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Exhibit 10.13
FOURTH AMENDMENT TO SETTLEMENT AGREEMENT
THIS FOURTH AMENDMENT TO SETTLEMENT AGREEMENT (this "AMENDMENT") is
executed as of this 11th day of March, 1999, by and among MARRIOTT
INTERNATIONAL, INC., a Delaware corporation ("MARRIOTT"), PATRIOT AMERICAN
HOSPITALITY, INC., a Delaware corporation ("PAH"), and WYNDHAM INTERNATIONAL,
INC., a Delaware corporation ("WYNDHAM" and, collectively with PAH, "PATRIOT" ).
PRELIMINARY STATEMENT
A. The parties hereto executed that certain Settlement Agreement dated
the 27th day of May, 1998, as amended by that certain First Amendment to
Settlement Agreement dated as of August 26, 1998, and as further amended by that
certain Second Amendment to Settlement Agreement dated as of October 29, 1998
and the Third Amendment to Settlement Agreement dated as of January 6, 1999
(collectively, the "SETTLEMENT AGREEMENT").
B. The Merger contemplated by the Settlement Agreement was consummated
on June 2, 1998 and, as a result thereof, Patriot and Wyndham are direct or
indirect successors in interest to Interstate.
C. The parties desire to amend the Settlement Agreement in certain
respects as contained herein.
NOW, THEREFORE, in consideration of the mutual premises, obligations,
covenants and agreements herein contained and contained in the Settlement
Agreement, and other valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, the parties hereto, intending to be legally
bound, agree as follows:
1. DEFINITIONS. Except as specifically defined herein, all capitalized
terms used herein shall have the definitions provided in the Settlement
Agreement.
2. PRIVATE SALE OPTION. Patriot may enter into discussions with third
parties to sell all, or a part of, Newco to such third party (the "Purchaser")
in a private transaction (a "Sale Transaction"), in lieu of the spin-off of
Newco as contemplated under the original Settlement Agreement.
a. Patriot may negotiate a non-binding letter of intent (the
"Letter of Intent") for the Sale Transaction on or before March 31,
1999 and, if such letter of intent is acceptable to Marriott as
provided in Section 2(b) below, Patriot may negotiate a final binding
contract (the "Final Binding Contract") for the Sale Transaction. The
Final Binding Contract shall be executed no later than midnight on
April 14, 1999. The Final Binding Contract may contain
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customary conditions to closing, but it shall not contain a financing
contingency or a due diligence out. Pursuant to the Final Binding
Contract, the Purchaser must place at risk a deposit equal to the
lesser of 10% of the aggregate consideration to be paid at closing or
$3 million. In addition, the Final Binding Contract must contain a
provision requiring the closing of the Sale Transaction on or before
May 14, 1999.
b. The terms of the Letter of Intent and the Final Binding
Contract, the structure of the Sale Transaction and the Purchaser must
be acceptable to Marriott, in its sole, absolute discretion. Marriott
must approve or reject the Letter of Intent and the Final Binding
Contract within 5 business days of receiving an executed copy from
Patriot.
c. Any transaction which occurs under this Section 2 shall be
deemed a "Divestiture" under the Settlement Agreement to the same
extent as if Newco were spun-off as contemplated in the Settlement
Agreement. If a Final Binding Contract is entered into in accordance
with this Amendment, Patriot and Marriott shall work together to amend
the Settlement Agreement as needed to reflect the substitution of a
private sale for the spin-off.
d. The Final Divestiture Date and the reference to March 30,
1999 in the first sentence of the second paragraph of Section 5.11 of
the Settlement Agreement shall be extended to the earlier of (i) June
14, 1999 or (ii) the date thirty days after:
a) March 31, 1999, if Patriot does not enter into a
Letter of Intent on or before March 31, 1999,
b) the date on which Marriott disapproves the Letter
of Intent,
c) April 14, 1999, if Patriot does not enter into a
Final Binding Contract on or before April 14, 1999, or
d) the date on which Marriott disapproves the Final
Binding Contract.
