERTIFICATIONS ABOUT EACH
SELLER'S STATUS AS AN ACCREDITED INVESTOR AND AFTER APPROPRIATE
DISCLOSURE OF CONDITIONS AND RISKS ASSOCIATED WITH OP UNITS. NO
REPRESENTATION IS MADE ABOUT THE TAX, LEGAL, OR ECONOMIC CONSEQUENCES
OF THE ACQUISITION, OWNERSHIP, OR DISPOSITION OF OP UNITS, AS TO WHICH
ANYONE CONSIDERING OWNING OP UNITS IS ENCOURAGED TO CONSULT ITS OWN
INDEPENDENT ADVISORS.
(v) Neither Patriot, the Operating Partnership, nor any other
affiliate of Patriot will make any warranty or representation with respect to
the tax treatment desired to be achieved by the Seller of the Wyndham
Greenspoint or any of its partners, and will require appropriate releases from
such Seller and its partners.
(vi) Before the Contract of Sale for the Wyndham Greenspoint is
signed, the Seller of the Wyndham Greenspoint will furnish to the Operating
Partnership any information about itself and its partners that is reasonably
necessary to evaluate and implement the tax structure of the transaction
envisioned by these special provisions. When such Contract of Sale is signed,
the Operating Partnership and the Seller of the Wyndham Greenspoint will also
enter into mutually satisfactory written agreements intended to effectuate these
special provisions.
(c) Once the Sellers and Purchaser enter into the Contracts of Sale,
Purchaser will deposit in escrow with Commonwealth Land Title Insurance Company,
717 North Harwood, Suite 2610, Dallas, Texas, demand notes executed by Patriot
to the order of the Sellers in the aggregate principal sum of $750,000. If the
Contracts of Sale are not terminated by Purchaser, then at the end of the
Inspection Period the demand notes will be replaced with an equal amount of
cash, and the demand notes will be cancelled and returned to Purchaser. If a
closing fails to occur solely as the result of an uncured default by Purchaser
under a Contract of Sale, the Seller will be entitled to the cash on deposit as
its sole and exclusive remedy. If a closing fails to occur
<PAGE>
Wyndham Hotels and Resorts
April 10, 1996
Page 8
for any other reason, the cash on deposit will be returned to Purchaser, who
will thereafter have no further liability to that Seller, Wyndham, or any
affiliate of Wyndham in connection with that Contract of Sale (except for
liabilities, such as property inspection indemnities, that are expressly to
survive in such event). If an uncured default by any Seller occurs under a
Contract of Sale at or before closing, Purchaser's sole and exclusive remedies
will be (i) either to terminate the Contract of Sale or specifically enforce the
Contract of Sale, and (ii) in the case of termination, to recover out-of-pocket
costs and expenses (including legal fees and disbursements) relating to the
transactions contemplated by this letter of intent up to, but not in excess of
$750,000 in the aggregate; provided, however, such limitation will not apply to
legal fees and disbursements incurred in Purchaser's enforcing its remedies
under the Contracts of Sale, which will be recoverable either in the event of
termination or in the event Purchaser enforces specific performance.
(d) Purchaser's obligation to purchase the Stage I Hotels will be
contingent on its inspection and discretionary approval of (i) the structural,
mechanical, and environmental condition of the hotels, (ii) financial and
operating records, leases, contracts, licenses, permits, and other information
pertaining to the hotels or their operation, (iii) the status of title, and (iv)
all other matters that Purchaser considers relevant. Purchaser will have 45 days
after the date on which the Contracts of Sale are signed (the "Inspection
Period") to complete its inspections and to elect whether to terminate the
Contracts of Sale. If Purchaser elects to terminate a Contract of Sale, the
escrowed demand note under that Contract of Sale will be returned to Purchaser,
and none of the parties to that Contract of Sale will have any further liability
to the other parties or to Wyndham or any affiliate of Wyndham in connection
with that Contract of Sale (except for liabilities, such as property inspection
indemnities, that are expressly to survive such termination). During the
Inspection Period, an accounting firm selected by Purchaser may conduct audits
of the Stage I Hotels at Purchaser's expense. The Sellers will make necessary
books and records available to the auditors, and will cooperate as reasonably
necessary to complete the audits before the end of the Inspection Period.
