<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MAY 30, 1997
REGISTRATION STATEMENT NO.
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- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------
FORM S-4
REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933
---------------
CALIFORNIA JOCKEY CLUB BAY MEADOWS OPERATING COMPANY
(EXACT NAME OF REGISTRANT AS (EXACT NAME OF REGISTRANT AS
SPECIFIED IN ITS CHARTER) SPECIFIED IN ITS CHARTER)
DELAWARE
(STATE OR OTHER JURISDICTION OF
DELAWARE INCORPORATION OR ORGANIZATION)
(STATE OR OTHER JURISDICTION OF
INCORPORATION OR ORGANIZATION) 7948
(PRIMARY STANDARD INDUSTRIAL
6798 CLASSIFICATION CODE)
(PRIMARY STANDARD INDUSTRIAL
CLASSIFICATION CODE) 94-2878485
(I.R.S. EMPLOYER IDENTIFICATION NO.)
94-0358820
(I.R.S. EMPLOYER IDENTIFICATION NO.)
2600 SOUTH DELAWARE STREET P.O. BOX
2600 SOUTH DELAWARE STREET P.O. BOX 5050 SAN MATEO, CA 94402 (415) 574-
1117 SAN MATEO, CA 94403 (415) 573- 7223
4514 (ADDRESS, INCLUDING ZIP CODE AND
(ADDRESS, INCLUDING ZIP CODE AND TELEPHONE NUMBER, INCLUDING AREA
TELEPHONE NUMBER, INCLUDING AREA CODE, OF REGISTRANT'S PRINCIPAL
CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICER)
EXECUTIVE OFFICER)
KJELL H. QVALE CHAIRMAN OF THE BOARD F. JACK LIEBAU PRESIDENT AND CHIEF
CALIFORNIA JOCKEY CLUB 2600 SOUTH EXECUTIVE OFFICER BAY MEADOWS
DELAWARE STREET P.O. BOX 1117 SAN OPERATING COMPANY 2600 SOUTH DELAWARE
MATEO, CA 94403 (415) 573-4514 STREET P.O. BOX 5050 SAN MATEO, CA
(NAME, ADDRESS, INCLUDING ZIP CODE 94402 (415) 574-7223
AND TELEPHONE NUMBER, INCLUDING AREA (NAME, ADDRESS, INCLUDING ZIP CODE
CODE, OF AGENT FOR SERVICE) AND TELEPHONE NUMBER, INCLUDING AREA
CODE, OF AGENT FOR SERVICE)
---------------
COPIES TO:
CHRISTOPHER KAUFMAN, ESQ. WILLIAM J. NEWELL, ESQ. GILBERT G. MENNA, P.C.
LATHAM & WATKINS 75
WILLOW ROAD SUITE 200
MENLO PARK, CA 94025
(415) 328-4600
MCCUTCHEN, DOYLE, BROWN & ENERSEN, LLP ONE EMBARCADERO PLACE 2100 GENG ROAD
PALO ALTO, CA 94303 (415) 846-4000
JOSEPH L. JOHNSON III,
ESQ. GOODWIN, PROCTER &
HOAR LLP EXCHANGE PLACE
BOSTON, MA 02109-2881
(617) 570-1000
---------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: Upon
consummation of the merger of Patriot American Hospitality, Inc. ("Patriot")
with and into California Jockey Club ("Cal Jockey") pursuant to an Agreement
and Plan of Merger dated as of February 24, 1997, as amended and restated as
of May 28, 1997, described in the enclosed Joint Proxy Statement/Prospectus.
If the securities being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance
with General Instruction G, check the following box. [_]
CALCULATION OF REGISTRATION FEE
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<TABLE>
<CAPTION>
PROPOSED PROPOSED
TITLE OF EACH CLASS MAXIMUM MAXIMUM
OF SECURITIES TO BE AMOUNT OFFERING PRICE AGGREGATE AMOUNT OF
REGISTERED TO BE REGISTERED PER UNIT OFFERING PRICE REGISTRATION FEE
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, par value
$.01 per share of
California Jockey Club
Paired with Shares of
Common Stock, par
value $.01 per share,
of Bay Meadows
Operating
Company(1)........... 30,500,000 $41.67(2) $1,270,935,000(2) $124,357(3)
</TABLE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
(1) Represents the estimated maximum number of shares of common stock of Cal
Jockey and shares of common stock of Bay Meadows Operating Company ("Bay
Meadows") to be issued to stockholders of Patriot in the merger of Patriot
with and into Cal Jockey (the "Merger") and issuable to holders of limited
partnership units of Patriot American Hospitality Partnership, L.P. and an
operating partnership to be formed by Bay Meadows in connection with the
Merger.
(2) Estimated solely for the purpose of calculating the registration fee in
accordance with Rule 457(f)(1) and based on the average of the high and
low sales price per share of common stock of Patriot on May 28, 1997, on
the New York Stock Exchange. If the Merger described herein is
consummated, a maximum of 0.51895 paired shares of common stock of Cal
Jockey and common stock of Bay Meadows will be issued for every one share
of common stock of Patriot.
(3) Representing the Registration Statement fee of $385,132, reduced by
$260,775 which was previously paid by the Registrants with respect to the
transaction described herein pursuant to Section 14(g) of the Securities
Exchange Act of 1934.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
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 THIS
REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE SECURITIES
AND EXCHANGE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A), MAY DETERMINE.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
CALIFORNIA JOCKEY CLUB BAY MEADOWS OPERATING COMPANY
2600 SOUTH DELAWARE STREET 2600 SOUTH DELAWARE STREET
P.O. BOX 1117 P.O. BOX 5050
SAN MATEO, CA 94403 SAN MATEO, CA 94402
June 2, 1997
Dear Stockholder:
You are cordially invited to attend a Special Meeting of Stockholders of
California Jockey Club ("Cal Jockey") to be held at 10:15 a.m., Pacific time,
on July 1, 1997, at the Clubhouse of Bay Meadows Racecourse, 2600 South
Delaware Street, San Mateo, California (the "Cal Jockey Special Meeting") and
a Special Meeting of Stockholders of Bay Meadows Operating Company ("Bay
Meadows") to be held at 9:00 a.m. Pacific time, on July 1, 1997, at the
Clubhouse of Bay Meadows Racecourse, 2600 South Delaware Street, San Mateo,
California (the "Bay Meadows Special Meeting") (collectively, the "Special
Meetings").
At the Special Meetings, you will be asked to consider and vote upon two
related proposals (the "Proposals") including (i) a proposal to approve the
Agreement and Plan of Merger, dated as of February 24, 1997, as amended and
restated as of May 28, 1997 (the "Merger Agreement"), by and among Patriot
American Hospitality, Inc. ("Patriot"), Patriot American Hospitality
Partnership, L.P. (the "Patriot Partnership"), Cal Jockey and Bay Meadows and
the other transactions contemplated therein, including, without limitation,
the merger of Patriot with and into Cal Jockey (the "Merger"), the issuance of
up to approximately 30,500,000 shares of Cal Jockey common stock and
approximately 30,500,000 shares of Bay Meadows common stock, and the
contribution of certain of the assets of Bay Meadows to its newly formed
operating partnership and the contribution of certain of the assets of Cal
Jockey to the Patriot Partnership and (ii) a proposal to approve the amendment
and restatement of the Certificate of Incorporation and Bylaws of each of Cal
Jockey and Bay Meadows. Pursuant to the Merger Agreement, Patriot will merge
with and into Cal Jockey, with Cal Jockey being the surviving company. In
connection with the Merger, Cal Jockey's name will be changed to "Patriot
American Hospitality, Inc." ("New Patriot REIT") and Bay Meadows' name will be
changed to "Patriot American Hospitality Operating Company" ("New Patriot
Operating Company").
Your paired shares will remain outstanding after the Merger and will
represent, without any action on your part, the same number of paired shares
of New Patriot REIT common stock and New Patriot Operating Company common
stock. Each share of Patriot common stock will be converted into 0.51895
paired shares in the Merger (the "Exchange Ratio"), resulting in a relative
value ratio of existing paired shares to Patriot shares for purposes of the
Merger of 1.92697 to 1. In the event, however, that the average closing price
of a share of Patriot common stock over the 20 trading days immediately
preceeding the third trading day prior to the Special Meetings (the "Patriot
Average Trading Price") is less than $17.125, then each share of Patriot
common stock will be converted into the number of paired shares equal to the
Patriot Average Trading Price divided by $33.00. As a result, you would hold
paired shares of New Patriot REIT and New Patriot Operating Company equal in
value, as of a date shortly before the Merger, to $33.00 per paired share. On
May 28, 1997, the closing price of Patriot common stock as reported on the New
York Stock Exchange was $21 1/2. The closing price of a paired share of Cal
Jockey common stock and Bay Meadows common stock as reported on the American
Stock Exchange on the same date was $41 1/2. While you will own the same
number of shares following the Merger, you will own a lesser percentage of the
total number of paired shares of New Patriot REIT common stock and New Patriot
Operating Company common stock than you owned before the Merger because of the
issuance of up to 30,500,000 paired shares to Patriot's stockholders in
connection with the Merger. Assuming no options or limited partner units are
exchanged for shares of Patriot common stock prior to the Merger, and assuming
that the Exchange Ratio is not adjusted due to a Patriot Average Trading Price
below $17.125, the current stockholders of Cal Jockey and Bay Meadows would
hold in the aggregate approximately 20% of the outstanding paired shares of
New Patriot REIT common stock and New Patriot Operating Company common stock
upon consummation of the Merger.
A condition to completion of the Merger is the satisfaction or waiver of all
conditions in the Merger Agreement, including approval of the Proposals by the
stockholders of Cal Jockey and Bay Meadows.
<PAGE>
Accordingly, if the Merger Agreement is not approved and the amendment and
restatement of the Certificates of Incorporation and Bylaws of Cal Jockey and
Bay Meadows are not approved, the Merger of Patriot into Cal Jockey will not
occur and the Merger Agreement will be terminated.
To approve the Proposals, stockholders must vote for all such Proposals at
the Special Meetings. ALL STOCKHOLDERS ARE THEREFORE URGED TO VOTE TO APPROVE
THE PROPOSALS BY COMPLETING, SIGNING, DATING AND RETURNING BOTH PROXY CARDS
FOR CAL JOCKEY (YELLOW) AND BAY MEADOWS (WHITE).
Approval of the Proposals described above requires the affirmative vote of
both the holders of a majority of the outstanding shares of Cal Jockey common
stock and the holders of a majority of the outstanding shares of Bay Meadows
common stock.
THE BOARD OF DIRECTORS OF CAL JOCKEY AND THE BOARD OF DIRECTORS OF BAY
MEADOWS EACH BELIEVES THAT THE MERGER AGREEMENT AND THE TRANSACTIONS
CONTEMPLATED THEREIN ARE FAIR TO, AND IN THE BEST INTERESTS OF, CAL JOCKEY AND
ITS STOCKHOLDERS AND BAY MEADOWS AND ITS STOCKHOLDERS. THE BOARDS' REASONS FOR
THIS BELIEF ARE SET FORTH IN "THE MERGER AND SUBSCRIPTION--REASONS FOR THE
MERGER; RECOMMENDATION OF THE BOARD OF DIRECTORS OF CAL JOCKEY" AND "--REASONS
FOR THE MERGER; RECOMMENDATION OF THE BOARD OF DIRECTORS OF BAY MEADOWS" IN
THE ACCOMPANYING JOINT PROXY STATEMENT/PROSPECTUS. THE INVESTMENT BANKING FIRM
OF MONTGOMERY SECURITIES HAS ISSUED ITS OPINION TO THE BOARDS OF DIRECTORS OF
CAL JOCKEY AND BAY MEADOWS, A COPY OF WHICH IS ATTACHED AS ANNEX G TO THE
ACCOMPANYING JOINT PROXY STATEMENT/PROSPECTUS, THAT, AS OF THE DATE OF SUCH
OPINION, AND SUBJECT TO THE CONSIDERATIONS SET FORTH IN SUCH OPINION, THE
FINANCIAL TERMS OF THE MERGER AND THE SUBSCRIPTION OF BAY MEADOWS SHARES BY
THE PATRIOT PARTNERSHIP, TAKEN AS A WHOLE, ARE FAIR TO THE STOCKHOLDERS OF CAL
JOCKEY AND BAY MEADOWS FROM A FINANCIAL POINT OF VIEW. THE BOARD OF DIRECTORS
OF CAL JOCKEY AND THE BOARD OF DIRECTORS OF BAY MEADOWS HAVE EACH UNANIMOUSLY
APPROVED THE MERGER AGREEMENT AND THE TRANSACTIONS CONTEMPLATED THEREIN AND
UNANIMOUSLY RECOMMEND THAT YOU VOTE IN FAVOR OF EACH OF THE PROPOSALS TO BE
PRESENTED AT THE SPECIAL MEETINGS.
As more fully described in the accompanying Joint Proxy
Statement/Prospectus, Patriot has entered into a merger agreement and a
related stock purchase agreement pursuant to which Wyndham Hotel Corporation
("Wyndham") will merge with and into New Patriot REIT with New Patriot REIT
being the surviving company. It is important to note that you are not being
asked to vote on the Wyndham transaction at this time. The Wyndham transaction
is subject to various conditions, including the consummation of the Merger and
approval of the Wyndham transaction by the stockholders of New Patriot REIT,
New Patriot Operating Company and Wyndham. Assuming the Merger is approved by
the stockholders of Cal Jockey, Bay Meadows and Patriot, it is currently
anticipated that proxy statements to approve the Wyndham transaction would be
mailed, and the stockholder meetings to approve the Wyndham transaction would
be held, in the fourth quarter of 1997. If the Wyndham transaction were
approved at that time, it is anticipated that the current stockholders of Cal
Jockey and Bay Meadows would hold in the aggregate approximately 13.4% and the
current stockholders of Patriot would hold approximately 53.4% of the
outstanding paired shares of New Patriot REIT common stock and New Patriot
Operating Company common stock following consummation of the Wyndham
transaction (assuming no Wyndham stockholders exercise their cash election
rights in the Wyndham transaction). There are no assurances, however, that the
Wyndham transaction will be consummated.
The accompanying Joint Proxy Statement/Prospectus provides detailed
information concerning the proposed Merger and the related transactions, the
reasons for each Board of Directors' recommendation of the Merger Agreement
and the transactions contemplated in the Merger Agreement and certain
additional information, including, without limitation, the information set
forth under the heading "Risk Factors," which describes,
2
<PAGE>
among other items, potential adverse effects to stockholders of Cal Jockey and
Bay Meadows as a result of the Merger and the related transactions. We urge
you to carefully consider all of the information in the Joint Proxy
Statement/Prospectus. IT IS IMPORTANT THAT YOUR SHARES OF CAL JOCKEY COMMON
STOCK AND YOUR SHARES OF BAY MEADOWS COMMON STOCK BE REPRESENTED AT THE
SPECIAL MEETINGS, REGARDLESS OF THE NUMBER OF SHARES YOU HOLD. THEREFORE,
PLEASE COMPLETE, SIGN, DATE AND RETURN BOTH THE CAL JOCKEY PROXY CARD AND THE
BAY MEADOWS PROXY CARD AS SOON AS POSSIBLE, WHETHER OR NOT YOU PLAN TO ATTEND
THE SPECIAL MEETINGS. THIS WILL NOT PREVENT YOU FROM VOTING YOUR SHARES IN
PERSON IF YOU SUBSEQUENTLY CHOOSE TO ATTEND THE SPECIAL MEETINGS.
Sincerely, Sincerely,
/s/ Kjell H. Qvale /s/ F. Jack Liebau
Kjell H. Qvale F. Jack Liebau
Chairman of the Board President and Chief
of California Jockey Club Executive Officer
of Bay Meadows Operating
Company
3
<PAGE>
BAY MEADOWS OPERATING COMPANY
2600 SOUTH DELAWARE STREET
P.O. BOX 5050
SAN MATEO, CA 94402
----------------
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON JULY 1, 1997
----------------
To the Stockholders of Bay Meadows Operating Company:
Notice is hereby given that the Special Meeting of Stockholders of Bay
Meadows Operating Company, a Delaware corporation ("Bay Meadows"), will be
held on July 1, 1997, at the Clubhouse of Bay Meadows Racecourse, 2600 South
Delaware Street, San Mateo, California, at 9:00 a.m. Pacific Time (the "Bay
Meadows Special Meeting"), for the following purposes:
1. To consider and vote upon a proposal to approve the Agreement and Plan
of Merger, dated as of February 24, 1997, as amended and restated as of May
28, 1997, (the "Merger Agreement") by and among Patriot American
Hospitality, Inc., a Virginia corporation ("Patriot"), Patriot American
Hospitality Partnership, L.P., a Virginia limited partnership, California
Jockey Club, a Delaware corporation ("Cal Jockey"), and Bay Meadows and the
transactions contemplated therein, including, without limitation, the
issuance of up to approximately 30,500,000 shares of Bay Meadows common
stock in connection with the merger of Patriot into Cal Jockey (the
"Merger") and the contribution of certain of the assets of Bay Meadows to a
newly formed operating partnership in exchange for limited partnership
units of the operating partnership. Pursuant to the Merger Agreement,
Patriot will merge with and into Cal Jockey, with Cal Jockey being the
surviving company. In connection with the Merger, Cal Jockey's name will be
changed to "Patriot American Hospitality, Inc." ("New Patriot REIT") and
Bay Meadows' name will be changed to "Patriot American Hospitality
Operating Company" ("New Patriot Operating Company"). Each share of Patriot
common stock will be converted into 0.51895 paired shares in the Merger
(the "Exchange Ratio"); provided, that if the average closing price of a
share of Patriot common stock over the 20 trading days immediately
preceding the third trading day prior to the Bay Meadows Special Meeting
(the "Patriot Average Trading Price") is less than $17.125, then each share
of Patriot common stock will be converted into the number of paired shares
equal to the Patriot Average Trading Price divided by $33.00. As a result
you would hold paired shares of New Patriot REIT and New Patriot Operating
Company equal in value, as of a date shortly before the Merger, to $33.00
per paired share. Each outstanding paired share of Cal Jockey common stock
and Bay Meadows common stock held by you will remain outstanding after the
Merger and will automatically, without any action on your part, represent
the same number of paired shares of New Patriot REIT common stock and New
Patriot Operating Company common stock. On May 28, 1997, the closing price
of Patriot common stock as reported on the New York Stock Exchange was $21
1/2. The closing price of a paired share of Cal Jockey common stock and Bay
Meadows common stock as reported on the American Stock Exchange on the same
date was $41 1/2. While you will own the same number of shares following
the Merger, you will own a lesser percentage of the total number of paired
shares of New Patriot REIT common stock and New Patriot Operating Company
common stock than you owned before the Merger because of the issuance of up
to approximately 30,500,000 paired shares to Patriot's stockholders in
connection with the Merger. Assuming no options or limited partner units
are exchanged for shares of Patriot common stock prior to the Merger, and
assuming that the Exchange Ratio is not adjusted due to a Patriot Average
Trading Price below $17.125, the current stockholders of Cal Jockey and Bay
Meadows would hold in the aggregate approximately 20% of the outstanding
paired shares of New Patriot REIT common stock and New Patriot Operating
Company common stock upon consummation of the Merger. A copy of the Merger
Agreement is attached as Annex A to the Joint Proxy Statement/Prospectus
accompanying this Notice;
2. To consider and vote upon a proposal to amend and restate the
Certificate of Incorporation and Bylaws of Bay Meadows. Copies of the
Proposed Amended and Restated Certificate of Incorporation and Proposed
Amended and Restated Bylaws of Bay Meadows are attached as Annexes D and E,
respectively, to the Joint Proxy Statement/Prospectus accompanying this
Notice; and
<PAGE>
3. To transact such other business as may properly come before the
meeting or any adjournments or postponements thereof.
Holders of record of shares of Bay Meadows common stock at the close of
business on May 16, 1997 are entitled to notice of, and to vote at, the Bay
Meadows Special Meeting. A list of such stockholders will be available for
inspection at the offices of Bay Meadows at least ten days prior to the Bay
Meadows Special Meeting. The Merger Agreement and other related matters are
more fully described in the accompanying Joint Proxy Statement/Prospectus, and
the Annexes thereto, which form a part of this Notice.
By Order of the Board of Directors
of Bay Meadows Operating Company
/s/ Lee R. Tucker
Lee R. Tucker
Secretary
June 2, 1997
Proxies are being separately solicited by the Boards of Directors of Bay
Meadows and Cal Jockey. To ensure representation of your stock at the Bay
Meadows Special Meeting, you must mark and return the WHITE (Bay Meadows)
proxy card.
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IMPORTANT
WHETHER OR NOT YOU EXPECT TO ATTEND THE BAY MEADOWS SPECIAL MEETING, PLEASE
COMPLETE, SIGN, DATE, AND RETURN THE ENCLOSED WHITE PROXY CARD IN THE ENCLOSED
SELF-ADDRESSED ENVELOPE AS PROMPTLY AS POSSIBLE. IF YOU ATTEND THE BAY MEADOWS
SPECIAL MEETING, YOU MAY VOTE YOUR SHARES IN PERSON, EVEN THOUGH YOU HAVE
PREVIOUSLY SIGNED AND RETURNED YOUR PROXY.
2
<PAGE>
CALIFORNIA JOCKEY CLUB
2600 SOUTH DELAWARE STREET
P.O. BOX 1117
SAN MATEO, CA 94403
----------------
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON JULY 1, 1997
----------------
To the Stockholders of California Jockey Club:
Notice is hereby given that the Special Meeting of Stockholders of
California Jockey Club, a Delaware corporation ("Cal Jockey"), will be held on
July 1, 1997, at 10:15 a.m., Pacific Time, at the Clubhouse of Bay Meadows
Racecourse, 2600 South Delaware Street, San Mateo, California (the "Cal Jockey
Special Meeting"), for the following purposes:
1. To consider and vote upon a proposal to approve the Agreement and Plan
of Merger, dated as of February 24, 1997, as amended and restated as of May
28, 1997 (the "Merger Agreement"), by and among Patriot American
Hospitality, Inc., a Virginia corporation ("Patriot"), Patriot American
Hospitality Partnership, L.P., a Virginia limited partnership (the "Patriot
Partnership"), Cal Jockey and Bay Meadows Operating Company, a Delaware
corporation ("Bay Meadows"), and the transactions contemplated therein,
including, without limitation, the merger of Patriot with and into Cal
Jockey (the "Merger"), the issuance of up to approximately 30,500,000
shares of Cal Jockey common stock in the Merger and the contribution of
certain of the assets of Cal Jockey to the Patriot Partnership in exchange
for limited partnership units of the Patriot Partnership. Pursuant to the
Merger Agreement, Patriot will merge with and into Cal Jockey, with Cal
Jockey being the surviving company. In connection with the Merger, Cal
Jockey's name will be changed to "Patriot American Hospitality, Inc." ("New
Patriot REIT"), and Bay Meadows' name will be changed to "Patriot American
Hospitality Operating Company" ("New Patriot Operating Company"). Each
share of Patriot common stock will be converted into 0.51895 paired shares
in the Merger (the "Exchange Ratio"); provided, that if the average closing
price of a share of Patriot common stock over the 20 trading days
immediately preceding the third trading day prior to the Cal Jockey Special
Meeting (the "Patriot Average Trading Price") is less than $17.125, then
each share of Patriot common stock will be converted into the number of
paired shares equal to the Patriot Average Trading Price divided by $33.00.
As a result, you would hold paired shares of New Patriot REIT and New
Patriot Operating Company equal in value, as of a date shortly before the
Merger, to $33.00 per paired share. Each outstanding paired share of Cal
Jockey common stock and Bay Meadows common stock held by you will remain
outstanding after the Merger and will automatically, without any action on
your part, represent the same number of paired shares of New Patriot REIT
common stock and New Patriot Operating Company common stock. On May 28,
1997, the closing price of Patriot common stock as reported on the New York
Stock Exchange was $21 1/2. The closing price of a paired share of Cal
Jockey common stock and Bay Meadows common stock as reported on the
American Stock Exchange on the same date was $41 1/2. While you will own
the same number of shares, you will own a lesser percentage of the total
number of paired shares of New Patriot REIT common stock and New Patriot
Operating Company common stock than you owned before the Merger because of
the issuance of up to approximately 30,500,000 paired shares to Patriot's
stockholders in connection with the Merger. Assuming no options or limited
partner units are exchanged for shares of Patriot common stock prior to the
Merger, and assuming that the Exchange Ratio is not adjusted due to a
Patriot Average Trading Price below $17.125, the current stockholders of
Cal Jockey and Bay Meadows would hold in the aggregate approximately 20% of
the outstanding paired shares of New Patriot REIT common stock and New
Patriot Operating Company common stock upon consummation of the Merger. A
copy of the Merger Agreement is attached as Annex A to the Joint Proxy
Statement/Prospectus accompanying this Notice;
<PAGE>
2. To consider and vote upon a proposal to amend and restate the
Certificate of Incorporation and Bylaws of Cal Jockey. Copies of the
Proposed Amended and Restated Certificate of Incorporation and Proposed
Amended and Restated Bylaws of Cal Jockey are attached as Annexes B and C,
respectively, to the Joint Proxy Statement/Prospectus accompanying this
Notice; and
3. To transact such other business as may properly come before the
meeting or any adjournments or postponements thereof.
Holders of record of shares of Cal Jockey common stock at the close of
business on May 16, 1997 are entitled to notice of, and to vote at, the Cal
Jockey Special Meeting. A list of such stockholders will be available for
inspection at the offices of Cal Jockey at least ten days prior to the Cal
Jockey Special Meeting. The Merger Agreement and other related matters are
more fully described in the accompanying Joint Proxy Statement/Prospectus, and
the Annexes thereto, which form a part of this Notice.
By Order of the Board of Directors
of
California Jockey Club
/s/ James M. Harris
James M. Harris
Secretary
June 2, 1997
Proxies are being separately solicited by the Boards of Directors of Cal
Jockey and Bay Meadows. To ensure representation of your stock at the Cal
Jockey Special Meeting, you must mark and return the YELLOW (Cal Jockey) proxy
card.
- -------------------------------------------------------------------------------
IMPORTANT
WHETHER OR NOT YOU EXPECT TO ATTEND THE CAL JOCKEY SPECIAL MEETING, PLEASE
COMPLETE, SIGN, DATE, AND RETURN THE ENCLOSED YELLOW PROXY CARD IN THE
ENCLOSED SELF-ADDRESSED ENVELOPE AS PROMPTLY AS POSSIBLE. IF YOU ATTEND THE
CAL JOCKEY SPECIAL MEETING, YOU MAY VOTE YOUR SHARES IN PERSON, EVEN THOUGH
YOU HAVE PREVIOUSLY SIGNED AND RETURNED YOUR PROXY.
2
<PAGE>
PATRIOT AMERICAN HOSPITALITY, INC.
3030 LBJ FREEWAY, SUITE 1500
DALLAS, TEXAS 75234
June 2, 1997
Dear Stockholder:
You are cordially invited to attend a Special Meeting of Stockholders of
Patriot American Hospitality, Inc. ("Patriot") to be held at 11:00 a.m., local
time, on July 1, 1997, at the Holiday Inn Select, Dallas, Texas (the "Patriot
Special Meeting").
At the Patriot Special Meeting, you will be asked to approve the Agreement
and Plan of Merger, dated as of February 24, 1997, as amended and restated as
of May 28, 1997 (the "Merger Agreement"), by and among Patriot, Patriot
American Hospitality Partnership, L.P., California Jockey Club ("Cal Jockey")
and Bay Meadows Operating Company ("Bay Meadows"). Pursuant to the Merger
Agreement, Patriot will merge with and into Cal Jockey (the "Merger"), with
Cal Jockey being the surviving company. In connection with the Merger, Cal
Jockey's name will be changed to "Patriot American Hospitality, Inc." ("New
Patriot REIT") and Bay Meadows' name will be changed to "Patriot American
Hospitality Operating Company" ("New Patriot Operating Company"). As a result
of the Merger and the related transactions, you will be entitled to receive
for each share of Patriot common stock held by you at the effective time of
the Merger 0.51895 paired shares (the "Exchange Ratio") of common stock of New
Patriot REIT and New Patriot Operating Company (subject to certain REIT
qualification requirements); provided, that if the average closing price of a
share of Patriot common stock over the 20 trading days immediately preceding
the third trading day prior to the Patriot Special Meeting (the "Patriot
Average Trading Price") is less than $17.125, then each share of Patriot
common stock will be converted into the number of paired shares equal to the
Patriot Average Trading Price divided by $33.00. On May 28, 1997, the closing
price of Patriot common stock as reported on the New York Stock Exchange was
$21 1/2. The shares of New Patriot REIT and New Patriot Operating Company you
receive will be paired together and will be transferable only as a single
unit. Each outstanding paired share of Cal Jockey common stock and Bay Meadows
common stock will remain outstanding after the Merger and will automatically,
without any action on the part of the stockholders of Cal Jockey and Bay
Meadows, represent the same number of paired shares of New Patriot REIT common
stock and New Patriot Operating Company common stock. Assuming no options or
limited partner units are exchanged for shares of Patriot common stock prior
to the Merger, and assuming that the Exchange Ratio is not adjusted due to a
Patriot Average Trading Price below $17.125, the current stockholders of
Patriot would hold in the aggregate approximately 80% of the outstanding
paired shares of New Patriot REIT common stock and New Patriot Operating
Company common stock upon consummation of the Merger. Approval of the Merger
Agreement requires the affirmative vote of the holders of two-thirds of the
outstanding shares of Patriot common stock.
At the Patriot Special Meeting, you will also be asked to approve the
amendment and restatement of the Patriot American Hospitality, Inc. 1995
Incentive Plan (the "Patriot Incentive Plan Proposal"). Approval of the
Patriot Incentive Plan Proposal requires the affirmative vote of the holders
of at least a majority of the shares of Patriot Common Stock present in person
or by proxy and entitled to vote at the Patriot Special Meeting.
YOUR BOARD OF DIRECTORS BELIEVES THAT THE MERGER AGREEMENT AND THE
TRANSACTIONS CONTEMPLATED THEREIN ARE FAIR TO, AND IN THE BEST INTERESTS OF,
PATRIOT AND ITS STOCKHOLDERS. THE BOARD'S REASONS FOR THIS BELIEF ARE SET
FORTH IN "THE MERGER AND SUBSCRIPTION--REASONS FOR THE MERGER; RECOMMENDATION
OF THE BOARD OF DIRECTORS OF PATRIOT" IN THE ACCOMPANYING JOINT PROXY
STATEMENT/PROSPECTUS. THE INVESTMENT BANKING FIRM OF PAINEWEBBER INCORPORATED
HAS ISSUED ITS OPINION TO THE BOARD OF DIRECTORS OF PATRIOT, A COPY OF WHICH
IS ATTACHED AS ANNEX F TO THE ACCOMPANYING JOINT PROXY STATEMENT/PROSPECTUS,
THAT, AS OF THE DATE THEREOF AND SUBJECT TO THE ASSUMPTIONS MADE, MATTERS
CONSIDERED AND LIMITATIONS ON THE SCOPE OF THE REVIEW UNDERTAKEN BY
PAINEWEBBER INCORPORATED IN SUCH OPINION, THE CONSIDERATION TO BE RECEIVED BY
THE HOLDERS OF PATRIOT
<PAGE>
COMMON STOCK IN THE MERGER IS FAIR TO SUCH HOLDERS FROM A FINANCIAL POINT OF
VIEW. THE BOARD OF DIRECTORS OF PATRIOT HAS UNANIMOUSLY APPROVED THE MERGER
AGREEMENT AND THE TRANSACTIONS CONTEMPLATED THEREIN AND UNANIMOUSLY RECOMMENDS
THAT YOU VOTE TO APPROVE THE MERGER AGREEMENT AND THE TRANSACTIONS
CONTEMPLATED IN THE MERGER AGREEMENT. YOUR BOARD OF DIRECTORS BELIEVES THAT
THE PATRIOT INCENTIVE PLAN PROPOSAL IS IN THE BEST INTERESTS OF PATRIOT AND
ITS STOCKHOLDERS. THE PATRIOT BOARD OF DIRECTORS' REASONS FOR THIS BELIEF ARE
SET FORTH IN "PROPOSAL TO APPROVE AMENDMENT AND RESTATEMENT OF THE PATRIOT
INCENTIVE PLAN." THE BOARD OF DIRECTORS OF PATRIOT HAS UNANIMOUSLY APPROVED
THE PATRIOT INCENTIVE PLAN PROPOSAL AND UNANIMOUSLY RECOMMENDS THAT YOU VOTE
TO APPROVE THE PATRIOT INCENTIVE PLAN PROPOSAL.
As more fully described in the accompanying Joint Proxy
Statement/Prospectus, Patriot has entered into a merger agreement and a
related stock purchase agreement pursuant to which Wyndham Hotel Corporation
("Wyndham") will merge with and into New Patriot REIT with New Patriot REIT
being the surviving company. It is important to note that you are not being
asked to vote on the Wyndham transaction at this time. The Wyndham transaction
is subject to various conditions, including the consummation of the Merger and
approval of the Wyndham transaction by the stockholders of New Patriot REIT,
New Patriot Operating Company and Wyndham. Assuming the Merger is approved by
the stockholders of Cal Jockey, Bay Meadows and Patriot, it is currently
anticipated that proxy statements to approve the Wyndham transaction would be
mailed, and the stockholder meetings to approve the Wyndham transaction would
be held, in the fourth quarter of 1997. If the Wyndham transaction were
approved at that time, it is anticipated that the current stockholders of
Patriot would hold approximately 53.4% and the current stockholders of Cal
Jockey and Bay Meadows would hold in the aggregate approximately 13.4% of the
outstanding paired shares of New Patriot REIT common stock and New Patriot
Operating Company common stock following consummation of the Wyndham
transaction (assuming no Wyndham stockholders exercise their cash election
rights in the Wyndham transaction).
The accompanying Joint Proxy Statement/Prospectus provides detailed
information concerning the proposed Merger, the reasons for your Board of
Directors' recommendation of the Merger Agreement and the transactions
contemplated in the Merger Agreement and certain additional information,
including, without limitation, the information set forth under the heading
"Risk Factors," which describes, among other items, potential adverse effects
to Patriot stockholders as a result of the Merger. We urge you to carefully
consider all of the information in the Joint Proxy Statement/Prospectus. IT IS
IMPORTANT THAT YOUR SHARES OF PATRIOT COMMON STOCK BE REPRESENTED AT THE
PATRIOT SPECIAL MEETING, REGARDLESS OF THE NUMBER OF SHARES YOU HOLD.
THEREFORE, PLEASE COMPLETE, SIGN, DATE AND RETURN YOUR BLUE PROXY CARD AS SOON
AS POSSIBLE, WHETHER OR NOT YOU PLAN TO ATTEND THE PATRIOT SPECIAL MEETING.
THIS WILL NOT PREVENT YOU FROM VOTING YOUR SHARES IN PERSON IF YOU
SUBSEQUENTLY CHOOSE TO ATTEND THE PATRIOT SPECIAL MEETING.
Sincerely,
/s/ Paul A. Nussbaum
Paul A. Nussbaum
Chairman of the Board and Chief
Executive Officer
2
<PAGE>
PATRIOT AMERICAN HOSPITALITY, INC.
