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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
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FORM 11-K
Annual Report Pursuant to Section 15(d)
of the Securities Exchange Act of 1934
for the Fiscal Year Ended December 31, 1997
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EMPLOYEE STOCK PURCHASE PLAN
INTERSTATE HOTELS COMPANY
Foster Plaza Ten
680 Andersen Drive
Pittsburgh, Pennsylvania 15220
(412) 937-0600
1-11731
(Commission File No.)
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Compensation Committee has duly caused this annual report to be signed on its
behalf by the undersigned hereunto duly authorized on March 31, 1998.
INTERSTATE HOTELS COMPANY
EMPLOYEE STOCK PURCHASE PLAN
By: /s/ R. MICHAEL McCULLOUGH
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R. Michael McCullough
Chairman,
Compensation Committee
of the Board of Directors
of Interstate Hotels Company
(Plan Administrator)
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REPORT OF INDEPENDENT ACCOUNTANTS
To the Plan Administrator of the
Interstate Hotels Company
Employee Stock Purchase Plan:
We have audited the accompanying statements of net assets available for benefits
of the Interstate Hotels Company Employee Stock Purchase Plan (the Plan) as of
December 31, 1996 and 1997, and the related statements of changes in net assets
available for benefits for the period from July 1, 1996 (inception) to December
31, 1996 and for the year ended December 31, 1997. These financial statements
are the responsibility of the Plan's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the net assets available for benefits of the Plan as of
December 31, 1996 and 1997, and the changes in its net assets available for
benefits for the period from July 1, 1996 (inception) to December 31, 1996 and
for the year ended December 31, 1997 in conformity with generally accepted
accounting principles.
/s/COOPERS & LYBRAND L.L.P.
Pittsburgh, Pennsylvania
March 18, 1998, except for
Note 5, as to which the date
is March 30, 1998
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INTERSTATE HOTELS COMPANY
EMPLOYEE STOCK PURCHASE PLAN
STATEMENTS OF NET ASSETS AVAILABLE FOR BENEFITS
December 31, 1996 and 1997
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1996 1997
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Employee contributions receivable $1,804,155 $1,526,652
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Net assets available for benefits $1,804,155 $1,526,652
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The accompanying notes are an integral part of the financial statements.
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INTERSTATE HOTELS COMPANY
EMPLOYEE STOCK PURCHASE PLAN
STATEMENTS OF CHANGES IN NET ASSETS AVAILABLE FOR BENEFITS
for the period from July 1, 1996 (inception) to December 31, 1996 and
for the year ended December 31, 1997
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<TABLE>
<CAPTION>
1996 1997
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<S> <C> <C>
Additions:
Employee contributions $1,804,155 $ 3,071,836
Deductions:
Purchase of shares issued to participants - (3,349,339)
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Change in net assets available for benefits 1,804,155 (277,503)
Net assets available for benefits:
Beginning of year - 1,804,155
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End of year $1,804,155 $ 1,526,652
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</TABLE>
The accompanying notes are an integral part of the financial statements.
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INTERSTATE HOTELS COMPANY
EMPLOYEE STOCK PURCHASE PLAN
NOTES TO FINANCIAL STATEMENTS
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1. Description of Plan:
The Interstate Hotels Company Employee Stock Purchase Plan and the
Interstate Hotels Canadian Employee Share Purchase Plan (collectively,
the Plan) were formed on July 1, 1996 (inception) for the purpose of
rewarding employees of Interstate Hotels Company (the Company) and its
subsidiaries. The Plan gives eligible employees a convenient means for
purchasing stock of the Company through payroll deductions. According
to the Plan document, an eligible employee is one who is employed to
work for more than 20 hours per week or more than five months per
calendar year, and has completed at least 12 consecutive months of
employment. Eligible employees may contribute in whole percentages
between 1% and 8% of their compensation, as defined by the Plan. Shares
are purchased at 85% of the lesser of the fair market value on the
first day of the stock right purchase period or the last day of the
same period (stock right purchase periods represent two six-month
periods in a calendar year).
