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SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-K
(Mark One)
[X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED]
For the fiscal year ended December 31, 1996
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from to
Commission file number 1-11723
WYNDHAM HOTEL CORPORATION
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
DELAWARE 75-263-6072
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2001 BRYAN STREET, SUITE 2300, DALLAS, TEXAS 75201
(Address of principal executive offices) (Zip Code)
</TABLE>
Registrant's telephone number, including area code: (214) 863-1000
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
Common Stock, par value $.01 per share
(Title of Class)
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
NONE
Indicate by check mark whether the Registrant (l) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K (Section 229.405 of this chapter) is not contained herein,
and will not be contained, to the best of Registrant's knowledge, in definitive
proxy or information statements incorporated by reference in Part III of this
Form 10-K or any amendment to this Form 10-K. [ ]
The aggregate market value on March 24, 1997 of the Registrant's voting
securities held by non-affiliates was $122,092,000.
At March 24, 1997, the Registrant had outstanding 20,018,299 shares of its
Common Stock, par value $.01 per share.
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PART I
ITEM 1. BUSINESS
On May 24, 1996, immediately prior to the consummation of the initial
public offering of the Common Stock of Wyndham Hotel Corporation ("Wyndham" or
the "Company"), the Company succeeded to the hotel management and related
businesses of Wyndham Hotel Company Ltd. ("Old Wyndham"), ownership of 6
Wyndham brand hotels and leasehold interests relating to 12 additional Wyndham
brand hotels. Concurrent with the Company's initial public offering and as part
of its financing plan, the Company issued $100,000,000 aggregate principal
amount of 10 1/2% Senior Subordinated Notes due 2006 (the "Notes"). Unless the
context otherwise requires, the term "Company" or "Wyndham" when used in this
Prospectus refers to Wyndham Hotel Corporation and its consolidated
subsidiaries, and for the periods prior to May 24, 1996, includes the
operations of Old Wyndham and the Company's other predecessors. Unless
otherwise indicated, the financial and operating data contained herein are as
of December 31, 1996.
GENERAL
Wyndham Hotel Corporation is a national hotel company operating
upscale hotels primarily under the Wyndham brand name. Wyndham hotels are
located in 25 states, the District of Columbia, Ontario, Canada and on 5
Caribbean islands. Wyndham hotels 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 also
manages extended-stay hotels, which following planned renovations, will be
operated under the Homegate Studios & Suites brand name. At December 31, 1996,
the Company's hotel portfolio consisted of 80 hotels operated by the Company
and 2 franchised hotels (the "Portfolio"). The Company's Portfolio includes 75
upscale hotel properties and 7 extended-stay hotel properties.
PORTFOLIO ADDITIONS
In 1996, the Company added 23 hotel properties, which, net of hotel
losses, increased the Company's Portfolio of hotels to 82 compared to 66 in
1995. The Company expanded its core products, Wyndham Hotels, Wyndham Garden
Hotels and Wyndham Resorts by adding five new Wyndham Hotels, seven Wyndham
Garden Hotels and three Wyndham Resorts. The Company also added one non-branded
property to its Portfolio. (During 1996, the Company lost three Wyndham Hotels,
two Wyndham Resorts and two non-branded properties, resulting in a total
Portfolio of 82 hotels.)
In 1996, the Company also entered into an exclusive management
contract with Homegate Hospitality, Inc. ("Homegate") to manage Homegate's
extended stay hotels. Under the management agreement, the Company has the
exclusive right to manage up to 60 Homegate Studios & Suites developed prior to
December 1998. The Company added seven extended-stay hotels to its Portfolio
in 1996. See "-- Operating Strategy -- Addition of Extended-Stay Management
Contracts" and "-- Management Contracts -- Extended-Stay Hotels."
In January 1997, Hospitality Properties Trust, a publicly traded real
estate investment trust, purchased the Doubletree Hotel in Salt Lake City from
City Hotels, S.A., a Belgian real estate Company, for $44 million. Hospitality
Properties Trust leased the property back to a subsidiary of the Company
pursuant to a lease with an initial term ending December 31, 2012 plus renewals
for 48 additional years that the Company may elect to exercise. The 381 room
hotel opened as a Wyndham Hotel in January 1997.
In addition to the Wyndham Hotel in Salt Lake City, between December
31, 1996 and March 21, 1997, the Company added a franchised Wyndham Hotel, two
franchised Wyndham Garden Hotels, a managed Wyndham Garden Hotel and a managed
non-branded hotel.
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
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while continuing to maintain the quality of the Wyndham brand. In addition, the
Company expects to increase the number of management contracts for
extended-stay hotel properties operated under the Homegate Studios & Suites
brand name. To achieve these goals, 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 quality, full
service lodging in the upscale hotel market. Because Wyndham has operating
control over more than 98% of the hotels operated under the Wyndham brand name,
it is able to consistently deliver quality hotel products and services
throughout its 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
1996, 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.
o Wyndham Hotels. In urban markets, the Company operates or
franchises 21 large upscale 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.
o Wyndham Garden Hotels. In suburban markets, Wyndham operates
40 mid-size Wyndham Garden Hotels, which were created by the
Company to cater to individual business travelers and small
business groups. (As of December 31, 1996, the Company
operated four additional hotels under brand names other than
the Wyndham brand, which were in the process of being
converted into Wyndham Garden Hotels.) 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.
o Wyndham Resorts. Wyndham's Portfolio also includes seven
Wyndham Resorts that are full service destination resorts
targeted at upscale leisure and incentive travelers and are
located both domestically and on five 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.
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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.
See "-- Growth Strategy -- II. Additional Growth Opportunities -- New Lodging
Products."
Extended-Stay Hotel Product. The Company manages seven extended stay
hotel properties, which following planned renovations, will be operated under
the Homegate Studios & Suites brand name. These hotels are located in Texas and
are targeted at business travelers, professionals on temporary work
assignments, persons between domestic situations and persons relocating or
purchasing a home, who often desire accommodations for an extended duration.
These midprice hotels contain approximately 125 rooms each and feature a fully
equipped kitchen, upscale residential-quality finishes and accessories, and
separation between cooking, living and sleeping areas. The Company believes
that the extended-stay hotel 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.
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
management of its room inventory, the Company seeks to maximize REVPAR during
periods of high occupancy by giving first priority for available rooms to
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 1996, average occupancy rates, ADR and REVPAR for
upscale Portfolio hotels were 69%, $92.73 and $64.21, respectively, compared
with an average during this period of 68%, $89.29 and $60.68, respectively, in
the upscale full service segment of the lodging industry. During 1996 REVPAR
for upscale Portfolio hotels outperformed the upscale full service segment of
the lodging industry by 6%.
All statistics set forth herein 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.
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The following table compares certain historical operating and
financial data of the Company's Comparable Hotels with the upscale full service
segment of the lodging industry.
<TABLE>
<CAPTION>
Upscale
Full Service
Segment
of the
Comparable Percentage Lodging Percentage
Hotels(1) Increase Industry(2) Increase
--------- -------- ----------- --------
<S> <C> <C> <C> <C>
Occupancy percentage:(3)
1995 . . . . . . . . . . . . 69% N/A 68% N/A
1996 . . . . . . . . . . . . 71% 3% 68% 4%
ADR:(4)
1995 . . . . . . . . . . . . $84.99 N/A 84.04 N/A
1996 . . . . . . . . . . . . $91.73 8% 89.29 6%
REVPAR:(5)
1995 . . . . . . . . . . . . $58.42 N/A 56.91 N/A
1996 . . . . . . . . . . . . $64.87 11% 60.68 6%
Gross operating profit margin:(6)
1995 . . . . . . . . . . . . 31% N/A 33% N/A
1996 . . . . . . . . . . . . 33% *
Food and beverage margin:(7)
1995 . . . . . . . . . . . . 26% N/A 20% N/A
1996 . . . . . . . . . . . . 27% *
</TABLE>
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* 1996 lodging industry statistics are not available for gross operating
profit margin and food and beverage margin.
(1) Comparable Hotels consist of hotels that were in the Portfolio for one
full common fiscal quarter in the indicated and prior fiscal year. In
instances in which a hotel was not open throughout both of the years
being compared, the data relating to that hotel is included only for
the full common fiscal quarter(s) that it was open in both years.
Occupancy, ADR and REVPAR of Comparable Hotels that were open for at
least one full common fiscal quarter in both 1994 and 1995 increased
4%, 5% and 9%, respectively, in 1995 over 1994.
(2) Operating data for the upscale full service segment of the lodging
industry have been derived from the Smith Travel Research STAR
database. Margin data have been derived from the Smith Travel Research
HOST database.
(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 revenues 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.
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(7) Food and beverage margin represents food and beverage operating profit
as a percentage of food and beverage revenues.
The following table presents as of December 31, 1996 certain
comparative information with respect to the Company's Portfolio of hotels:
<TABLE>
<CAPTION>
Wyndham Management Extended-
Wyndham Garden Wyndham Service Stay Total
Hotels Hotels(1) Resorts Hotels Hotels Hotels
--------- ---------- --------- ---------- ------- ------
<S> <C> <C> <C> <C> <C> <C>
Total number of properties(2) 21 44 7 3 7 82
Total number of rooms(2) 8,181 7,986 2,263 1,056 900 20,386
Average number of rooms per
hotel(2) 390 182 323 352 129 249
Percentage of hotels to total(2) 26% 54% 8% 4% 8% 100%
Percentage of rooms to total(2) 40% 39% 11% 5% 5% 100%
Percentage of 1996 Portfolio hotel
revenues to total 52% 31% 10% 7% * 100%
1996 Occupancy percentage(3)(4) 70% 70% 58% 78% (6) 69%
1996 ADR(3)(5) $98.92 $79.41 $110.17 $119.65 (6) $92.73
1996 REVPAR(3)(6) $69.40 $55.56 $ 63.82 $ 93.01 (6) $64.21
</TABLE>
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*Less than 1%
(1) Wyndham Garden Hotel data includes four hotels operated by the Company
as of December 31, 1996 under a brand other than the Wyndham brand
name that were in the process of being converted to Wyndham Garden
Hotels.
(2) As of December, 31 1996.
(3) Operating data reflects results for all hotels (excluding
extended-stay hotels) owned, leased, managed or franchised by the
Company for all or a portion of 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.
(4) ADR represents total room revenues divided by the total number of
rooms occupied.
(5) REVPAR represents total room revenues divided by total available
rooms.
(6) Operating data has not been provided because these hotels were open
for only a portion of 1996, during which they were under renovation,
and are currently being converted to Homegate Studios & Suites.
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The following table presents certain historical operating data for the
30 Wyndham Brand hotels that have been operated by the Company since January 1,
1993:
<TABLE>
<CAPTION>
Upscale
Full Service
30-Hotel Segment
Comparative of the
Set(1) Lodging Industry(2)
------ -------------------
<S> <C> <C>
Occupancy percentage:(3)
1993 . . . . . . . . . . . . . . . . . . . . . . . . 67% 66%
1994 . . . . . . . . . . . . . . . . . . . . . . . . 70% 68%
1995 . . . . . . . . . . . . . . . . . . . . . . . . 72% 68%
1996 . . . . . . . . . . . . . . . . . . . . . . . 71% 68%
ADR:(4)
1993 . . . . . . . . . . . . . . . . . . . . . . . . $76.39 $76.67
1994 . . . . . . . . . . . . . . . . . . . . . . . . 80.16 80.09
1995 . . . . . . . . . . . . . . . . . . . . . . . . 84.38 80.04
1996 . . . . . . . . . . . . . . . . . . . . . . . . 91.73 89.29
REVPAR:(5)
1993 . . . . . . . . . . . . . . . . . . . . . . . . $51.31 $50.91
1994 . . . . . . . . . . . . . . . . . . . . . . . . 56.09 54.20
1995 . . . . . . . . . . . . . . . . . . . . . . . . 60.99 56.91
1996 . . . . . . . . . . . . . . . . . . . . . . . . 65.47 60.68
Gross operating profit margin:(6)
1993 . . . . . . . . . . . . . . . . . . . . . . . . 32% 30%
1994 . . . . . . . . . . . . . . . . . . . . . . . . 34% 31%
1995 . . . . . . . . . . . . . . . . . . . . . . . . 36% 33%
1996 . . . . . . . . . . . . . . . . . . . . . . . . 37% *
Food and beverage margin:(7)
1993 . . . . . . . . . . . . . . . . . . . . . . . . 29% 17%
1994 . . . . . . . . . . . . . . . . . . . . . . . . 31% 18%
1995 . . . . . . . . . . . . . . . . . . . . . . . . 31% 20%
1996 . . . . . . . . . . . . . . . . . . . . . . . . 30% *
Gross operating profit per available room:(8)
1993 . . . . . . . . . . . . . . . . . . . . . . . . $ 9,612 $ 8,397
1994 . . . . . . . . . . . . . . . . . . . . . . . . 11,417 9,364
1995 . . . . . . . . . . . . . . . . . . . . . . . . 12,550 10,470
1996 . . . . . . . . . . . . . . . . . . . . . . . . 13,775 *
</TABLE>
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*1996 lodging industry statistics are not available for gross
operating profit margin, food and beverage margin and gross operating
profit per available room.
(1) Consists of the 30 Wyndham brand hotels that have been operated by the
Company since January 1, 1993. In future public disclosure materials,
the Company will no longer report the operating data for the above
30-Hotel Comparative Set. Based on industry convention, the Company
intends to report in the future comparative operating and financial
data for all hotels operated by the Company for at least one full
common fiscal quarter in the comparative periods.
(2) Operating data for the upscale full service segment of the lodging
industry have been derived from the Smith Travel Research STAR
database. Margin data have been derived from the Smith Travel Research
HOST database.
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(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 revenues 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) Food and beverage margin represents food and beverage operating profit
as a percentage of food and beverage revenues.
(8) Gross operating profit per available room represents gross operating
profit divided by total available rooms for the period.
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 its senior management
positions. The Company's Senior Executive Officers have worked together to
successfully develop, operate and manage hotel properties in various phases of
the industry cycle. The Company was able to attract its executives and senior
management personal with a variety of strong incentives, including an equity
sharing program. The Company's Senior Executive Officers beneficially own an
aggregate of approximately 12.6% of the Company's Common Stock.
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
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<PAGE> 9
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 82 hotels. In addition to generating
internal growth through the improved performance of existing hotels, the
Company has developed a flexible external growth strategy designed to increase
the number of hotels in its Portfolio.
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 upscale segment
of the lodging industry and continuing maturation of 38 hotels added since the
beginning of 1995 (including 14 Wyndham Garden Hotels and four additional
hotels under renovation as of December 31, 1996 that were in the process of
being converted to the Wyndham Garden brand), and (ii) improved operating
margins resulting from operating leverage and Wyndham's continued emphasis on
controlling operating expenses. For example, the Company anticipates that
management incentive fees, which escalate with increased operating performance
at the Company's managed hotels, will contribute to internal growth. During
1996 (on a pro forma basis assuming the formation of the Company occurred on
January 1, 1996), the Company earned incentive fees on 32% of its managed
properties, and 25% of the Company's management fee revenues were derived from
incentive fees. The Company's internal growth strategy has produced Comparable
Hotel total revenue increases of 5.4% and 10.2% in both 1995 and 1996, and has
produced an increase in Comparable Hotel gross operating profit margins from
31% in 1995 to 33% in 1996. In addition, food and beverage and beverage profit
margins rose from 26% in 1995 to 27% in 1996. The Company believes that its
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 34
Wyndham Garden Hotels to its Portfolio, 3 of which were developed through new
construction and 31 of which were existing hotels converted to the Wyndham
brand. In addition, as of December 31, 1996, the Company operated four hotels
under brands other than the Wyndham brand that were in the process of being
converted into Wyndham Garden Hotels. In 1994, the Company accelerated the
expansion of Wyndham Garden Hotels through an investment program developed in
conjunction with Bedrock Partners L.P. (together with certain affiliates
thereof, "Bedrock"). Together with certain lenders and an institutional
investor organized by the by Hampstead Group L.L.C. ("Hampstead"), which owns
11.4% of the Company's outstanding Common Stock, Bedrock organized a
development fund (the "Investment Program") 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. Approximately $196 million of debt and equity capital had
been invested pursuant to the Investment Program as of December 31, 1996.
Although the commitments of certain of the participants in the Investment
Program expire in mid-1997, the Company will be entitled to manage any
Investment Program hotel for a term of 15 years. Bedrock is not required to
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<PAGE> 10
invest a minimum amount of capital through the Investment Program, and Wyndham
had not invested in any of the 15 Wyndham Garden Hotels acquired pursuant to
the Investment Program as of December 31, 1996. The Company and Bedrock have
agreed that the Company will be permitted to manage any hotel containing 250 or
fewer rooms that is sourced by Bedrock. See "Risk Factors -- Conflicts of
Interest." 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. The
Company estimates that redeveloping Wyndham Garden Hotels currently costs about
75% of the cost of new construction and takes substantially less time to open a
hotel under the Wyndham brand (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. See "Risk Factors -- Risks Associated
with Expansion."
Wyndham intends to continue the Redevelopment Program with Bedrock and
others, through direct investment by the Company, or some combination thereof.
The Company has executed a management contract for a Bedrock hotel at Newark
Airport in New Jersey, which is currently in the renovation stage and is
scheduled to reopen as a Wyndham Garden Hotel by the second quarter of 1997.
The Company also has executed two management contracts for non-Bedrock hotels
in Atlanta, Georgia. These hotels, which are open but under renovation, are
expected to be converted to Wyndham Garden Hotels in the second quarter of
1997. The Company also has acquired two hotels for conversion to the Wyndham
Garden brand. One hotel is located in Dallas, Texas and was converted to a
Wyndham Garden Hotel in March 1997. The other hotel is located in Overland
Park, Kansas, and the Company expects to complete renovations on this hotel by
the second quarter of 1997.
Addition of Upscale 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 through year-end
1996, the Company has added an average of 12 new management contracts per year,
while the Company has lost an average of three 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. 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, as is the case with the
Company's management of extended stay hotel properties under the Homegate
Studios & Suites brand name. See "-- Additional Growth Opportunities -- New
Lodging Products."
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Addition of Extended-Stay Management Contracts. The Company believes
that it will be able to achieve additional growth by adding new management
contracts for Homegate Studios & Suites hotels. In August 1996, a subsidiary of
the Company entered into a master management assistance agreement (the
"Agreement") with Homegate to provide hotel management, purchasing, marketing
and technical services for Homegate Studios & Suites extended-stay hotels
pursuant to and during the two-year term thereof. The Agreement provides for
the Company to manage up to 60 hotels pursuant to separate 10-year management
contracts. 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. Homegate was founded by
affiliates of Crow Family Members, Trammell Crow Residential Company ("Trammell
Crow Residential"), and Greystar Capital Partners, L.P. ("Greystar"), which
remain the principal stockholders.
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 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."
II. ADDITIONAL GROWTH OPPORTUNITIES
Depending on market conditions in the lodging industry, the Company
also may pursue the following expansion opportunities:
Franchise Program. As of December 31, 1996, the Company had two
franchised Wyndham brand hotels. The Company plans to pursue selective
franchise opportunities with well-qualified owner/operators such as American
General Hospitality, Inc. and Starwood Lodging Trust. 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. The Company is in the process of developing a full
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.
The Company believes that this program will enable it to pursue franchise
opportunities on a broader scale, given appropriate market conditions.
In January 1997, the Company entered into an agreement with American
General Hospitality Corporation ("American General") relating to a strategic
alliance (the "Alliance") between the Company and American General. Pursuant to
the Alliance (i) the Company will have the non-exclusive right to franchise new
hotel acquisitions that American General has determined should undergo a brand
conversion; (ii) in connection with the conversion of hotels owned by American
General to the Wyndham brand, Wyndham will acquire American General common
stock or partnership units ("OP Units") in American General Hospitality
Operating Partnership L.P. (the "Alliance Securities") in an amount equal to
nine times the estimated franchise fee payable to the Company during the first
twelve months such hotel is operated as a Wyndham brand; and (iii) American
General will be given the opportunity to bid on any hotels to be acquired by
the Company that it intends to sell to a REIT or any hotel with respect to
which it intends to enter into a sale or leaseback arrangement with a REIT
simultaneously with the hotel's purchase. The Company's purchase of the
Alliance Securities is subject to the satisfaction of certain conditions,
including the consent of the Company's lenders
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<PAGE> 12
under the Revolving Credit Facility, and will be at a price per share of common
stock or OP Unit equal to the average closing sale price of American General
Common Stock on the NYSE for the 30 trading days preceding the earlier of (i)
the date on which the Company consents to the conversion of an American General
hotel to a Wyndham brand or (ii) the date on which American General publicly
announces its proposed acquisition of the hotel that is ultimately converted to
the Wyndham brand. Any such purchase of Alliance Securities will occur within
30 days after an American General hotel is converted to the Wyndham brand. The
Alliance will expire on December 31, 1999.
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.
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 in most markets 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 dedicated to identifying, evaluating and pursuing growth
opportunities. 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 1996, Wyndham managed more than $64 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 own an aggregate of
approximately 47.3% of the Company's outstanding Common Stock, have interests
in 16 Wyndham brand hotels that are managed by the Company. Seventeen
additional Wyndham brand hotels that are managed by the Company are owned by
Bedrock, which owns approximately 11.4% of the Company's Common Stock. In
addition, the Company's seven extended-stay hotel management contracts relate
to hotels owned by Homegate, of which affiliates of Crow Family Members,
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<PAGE> 13
Trammell Crow Residential, one of the country's largest apartment builders, and
Greystar, a private investment company with substantial multi-family housing
development and construction expertise, were founders and remain principal
stockholders. Messrs. Carreker and Harlan R. Crow also serve on the board of
directors of Homegate.
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.
In July 1996, certain Crow Family Members sold two Wyndham brand
hotels to Patriot American Hospitality, Inc., a publicly traded REIT ("Patriot
American"). These hotels were leased back to a new partnership controlled by
the Crow Family Members pursuant to a lease having a term of ten years, with
two extensions of five years each. The Company has continued to manage these
hotels on economic terms substantially identical to the terms upon which they
had been managed.
Prior to the Company's initial public offering, Garden Hotel
Associates L.P. ("GHALP") owned 11 Wyndham Garden Hotels managed by the Company
(the "GHALP Properties"). A 30% interest in GHALP was held 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. In May 1996, Crow Family
Members and the Senior Executive Officers acquired the remaining 70% ownership
interest from the third party. The purchase price was funded from the proceeds
of the sale of the GHALP Properties to Hospitality Properties Trust ("HPT"), a
publicly traded REIT. HPT leased the GHALP Properties back to another entity,
the ownership of which mirrored the ownership of GHALP. As part of the
formation of the Company, the Company succeeded to such entity's leasehold
interest in the GHALP Properties. The Company continues 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 upscale 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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<PAGE> 14
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. The Company also responded to the needs of its frequent
business travelers by upgrading guest rooms of each domestic Wyndham Hotel and
Wyndham Garden Hotel (and following conversion of each newly acquired hotel)
with a new package of business service amenities to better equip customers who
require a "work friendly" room while traveling. New standard features in these
hotels include free long-distance access, voice mail, data ports, iron and
ironing boards and weekday USA Today delivery.
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 1996 by customer mix consisted of 56% group meetings, 32% individual
business travelers and 12% leisure travelers.
The Company operates or franchises 21 Wyndham Hotels containing an
aggregate of 8,181 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 $225 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
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<PAGE> 15
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 Garden Hotels in
1996 by customer mix consisted of 65% individual business travelers, 20% small
group meetings and 15% leisure travelers.
The Company operates 40 Wyndham Garden Hotels containing an aggregate
of 7,313 guest rooms. (As of December 31, 1996, the Company operated four
additional hotels under brand names other than the Wyndham brand, which were in
the process of being converted into Wyndham.) Each Wyndham Garden Hotel
contains between approximately 150 and 245 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 five Caribbean islands. Wyndham Resorts are targeted
at upscale leisure travelers and incentive travelers. Total guest room revenue
for Wyndham Resorts in 1996 by customer mix consisted of 63% individual leisure
travelers, 25% individual business travelers and 12% group travelers.
The Company operates or franchises seven resort hotels containing an
aggregate of 2,263 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 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
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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.
Homegate Studios and Suites
The Homegate Studios & Suites prototype has been designed and
developed to offer consistent, high quality accommodations in a standard
format, providing much of the value offered by limited service hotels with many
of the added features and comforts of apartment living. Homegate Studios &
Suites hotels will offer three functional room configurations, studio, deluxe
and one bedroom. Each room will feature a fully equipped kitchen, upscale
residential-quality finishes and accessories, and separation between the
cooking, living, and sleeping areas, and other amenities, such as weekly maid
service, twice-weekly linen service, resident laundry facilities, direct
telephone service with voice mail messaging and dataport capabilities, cable
TV, a business center and an exercise facility.
The Company manages seven extended-stay hotels containing an aggregate
of 900 rooms. Following planned renovations, these hotels will be converted to
the Homegate Studios & Suites brand name. These properties contain
approximately 125 rooms each and will compete in the midprice segment of the
extended-stay industry. In general, it is expected that average weekly room
rates will range between $280 and $350, but room rates at specific hotels may
vary significantly depending on local market factors.
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 or as independent hotels. 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."
CUSTOMERS AND MARKETING
The Company's target core customers are upscale business travelers and
business groups, as well as upscale 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 who generally are assigned to individual hotels and who focus
their sales efforts primarily on the local businesses and 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 1996, 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,
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<PAGE> 17
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 23 national account managers assigned to six national sales
offices located in New York City, Washington, D.C., Chicago, Los Angeles, San
Jose and Phoenix. 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 1996, 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.
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
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travelers and increase name recognition. Through an alliance with American
Airlines and Avis Rent-A-Car, Wyndham developed its popular "Triple Upgrade"(R)
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 in-flight 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 1996, approximately 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 1996, approximately 65% of all Wyndham reservations made through
its central reservations system were received electronically by means of
airline reservation systems. In 1995, 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, has developed an integrated real
time central reservations system designed to handle all of the Company's
central reservations requirements. ISIS 2000 is continuing to develop the
integrated property management component of such system. ISIS 2000 will provide
such central reservations and hotel property 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
reservation services are being provided for a fee comprised of an initial
link-up charge plus a per reservation fee. The property management services
will be provided on a charge per hotel basis. In addition, the Company has
guaranteed equipment leases on behalf of ISIS 2000 in the approximate amount of
$2.0 million. The Company may in
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the future invest in ISIS 2000. See "Certain Relationships and Transactions"
and "Risk Factors -- Conflicts of Interest -- Future Dealings with Affiliates
of the Company."
The central reservations and property management system, when fully
implemented, 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 implemented 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 has an
experienced team of general managers, 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.
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
head of either the Wyndham Hotel and Resort Division or the Wyndham Garden
Division. The
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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. The head of each operating division
reports to the Company's Chief Executive Officer. The Company's Senior
Executive Officers 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 it 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 1996, 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. The Company's program was strengthened in 1996 by
Wyndham's entry into the extended-stay market, as extended-stay hotel
properties provide an excellent training opportunity for Wyndham's management
recruits.
MANAGEMENT CONTRACTS
Upscale Hotels. Wyndham operates 51 upscale 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.
The terms of Wyndham's upscale management contracts vary from hotel to
hotel. The terms of the management contracts for the 46 Wyndham brand hotels
managed by the Company generally range between 10 and 20 years. The terms for
the three non-Wyndham brand hotels range from one month to eight years. At
December 31, 1996, the average remaining term for Wyndham brand hotel
management contracts was approximately 14 years (including renewals that the
Company may elect to exercise).
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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. 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.
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 for certain contracts 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 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.
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.
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.
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
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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.
Extended-Stay Hotels. A subsidiary of the Company has entered into a
master management assistance agreement (the "Agreement") with Homegate, which
provides for the Company to manage up to 60 extended-stay hotels as well as to
provide Homegate with market research, a preferred vendor program, a
proprietary property management software package and national and local
marketing efforts. Under the Agreement, the Company has agreed not to own,
operate or develop a competing extended-stay facility within certain specified
states that include Homegate's target markets (subject to certain exceptions),
for the term of the Agreement. Unless extended, the Agreement terminates upon
the earlier of the execution of a management contract with respect to the 60th
extended-stay hotel or December 31, 1998.
Pursuant to each property-specific management contract, Wyndham will
manage and operate the specific Homegate studios and suites hotel in exchange
for the payment of a base management fee of 3% of the hotel's gross revenues
for the applicable period, and an incentive management fee that varies from 1%
to 3% depending upon the return on cost realized by Homegate for the particular
property. In addition, Homegate will pay Wyndham a monthly fee (adjusted
annually for inflation) for Wyndham's accounting services, and will reimburse
Wyndham for reimbursable expenses incurred by Wyndham with respect to the
hotel. Each management contract also provides that to the extent Homegate
elects to establish a marketing fund and contributes 1.5% of the gross room
revenues to such fund, Wyndham will manage such fund. Each contract also
provides that Wyndham will not own, develop, manage or lend money to an
extended-stay facility that is similar in operation and format to Homegate's
hotel within a five-mile radius thereof, subject to certain exceptions. This
non-competition covenant survives for the duration of the applicable management
contract. Individual management contracts can be terminated in connection with
additions to the Company's portfolio that otherwise might violate the
non-competition covenant. Homegate has the right to terminate the
property-specific management contract if certain performance standards are not
met. In addition, Homegate may terminate such contracts without cause with the
payment of a cancellation fee if Homegate desires to manage the hotel
internally. In addition, the management contracts are generally subject to
termination (upon payment of a cancellation fee) in connection with the sale of
the hotels to a third party, upon Homegate's default on indebtedness
encumbering the properties and/or upon a foreclosure of the property or upon a
default by the Company.
Under each extended-stay property management contract, Homegate has
agreed to indemnify the Company against liabilities arising from the
construction, renovation, management or 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 each extended-stay property management contract, the Company generally
has agreed to indemnify Homegate against liabilities arising from the
management and operation of the hotel caused by the Company's demonstrable
negligence, willful misconduct or willful violation of legal requirements.
FRANCHISING PROGRAM
As of December 31, 1996, the Company had two franchised Wyndham
hotels. The Company plans to pursue selective franchise opportunities with
well-qualified owner/operators such as American General and Starwood Lodging.
See "-- Growth Strategy -- II. Additional Growth Opportunities -- Franchise
Program."
The Company is in the process of developing a comprehensive 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.
The Company believes that this program will enable it to pursue franchise
opportunities on a broader scale, given appropriate market conditions.
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COMPETITION
The lodging industry is highly competitive. The Company's upscale
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. The Company's extended-stay hotels compete on a local level.
The Company anticipates that competition within the extended-stay industry
segment will increase substantially in the foreseeable future. In the midprice
category of the extended-stay industry segment, a number of other lodging
chains and developers have recently announced plans to develop or are currently
developing extended-stay hotels which may compete with the Company's hotels.
A number of the Company's competitors for both upscale and
extended-stay hotel properties 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, 1996, Wyndham had approximately 170 employees at the
corporate level and approximately 11,240 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. Union contracts with respect to workers at two of
the Company's hotels expire in April and July, respectively. The Company
anticipates negotiating renewals of such contracts. Prior to the Company's
management of the Wyndham Palmas del Mar, the hotel workers at such hotel were
represented by a labor union. Negotiations with respect to a union contract at
this hotel are currently underway. Management believes its ongoing labor
relations to be good.
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 as of December 31,
1996 of 22 hotel properties, manager of 58 hotel properties and franchisor of 2
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."
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.
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
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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; however, the environmental information on which this
conclusion is based does 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.
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.
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 the Wyndham
service mark. The Company also has filed an application with the USPTO for
registration of 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," the Wyndham "W" logo and
"Triple Upgrade" as service marks with the USPTO. The Company also claims
common law service mark rights in the Wyndham "W" logo, 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 limited areas in which the Company
is aware of prior uses of the "Wyndham" mark by hotel
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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 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 that
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, prima facie, the
exclusive right to use the name in the State of New York. However, this
presumption of exclusive use can be rebutted, and the registration may be
revoked at the time enforcement is sought if the registrant never had exclusive
use of the mark in New York State.
In February 1995 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 the Company's applications be denied. The
Company subsequently entered into a settlement agreement with Yassky pursuant
to which Yassky assigned to the Company all of its rights (to the extent it had
any) in the "Wyndham" mark throughout the world with the exception of 11 New
York State counties, including New York County and Queens County. The Company
believes that it and Yassky each have non-exclusive rights to use the mark
"Wyndham" in these 11 counties. In addition, Yassky withdrew its Oppositions 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 Settlement Agreement.
In June 1995, the Madoses filed a 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. The Trademark Trial and Appeal Board has suspended the
Opposition Proceeding pending resolution of the New York Action.
In July 1996, the Madoses filed a Petition to Cancel the Company's
registration for the mark "Wyndham Garden." The Company filed its Answer to the
Petition to Cancel in August 1996, and the Madoses filed a Motion to Suspend
Proceedings until a final determination is made regarding the action described
below under "Legal Proceedings."
