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Filed Pursuant to Rule 424(b)(1)
Registration No. 333-2458
PROSPECTUS
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LOGO $100,000,000
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WYNDHAM HOTEL CORPORATION
10 1/2% SENIOR SUBORDINATED NOTES DUE 2006
INTEREST PAYABLE MAY 15 AND NOVEMBER 15
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The 10 1/2% Senior Subordinated Notes due 2006 (the "Notes") are redeemable
for cash at any time on or after May 15, 2001, at the option of the Company, in
whole or in part, at the redemption prices set forth herein, plus accrued and
unpaid interest, if any, to the redemption date. Upon a Change of Control (as
defined herein), each holder of the Notes will have the right to require the
repurchase of its Notes by the Company in cash at a purchase price equal to 101%
of the principal amount thereof, plus accrued and unpaid interest, if any, to
the date of purchase. See "Description of the Notes."
The Notes are general, unsecured obligations of the Company and are fully
and unconditionally guaranteed, jointly and severally, on an unsecured senior
subordinated basis by each of the Company's direct and indirect subsidiaries
except for a number of insignificant subsidiaries (collectively, the
"Guarantors"). The Notes are subordinated in right of payment to all present and
future Senior Indebtedness (as defined herein) of the Company and Guarantor
Senior Indebtedness (as defined herein) of each Guarantor, respectively. After
giving pro forma effect to the Formation (as defined herein), the Financing Plan
(as defined herein) and other adjustments described under "Pro Forma Combined
Financial Data," at March 31, 1996, the Notes would have been subordinated to
approximately $24.2 million of Senior Indebtedness (inclusive of Guarantor
Senior Indebtedness) and the obligations of a subsidiary of the Company under
the GHALP Lease (as defined herein). See "Business -- Long-Term Hotel Leases."
Concurrently with the offering of the Notes pursuant to this Prospectus
(the "Offering") and as part of the Company's Financing Plan, the Company is
offering shares of its Common Stock (the "Equity Offering," and together with
this Offering, the "Offerings") by a separate prospectus. The consummation of
each of the Offerings is conditioned upon the consummation of the other, and
will occur simultaneously. See "The Formation and the Financing Plan."
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SEE "RISK FACTORS" BEGINNING ON PAGE 14 OF THIS PROSPECTUS FOR A DISCUSSION
OF CERTAIN FACTORS TO BE CONSIDERED BY INVESTORS.
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THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS
THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE
SECURITIES COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE.
THE ATTORNEY GENERAL OF THE STATE OF NEW YORK HAS NOT PASSED ON OR
ENDORSED THE MERITS OF THIS OFFERING. ANY REPRESENTATION
TO THE CONTRARY IS UNLAWFUL.
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UNDERWRITING
PRICE TO DISCOUNTS AND PROCEEDS TO
PUBLIC(1) COMMISSIONS(2) COMPANY(3)
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- --------------------------------------------------------------------------------
Per Note 100.00% 3.00% 97.00%
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Total(3) $100,000,000 $3,000,000 $97,000,000
================================================================================
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(1) Plus accrued interest, if any, from the date of issuance.
(2) For information regarding indemnification of the Underwriters, see
"Underwriting."
(3) Before deducting expenses estimated at $1,669,750, which are payable by
the Company.
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The Notes are being offered by the several Underwriters named herein,
subject to prior sale, when, as and if accepted by them and subject to certain
conditions. It is expected that the Notes offered hereby will be available for
delivery on or about May 24, 1996 at the offices of Smith Barney Inc., 333 West
34th Street, New York, New York 10001.
------------------
SMITH BARNEY INC.
BT SECURITIES CORPORATION
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
MONTGOMERY SECURITIES
May 20, 1996.
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[PHOTOS]
IN CONNECTION WITH THE OFFERING, THE UNDERWRITERS MAY EFFECT TRANSACTIONS
WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE NOTES OFFERED HEREBY AT A
LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH
TRANSACTIONS MAY BE EFFECTED IN THE OVER-THE-COUNTER MARKET OR OTHERWISE. SUCH
STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
2
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ONE BRAND. THREE UPSCALE PRODUCTS.
Wyndham Hotel Corporation offers three distinct full service hotel products
under a single brand name: Wyndham Hotels, Wyndham Garden Hotels and Wyndham
Resorts. Each is tailored to serve the needs of Wyndham's core upscale
customers in one of three specific markets: urban, suburban and resorts.
[Three multicolored rings in concentric format with
overlap identifying Wyndham's core customer.]
Wyndham has focused on developing a high quality brand name. In 1995,
ninety-four percent of Wyndham guests surveyed indicated that they would return
to that Wyndham hotel on their next trip to the same city.
WYNDHAM HOTELS
Wyndham Harbour Island Hotel
[PHOTO OF WYNDHAM HARBOUR ISLAND HOTEL]
Wyndham Hotels are large hotels with an average of 400 rooms, extensive meeting
space for group customers, and a full range of guest services and amenities.
WYNDHAM RESORTS
Wyndham Rose Hall Resort
[PHOTO OF WYNDHAM ROSE HALL HOTEL]
Wyndham Resorts, located domestically and on four Caribbean islands, are full
service destination resorts targeted at upscale leisure and incentive
travelers.
WYNDHAM GARDEN HOTELS
Wyndham Garden Hotel-North Phoenix Wyndham Garden Hotel-Waltham
[PHOTO OF WYNDHAM GARDEN [PHOTO OF WYNDHAM
HOTEL-NORTH PHOENIX] GARDEN HOTEL-WALTHAM]
With guest services, hotel finishings and landscaping comparable to Wyndham
Hotels, Wyndham Garden Hotels are designed to provide a guest experience
similar to that enjoyed at Wyndham Hotels, but at a price that is competitive
in suburban markets.
IN CONNECTION WITH THE OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE NOTES OFFERED
HEREBY AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET.
SUCH TRANSACTIONS MAY BE EFFECTED IN THE OVER-THE-COUNTER MARKET OR OTHERWISE.
SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
<PAGE> 4
SUPERIOR PERFORMANCE
AND GROWTH
NUMBER OF HOTEL ROOMS In 1994 and 1995, Wyndham grew its brand
at a faster rate than any other upscale
hotel company, as measured by the number
of Wyndham brand rooms added in
[GRAPH showing number of Wyndham brand comparison with those added by other
hotel rooms in 1993, 1994 and 1995 as upscale hotel companies (according to
10,660, 11,462 and 16,391, hotel room data compiled by Smith Travel
respectively.] Research).
In 1993, 1994 and 1995, Wyndham's REVPAR*
revenue per available room has outpaced
the upscale segment of the lodging
industry. [GRAPH showing REVPAR for all Company
hotels in 1993, 1994 and 1995 of $52.45,
$58.84 and $60.96, respectively,
compared to REVPAR of $49.71, $52.48 and
$54.97, respectively, for the upscale
segment of the lodging industry during
such periods.]
F & B MARGINS* In 1993, 1994 and 1995, Wyndham's food
and beverage profit margin outpaced the
upscale full service segment of the
[GRAPH showing food and beverage lodging industry.
profit margin for all Company hotels
in 1993, 1994 and 1995 of 25%, 25% and
26%, respectively, compared to food and
beverage profit margin of 17%, 18% and
21%, respectively, for the upscale full
service segment of the lodging industry
during such periods.]
* Although revenue per available room and food and beverage profit margin data
are not determined in accordance with generally accepted accounting
principles, the Company believes these measures are useful for comparing
operating performance within the lodging industry.
** Industry source: Smith Travel Research. Industry data for 1995 food and
beverage margins are estimates.
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THE RIGHT WAY-THE WYNDHAM WAY
[MAP of the United States showing the locations of the Company's hotels]
HUB-AND-SPOKE STRATEGY
In some markets, the Company seeks to cluster Wyndham Garden Hotels in a
"hub-and-spoke" distribution pattern around one or more Wyndham Hotels in order
to achieve operating and marketing efficiencies and enhance local name
recognition.
[MAP of Los Angeles showing [MAP of Phoenix showing [MAP of Chicago showing
the location of the the location of the the location of the
Company's hotels in Company's hotels in Company's hotels in
this market] this market] this market]
LOS ANGELES PHOENIX CHICAGO
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FLEXIBLE GROWTH STRATEGY
REDEVELOPMENT
Wyndham has been successful at acquiring well-located properties requiring
extensive renovation and redeveloping them as Wyndham Garden Hotels.
[PHOTO SHOWING WYNDHAM GARDEN HOTEL-WALTHAM BEFORE AND AFTER DEVELOPMENT]
[CAPTION]
Since January 1994, Wyndham has added 14 Wyndham Garden Hotels through its
redevelopment and conversion program.
Before and after redevelopment, Wyndham Garden Hotel - Waltham.
MANAGEMENT CONTRACTS
Wyndham believes its strong operating performance enhances its ability to
obtain new management contracts as a significant source of growth.
[PHOTO OF WYNDHAM EMERALD PLAZA HOTEL-SAN DIEGO]
[CAPTION]
Wyndham Emerald Plaza Hotel - San Diego
ACQUISITIONS/JOINT VENTURES
Wyndham's growth strategy also includes selective acquisitions and/or joint
ventures of properties suitable for conversion to the Wyndham brand.
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PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and combined financial statements including the notes thereto
appearing elsewhere in this Prospectus. Except as otherwise indicated, the
information contained in this Prospectus assumes (i) the completion of the
formation of the Company and related transactions (the "Formation," as more
specifically defined under "The Formation and the Financing Plan -- The
Formation") to be effected prior to or substantially simultaneous with the
closing of the sale and purchase of the Notes contemplated hereby, (ii) no
exercise by certain underwriters in the Equity Offering of an overallotment
option granted by the Company to purchase additional shares of the Company's
Common Stock, par value $.01 per share (the "Common Stock"), in the Equity
Offering and (iii) the exercise of General Electric Pension Trust's ("General
Electric") option to purchase from the Company 504,032 shares of Common Stock
contemporaneously with the closing of the Offering at a price per share of
$14.88 (representing 2.6% of the Company's outstanding shares of Common Stock
following the exercise of the option) (the "GE Option"). See "The Formation and
the Financing Plan," "Underwriting" and "Principal Stockholders." Unless the
context otherwise requires, the term "Company" or "Wyndham" when used in this
Prospectus refers to Wyndham Hotel Corporation, a Delaware corporation, and its
predecessors and combined subsidiaries. As used herein, the term "upscale" means
the segment of the lodging industry classified as such by Smith Travel Research
in its industry reports, which consists of hotels with average daily room rates
(total revenues divided by the total number of rooms occupied) between the 70th
and 85th percentile of the average daily room rates of all hotels in the U.S.
markets in which the Company's Portfolio hotels operate. For information with
respect to certain other defined terms used herein, see "Description of the
Notes -- Certain Definitions" and "Glossary."
THE COMPANY
Wyndham Hotel Corporation is a national hotel company operating upscale
hotels primarily under the Wyndham brand name. Wyndham hotels are located in 22
states and the District of Columbia as well as on 4 Caribbean islands, and
compete with national hotel chains such as Marriott, Hyatt and Hilton. The
Company offers three distinct full service hotel products under the Wyndham
brand designed to serve its core upscale customers in urban, suburban and select
resort markets. At April 15, 1996, the Company's hotel portfolio consisted of 65
hotels operated by the Company and 3 franchised hotels (the "Portfolio"). In
1995, the Company generated $139.6 million in revenues and $16.9 million in
operating income on a pro forma basis after giving effect to the Formation of
the Company described elsewhere in this Prospectus.
Wyndham has a track record of consistent growth. The Company has increased
the size of its Portfolio in each year since 1988. Over the last two calendar
years, Wyndham grew its brand at a faster rate than any other upscale hotel
company, as measured by the number of branded rooms added, growing from 10,660
Wyndham hotel rooms at December 31, 1993 to 16,391 at December 31, 1995. This
represents a compound annual growth rate in branded hotel rooms of 24%. This
growth was achieved through a combination of hotel management contracts, "like
new" renovations of acquired hotels, other acquisitions, new construction and
franchising. The Company's business plan emphasizes continued pursuit of its
diverse growth strategy.
STRONG BRAND IMAGE
Wyndham has focused on developing a brand name that is nationally
recognized in the upscale hotel market, and on earning the loyalty of its core
upscale customers: individual business travelers, business groups and other
group customers, and leisure travelers. Because Wyndham has operating control
over more than 95% of the hotels operated under the Wyndham brand name, it is
able to consistently deliver quality products and services throughout its hotel
system and generate the marketing programs necessary to maintain the quality
associated with the Wyndham name. According to written guest surveys conducted
by Wyndham at its hotels during 1995, 91% of Wyndham guests surveyed rated the
overall quality of Wyndham hotel products and services good or excellent, and
94% of the guests surveyed indicated that they would return to that Wyndham
hotel on their next trip to the same city. The Company believes that growing
national recognition of
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<PAGE> 8
the Wyndham brand, together with the quality and efficiency of Wyndham hotel
operations, has facilitated the Company's historical growth and will enhance its
ability to realize its future growth objectives.
MULTIPLE UPSCALE HOTEL PRODUCTS
Wyndham offers three distinct full service hotel products under a single
brand name that are tailored to urban, suburban and select resort markets, the
primary markets that serve its core upscale customers.
- Wyndham Hotels. In urban markets, the Company operates or franchises 20
large upscale hotels under the Wyndham brand ("Wyndham Hotels"), which
contain an average of approximately 400 hotel rooms, generally between
15,000 and 250,000 square feet of meeting space, and a full range of
guest services and amenities. Wyndham Hotels are targeted principally at
business groups and other group customers, as well as individual business
travelers.
- Wyndham Garden Hotels. In suburban markets, Wyndham operates 38 mid-size
hotels under the name "Wyndham Garden"(R) ("Wyndham Garden Hotels"),
which were created by the Company to cater to individual business
travelers and small business groups. With guest services, hotel
finishings and landscaping comparable to Wyndham Hotels, Wyndham Garden
Hotels are designed to provide a guest experience similar to that enjoyed
at Wyndham Hotels, but at a price that is competitive in suburban
markets. The Company locates Wyndham Garden Hotels primarily near
suburban business centers and airports and, where possible, seeks to
cluster these hotels in a "hub-and-spoke" distribution pattern around one
or more Wyndham Hotels in order to achieve operating and marketing
efficiencies and enhance local name recognition. Wyndham Garden Hotels
are full service upscale hotels containing between approximately 150 and
225 hotel rooms that offer a package of services and amenities focused on
the needs of the business traveler, including generally between 1,500 and
5,000 square feet of meeting space, restaurants that serve three meals a
day, exercise rooms, and laundry and room service.
- Wyndham Resorts. Wyndham's Portfolio also includes six resort hotels
("Wyndham Resorts") that are full service destination resorts targeted at
upscale leisure and incentive travelers and are located both domestically
and on four Caribbean islands. Through Wyndham Resorts, the Company is
able to offer guest rewards and other cross-promotional benefits to its
domestic customers, thus improving Wyndham's competitiveness and brand
loyalty.
STABLE PORTFOLIO OF OWNED, LEASED AND MANAGED HOTELS
Wyndham believes that the stability of its Portfolio of owned, leased and
managed hotels provides a strong foundation for the implementation of its growth
strategy. Wyndham's Portfolio consists of 6 owned hotels, 12 leased hotels, 47
managed hotels and 3 franchised hotels. Of the Company's 12 leased hotels, 11
are leased from an unaffiliated third party pursuant to one or more long-term
leases with an initial term of approximately 17 years and renewals for 48
additional years that the Company may elect to exercise. The remaining leased
hotel is leased from an unaffiliated third party pursuant to a lease with a
remaining term of 22 years. The average remaining term at April 15, 1996 of the
Company's 43 management contracts for Wyndham brand hotels was 13.6 years
(including renewals that the Company may elect to exercise), with shorter terms
for 3 of the Company's 4 non-branded management contracts. See
"Business -- Management Contracts." The Company believes that the stability of
its management contracts is enhanced by the fact that 15 of the contracts relate
to hotels in which Mr. and Mrs. Trammell Crow, various descendants of Mr. and
Mrs. Trammell Crow and various corporations, partnerships, trusts and other
entities beneficially owned or controlled by such persons (collectively, the
"Crow Family Members") have interests. Crow Family Members will own 48.4% of the
outstanding Common Stock following the Equity Offering. Sixteen additional
management contracts relate to hotels owned by entities (together with certain
affiliates, "Bedrock") affiliated with the Hampstead Group L.L.C. ("Hampstead"),
which will own 12.0% of the outstanding Common Stock
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following the Equity Offering. See "Risk Factors -- Dependence on Management
Contracts and on Certain Hotel Owners," "The Formation and the Financing
Plan -- The Formation" and "Principal Stockholders." For information with
respect to the anticipated termination of management contracts relating to two
of the Company's Portfolio hotels, see "Business -- Summary of Hotels" and
"-- Management Contracts." For additional information with respect to two of the
Company's franchised hotels, see "Business -- Summary of Hotels" and
"-- Franchising Program."
OPERATING AND FINANCIAL PERFORMANCE
The Company seeks to maximize revenues through its comprehensive marketing
strategy and the delivery of high quality accommodations and hotel services that
result in satisfied, loyal hotel guests. The Company believes that this strategy
has resulted in strong operating performance. During 1995, the average occupancy
rates, average daily room rates (total room revenues divided by the total number
of rooms occupied) ("ADR") and revenue per available room (ADR multiplied by the
average occupancy percentage) ("REVPAR") for Portfolio hotels were 69%, $88.79
and $60.96, respectively, compared with an average during this period of 69%,
$80.38 and $55.06, respectively, in the upscale segment of the lodging industry.
See "Business -- The Company's Hotels." During the three months ended March 31,
1996 (the "1996 First Quarter"), average occupancy rates, ADR and REVPAR for
Portfolio hotels were 67%, $96.04 and $64.51, respectively, compared with an
average during this period of 64%, $85.06 and $54.69, respectively, in the
upscale segment of the lodging industry. In 1995 and the 1996 First Quarter,
respectively, REVPAR for Portfolio hotels outperformed the upscale segment of
the lodging industry by 11% and 18%, respectively. The Company believes that it
has the opportunity to improve its REVPAR performance through, among other
things, the continued maturation of 10 Wyndham Garden Hotels opened in 1995.
The Company's operating strengths have yielded consistently strong
financial results. The Company believes that its experience as a hotel owner
makes it a better hotel manager by keeping it focused on controlling each
element of operating expenses, which is essential to achieving attractive
returns for both the Company's hotels and managed hotels. See
"Business -- Operating Strategy." The gross operating profit margins for the 30
Wyndham brand hotels that have been operated by the Company since January 1,
1993 ("Comparable Hotels") for 1993, 1994 and 1995 were 32%, 34% and 36%,
respectively, and for the three months ended March 31, 1995 (the "1995 First
Quarter") and the 1996 First Quarter were 37%. In comparison, the average for
the upscale full service segment of the lodging industry was 30%, 31% and 33%
(estimate), respectively, during 1993, 1994 and 1995. (Gross operating profit
margin statistics for the lodging industry are not yet available for 1996.)
Gross operating profit per available room for Comparable Hotels in 1993, 1994
and 1995 was $9,612, $11,417 and $12,547, respectively, compared to the average
for the upscale full service segment of the lodging industry of $8,397, $9,364,
and $10,820 (estimate), respectively, during 1993, 1994 and 1995. The Company's
gross operating profit per available room represents a premium to the upscale
full service segment of 14%, 22% and 16%, respectively, in 1993, 1994 and 1995.
(Gross operating profit per available room statistics for the lodging industry
also are not yet available for 1996.) For a presentation of certain financial
data for the Company's entire hotel Portfolio, see "-- Summary Combined
Financial and Other Data."
The Company has chosen a Comparable Hotel data set based on Wyndham brand
hotel properties operated by the Company since January 1, 1993 because the
Company believes that these 30 hotels have been operated by the Company for a
sufficient period of time to provide meaningful period-to-period comparisons and
that these hotels more fully reflect the Company's operating capabilities. The
Company's Portfolio contains a significant number of newly opened or renovated
Wyndham brand hotels, which typically begin operations with lower occupancy
rates, ADR, REVPAR and margins than mature hotels. While the period of time
required to achieve improved operating results from the application of Wyndham's
operating standards and integration into Wyndham's programs varies depending on
the unique characteristics of a given hotel and the market in which it operates,
the Company has found that during the third full year under Wyndham management a
hotel will fully reflect the Company's operating capabilities. In addition, the
Company believes that Comparable Hotel data provide a more meaningful comparison
to the lodging industry, which the Company believes has a significantly smaller
percentage of newly opened or renovated hotels than the Company. There can be no
assurance that the Company's hotels opened or renovated subsequent to January 1,
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1993 will achieve occupancy rates, ADR, REVPAR or operating results comparable
to the Comparable Hotels.
COMPREHENSIVE MARKETING STRATEGY
Wyndham has a full complement of sales and marketing capabilities designed
to maximize hotel revenues and brand awareness. The Company's direct sales
program at the hotel level, implemented by a sales force of almost 500
representatives, is designed to "pull" local business into each hotel and in
1995 accounted for over 60% of room revenues at Wyndham brand hotels. The
Company also has a national sales team that focuses on major corporate, group
and association accounts and seeks to "push" business into Wyndham hotels on a
nationwide basis. Over 35% of Wyndham's hotel room revenues in 1995 were booked
through Wyndham's central reservations system, which features a single telephone
number for all Wyndham brand hotels (800-WYNDHAM). See "Business -- Customers
and Marketing."
DEMONSTRATED GROWTH STRATEGY
The Company intends to continue focusing on both internal
growth -- enhancing the revenues, cash flow and profitability of its existing
hotels, and external growth -- increasing the number of hotels in its Portfolio.
The Company believes that the primary factors contributing to internal growth
include (i) revenue increases resulting from continuing improvements in the
lodging industry overall and continuing maturation of 23 hotels opened in the
past 2 years (including 12 Wyndham Garden Hotels), and (ii) improved operating
margins resulting from operating leverage and Wyndham's continued emphasis on
controlling operating expenses. The Company's internal growth strategy has
produced increases in Comparable Hotel REVPAR of 9.3% and 8.7% in 1994 and 1995,
respectively, and has produced an increase in Comparable Hotel gross operating
profit margins from 32% in 1993 to 36% in 1995. The Company's Comparable Hotel
REVPAR in the 1996 First Quarter increased 7.6% over the 1995 First Quarter, and
the Comparable Hotel gross operating profit margin was 37% in both the 1995
First Quarter and the 1996 First Quarter.
The Company's external growth strategy is to continue to increase the
number of Wyndham brand hotels in the upscale full service segment of the
lodging industry. The near-term focus of the Company's external growth strategy
will be to increase the Wyndham Portfolio through additional management
contracts, "like new" renovations of acquired properties, other acquisitions and
joint ventures. The Company also will consider franchising and hotel
construction, depending on market conditions. In addition, the Company expects
to continue its evaluation of other new hotel products that may be offered under
the Wyndham brand or operated by the Company under a different name. See
"-- Planned Portfolio Additions." In executing this growth strategy, the Company
will continue to rely on its senior executive officers (James D. Carreker,
Leslie V. Bentley, Eric A. Danziger, Anne L. Raymond and Stanley M. Koonce, Jr.)
(the "Senior Executive Officers"), who have an average of over 7 years with the
Company and approximately 14 years in the lodging industry, and who have
successfully developed, operated and managed hotel properties in various phases
of the industry cycle.
The Company's strategic business relationships with Crow Family Members and
Bedrock, which collectively will own approximately 60.4% of the Company's Common
Stock following the Equity Offering, have played an important role in the
Company's growth to date. The Company believes that these and other business
relationships will facilitate future growth by providing potential management
contract, acquisition, renovation and development opportunities. See
"Business -- Growth Strategy." The Company believes that its demonstrated
ability to achieve both internal and external growth will help attract third
party debt and equity capital to help fund the growth of the Company's
Portfolio. In addition, the Company believes that its future growth potential
will be enhanced by an improved capital structure and greater access to capital
markets following the Equity Offering. In addition to cash from operations and
the net proceeds of the Offering, the Company anticipates that it will have
additional capital resources through the consummation of the 3,350,000 share
Equity Offering contemporaneously with the closing of the Offering and the
closing of a $100.0 million revolving credit facility, although there can be no
assurance that the Company will enter into the revolving credit facility. See
"The Formation and the Financing Plan" and "Management's Discussion and Analysis
of Financial Condition and Results of Operations -- Liquidity and Capital
Resources."
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ATTRACTIVE LODGING INDUSTRY FUNDAMENTALS
The lodging industry as a whole has experienced four consecutive years in
which the growth in room demand has exceeded the growth in room supply. In 1995,
industry-wide percentage growth in demand for hotel rooms was nearly double
industry-wide percentage growth in supply (3.0% versus 1.6%) In the markets in
which the Company's hotels operate, 1995 percentage growth in demand outpaced
percentage growth in supply by .2%. In the 1996 First Quarter, however,
industry-wide percentage growth in supply exceeded industry-wide percentage
growth in demand by .1%, and in the markets in which the Company's hotels
operate, the percentage growth in supply exceeded the percentage growth in
demand by .2%. The Company believes that quarterly data are not necessarily
indicative of a full year's results and that poor demand in January, which was
affected by severe seasonal weather, impacted the 1996 First Quarter results.
Coopers & Lybrand L.L.P.'s Hospitality Directions (January 1996) ("Coopers
& Lybrand Hospitality Directions") estimates that industry-wide the percentage
growth in demand will exceed the percentage growth in supply by .7% and .5% in
1996 and 1997, respectively. The excess of demand growth over supply growth has
led to industry-wide increases in occupancy percentages and ADR, with occupancy
rising to 65.5% in 1995 from 64.7% in 1994, and ADR increasing 4.8% in 1995 over
1994 levels. Coopers & Lybrand Hospitality Directions indicates that occupancy
will continue to increase in 1996 and 1997 to 66.3% and 66.7%, respectively, and
that ADR will increase 4.5% in 1996 over 1995 levels and 4.4% in 1997 over 1996
levels. Historical industry performance, however, may not be indicative of
future results, and there can be no assurance that such projections will be
realized. See "Business -- The Lodging Industry."
The Company believes that its growth prospects are enhanced by the
forecasts for continuing improvements in the lodging industry. While no
assurance can be given as to future conditions in the lodging industry, the
Company believes that increases in room supply in the upscale segment continue
to be limited because of certain barriers to entry in that segment.
Unless otherwise noted, all statistics set forth in this Prospectus
relating to the lodging industry (other than Wyndham statistics) are from, or
have been derived from, information published or provided by Smith Travel
Research, an industry research organization. Smith Travel Research has not
provided any form of consultation, advice or counsel regarding any aspect of the
proposed Offerings, and Smith Travel Research is in no way associated with the
proposed Offerings.
PLANNED PORTFOLIO ADDITIONS
In the past four months, the Company has added three Wyndham brand hotels
to its Portfolio. The Company executed a franchise agreement in January 1996 for
an existing hotel in Breckenridge, Colorado, which opened immediately as The
Village at Breckenridge -- A Wyndham Resort. In addition, the Company entered
into a management contract in February 1996 for a Wyndham Hotel located in Cedar
Rapids, Iowa, which was converted to the Wyndham brand in March 1996. The
Company also executed a management contract in March 1996 to operate a Wyndham
Garden Hotel in Lexington, Kentucky that was recently acquired by Bedrock.
Wyndham began operating this hotel in March and will convert the hotel to the
Wyndham brand following renovations.
As of April 15, 1996, the Company had entered into management contracts for
four additional hotels, one of which opened on May 15, 1996, two of which the
Company expects to open in the remainder of 1996 and one of which the Company
expects to open by the first quarter of 1997. These management contracts relate
to one Wyndham Hotel, one Wyndham Garden Hotel, one Wyndham Resort and one
non-branded hotel. Crow Family Members own a majority or minority interest in
three of these hotels and the fourth is owned by Bedrock. See "Business -- The
Company's Hotels -- Hotels under Renovation and Construction" and "Certain
Relationships and Transactions."
On March 5, 1996 the Company entered into a contract with an unaffiliated
third party to purchase the Wyndham Garden Hotel -- Vinings (the "Vinings
Wyndham Garden Hotel"), located in the Atlanta metropolitan area. The Company
has managed this hotel since it was built in 1988. The Company expects that the
total acquisition cost will be $12.9 million, comprised of a cash payment of
$3.2 million and assumption of
7
<PAGE> 12
the existing indebtedness encumbering the property. See "Use of Proceeds" and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources." The purchase contract contains
certain contingencies, including the receipt of certain consents related to the
Company's assumption of such indebtedness. (In the event that such consents are
not received, the seller may require the Company to pay the full purchase price
in cash.) There can be no assurance that the property will be acquired. The
transaction, if consummated, is anticipated to close shortly following the
consummation of the Offering.
Garden Hotel Associates L.P. ("GHALP") has historically owned 11 Wyndham
Garden Hotels managed by the Company (the "GHALP Properties"). A 30% interest in
GHALP was owned by a partnership owned by certain Crow Family Members and the
Senior Executive Officers and the remaining 70% was held by an unaffiliated
third party. On May 2, 1996, Crow Family Members and the Senior Executive
Officers acquired the remaining 70% ownership interest from the third party for
a purchase price of approximately $29.5 million. The $29.5 million purchase
price was funded from the proceeds of the sale of the GHALP Properties to
Hospitality Properties Trust (including its subsidiaries, "HPT"), a publicly
traded real estate investment trust ("REIT"), for $135.3 million, which
properties were leased back pursuant to one or more long-term leases with an
initial term of approximately 17 years (the "GHALP Lease") to a new partnership
("GHALP II"), the ownership of which mirrors the ownership of GHALP. See "Pro
Forma Combined Financial Data" and "Business -- Long-Term Hotel Leases." As part
of the Formation, the Company will succeed to GHALP II's interest in the GHALP
Lease and continue to manage the hotels. The Company anticipates that in the
future, it may enter into similar transactions whereby it would sell mature
hotel properties to REITs, lease the hotels back and manage them as Wyndham
brand hotels. See "Business -- Growth Strategy -- III. Ability to Execute Growth
Strategy -- Sales of Mature Hotels; Long-Term Leases."
The Company expects that in 1996 it will enter into an agreement with a
partnership owned by Crow Family Members, Trammell Crow Residential and
Greystar, Inc. to provide hotel management, purchasing and technical services to
"extended-stay" hotel properties that will be targeted at corporate travelers
who typically spend a week or more in one location. The properties, which will
be limited service and will not be operated under the Wyndham name, are
currently under development. The Company expects that the first extended stay
hotel properties will commence operations in the last quarter of 1996. See
"Business -- Growth Strategy -- II. Additional Growth Opportunities -- New
Lodging Products."
The Company's principal executive offices are located at 2001 Bryan Street,
Suite 2300, Dallas, Texas 75201, and the Company's telephone number is (214)
863-1000.
THE FINANCING PLAN
Contemporaneously with the Formation, which is described under "The
Formation and the Financing Plan -- The Formation," the Company will implement a
financing plan (the "Financing Plan") in order to fund the cash payments
associated with the Formation, repay certain mortgage and other indebtedness
assumed in connection with the Formation and provide liquidity for the Company's
operating and growth strategies. Under the Financing Plan, the Company intends
to (i) offer $100.0 million of 10 1/2% Senior Subordinated Notes due 2006
through the Offering; (ii) concurrently offer 3,650,000 shares of Common Stock
in the Equity Offering, and thereby raise $58.4 million in gross proceeds; (iii)
enter into a new $100.0 million revolving credit facility (as further defined
under "Glossary," the "Revolving Credit Facility") with Bankers Trust Company
("Bankers Trust"); (iv) receive a contribution from Bedrock of $10.0 million
(the "Bedrock Contribution") pursuant to the Bedrock Exchange Agreement (as
defined under "The Formation and the Financing Plan -- The Formation"); and (v)
eliminate $7.5 million of outstanding indebtedness under the Company's current
revolving credit facility upon General Electric's exercise of the GE Option. See
"Description of Indebtedness" and "Principal Stockholders." Consummation of each
of the Offerings is conditioned upon consummation of the other, although there
can be no assurance that the Company will enter into the Revolving Credit
Facility. After applying the proceeds from the Offerings and the Bedrock
Contribution as indicated under "Use of Proceeds" (including funding the $3.2
million cash portion
8
<PAGE> 13
of the Vinings Wyndham Garden Hotel acquisition cost and $4.0 million of
improvements to the Wyndham Rose Hall Resort), the Company will have remaining
proceeds of approximately $25.8 million. This amount, together with cash
generated from operations and capital available under the Revolving Credit
Facility (the availability of which will be subject to the terms and financial
covenants to be set forth in the agreement relating to the Revolving Credit
Facility (the "Revolving Credit Agreement")), will be available to fund the
Company's operating and growth strategies. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Liquidity and
Capital Resources," "Description of the Revolving Credit Facility" and
"Description of the Notes."
The following table sets forth the anticipated sources and uses of funds
for the Financing Plan:
<TABLE>
<CAPTION>
(IN MILLIONS)(1)
<S> <C>
Sources of Funds:
The Notes (gross proceeds derived from the Offering)................ 100.0
Common Stock (gross proceeds derived from the Equity Offering)...... $ 58.4
Revolving Credit Facility........................................... 0
Bedrock Contribution................................................ 10.0
-----
Total....................................................... $168.4
=====
Uses of Funds:
Cash funding of Formation........................................... $ 53.8
Repayment of certain mortgage and other indebtedness(2)............. 64.8
Fees and expenses................................................... 16.8
Cash to fund operating and growth strategies(2)(3).................. 33.0
-----
Total....................................................... $168.4
=====
</TABLE>
- ---------------
(1) See "The Formation and the Financing Plan" for more specific information
with respect to the Formation and the Financing Plan.
(2) Included in the repayment of mortgage and other indebtedness is $7.5 million
of the $15.0 million of indebtedness owing to General Electric under a
Credit Agreement between the Company and General Electric relating to the
Company's current revolving credit facility (the "GE Credit Agreement").
Under the GE Credit Agreement, as subsequently modified, General Electric
has elected to exercise the GE Option to purchase 504,032 shares of Common
Stock at a price per share of $14.88 for a total purchase price of $7.5
million (which represents the remaining one-half of the $15.0 million of
indebtedness that will be outstanding under the GE Credit Agreement upon
consummation of the Offerings). For additional information with respect to
the GE Option, see "Principal Stockholders."
(3) Does not reflect (i) the intended acquisition from an unaffiliated party the
Vinings Wyndham Garden Hotel shortly following the consummation of the
Offerings, the estimated acquisition cost of which is $12.9 million,
comprised of a cash payment of $3.2 million, which cash payment will be
funded with a portion of the net proceeds of the Offerings, and assumption
of the existing indebtedness encumbering the property or (ii) funding
certain improvements to the Wyndham Rose Hall Resort in the approximate
amount of $4.0 million.
9
<PAGE> 14
THE OFFERING
Securities Offered......$100,000,000 principal amount of 10 1/2% Senior
Subordinated Notes due 2006.
Maturity Date...........May 15, 2006.
Interest Payment
Dates...................May 15 and November 15, commencing November 15, 1996.
Definitions.............Capitalized terms used in this summary of the Offering
and not defined have the meanings indicated under
"Description of the Notes."
Subordination...........The Notes are general, unsecured obligations of the
Company, subordinated in right of payment to all present
and future Senior Indebtedness and effectively
subordinated in right of payment to Guarantor Senior
Indebtedness. After giving pro forma effect to the
Formation, the Financing Plan and other adjustments
described under "Pro Forma Combined Financial Data," at
March 31, 1996, the Notes would have been subordinated
to approximately $24.2 million of Senior Indebtedness
(inclusive of Guarantor Senior Indebtedness) and the
obligations of a Subsidiary of the Company under the
GHALP Lease. See "Business -- Long-Term Hotel Leases."
The Company also expects that it will incur additional
Senior Indebtedness under the Revolving Credit Facility
in connection with the implementation of its growth
strategy. See "Description of the
Notes -- Subordination."
Guarantees..............Pursuant to the Indenture, each of the Company's
Subsidiaries (except for a number of insignificant
Subsidiaries) has, jointly and severally, fully and
unconditionally Guaranteed the Company's obligations
under the Notes on an unsecured senior subordinated
basis. In addition, the Indenture contains restrictions
on the Company's ability to make Investments in
Subsidiaries (or Persons who become Subsidiaries as a
result of such Investments) that are not (or do not
become) Guarantors. See "Description of the
Notes -- Guarantees" and "-- Covenants -- Limitation on
Restricted Payments."
Optional Redemption.....The Notes are redeemable, at the Company's option, in
whole or in part, at any time on or after May 15, 2001
and prior to maturity, at the Redemption Prices set
forth herein, plus accrued and unpaid interest, if any,
to the Redemption Date. See "Description of the
Notes -- Optional Redemption."
Covenants...............The Indenture contains, among other things, certain
covenants that, subject to certain exceptions, limit the
ability of the Company and its Restricted Subsidiaries
to (i) Incur Indebtedness, (ii) make Restricted
Payments, including certain dividends and distributions,
(iii) suffer dividend and other payment restrictions
affecting Restricted Subsidiaries, (iv) issue capital
stock of Restricted Subsidiaries, (v) issue Guarantees
by Restricted Subsidiaries, (vi) enter into transactions
with certain stockholders and Affiliates, (vii) effect
Asset Sales, (viii) incur subordinated Indebtedness that
is senior in right of payment to the Notes, or (ix)
engage in a line of business other than a
Hospitality-Related Business. See "Description of
Notes -- Covenants."
Change of Control.......Upon the occurrence of a Change of Control, each Holder
shall have the right to require the repurchase of its
Notes by the Company in cash at a purchase price equal
to 101% of the principal amount thereof, plus accrued
interest (if any) to the date of purchase. There can be
no assurance that the Company will have sufficient funds
available or will be able to obtain third-party
financing at the time of any Change of Control to make
any debt payment (including repurchases of Notes)
required by the "Repurchase of Notes upon a Change of
Control" covenant of the Indenture (as well as may be
required by the terms of other securities of the Company
that might be outstanding at the time). See "Description
of the Notes -- Repurchase of Notes upon a Change of
Control." It is anticipated that the terms of the
Revolving Credit Facility will prohibit such a Note
repurchase.
"Change of Control" is defined to mean (i) any sale,
transfer or other conveyance, whether direct or
indirect, of a majority of the fair market value of the
assets of the Company, on a consolidated basis, in one
transaction or series of related transactions, to any
Person or Persons other than the Company or one or more
of its Restricted Subsidiaries, (ii) any "person" or
"group" (as such terms are used for purposes of Sections
13(d) and 14(d) of the Exchange Act, whether or not
applicable), other than an Excluded Person or Excluded
Group, is or becomes the "beneficial owner" (as such
term is used in Rule 13d-3 promulgated pursuant to the
Exchange Act), directly or indirectly, of more than 45%
of the total voting power in the aggregate of all
classes of Capital Stock of the Company then outstanding
normally entitled to vote in elections of directors, or
(iii) during any period of two consecutive years after
the Closing Date, individuals who at the beginning of
any such period constituted the Board of Directors
10
<PAGE> 15
of the Company (together with any new directors whose
election by such Board or whose nomination for election
by the stockholders of the Company was approved by a
majority of the directors then still in office who were
either directors at the beginning of such period or
whose election or nomination for election was previously
so approved) cease for any reason to constitute a
majority of the Board of Directors of the Company then
in office.
"Excluded Group" is defined to mean a "group" (as such
term is used in Sections 13(d) and 14(d) of the Exchange
Act) that includes one or more Excluded Persons;
provided that the voting power of the Capital Stock of
the Company "beneficially owned" (as such term is used
in Rule 13d-3 promulgated under the Exchange Act) by
such Excluded Persons (without attribution to such
Excluded Persons of the ownership by other members of
the "group") represents not less than 75% of the voting
power of the Capital Stock "beneficially owned" (as such
term is used in Rule 13d-3 promulgated under the
Exchange Act) by such group.
"Excluded Person" is defined to mean each of (i) Mr. or
Mrs. Trammell Crow, any lineal descendant of Mr. and
Mrs. Trammell Crow, any trust of which not less than 75%
of the beneficial interests are held by Mr. or Mrs.
Trammell Crow or such lineal descendants or any
partnership, corporation or other entity of which not
less than 75% of the outstanding equity interests are
owned directly or indirectly by Mr. or Mrs. Trammell
Crow or such lineal descendants, (ii) Wynopt Investment
Partnership Level II, a Delaware limited partnership
("Wynopt II"), Wynopt Investment Partnership, a Delaware
limited partnership ("Wynopt"), or an Affiliate of
Wynopt II or Wynopt (x) of which not less than 75% of
the outstanding equity interests are owned directly or
indirectly by the direct or indirect owners of the
outstanding equity interests of Wynopt II and Wynopt as
of the Closing Date and (y) the business and affairs of
which are controlled by Donald J. McNamara, Robert A.
Whitman and Daniel A. Decker or any one or more of them
and (iii) a trustee or other fiduciary holding
securities under an employee benefit plan of the
Company.
As of March 31, 1996, after giving pro forma effect to
the Formation, the Financing Plan and other adjustments
described under "Pro Forma Combined Financial Data," no
indebtedness (other than the indebtedness evidenced by
the Notes) would be accelerated upon the occurrence of a
Change of Control or similar event. However, it is
anticipated that all indebtedness arising under the
Revolving Credit Facility (of which no amounts are
expected to be drawn upon consummation of the Formation
and the Financing Plan) will be subject to acceleration
upon a change of control of the Company. Any such
acceleration of such indebtedness, or any acceleration
of any subsequently incurred indebtedness subject to
acceleration upon a change of control or similar event,
could result in a Default or an Event of Default under
the Notes, which could lead to the Notes becoming
immediately due and payable. See "Risk Factors -- Risk
of Inability to Finance Change of Control Offer;
Defaults upon Change of Control" and "Description of the
Notes -- Events of Default."
Neither the Board of Directors nor the Trustee may waive
the "Repurchase of Notes Upon a Change of Control"
provision of the Indenture. Because the definition of
"Excluded Person" includes certain Crow Family Members
and certain affiliates of Bedrock, a Change of Control
would not occur upon a leveraged buyout or other
acquisition of control of the Company by such Persons or
an Excluded Group that includes such Persons. See
"Description of the Notes -- Repurchase of Notes upon a
Change of Control."
Use of Proceeds.........To fund the cash payments associated with the Formation,
repay certain mortgage and other indebtedness, fund the
cash portion of the acquisition cost associated with the
purchase of a hotel, fund improvements at a hotel and
provide liquidity for the Company's operating and growth
strategies (see "Use of Proceeds").
11
<PAGE> 16
SUMMARY COMBINED FINANCIAL AND OTHER DATA
(IN THOUSANDS, EXCEPT PER SHARE AND OPERATING, MARGIN AND RATIO DATA)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, THREE MONTHS ENDED MARCH 31,
------------------------------------------ -------------------------------
PRO FORMA PRO FORMA
1993 1994 1995 1995(1) 1995 1996 1996(1)
-------- -------- -------- --------- -------- -------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
PORTFOLIO HOTEL REVENUES(2)........................ $345,733 $394,949 $534,204 $534,204 $106,610 $158,619 $158,619
======== ======== ======== ======== ======== ======== ========
STATEMENT OF INCOME DATA:
Revenues:
Hotel Revenues................................. $ 43,921 $ 51,799 $ 54,673 $111,315 $ 15,359 $ 16,829 $ 32,840
Management fees................................ 10,731 13,302 16,921 14,274 3,404 5,202 4,444
Service fees................................... 2,127 2,904 4,120 3,391 707 964 741
Reimbursements................................. 4,164 8,004 10,836 9,095 2,357 3,582 3,318
Other income................................... 334 257 1,340 1,500 92 33 33
-------- -------- -------- -------- -------- -------- --------
Total Company Revenues..................... 61,277 76,266 87,890 139,575 21,919 26,610 41,376
Operating costs and expenses..................... 54,183 63,929 73,264 122,686 16,942 19,868 32,972
Operating income................................. 7,094 12,337 14,626 16,889 4,977 6,742 8,405
Interest expense, net............................ (7,075) (7,526) (8,021) (12,725) (2,045) (1,810) (2,983)
Income before income taxes....................... 1,654 6,265 7,949 4,948 3,018 5,167 5,603
Income taxes(3).................................. -- -- -- (1,955) -- -- (2,213)
Net income....................................... 1,654 6,265 $ 7,949 2,994 3,018 5,167 3,390
Pro forma income tax adjustment(4)............... (3,140) (1,192) (2,041)
Historical net income as adjusted for pro forma
income tax..................................... 4,809 1,826 3,126
Historical net income as adjusted per common
share(5)....................................... .30 .12 .20
Common shares outstanding prior to the
Offerings(5)................................... 15,821 15,821 15,821
Pro forma net income per common share(6)......... .15 .17
Pro forma common shares outstanding(6)........... 19,471 19,471
PORTFOLIO HOTEL OPERATING DATA:(7)
Number of hotels(8).............................. 47 53 66 53 68
Number of rooms(8)............................... 12,116 12,866 17,604 12,918 17,875
Occupancy percentage(9).......................... 65% 68% 69% 70% 67%
ADR(10).......................................... $ 80.60 $ 86.13 $ 88.79 $ 89.26 $ 96.04
REVPAR(11)....................................... $ 52.45 $ 58.84 $ 60.96 $ 62.25 $ 64.51
Gross operating profit margin(12)................ 26% 30% 29% 31% 30%
Food and beverage margin(13)..................... 25% 25% 26% 23% 22%
Gross operating profit per available room(14).... $ 8,279 $ 10,484 $ 10,813 $ 2,553 $ 2,684
COMPARABLE HOTEL OPERATING DATA:(15)
Number of hotels................................. 30 30 30 30 30
Number of rooms.................................. 7,334 7,334 7,334 7,334 7,334
Occupancy percentage(9).......................... 67% 70% 72% 73% 72%
ADR(10).......................................... $ 76.39 $ 80.16 $ 84.38 $ 87.89 $ 95.92
REVPAR(11)....................................... $ 51.31 $ 56.09 $ 60.99 $ 64.14 $ 69.03
Gross operating profit margin(12)................ 32% 34% 36% 37% 37%
Food and beverage margin(13)..................... 29% 31% 31% 30% 28%
Gross operating profit per available room(14).... $ 9,612 $ 11,417 $ 12,547 $ 3,307 $ 3,570
</TABLE>
<TABLE>
<CAPTION>
AS OF
DECEMBER
31, 1995 AS OF MARCH 31, 1996
-------- -----------------------
ACTUAL ACTUAL PRO FORMA(1)
-------- -------- ------------
<S> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents.................................................................. $ 4,160 $ 6,084 $ 40,683
Total assets............................................................................... 133,403 143,083 210,091
Long-term obligations including current portion............................................ 90,978 92,428 120,729
Total partners' capital and stockholders' equity........................................... 17,557 22,464 61,179
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, THREE MONTHS ENDED MARCH 31,
------------------------------------------ -------------------------------
PRO FORMA PRO FORMA
1993 1994 1995 1995(1) 1995 1996 1996(1)
-------- -------- -------- --------- -------- -------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
OTHER DATA:
EBITDA(16)....................................... $ 13,351 $ 19,122 $ 21,876 $ 24,147 $ 6,495 $ 8,639 $ 10,314
Net cash provided by operating activities........ 8,265 15,085 16,215 11,672 2,092 4,685 238
Net cash (used in) provided by investing
activities..................................... (9,758) (616) (21,343) 66,383 (4,489) (3,095) 84,722
Net cash provided by (used in) financing
activities..................................... 1,638 (11,676) 5,667 (43,127) 4,863 334 (48,438)
MARGIN AND RATIO DATA:
Ratio of EBITDA to interest expense, net......... 1.9x 2.5x 2.7x 1.9 x 3.2x 4.8x 3.5 x
Ratio of earnings to fixed charges(17)........... 1.2x 1.7x 1.9x 1.3 x 2.4x 3.3x 2.1 x
</TABLE>
12
<PAGE> 17
- ---------------
(1) Reflects the Formation, the Financing Plan and other adjustments described
under "Pro Forma Combined Financial Data."
(2) Represents revenues of hotels owned, leased or managed by the Company, as
distinguished from Total Company Revenues.
(3) For the years 1993 through 1995 and the 1996 First Quarter, Wyndham made no
provision for income taxes because the combined company was a combination
of partnerships, S corporations and a nontaxable Bermuda corporation that
are not subject to U.S. federal income taxes. The provision for income
taxes to arrive at pro forma net income assumes a combined federal and
state effective income tax rate of 39.5% computed as follows:
<TABLE>
<S> <C>
Federal income tax rate............................................................ 35.0%
Weighted average state income tax rate (net of federal benefit).................... 4.5%
-----
39.5%
=====
</TABLE>
(4) Pro forma income tax adjustment represents a pro forma provision for income
taxes based on the assumed effective tax rate of 39.5%.
(5) Historical net income as adjusted per common share is based on historical
net income as adjusted for pro forma income tax divided by the number of
shares that would have been outstanding if the Company had been a
corporation prior to the Offering.
(6) Pro forma net income per share is based on 19,470,799 shares of Common
Stock outstanding after the Equity Offering, which reflects the $15.0
million outstanding indebtedness under the GE Credit Agreement at the time
of the consummation of the Offering, and therefore the issuance of 504,032
shares of Common Stock upon the exercise of the GE Option. See "Principal
Stockholders."
Supplemental pro forma earnings per share would have been $.10 for the year
ended December 31, 1995 and $.12 for the 1996 First Quarter, giving effect
only to (i) the application of the net proceeds from the Offerings to the
repayment of indebtedness and (ii) pro forma provision for income taxes
based on the assumed effective tax rate of 39.5%.
(7) Includes hotels owned, leased, managed or franchised during the periods
presented, except data for gross operating profit margin, food and beverage
margin and gross operating profit per available room excludes franchised
properties, for which the information is not available. The number of
hotels listed in 1994 does not include 7 hotels for which the Company had
signed management contracts that were closed for renovations or
construction in that period. Annual changes in occupancy percentage, ADR
and REVPAR and fluctuations in gross operating profit margins for the
Company's Portfolio of hotels have been affected by the addition of newly
opened or renovated Wyndham brand hotels, which typically begin operations
with lower occupancy rates, ADR, REVPAR and margins than mature hotels and
improve over time as the hotels benefit from Wyndham's operating standards
and become integrated into Wyndham's sales and marketing programs and
central reservations system. There can be no assurance that the Company's
hotels opened or renovated subsequent to January 1, 1993 will achieve
occupancy rates, ADR, REVPAR or operating results comparable to the
Comparable Hotels.
(8) At end of period.
(9) Occupancy percentage represents total rooms occupied divided by total
available rooms. Total available rooms represents the number of rooms
available for rent multiplied by the number of days in the reported period.
(10) ADR represents total room revenues divided by the total number of rooms
occupied.
(11) REVPAR represents total room revenues divided by total available rooms.
(12) Gross operating profit margin represents gross operating profit as a
percentage of total revenues. "Gross operating profit" represents gross
revenues less department expenses and undistributed operating expenses.
Gross operating profit margins are included herein because management uses
them as a measure of hotel operating performance and because management
believes that these items are useful in making industry comparisons.
(13) Food and beverage margin represents food and beverage operating profit as a
percentage of food and beverage revenues.
(14) Gross operating profit per available room represents gross operating profit
divided by total available rooms for the period.
(15) The Company has chosen a Comparable Hotel data set based on Wyndham brand
hotel properties operated by the Company since January 1, 1993 because the
Company believes that these 30 hotels have been operated by the Company for
a sufficient period of time to provide meaningful period-to-period
comparisons and that these hotels more fully reflect the Company's
operating capabilities. The Company's Portfolio contains a significant
number of newly opened or renovated Wyndham brand hotels, which typically
begin operations with lower occupancy rates, ADR, REVPAR and margins than
mature hotels. While the period of time required to achieve improved
operating results from the application of Wyndham's operating standards and
integration into Wyndham's programs varies depending on the unique
characteristics of a given hotel and the market in which it operates, the
Company has found that during the third full year under Wyndham management
a hotel will fully reflect the Company's operating capabilities. In
addition, the Company believes that Comparable Hotel data provide a more
meaningful comparison to the lodging industry, which the Company believes
has a significantly smaller percentage of newly opened or renovated hotels
than the Company. There can be no assurance that the Company's hotels
opened or renovated subsequent to January 1, 1993 will achieve occupancy
rates, ADR, REVPAR or operating results comparable to the Comparable
Hotels.
(16) EBITDA represents operating income before depreciation and amortization
plus equity in earnings of partnership and any increase or decrease in
earnings attributable to minority interests. EBITDA is used by the Company
for the purpose of analyzing its operating performance, leverage and
liquidity. Such data are not a measure of financial performance under
generally accepted accounting principles and should not be considered as an
alternative to net income as an indicator of the Company's operating
performance or as an alternative to cash flows as a measure of liquidity.
The EBITDA margin is calculated by dividing EBITDA by Total Company
Revenues. EBITDA and EBITDA ratio information are included herein because
management believes that investors find it to be a useful tool for
measuring the ability to service debt. Management also believes EBITDA
enables investors to assess the operations of a business without
considering the impact of financing and tax consequences that vary
depending on the capital structure and tax position of individual
companies.
EBITDA for the Company in the periods presented includes non-cash equity
participation compensation expense of $2,709,770, $2,802,387, $3,992,143
and $3,992,143 in 1993, 1994, 1995 and pro forma 1995, respectively, and
$998,035, zero and zero in the 1995 First Quarter, the 1996 First Quarter
and the pro forma 1996 First Quarter, respectively.
(17) Earnings used in computing the ratio of earnings to fixed charges consist
of income before income taxes, fixed charges and extraordinary items. Fixed
charges consist of interest expense, including amounts capitalized and the
amortization of deferred financing fees, and that portion of rental expense
representative of interest (deemed to be one third of rental expense).
13
<PAGE> 18
RISK FACTORS
In addition to the other information contained in this Prospectus,
prospective investors should consider carefully the following factors in
evaluating the Company and its business before purchasing the shares of Common
Stock offered by this Prospectus.
SIGNIFICANT DEBT AND LEASE OBLIGATIONS
At and for the period ended March 31, 1996, on a pro forma basis after
giving effect to the Formation, the Financing Plan and other adjustments
described under "Pro Forma Combined Financial Data", the Company's long term
consolidated debt was approximately $100.0 million, its total stockholders'
equity was approximately $61.2 million and its ratio of earnings to fixed
charges was 2.1 to 1. The Company's indebtedness is substantial in relation to
its stockholders' equity. The Company expects that it will incur additional
Indebtedness, including secured Senior Indebtedness under the Revolving Credit
Facility, in connection with the implementation of its growth strategy. In
addition, the Company will have significant lease obligations with respect to
the 12 hotel properties operated pursuant to long-term leases. See
"Business -- Long-Term Hotel Leases." For the year ended December 31, 1995 and
the 1996 First Quarter, on a pro forma basis after giving effect to the
Formation, the Financing Plan and other adjustments described under "Pro Forma
Combined Financial Data," the Company's rent expense was approximately $15.5
million and $4.7 million, respectively. (See Notes 10 and 11 to the Combined
Financial Statements for information with respect to the Company's historical
mortgage indebtedness and lease obligations.) The degree to which the Company is
leveraged, as well as its rent expense, could have important consequences to
holders of the Notes (the "Holders"), as well as to holders of the Common Stock,
including: (i) the Company's ability to obtain additional financing in the
future for working capital, capital expenditures, acquisitions or general
corporate purposes may be impaired; (ii) a substantial portion of the Company's
cash flow from operations may be dedicated to the payment of principal and
interest on its Indebtedness and rent expense, thereby reducing the funds
available to the Company for its operation; and (iii) certain of the Company's
Indebtedness contains, and the Revolving Credit Facility is expected to contain,
financial and other restrictive covenants, including those restricting the
incurrence of additional Indebtedness, the creation of liens, the payment of
dividends and sales of assets and imposing minimum net worth requirements. See
"Description of the Revolving Credit Facility" and "Description of the Notes."
There can be no assurance that the Company's operating results will be
sufficient for the payment of the Company's Indebtedness. In addition, the
Company's indebtedness could increase the Company's vulnerability to adverse
general economic and lodging industry conditions (including increases in
interest rates) and could impair the Company's ability to take advantage of
significant business opportunities that may arise.
SUBORDINATION OF THE NOTES
The Notes are general, unsecured obligations of the Company, subordinated
in right of payment to all present and future Senior Indebtedness and
effectively subordinated in right of payment to Guarantor Senior Indebtedness.
After giving pro forma effect to the Formation, the Financing Plan and other
adjustments described under "Pro Forma Combined Financial Data," at March 31,
1996, the Notes would have been subordinated to approximately $24.2 million of
Senior Indebtedness (inclusive of Guarantor Senior Indebtedness) and the
obligations of a Subsidiary of the Company under the GHALP Lease. See
"Business -- Long-Term Hotel Leases." The Company expects that it will incur
additional Senior Indebtedness, including secured Senior Indebtedness under the
Revolving Credit Facility, in connection with the implementation of its growth
strategy. By reason of such subordination, in the event of the liquidation or
insolvency of the Company, creditors of the Company who are not holders of
Senior Indebtedness, including Holders of the Notes, may recover less, ratably,
than holders of Senior Indebtedness. The Subsidiary Guarantees will be
subordinated to Guarantor Senior Indebtedness to the same extent as the Notes
are subordinated to Senior Indebtedness. See "Description of the Revolving
Credit Facility" and "Description of the Notes."
RISKS ASSOCIATED WITH THE LODGING INDUSTRY
The Company's business is subject to the operating risks inherent in the
lodging industry. These risks include changes in general and local economic
conditions, cyclical overbuilding in the lodging industry,
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varying levels of demand for rooms and related services, competition from other
hotels, changes in travel patterns, the recurring need for renovation,
refurbishment and improvement of hotel properties, changes in governmental
regulations that influence or determine wages, prices and construction and
maintenance costs, changes in interest rates, the availability of financing for
operating or capital needs and changes in real estate taxes and other operating
expenses. There can be no assurance that regulatory compliance or downturns or
prolonged adverse conditions in real estate or capital markets or national or
local economies will not have a material adverse effect on the Company's results
of operations. See "Business -- The Lodging Industry."
COMPETITION IN THE LODGING INDUSTRY
The lodging industry is highly competitive. The Company's hotels compete
with other national limited and full service hotel companies, as well as with
various regional and local hotels. Some of the larger hotel chains with which
the Company competes include Marriott, Sheraton, Hyatt, Hilton and Embassy
Suites. A number of the Company's competitors are larger, operate more hotels
and have substantially greater financial and other resources than the Company.
In addition, some of the Company's competitors operate hotel properties that
have locations superior to those of the Company's hotels. Competitive factors in
the lodging industry include room rates, quality of accommodations, name
recognition, service levels and convenience of location. There can be no
assurance that demographic, geographic or other changes in markets in which the
Company's hotels are located will not adversely affect the convenience or
desirability of certain of the Company's hotels. Furthermore, there can be no
assurance that new or existing competitors will not significantly lower rates or
offer greater conveniences, services or amenities or significantly expand or
improve facilities in a market in which the Company's hotels compete, thereby
adversely affecting the Company's results of operations. See
"Business -- Competition."
RISKS ASSOCIATED WITH EXPANSION
Growth Risks. The Company's revenues and net income have grown
substantially during the past several years as a result of adding new management
contracts, acquiring, renovating and developing additional hotels, and from
increases in revenues and net income at existing hotels. The Company intends to
continue to pursue an aggressive growth strategy for the foreseeable future, but
there can be no assurance that the Company will successfully achieve its growth
objectives. The Company is subject to a variety of business risks generally
associated with growing companies. The Company's ability to pursue successfully
new growth opportunities will depend on many factors, including, among others,
the Company's ability to identify suitable growth opportunities, finance
acquisitions and renovations and successfully integrate new hotels into its
operations. While the Company believes that it will have sufficient capital
following the Offerings to fund its growth strategy in the near term, this
belief is primarily premised on adequate cash being generated from operations
and the Company's entry into the Revolving Credit Facility. There can be no
assurance that the Company will generate adequate cash from operations or that
it will be successful in entering into the Revolving Credit Facility, and, if
so, on what terms. The Revolving Credit Facility would be an important source of
capital to fund the Company's future growth strategy and, if the Company is not
able to agree with Bankers Trust on the terms of the Revolving Credit Agreement,
it would need to seek other sources of financing to help fund its future growth
strategy. If the Company does enter into the Revolving Credit Facility and
generates anticipated cash from operations, the Company may seek an increase in
the capital available to it under the Revolving Credit Facility or otherwise
obtain additional debt or equity financing, depending upon the amount of capital
required to pursue future growth opportunities or address other needs. There can
be no assurance that such increase or additional financing will be available to
the Company on acceptable terms, if at all. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Liquidity and
Capital Resources."
In addition, there can be no assurance that the Company will be able to
integrate successfully new hotels or new hotel products into its operations,
that new hotels or new hotel products will achieve revenue and profitability
levels comparable to the Company's existing hotels or that the combined business
will be profitable. Newly acquired or developed hotels typically begin with
lower occupancy and room rates. Furthermore, the Company's expansion within its
existing markets could adversely affect the financial
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performance of the Company's existing hotels or its overall results of
operations. Expansion into new markets may present operating and marketing
challenges that are different from those currently encountered by the Company in
its existing markets. There can be no assurance that the Company will anticipate
all of the changing demands that expanding operations will impose on its
management, management information and reservation systems, and the failure to
adapt its systems and procedures could have a material adverse effect on the
Company's business. See "Business -- Growth Strategy."
Competition for Expansion Opportunities. The Company competes for
management contract, acquisition, development, lease, franchise and other
expansion opportunities. The Company competes for these expansion opportunities
with national and regional hotel companies, some of which have greater financial
and other resources than the Company. Competitive factors for expansion
opportunities include relationships with hotel owners and investors, the
availability of capital, financial performance, management fees, lease payments,
brand name recognition, marketing support, reservation system capacity and the
willingness to provide funds in connection with new management and lease
arrangements. The Company's failure to compete successfully for expansion
opportunities or to attract and maintain relationships with hotel owners and
investors could adversely affect the Company's results of operations. See
"Business -- Competition."
Acquisition and Development Risks. The Company expects that it may acquire
additional hotels in the future. Acquisitions entail the risk that investments
will fail to perform in accordance with expectations. The Company also intends
to continue redevelopment and conversion of other acquired hotels to Wyndham
Garden Hotels. The Company has entered into a contract to purchase one hotel
(the Vinings Wyndham Garden Hotel). The Company has entered into management
contracts with respect to two new hotels (one of which opened on May 15, 1996,
and the other of which is under construction) pursuant to which the Company has
undertaken certain obligations to provide furniture, fixtures and equipment at
specified prices. The Company also has entered into management contracts for
four additional hotels under renovation, two of which will remain open during
renovations. In addition, the Company may develop new hotels in the future,
depending on market conditions. Significant hotel renovations and new project
development are subject to a number of risks, including risks of construction
delays or cost overruns, risks that the properties will not achieve anticipated
performance levels and new project commencement risks such as receipt of zoning,
occupancy and other required governmental permits and authorizations. These and
other risks could result in the incurrence of substantial costs for a project
that is never completed. The Company anticipates that most acquisitions,
substantial renovations and development will be financed under the Revolving
Credit Facility, through joint ventures or with other forms of short-term
secured or unsecured financing. See "Business -- Growth Strategy" and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources." Permanent financing for these
projects, however, might not be available or might be available only on
disadvantageous terms. If permanent debt or equity financing were not available
on acceptable terms to refinance projects undertaken without permanent
financing, such projects could be curtailed and the Company's working capital
could be adversely affected.
DEPENDENCE ON MANAGEMENT CONTRACTS AND ON CERTAIN HOTEL OWNERS
Management contracts are acquired, terminated, renegotiated or converted to
franchise agreements in the ordinary course of the Company's business. Crow
Family Members, who will own approximately 48.4% of the Company's issued and
outstanding Common Stock following the Equity Offering, have interests in 15
hotels that the Company manages pursuant to management contracts. The Company
also manages 16 hotels owned by Bedrock, which will own approximately 12.0% of
the Company's issued and outstanding Common Stock following the Equity Offering.
See "The Formation and the Financing Plan -- The Formation" and "Principal
Stockholders." While the average remaining term of the Company's management
contracts for Wyndham brand hotels as of April 15, 1996 was 13.6 years
(including renewals that the Company may elect to exercise), the Company's
management contracts generally may be terminated by the owner of the hotel
property if the Company fails to meet certain performance standards, if the
property is sold to a third party, if the property owner defaults on
indebtedness encumbering the property and/or upon a foreclosure of the property.
The terms of the four non-Wyndham brand hotel management contracts range from
one month to fifteen years. Other grounds for termination include a hotel
owner's election to close a hotel and certain business
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combinations involving the Company in which the Wyndham name or current
management team does not survive. There can be no assurance that the Company
will be able to replace terminated contracts or that the terms of renegotiated
or converted contracts will be as favorable as the terms that existed before
such renegotiation or conversion. The Company also is subject to the risk of
deterioration in the financial condition of a hotel owner and such owner's
ability to pay management fees to the Company. In addition, in certain
circumstances, the Company makes or may be required to make loans to or capital
investments in hotel properties in connection with management contracts. See
"Business -- Management Contracts." A material deterioration in the operating
results of one or more of these hotel properties and/or a loss of the related
management contracts could adversely affect the value of the Company's
investment in such hotel properties. In addition, the Company historically has
relied on Crow Family Members, Bedrock and other hotel owners and investors for
various acquisition, renovation, development and other expansion opportunities.
Although the Company believes that it enjoys satisfactory relationships with
such hotel owners and investors, there can be no assurance that such
relationships will remain satisfactory or that such owners and investors will
continue to provide expansion opportunities in the future. See
"Business -- Growth Strategy."
CONFLICTS OF INTEREST
Absence of Arms-Length Negotiations in the Formation of the Company. The
determination of the amount of cash to be paid and the equity interests in the
Company to be issued to the various participants in the Formation of the Company
and the allocation of the equity interests in the Company between the purchasers
of Common Stock in the Equity Offering and the participants in the Formation
were not made through arms-length negotiations and were not based upon
independent third party determinations of value. The consideration to be paid by
the Company in connection with the transactions comprising the Formation were
negotiated by certain Senior Executive Officers, who will receive substantial
economic benefits as a result of the Formation. See "The Formation and the
Financing Plan" and "Certain Relationships and Transactions." The value of one
of the Assigned Businesses was determined on the basis of discounted projected
pre-tax cash flow. The value of each of the other Assigned Businesses, other
than the Old Management Company (as such terms are defined under "The Formation
and the Financing Plan -- The Formation"), was determined on the basis of a
multiple of the adjusted historical pre-tax cash flow of such Assigned
Businesses, while the value of the Old Management Company was based upon the
remaining value attributable to the combined enterprise. There can be no
assurance that the consideration given by the Company for such assets is
equivalent to the fair market value of such assets. See "The Formation and the
Financing Plan -- Allocation of Consideration in the Formation Transactions."
Future Dealings with Affiliates of the Company. Crow Family Members,
certain of their affiliates and Bedrock are, collectively, parties to 31
management contracts as well as other business arrangements with the Company.
See "Certain Relationships and Transactions" and "The Formation and the
Financing Plan." These relationships, coupled with the ownership of Common Stock
by Crow Family Members and Bedrock, as well as their representation on the
Company's Board of Directors, could give rise to conflicts of interest. Although
the Company believes that its management contracts with these persons are on
terms no less favorable to the Company than those that could have been obtained
from unaffiliated third parties, there can be no assurance that these parties
will continue to transact business with the Company or that they will not
attempt to use their ownership positions with the Company to influence the terms
on which they transact business with the Company in the future. In addition, the
Senior Executive Officers have ownership interests in hotels that are managed
but not owned by the Company. An entity owned by Crow Family Members and the
Senior Executive Officers is developing a new central reservations system for
the Company, and the timing, performance and continued availability of such
system is not fully within the Company's control. The outside interests of the
Senior Executive Officers could give rise to certain conflicts of interest that
may result in decisions that do not fully reflect the interests of all
stockholders. See "Business -- Growth Strategy -- III. Ability to Execute Growth
Strategy -- Relationships with Hotel Investors" and "Certain Relationships and
Transactions."
Conflicts Involving Certain Board Members. Robert A. Whitman and Daniel A.
Decker, who are directors of the Company, are principals of Hampstead, which has
an ownership interest in Bedrock in
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addition to another hotel company that in the past has competed, and in the
future may compete, with the Company for both guests and hotel acquisitions.
Hampstead is an investment firm and may from time to time acquire interests in
other hotel companies or assets. Consequently, Messrs. Whitman and Decker may
have conflicts of interest with respect to certain matters potentially or
actually involving or affecting the Company and such other hotel-related
investments, such as acquisition, development, financing and other corporate
opportunities that may be suitable for the Company and such other hotel
companies. In addition, such directors also may have conflicts of interest with
respect to corporate opportunities suitable for both the Company and Hampstead.
To the extent such opportunities arise, such directors will make a determination
after consideration of a number of factors, including whether such opportunity
is presented to any such director in his capacity as a director of the Company
or as an affiliate of such other hotel company or of Hampstead, whether such
opportunity is within the Company's line of business or consistent with its
strategic objectives and whether the Company will be able to undertake or
benefit from such opportunity. The Company and Bedrock have agreed that the
Company will be permitted to manage for a term of 15 years any hotel that is
financed by Bedrock and contains 250 or fewer rooms. See "Certain Relationships
and Transactions -- Bedrock Investment Program."
Policy with Respect to Related Party Transactions. The Company has
implemented a policy requiring any material transaction (or series of related
transactions) between the Company and related parties to be approved by a
majority of the directors not affiliated with the Company (the "Independent
Directors"), if any, upon such directors' determination that the terms of the
transaction are no less favorable to the Company than those that could have been
obtained from unrelated third parties. The policy defines a material related
party transaction (or series of related transactions) as one involving a
purchase, sale, lease or exchange of property or assets or the making of any
investment with a value to the Company in excess of $1.0 million or a service
agreement (or series of related agreements) with a value in excess of $1.0
million in any fiscal year. There can be no assurance that this policy always
will be successful in eliminating the influence of conflicts of interest. See
"Management -- Directors and Executive Officers" and "Certain Relationships and
Transactions -- Policy with Respect to Related Party Transactions."
RISKS ASSOCIATED WITH OWNING OR LEASING REAL ESTATE
The Company owns or leases 18 of its Portfolio of 68 hotels. Accordingly,
the Company will be subject to varying degrees of risk generally related to
owning and leasing real estate. These risks include, among others, changes in
national, regional and local economic conditions, local real estate market
conditions, changes in interest rates and in the availability, cost and terms of
financing, liability for long-term lease obligations, the potential for
uninsured casualty and other losses, the impact of present or future
environmental legislation and compliance with environmental laws, and adverse
changes in zoning laws and other regulations, many of which are beyond the
control of the Company. In addition, real estate investments are relatively
illiquid; therefore, the ability of the Company to vary its Portfolio in
response to changes in economic and other conditions may be limited.
Pursuant to the Formation Agreements, certain owners of (i) six Wyndham
brand hotels to be transferred to the Company, (ii) the GHALP Lease and (iii) an
additional leasehold interest to be transferred to the Company (collectively,
the "Assigned Real Property") have made representations to the Company as to,
among other things, no knowledge of material undisclosed environmental
liabilities relating to the Assigned Real Property, no knowledge of material
undisclosed litigation relating to the Assigned Real Property and no knowledge
of defects in title to the Assigned Real Property, and have agreed to indemnify
the Company for breach of such representations. Such representations and
indemnity will survive for one year following the Formation. See
"Business -- Long-Term Hotel Leases." Because such representations are qualified
as to knowledge and have a limited period of survival, they are more limited in
scope than those often found in comparable real estate transactions. In
addition, the owners of the Assigned Businesses (other than the Assigned Real
Property) make no representations to the Company as to these Assigned
Businesses. As a consequence, certain obligations or losses relating to the
Assigned Real Property or the other Assigned Businesses or their respective
operations, whether arising before or after the Formation, will become the
responsibility of the Company. As is customary in real estate transactions
comparable to the transfer to the
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Company of the Assigned Real Property, however, the Company will obtain policies
of title insurance insuring against losses from certain defects in title
relating to the Assigned Real Property. There can be no assurance, however, that
the Company would be able to obtain recoveries under the title insurance
policies in the event of a defect in title or that any proceeds or replacement
properties would provide returns comparable to those of the Assigned Real
Property. See "The Formation and the Financing Plan -- The Formation."
Pursuant to the Formation Agreements, the Company has agreed to indemnify
certain of the owners of the Assigned Businesses for liabilities arising in
connection with the Formation resulting from claims brought by unaffiliated
third parties.
CONTROL BY PRINCIPAL STOCKHOLDERS
Following the Equity Offering, Crow Family Members will beneficially own an
aggregate of approximately 48.4% of the outstanding shares of the Company's
Common Stock (47.3% if the underwriters' over-allotment option in the Equity
Offering is exercised in full), and Bedrock will beneficially own approximately
12.0% of the Company's issued and outstanding Common Stock (11.3% if the
underwriters' over-allotment option in the Equity Offering is exercised in
full). See "The Formation and the Financing Plan -- The Formation" and
"Principal Stockholders." In addition to the ability of Crow Family Members,
either independently or together with Bedrock, to block certain actions
requiring stockholder approval by virtue of the substantial number of shares of
Common Stock held by them, the terms of a Stockholders' Agreement (as more
specifically defined under "Description of Capital Stock -- Stockholders'
Agreement," the "Stockholders' Agreement") to be entered contemporaneously with
the Formation among the Company, Crow Family Members, Bedrock, the Senior
Executive Officers, Wyndham Employees Ltd. ("WEL") and Susan T. Groenteman, a
director of the Company, will have the effect of concentrating control of the
Company by these parties. Under the terms of the Stockholders' Agreement, Crow
Family Members (together with the Senior Executive Officers, WEL and Ms.
Groenteman) and Bedrock agree, among other things, to allocate between
themselves the right to nominate members of the Board of Directors of the
Company as long as they continue to own a substantial number of shares of the
Company's Common Stock. In addition, pursuant to the terms of the Stockholders'
Agreement, Crow Family Members and Bedrock have allocated among themselves the
right to designate the Chairman of the Board so long as either party owns shares
of Common Stock covered by the Stockholders' Agreement that represents at least
30% of the Company's outstanding Common Stock. Such provisions in the
Stockholders' Agreement will ensure such parties' ability to control the
election of the members of the Board of Directors and will enable such parties
to control the management and affairs of the Company. See "Description of
Capital Stock -- Stockholders' Agreement."
FRAUDULENT CONVEYANCE RISKS
Various fraudulent conveyance laws have been enacted for the protection of
creditors and may be utilized by a court to subordinate or avoid the Notes or
any Subsidiary Guarantee in favor of other existing or future creditors of the
Company or a Guarantor.
A portion of the net proceeds from the sale of the Notes, together with a
portion of the net proceeds from the Equity Offering and the Bedrock
Contribution, is being used to fund the cash payments associated with the
Formation, repay certain mortgage and other indebtedness, fund the cash portion
of the acquisition cost associated with the purchase of the Vinings Wyndham
Garden Hotel and fund certain capital improvements at the Wyndham Rose Hall
Resort. See "Use of Proceeds." If a court in a lawsuit on behalf of any unpaid
creditor of the Company or a representative of the Company's creditors were to
find that, at the time the Company consummated such transactions, the Company
(x) intended to hinder, delay or defraud any existing or future creditor or
contemplated insolvency with a design to prefer one or more creditors to the
exclusion in whole or in part of others or (y) did not receive fair
consideration or reasonably equivalent value for issuing the Notes and the
Company (i) was insolvent, (ii) was rendered insolvent by reason of such
distribution, (iii) was engaged or about to engage in a business or transaction
for which its remaining assets constituted unreasonably small capital to carry
on its business, or (iv) intended to incur, or believed that it would incur,
debts beyond its ability to pay such debts as they matured, such court could
void the Notes and void such
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transactions. Alternatively, in such event, claims of the Holders of the Notes
could be subordinated to claims of the other creditors of the Company.
The Company's obligations under the Notes will be guaranteed by the
Guarantors. To the extent that a court were to find that (x) a Subsidiary
Guarantee was incurred by a Guarantor with intent to hinder, delay or defraud
any present or future creditor or the Guarantor contemplated insolvency with a
design to prefer one or more creditors to the exclusion in whole or in part of
others or (y) such Guarantor did not receive fair consideration or reasonably
equivalent value for issuing its Subsidiary Guarantee and such Guarantor (i) was
insolvent, (ii) was rendered insolvent by reason of the issuance of such
Subsidiary Guarantee, (iii) was engaged or about to engage in a business or
transaction for which the remaining assets of such Guarantor constituted
unreasonably small capital to carry on its business, or (iv) intended to incur,
or believed that it would incur, debts beyond its ability to pay such debts as
they matured, the court could void or subordinate such Subsidiary Guarantee in
favor of the Guarantor's creditors. Among other things, a legal challenge of a
Guarantee on fraudulent conveyance grounds may focus on the benefits, if any,
realized by the Guarantor as a result of the issuance by the Company of the
Notes.
A significant portion of the Company's operations are conducted through
subsidiaries, and the Company therefore relies on distributions from its
subsidiaries for a portion of the funds to service its indebtedness, including
payment of principal of and interest on the Notes. To the extent any Subsidiary
Guarantees were voided as a fraudulent conveyance or held unenforceable for any
other reason, Holders of the Notes would cease to have any claim in respect of
such Guarantor and would be creditors solely of the Company and any Guarantor
whose Subsidiary Guarantee was not voided or held unenforceable. In such event,
the claims of the Holders of the Notes against the issuer of an invalid
Subsidiary Guarantee would be subject to the prior payment of all liabilities
and preferred stock claims of such Guarantor. There can be no assurance that,
after providing for all prior claims and preferred stock interests, if any,
there would be sufficient assets to satisfy the claims of the Holders of the
Notes relating to any voided portions of any of the Subsidiary Guarantees.
The measure of insolvency for purposes of the foregoing will vary depending
on the law of the jurisdiction which is being applied. Generally, however, the
Company or a Guarantor would be considered insolvent at a particular time if the
sum of its debts was then greater than all of its property at a fair valuation
or if the present fair saleable value of its assets was then less than the
amount that would be required to pay its probable liabilities on its existing
debts as they became absolute and matured. Based upon financial and other
information currently available to it, management of the Company believes that
the Notes and the Subsidiary Guarantees are being incurred for proper purposes
and in good faith and that each of the Company and each Guarantor (i) is solvent
and will continue to be solvent after issuing the Notes or its Subsidiary
Guarantee, as the case may be, (ii) will have sufficient capital for carrying on
its business after such issuance, and (iii) will be able to pay its debts as
they mature. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations -- Liquidity and Capital Resources."
