-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, KDEUpZYkr15G1EgHCYDu4ZW4qNk3uFLBAel6lQD9tP81HI1Jj668gEoc2dcIqUrs Nq7a/xHUrrL26892cFqzPw== 0000927356-97-000322.txt : 19970329 0000927356-97-000322.hdr.sgml : 19970329 ACCESSION NUMBER: 0000927356-97-000322 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 19961231 FILED AS OF DATE: 19970328 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: AIRCOA HOTEL PARTNERS L P CENTRAL INDEX KEY: 0000812591 STANDARD INDUSTRIAL CLASSIFICATION: HOTELS & MOTELS [7011] IRS NUMBER: 841042607 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 001-09563 FILM NUMBER: 97567877 BUSINESS ADDRESS: STREET 1: 5775 DTC BLVD STREET 2: STE 300 CITY: ENGLEWOOD STATE: CO ZIP: 80111-3202 BUSINESS PHONE: 3032202000 10-K 1 FORM 10-K UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K X ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES ----- EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 1996 ----------------- OR TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to Commission file number 1-9563 ---------------- AIRCOA HOTEL PARTNERS, L.P. --------------------------- (Exact name of registrant as specified in its charter) State of Delaware 84-1042607 ----------------- ---------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 5775 DTC Boulevard, Suite 300 Englewood, Colorado 80111 --------------------- ----- (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (303) 220-2000 - -------------- Securities registered pursuant to Section 12(b) of the Act: Name of each exchange on which registered: Class A Depository Units American Stock Exchange Securities registered pursuant to Section 12(g) of the Act: None Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No ---- ----- Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K ((S)229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ ] The aggregate market value of the voting units held by non-affiliates of the registrant, computed by reference to the price as of the close of trading on March 3, 1997 was $3,284,332. There were 5,340,214 units outstanding of the registrant's Class A Units as of March 3, 1997. AIRCOA HOTEL PARTNERS, L.P. 1996 FORM 10-K ANNUAL REPORT Table of Contents Page ---- PART I Item 1. Business..................................................... I - 1 Item 2. Properties................................................... I - 3 Item 3. Legal Proceedings............................................ I - 4 Item 4. Submission of Matters to a Vote of Security Holders.......... I - 4 PART II Item 5. Market for the Registrant's Partnership Units and Related Unitholder Matters................................... II - 1 Item 6. Selected Financial Data...................................... II - 2 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations.......................... II - 3 Item 8. Financial Statements and Supplementary Data.................. II - 9 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.......................... II - 9 PART III Item 10. Directors and Executive Officers of the General Partner..................................................... III - 1 Item 11. Payments and Compensation to General Partner and Affiliates.................................................. III - 3 Item 12. Security Ownership of Certain Beneficial Owners and Management....................................... III - 4 Item 13. Certain Relationships and Related Transactions.............. III - 6 PART IV Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K.................................................... IV - 1 AIRCOA HOTEL PARTNERS, L. P. AND SUBSIDIARY OPERATING PARTNERSHIPS FINANCIAL STATEMENTS DECEMBER 31, 1996 AND 1995 PART I Item 1. Business - ------- -------- GENERAL DEVELOPMENT OF BUSINESS AIRCOA Hotel Partners, L.P., a Delaware limited partnership ("AHP" or the "Partnership") was organized in December 1986, by AIRCOA Hospitality Services, Inc. ("AHS" or the "General Partner") to acquire, own, operate and sell hotels and resort properties. The Partnership owns and operates six hotel and resort properties (the "Properties") through operating partnerships (the "Operating Partnerships") which were acquired in 1986. The Partnership owns a 99% limited partner interest in each of the six Operating Partnerships which hold title to the Properties and through which the Partnership conducts all of its operations. AHS, a wholly owned subsidiary of Richfield Hospitality Services, Inc. ("Richfield"), is also the 1% general partner of each of the Operating Partnerships. Richfield operates the Properties for the Partnership under certain management agreements. FINANCIAL INFORMATION ABOUT INDUSTRY SEGMENTS The Partnership's operations have been in one industry segment since formation. Revenue has been generated through the ownership and operation of the Properties. The following table reflects the sources of revenue and gross operating profit and total assets for each of the three years ended December 31, 1996, 1995 and 1994. (In thousands, except percentages) 1996 1995 1994 ----------------- ------------------ ------------------- Revenue Percent Revenue Percent Revenue Percent ------- ------- ------- ------- ------- ------- Rooms $ 29,038 59.8% $ 26,810 59.1% $26,863 58.2% Food and Beverage 12,272 25.3% 11,733 25.8% 12,274 26.6% Other Property Operations 7,243 14.9% 6,856 15.1% 7,020 15.2% ------- ------ ------- ------ ------- ------ Total Revenue $ 48,553 100.0% $ 45,399 100.0% $ 46,157 100.0% ======= ====== ======= ====== ======= ====== Gross Operating Profit $ 14,625 30.1% $ 12,799 28.1% $ 13,566 29.4% ======= ====== ======= ====== ======= ====== Total Assets $ 70,131 $ 69,406 $ 73,542 ======= ======= ======= Gross operating profit represents operating income of the Partnership before rent, taxes and insurance, management fees, depreciation, amortization and impairment of property. Gross operating profit is indicative of the profitability from operations of the Properties. Room revenue is significantly impacted by the rates obtained for rooms and the level of occupancy of the Properties. Although not in the same proportion, changes in occupancy also impact revenue generated from food and beverage and other property operations. Average daily room rates of the Properties were $64.26, $59.55, and $59.42 in 1996, 1995 and 1994, respectively. Average occupancy levels for the Properties were 78.3%, 77.6%, and 77.9% in 1996, 1995 and 1994, respectively. For a discussion of the changes in various operating statistics, see Item 7, Management's Discussion and Analysis of Financial Condition and Results of Operations. NARRATIVE DESCRIPTION OF BUSINESS BUSINESS The principal business of the Partnership is the ownership and operation of six hotel and resort properties located in geographically diverse areas of the continental United States. The Properties are full service facilities serving the vacation, leisure, meetings, convention and business segments of the hotel market. In addition to lodging, various guest services are offered by the Properties including restaurants, lounges, banquet, room, valet, concierge, parking and shuttle services. Other services available at some of the Properties include a marina, health and fitness facilities, swimming pools, tennis courts, spas and retail facilities. IMPORTANCE OF FRANCHISES AND TRADEMARKS Three of the Properties are affiliated with national franchises and operate under franchise agreements. The benefits of these franchise agreements include national brand name recognition and world wide central reservation systems, as well as operating quality standards and extensive marketing programs. Two of the Properties are licensed to use the Regal trademark, which is sub-licensed to the hotels by an affiliate of AHS. The Partnership considers such affiliations and licenses to be important to the operations and success of the Properties in regard to customer recognition and satisfaction. Other properties may be licensed in the future to use the Regal trademark. SEASONALITY OF BUSINESS Because of the Properties' locations, occupancy levels are generally lower in the first and fourth quarters and higher in the second and third quarters of the year. These fluctuations are consistent with the normal recurring seasonal patterns of the industry. INDUSTRY PRACTICES The Properties periodically offer discounts to contract and group customers and room rates generally fluctuate during peak and non-peak times of the year. Deposits are often obtained in advance for facility rentals and rooms. In addition, a certain level of capital expenditures, repair and replacement of hotel property is required under the Partnership's loan agreement. The Properties are managed by Richfield in accordance with certain management contracts. Management services provided under the contracts include operations supervision, strategic business planning, yield management, sales and marketing oversight, personnel management and accounting and technical services. MARKET INFORMATION AND COMPETITIVE CONDITIONS According to Smith Travel Research, all of the U.S. lodging industry performance measures were higher in 1996 than in 1995. Average daily room rate for the industry increased by 6.4% to $71.66 and room occupancy increased .3% to 65.7%. The hospitality industry in the U.S. experienced a slight increase in occupancy and notable increases in average room rates during 1996. The increase in average room rates during 1996 was achieved primarily due to the increase in rooms demand exceeding the increase in rooms supply. As a result, 1996 rooms revenue exceeded 1995 rooms revenue. Room revenue per available room (Revpar) was up 6.7%, slightly above the 6.3% increase for a year ago. Smith Travel Research estimates that performance ratios in the lodging industry in 1997 should improve over 1996. The Partnership's Revpar has consistently exceeded the industry averages noted above. This is due to occupancy levels exceeding industry averages, offset by average room rates below industry averages. The Partnership's operations in certain markets are price sensitive. The Partnership considers its primary points of competition to include, but are not limited to, room rates, location, guest services and responsiveness, adequacy and appearance of facilities and overall customer satisfaction. The demand at a particular hotel of the Partnership may be adversely affected by many factors, including changes in travel patterns, local and regional economic conditions and the degree of competition with other hotels in the area. REGULATION The Operating Partnerships are subject to regulation in connection with their business, including liquor licensing, occupational health and safety regulations, environmental regulations, food service regulation and labor laws. The Operating Partnerships have not experienced significant difficulties with regulation in these areas; however, failure to comply with those regulations could result in loss of licenses, permits or other authorizations which could adversely impact the Partnership's operating revenue. EMPLOYEES All hotel personnel are employed by the respective Operating Partnerships. Richfield processes the payroll on behalf of the Operating Partnerships. The number of persons employed by the Operating Partnerships, as of December 31, 1996, was approximately 990. Management considers employee relations to be satisfactory. Item 2. Properties - ------- ---------- The six hotel and resort properties including the hotel buildings and leasehold improvements are owned by the Operating Partnerships. Three of the hotel properties are located on land owned by the Operating Partnerships, while the other three hotel properties are located on land leased by the Operating Partnerships on a long-term basis. The following table presents certain information for each of the Properties: - --------------------------------------------------------------------------- Number of Property Primary Markets Served Area Served Rooms - --------------------------------------------------------------------------- Aurora Inn and Vacation, Business Greater Cleveland/ Pine Lake Trout Akron, Ohio Club ("Aurora") 69 - --------------------------------------------------------------------------- Fourwinds/A Destination Resort Bloomington/ Clarion Resort and Marina Indianapolis, Indiana ("Fourwinds") 126 - --------------------------------------------------------------------------- Regal at McCormick Vacation, Meetings Phoenix/Scottsdale, Ranch ("McCormick") Arizona 125 - --------------------------------------------------------------------------- Sheraton Inn- Business, Meetings Buffalo/Niagra Falls, Buffalo Airport and Leisure New York ("Buffalo") 293 - --------------------------------------------------------------------------- Sheraton Lakeside Vacation Orlando/Walt Disney Inn ("Lakeside") World, Florida 651 - --------------------------------------------------------------------------- Regal University Business, Meetings, Raleigh/Durham/Chapel Hotel (formerly Medical and Conventions Hill, North Carolina Sheraton University Center)("University") 322 - --------------------------------------------------------------------------- TOTAL 1,586 - --------------------------------------------------------------------------- The appraised value of the Properties is summarized below: Appraised Values ------------------------------------------------------- December 1996 December 1995 December 1994 ------------- ------------- ------------- Aurora Inn & Pine Lake Trout Club $ 7,700,000 7,200,000 7,520,000 Fourwinds/A Clarion Resort 8,030,000 8,800,000 10,200,000 Regal McCormick Ranch 13,770,000 9,875,000 9,015,000 Sheraton Inn-Buffalo Airport 14,000,000 15,000,000 17,730,000 Sheraton Lakeside Inn 28,000,000 30,000,000 34,000,000 Regal University Hotel 15,800,000 12,000,000 8,025,000 ------------- ----------- ----------- Total appraised value $ 87,300,000 82,875,000 86,490,000 The increase in the aggregate appraised value of the portfolio from 1995 to 1996 was primarily the result of increases in the fair value of Regal McCormick Ranch and Regal University Hotel. These increases were due to increased demand for hotel rooms in the markets in which these hotels are located. Additionally, Regal University Hotel's appraised value benefited from a renovation completed in 1996. The decline in the aggregate appraised value of the portfolio from 1994 to 1995 was primarily the result of decreases in the value of the Sheraton Lakeside Inn and the Sheraton Inn - Buffalo Airport in 1995 and 1994, and the decline in the Fourwinds Resort in 1995. These declines are primarily attributable to these hotels being located in markets with increases in the supply of available rooms and static demand for hotel rooms. See Item 7, Management's Discussion and Analysis of Financial Condition and Results of Operations. Item 3. Legal Proceedings - ------- ----------------- There are no material pending legal proceedings to which the Partnership or any of the Operating Partnerships is a party, except for ordinary and routine litigation incidental to the business of the Partnership. Item 4. Submission of Matters to a Vote of Security Holders - ------- --------------------------------------------------- There were no matters submitted to a vote of Unitholders during the quarter ended December 31, 1996. PART II Item 5. Market for the Registrant's Partnership Units and Related Unitholder - ------- -------------------------------------------------------------------- Matters - ------- Class A Units of AIRCOA Hotel Partners, L.P. are traded on the American Stock Exchange under the symbol AHT. There is no established public trading market for the Partnership's Class B Units, the majority of which are held by affiliates of the General Partner. Under certain circumstances (which have not been satisfied at any time since the inception of the Partnership) described in the Partnership Agreement, the Class B Units may be converted into Class A Units. During 1994 and 1996 the Partnership has not sold any Class A or Class B Units. During 1995, the Partnership sold a note with a face value of $2,100,000. The note is convertible into Class A Units at a price of $16.60 per Class A Unit. The note was sold to a related party investor (the General Partner) in an unregistered sale made in reliance upon section 4(2) of the Securities Act of 1933, as amended. The note was only offered to the purchaser and no general advertisement was utilized in connection with the offer and sale of the note. Beginning in 1997, in accordance with the terms of the Partnership Agreement, and each year thereafter through 2001, a minimum of 250,000 Class B Units are required to be converted at a redemption value of $20.00 per Class B Unit, by issuing Class A Units valued at the then current market price of a Class A Unit. During the last quarter of 1996, the Partnership received an offer from an affiliate to purchase all of the Class A and Class B Units not currently owned by the affiliate or any other affiliates of the Partnership (See Other Matters). See Item 7, Management's Discussion and Analysis of Financial Conditions and Results of Operations. The following table sets forth the range of high and low closing prices of Class A Units for each full quarterly period for the two most recent years, as reported by the American Stock Exchange. For the Quarter Ended High Low - --------------------- ------- ------- March 31, 1995 4 2 7/8 June 30, 1995 3 5/8 2 3/16 September 30, 1995 2 13/16 1 13/16 December 31, 1995 2 1/8 1 1/2 March 31, 1996 2 1 11/16 June 30, 1996 2 1/16 1 11/16 September 30, 1996 2 1/8 1 3/8 December 31, 1996 2 1/8 1 3/8 As of December 31, 1996 the Partnership had approximately 1,400 Class A Unitholders. The Class A Unitholders have not received any distributions since 1990. The Class B Units do not receive distributions until the Class A Unitholders receive Minimum Annual Distributions, as defined in the Partnership Agreement. In addition, the Partnership's mortgage loan agreement stipulates certain limitations on these distributions based on excess cash flow as defined in the mortgage loan agreement. See Item 7, Management's Discussion and Analysis of Financial Condition and Results of Operations. Item 6. Selected Financial Data - ------- -----------------------
Years ended December 31, ----------------------------------------------------------- 1996 1995 1994 1993 1992 ---------- ---------- ---------- ---------- ---------- (In thousands, except per unit amounts) --------------------------------------- Consolidated Operations Data - ---------------------------- Revenue $ 48,553 45,399 46,157 45,268 42,998 Operating income (loss) (1) 5,775 (630) 5,122 5,556 4,331 Net income (loss) (1) 1,009 (5,421) 627 1,120 113 Income (loss) per unit: Class A: Net loss (0.02) (1.50) (.10) (.02) (.22) Class B: Net income 1.14 2.86 1.25 1.27 1.17 Weighted average number of units outstanding: Class A 5,340,214 5,340,214 5,340,214 5,340,214 4,490,214 Class B 950,000 950,000 950,000 950,000 950,000 Consolidated Balance Sheet Data - ------------------------------- Working capital deficit (2) (1,716) (2,452) (7,178) (48,180) (48,771) Total assets 70,131 69,406 73,542 77,369 78,589 Long-term debt and affiliate notes payable (2) 50,604 51,390 46,180 6,000 8,715 Partners' capital 10,761 9,752 15,173 14,546 13,426 Appraised values of properties 88,300 82,875 86,490 89,530 90,240 Consolidated Cash Flow Data - --------------------------- Capital expenditures 3,847 3,286 2,049 2,353 2,530 Net cash provided by operating activities 5,071 3,143 5,568 5,841 4,080 Net cash used in investing activities (3,847) (3,306) (1,944) (2,394) (2,433) Net cash provided (used) by financing activities (990) 1,018 (5,279) (3,612) (1,391)