The Company does not believe that the Madoses' narrow common law
rights to use the Wyndham name will prevent the Company's registration of its
exclusive right to use the "Wyndham" mark throughout the country with the
exception of the limited area surrounding the Mados Wyndham Hotel in Manhattan
and Ambler, Pennsylvania. 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 use the mark "Wyndham." 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 larger
radius of the Mados Wyndham Hotel. For further information relating to disputes
involving the "Wyndham" mark, see "Legal Proceedings" below.
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<PAGE> 27
RISK FACTORS
All statements other than statements of historical fact contained in
this report, including statements under the caption "Business" and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," concerning the Company's financial position and liquidity, results
of operations, prospects for continued growth through internal initiatives and
external opportunities, conditions in the lodging industry generally,
relationships with strategic partners, and other matters are forward-looking
statements. Although the Company believes that the expectations reflected in
such forward-looking statements are reasonable, no assurance can be given that
such expectations will prove correct. Factors that could cause the Company's
results to differ materially from the results discussed in or contemplated by
such forward-looking statements include the risks described below. All
forward-looking statements in this report are expressly qualified in their
entirety by the cautionary statements in this paragraph, in the risks described
below, and elsewhere in this report.
The Company cautions the reader that the risks described below may not
be exhaustive. The Company operates in a changing business environment, and new
risk factors emerge from time to time. Management cannot predict every risk
factor, nor can it assess the impact, if any, of all such risk factors on the
Company's business or the extent to which any factor, or combination of
factors, may cause actual results to differ materially from those projected in
any forward-looking statements. Accordingly, forward-looking statements should
not be relied upon as a prediction of actual results.
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, 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.
Competition in the Lodging Industry
The lodging industry is highly competitive. The Company's upscale
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's upscale hotels compete include Marriott, Sheraton,
Hyatt, Hilton and Embassy Suites. The Company's extended-stay hotels compete on
a local level. The Company anticipates that competition within the
extended-stay industry segment will increase substantially in the foreseeable
future. In the midprice category of the extended-stay industry segment, a
number of other lodging chains and developers have recently announced plans to
develop or are currently developing extended-stay hotels which may compete with
the Company's hotels. A number of the Company's competitors for both upscale
and extended-stay hotel properties 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."
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<PAGE> 28
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 has
sufficient capital 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 Revolving Credit Facility. There can be no assurance that the Company
will generate adequate cash from operations. In addition, 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. As
of December 31, 1996, the available balance under the Revolving Credit Facility
was $42.3 million. 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,
such as the Company's extended-stay hotel product (which unlike the Company's
other hotels, are not upscale and are not operated on a regular stay basis),
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 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. 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
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<PAGE> 29
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." 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 own approximately 47.3% of the Company's
issued and outstanding Common Stock, have interests in 16 hotels that the
Company manages pursuant to management contracts. The Company also operates 17
hotels owned by Bedrock, which owns approximately 11.4% of the Company's issued
and outstanding Common Stock. In addition, Crow Family Members, Trammell Crow
Residential and Greystar were founders and remain principal stockholders of
Homegate, which owns the six extended-stay hotel properties managed by the
Company. While the average remaining term of the Company's management contracts
for Wyndham brand hotels as of December 31, 1996 was approximately 14 years
(including renewals that the Company may elect to exercise), these 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 3
non-Wyndham brand upscale hotel management contracts range from one month to
eight years, and the Company's extended-stay hotel management contracts are for
a term of 10 years. Other grounds for termination of the Company's upscale
hotel management contracts include a hotel owner's election to close a hotel
and certain business combinations involving the Company in which the Wyndham
name or current management team does not survive. The Company's extended-stay
management contracts generally can be terminated if certain performance
standards are not met or upon a sale or foreclosure of the property. In
addition, the contracts can be terminated upon payment of a cancellation fee
without cause if Homegate desires to manage the hotels internally. 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 "-- Growth Strategy."
CONFLICTS OF INTEREST
Future Dealings with Affiliates of the Company. Crow Family Members,
certain of their affiliates and Bedrock are, collectively, parties to 33
management contracts as well as other business arrangements with the Company.
See "Certain Relationships and Transactions." In addition, affiliates of Crow
Family Members, Trammell Crow Residential and Greystar were founders and remain
principal stockholders of Homegate. The foregoing 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
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<PAGE> 30
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
Company's 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 has developed a new central reservations
system for the Company, and is continuing to develop the integrated property
management component of such system. 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."
Conflicts Involving Certain Board Members. Robert A. Whitman and
Daniel A. Decker, who are directors of the Company, are principals of
Hampstead, which is related to an entity that has an ownership interest in
Bedrock and through other entities also has interests in 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 or related entities. 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
sourced by Bedrock and contains 250 or fewer rooms. See "Growth Strategy --
Primary Growth Opportunities -- Wyndham Garden Hotel Redevelopment and
Conversion 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, 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.
RISKS ASSOCIATED WITH OWNING OR LEASING REAL ESTATE
The Company owns or leases 22 of the 82 hotels in its Portfolio.
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, adverse
changes in zoning laws and other regulations, many of which are beyond the
control of the Company and inclement regional weather conditions. 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.
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<PAGE> 31
SHARES ELIGIBLE FOR FUTURE SALE
The Company has 20,018,299 shares of Common Stock outstanding, of
which 4,844,169 shares are freely tradeable by persons other than "affiliates"
of the Company without restriction or limitation under the Securities Act of
1933, as amended (the "Act"). The remaining 15,174,130 shares are "restricted
securities" within the meaning of Rule 144 adopted under the Act and may not be
sold in the absence of registration under the Act unless an exemption from
registration is available, including the exemption contained in Rule 144. The
holders of the remaining 15,174,130 shares of Common Stock possess registration
rights with respect to such shares. In addition, the Company has filed a
registration statement under the Act to register the shares of Common Stock
issuable upon the exercise of stock options granted under the Company's 1996
Long Term Incentive Plan and Non-Employee Directors' Retainer Stock Plan. In
September 1996, certain senior executive officers of the Company (the
"Borrowers") entered into margin loan transactions ("Margin Loans") with Smith
Barney, Inc. (the "Lender") for personal loans in which an aggregate of 823,529
shares of Common Stock (the "Pledged Shares") held by the Borrowers were
pledged as collateral for the Margin Loans. As a condition to the Margin Loans,
the Company entered into a Registration Rights Agreement with the Lender, which
provides the Lender and its affiliates with certain registration rights with
respect to the Pledged Shares. Future sales of shares of Common Stock
registered under the Act or pursuant to Rule 144 or otherwise, or the
perception that such sales could occur, could have an adverse effect upon the
market price for the Common Stock.
CONTROL BY PRINCIPAL STOCKHOLDERS
Crow Family Members beneficially own an aggregate of approximately
47.3% of the outstanding shares of the Company's Common Stock, and Bedrock
beneficially owns approximately 11.4% of the Company's issued and outstanding
Common Stock. 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 among the Company,
Crow Family Members, Bedrock, the Company's Senior Executive Officers and Susan
T. Groenteman, a director of the Company (the "Stockholders' Agreement"), has
the effect of concentrating control of the Company among these parties. Under
the terms of the Stockholders' Agreement, Crow Family Members (together with
the Senior Executive Officers and Ms. Groenteman) and Bedrock have agreed,
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.
SIGNIFICANT DEBT AND LEASE OBLIGATIONS
At December 31, 1996, the Company's long-term consolidated debt was
approximately $109.7 million, its total stockholders' equity was approximately
$75.6 million and its ratio of earnings to fixed charges on a pro forma basis
for the year ended December 31, 1996 was 2.0 to 1. The Company's indebtedness
is substantial in relation to its stockholders' equity. In addition, the
Company has 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, 1996, the Company's rent expense
was approximately $14.9 million on a pro-forma basis after giving effect to the
formation of the Company, the initial public equity and Notes offerings and
related transactions. The degree to which the Company is leveraged, as well as
its rent expense, could have important consequences to holders of 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
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<PAGE> 32
reducing the funds available to the Company for its operation; and (iii)
certain of the Company's indebtedness, including the Revolving Credit Facility
contains 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.
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.
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.
QUARTERLY FLUCTUATIONS IN OPERATING RESULTS
The lodging industry is seasonal in nature. Quarterly earnings may be
adversely affected by events beyond the Company's control, such as poor weather
conditions, economic factors and other considerations affecting travel. In
addition, the loss of one or several management contracts, the timing of
achieving incremental revenues from additional hotels and the realization of a
gain or loss upon the sale of a hotel also may adversely impact earnings
comparisons. If the Company loses a management contract that has capitalized
acquisition costs, the Company will record a write-off of the remaining book
value (less any termination fees received) of such capitalized costs, which
could have a material adverse effect on the operating results during the period
in which the write-off occurred. In addition, the Company's quarterly earnings
could be adversely affected by the loss of a hotel investment made in
connection with a management contract or other investment arrangement.
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 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 on environmental issues relating to the Company.
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<PAGE> 33
ANTI-TAKEOVER MATTERS
The Company's Certificate of Incorporation and By-laws contain
provisions that may have the effect of delaying, deterring or preventing a
takeover of the Company that the Company's stockholders may consider to be in
their best interest. The Company's Certificate of Incorporation and By-laws
provide for a classified Board of Directors serving staggered terms of three
years, the prohibition of stockholder action by written consent and advance
notice requirements for stockholder proposals and director nominations. The
Company's Certificate of Incorporation also grants the Board of Directors the
authority to issue up to 5,000,000 shares of preferred stock, having such
rights, preferences and privileges as designated by the Board of Directors
without stockholder approval. In addition, Section 203 of the Delaware General
Corporation Law, which is applicable to the Company, contains provisions that
restrict certain business combinations with interested stockholders, which may
have the effect of inhibiting a non-negotiated merger or other business
combination involving the Company. (The Company believes that by its terms,
Section 203 does not restrict transactions with C.F. Securities L.P., a
partnership owned by Crow Family Members, or any other party to the
Stockholders' Agreement that becomes an Interested Stockholder (for purposes of
Section 203) as a result of the exercise of certain rights of first offer
contained in the Stockholders' Agreement. Finally, the Stockholders' Agreement
may have the effect of delaying, deterring or preventing a takeover of the
Company, as it restricts the transfer of shares of Common Stock held by Crow
Family Members, the Senior Executive Officers, Bedrock and Ms. Groenteman, and
also provides for an agreed allocation of director nominations among such
parties.
The indenture governing the Notes provides that, upon the occurrence
of (i) the sale of a majority of the fair market value of the assets of the
Company, on a consolidated basis, (ii) any person or group not affiliated with
the Company's current stockholders becoming the beneficial owner of more than
45% of the total voting power of the Company or (iii) certain changes in a
majority of the Board of Directors of the Company during a two-year period
(collectively, a "Change of Control"), the holders of the Notes will have the
right to require the Company to repurchase their Notes at a price equal to 101%
of the aggregate principal amount thereof, plus accrued and unpaid interest.
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 or the
acquiring party would have sufficient financial resources to enable it to
purchase such Notes. In addition, the Change of Control purchase feature of the
Notes may make more difficult or discourage a takeover of the Company, and,
thus, the removal of incumbent management. The terms of the Revolving Credit
Facility prohibit such a Note repurchase. In addition, certain "changes of
control," as defined in the Revolving Credit Facility, constitute a default
thereunder.
PRICE VOLATILITY
The market price of the Common Stock could be subject to significant
fluctuations in response to variations in quarterly operating results and other
factors. In addition, the securities markets have experienced significant price
and volume fluctuations from time to time in recent years that often have been
unrelated or disproportionate to the operating performance of particular
companies. These broad fluctuations may adversely affect the market price of
the Common Stock.
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<PAGE> 34
ITEM 2. PROPERTIES
SUMMARY OF HOTELS
The following table sets forth, as of December 31, 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 Bel Age West Hollywood, CA Managed 199
Wyndham Bristol Washington, DC Managed 239
Wyndham Bristol Place Hotel Toronto, Canada Owned 287
Wyndham Checkers Hotel Los Angeles, CA Managed 188
Wyndham Dublin Hotel Columbus, OH Managed(2) 217
Wyndham Emerald Plaza San Diego, CA Managed 436
Wyndham Five Seasons Cedar Rapids, IA Managed 283
Wyndham Fort Lauderdale Airport Fort Lauderdale, FL Franchised 250
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 Riverfront New Orleans, LA Managed 202
Wyndham Warwick Houston, TX Managed 308
----
TOTAL WYNDHAM HOTELS 21
TOTAL WYNDHAM HOTEL ROOMS 8,181
=====
WYNDHAM GARDEN HOTELS
---------------------
Albuquerque Albuquerque, NM Managed 150
Annapolis Annapolis, MD Managed 197
Atlanta Gwinnet(4) Atlanta, GA Managed 131
Atlanta North Lake(4) Atlanta, GA Managed 131
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
Dallas Market Center(5) Dallas, TX Owned 230
Denver Denver, CO Managed 240
Detroit Metro Romulus, MI Managed 153
</TABLE>
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<PAGE> 35
<TABLE>
<CAPTION>
Owned, Leased,
Managed or Number of
Hotels Hotel Location Franchised(1) Rooms
------ -------------- ------------- -----
<S> <C> <C> <C>
Indianapolis Indianapolis, IN Owned 171
Kansas City Plaza Kansas City, MO Managed 241
Lake Buena Vista Orlando, FL Managed 167
Las Colinas Dallas, TX Managed 168
Lexington Lexington, KY Managed 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
Novi Detroit, MI Managed 148
Oakbrook Oakbrook Terrace, IL Managed 222
O'Hare Chicago, IL Managed 242
Orange County Airport Costa Mesa, CA Managed 238
Overland Park(4) Overland Park, KS Owned 181
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 Owned 159
Waltham Waltham, MA Managed 148
Wood Dale Chicago, IL Managed 162
----
TOTAL WYNDHAM GARDEN HOTELS 44
TOTAL WYNDHAM GARDEN HOTEL ROOMS 7,986
=====
WYNDHAM RESORTS
---------------
Inn at Semi-Ah-Moo--A Wyndham Blaine, WA Managed 198
Resort
The Village at Breckenridge--A
Wyndham Resort Breckenridge, CO Franchised 235(6)
Wyndham Aruba Beach Resort &
Casino Palm Beach, Aruba Managed 444
Wyndham Morgan Bay Resort Choc Bay, St. Lucia Managed 238
Wyndham Palmas del Mar Humacao, Puerto Rico Managed 359
Wyndham Rose Hall Resort Montego Bay, Jamaica Owned(3) 489
Wyndham Sugar Bay Resort St. Thomas, U.S.V.I. Managed 300
----
TOTAL WYNDHAM RESORTS 7
TOTAL WYNDHAM RESORT HOTEL ROOMS 2,263
=====
</TABLE>
-34-
<PAGE> 36
<TABLE>
<CAPTION>
Owned, Leased,
Managed or Number of
Hotels Hotel Location Franchised(1) Rooms
------ -------------- ------------- -----
<S> <C> <C> <C>
MANAGEMENT SERVICE HOTELS
-------------------------
Dedham Hilton Dedham, MA Managed 247
Pruneyard Inn Campbell, CA Managed 117
Confidential Confidential Managed 692
----
TOTAL MANAGEMENT SERVICE HOTELS 3
TOTAL MANAGEMENT SERVICE HOTEL ROOMS 1,056
=====
EXTENDED-STAY HOTELS
--------------------
InnHome America Austin, TX Managed 149
Westar Suites - Amarillo Amarillo, TX Managed 124
Westar Suites - El Paso El Paso, TX Managed 124
Westar Suites - Fiesta Park San Antonio, TX Managed 124
Studio Suites - Grand Prairie Grand Prairie, TX Managed 139
Westar Suites - Irving Irving, TX Managed 124
Westar Suites - San Antonio Airport San Antonio, TX Managed 116
----
TOTAL EXTENDED-STAY HOTELS 7
TOTAL EXTENDED-STAY HOTEL ROOMS 900
====
TOTAL PORTFOLIO 82
TOTAL PORTFOLIO HOTEL ROOMS 20,386
======
HOTELS CLOSED FOR RENOVATION OR UNDER
-------------------------------------
CONSTRUCTION(7)
------------
Wyndham Albuquerque Airport Albuquerque, NM Franchised 266
Homegate Phoenix, AZ Managed 139
Homegate Denver, CO Managed 135
Homegate Dallas, TX Managed 136
Homegate - Chandler Phoenix, AZ Managed 131
Homegate - Indy Airport Indianapolis, IN Managed 136
Homegate - Lenexa Kansas City, KS Managed 117
Homegate - Overland Park Kansas City, KS Managed 133
Homegate - Northwest Austin, TX Managed 120
Homegate - North Austin, TX Managed 120
Wyndham International Trade Center Mt. Olive, NJ Managed 141
La Guardia Airport New York, NY Managed 225
Newark Airport Newark, NJ Managed 260
Wyndham San Juan (Wyndham Resort) San Juan, Puerto Rico Managed 242
----
TOTAL HOTELS UNDER RENOVATION OR
CONSTRUCTION 14
TOTAL HOTEL ROOMS UNDER RENOVATION OR
CONSTRUCTION 2,301
------
TOTAL HOTELS 96
TOTAL HOTEL ROOMS 22,670
======
</TABLE>
- --------------------------------
(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
"Business -- Management Contracts.
Franchised = Franchised to a third party. See "Business --
Franchising Program."
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<PAGE> 37
(2) The Company owns a partial interest in this hotel.
(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) These hotels are currently being managed by the Company under a brand
other than the Wyndham brand name. Following renovations that are
currently underway, these hotels are scheduled to be converted to
Wyndham Garden Hotels by the second quarter of 1997.
(5) This hotel opened as a Wyndham Garden Hotel in March 1997.
(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) The Albuquerque Airport hotel converted to a Wyndham Hotel in February
1997. The La Guardia Airport Hotel opened as the Garden Hotel at La
Guardia Airport in January 1997.
CORPORATE AND REGIONAL OFFICES
The principal executive offices of the Company are located in Dallas,
Texas and are occupied pursuant to a lease that expires in May 1997. Following
this period, the lease reverts to a month-to-month term. The Company currently
is in the process of obtaining alternate office space in the Dallas area for
its executive offices and experts to relocate by the third quarter of 1997. In
addition to its executive offices, the Company leases office space in New York
City, Fairfax, Virginia, Chicago, Los Angeles, San Jose and Phoenix.
LONG-TERM HOTEL LEASES
The Company leases and operates 13 hotels. The initial term of the
lease relating to the 11 GHALP Properties (the "GHALP Lease") is approximately
16 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 the lessor
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 is 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 the lessor.
The GHALP Lease is a triple net lease that requires 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
-36-
<PAGE> 38
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 the lessor. Under certain circumstances, the lessor 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 is
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, is pledged to the lessor 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 the lessor as additional charges. In addition, the
lessor 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.
In connection with the acquisition of its leasehold interest in the
GHALP Properties the Company succeeded to a $13.6 million Retained Fund that
was established to secure the lessor's rights under the GHALP Lease. The
Company's interest in the Retained Fund is 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 to the
Company 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 the
lessor a security interest that is 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 the lessor,
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 the lessor, except to the extent such costs arise
from the acts or omissions of the lessor or any other indemnified party or
during any period that the lessor is in possession of the leased property. The
Company also has agreed to indemnify the lessor 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. The lessor 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. The lessor 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 the lessor 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 the lessor may
receive pursuant to the preceding sentence as a result of the Company's
default, the lessor may elect to require the Company to pay as final liquidated
-37-
<PAGE> 39
damages the amount of the excess of the lease payments that would have 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 the lessor, GHALP undertook to indemnify the lessor 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,
the lessor undertook to indemnify GHALP against any liabilities arising out of
the lessor'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 of the Company, the
Company assumed GHALP's rights and obligations under the purchase contract. The
Company also assumed 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 the lessor were true, valid and not in default. Liability with
respect to the representations and warranties survive through April of 1997.
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.
In connection with the entry by a subsidiary of the Company into the
lease relating to the Wyndham Hotel property in Salt Lake City (the "Salt Lake
City Lease"), the Company has entered into a Limited Guaranty Agreement (the
"Limited Guaranty") pursuant to which the Company has guaranteed the
obligations of the lessee under the Salt Lake City Lease and has deposited with
the lessor a guaranty deposit in the amount of $5,275,000. Provided that no
event of default occurs, the deposit balance accumulates interest at the rate
of 11.11% per annum. Accrued interest on this deposit will be credited against
the monthly Minimum Rent to be paid by the Company under the Salt Lake City
Lease. In general, the unapplied balance of the guaranty deposit will be
returned to the Company at such time that, after January 1, 1998, for a period
of 12 consecutive months, the hotel property meets or exceeds certain cash flow
targets set forth in the Limited Guaranty and satisfies certain other
requirements (the "Performance Criteria"). In the event that the Performance
Criteria are not met, the guaranty deposit will be returned upon the Company's
satisfaction of all obligations under the Salt Lake City Lease.
The terms of the Salt Lake City Lease by and between HPTSLC
Corporation, a Delaware corporation, and a subsidiary of the Company, are
generally similar to those of the GHALP lease set forth above but vary as to
the following provisions. The Minimum Rent under the Salt Lake City Lease is
$4,400,004 per year and Additional Rent for the 1998 fiscal year is equal to 5%
of the amount, if any, by which the Total Hotel Sales (as defined in the Salt
Lake City Lease) for the then current year to date exceed total hotel sales
(the "Excess Total Hotel Sales") for the equivalent period in 1997 and 8% of
the Excess Total Hotel Sales for the equivalent period in 1998 for each fiscal
year thereafter during the term of the Lease.
The Salt Lake City Lease requires a cash security deposit of
$4,725,000 (the "Security Deposit") that cannot be mortgaged, assigned,
transferred or otherwise encumbered by the lessee without prior written consent
except for certain authorized leasehold mortgages. Provided that the Company
complies with all terms, covenants and conditions of the Salt Lake City Lease,
the Security Deposit will be returned to the Company at the end of the term of
the lease. Improvement advances in an aggregate amount of up to $3,250,000 may
be advanced by the lessor for certain improvements to the hotel.
-38-
<PAGE> 40
The Company has agreed that under the following circumstances, in
addition to the events of default outlined under the GHALP Lease, the lessor
under the Salt Lake City Lease may terminate the lease: in the case of any
false or misleading material representation or warranty made by the Company or
any Affiliated Person as to the Company contained in the lease or certain other
related documents, or if the Limited Guaranty is disaffirmed, disavowed or
challenged by the Company. The Salt Lake City Lease also reserves the option
for HPTSLC Corporation, exercisable on or before the fifth anniversary of the
date of the lease, to require amendments to both the GHALP Lease and the Salt
Lake City Lease providing that (i) an event of default under either of such
leases would constitute an event of default under the other lease; (ii) that
the renewal option under the GHALP Leases could not be declined unless the
renewal option under the Salt Lake City Lease were also declined; and (iii)
that amounts in the FF&E Reserves under each of the GHALP Leases and the Salt
Lake City Lease be pooled and consolidated.
The Salt Lake City Lease restricts the Company from owning, building,
franchising, managing or operating any full-service Wyndham Hotel within a
designated area surrounding the hotel during the lease term. Wyndham Garden and
Resort 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.
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<PAGE> 41
ITEM 3. LEGAL PROCEEDINGS
LEGAL PROCEEDINGS
On June 29, 1992, the Madoses 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 "The Old Management Company") and Yassky-Wyndham
Partnership. 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. The Old Management Company
acknowledges that use of the Wyndham name in connection with the operation of
the Mados Wyndham Hotel (defined under "Business -- Trademarks") has created
certain service mark rights in a limited 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 The Old Management Company 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 (subsequently amended to 100) mile radius
thereof.
On January 29, 1996, the court issued a temporary restraining order
that is limited to the borough of Manhattan or within a 50 mile radius (within
the State of New York), which, as modified in a subsequent opinion of February
13, 1996, prohibits The Old Management Company from operating or managing a
hotel using the "Wyndham" name pending the resolution of the lawsuit and from
advertising the Company's property at LaGuardia Airport (which is currently
under renovation).
Post trial filings have been completed for the trial on the above
proceedings that occurred from May 14 to May 31, 1996, and The Old Management
Company is awaiting the court's decision. After the trial, the Madoses sought
to increase the radius of the requested injunction from 50 to 100 miles.
The Old Management Company has appealed the trial court's modification
of the temporary restraining order subsequent to the trial to permit The Old
Management Company to use the word "Wynd" in connection with its Garden Hotel
at La Guardia Airport under certain conditions unacceptable to The Old
Management Company. It is not known when a decision will be rendered by the
trial court or the appellate court.
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 hotels, including the Company's Garden Hotel at La Guardia Airport,
as Wyndham brand hotels or advertising the Wyndham name in connection with the
operation of a Wyndham brand hotel within a limited geographic area in the
borough of Manhattan or within a 50 to 100 mile radius of the Mados Wyndham
Hotel. It is management's opinion that the losses resulting from the ultimate
resolution of the aforementioned lawsuit are not currently ascertainable. For
further information relating to disputes involving the "Wyndham" mark, see
"Business -- 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 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 FDR subsequently reduced
their assessment to approximately $600,000. The Company believes that it has
meritorious defenses with respect to the amount claimed by the FDR, and in
February 1997 the Company filed an appeal of such amount with the FDR. 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
Consolidated Financial Statements.
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<PAGE> 42
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.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
ITEM 4A. EXECUTIVE OFFICERS OF THE REGISTRANT
Information relating to the current directors of the Company, and the
persons nominated for election as directors of the Company at its 1997 Annual
Meeting of Shareholders appears in the Company's Proxy Statement under the
caption "Election of Directors." Such information is incorporated herein by
reference.
EXECUTIVE OFFICERS
Officers are elected annually by the Board of Directors and serve
until their successors are elected and qualified. The current executive
officers of the Company are as follows:
<TABLE>
<CAPTION>
Name Age Position with Company
---- --- ---------------------
<S> <C> <C>
James D. Carreker 49 President and Chief Executive Officer
Leslie V. Bentley 45 Executive Vice President and Wyndham Garden Division
President
Anne L. Raymond 39 Executive Vice President and Chief Financial Officer
Stanley M. Koonce, Jr. 48 Executive Vice President--Marketing, Planning and
Technical Services
Charles E. Griffin 63 Senior Vice President--Human Resources
Carla S. Moreland 37 Vice President--General Counsel and Secretary
Glen H. Griffith 62 Vice President--Chief Information Officer
Edward L. Stahl 52 Vice President--Marketing
John P. Klumph 41 Vice President--Corporate Controller
John J. Kelly 48 Vice President--Technical Services
</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. Mr. Carreker has been
a Director of Homegate Hospitality, Inc. since October 1996.
LESLIE V. BENTLEY has been employed by the Company since March 1985,
has served as Executive Vice President and Wyndham Garden Division President of
the Company since May 1990 and was elected a director of the Company in January
1997. 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.
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 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, was elected a director of the Company in January 1997 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.
CHARLES E. GRIFFIN has served as Senior Vice President--Human
Resources of the Company since October 1996. From September 1994 to October
1996, Mr. Griffin served as Executive Vice President of Rocco Originals, Inc.,
a sunglasses manufacturer and wholesaler in San Antonio, Texas, and from March
1994 to July 1994 as Executive Vice President of Catherine Dial Easley, Inc., a
women's accessory company in San Antonio, Texas. From 1993 to 1994, Mr. Griffin
was a retail consultant with Strategic Retail Ventures in Dallas, Texas and
from 1991 to 1993 was a retail search consultant of executive talent with P.R.
Associates of Dallas, Texas. From 1990 to 1991, Mr. Griffin served as President
of Suzanne's off-price retail stores in Dallas, Texas, and from 1985 to 1990
served as President and Consultant to Ginnie Johansen Designs, Inc., a women's
accessory company in Dallas, Texas. Prior to 1985, Mr. Griffin served in
various positions with divisions of Federated Department Stores.
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 March 1994 to March 1995
Mr. Griffith was retired from Federated Department Stores and performed
independent consulting services. 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.
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.
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.
-41-
<PAGE> 43
<PAGE> 44
<PAGE> 45
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
The Company's common stock is listed on the New York Stock Exchange
and traded under the ticker symbol "WYN." The information appearing in the
Company's 1996 Annual Report to Shareholders under the caption "Price Range of
Common Stock" is incorporated herein by reference.
On December 31, 1996, there were 68 holders of record of the Company's
Common Stock, although the Company believes that the number of beneficial
owners of its Common Stock is substantially greater.
The Company intends to retain any future earnings for use in its
business and does not intend to pay cash dividends in the foreseeable future.
Furthermore, the terms of the Revolving Credit Facility prohibit the Company
from paying, and the indenture governing the Notes limits the Company's ability
to pay, dividends on the Common Stock. The payment of future dividends, if any,
will be at the discretion of the Company's Board of Directors and will depend
upon, among other things, future earnings, operations, capital requirements,
restrictions in future financing agreements, the general financial condition of
the Company and general business conditions.
On February 16, 1996, the Company issued 100 shares of Common Stock to
James D. Carreker, its Chief Executive Officer and a director, for nominal
consideration. On May 24, 1996, in connection with the Company's initial public
offering, the Company issued an aggregate of 15,820,799 shares of Common Stock
of the Company to the following parties:
<TABLE>
<CAPTION>
Name Number of Shares
---- ----------------
<S> <C>
Crow Family Members 9,487,391
Bedrock 2,276,055
James D. Carreker 1,173,316
Carreker Trust 77,671
Leslie V. Bentley 330,377
Bentley Trust 61,680
Anne L. Raymond 380,151
Stanley M. Koonce, Jr. 388,001
Eric A. Danziger 381,234
Wyndham Employees Ltd. 646,669
Wyndham Hotel Management Corporation 114,222
General Electric Pension Trust 504,032
</TABLE>
With the exception of the shares issued to Bedrock and General
Electric Pension Trust ("General Electric"), the foregoing shares were issued
in partial consideration for the contribution by such parties of their
interests in the businesses and assets acquired by the Company in connection
with its formation. The shares received by Bedrock were issued in exchange for
Bedrock's contribution to the Company of options to acquire equity interests in
Old Wyndham and a cash contribution in the amount of $10 million. The shares
received by General Electric were issued pursuant to an option exercised by
General Electric for an aggregate purchase price of $7.5 million.
The foregoing shares were issued without registration under the
Securities Act pursuant to the exemption from registration afforded by Section
4(2) of the Securities Act or the rules and regulations promulgated thereunder.
-42-
<PAGE> 46
ITEM 6. SELECTED FINANCIAL DATA
SELECTED CONSOLIDATED FINANCIAL DATA
WYNDHAM HOTEL CORPORATION
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
- ------------------------------------------------------------------------------------------------------------
1992 1993 1994 1995 1996
--------- --------- --------- --------- ---------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
Portfolio hotel revenues (1) $ 315,151 $ 345,733 $ 394,949 $ 534,204 $ 671,893
========= ========= ========= ========= =========
STATEMENT OF INCOME DATA:
Revenues:
Hotel revenues $ 41,604 $ 43,921 $ 51,799 $ 54,673 $ 104,620
Management fees 10,130 10,731 13,302 16,921 23,813
Service fees 782 2,127 2,904 4,120 4,306
Reimbursements 4,130 4,164 8,004 10,836 14,977
Other income 156 334 257 1,340 359
--------- --------- --------- --------- ---------
Total revenues 56,802 61,277 76,266 87,890 148,075
--------- --------- --------- --------- ---------
Operating costs and expenses 48,383 54,183 63,929 73,265 122,072
--------- --------- --------- --------- ---------
Operating income 8,419 7,094 12,337 14,625 26,003
Interest expense, net (7,831) (7,075) (7,527) (8,021) (9,919)
Income before income taxes and
extraordinary item 163 1,654 6,265 7,949 16,888
Income tax benefit -- -- -- -- 8,209
Income before extraordinary item 163 1,654 6,265 7,949 25,097
Historical net income 163 1,654 6,265 7,949 23,966
Pro forma income tax adjustment
(unaudited) (2) -- -- -- (3,140) --
Historical net income as adjusted for
pro forma income taxes (unaudited) -- -- -- 4,809 --
Earnings per share:
Income before extraordinary item -- -- -- -- 1.26
Net income -- -- -- 0.24 1.20
Historical net income as adjusted (3) -- -- -- 0.24 --
Average number of common shares
outstanding -- -- -- -- 20,018
Pro forma number of common shares
outstanding -- -- -- 20,018 --
</TABLE>
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
- ------------------------------------------------------------------------------------------------------------------------
1992 1993 1994 1995 1996
------ ------ ------ ------ ------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents $ 682 $ 827 $ 3,619 $ 4,160 $ 11,517
Total assets 108,647 113,465 113,276 133,403 242,962
Long-term obligations, including current portion 87,064 88,410 84,161 90,978 130,454
Total partners' capital (deficit) and stockholders' equity (7,303) (1,488) 1,716 17,557 75,584
</TABLE>
(1) Represents unaudited revenues of hotels owned, leased or managed by the
Company, as distinguished from Total Company Revenues.
