INVESTMENT, ADDITIONAL ISSUES FOR CONSIDERATION

1. A common error in drafting and negotiating purchase agreements is the failure of the parties to agree on exactly what is being purchased for the "purchase price."

·  Is the Buyer acquiring the property and everything in it for a single gross sales price?

·  Or is the Buyer merely purchasing the property with additional sums and adjustments owed for existing inventory, goods, licenses, permits, and other such matters that are the subject of a calculation at or before closing?

The difference may amount to hundreds of thousands of Euros in a transaction.

The parties to a purchase and sale transaction should also give careful consideration to the representations and warranties that will be exchanged in the purchase agreement. The representations and warranties serve two important but separate functions:

(a) creating liability and a claim for indemnity when the other party makes a representation that later proves to be untrue;

(b) flushing out the issues through disclosure required by the agreement and focusing the parties on important issues and facts. When a Buyer agrees to accept certain representations and warranties being made only to "Seller's knowledge," the Buyer should seriously consider requesting additional confort in the form of representations and warranties from (or after the Seller’s consultation with) the asset manager, the on‐site property manager or general manager, the director of marketing, the controller, and the chief structural engineer.

2. DOMINIUM BROKER has often been able to use the ground lessor's estoppel certificate as a

vehicle to clean up deficiencies in the ground lease‐‐a purpose for which the certificate is not really intended.

3. While an assignment of Seller's claims may seem innocuous, we have found that obtaining an assignment of the Seller's claims, or at least the right to share in those claims, has enabled our Buyer‐clients to assert claims or raise various defenses they would not otherwise have, including cross‐claims and counterclaims in connection with pre‐Closing liabilities that result in the Buyer being named as a convenient defendant in the lawsuit.

4. It is important for the Buyer to obtain the tax clearance certificate as close in time to the Closing as possible. A number of counties or other taxing authorities will not issue an occupancy tax clearance certificate or equivalent; however, they are often willing to provide some form of verbal confirmation to a prospective Buyer. As a part of the due diligence, a cautious Buyer should also request copies of previous tax returns and copies of canceled checks evidencing payment.

5. We cannot tell you how often we have seen parties, proceeding without the benefit of The DOMINIUM BROKER, forget to transfer ownership of motor vehicles pursuant to the state transfer certificates. Many people just assume that, by virtue of the bill of sale, the transfer of ownership has been effectuated.

However, for legal title to pass, the parties must comply with the specific certification requirements of the state in question. We have also often found that Buyers assume that the vehicles are owned, but through our diligence often we have uncovered that they are subject to longterm leases, some of which may prohibit transfer. In such situations, we recommend obtaining a consent and estoppel certificate from the vehicle lessor.

In most states, the rules governing the transfer of pleasure boats and vessels are similar to those governing transfers of motor vehicles. In other words, an effective transfer requires appropriate specific certification from the relevant state agency often the same one that regulates motor vehicles.

6. It is particularly important for a Buyer to review and understand a preliminary schedules of accounts receivable, accounts payable, reservation agreements, and deposits. It is also important to update this review and analysis. A Buyer could be seriously prejudiced failing to require an update of these schedules immediately prior to Closing.

For example, a client came to us following the acquisition of a property that it handled "in house," because it realized that it had failed to ask for up‐to‐date reservation agreements and an up‐to‐date deposit list at Closing. Working off of old schedules, the Buyer did not obtain cash from the Seller or a credit against the purchase price at the Closing to cover additional deposits the Seller had received for some major events. For practical business purposes, the Buyer had to honor the significant banquet and other event reservations and give the customers credit for the deposits they paid to the prior owner, but this oversight turned profitable events into loss‐leaders. This is a good example of why it is important to require the Seller to represent and warrant the accuracy of the schedules both at the time of the agreement and as of the Closing. This is a standard representation that is used in DOMINIUM BROKER agreement forms.

7. You cannot believe how frequently Buyers fail to pay attention to equipment leases and the impact they can have on the operation of the property after the Closing. Many equipment leases are in fact long‐term capital leases that may impose millions of Euros in liability over their terms. Often these equipment leases relate to telephone systems, televisions, computers, and related operational equipment, and may be non‐assignable by their terms or result in a default and acceleration upon an unconsented transfer. Therefore, DOMINIUM BROKER strongly recommends that the diligence review include a thorough analysis of the equipment leases themselves to determine whether they are assignable, understand the terms and the payment schedule, and obtain estoppel certificates from the equipment lessors and/or attempt to negotiate a buy‐out of the same, if appropriate.