(1) Includes a loss for the impairment of the Partnership's Lakeside property in the amount of $4,789 for the year ended December 31, 1995. (2) Certain of the Partnership's indebtedness to unaffiliated financial institutions was classified as current at December 31, 1993 and 1992. Item 7. Management's Discussion and Analysis of Financial Condition and Results - ------- ----------------------------------------------------------------------- of Operations - ------------- RESULTS OF OPERATIONS The following table reflects certain historical financial information and operating statistics for the years ended December 31, 1996, 1995 and 1994. Historical Financial Information - -------------------------------- (in thousands, except operating statistics) 1996 1995 1994 --------- ------- ------- Revenue: Rooms $29,038 26,810 26,863 Food and beverage 12,272 11,733 12,274 Other property operations 7,243 6,856 7,020 ------- ------ ------ Total revenue 48,553 45,399 46,157 Expenses: Hotel operations 33,928 32,600 32,591 ------- ------ ------ Gross operating profit 14,625 12,799 13,566 Other operating expenses (1)(2) 8,850 13,429 8,444 ------- ------ ------ Operating income (loss) 5,775 (630) 5,122 Other expense, net (3) (4,766) (4,791) (4,495) ------- ------ ------ Net income (loss) $ 1,009 (5,421) 627 ------- ------ ------ Operating Statistics -------------------- Average room rate $ 64.26 59.55 59.42 Average occupancy percent 78.3% 77.6% 77.9% Number of available rooms 1,586 1,586 1,586 (1) Includes rent, taxes and insurance, management fees, depreciation and amortization, and impairment of property. (2) 1995 includes impairment loss on the Lakeside property in the amount of $4,789. No impairment loss was recorded in 1996 or 1994. (3) Principally comprised of interest expense. REVENUE Total revenue increased $3,154,000 or 6.9% in 1996, compared to a decrease of $758,000 or 1.6% in 1995. Of total revenue in 1996, 1995 and 1994, rooms comprised 59.8%, 59.1% and 58.2%, respectively; food and beverage comprised 25.3%, 25.8% and 26.6%, respectively, and other property operations comprised 14.9%, 15.1% and 15.2%, respectively. Rooms revenue is primarily a function of the Properties' occupancy levels and room rates. Rooms revenue increased $2,228,000 or 8.3% in 1996 due primarily to an increase in average daily room rates of $4.71 as well as an increase in occupancy from 77.6% to 78.3%. Rooms revenue decreased $53,000 in 1995 due to a decrease in occupancy from 77.9% to 77.6% offset in part by an increase in average daily room rates of $.13. Rooms revenue increases in 1996 were primarily attributable to increases at Sheraton Lakeside Inn, Regal University Hotel (formerly Sheraton University Center) and Sheraton Inn - Buffalo Airport. The leisure market in Orlando improved during 1996, which resulted in Sheraton Lakeside generating higher average room rates and increased wholesale business. Regal University Hotel benefited from its 1995 renovation as well as strong growth in average rooms rates in the group business and leisure markets during 1996. While the leisure market continued to be stagnant at Sheraton Inn -Buffalo Airport, aggressive rate strategies resulted in improved occupancy in the leisure market. Rooms revenue decreases in 1995 were primarily attributable to decreases at the Sheraton Lakeside and Sheraton Inn Buffalo Airport. The leisure market at Sheraton Lakeside continued to be impacted by significant competitive pressures, resulting from an increase in room supply in the Orlando area. The reduction in rooms revenue at Sheraton Buffalo was due to a decrease in Canadian leisure activity resulting from declines in the value of the Canadian dollar and loss of a substantial airline room contract. The decreases in Lakeside and Buffalo were mitigated by the impact of increases in rooms revenue, due to increases in average rate, at Regal McCormick Ranch, Sheraton University Center and Aurora Inn. Food and beverage revenue increased $539,000 or 4.6% in 1996 and decreased $541,000 or 4.4% in 1995. Food and beverage revenue is impacted by room occupancy and the mix of room sales between leisure, group, contract and business customers. The food and beverage revenue increase in 1996 resulted primarily from an increase at Regal McCormick Ranch due to the addition of an outdoor banquet facility. In addition, food and beverage revenue benefited from increased banquet revenue at Regal University Hotel and the increased occupancy at Sheraton Inn - Buffalo Airport. The primary reason for the decrease in 1995 was related to increased competition from stand-alone restaurants in the area surrounding the Regal McCormick Ranch, the smaller percentage contribution from the Canadian leisure market maintained at the Sheraton Buffalo and a decrease in banquet activity at both locations. Other property operations consist of marina sales and rentals (at Fourwinds), gift shops, food marts, lease income, phone charges and other miscellaneous guest services. Other property operations increased $387,000 or 5.6% in 1996 and decreased $164,000 or 2.3% in 1995. The 1996 increase in other property operations was attributable to increased activities at Regal McCormick Ranch during the first quarter of 1996, benefiting from Phoenix, Arizona hosting the 1996 Super Bowl and increases at Sheraton Lakeside's food mart outlet. The 1995 decrease in other property operations was primarily due to storm damage at the Clarion Fourwinds Resort, which impacted the "marina-related" revenue. While the hotel industry continues to be very competitive, the Properties, as a group, have outperformed the industry when measuring revenue per available room ("Revpar", calculated as occupancy percent times average room rate). The Properties' Revpar, as a group, was $50.32, $46.23 and $46.29 in 1996, 1995 and 1994, respectively. Revpar for the United States hotel industry, accumulated by Smith Travel Research, was $47.08, $44.11 and $41.49 in 1996, 1995 and 1994, respectively. COSTS AND OPERATING EXPENSES Total operating expenses decreased $3,251,000 or 7.1% in 1996. The decrease is primarily attributable to the impairment of the Lakeside property of $4,789,000 in 1995, and an increase in other operating expenses of $1,538,000. Excluding the impairment of the Lakeside property, total operating costs increased primarily as a result of increases in rooms and administrative and general expenses. Although rooms expense increased over 1995, rooms expense as a percent of rooms revenue decreased to 26.8% in 1996 from 27.5% in 1995. This resulted from the increase in rooms revenue being generated through increased average room rates, rather than increased occupancy. Food and beverage costs as a percent of food and beverage revenue decreased to 71.6% in 1996 from 73.1% in 1995. As discussed below, in 1995 additional marketing expenses were incurred in connection with the repositioning of restaurants at certain of the Partnership's hotels. The increase in administrative and general expense is primarily due to increased legal costs. Total operating expenses increased $4,994,000 or 12.2% in 1995. This increase is primarily attributable to the impairment of the Lakeside property of $4,789,000, and an increase in other operating expenses of $196,000. Excluding the impairment of the Lakeside property, total operating costs increased primarily as a result of increased food and beverage costs. Food and beverage costs as a percent of food and beverage revenue increased to 73.1% in 1995 from 71.4% in 1994. The primary reason for the increase in this percentage is a result of costs incurred for promotional campaigns and marketing plans to reposition the restaurants at the Clarion Fourwinds Resort, Aurora Inn and Regal McCormick Ranch. Included in costs and operating expenses in 1995 is a loss for the impairment of the Lakeside property in the amount of $4,789,000, recorded in the fourth quarter of 1995. The circumstances leading up to this impairment loss were primarily a result of the existing and expected local market conditions, a decreasing trend in the property's appraised value and historical operating results in recent years. This loss was recognized in accordance with the provisions of Statement of Financial Accounting Standards No. 121, Impairment of Long-Lived Assets and Long-Lived Assets to Be Disposed Of (SFAS No. 121), which was issued by the Financial Accounting Standards Board in March 1995 and adopted by the Partnership in the fourth quarter of 1995. The Partnership believes that expected future cash flows from the operations of its other hotel properties will be sufficient to recover their carrying values. The Partnership has no current plans to sell any of its properties for less than their carrying values. OTHER EXPENSES Other expenses decreased $25,000 or .5% in 1996 as compared to an increase of $296,000 or 6.6% in 1995. The decrease in 1996 is attributable to a decrease in interest expense of $79,000 due primarily to a lower average interest rate on the Partnership's first mortgage loan, net of a $54,000 increase in amortization of debt issue costs. The increase in 1995 is primarily attributable to an increase in interest expense of $191,000 due to higher levels of debt, net of a $123,000 decrease in amortization of debt issue costs. LIQUIDITY AND CAPITAL RESOURCES CASH FLOWS Net cash provided by operating activities was $5,071,000 in 1996, an increase of $1,928,000 from 1995. This increase is the result of an increase in cash received from customers, due to increased hotel revenue, of $2,314,000, a decrease in interest paid of $885,000, offset by increases in cash paid to suppliers, vendors and employees of $829,000 and decrease in other cash receipts of $442,000. Net cash provided by operating activities was $3,143,000 in 1995, a decrease of $2,425,000 from 1994. This decrease is the result of a decrease in cash received from customers, due to lower hotel revenues, of $1,132,000, an increase of $1,013,000 in interest paid, and an increase in cash paid to employees of $493,000, offset in part by decreases in cash paid to suppliers and vendors of $172,000 and increases in other cash receipts of $41,000. Net cash used in investing activities increased $541,000 in 1996 due to increases in capital expenditures. Net cash used in investing activities increased $1,362,000 in 1995 due to increases in capital expenditures and cash paid for other assets. Net cash used in financing activities increased $2,008,000 in 1996 due to the closing of the new first mortgage loan in 1995 that generated loan proceeds. Net cash generated by financing activities increased $6,297,000 in 1995 also due to the closing of the new first mortgage loan. The Partnership anticipates funding its 1997 debt service obligations and capital expenditures through a combination of operating cash flows and draws on its line of credit, to handle seasonal demands, as necessary. The Partnership has capital improvements of approximately $4,600,000 planned in 1997. INDEBTEDNESS At December 31, 1996 the Partnership had a working capital deficit of $1,716,000. The Partnership's working capital requirements are expected to be satisfied through the management of payables, collection of receivables, and use of the Partnership's revolving credit line. On June 8, 1995, the Partnership signed a credit agreement with a new lender to provide a new $45,000,000 first mortgage loan and a $1,000,000 revolving credit line. The proceeds of the $45,000,000 first mortgage loan were used to pay off the existing mortgage loan and the note payable to bank with the balance available for certain property renovations and the payment of a facility fee and closing costs. Regal Hotels International Holdings Limited ("RHL"), an affiliate of the general partner, has provided a limited guarantee for the new first mortgage loan. The Partnership paid loan guarantee fees of $225,000 and $230,000 in 1996 and 1995, respectively, to RHL. This is an annual fee and is calculated as 0.5% of the outstanding loan balance at June 8 of each year. The new credit agreement includes a variety of interest rate options, the most favorable of which is the Eurodollar Rate plus 2%, which was 7.53% at December 31, 1996. Repayment of the new first mortgage loan is based on a twenty-year amortization with a maturity date at June 2000, while the revolving credit line is renewable annually at the option of the lender. A condition of the credit agreement signed by the Partnership for the first mortgage loan and revolving credit line required the subordination of the $6,000,000 notes payable to AHS (the "Notes"). AHS agreed to this subordination, and as a result, on September 26, 1995, the Board of Directors of AHS, in its capacity as General Partner, and the Advisory Committee of AHP authorized the extension of the term and deferral of certain past-due interest on the Notes. Pursuant to this extension, the Notes, which originally matured in January 1995 now become due on June 8, 2000, which is coterminous with the new mortgage loan. Interest accrued on the Notes after December 31, 1994, was paid at closing. Interest incurred subsequent to closing continues to be accrued at 12% per annum and is paid monthly. The unpaid interest on the Notes accrued prior to January 1, 1995, in the amount of $2,100,000, was converted into debt pursuant to a new promissory note ("New Note") which will also mature on June 8, 2000 and is also subordinate to the first mortgage loan. The New Note accrues interest at the rate of 12% per annum, payable at maturity. The Notes and New Note are convertible into Class A Units of the Partnership at $16.60 per unit. In addition, these notes stipulate that 25% of any excess cashflow, as defined, will be applied against the principal portion of the notes outstanding. The new first mortgage loan contains numerous covenants requiring, among other matters, the maintenance of a minimum debt service coverage ratio including the deferral of management fees payable to an affiliate if this minimum debt service ratio is not achieved, restrictions on additional indebtedness, limitations on annual cash distributions to Class A Unitholders, limitations on the payment of principal on the affiliate notes payable, prepayment premiums during the first two years, and maintenance of minimum aggregate capital expenditures equal to 5% of revenue. PARTNERSHIP DISTRIBUTIONS AND UNIT CONVERSIONS The Partnership Agreement provides for periodic distribution of distributable cash flow, as defined, to the partners subject to any applicable restrictions and the discretion of the General Partner. Distributable cash flow is generally defined as cash flow from operations of the hotel properties. Such cash is allocated and distributed (net of AHS's 1% general partnership interest in the Operating Partnerships) 99% to the Class A Unitholders and 1% to the General Partner until the Class A Unitholders have received defined Minimum Annual Distributions. The Minimum Annual Distribution is $2.16 per Class A Unit. Any portion of the Minimum Annual Distribution that is not paid by the Partnership in any year is added to the cumulative unpaid Minimum Annual Distribution. The Partnership has not made any distributions since 1990. Prior to making future distributions, the Partnership will comply with its capital expenditure requirements as specified in its mortgage loan agreement and maintain sufficient working capital balances. At December 31, 1996, the cumulative unpaid Minimum Annual Distribution per Class A Unit significantly exceeds the Partnership's net asset value per unit based on the appraised values of the hotel properties. At this time it is unlikely there will be any excess cash flow to be available for distribution to the Class A unitholders in 1997. The Class B Units entitle each Unitholder to a limited partnership interest which is subordinated to the Class A Units. The Class B Units are redeemable or convertible in certain circumstances. The Class B Units do not receive distributions until the Class A Unitholders receive Minimum Annual Distributions which have not been made by the Partnership since 1990. Through 1996, the Class B Units are convertible into Class A Units only to the extent that distributable cash flow of the Partnership in the previous year would have been sufficient to pay Minimum Annual Distributions for the Class A Units, including the Class B Units to be converted. No Class B Units were converted in 1996. Beginning in 1997, in accordance with the terms of the Partnership Agreement, and each year thereafter through 2001, a minimum of 250,000 Class B Units are required to be converted at a redemption value of $20.00 per Class B Unit, by issuing Class A Units valued at the then current market price of a Class A Unit. Therefore, the number of Class A Units to be issued upon the conversion of a Class B Unit will be determined at the time of conversion by dividing $20.00 by the then current market price of a Class A Unit. Current market price for this calculation is the average market price for a Class A Unit during the last five trading days prior to conversion. Based on current market prices of the Class A Units, such required conversion is expected to result in substantial dilution to the pre-conversion Class A Unitholders. For example, based on the average closing month end market price of Class A Units during 1996 of approximately $1.77, the conversion of 250,000 Class B Units in the first year of the required conversion period would result in an approximate 35% dilution to the Class A Unitholders upon conversion. The conversion of all 950,000 Class B Units would result in an approximate 67% dilution to the pre-conversion Class A Unitholders at the $1.77 per unit market price. In addition, using the same per unit market price for a Class A Unit of $1.77, affiliate ownership of Class A Units would increase to approximately 81% and 90% upon conversion of the first 250,000 Class B Units and conversion of all 950,000 Class B Units, respectively. Changes in the market price of Class A Units do not result in proportional changes in dilution. The market price of the Partnership's Class A Units is subject to fluctuations and there is no assurance that such prices upon conversion will approximate the average per unit market price in 1996. On December 18, 1996, the Partnership received an offer from an affiliate to purchase all of the Class A and Class B Units not currently owned by the affiliate or any other affiliates of the Partnership (See Other Matters). Pursuant to the Partnership Agreement, the Class A Units to be issued upon conversion of the Class B Units must be identical to the Class A Units existing prior to the conversion date. The General Partner has, on the advice of counsel, determined that the Class B Units convert into identical Class A Units because there are elective procedures, which are standard practice for publicly-traded partnerships, that make the Class A Units received upon conversion fungible for tax purposes with all pre-existing Class A Units. PROPERTY VALUES The appraised value of the Properties is $87,300,000 at December 31, 1996, which exceeds their carrying values of $62,676,000. In accordance with Statement on Financial Accounting Standards on Accounting for the Impairment of Long-Lived Assets, which was issued in 1995, the Partnership recognized an impairment on the Lakeside property in 1995. The Partnership has no current plans to sell any of its properties for less than their carrying values. INCOME TAXES In accordance with the Revenue Act of 1987, the Partnership will become a taxable entity in 1998. As a result, the income of the Partnership will be taxable as a corporation and distributions from the Partnership will continue to be taxable to the individual partners. The Partnership anticipates that it will have an excess of tax basis over book basis of the hotel properties at January 1, 1998 of approximately $1,960,000, which will result in tax deductions in 1998 and later years. Therefore, the Partnership does not expect that the impact on net income in 1998 from becoming a taxable entity will be significant. The Partnership is continuing to evaluate various alternatives to minimize the impact on the Partnership as a result of these changes in tax laws. INFLATION The rate of inflation as measured by changes in the average consumer price index has not had a material impact on the revenue or net income of the Partnership in the three most recent years. OTHER MATTERS Management of the Partnership, the Board of Directors of the General Partner and the Advisory Committee are seeking to increase the value of the Partnership for all of its Unitholders. Management has been evaluating and will continue to evaluate different strategies for maximizing Unitholder value including; (i) continued ownership and operation of the properties, (ii) liquidation, sale or other similar transactions, (iii) sales of one or more of the Partnership's properties in response to exceptional offers, and (iv) combining the Partnership or its assets with other hotel-owning entities. During 1996 and 1995, the General Partner received suggestions from certain Class A Unitholders regarding; (i) the reconfiguration of the Partnership as a real estate investment trust ("REIT"), (ii) a reorganization of the Partnership involving the redemption of the interests of the General Partner and its affiliates (the "Majority Unitholders") and (iii) sales of one or more of the Partnership's properties. The suggestions made concerning the reconfiguration of the Partnership as a REIT and the reorganization transaction were each rejected by the Partnership because they each called for the Majority Unitholders to surrender substantial economic entitlements in the Partnership without adequate compensation. The Partnership also rejected a purchase offer regarding the Durham property for approximately three-quarters of its present appraised value. On December 18, 1996, the Partnership received a written proposal from an affiliate, Regal Hotel Management Inc. ("RHM"), to commence discussions with respect to the possible purchase of all of the Class A and Class B Units not currently owned by RHM or its affiliates for $2.35 per Class A Unit and $16.80 per Class B Unit. RHM's proposal suggests that the acquisition could be structured as a merger of a limited partnership owned by RHM with the Partnership. Consummation of any such merger would be subject, among other things, to the affirmative vote of the Partnership's unitholders, as provided in the Partnership Agreement. The General Partner has referred RHM's proposal to a special committee comprised of the independent members of the Partnership's Advisory Committee for consideration on behalf of the public unitholders. RHM's proposal does not represent a binding offer and could be withdrawn at any time, and there can be no certainty that any transaction will be entered into, or if one is entered into, at what price or prices. Unless and until such time as one or more preferable strategic alternatives is identified and adopted, the Partnership intends to pursue its current strategy of owning and operating its existing portfolio of properties. Item 8. Financial Statements and Supplementary Data - ------- ------------------------------------------- The financial statements of AHP are filed under this Item, beginning on Page II-10. The financial statement schedules required under Regulation S- X are filed pursuant to Item 14 of this report. Item 9. Changes in and Disagreements with Accountants on Accounting and - ------- --------------------------------------------------------------- Financial Disclosure -------------------- None. INDEPENDENT AUDITORS' REPORT ---------------------------- THE PARTNERS AIRCOA HOTEL PARTNERS, L.P.: We have audited the accompanying consolidated balance sheets of AIRCOA Hotel Partners, L.P. and subsidiary operating partnerships as of December 31, 1996 and 1995, and the related consolidated statements of operations, partners' capital and cash flows for each of the years in the three-year period ended December 31, 1996. These consolidated financial statements are the responsibility of the Partnership's management. Our responsibility is to express an opinion on these consolidated 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 consolidated financial statements referred to above present fairly, in all material respects, the financial position of AIRCOA Hotel Partners, L.P. and subsidiary operating partnerships as of December 31, 1996 and 1995, and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 1996, in conformity with generally accepted accounting principles. KPMG PEAT MARWICK LLP Denver, Colorado February 28, 1997 AIRCOA HOTEL PARTNERS, L.P. AND SUBSIDIARY OPERATING PARTNERSHIPS CONSOLIDATED BALANCE SHEETS DECEMBER 31, 1996 AND 1995 (IN THOUSANDS)
