<PAGE>
As filed with the Securities and Exchange Commission on October 31, 1997
Registration Statement Nos. 333-_______, 333-_____-01
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------------
REGISTRATION STATEMENT
ON FORM S-3
UNDER
THE SECURITIES ACT OF 1933
--------------------
<TABLE>
<CAPTION>
PATRIOT AMERICAN HOSPITALITY, INC. PATRIOT AMERICAN HOSPITALITY
OPERATING COMPANY
<S> <C>
(Exact Name of Registrant as Specified in its Charter) (Exact Name of Registrant as Specified in its Charter)
DELAWARE DELAWARE
(State or Other Jurisdiction of (State or Other Jurisdiction of
Incorporation or Organization) Incorporation or Organization)
94-0358820 94-2878485
(I.R.S. Employer Identification No.) (I.R.S. Employer Identification No.)
3030 LBJ Freeway 3030 LBJ Freeway
Suite 1500 Suite 1500
Dallas, TX 75234 Dallas, TX 75234
(972) 888-8000 (972) 888-8000
(Address, Including Zip Code, and Telephone (Address, Including Zip Code, and Telephone
Number, Including Area Code, of Number, Including Area Code, of
Registrant's Principal Executive Offices) Registrant's Principal Executive Offices)
PAUL A. NUSSBAUM PAUL A. NUSSBAUM
Chairman of the Board, Chief Executive Officer Chairman of the Board and Chief Executive Officer
and President Patriot American Hospitality Operating Company
Patriot American Hospitality, Inc. 3030 LBJ Freeway
3030 LBJ Freeway Dallas, TX 75234
Dallas, TX 75234 (972) 888-8000
(972) 888-8000 (Name, Address, Including Zip Code, and
(Name, Address, Including Zip Code, and Telephone Number, Including Area Code and
Telephone Number, Including Area Code, of Agent for Service)
of Agent for Service)
</TABLE>
--------------------
copies to:
GILBERT G. MENNA, P.C.
KATHRYN I. MURTAGH, ESQ.
Goodwin, Procter & Hoar LLP
Exchange Place
Boston, MA 02109-2881
(617) 570-1000
--------------------
Approximate date of commencement of proposed sale to public: As soon as
practicable after this registration statement becomes effective.
If the only securities being registered on this form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. [_]
If any of the securities being registered on this form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box. [X]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [_]
<TABLE>
<CAPTION>
=======================================================================================================================
Proposed Maximum Proposed Maximum
Title of Shares to be Amount to be Aggregate Price Per Aggregate Offering Amount of
Registered Registered Unit(1) Price(1) Registration Fee
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, par value 1,681,793 $30.00 $50,453,790 $15,290
$.01 per share, of
Patriot American
Hospitality, Inc. paired
with Common Stock, par
value $.01 per share, of
Patriot American
Hospitality Operating
Company
================================================================================
</TABLE>
(1) This estimate is based on the average of the high ($31.50) and low ($28.50)
sales prices on the New York Stock Exchange on October 28, 1997 of the
common stock of Patriot American Hospitality, Inc., which is paired with
and trades as a unit with common stock of Patriot American Hospitality
Operating Company. This estimate is made pursuant to Rule 457(c) under the
Securities Act of 1933, as amended, and is made solely for purposes of
determining the registration fee.
---------------------
The registrant hereby amends this registration statement on such dates as
may be necessary to delay its effective date until the registrant shall file a
further amendment which specifically states that this registration statement
shall thereafter become effective in accordance with Section 8(a) of the
Securities Act of 1933, as amended, or until the registration statement shall
become effective on such date as the Commission, acting pursuant to said Section
8(a), may determine.
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A +
+REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE +
+SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY +
+OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES+
+EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE +
+SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE +
+SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE +
+UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF +
+ANY SUCH STATE. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION
PRELIMINARY PROSPECTUS DATED OCTOBER 31, 1997
1,681,793 Shares of Paired Common Stock
Patriot American Hospitality, Inc.
Patriot American Hospitality Operating Company
For purposes of this Prospectus, unless the context otherwise requires, (i)
the term "Corporation" includes Patriot American Hospitality, Inc., a Delaware
Corporation, PAH GP, Inc. ("PAH GP"), PAH LP, Inc. ("PAH LP"), each of which is
a Delaware corporation and a wholly-owned subsidiary of Patriot American
Hospitality, Inc., a Delaware corporation, Patriot American Hospitality
Partnership, L.P., a Virginia limited partnership (the "Realty Partnership"),
and their respective subsidiaries, (ii) the term "Operating Company" includes
Patriot American Hospitality Operating Company, a Delaware Corporation, and
Patriot American Hospitality Operating Partnership, L.P., a Delaware limited
partnership (the "Operating Partnership" and, together with the Realty
Partnership, the "Partnerships"), and their respective subsidiaries, and (iii)
the term "Companies" includes the Corporation and the Operating Company.
Shares of common stock ("Corporation Common Stock"), $.01 par value, of the
Corporation and shares of common stock ("Operating Company Common Stock"), $.01
par value, of the Operating Company are "paired" and trade as units consisting
of one share of Corporation Common Stock and one share of Operating Company
Common Stock (the "Paired Common Stock"). All of the shares of Paired Common
Stock offered hereby are being registered for the account of certain
stockholders of the Companies named herein (collectively, the "Selling
Stockholders"). See "Plan of Distribution" and "Selling Stockholders." Each of
the Selling Stockholders, directly or through agents, dealers or underwriters
designated from time to time, may sell all or a portion of the shares of Paired
Common Stock offered hereby from time to time on terms to be determined at the
time of sale. To the extent required, the specific shares of Paired Common
Stock to be sold, the names of the Selling Stockholders, the respective purchase
prices and public offering prices, the names of any such agent, dealer or
underwriter, and any applicable commissions or discounts with respect to a
particular offer will be set forth in an accompanying prospectus supplement.
See "Plan of Distribution." Each Selling Stockholder reserves the sole right to
accept and, together with such Selling Stockholder's agents, dealers or
underwriters from time to time, to reject, in whole or in part, any proposed
purchase of shares of Paired Common Stock to be made directly or through agents,
dealers or underwriters.
The aggregate proceeds to the Selling Stockholders from the sale of the
shares of Paired Common Stock offered hereby (the "Offering") will be the
purchase price of the shares of Paired Common Stock sold less the aggregate
agents' commissions and underwriters' discounts, if any, and other expenses of
issuance and distribution to borne by the Companies. The Companies will pay all
of the expenses of the Offering other than agents' commissions and underwriters'
discounts with respect to the shares of Paired Common Stock offered hereby, and
transfer taxes, if any. The Companies will not receive any proceeds from the
sale of the shares of Paired Common Stock offered hereby by the Selling
Stockholders.
The Selling Stockholders and any agents, dealers or underwriters that
participate with the Selling Stockholders in the distribution of the shares of
Paired Common Stock may be deemed to be "underwriters" within the meaning of the
Securities Act of 1933, as amended (the "Securities Act"), in which case any
commissions received by such agents, dealers or underwriters and any profit on
the resale of the shares of Paired Common Stock purchased by them may be deemed
underwriting commissions or discounts under the Securities Act. See "Plan of
Distribution" for indemnification arrangements between the Companies and the
Selling Stockholders.
The Paired Common Stock is listed on the New York Stock Exchange (the
"NYSE") under the symbol "PAH." On October 28, 1997, the reported closing sale
price of the Paired Common Stock on the NYSE was $31.19 per share.
See "Risk Factors" beginning on page 5 for certain factors relevant to an
investment in the shares of Paired Common Stock.
------------------------
<PAGE>
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED
BY THE SECURITIES AND EXCHANGE COMMISSION
NOR HAS THE COMMISSION PASSED
UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
-----------------------------
The date of this Prospectus is __________, 1997
2
<PAGE>
AVAILABLE INFORMATION
The Companies have filed with the Securities and Exchange Commission (the
"SEC" or "Commission") a Registration Statement on Form S-3 (the "Registration
Statement") under the Securities Act, with respect to the Securities. This
Prospectus, which constitutes part of the Registration Statement, omits certain
of the information contained in the Registration Statement and the exhibits
thereto on file with the Commission pursuant to the Securities Act and the rules
and regulations of the Commission thereunder. Statements contained in this
Prospectus as to the contents of any contract or other document referred to are
not necessarily complete, and in each instance reference is made to the copy of
such contract or other document filed as an exhibit to the Registration
Statement, each such statement being qualified in all respects by such
reference. The Registration Statement, including exhibits thereto, may be
inspected and copies obtained from the Commission at Room 1024, Judiciary Plaza,
450 Fifth Street, N.W., Washington, D.C. 20549, and at the following Regional
Offices of the Commission: 7 World Trade Center, 13th Floor, New York, New York
10048, and Northwestern Atrium Center, 500 West Madison Street, Suite 1400,
Chicago, Illinois 60661-2511. Copies of such material may be obtained from the
Public Reference Section of the Commission at Judiciary Plaza, 450 Fifth Street,
N.W., Washington, D.C. 20549, at prescribed rates. The Companies file
information electronically with the Commission, and the Commission maintains a
Web Site that contains reports, proxy and information statements and other
information regarding registrants (including the Companies) that file
electronically with the Commission. The address of the Commission's Web Site is
(http://www.sec.gov).
The Companies are subject to the informational requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and in
accordance therewith file reports and proxy statements and other information
with the Commission. Such reports, proxy statements and other information can be
inspected and copied at the locations described above. Copies of such materials
can be obtained by mail from the Public Reference Section of the Commission at
Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549 at
prescribed rates. In addition, reports, proxy and information statements and
other information concerning the Companies can be inspected at the offices of
the New York Stock Exchange (the "NYSE"), 20 Broad Street, New York, New York
10005.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents are incorporated herein by reference:
Corporation and Operating Company
1. Current Reports on Form 8-K of Patriot American Hospitality, Inc. and
Patriot American Hospitality Operating Company dated (i) July 1, 1997 (Nos. 001-
09319, 001-09320 filed July 15, 1997), (ii) July 15, 1997 (Nos. 001-09319, 001-
09320 filed July 21, 1997), (iii) July 22, 1997 (Nos. 001-09319, 001-09320 filed
July 22, 1997), (iv) September 17, 1997 (Nos. 001-09319, 001-09320 filed
September 17, 1997) and (v) September 30, 1997, as amended (Nos. 001-09319, 001-
09320 filed October 14, 1997 and October 28, 1997);
2. Quarterly Report on Form 10-Q of Patriot American Hospitality, Inc.
and Patriot American Hospitality Operating Company (Nos. 001-09319, 001-09320)
for the fiscal quarter ended June 30, 1997; and
3. The description of the paired shares of Corporation Common Stock and
Operating Company Common Stock contained or incorporated by reference in the
Corporation's and the Operating Company's Registration Statement on Form 8-A
(Nos. 001-09319, 001-09320), including any amendments thereto.
California Jockey Club and Bay Meadows Operating Company
1. Annual Report on Form 10-K of California Jockey Club and Bay Meadows
Operating Company (Nos. 001-09319, 001-09320) for the fiscal year ended December
31, 1996;
2. Current Reports on Form 8-K of California Jockey Club and Bay Meadows
Operating Company dated (i) February 24, 1997 (Nos. 001-09319, 001-09320 filed
March 3, 1997) and (ii) May 28, 1997 (Nos. 001-09319, 001-09320 filed June 5,
1997);
3
<PAGE>
3. Quarterly Report on Form 10-Q of California Jockey Club and Bay
Meadows Operating Company (Nos. 001-09319, 001-09320) for the fiscal quarter
ended March 31, 1997; and
4. Quarterly Report on Form 10-Q/A of California Jockey Club and Bay
Meadows Operating Company (Nos. 001-09319, 001-09320) for the fiscal quarter
ended March 31, 1997 (filed May 16, 1997).
Patriot American Hospitality, Inc. (Patriot)
1. Annual Report on Form 10-K of Patriot American Hospitality, Inc.,
(No. 001-13898) for the fiscal year ended December 31, 1996;
2. Current Reports on Form 8-K of Patriot American Hospitality, Inc.,
dated: (i) April 2, 1996, as amended (No. 001-13898 filed April 17, 1996 and
June 14, 1996) reporting the acquisition of certain assets, (ii) December 5,
1996 (No. 001-13898 filed December 5, 1996) reporting the acquisition of certain
assets, (iii) January 16, 1997, as amended (No. 001-13898 filed January 31,
1997, February 21, 1997, April 8, 1997, April 9, 1997 and May 19, 1997),
reporting the consummation of the acquisition of Carefree Resorts Corporation
and Resorts Limited Partnership and certain other assets, (iv) February 24, 1997
(No. 001-13898 filed March 3, 1997) reporting the execution of a merger
agreement between Patriot and California Jockey Club and (v) April 14, 1997, as
amended (No. 001-13898 filed April 17, 1997 and April 18, 1997), reporting the
execution of a merger agreement between Patriot and Wyndham Hotel Corporation
and the related stock purchase agreement and the execution of agreements with
partnerships affiliated with members of the Trammell Crow family providing for
the acquisition by the Corporation of 11 full- service Wyndham-branded hotels;
and
3. Quarterly Report on Form 10-Q of Patriot American Hospitality, Inc.
(No. 001-13898) as of and for the fiscal quarter ended March 31, 1997.
All other documents filed with the Commission by the Corporation or the
Operating Company pursuant to Section 13(a), 13(c), 14 or 15(d) of the Exchange
Act subsequent to the date of this Prospectus and prior to the termination of
the offering of the Securities are to be incorporated herein by reference and
such documents shall be deemed to be a part hereof from the date of filing of
such documents. Any statement contained in this Prospectus or in a document
incorporated or deemed to be incorporated by reference herein shall be deemed to
be modified or superseded for purposes of this Prospectus to the extent that a
statement contained herein or in any other subsequently filed document that also
is or is deemed to be incorporated by reference herein modifies or supersedes
such statement. Any statement so modified or superseded shall not be deemed,
except as so modified or superseded, to constitute a part of this Prospectus.
Any person receiving a copy of this Prospectus may obtain, without charge,
upon written or oral request, a copy of any of the documents incorporated by
reference herein, except for the exhibits to such documents. Written requests
should be mailed to 3030 LBJ Freeway, Suite 1500, Dallas, TX 75234, Attention:
Shareholder Relations (Telephone No. 972-888-8000).
4
<PAGE>
This Prospectus and the documents incorporated herein by reference contain
forward-looking statements within the meaning of Section 27A of the Securities
Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934,
as amended. The Companies' actual results could differ materially from those
set forth in the forward-looking statements. Certain factors that might cause
such a difference are discussed in the section entitled "Risk Factors" below.
RISK FACTORS
Real Estate Investment Trust Tax Risks
Dependence on Qualification as a Real Estate Investment Trust
The Corporation will operate in a manner designed to permit it to qualify
as a real estate investment trust (a "REIT") under the Internal Revenue Code of
1986, as amended (the "Code"), but no assurance can be given that the
Corporation will be able to continue to operate in a manner so as to qualify or
remain so qualified. Qualification as a REIT involves the application of highly
technical and complex provisions of the Code, for which there are only limited
judicial or administrative interpretations. The complexity of these provisions
is greater in the case of a REIT that owns hotels and leases them to an
operating company with which its stock is paired. Qualification as a REIT also
involves the determination of various factual matters and circumstances not
entirely within the Corporation's control. In addition, the Corporation's
ability to qualify as a REIT is dependent upon its continued exemption from the
anti-pairing rules of Section 269B(a)(3) of the Code. Section 269B(a)(3) of the
Code would ordinarily prevent a corporation from qualifying as a REIT if its
stock is paired with the stock of a corporation whose activities are
inconsistent with REIT status, such as the Operating Company. The
"grandfathering" rules governing Section 269B generally provide, however, that
Section 269B(a)(3) does not apply to a paired REIT if the REIT and its paired
operating company were paired on June 30, 1983. There are, however, no judicial
or administrative authorities interpreting this "grandfathering" rule. Moreover,
if for any reason the Corporation had failed to qualify as a REIT in 1983, the
benefit of the "grandfathering" rule would not be available to it, in which case
the Corporation would not qualify as a REIT for any taxable year. In addition,
no assurance can be given that new legislation, new regulations, administrative
interpretations or court decisions will not change the tax laws with respect to
qualification as a REIT (including the "grandfathering" rules of Section 269B)
or the federal income tax consequences of such qualification.
If the Corporation fails to qualify as a REIT, the Corporation will be
subject to federal income tax (including any applicable alternative minimum tax)
on its taxable income at corporate rates. In addition, unless entitled to relief
under certain statutory provisions and subject to the discussion above regarding
the impact if the Corporation failed to qualify as a REIT in 1983, the
Corporation also will be disqualified from re-electing REIT status for the four
taxable years following the year during which qualification is lost. Failure to
qualify as a REIT would reduce the net earnings of the Corporation available for
distribution to stockholders because of the additional tax liability to the
Corporation for the year or years involved. In addition, distributions would no
longer be required to be made. To the extent that distributions to stockholders
would have been made in anticipation of the Corporation's qualifying as a REIT,
the Corporation might be required to borrow funds or to liquidate certain of its
investments to pay the applicable tax. The failure to qualify as a REIT would
also constitute a default under certain debt obligations of the Corporation.