(2) For the years 1992 through 1995 and the 1996 first five months, the Company
made no provision for income taxes because the combined Company was a
combination of partnerships, S corporations and a non-taxable Bermuda
corporation that were not subject to U.S. federal income taxes. Since the
Company's formation in late May 1996, income taxes have been provided. 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>
Income tax benefit reflects the recognition of a deferred income tax benefit
associated with the change in tax status of the Company that occurred in
connection with its initial public offering in May 1996. See Note 15 for
supplemental disclosure.
(3) Historical net income as adjusted per common share is based on historical
net income as adjusted for pro forma income taxes divided by the number of
shares in the initial public offering of the Company as if the Company had
been a corporation prior to its formation in May 1996.
43
<PAGE> 47
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
OVERVIEW
The following should be read in conjunction with the Company's
consolidated financial statements and the selected consolidated financial data
included elsewhere in this report.
On May 24, 1996, immediately prior to the consummation of the initial
public offering of the Company, the Company succeeded to the hotel management
and related businesses of Wyndham Hotel Company Ltd. ("Old Wyndham"), ownership
of 6 Wyndham brand hotels and leasehold interests relating to 12 additional
Wyndham brand hotels (the "Formation"). Concurrent with the Company's initial
public offering and as a part of its financing plan, the Company issued $100
million aggregate principal amount of 10.5% Senior Subordinated Notes due 2006
(the "Notes") and received a contribution of $10 million from Hampstead Group
L.L.C. (together with certain of its affiliates, "Bedrock"). The Company also
entered into a $100.0 million revolving credit facility (the "Revolving Credit
Facility") with a financial institution. The foregoing transactions are
referred to as the "Formation and Financing Plan."
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.
(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 tech-
nical 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 from $76.3 million to $148.1 million
from 1994 through 1996. 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 managed portfolio and the addition to
the number of owned and leased hotels. During this period, the occupancy rates
for Comparable Hotels* were 69% and 71% in 1995 and 1996, respectively,
while the ADR of Comparable Hotels increased from year to year ($84.99 and
$91.73 for the same periods). These improvements led to improvements in RevPAR
for the Comparable Hotels of 11.0%.
Of the $71.8 million increase in the Company's total revenues from 1994
to 1996, 73.6% is attributable to increases from the Company's owned and leased
hotels and 26.4% is attributable to managed 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
* The Comparable Hotel Group includes hotels that were in the portfolio for
one full common fiscal quarter in both 1995 and 1996. In instances where a
hotel was not open throughout both years being compared, the data relating
to that hotel is only included for the full common fiscal quarter(s) that it
was open in both years.
44
<PAGE> 48
expenses, the gross operating profit margins for the Company's Comparable
Hotels were 31% and 33% in 1995 and 1996, respectively. In addition, the
average food and beverage margin for the Comparable Hotels during 1995 was 26%,
and in 1996, the average food and beverage margin was 27%.
Prior to the Company's initial public offering, Garden Hotel Associates
L.P. ("GHALP") owned 11 Wyndham Garden Hotels managed by the Company (the
"GHALP Properties"). The Company effectively held a 30% investment in GHALP
during the period from 1994 through May 1, 1996. Historically, the results of
operations of the GHALP Properties have been accounted for using the equity
method. Consequently, the results of GHALP Properties are not included in
historical hotel revenues and hotel expenses for the period from 1994 through
May 1, 1996. As a result of the acquisition of a 70% partnership interest in
GHALP from an unrelated third party and the sale/leaseback of GHALP Properties
that occurred on May 2, 1996, the results of the GHALP Properties since the
acquisition are consolidated into hotel revenues and hotel expenses for the
year ended December 31, 1996.
Prior to February 1997, the Company maintained an equity participation
plan, named Wyndham Employees Ltd. ("WEL"), which was designed to enable
eligible Company employees to receive indirect equity interests in Old Wyndham
and certain hotel-related assets (the "WEL Investments"). From time to time,
the value of WEL's interest in the WEL Investments had been revalued, which
resulted in the revaluation of each WEL participant's interest in WEL. The
increase in value obtained by each WEL participant 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 $1.4 million, $2.7 million and approximately $900,000 in 1994, 1995 and
1996, respectively. The WEL agreement was amended effective through February
28, 1997 to provide for a modified method of valuing WEL's investments to
reflect the fact that WEL's interest in certain WEL Investments were exchanged
for the Wyndham shares as part of the formation and initial public offering of
the Company. The compensation expense incurred in 1996 resulted from the
revaluation of WEL's ownership interest in the Wyndham shares. In February
1997, pursuant to a plan of distribution the Wyndham shares held by WEL were
distributed to the WEL participants. The Company does not expect to incur any
additional compensation expense attributable to WEL.
The Company's senior executive officers owned limited partner interests
in Old Wyndham and several affiliates of Old Wyndham. The limited partner
interests were purchased by the 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 were used to repay such affiliate loans. For financial reporting
purposes, the net appreciation in the senior executive officers' limited
partner interests resulted in compensation expense to the Company. The Company
recognized compensation expense due to the senior executive officers' equity
participation of $1.4 million, $1.3 million and $2.0 million for the years
ended December 31, 1994, 1995 and 1996. As a result of the Company's initial
public offering, this component of compensation expense was fixed at the
initial public offering price; therefore, this component of compensation
expense will not be incurred by the Company in future periods.
The Company's predecessors in interest operated the business acquired by
the Company in connection with the Formation 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 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.
Upon consummation of the Formation and Financing Plan on May 24, 1996, the
Company became fully subject to state and federal income taxes. See Note 2 and
Note 15 of Notes to Consolidated Financial Statements.
45
<PAGE> 49
During the current period of significant consolidation and realignment
in the hospitality industry, the Company, as previously announced, as part of
its review of its current business plan is continuing to evaluate various
strategic alternatives. The investment banking firm of Smith Barney Inc. has
been retained to assist the Company and its Board of Directors. No agreement or
agreement in principle has been reached with respect to any transaction, and
there can be no assurance that any transaction will result from the Company's
evaluation process.
All statements other than statements of historical fact contained in
this Annual Report, including statements in this "Management's Discussion and
Analysis of Financial Condition and Results of Operations" concerning the
Company's financial position and liquidity, results of operations, prospects
for continued growth through internal initiatives and external opportunities,
earnings growth goal, conditions in the lodging industry generally,
relationships with strategic partners, and other matters are forward-looking
statements. Although the Company believes that the expectations reflected in
such forward-looking statements are reasonable, no assurance can be given that
such expectations will prove correct. Factors that could cause the Company's
results to differ materially from the results discussed in or contemplated by
such forward-looking statements include the risks described under "Risk
Factors" in Item I of the Company's Annual Report on Form 10-K for the fiscal
year ended December 31, 1996, as filed with the Securities and Exchange
Commission. Such risks include, without limitation, the risks associated with
the lodging industry generally, competition within the lodging industry, the
Company's aggressive growth strategy (including growth risks generally, as well
as competition for expansion opportunities and acquisition and development
risks), dependence on management contracts and on certain hotel owners,
conflicts of interest (including risks associated with future dealings with
affiliates of the Company and conflicts involving certain board members),
owning or leasing real property, the future sale in the public market of the
Company's currently restricted securities, control of the Company by certain
principal stockholders, the Company's significant debt and lease obligations,
dependence on senior management, quarterly fluctuations in operating results
and environmental matters relating to the Company's properties. All
forward-looking statements in this Annual Report are expressly qualified in
their entirety by the cautionary statements in this paragraph, in "Risk
Factors" and elsewhere in this Annual Report.
RESULTS OF OPERATIONS
The following table sets forth certain financial data expressed as a
percentage of total revenues for each of the periods presented.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------
1994 1995 1996
---- ---- ----
<S> <C> <C> <C>
Revenues:
Hotel revenues 67.9% 62.2% 70.7%
Management fees 17.5 19.3 16.1
Service fees 3.8 4.7 2.9
Reimbursements 10.5 12.3 10.1
Other 0.3 1.5 .2
----- ----- -----
Total revenues 100.0 100.0 100.0
----- ----- -----
Operating costs and expenses:
Hotel expenses 48.1 42.2 52.0
Selling, general and administrative
expense 14.0 17.1 12.9
Equity participation compensation 3.7 4.5 2.0
Reimbursable expense 10.5 12.3 10.1
Depreciation and amortization 7.5 7.2 5.4
----- ----- -----
Total operating costs and
expenses 83.8 83.3 82.4
----- ----- -----
Operating income 16.2 16.7 17.6
Interest expense, net (9.8) (9.1) (6.7)
Equity earnings of hotel partnership 1.6 1.9 .6
Foreign currency gain 0.5 0.4 --
Amortization of deferred gain -- -- .3
----- ----- -----
Income before minority interests, income
tax benefit and extraordinary item 8.5 9.9 11.8
Income attributable to minority interests 0.3 0.9 .4
----- ----- -----
Income before income tax benefit and
extraordinary item 8.2% 9.0% 11.4%
===== ===== =====
</TABLE>
1996 Compared to 1995
Total revenues increased by 68.5%, or $60.2 million, to $148.1 million
in 1996 from $87.9 million in 1995. Total operating costs and expenses
increased by 66.6%, or $48.8 million, to $122.1 million in 1996 from $73.3
million in 1995. The increase in total revenues and operating expenses was
attributable principally to the addition of the GHALP Properties resulting from
the consummation of the GHALP transaction on May 2, 1996, reflecting the change
in consolidation of the results of GHALP Properties from an equity investment
to a leasehold interest. The GHALP Properties accounted for 65.6%, or $39.5
million of the increase in total revenues, and 73.8%, or $36.0 million of the
increase in total expenses. The increase in total revenues and expenses was
also attributable to the increase in the number of hotels in the hotel
portfolio and the increase in existing hotel room rental revenues.
46
<PAGE> 50
Hotel revenues increased by 91.4%, or $49.9 million, to $104.6 million
in 1996 from $54.7 million in 1995. Approximately 79.0% of the increase, or
$39.5 million, was due to the GHALP Properties. The acquisition of four new
hotels accounted for $9.5 million, or 19.1%, of the increase in hotel revenues.
The increase in hotel revenues also reflected a $1.4 million increase in
existing hotel room rental revenues offset by a decrease of approximately
$736,000 in existing hotel food and beverage revenues. The increase in existing
hotel room revenue is due to a 9.5% increase in ADR offset by a 5.3% decrease
in occupancy percentage (excluding GHALP). As a percentage of total revenues,
hotel revenues increased to 70.7% in 1996 compared to 62.2% in 1995, primarily
reflecting the effects of consolidating the GHALP Properties.
The operating results of a Company-owned Caribbean resort decreased from
the prior year as a result of the disruption created by several hurricanes this
fall. However, this negative impact was offset by the improved operating
results of other existing hotels.
Revenues from management fees increased by 40.7%, or $6.9 million, to
$23.8 million in 1996 from $16.9 million in 1995. Approximately $3.3 million of
this increase resulted from the addition of 18 new managed hotels in 1996.
Approximately $6.7 million of the increase was attributable to increased
management fees as a result of improved operating results of the existing
managed hotels. The increase also reflected management fee revenues of
approximately $830,000 as a result of the release and discharge of the Company
from its obligation to make payments to an affiliate under an agreement which
was previously recorded as a reduction in management fees. These increases were
offset by $1.7 million from the loss of certain management contracts and $2.2
million from the elimination of the revenues from GHALP Properties as a result
of consolidating the GHALP Properties into the Company.
Revenues from service fees increased by 4.5%, or approximately $186,000,
to $4.3 million in 1996 from $4.1 million in 1995. The increase was due to
approximately $650,000 in increased revenues derived from central accounting
and purchasing services. The increase was partially offset by the elimination
of service fees of approximately $414,000 earned from GHALP Properties as a
result of the consolidation of the results of operations of the GHALP
Properties.
Reimbursements increased by 38.2%, or $4.1 million, to $14.9 million in
1996 from $10.8 million in 1995. Of the increase, 34.8%, or $1.4 million,
resulted from increased payments to the Company's Marketing Fund from both new
and existing portfolio hotels, while 49.1% of the increase, or $2.0 million
resulted from fees generated from room sales booked by the Company's National
Sales Offices. The increase also reflected a $1.5 million increase in certain
other services such as administrative, tax, legal, accounting, finance and risk
management provided by the Company. The increase was partially offset by the
elimination of $1.3 million in reimbursements earned from GHALP Properties as a
result of the consolidation of the results of operations of GHALP Properties.
Other income decreased by 73.2%, or $1.0 million, from $1.3 million in
1995 to approximately $359,000 in 1996. During 1995 and 1996, the Company
received $1.0 million and approximately $516,000, respectively, for termination
of management agreements. The termination fee in 1996 was offset as a result of
the write-off of approximately $267,000 of unamortized cost associated with one
of the terminated contracts. The termination fee in 1995 was offset by a
payment of approximately $160,000 relating to an agreement with an affiliate.
Other income for 1995 also included approximately $500,000 derived from
franchise fees and miscellaneous income sources.
Hotel expenses increased by 107.5%, or $39.9 million, to $77.0 million
in 1996 from $37.1 million in 1995. Approximately 88.7% of the increase, or
$35.4 million, was a result of the consolidation of GHALP Properties. The
increase also reflected an increase in room expenses and food and beverage
expenses commensurate with revenue increases. The increases were offset by a
reduction in hotel expense totaling $544,000 resulting from the write-off of a
reserve for contingent liabilities as a result of the final settlement on one
of the Company's hotel properties. The balance of the increase, or $7.5 million
was the result of the addition
47
<PAGE> 51
of four new hotels. Hotel expenses increased as a percentage of hotel revenues
to 73.6% in 1996 from 67.9% in 1995, primarily attributable to a $9.1 million
lease payment associated with the GHALP Properties. Excluding the GHALP
Properties lease payment and the reversal of contingent liabilities, the
percentage of hotel expense to hotel revenues would have been 64.4%.
SG&A expenses as a percentage of total revenues decreased to 12.9% in
1996 from 17.1% in 1995. This decrease was the result of the Company's ability
to absorb a portion of the additional owned and managed hotels into its existing
management structure. SG&A expenses increased by 27.0%, or $4.1 million, to
$19.1 million in 1996 from $15.0 million in 1995. Approximately 40.8% of the
increase, or $1.7 million, is due to increased wages, contract labor, benefit
costs and incentive bonuses arising from the addition of corporate management
and staff personnel related to the general growth of the Company. Approximately
24.3% of the increase, or approximately $982,000 was attributable to the
increase in accounts payable and payroll processing costs as a result of the
addition of new hotels to the Company's hotel port-folio. In addition, 22.3% of
the increase, or approximately $902,000, was due to the establishment of a
provision for bad debt related to certain receivables. The increase also
reflected additional costs of managing and administering a publicly held
company.
Equity participation compensation expenses decreased by 26.9%, or $1.1
million, to $2.9 million in 1996 from $4.0 million in 1995. The primary
component of the compensation expense, which is that attributable to the senior
executive officers, was fixed at the initial public offering price and
therefore the Company will not incur additional expense in future periods. In
February 1997, WEL was terminated upon the distribution of 646,696 shares of
the Company's Common Stock held by WEL to its participants. See "Overview" for
the discussion of the termination of WEL.
Reimbursable expenses grew by 38.2%, or $4.1 million, to $14.9 million
in 1996 from $10.8 million in 1995. The increase was primarily due to increased
advertising and promotion expense, as well as costs associated with expanding
the Company's national sales staff to support both individual business and
group sales as a result of growth of the hotel portfolio in 1996. The increase
is also attributable to increased costs of certain other services such as
administrative, tax, legal, accounting, finance and risk management provided by
the Company as a result of the increase in the number of managed hotels. The
increase was offset by a decrease of $1.3 million reflecting the elimination of
reimbursable expenses from GHALP Properties as a result of consolidating GHALP
Properties operating results. As a percentage of total revenues, reimbursable
expenses decreased to 10.1% in 1996 from 12.3% in 1995.
Depreciation and amortization expense increased by 28.5%, or $1.8
million, to $8.1 million in 1996 from $6.3 million in 1995. The increase was
due to the net acquisition of property and equipment and the amortization of
the acquisition costs of management contracts. The increase in 1996 also
included approximately $782,000 from the amortization of deferred debt issuance
costs relating to the Notes and the Revolving Credit Facility.
Interest expense increased by 39.5%, or $3.3 million, to $11.8 million
in 1996 from $8.5 million in 1995, reflecting the additional interest from the
Notes and capital leases, less the elimination of interest expense from the
retirement of debt and affiliated borrowings associated with the Formation and
Financing Plan. Interest income increased by 325.9%, or $1.4 million to $1.9
million in 1996, from approximately $444,000 in 1995. The increase was
primarily attributable to income of approximately $631,000 earned on unused
cash generated from the initial public offering and the issuance of the Notes.
Interest income in 1995 and 1996 also included approximately $100,000 and
$718,000, respectively, on notes receivables.
Equity in earnings of hotel partnerships decreased by 47.7%, or
approximately $794,000, from $1.7 million in 1995 to approximately $870,000 in
1996. Earnings from the Company's equity investment in GHALP ceased following
the acquisition of the remaining partnership interest in GHALP and the
consolidation of the results of operations of GHALP Properties. In November
1996, the Company acquired a 30% interest in a hotel partnership for a total
purchase price of $1.6 million, including the related management contract
acquisition costs. This investment has been accounted for using the equity
method. Pursuant to the partnership agreement, the Company was not allocated any
profits or losses of the partnership for the period ended December 31, 1996.
48
<PAGE> 52
Income attributable to minority interest was eliminated as a result of
the acquisition of the minority interest as a part of the Company's formation.
As a result of changes noted above, income before income tax benefit and
extraordinary item increased by 112.5% or $9.0 million, to $16.9 million in
1996 from $7.9 million in 1995.
Income tax benefit of $8.2 million reflected the effect of recording
deferred income taxes arising as a result of incorporation in the amount of
$13.0 million net of a $4.8 million provision for the results of operations
since incorporation using an effective tax rate of 39.1%.
The extraordinary item of $1.1 million was a write-off of the
unamortized debt costs of $1.4 million net of applicable tax benefit of
approximately $270,000 as the Company's pre-existing debt was repaid at the
Company's formation.
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
69.0% of this increase in hotel revenues was due to a $2.0 million increase in
existing hotel room rental revenues, while 34.5% 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.
Revenues from management fees increased by 26.3%, 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 1.0%, or approximately $381,000, to $37.1
million in 1995 from $36.7 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 67.9% in 1995 from
70.9% in 1994, primarily as a result of operating leverage and increased
operating efficiencies. The gross operating margin on hotels owned or leased by
the Company improved to 38.9% in 1995 from 37.5% 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 by 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,
49
<PAGE> 53
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 Wyndham 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.
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.
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 commercial debt
financing. During the year ended December 31, 1996, the Company generated cash
from operations of $9.7 million, as compared to $16.4 million in 1995. This
decrease in the generation of cash from operations is primarily attributable to
the payment of $13.6 million in security deposits, as required under the GHALP
Lease. 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. The Company therefore anticipates that any cash provided by opera-
tions in the foreseeable future will be available to fund the Company's
liquidity and capital needs.
The Company completed its initial public equity offering and offering of
the Notes in May 1996, and generated net proceeds in the aggregate amount of
$163.9 million (including a contribution of $10.0 million from Bedrock). These
proceeds were used to fund the cash payments associated with the formation of
the Company in the amount of $53.8 million, to repay certain mortgage and other
indebtedness in the amount of $64.8 million that was assumed in connection with
the formation of the Company, to pay approximately $5.1 million in fees and
expenses incurred in connection with the GHALP transactions and consummating
certain financing associated with the formation of the Company, to fund certain
improvements to the Wyndham Rose Hall Resort in the approximate amount of
$879,000 and to fund the cash portion of the acquisition costs of four hotel
properties and a 30% interest in a hotel partnership with a related management
contract totaling $35.1 million. The Company also made advances in the amount
of $2.1 million under loan agreements which the
50
<PAGE> 54
Company entered into in connection with management agreements that the Company
executed in the fourth quarter of 1996. A security deposit of $2.1 million was
made to enter into a lease agreement relating to Salt Lake City lease which was
closed in January 1997.
In addition to the fundings from the equity offering and Notes offering
discussed above, the Company also funded $914,000 to Wyndham Rose Hall Resort
for certain improvements and made advances in the amount of $2.2 million under
a loan agreement which the Company entered into in connection with a management
agreement from cash generated from operations. In connection with the Company's
entering into the lease with respect to the Wyndham Salt Lake City Hotel, the
Company paid approximately $10.0 million in rental and related deposits.
The $100.0 million of Notes issued in May 1996 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 10.5% per annum, and such interest is payable
semi-annually in arrears on May 15 and November 15, commencing November 15,
1996. Except in the event of a Change of Control, there is no principal due on
the Notes prior to final maturity. 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 Company is also a party to an agreement with Bankers Trust Company,
as agent for a group of financial institutions, pursuant to which the Lenders
have 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 is a direct obligation
of the Company and is fully and unconditionally guaranteed by each of the
Company's subsidiaries. Such obligations and guaranties rank senior in right or
payments to the Notes and are secured by substantially all of the assets of the
Company and subsidiaries. While no amounts had been drawn under the Revolving
Credit Facility at December 31, 1996, approximately $42.3 million aggregate
principal amount was available for borrowings at such date in accordance with
the terms of the Revolving Credit Facility. In January 1997, the Company
borrowed $10.8 million at an average interest rate of 7.81% under the Revolving
Credit Facility to meet the requirement of a new hotel lease agreement.
Availability under the Revolving Credit Facility is 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 in May
2000.
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 bears 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 paid customary fees in connection with structuring the
Revolving Credit Facility and also pays the Lenders 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
51
<PAGE> 55
Revolving Credit Facility for the issuance of letters of credit, which is
subject to a fee of 2.0% per annum on the maximum amount which may be drawn
under each letter of credit. Pursuant to the refinancing of the industrial bond
indebtedness related to the acquisition of the Wyndham Garden Hotel-Vinings,
$9.675 million has been utilized for a letter of credit associated with the
refinancing. The Revolving Credit Facility contains covenants requiring the
Company to maintain certain financial ratios. The primary effect of these
covenants are 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.
In connection with the Company's acquisition of the Wyndham Garden
Hotel-Vinings, which was consummated in late May 1996, the Company assumed
certain industrial revenue bond indebtedness. In February 1997, the Company,
through a financial institution and a county authority, issued $9,675,000 in
the aggregate principal amount of revenue bonds. The bonds were issued to
refinance the existing bonds that the Company assumed in the acquisition of the
Wyndham Garden Hotel-Vinings. The bonds initially bear interest at a weekly
rate (the "Weekly Rate Period") determined in accordance with the indenture of
the bonds based on prevailing financial market conditions for revenue bonds (at
March 17, 1997, such rate was 3.9%) plus a 2% credit enhancement fee as
defined in the indenture. The weekly rate may be converted to another interest
rate determination method on the first business day of any calendar month at
the Company's option, subject to the terms and conditions set forth in the
indenture. Interest payments on the bonds are due on a periodic basis. The bonds
mature in February 2023 and are subject to redemption by the Company in whole
or in part during any Weekly Rate Period.
The Company has the following anticipated capital commitments. Pursuant
to the terms of a management agreement in which the Company has a 30%
ownership interest, the Company has committed to fund up to $2.5 million for the
renovation of the hotel property. Pursuant to the terms of an interim
management agreement for a resort hotel property, the Company has undertaken,
subject to certain contingencies, certain commitments to provide approximately
$2.0 million (of which $659,000 has been funded through December 31, 1996),
approximately $1.6 million of which shall be used for preopening expenses and
the purchase of furniture, fixtures and equipment and the remainder of which
shall be used to fund working capital for the hotel. In addition, the Company
is obligated pursuant to the terms of certain hotel management agreements to
fund loans for hotel acquisition and improvements in the aggregate amount of
$8.1 million, of which $5.0 million had been funded as of December 31, 1996.
Pursuant to capital lease agreements, the Company is obligated to make lease
payments of $2.6 million in 1997 and similar payments in an aggregate amount
of $17.7 million for the period from 1998 through the end of the lease
agreements.
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 capital
available under the Revolving Credit Facility will be adequate to fund the
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.
52
<PAGE> 56
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
See Index to Consolidated Financial Statements included in Item 14.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not Applicable.
PART III
53
<PAGE> 57
ITEM 11. EXECUTIVE COMPENSATION
The information required by this item appears in the Company's Proxy
Statement for its 1997 Annual Meeting of Stockholders, under the caption
"Executive Compensation," which information is incorporated herein by
reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this item appears in the Company's Proxy
Statement for its 1997 Annual Meeting of Stockholders, under the caption "Stock
Ownership of Directors, Certain Executive Officers and Principal Stockholders,"
which information is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND TRANSACTIONS
The information required by this item appears in the Company's Proxy
Statement for its 1997 Annual Meeting of Stockholders, under the captions
"Compensation Committee Interlock and Insider Participation" and "Certain
Relationships and Transactions," which information is incorporated herein by
reference.
-54-
<PAGE> 58
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND
REPORTS ON FORM 8-K
(a) FINANCIAL STATEMENTS, SCHEDULES AND EXHIBITS
(1) The financial statements contained in the accompanying Index to
Consolidated Financial Statements covered by the Report of Independent
Accountants are filed as part of this report.
(2) Financial Statement Schedules - None.
(3) The list of exhibits contained in the Index to Exhibits are filed
as part of this Report.
(b) REPORTS ON FORM 8-K
None.
-55-
<PAGE> 59
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS that each of Wyndham Hotel Corporation,
a Delaware corporation, and the undersigned directors and officers of Wyndham
Hotel Corporation, hereby constitutes and appoints Carla S. Moreland its, his
or her true and lawful attorney-in-fact and agent, for it, him or her and in
its, his or her name, place and stead, in any and all capacities, with full
power to act alone, to sign any and all amendments to this Report, and to file
each such amendment to this Report, with all exhibits thereto, and any and all
other documents in connection therewith, with the Securities and Exchange
Commission, hereby granting unto said attorney-in-fact and agent full power and
authority to do and perform any and all acts and things requisite and necessary
to be done in and about the premises as fully to all intents and purposes as
it, he or she might or could do in person, hereby ratifying and confirming all
that said attorney-in-fact and agent may lawfully do or cause to be done by
virtue hereof.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this Report to be signed
on its behalf by the undersigned, thereunto duly authorized.
WYNDHAM HOTEL CORPORATION
By /s/ James D. Carreker
-----------------------------------
James D. Carreker, President and Chief
Executive Officer
Date: March 26, 1997
-56-
<PAGE> 60
Pursuant to the requirements of the Securities Exchange Act of 1934,
this Report has been signed below by the following persons on behalf of the
Registrant in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
- --------- ----- ----
<S> <C> <C>
/s/ James D. Carreker President, Chief Executive Officer and March 26, 1997
- ---------------------------------- Director (Principal Executive Officer)
James D. Carreker
/s/ Anne L. Raymond Executive Vice President, Chief March 26, 1997
- ---------------------------------- Financial Officer and Director
Anne L. Raymond (Principal Financial Officer)
/s/ Leslie V. Bentley Executive Vice President, Wyndham March 26, 1997
- ---------------------------------- Garden Division President and Director
Leslie V. Bentley
/s/ Stanley M. Koonce, Jr. Executive Vice President -- Marketing, March 26, 1997
- ---------------------------------- Planning and Technical Services and Director
Stanley M. Koonce, Jr.
/s/ Timothy L. Fielding Corporate Controller March 26, 1997
- ---------------------------------- (Principal Accounting Officer)
Timothy L. Fielding
/s/ Harlan R. Crow Director March 26, 1997
- ----------------------------------
Harlan R. Crow
/s/ Daniel A. Decker Director March 26, 1997
- ----------------------------------
Daniel A. Decker
/s/ Susan T. Groenteman Director March 26, 1997
- ----------------------------------
Susan T. Groenteman
/s/ James C. Leslie Director March 26, 1997
- ----------------------------------
James C. Leslie
/s/ Philip J. Ward Director March 26, 1997
- ----------------------------------
Philip J. Ward
/s/ Robert A. Whitman Director March 26, 1997
- ----------------------------------
Robert A. Whitman
</TABLE>
-57-
<PAGE> 61
WYNDHAM HOTEL CORPORATION AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Independent Accountants......................................... 59
Consolidated Balance Sheets at December 31, 1995 and 1996................. 60
Consolidated Statements of Income for the years ended December 31,
1994, 1995 and 1996..................................................... 61
Consolidated Statements of Partners' Capital and Stockholders'
Equity for the years ended December 31, 1994, 1995 and 1996............. 62
Consolidated Statements of Cash Flows for the years ended December 31,
1994, 1995 and 1996..................................................... 63
Notes to Consolidated Financial Statements................................ 64
</TABLE>
-58-
<PAGE> 62
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholders
Wyndham Hotel Corporation:
We have audited the accompanying consolidated balance sheets of Wyndham
Hotel Corporation (the "Company") as of December 31, 1995 and 1996 and the
related consolidated statements of income, partners' capital and stockholders'
equity and cash flows for each of the three years in the period ended December
31, 1996. 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
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position
of the Company as of December 31, 1995 and 1996 and the consolidated results of
their operations and their cash flows for each of the three years in the period
ended December 31, 1996, in conformity with generally accepted accounting
principles.
COOPERS & LYBRAND L.L.P.