DEPENDENCE ON SENIOR MANAGEMENT
The Company's success will depend largely on the efforts and abilities of
senior management. The loss of the services of the Senior Executive Officers
could have a material adverse effect on the Company's business. The Company has
not entered into employment agreements with any member of senior management. See
"Management."
ENVIRONMENTAL MATTERS
Under various federal, state, local and foreign environmental laws,
ordinances and regulations ("Environmental Laws"), a current or previous owner
or operator of real property may be liable for the cost of removal or
remediation of hazardous or toxic substances on, under or in such property. Such
laws often impose liability without regard to whether the owner or operator knew
of, or was responsible for, the release of such hazardous or toxic substances.
The presence of contamination from hazardous or toxic substances, or the failure
to remediate such contaminated property properly, may adversely affect the
owner's ability to sell or rent such real property or to borrow using such real
property as collateral. Persons who arrange for the disposal or
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treatment of hazardous or toxic substances also may be liable for the cost of
removal or remediation of such substances at the disposal or treatment facility,
whether or not such facility is or ever was owned or operated by such person.
The operation and removal of certain underground storage tanks also are
regulated by federal and state laws. In connection with the ownership and
operation of its hotel properties, including properties owned, as well as
leased, managed or franchised by the Company, the Company could be held liable
for the cost of remedial action with respect to such regulated substances and
storage tanks and claims related to them. In addition to clean-up actions
brought by federal, state and local agencies, the presence of hazardous or toxic
substances on a hotel property also could result in personal injury or similar
claims by private plaintiffs. The Company has received environmental information
covering its owned and leased properties, and certain of its managed and
franchised properties; however on many of the managed and franchised properties,
the Company has not performed or received the results from any environmental
investigations. As a result of the foregoing limitations on performing
environmental investigation and due to the fact that Environmental Laws and
conditions are subject to frequent change, there can be no assurance that
environmental liabilities or claims will not adversely affect the Company in the
future. See "Business -- Environmental Matters" for further information germane
to environmental issues relating to the Company.
RISK OF INABILITY TO FINANCE CHANGE OF CONTROL OFFER; DEFAULTS UPON A CHANGE OF
CONTROL
The Indenture governing the Notes provides that, upon the occurrence of a
Change of Control, each Holder shall have the right to require the repurchase of
its Notes by the Company in cash at a purchase price equal to 101% of the
principal amount thereof, plus accrued and unpaid interest (if any) to the date
of purchase. The Change of Control also may constitute a change of control or
event of default under other Indebtedness of the Company. Therefore, upon the
occurrence of a Change of Control, the Company may be required to repurchase the
Notes and repay such other outstanding Indebtedness. Should a Change of Control
occur and a substantial amount of the Notes be presented for purchase, there can
be no assurance that the Company will have sufficient funds available or will be
able to obtain third-party financing at the time of any Change of Control to
make any debt payment (including repurchases of Notes) required by the
"Repurchase of Notes upon a Change of Control" covenant of the Indenture (as
well as may be required by the terms of other securities of the Company that
might be outstanding at the time). See "Description of Notes -- Repurchase of
Notes Upon a Change of Control."
The Change of Control purchase feature of the Notes may make more difficult
or discourage a take-over of the Company and, thus, the removal of incumbent
management. Consummation of any such transaction may require redemption or
purchase of the Notes under the Indenture, and there can be no assurance that
the Company or the acquiring entity, if any, will have sufficient resources to
effect such redemption or purchase. The Change of Control purchase feature
resulted from negotiations between the Company and the Underwriters and is not
the result of management's knowledge of any specific effort to obtain control of
the Company. It is anticipated that the terms of the Revolving Credit Facility
will prohibit such a Note repurchase.
As of March 31, 1996, after giving pro forma effect to the Formation, the
Financing Plan and other adjustments described under "Pro Forma Combined
Financial Data," $100.0 million of indebtedness (representing the $100.0 million
of indebtedness evidenced by the Notes) would be accelerated upon the occurrence
of a Change of Control or similar event. In addition, it is expected that
certain "changes of control," as defined in the Revolving Credit Facility, will
constitute a default thereunder. Any such acceleration of such indebtedness, or
any acceleration of any subsequently incurred indebtedness subject to
acceleration upon a change of control or similar event, could result in a
Default or an Event of Default under the Notes, which could lead to the Notes
becoming immediately due and payable. See "Description of the Notes -- Events of
Default."
Neither the Board of Directors nor the Trustee may waive the "Repurchase of
Notes Upon a Change of Control" provision of the Indenture. Because the
definition of "Excluded Person" includes certain Crow Family Members and certain
affiliates of Bedrock, a Change of Control would not occur upon a leveraged
buyout or other acquisition of control of the Company by such Persons or an
Excluded Group that includes such Persons. See "Description of the
Notes -- Repurchase of Notes upon a Change of Control."
21
<PAGE> 26
Certain provisions of the Company's Certificate of Incorporation could have
an anti-takeover effect. Such provisions may make less likely the occurrence of
a Change of Control, thus reducing the likelihood of a Change in Control Offer.
ABSENCE OF PUBLIC MARKET FOR THE NOTES
The Notes are a new issue of securities for which there is currently no
public market, and there can be no assurance as to the liquidity of the market
for the Notes that may develop, the ability of the holders to sell their Notes
or the prices at which holders of the Notes would be able to sell their Notes.
If a market for the Notes does develop, the Notes may trade at a discount from
their initial public offering price, depending on prevailing interest rates, the
market for similar securities, performance of the Company, performance of the
lodging sector and other factors. No assurance can be given as to whether an
active trading market will develop or be maintained for the Notes. See
"Underwriting."
THE FORMATION AND THE FINANCING PLAN
THE FORMATION
The first Wyndham brand hotel was established in 1982. Wyndham brand hotels
have primarily been developed through developmental and management expertise
supplied by the Company and capital provided by Crow Family Members (and, to a
lesser extent, certain Senior Executive Officers). In 1994, the Company and
Bedrock commenced a program of accelerated development of Wyndham Garden Hotels,
with Bedrock providing the necessary capital and the Company primarily providing
developmental and management expertise. The Company has worked with a number of
other unaffiliated hotel owners and investors to expand the Company's Portfolio
to its current size.
Wyndham Hotel Corporation was formed on February 16, 1996 to succeed to the
business of Wyndham Hotel Company Ltd., which, directly and through its
subsidiaries, currently manages and franchises the Company's Portfolio of hotels
(the "Old Management Company"), as well as succeed to the ownership of six
Wyndham brand hotels, leasehold interests relating to the GHALP Lease and an
additional leased hotel (an aggregate of 12 leased Wyndham brand hotels) and a
contract to purchase a single additional hotel (collectively, the "Assigned
Businesses"). See "Business -- Summary of Hotels" for a listing of these hotels.
In March, 1996, the Company entered into certain agreements with the current
owners of direct and indirect interests in the Old Management Company and hotels
(the "Formation Agreements"), which collectively provide for the transfer to the
Company of the Assigned Businesses, as well as certain other transactions
described below that involve the parties thereto. In addition, on March 10,
1996, the Company entered into an agreement (the "Bedrock Exchange Agreement")
with various affiliates of Bedrock, pursuant to which Bedrock will transfer to
the Company options to acquire equity interests in the Old Management Company
(as more specifically defined under "Certain Relationships and
Transactions -- Bedrock Investment Program," the "Bedrock Options") and the
Bedrock Contribution in the amount of $10.0 million. Pursuant to the Formation
Agreements, the Old Management Company's rights and obligations under its
management agreements and franchise agreements will be transferred to the
Company by operation of law and will remain in full force and effect. The
Company has obtained the necessary consents to such transfers.
Formation Transactions. Set forth below is a description of the
transactions related to the formation of the Company (the "Formation").
- The Assigned Businesses are being transferred to the Company in
consideration of the Company's issuance of 12,948,077 shares of Common
Stock and the payment of $25.3 million, in cash. The number of shares
issuable and the cash payable in exchange for interests in certain of the
Assigned Businesses are subject to working capital adjustments. The
shares of Common Stock are being issued in exchange for all of the
interests in the Assigned Businesses held by the Company's management and
other personnel and a portion of the interests in the Assigned Businesses
held by Crow Family Members. Of the total cash amount being paid for the
Assigned Businesses, $19.1 million is being paid for the remaining
portion of the interests in the Assigned Businesses held by Crow Family
Members
22
<PAGE> 27
and $6.2 million is being paid for the interests in the Assigned
Businesses held by various unaffiliated parties.
- The Company will repay the indebtedness of certain of the Assigned
Businesses owing to various Crow Family Members in the aggregate amount
of $4.0 million.
- The Company will pay $6.0 million in cash to Caribbean Hotel Management
Company, a company owned by Crow Family Members ("CHMC"), in
consideration of the release and discharge of the Company from its
obligation to make payments to CHMC under an agreement between CHMC and
the Company (the "CHMC Agreement"). Pursuant to the CHMC Agreement, the
Company acquired in 1988 from CHMC a number of management agreements
relating to certain Wyndham brand hotels then in operation, and in
partial consideration therefor the Company agreed to pay CHMC 16% of the
revenues derived from such management agreements. The Company's
obligation to continue paying such amounts to CHMC will terminate upon
its release and discharge.
- The Company will pay $18.6 million in cash to Wyndham Finance Limited
Partnership, a partnership owned by Crow Family Members ("WFLP"), in
connection with the Company's purchase from WFLP of notes representing an
equal amount of "Division Account Balance" receivables held by WFLP (the
"DAB Notes"). The DAB Notes represent the outstanding principal and
accrued interest as of December 31, 1995 severally owing by the Senior
Executive Officers and WEL to WFLP and are evidenced by promissory notes
made payable to the Company. Such notes will accrue interest at 6% per
annum, and are fully secured by the pledge of shares of Common Stock held
by the note obligors, and the outstanding principal and accrued interest
(compounded quarterly) will be payable in a single lump sum in May 2001.
- In consideration of Bedrock's transfer of the Bedrock Options and the
Bedrock Contribution in the amount of $10.0 million to the Company, the
Company will issue to Bedrock 2,332,590 shares of Common Stock pursuant
to the Bedrock Exchange Agreement. See "Principal Stockholders."
All of the transactions relating to the Formation will be completed
immediately prior to, or substantially simultaneously with, the consummation of
the Offerings. See "Description of Capital Stock -- Stockholders' Agreement" and
"-- Registration Rights" for information relating to other arrangements among
the Company, Crow Family Members, the Senior Executive Officers, WEL, Ms.
Groenteman and Bedrock that will be consummated contemporaneously with the
Formation.
In connection with the Formation, the Company and certain owners of
Assigned Businesses are seeking certain consents, and the consummation of the
Formation is conditioned upon the receipt of such consents.
Pursuant to the Formation Agreements, certain owners of (i) the six Wyndham
brand hotels to be transferred to the Company, (ii) leasehold interests in the
GHALP Properties and (iii) the additional leasehold interest to be transferred
to the Company (collectively, the "Assigned Real Property") have made
representations to the Company as to, among other things, no knowledge of
material undisclosed environmental liabilities relating to the Assigned Real
Property, no knowledge of material undisclosed litigation relating to the
Assigned Real Property and no knowledge of defects in title to the Assigned Real
Property, and have agreed to indemnify the Company for breach of such
representations. Such representation and indemnity will survive for one year
following the Formation. See "Business -- Long-Term Hotel Leases." Because such
representations are qualified as to knowledge and have a limited period of
survival, they are more limited in scope than those often found in comparable
real estate transactions. In addition, the owners of the Assigned Businesses
(other than the Assigned Real Property) make no representations to the Company
as to these Assigned Businesses. As a consequence, certain obligations or losses
relating to the Assigned Real Property or the other Assigned Businesses or their
respective operations, whether arising before or after the Formation, will
become the responsibility of the Company. As is customary in real estate
transactions comparable to the transfer to the Company of the Assigned Real
Property, however, the Company will obtain policies of title insurance insuring
against losses from certain defects in title relating to the Assigned Real
Property. There can be no assurance, however, that the Company would be able to
obtain recoveries under the title insurance
23
<PAGE> 28
policies in the event of a defect in title or that any proceeds or replacement
properties would provide returns comparable to those of the Assigned Real
Property.
Pursuant to the Formation Agreements, the Company has agreed to indemnify
certain of the owners of the Assigned Businesses and Bedrock for liabilities
arising in connection with the Formation resulting from claims brought by
unaffiliated third parties.
ALLOCATION OF CONSIDERATION IN THE FORMATION TRANSACTIONS
The amount of cash and shares of Common Stock to be received by Crow Family
Members, Senior Executive Officers and WEL in the transactions comprising the
Formation was not determined as a result of arm's length negotiations. The
consideration to be paid by the Company in connection with the transactions
comprising the Formation was negotiated by certain Senior Executive Officers,
who will receive substantial economic benefits as a result of the consummation
of the Formation transactions. See "Certain Relationships and
Transactions -- Benefits of the Formation and the Financing Plan to Related
Parties." Therefore, there can be no assurance that the consideration to be paid
by the Company for these interests will not exceed the fair market value of such
interests.
The aggregate amount of cash and shares of Common Stock to be received by
the current owners of the Assigned Businesses was determined through
negotiations between the Company and Crow Family Members, which own a majority
interest in each of the Assigned Businesses and will also beneficially own an
aggregate of approximately 48.4% of the outstanding shares of the Company's
Common Stock following the Equity Offering. These parties reached an agreement
with respect to the value of one of the Assigned Businesses on the basis of
discounted projected pre-tax cash flow. The value of each of the other Assigned
Businesses (other than the Old Management Company) was determined on the basis
of a multiple of the adjusted historical pre-tax cash flow of such Assigned
Businesses, while the value of the Old Management Company was based upon the
remaining value attributable to the combined enterprise. These methodologies
were used because the Company believed it most appropriate to value the Assigned
Businesses as ongoing businesses. The aggregate amount of shares of Common Stock
that has been allocated to the current owners of the Assigned Businesses was
determined based on the agreed value of the Assigned Businesses, compared with
the estimated value contributed to the Company by the Company's other
stockholders, including the investors purchasing shares of Common Stock in the
Equity Offering.
The amount of indebtedness owing by the Assigned Businesses that will be
assumed and repaid by the Company to various Crow Family Members will be equal
to the outstanding principal amount and accrued interest thereon as of the date
of consummation of the Formation. The amount to be paid by the Company to CHMC
in consideration of the release and discharge of the Company from its payment
obligations under the CHMC Agreement was determined through negotiations between
the Company and Crow Family Members, and was based upon the value of the
anticipated stream of payments that would have been payable by the Company to
CHMC through the remaining term of the CHMC Agreement. The amount to be paid by
the Company to WFLP for the purchase of the DAB Notes will be equal to the
outstanding principal and accrued interest owing thereon as of December 31,
1995.
The Bedrock Options are currently exercisable for up to a 37.5% interest in
the Old Management Company. See "Certain Relationships and
Transactions -- Bedrock Investment Program." The number of shares of Common
Stock to be issued by the Company to Bedrock for its transfer to the Company of
the Bedrock Options and the Bedrock Contribution was determined through
negotiations between the Company and Bedrock. The value of the Bedrock Options
was generally based upon the difference between the exercise price for such
options and the estimated value of Bedrock's equity ownership in the Old
Management Company, based upon certain assumptions, including the assumption
that such options were exercised prior to their expiration for an interest in
the Old Management Company component of the combined businesses comprising the
Company.
No third party determination of the value of assets transferred to the
Company was made in connection with the transactions comprising the Formation.
See "Risk Factors -- Conflicts of Interest."
24
<PAGE> 29
THE FINANCING PLAN
The Company will implement the Financing Plan in order to fund the cash
payments associated with the Formation, repay certain mortgage and other
indebtedness assumed in connection with the Formation and provide liquidity for
the Company's operating and growth strategies. Under the Financing Plan, the
Company intends to (i) concurrently offer $100.0 million of Notes through the
Offering; (ii) concurrently offer 3,650,000 shares of Common Stock in the Equity
Offering, and thereby raise approximately $58.4 million in gross proceeds; (iii)
enter into the Revolving Credit Facility; (iv) receive the Bedrock Contribution
in the amount of $10.0 million pursuant to the Bedrock Exchange Agreement; and
(v) eliminate $7.5 million of outstanding indebtedness under the Company's
current revolving credit facility upon General Electric's exercise of the GE
Option. See "Description of Indebtedness" and "Principal Stockholders."
Consummation of each of the Offerings is conditioned upon consummation of the
other, although there can be no assurance that the Company will enter into the
Revolving Credit Facility. After applying the net proceeds from the Offerings
and the Bedrock Contribution as indicated under "Use of Proceeds," the Company
will have remaining proceeds of approximately $25.8 million. This amount,
together with cash generated from operations and capital available under the
Revolving Credit Facility (the availability of which will be subject to the
terms and financial covenants to be set forth in the Revolving Credit
Agreement), will be available to fund the Company's operating and growth
strategies. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations -- Liquidity and Capital Resources," "Description of the
Revolving Credit Facility" and "Description of the Notes."
The following table sets forth the anticipated sources and uses of funds
for the Financing Plan:
<TABLE>
<CAPTION>
(IN MILLIONS)
<S> <C>
Sources of Funds:
The Notes (gross proceeds derived from the Offering)................... 100.0
Common Stock (gross proceeds derived from the Equity Offering)......... $ 58.4
Revolving Credit Facility.............................................. 0
Bedrock Contribution(1)................................................ 10.0
------
Total.......................................................... $ 168.4
======
Uses of Funds:
Cash funding of Formation(2)........................................... $ 53.8
Repayment of certain mortgage and other indebtedness(3)................ 64.8
Fees and expenses(4)................................................... 16.8
Cash to fund operating and growth strategies(3)(5)(6).................. 33.0
------
Total.......................................................... $ 168.4
======
</TABLE>
- ---------------
(1) Pursuant to the Bedrock Exchange Agreement, Bedrock is required to transfer
the Bedrock Options and the sum of $10.0 million to the Company in
consideration of the issuance to Bedrock of shares of Common Stock.
(2) Comprised of cash payments of (a) $19.1 million payable to Crow Family
Members in partial consideration of the transfer of their interests in the
Assigned Businesses, (b) $4.0 million payable to various Crow Family Members
in repayment of certain indebtedness owing by the Assigned Businesses, (c)
$6.2 million payable to certain unaffiliated third parties in consideration
of the transfer of their interests in the Assigned Businesses, (d) $6.0
million payable to CHMC in consideration of the release and discharge of the
Company's payment obligations under the CHMC Agreement, and (e) $18.6
million payable to WFLP in connection with the purchase of the DAB Notes.
(3) Prior to or substantially simultaneous with the Formation, the Company will
(a) fully repay mortgage and other indebtedness in the approximate amount of
$55.3 million owing to third party lenders relating to the six Wyndham brand
hotels acquired in the Formation, (b) fully repay remaining indebtedness in
the approximate amount of $2.0 million, which arose in connection with the
original acquisition of the GHALP Properties and (c) repay $7.5 million of
the $15.0 million of indebtedness owing to General Electric under the GE
Credit Agreement. Under the GE Credit Agreement, as subsequently modified,
General Electric has elected to exercise the GE Option to purchase 504,032
shares of Common Stock at a price per share of $14.88 for a total purchase
price of $7.5 million (which represents the remaining one-half of the $15.0
million of indebtedness that will be outstanding under the GE Credit
Agreement upon consummation of the Offerings). For additional information
with respect to the GE Option, see "Principal Stockholders."
(4) Represents estimated fees and expenses (including underwriting discounts and
commissions) in connection with the Offerings and the Financing Plan and the
transactional expenses relating to the GHALP transactions.
25
<PAGE> 30
(5) The Company intends to acquire from an unaffiliated party the Vinings
Wyndham Garden Hotel shortly following the consummation of the Offerings.
The estimated acquisition cost is $12.9 million, comprised of a cash payment
of $3.2 million, which cash payment will be funded with a portion of the net
proceeds from the Offerings, and the assumption of existing indebtedness
encumbering the property. In addition, the Company intends to make certain
improvements to the Wyndham Rose Hall Resort in the approximate amount of
$4.0 million. See "Prospectus Summary -- The Company -- Planned Portfolio
Additions," "Use of Proceeds" and "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Liquidity and Capital
Resources."
(6) Cash to fund operating and growth strategies is lower than the net increase
in cash and cash equivalents reflected on the pro forma combined balance
sheet by $1.6 million because the pro forma data reflects activity as of
March 31, 1996, while the Financing Plan reflects projected activity as of
the date of consummation of the Formation transactions. The reductions in
cash are: (a) $1.3 million arising from not giving effect to the GHALP
transactions, which are not part of the Financing Plan, as the transactions
have already been consummated, (b) not reclassifying $.7 million of
restricted cash to cash and cash equivalents and (c) not considering $.4
million in transaction costs already paid as of March 31, 1996. These
reductions are offset by net projected lower indebtedness of .1 million that
will be repaid as part of the Formation and an expectation that working
capital will be sufficient to pay accrued interest upon the date of
consummation of the Formation and not require proceeds from the "Sources of
Funds" identified above. Accrued interest was approximately $.6 million at
March 31, 1996. See the explanations of pro forma adjustments to the pro
forma combined balance sheet under "Pro Forma Combined Financial Data."
BENEFITS OF THE FORMATION AND THE FINANCING PLAN TO RELATED PARTIES
In connection with their participation in the transactions related to the
Formation of the Company, certain major stockholders, directors and executive
officers of the Company will receive the following benefits.
Crow Family Members will receive, collectively, 9,447,272 shares of Common
Stock and $19.1 million in cash in exchange for their interests in the Assigned
Businesses (of which 31,250 shares will be indirectly transferred to Susan T.
Groenteman shortly following the Offering). See "Principal Stockholders." In
addition, Crow Family Members will receive $4.0 million in cash as a result of
the repayment of certain loans that they made to certain of the Assigned
Businesses. In addition, WFLP, a partnership owned by Crow Family Members, will
receive $18.6 million in cash for the sale of the DAB Notes, which represent
obligations of the Senior Executive Officers (James D. Carreker, Leslie V.
Bentley, Eric A. Danziger, Anne L. Raymond and Stanley M. Koonce, Jr.) and WEL.
CHMC, which is owned by certain Crow Family Members, will receive $6.0 million
in cash as consideration for the release and discharge of the Company's payment
obligations under the CHMC Agreement.
The Senior Executive Officers of the Company will receive the following
number of shares of Common Stock in exchange for their respective interests in
the Assigned Businesses:
-- James D. Carreker: 1,168,047 shares;
-- Leslie V. Bentley: 328,909 shares;
-- Eric A. Danziger: 379,443 shares;
-- Anne L. Raymond: 378,361 shares; and
-- Stanley M. Koonce, Jr.: 386,211 shares.
Bedrock (in which Messrs. Whitman and Decker have ownership interests) will
receive 2,332,590 shares of Common Stock in consideration of Bedrock's transfer
to the Company of the Bedrock Options and the Bedrock Contribution in the amount
of $10.0 million.
WEL (in which certain executive officers and employees of the Company
participate) will receive 643,685 shares of Common Stock in exchange for its
interests in the Assigned Businesses.
TCI 2001 Limited Partnership ("TCI"), which is owned by certain Crow Family
Members and the Senior Executive Officers, will receive a payment of
approximately $250,000 from the Company as a commission to be paid to an
employee of TCI for his efforts in facilitating the sale of the 11 Wyndham
Garden Hotels to an unaffiliated publicly traded REIT. See
"Business -- Long-Term Hotel Leases."
26
<PAGE> 31
USE OF PROCEEDS
The net proceeds to the Company from the Offering are estimated to be
approximately $95.3 million, after deduction of the underwriting discounts and
commissions and the Company's estimated offering expenses. The net proceeds to
the Company from the sale of 3,650,000 shares of Common Stock in the Equity
Offering are estimated to be approximately $51.4 million, yielding estimated
combined net proceeds from the Offerings of $146.7 million. The consummation of
each of the Offerings is conditioned upon consummation of the other. The net
proceeds from the Offerings will be used in accordance with the Financing Plan
to fund the cash payments associated with the Formation in the approximate total
amount of $53.8 million, to repay certain mortgage and other indebtedness in the
approximate total amount of $64.8 million assumed in connection with the
Formation, to pay approximately $5.1 million of fees and expenses incurred in
connection with the GHALP transactions and consummating the elements of the
Financing Plan other than the Offerings, to fund the cash portion of the
estimated acquisition cost to purchase the Vinings Wyndham Garden Hotel in the
amount of $3.2 million and to fund certain improvements to the Wyndham Rose Hall
Resort in the approximate amount of $4.0 million. The remainder of the net
proceeds from the Offerings and the Bedrock Contribution, approximately $25.8
million, will be used together with cash generated from operations and capital
available under the Revolving Credit Facility (the availability of which will be
subject to the negotiated terms and financial covenants to be included therein)
to provide liquidity for the Company's operating and growth strategies. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources," "Description of the Revolving
Credit Facility" and "Description of the Notes."
Of the $146.7 million net proceeds from the Offerings, the Company will pay
Crow Family Members $19.1 million in consideration of the transfer of the
Assigned Businesses, $4.0 million in repayment of indebtedness owing by the
Assigned Businesses, $6.0 million in consideration of the release and discharge
of the Company's payment obligations under the CHMC Agreement and $18.6 million
in consideration of the sale of the DAB Notes. See "The Formation and the
Financing Plan -- The Formation" and "Certain Relationships and Transactions"
for further information relating to these transactions. Of the approximately
$64.8 million portion of net proceeds from the Offerings used to repay
indebtedness, the Company estimates that (i) $55.3 million will be used to repay
mortgage and other indebtedness owing to unrelated third party lenders
(comprised of a mortgage loan in the approximate outstanding principal amount of
$12.5 million, with a maturity of May 2, 1996 and a fluctuating interest rate at
prime plus .5%; a mortgage loan in the approximate outstanding principal amount
of $9.9 million, with a maturity date of December 31, 1999 and a fluctuating
interest rate at the London Interbank Offered Rate ("LIBOR") plus 1.75%; a
mortgage loan in the approximate outstanding principal amount of $10.1 million,
with a maturity date of December 31, 1999 and a fluctuating interest rate at
LIBOR plus 1.5%; a mortgage loan with an approximate outstanding principal
amount of $5.4 million, with a maturity date of May 21, 2000 and a fluctuating
interest rate at LIBOR plus 3.25%; a mortgage loan in the approximate
outstanding principal amount of $8.6 million, with a maturity date of August 28,
1997 and a fluctuating interest rate at prime plus 1.25%; a mortgage loan with
an approximate outstanding principal amount of $5.6 million, with a maturity
date of November 15, 1999 and a fluctuating interest rate at 86% of the London
Interbank Bid Rate; a note in the approximate outstanding principal amount of
$2.3 million, with a maturity date of November 15, 1999 and an interest rate of
11.5%; a note in the approximate outstanding principal amount of $187,000, with
a maturity date of November 15, 1999 and a fluctuating interest rate at Jamaican
prime plus 1.5%; an operating deficit loan in the approximate outstanding
principal amount of $222,000, with no stated maturity and a fluctuating interest
rate at prime plus 2.0%; and a partnership development loan in the approximate
outstanding principal and accrued interest amount of $525,000, with a maturity
that has been extended to the date of consummation of the Offerings and a
fluctuating interest rate equal to the partnership cost of capital plus 2.0%);
(ii) $2.0 million will be used to repay indebtedness arising in connection with
the original acquisition of the GHALP Properties (with a maturity date of
December 1999 and a fixed interest rate of 11.5%); and (iii) $7.5 million will
be used to repay one-half of the $15.0 million of indebtedness owing to General
Electric under the GE Credit Agreement (with a maturity date of June 2002 and an
interest rate at December 31, 1995 of 9.0%). See Note 10 of Notes to Combined
Financial Statements for further information relating to the indebtedness to be
repaid.
Pending application of the net proceeds as described above, the Company
intends to invest such proceeds in short-term, investment grade, interest
bearing securities.
27
<PAGE> 32
CAPITALIZATION
The following table sets forth at March 31, 1996 the historical
capitalization of the Company, and the pro forma capitalization of the Company
after giving effect to the Formation, the Financing Plan and other adjustments
described under "Pro Forma Combined Financial Data." See "The Formation and the
Financing Plan" and "Pro Forma Combined Financial Data." The information set
forth in the table should be read in conjunction with the Combined Financial
Statements and the Notes thereto, included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
MARCH 31, 1996
------------------------
HISTORICAL PRO FORMA
---------- ---------
(DOLLARS IN THOUSANDS)
(UNAUDITED)
<S> <C> <C>
Cash and cash equivalents......................................... $ 6,084 $ 40,683(1)
========= ========
Long-term debt, including current maturities...................... 71,699 100,000(1)(2)
--------- --------
Capitalized lease obligations, including current portion.......... 20,729 20,729
Minority interest................................................. 7,972 --
--------- --------
Partners' capital and stockholders' equity:
Partners' capital............................................... 24,839 --
Preferred Stock, $.01 par value, 5,000,000 shares authorized; no
shares outstanding........................................... -- --
Common Stock, $.01 par value, 45,000,000 shares authorized;
19,470,799 shares outstanding, pro forma(3).................. -- 195
Additional paid-in capital...................................... -- 73,589
Retained earnings............................................... -- 7,213
Receivables from affiliates..................................... (2,375) (1,242)
Notes receivable from stockholders.............................. -- (18,576)
--------- --------
Total partners' capital and stockholders' equity........ 22,464 61,179
--------- --------
Total capitalization.................................... $ 122,864 $ 181,908
========= ========
</TABLE>
- ---------------
(1) Does not reflect (i) the acquisition of the Vinings Wyndham Garden Hotel,
which is expected to close shortly following consummation of the Offering,
the estimated acquisition cost for which is $12.9 million (including
estimated closing costs of $395,000), comprised of a cash payment of $3.2
million and the assumption of $9.7 million of industrial revenue bond
indebtedness or (ii) funding certain improvements to the Wyndham Rose Hall
Resort in the approximate amount of $4.0 million. See "Pro Forma Combined
Financial Data" and "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Liquidity and Capital Resources."
(2) After giving full effect to the implementation of the Formation and the
Financing Plan, the Company does not expect that it will initially draw any
amounts under the Revolving Credit Facility. See "The Formation and the
Financing Plan" and "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Liquidity and Capital Resources."
(3) Based on 19,470,799 shares of Common Stock outstanding after the Equity
Offering, which reflects $15.0 million outstanding indebtedness under the GE
Credit Agreement at the time of the consummation of the Offering, and
therefore the issuance of 504,032 shares of Common Stock upon the exercise
of the GE Option. Excludes (i) 2,133,811 shares of Common Stock reserved for
issuance under the Incentive Plan, of which the Company expects to grant
options to purchase 797,700 shares prior to the date of this Prospectus with
exercise prices equal to the initial public offering price per share and
(ii) 50,000 shares of Common Stock reserved for issuance under the Retainer
Plan. See "Management -- 1996 Long Term Incentive Plan," "-- Director
Compensation" and "Principal Stockholders."
28
<PAGE> 33
PRO FORMA COMBINED FINANCIAL DATA
The following unaudited pro forma combined balance sheet of the Company as
of March 31, 1996 presents, in the "The Company Pro Forma" column, the financial
position of the Company as if the Formation and the Financing Plan had been
completed on March 31, 1996. The unaudited pro forma combined statements of
income of the Company for the year ended December 31, 1995 and the 1996 First
Quarter present, in the "The Company Pro Forma" column, the results of
operations of the Company as if the Formation and the Financing Plan had been
completed on January 1, 1995. The adjustments required to reflect the Formation
and the Financing Plan are set forth in the "Pro Forma Adjustments" columns and
are discussed in the accompanying notes.
The Formation has been accounted for as an exchange between entities under
common control, and, accordingly, the assets received by the Company and its
affiliates in the Formation will be recorded at historical cost.
The pro forma combined balance sheet and statements of income reflect (i)
the acquisition of a 70% interest in GHALP from an unaffiliated third party,
(ii) the sale/leaseback of the GHALP Properties to an unaffiliated REIT and
(iii) the repayment of indebtedness. These transactions were consummated on May
2-3, 1996. Pro forma adjustments related to the GHALP transactions have been set
forth in a separate column under "Pro Forma Adjustments." See
"Business -- Long-Term Hotel Leases."
The following pro forma combined financial data does not reflect the
acquisition of the Vinings Wyndham Garden Hotel anticipated to be consummated
shortly following the Offering. If the effects of this acquisition had been
included in the pro forma combined balance sheet, cash would have decreased by
$3.2 million, property and equipment would have increased by $12.5 million,
other assets would have increased by $395,000, and debt would have increased by
$9.7 million. If the acquisition had been consummated January 1, 1995, and the
results of the Vinings Wyndham Garden Hotel had been included in the pro forma
statement of income, revenues would have increased by $4.6 million, operating
income would have increased by $1.4 million, interest expense would have
increased by approximately $736,000 and net income would have increased by
approximately $400,000.
The unaudited pro forma combined financial data of the Company are
presented for informational purposes only and may not reflect the Company's
future results of operations and financial position or what the results of
operations and financial position of the Company would have been had such
transactions occurred as of the dates indicated. The unaudited pro forma
combined financial statements and accompanying notes of the Company should be
read in conjunction with the combined financial statements and notes thereto
contained elsewhere in this Prospectus.
29
<PAGE> 34
WYNDHAM HOTEL CORPORATION
PRO FORMA COMBINED BALANCE SHEET
(UNAUDITED)
ASSETS
<TABLE>
<CAPTION>
MARCH 31, 1996
-------------------------------------------------------------------
PRO FORMA ADJUSTMENTS
-------------------------------
THE COMPANY FORMATION AND THE COMPANY
HISTORICAL FINANCING GHALP PRO FORMA
------------ ------------- ----------- ------------
<S> <C> <C> <C> <C>
Current assets:
Cash and cash equivalents.............. $ 6,084,420 $ 37,194,297 (a) $(2,595,905)(p) $ 40,682,812
Cash, restricted....................... 2,932,921 (302,391)(b) 1,196,519 (q) 3,827,049
Accounts receivable, net............... 13,623,182 -- 2,232,371 (r) 15,855,553
Due from affiliates.................... 2,438,362 -- 152,389 (s) 2,590,751
Inventories............................ 1,062,044 -- 189,754 (r) 1,251,798
Deferred income taxes.................. -- 1,000,000 (c) -- 1,000,000
Other.................................. 529,892 -- 1,408,883 (t) 1,938,775
------------ ------------ ----------- ------------
Total current assets................. 26,670,821 37,891,906 2,584,011 67,146,738
Investment in an affiliate's hotel
partnership............................ 3,052,355 -- (3,052,355)(u) --
Notes and other receivables from
affiliates............................. 7,709,262 -- -- 7,709,262
Notes receivable......................... 2,450,587 -- -- 2,450,587
Property and equipment, net.............. 86,846,677 (1,898,623)(d) -- (v) 84,948,054
Management contract costs, net........... 7,299,226 -- -- 7,299,226
Security deposits........................ -- -- 13,600,000 (w) 13,600,000
Deferred income taxes.................... -- 16,000,000 (c) -- 16,000,000
Other.................................... 9,054,385 1,613,574 (e) 269,613 (x) 10,937,572
------------ ------------ ----------- ------------
Total assets.................... $143,083,313 $ 53,606,857 $13,401,269 $210,091,439
============ ============ =========== ============
LIABILITIES AND PARTNERS' CAPITAL AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued
expenses............................. $ 9,210,678 $ (571,157)(f) $ 4,426,716 (y) $ 13,066,237
Accounts payable and accrued expenses
due to affiliates.................... 900,363 -- -- 900,363
Deposits............................... 952,415 -- 605,790 (z) 1,558,205
Deposits from affiliates............... 316,000 -- -- 316,000
Current portion of long-term debt...... 15,578,362 (14,011,067)(g) (1,567,295)(aa) --
Current portion of capital lease
obligation........................... 387,944 -- -- 387,944
Due to affiliates...................... 2,337,876 (2,337,876)(g) -- (bb) --
------------ ------------ ----------- ------------
Total current liabilities............ 29,683,638 (16,920,100) 3,465,211 16,228,749
------------ ------------ ----------- ------------
Payable to affiliate..................... 1,767,985 (1,767,985)(g) -- --
Payable to minority interest............. 222,052 (222,052)(g) -- --
Long-term debt........................... 56,120,312 44,323,820 (h) (444,132)(cc) 100,000,000
Capital lease obligation................. 20,340,917 -- -- 20,340,917
Deferred gain............................ -- -- 12,342,688 (dd) 12,342,688
Other.................................... 4,512,755 (4,512,755)(i) -- --
------------ ------------ ----------- ------------
82,964,021 37,821,028 11,898,556 132,683,605
------------ ------------ ----------- ------------
Minority interest........................ 7,971,623 (7,971,623)(j) -- --
Partners' capital and stockholders'
equity:
Partners' capital...................... 24,838,632 (22,876,134)(k) (1,962,498)(ee) --
Preferred Stock........................ -- -- --
Common Stock........................... -- 194,708 (l) -- 194,708
Additional paid-in capital............. -- 73,589,304 (l) -- 73,589,304
Retained earnings...................... -- 7,212,863 (m) -- 7,212,863
Receivables from affiliates............ (2,374,601) 1,132,457 (n) -- (1,242,144)
Notes receivable from stockholders..... -- (18,575,646)(o) -- (18,575,646)
------------ ------------ ----------- ------------
Total partners' capital and
stockholders' equity.......... 22,464,031 40,677,552 (1,962,498) 61,179,085
------------ ------------ ----------- ------------
Total liabilities and
equity.................... $143,083,313 $ 53,606,857 $13,401,269 $210,091,439
============ ============ =========== ============
</TABLE>
The accompanying notes are an integral part of these combined financial
statements.
30
<PAGE> 35
WYNDHAM HOTEL CORPORATION
PRO FORMA COMBINED STATEMENTS OF INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1995
----------------------------------------------------------------
PRO FORMA ADJUSTMENTS
-------------------------------
THE COMPANY FORMATION AND THE COMPANY
HISTORICAL FINANCING PLAN GHALP PRO FORMA
----------- -------------- ----------- ------------
<S> <C> <C> <C> <C>
Revenues:
Hotel revenues..................... $54,673,322 $ $56,641,646(j) $111,314,968
Management fees.................... 7,353,563 131,972(a) 7,485,535
Management fees -- affiliates...... 9,567,326 538,193(a) (3,317,170)(k) 6,788,349
Service fees....................... 2,191,816 2,191,816
Service fees -- affiliates......... 1,927,669 (728,758)(l) 1,198,911
Reimbursements..................... 4,377,626 4,377,626
Reimbursements -- affiliates....... 6,458,554 (1,740,429)(m) 4,718,125
Other.............................. 1,339,832 160,000 1,499,832
----------- ----------- ------------ ------------
Total revenues........... 87,889,708 830,165 50,855,289 139,575,162
----------- ----------- ------------ ------------
Operating costs and expenses:
Hotel expenses..................... 36,851,511 48,915,052(n) 85,766,563
Hotel expenses -- affiliates....... 125,556 125,556
Selling, general and administrative
expenses......................... 14,526,732 1,300,000(b) 15,826,732
Selling, general and administrative
expenses -- affiliates........... 473,920 473,920
Equity participation
compensation..................... 3,992,143 3,992,143
Reimbursable expenses.............. 4,377,626 4,377,626
Reimbursable
expenses -- affiliates........... 6,458,554 (1,740,429)(m) 4,718,125
Depreciation and amortization...... 6,310,730 947,348(c) 7,258,078
Other.............................. 147,584 147,584
----------- ----------- ------------ ------------
Total operating costs and
expenses............... 73,264,356 2,247,348 47,174,623 122,686,327
----------- ----------- ------------ ------------
Operating income................... 14,625,352 (1,417,183) 3,680,666 16,888,835
Interest income.................... 344,124 --(d) 344,124
Interest income -- affiliates...... 100,377 100,377
Interest expense................... (8,465,239) (4,703,781)(e) (13,169,020)
Equity in earnings of affiliate's
hotel partnership................ 1,664,187 (1,664,187)(o) --
Foreign currency gain.............. 405,096 (347,131)(f) 57,965
Amortization of deferred gain...... -- 726,040(p) 726,040
----------- ----------- ------------ ------------
Income before minority interests... 8,673,897 (6,468,095) 2,742,519 4,948,321
Income attributable to minority
interests........................ 724,415 (724,415)(g) --
----------- ----------- ------------ ------------
Income before income taxes......... $ 7,949,482 $ (5,743,680) 2,742,519 $ 4,948,321
Provision for income taxes......... -- (1,954,587)(h) (1,954,587)
----------- ----------- ------------ ------------
Net income......................... $ 7,949,482 $ (7,698,267) $ 2,742,519 $ 2,993,734
=========== =========== ============ ============
Pro forma net income per common
share............................ $ .15(i)
============
Pro forma common shares
outstanding...................... 19,470,799(i)
</TABLE>
The accompanying notes are an integral part of these combined financial
statements.
31
<PAGE> 36
WYNDHAM HOTEL CORPORATION
PRO FORMA COMBINED STATEMENTS OF INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31, 1996
----------------------------------------------------------------
PRO FORMA ADJUSTMENTS
-------------------------------
THE COMPANY FORMATION AND THE COMPANY
HISTORICAL FINANCING PLAN GHALP PRO FORMA
----------- -------------- ----------- ------------
<S> <C> <C> <C> <C>
Revenues:
Hotel revenues.................... $16,828,688 $ $16,010,896(j) $ 32,839,584
Management fees................... 2,600,777 18,662(a) 2,619,439
Management fees -- affiliates..... 2,600,805 148,509(a) (924,438)(k) 1,824,876
Service fees...................... 410,370 410,370
Service fees -- affiliates........ 554,283 (223,344)(l) 330,939
Reimbursements.................... 1,626,521 1,626,521
Reimbursements -- affiliates...... 1,955,878 (264,149)(m) 1,691,729
Other............................. 32,724 32,724
----------- ----------- ----------- ------------
Total revenues.......... 26,610,046 167,171 14,598,965 41,376,182
----------- ----------- ----------- ------------
Operating costs and expenses:
Hotel expenses.................... 10,175,947 12,794,117(n) 22,970,064
Hotel expenses -- affiliates...... 31,389 31,389
Selling, general and
administrative expenses......... 4,153,321 325,000(b) 4,478,321
Selling, general and
administrative
expenses -- affiliates.......... 119,902 119,902
Equity participation
compensation.................... -- --
Reimbursable expenses............. 1,626,521 1,626,521
Reimbursable
expenses -- affiliates.......... 1,955,878 (264,149)(m) 1,691,729
Depreciation and amortization..... 1,661,200 248,416(c) 1,909,616
Other............................. 143,994 143,994
----------- ----------- ----------- ------------
Total operating costs
and expenses.......... 19,868,152 573,416 12,529,968 32,971,536
----------- ----------- ----------- ------------
Operating income.................. 6,741,894 (406,245) 2,068,997 8,404,646
Interest income................... 126,036 --(d) 126,036
Interest income -- affiliates..... 178,003 178,003
Interest expense.................. (2,114,357) (1,172,947)(e) (3,287,304)
Equity in earnings of affiliate's
hotel partnership............... 828,853 (828,853)(o) --
Foreign currency gain............. -- --(f)
Amortization of deferred gain..... -- 181,510(p) 181,510
----------- ----------- ----------- ------------
Income before minority
interests....................... 5,760,429 (1,579,192) 1,421,654 5,602,891
Income attributable to minority
interests....................... 593,237 (593,237)(g) --
----------- ----------- ----------- ------------
Income before income taxes........ 5,167,192 (985,955) 1,421,654 5,602,891
Provision for income taxes........ -- (2,213,142)(h) (2,213,142)
----------- ----------- ----------- ------------
Net income........................ $ 5,167,192 $ (3,199,097) $ 1,421,654 $ 3,389,749
=========== =========== =========== ============
Pro forma net income per common
share........................... $ .17(i)
============
Pro forma common shares
outstanding..................... 19,470,799(i)
</TABLE>
The accompanying notes are an integral part of these combined financial
statements.
32
<PAGE> 37
WYNDHAM HOTEL CORPORATION
NOTES TO PRO FORMA COMBINED FINANCIAL STATEMENTS
(UNAUDITED)
BASIS OF PRESENTATION
The pro forma combined balance sheet presents the historical combined
balance sheet before the Formation and Financing Plan, adjusted to reflect the
transactions contemplated in connection with the Formation and Financing Plan
and the transactions relating to GHALP, to arrive at the balance sheet of the
Company on a pro forma basis as of December 31, 1995, as if such transactions
had been effected on that date. The transactions contemplated in connection with
the Formation and Financing Plan have been accounted for as an exchange between
entities under common control and individuals who are considered promoters and,
accordingly, have been accounted for in a manner similar to a pooling of
interests.
The pro forma combined statements of income present the historical combined
operations for the year ended December 31, 1995 and the 1996 First Quarter
before the Formation and Financing Plan, adjusted to reflect the transactions
contemplated in connection with the Formation and Financing Plan and the
transactions relating to GHALP, to arrive at the income statements of the
Company on a pro forma basis for the year ended December 31, 1995 and the 1996
First Quarter, as if such transactions had been effected on January 1, 1995.
The unaudited pro forma combined financial statements of the Company are
presented for informational purposes only and may not reflect the Company's
future results of operations and financial position or what the results of
operations and financial position of the Company would have been had such
transactions occurred as of the dates indicated.
TRANSACTIONS RELATING TO GHALP
On May 2, 1996, a 70% partnership interest in GHALP owned by an
unaffiliated third party was acquired by a newly formed partnership owned by
Crow Family Members and Senior Executive Officers. The Company accounted for
this transaction using the purchase method of accounting. Immediately prior to
the acquisition of such partnership interest, GHALP sold two of its hotel
properties, including land, buildings, furnishings and equipment, to an
unaffiliated REIT, and immediately following the acquisition of such partnership
interest, GHALP sold the remainder of its hotel properties to such REIT for an
aggregate purchase price of $135.3 million, $121.7 million of which was paid in
cash at closing (prior to adjustments for closing costs) and $13.6 million of
which was held as retained funds for payment at the end of the leasing
arrangement described below provided no default under the lease has occurred.
Proceeds from the sale were utilized by GHALP to extinguish mortgage
indebtedness of $93.0 million plus accrued interest, and $29.5 million (subject
to adjustment for closing costs) was distributed to the partner acquiring the
70% partnership interest. The hotel properties were leased to a newly formed
limited partnership owned by Crow Family Members and the Senior Executive
Officers under a leasing arrangement qualifying as an operating lease. The
operations of GHALP, which had historically been accounted for under the equity
method, will be presented on a combined basis. Upon being combined, all
intercompany transactions relating to GHALP will be eliminated and the leasehold
interest will be contributed to a special purpose subsidiary of the Company. Pro
forma adjustments related to the GHALP transactions have been set forth in a
separate column under "Pro Forma Adjustments."
33
<PAGE> 38
PRO FORMA ADJUSTMENTS
The pro forma adjustments to the combined balance sheet and combined
statement of income are detailed below:
PRO FORMA COMBINED BALANCE SHEET
FORMATION AND FINANCING PLAN
<TABLE>
<S> <C> <C>
(a) Adjustments to reflect a net increase in cash and cash equivalents:
Proceeds from the issuance of $100.0 million of Notes (See "The
Formation and the Financing Plan -- The Financing Plan")..... $100,000,000(8)
Proceeds from the issuance of 3,650,000 shares of Common Stock in
the Equity Offering (See "The Formation and the Financing
Plan -- The Financing Plan")................................. 58,400,000(8)
Issuance of 2,332,590 shares of Common Stock in exchange for the
Bedrock Contribution of $10.0 million under the terms of the
Bedrock Exchange Agreement (See "The Formation and the
Financing Plan")............................................. 10,000,000(5)
Change in restricted cash resulting from the removal of restricted
cash requirements under existing loan agreements which are to
be repaid and the addition of the restricted cash
requirements under the terms of the $100.0 million Revolving
Credit Facility.............................................. 737,349(9)
Payment of estimated unpaid fees and expenses relating to issuance
of the Notes, Common Stock and the $100.0 million Revolving
Credit Facility.............................................. (14,352,089)(8)
Repayment of existing mortgage indebtedness of hotels acquired in
the Formation (See "The Formation and The Financing Plan")... (54,687,247)(9)
Repayment of indebtedness to General Electric under the GE Credit
Agreement, net of 504,032 shares of Common Stock that General
Electric has committed to purchase pursuant to the GE Option
at a price per share of $14.88 for a total purchase price of
$7.5 million (which represents the remaining one-half of the
$15.0 million of indebtedness outstanding at March 31,
1996)........................................................ (7,500,000)(9)
Repayment of existing indebtedness to Crow Family Members
($3,805,861) and unaffiliated partners ($522,052) of hotels
acquired in the Formation.................................... (4,327,913)(3)
Payment of accrued interest related to existing indebtedness...... (571,157)(9)
Payments relating to the purchase of partnership interests in six
Wyndham brand hotels from related parties. This has been
accounted for in a manner similar to a dividend and
appropriately reduced partner's equity and additional paid in
capital as shown below in notes (k) and (l).................. (19,856,000)(1)
Payment related to the purchase of the minority partnership
interest in Rose Hall Associates from an unrelated third
party. Rose Hall Associates owns one of the six Wyndham brand
hotels acquired in the Formation............................. (6,073,000)(2)
Purchase of the DAB Notes comprising the outstanding principal and
accrued interest severally owing by the Senior Executive
Officers and WEL to WFLP..................................... (18,575,646)(1)
Payment to CHMC in consideration of the release and discharge of
the Company from its obligation to make payments to CHMC
under the CHMC Agreement..................................... (6,000,000)(4)
------------
$ 37,194,297
===========
(b) Change in restricted cash resulting from the removal of restricted
cash requirements under the existing loan agreements, which
loans are to be repaid....................................... $ (302,391)(9)
===========
(c) Adjustments to reflect deferred income taxes in accordance with Statement of
Financial Accounting Standard 109 ("SFAS 109") following the transition from a
partnership to a corporate status and the effect of the Formation transactions:
Deferred income taxes -- current.................................. $ 1,000,000(7)
===========
Deferred income taxes -- long-term................................ $ 16,000,000(7)
===========
</TABLE>
34
<PAGE> 39
<TABLE>
<S> <C> <C>
(d) Adjustment to reflect a reduction in the basis of property and
equipment resulting from the purchase of the minority partnership
interest in Rose Hall Associates from an unrelated third party.
Rose Hall Associates owns one of the six Wyndham brand hotels
acquired in the Formation......................................... $ (1,898,623)(2)
============
(e) Adjustments to reflect a net increase in other assets:
Recording of the estimated fees and expenses to be deferred which
relate to the issuance of the Notes and the $100.0 million
Revolving Credit Facility.................................... $ 7,984,624 (8)
Reversal of incurred transaction fees and expenses recorded
through March 31, 1996....................................... (5,148,955)(8)
Write-off of the unamortized portion of deferred loan costs as a
result of the repayment of indebtedness noted in (a) above... (787,137)(9)
Change in long term restricted cash resulting from the removal of
restricted cash requirements under the existing loan
agreements, which loans are to be repaid, and the addition of
the restricted cash requirements under the terms of the
$100.0 million Revolving Credit Facility..................... (434,958)(9)
------------
$ 1,613,574
============
(f) Adjustment to reflect a net decrease in accounts payable and
accrued expenses due to payment of accrued interest related to
indebtedness
repaid............................................................ $ 571,157 (9)
============
(g) Adjustments to reflect the repayment of existing indebtedness:
Current portion of long-term debt................................. $ 14,011,067 (9)
============
Due to affiliates................................................. $ 2,337,876 (3)
============
Payable to affiliate.............................................. $ 1,767,985 (3)
============
Payable to minority interest...................................... $ 222,052 (3)
============
(h) Adjustments to reflect a net increase in long-term debt, excluding the current
portion:
Repayment of existing indebtedness excluding debt relating to
GHALP........................................................ $ 55,676,180 (9)
Indebtedness relating to issuance of the Notes.................... (100,000,000)(8)
------------
$(44,328,820)
============
(i) Adjustment to reflect payment of fees and expenses incurred
through March 31, 1996, which relate to the issuance of Common
Stock, $100.0 million of Notes and the $100.0 million Revolving
Credit Facility................................................... $ 4,512,755(8)
============
(j) Acquisition of the 37.5% minority partnership interest in Rose
Hall Associates owned by an unrelated third party. Rose Hall
Associates owns one of the six Wyndham brand hotels acquired in
the Formation..................................................... $ 7,971,623 (2)
============
(k) Adjustments to reflect a net decrease in partners' capital
consisting of:
Distribution of notes receivable proceeds......................... $ 1,132,457 (6)
Reclassification of partners' capital to additional paid in
capital reflecting the partnership interests merged in the
Formation (subject to further adjustment for working capital
settlement, which is not presently determinable). This
adjustment is the result of the formation being accounted for
using the historical cost of the Assigned Businesses......... 21,743,677 (l)
------------
$ 22,876,134
============
</TABLE>
35
<PAGE> 40
<TABLE>
<S> <C> <C>
(l) Adjustments to reflect a net increase in Common Stock and
additional paid- in capital consisting of:
Issuance of 3,650,000 shares of Common Stock in the Equity
Offering (See "The Formation and the Financing Plan -- The
Financing Plan")............................................. $(58,400,000)(8)
Issuance of 2,332,590 shares of Common Stock in exchange for the
Bedrock Contribution of $10.0 million under the terms of the
Bedrock Exchange Agreement (See "The Formation and the
Financing Plan")............................................. (10,000,000)(5)
Estimated fees and expenses relating to the issuance of shares of
Common Stock in the Equity Offering.......................... 7,003,665 (8)
Issuance of 504,032 shares of Common Stock pursuant to General
Electric's exercise of the GE Option to purchase such shares
at a price per share of $14.88 for a total purchase price of
$7.5 million (which represents the remaining one-half of the
$15.0 million of indebtedness outstanding as of March 31,
1996)........................................................ (7,500,000)(9)
Estimated excess of the book value of partnership interests merged
in the Formation (subject to further adjustment for working
capital settlement, which is not presently determinable) over
the purchase price. This adjustment is the result of the
Formation being accounted for using the historical cost of
the Assigned Businesses...................................... (1,887,677)(1)
Effect of recording deferred income taxes, in accordance with SFAS
109, arising as a result of the Formation transactions....... (3,000,000)(7)
------------
$(73,784,012)
============
Common Stock (19,470,799 shares of Common Stock at par
value of $.01)............................................... (194,708)
Additional paid-in capital........................................ (73,589,304)
------------
$(73,784,012)
============
(m) Adjustments to reflect a net increase in retained earnings
consisting of:
Write-off of the unamortized portion of deferred loan costs as a
result of the repayment of indebtedness noted in (a) above... 787,137 (9)
Payment to CHMC in consideration of release and discharge of the
Company from its obligation to make payments to CHMC under
the CHMC Agreement........................................... 6,000,000 (4)
Effect of recording deferred income taxes, in accordance with SFAS
109, arising as a result of the transition from partnership
to corporate
status....................................................... (14,000,000)(7)
------------
$ (7,212,863)
============
(n) Adjustment to reflect the collection of affiliated partnerships'
notes
receivable........................................................ $ (1,132,457)(6)
============
(o) Purchase of DAB Notes comprising the outstanding principal and
accrued interest severally owing by the Senior Executive Officers
and WEL to WFLP................................................... $ 18,575,646 (l)
============
</TABLE>
36
<PAGE> 41
GHALP
<TABLE>
<S> <C> <C>
(p) Adjustments to reflect a net decrease in cash and cash equivalents:
Addition of the cash balances of GHALP as a result of acquiring
70% partnership interest in GHALP from an unrelated third
party........................................................ $ 4,515,845(10)
Net proceeds from sale of the land, buildings, furnishings and
equipment of GHALP to HPT for $135.3 million net of
transaction expenses of $1.7 million and a $13.6 million
security deposit, which will be held as retained funds
pursuant to the HPT sale/leaseback agreement................. 119,973,926(12)
Repayment of existing indebtedness including accrued interest..... (95,567,969)(13)
Distribution received by Garden Hotel Partners, L.P., a
predecessor in interest to the Company, prior to the
acquisition of 70% partnership interest in GHALP,
representing its share of GHALP's cash flow distributed in
accordance with the GHALP partnership agreement.............. 476,000(10)
Distribution of $29.6 million to Garden Hotel Partners Two, which
was formed to acquire 70% partnership interest in GHALP from
an unrelated third party. The distribution is equivalent to
the purchase price plus expenses paid by Garden Hotel
Partners Two to an unaffiliated third party. The remaining
$.5 million represents a distribution by Garden Hotel
Partners, L.P. to its shareholders........................... (30,051,000)(14)
Distribution to the GHALP partners of excess working capital
generated by operations...................................... (474,584)(14)
Change in restricted cash resulting from removal of the restricted
cash requirements under existing loan agreements which were
repaid and the addition of restricted cash requirements under
terms of the GHALP Lease, which will qualify as an operating
lease........................................................ (584,790)(15)
Refund of purchase price deposit required pursuant to purchase of
70% partnership interest in GHALP from an unrelated third
party........................................................ 250,000(10)
Payment in advance of the first month's rent under the GHALP
Lease........................................................ (1,133,333)(16)
------------
$ (2,595,905)
===========
(q) Adjustments to reflect a net increase in restricted cash:
Addition of the restricted cash balances of GHALP as a result of
acquiring 70% partnership interest in GHALP from an unrelated
third party.................................................. $ 611,729(10)
Change in restricted cash resulting from removal of the restricted
cash requirements under existing loan agreements which were
repaid and the addition of restricted cash requirements under
terms of the GHALP Lease, which qualifies as an operating
lease........................................................ 584,790(15)
------------
$ 1,196,519
===========
(r) Adjustments necessary to record the balances of accounts
receivable and inventories as a result of acquiring 70%
partnership interest in GHALP from an unrelated third party:
Addition of the accounts receivable............................... $ 2,232,371(10)
===========
Addition of the inventories....................................... $ 189,754(10)
===========
(s) Adjustments to reflect a net increase in amounts due from
affiliates:
Elimination of amounts due to Wyndham Hotel Company Ltd. from
GHALP as a result of acquiring 70% partnership interest in
GHALP from an unrelated third party.......................... $ (117,750)(11)
Addition of the amounts due from affiliates of GHALP as a result
of acquiring 70% partnership interest in GHALP from an
unrelated third party........................................ 270,139(10)
------------
$ (152,389)
===========
</TABLE>
37
<PAGE> 42
<TABLE>
<S> <C> <C>
(t) Adjustments to reflect a net increase in other current assets:
Addition of the other current assets of GHALP as a result of
acquiring 70% partnership interest in GHALP from an unrelated
third party.................................................. $ 275,550(10)
Recording of the payment in advance of the first month's rent
under the GHALP Lease........................................ 1,133,333(16)
------------
$ 1,408,883
===========
(u) Adjustment to reflect elimination of the 30% equity investment in
GHALP upon acquisition of the remaining 70% partnership interest
and the combination of 100% of the account balances............... $ (3,052,355)(10)
===========
(v) Adjustments to reflect activity in property and equipment, net:
Addition of property and equipment of GHALP as a result of
acquiring 70% partnership interest in GHALP from an unrelated
third party after giving effect to an $18.2 million step up
representing the difference between the acquired partners'
equity balance and the purchase price of approximately $29.5
million...................................................... $121,435,213(10)
Sale of the land, buildings, furnishings and equipment of GHALP to
HPT for $135.3 million net of transaction expenses of $1.6
million and a $13.6 million security deposit, which will be
held as retained funds pursuant to the HPT sale/leaseback
agreement. A gain of $12.3 million has been recorded on the
transaction, which has been deferred and is being recognized
over the initial term of the GHALP Lease..................... (121,435,213)(12)
------------
$ 0
===========
(w) Adjustment to reflect the security deposit, which will be held as
retained funds pursuant to the HPT sale/leaseback agreement....... $ 13,600,000(12)
===========
(x) Adjustments to reflect a net increase in other assets:
Elimination of advance deposits of GHALP.......................... $ (3,000)(11)
Addition of the other assets of GHALP as a result of acquiring 70%
partnership interest in GHALP from an unrelated third
party........................................................ 1,330,552(10)
Refund of purchase price deposit required pursuant to agreement to
purchase 70% partnership interest in GHALP from an unrelated
third party.................................................. (250,000)(10)
Write off of the unamortized portion of deferred loan costs as a
result of the repayment of indebtedness...................... (807,939)(13)
------------
$ 269,613
===========
(y) Adjustments to reflect a net increase in accounts payable and accrued
liabilities:
Payment of accrued interest relating to indebtedness repaid....... $ 556,542(13)
Addition of the accounts payable and accrued expenses of GHALP as
a result of acquiring 70% partnership interest in GHALP from
an unrelated third party..................................... (4,983,258)(10)
------------
$ (4,426,716)
===========
(z) Adjustments to reflect a net increase in advance deposits:
Addition of the advance deposits of GHALP as a result of acquiring
70% partnership interest in GHALP from an unrelated third
party........................................................ $ (608,790)(10)
Elimination of advance deposits of GHALP.......................... 3,000(11)
------------
$ (605,790)
===========
(aa) Adjustment to reflect the repayment of existing indebtedness of
Garden Hotel Partners LP which, prior to the Formation, held a 30%
partnership interest in GHALP..................................... $ 1,567,295(13)
===========
</TABLE>
38
<PAGE> 43
<TABLE>
<S> <C> <C>
(bb) Adjustments to reflect activity in amounts due to affiliates:
Addition of the amounts due to an affiliate of GHALP as a result
of acquiring 70% partnership interest in GHALP from an
unrelated third party........................................ $ (117,750)(10)
Elimination of amounts due from GHALP to Wyndham Hotel Company,
Ltd. as a result of acquiring 70% partnership interest in
GHALP from an unaffiliated third party....................... 117,750(11)
------------
$ 0
===========
(cc) Adjustments to reflect activity relating to long-term debt:
Addition of long-term debt of GHALP as a result of acquiring 70%
partnership interest in GHALP from an unrelated third
party........................................................ $(93,000,000)(10)
Adjustments to reflect the repayment of long-term indebtedness
(net of current portion) of Garden Hotel Partners LP which,
prior to the Formation, held a 30% partnership interest in
GHALP........................................................ 444,132(13)
Repayment of existing mortgage indebtedness....................... 93,000,000(13)
------------
$ 444,132
===========
(dd) Adjustments to record deferred gain:
Deferred gain resulting from sale of the land, buildings,
furnishings and equipment of GHALP to HPT for $135.3 million
net of transaction expenses of $1.7 million and a $13.6
million security deposit which will be held as retained funds
for payment pursuant to the HPT sale/leaseback agreement. The
gain is being recognized over the initial term of the GHALP
Lease........................................................ $(12,138,713)(12)
Increase in the deferred gain of GHALP as a result of acquiring
70% partnership interest in GHALP from an unrelated third
party........................................................ (203,975)(11)
------------
$(12,342,688)
===========
(ee) Adjustment to reflect a net decrease in partners' capital
consisting of:
Recording the purchase of 70% partnership interest in GHALP from
an unrelated third party..................................... $(29,575,000)(10)
Write-off of the unamortized portion of deferred loan costs as a
result of the repayment of indebtedness noted in (bb)
above........................................................ 807,939(13)
Distribution of $29.6 million to Garden Hotel Partners Two, which
was formed to acquire 70% partnership interest in GHALP from
an unrelated third party. The distribution is equivalent to
the purchase price plus expenses paid by Garden Hotel
Partners Two to an unaffiliated third party. The remaining
$.5 million represents a distribution by Garden Hotel
Partners, L.P. to its shareholders........................... 30,051,000(14)
Distribution to the GHALP partners of excess working capital
generated by operations...................................... 474,584(14)
Adjustment of the deferred gain as a result of acquiring 70%
partnership interest in GHALP from an unrelated third
party........................................................ 203,975(11)
------------
$ 1,962,498
===========
</TABLE>
39
<PAGE> 44
The detail supporting the pro forma balance sheet as of March 31, 1996
reflect sixteen self-balancing entries which are identified in (1) through (16)
below and reflect the following:
(1) Record cash received by Crow Family Members for interests in Assigned
Businesses and purchase of promissory notes (DAB Notes).
(2) Record purchase of minority partnership interest from an unrelated third
party and adjustment of the basis of assets.
(3) Record repayment of indebtedness to affiliated and unaffiliated partners.
(4) Record cash received by Crow Family Members in consideration for release
and discharge from payment obligations under the CHMC Agreement.
(5) Record the Bedrock Contribution.
(6) Record receipt of payment of notes receivable and distribution in the same
amount.
(7) Record deferred income taxes in accordance with SFAS 109 following the
Formation.
(8) Record debt and equity financing obtained.
(9) Record repayment of indebtedness to unaffiliated third parties.
(10) Record combination of GHALP upon acquisition of 70% interest from an
unrelated third party and cash distributed to Garden Hotel Partners, L.P.
prior to the acquisition.
(11) Record eliminating entries resulting from combination of GHALP.
(12) Record sale of land, buildings, furniture and equipment as part of GHALP
sale/leaseback transaction.
(13) Record repayment of indebtedness and write-off of related deferred loan
costs.
(14) Record distribution to partners as a result of the GHALP transaction and
pursuant to the GHALP partnership agreements.
(15) Record change in restricted cash under terms of the GHALP lease agreement
as compared to the restricted cash requirements of the existing GHALP loan
agreements.
(16) Record payment in advance of first month's rent under the GHALP lease
agreement.
40
<PAGE> 45
PRO FORMA COMBINED STATEMENTS OF INCOME
FORMATION AND FINANCING PLAN
<TABLE>
<CAPTION>
YEAR ENDED THREE MONTHS
DECEMBER 31, ENDED MARCH 31,
1995 1996
------------ ---------------
<S> <C> <C> <C>
(a) Adjustment to reflect an increase in management fee revenues
and other income due to the release and discharge of the
Company from its obligation to make payments to CHMC under
the CHMC Agreement, which payments have historically been
offset against management fee revenues from the management
agreements to which they relate:
Unaffiliated -- Management Fees............................. $ 131,972 $ 18,662
=========== ============
Affiliated -- Management Fees............................... $ 538,193 $ 148,509
=========== ============
Unaffiliated -- Other....................................... $ 160,000 --
=========== ============
Total....................................................... $ 830,165 $ 167,171
=========== ============
(b) Adjustment to reflect an increase in selling, general and
administrative expenses related to managing and
administering a publicly held company....................... $ 1,300,000 $ 325,000
=========== ============
(c) Adjustments to reflect a net increase in depreciation and
amortization expense:
Amortization of loan costs relating to the Notes and the
$100.0 million Revolving Credit Facility............... $ 1,293,981 $ 323,495
Elimination of amortization of deferred loan costs upon
repayment of existing indebtedness..................... (250,289) (50,993)
Depreciation expense reduction resulting from purchase of
the 37.5% minority partnership interest in Rose Hall
Associates from an unrelated third party. Rose Hall
Associates owns one of the six Wyndham brand hotels
acquired in the Formation.............................. (96,344) (24,086)
------------ ---------------
$ 947,348 $ 248,416
=========== ============
(d) The pro forma combined statements do not include any
estimated interest earned on $34.6 million cash and cash
equivalents arising from proceeds of the Offering,
representing the estimated pro forma cash balance. At a
simple interest rate of 5%, annual and quarterly interest
earned would be approximately $1,730,000 and $432,500,
respectively.
(e) Pro Forma interest expense consists of the following:
Interest expense on the Notes............................... $ 10,500,000 $ 2,625,000
Interest expense on the hotel property accounted for as a
capital lease.......................................... 2,109,515 522,428
Interest expense on affiliated borrowings................... 84,505 21,126
Commitment fee of .375% per annum on the unused portion of
the $100.0 million Revolving Credit Facility and
administration fee..................................... 475,000 118,750
------------ ---------------
Total Company Pro Forma interest expense.................... $ 13,169,020 $ 3,287,304
=========== ============
Adjustments to reflect a net increase in interest expense
consisting of:
Pro Forma interest expense set forth immediately above...... $(13,169,020) $(3,287,304)
Less historical interest expense, which is replaced by the
Notes and the $100.0 million Revolving Credit
Facility............................................... 8,465,239 2,114,357
------------ ---------------
$ (4,703,781) $(1,172,947)
=========== ============
</TABLE>
41
<PAGE> 46
<TABLE>
<CAPTION>
YEAR ENDED THREE MONTHS
DECEMBER 31, ENDED MARCH 31,
1995 1996
------------ ---------------
<S> <C> <C> <C>
Pro forma interest on the Notes is calculated based on a
rate of 10 1/2%. Bank fees are calculated based on an
assumed administration fee and an assumed .375% fee charged
on the unused portion of the $100.0 million Revolving Credit
Facility.
(f) Adjustment to reflect a reduction of the foreign currency
gain as a result of the repayment of foreign indebtedness to
which the foreign currency gain is attributable............. $ (347,131) $ --
=========== ============
(g) Adjustment to eliminate 100% of the reduction in earnings
attributable to a 37.5% minority interest in a resort hotel
as a result of the purchase of that minority partnership
interest from an unaffiliated third party................... $ (724,415) $ (593,237)
=========== ============
(h) Adjustment to record the income tax expense associated with
operating as a corporation using an effective income tax
rate of 39.5%. The pro forma consolidated statements of
income for the year ended December 31, 1995 and the 1996
First Quarter, does not include the initial recording of
estimated deferred income tax benefits of $14,000,000
associated with the change in tax status. This amount will
be recorded by the Company subsequent to the closing of the
Offering.................................................... $ (1,954,587) $(2,213,142)
=========== ============
(i) Pro forma net income per share is based on 19,470,799 shares
of Common Stock outstanding after the Offering, which
reflects the $15.0 million outstanding indebtedness under
the GE Credit Agreement at the time of consummation of the
Offering, and therefore the issuance of 504,032 shares of
Common Stock upon the exercise of the GE Option. See
"Principal Stockholders."
Supplemental pro forma earnings per share would have been
$.10 for the year ended December 31, 1995 and $.12 per share
for the three months ended March 31, 1996, giving effect
only to (i) the application of the net proceeds from the
Offerings to the repayment of indebtedness and (ii) pro
forma provision for income taxes based on the assumed
effective tax rate of 39.5%.
GHALP
(j) Adjustment to reflect the addition of revenue from 11 hotels
upon combination of GHALP as a result of acquisition of 70%
partnership interest in GHALP from an unrelated third
party....................................................... $ 56,641,646 $16,010,896
=========== ============
(k) Adjustments to reflect elimination of management fees earned
by the Company from the 11 GHALP hotels upon combination as
a result of acquisition of 70% partnership interest in GHALP
from an unrelated third party............................... $ (3,317,170) $ (924,438)
=========== ============
(l) Adjustment to reflect elimination of service fees earned by
the Company from the 11 GHALP hotels upon combination as a
result of acquisition of 70% partnership interest in GHALP
from an unrelated third party............................... $ (728,758) $ (223,344)
=========== ============
</TABLE>
42
<PAGE> 47
<TABLE>
<CAPTION>
YEAR ENDED THREE MONTHS
DECEMBER 31, ENDED MARCH 31,
1995 1996
------------ ---------------
<S> <C> <C> <C>
(m) Adjustment to reflect elimination of reimbursements between
the 11 GHALP hotels and the Company as a result of
acquisition of 70% partnership interest in GHALP from an
unrelated third party:
Reimbursements include but are not limited to reimbursements
for services provided, such as accounting, legal, tax,
finance and national sales and marketing fund.
Elimination of reimbursement income......................... $ (1,740,429) $ (264,149)
=========== ============
Elimination of reimbursement expense........................ $ (1,740,429) $ (264,149)
=========== ============
(n) Adjustments to reflect net increase in hotel expenses from
the 11 hotels upon combination of GHALP as a result of
acquisition of 70% partnership interest in GHALP from an
unrelated third party
Addition of the hotel expenses upon combination of GHALP,
consisting of the following expenses as of December 31,
1995 and March 31, 1996, respectively: Departmental
operating expenses of $19.6 million and $5.3 million;
undistributed operating expenses of $13.7 million and
$3.5 million; management fees of $3.3 million and
approximately $924,000; rent, taxes and insurance
expenses of $2.6 million and approximately $666,000;
and lease expenses of $13.6 million and $3.4 million... $ 52,825,729 $13,873,175
Elimination of management and service fee expenses of GHALP,
net of deferred gain on sale of GHALP Properties of
$135,251 and $68,724 at December 31, 1995 and March 31,
1996, respectively..................................... (3,910,677) (1,079,058)
------------ ---------------
$ 48,915,052 $12,794,117
=========== ============
(o) Adjustment to reflect elimination of 30% equity interest in
earnings of GHALP as a result of acquisition of 70%
partnership interest in GHALP from an unrelated third party,
which resulted in the combination of GHALP.................. $ (1,664,187) $ (828,853)
=========== ============
(p) Adjustment to reflect amortization of the deferred gain
recognized from the GHALP sale/leaseback transaction. The
deferred gain is being recognized over the initial term of
the GHALP Lease............................................. $ 726,040 $ 181,510
=========== ============
</TABLE>
43
<PAGE> 48
SELECTED COMBINED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
The following table sets forth selected combined financial data of Wyndham
Hotel Corporation. The selected combined statement of operations data of the
Company for the fiscal years ended December 31, 1991 and 1992 and the selected
combined balance sheet data as of December 31, 1991, 1992 and 1993 are derived
from the Company's unaudited Combined Financial Statements. The selected
combined statement of operations data of the Company for the fiscal years ended
December 31, 1993, 1994 and 1995 and the selected combined balance sheet data as
of December 31, 1994 and 1995 are derived from the Company's audited Combined
Financial Statements included elsewhere in this Prospectus. The selected
combined statement of operations data of the Company presented for the three
months ended March 31, 1995 and 1996 have been derived from unaudited combined
financial statements and, in the opinion of the Company, reflect all adjustments
(which include only normal recurring adjustments) necessary to present fairly
the information set forth therein. The interim results are not necessarily
indicative of the operating results for a full year. The pro forma combined
statement of operations data and balance sheet data set forth below, as of and
for the year ended December 31, 1995 and as of and for the three months ended
March 31, 1996, are unaudited and are derived from pro forma financial data
included elsewhere in the Prospectus.
The selected combined financial data set forth below should be read in
conjunction with, and are qualified in their entirety by, the Combined Financial
Statements and related Notes, Pro Forma Combined Financial Data, Management's
Discussion and Analysis of Financial Condition and Results of Operations and
other financial information included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, THREE MONTHS ENDED MARCH 31,
----------------------------------------------------------------- -------------------------------
PRO FORMA PRO FORMA
1991 1992 1993 1994 1995 1995(1) 1995 1996 1996(1)
-------- -------- -------- -------- -------- ---------- -------- -------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
PORTFOLIO HOTEL
REVENUES(2)............ $269,557 $315,151 $345,733 $394,949 $534,204 $ 534,204 $106,610 $158,619 $158,619
======== ======== ======== ======== ======== ======== ======== ======== ========
STATEMENT OF OPERATIONS
DATA:
Revenues:
Hotel Revenues....... $ 34,859 $ 41,604 $ 43,921 $ 51,799 $ 54,673 $ 111,315 $ 15,359 $ 16,829 $ 32,840
Management fees...... 8,472 10,130 10,731 13,302 16,921 14,274 3,404 5,202 4,444
Service fees......... 784 782 2,127 2,904 4,120 3,391 707 964 741
Reimbursements....... 3,650 4,130 4,164 8,004 10,836 9,095 2,357 3,582 3,318
Other income......... 253 156 334 257 1,340 1,500 92 33 33
-------- -------- -------- -------- -------- -------- -------- -------- --------
Total Company
Revenues....... 48,018 56,802 61,277 76,266 87,890 139,575 21,919 26,610 41,376
Operating costs and
expenses............. 42,988 48,383 54,183 63,929 73,264 122,686 16,942 19,868 32,971
Operating income....... 5,030 8,419 7,094 12,337 14,626 16,889 4,977 6,742 8,405
Interest expense,
net.................. (8,449) (7,831) (7,075) (7,526) (8,021) (12,725) (2,045) (1,810) (2,983)
Income (loss) before
income taxes......... (2,049) 163 1,654 6,265 7,949 4,948 3,018 5,167 5,603
Pro forma income
taxes(3)............. -- -- -- -- -- (1,955) -- -- (2,213)
Net income (loss)...... (2,049) 163 1,654 6,265 7,949 2,994 3,018 5,167 3,390
Pro forma income tax
adjustment(4)........ (3,140) (1,192) (2,041)
Historical net income
as adjusted for pro
forma
income tax........... 4,809 1,826 3,126
Historical net income
as adjusted per
common share(5)...... .30 .12 .20
Common shares
outstanding prior to
the Offerings(5)..... 15,821 15,821 15,821
Pro forma net income
per common
share(6)............. .15 .17
Pro forma common shares
outstanding(6)....... 19,471 19,471
</TABLE>
44
<PAGE> 49
<TABLE>
<CAPTION>
AS OF MARCH 31,
AS OF DECEMBER 31, --------------------
---------------------------------------------------- PRO FORMA
1991 1992 1993 1994 1995 1996 1996(1)
-------- -------- -------- -------- -------- -------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents................... $ 3,086 $ 682 $ 827 $ 3,619 $ 4,160 $ 6,084 $ 40,683
Total assets................................ 113,426 108,647 113,465 113,276 133,403 143,083 210,091
Long-term obligations, including current
portion................................... 90,881 87,064 88,410 84,161 90,978 92,428 120,729
Total partners' capital and stockholders'
equity
(deficit)................................. (9,075) (7,303) (1,488) 1,716 17,557 22,464 61,179
</TABLE>
- ---------------
(1) Reflects the Formation, the Financing Plan and other adjustments described
under "Pro Forma Combined Financial Data."
(2) Represents revenues of hotels owned, leased or managed by the Company, as
distinguished from Total Company Revenues.
(3) For the years 1993 through 1995 and the 1996 First Quarter, Wyndham made no
provision for income taxes because the combined Company was a combination of
partnerships, S corporations and a nontaxable Bermuda corporation that are
not subject to U.S. federal income taxes. The provision for income taxes to
arrive at pro forma net income assumes a combined federal and state
effective income tax rate of 39.5% computed as follows:
<TABLE>
<S> <C>
Federal income tax rate.................................................... 35.0%
Weighted average state income tax rate (net of federal benefit)............ 4.5%
-----
39.5%
=====
</TABLE>
(4) Pro forma income tax adjustment represents a pro forma provision for income
taxes based on the assumed effective tax rate of 39.5%.
(5) Historical net income as adjusted per common share is based on historical
net income as adjusted for pro forma income tax divided by the number of
shares that would have been outstanding if the Company had been a
corporation prior to the Offering.
(6) Pro forma net income per share is based on 19,470,799 shares of Common Stock
outstanding after the Equity Offering, which reflects the $15.0 million
outstanding indebtedness under the GE Credit Agreement at the time of the
consummation of the Offering, and therefore the issuance of 504,032 shares
of Common Stock upon the exercise of the GE Option. See "Principal
Stockholders."