In order for the Corporation to maintain its qualification as a REIT, not
more than 50% in value of its outstanding stock may be owned, directly or
indirectly, by five or fewer individuals (as defined in the Code to include
certain entities). In addition, rents paid by the Operating Company to the
Corporation will not constitute qualifying income for purposes of the REIT
income tests if any person actually or constructively owns 10% or more of the
outstanding Paired Common Stock. For the purpose of preserving the Corporation's
qualification as a REIT, the Amended and Restated Certificate of Incorporation
of the Corporation (the "Corporation Charter") and the Amended and Restated
Certificate of Incorporation of the Operating Company (the "Operating Company
Charter" and, together with the Corporation Charter, the "Charters"), prohibit
actual or constructive ownership of more than 9.8% of the outstanding shares of
any class or series of the common stock or preferred stock (collectively, the
"Equity Stock") of the Corporation or the Operating Company (the "Ownership
Limit"). The constructive ownership rules are complex and may cause Equity
Stock owned, actually or constructively, by a group of related or unrelated
individuals and/or entities to be deemed to be constructively owned by one
individual or entity. As a result, the acquisition of less than 9.8% of the
outstanding Paired Common Stock (or the acquisition of an interest in an entity
which owns Paired
5
<PAGE>
Common Stock) by an individual or entity could cause that individual or entity
(or another individual or entity) to own constructively in excess of 9.8% of the
outstanding Paired Common Stock, and thus subject such Paired Common Stock to
the Ownership Limit. Actual or constructive ownership of Paired Common Stock in
excess of the Ownership Limit would cause the violative transfer or ownership to
be void or cause such shares to be transferred to a charitable trust and then
sold to the Companies or to a person or entity who can own such shares without
violating the Ownership Limit. See "Restrictions on Transfers of Capital Stock."
In addition, because the relevant constructive ownership rules are broad and it
is not possible to monitor continually direct and indirect transfers of shares,
no absolute assurance can be given that the foregoing provisions will be
effective to prevent a violation of the Ownership Limit and the consequent
failure of the Corporation to qualify as a REIT.
Adverse Effects of REIT Minimum Distribution Requirements
In order to qualify as a REIT, the Corporation will be generally required
each year to distribute to its stockholders at least 95% of its taxable income
(excluding any net capital gain). In addition, if the Corporation disposes of
assets acquired from a taxable C corporation during the ten-year period
following such acquisition, the Corporation will be required to distribute at
least 95% of the amount of built-in gain attributable to such assets (determined
as of the date of the acquisition of the assets) that the Corporation recognizes
in the subsequent disposition, less the amount of any tax paid with respect to
such recognized built-in gain. See "Certain Federal Income Tax Considerations--
REIT Qualification--Built-In Gain Tax." The Corporation will be subject to a 4%
nondeductible excise tax on the amount, if any, by which certain distributions
paid by it with respect to any calendar year are less than the sum of (i) 85% of
its ordinary income for that year, (ii) 95% of its capital gain net income for
that year, and (iii) 100% of its undistributed income from prior years.
The Corporation intends to make distributions to its stockholders to comply
with the 95% distribution requirement and to avoid the nondeductible excise tax.
The Corporation's income will consist primarily of its share of the income of
the Realty Partnership, and the Corporation's cash available for distribution
will consist primarily of its share of cash distributions from the Realty
Partnership. Differences in timing between the recognition of taxable income and
the receipt of cash available for distribution and the seasonality of the hotel
industry could require the Corporation to borrow funds on a short-term basis to
meet the 95% distribution requirement and to avoid the nondeductible excise tax.
Distributions by the Companies will be determined by their respective Board
of Directors and depend on a number of factors, including the amount of cash
available for distribution and the financial condition of the Companies, any
decision by either Board of Directors to reinvest funds rather than to
distribute such funds, capital expenditures, the annual distribution
requirements under the REIT provisions of the Code (in the case of the
Corporation) and such other factors as either Board of Directors deems relevant.
For federal income tax purposes, distributions paid to stockholders may consist
of ordinary income, capital gains (in the case of the Corporation), nontaxable
return of capital, or a combination thereof. The Companies will provide
stockholders with annual statements as to the taxability of distributions.
Accumulated Earnings and Profits
On April 14, 1997, the Corporation entered into a merger agreement with
Wyndham Hotel Corporation ("Wyndham") through which the Corporation agreed to
acquire Wyndham's portfolio of owned and leased hotels and management and
franchise agreements for certain of Wyndham's hotels (the "Wyndham
Acquisition"). See "The Companies--The Corporation."
To maintain its qualification as REIT subsequent to the Wyndham Acquisition,
the Corporation will be required to distribute to its stockholders following the
Wyndham Acquisition for the Corporation's taxable year ending December 31, 1997
(assuming the Wyndham Acquisition is consummated on or prior to December 31,
1997) current and accumulated earnings and profits of Wyndham (as determined for
federal income tax purposes). The dividend made to the Corporation's taxable
U.S. Stockholders (as hereinafter defined) will be taken into account by such
U.S. Stockholders as ordinary income to the extent it is made out of current or
accumulated earnings and profits, and will not be eligible for the dividends
received deduction generally available for corporations. See "Certain Federal
Income Tax Considerations--Federal Income Taxation of Holders of Paired Shares."
Wyndham has agreed that, at the closing date of the Wyndham Acquisition,
Wyndham will deliver to the Corporation a statement of accumulated and current
earnings and profits of Wyndham (as determined for federal income tax purposes)
as of a date not more than 30 days prior to the closing date of the Wyndham
Acquisition, together with evidence of such accumulated and current earnings and
profits of Wyndham (as determined for federal income tax purposes) in a form
reasonably satisfactory to the Corporation, and a statement of estimated
accumulated and current earnings and profits of Wyndham (as determined for
federal income tax purposes) as of the closing date of the Wyndham Acquisition.
Wyndham further agreed that prior to the closing date of the Wyndham
Acquisition, (i) it will deliver to the Corporation, prior to December 25, 1997,
a statement of accumulated and current earnings and profits of Wyndham (as
determined for federal income tax purposes) at the effective time of the Wyndham
Acquisition and (ii) that the Corporation shall be entitled to rely on such
statement for purposes of preparing and filing its federal, state, local and
foreign tax returns required to be filed by it, determining the amount of
dividends to be paid to stockholders and paying any taxes owned by it.
If the Internal Revenue Service (the "IRS") were to determine that Wyndham's
actual earnings and profits exceeded the amount distributed, the Corporation
would be disqualified as a REIT.
Failure to Manage Rapid Growth and Integrate Operations; New Businesses
The Corporation is currently experiencing a period of rapid growth. The
Companies are or will be responsible for the management and operation of several
new businesses, including direct hotel management, branding and franchising and
thoroughbred racing, which were previously not part of the operations of the
Corporation's predecessor, Patriot American Hospitality, Inc., a Virginia
corporation ("Patriot"). In addition, the Companies may acquire other new
businesses in the future. The integration of departments, systems and procedures
presents a significant management challenge, and the failure to integrate new
acquisitions into existing management and operating structures could have a
material adverse effect on the results of operations and financial condition of
the Corporation and the Operating Company.
Substantial Debt Obligations; No Limits on Indebtedness; Variable Rate Debt
As of September 30, 1997, the Companies' combined debt was approximately
$727.2 million and the Companies' ratio of combined debt to total market
capitalization was approximately 21.7%. The Companies also may borrow
additional amounts from the same or other lenders in the future, may assume debt
in connection with acquisitions, or may issue corporate debt securities in
public or private offerings. The Companies' organizational documents do not
limit the amount of indebtedness the Companies may incur. Further, substantially
all of the Companies' combined debt bears interest at a variable rate. Economic
conditions could result in higher interest rates, which could increase debt
service requirements on variable rate debt and could adversely affect the
Companies' ability to make distributions.
6
<PAGE>
There can be no assurance that the Companies will be able to meet their
debt service obligations and, to the extent that they cannot, the Companies risk
the loss of some or all of their assets, including the hotels. Adverse economic
conditions could cause the terms on which borrowings become available to be
unfavorable. In such circumstances, if the Corporation or the Operating Company
is in need of funds to repay indebtedness in accordance with its terms or
otherwise, it could be required to liquidate one or more investments in
properties at times which may not permit realization of the maximum return on
such investments.
The foregoing risks associated with debt obligations of the Companies may
inhibit the ability of the Companies to raise capital in both the public and
private markets.
Lack of Experience in Hotel Management Business
The Corporation leases certain existing hotels and intends to lease other
existing hotels and a significant portion of its newly-acquired hotels to the
Operating Company. Although certain executives of the Corporation have hotel
management experience, the Operating Company has no prior experience in the
hotel management business. The future success of the Operating Company and its
ability to operate hotels as well as manage future growth depend in large part
on its ability to attract and retain key executive officers and other highly
qualified personnel, especially in the area of hotel operations. There can be no
assurance that the Operating Company will be able to attract and retain
qualified personnel and the inability to do so could have a material adverse
effect on the results of operations and financial condition of the Companies.
Potential Conflicts of Interest Between the Corporation and the Operating
Company
The Corporation and the Operating Company are separate corporate entities
with separate Boards of Directors. A majority of the directors of each of the
Corporation and the Operating Company do not serve as directors or officers of
the other company. In addition, the Corporation and the Operating Company
generally have different employees, separate creditors and are subject to
different state law licensing and regulatory requirements. As a result, the
interests of the Board of Directors of each company may conflict and such
conflicts may possibly rise to disputes between the companies. No assurance can
be given that conflicts will not arise between the companies or that such
conflicts will not have a material adverse effect on the results of operations
and financial condition of the Corporation and the Operating Company. The
Corporation and the Operating Company have the same Chief Executive Officer and
Chief Financial Officer as well as two of the same directors. The Companies
believe this overlap in management will help decrease the possibility of
disagreements between the two companies. No assurance can be given, however,
that these individuals' interests as officers and/or directors of one company
will not conflict with their interests as officers and/or directors of the other
company or that their actions as officers and/or directors of one company will
not adversely affect the interests of the other company.
Dependence on Lessees and Payments under the Participating Leases
The Corporation leases each of its existing hotels, except the Crowne Plaza
Ravinia Hotel, the Marriott WindWatch Hotel and the hotels leased to the
Operating Company, to lessees (the "Lessees") pursuant to separate participating
leases (the "Participating Leases"). The Corporation's ability to make
distributions to stockholders depends primarily upon the ability of the Lessees
to make rent payments under the Participating Leases (which is dependent
primarily on the Lessees' ability to generate sufficient revenues from those
hotels which are leased to them). A failure or delay to make such payments may
be caused by reductions in revenue from such hotels or in the net operating
income of the Lessees or otherwise. Any failure or delay by the Lessees in
making rent payments may adversely affect the Corporation's ability to make
distributions to stockholders.
Lack of Control Over Operations of the Leased Hotels
The Corporation is dependent on the ability of the Lessees and the hotel
management entities that manage the hotels (the "Operators") to manage the
operations of hotels that are leased or operated by them. Under the terms of the
Participating Leases, the Corporation has the authority to review annual budgets
for the hotels which are leased to the Lessees and to approve certain items.
However, the Corporation is unable to directly implement strategic business
decisions with respect to the setting of room rates, repositioning of a
franchise, redevelopment of food and beverage operations and certain similar
decisions with respect to such hotels.
7
<PAGE>
Risk of Investment in Subsidiaries Controlled by Other Parties
The Crowne Plaza Ravinia Hotel, the Marriott WindWatch Hotel and certain
non-leasable assets related to the Carefree Resorts are each owned through a
special purpose entity, specifically PAH Ravinia, Inc., PAH WindWatch, LLC and
PAH Boulders, Inc., respectively (the "Non-Controlled Subsidiaries"). The equity
securities of each of the Non-Controlled Subsidiaries are divided into two
classes: voting securities and non-voting securities. The Realty Partnership
owns all of the non-voting securities in each of the Non-Controlled
Subsidiaries. With respect to PAH Ravinia, Inc. ("PAH Ravinia") and PAH
WindWatch, LLC ("PAH WindWatch"), the Realty Partnership also owns, indirectly,
4% of the voting securities. Certain executive officers and/or directors of the
Companies own, directly or indirectly, all of the voting securities of PAH
Boulders, Inc. and the remaining 96% of the voting securities of PAH Ravinia and
PAH WindWatch. Although the ownership interests of the Realty Partnership
represent an approximately 99% economic interest in each of the Non-Controlled
Subsidiaries, the Realty Partnership is not able to elect directors or managers.
As a result, the Non-Controlled Subsidiaries may implement business policy
decisions that would not have been implemented by the Corporation and that are
adverse to the interests of the Corporation or that lead to adverse financial
results. The Corporation intends to restructure the Non-Controlled Subsidiaries
so that the Crowne Plaza Ravinia Hotel and the Marriott WindWatch Hotel may be
leased to the Operating Company and certain non-leasable assets relating to the
Carefree Resorts may be sold to the Operating Company. To effect such
restructurings and asset sales, the Corporation will be required to obtain,
along with any other third-party consents which may be required, the approval of
those executive officers and/or directors of the Companies who have voting
control over such Non-Controlled Subsidiaries. No assurances can be made that
the executive officers will consent to such restructurings or asset sales.
Hotel Industry Risks
Operating Risks
The primary businesses of the Companies are buying, selling, leasing and
managing hotels, which are subject to operating risks common to the hotel
industry. These risks include, among other things, (i) competition for guests
from other hotels, a number of which may have greater marketing and financial
resources and experience than the Companies and the Lessees, (ii) increases in
operating costs due to inflation and other factors, which increases may not have
been offset in past years, and may not be offset in future years by increased
room rates, (iii) dependence on business and commercial travelers and tourism,
which business may fluctuate and be seasonal, (iv) increases in energy costs and
other expenses of travel, which may deter travelers and (v) adverse effects of
general and local economic conditions. These factors could adversely affect the
ability of the Lessees and the Operating Company to generate revenues and to
make lease payments and therefore the Corporation's ability to make
distributions to stockholders.
The Companies are also subject to the risk that in connection with the
acquisition of hotels and hotel operating companies it may not be possible to
transfer certain operating licenses, such as food and beverage licenses, to the
Lessees, the Operators or the Operating Company, or to obtain new licenses in a
timely manner in the event such licenses cannot be transferred. Although hotels
can provide alcoholic beverages under interim licenses or licenses obtained
prior to the acquisition of these hotels, there can be no assurance that these
licenses will remain in effect until the Corporation or the Operating Company
obtains new licenses or that new licenses will be obtained. The failure to have
alcoholic beverages licenses or other operating licenses could adversely affect
the ability of the affected Lessees, Operators or the Operating Company to
generate revenues and make lease payments to the Corporation.
Operating Costs and Capital Expenditures; Hotel Renovation
Hotels, in general, have an ongoing need for renovations and other capital
improvements, particularly in older structures, including periodic replacement
or refurbishment of furniture, fixtures and equipment ("F, F & E"). Under the
terms of the Participating Leases, the Corporation is obligated to establish a
reserve to pay the cost of certain capital expenditures at its hotels and pay
for periodic replacement or refurbishment of F, F & E. If capital expenditures
exceed the Corporation's expectations, the additional cost could have an adverse
effect on the Corporation's cash available for distribution. In addition, the
Corporation may acquire hotels where significant renovation is either required
or desirable. Renovation of hotels involves certain risks, including the
possibility of environmental problems, construction cost overruns and delays,
uncertainties as to market demand or deterioration in market demand after
commencement of renovation and the emergence of unanticipated competition from
other hotels.
8
<PAGE>
Competition for Hotel Acquisition Opportunities
The Companies may be competing for investment opportunities with entities
that have substantially greater financial resources. These entities may
generally be able to accept more risk than the Companies can prudently manage,
including risks with respect to the creditworthiness of a hotel operator or the
geographic proximity of its investments. Competition may generally reduce the
number of suitable investment opportunities offered to the Companies and
increase the bargaining power of property owners seeking to sell.
Additionally, the Corporation's ability to acquire additional hotels could
be negatively impacted by the paired share ownership structure because hotel
management companies, franchisees and others who historically approached Patriot
with acquisition opportunities in hopes of establishing lessee or management
relationships may not do so in the future out of concern that the Corporation
will rely on the Operating Company to lease and/or manage the acquired
properties. Such persons may instead provide such acquisition opportunities to
hotel companies that will allow them to manage the properties following the
sale. This could have a negative impact on the Corporation's acquisition
activities in the future.
Seasonality
The hotel industry is seasonal in nature. Revenues at certain hotels are
greater in the first and second quarters of a calendar year and at other hotels
in the second and third quarters of a calendar year. Seasonal variations in
revenue at hotels may cause quarterly fluctuations in the operating revenues of
the Operating Company and the lease revenues of the Corporation.