Dallas, Texas
February 19, 1997
59
<PAGE> 63
Consolidated Balance Sheets
WYNDHAM HOTEL CORPORATION
<TABLE>
<CAPTION>
DECEMBER 31,
- ------------------------------------------------------------------------------------------------------------------
1995 1996
--------- ---------
(IN THOUSANDS)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 4,160 $ 11,517
Cash, restricted 3,053 865
Accounts receivable, less allowance of $267 and $941 in 1995 and 1996, respectively 10,838 13,330
Due from affiliates 3,584 12,686
Inventories 1,020 1,430
Deferred income taxes -- 1,539
Other 769 1,412
--------- ---------
Total current assets 23,424 42,779
Investment in hotel partnerships 2,597 1,125
Notes and other receivables from affiliates 7,674 7,685
Notes receivable 2,450 6,307
Property and equipment, net 87,604 134,176
Management contract costs, net 7,579 7,766
Security deposits 243 15,288
Deferred income taxes -- 14,148
Other 1,832 13,688
--------- ---------
Total assets $ 133,403 $ 242,962
========= =========
LIABILITIES, PARTNERS' CAPITAL AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses $ 8,454 $ 23,556
Accounts payable and accrued expenses due to affiliates 1,578 --
Deposits 1,667 959
Deposits from affiliates 354 344
Current portion of long-term debt and capital lease obligations 16,035 510
Due to affiliates 2,592 --
--------- ---------
Total current liabilities 30,680 25,369
--------- ---------
Payable to affiliates 2,627 --
Payable to minority interest 218 --
Long-term debt and capital lease obligations 74,943 129,944
Deferred gain -- 12,065
--------- ---------
77,788 142,009
--------- ---------
Minority interest 7,378 --
--------- ---------
Commitments and contingencies
Partners' capital and stockholders' equity:
Common stock -- par value $.01, 45,000 shares authorized, 20,018 shares
issued and outstanding -- 200
Additional paid-in capital -- 84,342
Retained earnings -- 11,714
Notes receivable from stockholders -- (19,449)
Receivable from affiliates (2,303) (1,223)
Partners' capital 19,860 --
--------- ---------
Total partners' capital and stockholders' equity 17,557 75,584
--------- ---------
Total liabilities and equity $ 133,403 $ 242,962
========= =========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
60
<PAGE> 64
CONSOLIDATED STATEMENTS OF INCOME
WYNDHAM HOTEL CORPORATION
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
- --------------------------------------------------------------------------------------------------------------
1994 1995 1996
--------- --------- ---------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C>
Revenues:
Hotel revenues $ 51,799 $ 54,673 $ 104,620
Management fees 5,930 7,354 8,556
Management fees--affiliates 7,372 9,567 15,257
Service fees 1,671 2,192 1,428
Service fees--affiliates 1,234 1,928 2,878
Reimbursements 3,110 4,378 6,593
Reimbursements--affiliates 4,893 6,458 8,384
Other 257 1,340 359
--------- --------- ---------
Total revenues 76,266 87,890 148,075
--------- --------- ---------
Operating costs and expenses:
Hotel expenses 36,744 37,125 77,016
Selling, general and administrative expenses 10,645 15,001 19,050
Equity participation compensation 2,802 3,992 2,919
Reimbursable expenses 3,110 4,378 6,593
Reimbursable expenses--affiliates 4,893 6,458 8,384
Depreciation and amortization 5,735 6,311 8,110
--------- --------- ---------
Total operating costs and expenses 63,929 73,265 122,072
--------- --------- ---------
Operating income 12,337 14,625 26,003
Interest income 178 344 1,175
Interest income--affiliates -- 100 716
Interest expense (7,705) (8,465) (11,810)
Equity in earnings of hotel partnerships 1,237 1,664 870
Foreign currency gain 404 405 --
Amortization of deferred gain -- -- 505
--------- --------- ---------
Income before minority interests, income taxes and extraordinary item 6,451 8,673 17,459
Income attributable to minority interests 186 724 571
--------- --------- ---------
Income before income taxes and extraordinary item 6,265 7,949 16,888
Income tax benefit -- -- 8,209
--------- --------- ---------
Income before extraordinary item 6,265 7,949 25,097
Extraordinary item (less applicable income tax benefit of $270) -- -- (1,131)
--------- --------- ---------
Net income $ 6,265 $ 7,949 $ 23,966
========= ========= =========
Pro forma income tax adjustment (unaudited) -- $ 3,140 $ --
Historical net income as adjusted for pro forma income taxes (unaudited) -- $ 4,809 $ --
Earnings per share:
Income before extraordinary item -- $ -- $ 1.26
Extraordinary item -- $ -- $ (.06)
Net income -- $ -- $ 1.20
Historical net income as adjusted -- $ .24 $ --
Average number of common shares outstanding -- -- 20,018
Pro forma number of common shares outstanding -- 20,018 --
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
61
<PAGE> 65
CONSOLIDATED STATEMENTS OF PARTNERS' CAPITAL
AND STOCKHOLDERS' EQUITY
WYNDHAM HOTEL CORPORATION
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------
NOTES
ADDITIONAL RECEIVABLE RECEIVABLE
PARTNERS' COMMON PAID-IN RETAINED FROM FROM STOCK-
CAPITAL STOCK CAPITAL EARNINGS AFFILIATES HOLDERS TOTAL
------- -------- -------- -------- ---------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at January 1, 1994 $ 462 $ -- $ -- $ -- $ -- $ -- $ 462
Capital contributions 2,120 -- -- -- -- -- 2,120
Capital distributions (7,728) -- -- -- -- -- (7,728)
Equity participation compensation 2,802 -- -- -- -- -- 2,802
Net income 6,265 -- -- -- -- -- 6,265
-------- -------- -------- -------- -------- -------- --------
Balance at December 31, 1994 3,921 -- -- -- -- -- 3,921
Capital contributions 14,795 -- -- -- -- -- 14,795
Capital distributions (10,931) -- -- -- -- -- (10,931)
Distribution made to withdrawing partner (2,577) -- -- -- -- -- (2,577)
Affiliate stock options 2,711 -- -- -- -- -- 2,711
Equity participation compensation 3,992 -- -- -- -- -- 3,992
Net income 7,949 -- -- -- -- -- 7,949
Receivable from affiliates -- -- -- -- (2,303) -- (2,303)
-------- -------- -------- -------- -------- -------- --------
Balance at December 31, 1995 19,860 -- -- -- (2,303) -- 17,557
Capital contributions 4,801 -- -- -- -- -- 4,801
Capital distributions (29,593) -- -- -- -- -- (29,593)
Issuance of common stock (1,998) 200 78,184 -- -- (195) 76,191
Equity participation compensation -- -- 2,919 -- -- -- 2,919
Payment to affiliate for release from
obligations under an agreement -- -- -- (6,000) -- -- (6,000)
Deferred income taxes from incorporation -- -- 3,239 -- -- -- 3,239
Notes receivable from stockholders -- -- -- -- -- (18,576) (18,576)
Receivable from affiliates -- -- -- -- 1,080 -- 1,080
Accrued interest on notes receivable
from stockholders -- -- -- 678 -- (678) --
Net income 6,930 -- -- 17,036 -- -- 23,966
-------- -------- -------- -------- -------- -------- --------
Balance at December 31, 1996 $ -- $ 200 $ 84,342 $ 11,714 $ (1,223) $(19,449) $ 75,584
======== ======== ======== ======== ======== ======== ========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
62
<PAGE> 66
CONSOLIDATED STATEMENTS OF CASH FLOWS
WYNDHAM HOTEL CORPORATION
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
- -------------------------------------------------------------------------------------------------------------------------
1994 1995 1996
--------- --------- ---------
(IN THOUSANDS)
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 6,265 $ 7,949 $ 23,966
Adjustments to reconcile net income to cash provided by operating activities:
Depreciation and amortization 5,735 6,311 7,328
Provision for bad debt 84 265 1,018
Deferred income taxes -- -- (12,958)
Amortization of deferred debt issuance costs -- -- 782
Write-off of predecessor deferred debt issuance costs -- -- 1,401
Amortization of deferred gain -- -- (505)
Equity in (earnings) loss of hotel partnership (36) 372 --
Foreign currency translation gain (404) (405) --
Equity participation compensation 2,802 3,992 2,919
Minority interest 186 724 571
Net (deposits to)/withdrawals from restricted cash 360 (485) 2,576
Changes to operating assets and liabilities, net of effects from purchase
of hotels:
Accounts receivable (1,487) (1,842) (4,038)
Due from affiliates (850) (137) (761)
Inventories and other (2,592) 196 (3,555)
Current income taxes -- -- 5,390
Accounts payable and accrued expenses (758) (63) 7,975
Accounts payable and accrued expenses due to affiliates 4,036 (2,458) (2,507)
Deposits 45 453 (1,796)
Security deposits -- -- (13,738)
Due to affiliates (684) 1,555 (4,323)
--------- --------- ---------
Net cash provided by operating activities 12,702 16,427 9,745
--------- --------- ---------
Cash flows from investing activities:
Purchase of property and equipment (2,101) (3,556) (11,272)
Proceeds from sale of property and equipment -- -- 136,374
Purchase of equity investment in hotel partnership -- -- (1,125)
Investments in management contracts (285) (4,346) (1,536)
Notes and other receivables from affiliates -- (7,674) (11)
Notes receivable -- (2,451) (3,857)
Payment for purchase of hotels, net of cash acquired -- -- (33,470)
Acquisition of minority interest -- -- (5,479)
Decrease (increase) in long-term restricted cash 2,383 (212) (1,661)
Other 1,770 (3,316) --
--------- --------- ---------
Net cash provided by (used in) investing activities 1,767 (21,555) 77,963
--------- --------- ---------
Cash flows from financing activities:
Partners' contributed capital 2,120 14,795 4,801
Partner's capital distributions (7,728) (10,932) (29,593)
Distribution made to withdrawing partner -- (2,577) (982)
Decrease (increase) in receivable from affiliates (255) (98) 996
Decrease in payable to affiliates (597) (2,353) (2,627)
Increase (decrease) in payable to minority interest holders 24 15 (218)
Proceeds from issuance of common stock -- -- 69,504
Proceeds from long-term borrowings and issuance of debt 51 13,600 94,383
Repayments on long-term debt and capital lease obligations (5,291) (6,782) (197,726)
Notes receivable from stockholders -- -- (18,889)
--------- --------- ---------
Net cash provided by (used in) financing activities (11,676) 5,668 (80,351)
--------- --------- ---------
Increase in cash and cash equivalents 2,793 540 7,357
Cash and cash equivalents at beginning of year 827 3,620 4,160
--------- --------- ---------
Cash and cash equivalents at end of year $ 3,620 $ 4,160 $ 11,517
========= ========= =========
</TABLE>
The accompanying notes are an integral of the consolidated financial
statements.
63
<PAGE> 67
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
WYNDHAM HOTEL CORPORATION
1. THE FORMATION AND THE FINANCING PLAN:
The Formation
Wyndham Hotel Corporation ("WHC") was formed in Delaware in February
1996 to succeed to the business of Wyndham Hotel Company Ltd. (the "Old
Management Company"), which, directly and through its subsidiaries, manages and
franchises the Wyndham brand hotels and manages non-Wyndham brand hotels, as
well as succeed to the ownership of six Wyndham brand hotels, a leasehold
interest relating to the Garden Hotel Associates L.P. ("GHALP") lease (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"). The Assigned Businesses and WHC are
referred to collectively as (the "Company"). In March 1996, the Company entered
into certain agreements with the owners of direct and indirect interests in the
Old Management Company and hotels (the "Formation Agreement"), which
collectively provided for the transfer to the Company of the Assigned
Businesses, as well as certain other transactions described below that involved
the parties thereto. In addition, on March 10, 1996, the Company entered into
an agreement (the "Bedrock Exchange Agreement") with various affiliates of
Hampstead Group L.L.C. (together with certain of its affiliates, "Bedrock"),
pursuant to which Bedrock transferred to the Company options to acquire equity
interests in the Old Management Company (the "Bedrock Options"), and Bedrock
contributed $10.0 million (the "Bedrock Contribution").
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 Mr. and Mrs. Trammell Crow (together with various
descendants of Mr. and Mrs. Crow and various corporations and entities
beneficially owned or controlled by such person, the "Crow Family Members") and
four senior executive officers of the Company (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 purchase price was funded from the proceeds
of the sale of 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 to a new
partnership ("GHALP II"), the ownership of which mirrors the ownership of
GHALP. As part of the Company's formation, the Company succeeded to GHALP II's
interest in the GHALP Lease and continues to manage the hotels.
Pursuant to the Formation Agreement, the Company indemnified 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.
The Financing Plan
The Company implemented a "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 (i) concurrently offered $100.0 million of 10.5% senior subordinated
notes due 2006 (the "Notes"); (ii) con- currently offered 4,197,500 shares of
common stock (the "Common Stock") in an equity offering, and thereby raised
approximately $67.2 million in gross proceeds (together with the $100.0 million
debt offering, the "Offerings"), (iii) entered into a $100.0 million revolving
credit facility with a financial institution (the "Revolving Credit Facility");
(iv) received the Bedrock Contribution in the amount of $10.0 million; and (v)
eliminated $7.5 million of outstanding indebtedness under the Company's
previous revolving credit facility with another financial institution upon the
financial institution's exercise of its option to purchase from the Company
504,032 shares of the Common Stock.
2. BASIS OF PRESENTATION:
The accompanying consolidated financial statements of the Company at
December 31, 1996 and for the period since WHC's implementation of the
Formation and the Financing Plan in May 1996 through December 31, 1996 include
the accounts of WHC, its wholly-owned
64
<PAGE> 68
subsidiaries resulting from the Formation and subsequent acquisitions.
Financial statements at December 31, 1995 and for the periods prior to the
Formation (January 1, 1994 through May 24, 1996) include the combined accounts
of WHC and its majority owned entities. All significant intercompany balances
and transactions have been eliminated.
The consolidated financial statements at December 31, 1996 include the
accounts of the Company which consist of the following entities:
Management entities:
Wyndham Management Corporation
(a Delaware corporation)
WHCMB, Inc. (a Delaware corporation)
Waterfront Management Corporation
(a Delaware corporation)
WHCMB, Toronto, Inc. (a Canada corporation)
Wyndham Hotels & Resorts Management, Ltd.
(a Bermuda corporation)
Wyndham Hotels & Resorts (Aruba) N. V.
(an Aruba corporation)
WHCMB Overland Park, Inc. (a Kansas corporation)
A management subsidiary for a non-branded hotel
(a Delaware corporation)
Hotel entities:
Wyndham Hotel Corporation
(a Delaware corporation)
GHALP Corporation (a Delaware corporation)
WHC Vinings Corporation (a Delaware corporation)
WHC Development Corporation
(a Delaware corporation)
WHC Franchise Corporation
(a Delaware corporation)
WHC Columbus Corporation (a Delaware corporation)
Wyndham IP Corporation (a Delaware corporation)
WHC Salt Lake City Corporation
(a Delaware corporation)
XERXES Limited (a Texas corporation)
WH Interests, Inc. (a Texas corporation)
WHC Caribbean Limited (a Jamaican corporation)
Partnership entity:
Rose Hall Associates, L.P. (a Texas limited partnership)
The Company has a 30% investment in a hotel partnership which owns a
hotel located in Columbus Ohio. The Company does not have voting or operational
control over this hotel partnership; therefore, the investment is accounted for
using the equity method in the accompanying financial statements.
The management entities were formed to provide management and
development services to hotel property owners. As of December 31, 1996, 82
properties, located in 25 states, the District of Columbia, Ontario, Canada and
5 Caribbean islands were owned and operated by the Company or under management
or franchise contracts. The Company operates 21 Wyndham Hotels, 44 Wyndham
Garden Hotels and 7 Wyndham Resort Hotels. The Company provides management
services to 3 non-Wyndham brand hotels, and 7 extended stay hotels.
The hotel entities, which own 10 hotels and lease 12 hotels, 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 partnership entity, which is comprised of 1 limited partnership, was
formed for the purpose of managing and investing in a hotel entity.
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 amount of revenues and expenses during the
reporting periods. Actual results could differ from those estimates.
Concentration of Credit Risk
Financial instruments that potentially subject the Company to
concentration of credit risk consist principally of cash investments. The
Company maintains cash and cash equivalents in accounts with major financial
institutions in excess of the amount insured by the Federal Deposit Insurance
Corporation. Management believes credit risk related to these deposits is
minimal.
Reclassifications
Certain prior year amounts have been reclassified to conform to the
current year presentation.
65
<PAGE> 69
3. 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.
As of December 31, 1996, restricted cash included a depository account
balance of $865,000 which collateralizes a letter of credit. Management
anticipates the deposit will be reduced concurrent with reductions in the
letter of credit commitment.
Inventories
Inventories consisting of food, beverage, china, linen, glassware,
silverware, uniforms, and supplies 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 main- tenance are
charged to expense as incurred.
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
The Company 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 1996, the Company
received $516,000 for termination of management contracts that is included in
other revenues (net of write-off of the unamortized costs).
Other Assets
At December 31, 1996, other assets consisted primarily of unamortized
debt costs totaling $7.6 million incurred in connection with the offering of
the Notes and the Revolving Credit Facility which is being amortized over the
terms of the Notes and the Revolving Credit Facility using the straight-line
method, a $2.1 million deposit for the acquisition of a lease agreement on a
hotel property and $1.2 million of capitalized legal costs for defending a
trademark which is being amortized over 17 years. Also included in other assets
are restricted cash for the acquisition of property and equipment in the
amounts of approximately $616,000 and $2.3 million, at December 31, 1995 and
1996, respectively.
At December 31, 1995, other assets included loan costs of approximately
$746,000. The related loans were repaid with the proceeds from the Offerings.
As a result, the unamortized loan costs were written off and are reported as an
extraordinary item.
Advance Deposits
Deposits represent cash received from guests for future hotel
reservations at the hotel entities and cash received from the owners of certain
hotels managed by the Company for various operating expenses paid by the
Company 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 the Company would be refunded to the owners.
Income Taxes
Since the Company's Formation in May 1996, federal income taxes have
been provided in accordance with Statement of Financial Accounting Standard No.
109 ("SFAS 109"). Under the liability method of SFAS 109, deferred taxes are
determined based on the difference between the financial statements and tax
bases of assets and liabilities using enacted tax rates in effect in the years
the differences are expected to reverse. In accordance with SFAS 109, the
Company has recorded a net
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<PAGE> 70
income tax benefit of $8.2 million (before extraordinary item) since its
Formation. See Note 15 for the components of deferred tax assets and income tax
benefit.
For periods prior to the Company's Formation, each of the combined
companies was either a partnership, an S corporation or a nontaxable Bermuda
corporation, and consequently, was not subject to federal income taxes. Thus,
taxable income or loss was 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
Financial statements of foreign subsidiaries not maintained using U.S.
dollars are remeasured into the U.S. dollar functional currency for
consolidation and reporting purposes. Assets and liabilities of non-U.S.
operations are translated into U.S. dollars at the exchange rate in effect at
the balance sheet date. Revenues and expenses of non-U. S. operations are
translated at the weighted average exchange rate during the year. Resulting
translation adjustments are reflected in stockholders' equity. Realized foreign
currency gains and losses are included in results of operation.
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.
Adoption of Authoritative Statement
Statement of Financial Accounting Standards No. 123 ("SFAS No. 123"),
"Accounting for Stock-Based Compensation" accounting requirements became
effective for transactions entered into in fiscal years that begin after
December 15, 1995. SFAS No. 123 defines a fair value based method of accounting
for employee stock options or similar instruments and permits companies to
adopt that method of accounting for all of their employee stock compensation
plans. However, it also allows a company to measure compensation cost for those
plans using the intrinsic value based method of accounting prescribed by
Accounting Principles Board Opinion No. 25 ("APB No. 25"), "Accounting for
Stock Issued to Employees." The Company has elected to measure compensation
cost in conformity with APB No. 25 and to make pro forma disclosures of net
income and earnings per share for the year ended December 31, 1996 as if the
fair value based method of accounting defined in SFAS No. 123 had been applied.
See Note 17. Stock-Based Compensation Plans.
Earnings Per Share
Earnings per share for the year ended December 31, 1996 are computed
based on the weighted average number of shares of common stock outstanding.
The impact of common stock equivalents to earnings per share is immaterial.
Earnings per share data for the years ended December 31, 1994 and 1995 relates
to periods prior to the Company's formation and therefore is not presented.
4. ACQUISITIONS:
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
an affiliate and Senior Executive Officers. In a subsequent series of
transactions the properties were sold to an unaffiliated real estate investment
trust and all debt was repaid. The hotel properties were leased back to a newly
formed limited partnership owned by the affiliate and Senior Executive Officers
under eleven long-term operating leases. These leases were transferred to a
subsidiary of the Company in connection with the formation of the Company. Each
of the leases has an initial term of seventeen years and four optional
twelve-year renewal periods exercisable at the Company's option for all hotels.
Under the terms of these leases, yearly base rent aggregates $13.6 million plus
a contingent rent paid based on a percentage of excess revenue over base year
revenues. These leases require the Company to pay substantially all expenses
associated with the operation of the leased hotels, including real estate taxes
and insurance.
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<PAGE> 71
In May 1996, the Company acquired, from an unaffiliated party, the
Wyndham Garden Hotel-Vinings, a 159 room hotel. The purchase price was
approximately $12.5 million, comprised of a cash payment of $3.6 million and
the assumption of existing indebtedness encumbering the property.
In July 1996, the Company, in separate transactions, acquired a 181 room
hotel in Kansas ("Overland Park") and a 254 room hotel in Dallas, Texas
("Dallas Market Center") for a total purchase price of $13.7 million.
On August 30, 1996, the Company acquired a 287 room hotel, the Bristol
Place Hotel in Toronto, Canada (the "Bristol Place in Toronto"). The total
investment approximated $19.9 million with a purchase price of $17.4 million
and renovation and other costs of $2.5 million. The renovation is expected to
be completed in 1997.
These acquisitions were 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. These acquisitions were funded with a portion of the net proceeds
from the Offerings. For pro forma financial information relating to these
acquisitions see Note 25.
In November 1996, the Company purchased a 30% interest in a hotel
partnership and related management contract of a 217 room hotel property in
Columbus, Ohio, ("Columbus Hotel") with a purchase price of $1.6 million
(including related management contract acquisition costs of $500,000). The
acquisition was accounted for using the equity method.
In November 1996, the Company also entered into a letter of intent for
a hotel in Salt Lake City, Utah. The transaction, which was executed in January
1997, required the Company to make deposits totaling $10.0 million with the
lessor. The deposits were funded with cash borrowed under the Revolving Credit
Facility.
5. INVESTMENT IN HOTEL PARTNERSHIPS:
In November 1996, the Company acquired a 30% equity interest in the
Columbus Hotel. Pursuant to the partnership agreement, the Company was not
allocated any profits or losses of the partnership for the period ended
December 31, 1996.
The Company's 30% equity investment in GHALP ceased on May 2, 1996
following the acquisition of the remaining 70% interest as part of the
Company's Formation and all GHALP account balances have been included in the
Company's consolidated financial statements.
The summary of the significant financial information of GHALP for 1994
and 1995, is as follows (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
1995
--------
<S> <C>
ASSETS
Total current assets $ 6,770
Property and equipment, net 103,798
Other 1,947
--------
$112,515
========
LIABILITIES AND PARTNERS' EQUITY
Total current liabilities $ 5,049
Long-term debt, excluding current portion 93,000
Partners' equity 14,466
--------
$112,515
========
</TABLE>
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
1994 1995
-------- --------
<S> <C> <C>
Revenues $ 50,917 $ 56,976
Expenses 46,795 51,429
-------- --------
Net income $ 4,122 $ 5,547
======== ========
</TABLE>
The Company's initial contribution upon formation of GHALP was
$7,000,000 of the total initial aggregate contributions of $36,000,000.
6. NOTES AND OTHER RECEIVABLES FROM AFFILIATES:
As of December 31, 1995 and 1996, notes and other receivables from
affiliates consisted of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
1995 1996
------ ------
<S> <C> <C>
Promissory notes bearing interest at 9%
per annum, payable in 2005 $6,396 $6,431
Promissory note bearing interest at prime
plus 2% (8.25% at December 31, 1996)
per annum, payable in 2000 1,278 1,254
------ ------
$7,674 $7,685
====== ======
</TABLE>
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 $100,000 and $716,000 was earned for the years
ended December 31, 1995 and 1996, respectively.
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<PAGE> 72
7. NOTES RECEIVABLE:
As of December 31, 1995 and 1996, notes receivable consisted of the
following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
1995 1996
------ ------
<S> <C> <C>
Promissory note bearing interest at
13.5% per annum, payable in 2011 $ -- $4,329
Promissory note, non interest bearing,
payable in installments based
on the hotel's excess gross operating
profit and excess proceeds from
capital transactions, as defined in
the management contract 105 1,878
Promissory note bearing interest at prime
plus .5%, due in 2005, sold to a
related party in 1996 (see Note 22) 2,345 --
Promissory note bearing interest at 9.5%
per annum, payable in 2001 -- 100
------ ------
$2,450 $6,307
====== ======
</TABLE>
The promissory notes represent loans made to entities to renovate hotels
or to cover working capital deficits. The entities then have executed
management agreements with the Company.
Pursuant to the terms of a management agreement obtained in 1996, the
Company is obligated to provide $4,750,000 of working capital to a hotel
partnership. As of December 31, 1996, $4,329,000 of this obligation has been
funded.
8. PROPERTY AND EQUIPMENT:
Property and equipment, at cost, consist of the following (in
thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
1995 1996
--------- ---------
<S> <C> <C>
Land $ 9,955 $ 16,078
Buildings and improvements 77,108 111,698
Furniture, fixtures and equipment 28,057 36,801
Work in progress -- 3,513
Leasehold improvements 247 205
--------- ---------
115,367 168,295
Less accumulated depreciation and
amortization (27,763) (34,119)
--------- ---------
$ 87,604 $ 134,176
========= =========
</TABLE>
9. MANAGEMENT SERVICES AND RELATED REVENUES:
The Company has entered into management agreements for hotels. The
owners of certain hotels the Company manages are affiliates related by common
ownership or control. Management fees earned for hotels owned by affiliates in
1994, 1995 and 1996 were $7,372,000, $9,528,000 and $15,257,000, respectively.
Various operating expenses have been paid by Wyndham on behalf of
managed properties. As of December 31, 1994, 1995 and 1996, accounts receivable
from hotels owned by affiliates were $2,520,000, $3,002,000 and $5,582,000,
respectively.
The Company provides centralized accounting services such as accounts
payable, payroll and financial statement preparation for certain managed
hotels. The Company charges an accounting fee to these hotels for such
services. Design fees are additional service fees paid to the Company for the
development, and design and construction of new hotels as well as for the
refurbishment of existing hotels. In addition, the Company receives purchasing
fees based on a percentage of cost of goods ordered for purchasing various
items.
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 $3,655,000,
$4,905,000 and $6,217,000 for the years ended December 31, 1994, 1995 and 1996,
respectively.
10. SECURITY DEPOSITS:
Security deposits represent cash payments made by the Company related to
various leases of real estate and equipment. At December 31, 1996, security
deposits consisted primarily of $13.6 million in deposits related to the GHALP
Properties.
11. ACCOUNTS PAYABLE AND ACCRUED EXPENSES:
Accounts payable and accrued expenses consist of the following (in
thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
1995 1996
------- -------
<S> <C> <C>
Accounts payable $ 3,648 $ 5,719
Due to medical benefit trusts -- 2,756
Due for managed hotels' insurance liabilities -- 3,602
Taxes 1,486 2,799
Payroll and related costs 2,055 5,284
Accrued interest 880 1,390
Other 385 2,006
------- -------
$ 8,454 $23,556
======= =======
</TABLE>
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<PAGE> 73
12. LONG-TERM DEBT:
Long-term debt consists of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
1995 1996
-------- --------
<S> <C> <C>
Senior subordinated notes, interest payable
semi-annually at 10.5%, principal
maturing May 15, 2006, redeemable
after May 15, 2001 at prices ranging
from 105.25% to 100.00% of the principal $ -- $100,000
Industrial Revenue Bond indebtedness,
collateralized by a first lien mortgage,
interest payable monthly to trustee at 5.72%,
maturing October 1, 2025, required to
be refinanced in February 1997 -- 9,675
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, matured May 2, 1996 12,607 --
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, repaid in
May 1996 10,034 --
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, repaid in May 1996 10,115 --
Mortgage loan, a hotel property is pledged as
collateral, interest payable monthly at
LIBOR plus 3.25%, and principal maturing
May 21, 2000, repaid in May 1996 5,400 --
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, repaid in May 1996 8,734 --
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, repaid in May 1996 5,870 --
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, repaid
in May 1996 12,500 --
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,
repaid in May 1996 2,392 --
Note payable to seller of a hotel, interest
payable quarterly at 11.5%, principal due
quarterly and maturing November 15,
1999, repaid in May 1996 2,348 --
Note payable to bank, interest payable
quarterly at Jamaican prime plus 1.5%,
principal payable quarterly and maturing
November 15, 1999, repaid in May 1996 195 --
------- --------
70,195 109,675
Current portion of long-term debt 15,653 --
------- --------
Long-term debt, excluding current portion $54,542 $109,675
======= ========
</TABLE>
The outstanding balance of the long-term debt of $109,675,000 at
December 31, 1996 is payable after the year 2001. On February 28, 1997, the
Industrial Revenue Bonds were refinanced. See Note 24. Subsequent Events.
In May 1996, as a part of the implementation of the Company's Financing
Plan, the Company obtained the Revolving Credit Facility. The Revolving Credit
Facility provides for up to $100.0 million of revolving loan borrowings. The
Revolving Credit Facility is a direct obligation of the Company and is fully
and unconditionally guaranteed by each of the Company's subsidiaries. While no
amount has been drawn under this facility at December 31, 1996, approximately
$42.3 million aggregate principal amount was available for borrowing at that
date in accordance with the terms of the facility. In January 1997, the Company
borrowed $10.8 million at an average interest rate of 7.81% under the Revolving
Credit Facility to meet the requirement of a new hotel lease agreement. The
Revolving Credit Facility will mature in May 2000.
The indentures of the $100.0 million senior subordinated notes and the
Revolving Credit Facility contain covenants restricting the Company's ability
to incur indebtedness, pay dividends and otherwise limiting the Company's
activities. The loan agreement for the Revolving Credit Facility, which
contains the most restrictive covenants, requires the Company to maintain a
minimum net worth of $55.0 million, maintain annually increasing consolidated
fixed charge coverage ratios (before and after capital expenditures) as defined
in the covenants, and maintain annually decreasing consolidated debt to
consolidated earnings before interest, taxes, depreciation and amortization
(before and after capital expenditures) ratios as defined in the covenants.
The outstanding balance of a revolving credit agreement at December 31,
1995 (subsequently increased to $15.0 million) was repaid at the Company's
initial public offering. The Company paid $7.5 million in cash to the financial
institution. The remaining one-half of the $15.0 million was discharged upon
the financial institution's election to exercise its option, pursuant to the
modified credit agreement, to purchase 504,032 shares of the Company's Common
Stock for a total purchase price of $7.5 million. See Note 1. The Formation and
the Financing Plan.
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<PAGE> 74
13. 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, 1995 and 1996 are as follows (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
1995 1996
-------- --------
<S> <C> <C>
Property $ 14,530 $ 14,530
Equipment 3,434 3,734
-------- --------
17,964 18,264
Accumulated amortization (5,721) (7,132)
-------- --------
$ 12,243 $ 11,132
======== ========
</TABLE>
The Company incurred rental expense totaling $1,707,000, $1,199,000 and
$10,319,000, respectively, in 1994, 1995 and 1996. The 1996 rental expense
included $9,067,000 on the GHALP Lease.
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, 1996 are as follows (in thousands):
<TABLE>
<CAPTION>
CAPITAL OPERATING
LEASES
------ --------
<S> <C> <C>
YEAR ENDING DECEMBER 31:
1997 $ 2,555 $ 14,902
1998 2,492 14,566
1999 2,390 14,566
2000 2,379 13,886
2001 2,333 13,886
Thereafter 37,183 164,158
------ --------
Total minimum lease payments 49,332 $235,964
========
Less imputed interest 28,553
------
Present value of net minimum lease payments 20,779
Less current portion 510
Long term portion of net minimum -------
lease payments $20,269
=======
</TABLE>
WH Interests, Inc. ("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
base 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, 1994, 1995 and 1996 was $108,000, $59,000 and $185,000 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, the Company is required to refund to the lessor the
excess of amounts reserved over actual capital expenditures. At December 31,
1995 and 1996 the reserved amount exceeded expenditures by $1,039,000 and
$974,000, respectively.
14. DEFERRED GAIN:
The deferred gain represents the gain resulting from the sale of the
land, buildings, furnishings and equipment of GHALP to HPT in the sale and
lease back transaction as described in Note 1. The gain is being amortized over
the initial term of the GHALP lease of 17 years.
15. INCOME TAXES:
The Company's provision for income taxes is comprised of the following
(in thousands):
<TABLE>
<CAPTION>
MAY 24, 1996
THROUGH
DEC. 31
1996
----
<S> <C>
Current
Federal $3,453
State 516
------
Total current expense 3,969
------
Deferred
Federal 472
State 38
------
Total deferred expense 510
------
Total income tax expense $4,479
======
</TABLE>
A reconciliation of the statutory federal income tax rate and the
effective tax rate to income before income taxes and extraordinary items as
included in the consolidated statements of income is as follows:
<TABLE>
<CAPTION>
MAY 24, 1996
THROUGH
DEC. 31
1996
----
<S> <C>
Federal 35.0%
State 3.0%
Tax reduction due to FICA tax credit (2.3)%
Other 3.4%
----
Total current expense 39.1%
====
</TABLE>
71
<PAGE> 75
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets consist of the following (in thousands):
<TABLE>
<CAPTION>
DEC. 31
1996
-------
<S> <C>
Deferred tax assets:
Other current assets $ 674
Land 99
Depreciation and amortization 800
Management contracts 7,439
Other current liabilities 754
Long-term lease 7,632
Deferred gain 4,557
-------
Total deferred tax assets 21,955
-------
Deferred tax liabilities:
Other non-current liabilities (522)
Security deposits (5,746)
-------
Total deferred tax liabilities (6,268)
-------
Net deferred tax assets $15,687
=======
</TABLE>
On May 24,1996, the Company, previously a non-taxable entity, became a
taxable entity. Upon the conversion of a non-taxable to a taxable entity, the
Company recognized a deferred tax asset of approximately $16.2 million, of
which $3.2 million was recognized in retained earnings and $13.0 million was
recognized in continuing operations as a tax benefit. The book income for the
period from May 24, 1996 through December 31, 1996 was approximately $11.5
million.
16. STOCKHOLDERS' EQUITY:
In connection with the initial public offering, the Company authorized
Common Stock of 45,000,000 shares, $.01 par value per share. At December 31,
1996, 20,018,299 shares were issued and 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 with respect to the Common Stock.
The Company's Certificate of Incorporation ("Certificate") authorized
5,000,000 shares of preferred stock ("Preferred Stock"), none of which is
outstanding. The Board of Directors (the "Board") 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, and relative
rights.
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. The Company has no
present intention to issue shares of Preferred Stock.
17. STOCK-BASED COMPENSATION PLANS:
The Company sponsors the "Wyndham Hotel Corporation 1996 Long Term
Incentive Plan" (the "Plan"), which is a stock-based incentive compensation
plan as described below. The Company applies APB Opinion 25 and related
Interpretations in accounting for the Plan. In 1995, the FASB issued FASB
Statement No. 123 "Accounting for Stock-Based Compensation" ("SFAS 123") which,
if fully adopted by the Company, would change the methods the Company applies
in recognizing the cost of the Plan. Adoption of the cost recognition
provisions of SFAS 123 is optional, and the Company has decided not to elect
these provisions of SFAS 123. However, pro forma disclosures as if the Company
adopted the cost recognition provisions of SFAS 123 in 1995 are required by
SFAS 123 and are presented below.
Under the Plan, the Company is authorized to issue shares of Common
Stock or cash pursuant to "Awards" granted in the form of incentive stock
options qualified under Section 422 of the Internal Revenue Code of 1986, as
amended, non-qualified stock options, restricted shares, stock appreciation
rights, and performance units. Awards may be granted to key executives and
other key employees of the Company, including officers of the Company and its
subsidiaries.
According to the Plan, Awards may be granted with respect to a maximum
of 2,133,811 shares of Common Stock. No participant may be granted, in any
year, Awards with respect to more than 500,000 shares of Common Stock. The
Compensation Committee administers the Plan and has broad discretion in
selecting Plan participants and determining the vesting period and other terms
applicable to Awards granted under the Plan.
In 1996, the Company granted a total of 820,700 nonqualified stock
options under the Plan.
A summary of the status of the Company's stock options as of December
31, 1996 and the changes during the year ended on that date is presented on the
following page.