3030 LBJ FREEWAY, SUITE 1500
DALLAS, TEXAS 75234
----------------
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON JULY 1, 1997
----------------
To the Stockholders of Patriot American Hospitality, Inc.:
A Special Meeting of Stockholders of Patriot American Hospitality, Inc., a
Virginia corporation ("Patriot"), will be held at 11:00 a.m., local time, on
July 1, 1997, at the Holiday Inn Select, Dallas, Texas (the "Patriot Special
Meeting") for the following purposes:
1. To consider and vote upon a proposal to approve the Agreement and Plan
of Merger, dated as of February 24, 1997, as amended and restated as of May
28, 1997 (the "Merger Agreement"), by and among Patriot, Patriot American
Hospitality Partnership, L.P., a Virginia limited partnership, California
Jockey Club, a Delaware corporation ("Cal Jockey"), and Bay Meadows
Operating Company, a Delaware corporation ("Bay Meadows"). Pursuant to the
Merger Agreement, Patriot will merge with and into Cal Jockey (the
"Merger"), with Cal Jockey being the surviving company. In connection with
the Merger, Cal Jockey's name will be changed to "Patriot American
Hospitality, Inc." ("New Patriot REIT") and Bay Meadows' name will be
changed to "Patriot American Hospitality Operating Company" ("New Patriot
Operating Company"). As a result of the Merger and the related
transactions, Patriot stockholders will be entitled to receive for each
share of Patriot common stock held by them at the effective time of the
Merger 0.51895 shares of common stock of New Patriot REIT and 0.51895
shares of common stock of New Patriot Operating Company (subject to certain
REIT qualification requirements) (the "Exchange Ratio"), which shares will
be paired and transferable only as a single unit. In the event, however,
that the average closing price of a share of Patriot common stock over the
20 trading days preceding the third trading day immediately prior to the
Patriot Special Meeting (the "Patriot Average Trading Price") is less than
$17.125, then each share of Patriot common stock will be converted into the
number of paired shares equal to the Patriot Average Trading Price divided
by $33.00. On May 28, 1997, the closing price of Patriot common stock as
reported on the New York Stock Exchange was $21 1/2. Upon consummation of
the Merger, assuming no options or limited partner units are exchanged for
shares of Patriot common stock prior to the Merger, and assuming that the
Exchange Ratio is not adjusted due to a Patriot Average Trading Price below
$17.125, the current stockholders of Patriot will hold in the aggregate
approximately 80% of the outstanding paired shares of New Patriot REIT
common stock and New Patriot Operating Company common stock. A copy of the
Merger Agreement is attached as Annex A to the Joint Proxy
Statement/Prospectus accompanying this Notice;
2. To consider and vote upon a proposal to approve the amendment and
restatement of the Patriot American Hospitality, Inc. 1995 Incentive Plan
(the "Patriot Incentive Plan"); and
3. To transact such other business as may properly come before the
meeting or any adjournments or postponements thereof.
The Board of Directors of Patriot has fixed the close of business on May 16,
1997 as the record date for the determination of the holders of shares of
Patriot common stock entitled to notice of, and to vote at, the Patriot
Special Meeting. A list of such stockholders will be available for inspection
at the offices of Patriot at least ten days prior to the Patriot Special
Meeting. The Merger Agreement, the Patriot Incentive Plan and other related
matters are more fully described in the accompanying Joint Proxy
Statement/Prospectus, and the Annexes thereto, which form a part of this
Notice.
<PAGE>
BAY MEADOWS OPERATING COMPANY
CALIFORNIA JOCKEY CLUB
AND
PATRIOT AMERICAN HOSPITALITY, INC.
JOINT PROXY STATEMENT
----------------
BAY MEADOWS OPERATING COMPANY
AND
CALIFORNIA JOCKEY CLUB
PROSPECTUS
On October 31, 1996, Patriot American Hospitality, Inc., a Virginia
corporation ("Patriot"), California Jockey Club, a Delaware corporation ("Cal
Jockey"), and Bay Meadows Operating Company, a Delaware corporation ("Bay
Meadows"), entered into a binding acquisition agreement (the "October 31, 1996
Agreement") pursuant to which the parties agreed, subject to stockholder
approval and other conditions, to engage in a business combination
transaction. The parties, together with Patriot American Hospitality
Partnership, L.P., a Virginia limited partnership (the "Patriot Partnership"),
thereafter entered into an Agreement and Plan of Merger, dated as of February
24, 1997, as amended and restated as of May 28, 1997 (the "Merger Agreement"),
which by its terms supersedes the October 31, 1996 Agreement and more fully
details the transactions to be consummated by the parties. This Joint Proxy
Statement and Prospectus (the "Joint Proxy Statement/Prospectus") relates to
the Merger Agreement and the transactions contemplated therein (the "Related
Transactions").
. Pursuant to the Merger Agreement, Patriot will merge with and into Cal
Jockey (the "Merger"), with Cal Jockey being the surviving company. In
connection with the Merger, Cal Jockey's name will be changed to "Patriot
American Hospitality, Inc." ("New Patriot REIT") and Bay Meadows' name
will be changed to "Patriot American Hospitality Operating Company" ("New
Patriot Operating Company").
. Pursuant to the Merger Agreement, and subject to adjustment as described
below, Patriot stockholders will be entitled to receive for each share of
common stock, no par value per share, of Patriot ("Patriot Common Stock")
held by them at the effective time of the Merger, 0.51895 shares of
common stock, par value $.01 per share, of New Patriot REIT ("New Patriot
REIT Common Stock") and 0.51895 shares of common stock, par value $.01
per share, of New Patriot Operating Company ("New Patriot Operating
Company Common Stock") (subject to certain REIT qualification
requirements), which shares will be paired and transferable only as a
single unit. In the event, however, that the average closing price of a
share of Patriot common stock as reported on the New York Stock Exchange
(the "NYSE") over the 20 trading days immediately preceding the third
trading day prior to the special meetings of the stockholders of Patriot,
Cal Jockey and Bay Meadows described below (the "Patriot Average Trading
Price") is less than $17.125, then Patriot stockholders will be entitled
to receive for each share of Patriot Common Stock held by them at the
effective time of the Merger, the number of paired shares of New Patriot
REIT Common Stock and New Patriot Operating Company Common Stock equal to
the Patriot Average Trading Price divided by $33.00. On May 28, 1997, the
closing price of Patriot Common Stock on the NYSE was $21 1/2. Based on
the closing price of the Paired Shares (as defined below) of $41 1/2 on
May 28, 1997 on the American Stock Exchange (the "AMEX"), the market
value of 0.51895 paired shares of New Patriot REIT Common Stock and New
Patriot Operating Company Common Stock would be $21.54. Unless otherwise
provided, the information in this Joint Proxy Statement/Prospectus
assumes that the Patriot Average Trading Price will be $17.125 or
greater.
<PAGE>
. In addition, each outstanding Paired Share of common stock, par value
$.01 per share, of Cal Jockey ("Cal Jockey Common Stock") and common
stock, par value $.01 per share, of Bay Meadows ("Bay Meadows Common
Stock") will remain outstanding after the Merger and will, without any
action on the part of the stockholders of Cal Jockey and Bay Meadows,
represent the same number of paired shares of New Patriot REIT Common
Stock and New Patriot Operating Company Common Stock. Upon consummation
of the Merger, assuming no options or limited partner units are exchanged
for shares of Patriot Common Stock prior to the Merger, and assuming that
the Exchange Ratio is not adjusted due to a Patriot Average Trading Price
below $17.125, the current stockholders of Cal Jockey and Bay Meadows
will hold in the aggregate approximately 20%, and the current Patriot
stockholders will hold approximately 80%, of the outstanding paired
shares of New Patriot REIT Common Stock and New Patriot Operating Company
Common Stock.
. In connection with the Merger, Bay Meadows will form an operating
partnership (the "New Patriot Operating Partnership") into which Bay
Meadows will contribute certain of its assets in exchange for limited
partnership units ("OP Units") of the New Patriot Operating Partnership,
and Cal Jockey will contribute certain of its assets to the Patriot
Partnership in exchange for OP Units of the Patriot Partnership. Upon
completion of the Merger and the Related Transactions, substantially all
of the operations of New Patriot REIT and New Patriot Operating Company
will be conducted through their respective operating partnerships.
. As more fully described in this Joint Proxy Statement/Prospectus, Patriot
has entered into a merger agreement and a related stock purchase
agreement pursuant to which Wyndham Hotel Corporation ("Wyndham") will
merge with and into New Patriot REIT with New Patriot REIT being the
surviving company. The Merger Agreement does not relate to, and this
Joint Proxy Statement/Prospectus does not seek approval of, the Wyndham
transaction at this time. The Wyndham transaction is subject to various
conditions, including the consummation of the Merger and approval of the
Wyndham transaction by the stockholders of New Patriot REIT, New Patriot
Operating Company and Wyndham. Assuming the Merger is approved by the
stockholders of Cal Jockey, Bay Meadows and Patriot, it is currently
anticipated that proxy statements to approve the Wyndham transaction
would be mailed, and the stockholder meetings to approve the Wyndham
transaction would be held, in the fourth quarter of 1997. If the Wyndham
transaction is approved and consummated, it is anticipated that the
current stockholders of Patriot would hold approximately 53.4% and the
current stockholders of Cal Jockey and Bay Meadows would hold in the
aggregate approximately 13.4% of the outstanding paired shares of New
Patriot REIT Common Stock and New Patriot Operating Company Common Stock
following consummation of the Wyndham transaction (assuming no Wyndham
stockholders exercise their cash election rights in the Wyndham
transaction).
This Joint Proxy Statement/Prospectus constitutes the Prospectus of Cal
Jockey and Bay Meadows with respect to the issuance of up to approximately
30,500,000 paired shares of Cal Jockey Common Stock and Bay Meadows Common
Stock, which shares are paired and trade together as a single unit (the
"Paired Shares"), to be issued to stockholders of Patriot in connection with
the transactions contemplated by the Merger Agreement and issuable to holders
of OP Units of the New Patriot Operating Partnership and the Patriot
Partnership upon redemption of their OP Units. On a pro forma basis, the
30,500,000 Paired Shares which may be issued pursuant to this Joint Proxy
Statement/Prospectus would represent 84.1% of the total issued and outstanding
Paired Shares, of which approximately 63.3% would be issued to the current
stockholders of Patriot and approximately 20.8% would be issuable upon the
exchange of OP Units of the Patriot Partnership or the exercise of options to
purchase shares of Patriot Common Stock. The Paired Shares are traded as a
single unit on the AMEX under the symbol "CJ". As a condition to consummating
the transactions contemplated by the Merger Agreement, the Paired Shares will
be authorized for trading on the NYSE under the symbol "PAH" immediately
following the Merger.
This Joint Proxy Statement/Prospectus is also being furnished to the holders
of Bay Meadows Common Stock in connection with the solicitation of proxies by
the Board of Directors of Bay Meadows for use at a special meeting of
stockholders of Bay Meadows to be held at the Clubhouse of Bay Meadows
Racecourse, 2600 South Delaware Street, San Mateo, California, on July 1,
1997, at 9:00 a.m., Pacific time, and at any and all adjournments or
postponements thereof (the "Bay Meadows Special Meeting").
(ii)
<PAGE>
This Joint Proxy Statement/Prospectus is also being furnished to the holders
of Cal Jockey Common Stock in connection with the solicitation of proxies by
the Board of Directors of Cal Jockey for use at a special meeting of
stockholders of Cal Jockey to be held at the Clubhouse of Bay Meadows
Racecourse, 2600 South Delaware Street, San Mateo, California, on July 1,
1997, at 10:15 a.m., Pacific time, and at any and all adjournments or
postponements thereof (the "Cal Jockey Special Meeting").
This Joint Proxy Statement/Prospectus is also being furnished to the holders
of Patriot Common Stock in connection with the solicitation of proxies by the
Board of Directors of Patriot for use at a special meeting of stockholders of
Patriot to be held at the Holiday Inn Select, Dallas, Texas, on July 1, 1997,
at 11:00 a.m., local time, and at any and all adjournments or postponements
thereof (the "Patriot Special Meeting").
Consummation of the Merger is subject to various conditions (which must be
satisfied or waived), including: (i) approval of a proposal to adopt the
Merger Agreement and the Related Transactions, by the holders of two-thirds of
the outstanding shares of Patriot Common Stock at the Patriot Special Meeting,
by the holders of a majority of the outstanding shares of Cal Jockey Common
Stock at the Cal Jockey Special Meeting and by the holders of a majority of
the outstanding shares of Bay Meadows Common Stock at the Bay Meadows Special
Meeting; (ii) approval of a proposal to amend and restate the Certificate of
Incorporation of Cal Jockey and the Bylaws of Cal Jockey by the holders of a
majority of the outstanding shares of Cal Jockey Common Stock at the Cal
Jockey Special Meeting; and (iii) approval of a proposal to amend and restate
the Certificate of Incorporation of Bay Meadows and the Bylaws of Bay Meadows
by the holders of a majority of the outstanding shares of Bay Meadows Common
Stock. Although each of the aforementioned proposals will be voted on
separately, BECAUSE EACH OF THE PROPOSALS IS A CONDITION TO CLOSING, IF ANY OF
THE PROPOSALS ARE NOT ADOPTED, THE PARTIES WILL NOT BE REQUIRED TO CONSUMMATE
THE MERGER OR ANY OF THE RELATED TRANSACTIONS.
FOR CERTAIN FACTORS WHICH SHOULD BE CONSIDERED IN EVALUATING THE MERGER, SEE
"RISK FACTORS" ON PAGE 42.
Any Patriot, Cal Jockey or Bay Meadows stockholder who would like
information with respect to the Exchange Ratio may call Patriot's proxy
solicitor, McKenzie Partners, Inc., at 1-800-322-2885. McKenzie Partners, Inc.
will provide to any requesting stockholder an estimate of the Exchange Ratio
as of any date prior to the final determination of the Exchange Ratio.
McKenzie Partners, Inc. also will provide instructions on how to submit
proxies in a timely manner, including for any stockholder who wishes to wait
until the Exchange Ratio is finally determined. In addition, any Patriot, Cal
Jockey or Bay Meadows stockholder who wishes to change their vote relating to
any proposal may do so by transmitting such request via facsimile to McKenzie
Partners, Inc. at (212) 929-0308.
All information contained in this Joint Proxy Statement/Prospectus with
respect to Cal Jockey has been provided by Cal Jockey. All information
contained in this Joint Proxy Statement/Prospectus with respect to Bay Meadows
has been provided by Bay Meadows. All information contained in this Joint
Proxy Statement/Prospectus with respect to Patriot has been provided by
Patriot.
This Joint Proxy Statement/Prospectus and the accompanying forms of proxy
are first being mailed to stockholders of Cal Jockey, Bay Meadows and Patriot
on or about June 2, 1997. A stockholder who has given a proxy may revoke it at
any time prior to its exercise.
----------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS JOINT PROXY STATEMENT/PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
The date of this Joint Proxy Statement/Prospectus is May 30, 1997.
(iii)
<PAGE>
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATION NOT CONTAINED IN OR INCORPORATED BY REFERENCE IN THIS JOINT
PROXY STATEMENT/PROSPECTUS, AND, IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATION NOT CONTAINED HEREIN MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED. THIS JOINT PROXY STATEMENT/PROSPECTUS DOES NOT CONSTITUTE AN OFFER
TO SELL, OR THE SOLICITATION OF AN OFFER TO PURCHASE, ANY OF THE SECURITIES
OFFERED BY THIS JOINT PROXY STATEMENT/PROSPECTUS, OR THE SOLICITATION OF A
PROXY, IN ANY JURISDICTION TO OR FROM ANY PERSON TO OR FROM WHOM IT IS
UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION OF AN OFFER, OR PROXY SOLICITATION
IN SUCH JURISDICTION. NEITHER THE DELIVERY OF THIS JOINT PROXY
STATEMENT/PROSPECTUS NOR THE ISSUANCE OR SALE OF ANY SECURITIES HEREUNDER
SHALL UNDER ANY CIRCUMSTANCES CREATE ANY IMPLICATION THAT THERE HAS BEEN NO
CHANGE IN THE INFORMATION SET FORTH OR INCORPORATED HEREIN SINCE THE DATE
HEREOF.
AVAILABLE INFORMATION
Cal Jockey, Bay Meadows and Patriot are each subject to the informational
reporting requirements of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), and in accordance therewith file reports, proxy and
information statements and other information with the Securities and Exchange
Commission (the "Commission"). Such reports, proxy and information statements
and other information filed by Cal Jockey, Bay Meadows and Patriot can be
inspected and copied at the public reference facilities maintained by the
Commission at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington,
D.C. 20549 and may be available at the following Regional Offices of the
Commission: Chicago Regional Office, Northwestern Atrium Center, 500 West
Madison Street, Suite 1400, Chicago, Illinois 60661; and New York Regional
Office, 7 World Trade Center, 13th Floor, New York, New York 10048. Copies of
such materials can be obtained at prescribed rates from the Public Reference
Section of the Commission at Judiciary Plaza, 450 Fifth Street, N.W.,
Washington, D.C. 20549. Cal Jockey, Bay Meadows and Patriot are also required
to file electronic versions of these documents with the Commission through the
Commission's Electronic Data Gathering Analysis and Retrieval (EDGAR) system.
The Commission maintains a world wide web site at http://www.sec.gov that
contains reports, proxy and information statements and other information
regarding registrants that file electronically with the Commission. In
addition, reports, proxy and information statements and other information
concerning Cal Jockey and Bay Meadows can be inspected at the offices of the
AMEX, 86 Trinity Place, New York, New York 10006-1881, on which the Paired
Shares are currently listed. In addition, reports, proxy and information
statements and other information concerning Patriot can be inspected at the
offices of the NYSE, 20 Broad Street, New York, New York 10005, on which the
Patriot Common Stock is listed.
This Joint Proxy Statement/Prospectus does not contain all the information
set forth in the Registration Statement on Form S-4 and exhibits relating
thereto, including any amendments (the "Registration Statement"), of which
this Joint Proxy Statement/Prospectus is a part, and which Cal Jockey and Bay
Meadows has filed with the Commission under the Securities Act of 1933, as
amended. Reference is made to such Registration Statement for further
information with respect to Cal Jockey, Bay Meadows and the Paired Shares
offered hereby. Statements contained herein or incorporated herein by
reference concerning the provisions of documents are summaries of such
documents and accurately describe the material provisions of each such
referenced document. Each statement is qualified in its entirety by reference
to the copy of the applicable document if filed with the Commission or
attached as an annex hereto.
(iv)
<PAGE>
INCORPORATION OF DOCUMENTS BY REFERENCE
The following documents previously filed with the Commission are hereby
incorporated by reference into this Joint Proxy Statement/Prospectus:
Cal Jockey and Bay Meadows
1. Annual Report on Form 10-K (Nos. 001-09319, 001-09320) for the fiscal
year ended December 31, 1996;
2. Current Report on Form 8-K dated February 24, 1997 (Nos. 001-09319, 001-
09320 filed March 3, 1997) reporting the execution of the Merger Agreement;
3. The description of the Paired Shares of Cal Jockey Common Stock and Bay
Meadows Common Stock contained or incorporated by reference in Cal Jockey's
and Bay Meadows' Registration Statement on Form 8-A (Nos. 001-09319, 001-
09320) including any amendments thereto;
4. Quarterly Report on Form 10-Q (Nos. 001-9319, 001-9320) for the fiscal
quarter ended March 31, 1997; and
5. Quarterly Report on Form 10-Q/A (Nos. 001-9319, 001-9320) for the fiscal
quarter ended March 31, 1997 (filed May 16, 1997).
Patriot
1. Annual Report on Form 10-K (No. 001-13898) for the fiscal year ended
December 31, 1996;
2. Current Reports on Form 8-K 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 the Merger Agreement 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 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 New Patriot REIT of 11 full-service Wyndham-branded hotels;
3. The description of the Patriot Common Stock contained or incorporated by
reference in Patriot's Registration Statement on Form 8-A (No. 001-13898)
including any amendments thereto; and
4. Quarterly Report on Form 10-Q (No. 001-13898) as of and for the fiscal
quarter ended March 31, 1997.
Wyndham Hotel Corporation
1. Annual Report on Form 10-K (No. 001-11723) as of and for the period ended
December 31, 1996; and
2. Current Report on Form 8-K dated April 23, 1997 (No. 001-11723 filed
April 23, 1997) reporting the execution of a merger agreement between Patriot
and Wyndham.
3. Quarterly Report on Form 10-Q (No. 001-11723) for the fiscal quarter
ended March 31, 1997.
In addition, all reports and other documents filed by each of Cal Jockey,
Bay Meadows and Patriot pursuant to Section 13(a), 13(c), 14 or 15(d) of the
Exchange Act subsequent to the date hereof and prior to the Cal Jockey Special
Meeting, the Bay Meadows Special Meeting and the Patriot Special Meeting shall
be deemed to be
(v)
<PAGE>
incorporated by reference herein and to be a part hereof from the date of
filing of such reports and documents. Any statement contained in a document
incorporated or deemed to be incorporated by reference herein shall be deemed
to be modified or superseded for purposes of this Joint Proxy
Statement/Prospectus to the extent that a statement contained herein, or in
any other subsequently filed document that also is incorporated or deemed to
be incorporated by reference herein, modifies or supersedes such statement.
Any such statement so modified or superseded shall not be deemed, except as so
modified or superseded, to constitute a part of this Joint Proxy
Statement/Prospectus.
THIS JOINT PROXY STATEMENT/PROSPECTUS INCORPORATES DOCUMENTS BY REFERENCE
WHICH ARE NOT PRESENTED HEREIN OR DELIVERED HEREWITH. THESE DOCUMENTS (NOT
INCLUDING EXHIBITS TO SUCH DOCUMENTS UNLESS SUCH EXHIBITS ARE SPECIFICALLY
INCORPORATED BY REFERENCE INTO SUCH DOCUMENTS) ARE AVAILABLE, WITHOUT CHARGE,
UPON WRITTEN OR ORAL REQUEST OF ANY PERSON, INCLUDING ANY BENEFICIAL OWNER, TO
WHOM THIS JOINT PROXY STATEMENT/ PROSPECTUS IS DELIVERED TO, IN THE CASE OF
DOCUMENTS RELATING TO CAL JOCKEY, 2600 SOUTH DELAWARE STREET, P.O. BOX 1117,
SAN MATEO, CALIFORNIA 94403, ATTENTION: MAE DE VOL (TELEPHONE NO. (415) 573-
4514), OR, IN THE CASE OF DOCUMENTS RELATING TO BAY MEADOWS, 2600 SOUTH
DELAWARE STREET, P.O. BOX 5050, SAN MATEO, CALIFORNIA 94402, ATTENTION: MIKE
ZIEGLER (TELEPHONE NO. (415) 573-4512), OR, IN THE CASE OF DOCUMENTS RELATING
TO PATRIOT, 3030 LBJ FREEWAY, SUITE 1500, DALLAS, TEXAS 75234, ATTENTION:
SHAREHOLDER RELATIONS (TELEPHONE NO. (972) 888-8000). IN ORDER TO ENSURE
TIMELY DELIVERY OF THE DOCUMENTS, ANY REQUEST SHOULD BE MADE BY JUNE 24, 1997.
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TABLE OF CONTENTS
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SUMMARY................................................................... 1
The Companies........................................................... 1
The Meetings of Stockholders............................................ 7
The Merger and Subscription............................................. 9
Risk Factors............................................................ 14
The Merger Agreement.................................................... 18
Comparison of Stockholder Rights........................................ 21
Interests of Certain Officers and Directors............................. 23
Summary Financial Information........................................... 25
Comparative Per Share Data.............................................. 39
Comparative Market Data................................................. 40
Distribution and Dividend Policy........................................ 41
RISK FACTORS.............................................................. 42
REIT Tax Risks.......................................................... 42
Failure to Manage Rapid Growth and Integrate Operations Following the
Merger................................................................. 44
Substantial Debt Obligations; No Limits on Indebtedness................. 45
Lack of Experience in Hotel Management Business......................... 45
Dilution to Earnings Caused by Acquisition of Cal Jockey and Bay Mead-
ows.................................................................... 45
Stock Price Fluctuations................................................ 46
Potential Conflicts of Interest Between New Patriot REIT and New Patriot
Operating Company...................................................... 46
Different Fairness Analyses of Cal Jockey and Bay Meadows by PaineWebber
and Montgomery......................................................... 46
Dependence on Lessees and Payments under the Participating Leases....... 47
Certain Conflicts of Interest Relating to Patriot....................... 47
Risk of Investment in Subsidiaries Controlled by Other Parties.......... 48
Benefits to Certain Directors and Officers of Cal Jockey and Bay Mead-
ows.................................................................... 48
Risks Relating to Proposed Wyndham Transactions......................... 49
Hotel Industry Risks.................................................... 49
Real Estate Investment Risks............................................ 51
Risks of Operating Hotels Under Franchise or Brand Affiliations......... 53
Potential Risks Related to Entitlements for Franklin Agreement and
Iacocca Agreement...................................................... 53
Horse Racing Industry Risks............................................. 54
Lack of Experience in the Horse Racing Business; Reliance on Bay Meadows
Management............................................................. 55
Comparison of Stockholder Rights........................................ 56
Possible Adverse Effects on Market Price of Common Stock of New Patriot
REIT and New Patriot Operating Company Arising from Shares Available
for Future Sale........................................................ 56
Substantial Expenses and Payments if Merger Fails to Occur.............. 57
Adverse Effect of Increase in Market Interest Rates on Price of Common
Stock of New Patriot REIT and New Patriot Operating Company............ 57
No Dissenters' Rights................................................... 57
THE COMPANIES............................................................. 58
Patriot................................................................. 58
Cal Jockey.............................................................. 59
Bay Meadows............................................................. 60
Surviving Companies..................................................... 61
DESCRIPTION OF THE PARTNERSHIP AGREEMENTS................................. 71
Patriot Partnership..................................................... 71
New Patriot Operating Partnership....................................... 74
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THE MEETINGS OF STOCKHOLDERS.............................................. 75
Cal Jockey Special Meeting.............................................. 75
Bay Meadows Special Meeting............................................. 76
Patriot Special Meeting................................................. 77
THE MERGER AND SUBSCRIPTION............................................... 80
Terms of the Merger and Subscription.................................... 80
Background of the Merger................................................ 81
Reasons for the Merger and the Related Transactions; Recommendation of
the Board of Directors of Patriot...................................... 91
Opinion of Patriot's Financial Advisor.................................. 93
Reasons for the Merger and the Related Transactions; Recommendation of
the Board of Directors of Cal Jockey................................... 98
Reasons for the Merger and the Related Transactions; Recommendation of
the Board of Directors of Bay Meadows.................................. 101
Opinion of Financial Advisor for Cal Jockey and Bay Meadows............. 104
Interests of Certain Officers and Directors............................. 109
Accounting Treatment.................................................... 111
Regulatory Approval..................................................... 111
Certain Resale Restrictions............................................. 112
New York Stock Exchange Listing......................................... 112
Dissenters' Rights...................................................... 112
THE MERGER AGREEMENT...................................................... 113
General................................................................. 113
The Merger and Subscription............................................. 113
Effective Time of the Merger............................................ 114
Exchange of Patriot Stock Certificates.................................. 114
Conditions to the Merger................................................ 117
Representations and Warranties.......................................... 118
Certain Covenants....................................................... 118
Loan for Hudson Bay Termination Fee..................................... 120
Termination............................................................. 121
Termination Amount and Expenses......................................... 121
Indemnification......................................................... 122
Amendments.............................................................. 122
PROPOSALS TO APPROVE THE AMENDMENT AND RESTATEMENT OF THE CAL JOCKEY AND
BAY MEADOWS CHARTERS AND BYLAWS.......................................... 123
Proposed Amendment and Restatement of Cal Jockey's and Bay Meadows'
Charters and Bylaws.................................................... 123
PROPOSAL TO APPROVE THE AMENDMENT AND RESTATEMENT OF THE PATRIOT INCENTIVE
PLAN..................................................................... 124
Reasons for the Patriot Incentive Plan Proposal......................... 124
Summary of the Patriot Incentive Plan................................... 125
Stockholders' Vote Required to Approve Proposal......................... 128
New Plan Benefits Table................................................. 128
Tax Aspects Under the U.S. Internal Revenue Code........................ 128
CERTAIN FEDERAL INCOME TAX CONSIDERATIONS................................. 130
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Tax Consequences of the Merger.......................................... 130
Pre-Merger Dividend..................................................... 132
Sale of Land by New Patriot REIT........................................ 132
REIT Qualification ..................................................... 133
Taxation of New Patriot Operating Company............................... 135
Effects of Compliance with REIT Requirements............................ 135
Tax Aspects of New Patriot REIT's Investment in the Patriot Partnership
and New Patriot Operating Company's Investment in the New Patriot
Operating Partnership.................................................. 135
PAH Ravinia, PAH WindWatch and PAH Boulders............................. 137
State and Local Taxation................................................ 137
Federal Income Taxation of Holders of Paired Shares..................... 137
UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS......................... 140
MANAGEMENT OF NEW PATRIOT REIT AND NEW PATRIOT OPERATING COMPANY.......... 187
New Patriot REIT........................................................ 187
New Patriot Operating Company........................................... 189
Overlap of Management of New Patriot REIT and New Patriot Operating
Company................................................................ 190
DESCRIPTION OF CAPITAL STOCK.............................................. 191
Common Stock............................................................ 191
Preferred Stock......................................................... 191
Excess Stock............................................................ 192
The Pairing Agreement................................................... 192
Certain Provisions of the Restated Charters and Restated Bylaws......... 192
COMPARISON OF STOCKHOLDER RIGHTS.......................................... 199
Comparison of Rights of Patriot Stockholders to Stockholders of New
Patriot REIT and New Patriot Operating Company......................... 199
Comparison of Rights of Stockholders of Cal Jockey and Bay Meadows to
Stockholders of New Patriot REIT and New Patriot Operating Company..... 207
STOCKHOLDERS' MEETINGS, LITIGATION AND DISAGREEMENTS...................... 211
OTHER MATTERS............................................................. 211
LEGAL MATTERS............................................................. 211
EXPERTS................................................................... 212
STOCKHOLDER PROPOSALS..................................................... 213
FINANCIAL STATEMENTS FOR CROW FAMILY HOTEL PARTNERSHIPS................... F-1
ANNEXES
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A. Agreement and Plan of Merger
B. Proposed Form of Amended and Restated Certificate of Incorporation of
New Patriot REIT
C. Proposed Form of Amended and Restated Bylaws of New Patriot REIT
D. Proposed Form of Amended and Restated Certificate of Incorporation of
New Patriot Operating Company
E. Proposed Form of Amended and Restated Bylaws of New Patriot Operating
Company
F. Opinion of Financial Advisor of Patriot: PaineWebber Incorporated
Opinion of Financial Advisor for Cal Jockey and Bay Meadows: Montgomery
G. Securities
</TABLE>
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SUMMARY
The following is a brief summary of certain information contained elsewhere
in this Joint Proxy Statement and Prospectus (the "Joint Proxy
Statement/Prospectus") and the Annexes hereto relating to the Agreement and
Plan of Merger, dated as of February 24, 1997, as amended and restated as of
May 28, 1997 (the "Merger Agreement"), by and among Patriot American
Hospitality, Inc., a Virginia corporation ("Patriot"), Patriot American
Hospitality Partnership, L.P., a Virginia limited partnership (the "Patriot
Partnership"), California Jockey Club, a Delaware corporation ("Cal Jockey"),
and Bay Meadows Operating Company, a Delaware corporation ("Bay Meadows"), and
the transactions contemplated therein (the "Related Transactions"). Pursuant to
the Merger Agreement, Patriot will merge with and into Cal Jockey (the
"Merger"), with Cal Jockey being the surviving company. In connection with the
Merger, Cal Jockey's name will be changed to "Patriot American Hospitality,
Inc." ("New Patriot REIT") and Bay Meadows' name will be changed to "Patriot
American Hospitality Operating Company" ("New Patriot Operating Company").
Unless the context indicates otherwise, all references to Patriot, Cal Jockey,
Bay Meadows, New Patriot REIT and New Patriot Operating Company include their
respective subsidiaries and affiliated partnerships. This summary does not
purport to contain all material information relating to the Merger Agreement or
the Related Transactions, including the Merger, and is qualified in its
entirety by the more detailed information and financial statements contained or
incorporated by reference in this Joint Proxy Statement/Prospectus.
STOCKHOLDERS OF PATRIOT, CAL JOCKEY AND BAY MEADOWS SHOULD READ CAREFULLY THIS
JOINT PROXY STATEMENT/PROSPECTUS AND THE ANNEXES ATTACHED HERETO IN THEIR
ENTIRETY.
THE COMPANIES
PATRIOT
Patriot is a self-administered real estate investment trust ("REIT") under
the Internal Revenue Code of 1986, as amended (the "Code"), which owned
interests in 56 hotels in 22 states, with an aggregate of 13,355 guest rooms as
of May 28, 1997. Patriot's hotels 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,
Patriot's portfolio includes world-class resort hotels, including The Boulders,
near Scottsdale, Arizona, The Lodge at Ventana Canyon in Tucson, Arizona, The
Peaks Resort & Spa in Telluride, Colorado, and Carmel Valley Ranch Resort in
Carmel, California (collectively, the "Carefree Resorts"), and prominent hotels
in major tourist destinations, including Fort Lauderdale, New Orleans, San
Antonio and San Diego. The hotels include 46 full service hotels, 5 resort
hotels, 4 limited service hotels and an executive conference center. Fifty-two
of the hotels are operated under franchise or brand affiliations with
nationally recognized hotel companies, including Marriott(R), Crowne Plaza(R),
Radisson(R), Hilton(R), Hyatt(R), Four Points by Sheraton(R), Holiday Inn(R),
Wyndham(TM), Wyndham Garden(R), WestCoast(R), Doubletree(R), Embassy Suites(R),
Hampton Inn(R), Registry(R), Carefree(R) and Grand Heritage(R). For the twelve
months ended December 31, 1996, Patriot's hotel portfolio (excluding three
hotels undergoing substantial renovation and the Carefree Resorts) had an
average occupancy rate of 69.9% and an average daily room rate ("ADR") of
$84.94. For the twelve months ended December 31, 1996, the Carefree Resorts had
an average occupancy rate of 69.2% and an ADR of $258.98.
Patriot was formed as a Virginia corporation in April 1995 for the purpose of
acquiring equity interests in hotel properties. In October 1995, Patriot
completed an initial public offering (the "Initial Offering") of common stock,
no par value per share, of Patriot ("Patriot Common Stock") and commenced
operations. The Patriot Common Stock has traded on the New York Stock Exchange
(the "NYSE") since September 27, 1995. Through its wholly-owned subsidiaries,
PAH LP, Inc. ("PAH LP") and PAH GP, Inc. ("PAH GP"), Patriot held an
approximate 82.7% limited partnership interest and the sole 1% general partner
interest in the Patriot Partnership as of May 28, 1997. The Patriot Partnership
owns, directly or through subsidiaries, Patriot's interests in each of its
hotels. A diagram outlining the corporate structure of Patriot prior to the
Merger is set forth on page 62.
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Patriot has a line of credit (the "Line of Credit") from Paine Webber Real
Estate Securities, Inc. ("PaineWebber Real Estate") which matures in October
1998 and bears interest at a rate per annum equal to 30-day LIBOR plus 1.90%.
The maximum amount available under the Line of Credit was increased in January
1997 to $475 million. As of May 28, 1997, Patriot had $471.2 million
outstanding under the Line of Credit. As of such date, Patriot also had
outstanding approximately $64.0 million of other mortgage debt, resulting in
total outstanding indebtedness of approximately $535.2 million. The Line of
Credit is secured by 38 of Patriot's 56 hotels and Patriot has single asset
mortgage loans which encumber three additional hotels. Patriot has entered into
a commitment letter with PaineWebber Real Estate and The Chase Manhattan Bank
("Chase") regarding expanding and replacing the Line of Credit with a new
credit facility of up to $1.2 billion. In connection with entering into this
commitment letter, PaineWebber Real Estate also agreed to increase Patriot's
availability under the Line of Credit to $625 million. See "--Surviving
Companies." Patriot also may seek additional debt or equity financing prior to
the consummation of the Merger.
In March 1997, Patriot executed a 2-for-1 stock split in the form of a stock
dividend. Unless otherwise indicated, all references hereafter to the Exchange
Ratio (as defined below in "--The Merger and Subscription--Terms of the Merger
and Subscription"), outstanding shares of Patriot Common Stock, per share
amounts, market prices of Patriot Common Stock and options to purchase shares
of Patriot Common Stock give effect to the 2-for-1 stock split. The number of
outstanding limited partner units ("OP Units") of the Patriot Partnership did
not change in connection with the 2-for-1 stock split. The OP Unit conversion
factor, however, has been changed such that each OP Unit of the Patriot
Partnership subject to redemption will now be redeemed for cash equal to the
value of two shares of Patriot Common Stock (or, at Patriot's election, Patriot
may purchase each OP Unit of the Patriot Partnership offered for redemption for
two shares of Patriot Common Stock).
Patriot's principal executive office is located at 3030 LBJ Freeway, Suite
1500, Dallas, Texas 75234 and its telephone number is (972) 888-8000.