3. TERMS OF THE DIVESTITURE. Section 5.4 of the Settlement Agreement is
hereby deleted and replaced with the following (which shall not apply if Newco
or its assets are sold privately in a transaction described in Section 2 of this
Amendment):
The parties desire for Newco to be a strong, viable
independent entity, and in order to accomplish such goal,
Patriot covenants and agrees that upon consummation of the
Divestiture Newco will be as described in the Term Sheet,
which is attached hereto and made a part hereof.
4. NO OTHER CHANGES. Except as specifically amended herein, the
Settlement Agreement remains in full force and effect.
5. COUNTERPARTS. This Amendment may be executed in any number of
counterparts, each of which, when so executed and delivered, shall be an
original and all of which shall together constitute one and the same instrument.
6. NOTICE. Notice hereunder shall be given by facsimile, with original
by overnight delivery to the parties as set forth below. Notice shall be deemed
given when received (if sent by facsimile).
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IN WITNESS WHEREOF, each of the parties hereto has caused its duly
authorized representatives to execute this Amendment as of the day and year
first written above.
ATTEST: MARRIOTT INTERNATIONAL, INC.
By: [SEAL]
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Xxxxxxx Xxxxx
Executive Vice President
PATRIOT AMERICAN HOSPITALITY, INC.
By: [SEAL]
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Xxxxxxx X. Xxxxx III
President and Chief Operating Officer
WYNDHAM INTERNATIONAL, INC.
By: [SEAL]
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Xxxxxxx X. Xxxxx III
Executive Vice President
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TERM SHEET
I. BALANCE SHEET
At the time of the Divestiture, select lines of the balance sheet shall
be as follows:
A. ASSETS
1. INTANGIBLES. Newco shall have intangible assets valued at
approximately $100.5 million.
2. RELATED PARTY RECEIVABLES - PATRIOT. The "Related Party
Receivable-Patriot" line shall be zero and there shall be no
receivables due from Patriot or any affiliate of Patriot except those
receivables generated in the ordinary course of managing the assets of
Newco (or its subsidiaries). All receivables from related parties (as
of a date 5 days prior to the date of the Divestiture) shall be listed
on a schedule delivered prior to the Divestiture.
B. LIABILITIES
1. ACCRUED MERGER COSTS. All accrued merger costs from the
merger of Interstate and Patriot shall be paid in full (or cash shall
be placed in Newco in an amount equal to such accrued merger costs).
All costs associated with the formation and implementation of the Newco
structure (regardless of whether they are capitalized or a current
liability) shall be borne solely by Patriot (which may be accomplished
by depositing funds with Newco for such purposes).
2. ACCOUNTS PAYABLE. All accounts payable (especially any
accounts payable-related parties) shall arise in the ordinary course of
business and in good faith. All related parties accounts payable (as of
a date 5 days prior to the date of the Divestiture) shall be listed on
a schedule delivered prior to the Divestiture.
3. DEBT. Newco shall not have any debt that is a non-current
liability on its balance sheet in excess of the amount on the balance
sheet as of December 31, 1998. Newco shall have cash and cash
equivalents (not including any cash and cash equivalents contributed
under Section I.D or I.E) equal to all debt that is a non-current
liability in excess of the amount on the balance sheet as of December
31, 1998.