(e) Closing will occur no later than 15 days after the end of the
Inspection Period. Purchaser will have the unrestricted right to assign the
Contracts of Sale to the Operating Partnership or other affiliates of Patriot.
Before the Contacts of Sale for the Stage I Hotels are signed, Purchaser and the
Sellers will agree on conditions addressing the interdependence of the closings
among the separate Contracts of Sale, which must include the condition that
unless closing occurs under the Contract of Sale for the Wyndham Greenspoint,
Purchaser will not be obligated to close under any other Contract of Sale for
any other Stage I Hotel.
(f) At their expense, the Sellers will furnish commitments for title
insurance (including any necessary abstracts or title opinions), copies of all
title exceptions, uniform commercial code filing searches, current certified
as-built surveys acceptable to Purchaser, and ALTA owner policies of title
insurance issued by Commonwealth Land Title Insurance Company in the amount of
the purchase price. The owner policies of title insurance must insure title
subject only to those matters approved by Purchaser in its review of title and
must include endorsements and deletions typically required by institutional real
property investors.
(g) Ad valorem taxes, occupancy rents, operating expenses, revenues, and
the like will be prorated as of the closing date. All state, county, and local
transfer taxes will be paid by the
<PAGE>
Wyndham Hotels and Resorts
April 10, 1996
Page 9
Sellers, if that is generally the custom in the states where such taxes apply,
and all other recording fees, escrow charges, and other similar closing costs
will be allocated between the Sellers and Purchaser in the manner customary for
transactions of this nature in Wyndham Hotels and Resorts April 10, 1996 Page 4
the states where the hotels are located. Each party will pay the fees and
expenses of the attorneys, accountants, and other consultants that it employs.
(h) The Sellers will pay all brokerage and other similar commissions and
fees, if any, relating to the sale of the Stage I Hotels. Each of Patriot,
Wyndham, and the Sellers represents and warrants that it has not contracted with
any broker or agent to whom a fee or commission would be payable in connection
with the transactions contemplated by this letter of intent.
9. Negotiation Period. Patriot and Wyndham will attempt in good faith to cause
binding Contracts of Sale and Leases for the Phase I Hotels to be negotiated and
signed before May 15, 1996. Before then neither Wyndham nor any of the Sellers
or other affiliates of Wyndham will solicit, make, negotiate, or accept any
other offer to purchase any of the Stage I Hotels.
10. Confidentiality. The terms of this letter of intent and any nonpublic
information furnished by one party to the other must be kept confidential.
Except as may be required by law or as determined to be necessary or appropriate
by Patriot or Wyndham to satisfy disclosure and reporting obligations of Patriot
or Wyndham or their respective affiliates, confidential information may not be
disclosed by one party without the other's prior written consent except to (a)
officers, directors, employees, and partners of Wyndham, the Sellers, Patriot,
or affiliates of Patriot, (b) Patriot's line of credit lender, and (c)
employees, agents, and representatives of the foregoing.
11. Letter of Intent. None of the Sellers, Wyndham, or Patriot or any of its
affiliates will have any obligation to buy, sell, or lease any of the Stage I
Hotels or any other hotel referred to in this letter of intent unless and until
binding Contracts of Sale and Leases are fully executed by all appropriate
parties. Before entering into the Contracts of Sale, each of the Sellers must
have obtained all necessary consents and approvals from their respective
partners, and the execution of such agreements will not occur unless such
consents and approvals are obtained. Except for the provisions of Paragraphs 4,
9, and 10, neither Patriot nor any of its affiliates will have any liability or
obligation to the Sellers, Wyndham, or any affiliate of any of them by virtue of
this letter of intent or any reliance thereon; and subject to the same
exceptions, neither Wyndham nor any of its affiliates will have any liability or
obligation to Patriot or any affiliate of Patriot by virtue of this letter of
intent or any reliance thereon.