CAL JOCKEY
Cal Jockey operates as a REIT under the Code and is the owner of
approximately 175 acres of land in San Mateo, California on which the Bay
Meadows Racecourse (sometimes referred to herein as the "Racecourse") is
situated. The principal Racecourse facilities, which are leased to Bay Meadows,
include: (i) the main one-mile dirt horse race track with six furlongs and 1
1/4 mile chutes, inside of which is a seven furlong turf course; (ii) the
track's infield area, on which a nine hole par three golf course is situated;
(iii) a main structure which contains a grandstand, a clubhouse and a premier
seating and dining club (the "Turf Club"); (iv) a parking area; (v) a barn and
stable area situated on approximately 38 acres and presently containing
approximately 1,550 horse stalls (the "Stable Area"); and (vi) a 5/8 mile
training track oval situated on approximately 40 acres adjacent to the Stable
Area (the "Training Track Area"). Cal Jockey also owns approximately two acres
in close proximity to the Racecourse on which an indoor tennis club is located
(the "Tennis Club Parcel"). On May 31, 1995, Cal Jockey entered into an
Agreement of Purchase and Sale with Property Resources, Inc. ("Property
Resources"), a subsidiary of Franklin Resources, Inc. (as amended, the
"Franklin Agreement"), providing for the sale of 32 acres of the Stable Area
for approximately $21 million. In December 1995, Cal Jockey entered into an
Agreement of Purchase and Sale (as amended, the "Iacocca Agreement") with Lee
Iacocca & Associates, Inc. ("Iacocca") providing for the sale of the Training
Track Area for approximately $31 million. In the third amendment to the Iacocca
Agreement, effective June 28, 1996, Iacocca assigned its rights under the
Iacocca Agreement to Airdial Company, L.L.C., a California limited liability
company ("Airdial"), the members of which include some of the principals of
Iacocca. In July 1996, Cal Jockey entered into an Agreement of Purchase and
Sale with Public Storage, Inc. (the "Public Storage Agreement") to sell the
Tennis Club Parcel for approximately $2.2 million. While Cal Jockey currently
expects these transactions to close, there can be no assurance that any or all
of the transactions will be consummated. In November 1996, Cal Jockey entered
into a non-subordinated ground lease (the "Borders Lease") with Borders, Inc.
("Borders"). Effective January 10, 1997, Borders assigned its rights under the
Borders Lease to DCI-Page One, L.L.C. ("DCI"), which company
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will develop the property and sublease the land with its improvements back to
Borders. The Borders Lease covers 2.3 acres of land formerly used by Bay
Meadows as a parking lot and land adjacent to the parking lot. The San Mateo
Planning Commission voted to approve the development of a Borders bookstore on
the site on October 14, 1996. DCI has a building permit and commenced
construction in February 1997. The initial term of the Borders Lease is for 20
years with a fixed net annual rent of $278,500 for years 1 through 10, $362,050
for years 11 through 15 and $416,350 for years 16 through 20. The Borders Lease
has eight five-year renewal options with an annual Consumer Price Index
adjustment beginning in the fifth option term.
Since 1983, Cal Jockey's shares of common stock, par value $.01 per share
("Cal Jockey Common Stock"), have been paired and trade together with the
shares of common stock, par value $.01 per share ("Bay Meadows Common Stock"),
of Bay Meadows (the "Paired Shares") as a single unit on the American Stock
Exchange (the "AMEX") pursuant to a stock pairing arrangement. The terms of the
pairing arrangement are set forth in the Pairing Agreement, dated as of
February 17, 1983 and amended from time to time thereafter, by and between Cal
Jockey and Bay Meadows (the "Pairing Agreement"). A diagram outlining the
paired share structure of Cal Jockey and Bay Meadows is set forth on page 62.
Cal Jockey's principal executive office is located at 2600 South Delaware
Street, P.O. Box 1117, San Mateo, California 94403 and its telephone number is
(415) 573-4514.
BAY MEADOWS
Bay Meadows is a gaming and entertainment company engaged primarily in the
business of conducting and offering pari-mutuel wagering (meaning that
individuals wager against each other and not against the operator of the
facility) on Thoroughbred horse racing at the Racecourse. In addition to live
horse racing at the Racecourse, Bay Meadows simulcasts its live horse races to
as many as 31 sites in California and as many as 450 sites in the remainder of
the world. Additionally, Bay Meadows acts as an off-track wagering facility,
allowing patrons to wager on horse races at other tracks even when live horse
racing is not being conducted at the Racecourse, by accepting simulcasts of
horse races conducted throughout the United States, Canada, Mexico, Australia
and Hong Kong. Bay Meadows generates revenues from commissions on pari-mutuel
wagering, admissions, parking, program sales and the food and beverage
concessions at the Racecourse. As described above, shares of Bay Meadows Common
Stock are paired and trade together with the shares of Cal Jockey Common Stock
as a single unit on the AMEX pursuant to the Pairing Agreement. A diagram
outlining the paired share structure of Cal Jockey and Bay Meadows is set forth
on page 62.
Bay Meadows has a line of credit (the "Bay Meadows Line of Credit") from Bank
of America National Trust and Savings Association ("Bank of America") which
expires on February 1, 1998 and bears interest at a rate publicly announced by
the Bank of America from time to time as its reference rate. The maximum amount
available under the Bay Meadows Line of Credit is $2.5 million. The Bay Meadows
Line of Credit is guaranteed by Cal Jockey and secured by a $2.5 million time
deposit. As of May 28, 1997, Bay Meadows had no outstanding borrowings under
the Bay Meadows Line of Credit.
Bay Meadows' principal executive office is located at 2600 South Delaware
Street, P.O. Box 5050, San Mateo, California 94402 and its telephone number is
(415) 574-7223.
SURVIVING COMPANIES
Upon the Merger becoming effective, Patriot will merge with and into Cal
Jockey with Cal Jockey being the surviving company. By operation of the Merger
Agreement, the outstanding shares of Patriot Common Stock will be exchanged for
Paired Shares of Cal Jockey Common Stock and Bay Meadows Common Stock. As a
result of the Merger, Cal Jockey will succeed to Patriot's partnership
interests in the Patriot Partnership and Cal Jockey shall thereafter contribute
certain of its assets to the Patriot Partnership. Concurrently with these
3
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transactions, Bay Meadows will form an operating partnership (the "New Patriot
Operating Partnership" and, collectively with the Patriot Partnership, the
"Operating Partnerships") which will issue OP Units of the New Patriot
Operating Partnership to the independent limited partners of the Patriot
Partnership and into which certain assets of Bay Meadows will be contributed.
Upon completion of these transactions, Cal Jockey and Bay Meadows will be the
surviving entities each with a limited partnership subsidiary that holds
substantially all of its assets or conducts substantially all of its operations
and the existing independent limited partners will hold an equal number of OP
Units in the Patriot Partnership and the New Patriot Operating Partnership. The
stockholders of Cal Jockey, Bay Meadows and Patriot will hold paired shares of
the surviving entities. In connection with the consummation of the
transactions, Cal Jockey will change its name to "Patriot American Hospitality,
Inc." and Bay Meadows will change its name to "Patriot American Hospitality
Operating Company." A diagram outlining the corporate structure of the
surviving companies and their limited partnership subsidiaries following the
Merger is set forth on page 63.
Following completion of the Merger and the Related Transactions, New Patriot
REIT and New Patriot Operating Company will continue the operations of Patriot,
Cal Jockey and Bay Meadows within the paired share ownership structure.
Immediately following the Merger, New Patriot REIT will own interests in 56
hotels in 22 states, with an aggregate of 13,355 guest rooms. Additionally,
Patriot has entered into contracts or letters of intent to purchase fourteen
hotels (the "Proposed Acquisitions"), aggregating 3,478 rooms for a combined
purchase price (excluding closing costs and other acquisition-related expenses)
of approximately $271.4 million. Patriot has also entered into an agreement to
acquire Grand Heritage Hotels, a hotel management and marketing company, and
other Grand Heritage subsidiaries including an investment in one hotel property
(the "Grand Heritage Acquisition"). The total acquisition price for the Grand
Heritage Acquisition is estimated to be approximately $25.25 million. The
purchase of each of the Proposed Acquisitions and the Grand Heritage
Acquisition is subject to satisfactory completion of various closing conditions
and no assurances can be given that Patriot, New Patriot REIT or New Patriot
Operating Company will acquire any or all of the Proposed Acquisitions or the
Grand Heritage Acquisition. Assuming all of the Proposed Acquisitions are
consummated, New Patriot REIT's hotel portfolio will include 70 hotels,
aggregating 16,833 rooms, representing a 300% increase in the size of New
Patriot REIT's room portfolio since Patriot's Initial Offering.
Following the Merger, New Patriot REIT expects to terminate its leases with a
limited liability company owned by certain executive officers of Patriot
relating to eight of its existing hotels, and nine hotels which are the subject
of Proposed Acquisitions and re-lease such hotels to New Patriot Operating
Company. See "--Interests of Certain Officers and Directors." The existing
hotels to be re-leased include the four Carefree Resorts acquired by Patriot in
January 1997 (The Boulders, The Lodge at Ventana Canyon, The Peaks Resort & Spa
and Carmel Valley Ranch Resort), the Radisson Hotel in Northbrook, Illinois,
the Luxeford Suites Hotel in Minneapolis, Minnesota, the Sheraton Park Place
Hotel in Minneapolis, Minnesota, and the Myrtle Beach Hilton Oceanfront Golf
Resort in Myrtle Beach, South Carolina, and the hotels to be re-leased which
are the subject of Proposed Acquisitions include the five Snavely Group hotels,
four of which are located in Cleveland, Ohio and one of which is in Akron,
Ohio, and four Doubletree Hotels which are located in Houston, Texas, Anaheim,
California, Overland Park, Kansas and St. Louis, Missouri. Following the
Merger, New Patriot REIT may also seek to restructure the two special purpose
entities which own the Crowne Plaza Ravinia Hotel in Atlanta and the Marriott
WindWatch Hotel on Long Island, New York so that these hotels may be leased to
New Patriot Operating Company. See "Risk Factors--Risk of Investment in
Subsidiaries Controlled by Other Parties." There are no binding agreements with
respect to leasing any such hotels to New Patriot Operating Company and thus no
assurances can be made that such hotels will be leased to New Patriot Operating
Company. See "Risk Factors--Certain Conflicts of Interest Relating to Patriot"
and "--Risk of Investment in Subsidiaries Controlled by Other Parties." With
respect to Patriot's remaining hotels, there are no agreements concerning when
or if such hotels will be leased to New Patriot Operating Company. Upon the
expiration of the lease relating to each of these hotels, New Patriot REIT
currently intends to evaluate the individual circumstances of such lease and
decide whether to continue to lease such hotel to an independent lessee or,
alternatively, to lease such hotel to New Patriot Operating Company.
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Patriot believes that market conditions remain favorable for the acquisition
of additional hotels and hotel portfolios and it is expected that New Patriot
REIT will continue Patriot's aggressive acquisition activities. Additionally,
New Patriot Operating Company intends to explore opportunities to acquire hotel
operators, owners of hotel franchises or brands and independent hotel
management companies. Patriot's management believes that the paired share
structure will enhance opportunities for New Patriot REIT and New Patriot
Operating Company to consummate such acquisitions. No assurances can be given,
however, that New Patriot REIT and New Patriot Operating Company will locate
attractive acquisition opportunities or that they will consummate such
acquisitions. See "Risk Factors--Hotel Industry Risks--Competition for Hotel
Acquisition Opportunities."
Patriot and PaineWebber Incorporated ("PaineWebber") have entered into an
agreement pursuant to which, following the closing of the Merger, an affiliate
of PaineWebber will purchase from New Patriot REIT substantially all of the
land which is currently owned by Cal Jockey, including the land subject to the
Franklin Agreement and the Iaccoca Agreement but excluding the land subject to
the Borders Lease, for a purchase price of $78.05 million in cash (the
"Proposed PaineWebber Land Sale"). In connection with the Proposed PaineWebber
Land Sale, New Patriot REIT would assign all of its rights and benefits under
existing leases, contracts, permits and entitlements relating to land owned by
Cal Jockey prior to its consummation of the Merger and the Related
Transactions, excluding the Borders Lease, to the PaineWebber affiliate. New
Patriot REIT would retain ownership of the improvements located on the land.
Simultaneously with the consummation of such purchase, the PaineWebber
affiliate and New Patriot REIT would enter into a ground lease covering that
portion of the land upon which the Racecourse is situated for a term of seven
years at an annual rental rate of $3 million for the first year of the lease,
$3.25 million for the second year, $3.5 million for the third year, $4 million
for the fourth and fifth years and $5 million for each remaining year during
the term of the lease. New Patriot REIT would then sublease the Racecourse land
and the related improvements to New Patriot Operating Company in order to
permit New Patriot Operating Company to continue horse racing operations at the
Racecourse through the term of New Patriot REIT's lease. The parties may have
the option to renew such leases upon their expiration under certain
circumstances. There can be no assurance that the Proposed PaineWebber Land
Sale will be consummated. See "The Companies--Surviving Companies."
In connection with the consummation of the Merger, all of the current
directors and officers of Cal Jockey and Bay Meadows will resign. Thereafter,
the current directors of Patriot will become the directors of New Patriot REIT
and the executive officers of New Patriot REIT will be Paul A. Nussbaum who
will become Chairman of the Board of Directors, Chief Executive Officer and
President, William W. Evans III who will serve in the Office of the Chairman,
and Rex E. Stewart who will become Chief Financial Officer and Treasurer. The
current executive officers of Patriot (including Messrs. Nussbaum and Stewart)
will become the executive officers of New Patriot Operating Company and,
together with the directors of New Patriot Operating Company, will manage the
business and affairs of New Patriot Operating Company. For information
concerning these persons, see "Management of New Patriot REIT and New Patriot
Operating Company--New Patriot Operating Company." After consummation of the
Merger, it is expected that the current officers and employees of Bay Meadows
will continue to manage the horse racing operations through a subsidiary of New
Patriot Operating Company. See "Risk Factors--Lack of Experience in the Horse
Racing Business; Reliance on Bay Meadows Management."
On April 14, 1997, Patriot entered into a merger agreement and a related
stock purchase agreement (collectively, the "Wyndham Merger Agreement")
pursuant to which Wyndham Hotel Corporation ("Wyndham") will merge with and
into New Patriot REIT with New Patriot REIT being the surviving company (the
"Wyndham Merger"). As a result of the Wyndham Merger, New Patriot REIT will
acquire all of the assets and liabilities of Wyndham, including, as of April 9,
1997, Wyndham's portfolio of 23 owned and leased hotels, with an aggregate of
4,877 rooms, Wyndham's 64 managed and franchised properties throughout North
America, management and franchise agreements that have been executed for 15
properties that are currently closed for renovation or construction or are in
the process of being converted to the Wyndham brand and the proprietary
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brand names Wyndham, Wyndham Garden and Wyndham Hotels & Resorts. Pursuant to
the Wyndham Merger Agreement, upon consummation of the Wyndham Merger, each
issued and outstanding share of common stock of Wyndham ("Wyndham Common
Stock") will be converted into the right to receive 0.712 paired shares (the
"Wyndham Exchange Ratio"). The Wyndham Exchange Ratio is subject to adjustment
in the event that the average of the closing prices of the paired shares of New
Patriot REIT Common Stock and New Patriot Operating Company Common Stock on the
twenty trading days preceding the fifth business day prior to the stockholder
meetings called to approve the Wyndham Merger (the "Average Trading Price") is
less than $42.13 per paired share. If the Average Trading Price is between
$40.21 and $42.13 per paired share, the Wyndham Exchange Ratio will be adjusted
so that each outstanding share of Wyndham Common Stock will be converted into
the right to receive a number of paired shares equal to $30.00 divided by the
Average Trading Price. If the Average Trading Price is less than $40.21 per
paired share, the Wyndham Exchange Ratio will be fixed at 0.746; however, in
such circumstances, Wyndham has the right, waivable by it, to terminate the
Wyndham Merger Agreement without liability. On May 28, 1997, the closing price
of the Paired Shares as reported on the AMEX was $41 1/2. In lieu of receiving
paired shares, Wyndham stockholders have the right to elect to receive cash in
an amount per share equal to the Wyndham Exchange Ratio (as it may be adjusted)
multiplied by the average closing price of the paired shares over the five
trading days immediately preceding the closing date of the Wyndham Merger. If
stockholders holding shares of Wyndham Common Stock with a value in excess of
$100 million elect to receive cash, such cash will be allocated on a pro rata
basis among such stockholders. In connection with the Wyndham Merger, New
Patriot REIT will assume Wyndham's existing indebtedness, which is
approximately $146 million as of May 28, 1997. In connection with the execution
of the Wyndham Merger Agreement, Patriot also entered into agreements with
partnerships affiliated with members of the Trammell Crow family providing for
the acquisition by New Patriot REIT of 11 full-service Wyndham-branded hotels
with 3,072 rooms, located throughout the United States, for approximately
$331.7 million in cash, plus approximately $14 million in additional
consideration if two hotels meet certain operational targets (the "Crow
Acquisition" and, collectively with the Wyndham Merger, the "Proposed Wyndham
Transactions"). The Wyndham Merger and the Crow Acquisition, which are expected
to be consummated concurrently, are subject to various conditions including,
without limitation, the consummation of the Merger and approval of the Proposed
Wyndham Transactions by the stockholders of New Patriot REIT, New Patriot
Operating Company and Wyndham. It is currently anticipated that the stockholder
meetings to approve the Proposed Wyndham Transactions will occur in the fourth
quarter of 1997. If the Proposed Wyndham Transactions are approved and
consummated, it is anticipated that the current stockholders of Patriot would
hold approximately 53.4% and the current stockholders of Cal Jockey and Bay
Meadows would hold in the aggregate approximately 13.4% of the outstanding
shares of New Patriot REIT Common Stock and New Patriot Operating Company
Common Stock following consummation of the Proposed Wyndham Transactions
(assuming no Wyndham stockholders exercise their cash election rights in the
Wyndham Merger). The pro forma combined assets of New Patriot REIT and New
Patriot Operating Company at March 31, 1997 assuming consummation of the
Proposed Wyndham Transactions would be approximately $2.6 billion of which
approximately 8.2% would be attributable to Cal Jockey and Bay Meadows,
approximately 46.0% would be attributable to Patriot and approximately 45.8%
would be attributable to Wyndham and partnerships associated with members of
the Trammel Crow family. In addition, the pro forma combined revenues of New
Patriot REIT and New Patriot Operating Company for the year ended December 31,
1996 and the three months ended March 31, 1997 assuming consummation of the
Proposed Wyndham Transactions would be approximately $581 million and $173
million, respectively, of which approximately 9.0% and 12.0%, respectively,
would be attributable to Cal Jockey and Bay Meadows, approximately 35.3% and
33.5%, respectively, would be attributable to Patriot and approximately 55.7%
and 54.5%, respectively, would be attributable to Wyndham and partnerships
associated with members of the Trammel Crow family. The Unaudited Pro Forma
Financial Statements set forth in this Joint Proxy Statement/Prospectus show
the effects of the Proposed Wyndham Transactions on New Patriot REIT and New
Patriot Operating Company. See "Unaudited Pro Forma Combined Financial
Statements." Certain material risks with respect to the Proposed Wyndham
Transactions also are set forth under "Risk Factors--Risks Relating to Proposed
Wyndham Transactions."
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Patriot has entered into a commitment letter with PaineWebber Real Estate and
Chase regarding expanding and replacing the Line of Credit with a new credit
facility with availability of up to approximately $1.2 billion (the "New Credit
Facility"). This credit facility will consist of a $700 million unsecured
revolving line of credit and a term loan of $500 million. It is anticipated
that the term loan will be secured by specific assets and properties of Patriot
(following the Merger, the assets and properties of New Patriot REIT and New
Patriot Operating Company) that will be transferred to a special purpose
"bankruptcy remote" entity. The revolving line of credit will be used for the
acquisition of additional properties, business and other assets, for capital
expenditures and for general working capital purposes. The term loan will be
used to finance payments to be made in connection with the Proposed Wyndham
Transactions and the acquisition of certain other properties. While
negotiations concerning the New Credit Facility are ongoing, there can be no
assurance that such a credit facility will be obtained, or if obtained, when it
will become effective or available or what the specific terms of such credit
facility will be. See "The Companies--Surviving Companies--New Credit
Facility."
THE MEETINGS OF STOCKHOLDERS
CAL JOCKEY SPECIAL MEETING
The special meeting of stockholders of Cal Jockey will be held at the
Clubhouse of Bay Meadows Racecourse, 2600 South Delaware Street, San Mateo,
California, on July 1, 1997, at 10:15 a.m., Pacific time (including any and all
adjournments and postponements thereof, the "Cal Jockey Special Meeting"). At
the Cal Jockey Special Meeting, holders of shares of Cal Jockey Common Stock
will consider and vote upon (i) approval of a proposal (the "Merger Proposal")
to adopt the Merger Agreement and the Related Transactions, including, without
limitation, the Merger, the issuance of up to approximately 30,500,000 shares
of Cal Jockey Common Stock and the contribution of certain of the assets of Cal
Jockey to the Patriot Partnership in exchange for OP Units of the Patriot
Partnership; and (ii) approval of a proposal (the "Cal Jockey Charter and Bylaw
Amendment Proposal") to amend and restate the Certificate of Incorporation of
Cal Jockey (the "Cal Jockey Charter") and the Bylaws of Cal Jockey (the "Cal
Jockey Bylaws"). Each of the Merger Proposal and the Cal Jockey Charter and
Bylaw Amendment Proposal must be approved by the affirmative vote of the
holders of a majority of the outstanding shares of Cal Jockey Common Stock.
Holders of Cal Jockey Common Stock are entitled to one vote per share. Only
holders of shares of Cal Jockey Common Stock at the closing of business on May
16, 1997 (the "Cal Jockey Record Date") will be entitled to notice of and to
vote at the Cal Jockey Special Meeting. As of the Cal Jockey Record Date,
directors and executive officers of Cal Jockey and their affiliates who own
162,022 shares (representing 2.8% of the outstanding shares) have indicated
that they intend to vote all of their shares of Cal Jockey Common Stock for
approval of the aforementioned proposals. See "The Meetings of Stockholders--
Cal Jockey Special Meeting."
THE BOARD OF DIRECTORS OF CAL JOCKEY HAS UNANIMOUSLY APPROVED THE MERGER
PROPOSAL AND THE CAL JOCKEY CHARTER AND BYLAW AMENDMENT PROPOSAL AND
UNANIMOUSLY RECOMMENDS THAT THE STOCKHOLDERS OF CAL JOCKEY VOTE FOR APPROVAL OF
THE MERGER PROPOSAL AND THE CAL JOCKEY CHARTER AND BYLAW AMENDMENT PROPOSAL.
SEE "THE MERGER AND SUBSCRIPTION--BACKGROUND OF THE MERGER," AND "--REASONS FOR
THE MERGER AND THE RELATED TRANSACTIONS; RECOMMENDATION OF THE BOARD OF
DIRECTORS OF CAL JOCKEY."
BAY MEADOWS SPECIAL MEETING
The special meeting of stockholders of Bay Meadows will be held at the
Clubhouse of Bay Meadows Racecourse, 2600 South Delaware Street, San Mateo,
California, on July 1, 1997, at 9:00 a.m., Pacific time (including any and all
adjournments and postponements thereof, the "Bay Meadows Special Meeting"). At
the Bay Meadows Special Meeting, holders of shares of Bay Meadows Common Stock
will consider and vote upon
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(i) approval of the Merger Proposal, including, without limitation, the
issuance of up to approximately 30,500,000 shares of Bay Meadows Common Stock
in connection with the Merger and the contribution of certain of the assets of
Bay Meadows to the New Patriot Operating Partnership in exchange for OP Units
of the New Patriot Operating Partnership; and (ii) approval of a proposal (the
"Bay Meadows Charter and Bylaw Amendment Proposal") to amend and restate the
Certificate of Incorporation of Bay Meadows (the "Bay Meadows Charter") and the
Bylaws of Bay Meadows (the "Bay Meadows Bylaws"). Each of the Merger Proposal
and the Bay Meadows Charter and Bylaw Amendment Proposal must be approved by
the affirmative vote of the holders of a majority of the outstanding shares of
Bay Meadows Common Stock. Holders of Bay Meadows Common Stock are entitled to
one vote per share. Only holders of shares of Bay Meadows Common Stock at the
closing of business on May 16, 1997 (the "Bay Meadows Record Date") will be
entitled to notice of and to vote at the Bay Meadows Special Meeting. As of the
Bay Meadows Record Date, directors and executive officers of Bay Meadows and
their affiliates who own 190,149 shares (representing 3.3% of the outstanding
shares) have indicated that they intend to vote all of their shares of Bay
Meadows Common Stock for approval of the aforementioned proposals. See "The
Meetings of Stockholders--Bay Meadows Special Meeting."
THE BOARD OF DIRECTORS OF BAY MEADOWS HAS UNANIMOUSLY APPROVED THE MERGER
PROPOSAL AND THE BAY MEADOWS CHARTER AND BYLAW AMENDMENT PROPOSAL AND
UNANIMOUSLY RECOMMENDS THAT THE STOCKHOLDERS OF BAY MEADOWS VOTE FOR APPROVAL
OF THE MERGER PROPOSAL AND THE BAY MEADOWS CHARTER AND BYLAW AMENDMENT
PROPOSAL. SEE "THE MERGER AND SUBSCRIPTION--BACKGROUND OF THE MERGER," AND "--
REASONS FOR THE MERGER AND THE RELATED TRANSACTIONS; RECOMMENDATION OF THE
BOARD OF DIRECTORS OF BAY MEADOWS."
PATRIOT SPECIAL MEETING
The special meeting of stockholders of Patriot will be held at the Holiday
Inn Select, Dallas, Texas, on July 1, 1997, at 11:00 a.m., local time
(including any and all adjournments and postponements thereof, the "Patriot
Special Meeting" and, together with the Cal Jockey Special Meeting and the Bay
Meadows Special Meeting, the "Special Meetings"). At the Patriot Special
Meeting, holders of Patriot Common Stock will consider and vote upon (i)
approval of the Merger Proposal and (ii) approval of a proposal (the "Patriot
Incentive Plan Proposal") to amend and restate the Patriot American
Hospitality, Inc. 1995 Incentive Plan (the "Patriot Incentive Plan"). The
Merger Proposal must be approved by the affirmative vote of the holders of two-
thirds of the outstanding shares of Patriot Common Stock entitled to vote
thereon. The Patriot Incentive Plan Proposal must be approved by the
affirmative vote of the holders of a majority of the shares of Patriot Common
Stock present in person or by proxy and entitled to vote at the Patriot Special
Meeting. Holders of Patriot Common Stock are entitled to one vote per share.
Only holders of Patriot Common Stock at the close of business on May 16, 1997
(the "Patriot Record Date") will be entitled to notice of and to vote at the
Patriot Special Meeting. As of the Patriot Record Date, directors and executive
officers of Patriot and their affiliates who own 877,210 shares (representing
2.0% of the outstanding shares) have indicated that they intend to vote all of
their shares of Patriot Common Stock for approval of the aforementioned
proposals. See "The Meetings of Stockholders--Patriot Special Meeting."
THE BOARD OF DIRECTORS OF PATRIOT HAS UNANIMOUSLY APPROVED THE MERGER
PROPOSAL AND THE PATRIOT INCENTIVE PLAN PROPOSAL AND UNANIMOUSLY RECOMMENDS
THAT PATRIOT STOCKHOLDERS VOTE FOR APPROVAL OF THE MERGER PROPOSAL AND THE
PATRIOT INCENTIVE PLAN PROPOSAL. SEE "THE MERGER AND SUBSCRIPTION--BACKGROUND
OF THE MERGER," "--REASONS FOR THE MERGER AND THE RELATED TRANSACTIONS;
RECOMMENDATION OF THE BOARD OF DIRECTORS OF PATRIOT," AND "PROPOSAL TO APPROVE
THE AMENDMENT AND RESTATEMENT OF THE PATRIOT INCENTIVE PLAN."
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CONDITIONAL NATURE OF THE PROPOSALS
The Merger Proposal, the Cal Jockey Charter and Bylaw Amendment Proposal and
the Bay Meadows Charter and Bylaw Amendment Proposal are sometimes referred to
herein collectively as the "Proposals." ALTHOUGH EACH OF THE PROPOSALS WILL BE
VOTED ON SEPARATELY AT THE CAL JOCKEY SPECIAL MEETING, THE BAY MEADOWS SPECIAL
MEETING AND THE PATRIOT SPECIAL MEETING, BECAUSE ADOPTION OF EACH OF THE
PROPOSALS IS A CONDITION TO CLOSING, IF ANY OF THE PROPOSALS IS NOT ADOPTED,
THE PARTIES WILL NOT BE REQUIRED TO CONSUMMATE THE MERGER OR ANY OF THE RELATED
TRANSACTIONS. HOWEVER, APPROVAL OF THE PATRIOT INCENTIVE PLAN PROPOSAL IS NOT A
CONDITION TO THE CONSUMMATION OF THE MERGER AND THE RELATED TRANSACTIONS. IN
THE EVENT THE CAL JOCKEY CHARTER AND BYLAW AMENDMENT PROPOSAL AND THE BAY
MEADOWS CHARTER AND BYLAW AMENDMENT PROPOSAL ARE APPROVED BUT THE MERGER
PROPOSAL IS NOT APPROVED, THE CAL JOCKEY CHARTER AND BYLAW AMENDMENT PROPOSAL
AND THE BAY MEADOWS CHARTER AND BYLAW AMENDMENT PROPOSAL WILL NOT TAKE EFFECT.
THE MERGER AND SUBSCRIPTION
TERMS OF THE MERGER AND SUBSCRIPTION
On October 31, 1996, Patriot, Cal Jockey and Bay Meadows entered into a
binding acquisition agreement (the "October 31, 1996 Agreement") pursuant to
which the parties agreed to engage in a business combination transaction. The
parties, together with the Patriot Partnership, thereafter entered into the
Merger Agreement which by its terms supersedes the October 31, 1996 Agreement
and more fully details the transactions to be consummated by the parties. The
Board of Directors of each of Patriot, Cal Jockey and Bay Meadows has approved
the October 31, 1996 Agreement, the Merger Agreement and the Related
Transactions, including, without limitation, the Merger, the Subscription (as
hereinafter defined), the issuance of up to approximately 30,500,000 Paired
Shares of Cal Jockey Common Stock and Bay Meadows Common Stock, the
contribution of certain of the assets of Bay Meadows to the New Patriot
Operating Partnership and the contribution of certain of the assets of Cal
Jockey to the Patriot Partnership. Pursuant to the Merger Agreement, a copy of
which is attached hereto as Annex A, at the time the Merger becomes effective
(the "Effective Time"), Patriot will be merged with and into Cal Jockey, with
Cal Jockey being the surviving company in the Merger. In connection with the
Merger, Cal Jockey's name will be changed to "Patriot American Hospitality,
Inc." and Bay Meadows' name will be changed to "Patriot American Hospitality
Operating Company." Presently, shares of Cal Jockey Common Stock and shares of
Bay Meadows Common Stock are paired and are transferable only as a single unit
pursuant to the Pairing Agreement. The Pairing Agreement will continue after
the Merger and, accordingly, each share of common stock, par value $.01 per
share, of New Patriot REIT ("New Patriot REIT Common Stock") and each share of
common stock, par value $.01 per share, of New Patriot Operating Company ("New
Patriot Operating Company Common Stock") will also be paired and transferable
only as a single unit.
In the Merger, each outstanding Paired Share of Cal Jockey Common Stock and
Bay Meadows Common Stock will remain outstanding and will automatically,
without any action on the part of the stockholders of Cal Jockey and Bay
Meadows, represent the same number of paired shares of New Patriot REIT Common
Stock and New Patriot Operating Company Common Stock.
By operation of the Merger, each issued and outstanding share of Patriot
Common Stock will be converted into the right to receive 0.51895 shares of New
Patriot REIT Common Stock (the "Exchange Ratio"), subject to certain REIT
qualification requirements described below. In the event, however, that the
average closing price of a share of Patriot Common Stock as reported on the
NYSE over the 20 trading days immediately preceding the third trading day prior
to the Special Meetings (the "Patriot Average Trading Price") is less than
$17.125, then each share of Patriot Common Stock will be converted into the
number of paired shares equal to the Patriot
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Average Trading Price divided by $33.00. The Patriot Partnership will, in
connection with the Merger, subscribe (the "Subscription") for shares of Bay
Meadows Common Stock (which in connection with the Merger will become New
Patriot Operating Company Common Stock) (the "Subscribed Shares") in an amount
equal to the number of shares of New Patriot REIT Common Stock that will be
issued to Patriot stockholders in the Merger. Immediately prior to the Merger,
the Patriot Partnership will fund the Subscription and Patriot and the Patriot
Partnership will designate the Patriot stockholders as the recipients of the
Subscribed Shares, in compliance with the Pairing Agreement, on the basis of
0.51895 Subscribed Shares for each share of Patriot Common Stock outstanding at
the Effective Time, subject to certain REIT qualification requirements
described below and to any adjustment to the Exchange Ratio. The result of the
Merger and the Subscription will be that Patriot stockholders will have the
right to receive 0.51895 shares of New Patriot REIT Common Stock and 0.51895
shares of New Patriot Operating Company Common Stock, subject to certain REIT
qualification requirements described below and to any adjustment to the
Exchange Ratio, for each share of Patriot Common Stock held by them at the
Effective Time, which shares of New Patriot REIT Common Stock and New Patriot
Operating Company Common Stock will be paired and transferable only as a single
unit.
The Amended and Restated Certificates of Incorporation of New Patriot REIT
and New Patriot Operating Company (the "Restated Charters") will provide that
no person or entity may own, be deemed to own by virtue of certain attribution
rules of the Code or be deemed to beneficially own pursuant to the applicable
provisions of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), in excess of 9.8% (the "Ownership Limit") of the outstanding shares of
any class or series of New Patriot REIT Common Stock and New Patriot Operating
Company Common Stock or preferred stock of New Patriot REIT or New Patriot
Operating Company (collectively, the "Equity Stock"). If any holder of Patriot
Common Stock would receive in the Merger and the Subscription a number of
paired shares of New Patriot REIT Common Stock and New Patriot Operating
Company Common Stock which would cause such holder or any other person or
entity to own, or be deemed to own, paired shares of New Patriot REIT Common
Stock and New Patriot Operating Company Common Stock in excess of the Ownership
Limit, then such holder shall acquire no right or interest in such number of
paired shares of New Patriot REIT Common Stock and New Patriot Operating
Company Common Stock that would cause such holder or any other person or entity
to exceed the Ownership Limit, but such holder shall, in lieu of receiving
those paired shares which would cause the Ownership Limit to be exceeded (the
"Excess Paired Shares"), have the right to be paid by New Patriot REIT an
amount in cash for such Excess Paired Shares equal to the product of the Fair
Market Value (as hereinafter defined) per Excess Paired Share multiplied by the
number of such Excess Paired Shares. "Fair Market Value" shall be equal to the
greater of (i) the average closing price of the Paired Shares of Cal Jockey
Common Stock and Bay Meadows Common Stock on the AMEX on the four (4) trading
days immediately preceding the date the Merger is consummated, and (ii) the
average closing price of the shares of Patriot Common Stock on the NYSE on the
four (4) trading days immediately preceding the date the Merger is consummated
multiplied by the inverse of the Exchange Ratio, 1.92697 as of May 28, 1997.
Assuming the Merger had been consummated on May 28, 1997, the Fair Market Value
of an Excess Paired Share would have been $41.91 per Excess Paired Share.