C. COMMITMENTS AND CONTINGENCIES. The "Commitments and Contingencies"
line shall be zero. Attached hereto as Annex 1 - Off Balance Sheet Contingent
Liabilities is a list which states, to the best of Patriot's (excluding Newco
and all of its subsidiaries) knowledge all contingent liabilities of Newco and
the status of these liabilities. In particular other than as disclosed on Annex
1, there are no current or potential "parachute" liabilities and all equipment
leases for all hotels which are now owned by Patriot will be in the name of
Patriot or an affiliate as of the time of the Divestiture. Patriot shall in good
faith attempt to resolve each of these contingent liabilities in the manner set
forth under the heading "Status" on or prior to the date of the Divestiture
(other than those matters that are "Footnote Disclosure only" or "IHC
Responsibility"). To the extent that Patriot is unable to resolve these matters
prior to the Divestiture and subject to the remainder of this paragraph, Patriot
shall (i) pay into an escrow account an amount up to $3,109,000 (which covers
only those liabilities with the word "Pay" under Status on Annex 1 and (ii) it
shall indemnify Newco or its subsidiaries, as appropriate, in an amount up to
$3,856,000 (which covers only those
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liabilities with the word "Indemnify" under Status on Annex 1; provided,
however, that with respect to the indemnification relating to the Y2K
Non-Compliance related to Equity Inns, Patriot does not believe that Newco or
its affiliates should be liable for these contingent liabilities but,
nevertheless Patriot is willing to indemnify Interstate Hotels, LLC for these
liabilities on the condition that Patriot (with reasonable participation by
Newco and/or its subsidiaries) is entitled to control the negotiations and any
litigation with respect thereto)). The amount that Patriot is obligated to
either pay for a given contingent liability on Annex 1 prior to Divestiture or
place into escrow at Divestiture or indemnify shall be limited to the dollar
amount set forth opposite such liability. In addition, as any given contingent
liability listed on Annex 1 is resolved (or an amount is contributed to Newco to
resolve such liability), the corresponding dollar amount of such escrow
obligation or indemnification (as appropriate) shall be reduced. At Divestiture,
Newco and Patriot shall enter into one or more Escrow and Indemnification
agreements which shall be reasonably acceptable to both Patriot and Marriott.
D. WORKING CAPITAL. Current assets (before the infusion of cash
discussed in Section I.E. below) shall be at least equal to current liabilities.
E. CASH AND CASH EQUIVALENTS. The "Cash and Cash Equivalents" line
shall be no less than $15 million plus any amount required by Section I.B.1, I.C
or I.D above (this cash shall be an asset of Newco, not Interstate Hotels, LLC).
II. INCOME STATEMENT
A. EXISTING MANAGEMENT CONTRACTS. Interstate Hotels, LLC shall manage
the hotels set forth on Annex II hereto pursuant to the existing management
contracts, subject to the addition and subtraction of management contracts in
the ordinary course of business from and after the date hereof.
B. AMENDED MANAGEMENT CONTRACTS. Interstate Hotels, LLC shall enter
into seven year management contracts with Patriot for the following hotels (the
"Six Main Hotels"):
Chicago Embassy Suites
Phoenix Embassy Suites
Schaumburg Embassy Suites
Denver Hilton
Lisle Radisson
San Xxxx Radisson
Interstate Hotels, LLC shall also enter into a 30 month management
contract (with an aggregate management fee of $100,000 per year) on the
Parsippany Hilton. This management contract shall not be terminable for the
first 15 months. After the first 15 months, the management contract will be
terminable upon the sale of the hotel without the payment of any fee for any
period after the sale of the hotel.
The management contracts shall be on the following terms:
1. The management contracts shall be negotiated and executed
in full by March 30, 1999 and shall be subject to Marriott's consent,
which consent shall not be unreasonably
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withheld. Such agreements shall be substantially similar to third party
management contracts entered into on an arms' length basis in the
ordinary course of business by Newco.
2. The management fees for each of the Six Main Hotels shall
be as set forth in the second column of Annex III hereto.
3. For each of the Six Main Hotel, Interstate shall either
have the right to provide all ancillary services (such as insurance)
and control all purchasing decisions or Patriot shall annually pay
Interstate, for such hotel, an amount equal to 55% of the Adjusted
Ancillary Fees (as defined below). For purposes of this Agreement, the
Adjusted Ancillary Fees shall mean the 1998 ancillary fees for each
hotel, as set forth in the third column of Annex III, which shall be
increased by 3% per year, compounded annually.