Supplemental pro forma earnings per share would have been $.10 for the year
ended December 31, 1995 and $.12 for the 1996 First Quarter, giving effect
only to (i) the application of the net proceeds from the Offerings to the
repayment of indebtedness and (ii) pro forma provision for income taxes
based on the assumed effective tax rate of 39.5%.
45
<PAGE> 50
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
The following discussion and analysis addresses the Company's results of
operations on a pro forma combined basis for the year ended December 31, 1995
and the three months ended March 31, 1996, and on an historical combined basis
for the years ended December 31, 1993, 1994 and 1995 and the three months ended
March 31, 1995 and 1996. The following should be read in conjunction with the
Company's pro forma combined financial statements, historical combined financial
statements and the summary and selected combined financial and other information
located elsewhere in this Prospectus.
The Company's revenues are derived from the following primary sources:
(1) The Company's hotel revenues are generated from the hotels owned
or leased by the Company during the periods presented and reflect revenues
from room rentals, food and beverage sales and other sources, including
telephone, guest services, meeting room rentals, gift shops and other
amenities.
(2) The Company derives management fees from the hotels it manages.
These fees are comprised of base and incentive management fees, as well as
trade name fees. Base management fees are typically calculated based upon a
specified percentage of gross revenues from hotel operations, and incentive
management fees are usually calculated based upon a specified percentage of
the hotel's operating profit or the amount by which the hotel's operating
profit exceeds specified performance targets. Trade name fees are typically
calculated based upon a specified percentage of gross room revenues for
hotels operated under the Wyndham brand name. See "Business -- Management
Contracts" for further information relating to the foregoing fees.
(3) The Company generates service fee revenues from hotels that it
manages or franchises. Service fee revenues include fees derived from
accounting, design, construction and purchasing services, as well as
technical assistance provided to managed or franchised Portfolio hotels. As
a substantial portion of the fees derived from the provision of design,
construction and initial purchasing services are generated in connection
with hotel construction and renovation activities, the amount of these fees
varies depending upon the level of the Company's external growth
activities, including new hotel management contracts and construction
projects.
(4) The Company derives reimbursement revenues from hotels that it
manages or franchises. These revenues are intended primarily to match
corresponding expenses and serve to reimburse the Company for the expenses
associated with providing advertising and promotion (through the Company's
Marketing Fund), sales and marketing, centralized reservations and other
services.
The Company's total revenues grew at a compound annual rate of 19.8% from
1993 through 1995, from $61.3 million to $87.9 million. The Company's revenue
growth is attributable to both the improving financial performance of the
existing hotels in its Portfolio, as well as the addition of new hotels to its
Portfolio. During this period, the occupancy rates for Comparable Hotels (hotels
that have been operated by the Company since January 1, 1993) improved from year
to year (67%, 70% and 72% in 1993, 1994 and 1995, respectively), while the ADR
for Comparable Hotels also increased ($76.39, $80.16 and $84.38 for the same
periods). These improvements led to year to year improvements in REVPAR for the
Comparable Hotels of 9.3% and 8.7% in 1994 and 1995, respectively. The Company's
revenue growth continued in the 1996 First Quarter, as revenues increased 21.4%
over revenues generated in the 1995 First Quarter, from $21.9 million to $26.6
million. Occupancy rates declined while ADR for Comparable Hotels improved
during the 1996 First Quarter to 72% and $95.92, respectively, from 73% and
$87.89 in the 1995 First Quarter. This performance led to a period over period
improvement of 7.6% in REVPAR. For presentation of certain operating and
financial data for the Company's entire Portfolio, see "Prospectus
Summary -- Summary Combined Financial and Other Data."
Of the $26.6 million increase in the Company's total revenues from 1993 to
1995, 40.4% is attributable to increases in hotel revenues from the Company's
owned and leased hotels and 59.6% is attributable to managed
46
<PAGE> 51
hotels within the Company's Portfolio. Revenues derived from managed hotels not
only include management fees, but also service fees and reimbursement revenues
paid to the Company.
The Company's operating strengths have also yielded consistently strong
financial results. As a result of continued improvement in the generation of
revenues in the Company's existing Portfolio of hotels, and the Company's
emphasis upon tight control of operating expenses, the gross operating profit
margins for the Company's Comparable Hotels were 32%, 34% and 36% in 1993, 1994
and 1995, respectively, and for both the 1995 First Quarter and the 1996 First
Quarter were 37%. Gross operating profit per available room for Comparable
Hotels during 1993, 1994 and 1995 was $9,612, $11,417 and $12,547, respectively.
In addition, the average food and beverage margins for the Comparable Hotels
during 1993, 1994 and 1995 were 29%, 31% and 31%, respectively, and were 30% and
28% in the 1995 First Quarter and 1996 First Quarter, respectively. For
presentation of certain operating and financial data for the Company's entire
Portfolio, see "Summary Prospectus -- Summary Combined Financial and Other
Data."
The Company has effectively held a 30% investment in GHALP during the
periods presented below. Historically, the results of operations of the GHALP
Properties have been accounted for using the equity method. Consequently, the
results of the GHALP Properties are not included in combined historical hotel
revenues and hotel expenses. As a result of the acquisition of a 70% partnership
interest in GHALP from an unrelated third party and the sale/leaseback
transaction, the results of the GHALP Properties are combined into hotel revenue
and hotel expenses in the 1995 and the First Quarter 1996 pro forma financial
data. See "-- Pro Forma Results of Operations" and "Pro Forma Combined Financial
Data."
The Company maintains an equity participation plan, named Wyndham Employees
Ltd. ("WEL"), which is designed to enable eligible Company employees to invest
in certain of the Portfolio hotels managed by the Company (together with the Old
Management Company, certain other Assigned Businesses being transferred to the
Company in the Formation, and certain affiliated companies, the "WEL
Properties"). The number of WEL Properties has grown with the continuing
expansion of the number of Portfolio hotels managed by the Company. As of April
15, 1996, 97 Wyndham employees had an interest in WEL. The Senior Executive
Officers may on one or more occasions direct that an eligible Company employee
receive an interest in WEL, which interest initially has no value. From time to
time, the value of WEL's interests in the WEL Properties is revalued, which
results in the revaluation of the interest of each participant in WEL. The
increase in value obtained by each participant in WEL by virtue of this
revaluation process is treated by the Company as compensation expense in a
manner similar to the expense associated with a formula unit incentive plan. The
Company recognized equity participation compensation expenses derived from WEL
of $1.5 million, $1.4 million and $2.7 million in 1993, 1994 and 1995,
respectively, and of approximately $677,000 and zero in the 1995 First Quarter
and 1996 First Quarter, respectively. The WEL plan document governing the rights
of the various participants in WEL was amended effective February 13, 1996 to
provide for a modified method of valuing WEL's investments to reflect the fact
that WEL's interests in certain of the WEL Properties will be exchanged for
643,685 shares of the Company's Common Stock as part of the Formation
(representing 3.3% of the Company's outstanding shares of Common Stock
immediately following consummation of the Offering). The Company expects that it
will recognize during the period in which the Offering is consummated
compensation expense in the approximate amount of $943,000 due to the
revaluation of WEL's ownership interest in the Company's Common Stock. Increases
in the price per share of the Company's Common Stock in the public market
subsequent to the Equity Offering would have the effect of increasing the amount
of this component of the Company's compensation expense, which could adversely
affect the Company's results of operations. See "Management -- Wyndham Employees
Ltd. Equity Participation Plan" and "Principal Stockholders."
In addition, certain Senior Executive Officers own limited partner
interests in Old Management Company and several affiliates of the Old Management
Company. These limited partner interests were purchased by these Senior
Executive Officers for amounts equal to the fair market value of such interests.
The Senior Executive Officers borrowed the funds used to purchase such limited
partner interests from an affiliate and pledged their limited partner interests
to secure such loans. The Senior Executive Officers' shares of the distributable
cash of the limited partnerships is used to repay such affiliate loans. For
financial reporting purposes, the net appreciation in the Senior Executive
Officers' limited partner interest results in compensa-
47
<PAGE> 52
tion expense to the Company. The Company has recognized compensation expense due
to the Senior Executive Officers' equity participation of $1.2 million, $1.4
million and $1.3 million for the years ended December 31, 1993, 1994 and 1995,
respectively, and of approximately $321,000 and zero in the 1995 First Quarter
and 1996 First Quarter, respectively. The Company expects that it will recognize
during the period in which the Offering is consummated compensation expense due
to the Senior Executive Officers' equity participation of $2.2 million. As a
result of the Equity Offering, this component of compensation expense will be
fixed at the initial public offering price; therefore, this component of
compensation expense will not be incurred for periods subsequent to the Equity
Offering.
The Company's predecessors in interest have operated the Assigned
Businesses through a combination of partnerships, S corporations and a
nontaxable Bermuda corporation that are not subject to U.S. federal income
taxes. As a result, the following discussion of the Company's combined
historical results of operations does not include a discussion of income tax
expense, and the Company's net income results are presented on a pre-tax basis.
The Company will become fully subject to state and federal income taxes upon
consummation of the transactions comprising the Formation. See Note 2 of Notes
to Combined Financial Statements.
PRO FORMA RESULTS OF OPERATIONS
Overview
The following discussion and analysis addresses the Company's combined
results of operations for the year ended December 31, 1995 and the three months
ended March 31, 1996 on a pro forma and an historical basis. The pro forma data
reflect the inclusion of the results of the GHALP Properties because the
Company's interests in the GHALP Properties changed from a minority equity
investment to a leasehold interest. The inclusion of all of the revenues and
expenses of the GHALP Properties in the Company's results of operations has the
effect of increasing operating income, but decreasing operating margins. Pro
forma interest expense also increases as a result of increased indebtedness, but
no return on the investment of the proceeds of such indebtedness is reflected.
Finally, pro forma results reflect a provision for income taxes.
Pro Forma 1996 First Quarter Compared to Historical 1996 First Quarter
Pro forma total revenues increased by 55.5%, or $14.8 million, to $41.4
million in 1996 from $26.6 million in historical 1996. Pro forma hotel revenues
increased by 95.1%, or $16.0 million, to $32.8 million in 1996 from $16.8
million in historical 1996, reflecting the combination of the results of GHALP
Properties, because the Company's interests in the GHALP Properties changed from
an equity investment to a leasehold interest.
Pro forma revenues from management fees decreased by 14.6%, or
approximately $757,000, to $4.4 million in 1996 from $5.2 million in historical
1996. Of this decrease, approximately $924,000 resulted from the elimination of
management fees earned from the GHALP Properties as a result of the
consolidation of the results of operations of the GHALP Properties. This
decrease is offset by the reduction of approximately $167,000 in management
contract costs related to the buyout of the CHMC Agreement.
Pro forma revenues from service fees decreased by 23.2%, or approximately
$223,000, to approximately $741,000 in 1996 from approximately $965,000 in
historical 1996, reflecting the elimination of service fees earned from the
GHALP Properties as a result of the consolidation of the results of operations
of the GHALP Properties.
Pro forma reimbursable revenues decreased by 7.4%, or approximately
$264,000, to $3.3 million in 1996 from $3.6 million in historical 1996,
reflecting the elimination of reimbursable revenues earned from the GHALP
Properties as a result of the consolidation of the results of operations of the
GHALP Properties.
Pro forma hotel expenses increased by 125.7%, or $12.8 million, to $23.0
million in 1996 from $10.2 million in historical 1996, reflecting the additional
hotel expenses from the GHALP Properties as a result of the consolidation of the
results of operations of the GHALP Properties.
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<PAGE> 53
Pro forma selling, general and administrative ("SG&A") expenses increased
by 7.6%, or approximately $325,000, to $4.6 million in 1996 from $4.3 million in
historical 1996, reflecting the additional cost of managing and administering a
publicly held company.
Pro forma reimbursable expenses decreased by 7.4%, or approximately
$264,000, to $3.3 million in 1996 from $3.6 million in historical 1996,
reflecting the elimination of reimbursable expenses from the GHALP Properties as
a result of the consolidation of the results of operations of the GHALP
Properties.
Pro forma depreciation and amortization expense increased by 15.0%, or
approximately $248,000, to $1.9 million in 1996 from $1.7 million in historical
1996, primarily reflecting the additional amortization of approximately $323,000
from loan costs relating to the Notes and the Revolving Credit Facility less
approximately $51,000 in amortization costs from the retired debt.
As a result of the changes noted above, pro forma operating income
increased by 24.7%, or $1.7 million, to $8.4 million in 1996 from $6.7 million
in historical 1996.
Pro forma interest expense increased by 55.5%, or $1.2 million, to $3.3
million in 1996 from $2.1 million in historical 1996, reflecting the additional
interest from the Notes, capital leases, affiliated borrowings and bank fees
less interest expense from the retired debt. Pro forma interest on the Notes is
calculated based on a rate of 10 1/2%. Bank fees are calculated based on an
assumed administrative fee and an assumed .375% fee charged on the unused
portion of the $100.0 million Revolving Credit Facility.
Pro forma equity in earnings of affiliate's hotel partnership of
approximately $829,000 was eliminated upon the consolidation of the results of
operations of the GHALP Properties.
Pro forma amortization of deferred gain totalling approximately $182,000 is
the result of a $12.4 million deferred gain as a result of the GHALP
sale/leaseback transaction. This gain is being amortized over the initial 17
year lease term.
Income attributable to minority interest is eliminated in the pro forma
statement as a result of the acquisition of the minority interest as part of the
Formation.
The pro forma provision for income taxes of $2.2 million is the result of
operating as a corporation subject to taxation using an effective tax rate of
39.5%.
As a result of the changes noted above, pro forma net income decreased
34.4%, or $1.8 million, to $3.4 million in 1996 from $5.2 million in historical
1996.
Pro Forma 1995 Compared to Historical 1995
Pro forma total revenues increased by 58.8%, or $51.7 million, to $139.6
million in 1995 from $87.9 million in historical 1995. Pro forma hotel revenues
increased by 103.6%, or $56.6 million, to $111.3 million in 1995 from $54.7
million in historical 1995, reflecting the combination of the results of GHALP
Properties, because the Company's interests in the GHALP Properties changed from
an equity investment to a leasehold interest.
Pro forma revenues from management fees decreased by 15.6%, or $2.6
million, to $14.3 million in 1995 from $16.9 million in historical 1995. Of this
decrease, $3.3 million results from the elimination of management fees earned
from the GHALP Properties as a result of the consolidation of the results of
operations of the GHALP Properties. This decrease is offset by the reduction of
approximately $670,000 in management contract costs related to the buyout of the
CHMC Agreement.
Pro forma revenues from service fees decreased by 17.7%, or approximately
$729,000, to $3.4 million in 1995 from $4.1 million in historical 1995,
reflecting the elimination of service fees earned from the GHALP Properties as a
result of the consolidation of the results of operations of the GHALP
Properties.
Pro forma reimbursable revenues decreased by 16.1%, or $1.7 million, to
$9.1 million in 1995 from $10.8 million in historical 1995, reflecting the
elimination of reimbursable revenues earned from the GHALP Properties as a
result of the consolidation of the results of operations of the GHALP
Properties.
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<PAGE> 54
Pro forma other income increased by 12.0%, or approximately $160,000, to
$1.5 million in 1995 from $1.3 million in historical 1995, reflecting the
elimination of CHMC management contract costs relating to a contract termination
fee.
Pro forma hotel expenses increased by 132.3%, or $48.9 million, to $85.9
million in 1995 from $37.0 million in historical 1995, reflecting the additional
hotel expenses from the GHALP Properties as a result of the consolidation of the
results of operations of the GHALP Properties.
Pro forma SG&A expenses increased by 8.7%, or $1.3 million, to $16.3
million in 1995 from $15.0 million in historical 1995, reflecting the additional
cost of managing and administering a publicly held company.
Pro forma reimbursable expenses decreased by 16.1%, or $1.7 million, to
$9.1 million in 1995 from $10.8 million in historical 1995, reflecting the
elimination of reimbursable expenses from the GHALP Properties as a result of
the consolidation of the results of operations of the GHALP Properties.
Pro forma depreciation and amortization expense increased by 15.0%, or
approximately $947,000, to $7.3 million in 1995 from $6.3 million in historical
1995, primarily reflecting the additional amortization of $1.3 million from loan
costs relating to the Notes and the Revolving Credit Facility less $250,000 in
amortization costs from the retired debt.
As a result of the changes noted above, pro forma operating income
increased by 15.5%, or $2.3 million, to $16.9 million in 1995 from $14.6 million
in historical 1995.
Pro forma interest expense increased by 55.6%, or $4.7 million, to $13.2
million in 1995 from $8.5 million in historical 1995, reflecting the additional
interest from the Notes, capital leases, affiliated borrowings and bank fees
less interest expense from the retired debt. Pro forma interest on the Notes is
calculated based on a rate of 10 1/2%. Bank fees are calculated based on an
assumed administrative fee and an assumed .375% fee charged on the unused
portion of the $100.0 million Revolving Credit Facility.
Pro forma equity in earnings of affiliate's hotel partnership of $1.7
million was eliminated upon the consolidation of the results of operations of
the GHALP Properties.
Pro forma foreign currency gain decreased by 85.7%, or approximately
$347,000, to approximately $58,000 in 1995 from approximately $405,000 in
historical 1995, reflecting the repayment of indebtedness denominated in foreign
currency as a result of the Formation and Financing Plan.
Pro forma amortization of deferred gain totalling approximately $726,000 is
the result of a $12.3 million deferred gain as a result of the GHALP
sale/leaseback transaction. This gain is being amortized over the initial 17
year lease term.
Income attributable to minority interest is eliminated in the pro forma
statement as a result of the acquisition of the minority interest as part of the
Formation.
The pro forma provision for income taxes of $2.0 million is the result of
operating as a corporation subject to taxation using an effective tax rate of
39.5%.
As a result of the changes noted above, pro forma net income decreased
62.3%, or $4.9 million, to $3.0 million in 1995 from $7.9 million in historical
1995.
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<PAGE> 55
HISTORICAL RESULTS OF OPERATIONS
The following table sets forth certain financial data expressed as a
percentage of total revenues and certain other data for each of the periods
presented:
<TABLE>
<CAPTION>
THREE MONTHS
YEAR ENDED DECEMBER 31, ENDED MARCH 31,
------------------------- ---------------
1993 1994 1995 1995 1996
----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C>
Revenues:
Hotel revenues........................... 71.7% 67.9% 62.2% 70.1% 63.2%
Management fees.......................... 17.5 17.5 19.3 15.5 19.5
Service fees............................. 3.5 3.8 4.7 3.2 3.6
Reimbursement revenues................... 6.8 10.5 12.3 10.8 13.5
Other.................................... 0.5 0.3 1.5 0.4 0.2
----- ----- ----- ----- -----
Total revenues................... 100.0 100.0 100.0 100.0 100.0
----- ----- ----- ----- -----
Operating costs & expenses:
Hotel expenses........................... 51.8 47.9 42.0 42.0 38.4
Selling, general and administrative
expense............................... 16.2 14.0 17.1 13.3 16.1
Equity participation compensation........ 4.4 3.7 4.5 4.6 0.0
Reimbursable expense..................... 6.8 10.5 12.3 10.8 13.5
Depreciation and amortization............ 8.6 7.5 7.2 6.7 6.2
Other.................................... 0.6 0.2 0.2 (0.1) 0.5
----- ----- ----- ----- -----
Total operating costs and
expenses....................... 88.4 83.8 83.3 77.3 74.7
----- ----- ----- ----- -----
Operating income........................... 11.6 16.2 16.7 22.7 25.3
----- ----- ----- ----- -----
Interest expense, net...................... (11.5) (9.8) (9.1) (9.3) (6.8)
Equity in earnings of affiliate's hotel
partnership.............................. 1.3 1.6 1.9 2.5 3.1
Foreign currency gain...................... 1.0 0.5 0.4 0.2 0.0
----- ----- ----- ----- -----
Income before minority interests........... 2.4 8.5 9.9 16.1 21.6
Income (loss) attributable to minority
interests................................ (0.3) 0.3 0.9 2.3 2.2
----- ----- ----- ----- -----
Net income....................... 2.7% 8.2% 9.0% 13.8% 19.4%
===== ===== ===== ===== =====
</TABLE>
1996 First Quarter Compared to 1995 First Quarter
Total revenues increased by 21.4%, or $4.7 million, to $26.6 million in
1996 from $21.9 million in 1995. Hotel revenues increased by 9.6%, or $1.5
million, to $16.8 million in 1996 from $15.4 million in 1995. Approximately
63.9% of this increase in hotel revenues was due to an approximately $935,000
increase in existing hotel room rental revenues, while 27.7% of the increase was
due to an approximately $407,000 increase in existing hotel food and beverage
revenues. The increase in hotel room rental revenue is due to a 11% increase in
ADR offset by a 2% decrease in occupancy percentage.
Revenues from management fees increased by 52.8%, or $1.8 million, to $5.2
million in 1996 from $3.4 million in 1995. Approximately 88.2% of this increase
resulted from 17 new managed hotels added between March 31, 1995 and March 31,
1996, while 2.7% of the increase resulted from increases in base management fees
and trade name fees and 9.1% of the increase resulted from increases in
incentive management fees derived from existing managed hotels.
Revenues from service fees increased by 36.5%, or approximately $258,000,
to approximately $965,000 in 1996 from approximately $707,000 in 1995. Design
fees relating to the conversion of hotels to Wyndham brand hotels accounted for
45.4% of the increase, while 52.8% of the increase was derived from new central
accounting fees resulting from Portfolio hotels added between March 31, 1995 and
March 31, 1996. The balance of the increase reflected increased service fees
from existing hotels.
Reimbursable revenues increased by 52.0%, or $1.2 million, to $3.6 million
in 1996 from $2.4 million in 1995. Of this increase, 24.7% resulted from
increased payments to the Company's Marketing Fund from both new and existing
Portfolio hotels, while 36.6% of the increase resulted from fees generated from
room sales booked by the Company's National Sales Offices.
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<PAGE> 56
Hotel expenses increased by 10.9%, or approximately $1.0 million, to $10.2
million in 1996 from $9.2 million in 1995. This increase reflects a 10.1%
increase in room expenses and a 10.4% increase in food and beverage expenses.
Hotel expenses were relatively flat as a percentage of hotel revenues at 60.7%
in 1996 versus 59.9% in 1995. The operating profit margin on hotels owned or
leased by the Company remained flat at 39.1% in 1996 and 1995.
SG&A expenses increased 46.3%, or $1.4 million, to $4.3 million in 1996
from $2.9 million in 1995. As a percentage of total revenues, SG&A expenses
increased to 16.1% in 1996 from 13.3% in 1995. Of the $1.4 million increase in
SG&A expenses, 52.9% of the increase, or approximately $714,000, is due to
increased wages, contract labor and benefit costs arising from the addition of
corporate management and staff personnel in anticipation of the Company's need
to manage and provide services to the substantially larger number of hotels it
anticipates operating as it executes its growth strategy. In addition, 6.9% of
the increase, or approximately $94,000, is due to the establishment of a
provision for bad debt expense for management fees on an unaffiliated hotel, and
5.2% of the increase, or approximately $71,000, is due to increased processing
costs associated with the accounts payable and payroll departments as a result
of the increase in management contracts.
Equity participation compensation expenses decreased by 100%, or
approximately $998,000, to zero in 1996 from approximately $998,000 in 1995.
This decrease is due to the application of the Company's current method of
valuing WEL's and the Senior Executive Officers' investments in the Old
Management Company and affiliates. The Company expects that it will recognize
significant equity participation compensation expense during the period in which
the Offering is consummated. See "-- Overview."
Reimbursable expenses grew by 52.0%, or $1.2 million, to $3.6 million in
1996 from $2.4 million in 1995. As a percentage of total revenues, reimbursable
expenses constituted 13.5% of total revenues in 1996, compared with 10.8% in
1995. These increases were primarily due to increased advertising and
promotional expense, as well as costs associated with expanding the Company's
national sales staff to support both individual business and group sales.
Depreciation and amortization expense increased by 13.1%, or approximately
$192,000, to $1.7 million in 1996 from $1.5 million in 1995 due to the net
acquisition of approximately $562,000 in property and equipment and the addition
of amortization of the Bedrock Options. See Note 13 of Notes to Combined
Financial Statements.
Interest expense, net, decreased by 11.5%, or approximately $234,000, to
$1.8 million in 1996 from $2.0 million in 1995. Interest expense, net, as a
percentage of total revenues decreased to 6.8% in 1996 from 9.3% in 1995,
reflecting relatively static interest expense while the Company's revenues grew
over this period.
Earnings from the Company's equity investment in GHALP grew by 49.0%, or
approximately $273,000, to approximately $829,000 in 1996 from approximately
$556,000 in 1995, reflecting improvements in the operating performance of the
GHALP Properties.
As a result of the changes noted above, net income (exclusive of income
taxes) increased by 71.2%, or $2.2 million, to $5.2 million in 1996 from $3.0
million in 1995. Interim results are not necessarily indicative of operating
results for a full year, and there can be no assurance that the Company will
achieve operating results during the balance of 1996 that are comparable to its
1996 First Quarter operating results.
1995 Compared to 1994
Total revenues increased by 15.2%, or $11.6 million, to $87.9 million in
1995 from $76.3 million in 1994. Hotel revenues increased by 5.6%, or $2.9
million, to $54.7 million in 1995 from $51.8 million in 1994. Approximately 69%
of this increase in hotel revenues was due to a $2.0 million increase in
existing hotel room rental revenues, while 35% of the increase was due to a $1.0
million increase in existing hotel food and beverage revenues, which increases
were offset by minor decreases in other hotel revenue categories. The increase
in hotel room rental revenue is due to a 1% increase in ADR and a 3% increase in
occupancy percentage.
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<PAGE> 57
Revenues from management fees increased by 26%, or $3.5 million, to $16.8
million in 1995 from $13.3 million in 1994. Approximately 64% of this increase
resulted from the addition of 14 new managed hotels in 1995, while 20% of the
increase resulted from increases in base management fees and trade name fees and
16% of the increase resulted from increases in incentive management fees derived
from existing managed hotels.
Revenues from service fees increased by 41.8%, or $1.2 million, to $4.1
million in 1995 from $2.9 million in 1994. Design fees relating to the
conversion of hotels to Wyndham brand hotels accounted for 31% of the increase,
while 29% of the increase was derived from new central accounting fees resulting
from Portfolio hotels added in 1995. The balance of the increase reflected
increased service fees from existing hotels.
Reimbursable revenues increased by 35.4%, or $2.8 million, to $10.8 million
in 1995 from $8.0 million in 1994. Of this increase, 39% resulted from increased
payments to the Company's Marketing Fund from both new and existing Portfolio
hotels, while 29% of the increase resulted from fees generated from room sales
booked by the Company's National Sales Offices.
During 1995, the Company received $1.0 million for a terminated management
agreement that is included in other income. This termination occurred as a
result of a third party owner terminating the Company's management agreement due
to the third party owner's affiliation with another hotel management company.
This termination fee is offset by a payment of approximately $160,000 relating
to the CHMC Agreement. The remaining approximately $500,000 of other income was
derived from franchise fees and miscellaneous income sources.
Hotel expenses increased by 1.1%, or approximately $401,000, to $37.0
million in 1995 from $36.6 million in 1994. This increase reflects a 9% increase
in room expenses and a 3.7% increase in food and beverage expenses. These
increased expenses were offset by a drop in other hotel expenses. Hotel expenses
decreased as a percentage of hotel revenues to 67.6% in 1995 from 70.6% in 1994,
primarily as a result of operating leverage and increased operating
efficiencies. The operating profit margin on hotels owned or leased by the
Company improved to 32.4% in 1995 from 29.4% in 1994, due primarily to increases
in hotel occupancy rates and inflation (partially offset by a decrease in rental
income at one hotel).
SG&A expenses increased 40.9%, or $4.4 million, to $15.0 million in 1995
from $10.6 million in 1994. As a percentage of total revenues, SG&A expenses
increased to 17.1% in 1995 from 14.0% in 1994. Of the $4.4 million increase in
SG&A expenses, 64% of the increase, or $2.8 million, is due to increased wages,
contract labor and benefit costs arising from the addition of corporate
management and staff personnel in anticipation of the Company's need to manage
and provide services to the substantially larger number of hotels it anticipates
operating as it executes its growth strategy. In addition, 10% of the increase,
or approximately $426,000, is due to costs associated with improved management
information systems support and 8% of the increase, or approximately $356,000,
is due to development costs incurred in connection with possible acquisitions of
management contracts.
Equity participation compensation expenses increased by 42.5%, or $1.2
million, to $4.0 million in 1995 from $2.8 million in 1994. This increase
reflects the improved operating performance of the Company and affiliated
entities and the consequent increased valuation of WEL's and the Senior
Executive Officers' investments in the Old Management Company and affiliates.
Reimbursable expenses grew by 35.4%, or $2.8 million, to $10.8 million in
1995 from $8.0 million in 1994. As a percentage of total revenues, reimbursable
expenses constituted 12.3% of total revenues in 1995, compared with 10.5% in
1994. These increases were primarily due to increased advertising and
promotional expense, as well as costs associated with expanding the Company's
national sales staff to support both individual business and group sales.
Depreciation and amortization expense increased by 10.0%, or approximately
$576,000, to $6.3 million in 1995 from $5.7 million in 1994 due to the net
acquisition of $3.3 million in property and equipment and the addition of
amortization of the Bedrock Options. See Note 13 of Notes to Combined Financial
Statements.
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<PAGE> 58
Interest expense, net, increased by 6.6%, or approximately $495,000, to
$8.0 million in 1995 from $7.5 million in 1994. Interest expense, net, as a
percentage of total revenues decreased to 9.1% in 1995 from 9.8% in 1994,
reflecting relatively static interest expense while the Company's revenues grew
over this period.
Earnings from the Company's equity investment in GHALP grew by 34.6%, or
approximately $427,000, to $1.7 million in 1995 from $1.2 million in 1994,
reflecting improvements in the operating performance of the GHALP Properties.
As a result of the changes noted above, net income (exclusive of income
taxes) increased by 26.9%, or $1.7 million, to $7.9 million in 1995 from $6.3
million in 1994.
1994 Compared to 1993
Total revenues increased by 24.5%, or $15.0 million, to $76.3 million in
1994 from $61.3 million in 1993. Of this increase, hotel revenue generated by
the hotels owned or leased by the Company increased by 17.9%, or $7.9 million,
to $51.8 million in 1994 from $43.9 million in 1993. Approximately 42% of this
increase in hotel revenues resulted from an increase of $3.3 million in existing
hotel room rental revenues, while 30% of the increase resulted from an increase
of $2.4 million in existing hotel food and beverage revenues. The increase in
hotel room rental revenue is due to a 5% increase in ADR and a 5% increase in
occupancy percentage. The remaining portion of the increase is primarily
attributable to the effects of a full year of operations generated by the
Wyndham Garden Hotel in Schaumburg, Illinois, which the Company acquired in May
1993.
Revenues from management fees increased by 24%, or $2.6 million, to $13.3
million in 1994 from $10.7 million in 1993. Of this increase, 33% is
attributable to fees earned from 11 new management contracts executed in 1994,
32% is from increases in base management and trade name fees and 35% is from
increases in management incentive fees derived from existing managed hotels.
Service fee revenues increased by 36.5%, or approximately $777,000, to $2.9
million in 1994 from $2.1 million in 1993, due primarily to increased central
accounting fees and higher revenues derived from the provision of purchasing
services.
Reimbursement revenues increased by 92.2%, or $3.8 million, to $8.0 million
in 1994 from $4.2 million in 1993. The Company established a Marketing Fund in
January 1994 to which all Portfolio hotels pay a percentage of room revenues.
Payments to the new Marketing Fund accounted for approximately 87% of the
increase in reimbursement revenues.
Hotel expenses increased by 15.2%, or $4.8 million, to $36.6 million in
1994 from $31.7 million in 1993. Approximately 24% of the increase is
attributable to the effect of operating the Wyndham Garden Hotel in Schaumburg,
Illinois during all of 1994, and the balance is due to normal increases in hotel
operating expenses arising from increased hotel revenues (the most important
components of which were an increase in room expense of 11% and an increase in
food and beverage expense of 16%, which represented 12% and 31% of the total
increase in hotel expenses, respectively). Hotel expenses as a percentage of
hotel revenues decreased to 70.6% in 1994 from 72.3% in 1993, primarily as a
result of operating leverage and increased operating efficiencies.
SG&A expenses increased by 7.4%, or approximately $732,000, to $10.6
million in 1994 from $9.9 million in 1993. This increase in SG&A expenses is
primarily attributable to an increase of approximately $872,000 in corporate
staffing and office expenses, partially offset by the non-recurrence in 1994 of
various 1993 expenses (approximately $250,000 established for a then pending
lawsuit, approximately $156,000 for a terminated employee and the remainder
relating to the reclassification of certain expenses). SG&A expenses as a
percentage of total revenues decreased to 14.0% in 1994 compared to 16.2% in
1993, as the growth in total revenues more than offset increased SG&A expenses.
Equity participation compensation expenses increased by 5.0%, or
approximately $93,000, to $2.8 million in 1994 from $2.7 million in 1993. This
increase reflects the improved operating performance of the Company
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and affiliated entities and the consequent increased valuation of WEL's and the
Senior Executive Officers' investments in the Old Management Company and
affiliates.
Reimbursable expenses increased by 92.2%, or $3.8 million, to $8.0 million
in 1994 from $4.2 million in 1993. Approximately 87% of this increase is due to
increased advertising and promotional expenses associated with the operation of
the Company's Marketing Fund, which was established in January 1994.
Depreciation and amortization expense increased by 8.8%, or approximately
$466,000, due to the effect of a full year of ownership in 1994 of the Wyndham
Garden Hotel in Schaumburg, Illinois and increased amortization of management
contract costs.
Interest expense, net, increased by 6.4%, or approximately $451,000, to
$7.5 million in 1994 from $7.1 million in 1993 primarily as a result of
increases in interest rates.
Earnings from the equity investment in GHALP increased by 59.1%, or
approximately $459,000, to $1.2 million in 1994 from approximately $777,000 in
1993 due to increased gross operating profits from the GHALP Properties.
As a result of the changes noted above, net income (exclusive of income
taxes) increased by 278.8%, or $4.6 million, to $6.3 million in 1994 from $1.7
million in 1993.
LIQUIDITY AND CAPITAL RESOURCES
The Company's principal capital and liquidity needs include cash to finance
operations, capital requirements relating to ongoing hotel maintenance and
improvements at the Company's owned and leased hotels, capital requirements
associated with the Company's entry into new management contracts and
improvements to the related hotel properties, hotel acquisition financing and
the repayment of indebtedness.
The Company has historically satisfied its capital and liquidity needs
through cash generated by operations, mortgage indebtedness and debt financing
obtained under the $20.0 million revolving credit facility provided for in the
GE Credit Agreement. See "Principal Stockholders" for further information
relating to the GE Option provided for under the GE Credit Agreement. During the
year ended December 31, 1995, the Company generated cash from operations of
$16.2 million as compared to $15.1 million in 1994. The Company used cash in
investing activities of $21.3 million in 1995 as compared to approximately
$616,000 in 1994. This increased usage is primarily the result of $14.5 million
used in connection with obtaining management agreements where the Company was
required to make loans or payments to the related hotel owners and an additional
$2.6 million reserved for the purpose of funding a loan to a hotel owner. The
Company generated cash from financing activities of $5.7 million in 1995
compared with cash used in financing activities of $11.7 million in 1994. This
increase in cash provided by financing activities was generated primarily
through the GE Credit Agreement ($12.5 million was outstanding as of December
31, 1995) and net contributions from partners ($3.9 million). This source of
cash flow from financing activities was partially offset by a distribution to a
withdrawing partner totalling $2.6 million and the repayment of $6.7 million in
long term debt. In the 1996 First Quarter, the Company generated cash from
operations of $4.7 million. Additional funds were generated from a $2.5 million
advance under the GE Credit Agreement. The Company used $1.3 million for a
deposit relating to the purchase of the Vinings Wyndham Garden Hotel and
approximately $650,000 for Offering expenses. This increase in cash was
partially offset by the repayment of $1.0 million of indebtedness.
Following consummation of the Offering the Company intends to retain any
future earnings for use in its business and does not intend to declare any cash
dividends in the foreseeable future. See "Dividend Policy." The Company
therefore anticipates that any cash provided by operations in the foreseeable
future will be available to fund the Company's liquidity and capital needs.
The Company estimates that it will receive net proceeds from the Offerings
in the aggregate amount of $146.7 million. These proceeds will be used to fund
the cash payments associated with the Formation in the approximate total amount
of $53.8 million, to repay certain mortgage and other indebtedness in the
approximate total amount of $64.8 million assumed in connection with the
Formation (including repayment of $7.5 million indebtedness of the $15.0 million
indebtedness outstanding under the GE Credit Agreement and
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repayment in full of approximately $12.5 million mortgage indebtedness that is
expected to mature shortly prior to the consummation of the Offerings), to pay
approximately $5.1 million of fees and expenses incurred in connection with the
GHALP transactions and consummating the elements of the Financing Plan other
than the Offerings, to fund the cash portion of the estimated acquisition cost
of the Vinings Wyndham Garden Hotel in the amount of $3.2 million (including
estimated closing costs of $395,000) and to fund certain improvements to the
Wyndham Rose Hall Resort in the approximate amount of $4.0 million. The Company
estimates that remaining net proceeds from the Offerings and the Bedrock
Contribution of approximately $25.8 million will remain after such proceeds are
applied to the foregoing uses. See "The Formation and the Financing Plan" and
"Use of Proceeds." The Company's remaining material capital commitments, after
satisfying the commitments described above, are estimated to be $6.6 million.
Such capital will be used for normal renovation and refurbishment of the
Company's owned and leased hotels, and will be funded from cash generated from
operations.
The Notes to be issued in connection with the Offering will mature on May
15, 2006, are unsecured obligations of the Company and are guaranteed by each of
the Company's Subsidiaries (except for a number of insignificant Subsidiaries).
The Notes bear interest at 10 1/2% per annum, and such interest will be payable
semi-annually on May 15 and November 15, commencing November 15, 1996. Except in
the event of a Change of Control, there will be no principal due on the Notes
prior to final maturity. See "Risk Factors -- Significant Debt and Lease
Obligations," "-- Subordination of the Notes," "-- Fraudulent Conveyance Risks"
and "-- Risk of Inability to Finance Change of Control Offer; Defaults Upon a
Change of Control."
The Indenture relating to the Notes contains certain covenants restricting
the Company's ability to incur indebtedness and otherwise limiting the Company's
activities. The ability of the Company and its Restricted Subsidiaries (as
defined in the Indenture) to incur indebtedness is limited by the Indenture
unless the Company would, after giving effect to such incurrence, have a
Consolidated Fixed Charge Coverage Ratio (as defined in the Indenture) greater
than 1.75:1 with respect to any incurrence prior to May 31, 1997, or 2:1 with
respect to any incurrence on or after May 31, 1997, provided that the Company
and any Restricted Subsidiary will be permitted to incur (A) indebtedness of up
to $150 million under the Revolving Credit Facility or any replacement facility,
(B) indebtedness owed to the Company or a Restricted Subsidiary, (C)
refinancings of indebtedness permitted by clauses (B), (D), (F), (H) and (I)
hereof, (D) indebtedness under (x) performance or similar bonds provided in the
ordinary course of business, (y) currency or interest rate protection agreements
or (z) indemnity or purchase price adjustment obligations entered into in
connection with asset dispositions, which obligations do not exceed the proceeds
of the related disposition, (E) indebtedness under letters of credit and
bankers' acceptances issued in the ordinary course of business, (F) acquired
indebtedness if, after giving effect to such incurrence, the Company could incur
at least $1.00 of additional indebtedness (other than pursuant to clauses (A)
through (J) hereof), (G) indebtedness of up to $3 million incurred in connection
with certain retirements for value of Company securities held by employees or
former employees, (H) guarantees of indebtedness of the Company or a Restricted
Subsidiary, (I) indebtedness incurred in connection with the acquisition of the
Vinings Wyndham Garden Hotel and (J) other indebtedness of up to $25 million.
The Indenture also contains covenants limiting (A) the ability of the Company
and its Restricted Subsidiaries to pay dividends on or repurchase any capital
stock (including the Common Stock) not held by the Company or a wholly-owned
Restricted Subsidiary that is a guarantor of the Notes, (B) limiting the ability
of the Company and its Restricted Subsidiaries to voluntarily prepay or repay
any indebtedness that is not senior in right of payment to the Notes and (C)
limiting the ability of the Company to incur indebtedness that is senior in
right of payment to the Notes but junior in right of payment to the Company's
senior indebtedness. For a description of additional covenants contained in the
Indenture relating to the Notes, see "Description of the Notes -- Covenants."
The Company has received a commitment letter from Bankers Trust pursuant to
which Bankers Trust has agreed, subject to certain conditions, to provide the
Revolving Credit Facility. The Revolving Credit Facility provides for up to
$100.0 million of revolving loan borrowings. The Revolving Credit Facility will
be a direct obligation of the Company and would be fully and unconditionally
guaranteed by each of the Company's Subsidiaries. Such obligations and such
guarantees would rank senior in right of payment to the Notes and be secured by
substantially all of the assets of the Company and its Subsidiaries. While the
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Company does not expect that it will draw any amounts under the Revolving Credit
Facility at the closing thereof, it is anticipated that approximately $49.4
million aggregate principal amount will initially be available for borrowings.
Availability under the Revolving Credit Facility will be subject, among other
things, to a borrowing base test calculated with reference to the cash flow from
the hotel properties and management contracts pledged to secure the obligations
of the Company under the Revolving Credit Facility, the location of certain of
such properties, the terms of such management contracts, the relative
contribution to the borrowing base of the different values attributed to such
properties and the values attributable to both the properties taken as a whole
and the management contracts taken as a whole and other factors. Under the terms
of the Revolving Credit Facility, no further borrowings will be made available
to the Company following the third anniversary of the closing of the Revolving
Credit Facility. The Revolving Credit Facility will mature four years from its
closing date. Bankers Trust may, subject to certain limitations, assign,
syndicate, participate, place or sell its interest under the Revolving Credit
Agreement to other institutional lenders.
The Revolving Credit Facility may be used for (a) the acquisition,
renovation, management and operation of certain hotel properties, (b) the
provision of equity and debt investments in joint ventures to acquire, renovate
and manage certain hotel properties, (c) equity and debt investments in and
credit support for owners of certain hotel properties managed by the Company and
its subsidiaries which are made in connection with the acquisition, extension,
renewal or modification of management agreements and (d) other corporate
purposes of the Company. The Revolving Credit Facility will bear interest at a
rate equal to, at the election of the Company, (a) the Bankers Trust base rate
plus one percent (1.0%) per annum, or (b) one-, two-, three- or six-month LIBOR
plus two percent (2.0%) per annum, payable monthly in arrears; provided however,
subject to the Company's satisfaction of certain conditions, the aforementioned
interest rates will be subject to a reduction of 0.25% per annum. The Company
will pay customary fees in connection with structuring the Revolving Credit
Facility and will also pay Bankers Trust an unused commitment fee equal to
0.375% per annum of the unused portion of the Revolving Credit Facility, payable
quarterly in arrears. Under certain circumstances, the Company may be required
to obtain interest rate protection. The Company is permitted to use up to $15.0
million of the amount available under the Revolving Credit Facility for the
issuance of letters of credit, which will be subject to a fee of 2.0% per annum
on the maximum amount which may be drawn under each letter of credit.
The Revolving Credit Facility will contain covenants requiring the Company
to maintain certain financial ratios. The primary effect of these covenants will
be to limit the Company's ability to obtain or maintain borrowings under the
Revolving Credit Facility, as well as to limit the Company's activities in a
number of other respects. Among the covenants to be contained in the Revolving
Credit Facility, will be covenants requiring the Company to maintain a minimum
net worth of $55.0 million and to maintain the following financial ratios:
(a) the market value of the outstanding capital stock of the Company
shall not be less than 50% of the market value of such stock on the date of
the closing of the Revolving Credit Facility, unless there shall have
occurred a corresponding decrease in the market value of the capital stock
of a selected group of comparable companies;
(b) Total Consolidated Indebtedness (as defined in the Revolving
Credit Facility) and imputed indebtedness attributable to the Company's
ground lease obligations ("Imputed Debt") entered into following the
closing of the Revolving Credit Facility shall not exceed the lesser of (i)
the Adjusted Stockholders' Equity (as defined in the Revolving Credit
Facility) or (ii) 50% of Total Consolidated Indebtedness plus Imputed Debt
plus the market value of the outstanding capital stock of the Company,
unless the failure to meet the ratio with respect to clause (ii) is
attributable to a decrease in the market value of the capital stock of a
selected group of comparable companies of more than 50% since the date of
the closing of the Revolving Credit Facility;
(c) an annually increasing ratio of Consolidated EBITDA (as defined in
the Revolving Credit Facility) plus total lease payments under permitted
sale-leaseback transactions (the "Lease Payments") to Consolidated Fixed
Charges (as defined in the Revolving Credit Facility) plus the greater of
the Lease Payments or an interest factor on the Imputed Debt;
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(d) an annually increasing ratio of Consolidated EBITDA minus capital
expenses incurred plus Lease Payments to Consolidated Fixed Charges plus
Lease Payments and an interest factor on the Imputed Debt;
(e) an annually decreasing ratio of Total Consolidated Indebtedness
plus Imputed Debt to Consolidated EBITDA plus the Lease Payments; and
(f) an annually decreasing ratio of Total Consolidated Indebtedness
plus Imputed Debt to Consolidated EBITDA minus capital expenses incurred
plus Lease Payments.
The Revolving Credit Facility will also contain covenants that (a) impose
certain limitations on the right of the Company in respect of (i) the payment of
dividends and other distributions, (ii) the making of investments in, guaranties
for the benefit of or payments to subsidiaries, persons owning or leasing hotels
managed by the Company or otherwise, (iii) acquisitions of additional hotel
properties, (iv) the creation or incurrence of liens, (v) the incurrence of
indebtedness, lease obligations or contingent liabilities, (vi) the issuance of
preferred stock and (vii) sale leaseback transactions involving any of its hotel
properties, (b) require the Company to maintain a capital reserve account of
3.5% of the gross revenues for each of the hotels owned or leased by it (the
GHALP Lease will require the Company to make deposits into a capital reserve
account in amounts equal to 5% of the gross revenues for each of the GHALP
Properties and the Harbour Island Lease will require the Company to allocate
amounts equal to 4% of the gross revenues of the Harbour Island Property for
replacement and repair of furniture, fixtures, equipment and other improvements
relating to such property), (c) require the Company to make certain expenditures
in connection with deferred maintenance and (d) require the Company to undertake
certain capital expenditures for the renovation of one hotel property (the
Wyndham Rose Hall Resort) and possibly other hotel properties. See "Description
of the Revolving Credit Facility -- Covenants" for a description of additional
covenants imposed in connection with the Revolving Credit Facility.
While the Company expects to enter into the Revolving Credit Agreement
contemporaneously with or shortly following the consummation of the Offering,
there can be no assurance that the Company will be successful in entering into
the Revolving Credit Agreement and, if so, on what terms. The Revolving Credit
Facility would be an important source of capital to fund the Company's future
growth strategy and, if the Company is not able to agree with the prospective
lender on the terms of the Revolving Credit Agreement, it would need to seek
other sources of financing to help fund its future growth strategy. See
"Description of Indebtedness -- Revolving Credit Facility."
In connection with the Company's acquisition of the Vinings Wyndham Garden
Hotel, which is anticipated to be consummated shortly following the Offering,
the Company will assume industrial revenue bond indebtedness in the amount of
$9.7 million with interest payments to be based upon a rate of 7.625% per annum.
Such industrial bond indebtedness is currently in default and has been
accelerated by the bondholders, as the credit enhancer for such indebtedness is
operating under court supervised rehabilitation. As a condition to the Company's
purchase of the hotel, the trustee for the bondholders will execute a
forebearance agreement pursuant to which it will agree not to exercise any
remedies under the documents relating to the indebtedness for a period of 15
months (which period is estimated to end in August 1997). Notwithstanding the
terms of the forebearance agreement, the Company is required under the terms of
the contract of sale to refinance the industrial revenue bond indebtedness
within nine months of the date of acquisition of the hotel. The Company may need
to obtain approval from the lenders under the Revolving Credit Facility in
connection with such refinancing. There can be no assurance as to the Company's
ability or the terms upon which it can refinance the industrial revenue bond
indebtedness. The Company has paid into escrow $1.3 million, which amount would
be forfeited in certain circumstances if the Company is unable to purchase the
Vinings Wyndham Garden Hotel.
The Company believes that cash generated by operations will be sufficient
to fund the Company's operating strategy for the foreseeable future, and that
any remaining cash generated by operations, together with the Bedrock
Contribution, capital available under the Revolving Credit Facility (subject to
the terms and covenants to be included therein) and the remaining proceeds from
the Offerings will be adequate to fund the
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Company's growth strategy in the near term. The Company may seek an increase in
the capital available to it under the Revolving Credit Facility or otherwise
obtain additional debt or equity financing, depending upon the amount of capital
required to pursue future growth opportunities or address other needs. No
assurance can be given that the amount available under the Revolving Credit
Facility will be increased, or such additional financing will be available, on
acceptable terms, if at all.
SEASONALITY
The lodging industry is affected by normally recurring seasonal patterns.
Demand in the lodging industry is traditionally higher in the second and third
calendar quarters than in the first and fourth calendar quarters. However,
higher demand at most Wyndham Resorts during the first and fourth quarters and
the recognition of incentive fees in the fourth quarter offsets the impact of
reduced demand at other Wyndham brand hotels during these quarters.
INFLATION
The effect of inflation, as measured by fluctuations in the Consumer Price
Index, has not had a material impact on the Company's revenues or net income
during the periods under review.
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BUSINESS
Wyndham Hotel Corporation is a national hotel company operating upscale
hotels primarily under the Wyndham brand name. Wyndham hotels are located in 22
states and the District of Columbia as well as on 4 Caribbean islands, and
compete with national hotel chains such as Marriott, Hyatt and Hilton. The
Company offers three distinct full service hotel products under the Wyndham
brand designed to serve its core upscale customers in urban, suburban and select
resort markets. The Company's hotel Portfolio consists of 65 hotels operated by
the Company and 3 franchised hotels. In 1995, the Company generated $139.6
million in revenues and $16.9 million in operating income on a pro forma basis
after giving effect to the Formation of the Company described elsewhere in this
Prospectus.
Wyndham has a track record of consistent growth. The Company has increased
the size of its Portfolio in each year since 1988. Over the last two calendar
years, Wyndham grew its brand at a faster rate than any other upscale hotel
company, as measured by the number of branded rooms added, growing from 10,660
Wyndham hotel rooms at December 31, 1993 to 16,391 at December 31, 1995. This
represents a compound annual growth rate in branded hotel rooms of 24%. This
growth was achieved through a combination of hotel management contracts, "like
new" renovations of acquired hotels, other acquisitions, new construction and
franchising. The Company's business plan emphasizes continued pursuit of its
diverse growth strategy.
THE LODGING INDUSTRY
The lodging industry as a whole has shown significant improvement in recent
years. According to Coopers & Lybrand Hospitality Directions, 1995 marked the
lodging industry's third consecutive year of profitability. Such report
estimates that the lodging industry earned pre-tax profits of $7.6 billion in
1995, which is an increase of 38% over the amount of pre-tax profit earned
during 1994.
The key elements underlying the industry's strong operating performance are
increased overall economic activity, which has resulted in growth in demand for
hotel rooms, coupled with growth in new room supply that has been consistently
lower than the growth in demand. Industry-wide percentage growth in room demand
exceeded industry-wide percentage growth of new room supply by 2.0%, 2.6%, 2.8%
and 1.4% in 1992, 1993, 1994 and 1995, respectively. In the markets in which the
Company's hotels operate, 1995 percentage growth in demand outpaced percentage
growth in supply by .2%. In the 1996 First Quarter, however, industry-wide
percentage growth in supply exceeded industry-wide percentage growth in demand
by .1%, and in the markets in which the Company's hotels operate, the percentage
growth in supply exceeded the percentage growth in demand by .2%. The Company
believes that quarterly data are not necessarily indicative of a full year's
results and that poor demand in January, which was affected by severe seasonal
weather, impacted the 1996 First Quarter results. Coopers & Lybrand Hospitality
Directions estimates that industry-wide the percentage growth in demand will
exceed the percentage growth in supply by .7% and .5% in 1996 and 1997,
respectively. Demand historically has been sensitive to shifts in economic
activity, which has resulted in cyclical sales and occupancy rates. See "Risk
Factors -- Risks Associated with the Lodging Industry."
While no assurance can be given as to future conditions in the lodging
industry, the Company believes the industry outlook is positive in the near
term.
The excess of demand growth over supply growth has given the lodging
industry a significant and increasing degree of "pricing power," which describes
a hotel's ability to increase ADR without affecting occupancy percentages. This
pricing power has resulted in significant industry-wide growth in ADR from 1992
through the first quarter of 1996. In 1995, industry-wide ADR increased 4.8%
over 1994, and industry-wide occupancy percentages increased 1.2% over 1994. In
the 1996 First Quarter, industry-wide ADR increased 6.2% and industry-wide
occupancy percentages increased 1.2% over the 1995 First Quarter. ADR increases
exceeded the rate of inflation in 1995 by 1.9%, the third consecutive year of
real rate growth. Coopers & Lybrand Hospitality Directions also estimates that
occupancy will continue to increase in 1996 and 1997 to 66.3% and 66.7%,
respectively, and that ADR will increase 4.5% in 1996 over 1995 levels and 4.4%
in 1997
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over 1996 levels. Historical industry performance, however, may not be
indicative of future results, and there can be no assurance that such
projections will be realized.
The Company believes that within the near term, pricing power within the
lodging industry is likely to be particularly strong in the upscale segment in
which the Company's properties operate. Two primary factors underlying this
projected strength are the lower consumer price sensitivity in the upscale
segment and an expectation by industry experts that there will be no significant
additions to the upscale room base over the next few years. The lack of a
significant increase in the upscale segment room base is projected because (i)
the cost of constructing hotels in the upscale segment is substantially higher
than in other industry segments, (ii) financing available for upscale hotel
construction projects is generally higher in cost and more limited in nature,
(iii) construction of upscale hotels involves longer lead times and (iv) upscale
hotel chains likely will seek to achieve growth through acquisition rather than
construction, as construction costs for most new hotels remain substantially
higher than the costs of acquiring existing full service hotels.
UPSCALE HOTELS:
DEMAND AND
SUPPLY GROWTH(1)
LOGO
UPSCALE HOTELS:
REVPAR GROWTH(1)
LOGO
(1) Upscale segment of the lodging industry, excluding Orlando and Las Vegas.
Orlando and Las Vegas are excluded because the Company's hotels generally
do not compete in such markets, and the growth in supply in these markets
is significantly in excess of the growth in supply in the upscale segment
of the lodging industry as a whole.
OPERATING STRATEGY
The Company's goal is to continue the expansion of Wyndham Hotels, Wyndham
Garden Hotels and Wyndham Resorts in order to become one of the largest brand
hotel companies operating in North America while continuing to maintain the
quality of the Wyndham brand. To achieve this goal, the Company has developed an
operating strategy designed to achieve high levels of satisfaction and loyalty
from both hotel guests and owners of managed hotels. The Company believes that
the successful implementation of this strategy will facilitate the expansion of
its Portfolio of owned, leased, managed and franchised hotels. The principal
elements of the Company's strategy are as follows:
Capitalize on Strong Brand Image. Wyndham has focused on developing a
brand name that is nationally recognized as being synonymous with high
quality, full service lodging in the upscale hotel market. Because Wyndham
has operating control over more than 95% of the hotels operated under the
Wyndham brand name, it is able to consistently deliver quality hotel
products and services throughout its
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hotel system and support the marketing programs necessary to maintain the
quality associated with the Wyndham name. By developing the Wyndham brand
through upscale hotel products, the Company is able to focus on earning the
loyalty of its core upscale customers: individual business travelers,
business groups and other group customers, and leisure travelers. According
to written guest surveys conducted by Wyndham at its hotels during 1995,
91% of Wyndham guests surveyed rated the overall quality of Wyndham hotel
products and services good or excellent, and 94% of the guests surveyed
indicated that they would return to that Wyndham hotel on their next trip
to the same city. The Company believes that hotel owners and investors have
come to associate the Wyndham brand name with cost efficient operations and
the delivery of exceptional value to hotel properties. The Company also
believes that growing national recognition of the Wyndham brand, together
with the quality and efficiency of its hotel operations, has facilitated
the Company's historical growth and will enhance its ability to realize its
future growth objectives.
Multiple Upscale Hotel Products. Wyndham offers three distinct full
service hotel products under a single brand name that are tailored to
urban, suburban and select resort markets, the primary markets that serve
its core upscale customers.
- Wyndham Hotels. In urban markets, the Company operates or franchises
20 Wyndham Hotels, which contain an average of approximately 400 hotel
rooms, generally between 15,000 and 250,000 square feet of meeting
space, and a full range of guest services and amenities. Wyndham Hotels
are targeted principally at business groups and other group customers,
as well as individual business travelers.
- Wyndham Garden Hotels. In suburban markets, Wyndham operates 38
Wyndham Garden Hotels, which were created by the Company to cater to
individual business travelers and small business groups. With guest
services, hotel finishings and landscaping comparable to Wyndham
Hotels, Wyndham Garden Hotels are designed to provide a guest
experience similar to that enjoyed at Wyndham Hotels, but at a price
that is competitive in suburban markets. The Company locates Wyndham
Garden Hotels primarily near suburban business centers and airports
and, where possible, seeks to cluster these hotels in a
"hub-and-spoke" distribution pattern around one or more Wyndham Hotels
in order to achieve operating and marketing efficiencies and enhance
local name recognition. Wyndham Garden Hotels are mid-size full
service upscale hotels containing between approximately 150 and 225
hotel rooms that offer a package of services and amenities focused on
the needs of the business traveler, including generally between 1,500
and 5,000 square feet of meeting space, restaurants that serve three
meals a day, exercise rooms, and laundry and room service.
- Wyndham Resorts. Wyndham's Portfolio also includes six Wyndham Resorts
that are full service destination resorts targeted at upscale leisure
and incentive travelers and are located both domestically and on four
Caribbean islands. Through Wyndham Resorts, the Company is able to
offer guest rewards and other cross-promotional benefits to its
domestic customers, thus improving Wyndham's competitiveness and brand
loyalty.
The Company believes that its strategy of offering multiple hotel products
under a single brand name enables it to achieve, through efficient hotel
distribution, strong penetration of the primary markets that serve its core
upscale customers. The Company also believes that this strategy enables it to
compete effectively for expansion opportunities covering a wide variety of
upscale hotel properties, thereby providing a competitive advantage over hotel
companies with fewer products. The Company expects to continue evaluating
opportunities for new hotel products that it may offer under the Wyndham brand
or operate under a different brand. See "-- Growth Strategy -- II. Additional
Growth Opportunities -- New Lodging Products."
Operating and Financial Performance. The Company seeks to maximize revenues
through its comprehensive marketing strategy and the delivery of high quality
accommodations and hotel services that result in satisfied, loyal hotel guests.
The Company believes that its experience as a hotel owner makes it a better
hotel manager by keeping it focused on controlling each element of operating
expenses, which is essential for achieving attractive returns for both the
Company's hotels and managed hotels. In addition, through yield
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management of its room inventory, the Company seeks to maximize REVPAR during
periods of high occupancy by giving first priority for available rooms to
Wyndham guests that will pay the full amount of the applicable room rate.
The Company has a proven track record of achieving strong operating and
financial results. During 1995, average occupancy rates, ADR and REVPAR for
Portfolio hotels were 69%, $88.79 and $60.96, respectively, compared with an
average during this period of 69%, $80.38 and $55.06, respectively, in the
upscale segment of the lodging industry. During the 1996 First Quarter, average
occupancy rates, ADR and REVPAR for Portfolio hotels were 67%, $96.04 and
$64.51, respectively, compared with an average during this period of 64%, $85.06
and $54.69, respectively, in the upscale segment of the lodging industry. In
1995 and the 1996 First Quarter, respectively, REVPAR for Portfolio hotels
outperformed the upscale full service segment of the lodging industry by 11% and
18%, respectively. The Company believes that it has the opportunity to improve
its REVPAR performance through, among other things, the continued maturation of
10 Wyndham Garden Hotels opened in 1995.
The following table compares certain historical operating and financial
data of the Company's Comparable Hotels with the lodging industry. The Company
has chosen a Comparable Hotel data set based on Wyndham brand hotel properties
operated by the Company since January 1, 1993 because the Company believes that
these 30 hotels have been operated by the Company for a sufficient period of
time to provide meaningful period-to-period comparisons and that these hotels
more fully reflect the Company's operating capabilities. The Company's Portfolio
contains a significant number of newly opened or renovated Wyndham brand hotels,
which typically begin operations with lower occupancy rates, ADR, REVPAR and
margins than mature hotels. While the period of time required to achieve
improved operating results from the application of Wyndham's operating standards
and integration into Wyndham's programs varies depending on the unique
characteristics of a given hotel and the market in which it operates, the
Company has found that during the third full year under Wyndham management a
hotel will fully reflect the Company's operating capabilities. In addition, the
Company believes that Comparable Hotel data provide a more meaningful comparison
to the lodging industry, which the Company believes has a significantly smaller
percentage of newly opened or renovated hotels than the Company. There can be no
assurance that the Company's hotels opened or renovated subsequent to January 1,
1993 will achieve occupancy rates, ADR, REVPAR or operating results comparable
to the Comparable Hotels. For a presentation of certain operating and financial
data for the Company's entire Portfolio, see "Prospectus Summary -- Summary
Combined Financial and Other Data."
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<TABLE>
<CAPTION>
UPSCALE SEGMENT
COMPARABLE OF THE
HOTELS(1) LODGING INDUSTRY(2)
---------- -------------------
<S> <C> <C>
Occupancy percentage:(3)
1993................................................. 67% 67%
1994................................................. 70% 68%
1995................................................. 72% 69%
1996 First Quarter................................... 72% 64%
ADR:(4)
1993................................................. $ 76.39 $ 74.19
1994................................................. 80.16 77.19
1995................................................. 84.38 80.38
1996 First Quarter................................... 95.92 85.06
REVPAR:(5)
1993................................................. 51.31 49.71
1994................................................. 56.09 52.57
1995................................................. 60.99 55.06
1996 First Quarter................................... 69.03 54.69
Gross operating profit margin:(6)
1993................................................. 32% 30%
1994................................................. 34% 31%
1995................................................. 36% 33%(7)
1996 First Quarter................................... 37% *
Food and beverage margin:(8)
1993................................................. 29% 17%
1994................................................. 31% 18%
1995................................................. 31% 21%(7)
1996 First Quarter................................... 28% *
Gross operating profit per available room:(9)
1993................................................. $ 9,612 $ 8,397
1994................................................. 11,417 9,364
1995................................................. 12,547 10,820(7)
1996 First Quarter................................... 3,570 *
</TABLE>
- ---------------
* 1996 First Quarter lodging industry statistics are not available for gross
operating profit margin, food and beverage margin and gross operating profit
per available room.
(1) Comparable hotels consists of the 30 Wyndham brand hotels that have been
operated by the Company since January 1, 1993.
(2) Occupancy percentage, ADR and REVPAR comparisons are to the upscale segment
of the lodging industry, which the Company believes is the appropriate
segment for comparing operating data based on the competitive set for the
Company's hotels, as measured by ADR. Gross operating profit and margin
comparisons are to the upscale full service segment of the lodging industry,
which consists of upscale hotels with restaurants, because the Company
believes that the higher costs associated with restaurant operations provide
the most appropriate comparison of gross operating profits and margins.
(3) Occupancy percentage represents total rooms occupied divided by total
available rooms. Total available rooms represents the number of rooms
available for rent multiplied by the number of days in the reported period.
(4) ADR represents total room revenues divided by the total number of rooms
occupied.
(5) REVPAR represents total room revenue divided by total available rooms.
(6) Gross operating profit margin represents gross operating profit as a
percentage of total revenues. "Gross operating profit" represents gross
revenues less department expenses and undistributed operating expenses.
Gross operating profit margins are included herein because management uses
them as a measurement of hotel operating performance and because management
believes that these items are useful in making industry comparisons.
(7) Gross operating profit margin data, food and beverage margin data and gross
operating profit per available room data for the lodging industry in 1995
are estimates.
(8) Food and beverage margin represents food and beverage operating profit as a
percentage of food and beverage revenues.
(9) Gross operating profit per available room represents gross operating profit
divided by total available rooms for the period.
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<PAGE> 69
Fully Integrated, Full Service Hospitality Company. The Company owns,
manages, leases and franchises hotels under the Wyndham brand name. In addition,
the Company is experienced in all aspects of hotel operations, including
purchasing, accounting and asset and risk management, as well as hotel
construction and design. The Company believes that operating as a fully
integrated, full service hospitality company enhances its performance by
enabling it to provide a full range of hotel services in an efficient,
cost-effective manner. In addition, the breadth of the Company's experience
enables it to compete effectively for multiple opportunities in the hospitality
industry. The Company also believes that the Wyndham brand name provides it with
a competitive advantage in its management business over companies without their
own brand because hotel owners might otherwise be required to pay a third party
franchise fee in addition to a management fee, which generally results in a
higher fee than Wyndham's overall fee structure.
Experienced, High Quality Management Personnel. The Company believes that
it has highly qualified, experienced executives in each of its key senior
management positions. The Senior Executive Officers, who have an average tenure
of 7 years with the Company and approximately 14 years of experience within the
lodging industry, have worked together to successfully develop, operate and
manage hotel properties in various phases of the industry cycle. The Company was
able to attract executives with a variety of strong incentives, including an
equity sharing program. See "Management." Following the Equity Offering, the
Company's Senior Executive Officers, together with WEL, will beneficially own an
aggregate of approximately 18.2% of the Company's Common Stock. The Company has
not lost a participant in WEL, its equity participation program, to a competing
hotel company since the inception of the program seven years ago.
Based upon the Company's commitment to promoting managers from within the
system, Wyndham has developed a Managers in Development program that trains over
150 participants each year. Over 70% of the Company's hotel general managers
have been promoted from another position within the Company. The Company also
provides formal training programs for managers and sales personnel. The Company
believes that by establishing uniform productivity standards and skill
requirements for its personnel, it is able to measure employee performance
effectively and reward high productivity. The Company also believes that the
quality and experience of its key executives and hotel personnel are important
components of its ability to consistently provide strong financial results to
its stockholders and third party hotel owners as well as outstanding service to
hotel guests.
"The Right Way -- The Wyndham Way." The Company's service signature, "The
Right Way -- The Wyndham Way," embodies its commitment to designing and
implementing the innovative practices and programs required to be a successful
hotel operating company. In addition to written guest surveys, Wyndham conducts
frequent personal interviews of its guests and employees. Wyndham responds to
their comments by shaping its products and services to meet or exceed the needs
and expectations of its guests, focusing specifically on the services and
amenities that drive the purchase decision or affect the Company's ability to
adjust room rates. For example, Wyndham has become well-known for its American
Airlines and Avis Rent-A-Car "Triple Upgrade" program and was the first upscale
hotel chain to provide free in-room coffee makers in every domestic Wyndham
brand hotel room. See "-- Customers and Marketing." The Company emphasizes
building the Wyndham brand image by delivering the highest quality guest
services, resulting in strong loyalty from its core upscale customers:
individual business travelers, business groups and other group customers, and
leisure travelers.
GROWTH STRATEGY
Since the beginning of 1990, the number of hotels in the Company's
Portfolio has increased from 25 hotels to 68 hotels. In addition to generating
internal growth through the improved performance of existing hotels, the Company
has developed a flexible external growth strategy that it believes will enable
it to take advantage of attractive growth opportunities arising in the lodging
industry. While no assurance can be given as to future conditions in the lodging
industry, the Company believes the industry outlook is positive in the near term
based on its expectation that growth in room demand will continue to outstrip
growth in room supply, providing favorable conditions for continued growth. See
"-- The Lodging Industry."
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I. PRIMARY GROWTH OPPORTUNITIES
The near-term focus of the Company's growth strategy is as follows:
Growth from Existing Hotels. The Company expects improvements in the
financial performance of the existing hotels in its Portfolio to account
for a substantial portion of its financial growth in the near future. The
Company believes that the primary factors contributing to internal growth
include (i) revenue increases resulting from continuing improvements in the
lodging industry overall and continuing maturation of 23 hotels opened in
the past two years (including 12 Wyndham Garden Hotels), and (ii) improved
operating margins resulting from operating leverage and Wyndham's continued
emphasis on controlling operating expenses. For example, the Company
anticipates that attractive management incentive fees, which escalate with
increased operating performance at the Company's managed hotels, will
contribute to internal growth. During 1995, the Company earned incentive
fees on 28% of its managed properties, and 14% of the Company's management
fee revenues were derived from incentive fees. The Company's internal
growth strategy has produced Comparable Hotel room revenue increases of 9%
in both 1994 and 1995 and has produced an increase in Comparable Hotel
gross operating profit margins from 32% in 1993 to 36% in 1995. These
improvements have led to significant increases in gross operating profit
per available room of 19% and 10% in 1994 and 1995, respectively, compared
to the prior year period. While Comparable Hotel gross operating profit
margins were 37% in both the 1995 First Quarter and the 1996 First Quarter,
gross operating profit per available room increased by 8.0% in the 1996
First Quarter over the 1995 First Quarter. The Company believes that its
demonstrated ability to achieve both internal and external growth will help
attract third party debt and equity capital to help fund the growth of the
Company's Portfolio.
Wyndham Garden Hotel Redevelopment and Conversion Program. The Company
believes that the continued growth of its Wyndham Garden Hotel product will
provide significant opportunities for increasing the number of Wyndham
brand hotels in its Portfolio. Since the beginning of 1990, the Company has
added 32 Wyndham Garden Hotels to its Portfolio, 3 of which were developed
through new construction and 29 of which were existing hotels converted to
the Wyndham brand. In 1994, the Company accelerated the expansion of
Wyndham Garden Hotels through an investment program developed in
conjunction with Bedrock and other strategic partners. Together with
certain lenders, Bedrock organized a development fund (the "Investment
Program") totalling approximately $335 million, of which approximately
$150.0 million was available as of April 15, 1996 for projects approved by
the Company and Bedrock for the purpose of acquiring existing hotel
properties for redevelopment and conversion to Wyndham Garden Hotels and/or
to make related hotel investments. Bedrock is not required to invest a
minimum amount of capital through the Investment Program, but the Company
is entitled to manage any Investment Program hotel properties for a term of
15 years. The Company and Bedrock have agreed that the Company will be
permitted to manage any hotel containing 250 or fewer rooms that is
financed by Bedrock. See "Certain Relationships and Transactions -- Bedrock
Investment Program." The Investment Program facilitated the redevelopment
of 10 Wyndham Garden Hotels in the period 1994 to 1995, and an eleventh
Wyndham Garden Hotel was developed in 1995 with financing provided by
another Wyndham strategic partner. Of the 29 Wyndham Garden Hotels
converted to the Wyndham brand since the beginning of 1990, 13 are owned by
Bedrock, 12 are owned or leased by the Company and 4 are owned by Wyndham's
other strategic partners. See "Certain Relationships and Transactions."
Bedrock also has provided assistance with the development, design and
construction phase of the redevelopment process.
Because many acquired hotels require extensive redevelopment in
connection with their conversion to the Wyndham Garden Hotel brand, the
Company has instituted a program to redevelop these properties to a quality
level consistent with Wyndham's high standards (the "Redevelopment
Program"). For these hotels, the redevelopment process begins by
identifying hotel properties in prime suburban business centers and airport
locations that can be reconfigured to meet the operating model for Wyndham
Garden Hotels. Once the property is acquired, it is typically completely
closed to permit extensive exterior renovation (which often consists of a
substantially renovated facade) and total renovation of guest room, dining
and common areas. Upon completion, the hotel is reopened under the Wyndham
Garden Hotel brand and competes in a strong, visible location as if it were
a newly constructed property.
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The Company estimates that redeveloping Wyndham Garden Hotels currently
costs about 65% of the cost of new construction and takes substantially
less time (an average of approximately nine months from the date of
acquisition to the date that the hotel is reopened). The Company has the
complete in-house design, development and operating expertise necessary to
manage the entire redevelopment process and believes that the completion of
these Offerings will enhance its growth opportunities by increasing its
ability to finance additional Wyndham Garden Hotel projects either through
a portion of the net proceeds of these Offerings, cash from operations,
joint ventures or borrowings under the Revolving Credit Facility.
Notwithstanding the foregoing, there can be no assurance that the Company
will have adequate capital resources to fund its growth. See "Risk
Factors -- Risks Associated with Expansion," "Use of Proceeds" and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources."
Wyndham intends to continue the Redevelopment Program with Bedrock and
other strategic partners, through direct investment by the Company, or some
combination thereof. The Company has executed a management contract for a
non-Bedrock hotel at La Guardia Airport in New York City, which is
currently in the renovation stage and is scheduled to reopen in the Fall of
1996. The Company also has executed management contracts for two Wyndham
Garden Hotels that will be owned by Bedrock and located in Lexington,
Kentucky and Kansas City, Missouri. The Lexington, Kentucky hotel is
currently being managed by the Company as a Ramada Inn and is scheduled to
become a Wyndham Garden Hotel in the Fall of 1996 following renovations
that are currently under way. The Kansas City hotel, which is currently
closed for renovations, is schedule to open in the Fall of 1996. See
"-- The Company's Hotels -- Hotels Under Renovation and Construction"
below.
Addition of Management Contracts. The Company believes that a
significant source of potential future growth will be through the addition
of new management contracts for Wyndham Hotels, Wyndham Garden Hotels and
Wyndham Resorts at strategic locations. Since the beginning of 1990, the
Company has added an average of ten new management contracts per year,
while the Company has lost an average of two management contracts per year
generally as a result of changes in ownership of managed hotels and
attrition resulting from scheduled termination of short-term non-Wyndham
brand management contracts. The Company believes that management contracts
provide stable growth opportunities through a variety of business
environments because of the relatively low capital requirements and short
lead times necessary for conversion to the Wyndham brand. Wyndham believes
that it is able to compete effectively for additional management contracts
because of its strong reputation in the upscale hotel industry, its track
record of delivering strong financial returns for hotel owners and
investors and its willingness to structure key terms of management
contracts to satisfy hotel owner objectives. In particular, the Company
believes that its history of achieving strong operating results for managed
properties has led to a significant number of owner referrals. In addition,
by operating multiple upscale products, the Company increases its
opportunities to compete for new contracts. The Company's improved capital
structure following the Offerings also should enhance its ability to make
selective capital investments that often must be made in connection with
competing for management contracts. While the Company anticipates that most
new management contracts will be for Wyndham brand hotels, the Company may
enter into contracts to manage non-branded hotels or to manage hotels under
a different hotel brand.
Hotel Acquisitions and Joint Ventures. The Company anticipates that it
will be able to grow through the acquisition of hotels with attractive
economic prospects that are suitable for application of the Company's
operating strategy. In particular, the Company expects to focus on the
selective acquisition of Wyndham Hotels offering a full range of meeting
and conference capabilities that are located in new strategic markets or in
existing urban markets capable of supporting multiple Wyndham brand hotels.
The Company also will continue to assess the acquisition of other hotel
chains that operate hotel properties suitable to integrate into the
Company's Portfolio as well as the possible acquisition of resort hotels.
The Company anticipates that it also may make partial investments in hotel
properties through joint ventures with strategic business partners or
through equity contributions or secured loans. The Company may make such
investments solely as an investor or in connection with entering into a
management contract. The Company believes that its capital structure and
access to capital markets
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following the Offerings will improve its ability to compete for acquisition
and investment opportunities by enabling it to arrange financing more
quickly and at a lower cost. The Company also may issue equity securities
to finance future acquisitions in whole or in part. Notwithstanding the
foregoing, there can be no assurance that the Company will have adequate
capital resources to fund its growth. In addition, there can be no
assurance that the Company will be able to identify suitable acquisition or
investment opportunities or successfully integrate acquired properties. See
"Risk Factors -- Risks Associated with Expansion" and "Management's
Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources."
II. ADDITIONAL GROWTH OPPORTUNITIES
Depending on market conditions in the lodging industry, the Company also
may pursue the following expansion opportunities:
Franchise Program. The Company currently franchises three Wyndham
brand hotels, which are operated by third parties. Each of these franchises
was granted to take advantage of a unique opportunity to extend the Wyndham
brand name into an attractive market. The Company is in the process of
developing a full franchise program that it expects to have complete in
advance of the next hotel construction cycle in the upscale full service
segment of the lodging industry, which the Company believes is a few years
away. The Company anticipates that at such time, it will be in a position
to pursue selective franchise opportunities given appropriate market
conditions. The Company believes that newly constructed properties present
the most attractive franchising opportunities because the Company can
control the quality and appearance of the hotel property through up-front
construction and performance criteria. By imposing standard design
requirements, the Company is able to influence strongly the guest
experience, which is crucial to maintaining the quality and identity of the
Wyndham brand. The Company believes that growth through selective franchise
opportunities will add revenues through royalties and increased brand
awareness, without requiring significant capital investment by the Company.
For additional information with respect to two of the Company's franchised
hotels, see "-- Franchising Program."
New Lodging Products. The Company intends to continue evaluating new
lodging products that it may offer under the Wyndham brand. These products
may include both new products within the full service upscale hotel
segment, as well as new products in other segments of the lodging industry.
In particular, the Company will seek to introduce new lodging products
where, in the judgment of management, the product can benefit from, and
further enhance, the Wyndham brand, as well as benefit from the Company's
operating experience and business strengths.
The Company also may add lodging products that would benefit from the
Company's operating programs, but that would be more appropriately operated
under a brand name separate from Wyndham. The Company expects that in 1996
it will enter into an agreement to provide hotel management, purchasing and
technical services to "extended-stay" hotel properties that will be
targeted at corporate travelers who typically spend a week or more in one
location. These hotel properties are currently under development by a
partnership owned by Crow Family Members, Trammell Crow Residential, one of
the country's largest apartment builders, and Greystar, Inc., a developer,
manager and owner of apartment properties, and will not be operated under
the Wyndham name. It is anticipated that each hotel property will contain
approximately 120 hotel rooms, which will be designed like small apartment
units and will be equipped with a kitchen. The Company believes that these
hotels will be limited service hotels that will not provide in-house
restaurant, cocktail, banquet center or other typical full service
amenities and, consequently, will not compete with the Company's full
service hotels. It is expected that room rates will range between
approximately $200 and $400 per week, depending on the location and
seasonality.
The Company believes that the extended-stay program will provide an
opportunity to generate revenues by extending its management expertise and
operating programs into a new segment of the lodging industry without
requiring significant investment of the Company's capital. The Company also
believes that the program will provide the Company with management and
operational experience in the
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extended-stay market without requiring the Company to commit the Wyndham
brand. The Company expects that it will hire additional hotel managers to
manage the extended-stay properties. The Company anticipates that the first
extended-stay hotel properties will commence operations in the last quarter
of 1996.