REASONS FOR THE MERGER AND THE RELATED TRANSACTIONS; RECOMMENDATIONS OF THE
BOARDS OF DIRECTORS
Patriot
The Board of Directors of Patriot believes that the Merger and the Related
Transactions are fair to and in the best interests of Patriot and its
stockholders. THE PATRIOT BOARD OF DIRECTORS HAS UNANIMOUSLY APPROVED THE
MERGER AGREEMENT AND THE RELATED TRANSACTIONS AND UNANIMOUSLY RECOMMENDS THAT
STOCKHOLDERS OF PATRIOT VOTE "FOR" THE MERGER PROPOSAL. The material factors
that the Patriot Board of Directors considered in reaching the foregoing
conclusions were its belief that: (i) the Merger will enable the stockholders
of Patriot to realize the value inherent in the paired share structure which
will allow Patriot in combination with its paired operating company to become a
fully integrated owner and operator of hotels; (ii) following the Merger, New
Patriot Operating Company will be able to lease and operate newly acquired
hotels as well as any of Patriot's existing hotels that are re-leased to New
Patriot Operating Company and thus stockholders will be able to retain the
economic benefit of not only the lease payments received by New Patriot REIT,
but also the operating profits of New Patriot Operating Company; (iii) with the
paired share
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structure, New Patriot Operating Company will be able to directly control
strategic business decisions with respect to the marketing and management of
hotels acquired after the Merger or existing hotels that are re-leased to New
Patriot Operating Company following the Merger; (iv) in structuring hotel
acquisitions, New Patriot REIT will have increased flexibility because of its
ability to acquire hotels and either lease them to New Patriot Operating
Company or, alternatively, lease them to independent lessees; (v) following the
Merger, the universe of Patriot's potential hotel acquisitions will
significantly increase because, in addition to hotels, it will be able to
acquire hotel operators, owners of hotel franchises or brands and independent
hotel management companies through New Patriot Operating Company; and (vi) the
Merger may have a favorable effect on the funds from operations ("FFO")
multiple at which Patriot Common Stock is traded and may thereby reduce
Patriot's cost of capital over time. In making its recommendation, the Board of
Directors of Patriot considered, among other things, the opinion, analyses and
presentations of PaineWebber, Patriot's financial advisor, including
PaineWebber's opinion to the effect that, as of the date of such opinion and
based upon and subject to certain matters stated therein, the consideration to
be received by holders of Patriot Common Stock in the Merger was fair, from a
financial point of view, to holders of Patriot Common Stock. See "The Merger
and Subscription--Reasons for the Merger; Recommendation of the Board of
Directors of Patriot" and "--Opinion of Patriot's Financial Advisor."
Cal Jockey
The Board of Directors of Cal Jockey believes that the Merger and the Related
Transactions are fair to and in the best interests of Cal Jockey and its
stockholders. THE BOARD OF DIRECTORS OF CAL JOCKEY HAS UNANIMOUSLY APPROVED THE
MERGER AGREEMENT AND THE RELATED TRANSACTIONS AND UNANIMOUSLY RECOMMENDS THAT
STOCKHOLDERS OF CAL JOCKEY VOTE "FOR" THE MERGER PROPOSAL. The material factors
that the Cal Jockey Board of Directors considered in reaching the foregoing
conclusions were: (i) the Cal Jockey stockholders would hold Paired Shares as
of the time of the Merger that had a market value, as of a date shortly before
the Merger, of not less than $33.00 per Paired Share, which represents a
substantial premium over historical market prices of the Paired Shares; (ii)
the Cal Jockey stockholders have the choice of selling their Paired Shares on
the AMEX or continuing to hold an equity interest in New Patriot REIT and New
Patriot Operating Company and thereby participating in any increase in value of
the Paired Shares and in any growth of New Patriot REIT and New Patriot
Operating Company; (iii) a combination with Patriot would allow Cal Jockey to
enjoy significant growth opportunities in the lodging industry; (iv) the
surviving company would enjoy increased market capitalization, increased
liquidity and greater financial strength; and (v) the Patriot transaction is
more economically favorable than transactions proposed by other parties,
including the proposed transaction with Hudson Bay Partners, L.P. ("Hudson
Bay"). In making its recommendation, the Board of Directors of Cal Jockey
considered among other things, the analyses and presentations of Montgomery
Securities ("Montgomery"), financial advisor for Cal Jockey and Bay Meadows,
including its written opinion, dated October 30, 1996, to the effect that, as
of the date of such opinion and based upon and subject to certain matters
stated therein, the consideration to be received by the stockholders of Cal
Jockey and Bay Meadows pursuant to the Merger and the Offer was fair from a
financial point of view to such stockholders. The Board of Directors of Cal
Jockey also considered the updating opinion of Montgomery, rendered orally to
the Board of Directors of Cal Jockey on May 28, 1997 (which Montgomery
subsequently updated by a written opinion dated the date of this Joint Proxy
Statement/Prospectus) to the effect that the financial terms of the Merger and
the Subscription, taken as a whole, were fair from a financial point of view to
the stockholders of Cal Jockey and Bay Meadows, as of the date of such opinion.
See "The Merger and Subscription--Reasons for the Merger and the Related
Transactions; Recommendation of the Board of Directors of Cal Jockey" and "--
Opinion of the Financial Advisor for Cal Jockey and Bay Meadows."
Bay Meadows
The Board of Directors of Bay Meadows believes that the Merger and the
Related Transactions are fair to and in the best interests of Bay Meadows and
its stockholders. THE BOARD OF DIRECTORS OF BAY MEADOWS HAS UNANIMOUSLY
APPROVED THE MERGER AGREEMENT AND THE RELATED TRANSACTIONS AND UNANIMOUSLY
RECOMMENDS THAT STOCKHOLDERS OF BAY MEADOWS
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VOTE "FOR" THE MERGER PROPOSAL. The material factors that the Board of
Directors of Bay Meadows considered in reaching the foregoing conclusions were:
(i) the Bay Meadow Meadows stockholders would hold Paired Shares as of the time
of the Merger that had a market value, as of a date shortly before the Merger,
of not less than $33.00 per Paired Share, which represents a substantial
premium over historical market prices of the Paired Shares; (ii) the Bay
Meadows stockholders have the choice of selling their Paired Shares on the AMEX
or continuing to hold an equity interest in New Patriot REIT and New Patriot
Operating Company and thereby participating in any increase in value of the
Paired Shares and in any growth of New Patriot REIT and New Patriot Operating
Company; (iii) a combination with Patriot would allow Bay Meadows to enjoy
significant growth opportunities in the lodging industry; (iv) the surviving
company would enjoy increased market capitalization, increased liquidity and
greater financial strength; and (v) the Patriot transaction is more
economically favorable than transactions proposed by other parties, including
the proposed transaction with Hudson Bay. In making its recommendation, the Bay
Meadows Board of Directors considered, among other things, the analyses and
presentations of Montgomery, financial advisor for Cal Jockey and Bay Meadows,
including its written opinion, dated October 30, 1996, to the effect that, as
of the date of such opinion and based upon and subject to certain matters
stated therein, the consideration to be received by the stockholders of Cal
Jockey and Bay Meadows pursuant to the Merger and the Offer was fair from a
financial point of view to such stockholders. The Board of Directors of Bay
Meadows also considered the updating opinion of Montgomery, rendered orally to
the Board of Directors of Bay Meadows on May 27, 1997 (which Montgomery
subsequently updated by a written opinion dated the date of this Joint Proxy
Statement/Prospectus) to the effect that the financial terms of the Merger and
the Subscription, taken as a whole, were fair from a financial point of view to
the stockholders of Cal Jockey and Bay Meadows, as of the date of such opinion.
See "The Merger and Subscription--Reasons for the Merger and the Related
Transactions; Recommendation of the Board of Directors of Bay Meadows" and "--
Opinion of the Financial Advisor for Cal Jockey and Bay Meadows."
For a discussion of the circumstances surrounding the Merger and the reasons
for the recommendations of the Board of Directors of each of Patriot, Cal
Jockey and Bay Meadows, see "The Merger and Subscription-- Background of the
Merger," "--Reasons for the Merger and the Related Transactions; Recommendation
of the Board of Directors of Patriot," "--Reasons for the Merger and the
Related Transactions; Recommendation of the Board of Directors of Cal Jockey"
and "--Reasons for the Merger and the Related Transactions; Recommendation of
the Board of Directors of Bay Meadows."
OPINIONS OF FINANCIAL ADVISORS
Patriot
PaineWebber has rendered its opinion to the Patriot Board of Directors to the
effect that, as of the date of such opinion, based on PaineWebber's review and
subject to certain limitations set forth therein, the consideration to be
received by holders of Patriot Common Stock in the Merger was fair, from a
financial point of view, to holders of Patriot Common Stock. A copy of the full
text of this written opinion of PaineWebber, which sets forth the assumptions
made, matters considered and limitations on the scope of its review, is
attached as Annex F to this Joint Proxy Statement/Prospectus, and should be
read in its entirety. See "The Merger and Subscription--Opinion of Patriot's
Financial Advisor."
Cal Jockey and Bay Meadows
Montgomery has delivered its written opinion, dated as of October 30, 1996,
to the Board of Directors of each of Cal Jockey and Bay Meadows to the effect
that, based upon the facts and circumstances set forth therein, the
consideration to be received by the stockholders of Cal Jockey and Bay Meadows
pursuant to the Merger and the Offer was fair from a financial point of view to
such stockholders. Montgomery also has rendered orally to the Board of
Directors of each of Cal Jockey and Bay Meadows, at meetings of those Boards of
Directors on May 28 and May 27, 1997, respectively, its updating opinions to
the effect that, as of those respective dates, the financial terms of the
Merger and the Subscription, taken as a whole, were fair to the stockholders of
Cal Jockey and Bay Meadows from a financial point of view. In addition,
Montgomery has delivered its written opinion, dated as of the date of this
Joint Proxy Statement/Prospectus, to the Board of Directors of each of Cal
Jockey
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and Bay Meadows to the effect that, based upon the facts and circumstances set
forth therein, the financial terms of the Merger and the Subscription, taken as
a whole, are fair from a financial point of view to the stockholders of Cal
Jockey and Bay Meadows, as of the date of such opinion. A copy of the full text
of the written opinion of Montgomery dated as of the date of this Joint Proxy
Statement/Prospectus, which sets forth the assumptions made, procedures
followed, matters considered and limits of its review, is attached as Annex G
to this Joint Proxy Statement/Prospectus, and should be read in its entirety.
See "The Merger and Subscription--Opinion of Financial Advisor for Cal Jockey
and Bay Meadows."
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The Merger and Subscription
Goodwin, Procter & Hoar LLP, counsel for Patriot, has delivered its opinion
to Patriot substantially to the effect that, on the basis of facts,
representations and assumptions set forth in such opinion, the Merger will be
treated for United States federal income tax purposes as a reorganization
within the meaning of Section 368(a) of the Code. Accordingly, no gain or loss
will be recognized by Patriot as a result of the Merger. In general,
stockholders of Patriot will recognize gain, but not loss, on the exchange of
shares of Patriot Common Stock for paired shares of New Patriot REIT Common
Stock and New Patriot Operating Company Common Stock in an amount equal to the
lesser of (a) the fair market value of the New Patriot Operating Company Common
Stock received by the stockholder in exchange therefor or (b) the amount by
which the fair market value of the paired shares of New Patriot REIT Common
Stock and New Patriot Operating Company Common Stock received in the exchange
exceeds the stockholder's adjusted tax basis in the Patriot Common Stock
exchanged therefor. Stockholders of Patriot who receive cash in lieu of
fractional paired shares of New Patriot REIT Common Stock and New Patriot
Operating Company Common Stock or cash for Excess Paired Shares may recognize
additional amounts of gain. No gain or loss will be recognized by Cal Jockey as
a result of the Merger. See "Certain Federal Income Tax Considerations--Tax
Consequences of the Merger."
REIT Qualification
If certain detailed conditions imposed by the REIT provisions of the Code are
met, entities such as Patriot and Cal Jockey 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., taxation at both the corporate and stockholder levels) that
generally results from the use of a corporate form. Prior to the consummation
of the Merger, Patriot and Cal Jockey each has operated in a manner intended to
allow it to qualify as a REIT. Following the Merger, New Patriot REIT intends
to operate in a manner so that New Patriot REIT will continue to qualify as a
REIT. If New Patriot REIT fails to qualify as a REIT in any taxable year, New
Patriot REIT will be subject to federal income taxation as if it were a
domestic corporation, and could be subject to potentially significant tax
liabilities which could reduce or eliminate cash available to distribute to
stockholders. Unless entitled to relief under certain Code provisions, New
Patriot REIT also would be disqualified from treatment as a REIT for the four
taxable years following the year during which qualification was lost. Moreover,
New Patriot REIT's qualification following the Merger generally depends on Cal
Jockey's and Patriot's qualification as a REIT for periods prior to the Merger,
and in any event, the liabilities of New Patriot REIT following the Merger will
include Cal Jockey's or Patriot's liability for any unpaid taxes, including
taxes resulting if Cal Jockey or Patriot fails to qualify as a REIT, for any
period prior to the Merger.
In connection with the mailing of this Joint Proxy Statement/Prospectus,
Goodwin Procter & Hoar llp has rendered an opinion regarding (i) Patriot's
qualification as a REIT for periods prior to the Merger, (ii) Cal Jockey's
qualification as a REIT for periods prior to the Merger and (iii) New Patriot
REIT's ability to qualify as a REIT following the Merger. The opinion of
Goodwin, Procter & Hoar llp has been filed as an exhibit to the Registration
Statement on Form S-4 (the "Registration Statement") of which this Joint Proxy
Statement/Prospectus is a part. This opinion is based on certain assumptions
and representations from Patriot and Cal Jockey regarding Patriot's, Cal
Jockey's and New Patriot REIT's compliance with the requirements for
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qualification as a REIT, and is not binding on the Internal Revenue Service
(the "IRS"). Accordingly, no assurance can be given that the IRS will not
challenge the status of Patriot or Cal Jockey as a REIT prior to the Merger or
the status of New Patriot REIT as a REIT following the Merger. See "Certain
Federal Income Tax Considerations--REIT Qualification."
Taxation of New Patriot Operating Company
Bay Meadows has not qualified as a REIT prior to the Merger. New Patriot
Operating Company will not qualify as a REIT after consummation of the Merger
and the Related Transactions and will be subject to federal income tax on its
taxable income at corporate rates.
ACCOUNTING TREATMENT
Cal Jockey will account for the Merger as a purchase in accordance with
Accounting Principles Board Opinion No. 16. See "The Merger and Subscription--
Accounting Treatment."
CERTAIN RESALE RESTRICTIONS
All paired shares of New Patriot REIT Common Stock and New Patriot Operating
Company Common Stock received by Patriot stockholders in the Merger and the
Subscription will be freely transferable as paired shares, except that paired
shares of New Patriot REIT Common Stock and New Patriot Operating Company
Common Stock received by persons who are deemed to be "affiliates" (as such
term is defined under the Securities Act of 1933, as amended (the "Securities
Act")) of Patriot at the time of the Patriot Special Meeting may be resold by
them only in certain permitted circumstances. See "The Merger and
Subscription--Certain Resale Restrictions."
NEW YORK STOCK EXCHANGE LISTING
It is a condition to the obligations of Patriot, Cal Jockey and Bay Meadows
to consummate the Merger that, prior to the Effective Time, the parties obtain
the approval for the listing of the paired shares of New Patriot REIT Common
Stock and New Patriot Operating Company Common Stock outstanding as of the
Effective Time and issuable in the Merger and the Related Transactions on the
NYSE, subject to official notice of issuance. See "The Merger and
Subscription--New York Stock Exchange Listing" and "The Merger Agreement--
Conditions to the Merger."
DISSENTERS' RIGHTS
Under the Delaware General Corporation Law (the "DGCL") and the Virginia
Stock Corporation Act (the "VSCA"), stockholders of Cal Jockey, Bay Meadows and
Patriot are not entitled to dissenters' rights in connection with the Merger or
the Related Transactions. See "Risk Factors--No Dissenters' Rights," "The
Meetings of Stockholders" and "The Merger and Subscription--Interests of
Certain Officers and Directors."
RISK FACTORS
In considering whether to approve the Proposals, stockholders of Patriot, Cal
Jockey and Bay Meadows should consider, in addition to the other information in
this Joint Proxy Statement/Prospectus, the matters discussed under "Risk
Factors." Such matters include:
. Following the Merger, New Patriot REIT intends to operate in a manner so
that New Patriot REIT will qualify as a REIT. New Patriot REIT's
qualification as a REIT following the Merger generally depends on, among
other things, Cal Jockey's and Patriot's qualifications as REITs for periods
prior to the Merger. In connection with the mailing of the Joint Proxy
Statement/Prospectus, Goodwin, Procter & Hoar llp has rendered an opinion
regarding (i) Patriot's qualification as a REIT for periods prior to the
Merger, (ii) Cal Jockey's qualification as a REIT for periods prior to the
Merger and (iii) New Patriot REIT's ability to qualify as a
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REIT following the Merger. If New Patriot REIT fails to qualify as a REIT,
New Patriot REIT will be subject to federal income tax (including any
applicable alternative minimum tax) on its taxable income at corporate
rates. This treatment would reduce the net earnings of New Patriot REIT
available for distribution to stockholders because of the additional tax
liability to New Patriot REIT for the year or years involved. In addition,
distributions would no longer be required to be made. To the extent that
distributions to stockholders had been made in anticipation of New Patriot
REIT qualifying as a REIT, New Patriot REIT might be required to borrow
funds or to liquidate investments to pay the applicable tax. The failure to
qualify as a REIT would also constitute a default under certain debt
obligations of New Patriot REIT including the Line of Credit and the New
Credit Facility. See "Risk Factors--REIT Tax Risks."
. Risks associated with Patriot's rapid growth since the Initial Offering
and its ability to manage its operations following the Merger and the
Related Transactions. Assuming all of the Proposed Acquisitions are
consummated, New Patriot REIT's hotel portfolio will include 70 hotels,
aggregating 16,833 rooms, representing a 300% increase in the size of New
Patriot REIT's room portfolio since Patriot's Initial Offering. In
connection with the Merger and the Related Transactions, New Patriot
Operating Company will be responsible for the horse racing operations of
Bay Meadows and the hotel management operations of certain of New Patriot
REIT's hotels. The integration of departments, systems and procedures of
Patriot with those being acquired in connection with the Merger and the
Related Transactions presents a significant management challenge, and the
failure to integrate such companies and properties into Patriot's
management and operating structures could have a material adverse effect on
the results of operations and financial condition of New Patriot REIT and
New Patriot Operating Company. See "Risk Factors--Failure to Manage Rapid
Growth and Integrate Operations Following the Merger."
. Possible adverse consequences to the stockholders of Cal Jockey and Bay
Meadows who remain stockholders of New Patriot REIT and New Patriot
Operating Company as a result of (i) the increase in the amount of pro
forma combined debt payable by New Patriot REIT and New Patriot Operating
Company to approximately $579.9 million as of March 31, 1997, as compared
to no indebtedness of Bay Meadows and Cal Jockey (excluding the $2,900,000
Loan (as defined below in "--The Merger Agreement--Loan for Hudson Bay
Termination Fee") payable to Patriot under certain circumstances) as of
March 31, 1997, and (ii) the increase in the pro forma ratio of combined
debt to total market capitalization of New Patriot REIT and New Patriot
Operating Company to 29.6% (based on the $41 1/2 closing price of the
Paired Shares of Cal Jockey Common Stock and Bay Meadows Common Stock on
May 28, 1997). It also should be noted that (i) PaineWebber Real Estate has
agreed to increase Patriot's availability under the Line of Credit from
$475 million to $625 million (as of May 28, 1997, $471.2 million was
outstanding under the Line of Credit) and (ii) Patriot has entered into a
commitment letter with PaineWebber Real Estate and Chase concerning
replacing the Line of Credit with the New Credit Facility which will have
availability of up to $1.2 billion. See "Risk Factors--Substantial Debt
Obligations; No Limits on Indebtedness."
. Risks associated with Patriot's lack of experience in hotel management
operations. Following consummation of the Merger, New Patriot Operating
Company will manage certain newly acquired hotels as well as certain of
Patriot's existing hotels that are re-leased to New Patriot Operating
Company. Although certain executives of Patriot have hotel management
experience, since its inception, Patriot has neither operated nor managed
any hotels. See "Risk Factors--Lack of Experience in Hotel Management
Business."
. The acquisition price being paid by Patriot for Cal Jockey and Bay
Meadows has a dilutive effect on Patriot's net income per share on a pro
forma basis for 1996 and for the three months ended March 31, 1997 and may
have a dilutive effect on net income per share in future periods. The
Unaudited Pro Forma Combined Financial Statements contained herein
illustrate the effect of the Merger and the Related Transactions on the net
income per share. On a pro forma basis (post-Merger) for New Patriot REIT
and New Patriot Operating Company, net income per share is $1.29 for the
year ended December 31, 1996 and $0.40 for the three months ended March 31,
1997, as compared to $1.78 and $0.44 for the year ended December 31, 1996
and the three months ended March 31, 1997, respectively, on a pro forma
basis for
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Patriot (pre-Merger) (or $0.89 and $0.22, respectively, as adjusted for the
2-for-1 stock split). See "Unaudited Pro Forma Combined Financial
Statements." In addition, upon consummation of the Merger and the Related
Transactions, the current stockholders of Patriot will hold in the
aggregate approximately 80% of the outstanding paired shares of New Patriot
REIT Common Stock and New Patriot Operating Company Common Stock, assuming
no options or OP Units are exchanged for shares of Patriot Common Stock
prior to the Merger and assuming that the Exchange Ratio is not adjusted
due to a Patriot Average Trading price below $17.125. See "Risk Factors--
Dilution to Earnings Caused by Acquisition of Cal Jockey and Bay Meadows."
. If the Merger and the Related Transactions are not consummated, Cal Jockey
will be required to repay the $2,900,000 Loan made by Patriot relating to
Cal Jockey's payment of a termination fee to Hudson Bay. If the Merger
Agreement is terminated under certain circumstances, Cal Jockey and Bay
Meadows will also be required to pay Patriot a termination fee of
$5,000,000. The requirement to make such $7,900,000 payments could have the
effect of deterring other potential acquirors from making competing offers
for Cal Jockey and Bay Meadows, including certain offers that may be more
favorable to the stockholders of Cal Jockey and Bay Meadows. Additionally,
in the event the Merger and the Related Transactions are not consummated
and no other acquiror has agreed to make payments totaling $7,900,000, the
payments of such amounts could have a material adverse effect on the
results of operations and financial condition of Cal Jockey and Bay
Meadows. If the Merger Agreement is terminated under certain other
circumstances, Patriot will be required to pay to Cal Jockey $2,900,000
(which amount Patriot may offset against the principal amount due on the
$2,900,000 Loan) and reimburse Cal Jockey and Bay Meadows for their out-of-
pocket expenses up to an aggregate of $1,000,000. In the event Cal Jockey
and Bay Meadows stockholders approve the Merger Proposal but fail to
approve either the Cal Jockey Charter and Bylaw Amendment Proposal or the
Bay Meadows Charter and Bylaw Amendment Proposal and Patriot terminates the
Merger Agreement because of such failure, Patriot shall promptly pay to Cal
Jockey and Bay Meadows $5,000,000 or such lesser amount requested by Cal
Jockey and Bay Meadows. In addition, pursuant to the terms of the Wyndham
Merger Agreement, if the Merger is not consummated by September 1, 1997,
then either Patriot or Wyndham could terminate the Wyndham Merger Agreement
and Patriot would be required to pay Wyndham a $25 million termination fee.
See "The Merger Agreement--Termination Amount and Expenses."
. Risks associated with the potential conflicts of interest between New
Patriot REIT and New Patriot Operating Company. New Patriot REIT and New
Patriot Operating Company are separate corporate entities with separate
Boards of Directors. A majority of the directors of each of New Patriot
REIT and New Patriot Operating Company will not serve as directors or
officers of the other company. As a result, the interests of the Board of
Directors of each company may conflict and such conflicts may rise to
disputes between the companies like those which have been experienced by
Cal Jockey and Bay Meadows in the recent past. New Patriot REIT and New
Patriot Operating Company will have, immediately following the Merger, the
same Chief Executive Officer and Chief Financial Officer as well as two of
the same directors. Patriot believes 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. See "Risk Factors--Potential
Conflicts of Interest Between New Patriot REIT and New Patriot Operating
Company," "The Companies--Cal Jockey--Lease of Horse Racing Facility" and
"Stockholders' Meetings, Litigation and Disagreements." This overlap in
management will be reduced in connection with the consummation of the
Proposed Wyndham Transactions. See "The Companies--Surviving Companies--The
Proposed Wyndham Transactions."
. Risks associated with different fairness analyses of Cal Jockey and Bay
Meadows by PaineWebber and Montgomery. In connection with rendering its
fairness opinion, PaineWebber advised Patriot's Board of Directors that the
individual valuations of the assets and business of Cal Jockey and Bay
Meadows (including the paired share structure) produced a valuation range
per Paired Share of between $33.48 and $39.50. See "The Merger and
Subscription--Opinion of Patriot's Financial Advisor." In connection with
rendering its fairness opinion, Montgomery advised Cal Jockey's and Bay
Meadow's Boards of Directors that the analyses
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performed by Montgomery and described to the Cal Jockey and Bay Meadows
Boards of Directors indicated a potential implied equity value range per
Paired Share of between $15.00 and $18.50. See "The Merger and
Subscription--Opinion of Financial Advisor for Cal Jockey and Bay Meadows."
A significant reason for the two different ranges is that, in their
respective fairness analyses, Montgomery attempted to determine the value
of the paired share structure currently realized by Cal Jockey and Bay
Meadows, while PaineWebber attempted to determine the value of the paired
share structure that could be realized by Patriot. See "Risk Factors--
Different Fairness Analyses of Cal Jockey and Bay Meadows by PaineWebber
and Montgomery."
. Immediately following the Merger, New Patriot REIT's ability to make
distributions to stockholders will primarily depend upon the ability of the
independent lessees of certain of Patriot's hotels (the "Lessees") pursuant
to separate participating leases (the "Participating Leases") to make rent
payments under the Participating Leases which is dependent primarily on the
Lessees' ability to generate sufficient revenues from the hotels leased to
them by New Patriot REIT. The Merger and the Related Transactions could
have a negative effect on Patriot's relationships with existing Lessees who
could be concerned that operating control over leased hotels will be
transferred to New Patriot Operating Company following expiration of the
Participating Leases. Any failure or delay by Lessees in making lease
payments may adversely affect New Patriot REIT's ability to make
anticipated distributions to stockholders. See "Risk Factors--Dependence on
Lessees and Payments under the Participating Leases."
. Following the Merger, Patriot's ability to acquire additional hotels could
be negatively impacted by the paired share structure because hotel
management companies, franchisees and others who currently approach Patriot
with acquisition opportunities in hopes of establishing lessee
relationships may not do so in the future out of concern that Patriot will
rely on New Patriot Operating Company to manage the acquired properties.
Such persons may instead provide such acquisition opportunities to hotel
companies that will allow them to manage the property following the sale.
This could have a negative impact on New Patriot REIT's acquisition
activities in the future. See "Risk Factors--Hotel Industry Risks."
. Following the Merger, the primary businesses of New Patriot REIT and New
Patriot Operating Company will be that of 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 New Patriot REIT, New Patriot
Operating Company and the Lessees, (ii) increases in operating costs due to
inflation and other factors, which increases may not have been offset in
recent years, and may not be offset in the future 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 Lessees and New Patriot Operating Company to generate
revenues and to make lease payments and therefore New Patriot REIT's
ability to make expected distributions to stockholders. See "Risk Factors--
Hotel Industry Risks."
. New Patriot REIT's investments will be subject to varying degrees of risk
generally incident to the ownership of real property, including economic
and other conditions that may adversely affect real estate investments and
the ability of the Lessees, hotel management entities (the "Operators") and
New Patriot Operating Company to make rent payments from the operation of
hotels, the relative illiquidity of real estate, increases in taxes caused
by increased assessed values or property tax rates, and potential
liabilities, including liabilities from known or future environmental
problems, all of which could have a material adverse effect on the results
of operations and financial condition of New Patriot REIT and New Patriot
Operating Company. See "Risk Factors--Real Estate Investment Risks."
. Risks associated with the Proposed Wyndham Transactions. These risks
include, among others, (i) the Proposed Wyndham Transactions have a
dilutive effect on net income per share on a pro forma basis for 1996 and
the three months ended March 31, 1997, and may have a dilutive effect on
net income per share in future periods; (ii) as a result of the Proposed
Wyndham Transactions, the pro forma combined indebtedness for New Patriot
REIT and New Patriot Operating Company will increase by $511.7 million from
$579.9 million to $1,091.6 million (assuming no Wyndham stockholders
exercise their cash election rights in the
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Proposed Wyndham Transactions); and (iii) the Proposed Wyndham Transactions
will result in New Patriot REIT and New Patriot Operating Company having
separate management teams including different Chief Executive Officers and
Chief Financial Officers, and this may increase the possibility of
disagreements arising between the two companies. See "Unaudited Pro Forma
Combined Financial Statements," "Risk Factors--Risks Relating to Proposed
Wyndham Transactions" and "Risk Factors--Potential Conflicts of Interest
Between New Patriot REIT and New Patriot Operating Company."
THE MERGER AGREEMENT
EFFECTIVE TIME OF THE MERGER
In accordance with the DGCL and the VSCA, the Effective Time of the Merger
will occur upon the acceptance for recordation of the Certificate of Merger by
the Secretary of State of the State of Delaware and the issuance of a
Certificate of Merger by the State Corporation Commission of Virginia. Subject
to the fulfillment or waiver of the other conditions to the obligations of
Patriot, Cal Jockey and Bay Meadows to consummate the Merger and the Related
Transactions, it is currently expected that the Merger will be consummated on
the date on which the stockholders of Patriot, Cal Jockey and Bay Meadows
approve the Proposals. See "The Merger Agreement--Effective Time of the
Merger."
EXCHANGE OF PATRIOT STOCK CERTIFICATES
Promptly after the Effective Time, a designated exchange agent (the
"Exchange Agent") will mail a Letter of Transmittal (as defined below in "The
Merger Agreement--Exchange of Patriot Stock Certificates") and instructions to
each holder of record of a certificate representing shares of Patriot Common
Stock (a "Certificate") as of the Effective Time for use in effecting the
surrender of the Certificate. Upon surrender of a Certificate for cancellation
to the Exchange Agent, together with such Letter of Transmittal duly executed
and completed in accordance with the instructions thereto, the holder of such
Certificate will be entitled to receive in exchange therefor (i) a certificate
representing the number of whole shares of New Patriot REIT Common Stock to
which such holder shall be entitled issued back-to-back with a certificate
representing the number of whole shares of New Patriot Operating Company
Common Stock to which such holder shall be entitled and (ii) a check
representing the amount of cash in lieu of Excess Paired Shares, if any, or
fractional paired shares, if any, due such holder plus the amount of any
dividends or distributions, if any, as provided in the Merger Agreement, after
giving effect to any required withholding tax, and the Certificate so
surrendered will be canceled. PATRIOT STOCKHOLDERS SHOULD NOT SEND IN THEIR
CERTIFICATES UNTIL THEY RECEIVE A LETTER OF TRANSMITTAL. See "The Merger
Agreement--Exchange of Patriot Stock Certificates."
CONDITIONS TO THE MERGER
The obligations of Cal Jockey and Bay Meadows to effect the Merger and the
Related Transactions are subject to the fulfillment or waiver of certain
conditions at or prior to the Effective Time including, among others, that:
(i) all waivers, consents, authorizations, orders, approvals and expiration of
waiting periods required under law, regulation or agreement to be obtained in
order to consummate the Merger and the Related Transactions shall have been
obtained except where the failure to obtain any such waiver, consent,
authorization, order or approval would not have a Patriot Material Adverse
Effect (as defined below in "The Merger Agreement--Conditions to the Merger"),
a Cal Jockey Material Adverse Effect (as defined below in "The Merger
Agreement--Conditions to the Merger"), or a Bay Meadows Material Adverse
Effect (as defined below in "The Merger Agreement--Conditions to the Merger"),
as the case may be; (ii) no injunction, restraining order or other order of
any federal or state court shall be in effect which prevents the consummation
of the Merger and the Related Transactions; (iii) approval of the Proposals by
the requisite vote of stockholders of each of Patriot, Cal Jockey and Bay
Meadows shall have been obtained; (iv) no statute, rule or regulation shall
have been enacted by any state or governmental agency that would prevent
consummation of the Merger; (v) the Registration Statement and exhibits
relating thereto, including any amendments, of which this Joint Proxy
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Statement/Prospectus is a part, shall have been declared effective by the
Securities and Exchange Commission (the "Commission") and no stop order
suspending the effectiveness of the Registration Statement shall have been
issued by the Commission and no proceedings for that purpose shall have been
initiated or threatened by the Commission; (vi) Cal Jockey and Bay Meadows
shall have obtained approval for the listing of the paired shares of New
Patriot REIT Common Stock and New Patriot Operating Company Common Stock
outstanding as of the Merger and issuable in the Merger on the NYSE, subject to
official notice of issuance; and (vii) no Patriot Material Adverse Effect shall
have occurred other than any developments that generally affect the industry in
which Patriot operates. See "The Merger Agreement--Conditions to the Merger."
The obligation of Patriot to effect the Merger and the Related Transactions
is subject to the fulfillment or waiver of certain conditions at or prior to
the Effective Time including, among others, that: (i) all waivers, consents,
authorizations, orders, approvals and expiration of waiting periods required
under law, regulation or agreement to be obtained in order to consummate the
Merger and the Related Transactions shall have been obtained except where the
failure to obtain any such waiver, consent, authorization, order or approval
would not have a Patriot Material Adverse Effect, a Cal Jockey Material Adverse
Effect, or a Bay Meadows Material Adverse Effect, as the case may be; (ii) no
injunction, restraining order or other order of any federal or state court
shall be in effect which prevents the consummation of the Merger and the
Related Transactions; (iii) no substantial change in the principal business,
principal assets or structure of Cal Jockey or Bay Meadows or in the
"grandfathered" status of the paired share structure of Cal Jockey or Bay
Meadows shall have occurred or be pending and no Cal Jockey Material Adverse
Effect or Bay Meadows Material Adverse Effect shall have occurred other than
any developments that generally affect the industry in which Cal Jockey or Bay
Meadows operate; (iv) approval of the Proposals by the requisite vote of
stockholders of each of Patriot, Cal Jockey and Bay Meadows shall have been
obtained; (v) no statute, rule or regulation shall have been enacted by any
state or governmental agency that would prevent consummation of the Merger;
(vi) the Registration Statement shall have been declared effective by the
Commission and no stop order suspending the effectiveness of the Registration
Statement shall have been issued by the Commission and no proceedings for that
purpose shall have been initiated or threatened by the Commission; (vii) Cal
Jockey and Bay Meadows shall have obtained approval for the listing of the
paired shares of New Patriot REIT Common Stock and New Patriot Operating
Company Common Stock outstanding as of the Effective Time of the Merger and
issuable in the Merger on the NYSE, subject to official notice of issuance;
(viii) Cal Jockey and Bay Meadows shall not be financially insolvent on a
combined balance sheet basis immediately prior to consummation of the Merger
and the Related Transactions; and (ix) each of the directors of Cal Jockey and
each of the directors of Bay Meadows shall have resigned as of the Effective
Time from their respective Boards of Directors and the persons designated by
Patriot shall be appointed the directors of each of New Patriot REIT and New
Patriot Operating Company. See "The Merger Agreement--Conditions to the
Merger."
Of the conditions described in the two preceding paragraphs, the following
conditions are not waivable by the parties: (i) no injunction, restraining
order or other order of any federal or state court preventing the consummation
of the Merger; (ii) approval of the Proposals by the requisite vote of the
stockholders of each of Patriot, Cal Jockey and Bay Meadows; (iii) no statute,
rule or regulation being enacted preventing the consummation of the Merger;
(iv) the Registration Statement being declared effective by the Commission and
no stop order or proceeding suspending the effectiveness thereof being issued;
and (v) obtaining approval for the listing of the paired shares of New Patriot
REIT Common Stock and New Patriot Operating Company Common Stock on the NYSE.
LOAN FOR HUDSON BAY TERMINATION FEE
In connection with the transactions contemplated by the Merger Agreement, on
October 31, 1996, Patriot loaned to Cal Jockey $2,900,000 (the "$2,900,000
Loan"), which was used to pay the termination fee due to Hudson Bay under an
agreement, dated as of August 18, 1996, between Cal Jockey and Hudson Bay (the
"Hudson Bay Agreement"). Cal Jockey caused such amount to be paid to Hudson Bay
in accordance with the
19
<PAGE>
Hudson Bay Agreement. In accordance with the promissory note, as amended and
restated, governing the $2,900,000 Loan, the $2,900,000 Loan is payable on July
14, 1997 and accrues interest at a rate of 5% per annum. In the event of the
termination of the Merger Agreement for any reason, Cal Jockey has agreed to
immediately repay to Patriot the $2,900,000 Loan. See "The Merger Agreement--
Loan for Hudson Bay Termination Fee." In addition, in the event of termination
of the Merger Agreement for certain reasons, Patriot will be required to pay up
to $2,900,000 to Cal Jockey, which amount Patriot may offset against the
principal amount due on the $2,900,000 Loan. See "The Merger Agreement--
Termination Amount and Expenses."