Real Estate Investment Risks
General Risks
The Corporation's investments will be subject to varying degrees of risk
generally incident to the ownership of real property. The underlying value of
the Corporation's real estate investments and the Corporation's income and
ability to make distributions to its stockholders will be dependent upon the
ability of the Lessees, the Operators and the Operating Company to operate the
Corporation's hotels in a manner sufficient to maintain or increase revenues and
to generate sufficient income in excess of operating expenses to make rent
payments under their leases with the Corporation. Income from the Corporation's
hotels may be adversely affected by changes in national economic conditions,
changes in local market conditions due to changes in general or local economic
conditions and neighborhood characteristics, changes in interest rates and in
the availability, cost and terms of mortgage funds, the impact of present or
future environmental legislation and compliance with environmental laws, the
ongoing need for capital improvements, particularly in older structures, changes
in real estate tax rates and other operating expenses, adverse changes in
governmental rules and fiscal policies, adverse changes in zoning laws, civil
unrest, acts of God, including earthquakes and other natural disasters (which
may result in uninsured losses), acts of war and other factors which are beyond
the control of the Companies.
Value and Illiquidity of Real Estate
Real estate investments are relatively illiquid. The ability of the
Corporation to vary its portfolio in response to changes in economic and other
conditions will therefore be limited. If the Corporation must sell an
investment, there can be no assurance that the Corporation will be able to
dispose of it in the time period it desires or that the sales price of any
investment will recoup or exceed the amount of the Corporation's investment.
Property Taxes
The Companies' hotels and racing facilities are subject to real property
taxes. The real property taxes on hotel properties as well as the racing
facilities in which the Corporation invests may increase or decrease as property
tax rates change and as the value of the properties are assessed or reassessed
by taxing authorities. If property taxes increase, the Companies' ability to
make distributions to its stockholders could be adversely affected.
9
<PAGE>
Consents of Ground Lessor Required for Sale of Certain Hotels
Certain of the Corporation's hotels and the land upon which the Bay Meadows
Racecourse, which is located in San Mateo, California and is operated by the
Operating Company (the "Racecourse"), is situated are subject to ground leases
with third party lessors. In addition, the Corporation may acquire hotels in the
future that are subject to ground leases. Any proposed sale of a property that
is subject to a ground lease by the Corporation or any proposed assignment of
the Corporation's leasehold interest in the ground lease may require the consent
of third party lessors. As a result, the Corporation may not be able to sell,
assign, transfer or convey its interest in any such property in the future
absent the consent of such third parties, even if such transaction may be in the
best interests of the stockholders.
Environmental Matters
The operating costs of the Companies may be affected by the obligation to
pay for the cost of complying with existing environmental laws, ordinances and
regulations, as well as the cost of complying with future legislation. Under
various federal, state and local environmental laws, ordinances and regulations,
a current or previous owner or operator of real property may be liable for the
costs of removal or remediation of hazardous or toxic substances on, under, or
in such property. Such laws often impose liability whether or not the owner or
operator knew of, or was responsible for, the presence of such hazardous or
toxic substances. In addition, the presence of hazardous or toxic substances, or
the failure to remediate such property properly, may adversely affect the
owner's ability to borrow by using such real property as collateral. Persons who
arrange for the transportation, disposal or treatment of hazardous or toxic
substances may also be liable for the costs 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. Certain environmental laws and
common law principles could be used to impose liability for releases of
hazardous materials, including asbestos-containing materials ("ACMs"), into the
environment, and third parties may seek recovery from owners or operators of
real properties for personal injury associated with exposure to released ACMs or
other hazardous materials. Environmental laws may also impose restrictions on
the manner in which a property may be used or transferred or in which businesses
may be operated, and these restrictions may require expenditures. In connection
with the ownership and operation of any of the Corporation's hotels, the
Companies, the Lessees or the Operators may be potentially liable for any such
costs. The cost of defending against claims of liability or remediating
contaminated property and the cost of complying with environmental laws could
materially adversely affect the Corporation's results of operations and
financial condition. Phase I environmental site assessments ("ESAs") have been
conducted at all of the Corporation's hotels and the Racecourse by qualified
independent environmental engineers. The purpose of Phase I ESAs is to identify
potential sources of contamination for which any of the Corporation's hotels or
the Racecourse may be responsible and to assess the status of environmental
regulatory compliance. The ESAs have not revealed any environmental liability or
compliance concerns that the Corporation believes would have a material adverse
effect on its business, assets, results of operations or liquidity, nor is the
Corporation aware of any such liability or concerns. Nevertheless, it is
possible that these ESAs did not reveal all environmental liabilities or
compliance concerns or that material environmental liabilities or compliance
concerns exist of which the Corporation is currently unaware. The Corporation
has not been notified by any governmental authority, and has no other knowledge
of, any material noncompliance, liability or claim relating to hazardous or
toxic substances or other environmental substances in connection with any of the
hotels or the Racecourse.
Uninsured and Underinsured Losses
Each of the Participating Leases specifies comprehensive insurance to be
maintained on each of the applicable leased hotels, including liability, fire
and extended coverage. The Corporation believes such specified coverage is of
the type and amount customarily obtained for or by an owner of hotels. Leases
for subsequently acquired hotels (including those leased to the Operating
Company) will contain similar provisions. However, there are certain types of
losses, generally of a catastrophic nature, such as earthquakes and floods, that
may be uninsurable or not economically insurable. The Board of Directors and
management of each of the Companies will use their discretion in determining
amounts, coverage limits and deductibility provisions of insurance, with a view
to maintaining appropriate insurance coverage on the investments of the
Corporation or the Operating Company, as the case may be, at a reasonable cost
and on suitable terms. This may 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 the lost investment of the Corporation or
the Operating Company, as the case may be. Inflation, changes in building codes
and ordinances, environmental considerations, and other factors also might make
it infeasible to use insurance proceeds to replace the property after such
property has been damaged or destroyed. Under such circumstances, the insurance
10
<PAGE>
proceeds received by the Corporation or the Operating Company might not be
adequate to restore its economic position with respect to such property.
Acquisition and Development Risks
The Companies currently intend to pursue acquisitions of additional hotels
and hotel operating companies and, under appropriate circumstances, may pursue
development opportunities. Acquisitions entail risks that such acquired hotels
or hotel operating companies will fail to perform in accordance with
expectations and that estimates of the cost of improvements necessary to market,
acquire and operate properties will prove inaccurate as well as general risks
associated with any new real estate or operating company acquisition. In
addition, hotel development is subject to numerous risks, including risks of
construction delays or cost overruns that may increase project costs, new
project commencement risks such as receipt of zoning, occupancy and other
required governmental approvals and permits and the incurrence of development
costs in connection with projects that are not pursued to completion. The fact
that the Corporation generally must distribute 95% of its ordinary taxable
income in order to maintain its qualification as a REIT may limit the
Corporation's ability to rely upon lease income from its hotels or subsequently
acquired properties to finance acquisitions or new developments. As a result, if
debt or equity financing were not available on acceptable terms, further
acquisitions or development activities might be curtailed or the Corporation's
cash available for distribution might be adversely affected.
Risks of Operating Hotels Under Franchise or Brand Affiliations
Certain of the Corporation's hotels are operated under franchise or brand
affiliations. In addition, hotels in which the Corporation subsequently invests
may be operated pursuant to franchise or brand affiliations. The continuation of
the franchise licenses relating to the franchised hotels (the "Franchise
Licenses") is subject to specified operating standards and other terms and
conditions. The continued use of a brand is generally contingent upon the
continuation of the management agreement related to that hotel with the branded
Operator. Franchisors typically inspect licensed properties periodically to
confirm adherence to operating standards. Action on the part of any of the
Companies, the Lessees or the Operators could result in a breach of such
standards or other terms and conditions of the Franchise Licenses and could
result in the loss or cancellation of a Franchise License. It is possible that a
franchisor could condition the continuation of a Franchise License on the
completion of capital improvements which the Corporation's Board of Directors
determines are too expensive or otherwise unwarranted in light of general
economic conditions or the operating results or prospects of the affected hotel.
In that event, the Corporation's Board of Directors may elect to allow the
Franchise License to lapse which could under certain circumstance result in the
Corporation incurring significant costs for terminating such Franchise License.
In any case, if a franchise or brand affiliation is terminated, the Corporation
and the Lessee may seek to obtain a suitable replacement franchise or brand
affiliation, or to operate the hotel independent of a franchise or brand
affiliation. The loss of a franchise or brand affiliation could have a material
adverse effect upon the operations or the underlying value of the hotel covered
by the franchise or brand affiliation because of the loss of associated name
recognition, marketing support and centralized reservation systems provided by
the franchisor or brand owner.
Horse Racing Industry Risks
The Operating Company is engaged in the business of conducting and offering
pari-mutuel wagering in thoroughbred horse racing at the Racecourse. Such
operations are contingent upon the continued governmental acceptance of such
operations as forms of legalized gambling. As a form of gambling, pari-mutuel
wagering is subject to extensive licensing and regulatory control by the
California Horse Racing Board (the "CHRB") and other California authorities.
These regulatory authorities have broad powers with respect to the licensing of
gaming operations, and may revoke, suspend, condition or limit the gaming
operations of the Operating Company. Any such change in regulations may have a
material adverse effect on the Operating Company's financial condition and
results of operations.
On July 1, 1997, the Corporation (formerly known as California Jockey Club,
"Cal Jockey") merged (the "Merger") with Patriot, with the Corporation being the
surviving corporation. Prior to the Merger, the Operating Company (then known
as Bay Meadows Operating Company, "Bay Meadows") was licensed by the CHRB for
its 1997 horse racing season to hold a split thoroughbred horse racing meet at
the Racecourse and to accept pari-mutuel wagers. The CHRB has approved an
amendment to permit the Operating Company to conduct the horse racing operations
at the Racecourse during the remainder of the 1997 horse racing meet. The racing
license must be renewed
11
<PAGE>
on an annual basis and the CHRB has broad discretion to reject any application
for a license. In addition, California law requires that each of the directors
and certain employees of the Operating Company must be licensed with the CHRB.
No assurances can be given that the CHRB will grant licenses to each of the
directors and each of such employees of the Operating Company. If a director or
employee required to be licensed were denied a license by the CHRB, the
Operating Company would have to replace such director or employee with a
director or employee who was so licensed.
The CHRB also has the discretion to limit the number of days and dates on
which the Operating Company may conduct live horse racing. No assurance can be
given as to how many, or which, horse racing days the CHRB will allocate to the
Operating Company in the future, nor can there be any assurance that an issued
license will not be modified or revoked.
Lack of Experience in the Horse Racing Business; Reliance on Bay Meadows
Management
The Operating Company manages the Racecourse's horse racing operations, an
area in which it has no prior experience. Although the Operating Company has
retained certain members of Bay Meadows' former management and personnel to
continue to manage these horse racing operations, there can be no assurance that
the Operating Company will be able to continue to employ said management and
personnel. Failure to retain such management and personnel could have a material
adverse effect on the results of operations and financial condition of the
Operating Company.
THE COMPANIES
On July 1, 1997, the Corporation (formerly known as Cal Jockey) and Patriot
consummated the Merger, with the Corporation being the surviving corporation.
Upon completion of the Merger, the Corporation and the Operating Company were
the surviving entities, each with a limited partnership subsidiary which holds
substantially all of its assets and conducts substantially all of its
operations. Following the Merger, the surviving entities have continued the
operations of Patriot, the Corporation and the Operating Company. As a result of
the Merger, the Corporation became one of two hotel REITs with the paired share
ownership structure.
The Corporation
The Corporation is a self-administered REIT under the Code. The Corporation
owns interests in a portfolio of hotels which are diversified by franchise or
brand affiliation and serve primarily major U.S. business centers, including
Atlanta, Boston, Chicago, Cleveland, Dallas, Denver, Houston, Miami, San
Francisco and Seattle. In addition to hotels catering primarily to business
travelers, the Corporation's portfolio also includes world-class resort hotels
in Scottsdale and Tucson, Arizona; Carmel, California; and Telluride, Colorado
and prominent hotels in major tourist destinations, including Fort Lauderdale,
Florida; New Orleans, San Antonio and San Diego. The Corporation also leases
approximately 174 acres of land in San Mateo, California upon which the
Racecourse is situated.
On April 14, 1997, the Corporation entered into the Wyndham Acquisition,
through which the Corporation agreed to acquire Wyndham's portfolio of owned and
leased hotels, management and franchise agreements for Wyndham's managed and
franchised properties throughout North America, management and franchise
agreements for properties which are currently closed for renovation or
construction or are in the process of being converted to the Wyndham brand, and
Wyndham's proprietary brand names, including Wyndham(SM), Wyndham Garden(R) and
Wyndham Hotels and Resorts(SM). Terms of the Wyndham Acquisition provide for
Wyndham stockholders to receive 1.372 shares of Paired Common Stock for each
share of Wyndham common stock (subject to adjustment under certain
circumstances), with up to $100 million of such consideration payable in cash,
at the option of Wyndham's stockholders. The Corporation will also assume or
retire all of Wyndham's outstanding indebtedness, which totaled approximately
$151 million as of June 30, 1997.
In connection with the proposed Wyndham Acquisition, the Corporation also
entered into a definitive agreement with partnerships affiliated with members of
the Trammell Crow family providing for the Corporation's acquisition of certain
full-service Wyndham-branded hotels (the "Crow Properties Acquisition" and,
collectively with the Wyndham Acquisition, the "Wyndham Transactions") for an
aggregate purchase price of approximately $332 million in cash, plus up to $14
million in additional cash consideration if two of the hotels meet certain cash
flow targets. The Corporation expects that the Wyndham Transactions will be
completed in the fourth quarter of 1997. The
12
<PAGE>
Wyndham Transactions are subject to various closing conditions, including
approval of the Wyndham Acquisition by the stockholders of the Companies and
Wyndham. Accordingly, no assurances can be given that the Wyndham Transactions
will be consummated.
As part of their ongoing businesses, the Companies continually engage in
discussions with public and private real estate entities, including, without
limitation, current lessees of the Companies' hotels, regarding possible
portfolio or single asset acquisitions, as well as the acquisition of hotel
leasing and management operations. No assurances can be made that the Companies
will acquire any such acquisition opportunities.
The Corporation conducts substantially all of its operations through the
Realty Partnership, which owns, directly and through its subsidiaries, the
Corporation's interests in each of its hotels. Through PAH GP and PAH LP, the
Corporation holds the sole general partnership interest and a limited
partnership interest, respectively, in the Realty Partnership.
Since 1983, the shares of Corporation Common Stock have been paired and
have traded together with the shares of Operating Company Common Stock as a
single unit pursuant to a stock pairing agreement. The terms of the stock
pairing agreement are set forth in the Pairing Agreement, dated as of February
17, 1983 and amended from time to time thereafter, by and between the
Corporation and the Operating Company (the "Pairing Agreement"). Since the
Merger, the Paired Common Stock has been listed on the NYSE under the symbol
"PAH."
The Corporation's principal executive offices are located at 3030 LBJ
Freeway, Suite 1500, Dallas, Texas 75234 and its telephone number at that
location is (972) 888-8000.
The Operating Company
The Corporation leases certain of its hotels to the Operating Company. The
Operating Company is also engaged in the business of conducting and offering
pari-mutuel wagering on thoroughbred horse racing at the Racecourse. As
described above, shares of Operating Company Common Stock are paired and trade
together with the shares of Corporation Common Stock as a single unit on the
NYSE pursuant to the Pairing Agreement. The Operating Company conducts
substantially all of its operations through the Operating Partnership, which
owns, directly and through its subsidiaries, the Operating Company's assets. The
Operating Company holds the sole general partnership interest and a limited
partnership interest in the Operating Partnership.
The Operating Company's principal executive offices are located at 3030 LBJ
Freeway, Suite 1500, Dallas, Texas 75234 and its telephone number at that
location is (972) 888-8000.
DESCRIPTION OF PAIRED COMMON STOCK
The statements below describing the Paired Common Stock are in all respects
subject to and qualified in their entirety by reference to the applicable
provisions of the Charters, the Amended and Restated Bylaws of the Corporation
(the "Corporation Bylaws") and the Amended and Restated Bylaws of the Operating
Company (the "Operating Company Bylaws" and, together with the Corporation
Bylaws, the "Bylaws").
General
The Corporation Charter authorizes the Corporation to issue up to 650
million shares of Corporation Common Stock, 100 million shares of preferred
stock, $.01 par value, and 750 million shares of excess stock, $.01 par value
(the "Excess Stock"), and the Operating Company Charter authorize the Operating
Company to issue up to 650 million shares of Operating Company Common Stock, 100
million shares of preferred stock, $.01 par value, and 750 million shares of
Excess Stock.
Pursuant to the Pairing Agreement, neither the Corporation nor the
Operating Company may issue shares of Corporation Common Stock or Operating
Company Common Stock, respectively, unless provision has been made for the
simultaneous issuance or transfer to the same person of the same number of
shares of that same class or series of common stock or preferred stock that is
paired of the other company and for the pairing of such shares. Each certificate
issued for shares of Paired Common Stock must be issued "back-to-back" with a
certificate evidencing the same number of shares of the other company. Each
certificate must bear a conspicuous legend on its face referring
13
<PAGE>
to the restrictions on ownership and transfer under the Bylaws. In addition,
neither the Corporation nor the Operating Company may declare a stock dividend,
issue any rights or warrants or otherwise reclassify shares unless the other
company simultaneously takes the same or equivalent action.
The Paired Common Stock is currently listed on the NYSE under the symbol
"PAH." As of October 28, 1997, there were 68,005,704 shares of Paired Common
Stock outstanding. The Paired Common Stock will, when issued, be fully paid and
nonassessable and will have no preemptive rights.