4. Subject to paragraph 5, the last sentence of this paragraph
and certain events of default, the agreements for the Six Main Hotels
shall be non-terminable. The agreements shall provide that Manager, in
the event of an attempted termination, shall have the option of either
seeking injunctive relief or accepting liquidated damages equal to all
projected future base and incentive fees and ancillary fees (based on
the average base and incentive fees for the prior two years, increased
for each remaining year by a percentage equal to the CPI for the most
recent year) to the end of such contract. In the event that there is a
change of control at Newco, Patriot will have the right to terminate
the agreements for the Six Main Hotels and Patriot will have no
obligation to pay any fees.
5. Notwithstanding paragraph 4, (i) until the end of the
thirtieth month following the effective date of the management
agreement, two of the Six Main Hotels may be terminable on sale, (ii)
from the start of the thirty-first month following the effective date
of the management agreement until the fifth anniversary of the
effective date of the management agreement, an aggregate of four hotels
(including the two hotels in clause (i)) may be terminable on sale, and
(iii) from the fifth anniversary of the effective date of the
management agreement until the seventh anniversary of the effective
date of the management agreement, all of the hotels may be terminable
on sale. In the event that the management agreement applicable to a
hotel is terminated pursuant to this paragraph before the end of the
thirtieth month following the effective date of the management
agreement, the management fees of the remaining hotels shall be
adjusted to cover 100% of the lost management fees and ancillary income
of such hotel (which amounts shall be increased each year by 3%,
compounded annually), as set forth on Annex III hereto. In the event
that the management agreement applicable to a hotel is terminated
pursuant to this paragraph from the start of the thirty-first month
following the effective date of the management agreement until the
fifth anniversary of the effective date of the management agreement,
the management fees of the remaining hotels shall be adjusted to cover
60% of the lost management fees and ancillary income of such hotel
(which amounts shall be increased each year by 3%, compounded
annually), as set forth on Annex III hereto. And, in the event that the
management agreement applicable to a hotel is terminated after the
fifth anniversary date of the management agreement, the management fees
of the remaining hotels (if any) shall be adjusted to cover 50% of the
lost management fees and ancillary income (which amounts shall be
increased each year by 3%, compounded annually), as set forth on Annex
III hereto
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(if there are no such remaining hotels, Patriot shall pay Interstate a
lump sum for the 50% of the remaining management fees and ancillary
income, discounted at a rate of 10%).
6. All reserves required by the existing management agreements
or franchise agreements shall be at least as well funded at the time of
the Divestiture as they were when Patriot purchased Interstate.
X. XXXXXXX HOTEL. Patriot shall use its best efforts to transfer, at
Divestiture, to Interstate Hotels, LLC all of its direct and indirect interests
and rights (however such interests and rights are constituted) in The Xxxxxxx
Hotel at Harvard Square and in Intercarp and any of their respective
subsidiaries or affiliated interests. In the event that Patriot is unable to
obtain the consents necessary for such transfer, Patriot shall substitute (i)
real estate assets generating $1.67 million of EBITDA, (ii) management contracts
generating $835,000 of EBITDA, (iii) cash equal to $4,175,000 or (iv) some
combination of real estate assets, management contracts and cash with an
aggregate value of $4,175,000. For purposes of clause (iv), all management
contracts shall be valued using a 5 multiple, all real estate assets shall be
valued using a 2.5 multiple and all cash shall be given 100% credit. The
specific assets and management contracts shall be subject to the consent of
Marriott, which consent shall not be unreasonably withheld.
III. MANAGEMENT.
At Divestiture, Xxx Xxxxxx, or another Approved Individual (as defined
below), shall become Chairman of the Board and CEO of Newco, Xxxx Xxxxxxxxxx, or
another Approved Individual, shall be Chief Financial Officer. An Approved
Individual shall be any individual consented to by Marriott, which consent shall
not be unreasonably withheld.
IV. STRUCTURE
A. INTEREST IN INTERSTATE HOTELS LLC. Newco shall have at least a 45%
economic interest in Interstate Hotels LLC.