ASSETS - ------ 1996 1995 -------- ------- Current assets: Cash and cash equivalents $ 2,350 2,116 Accounts receivable: Trade 3,305 2,479 Affiliates - 143 Inventory 373 339 Prepaid expenses 516 482 -------- ------- Total current assets 6,544 5,559 -------- ------- Property and equipment, at cost: Land and leasehold improvements 9,427 8,914 Buildings and leasehold 68,499 66,838 improvements Furniture, fixtures and equipment 20,251 18,332 -------- ------- 98,177 94,084 Less accumulated depreciation and amortization (35,501) (31,329) -------- ------- Net property and equipment 62,676 62,755 -------- ------- Other assets, including debt issue costs, net of accumulated amortization of $408 in 1996 and $237 in 1995 911 1,092 -------- ------- $ 70,131 69,406 ======== =======
(Continued) AIRCOA HOTEL PARTNERS, L.P. AND SUBSIDIARY OPERATING PARTNERSHIPS CONSOLIDATED BALANCE SHEETS, CONTINUED
LIABILITIES AND PARTNERS' CAPITAL 1996 1995 - --------------------------------- ---- ---- Current liabilities: Current installments of long-term debt $ 1,122 1,080 Trade accounts payable 1,284 1,672 Trade accounts payable to affiliates 444 715 Accrued liabilities: Payroll and related 832 665 Taxes, other than income taxes 513 507 Other 2,223 1,377 Deferred revenue and advance deposits 1,842 1,995 ------- ------ Total current liabilities 8,260 8,011 Long-term debt, excluding current installments 42,504 43,290 Notes payable to affiliates 8,100 8,100 Accrued administration fees, management fees and interest payable to affiliate 506 253 ------- ------ Total liabilities 59,370 59,654 ------- ------ Partners' capital: General partner 245 236 Limited partners: Class A Unitholders 13,517 13,603 Class B Unitholders (3,001) (4,087) (deficit) ------- ------ Total partners' capital 10,761 9,752 ------- ------ Commitments and contingencies $70,131 69,406 ======= ======
See accompanying notes to consolidated financial statements. AIRCOA HOTEL PARTNERS, L.P. AND SUBSIDIARY OPERATING PARTNERSHIPS CONSOLIDATED STATEMENTS OF OPERATIONS YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994 (IN THOUSANDS, EXCEPT UNIT DATA)
1996 1995 1994 ---- ---- ---- Revenue: Rooms $ 29,038 26,810 26,863 Food and beverage 12,272 11,733 12,274 Other property operations 7,243 6,856 7,020 ---------- ---------- ---------- 48,553 45,399 46,157 ---------- ---------- ---------- Costs and operating expenses: Rooms 7,774 7,366 7,242 Food and beverage 8,790 8,577 8,769 Other property operations 2,947 3,046 3,325 Administrative and general 5,488 4,954 4,793 Marketing 4,184 3,944 4,025 Energy 2,416 2,365 2,307 Property maintenance 2,329 2,348 2,255 Rent, taxes and insurance 2,753 2,743 2,540 Management fees 1,925 1,802 1,835 Depreciation and amortization 4,172 4,095 3,944 Impairment of property - 4,789 - ---------- ---------- ---------- 42,778 46,029 41,035 ---------- ---------- ---------- Operating income (loss) 5,775 (630) 5,122 ---------- ---------- ---------- Other income (expenses): Interest expense, including amortization of debt issue costs of $402 in 1996, $348 in 1995 and $471 in 1994 (4,766) (4,791) (4,600) Gain on insurance settlements - - 105 ---------- ---------- ---------- (4,766) (4,791) (4,495) ---------- ---------- ---------- Net income (loss) $ 1,009 (5,421) 627 ========== ========== ========== Class A Unitholders: Loss per limited partnership unit $(.02) (1.50) (.10) Weighted average number of ========== ========== ========== units outstanding 5,340,214 5,340,214 5,340,214 Class B Unitholders: ========== ========== ========== Income per limited partnership unit $1.14 2.86 1.25 Weighted average number of ========== ========== ========== units outstanding 950,000 950,000 950,000 ========== ========== ==========
See accompanying notes to consolidated financial statements. AIRCOA HOTEL PARTNERS, L.P. AND SUBSIDIARY OPERATING PARTNERSHIPS CONSOLIDATED STATEMENTS OF PARTNERS' CAPITAL YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994 (IN THOUSANDS, EXCEPT UNIT DATA)
Limited Partners' Capital (Deficit) --------------------------------------------- Class A Unitholders Class B Unitholders Total General ------------------- ------------------- partners ' partner Units Capital Units Capital capital ------- ----- ------- ----- ------- ------- BALANCES AT DECEMBER 31, 1993 $ 375 5,340,214 22,157 950,000 (7,986) 14,546 Net income (loss) 1 (552) 1,178 627 ------- --------- ------ ------- ------ ------ BALANCES AT DECEMBER 31, 1994 376 5,340,214 21,605 950,000 (6,808) 15,173 Net income (loss) (140) (8,002) 2,721 (5,421) ------- --------- ------ ------- ------ ------ BALANCES AT DECEMBER 31, 1995 236 5,340,214 13,603 950,000 (4,087) 9,752 Net income (loss) 9 (86) 1,086 1,009 ------- --------- ------ ------- ------ ------ BALANCES AT DECEMBER 31, 1996 $ 245 5,340,214 13,517 950,000 (3,001) 10,761 ======= ========= ====== ======= ====== ====== See accompanying notes to consolidated financial statements.
AIRCOA HOTEL PARTNERS, L.P. AND SUBSIDIARY OPERATING PARTNERSHIPS CONSOLIDATED STATEMENTS OF CASH FLOWS YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994 (IN THOUSANDS)
1996 1995 1994 ---- ---- ---- Cash flows from operating activities: Cash received from customers $ 45,774 43,460 44,592 Cash paid to suppliers and vendors (25,868) (25,054) (25,226) Cash paid to employees (12,931) (12,916) (12,423) Interest paid (3,558) (4,443) (3,430) Other cash receipts 1,654 2,096 2,055 -------- ------- ------- Net cash provided by operating activities 5,071 3,143 5,568 -------- ------- ------- Cash flows from investing activities: Capital expenditures (3,847) (3,286) (2,049) Proceeds from insurance for damaged property and equipment - - 105 Payments for other assets - (20) - -------- ------- ------- Net cash used in (3,847) (3,306) (1,944) investing activities -------- ------- ------- Cash flows from financing activities: Proceeds from refinancing - 45,000 - Principal payments on long-term debt (990) (42,995) (4,950) Refinancing costs and other - (987) (329) -------- ------- ------- Net cash provided by (used in) financing activities (990) 1,018 (5,279) -------- ------- ------- Increase (decrease) in cash and cash equivalents 234 855 (1,655) Cash and cash equivalents, beginning of year 2,116 1,261 2,916 -------- ------- ------- Cash and cash equivalents, end of year $ 2,350 2,116 1,261 ======== ======= =======
(Continued) AIRCOA HOTEL PARTNERS, L.P. AND SUBSIDIARY OPERATING PARTNERSHIPS CONSOLIDATED STATEMENTS OF CASH FLOWS, CONTINUED
1996 1995 1994 ---- ---- ---- Reconciliation of net income (loss) to net cash provided by operating activities: Net income (loss) $1,009 (5,421) 627 Adjustments to reconcile net income (loss) to net cash provided by operating activities: Depreciation and amortiza- tion 4,172 4,095 3,944 Impairment of property - 4,789 - Amortization of debt issue costs 402 348 471 Gain on insurance settlements - - (105) Decrease (increase) in accounts receivable relating to operations (683) (24) 284 Decrease (increase) in inventory (34) 62 (25) Decrease (increase) in prepaid expenses (34) 16 (124) Increase in other assets (221) - - Increase (decrease) in trade accounts payable, trade accounts payable to affiliates, accrued liabilities, accrued administrative fees, management fees and interest payable to affiliate relating to operations 613 (903) 290 Increase (decrease) in deferred revenue and advance deposits (153) 181 206 ------ ------ ----- Net cash provided by operating activities $5,071 3,143 5,568 ====== ====== ===== Non-cash investing and financing activities - the Partnership entered into capital lease obligations for equipment of $246,000 in 1996.
See accompanying notes to consolidated financial statements. AIRCOA HOTEL PARTNERS, L.P. AND SUBSIDIARY OPERATING PARTNERSHIPS NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1996 AND 1995 (1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES BASIS OF PRESENTATION AIRCOA Hotel Partners, L.P. (the "Partnership") is a publicly traded limited partnership formed to acquire, own and operate hotel properties. The Partnership holds a 99% limited partner interest in six limited partnerships (the "Operating Partnerships"). Each of the Operating Partnerships owns and operates a hotel and resort property (the "Properties"). AIRCOA Hospitality Services, Inc. ("AHS"), a wholly-owned subsidiary of Richfield Hospitality Services, Inc. ("Richfield") holds a 1% General Partner interest in the Partnership and in each of the Operating Partnerships. PRINCIPLES OF CONSOLIDATION The accompanying consolidated financial statements include the accounts of the Partnership and the accounts of each of the Operating Partnerships. All significant interpartnership accounts and transactions have been eliminated. CASH AND CASH EQUIVALENTS Cash equivalents, representing money market accounts, overnight Eurodollar deposits and repurchase agreements, were $1,865,000 and $1,965,000 at December 31, 1996 and 1995, respectively. For purposes of the consolidated statements of cash flows, the Partnership considers all highly liquid investments with original maturities of three months or less to be cash equivalents. OPERATING ASSETS The Partnership uses an inventory method of accounting for china, glassware, silver, linen, and uniforms. Under the inventory method, operating assets are stated at amounts based upon the physical quantity of such assets on hand using average costs, less a valuation allowance to reflect deterioration from use. PROPERTY AND EQUIPMENT Property and equipment are stated at cost. Hotel property renovations and improvements are capitalized. Repairs, maintenance, and minor refurbishments are charged to expense as incurred. Interest incurred during construction of facilities or major renovations is capitalized and amortized over the life of the related assets. No interest was capitalized in 1996, 1995 or 1994. Upon the retirement or sale of property and equipment, the cost and related accumulated depreciation are removed from the respective accounts, and the resulting gain or loss, if any, is included in operations. Property and equipment held under leaseholds is amortized over the shorter of the lease term or the estimated useful life of the asset. AIRCOA HOTEL PARTNERS, L.P. AND SUBSIDIARY OPERATING PARTNERSHIPS NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED (1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) Depreciation and amortization are calculated using the straight-line method over the estimated useful lives of the assets, generally as follows: Land improvements and leasehold improvements 15 years Buildings and leasehold improvements 30 years Furniture, fixtures and equipment 10 years The Partnership assesses the carrying value of its hotel properties for impairment when circumstances indicate such amounts may not be recoverable from future operations. In the fourth quarter of 1995, the Partnership adopted the provisions of Statement of Financial Accounting Standards No. 121, Accounting for the Impairment of Long-Lived Assets and Long-Lived Assets to be Disposed Of (SFAS No. 121). SFAS No. 121, which was issued by the Financial Accounting Standards Board in March 1995, establishes recognition and measurement standards for the impairment of long-lived assets expected to be held and used and long-lived assets to be disposed. Generally, assets to be held and used in operations are considered impaired if the sum of expected future cash flows is less than the assets' carrying amount. If an impairment is indicated, the loss is measured based on the amount by which the assets' carrying value exceeds its fair value. Assets to be disposed of are reported at the lower of their carrying value or fair value less estimated selling costs. In 1994, prior to the adoption of SFAS No. 121, the Partnership assessed impairment based on the expected future cash flows from operations of its hotel properties. OTHER ASSETS Other assets consist principally of debt issue costs, franchise license costs, and liquor license costs. Debt issue and franchise license costs are amortized using the straight-line method over the term of the respective debt or license agreements. DEFERRED REVENUE AND ADVANCE DEPOSITS Deferred revenue for facility rentals and advance room deposits is recognized as revenue when services are provided. INCOME TAXES No current provision or benefit for income taxes is included in the accompanying consolidated financial statements since the taxable income or loss of the Partnership is included in the tax returns of the individual partners of the Partnership. Current federal income tax regulations will subject the Partnership to corporate taxation beginning in 1998. Accordingly, the Partnership utilizes an asset and liability method of accounting for deferred income taxes. Under the asset and liability method, deferred income taxes are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax AIRCOA HOTEL PARTNERS, L.P. AND SUBSIDIARY OPERATING PARTNERSHIPS NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED basis expected to be recovered or settled subsequent to 1997. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years such temporary differences are expected to be recovered or settled. The effect on deferred taxes of a change in tax rates will be recognized in operations in the period of the enactment date. NET INCOME (LOSS) PER UNIT Net income (loss) per limited partnership unit is computed by dividing the net income (loss) attributable to each class of units by the weighted average number of units outstanding in each class during the period. Because of the loss attributable to Class A Unitholders in 1996, 1995 and 1994, Class A Units issuable upon conversion of notes payable (see Note 5) and upon conversion of the Class B Units (see Note 2) were not considered in the computation, as such conversions would be anti-dilutive. RISKS AND UNCERTAINTIES The preparation of the Partnership's consolidated financial statements in conformity with generally accepted accounting principles necessarily 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 balance sheet dates and the reported amounts of revenues and expenses during the reported periods. Actual results could differ from those estimates. Certain of the Properties have agreements with various customers, including airline carriers and tour groups that require the Properties to provide rooms at specified rates. The loss of such agreements and customers could adversely impact revenue. RECLASSIFICATIONS Certain amounts in the 1995 and 1994 consolidated financial statements have been reclassified to conform to the 1996 presentation. (2) PARTNERSHIP UNITS AND ALLOCATIONS LIMITED PARTNERSHIP UNITS The Class A Units entitle each Unitholder to a limited partnership interest in a percentage of the profits and losses, tax allocations, and distributions of the Partnership, as described below. The Class B Units entitle each Unitholder to a limited partnership interest which is subordinate to the Class A Units. The Class B Units are redeemable by the Partnership or convertible into Class A Units, in certain circumstances. The Class B Units do not receive distributions until the Class A Unitholders receive defined Minimum Annual Distributions. Through 1996, the Class B Units were convertible into Class A Units to the extent that distributable cash flow of the Partnership in the previous year would have been sufficient to pay Minimum Annual Distributions for the Class A Units, including the Class B Units to be AIRCOA HOTEL PARTNERS, L.P. AND SUBSIDIARY OPERATING PARTNERSHIPS NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED (2) PARTNERSHIP UNITS AND ALLOCATIONS (CONTINUED) converted. Beginning in 1997, in accordance with the terms of the Partnership Agreement, and each year thereafter through 2001, a minimum of 250,000 Class B Units are required to be converted into Class A Units annually through 2001 at a redemption value of $20.00 per Class B Unit, by issuing Class A Units valued at the then current market price of the Class A Units. Therefore, the number of Class A Units to be issued upon conversion of a Class B Unit will be determined at the time of conversion by dividing $20.00 by the then current market price of a Class A Unit. CASH DISTRIBUTIONS The Partnership agreement provides for periodic distribution of distributable cash flow, as defined, to the partners at the discretion of the General Partner. Distributable cash flow is generally defined as cash flow from operations of the hotel properties. Such cash is allocated and distributed (net of AHS's 1% general partnership interest in the Operating Partnerships) 99% to the Class A Unitholders and 1% to the General Partner until the Class A Unitholders have received defined Minimum Annual Distributions. The Minimum Annual Distribution is presently $2.16 per Class A Unit. After payment of the Minimum Annual Distribution, additional cash distributions, if any, will be allocated 49.5% to the Class A Unitholders, 49.5% to the Class B Unitholders and 1% to the General Partner. Capital transaction proceeds generally consist of net proceeds from sales and refinancing of the Partnership's hotel properties. Cash from capital transaction proceeds is allocated and distributed 99% to the Class A Unitholders and 1% to the General Partner until the Class A Unitholders have received any previously unpaid Minimum Annual Distributions, and the unrecovered capital preference amount, as defined. Capital transaction proceeds are then allocated and distributed 99% to the Class B Unitholders and 1% to the General Partner until all the Class B Units have been redeemed. Subsequent to the redemption of the Class B Units, capital transaction proceeds are allocated and distributed 75% to the Class A Unitholders and 25% to the General Partner. The unrecovered capital preference amount of a Class A and a Class B Unit at December 31, 1996 is $16.60 and $20.00, respectively. The Minimum Annual Distribution amount attributable to Class A Unitholders and the Class B Unitholders sharing percentage in distributable cash flow are reduced proportionately based upon distributions of capital transaction proceeds. The Partnership has not made any distributions since 1990. At December 31, 1996, the cumulative unpaid Minimum Annual Distribution per Class A Unit significantly exceeds the Partnership's net asset value per unit based on the appraised values of the hotel properties. ALLOCATION OF INCOME AND LOSSES Partnership income and losses are allocated among the partners in accordance with federal income tax provisions based upon the partners ownership interests, adjusted to reflect original contribution values agreed upon by the partners and other basis differences at the inception of the Partnership. Income and losses are allocated among individual units on a pro AIRCOA HOTEL PARTNERS, L.P. AND SUBSIDIARY OPERATING PARTNERSHIPS NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED rata basis within each class of units. For financial reporting purposes, the net income or loss of the Partnership is generally allocated in accordance with the income tax allocation provisions described above. In accordance with the Partnership agreement, deductions of approximately $1,036,000, $3,056,000 and $1,148,000 in 1996, 1995 and 1994, respectively, were transferred in the allocation of income (loss) from the Class B Units to the Class A Units and General Partner. In 1995, such allocation includes the impact from the impairment of the Lakeside property (see Note 3). (3) HOTEL PROPERTY VALUATIONS The Partnership periodically evaluates the carrying value of its hotel properties for impairment. These evaluations are based upon management's estimate of future operating results considering recent performance and existing and expected local market