8. Every Buyer should understand each of the employment contracts (relating to the property in question) that may survive the Closing. It may enable the Buyer to negotiate for the Seller to arrange termination of certain contracts, to buy them out, or to give the Buyer a credit for certain burdensome contracts. Failure to deal with these issues could result in the Buyer assuming these liabilities under a general assumption clause in the purchase agreement.

Certain union contracts may, by their terms, also require that they be assumed, thus leaving the Buyer with no opportunity to renegotiate those terms. It is critical, as part of the diligence and underwriting process, that the Buyer understand the legal and economic impact of such contracts. Moreover, even if the union contract does not require an assumption, a Buyer does have a duty under the National Labor Relations Act to "recognize" a unión and negotiate in good faith to reach a new agreement with that union until an "impasse" is reached.

DOMINIUM BROKER's transactional lawyers work very closely with the Group's labor lawyers to structure an acquisition for a Buyer in the manner most likely to minimize the Buyer's burdens and liabilities acquired through either an express assumption of union contract obligation or under the duty to bargain in good faith and recognize the existing union. It may not always be possible, or even the right thing, to be "union free," but you should always be

"union smart." It is critical that one does not undertake any actions with respect to labor matters without consulting labor counsel, because the effects may be devastating‐‐even from inadvertent and seemingly innocent statements and communications. certificates should also be listed and the unredeemed amounts should either paid to the Buyer or credited against the purchase price.

14. Some Buyers focus on what they believe to be the major transactional aspects of an acquisition, such as the purchase agreement, the revenues and expenses of the property, the physical and structural aspects of the property, the terms of management and franchise arrangements, and similar items. While these ítems are certainly critical to the transaction, one should not fail to understand the importance of obtaining or retaining the various permits and licenses that are necessary for the property to continue to operate as a going concern. Failure to maintain any one of the operational permits that were in place with the Seller prior to Closing may have an adverse effect on the operation of the property after Closing.

For instance, if there is a lapse in the liquor license, the property will be prevented from selling liquor to its guests. A great deal of customer goodwill may be lost as weddings, group meetings, conventions, and other profitable business is put in jeopardy. The results may be a dip in beverage revenue, but the net negative guest experience during that time may have repercussions far beyond the period that the property was unable to serve liquor. After all, a major component of a property's value is the goodwill established. The same is true if the property fails to maintain or obtain a cabaret license, for instance, which could result in having the nightclub at the property shut down. Depending on the type of property, this may have a devastating effect.

These are obvious examples of permits and licenses that a property might have, but there are others less obvious, which may include the public utilities commission permit to allow the pick‐up and drop‐off of guests at the local airport. Again, while it may not affect the property's revenue immediately, it may affect the guest experience, and therefore the property's reputation.

Another such example is FCC permits, which are required to communicate over the airwaves (i.e., walkie‐talkie radio transmission to and from limousines, vans, busses, and boats). For example, in one transaction that DOMINIUM BROKER handled, one of the more difficult things in closing the deal was assuring the maintenance of the FCC permits so that the resort property would continue to have the ability to take its guests out on snorkeling and scuba dives off the coast where the property was located.

15. The Buyer should obtain a schedule of accrued wages and salaries of property employees as of the Closing date, together with accruals for vacation pay, sick pay, holidays, etc., and any other employee benefits such as management bonuses. The accuracy of these various accruals should be tested. The Buyer should also:

(a) obtain a calculation of the accrued payroll taxes and test the accuracy of the calculation;

(b) obtain copies of the physical inventories (priced and extended) and test the accuracy of the price of the extensions on a test basis;

(c) complete all proration calculations that require the receipt of a subsequent billing, as  follows:

(#) electricity

(#) telephone

(#) wáter

(#) fuel or gas.

The calculations of the prepaid expense prorations (real property taxes and any other items) should be reviewed. The Buyer should obtain a schedule summarizing the concession rent and fees due to the property at the beginning of the month and the minimum and percentage rent and fees due for the month of Closing, then calculate the prorated rent and fees. The Buyer should review the following closing adjustments:

(a) payments made pursuant to any subleases, leases, contracts, or agreements pertaining to the property;

(b) all lease, security, deposit, or advance rents. The Buyer should obtain a detailed listing of the travel agent commissions payable for the guests that were in‐house on the night of Closing and test the calculation of the prorated commissions.

The Buyer should inquire if additional prorations are appropriate for such items as follows:

(1) retroactive premium adjustments for workmen's compensation insurance; and

(2) trade‐out agreements. The Buyer should prepare a proration schedule of the amounts due from (to) the Buyer and Seller.

The Buyer should obtain the aged accounts receivable listing as of the Closing date as provided for in the Purchase Agreement.