Terms
Subject to the preferential rights of any other class or series of stock,
holders of shares of Paired Common Stock will be entitled to receive dividends
and other distributions in cash, stock or property of the Corporation or the
Operating Company, as the case may be, as and when authorized and declared by
the respective Board of Directors of each company out of assets legally
available therefor and to share ratably in the assets of the respective company
legally available for distribution to its respective stockholders in the event
of its liquidation, dissolution or winding up after payment of, or adequate
provision for, all known debts and liabilities of the Corporation or the
Operating Company, as the case may be.
Each outstanding share of Paired Common Stock entitles its holder to one
vote on all matters submitted to a vote of stockholders of the Corporation or
the Operating Company, as the case may be, including the election of directors
and, except as otherwise required by law or except as provided with respect to
any other class or series of stock, the holders of Paired Common Stock will
possess the exclusive voting power.
Holders of Paired Common Stock have no conversion, sinking fund or
redemption rights, or preemptive rights to subscribe for any securities of the
Corporation or the Operating Company.
Each of the Corporation and the Operating Company intends to furnish its
stockholders with annual reports containing audited consolidated financial
statements and an opinion thereon expressed by an independent public accounting
firm and quarterly reports for the first three quarters of each fiscal year
containing unaudited financial information.
All shares of Paired Common Stock have equal dividend, distribution,
liquidation and other rights, and will have no preference, appraisal or exchange
rights.
Pursuant to the Delaware General Corporation Law (the "DGCL"), a merger or
consolidation involving either of the Corporation or the Operating Company
requires the approval of a majority of the outstanding shares of the constituent
corporation to the transaction entitled to vote on such a matter.
Restrictions on Ownership
For the Corporation to qualify as a REIT under the Code, not more than 50%
in value of its outstanding capital stock may be owned, directly or indirectly,
by five or fewer individuals (as defined in the Code to include certain
entities) during the last half of a taxable year. To assist the Corporation in
meeting this requirement, the Corporation and the Operating Company may take
certain actions to limit the beneficial ownership, directly or indirectly, by a
single person of the outstanding equity securities of the Corporation or the
Operating Company. See "Restrictions on Transfers of Capital Stock."
Transfer Agent
The transfer agent and registrar for the Paired Common Stock is American
Stock Transfer & Trust Company of New York, New York.
RESTRICTIONS ON TRANSFERS OF CAPITAL STOCK
For the Corporation to qualify as a REIT under the Code, among other
things, not more than 50% in value of its outstanding capital stock may be
owned, directly or indirectly, by five or fewer individuals (defined in the Code
to include certain entities) during the last half of a taxable year, and such
capital stock must be beneficially owned by
14
<PAGE>
100 or more persons during at least 335 days of a taxable year of 12 months or
during a proportionate part of a shorter taxable year (in each case, other than
the first such year).
The Charters prohibit actual or constructive ownership of shares of Equity
Stock of the Corporation or the Operating Company in excess of the Ownership
Limit unless the Ownership Limit is waived by the Board of Directors of the
relevant corporation in accordance with the Charters. Any transfer of shares of
Equity Stock of the Corporation or the Operating Company that would (i) result
in any person or entity owning, directly or indirectly, shares of Equity Stock
of the Corporation or the Operating Company in excess of the Ownership Limit,
unless the Ownership Limit is waived by the Board of Directors of the relevant
corporation in accordance with the Charters, (ii) result in the capital stock of
the Corporation being beneficially owned (within the meaning of Section
856(a)(5) of the Code) by fewer than 100 persons within the meaning of Section
856(a)(5) of the Code, (iii) result in the Corporation being "closely held"
within the meaning of Section 856(h) of the Code or (iv) cause the Corporation
to own, actually or constructively, 10% or more of the ownership interests in a
tenant of the real property of the Corporation or a subsidiary of the
Corporation within the meaning of section 856(d)(2)(B) of the Code, shall be
void ab initio, and the intended transferee will acquire no right or interest in
such shares of Equity Stock.
Upon the violation of any of the foregoing transfer restrictions contained
in the Charters, that number of shares which violate any of such transfer
restrictions shall automatically be converted into an equal number of shares of
Excess Stock of the Corporation or the Operating Company, as the case may be,
and transferred to a trust (a "Trust"). Such shares of Excess Stock held in
trust shall remain outstanding shares of stock of the Corporation and the
Operating Company and shall be held by the trustee of the Trust (the "Trustee")
for the benefit of a charitable beneficiary (a "Beneficiary"). In the case of
Equity Stock that is paired, upon the conversion of a share of Equity Stock into
a share of Excess Stock, the corresponding paired share of that same class or
series of Equity Stock of the other company shall simultaneously be converted
into a share of Excess Stock; such shares of Excess Stock shall be paired and
shall be simultaneously transferred to a Trust. Upon the occurrence of such a
conversion of shares of any class or series of Equity Stock into an equal number
of shares of Excess Stock, such shares of Equity Stock shall be automatically
retired and canceled, without any action required by the Board of Directors of
either of the Corporation or the Operating Company, and shall thereupon be
restored to the status of authorized but unissued shares of the particular class
or series of Equity Stock from which such Excess Stock was converted and may be
reissued as that particular class or series of Equity Stock. The Trustee and the
Beneficiary shall be designated pursuant to the terms of the Pairing Agreement.
Each share of Excess Stock shall entitle the holder to the number of votes the
holder would have if such share of Excess Stock was a share of Equity Stock of
the same class or series from which such Excess Stock was converted, on all
matters submitted to a vote at any meeting of stockholders. The Trustee, as
record holder of the Excess Stock, shall be entitled to vote all shares of
Excess Stock. Each share of Excess Stock shall be entitled to the same dividends
and distributions (as to timing and amount) as may be declared by the Board of
Directors of the Corporation or the Operating Company, as the case may be, as
shares of the class or series of Equity Stock from which such Excess Stock was
converted. The Trustee of the Trust, as record holder of the shares of the
Excess Stock, shall be entitled to receive all dividends and distributions and
shall hold such dividends and distributions in trust for the benefit of the
Beneficiary of the Trust.
Pursuant to the Charters, the Trustee shall have the exclusive and absolute
right to designate a permitted transferee (a "Permitted Transferee") of any and
all shares of Excess Stock if the Corporation or the Operating Company or both,
in the case of paired shares, fail to exercise its or their option with respect
to such shares as described below; provided, however, that (i) the Permitted
Transferee so designated purchases for consideration (whether in a public or
private sale) the shares of Excess Stock and (ii) the Permitted Transferee so
designated may acquire such shares of Excess Stock without violating any of the
aforementioned transfer restrictions and without such acquisition resulting in
the exchange of such shares of Equity Stock so acquired for shares of Excess
Stock and the transfer of such shares of Excess Stock to a Trust. Upon the
designation by the Trustee of a Permitted Transferee, the Trustee shall cause to
be transferred to the Permitted Transferee that number of shares of Excess Stock
of the Corporation or the Operating Company, as the case may be, acquired by the
Permitted Transferee. Upon such transfer of the shares of Excess Stock to the
Permitted Transferee, such shares of Excess Stock shall be automatically
converted into an equal number of shares of Equity Stock of the same class and
series from which such Excess Stock was converted. In the case of Equity Stock
that is paired, upon the conversion of a share of Excess Stock into a share of
Equity Stock of the same class or series from which such Excess Stock was
converted, the corresponding paired share of Excess Stock of the other company
shall simultaneously be converted into a share of Equity Stock of the same class
or series from which such Excess Stock was converted and such shares of Equity
Stock shall be paired. Upon the occurrence of such a conversion of shares of
Excess Stock into an equal number of shares of Equity Stock, such shares of
Excess Stock shall be automatically retired and canceled, without any action
required by the Board of
15
<PAGE>
Directors of the Corporation or the Operating Company, and shall thereupon be
restored to the status of authorized but unissued shares of Excess Stock and may
be reissued as such. The Trustee shall (i) cause to be recorded on the stock
transfer books of the Corporation or the Operating Company or both, in the case
of paired shares, that the Permitted Transferee is the holder of record of such
number of shares of Equity Stock and (ii) distribute to the Beneficiary any and
all amounts held with respect to the shares of Excess Stock after making payment
to the record holders of the shares of Equity Stock that were converted into
Excess Stock (each, a "Prohibited Owner"). If the transfer of shares of Excess
Stock to a purported Permitted Transferee shall violate any of the
aforementioned transfer restrictions including, without limitation, the
Ownership Limit, such transfer shall be void ab initio as to that number of
shares of Excess Stock that cause the violation of any such restriction when
such shares are converted into shares of Equity Stock and the purported
Permitted Transferee shall be deemed to be a Prohibited Owner and shall acquire
no rights in such shares of Excess Stock. Such shares of Equity Stock shall be
automatically re-converted into Excess Stock and transferred to the Trust from
which they were originally sold.
A Prohibited Owner shall be entitled to receive from the Trustee following
the sale or other disposition of such shares of Excess Stock the lesser of (i)
(a) in the case of a purported transfer in which the Prohibited Owner gave value
for shares of Equity Stock and which transfer resulted in the conversion of such
shares into shares of Excess Stock, the price per share, if any, such Prohibited
Owner paid for the shares of Equity Stock and (b) in the case of a non-transfer
event or transfer in which the Prohibited Owner did not give value for such
shares (e.g., if the shares were received through a gift or devise) and which
non-transfer event or transfer, as the case may be, resulted in the conversion
of such shares into shares of Excess Stock, the price per share equal to the
Market Price (as determined in the manner set forth in the Charters) on the date
of such non-transfer event or transfer and (ii) the price per share received by
the Trustee from the sale or other disposition of such shares of Excess Stock.
Any amounts received by the Trustee in respect of such shares of Excess Stock
and in excess of such amounts to be paid the Prohibited Owner shall be
distributed to the Beneficiary.
In addition, shares of Excess Stock shall be deemed to have been offered
for sale by a Trust to the Corporation or the Operating Company or both, in the
case of paired shares, or a designee of such company or companies, at a price
per share equal to the lesser of (i) the price per share in the transaction that
created such shares of Excess Stock (or, in the case of devise, gift or non-
transfer event, the Market Price at the time of such devise, gift or non-
transfer event) or (ii) the Market Price on the date either company or both
companies, in the case of paired shares, accept such offer. Either company or
both companies, in the case of paired shares, shall have the right to accept
such offer for a period of 90 days following the later of (a) the date of the
non-transfer event or purported transfer which results in such shares of Excess
Stock or (b) the date on which either company or both companies, in the case of
paired shares, determine in good faith that a transfer or non-transfer event
resulting in shares of Excess Stock has previously occurred, if either company
or both companies, in the case of paired shares, do not receive a notice of such
transfer or non-transfer event. In the case of shares of Excess Stock that are
paired, neither the Corporation nor the Operating Company shall accept such an
offer with respect to its shares of Excess Stock without the agreement of the
other company to accept such offer with respect to the corresponding paired
shares of its Excess Stock.
Any person or entity that acquires or attempts to acquire shares of Equity
Stock in violation of the aforementioned transfer restrictions, or any person or
entity that owned shares of Equity Stock that were transferred to a Trust, shall
immediately give written notice to the Corporation or the Operating Company or
both, in the case of paired shares, of such event and shall provide such other
information as the appropriate company or both companies, as the case may be,
may request to determine the effect, if any, of such violation, on the
Corporation's status as a REIT.
Each person or entity that is an owner, actually or constructively, of
shares of Equity Stock and each person or entity that (including the stockholder
of record) is holding shares of Equity Stock for such an owner shall provide to
the Corporation or the Operating Company or both, in the case of paired shares,
a written statement or affidavit stating such information as the appropriate
company or both companies, as the case may be, may request to determine the
Corporation's status as a REIT and to ensure compliance with the Ownership
Limit. In addition, every person or entity that owns of record, actually or
constructively, more than 5%, or such lower percentages as required pursuant to
regulations under the Code, of the outstanding shares of any class or series of
Equity Stock of the Corporation or the Operating Company shall, within 30 days
after January 1 of each year, provide to the Corporation or the Operating
Company or both, in the case of paired shares, a written statement or affidavit
stating the name and address of such owner, the number of shares of Equity Stock
owned, actually or constructively, and a description of how such shares are
held.
16
<PAGE>
All certificates representing shares of Equity Stock shall bear a legend
referring to the aforementioned transfer restrictions. The transfer restrictions
will continue to apply until the Board of Directors of the Corporation
determines that it is no longer in the best interests of the Corporation to
attempt to qualify, or to continue to qualify, as a REIT.
The restrictions on transfer contained in the Charters could have the
effect of delaying, deferring or preventing the acquisition of control of the
Corporation and the Operating Company, including certain acquisitions that
stockholders might deem to be in their best interest.
CERTAIN FEDERAL INCOME TAX CONSIDERATIONS
The following is a general summary of certain provisions that currently
govern United States federal income tax treatment of the Corporation and its
U.S. Stockholders (as defined below in "--Federal Income Taxation of Holders of
Paired Shares--Taxation of Taxable U.S. Stockholders") as well as certain other
tax considerations for U.S. holders of Paired Common Stock (also referred to
herein as "Paired Shares"). The following discussion is based upon current
provisions of the Code, existing, temporary and final regulations thereunder and
current administrative rulings and court decisions, all of which are subject to
change, possibly on a retroactive basis. No attempt has been made to comment on
all United States federal income tax consequences that may be relevant to
stockholders of the Companies. The tax discussion set forth below is included
for general information only. It is not intended to be, nor should it be
construed to be, legal or tax advice to any particular stockholder of the
Companies. References to the "Corporation" in this section regarding certain
Federal Income Tax Considerations include only Patriot American Hospitality,
Inc. and references herein to the "Operating Company" include only Patriot
American Hospital Operating Company unless the context otherwise requires.
THE FOLLOWING DISCUSSION MAY NOT APPLY TO PARTICULAR CATEGORIES OF HOLDERS
OF SHARES OF CORPORATION COMMON STOCK OR OPERATING COMPANY COMMON STOCK SUBJECT
TO SPECIAL TREATMENT UNDER THE CODE, SUCH AS INSURANCE COMPANIES, FINANCIAL
INSTITUTIONS, BROKER-DEALERS, TAX-EXEMPT ORGANIZATIONS, NON-U.S. STOCKHOLDERS
AND HOLDERS WHOSE SHARES WERE ACQUIRED PURSUANT TO THE EXERCISE OF AN EMPLOYEE
STOCK OPTION OR OTHERWISE AS COMPENSATION. STOCKHOLDERS OF THE COMPANIES ARE
URGED TO CONSULT THEIR TAX ADVISORS TO DETERMINE THEIR SPECIFIC TAX
CONSEQUENCES, INCLUDING ANY STATE, LOCAL OR OTHER TAX CONSEQUENCES.
REIT Qualification
General
If certain detailed conditions imposed by the provisions of the Code are
met, entities such as the Corporation that invest primarily in real estate and
that otherwise would be treated for federal income tax purposes as corporations
generally are not taxed at the corporate level on their "real estate investment
trust taxable income" that is currently distributed to stockholders. This
treatment substantially eliminates the "double taxation" on earnings (i.e., at
both the corporate and stockholder levels) that ordinarily results from the use
of corporations.
The Corporation has been and will continue to be operated in a manner
intended to allow it to qualify as a REIT. The Corporation in the future
intends to operate in a manner so that the Corporation will continue to qualify
as a REIT. If the Corporation fails to qualify as a REIT in any taxable year,
the Corporation will be subject to federal income taxation as if it were a
domestic corporation, and the Corporation's stockholders will be taxed in the
same manner as stockholders of ordinary corporations. In this event, the
Corporation could be subject to potentially significant tax liabilities, and the
amount of cash available for distribution to stockholders would be reduced and
possibly eliminated. Unless entitled to relief under certain Code provisions,
and subject to the discussion below regarding Section 269B(a)(3) of the Code,
the Corporation also would be disqualified from re-electing REIT status for the
four taxable years following the year during which qualification was lost.
Failure of the Corporation's predecessor, Patriot, to have qualified as a REIT
also could cause the Corporation to be disqualified as a REIT and/or subject the
Corporation to significant tax liabilities.
Goodwin, Procter & Hoar, LLP, special tax counsel to the Corporation, has
rendered an opinion to the Corporation to the effect that commencing with the
taxable year ending December 31, 1983, the Corporation has been
17
<PAGE>
organized and operated in conformity with the requirements for qualification and
taxation as a REIT under the Code, and the Corporation's proposed method of
operation will enable it to continue to meet the requirements for qualification
and taxation as a REIT under the Code. Investors should be aware, however, that
opinions of counsel are not binding upon the IRS or any court. Goodwin, Procter
& Hoar LLP's opinion is based on various assumptions and is conditioned upon
certain representations made by the Corporation as to factual matters, including
representations regarding the nature of the Corporation's properties, and the
future conduct of the Corporation's business. Any inaccuracy in such
assumptions and representations could adversely affect this opinion.
Qualification and taxation as a REIT depends upon the Corporation's having met
and continuing to meet, through actual annual operating results, the
distribution levels, stock ownership, and other various qualification tests
imposed under the Code. Goodwin, Procter & Hoar LLP has not reviewed and will
not review the Corporation's compliance with those tests on a continuing basis.