72
<PAGE> 76
<TABLE>
<CAPTION>
NUMBER OF WEIGHTED
SHARES OF AVERAGE
UNDERLYING EXERCISE
OPTIONS OPTIONS
--------- ---------
<S> <C> <C>
Outstanding at beginning of the year -- $ --
Granted 820,700 $ 16.09
Exercised -- $ --
Forfeited (128,000) $ (16.00)
Expired -- --
--------
Outstanding at end of year 692,700 $ 16.11
========
Exercisable at end of year -- N/A
Weighted-average fair value 0 $ 3.20
</TABLE>
The fair value of each stock option granted is estimated on the date of
grant using the Black-Scholes option-pricing model with the following
weighted-average assumptions: no dividends, risk-free interest rates are
different for each grant and range from 6.05% to 6.41%; the expected lives of
options are 5 years; and volatility of 36.54% for all grants.
As of December 31, 1996, there were 692,700 options outstanding with a
weighted-average remaining contractual life of 9.39 years and a
weighted-average exercise price of $16.11. None of these options were
exercisable at that time.
Had the compensation cost for the Company's stock-based compensation
plans been determined consistent with SFAS 123, the Company's net income and
net income per common share for 1996 would approximate the pro forma amounts
below (in thousands, except per share amounts):
<TABLE>
<CAPTION>
AS REPORTED PRO FORMA
DEC. 31, DEC. 31,
1996 1996
----------- --------
<S> <C> <C>
SFAS 123 charge $ -- $ 577
APB25 charge $ -- $ --
Net income $23,966 $23,615
Net income per common share $ 1.20 $ 1.18
</TABLE>
The effects of applying SFAS 123 in this pro forma disclosure are not
indicative of future amounts. SFAS 123 does not apply to awards prior to 1995,
and the Company anticipates making awards in the future under its stock-based
compensation plans.
18. RECEIVABLES FROM AFFILIATES:
Management fees for one managed hotel, owned by an affiliate 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, 1995 and 1996, this deferred balance, a receivable from an affiliate
included in partners' capital, was $1,223,000. These management fees will be
collected upon meeting the operating criteria as defined in the agreement.
In addition, included in partners' capital at December 31, 1995 were
receivables from affiliates which include certain partner capital contributions
and accrued interest of $1,080,000.
19. 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 a hotel in
Manhattan operated under the "Wyndham" name. 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 cost of
$1,187,000 at December 31, 1996 for defending the trademark has been
capitalized and is being amortized over 17 years, pending the ultimate
resolution. An adverse decision may result in the immediate write-off of those
capitalized costs.
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 $584,000, penalty of $224,000 and interest of $201,000 for a total
assessment of $1,009,000. The previous owners (an affiliate) have agreed to
indemnify the Company with respect to any additional sales and use tax paid by
the Company for the audit period. Management, after review and consultation
with legal counsel, believes the Company has meritorious defenses to this
matter and that any potential liability in excess of the $189,000 initially
recorded would not materially effect the Company's consolidated financial
statements.
73
<PAGE> 77
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 involved the collection of a promissory note relating to
an earlier litigation between the affiliate and the owner. The owner alleged
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 the promissory note was not transferred to or assumed
by the Company. This litigation was settled during 1996 at no cost to the
Company.
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 consolidated financial
statements.
Pursuant to the terms of a management agreement of a hotel in which the
Company has a 30% ownership, the Company has committed to fund up to $2.5
million for the renovation of the hotel property. The loan will bear an
interest rate at 10% and will be collateralized by the outstanding partnership
interest of owners. Interest will be due monthly and principal is payable in
installments beginning January 1998 based on the operating income of the hotel.
At December 31, 1996, none of such amount has been advanced. The Company also
guarantees $2,340,000 in indebtedness of this hotel.
Pursuant to the terms of the management agreements of two
affiliate-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. As of December 31, 1996, the Company has
funded such commitments totaling $5.0 million. The Company has indirectly paid
the excess amount of approximately $300,000 by contributing such amount to the
partnership that owns one of the hotels. The Company also paid certain
pre-opening expenses for one of the hotels in the amount of $495,000. The
Company has guaranteed to fund up to $230,000 in working capital per year for
three years after one of the hotels 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 for a resort hotel
property, the Company has under-taken, subject to certain contingencies,
certain commitments to provide approximately $2.0 million, approximately $1.6
million of which shall be used for preopening expenses and the purchase of
furniture, fixtures and equipment and the remainder of which shall be used to
fund working capital for the hotel. As of December 31, 1996, approximately
$659,000 of such commitments has been funded.
Pursuant to the terms of a management agreement of a hotel owned by an
affiliate, the Company has guaranteed 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 consolidated statements of income for the years ended December 31,
1994, 1995 and 1996. 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.
20. EMPLOYEE BENEFIT PLANS:
The Company sponsors 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 $166,000, $202,000 and $229,000 for the years ended December 31,
1994, 1995 and 1996, respectively.
The Company maintains a self-insured group health plan through a
Voluntary Employee Benefit Association ("VEBA"). 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 Company. The Company
has recognized expenses related to the plan of $687,000, $832,000 and
$1,504,000 for the years ended December 31, 1994, 1995 and 1996, respectively.
74
<PAGE> 78
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 $2,802,000, $3,992,000 and $2,919,000 for the years
ended December 31, 1994, 1995 and 1996, respectively. The primary component of
such expense was fixed at the Company's initial public offering price, and the
Company will not incur additional expense for periods subsequent to the initial
public offering. In February 1997, WEL was terminated upon the distribution of
646,696 shares of the Company's Common Stock held by WEL to its participants.
21. FAIR VALUE:
The Company has estimated the fair value of its financial instruments at
December 31, 1996 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. Long-term debt had a fair value of $112,135,000 at December 31, 1996,
based on the quoted market prices. The carrying values of 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 at December 31, 1996.
22. TRANSACTIONS WITH RELATED PARTIES:
The following discussion of certain relationships and transactions
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 and Crow Family Members and the Senior Executive Officers and (iv)
loans made to the Senior Executive Officers of the Company that the Company
purchased in connection with its formation.
During 1994, 1995 and 1996, the Senior Executive Officers incurred
indebtedness to Wyndham Finance Limited Partnership ("WFLP"), a partnership
owned by Crow Family Members. In addition, Wyndham Employees Ltd. ("WEL"), in
which certain executive officers of the Company have an interest, incurred
indebtedness to WFLP. Notes representing such loans were purchased by the
Company in May of 1996 in connection with its Formation for a cash payment to
WFLP in the amount of $18,576,000 which is equivalent to the aggregate
outstanding principal and accrued interest severally owing by the Senior
Executive Officers and WEL to WFLP. Such promissory notes, which are made
payable to the Company, accrue interest at 6% per annum and are fully
collateralized by the pledge of shares of Common Stock held by the note
obligors. The outstanding principal and accrued interest (compounded quarterly)
is payable in a single lump sum in May 2001. The aggregate principal amounts of
such loans, including interest, purchased by the Company in connection with its
Formation, are as follows (in thousands):
<TABLE>
<CAPTION>
1995 1996
------ ------
<S> <C> <C>
James D. Carreker $1,868 $5,135
Leslie V. Bentley $ 767 $1,890
Anne L. Raymond $4,418 $4,625
Stanley M. Koonce, Jr $ 547 $1,926
Eric Danziger* $1,116 $2,829
WEL $ 881 $3,044
</TABLE>
*Resigned in 1996.
75
<PAGE> 79
During 1994, 1995 and 1996, the Company made cash advances in the
aggregate amounts of $1,093,000, $1,381,000 and $329,000, respectively, to the
Hotel Partnerships in which Bedrock has an ownership interest. The advances
were used to pay certain renovation costs for Wyndham Garden hotels that were
redeveloped by Bedrock. The advances are repaid through Bedrock's redevelopment
fund. At December 31, 1996 no amounts were outstanding.
During 1994, 1995 and 1996, the Company made payments in the aggregate
amounts of $1,352,000, $1,740,000 and $1,742,000, respectively, to Wyndham
Travel Management Ltd., an entity owned by Lucy Billingsley (the daughter of
Mr. and Mrs. Trammell Crow), for travel services provided to the Company.
During 1994 and 1995, the Company made payments in the aggregate amounts
of $701,000 and $830,000, respectively, to Caribbean Hotel Management Company
("CHMC"), which is owned by Crow Family Members. The Company's payment
obligations under the agreement were released and discharged in connection with
the Formation of the Company in exchange for a cash payment paid by the Company
to CHMC.
During 1994, 1995 and 1996, the Company made payments in the aggregate
amounts of $744,000, $875,000 and $850,000, 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 May 1997. Following this period,
the lease reverts to a month-to-month term.
During 1994 and 1995, the owners of hotels owned or leased by the
Company made contributions to a loss prevention fund in the amounts of $620,000
and $624,000, 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 $523,000 and the
purpose was to pay costs associated with converting the property to the Wyndham
brand.
During 1994, 1995 and 1996, the Company made payments in the aggregate
amounts of $321,000, $332,000, and $289,000, respectively, to GHMB, Inc., an
entity owned by a Senior Executive Officer for the operation of liquor
concessions at a Wyndham Garden hotel.
During 1995 and 1996, the Company received payments in the aggregate
amount of $73,000 and $514,000 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.
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 $3,974,000 as of December 31,
1996. The Company's obligation to make the remaining advances under the
refurbishment loan is collateralized by a letter of credit, which, in turn, is
collateralized by $865,000 as of December 31, 1996 in cash. Prior to the
Formation of the Company, WHC LAX Associates, L.P. ("WHC LAX"), a limited
partnership owned by Crow Family Members and the Senior Executive Officers,
paid 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 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. As of December
31, 1996, the Company has accrued such interest in the amount of $32,000.
The Company has entered into a five year service agreement with ISIS
2000, an entity owned by Crow Family Members and the Senior Executive Officers,
76
<PAGE> 80
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 totaled $772,000 in 1996. The Company has entered into an asset
management agreement with ISIS 2000 providing for human resource, finance,
accounting, payroll, legal and tax services. In addition, the Company has
guaranteed operating leases on behalf of ISIS 2000 in the approximate amount of
$2.4 million as of December 31, 1996.
In 1995 and 1996, the Company made payments to Trammell Crow Company in
the amount of $387,000 and $937,000, respectively, for contract labor
(including related costs) provided to the Company for management information
services.
The Company has made 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. Such payments totaled
$593,000 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.
In 1996, a subsidiary of the Company entered into a master management
agreement (the "Agreement") with Homegate, an affiliated entity, which provides
for the Company to manage up to 60 extended-stay hotel properties and to
provide Homegate with other services. The Company and Homegate have agreed that
Homegate will pay Wyndham or an affiliate a one-time fee of $25,000 for
Wyndham's provision of design services in developing the initial prototype,
certain other fees for the provision of software and other services, and a
commission of 5% of the aggregate purchase price of all items that Homegate
purchases through Wyndham's purchasing department. Homegate also must reimburse
Wyndham for up to $100,000 for the costs incurred in developing Homegate's
payroll and accounts payable software and for developing a marketing database,
which costs will be reimbursed ratably upon the signing of the first 10
management contracts. Wyndham and Homegate will agree upon any fees to be paid
with respect to ongoing systems support and maintenance services. The Company
currently manages seven extended stay hotel properties for Homegate.
In connection with the execution of the Agree-ment, certain Crow Family
Members have agreed to grant Wyndham a right of first refusal affording Wyndham
a preferential right to purchase their shares in connection with any proposed
sale by any of such parties or their affiliates.
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 equity
and debt 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. Approximately $196 million of debt and equity
capital has been invested pursuant to the Investment Program as of December 31,
1996. Although the commitments of certain of the participants in the Investment
Program expire in mid-1997, the Company will be entitled to manage any
Investment Program hotel for a term of 15 years. Pursuant to the terms of the
Investment Agreement, Bedrock is not required to invest a minimum amount of
capital through the Investment Program, and Wyndham has not invested in any of
the 17 hotels acquired pursuant to the Investment Program. 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
sourced by Bedrock. 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, 1995 and
1996, the Company had executed management contracts with Bedrock for 11, 15 and
17 Wyndham brand hotels, respectively, through the Investment Program.
77
<PAGE> 81
Bedrock has certain registration rights with respect to 2,276,055 shares
of Common Stock. Bedrock also entered 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.
23. SUPPLEMENTAL CASH FLOWS INFORMATION:
The following table sets forth certain cash and non-cash investing and
financing activities and other cash flow information (in thousands):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1994 1995 1996
---- ---- ----
<S> <C> <C> <C>
Supplemental cash flow information:
Interest paid $ 7,694 $ 8,154 $11,292
Income taxes paid -- -- 3,939
Non-cash activities:
Capital lease obligations incurred 115 283 429
Acquisitions of businesses:
Fair value of assets acquired -- -- 49,967
Liabilities assumed -- -- 16,497
Common stock issued for repayment
of revolving credit agreement -- -- 7,500
</TABLE>
24. SUBSEQUENT EVENTS:
In November 1996, the Company executed a contract for a hotel in Salt
Lake City, Utah. The transaction, which closed in January 1997, required the
Company to make deposits totaling $10.0 million with the lessor. The deposits
were funded with cash borrowed under the Revolving Credit Facility.
In February 1997, the Company, through a financial institution and a
county authority, issued $9,675,000 in aggregate principal amount of revenue
bonds. The bonds are issued to refinance the existing bonds that the Company
assumed in the acquisition of the Wyndham Vinings Hotel. The bonds initially
bear interest at a weekly rate (the "Weekly Rate Period") determined in
accordance with the indenture of the bonds based on prevailing financial market
conditions for revenue bonds (at March 17, 1997, such rate was 3.9%) plus a 2%
credit enhancement fee as defined. The weekly rate may be converted to another
interest rate determination method on the first business day of any calendar
month at the Company's option, subject to the terms and conditions set forth in
the indenture. The bonds mature in February 2023 and are subject to redemption
in whole or in part during the Weekly Rate Period. The outstanding refinanced
bonds at December 31, 1996 are recorded as long-term debt in the accompanying
consolidated financial statements. The bonds are credit enhanced by a letter of
credit in the amount of $9.675 million issued under the Revolving Credit
Facility. See Note 12.
25. PRO FORMA FINANCIAL INFORMATION (UNAUDITED):
The unaudited pro forma condensed consolidated statements of income of
the Company are presented as if the initial public equity offering, the
issuance of $100.0 million aggregate principal amount of 10.5% subordinated
notes, the GHALP transaction, the closing of the Revolving Credit Facility and
the subsequent acquisition of four additional hotel properties had occurred on
January 1, 1995. These unaudited pro forma condensed consolidated statements of
income are not necessarily indicative of what actual results of operations of
the Company would have been assuming such transactions had been completed as of
January 1, 1995, nor do they purport to represent the results of operations for
future periods.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1995 1996
-------- --------
(IN THOUSANDS, EXCEPT
PER SHARE AMOUNTS)
<S> <C> <C>
Total revenues $160,261 $180,298
Operating income $ 20,687 $ 29,612
Income before income taxes $ 8,193 $ 18,730
Net income $ 4,958 $ 11,332
Earnings per common share outstanding$ .25 $ .57
</TABLE>
26. CONDENSED COMBINED FINANCIAL INFORMATION OF
GUARANTOR SUBSIDIARIES:
In connection with the issuance of the Notes, all of the Company's
subsidiaries, with the exception of a number of subsidiaries (which
subsidiaries are individually and collectively inconsequential), are fully and
unconditionally guaranteeing 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 notes to condensed combined financial information) as of December 31, 1995
and 1996 and for the years ended December 31, 1994, 1995 and 1996 are presented
on the following page:
78
<PAGE> 82
GUARANTOR SUBSIDIARIES CONDENSED COMBINED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
- ----------------------------------------------------------------------------------------------
1995 1996
--------- ---------
(IN THOUSANDS)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 3,708 $ 9,673
Cash, restricted 2,595 865
Accounts receivable, net 13,732 22,485
Other 1,606 2,466
--------- ---------
Total current assets 21,641 35,489
Investment in an affiliate's hotel partnership 2,597 --
Notes and other receivables from affiliates 7,674 7,685
Notes receivable 2,450 1,978
Property and equipment, net 47,321 61,062
Management contract costs, net 7,579 7,766
Security deposits -- 15,105
Other 1,068 2,502
--------- ---------
Total assets $ 90,330 $ 131,587
========= =========
LIABILITIES AND PARTNERS' CAPITAL AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued liabilities $ 6,600 $ 18,169
Deposits 1,914 1,147
Current portion of long-term debt and capital lease obligations 3,428 510
Due to affiliates 1,454 42,666
--------- ---------
Total current liabilities 13,396 62,492
--------- ---------
Payable to affiliates 2,627 --
Payable to minority interest 218 --
Long-term debt and capital lease obligations 40,659 29,944
--------- ---------
43,504 29,944
--------- ---------
Minority interest 7,379 --
--------- ---------
Partners' capital and stockholders' equity:
Receivables from affiliates (1,927) (1,223)
Partners' capital 27,978 --
Additional paid-in capital -- 31,071
Retained earnings -- 9,303
--------- ---------
Total partners' capital and stockholders' equity 26,051 39,151
--------- ---------
Total liabilities and equity $ 90,330 $ 131,587
========= =========
</TABLE>
See notes to the condensed combined financial information.
79
<PAGE> 83
GUARANTOR SUBSIDIARIES CONDENSED COMBINED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
- -----------------------------------------------------------------------------------------------------------
1994 1995 1996
--------- --------- ---------
(IN THOUSANDS)
<S> <C> <C> <C>
Revenues $ 55,611 $ 65,524 $ 118,930
--------- --------- ---------
Operating costs and expenses 42,659 51,210 87,957
Depreciation and amortization 3,328 3,929 4,667
Other 175 105 654
--------- --------- ---------
Total operating costs and expenses 46,162 55,244 93,278
--------- --------- ---------
Operating income 9,449 10,280 25,652
Interest expense, net (4,194) (3,816) (2,600)
Equity in earnings of hotel partnership 1,237 1,664 870
Foreign currency gain 404 405 --
--------- --------- ---------
Income before minority interests, income taxes and extraordinary item 6,896 8,533 23,922
Income attributable to minority interests 186 724 571
--------- --------- ---------
Income before income taxes and extraordinary items 6,710 7,809 23,351
Income taxes -- -- 6,308
Income before extraordinary item 6,710 7,809 17,043
Extraordinary item (less applicable tax benefits) -- -- (1,028)
--------- --------- ---------
Net income $ 6,710 $ 7,809 $ 16,015
========= ========= =========
</TABLE>
See notes to the condensed combined financial information.
80
<PAGE> 84
GUARANTOR SUBSIDIARIES CONDENSED COMBINED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
- ------------------------------------------------------------------------------------------------------
1994 1995 1996
--------- --------- ---------
(IN THOUSANDS)
<S> <C> <C> <C>
Net cash provided by operating activities $ 11,823 $ 13,144 $ 11,823
--------- --------- ---------
Cash flows from investing activities:
Purchase of property and equipment (1,820) (2,917) (6,584)
Sale of property and equipment -- -- 133,778
Investments in management contracts (285) (4,346) (1,537)
Notes and other receivables from affiliates -- (7,674) (11)
Notes receivable -- (2,451) (1,252)
Payments for purchase of hotels, net of cash acquired -- -- (2,520)
Acquisition of minority interest -- -- (5,479)
Other 1,903 (3,080) 1,674
--------- --------- ---------
Net cash provided by (used in) investing activities (202) (20,468) 118,069
--------- --------- ---------
Cash flows from financing activities:
Partners' contributed capital 1,781 13,711 26,502
Partners' capital distributions (6,368) (10,672) (42,572)
Distribution made to withdrawing partners -- (2,577) --
Decrease in receivable from affiliates -- -- 2,933
Increase (decrease) in payable to affiliate (1,035) (1,215) 35,251
Decrease in payable to minority interest -- -- (218)
Proceeds from long-term borrowings and issuance of debt -- 13,600 2,500
Repayments on long-term debt and capital lease obligations (3,858) (4,201) (148,323)
Other (219) (83) --
--------- --------- ---------
Net cash provided by (used in) financing activities (9,699) 8,563 (123,927)
--------- --------- ---------
Increase in cash and cash equivalents 1,922 1,239 5,965
Cash and cash equivalents at beginning of year 547 2,469 3,708
--------- --------- ---------
Cash and cash equivalents at end of year $ 2,469 $ 3,708 $ 9,673
========= ========= =========
</TABLE>
See notes to the condensed combined financial information.
81
<PAGE> 85
NOTES TO CONDENSED COMBINED FINANCIAL INFORMATION
1. The foregoing condensed combined financial information for 1994 and
1995 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 was being accounted for using the
equity method.
2. The foregoing condensed combined financial information for 1996
includes GHALP Corporation, Waterfront Management Corporation, WHCMB, Inc.,
Wyndham Management Corporation, Wyndham Hotels & Resorts (Aruba) N.V., WHC
Vinings Corporation, WH Interest, Inc., Wyndham IP Corporation, Rose Hall
Associates, L.P., XERXES Limited, WHC Caribbean, Ltd., WHC Development
Corporation, WHC Franchise Corporation, WHCMB Overland Park, Inc., WHCMB,
Toronto Inc., WHC Columbus Corporation, Wyndham Hotels & Resorts Management
Ltd., and WHC Salt Lake City Corporation, and a subsidiary for a non-branded
hotel. They all are wholly-owned subsidiaries of the Company at December 31,
1996.
NOTE 27. QUARTERLY FINANCIAL DATA (UNAUDITED):
Quarterly financial data for 1995 and 1996 are summarized as follows (in
thousands, except per share data):
<TABLE>
<CAPTION>
QUARTER ENDED
1995 MARCH 31 JUNE 30 SEPT. 30 DEC. 31
-------- ------- -------- -------
<S> <C> <C> <C> <C>
Total revenues $21,919 $21,315 $22,267 $22,389
Operating income 4,978 3,740 3,309 2,598
Net income 3,019 2,177 1,705 1,048
</TABLE>
<TABLE>
<CAPTION>
QUARTER ENDED
1996 MARCH 31 JUNE 30 SEPT. 30 DEC. 31
-------- ------- -------- -------
<S> <C> <C> <C> <C>
Total revenues $26,484 $34,042 $41,415 $46,134
Operating income 6,615 3,803 7,079 8,506
Income before
extraordinary item 5,168 13,624 2,769 3,536
Net income 5,168 12,493 2,769 3,536
Earnings per common
share outstanding:
Income before
extraordinary item -- .67 .14 .18
Net income -- .61 .14 .18
</TABLE>
Note: Earnings per share data for 1995 and March quarter of 1996 relates to
periods prior to the Company's formation and therefore is not
presented.
82
<PAGE> 86
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Sequenrtially
(a) Exhibit Numbered
Number Description Page
------- ----------- ------------
<S> <C> <C>
3.1 -- Amended and Restated Certificate of Incorporation of the Company (Incorporated by
reference to exhibit number 3.1 in Amendment No. 1 to the Company's Registration
Statement on Form S-1 (Reg. No. 333-2214) filed with the Securities and Exchange
Commission on May 1, 1996).
3.2 -- Amended and Restated Bylaws of the Company (Incorporated by reference
to exhibit number 3.2 in Amendment No. 1 to the Company's Registration
Statement on Form S-1 (Reg. No. 333-2214) filed with the Securities and Exchange
Commission on May 1, 1996).
4.1 -- Form of specimen certificate for the Common Stock (Incorporated by reference
to exhibit number 4.1 in Amendment No. 2 to the Company's Registration
Statement on Form S-1 (Reg. No. 333-2214) filed with the Securities and Exchange
Commission on May 14, 1996).
4.2 -- Relevant portions of Amended and Restated Certificate of Incorporation (Reference is
hereby made to Exhibit 3.1).
10.1(a) -- Management Agreement dated as of May 10, 1995 by and between Anatole Hotel Investors,
L.P. and Wyndham Hotel Company Ltd. (Incorporated by reference to exhibit number 10.1(a)
in the Company's Registration Statement on Form S-1 (Reg. No. 333-2214) filed with the
Securities and Exchange Commission on March 11, 1996).
10.1(b) -- Form of Management Agreement dated as of September 27, 1994 by and between Bedrock
Annapolis Investment Partners Level I, L.P. and Wyndham Hotel Company Ltd. (together
with attachment) (Incorporated by reference to exhibit number 10.1(b) in the
Company's Registration Statement on Form S-1 (Reg. No. 333-2214) filed with the
Securities and Exchange Commission on March 11, 1996).
10.1(c) -- Management Agreement dated as of March 10, 1988 by and between Franklin Plaza
Associates and Wyndham Hotel Company, as amended by First Amendment dated
November 17, 1993 (Incorporated by reference to exhibit number 10.1(c) in
the Company's Registration Statement on Form S-1 (Reg. No. 333-2214) filed with the
Securities and Exchange Commission on March 11, 1996).
10.1(d) -- Service Agreement dated as of November 17, 1993 by and between Franklin Plaza Realty
Limited Partnership and Wyndham Hotel Company Ltd. (Incorporated by reference
to exhibit number 10.1(d) in the Company's Registration Statement on Form S-1
(Reg. No. 333-2214) filed with the Securities and Exchange Commission on March 11,
1996).
10.1(e) -- Management Agreement dated as of December 1, 1984 by and between Houston Greenspoint
Hotel Associates and Wyndham Hotel Company (Incorporated by reference to exhibit number
10.1(e) in the Company's Registration
</TABLE>
<PAGE> 87
<TABLE>
<S> <C>
Statement on Form S-1 (Reg. No. 333-2214) filed with the Securities and Exchange
Commission on March 11, 1996).
10.1(f) -- Management Agreement dated as of December 4, 1991 by and between Itasca Hotel Company
and Wyndham Hotel Company Ltd., as amended by Amendment dated March 19, 1996
(Incorporated by reference to exhibit number 10.1(f) in the Company's Registration
Statement on Form S-1 (Reg. No. 333-2214) filed with the Securities and Exchange
Commission on March 11, 1996).
10.1(g) -- Management Agreement dated as of June 30, 1994 by and between Waterfront Hotel
Associates, S.E. and Old San Juan Management, Ltd. S.E. (Incorporated by reference
to exhibit number 10.1(g) in Amendment No. 1 to the Company's Registration
Statement on Form S-1 (Reg. No. 333-2214) filed with the Securities and Exchange
Commission on May 1, 1996).
10.1(h) -- Management Agreement dated as of May 26, 1995 by and between Convention Center
Boulevard Hotel, Limited and Wyndham Hotel Company Ltd. (Incorporated by reference
to exhibit number 10.1(h) in Amendment No. 1 to the Company's Registration
Statement on Form S-1 (Reg. No. 333-2214) filed with the Securities and Exchange
Commission on May 1, 1996).
10.1(i) -- Management Agreement dated as of August 25, 1993 by and between Playhouse Square
Hotel Limited Partnership and Wyndham Hotel Company Ltd. (Incorporated by reference
to exhibit number 10.1(i) in Amendment No. 1 to the Company's Registration
Statement on Form S-1 (Reg. No. 333-2214) filed with the Securities and Exchange
Commission on May 1, 1996).
10.1(j) -- Management Agreement dated as of March 1, 1986 by and between CLC Partnership and
Wyndham Hotel Company, as amended by First Amendment dated June 30, 1988
(Incorporated by reference to exhibit number 10.1(j) in Amendment No. 1 to
the Company's Registration Statement on Form S-1 (Reg. No. 333-2214) filed with the
Securities and Exchange Commission on May 1, 1996).
10.1(k) -- Management Agreement dated as of December 22, 1987 by and among Badger XVI Limited
Partnership, Crow Division Partners and Wyndham Hotel Company, as amended by First
Amendment dated February 26, 1988 (Incorporated by reference to exhibit number 10.1(k)
in Amendment No. 1 to the Company's Registration Statement on Form S-1 (Reg. No. 333-2214)
filed with the Securities and Exchange Commission on May 1, 1996).
10.1(l) -- Management Agreement dated as of November 20, 1987 by and between Hotel and
Convention Center Partners I, Ltd. And Wyndham Hotel Corporation II, Inc., as amended
by Amendment dated November 1, 1993 (Incorporated by reference to exhibit number 10.1(l)
in Amendment No. 1 to the Company's Registration Statement on Form S-1 (Reg. No. 333-2214)
filed with the Securities and Exchange Commission on May 1, 1996).
10.2 -- Investment Agreement dated as of May 2, 1994 among The Hampstead Group, Inc., Wyndham
Hotel Company Ltd., The Partners in Wyndham Hotel Company
</TABLE>
<PAGE> 88
<TABLE>
<S> <C>
Ltd., and Crow Family Partnership, L.P., as amended (Incorporated by reference
to exhibit number 10.2 in Amendment No. 1 to the Company's Registration
Statement on Form S-1 (Reg. No. 333-2214) filed with the Securities and Exchange
Commission on May 1, 1996).
10.3(a) -- Lease dated as of April 1, 1996 by and between Hospitality Properties Trust and
Garden Hotel Associates II Limited Partnership (Incorporated by reference to
exhibit number 10.3(a) in the Company's Registration Statement on Form S-1
(Reg. No. 333-18507) filed with the Securities and Exchange Commission on January 27,
1997).
10.3(b) -- Lease Agreement dated as of March 1, 1988 by and between Lincoln Island Associates
No. 1, Limited and WH Limited Partnership (Incorporated by reference to
exhibit number 10.3(b) in the Company's Registration Statement on Form S-1
(Reg. No. 333-2214) filed with the Securities and Exchange Commission on March 11,
1996).
10.3(c) -- Lease Agreement dated December 19, 1989 by and between Rose Hall Hotel Limited and
Rose Hall Associates Limited Partnership (Incorporated by reference to
exhibit number 10.3(c) in the Company's Registration Statement on Form S-1
(Reg. No. 333-2214) filed with the Securities and Exchange Commission on March 11,
1996).
10.3(d) -- Sublease Agreement dated as of November 17, 1989 by and between
Copley-Commerce-Telegraph #1 Associates, as assignee of Crow-Staley-Commerce #1
Limited Partnership and Commerce Hotel Partners Ltd. (Incorporated by reference
to exhibit number 10.3(d) in the Company's Registration Statement on Form S-1
(Reg. No. 333-2214) filed with the Securities and Exchange Commission on March 11,
1996).
10.3(e) -- Ground Lease dated as of March 26, 1987 by and between Fred C. Boysen, Dorothy
Boysen, Ted Boysen and Rose Boysen and Garden Hotel Associates Limited Partnership,
as assignee of Ramada Hotel Operating Company as amended by First Amendment dated as
of May 7, 1990 (Incorporated by reference to exhibit number 10.3(e) in the
Company's Registration Statement on Form S-1 (Reg. No. 333-2214) filed with the
Securities and Exchange Commission on March 11, 1996).
10.3(f) -- Lease Agreement dated as of November 26, 1990 by and between Tower 2001 Limited
Partnership and Wyndham Hotel Company Ltd., as amended by Letter Agreement dated
March 9, 1994 and Letter Agreement dated March 22, 1995, and as amended by Amendment
No. 1 dated as of November 30, 1995 (Incorporated by reference to exhibit number
10.3(f) in the Company's Registration Statement on Form S-1 (Reg. No. 333-
2214) filed with the Securities and Exchange Commission on March 11, 1996).
10.3(g) -- Lease Agreement dated as of January 1992 by and between 475 Park Avenue South Co. and
Wyndham Hotel Company Ltd., as amended by Amendment of Lease dated January 30, 1995
(Incorporated by reference to exhibit number 10.3(g) in the Company's Registration
Statement on Form S-1 (Reg. No. 333-2214) filed with the Securities and Exchange
Commission on March 11, 1996).
</TABLE>
<PAGE> 89
<TABLE>
<S> <C>
10.3(h) -- Sublease dated as of May 31, 1995 between Banc One Mortgage Corporation and Wyndham
Hotels & Resorts (Incorporated by reference to exhibit number 10.3(h) in
the Company's Registration Statement on Form S-1 (Reg. No. 333-2214) filed with the
Securities and Exchange Commission on March 11, 1996).
10.3(i) -- Lease Agreement dated as of May 16, 1994 by and between Wirtz Realty Corporation, as
agent for 333 Building Corporation and Wyndham Hotel Company Ltd. (Incorporated
by reference to exhibit number 10.3(i) in Amendment No. 1 to the Company's
Registration Statement on Form S-1 (Reg. No. 333-2214) filed with the Securities and
Exchange Commission on May 1, 1996).
10.3(j) -- Lease Agreement dated as of May 18, 1994 by and between Columbia Executive Offices,
Inc. and The Inn at Semiahmoo a Wyndham Resort (Incorporated by reference to
exhibit number 10.3(j) in Amendment No. 1 to the Company's Registration
Statement on Form S-1 (Reg. No. 333-2214) filed with the Securities and Exchange
Commission on May 1, 1996).
10.3(k) -- Lease Agreement dated as of January 8, 1997 by and between HPTSLC Corporation and WHC
Salt Lake City Corporation (Incorporated by reference to exhibit number 10.3(k) in the
Company's Registration Statement on Form S-1 (Reg. No. 333-18507) filed with the
Securities and Exchange Commission on January 27, 1997.).