TERMINATION
The Merger Agreement may be terminated and abandoned at any time prior to the
Effective Time, in a number of circumstances including, among others: (i) such
time as the parties shall mutually agree; (ii) at the option of Bay Meadows and
Cal Jockey, acting jointly, but not individually, on or after July 14, 1997, if
by that date all of the conditions to Bay Meadows' and Cal Jockey's obligations
shall not have been satisfied or waived (see "The Merger Agreement--Conditions
to the Merger"); (iii) at the option of Patriot, on or after July 14, 1997, if
by that date all of the conditions to Patriot's obligations shall not have been
satisfied or waived (see "The Merger Agreement--Conditions to the Merger");
(iv) at the option of Patriot, if at any time prior to the Effective Time the
number of horse race days permitted to be held during 1997 at the premises
currently operated by Bay Meadows is less than 80; (v) at the option of Bay
Meadows or Cal Jockey if the Board of Directors of either determines in good
faith after receiving advice of its respective outside counsel that such action
is necessary in order for such Board of Directors to comply with its fiduciary
duties to stockholders under applicable law; (vi) at the option of Patriot, if
the Board of Directors of either of Bay Meadows or Cal Jockey or any committee
of either Board of Directors has (A) withdrawn or modified its approval or
recommendation of the Proposals, (B) failed to recommend that the stockholders
of Bay Meadows and Cal Jockey vote in favor of such transactions, (C) approved
or recommended any Acquisition Proposal (as defined below in "The Merger
Agreement--Certain Covenants") or (D) has resolved to do any of the foregoing;
or (vii) at the option of any of the parties to the Merger Agreement if the
stockholders of Patriot, Cal Jockey or Bay Meadows do not approve any of the
Proposals. See "The Merger Agreement--Termination."
TERMINATION AMOUNT AND EXPENSES
In the event the Merger Agreement is terminated (i) because of the failure to
obtain Cal Jockey or Bay Meadows stockholder approval of any of the Proposals
and during the 12-month period following such termination Cal Jockey or Bay
Meadows enters into a binding acquisition agreement with a third party or (ii)
at the option of Cal Jockey or Bay Meadows because either of their respective
Boards of Directors determines such action is necessary to comply with its
fiduciary duties to stockholders under applicable laws, then Cal Jockey or Bay
Meadows, as the case may be, shall pay to Patriot $5,000,000 in immediately
available funds (in addition to Cal Jockey's obligation to repay the $2,900,000
Loan). In addition, in the event the Merger Agreement is terminated by Patriot
because the Board of Directors or any committee of the Board of Directors of
either Cal Jockey or Bay Meadows (i) withdraws or modifies its approval or
recommendation of the Proposals, (ii) fails to recommend that the stockholders
of Cal Jockey and Bay Meadows vote in favor of the Proposals, (iii) approves or
recommends any Acquisition Proposal or (iv) resolves to do any of the
foregoing, Cal Jockey and Bay Meadows shall pay to Patriot $5,000,000 in
immediately available funds or with a note due within 90 days accruing interest
at 7% per annum (in addition to Cal Jockey's obligation to repay the $2,900,000
Loan).
In the event the Merger Agreement is terminated because of (i) a breach of
Patriot's representations and warranties that would have a Patriot Material
Adverse Effect, (ii) the failure by Patriot to comply with all covenants and
agreements set forth in the Merger Agreement or (iii) the failure to obtain Cal
Jockey, Bay Meadows or Patriot stockholder approval of any of the Proposals,
Patriot shall pay to Cal Jockey $2,900,000 or such lesser amount requested by
Cal Jockey (which amount Patriot may offset against the principal amount due on
the $2,900,000 Loan); provided that such amount shall be immediately repaid by
Cal Jockey to Patriot if
20
<PAGE>
during the 12-month period following any such termination on account of a
failure to obtain Cal Jockey or Bay Meadows stockholder approval of any of the
Proposals, Cal Jockey or Bay Meadows enters into a binding acquisition
agreement with a third party. In the event (a) the Patriot Board of Directors
withdraws or modifies its approvals or recommendation of the Merger Proposal or
(b) Patriot's stockholders fail to approve the Merger Proposal, Patriot shall
promptly reimburse Cal Jockey and Bay Meadows for their out-of-pocket costs and
expenses incurred in connection with the Merger Agreement and the Related
Transactions (in an amount requested by Cal Jockey and Bay Meadows up to
$1,000,000 in the aggregate). In the event Cal Jockey and Bay Meadows
stockholders approve the Merger Proposal but fail to approve either the Cal
Jockey Charter and Bylaw Amendment Proposal or the Bay Meadows Charter and
Bylaw Amendment Proposal and Patriot terminates the Merger Agreement because of
such failure, Patriot shall promptly pay to Cal Jockey and Bay Meadows
$5,000,000, or such lesser amount requested by Cal Jockey and Bay Meadows. In
addition, pursuant to the terms of the Wyndham Merger Agreement, if the Merger
is not consummated by September 1, 1997, then either Patriot or Wyndham could
terminate the Wyndham Merger Agreement and Patriot would be required to pay
Wyndham a $25 million termination fee.
Except as described above or otherwise provided in the Merger Agreement,
Patriot, Cal Jockey and Bay Meadows have agreed that all costs and expenses
incurred in connection with the Merger Agreement and the Related Transactions
shall be paid by the party incurring such expenses, except that (i) the filing
fee(s) in connection with the filing of the Registration Statement or the Joint
Proxy Statement/Prospectus with the Commission, (ii) the filing fee in
connection with the listing of the Paired Shares on the NYSE, if any, and (iii)
the expenses incurred for printing and mailing the Registration Statement and
the Joint Proxy Statement/Prospectus shall be shared equally by Patriot on the
one hand and Cal Jockey and Bay Meadows on the other hand. Patriot, Cal Jockey
and Bay Meadows have also agreed that all costs and expenses for professional
services rendered pursuant to the transactions contemplated by the Merger
Agreement including, but not limited to, investment banking and legal services,
will be paid by the party incurring such services. See "The Merger Agreement--
Termination Amount and Expenses."
COMPARISON OF STOCKHOLDER RIGHTS
The rights of the stockholders of Patriot are presently governed by the VSCA,
the Patriot Charter (as defined below) and the Patriot Bylaws (as defined
below) and the rights of the stockholders of Cal Jockey and Bay Meadows are
presently governed by the DGCL, the Cal Jockey Charter and Bay Meadows Charter
and the Cal Jockey Bylaws and Bay Meadows Bylaws. Under the terms of the Merger
Agreement, upon stockholder approval of the Proposals, the Cal Jockey Charter
and the Bay Meadows Charter will be amended and restated and will become the
Restated Charters of New Patriot REIT and New Patriot Operating Company and the
Cal Jockey Bylaws and the Bay Meadows Bylaws will be amended and restated and
will become the amended and restated bylaws of New Patriot REIT and New Patriot
Operating Company (collectively, the "Restated Bylaws"). At the Effective Time,
stockholders of Patriot, Cal Jockey and Bay Meadows will become stockholders of
New Patriot REIT and New Patriot Operating Company, each a Delaware
corporation, and their rights will be thereafter governed by the DGCL, the
Restated Charters and the Restated Bylaws. In considering the recommendation of
the Boards of Directors of Patriot, Cal Jockey and Bay Meadows to approve the
Proposals, stockholders of Patriot, Cal Jockey and Bay Meadows should be aware
that the rights of stockholders of New Patriot REIT and New Patriot Operating
Company under the Restated Charters and the Restated Bylaws would differ
significantly from the existing rights of the Patriot stockholders under the
Amended and Restated Articles of Incorporation of Patriot (the "Patriot
Charter") and the Bylaws of Patriot (the "Patriot Bylaws") as well as the
existing rights of the stockholders of Cal Jockey and Bay Meadows under the Cal
Jockey Charter, the Bay Meadows Charter, the Cal Jockey Bylaws and the Bay
Meadows Bylaws. A summary of certain of the differences are set forth below.
Stockholders of Patriot, Cal Jockey and Bay Meadows should read carefully the
Restated Charters and the Restated Bylaws, copies of which are attached to this
Joint Proxy Statement/Prospectus as Annexes B and D and Annexes C and E,
respectively.
21
<PAGE>
Certain differences between the rights of stockholders of Patriot and the
rights of stockholders of New Patriot REIT and New Patriot Operating Company
include the following: (i) the Patriot Charter provides that all of its
directors are elected each year at the annual meeting of stockholders, whereas
the Restated Charters would provide for three classes of directors, with the
term of office of one class expiring each year; (ii) directors of Patriot may
be removed, with or without cause, by the vote of the holders of at least 75%
of the outstanding shares of capital stock entitled to vote at the election of
directors, whereas the directors of New Patriot REIT and New Patriot Operating
Company would be removable only for cause by the vote of at least 75% of the
outstanding shares of capital stock entitled to vote at the election of
directors; (iii) a special meeting of the Patriot stockholders shall be called
upon the written request of the holders of shares entitled to cast not less
than 25% of all the votes entitled to be cast at such meeting, whereas the
stockholders of New Patriot REIT and New Patriot Operating Company would not be
entitled to call a special meeting of stockholders; (iv) the Patriot Charter,
pursuant to an ownership limit provision, provides that no person or entity may
own, or be deemed to own by virtue of certain attribution rules of the Code, in
excess of 9.8% of the outstanding shares of any class or series of Patriot
capital stock, subject to a look-through ownership provision, which allows
certain entities to own up to 15% of the outstanding shares of any class or
series of Patriot's capital stock, whereas the Restated Charters would contain
an ownership limit provision whereby no individual or entity could own, or be
deemed to own by virtue of certain attribution rules of the Code or be deemed
to beneficially own pursuant to the applicable provisions of the Exchange Act,
in excess of 9.8% of the outstanding shares of any class or series of Equity
Stock of New Patriot REIT or New Patriot Operating Company, and would not
provide for such a look-through ownership provision; and (v) unlike the shares
of capital stock of Patriot, until such time as the limitation on transfer
provided for in the Pairing Agreement was terminated, no shares of New Patriot
REIT Common Stock, New Patriot Operating Company Common Stock or preferred
stock that would be convertible into shares of New Patriot REIT Common Stock
and New Patriot Operating Company Common Stock would be transferable or
transferred on the books of such company unless a simultaneous transfer was
made by the same transferor to the same transferee of an equal number of shares
of that same class or series of Equity Stock of the other company, and neither
New Patriot REIT nor New Patriot Operating Company would be able to issue
shares of New Patriot REIT Common Stock, New Patriot Operating Company Common
Stock or preferred stock that are convertible into shares of New Patriot REIT
Common Stock and New Patriot Operating Company Common Stock unless provision
had 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 Equity Stock of the
other company and for the pairing of such shares. See "Comparison of
Stockholder Rights."
Certain differences between the rights of stockholders of Cal Jockey and Bay
Meadows and the rights of stockholders of New Patriot REIT and New Patriot
Operating Company include the following: (i) the Cal Jockey Bylaws and the Bay
Meadows Bylaws provide that the directors of each of Cal Jockey and Bay Meadows
are elected each year at the annual meeting of stockholders pursuant to
cumulative voting if certain procedures are followed, whereas the Restated
Charters would provide for three classes of directors, with the term of office
of one class expiring each year, and would not provide for cumulative voting;
(ii) directors of Cal Jockey and Bay Meadows may be removed with or without
cause by the vote of the holders of a majority of the outstanding shares of
stock entitled to vote, whereas the directors of New Patriot REIT and New
Patriot Operating Company would be removable only for cause by the vote of at
least 75% of the outstanding shares of capital stock entitled to vote at the
election of directors; (iii) the Cal Jockey Bylaws and the Bay Meadows Bylaws
provide that any action required or permitted to be taken at a stockholder
meeting may be taken by written consent without a meeting if the holders of
outstanding stock having not less than the minimum number of votes necessary to
take such action at a meeting consent in writing, whereas the Restated Charters
would provide that stockholder action without a meeting requires the unanimous
written consent of all stockholders entitled to vote on such action; and (iv)
the Cal Jockey Bylaws and the Bay Meadows Bylaws, pursuant to an ownership
limit provision, provide that their respective Board of Directors have the
power to call for purchase from any stockholder such number of shares as is
sufficient to maintain or bring the ownership of shares into conformity with
the REIT requirements of the Code, whereas the Restated Charters would provide
for the transfer of stock in excess of the ownership limit provision into a
trust. See "Comparison of Stockholder Rights."
22
<PAGE>
Certain of the provisions described above could have a potential anti-
takeover effect on New Patriot REIT and New Patriot Operating Company. The
staggered board provision in the Restated Charters would prevent stockholders
from voting on the election of more than one class of directors at each annual
meeting and thus could have the effect of keeping the members of the Board of
Directors of New Patriot REIT and New Patriot Operating Company in control for
a longer period of time. The staggered board provision, the fact that directors
of New Patriot REIT and New Patriot Operating Company would be removable only
for cause, the fact that stockholders would not be permitted to call a special
meeting of stockholders and the fact that the written consent of all
stockholders entitled to vote on a matter would be required for stockholders to
take action on such a matter without a meeting could have the effect of making
it more difficult for a third party to acquire control of New Patriot REIT and
New Patriot Operating Company, including certain acquisitions that stockholders
may deem to be in their best interests. See "Comparison of Stockholder Rights."
INTERESTS OF CERTAIN OFFICERS AND DIRECTORS
In considering the recommendation of the Boards of Directors of Patriot, Cal
Jockey and Bay Meadows to approve the Proposals, stockholders should be aware
that certain members of the management and the Board of Directors of these
companies have certain interests in, and will receive benefits as a consequence
of, the Merger and the Related Transactions that are separate from the
interests of, and benefits to, the stockholders of these companies generally.
On May 28, 1997, at the same meeting at which the Cal Jockey Board of
Directors approved the Merger Agreement, the Cal Jockey Board agreed to pay its
members, Kjell H. Qvale, James M. Harris, James P. Conn, David M. Gjerdrum and
Ronald J. Volkman and the sole employee of Cal Jockey, Ray Kuratek, the
aggregate sum of $600,000 to be allocated by the Cal Jockey Board of Directors
at a subsequent Board meeting. The Cal Jockey Board of Directors agreed to pay
such amount as compensation for services previously rendered to Cal Jockey by
such individuals, particularly in recognition of their significant
contributions to the Merger process. The compensation payments are conditioned
upon consummation of the Merger and the Related Transactions. The fact that Cal
Jockey has only one employee, combined with the complex structure of the Merger
and Related Transactions, has resulted in significant efforts and time
commitments from these individuals in connection with the Merger.
Bay Meadows has entered into individual severance agreements (the "Severance
Agreements") with six key members of management (the "Officers"), including
Eugene F. Barsotti, Jr., F. Jack Liebau and Frank Trigeiro. Each of the
Severance Agreements provides that, if following a change in control of Bay
Meadows, the Officer's employment is terminated prior to January 1, 1998 or
within 24 months following a change in control of Bay Meadows prior to January
1998, he or she will be entitled to receive (i) payments of full base salary,
and accrued vacation and personal holidays from the date of notice of
termination to the date of termination (not to be less than 30 days) at the
highest rate in effect during the 12 months immediately preceding notice of
termination, (ii) an amount equal to his or her annual base salary at the
highest rate in effect during the 12 months immediately preceding notice of
termination (or, with respect to Messrs. Liebau and Barsotti, two times such
amount) and (iii) an amount equal to the amount of any bonus or other incentive
compensation paid during the 12 months immediately preceding notice of
termination or calendar year 1996, whichever is higher (or, with respect to
Messrs. Liebau and Barsotti, two times such amount). As of May 28, 1997, the
payments that would be made to the Officers pursuant to clauses (ii) and (iii)
above would be $141,000, $695,000 and $120,000 for Messrs. Barsotti, Liebau and
Trigeiro, respectively. In addition to the payments that would be made to the
Officers pursuant to clauses (i) through (iii) above, each of the Officers
would be entitled to receive under his or her respective Severance Agreement
(a) continued contribution by Bay Meadows into any pension or retirement plan
in effect with regard to the Officer, as well as continued designation as an
employee for this purpose, until January 1, 1998 at the highest rate in effect
during the 12 months immediately preceding notice of termination or a lump sum
payment of the actuarial equivalent of such continued contribution, (b) the
right to purchase the
23
<PAGE>
Bay Meadows automobile assigned to him or her for book value, (c) payment of
all legal fees and expenses incurred as the result of termination and (d) two
years of continued coverage under Bay Meadows' health care and welfare benefit
plans. See "The Merger and Subscription--Interests of Certain Officers and
Directors."
As of May 28, 1997, Bay Meadows has granted to the Officers a total of
137,500 options to purchase Paired Shares, including 12,500, 95,000 and 7,500
to Messrs. Barsotti, Liebau and Trigeiro, respectively. A total of 126,668 of
the options granted to the Officers were vested as of May 28, 1997, including
11,667, 86,667 and 7,500 options of Messrs. Barsotti, Liebau and Trigeiro,
respectively. According to the terms of such options, all of the options listed
above which are not currently vested will become fully vested and immediately
exercisable in connection with the Merger and the Related Transactions. In the
event the Officers exercise all of the 137,500 options then, based on the $41
1/2 closing price of a Paired Share as quoted on the AMEX on May 28, 1997, the
aggregate value (net of the exercise price) for such options would be
$3,761,875, including $343,125, $2,623,750 and $200,625 for the options of
Messrs. Barsotti, Liebau and Trigeiro, respectively. If the Officers choose not
to exercise their options prior to the Merger and the Related Transactions,
they will, as a result, hold fully vested options to purchase 137,500 paired
shares of New Patriot REIT Common Stock and New Patriot Operating Company
Common Stock. Presently there is a disagreement between Bay Meadows and Cal
Jockey concerning the total number of outstanding options to purchase Cal
Jockey Common Stock that have been granted to Bay Meadows in connection with
its issuance of options to purchase Paired Shares to the Officers and certain
employees of Bay Meadows. For a description of such disagreement, see
"Stockholders' Meetings, Litigation and Disagreements."
James P. Conn, currently a director of Cal Jockey, served as President and
Chief Executive Officer of Bay Meadows from March 1988 to November 1992. In
connection with such service, Mr. Conn holds a fully vested stock option for
20,000 Paired Shares. In the event Mr. Conn exercises such option then, based
on the $41 1/2 closing price of a Paired Share as quoted on the AMEX on May 28,
1997, the aggregate value (net of the exercise price) for such option would be
$585,000. If Mr. Conn chooses not to exercise his option prior to the Merger
and the Related Transactions, he will hold a fully vested option to purchase
20,000 paired shares of New Patriot REIT Common Stock and New Patriot Operating
Company Common Stock.
Certain executive officers of Patriot own all of the membership interests in
PAH RSI, LLC, a limited liability company ("PAH RSI Lessee"). PAH RSI Lessee
presently leases the Carefree Resorts and three additional hotels from Patriot
and is currently expected by the Effective Time to lease from Patriot nine
additional hotels which are the subject of Proposed Acquisitions. See "The
Companies--Surviving Companies--Operations of New Patriot REIT and New Patriot
Operating Company Following the Merger." PAH RSI Lessee also owns certain non-
leasable assets relating to the Carefree Resorts. Following consummation of the
Merger, New Patriot REIT expects to terminate such leases with PAH RSI Lessee
by paying the fair market value of the leasehold interests to PAH RSI Lessee or
otherwise seeking to have New Patriot Operating Company acquire such
leaseholds. In addition, New Patriot Operating Company expects to offer to
acquire the non-leasable assets from PAH RSI Lessee at the then fair market
value of such assets. Based on current market conditions, Patriot presently
believes that the fair market value of the leasehold interests and assets (net
of liabilities) currently held by PAH RSI Lessee is approximately $225,000. No
assurances can be made as to what the purchase price of the leasehold interests
and assets will be or as to whether the owners will sell the assets. See "Risk
Factors--Certain Conflicts of Interests Relating to Patriot."
24
<PAGE>
SUMMARY FINANCIAL INFORMATION
PATRIOT AMERICAN HOSPITALITY, INC.
SUMMARY CONSOLIDATED HISTORICAL AND PRO FORMA FINANCIAL DATA
The following tables set forth historical and pro forma financial information
for Patriot and the Lessees (which include CHC Lease Partners, NorthCoast
Hotels, L.L.C. ("NorthCoast Lessee"), DTR North Canton, Inc. ("Doubletree
Lessee"), Crow Hotel Lessee, Inc. ("Wyndham Lessee"), Metro Hotel Leasing
Corporation ("Metro Lease Partners"), Grand Heritage Leasing, L.L.C. ("Grand
Heritage Lessee") and PAH RSI Lessee, and should be read in conjunction with,
and are qualified in their entirety by, the historical financial statements and
notes thereto of Patriot, CHC Lease Partners, NorthCoast Lessee and PAH RSI
Lessee incorporated by reference into this Joint Proxy Statement/Prospectus and
the pro forma financial statements and notes thereto of Patriot located
elsewhere in this Joint Proxy Statement/Prospectus. The pro forma operating
information is presented as if (i) the acquisition of 24 hotels in 1996, (ii)
the consummation of the Recent Acquisitions (as defined in "Introduction to Pro
Forma Financial Statements") and the acquisition of the Carefree Resorts, (iii)
the May 1996 private placement (the "Private Placement") of Patriot Common
Stock and Preferred OP Units (as defined in "Description of the Partnership
Agreements--Patriot Partnership--Distribution and Allocations"), (iv) the July
1996 public offering (the "Follow-On Offering") of Patriot Common Stock, (v)
the 2-for-1 stock split effected in the form of a stock dividend, and (vi) the
funding of the mortgage notes to affiliates of CHC Lease Partners had each
occurred on January 1, 1996. In addition, the pro forma balance sheet data of
Patriot is presented as if the funding of the mortgage notes to affiliates of
CHC Lease Partners had occurred on March 31, 1997. The summary pro forma
financial information excludes the Sheraton Park Place Hotel acquired by
Patriot in April 1997 and the Myrtle Beach Hilton Oceanfront Golf Resort
acquired by Patriot in May 1997.
25
<PAGE>
PATRIOT AMERICAN HOSPITALITY, INC.
SUMMARY CONSOLIDATED HISTORICAL AND PRO FORMA FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
HISTORICAL PRO FORMA(1)
----------------------------------------------- --------------------------
PERIOD
OCTOBER 2, 1995 YEAR YEAR
(INCEPTION OF ENDED THREE MONTHS ENDED THREE MONTHS
OPERATIONS) THROUGH DECEMBER 31, ENDED DECEMBER ENDED
DECEMBER 31, 1995 1996 MARCH 31, 1997 31, 1996 MARCH 31, 1997
------------------- ------------ -------------- ----------- --------------
(UNAUDITED) (UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
OPERATING DATA:
Participating lease
revenue(2)............. $ 10,582 $ 75,893 $ 35,013 $130,570 $ 36,551
Income before minority
interests and
extraordinary item..... 7,064 44,813 13,780 47,973 12,168
Income before
extraordinary item..... 6,096 37,991 11,348 39,406 9,930
Net income applicable to
common shareholders.... $ 5,359 $ 37,991 $ 11,348 $ 39,406 $ 9,930
PER SHARE DATA(3):
Income before
extraordinary item..... $ 0.21 $ 1.06 $ 0.25 $ 0.89 $ 0.22
Extraordinary item, net
of minority interests.. (0.03) -- -- -- --
--------- --------- ---------- -------- ----------
Net income per common
share.................. $ 0.18 $ 1.06 $ 0.25 $ 0.89 $ 0.22
========= ========= ========== ======== ==========
Dividends per common
share.................. $ 0.24 $ 0.9825 $ 0.2625
========= ========= ==========
Weighted average number
of common shares and
common share
equivalents
outstanding............ 29,350 35,938 44,552 44,378 44,919
========= ========= ========== ======== ==========
CASH FLOW DATA:
Cash provided by
operating
activities(4).......... $ 7,618 $ 61,196 $ 11,489 $ 88,860 $ 24,403
Cash used in investing
activities(5).......... (306,948) (419,685) (222,529) (19,006) (5,080)
Cash provided by (used
in) financing
activities(6).......... 304,099 360,324 210,707 (52,166) (13,938)
<CAPTION>
HISTORICAL PRO FORMA(1)
----------------------------------------------- --------------
DECEMBER 31, DECEMBER 31, MARCH 31, MARCH 31,
1995 1996 1997 1997
------------------- ------------ -------------- --------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Investment in hotel
properties and land
held for sale, at cost,
net.................... $265,759 $641,825 $ 947,722 $ 947,722
Total assets............ 324,224 760,931 1,081,898 1,195,048
Total debt.............. 9,500 214,339 466,712 579,862
Minority interest in
Patriot Partnership.... 41,522 68,562 127,262 127,262
Minority interest in
other partnerships..... -- 11,711 13,774 13,774
Shareholders' equity.... 261,778 437,039 440,616 440,616
</TABLE>
<TABLE>
<CAPTION>
HISTORICAL PRO FORMA(1)
----------------------------------------------- --------------------------
PERIOD
OCTOBER 2, 1995 YEAR- YEAR
(INCEPTION OF ENDED THREE MONTHS ENDED THREE MONTHS
OPERATIONS) THROUGH DECEMBER 31, ENDED DECEMBER ENDED
DECEMBER 31, 1995 1996 MARCH 31, 1997 31, 1996 MARCH 31, 1997
------------------- ------------ -------------- ----------- --------------
(UNAUDITED) (UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
OTHER DATA:
Funds from
operations(7).......... $9,798 $64,463 $22,923 $85,396 $21,728
Cash available for
distribution(8)........ 8,603 55,132 19,050 72,569 19,078
Weighted average number
of common shares and OP
units
outstanding(3)(9)...... 34,001 42,200 53,043 53,340 53,881
</TABLE>
(Notes on page 28)
26
<PAGE>
LESSEES
SUMMARY COMBINED HISTORICAL AND PRO FORMA FINANCIAL DATA
(IN THOUSANDS)
<TABLE>
<CAPTION>
HISTORICAL PRO FORMA(1)
----------------------------------------------- ---------------------------
PERIOD
OCTOBER 2, 1995
(INCEPTION OF YEAR ENDED THREE MONTHS YEAR ENDED THREE MONTHS
OPERATIONS) THROUGH DECEMBER 31, ENDED DECEMBER 31, ENDED
DECEMBER 31, 1995 1996 MARCH 31, 1997 1996 MARCH 31, 1997
------------------- ------------ -------------- ------------ --------------
(UNAUDITED) (UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
FINANCIAL DATA:
Room revenue............ $21,508 $155,856 $67,481 $260,991 $69,862
Food and beverage
revenue................ 8,649 56,833 26,868 105,234 27,891
Conference center
revenue................ 576 2,354 748 2,354 748
Golf club revenue....... -- -- 6,867 22,135 7,789
Club membership......... -- -- 341 4,277 348
Shopping center
revenue................ -- -- 363 1,730 474
Spa revenue............. -- -- 806 2,575 917
Telephone and other..... 1,732 14,467 8,977 32,667 9,658
------- -------- ------- -------- -------
Total revenue........... 32,465 229,510 112,451 431,963 117,687
Hotel operating
expenses............... 20,801 150,037 71,346 302,249 77,211
Participating Lease
payments(2)............ 10,582 75,893 35,013 130,570 36,551
------- -------- ------- -------- -------
Income (loss) before
Lessee expenses........ 1,082 3,580 6,092 (856) 3,925
Lessee expenses(10)..... 573 4,588 2,573 10,765 2,747
------- -------- ------- -------- -------
Net income (loss)....... $ 509 $ (1,008) $ 3,519 $(11,621) $ 1,178
======= ======== ======= ======== =======
</TABLE>
(Notes on page 28)
27
<PAGE>
NOTES TO PATRIOT AND LESSEES SUMMARY FINANCIAL INFORMATION
(1) The pro forma information does not purport to represent what Patriot's
financial position or Patriot's or the Lessees' results of operations
actually would have been if the acquisition of the 32 Patriot hotels and
resorts acquired during 1996 and 1997 (excluding the Sheraton Park Place
Hotel acquired in April 1997 and the Myrtle Beach Hilton Oceanfront Golf
Resort acquired in May 1997), the Private Placement, the Follow-On
Offering, the 2-for-1 stock split in the form of a stock dividend and the
funding of the mortgage notes to certain affiliates of CHC Lease Partners
had in fact occurred on such date or at the beginning of the period
indicated, or to project Patriot's or the Lessees' results of operations
for any future periods.
(2) With respect to the pro forma information, participating lease payments
from the Lessees to Patriot are calculated on a pro forma basis by applying
the provisions of the Participating Leases to the historical revenue of the
hotels as if January 1, 1996 were the beginning of the lease year.
(3) On January 30, 1997, the Patriot Board of Directors declared a 2-for-1
stock split effected in the form of a stock dividend distributed on March
18, 1997 to stockholders of record on March 7, 1997. All references herein
to the number of shares, per share amounts, and market prices of Patriot
Common Stock and options to purchase Patriot Common Stock have been
restated to reflect the impact of such stock split.
(4) Pro forma cash provided by operating activities represents income before
income allocable to minority interests, plus depreciation and amortization
(including amortization of unearned stock compensation) less the non-cash
portion of Patriot's equity in earnings of unconsolidated subsidiaries. The
pro forma amounts do not include adjustments from changes in working
capital resulting from changes in current assets and current liabilities as
there is no historical data available as of both the beginning and end of
each period presented.
(5) On a pro forma basis, cash used in investing activities represents the
approximate 4.0% of hotel revenue which is required to be reserved under
the terms of the Participating Leases for capital improvements and the
replacement and refurbishment of furniture, fixtures and equipment ("F, F &
E").
(6) Pro forma cash used in financing activities represents estimated dividends
and distributions to be paid based on Patriot's historical dividend rate of
$0.9825 and $0.2625 per share for 1996 and the three months ended March 31,
1997, respectively, and an aggregate of 44,093 shares of Patriot Common
Stock and 3,819 OP Units (with a distribution rate equal to twice the
dividend rate), of the Patriot Partnership outstanding and approximately
$2.02 and $0.54 per OP Unit, respectively, on the 662 Preferred OP Units
outstanding.
(7) In accordance with the resolution adopted by the Board of Governors of the
National Association of Real Estate Investment Trusts, Inc. ("NAREIT"),
funds from operations represents net income (loss) (computed in accordance
with generally accepted accounting principles), excluding gains or losses
from debt restructuring or sales of property, plus depreciation of real
property, and after adjustments for unconsolidated partnerships, joint
ventures and corporations. Patriot has also made certain adjustments to
funds from operations for real estate related amortization expense. Funds
from operations should not be considered as an alternative to net income or
other measurements under generally accepted accounting principles as an
indicator of operating performance or to cash flows from operating,
investing or financing activities as a measure of liquidity. Funds from
operations does not reflect working capital changes, cash expenditures for
capital improvements or principal payments on indebtedness. Under the
Participating Leases, Patriot is obligated to establish a reserve for
capital improvements at its hotels (including the replacement or
refurbishment of F, F & E) and to pay real estate and personal property
taxes and casualty insurance. Management believes that funds from
operations is helpful to investors as a measure of the performance of an
equity REIT, because, along with cash flows from operating activities,
investing activities and financing activities, it provides investors with
an understanding of the ability of Patriot to incur and service debt and
make capital expenditures.
(8) Cash available for distribution represents funds from operations, as
adjusted for certain non-cash items (e.g. non-real estate related
depreciation and amortization), less reserves for capital expenditures.
(9) The number of OP Units used in the calculation is based on the equivalent
number of shares of Patriot Common Stock after giving effect to the change
in the OP Unit conversion factor which coincides with the 2-for-1 stock
split.
(10) Historical Lessee expenses represent management fees paid to the Operators
and Lessee overhead expenses, net of dividend and interest income earned
by the Lessees. Pro forma Lessee net income excludes pro forma dividends
on approximately 300,000 OP Units of the Patriot Partnership, which form a
portion of the required capitalization for certain of the Lessees and pro
forma interest income associated with the Lessees' working capital
balances.
28
<PAGE>
CALIFORNIA JOCKEY CLUB AND BAY MEADOWS OPERATING COMPANY
SUMMARY HISTORICAL FINANCIAL DATA
The following tables set forth historical financial information for Cal
Jockey and Bay Meadows, which should be read in conjunction with, and are
qualified in their entirety by, the historical financial statements and notes
thereto of Cal Jockey and Bay Meadows incorporated by reference into this Joint
Proxy Statement/Prospectus.
CALIFORNIA JOCKEY CLUB AND
BAY MEADOWS OPERATING COMPANY AND SUBSIDIARY
COMBINED SELECTED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA AND RACING DAYS)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31, THREE MONTHS
--------------------------------------------- ENDED
1992 1993 1994 1995 1996 MARCH 31, 1997
------- ------- ------- ------- ------- --------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
Number of live racing
days................... 111 104 113 108 115 44
Operating Data:
Revenues............... $48,985 $44,993 $51,575 $50,709 $53,932 $20,591
Net income (loss)...... 2,150(1) 1,153(1) 4,212 4,200 (761) 2,134
Net income (loss) per
share................. 0.37(1) 0.20(1) 0.73 0.73 (0.13) 0.37
Cash dividends per
share................. 0.60 0.30 0.60 0.65 0.40 --
Weighted average number
of common
shares outstanding.... 5,763 5,756 5,753 5,760 5,763 5,763
Balance Sheet Data:
Total assets........... $33,999 $32,414 $36,786 $37,935 $27,676 $34,346
Stockholders' equity... 22,554 21,981 22,718 23,107 21,465 23,708
</TABLE>
CALIFORNIA JOCKEY CLUB
SELECTED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA AND RACING DAYS)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31, THREE MONTHS
--------------------------------------------- ENDED
1992 1993 1994 1995 1996 MARCH 31, 1997
------- ------- ------- ------- ------- --------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
Number of live racing
days................... 111 104 113 108 115 44
Operating Data:
Revenues............... $ 4,736 $ 3,984 $ 5,176 $ 5,241 $ 5,412 $ 1,774
Net income (loss)...... 2,854(1) 980(1) 3,620 3,723 (1,216) 1,019
Net income (loss) per
share................. 0.49(1) 0.17(1) 0.63 0.65 (0.21) 0.18
Cash dividends per
share................. 0.60 0.30 0.60 0.65 0.40 --
Weighted average number
of common
shares outstanding.... 5,773 5,758 5,753 5,760 5,763 5,763
Balance Sheet Data:
Total assets........... $23,950 $21,914 $22,129 $22,147 $23,374 $24,754
Stockholders' equity... 22,906 21,825 21,970 21,878 19,781 20,909
</TABLE>
(Note on page 30)
29
<PAGE>
BAY MEADOWS OPERATING COMPANY AND SUBSIDIARY
CONSOLIDATED SELECTED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA AND RACING DAYS)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31, THREE MONTHS
---------------------------------------- ENDED
1992 1993 1994 1995 1996 MARCH 31, 1997
------- ------- ------- ------- ------- --------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
Number of live racing
days................... 111 104 113 108 115 44
Operating Data:
Revenues............... $48,537 $44,642 $51,187 $50,256 $53,472 $20,501
Net income (loss)...... (692) 173 592 477 455 1,115
Net income per share... (0.12) 0.03 0.10 0.08 0.08 0.19
Cash dividends per
share................. -- -- -- -- -- --
Weighted average number
of common
shares outstanding.... 5,753 5,753 5,753 5,760 5,763 5,763
Balance Sheet Data:
Total assets........... $11,263 $10,821 $16,648 $16,357 $ 6,634 $11,050
Stockholders' equity
(deficit)............. (17) 156 748 1,229 1,684 2,799
</TABLE>
- --------
(1) Includes a charge recorded as a result of a litigation settlement of $1,400
($.24 per share) in 1993 and $350 ($.06 per share) in 1992.