conditions. Based on these evaluations, the Partnership recognized an impairment of approximately $4,789,000 relating to the Lakeside property in 1995. The loss was determined based on the excess of the hotel property's carrying value over its fair value at December 31, 1995. The fair value of the hotel property was determined through a third-party appraisal obtained in January 1996. The impairment loss is included in costs and operating expenses in the accompanying consolidated statements of operations. The Partnership believes that the expected future cash flows from the operations of its other hotel properties will be sufficient to recover their carrying values. The Partnership has no current plans to sell any of its properties for less than their carrying values. (4) LONG-TERM DEBT On June 8, 1995, the Partnership signed a credit agreement with a new lender which provided a $45,000,000 first mortgage loan and a $1,000,000 revolving credit line. The proceeds of the $45,000,000 first mortgage loan were used to refinance, on a long-term basis, the Partnership's existing mortgage loan in the amount of $38,950,000 and the note payable to bank of $1,790,000 which were due July 31, 1995 and October 31, 1995, respectively, and to provide approximately $3,000,000 to fund hotel property renovations. At December 31, 1996 these amounts have been expended. The balance of the funds were used for the payment of a facility fee and closing costs. The first mortgage loan interest rate at December 31, 1996 of 7.53% was based on the current Eurodollar rate plus 2%. Repayment of the first mortgage loan is based on a twenty-year amortization with a final maturity date in June 2000. Payments under this loan consist of monthly installments of $90,000 plus interest on the unpaid balance. The revolving credit line is renewable annually at the option of the lender. No amounts have been drawn on the revolving credit line at December 31, 1996. AIRCOA HOTEL PARTNERS, L.P. AND SUBSIDIARY OPERATING PARTNERSHIPS NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED Long-term debt is summarized as follows (in thousands): December 31, ----------------- 1996 1995 Mortgage loan $43,380 44,370 Capital lease obligation 246 - ------- ------ 43,626 44,370 Less current installments (1,122) (1,080) ------- ------ Long-term debt, excluding current $42,504 43,290 installments ======= ====== The first mortgage loan and revolving credit line contain various covenants including: minimum debt service ratios, restrictions on additional indebtedness, limitations on annual cash distributions to Class A Unitholders, limitations on the payment of principal on the affiliate notes payable, prepayment premiums during the first two years, deferral of management fees payable to Richfield if minimum debt service ratios are not achieved, maintenance of a capital expenditure reserve account equal to 5% of gross revenue, and a maximum loan-to-value ratio of 65% based on the aggregate appraised values of the Properties. The Partnership is in compliance with these covenants for the year ended December 31, 1996. The first mortgage loan and revolving credit line are subject to certain limited guarantees of an affiliate of the General Partner. The first mortgage loan also requires Bank approval of any dilution in the present ownership interests of affiliates of the General Partner in the Partnership. In accordance with the Partnership Agreement, the General Partner received a 1% financing fee, reduced by the amount of the financing fee paid to the lender, for arranging the refinancing of the Partnership's indebtedness. In addition, the Partnership pays an annual guarantee fee calculated as .5% of the outstanding loan balance at June 8 of each year to an affiliate of the General Partner for the limited guarantee of the first mortgage loan and the revolving credit line. Maturities of long-term debt are summarized as follows (in thousands): Year ending December 31, 1997 $ 1,122 1998 1,127 1999 1,131 2000 40,197 2001 49 ------- $43,626 ======= (5) NOTES PAYABLE TO AFFILIATES A condition of the credit agreement signed by the Partnership for the first mortgage loan and revolving credit line required the subordination of the $6,000,000 notes payable to AHS (the "Notes"), AHS has agreed to this subordination, and as a result, on September 26, 1995 the Board of Directors of AHS, in its capacity as General Partner, and the Advisory Committee of AHP authorized the extension of the term and deferral of certain past-due interest on the Notes. AIRCOA HOTEL PARTNERS, L.P. AND SUBSIDIARY OPERATING PARTNERSHIPS NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED Pursuant to this extension, the Notes, which originally matured in January 1995, are due on June 8, 2000, which is coterminous with the new mortgage loan. The unpaid interest on the Notes accrued prior to January 1, 1995, in the amount of $2,100,000, were converted into a new promissory note ("New Note") which also matures on June 8, 2000. The New Note accrues interest at the rate of 12% per annum and is payable at maturity. Interest accrued on the Notes after December 31, 1994 was paid at closing. Interest incurred on the Notes subsequent to closing continues to be accrued at 12% per annum and is paid monthly. These notes are convertible into Class A Units of the Partnership at $16.60 per unit. In addition, these notes stipulate that 25% of any excess cashflow, as defined in the new mortgage loan, will be applied against the principal of the notes outstanding. (6) INCOME TAXES The Partnership's only significant temporary difference (which will result in tax deductions in 1998 and later years) is an excess of the tax basis over the book basis of the Properties of approximately $4,900,000 and $6,500,000 at December 31, 1996 and 1995, respectively. The Partnership's net deferred tax asset was approximately $1,960,000 and $2,600,000 at December 31, 1996 and 1995, respectively. The Partnership has established a 100% valuation allowance on these net deferred tax assets. The change in the valuation allowance in 1996 and 1995 was a decrease and an increase of approximately $640,000 and $1,660,000, respectively. (7) RELATED PARTY TRANSACTIONS AND COMMITMENTS PARTNERSHIP ADMINISTRATION AHS, as General Partner, is responsible for managing the business and affairs of the Partnership and the Operating Partnerships. The General Partner is reimbursed monthly for all direct operating expenses incurred on behalf of the Partnership and Operating Partnerships. In addition, the General Partner receives an annual partnership administration fee equal to .25% of the independently appraised value of the hotel properties of the Partnership. MANAGEMENT AGREEMENTS Richfield operates the hotel properties for the Partnership in exchange for a management fee equal to 4% of annual gross revenue from the hotel properties. In addition, the hotel properties are obligated to reimburse Richfield for payroll, professional fees, and certain out-of-pocket expenses incurred by Richfield on their behalf. The management agreements expire in 2012 and can be terminated by the Partnership prior to expiration, in certain circumstances, by the payment of a fee equal to three times the management fee paid for the preceding 12 months. Richfield also provides data processing services and obtains various types of insurance coverage, on an aggregate basis, for the hotel properties which it owns or manages. Such data processing and insurance costs are charged to the hotel properties. AIRCOA HOTEL PARTNERS, L.P. AND SUBSIDIARY OPERATING PARTNERSHIPS NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED (7) RELATED PARTY TRANSACTIONS AND COMMITMENTS (CONTINUED) LICENSE AGREEMENTS Two of the hotel properties have license agreements with an affiliate to operate as Regal Hotels. The license agreements provide for fees of 2.0% to 2.5% of total sales revenue, as defined, in 1996 and expire in 2012. In December 1996 and February 1997, each of the agreements was amended to provide for a fee of 2.5% throughout the terms of the agreements. The agreements can be terminated by the Partnership prior to expiration in certain circumstances, through payment of a termination fee. HOTEL PROPERTY ACQUISITIONS AND DISPOSITIONS AND PARTNERSHIP FINANCING The General Partner receives an acquisition fee equal to 1% of the purchase price of any hotel property acquired by the Partnership. Upon the sale of a hotel property, the General Partner receives either a disposition fee equal to 1% of the sales price of the hotel property, or a reasonable brokerage fee, based upon fees for comparable properties in the area, less the amount of any such brokerage fees paid to third parties. The General Partner receives a financing fee equal to 1% of the principal amount of any new Partnership loan, or refinancing of Partnership debt if the refinancing is completed with a lender other than the lender whose loan is being refinanced. Such fee is required to be reduced by the amount of the financing fee paid to the lender. OTHER ARRANGEMENTS The General Partner and its affiliates are paid development, purchasing, and design fees for services performed in connection with the renovation or expansion of the Partnership's hotel properties. In addition, an affiliate of AHS receives fees in connection with the bulk purchase of hotel furnishings, equipment, and supplies. The Partnership leases a private club and recreational facility from an affiliate of AHS, under an operating lease. The Partnership receives 90% to 100% of the available cash flow from operations of the private club and recreational facility as lease income and management fees. The lease expires in 2052 and may be terminated early by the Partnership. The Partnership received lease income and management fees of $301,000, $256,000 and $330,000 pursuant to these arrangements in 1996, 1995, and 1994, respectively. Subject to the terms of the lease agreement, an affiliate of the Partnership has an option to purchase 50 undeveloped acres from the private club for $10. The option is only exercisable if all the permits and consents from state and local authorities permit continued operation of the club after conveyance of the 50 acres to the affiliate. The affiliate pays a pro-rata share of the property taxes on the private club. The private club is located on a tract of land consisting of approximately 80 acres. AIRCOA HOTEL PARTNERS, L.P. AND SUBSIDIARY OPERATING PARTNERSHIPS NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED (7) RELATED PARTY TRANSACTIONS AND COMMITMENTS (CONTINUED) The following amounts resulting from transactions with affiliates are included in the accompanying consolidated balance sheets (in thousands): December 31 ------------- 1996 1995 ------------- Fees and costs, included in property and equipment, net $1,121 1,123 ====== ===== General Partner financing fee $ 112 144 ====== ===== Guarantee fee $ 112 115 ====== ===== The General Partner financing fee and the guarantee fee have been capitalized and are included in other assets. The financing fee is being amortized over the life of the first mortgage loan, and the annual guarantee fee is being amortized over twelve months. Amortization relating to the financing and guarantee fee of $145,000 and $131,000 is included in interest expense in 1996 and 1995, respectively. The following amounts resulting from transactions with affiliates are included in the accompanying consolidated statements of operations (in thousands): 1996 1995 1994 ------- ----- ----- Partnership administration fees $ 198 209 222 ====== ===== ===== Management fees $1,925 1,802 1,835 ====== ===== ===== Allocated insurance expense $1,263 1,411 1,505 ====== ===== ===== Allocated data processing costs $ 58 80 45 ====== ===== ===== Interest expense $ 972 851 720 ====== ===== ===== Lease income $ 301 256 330 ====== ===== ===== License fees $ 298 174 132 ====== ===== ===== (8) COMMITMENTS AND CONTINGENCIES Under terms of the Clarion and ITT Sheraton franchises, the Partnership is committed to make annual payments for franchise and licensing fees and reservation services. The Clarion license agreement requires franchise fees equal to 3% of gross room revenue and expires in 2012. The ITT Sheraton license agreements require franchise fees equal to 6% of gross room revenue and expire in 2002. The Sheraton agreements may be terminated by either party at specified dates. Total franchise fees on the Clarion and ITT Sheraton license agreements were $1,131,000, $1,650,000, and $1,677,000 for 1996, 1995 and 1994, respectively. Three of the hotel properties are subject to noncancelable operating land leases which expire between 2000 and 2033. The leases generally require annual rental payments of a fixed amount, ranging from $10,000 to $90,000, plus a contingent amount based upon a percentage of specified room revenue, food and beverage revenue, or gross revenue, as defined, ranging from 1% to 8%. The accompanying consolidated statements of operations include land rent expense of $747,000, $799,000 and $803,000 for 1996, 1995 and 1994, respectively. AIRCOA HOTEL PARTNERS, L.P. AND SUBSIDIARY OPERATING PARTNERSHIPS NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED (8) COMMITMENTS AND CONTINGENCIES (CONTINUED) The Class A Units issuable upon conversion of notes payable and upon conversion of the Class B Units, and the Class A Units issued pursuant to the General Partner's obligations regarding cash distributions have certain demand registration rights. The Partnership is involved in various claims and legal actions arising in the ordinary course of business. In the opinion of management, the ultimate disposition of these matters will not have a material effect on the consolidated financial statements of the Partnership. PART III Item 10. Directors and Executive Officers of the General Partner - -------- ------------------------------------------------------- THE GENERAL PARTNER AHS is the General Partner of the Partnership and of each of the Operating Partnerships. From its formation in 1968 until November 1993, AHS was engaged in the management of hotel and resort properties. Richfield assumed the management contracts for the properties effective November 1993 as a part of the integration by Richfield of its hotel management subsidiaries, including AHS. DIRECTORS AND EXECUTIVE OFFICERS OF AHS The directors and executive officers of AHS are listed below. The Advisory Committee of AHP consists of one member of the AHS Board of Directors, Anthony Williams. The other members of the Advisory Committee include Anthony Dimond and James Hire who do not serve in any other capacity with Richfield or its affiliates. The functions of the AHP Advisory Committee include, among other things, review of the policies and practices of the Partnership and AHS regarding various matters as to which potential conflicts of interest may arise and review of certain acquisitions and dispositions of hotel properties by AHP. The officers of AHS devote such time and effort as is necessary for AHS to perform its duties as General Partner of the Partnership. Each of the directors of AHS are elected to a one-year term at the annual meeting of the shareholder of AHS. IDENTIFICATION OF DIRECTORS Name and Year First Principal Occupation Became a Director Age During the Past Five Years ----------------- --- -------------------------- Daniel Bong Shu Yin, 1995 57 Daniel Bong has served as a Director for Century City International Holdings Limited ("CCIHL"), a Bermuda corporation listed in Hong Kong and engaged in property development and hotel ownership and management since 1989. He is also a Director of the subsidiary corporations of CCIHL, Paliburg International Holdings Limited ("PIHL") and Deputy Chairman of Regal Hotels International Holdings Limited ("RHIHL"). Mr. Bong is responsible for overseeing the hotel operations and is a qualified architect. Mr. Bong has served as President/Chief Executive Officer of Richfield Holdings, Inc. ("Holdings") since October 1995 and as a Director since May 1995. Name and Year First Principal Occupation Became a Director Age During the Past Five Years ----------------- --- -------------------------- Lawrence Lau Siu Keung, 1995 46 Lawrence Lau joined CCIHL in 1994 and has served as a Director since 1995. He also serves as a Director of PIHL and RHIHL. Mr. Lau is in charge of the overall financial and accounting functions of CCIHL and its subsidiaries. Mr. Lau served as Group Controller (Finance) for Shaw Brothers (H.K.) Ltd. from 1992 to 1994. From 1989 to 1992 he was Financial Controller for Regal Pacific Holdings Limited. Mr. Lau has served as a Director of Holdings since May 1995. Sandy Leung Sun So, 1996 42 Sandy Leung served as Senior Vice (Resigned, December, 1996) President of AHS and Holdings from February 1996 to December 1996. He joined CCIHL in November 1995 as General Manager-Corporate Finance. Prior to joining CCIHL, Mr. Leung served as a Director of Shanghai International Capital (H.K.) Limited from May 1994 to September 1995. Mr. Leung also served as an Executive Director of Seapower Corporate Finance Limited from May 1992 to April 1994. Douglas M. Pasquale, 1995 42 Douglas M. Pasquale has served as President/CEO of AHS since February 1996. He previously served as an Executive Vice President since February 1992 and was appointed Chief Financial Officer in August 1994. Mr. Pasquale joined AHS in 1986 as Vice President of Investor Services. Mr. Pasquale did not serve as an officer of AHS from August 1989 to February 1992, but continued to serve as Vice President of Holdings during this time period. Mr. Pasquale became a Director of Holdings in February 1993. Michael Sheh, 1995 39 Michael Sheh has served as Executive Vice President since February 1997. He has served as Senior Vice President/Treasurer of AHS since June 1995. Mr. Sheh served as Vice President/Treasurer of Holdings from 1989 to 1995, and as Senior Vice President from 1995 to February 1997, when he was elected Executive Vice President. He became a Director of Holdings in May 1995. Name and Year First Principal Occupation Became a Director Age During the Past Five Years ----------------- --- -------------------------- Carol K. Werner, 1989 42 Carol K. Werner served as General Counsel, Secretary and Executive Vice President of AHS from 1989 to March 1995. She also served as Director, Executive Vice President and Secretary of Holdings and certain affiliates from 1989 to 1995. Since August 1995, Ms. Werner has been working with the Denver, Colorado office of Coudert Brothers, an international law firm. Ms. Werner was an associate of Coudert Brothers prior to her employment with AHS. Anthony Williams, 1989 51 Anthony Williams is the Chairman of the executive committee of Coudert Brothers, an international law firm, and has been a partner since 1981. He has served as a director of Holdings since 1989. There are no family relationships between any of the directors or the executive officers of AHS. Coudert Brothers, an international law firm of which Anthony Williams and Carol Werner are attorneys, has provided legal services for the Partnership and affiliates since the beginning of 1989. CCIHL, PIHL, RHIHL are affiliates of AHP. Item 11. Payments and Compensation to General Partner and Affiliates - -------- ----------------------------------------------------------- As set out in the Partnership Agreement various fees are payable to AHS, as General Partner, for services rendered to the Partnership. These fees include Partnership administration fees equal to .25% of the appraised value of the Properties determined as of December 31st of each year; acquisition fees equal to 1% of the purchase price of any additional hotel property purchased by the Partnership; mortgage or refinancing fees equal to 1% of the loan amount; annual guarantee fees equal to .5% of the outstanding loan balance to an affiliate of AHS; and brokerage and disposition fees equal to 1% of the total contract price of the property with respect to the sale of a Partnership property to a third party. Affiliates of AHS receive property management service fees, data processing and risk management fees pursuant to the hotel management agreements with the Operating Partnerships. The Properties may also reimburse AHS and its affiliates for certain costs paid by AHS and its affiliates on behalf of the Operating Partnerships including payroll, professional fees and certain out-of-pocket expenses. For a detailed description of amounts paid or owed to AHS and its affiliates by the Partnership or the Operating Partnerships for various services performed by AHS and its affiliates during 1996, see Item 8, Financial Statements and Supplementary Data. The McCormick Ranch and Durham properties have license agreements with Holdings for use of the Regal name. For a detailed description of amounts paid or owed to Holdings, see Item 8, Financial Statements and Supplementary Data. Item 12. Security Ownership of Certain Beneficial Owners and Management -------- -------------------------------------------------------------- (a) The following table sets forth information as of March 3, 1997 with respect to persons who are known to the Partnership (based on statements filed with the Securities and Exchange Commission pursuant to section 13(d) or 13(g) of the Securities Act of 1934) to be the beneficial owner of more than five percent of any class of the Partnership's voting securities.