To reflect your agreement, please sign and return a copy of this letter to
Patriot at the address shown above no later than 5:00 p.m. on April 16, 1996,
failing which this offer will terminate at that time without further notice.
Sincerely,
PATRIOT AMERICAN HOSPITALITY, INC.
By: /s/ THOMAS W. LATTIN
- ---------------------------
Thomas W. Lattin, President
<PAGE>
Wyndham Hotels and Resorts
April 10, 1996
Page 10
AGREED TO ON______________________________:
WYNDHAM HOTELS COMPANY, LTD.
By: Wyndham Hotel Management Corporation, General Partner
By: /s/ Anne L. Raymond
--------------------------------------
Anne L. Raymond, Vice President
& CFO
Seller -- Wyndham Midtown Atlanta
ATLANTA MIDTOWN ASSOCIATES,
a Texas general partnership
By: Atlanta Midtown Partners,
its general partner
By: /s/ Harlan R. Crow
----------------------------------
Harlan R. Crow, General Partner
Seller -- Wyndham Las Colinas
CLC LIMITED PARTNERSHIP,
a Texas limited partnership
By: LB-4, Inc.,
its general partner
By: /s/ Harlan R. Crow
----------------------------------
Harlan R. Crow, President
<PAGE>
Wyndham Hotels and Resorts
April 10, 1996
Page 11
Seller -- Wyndham Novi
NOVI GARDEN HOTEL ASSOCIATES,
a Texas general partnership
By: Novi Garden Hotel Partners,
its general partner
By: Novi Garden Hotel Corporation,
its general partner
By: /s/ Harlan R. Crow
- ----------------------------------
Harlan R. Crow, President
Seller -- Wyndham Wood Dale
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: /s/ S.T. Groenteman
---------------------------------
S.T. Groenteman, Vice President
<PAGE>
Wyndham Hotels and Resorts
April 10, 1996
Page 12
Seller -- Wyndham Greenspoint
HOUSTON GREENSPOINT HOTEL ASSOCIATES,
a Texas limited partnership
By: Greenspoint Associates, Ltd.,
its general partner
By: The New Greenspoint Hotel Corporation,
its general partner
By: /s/ Harlan R. Crow
---------------------------------
Harlan R. Crow, President
<PAGE>
EXHIBIT 10.43
ASSIGNMENT AND ASSUMPTION AGREEMENT
THIS ASSIGNMENT is entered into as of the 20th of June, 1996, between
DOUBLETREE HOTELS CORPORATION, an Arizona corporation ("Assignor") and PATRIOT
AMERICAN HOSPITALITY PARTNERSHIP, L.P., a Virginia limited partnership
("Assignee").
Assignor assigns and transfers to Assignee all right, title, and interest
of Assignor under that certain Purchase and Sale Agreement dated as of February
29, 1996, as amended on March 18, 1996, April 5, 1996, May 2, 1996, May 3, 1996,
May 24, 1996, May 28, 1996, and May 29, 1996 (collectively, the "Agreement"),
between Assignor, as buyer, and I and P Corporation Colorado ("Seller"), a
Colorado corporation, as seller, with respect to the property located in
Westminster, Adams County, Colorado, which is described on Exhibit A attached
hereto (the "Property"), together with Assignor's rights to the Deposit (as
defined in the Agreement) and the $10,000 Payment (as defined in the Agreement).
This Assignment is made without representation, warranty or recourse of any
kind, except that Assignor represents and warrants that it is the owner of all
of the purchaser's right, title and interest under the Agreement, that it has
not previously sold, transferred, pledged, mortgaged or hypothecated its right,
title, or interest under the Agreement, that the copy of the Agreement provided
by Assignor to Assignee is true and correct and has not been modified, amended,
or canceled, except as disclosed to Assignee in writing, that Assignor is not in
breach of the Agreement, that to the best of Assignor's knowledge, Seller is not
in breach of the Agreement, and that there has been no waiver of any of the
material terms, covenants or conditions of the Agreement by Assignor.