30
<PAGE>
NEW PATRIOT REIT AND NEW PATRIOT OPERATING COMPANY
SUMMARY UNAUDITED PRO FORMA COMBINED FINANCIAL DATA
The following tables set forth pro forma financial information for New
Patriot REIT and New Patriot Operating Company and should be read in
conjunction with, and are qualified in their entirety by, the historical
financial statements and notes thereto of Patriot, Cal Jockey and Bay Meadows
incorporated by reference into this Joint Proxy Statement/Prospectus. This
information should also be read in conjunction with the pro forma financial
statements and notes thereto located elsewhere in this Joint Proxy
Statement/Prospectus. The pro forma operating information is presented as if
the Merger and the Related Transactions, which include (i) the lease of the
Carefree Resorts and two hotels to New Patriot Operating Company; (ii) the sale
of substantially all of the Cal Jockey land to an affiliate of PaineWebber;
(iii) the leaseback of the land on which the Racecourse is situated from the
PaineWebber affiliate to New Patriot REIT; (iv) the sublease of the Racecourse
land and related improvements from New Patriot REIT to New Patriot Operating
Company; and (v) the leasing of certain land from New Patriot REIT to Borders
had occurred on January 1, 1996. The pro forma combined balance sheet data of
New Patriot REIT and New Patriot Operating Company is presented as if the
Merger and the Related Transactions, as described above, had occurred as of
March 31, 1997. The pro forma financial statements which are adjusted to
account for the Proposed Wyndham Transactions begin on page 35.
NEW PATRIOT REIT AND NEW PATRIOT OPERATING COMPANY
SELECTED COMBINED PRO FORMA FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
PRO FORMA(1)
------------------------------
THREE MONTHS
ENDED
YEAR ENDED MARCH 31,
DECEMBER 31, 1996 1997
----------------- ------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C>
OPERATING DATA:
Total revenue................................. $268,120 $ 82,882
Income before income tax provision and
minority interests........................... 43,823 15,200
Net income applicable to common shareholders.. $ 37,159 $ 11,847
PER SHARE DATA:
Net income per common share................... $ 1.29 $ 0.40
======== =========
Weighted average number of common shares and
common share equivalents outstanding......... 28,793 29,074
======== =========
CASH FLOW DATA:
Cash provided by operating activities(2)...... $ 89,903 $ 27,524
Cash used in investing activities(3).......... (21,084) (5,891)
Cash used in financing activities(4).......... (65,468) (17,492)
<CAPTION>
MARCH 31,
1997
------------
(UNAUDITED)
<S> <C> <C>
BALANCE SHEET DATA:
Investment in hotel properties and land held
for sale, at cost, net....................... $ 947,722
Investment in racecourse facility and related
improvements, net............................ 24,265
Total assets.................................. 1,407,225
Total debt.................................... 579,862
Minority interest in Patriot Partnership and
Patriot Operating Partnership................ 127,262
Shareholders' equity.......................... 630,803
<CAPTION>
THREE MONTHS
ENDED
YEAR ENDED MARCH 31,
DECEMBER 31, 1996 1997
----------------- ------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C>
OTHER DATA:
Funds from operations(5)...................... $ 86,376 $ 24,849
Cash available for distribution(6)............ 71,471 21,388
Weighted average number of common shares and
OP units outstanding......................... 33,444 33,725
</TABLE>
(Notes on page 34)
31
<PAGE>
NEW PATRIOT REIT
SELECTED CONSOLIDATED PRO FORMA FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
PRO FORMA(1)
--------------------------------
THREE MONTHS
YEAR ENDED ENDED
DECEMBER 31, 1996 MARCH 31, 1997
----------------- --------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C>
OPERATING DATA:
Total revenue............................... $148,017 $40,980
Income before minority interests............ 47,323 12,188
Net income applicable to common
shareholders............................... $ 40,222 $10,293
PER SHARE DATA:
Net income per common share................. $ 1.40 $ 0.35
======== =======
Weighted average number of common shares and
common share equivalents outstanding....... 28,793 29,074
======== =======
</TABLE>
NEW PATRIOT OPERATING COMPANY
SELECTED CONSOLIDATED PRO FORMA FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
PRO FORMA(1)
--------------------------------
THREE MONTHS
YEAR ENDED ENDED
DECEMBER 31, 1996 MARCH 31, 1997
----------------- --------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C>
OPERATING DATA:
Total revenue............................... $153,622 $53,324
Income (loss) before income tax provision
and minority interests..................... (3,500) 3,012
Net income (loss) applicable to common
shareholders............................... $ (3,063) $ 1,554
PER SHARE DATA:
Net income (loss) per common share.......... $ (0.11) $ 0.05
======== =======
Weighted average number of common shares and
common share equivalents outstanding....... 28,793 29,074
======== =======
</TABLE>
(Notes on page 34)
32
<PAGE>
COMBINED LESSEES
SUMMARY COMBINED PRO FORMA FINANCIAL DATA
(IN THOUSANDS)
The following table sets forth combined pro forma operating information for
the Combined Lessees (which includes all of the Lessees except PAH RSI Lessee)
and should be read in conjunction with, and are qualified in their entirety by,
the historical financial statements and notes thereto of Patriot, CHC Lease
Partners and NorthCoast Lessee incorporated by reference into this Joint Proxy
Statement/Prospectus. This information should also be read in conjunction with
the pro forma financial statement and notes thereto of the Combined Lessees
located elsewhere in this Joint Proxy Statement/Prospectus. The pro forma
operating information is presented as if the 46 Patriot hotels that Patriot
currently leases to the Lessees pursuant to Participating Leases had been
leased as of January 1, 1996. Additionally, the Combined Lessees' pro forma
financial data does not include the operations of the Sheraton Park Place Hotel
which was acquired by Patriot in April 1997 and the Myrtle Beach Hilton
Oceanfront Golf Resort which was acquired by Patriot in May 1997.
<TABLE>
<CAPTION>
PRO FORMA(7)
--------------------------------
THREE MONTHS
YEAR ENDED ENDED
DECEMBER 31, 1996 MARCH 31, 1997
----------------- --------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C>
FINANCIAL DATA:
Room revenue................................. $222,051 $56,685
Food and beverage............................ 85,489 22,000
Conference center revenue.................... 2,354 748
Telephone and other hotel revenue............ 21,919 5,431
-------- -------
Total revenue................................ 331,813 84,864
Hotel operating expenses..................... 227,863 56,432
Participating Lease payments(8).............. 104,603 27,123
-------- -------
Income (loss) before Lessee expenses......... (653) 1,309
Lessee expenses(9)........................... 7,203 1,145
-------- -------
Net income (loss)............................ $ (7,856) $ 164
======== =======
</TABLE>
(Notes on page 34)
33
<PAGE>
NOTES TO NEW PATRIOT REIT, NEW PATRIOT OPERATING COMPANY AND COMBINED LESSEES
SUMMARY FINANCIAL INFORMATION
(1) The pro forma information does not purport to represent what New Patriot
REIT's and New Patriot Operating Company's combined financial position or
New Patriot REIT's, New Patriot Operating Company's or the Lessees' results
of operations actually would have been if the Merger and the Related
Transactions, including the lease of six hotel properties to New Patriot
Operating Company, the sale of substantially all of the Cal Jockey land to
an affiliate of PaineWebber, the leaseback of the land on which the
Racecourse is situated from the PaineWebber affiliate to New Patriot REIT,
the sublease of the Racecourse land and related improvements from New
Patriot REIT to New Patriot Operating Company, and the leasing of certain
land from New Patriot REIT to Borders had in fact occurred on such date or
at the beginning of the period presented, or to project the results of
operations of New Patriot REIT or New Patriot Operating Company for any
future periods.
Additionally, if the interest rate increases by 0.25%, the resulting pro
forma net income would be $36,244 and $11,590, or $1.26 and $0.40 per
common paired share for the year ended December 31, 1996 and the three
months ended March 31, 1997, respectively.
(2) Pro forma cash provided by operating activities represents income before
income allocable to minority interests, plus depreciation and amortization
(including amortization of unearned stock compensation) less the non-cash
portion of equity in earnings of unconsolidated subsidiaries. The pro forma
amounts do not include adjustments from changes in working capital
resulting from changes in current assets and current liabilities as there
is no historical data available as of both the beginning and end of each
period presented.
(3) Pro forma cash used in investing activities represents the approximate 4.0%
of the hotel and racecourse facility revenue which is required to be
reserved under the terms of the Participating Leases for capital
improvements and the replacement and refurbishment of F, F & E.
(4) Pro forma cash used in financing activities represents estimated dividends
and distributions to be paid based on Patriot's historical dividend rate of
$1.965 and $0.525 per share for 1996 and the three months ended March 31,
1997, respectively, and an aggregate of 28,646 paired shares, of New
Patriot REIT Common Stock and New Patriot Operating Company Common Stock
and 3,964 OP Units, of the Patriot Partnership and the Patriot Operating
Partnership outstanding and approximately $2.02 and $0.54, respectively,
per share on the 687 Preferred OP Units outstanding.
(5) In accordance with the resolution adopted by the Board of Governors of the
NAREIT, funds from operations represents net income (loss) (computed in
accordance with generally accepted accounting principles), excluding gains
or losses from debt restructuring or sales of property, plus depreciation
of real property, and after adjustments for unconsolidated partnerships,
joint ventures and corporations. Patriot has also made certain adjustments
to funds from operations for real estate related amortization expense.
Funds from operations should not be considered as an alternative to net
income or other measurements under generally accepted accounting principles
as an indicator of operating performance or to cash flows from operating,
investing or financing activities as a measure of liquidity. Funds from
operations does not reflect working capital changes, cash expenditures for
capital improvements or principal payments on indebtedness. Under the
Participating Leases, Patriot is obligated to establish a reserve for
capital improvements at its hotels (including the replacement or
refurbishment of F, F & E) and to pay real estate and personal property
taxes and casualty insurance (and as a result of the Merger, New Patriot
REIT and New Patriot Operating Company will be similarly obligated).
Management believes that funds from operations is helpful to investors as a
measure of the performance of an equity REIT, because, along with cash
flows from operating activities, investing activities and financing
activities, it provides investors with an understanding of the ability of
New Patriot REIT and New Patriot Operating Company to incur and service
debt and make capital expenditures.
(6) Cash available for distribution represents funds from operations, as
adjusted for certain non-cash items (e.g. non-real estate related
depreciation and amortization), less reserves for capital expenditures.
(7) The pro forma information does not purport to represent what the Lessees'
combined results of operations actually would have been if the Merger and
Related Transactions had in fact occurred at the beginning of the period
indicated, or to project the results of operations of the Lessees for any
future periods. The Lessees' pro forma financial data presented does not
include the operations of PAH RSI Lessee, which currently leases the four
Carefree Resorts, the Radisson Hotel in Northbrook, Illinois and the
Luxeford Suites Hotel. Additionally, the Lessees' pro forma financial data
does not include the operations of Sheraton Park Place Hotel which was
acquired by Patriot in April 1997 and the Myrtle Beach Hilton Oceanfront
Golf Resort which was acquired by Patriot in May 1997. The pro forma
financial data assumes these hotel properties will be leased to, and the
assets of PAH RSI Lessee will be acquired by, New Patriot Operating Company
following the Merger and the Related Transactions.
(8) Participating lease payments from the Lessees to New Patriot REIT have been
calculated on a pro forma basis by applying the provisions of the
Participating Leases to the historical revenue of the hotels as if January
1, 1996 were the beginning of the lease year.
(9) Lessee expenses include management fees paid to the Operators and Lessee
overhead expenses, net of historical dividend and interest income earned by
the Lessees. Pro forma Lessee net income excludes dividends on
approximately 300,000 OP Units of the Patriot Partnership, which form a
portion of the required capitalization for certain of the Lessees and pro
forma interest income associated with the Lessees' working capital
balances.
34
<PAGE>
NEW PATRIOT REIT AND NEW PATRIOT OPERATING COMPANY
ADJUSTED FOR THE PROPOSED WYNDHAM TRANSACTIONS
SUMMARY UNAUDITED PRO FORMA COMBINED FINANCIAL DATA
The following tables set forth pro forma financial information for New
Patriot REIT and New Patriot Operating Company and should be read in
conjunction with, and are qualified in their entirety by, the historical
financial statements and notes thereto of Patriot, Cal Jockey, Bay Meadows and
Wyndham incorporated by reference into this Joint Proxy Statement/Prospectus
and by the combined historical financial statements of the Crow Family Hotel
Partnerships included elsewhere in this Joint Proxy Statement/Prospectus. This
information should also be read in conjunction with the pro forma financial
statements and notes thereto located elsewhere in this Joint Proxy
Statement/Prospectus. The pro forma operating information is presented as if
the Proposed Wyndham Transactions and the Merger and the Related Transactions
(which include (i) the lease of the Carefree Resorts and two hotels to New
Patriot Operating Company; (ii) the sale of substantially all of the Cal Jockey
land to an affiliate of PaineWebber; (iii) the leaseback of the land on which
the Racecourse is situated from the PaineWebber affiliate to New Patriot REIT;
(iv) the sublease of the Racecourse land and related improvements from New
Patriot REIT to New Patriot Operating Company; and (v) the leasing of certain
land from New Patriot REIT to Borders) had occurred on January 1, 1996. The pro
forma combined balance sheet data of New Patriot REIT and New Patriot Operating
Company is presented as if the Proposed Wyndham Transactions and the Merger and
the Related Transactions, as described above, had occurred as of March 31,
1997. The following summary unaudited pro forma combined financial data does
not include financial data for the Sheraton Park Place Hotel acquired by
Patriot in April 1997 and the Myrtle Beach Hilton Oceanfront Golf Resort
acquired by Patriot in May 1997.
NEW PATRIOT REIT AND NEW PATRIOT OPERATING COMPANY
ADJUSTED FOR THE PROPOSED WYNDHAM TRANSACTIONS
SELECTED COMBINED PRO FORMA FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
PRO FORMA(1)
------------------------------------
YEAR ENDED THREE MONTHS ENDED
DECEMBER 31, 1996 MARCH 31, 1997
----------------- ------------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C>
OPERATING DATA:
Total revenue........................... $580,974 $172,776
Income before income tax provision and
minority interests..................... 30,924 17,513
Net income applicable to common share-
holders................................ $ 25,259 $ 11,923
PER SHARE DATA:
Net income per common paired share...... $ 0.58 $ 0.27
======== ========
Weighted average number of common shares
and common share equivalents
outstanding............................ 43,721 44,214
======== ========
</TABLE>
<TABLE>
<CAPTION>
PRO FORMA(1)
--------------
MARCH 31, 1997
--------------
(UNAUDITED)
<S> <C>
BALANCE SHEET DATA:
Investment in hotel properties and land held for sale......... $1,606,995
Investment in Racecourse facility and related improvements.... 24,265
Total assets.................................................. 2,594,701
Total debt.................................................... 1,091,607
Minority interest in Patriot Partnership and Patriot Operating
Partnership.................................................. 127,262
Shareholders' equity.......................................... 1,221,706
</TABLE>
(Notes on page 38)
35
<PAGE>
NEW PATRIOT REIT
ADJUSTED FOR THE PROPOSED WYNDHAM TRANSACTIONS
SELECTED CONSOLIDATED PRO FORMA FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
PRO FORMA(1)
--------------------------------
THREE MONTHS
YEAR ENDED ENDED
DECEMBER 31, 1996 MARCH 31, 1997
----------------- --------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C>
OPERATING DATA:
Total revenue............................... $217,507 $62,523
Income before income tax provision and mi-
nority interests........................... 29,724 9,911
Net income applicable to common
shareholders............................... $ 26,154 $ 8,702
PER SHARE DATA:
Net income per common share................. $ 0.60 $ 0.20
======== =======
Weighted average number of common shares and
common share equivalents outstanding....... 43,721 44,214
======== =======
</TABLE>
NEW PATRIOT OPERATING COMPANY
ADJUSTED FOR THE PROPOSED WYNDHAM TRANSACTIONS
SELECTED CONSOLIDATED PRO FORMA FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
PRO FORMA(1)
--------------------------------
THREE MONTHS
YEAR ENDED ENDED
DECEMBER 31, 1996 MARCH 31, 1997
----------------- --------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C>
OPERATING DATA:
Total revenue............................... $474,995 $145,783
Income (loss) before income tax provision
and minority interest...................... (1,373) 8,565
Net income (loss) applicable to common
shareholders............................... $ (895) $ 3,221
PER SHARE DATA:
Net income (loss) per common share.......... $ (0.02) $ 0.07
======== ========
Weighted average number of common shares and
common share equivalents outstanding....... 43,721 44,214
======== ========
</TABLE>
(Notes on page 38)
36
<PAGE>
COMBINED LESSEES
ADJUSTED FOR THE PROPOSED WYNDHAM TRANSACTIONS
SUMMARY COMBINED PRO FORMA FINANCIAL DATA
(IN THOUSANDS)
The following table sets forth combined pro forma operating information for
the Combined Lessees (which includes all of the Lessees except PAH RSI Lessee
and Wyndham Lessee) and should be read in conjunction with, and are qualified
in their entirety by, the historical financial statements and notes thereto of
Patriot, CHC Lease Partners and NorthCoast Lessee incorporated by reference
into this Joint Proxy Statement/Prospectus. This information should also be
read in conjunction with the pro forma financial statement and notes thereto of
the Combined Lessees located elsewhere in this Joint Proxy
Statement/Prospectus. The pro forma operating information is presented as if 44
Patriot hotels leased to the Lessees (excluding PAH RSI Lessee, Wyndham Lessee,
the Sheraton Park Place Hotel acquired by Patriot in April 1997 and the Myrtle
Beach Hilton Oceanfront Golf Resort acquired by Patriot in May 1997) pursuant
to Participating Leases had been leased as of January 1, 1996.
<TABLE>
<CAPTION>
PRO FORMA(2)
------------------------------
THREE MONTHS
ENDED
YEAR ENDED MARCH 31,
DECEMBER 31, 1996 1997
----------------- ------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C>
FINANCIAL DATA:
Room revenue................................... $205,823 $52,189
Food and beverage.............................. 77,110 19,663
Conference center revenue...................... 2,354 748
Telephone and other hotel revenue.............. 19,988 4,941
-------- -------
Total revenue.................................. 305,275 77,541
Hotel operating expenses....................... 210,771 52,071
Participating Lease payments(3)................ 95,584 24,558
-------- -------
Loss before Lessee expenses.................... (1,080) 912
Lessee expenses(4)............................. 6,178 852
-------- -------
Net loss....................................... $ (7,258) $ 60
======== =======
</TABLE>
(Notes on page 38)
37
<PAGE>
NOTES TO NEW PATRIOT REIT, NEW PATRIOT OPERATING COMPANY AND COMBINED LESSEES
SUMMARY FINANCIAL INFORMATION AS ADJUSTED FOR THE PROPOSED WYNDHAM TRANSACTIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(1) The pro forma information does not purport to represent what New Patriot
REIT's and New Patriot Operating Company's combined financial position or
New Patriot REIT's, New Patriot Operating Company's or the Combined
Lessees' results of operations actually would have been if the Proposed
Wyndham Transactions and the Merger and the Related Transactions had in
fact occurred on such date or at the beginning of the period presented, or
to project the results of operations of New Patriot REIT, New Patriot
Operating Company or the Combined Lessees for any future periods.
The pro forma combined financial data assumes all outstanding Wyndham
Common Stock is exchanged for paired shares. If stockholders holding shares
of Wyndham Common Stock with an aggregate value of $100,000 elect to
receive cash, the resulting combined pro forma net income of New Patriot
REIT and New Patriot Operating Company would be $18,572 and $10,231 for the
year ended December 31, 1996 and the three months ended March 31, 1997,
respectively. The resulting pro forma net income per paired share would be
$0.45 and $0.24 for the year ended December 31, 1996 and the three months
ended March 31, 1997, respectively.
Additionally, if the interest rate increases by 0.25%, the resulting
combined pro forma net income of New Patriot REIT and New Patriot Operating
Company, assuming all outstanding Wyndham Common Stock is exchanged for
paired shares, would be $22,981 and $11,325, or $0.53 and $0.26 per common
paired share for the year ended December 31, 1996 and the three months
ended March 31, 1997, respectively. If stockholders holding shares of
Wyndham Common Stock with an aggregate value of $100,000 elect to receive
cash, the resulting pro forma net income would be $16,081 and $9,581, or
$0.39 and $0.23 per common paired share for the year ended December 31,
1996 and the three months ended March 31, 1997, respectively.
(2) The pro forma information does not purport to represent what the Lessees'
combined results of operations actually would have been if the Proposed
Wyndham Transactions and the Merger and the Related Transactions had in
fact occurred at the beginning of the period indicated, or to project the
results of operations of the Lessees for any future periods. The Lessees'
pro forma financial data presented does not include the operations of PAH
RSI Lessee, which currently leases the four Carefree Resorts, the Radisson
Hotel in Northbrook, Illinois and the Luxeford Suites Hotel, and Wyndham
Lessee, which currently leases the Wyndham Garden Hotel--Midtown and the
Wyndham Greenspoint Hotel. The pro forma financial data assumes six of the
hotels leased to PAH RSI Lessee (excluding the Sheraton Park Place Hotel
and the Myrtle Beach Hilton Oceanfront Golf Resort), will be leased to, and
the assets of PAH RSI Lessee will be acquired by, New Patriot Operating
Company following the Merger and the Related Transactions. The pro forma
financial data also assumes that the leases with Wyndham Lessee related to
the Wyndham Garden Hotel--Midtown and the Wyndham Greenspoint Hotel will be
terminated and New Patriot REIT will lease these hotel properties to New
Patriot Operating Company.
(3) Participating lease payments from the Lessees to New Patriot REIT have been
calculated on a pro forma basis by applying the provisions of the
Participating Leases to the historical revenue of the hotels as if January
1, 1996 were the beginning of the lease years.
(4) Lessee expenses include management fees paid to the Operators and Lessee
overhead expenses, net of historical dividend and interest income earned by
the Lessees. Pro forma Lessee net income excludes dividends on
approximately 300,000 OP Units of the Patriot Partnership, which form a
portion of the required capitalization for certain of the Lessees and pro
forma interest income associated with the Lessees' working capital
balances.
38
<PAGE>
COMPARATIVE PER SHARE DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
The following table sets forth the (combined) historical per share data,
unaudited pro forma per share data giving effect to the Merger using the
purchase method of accounting and the equivalent unaudited pro forma combined
per share amounts for each of Patriot, Cal Jockey and Bay Meadows. The pro
forma combined data are not necessarily indicative of actual financial position
or future operating results or that which would have occurred or will occur
upon consummation of the Merger.
The information shown below should be read in conjunction with (i) the
consolidated financial statements and notes thereto of Patriot incorporated
herein by reference, (ii) the consolidated financial statements and notes
thereto of Cal Jockey and Bay Meadows incorporated herein by reference and
(iii) the pro forma condensed combined financial statements, including the
notes thereto, which are contained in this Joint Proxy Statement/Prospectus.
<TABLE>
<CAPTION>
YEAR ENDED THREE MONTHS ENDED
DECEMBER 31, 1996(1) MARCH 31, 1997 (UNAUDITED)
------------------------------------ ---------------------------------
PRO PATRIOT PRO PATRIOT
HISTORICAL FORMA(2) EQUIVALENT(3) HISTORICAL FORMA(2) EQUIVALENT(3)
---------- ----------- ------------- ---------- -------- -------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
Net Income (loss)
Patriot................ $ 1.06 $ 1.29 $ 0.25 $ 0.40
Cal Jockey/Bay Mead-
ows................... (0.13) $ 1.24 0.37 $ 0.39
Cash
Distributions/Dividends
Patriot................ $0.9825 N/A $0.2625 N/A
Cal Jockey/Bay Mead-
ows................... 0.40 N/A N/A
Book Value per Common
Share(4)
Patriot................ $ 10.02 $21.90 $ 9.99 $22.02
Cal Jockey/Bay Mead-
ows................... 3.72 $21.10 4.11 $21.22
</TABLE>
- --------
(1) On January 30, 1997, the Patriot Board of Directors declared a 2-for-1
stock split effected in the form of a stock dividend distributed on March
18, 1997 to stockholders of record on March 7, 1997. All references herein
to the number of shares, per share amounts and market prices of Patriot
Common Stock have been restated to reflect the impact of the recent stock
split.
(2) The pro forma combined per share data for Patriot and Cal Jockey/Bay
Meadows for the year ended December 31, 1996 and the three months ended
March 31, 1997 have been prepared as if the Patriot capital transactions
occurring between January 1, 1996 and March 31, 1997 and the Merger and the
Related Transactions had occurred on January 1, 1996, resulting in weighted
average shares outstanding of 28,793 and 29,074 for the year ended December
31, 1996 and the three months ended March 31, 1997, respectively. The pro
forma combined book value per share for Patriot and Cal Jockey/Bay Meadows
has been prepared assuming that, in the Merger, each share of Patriot
Common Stock is converted into 0.51895 Paired Shares of Cal Jockey Common
Stock and Bay Meadows Common Stock, resulting in total outstanding Paired
Shares of 28,646 at December 31, 1996 and March 31, 1997.
(3) The equivalent pro forma combined per share amounts of Cal Jockey/Bay
Meadows are calculated by multiplying pro forma Net Income per share of
Patriot Common Stock, pro forma Cash Distributions/ Dividends per share of
Patriot Common Stock and pro forma Book Value per share of Patriot Common
Stock by a relative value ratio of existing Paired Shares to Patriot shares
of 0.9635 to 1.
(4) Book value per common share was calculated using stockholders' equity as
reflected in the historical and pro forma financial statements divided by
the number of shares of common stock outstanding.
39
<PAGE>
COMPARATIVE MARKET DATA
The Patriot Common Stock has traded on the NYSE (symbol "PAH") since
September 27, 1995. The Paired Shares of Cal Jockey Common Stock and Bay
Meadows Common Stock have traded on the AMEX (symbol "CJ") since November 14,
1986. The table below sets forth, for the calendar quarters indicated, the high
and low sales prices per share reported by the NYSE Composite Tape or on the
AMEX, as the case may be, and dividends paid for the Patriot Common Stock and
the Paired Shares of Cal Jockey Common Stock and Bay Meadows Common Stock.
<TABLE>
<CAPTION>
PAIRED SHARES OF
CAL JOCKEY COMMON
STOCK AND BAY MEADOWS
PATRIOT COMMON STOCK(1) COMMON STOCK
-------------------------------- ----------------------------
PER SHARE PER SHARE
HIGH LOW DIVIDENDS HIGH LOW DIVIDENDS(2)
------- -------- --------- ------- ------- ------------
<S> <C> <C> <C> <C> <C> <C>
1995:
First Quarter.......... N/A (3) N/A (3) N/A $17 1/4 $13 3/4 N/A
Second Quarter......... N/A (3) N/A (3) N/A $16 3/4 $14 1/2 $0.25
Third Quarter.......... $12 7/8(4) $12 3/8 (4) N/A $16 1/2 $15 1/2 N/A
Fourth Quarter......... $12 7/8 $11 5/8 $ 0.24 $16 3/8 $14 $0.40
1996:
First Quarter.......... $14 1/2 $12 7/8 $ 0.24 $14 7/8 $13 3/4 N/A
Second Quarter......... $14 7/8 $13 1/4 $ 0.24 $18 1/4 $14 5/8 $0.40
Third Quarter.......... $16 7/8 $14 $ 0.24 $20 1/8 $16 N/A
Fourth Quarter......... $22 $16 1/4 $0.2625 $40 7/8 $19 3/4 $0.00
1997:
First Quarter ......... $26 3/8 $20 5/8 $0.2625 $49 1/2 $38 3/4 N/A
Second Quarter (through
May 28, 1997)......... $24 $20 1/8 -- $45 1/2 $38 1/4 --
</TABLE>
- --------
(1) The market prices and dividends for Patriot Common Stock have been restated
(rounded to the nearest 1/8th) to reflect the increase in the number of
shares of Patriot Common Stock outstanding as a result of the 2-for-1 stock
split effected in the form of a stock dividend distributed on March 18,
1997 to Patriot stockholders of record on March 7, 1997.
(2) No dividends were paid by Bay Meadows during such periods. All dividend
amounts shown were paid by Cal Jockey on the shares of Cal Jockey Common
Stock.
(3) Patriot Common Stock was not traded prior to September 27, 1995.
(4) For the period from September 27, 1995 through September 30, 1995.
The following table sets forth the last reported sales prices per share of
Patriot Common Stock and per Paired Share of Cal Jockey Common Stock and Bay
Meadows Common Stock (i) on October 30, 1996, the last trading day preceding
public announcement that Patriot, Cal Jockey and Bay Meadows entered into a
definitive agreement pursuant to which Patriot would acquire Cal Jockey and Bay
Meadows and (ii) on May 28, 1997.
<TABLE>
<CAPTION>
PAIRED SHARES OF
PATRIOT CAL JOCKEY COMMON STOCK
COMMON STOCK AND BAY MEADOWS COMMON STOCK
------------ ----------------------------
<S> <C> <C>
October 30, 1996...................... $17 1/8(1) $24 7/8
May 28, 1997.......................... $21 1/2 $41 1/2
</TABLE>
- --------
(1) The market price for Patriot Common Stock has been restated to reflect the
increase in the number of shares of Patriot Common Stock outstanding as a
result of the 2-for-1 stock split effected in the form of a stock dividend
distributed on March 18, 1997 to Patriot stockholders of record on March 7,
1997.
BECAUSE THE MARKET PRICE OF PATRIOT COMMON STOCK AND THE MARKET PRICE OF THE
PAIRED SHARES OF CAL JOCKEY COMMON STOCK AND BAY MEADOWS COMMON STOCK ARE
SUBJECT TO FLUCTUATION, STOCKHOLDERS ARE URGED TO OBTAIN CURRENT MARKET
QUOTATIONS FOR THE COMMON STOCK.
40
<PAGE>
DISTRIBUTION AND DIVIDEND POLICY
PATRIOT
Patriot paid a regular quarterly dividend (as adjusted for the 2-for-1 stock
split) of $0.24 per share of Patriot Common Stock for each of the first three
quarters of 1996 and a quarterly dividend of $0.2625 per share of Patriot
Common Stock for the fourth quarter of 1996 and the first quarter of 1997,
representing dividends of $0.9825 per share for the full year of 1996.
Patriot's current quarterly dividend of $0.2625 represents an annualized
dividend of $1.05 per share.
To maintain its qualification as a REIT prior to the consummation of the
Merger, Patriot will be required to distribute to its stockholders immediately
prior to the Merger any undistributed "real estate investment trust taxable
income" of Patriot for Patriot's short taxable year ending with the
consummation of the Merger. See "Certain Federal Income Tax Considerations--
Pre-Merger Dividend."
Distributions by Patriot to the extent of its current and accumulated
earnings and profits for federal income tax purposes generally will be taxable
to stockholders as ordinary dividend income. Distributions in excess of current
and accumulated earnings and profits will be treated as a non-taxable reduction
of the stockholder's basis in its shares of Patriot Common Stock to the extent
thereof, and thereafter as taxable gain. Distributions that are treated as a
reduction of the stockholder's basis in its shares of Patriot Common Stock will
have the effect of deferring taxation until the sale of the stockholder's
shares. Patriot has determined that, for federal income tax purposes, none of
the $0.9825 and $0.2625 per share distributions paid for 1996 and for the first
quarter of 1997, respectively, represented a return of capital to the
stockholders. Given the dynamic nature of Patriot's acquisition strategy and
the extent to which any future acquisitions would alter this calculation, no
assurances can be given regarding what percent of future distributions will
constitute return of capital for federal income tax purposes.
Further distributions by New Patriot REIT will be at the discretion of its
Board of Directors and will depend on the actual cash flow of New Patriot REIT,
its financial condition, capital requirements, the annual distribution
requirements under the REIT provisions of the Code and such other factors as
the Board of Directors deems relevant. However, New Patriot REIT currently
intends to maintain Patriot's quarterly distribution of $0.2625 per share.
CAL JOCKEY AND BAY MEADOWS
Historically, Cal Jockey has paid semiannual dividends based on management's
estimate of earnings for the entire calendar year. Cal Jockey paid a dividend
of $0.40 per share of Cal Jockey Common Stock in July 1996 and did not pay a
dividend in December 1996. Historically, Bay Meadows has not paid dividends.
Distributions by Cal Jockey to the extent of its current and accumulated
earnings and profits for federal income tax purposes generally are taxable to
stockholders as ordinary dividend income. Distributions in excess of current
and accumulated earnings and profits are treated as a non-taxable reduction of
the stockholder's basis in its shares of Cal Jockey Common Stock to the extent
thereof, and thereafter as taxable gain. Distributions that are treated as a
reduction of the stockholder's basis in its shares of Cal Jockey Common Stock
will have the effect of deferring taxation until the sale of the stockholder's
shares. Cal Jockey has determined that, for federal income tax purposes, none
of the $0.33 per share dividend paid out of 1996 earnings represented a return
of capital to the stockholders (and the remaining $0.07 per share dividend paid
in 1996 related to 1995 earnings).
Immediately prior to the consummation of the Merger, Cal Jockey will pay a
dividend to the holders of Paired Shares equal to the aggregate of (i) $0.10
per Paired Share plus (ii) the amount per Paired Share equal to the Santa Anita
Net Proceeds (as defined below) divided by the number of Paired Shares
outstanding. Santa Anita Net Proceeds means the proceeds from the sale by Cal
Jockey of 100,000 paired shares of common stock of Santa Anita Realty
Enterprises, Inc. and Santa Anita Operating Company (the "Santa Anita Paired
Shares") less the original purchase price for the Santa Anita Paired Shares. In
1994, Cal Jockey purchased 100,000 Santa Anita Paired Shares at an average
purchase price of approximately $14.00 per Santa Anita Paired Share. The
closing price for a Santa Anita Paired Share on the NYSE on May 28, 1997 was
$29 accordingly, based on this closing price, the Santa Anita Net Proceeds
would be equal to approximately $1,500,000, or an additional $0.26 per Paired
Share (based on 5,763,257 outstanding Paired Shares as of May 28, 1997).
41
<PAGE>
RISK FACTORS
In considering whether to approve the Proposals, stockholders of Patriot,
Cal Jockey and Bay Meadows should consider, in addition to the other
information in this Joint Proxy Statement/Prospectus, the matters discussed in
this section.
This Joint Proxy Statement/Prospectus contains statements which constitute
forward looking statements within the meaning of the Private Securities
Litigation Reform Act of 1995. Those statements appear in a number of places
in this Joint Proxy Statement/Prospectus and include statements regarding the
intent, belief or current expectations of Patriot, Cal Jockey and Bay Meadows
and their directors and officers with respect to (i) the declaration or
payments of distributions by New Patriot REIT and New Patriot Operating
Company, (ii) the consummation of the Merger and the Related Transactions,
(iii) the ownership, management and operation of hotels, (iv) potential
acquisitions or dispositions by the New Patriot REIT and New Patriot Operating
Company, including the Proposed Acquisitions, the Grand Heritage Acquisition,
the Proposed Wyndham Transactions and the Proposed PaineWebber Land Sale, (v)
the policies of New Patriot REIT and New Patriot Operating Company regarding
investments, acquisitions, dispositions, financings, conflicts of interest and
other matters, (vi) New Patriot REIT's qualification as a REIT under the Code,
(vii) risks associated with the hotel industry and real estate markets in
general, (viii) the availability of debt and equity financing, including the
New Credit Facility, (ix) interest rates, (x) general economic conditions and
(xi) trends affecting New Patriot REIT's or New Patriot Operating Company's
financial condition or results of operations. Stockholders are cautioned that
any such forward looking statements are not guarantees of future performance
and involve risks of uncertainties, and that actual results may differ
materially from those in the forward looking statements as a result of various
factors. The accompanying information contained in this Joint Proxy
Statement/Prospectus, including, without limitation, the information set forth
below and the information under the heading "The Companies--Surviving
Companies," identify important factors that could cause such differences.
REIT TAX RISKS
Dependence on Qualification as a REIT
New Patriot REIT will operate in a manner designed to permit it to qualify
as a REIT for federal income tax purposes, but no assurance can be given that
New Patriot REIT 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 Code provisions 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 a corporation with which its stock is paired. Qualification as a REIT
also involves the determination of various factual matters and circumstances
not entirely within New Patriot REIT's control. In addition, New Patriot
REIT'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 New Patriot 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 in the context of a merger or otherwise. Moreover, if
for any reason Cal Jockey failed to qualify as a REIT in 1983, the benefit of
the "grandfathering" rule would not be available to Cal Jockey or New Patriot
REIT, in which case neither Cal Jockey nor New Patriot REIT would 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 New Patriot REIT fails to qualify as a REIT, New Patriot REIT will be
subject to federal income tax (including any applicable alternative minimum
tax) on its taxable income at corporate rates. In addition, unless
42
<PAGE>
entitled to relief under certain statutory provisions and subject to the
discussion above regarding the impact if Cal Jockey failed to qualify as a
REIT in 1983, New Patriot REIT 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 New Patriot REIT available for distribution to stockholders
because of the additional tax liability to New Patriot REIT 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 New Patriot REIT's qualifying as a REIT, New Patriot REIT
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 New Patriot REIT.