An administrator (Merrill Lynch) purchases and allocates the shares to
the participants. The Plan does not maintain cash or share investments
on behalf of the participants. Shares are held by the administrator in
an account on behalf of each individual participant. Each participant
may request deliverance of the shares, and earnings thereon, directly
from the administrator at any time. As of December 31, 1996 and 1997
there were 1,684 and 1,567 participants, respectively.
These financial statements have been prepared for the period from July
1, 1996 (inception) to December 31, 1996 and for the year ended
December 31, 1997. Unless otherwise specified, all references to a
period in the financial statements are for the periods stated above.
2. Summary of Significant Accounting Policies:
1) The transactions of the Plan, including participant contributions,
are accounted for on the accrual basis of accounting. The Company
does not make contributions to the plan.
2) Administrative expenses incurred by the Plan are paid by the
Company.
3. Purchase of Shares Issued to Participants:
Details related to the purchase of shares issued by the Plan from July
1, 1996 (inception) to December 31, 1996 and for the year ended
December 31, 1997 are as follows:
<TABLE>
<CAPTION>
Number of
Shares Total Cost
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<S> <C> <C>
Issued during the period ended December 31, 1996 - $ -
Issued during the year ended December 31, 1997 150,206 3,349,339
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Total shares issued from inception through December 31, 1997 150,206 $ 3,349,339
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</TABLE>
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NOTES TO FINANCIAL STATEMENTS, continued
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4. Federal Income Taxes:
The Plan qualifies as a non-compensatory plan under Section 423 of the
Internal Revenue Code. If a participant disposes of any stock within
one year from the date of purchase or within two years of the date of
the offering (the Holding Period), the participant is required to pay
ordinary income tax on the difference between the sale price and the
purchase price. Additionally, the Company recognizes a tax deduction
for the income that has been taxed at the individual level.
If a participant disposes of the stock after the Holding Period, the
participant is required to pay ordinary income tax on the 15% discount
received at the time of purchase and capital gains tax on the remaining
difference between the sale price and the purchase price. In this
situation, there is no effect on the Company's income tax liability.
5. Subsequent Event:
On December 2, 1997, the Company entered into an Agreement and Plan of
Merger with Patriot American Hospitality, Inc. and Wyndham
International, Inc. (formerly Patriot American Hospitality Operating
Company) (collectively, Patriot), pursuant to which the Company will
merge with and into Patriot, with Patriot being the survivor (the
Merger). The Merger is contingent upon, among other customary
conditions, the approval by the shareholders of the Company and
Patriot, and is expected to be consummated in the second quarter of
1998.
In connection with the Merger, the Company suspended employee
contributions effective January 30, 1998 in anticipation of the
potential termination of the Plan. Employee contributions during
January 1998 have been used to purchase stock in accordance with the
Plan document.
On March 30, 1998, Marriott International, Inc. (Marriott) filed a
lawsuit in the United States District Court for the District of
Maryland seeking to enjoin the Merger until the Company complies with
certain rights of notification and first refusal which Marriott alleges
would be triggered by the Merger. There can be no assurance as to the
outcome of this proceeding.
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Exhibit 23.1
[COOPERS & LYBRAND LOGO]
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
We consent to the incorporation by reference in the Registration Statement on
Form S-8 pertaining to the Interstate Hotels Company Employee Stock Purchase
Plan (File No. 333-19307) of our report dated March 18, 1998, except for Note 5,
as to which the date is March 30, 1998, on our audits of the financial
statements of the Employee Stock Purchase Plan as of December 31, 1996 and 1997
and for the period from July 1, 1996 to December 31, 1996 and for the year ended
December 31, 1997, which report is included in this Annual Report on Form 11-K.
/s/ COOPERS & LYBRAND L.L.P.
600 Grant Street
Pittsburgh, Pennsylvania
March 31, 1998