New Construction. Depending on market conditions, the Company will
continue to review opportunities to construct new Wyndham Hotels, Wyndham
Garden Hotels and possibly Wyndham Resorts in those strategic markets where
acquisition and conversion of existing properties at a substantial discount
to replacement cost is not possible. Currently, however, construction costs
for new hotels generally remain substantially higher than the costs of
acquiring and converting existing hotels.
III. ABILITY TO EXECUTE GROWTH STRATEGY
The Company believes that it has the in-house capabilities and strategic
business relationships with which to implement each aspect of its growth
strategy. These capabilities and relationships include the following:
In-House Development Expertise. The Company has a full in-house
development staff of seven professionals dedicated to identifying,
evaluating and pursuing growth opportunities. The senior members of this
staff have an average of nine years of development experience in the hotel
industry. The development staff generally works in teams consisting of a
vice president of development, a development manager and an analyst. The
Company's in-house capabilities enable it to make an in-depth assessment of
a potential management, acquisition or other opportunity, including an
analysis of the surrounding market, the potential for increasing hotel
performance and value through the implementation of the Company's operating
strategy, the condition of the hotel property and the estimated renovation
costs of achieving Wyndham's standards for a fresh appearance and updated
accommodations. The Company's development staff also underwrites
redevelopment and new construction projects by analyzing estimated project
costs and preparing market studies and long-term projections of revenues
and profitability. Each opportunity is also assessed in terms of the
contribution that the potential hotel will make to the Wyndham brand
identity.
The Company also maintains a highly qualified in-house construction
and design department, which enables it to manage all phases of
redevelopment and new construction projects. In 1994 and 1995, the Company
managed more than $135 million in redevelopment, remodeling and new
construction projects. The Company believes that its in-house capabilities
provide a competitive advantage by providing a strong network for
identifying potential growth opportunities and maintaining tight control
over hotel quality standards.
Relationships with Hotel Investors. Wyndham believes that its strong
business relationships with various strategic partners will continue to
facilitate growth by providing hotel acquisition, renovation and
development opportunities as well as potential new management contract and
franchise opportunities. Currently, Crow Family Members, who, following the
Equity Offering, will own an aggregate of approximately 48.4% of the
Company's outstanding Common Stock, have interests in 15 Wyndham brand
hotels that are managed by the Company. Sixteen additional Wyndham brand
hotels that are managed by the Company are owned by Bedrock, which will own
approximately 12.0% of the Company's Common Stock following the Equity
Offering. See "The Formation and the Financing Plan -- The Formation" and
"Principal Stockholders." As of April 15, 1996, Wyndham has entered into
management contracts for four additional hotels involving these entities,
three of which the Company anticipates will open in 1996, and one of which
the Company anticipates will be open by the first quarter of 1997. See
"-- The Company's Hotels -- Hotels Under Renovation and Construction"
below. In addition, the Company expects that in 1996 it will enter into an
agreement with a partnership owned by Crow Family Members, Trammell Crow
Residential and Greystar, Inc. to provide hotel management, purchasing and
technical services to extended-stay hotel properties currently under
development by such partnership. See "-- II. Additional Growth
Opportunities -- New Lodging Products." The Company also expects to
continue the Redevelopment Program with Bedrock. See "Certain Relationships
and Transactions."
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The Company, various Crow Family Members and Patriot American
Hospitality, Inc., a publicly traded REIT ("Patriot American"), recently
entered into a non-binding letter of intent providing for the sale by
various Crow Family Members to Patriot American of five Wyndham brand
hotels. Such hotels will be leased back to a new partnership controlled by
various Crow Family Members pursuant to a lease having a term of ten years,
with two extensions of five years each. The Company expects that it will
continue to manage these hotels on economic terms substantially identical
to the terms upon which they are currently being managed. In addition,
pursuant to the letter of intent, the Company and Patriot American
contemplate a future arrangement whereby proposed additions to the
Company's Portfolio of Wyndham brand hotels will be presented to Patriot
American on a preferred basis. There can be no assurance that any of the
transactions or arrangements contemplated by the letter of intent will be
consummated or otherwise definitively determined.
In addition to providing potential growth opportunities, the Company
believes that its successful track record with these and other hotel owners
and investors provides stability to the Company's management contracts with
hotels owned by such entities. The Company also believes that its
relationship with the Trammell Crow Company, one of the largest national
real estate companies, will continue to facilitate the Company's ability to
identify and evaluate potential acquisition, renovation and development
opportunities.
Sales of Mature Hotels; Long-Term Leases. The Company has developed
business relationships with certain publicly traded REITs. Generally, a
REIT cannot operate hotels because 75% of the gross income of a REIT must
be derived from certain defined categories of qualifying income derived
directly or indirectly from investments relating to real property or
mortgages on real property. Certain REITs, however, have purchased hotel
properties that they lease to a hotel management company because the income
stream from leases is generally regarded as qualifying income.
GHALP has historically owned 11 Wyndham Garden Hotels managed by the
Company (the "GHALP Properties"). A 30% interest in GHALP was owned by a
partnership owned by certain Crow Family Members and the Senior Executive
Officers and the remaining 70% was held by an unaffiliated third party. On
May 2, 1996, Crow Family Members and the Senior Executive Officers acquired
the remaining 70% ownership interest from the third party for a purchase
price of approximately $29.5 million. The $29.5 million purchase price was
funded from the proceeds of the sale of the GHALP Properties to HPT, a
publicly traded REIT, for $135.3 million, which properties were leased back
pursuant to the GHALP Lease to GHALP II, the ownership of which mirrors the
ownership of GHALP. See "Pro Forma Combined Financial Data." As part of the
Formation, the Company will succeed to GHALP II's interest in the GHALP
Lease and continue to manage the hotels. The Company anticipates that in
the future, it may enter into similar transactions whereby it would sell
mature hotel properties to REITs, lease the hotels back and manage them as
Wyndham brand hotels. The Company believes that this strategy permits it to
participate in the initial growth phase of the hotel properties that it
acquires, while eventually freeing the Company's balance sheet of real
property upon disposition of the related hotels. Pursuant to a long-term
lease arrangement, the Company can retain long-term operating control over
the property and continue to benefit from any increases in the operating
performance of the hotel. The Company anticipates that it also may enter
into long-term leases with REITs with respect to hotel properties that such
REITs may acquire from unaffiliated third parties.
THE COMPANY'S HOTELS
General
Over 95% of the Company's hotels are operated under the Wyndham brand name,
which is synonymous with high quality lodging facilities and excellent service.
The Wyndham name represents the high standards of the Company's hotels, which
present a casually elegant decor and emphasize fresh, updated accommodations.
Wyndham places great emphasis on maintaining hotel properties in first-rate
condition and providing consistently high quality guest services at all of its
hotels, and has designed numerous programs to ensure that Wyndham guests receive
the highest quality lodging experience possible.
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Amenities common to almost all Wyndham brand hotels include restaurants,
exercise rooms, swimming pools and cable television channels. Services common to
all Wyndham brand hotels include room service, laundry and valet service and
safe deposit boxes. Wyndham believes that by focusing attention on guest room
details it creates an attractive room package that is appreciated by its upscale
guests, particularly business travelers. Therefore, all domestic Wyndham brand
hotels provide in-room coffee makers with complimentary coffee, comfortable and
efficient workspace, generous guest room lighting, a shower massager and a
"Toiletries You Forgot" program, which provides frequently forgotten travel
items, such as toothpaste, deodorant and razors, at no cost. During 1995,
Wyndham Hotels, Wyndham Garden Hotels and Wyndham Resorts generated 50.2%, 34.5%
and 15.3%, respectively, of room revenues from Wyndham brand hotels.
Wyndham Hotels
Wyndham Hotels are typically large, architecturally distinctive properties
located primarily in major urban locations. These hotels are targeted
principally at upscale business groups and other group customers, as well as
upscale business travelers. Total guest room revenues for Wyndham Hotels in 1995
by customer mix consisted of 54.6% group meetings, 32.6% individual business
travelers and 12.8% leisure travelers.
The Company operates or franchises 20 Wyndham Hotels containing an
aggregate of 8,237 guest rooms. Wyndham Hotels contain an average of
approximately 400 hotel rooms and generally between 15,000 and 250,000 square
feet of meeting space. The considerable meeting and catering capabilities of
Wyndham Hotels attract major corporate groups and numerous national, regional
and local associations for business conventions, sales meetings, conferences,
banquets, receptions, training sessions and private celebrations. Meeting
services offered at most Wyndham Hotels include comprehensive business centers
with private offices, a library, state-of-the-art audiovisual equipment and
secretarial and telecopy services.
Mid-week room rates at Wyndham Hotels range from $99 to $259 per night,
depending on location and season. Guests at these hotels are offered a variety
of services and amenities, including room and concierge service, same day
laundry and dry cleaning, valet parking, individual room climate control,
voice-mail, in-room minibars and often a spa and choice of restaurants. Four
hotels offer elegant four-star dining, and the restaurants at the remaining
Wyndham Hotels feature similar menus containing high quality food selections at
affordable prices that are updated frequently to maintain freshness and to
reflect the identity of the hotel and the surrounding region. The Company has
invested significant time, talent and capital in its hotel restaurants, and
believes that the quality of its restaurants makes a substantial contribution to
its hotel guests' total lodging experience.
Wyndham Garden Hotels
The Company created and designed Wyndham Garden Hotels to cater primarily
to upscale individual business travelers and small business groups in suburban
markets. Wyndham Garden Hotels are mid-size, full service hotels located
primarily near suburban business centers and airports. The Company generally
seeks to cluster Wyndham Garden Hotels in a "hub-and-spoke" distribution pattern
around one or more Wyndham Hotels in order to achieve operating and marketing
efficiencies and enhance local name recognition. Through market studies, the
Company has determined that its target business customer generally selects a
hotel within an approximate five mile radius of his or her business destination.
Therefore, the Company selects individual Wyndham Garden Hotel sites based on
its evaluation of the local business market surrounding a potential hotel
location.
Through its Wyndham Garden Hotels, the Company strives to provide upscale
individual business travelers and small business groups with a first class guest
experience in a suburban setting. The Company believes that the business
travelers who stay at Wyndham Garden Hotels are similar to the business
travelers at Wyndham Hotels and that their business destination is the primary
factor that draws them to a Wyndham Garden Hotel. Accordingly, with guest
services, hotel finishings and landscaping comparable to Wyndham Hotels, Wyndham
Garden Hotels are designed to provide a guest experience similar to that enjoyed
at Wyndham Hotels, but at a price that is competitive in suburban markets.
Mid-week room rates range between $79 and $129 at Wyndham Garden Hotels,
depending on location. Total guest room revenues for Wyndham
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<PAGE> 76
Garden Hotels in 1995 by customer mix consisted of 64.6% individual business
travelers, 19.2% small group meetings and 16.2% leisure travelers. In 1995,
gross operating profit margins for all Wyndham Garden Hotels were 36%, which is
higher than the gross operating profit margins for Wyndham Hotels or Wyndham
Resorts.
The Company operates 38 Wyndham Garden Hotels containing an aggregate of
6,878 guest rooms. (The Company operates an additional hotel as a Ramada Inn
that is scheduled to become a Wyndham Garden Hotel in the Fall of 1996 following
renovations that are currently under way.) Each Wyndham Garden Hotel contains
between approximately 150 and 225 rooms and generally between 1,500 to 5,000
square feet of meeting space. The amenities and services provided in Wyndham
Garden Hotels are designed to meet the needs of the upscale business traveler.
Amenities and services in each room include desks large enough to accommodate
personal computers, longer phone cords, high wattage light bulbs for reading,
room service and access to 24-hour telecopy and mail/package service. The
meeting facilities at Wyndham Garden Hotels generally can accommodate groups of
between 10 and 200 people and include a flexible meeting room design, exterior
views, additional phone lines and audiovisual equipment. Wyndham Garden Hotels
also feature a lobby lounge, most of which are appointed with a fireplace, a
library typically overlooking a beautifully landscaped garden, and a swimming
pool. In addition, many Wyndham Garden Hotels contain a whirlpool and an
exercise facility.
Dining services at Wyndham Garden Hotels are an important feature. Unlike
many mid-priced hotels, each Wyndham Garden Hotel contains a cafe restaurant
that serves a full breakfast, lunch and dinner daily. Wyndham has designed a
uniform food program that features delicious, healthful meals with minimum
delay. By implementing the same menus, preparation process and purchasing
program throughout the Wyndham Garden Hotel system, the Company has achieved
significant operating efficiencies. The Company believes that the breadth and
quality of the dining services offered at Wyndham Garden Hotels distinguish
these hotels from other hotel chains that target the upscale individual business
traveler in suburban markets.
Wyndham Resorts
Wyndham Resorts are full service destination resorts that are located both
domestically and on four Caribbean islands. Wyndham Resorts are targeted at
upscale leisure travelers and incentive travelers. Total guest room revenue for
Comparable Wyndham Resorts in 1995 by customer mix consisted of 73.0% individual
leisure travelers and 22.0% group travelers and 5.0% individual business
travelers.
The Company operates or franchises six resort hotels containing an
aggregate of 1,904 guest rooms. Each Wyndham Resort contains between
approximately 200 and 500 hotel rooms and, with the exception of the Wyndham
Morgan Bay Resort, generally between 6,000 and 20,000 square feet of meeting
space. Room rates at Wyndham Resorts range between $135 and $210, depending on
location and season.
Wyndham Resorts are designed to provide a memorable guest experience. They
feature spacious, luxurious guest rooms that are air conditioned and typically
contain private balconies. Most resorts have swimming pools, health and fitness
centers and tennis courts. In addition, two resorts offer golf and two resorts
(one of which is under construction) contain casinos. Guest amenities include
room service, concierge and valet service and tour information. Guests can
choose from a variety of restaurants and menus, and most resorts provide a
variety of live nightly entertainment. In addition, Wyndham Resorts offer or
arrange a full range of activities, including sailing, snorkeling, windsurfing,
waterskiing, parasailing, horseback riding, scuba diving, deep-sea fishing and
cruises.
Wyndham Resorts seek to capitalize on national recognition of the Wyndham
brand name. Through its resort division, the Company is able to offer guest
rewards and other cross-promotional benefits to its domestic customers, thus
improving Wyndham's competitiveness and brand loyalty. The Company's national
sales team targets Wyndham customers as well as travel agents and meeting
planners for leisure and group sales in an effort to take advantage of their
familiarity with the Wyndham hotel system.
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<PAGE> 77
Management Service Hotels
The Company provides hotel management services pursuant to management
contracts relating to three hotels that are owned by third parties and operated
under unaffiliated hotel brands. Each of these hotels is an upscale hotel
offering services and amenities consistent with Wyndham's quality standards. The
Company entered into these management contracts in order to take advantage of
opportunities to develop relationships with third party hotel owners, as well as
to generate revenues in circumstances that would not permit conversion of the
hotels to the Wyndham brand. See "-- Growth Strategy -- I. Primary Growth
Opportunities."
Hotels Under Renovation and Construction
The Company has entered into management contracts to operate two additional
hotels that are scheduled to open in 1996. The first hotel, Wyndham Garden
Hotel -- Kansas City, will be located in Kansas City, Missouri and will contain
240 rooms and approximately 4,400 square feet of meeting space. This hotel,
which is currently in the renovation stage, is scheduled to open in the Fall of
1996. The second hotel will be located at La Guardia Airport in New York City
and will contain 225 hotel rooms and approximately 4,000 square feet of meeting
space. This hotel is also under renovation, and the Company anticipates that it
will open in the Fall of 1996.
The Company currently is subject to a temporary restraining order that
prevents it from operating Wyndham brand hotels or advertising the Wyndham name
in connection with the operation of any hotel within a 50 mile radius (within
the State of New York) of the "Mados Wyndham Hotel" (as defined below under
"-- Legal Proceedings") pending resolution of a lawsuit concerning the Company's
use of the Wyndham name within such area. (See "-- Legal Proceedings.") An
adverse decision in such lawsuit or a delay in the resolution of the litigation
beyond the anticipated opening date of the La Guardia hotel would require the
Company to open such hotel under a brand name other than Wyndham or Wyndham
Garden.
The Company also has entered into management contracts to operate two new
Wyndham brand hotels. The first hotel, Wyndham New Orleans Riverfront Hotel (the
"Riverfront Hotel"), is a Wyndham Hotel located in New Orleans, Louisiana that
contains 202 hotel rooms and approximately 1,800 square feet of meeting space.
This hotel opened on May 15, 1996. The second hotel, Wyndham Old San Juan Hotel
& Casino (the "San Juan Hotel"), which is currently under construction, will be
a Wyndham Resort located in San Juan, Puerto Rico that will contain 242 hotel
rooms and approximately 6,200 feet of meeting space. The Company anticipates
that this hotel will open by the first quarter of 1997. There can be no
assurance, however, that these hotels will be completed as scheduled. Pursuant
to the terms of these management contracts, the Company made certain commitments
to provide furniture, fixtures and equipment for the Riverfront and San Juan
Hotels at fixed prices of $2.1 million and $6.0 million, respectively. In
addition, with respect to the Riverfront Hotel, the Company has agreed to
provide certain pre-opening services at a fixed price of $420,000 and has
entered into an operating deficit guaranty that requires the Company to fund up
to $230,000 in working capital per year for three years after the hotel is
opened in the event that the hotel generates inadequate cash flow. In addition,
the Company has guaranteed $875,000 in indebtedness relating to the Riverfront
Hotel.
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<PAGE> 78
SUMMARY OF HOTELS
The following table sets forth, as of April 15, 1996, certain information
with respect to the Company's hotels.
<TABLE>
<CAPTION>
OWNED, LEASED,
MANAGED OR NUMBER OF
HOTELS HOTEL LOCATION FRANCHISED(1) ROOMS
- ------------------------------------------- -------------------------- -------------- ---------
<S> <C> <C> <C>
WYNDHAM HOTELS
Wyndham Anatole............................ Dallas, TX Managed 1,620
Wyndham Austin............................. Austin, TX Franchised (2) 313
Wyndham Bel Age............................ West Hollywood, CA Managed 199
Wyndham Bristol............................ Washington, DC Managed 239
Wyndham Checkers Hotel..................... Los Angeles, CA Managed 188
Copley Plaza -- A Wyndham Hotel............ Boston, MA Managed 373
Wyndham Emerald Plaza...................... San Diego, CA Managed 436
The Wyndham Five Seasons................... Cedar Rapids, IA Managed 283
Wyndham Franklin Plaza..................... Philadelphia, PA Managed 758
Wyndham Greenspoint........................ Houston, TX Managed 472
Wyndham Harbour Island..................... Tampa, FL Leased (3) 300
Wyndham Kingston........................... Kingston, Jamaica Managed 303
Wyndham Hotel at Los Angeles
International Airport.................... Los Angeles, CA Managed 591
Wyndham Hotel at Metrocenter............... Phoenix, AZ Managed 284
Wyndham Milwaukee Center................... Milwaukee, WI Managed 221
Wyndham Northwest Chicago.................. Itasca, IL Managed 408
Wyndham Palm Springs....................... Palm Springs, CA Managed 410
Wyndham Playhouse Square................... Cleveland, OH Managed 205
Wyndham San Antonio........................ San Antonio, TX Franchised (2) 326
Wyndham Warwick............................ Houston, TX Managed 308
---------
TOTAL WYNDHAM HOTELS....................... 20
TOTAL WYNDHAM HOTEL ROOMS.................. 8,237
========
WYNDHAM GARDEN HOTELS
Albuquerque................................ Albuquerque, NM Managed 150
Annapolis.................................. Annapolis, MD Managed 197
Atlanta Perimeter Center................... Atlanta, GA Leased 143
Bloomington................................ Minneapolis, MN Leased 209
Bothell.................................... Seattle, WA Leased 166
Brookfield Lakes........................... Milwaukee, WI Owned 178
Buckhead................................... Atlanta, GA Managed 221
Burlington................................. Burlington, MA Managed 180
Chandler................................... Phoenix, AZ Leased 159
Charlotte.................................. Charlotte, NC Owned 173
Commerce................................... Los Angeles, CA Owned (3) 201
Culver City................................ Culver City, CA Managed 199
Denver..................................... Denver, CO Managed 240
Detroit Metro.............................. Romulus, MI Managed 153
Indianapolis............................... Indianapolis, IN Owned 171
Lake Buena Vista........................... Orlando, FL Managed 167
Las Colinas................................ Dallas, TX Managed 168
Lexington.................................. Lexington, KY Managed (4) 177
Marin/San Rafael........................... Marin County, CA Managed 235
Midtown Atlanta............................ Atlanta, GA Managed 191
Monrovia................................... Monrovia, CA Managed 148
Naperville................................. Chicago, IL Leased 143
Nashville Airport.......................... Nashville, TN Leased 180
North Phoenix.............................. Phoenix, AZ Leased 166
North San Diego............................ San Diego, CA Leased 180
</TABLE>
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<PAGE> 79
<TABLE>
<CAPTION>
OWNED, LEASED,
MANAGED OR NUMBER OF
HOTELS HOTEL LOCATION FRANCHISED(1) ROOMS
- ------------------------------------------- -------------------------- -------------- ---------
<S> <C> <C> <C>
Novi....................................... Detroit, MI Managed 148
Oakbrook................................... Oakbrook Terrace, IL Managed 222
O'Hare..................................... Chicago, IL Managed 225
Orange County Airport...................... Costa Mesa, CA Managed 238
Phoenix Airport............................ Phoenix, AZ Leased 210
Piscataway/Somerset........................ Piscataway, NJ Managed 165
Pittsburgh................................. Pittsburgh, PA Managed 140
Pleasanton................................. Pleasanton, CA Managed 171
Schaumburg................................. Schaumburg, IL Owned 188
Seattle-Tacoma Airport..................... Seattle, WA Leased (3) 204
Sunnyvale.................................. San Jose, CA Leased 180
Vinings.................................... Atlanta, GA Managed (5) 159
Waltham.................................... Waltham, MA Managed 148
Wood Dale.................................. Chicago, IL Managed 162
---------
TOTAL WYNDHAM GARDEN HOTELS................ 39
TOTAL WYNDHAM GARDEN HOTEL ROOMS........... 7,055
========
WYNDHAM RESORTS
Inn at Semi-Ah-Moo -- A Wyndham Resort..... Blaine, WA Managed 198
The Village at Breckenridge -- A Wyndham
Resort................................... Breckenridge, CO Franchised 235
Wyndham Aruba Beach Resort & Casino........ Palm Beach, Aruba Managed 444
Wyndham Morgan Bay Resort.................. Choc Bay, St. Lucia Managed 238
Wyndham Rose Hall Resort................... Montego Bay, Jamaica Owned (3) 489
Wyndham Sugar Bay.......................... St. Thomas, U.S.V.I. Managed (7) 300
---------
TOTAL WYNDHAM RESORTS...................... 6
TOTAL WYNDHAM RESORT HOTEL ROOMS........... 1,904
========
MANAGEMENT SERVICE HOTELS
Dedham Hilton.............................. Dedham, MA Managed 247
Pruneyard Inn.............................. Campbell, CA Managed 117
Sheraton Valley Forge...................... King of Prussia, PA Managed (7) 315
---------
TOTAL MANAGEMENT SERVICE HOTELS............ 3
TOTAL MANAGEMENT SERVICE HOTEL ROOMS....... 679
---------
TOTAL PORTFOLIO.......................... 68
TOTAL PORTFOLIO HOTEL ROOMS.............. 17,875
========
HOTELS UNDER RENOVATION OR CONSTRUCTION(8)
Wyndham Garden Hotel -- Kansas City........ Kansas City, MO Managed 240
La Guardia Airport......................... New York, NY Managed 225
Wyndham Riverfront (Wyndham Hotel)......... New Orleans, LA Managed 202
Wyndham San Juan (Wyndham Resort).......... San Juan, Puerto Rico Managed 242
TOTAL HOTELS UNDER RENOVATION OR
CONSTRUCTION............................. 4
TOTAL HOTEL ROOMS UNDER RENOVATION OR
CONSTRUCTION............................. 909
---------
TOTAL HOTELS............................. 72
TOTAL HOTEL ROOMS........................ 18,784
========
</TABLE>
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<PAGE> 80
- ---------------
(1) Ownership Interest Key:
Owned = Wholly owned (100%) and managed by the Company.
Leased = Long-term lease with unaffiliated third party and managed by the
Company. See "-- Long-Term Hotel Leases."
Managed = Operated under management contracts. See "-- Management
Contracts."
Franchised = Franchised to a third party. See "-- Franchising Program."
(2) The Company is aware that the owners (or their affiliates) of the Wyndham
Austin and Wyndham San Antonio have acquired the Omni Hotel Company. The
franchise agreements for the Wyndham Austin and the Wyndham San Antonio are
terminable upon 30 days written notice. While the Company has not received
written notice of termination, there can be no assurance that such franchise
agreements will not be terminated.
(3) The Company's interests in these hotel properties (and in the case of the
Wyndham Rose Hall Resort, the golf course adjacent to the hotel property)
are subject to ground leases which, including renewal options, expire
between 2018 and 2077.
(4) This property was acquired by Bedrock in March 1996 and is currently managed
by Wyndham as a Ramada Inn. Following renovations that are currently under
way, the property will be converted to a Wyndham Garden Hotel, which is
scheduled to occur in the Fall of 1996.
(5) The Company has entered into a contract with an unaffiliated third party to
purchase this hotel. See "Prospectus Summary -- The Company -- Planned
Portfolio Additions."
(6) The actual room inventory at The Village at Breckenridge fluctuates because
approximately 70 rooms at such hotel are owned privately, and the
availability of such rooms to the general public depends upon the election
of the private owners thereof as to the use of such rooms.
(7) Pursuant to the terms of the management contracts relating to the Wyndham
Sugar Bay Resort and the Sheraton Valley Forge, the Company has been
notified that the owners of such hotels have elected to terminate such
contracts effective in June 1996 and on May 31, 1996, respectively, as a
result of the sale of such hotels by such owners.
(8) The anticipated dates of operation for the Kansas City, La Guardia and San
Juan hotels are Fall 1996, Fall 1996 and first quarter 1997, respectively.
The Riverfront opened on May 15, 1996.
The following table presents certain comparative information with respect
to the Company's hotels:
<TABLE>
<CAPTION>
TOTAL HOTELS
WYNDHAM MANAGEMENT EXCLUDING
WYNDHAM GARDEN WYNDHAM SERVICE TOTAL HOTELS OPENED
HOTELS HOTELS(1) RESORTS HOTELS HOTELS IN 1995(2)
------- --------- ------- ---------- ------ -------------
<S> <C> <C> <C> <C> <C> <C>
Total number of properties(3)..... 20 39 6 3 68 N/A
Total number of rooms(3).......... 8,237 7,055 1,904 679 17,875 N/A
Average number of rooms per
hotel(3)........................ 412 181 317 226 263 N/A
Percentage of hotels to
total(3)........................ 30% 57% 9% 4% 100% N/A
Percentage of rooms to total(3)... 46% 39% 11% 4% 100% N/A
1995 Occupancy percentage(4)...... 68% 70% 65% 73% 69% 71%
1995 ADR(5)....................... $94.58 $ 73.67 $122.75 $85.24 $88.79 $ 90.29
1995 REVPAR(6).................... $64.01 $ 52.75 $79.76 $62.45 $60.96 $ 64.38
</TABLE>
- ---------------
(1) Number of properties and rooms include one hotel (Lexington) that is
currently being managed by the Company as a Ramada Inn and that is scheduled
to become a Wyndham Garden Hotel in the Fall of 1996 following renovations
that are currently under way. Operating data includes one hotel (Wyndham
Garden Hotel -- Denver) that was managed by the Company as a Ramada Inn
while being converted to the Wyndham Garden Hotel brand.
(2) The operating data presented in this column is for total hotels excluding
hotels opened in 1995. This data has been included to demonstrate the
significant negative impact on 1995 occupancy rates, ADR and REVPAR of the 9
Wyndham Garden Hotels added or converted pursuant to the Redevelopment
Program in 1995, which properties required substantial renovations prior to
conversion to the Wyndham brand. There can be no assurance, however, that
these properties will achieve occupancy rates, ADR, REVPAR or operating
results comparable to the Company's mature hotel properties.
(3) As of April 15, 1996.
(4) Occupancy percentage represents total rooms occupied divided by total
available rooms. Total available rooms represents the number of rooms
available for rent multiplied by the number of days in the reported period.
(5) ADR represents total room revenues divided by the total number of rooms
occupied.
(6) REVPAR represents total room revenues divided by total available rooms.
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<PAGE> 81
Sixteen of the Company's 18 owned and leased hotels are Wyndham Garden
Hotels. The following table presents comparative operating data between the
Company's owned and leased Wyndham Garden Hotels and third party Wyndham Garden
Hotels that are managed by the Company.
<TABLE>
<CAPTION>
OWNED OR LEASED MANAGED
WYNDHAM WYNDHAM
GARDEN HOTELS GARDEN HOTELS(1)
--------------- ----------------
<S> <C> <C>
Number of properties(2).............................. 16 23
Average number of rooms per hotel(2)................. 178 182
Occupancy percentage:(3)
1993............................................... 71% 70%
1994............................................... 73% 72%
1995............................................... 75% 66%(4)
1996 First Quarter................................. 73% 59%(4)
ADR:(5)
1993............................................... $ 64.16 $66.09
1994............................................... $ 69.10 $70.11
1995............................................... $ 75.21 $72.56(4)
1996 First Quarter................................. $ 87.02 $77.22(4)
REVPAR:(6)
1993............................................... $ 45.21 $46.08
1994............................................... $ 50.35 $50.55
1995............................................... $ 56.72 $47.70(4)
1996 First Quarter................................. $ 63.15 $45.84(4)
</TABLE>
- ---------------
(1) Number of properties and rooms include one hotel (Lexington) that is
currently being managed by the Company as a Ramada Inn and that is scheduled
to become a Wyndham Garden Hotel in the Fall of 1996 following renovations
that are currently under way. Operating data excludes hotels not operated as
Wyndham Garden Hotels at the end of period presented.
(2) As of April 15, 1996.
(3) Occupancy percentage represents total rooms occupied divided by total
available rooms. Total available rooms represents the number of rooms
available for rent multiplied by the number of days in the reported period.
(4) This data reflects the significant negative impact on 1995 and the 1996
First Quarter occupancy rates, ADR and REVPAR of the 9 Wyndham Garden
Hotels, all of which are managed hotels, added or converted pursuant to the
Redevelopment Program in 1995, which properties required substantial
renovations prior to conversion to the Wyndham brand. There can be no
assurance, however, that these properties will achieve occupancy rates, ADR,
REVPAR or operating results comparable to the Company's mature hotel
properties.
(5) ADR represents total room revenues divided by the total number of rooms
occupied.
(6) REVPAR represents total room revenues divided by total available rooms.
CUSTOMERS AND MARKETING
The Company's target core customers are upscale business travelers and
business groups, as well as upscale leisure travelers. Total guest room revenue
for Wyndham brand hotels in 1995 by customer mix consisted of 39.5% individual
business travelers, 36.9% group customers, 11.6% resort leisure travelers and
12.0% leisure travelers. To increase revenues at its hotels, the Company has
developed a "push-pull" sales and marketing program as well as various other
promotional, guest service and advertising programs. The key components of these
programs are as follows:
Direct Local Sales Efforts
Wyndham started in 1982 as a hotel management company for a small group of
hotels without a recognized brand name and a very limited marketing budget.
Consequently, Wyndham developed a "backyard" marketing program designed to
"pull" revenues into these hotels from surrounding businesses. Wyndham has
continued to develop and refine its direct local marketing programs and
currently employs a direct sales force of almost 500 highly trained
representatives (an average of 7 per hotel) who generally are assigned to
individual hotels and who focus their sales efforts primarily on the local
businesses and
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<PAGE> 82
organizations surrounding each hotel. The Company motivates its sales force with
an aggressive incentive based compensation structure that ties compensation to
hotel performance at all levels of the hotel sales and management structure.
In 1995, the Company's direct sales program accounted for over 60% of room
revenues at Wyndham brand hotels. The direct sales efforts at Wyndham Hotels
focus primarily on group business. The direct sales efforts at Wyndham Garden
Hotels focus primarily on the market within a three-to-five mile radius of the
hotel because the Company has determined through market research that most of
its guests do business within this area. The Company's local sales programs
include direct solicitation of local businesses, special programs, such as its
Wyn Club program, which provides certain incentives for repeat bookings at
Wyndham brand hotels, participation in local and regional trade shows, and local
promotional and advertising campaigns.
National Sales Efforts
The Company's national sales program, which is split into a national group
sales force and a national negotiated rate team, is designed to "push" revenues
into Wyndham Hotels on a chain-wide basis. The national group sales force
consists of 15 national account managers assigned to four national sales offices
located in New York City, Washington, D.C., Chicago and Los Angeles. The purpose
of this sales force is to develop national group and association business
primarily for Wyndham Hotels and Wyndham Resorts. The national sales team
consists of five national account managers and focuses on identifying, obtaining
and maintaining major corporate accounts whose employees do business across the
nation. The Company has developed its corporate clientele by offering special
rate programs applicable to all Wyndham brand hotels. The Company currently has
national rate programs with approximately 400 different companies as well as the
nation's top 20 travel agencies.
Wyndham Service Programs
Wyndham's service signature, "The Right Way -- The Wyndham Way,"
characterizes Wyndham's entire approach to doing business and embodies Wyndham's
commitment to designing and implementing the innovative practices and programs
required to be a successful hotel operating company. The Right Way -- The
Wyndham Way also embodies the Company's focus on understanding and providing the
guest services and amenities that are most important to its core customers.
Wyndham conducts frequent guest surveys and personal interviews in an effort to
identify the services and amenities valued by upscale business travelers and
responds with various programs designed to meet or exceed such travelers'
expectations. For example, Wyndham has established a unique training program for
its hotel personnel, entitled "ACE" (Attentive, Courteous, Efficient), which
stresses the importance of a great service attitude at its hotels. Wyndham
recognizes that beyond training its personnel to provide the standard services
required by its discerning guests, it is necessary to cater to special guest
needs, and, accordingly, Wyndham provides its employees with the authority to
address guest complaints and requests on the spot.
Through its business traveler research, Wyndham also seeks to identify
those guest room amenities that most affect the purchase decision of its
customers. For example, in response to frequent business traveler surveys,
Wyndham was the first upscale hotel chain to provide a coffee maker and
complimentary coffee or tea in every domestic Wyndham brand hotel room. Wyndham
also has added larger desks, extra long phone cords, high wattage light bulbs
for reading, real hook hangers, comfortable pillows and a shower massager as
standard features of each room. To accommodate the desire of its business
customers to be able to obtain quickly a healthful breakfast or lunch, Wyndham
implemented a breakfast bar and a luncheon pasta bar at all Wyndham Garden
Hotels and most Wyndham Hotels, which is designed to provide delicious meals
efficiently at a value price. Wyndham also has implemented similar guest room
amenities and quality standards in all Wyndham brand hotels. Wyndham believes
that its commitment to providing an outstanding guest experience throughout its
hotel system has contributed greatly to the development and clarity of the
Wyndham brand while earning strong loyalty from its core customers, upscale
business travelers and business groups. For example, according to written guest
surveys conducted by Wyndham at its hotels in 1995, 91% of Wyndham guests
surveyed rated the overall quality of Wyndham hotel products and services good
or excellent, and 94%
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<PAGE> 83
of the guests surveyed indicated that they would return to that Wyndham hotel on
their next trip to the same city.
Guest Rewards and Other Programs
The Company participates in both the American Airlines AAdvantage program,
the largest airline mileage program, and the Midwest Express frequent flier
program. These programs provide the Company with ongoing promotional access to
over 28 million members and enable the Company to target frequent business
travelers and increase name recognition. Through an alliance with American
Airlines and Avis Rent-A-Car, Wyndham developed its popular "Triple Upgrade"(TM)
program, which provides American Airlines AAdvantage members that are Wyndham
guests with an airline upgrade, a room upgrade and a rental car upgrade, plus up
to 1,500 AAdvantage miles. The rewards are given at checkout and are provided
for each stay at any Wyndham hotel for guests that pay a regular or corporate
room rate. Wyndham designed the program to provide guests with meaningful
rewards for each hotel visit. Wyndham's Triple Upgrade program is currently in
effect during six months of each calendar year.
Wyndham developed the first "Rate Integrity Guarantee" program in the hotel
industry, which is a corporate travel program designed to ensure that corporate
travel planners and travel agents receive the lowest available Wyndham room
rates for their individual business travelers. The program enables travel
planners and agents to obtain each rate in every category for Wyndham brand
hotels through the major airline reservation systems and provides a
complimentary night stay if a better rate was available. The Company also runs
other promotional programs periodically for individual business travelers,
weekend leisure customers and resort customers. In addition to providing
incentives for its guests to select Wyndham, the Company believes that its
promotional programs increase national recognition of the Wyndham brand.
Advertising
Wyndham's national advertisements, which have been featured on CNN, CNN
"Headline News," ESPN and in major inflight magazines, primarily target the
upscale business customer and are designed to enhance the consumer's awareness
of Wyndham as an upscale, full service, national hotel chain. These
advertisements promote "The Right Way -- The Wyndham Way" and emphasize
attitude, comfort and location. The Company also promotes its services, programs
and individual hotel locations in the major hotel reference directories used by
travel and meeting planners, and in major trade magazines and major metropolitan
newspapers.
Central Reservations System
In 1995, over 35% of all Wyndham brand hotel room revenues were booked
through Wyndham's central reservations system. The Company uses a single central
reservation number (800-WYNDHAM) for all Wyndham brand hotels, which is
accessible to customers throughout the United States and Canada. The reservation
system provides Wyndham's reservation agents with information about hotel
locations, available rooms and rates in order to assist customers in booking
rooms. In addition, the Company uses special marketing programs in conjunction
with its central reservations system in order to target the individual upscale
business traveler, who the Company believes is strongly influenced by brand
recognition and preference.
In 1995, approximately 50% of all Wyndham reservations made through its
central reservations system were received electronically by means of airline
reservation systems. In 1994, the last year for which comparative industry
information is available, according to an industry report in which the Company
participated, the Company's percentage of automated reservations was among the
highest in the industry. The Company believes that its volume of electronic
reservations reflects the Company's commitment to investing in technology in
order to create cost-effective, efficient operations.
ISIS 2000, a limited partnership currently owned by Crow Family Members and
the Senior Executive Officers, is developing an integrated real time central
reservations and property management system (the "Central Reservations System")
designed to handle all of the Company's central reservations and hotel property
management requirements. ISIS 2000 will provide such central reservations and
hotel property
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management services to Wyndham and Wyndham brand hotels pursuant to a five-year
service contract (which services will be provided to Wyndham on an exclusive
basis for a two-year period). The services will be provided for a fee comprised
of an initial link-up charge plus a per reservation fee and a per hotel charge
for the property management system. In addition, the Company expects that it
will guarantee operating leases on behalf of ISIS 2000 in the approximate amount
of $3.5 million. The Company may in the future invest in ISIS 2000. The Company
must obtain the consent of the lenders under the Revolving Credit Facility prior
to entering into certain arrangements relating to ISIS 2000. See "Certain
Relationships and Transactions" and "Risk Factors -- Conflicts of
Interest -- Future Dealings with Affiliates of the Company."
The Central Reservations System will include, among other enhancements,
complete connectivity with all Wyndham brand hotels, a single data base for all
hotel information, a direct interface with airlines and real time/last available
room inventory. Wyndham believes that the new system will improve substantially
the Company's ability to manage the yield from its room inventory. In addition,
the Company believes the new system will significantly enhance the Company's
direct marketing, guest recognition and revenue forecasting capabilities, as
well as its ability to monitor its corporate rate programs. The Central
Reservations System also will provide point of sale information for all Wyndham
brand hotels. The Company expects to begin implementation of the Central
Reservations System during the third quarter of 1996.
Wyndham also participates in all four of the major airline reservation
systems, "SABRE," "APOLLO," "WORLDSPAN" and "SYSTEM ONE." These airline
reservation systems have an aggregate of approximately 190,000 computer
terminals on line at approximately 41,000 locations, allowing travel agents to
book Wyndham hotel reservations when guests are making other travel
arrangements.
HOTEL OPERATIONS
Wyndham's corporate management structure and centralized support services
are designed to permit the Company to control operations and costs, as well as
allocate departmental expertise efficiently among operating divisions. The
Company's organizational structure emphasizes direct accountability through
vertical integration in order to maintain Wyndham's high standards for guest
services and hotel operations throughout its hotel system. The Company has
established certain uniform productivity standards and skill requirements for
hotel employees, which the Company believes increase operating efficiencies by
enhancing the Company's ability to measure performance and interchange certain
employees within the hotel system.
Hotel Management. Each Wyndham brand hotel is managed by a general manager
and supported by a regional and corporate management organization. The size of
each management team and its hourly staff varies, depending on the type of
hotel, its size and its business volume.
General Managers; Hotel Management Personnel. Wyndham's general managers
have an average of over 17 years of experience in the lodging industry, and over
70% of these managers have been promoted from an existing position within the
Company. Each general manager is responsible for supervising the day-to-day
operations of a single hotel. Because of the Company's emphasis on taking an
owner's approach to the hotel business, each general manager also has been
specially trained to understand the financial side of hotel operations,
including cash flow, gross operating margins, debt service and return on
investment. Each general manager can receive up to 75% of his or her base salary
in the form of cash bonuses and equity participation based largely on the
financial performance and quality of hotel operations at the hotel he or she
manages. The Company believes that by emphasizing financial accountability and
performance-based compensation at the general manager level, it is able to
achieve the appropriate balance between providing high quality guest services
and strong returns, to both the Company and owners of managed hotels. Each
Wyndham Hotel and Wyndham Resort is run by an executive committee that oversees
a management team of approximately 16 managers. The executive committees
typically consist of a general manager, a director of sales and marketing, a
controller, a director of food and beverage operations, a director of rooms
operations, a human resources director and a director of engineering. A typical
Wyndham Garden Hotel management committee consists of a general manager, a
director of sales, two sales managers, a guest services manager, a food and
beverage manager, a catering manager, a food production manager and a
housekeeping manager.
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Regional Operations. Wyndham's general managers report directly to a
regional director of operations, who, in turn, reports to one of five vice
presidents of operations. These vice presidents of operations report to the
president of either the Wyndham Hotel and Resort Division or the Wyndham Garden
Division. The two operating division presidents have an average of 25 years
experience in the lodging industry and an average of 6 years of experience in
their current positions with the Company, and the five vice presidents of
operations have an average of 23 years experience in the lodging industry and an
average of 7 years of experience with the Company. The regional management teams
provide management support and direction to the general managers and their
staff, coordinate communications between the properties and the Company's
centralized corporate departments and assist in establishing and administering
corporate policies, procedures and standards.
Centralized Corporate Services. The Company's hotel operations are divided
into two operating divisions, consisting of a Wyndham Hotel and Resort Division
and a Wyndham Garden Division. Each operating division has its own president,
who reports to the Company's Chief Executive Officer. The Company believes that
it has highly qualified, experienced executives in each of its key senior
management positions. The Senior Executive Officers, who have an average of 7
years with the Company and approximately 14 years in the lodging industry, have
worked together to successfully operate, manage and develop the Company's hotels
in various phases of the industry cycle. The Company also has a centralized
corporate staff located in Dallas, Texas, which provides a variety of managerial
and support services to both hotel divisions. The Company believes that the
experience of its corporate management team enables it to provide strong,
central leadership in all areas of operations, including marketing, development,
design and construction, purchasing, finance, accounting, legal and human
resources. The Company believes that the quality and experience of management
are important components of its ability to provide consistently strong financial
results to owners and outstanding service to hotel guests. In addition to the
foregoing areas of operations, the Company's centralized corporate staff
provides technical assistance and training to each hotel's employees for
administrative operations, room and guest services, reservations, maintenance
and engineering, retail services, and human resources and benefits.
Recruiting and Training. The Company is strongly committed to developing
and promoting its management personnel from within the Wyndham system. Wyndham
believes that it has developed one of the largest and most visible college
recruiting programs in the industry. Over the past five years, the Company has
hired over 400 new college graduates through its on-campus recruiting program at
15 universities with four-year hotel management programs. The Company believes
that is has been quite successful at recruiting top college graduates and
providing them with outstanding training and experience. The Company will
continue to emphasize college recruiting as an important source of management
talent. In 1995, the Company recruited 90 new college graduates. New campus
recruits receive up to 12 months training and are then generally assigned to the
sales or operations departments at a Wyndham operated hotel.
The Company has developed a Managers in Development program that trains
over 150 participants each year and contains ten separate training modules. The
Company also provides formal training programs for general managers and sales
personnel. Wyndham believes that by creating meaningful, measurable goals for
each key position within the Company, it is able to track individual
performance, reward productivity and assist in developing the careers of its
personnel. Wyndham believes that this approach has contributed significantly to
high labor productivity and employee retention, as evidenced by the fact that
70% of the Company's existing general managers were promoted from within the
Company.
MANAGEMENT CONTRACTS
Wyndham operates 47 hotels for third parties pursuant to management
contracts under which it is responsible for the day-to-day operations of the
hotels. These operations include managing hotel accommodations, meeting rooms
and food and beverage services as well as hiring and training each hotel's
staff, planning and providing sales and marketing services, purchasing operating
supplies, inventories and furniture, fixtures and equipment, providing routine
repairs and maintenance and performing hotel accounting functions, including the
preparation of monthly financial statements and budgeting.
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The hotel owner generally is responsible for all costs and expenses
incurred in connection with operating the hotel, including reimbursing the
Company for the expenses associated with salaries and benefits of all hotel
employees. The hotel owner also generally is required to contribute an amount
equal to a specified percentage of gross revenues to a reserve fund on a monthly
basis to fund replacement and substitution of furniture, fixtures and equipment
and the costs of certain non-routine repairs and maintenance. Under certain
management contracts, Wyndham has agreed to make loans for the benefit of the
hotel to cover shortfalls in operating cash flow and also has agreed under
certain management contracts to make loans or capital contributions for hotel
renovations, conversion costs and other purposes.
Under nearly all management contracts, the hotel owner has agreed to
indemnify the Company against liabilities arising from the management and
operation of the hotel, typically including environmental and general tort
liabilities. These indemnities generally exclude various degrees of negligent
conduct by the Company as well as the Company's willful misconduct or willful
violation of legal requirements. Under most management contracts, the Company
generally has agreed to indemnify the hotel owner against liabilities caused by
the Company's negligence, willful misconduct, willful violation of legal
requirements or breach of the management contract. A few management contracts,
however, give broader protection to the hotel owner with regard to liabilities
arising from the operation of the hotel, and one management contract provides
protection to the hotel owner from claims that the hotel owner is the employer
of certain hotel employees when the management contract provides otherwise.
As compensation for its management services, Wyndham receives a base
management fee under each management contract. Wyndham also may receive an
incentive fee, as well as a trade name fee, for hotels operated under the
Wyndham brand name. The average base management fee for the Company's management
contracts is in excess of 3% of gross revenues from hotel operations, and the
average trade name fee is in excess of 1% of gross room revenues. The average
base management fee for the Company's management contracts entered into after
January 1, 1994 is in excess of 3% of gross revenues from hotel operations, and
the average trade name fee is in excess of 1.6% of gross room revenues. The
Company believes that the increase in trade name fees since January 1, 1994
generally reflects increased recognition in the past two years of the Wyndham
brand name and the Company's operating capabilities. The actual percentage of
base fees and trade name fees for any given contract may vary from these
averages depending on the size and location of a particular hotel, the market in
which it competes and other factors. The Company also receives an incentive
management fee under most management contracts. The calculation of incentive
management fees varies from management contract to contract, but is generally
based on a percentage of a hotel's operating profit or the amount by which the
hotel's operating profit exceeds specified performance targets.
In addition to property-specific marketing and promotional services that
Wyndham provides at the hotel owner's expense for each hotel that it operates,
Wyndham also provides marketing services to Wyndham brand hotels consisting of
chain-wide and/or division level marketing programs, research services,
advertising and public relations efforts. The costs of these marketing services
are paid by the hotel owners pursuant to a marketing contribution made to
Wyndham in an amount generally equal to a specified percentage of gross room
revenues. In addition to marketing services, owners of Wyndham brand hotels
receive group and/or individual traveler sales services provided by Wyndham's
national and/or local sales offices. The cost of national sales and marketing
services generally are allocated among all hotels for which the services are
provided. The cost of local sales services generally are allocated directly to
each individual hotel. Wyndham also provides centralized reservations services
to Wyndham brand hotels, with the costs being allocated to each hotel generally
based on reservations made at that hotel. For Wyndham Garden Hotels and smaller
Wyndham Hotels, Wyndham also typically provides off-site accounting services at
the hotel owner's expense.
In addition to the services described above that are provided pursuant to
management contracts, Wyndham also makes available to hotel owners design,
construction, purchasing and technical services for an additional fee. These
services generally are provided pursuant to separate technical services
management contracts and purchasing agreements.
The terms of Wyndham's management contracts vary from hotel to hotel. The
terms of the management contracts for the 43 Wyndham brand hotels managed by the
Company generally range between 10 and
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20 years. The terms for the non-Wyndham brand hotels range from one month to
fifteen years. At April 15, 1996, the average remaining term for Wyndham brand
hotel management contracts was 13.6 years (including renewals that the Company
may elect to exercise). Each management agreement is subject to early
termination in connection with a default by either party. In addition, the
management contracts generally are subject to termination by the hotel owner for
Wyndham's failure to achieve certain performance standards, in connection with
the owner's sale of the hotel to a third party, upon the owner's default on
indebtedness encumbering the property and/or upon a foreclosure of the property.
Other grounds for termination include the hotel owner's election to close the
hotel and certain business combinations involving the Company in which the
Wyndham name or its current management team does not survive. In the event a
management contract is terminated for certain reasons, most management contracts
require the owner to pay a termination fee that is generally based upon a
multiple of the average monthly management fees under the contract depending on
the remaining term of the contract, hotel performance and other factors.
A majority of the management contracts include a provision restricting the
Company from managing, operating or investing in other hotels within a
competitive geographical region, usually within a five mile radius of the hotel
subject to the management contract. While some of these non-competition clauses
restrict the Company's involvement in any hotel within the covered region, many
of the clauses limit competition only with respect to hotels similar to the
hotel subject to the restriction.
Pursuant to the terms of the management contracts relating to the Wyndham
Sugar Bay Resort and the Sheraton Valley Forge, the Company has been notified
that the owners of such hotels have elected to terminate such contracts
effective in June 1996 and on May 31, 1996, respectively, as a result of the
sale of such hotels by such owners.
LONG-TERM HOTEL LEASES
Following the Offering, the Company will lease and operate 12 hotels. See
"The Formation and the Financing Plan." GHALP has historically owned 11 Wyndham
Garden Hotels (the "GHALP Properties"). A 30% interest in GHALP was owned by a
partnership owned by certain Crow Family Members and the Senior Executive
Officers, and the remaining 70% was held by an unaffiliated third party. On May
2, 1996, Crow Family Members and the Senior Executive Officers acquired the
remaining 70% ownership interest from the third party for a purchase price of
approximately $29.5 million. The $29.5 million purchase price was funded from
the proceeds of the sale of the GHALP Properties to HPT, a publicly traded REIT,
for $135.3 million, which properties were leased back pursuant to one or more
long-term leases (the "GHALP Lease") to GHALP II, the ownership of which mirrors
the ownership of GHALP. See "Pro Form Combined Financial Data." As part of the
Formation, the Company will succeed to GHALP II's leasehold interest in the
GHALP Lease and continue to manage the hotels. The Company also will succeed to
GHALP II's interest in $13.6 million of the purchase price that was deferred to
secure HPT's rights under the GHALP Lease (the "Retained Fund"). The initial
term of the GHALP Lease is approximately 17 years with renewals for four
consecutive 12 year terms exercisable at the Company's option for all, but not
less than all, 11 hotels. While HPT has retained the right to sell one or more
of these leased hotels to third parties (subject to the GHALP Lease), the
Company has a right of first refusal to acquire such property, which terms are
set forth in the GHALP Lease.
Rental payments under the GHALP Lease consist of minimum rent (the "Minimum
Rent"), payable monthly, and, commencing January 1997, additional rent (the
"Additional Rent"), which is based upon growth in revenues at the leased hotels.
The Minimum Rent for all of the leased hotels is $1,133,334 per month. The
Additional Rent will be equal to 8% of the amount, if any, by which the
consolidated total hotel sales (as defined in the GHALP Lease) for the 11 leased
hotels for the then current year to date exceeds the consolidated total hotel
sales for the corresponding period in 1996. The GHALP Lease allows the Company
to retain all of the benefit from any increase in operating income from these
properties during the term of the GHALP Lease, subject to the payment of
Additional Rent. All management fees due to the Company from these hotels are
subordinated to rent due to HPT.
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The GHALP Lease is a triple net lease that will require the Company to
maintain the leased hotels in good condition and repair and in conformity with
all applicable legal requirements and to make or cause to be made all items of
maintenance, repair, replacement and alteration to the leased hotels as
necessary for such purposes. The Company has established a reserve account (the
"FF&E Reserve") and, throughout the lease term, the Company must add to the FF&E
Reserve at the end of each month an amount equal to 5% of total hotel sales
during such month to be used for maintenance, repair, replacements and
alterations that are proposed by the Company and approved by HPT. Under certain
circumstances, HPT may be required to fund major repairs, in which event the
Minimum Rent will be increased by at least 10% of the amount funded. In
addition, the Company will be required to pay substantially all expenses
associated with the operation of the leased hotels, including all ground rent,
if applicable, real estate taxes and insurance. All personal property (except
motor vehicles and liquor licenses and permits) owned by the Company and used in
connection with the operation of the leased hotels, including personal property
purchased with funds from the FF&E Reserve, will be pledged to HPT to secure the
Company's obligations under the GHALP Lease. At the termination of the GHALP
Lease, any funds remaining in the FF&E Reserve and property purchased with funds
from the FF&E Reserve will be paid and title delivered to HPT as additional
charges. In addition, HPT has the option to purchase any personal property of
the Company located at, or used in connection with, the leased hotels at its
then net market value.
The Company's interest in the Retained Fund will be subject to offset if
the Company fails to perform its obligations under the GHALP Lease. The Retained
Fund, which will earn no interest on the Company's behalf, will be paid upon the
end of the GHALP Lease term provided that the Company has not defaulted under
the GHALP Lease. In addition, the Company has pledged to HPT a security interest
that will be subordinate to that of the lenders under the Revolving Credit
Facility of all of the capital stock of its subsidiary that is the lessee under
the GHALP Lease to secure the obligations under the GHALP Lease.
Under the GHALP Lease, the Company has agreed to indemnify HPT, the hotel
mortgagees and their agents and assigns against costs resulting from the
presence during the lease term of any hazardous substances in, upon or under the
soil or groundwater of the leased property or any properties surrounding the
leased property in violation of any law or regulation, provided that the costs
arise due to the failure by the Company to perform or comply in accordance with
all laws and orders applicable to the storage, use, maintenance, spillage,
disposition or transfer of hazardous substances or certain lease provisions
requiring notice of environmental-related events and activities to be given to
HPT, except to the extent such costs arise from the acts or omissions of HPT or
any other indemnified party or during any period that HPT is in possession of
the leased property. The Company also has agreed to indemnify HPT against
liabilities due to the Company's failure to perform or comply with the lease
agreement, any claims relating to the use, misuse or condition of the property
caused by the Company, the imposition of any taxes or assessments, or claims
arising from accidents, death or personal injury occurring at the leased
premises. HPT may terminate the lease upon an event of default, which includes:
the failure to pay rent; failure to maintain required insurance; an uncured
default by the Company of any of the terms of the lease agreement; an uncured
default under any of the leases constituting the GHALP Lease, the management
contracts relating to the properties and certain other related documents; the
loss of any material license or permit; any false or misleading material
representation or warranty made by the Company contained in the GHALP Lease or
certain other related documents; the Company not paying debts as they become due
or making a general assignment for the benefit of creditors; filings under any
federal or state bankruptcy or insolvency laws with respect to the Company; levy
upon or attachment of the Company's interest in the leased property; or the
tenant under the GHALP Lease at any time ceasing to be a wholly owned direct or
indirect subsidiary of the Company. HPT may cancel the Company's management
agreements related to these hotels in the event the GHALP Lease is in default.
Upon a termination due to an event of default, the Company is liable for the
rental payments that would have been payable for the remainder of the unexpired
term. If HPT re-lets the properties, however, the Company is liable for only the
difference between the proceeds from re-letting and proceeds that would have
been payable had the GHALP Lease remained in effect for the duration of the
term. In addition to damages that HPT may receive pursuant to the preceding
sentence as a result of the Company's default, HPT may elect to require the
Company to pay as final liquidated damages the amount of the excess of the lease
payments that would have
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been payable from the date of termination through the unexpired term over the
fair rental value of the properties for the same period.
Under the purchase contract relating to the sale of the GHALP Properties to
HPT, GHALP undertook to indemnify HPT against any liabilities arising out of
GHALP's actions in connection with the ownership or operation of the GHALP
Properties and any third party claims in connection with such properties
occurring prior to the consummation of the sale. In addition, HPT undertook to
indemnify GHALP against any liabilities arising out of HPT's actions in
connection with the ownership or operation of the GHALP Properties and any third
party claims in connection with such properties occurring after the sale. In
connection with the Formation, the Company will assume GHALP's rights and
obligations under the purchase contract. The Company also will assume the
representations and warranties made by GHALP under the purchase contract,
including that, to GHALP's knowledge, at the time of the agreement: no
undisclosed conditions, agreements, litigation or environmental liabilities
existed that would materially and adversely affect the properties or result in
the imposition of a lien upon any of the GHALP Properties; no taxes were
delinquent; the properties had access to sufficient utilities and services; the
properties and the use and operation thereof did not violate any material law;
all material licenses and permits necessary to the operation of the GHALP
Properties were in effect; and the copies of the ground leases delivered to HPT
were true, valid and not in default. Liability with respect to the
representations and warranties will survive for one year period following the
closing of the sale.
The GHALP Lease restricts the Company from owning, building, franchising,
managing or operating any Wyndham Garden Hotel within a designated area
surrounding each respective GHALP Property during the lease term. Hotel products
other than Wyndham Garden Hotels are expressly excluded from this restriction.
The remaining leased hotel is leased to the Company from an unaffiliated
third party pursuant to a capitalized lease with a remaining term of 22 years.
The lease requires payment of base rent of $2,300,000 per year plus contingent
rent through 1999 of 20% of the amount net operating income before management
fees exceeds base rent plus the management fee and thereafter, 50% of such
amount.
FRANCHISING PROGRAM
The Company currently has three franchised Wyndham hotels operated by third
parties. See "-- The Company's Hotels." These franchises were each granted to
take advantage of a unique opportunity to extend the Wyndham brand name into an
attractive market.
The Company is in the process of developing a comprehensive franchise
program that it expects to complete in advance of the next hotel construction
cycle in the upscale full service segment of the lodging industry, which the
Company believes is a few years away. The Company anticipates that at such time,
it will be in a position to pursue selective franchise opportunities given
appropriate market conditions. The Company believes that newly constructed hotel
properties present the most attractive franchising opportunities because the
Company can control the quality and appearance of the hotel property through
up-front construction and performance criteria. By imposing standard design
requirements, the Company is able to influence strongly the guest experience,
which is crucial to maintaining the quality and identity of a Wyndham brand
hotel. The Company expects that its franchise program also would emphasize
strong control over hotel operations, as well as marketing and advertising, in
order to ensure that franchised hotels achieve the same high standards as
Wyndham brand hotels managed by the Company.
The Company is aware that the owners (or their affiliates) of two of the
Company's franchised hotels (Wyndham Austin and Wyndham San Antonio) have
acquired the Omni Hotel Company. The franchise agreements for the Wyndham Austin
and the Wyndham San Antonio are terminable upon 30 days written notice. While
the Company has not received written notice of termination, there can be no
assurance that such franchise agreements will not be terminated.
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COMPETITION
The lodging industry is highly competitive. Wyndham competes in the upscale
segment of the lodging industry. The Company's hotels compete with other
national limited and full service hotel companies, as well as with various
regional and local hotels. Some of the larger hotel chains with which the
Company competes include Marriott, Sheraton, Hyatt, Hilton and Embassy Suites. A
number of the Company's competitors are larger, operate more hotels and have
substantially greater financial and other resources than the Company. In
addition, some of the Company's competitors operate hotel properties that have
locations superior to those of the Company's hotels. Competitive factors in the
lodging industry include room rates, quality of accommodations, name
recognition, service levels and convenience of location. There can be no
assurance that demographic, geographic or other changes in markets in which the
Company's hotels are located will not adversely affect the convenience or
desirability of certain of the Company's hotels. Furthermore, there can be no
assurance that new or existing competitors will not significantly lower rates or
offer greater conveniences, services or amenities or significantly expand or
improve facilities in a market in which the Company's hotels compete, thereby
adversely affecting the Company's results of operations. See "Risk
Factors -- Competition in the Lodging Industry."
The Company also competes for management contract, acquisition,
development, lease, franchise and other expansion opportunities. The Company
competes for these expansion opportunities with national and regional hotel
companies, some of which have greater financial and other resources than the
Company. Competitive factors for expansion opportunities include relationships
with hotel owners and investors, the availability of capital, financial
performance, management fees, lease payments, brand name recognition, marketing
support, reservation system capacity, and the willingness to provide funds in
connection with new management and lease arrangements. The Company's failure to
compete successfully for expansion opportunities or to attract and maintain
relationships with hotel owners and investors could adversely affect the
Company's results of operations. See "Risk Factors -- Risks Associated with
Expansion -- Competition for Expansion Opportunities."
EMPLOYEES
At December 31, 1995, Wyndham had approximately 190 employees at the
corporate level and approximately 11,210 employees (including part-time and
seasonal employees) at hotel properties managed by the Company.
Employees at five of the Company's managed hotels currently are represented
by a labor union. Management believes its ongoing labor relations to be good.
The collective bargaining agreement with employees at the Wyndham Kingston Hotel
expired in July 1995, and the Company is currently negotiating to extend that
agreement. The collective bargaining agreement with hotel employees at the
Wyndham Aruba Beach Resort and Casino expires in May 1996, and the Company is
beginning negotiations to extend the agreement.
TRADEMARKS
The service marks "Wyndham" and "Wyndham Garden" are material to the
Company's business. The Company has filed an application with the United States
Patent and Trademark Office (the "USPTO") for registration of each of the
Wyndham service marks. The Company also has filed an application with the USPTO
for registration of the Wyndham "W" logo, the "The Right Way. The Wyndham Way"
slogan, the Company's 800-WYNDHAM reservation number and certain other marks as
service marks. In addition, the Company has registered "Wyndham Garden" and
"Triple Upgrade" as service marks with the USPTO. The Company also claims common
law service mark rights in the foregoing marks as well as certain other marks.
The Company has registered "Wyndham" and "Wyndham Garden" as service marks in
various states and "Wyndham" and "Wyndham Garden" as service marks in Puerto
Rico and various foreign countries.
The Company's application to register "Wyndham" also claims exclusive use
of this mark with the exception of two areas in which the Company is aware of
prior uses of the "Wyndham" mark by hotel operators that have no existing or
historical relationship with the Company. One of these hotels is located in
Ambler, Pennsylvania, and the other is located in Manhattan (the "Mados Wyndham
Hotel"). The Company
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has not used the Wyndham name in connection with the operation of a Wyndham
hotel in either of these areas.
In June 1992, the managers and lessees of the Mados Wyndham Hotel, John and
Suzanne Mados (the "Madoses"), registered the name "Wyndham Hotel" with the New
York Secretary of State pursuant to a New York State statute which provides that
the owner or operator of a hotel in the State of New York may register the name
of a hotel and such registration grants the exclusive right to use the name in
the State of New York. No reported cases to date indicate how New York courts
will interpret the scope of the rights created by the New York statute, and,
therefore, it is not currently known whether the Madoses' registration pursuant
to the statute could prevent the Company from operating a Wyndham brand hotel
anywhere in the State of New York.
In February 1993 and June 1995, respectively, the current owners of the
Mados Wyndham Hotel, Yassky-Wyndham Partnership ("Yassky"), filed Notices of
Opposition to the Company's applications with the USPTO for registration of
"Wyndham" and "Wyndham Garden," as service marks, claiming prior use of the
"Wyndham" mark and requesting that Wyndham's registrations be denied. The
Company subsequently entered into a settlement agreement with Yassky pursuant to
which Yassky assigned to the Company all of its rights in the "Wyndham" mark
throughout the world with the exception of 11 New York State counties
surrounding the Mados Wyndham Hotel, including New York County. In addition,
Yassky withdrew its Notices of Opposition to the Company's federal applications
for registration of the "Wyndham" and "Wyndham Garden" marks. Pursuant to the
settlement agreement, the Company must pay a royalty to Yassky if it undertakes
the operation of a Wyndham brand hotel in any of the 11 counties identified in
the agreement.
In June 1995, the Madoses filed a late Notice of Opposition to the
Company's application for federal registration of the "Wyndham" mark, also
claiming prior use of the "Wyndham" mark and requesting that Wyndham's
registration be denied. There has been no determination as to whether the
Trademark Trial and Appeal Board will accept the untimely Notice of Opposition,
and, if accepted, what the resulting impact would be on the Company's
application for registration.
The Company does not believe that the Madoses' federal and common law
rights to use the Wyndham name will prevent the Company's application for
registration of exclusive use of the "Wyndham" mark throughout the country with
the exception of the area surrounding the Mados Wyndham Hotel. In addition,
because of national recognition of the Wyndham name as a result of the Company's
operations, the Company believes that it has substantial common law rights to
the "Wyndham" marks in many areas throughout the country. It is likely, however,
that the Madoses' prior operation of the Mados Wyndham Hotel will prevent the
Company from operating Wyndham brand hotels or advertising the Wyndham brand
name in connection with the operation of a Wyndham brand hotel within a
geographic area within the borough of Manhattan or possibly within a 50 mile
radius of the Mados Wyndham Hotel. For further information relating to disputes
involving the "Wyndham" mark, see "-- Legal Proceedings" below.
LEGAL PROCEEDINGS
On June 29, 1992, the Madoses, who lease and manage the Mados Wyndham
Hotel, filed a lawsuit in the New York Supreme Court, County of New York,
against Wyndham Hotel Company, Wyndham Hotel Company, Ltd., Wyndham Hotel
Management Corporation d/b/a Wyndham Hotels & Resorts (referred to herein as
"Old Wyndham") and Yassky. The lawsuit seeks a declaratory judgment that, based
on their prior use of the Wyndham name, the Madoses possess the exclusive right
to use the Wyndham name and mark in connection with the operation of a hotel in
New York City or within a 50 mile radius thereof. Old Wyndham acknowledges that
use of the Wyndham name in connection with the operation of the Mados Wyndham
Hotel has created certain service mark rights in a geographic area within the
borough of Manhattan, but denies the Madoses' claim to exclusive use of the
Wyndham name within a 50 mile radius of the Mados Wyndham Hotel. The suit also
seeks an injunction enjoining Old Wyndham from using the "Wyndham" mark in
connection with the advertisement, promotion, management or operation of a hotel
in New York City or within a 50 mile radius thereof.
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On January 29, 1996, the court issued a temporary restraining order, which,
as modified in a subsequent opinion, prohibits the Company from operating a
Wyndham brand hotel or advertising the Wyndham name in connection with the
operation of a Wyndham brand hotel in the borough of Manhattan or within a 50
mile radius (within the State of New York) of the Mados Wyndham Hotel pending
the outcome of the lawsuit. The court also granted Old Wyndham's motion for an
accelerated trial date.
It is possible that the Company could be named as a defendant in this
litigation or that additional proceedings could be instituted against the
Company. An adverse decision in the litigation could prevent the Company from
operating Wyndham brand hotels or advertising the Wyndham name in connection
with the operation of a Wyndham brand hotel within a geographic area within the
borough of Manhattan or possibly within a 50 mile radius of the Mados Wyndham
Hotel. In addition, an adverse decision in the litigation or a delay in the
resolution of the lawsuit beyond the anticipated Fall 1996 opening date for the
Company's La Guardia hotel would require the Company to open such hotel under a
brand name other than Wyndham or Wyndham Garden. It is management's opinion,
based on legal counsel, that the losses resulting from the ultimate resolution
of the aforementioned claim are not estimable. For further information relating
to disputes involving the "Wyndham" mark, see "-- Trademarks" above.
The Tampa Region of the Florida Department of Revenue (the "FDR") has
asserted that the Company may be liable for sales and use tax as a result of the
Company's management of the Wyndham Harbour Island Hotel ("Harbour Island") in
Tampa, Florida. The FDR recently performed an audit of Harbour Island covering
the period from August 1990 through June 1995. On the basis of the audit, the
FDR made a determination that the Company owed approximately $1 million
(including penalties and interest) in taxes for such period. The Company
believes that it has meritorious defenses with respect to the amount claimed by
the FDR and is providing information with respect to the FDR's assertion for the
audit period. The owners of Harbour Island have agreed to indemnify the Company
with respect to any additional sales and use tax paid by the Company for the
audit period. The Company does not believe that the outcome of this matter will
have a material adverse effect on its financial condition. See Note 13 to the
Company's Combined Financial Statements.
On February 29, 1996, CHMC, certain predecessors in interest to the Company
and certain Crow Family Members were served with a complaint filed on November
22, 1995, by Allen-Williams V.I., Inc. ("Allen-Williams") in the District Court
of the Virgin Islands, Division of St. Croix. The claim involves collection on a
$1.0 million promissory note issued by a predecessor in interest to CHMC (the
"Promissory Note") and relates to earlier litigation between Allen-Williams and
CHMC. Allen-Williams alleges that a transfer of certain management contracts by
CHMC to the Old Management Company was a fraudulent conveyance that rendered
CHMC insolvent or unable to pay its liabilities under the Promissory Note and
that CHMC and the other named defendants engaged in certain misrepresentations,
including those resulting in certain violations of the Racketeer Influenced and
Corrupt Organizations Act ("RICO"). Allen-Williams seeks to set aside the
alleged fraudulent conveyance to the extent necessary to pay the indebtedness
owed by CHMC, plus damages (including punitive and treble damages). Liability
for payment of the Promissory Note was not transferred to or assumed by
predecessors to the Company. CHMC has agreed to indemnify the Company's
predecessors (and hence the Company) with respect to this litigation. The
Company does not believe that the outcome of this matter will have a material
adverse effect on its financial condition.
In addition to the above proceedings, the Company is involved in various
lawsuits arising in the normal course of business. The Company believes that the
ultimate outcome of such lawsuits and proceedings will not, individually or in
the aggregate, have a material adverse effect on the results of operations or
financial condition of the Company; however, there can be no assurance that this
will be the case.
INSURANCE
Each of the Company's hotels is covered by comprehensive insurance
policies, including liability, fire and extended coverage and, where applicable,
flood and earthquake coverage. The Company believes that such coverage is of the
type and amount customarily obtained by hotel owners. In addition, the Company
has the types of insurance coverage, including comprehensive general liability
and excess umbrella liability insurance, that it believes are appropriate for a
company in the hotel management business. Subject to the requirements
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of any management contracts and the Revolving Credit Agreement to maintain
certain levels of insurance, the Board of Directors will use its discretion in
determining the amounts, coverage limits and deductibility provisions of
insurance, with a view to maintaining appropriate insurance coverage on the
Company's hotel properties at a reasonable cost and on suitable terms. This
might result in insurance coverage that, in the event of a substantial loss,
would not be sufficient to pay the full current market value or current
replacement cost of a damaged property.
The Company operates seven Wyndham brand hotel properties (six managed and
one leased) in the Los Angeles, California area that are currently insured
against earthquake damage under an insurance policy maintained by the Company.
The Company has been advised by its insurance underwriters, however, that if the
Company were to add an additional hotel in the Los Angeles area, it is possible
that the Company would not be able to obtain earthquake insurance for such hotel
under the Company's current policy. In such event, the Company would seek to
obtain separate earthquake coverage for the additional hotel, which may not be
economically feasible.
ENVIRONMENTAL MATTERS
Under various federal, state, local and foreign environmental laws,
ordinances and regulations, a current or previous owner or operator of real
property may be liable for the cost of removal or remediation of hazardous or
toxic substances on, under or in such property. Such laws often impose liability
without regard to whether the owner or operator knew of, or was responsible for,
the release of such hazardous or toxic substances. The presence of contamination
from hazardous or toxic substances, or the failure to remediate such
contaminated property properly, may adversely affect the owner's ability to sell
or rent such real property or to borrow using such real property as collateral.
Persons who arrange for the disposal or treatment of hazardous or toxic
substances also may be liable for the cost of removal or remediation of such
substances at the disposal or treatment facility, whether or not such facility
is or ever was owned or operated by such person. The operation and removal of
certain underground storage tanks also are regulated by federal and state laws.
In connection with the ownership and operation of its hotel properties,
including properties owned, as well as leased, managed, or franchised by the
Company, the Company could be held liable for the cost of remedial action with
respect to such regulated substances and storage tanks and claims related
thereto. In addition to clean-up actions brought by federal, state and local
agencies, the presence of hazardous or toxic substances on a hotel property also
could result in personal injury or similar claims by private plaintiffs. As the
current owner or long-term lessee of 18 hotel properties, as the manager of 47
hotel properties and as the franchisor of 3 hotel properties Wyndham, and any
subsidiary involved in the ownership, leasing, management or franchising of
hotel properties, will be subject to this full range of environmental issues and
potential liability.
To manage some of these risks, Wyndham provides in nearly all of its
management contracts that the owner of the hotel indemnifies Wyndham against any
environmental liabilities, except any caused by varying degrees of Wyndham's
negligence or by Wyndham's willful misconduct or willful violation of legal
requirements. See "-- Management Contracts."
Under the GHALP Lease, the Company has agreed to indemnify HPT, the hotel
mortgagees and their agents and assigns against costs resulting from the
presence during the lease term of any hazardous substances in, upon or under the
soil or groundwater of the leased property or any properties surrounding the
leased property in violation of any law or regulation, provided that the costs
arise due to the failure by the Company to perform or comply in accordance with
all laws and orders applicable to the storage, use, maintenance, spillage,
disposition or transfer of hazardous substances or certain lease provisions
requiring notice of environmental-related events and activities to be given to
HPT, except to the extent such costs arise from the acts or omissions of HPT or
any other indemnified party or during any period that HPT is in possession of
the leased property.
Periodically, the Company may agree to indemnify lenders of non-recourse
indebtedness secured by certain hotel properties against liabilities arising
from violations of environmental laws or regulations.
The Company recently received environmental site assessments, which
generally include a physical inspection, but in most instances no soil or
groundwater analyses, on 18 hotel properties owned or leased by the Company (the
"Recent Environmental Assessments").
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In addition to the 18 Recent Environmental Assessments, the Company
previously received other environmental information with respect to some but not
all of the 18 hotel properties owned or leased by it prior to acquiring an
interest in the property and the Company also received environmental information
concerning some, but not all, of the managed or franchised properties prior to
entering into management or franchising contracts with respect to these
properties. (collectively, the "Prior Environmental Information").
Asbestos-containing building materials ("ACM") are present in several of
the hotel buildings owned, operated, or managed by the Company. The Company has
an operations and maintenance plan in place, or is in the process of
implementing a plan, establishing operating procedures with respect to such
ACMs. The Company believes that these materials are currently adequately managed
and contained and that any cost related to managing or disposing of ACM will not
have a material adverse effect on the Company.
Some of the properties owned, operated or managed by the Company are on,
adjacent to or near properties that have contained in the past or currently
contain underground and/or above-ground storage tanks used to store regulated
substances such as petroleum products or other hazardous or toxic substances.
Some of the properties owned, operated or managed by the Company are in the
vicinity of properties which are currently or have been subject to releases of
regulated substances and remediation activity, and the Company is currently
aware of several properties owned, operated or managed by the Company which may
be impacted by regulated substances which may have migrated from adjacent or
nearby properties or which may be within the borders of areas suspected to be
impacted by regional groundwater contamination. In addition, the Company is
aware of the presence or the potential presence of regulated substances in the
soil or groundwater at several properties owned, operated or managed by it which
may have resulted from historical or ongoing activities on those properties.
Based on the information available to date, the Company believes that the
environmental issues described above will not have a material adverse effect on
the Company.
The Recent Environmental Assessments and the Prior Environmental
Information do not constitute an assurance or guarantee by the Company or any
other person as to the presence or absence of any type of environmental problem
in, on, under or around the hotel properties. Also, on many of the managed and
franchised properties, the Company has not performed or received the results
from any environmental investigations. Given the specific nature and limited
scope of the environmental information obtained by the Company to date, the
environmental issues described above may be more severe than indicated and
environmental problems may exist that have not been uncovered.
As a result of the foregoing limitations on performing environmental
investigation and due to the fact that Environmental Laws and conditions are
subject to frequent change, there can be no assurance that environmental
liabilities or claims will not adversely affect the Company in the future.
The Company has no current plans to undertake further steps, other than
those described in the Recent Environmental Assessments, to assess environmental
liabilities with respect to hotel properties owned, leased, managed or
franchised by it. These Recent Environmental Assessments were performed by a
qualified environmental engineering firm and were performed in accordance with a
scope of work that meets and exceeds the "Standard Practice for Environmental
Site Assessments: Phase I Environmental Site Assessment Process," Designation
E1527, promulgated by the American Society for Testing and Materials. In the
majority of the reports, the consultant concluded that no further investigation
of any material environmental issue is warranted, and the Company concurs with
this conclusion. The Company does intend to follow the recommendations contained
in the Recent Environmental Assessments concerning management practices and
on-site conditions at two sites, implementation of an operations and maintenance
plan with respect to asbestos containing materials at two sites, and
registration of drywells at several sites. The Company does not believe that any
of these issues are material.
The Company has no current plans to assess any potential environmental
liabilities at managed or franchised properties. The Company believes that no
assessment is warranted because the risk of environmental liability being
imposed on it for environmental issues at hotel properties that it does not own
or lease, but merely manages or franchises, is lower. The Company believes the
risk of environmental liability is lower for three principal reasons. First,
because the nature of hotel management does not involve the handling of
hazardous substances, except in small, manageable quantities found in consumer
products and used for
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janitorial or maintenance purposes, the Company's management activities are
unlikely to create or contribute to an environmental problem. The possibility of
creating or contributing to an environmental problem is even more remote in
connection with a franchised hotel property because the Company is not even
present on the property. Second, because the Company is unlikely to have created
or contributed to an environmental problem at a hotel property, the Company
believes that, from a legal standpoint, it would either have a defense to any
claim for liability arising from an environmental problem not caused or
contributed to by it, or it would have an effective right of contribution under
various environmental statutes against the owner of the managed or franchised
property. In addition, in nearly all of its management agreements, the Company
is indemnified by the owner against all environmental problems not caused or
created by the Company. Third, the Company believes that the managed and the
franchised hotels are being operated in material compliance with environmental
laws. Based on its experience with managing many of the properties over a number
of years, the Company believes that it is aware of the environmental conditions
at these sites and of the types of issues that may arise at other sites, and
that it can appropriately manage any environmental issues that may arise from
operations in the future. Therefore, because the risk of liability arising from
the existence of an environmental problem at a managed or franchised property is
lower, the Company does not believe that the assessment of these properties is
warranted.