Qualification of New Patriot REIT as a REIT for periods following the Merger
also generally depends on the REIT qualification of each of Cal Jockey and
Patriot for periods prior to the Merger. Moreover, if either of Cal Jockey or
Patriot has failed to qualify as a REIT in any year in which it elected to
qualify and consequently becomes liable to pay taxes as a regular non-REIT
corporation, the liabilities of New Patriot REIT will include any such tax
liability. Each of Cal Jockey and Patriot believes that it has operated and
will operate through the Merger in a manner that permits it to qualify as a
REIT under the Code for each taxable year since its formation. In connection
with the mailing of this Joint Proxy Statement/Prospectus, Goodwin, Procter &
Hoar llp has rendered an opinion regarding (i) Patriot's qualification as a
REIT for periods prior to the Merger, (ii) Cal Jockey's qualification as a
REIT for periods prior to the Merger and (iii) New Patriot REIT's
qualification as a REIT following the Merger.
Cal Jockey's acquisition of Patriot's general and limited partner interests
in the Patriot Partnership and Patriot's indirect interests in the subsidiary
partnerships of the Patriot Partnership involves special tax considerations
which may adversely impact New Patriot REIT's ability to qualify as a REIT
following the Merger. See "Certain Federal Income Tax Considerations--Tax
Aspects of New Patriot REIT's Investment in the Patriot Partnership and New
Patriot Operating Company's Investment in the New Patriot Operating
Partnership."
In order for New Patriot REIT to maintain its qualification as a REIT, not
more than 50% in value of its outstanding stock may be owned, actually or
constructively, by five or fewer individuals (as defined in the Code). In
addition, rents paid by New Patriot Operating Company to New Patriot REIT 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
shares of New Patriot REIT Common Stock and New Patriot Operating Company
Common Stock. See "Certain Federal Income Tax Considerations." For the purpose
of preserving New Patriot REIT's qualification as a REIT, the Restated
Charters will prohibit actual or constructive ownership of more than 9.8% of
each company's outstanding common stock by any person. The constructive
ownership rules are complex and may cause common 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 shares of
New Patriot REIT Common Stock and New Patriot Operating Company Common Stock
(or the acquisition of an interest in an entity which owns paired shares of
New Patriot REIT Common Stock and New Patriot Operating Company 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 shares of New Patriot REIT Common Stock and New Patriot
Operating Company Common Stock, and thus subject such common stock to the
Ownership Limit. Actual or constructive ownership of paired shares of New
Patriot REIT Common Stock and New Patriot Operating Company 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 a person or entity who can own such shares without violating the
ownership limit. 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 New Patriot REIT to qualify as a REIT.
43
<PAGE>
Potential Adverse Effect of Proposed PaineWebber Land Sale by New Patriot
REIT
In the event that any of the property proposed to be sold by New Patriot
REIT to PaineWebber constitutes property held "primarily for sale to customers
in the ordinary course of a trade or business" ("dealer property"), then New
Patriot REIT will not be able to defer its gain by structuring the sale as a
like-kind exchange and, unless the sale qualifies for a certain statutory safe
harbor, the gain from such sales would be subject to a 100% tax and would
constitute nonqualifying income that likely would disqualify New Patriot REIT
as a REIT. While Cal Jockey believes that the Stable Area and the Training
Track Area do not constitute dealer property, and Patriot believes that the
Proposed PaineWebber Land Sale will not constitute a sale of dealer property,
whether such sales constitute sales of dealer property are factual
determinations. Accordingly, the companies will not receive legal opinions
from their counsel on such determinations. In addition, the sales may not
qualify for the statutory safe harbor. As a result, the opinion rendered by
Goodwin, Procter & Hoar llp regarding New Patriot REIT's qualification as a
REIT for periods following the Merger necessarily relies on representations
from Patriot to the effect that the proposed PaineWebber Land Sale will not
constitute sales of dealer property. See "Certain Federal Income Tax
Consequences--Sale of Land by New Patriot REIT."
Adverse Effects of REIT Minimum Distribution Requirements
In order to qualify as a REIT, New Patriot REIT 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, New Patriot REIT 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.
New Patriot REIT intends to make distributions to its stockholders to comply
with the 95% distribution requirement and to avoid the nondeductible excise
tax. New Patriot REIT's income will consist primarily of its share of the
income of the Patriot Partnership, and New Patriot REIT's cash available for
distribution will consist primarily of its share of cash distributions from
the Patriot 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 New Patriot REIT to borrow
funds on a short-term basis to meet the 95% distribution requirement and to
avoid the nondeductible excise tax.
Distributions by New Patriot REIT and New Patriot Operating Company will be
determined by their respective Boards of Directors and depend on a number of
factors, including the amount of cash available for distribution, financial
condition, 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 New Patriot
REIT) 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 New Patriot REIT), nontaxable
return of capital, or a combination thereof. New Patriot REIT and New Patriot
Operating Company will provide stockholders with annual statements as to the
taxability of distributions.
FAILURE TO MANAGE RAPID GROWTH AND INTEGRATE OPERATIONS FOLLOWING THE MERGER
Patriot is currently experiencing a period of rapid growth. Assuming all of
the Proposed Acquisitions are consummated, New Patriot REIT's hotel portfolio
will include 70 hotels, aggregating 16,833 rooms, representing a 300% increase
in the size of New Patriot REIT's room portfolio since Patriot's Initial
Offering. In connection with the Merger and the Related Transactions, New
Patriot Operating Company will be responsible for the horse racing operations
of Bay Meadows and the hotel management operations of certain of New Patriot
REIT's hotels. If the Proposed Wyndham Transactions are consummated, New
Patriot REIT will acquire an additional 34 owned and leased hotels with an
aggregate of 7,949 rooms as well as Wyndham's 64 managed and franchised
properties throughout North America and management and franchise agreements
that have been executed for 15 properties that are currently closed for
renovation or construction or are in the process of being converted to the
Wyndham brand. The integration of departments, systems and procedures of
Patriot with those being acquired in connection with the Merger and the
Related Transactions and the Proposed Wyndham Transactions presents a
significant
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management challenge, and the failure to integrate such companies and
properties into Patriot's management and operating structures could have a
material adverse effect on the results of operations and financial condition
of New Patriot REIT and New Patriot Operating Company.
SUBSTANTIAL DEBT OBLIGATIONS; NO LIMITS ON INDEBTEDNESS
Subsequent to the consummation of the Merger and the Related Transactions,
the amount of pro forma combined debt New Patriot REIT and New Patriot
Operating Company will assume is approximately $579.9 million as compared to
no indebtedness of Bay Meadows and Cal Jockey (excluding the $2,900,000 Loan
payable to Patriot under certain circumstances). The pro forma ratio of
combined debt to total market capitalization of New Patriot REIT and New
Patriot Operating Company assuming an aggregate indebtedness of approximately
$579.9 million will be approximately 29.6%. The calculation of the pro forma
ratio of combined debt to total market capitalization is based on a $41 1/2
closing price of the Paired Shares of Cal Jockey Common Stock and Bay Meadows
Common Stock on May 28, 1997. New Patriot REIT and New Patriot Operating
Company also may borrow additional amounts from the same or other lenders in
the future, or may issue corporate debt securities in public or private
offerings. In this regard, (i) PaineWebber Real Estate has agreed to increase
Patriot's availability under the Line of Credit from $475 million to $625
million (as of May 28, 1997, $471.2 million was outstanding under the Line of
Credit) and (ii) Patriot has entered into a commitment letter with PaineWebber
Real Estate and Chase concerning replacing the Line of Credit with the New
Credit Facility which will have availability of up to $1.2 billion. Neither
the Restated Charters nor the Restated Bylaws limit the amount of indebtedness
New Patriot REIT or New Patriot Operating Company may incur. See "The
Companies--Surviving Companies."
There can be no assurance that New Patriot REIT and New Patriot Operating
Company, following consummation of the Merger and the Proposed Acquisitions,
will be able to meet their debt service obligations and, to the extent that
they cannot, New Patriot REIT and New Patriot Operating Company risk the loss
of some or all of their assets, including their hotels, to foreclosure.
Adverse economic conditions could cause the terms on which borrowings become
available to be unfavorable. In such circumstances, if New Patriot REIT or New
Patriot Operating Company is in need of capital 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 New Patriot REIT and
New Patriot Operating Company may adversely affect the market price of the
paired shares of New Patriot REIT Common Stock and New Patriot Operating
Company Common Stock following the Merger and may inhibit the ability of New
Patriot REIT and New Patriot Operating Company to raise capital in both the
public and private markets following the consummation of the Merger and the
Related Transactions.
LACK OF EXPERIENCE IN HOTEL MANAGEMENT BUSINESS
Following consummation of the Merger, New Patriot Operating Company will
manage certain newly acquired hotels as well as certain of Patriot's existing
hotels that will be re-leased to New Patriot Operating Company. Although
certain executives of Patriot have hotel management experience, neither New
Patriot Operating Company nor Bay Meadows has any prior experience in the
hotel management business. The future success of New Patriot 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 New Patriot 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 New Patriot Operating Company and New Patriot REIT.
DILUTION TO EARNINGS CAUSED BY ACQUISITION OF CAL JOCKEY AND BAY MEADOWS
As a result of the amount being paid to acquire Cal Jockey and Bay Meadows,
the Merger has a dilutive effect on Patriot's net income per share on a pro
forma basis for 1996 and the three months ended March 31, 1997 and
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may have a dilutive effect on net income per share in future periods. The
Unaudited Pro Forma Combined Financial Statements contained herein illustrate
the effect of the Merger and the Related Transactions on the net income per
share for the year ended December 31, 1996 and the three months ended March
31, 1997. On a pro forma basis (post-Merger) for New Patriot REIT and New
Patriot Operating Company, net income per share is $1.29 for the year ended
December 31, 1996 and net income per share is $0.40 for the three months ended
March 31, 1997, as compared to $1.78 and $0.44 for the year ended December 31,
1996 and the three months ended March 31, 1997, respectively, on a pro forma
basis for Patriot (pre-Merger) (or $0.89 and $0.22, respectively, as adjusted
for the 2-for-1 stock split). See "Unaudited Pro Forma Combined Financial
Statements." While Patriot's management and its Board of Directors believe the
benefits of the paired share structure will provide long term benefits to its
stockholders, no assurance can be given that such benefits will be realized.
In addition, upon consummation of the Merger and the Related Transactions, the
current stockholders of Patriot will hold in the aggregate approximately 80%
of the outstanding paired shares of New Patriot REIT Common Stock and New
Patriot Operating Company Common Stock, assuming no options or OP Units are
exchanged for shares of Patriot Common Stock prior to the Merger and assuming
that the Exchange Ratio is not adjusted due to a Patriot Average Trading price
below $17.125.
STOCK PRICE FLUCTUATIONS
The relative stock prices of shares of Patriot Common Stock and the Paired
Shares of Cal Jockey Common Stock and Bay Meadows Common Stock at the
Effective Time may vary significantly from the prices as of the date of
execution of the October 31, 1996 Agreement, the date hereof or the date on
which stockholders vote on the Proposals, due to changes in the business,
operations and prospects of Patriot, Cal Jockey or Bay Meadows, market
assessments of the likelihood that the Merger or the Proposed Wyndham
Transactions will be consummated and the timing thereof, general market and
economic conditions and other factors such as market perception of paired
share stocks, REIT stocks, hotel stocks and REIT hotel stocks generally. There
can be no assurance that the price of shares of Patriot Common Stock and/or
the Paired Shares of Cal Jockey Common Stock and Bay Meadows Common Stock will
not decline between the date of this Joint Proxy Statement/Prospectus and the
Effective Time.
POTENTIAL CONFLICTS OF INTEREST BETWEEN NEW PATRIOT REIT AND NEW PATRIOT
OPERATING COMPANY
New Patriot REIT and New Patriot Operating Company are separate corporate
entities with separate Boards of Directors. A majority of the directors of
each of New Patriot REIT and New Patriot Operating Company will not serve as
directors or officers of the other company. In addition, New Patriot REIT and
New Patriot Operating Company generally will have different employees,
separate creditors and will be 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 like those which have been experienced by Cal Jockey and
Bay Meadows in the recent past. See "The Merger and Subscription--Background
of the Merger" and "Stockholders' Meetings, Litigation and Disagreements." 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 New Patriot REIT and New Patriot
Operating Company. New Patriot REIT and New Patriot Operating Company will
have, immediately following the Merger, the same Chief Executive Officer and
Chief Financial Officer as well as two of the same directors. Patriot believes
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. This overlap in
management will be reduced in connection with the consummation of the Proposed
Wyndham Transactions. See "The Companies--Surviving Companies--The Proposed
Wyndham Transactions."
DIFFERENT FAIRNESS ANALYSES OF CAL JOCKEY AND BAY MEADOWS BY PAINEWEBBER AND
MONTGOMERY
In connection with rendering its fairness opinion, PaineWebber advised
Patriot's Board of Directors that the individual valuations of the assets and
business of Cal Jockey and Bay Meadows (including the paired share
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structure) produced a valuation range per Paired Share of between $33.48 and
$39.50. See "The Merger and Subscription--Opinion of Patriot's Financial
Advisor." In connection with rendering its fairness opinion, Montgomery
advised Cal Jockey's and Bay Meadows' Boards of Directors that the analyses
performed by Montgomery and described to the Cal Jockey and Bay Meadows Boards
of Directors indicated a potential implied equity value range per Paired Share
of between $15.00 and $18.50. See "The Merger and Subscription--Opinion of
Financial Advisor for Cal Jockey and Bay Meadows." A significant reason for
the two different ranges is that, in their respective fairness analyses,
Montgomery attempted to determine the value of the paired share structure
currently realized by Cal Jockey and Bay Meadows, while PaineWebber attempted
to determine the value of the paired share structure that could be realized by
Patriot.
DEPENDENCE ON LESSEES AND PAYMENTS UNDER THE PARTICIPATING LEASES
Following the Merger, New Patriot REIT's ability to make distributions to
stockholders will depend 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 Patriot 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. In addition, the Merger and the Related
Transactions also could have a negative effect on New Patriot REIT's
relationship with its Lessees who could be concerned that, upon expiration of
the current lease term, operating control over leased hotels will be
transferred to New Patriot Operating Company. Any failure or delay by the
Lessees in making rent payments may adversely affect New Patriot REIT's
ability to make anticipated distributions to stockholders.
CERTAIN CONFLICTS OF INTEREST RELATING TO PATRIOT
Patriot has leased for one-year terms the Carefree Resorts, the Radisson
Hotel in Northbrook, Illinois, the Luxeford Suites Hotel in Minneapolis,
Minnesota, the Sheraton Park Place Hotel in Minneapolis, Minnesota, and the
Myrtle Beach Hilton Oceanfront Golf Resort in Myrtle Beach, South Carolina and
sold certain assets relating to the Carefree Resorts, including the
Carefree(R), Boulders(R) and certain other trademarks, to PAH RSI Lessee, a
limited liability company owned by certain executive officers of Patriot. It
is currently anticipated that, by the Effective Time, Patriot also will lease
to PAH RSI Lessee nine additional hotels which are the subject of Proposed
Acquisitions, including the five Snavely Group hotels, four of which are
located in Cleveland, Ohio and one of which is in Akron, Ohio, and four
Doubletree Hotels which are located in Houston, Texas, Anaheim, California,
Overland Park, Kansas and St. Louis, Missouri. The executive officers who own
PAH RSI Lessee also acquired substantially all of the economic interests in
Resort Services, Inc. ("RSI") which manages the Carefree Resorts pursuant to a
management contract with PAH RSI Lessee. Patriot has no direct or indirect
equity interest in PAH RSI Lessee or RSI. Following the Merger, in order for
New Patriot REIT to re-lease the hotels referred to above to New Patriot
Operating Company, New Patriot REIT will exercise its right to terminate the
one-year leases with PAH RSI Lessee by paying to PAH RSI Lessee the fair
market value of the leasehold interests or otherwise seek to have New Patriot
Operating Company acquire such leaseholds. In addition, New Patriot Operating
Company will offer to acquire the assets, including the inventory, trademarks
and right to receive certain royalty fees, of PAH RSI Lessee at the then fair
market value for such assets. Determination of the fair market value of such
amounts for the leasehold interests and assets of PAH RSI Lessee will be
negotiated with the owners of PAH RSI Lessee and the payment of any such
amounts will go to such owners personally. Based on current market conditions,
Patriot presently believes that the aggregate fair market value of the
leasehold interests and assets (net of liabilities) currently held by PAH RSI
Lessee is approximately $225,000. Patriot believes that the owners of PAH RSI
Lessee will cooperate with the sale of such assets; however, the owners are
not obligated to sell such assets and thus no assurances can be made as to
whether the owners will in fact agree to sell such assets following the Merger
or as to what the purchase price for the leasehold interests and assets will
be. Failure to acquire the trademarks, including the Carefree(R) and
Boulders(R) trademarks, could materially impair the value of the Carefree
Resorts and could have a material adverse effect on the results of operations
and financial condition of New Patriot Operating Company and New Patriot REIT.
Certain directors and officers of Patriot (who will continue as directors of
New Patriot REIT and officers of New Patriot REIT and/or New Patriot Operating
Company) or their affiliates may have had unrealized gain in
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their interests in certain of Patriot's hotels transferred to Patriot in
connection with the Initial Offering. The sale of such hotels by New Patriot
REIT may cause adverse tax consequences to such officers, directors or their
affiliates. Therefore, the interests of New Patriot REIT, such officers,
directors and their affiliates could be different in connection with the
disposition of such hotels.
Affiliates of the Lessees may acquire, develop or manage hotels that compete
with New Patriot REIT's hotels. Accordingly, the Lessees' decisions relating
to the operation of New Patriot REIT's hotels that are in competition with
other hotels owned or managed by them may not reflect the interests of New
Patriot REIT.
RISK OF INVESTMENT IN SUBSIDIARIES CONTROLLED BY OTHER PARTIES
The Crowne Plaza Ravinia Hotel, the Marriott WindWatch Hotel and certain
non-leaseable 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 nonvoting securities. The Patriot
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 Patriot Partnership also owns,
indirectly, 4% of the voting securities. Certain executive officers and/or
directors of Patriot own, directly or indirectly, all of the voting securities
of PAH Boulders, Inc. ("PAH Boulders") and the remaining 96% of the voting
securities of PAH Ravinia and PAH WindWatch. Although the ownership interests
of the Patriot Partnership represent an approximately 99% economic interest in
each of the Non-Controlled Subsidiaries, the Patriot Partnership is not able
to elect directors or managers. As a result, the voting securities holders of
the Non-Controlled Subsidiaries may implement business policy decisions that
would not have been implemented by New Patriot REIT and that are adverse to
the interests of New Patriot REIT or that lead to adverse financial results.
Additionally, following the Merger New Patriot REIT may seek to restructure
the Non-Controlled Subsidiaries so that the Crowne Plaza Ravinia Hotel and the
Marriott WindWatch Hotel may be leased to New Patriot Operating Company and
certain non-leaseable assets relating to the Carefree Resorts may be sold to
New Patriot Operating Company. To effect such restructurings and asset sales,
New Patriot REIT will be required to obtain the approval of those executive
officers of Patriot who have voting control over such Non-Controlled
Subsidiaries. No assurances can be made that the executive officers will
consent to such restructurings.
BENEFITS TO CERTAIN DIRECTORS AND OFFICERS OF CAL JOCKEY AND BAY MEADOWS
In considering the recommendation of the Board of Directors of Cal Jockey
and Bay Meadows to approve the Merger Agreement and the Related Transactions,
stockholders of Cal Jockey and Bay Meadows should be aware that certain
members of the management and the Board of Directors of Cal Jockey and Bay
Meadows and have certain interests in, and will receive benefits as a
consequence of, the Merger and the Related Transactions that are separate from
the interests of, and benefits to, stockholders of Cal Jockey and Bay Meadows
and generally, and which may result in conflicts of interest with respect to
their obligations to Cal Jockey and Bay Meadows in determining whether it
should consummate the Merger and the Related Transactions.
On May 28, 1997, at the same meeting at which the Cal Jockey Board of
Directors approved the Merger Agreement, the Cal Jockey Board agreed to pay
its members, Kjell H. Qvale, James M. Harris, James P. Conn, David M. Gjerdrum
and Ronald J. Volkman and the sole employee of Cal Jockey, Ray Kuratek the
aggregate sum of $600,000 to be allocated by the Cal Jockey Board of Directors
at a subsequent Board meeting. The Cal Jockey Board of Directors agreed to pay
such amount as compensation for services previously rendered to Cal Jockey by
such individuals, particularly in recognition of their significant
contributions to the Merger process. The compensation payments are conditioned
upon consummation of the Merger and the Related Transactions. The fact that
Cal Jockey has only one employee, combined with the complex structure of the
Merger and Related Transactions, has resulted in significant efforts and time
commitments from these individuals in connection with the Merger.
Bay Meadows has entered into Severance Agreements with six Officers that,
under certain circums tances, entitle each Officer to receive payments and
other benefits if the Officer's employment is terminated following a
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change in control of Bay Meadows. As of May 28, 1997, the aggregate amount of
the payments that would be made to the Officers under the Severance Agreements
would be $1,151,000. In addition, as of May 28, 1997, Bay Meadows has granted
to the Officers a total of 137,500 options to purchase Paired Shares of which
a total of 124,166 were vested. According to the terms of such options, all
options which are not currently vested will become fully vested and
immediately exercisable in connection with the Merger and the Related
Transactions. In the event the Officers exercise such options then, based on
the $41 1/2 closing price of a Paired Share as quoted on the AMEX as of the
close of business on May 28, 1997, the aggregate value (net of exercise
prices) for such options would be $3,761,875. If the Officers choose not to
exercise their options prior to the Merger and the Related Transactions, they
will, as a result, hold fully vested options to purchase 137,500 paired shares
of New Patriot REIT Common Stock and New Patriot Operating Company Common
Stock. See "The Merger and Subscription--Interests of Certain Officers and
Directors." Presently there is a disagreement between Bay Meadows and Cal
Jockey concerning the total number of outstanding options to purchase Cal
Jockey Common Stock that have been granted to Bay Meadows in connection with
its issuance of options to purchase Paired Shares to the Officers and certain
employees of Bay Meadows. For a description of such disagreement, see
"Stockholders' Meetings, Litigation and Disagreements."
RISKS RELATING TO PROPOSED WYNDHAM TRANSACTIONS
There may be certain additional risks to stockholders of New Patriot REIT
and New Patriot Operating Company as a result of the Proposed Wyndham
Transactions. These risks include, among others:
(i) the aggregate acquisition price to be paid by New Patriot REIT and New
Patriot Operating Company in the Proposed Wyndham Transactions has a dilutive
effect on Patriot's net income per share on a pro forma basis for 1996 and the
three months ended March 31, 1997 and may have a dilutive effect on net income
per share in future periods. The Unaudited Pro Forma Combined Financial
Statements contained herein illustrate the effect of the Proposed Wyndham
Transactions on the net income per share. On a combined pro forma basis for
New Patriot REIT and New Patriot Operating Company, net income per share is
$0.58 for the year ended December 31, 1996 and $0.27 for the three months
ended March 31, 1997 (following consummation of the Proposed Wyndham
Transactions), as compared to $1.29 and $0.40 for the year ended December 31,
1996 and the three months ended March 31, 1997, respectively, for New Patriot
REIT and New Patriot Operating Company (post-Merger), and $1.78 and $0.44 for
the year ended December 31, 1996 and the three months ended March 31, 1997,
respectively, on a pro forma basis for Patriot (pre-Merger) (or $0.89 and
$0.22, respectively, as adjusted for the 2-for-1 stock split). See "Unaudited
Pro Forma Combined Financial Statements." In addition, upon consummation of
the Proposed Wyndham Transactions, the current stockholders of Patriot and the
current stockholders of Cal Jockey and Bay Meadows will hold in the aggregate
approximately 53.4% and 13.4%, respectively, of the outstanding paired shares
of New Patriot REIT Common Stock and New Patriot Operating Company Common
Stock, assuming no Wyndham stockholders exercise their cash election rights;
(ii) as a result of the Proposed Wyndham Transactions, the pro forma
combined indebtedness for New Patriot REIT and New Patriot Operating Company
will increase by $511.7 million from $579.9 million to $1,091.6 million
(assuming no Wyndham stockholders exercise their cash election rights in the
Proposed Wyndham Transactions). See "Unaudited Pro Forma Combined Financial
Statements"; and
(iii) following the Proposed Wyndham Transactions, New Patriot REIT and New
Patriot Operating Company will have separate management teams, including
different Chief Executive Officers and Chief Financial Officers. This could
increase the possibility of disagreements arising between the two companies.
See""-- Potential Conflicts of Interest Between New Patriot REIT and New
Patriot Operating Company."
HOTEL INDUSTRY RISKS
Operating Risks
Following the Merger, the primary businesses of New Patriot REIT and New
Patriot Operating Company will be that of buying, selling, leasing and
managing hotels which are subject to operating risks common to the
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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 New Patriot REIT, New Patriot
Operating Company and the Lessees, (ii) increases in operating costs due to
inflation and other factors, which increases may not have been offset in
recent years, and may not be offset in the future 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 New Patriot Operating Company to generate
revenues and to make lease payments and therefore New Patriot REIT's ability
to make expected distributions to stockholders.
New Patriot REIT and New Patriot Operating Company are also subject to the
risk that in connection with the acquisition of hotels and hotel operation
companies it may not be possible to transfer certain operating licenses, such
as food and beverage licenses, to the Lessees, the Operators or New Patriot
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 New Patriot REIT or New Patriot 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 New Patriot Operating Company to
generate revenues and make lease payments to New Patriot REIT.
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 F, F & E. Under the terms of the Participating Leases,
Patriot 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. The F, F & E obligations of Patriot will be assumed by New
Patriot REIT in the Merger; however, if capital expenditures exceed New
Patriot REIT's expectations, the additional cost could have an adverse effect
on New Patriot REIT's cash available for distribution. In addition, New
Patriot REIT 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.
Competition for Hotel Acquisition Opportunities
Following the Merger, New Patriot REIT and New Patriot Operating Company may
be competing for investment opportunities with entities that have
substantially greater financial resources than New Patriot REIT and New
Patriot Operating Company. These entities may generally be able to accept more
risk than New Patriot REIT and New Patriot Operating Company 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
New Patriot REIT and New Patriot Operating Company and increase the bargaining
power of property owners seeking to sell.
Additionally, Patriot's ability to acquire additional hotels could be
negatively impacted by the paired share structure because hotel management
companies, franchisees and others who currently approach Patriot with
acquisition opportunities in hopes of establishing lessee or management
relationships may not do so in the future out of concern that Patriot will
rely on New Patriot 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 property following the
sale. This could have a negative impact on New Patriot REIT'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
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variations in revenue at hotels may cause quarterly fluctuations in the
operating revenues of New Patriot Operating Company and the lease revenues of
New Patriot REIT.
REAL ESTATE INVESTMENT RISKS
General Risks
New Patriot REIT's investments will be subject to varying degrees of risk
generally incident to the ownership of real property. The underlying value of
New Patriot REIT's real estate investments and New Patriot REIT's income and
ability to make distributions to its stockholders will be dependent upon the
ability of the Lessees, the Operators and New Patriot Operating Company to
operate Patriot'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 New Patriot REIT. Income from New
Patriot REIT'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 New Patriot REIT and New
Patriot Operating Company.
Value and Illiquidity of Real Estate
Real estate investments are relatively illiquid. The ability of New Patriot
REIT to vary its portfolio in response to changes in economic and other
conditions will therefore be limited. If New Patriot REIT must sell an
investment, there can be no assurance that New Patriot REIT 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 New Patriot REIT's investment.
Property Taxes
Patriot's hotels and Cal Jockey's and Bay Meadows' racing facilities are
subject to real property taxes. The real property taxes on hotel properties as
well as the racing facilities in which New Patriot REIT invests may increase
or decrease as property tax rates change and as the value of the properties
are assessed or reassessed by taxing authorities. Additionally, as a result of
the Merger, certain of Patriot's properties may be subject to reappraisal or
reassessment. If property taxes increase as a result of such reappraisals or
reassessments, New Patriot REIT's ability to make expected distributions to
its stockholders could be adversely affected.
Consents of Ground Lessor Required for Sale of Certain Hotels
The Fairmount Hotel, the Holiday Inn Lenox, the Hyatt Newporter Hotel, the
WestCoast Long Beach Hotel and Marina and the Hyatt Regency, Lexington
currently owned by the Patriot Partnership are subject to ground leases with
third party lessors. In addition, New Patriot REIT may acquire hotels in the
future that are subject to ground leases. Any proposed sale of a hotel that is
subject to a ground lease by the Patriot Partnership or any proposed
assignment of the Patriot Partnership's leasehold interest in the ground lease
may require the consent of third party lessors. As a result, New Patriot REIT
and the Patriot Partnership may not be able to sell, assign, transfer or
convey the Patriot Partnership's interest in any such hotel in the future
absent the consent of such third parties, even if such transaction may be in
the best interests of the stockholders of New Patriot REIT.
Environmental Matters
The operating costs of New Patriot REIT and New Patriot Operating Company
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
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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
Patriot's hotels, New Patriot REIT, New Patriot Operating Company, 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 New Patriot REIT's results of operations and financial condition. Phase
I environmental site assessments ("ESAs") have been conducted at all of
Patriot's hotels by qualified independent environmental engineers. The purpose
of Phase I ESAs is to identify potential sources of contamination for which
any of Patriot's hotels may be responsible and to assess the status of
environmental regulatory compliance. The ESAs have not revealed any
environmental liability or compliance concerns that Patriot believes would
have a material adverse effect on New Patriot REIT's business, assets, results
of operations or liquidity, nor is Patriot 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 Patriot is
currently unaware. Patriot 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 its hotels.
Compliance with Americans with Disabilities Act
Under the Americans with Disabilities Act of 1990 (the "ADA"), all public
accommodations are required to meet certain federal requirements related to
access and use by disabled persons. A determination that New Patriot REIT or
New Patriot Operating Company is not in compliance with the ADA could result
in the imposition of fines or an award of damages to private litigants. If New
Patriot REIT were required to make modifications to comply with the ADA, the
ability of New Patriot REIT and New Patriot Operating Company to make expected
distributions to their stockholders could be adversely affected.
Uninsured and Underinsured Losses
Each of Patriot's Participating Leases specifies comprehensive insurance to
be maintained on each of the applicable leased hotels, including liability,
fire and extended coverage. Patriot 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 New Patriot 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 Boards of Directors
and management of each of New Patriot REIT and New Patriot Operating Company
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 New Patriot REIT or New Patriot
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 New Patriot REIT or New
Patriot 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 proceeds received by New Patriot REIT or New Patriot Operating
Company might not be adequate to restore its economic position with respect to
such property.
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Acquisition and Development Risks
New Patriot REIT and New Patriot Operating Company 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, new project
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 New
Patriot REIT generally must distribute 95% of its ordinary taxable income in
order to maintain its qualification as a REIT may limit New Patriot REIT'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 New Patriot
REIT's cash available for distribution might be adversely affected.
RISKS OF OPERATING HOTELS UNDER FRANCHISE OR BRAND AFFILIATIONS
As of May 28, 1997, 52 of Patriot's hotels were operated under franchise or
brand affiliations. In addition, hotels in which New Patriot REIT 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 New Patriot REIT, New Patriot Operating Company, the Operating
Partnerships, 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 New Patriot REIT'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, New Patriot REIT's Board of Directors may elect to allow
the Franchise License to lapse which could under certain circumstance result
in New Patriot REIT incurring significant costs for terminating such Franchise
License. In any case, if a franchise or brand affiliation is terminated, New
Patriot REIT 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.
POTENTIAL RISKS RELATED TO ENTITLEMENTS FOR FRANKLIN AGREEMENT AND IACOCCA
AGREEMENT
Pursuant to the Franklin Agreement and the Iacocca Agreement, Cal Jockey has
agreed to sell approximately 33 acres of the Stable Area and the entire
approximately 40 acre Training Track Area for purchase prices of approximately
$21 million and $31 million, respectively. In addition, Cal Jockey and the
buyers are responsible for a portion of various off-site improvements. See
"The Companies--Cal Jockey." As a condition to consummation of the land sale
transactions contemplated by the Franklin Agreement and the Iacocca Agreement,
Cal Jockey is required to secure certain planning, land use and zoning
entitlements from the City of San Mateo in connection with the development of
the subject properties (the "Entitlements"). Cal Jockey also is required to
obtain final certification of an Environmental Impact Report analyzing the
environmental effects (such as impacts on traffic flow, air quality and growth
inducement) of the contemplated developments (the "EIR"). On April 22, 1997,
the City of San Mateo City Council approved the Entitlements and certified the
EIR. Such approval and certification are subject to possible appeal by
citizens and neighborhood or other groups. If any such appeal is commenced,
significant delays in the development process could occur. Any such delay
could affect the obligations of Property
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Resources and Airdial to consummate the purchase of the Stable Area and the
Training Track Area. In addition, both the Franklin Agreement and the Iacocca
Agreement require as a condition to the buyers' obligations to consummate the
sale transactions, that Cal Jockey secure a development agreement vesting the
rights of Property Resources and Airdial to develop the property subject to
the conditions of approval. While a draft of such agreement has been submitted
to the City of San Mateo, city officials have not yet indicated whether the
City of San Mateo will agree to execute such a development agreement. A
failure of the City of San Mateo to agree to such a development agreement
could give rise to rights of termination of the Franklin Agreement and the
Iacocca Agreement by Property Resources and Airdial, respectively. The
Proposed PaineWebber Land Sale will not affect the land sale transactions
contemplated by the Franklin Agreement and the Iacocca Agreement. In
connection with the Proposed PaineWebber Land Sale, New Patriot REIT generally
will assign all of its rights and benefits under the Franklin Agreement and
the Iacocca Agreement to an affiliate of PaineWebber (e.g., the proceeds to be
received in connection with such transaction) and the PaineWebber affiliate
generally will assume all of New Patriot REIT's development obligations under
the Franklin Agreement and the Iacocca Agreement. Pursuant to the Proposed
PaineWebber Land Sale, New Patriot REIT will be responsible for certain of the
development costs which relate to using the land as a racing facility,
including the building of new stabling facilities. See "--Horse Racing
Industry Risks--Stable Area" and "The Companies--Surviving Companies--Proposed
PaineWebber Land Sale."
HORSE RACING INDUSTRY RISKS
Regulation of Gaming Operations
Bay Meadows' pari-mutuel wagering 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 Bay Meadows prior
to the Merger and the Related Transactions and New Patriot Operating Company
after the Merger and the Related Transactions. Any such change in regulations
may have a material adverse effect on New Patriot Operating Company's
financial condition and results of operations.
Bay Meadows has received a license from the CHRB for its 1997 horse racing
season under which it is authorized to hold a split Thoroughbred horse racing
meet at the Racecourse and to accept pari-mutuel wagers. This license must be
renewed on an annual basis and the CHRB has broad discretion to reject any
application for a license. Following the Merger and the Related Transactions,
New Patriot Operating Company or a company wholly-owned by it will be required
to file an amendment to Bay Meadow's CHRB application for its 1997 license
reflecting that New Patriot Operating Company or a company wholly-owned by it
will be conducting Bay Meadows' horse racing operations during the remainder
of its 1997 horse racing meet. In informal discussions, representatives of the
CHRB have indicated to Bay Meadows' management that the CHRB would not object
to such an amendment to Bay Meadows' application. No assurances can be given,
however, that the CHRB will not object to such an amendment when it is filed.
Failure to receive timely approval of such an amendment to its application
could have a material adverse effect on New Patriot Operating Company. In
addition, California law requires that each of the directors and certain
employees of New Patriot Operating Company must be licensed with the CHRB. No
assurances can be given that the CHRB will grant licenses to each of the
proposed directors and each of such employees of New Patriot Operating
Company. If a director or employee required to be licensed were denied a
license by the CHRB, New Patriot 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 New Patriot 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 New Patriot Operating Company in the future, nor can there be
any assurance that an issued license will not be modified or revoked. Patriot
has the right to terminate the Merger Agreement if prior to the Effective Time
the number of horse racing days allocated to Bay Meadows for 1997 at the
Racecourse is less than 80 days.