Assignee assumes all obligations of Assignor which are to be performed
under the Agreement from and after the date of this Assignment and agrees to
indemnify, defend and hold harmless Assignor and its officers, directors, and
employees from and against all liabilities and losses arising thereunder with
respect to obligations to be performed from and after the date of this
Assignment.
Assignee shall pay to Assignor at the closing of the conveyance of the
Property to Assignee the sum of $240,000.00 plus interest from February 29,
1996, through the date of payment at the rate of interest which said sum is
earning in the interest-bearing account in which Escrow Agent (as defined in the
Agreement) deposited said sum pursuant to the Agreement (the "Deposit
Reimbursement") plus the sum of Eighty-Six Thousand Dollars ($86,000), in
reimbursement to Assignor for the legal fees and expenses, environmental
consultant fees, architectural and engineering fees, and other out of pocket
expenses incurred by Assignor in connection with its negotiation of the
Agreement and due diligence analysis of the Property (the "Due Diligence Fee"),
together with the sum of $10,000, representing reimbursement of the
non-refundable $10,000 Payment (as defined in section 3 of the Agreement). If
the conveyance does not close [for any reason], Assignee shall pay the Deposit
Reimbursement to Assignor on or before August 1, 1996, but shall have no
obligation to pay the $86,000 Due Diligence Fee or the $10,000 Payment unless
the failure to close is due to a default by Assignee under the Agreement, in
which event Assignee shall also pay the $86,000 Due Diligence Fee on or before
August 1, 1996.
<PAGE>
Assignor assigns to Assignee all rights of Assignor to the $10,000 Payment
and the Deposit, as those terms are defined in Section 3 of the Agreement and
authorizes Escrow Agent to pay the Deposit and Seller to pay the $10,000 Payment
to or for the benefit of Assignee as permitted by the Agreement to the same
extent as if Assignee were the original purchaser under the Agreement.
Notwithstanding anything to the contrary contained in the Agreement or this
Amendment, Assignee, not Assignor, will be solely responsible for any sums, not
to exceed $200,000, to be paid or refunded to Seller under paragraph 6 of the
Seventh Amendment to Purchase and Sale Agreement dated May 29, 1996, between
Seller and Assignor.
IN WITNESS WHEREOF, Assignor and Assignee have caused this Assignment to be
duly executed and delivered on the day and year first written above.
Assignor
DOUBLETREE HOTELS CORPORATION,
an Arizona corporation
By: /s/ David A. Sherf
----------------------------------
David A. Sherf
Senior Vice President New Business
Assignee
PATRIOT AMERICAN HOSPITALITY
PARTNERSHIP, L.P., a Virginia
limited partnership
By: PAH GP, Inc., a Virginia corporation
By: /s/ Michael Mungim
--------------------------------
Name: Michael Mungim
-------------------------------
Title: VP
------------------------------
<PAGE>
EXHIBIT 10.71(1)
May 8, 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., 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"), and (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. 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:
2. The Loan Increase Amendments are hereby modified as follows:
(a) In the third line of Section l(x) of the First Master Amendment, the
number "2.50" shall be deleted and the number "2.10" shall be
substituted therefor.
(b) In the third line of Section l(y) of the First Master Amendment, the
number "2.25" shall be deleted and the number "1.85" shall be
substituted therefor.
<PAGE>
(c) The Revolving Credit Agreement is further amended as follows (and
such amendments shall be deemed to be part of the Loan Increase
Amendments):
(i) In the third line of the definition of "NOI Borrowing Amount",
the number "2.75" shall be deleted and the number "2.10" shall
be substituted therefor.