GOVERNMENT REGULATION
The hotel industry is subject to numerous federal, state and local
government regulations, including those relating to the preparation and sale of
food and beverages (such as health and liquor license laws) and building and
zoning requirements. The Company also is subject to laws governing its
relationship with employees, including minimum wage requirements, overtime,
working conditions and work permit requirements. In addition, the Company is
subject to federal regulations and certain state laws that govern the offer and
sale of franchises. The Company believes that it has the necessary permits and
approvals to operate each of its hotels and their respective businesses.
Under the Americans with Disabilities Act of 1990 (the "ADA"), all public
accommodations are required to meet certain federal requirements related to
access and use by disabled persons. While the Company believes that its hotels
are substantially in compliance with these requirements, a determination that
the Company is not in compliance with the ADA could result in the imposition of
fines or an award of damages to private litigants. While the Company may be
required to incur additional costs of complying with the ADA in the future, the
Company does not expect such costs to have a material adverse effect on the
Company's financial condition or results of operations.
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MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
Set forth below is information concerning the directors, director nominees
and executive officers of the Company:
<TABLE>
<CAPTION>
NAME AGE POSITION WITH COMPANY
- ------------------------------ --- -----------------------------------------------
<S> <C> <C>
James D. Carreker............. 48 President, Chief Executive Officer and Director
Leslie V. Bentley............. 45 Executive Vice President and Wyndham Garden
Division President
Eric A. Danziger.............. 44 Executive Vice President and Wyndham Hotels and
Resorts Division President
Anne L. Raymond............... 38 Executive Vice President, Chief Financial
Officer and Director
Stanley M. Koonce, Jr......... 47 Executive Vice President -- Marketing, Planning
and Technical Services
Carla S. Moreland............. 36 Vice President -- General Counsel and Secretary
Glen H. Griffith.............. 61 Vice President -- Chief Information Officer
John vanHartesvelt............ 43 Vice President -- Development
Edward L. Stahl............... 52 Vice President -- Marketing
Susan R. Bolger............... 42 Vice President -- Human Resources
John P. Klumph................ 40 Vice President -- Corporate Controller
John J. Kelly................. 47 Vice President -- Technical Services
Harlan R. Crow................ 46 Director
Daniel A. Decker.............. 43 Director
Susan T. Groenteman........... 41 Director
Robert A. Whitman............. 42 Director
</TABLE>
JAMES D. CARREKER has served as President and Chief Executive Officer of
the Company since May 1988 and as a director of the Company since February 1996.
He also served as Chief Executive Officer of Trammell Crow Company, an
affiliated entity and national real estate company, from August 1994 to December
1995. Prior to 1988, Mr. Carreker served as President of Burdine's, the Miami
based division of Federated Department Stores.
LESLIE V. BENTLEY has been employed by the Company since March 1985 and has
served as Executive Vice President and Wyndham Garden Division President of the
Company since May 1990. From January 1987 to June 1988, Mr. Bentley served as
Regional Vice President of the Company. From June 1988 to December 1988, Mr.
Bentley served as Vice President of Operations of the Company, and from December
1988 to May 1990, he served as Senior Vice President of Operations of the
Company. Prior to joining the Company, Mr. Bentley was employed by Marriott
Hotels for eight years.
ERIC A. DANZIGER has served as Executive Vice President and Wyndham Hotels
and Resorts Division President of the Company since August 1990. Prior to
joining the Company, Mr. Danziger served as Senior Vice President of Operations
of MetHotels, Inc. from December 1979 to August 1990, where he oversaw
operations of all Doubletree and Compri hotels. Prior to his 11 years with
Doubletree, Mr. Danziger held various management positions with several hotel
companies, including the Opryland Hotel in Nashville, Tennessee, Sheraton
Hotels, Adams Mark and Fairmont Hotels.
ANNE L. RAYMOND joined the Company in 1983 as Controller and served in that
and other financial capacities through September 1987. From September 1987 to
July 1994, she served as Investment Manager for Crow Family Holdings, an
affiliated entity, where her responsibilities included managing and overseeing
Crow Family Holdings' interests in the Trammell Crow Company, an affiliated
entity, and Wyndham. Upon the formation of the Crow Investment Trust in August
1994, Ms. Raymond was named Director -- Capital Markets thereof and had
responsibility for developing and maintaining investment relationships with real
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estate capital sources. In March 1995, Ms. Raymond officially rejoined the
Company as Executive Vice President and Chief Financial Officer, and was elected
a director of the Company in April 1996.
STANLEY M. KOONCE, JR. has served as Executive Vice President -- Marketing,
Planning and Technical Services of the Company since October 1994 and served as
Senior Vice President of Sales and Marketing of the Company from October 1989 to
October 1994. Mr. Koonce served as President of CUC Travel Services, a division
of CUC International, in Stamford, Connecticut from 1986 to 1989, as Vice
President of the Marketing Department with American Express from 1979 to 1986
and as a Director of Finance and Planning for American Airlines from 1976 to
1979.
CARLA S. MORELAND has served as Vice President -- General Counsel of the
Company since April 1994 and as Secretary since March 1996. From 1988 to 1994,
Ms. Moreland practiced law with Weil, Gotshal & Manges in Dallas, Texas, and
from 1984 through 1987, she practiced law with Freytag, Perry, LaForce,
Rubinstein & Teofan in Dallas, Texas.
GLEN H. GRIFFITH has served as Vice President -- Chief Information Officer
of the Company since March 1995. He has also served as Chief Information Officer
of Trammell Crow Company, an affiliated entity, and national real estate
company, since March 1995. From 1985 to March 1994, Mr. Griffith served as Chief
Executive Officer of Federated Systems Group, a division of Federated Department
Stores. From 1983 to 1985, Mr. Griffith served as Senior Vice President -- MIS
for both Sanger Harris Department Stores in Dallas, Texas and Burdine's
Department Stores in Miami, Florida, and from 1974 to 1983, he served as Senior
Vice President of Sanger Harris Department Stores in Dallas, Texas.
JOHN VANHARTESVELT has served as Corporate Vice President in charge of
Development of the Company since July 1990. Mr. vanHartesvelt served as Vice
President -- Development of the Company from February 1989 to July 1990, as Vice
President of Planning and Development of Residence Inn from 1982 to 1984, as
founder and President of Hawthorn Suites from 1984 to 1986, and as President of
Eagle Hotel Group, Inc. from 1986 to 1989. Mr. vanHartesvelt also served as a
consultant for Laventhol & Horwath in Dallas, Texas for five years.
EDWARD L. STAHL has served as Vice President -- Marketing of the Company
since December 1995. From 1986 to 1995, Mr. Stahl served as Vice President of
Advertising and Marketing Programs for the Sheraton Corporation, where he
directed Sheraton's corporate advertising, Frequent Traveler and Partner
Marketing Programs. From 1979 to 1986, Mr. Stahl served as Vice President of
Consumer Marketing for Epsilon Data Management in Burlington, Massachusetts.
From 1975 to 1979, Mr. Stahl held several marketing management positions with
both Holiday Inns, Inc. and United Airlines.
SUSAN R. BOLGER has served as Vice President -- Human Resources of the
Company since November 1994. From 1992 to 1994, Ms. Bolger served as Vice
President of Human Resources for Arrow Industries, a Con Agra Subsidiary. From
1986 to 1992, Ms. Bolger served as Vice President of Human Resources and
Corporate Services for Aetna and Partners National Health Plans, a managed care
health services organization. From 1979 to 1986, Ms. Bolger served as Director
and Vice President of Human Resources of Pearle Vision, Inc., a division of G.
D. Searle.
JOHN P. KLUMPH has been employed by the Company since February 1988 and has
served as Vice President -- Corporate Controller of the Company since 1989.
Prior to joining the Company, Mr. Klumph served as Director of Hotel Accounting
for Lincoln Hotel Company in Dallas, Texas from 1986 to 1988 and as Controller
and Assistant Controller for the Sheraton Corporation in Washington D.C. from
1982 to 1986.
JOHN J. KELLY has served as Vice President -- Technical Services since
February 1996. From 1992 to January 1996, Mr. Kelly was Vice President of
Marketing for the Orlando office of McDevitt Street Bovis, Inc., a national
construction company, where he had responsibility for managing the marketing and
operations of the hospitality group. Mr. Kelly served as Director of
Construction for ITT Sheraton Corporation from 1989 to 1992, and as Vice
President of Design & Construction for Ramada International from 1987 until
1989. Mr. Kelly served in a variety of positions within Holiday Corporation from
1973 until 1987, and was the Vice President of Construction Management for
Holiday Corporation from 1983 to 1987.
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HARLAN R. CROW is a director of the Company. Mr. Crow is the chief
executive officer of Crow Family Holdings, an investment company managing
investments in a variety of real estate related and other businesses, a position
he has held since 1986. Prior to 1986, Mr. Crow was a Regional Partner in the
office building unit of Trammell Crow Company, a commercial real estate
management and development company. Mr. Crow is a former member of the Board of
Directors of Texas Commerce Bancshares, a banking institution. In any given year
within the past five years, Mr. Crow has indirectly owned interests in over
1,000 partnerships (or affiliates of partnerships) or corporations. In the past
five years, Mr. Crow was a general partner, officer or director in approximately
75 partnerships or corporations, or affiliates of such partnerships or
corporations, that filed for protection under federal bankruptcy laws. In
addition, in the past five years, Mr. Crow was a general partner, executive
officer or director in approximately 15 partnerships or corporations, or
affiliates of such partnerships or corporations, that were placed in
receivership.
DANIEL A. DECKER is a director of the Company. Mr. Decker has been a
partner of Hampstead since 1990. Prior to 1990, Mr. Decker was a partner in the
Dallas law firm of Decker, Hardt, Kopf, Harr, Munsch & Dinan, P.C. Mr. Decker
was a director of Forum Group from June of 1993 until March of 1996. Mr. Decker
has been a director of Bristol since February 1995 and will resign from that
position immediately prior to the consummation of the Offerings.
SUSAN T. GROENTEMAN is a director of the Company. Ms. Groenteman is the
Director (chief operating officer) of Crow Family Holdings, an investment
company managing investments in a variety of real estate related businesses,
along with other industries, a position she has held since 1988. From 1986
through 1988, Ms. Groenteman was Controller of Crow Family Holdings. Ms.
Groenteman served in a variety of positions for Crow Hotel Company, a
predecessor to the Company. In any given year within the past five years, Ms.
Groenteman has served as an executive officer or director in over 1,000
partnerships (or affiliates of partnerships) or corporations. In the past five
years, Ms. Groenteman has served as an executive officer or director of
approximately 75 partnerships or corporations, or for affiliates of such
entities, that filed for protection under federal bankruptcy laws. In addition,
in the past five years, Ms. Groenteman served as an executive officer or
director in approximately 15 partnerships or corporations, or affiliates of such
partnerships or corporations, that were placed in receivership.
ROBERT A. WHITMAN is a director of the Company. Mr. Whitman has since 1991
been President and Co-Chief Executive Officer of Hampstead, an investment firm,
which indirectly through Bedrock is a significant stockholder of the Company, as
well as being a stockholder of Bristol Hotel Company, a company listed on the
New York Stock Exchange ("Bristol"), and other companies not involved in the
lodging business. See "Risk Factors -- Conflicts of Interest,"
"Business -- Growth Strategy," "Certain Relationships and Transactions" and
"Principal Stockholders." Prior to 1991, Mr. Whitman served as the Managing
Partner and Chief Executive Officer of Trammell Crow Ventures, the real estate
investment, banking and investment management unit of Trammell Crow Company,
and, from 1988 to 1992, Mr. Whitman also served as Chief Financial Officer for
Trammell Crow Company, an affiliated entity. Mr. Whitman is a director of Forum
Group, Inc., a company traded on the Nasdaq Stock Market that is engaged in the
ownership and operation of senior living facilities. Mr. Whitman has been a
Director and Vice Chairman of the Board of Bristol since February 1995 and will
resign from that position immediately prior to the consummation of the
Offerings.
Pursuant to the terms of the Stockholders' Agreement, the Crow Family
Members, Senior Executive Officers, WEL and Ms. Groenteman on the one hand, and
Bedrock on the other hand, agree to allocate between themselves the right to
nominate directors to serve on the Company's Board of Directors (and its
constituent committees) based on their proportionate ownership of shares of
Common Stock. See "Description of Capital Stock -- Stockholders' Agreement."
The Company's Certificate of Incorporation and By-laws provide for three
classes of directors. Messrs. Crow and Carreker are the Class I directors and
will serve until the meeting of stockholders in 1997; Ms. Groenteman and Mr.
Whitman are the Class II directors and will serve until the meeting of
stockholders in 1998; and Ms. Raymond and Mr. Decker are the Class III directors
and will serve until the meeting of stockholders in 1999. One Independent
Director will be appointed to each Class of the Board of Directors.
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After these directors' initial terms expire, newly elected directors shall serve
for a three year term or until their successors are duly elected and qualified.
The Company's Board of Directors intends to appoint three additional
directors that will be Independent Directors. Pursuant to the terms of the
Stockholders' Agreement, the Board members originally nominated by Crow Family
Members, Senior Executive Officers, WEL and Ms. Groenteman are entitled to
appoint two Independent Directors, and the Board members originally nominated by
Bedrock will be entitled to appoint one Independent Director. See "Description
of Capital Stock -- Stockholders' Agreement." The Company expects that at least
one of these directors will be appointed within 90 days following the Offering,
and that the remaining two directors will be appointed within one year of the
Offering. Immediately following the appointment of the second Independent
Director, the Board of Directors will establish an Audit Committee.
COMPENSATION AND OTHER COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
During 1995, the Company had no Compensation Committee or other committee
of the Board of Directors performing similar functions. Decisions concerning the
compensation of executive officers, including that of Mr. Carreker, were
collectively made by Messrs. Carreker and Crow. The Board of Directors intends
to establish a Compensation Committee shortly following completion of the
Offering.
Certain directors or director nominees are parties to transactions with the
Company, as described under the caption "Certain Relationships and Transactions"
below.
EXECUTIVE COMPENSATION
The following table sets forth summary information for 1995 regarding the
compensation awarded to, earned by, or paid to the Chief Executive Officer of
the Company and the four other most highly compensated executive officers of the
Company whose total annual salary and bonus earned during such period exceeded
$100,000.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION(1)
NAME AND ----------------------- ALL OTHER
PRINCIPAL POSITION YEAR SALARY BONUS COMPENSATION(2)
- ------------------------------------------- ---- -------- -------- ---------------
<S> <C> <C> <C> <C>
James D. Carreker.......................... 1995 $200,000(3) $ 90,000(4) $ 385
President, Chief Executive Officer
and Director
Leslie V. Bentley.......................... 1995 $200,000 $120,000 $ 3,000
Executive Vice President and Wyndham
Garden Division President
Eric A. Danziger........................... 1995 $200,000 $ 90,000 $ 609,967(5)
Executive Vice President and Wyndham
Hotels and Resorts
Division President
Stanley M. Koonce, Jr...................... 1995 $175,000 $ 68,250 $ 3,000
Executive Vice President -- Marketing,
Planning and Technical Services
Anne L. Raymond............................ 1995 $161,827(6) $ 75,000 $ 678,748(5)
Executive Vice President,
Chief Financial
Officer and Director
</TABLE>
- ---------------
(1) None of the named executive officers received any perquisites or other
personal benefits in 1995 that in the aggregate exceeded the lesser of
$50,000 or 10% of such named executive officer's salary and bonus for such
year.
(2) Consists of contributions by the Company to the Company's 401(k) plan.
(3) Mr. Carreker also served throughout 1995 as Chief Executive Officer of
Trammell Crow Company, an affiliated entity and national real estate
company, and was compensated separately by Trammell Crow Company for such
services.
(4) Mr. Carreker has voluntarily elected to return to the Company $12,000 of
such bonus through equal monthly reductions to his 1996 salary.
(5) Non-cash compensation was reported and recorded for Mr. Danziger and Ms.
Raymond in the amounts of $606,967 and $678,748, respectively, reflecting
compensation relating to equity participation in the Old Management Company
and other affiliated entities, which equity was purchased at fair market
value. In accordance with generally accepted accounting principles, in 1995
no equity participation compensation expense was required to be reported or
recorded for Messrs. Carreker, Bentley or Koonce.
(6) Ms. Raymond rejoined the Company on March 1, 1995 and her 1995 compensation
therefore reflects only 10 months of service to the Company.
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1996 LONG TERM INCENTIVE PLAN
Scope. The Board of Directors and stockholders of the Company have approved
the Wyndham Hotel Corporation 1996 Long Term Incentive Plan (the "Incentive
Plan"). The Incentive Plan authorizes the granting of incentive stock options
and non-qualified stock options to purchase Common Stock, stock appreciation
rights, restricted stock and performance units, to key executives and other key
employees of the Company, including officers of the Company and its
subsidiaries. The purpose of the Incentive Plan is to attract and retain key
employees, to motivate key employees to achieve long-range goals and to further
identify the interests of key employees with those of the other stockholders of
the Company.
The Incentive Plan authorizes the award of 2,133,811 shares of Common Stock
to be used for stock options, stock appreciation rights or restricted stock. If
an award made under the Incentive Plan expires, terminates or is forfeited,
cancelled or settled in cash, without issuance of shares of Common Stock covered
by the award, those shares will be available for future awards under the
Incentive Plan. The Incentive Plan will terminate on December 31, 2005.
Administration. The Incentive Plan will be administered by the Board of
Directors or, if directed by the Board of Directors, the Compensation Committee
or any successor thereto of the Board of Directors of the Company (the Board of
Directors or, if applicable, the Compensation Committee is referred to herein as
the "Compensation Committee"). Subject to the provisions of the Incentive Plan,
the Compensation Committee will have the authority to select employees to
receive awards, to determine the time or times of receipt, to determine the
types of awards and the number of shares covered by the awards, to establish the
terms, conditions and provisions of such awards, to determine the value of
performance units, and to cancel or suspend awards. In making such award
determinations, the Compensation Committee may take into account the nature of
services rendered by the employee, his or her present and potential contribution
to the Company's growth and success and such other factors as the Compensation
Committee deems relevant. The Compensation Committee is authorized to interpret
the Incentive Plan, to establish, amend and rescind any rules and regulations
relating to the Incentive Plan, to determine the terms and provisions of any
agreements made pursuant to the Incentive Plan and to make all other
determinations that may be necessary or advisable for the administration of the
Incentive Plan.
Eligibility. Executive and other key employees of the Company and its
subsidiaries may be selected by the Compensation Committee to receive awards
under the Incentive Plan. The Incentive Plan provides that no more than 500,000
shares of Common Stock may be subject to awards granted per year to any one
employee participating in the Incentive Plan. In the discretion of the
Compensation Committee, an eligible employee may receive an award in the form of
a stock option, stock appreciation right, restricted stock award or performance
unit or any combination thereof, and more than one award may be granted to an
eligible employee.
Stock Options. The Incentive Plan authorizes the award of both incentive
stock options ("ISOs") and nonqualified stock options. Under the Incentive Plan,
an option may be exercised at any time during the exercise period established by
the Compensation Committee, except that: (i) no option may be exercised prior to
the expiration of six months from the date of grant; (ii) no option may be
exercised more than three months after employment with the Company or any of its
subsidiaries terminates by reason other than death, disability or authorized
leave of absence for military or government service; and (iii) no option may be
exercised more than one year after employment with the Company or any of its
subsidiaries terminates by reason of death or disability. The aggregate fair
market value (determined at the time of the award) of the Common Stock with
respect to which ISOs are exercisable for the first time by any employee during
any calendar year may not exceed $100,000. The term of each option is determined
by the Compensation Committee, but in no event may such term exceed 10 years
from the date of grant (or 5 years in the case of ISOs granted to stockholders
owning 10% or more of the Company's outstanding shares of Common Stock). The
exercise price of options is determined by the Compensation Committee, but the
exercise price of ISOs cannot be less than the fair market value of the Common
Stock on the date of the grant (or 110% of the fair market value of the Common
Stock on the date of grant in the case of ISOs granted to stockholders owning
10% or more of the Company's outstanding shares of Common Stock). The exercise
price of options may be paid in cash or, with the
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<PAGE> 101
Compensation Committee's approval, in shares of Common Stock. Grants of options
do not entitle any optionee to any rights as a stockholder, and such rights will
accrue only as to shares actually purchased through the exercise of an option.
The Company's Board of Directors expects to grant options to purchase an
aggregate of 797,700 shares of Common Stock under the Incentive Plan to certain
key personnel prior to the date of this Prospectus. The exercise price of all
such options will be equal to the initial public offering price of the Common
Stock in the Equity Offering. The Board of Directors expects to grant options
covering 130,000 shares of Common Stock to Mr. Carreker, and options covering
60,000 shares of Common Stock to each of Messrs. Bentley, Danziger and Koonce,
and Ms. Raymond, as part of the foregoing grant of options. All such options
will vest 20% on the third anniversary of the date of grant, 50% on the fourth
anniversary of the date of grant and 100% on the fifth anniversary of the date
of grant.
Stock Appreciation Rights. The Incentive Plan authorizes the grant of both
primary stock appreciation rights ("SARs") and additional SARs. Primary SARs may
be granted either separately or in tandem with options. Primary SARs entitle the
holder to receive an amount equal to the difference between the fair market
value of a share of Common Stock at the time of exercise of the SAR and the
option price (or deemed option price in the event of an SAR that is not granted
in tandem with an option), multiplied by the number of shares of Common Stock
subject to the option or deemed option as to which the SAR is being exercised
(subject to the terms and conditions of the option or deemed option). An SAR may
be exercised at any time when the option to which it related may be exercised
and will terminate no later than the date on which the right to exercise the
tandem option (or deemed option) terminates (or is deemed to terminate). The
participating employee has the discretion to determine whether the exercise of
an SAR will be settled in cash, in Common Stock (valued at its fair market value
at the time of exercise) or in a combination of the two, subject to the approval
of the Compensation Committee in certain circumstances. The exercise of an SAR
requires the surrender of the tandem option, if any, and the exercise of a stock
option requires the surrender of the tandem SAR, if any.
Additional SARs may be granted only in tandem with stock options and
entitle the holder to receive an amount equal to the difference between the fair
market value of a share of Common Stock on the date of exercise of the related
option and the option price, multiplied by the number of shares of Common Stock
subject to the option as to which the SAR is being exercised (subject to the
terms and conditions of the option), multiplied by a percentage factor ranging
from 10% to 100% (as determined either by the Compensation Committee at the date
of grant or by the formula established by the Compensation Committee at the date
of grant).
If an SAR, or the corresponding option with which the SAR was awarded, is
not exercised prior to the date that it ceases to be exercisable, then such SAR
generally shall be deemed exercised as of such date and shall be paid to the
employee in cash. No SAR may be exercised more than three months after
employment with the Company or any of its subsidiaries terminates by reason
other than death, disability or authorized leave of absence for military or
government service. No SAR may be exercised more than 12 months after the
holder's employment with the Company and its subsidiaries terminates by reason
of death or disability.
Restricted Stock. Restricted stock awards are grants of Common Stock made
to employees subject to a required period of employment following the award (the
"Restricted Period") and any other conditions established by the Compensation
Committee. An employee will become the holder of shares of restricted stock free
of all restrictions if he or she completes the Restricted Period and satisfies
any other conditions; otherwise, the shares will be forfeited. Under the
Incentive Plan, the Restricted Period may not be more than ten years. The
employee will have the right to vote the shares of restricted stock and, unless
the Compensation Committee determines otherwise, will have the right to receive
dividends on the shares during the Restricted Period. The employee may not sell,
pledge or otherwise encumber or dispose of restricted stock until the conditions
imposed by the Compensation Committee have been satisfied. The Compensation
Committee may accelerate the termination of the Restricted Period or waive any
other conditions with respect to any restricted stock.
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<PAGE> 102
Performance Units. Performance units are awards that entitle the holder to
receive a specified value for the units at the end of a performance period
established by the Compensation Committee if performance measures established by
the Compensation Committee at the beginning of the performance period are met.
Although the performance measures and performance period will be determined by
the Compensation Committee at the time of the award of performance units, they
may be subject to such later revision as the Compensation Committee deems
appropriate to reflect significant events or changes. If the employment of a
holder of a performance unit with the Company or a subsidiary terminates by
reason of death, disability or retirement, then the Company will pay the
employee or his or her beneficiary or estate the amount of the performance unit
earned as of the date of termination. If the employment of a holder of a
performance unit with the Company or a subsidiary terminates for any other
reason, then the performance units held by such holder will automatically be
forfeited.
Adjustments. In the event of any change in the outstanding shares of Common
Stock by reason of any stock dividend, split, spinoff, recapitalization, merger,
consolidation, combination, exchange of shares or other similar change, the
aggregate number of shares with respect to which awards may be made under the
Incentive Plan, and the terms and the number of shares of any outstanding
option, SAR, performance unit or restricted stock, may be equitably adjusted by
the Compensation Committee in its sole discretion.
Business Combinations. Unless provision is otherwise made in the terms of
the award granted by the Compensation Committee, or by the terms of the
agreement with respect to the business combination, in the event of a change in
control of the Company (as defined), all outstanding stock options, SARs,
restricted stock and performance units shall terminate, provided that the
holders of any options or SARs may exercise such awards to the extent then
vested immediately prior to any such event and the holders of any performance
units shall be entitled to the then vested values of such units as of such date.
Termination and Amendment. The Incentive Plan may be suspended, terminated
or amended by the Board of Directors, provided that, in the absence of
stockholder approval, no amendment of the Incentive Plan or action of the Board
of Directors may materially increase the total number of shares of Common Stock
with respect to which awards may be made under the Incentive Plan (except as
discussed in "Adjustments" above), change the exercise price of a stock option
or the base price of an SAR, materially modify the requirements as to
eligibility for participation in the Incentive Plan or materially increase the
benefits accruing to participants under the Incentive Plan. No amendment,
suspension or termination of the Incentive Plan may alter or impair any option,
SAR, share of restricted stock or performance unit previously awarded under the
Incentive Plan without the consent of the holder thereof.
Estimation of Benefits. The amounts that will be paid pursuant to the
Incentive Plan during fiscal 1996, as stock option awards to individuals and
groups are reflected in the following table.
<TABLE>
<CAPTION>
NAME AND POSITION STOCK OPTIONS
------------------------------------------------------------------------ -------------
<S> <C>
James D. Carreker (1)................................................... 130,000
President, Chief Executive Officer and Director
Leslie V. Bentley....................................................... 60,000
Executive Vice President and Wyndham Garden Division President
Eric A. Danziger........................................................ 60,000
Executive Vice President and Wyndham Hotels and Resorts Division
President
Anne L. Raymond (1)..................................................... 60,000
Executive Vice President, Chief Financial Officer and Director
Stanley M. Koonce, Jr................................................... 60,000
Executive Vice President -- Marketing, Planning and Technical Services
Executive Officer Group................................................. 370,000
Non-Executive Officer Employee Group.................................... 427,700
</TABLE>
- ---------------
(1) Mr. Carreker and Ms. Raymond are directors.
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Federal Income Tax Consequences. The following summary of the federal
income tax consequences of the Incentive Plan is not comprehensive and is based
on current income tax laws, regulations and rulings. Optionees are urged to
consult their own tax advisors concerning the federal income tax consequences of
the Incentive Plan.
Incentive Stock Options. An optionee does not recognize income on the
grant of an incentive stock option. Subject to the effect of the
alternative minimum tax, discussed below, if an optionee exercises an ISO
stock option in accordance with the terms of the ISO and does not dispose
of the shares acquired within two years from the date of the grant of the
ISO nor within one year from the date of exercise, the optionee will not
realize any income by reason of the exercise and the Company will be
allowed no deduction by reason of the grant or exercise. The optionee's
basis in the shares acquired upon exercise will be the amount paid upon
exercise. Provided the optionee holds the shares as a capital asset, at the
time of sale or other disposition of the shares, his gain or loss, if any,
recognized on the sale or other disposition will be capital gain or loss.
The amount of his gain or loss will be the difference between the amount
realized on the disposition of the shares and his basis in the shares.
If an optionee disposes of the shares within two years from the date
of grant of the option or within one year from the date of exercise (an
"Early Disposition"), the optionee will realize ordinary income at the time
of such Early Disposition, which will equal the excess, if any, of the
lesser of (1) the amount realized on the Early Disposition or (2) the fair
market value of the shares on the date of exercise, over the optionee's
basis in the shares. The Company will be entitled to a deduction in an
amount equal to such income. The excess, if any, of the amount realized on
the Early Disposition of such shares over the fair market value of the
shares on the date of exercise will be long-term or short-term capital
gain, depending upon the holding period of the shares, provided the
optionee holds the shares as a capital asset at the time of Early
Disposition. If an optionee disposes of such shares for less than his basis
in the shares, the difference between the amount realized and his basis
will be a long-term or short-term capital loss, depending upon the holding
period of the shares, provided the optionee holds the shares as a capital
asset at the time of disposition.
The excess of the fair market value of the shares at the time the
incentive stock option is exercised over the exercise price for the shares
is an item of "tax preference" as such term is used in the Code (the "Stock
Option Preference").
Nonqualified Stock Options. Nonqualified stock options do not qualify
for the special tax treatment accorded to incentive stock options under the
Code. Although an optionee does not recognize income at the time of the
grant of the option, he recognizes ordinary income upon the exercise of a
nonqualified option in an amount equal to the difference between the fair
market value of the stock on the date of exercise of the option and the
amount of the exercise price. The optionee's basis in the shares acquired
will be the amount paid upon exercise. When the optionee disposes of such
shares, his gain or loss, if any, will be long-term or short-term capital
gain or loss, depending on the holding period of his shares. The amount of
his gain or loss will be the difference between the amount realized on the
disposition of the shares and his basis in the shares.
As a result of the optionee's exercise of a nonqualified stock option,
the Company will be entitled to deduct as compensation an amount equal to
the amount included in the optionee's gross income. The Company's deduction
will be taken in the Company's taxable year in which the option is
exercised.
The excess of the fair market value of the stock on the date of
exercise of a nonqualified stock option over the exercise price is not an
item of tax preference.
Appreciation Rights. Recipients of SARs do not recognize income upon
the grant of such an award. When a participant elects to receive payment
under an SAR, he recognizes ordinary income in an amount equal to the cash
and/or fair market value of shares received, and the Company is entitled to
a deduction equal to such amount.
Restricted Stock; Performance Units. Grantees of restricted stock and
performance units do not recognize income at the time of the grant of such
stock or units. However, when shares of restricted stock
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become free from any restrictions or when performance units are paid,
grantees recognize ordinary income in an amount equal to the cash and the
fair market value of the stock on the date all restrictions are satisfied.
Alternatively, the grantee of restricted stock may elect to recognize
income upon the grant of the stock and not at the time the restrictions
lapse.
Taxation of Preference Items. Section 55 of the Code imposes an
alternative minimum tax equal to the excess, if any, of (1) 26% of the
optionee's "alternative minimum taxable income" that does not exceed
$175,000, plus 28% of his "alternative minimum taxable income" in excess of
$175,000, over (2) his "regular" federal income tax. Alternative minimum
taxable income is determined by adding the optionee's Stock Option
Preference and any other items of tax preference to the optionee's adjusted
gross income and then subtracting certain allowable deductions and an
exemption amount. The current exemption amount is $33,750 for single
taxpayers, $45,000 for married taxpayers filing jointly, and $22,500 for
married taxpayers filing separately. However, these exemption amounts are
phased out beginning at certain levels of alternative minimum taxable
income.
Change of Control. If there is an acceleration of the vesting of
benefits and/or an acceleration of the exercisability of stock options upon
a change of control (as defined in the Incentive Plan), all or a portion of
the accelerated benefits may constitute "excess parachute payments" under
Section 280G of the Code. The employee receiving an excess parachute
payment incurs an excise tax of 20% of the amount of the payment in excess
of the employee's average annual compensation over the five calendar years
preceding the year of the change of control, and the Company is not
entitled to a deduction for such payment.
401(K) SAVINGS PLAN
The Company sponsors a retirement plan called the Wyndham Employee Savings
& Retirement Plan (the "401(k) Plan"). The total 401(k) Plan assets as of
December 31, 1995 were valued at $8,356,808. The trustee for the 401(k) Plan is
CG Trust Company. The 401(k) Plan permits employees to direct investments of
their accounts among a selection of 6 mutual funds. The Company intends to amend
the 401(k) Plan in the near future to also permit employees to direct the
investment of some or all of their accounts to purchase shares of Common Stock,
and to permit the Company to make any contributions to the 401(k) Plan in the
form of Common Stock. Employees (including members of management) are eligible
to make voluntary contributions of up to fifteen percent (15%) of their
compensation under the 401(k) Plan. The Company is permitted to make a
discretionary contribution to the 401(k) Plan each fiscal quarter which will be
allocated among participants as a matching contribution based on their
contributions under the 401(k) Plan. The 401(k) Plan is intended to qualify as a
profit sharing plan under Sections 401(a) and 401(k) of the Code.
WYNDHAM EMPLOYEES LTD. EQUITY PARTICIPATION PLAN
Scope. The Company established WEL to provide equity participation for
certain key employees. The Company believes that participation in WEL motivates
these employees to achieve long-range goals and identifies the interests of
these employees with those of the other stockholders of the Company. WEL holds
interests in WEL Properties. As a result of the Formation, a portion of WEL's
interests in certain of the WEL Properties will be exchanged for shares of the
Company's Common Stock, resulting in WEL owning 643,685 shares of the Company's
outstanding Common Stock after the Offering.
Administration. The Company's Senior Executive Officers administer WEL,
subject to certain restrictions contained in the Amended and Restated Agreement
of Limited Partnership of Wyndham Employees Ltd., dated December 31, 1993 (the
"WEL Agreement").
Eligibility. The WEL Agreement permits the Company to grant WEL limited
partnership interest units ("WEL Units") to eligible employees. The Company's
Senior Executive Officers may designate "eligible employees" from among the
executives, officers, directors, shareholders, and other key employees of the
Company. The Company may make more than one grant of WEL Units to an employee.
In making such grants, the Company may take into account the nature of the
services rendered by the employee, his present and potential contribution to the
Company's growth and success, and such other factors as the Company
deems relevant. As of April 15, 1996, 97 Wyndham employees had WEL Units. The
Company does not anticipate admitting any additional participants to WEL.
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Limited Partnership Units. A participant's interest in WEL equals the
product determined by multiplying ninety-nine percent (99%) by a fraction, the
numerator of which is the number of WEL Units owned by the participant and the
denominator of which is the total number of WEL Units held by all participants.
A participant's WEL Units have no value on the date they are granted. From time
to time, the value of WEL's interests in the WEL Partnerships and, after the
Equity Offering, Common Stock are revalued, which results in the revaluation of
the WEL Units. The increase in value obtained by each participant in WEL by
virtue of this revaluation process is treated as an equity participation plan
compensation expense for purposes of the Company's results of operations. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Overview."
Vesting. Each participant's grant is subject to a "vesting period,"
commencing on the date that he first acquires a WEL Unit and ending on the fifth
anniversary of such commencement date. The Company, in its sole discretion, may
shorten or waive the vesting period for a participant without affecting the
vesting period for any other participant. If an individual ceases to be a
participant during his vesting period, other than by reason of death or
permanent disability, the amount payable to him shall be $10 per WEL Unit held
on his termination date. If a participant's employment terminates during the
vesting period by reason of death or permanent disability, then the Company will
pay to the participant, or his beneficiary or estate, the value of his WEL Units
computed in accordance with the WEL Agreement. A participant's WEL Units are
subject to a mandatory buy-out provision that requires WEL to reacquire a
participant's WEL Units, for their value computed in accordance with the WEL
Agreement, under certain circumstances (unless waived by the Company). The
circumstances requiring a mandatory buy-out include: (i) a participant's
withdrawal from WEL; (ii) voluntary or involuntary termination of a
participant's employment or agency relationship with the Company; (iii) a
participant's death, bankruptcy or legal incompetence or (iv) a participant's
material breach of the WEL Agreement's terms.
DIRECTOR COMPENSATION
Each member of the Company's Board of Directors who is not an employee of
the Company (a "Non-Employee Director") will be paid an annual retainer of
$25,000, plus $1,000 for each committee meeting attended ($1,200 for each
committee meeting attended as a committee chairman). As described below, a
Non-Employee Director may elect to receive the annual retainer fee in cash or in
the form of shares of Common Stock, or to defer receipt of all or a portion of
such fee and have the deferred amount treated as if it were invested in shares
of Common Stock.
The Board of Directors and stockholders of the Company have adopted the
Wyndham Hotel Corporation Non-Employee Directors' Retainer Stock Plan (the
"Retainer Plan") for its Non-Employee Directors, and 50,000 shares of Common
Stock have been reserved for use under the Retainer Plan. The purpose of the
Retainer Plan is to provide to Non-Employee Directors of the Company the
opportunity to elect to receive all or a portion of their annual retainer fees
in the form of shares of Common Stock, or to defer receipt of all or a portion
of such fees and have the deferred amounts treated as if invested in shares of
Common Stock. Only a Non-Employee Director who on January 1 of any calendar year
or such later date as such director is first elected or appointed to the Board
of Directors is eligible to participate in the Retainer Plan. Participation in
the Retainer Plan is voluntary. To participate in the Retainer Plan, a
Non-Employee Director must file an irrevocable election with the Company no
later than the later of (i) six months prior to the date the annual retainer or,
if applicable, the first portion thereof, is to be paid to the Non-Employee
Director or (ii) the last day of the calendar year. Each election or change of
election will be effective as of the later of (i) six months following the
election, or (ii) January 1 following the election. The Non-Employee Director
may elect to either receive shares of Common Stock in lieu of cash for part or
all of such Non-Employee Director's annual retainer or to defer receipt of all
or a portion of such retainer. A Non-Employee Director also may file an election
within 30 days after the date that such director is elected or appointed to the
Board of Directors, to be effective six months following the election.
The Board of Directors will from time to time appoint two or more persons
who are members of the Board of Directors to administer the Retainer Plan (the
"Retainer Plan Committee") who are not eligible to
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participate in the Retainer Plan. The Retainer Plan Committee will administer
the Retainer Plan in accordance with its terms.
Each Non-Employee Director who elects to participate in the Retainer Plan
for any year must irrevocably elect, until such time as a subsequent election is
made, (i) whether to receive payment of 0, 50% or 100% of his or her annual
retainer in the form of shares of Common Stock under the Retainer Plan, (ii)
whether to defer payment of any whole percentage up to 100% of his or her annual
retainer, to be credited to the participant's account, to be deemed to be
invested in shares of Common Stock and paid in accordance with the Retainer
Plan, and (iii) whether dividend equivalents, if any, on any amounts credited to
such account will be paid directly to the participant or credited to the
participant's account to be reinvested in shares of Common Stock. The combined
percentage of the annual retainer to be paid in shares of Common Stock and
deferred under the Retainer Plan must not exceed 100% of the annual retainer for
any Retainer Plan year. In the event the annual retainer is increased during any
year, a participant's elections in effect for such year will apply to the amount
of such increase. The annual retainer consists of amounts paid to Non-Employee
Directors as a retainer for services as a director, but does not include meeting
fees, discretionary bonuses or reimbursement for expenses.
In compliance with the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), neither the Retainer Plan Committee nor any other person (other
than a participant acting in conformity with the terms of the Retainer Plan) has
any discretionary authority to make determinations regarding (i) eligibility to
become a participant, (ii) the times when elections can be made, when shares of
Common Stock will be issued or its equivalents credited to the participants'
accounts, or when distributions will be made, (iii) the portion of a
participant's annual retainer that may be allocated to the acquisition of shares
of Common Stock or its equivalents by participants under the Retainer Plan, the
calculation of the number of shares of Common Stock or its equivalents by
participants under the Retainer Plan, the calculation of the number of shares of
Common Stock or its equivalents to be acquired thereby, and the payment or
deemed reinvestment of dividend equivalents, or (iv) any other decisions under
the Retainer Plan required by Rule 16b-3(b) under the Exchange Act to be
afforded exclusively to "disinterested persons" as defined thereunder.
The Company will transfer to a participant who elects to receive all or a
portion of the annual retainer in the form of shares of Common Stock a number of
shares of Common Stock having a fair market value equal to such portion of the
annual retainer on the last trading day prior to the date or dates on which the
cash portion of the participant's annual retainer is due. No fractional shares
will be issued; however, in lieu thereof, the cash fair market value of any
fractional share will be paid to participants.
Non-Employee Directors will receive payment in shares of Common Stock in an
amount equal to the number of Common Stock equivalents credited to their
accounts under the Retainer Plan upon the date that is three years following the
date that the annual retainer would have been paid to such Directors in cash
absent their election. Such payment will be made in a lump sum. Upon a change of
control of the Company, the Company will pay to the participating Non-Employee
Directors in cash a lump sum equal to the fair market value of the Common Stock
equivalents credited to all accounts under the Retainer Plan.
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CERTAIN RELATIONSHIPS AND TRANSACTIONS
GENERAL
Wyndham Hotel Corporation was formed on February 16, 1996, to succeed to
the business of the Old Management Company, ownership of 6 Wyndham brand hotels
and leasehold interests relating to 12 additional Wyndham brand hotels acquired
in connection with the Formation. The following discussion of certain
relationships and transactions assumes that the Formation occurred on January 1,
1993 and includes (i) hotel management and related fees paid to the Company by
certain affiliates, (ii) capital contributions, loans and other payments made by
the Company to certain affiliates in connection with the Company's entry into
hotel management contracts with related parties, (iii) transactions between the
Company (which includes its predecessors and combined subsidiaries) on the one
hand, and Crow Family Members, the Senior Executive Officers (James D. Carreker,
Leslie V. Bentley, Eric A. Danziger, Anne L. Raymond and Stanley M. Koonce, Jr.)
or Bedrock, on the other hand, relating to the transactions comprising the
Formation and (iv) loans made to the Senior Executive Officers of the Company
that the Company purchased in the Formation. For a discussion of the assets
contributed to the Company in connection with the Formation, see "The Formation
and the Financing Plan."
RELATED PARTY TRANSACTIONS
During 1993, 1994 and 1995, the Company received hotel management fees in
the aggregate amounts of $4,444,151, $4,972,921 and $6,797,761, respectively,
from the partnerships owning Wyndham hotels ("Hotel Partnerships") listed below,
in which Crow Family Members (which includes Harlan R. Crow, a director of the
Company) have an interest. Some or all of the Senior Executive Officers of the
Company have an ownership interest in six of such Hotel Partnerships. The terms
of the agreements pursuant to which the Company provides hotel management
services to Wyndham hotels are described generally under "Business -- Management
Contracts."
During 1993, 1994 and 1995, the Company received payments in the aggregate
amounts of $1,682,787, $2,926,786, $3,803,162, respectively, from the Hotel
Partnerships listed below, in which Crow Family Members have an interest. Some
or all of the Senior Executive Officers have an ownership interest in six of
such Hotel Partnerships. The payments were received as reimbursements for
certain administrative, tax, legal, accounting, finance, risk management, sales
and marketing services provided by the Company to such entities.
<TABLE>
<CAPTION>
HOTEL PARTNERSHIP(1) HOTEL
-------------------------------------------------- ---------------------------------
<S> <C>
Anatole Hotel Investors, L.P...................... Wyndham Anatole
Hotel Bel Age Associates, L.P..................... Wyndham Bel Age
Bristol Hotel Associates, Ltd..................... Wyndham Bristol
Playhouse Square Hotel Limited Partnership........ Wyndham Playhouse Square
Franklin Plaza Associates......................... Wyndham Franklin Plaza
Houston Greenspoint Hotel Associates.............. Wyndham Greenspoint
MTD Associates.................................... Wyndham Milwaukee Center
Itasca Hotel Company.............................. Wyndham Northwest Chicago
Hotel and Convention Center Partners I-XI, Ltd.... Wyndham Palm Springs
CLC Limited Partnership........................... Wyndham Las Colinas
Atlanta Midtown Associates........................ Wyndham Garden Hotel-Midtown
Atlanta
Novi Garden Hotel Associates...................... Wyndham Garden Hotel-Novi
Amgreen-Heritage Hotel Partnership, Ltd. Wyndham Garden Hotel-Orange
County Airport
Pleasanton Hotel Associates, Ltd.................. Wyndham Garden Hotel-Pleasanton
Wood Dale Garden Hotel Partnership................ Wyndham Garden Hotel-Wood Dale
</TABLE>
- ---------------
(1) Management fees, reimbursements and design and construction fees were not
received from all of the Hotel Partnerships in all three years.
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<PAGE> 108
During 1993, 1994 and 1995, the Company received payments in the aggregate
amounts of $191,696, $211,321, $759,895, respectively, from the Hotel
Partnerships listed above, as well as Convention Center Boulevard Hotel Limited,
in which Crow Family Members have an interest. Some or all of the Senior
Executive Officers have an ownership interest in six of such Hotel Partnerships.
The payments were received as fees for certain design and construction services
provided by the Company to such entities.
During 1993, 1994 and 1995, the Senior Executive Officers incurred
indebtedness to Wyndham Finance Limited Partnership ("WFLP"), a partnership
owned by Crow Family Members. In addition, WEL, an equity participation program
in which certain executive officers of the Company have an interest, incurred
indebtedness to WFLP. The purpose of the loans was to finance such officers' and
WEL's capital contributions to the Old Management Company and various Hotel
Partnerships in which the officers have an ownership interest. In addition, two
Senior Executive Officers used a portion of the indebtedness to finance housing
expenses, and one of such Senior Executive Officers also used a portion to
finance education expenses. Notes representing such loans will be purchased by
the Company in connection with the Formation for a cash payment to WFLP in the
amount of $18,575,648, which is equivalent to the aggregate outstanding
principal and accrued interest severally owing by the Senior Executive Officers
and WEL to WFLP, and will be evidenced by promissory notes made payable to the
Company. Such notes will accrue interest at 6% per annum and are fully secured
by the pledge of shares of Common Stock held by the note obligors, and the
outstanding principal and accrued interest (compounded quarterly) will be
payable in a single lump sum in May 2001. The aggregate principal amounts of
such loans made to each Senior Executive Officer and WEL in 1993, 1994 and 1995,
and the aggregate balance of the notes representing such loans to be purchased
by the Company in the Formation, are as follows:
<TABLE>
<CAPTION>
AGGREGATE
1993 1994 1995 BALANCE(1)
-------- -------- ---------- ----------
<S> <C> <C> <C> <C>
James D. Carreker.................... $425,388 $669,634 $1,867,627 $4,904,573
Leslie V. Bentley.................... $219,153 $218,594 $ 767,104 $1,805,133
Eric A. Danziger..................... $120,013 $178,142 $1,115,775 $2,702,187
Anne L. Raymond...................... $ 0 $ 0 $4,417,588 $4,417,588
Stanley M. Koonce, Jr................ $161,805 $207,995 $ 547,207 $1,839,006
WEL.................................. $181,639 $323,405 $ 881,488 $2,907,161
</TABLE>
- ---------------
(1) The aggregate balances are as of December 31, 1995, and include indebtedness
incurred prior to January 1, 1993.
In 1995, the Company made loans to WHC-LG Hotel Partners L.P., Pleasanton
Hotel Partners, L.P. and New Orleans Hotel I, L.P., each of which is owned
directly or indirectly by Crow Family Members, the Senior Executive Officers and
WEL (the "Investing Partnerships"). The purpose of the loans was to finance such
Investing Partnerships' acquisition, construction and renovation of hotels owned
by the following three Hotel Partnerships: WHC-LG Hotel Associates, L.P. (La
Guardia Airport), Pleasanton Hotel Associates, Ltd. (Pleasanton Garden) and
Convention Center Boulevard Hotel Limited (Wyndham Riverfront). The aggregate
amount of such loans was $6,395,690, all of which is outstanding as of December
31, 1995. The loans are secured by the Investing Partnerships' partnership
interests in the Hotel Partnerships. The loans accrue interest at 9%, are
payable in May, October and December of 2005 and are reduced by any cash
distributions by such Hotel Partnerships to the Investing Partnerships.
During 1995, WFLP incurred indebtedness to the Company in the amount of
$1,278,000 for the purpose of acquiring or developing hotel properties, to be
managed by the Company, in which the Senior Executive Officers have ownership
interests. The loan is evidenced by a promissory note, bears an adjustable rate
of interest based on the prime rate and is due and payable on April 15, 2000.
During 1994 and 1995, the Company received hotel management fees in the
aggregate amounts of $514,472 and $2,043,087, respectively, from the Hotel
Partnerships listed below (other than Bedrock Kingsway Investment Partners Level
I, L.P.), in which Bedrock has an ownership interest (Messrs. Whitman and
Decker, directors of the Company, have ownership interests in Bedrock).
104
<PAGE> 109
During 1994 and 1995, the Company made cash advances in the aggregate
amounts of $1,092,537 and $1,380,702 respectively, to the Hotel Partnerships
listed below, in which Bedrock has an ownership interest. The advances were used
to pay certain renovations costs for Wyndham Garden Hotels that were redeveloped
by Bedrock. The advances are repaid through Bedrock's redevelopment fund. At
December 31, 1995, the aggregate amount outstanding of such advances was
$686,749.
During 1994 and 1995, the Company received payments in the aggregate
amounts of $798,503 and $976,980, respectively, from the Hotel Partnerships
listed below, in which Bedrock has an ownership interest. The payments were
received as fees for certain design and construction services provided by the
Company to such entities.
During 1994 and 1995, the Company received payments in the aggregate
amounts of $170,669 and $831,553, respectively, from the Hotel Partnerships
listed below, in which Bedrock has an ownership interest. The payments were
received as reimbursements for certain administrative, tax, legal, accounting,
finance, risk management, sales and marketing services provided by the Company
to such entities.
<TABLE>
<CAPTION>
HOTEL PARTNERSHIPS(1) HOTELS
- ---------------------------------------------------- --------------------------------------
<S> <C>
Grand Avenue Partners L.P........................... Wyndham Checkers Hotel
Bedrock Metrolux Investment Partners
Level I, L.P...................................... Wyndham Hotel at Metrocenter
Bedrock Annapolis Investment Partners
Level I, L.P...................................... Wyndham Garden Hotel-Annapolis
Burlington Garden Partners Level I, L.P............. Wyndham Garden Hotel-Burlington
CC Bedrock Investment Partners Level I, L.P......... Wyndham Garden Hotel-Culver City
BRP Denver Garden Partners Level I, L.P............. Wyndham Garden Hotel-Denver
Detroit Metro Partners Level I, L.P................. Wyndham Garden Hotel-Detroit Airport
Bedrock Marin Investment Partners
Level I, L.P...................................... Wyndham Garden Hotel-Marin/San Rafael
BR Partners -- Monrovia Level I, L.P................ Wyndham Garden Hotel-Monrovia
Bedrock Oakbrook Investment Partners
Level I, L.P...................................... Wyndham Garden Hotel-Oakbrook
O'Hare Garden Partners Level I, L.P................. Wyndham Garden Hotel-O'Hare
Garden LBV Investment Partners I, L.P............... Wyndham Garden Hotel-Lake Buena Vista
Bedrock Kingsway Investment Partners
Level I, L.P...................................... Wyndham Garden Hotel-Piscataway
BR Pittsburgh Airport Level I, L.P.................. Wyndham Garden Hotel-Pittsburgh
BRP Waltham Investment Partners
Level I, L.P...................................... Wyndham Garden Hotel-Waltham
</TABLE>
- ---------------
(1) Management fees, reimbursements and design and construction fees were not
received from all of the Hotel Partnerships in all three years. In addition,
cash advances were not made by the Company to all of the Hotel Partnerships
in all three years.
During 1993, 1994 and 1995, the Company made payments in the aggregate
amounts of $1,098,270, $1,352,468, $1,739,804, respectively, to Wyndham Travel
Management Ltd., an entity owned by Lucy Billingsley (the daughter of Trammell
Crow), for travel services provided to the Company.
During 1993, 1994 and 1995, the Company made payments in the aggregate
amounts of $698,468, $701,203 and $830,164, respectively, to CHMC, which is
owned by Crow Family Members, pursuant to the CHMC Agreement pursuant to which
the Company acquired in 1988 a number of management agreements relating to
Wyndham brand hotels then in operation. The Company's payment obligations under
the CHMC Agreement will be released and discharged in the Formation in exchange
for a cash payment to be paid by the Company to CHMC. See "The Formation and the
Financing Plan -- The Formation."
During 1993, 1994 and 1995, the Company made payments in the aggregate
amounts of $638,039, $743,922, $875,122, respectively, as lease payments for its
corporate office space to Tower 2001 Limited Partnership, a partnership in which
Crow Family Members have an ownership interest. The Company's current lease on
its corporate office space expires in November 1996. Crow Family Members have
inquired of the Company concerning the Company's willingness to enter into an
extended lease arrangement for the space in the context of a transaction whereby
the ownership of the building in which the space is located would be
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<PAGE> 110
restructured and the building refinanced, with Crow Family Members retaining,
directly or indirectly, a significant interest in the building. The Company has
indicated an interest in considering an extended lease arrangement on market
terms, but no agreements or understandings have yet been reached in this regard,
as preliminary discussions between Crow Family Members and potential third party
financing sources have only recently begun.
During 1993, 1994 and 1995, the owners of hotels owned or leased by the
Company made contributions to a loss prevention fund in the amounts of $396,911,
$620,006 and $624,422, which funds were deposited to WFLP pending the use of
such contributions by the loss prevention fund. The contributions were used to
cover a portion of the deductible on insurance policies for such hotels in
connection with insured claims made against the hotels.
In 1995, the Company made payments in connection with entering into a
management contract for the Wyndham Anatole Hotel, in which Crow Family Members
have an ownership interest. The amount of such payment was $523,360 and the
purpose was to pay costs associated with converting the property to the Wyndham
brand.
During 1993, 1994 and 1995, the Company received payments in the aggregate
amounts of $220,447, $175,366 and $176,210, respectively, from Crow-Los Patios
Limited, a senior assisted living facility in which certain Crow Family Members
have an ownership interest. The payments were received as management fees.
During 1993, 1994 and 1995, the Company made payments in the aggregate
amounts of $310,402, $321,333 and $332,113, respectively, to GHMB, Inc., an
entity owned by Mr. Bentley for the operation of liquor concessions at the
Wyndham Garden Commerce.
In 1994, the Company paid $155,000 to Rochelle Charter, Inc. ("Rochelle"),
an entity in which Trammell Crow, his spouse and Harlan R. Crow have an
interest. The payment was made to charter a boat that was operated by Rochelle
and used by the Company to entertain business associates.
During 1995, the Company received payments in the aggregate amount of
$72,593 from Convention Center Boulevard Hotel Limited, Waterfront Hotel
Associates, S.E. and WHC-LG Hotel Associates, L.P., Hotel Partnerships in which
Crow Family Members and some or all of the Senior Executive Officers have an
interest. The payments were received as construction and renovation fees for the
Wyndham Riverfront and Wyndham San Juan Hotels and for the Company's La Guardia
Airport hotel.
The Company is a guarantor of the obligations of Playhouse Square Hotel
Limited Partnership (the owners of which include Crow Family Members and the
Senior Executive Officers, except for Ms. Raymond) to fund operating deficits
relating to such Hotel Partnership. The guarantee requires the guarantors
(including the Company) to advance up to $600,000 per year to the extent the
Hotel Partnership experiences operating deficits, with maximum required advances
of $2.3 million over the term of the guarantee extending from 1995 to 2000.
Playhouse Square Hotel Limited Partnership has caused to be deposited the sum of
$1,000,000 as a reserve to secure the payment of the guaranteed obligations and
to fund operating deficits. The Company has not to date been required to make
any advance under the guarantee.
On February 1, 1996, the Company entered into a franchise agreement with
Breckenridge Resort Group, a partnership in which Mark vanHartesvelt, the
brother of John vanHartesvelt, an officer of the Company, has an interest. The
Company expects that in April 1996, the franchisee's rights and obligations
under the franchise agreement will be transferred to an unaffiliated third
party. In order to qualify for relevant franchise law exemptions, fees and
payments due and payable during the first six months following the conversion of
the hotel to the Wyndham brand are deferred until the seventh month following
the opening date of the hotel. The Company does not anticipate receiving any
fees under the franchise agreement during 1996.
The Company has entered into management contracts pursuant to which it
provides or expects to provide hotel management services to the following Hotel
Partnerships owning Wyndham hotels in which Crow Family Members, Bedrock or some
or all of the Senior Executive Officers have an interest. The aggregate amount
of such management fees are anticipated to be approximately $884,000 in 1996.
The terms of the
106
<PAGE> 111
agreements pursuant to which the Company provides hotel management services to
Wyndham hotels are described generally under "Business -- Management Contracts."
<TABLE>
<CAPTION>
HOTEL PARTNERSHIPS HOTELS
----------------------------------------------- ---------------------------
<S> <C>
KC Plaza Investment Partners, Level I L.P. .... Wyndham Garden-Kansas City
WHC-LG Hotel Associates, L.P. ................. La Guardia Airport
Bed Lex Investment Partners, Level I, L.P. .... Wyndham Garden-Lexington
Convention Center Boulevard Hotel, Limited..... Wyndham Riverfront
Waterfront Hotel Associates, S.E. ............. Wyndham San Juan
</TABLE>
Pursuant to the terms of the management contracts for the Riverfront and San
Juan hotels, the Company has made commitments to provide furniture, fixtures and
equipment at fixed prices of $2.1 million and $6.0 million, respectively. In
addition, with respect to the Riverfront hotel, the Company has agreed to
provide certain pre-opening services at a fixed price of $420,000 and has
entered into an operating deficit guaranty, which requires the Company to fund
up to $230,000 in working capital per year for three years after the hotel is
opened in the event that the hotel generates inadequate cash flow. In addition,
the Company has guaranteed $875,000 in indebtedness relating to the Riverfront
hotel. (The Riverfront hotel opened on May 15, 1996.)
Pursuant to the terms of its management agreement relating to the Wyndham
Hotel at Los Angeles Airport (the "LAX"), Wyndham agreed to loan $4,560,000 to
be applied to costs of refurbishment of the LAX. The refurbishment loan is
evidenced by a promissory note (the "Note Receivable"), which has been partially
funded in the amount of $2,344,974 as of April 15, 1996. The Company's
obligation to make the remaining advances under the refurbishment loan is
secured by a letter of credit, which, in turn, is collateralized by $2,637,045
in cash. Prior to the Formation, WHC LAX Associates, L.P. ("WHC LAX"), a limited
partnership owned by Crow Family Members, the Senior Executive Officers and WEL,
will pay to Wyndham $4,560,000 in return for Wyndham's agreement to pay to WHC
LAX all payments that Wyndham receives under the Note Receivable. Wyndham also
agreed that, insofar as the WHC LAX's $4,560,000 payment to the Company exceeds
advances that Wyndham is obligated to make, but has not yet made, under the Note
Receivable, it would pay to WHC LAX interest at a variable rate that has ranged
from 5.25% to 5.81% per annum on the unfunded amounts.
In 1996, James D. Carreker anticipates receiving a $100,000 consulting fee
for services provided as a consultant to Trammell Crow Company, an entity in
which Crow Family Members have an interest.
The Company anticipates that in 1996, it will enter into a five year
service agreement with ISIS 2000, an entity owned by Crow Family Members and the
Senior Executive Officers, whereby ISIS 2000 will provide centralized
reservations and property management services to all Wyndham brand hotels. The
services will be provided for a fee comprised of an initial link-up charge plus
a per reservation fee and a per hotel charge for the property management system.
The service fee payable by the Company is anticipated to be approximately
$1,300,000 in 1996. The Company also will enter into an asset management
agreement with ISIS 2000 providing for human resource, finance, accounting,
payroll, legal and tax services. The Company anticipates receiving approximately
$175,000 in 1996 for such services. In addition, the Company expects that it
will guarantee operating leases on behalf of ISIS 2000 in the approximate amount
of $3.5 million.
In 1995, the Company made payments to Trammell Crow Company in the amount
of $386,759 for contract labor (including related costs) provided to the Company
for management information services. The Company anticipates that in 1996, it
will pay approximately $810,000 to Trammell Crow Company for these contract
labor services (including related costs).
The Company anticipates that in 1996, it will enter into a service
agreement with CW Synergistech, L.P. ("CWS"), an entity owned by Trammell Crow
Company and an entity owned by Crow Family Members and the Senior Executive
Officers, whereby CWS will provide the Company's management information
services. The service fee payable by the Company to CWS for such management
information services is anticipated to be approximately $1,135,000 in 1996. The
Company also will enter into an asset management agreement with
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<PAGE> 112
CWS providing for human resource and legal services. The Company anticipates
receiving approximately $20,000 in 1996 for such services.
The Company anticipates that in 1996, it will make insurance premium
payments to Wynright Insurance ("Wynright"), an entity owned by Crow Family
Members and the Senior Executive Officers, with respect to certain insurance
policies maintained for the benefit of the Company and hotels owned or leased by
the Company. The Company anticipates that such payments will be approximately
$555,800 in 1996. The Company also will enter into an asset management agreement
with Wynright providing for human resource, finance, accounting, payroll, legal
and tax services. The Company anticipates receiving approximately $12,500 in
1996 for such services.
The Company anticipates that in 1996, it will enter into management
agreements pursuant to which it expects to receive management, technical service
and purchasing fees in connection with the Company's management of certain
extended-stay hotels, a new concept being developed by a partnership in which
Crow Family Members own an interest. See "Business -- Growth Strategy -- II.
Additional Growth Opportunities -- New Lodging Products." The amount of such
management, technical service and purchasing fees are anticipated to be
approximately $50,000 in 1996.
BEDROCK INVESTMENT PROGRAM
In May 1994, the Company entered into an Investment Agreement and an Option
Agreement (collectively, the "Bedrock Agreements") with Bedrock pursuant to
which, as amended, Bedrock agreed to provide up to $335 million in capital (the
"Investment Program") to acquire hotels or hotel management companies and to
make hotel related investments that are approved by both the Company and
Bedrock. Pursuant to the terms of the Investment Agreement, Bedrock is not
required to invest a minimum amount of capital through the Investment Program,
but the Company is entitled to manage any Investment Program hotel properties
for a term of 15 years. Pursuant to the Investment Agreement, as amended, the
Company and Bedrock have agreed that the Company will be permitted to manage any
hotel with 250 or fewer rooms that is financed by Bedrock. In addition, subject
to certain limitations, certain Crow Family Members have the right to co-invest
with Bedrock in the Investment Program. The Company also has certain limited
rights to co-invest with Bedrock in the Investment Program; provided, however,
that once the Company elects to co-invest in Investment Program projects, it
must co-invest in each subsequent project or it would forfeit additional rights
to co-invest. At December 31, 1994 and December 31, 1995, the Company had
executed management contracts with Bedrock for 11 Wyndham brand hotels and 15
Wyndham brand hotels, respectively, through the Investment Program. At April 15,
1996, approximately $150.0 million of the initial $335 million in the Investment
Program was available for investment.
Pursuant to the Option Agreement, the Company granted to Bedrock options
(the "Bedrock Options") to purchase up to a 37.5% limited partnership interest
in the Old Management Company at a price equal to the percentage interest
purchased multiplied by the strike price set forth in Section 2.1 of the Option
Agreement for the year in which the option is exercised. A copy of the Option
Agreement has been filed as an exhibit to the Registration Statement of which
this Prospectus is a part. (Under the terms of the Bedrock Agreements, Bedrock
is entitled to purchase a 1% interest in Wyndham for each $320,000 of projected
annual management fees generated by the management contracts relating to hotels
owned by Bedrock. At December 31, 1994 and December 31, 1995, Bedrock was
entitled to purchase a 17.4% and 24.3% interest in Wyndham, respectively.) As
additional consideration for the grant of the Bedrock Options, Bedrock granted
to the Company the right to require Bedrock to invest up to $20 million from the
Investment Program in the amount of a $10 million contribution to the Company
(the "Direct Contribution") in exchange for a percentage interest therein (not
to exceed the 37.5% ownership limitation) and a $10 million contribution to
affiliated partnerships (the "Indirect Contribution") in which some or all of
the Company, Crow Family Members and the Senior Executive Officers invest. The
Direct Contribution will take the form of the Bedrock Contribution. The Indirect
Contribution was eliminated in connection with the Bedrock Exchange Agreement.
108
<PAGE> 113
As part of the Formation, the Company entered into the Bedrock Exchange
Agreement with various affiliates of Bedrock pursuant to which Bedrock will
transfer the Bedrock Options and the Bedrock Contribution (in the amount of $10
million) in exchange for 2,332,590 shares of Common Stock. See "The Formation
and the Financing Plan -- The Formation." Bedrock will have certain registration
rights with respect to such shares of Common Stock. See "Description of Capital
Stock -- Registration Rights." Bedrock will also enter into the Stockholders'
Agreement with the Company, Crow Family Members, the Senior Executive Officers
and WEL, which provides for, among other things, representation on the Company's
Board of Directors. See "Management -- Directors and Executive Officers" and
"Description of Capital Stock -- Stockholders' Agreement."
The Option Agreement also provides for a contingent payment (the
"Contingent Option Payment") to the Old Management Company, for distribution to
the non-Bedrock owners of the Old Management Company, at such time as all hotels
financed by the Investment Program achieve an investment return target of 15% on
all equity capital invested through such program plus certain overhead costs.
The amount of the Contingent Option Payment is 10% of all cash proceeds realized
in excess of the investment return target. The Contingent Option Payment is due
70% upon the achievement of the investment target return and 30% upon Bedrock's
disposition of its entire interest in Wyndham. A separate entity owned by Crow
Family Members, the Senior Executive Officers and WEL has purchased the right to
the Contingent Option Payment for $10,000 from the owners of the Old Management
Company (Crow Family Members, the Senior Executive Officers and WEL).
POLICY WITH RESPECT TO RELATED PARTY TRANSACTIONS
With respect to future material transactions (or series of related
transactions) between the Company and related parties, the Company has
implemented a policy requiring any such transaction to be approved by a majority
of the Independent Directors, if any, upon such directors' determination that
the terms of the transaction are no less favorable to the Company than those
that could be obtained from unrelated third parties. The policy defines a
material related party transaction (or series of related transactions) as one
involving a purchase, sale, lease or exchange of property or assets or the
making of any investment with a value to the Company in excess of $1.0 million
or a service agreement (or series of related agreements) with a value in excess
of $1.0 million in any fiscal year. There can be no assurance that this policy
always will be successful in eliminating the influence of conflicts of interest.
The foregoing policy shall be in addition to the requirements with respect to
related party transactions imposed by the Indenture. See "Description of the
Notes -- Covenants -- Limitation on Transactions with Stockholders and
Affiliates."
BENEFITS OF THE FORMATION AND THE FINANCING PLAN TO RELATED PARTIES
In connection with their participation in the transactions related to the
Formation of the Company, certain major stockholders, directors and executive
officers of the Company will receive the following benefits.
Crow Family Members will receive, collectively, 9,447,272 shares of Common
Stock and $19.1 million in cash in exchange for their interests in the Assigned
Businesses (of which 31,250 shares will be indirectly transferred to Ms.
Groenteman shortly following the Offering). See "Principal Stockholders." In
addition, Crow Family Members will receive $4.0 million in cash as a result of
the repayment of certain loans that they made to certain of the Assigned
Businesses. In addition, WFLP, a partnership owned by Crow Family Members, will
receive $18.6 million in cash for the sale of the DAB Notes, which represent
obligations of the Senior Executive Officers and WEL. CHMC, which is owned by
certain Crow Family Members, will receive $6.0 million, in cash, as
consideration for the release and discharge of the Company's payment obligations
under the CHMC Agreement.
109
<PAGE> 114
The Senior Executive Officers of the Company will receive the following
number of shares of Common Stock in exchange for their respective interests in
the Assigned Businesses:
-- James D. Carreker: 1,168,047 shares;
-- Leslie V. Bentley: 328,909 shares;
-- Eric A. Danziger: 379,443 shares;
-- Anne L. Raymond: 378,361 shares; and
-- Stanley M. Koonce, Jr.: 386,211 shares.
Bedrock (in which Messrs. Whitman and Decker have ownership interests) will
receive 2,332,590 shares of Common Stock in consideration of Bedrock's transfer
to the Company of the Bedrock Options and the Bedrock Contribution in the amount
of $10.0 million.
WEL (in which certain executive officers and employees of the Company
participate) will receive 643,685 shares of Common Stock in exchange for its
interests in the Assigned Businesses.
TCI, which is owned by certain Crow Family Members and the Senior Executive
Officers, will receive a payment of approximately $250,000 from the Company as a
commission to be paid to an employee of TCI for his efforts in facilitating the
sale of the 11 Wyndham Garden Hotels to HPT. See "Business -- Long-Term Hotel
Leases."
110
<PAGE> 115
PRINCIPAL STOCKHOLDERS
The following table sets forth information regarding the beneficial
ownership of shares of Common Stock and as adjusted to reflect the sale of
shares of Common Stock in the Equity Offering for (i) each director of the
Company, (ii) each executive officer named in the Summary Compensation Table set
forth under the heading "Management," (iii) all directors and executive officers
of the Company as a group and (iv) each person or group who was on such date the
beneficial owner of more than five percent of the outstanding Common Stock.
<TABLE>
<CAPTION>
SHARES OWNED SHARES OWNED
BEFORE THE OFFERING AFTER THE OFFERING(2)
---------------------- ----------------------
NAME(1) NUMBER PERCENT NUMBER PERCENT
---------------------------------------- ---------- ------- ---------- -------
<S> <C> <C> <C> <C>
CF Securities, L.P.(3)(4)............... 9,435,739 61.60% 9,404,489 48.30%
Harlan R. Crow(4)(5)
James D. Carreker(6).................... 1,358,939 8.87% 1,358,939 6.98%
Wyndham Employees, Ltd.(7)............ 643,685 4.20% 643,685 3.31%
Leslie V. Bentley(8).................... 390,267 2.55% 390,267 2.00%
Eric A. Danziger........................ 379,443 2.48% 379,443 1.95%
Anne L. Raymond......................... 378,361 2.47% 378,361 1.94%
Stanley M. Koonce, Jr................... 386,211 2.52% 386,211 1.98%
Bedrock(9).............................. 2,332,590 15.23% 2,332,590 11.98%
Daniel A. Decker(10)..................
Robert A. Whitman(10).................
Susan T. Groenteman(11)................. -- -- 31,250 *
Directors and executive officers as a
group (16 persons)(12)................ 15,305,234 99.92% 15,305,234 78.61%
</TABLE>
- ---------------
* Less than 1%.
(1) The address of each beneficial owner, with the exception of CF Securities,
L.P., Bedrock and Susan T. Groenteman, is 2001 Bryan Street, Suite 2300,
Dallas, TX 75201.
(2) The information in the table reflects the exercise of the GE Option and
assumes no exercise of the U.S. Underwriters' overallotment option. In the
event the overallotment option is exercised in full, Bedrock would own
2,260,055 shares of Common Stock (11.29% of the outstanding Common Stock),
CF Securities, L.P. would own 9,457,069 shares of Common Stock (47.24% of
the outstanding Common Stock), Messrs. Carreker, Bentley, Danziger and
Koonce and Ms. Raymond (the "Senior Executive Officers") would collectively
beneficially own 2,909,548 shares of Common Stock (14.53% of the
outstanding Common Stock) and Wyndham Employees, Ltd. ("WEL") would own
647,312 shares of Common Stock (3.23% of the outstanding Common Stock).
(3) Based on the exercise of the GE Option and assuming no exercise of the U.S.
Underwriters' overallotment option, when the shares held by CF Securities,
L.P. are aggregated with the shares held separately by a single Crow Family
Member, the total number of shares held by Crow Family Members would be
9,416,022 shares (48.36% of the outstanding Common Stock). If the
overallotment option is exercised in full, the total number of shares held
by Crow Family Members would be 9,468,602 shares (47.3% of the outstanding
Common Stock). The address of CF Securities, L.P. is 2001 Ross Avenue,
Dallas, TX 75201.
(4) Harlan R. Crow directly holds no shares of Common Stock. Mill Springs
Holdings, Inc. ("Mill Springs") is the general partner of CF Securities,
L.P. Mr. Crow is a principal stockholder of Mill Springs and its sole
director. Mr. Crow disclaims beneficial ownership of all Common Stock held
by CF Securities, L.P.
(5) Mr. Crow is a director of Wyndham Hotel Management Corporation ("WHMC"),
which holds 113,626 shares of Common Stock. WHMC is the corporate general
partner of WEL, which holds 643,685 shares of Common Stock. Mr. Crow
disclaims beneficial ownership of all shares of Common Stock held by WHMC
or WEL.
(6) James D. Carreker will directly hold 1,168,047 shares of Common Stock,
including 100 shares issued to Mr. Carreker in the initial formation of the
Company. Shares listed in the table include 77,265 shares held in a trust
for which Mr. Carreker is the special trustee and has full voting rights.
Mr. Carreker disclaims beneficial ownership of all Common Stock held in the
trust. Shares listed also include 113,626 shares held by WHMC, but exclude
643,685 shares held by WEL. Mr. Carreker is a director and principal
stockholder of WHMC, which is the corporate general partner of WEL. Mr.
Carreker disclaims beneficial ownership of all Common Stock held by WHMC
beyond his percentage ownership therein and disclaims beneficial ownership
of all Common Stock held by WEL.
(7) Mr. Carreker is a director and principal stockholder of WHMC, which is the
corporate general partner of WEL. Mr. Crow is a director of WHMC. Both
Messrs. Carreker and Crow disclaim beneficial ownership of all Common Stock
held by WEL.
(8) Includes 61,356 shares held in trusts for which Mr. Bentley is the special
trustee and has full voting rights. Mr. Bentley disclaims beneficial
ownership of all Common Stock held in the trusts.
(9) The address of Bedrock is 2200 Ross Avenue, Suite 4200 West, Dallas, Texas
75201.
(10) Robert A. Whitman and Daniel A. Decker directly hold no shares of Common
Stock. Messrs. Whitman and Decker are principals of Hampstead, an affiliate
of Bedrock. Messrs. Whitman and Decker disclaim beneficial ownership of all
Common Stock held by Bedrock.
(11) Shortly following the Offering, C.F. Securities, L.P. will sell 31,250
shares of Common Stock to Mill Creek Holdings, Ltd. ("Mill Creek") for
$500,000. Such shares, in turn, will be transferred by Mill Creek to Ms.
Groenteman for services rendered by Ms. Groenteman to Mill Creek. It is
expected that a compensation expense of $500,000 will be recognized by an
affiliate of Mill Creek in connection with such transfer. Ms. Groenteman's
address is 2001 Ross Avenue, Dallas, TX 75201.
(12) Includes shares held by WEL. WHMC is the corporate general partner of WEL.
Mr. Carreker is a director and a principal stockholder of WHMC, and Mr.
Crow is a director of WHMC, but each disclaims beneficial ownership of all
Common Stock held by WEL.
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Pursuant to the terms of the GE Credit Agreement, General Electric
exercised its option to purchase 504,032 shares of Common Stock (representing
2.6% of the Company's outstanding shares of Common Stock after the exercise of
the option) at a price per share of $14.88 (the "GE Option"). The GE Credit
Agreement entitles General Electric to purchase from the Company up to the
number of shares of Common Stock that is the quotient of $7.5 million (one-half
of the $15.0 million of indebtedness that will be outstanding under the GE
Credit Agreement at the closing of the Offering) divided by the initial public
offering price per share of the Common Stock (less underwriting discounts and
commissions). Under a letter agreement between the Company and General Electric,
General Electric exercised the GE Option to purchase 504,032 shares of Common
Stock for a total purchase price of approximately $7.5 million contemporaneously
with the closing of the Offering. Pursuant to the letter agreement, the Company
has undertaken to use its best efforts to obtain for General Electric in the
Offering an allocation of shares of Common Stock equal to $2.5 million divided
by the initial public offering price. Pursuant to the terms of the GE Credit
Agreement, the Company and General Electric also have entered into a
registration rights agreement pursuant to which the Company has granted General
Electric certain registration rights. See "Description of Capital
Stock -- Registration Rights."
DESCRIPTION OF THE REVOLVING CREDIT FACILITY
The following is a summary of the terms of the Revolving Credit Facility,
which summary is qualified in its entirety by reference to the document
establishing such term, a copy of which will be filed as an exhibit to the
Registration Statement of which this Prospectus forms a part. For purposes of
this summary, the term "Company" refers only to Wyndham Hotel Corporation.
GENERAL
The Company has received a commitment letter from Bankers Trust pursuant to
which Bankers Trust has agreed, subject to certain conditions, to provide the
Revolving Credit Facility. The Revolving Credit Facility provides for up to
$100.0 million of revolving loan borrowings. While the Company does not expect
that it will draw any amounts under the Revolving Credit Facility at the closing
thereof, it is anticipated that approximately $49.4 million aggregate principal
amount will initially be available for borrowings at such time. Availability
under the Revolving Credit Facility will be subject to, among other things, a
borrowing base test calculated with reference to the cash flow from the hotel
properties and management contracts pledged to secure the obligations of the
Company under the Revolving Credit Facility, the location of certain of such
properties, the terms of such management contracts, the relative contribution to
the borrowing base of the different values attributed to such properties and the
values attributable to both the properties taken as a whole and the management
contracts taken as a whole and other factors. Under the terms of the Revolving
Credit Facility, no further borrowings will be made available to the Company
following the third anniversary of the closing of the Revolving Credit Facility.
The Revolving Credit Facility will mature four years from its closing date.
Subject to certain limitations, Bankers Trust may assign, syndicate,
participate, place or sell its interest under the Revolving Credit Agreement to
other institutional lenders.
The Revolving Credit Facility may be used for (a) the acquisition,
renovation, management and operation of certain hotel properties, (b) the
provision of equity and debt investments in joint ventures to acquire, renovate
and manage certain hotel properties, (c) equity and debt investments in and
credit support for owners of certain hotel properties managed by the Company and
its subsidiaries which are made in connection with the acquisition, extension,
renewal or modification of management agreements and (d) other corporate
purposes of the Company. The Revolving Credit Facility will bear interest at a
rate equal to, at the election of the Company, (a) the Bankers Trust base rate
plus one percent (1.0%) per annum, or (b) one-, two-, three- or six-month LIBOR
plus two percent (2.0%) per annum, payable monthly in arrears; provided however,
subject to the Company's satisfaction of certain conditions, the aforementioned
interest rates will be subject to a reduction of 0.25% per annum. The Company
will pay customary fees in connection with structuring the Revolving Credit
Facility and will also pay Bankers Trust an unused commitment fee equal to
0.375% per annum of the unused portion of the Revolving Credit Facility, payable
quarterly in arrears. Under certain circumstances, the Company may be required
to obtain interest rate protection. The Company is permitted to use up to $15.0
million of the amount available under the Revolving Credit Facility for the
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issuance of letters of credit, which will be subject to a fee of 2.0% per annum
on the maximum amount which may be drawn under each letter of credit.