Moreover, qualification as a REIT involves the application of highly technical
and complex Code provisions for which there are only limited judicial or
administrative interpretations and the determination of various factual matters
and circumstances not entirely within the Corporation's control. The complexity
of these provisions is greater in the case of a REIT that owns hotels and leases
them to a corporation with which its stock is paired. See "Risk Factors--Real
Estate Investment Trust Tax Risks." Accordingly, no assurance can be given that
the Corporation will satisfy such tests on a continuing basis.
Paired Shares
Section 269B(a)(3) of the Code provides that if the shares of a REIT and a
non-REIT are paired, then the REIT and the non-REIT shall be treated as one
entity for purposes of determining whether either company qualifies as a REIT.
If Section 269B(a)(3) applied to the Corporation and the Operating Company, then
the Corporation then would not be eligible to be taxed as a REIT. Section
269B(a)(3) does not apply, however, if the shares of the REIT and the non-REIT
were paired on or before June 30, 1983 and the REIT was taxable as a REIT on or
before June 30, 1983. As a result of this "grandfathering" rule, Section
269B(a)(3) does not apply to the Corporation. There are, however, no judicial
or administrative authorities interpreting this "grandfathering" rule and this
interpretation, as well as the opinion of Goodwin, Procter & Hoar llp regarding
the Corporation's qualification as a REIT, is based solely on the literal
language of the statute. Moreover, if for any reason the Corporation failed to
qualify as a REIT in 1983, the benefit of the "grandfathering" rule would not be
available to the Corporation, and the Corporation would not qualify as a REIT
for any taxable year.
Potential Reallocation of Income
Due to the paired share structure, the Companies, and their respective
subsidiary entities are controlled by the same interests. As a result, the IRS
could, pursuant to Section 482 of the Code, seek to distribute, apportion or
allocate gross income, deductions, credits or allowances between or among them
if it determines that such distribution, apportionment or allocation is
necessary in order to prevent evasion of taxes or to clearly reflect income.
The Corporation and the Operating Company believe that all material transactions
between the Corporation and the Operating Company, and among them and/or their
subsidiary entities, will be negotiated and structured with the intention of
achieving an arm's-length result. The Corporation and the Operating Company
believe that all material transactions between them have been similarly
negotiated and structured with the intention of achieving an arm's-length
result. If true, the potential application of Section 482 of the Code should
not have a material effect on the Corporation and the Operating Company. There
can be no assurance, however, that the IRS will not challenge the terms of such
transactions, or that such challenge would not be successful.
Built-In Gain Tax
If the Corporation recognizes gain on the disposition of an asset acquired
from Wyndham during the ten-year period beginning on the date of the Wyndham
Acquisition, then to the extent of the assets "built-in gain" (i.e., the excess
of the fair market value of such asset at the time of the Wyndham Acquisition
over its then tax basis), the Corporation will be subject to tax on such gain at
the highest regular corporate rate applicable, pursuant to Treasury Regulations
not yet promulgated. The Corporation would be required to distribute 95% of the
excess of the amount of recognized built-in gain over the amount of tax paid in
order to maintain the Corporation's qualification as a REIT. The foregoing
assumes that the Corporation makes an election pursuant to IRS Notice 88-19 with
respect to the Wyndham Acquisition.
Classification of the Realty Partnership as a Publicly Traded Partnership
Section 7704 of the Code treats certain "publicly traded partnerships" as
corporations. If the Realty Partnership were taxed as a corporation under these
rules, the Corporation would be disqualified as a REIT. A partnership is a
publicly traded partnership if interests in such partnership are either traded
on an established securities market or are "readily tradeable on a secondary
market (or at least the substantial equivalent thereof)." Interests in the
Realty Partnership have not and will not be traded on an established securities
market. Currently, the Realty Partnership relies on restrictions on transfers
and redemptions recently included in its partnership agreement in order to avoid
being taxed as a corporation under Section 7704 of the Code. Prior to such
amendments, the Realty Partnership relied on an exemption from the publicly
traded partnership rules based on the nature of its income as well as a safe
harbor based on the number of its partners. There can be no assurance that
efforts to avoid taxation as a corporation under these provisions have been or
will be successful.
Sale of Land by the Corporation
The sale of certain land to an affiliate of PaineWebber Incorporated (the
"PaineWebber Land Sale") was structured to qualify as a tax-deferred like-kind
exchange. There can be no assurances, however, that such transaction will
qualify as a tax-deferred like-kind exchange. If and to the extent the sale
cannot be qualified as a tax-deferred like-kind exchange, any capital gain
recognized by the Corporation will be taxed to the Corporation at applicable
capital gains rates unless the Corporation distributes such gains to its
stockholders. For a discussion of the tax consequences to stockholders of
distributed and retained capital gains, see "--Federal Income Taxation of
Holders of Paired Shares." To the extent that the gain does not qualify for
capital gains treatment, the gain will be combined with the Corporation's other
taxable income, 95% of which must be distributed each year in order to maintain
the Corporation's status as a REIT.
18
<PAGE>
Notwithstanding the foregoing, in the event that the property in the
PaineWebber Land Sale constituted "dealer property," then the sale thereof would
not be eligible for tax-deferred like-kind exchange treatment, the gain would be
subject to a 100% tax, and the amount of gain would constitute nonqualifying
income that likely would disqualify the Corporation as a REIT. Although the
Corporation believes that the PaineWebber Land Sale did not constitute a sale of
dealer property, whether or not such sale constituted a sale of dealer property
is a factual determination not susceptible of legal opinion, and the Corporation
did not receive opinions from counsel on such determination. As a result, the
opinion rendered by Goodwin, Procter & Hoar LLP regarding the Corporation's
qualification as a REIT necessarily relies on representations from the
Corporation to the effect that the sale did not constitute a sale of dealer
property.
Effects of Compliance with REIT Requirements
Operating income derived from hotels or a racetrack does not constitute
qualifying income under the REIT requirements. Accordingly, all of the
Corporation's hotels, other than hotels held by taxable entities in which the
Corporation does not hold voting control (currently the Crowne Plaza Ravinia
Hotel and the Marriott WindWatch Hotel), have been leased to lessees and the
Corporation will continue to lease such hotels after the filing of this
Prospectus. Similarly, the Corporation has subleased the land underlying the
Racecourse and leased the related improvements to the Operating Company. Rent
derived from such leases will be qualifying income under the REIT requirements,
provided several requirements are satisfied. Among other requirements, a lease
may not have the effect of giving the Corporation a share of the net income of
the lessee, and the amount of personal property leased under the lease must not
exceed a defined, low level. The Corporation also may not provide services,
other than customary services and (beginning in 1998) de minimus non-customary
services, to lessees or their subtenants. In addition, all leases must also
qualify as "true" leases for federal income tax purposes (as opposed to service
contracts, joint ventures or other types of arrangements). There are, however,
no controlling Treasury Regulations, published rulings, or judicial decisions
that discuss whether leases similar to the Companies leases constitute "true"
leases. Therefore, there can be no complete assurance that the IRS will not
successfully assert a contrary position.
Payments under a lease will not constitute qualifying income for purposes
of the REIT requirements if the Corporation owns, directly or indirectly, 10% or
more of the ownership interests in the relevant lessee. Constructive ownership
rules apply, such that, for instance, the Corporation is deemed to own the
assets of stockholders who own 10% or more in value of the stock of the
Corporation. The Charters are therefore designed to prevent a stockholder of the
Corporation from owning Corporation stock or Operating Company stock that would
cause the Corporation to own, actually or constructively, 10% or more of the
ownership interests in a lessee (including the Operating Company). Thus, the
Corporation should never own, actually or constructively, 10% or more of a
lessee. However, because the relevant constructive ownership rules are broad and
it is not possible to monitor continually direct and indirect transfers of
Paired Shares, and because the charter provisions referred to above may not be
effective, no absolute assurance can be given that such transfers, or other
events of which the Corporation has no knowledge, will not cause the Corporation
to own constructively 10% or more of one or more lessees at some future date.
In addition to the considerations discussed above, the REIT requirements
will impose a number of other restrictions on the operations of the Corporation.
For example, net income from sales of property sold to customers in the ordinary
course of business (other than inventory acquired by reason of certain
foreclosures) is subject to a 100% tax unless eligible for a certain safe
harbor. Minimum distribution requirements also generally require the
Corporation to distribute each year at least 95% of its taxable income for the
year (excluding any net capital gain). In addition, certain asset tests limit
the Corporation's ability to acquire non-real estate assets.
19
<PAGE>
Taxation of the Operating Company; Non-Controlled Subsidiaries
As a "C" corporation under the Code, the Operating Company will be subject
to United States federal income tax on its taxable income at corporate rates. As
non-REIT subsidiaries, the corporate subsidiaries of the Realty Partnership that
are not controlled by it also will be subject to federal income tax.
State and Local Taxation
The Companies and their stockholders or partners may be subject to state
and local taxes in various jurisdictions, including those in which it or they
transact business, own property or reside. The state and local tax treatment of
such entities or persons may not conform to the federal income tax consequences
discussed above. Consequently, the Corporation, the Operating Company and their
stockholders should consult their own tax advisors regarding the effect of state
and local tax laws on the ownership of Paired Shares.
Federal Income Taxation of Holders of Paired Shares
Separate Taxation
Notwithstanding that Paired Shares may only be transferred as a unit,
holders of Paired Shares will be treated for U.S. federal income tax purposes as
holding equal numbers of shares of Corporation Common Stock and of Operating
Company Common Stock. The tax treatment of distributions to stockholders and of
any gain or loss upon sale or other disposition of the Paired Shares (as well as
the amount of gain or loss) must therefore be determined separately with respect
to each share of Corporation Common Stock and each share of Operating Company
Common Stock contained within each Paired Share. The tax basis and holding
period for each share of Corporation Common Stock and each share of Operating
Company Common Stock also must be determined separately. See "--Tax
Consequences of Redemption." Upon a taxable sale of a Paired Share, the amount
realized should be allocated between the Corporation Common Stock and the
Operating Company Common Stock based on their then relative values.
Taxation of Taxable U.S. Stockholders
As used herein, the term "U.S. Stockholder" means a holder of Paired Shares
that for United States federal income tax purposes is (i) a citizen or resident
of the United States, (ii) a corporation, partnership, or other entity created
or organized in or under the laws of the United States or any political
subdivision thereof, (iii) an estate, the income of which is subject to United
States federal income taxation regardless of its source or (iv) a trust, if a
court within the United States is able to exercise primary supervision over the
administration of the trust and one or more United States persons have the
authority to control all substantial decisions of the trust and (v) is not an
entity that has a special status under the Code (such as a tax-exempt
organization or a dealer in securities).
As long as the Corporation qualifies as a REIT, distributions made to the
Corporation's taxable U.S. Stockholders out of current or accumulated earnings
and profits (and not designated as capital gain dividends) will be taken into
account by such U.S. Stockholders as ordinary income and will not be eligible
for the dividends received deduction generally available to corporations. For
purposes of determining whether distributions on Corporation Common Stock are
out of earnings and profits, earnings and profits will be allocated first to any
outstanding preferred stock of the Corporation and then allocated to its Common
Stock. Subject to the discussion below regarding changes to the capital gains
tax rates, distributions that are designated as capital gain dividends will be
taxed as capital gains (to the extent they do not exceed the Corporation's
actual net capital gain for the taxable year) without regard to the period for
which the stockholder has held his Corporation Common Stock. However, corporate
stockholders may be required to treat up to 20% of certain capital gain
dividends as ordinary income. Distributions in excess of current and
accumulated earnings and profits will not be taxable to a stockholder to the
extent that they do not exceed the adjusted basis of the stockholder's
Corporation Common Stock, but rather will reduce the adjusted basis of such
stock. To the extent that such distributions in excess of current and
accumulated earnings and profits exceed the adjusted basis of a stockholder's
Corporation Common Stock, such distributions will be included in income as long-
term capital gain (or, in the case of individuals, trusts and estates, mid-term
capital gain if the Corporation Common Stock has been held for more than 12
months but not more than 18 months or in the case of all tax payers short-term
capital gain
20
<PAGE>
if the Corporation Common Stock has been held for one year or less) assuming
shares are a capital asset in the hands of the stockholder. In addition, any
distribution declared by the Corporation in October, November or December of any
year and payable to a stockholder of record on a specified date in any such
month shall be treated as both paid by the Corporation and received by the
stockholder on December 31 of such year, provided that the distribution is
actually paid by the Corporation during January of the following calendar year.
Distributions from the Operating Company up to the amount of the Operating
Company's current or accumulated earnings and profits (less any earnings and
profits allocable to distributions on any preferred stock of the Operating
Company) will be taken into account by U.S. Stockholders as ordinary income and
generally will be eligible for the dividends-received deduction for corporations
(subject to certain limitations). Distributions in excess of the Operating
Company's current and accumulated earnings and profits will not be taxable to a
holder to the extent that they do not exceed the adjusted basis of the holder's
the Operating Company's Common Stock, but rather will reduce the adjusted basis
of such Operating Company Common Stock. To the extent that such distributions
exceed the adjusted basis of a holder's the Operating Company Common Stock they
will be included in income as long-term capital gain (or, in the case of
individuals, trusts and estates, mid-term capital gain if the Operating Company
Common Stock has been held for more than 12 months but not more than 18 months
or in the case of all tax payers short-term capital gain if the Operating
Company Common Stock has been held for one year or less) assuming the shares are
a capital asset in the hands of the stockholder.
The Corporation may elect to retain and pay income tax on net long-term
capital gains recognized during the taxable year. For taxable years beginning
after December 31, 1997, if the Corporation so elects for a taxable year, its
stockholders would include in income as capital gain their proportionate share
of such of its long-term capital gains as the Corporation may designate. A
stockholder would be deemed to have paid its share of the tax paid by the
Corporation, which would be credited or refunded to the stockholder. The
stockholders' basis in its shares of Corporation Common Stock would be increased
by the amount of undistributed capital gains (less the capital gains tax paid by
the Corporation) included in the stockholder's capital gains.
Taxable distributions from the Corporation or the Operating Company and
gain or loss from the disposition of shares of Corporation Common Stock and
Operating Company Common Stock will not be treated as passive activity income
and, therefore, stockholders generally will not be able to apply any passive
activity losses (such as losses from certain types of limited partnerships in
which the stockholder is a limited partner) against such income. In addition,
taxable distributions from the Corporation or the Operating Company generally
will be treated as investment income for purposes of the investment interest
deduction limitations. Capital gain dividends, capital gains (other than short-
term capital gains) from the disposition of Paired Shares and actual or deemed
distributions from either company treated as such, including capital gains
(other than short-term capital gains) recognized on account of nontaxable
distributions in excess of a stockholder's basis on any deemed capital gain
distributions to a Corporation stockholder on account of retained capital gains
of the Corporation, will be treated as investment income for purposes of the
investment interest deduction limitations only if and to the extent the
stockholder so elects, in which case such capital gains will be taxed at
ordinary income rates to the extent of the election. The Corporation and the
Operating Company will notify stockholders after the close of their taxable
years as to the portions of the distributions attributable to that year that
constitute ordinary income, return of capital, and (in the case of the
Corporation) capital gain. Stockholders may not include in their individual
income tax returns any net operating losses or capital losses of the Corporation
or of the Operating Company.
The Taxpayer Relief Act of 1997 (the "Relief Act") alters the taxation of
capital gain income. Under the Relief Act, individuals, trusts and estates that
hold certain investments for more than 18 months may be taxed at a maximum long-
term capital gain rate of 20% on the sale or exchange of those investments.
Individuals, trusts and estates that hold certain assets for more than 12 months
but not more than 18 months may be taxed at a maximum mid-term capital gain rate
of 28% on the sale or exchange of those investments. The Relief Act also
provides a maximum rate of 25% for "unrecaptured section 1250 gain" for
individuals, trusts and estates, special rules for "qualified 5-year gain," as
well as other changes to prior law. The Relief Act allows the IRS to prescribe
regulations on how the Relief Act's new capital gain rates will apply to sales
of capital assets by (or interests in) "pass-thru entities," which include REITs
such as the Corporation. To date regulations have not yet been prescribed, and
it remains unclear how the Relief Act's new rates will apply to capital gain
dividends or undistributed capital gains, including for example the extent, if
any, to which capital gain dividends or undistributed capital gains from the
Corporation will be taxed to individuals, trusts and estates at the new rates
for mid-term capital gains and unrealized section 1250 recapture, rather than
the long-term capital gain rates. Investors are urged to consult their own tax
advisors with respect to the new rules contained in the Relief Act.
21
<PAGE>
Taxation of Stockholders on the Disposition of Paired Shares
In general, and assuming the taxpayer has the same holding period for the
Corporation Common Stock and the Operating Company Common Stock, any gain or
loss realized upon a taxable disposition of Paired Shares by a stockholder who
is not a dealer in securities will be treated as long-term capital gain or loss
if the Paired Shares have been held for more than 12 months, (or, in the case of
individuals, trusts and estates, mid-term capital gain or loss if the Paired
Shares have been held for more than 12 months but not more than 18 months, and
long-term capital gain or loss if the Paired Shares have been held for more than
18 months) and otherwise as short-term capital gain or loss. In addition, any
loss upon a sale or exchange of Corporation Common Stock by a stockholder who
has held such stock for six months or less (after applying certain holding
period rules), will be treated as a long-term capital loss to the extent of
distributions from the Corporation or undistributed capital gains required to be
treated by such stockholder as long-term capital gain. All or a portion of any
loss realized upon a taxable disposition of Paired Shares may be disallowed if
other Paired Shares are purchased within 30 days before or after the
disposition.
