1997 Annual Report - Four Seasons Hotels and Resorts

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(continued)(ii) The Corporation is contingently liable for some or all of the obligations of certain of the managed hotels and/orpartnerships and joint ventures in which it has a direct interest (note 5). However, against this contingentliability, the Corporation would have a claim upon the assets of the partnerships and joint ventures and, incertain limited cases, their partners.(iii) The Corporation has guaranteed up to US$5,000, plus accrued interest, of the construction loan relating to theFour Seasons Resort Aviara. The Corporation has provided additional guarantees in connection with the vacationownership development at the Four Seasons Resort Aviara. One such guarantee was entered into to affordlenders to the development access to distributions that would be received by the Corporation in respect of itsownership interest in the development after default in respect of debt related to the development.(iv) The Corporation has a 23% investment in the company that owns a multi-use project in Berlin that includes theFour Seasons Hotel Berlin, as well as commercial, residential and retail space. The Corporation has guaranteedup to DM7 million, plus accrued interest, of the construction loan relating to the multi-use project. TheCorporation has entered into an operating lease with this company, pursuant to which, once the hotel is operatingin accordance with the Corporation’s detailed technical specifications, the hotel lease will be transferred to theCorporation, at which time the Corporation will begin accounting for the hotel’s operations on a consolidatedbasis. The effective date of the transfer of the hotel lease is subject to resolving a dispute arising from certainconstruction deficiencies alleged by the Corporation.(v) Until 1982, the Corporation held a co-ownership interest in an office building in Toronto. In 1981, the co-ownersobtained financing of approximately $22,000 (of which approximately $20,600 plus accrued interest wasoutstanding as at December 31, 1997) in connection with the property and the Corporation provided a severalguarantee with respect to the financing. The Corporation sold its interest in the property to a Canadianinsurance company in 1982 for consideration consisting of a cash payment and an assumption by the purchaserof the Corporation’s obligations under the mortgage. The Corporation has been advised by the mortgagee thata default has occurred under the mortgage and the mortgagee has commenced a proceeding against the Corporationand another guarantor. The Corporation is vigorously defending the suit and believes that, as a result of, amongother things, the sale by the Corporation of its interest in the property and the resulting obligations of thepurchaser, any obligations of the Corporation to the mortgagee should be offset by corresponding claims againstthe purchaser.(vi) In 1992, the Corporation received two notices that the owners of two managed hotels consider that theCorporation’s acquisition of Regent, which manages a hotel in the same city, has breached the radius restrictionin their respective management contract. Discussions with the owners with a view to resolving the issue are stillcontinuing. No further action has been taken by either owner to date.(vii) In the ordinary course of its business, the Corporation is named as defendant in legal proceedings resulting fromincidents taking place at hotels owned or managed by it. The Corporation maintains comprehensive liabilityinsurance and also requires hotel owners to maintain adequate insurance coverage. The Corporation believessuch coverage to be of a nature and amount sufficient to ensure that it is adequately protected from suffering anymaterial financial loss as a result of such claims.(viii) A number of the Corporation’s management contracts are subject to certain performance tests which, if not met,could allow a contract to be terminated prior to its maturity. The Corporation generally has various rights tocure any such defaults to avoid termination. In addition, certain management contracts are terminable by thehotel owner on a defined change of control of FSHI.(ix) The Corporation has guaranteed certain obligations of various directors, officers, and employees in the amountof $1,316.70Four Seasons Hotels Inc.