10.4 -- Master Alliance Agreement dated as of January 9, 1997 by and among American General
Hospitality Corporation, American General Hospitality Operating Partnership, L.P.,
WHC Franchise Corporation and WHC Development Corporation (Incorporated by reference
to exhibit number 10.4 in the Company's Registration Statement on Form
S-1 (Reg. No. 333-18507) filed with the Securities and Exchange Commission on January
27, 1997.).
10.5 -- Limited Guaranty Agreement dated as of January 8, 1997 made by the Company for the
benefit of HPTSLC Corporation (Incorporated by reference to exhibit number 10.5 in the
Company's Registration Statement on Form S-1 (Reg. No. 333-18507) filed with the
Securities and Exchange Commission on January 27, 1997).
10.5(a) -- Asset Management Agreement between the Company and various Crow family real estate entities
(Incorporated by reference to Exhibit No. 10.5(a) in Amendment No. 2 to the Company's
Registration Statement on Form S-1 (Reg. No. 333-2214) filed with the Securities and Exchange
Commission on May 14, 1996).
10.6(a) -- Service Agreement, dated as of May 21, 1996, by and between the Company and ISIS 2000
LP (Incorporated by reference to exhibit number 10.6(a) in the Company's Registration
Statement on Form S-1 (Reg. No. 333-18507) filed with the Securities and Exchange
Commission on January 27, 1997).
10.6(b) -- Service Agreement, dated as of May 21, 1996, by and between the Company and
</TABLE>
<PAGE> 90
<TABLE>
<S> <C>
Wynright Insurance (Incorporated by reference to exhibit number 10.6(b) in
the Company's Registration Statement on Form S-1 (Reg. No. 333-18507) filed with the
Securities and Exchange Commission on January 27, 1997).
10.6(c) -- Service Agreement, dated as of May 21, 1996, by and between the Company and
CW Synergistech, LP (Incorporated by reference to exhibit number 10.6(c) in
the Company's Registration Statement on Form S-1 (Reg. No. 333-18507) filed with the
Securities and Exchange Commission on January 27, 1997).
10.7 -- Indenture relating to the 10 1/2% Senior Subordinated Notes due 2006 (Incorporated by
reference to exhibit number 10.10 in the Company's Registration Statement
on Form S-1 (Reg. No. 333-18507) filed with the Securities and Exchange Commission on
January 27, 1997).
10.8 -- Stockholders' Agreement ("Stockholders' Agreement") among Wyndham Hotel Corporation and
the Stockholders listed on the signature pages thereof (Incorporated by reference to
exhibit number 10.13 in the Company's Registration Statement on Form S-1 (Reg. No. 333-
18507) filed with the Securities and Exchange Commission on January 27, 1997).
10.9 -- Registration Rights Agreement among Wyndham Hotel Corporation and the parties
identified on the signature pages thereof (Incorporated by reference to
exhibit number 10.14 in the Company's Registration Statement on Form S-1
(Reg. No. 333-18507) filed with the Securities and Exchange Commission on January 27,
1997).
10.10(a) -- Indemnification Agreement by and between Wyndham Hotel Corporation and James D.
Carreker (Incorporated by reference to exhibit number 10.15(a) in the
Company's Registration Statement on Form S-1 (Reg. No. 333-18507) filed with the
Securities and Exchange Commission on January 27, 1997).
10.10(b) -- Indemnification Agreement by and between Wyndham Hotel Corporation and Anne L.
Raymond (Incorporated by reference to exhibit number 10.15(b) in the
Company's Registration Statement on Form S-1 (Reg. No. 333-18507) filed with the
Securities and Exchange Commission on January 27, 1997).
10.10(c) -- Indemnification Agreement by and between Wyndham Hotel Corporation and Harlan R.
Crow (Incorporated by reference to exhibit number 10.15(c) in the Company's
Registration Statement on Form S-1 (Reg. No. 333-18507) filed with the Securities and
Exchange Commission on January 27, 1997).
10.10(d) -- Indemnification Agreement by and between Wyndham Hotel Corporation and
</TABLE>
<PAGE> 91
<TABLE>
<S> <C>
Daniel A. Decker (Incorporated by reference to exhibit number 10.15(d) in the
Company's Registration Statement on Form S-1 (Reg. No. 333-18507) filed with the
Securities and Exchange Commission on January 27, 1997).
10.10(e) -- Indemnification Agreement by and between Wyndham Hotel Corporation and Susan T.
Groenteman (Incorporated by reference to exhibit number 10.15(e) in the
Company's Registration Statement on Form S-1 (Reg. No. 333-18507) filed with the
Securities and Exchange Commission on January 27, 1997).
10.10(f) -- Indemnification Agreement by and between Wyndham Hotel Corporation and Stanley M.
Koonce, Jr. (Incorporated by reference to exhibit number 10.15(f) in the
Company's Registration Statement on Form S-1 (Reg. No. 333-18507) filed with the
Securities and Exchange Commission on January 27, 1997).
10.10(g) -- Indemnification Agreement by and between Wyndham Hotel Corporation and Leslie V.
Bentley (Incorporated by reference to exhibit number 10.15(g) in the
Company's Registration Statement on Form S-1 (Reg. No. 333-18507) filed with the
Securities and Exchange Commission on January 27, 1997).
10.10(h) -- Indemnification Agreement by and between Wyndham Hotel Corporation and Robert A.
Whitman (Incorporated by reference to exhibit number 10.15(h) in the Company's
Registration Statement on Form S-1 (Reg. No. 333-18507) filed with the
Securities and Exchange Commission on January 27, 1997).
10.11(a) -- 6% Promissory Note made by James D. Carreker (Incorporated by reference to
exhibit number 10.16(a) in Amendment No. 1 to the Company's Registration
Statement on Form S-1 (Reg. No. 333-2214) filed with the Securities and Exchange
Commission on May 1, 1996).
10.11(b) -- 6% Promissory Note made by Leslie V. Bentley (Incorporated by reference to
exhibit number 10.16(b) in Amendment No. 1 to the Company's Registration
Statement on Form S-1 (Reg. No. 333-2214) filed with the Securities and Exchange
Commission on May 1, 1996).
10.11(c) -- 6% Promissory Note made by Eric A. Danziger (Incorporated by reference to
exhibit number 10.16(c) in Amendment No. 1 to the Company's Registration
Statement on Form S-1 (Reg. No. 333-2214) filed with the Securities and Exchange
Commission on May 1, 1996).
10.11(d) -- 6% Promissory Note made by Anne L. Raymond (Incorporated by reference to
exhibit number 10.16(d) in Amendment No. 1 to the Company's Registration
Statement on Form S-1 (Reg. No. 333-2214) filed with the Securities and Exchange
Commission on May 1, 1996).
10.11(e) -- 6% Promissory Note made by Stanley M. Koonce, Jr. (Incorporated by reference to
exhibit number 10.16(e) in Amendment No. 1 to the Company's Registration
Statement on Form S-1 (Reg. No. 333-2214) filed with the Securities and Exchange
Commission on May 1, 1996).
10.11(f) -- 6% Promissory Note made by Wyndham Employees Ltd. (Incorporated by reference to exhibit
number 10.16(f) in Amendment No. 1 to the
</TABLE>
<PAGE> 92
<TABLE>
<S> <C>
Company's Registration Statement on Form S-1 (Reg. No. 333-2214) filed with the
Securities and Exchange Commission on May 1, 1996).
10.12 -- Stockholders' Agreement Consent, dated September 30, 1996
10.13(a) -- Wyndham Employees Savings & Retirement Plan (Incorporated by reference to
exhibit number 10.19(a) in Amendment No. 2 to the Company's Registration
Statement on Form S-1 (Reg. No. 333-2214) filed with the Securities and Exchange
Commission on May 14, 1996).
10.13(b) -- Wyndham Hotel Corporation 1996 Long Term Incentive Plan, as revised (Incorporated by
reference to exhibit number 10.19(b) in Amendment No. 3 to the Company's Registration
Statement on Form S-1 (Reg. No. 333-2214) filed with the Securities and Exchange
Commission on May 20, 1996).
10.13(c) -- Non-Employee Directors' Retainer Stock Plan, as revised (Incorporated by reference to
exhibit number 10.19(c) in Amendment No. 3 to the Company's Registration
Statement on Form S-1 (Reg. No. 333-2214) filed with the Securities and Exchange
Commission on May 20, 1996).
10.14 -- Operating Deficit Guaranty and Reserves Agreement dated as of August 25, 1993 by and
among Playhouse Square Hotel Limited Partnership, Society National Bank and the
Lenders (Incorporated by reference to exhibit number 10.22 in Amendment No. 1 to the
Company's Registration Statement on Form S-1 (Reg. No. 333-2214) filed with the
Securities and Exchange Commission on May 1, 1996).
10.15 -- Registration Rights Agreement dated as of September 30, 1996 between the Company and
Smith Barney Inc.
10.16 -- Registration Rights Agreement dated as of April 29, 1996 between the Company and
General Electric Investment Corporation.
10.17 -- Promissory Note dated April 15, 1995 between the Company and WFLP.
10.18 -- Computerized Reservation Service Agreement between ISIS 2000 and the Company
(Incorporated by reference to exhibit number 10.28 in the
</TABLE>
<PAGE> 93
<TABLE>
<S> <C>
Company's Registration Statement on Form S-1 (Reg. No. 333-18507) filed with the
Securities and Exchange Commission on January 27, 1997).
10.19 -- Indemnification Agreements by and between Elise Turner as an Officer of GHMB, Inc.;
MBAH, Inc.; CHMB, Inc.; Waterfront Management Corporation; PSMB, Inc.; MTMB, Inc.;
MDMB, Inc.; AMMB, Inc.; OHMB, Inc.; WNMB, Inc.; MBWD, Inc.; MBWH, Inc.; and BHMB,
Inc., which Corporations are the Holders of Liquor Licenses, and Wyndham Management
Corporation (Incorporated by reference to exhibit number 10.29 in the Company's
Registration Statement on Form S-1 (Reg. No. 333-18507) filed with the Securities
and Exchange Commission on January 27, 1997).
10.20 -- Senior Secured Revolving Credit Agreement among Wyndham Hotel Corporation, The
Lenders Party Thereto and Bankers Trust Company (incorporated by reference to the
Company's Quarterly Report on Form 10-Q for the Quarter Ended June 30, 1996).
10.21 -- Management Contract between Homegate Hospitality, Inc. and the Company, dated
August 26, 1996 (incorporated by reference to Exhibit No. 10.1 of the Company's
Quarterly Report on Form 10-Q for the Quarter ended September 30, 1996).
11 -- Computation of Earnings Per Share
12. -- Computation of Ratio of Earnings to Fixed Charges
21.1 -- List of subsidiaries of the Company (Incorporated by reference to exhibit number
21.1 in the Company's Registration Statement on Form S-1 (Reg. No. 333-18507)
filed with the Securities and Exchange Commission on January 27, 1997).
24.1 -- Powers of Attorney (included on signature page).
27 -- Financial Data Schedule
</TABLE>
<PAGE> 1
EXHIBIT 10.12
STOCKHOLDERS' AGREEMENT
CONSENT
The undersigned, along with Wyndham Hotel Corporation, a Delaware
corporation ("Wyndham"), are parties to a Stockholders' Agreement dated as of
May 24, 1996 (the "Stockholders' Agreement"). Defined terms used herein have
the meanings assigned to them in the Stockholders' Agreement.
Pursuant to Section 4.4 of the Stockholders' Agreement, the
undersigned hereby consent (i) to the pledge, without compliance with the
requirements of Section 2.1(a)(ii)(E) of the Stockholders' Agreement, by James
D. Carreker, Leslie V. Bentley and Stanley M. Koonce, Jr. of those Shares of
Wyndham pledged as collateral to secure loans made by Smith Barney Inc. (or its
affiliates) to such individuals (or any refinancing of such loans) on or about
September 30, 1996, (ii) to any Transfer of such Shares following five business
days' after delivery of the demand notice described in the "Pledge Agreement"
(hereinafter defined) and subsequent foreclosure of such pledge being effected
without compliance with the restrictions on Transfer set forth in Article II of
the Stockholders' Agreement and (iii) to the Shares that are the subject of
such a foreclosure no longer constituting Covered Shares or otherwise being
subject to the Stockholders' Agreement, unless such Shares are acquired by a
Wyndham stockholder that is a party to the Stockholders' Agreement (or any
successors, assigns or affiliates thereof), in which case such Shares shall
once again become Covered Shares for purposes of the Stockholders' Agreement.
As used herein, "Pledge Agreements" shall collectively refer to the three
Pledge Agreements of even date herewith executed by each of James D. Carreker,
Leslie V. Bentley and Stanley M. Koonce, Jr. and acknowledged and agreed to by
Smith Barney, Inc.
<PAGE> 2
IN WITNESS WHEREOF, the undersigned have executed this Consent as of
the 30th day of September, 1996.
/s/ James D. Carreker
------------------------------------------
James D. Carreker
THE CARREKER DESCENDANTS TRUST
By: /s/ James D. Carreker
---------------------------------
Name: James D. Carreker
Title: Special Trustee
/s/ Leslie V. Bentley
------------------------------------------
Leslie V. Bentley
THE BROOKE ANDREA BENTLEY TRUST
By: /s/ Leslie V. Bentley
---------------------------------
Name: Leslie V. Bentley
Title: Special Trustee
THE KRISTIN MICHELLE SCHAFFNER TRUST
By: /s/ Leslie V. Bentley
---------------------------------
Name: Leslie V. Bentley
Title: Special Trustee
THE LISA SUSANNE BENTLEY TRUST
By: /s/ Leslie V. Bentley
---------------------------------
Name: Leslie V. Bentley
Title: Special Trustee
THE WENDI ELIZABETH SCHAFFNER TRUST
By: /s/ Leslie V. Bentley
---------------------------------
Name: Leslie V. Bentley
Title: Special Trustee
/s/ Anne L. Raymond
------------------------------------------
Anne L. Raymond
<PAGE> 3
/s/ Stanely M. Koonce, Jr.
------------------------------------------
Stanley M. Koonce, Jr.
WYNDHAM EMPLOYEES LTD.
By: Wyndham Hotel Management
Corporation, General Partner
By: /s/ James D. Carreker
-------------------------
Name: James D. Carreker
Title: President
WYNDHAM HOTEL MANAGEMENT CORPORATION
By: /s/ James D. Carreker
---------------------------------
Name: James D. Carreker
Title: President
/s/ Trammell S. Crow
------------------------------------------
Trammell S. Crow
CF SECURITIES, L.P.
By: Mill Spring Holdings, Inc.,
General Partner
By: /s/ S.T. Groenteman
-------------------------
Name: S.T. Groenteman
Title: Vice President
<PAGE> 4
WYNOPT INVESTMENT PARTNERSHIP LEVEL II,
L.P.
By: Hampstead GenPar, L.P., General Partner
By: HH GenPar Partners, General
Partner
By: Hampstead Associates, Inc.,
General Partner
By:/s/ Daniel A. Decker
----------------------
Name:
-----------------
Title:
----------------
WYNOPT INVESTMENT PARTNERSHIP, L.P.
By: Wynopt Investment GenPar, Inc.,
General Partner
By: /s/ Daniel A. Decker
--------------------------
Name:
-----------------------
Title:
----------------------
/s/ Susan T. Groenteman
---------------------------------------
Susan T. Groenteman
<PAGE> 1
EXHIBIT 10.15
REGISTRATION RIGHTS AGREEMENT
dated as of September 30, 1996
between
WYNDHAM HOTEL CORPORATION
and
SMITH BARNEY INC.
<PAGE> 2
REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT (this "Agreement"), is made and
entered into as of September 30, 1996, by and between Wyndham Hotel
Corporation, a Delaware corporation (the "Company"), and Smith Barney Inc., a
______________________ corporation or its affiliates ("Smith Barney").
RECITALS
Smith Barney is entering into certain loan transactions which
contemplate, among other things, the pledge of shares of common stock of the
Company and the execution and delivery of this Agreement by the parties hereto.
NOW, THEREFORE, in consideration of the foregoing and the mutual
covenants and agreements herein contained, and intending to be legally bound
hereby, the parties hereto hereby agree as follows:
1. Definitions. For purposes of this Agreement, the following
terms have the following meanings when used herein with initial capital letters
(except in the case of phrases set forth below without initial capital
letters):
Advice: As defined in Section 4 hereof.
Affiliate: With respect to any person or entity, any other
person or entity controlling, controlled by or under common control with, the
first person or entity. For purposes of this Agreement, the term "control"
(and correlative terms) means the power, whether by contract, equity ownership
or otherwise, to direct the policies or management of a person or entity.
Common Stock: The Common Stock, par value $0.01 per share, of
the Company.
Demand Notice: As defined in Section 2 hereof.
Demand Registration: As defined in Section 2 hereof.
Formation Registration Rights: The rights to require the
Company to register shares of Common Stock pursuant to the Registration Rights
Agreement dated as of May 24, 1996 among the Company and the other parties
listed on the signature pages thereof.
GE Registration Rights: The rights to require the Company to
register shares of Common Stock pursuant to the Registration Rights Agreement
dated as of April 29, 1996 among Wyndham Hotel Company Ltd., General Electric
Investment Corporation and the Trustees of General Electric Pension Trust.
<PAGE> 3
A holder of Registrable Securities: Smith Barney or one of
its Affiliates that holds Registrable Securities.
Losses: As defined in Section 6 hereof.
Piggyback Registration: As defined in Section 3 hereof.
Prospectus: The prospectus included in any Registration
Statement (including without limitation a prospectus that discloses information
previously omitted from a prospectus filed as part of an effective registration
statement in reliance upon Rule 430A promulgated under the Securities Act), as
amended or supplemented by any prospectus supplement, with respect to the terms
of the offering of any portion of the Registrable Securities covered by such
Registration Statement and all other amendments and supplements to the
Prospectus, including post-effective amendments, and all material incorporated
by reference or deemed to be incorporated by reference in such Prospectus.
Registrable Securities: Each of the Shares acquired by Smith
Barney, together with each of the shares of Common Stock held by Piggyback
Holders (as hereinafter defined), until (i) it is effectively registered under
the Securities Act and disposed of in accordance with the Registration
Statement covering it, (ii) it is saleable by the holder thereof pursuant to
Rule 144(k), or (iii) it is distributed to the public by the holder thereof
pursuant to Rule 144.
Registration Expenses: As defined in Section 5 hereof.
Registration Statement: Any registration statement of the
Company under the Securities Act that covers any of the Registrable Securities
pursuant to the provisions of this Agreement, including the related Prospectus,
all amendments and supplements to such registration statement (including
post-effective amendments), all exhibits and all material incorporated by
reference or deemed to be incorporated by reference in such registration
statement.
Rule 144: Rule 144 under the Securities Act, as such Rule may
be amended from time to time, or any similar rule or regulation hereafter
adopted by the SEC.
SEC: The Securities and Exchange Commission.
Securities Act: The Securities Act of 1933, as amended.
Shares: All shares of Common Stock pledged to secure loans
made on or about July ___, 1996 by Smith Barney or one or more of its
Affiliates to any of James D. Carreker, Leslie V. Bentley and Stanley M.
Koonce, Jr.
-3-
<PAGE> 4
Special Counsel: As defined in Section 5(b) hereof.
An underwritten registration or underwritten offering: A
registration in which securities of the Company are sold to an underwriter for
reoffering to the public.
2. Demand Registration. (a) Request for Registration. At any
time following the date (i) the closing price of the Common Stock of the
Company, as reported on the New York Stock Exchange or such other exchange or
public market on which the Common Stock is traded, is less than $14 per share
or (ii) any of James D. Carreker, Leslie V. Bentley or Stanley M. Koonce fails
to promptly meet a margin call, as provided in those certain Pledge Agreements
executed by each of the aforementioned individuals and Smith Barney, Smith
Barney will have the right, by written notice delivered to the Company (a
"Demand Notice"), to demand that the Shares that it may acquire in accordance
with the terms of such Pledge Agreements be registered by the Company (a
"Demand Registration") under and in accordance with the provisions of the
Securities Act; provided, however, that the Company shall not be required to
effect more than three Demand Registrations pursuant to this Agreement.
(b) Filing and Effectiveness. In the event that Smith
Barney or one or more of its affiliates acquires Shares covered by a Demand
Notice, then the Company will file a Registration Statement relating to any
such Demand Registration within 20 business days of the date on which the
Demand Notice relating to the Shares covered thereby is given and will use all
reasonable efforts to cause the same to be declared effective by the SEC within
120 calendar days of the date on which Smith Barney first gives the Demand
Notice required by Section 2(a) hereof with respect to such Demand
Registration.
All requests made pursuant to this Section 2 will specify the number
of Registrable Securities to be registered and will also specify the intended
methods of disposition thereof.
If any Demand Registration is requested to be effected as a "shelf"
registration, the Company will keep the Registration Statement filed in respect
thereof effective until the applicable Rule 144 holding period for the Shares
owned by Smith Barney expires or such shorter period that will terminate when
all of the Shares owned by Smith Barney that are covered by such Registration
Statement have been sold pursuant to such Registration Statement.
Notwithstanding anything contained herein, upon the later of the repayment of
the loans made by Smith Barney referred to herein or the sale of all shares
owned by Smith Barney covered by a Registration Statement, this Agreement shall
terminate.
-4-
<PAGE> 5
The Company will include in such registration all Registrable
Securities with respect to which the Company receives a written request for
inclusion therein within 20 business days after the receipt of the Notice by
the applicable holder.
3. Piggyback Registration. (a) Right to Piggyback. If at any
time the Company proposes to file a Registration Statement relating to a Demand
Registration, then the Company will give written notice of such proposed filing
to each of CF Securities, L.P., Wynopt Investment Partnership Level II, L.P.,
Wynopt Investment Partnership, L.P., Anne L. Raymond, Susan T. Groenteman and
Trammell S. Crow (hereinafter collectively referred to as the "Piggyback
Holders") at least 10 business days before the anticipated filing date. Such
notice will offer such Piggyback Holders the opportunity to register such
amount of Registrable Securities as each such holder may request (a "Piggyback
Registration"). Subject to Section 3(b) hereof, the Company will include in
each such Piggyback Registration all Registrable Securities with respect to
which the Company has received written requests for inclusion therein. The
Piggyback Holders will be permitted to withdraw all or part of the Registrable
Securities from a Piggyback Registration at any time prior to the effective
date of such Piggyback Registration.
(b) Priority on Piggyback Registrations. The Company
will cause the managing underwriter or underwriters of a proposed underwritten
offering to permit the Piggyback Holders to include therein all such
Registrable Securities requested to be so included on the same terms and
conditions as any securities relating to the Demand Registration.
Notwithstanding the foregoing, if the managing underwriter or underwriters of
such offering deliver an opinion to the Piggyback Holders to the effect that
the total amount of securities proposed to be included in such offering is such
as to materially and adversely affect the success of such offering, then the
amount of securities to be included therein for the account of the Piggyback
Holders (allocated pro rata among such holders on the basis of the Registrable
Securities requested to be included therein by each such holder) will be
reduced (to zero if necessary) to reduce the total amount of securities to be
included in such offering to the amount recommended by such managing
underwriter or underwriters. The managing underwriter or underwriters,
applying the same standard, may also exclude entirely from such offering all
Registrable Securities proposed to be included in such offering to the extent
the Registrable Securities are not of the same class as securities of the
Company included in such offering.
4. Restrictions on Sale. Each holder of Registrable Securities
agrees, if such holder is so requested (pursuant to a timely written notice) by
the managing underwriter or underwriters in an underwritten offering of any
class of securities that
-5-
<PAGE> 6
constitutes Registrable Securities, not to effect any public sale or
distribution of any of the Company's securities of such class (except as part
of such underwritten offering), including a sale pursuant to Rule 144, during
the 10-calendar day period prior to, and during the 90-calendar day period
beginning on, the closing date of such underwritten offering.
5. Registration Procedures. In connection with the Company's
registration obligations pursuant to Section 2 hereof, the Company will effect
such registrations to permit the sale of such Registrable Securities in
accordance with the intended method or methods of disposition thereof, and
pursuant thereto the Company will as expeditiously as possible, in each case,
to the extent applicable:
(a) Prepare and file with the SEC a Registration
Statement or Registration Statements on any appropriate form under the
Securities Act available for the sale of the Registrable Securities by the
holders thereof in accordance with the intended method or methods of
distribution thereof, and cause each such Registration Statement to become
effective and remain effective as provided herein; provided, however, that
before filing a Registration Statement or Prospectus or any amendments or
supplements thereto (including documents that would be incorporated or deemed
to be incorporated therein by reference) the Company will furnish to the
holders of the Registrable Securities covered by such Registration Statement,
the Special Counsel and the managing underwriters, if any, copies of all such
documents proposed to be filed, which documents will be subject to the review
of such holders, the Special Counsel and such underwriters, and the Company
will not file any such Registration Statement or amendment thereto or any
Prospectus or any supplement thereto (including such documents which, upon
filing, would or would be incorporated or deemed to be incorporated by
reference therein) to which the holders of a majority of the Registrable
Securities covered by such Registration Statement, the Special Counsel or the
managing underwriter, if any, shall reasonably object on a timely basis.
(b) Prepare and file with the SEC such amendments and
post-effective amendments to each Registration Statement as may be necessary to
keep such Registration Statement continuously effective for the applicable
period specified in Section 2; cause the related Prospectus to be supplemented
by any required Prospectus supplement, and as so supplemented to be filed
pursuant to Rule 424 (or any similar provisions then in force) under the
Securities Act; and comply with the provisions of the Securities Act with
respect to the disposition of all securities covered by such Registration
Statement during the applicable period in accordance with the intended methods
of disposition by the sellers thereof set forth in such Registration Statement
as so amended or to such Prospectus as so supplemented.
-6-
<PAGE> 7
(c) Notify the selling holders of Registrable Securities,
the Special Counsel and the managing underwriters, if any, promptly, and (if
requested by any such person) confirm such notice in writing, (i) when a
Prospectus or any Prospectus supplement or post-effective amendment has been
filed, and, with respect to a Registration Statement or any post-effective
amendment, when the same has become effective, (ii) of any request by the SEC
or any other federal or state governmental authority for amendments or
supplements to a Registration Statement or related Prospectus or for additional
information, (iii) of the issuance by the SEC or any other federal or state
governmental authority of any stop order suspending the effectiveness of a
Registration Statement or the initiation of any proceedings for that purpose,
(iv) if at any time the representations and warranties of the Company contained
in any agreement contemplated by Section 4(n) hereof (including any
underwriting agreement) cease to be true and correct, (v) of the receipt by the
Company of any notification with respect to the suspension of the qualification
or exemption from qualification of any of the Registrable Securities for sale
in any jurisdiction or the initiation or threatening of any proceeding for such
purpose, (vi) of the occurrence of any event which makes any statement made in
such Registration Statement or related Prospectus or any document incorporated
or deemed to be incorporated therein by reference untrue in any material
respect or which requires the making of any changes in a Registration
Statement, Prospectus or documents so that, in the case of the Registration
Statement, it will not contain any untrue statement of a material fact or omit
to state any material fact required to be stated therein or necessary to make
the statements therein not misleading and, in the case of the Prospectus, it
will not contain any untrue statement of a material fact or omit to state any
material fact required to be stated or is necessary to make the statements
therein, in light of the circumstances under which they were made, not
misleading, and (vii) of the Company's reasonable determination that a
post-effective amendment to a Registration Statement would be appropriate.
(d) Use every reasonable effort to obtain the withdrawal
of any order suspending the effectiveness of a Registration Statement, or the
lifting of any suspension of the qualification (or exemption from
qualification) of any of the Registrable Securities for sale in any
jurisdiction, at the earliest possible moment.
(e) If requested by the managing underwriters, if any, or
the holders of a majority of the Registrable Securities being registered, (i)
promptly incorporate in a Prospectus supplement or post-effective amendment
such information as the managing underwriters, if any, and such holder agree
should be included therein as may be required by applicable law and (ii) make
all required filings of such Prospectus supplement or such post-
-7-
<PAGE> 8
effective amendment as soon as practicable after the Company has received
notification of the matters to be incorporated in such Prospectus supplement or
post-effective amendment; provided, however, that the Company will not be
required to take any actions under this Section 4(e) that are not, in the
opinion of counsel for the Company, in compliance with applicable law.
(f) Furnish to each selling holder of Registrable
Securities, the Special Counsel and each managing underwriter, if any, without
charge, at least one conformed copy of the Registration Statement and any
post-effective amendment thereto, including financial statements (but excluding
schedules, all documents incorporated or deemed incorporated therein by
reference and all exhibits, unless requested in writing by such holder, counsel
or underwriter).
(g) Deliver to each selling holder of Registrable
Securities, the Special Counsel and the underwriters, if any, without charge,
as many copies of the Prospectus or Prospectuses relating to such Registrable
Securities (including each preliminary prospectus) and any amendment or
supplement thereto as such persons may request; and the Company hereby consents
to the use of such Prospectus or each amendment or supplement thereto by each
of the selling holders or Registrable Securities and the underwriters, if any,
in connection with the offering and sale of the Registrable Securities covered
by such Prospectus or any amendment or supplement thereto.
(h) Prior to any public offering of Registrable
Securities, to register or qualify or cooperate with the selling holders of
Registrable Securities, the underwriters, if any , and their respective counsel
in connection with the registration or qualification (or exemption from such
registration or qualification) of such Registrable Securities for offer and
sale under the securities or blue sky laws of such jurisdictions within the
United States as any seller or underwriter reasonably requests in writing; use
all reasonable efforts to keep each such registration or qualification (or
exemption therefrom) effective during the period such Registration Statement is
required to be kept effective and do any and all other acts or things necessary
or advisable to enable the disposition in such jurisdiction of the Registrable
Securities covered by the applicable Registration Statement; provided, however,
that the Company will not be required to (i) qualify to do business in any
jurisdiction in which it is not then so qualified or (ii) take any action that
would subject it to general service of process in any such jurisdiction in
which it is not then so subject.
(i) Cooperate with the selling holders of Registrable
Securities and the managing underwriters, if any, to facilitate the timely
preparation and delivery of certificates representing
-8-
<PAGE> 9
Registrable Securities to be sold and enable such Registrable Securities to be
in such denominations and registered in such names as the managing
underwriters, if any, shall request at least two business days prior to any
sale of Registrable Securities to the underwriters.
(j) Use all reasonable efforts to cause the Registrable
Securities covered by the applicable Registration Statement to be registered
with or approved by such other governmental agencies or authorities within the
United States except as may be required solely as a consequence of the nature
of such selling holder's business, in which case the Company will cooperate in
all reasonable respects with the filing of such Registration Statement and the
granting of such approvals as may be necessary to enable the seller or sellers
thereof or the underwriters, if any, to consummate the disposition of such
Registrable Securities.
(k) Upon the occurrence of any event contemplated by
Section 4(c)(vi) or 4(c)(vii) hereof, prepare a supplement or post-effective
amendment to each Registration Statement or a supplement to the related
Prospectus or any document incorporated therein by reference or file any other
required document so that, as thereafter delivered to the purchasers of the
Registrable Securities being sold thereunder, such Prospectus will not contain
an untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements therein, in
light of the circumstances under which they were made, not misleading.
(l) Use all reasonable efforts to cause all Registrable
Securities covered by such Registration Statement to be (i) listed on each
securities exchange, if any, on which similar securities issued by the Company
are then listed or, if no similar securities issued by the Company are then so
listed, on the New York Stock Exchange or another national securities exchange
if the securities qualify to be so listed or (ii) authorized to be quoted on
the National Association of Securities Dealers Automated Quotation System
("NASDAQ") or the National Market System of NASDAQ if the securities qualify to
be so quoted; in each case, if requested by the holders of a majority of the
Registrable Securities covered by such Registration Statement or the managing
underwriters, if any.
(m) Prior to the effective date of any Demand
Registration, (i) engage an appropriate transfer agent and provide the transfer
agent with printed certificates for the Registrable Securities in a form
eligible for deposit with The Depository Trust Company and (ii) provide a CUSIP
number for the Registrable Securities.