B. ABILITY TO BLOCK NEWCO ACTIONS. Section 7.6.1(b)(i) and Section 7.8
of the Articles of Amendment and Restatement of Newco shall be deleted. As a
result, Patriot shall not have any rights to approve or disapprove the
acquisition by Newco of any interest in property (whether fee simple, leasehold
or otherwise). In addition, upon Divestiture, Newco's board of directors shall
contain five members (one of which shall be nominated by Marriott, and the
remaining four of whom shall be acceptable to both Patriot and Marriott). In the
event that, at the first annual meeting of Newco's shareholders, Patriot
continues to maintain its REIT status, then the number of directors on Newco's
board of directors shall be increased to 11 (one of which shall be nominated by
Patriot and one of which shall be nominated by Marriott). For as long as Patriot
maintains its REIT status, Newco shall inform Patriot upon the acquisition of
any real property and give Patriot information reasonably requested by Patriot
regarding the projected and actual income to be produced by such asset;
provided, that Patriot shall have no right to object or to consent to the
acquisition by Newco of any such assets.
C. ON-GOING PATRIOT/NEWCO RELATIONSHIP. There shall be no on-going cost
sharing
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agreements, purchasing relationships or any other material contractual
relationships with the exception of (i) an equity interest in Newco and
Interstate Hotels LLC, (ii) directorship in Newco, (iii) the ownership by
Patriot of certain hotels managed by Interstate Hotels LLC and (iv) the
contracts discussed below. Patriot may bind any of the hotels owned by it and
managed by Newco (or its subsidiaries) with any global or master purchasing
contracts. As for any hotels owned by a third party and managed by Newco or any
subsidiary, the hotels may be bound by the Sprint and Pizza Hut contracts
attached hereto; provided, however, that if Newco is requested by a third party
owner to cancel such contract (and such owner has the right to do so under the
relevant management contract), then Newco or its subsidiary may terminate such
contracts for that hotel (without payment of any penalty or fee).
V. REVOLVER.
Patriot shall, together with Newco's CEO and CFO, make a good faith
effort to secure a commitment for a credit facility on behalf of Newco in an
estimated amount of $10 - 20 million before the Divestiture.
VI. CONSENTS AND LICENSES.
A. Prior to the Divestiture, Patriot shall use its best efforts to
obtain all necessary consents for the Divestiture and to assign all appropriate
liquor and other licenses to Newco or Interstate Hotels, LLC. In addition, to
the extent that any liquor or other licenses are currently in the name of Newco
or Interstate Hotels, LLC and such licenses are applicable to any hotel owned in
whole or in part by Patriot but not managed by Interstate Hotels, LLC or Newco,
Patriot shall cooperate to allow the continued operation of the hotels under the
current license until the liquor license transfer is completed, and for the
period prior to such transfer, Patriot shall indemnify Interstate Hotels LLC and
Newco for any costs, expenses or other liabilities that may arise because of
such licenses. To the extent that Interstate Hotels, LLC manages any hotels for
which Patriot maintains the liquor license (other than with respect to the
Patriot owned hotels), and Patriot is unable to transfer the liquor license to
Interstate Hotels, LLC prior to the Divestiture, Interstate Hotels, LLC shall
cooperate to allow the continued operation of the hotels under the current
license until the liquor license transfer is completed, and for the period prior
to such transfer, Interstate Hotels, LLC shall indemnify Patriot for any costs,
expenses or other liabilities that may arise because of such license.
B. In the event that Patriot is unable to obtain any consent to
transfer a management contract resulting in a loss of projected EBITDA, then,
subject to Section VI.C hereof, Patriot shall either (i) substitute management
contracts with substantially similar terms and EBITDA or (ii) deposit cash with
Newco in an amount equal to five times the lost projected EBITDA. The specific
hotels covered by the management contracts and the terms of such management
contract shall be subject to Marriott's consent, which shall not be unreasonably
withheld.