Name and address Amount and nature of of beneficial Percent Title of Class beneficial owner ownership of Class - --------------------------- ------------------ ----------------- --------- Class A Units Century City 3,794,646 (1) 71.0% International Paliburg Plaza 68 Ye Woo Street Indirect Hong Kong Ownership Class A Units Regal Hotel 1,825,065(1) 34.2% Management, Inc. 5775 DTC Boulevard Direct Suite 300 Ownership Englewood, Colorado 80111 Class A Units Gateway Hotel 769,041(1) 14.4% Holdings, Inc. 5775 DTC Boulevard Direct Suite 300 Ownership Englewood, Colorado 80111 Class A Units AIRCOA Equity 650,000 (1) 12.2% Interests, Inc. 5775 DTC Boulevard Direct Suite 300 Ownership Englewood, Colorado 80111 Class A Units Richfield 546,740 (1)(2) 10.2% Holdings, Inc. 5775 DTC Boulevard Direct Suite 300 Ownership Englewood, Colorado 80111 Class A Units Investing Group: 409,000 (3) 7.65% Direct Ownership Hatfield Family Trust, UA RR1, Box 162 Ridgeland, South Carolina 29936 (108,700 units 2.03%)
Name and address Amount and nature of of beneficial Percent Title of Class beneficial owner ownership of Class - --------------------------- ----------------- -------- ---------- J. Mark Grosvenor 3145 Sports Arena Boulevard San Diego, California 92110 (110,000 units 2.02%) Gerald Loehr Trust c/o Gerald G. Loehr P.O. Box 675207 Rancho Santa Fe, California 92067 (43,500 units .814%) Gardner-Smith Living Trust, UA 7825 Fay Avenue, Suite 250 La Jolla, California 92037 (43,200 units .81%) Narans Investment Management, Inc. 3440 South Vance Avenue, Suite 700 Lakewood, Colorado 80227 (32,200 units .60%) Blacor, Inc. 8235 Douglas Avenue, Suite 1300 Dallas, Texas 75225 (25,400 units .47%) Lance T. Shaner 303 Science Park Road State College, Pennsylvania 16803 (25,500 units .51%) Don W. Cockroft P. O. Box 770577 Memphis, Tennessee 38177 (10,500 units .20%) Michael McNulty 8235 Douglas Avenue, Suite 1300 Dallas, Texas 75225 (10,000 units .20%) Class B Units Century City 950,000 (4)(5) 100.0% International Indirect Holdings Limited Ownership
(1) Each of Richfield Holdings, Inc. ("Holdings"), AIRCOA Equity Interests, Inc. ("AEI"), Regal Hotel Management, Inc. ("RHM") and Gateway Hotel Holdings, Inc. ("Gateway") share voting and investment power with Century City International Holdings Limited ("Century City"). (2) Holdings has direct ownership of 546,740 Class A Units, an indirect ownership of 650,000 Class A Units through AEI, and indirect ownership of 3,800 Class A Units through Richfield Hospitality Services, Inc., for a total direct and indirect ownership of 1,200,540, which represent 22.5% of the Class A Units. (3) Individuals or trusts listed have jointly filed a Schedule 13-D indicating that they are acting as a group. Ownership information is based on Amendment No. 2 to the Schedule 13-D filed February 3, 1996. (4) Class B Units are not tradable securities however, they are convertible into Class A Units under certain conditions as set forth in the limited partnership agreement of the Partnership. No conversion rights have been exercisable since the Partnership's inception through the date hereof. (5) Holdings directly owns 200,000 Class B Units. RHM directly owns 688,746 Class B Units of the Partnership. Buffalo Hotel Investors, Ltd. ("BHI") directly owns 61,254 Class B Units. AEI is the managing general partner of BHI and therefore BHI is considered an affiliate. AEI and its affiliates directly and indirectly own 7.1% of the partnership interests of BHI. In addition to its direct interest in the Partnership's voting securities, Holdings indirectly owns 100% of the outstanding common shares of AHS. In February, 1989 Novolane, B.V., a Netherlands company ("Novolane") and Kingsfield Investment B.V., a Netherlands company ("Kingsfield") together acquired 51% of the voting securities of Holdings. Kingsfield sold the 5% interest it held in Holdings to an unaffiliated party during 1990. Novolane currently owns 49.77% of Holdings' outstanding voting securities and 100% of the voting securities of RHM. In December 1994, Regal International Limited purchased 45.58% of Holdings' outstanding voting securities from an unaffiliated entity. Century City, a Bermuda company, indirectly controls Novolane, Gateway and Regal International Limited. More than 60% of the voting stock of Century City is beneficially owned by Mr. Lo Yuk Sui, a citizen of Hong Kong. The General Partner directly owns notes, with face values of $8,100,000, which are convertible into Class A Units at a price of $16.60 per Class A Unit. Assuming that these were converted, the General Partner would directly own 8.4% of the Class A Units. Century City International would then indirectly own 73.5% of the Class A Units. (b) Security Ownership of Management As of March 3, 1997, no officers or directors of AHS have beneficial ownership of any equity securities of the Partnership or AHS. Item 13. Certain Relationships and Related Transactions - -------- ---------------------------------------------- (a) Transaction with Management and Others - See (b) (b) Certain Business Relationships The Partnership is provided services by, and engages in certain other transactions with AHS, its general partner, and other affiliates. See Item 11, Payments and Compensation to the General Partner and Affiliates and Item 8, Financial Statements and Supplementary Data. PART IV Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K - -------- ----------------------------------------------------------------
Page Number ------ (a) (1) Financial Statements - Included in Part II of this Report: Independent Auditors' Report II-10 Consolidated Balance Sheets, December 31, 1996 and 1995 II-11 Consolidated Statements of Operations II-13 Years Ended December 31, 1996, 1995, and 1994 Consolidated Statements of Partners' Capital II-14 Years Ended December 31, 1996, 1995, and 1994 Consolidated Statements of Cash Flows II-15 Years Ended December 31, 1996, 1995, and 1994 Notes to Consolidated Financial Statements, December 31, 1996 and 1995 II-17
(a) (2) Financial Statement Schedules The financial statement schedules are omitted as they are either not required or are not applicable or the required information is included in the financial statements or notes thereto. (a) (3) Exhibits 3.1 Agreement of Limited Partnership of the Partnership, as amended and restated, incorporated herein by reference to the Partnership's Registration Statement No. 33-13418, Exhibit 3.1, declared effective by the Securities and Exchange Commission on July 23, 1987. 3.3 Certificate of Limited Partnership for the Partnership, as amended, incorporated herein by reference to the Partnership's Registration Statement No. 33-13418, Exhibit 3.3, declared effective by the Securities and Exchange Commission on July 23, 1987. 3.4 Agreement of Limited Partnership for the Operating Partnerships, incorporated herein by reference to the Partnership's Registration Statement No. 33-13418, Exhibit 3.4, declared effective by the Securities and Exchange Commission on July 23, 1987. 3.5 Certificate of Limited Partnership for the Operating Partnerships, incorporated herein by reference to the Partnership's Registration Statement No. 33-13418, Exhibit 3.5, declared effective by the Securities and Exchange Commission on July 23, 1987. 4.1 Form of Deposit Agreement, incorporated herein by reference to the Partnership's Registration Statement No. 33-13418, Exhibit 4.1, declared effective by the Securities and Exchange Commission on July 23, 1987. 4.2 Form of Depository Receipt, incorporated herein by reference to the Partnership's Registration Statement No. 33-13418, Exhibit 4.2, declared effective by the Securities and Exchange Commission on July 23, 1987. 4.3 The form of Transfer Application, incorporated herein by reference to the Partnership's Registration Statement No. 33-13418, Exhibit 4.3, declared effective by the Securities and Exchange Commission on July 23, 1987. 10.1 Hotel Contribution Agreement for Sheraton Buffalo, dated December 30, 1986, between the Partnership, Buffalo Inn Associates, a Colorado general partnership, Newpart, and ABI, Ltd., a Colorado limited partnership ("ABI"), as amended, incorporated herein by reference to the Partnership's Registration Statement No. 33-13418, Exhibit 10.1, declared effective by the Securities and Exchange Commission on July 23, 1987. 10.2 Assignment, Assumption and Indemnification Agreement for Sheraton Buffalo, dated December 31, 1986, between Buffalo Inn Associates, Newpart, ABI and the Partnership, incorporated herein by reference to the Partnership's Registration Statement No. 33-13418, Exhibit 10.2, declared effective by the Securities and Exchange Commission on July 23, 1987. 10.3 Assignment and Assumption Agreement between Sheraton Buffalo, dated February 20, 1987, between the Partnership and Buffalo Operating Partnership, L.P., a Delaware limited partnership, incorporated herein by reference to the Partnership's Registration Statement No. 33-13418, Exhibit 10.3, declared effective by the Securities and Exchange Commission on July 23, 1987. 10.4 Hotel Contribution Agreement for Sheraton University Center ("Sheraton University"), dated December 30, 1986, between the Partnership, Durham Joint Venture, a Florida joint venture ("Durham JV"), and Newpart, as amended, incorporated herein by reference to the Partnership's Registration Statement No. 33-13418, Exhibit 10.4, declared effective by the Securities and Exchange Commission on July 23, 1987. 10.5 Assignment, Assumption and Indemnification Agreement for Sheraton University, dated December 31, 1986, between Durham JV and the Partnership, incorporated herein by reference to the Partnership's Registration Statement No. 33-13418, Exhibit 10.5, declared effective by the Securities and Exchange Commission on July 23, 1987. 10.6 Assignment and Assumption Agreement for Sheraton University, dated February 20, 1987, between the Partnership and Durham Operating Partnership, L.P., a Delaware limited partnership, incorporated herein by reference to the Partnership's Registration Statement No. 33-13418, Exhibit 10.6, declared effective by the Securities and Exchange Commission on July 23, 1987. 10.7 Hotel Contribution Agreement for Fourwinds, Aurora Inn, Clarion McCormick, Sheraton Lakeside, dated December 30, 1986, between the Partnership and Newpart and Amendment thereto dated effective December 30, 1986, between the same parties relating to The Pine Lake Trout Club ("Pine Lake"), as amended, incorporated herein by reference to the Partnership's Registration Statement No. 33-13418, Exhibit 10.7, declared effective by the Securities and Exchange Commission on July 23, 1987. 10.8 Assignment, Assumption and Indemnification Agreement for Fourwinds, dated December 31, 1986, between Newpart and the Partnership, incorporated herein by reference to the Partnership's Registration Statement No. 33-13418, Exhibit 10.8, declared effective by the Securities and Exchange Commission on July 23, 1987. 10.9 Assignment and Assumption Agreement for Fourwinds, dated February 20, 1987, between the Partnership and Fourwinds Operating Partnership, L.P., a Delaware limited partnership, incorporated herein by reference to the Partnership's Registration Statement No. 33-13418, Exhibit 10.9, declared effective by the Securities and Exchange Commission on July 23, 1987. 10.10 Assignment, Assumption and Indemnification Agreement for Aurora Inn, dated December 31, 1986, between Newpart and the Partnership, incorporated herein by reference to the Partnership's Registration Statement No. 33-13418, Exhibit 10.10, declared effective by the Securities and Exchange Commission on July 23, 1987. 10.11 Assignment and Assumption Agreement for Aurora Inn, dated February 20, 1987, between the Partnership and Aurora Inn Operating Partnership, L.P., a Delaware limited partnership, incorporated herein by reference to the Partnership's Registration Statement No. 33-13418, Exhibit 10.11, declared effective by the Securities and Exchange Commission on July 23, 1987. 10.12 Assignment, Assumption and Indemnification Agreement for Clarion McCormick, dated December 31, 1986, between Newpart and the Partnership, incorporated herein by reference to the Partnership's Registration Statement No. 33-13418, Exhibit 10.12, declared effective by the Securities and Exchange Commission on July 23, 1987. 10.13 Assignment and Assumption Agreement for Clarion McCormick, dated February 20, 1987, between the Partnership and McCormick Ranch Operating Partnership, L.P., a Delaware limited partnership, incorporated herein by reference to the Partnership's Registration Statement No. 33-13418, Exhibit 10.13, declared effective by the Securities and Exchange Commission on July 23, 1987. 10.14 Assignment, Assumption and Indemnification Agreement for Sheraton Lakeside, dated December 31, 1986, between Newpart and the Partnership, incorporated herein by reference to the Partnership's Registration Statement No. 33-13418, Exhibit 10.14, declared effective by the Securities and Exchange commission on July 23, 1987. 10.15 Agreement for the Purchase and Sale of Partnership Interest for Sheraton Lakeside, dated as of January 1, 1987, between Lakeside Inns Limited, a British Virgin Islands corporation, and Newpart; as amended, incorporated herein by reference to the Partnership's Registration Statement No. 33-13418, Exhibit 10.15, declared effective by the Securities and Exchange Commission on July 23, 1987. 10.16 Partnership Interest Purchase Agreement and Consent and Waiver for Sheraton Lakeside, dated December 30, 1986, between Newpart and the Orlando S.L. Ltd., an Ohio limited partnership, incorporated herein by reference to the Partnership's Registration Statement No. 33-13418, Exhibit 10.16, declared effective by the Securities and Exchange Commission on July 23, 1987. 10.17 Confirmatory Assignment of Agreement for the Purchase and Sale of Partnership Interest for Sheraton Lakeside, dated as of February 20, 1987, between Newpart and the Partnership, incorporated herein by reference to the Partnership's Registration Statement No. 33-13418, Exhibit 10.17, declared effective by the Securities and Exchange Commission on July 23, 1987. 10.18 Assignment for Sheraton Lakeside, dated February 20, 1987, by Orlando Lakeside Associates Limited, a Florida limited partnership, to the Partnership, incorporated herein by reference to the Partnership's Registration Statement No. 33-13418, Exhibit 10.18, declared effective by the Securities and Exchange Commission on July 23, 1987. 10.19 Assignment and Assumption Agreement for Sheraton Lakeside, dated February 20, 1987, between the Partnership and Lakeside Operating Partnership, L.P., a Delaware limited partnership, incorporated herein by reference to the Partnership's Registration Statement No. 33-13418, Exhibit 10.19, declared effective by the Securities and Exchange Commission on July 23, 1987. 10.20 Assignment, Assumption and Indemnification Agreement for Pine Lake, executed on January 31, 1987, to be effective as of December 31, 1986, between Newpart and the Partnership, incorporated herein by reference to the Partnership's Registration Statement No. 33-13418, Exhibit 10.20, declared effective by the Securities and Exchange Commission on July 23, 1987. 10.21 Assignment and Assumption Agreement for Pine Lake, dated February 20, 1987, between the Partnership and Aurora Inn Operating Partnership, L.P., incorporated herein by reference to the Partnership's Registration Statement No. 33-13418, Exhibit 10.21, declared effective by the Securities and Exchange Commission on July 23, 1987. 10.22 Option to Purchase, dated as of February 20, 1987, between the Partnership and Newpart, incorporated herein by reference to the Partnership's Registration Statement No. 33-13418, Exhibit 10.22a, declared effective by the Securities and Exchange Commission on July 23, 1987. 10.22a Lease, dated as of February 20, 1987, between the Partnership and MHM, Inc., a Delaware corporation d/b/a Motor Hotel Management, Inc., incorporated herein by reference to the Partnership's Registration Statement No. 33-13418, Exhibit 10.22b, declared effective by the Securities and Exchange Commission on July 23, 1987. 10.22b Agency Agreement, dated as of February 20, 1987, between the Partnership and MHM, Inc., incorporated herein by reference to Exhibit 10.22b filed with the Registrant's annual report on Form 10-K filed with the Commission on March 31, 1989. 10.23 Form of Management Agreement between the Partnership and the General Partner, as assigned to the Operating Partnerships, incorporated herein by reference to the Partnership's Registration Statement No. 33-13418, Exhibit 10.26, declared effective by the Securities and Exchange Commission on July 23, 1987. 10.23a Assignment and Assumption of Management Agreement for Aurora Inn Operating Partnership, L.P. to Richfield Hotel Management, Inc. dated November 5, 1993, incorporated herein by reference to Exhibit 10.23a filed with the Registrant's Annual Report on Form 10-K filed with the commission on April 8, 1994. 10.23b Assignment and Assumption of Management Agreement for Buffalo Operating Partnership, L.P. to Richfield Hotel Management, Inc. dated November 5, 1993, incorporated herein by reference to Exhibit 10.23b filed with the Registrant's Annual Report on Form 10-K filed with the commission on April 8, 1994. 10.23c Assignment and Assumption of Management Agreement for Durham Operating Partnership, L.P. to Richfield Hotel Management, Inc. dated November 5, 1993, incorporated herein by reference to Exhibit 10.23c filed with the Registrant's Annual Report on Form 10-K filed with the commission on April 8, 1994. 10.23d Assignment and Assumption of Management Agreement for Fourwinds Operating Partnership, L.P. to Richfield Hotel Management, Inc. dated November 5, 1993, incorporated herein by reference to Exhibit 10.23d filed with the Registrant's Annual Report on Form 10-K filed with the commission on April 8, 1994. 10.23e Assignment and Assumption of Management Agreement for Lakeside Operating Partnership, L.P. to Richfield Hotel Management, Inc. dated November 5, 1993, incorporated herein by reference to Exhibit 10.23e filed with the Registrant's Annual Report on Form 10-K filed with the commission on April 8, 1994. 10.23f Assignment and Assumption of Management Agreement for McCormick Ranch Operating Partnership, L.P. to Richfield Hotel Management, Inc. dated November 5, 1993, incorporated herein by reference to Exhibit 10.23f filed with the Registrant's Annual Report on Form 10-K filed with the commission on April 8, 1994. 10.24 Clarion License Agreement between the Clarion Hotel Corporation, a Colorado corporation, and the Partnership, as assigned to the Clarion Operating Partnerships, incorporated herein by reference to the Partnership's Registration Statement No. 33-13418, Exhibit 10.27, declared effective by the Securities and Exchange Commission on July 23, 1987. 10.24a Assignment and Consent to Assignment dated as of February 28, 1987, between The Clarion Hotel Corporation, a Colorado corporation, the Partnership, and Clarion Hotels and Resorts, a Maryland joint venture, assigning the Clarion License Agreement previously filed as Exhibit 10.27, incorporated herein by reference to the Partnership's Registration Statement No. 33-13418, Exhibit 10.27a, declared effective by the Securities and Exchange Commission on July 23, 1987. 