Information Reporting Requirements and Backup Withholding
The Corporation and the Operating Company will each report to their U.S.
Stockholders and the IRS the amount of distributions paid during each calendar
year, and the amount of tax withheld, if any. Under the backup withholding
rules, a stockholder may be subject to backup withholding at the rate of 31%
with respect to distributions paid unless such holder (i) is a corporation or
comes within certain other exempt categories and, when required, demonstrates
this fact or (ii) provides a taxpayer identification number, certifies as to no
loss of exemption from backup withholding and otherwise complies with the
applicable requirements of the backup withholding rules. A stockholder who does
not provide the Corporation and the Operating Company with his, her or its
correct taxpayer identification number also may be subject to penalties imposed
by the IRS. Any amount paid as backup withholding will be creditable against
the stockholder's income tax liability. In addition, the Corporation may be
required to withhold a portion of capital gain distributions to any stockholders
who fail to certify their non-foreign status to the Corporation.
Taxation of Tax-Exempt Stockholders
Tax-exempt entities, including qualified employee pension and profit
sharing trusts and individual retirement accounts ("Exempt Organizations"),
generally are exempt from federal income taxation. They are, however, subject to
taxation on their unrelated business taxable income ("UBTI"). While many
investments in real estate generate UBTI, amounts distributed by the Corporation
to Exempt Organizations generally should not constitute UBTI, nor should
dividends paid by the Operating Company generally constitute UBTI. However, if
an Exempt Organization finances its acquisition of Paired Shares with debt, a
portion of its income from the Corporation and the Operating Company will
constitute UBTI pursuant to the "debt-financed property" rules. Furthermore,
social clubs, voluntary employee benefit associations, supplemental unemployment
benefit trusts, and qualified group legal services plans that are exempt from
taxation under paragraphs (7), (9), (17), and (20), respectively, of Code
section 501(c) are subject to different UBTI rules, which generally will require
them to characterize distributions from the Corporation and the Operating
Company as UBTI.
22
<PAGE>
SELLING STOCKHOLDERS
The following table sets forth certain information with respect to the
Selling Stockholders, including the number of shares of Paired Common Stock
beneficially owned by each Selling Stockholder, the number of shares of Paired
Common Stock registered hereby and the percentage of shares of Paired Common
Stock held by each. There can be no assurance that all or any of the shares of
Paired Common Stock offered hereby will be sold. If any are sold, each Selling
Stockholder will receive all of the net proceeds from the sale of his, her or
its respective shares of Paired Common Stock offered hereby.
<TABLE>
<CAPTION>
Number of Shares Number of Shares
of Paired Common Stock Owned of Paired Common Stock
Selling Stockholder Before the Offering (1) Being Registered
------------------- ----------------------- ----------------
<S> <C> <C>
Amir Weissfisch 1,681,793 (2) 1,681,793
</TABLE>
- ----------------
(1) Represents approximately 2.47% of all outstanding shares of Paired Common
Stock of the Companies.
(2) 12,250 of such shares of Paired Common Stock are currently held in escrow.
Mr. Weissfisch received the 1,681,793 shares of Paired Common Stock in
connection with the contribution of certain real estate assets to the Companies.
PLAN OF DISTRIBUTION
The Companies will not receive any of the proceeds from this Offering. The
shares of Paired Common Stock offered hereby may be sold from time to time on
the NYSE on terms to be determined at the time of such sales. The Selling
Stockholders may also make private sales directly or through a broker or
brokers. Alternatively, the Selling Stockholders may from time to time offer
shares of Paired Common Stock to or through underwriters, dealers or agents, who
may receive consideration in the form of discounts and commissions; such
compensation, which may be in excess of ordinary brokerage commissions, may be
paid by the Selling Stockholders and/or the purchasers of the shares of Paired
Common Stock offered hereby for whom such underwriters, dealers or agents may
act. The Selling Stockholders and any dealers or agents that participate in the
distribution of the shares of Paired Common Stock offered hereby may be deemed
to be "underwriters" as defined in the Securities Act, and any profit on the
sale of such shares of Paired Common Stock offered hereby by them and any
discounts, commissions or concessions received by any such dealers or agents
might be deemed to be underwriting discounts and commissions under the
Securities Act. The aggregate proceeds to the Selling Stockholders from sales of
the shares of Paired Common Stock by the Selling Stockholders hereby will be the
purchase price of such Paired Common Stock less any broker's commissions.
To the extent required, the specific shares of Paired Common Stock to be
sold, the names of the Selling Stockholders, the respective purchase prices and
public offering prices, the names of any such agent, dealer or underwriter, and
any applicable commissions or discounts with respect to a particular offer will
be set forth in an accompanying prospectus supplement.
The shares of Paired Common Stock offered hereby may be sold from time to
time in one or more transactions at a fixed offering price, which may be
changed, or at varying prices determined at the time of sale or at negotiated
prices.
In order to comply with the securities laws of certain states, if
applicable, the shares of Paired Common Stock offered hereby will be sold in
such jurisdictions only through registered or licensed brokers or dealers.
The Companies will pay substantially all the expenses incurred by the
Selling Stockholders and the Companies incident to the Offering, but excluding
any underwriting discounts, commissions, and transfer taxes.
23
<PAGE>
LEGAL MATTERS
Certain legal matters, including the legality of the securities and federal
income tax considerations, have been passed upon for the Corporation and the
Operating Company by Goodwin, Procter & Hoar LLP, Boston, Massachusetts, as
corporate, securities and tax counsel. Gilbert G. Menna, an officer of PAH GP,
Inc., a wholly-owned subsidiary of the Corporation, is the sole shareholder of
Gilbert G. Menna, P.C., which is a partner in Goodwin, Procter & Hoar LLP.
Joseph L. Johnson III, an officer of PAH GP, is a partner in Goodwin, Procter &
Hoar LLP. Kathryn I. Murtagh, an officer of the Corporation, the Operating
Company and PAH GP is a partner in Goodwin, Procter & Hoar LLP.
EXPERTS
The Separate and Combined Financial Statements of Cal Jockey and Bay Meadows
and its subsidiary as of December 31, 1996 and 1995, and for each of the three
years in the period ended December 31, 1996, incorporated by reference in this
Prospectus have been audited by Deloitte & Touche LLP, independent auditors, as
stated in their report with respect thereto (which expresses an unqualified
opinion and includes an explanatory paragraph relating to a proposed merger and
certain disagreements between Cal Jockey and Bay Meadows) and are incorporated
by reference herein. The combined financial statements of the Partnerships of
Acquired Hotels as of December 31, 1996 and 1995 and for each of the two years
in the period ended December 31, 1996, incorporated in this Prospectus by
reference from the report on Form 8-K/A No. 1 dated September 30, 1997 of
Patriot American Hospitality, Inc. and Patriot American Hospitality Operating
Company have been audited by Deloitte & Touche LLP, independent auditors, as
stated in their report, which is incorporated herein by reference. Each of the
above referenced financial statements are incorporated herein by reference in
reliance upon the reports of such firm given upon their authority as experts in
accounting and auditing.
The (a) Consolidated Financial Statements of Patriot as of December 31, 1996
and 1995 and for the year ended December 31, 1996 and the period October 2, 1995
(inception of operations) through December 31, 1995 and the related financial
statement schedules, (b) the Combined Financial Statements of the Initial Hotels
as of December 31, 1994 and for the year ended December 31, 1994 and the period
January 1, 1995 through October 1, 1995, and (c) the Financial Statements of
NorthCoast Hotels, L.L.C. as of December 31, 1996 and the period April 2, 1996
(inception of operations) through December 31, 1996 appearing in Patriot's 1996
Annual Report on Form 10-K (and with respect to the Consolidated Financial
Statements of Patriot referred to above also appearing in the Joint Current
Report on Form 8-K of Patriot American Hospitality Inc. and Patriot American
Hospitality Operating Company dated July 1, 1997), have been audited by Ernst &
Young LLP, independent auditors, as set forth in their reports thereon included
therein and incorporated herein by reference. With respect to the Combined
Financial Statements of the Initial Hotels, such report is based in part on the
reports of Coopers & Lybrand L.L.P., independent accountants, as set forth in
their respective reports for Certain of the Initial Hotels and Troy Hotel
Investors. The (a) Financial Statements of Buckhead Hospitality Joint Venture as
of December 31, 1995 and for the year then ended, (b) the Combined Financial
Statements of Gateway Hotel Limited Partnership and Wenatchee Hotel Limited
Partnership as of December 31, 1995 and for the year then ended, and (c) the
individual Statements of Direct Revenue and Direct Operating Expenses for the
Plaza Park Suites Hotel and the Roosevelt Hotel for the year ended December 31,
1995, appearing in Patriot's Current Report on Form 8-K, dated April 2, 1996, as
amended (filed April 17, 1996 and June 14, 1996), have been audited by Ernst &
Young LLP, independent auditors, as set forth in their reports thereon included
therein and incorporated herein by reference. The (a) Statement of Direct
Revenue and Direct Operating Expenses of the Mayfair Suites Hotel for the year
ended December 31, 1995, (b) Statement of Direct Revenue and Direct Operating
Expenses of Marriott Windwatch Hotel for the year ended December 29, 1995, and
(c) the Financial Statements of Concorde O'Hare Limited Partnership as of
December 29, 1995 and for the year then ended appearing in Patriot's Current
Report on Form 8-K, dated December 5, 1996 (filed December 5, 1996), have been
audited by Ernst & Young LLP, independent auditors, as set forth in their
reports thereon included therein and incorporated herein by reference. The (a)
Consolidated Financial Statements of Resorts Limited Partnership as of and for
the years ended December 31, 1996 and 1995, (b) the Financial Statements of CV
Ranch Limited Partnership as of and for the years ended December 31, 1996 and
1995, and (c) the Financial Statements of Telluride Resort and Spa Limited
Partnership as of and for the years ended December 31, 1996 and 1995, appearing
in Patriot's Current Report on Form 8-K, dated January 16, 1997, as amended
(filed January 31, 1997, February 21, 1997, April 8, 1997, April 9, 1997, and
May 19, 1997) have been audited by Ernst & Young LLP, independent auditors, as
set forth in their reports thereon included therein and incorporated herein by
reference. The (a) Consolidated Financial Statements of GAH-II, L.P. as of
December 31, 1996 and 1995 and for the years then ended, (b) the Financial
Statements of G.B.H. Joint Venture (d/b/a Grand Bay
24
<PAGE>
Hotel) as of December 31, 1996 and 1995 and for the years then ended, (c) the
Financial Statements of River House Associates (d/b/a Sheraton Gateway Hotel) as
of December 31, 1996 and 1995 and for the years then ended, and (d) the
Financial Statements of W-L Tampa, Ltd. (the Sheraton Grand Hotel) as of
December 31, 1996 and 1995 and for the years then ended, appearing in the Joint
Current Report on Form 8-K of Patriot American Hospitality, Inc. and Patriot
American Hospitality Operating Company dated September 30, 1997, as amended
(filed October 14, 1997 and October 28, 1997), have been audited by Ernst &
Young LLP, independent auditors, as set forth in their reports thereon included
therein and incorporated herein by reference. Each of the above referenced
financial statements are incorporated herein by reference in reliance upon such
reports given upon the authority of such firm as experts in accounting and
auditing.
The Financial Statements of Certain of the Initial Hotels as of December 31,
1994 and for the period from January 1, 1995 to October 1, 1995 and for the year
ended December 31, 1994, the Financial Statements of Troy Hotel Investors as of
October 1, 1995 and for the period January 1, 1995 to October 1, 1995 and Troy
Park Associates as of December 29, 1994 and for the period January 1, 1994
through December 29, 1994 included in Patriot's 1996 Annual Report on Form 10-K,
the statement of Direct Revenue and Direct Operating Expenses for the Holiday
Inn--Miami Airport for the year ended August 31, 1996 included in Patriot's
Current Report on Form 8-K dated December 5, 1996, the Consolidated Financial
Statements of Wyndham Hotel Corporation as of December 31, 1995 and 1996 and for
each of the three years in the period ended December 31, 1996, included in the
Report on Form 10-K dated March 26, 1997 of Wyndham Hotel Corporation, the
Combined Financial Statements of Snavely Hotels as of December 31, 1996 and for
the year then ended, the Combined Financial Statements of Minneapolis Hotels as
of December 31, 1996 and for the year then ended, and the combined statement of
Direct Revenue and Direct Operating Expenses for the Met Life Hotels for the
year ended December 31, 1996, included in the Report on Form 8-K dated September
17, 1997, and the Financial Statements of SCP ("Buttes") Inc. as of December 31,
1996 and for the year then ended, included in the Report on Form 8-K/A No. 1,
incorporated by reference in this Prospectus, have been audited by Coopers &
Lybrand, L.L.P., independent accountants, as set forth in their reports thereon.
Each of the above-referenced financial statements have been incorporated by
reference herein in reliance upon the authority of said firm as experts in
accounting and auditing.
The Financial Statements of Historic Hotel Partners of Birmingham Limited
Partnership as of December 31, 1994 and 1995 and for the years then ended, the
Financial Statements of Historic Hotel Partners of Chicago, Limited Partnership
as of December 31, 1996 and for the year then ended, and the Financial
Statements of Historic Hotel Partners of Nashville, Limited Partnership as of
December 31, 1996 and for the year then ended incorporated by reference in this
Prospectus, have been audited by Pannell Kerr Forster PC, independent auditors,
as set forth in their reports thereon. Each of the above-referenced financial
statements have been incorporated by reference herein in reliance upon the
authority of said firm as experts in accounting and auditing.
The CHC Lease Partners financial statements as of December 31, 1996 and 1995
and for the year ended December 31, 1996 and the period inception (October 2,
1995) through December 31, 1995, incorporated by reference in this Prospectus,
by reference to the Current Report on Form 8-K dated July 1, 1997, and the CHC
International, Inc. Hospitality Division financial statements as of November 30,
1996 and 1995 and for the years then ended, incorporated by reference in this
Prospectus, by reference to the Current Report on Form 8-K dated September 30,
1997, as amended, have been so incorporated in reliance on the reports of Price
Waterhouse LLP, independent certified public accountants, given on the authority
of said firm as experts in auditing and accounting.
The Combined Financial Statements of the Crow Family Hotel Partnerships
incorporated by reference in this Prospectus have been audited by Arthur
Andersen LLP, independent public accountants, as indicated in their reports with
respect thereto, and are incorporated by reference herein in reliance upon the
authority of said firm as experts in accounting and auditing in giving said
reports.
25
<PAGE>
================================================================================
No person has been authorized to give any information or to make any
representation in connection with this offering other than those contained in
this Prospectus and, if given or made, such other information or representations
must not be relied upon as having been authorized by the Companies or any other
person. Neither the delivery of this Prospectus nor any sale made hereunder
shall, under any circumstances, create any implication that there has been no
change in the affairs of the Companies since the date hereof or that the
information contained herein is correct as of any time subsequent to its date.
This Prospectus does not constitute an offer to sell or a solicitation of an
offer to buy any securities other than the registered Securities to which it
relates.
--------------------
TABLE OF CONTENTS
Page
----
Available Information....................................................... 3
Incorporation of Certain Documents by Reference............................. 3
Risk Factors................................................................ 5
The Companies............................................................... 12
Description of Paired Common Stock.......................................... 13
Restrictions on Transfers of Capital Stock.................................. 14
Certain Federal Income Tax Considerations................................... 17
Selling Stockholders........................................................ 23
Plan of Distribution........................................................ 23
Legal Matters............................................................... 24
Experts..................................................................... 24
1,681,793 Shares of
Paired Common Stock
Patriot American
Hospitality, Inc.
Patriot American Hospitality
Operating Company
---------------
PROSPECTUS
---------------
__________, 1997
================================================================================
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 14. Other Expenses of Issuance and Distribution.*
<TABLE>
<S> <C>
Registration fee................................................. $ 15,290
Printing fees and expenses....................................... 100,000
Legal fees and expenses.......................................... 100,000
Accounting fees and expenses..................................... 30,000
Miscellaneous.................................................... 50,000
Total............................................................ $295,290
</TABLE>
* Fees and expenses are estimated with the exception of the registration fee.
Item 15. Indemnification of Directors and Officers.
Pursuant to Section 145 of the DGCL, each of the Corporation Charter and the
Operating Company Charter includes a provision which eliminates any personal
liability for a director to the Corporation or the Operating Company, as the
case may be, and to the stockholders, for monetary damages for breach of
fiduciary duty as a director, except for liability (i) for any breach of the
director's duty of loyalty to the Corporation or the Operating Company, as the
case may be, or to the stockholders, (ii) for acts or omissions not in good
faith or which involve intentional misconduct or a knowing violation of law,
(iii) in connection with certain unlawful dividend payments or stock redemptions
or repurchases or (iv) for any transaction from which such director derived an
improper personal benefit. In addition, the Corporation Charter and the
Operating Company Charter each provide that if the DGCL is amended to authorize
the further elimination or limitation of the personal liability of directors,
then the liability of a director of the Corporation or the Operating Company
shall be eliminated or limited to the fullest extent permitted by the DGCL, as
so amended.