The Revolving Credit Facility will be a direct obligation of the Company
and will be fully and unconditionally guaranteed by all of the Company's
Subsidiaries. Such obligations and such guarantees will rank senior in right of
payment to the Notes and be secured by substantially all of the assets of the
Company and its Subsidiaries.
AMORTIZATION AND PREPAYMENT
The Revolving Credit Facility will not have any scheduled amortization of
principal during the first three years of the term. On the 39th, 42nd and 45th
months following the closing of the Revolving Credit Facility, the Company will
be required to amortize principal in an aggregate amount equal to 20% of the
amount outstanding under the Revolving Credit Facility on the third anniversary
of the closing of the Revolving Credit Facility. Amounts outstanding under the
Revolving Credit Facility must be mandatorily prepaid in amounts equal to
specified release prices upon (a) the disposition or condemnation of, or
casualty to, any hotel properties which are mortgaged to secure indebtedness
under the Revolving Credit Facility, or (b) the termination of certain
management agreements pledged to secure indebtedness under the Revolving Credit
Facility. The Company will be permitted to make voluntary prepayments of amounts
outstanding under the Revolving Credit Facility at any time without penalty or
premium.
SECURITY AND GUARANTEES
The Company's obligations under the Revolving Credit Facility will be
secured principally by (a) first priority mortgages on the six hotels owned by
the Company and additional hotel properties acquired by the Company and approved
by the lenders under the Revolving Credit Facility (the "Pool A Properties"),
(b) first priority mortgages on the twelve hotels in which the Company has a
leasehold interest and certain additional hotels that may be acquired by the
Company (the "Pool B Properties"), (c) a first priority assignment of the rights
of the Company in management agreements with respect to certain hotels managed
by the Company, (d) a first priority pledge by the Company of all of the
outstanding capital stock and partnership interests owned by it in each of its
Subsidiaries, and (e) a first priority assignment and pledge of the Company's
interests in substantially all its other real and personal property, including
its bank accounts. The foregoing mortgages may be released as to an individual
hotel property or management agreement upon the Company's compliance with
certain conditions, including mandatory prepayment of the Revolving Credit
Facility, in an amount equal to the applicable release price. The applicable
release price with respect to a Pool A Property will be the greater of (a) 125%
of the outstanding principal amount allocated to the property, (b) 85% of the
sales price of the property, after deduction of certain closing expenses, (c)
the amount necessary for the Company to maintain compliance with specific
financial covenants under the Revolving Credit Facility or (d) in the case of a
release as a result of a casualty or condemnation, the insurance proceeds or
condemnation award resulting therefrom (provided the partial release of an
individual property will be permitted in any case of casualty or condemnation).
The applicable release price with respect to an individual property which is a
Pool B Property will be the greatest of (a) the amount necessary for the Company
to maintain compliance with specific financial covenants under the Revolving
Credit Facility, or (b) in the case of a release as a result of a casualty or
condemnation, the insurance proceeds or condemnation award resulting therefrom
(provided the partial release of an individual property will be permitted in any
case of casualty or condemnation). Upon the termination of a management
agreement which has been pledged by the Company to secure the indebtedness under
the Revolving Credit Facility, the related security interest will be released
upon the Company's compliance with certain conditions, including, in some
circumstances, mandatory prepayment of the Revolving Credit Facility, in an
amount equal to the applicable release price. The applicable release price, if
any, with respect to an individual management agreement will be the greater of
(a) 100% of the outstanding principal amount allocated to the management
agreement, (b) the amount necessary for the Company to maintain compliance with
specific financial covenants under the Revolving Credit Facility, (c) in the
case of a sale or other disposition of the management agreement, 85% of the sale
price of the management agreement after deduction of certain closing expenses or
(d) the termination fees, if
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any, paid in connection with such termination. Certain other mandatory
prepayments are required in the event of a disposition of a hotel property that
is not mortgaged to secure the indebtedness under the Revolving Credit Facility.
The Company's obligations under the Revolving Credit Facility will be
guaranteed, with full recourse, by each of the Company's Subsidiaries.
COVENANTS
The Revolving Credit Facility will contain covenants requiring the Company
to maintain a minimum net worth of $55.0 million and to maintain the following
financial ratios:
(a) the market value of the outstanding capital stock of the Company
shall not be less than 50% of the market value of such stock on the date of
the closing of the Revolving Credit Facility, unless there shall have
occurred a corresponding decrease in the market value of the capital stock
of a selected group of comparable companies;
(b) Total Consolidated Indebtedness (as defined in the Revolving
Credit Facility) and imputed indebtedness attributable to the Company's
ground lease obligations ("Imputed Debt") entered into following the
closing of the Revolving Credit Facility shall not exceed the lesser of (i)
the Adjusted Stockholders' Equity (as defined in the Revolving Credit
Facility) or (ii) 50% of Total Consolidated Indebtedness plus Imputed Debt
plus the market value of the outstanding capital stock of the Company,
unless the failure to meet the ratio with respect to clause (ii) is
attributable to a decrease in the market value of the capital stock of a
selected group of comparable companies of more than 50% since the date of
the closing of the Revolving Credit Facility;
(c) an annually increasing ratio of "Consolidated EBITDA" (as defined
in the Revolving Credit Facility) plus total lease payments under permitted
sale-leaseback transactions (the "Lease Payments") to Consolidated Fixed
Charges (as defined in the Revolving Credit Facility) plus the greater of
the Lease Payments or an interest factor on the Imputed Debt;
(d) an annually increasing ratio of "Consolidated EBITDA" (as defined
in the Revolving Credit Facility) minus capital expenses incurred plus
Lease Payments to Consolidated Fixed Charges plus Lease Payments and an
interest factor on the Imputed Debt;
(e) an annually decreasing ratio of Total Consolidated Indebtedness
plus Imputed Debt to "Consolidated EBITDA" (as defined in the Revolving
Credit Facility) plus the Lease Payments; and
(f) an annually decreasing ratio of Total Consolidated Indebtedness
plus Imputed Debt to "Consolidated EBITDA" (as defined in the Revolving
Credit Facility) minus capital expenses incurred plus Lease Payments.
The Revolving Credit Facility will also contain covenants that (a) impose
certain limitations on the right of the Company in respect of (i) the payment of
dividends and other distributions, (ii) the making of investments in, guaranties
for the benefit of or payments to Subsidiaries, persons owning or leasing hotels
managed by the Company or otherwise, (iii) acquisitions of additional hotel
properties, (iv) the creation or incurrence of liens, (v) transactions with
affiliates, (vi) management or similar agreements delegating to another person
substantial authority over the operation or maintenance of hotel properties of
the Company and its Subsidiaries, (vii) the incurrence of indebtedness, lease
obligations or contingent liabilities, (viii) mergers, acquisitions, joint
ventures, partnerships, divestures or reorganizations, (ix) the issuance of
preferred stock and (x) sale leaseback transactions involving any of its hotel
properties, (b) require the Company to maintain a capital reserve account of
3.5% of the gross revenues for each of the hotels owned or leased by it (the
GHALP Lease will require the Company to make deposits into a capital reserve
account in amounts equal to 5% of the gross revenues for each of the GHALP
Properties and the Harbour Island Lease will require the Company to allocate
amounts equal to 4% of the gross revenues of the Harbour Island Property for
replacement and repair of furniture, fixtures, equipment and other improvements
relating to such property), (c) require the Company to make certain expenditures
in connection with deferred maintenance, (d) require the Company to undertake
certain capital expenditures for the renovation of one hotel property (the
Wyndham Rose Hall Resort) and
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possibly other hotel properties, (e) require the Company to obtain the lenders'
consent prior to the Company entering into certain arrangements relating to ISIS
2000 (see "Business -- Customers and Marketing -- Central Reservations System"
for further information relating to ISIS 2000) and (f) require the Company to
obtain the lenders' consent to the refinancing of the $9.7 million principal
amount of industrial revenue bond indebtedness assumed in connection with the
acquisition of the Vinings Wyndham Garden Hotel. In addition, the Revolving
Credit Facility will require the Company to establish a cash management system
for the Company's hotels that will require all receipts to be swept daily into
an account under the control of Bankers Trust and will restrict distributions to
Subsidiaries and affiliates under certain circumstances.
EVENTS OF DEFAULT
The Revolving Credit Facility will contain events of default customary for
transactions similar to those contemplated by the Revolving Credit Facility,
including (a) the nonpayment of principal, interest or other amounts due under
the Revolving Credit Facility when due, (b) the failure to observe certain
covenants under the Revolving Credit Facility, subject to applicable grace and
cure periods, (c) a material adverse change in the business, operations or
conditions, financial or otherwise, of the Company (together with a material
impairment of the ability of the Company and its Subsidiaries to perform their
respective obligations under the Revolving Credit Facility documents or a
material impairment of the lenders' ability to enforce such obligations), (d)
breaches of representations and warranties, subject to applicable cure periods,
(e) the occurrence of a default in the payment of principal, interest or other
amounts due under the Notes or other indebtedness of the Company and its
Subsidiaries, or any other event which would allow for the acceleration of the
maturity of any such indebtedness, (f) the default by the Company or any of its
Subsidiaries under any ground lease obligation with respect to a hotel property,
(g) money judgments, not adequately insured, in excess of $1.0 million against
the Company or any of its Subsidiaries and not discharged, bonded, vacated or
stayed within 60 days, (h) the occurrence of certain events of bankruptcy of
insolvency, (i) certain transactions resulting in a "change of control" (as
defined below) of the Company, (j) certain executive officers ceasing to be
employed by the Company in a senior position by reason of their death or
disability, (k) any Subsidiary of the Company ceasing to be wholly owned by the
Company or its other wholly owned Subsidiaries, and (l) payments by the Company
or its Subsidiaries with respect to certain contingent liabilities in amounts in
excess of those estimated on the date of the closing. With respect to the
Revolving Credit Facility, a "change of control" means the occurrence of any of
the following: (a) Bedrock, the Crow Family Members and the Senior Executive
Officers of the Company, collectively, or the Senior Executive Officers of the
Company, collectively, shall cease for any reason to maintain legal and
beneficial ownership of at least 50% of the outstanding number of shares of
Common Stock of the Company (excluding all shares owned by WEL) owned by them as
of the closing date of the Revolving Credit Facility (provided that if certain
principals of Bedrock cease to control the business and affairs of Bedrock, then
Bedrock shall be deemed to no longer own any shares of Common Stock of the
Company), (b) any person or group, other than Bedrock, the Crow Family Members
or the Senior Executive Officers of the Company, is or becomes the beneficial
owner of more than 35% of the total voting power in the aggregate of all classes
of capital stock of the Company normally entitled to vote in the election of the
Board of Directors, (c) a majority of the Board of Directors of the Company
shall not consist of nominees of Bedrock or Crow Family Members or (d) there
shall occur a Change of Control (as defined in the Indenture for the Notes).
NO ASSURANCE
While the Company expects to enter into the Revolving Credit Agreement
contemporaneously with or shortly following the consummation of the Offering,
there can be no assurance that the Company will be successful in entering into
the Revolving Credit Agreement and, if so, on what terms. The Revolving Credit
Facility would be an important source of capital to fund the Company's future
growth strategy and, if the Company is not able to agree with Bankers Trust on
the terms of the Revolving Credit Agreement, it would need to seek other sources
of financing to help fund its future growth strategy. See "Management's
Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources."
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DESCRIPTION OF THE NOTES
The Notes are to be issued under an Indenture, dated as of May 24, 1996
(the "Indenture"), among the Company, each of the Company's Subsidiaries (except
for a number of insignificant Subsidiaries), as Guarantors, and Bank One,
Columbus, N.A., as Trustee (the "Trustee"). The following summary of certain
provisions of the Indenture does not purport to be complete and is subject to,
and is qualified in its entirety by reference to, all the provisions of the
Indenture, including the definitions of certain terms therein and those terms
made a part thereof by the Trust Indenture Act of 1939, as amended. Whenever
particular provisions or defined terms of the Indenture not otherwise defined
herein are referred to, such provisions or defined terms are incorporated herein
by reference. For purposes of this summary, the term "Company" refers only to
Wyndham Hotel Corporation. A copy of the Indenture will be filed as an Exhibit
to the Registration Statement of which this Prospectus constitutes a part.
GENERAL
The Notes are general, unsecured obligations of the Company, limited to
$150.0 million aggregate principal amount, and will mature on May 15, 2006. An
aggregate of $100.0 million aggregate principal amount of Notes will be issued
in this Offering, and an additional $50.0 million aggregate principal amount of
Notes may be issued in the future pursuant to the provisions described below.
The Notes are subordinated in right of payment to certain other debt obligations
of the Company as described under "-- Subordination." Each Note bears interest
at the rate per annum shown on the front cover of this Prospectus from May 24,
1996 or from the most recent Interest Payment Date to which interest has been
paid or provided for, payable semiannually (to Holders of record at the close of
business on May 1, or November 1, immediately preceding the Interest Payment
Date) on May 15, and November 15, of each year, commencing November 15, 1996.
Principal of, premium, if any, and interest on the Notes will be payable,
and the Notes may be exchanged or transferred, at the office or agency of the
Company in the Borough of Manhattan, The City of New York (which initially will
be the corporate trust office of the Trustee at First Chicago Trust Company, c/o
Bank One, Columbus, N.A., Fourteen Wall Street, 8th Floor, Suite 4607, New York,
New York 10002); provided that, at the option of the Company, payment of
interest may be made by check mailed to the address of the Holders at such
address as appears in the Security Register.
The Notes will be issued only in fully registered form, without coupons, in
denominations of $1,000 of principal amount and any integral multiple thereof
and will be represented by one or more Notes in global registered form. See
"-- Global Notes." No service charge will be made for any registration of
transfer or exchange of Notes, but the Company may require payment of a sum
sufficient to cover any transfer tax or other similar governmental charge
payable in connection therewith.
Under the terms of the Indenture, the Company may issue additional Notes
under the Indenture in an aggregate principal amount not to exceed $50.0 million
(the "Additional Notes"); provided that, after giving effect to any issuance of
the Additional Notes and the application of the proceeds therefrom, the Company
could incur at least $1.00 of Indebtedness (other than Permitted Indebtedness).
Holders of any Additional Notes will be entitled to all the benefits of the
Indenture granted to Holders of Notes issued in this Offering, and to the
benefit of any Subsidiary Guarantees (as defined under "-- Guarantees"). It is
anticipated that the Revolving Credit Facility will prohibit the issuance of
Additional Notes. Additional Notes, if any, will be treated for all purposes as
"Notes" under the Indenture.
SUBORDINATION
The Notes are general, unsecured obligations of the Company, subordinated
in right of payment to all present and future Senior Indebtedness and
effectively subordinated in right of payment to Guarantor Senior Indebtedness.
At March 31, 1996, on a pro forma basis giving effect to the Formation, the
Financing Plan and other adjustments described under "Pro Forma Combined
Financial Data," the Notes would have been subordinated to approximately $24.2
million of Senior Indebtedness (inclusive of Guarantor Senior Indebtedness) and
the obligations of a Subsidiary of the Company under the GHALP Lease. See
"Business -- Long-Term Hotel Leases."
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The Indenture provides that no payment (by conversion, exchange, set-off or
otherwise) may be made by or on behalf of the Company on account of any
Obligation or, to the extent the subordination thereof is permitted by
applicable law, claim in respect of the Notes, including the principal of,
premium, if any, or interest on the Notes, or to redeem (or make a deposit in
redemption of), defease (other than payments made by the Trustee pursuant to the
provisions of the Indenture described under "-- Defeasance" with respect to a
defeasance permitted by the Indenture, including the subordinated provisions
thereof) or acquire any of the Notes for cash, property or securities (other
than Junior Securities of the Company), (i) upon the maturity of the Designated
Senior Indebtedness or any other Senior Indebtedness with an aggregate principal
amount in excess of $1 million by lapse of time, acceleration or otherwise,
unless and until all principal of, premium, if any, and interest on such Senior
Indebtedness and all other obligations in respect thereof are first paid in full
in cash or cash equivalents or such payment is duly provided for, or unless and
until any such maturity by acceleration has been rescinded or waived or (ii) in
the event of default in the payment of any principal of, premium, if any, or
interest on or any other amount payable in respect of the Designated Senior
Indebtedness or any other Senior Indebtedness with an aggregate principal amount
in excess of $1 million when it becomes due and payable, whether at maturity or
at a date fixed for prepayment or by declaration or otherwise, unless and until
such payment default has been cured or waived or has otherwise ceased to exist.
Upon the happening of a default (any event that, after notice or passage of
time would be an event of default) or an event of default (any event that
permits the holders of Senior Indebtedness or their representative or
representatives immediately to accelerate its maturity) with respect to any
Designated Senior Indebtedness, other than a default in payment of the principal
of, premium, if any, or interest on such Designated Senior Indebtedness, upon
written notice of such default or event of default given to the Company and the
Trustee by the holders of a majority of the principal amount outstanding of such
Designated Senior Indebtedness or their representative or representatives or, if
such default or event of default results from the acceleration of the Notes,
immediately upon such acceleration, then, unless and until such default or event
of default has been cured or waived or otherwise has ceased to exist, no payment
may be made by or on behalf of the Company with respect to any Obligation or
claim in respect of the Notes, including the principal of, premium, if any, or
interest on the Notes or to redeem (or make a deposit in redemption of), defease
or acquire any of the Notes for cash, property or securities (other than Junior
Securities of the Company). Notwithstanding the foregoing, unless the Designated
Senior Indebtedness in respect of which such default or event of default exists
has been declared due and payable in its entirety within 180 days after the date
written notice of such default or event of default is delivered as set forth
above or the date of such acceleration, as the case may be (the "Payment
Blockage Period"), and such declaration or acceleration has not been rescinded,
the Company shall be required then to pay all sums not paid to the Holders of
the Notes during the Payment Blockage Period due to the foregoing prohibitions
and to resume all other payments as and when due on the Notes. Any number of
such notices may be given; provided, however, that (i) during any 360
consecutive days, only one Payment Blockage Period shall commence and (ii) any
such default or event of default that existed upon the commencement of a Payment
Blockage Period may not be the basis for the commencement of any other Payment
Blockage Period, unless such default or event of default shall have been cured
or waived for a period of not less than 90 consecutive days.
In the event that, notwithstanding the foregoing, any payment or
distribution of assets of the Company from any source whether in cash, property
or securities (other than Junior Securities of the Company), shall be received
by the Trustee or the Holders on account of any Obligation or claim in respect
of the Notes at a time when such payment or distribution is prohibited by the
foregoing provisions, such payment or distribution shall be held in trust for
the benefit of the holders of Senior Indebtedness, and shall be paid or
delivered by the Trustee or such Holders, as the case may be, to the holders of
the Senior Indebtedness remaining unpaid or unprovided for or their
representative or representatives, or to the trustee or trustees under any
indenture pursuant to which any instruments evidencing any of such Senior
Indebtedness may have been issued, ratably according to the aggregate amounts
remaining unpaid on account of the Senior Indebtedness held or represented by
each, for application to the payment of all Senior Indebtedness remaining
unpaid, to the extent necessary to pay or to provide for the payment in full in
cash or cash equivalents of all such Senior Indebtedness, after giving effect to
any concurrent payment or distribution to the holders of such Senior
Indebtedness.
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Upon any distribution of assets of the Company upon any dissolution,
winding up, total or partial liquidation or reorganization or readjustment of
the Company, whether voluntary or involuntary, in bankruptcy, insolvency,
receivership or a similar proceeding or upon assignment for the benefit of
creditors, or any other marshaling of the assets and liabilities of the Company
or otherwise, (i) the holders of all Senior Indebtedness would first be entitled
to receive payment in full in cash or cash equivalents (or have such payment
duly provided for) of the principal, premium, if any, and interest payable in
respect thereof before the Holders would be entitled to receive any payment on
account of the principal of, premium, if any, and interest on the Notes, in
respect of the Redemption Price or Change of Control Payment or otherwise in
respect of the Notes and (ii) any payment or distribution of assets of the
Company of any kind or character, from any source, whether in cash, property or
securities (other than Junior Securities of the Company) to which the Holders or
the Trustee on behalf of the Holders would be entitled, except for the
subordination provisions contained in the Indenture, would be paid by the
liquidating trustee or agent or other person making such a payment or
distribution directly to the holders of Senior Indebtedness remaining unpaid or
unprovided for or their representative or representatives, or to the trustee or
trustees under any indenture pursuant to which any instruments evidencing any of
such Senior Indebtedness may have been issued, ratably according to the
aggregate amounts remaining unpaid on account of the Senior Indebtedness held or
represented by each, for application to the payment of all Senior Indebtedness
remaining unpaid, to the extent necessary to pay or provide for the payment in
full in cash or cash equivalents of all such Senior Indebtedness, after giving
effect to any concurrent payment or distribution to the holders of such Senior
Indebtedness.
The holders of the Senior Indebtedness and their respective representatives
are authorized to demand specific performance of the provisions with respect to
subordination in the Indenture at any time when the Company, any Guarantor or
any Holder shall have failed to comply with any provision with respect to
subordination in the Indenture applicable to it, and the Company, each Guarantor
and each Holder irrevocably waives any defense based on the adequacy of a remedy
at law that might be asserted as a bar to the remedy of specific performance of
such subordination provision in any action brought therefor by the holders of
the Senior Indebtedness and their respective representatives.
By reason of such subordination, in the event of the liquidation or
insolvency of the Company, creditors of the Company who are not holders of
Senior Indebtedness, including Holders of the Notes, may recover less, ratably,
than holders of Senior Indebtedness.
No provision contained in the Indenture or the Notes will affect the
obligation of the Company, which is absolute and unconditional, to pay, when
due, principal of, premium, if any, and interest on the Notes. The subordination
provisions of the Indenture and the Notes will not prevent the occurrence of any
Event of Default under the Indenture or limit the rights of the Trustee or any
Holder, except as provided in the six preceding paragraphs, to pursue any other
rights or remedies with respect to the Notes.
GUARANTEES
Pursuant to the Indenture, each of the Company's Subsidiaries (except for a
number of insignificant Subsidiaries) has, jointly and severally, fully and
unconditionally Guaranteed the Company's obligations under the Notes on an
unsecured senior subordinated basis (each such Guarantee, a "Subsidiary
Guarantee," and each such Subsidiary and each Person who enters into such a
Guarantee subsequent to the date hereof by means of a supplemental indenture, a
"Guarantor"). In addition, the Indenture contains restrictions on the Company's
ability to make Investments in Subsidiaries (or Persons who become Subsidiaries
as a result of such Investments) that are not (or do not become) Guarantors. See
"-- Covenants -- Limitation on Restricted Payments."
The Indebtedness evidenced by each Subsidiary Guarantee (including the
payment of principal of, premium, if any, and interest on the Notes) is
subordinated on the same basis to Guarantor Senior Indebtedness as the Notes are
subordinated to Senior Indebtedness. See "-- Subordination," "Risk
Factors -- Subordination of the Notes" and "-- Fraudulent Conveyance Risks."
The Subsidiary Guarantee of each Guarantor shall be automatically and
unconditionally released and discharged upon any sale, exchange or transfer, to
any Person not an Affiliate of the Company, of (i) all of the Capital Stock
owned by the Company or any Subsidiary of the Company of, or (ii) all or
substantially all the
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assets of, such Guarantor (which sale, exchange or transfer is not prohibited by
the Indenture or is effected pursuant to the foreclosure or other enforcement
(effected in accordance with applicable law) of any lien, pledge or other
security interest securing the payment of any Senior Indebtedness or Guarantor
Senior Indebtedness).
OPTIONAL REDEMPTION
The Notes are redeemable, at the Company's option, in whole or in part, at
any time on or after May 15, 2001 and prior to maturity, upon not less than 30
nor more than 60 days' prior notice mailed by first class mail to each Holders'
last address as it appears in the Security Register, at the following Redemption
Prices (expressed in percentages of principal amount), plus accrued and unpaid
interest, if any, to the Redemption Date (subject to the right of Holders of
record on the relevant Regular Record Date to receive interest due on an
Interest Payment Date that is on or prior to the Redemption Date), if redeemed
during the 12-month period commencing May 15 of the years set forth below:
<TABLE>
<CAPTION>
YEAR REDEMPTION PRICE
------------------------------------------------------------- ----------------
<S> <C>
2001......................................................... 105.250%
2002......................................................... 103.500
2003......................................................... 101.750
2004 and thereafter.......................................... 100.000
</TABLE>
In the case of any partial redemption, selection of the Notes for
redemption will be made by the Trustee in compliance with the requirements of
the principal national securities exchange, if any, on which the Notes are
listed or, if the Notes are not listed on a national securities exchange, on a
pro rata basis, by lot or by such other method as the Trustee in its sole
discretion shall deem to be fair and appropriate; provided that no Note of
$1,000 in principal amount or less shall be redeemed in part. If any Note is to
be redeemed in part only, the notice of redemption relating to such Note shall
state the portion of the principal amount thereof to be redeemed. A new Note in
principal amount equal to the unredeemed portion thereof will be issued in the
name of the Holder thereof upon cancellation of the original Note.
COVENANTS
Limitation on Indebtedness
Under the terms of the Indenture, the Company will not, and will not permit
any of its Restricted Subsidiaries to, Incur any Indebtedness (other than
Permitted Indebtedness, Indebtedness evidenced by the Notes and the Subsidiary
Guarantees and Indebtedness existing on the Closing Date) unless, after giving
effect to the Incurrence of such Indebtedness and the receipt and application of
the proceeds therefrom, the Consolidated Fixed Charge Coverage Ratio would be
greater than 1.75:1 with respect to any Incurrence prior to May 31, 1997, or 2:1
with respect to any Incurrence on or after May 31, 1997.
Notwithstanding the foregoing, the Company and any Restricted Subsidiary
(except as specified below) may Incur each and all of the following (each,
"Permitted Indebtedness"):
(i) Indebtedness of the Company or any of its Restricted Subsidiaries
outstanding at any time in an aggregate principal amount not to exceed an
amount equal to $150 million under the Credit Agreement, less any amount by
which Senior Indebtedness created under the Credit Agreement is permanently
reduced and, in the event the Credit Agreement is a revolving credit
facility, but without duplication, the commitments and availability under
the Credit Facility are permanently reduced as provided under
"-- Limitation on Asset Sales," and Guarantees of such Indebtedness by any
of the Company's Subsidiaries;
(ii) Indebtedness to the Company or any of its Restricted Subsidiaries
as long as such Indebtedness continues to be owed to the Company or any of
its Restricted Subsidiaries;
(iii) Indebtedness ("Permitted Refinancing Indebtedness") issued in
exchange for, or the net proceeds of which are used to refinance (whether
by amendment, renewal, extension or otherwise) or
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refund, then outstanding Indebtedness, other than Indebtedness Incurred
under clause (i), (v), (vii) or (x) of this paragraph, and any successive
refinancings thereof in an amount not to exceed the amount so refinanced or
refunded (plus premiums, accrued interest, fees and expenses); provided
that Indebtedness the proceeds of which are used to refinance or refund the
Notes or Indebtedness that is pari passu with, or subordinated in right of
payment to, the Notes shall only be permitted under this clause (iii) if
(A) in case the Notes are refinanced in part or the Indebtedness to be
refinanced is pari passu with the Notes, such new Indebtedness, by its
terms or by the terms of any agreement or instrument pursuant to which such
new Indebtedness is outstanding, is expressly made pari passu with, or
subordinate in right of payment to, the remaining Notes, (B) in case the
Indebtedness to be refinanced is subordinated in right of payment to the
Notes, such new Indebtedness, by its terms or by the terms of any agreement
or instrument pursuant to which such new Indebtedness is outstanding, is
expressly made subordinate in right of payment to the Notes at least to the
extent that the Indebtedness to be refinanced is subordinated to the Notes
and (C) such new Indebtedness, determined as of the date of Incurrence of
such new Indebtedness, does not mature prior to the Stated Maturity of the
Indebtedness to be refinanced or refunded, and the Average Life of such new
Indebtedness is at least equal to the remaining Average Life of the
Indebtedness to be refinanced or refunded; and provided further that in no
event may Indebtedness of the Company be refinanced pursuant to this clause
(iii) by means of any Indebtedness of any Restricted Subsidiary;
(iv) Indebtedness (A) in respect of performance, surety or appeal
bonds provided in the ordinary course of business consistent with past
practice, (B) under Currency Agreements and Interest Rate Protection
Agreements (provided that, in the case of Currency Agreements that relate
to other Indebtedness, such Currency Agreements do not increase the
Indebtedness of the obligor outstanding at any time other than as a result
of fluctuations in foreign currency exchange rates or by reason of fees,
indemnities and compensation payable thereunder) and (C) arising from
agreements providing for indemnification, adjustment of purchase price or
similar obligations, or from Guarantees or letters of credit, surety bonds
or performance bonds securing any obligations of the Company or any of its
Restricted Subsidiaries pursuant to such agreements, in any case Incurred
in connection with the disposition of any business, assets or Restricted
Subsidiary (other than Guarantees of Indebtedness Incurred by any Person
acquiring all or any portion of such business, assets or Restricted
Subsidiary for the purpose of financing such acquisition), in a principal
amount not to exceed the gross proceeds actually received by the Company or
any Restricted Subsidiary in connection with such disposition;
(v) Indebtedness under letters of credit and bankers' acceptances
issued in the ordinary course of business;
(vi) Acquired Indebtedness; provided that, with respect to this clause
(vi), after giving effect to the Incurrence thereof, the Company could
Incur at least $1.00 of Indebtedness (other than Permitted Indebtedness);
(vii) Indebtedness, in an amount not to exceed $3 million at any one
time outstanding, Incurred by the Company in connection with the purchase,
redemption, acquisition, cancellation or other retirement for value of
shares of Capital Stock of the Company, options on any such shares or
related stock appreciation rights or similar securities held by officers or
employees or former officers or employees of the Company or any of its
Subsidiaries (or their estates or beneficiaries under their estates), upon
death, disability, retirement, severance or termination of employment or
pursuant to any agreement under which such shares of stock or related
rights were issued;
(viii) Indebtedness consisting of a Guarantee permitted by the
provisions described under "-- Limitation on Issuances of Guarantees by
Restricted Subsidiaries" by a Restricted Subsidiary of Indebtedness of the
Company or another Restricted Subsidiary or a Guarantee by the Company of
Indebtedness of a Restricted Subsidiary;
(ix) the Vinings Indebtedness; and
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(x) Indebtedness of the Company or any of its Restricted Subsidiaries
in an aggregate principal amount at any time outstanding not to exceed $25
million.
For purposes of determining compliance with the "Limitation on
Indebtedness" covenant described in the two preceding paragraphs, (A) in the
event that an item of Indebtedness meets the criteria of more than one of the
types of Indebtedness described in the clauses of the preceding paragraph, the
Company, in its sole discretion, shall classify such item of Indebtedness and
only be required to include the amount and type of such Indebtedness in one of
such clauses and (B) the amount of Indebtedness issued at a price that is less
than the principal amount thereof shall be equal to the amount of the liability
in respect thereof determined in conformity with GAAP.
Limitation on Restricted Payments
Under the terms of the Indenture, so long as any of the Notes are
outstanding, the Company will not, and will not permit any Restricted Subsidiary
to, directly or indirectly, after the Closing Date:
(i) declare or pay any dividend or make any distribution on its
Capital Stock (other than dividends or distributions payable solely in
shares of its Capital Stock (other than Redeemable Stock) of the same class
or in options, warrants or other rights to acquire such shares of Capital
Stock) held by Persons other than the Company or any of its Wholly Owned
Restricted Subsidiaries that are Guarantors,
(ii) purchase, redeem, retire or otherwise acquire for value any
shares of Capital Stock of the Company or any Restricted Subsidiary
(including options, warrants or other rights to acquire such shares of
Capital Stock) held by Persons other than the Company or any of its Wholly
Owned Restricted Subsidiaries that are Guarantors,
(iii) make any voluntary or optional principal payment, or voluntary
or optional redemption, repurchase, defeasance, or other acquisition or
retirement for value (other than for value payable solely in Junior
Indebtedness or in shares of Capital Stock that is not Redeemable Stock),
of Indebtedness of the Company that is pari passu with or subordinated in
right of payment to the Notes, or
(iv) make any Investment that is a Restricted Investment
(such payments or any other actions described in clauses (i) through (iv) being
collectively "Restricted Payments") if, at the time of, and after giving effect
to, the proposed Restricted Payment: (A) a Default or Event of Default shall
have occurred and be continuing, (B) the Company could not Incur at least $1.00
of Indebtedness (other than Permitted Indebtedness) or (C) the aggregate amount
expended for all Restricted Payments (the amount so expended, if other than in
cash, to be determined in good faith by the Board of Directors, whose
determination shall be conclusive and evidenced by a Board Resolution) after the
Closing Date shall exceed the sum of (1) 50% of the aggregate amount of the
Adjusted Consolidated Net Income (or, if the Adjusted Consolidated Net Income is
a loss, minus 100% of such amount) (determined by excluding income created by
transfers of assets received by the Company or a Restricted Subsidiary from an
Unrestricted Subsidiary) accrued on a cumulative basis during the period (taken
as one accounting period) beginning on April 1, 1996 and ending on the last day
of the Company's last fiscal quarter ended before the Transaction Date plus (2)
the aggregate net proceeds (including the fair market value of non-cash proceeds
as determined in good faith by the Board of Directors) received by the Company
from the issuance and sale permitted by the Indenture of its Capital Stock
(other than Redeemable Stock) to a Person who is not a Subsidiary of the
Company, including an issuance or sale permitted by the Indenture for cash or
other property upon the conversion of any Indebtedness of the Company subsequent
to the Closing Date, or from the issuance of any options, warrants or other
rights to acquire Capital Stock of the Company (in each case, exclusive of any
Redeemable Stock or any options, warrants or other rights that are redeemable at
the option of the holder, or are required to be redeemed, prior to the Stated
Maturity of the Notes) plus (3) an amount equal to the net reduction in
Investments in Persons that are not Restricted Subsidiaries resulting from
payments of interest on Indebtedness, dividends, repayments of loans or
advances, or other transfers of assets, in each case to the Company or any
Restricted Subsidiary from Persons that are not Restricted Subsidiaries, or from
redesignations of Unrestricted Subsidiaries as Restricted Subsidiaries (valued
in each case as provided
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in the definition of "Investments"), not to exceed, in the case of any Person
that is not a Restricted Subsidiary, the amount of Investments previously made
by the Company and any Restricted Subsidiary in such Person, plus (4) $15
million.
The foregoing provision shall not take into account, and shall not be
violated by reason of: (i) the payment of any dividend within 60 days after the
date of declaration thereof if, at said date of declaration, such payment would
comply with the foregoing paragraph; (ii) the redemption, repurchase, defeasance
or other acquisition or retirement for value of Junior Indebtedness including
premium, if any, and accrued and unpaid interest, with the proceeds of, or in
exchange for, Permitted Refinancing Indebtedness; (iii) the repurchase,
redemption or other acquisition of Capital Stock of the Company in exchange for,
or out of the proceeds of a substantially concurrent offering of, shares of
Capital Stock (other than Redeemable Stock) of the Company; (iv) the redemption,
repurchase, defeasance or other acquisition or retirement for value of Junior
Indebtedness of the Company in exchange for, or out of the proceeds of, a
substantially concurrent offering of, shares of the Capital Stock of the Company
(other than Redeemable Stock); (v) the purchase, redemption, acquisition,
cancellation or other retirement for value of shares of Capital Stock of the
Company, options on any such shares or related stock appreciation rights or
similar securities held by officers or employees or former officers or employees
of the Company or any of its Subsidiaries (or their estates or beneficiaries
under their estates), upon death, disability, retirement, severance or
termination of employment or pursuant to any agreement or plan under which such
shares of stock or related options or other rights were issued; provided that
the aggregate consideration paid for such purchase, redemption, acquisition,
cancellation or other retirement of such shares of Capital Stock or related
rights after the Closing Date does not exceed an aggregate amount of $1 million
in any one fiscal year, with amounts unused in a given fiscal year being
available for use in subsequent fiscal years; (vi) payments or distributions
pursuant to or in connection with a consolidation, merger or transfer of
property or assets that complies with the provisions of the Indenture applicable
to mergers, consolidations and transfers of all or substantially all of the
property and assets of the Company; (vii) Investments made in connection with
(and, in the case of any Investment in excess of $5 million, determined in good
faith by the Board of Directors to be reasonably necessary to consummate) the
acquisition, amendment or other modification of a contract to manage, lease,
operate or franchise a hotel property (or other property or asset used or to be
used in a Hospitality-Related Business) not owned by the Company or the
extension of such a contract beyond its stated term (provided that, if such
hotel property (or other property or asset used or to be used in a
Hospitality-Related Business) is owned by a Related Party, such Investment must
satisfy the requirements of the provisions of the Indenture described under
"-- Limitation on Transactions with Stockholders and Affiliates") and (viii) the
transactions constituting the Formation and the Financing Plan; provided that,
except in the case of clauses (i) and (iii), no Default or Event of Default
shall have occurred and be continuing or occur as a consequence of the actions
or payments set forth therein.
Notwithstanding the foregoing, in the event of an issuance of Capital Stock
of the Company and (1) the repurchase, redemption or other acquisition of
Capital Stock out of the proceeds of such issuance or (2) the acquisition of
Notes or Indebtedness that is subordinated in right of payment to the Notes out
of the proceeds of such issuance, then, in calculating whether the conditions of
clause (C) of the second preceding paragraph have been met with respect to any
subsequent Restricted Payments, the proceeds of any such issuance shall be
included under such clause (C) only to the extent such proceeds are not applied
as described in clause (1) or (2) of this paragraph.
Limitation on Dividend and Other Payment Restrictions Affecting Restricted
Subsidiaries
Under the terms of the Indenture, so long as any of the Notes are
outstanding, the Company will not, and will not permit any Restricted Subsidiary
to, create or otherwise cause or suffer to exist or become effective any
consensual encumbrance or restriction of any kind on the ability of any
Restricted Subsidiary to (i) pay dividends or make any other distributions
permitted by applicable law on any Capital Stock of such Restricted Subsidiary
owned by the Company or any other Restricted Subsidiary, (ii) pay any
Indebtedness or other obligations owed to the Company or any other Restricted
Subsidiary, (iii) make loans or advances to the Company or any other Restricted
Subsidiary or (iv) transfer any of its property or assets to the Company or any
other Restricted Subsidiary.
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The foregoing provisions shall not restrict any encumbrances or
restrictions: (i) contained in the Credit Agreement or existing on the Closing
Date in the Indenture or any other agreements in effect on the Closing Date, and
any extensions, refinancings, renewals or replacements of any of the foregoing;
provided that the encumbrances and restrictions in any such extensions,
refinancings, renewals or replacements are no less favorable in any material
respect to the Holders than those encumbrances or restrictions that are then in
effect and that are being extended, refinanced, renewed or replaced; (ii)
existing under or by reason of applicable law; (iii) existing with respect to
any Person or the property or assets of such Person acquired by the Company or
any Restricted Subsidiary and existing at the time of such acquisition, which
encumbrances or restrictions (A) are not applicable to any Person or the
property or assets of any Person other than such Person or the property or
assets of such Person so acquired and (B) were not put in place in anticipation
of such acquisition, and any extensions, refinancings, renewals or replacements
of any of the foregoing; provided that the encumbrances and restrictions in any
such extensions, refinancings, renewals or replacements are no less favorable in
any material respect to the Holders than those encumbrances or restrictions that
are then in effect and that are being extended, refinanced, renewed or replaced;
(iv) in the case of clause (iv) of the preceding paragraph, arising or agreed to
in the ordinary course of business (A) that restrict in a customary manner the
subletting, assignment or transfer of any property or asset that is a lease,
license, conveyance or contract or similar property or asset, (B) existing by
virtue of any transfer of, agreement to transfer or option or right with respect
to any property or assets of the Company or any Restricted Subsidiary not
otherwise prohibited by the Indenture or (C) not relating to any Indebtedness
and, in each of cases (A), (B) or (C), that do not, individually or in the
aggregate, detract from the value of property or assets of the Company or any
Restricted Subsidiary in any manner material to the Company or any Restricted
Subsidiary; (v) with respect to a Restricted Subsidiary and imposed pursuant to
an agreement that has been entered into for the sale or disposition of all or
substantially all of the Capital Stock of, or property and assets of, such
Restricted Subsidiary; or (vi) in the nature of customary capital expenditure,
furniture, fixture and equipment or similar reserves contained in contracts of
Restricted Subsidiaries for the management, lease, operation or franchise of
hotel properties (or other property or asset used or to be used in a
Hospitality-Related Business). Nothing contained in the preceding paragraph
shall prevent the Company or any Restricted Subsidiary from restricting the sale
or other disposition of property or assets of the Company or any of its
Restricted Subsidiaries that secure Indebtedness of the Company or any of its
Restricted Subsidiaries.
Limitation on the Issuance of Capital Stock of Restricted Subsidiaries
Under the terms of the Indenture, the Company will not permit any
Restricted Subsidiary, directly or indirectly, to issue or sell any shares of
its Capital Stock (including options, warrants or other rights to purchase
shares of such Capital Stock) except (i) to the Company or a Wholly Owned
Restricted Subsidiary of the Company that is a Guarantor or (ii) if, immediately
after giving effect to such issuance or sale, such Restricted Subsidiary would
no longer constitute a Restricted Subsidiary.
Limitation on Issuances of Guarantees by Restricted Subsidiaries
Under the terms of the Indenture, the Company will not permit any
Restricted Subsidiary, directly or indirectly, to Guarantee any Indebtedness of
the Company ("Guaranteed Indebtedness"), unless (i) such Guarantee is not
otherwise in violation of the terms of the Indenture, (ii) except in the event
such Guarantee relates to Indebtedness under the Credit Agreement, such
Restricted Subsidiary is a Guarantor, (iii) except in the event such Guarantee
relates to Indebtedness under the Credit Agreement, such Restricted Subsidiary
waives and will not in any manner whatsoever claim or take the benefit or
advantage of, any rights of reimbursement, indemnity or subrogation or any other
rights against the Company or any other Restricted Subsidiary as a result of any
payment by such Restricted Subsidiary under such Guarantee, and (iv) (A) if the
Guaranteed Indebtedness is pari passu with the Notes in right of payment, then
the Guarantee of such Guaranteed Indebtedness shall be pari passu with, or
subordinated to, the Subsidiary Guarantee of such Restricted Subsidiary in right
of payment, or (B) if the Guaranteed Indebtedness is subordinated to the Notes,
then the Guarantee of such Guaranteed Indebtedness shall be subordinated to the
Subsidiary Guarantee of such Restricted Subsidiary at least to the extent that
the Guaranteed Indebtedness is subordinated to the Notes; provided that this
paragraph shall not be applicable to any Guarantee of any
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Restricted Subsidiary that (x) existed at the time such Person became a
Restricted Subsidiary and (y) was not Incurred in connection with, or in
contemplation of, such Person becoming a Restricted Subsidiary.
Limitation on Transactions with Stockholders and Affiliates
Under the terms of the Indenture, the Company will not, and will not permit
any Restricted Subsidiary to, directly or indirectly, enter into, renew or
extend any transaction (including, without limitation, the purchase, sale, lease
or exchange of property or assets, or the rendering of any service, or the
making of any Investment) with any Related Party (each, a "Related Party
Transaction"), except upon fair and reasonable terms no less favorable to the
Company or such Restricted Subsidiary than could be obtained, at the time of
such transaction or at the time of the execution of the agreement providing
therefor, in a comparable arm's-length transaction with a Person that is not
such a holder or an Affiliate.
Without limiting the foregoing, (a) any Related Party Transaction or series
of related Related Party Transactions with an aggregate value in excess of $1
million (or, in the case of a Related Party Transaction or series of related
Related Party Transactions that relate predominantly to the provision of
services, which relate to services with an aggregate value in excess of $1
million in any fiscal year) must first be approved by a majority of the
directors of the Company who are disinterested in the subject matter of the
transaction, if any, pursuant to a Board Resolution, (b) with respect to any
Related Party Transaction or series of related Related Party Transactions (other
than a Related Party Transaction or series of related Related Party Transactions
that relate predominantly to the provision of services) with an aggregate value
in excess of $10 million but not more than $25 million, the Company must first
obtain either (i) a favorable written opinion from an independent financial
advisor of national reputation as to the fairness from a financial point of view
of such transaction to the Company or such Restricted Subsidiary, as the case
may be or (ii) in the event such Related Party Transaction relates solely to
real estate or other property or assets to be used in a Hospitality-Related
Business (other than stock or other securities) ("Appraisable Assets") or an
entity that holds no material assets other than Appraisable Assets and engages
in no material business other than the holding of Appraisable Assets, a
certificate of a Qualified Appraiser as to the fair value of such Appraisable
Assets and (c) with respect to any Related Party Transaction or series of
related Related Party Transactions (other than a Related Party Transaction or
series of related Related Party Transactions that relate predominantly to the
provision of services) with an aggregate value in excess of $25 million, the
Company must first obtain a favorable written opinion of an independent
financial advisor of national reputation as to the fairness from a financial
point of view of such transaction to the Company or such Restricted Subsidiary,
as the case may be. In the case of any Related Party Transaction among the
Company or any of its Restricted Subsidiaries, a Related Party and one or more
other Persons, only the value of such Related Party Transaction attributable to
the Company shall be considered in calculating the aggregate value of such
Related Party Transaction pursuant to the immediately preceding sentence.
The foregoing limitation does not limit, and shall not apply to (i) the
payment of reasonable and customary regular fees to directors of the Company who
are not employees of the Company; (ii) any Restricted Payments not prohibited by
the "Limitation on Restricted Payments" covenant; (iii) any loans or advances by
the Company to employees of the Company or a Restricted Subsidiary in the
ordinary course of business and in furtherance of the Company's business, in an
aggregate amount not to exceed $2 million at any one time outstanding; (iv) any
extension of a DAB Note or a Capital Contribution Note on terms substantially
identical to its then existing terms or, with the approval of a majority of the
directors of the Company who are disinterested in the subject matter of the
transaction, if any, as evidenced by a Board Resolution, any extension, renewal,
amendment or modification of a DAB Note or a Capital Contribution Note on terms
not substantially less favorable to the Company than its then existing terms;
(v) Related Party Transactions between or among the Company and/or its Wholly
Owned Restricted Subsidiaries; (vi) any grant of stock options or other rights
to employees or directors of the Company or any of its Subsidiaries pursuant to
benefit plans or agreements adopted or authorized by the Company's Independent
Directors; (vii) payments by the Company or a Restricted Subsidiary to employees
of the Company or any of its Subsidiaries (A) of salary, bonus and other
ordinary compensation in the ordinary course of business and (B) pursuant to
employment agreements entered into in compliance with the foregoing two
paragraphs;
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(viii) the transactions constituting the Formation and the Financing Plan; and
(ix) any transaction or series of transactions pursuant to agreements entered
into on or before the date of the Indenture and disclosed in this Prospectus.
Limitation on Asset Sales
Under the terms of the Indenture, the Company shall not effect or permit
any Asset Sale unless (i) such Asset Sale is effected at fair market value (as
determined, either at the time of such Asset Sale or at the time of execution of
the agreement providing therefor, in good faith by the Board of Directors), (ii)
in the case of any Asset Sale or series of related Asset Sales for a total
consideration in excess of $5 million, at least 75% of the consideration is
received in cash (provided that the amount of any Senior Indebtedness of the
Company or any Guarantor Senior Indebtedness of any Guarantor making such Asset
Sale that is assumed by a transferee of the property or assets that are the
subject of such Asset Sale in connection with such Asset Sale shall be deemed to
be cash for purposes of this clause (ii)) and (iii) in the event and to the
extent that the Net Cash Proceeds received by the Company or any of its
Restricted Subsidiaries from one or more Asset Sales occurring on or after the
Closing Date in any period of 12 consecutive months exceed $5 million, then the
Company shall or shall cause the relevant Restricted Subsidiary to (A) within 12
months after the date Net Cash Proceeds so received exceed $5 million in any
period of 12 consecutive months (x) apply an amount equal to such excess Net
Cash Proceeds to permanently repay Senior Indebtedness of the Company or
Indebtedness of any Restricted Subsidiary, in each case owing to a Person other
than the Company or any of its Restricted Subsidiaries, and, in the case of
repayment of Senior Indebtedness arising under the Credit Agreement or other
revolving credit facility, effect a permanent reduction in the commitments or
availability under the Credit Agreement or such other facility or (y) invest an
equal amount, or the amount not so applied pursuant to clause (x) (or enter into
a definitive agreement committing to so invest within 12 months after the date
of such agreement), in property or assets that are to be used in a
Hospitality-Related Business (as determined in good faith by the Board of
Directors, whose determination shall be conclusive and evidenced by a Board
Resolution) and (B) apply (no later than the end of the 12-month period referred
to in clause (A) above) such excess Net Cash Proceeds (to the extent not applied
pursuant to clause (A) above) as provided in the following four paragraphs. The
amount of such excess Net Cash Proceeds required to be applied (or to be
committed to be applied) during such 12-month period as set forth in clause (A)
of the preceding sentence and not applied as so required by the end of such
period shall constitute "Excess Proceeds."
If, as of the first day of any calendar month, the aggregate amount of
Excess Proceeds not theretofore subject to an Excess Proceeds Offer (as defined
below) totals at least $5 million, the Company must, not later than the
fifteenth Business Day of such month, make an offer (an "Excess Proceeds Offer")
to purchase from the Holders on a pro rata basis an aggregate principal amount
of Notes equal to the Excess Proceeds on such date, at a purchase price equal to
100% of the principal amount of the Notes, plus, in each case, accrued interest
(if any) to the date of purchase (the "Excess Proceeds Payment").
The Company shall commence an Excess Proceeds Offer by mailing a notice to
the Trustee and each Holder stating: (i) that the Excess Proceeds Offer is being
made pursuant to the "Limitation on Asset Sales" covenant of the Indenture and
that all Notes validly tendered will be accepted for payment on a pro rata
basis; (ii) the purchase price and the date of purchase (which shall be the date
20 Business Days from the date such notice is mailed) (the "Excess Proceeds
Payment Date"); (iii) that any Note not tendered will continue to accrue
interest pursuant to its terms; (iv) that, unless the Company defaults in the
payment of the Excess Proceeds Payment, any Note accepted for payment pursuant
to the Excess Proceeds Offer shall cease to accrue interest on and after the
Excess Proceeds Payment Date; (v) that Holders electing to have a Note purchased
pursuant to the Excess Proceeds Offer will be required to surrender the Note,
together with the form entitled "Option of the Holder to Elect Purchase" on the
reverse side of the Note completed, to the Paying Agent at the address specified
in the notice prior to the close of business on the Business Day immediately
preceding the Excess Proceeds Payment Date; (vi) that such Holder will be
entitled to withdraw his or her election if the Paying Agent receives, not later
than the close of business on the third Business Day immediately preceding the
Excess Proceeds Payment Date, a telegram, facsimile transmission or letter
setting
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forth the name of such Holder, the principal amount of Notes delivered for
purchase and a statement that such Holder is withdrawing his or her election to
have such Notes purchased; and (vii) that Holders whose Notes are being
purchased only in part will be issued new Notes equal in principal amount to the
unpurchased portion of the Notes surrendered; provided that each Note purchased
and each new Note issued shall be in a principal amount of $1,000 or integral
multiples thereof.
On the Excess Proceeds Payment Date, the Company shall (i) accept for
payment on a pro rata basis Notes or portions thereof tendered pursuant to the
Excess Proceeds Offer; (ii) deposit with the Paying Agent money sufficient to
pay the purchase price of all Notes or portions thereof so accepted; and (iii)
deliver, or cause to be delivered, to the Trustee all Notes or portions thereof
so accepted together with an Officers' Certificate specifying the Notes or
portions thereof accepted for payment by the Company. The Paying Agent shall
promptly mail to the Holders of Notes so accepted payment in an amount equal to
the purchase price, and the Trustee shall promptly authenticate and mail to such
Holders a new Note equal in principal amount to any unpurchased portion of the
Note surrendered; provided that each Note purchased and each new Note issued
shall be in a principal amount of $1,000 or integral multiples thereof. The
Company will publicly announce the results of the Excess Proceeds Offer as soon
as practicable after the Excess Proceeds Payment Date. For purposes of the
"Limitation on Asset Sales" covenant of the Indenture, the Trustee shall act as
the Paying Agent.
The Company will comply with Rule 14e-1 under the Exchange Act and any
other securities laws and regulations thereunder to the extent such laws and
regulations are applicable, in the event that such Excess Proceeds are received
by the Company under the "Limitation on Asset Sales" covenant of the Indenture
and the Company is required to repurchase Notes as described above.
Notwithstanding the provisions of the five immediately preceding
paragraphs, the Company and its Restricted Subsidiaries may, in the ordinary
course of business (or, if otherwise than in the ordinary course of business,
upon receipt of (i) a favorable written opinion from an independent financial
advisor of national reputation as to the fairness from a financial point of view
to the Company or such Restricted Subsidiary of the proposed transaction or (ii)
in the case of a transaction or series of related transactions with an aggregate
value of not more than $25 million that relates solely to Appraisable Assets or
an entity that holds no material assets other than Appraisable Assets and
engages in no material business other than the holding of Appraisable Assets, a
certificate of a Qualified Appraiser as to the fair value of such Appraisable
Assets), exchange all or a portion of its property, businesses or assets for
property, businesses or assets that, or Capital Stock of a Person all or
substantially all of whose assets, are of a type used in a Hospitality-Related
Business (provided that such Person shall initially be designated a Restricted
Subsidiary if such Person becomes a Subsidiary of the Company by virtue of such
Asset Sale), or a combination of any such property, businesses or assets, or
Capital Stock of such a Person and cash or cash equivalents; provided that (i)
there shall not exist immediately prior or subsequent thereto a Default or an
Event of Default, (ii) a majority of the Independent Directors of the Company
shall have approved a Board Resolution that such exchange is fair to the Company
or such Restricted Subsidiary, as the case may be, and (iii) any cash or cash
equivalents received pursuant to any such exchange shall be applied in the
manner applicable to Net Cash Proceeds from an Asset Sale as set forth pursuant
to the provisions of the five immediately preceding paragraphs; and provided,
further, that any Capital Stock of a Person received in an Asset Sale pursuant
to this paragraph shall be owned directly by the Company or a Restricted
Subsidiary and, when combined with the Capital Stock of such Person already
owned by the Company and its Restricted Subsidiaries, shall constitute a
majority of the voting power and Capital Stock of such Person.
Limitation on Other Subordinated Indebtedness
Under the terms of the Indenture, the Company will not Incur any
Indebtedness that is both subordinate in right of payment to any Senior
Indebtedness and senior in right of payment to the Notes, and no Guarantor will
Incur any Indebtedness that is both subordinate in right of payment to any
Guarantor Senior Indebtedness of such Guarantor and senior in right of payment
to such Guarantor's Guarantee of the Notes.
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Limitation on Line of Business
Under the terms of the Indenture, for so long as any of the Notes are
outstanding, the Company will not, and will not permit any of its Restricted
Subsidiaries to, engage in any business or activity other than a
Hospitality-Related Business.
Reports
Under the terms of the Indenture, whether or not required by the rules and
regulations of the Commission, so long as any Notes are outstanding, the Company
will furnish to the Holders all quarterly and annual financial information that
would be required to be contained in a filing with the Commission on Forms 10-Q
and 10-K if the Company were required to file such Forms, including a
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and, with respect to the annual information only, a report thereon
by the Company's certified independent accountants. In addition, whether or not
required by the rules and regulations of the Commission, the Company will submit
a copy of all such information with the Commission for public availability
(unless the Commission will not accept such a submission) and file such
information with the Trustee and make such information available to investors
and securities analysts who request it in writing.
REPURCHASE OF NOTES UPON A CHANGE OF CONTROL
Upon the occurrence of a Change of Control, each Holder shall have the
right to require the repurchase of its Notes by the Company in cash pursuant to
the offer described below (the "Change of Control Offer") at a purchase price
equal to 101% of the principal amount thereof, plus accrued interest (if any) to
the date of purchase (the "Change of Control Payment"). Prior to the mailing of
the notice to Holders provided for in the succeeding paragraph, but in any event
within 30 days following any Change of Control, the Company covenants to (i)
repay in full all indebtedness of the Company that would prohibit the repurchase
of the Notes as provided for in the succeeding paragraph or (ii) obtain any
requisite consents under instruments governing any such indebtedness of the
Company to permit the repurchase of the Notes as provided for in the succeeding
paragraph. The Company shall first comply with the covenant in the preceding
sentence before it shall be required to repurchase Notes pursuant to the
"Repurchase of Notes upon a Change of Control" covenant of the Indenture.
Notwithstanding the foregoing, a third party may make the Change of Control
Offer on behalf of the Company, provided such Change of Control Offer is made in
the manner, at the times and otherwise in accordance with the requirements
applicable to a Change of Control made by the Company and such third party
purchases all Notes validly tendered and not withdrawn pursuant to such Change
of Control Offer.
Within 30 days of the Change of Control, the Company shall mail a notice to
the Trustee and each Holder stating: (i) that a Change of Control has occurred
(and a brief description of the events resulting in such Change of Control),
that the Change of Control Offer is being made pursuant to the "Repurchase of
Notes upon a Change of Control" covenant of the Indenture and that all Notes
validly tendered will be accepted for payment; (ii) the purchase price and the
date of purchase (which shall be the date 20 Business Days from the date such
notice is mailed) (the "Change of Control Payment Date"); (iii) that any Note
not tendered will continue to accrue interest pursuant to its terms; (iv) that,
unless the Company defaults in the payment of the Change of Control Payment, any
Note accepted for payment pursuant to the Change of Control Offer shall cease to
accrue interest on and after the Change of Control Payment Date; (v) that
Holders electing to have any Note or portion thereof purchased pursuant to the
Change of Control Offer will be required to surrender such Note, together with
the form entitled "Option of the Holder to Elect Purchase" on the reverse side
of such Note completed, to the Paying Agent at the address specified in the
notice prior to the close of business on the Business Day immediately preceding
the Change of Control Payment Date; (vi) that Holders will be entitled to
withdraw their election if the Paying Agent receives, not later than the close
of business on the third Business Day immediately preceding the Change of
Control Payment Date, a telegram, telex, facsimile transmission or letter
setting forth the name of such Holder, the principal amount of Notes delivered
for purchase and a statement that such Holder is withdrawing his or her election
to have such Notes purchased; and (vii) that Holders whose Notes are being
purchased only in part will be issued new Notes equal in principal amount to the
unpurchased portion of the Notes surrendered; provided that each
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Note purchased and each new Note issued shall be in a principal amount of $1,000
or integral multiples thereof.
On or before the Change of Control Payment Date, the Company shall: (i)
accept for payment Notes or portions thereof tendered pursuant to the Change of
Control Offer; (ii) deposit with the Paying Agent money sufficient to pay the
purchase price of all Notes or portions thereof so accepted; and (iii) deliver,
or cause to be delivered, to the Trustee, all Notes or portions thereof so
accepted together with an Officers' Certificate specifying the Notes or portions
thereof accepted for payment by the Company. The Paying Agent shall promptly
mail, to the Holders of Notes so accepted, payment in an amount equal to the
purchase price, and the Trustee shall promptly authenticate and mail to such
Holders a new Note equal in principal amount to any unpurchased portion of the
Notes surrendered; provided that each Note purchased and each new Note issued
shall be in a principal amount of $1,000 or integral multiples thereof. The
Company will publicly announce the results of the Change of Control Offer on or
as soon as practicable after the Change of Control Payment Date. For purposes of
the "Repurchase of Notes upon a Change of Control" covenant of the Indenture,
the Trustee shall act as Paying Agent.
The Company will comply with Rule 14e-1 under the Exchange Act and any
other securities laws and regulations thereunder to the extent such laws and
regulations are applicable in the event that a Change of Control occurs and the
Company is required to repurchase the Notes under the "Repurchase of Notes upon
a Change of Control" covenant of the Indenture.
If the Company is unable to repay all of its indebtedness that would
prohibit repurchase of the Notes or is unable to obtain the consents of the
holders of indebtedness, if any, of the Company outstanding at the time of a
Change of Control whose consent would be so required to permit the repurchase of
Notes, then the Company will have breached the "Repurchase of Notes upon a
Change of Control" covenant of the Indenture. This breach will constitute an
Event of Default under the Indenture if it continues for a period of 30
consecutive days after written notice is given to the Company by the Trustee or
the Holders of at least 25% in aggregate principal amount of the Notes
outstanding. In addition, the failure by the Company to repurchase Notes at the
conclusion of the Change of Control Offer will constitute an Event of Default
without any waiting period or notice requirements.
There can be no assurances that the Company will have sufficient funds
available or will be able to obtain third-party financing at the time of any
Change of Control to make any debt payment (including repurchases of Notes)
required by the "Repurchase of Notes upon a Change of Control" covenant of the
Indenture (as well as may be required by the terms of other securities of the
Company that might be outstanding at the time). The "Repurchase of Notes upon a
Change of Control" covenant of the Indenture will, unless the consents referred
to above are obtained, require the Company to repay all indebtedness then
outstanding that by its terms would prohibit such a Note repurchase, either
prior to or concurrently with such Note repurchase. It is anticipated that the
terms of the Revolving Credit Facility will prohibit such a Note repurchase. The
occurrence of a Change of Control is anticipated to constitute a default under
the Revolving Credit Facility and may constitute a default under other Senior
Indebtedness.
EVENTS OF DEFAULT
The following events will be defined as "Events of Default" in the
Indenture: (a) default in the payment of principal of or premium, if any, on any
Note when the same becomes due and payable at maturity, upon acceleration,
redemption or otherwise; (b) default in the payment of interest on any Note when
the same becomes due and payable, and such default continues for a period of 30
days; (c) the Company or any Guarantor defaults in the performance of or
breaches any other covenant or agreement of the Company in the Indenture or
under the Notes and such default or breach continues for a period of 45
consecutive days after written notice by the Trustee or the Holders of 25% or
more in aggregate principal amount of the Notes; (d) there occurs with respect
to any issue or issues of (i) Recourse Indebtedness of the Company or any of its
Significant Subsidiaries having an outstanding principal amount, in the
aggregate for all such issues of all such Persons, of $10 million or more,
whether such Indebtedness now exists or shall hereafter be created, or (ii)
Non-Recourse Indebtedness of the Company or any of its Significant Subsidiaries
having an outstanding
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principal amount, in the aggregate for all such issues of all such Persons, in
excess of the greater of (A) $15 million or (B) 10% of the aggregate assets of
the Company and its Restricted Subsidiaries, measured as of the end of the
Company's most recent fiscal quarter for which internal financial statements are
available immediately preceding the date on which such default occurred,
determined on a pro forma basis, whether such Non-Recourse Indebtedness now
exists or shall hereafter be created, an event of default that has caused the
holder thereof to declare such Indebtedness to be due and payable prior to its
Stated Maturity or a failure to pay such Indebtedness at its Stated Maturity,
provided that, with respect to both clause (i) and clause (ii), such declaration
and acceleration or such failure to pay, as the case may be, is not rescinded or
cured within 10 days after the later of (x) the Closing Date and (y) the date of
such declaration and acceleration or such failure to pay, and provided further
that for purposes of calculating any amount pursuant to this clause (d), the
principal amount of the Vinings Indebtedness shall be zero if and so long as no
Person shall have any right, by law, contract, ownership of securities or
otherwise, to exercise any default remedy under the Vinings Indebtedness or any
related instrument, agreement or other document (collectively, the "Vinings Bond
Documents"), to take any other action to enforce against any Person the
obligation to pay any principal amount of, interest on or other amount payable
in respect of, the Vinings Bond Documents or any Indebtedness or other
Obligations created or evidenced thereby or to exercise any right to foreclose,
draw or otherwise realize on any letter of credit, other credit enhancement,
mortgage, pledge or other security for the Vinings Bond Documents or any such
Indebtedness or other Obligations; (e) any final judgment or order (other than
that portion of a final judgment or order as to which a reputable insurance
company has accepted full liability) for the payment of money in excess of $10
million (or, in the case of such a judgment in respect of Non-Recourse
Indebtedness, in excess of the greater of (i) $15 million or (ii) 10% of the
aggregate assets of the Company and its Restricted Subsidiaries, measured as of
the end of the Company's most recent fiscal quarter for which internal financial
statements are available immediately preceding the date on which such default
occurred, determined on a pro forma basis) in the aggregate for all such final
judgments or orders shall be rendered against the Company or any of its
Significant Subsidiaries and shall not be paid or discharged, and there shall be
any period of 30 consecutive days following entry of the final judgment or order
that causes the aggregate amount for all such final judgments or orders
outstanding and not paid or discharged against all such Persons to exceed $10
million (or, in the case all such judgments are in respect of Non-Recourse
Indebtedness, in excess of the greater of (i) $15 million or (ii) 10% of the
aggregate assets of the Company and its Restricted Subsidiaries, measured as of
the end of the Company's most recent fiscal quarter for which internal financial
statements are available immediately preceding the date on which such default
occurred, determined on a pro forma basis) during which a stay of enforcement of
such final judgment or order, by reason of a pending appeal or otherwise, shall
not be in effect; (f) a court having jurisdiction in the premises enters a
decree or order for (A) relief in respect of the Company or any of its
Significant Subsidiaries in an involuntary case under any applicable bankruptcy,
insolvency or other similar law now or hereafter in effect, (B) appointment of a
receiver, liquidator, assignee, custodian, trustee, sequestrator or similar
official of the Company or any of its Significant Subsidiaries or for all or
substantially all of the property and assets of the Company or any of its
Significant Subsidiaries or (C) the winding up or liquidation of the affairs of
the Company or any of its Significant Subsidiaries and, in each case, such
decree or order shall remain unstayed and in effect for a period of 60
consecutive days; or (g) the Company or any of its Significant Subsidiaries (A)
commences a voluntary case under any applicable bankruptcy, insolvency or other
similar law now or hereafter in effect, or consents to the entry of an order for
relief in an involuntary case under any such law, (B) consents to the
appointment of or taking possession by a receiver, liquidator, assignee,
custodian, trustee, sequestrator or similar official of the Company or any of
its Significant Subsidiaries or for all or substantially all of the property and
assets of the Company or any of its Significant Subsidiaries or (C) effects any
general assignment for the benefit of creditors.
If an Event of Default (other than an Event of Default specified in clause
(f) or (g) above that occurs with respect to the Company) occurs and is
continuing under the Indenture, the Trustee or the Holders of at least 25% in
aggregate principal amount of the Notes then outstanding, by written notice to
the Company (and to the Trustee if such notice is given by the Holders) (the
"Acceleration Notice"), may, and the Trustee at the request of such Holders
shall, declare the principal of, premium, if any, and accrued interest on the
Notes to be immediately due and payable. Upon a declaration of acceleration,
such principal of, premium, if any, and
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accrued interest shall be immediately due and payable. In the event of a
declaration of acceleration because an Event of Default set forth in clause (d)
above has occurred and is continuing, such declaration of acceleration shall be
automatically rescinded and annulled if the event of default or payment default
triggering such Event of Default pursuant to clause (d) shall be remedied or
cured by the Company and/or the relevant Significant Subsidiaries or waived by
the holders of the relevant Indebtedness within 60 days after the declaration of
acceleration with respect thereto. If an Event of Default specified in clause
(f) or (g) above occurs with respect to the Company, the principal of, premium,
if any, and accrued interest on the Notes then outstanding shall ipso facto
become and be immediately due and payable without any declaration or other act
on the part of the Trustee or any Holder. The Holders of at least a majority in
principal amount of the outstanding Notes, by written notice to the Company and
to the Trustee, may waive all past defaults and rescind and annul a declaration
of acceleration and its consequences if (i) all existing Events of Default,
other than the nonpayment of the principal of, premium, if any, and interest on
the Notes that have become due solely by such declaration of acceleration, have
been cured or waived and (ii) the rescission would not conflict with any
judgment or decree of a court of competent jurisdiction. For information as to
the waiver of defaults, see "-- Modification and Waiver."
The Holders of at least a majority in aggregate principal amount of the
outstanding Notes may direct the time, method and place of conducting any
proceeding for any remedy available to the Trustee or exercising any trust or
power conferred on the Trustee. However, the Trustee may refuse to follow any
direction that conflicts with law or the Indenture, that may involve the Trustee
in personal liability, or that the Trustee determines in good faith may be
unduly prejudicial to the rights of Holders of Notes not joining in the giving
of such direction and may take any other action it deems proper that is not
inconsistent with any such direction received from Holders of Notes. A Holder
may not pursue any remedy with respect to the Indenture or the Notes unless: (i)
the Holder gives the Trustee written notice of a continuing Event of Default;
(ii) the Holders of at least 25% in aggregate principal amount of outstanding
Notes make a written request to the Trustee to pursue the remedy; (iii) such
Holder or Holders offer the Trustee indemnity satisfactory to the Trustee
against any costs, liability or expense; (iv) the Trustee does not comply with
the request within 60 days after receipt of the request and the offer of
indemnity; and (v) during such 60-day period, the Holders of at least a majority
in aggregate principal amount of the outstanding Notes do not give the Trustee a
direction that is inconsistent with the request. However, such limitations do
not apply to the right of any Holder of a Note to receive payment of the
principal of, premium, if any, or interest on, such Note or to bring suit for
the enforcement of any such payment, on or after the due date expressed in the
Notes, which right shall not be impaired or affected without the consent of the
Holder.
The Indenture will require certain officers of the Company to certify, on
or before a date not more than 120 days after the end of each fiscal year, that
they have conducted or supervised a review of the activities of the Company and
its Restricted Subsidiaries and the Company's and its Restricted Subsidiaries'
performance under the Indenture and that, to the best of such officer's
knowledge, based upon such review, the Company has fulfilled all obligations
thereunder or, if there has been a default in the fulfillment of any such
obligation, specifying each such default and the nature and status thereof. The
Company will also be obligated to notify the Trustee of any default or defaults
in the performance of any covenants or agreements under the Indenture.
CONSOLIDATION, MERGER AND SALE OF ASSETS
The Company shall not consolidate with, merge with or into, or sell,
convey, transfer, lease or otherwise dispose of all or substantially all of its
property and assets (as an entirety or substantially an entirety in one
transaction or a series of related transactions) to any Person (other than a
consolidation with or merger with or into a Wholly Owned Restricted Subsidiary
that is a Guarantor and has a positive net worth); provided that, in connection
with any such merger of the Company with such a Wholly Owned Restricted
Subsidiary, no consideration (other than Common Stock in the surviving Person or
the Company) shall be issued or distributed to the stockholders of the Company)
nor permit any Person to merge with or into the Company unless: (i) the Company
shall be the continuing Person, or the Person (if other than the Company) formed
by such consolidation or into which the Company is merged or that acquired or
leased such property and assets of the Company shall be a corporation organized
and validly existing under the laws of the United States of
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America or any jurisdiction thereof and shall expressly assume, by a
supplemental indenture, executed and delivered to the Trustee, all of the
obligations of the Company on all of the Notes and under the Indenture; (ii)
immediately prior to and immediately after giving effect to such transaction, no
Default or Event of Default shall have occurred and be continuing; (iii)
immediately after giving effect to such transaction on a pro forma basis, the
Company or any Person becoming the successor obligor of the Notes shall have a
Consolidated Net Worth equal to or greater than the Consolidated Net Worth of
the Company immediately prior to such transaction; (iv) immediately after giving
effect to such transaction on a pro forma basis, the Company or any Person
becoming the successor obligor of the Notes could Incur at least $1.00 of
Indebtedness (other than Permitted Indebtedness); (v) the Company delivers to
the Trustee an Officers' Certificate (attaching the arithmetic computations to
demonstrate compliance with clauses (iii) and (iv) above) and Opinion of
Counsel, in each case stating that such consolidation, merger or transfer and
such supplemental indenture complies with this provision and that all conditions
precedent provided for herein relating to such transaction have been complied
with; provided, however, that clauses (iii) and (iv) above do not apply if, in
the good faith determination of the Board of Directors of the Company, whose
determination shall be evidenced by a Board Resolution, the principal purpose of
such transaction is to change the state of incorporation of the Company; and
provided further that any such transaction shall not have as one of its purposes
the evasion of the foregoing limitations.
DEFEASANCE
Defeasance and Discharge. The Indenture will provide that the Company will
be deemed to have paid and will be discharged from any and all obligations in
respect of the Notes (and each Guarantor will be discharged from any and all
obligations in respect of the Subsidiary Guarantees) on the 123rd day after the
deposit referred to below, and the provisions of the Indenture will no longer be
in effect with respect to the Notes and the Subsidiary Guarantees (except for,
among other matters, certain obligations to register the transfer or exchange of
the Notes, to replace stolen, lost or mutilated Notes, to maintain paying
agencies and to hold monies for payment in trust) if, among other things, (A)
the Company has deposited with the Trustee, in trust, money and/or U.S.
Government Obligations that through the payment of interest and principal in
respect thereof in accordance with their terms will provide money in an amount
sufficient to pay the principal of, premium, if any, and accrued interest on the
Notes on the Stated Maturity of such payments in accordance with the terms of
the Indenture and the Notes, (B) the Company has delivered to the Trustee (i)
either (x) an Opinion of Counsel to the effect that Holders will not recognize
income, gain or loss for federal income tax purposes as a result of the
Company's exercise of its option under this "Defeasance" provision and will be
subject to federal income tax on the same amount and in the same manner and at
the same times as would have been the case if such deposit, defeasance and
discharge had not occurred, which Opinion of Counsel must be based upon (and
accompanied by a copy of) a ruling of the Internal Revenue Service to the same
effect unless there has been a change in applicable federal income tax law after
the date of the Indenture such that a ruling is no longer required or (y) a
ruling directed to the Trustee received from the Internal Revenue Service to the
same effect as the aforementioned Opinion of Counsel and (ii) an Opinion of
Counsel to the effect that the creation of the defeasance trust does not violate
the Investment Company Act of 1940 and after the passage of 123 days following
the deposit, the trust fund will not be subject to the effect of Section 547 of
the United States Bankruptcy Code or Section 15 of the New York Debtor and
Creditor Law, (C) immediately after giving effect to such deposit on a pro forma
basis, no Event of Default, or event that after the giving of notice or lapse of
time or both would become an Event of Default, shall have occurred and be
continuing on the date of such deposit or during the period ending on the 123rd
day after the date of such deposit, and such deposit shall not result in a
breach or violation of, or constitute a default under, any other agreement or
instrument to which the Company or any Guarantor is a party or by which the
Company or any Guarantor is bound, and (D) if at such time the Notes are listed
on a national securities exchange, the Company has delivered to the Trustee an
Opinion of Counsel to the effect that the Notes will not be delisted as a result
of such deposit, defeasance and discharge.
Defeasance of Certain Covenants and Certain Events of Default. The
Indenture further will provide that (x) the provisions of the Indenture will no
longer be in effect with respect to clauses (iii) and (iv) under
"-- Consolidation, Merger and Sale of Assets" and all the covenants described
under "-- Covenants," and
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(y) clause (c) under "-- Events of Default" with respect to such clauses and
covenants and clauses (d) and (e) under "-- Events of Default" shall be deemed
not to be Events of Default, upon, among other things, the deposit with the
Trustee, in trust, of money and/or U.S. Government Obligations that through the
payment of interest and principal in respect thereof in accordance with their
terms will provide money in an amount sufficient to pay the principal of,
premium, if any, and accrued interest on the Notes on the Stated Maturity of
such payments in accordance with the terms of the Indenture and the Notes, the
satisfaction of the provisions described in clauses (B)(ii), (C) and (D) of the
preceding paragraph and the delivery by the Company to the Trustee of an Opinion
of Counsel to the effect that, among other things, the Holders will not
recognize income, gain or loss for federal income tax purposes as a result of
such deposit and defeasance of certain covenants and Events of Default and will
be subject to federal income tax on the same amount and in the same manner and
at the same times as would have been the case if such deposit and defeasance had
not occurred.
Defeasance and Certain Other Events of Default. In the event the Company
exercises its option to omit compliance with certain covenants and provisions of
the Indenture as described in the immediately preceding paragraph and the Notes
are declared due and payable because of the occurrence of an Event of Default
that remains applicable, the amount of money and/or U.S. Government Obligations
on deposit with the Trustee will be sufficient to pay amounts due on the Notes
at the time of their Stated Maturity but may not be sufficient to pay amounts
due on the Notes at the time of the acceleration resulting from such Event of
Default. However, the Company will remain liable for such payments. It is
anticipated that the Revolving Credit Facility will prohibit any defeasance
under the Indenture.
MODIFICATION AND WAIVER
The Company, the Guarantors and the Trustee may amend or supplement the
Indenture or the Notes without notice to or the consent of any Holder to (i)
cure any ambiguity, defect or inconsistency in the Indenture; provided that such
amendments or supplements shall not adversely affect the interests of the
Holders in any material respect; (ii) comply with the provisions described under
"-- Consolidation, Merger and Sale of Assets;" (iii) comply with any
requirements of the Commission in connection with the qualification of the
Indenture under the Trust Indenture Act; (iv) evidence and provide for the
acceptance of appointment hereunder by a successor Trustee; or (v) make any
other change that does not materially and adversely affect the rights of any
Holder.
Modifications and amendments of the Indenture may be made by the Company,
the Guarantors and the Trustee with the consent of the Holders of not less than
a majority in aggregate principal amount of the outstanding Notes; provided,
however, that no such modification or amendment may, without the consent of each
Holder affected thereby, (i) change the Stated Maturity of the principal of, or
any installment of interest on, any Note, (ii) reduce the principal amount of,
or premium, if any, or interest on, any Note, (iii) change the place or currency
of payment of principal of, premium, if any, or interest on, any Note, (iv)
impair the right to institute suit for the enforcement of any payment on or
after the Stated Maturity (or, in the case of a redemption, on or after the
Redemption Date) of any Note, (v) reduce the above-stated percentage of
outstanding Notes the consent of whose Holders is necessary to modify or amend
the Indenture, (vi) waive a default in the payment of principal of, premium, if
any, or interest on the Notes, (vii) reduce the percentage or aggregate
principal amount of outstanding Notes the consent of whose Holders is necessary
for waiver of compliance with certain provisions of the Indenture or for waiver
of certain defaults, (viii) modify or change any provision of the Indenture
affecting the ranking of the Notes or the Subsidiary Guarantees in a manner
adverse to the holders of the Notes or (ix) release any Guarantor from any of
its obligations under its Subsidiary Guarantee or the Indenture other than in
accordance with the provisions of the Indenture, or amend or modify any
provision relating to such release. Notwithstanding anything to the contrary
elsewhere in the Indenture, for so long as the Credit Agreement is in effect, no
amendment that (i) modifies the subordination provisions of the Indenture in a
manner adverse to the holders of Indebtedness under the Credit Agreement, (ii)
changes the definition of either Designated Senior Indebtedness or Senior
Indebtedness, (iii) increases the rate of interest on the Notes, (iv) changes
the maturity date of the Notes to a date prior to May 15, 2006, (v) increases
any Redemption Price or (vi) changes the provisions of the Indenture relating to
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the events constituting an Event of Default or acceleration of the Notes
thereupon may be effective unless the holders of a majority of the Senior
Indebtedness then outstanding under the Credit Agreement shall have previously
consented thereto in writing.