(n) Enter into such agreements (including, in the event
of an underwritten offering, an underwriting agreement in form,
-9-
<PAGE> 10
scope and substance as is customary in underwritten offerings) and take all
such other actions in connection therewith (including those requested by the
holders of a majority of the Registrable Securities being sold or,in the event
of an underwritten offering, those requested by the managing underwriters) in
order to expedite or facilitate the disposition of such Registrable Securities
and in such connection, whether or not an underwriting agreement is entered
into and whether or not the registration is an underwritten registration, (i)
make such representations and warranties to the holders of such Registrable
Securities and the underwriters, if any, with respect to the business of the
Company and its subsidiaries, the Registration Statement, Prospectus and
documents incorporated by reference or deemed incorporated by reference, if
any, in each case, in form, substance and scope as are customarily made by
issuers to underwriters in underwritten offerings and confirm the same if and
when requested; (ii) obtain opinions of counsel to the Company and updates
thereof (which counsel and opinions (in form, scope and substance) shall be
reasonably satisfactory to the managing underwriters, if any, and the holders
of a majority of the Registrable Securities being sold) addressed to such
selling holder of Registrable Securities and each of the underwriters, if any,
covering the matters customarily covered in opinions requested in underwritten
offerings and such other matters as may be reasonably requested by such holders
and underwriters, including without limitation the matters referred to in
Section 4(n)(i) hereof; (iii) use its best efforts to obtain "comfort" letters
and updates thereof from the independent certified public accountants of the
Company (and, if necessary, any other certified public accountants of any
subsidiary of the Company or of any business acquired by the Company for which
financial statements and financial data is, or is required to be, included in
the Registration Statement), addressed to each selling holder of Registrable
Securities and each of the underwriters, if any, such letters to be in
customary form and covering matters of the type customarily covered in
"comfort" letters in connection with underwritten offerings; and (iv) deliver
such documents and certificates as may be requested by the holders of a
majority of the Registrable Securities being sold, the Special Counsel and the
managing underwriters, if any, to evidence the continued validity of the
representations and warranties of the Company and its subsidiaries made
pursuant to clause (i) above and to evidence compliance with any customary
conditions contained in the underwriting agreement or similar agreement entered
into by the Company. The foregoing actions will be taken in connection with
each closing under such underwriting or similar agreement as and to the extent
required thereunder.
(o) Make available for inspection by a representative of
the holders of Registrable Securities being sold, any underwriter participating
in any disposition of Registrable Securities, and any attorney or accountant
retained by such selling holders or
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<PAGE> 11
underwriter, all financial and other records, pertinent corporate documents and
properties of the Company and its subsidiaries, and cause the officers,
directors and employees of the Company and its subsidiaries to supply all
information reasonably requested by any such representative, underwriter,
attorney or accountant in connection with such Registration Statement;
provided, however, that any records, information or documents that are
designated by the Company in writing as confidential at the time of delivery of
such records, information or documents will be kept confidential by such
persons unless (i) such records, information or documents are in the public
domain or otherwise publicly available, (ii) disclosure of such records,
information or documents is required by court or administrative order or is
necessary to respond to inquiries of regulatory authorities, or (iii)
disclosure of such records, information or documents, in the opinion of counsel
to such person, is otherwise required by law (including, without limitation,
pursuant to the requirements of the Securities Act).
(p) Comply with all applicable rules and regulations of
the SEC and make generally available to its security holders earning statements
satisfying the provisions of Section 11(a) of the Securities Act and Rule 158
thereunder (or any similar rule promulgated under the Securities Act) no later
than 45 calendar days after the end of any 12-month period (or 90 calendar days
after the end of any 12-month period if such period is a fiscal year) (i)
commencing at the end of any fiscal quarter in which Registrable Securities are
sold to underwriters in a firm commitment or best efforts underwritten
offering, and (ii) if not sold to underwriters in such an offering, commencing
on the first day of the first fiscal quarter of the Company, after the
effective date of a Registration Statement, which statements shall cover said
12-month period.
The Company may require each seller of Registrable Securities as to
which any registration is being effected to furnish to the Company such
information regarding the distribution of such Registrable Securities as the
Company may, from time to time, reasonably request in writing and the Company
may exclude from such registration the Registrable Securities of any seller who
unreasonably fails to furnish such information within a reasonable time after
receiving such request.
Each holder of Registrable Securities will be deemed to have agreed by
virtue of its acquisition of such Registrable Securities that, upon receipt of
any notice from the Company of the occurrence of any event of the kind
described in Section 4(c)(ii), 4(c)(iii), 4(c)(v), 4(c)(vi) or 4(c)(vii)
hereof, such holder will forthwith discontinue disposition of such Registrable
Securities covered by such Registration Statement or Prospectus until such
holder's receipt of the copies of the supplemented or amended Prospectus
contemplated by Section 4(k) hereof, or until it is advised in
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<PAGE> 12
writing (the "Advice") by the Company that the use of the applicable Prospectus
may be resumed, and has received copies of any additional or supplemental
filings that are incorporated or deemed to be incorporated by reference in such
Prospectus.
6. Registration Expenses. (a) All fees and expenses incident to
the performance of or compliance with this Agreement by the Company will, as
between the Company and each holder of Registrable Securities, be borne by the
Company whether or not any of the Registration Statements become effective.
Such fees and expenses will include, without limitation, (i) all registration
and filing fees (including without limitation fees and expenses (x) with
respect to filings required to be made with the National Association of
Securities Dealers, Inc. and (y) of compliance with securities or "blue sky"
laws (including without limitation fees and disbursements of counsel for the
underwriters or selling holders in connection with "blue sky" qualifications of
the Registrable Securities and determination of the eligibility of the
Registrable Securities for investment under the laws of such jurisdictions as
the managing underwriters, if any, or holders of a majority of the Registrable
Securities being sold may designate)), (ii) printing expenses (including
without limitation expenses of printing certificates for Registrable Securities
in a form eligible for deposit with The Depository Trust Company and of
printing prospectuses if the printing of prospectuses is requested by the
holders of a majority of the Registrable Securities included in any
Registration Statement), (iii) messenger, telephone and delivery expenses, (iv)
fees and disbursements of counsel for the Company and the Special Counsel for
the sellers of the Registrable Securities, (v) fees and disbursements of all
independent certified public accountants referred to in Section 4(n)(iii)
hereof (including the expenses of any special audit and "comfort" letters
required by or incident to such performance), (vi) any fees and expenses of any
"qualified independent underwriter" or other independent appraiser
participating in an offering pursuant to Section 3 of Schedule E to the By-laws
of the National Association of Securities Dealers, Inc., (vii) Securities Act
liability insurance if the Company so desires such insurance, and (viii) fees
and expenses of all other persons retained by the Company. In addition, the
Company will pay its internal expenses (including without limitation all
salaries and expenses of its officers and employees performing legal or
accounting duties), the expense of any annual audit, the fees and expenses
incurred in connection with the listing of the securities to be registered on
any securities exchange on which similar securities issued by the Company are
then listed and the fees and expenses of any person, including special experts,
retained by the Company. In no event, however, will the Company be responsible
for any underwriting discount or selling commission with respect to any sale of
Registrable Securities pursuant to this Agreement.
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<PAGE> 13
(b) In connection with any Demand Registration hereunder,
the Company will reimburse the holders of the Registrable Securities being
registered in such registration for the reasonable fees and disbursements of
not more than one counsel (the "Special Counsel"), together with appropriate
local counsel, chosen by the holders of a majority of the Registrable
Securities being registered.
7. Indemnification. (a) Indemnification by the Company. The
Company will, without limitation as to time, indemnify and hold harmless, to
the fullest extent permitted by law, each holder of Registrable Securities
registered pursuant to this Agreement, the officers, directors and agents and
employees of each of them, each person who controls such holder (within the
meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act)
and the officers, directors, agents and employees of any such controlling
person, from and against all losses, claims, damages, liabilities, costs
(including without limitation the costs of investigation and attorneys' fees)
and expenses (collectively, "Losses"), as incurred, arising out of or based
upon any untrue or alleged untrue statement of a material fact contained in any
Registration Statement, Prospectus or form of Prospectus or in any amendment or
supplement thereto or in any preliminary prospectus, or arising out of or based
upon any omission or alleged omission to state therein a material fact required
to be stated therein or necessary to make the statements therein not
misleading, except insofar as the same are based solely upon information
furnished in writing to the Company by such holder expressly for use therein;
provided, however, that the Company will not be liable to any holder of
Registrable Securities to the extent that any such Losses arise out of or are
based upon an untrue statement or alleged untrue statement or omission or
alleged omission made in any preliminary prospectus if either (A) (i) such
holder failed to send or deliver a copy of the Prospectus with or prior to the
delivery of written confirmation of the sale by such holder of a Registrable
Security to the person asserting the claim from which such Losses arise and
(ii) the Prospectus would have completely corrected such untrue statement or
alleged untrue statement or such omission or alleged omission; or (B) such
untrue statement or alleged untrue statement, omission or alleged omission is
completely corrected in an amendment or supplement to the Prospectus previously
furnished by or on behalf of the Company with copies of the Prospectus as so
amended or supplemented, and such holder thereafter fails to deliver such
Prospectus as so amended or supplemented prior to or concurrently with the sale
of a Registrable Security to the person asserting the claim from which such
Losses arise.
(b) Indemnification by Holders of Registrable Securities.
In connection with any Registration Statement in which a holder of Registrable
Securities is participating, such holder of Registrable Securities will furnish
to the Company in writing
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<PAGE> 14
such information as the Company reasonably requests for use in connection with
any Registration statement or Prospectus and will indemnify, to the fullest
extent permitted by law, the Company, its directors and officers, agents and
employees, each person who controls the Company (within the meaning of Section
15 of the Securities Act and Section 20 of the Exchange Act), and the
directors, officers, agents or employees of such controlling persons, from and
against all Losses arising out of or based upon any untrue statement of a
material fact contained in any Registration Statement, Prospectus or
preliminary prospectus or arising out of or based upon any omission of a
material fact required to be stated therein or necessary to make the statements
therein not misleading, to the extent, but only to the extent, that such untrue
statement or omission is contained in any information so furnished in writing
by such holder to the Company expressly for use in such Registration statement
or Prospectus and was relied upon by the Company in the preparation of such
Registration Statement, Prospectus or preliminary prospectus. In no event will
the liability of any selling holder of Registrable Securities hereunder be
greater in amount than the dollar amount of the proceeds (net of payment of all
expenses) received by such holder upon the sale of the Registrable Securities
giving rise to such indemnification obligation.
(c) Conduct of Indemnification Proceedings. If any
person shall become entitled to indemnity hereunder (an "indemnified party"),
such indemnified party shall give prompt notice to the party from which such
indemnity is sought (the "indemnifying party") of any claim or of the
commencement of any action or proceeding with respect to which such indemnified
party seeks indemnification or contribution pursuant hereto; provided, however,
that the failure to so notify the indemnifying party will not relieve the
indemnifying party from any obligation or liability except to the extent that
the indemnifying party has been prejudiced materially by such failure. All
fees and expenses (including any fees and expenses incurred in connection with
investigating or preparing to defend such action or proceeding) will be paid to
the indemnified party, as incurred, within five calendar days of written notice
thereof to the indemnifying party (regardless of whether it is ultimately
determined that an indemnified party is not entitled to indemnification
hereunder). The indemnifying party will not consent to entry of any judgment
or enter into any settlement or otherwise seek to terminate any action or
proceeding in which any indemnified party is or could be a party and as to
which indemnification or contribution could be sought by such indemnified party
under this Section 6, unless such judgment, settlement or other termination
includes as an unconditional term thereof the giving by the claimant or
plaintiff to such indemnified party of a release, in form and substance
satisfactory to the indemnified party, from all liability in respect of such
claim or
-14-
<PAGE> 15
litigation for which such indemnified party would be entitled to
indemnification hereunder.
(d) Contribution. If the indemnification provided for in
this Section 6 is unavailable to an indemnified party under Section 6(a) or
6(b) hereof in respect of any Losses or is insufficient to hold such
indemnified party harmless, then each applicable indemnifying party, in lieu of
indemnifying such indemnified party, will, jointly and severally, contribute to
the amount paid or payable by such indemnified party as a result of such
Losses, in such proportion as is appropriate to reflect the relative fault of
the indemnifying party or indemnifying parties, on the one hand, and such
indemnified party, on the other hand, in connection with the actions, statement
or omissions that resulted in such Losses as well as any other relevant
equitable considerations. The relative fault of such indemnifying party or
indemnifying parties, on the one hand, and such indemnified party, on the other
hand, will be determined by reference to, among other things, whether any
action in question, including any untrue or alleged untrue statement of a
material fact or omission or alleged omission of a material fact, has been
taken or made by, or related to information supplied by, such indemnifying
party or indemnified party, and the parties' relative intent, knowledge, access
to information and opportunity to correct or prevent such action, statement or
omission. The amount paid or payable by a party as a result of any Losses will
be deemed to include any legal or other fees or expenses incurred by such party
in connection with any action or proceeding.
The parties hereto agree that it would not be just and equitable if
contribution pursuant to this Section 6(d) were determined by pro rata
allocation or by any other method of allocation that does not take into account
the equitable considerations referred to in the immediately preceding
paragraph. Notwithstanding the provision of this Section 6(d), an indemnifying
party that is a selling holder of Registrable Securities will not be required
to contribute any amount in excess of the amount by which the total price at
which the Registrable Securities sold by such indemnifying party and
distributed to the public were offered to the public exceed the amount of any
damages which such indemnifying party has otherwise been required to pay by
reason of such untrue or alleged untrue statement or omission or alleged
omission. No person guilty of fraudulent misrepresentation (within the meaning
of Section 11(f) of the Securities Act) will be entitled to contribution from
any person who was not guilty of such fraudulent misrepresentation.
The indemnity, contribution and expense reimbursement obligations of
the Company hereunder will be in addition to any liability the Company may
otherwise have hereunder or otherwise. The provisions of this Section 6 will
survive so long as
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<PAGE> 16
Registrable Securities remain outstanding, notwithstanding any transfer of the
Registrable Securities by any holder thereof or any termination of this
Agreement.
8. Rule 144. The Company will file the reports required to be
filed by it under the Securities Act and the Exchange Act, and will cooperate
with any holder of Registrable Securities (including without limitation by
making such representations as any such holder may reasonably request), all to
the extent required from time to time to enable such holder to sell Registrable
Securities without registration under the Securities Act within the limitations
of the exemptions provided by Rule 144. Upon the request of any holder of
Registrable Securities, the Company will deliver to such holder a written
statement as to whether it has complied with such filing requirements.
Notwithstanding the foregoing, nothing in this Section 7 will be deemed to
require the Company to register any of its securities under any section of the
Exchange Act.
9. Underwritten Registrations. If any of the Registrable
Securities covered by any Demand Registration are to be sold in an underwritten
offering, the investment banker or investment bankers and manager or managers
that will manage the offering will be selected by the holders of a majority of
the Registrable Securities included in the Demand Notice; provided, that such
investment banker or manager shall be reasonably satisfactory to the Company.
10. Miscellaneous. (a) Remedies. In the event of a breach by
the Company of its obligations under this Agreement, each holder of Registrable
Securities, in addition to being entitled to exercise all rights granted by
law, including recovery of damages, will be entitled to specific performance of
its rights under this Agreement. The Company agrees that monetary damages
would not be adequate compensation for any loss incurred by reason of a breach
by it of any of the provisions of this Agreement and hereby further agrees
that, in the event of any action for specific performance in respect of such
breach, it will waive the defense that a remedy at law would be adequate.
(b) No Inconsistent Agreements. The Company has not, as
of the date hereof, and will not, on or after the date hereof, enter into any
agreement with respect to its securities which is inconsistent with the rights
granted to the holders of Registrable Securities in this Agreement or otherwise
conflicts with the provisions hereof. The parties to this Agreement, however,
acknowledge the existence of the Formation Registration Rights and the GE
Registration Rights.
(c) Amendments and Waivers. The provisions of this
Agreement, including the provisions of this sentence, may not be amended,
modified or supplemented, and waivers or consents to
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<PAGE> 17
departures from the provisions hereof may not be given, unless the Company has
obtained the written consent of the holders of 90% of the then-outstanding
Registrable Securities.
(d) Notices. All notices and other communications
provided for or permitted hereunder shall be made in writing and will be deemed
given (i) when made, if made by hand delivery, (ii) upon confirmation, if made
by telecopier, or (iii) one business day after being deposited with a reputable
next-day courier, to the parties as follows:
(x) if to the Company, initially at 2001 Bryan
Street, Suite 2300, Dallas, Texas 75201, Telecopier Number (214) 863-1262
Attention: General Counsel, and thereafter at such other address, notice of
which is given to the holders of Registrable Securities in accordance with the
provisions of this Section 11(d); and
(y) if to any holder of Registrable Securities,
at the most current address given by such holder to the Company in accordance
with the provisions of this Section 9(d).
(e) Owner of Registrable Securities. The Company will
maintain, or will cause its registrar and transfer agent to maintain, a stock
book with respect to the Common Stock, in which all transfers of Registrable
Securities of which the Company has received notice will be recorded. The
Company may deem and treat the person in whose name Registrable Securities are
registered in the stock book of the Company as the owner thereof for all
purposes, including without limitation the giving of notices under this
Agreement.
(f) Successors and Assigns. This Agreement will inure to
the benefit of and be binding upon the successors and assigns of each of the
parties, provided, however, that the benefits of this Agreement may be assigned
by Smith Barney only to one or more of its Affiliates that holds Registrable
Securities. Notwithstanding the foregoing, no transferee will have any of the
rights granted under this Agreement (i) until such transferee shall have
acknowledged its rights and obligations hereunder by a signed written statement
of such transferee's acceptance of such rights and obligations or (ii) if the
transferor notifies the Company in writing on or prior to such transfer that
the transferee shall not have such rights.
(g) Counterparts. This Agreement may be executed in any
number of counterparts and by the parties hereto in separate counterparts, each
of which when so executed will be deemed to be an original and all of which
taken together will constitute one and the same instrument.
-17-
<PAGE> 18
(h) Headings. The headings in this Agreement are for
convenience of reference only and will not limit or otherwise affect the
meaning hereof.
(i) Governing Law. THIS AGREEMENT WILL BE GOVERNED BY
AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF TEXAS, AS APPLIED TO
CONTRACTS MADE AND PERFORMED WITHIN THE STATE OF TEXAS, WITHOUT REGARD TO
PRINCIPLES OF CONFLICT OF LAWS.
(j) Severability. If any term, provision, covenant or
restriction of this Agreement is held by a court of competent jurisdiction to
be invalid, void or unenforceable, the remainder of the terms, provisions,
covenants and restrictions set forth herein will remain in full force and
effect and will in no way be affected, impaired or invalidated, and the parties
hereto will use their best efforts to find and employ an alternative means to
achieve the same or substantially the same result as that contemplated by such
term, provision, covenant or restriction. It is hereby stipulated and declared
to be the intention of the parties that they would have executed the remaining
terms, provisions, covenants and restrictions without including any of such
which may be hereafter declared invalid, void or unenforceable.
(k) Entire Agreement. This Agreement is intended by the
parties as a final expression of their agreement and is intended to be a
complete and exclusive statement of the agreement and understanding of the
parties hereto in respect of the registration rights granted by the Company
with respect to the Registrable Securities. This Agreement supersedes all
prior agreements and understandings among the parties with respect to such
registration rights.
(l) Attorneys' Fees. In any action or proceeding brought
to enforce any provision of this Agreement, or where any provision hereof is
validly asserted as a defense, the prevailing party, as determined by the
court, will be entitled to recover reasonable attorneys' fees in addition to
any other available remedy.
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<PAGE> 19
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first written above.
WYNDHAM HOTEL CORPORATION
By: /s/ JAMES D. CARREKER
------------------------------------
Name: James D. Carreker
----------------------------------
Title: President
---------------------------------
SMITH BARNEY INC.
By: /s/ LOUIS A. KORAHIS
------------------------------------
Name: Louis A. Korahis
----------------------------------
Title: Senior Vice President
---------------------------------
-19-
<PAGE> 20
CONSENT
Pursuant to the provisions of the Registration Rights Agreement dated
as of May 24, 1996 among the Company and the other parties listed on the
signature pages thereof, the undersigned hereby consent to the granting of the
registration rights provided for by this Agreement; provided, that it shall be
understood that such consent is given in consideration of the grant herein to
CF Securities, L.P., Wynopt Investment Partnership Level II, L.P., Wynopt
Investment Partnership, L.P., Anne L. Raymond, Susan T. Groenteman and Trammell
S. Crow of certain piggyback registration rights.
/s/ JAMES D. CARREKER
-----------------------------------
James D. Carreker
THE CARREKER DESCENDANTS TRUST
By: /s/ JAMES D. CARREKER
--------------------------------
Name: James D. Carreker
Title: Special Trustee
/s/ LESLIE V. BENTLEY
-----------------------------------
Leslie V. Bentley
THE BROOKE ANDREA BENTLEY TRUST
By: /s/ LESLIE V. BENTLEY
--------------------------------
Name: Leslie V. Bentley
Title: Special Trustee
THE KRISTIN MICHELLE SCHAFFNER TRUST
By: /s/ LESLIE V. BENTLEY
--------------------------------
Name: Leslie V. Bentley
Title: Special Trustee
<PAGE> 21
THE LISA SUSANNE BENTLEY TRUST
By: /s/ LESLIE V. BENTLEY
--------------------------------
Name: Leslie V. Bentley
Title: Special Trustee
THE WENDI ELIZABETH SCHAFFNER TRUST
By: /s/ LESLIE V. BENTLEY
--------------------------------
Name: Leslie V. Bentley
Title: Special Trustee
/s/ ANNE L. RAYMOND
-----------------------------------
Anne L. Raymond
/s/ STANLEY M. KOONCE, JR.
-----------------------------------
Stanley M. Koonce, Jr.
WYNDHAM EMPLOYEES LTD.
By: Wyndham Hotel Management
Corporation, General
Partner
By: /s/ JAMES D. CARREKER
-----------------------
Name: James D. Carreker
Title: President
WYNDHAM HOTEL MANAGEMENT
CORPORATION
By: /s/ JAMES D. CARREKER
--------------------------------
Name: James D. Carreker
Title: President
<PAGE> 22
/s/ TRAMMEL S. CROW
-----------------------------------
Trammell S. Crow
CF SECURITIES, L.P.
By: Mill Spring Holdings, Inc.,
General Partner
By: /s/ SUSAN T. GROENTEMAN
---------------------------
Name: Susan T. Groenteman
-------------------------
Title: Vice President
------------------------
WYNOPT INVESTMENT PARTNERSHIP
LEVEL II, L.P.
By: Hampstead GenPar, L.P.,
General Partner
By: HH GenPar Partners,
General Partner
By: Hampstead Associates,
Inc., General Partner
By: /s/ DANIEL A. DECKER
----------------------
Name:
--------------------
Title:
-------------------
WYNOPT INVESTMENT PARTNERSHIP, L.P.
By: Wynopt Investment GenPar,
Inc., General Partner
By: /s/ DANIEL A. DECKER
---------------------------
Name:
-------------------------
Title:
------------------------
/s/ SUSAN T. GROENTEMAN
-----------------------------------
Susan T. Groenteman
<PAGE> 1
EXHIBIT 10.16
REGISTRATION RIGHTS AGREEMENT
REGISTRATION RIGHTS AGREEMENT dated as of April 29, 1996 made and
entered into by and between WYNDHAM HOTEL COMPANY LTD., a Texas limited
partnership (the "Company"), the various financial institutions (individually a
"Lender" and collectively the "Lenders") as are, or may from time to time
become, parties hereto and GENERAL ELECTRIC INVESTMENT CORPORATION, a Delaware
corporation, as agent (together with its successor(s) thereto in such capacity,
the "Agent") for each of the Lenders.
WHEREAS, the Company, the Agent and the Lenders have entered into a
certain Credit Agreement, dated as of June 30, 1995 (as amended from time to
time, including any refinancing in whole or in part thereof, the "Credit
Agreement").
WHEREAS, in connection with the transactions contemplated by the
Credit Agreement, the Lenders have extended commitments to make loans to the
Company and the Company has executed and delivered a promissory note in the
original principal amount of $20,000,000 (U.S.) (a "Note" together with any
senior promissory notes of the Company delivered to a Lender pursuant to the
Credit Agreement, each a "Note" and collectively referred to herein as the
"Notes") and a Security Agreement (the "Company Security Agreement") and has
caused its subsidiaries to execute and deliver a Subsidiaries Security
Agreement (the "Subsidiaries Security Agreement") (the Company Security
Agreement and the Subsidiaries Security Agreement are collectively referred to
herein as the "Security Agreements") to secure the Company's obligations under
the Notes; and
WHEREAS, in order to induce the Lenders to extend commitments to make
loans to the Company, and to accept the Notes and to agree to the collateral
arrangements under the Security Agreements, the Company has agreed to offer to
each Lender the option to acquire shares of common stock of the Company upon a
Public Offering (as defined below), as provided in the Credit Agreement, and
the Company has agreed to grant registration rights with respect to the Option
Stock in favor of the Lenders in accordance with the terms of this Registration
Rights Agreement;
NOW, THEREFORE, in consideration of the mutual covenants and
agreements set forth in this Registration Rights Agreement, and for other good
and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto agree as follows:
<PAGE> 2
1. Certain Terms. The following terms (whether or not underscored)
when used in this Registration Rights Agreement, including its preamble and
recitals, shall have the following meanings (such definitions to be equally
applicable to the singular and plural forms thereof):
"Business Day" means any day which is neither a Saturday or Sunday
nor a legal holiday on which banks are authorized or required to be closed in
New York, New York.
"Common Stock" means the common stock of the Issuer to be registered
pursuant to the Registration Statement and issued pursuant to the Public
Offering.
"Effective Date" means the effective date of the Registration
Statement.
"Exchange Act" means the Securities Exchange Act of 1934 (and any
successor law), and the rules and regulations thereunder, all as amended from
time to time.
"Issuer" means the Company or any other Person, whether now existing
or hereafter organized, who succeeds to ownership of all or a material portion
of the equity assets or business of the Company.
"Lock Out Period" means the period of six (6) months following the
Effective Date for the Public Offering during which no Lender shall effect any
public sale of Option Stock.
"Option Stock" means the Common Stock of the Issuer issued to any of
the Lenders pursuant to Article X of the Credit Agreement.
"Person" means any natural person, corporation, limited or general
partnership, firm, limited liability company, association, trust, government,
governmental agency or any other entity, whether acting in an individual,
fiduciary or other capacity.
"Public Offering" means the initial public offering of equity
securities in the Issuer pursuant to a registration statement under the
Securities Act.
"Registration Statement" means the registration statement on Form S-1
or Form S-18 (or any successor or other applicable form) to be filed by the
Issuer with the United States Securities and Exchange Commission to effect the
Public Offering, including all exhibits and schedules thereto and amendments
thereof and, where the context so requires, the prospectus used in connection
therewith.
2
<PAGE> 3
"Required Lenders" means, at any time, Lenders holding at least
66-2/3% of the Commitment Amount (whether used or unused) or, if the Commitment
Termination Date has occurred, Lenders holding at least 66-2/3% of the then
aggregate principal amount of all outstanding Loans (as defined in the Credit
Agreement).
"Securities Act" means the Securities Act of 1933 (and any successor
law), and the rules and regulations thereunder, all as amended from time to
time.
"Underwriter" means a securities dealer who purchases any Common
Stock as a principal in connection with a distribution of such Common Stock and
not as part of such dealer's market making activities.
2. Demand Registration.
(a) Request for Registration. Promptly upon the written request by
the Lenders (acting by majority based on the number of shares of Option Stock
held by all the Lenders), made one time at any time during the period from and
after the Lock-Out Period to and including the date two years following the
last date of any acquisition of Option Stock by any Lender (the "Registration
Period") and, in any event, not later than 60 days after any such request, the
Issuer shall file a registration statement under the Securities Act and any
applicable state securities laws covering such of the Option Stock that the
Lenders desire to register and use its best efforts to maintain the related
registration statement in effect for a period of not less than one hundred and
eighty (180) days. Such request shall specify the number of shares of Option
Stock proposed to be sold and the intended method of disposition. No other
persons (including the Company) shall be entitled to include any securities in
any registration pursuant to this Paragraph 2 without the prior written consent
of the Lenders, which consent may be withheld for any reason or for no reason.
The limitation on the number of registration requests which may be made
pursuant hereto is one. Notwithstanding the foregoing, the Issuer shall not be
obligated to effect a registration of shares of Option Stock unless the market
value of the shares to be registered exceeds $1,000,000.
(b) Effective Registration. The Company shall be deemed to have
satisfied an obligation to register Option Stock pursuant to Paragraph 2(a)
hereof only when a registration statement covering all of the Option Stock
specified in the request, for sale in accordance with the method of disposition
specified in the request, shall have become effective under the Securities Act
and the period of distribution of the registration contemplated thereby has
been completed or the period during which the Company is required to maintain
the registration statement in effect has expired.
(c) Underwriting. If the Lenders so elect, the offering of Option
Stock pursuant to Paragraph 2(a) shall be in the form of an underwritten
offering.
3
<PAGE> 4
The Lenders shall select the book-running managing Underwriter in connection
with such offering and any additional investment bankers and managers to be
used in connection with the offering; provided, however, that General Electric
Pension Trust shall have the right, in its sole discretion, to disapprove of
any Underwriter in which General Electric Company has a direct or indirect
interest of 5% or more.
3. Piggy-Back Registration. If at any time during the Registration
Period the Company proposes to file a registration statement under the
Securities Act (other than on Form S-4 or S-8, or any substitute form that may
be adopted by the SEC, or filed in connection with an exchange offer or an
offering of securities solely to the Issuer's existing shareholders) with
respect to a public offering of Common Stock by the Issuer, then the Issuer
shall offer such Lenders the right to register shares of Option Stock for sale
in such offering on the same terms as shares to be sold by the Issuer (a
"Piggyback Registration"), subject to the discretion of the managing
Underwriter to limit or exclude shares of Option Stock from the offering if it
determines that the inclusion thereof would adversely affect the marketing of
the securities to be sold by the Issuer therein; provided, however, that if any
shares are to be included in such underwriting for the account of any person
other than the Company, the number of shares to be included by any such person
shall be reduced proportionately based on the number of shares sought to be
included by the Lenders and all such persons. There shall be no limitation on
the number of registration requests which may be made pursuant hereto.
4. Expenses. The Company shall pay all the expenses incurred in
connection with the registration of Option Stock pursuant to a Piggyback
Registration under Paragraph 3 hereof. The expenses incurred in connection with
the registration of Option Stock pursuant to a Demand Registration under
Paragraph 2 hereof shall be paid one-half by the Lenders up to $25,000 and the
remainder of such expenses shall be paid by the Company, unless the Lenders
withdraw shares of Option Stock so as to cause the number of shares included in
such Demand Registration to be reduced below the minimum market value specified
in Paragraph 2(a), in which case all such expenses shall be paid by the
Lenders. The expenses described in the two immediately preceding sentences
shall include, but not be limited to, all registration and filing fees,
printing expenses, and reasonable fees, expenses and disbursements of counsel
and accountants for the Company and/or the Issuer fees and expenses (including
reasonable counsel fees) incurred in connection with complying with state
securities or "blue sky" laws, fees of the National Association of Securities
Dealers, Inc., fees of a national securities exchange or the Nasdaq National
Market, transfer taxes, fees of transfer agents and registrars, costs of
securities act liability insurance if obtained by the Issuer, reasonable fees
and disbursements of one counsel (who shall be Dewey Ballantine or such other
counsel reasonably acceptable to the Issuer) for the Lenders and underwriting
discounts and selling commissions applicable to the sale of the Option Stock
whether or not any such
4
<PAGE> 5
registration statement becomes effective, to the extent permitted by applicable
law. Except as expressly provided above such expenses shall not include travel
or other out-of-pocket expenses of the Lenders or the fees of other counsel for
the Lenders.
5. Registration Procedures. Whenever the Company is required to
effect the registration of Option Stock pursuant to Paragraph 2 or 3 the
Company will use its best efforts to effect the registration and the sale of
such Option Stock in accordance with the intended method of disposition thereof
as quickly as practicable, and in connection with any such registration
request:
(a) Filing of Registration Statement. In connection with a
registration pursuant to Paragraph 2, the Company will as expeditiously as
possible, and within the period specified in such Paragraph 2, prepare and
file with the Securities and Exchange Commission (the "SEC") a
registration statement on any form for which the Company then qualifies or
which counsel for the Company shall deem appropriate and which form shall
be available for the sale of the Option Stock to be registered thereunder
in accordance with the intended method of distribution thereof, and use
its best efforts to cause such filed registration statement to become and
remain effective for a period of not less than 180 days.
(b) Filing of Amendments. The Company shall file such amendments and
supplements to the registration statement and the related prospectus and
take such other action as may be necessary to keep the registration
statement effective and to comply with the Securities Act with respect to
the disposition of all securities covered by such registration statement.
(c) Notice of Amendments. At any time when a prospectus relating to
the sale of Option Stock is required to be delivered under the Securities
Act, the Company will immediately notify the Lenders of the occurrence of
an event requiring the preparation of a supplement or amendment to such
prospectus so that, as thereafter delivered to the purchasers of such
Option Stock, such prospectus will not contain an untrue statement of a
material fact or omit to state any material fact required to be stated
therein or necessary to make the statements therein not misleading and
promptly make available to the Lenders any such supplement or amendment.
The Lenders agree that upon receipt of any notice from the Company of the
happening of any event of the kind described in the preceding sentence,
the Lenders will forthwith discontinue the offer and sale of Option Stock
pursuant to the registration statement covering such Option Stock until
receipt of the copies of such supplemented or amended prospectus and, if
so directed by the Company, the Lenders will deliver to the Company all
copies, other than permanent file copies then in the possession of the
Lenders, of the most recent prospectus covering such Option Stock at the
5
<PAGE> 6
time of receipt of such notice. In the event that the Company shall give
such notice, the Company shall extend the period during which such
registration statement shall be maintained effective as provided in
Paragraph 5(b) hereof by the number of days during the period from and
including the date of the giving of such notice to the date when the
Company shall make available to the Lenders such supplemented or amended
prospectus.