10.24b Amendment between Clarion Hotels and Resorts, a Maryland joint venture and Fourwinds Operating Partnership L.P., a Delaware limited partnership dated August 3, 1989 amending certain provisions of the License Agreement incorporated herein by reference to Exhibit 10.24b filed with the Registrant's Annual Report on Form 10-K filed with the Commission on March 31, 1990. 10.25 Sheraton Lakeside License Agreement dated May 14, 1992, incorporated herein by reference to Exhibit 10.25 filed with the Registrant's Annual Report on Form 10-K filed with the commission on April 8, 1994. 10.25a Sheraton Lakeside Amendment of License Agreement and License Fee Deferral Agreement dated November 5, 1993, incorporated herein by reference to Exhibit 10.25a filed with the Registrant's Annual Report on Form 10-K filed with the commission on April 8, 1994. 10.25b Sheraton Buffalo License Agreement dated November 2, 1991, incorporated herein by reference to Exhibit 10.25b filed with the Registrant's Annual Report on Form 10-K filed with the commission on April 8, 1994. 10.25c Sheraton Buffalo Amendment of License Agreement and License Fee Deferral Agreement dated November 5, 1993, incorporated herein by reference to Exhibit 10.25c filed with the Registrant's Annual Report on Form 10-K filed with the commission on April 8, 1994. 10.25d Regal McCormick Sublicense Agreement dated February 15, 1996 incorporated herein by reference to Exhibit 10.25 filed with the Registrant's Annual Report on Form 10-K filed with the commission on March 29, 1996. 10.25e Regal McCormick First Amendment to Regal Sublicense Agreement dated February 26, 1997. (1) 10.25f Regal University Sublicense Agreement dated December 18, 1996. (1) 10.26 Credit Agreement dated June 8, 1995, between the Partnership and the Operating Partnerships as makers, to The HongKong and Shanghai Banking Corporation Limited as payee, incorporated herein by reference to Exhibit 10.40, filed with the Registrant's Quarterly Report on Form 10- Q filed with the Commission on August 14, 1995. 10.26a Promissory Note dated June 8, 1995, by the Partnership and the Operating Partnerships as makers, to The HongKong Shanghai Banking Corporation Limited as payee in the principal amount of $18,085,000, incorporated herein by reference to Exhibit 10.40a, filed with the Registrant's Quarterly Report on Form 10-Q filed with the Commission on August 14, 1995. 10.26b Promissory Note dated June 8, 1995, by the Partnership and the Operating Partnerships as makers, to The HongKong Shanghai Banking Corporation Limited as payee in the principal amount of $1,000,000, incorporated herein by reference to Exhibit 10.40b, filed with the Registrant's Quarterly Report on Form 10-Q filed with the Commission on August 14, 1995. 10.26c Renewal Note dated June 8, 1995, by the Partnership and the Operating Partnerships as makers, to The HongKong Shanghai Banking Corporation Limited as payee in the principal amount of $17,690,000, incorporated herein by reference to Exhibit 10.40c, filed with the Registrant's Quarterly Report on Form 10-Q filed with the Commission on August 14, 1995. 10.26d Promissory Note dated June 8, 1995, by the Buffalo Operating Partnership, L.P. as maker, to The Hong Kong and Shanghai Banking Corporation Limited as payee in the principal amount of $9,225,000, incorporated herein by reference to Exhibit 10.40d, filed with the Registrant's Quarterly Report on Form 10-Q filed with the Commission on August 14, 1995. 10.27 Forwinds Ground Lease, incorporated herein by reference to the Partnership's Registration Statement No. 33-13418, Exhibit 10.36a, declared effective by the Securities and Exchange Commission on July 23, 1987. 10.27a Clarion McCormick Ground Lease, incorporated herein by reference to the Partnership's Registration Statement No. 33-13418, Exhibit 10.36b, declared effective by the Securities and Exchange Commission on July 23, 1987. 10.27b Sheraton Buffalo Ground Lease, incorporated herein by reference to the Partnership's Registration Statement No. 33-13418, Exhibit 10.36d, declared effective by the Securities and Exchange Commission on July 23, 1987. 10.27c Amendment No. 4 to Sheraton Buffalo Ground Lease dated June 28, 1988 incorporated herein by reference to Exhibit 10.34d filed with the Registrant's Annual Report on Form 10-K filed with the Commission on March 31, 1989. 10.27d Fourwinds Amended and Restated Indenture of Ground Lease dated May 20, 1991, incorporated herein by reference to Exhibit 10.25c filed with the Registrant's Annual Report on Form 10-K filed with the Commission on April 14, 1992. 10.29 Other material contracts, incorporated herein by reference to the Partnership's Registration Statement No. 33-13418, Exhibit 10.37, declared effective by the Securities and Exchange Commission on July 23, 1987. 10.30 Management Contract for Clarion McCormick, dated as of October 23, 1982, between ARI, Inc., an Ohio corporation and the Board of Directors of the Council of Co-owners of the Shores, as amended, incorporated herein by reference to the Partnership's Registration Statement No. 33- 13418, Exhibit 10.37h, declared effective by the Securities and Exchange Commission on July 23, 1987. 10.31 Letter Agreement for Aurora Inn, dated December 23, 1986, between Aurora Inn Co., an Ohio limited partnership and Aurora Inn Operating Partnership, L.P., incorporated herein by reference to the Partnership's Registration Statement No. 33-13418, Exhibit 10.37l, declared effective by the Securities and Exchange Commission on July 23, 1987. 10.31a Sublease and License Agreement for Sheraton Buffalo, dated as of December 31, 1986 between the Partnership, Buffalo Inn Associates, a Colorado general partnership ("BIA"), and AEI, incorporated herein by reference to the Partnership's Registration Statement No. 33-13418, Exhibit 10.37m, declared effective by the Securities and Exchange Commission on January 23, 1987. 10.31b Sublease and License Agreement for Sheraton Buffalo, dated February 20, 1987, between Buffalo Operating Partnership, L.P., BIA and AEI, incorporated herein by reference to the Partnership's Registration Statement No. 33-13418, Exhibit 10.37n, declared effective by the Securities and Exchange Commission on July 23, 1987. 10.32 Subscription Agreement dated November 19, 1990 incorporated herein by reference to Exhibit 10.41 filed with the Registrant's Annual Report on Form 10-K filed with the Commission on April 26, 1991. 10.33 Subscription Agreement dated December 11, 1992 incorporated herein by reference to Exhibit 10.38 filed with the Registrant's Annual Report on Form 10-K filed with the Commission on April 15, 1993. 10.34 Promissory Note dated as of June 8, 1995 by AHP as maker, to AHS as payee in the principal amount of $6,000,000 incorporated herein by reference to Exhibit 10.34 filed with the Registrant's Annual Report on Form 10-K filed with the Commission on March 29, 1996. 10.35 Promissory Note dated as of June 8, 1995 by AHP as maker, to AHS as payee in the principal amount of $2,100,000. See 10.34 above for additional language for 10.34 between the Partnership, AHS, and William R. Arthur and Frank A. Hughes incorporated herein by reference Exhibit 10.36 filed with the Registrant's Quarterly Report on Form 10-Q filed with the Commission on November 12, 1996. 10.37 Indemnification Agreement dated January 14, 1997 between the Partnership, AHS, and James Hire and Anthony Dimond. (1) 22. The Partnership holds a 99% limited partner interest in each of the following Delaware limited partnerships: Aurora Inn Operating Partnership, L.P.; Buffalo Operating Limited Partnership, L.P.; Durham Operating Partnership, L.P.; Fourwinds Operating Partnership, L.P.; Lakeside Operating Partnership, L.P.; and McCormick Ranch Operating Partnership, L.P. 27. Financial Data Schedule (1) 28.1 Certificate of Incorporation of AIRCOA Hospitality Services, Inc. (formerly Associated Inns & Restaurants Company of America), as amended, incorporated herein by reference to the Partnership's Registration Statement No. 33-13418, Exhibit 28.1, declared effective by the Securities and Exchange Commission on July 23, 1987. 28.2 By-laws of AIRCOA Hospitality Services, Inc. (formerly Associated Inns & Restaurants Company of America), as amended, incorporated herein by reference to the Partnership's Registration Statement No. 33-13418, Exhibit 28.2, declared effective by the Securities and Exchange Commission on July 23, 1987. 28.3 Appraisal of Fourwinds, incorporated herein by reference to the Partnership's Registration Statement No. 33-13418, Exhibit 28.3, declared effective by the Securities and Exchange Commission on July 23, 1987. 28.4 Appraisal of Sheraton University, incorporated herein by reference to the Partnership's Registration Statement No. 33-13418, Exhibit 28.4, declared effective by the Securities and Exchange Commission on July 23, 1987. 28.6 Appraisal of Sheraton Lakeside, incorporated herein by reference to the Partnership's Registration Statement No. 33-13418, Exhibit 28.6, declared effective by the Securities and Exchange Commission on July 23, 1987. 28.7 Appraisal for Sheraton Buffalo, incorporated herein by reference to the Partnership's Registration Statement No. 33-13418, Exhibit 28.7, declared effective by the Securities and Exchange Commission on July 23, 1987. (b) Form 8-K filed with the Securities and Exchange Commission on January 15, 1997 announcing changes to the Advisory Committee. (1) Filed herewith SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf of the undersigned, thereunto duly authorized. By: AIRCOA HOTEL PARTNERS, L.P. a Delaware limited partnership By: AIRCOA HOSPITALITY SERVICES, INC. its General Partner By: /S/ Douglas M. Pasquale ----------------------- Douglas M. Pasquale, Chief Executive Officer, President and Director Dated: March 28, 1997 Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the date indicated. Signature Title Date --------- ----- ------ /S/ Douglas M. Pasquale - ------------------------- Douglas M. Pasquale Chief Executive Officer, 3/28/97 President and Director (Principal Executive and Financial Officer) of AIRCOA Hospitality Services, Inc. /S/ David C. Ridgley - ------------------------- David C. Ridgley Principal Accounting Officer 3/28/97 of AIRCOA Hospitality Services, Inc. /S/ Daniel Bong Shu Yin - ------------------------- Daniel Bong Shu Yin Director 3/28/97 of AIRCOA Hospitality Services, Inc. /S/ Lawrence Lau Siu Keung - -------------------------- Lawrence Lau Siu Keung Director 3/28/97 of AIRCOA Hospitality Services, Inc. /S/ Michael Sheh - ---------------- Michael Sheh Director 3/28/97 of AIRCOA Hospitality Services, Inc. /S/ Carol K. Werner - ------------------- Carol K. Werner Director 3/28/97 of AIRCOA Hospitality Services, Inc. /S/ Anthony Williams - -------------------- Anthony Williams Director 3/28/97 of AIRCOA Hospitality Services, Inc. EX-10.25E 2 FIRST AMENDMENT TO REGAL SUBLICENSE AGREEMENT Exhibit 10.25e FIRST AMENDMENT TO REGAL SUBLICENSE AGREEMENT This Amendment is made and entered into as of the 26th day of February, 1997, to be effective as of January 1, 1997, by and between Richfield Holdings, Inc., a Colorado corporation ("Licensor") and McCormick Ranch Operating Partnership, L.P., a Delaware limited partnership ("Licensee"). RECITALS A. Licensor entered into a Sublicense Agreement with Licensee dated effective as of January 1, 1996 (the "Agreement"), pursuant to which Licensor agreed to license the use of the Regal trademarks to that certain hotel property owned by Licensee and now known as the REGAL MCCORMICK RANCH located at 7401 North Scottsdale Road, Scottsdale, Arizona 85253 (the "Hotel"); B. Licensor and Licensee have agreed to modify the Agreement as set forth herein. THEREFORE, in consideration of the mutual covenants contained herein and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties agree as follows. 1. The second sentence of Paragraph 3 is hereby deleted in its entirety and replaced with the following: In the calendar year 1997 and thereafter, the License Fee shall be 2.5% of Total Sales Revenues from the Hotel. 2. This First Amendment shall be read and interpreted to be consistent with the Agreement to the fullest extent possible. Therefore, except as specifically amended hereby, all terms and conditions of the Agreement shall remain in full force and effect and the Agreement as amended by this First Amendment shall be read as a single integrated document incorporating the amendments effected hereby. 3. This First Amendment shall be governed and interpreted under Colorado Law. RICHFIELD HOLDINGS, INC., a Colorado corporation By: /s/ Michael Sheh --------------------------- Name: Michael Sheh Title: Sr. Vice President By: /s/ Lyle L. Boll --------------------------- Name: Lyle L. Boll Title: Vice President MCCORMICK RANCH OPERATING PARTNERSHIP, L.P., a Delaware limited partnership By: AIRCOA HOSPITALITY SERVICES, INC., a Delaware corporation, managing general partner By: /s/ Michael Sheh --------------------------- Name: Michael Sheh Title: Sr. Vice President By: /s/ Lyle L. Boll --------------------------- Name: Lyle L. Boll Title: Vice President 2 EX-10.25F 3 REGAL SUBLICENSE AGREEMENT Exhibit 10.25f REGAL SUBLICENSE AGREEMENT This Sublicense Agreement is made and entered into the 18th day of December, 1996, to be effective as of August 1, 1996 (the "Effective Date") by and between Richfield Holdings, Inc., a Colorado corporation ("Licensor") and Durham Operating Partnership, L.P., a Delaware limited partnership ("Licensee"). RECITALS A. Licensor has the exclusive license to use the Regal trademarks, service marks, tradenames, logos, and other property in North America (the "Trademarks") and the full right to further sublicense the Trademarks to certain of its affiliates and subsidiaries for the purpose of using the Trademarks in the business of owning and operating full service hotels and restaurant services. B. Licensor is willing to license the Trademarks to Licensee for use and in connection with the REGAL UNIVERSITY HOTEL located at 2800 Middleton Avenue, Durham, North Carolina (the "Hotel"); THEREFORE, in consideration of the mutual covenants contained herein and other good and valuable consideration, the receipt and legal sufficiency of which are hereby acknowledged, Licensor and Licensee hereby agree as follows: AGREEMENT 1. Grant of License. Licensor hereby grants to Licensee, during the term ---------------- of this Agreement and subject to the terms and conditions set forth below, the non-exclusive right and license to use the Trademarks in connection with the business of the Hotel (the "License"). No license is granted under this Agreement for the use of the Trademarks for any purpose other than in connection with the business of the Hotel. 2. Term. The term of this Agreement shall begin on the Effective Date and ---- (unless earlier terminated pursuant to Sections 16 and 17 hereof) shall expire on December 31, 2015 (the "Term"). The Term shall be automatically extended for successive one-year periods unless either party notifies the other no later than 90 days prior to the next scheduled expiration date that it does not elect to renew. Notwithstanding the foregoing, either party shall have the right to terminate this Agreement at any time without cause on 90 days' written notice to the other party. 3. License Fees. In consideration of the License, Licensee agrees to pay ------------ to Licensor, on a monthly basis, a License Fee equal to 2% of Total Sales Revenues from the Hotel (the "License Fee") for the period August 1, 1996 through December 31, 1996 and 2.5% of Total Sales Revenue for the period from January 1, 1997 through December 31, 1997. In the calendar year 1998 and thereafter, the License Fee shall be 3% of Total Sales Revenues from the Hotel. "Total Sales Revenues" means all revenues derived from the rental, sale, use, or occupancy of the guest rooms or meeting rooms in the Hotel and all adjacent facilities and all revenues derived from: vending machines, food and beverage services, including room service; local and long distance telephone calls; and all other services of every kind and nature available to Hotel guests. Total Sales Revenues include cash and credit transactions whether or not actually collected by Licensee but excludes sales taxes or other similar taxes that Licensee is required by law to collect from guests or in conjunction with the rental of guest rooms or meeting rooms; food and beverage services; or other Hotel services. 4. Marketing. Licensor agrees to apply a portion of the License Fee --------- actually received by Licensor from Licensee on an annualized basis for the purposes of national and international advertising, promotion, publicity, marketing research, and other marketing programs and related activities designed by Licensor, in its sole discretion, to promote the Regal hotel name and the Hotel or other hotels and resorts so licensed by Licensor. 5. Representations of Licensor. Licensor represents and warrants that: --------------------------- the Trademarks have been registered or applications for registrations have been lodged with the U.S. Patent and Trademark office; it has all necessary rights, power, and authority to enter into this Agreement; it has not entered into any agreement or commitment with any third party that would materially impair, interfere with, or infringe upon the rights granted under this Agreement; and, to the best of its knowledge, no infringement or similar claims or actions related to the Trademarks and the rights granted in this Agreement have been filed or threatened. 6. Limitations on Licensee's Rights. Licensee recognizes the considerable -------------------------------- value of the goodwill associated with the Trademarks and acknowledges that all rights therein and goodwill attached thereto in North America belong exclusively to the Licensor and that such Trademarks have secondary meanings in the minds of the public. Licensee acknowledges the validity of the Trademarks and agrees not to contest such validity or to perform any act adverse to Licensor's rights therein. Licensee agrees that nothing in this Agreement shall be deemed in any way to constitute an assignment by Licensor of the Trademarks or any rights therein or to give Licensee any right, title, or interest therein other than the right to use the Trademarks as expressly provided in this Agreement. Licensee agrees that any goodwill arising out of its use of the Trademarks shall inure solely to the benefit of Licensor. 7. Cooperation. Licensee agrees that, both during and after the Term or ----------- any extension hereof, it will cooperate fully and in good faith with the Licensor and execute such documents as Licensor may reasonably request for the purposes of securing and preserving the rights of Licensor in and to the Trademarks. 8. Infringement. Licensee shall promptly notify Licensor in writing of ------------ any infringement, imitation, passing-off, or other use of the Trademarks by any third party that comes to Licensee's attention. If Licensor determines that action should be taken against any such third party, Licensor may take such action in its own name and at its own expense or, where required by law, in Licensee's name, in which event Licensor shall bear the cost of such action and shall be entitled to control the prosecution thereof. Licensee agrees to cooperate fully with Licensor to whatever extent is necessary to prosecute any such action. 