(ii) In the third line of the text of Section 7.2(a), the number
"2.50" shall be deleted and the number "1.85" shall be
substituted therefor.
(iii) In the seventh line and continuing into the eighth line of the
definition of "Implied Debt Service Rate", the words "eleven
and one-half percent (11-1/2%)" shall be deleted and the words
"eleven and thirty three one hundredths percent (11.33%)"
shall be substituted therefor.
3. The Lender hereby consents to the Loan Increase Amendments as modified
pursuant to Paragraphs 1 and 3 hereof, and the Borrowers and the Lender hereby
agree that the Loan Increase Effective Date shall occur on the date on which the
Borrowers have executed and delivered this agreement and the Initial Transaction
Fee (as hereinafter defined) has been paid to Lender.
4. In consideration hereof and as a condition precedent to the Borrowers'
ability to incur Revolving Credit Loans which, when added to the outstanding
principal balance of Revolving Credit Loans, cause such outstanding principal
balance to exceed $165,000,000, the Borrowers shall pay to the Lender upon
execution and delivery of this agreement a fee (the "Initial Transaction Fee")
in the amount of $350,000. As a condition precedent to the Borrowers' ability to
incur Revolving Credit Loans which, when added to the outstanding principal
balance of Revolving Credit Loans, cause such outstanding principal balance to
exceed $200,000,000, the Borrowers shall pay to the Lender an additional fee
(the "Additional Transaction Fee") in the amount of $500,000; provided, however,
-------- -------
that if the Borrowers have not paid the Additional Transaction Fee to the Lender
on or before November 30, 1996, the maximum principal amount of the Loan shall
irrevocably reduce to $200,000,000 on November 30, 1996. In addition, the
Borrowers jointly and severally agree to pay all reasonable costs and expenses
incurred by the Lender in connection herewith.
<PAGE>
5. 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.
6. 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 Note, the Mortgages
or the other Mortgage Loan Documents. As modified hereby, each of the Revolving
Credit Agreement, the First Master Amendment, the Note, the Mortgages and the
other Mortgage Loan Documents are ratified, affirmed, reaffirmed and confirmed
in all respects.
7. 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.
8. 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.
<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 MAY, 1996
PATRIOT AMERICAN HOSPITALITY
PARTNERSHIP L.P.
By: PAH GP, INC., its sole
General Partner
By: ______________________
Name:
Title:
<PAGE>
PA TROY HOSPITALITY INVESTORS, L.P.
By: PAH GP, INC., its sole
General Partner
By: ______________________
Name:
Title:
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:
<PAGE>
PAH GP, INC.
By: ______________________
Name:
Title:
PATRIOT AMERICAN HOSPITALITY, INC.
By: ______________________
Name:
Title:
<PAGE>
EXHIBIT 21.1
SUBSIDIARIES OF PATRIOT AMERICAN HOSPITALITY, INC.
<TABLE>
<CAPTION>
State of
Name Organization
---- ------------
<S> <C>
Patriot American Hospitality Partnership, L.P. Virginia
PAH GP, Inc. Virginia
PAH LP, Inc. Virginia
1500 Canal Street GP II, Inc. Virginia
Bourbon Orleans GP II, Inc. Virginia
1500 Canal Street Investors, L.P. Delaware
Bourbon Orleans Investors, L.P. Delaware
PAH Ravinia, Inc. Virginia
PHA Acquisition Corporation Virginia
PA Hunt Valley Investors, L.P. Virginia
PA Troy Hospitality Investors, L.P. Delaware
</TABLE>
<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 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
June 25, 1996
<PAGE>
EXHIBIT 23.4
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion in this Registration Statement of Patriot
American Hospitality, Inc. 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
June 25, 1996
<PAGE>
EXHIBIT 23.5
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion in this Registration Statement of Patriot
American Hospitality, Inc. 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
June 25, 1996
<PAGE>
EXHIBIT 23.6
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the use in this 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
June 26, 1996
<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
June 25, 1996
<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
June 26, 1996