Neither the Company nor any of its Subsidiaries will, directly or
indirectly, pay or cause to be paid any consideration, whether by way of
interest, fee or otherwise, to any Holder of any Notes for or as an inducement
to any consent, waiver or amendment of any of the terms or provisions of the
Indenture or the Notes unless such consideration is offered to be paid or agreed
to be paid to all Holders of the Notes that consent, waive or agree to amend in
the time frame set forth in the solicitation documents relating to such consent,
waiver or agreement.
GLOBAL NOTES
The Notes will be issued in the form of one or more fully registered global
Notes (each a "Global Note") deposited with The Depository Trust Company (the
"Depositary") or a nominee thereof. Unless and until it is exchanged in whole or
in part for Notes in definitive registered form, a Global Note may not be
transferred except as a whole by the Depositary to a nominee of the Depositary
or by a nominee of the Depositary to the Depositary or another nominee of the
Depositary or by the Depositary or any such nominee to a successor of the
Depositary or a nominee of such successor.
Ownership of beneficial interests in a Global Note will be limited to
persons that have accounts with the Depositary ("participants") or persons that
may hold interests through participants. Upon the issuance of a Global Note, the
Depositary for such Global Note will credit, on its book-entry registration and
transfer system, the participants' accounts with the respective principal
amounts of the Notes represented by such Global Note beneficially owned by such
participants. The accounts to be credited will be designated by the
Underwriters. Ownership of beneficial interests in such Global Note will be
shown on, and the transfer of such ownership interests will be effected only
through, records maintained by the Depositary (with respect to interests of
participants) and on the records of participants (with respect to interests of
persons holding through participants). The laws of some states may require that
certain purchasers of securities take physical delivery of such securities in
definitive form. Such limits and such laws may impair the ability to own,
transfer or pledge beneficial interests in Global Notes.
So long as the Depositary or its nominee is the owner of record of a Global
Note, the Depositary or such nominee, as the case may be, will be considered the
sole owner or holder of the Notes represented by such Global Note for all
purposes under the Indenture. Except as set forth below, owners of beneficial
interests in a Global Note will not be entitled to have the Note represented by
such Global Note registered in their names, and will not receive or be entitled
to receive physical delivery of such Notes in definitive form and will not be
considered the owners or holders thereof under the Indenture. Accordingly, each
person owning a beneficial interest in a Global Note must rely on the procedures
of the Depositary and, if such person is not a participant, on the procedures of
the participant through which such person owns its interest, to exercise any
rights of a holder of record under the Indenture. The Company understands that
under existing industry practices, if the Company requests any action of holders
or if any owner of a beneficial interest in a Global Note desires to give or
take any action which a holder is entitled to give or take under the Indenture,
the Depositary would authorize the participants holding the relevant beneficial
interests to give or take such action, and such participants would authorize
beneficial owners owning through such participants to give or take such action
or would otherwise act upon the instruction of beneficial owners holding through
them.
Payments of principal of, premium, if any, and interest on Notes
represented by a Global Note registered in the name of the Depositary or its
nominee will be made to such Depositary or such nominee, as the case may be, as
the registered owner of such Global Note. None of the Company, the Trustee or
any other agent of the Company or agent of the Trustee will have any
responsibility or liability for any aspect of the records relating to or
payments made on account of beneficial ownership interests in such Global Note
or for maintaining, supervising or reviewing any records relating to such
beneficial ownership interests.
The Company expects that the Depositary, upon receipt of any payment of
principal, premium, if any, or interest in respect of such Global Note, will
immediately credit participants' accounts with payments in
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amounts proportionate to their respective beneficial interests in such Global
Note as shown on the records of the Depositary. The Company also expects that
payments by participants to owners of beneficial interests in such Global Note
held through such participants will be governed by standing customer
instructions and customary practices, as is now the case with securities held
for the accounts of customers in bearer form or registered in "street name", and
will be the responsibility of such participants.
If the Depositary notifies the Company that it is at any time unwilling or
unable to continue as Depositary or ceases to be eligible under applicable law,
and a successor Depositary eligible under applicable law is not appointed by the
Company within 90 days, the Company will issue such Notes in definitive form in
exchange for such Global Note. In addition, the Company may at any time and in
its sole discretion determine not to have any of the Notes represented by one or
more Global Notes and, in such event, will issue Notes in definitive form in
exchange for all of the Global Note or Global Notes representing such Notes. Any
Notes issued in definitive form in exchange for a Global Note will be registered
in such name or names as the Depositary shall instruct the Trustee. It is
expected that such instructions will be based upon directions received by the
Depositary from participants with respect to ownership of beneficial interests
in such Global Note.
SAME-DAY SETTLEMENT IN RESPECT OF GLOBAL NOTES
So long as any Notes are represented by Global Notes registered in the name
of the Depositary or its nominee, such Notes will trade in the Depositary's
Same-Day Funds Settlement System, and secondary market trading activity in such
Notes will therefore be required by the Depositary to settle in immediately
available funds. No assurance can be given as to the effect, if any, of
settlement in immediately available funds on trading activity in the Notes.
NO PERSONAL LIABILITY OF INCORPORATORS, STOCKHOLDERS, OFFICERS, DIRECTORS, OR
EMPLOYEES
The Indenture provides that no recourse for the payment of the principal
of, premium, if any, or interest on any of the Notes or for any claim based
thereon or otherwise in respect thereof, and no recourse under or upon any
obligation, covenant or agreement of the Company in the Indenture, or in any of
the Notes or because of the creation of any Indebtedness represented thereby,
shall be had against any incorporator, stockholder, officer, director, employee
or controlling person of the Company, of any of its Subsidiaries or of any
predecessor or successor Person thereof. Each Holder, by accepting the Notes,
waives and releases all such liability.
CONCERNING THE TRUSTEE
The Indenture provides that, except during the continuance of a Default,
the Trustee will not be liable, except for the performance of such duties as are
specifically set forth in such Indenture. If an Event of Default has occurred
and is continuing, the Trustee will use the same degree of care and skill in its
exercise as a prudent person would exercise under the circumstances in the
conduct of such person's own affairs.
The Indenture and provisions of the Trust Indenture Act of 1939, as
amended, incorporated by reference therein contain limitations on the rights of
the Trustee, should it become a creditor of the Company, to obtain payment of
claims in certain cases or to realize on certain property received by it in
respect of any such claims, as security or otherwise. The Trustee is permitted
to engage in other transactions; provided, however, that if its acquires any
conflicting interest, it must eliminate such conflict or resign.
CERTAIN DEFINITIONS
Set forth below is a summary of certain of the defined terms used in the
covenants and other provisions of the Indenture. Reference is made to the
Indenture for the full definition of all terms as well as any other capitalized
term used herein for which no definition is provided.
"Acquired Indebtedness" is defined to mean Indebtedness of a Person (i)
existing at the time such Person merged with or into the Company or a Restricted
Subsidiary or became a Restricted Subsidiary or
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(ii) assumed in connection with the acquisition by the Company or a Restricted
Subsidiary of assets from such Person.
"Adjusted Consolidated Net Income" is defined to mean, for any period, the
aggregate net income (or loss) of the Company and its Restricted Subsidiaries
for such period determined in conformity with GAAP; provided that the following
items shall be excluded in computing Adjusted Consolidated Net Income (without
duplication): (i) the net income (or loss) of any Person that is not a
Restricted Subsidiary, except to the extent of the amount of dividends or other
distributions that both (x) are actually paid in cash to the Company or any of
its Restricted Subsidiaries by such Person during such period and (y) when taken
together with all other dividends and distributions paid during such period in
cash to the Company or any of its Restricted Subsidiaries by such Person, are
not in excess of the Company's or any of its Restricted Subsidiaries' pro rata
share of such other Person's aggregate net income earned during such period;
(ii) solely for the purposes of calculating the amount of Restricted Payments
that may be made pursuant to clause (C) of the first paragraph of the
"Limitation on Restricted Payments" covenant described above (and in such case,
except to the extent includable pursuant to clause (i) above), the net income of
any Person accrued prior to the date it becomes a Restricted Subsidiary or is
merged into or consolidated with the Company or any of its Restricted
Subsidiaries or all or substantially all of the property and assets of such
Person are acquired by the Company or any of its Restricted Subsidiaries; (iii)
the net income (or loss) of any Restricted Subsidiary to the extent that the
declaration or payment of dividends or similar distributions by such Restricted
Subsidiary of such net income is not permitted by its charter or any agreement,
instrument, judgment, decree, order, statute, rule or governmental regulation
applicable to such Restricted Subsidiary; (iv) any net gains or losses (on an
after-tax basis) attributable to Asset Sales; and (v) all net after-tax
extraordinary gains and extraordinary losses.
"Affiliate" is defined to mean, as applied to any Person, any other Person
directly or indirectly controlling, controlled by, or under direct or indirect
common control with, such Person. For purposes of this definition, "control"
(including, with correlative meanings, the terms "controlling," "controlled by"
and "under common control with"), as applied to any Person, is defined to mean
the possession, directly or indirectly, of the power to direct or cause the
direction of the management and policies of such Person, whether through the
ownership of voting securities, by contract or otherwise.
"Asset Acquisition" is defined to mean (i) an investment by the Company or
any of its Restricted Subsidiaries in any other Person pursuant to which such
Person shall become a Restricted Subsidiary or shall be merged into or
consolidated with the Company or any of its Restricted Subsidiaries, (ii) an
acquisition by the Company or any of its Restricted Subsidiaries of property or
assets of any Person other than the Company or any of its Restricted
Subsidiaries that constitute substantially all of a division or line of
business, or one or more hotel properties or other material properties used in a
Hospitality-Related Business, of such Person or (iii) the entering into by the
Company or any of its Restricted Subsidiaries of a contract to manage, lease,
operate or franchise one or more hotel properties or other material properties
to be used in a Hospitality-Related Business, but only in a transaction or
series of related transactions involving three or more of such contracts.
"Asset Disposition" is defined to mean (i) the sale or other disposition by
the Company or any of its Restricted Subsidiaries (other than to the Company or
another Restricted Subsidiary) of (A) all or substantially all of the Capital
Stock of any Restricted Subsidiary or (B) all or substantially all of the assets
that constitute a division or line of business, or one or more hotel properties
or other material properties used in a Hospitality-Related Business, of the
Company or any of its Restricted Subsidiaries or (ii) the termination of a
contract to manage, lease, operate or franchise one or more hotel properties or
other material properties used in a Hospitality-Related Business to which the
Company or any of its Restricted Subsidiaries was a party, but only in a
transaction or series of related transactions involving three or more of such
contracts.
"Asset Sale" is defined to mean any sale, transfer or other disposition
(including by way of merger, consolidation or sale-leaseback transactions) in
one transaction or a series of related transactions by the Company or any of its
Restricted Subsidiaries of all or any of its property, business or assets
(including,
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without limitation, the Capital Stock of any Restricted Subsidiary); provided
that the following shall not be included in the definition of "Asset Sale":
(i) any conveyance, sale, lease, transfer or other disposition by a
Restricted Subsidiary of the Company of any or all of its assets (upon
voluntary liquidation or otherwise) to the Company or a Restricted
Subsidiary of the Company that is a Guarantor;
(ii) any conveyance, sale, lease, transfer or other disposition by the
Company or any Restricted Subsidiary of the Company in the ordinary course
of business of assets acquired and held for resale in the ordinary course
of business;
(iii) any conveyance, sale, lease, transfer or other disposition by
the Company and its Restricted Subsidiaries of assets pursuant to and in
accordance with the provisions described under "-- Consolidation, Merger
and Sale of Assets;"
(iv) any sale, lease, transfer or other disposition by the Company or
any Restricted Subsidiary of the Company of damaged, worn out or other
obsolete property in the ordinary course of business;
(v) any abandonment by the Company or any Restricted Subsidiary of the
Company of assets and properties that are no longer useful in its business
and cannot be sold; or
(vi) any transfer by the Company or any Restricted Subsidiary of the
Company of any Capital Stock of any Restricted Subsidiary of the Company to
the Company or any Restricted Subsidiary of the Company that is a
Guarantor.
"Average Life" is defined to mean, at any date of determination with
respect to any debt security, the quotient obtained by dividing (i) the sum of
the products of (A) the number of years from such date of determination to the
dates of each successive scheduled principal payment of such debt security and
(B) the amount of such principal payment by (ii) the sum of all such principal
payments.
"Capital Contribution Notes" is defined to mean those three certain
promissory notes, each payable to Wyndham Management Corporation, a Subsidiary
of the Company, one executed as of December 22, 1995 by WHC-LG Hotel Partners
L.P., a Texas limited partnership, in the original principal amount of
$4,115,263, another executed as of October 2, 1995 by Pleasanton Hotel Partners,
L.P., a Texas limited partnership, in the original principal amount of
$1,350,000, and another executed as of May 26, 1995 by New Orleans Hotel I,
L.P., a Texas limited partnership, in the original principal amount of $966,000.
"Capital Stock" is defined to mean, with respect to any Person, any and all
shares, interests, participations or other equivalents (however designated,
whether voting or non-voting) of such Person's capital stock or other ownership
interests, whether now outstanding or issued after the date of the Indenture,
including, without limitation, all common stock and Preferred Stock.
"Capitalized Lease" is defined to mean, as applied to any Person, any lease
of any property (whether real, personal or mixed) of which the discounted
present value of the rental obligations of such Person as lessee, in conformity
with GAAP, is required to be capitalized on the balance sheet of such Person;
and "Capitalized Lease Obligation" is defined to mean the rental obligations, as
aforesaid, under such lease.
"Change of Control" is defined to mean (i) any sale, transfer or other
conveyance, whether direct or indirect, of a majority of the fair market value
of the assets of the Company, on a consolidated basis, in one transaction or
series of related transactions, to any Person or Persons other than the Company
or one or more of its Restricted Subsidiaries, (ii) any "person" or "group" (as
such terms are used for purposes of Sections 13(d) and 14(d) of the Exchange
Act, whether or not applicable), other than an Excluded Person or Excluded
Group, is or becomes the "beneficial owner" (as such term is used in Rule 13d-3
promulgated pursuant to the Exchange Act), directly or indirectly, of more than
45% of the total voting power in the aggregate of all classes of Capital Stock
of the Company then outstanding normally entitled to vote in elections of
directors, or (iii) during any period of two consecutive years after the Closing
Date, individuals who at the beginning of any such period constituted the Board
of Directors of the Company (together with any new directors whose election by
such Board or whose nomination for election by the stockholders of the
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Company was approved by a majority of the directors then still in office who
were either directors at the beginning of such period or whose election or
nomination for election was previously so approved) cease for any reason to
constitute a majority of the Board of Directors of the Company then in office.
"Closing Date" is defined to mean the date and time at which the Notes are
originally issued under the Indenture.
"Consolidated EBITDA" is defined to mean, for any period, the sum of the
amounts for such period of (i) Adjusted Consolidated Net Income, (ii)
Consolidated Interest Expense, (iii) income taxes, to the extent such amount was
deducted in calculating Adjusted Consolidated Net Income (other than income
taxes (either positive or negative) attributable to extraordinary and
non-recurring gains or losses or sales of assets), (iv) depreciation expense, to
the extent such amount was deducted in calculating Adjusted Consolidated Net
Income, (v) amortization expense, to the extent such amount was deducted in
calculating Adjusted Consolidated Net Income, (vi) all other non-cash items
reducing Adjusted Consolidated Net Income, less all non-cash items increasing
Adjusted Consolidated Net Income, all as determined on a consolidated basis for
the Company and its Restricted Subsidiaries in conformity with GAAP and (vii)
all but the principal component of rentals in respect of Capitalized Lease
Obligations paid, accrued or scheduled to be paid or to be accrued by the
Company and its Restricted Subsidiaries during such period; provided that, if
any Restricted Subsidiary is not a Wholly Owned Restricted Subsidiary,
Consolidated EBITDA shall be reduced (to the extent not otherwise reduced in
accordance with GAAP) by an amount equal to (A) the amount of the Adjusted
Consolidated Net Income attributable to such Subsidiary multiplied by (B) the
quotient of (1) the number of shares of outstanding common stock of such
Subsidiary not owned on the last day of such period by the Company or any of its
Restricted Subsidiaries divided by (2) the total number of shares of outstanding
common stock of such Subsidiary on the last day of such period.
"Consolidated Fixed Charge Coverage Ratio" is defined to mean, on any
Transaction Date, the ratio of (i) the sum of (x) the aggregate amount of
Consolidated EBITDA for the four fiscal quarters for which financial information
in respect thereof is available immediately prior to such Transaction Date (the
"Reference Period") and (y) one-third of the rental expense of the Company and
its Restricted Subsidiaries during such period attributable to operating leases
with an initial term, including any renewals at the option of either party, in
excess of one year to (ii) the aggregate Consolidated Fixed Charges during such
Reference Period. In making the foregoing calculation, (A) pro forma effect
shall be given to (1) any Indebtedness Incurred subsequent to the end of the
Reference Period and prior to the Transaction Date, (2) any Indebtedness
Incurred during such Reference Period to the extent such Indebtedness is
outstanding at the Transaction Date and (3) any Indebtedness to be Incurred on
the Transaction Date, in each case as if such Indebtedness had been Incurred on
the first day of such Reference Period and after giving pro forma effect to the
application of the proceeds thereof as if such application had occurred on such
first day; (B) Consolidated Interest Expense attributable to interest on any
Indebtedness (whether existing or being Incurred) computed on a pro forma basis
and bearing a floating interest rate shall be computed as if the rate in effect
on the Transaction Date (taking into account any Interest Rate Protection
Agreement applicable to such Indebtedness if such Interest Rate Protection
Agreement has a remaining term in excess of 12 months) had been the applicable
rate for the entire period; (C) there shall be excluded from Consolidated Fixed
Charges any Consolidated Fixed Charges related to any amount of Indebtedness,
Redeemable Stock or obligations under leases that was outstanding during such
Reference Period or thereafter but that is not outstanding or is to be repaid on
the Transaction Date, except for Consolidated Interest Expense accrued (as
adjusted pursuant to clause (B) above) during such Reference Period under a
revolving credit or similar arrangement to the extent of the commitment
thereunder (or under any successor revolving credit or similar arrangement) in
effect on the Transaction Date; (D) pro forma effect shall be given to Asset
Dispositions and Asset Acquisitions (including those in connection with the
Formation) (including giving pro forma effect to the application of proceeds of
any Asset Disposition) that occur during such Reference Period or thereafter and
on or prior to the Transaction Date as if they had occurred and such proceeds
had been applied on the first day of such Reference Period; (E) with respect to
any such Reference Period commencing prior to the Closing Date, the issuance of
the Notes and the consummation of the other transactions constituting the
Formation and the Financing Plan shall be deemed to have taken place on the
first day of such Reference Period; and (F) pro
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forma effect shall be given to asset dispositions and asset acquisitions
(including giving pro forma effect to the application of proceeds of any asset
disposition) that have been made by any Person that has become a Restricted
Subsidiary or has been merged with or into the Company or any Restricted
Subsidiary during such Reference Period or subsequent to such period and prior
to the Transaction Date and that would have constituted Asset Dispositions or
Asset Acquisitions had such transactions occurred when such Person was a
Restricted Subsidiary as if such asset dispositions or asset acquisitions were
Asset Dispositions or Asset Acquisitions, respectively, that occurred on the
first day of such Reference Period; provided that to the extent that clause (D)
or (F) of this sentence requires that pro forma effect be given to an asset
acquisition or asset disposition, such pro forma calculation shall be based upon
the four full fiscal quarters immediately preceding the Transaction Date of the
Person, or property or assets of the Person (if such property or assets consist
of a division or line of business of such Person), that is acquired or disposed
for which financial information is available.
"Consolidated Fixed Charges" is defined to mean, for any period, the sum
(without duplication) of (i) Consolidated Interest Expense for such period, (ii)
the interest component of rentals in respect of Capitalized Lease Obligations
paid, accrued or scheduled to be paid or to be accrued by the Company and its
Restricted Subsidiaries during such period, (iii) one-third of the rental
expense of the Company and its Restricted Subsidiaries during such period
attributable to operating leases with an initial term, including any renewals at
the option of either party, in excess of one year, (iv) any amount paid as
dividends on Preferred Stock of the Company during such period and (v) the
product of (x) cash and non-cash dividends (except dividends payable solely in
shares of Capital Stock that are not Redeemable Stock) paid, declared, accrued
or accumulated on any Redeemable Stock of the Company or a Restricted Subsidiary
that is held by a Person other than the Company or a Restricted Subsidiary and
(y) a fraction, the numerator of which is one and the denominator of which is
one minus the sum of the currently effective combined Federal, state, local and
foreign tax rate of the Company and its Restricted Securities.
"Consolidated Interest Expense" is defined to mean, for any period, without
duplication, the aggregate amount of interest in respect of Indebtedness of the
Company and its Restricted Subsidiaries (including amortization of original
issue discount on any Indebtedness and the interest portion of any deferred
payment obligation, calculated in accordance with the effective interest method
of accounting; all commissions, discounts and other fees and charges owed with
respect to letters of credit and bankers' acceptance financing; the net costs
associated with Interest Rate Protection Agreements; and interest on
Indebtedness that is Guaranteed by the Company or any of its Restricted
Subsidiaries); excluding, however, any amount of such interest of any Restricted
Subsidiary if the net income of such Restricted Subsidiary is excluded in the
calculation of Adjusted Consolidated Net Income pursuant to clause (iii) of the
definition thereof (but only in the same proportion as the net income of such
Restricted Subsidiary is excluded from the calculation of Adjusted Consolidated
Net Income pursuant to clause (iii) of the definition thereof).
"Consolidated Net Worth" is defined to mean, at any date of determination,
stockholders' equity of the Company and its Restricted Subsidiaries, less, if
included in such stockholders' equity, any amounts attributable to Redeemable
Stock or any equity security convertible into or exchangeable for Indebtedness
prior to the Stated Maturity of the Notes.
"Credit Agreement" is defined to mean the Revolving Credit Facility (or, if
the Revolving Credit Facility is not entered into with Bankers Trust Company, or
with Bankers Trust Company and one or more other banks and other lenders, a
similar senior credit or loan facility entered into by the Company, one or more
of its Subsidiaries and one or more lenders), as such may be amended,
supplemented, extended, renewed, replaced or modified from time to time,
including, without limitation, by adding parties thereto or increasing the
commitment thereunder. Without limiting the foregoing, any replacement of the
Revolving Credit Facility (or a replacement facility) need not consist solely of
a revolving credit facility, need not be entered into (or effective)
contemporaneously with the termination of the Revolving Credit Facility (or such
replacement) and need not involve the same lenders as the Revolving Credit
Facility (or such replacement). There can only be one such credit agreement
designated to be the "Credit Agreement" at any one time, although there may be
more than one facility thereunder.
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"Default" is defined to mean any event that is, or after notice or passage
of time or both would be, an Event of Default.
"Designated Senior Indebtedness" is defined to mean Senior Indebtedness of
the Company in respect of the Revolving Credit Facility or, after all Senior
Indebtedness of the Company in respect of the Revolving Credit Facility has been
paid in full and the Revolving Credit Facility shall have been terminated,
Indebtedness that otherwise would constitute Senior Indebtedness in respect of
any refinancing or replacement thereof or, if there is no such refinancing or
replacement thereof, or after all Indebtedness of the Company in respect of any
such refinancing or replacement has been paid in full, "Designated Senior
Indebtedness" shall mean any class of Senior Indebtedness the aggregate
principal amount outstanding of which exceeds $10 million and which is
specifically designated in the instrument evidencing such Senior Indebtedness or
the agreement under which such Senior Indebtedness arises as "Designated Senior
Indebtedness."
"Excluded Group" is defined to mean a "group" (as such term is used in
Sections 13(d) and 14(d) of the Exchange Act) that includes one or more Excluded
Persons; provided that the voting power of the Capital Stock of the Company
"beneficially owned" (as such term is used in Rule 13d-3 promulgated under the
Exchange Act) by such Excluded Persons (without attribution to such Excluded
Persons of the ownership by other members of the "group") represents not less
than 75% of the voting power of the Capital Stock "beneficially owned" (as such
term is used in Rule 13d-3 promulgated under the Exchange Act) by such group.
"Excluded Person" is defined to mean each of (i) Mr. or Mrs. Trammell Crow,
any lineal descendant of Mr. and Mrs. Trammell Crow, any trust of which not less
than 75% of the beneficial interests are held by Mr. or Mrs. Trammell Crow or
such lineal descendants or any partnership, corporation or other entity of which
not less than 75% of the outstanding equity interests are owned directly or
indirectly by Mr. or Mrs. Trammell Crow or such lineal descendants, (ii) Wynopt
Investment Partnership Level II, a Delaware limited partnership ("Wynopt II"),
Wynopt Investment Partnership, a Delaware limited partnership ("Wynopt"), or an
Affiliate of Wynopt II or Wynopt (x) of which not less than 75% of the
outstanding equity interests are owned directly or indirectly by the direct or
indirect owners of the outstanding equity interests of Wynopt II and Wynopt as
of the Closing Date and (y) the business and affairs of which are controlled by
Donald J. McNamara, Robert A. Whitman and Daniel A. Decker or any one or more of
them and (iii) a trustee or other fiduciary holding securities under an employee
benefit plan of the Company.
"Existing Real Estate" is defined to mean any real estate owned, leased or
optioned by the Company or any of its Subsidiaries on the Closing Date, or any
real estate on which the Company or any of its Subsidiaries holds a mortgage on
the Closing Date.
"GAAP" is defined to mean generally accepted accounting principles in the
United States of America as in effect as of the date of the Indenture,
including, without limitation, those set forth in the opinions and
pronouncements of the Accounting Principles Board of the American Institute of
Certified Public Accountants and statements and pronouncements of the Financial
Accounting Standards Board or in such other statements by such other entity as
approved by a significant segment of the accounting profession.
"Guarantee" is defined to mean any obligation, contingent or otherwise, of
any Person directly or indirectly guaranteeing any Indebtedness or other
obligation of any other Person and, without limiting the generality of the
foregoing, any obligation, direct or indirect, contingent or otherwise, of such
Person (i) to purchase or pay (or advance or supply funds for the purchase or
payment of) such Indebtedness or other obligation of such other Person (whether
arising by virtue of partnership arrangements, or by agreement to keep-well, to
purchase assets, goods, securities or services, to take-or-pay, or to maintain
financial statement conditions or otherwise) or (ii) entered into for purposes
of assuring in any other manner the obligee of such Indebtedness or other
obligation of the payment thereof or to protect such obligee against loss in
respect thereof (in whole or in part); provided that the term "Guarantee" shall
not include endorsements for collection or deposit in the ordinary course of
business. The term "Guarantee" used as a verb has a corresponding meaning.
Notwithstanding the foregoing, the term "Guarantee" shall not include any
customary contractual indemnity obligation entered into by a Person in the
ordinary course of business consistent with past practice, which obligation (i)
is in the nature of a "completion guarantee," "shortfall guarantee,"
"performance guarantee" or similar obligation entered into in connection with
the acquisition, amendment or
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other modification of a contract to manage, lease, operate or franchise a hotel
property (or other property or asset used or to be used in a Hospitality-Related
Business) not owned by the Company or the extension of such a contract beyond
its stated term (provided that, if such hotel property (or other property or
asset used or to be used in a Hospitality-Related Business) is owned by a
Related Party, such Investment must satisfy the requirements of the provisions
of the Indenture described under "-- Covenants -- Limitation on Transactions
with Stockholders and Affiliates") or (ii) relates to fraud, willful misconduct,
misrepresentation, misapplication of funds, reckless damage to assets or matters
of similar import or customary undertakings with respect to environmental
matters or construction defects.
"Guarantor Senior Indebtedness" is defined to mean (i) Indebtedness of any
Guarantor (other than, as to each Subsidiary Guarantee, the other Subsidiary
Guarantees), except (A) Redeemable Stock of such Guarantor, (B) any obligation
of such Guarantor to the Company or any Subsidiary of the Company, (C) any
Indebtedness of such Guarantor that, by its terms or the terms of the instrument
creating or evidencing such Indebtedness, is pari passu with or expressly
subordinate in right of payment to the Subsidiary Guarantee of such Guarantor
and (D) any Indebtedness of such Guarantor incurred in violation of the covenant
described under "-- Covenants -- Limitation on Other Subordinated Debt" and (ii)
obligations of GHALP Corporation under the GHALP Lease.
"Holder" is defined to mean the holder of a Note.
"Hospitality-Related Business" is defined to mean the hotel, resort,
extended stay lodging, senior living, travel, travel agency, other hospitality,
vacation or travel-related business or any casino, recreational or
athletic-related business and other businesses necessary for, incident to, in
support of, in connection with or arising out such business, including, without
limitation, (i) developing, managing, operating, improving or acquiring lodging
facilities, restaurants and other food-service facilities, sports or other
entertainment facilities or club, convention or meeting facilities, and
marketing services related thereto, (ii) acquiring, developing, managing or
improving the Existing Real Estate, any real estate taken in foreclosure (or
similar settlement) by the Company or any of its Subsidiaries, or any real
estate ancillary or connected to any hotel, resort, extended stay lodging,
senior living, travel, travel agency, other hospitality, vacation or
travel-related business or any casino, recreational or athletic-related business
constructed, leased, owned, managed or operated (or proposed to be constructed,
leased, owned, managed or operated) by the Company or any of its Restricted
Subsidiaries at any time and (iii) other activities related thereto.
"Incur" is defined to mean, with respect to any Indebtedness, to incur,
create, issue, assume, Guarantee or otherwise become liable for or with respect
to, or become responsible for, the payment of, contingently or otherwise, such
Indebtedness; provided that (i) the Indebtedness of a Person existing at the
time such Person became a Subsidiary or a Restricted Subsidiary, as the case may
be, shall be deemed to have been Incurred by such Subsidiary or Restricted
Subsidiary, as the case may be, and (ii) that neither the accrual of interest
nor the accretion of original issue discount shall be considered an Incurrence
of Indebtedness.
"Indebtedness" is defined to mean, with respect to any Person at any date
of determination (without duplication), whether or not Incurred at the date of
the Indenture (i) all indebtedness of such Person for borrowed money (including
all Obligations in respect thereof, but excluding indebtedness resulting from
the inadvertent honoring by a financial institution, against insufficient funds,
of a check, draft or similar instrument (provided that such indebtedness is
extinguished within four business days)), (ii) all Obligations of such Person
evidenced by or in respect of bonds, debentures, notes or other similar
instruments, (iii) all Obligations of such Person in respect of bankers'
acceptances, letters of credit or other similar instruments (including
reimbursement obligations with respect thereto), (iv) all obligations of such
Person to pay the deferred and unpaid purchase price of property or services
(but excluding trade accounts payable or accrued liabilities arising in the
ordinary course of business), (v) all obligations of such Person as lessee under
Capitalized Leases, (vi) all Indebtedness of other Persons secured by a Lien on
any asset of such Person, whether or not such Indebtedness is assumed by such
Person; (provided that the amount of such Indebtedness shall be the lesser of
(A) the fair market value of such asset at such date of determination and (B)
the amount of such Indebtedness), (vii) all Indebtedness of other Persons
Guaranteed by such Person to the extent such Indebtedness is Guaranteed by such
Person, (viii) to the extent not otherwise included in this
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definition, obligations under Currency Agreements and Interest Rate Protection
Agreements, (ix) the liquidation preference and any mandatory redemption payment
obligations (without duplication) of any Restricted Subsidiary in respect of
Preferred Stock issued by such Restricted Subsidiary and (x) the maximum fixed
redemption or repurchase price of any Redeemable Stock issued by such Person. In
addition, "Indebtedness" of any Person shall include Indebtedness described in
the foregoing clauses (i), (ii) or (iv) that would not appear as a liability on
the balance sheet of such Person if (1) such Indebtedness is the obligation of a
partnership or joint venture that is not a Restricted Subsidiary (a "Joint
Venture"), (2) such Person or a Restricted Subsidiary is a general partner of
the Joint Venture (a "General Partner") and (3) there is recourse, by contract
or operation of law, with respect to the payment of such Indebtedness to
property or assets of such Person or a Restricted Subsidiary; and such
Indebtedness shall be included in an amount not to exceed (x) the greater of (A)
the net assets of the General Partner and (B) the amount of such obligations to
the extent that there is recourse, by contract or operation of law, to the
property or assets of such Person or a Restricted Subsidiary (other than the
General Partner) or (y) if less than the amount determined pursuant to clause
(x) immediately above, the actual amount of such Indebtedness that is recourse
to such Person, if the Indebtedness is evidenced by a writing and is for a
determinable amount. Without limiting the foregoing, there shall not be
considered to be recourse, by contract or operation of law, with respect to the
payment of any Indebtedness to property or assets of such Person or a Restricted
Subsidiary solely by reason of the existence of any customary contractual
indemnity obligation entered into by such Person or a Restricted Subsidiary in
the ordinary course of business consistent with past practice and in connection
with the Incurrence of such Indebtedness, which obligation (i) is in the nature
of a "completion guarantee," "shortfall guarantee," "performance guarantee" or
similar obligation entered into in connection with the acquisition, amendment or
other modification of a contract to manage, lease, operate or franchise a hotel
property (or other property or asset used or to be used in a Hospitality-Related
Business) not owned by the Company or the extension of such a contract beyond
its stated term (provided that, if such hotel property (or other property or
asset used or to be used in a Hospitality-Related Business) is owned by a
Related Party, such Investment must satisfy the requirements of the provisions
of the Indenture described under "-- Limitation on Transactions with
Stockholders and Affiliates") or (ii) relates to fraud, willful misconduct,
misrepresentation, misapplication of funds, reckless damage to assets or matters
of similar import or customary undertakings with respect to environmental
matters or construction defects. The amount outstanding at any time of any
Indebtedness issued with original issue discount is the face amount of such
Indebtedness less the remaining unamortized portion of the original issue
discount of such Indebtedness at such time as determined in conformity with
GAAP.
"Investment" is defined to mean any direct or indirect advance, loan or
other extension of credit (other than advances to customers in the ordinary
course of business that are, in conformity with GAAP, recorded as accounts
receivable on the balance sheet of the Company or its Restricted Subsidiaries)
or capital contribution to (by means of any transfer of cash or other property
to others or any payment for property or services for the account or use of
others), or any purchase or acquisition of Capital Stock, bonds, notes,
debentures or other similar instruments issued by any other Person. For purposes
of the definition of "Unrestricted Subsidiary" and the "Limitation on Restricted
Payments" covenant described above, (i) "Investment" shall include the fair
market value of the assets (net of liabilities) of any Restricted Subsidiary at
the time that such Restricted Subsidiary is designated an Unrestricted
Subsidiary and shall exclude the fair market value of the assets (net of
liabilities) of any Unrestricted Subsidiary at the time that such Unrestricted
Subsidiary is designated a Restricted Subsidiary and (ii) any property
transferred to or from any Person shall be valued at its fair market value at
the time of such transfer, in each case as determined by the Board of Directors
in good faith.
"Junior Indebtedness" is defined to mean Indebtedness of any Person that
(i) requires no payment of principal prior to or on the date on which all
principal of, premium, if any, and interest on the Notes is paid in full and
(ii) is subordinate and junior in right of payment to the Notes in all respects.
"Junior Securities" of any Person is defined to mean securities (including
shares of Capital Stock that is not Redeemable Junior Stock) issued by such
Person to a Holder on account of the Notes pursuant to an order or decree of a
court of competent jurisdiction in a Reorganization, which securities (i) have a
maturity,
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mandatory redemption obligation or put right, if any, longer than, or occurring
after the scheduled maturity date of, all Senior Indebtedness outstanding on the
date of issuance of such Junior Securities (and to any securities issued in
exchange for any Senior Indebtedness), (ii) are unsecured and (iii) by their
terms or by law are subordinated to the Senior Indebtedness of such Person
outstanding on the date of issuance of such Junior Securities (and to any
securities in exchange of any such Senior Indebtedness) at least to the same
extent as the Notes are subordinated to the payment of the Senior Indebtedness
pursuant to the Indenture.
"Lien" is defined to mean any mortgage, pledge, security interest,
encumbrance, lien or charge of any kind (including, without limitation, any
conditional sale or other title retention agreement or lease in the nature
thereof, any option or other agreement to sell, or any filing of or any
agreement to give any security interest).
"Net Cash Proceeds" is defined to mean, with respect to any Asset Sale, the
proceeds of such Asset Sale in the form of cash or cash equivalents, including
payments in respect of deferred payment obligations (to the extent corresponding
to the principal, but not interest, component thereof) when received in the form
of cash or cash equivalents (except to the extent such obligations are financed
or sold with recourse to the Company or any Restricted Subsidiary) and proceeds
from the conversion of other property received when converted to cash or cash
equivalents, net of (i) brokerage commissions and other fees and expenses
(including fees and expenses of counsel, Qualified Appraisers, accountants and
investment bankers) related to such Asset Sale, (ii) provisions for all taxes
(whether or not such taxes will actually be paid or are payable, and
specifically including, without limitation, taxes attributable to required
prepayments or repayments of Indebtedness with the proceeds of such Asset Sale)
as a result of such Asset Sale without regard to the consolidated results of
operations of the Company and its Restricted Subsidiaries, taken as a whole,
(iii) payments made to prepay or repay Indebtedness or any other obligation
outstanding at the time of such Asset Sale that either (A) is secured by a Lien
on the property or assets sold or (B) is required to be paid as a result of such
sale, (iv) appropriate amounts to be provided by the Company or any Restricted
Subsidiary as a reserve against any liabilities associated with such Asset Sale,
including, without limitation, pension and other post-employment benefit
liabilities, liabilities related to environmental matters and liabilities under
any indemnification obligations associated with such Asset Sale, all as
determined in conformity with GAAP and (v) amounts required to be paid to any
Person (other than the Company or a Restricted Subsidiary) in respect of such
Person's ownership interest in the property or assets that are the subject of
such Asset Sale.
"Non-Recourse Indebtedness" is defined to mean Indebtedness (i) as to which
neither the Company nor any of its Significant Subsidiaries (A) provides credit
support (other than in the form of a Lien on an asset serving as security for
Non-Recourse Indebtedness) pursuant to any undertaking, agreement or instrument
that would constitute Indebtedness, (B) is directly or indirectly liable (other
than in the form of a Lien on an asset serving as security for Non-Recourse
Indebtedness) or (C) is the lender and (ii) no default with respect to which
(including any rights that the holders thereof may have to take enforcement
action against a Subsidiary of the Company that is not a Significant Subsidiary)
would permit (upon notice, lapse of time or both) any holder of any other
Indebtedness (other than Indebtedness arising under the Credit Agreement) of the
Company or any of its Significant Subsidiaries to declare a default on such
Indebtedness or cause the payment thereof to be accelerated or payable prior to
its stated maturity. Without limiting the foregoing, no Indebtedness shall be
considered Recourse Indebtedness solely by reason of the existence of any
customary contractual indemnity obligation entered into by the Company or a
Restricted Subsidiary in the ordinary course of business consistent with past
practice and in connection with the Incurrence of such Indebtedness, which
obligation (i) is in the nature of a "completion guarantee," "shortfall
guarantee," "performance guarantee" or similar obligation entered into in
connection with the acquisition, amendment or other modification of a contract
to manage, lease, operate or franchise a hotel property (or other property or
asset used or to be used in a Hospitality-Related Business) not owned by the
Company or the extension of such a contract beyond its stated term (provided
that, if such hotel property (or other property or asset used or to be used in a
Hospitality-Related Business) is owned by a Related Party, such Investment must
satisfy the requirements of the provisions of the Indenture described under
"-- Covenants -- Limitation on Transactions with Stockholders and Affiliates")
or (ii) relates to fraud, willful misconduct, misrepresentation, misapplica-
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tion of funds, reckless damage to assets or matters of similar import or
customary undertakings with respect to environmental matters or construction
defects.
"Obligations" is defined to mean all obligations (whether in existence on
the date of the Indenture or arising thereafter) for, or guaranteeing the
payment of, principal, premium, interest (including, without limitation, all
interest accrued or accruing after the commencement of any Reorganization of any
Person obligated with respect thereto in accordance with and at the contract
rate (including, without limitation, any rate applicable upon default) specified
in the agreement or instrument creating, evidencing or governing any
Indebtedness, whether or not, pursuant to applicable law or otherwise, the claim
for such interest is allowed as a claim in such case or proceeding), penalties,
fees, indemnifications, reimbursements and other amounts in respect of any
Indebtedness, and any amendment, extension or refunding of any of the foregoing,
without duplication.
"Preferred Stock" is defined to mean, with respect to any Person, any and
all shares, interests, participations or other equivalents (however designated,
whether voting or non-voting) of such Person's preferred or preference stock,
whether now outstanding or hereafter issued, including, without limitation, all
series and classes of such preferred or preference stock.
"Qualified Appraiser" is defined to mean an appraiser that is a member of
the American Institute of Real Estate Appraisers (or any successor organization)
and is not an Affiliate of the Company or a holder of 5% or more of any class of
Capital Stock of the Company.
"Recourse Indebtedness" is defined to mean Indebtedness that is not
Non-Recourse Indebtedness.
"Redeemable Junior Stock" of any Person is defined to mean any class or
series of Capital Stock of any Person issued to a Holder on account of the Notes
pursuant to an order or decree of a court of competent jurisdiction in a
Reorganization, which securities are (i) required to be redeemed prior to the
scheduled final maturity date of all Senior Indebtedness outstanding on the date
of issuance of such Redeemable Junior Stock (and of any securities issued in
exchange for any Senior Indebtedness), (ii) redeemable at the option of the
holder of such class or series of Capital Stock at any time prior to such
scheduled final maturity date or (iii) convertible into or exchangeable for
Capital Stock referred to in clause (i) or (ii) above or Indebtedness having a
scheduled maturity as to any principal amount prior to such scheduled final
maturity date; provided that Capital Stock shall not be deemed to be Redeemable
Junior Stock if it may only be so redeemed solely in consideration of Capital
Stock that is not Redeemable Junior Stock.
"Redeemable Stock" is defined to mean any class or series of Capital Stock
of any Person that by its terms or otherwise is (i) required to be redeemed
prior to the Stated Maturity of the Notes, (ii) redeemable at the option of the
holder of such class or series of Capital Stock at any time prior to the Stated
Maturity of the Notes or (iii) convertible into or exchangeable for Capital
Stock referred to in clause (i) or (ii) above or Indebtedness having a scheduled
maturity prior to the Stated Maturity of the Notes; provided that any Capital
Stock that would not constitute Redeemable Stock but for provisions thereof
giving holders thereof the right to require such Person to repurchase or redeem
such Capital Stock upon the occurrence of an "asset sale" or "change of control"
occurring prior to the Stated Maturity of the Notes shall not constitute
Redeemable Stock if the "asset sale" or "change of control" provisions
applicable to such Capital Stock are no more favorable to the holders of such
Capital Stock than the provisions contained in "Limitation on Asset Sales" and
"Repurchase of Notes Upon a Change of Control" covenants described above and
such Capital Stock specifically provides that such Person will not repurchase or
redeem any such stock pursuant to such provision prior to the Company's
repurchase of such Notes as are required to be repurchased pursuant to the
"Limitation on Asset Sales" and "Repurchase of Notes upon a Change of Control"
covenants described above. Notwithstanding the foregoing, Capital Stock shall
not be deemed to be Redeemable Stock if it may only be so redeemed solely in
consideration of Capital Stock that is not Redeemable Stock.
"Related Party" is defined to mean any Affiliate of the Company or any
holder (or any Affiliate of such a holder) of 5% or more of any class of Capital
Stock of the Company.
"Reorganization" is defined to mean, with respect to any Person, any
reorganization, bankruptcy, insolvency, receivership or other similar statutory
or common law proceedings or arrangements, including
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without limitation any proceeding under Title 11, United States Code or any
similar federal, state or foreign law for the relief of debtors, involving such
Person or the readjustment of such Person's liabilities or any assignment for
the benefit of creditors or any marshaling of the assets or liabilities of such
Person.
"Restricted Investment" is defined to mean any Investment in any Person
other than (i) an Investment in a Restricted Subsidiary that is a Guarantor or
in any Person that, as a result of such Investment, becomes a Restricted
Subsidiary that is a Guarantor, (ii) cash, (iii) U.S. Government Obligations,
(iv) time deposits and certificates of deposit or Eurodollar deposits due within
one year of any commercial bank whose outstanding senior long-term debt
securities are rated either A- or higher by Standard & Poor's Incorporated or A3
or higher by Moody's Investors Service, Inc., (v) repurchase obligations with a
term of not more than 7 days for underlying securities of the types described in
clause (iii) of this paragraph with any bank meeting the qualifications
specified in clause (iv) of this paragraph, (vi) commercial paper rated at least
A-1 or the equivalent thereof by Standard & Poor's Incorporated or at least P-1
or the equivalent thereof by Moody's Investor Service, Inc., maturing within one
year after the date of acquisition, (vii) an Investment in a money market mutual
fund substantially all of the assets of which are comprised of securities of the
types described in clauses (iii) through (vi) of this paragraph, (viii) loans or
advances made to employees in the ordinary course of business that do not in the
aggregate exceed $3 million at any time outstanding, (ix) other Investments that
do not in the aggregate exceed $10 million at any time outstanding or (x) an
Investment made in connection with the Formation as described in this
Prospectus.
"Restricted Subsidiary" is defined to mean any Subsidiary of the Company
other than an Unrestricted Subsidiary.
"Senior Indebtedness" is defined to mean (i) Indebtedness of the Company
and all Obligations in respect thereof (other than, as to each Note, the other
Notes), whether or not Incurred in violation of the Indenture (except as
provided in clause (E) below), except (A) Redeemable Stock of the Company, (B)
any obligation of the Company to any Subsidiary of the Company, (C) any
Indebtedness of the Company that, by its terms or the terms of the instrument
creating or evidencing such Indebtedness, is pari passu with or expressly
subordinate in right of payment to the Notes and (D) any Indebtedness of the
Company Incurred in violation of the covenant described under
"-- Covenants -- Limitation on Other Subordinated Indebtedness" and (ii)
Indebtedness evidenced by or in respect of debt securities issued by any person
to a holder of any Indebtedness referred to in clause (i) on account of such
Indebtedness pursuant to an order or decree of a court of competent
jurisdiction.
"Significant Subsidiary" is defined to mean any Restricted Subsidiary that
would be a "significant subsidiary" as defined in Article 1, Rule 1-02 of
Regulation S-X promulgated under the Securities Act of 1933, as amended, as such
Regulation is in effect on the date hereof.
"Stated Maturity" is defined to mean, (i) with respect to any debt
security, the date specified in such debt security as the fixed date on which
the final installment of principal of such debt security is due and payable and
(ii) with respect to any scheduled installment of principal of or interest on
any debt security, the date specified in such debt security as the fixed date on
which such installment is due and payable.
"Subsidiary" is defined to mean, with respect to any Person, any
corporation, association or other business entity of which more than 50% of the
outstanding Voting Stock is owned, directly or indirectly, by such Person and
one or more other Subsidiaries of such Person.
"Transaction Date" is defined to mean, with respect to the Incurrence of
any Indebtedness by the Company or any of its Restricted Subsidiaries, the date
such Indebtedness is to be Incurred and, with respect to any Restricted Payment,
the date such Restricted Payment is to be made.
"U.S. Government Obligations" is defined to means securities issued or
directly and fully guaranteed or insured by the United States of America or any
agent or instrumentality thereof (provided that the full faith and credit of the
United States of America is pledged in support thereof).
"Unrestricted Subsidiary" is defined to mean (i) any Subsidiary of the
Company that at the time of determination shall be designated an Unrestricted
Subsidiary by the Board of Directors in the manner
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provided below and (ii) any Subsidiary of an Unrestricted Subsidiary. The Board
of Directors may designate any Restricted Subsidiary of the Company (including
any newly acquired or newly formed Subsidiary of the Company) to be an
Unrestricted Subsidiary unless such Subsidiary owns any Capital Stock of, or
owns or holds any Lien on any property of, the Company or any Restricted
Subsidiary; provided that (i) such designation would be permitted under the
"Limitation on Restricted Payments" covenant described above, (ii) no portion of
the Indebtedness or any other obligation (contingent or otherwise) of such
Subsidiary (A) is Guaranteed by the Company or any Restricted Subsidiary, (B) is
Recourse Indebtedness or (C) subjects any property or asset of the Company or
any Restricted Subsidiary, directly or indirectly, contingently or otherwise, to
the satisfaction thereof, and (iii) no default or event of default with respect
to any Indebtedness of such Subsidiary would permit any holder of any
Indebtedness of the Company or any Restricted Subsidiary to declare such
Indebtedness of the Company or any Restricted Subsidiary due and payable prior
to its maturity. The Board of Directors may designate any Unrestricted
Subsidiary to be a Restricted Subsidiary of the Company; provided that
immediately after giving effect to such designation (x) the Company could Incur
$1.00 of additional Indebtedness (other than Permitted Indebtedness) and (y) no
Default or Event of Default shall have occurred and be continuing. Any such
designation by the Board of Directors shall be evidenced to the Trustee by
promptly filing with the Trustee a copy of the Board Resolution giving effect to
such designation and an Officers' Certificate certifying that such designation
complied with the foregoing provisions.
"Vinings Indebtedness" is defined to mean the industrial revenue bond
Indebtedness, not to exceed $9.8 million in principal amount, to be assumed by a
Subsidiary of the Company in connection with the acquisition of the Vinings
Wyndham Garden Hotel.
"Voting Stock" is defined to mean with respect to any Person, Capital Stock
of any class or kind ordinarily having the power to vote for the election of
directors, managers or other voting members of the governing body of such
Person.
"Wholly Owned" is defined to mean, with respect to any Subsidiary of any
Person, such Subsidiary if all of the outstanding common stock or other similar
equity ownership interests (but not including Preferred Stock) in such
Subsidiary (other than any director's qualifying shares or Investments by
foreign nationals mandated by applicable law) is owned directly or indirectly by
such Person.
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DESCRIPTION OF CAPITAL STOCK
AUTHORIZED SHARES
The authorized capital stock of the Company consists of 45,000,000 shares
of Common Stock and 5,000,000 shares of Preferred Stock, $.01 par value per
share ("Preferred Stock"), issuable in series.
COMMON STOCK
Holders of Common Stock are entitled to one vote per share on all matters
to be voted upon by the stockholders. Accordingly, holders of a majority of
shares of Common Stock entitled to vote in any election of directors may elect
all of the directors standing for election. Holders of Common Stock are entitled
to receive dividends and other distributions when, as and if declared from time
to time by the Board of Directors out of funds legally available therefor
subject to any preferential rights of, and sinking fund or redemption or
purchase rights with respect to, any Preferred Stock that may be issued. In the
event of voluntary or involuntary liquidation, dissolution or winding up of the
Company, the holders of Common Stock are entitled to share ratably in all assets
remaining after payment of liabilities subject to prior distribution rights of
any Preferred Stock then outstanding. Holders of the Common Stock have no
preemptive or conversion rights and the Common Stock is not subject to further
calls or assessment by the Company. There are no redemption or sinking fund
provisions applicable to the Common Stock.
PREFERRED STOCK
The Company's Certificate of Incorporation ("Certificate") authorizes
5,000,000 shares of Preferred Stock, none of which is outstanding. The Board of
Directors has the authority, without any further vote or action by the
stockholders, to issue Preferred Stock in one or more series and to fix the
number of shares, designations, relative rights (including voting rights),
preferences and limitations of such series to the full extent now or hereinafter
permitted by Delaware law. The Company has no present intention to issue shares
of Preferred Stock.
DIRECTORS' LIABILITY
As authorized by the Delaware General Corporation Law ("DGCL"), the
Certificate limits the liability of Directors to the Company for monetary
damages. The effect of this provision in the Certificate is to eliminate the
rights of the Company and its stockholders (through stockholders' derivative
suits on behalf of the Company) to recover monetary damages against a Director
for breach of fiduciary duty as a Director (including breaches resulting from
negligent behavior), except in certain limited situations. This provision does
not limit or eliminate the rights of the Company or any stockholder to seek
non-monetary relief such as an injunction or rescission in the event of a breach
of a Director's fiduciary duty. These provisions will not alter the liability of
Directors under federal securities law.
STOCKHOLDERS' AGREEMENT
Contemporaneously with the transactions comprising the Formation, the
Company will enter a stockholders' agreement (the "Stockholders' Agreement")
with various affiliates of Bedrock (for purposes of this section of the
Prospectus, the "Bedrock Stockholders") and certain Crow Family Members, the
Senior Executive Officers, WEL and Ms. Groenteman (the "Crow/Wyndham
Stockholders"), which imposes certain restrictions on the transfer of Common
Stock held by such stockholders (the "Stockholders") and entitles such
Stockholders to certain rights regarding corporate governance.
Pursuant to the Stockholders' Agreement, each of the Stockholders agree not
to sell, transfer, pledge or otherwise dispose of ("Transfer") its Common Stock
otherwise than as permitted by the provisions of the Stockholders' Agreement.
The Stockholders' Agreement permits the following Transfers: (i) open-market
sales not exceeding the volume limitations imposed by Rule 144 under the Act,
(ii) sales in the Equity Offering and (iii) Transfers of Common Stock by WEL to
the direct or indirect owners of equity interests in WEL. The Stockholders'
Agreement also provides that any Stockholder may Transfer any Common Stock,
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provided that the transferee agrees to be bound by the Stockholders' Agreement,
(a) to any wholly-owned affiliate of the selling Stockholder, (b) to certain
selling Stockholder family members, trusts or, if the selling stockholder is a
corporation, partnership or other entity, its equity owners, (c) to certain Crow
Family Members or their lineal descendants (the "Crow Interests"), (d) to the
Company or to any then-existing Crow/Wyndham Stockholder or to any full time
senior executive officer of the Company, (e) as a pledge to secure indebtedness,
provided that the pledgee agrees to offer a right of purchase, in the event of
any foreclosure of the pledge, to the other Stockholders in accordance with the
Stockholders' Agreement, and (f) to the owners of equity interests in a
Stockholder upon a partial or complete liquidation or dissolution of such
Stockholder.
The Stockholders' Agreement further provides that except with respect to a
permitted Transfer described above, the proposed Transfer by a Stockholder to a
third party of Common Stock shall be subject to a first right of purchase in
favor of the Stockholders in the other Stockholder Group (as defined below) at
the price and on the other terms of the proposed third-party sale. Wyndham has a
prior right to purchase Common Stock subject to a proposed Transfer if the
offered Common Stock represents all of the Common Stock held by the Crow
Interests, but only to the extent the purchase by the Bedrock Stockholders of
the Common Stock would cause the Bedrock Stockholders to own more than 40% of
the outstanding Common Stock. A similar first right of purchase requirement
applies in the event of third-party sales in connection with a shelf
registration or an underwritten public offering in which Stockholders propose to
sell Common Stock.
Under the Stockholders' Agreement, the Bedrock Stockholders and the
Crow/Wyndham Stockholders (each, a "Stockholder Group") are each entitled to
nominate a portion of the Company's Board of Directors, such portion to be based
upon the proportionate number of shares of Common Stock held by each Stockholder
Group and to be allocated as proportionately as practicable between Independent
Directors and other directors. Each Stockholder Group is also entitled to
nominate directors to serve on each of the Board's Committees on a similar
proportionate basis. Subject to certain conditions set forth in the
Stockholders' Agreement, each Stockholder Group agrees to use its best efforts
to elect the directors nominated in accordance with the Stockholders' Agreement
and to remove directors under certain circumstances. The Stockholders' Agreement
further provides that as long as the Crow Interests own at least 30% of the
outstanding Common Stock (excluding any shares acquired from a third party after
the date of the Stockholders' Agreement), the Chairman of the Board of Wyndham
shall be a person designated by the Crow Interests. In the event the Bedrock
Stockholders own at least 30% of the outstanding Common Stock (excluding any
shares acquired from a third party after the date of the Stockholders' Agreement
) and the Crow Interests no longer own at least such percentage, the Chairman of
the Board shall be a person designated by the Bedrock Stockholders.
The Stockholders' Agreement terminates upon the earliest to occur of (a)
the sixth anniversary of the date of the Stockholders' Agreement, (b) the
Bedrock Stockholders and the Crow/Wyndham Stockholders collectively owning less
than 37.5% of the outstanding Common Stock of the Company, (c) the termination
of management contracts under the Investment Program below a specified level,
(d) certain changes in control of the Bedrock Stockholders, (e) the Bedrock
Stockholders owning less than 50% of the number of shares of Common Stock held
by them immediately following the Equity Offering and (f) any distribution of
Common Stock by the Bedrock Stockholders to direct or indirect owners of equity
interests in the Bedrock Stockholders that results in such Common Stock being
held by anyone other than a Bedrock principal or an entity controlled by such a
principal.
REGISTRATION RIGHTS
Contemporaneously with the Formation (see "The Formation and the Financing
Plan -- The Formation"), the Company will enter into a registration rights
agreement with Crow Family Members, the Senior Executive Officers, WEL, Ms.
Groenteman and Bedrock (the "Registration Rights Agreement"), pursuant to which
the Company will agree, subject to certain limitations and under certain
circumstances, to register for sale any shares of Common Stock of the Company
(and other securities of the Company that are exercisable to purchase,
convertible into or exchangeable for shares of capital stock of the Company)
that are held by the parties thereto (collectively, the "Registrable
Securities"). All of the 15,316,667 shares of Common Stock
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issued in the Formation of the Company will be Registrable Securities. The
Registration Rights Agreement provides that any holder of Registrable Securities
may require the Company upon written notice to register for sale such
Registrable Securities (a "Demand Registration"), provided that the total amount
of Registrable Securities to be included in the Demand Registration has a market
value of at least $20 million and provided that notice is not given prior to six
months after the effective date of the previous Demand Registration. If
Registrable Securities are going to be registered by the Company pursuant to a
Demand Registration, the Company must provide written notice to the other
holders of Registrable Securities and permit them to include any or all
Registrable Securities that they hold in the Demand Registration, provided that
the amount of Registrable Securities requested to be registered may be limited
by the underwriters in an underwritten offering based on such underwriters'
determination that inclusion of the total amount of Registrable Securities
requested for registration would materially and adversely affect the success of
the offering. Upon notice of a Demand Registration, the Company is required to
file a Registration Statement within 60 days of the date on which notice is
given, although the Company may postpone the filing for up to 90 days under
certain circumstances. Subject to the conditions stated or referred to above,
the holders of Registrable Securities may request an unlimited number of Demand
Registrations. Crow Family Members, the Senior Executive Officers, Ms.
Groenteman and Bedrock agree not to exercise any Demand Registration rights for
a period of six months from the date of execution of the Registration Rights
Agreement. WEL has a one time right to require the Company to register the
Registrable Securities that it holds in connection with the distribution of the
Registrable Securities to the WEL participants (the "WEL Registration"). Other
holders of Registrable Securities may not join the WEL Registration. A WEL
Registration is not a Demand Registration and it is not subject to the
restrictions on a Demand Registration, including the $20 million market value
requirement.
The Registration Rights Agreement also provides that, subject to certain
exceptions, in the event the Company proposes to file a registration statement
with respect to an offering of any class of equity securities, other than a WEL
Registration and certain other types of registrations, the Company will offer
the holders of Registrable Securities the opportunity to register the number of
Registrable Securities they request to include (the "Piggyback Registration"),
provided that the amount of Registrable Securities requested to be registered
may be limited by the underwriters in an underwritten offering based on such
underwriters' determination that inclusion of the total amount of Registrable
Securities requested for registration would materially and adversely affect the
success of the offering. The Company is generally required to pay all of the
expenses of Demand Registrations, the WEL Registration and Piggyback
Registrations, other than underwriting discounts and commissions. In the event
of a Demand Registration within one year of the date of the Registration Rights
Agreement, the holders of the Registrable Securities being registered must pay
up to $250,000 ($125,000 in the case of a shelf registration) of such expenses.
Crow Family Members, the Senior Executive Officers, WEL and Bedrock agree to
waive their rights to include shares of Common Stock in the Equity Offering.
As required by the terms of the GE Credit Agreement, the Company has
entered into a registration rights agreement with General Electric based
generally on the terms specified in Section 10.5 of the GE Credit Agreement (the
"GE Registration Rights Agreement"). The GE Registration Rights Agreement
provides General Electric with a one time right, exercisable during the
eighteen-month period starting upon the expiration of the six-month period
immediately following the effective date of the Equity Offering, to effect a
demand registration of the 504,032 unregistered shares of Common Stock of the
Company that it holds. The GE Registration Rights Agreement also provides
General Electric with certain piggyback registration rights during the 18 month
period, although the securities requested to be registered may be limited or
excluded by the underwriters in an underwritten offering based on such
underwriters' determination that the inclusion of such securities (or a portion
thereof) would adversely affect the marketing of the securities to be sold by
the Company. The demand registration rights will be exercisable only if the
shares of Common Stock to be registered have a market value of at least $1.0
million. Registration expenses (other than underwriting discounts and
commissions) relating to a piggyback registration will be borne solely by the
Company and one-half of the registration expenses relating to a demand
registration will be paid by General Electric, up to $25,000.
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UNDERWRITING
Under the terms and subject to the conditions of the Underwriting
Agreement, each Underwriter named below has severally agreed to purchase, and
the Company has agreed to sell to each Underwriter, the principal amount of
Notes set forth opposite the name of such Underwriter below:
<TABLE>
<CAPTION>
PRINCIPAL
U.S. UNDERWRITER AMOUNT
----------------------------------------------------------------------- ------------
<S> <C>
Smith Barney Inc....................................................... $ 50,000,000
BT Securities Corporation.............................................. 25,000,000
Donaldson, Lufkin & Jenrette Securities Corporation.................... 20,000,000
Montgomery Securities.................................................. 5,000,000
------------
Total........................................................ $100,000,000
============
</TABLE>
The Underwriting Agreement provides that the obligations of the several
Underwriters to pay for and accept delivery of the Notes are subject to approval
of certain legal matters by counsel and to certain other conditions. The
Underwriters are obligated to take and pay for all of the Notes offered hereby
if any such Notes are taken.
The Underwriters have advised the Company that they propose initially to
offer part of the Notes directly to the public at the public offering price set
forth on the cover page of this Prospectus and part to certain dealers at a
price that represents a concession not in excess of 0.250% of the public
offering price of the Notes. The Underwriters may allow, and such dealers may
reallow, a concession not in excess of 0.125% of the public offering price of
the Notes to certain other dealers. After the Offering, the public offering
price and such concessions may be changed from time to time by the Underwriters.
The Underwriters have informed the Company that the Underwriters do not intend
to confirm sales of the Notes to accounts over which they exercise discretionary
authority.
The Company and certain owners of the Assigned Businesses have agreed to
indemnify the Underwriters, and the Underwriters have agreed to indemnify the
Company, against certain liabilities, including liabilities under the Securities
Act.
The Underwriters have informed the Company that the Underwriters intend to
make a market in the Notes, as permitted by applicable laws and regulations;
however, the Underwriters are not obligated to do so, and any such market
activity may be terminated at any time without notice to the Holders. No
assurance can be given as to the liquidity of or the trading market for the
Notes. See "Risk Factors -- Absence of Public Market for the Notes."
BT Securities Corporation is an affiliate of Bankers Trust, from which the
Company has received a commitment (subject to certain conditions) to provide or
arrange for the Revolving Credit Facility, and with respect to which Bankers
Trust has received and will receive customary compensation. See "Description of
the Revolving Credit Facility."
LEGAL MATTERS
Certain legal matters with respect to the legality of the Notes offered
hereby will be passed upon for the Company by Locke Purnell Rain Harrell (A
Professional Corporation), Dallas, Texas. Certain legal matters relating to the
Offering will be passed upon for the Underwriters by Davis Polk & Wardwell, New
York, New York.
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EXPERTS
The financial statements and schedule included in this Prospectus and
elsewhere in the registration statement to the extent and for the periods
indicated in their reports have been audited by Coopers & Lybrand L.L.P.
independent accountants, and are included in this Prospectus in reliance upon
the authority of said firm as experts in accounting and auditing in giving said
reports.
ADDITIONAL INFORMATION
The Company has filed with the Commission a registration statement on Form
S-1 (as amended and together with all exhibits and schedules thereto, the
"Registration Statement") under the Securities Act of 1933 with respect to the
Notes offered in the Offering. As permitted by the rules and regulations of the
Commission, this Prospectus does not contain all of the information set forth in
the Registration Statement. For further information with respect to the Company
and the Notes, reference is made to the Registration Statement. Statements
contained in this Prospectus concerning the provisions of any contract,
agreement, or other documents are not necessarily complete. With respect to each
contract, agreement, or other document filed as an exhibit to the Registration
Statement, reference is made to the exhibit for the complete contents of the
exhibit, and each statement concerning its provisions is qualified in its
entirety by such reference. The Registration Statement may be inspected and
copied at the offices of the Commission at 450 Fifth Street, N.W., Washington,
D.C. 20549 and at its regional offices at 7 World Trade Center, New York, New
York 10048 and Northwestern Atrium Center, 500 West Madison Street, 14th Floor,
Chicago, Illinois 60661-2551. Copies of such materials may also be obtained by
mail at prescribed rates from the Public Reference Section of the Commission at
its principal office at 450 Fifth Street, N.W., Washington, D.C. 20549.
Under the terms of the Indenture, whether or not required by the rules and
regulations of the Commission, so long as any Notes are outstanding, the Company
will furnish to the Holders all quarterly and annual financial information that
would be required to be contained in a filing with the Commission on Forms 10-Q
and 10-K if the Company were required to file such Forms, including a
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and, with respect to the annual information only, a report thereon
by the Company's certified independent accountants. In addition, whether or not
required by the rules and regulations of the Commission, the Company will submit
a copy of all such information with the Commission for public availability
(unless the Commission will not accept such a submission) and file such
information with the Trustee and make such information available to investors
and securities analysts who request it in writing.
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GLOSSARY
Unless the context otherwise requires, the capitalized terms set forth
below shall have the meanings set forth below for the purposes of this
Prospectus. A summary of certain of the defined terms used in the covenants and
other provisions of the Indenture is set forth under "Description of the
Notes -- Certain Definitions."
"Act" means the Securities Act of 1933, as amended.
"ADR" means total room revenues divided by the total number of rooms
occupied.
"Assigned Businesses" means, collectively, the old Management Company, six
Wyndham brand hotels, leasehold interests relating to the GHALP Lease and an
additional leased hotel and a contract to purchase a single additional hotel,
each of which will be transferred to the Company pursuant to the Formation.
"Assigned Real Property" means, collectively, (i) the six Wyndham brand
hotels to be transferred to the Company in the Formation, (ii) leasehold
interests in the GHALP Properties and (iii) an additional leasehold interest to
be transferred to the Company.
"Bankers Trust" means Bankers Trust Company, the agent bank and lender
under the Revolving Credit Facility.
"Bedrock" means Hampstead affiliates that own 16 hotels managed by the
Company, together with certain affiliates.
"Bedrock Agreements" means, collectively, the Investment Agreement and the
Option Agreement entered into by the Company and Bedrock in May 1994 pursuant to
which, as amended, the Investment Program was established.
"Bedrock Contribution" means the $10.0 million contribution to the Company
from Bedrock pursuant to the Bedrock Exchange Agreement.
"Bedrock Exchange Agreement" means the agreement entered into on March 10,
1996 among the Company and Bedrock, pursuant to which Bedrock will transfer to
the Company the Bedrock Contribution and the Bedrock Options in exchange for
2,332,590 shares of Common Stock.
"Bedrock Options" means the options to purchase up to a 37.5% limited
partnership interest in the Old Management Company granted by the Company to
Bedrock under the Option Agreement.
"CF Securities" means CF Securities, L.P., a Texas limited partnership
owned by Crow Family Members.
"Change of Control" has the meaning set forth for such term under
"Description of the Notes -- Certain Definitions."
"CHMC" means Caribbean Hotel Management Company.
"CHMC Agreement" means the agreement between CHMC and the Company pursuant
to which the Company acquired in 1988 from CHMC a number of management
agreements relating to certain Wyndham brand hotels then in operation and, in
partial consideration therefor, the Company agreed to pay CHMC 16% of the
revenues derived from such management agreements.
"Code" means the Internal Revenue Code of 1986, as amended.
"Commission" means the Securities and Exchange Commission.
"Common Stock" means the Common Stock, par value $.01 per share, of the
Company.
"Company" means, except where the context otherwise requires, Wyndham Hotel
Corporation, a Delaware corporation, and its predecessors and combined
subsidiaries.
"Comparable Hotels" means the 30 Wyndham brand hotels that have been
operated by the Company since January 1, 1993.
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"Crow Family Members" means Mr. and Mrs. Trammell Crow, various descendants
of Mr. and Mrs. Trammell Crow, and various corporations, partnerships, trusts
and other entities beneficially owned or controlled by such persons.
"DAB Notes" means the outstanding principal and accrued interest severally
owing by the Senior Executive Officers and WEL to WFLP.
"Equity Offering" means the public offering of 3,650,000 shares of Common
Stock of the Company concurrently herewith.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Financing Plan" means the financing plan the Company will implement as set
forth under "The Formation and the Financing Plan -- The Financing Plan."
"Formation" means the series of transactions related to the formation of
the Company as set forth under "The Formation and the Financing Plan -- The
Formation -- Formation Transactions."
"Formation Agreements" means certain agreements entered into in March 1996
among the Company and the current owners of direct and indirect interests in the
Assigned Businesses, which collectively provide for the transactions related to
the Formation.
"GE Credit Agreement" means the credit agreement between the Company and
General Electric relating to the Company's current revolving credit facility.
"GE Option" means General Electric's option to purchase from the Company
504,032 shares of Common Stock at a price per share of $14.88. The number of
shares subject to the option is derived by dividing $7.5 million (one-half of
the $15.0 million of indebtedness that will be outstanding under the GE Credit
Agreement at the closing of the Offering) by the initial public offering price
(less underwriting discounts and commissions) per share in the Equity Offering.
"General Electric" means General Electric Pension Trust.
"GHALP" means Garden Hotel Associates LP.
"GHALP Lease" means one or more long-term leases that will be entered by
GHALP II and HPT with respect to the GHALP Properties.
"GHALP Properties" means the 11 Wyndham Garden Hotels owned by GHALP that
will be sold by their current owners to HPT prior to the consummation of the
Offering.
"Guarantors" means each of the Company's Subsidiaries (except for a number
of insignificant Subsidiaries) that will jointly and severally, fully and
unconditionally guarantee the Company's obligations under the Notes.
"Hampstead" means the Hampstead Group L.L.C.
"Hotel Partnership" means any partnership owning a Wyndham hotel in which
Crow Family Members, Bedrock or the Senior Executive Officers have an interest.
"HPT" means Hospitality Properties Trust (including its subsidiaries), a
publicly traded REIT.
"Incentive Plan" means the Company's 1996 Long Term Incentive Plan pursuant
to which 2,133,811 shares of Common Stock have been reserved for issuance in
connection with stock options, stock appreciation rights and restricted stock
that may be granted thereunder.
"Indenture" means the indenture dated as of May 24, 1996 among the Company,
certain subsidiaries of the Company (as guarantors) and the Trustee, under which
the Notes will be issued.
"Independent Directors" means directors of the Company who are not
affiliated with the Company.
"Investment Program" means the development fund organized by Bedrock and
certain lenders totalling approximately $335 million to acquire hotels or hotel
management companies and to make related hotel
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investments that are approved by both the Company and Bedrock as set forth under
"Certain Relationships and Transactions -- Bedrock Investment Program."
"Mados Wyndham Hotel" means the hotel operated by the Madoses in Manhattan,
using the "Wyndham" mark.
"Madoses" means John and Suzanne Mados, the managers and lessees of the
Mados Wyndham Hotel.
"Notes" means the $100.0 million of 10 1/2% Senior Subordinated Notes due
2006 that the Company intends to offer through the Offering.
"Offering" means the public offering of $100,000,000 aggregate principal
amount of Notes contemplated hereby.
"Offerings" means the Offering and the Equity Offering.
"Old Management Company" means Wyndham Hotel Company Ltd., which, directly
and through its subsidiaries, currently manages and franchises the Company's
Portfolio of hotels.
"Option Agreement" means the Option Agreement entered into May 1994 by the
Company and Bedrock pursuant to which the Company granted the Bedrock Options.
"Portfolio" means the 65 hotels operated by the Company and the 3 hotels
franchised by the Company as of April 15, 1996.
"Redevelopment Program" means the program instituted by the Company to
redevelop certain acquired hotels in connection with their conversion to the
Wyndham Garden Hotel brand as set forth under "Business -- Growth Strategy -- I.
Primary Growth Opportunities -- Wyndham Garden Hotel Redevelopment and
Conversion Program."
"Registration Rights Agreement" means the registration rights agreement
that will be entered into contemporaneously with the Formation among the
Company, certain Crow Family Members that will own Common Stock, the Senior
Executive Officers, WEL, Susan T. Groenteman and Bedrock, pursuant to which the
Company will agree, subject to certain limitations and under certain
circumstances, to register for sale shares of Common Stock held by such persons
and entities.
"Registration Statement" means the registration statement on Form S-1 of
which this Prospectus forms a part, as amended and together with all exhibits
and schedules thereto, filed by the Company with the Commission.
"REIT" means a real estate investment trust as defined in the Code.
"Revolving Credit Facility" means the $100.0 million revolving credit
facility the Company intends to enter into with Bankers Trust, as such may be
amended, supplemented, extended, renewed or modified from time to time
including, without limitation, by adding parties thereto or increasing the
commitment thereunder.
"REVPAR" means total room revenues divided by total available rooms.
"Senior Executive Officers" means James D. Carreker, Leslie V. Bentley,
Eric A. Danziger, Anne L. Raymond and Stanley M. Koonce, Jr.
"Stockholders' Agreement" means the stockholders' agreement that will be
entered into contemporaneously with the Formation among the Company, certain
Crow Family Members that will own Common Stock, the Senior Executive Officers,
WEL, Susan T. Groenteman and Bedrock which imposes certain restrictions on the
transfer of Common Stock held by such persons and entities and entitles them to
certain rights regarding corporate governance as set forth under "Description of
Capital Stock -- Stockholders' Agreement.
"Subsidiary" has the meaning set forth for such term under "Description of
the Notes -- Certain Definitions."
"Trustee" means Bank One, Columbus, N.A., the trustee under the Indenture.
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"Upscale" means the segment of the lodging industry classified as such by
Smith Travel Research in its industry reports, which consists of hotels with
average daily room rates (total revenues divided by the total number of rooms
occupied) between the 70th and 85th percentile of the average daily room rates
of all hotels in the U.S. markets in which the Company's Portfolio hotels
operate.
"Vinings Wyndham Garden Hotel" means the Wyndham Garden Hotel - Vinings,
located in the Atlanta metropolitan area.
"WEL" means Wyndham Employees Ltd., an equity participation plan
established by the Company for certain key employees.
"WFLP" means Wyndham Finance Limited Partnership, a Texas limited
partnership that prior to the Formation owned the DAB Notes.
"Wyndham" means, except where the context otherwise requires, Wyndham Hotel
Corporation, a Delaware corporation, and its predecessors and combined
subsidiaries.
"Wyndham Garden Hotels" means mid-size hotels operated by Wyndham in
suburban markets under the name "Wyndham Garden(R)."
"Wyndham Hotels" means large upscale hotels operated or franchised by the
Company in urban markets under the Wyndham brand.
"Wyndham Resorts" means the six Wyndham brand resort hotels included in the
Portfolio.
"1995 First Quarter" means the three months ended March 31, 1995.
"1996 First Quarter" means the three months ended March 31, 1996.
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WYNDHAM HOTEL CORPORATION
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
WYNDHAM HOTEL CORPORATION -- COMBINED FINANCIAL STATEMENTS:
Report of Independent Accountants................................................... F-2
Combined Balance Sheets at December 31, 1994, 1995 and March 31, 1996 (unaudited)... F-3
Combined Statements of Income for the years ended December 31, 1993, 1994 and 1995
and the three months ended March 31, 1995 and 1996 (unaudited)................... F-4
Combined Statements of Partners' Capital for the years ended December 31, 1993, 1994
and 1995 and the three months ended March 31, 1996 (unaudited)................... F-5
Combined Statements of Cash Flows for the years ended December 31, 1993, 1994 and
1995 and the three months ended March 31, 1995 and 1996 (unaudited).............. F-6
Notes to Combined Financial Statements.............................................. F-7
GARDEN HOTELS ASSOCIATES LIMITED PARTNERSHIP
Report of Independent Accountants................................................... F-22
Balance Sheets at December 31, 1994, 1995 and March 31, 1996 (unaudited)............ F-23
Statements of Income for the years ended December 31, 1993, 1994 and 1995 and the
three months ended March 31, 1995 and 1996 (unaudited)........................... F-24
Statements of Partners' Capital for the years ended December 31, 1993, 1994 and 1995
and the three months ended March 31, 1996 (unaudited)............................ F-25
Statements of Cash Flows for the years ended December 31, 1993, 1994 and 1995 and
the three months ended March 31, 1995 and 1996 (unaudited)....................... F-26
Notes to Financial Statements....................................................... F-27
</TABLE>
F-1
<PAGE> 160
REPORT OF INDEPENDENT ACCOUNTANTS
To the Partners and Shareholders
Wyndham Hotel Corporation:
We have audited the accompanying combined balance sheets of Wyndham Hotel
Corporation (as identified in Note 1) (collectively the "Company") as of
December 31, 1994 and 1995 and the related combined statements of income,
partners' capital and cash flows for each of the three years in the period ended
December 31, 1995. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the combined financial statements referred to above present
fairly, in all material respects, the combined financial position of the Company
as of December 31, 1994 and 1995 and the combined results of their operations
and their cash flows for each of the three years in the period ended December
31, 1995, in conformity with generally accepted accounting principles.
COOPERS & LYBRAND L.L.P.