2 9. Books and Records. Licensee agrees to keep accurate books of account ----------------- and records covering all transactions relating to the License, and Licensor or its duly authorized representatives shall have the right during normal business hours to examine all of Licensee's books of account and records and all other documents and materials in the possession or under the control of Licensee with respect to the subject matter and terms of this Agreement, and shall have free and full access thereto for such purpose and for the purpose of making photocopies therefrom. All books of account and records shall be kept available by Licensee for at least one year after the calendar quarter or part thereof to which they relate. 10. Licensor's Right to Monitor Trademark Use. ----------------------------------------- (a) The Licensor or its duly authorized representatives shall have the right during regular business hours and upon reasonable notice to enter and inspect the Hotel where the Trademarks are being used and all documents, depiction's, and materials in which the Trademark is used. (b) From time to time, Licensee shall furnish to Licensor, free of any cost or charge, for the Licensor's approval, samples of any documents, depiction, or materials using the Trademarks (including all advertising, promotional and display material on which the Trademarks are to be used). Any items submitted by pre-paid air express to the Licensor that are not approved and rejected within 45 days after receipt by the Licensor shall be deemed to have been approved. (c) Without the prior approval of Licensor, Licensee shall not sell or distribute any product, document, depiction, or material containing the Trademarks that deviate from the standard then in effect or from the uses approved by Licensor as provided above. 11. Trademark Notice. Licensee agrees that it will cause to be affixed, ---------------- in connection with any use of the Trademarks, the letter "R" encircled, the letters "TM," or such other trademark notice or other notice as may be required by Licensor from time to time. 12. Indemnification. --------------- (a) Licensee shall indemnify, defend, and hold harmless the Licensor from and against: (i) all losses, liabilities, actions, claims, costs, damages, and expenses including without limitation attorneys' fees and court costs that arise out of or are in any way based upon the use or exploitation of any of the Trademarks including, without limitation, all losses, liabilities, actions, claims, costs, damages and expenses relating to any claim for product liability or otherwise arising in any way related to this Agreement and (ii) any claims of any nature related to the operation, maintenance, management, or physical attributes of the Hotel, including without limitation its compliance with the Americans with Disabilities Act, as amended (the "ADA") or any state or local law that is similar to the ADA or is otherwise related to the rights of disadvantaged or disabled persons to public accommodations. (b) Licensor shall indemnify, defend, and hold harmless Licensee from against all actions, claims, costs, demands and expenses that arise from any claim that the use of the 3 Trademarks by Licensee accordance with this Agreement constitutes an infringement of the rights of any third party with respect to the Trademarks. (c) Any legal proceedings that are instituted by any third party against Licensor or Licensee related to this Agreement shall be defended at Licensee's expense except for claims that specifically refer to a claim of infringement of the rights of any third party with respect to the Trademarks, which shall be defended at Licensor's expense. The party obligated to pay the expenses of defense under this subsection (c) shall have the right to select counsel to provide such defense, subject to the approval of the other party of the counsel selected, which approval shall not be unreasonably withheld. No claim for which one party has any indemnity obligation under this Section 12 shall be settled or compromised, or the defense thereof terminated, without the prior approval of the indemnifying party. The party entitled to indemnification under this Section 12 shall have the right to affirmative injunctive relief to compel the provision of the defense required in this subsection (c) and the right to pursue such defense at the indemnifying party's expense until such defense is fully undertaken by the indemnifying party. 13. No Partnership or Agency. This Agreement does not constitute a ------------------------ partnership agreement and nothing herein is intended to constitute, nor shall anything herein be construed to constitute, Licensor and Licensee as partners of each other. Nothing herein shall operate to constitute either party as agent of the other party, and neither party has any authority to act on behalf of the other party. Neither party shall incur, accept any liability, or enter into any commitments or contracts on behalf of the other party. No obligation of either party under this Agreement shall be enforceable by any person other than a party hereto and no third party is intended to be or shall be deemed to be a third- party beneficiary of this Agreement. 14. Assignment. ---------- (a) Assignment by Licensor. Licensor shall have the right to assign ---------------------- all or any part of its rights or obligations under this Agreement to any person or legal entity. No such assignment shall, however, relieve Licensor of its obligations under this Agreement. (b) Assignment by Licensee. Licensee acknowledges that the rights ---------------------- and duties set forth in this Agreement are personal to Licensee and that Licensor has granted this license to Licensee in reliance on Licensee's business skills and financial capacity and the personal character of it officers. Accordingly, Licensee shall not sell, assign, transfer, or otherwise encumber or convey any direct or indirect interest in the Trademarks or in this Agreement or any rights or obligations created in this Agreement without the prior written consent of Licensor, which may be withheld by Licensor in its sole discretion. 15. Licensee's Covenants and Duties. Licensee covenants and agrees: ------------------------------- (a) to operate the Hotel in strict conformity with this Agreement and to feature the Trademarks in all advertising together with the distinguishing characteristics of the Regal license prescribed by the Licensor or under such other name and trademark as may be adopted 4 by Licensor for use in connection with the Regal license such that the Hotel will be recognizable by the general public as an integral part of the Regal system. (b) to maintain the Hotel interior and exterior, including parking and automotive areas and any food and beverage facilities located on the premises of the Hotel in a clean, sound and attractive condition and good repair at all times. Licensee shall undertake all repairs, cleaning, redecoration, periodic repainting, and replacement of obsolete or out-moded signs, equipment, furnishings, fixtures, and furniture and such other corrective action as may be directed by Regal or is otherwise necessary to comply with the standards to be set forth by Regal from time to time. (c) to use its best efforts to insure that: (i) all items on which the Trademarks are used are of high standard, style, appearance, and quality; (ii) such items are manufactured, packaged, sold, distributed, and advertised in accordance with this Agreement and all applicable laws and regulations; (iii) the policy of sales, distribution, or other exploitation of the Trademarks by Licensee shall be of high standard and to the best advantage of the Trademarks; (iv) all such policies shall in no manner reflect adversely upon the good name of Licensor or the Trademarks. (d) to use in connection with the Hotel only business stationery, business cards, marketing materials, advertising materials, printed materials, and forms that are approved by Licensor. (e) to refrain from using or permitting the use of the Trademarks for any purpose or activity not contemplated herein at any time without first obtaining the prior written consent of Licensor. (f) to obtain and display in a prominent location at the Hotel approved by Licensor one or more illuminated signs using the Trademarks as may be directed and approved by Licensor from time to time and to maintain such exterior signs in good working condition and appearance at all times. (g) to obtain and install at the Hotel reservations equipment that meets all specifications prescribed from time to time by Licensor and to maintain such equipment in good working condition at all times. (h) to permit Licensor and its agents to enter the Hotel at any reasonable time with or without prior notice and to inspect, photograph or videotape the Hotel and operations therein and to otherwise evaluate the Licensee's compliance with this Agreement. Licensee agrees to cooperate with Licensor's representatives in such inspections by rendering such assistance as they may reasonably request during any inspection visit. Licensee agrees to provide one room night four times per year at the Hotel free of charge to Licensor's representatives. If a re-inspection is required due to the Licensee's failure to comply with the standards set forth herein, Licensor may assess the Licensee a reasonable fee for such re-inspection. 5 (i) to submit the Hotel's rate information and accurate descriptive information for inclusion in such directories as Licensor may from time to time publish on or before the deadlines for the receipt of such information that are established by Licensor. If such information is not submitted, Licensor is authorized to publish the latest available rates and descriptive information submitted by Licensee and Licensee shall be deemed to have waived any claims related to the accuracy of the information so published. (j) to honor the terms of any discount or promotional program that Licensor elects to offer to the public and to honor the rate quoted to any guest at the time of making an advance reservation whether made through an advance reservation system or otherwise. (k) to pay reasonable travel agent commissions in the form and manner specified by Licensor. (l) to use its best efforts to maximize the business conducted at the Hotel and to promote the increase of business at all hotels affiliated with the Regal license. If Licensee is unable to accommodate a potential guest, the Licensee agrees to refer the guest to other hotels, if any, affiliated with the Regal name or license near the Hotel. (m) to participate in any advance reservation systems designated by a Licensor to make reservations and to accept reservations in accordance with Licensor's procedures promulgated from time to time. (n) to conduct all advertising and promotion of the Hotel in a dignified manner that conforms to the standards and requirements specified from time to time by Licensor. (o) to comply with all operational standards and specifications adopted from time to time by Licensor. 16. Insurance. --------- (a) The Licensee shall procure and maintain in full force and effect during the entire term of this Agreement, at the Licensee's sole cost and expense, all-risk physical damage coverage, insuring the Hotel for an amount not less than 80% of the replacement cost thereof as well as full coverage for 12 months of business interruption losses. Subject to the provisions of any mortgage or deed of trust that encumbers the Hotel, if the Hotel or any portion thereof is damaged or destroyed by any casualty, the proceeds of any such insurance shall be used to repair or restore the Hotel in accordance with plans and specifications prepared by the Licensee and approved in writing by Licensor. Such insurance shall contain a waiver of subrogation. (b) Licensee agrees to procure and maintain in full force and affect during the entire term of this Agreement, at Licensee's sole cost and expense, Commercial General Liability Insurance Policies written on an occurrence form protecting the Licensee, with the Licensor as an additional insured party, from and against all types of losses and liabilities, including without limitation, personal injury and property damage of any nature, together with the costs and 6 expenses of the defense and settlement of adjustment thereof, without exception, arising out of or in any way related to any operation or activity at the Hotel or related in any way to this Agreement, inclusive of adjacent areas. Such policies shall respond to lawsuits or actions brought anywhere in the world. Such policies shall provide limits of not less than $10,000,000.00 per occurrence and shall be accompanied by a waiver of subrogation. These total minimum limits can be provided through a combination of primary and umbrella policies. Comprehensive General Liability coverages shall include, without limitation, Broad Form Contractual, Products and Completed Operations, Automobile, Independent Contractors, Personal Injury, Broad Form Property Damage, Extended Bodily Injury, Owner's and Contractor's Protective, and Host Liquor Liability. In addition, if alcoholic beverages are sold at the Hotel, Dram Shop/Liquor Liability Insurance shall also be provided. The Automobile Liability Policy shall cover owned, hired, and non-owned vehicles. Furthermore, the Hotel shall also provide statutory Workers' Compensation insurance coverage and Employers Liability insurance in an amount satisfactory to Licensor. Licensor may, from time to time, during the term of this Agreement, at its sole option, require that the minimum limits of insurance coverage, as aforesaid, be reasonably adjusted in any area in amounts determined solely by Licensor and Licensee hereby agrees to comply with such requirements, at Licensee's sole cost and expense, and to deliver evidence of such compliance to Licensor within 30 days of receipt of Licensor's written request. The foregoing insurance shall be placed with an insurance company or companies satisfactory to Licensor. (c) Within 10 days after Licensor's execution of this Agreement, Licensee agrees to furnish to Licensor certificates of such insurance indicating thereon the name and address of the Hotel and that Licensor is an additional insured party, together with evidence showing that all premiums therefor have been paid. Additionally, evidence of renewal will be furnished to Licensor prior to the expiration date of each such insurance policy. Such policy or policies shall be endorsed to require that Licensor shall receive 30-days' prior written notice of cancellation, reduction in coverage, or other modification of the policy or policies. (d) If Licensee fails to comply with the provisions of this paragraph, Licensor may, at its option, (a) without notice, in addition to such other rights and remedies that it may have, procure and maintain such insurance, and charge all costs and premiums related thereto to Licensee or (b) immediately terminate this Agreement. (e) The procuring and maintenance of such insurance and the performance by Licensee of its obligations under this Agreement shall not relieve Licensee of any liability imposed by or under Section 12 of this Agreement, which shall survive any termination hereof. 7 17. Termination by Licensor. ----------------------- (a) If Licensee makes any assignment of its assets or business for the benefit of creditors, or if a trustee or receiver is appointed to administer or conduct its business, or if it is adjudged in any legal proceeding to be a voluntary or involuntary bankrupt, then Licensor shall have the option to terminate this Agreement on five days' written notice. (b) If Licensee violates its obligation to pay the License Fee, Licensor shall have the right to terminate this Agreement upon 15 days' written notice, and such notice of termination shall become effective (except with respect to Licensee's obligation to pay the License Fee) unless Licensee completely cures the violation within such 15 day period to Licensor's satisfaction. (c) If Licensee defaults under any of its obligations under the terms of this Agreement other than its obligation to pay the License Fee, Licensor shall have the right to terminate this Agreement on ten days' written notice, and such notice of termination shall become effective unless Licensee completely cures the default within such ten-day period to Licensor's satisfaction; provided, however, that, if the default giving rise to Licensor's notice of termination is of such character that it cannot be completely cured within such ten-day period, then Licensee shall have a further reasonable period not to exceed 30 additional days in which to cure the default completely. The foregoing extension shall be available only if Licensee commences action within the first ten-day period to cure such default and diligently pursues such cure efforts thereafter. (d) Upon any default by Licensee under this Agreement, the license to use the Trademarks granted under this Agreement shall be immediately revoked, subject to reinstatement only as the result of a cure permitted under this Section 17. 18. Termination by the Licensee. --------------------------- If Licensor defaults in the performance of any of its obligations under this Agreement, Licensee shall have the right to terminate this Agreement on 30 days' written notice to Licensor unless Licensor cures the default within such 30-day period; provided, however, that, if the default giving rise to Licensor's notice of termination is of such character that it cannot be completely cured within such 30-day period, then Licensor shall have a further reasonable period in which to cure the default. The foregoing extension shall be available only if Licensor commences action within the first 30-day period to cure the default and diligently pursues such cure efforts thereafter. 19. Effect of Termination or Expiration. ----------------------------------- (a) Licensee acknowledges and agrees that the damages that may be suffered by Licensor as a result of a termination of this Agreement under Section 17 are difficult if not impossible to ascertain, and therefore the parties hereto agree that should the Agreement be terminated, Licensee shall pay to Licensor as liquidated damages and not as a penalty a sum 8 equal to twelve times the average monthly License Fee under this Agreement for the 12 months that immediately preceded the effective date of termination; provided however that, if the effective date of termination occurs during the first year of the term, such liquidated damages shall be a sum equal to the product of the then-applicable License Fee percentage rate set forth in paragraph 3 of this Agreement times Total Sales Revenues for the 12-month period ----- that immediately preceded the effective date of termination. (b) After termination of this Agreement for any reason, Licensee shall not use or otherwise dispose of items it may have on hand on which the Trademarks appear without the express written consent of Licensor. (c) Upon and after the termination of this Agreement, Licensee shall: (i) discontinue all further use of the Trademarks; (ii) make no further reference to the Trademarks direct or indirect; (iii) discontinue the use of anything deemed by Licensor to be similar to the Trademarks in any respect whatsoever; and (iv) at Licensor's request and at Licensee's expense, deliver to Licensor all advertising, promotional pieces, and similar materials that bear any of the Trademarks that are then at the Hotel or otherwise in the possession of Licensee or any of its contractors or agents. Licensee acknowledges that the failure of Licensee to cease the use of the Trademarks at the termination or expiration of this Agreement will result in immediate and irremediable damage to Licensor and to the rights of any subsequent licensee. Licensee acknowledges and agrees that there is no adequate remedy at law for such failure and agrees that, in the event of such failure, Licensor shall be entitled (without prejudice to any other rights it may have, including any rights to monetary damages) to equitable relief, including without limitation affirmative injunctive relief, to secure the compliance of Licensee with the provisions of this Section 17(c). 