Article VII of each of the Corporation Bylaws and the Operating Company Bylaws
provides for indemnification by the Corporation or the Operating Company, as the
case may be, of their respective officers, directors and the officers and
directors of their respective subsidiaries to the fullest extent permitted by
Section 145 of the DGCL, as amended from time to time and the Corporation and
the Operating Company may, by action of their respective Board of Directors,
indemnify all other persons the Corporation or the Operating Company may
indemnify under the DGCL.
II-1
<PAGE>
Item 16. Exhibits.
Exhibit
Number Exhibit
- ------ -------
3.1 -- Amended and Restated Certificate of Incorporation of Patriot
American Hospitality, Inc., incorporated by reference to Exhibit
3.1 to the Registration Statement on Form S-3 of Patriot
American Hospitality, Inc. and Patriot American Hospitality
Operating Company (Nos. 333-29671 and 333-29671-01).
3.2 -- Amended and Restated Bylaws, as amended, of Patriot American
Hospitality, Inc., incorporated by reference to Exhibit 3.2 to
the Registration Statement on Form S-3 of Patriot American
Hospitality, Inc. and Patriot American Hospitality Operating
Company (Nos. 333-29671 and 333-29671-01).
3.3 -- Amended and Restated Certificate of Incorporation, of Patriot
American Hospitality Operating Company, incorporated by
reference to Exhibit 3.3 to the Registration Statement on Form
- 3 of Patriot American Hospitality, Inc. and Patriot American
Hospitality Operating Company (Nos. 333-29671 and 333-29671-01).
3.4 -- Amended and Restated Bylaws, of Patriot American Hospitality
Operating Company, incorporated by reference to Exhibit 3.4 to
the Registration Statement on Form S-3 of Patriot American
Hospitality, Inc. and Patriot American Hospitality Operating
Company (Nos. 333-29671 and 333-29671-01).
*5.1 -- Opinion of Goodwin, Procter & Hoar LLP as to legality of
securities being offered.
*8.1 -- Opinion of Goodwin, Procter & Hoar LLP as to Tax Matters.
*23.1 -- Consent of Goodwin, Procter & Hoar LLP (included in Exhibit 5.1
and Exhibit 8.1).
*23.2 -- Consent of Deloitte & Touche LLP, San Francisco, California.
*23.3 -- Consent of Ernst & Young LLP, Dallas, Texas.
*23.4 -- Consent of Ernst & Young LLP, Seattle, Washington.
*23.5 -- Consent of Ernst & Young LLP, Phoenix, Arizona.
*23.6 -- Consent of Coopers & Lybrand L.L.P., Fort Lauderdale, Florida.
*23.7 -- Consent of Coopers & Lybrand L.L.P., Pittsburgh, Pennsylvania.
*23.8 -- Consent of Coopers & Lybrand L.L.P., Dallas, Texas.
*23.9 -- Consent of Pannell Kerr Forster PC.
*23.10 -- Consent of Price Waterhouse LLP.
*23.11 -- Consent of Coopers & Lybrand L.L.P., Newport Beach, California.
*23.12 -- Consent of Ernst & Young LLP, Miami, Florida.
*23.13 -- Consent of Deloitte & Touche LLP, Houston, Texas.
*23.14 -- Consent of Coopers & Lybrand L.L.P., Phoenix, Arizona.
24.1 -- Powers of Attorney (included on Signature Pages to the
Registration Statement).
- ----------------
* Filed herewith
II-2
<PAGE>
Item 17. Undertakings.
(a) The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this registration
statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most
recent post-effective amendment thereof) which, individually or
in the aggregate, represent a fundamental change in the
information set forth in the registration statement.
Notwithstanding the foregoing, any increase or decrease in
volume of securities offered (if the total dollar value of
securities offered would not exceed that which was registered)
and any deviation from the low or high and of the estimated
maximum offering range may be reflected in the form of
prospectus filed with the Commission pursuant to Rule 424(b)
if, in the aggregate, the changes in volume and price represent
no more than 20 percent change in the maximum aggregate
offering price set forth in the "Calculation of Registration
Fee" table in the effective registration statement; and
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the registration
statement or any material change to such information in the
registration statement;
provided, however, that paragraphs (a)(1)(i) and (a)(1)(ii) herein do not
apply if the information required to be included in a post-effective amendment
by those paragraphs is contained in periodic reports filed with or furnished
to the Commission by the registrant pursuant to Section 13 or Section 15(d) of
the Securities Exchange Act of 1934 that are incorporated by reference in the
registration statement;
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment
shall be deemed to be a new registration statement relating to
the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial bona
fide offering thereof; and
(3) To remove from registration by means of a post-effective
amendment any of the securities being registered which remain
unsold at the termination of the offering.
(b) The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each
filing of the registrant's annual report pursuant to Section 13(a) or
15(d) of the Securities Exchange Act of 1934 that is incorporated by
reference in the Registration Statement shall be deemed to be a new
registration statement relating to the securities offered therein, and
the offering of such securities at that time shall be deemed to be the
initial bona fide offering thereof.
(c) Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and
controlling persons of the registrant pursuant to the foregoing
provisions, or otherwise, the registrant has been advised that in the
opinion of the Securities and Exchange Commission such indemnification
is against public policy as expressed in the Act and is, therefore,
unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the registrant of expenses
incurred or paid by a director, officer, or controlling person of the
registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling
person in connection with the securities being registered, the
registrant will, unless in the opinion of its counsel the matter has
been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by
it is against public policy as expressed in the Securities Act of 1933
and will be governed by the final adjudication of such issue.
II-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, each of the
Registrants has duly caused this Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Dallas,
State of Texas, October 31, 1997.
PATRIOT AMERICAN HOSPITALITY, INC. PATRIOT AMERICAN HOSPITALITY
OPERATING COMPANY
By: /s/ Paul A. Nussbaum By: /s/ Paul A. Nussbaum
-------------------------------------- -------------------------------
Paul A. Nussbaum Paul A. Nussbaum
Chairman of the Board, Chief Executive Chairman of the Board and Chief
Officer and President Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this Registration
Statement has been signed by the following persons in the capacities and on the
dates indicated, each of whom also constitutes and appoints Paul A. Nussbaum and
Rex. E. Stewart and each of them singly, his true and lawful attorney-in-fact
and agent, for him, with full power of substitution and resubstitution, for him
and in his name, place and stead, in any and all capacities, to sign any and all
amendments to this Registration Statement and to file the same and all exhibits
thereto, and any other documents in connection therewith with the Securities and
Exchange Commission, granting unto each attorney-in-fact and agent full power
and authority to do and perform each and every act and thing requisite and
necessary to be done, as fully to all intent and purposes as he might or could
do in person, hereby ratifying and confirming all that each attorney-in-fact and
agent or his substitute or substitutes may lawfully do or cause to be done by
virtue hereof.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ Paul A. Nussbaum Chairman of the Board of Directors, October 31, 1997
- ----------------------------- Chief Executive Officer and President,
Paul A. Nussbaum Patriot American Hospitality, Inc.
(Principal Executive Officer)
/s/ Rex E. Stewart Chief Financial Officer and Treasurer, October 31, 1997
- ----------------------------- Patriot American Hospitality, Inc.
Rex E. Stewart (Principal Financial Officer and
Principal Accounting Officer)
/s/ William W. Evans III Office of the Chairman and Director, October 31, 1997
- ----------------------------- Patriot American Hospitality, Inc.
William W. Evans III
/s/ John H. Daniels Director, Patriot American October 31, 1997
- ----------------------------- Hospitality, Inc.
John H. Daniels
/s/ John C. Deterding Director, Patriot American October 31, 1997
- ----------------------------- Hospitality, Inc.
John C. Deterding
/s/ Gregory R. Dillon Director, Patriot American October 31, 1997
- ----------------------------- Hospitality, Inc.
Gregory R. Dillon
/s/ Thomas H. Foley Director, Patriot American October 31, 1997
- ----------------------------- Hospitality, Inc.
Thomas H. Foley
/s/ Arch K. Jacobson Director, Patriot American October 31, 1997
- ----------------------------- Hospitality, Inc.
Arch K. Jacobson
</TABLE>
II-4
<PAGE>
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated, each of whom also constitutes and
appoints Paul A. Nussbaum and Rex. E. Stewart and each of them singly, his true
and lawful attorney-in-fact and agent, for him, with full power of substitution
and resubstitution, for him and in his name, place and stead, in any and all
capacities, to sign any and all amendments to this Registration Statement and to
file the same and all exhibits thereto, and any other documents in connection
therewith with the Securities and Exchange Commission, granting unto each
attorney-in-fact and agent full power and authority to do and perform each and
every act and thing requisite and necessary to be done, as fully to all intent
and purposes as he might or could do in person, hereby ratifying and confirming
all that each attorney-in-fact and agent or his substitute or substitutes may
lawfully do or cause to be done by virtue hereof.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ Paul A. Nussbaum Chairman of the Board of Directors October 31, 1997
- ---------------------------- and Chief Executive Officer,
Paul A. Nussbaum Patriot American Hospitality Operating
Company (Principal Executive Officer)
/s/ Karim Alibhai President, Chief Operating Officer and
- ---------------------------- Director, Patriot American Hospitality October 31, 1997
Karim Alibhai Operating Company
/s/ Rex E. Stewart Chief Financial Officer and Treasurer,
- ---------------------------- Patriot American Hospitality Operating October 31, 1997
Rex E. Stewart Company (Principal Financial Officer
and Principal Accounting Officer)
/s/ Arch K. Jacobson Director, Patriot American October 31, 1997
- ---------------------------- Hospitality Operating Company
Arch K. Jacobson
/s/ Leonard Boxer Director, Patriot American October 31, 1997
- ---------------------------- Hospitality Operating Company
Leonard Boxer
/s/ Russ Lyon, Jr. Director, Patriot American October 31, 1997
- ---------------------------- Hospitality Operating Company
Russ Lyon, Jr.
/s/ Burton C. Einspruch Director, Patriot American October 31, 1997
- ---------------------------- Hospitality Operating Company
Burton C. Einspruch
/s/ Sherwood Weiser Director, Patriot American Hospitality October 31, 1997
- ---------------------------- Operating Company
Sherwood Weiser
</TABLE>
II-5
<PAGE>
EXHIBIT INDEX
Exhibit
Number Exhibit
- ------ -------
3.1 -- Amended and Restated Certificate of Incorporation of Patriot
American Hospitality, Inc., incorporated by reference to Exhibit
3.1 to the Registration Statement on Form S-3 of Patriot
American Hospitality, Inc. and Patriot American Hospitality
Operating Company (Nos. 333-29671 and 333-29671-01).
3.2 -- Amended and Restated Bylaws, as amended, of Patriot American
Hospitality, Inc., incorporated by reference to Exhibit 3.2 to
the Registration Statement on Form S-3 of Patriot American
Hospitality, Inc. and Patriot American Hospitality Operating
Company (Nos. 333-29671 and 333-29671-01).
3.3 -- Amended and Restated Certificate of Incorporation, of Patriot
American Hospitality Operating Company, incorporated by
reference to Exhibit 3.3 to the Registration Statement on Form
S-3 of Patriot American Hospitality, Inc. and Patriot American
Hospitality Operating Company (Nos. 333-29671 and 333-29671-01).
3.4 -- Amended and Restated Bylaws, of Patriot American Hospitality
Operating Company, incorporated by reference to Exhibit 3.4 to
the Registration Statement on Form S-3 of Patriot American
Hospitality, Inc. and Patriot American Hospitality Operating
Company (Nos. 333-29671 and 333-29671-01).
*5.1 -- Opinion of Goodwin, Procter & Hoar LLP as to legality of
securities being offered.
*8.1 -- Opinion of Goodwin, Procter & Hoar LLP as to Tax Matters.
*23.1 -- Consent of Goodwin, Procter & Hoar LLP (included in Exhibit 5.1
and Exhibit 8.1).
*23.2 -- Consent of Deloitte & Touche LLP, San Francisco, California.
*23.3 -- Consent of Ernst & Young LLP, Dallas, Texas.
*23.4 -- Consent of Ernst & Young LLP, Seattle, Washington.
*23.5 -- Consent of Ernst & Young LLP, Phoenix, Arizona.
*23.6 -- Consent of Coopers & Lybrand L.L.P., Fort Lauderdale, Florida.
*23.7 -- Consent of Coopers & Lybrand L.L.P., Pittsburgh, Pennsylvania.
*23.8 -- Consent of Coopers & Lybrand L.L.P., Dallas, Texas.
*23.9 -- Consent of Pannell Kerr Forster PC.
*23.10 -- Consent of Price Waterhouse LLP.
*23.11 -- Consent of Coopers & Lybrand L.L.P., Newport Beach, California.
*23.12 -- Consent of Ernst & Young LLP, Miami, Florida.
*23.13 -- Consent of Deloitte & Touche LLP, Houston, Texas.
*23.14 -- Consent of Coopers & Lybrand L.L.P., Phoenix, Arizona.
24.1 -- Powers of Attorney (included on Signature Pages to the
Registration Statement).
- ---------------
* Filed herewith
II-6
<PAGE>
Exhibit 5.1
[LETTERHEAD OF GOODWIN, PROCTER & HOAR LLP APPEARS HERE]
October 31, 1997
Patriot American Hospitality, Inc.
3030 LBJ Freeway, Suite 1500
Dallas, TX 75234
Patriot American Hospitality Operating Company
3030 LBJ Freeway, Suite 1500
Dallas, TX 75234
Re: Legality of Securities to be Registered
under Registration Statement on Form S-3
----------------------------------------
Ladies and Gentlemen:
This opinion is furnished in connection with the registration on Form S-3
(the "Registration Statement") pursuant to the Securities Act of 1933, as
amended (the "Securities Act"), of 1,681,793 additional shares of common stock,
par value $.01 per share, of Patriot American Hospitality, Inc., a Delaware
corporation (the "Corporation"), and 1,681,793 additional shares of common
stock, par value $.01 per share, of Patriot American Hospitality Operating
Company, a Delaware corporation (the "Operating Company" and, together with the
Corporation, the "Companies"), which shares are paired and trade as a single
unit (the "Registered Shares"), to be sold for the account of a certain
stockholder of the Companies (the "Selling Stockholder").
In connection with rendering this opinion, we have examined the Certificate
of Incorporation of each of the Companies, as amended to the date hereof and on
file with the Secretary of State of the State of Delaware, the Bylaws of each of
the Companies, such records of the corporate proceedings of the Companies as we
deemed material, the Registration Statement and the exhibits thereto, and such
other certificates, receipts, records and documents as we considered necessary
for the purposes of this opinion. In our examination, we have assumed the
genuineness of all signatures, the legal capacity of natural persons, the
authenticity of all documents submitted to us as certified, photostatic or
facsimile copies, the authenticity of the originals of such copies and the
authenticity of telephonic confirmations of public officials and others. As to
facts material to our opinion, we have relied upon
<PAGE>
GOODWIN, PROCTER & HOAR LLP
Patriot American Hospitality, Inc.
Patriot American Hospitality Operating Company
October 31, 1997
Page 2
certificates or telephonic confirmations of public officials and certificates,
documents, statements and other information of the Companies or representatives
or officers thereof.
We are attorneys admitted to practice in the Commonwealth of Massachusetts.
We express no opinion concerning the laws of any jurisdictions other than the
laws of the United States of America and the Delaware General Corporation Law,
and also express no opinion with respect to the blue sky or securities laws of
any state, including Delaware.
Based upon the foregoing, we are of the opinion that under the Delaware
General Corporation Law, pursuant to which the Company was incorporated, the
Registered Shares being registered for the account of the Selling Stockholder
have been validly issued and are fully paid and nonassessable.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to the reference to us with respect to this opinion
under the heading "Legal Matters" in the Prospectus which is a part of such
Registration Statement.
Very truly yours,
/s/ GOODWIN, PROCTER & HOAR LLP
<PAGE>
Exhibit 8.1
[LETTERHEAD OF GOODWIN, PROCTER & HOAR LLP APPEARS HERE]
October 31, 1997
Patriot American Hospitality, Inc.
Patriot American Hospitality Operating Company
3030 LBJ Freeway
Suite 1500
Dallas, TX 75234
Re: Certain Federal Income Tax Matters
----------------------------------
Ladies and Gentlemen:
We have acted as counsel for Patriot American Hospitality, Inc., a Delaware
corporation (the "Company"), and Patriot American Hospitality Operating Company,
a Delaware corporation formerly known as Bay Meadows Operating Company (the
"OpCo" and, together with the Company, the "Companies"), in connection with the
preparation and filing of a registration statement on Form S-3 (the
"Registration Statement") with respect to the registration with the Securities
and Exchange Commission (the "Commission") under the Securities Act of 1933, as
amended (the "1933 Act"), of 1,681,793 shares of the Company's common stock,
$.01 par value ("Company Common Stock"), and 1,681,793 shares of OpCo's common
stock, $.01 par value ("OpCo Common Stock"), which shares are paired and trade
as a single unit, to be sold for the account of a certain stockholder of the
Companies.