Dallas, Texas
March 8, 1996
F-2
<PAGE> 161
WYNDHAM HOTEL CORPORATION
COMBINED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------- MARCH 31,
1994 1995 1996
------------ ------------ ------------
(UNAUDITED)
<S> <C> <C> <C>
Current assets:
Cash and cash equivalents........................ $ 3,619,481 $ 4,159,617 $ 6,084,420
Cash, restricted................................. 271,233 3,052,920 2,932,921
Accounts receivable, less allowance of $146,000
in 1994, $267,000 in 1995 and $368,000 at
March 31, 1996 (unaudited).................... 9,261,314 10,838,061 13,623,182
Due from affiliates.............................. 3,447,379 3,584,196 2,438,362
Inventories...................................... 1,043,055 1,020,185 1,062,044
Other............................................ 730,231 769,147 529,892
------------ ------------ ------------
Total current assets..................... 18,372,693 23,424,126 26,670,821
Investment in an affiliate's hotel partnership..... 2,968,710 2,596,954 3,052,355
Notes and other receivables from affiliates........ -- 7,673,690 7,709,262
Notes receivable................................... -- 2,450,587 2,450,587
Property and equipment, net........................ 89,425,811 87,603,850 86,846,677
Management contract costs, net..................... 1,181,274 7,578,968 7,299,226
Other.............................................. 1,327,866 2,074,898 9,054,385
------------ ------------ ------------
Total assets............................. $113,276,354 $133,403,073 $143,083,313
============ ============ ============
LIABILITIES AND PARTNERS' CAPITAL
Current liabilities:
Accounts payable and accrued expenses............ $ 8,921,991 $ 8,453,755 $ 9,210,678
Accounts payable and accrued expenses due to
affiliates.................................... 4,036,286 1,578,095 900,363
Deposits......................................... 1,314,767 1,666,892 952,415
Deposits from affiliates......................... 253,000 354,000 316,000
Current portion of long-term debt and capital
lease obligation.............................. 4,938,966 16,035,630 15,966,306
Due to affiliates................................ 1,036,662 2,591,676 2,337,876
------------ ------------ ------------
Total current liabilities................ 20,501,672 30,680,048 29,683,638
------------ ------------ ------------
Payable to affiliates.............................. 4,979,664 2,626,656 1,767,985
Payable to minority interest....................... 202,920 218,052 222,052
Long-term debt and capital lease obligation........ 79,222,084 74,942,688 76,461,229
Other.............................................. -- -- 4,512,755
------------ ------------ ------------
84,404,668 77,787,396 82,964,021
------------ ------------ ------------
Minority interest.................................. 6,653,971 7,378,386 7,971,623
Commitments and contingencies
Partners' capital:
Receivables from affiliates...................... (2,205,288) (2,303,350) (2,374,601)
Partners' capital................................ 3,921,331 19,860,593 24,838,632
------------ ------------ ------------
Total partners' capital.................. 1,716,043 17,557,243 22,464,031
------------ ------------ ------------
Total liabilities and partners'
capital............................. $113,276,354 $133,403,073 $143,083,313
============ ============ ============
</TABLE>
The accompanying notes are an integral part of the combined financial
statements.
F-3
<PAGE> 162
WYNDHAM HOTEL CORPORATION
COMBINED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
--------------------------------------- -------------------------
1993 1994 1995 1995 1996
----------- ----------- ----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenues:
Hotel revenues..................... $43,920,770 $51,798,932 $54,673,322 $15,359,045 $16,828,688
Management fees.................... 4,414,435 5,929,852 7,353,563 1,784,134 2,600,777
Management fees -- affiliates...... 6,316,897 7,371,893 9,567,326 1,620,094 2,600,805
Service fees....................... 1,058,150 1,670,894 2,191,816 398,883 410,370
Service fees -- affiliates......... 1,069,443 1,233,641 1,927,669 307,763 554,283
Reimbursements..................... 1,214,999 3,109,956 4,377,626 932,591 1,626,521
Reimbursements -- affiliates....... 2,948,704 4,893,584 6,458,554 1,424,249 1,955,878
Other.............................. 333,983 257,046 1,339,832 92,109 32,724
----------- ----------- ----------- ----------- -----------
Total revenues............. 61,277,381 76,265,798 87,889,708 21,918,868 26,610,046
----------- ----------- ----------- ----------- -----------
Operating costs and expenses:
Hotel expenses..................... 31,339,349 35,963,759 36,851,511 9,171,015 10,175,947
Hotel expenses -- affiliates....... 403,556 612,556 125,556 31,389 31,389
Selling, general and administrative
expenses........................ 9,342,292 10,202,372 14,526,732 2,809,581 4,153,321
Selling, general and administrative
expenses -- affiliates.......... 570,550 442,105 473,920 111,781 119,902
Equity participation
compensation.................... 2,709,770 2,802,387 3,992,143 998,035 --
Reimbursable expenses.............. 1,214,999 3,109,956 4,377,626 932,591 1,626,521
Reimbursable
expenses -- affiliates.......... 2,948,704 4,893,584 6,458,554 1,424,249 1,955,878
Depreciation and amortization...... 5,269,326 5,735,355 6,310,730 1,469,117 1,661,200
Other.............................. 384,685 167,393 147,584 (6,235) 143,994
----------- ----------- ----------- ----------- -----------
Total operating costs and
expenses................. 54,183,231 63,929,467 73,264,356 16,941,523 19,868,152
----------- ----------- ----------- ----------- -----------
Operating income..................... 7,094,150 12,336,331 14,625,352 4,977,345 6,741,894
Interest income...................... 140,306 178,495 344,124 56,360 126,036
Interest income -- affiliates........ -- -- 100,377 -- 178,003
Interest expense..................... (7,215,589) (7,704,538) (8,465,239) (2,101,080) (2,114,357)
Equity in earnings of affiliate's
hotel partnership.................. 777,255 1,236,716 1,664,187 556,245 828,853
Foreign currency gain................ 647,143 403,842 405,096 37,301 --
----------- ----------- ----------- ----------- -----------
Income before minority interests..... 1,443,265 6,450,846 8,673,897 3,526,171 5,760,429
Income (loss) attributable to
minority interests................. (210,638) 186,134 724,415 508,062 593,237
----------- ----------- ----------- ----------- -----------
Net income........................... $ 1,653,903 $ 6,264,712 $ 7,949,482 $ 3,018,109 $ 5,167,192
=========== =========== =========== =========== ===========
Pro forma income tax adjustment
(unaudited)..................... 3,140,045 1,192,153 2,041,040
Historical net income as adjusted
for pro forma income tax
(unaudited)..................... 4,809,437 1,825,956 3,126,152
Historical income as adjusted per
common share (unaudited)........ $ .30 $ .12 $ .20
=========== =========== ===========
Common shares outstanding
before the offerings
(unaudited).............. 15,820,799 15,820,799 15,820,799
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of the combined financial
statements.
F-4
<PAGE> 163
WYNDHAM HOTEL CORPORATION
COMBINED STATEMENTS OF PARTNERS' CAPITAL
<TABLE>
<CAPTION>
PARTNERS' CAPITAL
-----------------
<S> <C>
Balance January 1, 1993....................................................... $ (6,038,928)
Capital contributions....................................................... 6,798,884
Capital distributions....................................................... (4,662,068)
Equity participation compensation........................................... 2,709,770
Net income.................................................................. 1,653,903
----------
Balance December 31, 1993..................................................... 461,561
Capital contributions....................................................... 2,120,412
Capital distributions....................................................... (7,727,741)
Equity participation compensation........................................... 2,802,387
Net income.................................................................. 6,264,712
----------
Balance December 31, 1994..................................................... 3,921,331
Capital contributions....................................................... 14,795,273
Capital distributions....................................................... (10,931,622)
Distribution made to withdrawing partner.................................... (2,577,483)
Bedrock options............................................................. 2,711,469
Equity participation compensation........................................... 3,992,143
Net income.................................................................. 7,949,482
----------
Balance December 31, 1995..................................................... 19,860,593
Capital contributions....................................................... 4,791,169
Capital distributions....................................................... (4,980,322)
Net income.................................................................. 5,167,192
----------
Balance March 31, 1996 (unaudited)............................................ $ 24,838,632
==========
</TABLE>
The accompanying notes are an integral part of the combined financial
statements.
F-5
<PAGE> 164
WYNDHAM HOTEL CORPORATION
COMBINED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH
YEAR ENDED DECEMBER 31, 31,
----------------------------------------- -------------------------
1993 1994 1995 1995 1996
----------- ------------ ------------ ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net income........................................ $ 1,653,903 $ 6,264,712 $ 7,949,482 $ 3,018,109 $ 5,167,192
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization................... 5,269,326 5,735,355 6,310,730 1,469,117 1,661,200
Provision for bad debt.......................... 49,879 84,213 265,004 23,026 118,976
Equity in earnings (loss) of affiliate's hotel
partnership................................... 922,465 (36,240) 371,756 79,594 (455,401)
Foreign currency translation gain............... (647,143) (403,842) (405,096) (37,301) --
Equity participation compensation............... 2,709,770 2,802,387 3,992,143 998,035 --
Minority interest............................... (210,638) 186,134 724,415 508,062 593,237
Net (deposits to)/withdrawals from restricted
cash.......................................... 74,227 359,570 (485,253) 64,805 87,960
Changes to operating assets and liabilities:
Accounts receivable............................. (1,302,338) (1,486,909) (1,841,751) (3,233,611) (2,904,097)
Due from affiliates............................. (36,163) (850,302) (136,817) (755,454) 1,145,834
Inventories..................................... 59,157 (39,889) 22,870 (11,235) (41,859)
Other........................................... 48,621 (168,630) (38,916) 93,910 239,255
Accounts payable and accrued expenses........... (941,493) (758,561) (63,140) 1,759,920 756,923
Accounts payable and accrued expenses due to
affiliates.................................... -- 4,036,286 (2,458,191) (2,932,813) (677,732)
Deposits........................................ 199,770 70,319 352,125 (253,675) (714,477)
Deposits from affiliates........................ 85,000 (25,000) 101,000 -- (38,000)
Due to affiliates............................... 330,267 (684,724) 1,555,014 1,301,214 (253,800)
----------- ------------ ------------ ----------- -----------
Net cash provided by operating activities... 8,264,610 15,084,879 16,215,375 2,091,703 4,685,211
----------- ------------ ------------ ----------- -----------
Cash flows from investing activities:
Purchase of property and equipment................ (8,901,426) (2,100,507) (3,556,126) (402,214) (562,139)
Investments in management contracts............... (687,707) (285,357) (4,346,391) -- (23,035)
Notes and other receivables from affiliates....... -- -- (7,673,690) (3,818,883) (35,572)
Notes receivable.................................. -- -- (2,450,587) -- --
Other............................................. (168,663) 1,770,166 (3,315,943) (267,777) (2,473,804)
----------- ------------ ------------ ----------- -----------
Net cash used in investing activities:...... (9,757,796) (615,698) (21,342,737) (4,488,874) (3,094,550)
----------- ------------ ------------ ----------- -----------
Cash flows from financing activities:
Partners' contributed capital..................... 6,798,884 2,120,412 14,795,273 9,060,457 4,791,169
Partners' capital distributions................... (4,662,068) (7,727,741) (10,931,622) (1,573,656) (4,980,322)
Distribution made to withdrawing partner.......... -- -- (2,577,483) -- --
Increase in receivables from affiliates........... (678,822) (254,970) (98,062) (7,105) (71,251)
Decrease in payable to affiliates................. (681,590) (597,331) (2,353,008) (1,249,930) (858,671)
Increase in payable to minority interest.......... -- 23,960 15,132 3,783 4,000
Proceeds from long-term borrowings................ 5,400,000 50,738 13,600,000 -- 2,539,883
Repayments on long-term debt...................... (4,515,574) (5,011,921) (6,656,896) (1,280,413) (1,036,955)
Repayments on capital lease obligations........... (22,410) (279,594) (125,836) (90,228) (53,711)
----------- ------------ ------------ ----------- -----------
Net cash provided by (used in) financing.... 1,638,420 (11,676,447) 5,667,498 4,862,908 334,142
----------- ------------ ------------ ----------- -----------
Increase in cash and cash equivalents............... 145,234 2,792,734 540,136 2,465,737 1,924,803
Cash and cash equivalents at beginning of period.... 681,513 826,747 3,619,481 3,619,481 4,159,617
----------- ------------ ------------ ----------- -----------
Cash and cash equivalents at end of period.......... $ 826,747 $ 3,619,481 $ 4,159,617 $ 6,085,218 $ 6,084,420
=========== ============ ============ =========== ===========
Supplemental disclosures of cash flow information:
Cash paid for interest............................ $ 7,221,329 $ 7,693,702 $ 8,154,159
=========== ============ ============
</TABLE>
The accompanying notes are an integral part of the combined financial
statements.
F-6
<PAGE> 165
WYNDHAM HOTEL CORPORATION
NOTES TO COMBINED FINANCIAL STATEMENTS
1. COMPANY DESCRIPTION AND BASIS OF PRESENTATION:
Wyndham Hotel Corporation ("WHC") was incorporated in Delaware in February
1996 and intends to enter into the Formation Agreement in 1996 with Wyndham
Hotel Company, Ltd. and four related management entities ("Wyndham" or the "Old
Management Company"), six wholly owned, one 62.5% owned and one 30% owned
related hotel entities (the "Hotel Entities") and seven related general and
limited partner entities of the hotel entities ("Partner Entities")
(collectively, the "Assigned Businesses"), (the Assigned Businesses and WHC will
be referred to collectively as the "Company"). The Company will effect certain
exchanges, a merger and other transactions (collectively the "Formation"). The
Formation will accomplish the exchange of all the Assigned Businesses' equity
interest held by their partners, including the five Senior Executive Officers,
who are promoters of the Company, and stockholders to the Company for
consideration of common stock and the payment of cash. The Formation transaction
will be accounted for in a manner similar to that of a pooling of interests. As
a result, the combination has been accounted for using the historical cost for
the Assigned Businesses. Concurrent with the Formation, the Company intends to
offer approximately $150,000,000 of equity and debt in an initial public
offering.
The accompanying combined financial statements include the accounts of the
Company which consist of the following majority owned entities (except Garden
Hotel Associates LP which is 30% owned):
Management Entities:
Wyndham Hotel Company, Ltd. (a Texas limited partnership)
Pleasanton Hotel Management Ltd. (a Texas limited partnership)
Wyndham Hotels and Resorts Ltd. (a Bermuda corporation)
Wyndham Hotel Canada II, Inc. (a Texas S-corporation)
Old San Juan Management, Ltd. (a Texas limited partnership)
Hotel Entities:
Brookfield Lakes Partners Limited (a Texas limited partnership)
Commerce Hotel Partners Ltd. (a Texas limited partnership)
Indianapolis Partners Ltd. (a Texas limited partnership)
Rose Hall Associates (a Texas limited partnership)
Schaumburg Hotel Partners LP (a Texas limited partnership)
WHI Limited Partnership (a Texas limited partnership)
Wyndham Charlotte Garden Hotel Limited Partnership (a Texas limited
partnership)
Garden Hotel Associates L P (a Texas limited partnership)
Partner Entities:
Garden Hotel Corp. No. 1 (a Texas S-corporation)
Garden Hotel Corp. No. 2 (a Texas S-corporation)
Garden Hotel Partners L P (a Texas limited partnership)
Schaumburg Hotel, Inc. (a Texas S-corporation)
Schaumburg Hotel Partners L P (a Texas limited partnership)
WH Interest, Inc. (a Texas S-corporation)
WHC Caribbean Limited (a Jamaican corporation)
A controlling interest in each of the above entities, with the exception of
Garden Hotel Associates LP, is owned by Crow Family Members. In addition, these
entities are all managed by Wyndham. As a result, the Company has both voting
and operational control over these entities. All significant intercompany
balances and transactions have been eliminated in combination. The stockholders'
equity balances of Wyndham Hotel Canada II, Inc. and Wyndham Hotels and Resorts
Ltd. have been included with Partners' Capital.
F-7
<PAGE> 166
WYNDHAM HOTEL CORPORATION
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
The Company has a 30% investment in an affiliate, Garden Hotel Associates
LP ("GHALP") which owns eleven Wyndham Garden Hotels located throughout the
United States. The Company does not have voting or operational control over
GHALP; therefore, the entity is accounted for using the equity method in the
accompanying financial statements. Profits and losses of GHALP are allocated to
the partners in accordance with its partnership agreement. (See Note 17)
At December 31, 1995, minority interest represented the 37.50% interest in
Rose Hall Associates held by two unaffiliated entities.
Wyndham, which was formed effective January 1, 1988, provides management
and development services to hotel property owners. As of December 31, 1995, 70
properties, located in 22 states, the District of Columbia and five Caribbean
islands were under management or franchise contracts.
Wyndham operates 19 Wyndham Hotels, 38 Wyndham Garden Hotels and six
Wyndham Resort hotels. The Company provides management services to four
non-Wyndham brand hotels and provides construction and development services for
three hotels under renovation or construction.
The Hotel Entities, which own 17 hotels and lease one hotel, were formed
for the purpose of acquiring, owning, leasing and operating hotels throughout
the United States, and the Caribbean. Hotel revenues are primarily dependent
upon the individual business traveler and small business groups.
The Partner Entities, which are comprised of five corporate general
partners and three limited partner partnerships, were formed for the purpose of
managing and investing in certain Hotel Entities.
Use of Estimates and Assumptions
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the dates of the financial
statements and the reported amounts of revenues and expenses during the
reporting periods. Actual results could differ from those estimates.
Interim Financial Information
The combined balance sheet as of March 31, 1996, the combined statement of
partners' capital for the three months then ended, and the combined statements
of operations and cash flows for the three months ended March 31, 1995 and 1996,
have been prepared by the Company without audit. In the opinion of management,
all adjustments (which included only normal, recurring adjustments) necessary to
present fairly the financial position at March 31, 1996, and the results of
operations and cash flows for all periods presented have been made. The results
of operations for the interim periods are not necessarily indicative of the
operating results for the full year.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Cash
For purposes of reporting cash flows, all highly liquid debt instruments
with original maturities of three months or less are considered to be cash
equivalents.
Restricted cash consists of reserves for quarterly cash flow payments and
property tax escrows at hotels under management. As of December 31, 1995,
restricted cash also includes a depository account balance of $2,595,112 which
collateralizes a letter of credit. Management anticipates the deposit will be
reduced concurrent with reductions in the letter of credit commitment.
F-8
<PAGE> 167
WYNDHAM HOTEL CORPORATION
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
The Company participates in a centralized cash management system with
affiliates who are excluded from these financial statements. A portion of net
cash flow of the Company is held in a central bank account from which operating
expenses and other disbursements are paid. Each entity's share of pooled cash
has been properly reflected on the individual entity's financial statements.
The Company maintains cash and cash equivalents in accounts with various
financial institutions in excess of the amount insured by the Federal Deposit
Insurance Corporation. The Company has not experienced any losses in such
accounts.
Inventories
Inventories consist of food, beverages, china, linen, glassware,
silverware, uniforms, and supplies and are stated at cost which approximates
market, with cost determined using the first-in, first-out method.
Property and Equipment
Buildings are carried at cost and depreciated over forty years using the
straight-line method. Furniture and equipment are recorded at cost and
depreciated using the straight-line method over the estimated useful lives,
which range from three to nine years. Assets recorded under capital leases and
leasehold improvements are amortized over the shorter of the lives of the assets
or the terms of the related leases. Normal repairs and maintenance are charged
to expense as incurred.
In 1995, the Company adopted Financial Accounting Standards No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
be Disposed of." Impairment losses are recognized in operating income as they
are determined. The Company periodically reviews its property and equipment to
determine if its carrying cost will be recovered from future operating cash
flows. In cases when the Company does not expect to recover its carrying cost,
the Company recognizes an impairment loss. No such losses have been recognized
to date.
Management Contracts
Wyndham has entered into management agreements which required payment of
certain costs associated with the change in the management of hotels. These
costs have been recorded as deferred management contract costs and are being
amortized on a straight-line basis over the terms of the agreements. The Company
periodically evaluates the recoverability of management contract costs to
determine whether such costs will be recovered from future operations.
Certain management agreements include repayment provisions if termination
occurs prior to the term of the agreement. During 1995, the Company received
$1,000,000 for a terminated agreement that is included in other revenues.
Other Assets
Other assets consist primarily of loan costs totaling approximately
$491,450 and $745,951 and restricted cash of $317,181 and $615,919 at December
31, 1994 and 1995, respectively. Amortization of loan costs is computed using
the level yield method over the lives of the related loans. Restricted cash
consists of amounts reserved for replacement of fixed assets on several of the
hotel entities.
At March 31, 1996, the Company had incurred costs relating to the Offerings
of $4,512,755 included in other assets and accrued in other liabilities.
Deposits
Deposits represent cash received from guests for future hotel reservations
for the Hotel Entities and cash received from the owners of certain hotels
managed by Wyndham for various operating expenses paid by
F-9
<PAGE> 168
WYNDHAM HOTEL CORPORATION
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
Wyndham on behalf of managed properties. Upon termination of the management
contracts, the excess, if any, of the deposits over the actual operating
expenses owed to Wyndham would be refunded to the owners.
Income Taxes
Each of the combined companies is either a partnership, an S corporation or
a nontaxable Bermuda corporation, and consequently, is not subject to federal
income taxes. Thus, taxable income or loss is allocated directly to the taxable
income of the individual partners and stockholders. The Company's tax returns
and the amount of allocable income or loss are subject to examination by federal
and state taxing authorities. If such examinations result in changes to income
or loss, the tax liability of the partners and stockholders could be changed
accordingly.
Revenue Recognition
Hotel revenue, management fees, service fees, reimbursements and other
income are recognized when earned.
Foreign Currency Translation
The books of record of one of the Hotel Entities are maintained using the
U.S. dollar as the functional currency. Assets and liabilities of non-U.S.
operations are translated into U.S. dollars at the exchange rate in effect as of
the balance sheet date. Revenues and expenses on non-U.S. operations are
translated at the weighted average exchange rate during the year. Realized
foreign currency gains and losses are included in results of operations.
Self Insurance
The Company is self insured for various levels of general liability,
workers' compensation and employee medical coverages. Accrued expenses include
the estimated cost from unpaid incurred claims.
Income per share
Historical pro forma income per share is based on the number of shares of
common stock outstanding immediately prior to the offering. Proceeds from the
exercise of dilutive stock options are assumed to be used to repurchase
outstanding shares of the Company's common stock at the average fair market
value during the period. Historical pro forma income per common share is based
on net income per share as adjusted for a pro forma provision for income taxes
based on an assumed tax rate of 39.5%.
3. ACQUISITIONS:
During 1993, the Company purchased substantially all the assets of one
hotel from an unrelated party for a cash purchase price of $6,750,000. The
acquisition was accounted for using the purchase method and, accordingly, the
acquired assets, which consisted primarily of property and equipment, were
recorded based on their estimated fair values at the date of acquisition.
F-10
<PAGE> 169
WYNDHAM HOTEL CORPORATION
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
4. INVESTMENT IN AN AFFILIATE'S HOTEL PARTNERSHIP:
The summary of the significant financial information of GHALP is as
follows:
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------
1994 1995
------------ ------------
<S> <C> <C>
Total current assets..................................... $ 6,208,801 $ 6,769,585
Property and equipment, net.............................. 105,947,174 103,797,559
Other.................................................... 2,736,544 1,947,631
------------ ------------
$114,892,519 $112,514,775
============ ============
LIABILITIES AND PARTNERS' EQUITY
Total current liabilities................................ $ 4,372,790 $ 5,049,001
Long-term debt, excluding current portion................ 93,000,000 93,000,000
Partners' equity......................................... 17,519,729 14,465,774
------------ ------------
$114,892,519 $112,514,775
============ ============
</TABLE>
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-----------------------------------------
1993 1994 1995
----------- ----------- -----------
<S> <C> <C> <C>
Revenues...................................... $45,299,429 $50,916,822 $56,976,113
Expenses...................................... 42,708,577 46,794,437 51,428,824
----------- ----------- -----------
Net income.......................... $ 2,590,852 $ 4,122,385 $ 5,547,289
=========== =========== ===========
</TABLE>
A reconciliation of the investment in GHALP to the underlying assets is as
follows:
<TABLE>
<CAPTION>
1994 1995
---------- ----------
<S> <C> <C>
Investment in an affiliate
Hotel partnership.......................................... $2,968,710 $2,596,954
========== ==========
Initial capital contributions................................ $7,000,000 $7,000,000
Contributions.............................................. 149,400 149,400
Distributions.............................................. (3,052,269) (5,088,119)
Net income (loss).......................................... (1,128,421) 535,673
---------- ----------
$2,968,710 $2,596,954
========== ==========
</TABLE>
The Company's initial contribution upon formation of GHALP was $7,000,000
of the total initial aggregate contributions of $36,000,000. Pursuant to the
Partnership agreement, the Company has a 30% ownership interest in the
Partnership.
5. NOTES AND OTHER RECEIVABLES FROM AFFILIATES:
As of December 31, 1994 and 1995, notes and other receivables from
affiliates consist of the following:
<TABLE>
<CAPTION>
1994 1995
---------- ----------
<S> <C> <C>
Promissory notes bearing interest at 9% per annum, payable in
2005....................................................... $ -- $6,395,690
Promissory note bearing interest at 9% per annum, payable in
2000....................................................... -- 1,278,000
---------- ----------
$ -- $7,673,690
========== ==========
</TABLE>
F-11
<PAGE> 170
WYNDHAM HOTEL CORPORATION
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
The promissory notes represent loans made to affiliated entities to acquire
hotels which then have executed management agreements with the Company. The
loans are collateralized by the partnership interests in the respective
entities. Interest income of $100,377 was earned for the year ended December 31,
1995.
6. NOTES RECEIVABLE
Pursuant to the terms of a management agreement obtained during 1995,
Wyndham is obligated to provide $4,560,000 for renovation of this hotel. As of
December 31, 1995, $2,344,974 of this obligation, classified as a note
receivable, has been funded. The note bears interest at prime plus .5% and is
due March 15, 2005. The payment of interest associated with this note receivable
is subject to payment priorities including a cumulative preferred priority
return to the owner.
7. MANAGEMENT SERVICES AND RELATED REVENUES:
Wyndham has entered into management agreements for hotels. The owners of
certain hotels Wyndham manages are affiliates related by common ownership or
control. Management fees earned for hotels owned by affiliates in 1993, 1994 and
1995 were $6,316,897, $7,371,893 and $9,528,374, respectively.
Various operating expenses have been paid by Wyndham on behalf of managed
properties. As of December 31, 1993, 1994 and 1995, accounts receivable from
hotels owned by affiliates were $1,825,419, $2,519,881 and $3,002,315,
respectively.
Wyndham provides centralized accounting services such as accounts payable,
payroll and financial statement preparation for certain managed hotels. Wyndham
charges an accounting fee to these hotels for such services. Design fees are
additional service fees paid to Wyndham for the development, design and
construction of new hotels as well as for the refurbishment of existing hotels.
In addition, Wyndham receives purchasing fees based on a percentage of cost of
goods ordered for purchasing various items. Service fees earned for hotels owned
by affiliates in 1993, 1994 and 1995 were $1,069,443, $1,233,641 and $1,927,669,
respectively.
Reimbursements represent revenues recognized for the reimbursement of
expenses associated with providing sales and marketing, centralized
reservations, partnership accounting and other support services. Included in
reimbursable expenses are advertising and promotional expenses of $3,654,929 and
$4,905,191 for the years ended December 31, 1994 and 1995. Advertising and
promotional expenses were not included in reimbursable expenses in 1993, since
the expenses were incurred by each hotel. Reimbursable revenues recognized for
hotels owned by affiliates in 1993, 1994 and 1995 were $2,948,704, $4,893,584
and $6,458,554, respectively.
8. PROPERTY AND EQUIPMENT:
Property and equipment consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------------
1994 1995
------------ ------------
<S> <C> <C>
Property and equipment, at cost:
Land.................................................. $ 9,954,574 $ 9,954,574
Buildings and improvements............................ 76,802,173 77,108,307
Furniture, fixtures and equipment..................... 24,807,467 28,056,836
Leasehold improvements................................ 246,874 247,497
------------ ------------
111,811,088 115,367,214
Less accumulated depreciation and amortization........ (22,385,277) (27,763,364)
------------ ------------
$ 89,425,811 $ 87,603,850
============ ============
</TABLE>
F-12
<PAGE> 171
WYNDHAM HOTEL CORPORATION
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
9. ACCOUNTS PAYABLE AND ACCRUED EXPENSES:
Accounts payable and accrued expenses consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------
1994 1995
---------- ----------
<S> <C> <C>
Accounts payable............................................ $4,449,306 $3,648,298
Taxes....................................................... 1,509,026 1,485,388
Payroll and related costs................................... 1,649,959 2,054,622
Accrued interest............................................ 569,050 880,130
Other....................................................... 744,650 385,317
---------- ----------
$8,921,991 $8,453,755
========== ==========
</TABLE>
10. LONG-TERM DEBT:
Long-term debt consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------
1994 1995
----------- -----------
<S> <C> <C>
Mortgage loan, a hotel property is pledged as collateral, interest
payable monthly at prime (8.50% at December 31, 1995) plus .5%
and principal due in installments based on cash flow maturing
May 2, 1996..................................................... $13,425,000 $12,606,867
Mortgage loan, a hotel property is pledged as collateral, interest
payable monthly at LIBOR (5.44% at December 31, 1995) plus 1.75%
and principal due in installments based on cash flow maturing
December 31, 1999............................................... 10,600,000 10,034,064
Mortgage loan, a hotel property is pledged as collateral, interest
payable monthly at LIBOR plus 1.5% and principal due in
installments based on cash flow maturing December 31, 1999...... 10,275,000 10,115,609
Mortgage loan, a hotel property is pledged as collateral, interest
payable monthly at LIBOR plus 3.25%, and principal maturing May
21, 2000........................................................ 5,400,000 5,400,000
Mortgage loan, a hotel property is pledged as collateral, interest
payable monthly at prime plus 1.25%, and principal due in
installments based on cash flow maturing August 28, 1997........ 8,958,723 8,733,852
Mortgage loan, a hotel property is pledged as collateral, interest
payable quarterly at 86% of LIBID, and principal payable
quarterly and maturing November 15, 1999........................ 6,902,000 5,870,000
Revolving credit agreement, substantially all of the assets of
Wyndham are pledged as collateral, interest payable quarterly at
9%, and principal maturing June 30, 2002........................ -- 12,500,000
Note payable to seller of a hotel, partnership interest pledged as
collateral, interest payable quarterly at 8%, principal payable
quarterly and maturing May 21, 1997............................. 3,845,418 2,391,690
Development loan, a hotel property is pledged as collateral,
interest payable monthly at 7%, principal matured April 28,
1995............................................................ 813,806 --
Note payable to seller of a hotel, interest payable quarterly at
11.5%, principal due quarterly and maturing November 15, 1999... 2,760,800 2,348,000
Note payable to bank interest payable quarterly at Jamaican prime
plus 1.5%, principal payable quarterly and maturing November 15,
1999............................................................ 271,895 195,664
----------- -----------
63,252,642 70,195,746
Current portion of long-term debt................................. 4,612,648 15,653,362
----------- -----------
Long-term debt, excluding current portion......................... $58,639,994 $54,542,384
=========== ===========
</TABLE>
F-13
<PAGE> 172
WYNDHAM HOTEL CORPORATION
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
The annual principal requirements for the five years subsequent to December
31, 1995 are as follows:
<TABLE>
<S> <C>
1996............................................ $15,653,362
1997............................................ 11,037,453
1998............................................ 1,479,200
1999............................................ 24,125,731
2000............................................ 5,400,000
Thereafter...................................... 12,500,000
-----------
$70,195,746
===========
</TABLE>
The revolving credit agreement which has an unfunded commitment of $7.5
million contains various covenants including limitations on distributions and
fixed charge ratios. The lender has 20 business days, in the event of a public
offering, to exercise an option to convert 50% of the debt to restricted common
stock at the Option Price, as defined in the agreement as the initial public
offering price per share less the underwriting discounts and commissions per
share. The option also contains a provision to effect a registration of the
restricted common stock for a 24 month period following the registration.
The Company has an outstanding letter of credit of $2,595,112
collateralized by a depository account balance of $2,595,112.
11. LEASES:
The Company leases various types of property including land and buildings
of hotel properties, office facilities and equipment under agreements ranging
from 1 to 30 years. Leased capital assets included in property and equipment at
December 31, 1994 and 1995 are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------
1994 1995
----------- -----------
<S> <C> <C>
Property................................................... $14,529,648 $14,529,648
Equipment.................................................. 3,150,726 3,434,286
----------- -----------
17,680,374 17,963,934
Accumulated amortization................................... (4,731,623) (5,721,171)
----------- -----------
$12,948,751 $12,242,763
=========== ===========
</TABLE>
F-14
<PAGE> 173
WYNDHAM HOTEL CORPORATION
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
The future minimum lease payments required under the capital lease
(together with the present value of net minimum lease payments) and future
minimum lease payments required under operating leases that have an initial term
or remaining noncancelable lease term in excess of one year at December 31, 1995
are as follows:
<TABLE>
<CAPTION>
CAPITAL OPERATING
LEASES LEASES
----------- ----------
<S> <C> <C>
Year ending December 31:
1996..................................................... $ 2,431,636 $ 904,392
1997..................................................... 2,437,778 251,697
1998..................................................... 2,375,755 110,571
1999..................................................... 2,300,000 63,264
2000..................................................... 2,300,000 24,361
Thereafter............................................... 40,250,000 --
----------- ----------
Total minimum lease payments............................... 52,095,169 $1,354,285
==========
Less imputed interest...................................... 31,312,597
-----------
Present value of net minimum lease payments................ 20,782,572
Less current portion....................................... 382,268
-----------
Long term portion of net minimum lease payments............ $20,400,304
===========
</TABLE>
WHI Limited Partnership ("WHI") has a lease agreement for the property
which is accounted for as a capital lease. This agreement provides for payments
of contingent rent based on a percentage of net operating income, as defined,
less basic rent and the management fee (base amount). For lease years 1990
through 1999, contingent rent payable to the landlord is 20% of the excess of
net operating income, as defined, over the base amount and 50% of the excess for
lease years thereafter. Contingent rent expense for the years ended December 31,
1993, 1994 and 1995 was $119,609, $107,735 and $58,789, respectively.
This capital lease agreement provides for a reserve for capital
expenditures equal to 4% of the gross income of the respective hotel. At the end
of the lease term, WHI is required to refund to Wyndham the excess of amounts
reserved over actual capital expenditures. At December 31, 1994 and 1995, the
reserved amount exceeded expenditures by $973,051 and $1,038,577, respectively.
The lease requires WHI to meet a minimum net worth requirement. The initial
net worth requirement was $5,000,000 and is reduced upon achievement of certain
operating results. WHI demonstrated the initial net worth requirements by
obtaining a letter of credit in the amount of $4,000,000 and a personal
guarantee from one of the partners in the amount of $1,000,000. The letter of
credit was collateralized by a $2,000,000 certificate of deposit and a
$2,000,000 personal guarantee of one of the partners.
The lease agreement provides for a reduction of the $5,000,000 required net
worth upon achievement of certain operating results. If net operating income
exceeds $2,875,000 per year for two consecutive years, the net worth requirement
is reduced to $2,500,000. If net operating income exceeds $2,875,000 per year
for three consecutive years, the net worth requirement is reduced to zero.
During 1993, 1994 and 1995, WHI's net operating income, as defined, exceeded
$2,875,000.
12. RECEIVABLES FROM AFFILIATES:
Management fees for one managed hotel, owned by a partner of the Company,
are deferred until certain operating criteria, as defined in the partnership's
management agreement and loan agreement, are met. As of December 31, 1994 and
1995, this deferred balance, a receivable from an affiliate included in
partners' capital, was $1,125,240 and $1,223,302, respectively. These management
fees will be collected upon meeting the operating criteria as defined in the
agreement.
F-15
<PAGE> 174
WYNDHAM HOTEL CORPORATION
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
In addition, included in partners' capital are receivables from affiliates
which include certain partner capital contributions and accrued interest of
$1,080,046 and $1,080,046 as of December 31, 1994 and 1995, respectively.
13. COMMITMENTS AND CONTINGENCIES:
Litigation has been initiated against the Company pertaining to the right
to use the Wyndham name for hotel service in the New York metropolitan area. On
January 29, 1996, a temporary restraining order was issued by the Supreme Court
of the State of New York which, pending the outcome of a trial, prevents the
Company from using the Wyndham name in the New York area. An adverse decision in
the litigation could prevent the Company from operating Wyndham brand hotels or
advertising the Wyndham name in connection with the operation of a Wyndham brand
hotel within a 50 mile radius of the Mados Wyndham Hotel, which owns the right
to use the Wyndham name in the New York area. It is management's opinion, based
on legal counsel, that the range of losses resulting from the ultimate
resolution of the aforementioned claim cannot be determined.
The Company received a Notice of Intent to make Sales and Use Tax audit
changes from the Tampa Region of the Florida Department of Revenue for the
period from July 31, 1990 through June 30, 1995. The audit assessed additional
taxes of $584,399, penalty of $223,494 and interest of $201,024 for a total
assessment of $1,008,917. Management, after review and consultation with
counsel, believes the Company has meritorious defenses to this matter and that
any potential liability in excess of the $189,000 recorded would not materially
effect the Company's combined financial statements.
On February 29, 1996, an affiliate and the Company were served with a
complaint filed on November 22, 1995 by an owner of a hotel managed by the
affiliate. The claim involves the collection of a promissory note relating to an
earlier litigation between the affiliate and the owner. The owner alleges that
the transfer of certain management contracts by the affiliate to the Company was
a fraudulent conveyance that rendered the affiliate insolvent. Liability for
payment of that Note was not transferred to or assumed by the Company. The
affiliate has agreed to indemnify the Company with respect to this litigation.
The Company has pending several other claims incurred in the normal course
of business which, in the opinion of management, based on the advice of legal
counsel, will not have a material effect on the combined financial statements.
In May 1994, the Company entered into an Investment Agreement and an Option
Agreement (collectively, the "Bedrock Agreements") with Bedrock pursuant to
which, as amended, Bedrock agreed to provide up to $335 million in capital (the
"Investment Program") to acquire hotels or hotel management companies and to
make hotel related investments that are approved by both the Company and
Bedrock. Pursuant to the terms of the Investment Agreement, Bedrock is not
required to invest a minimum amount of capital through the Investment Program,
but the Company is entitled to manage any Investment Program hotel properties
for a term of 15 years and for a market-based management fee. At December 31,
1994 and December 31, 1995, the Company had executed management contracts with
Bedrock for 11 Wyndham brand hotels and 15 Wyndham brand hotels, respectively,
through the Investment Program.
Pursuant to the Option Agreement, the Company granted to Bedrock options
(the "Bedrock Options") to purchase up to a 37.5% limited partnership interest
in Wyndham at a price equal to the percentage interest purchased multiplied by
the applicable strike price defined for each year of the option period, as
determined pursuant to the Bedrock Agreements. (Under the terms of the Bedrock
Agreements, Bedrock is entitled to purchase a 1% interest in Wyndham for each
$320,000 of projected annual management fees generated by the management
contracts relating to hotels owned by Bedrock, and at December 31, 1994 and
December 31, 1995, Bedrock was entitled to purchase a 17.4% and 24.3% interest
in Wyndham, respectively.) As additional consideration for the grant of the
Bedrock Options, Bedrock granted to the Company the right to require Bedrock to
invest up to $20 million from the Investment Program in the amount of a $10
million contribution
F-16
<PAGE> 175
WYNDHAM HOTEL CORPORATION
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
to the Company (the "Direct Contribution") in exchange for a percentage interest
therein (not to exceed the 37.5% ownership limitation) and a $10 million
contribution to affiliated partnerships the "Indirect Contribution" in which
some or all of the Company, Crow Family Members and the Senior Executive
Officers invest. The Direct Contribution will take the form of the Bedrock
Contribution. The Indirect Contribution was eliminated in connection with the
Bedrock Exchange Agreement.
Wyndham performed a valuation analysis of the Option Agreement. Wyndham
used the Black Scholes method and the Intrinsic Value method to calculate the
value of the Option Agreement and the Direct Contribution, respectively. The
calculations were adjusted for subsequent changes in the expected or actual
outcome of the contingent condition that determines the amount of the limited
partnership interest to be earned by Bedrock. The adjusted calculations resulted
in a net value of zero and approximately $2.7 million in 1994 and 1995,
respectively, amortized on a straight-line basis over the terms of the
management agreements of the hotels owned by Bedrock.
The Option Agreement also provides for a contingent payment (the
"Contingent Option Payment") to the Old Management Company, for distribution to
the non-Bedrock owners of the Old Management Company, at such time as all hotels
financed by the Investment Program achieve an investment return target of 15% on
all equity capital invested through such program plus certain overhead costs.
The amount of the Contingent Option Payment is 10% of all cash proceeds realized
in excess of the investment return target. The Contingent Option Payment is due
70% upon the achievement of the investment target return and 30% upon Bedrock's
disposition of its entire interest in Wyndham.
During 1994 and 1995, the Company received hotel management fees from
Bedrock of $514,472 and of $2,043,087, respectively.
During 1994 and 1995, the Company made cash advances of $1,092,532 and
$1,380,702, respectively, to certain hotel partnerships in which Bedrock has an
interest. The advances were used to pay certain renovation costs of these hotel
partnerships. At December 31, 1994 and 1995, the outstanding receivables from
the hotel partnerships were $27,842 and $686,749, respectively.
During 1994 and 1995, the Company received payments of $798,503 and
$976,980, respectively, from certain hotel partnerships in which Bedrock has an
interest for design, purchasing and construction service fees.
During 1994 and 1995, the Company received payments of $170,669 and
$831,553, respectively, from certain hotel partnerships in which Bedrock has an
interest for services and reimbursements provided by the Company.
Pursuant to the terms of the management agreements of two affiliated-owned
hotels under construction, the Company has undertaken certain commitments to
provide furniture, fixtures and equipment for each hotel at a fixed price
totaling $8.1 million. Additionally, for one of these hotels the Company has
agreed to provide certain pre-opening services at a fixed price of $420,000; the
Company has guaranteed to fund up to $230,000 in working capital per year for
three years after the hotel is opened in the event that the hotel generates
inadequate cash flow; and, the Company has guaranteed $875,000 in indebtedness.
Pursuant to the terms of a management agreement of a hotel owned by an
affiliate, the Company has guaranteed to the Hotel Partnership to fund up to
$600,000 of working capital per year to the extent the entity experiences
operating deficits, with a maximum required contribution of $2.3 million over
the term of the guarantee extending from 1995 to 2000. The Company has not to
date been required to make any capital contribution under the guarantee.
The Company is subject to environmental regulations related to the
ownership, management, development and acquisition of real estate (hotels). The
cost of complying with the environmental regulations was not material to the
Company's combined statements of income for any of the years in the three-year
period ended
F-17
<PAGE> 176
WYNDHAM HOTEL CORPORATION
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
December 31, 1995. The Company is not aware of any environmental condition on
any of its properties which is likely to have a material adverse effect on the
Company's financial statements.
14. EMPLOYEE BENEFIT PLANS:
The Company sponsors a 401(k) retirement savings plans. Employees who are
over 21 years of age and have completed one year of service are eligible to
participate in the plans. The Company matches employee contributions up to 4% of
an employee's salary. The aggregate expense under the plans amounted to
approximately $129,035, $166,415 and $202,115 for the years ended December 31,
1993, 1994 and 1995, respectively.
Wyndham maintains a self-insured group health plan through a Voluntary
Employee Benefit Association ("VEBA") for certain partnerships and corporations.
This plan is funded to the limits provided in the Internal Revenue Code, and
liabilities have been recorded for estimated incurred but unreported claims.
Aggregate and stop loss insurance exists at amounts which limit exposure to the
partnerships. The Company has recognized expenses related to the plan of
$742,814, $686,580 and $832,212 for the years ended December 31, 1993, 1994 and
1995, respectively.
Certain management employees are partners in an equity participation plan,
Wyndham Employees, Ltd. ("WEL"). The Company has accounted for WEL in a manner
similar to a formula unit incentive plan. Partners are admitted into WEL and
partnership units are awarded at the discretion of Wyndham's Senior Executive
Officers. Units vest five years after award date and are payable by WEL upon
certain events. Unit values are determined by formulas related to appreciation
in value of Wyndham and other affiliated entities. In addition, the Senior
Executive Officers own limited partner interests in Wyndham and several
affiliates of Wyndham. These limited partner interests were purchased by these
Senior Executive Officers for amounts equal to the fair value of such interests.
The Senior Executive Officers borrowed the funds used to purchase such limited
partner interests from an affiliate of Wyndham and collateralized such
borrowings with their limited partner interests. The Senior Executive Officers'
shares of the distributable cash of the limited partnerships is used to repay
such affiliate loans. For financial reporting purposes, the Company has
recognized compensation expense under WEL and the Senior Executive Officer
equity participation of $2,709,770, $2,802,387 and $3,992,143 for the years
ended December 31, 1993, 1994 and 1995, respectively.
15. FAIR VALUE:
The Company has estimated the fair value of its financial instruments at
December 31, 1995 as required by Statement of Financial Accounting Standards No.
107. The carrying values of cash and cash equivalents, accounts receivable,
accounts payable and accrued expenses are reasonable estimates of their fair
values. The carrying values of variable and fixed rate debt are reasonable
estimates of their fair values based on their discounted cash flows at discount
rates currently available to the Company for debt with similar terms and
remaining maturities.
16. TRANSACTIONS WITH RELATED PARTIES:
Effective January 1, 1988, Wyndham acquired certain hotel management
contracts previously held by an affiliate. At the date of the transfer, there
was no step-up in basis of these management contracts as a result of common
control of the entities. In exchange for the contracts, Wyndham agreed to pay an
affiliate 16% of management fees earned from the acquired contracts (exclusive
of contracts entered into during 1988). The fees became payable quarterly in
arrears beginning in 1989; however, payment is limited to 50% of net cash flows,
as defined in the agreement. Net cash flow was sufficient to make full payment
during the years ended December 31, 1993, 1994 and 1995 of $698,498, $701,203
and $830,164, respectively.
F-18
<PAGE> 177
WYNDHAM HOTEL CORPORATION
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
In 1995, the Company paid $523,360 in management contract costs in
connection with entering into a management agreement for the Wyndham Anatole
Hotel. These costs are being amortized over the management agreement term.
During 1993, 1994 and 1995, the Company made lease payments totaling
$638,039, $743,922 and $875,122, respectively, to an affiliate for the Corporate
office space.
The Company subleases land from a related party which is accounted for as
an operating lease. Contingent rent is payable to the related party at 50% of
Adjusted Net Income, as defined in the sublease agreement. Contingent rent
expense as of December 31, 1993 and 1994 was $278,000 and $487,000 respectively.
There was no contingent rent expense for the year ended December 31, 1995.
During 1993, 1994 and 1995, Wyndham made payments in the aggregate amounts
of $310,412, $321,333 and $332,113, respectively, to GHMB, Inc., an entity owned
by a senior executive officer for the operation of liquor concessions at one of
the Hotel Entities.
During 1993, 1994 and 1995, the Company made payments of $1,098,270,
$1,352,468 and $1,739,804, respectively, to an entity owned by an affiliate for
travel services provided to the Company.
In 1995, the Company made payments to Trammell Crow Company in the amount
of $386,759 for contract labor (including related costs) provided to the Company
for management information services. The Company anticipates that in 1996, it
will pay approximately $810,000 to Trammell Crow Company for these contract
labor services (including related costs).
17. SUBSEQUENT EVENTS:
It is anticipated that during 1996, GHALP will enter into a sale/leaseback
agreement with an unaffiliated real estate investment trust ("REIT"). The
sale/leaseback agreement stipulates the sale of eleven hotels containing 1,940
rooms for $135,320,000 to the REIT and eleven long-term operating leases back to
the Company each with an initial term of seventeen years and four optional
twelve-year renewals exercisable at the Company's option for all hotels. Under
terms of these leases, yearly base rent aggregates $13,600,000 plus a contingent
rent paid based on a percentage of excess revenue over base year revenues. The
leases will require the Company to pay substantially all expenses associated
with the operation of the leased hotels, real estate taxes and insurance.
As part of the Formation, the Company will enter into the Bedrock Exchange
Agreement with various affiliates of Bedrock, which replaces the Bedrock
Agreements, pursuant to which Bedrock will transfer the Bedrock Options and the
Bedrock Contribution (in the amount of $10 million) in exchange for 2,332,590
shares of Common Stock. In addition, the Bedrock Exchange Agreement eliminates
the $10 million Indirect Contribution. Prior to the Formation, a separate entity
owned by Crow Family Members, the Senior Executive Officers and WEL will
purchase the right to the Contingent Option Payment for $10,000 from the owners
of Wyndham (Crow Family Members, the Senior Executive Officers and WEL).
On February 16, 1996, the Company submitted an offer and a bid deposit of
$1,250,000 to purchase a 159 room hotel for a purchase price of $12,500,000. On
February 22, 1996, the seller verbally accepted the offer and received the
nonrefundable earnest money.
F-19
<PAGE> 178
WYNDHAM HOTEL CORPORATION
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
18. CONDENSED COMBINED FINANCIAL INFORMATION OF GUARANTOR SUBSIDIARIES
Pursuant to the Debt Offering, the Company expects to issue $100.0 million
aggregate principal amount of 10 1/2% Senior Subordinated Notes due 2006. All of
the Company's subsidiaries, with the exception of a number of inconsequential
subsidiaries, will fully and unconditionally guarantee the Company's obligations
under the Notes on a joint and several basis (the "Guarantor Subsidiaries").
Accordingly, the condensed combined financial information set forth below
summarizes financial information for all of the Guarantor Subsidiaries on a
combined basis. Separate complete financial statements and other disclosure for
the Guarantor Subsidiaries have not been presented because management does not
believe that such information is material to investors.
Condensed combined financial information of the Guarantor Subsidiaries (see
note to condensed combined financial information) as of December 31, 1994 and
1995 and March 31, 1996, and for the years ended December 31, 1993, 1994 and
1995 and three months ended March 31, 1996 were as follows:
CONDENSED COMBINED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
-------------------------- -----------
1994 1995 1996
----------- ----------- -----------
<S> <C> <C> <C>
Current assets
Cash and cash equivalents................... $ 2,469,263 $ 3,707,735 $ 5,552,723
Cash, restricted as to use.................. -- 2,595,172 2,630,530
Accounts receivable, net.................... 8,596,452 10,095,095 12,656,520
Other....................................... 5,092,051 5,243,464 3,651,032
----------- ----------- -----------
Total current assets................ 16,157,766 21,641,466 24,490,805
Investment in an affiliate's hotel
partnership................................. 2,968,710 2,596,954 3,052,355
Notes and other receivables from affiliates... -- 7,673,690 7,709,262
Notes receivable.............................. -- 2,450,587 2,450,587
Property and equipment, net................... 47,594,394 47,320,281 46,933,016
Management contract costs, net................ 1,181,274 7,578,968 7,299,226
Other......................................... 660,660 1,067,913 7,786,094
----------- ----------- -----------
Total assets........................ $68,562,804 $90,329,859 $99,721,345
=========== =========== ===========
LIABILITIES AND PARTNERS' CAPITAL
Current Liabilities
Accounts payable and accrued liabilities.... $ 9,563,689 $ 6,599,900 $ 6,443,668
Deposits.................................... 1,401,024 1,913,836 980,963
Current portion of long-term debt and
capital lease obligations................ 3,525,160 3,428,763 3,434,439
Due to affiliates........................... 1,035,207 1,453,800 1,200,000
----------- ----------- -----------
Total current liabilities........... 15,525,080 13,396,299 12,059,070
----------- ----------- -----------
Payable to affiliates......................... 3,841,788 2,626,656 1,767,985
Payable to minority interest.................. 202,920 218,052 222,052
Long-term debt and capital lease
obligations................................. 31,163,361 40,659,163 42,349,714
Other......................................... -- -- 4,512,755
----------- ----------- -----------
35,208,069 43,503,871 48,852,506
----------- ----------- -----------
Minority interest............................. 6,653,971 7,378,386 7,971,623
----------- ----------- -----------
Partners' capital:
Receivables from affiliates................. (1,829,252) (1,927,314) (2,230,851)
Partners' capital........................... 13,004,936 27,978,617 33,068,997
----------- ----------- -----------
Total partners' capital............. 11,175,684 26,051,303 30,838,146
----------- ----------- -----------
Total liabilities and partners'
capital........................... $68,562,804 $90,329,859 $99,721,345
=========== =========== ===========
</TABLE>
See note to the condensed combined financial information.
F-20
<PAGE> 179
WYNDHAM HOTEL CORPORATION
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
CONDENSED COMBINED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
------------------------------------------ --------------------------
1993 1994 1995 1995 1996
----------- ----------- ------------ ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenues.................................. $44,069,417 $55,611,624 $ 65,523,432 $16,659,417 $21,144,537
----------- ----------- ------------ ----------- -----------
Operating costs and expenses.............. 35,426,502 42,659,540 51,210,290 11,682,950 14,009,093
Depreciation and amortization............. 2,960,287 3,327,691 3,929,052 879,511 1,068,899
Other..................................... 310,583 175,047 104,612 (57,584) 95,460
----------- ----------- ------------ ----------- -----------
Total operating costs and
expenses....................... 38,697,372 46,162,278 55,243,954 12,504,877 15,173,452
----------- ----------- ------------ ----------- -----------
Operating income.......................... 5,372,045 9,449,346 10,279,478 4,154,540 5,971,085
Interest expense, net..................... (4,441,841) (4,193,713) (3,815,845) (1,037,945) (888,705)
Equity in earnings of affiliate's hotel
partnership............................. 777,255 1,236,716 1,664,187 556,245 828,853
Foreign currency gain..................... 647,143 403,842 405,096 37,301 --
----------- ----------- ------------ ----------- -----------
Income before minority interests.......... 2,354,602 6,896,191 8,532,916 3,710,141 5,911,233
Income (loss) attributable to minority
interests............................... (210,638) 186,134 724,415 508,062 593,237
----------- ----------- ------------ ----------- -----------
Net income....................... $ 2,565,240 $ 6,710,057 $ 7,808,501 $ 3,202,079 $ 5,317,996
=========== =========== ============ =========== ===========
</TABLE>
CONDENSED COMBINED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, MARCH 31,
------------------------------------------- ---------------------------
1993 1994 1995 1995 1996
----------- ----------- ----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Net cash provided by operating
activities........................... $ 5,022,051 $11,823,312 $13,143,427 $ 766,906 $ 4,177,309
----------- ----------- ----------- ----------- -----------
Cash flows from investing activities:
Purchase of property and equipment... (1,592,110) (1,819,845) (2,917,076) (307,471) (360,785)
Investments in management
contracts.......................... (687,707) (285,387) (4,346,391) -- (23,035)
Notes and other receivables from
affiliates......................... -- (7,673,690) (3,818,883) (35,572)
Notes receivable..................... -- -- (2,450,587) -- --
Other................................ 5,390 1,902,851 (3,080,122) (197,976) (2,223,332)
----------- ----------- ----------- ----------- -----------
Net cash used in investing
activities......................... (2,274,427) (202,381) (20,467,866) (4,324,330) (2,642,724)
----------- ----------- ----------- ----------- -----------
Cash flows from financing activities:
Partners' contributed capital........ 4,709,297 1,780,738 13,710,768 9,060,457 4,579,075
Partners' capital distributions...... (3,259,246) (6,368,330) (10,671,717) (1,367,846) (4,806,691)
Distribution made to withdrawing
partner............................ -- (2,577,483) -- --
Decrease in payable to affiliate..... 253,921 (1,035,207) (1,215,132) (119,160) (1,162,208)
Proceeds from long-term borrowings... -- -- 13,600,000 -- 2,539,883
Repayments on long-term borrowings... (4,070,916) (3,578,109) (4,074,759) (731,446) (789,945)
Repayments on capital lease
obligations........................ (22,410) (279,595) (125,836) (90,228) (53,711)
Other................................ (315,159) (218,637) (82,930) 3,783 4,000
----------- ----------- ----------- ----------- -----------
Net cash provided by (used in)
financing activities............... (2,704,513) (9,699,140) 8,562,911 6,755,560 310,403
----------- ----------- ----------- ----------- -----------
Increase in cash and cash
equivalents.......................... 43,111 1,921,791 1,238,472 3,198,136 1,844,988
Cash and cash equivalents at beginning
of year.............................. 504,361 547,472 2,469,263 2,469,263 3,707,735
----------- ----------- ----------- ----------- -----------
Cash and cash equivalents at end of
year................................. $ 547,472 $ 2,469,263 $ 3,707,735 $ 5,667,399 $ 5,552,723
=========== =========== =========== =========== ===========
</TABLE>
Note to Condensed Combined Financial Information:
(1) The foregoing condensed combined financial information includes Wyndham
(100%), WHI Limited Partnership (100%) and Rose Hall Associates (62.5%).
Also reflected in this information is an investment in Garden Hotel
Associates L.P. (30%), which is being accounted for using the equity
method.
F-21
<PAGE> 180
REPORT OF INDEPENDENT ACCOUNTANTS
To the Partners
Garden Hotel Associates LP:
We have audited the accompanying balance sheets of Garden Hotel Associates
LP as of December 31, 1994 and 1995 and the related statements of income,
changes in partners' capital, and cash flows for each of the three years in the
period ended December 31, 1995. These financial statements are the
responsibility of the Partnership's management. Our responsibility is to express
an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Garden Hotel Associates LP
as of December 31, 1994 and 1995, and its results of operations and its cash
flows for each of the three years in the period ended December 31, 1995, in
conformity with generally accepted accounting principles.
COOPERS & LYBRAND L.L.P.
Dallas, Texas
February 27, 1996
F-22
<PAGE> 181
GARDEN HOTEL ASSOCIATES LP
(A TEXAS LIMITED PARTNERSHIP)
BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------- MARCH 31,
1994 1995 1996
------------ ------------ ------------
<S> <C> <C> <C>
Current assets:
Cash and cash equivalents........................ $ 4,581,620 $ 5,027,388 $ 6,538,845
Accounts receivable, less allowance of $19,000 in
1994, $31,000 in 1995 and $11,000 at March 31,
1996 (unaudited).............................. 1,276,316 1,248,115 2,232,370
Due from affiliates.............................. -- 155,009 270,140
Inventories...................................... 199,543 189,658 189,754
Prepaid expense.................................. 151,322 149,415 275,550
------------ ------------ ------------
Total current assets..................... 6,208,801 6,769,585 9,506,659
Property and equipment, net........................ 105,947,174 103,797,560 103,243,475
Designated cash.................................... 816,855 605,259 611,729
Other assets, net of accumulated amortization of
$4,338,000 and $4,175,000 in 1994 and 1995,
respectively..................................... 1,919,689 1,342,372 1,330,552
------------ ------------ ------------
Total assets............................. $114,892,519 $112,514,776 $114,692,415
============ ============ ============
LIABILITIES AND PARTNERS' CAPITAL
Current liabilities:
Accounts payable and accrued expenses............ $ 3,935,116 $ 4,087,035 $ 4,983,258
Due to Operator.................................. 357,940 475,200 117,750
Advance deposits................................. 79,734 486,967 608,790
------------ ------------ ------------
Total current liabilities................ 4,372,790 5,049,202 5,709,798
Long-term debt..................................... 93,000,000 93,000,000 93,000,000
------------ ------------ ------------
Total liabilities........................ 97,372,790 98,049,202 98,709,798
Commitments and contingencies
Partners' capital.................................. 17,519,729 14,465,574 15,982,617
------------ ------------ ------------
Total liabilities and partners'
capital................................ $114,892,519 $112,514,776 $114,692,415
============ ============ ============
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-23
<PAGE> 182
GARDEN HOTEL ASSOCIATES LP
(A TEXAS LIMITED PARTNERSHIP)
STATEMENTS OF INCOME
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
----------------------------------------- --------------------------
1993 1994 1995 1995 1996
----------- ----------- ----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenues:
Rooms.................... $33,181,540 $37,024,696 $42,310,485 $10,828,856 $12,211,517
Food and beverage........ 9,610,737 11,035,165 11,532,474 2,746,488 2,998,604
Operating departments.... 2,398,859 2,666,340 2,798,687 717,822 796,074
----------- ----------- ----------- ----------- -----------
45,191,136 50,726,201 56,641,646 14,293,166 16,006,195
----------- ----------- ----------- ----------- -----------
Operating costs and
expenses:
Departmental expenses:
Rooms................. 8,137,637 8,787,104 10,088,389 2,379,840 2,744,654
Food and beverage..... 7,111,756 7,868,263 8,304,422 1,978,897 2,246,857
Operating
departments......... 1,249,043 1,224,981 1,228,868 309,955 350,786
Operating expenses:
Administrative and
general............. 4,750,200 4,940,904 5,102,092 1,208,996 1,333,360
Management fees....... 2,414,658 2,888,211 3,317,170 786,121 924,438
Sales and marketing... 3,278,057 3,816,964 3,953,177 992,496 1,056,976
Property operating
costs............... 4,035,318 4,206,628 4,576,842 1,046,142 1,150,223
Property insurance,
rent and taxes...... 2,085,483 2,310,649 2,450,743 611,138 643,023
Depreciation and
amortization........ 4,808,530 4,955,340 5,058,767 1,298,224 1,192,746
Other................. 217,441 175,619 204,026 29,375 22,858
----------- ----------- ----------- ----------- -----------
Total operating
costs and
expenses....... 38,088,123 41,174,663 44,284,496 10,641,184 11,665,921
----------- ----------- ----------- ----------- -----------
Operating
income......... 7,103,013 9,551,538 12,357,150 3,651,982 4,340,274
Interest income............ 108,293 190,621 334,467 4,313 127,557
Interest expense........... (4,613,594) (5,617,689) (7,144,673) (1,802,145) (1,704,989)
----------- ----------- ----------- ----------- -----------
Net income....... $ 2,597,712 $ 4,124,470 $ 5,546,944 $ 1,854,150 $ 2,762,842
=========== =========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-24
<PAGE> 183
GARDEN HOTEL ASSOCIATES LP
(A TEXAS LIMITED PARTNERSHIP)
STATEMENTS OF CHANGES IN PARTNERS' CAPITAL
<TABLE>
<S> <C>
Balance at January 1, 1993.................................................... $25,516,448
Distributions............................................................... (8,752,000)
Net income 2,597,712
-----------
Balance at December 31, 1993.................................................. 19,362,160
Contributions............................................................... 498,000
Distributions............................................................... (6,464,901)
Net income.................................................................. 4,124,470
-----------
Balance at December 31, 1994.................................................. 17,519,729
Distributions............................................................... (8,601,099)
Net income.................................................................. 5,546,944
-----------
Balance at December 31, 1995.................................................. 14,465,574
Distributions............................................................... (1,245,799)
Net income.................................................................. 2,762,842
-----------
Balance at March 31, 1996 (unaudited)......................................... $15,982,617
===========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-25
<PAGE> 184
GARDEN HOTEL ASSOCIATES LP
(A TEXAS LIMITED PARTNERSHIP)
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
----------------------------------------- --------------------------
1993 1994 1995 1995 1996
----------- ----------- ----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net income...................................... $ 2,597,712 $ 4,124,470 $ 5,546,944 $ 1,854,150 $ 2,762,842
Adjustments to reconcile net income to net cash
provided by operating activities:
Amortization of interest rate contracts....... 39,732 134,127 134,127 33,532 33,532
Depreciation and amortization................. 4,808,530 4,955,340 5,058,767 1,298,224 1,192,746
Provision for bad debt........................ 98,269 25,170 47,119 11,780 7,500
Changes to operating assets and liabilities:
Accounts receivable........................... 572,269 (211,458) (18,919) (516,557) (991,755)
Due from affiliates........................... -- -- (155,009) -- (115,131)
Inventories................................... (17,074) 11,961 9,885 9,775 (96)
Prepaid expenses.............................. (2,851) 13,508 1,907 (75,359) (126,135)
Other assets.................................. (393,478) (430,675) 93,172 (236,328) (40,004)
Accounts payable and accrued expenses......... 550,318 (44,672) 151,919 295,422 896,223
Due to Operator............................... (444,488) 202,839 117,260 54,572 (357,450)
Advance deposits.............................. 41,208 (4,579) 407,233 27,969 121,823
----------- ----------- ----------- ---------- -----------
Net cash provided by operating
activities.............................. 7,850,147 8,776,031 11,394,405 2,757,180 3,384,095
----------- ----------- ----------- ---------- -----------
Cash flows from investing activities:
Purchase of property and equipment.............. (1,280,571) (1,663,612) (2,347,538) (641,297) (626,839)
Proceeds from land sale......................... 17,057 -- -- -- --
----------- ----------- ----------- ---------- -----------
Net cash used in investing activities..... (1,263,514) (1,663,612) (2,347,538) (641,297) (626,839)
Cash flows from financing activities:
Other........................................... (498,000) -- -- -- --
Partners' contributed capital................... -- 498,000 -- -- --
Partners' capital distributions................. (8,752,000) (6,464,901) (8,601,099) (2,188,239) (1,245,799)
Proceeds from long-term debt.................... 3,000,000 -- -- -- --
----------- ----------- ----------- ---------- -----------
Net cash used in financing activities..... (6,250,000) (5,966,901) (8,601,099) (2,188,239) (1,245,799)
----------- ----------- ----------- ---------- -----------
Increase (decrease) in cash and cash
equivalents..................................... 336,633 1,145,518 445,768 (72,356) 1,511,457
Cash and cash equivalents at beginning of
period.......................................... 3,099,469 3,436,102 4,581,620 4,581,620 5,027,388
----------- ----------- ----------- ---------- -----------
Cash and cash equivalents at end of period........ $ 3,436,102 $ 4,581,620 $ 5,027,388 $ 4,509,264 $ 6,538,845
=========== =========== =========== ========== ===========
Supplemental disclosure of cash flow information:
Cash paid during the year for interest.......... $ 4,568,403 $ 5,292,070 $ 6,977,768
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-26
<PAGE> 185
GARDEN HOTEL ASSOCIATES LP
(A TEXAS LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS
1. ORGANIZATION:
Garden Hotel Associates LP (the "Partnership") was formed May 11, 1990, for
the purpose of acquiring, owning and operating eleven Wyndham Garden Hotels
throughout the United States of which three are located in or near Phoenix,
Arizona.
The partners contributed $36,000,000 upon formation of the Partnership. The
general partner is required to and the limited partner may, at its discretion,
make additional contributions necessary to fund operating deficits as defined in
the Partnership agreement. Profits and losses are allocated to the partners in
accordance with the Partnership agreement.
Use of Estimates and Assumptions
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the dates of the financial
statements and the reported amounts of revenues and expenses during the
reporting periods. Actual results could differ from those estimates.
Interim Financial Information
The balance sheet as of March 31, 1996, the statement of partners' capital
for the three months then ended, and the statements of operations and cash flows
for the three months ended March 31, 1995 and 1996, have been prepared by the
Partnership without audit. In the opinion of management, all adjustments (which
included only normal, recurring adjustments) necessary to present fairly the
financial position at March 31, 1996, and the results of operations and cash
flows for all periods presented have been made. The results of operations for
the interim periods are not necessarily indicative of the operating results for
the full year.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Cash and Cash Equivalents
For purposes of reporting cash flows, all highly liquid debt instruments
with original maturities of three months or less are considered to be cash
equivalents.
Designated cash totaling $816,858 and $605,250 as of December 31, 1994 and
1995, respectively, consists of amounts designated for repairs and replacement
of property and equipment.
The Partnership maintains cash and cash equivalents in accounts with
various financial institutions in excess of amounts insured by the Federal
Deposit Insurance Corporation.
Inventories
Inventories consist of food, beverages, china, linen, glassware,
silverware, uniforms, and supplies and are stated at cost, which approximates
market, with cost determined using the first-in, first-out method.
Property and Equipment
Buildings are carried at cost and depreciated over forty years using the
straight-line method. Furniture and equipment are recorded at cost and
depreciated using the straight-line method over the estimated useful lives,
which range from three to seven years. Normal repairs and maintenance are
charged to expense as incurred.
F-27
<PAGE> 186
GARDEN HOTEL ASSOCIATES LP
(A TEXAS LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
In 1995, the Partnership adopted Financial Accounting Standards No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
Be Disposed of." Impairment losses are recognized in operating income as they
are determined.
The Partnership periodically reviews its property and equipment to
determine if its carrying cost will be recovered from future operating cash
flows. In cases when the Partnership does not expect to recover its carrying
cost, the Partnership recognizes an impairment loss. No such losses have been
recognized to date.
Other Assets
Other assets consist primarily of deferred finance costs totaling
approximately $1,387,243 and $819,759 at December 31, 1994 and 1995,
respectively, and are stated at net cost. Amortization of loan costs is computed
using the effective yield method over the lives of the related loans. The
remaining balance consists primarily of security deposits totaling approximately
$404,189 and $522,613 at December 31, 1994 and 1995, respectively, and are
stated at cost.
Preopening costs, which are classified as other assets, are recorded at
cost and amortized over twelve months using the straight-line method. Fully
amortized preopening expenses of $859,256 were written off in 1995.
Income Taxes
The Partnership is not a taxable entity and the results of its operations
are included in the tax returns of the partners. The Partnership's tax returns
and the amount of allocable income or loss are subject to examination by federal
and state taxing authorities. If such examinations result in changes to income
or loss, the tax liability of the partners could be charged accordingly.
Revenue Recognition
Room, food and beverage, telephone and other revenues are recognized when
earned.
Self-Insurance
The Partnership is self insured for various levels of general liability,
workers' compensation and employee medical coverages. Accrued expenses include
the estimated cost from unpaid incurred claims.
Interest Rate Contracts
The Partnership enters into interest rate contracts to manage its exposure
to interest rate volatility. These contracts have been interest rate caps, where
the Partnership pays a lump-sum for the right to receive future payments should
interest rates exceed an agreed upon rate. The Partnership is exposed to credit
loss in the event of nonperformance by the counterparties to its interest rate
contracts. The Partnership does not anticipate nonperformance by the
counterparties. The Partnership accounts for interest rate cap contracts by
amortizing the up-front premium to interest expense over the life of the
contract.
Advertising Costs
The Partnership participates in various advertising and marketing programs
with a related party. All costs are expensed in the period incurred. The
Partnership recognized advertising expenses of $1,003,589, $1,198,335 and
$1,148,385 for the years ended December 31, 1993, 1994 and 1995, respectively.
F-28
<PAGE> 187
GARDEN HOTEL ASSOCIATES LP
(A TEXAS LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Reclassifications
Certain amounts previously reported have been reclassified to conform with
the current year presentation.
3. PROPERTY AND EQUIPMENT:
Property and equipment consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------------
1994 1995
------------ ------------
<S> <C> <C>
Land.................................................... $ 17,428,111 $ 17,428,111
Buildings............................................... 91,467,248 91,467,248
Furniture, fixtures and equipment....................... 15,493,480 17,841,018
------------ ------------
124,388,839 126,736,377
Less accumulated depreciation........................... 18,441,665 22,938,817
------------ ------------
$105,947,174 $103,797,560
============ ============
</TABLE>
4. MANAGEMENT AGREEMENT AND RELATED PARTY TRANSACTIONS:
On May 21, 1990, the Partnership and Wyndham Hotel Company, Ltd. (the
"Operator"), a related party, entered into a management agreement which provides
for a base management fee and chain services fee equal to 5% of gross revenues
plus an incentive fee equal to 15% of total operating cash flow. Due to Operator
includes management fees and other expenses payable to the Operator. As provided
for in the management agreement, cash in excess of amounts required for on-site
operations is held in a central account in the name of the Operator.
The Partnership receives sales and marketing, centralized reservations,
accounting and other support services from affiliates which are reimbursed as an
adjustment to management fees in the normal course of business.
5. ACCOUNTS PAYABLE AND ACCRUED EXPENSES:
Accounts payable and accrued expenses consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------
1994 1995
---------- ----------
<S> <C> <C>
Accounts payable............................................ $1,003,836 $ 977,184
Taxes....................................................... 1,051,706 1,061,058
Payroll and related costs................................... 1,100,642 1,176,514
Accrued interest............................................ 563,862 596,640
Other....................................................... 215,070 275,639
---------- ----------
$3,935,116 $4,087,035
========== ==========
</TABLE>
F-29
<PAGE> 188
GARDEN HOTEL ASSOCIATES LP
(A TEXAS LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
6. LONG-TERM DEBT:
Long-term debt consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------
1994 1995
----------- -----------
<S> <C> <C>
Acquisition loan.......................................... $90,000,000 $90,000,000
Revolver loan............................................. 3,000,000 3,000,000
----------- -----------
$93,000,000 $93,000,000
=========== ===========
</TABLE>
The Acquisition and Revolver loans are payable to an affiliate. During
1993, two interest rate caps were purchased for $498,000 which fixed $60,000,000
of the acquisition loan balance at a 6% interest rate effective September 30,
1994 for the remainder of the loan. The remaining balances of these loans bear
interest at various rates which ranged from 4.63% to 6.5%, 4.5% to 9% and 7.1%
to 7.9% during the years ended December 31, 1993, 1994 and 1995, respectively.
Interest only is payable for both the Acquisition and Revolver loans until
maturity at May 21, 1997, when the principal is due.
The Partnership's debt is collateralized principally by property and
equipment.
7. EMPLOYEE BENEFIT PLANS:
The Partnership participates in a 401(k) retirement savings plans.
Employees who are over 21 years of age and have completed one year of service
are eligible to participate in the plan. The Partnership matches employee
contributions up to 4% of an employee's salary. The Partnership expensed
$31,628, $44,185, and $77,075 for the years ended December 31, 1993, 1994 and
1995, respectively, related to the plan.
The Partnership participates in a self-insured group health plan through a
Voluntary Employee Benefit Association ("VEBA") for its employees. This plan is
funded to the limits provided in the Internal Revenue Code, and liabilities have
been recorded for unpaid claims. Aggregate and stop loss insurance exists at
amounts which limit exposure to the partnerships. The Partnership has recognized
expenses under the plan of $419,817, $443,277 and $511,643 for the years ended
December 31, 1993, 1994 and 1995, respectively.
8. FAIR VALUE:
The Partnership has estimated the fair value of its financial instruments
at December 31, 1995 as required by Statement of Financial Accounting Standards
No. 107. The carrying values of cash and cash equivalents, accounts receivable,
accounts payable and accrued expenses are reasonable estimates of their fair
values. The carrying values of variable and fixed rate debt are reasonable
estimates of their fair values based on their discounted cash flows at discount
rates currently available to the Company for debt with similar terms and
remaining maturities.
9. COMMITMENTS AND CONTINGENCIES:
The Partnership has entered into a land lease for one of the Partnership's
hotels. Future minimum rental payments of $160,000 per year are required under
the operating lease. The lease which expires March 2052 includes a renewal
option of 25 years and contingent lease payments which are based on a percentage
of the hotel's gross income. The related renewal rental expense was $160,000 for
the years ended 1993, 1994 and 1995, and contingent rental expense was $75,333,
$112,464 and $153,862 for the years ended December 31, 1993, 1994 and 1995,
respectively.
The Partnership is subject to environmental regulations related to the
ownership of real estate (hotels). As part of due diligence procedures, the
Partnership has conducted Phase I environmental assessments on
F-30
<PAGE> 189
GARDEN HOTEL ASSOCIATES LP
(A TEXAS LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
each property prior to acquisition. The cost of complying with the environmental
regulations was not material to the Partnership's statements of income for any
of the years in the three-year period ended December 31, 1995. The Partnership
is not aware of any environmental condition on any of its properties which is
likely to have a material adverse effect on the Partnership's financial
statements.
10. SUBSEQUENT EVENT:
It is the intent of an affiliated entity to acquire a 70% ownership
interest in the Partnership. The acquiring entity and the Operator are
affiliated through common ownership. In addition, a letter of intent has been
entered into with a third party real estate investment trust ("REIT"). This
transaction will result in a sale/leaseback that provides for the sale of all
eleven hotels containing 1,940 rooms for $135,320,000 to the REIT and eleven
long-term operating leases back to the Operator. Each lease has an initial term
of seventeen years and four optional twelve-year extensions exercisable at the
Operator's option for all hotels. Annual minimum base rents aggregate
$13,600,000 plus a contingent rent payment is required based on a percentage of
excess revenue over base year revenues. The leases will require the Operator to
pay substantially all expenses associated with the operation of the leased
hotels, real estate taxes and insurance.
F-31
<PAGE> 190
FULL-RANGE MANAGEMENT CAPABILITIES
Wyndham is a fully integrated hospitality company experienced in all aspects of
hotel operations, including purchasing, accounting, asset and risk management,
as well as hotel design, remodeling and constrution.
[WYNDHAM LOGO]
WYNDHAM HOTEL CORPORATION
-- FINANCING & ACQUISITIONS
-- ASSET MANAGEMENT
-- PURCHASING
-- REDEVELOPMENT
-- DESIGN & CONSTRUCTION
-- SALES & MARKETING
The Company's hotel operations are divided into two operating divisions, the
Hotel and Resort Division and the Garden Hotel Division, which are serviced by
a centralized corporate staff providing managerial and operational support.
[PHOTO OF GRAND OPENING OF WYNDHAM GARDEN HOTEL]
[CAPTION]
Wyndham's design and construction division has managed over $135 million of
renovation and construction dring the past two years.
[PHOTO OF FIVE WYNDHAM EMPLOYEES]
[CAPTION]
Wyndham operates an extensive recruitment and training program. Wyndham
believes that this approach has contributed significantly to high labor
productivity and employee retention, as evidenced by the fact that 70% of the
Company's existing general managers were promoted from within the Company.
<PAGE> 191
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NO DEALER, SALESPERSON OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS IN CONNECTION WITH THE OFFER CONTAINED HEREIN, AND, IF GIVEN OR MADE,
SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE COMPANY OR ANY OF THE UNDERWRITERS. THIS PROSPECTUS DOES NOT
CONSTITUTE AN OFFER OF ANY SECURITIES OTHER THAN THOSE TO WHICH IT RELATES OR AN
OFFER TO SELL, OR A SOLICITATION OF AN OFFER TO BUY, THOSE TO WHICH IT RELATES
IN ANY STATE TO ANY PERSON TO WHOM IT IS NOT LAWFUL TO MAKE SUCH OFFER IN SUCH
STATE. THE DELIVERY OF THIS PROSPECTUS AT ANY TIME DOES NOT IMPLY THAT THE
INFORMATION HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO ITS DATE.
------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary.................... 3
Risk Factors.......................... 14
The Formation and the Financing
Plan................................ 22
Use of Proceeds....................... 27
Capitalization........................ 28
Pro Forma Combined Financial Data..... 29
Selected Combined Financial Data...... 44
Management's Discussion and Analysis
of Financial Condition and Results
of Operations....................... 46
Business.............................. 60
Management............................ 92
Certain Relationships and
Transactions........................ 103
Principal Stockholders................ 111
Description of the Revolving Credit
Facility............................ 112
Description of the Notes.............. 116
Description of Capital Stock.......... 146
Underwriting.......................... 149
Legal Matters......................... 149
Experts............................... 150
Additional Information................ 150
Glossary.............................. 151
Index to Financial Statements......... F-1
</TABLE>
UNTIL JUNE 14, 1996 (25 CALENDAR DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL
DEALERS EFFECTING TRANSACTIONS IN THE NOTES, WHETHER OR NOT PARTICIPATING IN
THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS IS IN ADDITION
TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN ACTING AS UNDERWRITERS
AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
================================================================================
================================================================================
LOGO
$100,000,000
WYNDHAM HOTEL
CORPORATION
10 1/2% SENIOR SUBORDINATED
NOTES DUE 2006
------------
PROSPECTUS
MAY 20, 1996
------------
SMITH BARNEY INC.
BT SECURITIES CORPORATION
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
MONTGOMERY SECURITIES
================================================================================