C. Notwithstanding anything contained in Section VI.B hereof, if
Patriot is unable to obtain the consents to transfer one or more third-party
management contracts, Interstate Hotels, LLC may not have less than $9.5 million
of projected EBITDA in the year 2000 derived from third-party management
contracts. If Interstate Hotels, LLC does have less than $9.5 million of
projected
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EBITDA in the year 2000 derived from third party management contracts, then
Patriot must make up such deficit with additional management contracts (pursuant
to Section VI.B(i) above) and not with cash (pursuant to Section VI.B(ii)
above). For purposes of this paragraph, all projected EBITDA shall be calculated
in a manner consistent with Marriott's assumptions concerning the calculation of
EBITDA for Newco and its subsidiaries prior to the date hereof (which
assumptions currently result in a projected EBITDA from third-party management
agreements of $11.3 million).
VII. D&O INSURANCE.
Before any Marriott employee signs the Form S-1, Newco shall have in
place director and officer insurance reasonably acceptable to Marriott.
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ANNEX I
OFF BALANCE SHEET CONTINGENT LIABILITIES
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OFF BALANCE SHEET
CONTINGENT LIABILITIES DESCRIPTION ESTIMATED LIABILITY STATUS
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Y2K Non-Compliance 1. As per the 1999 capital 1. Approx. $929,000 1. PAH to PAY up to
(corporate office) budget (less the PC's and 2. Approx. $1,193,500 $929,000
Laptops and the Orlando 2. PAH to INDEMNIFY up
software upgrades) to $1,193,500
2. Equity Inns DMR survey plus
remedies
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Litigation Reserves 1. Trezevant litigation 1. Approx. $500,000 1. PAH to INDEMNIFY up
(uninsured pending 2. General employment 2. Approx. $500,000 to $500,000
lawsuits) lawsuits deductibles 2. PAH to INDEMNIFY up
to $250,000
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Future Minimum Lease Assumes 2% CPI in future years Base Rent - Approx. $700 Footnote Disclosure Only
Payments - Equity Inns million
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Corporate Office Per PWCL Notes to Combined Approx. $11.5 million Footnote Disclosure Only
Bldg. Leases Financials
New Memphis Office Lease
for DNG Rapid Freight
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Health Plan Trust (VEBA) Based on 12/31/98 cash of Approx. $2.5 million IHC Responsibility
Approx. $3.1 million & Actuary
9/30/98 IBNR estimate of $5.5
million, there is a deficit
(12/31/98 IBNR in process)
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Russian Loans unfunded IHC has committed to fund Potential - $750,000 PAH to INDEMNIFY its Pro
preopening costs in the form Rata Portion (If
of loans up to a predetermined Required) based upon
maximum amount PAH's ownership interest
in Interstate Hotels, LLC
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Wyndham Sprint Telephone Early term fees for T-1 & Xeta Approx. $80,000 PAH to PAY $80,000
agreement which includes equipment as part of Sprint
IHC conversion - never received
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Equity Inns Dispute Dispute regarding leases and Approx. $2.1 million PAH to PAY up to $2.1
operations million plus any
franchise application
fees
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Employment Agreements Certain employees have options Approx. $1.5 million PAH to INDEMNIFY for all
for up to 90 days post-Spinco elections during the
(the Free Look Period) to Free Look Period, up to
elect to leave the Company. $1.5 million.
These employees are entitled
to forgiveness of outstanding
loans.
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ANNEX III
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MANAGEMENT FEE (AS A
PERCENTAGE OF GROSS ANCILLARY FEES IN MANAGEMENT FEE IN
HOTEL REVENUES) 1998 1998
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Chicago Embassy Suites 3.00% $139,263 $618,900
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Phoenix Embassy Suites 2.80% $143,814 $333,900
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Schaumburg Embassy Suites 3.00% $100,949 $258,300
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Denver Hilton 3.00% $143,041 $347,900
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Parsippany Hilton $100,000 per annum n.a. n.a.
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Lisle Radisson 3.00% $183,552 $376,300
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San Xxxx Radisson 2.80% $86,240 $257,300
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