On July 1, 1997, the Company merged (the "Cal Jockey Merger") with Patriot
American Hospitality, Inc., a Virginia corporation ("Old Patriot"), pursuant to
an Agreement and Plan of Merger dated as of February 24, 1997, as amended and
restated as of May 28, 1997 (the "Cal Jockey Merger Agreement") among Old
Patriot, Patriot American Hospitality Partnership, L.P., a Virginia limited
partnership (the "Realty Partnership"), the Company and OpCo. Pursuant to the
Cal Jockey Merger Agreement, the Company was the surviving company in the Cal
Jockey Merger and changed its name to Patriot American Hospitality, Inc.
This opinion letter relates to (i) the qualification of the Company as a
real estate investment trust ("REIT") under the Internal Revenue Code of 1986,
as amended (the "Code") and (ii) the accuracy of certain statements in the
Registration Statement.
<PAGE>
GOODWIN, PROCTER & HOAR LLP
Patriot American Hospitality, Inc.
Patriot American Hospitality Operating Company
October 31, 1997
Page 2
In rendering the following opinions, we have reviewed the Registration
Statement and the descriptions set forth therein of the Company and its current
and proposed investments and activities. We also have examined (i) the Amended
and Restated Certificate of Incorporation of the Company, as of the beginning of
the first taxable year for which it elected to be a REIT and as amended to date,
and the Amended and Restated Bylaws of the Company, (ii) the Pairing Agreement
dated as of February 17, 1983, as amended, by and between the Company and OpCo
and (iii) such other records, certificates and documents as we have deemed
necessary or appropriate for purposes of rendering the opinion set forth herein.
The foregoing documents, including the Registration Statement, are referred to
herein as the "Documents."
In rendering our opinions, we have relied upon certain representations of
the Company set forth in a representation letter regarding the manner in which
Company has been owned and operated and will be owned and operated, and the
manner in which Old Patriot was owned and operated for periods ending on and
including the effective time of the Cal Jockey Merger. We also have relied on
the statements contained in the Documents regarding the operation and ownership
of the Company, Old Patriot and their affiliates. We have neither independently
investigated nor verified such representations or statements, and we assume that
such representations and statements are true, correct and complete and that all
representations made "to the best of the knowledge and belief" of any person(s)
or party(ies) or with similar qualification are and will be true, correct and
complete as if made without such qualification.
In rendering the opinions set forth herein, we have assumed (i) the
genuineness of all signatures on documents we have examined, (ii) the
authenticity of all documents submitted to us as originals, (iii) the conformity
to the original documents of all documents submitted to us as copies, (iv) the
conformity of final documents to all documents submitted to us as drafts, (v)
the authority and capacity of the individual or individuals who executed any
such documents on behalf of any person, (vi) the accuracy and completeness of
all records made available to us, (vii) the factual accuracy of all
representations, warranties and other statements made by all parties, and (viii)
the continued accuracy of all documents, certificates, warranties and covenants
on which we have relied in rendering the opinion set forth below and that were
given or dated earlier than the date of this letter, insofar as relevant to the
opinion set forth herein, from such earlier date through and including the date
of this letter.
* * * *
<PAGE>
GOODWIN, PROCTER & HOAR LLP
Patriot American Hospitality, Inc.
Patriot American Hospitality Operating Company
October 31, 1997
Page 3
Based upon and subject to the foregoing, we are of the opinion that:
(i) The Company has been organized and operated in conformity with the
requirements for qualification and taxation as a REIT under the Code
beginning with the Company's taxable year ending December 31, 1983
and for subsequent taxable years through the date hereof, and the
Company's proposed method of operation will enable it to continue to
meet the requirements for qualification and taxation as a REIT under
the Code.
(ii) The discussion set forth under the caption "Federal Income Tax
Considerations" in the Registration Statement, to the extent that
such discussion constitutes matters of law, summaries of legal
matters or legal conclusions, is accurate in all material respects.
* * * *
We express no opinion herein other than the opinions expressly set forth
above. You should recognize that our opinions are not binding on a court or the
Internal Revenue Service and that a court or the Internal Revenue Service may
disagree with the opinions contained herein. Although we believe that our
opinions would be sustained if challenged, there can be no assurance that this
will be the case. The discussion and conclusions set forth above are based upon
the Code, the Income Tax Regulations and Procedure and Administration
Regulations promulgated thereunder and existing administrative and judicial
interpretations thereof, all of which are subject to change. Changes in
applicable law could adversely affect our opinion.
We consent to being named as counsel to the Company in the Registration
Statement, to the references in the Registration Statement to our firm,
including the references under the
<PAGE>
GOODWIN, PROCTER & HOAR LLP
Patriot American Hospitality, Inc.
Patriot American Hospitality Operating Company
October 31, 1997
Page 4
captions "Federal Income Tax Considerations" and "Legal Matters," and to the
inclusion of a copy of this opinion letter as an exhibit to the Registration
Statement.
Very truly yours,
/s/ GOODWIN, PROCTER & HOAR LLP
<PAGE>
EXHIBIT 23.2
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in this Registration Statement of
Patriot American Hospitality, Inc. and Patriot American Hospitality Operating
Company on Form S-3 of our report dated March 28, 1997 (which expresses an
unqualified opinion and includes an explanatory paragraph relating to a proposed
merger and certain disagreements between the Companies), appearing in the Annual
Report on Form 10-K of Bay Meadows Operating Company and of California Jockey
Club for the year ended December 31, 1996 and to the reference to us under the
heading "Experts" in the Prospectus, which is part of this Registration
Statement.
/s/ DELOITTE & TOUCHE LLP
San Francisco, California
October 31, 1997
<PAGE>
EXHIBIT 23.3
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference herein to our firm under the caption "Experts" in
this Joint Registration Statement on Form S-3 and the related Prospectus of
Patriot American Hospitality, Inc. and Patriot American Hospitality Operating
Company for the registration of 1,681,793 paired shares of common stock and to
the incorporation by reference herein of our reports (a) dated January 31, 1997
(except for Note 14, as to which the date is March 18, 1997) with respect to the
Consolidated Financial Statements and financial statements schedules of Patriot
American Hospitality, Inc. included in its 1996 Annual Report on Form 10-K and
included in the Joint Current Report on Form 8-K of Patriot American
Hospitality, Inc. and Patriot American Hospitality Operating Company dated July
1, 1997; (b) dated February 16, 1996, with respect to the Combined Financial
Statements of the Initial Hotels (which is based in part on the reports of
Coopers & Lybrand L.L.P., independent accountants, as set forth in their reports
on Certain of the Initial Hotels and Troy Hotel Investors) included in Patriot
American Hospitality, Inc.'s 1996 Annual Report on Form 10-K; (c) dated March 5,
1996, with respect to the Financial Statements of Buckhead Hospitality Joint
Venture included in the Current Report on Form 8-K of Patriot American
Hospitality, Inc., dated April 2, 1996, as amended; (d) dated March 1, 1996
(except for Note 7, as to which the date is April 2, 1996) with respect to the
Combined Financial Statements of Gateway Hotel Limited Partnership and Wenatchee
Hotel Limited Partnership included in the Current Report on Form 8-K of Patriot
American Hospitality, Inc., dated April 2, 1996, as amended; (e) dated February
28, 1996 (except for Note 5, as to which the date is April 2, 1996) with respect
to the Statement of Direct Revenue and Direct Operating Expenses of Plaza Park
Suites Hotel included in the Current Report on Form 8-K of Patriot American
Hospitality, Inc., dated April 2, 1996, as amended; (f) dated February 26, 1996
(except for Note 5, as to which the date is April 2, 1996) with respect to the
Statement of Direct Revenue and Direct Operating Expenses of Roosevelt Hotel
included in the Current Report on Form 8-K of Patriot American Hospitality,
Inc., dated April 2, 1996, as amended; (g) dated April 10, 1996 with respect to
the Statement of Direct Revenue and Direct Operating Expenses of Marriott
WindWatch Hotel for the year ended December 29, 1995 included in the Current
Report on Form 8-K of Patriot American Hospitality, Inc., dated December 5,
1996; (h) dated August 30, 1996 with respect to the Financial Statements of
Concord O'Hare Limited Partnership for the year ended December 29, 1995 included
in the Current Report on Form 8-K of Patriot American Hospitality, Inc., dated
December 5, 1996; (i) dated September 10, 1996 with respect to the Statement of
Direct Revenue and Direct Operating Expenses of the Mayfair Suites Hotel for the
year ended December 31, 1995 included in the Current Report on Form 8-K of
Patriot American Hospitality, Inc., dated December 5, 1996; and (j) dated
January 23, 1997 (except for Note 8, as to which the date is September 30, 1997)
with respect to the Consolidated Financial Statements of GAH-II, L.P. for the
years ended December 31, 1996 and 1995, included in the Joint Current Report on
Form 8-K of Patriot American Hospitality, Inc. and Patriot American Hospitality
Operating Company dated September 30, 1997, as amended, all filed with the
Securities and Exchange Commission.
ERNST & YOUNG LLP
Dallas, Texas
October 28, 1997
<PAGE>
EXHIBIT 23.4
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" in this
Joint Registration Statement on Form S-3 and the related Prospectus of Patriot
American Hospitality, Inc. and Patriot American Hospitality Operating Company
for the registration of 1,681,793 paired shares of common stock and to the
incorporation by reference herein of our report dated March 5, 1997 with respect
to the Financial Statements of NorthCoast Hotels, L.L.C. included in Patriot
American Hospitality, Inc.'s 1996 Annual Report on Form 10-K filed with the
Securities and Exchange Commission.
ERNST & YOUNG LLP
Seattle, Washington
October 28, 1997
<PAGE>
EXHIBIT 23.5
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" in this
Joint Registration Statement on Form S-3 and the related Prospectus of Patriot
American Hospitality, Inc. and Patriot American Hospitality Operating Company
for the registration of 1,681,793 paired shares of common stock and to the
incorporation by reference herein of our reports (a) dated March 14, 1997 with
respect to the Consolidated Financial Statements of Resorts Limited Partnership
included in the Current Report on Form 8-K of Patriot American Hospitality,
Inc., dated January 16, 1997, as amended; (b) dated February 13, 1997, with
respect to the Financial Statements of CV Ranch Limited Partnership included in
the Current Report on Form 8-K of Patriot American Hospitality, Inc., dated
January 16,1997, as amended; and (c) dated February 12, 1997 with respect to the
Financial Statements of Telluride Resort and Spa Limited Partnership included in
the Current Report on Form 8-K of Patriot American Hospitality, Inc., dated
January 16, 1997, as amended, all filed with the Securities and Exchange
Commission.
ERNST & YOUNG LLP
Phoenix, Arizona
October 28, 1997
<PAGE>
EXHIBIT 23.6
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the reference to our firm under the caption "Experts" and to the
incorporation by reference in the Registration Statement of Patriot American
Hospitality, Inc. and Patriot American Hospitality Operating Company on Form S-3
of our report dated January 15, 1996, on our audits of the financial statements
of Certain of the Initial Hotels, which report is incorporated herein.
/s/ COOPERS & LYBRAND L.L.P.
Fort Lauderdale, Florida
October 31, 1997
<PAGE>
EXHIBIT 23.7
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the reference to our firm under the caption "Experts" and to the
incorporation by reference in the Registration Statement of Patriot American
Hospitality, Inc. and Patriot American Hospitality Operating Company on Form S-3
of our report dated January 17, 1996, on our audits of the financial statements
of Troy Hotel Investors and our report dated February 7, 1995, on our audits of
the financial statements of Troy Park Associates, which reports are incorporated
herein.
/s/ COOPERS & LYBRAND, L.L.P.
Pittsburgh, Pennsylvania
October 31, 1997
<PAGE>
EXHIBIT 23.8
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the reference to our firm under the caption "Experts" and to the
incorporation by reference in the Registration Statement of Patriot American
Hospitality, Inc. and Patriot American Hospitality Operating Company on Form S-3
of our reports (i) dated October 15, 1996, on our audit of the statement of
Direct Revenue and Direct Operating Expenses of the Holiday Inn Miami Airport;
(ii) dated February 19, 1997, on our audits of the consolidated financial
statements of Wyndham Hotel Corporation as of December 31, 1996 and 1995, and
for the years ended December 31, 1996, 1995 and 1994, (iii) dated May 12, 1997
on our audit of the Combined Financial Statements of the Minneapolis Hotels as
of and for the year ended December 31, 1996, (iv) dated June 27, 1997 on our
audit of the Combined Statement of Direct Revenue and Direct Operating Expenses
of the Met Life Hotels for the year ended December 31, 1996, and (v) dated
September 8, 1997 on our audit of the Combined Financial Statements of the
Snavely Hotels as of and for the year ended December 31, 1996.
/s/ COOPERS & LYBRAND L.L.P.
Dallas, Texas
October 31, 1997
<PAGE>
Exhibit 23.9
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the reference to our firm under the caption "Experts" and the
incorporation by reference in this Registration Statement and Prospectus of
Patriot American Hospitality, Inc. and Patriot American Hospitality Operating
Company of our report dated March 1, 1996 on the financial statements of
Historic Hotel Partners of Birmingham, Limited Partnership, our reports dated
October 8, 1997 and February 28, 1997 on the financial statements of Historic
Hotel Partners of Chicago Limited Partnership, and our reports dated October 8,
1997 and February 21, 1997 on the financial statements of Historic Hotel
Partners of Nashville Limited Partnership.
/s/ Panell Kerr Forster PC
Alexandria, Virginia
October 31, 1997
<PAGE>
EXHIBIT 23.10
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We hereby consent to the incorporation by reference in the Prospectus
constituting part of this Registration Statement on Form S-3 of Patriot American
Hospitality, Inc. and Patriot American Hospitality Operating Company of our
reports (a) dated October 3, 1997 relating to the financial statements of CHC
International Inc. Hospitality Division as of and for the years ended November
30, 1995 and 1996 which appears in the Current Report on Form 8-K of Patriot
American Hospitality, Inc. and Patriot American Hospitality Operating Company
dated September 30, 1997; and (b) dated February 13, 1997, except as to Note 4,
which is as of March 18, 1997, relating to the financial statements of CHC Lease
Partners for the year ended December 31, 1996 and the period inception (October
2, 1995) through December 31, 1995 which appears in the Current Report on Form
8-K of Patriot American Hospitality, Inc. and Patriot American Hospitality
Operating Company dated July 1, 1997. We also consent to the reference to us
under the heading "Experts" in such Prospectus.
PRICE WATERHOUSE LLP
Miami, Florida
October 30, 1997
<PAGE>
EXHIBIT 23.11
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the reference to our firm under the caption "Experts" and to
the incorporation by reference in the Registration Statement of Patriot American
Hospitality, Inc. and Patriot American Hospitality Operating Company on Form S-3
of our report dated March 8, 1996, on our audit of the financial statements of
Newporter Beach Hotel Investments L.L.C. which report is incorporated herein.
/s/ COOPERS & LYBRAND L.L.P.
Newport Beach, California
October 31, 1997
<PAGE>
EXHIBIT 23.12
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We consent to the reference to our firm under the caption "Experts" in this
Joint Registration Statement on Form S-3 and the related Prospectus of Patriot
American Hospitality, Inc. and Patriot American Hospitality Operating Company
for the registration of 1,681,793 paired shares of common stock and to the
incorporation by reference herein of our reports (a) dated March 31, 1997
(except for the third paragraph of Note 7, as to which the date is April 2,
1997) with respect to the Financial Statement of G.B.H. Joint Venture (d/b/a
Grand Bay Hotel) for the years ended December 31, 1995 and 1996; (b) dated
September 23, 1997 with respect to the Financial Statements of River House
Associates (d/b/a Sheraton Gateway Hotel) for the years ended December 31, 1995
and 1996; and (c) dated September 19, 1997 with respect to the Financial
Statements of W-L Tampa, Ltd. (the SheratonGrand Hotel) for the years ended
December 31, 1995 and 1996; all of which are included in the Joint Current
Report on Form 8-K/A No. 1 of Patriot American Hospitality, Inc. and Patriot
American Hospitality Operating Company, dated September 30, 1997, as amended,
and all filed with the Securities and Exchange Commission.
ERNST & YOUNG LLP
Miami, Florida
October 27, 1997
<PAGE>
EXHIBIT 23.13
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in this Registration Statement of
Patriot American Hospitality, Inc. and Patriot American Hospitality Operating
Company on Form S-3, of our report dated September 30, 1997 (relating to the
financial statements of Partnerships of Acquired Hotels as of December 31, 1996
and 1995 and for each of the two years in the period ended December 31, 1996)
appearing in the report on Form 8-K/A No. 1 dated September 30, 1997 of Patriot
American Hospitality, Inc. and Patriot American Hospitality Operating Company
and to the reference to us under the heading "Experts" in the Prospectus, which
is part of this Registration Statement.
DELOITTE & TOUCHE LLP
Houston, Texas
October 30, 1997
<PAGE>
Exhibit 23.14
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the reference to our firm under the caption "Experts" and to the
incorporation by reference in the Registration Statement on Form S-3 and
Prospectus of Patriot American Hospitality, Inc. and Patriot American
Hospitality Operating Company of our report (i) dated March 7, 1997 except for
note 12 as to which the date is October 7, 1997 on our audit of the Financial
Statements of SCP (Buttes), Inc., as of and for the year ended December 31,
1996.
/s/ Coopers & Lybrand, L.L.P.
Phoenix, Arizona
October 30, 1997