(d) Copies of Registration Statement. The Company will furnish to the
Lenders two copies of each of a registration statement, each amendment and
supplement thereto (in each case including all exhibits thereto and
documents incorporated by reference therein), the prospectus included in
such registration statement (including each preliminary prospectus).
(e) Stop Orders. After the filing of the registration statement, the
Company will promptly notify the Lenders of any stop order issued or
threatened by the SEC and will take all reasonable actions required to
prevent the entry of such stop order or to remove it if entered.
(f) Blue Sky. In connection with a registration pursuant to Paragraph
2, the Company shall (i) take such action under the securities laws of
such states as the Lenders shall reasonably request and (ii) cause such
Option Stock to be registered with or approved by such other governmental
agencies or authorities as may be necessary by virtue of the business and
operations of the Company; provided, however, that the Company shall not
be required (1) to qualify to do business as a foreign corporation in any
state where it would not otherwise be required to qualify but for this
Paragraph 5(I), (2) to subject itself to taxation in any such state other
than taxation arising with respect to the registration of securities or
(3) to file any general consent to service of process in any state.
(g) Further Assurances. In connection with a registration pursuant to
Paragraph 2, the Company will enter into customary agreements (including
an underwriting agreement in form reasonably acceptable to the Agent) and
take such other actions as are reasonably required in order to expedite or
facilitate the disposition of the Option Stock.
(h) Opinions and Comfort Letters. On the effective date of a
registration statement filed in connection with an underwritten offering,
the Company will use its best efforts to furnish to the Lenders a signed
counterpart, addressed to the Lenders, of (i) an opinion dated such date
of counsel representing the Company for the purposes of such registration,
stating that such registration statement has become effective under the
Securities Act and that (A) to the best knowledge of such counsel, no stop
6
<PAGE> 7
order suspending the effectiveness thereof has been issued and no
proceedings for that purpose have been instituted or are pending or
contemplated under the Securities Act, (B) the registration statement, the
related prospectus, and each amendment or supplement thereof, comply as to
form in all material respects with the requirements of the Securities Act
and the applicable rules and regulations of the Commission thereunder
(except that such counsel need not express any opinion as to financial
statements or financial or statistical information contained therein), (C)
during the course of such counsel's participation in the preparation of
the registration statement, no facts came to the attention of such counsel
that caused such counsel to believe that the registration statement, the
related prospectus, or any amendment or supplement thereof (other than the
financial statements and financial and statistical information) includes
any untrue statement of a material fact or omits to state any material
fact required to be stated therein or necessary to make the statements
therein not misleading in the light of the circumstances then existing,
and (D) to such other effects as may reasonably be requested by the
Lenders, providing, however, in no event shall such counsel be requested
to render any opinion to the Lenders not also requested by the managing
Underwriter and (ii) a letter dated such date from the independent public
accountants retained by the Company, addressed to the Lenders stating that
they are independent public accountants within the meaning of the
Securities Act and that, in the opinion of such accountants, the financial
statements of the Company included in the registration statement or the
prospectus, or any amendment or supplement thereof, comply as to the form
in all material respects with the applicable accounting requirements of
the Securities Act, and such letter shall additionally cover such other
financial matters (including information as to the period ending no more
than five business days prior to the date of such letter) with respect to
the registration in respect of which such letter is being given as the
Lenders may reasonably request; provided, however, in no event shall such
counsel be requested to render any opinion to the Lenders not also
requested by the managing Underwriter.
(i) Earnings Statement. The Company will otherwise comply with all
applicable rules and regulations of the SEC, and make available to its
securityholders, as soon as reasonably practicable, an earnings statement
covering a period of at least 12 months, beginning within three months
after the effective date of the registration statement, which earnings
statement shall satisfy the provisions of Section 11(a) of the Securities
Act and Rule 158 of the SEC's regulations thereunder.
(j) Securities Exchange Listing. If and so long as the Common Stock
is listed on any national securities exchange, the Company will, at its
expense, obtain promptly and maintain the approval for listing on each
such exchange upon official notice of issuance, of shares of Option Stock
7
<PAGE> 8
(k) Indemnification. (i) The Company shall indemnify and hold
harmless the Lenders and the Agent, each person who under the Securities
Act or the Exchange Act is deemed a controlling person of the Lenders and
the Agent, and their respective shareholders, officers, directors,
partners, trustees, employees and agents, against any losses, claims,
damages, liabilities or actions to which the Lenders, the Agent, their
respective controlling persons, or their respective shareholders,
officers, directors, partners, trustees, employees or agents, may become
subject under the Securities Act or otherwise, insofar as such losses,
claims, damages or liabilities (or actions in respect thereof) shall arise
out of, or be based upon, any untrue or allegedly untrue statement of any
material fact contained in the registration statement, any related
prospectus or preliminary prospectus or any amendment or supplement to the
registration statement or any prospectus or preliminary prospectus, or the
omission or alleged omission to state therein a material fact required to
be stated therein or necessary to make the statements therein not
misleading, and shall reimburse any legal or other expenses reasonably
incurred by the Lenders, the Agent, their respective controlling persons,
and their respective shareholders, officers, directors, partners,
trustees, employees and agents, in connection with investigating or
defending against any such loss, claim, damage, liability or action;
provided, however, that the Company shall not be liable to the Lenders,
the Agent, their respective controlling persons, or their respective
shareholders, officers, directors, partners, trustees, employees or
agents, for any losses, claims, damages, liabilities or actions insofar as
the same shall arise out of or be based upon any such untrue statement or
omission made in reliance upon and in conformity with written information
furnished by the Lenders, the Agent, their respective controlling persons,
or by their respective shareholders, officers, directors, partners,
trustees, employees or agents, seeking indemnification hereunder to the
Company for use in the registration statement, prospectus, preliminary
prospectus, amendment or supplement.
(ii) The Lenders shall similarly indemnify and hold harmless the
Company, its controlling persons and their respective shareholders,
officers, directors, partners, trustees, employees and agents, against any
such losses, claims, damages, liabilities or actions but only insofar as
the same shall arise out of or be based upon any untrue statement or
omission made in reliance upon and in conformity with written information
furnished by the Lenders to the Company for use in the registration
statement, prospectus, preliminary prospectus, amendment or supplement;
provided, however, that in no event shall any Lender's liability under
Section 5 exceed the amount of proceeds received by such Lender.
(iii) Each party entitled to indemnification under this Paragraph
5(k) (the "Indemnified Party") shall give notice to the party required to
provide
8
<PAGE> 9
indemnification (the "Indemnifying Party") promptly after such Indemnified
Party has actual knowledge of any claim as to which indemnity may be
sought, and shall permit the Indemnifying Party to assume the defense of
any such claim or any litigation resulting therefrom, provided, that
counsel for the Indemnifying Party, who shall conduct the defense of such
claim or litigation, shall be approved by the Indemnified Party (whose
approval shall not be unreasonably withheld); provided, further, that the
failure of any Indemnified Party to give notice as provided herein shall
not relieve the Indemnifying Party of its obligations under this Paragraph
5(k). The Indemnified Party may participate in such defense at such
party's expense; provided, however, that the Indemnifying Party shall pay
such expense if representation of such Indemnified Party by the counsel
retained by the Indemnifying Party would be inappropriate due to actual or
potential differing interests between the Indemnified Party and any other
party represented by such counsel in such proceeding. No Indemnifying
Party, in the defense of any such claim or litigation shall, except with
the consent of each Indemnified Party, consent to entry of any judgment or
enter into any settlement which does not (1) include as an unconditional
term thereof the giving by the claimant or plaintiff to such Indemnified
Party of a release from all liability in respect of such claim or
litigation and (2) provide that such Indemnified Party does not admit any
fault or guilt with respect to the subject matter of such claim or
litigation; and no Indemnified Party shall consent to entry of any
judgment or settle such claim or litigation without the prior written
consent of the Indemnifying Party, which shall not be unreasonably
withheld.
(l) Contribution. If the indemnification provided for herein is for
any reason unavailable to any Indemnified Party in respect of any losses,
claims, damages, liabilities or actions referred to herein, then each
Indemnifying Party, in lieu of indemnifying such Indemnified Party, shall
contribute to the amount paid or payable by such Indemnified Party as a
result of such losses, claims, damages, liabilities or actions in such
proportion as is appropriate to reflect the relative benefits from the
offering of the securities received by, and the relative fault in
connection with the statements or omissions which resulted in such losses,
claims, damages, liabilities or actions of, said Indemnifying Party, as
well as any other relevant equitable considerations. The relative benefits
received by a party shall be deemed to be in the same proportion as the
total proceeds from the offering (net of underwriting discounts and
commissions but before deducting expenses) or underwriting discounts and
commissions, as the case may be, received by such party bear to the total
proceeds from the offering received by all parties (including underwriting
discounts and commissions by the Underwriters). The relative fault of a
party shall be determined by reference to, among other things, whether the
untrue or alleged untrue statement of a material fact or the omission or
alleged omission to state a material fact relates to information supplied
by such
9
<PAGE> 10
party and the parties' relative intent, knowledge, access to information
and opportunity to correct or prevent such statement or omission.
(m) Information. In connection with any registration hereunder, the
Lenders shall furnish to the Company such information regarding the
Lenders and the plan of distribution proposed by the Lenders as the
Company may reasonably request in writing or as shall be legally required
in connection with any registration, qualification or compliance referred
to herein.
(n) Lender Action. Except as provided in the first sentence of
Paragraph 2(a), all actions taken by the Lenders in connection with a
registration pursuant to Paragraph 2 or 3 shall be authorized by the
holders of a majority of the shares of Option Stock included in the
registration.
6. Reports Under the Exchange Act. With a view to making available to
the Lenders the benefits of Rule 144 promulgated under the Securities Act and
any other rule or regulation of the SEC that may at any time permit the Lenders
to sell Option Stock to the public without registration or pursuant to a
registration on Form S-3, the Company agrees to:
(a) file any reports and other documents required to be filed by it
under the Securities Act and the Exchange Act in a timely manner; and
(b) furnish to the Lenders forthwith upon request (i) a written
statement by the Company as to whether or not it has complied with the
reporting requirements of SEC Rule 144, the Securities Act and the
Exchange Act, or as to whether it qualifies as a registrant whose
securities may be resold pursuant to Form S-3 (at any time after it so
qualifies), and (ii) such other information as may be reasonably requested
in availing the Lenders of any rule or regulation of the SEC which permits
the selling of any such securities without registration or pursuant to
such form.
7. Representations and Warranties. (a) Each of the parties hereto
represents and warrants to the other party as follows:
(i) It is duly organized, validly existing and in good standing under
the laws of the jurisdiction of its organization, and it has full power
and authority and has taken all action now necessary to execute and
deliver this Registration Rights Agreement, to fulfill its obligations
hereunder, and to consummate the transactions contemplated hereby.
(ii) The making and performance by it of this Registration Rights
Agreement and all documents required to be executed and delivered by it
hereunder do not and will not (i) violate any law or regulation of the
10
<PAGE> 11
jurisdiction of its organization or any other law or regulation applicable
to it, any provision of its organizational documents or any order or
judgment of any court or governmental authority applicable to it or (ii)
result in a breach of, or constitute a default under, require any consent
under or result in the creation of any lien upon any of its property or
assets under, any agreement or other instrument to which it is a party or
by which it or any of its property or assets is bound.
(iii) This Registration Rights Agreement has been duly authorized,
executed and delivered by it and constitutes its legal, valid and binding
obligation, enforceable in accordance with its terms.
(b) The Company represents and warrants to the Lenders and the Agent
as follows:
(i) All shares of Option Stock when and if issued shall be duly
authorized, validly issued, fully paid and nonassessable, free from
preemptive or similar rights on the part of the holders of any securities
of Issuer and free from all charges with respect to the issue thereof.
8. Assumption of Obligations by Issuer. If the entity named herein as
the Company is not the Issuer, then the Company shall cause the Issuer to
assume the Company's obligations hereunder or to enter into such documents,
instruments and agreements, substantially in the form required to be entered
into hereunder by the Company, as the Agent or the Required Lenders shall
reasonably deem necessary in order to cause the Lenders to have the same rights
with respect to the Issuer as the Lenders then have hereunder with respect to
the Company and to cause the Issuer to have the same obligations to the Lenders
and the Agent as the Company has hereunder.
9. Assignment of Registration Rights. The rights to cause the Company
to register the Option Stock may be assigned to any transferee or assignee of
the Lenders, of the Note or of any of the indebtedness represented thereby, or
of the Option Stock following its issuance, provided that (i) within a
reasonable time after such transfer or assignment, the Company is given a
written notice stating the name and address of the transferee or assignee and
identifying the indebtedness or Option Stock with respect to which such
registration rights are being assigned and (ii) such transferee or assignee
delivers to the Company a written instrument by which such transferee or
assignee agrees to be bound by the obligations imposed upon the Lenders by this
Registration Rights Agreement. The Lender's failure to give written notice to
the Company as specified in clause (i) above shall not affect the validity of
(or otherwise limit) any such assignment by the Lenders of their rights to
cause the Company to register the Option Stock.
11
<PAGE> 12
10. No Inconsistent Agreements. The Company will not hereafter enter
into any agreement with respect to its securities that is inconsistent with the
rights granted to the Lenders in this Agreement.
11. Participation in Underwritten Registrations. Each Lender agrees
that as a condition of its participation in any underwritten registration
hereunder it shall (a) agree to sell its securities on the basis provided in
any underwriting arrangements entered into in accordance with this Agreement,
and (b) complete and execute all questionnaires, powers of attorney,
indemnities, underwriting agreements and other documents reasonably required
under the terms of such underwriting arrangements.
12. Amendment of Registration Rights. Any provision of these
registration rights may be amended, supplemented or modified (either generally
or in a particular instance and either retroactively or prospectively), only by
a written instrument duly executed by or on behalf of each of the Company and
the Lenders.
13. Miscellaneous.
(a) Governing Law. THIS REGISTRATION RIGHTS AGREEMENT SHALL BE
GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK,
WITHOUT GIVING EFFECT TO THE CONFLICTS OF LAWS PRINCIPLES THEREOF.
(b) Entire Agreement. This Registration Rights Agreement and the
Credit Agreement constitute the full and entire understanding and agreement
among the parties with regard to the subject matter hereof, and supersede any
and all prior discussions or agreements between the parties with respect to the
subject matter hereof.
(c) Notices, etc. All notices and other communications required or
permitted hereunder (collectively, "notices") shall be in writing and shall be
mailed by first-class mail, postage prepaid, or sent by telecopy, or sent by
private overnight express courier, such as Federal Express, or delivered either
by hand or by messenger, addressed to the party at the address or telecopy
number set forth below or at such other address or telecopy number as such
party shall have furnished to the other party in writing:
12
<PAGE> 13
If to the Company:
Wyndham Hotel Company Ltd.
2001 Bryan Street
Suite 2300
Dallas, Texas 75201
Attention: Carla S. Moreland, Esq.
with a copy to:
Locke Purnell Rain Harrell
2200 Ross Avenue
Suite 2200
Dallas, TX 75201
Attention: M. Charles Jennings, Esq.
If to the Lenders:
c/o General Electric Investment Corporation
3003 Summer Street
6th Floor
Stamford, CT 06905
Telephone No.: (203) 326-2376
Telecopy No.: (203) 326-4179
If to the Agent:
General Electric Investment Corporation
3003 Summer Street
6th Floor
Stamford, CT 06905
Telephone No.: (203) 326-2376
Telecopy No.: (203) 326-4179
with a copy to:
Dewey Ballantine
1301 Avenue of the Americas
New York, NY 10019
Attention: E. Ann Gill, Esq.
Telephone No.: (212) 259-8000
Telecopy: (212) 259-6333
All notices shall be deemed to be properly given or made upon actual delivery.
13
<PAGE> 14
(d) Recapitalizations, Exchanges, etc., Affecting the Company's
Capital Stock. The provisions of this Registration Rights Agreement shall apply
to the full extent set forth herein with respect to any and all shares of
capital stock of the Company or any successor or assignee of the Company
(whether by merger, consolidation, sale of assets or otherwise) which may be
issued in respect of, in exchange for or in substitution of, any Option Stock
owned by the Lenders, and the terms of the option in Article X of the Credit
Agreement shall be appropriately adjusted for any stock dividends, splits,
reverse splits, combinations, recapitalizations and the like occurring during
the period that such option is exercisable.
(e) Registration During Lock Out Period. No Lender shall effect any
public sale of Option Stock for a period of one hundred eighty (180) days
following the Effective Date.
(f) Successors and Assigns. This Registration Rights Agreement is
binding upon, and inures to the benefit of and is enforceable by the parties
hereto and their respective successors and assigns.
(g) Titles and Subtitles. The titles of the Paragraphs and
subparagraphs of this Registration Rights Agreement are for convenience of
reference only and shall not limit or otherwise affect the meaning or
construction of any provisions of this Registration Rights Agreement.
(h) Invalid Provisions. If any provision of this Registration Rights
Agreement is held to be illegal, invalid or unenforceable under any present or
future law (i) such provision will be fully severable, (ii) this Registration
Rights Agreement will be construed and enforced as if such illegal, invalid or
unenforceable provision had never comprised a part hereof, (iii) the remaining
provisions of this Registration Rights Agreement will remain in full force and
effect and will not be affected by the illegal, invalid or unenforceable
provision or by its severance herefrom and (iv) in lieu of such illegal,
invalid or unenforceable provision, there will be added automatically as a part
of this Registration Rights Agreement a legal, valid and enforceable provision
as similar in terms to such illegal, invalid or unenforceable provision as may
be possible.
(i) Remedies. The parties hereto acknowledge that irreparable damage
would result if this Registration Rights Agreement is not specifically enforced
and that, therefore, the rights and obligations of the parties under this
Registration Rights Agreement may be enforced by a decree of specific
performance issued by a court of competent jurisdiction, and appropriate
injunctive relief may be applied for and granted in connection therewith. Such
remedies shall, however, be cumulative and not exhaustive and shall be in
addition to any other remedies which any party may have under this Registration
Rights Agreement or otherwise.
14
<PAGE> 15
(j) Counterparts. This Registration Rights Agreement may be executed
in any number of counterparts, each of which shall be an original, all of which
together shall constitute one and the same instrument.
IN WITNESS WHEREOF, this Registration Rights Agreement has been duly
executed and delivered by the duly authorized officer of each party hereto as
of the date first above written.
WYNDHAM HOTEL COMPANY LTD.,
as the Company
By: Wyndham Hotel Management
Corporation, a Texas corporation,
its general partner
By: /s/ JAMES D. CARREKER
-------------------------------------
Name: James D. Carreker
Title: President
GENERAL ELECTRIC INVESTMENT
CORPORATION, as Agent
By: /s/ JOHN H. MYERS
-------------------------------------
Name: John H. Myers
Title: Executive Vice President
THE LENDERS
TRUSTEES OF GENERAL ELECTRIC
PENSION TRUST, a New York
common law trust
By: /s/ JOHN H. MYERS
-------------------------------------
Name: John H. Myers
Title: Trustee
15
<PAGE> 16
ASSIGNMENT AND ASSUMPTION OF
REGISTRATION RIGHTS AGREEMENT
THIS ASSIGNMENT AND ASSUMPTION OF REGISTRATION RIGHTS AGREEMENT (this
"Assignment and Assumption") is made and entered into as of May 24, 1996 by and
between WYNDHAM HOTEL CORPORATION, a Delaware corporation ("WHC"), WYNDHAM HOTEL
COMPANY LTD., a Texas limited partnership (the "Company"), the TRUSTEES OF
GENERAL ELECTRIC PENSION TRUST, a New York common law trust (the "Lender"), and
GENERAL ELECTRIC INVESTMENT CORPORATION, a Delaware corporation (the "Agent").
RECITALS:
WHEREAS, the Company, the Lender and the Agent are parties to a
Registration Rights Agreement dated as of April 29, 1996 (the "Agreement");
WHEREAS, the Company is being dissolved into a wholly-owned subsidiary
of WHC in connection with the initial public offering of common stock of WHC;
and
WHEREAS, pursuant to Section 8 of the Agreement, WHC, as the "Issuer"
thereunder, desires to assume the obligations of the Company under the
Agreement, and the Company desires to assign its rights under the Agreement to
WHC.
NOW, THEREFORE, the parties agree as follows:
1. Assignment and Assumption. The Company hereby assigns its rights
under the Agreement to WHC and WHC hereby assumes and agrees to perform the
obligations of the Company under the Agreement. The Lender and the Agent hereby
acknowledge and agree to such assignment and assumption.
2. Miscellaneous.
(a) The Agreement shall continue in full force and effect and be
binding upon the parties hereto and their respective successors and
permitted assigns.
(b) This Assignment and Assumption may be executed in one or
more counterparts, each of which shall be deemed an original and all of
which, taken together, shall be construed as a single instrument.
(c) This Assignment and Assumption shall be governed by and
construed under the law governing the Agreement.
<PAGE> 17
IN WITNESS WHEREOF, the parties hereto have executed this Assignment as
of the date first set forth above.
WYNDHAM HOTEL CORPORATION
By: /s/ JAMES D. CARREKER
---------------------------------
Name: James D. Carreker
---------------------------------
Title: Chief Executive Officer
---------------------------------
WYNDHAM HOTEL COMPANY LTD.
By: Wyndham Hotel Management
Corporation, General Partner
By: /s/ JAMES D. CARREKER
-----------------------------
Name: James D. Carreker
-----------------------------
Title: President
-----------------------------
TRUSTEES OF GENERAL ELECTRIC
PENSION TRUST
By: /s/ A. M. LEWIS
---------------------------------
Name: Alan M. Lewis
---------------------------------
Title: Trustee
---------------------------------
GENERAL ELECTRIC INVESTMENT
CORPORATION
By: /s/ A. M. LEWIS
---------------------------------
Name: Alan M. Lewis
---------------------------------
Title: Executive Vice President &
General Counsel
---------------------------------
-2-
<PAGE> 1
EXHIBIT 10.17
PROMISSORY NOTE
DALLAS, TEXAS
$1,276,973.00 April 15, 1995
FOR VALUE RECEIVED, WYNDHAM FINANCE LIMITED PARTNERSHIP, a Texas limited
partnership (referred to herein as "Maker"), promises to pay to WYNDHAM HOTEL
COMPANY LTD., a Texas limited partnership (referred to herein as "Payee"), the
sum of ONE MILLION TWO HUNDRED SEVENTY-SIX THOUSAND NINE HUNDRED SEVENTY-THREE
AND NO/100 DOLLARS ($1,276,973.00), together with interest on the unpaid
principal balance as set forth below.
1. Interest Rate. (a) The unpaid principal balance of this Note
from the date hereof until maturity (whether by acceleration or otherwise)
shall bear interest at the Prime Rate (as hereinafter defined and changing as
the Prime Rate changes) plus two (2) percentage points. Interest on the unpaid
principal balance hereof shall be calculated at a daily rate equal to 1/360th
of the rate per annum herein provided, and shall be charged and collected on
the actual number of days elapsed. The rate of interest on this Note shall be
adjusted to change automatically without notice to Maker as of the opening of
business on the effective date of each and every change of the Prime Rate.
After maturity, unpaid principal and, to the extent permitted by law, interest
on this Note shall bear interest at a rate equal to the lesser of four (4)
percentage points over the Prime Rate or the highest nonusurious rate of
interest (if any) permitted by applicable law on such day (the "Maximum Rate").
Nothing herein shall require Payee to refund any interest received hereon in
the event that the Prime Rate changes retroactively from time to time, subject
to the terms of section (c) hereof.
(b) The term "Prime Rate" as used herein shall mean the rate per
annum announced, designated or published from time to time by Citibank, N.A. as
its prime interest rate.
(c) Notwithstanding the foregoing, if at any time and from time to
time the rate of interest calculated pursuant to Section 1(a) above would
exceed the Maximum Rate, the interest payable on this Note shall be reduced to
the Maximum Rate and any reduction in the Prime Rate shall not reduce the rate
of interest hereon until the total amount of interest accrued hereon from and
after the date hereof equals the amount of interest that would have accrued
hereon if the Prime Rate had at all times been in effect.
2. Payments. The outstanding principal balance of, and accrued
interest on, this Note shall be due and payable on April 15, 2000.
<PAGE> 2
3. Events of Default. (a) The occurrence of any one or more of the
following events shall be deemed an event of default hereunder ("Event of
Default"):
(i) The failure of Maker to make any payment on this Note when
the same becomes due and payable and such failure continues for ten (10)
days after notice of such failure to pay is received by Maker from
Payee; or
(ii) Maker shall commence any case, proceeding or other action
seeking reorganization, arrangement or adjustment of his debts under any
bankruptcy, insolvency or reorganization law, or seek the appointment of
a receiver, trustee or custodian for Maker or for all of his property;
or
(iii) Any case, proceeding or other action shall be commenced
against Maker seeking reorganization, arrangement or adjustment of his
debts under any bankruptcy, insolvency or reorganization law or seeking
the appointment of a receiver, custodian or trustee for Maker or for all
or substantially all of his property, and such case, proceeding or other
action remains undismissed for a period of sixty (60) days after
commencement thereof; or
(iv) The death or legal incapacity of Maker.
(b) Upon the occurrence of an Event of Default hereunder,
Payee, at Payee's option, may declare the entire unpaid principal balance and
accrued interest on this Note to be immediately due and payable without notice
of any kind to Maker and without any other presentment, demand, protest or
notice of any kind, all of which are hereby expressly waived by Maker, and may,
at his option, exercise any other right or remedy existing at law or in equity.
Failure to exercise any such right or remedy shall not constitute a waiver of
the right to exercise the same in the event of any subsequent default.
4. Prepayment. Maker shall have the right and privilege from time
to time to prepay in whole or in part the unpaid principal of this Note without
premium or penalty, provided that the accrued interest on the amount prepaid is
likewise paid, and the accrual of interest shall immediately cease on any
amount so prepaid.
5. Waiver. Maker waives demand, presentment for payment, notice of
nonpayment, protest and notice of protest and agrees to any substitution,
subordination, or release of any parties primarily or secondarily liable
hereon. No waiver by Payee of any of its rights or remedies hereunder or under
any other document evidencing or securing this Note or otherwise shall be
considered a waiver of any other subsequent right or remedy of Payee; and no
<PAGE> 3
delay or omission in the exercise or enforcement by Payee of any rights or
remedies shall be construed as a waiver of any right or remedy of Payee.
6. Attorneys' Fees. If this Note is not paid at maturity and is
placed in the hands of an attorney for collection, or if it is collected
through bankruptcy or any other court proceeding after maturity, then Payee
shall be entitled to reasonable attorneys' fees for collection.
7. Limitation on Agreements. It is the intention of Maker and Payee
to comply with applicable usury laws. In furtherance thereof, Maker and Payee
stipulate and agree that, notwithstanding any provision contained in this Note,
or in any other agreement between Maker and Payee, Payee shall never be
entitled to receive, collect or apply as interest on this Note, any amount in
excess of the Maximum Rate, and, in the event Payee ever receives, collects or
applies as interest any such excess, such amount that would be excessive
interest shall be deemed to be a partial prepayment of principal and treated
hereunder as such, and, if the principal amount of the Note is paid in full,
any remaining excess shall forthwith be paid to Maker. In determining whether
any interest paid or payable, under any specific contingency, exceeds the
Maximum Rate, Maker and Payee shall, to the maximum extent permitted under
applicable law (i) characterize any non-principal payments (other than payments
hereunder) as an expense, fee or premium rather than as interest, (ii)exclude
voluntary prepayments and the effects thereof, and (iii) amortize, prorate,
allocate and spread in equal parts the total amount of such interest throughout
the entire contemplated term of this Note so that the interest rate is uniform
throughout such term.
8. Negotiability. This Note is non-negotiable and may not be
assigned without the express written consent of Maker.
9. Governing Law and Venue. This Note is being executed and
delivered and is intended to be performed in the State of Texas. This Note
shall be construed as to both validity and performance and enforced in
accordance with and governed by the laws of the State of Texas.
10. Notices. All notices or other communications required or
permitted hereunder shall be in writing and shall be deemed to have been duly
given if delivered personally or sent by certified or registered mail, postage
prepaid, with return receipt requested, addressed to Maker or Payee as follows:
-3-
<PAGE> 4
If to Maker to:
Wyndham Finance Limited Partnership
3200 Trammell Crow Center
2001 Ross Avenue
Dallas, Texas 75201
Attention: Kathleen Smalley, Esq.
If to Payee to:
Wyndham Hotel Company Ltd.
2001 Bryan Street
Suite 2300
Dallas, Texas 75201
Attention: Carla S. Moreland, Esq.
or such other address as shall be furnished in writing by Maker or Payee to the
other, in accordance with the above provisions, and such notice or
communication shall be deemed to have been given as of the date so delivered.
MAKER
WYNDHAM FINANCE LIMITED PARTNERSHIP,
a Texas limited partnership
By: Mill Spring Holdings, Inc.,
a Texas corporation, General Partner
By: /s/ SUSAN T. GROENTEMAN
----------------------------------
Name: Susan T. Groenteman
--------------------------------
Title:
-------------------------------
-4-
<PAGE> 1
EXHIBIT 11
WYNDHAM HOTEL CORPORATION
COMPUTATION OF EARNINGS PER SHARE
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
-------------------------------
1995 1996
------------- -------------
<S> <C> <C>
Primary Earnings Per Share:
Number of Shares:
Common stock - 20,018
Pro forma common stock 20,018 -
Assumed exercise of stock options* - -
------------- -------------
20,018 20,018
============= =============
Income before extraordinary item.................................. $ 7,949 $ 25,097
Pro forma income tax adjustment (unaudited)....................... (3,140) N/A
Extraordinary items............................................... - (1,131)
------------- -------------
Historical net income as adjusted................................. $ 4,809 $ 23,966
============= =============
Earnings per share:
Income before extraordinary item............................... N/A $ 1.26
Pro forma income tax adjustment (unaudited).................... $ 0.24 $ N/A
Extraordinary item............................................. - (0.06)
------------- -------------
Historical net income as adjusted.............................. $ 0.24 $ 1.20
============= =============
Fully Diluted Earnings per Share:
Number of shares:
Common stock................................................... - 20,018
Pro form common stock.......................................... 20,018 -
Assumed exercise of stock options* - -
------------- -------------
20,018 20,018
============= =============
Income before extraordinary item.................................. $ 7,949 $ 25,097
Pro forma income tax adjustment (unaudited)....................... (3,140) N/A
Extraordinary item................................................ - (1,131)
------------- -------------
Historical net income as adjusted................................. $ 4,809 $ 23,966
============= =============
Earnings per share:
Income before extraordinary item N/A $ 1.26
Pro forma income tax adjustment (unaudited) $ 0.24 N/A
Extraordinary items - (0.06)
------------- -------------
Historical net income as adjusted $ 0.24 $ 1.20
============= =============
</TABLE>
* Dilution from assumed exercise of stock options for 1996 is less than 3
percent of earnings per common share outstanding, and has not been
included in the calculation.
<PAGE> 1
EXHIBIT 12
WYNDHAM HOTEL CORPORATION
RATIO OF EARNINGS TO FIXED CHARGES
PRO FORMA YEAR ENDED DECEMBER 31, 1996
(IN THOUSANDS, EXCEPT RATIOS)
<TABLE>
<S> <C> <C> <C>
Pro forma earnings before federal
income taxes 18,730
Pro forma fixed charges -
Interest expense 13,550
Amortization of capitalized financing fees:
Senior subordinated debt 300
Revolving Credit Facility 363 663
------
Rent:
Actual for the year 10,318
GHALP 4 months pro forma 4,533
------
14,851
x 1/3 4,950
------ ------
Total pro forma fixed charges 19,163
------
37,893
======
Ratio of earnings to fixed charges 1.98
======
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<CASH> 11,517
<SECURITIES> 0
<RECEIVABLES> 40,949
<ALLOWANCES> (941)
<INVENTORY> 1,430
<CURRENT-ASSETS> 42,779
<PP&E> 168,295
<DEPRECIATION> (34,119)
<TOTAL-ASSETS> 242,962
<CURRENT-LIABILITIES> 25,369
<BONDS> 109,675
0
0
<COMMON> 200
<OTHER-SE> 75,384
<TOTAL-LIABILITY-AND-EQUITY> 242,962
<SALES> 104,620
<TOTAL-REVENUES> 148,075
<CGS> 0
<TOTAL-COSTS> 77,016
<OTHER-EXPENSES> 44,038
<LOSS-PROVISION> 1,018
<INTEREST-EXPENSE> 11,810
<INCOME-PRETAX> 16,888
<INCOME-TAX> (8,209)
<INCOME-CONTINUING> 25,097
<DISCONTINUED> 0
<EXTRAORDINARY> (1,131)
<CHANGES> 0
<NET-INCOME> 23,966
<EPS-PRIMARY> 1.20
<EPS-DILUTED> 1.20
</TABLE>