20. No Waiver. Any failure of any party hereto to comply with any of the --------- obligations or agreements set forth in this Agreement or to fulfill any condition set forth herein may be waived only by a written instrument signed by the other party. No failure by any party to exercise, and no delay in exercising, any right under this Agreement shall operate as a waiver of such right, nor shall any single or partial exercise of any right provided in this Agreement by any party preclude any other or future exercise of that right or any other right. 21. Notices. All notices, requests, or other communications required or ------- permitted under this Agreement shall be given in writing by hand delivery or by registered or certified mail, return receipt requested, postage prepaid, to the party at its respective address set forth below, or at such other address as may from time to time be designated by such party to the other in accordance with this Section 21: If to the Licensor: Richfield Holdings, Inc. 5775 DTC Boulevard, Suite 300 Englewood, Colorado 80111 Attention: General Counsel 9 If to the Licensee: Durham Operating Partnership, L.P. 5775 DTC Boulevard, Suite 300 Englewood, Colorado 80111 Attention: Operations 22. This Agreement shall be governed by and interpreted under the laws of the State of Colorado. 23. If any legal proceedings are required to enforce any provision of this Agreement, the prevailing party shall be entitled to recover all of its costs and expenses related to such proceedings, including without limitation, reasonable attorneys' fees. 24. This Agreement can be modified only by a written instrument executed by Licensee and Licensor. 25. This Agreement constitutes the entire agreement of the parties hereto and supersedes all prior agreements, whether oral or written. RICHFIELD HOLDINGS, INC., a Colorado corporation By: /s/ Michael Sheh ------------------ Name: Michael Sheh Title: Sr. Vice President By: /s/ Joel W. Hiser ------------------- Name: Joel W. Hiser Title: Sr. Vice President DURHAM OPERATING PARTNERSHIP. L.P. a Delaware limited partnership By: AIRCOA HOSPITALITY SERVICES, INC. a Delaware corporation its managing general partner By: /s/ Michael Sheh ------------------ Name: Michael Sheh Title: Sr. Vice President By: /s/ Mark L. T. Butler ----------------------- Name: Mark L. T. Butler Title: Sr. Vice President 10 EX-10.37 4 INDEMNIFICATION AGREEMENT Exhibit 10.37 INDEMNIFICATION AGREEMENT This Indemnification Agreement (the "Agreement") is made as of this 14th day of January 1997, by and among AIRCOA Hotel Partners, L.P., a Delaware limited partnership (the "Partnership"), AIRCOA Hospitality Services, Inc., a Delaware corporation (the "General Partner") and James Hire and Anthony Dimond (each an "Indemnitee" and together, the "Indemnitees"). RECITALS WHEREAS, the agreement of limited partnership of the Partnership, as amended to date (the "Partnership Agreement") provides for an advisory committee ("Advisory Committee") to perform the duties set out in Section 1.8 of the Partnership Agreement; WHEREAS, Section 1.8 of the Partnership Agreement provides that a majority of the Members of the Advisory Committee should, to the extent practicable, consist of persons not affiliated with the General Partner; WHEREAS, the parties believe it is in the best interest of the Partnership, in order to assure that competent, professional, and independent persons continue to serve on the Advisory Committee that the General Partner and the Partnership limit the liability and provide indemnification from liability for the members of the Advisory Committee in connection with their service on the Advisory Committee including, without limitation, their service on any special committee thereof; WHEREAS, the Partnership intends the Indemnitees' benefits under this Agreement to include, without limitation, the supplementation of benefits under any existing liability insurance policy; WHEREAS, the Indemnitees are willing to serve on the Advisory Committee, provided that and for as long as the General Partner and the Partnership will indemnify them, their successors, assigns, heirs, personal representatives, and administrators in accordance with the provisions of this Agreement. NOW THEREFORE, the parties agree as follows: Section 1. LIMITATIONS ON LIABILITY OF MEMBERS OF AN ADVISORY COMMITTEE. (a) An Indemnitee shall not be liable to the Partnership or to the General Partner, or to any Affiliate of the Partnership (including, without limitation, the Operating Partnerships, as defined in the Partnership Agreement) or to any director, officer, employee, or agent of the Partnership, General Partner or their Affiliates, or to the Limited Partners or the holders of any class of Units in the Partnership (any "Covered Person") for losses and liabilities, obligations, damages, penalties, taxes, claims, actions, suits, amounts paid in settlement, or out-of-pocket expenses or costs of any kind and nature whatsoever incurred in connection with any act or omission or by reason of such service on the Advisory Committee, (collectively, "Committee Claims"), unless it shall be determined by final judicial decision on the merits from which there is no further right to appeal that such Committee Claims are due to the gross negligence or willful misconduct of the Indemnitee. (b) Notwithstanding Section 1(a) hereof, an Indemnitee shall not be indemnified for losses, liabilities or expenses arising from or out of an alleged violation of federal or state securities laws unless (1) there has been a successful adjudication on the merits of each count involving alleged securities law violations as to the Indemnitee, or (2) such claims have been dismissed with prejudice on the merits by a court of competent jurisdiction as the Indemnitee, or (3) a court of competent jurisdiction approves a settlement of the claim against the Indemnitee. (c) To the extent that, at law or in equity, an Indemnitee has duties (including fiduciary duties) and liabilities relating to service on the Advisory Committee, the Indemnitees acting under the Partnership Agreement shall not be liable to any Covered Person for the Indemnitee's good-faith reliance on the provisions of the Partnership Agreement or on the records of the Partnership or on such information, opinions, reports or statements presented to the Advisory Committee by any person that the Indemnitee reasonably believes are within such person's professional or expert competence, including, without limitation, advice of counsel and financial advisors. Section 2. INDEMNIFICATION AND ADVANCEMENT OF LEGAL FEES FOR MEMBERS OF ADVISORY COMMITTEE. (a) To the fullest extent permitted by law, the Partnership and the General Partner jointly and severally agree to indemnify and hold harmless each Indemnitee and his heirs, successors, assigns, administrators and personal representatives for any and all losses and liabilities, obligations, damages, penalties, taxes, claims, actions, suits, amounts paid in settlement, or out-of- pocket expenses or costs of any kind and nature whatsoever incurred or arising out of or in connection with service on the Advisory Committee including the reasonable out-of-pocket costs and expenses, including attorney fees, of defending himself against any claim of liability (collectively, "Indemnified Expenses"), except that the Indemnitee shall not be entitled to be indemnified for any Indemnified Expenses to the extent incurred by the Indemnitee by reason of his own gross negligence or willful misconduct determined after final judicial decision on the merits from which there is no further right of appeal. The termination of any action, suit or proceeding by judgment, order, settlement, conviction or upon a plea of nolo contendere, or its equivalent, shall not, of itself, create a presumption that an Indemnitee has not satisfied the standard for limitation of his liability or indemnification under this Agreement. 2 (b) To the fullest extent permitted by applicable law, Indemnified Expenses (including legal fees) incurred by an Indemnitee in defending any claim, demand, action, suit or proceeding (including but not limited to claims alleging violations of federal or state securities laws) shall, from time to time, be advanced by, or on behalf of, the Partnership or the General Partner prior to the final disposition of such claim, demand, action, suit or proceeding upon receipt by the Partnership or the General Partner, as the case may be, by or on behalf of an Indemnitee and reasonably satisfactory to the General Partner, an undertaking by or on behalf of the Indemnitee to repay such amount if it shall be determined by a court of competent jurisdiction after final judicial decision on the merits from which there is no further right of appeal that the Indemnitee is not entitled to be indemnified. The advances to be made hereunder shall be paid to an Indemnitee within thirty (30) days following delivery of a written request therefor by the Indemnitee to the Partnership and the General Partner, supported by appropriate invoices, receipts and/or vouchers. (c) The indemnification provided by this Section shall be in addition to any other rights to which each Indemnitee may be entitled under any agreement, vote of the Partners, as a matter of law or otherwise. (d) The obligation of the Partnership and the General Partner to indemnify, hold harmless and advance expenses to an Indemnitee, and the right of any Indemnitee to be compensated and be reimbursed for its reasonable out-of-pocket expenses, disbursements and advances shall constitute indebtedness of the Partnership and shall survive the termination of this Agreement. (e) For purposes of determining the rights of the Indemnitees under this Agreement, the provisions of Sections 8.10(a) and (b) of the Partnership Agreement (or any successor provision thereto) applicable to the General Partner or any of its Affiliates shall apply MUTATIS MUTANDIS to the Indemnitees. Section 3. RIGHT OF INDEMNITEES TO BRING SUIT. If the General Partner or the Partnership does not pay in full a claim under Section 1 or 2 of this Agreement within sixty (60) days after a written claim therefor has been received by either the General Partner or the Partnership, an Indemnitee may at any time thereafter bring suit against the General Partner and/or the Partnership to recover the unpaid amount of the claim. If successful in whole or in part in any such suit, or in a suit brought by the General Partner or the Partnership to recover any advancement of expenses, the Indemnitee shall be entitled to be paid also the expense of prosecuting or defending such suit or part thereof (including attorney's fees) as to which the Indemnitee has been successful. Section 4. NOTICE AND OTHER INDEMNIFICATION PROCEDURES. (a) Promptly after receipt by an Indemnitee of notice of the commencement of or the threat of commencement of any proceeding, the Indemnitee shall, if the Indemnitee believes that indemnification with respect thereto properly may be sought from the Partnership or the General 3 Partner under this Agreement, notify each of the Partnership and the General Partner in writing at their principal executive offices (attention General Counsel) of the commencement or threat of commencement thereof. The failure to notify or promptly notify the Partnership or the General Partner shall not relieve the Partnership or the General Partner from any liability which either of them may have to an Indemnitee otherwise than under this Agreement, and shall relieve the Partnership or the General Partner from liability hereunder only to the extent that the defense of the claim or the ability of the Partnership or the General Partner to make an insurance claim or other third party indemnity or surety claim with respect to the liability has been prejudiced. (b) In the event the Partnership or the General Partner shall be obligated to pay the expenses of an Indemnitee in connection with any proceeding, the Partnership or the General Partner shall be entitled to assume the defense of such proceeding, with counsel selected by the Partnership or General Partner (subject to the approval of the Indemnitee, such approval not to be unreasonably withheld), upon the delivery to the Indemnitee of written notice of an election to assume the defense. After delivery of such notice, approval of such counsel by the Indemnitee and the retention of such counsel by the Partnership or the General Partner, the Partnership or the General Partner will not be liable to the Indemnitee under this Agreement for any fees of counsel or other expenses subsequently incurred by the Indemnitee with respect to the same proceeding, provided that (i) the Indemnitee shall have the right to employ his own counsel in any such proceeding at the Indemnitee's expense; and (ii) if (A) the employment of counsel by the Indemnitee has been previously authorized by the Partnership or the General Partner, or (B) the Indemnitee shall have reasonably concluded, in good faith, that there is a conflict of interest between the Partnership or the General Partner and the Indemnitee in the conduct of any such defense, or (C) the Partnership or the General Partner shall not, in fact, have employed counsel to assume the defense of such proceeding, then the fees and expenses of Indemnitee's counsel shall be paid by the Partnership or the General Partner; and provided further that the Partnership or the General Partner shall not be required to pay the expenses of more than one such separate counsel for persons it is indemnifying in any one proceeding unless each such person seeking separate counsel provides to the General Partner an opinion of counsel, satisfactory in form and substance to the General Partner in its reasonable discretion that states that there exist conflicts of interest which can not be waived as a matter of public policy that would preclude a single attorney or firm from representing both such person and the other persons in the proceeding in question who are beneficiaries of indemnification rights from the General Partner or the Partnership with respect to such proceeding. Section 5. SETTLEMENT. Neither the Partnership nor the General Partner shall be liable to indemnify an Indemnitee under this Agreement for any amounts paid in settlement of any proceeding without their written consent, which consent shall not be unreasonably withheld. Neither the Partnership nor the General Partner shall settle any proceeding which would impose any penalty or limitation on an Indemnitee without that Indemnitee's written consent, which consent shall not be unreasonably withheld. 4 Section 6. SUBROGATION RIGHTS. In the event of any payment under this Agreement to (or for the benefit of) an Indemnitee by either the Partnership or the General Partner, the Partnership or the General Partner, as the case may be, shall be subrogated to the extent of such payment to all of the rights of recovery of the Indemnitee against any person or organization and such Indemnitee shall execute all papers required and shall do everything that may be reasonably necessary to secure such rights for the Partnership or the General Partner. Section 7. NO DUPLICATION OF PAYMENTS. Neither the Partnership nor the General Partner shall be liable under this Agreement to make any payment under the terms of this Agreement to the extent an Indemnitee has otherwise actually received payment (under any insurance policy or otherwise) of the amounts otherwise indemnifiable hereunder. Section 8. SEVERABILITY. If this Agreement or any portion hereof shall be invalidated on any ground by a court of competent jurisdiction, then the General Partner or the Partnership shall nevertheless indemnify the Indemnitees as to costs, charges, and expenses (including attorneys' fees), judgments, fines, and amounts paid in settlement with respect to any action, suit, or proceeding, including an action by or in the right of the Partnership, to the full extent permitted by any applicable portion of this Agreement that shall not have been invalidated and to the full extent permitted by applicable law. Section 9. LIMITATIONS WITH RESPECT TO THE PARTNERSHIP; NO CHANGE TO OBLIGATIONS OF THE GENERAL PARTNER OR RIGHTS OF INDEMNITEES AGAINST THE GENERAL PARTNER. Notwithstanding anything in this Agreement to the contrary, the Partnership shall in no circumstances be required to indemnify, hold harmless or advance costs to an Indemnitee, if the Indemnitee fails to meet the standard for limitation on liability and indemnification established in Section 8.9 of the Partnership Agreement (as the same may be amended, supplemented or otherwise changed). The first sentence of this Section 9 shall not, however, in any way affect either (i) any of the rights of an Indemnitee against the General Partner hereunder or (ii) any of the obligations of the General Partner to an Indemnitee hereunder. Section 10. SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon all successors and assigns of the General Partner and the Partnership and shall be binding on and inure to the benefit of the Indemnitee's heirs, executors and administrators. Section 11. AMENDMENT. No amendment, modification, termination or cancellation of this Agreement shall be effective against an Indemnitee unless made in writing and signed by the Indemnitee to be bound or charged thereby. Section 12. CHOICE OF LAW. This Agreement shall be governed and its provisions construed in accordance with the laws of the State of Delaware, as applied to contracts between Delaware residents entered into and to be performed entirely within Delaware. 5 Adopted this 14th day of January, 1997 AIRCOA HOSPITALITY SERVICES, INC. By: /s/ Douglas M. Pasquale ------------------------- Name: Douglas M. Pasquale Title: President By: /s/ Lyle L. Boll ------------------ Name: Lyle L. Boll Title: Vice President AIRCOA HOTEL PARTNERS, L.P. By: /s/ Douglas M. Pasquale ------------------------- Name: Douglas M. Pasquale Title: President By: /s/ Lyle L. Boll ------------------ Name: Lyle L. Boll Title: Vice President INDEMNITEES: By: /s/ James Hire ---------------- James Hire By: /s/ Anthony Dimond -------------------- Anthony Dimond 6 EX-27 5 FINANCIAL DATA SCHEDULE
5 12-MOS 12-MOS DEC-31-1996 DEC-31-1995 JAN-01-1996 JAN-01-1995 DEC-31-1996 DEC-31-1995 2,350 2,116 0 0 3,305 2,622 0 0 373 339 6,544 5,559 98,177 94,084 (35,501) (31,329) 70,131 69,406 8,260 8,011 50,604 51,390 0 0 0 0 0 0 10,761 9,752 70,131 69,406 48,553 45,399 48,553 45,399 0 0 (42,778) (46,029) 0 0 0 0 (4,766) (4,791) 1,009 (5,421) 0 0 0 0 0 0 0 0 0 0 1,009 (5,421) 0 0 0 0 Class A Unitholders..... $(0.02) Class B Unitholders..... $ 1.14 Class A Unitholders..... $(1.50) Class B Unitholders..... $ 2.86
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