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Stable Area
Bay Meadows' operations are conducted at the Racecourse, a single facility
in San Mateo, California. Cal Jockey has agreed to sell the Stable Area of the
Racecourse pursuant to the Franklin Agreement. See "The Companies--Cal
Jockey." The purchaser of the Stable Area has indicated its intention to tear
down the existing stables. Bay Meadows has publicly proposed a plan for the
construction of 900 on-site stalls replacing the stalls to be torn down and
Patriot has indicated its support for this plan. In addition, the City of San
Mateo has conceptually approved the stables plan as part of the Entitlements,
and also has made it a condition of development under the Entitlements that
there be a minimum of 900 stalls available to support live racing (including
any combination of existing and new stalls). The cost for the construction of
such stalls together with various other improvements is estimated to be
between approximately $11 million and $13 million. There can be no assurances
that Bay Meadows or New Patriot Operating Company will obtain in a timely
fashion the necessary final governmental approvals to construct such stalls.
As part of the Proposed PaineWebber Land Sale, Patriot has agreed to pay the
costs associated with the construction of these stalls. Any prolonged
suspension of operations at the facility due to failure to construct the
stalls in a timely fashion, destruction of or material damage to the facility
or for other reasons could have a material adverse effect on New Patriot
Operating Company's financial condition and results of operations. New Patriot
Operating Company intends to maintain property and business interruption
insurance to protect against such types of disruption, but there can be no
assurance that the proceeds of such insurance would be adequate to repair or
rebuild its facilities in such event or to compensate New Patriot Operating
Company for losses incurred during the period of any such disruption.
Dependence on Relationship with Owners and Trainers Associations
Bay Meadows' Thoroughbred horse racing operations requires it to maintain
good working relationships with the Thoroughbred Owners of California (the
"Owners Association"), the organization recognized by the CHRB as representing
owners of Thoroughbreds participating in horse racing meets at the Racecourse,
and the California Horsemen's Benevolent and Protective Association (the
"Trainers Association"), the organization recognized by the CHRB as
representing trainers. If New Patriot Operating Company is unable to continue
Bay Meadows' present relationships with the Owners Association or the Trainers
Association or find itself unable to attract a sufficient number of horses to
its live horse race meets, such events could have a material adverse effect on
New Patriot Operating Company's financial condition and results of operations.
Competition
Thoroughbred horse racing, and gaming generally, are competitive industries.
New Patriot Operating Company will compete in regional markets with other
horse race courses, off-track betting, state-run lotteries and Indian
reservation gaming. Many of these competitors have resources that exceed those
of New Patriot Operating Company. New Patriot Operating Company will also
compete locally with other sporting and entertainment businesses. Approval of
legislation legalizing casinos and other forms of gaming or expansion of
gaming at Indian reservations could increase competition for New Patriot
Operating Company in the future and could have a material adverse effect on
New Patriot Operating Company's financial condition and results of operations.
Also, New Patriot Operating Company may face increasing competition from
businesses accepting wagers by telephone and via the Internet.
Declines in On-Track Attendance
Many race tracks across the nation, including the Racecourse, are
experiencing declines in on-track attendance. There can be no assurance that
New Patriot Operating Company will not experience further declines in on-track
attendance, which declines could have a material adverse effect on its results
of operations.
LACK OF EXPERIENCE IN THE HORSE RACING BUSINESS; RELIANCE ON BAY MEADOWS
MANAGEMENT
Following the Merger and the Related Transactions, New Patriot Operating
Company will manage Bay Meadows' existing horse racing operations, an area in
which Patriot has no prior experience. Although New Patriot
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Operating Company expects to retain Bay Meadows' existing management and
personnel to continue to manage these horse racing operations, there can be no
assurance that New Patriot Operating Company will be able to retain said
existing 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 New Patriot Operating Company.
COMPARISON OF STOCKHOLDER RIGHTS
The rights of Patriot stockholders are currently governed by the VSCA, the
Patriot Charter and the Patriot Bylaws and the rights of the stockholders of
Cal Jockey and Bay Meadows currently are governed by the DGCL, the Cal Jockey
Charter, the Bay Meadows Charter, the Cal Jockey Bylaws and the Bay Meadows
Bylaws. Under the terms of the Merger Agreement, upon stockholder approval of
the Proposals, the Cal Jockey Charter and the Bay Meadows Charter and the Cal
Jockey Bylaws and the Bay Meadows Bylaws will be amended and restated and will
become the Restated Charters and the Restated Bylaws of New Patriot REIT and
New Patriot Operating Company. At the Effective Time, stockholders of Patriot,
Cal Jockey and Bay Meadows will become stockholders of New Patriot REIT and
New Patriot Operating Company, each a Delaware corporation, and their rights
as stockholders of New Patriot REIT and New Patriot Operating Company will
thereafter be governed by the DGCL and the provisions of the Restated Charters
and the Restated Bylaws. In considering the recommendation of the Boards of
Directors of Patriot, Cal Jockey and Bay Meadows to approve the Proposals,
stockholders of Patriot, Cal Jockey and Bay Meadows should be aware that the
rights of stockholders of New Patriot REIT and New Patriot Operating Company
under the provisions of the Restated Charters and the Restated Bylaws will
differ significantly from the existing rights of the Patriot stockholders
under the Patriot Charter and Patriot Bylaws as well as the existing rights of
the stockholders of Cal Jockey and Bay Meadows under the Cal Jockey Charter,
the Bay Meadows Charter, the Cal Jockey Bylaws and the Bay Meadows Bylaws.
Stockholders of Patriot, Cal Jockey and Bay Meadows should carefully read the
Restated Charters and the Restated Bylaws, which are attached to this Joint
Proxy Statement/Prospectus as Annexes B and D and Annexes C and E,
respectively.
Certain provisions of the Restated Charters and the Restated Bylaws could
have a potential anti-takeover effect on New Patriot REIT and New Patriot
Operating Company. The staggered board provision, the fact that directors of
New Patriot REIT and New Patriot Operating Company would be removable only for
cause, the fact that the Restated Charters and the Restated Bylaws would not
permit stockholders to call a special meeting of stockholders, the fact that
the Restated Charters would require the written consent of all stockholders
entitled to vote on a matter for stockholders to take action on such a matter
without a meeting, and the presence of advance-notice bylaw provisions with
respect to stockholder proposals and director nominations could have the
effect of making it more difficult for a third party to acquire control of New
Patriot REIT and New Patriot Operating Company, including certain acquisitions
that stockholders may deem to be in their best interests. See "Comparison of
Stockholder Rights."
POSSIBLE ADVERSE EFFECTS ON MARKET PRICE OF COMMON STOCK OF NEW PATRIOT REIT
AND NEW PATRIOT OPERATING COMPANY ARISING FROM SHARES AVAILABLE FOR FUTURE
SALE
No prediction can be made as to the effect, if any, that future sales of
shares, or the availability of shares for future sale, will have on the market
price of the common stock of New Patriot REIT and New Patriot Operating
Company. Sales of substantial amounts of paired shares of New Patriot REIT
Common Stock and New Patriot Operating Company Common Stock (including paired
shares issued in connection with outstanding stock options or the exchange or
sale of OP Units of the Operating Partnerships) or the perception that such
sales could occur, could adversely affect the prevailing market price for
paired shares of New Patriot REIT Common Stock and New Patriot Operating
Company Common Stock. With the exception of the paired shares of New Patriot
REIT Common Stock and New Patriot Operating Company Common Stock issued to
affiliates of Patriot in connection with the Merger, all of the paired shares
of New Patriot REIT Common Stock and New Patriot Operating Company Common
Stock to be issued to Patriot stockholders in connection with the Merger and
Subscription (approximately 22,960,162 paired shares) will be freely
transferable. In addition, following the Merger options to purchase an
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aggregate of 2,972,425 paired shares of New Patriot REIT Common Stock and New
Patriot Operating Company Common Stock will be outstanding. These options will
be held by certain current and former officers, employees and directors of
Patriot, Cal Jockey and Bay Meadows pursuant to certain option plans. Also,
upon consummation of the Merger, in addition to the OP Units issued to New
Patriot REIT and New Patriot Operating Company, each of the Operating
Partnerships will have outstanding an aggregate of 4,486,530 OP Units (based
upon the outstanding OP Units of the Patriot Partnership of 4,322,700 as of
May 28, 1997). In general, each of these OP Units may be redeemed for cash or,
at the election of New Patriot REIT and New Patriot Operating Company, an
equal number of OP Units from each Operating Partnership may be exchanged for
paired shares of New Patriot REIT Common Stock and New Patriot Operating
Company Common Stock.
SUBSTANTIAL EXPENSES AND PAYMENTS IF MERGER FAILS TO OCCUR
No assurance can be given that the Merger and the Related Transactions will
be consummated. If the Merger and the Related Transactions are not
consummated, Patriot, Cal Jockey and Bay Meadows will have incurred
substantial expenses in connection with the transactions and Cal Jockey shall
be required to repay the $2,900,000 Loan made by Patriot to enable Cal Jockey
to pay the termination fee owed to Hudson Bay. If the Merger Agreement is
terminated under certain circumstances and/or Cal Jockey and Bay Meadows enter
into an acquisition agreement with a third party under certain circumstances,
Cal Jockey and Bay Meadows shall also be required to pay to Patriot
$5,000,000. The requirement to make such $7,900,000 payments could have the
effect of deterring other potential acquirors from making competing offers for
Cal Jockey and Bay Meadows, including certain offers that may be more
favorable to the stockholders of Cal Jockey and Bay Meadows. Additionally, in
the event the Merger and the Related Transactions are not consummated and no
other acquiror has agreed to make such $7,900,000 payments, the payments of
such amounts could have a material adverse effect on the results of operations
and financial condition of Cal Jockey and Bay Meadows. If the Merger Agreement
is terminated in certain other circumstances, Patriot will be required to pay
Cal Jockey $2,900,000 (which amount Patriot may offset against the principal
amount due on the $2,900,000 Loan) and reimburse Cal Jockey and Bay Meadows
for their expenses up to an aggregate $1,000,000. In the event that the Cal
Jockey and Bay Meadows stockholders approve the Merger Proposal but fail to
approve either the Cal Jockey Charter and Bylaw Amendment Proposal or the Bay
Meadows Charter and Bylaw Amendment Proposal and Patriot terminates the Merger
Agreement because of such failure, Patriot shall pay in the aggregate up to
$5,000,000 to Cal Jockey and Bay Meadows. In addition, pursuant to the terms
of the Wyndham Merger Agreement, if the Merger is not consummated by September
1, 1997, then either Patriot or Wyndham could terminate the Wyndham Merger
Agreement and Patriot would be required to pay Wyndham a $25 million
termination fee. See "The Merger Agreement--Termination Amount and Expenses."
ADVERSE EFFECT OF INCREASE IN MARKET INTEREST RATES ON PRICE OF COMMON STOCK
OF NEW PATRIOT REITAND NEW PATRIOT OPERATING COMPANY
One of the factors that may influence the price of the paired shares of New
Patriot REIT Common Stock and New Patriot Operating Company Common Stock in
public trading markets will be the annual yield from distributions by New
Patriot REIT and New Patriot Operating Company on the paired shares of New
Patriot REIT Common Stock and New Patriot Operating Company Common Stock as
compared to yields on certain financial instruments. An increase in market
interest rates will result in higher yields on certain financial instruments,
which could adversely affect the market price of the paired shares of New
Patriot REIT Common Stock and New Patriot Operating Company Common Stock.
NO DISSENTERS' RIGHTS
As provided under the DGCL and VSCA, stockholders of Cal Jockey, Bay Meadows
and Patriot do not have dissenters' rights in connection with the Merger and
the Related Transactions.
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THE COMPANIES
PATRIOT
Patriot is a self-administered REIT which owns interests in 56 hotels in 22
states, with an aggregate of 13,355 guest rooms as of May 28, 1997. Patriot's
hotels 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, Patriot's portfolio includes
world-class resort hotels, including The Boulders, near Scottsdale, Arizona,
The Lodge at Ventana Canyon in Tucson, Arizona, The Peaks Resort & Spa in
Telluride, Colorado, and Carmel Valley Ranch Resort in Carmel, California, as
well as prominent hotels in major tourist destinations, including Fort
Lauderdale, New Orleans, San Antonio and San Diego. Patriot's portfolio
includes 46 full service hotels, 5 resort hotels, 4 limited service hotels,
and an executive conference center. Fifty-two of the hotels are operated under
franchise or brand affiliations with nationally recognized hotel companies,
including Marriott(R), Crowne Plaza(R), Radisson(R), Hilton(R), Hyatt(R), Four
Points by Sheraton(R), Holiday Inn(R), Wyndham(TM), Wyndham Garden(R),
WestCoast(R), Doubletree(R), Embassy Suites(R), Hampton Inn(R), Registry(R),
Carefree(R), and Grand Heritage(R). Pursuant to its alliance with Doubletree
Hotels Corporation, Patriot owns six of its hotels through joint venture
arrangements with Doubletree Hotels Corporation, under which Patriot holds a
90% ownership interest with regard to four of such hotels and an 85% ownership
interest with regard to two of such hotels. For the twelve months ended
December 31, 1996, Patriot's hotel portfolio (excluding three hotels
undergoing substantial renovation and the Carefree Resorts) had an average
occupancy rate of 69.9% and an ADR of $84.94. For the twelve months ended
December 31, 1996, the Carefree Resorts had an average occupancy rate of 69.2%
and an ADR of $258.98.
Patriot was formed as a Virginia corporation in April 1995 for the purpose
of acquiring equity interests in hotel properties. In October 1995, Patriot
completed its Initial Offering and commenced operations. Through its wholly-
owned subsidiaries, PAH LP and PAH GP, Patriot held an approximate 82.7%
limited partnership interest and the sole 1% general partner interest in the
Patriot Partnership as of May 28, 1997. The Patriot Partnership owns, directly
or through subsidiaries, Patriot's interests in each of its hotels. A diagram
outlining the corporate structure of Patriot prior to the Merger is set forth
on page 62.
In connection with its Initial Offering, Patriot obtained the Line of Credit
for up to $165 million from PaineWebber Real Estate to fund the acquisition of
additional hotels and renovations and improvements to hotels and for general
working capital purposes. The Line of Credit matures in October 1998 and bears
interest at a rate per annum equal to 30-day LIBOR plus 1.90%. The maximum
amount available under the Line of Credit was increased in January 1997 to
$475 million. As of May 28, 1997, Patriot had approximately $471.2 million
outstanding under the Line of Credit. As of such date, Patriot also had
outstanding approximately $64.0 million of other mortgage loans, resulting in
total outstanding indebtedness of approximately $535.2 million. The Line of
Credit is secured by 38 of Patriot's 56 hotels and Patriot's remaining
indebtedness encumbers three additional hotels. No prepayment penalties are
required under the Line of Credit. Patriot has entered into a commitment
letter with PaineWebber Real Estate and Chase regarding expanding and
replacing the Line of Credit with the New Credit Facility with up to $1.2
billion in availability. In connection will entering into this commitment
letter, PaineWebber Real Estate agreed to increase Patriot's availability
under the Line of Credit to $625 million. See "--Surviving Companies." Patriot
also may seek additional debt or equity financing prior to the consummation of
the Merger.
On January 30, 1997, the Board of Directors of Patriot declared a 2-for-1
stock split effected in the form of a stock dividend distributed on March 18,
1997 to Patriot stockholders of record on March 7, 1997. Unless otherwise
indicated, all references hereafter to the Exchange Ratio, outstanding shares
of Patriot Common Stock, per share amounts, market prices of Patriot Common
Stock and options to purchase shares of Patriot Common Stock give effect to
the 2-for-1 stock split. The number of outstanding OP Units of the Patriot
Partnership did not change in connection with the 2-for-1 stock split. The OP
Unit conversion factor, however, has been changed such that each OP Unit of
the Patriot Partnership subject to redemption will now be redeemed for cash
equal to
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the value of two shares of Patriot Common Stock (or, at Patriot's election,
Patriot may purchase each OP Unit of the Patriot Partnership offered for
redemption for two shares of Patriot Common Stock).
Patriot's principal executive office is located at 3030 LBJ Freeway, Suite
1500, Dallas, Texas 75234 and its telephone number is (972) 888-8000.
CAL JOCKEY
Cal Jockey operates as a REIT and is the owner of the Racecourse. The
Racecourse abuts the 101 Freeway which is the main thoroughfare between the
cities of San Jose and San Francisco. The principal Racecourse facilities,
which are leased to Bay Meadows, include: (i) the main one-mile dirt horse
race track with six furlongs and 1 1/4 mile chutes, inside of which is a seven
furlong turf course; (ii) the track's infield area, on which is situated a
nine hole par three golf course; (iii) a main structure which contains a
grandstand, a clubhouse and the Turf Club; (iv) a parking area; (v) the Stable
Area situated on approximately 38 acres and presently containing approximately
1,550 horse stalls; and (vi) the Training Track Area situated on approximately
40 acres adjacent to the Stable Area. In addition, Cal Jockey owns the Tennis
Club Parcel and an approximately 1 1/2 acre parcel that abuts a street known
as El Camino Real and is separated from the 175 acre site by railroad tracks.
Since 1983, shares of Cal Jockey Common Stock have been paired and trade
together with shares of Bay Meadows Common Stock as a single unit on the AMEX
pursuant to the Pairing Agreement. A diagram outlining the paired share
structure of Cal Jockey and Bay Meadows is set forth on page 62.
Pending Sales and Negotiations
In May 1995 and December 1995 Cal Jockey entered into agreements to sell the
Stable Area and the Training Track Area, respectively.
The Franklin Agreement contemplates the sale of the Stable Area for a
purchase price of approximately $21 million to Property Resources. In
addition, Property Resources is obligated to fund 44% of the cost of various
off-site improvements required by the City of San Mateo and the State of
California in connection with the Entitlements. Assuming all other conditions
precedent are satisfied or waived, it is contemplated that the sale would
close in the second quarter of 1998.
The Iaccoca Agreement contemplates the sale of the Training Track Area to
Airdial for a purchase price of approximately $31 million. In addition,
Airdial is obligated to fund 53% of the off-site improvements required by the
City of San Mateo and the State of California in connection with the
Entitlements for the development of the property. Closing of the transaction
is subject to a number of conditions precedent including Cal Jockey obtaining
from the City of San Mateo the necessary Entitlements to proceed with
development plans, together with a development agreement with the City of San
Mateo. If the conditions are satisfied or waived, it is contemplated that the
sale would close in Fall 1998.
The Proposed PaineWebber Land Sale will not affect the land sale
transactions contemplated by the Franklin Agreement and the Iacocca Agreement.
In connection with the Proposed PaineWebber Land Sale, New Patriot REIT
generally will assign all of its rights and benefits under the Franklin
Agreement and the Iacocca Agreement to an affiliate of PaineWebber (e.g., the
proceeds to be received in connection with such transaction) and the
PaineWebber affiliate generally will assume all of New Patriot REIT's
development obligations under the Franklin Agreement and the Iacocca
Agreement. See "--Surviving Companies--Proposed PaineWebber Land Sale."
The Public Storage Agreement contemplates the sale of the Tennis Club Parcel
to Public Storage, Inc. for $2.2 million. Public Storage, Inc. intends to
convert the property into mini-storage units. The sale of the Tennis Club
Parcel is subject to the various contingencies including approval by the City
of San Mateo of a rezoning of the property and, therefore, no assurance can be
given that such sale will be consummated.
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In November 1996, Cal Jockey entered into the Borders Lease. Effective
January 10, 1997, Borders assigned its rights under the Borders Lease to DCI,
which company will develop the property and sublease the land with its
improvements back to Borders. The Borders Lease covers 2.3 acres of land
formerly used by Bay Meadows as a parking lot and land adjacent to the parking
lot. The San Mateo Planning Commission voted to approve the development of a
Borders bookstore on the site on October 14, 1996. DCI has a building permit
and commenced construction in February 1997. The initial term of the Borders
Lease is 20 years with a fixed net annual rent of $278,500 for years 1 through
10, $362,050 for years 11 through 15 and $416,350 for years 16 through 20. The
Borders Lease has eight five-year renewal options with an annual Consumer
Price Index adjustment beginning in the fifth option term.
Lease of Horse Racing Facility
Cal Jockey leased substantially all of its real property assets to Bay
Meadows under the terms of a Master Lease Agreement, which expired on March
31, 1996 (the "Master Lease Agreement"). Under the terms of the expired Master
Lease Agreement, the annual rental was agreed to be the greater of $3 million
or an aggregate amount equal to specified components of pari-mutuel handle,
the net commissions received for exported horse races and imported horse races
and certain sublease income. Prior to the expiration of the Master Lease
Agreement, Cal Jockey and Bay Meadows had discussions regarding the extension
of the Master Lease Agreement. Cal Jockey and Bay Meadows have conflicting
views concerning the status of the Master Lease Agreement's extension. Cal
Jockey believes that no lease exists and that Bay Meadows is a tenant at will.
Bay Meadows believes that a new master lease agreement has been entered into
for the period ending March 31, 1999. These conflicting views regarding the
status of the Master Lease Agreement are not expected to have any impact on
the Merger and the Related Transactions because, following the closing of the
Merger, New Patriot REIT and New Patriot Operating Company are expected to
enter into a new sublease arrangement in connection with the Proposed
PaineWebber Land Sale. See "--Surviving Companies--Proposed PaineWebber Land
Sale."
Cal Jockey's principal executive offices are located at 2600 South Delaware
Street, P.O. Box 1117, San Mateo, California, 94403.
BAY MEADOWS
Bay Meadows is a gaming and entertainment company engaged primarily in the
business of conducting and offering pari-mutuel wagering on Thoroughbred horse
racing at the Racecourse. Additionally, Bay Meadows generates revenue by
acting as an off-track wagering facility, allowing patrons to wager on horse
races at other tracks even when live horse racing is not being conducted at
the Racecourse, by accepting simulcasts of horse races conducted throughout
the United States, Canada, Mexico, Australia and Hong Kong. In addition to
live horse racing at the Racecourse, Bay Meadows receives fees from
simulcasting its live horse races to as many as 31 sites in California and 450
sites in the remainder of the world. Bay Meadows also generates revenues from
admissions, parking, program sales and the food and beverage concessions at
the Racecourse, the operation of a nine-hole golf course on the infield of the
Racecourse and the operation of an indoor tennis facility near the Racecourse.
Bay Meadows faces significant competition for the sports and entertainment
dollar in the San Francisco bay area (the "Bay Area") because of the numerous
professional and amateur sporting events and other entertainment attractions
located in the Bay Area. Bay Meadows' revenues are subject to seasonal
variations depending on the scheduling of its live race meet.
Horse racing is highly regulated in California and Bay Meadows faces an
increasing number of limitations on how it conducts its Thoroughbred horse
racing operations. The scheduling, length and conduct of meets and the
distribution of the pari-mutuel purse is determined by California law and the
CHRB. To conduct a Thoroughbred horse racing meet and to act as a satellite
facility, Bay Meadows is required to secure, on an annual basis, a license
from the CHRB. California law permits a racing association in the Northern
California
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Racing Zone (such as Bay Meadows) to conduct no more than 22 weeks of live
horse racing each year. Bay Meadows or its predecessor has been granted an
annual license each year since 1934. The CHRB has granted Bay Meadows 104
horse racing days for the calendar year 1997 horse racing season. However, no
assurance can be given that New Patriot Operating Company will continue to
receive this annual license. See "Risk Factors--Horse Racing Industry Risks--
Regulation of Gaming Operations."
Since the sales of the Stable Area and the Training Track Area were
announced, Bay Meadows and Cal Jockey have been investigating and considering
various alternative stabling arrangements. Bay Meadows has publicly proposed a
plan for the construction of 900 stalls on the property being retained by Cal
Jockey. Any approval by Cal Jockey of the plan is contingent on the results of
the economic, environmental and other feasibility studies. Patriot has also
indicated its support for such plan. Finally, Property Resources, the
purchaser of the Stable Area and a prior opponent of on-site stabling, has
indicated its support for such plan. Implementation of the plan is subject to
a number of conditions including the arrangement of financing acceptable to
Patriot and the receipt of the requisite governmental approvals. Failure to
receive approval of the plan could have a material adverse effect on Bay
Meadows' racing operations. See "Risk Factors--Horse Racing Industry Risks--
Stable Area." Bay Meadows operates a nine-hole golf course which would be
eliminated if new stables are constructed as planned.
As described above, shares of Bay Meadows Common Stock are paired and trade
together with the shares of Cal Jockey Common Stock as a single unit on the
AMEX pursuant to the Pairing Agreement. A diagram outlining the paired share
structure of Cal Jockey and Bay Meadows is set forth on page 62.
The Bay Meadows Line of Credit from Bank of America expires on February 1,
1998 and bears interest at a rate publicly announced by the Bank of America
from time to time as its reference rate. The maximum amount available under
the Bay Meadows Line of Credit is $2.5 million. The Bay Meadows Line of Credit
is guaranteed by Cal Jockey and secured by a $2.5 million time deposit. As of
May 28, 1997, Bay Meadows had no outstanding borrowings under the Bay Meadows
Line of Credit.
Bay Meadows' principal executive office is located at 2600 South Delaware
Street, P.O. Box 5050, San Mateo, California 94402 and its phone number is
(415) 574-7223.
SURVIVING COMPANIES
General
Pursuant to the Merger, at the Effective Time, Patriot will merge with and
into Cal Jockey with Cal Jockey being the surviving company. By operation of
the Merger Agreement and the Subscription, the outstanding shares of Patriot
Common Stock will be exchanged for Paired Shares of Cal Jockey Common Stock
and Bay Meadows Common Stock. As a result of the Merger, Cal Jockey will
succeed to Patriot's partnership interests in the Patriot Partnership and Cal
Jockey will thereafter contribute certain of its assets to the Patriot
Partnership. Concurrently with these transactions, Bay Meadows will form the
New Patriot Operating Partnership into which assets of Bay Meadows will be
contributed. Upon completion of these transactions, Cal Jockey and Bay Meadows
will be the surviving entities each with a limited partnership subsidiary that
holds substantially all of its assets or conducts substantially all of its
operations and the existing independent limited partners will hold an equal
number of partnership units in the Patriot Partnership and the New Patriot
Operating Partnership. The stockholders of Cal Jockey, Bay Meadows and Patriot
will hold paired shares of the surviving entities. In connection with the
Merger and the Related Transactions, Cal Jockey will change its name to
"Patriot American Hospitality, Inc." and Bay Meadows will change its name to
"Patriot American Hospitality Operating Company."
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Set forth below are the current corporate structures of Patriot, Cal Jockey
and Bay Meadows:
[A GRAPHIC DEPICTION OF THE CURRENT CORPORATE STRUCTURE OF
PATRIOT AND ITS SUBSIDIARIES APPEARS HERE]
[A GRAPHIC DEPICTION OF THE CURRENT CORPORATE STRUCTURE OF
CAL JOCKEY AND BAY MEADOWS APPEARS HERE]
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Set forth below is the anticipated corporate structure of the surviving
companies and their limited partnership subsidiaries immediately following the
Merger:
[A GRAPHIC DEPICTION OF THE ANTICIPATED CORPORATE STRUCTURE OF THE
SURVIVING COMPANIES AND THEIR LIMITED PARTNERSHIP SUBSIDIARIES
IMMEDIATELY FOLLOWING THE MERGER APPEARS HERE]
Operations of New Patriot REIT and New Patriot Operating Company Following
the Merger
Following completion of the Merger and the Related Transactions, New Patriot
REIT and New Patriot Operating Company will continue the operations of
Patriot, Cal Jockey and Bay Meadows within the paired share ownership
structure. New Patriot REIT will own interests in 56 hotels in 22 states, with
an aggregate of 13,355 guest rooms. Additionally, Patriot has announced that
it has entered into contracts or letters of intent to purchase the Proposed
Acquisitions, comprised of fourteen hotels with an aggregate of 3,478 rooms
for a combined purchase price (excluding closing costs and other acquisition-
related expenses) of approximately $271.4 million. Additionally, Patriot has
entered into an agreement to acquire Grand Heritage Hotels, a hotel management
and marketing company, and other Grand Heritage subsidiaries including an
investment in one hotel property. The total acquisition price for the Grand
Heritage Acquisition (including the hotel management and marketing company) is
estimated to be approximately $25.25 million. The purchase of each of the
Proposed Acquisitions and the Grand Heritage Acquisition is subject to
satisfactory completion of various closing conditions, and no assurances can
be given that Patriot, New Patriot REIT or New Patriot Operating Company will
acquire any or all of the Proposed Acquisitions or the Grand Heritage
Acquisition. Assuming all of the Proposed Acquisitions are consummated, New
Patriot REIT's hotel portfolio will include 70 hotels, aggregating 16,833
rooms, representing a 300% increase in the size of New Patriot REIT's room
portfolio from Patriot's Initial Offering.
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Following the Merger, New Patriot REIT expects to terminate its current
leases with PAH RSI Lessee, a limited liability company owned by certain
executive officers of Patriot, relating to eight of its existing hotels and
nine hotels which are the subject of Proposed Acquisitions, and re-lease such
hotels to New Patriot Operating Company. The existing hotels to be re-leased
include the four Carefree Resorts acquired by Patriot in January 1997
(including The Boulders, The Lodge at Ventana Canyon, The Peaks Resort & Spa
and Carmel Valley Ranch Resort), the Radisson Hotel in Northbrook, Illinois,
the Luxeford Suites Hotel in Minneapolis, Minnesota, the Sheraton Park Place
Hotel in Minneapolis, Minnesota, and the Myrtle Beach Hilton Oceanfront Golf
Resort in Myrtle Beach, South Carolina, and the hotels to be re-leased which
are the subject of Proposed Acquisitions include the five Snavely Group
hotels, four of which are located in Cleveland, Ohio and one of which is
located in Akron, Ohio, and four Doubletree Hotels which are located in
Houston, Texas, Anaheim, California, Overland Park, Kansas and St. Louis,
Missouri. To re-lease the hotels leased to PAH RSI Lessee following the
Merger, New Patriot REIT anticipates that it will exercise its termination
rights under its leases with PAH RSI Lessee or otherwise seek to have New
Patriot Operating Company acquire such leaseholds, and New Patriot Operating
Company will offer to acquire the assets of PAH RSI Lessee, including the
inventory, trademarks and right to receive certain royalty fees, at the then
fair market value for such assets. The owners of PAH RSI Lessee will not,
however, be obligated to sell such assets. See "Risk Factors--Certain
Conflicts of Interest Relating to Patriot."
Following the Merger, New Patriot REIT may seek to restructure the Non-
Controlled Subsidiaries so that the Crowne Plaza Ravinia Hotel and the
Marriott WindWatch Hotel may be leased to New Patriot Operating Company and
certain non-leaseable assets relating to the Carefree Resorts may be sold to
New Patriot Operating Company. To effect such restructurings and asset sales,
New Patriot REIT will be required to obtain, along with any other third party
consents that may be required, the approval of those executive officers of
Patriot who have voting control over such Non-Controlled Subsidiaries. See
"Risk Factors--Risk of Investment in Subsidiaries Controlled by Other
Parties."
In connection with the Wyndham Transactions, the leases of two hotels (the
Wyndham Garden Hotel-Midtown and Wyndham Greenspoint Hotel) which are
currently leased to Crow Hotel Lessee, Inc. are expected to be terminated, and
such hotels are expected to be leased to New Patriot Operating Company
following consummation of the Proposed Wyndham Transactions.
With respect to Patriot's remaining hotels, there are no agreements
concerning when or if such hotels will be leased to New Patriot Operating
Company. Upon the expiration of the lease relating to each of these hotels,
New Patriot REIT currently intends to evaluate the individual circumstances of
such lease and decide whether to continue to lease such hotel to a Lessee or,
alternatively, to lease such hotel to New Patriot Operating Company.
Patriot believes that market conditions remain favorable for the acquisition
of additional hotels and hotel portfolios and it is expected that New Patriot
REIT will continue Patriot's aggressive acquisition activities. Additionally,
New Patriot Operating Company intend to explore opportunities to acquire hotel
operators, owners of hotel franchises or brands and independent hotel
management companies. Patriot's management believes that the paired share
structure will enhance opportunities for New Patriot REIT and New Patriot
Operating Company to consummate such acquisitions. No assurances can be given,
however, that New Patriot REIT will locate attractive acquisition
opportunities or that they will consummate such acquisitions. See "Risk
Factors--Hotel Industry Risks--Competition for Hotel Acquisition
Opportunities."
Proposed PaineWebber Land Sale
Patriot and PaineWebber have entered into an agreement pursuant to which an
affiliate of PaineWebber will purchase from New Patriot REIT following the
closing of the Merger substantially all of the land which is currently owned
by Cal Jockey, including the land subject to the Franklin Agreement and the
Iaccoca Agreement (but excluding the land subject to the Borders Lease), for a
purchase price of $78.05 million in cash. New Patriot REIT would retain
ownership of the improvements located on the land. Simultaneously with the
consummation of such purchase, the PaineWebber affiliate and New Patriot REIT
would enter into a ground lease covering that portion of the land on which the
Racecourse is situated for a term of seven years at an annual rental rate of
$3
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million for the first year of the lease, $3.25 million for the second year,
$3.5 million for the third year, $4 million for the fourth and fifth years and
$5 million for each remaining year during the term of the lease. New Patriot
REIT would then sublease the Racecourse land and the related improvements to
New Patriot Operating Company in order to permit New Patriot Operating Company
to continue horseracing operations at the Racecourse through the term of New
Patriot REIT's lease. In connection with the Proposed PaineWebber Land Sale,
New Patriot REIT would assign all of its rights and benefits under existing
leases (excluding the Borders Lease), contracts (including, but not limited
to, the Franklin Agreement, the Iacocca Agreement and the Public Storage
Agreement), permits and entitlements relating to the land owned by Cal Jockey
to the PaineWebber affiliate, and the PaineWebber affiliate would assume all
of New Patriot REIT's development obligations, including, but not limited to,
all obligations for on and off-site improvements and all obligations under
existing leases and contracts. Under the ground lease, New Patriot REIT would
be responsible for certain of the development obligations which relate to the
leased land as a racing facility, including the building of new stabling
facilities, which are currently estimated to cost between approximately $11
million and $13 million. The parties may have the option to renew such leases
upon their expiration under certain circumstances. There can be no assurance
that the Proposed PaineWebber Land Sale will be consummated.
Executive Officers and Directors
In connection with the consummation of the Merger, all of the current
directors and officers of Cal Jockey and Bay Meadows will resign. Thereafter,
the current directors of Patriot will become the directors of New Patriot REIT
and the executive officers of New Patriot REIT will be Paul A. Nussbaum who
will become Chairman of the Board of Directors, Chief Executive Officer and
President, William W. Evans III who will serve in the Office of the Chairman,
and Rex E. Stewart who will become Chief Financial Officer and Treasurer. The
current executive officers of Patriot (including Messrs. Nussbaum and Stewart)
will become the executive officers of New Patriot Operating Company and,
together with the directors of New Patriot Operating Company, will manage the
business and affairs of New Patriot Operating Company. For information
concerning these persons, see "Management of New Patriot REIT and New Patriot
Operating Company--New Patriot Operating Company." After consummation of the
Merger, it is expected that the current officers and employees of Bay Meadows
will continue to manage the company's horse racing operations through a
subsidiary of New Patriot Operating Company.
The Proposed Wyndham Transactions
On April 14, 1997, Patriot entered into the Wyndham Merger Agreement
pursuant to which Wyndham will merge with and into New Patriot REIT with New
Patriot REIT being the surviving company. As a result of the Wyndham Merger,
New Patriot REIT will acquire all of the assets and liabilities of Wyndham,
including Wyndham's portfolio of 23 owned and leased hotels with an aggregate
of 4,877 rooms, Wyndham's 64 managed and franchised properties throughout
North America, management and franchise agreements that have been executed for
15 properties that are currently closed for renovation or construction or are
in the process of being converted to the Wyndham brand and the proprietary
brand names Wyndham, Wyndham Garden and Wyndham Hotels & Resorts. Pursuant to
the Wyndham Merger Agreement, upon consummation of the Wyndham Merger each
issued and outstanding share of Wyndham Common Stock will be converted into
the right to receive 0.712 paired shares of New Patriot REIT Common Stock and
New Patriot Operating Companies Common Stock. The Wyndham Exchange Ratio is
subject to adjustment in the event that the Average Trading Price is less than
$42.13 per paired share. If the Average Trading Price is between $40.21 and
$42.13 per paired share, the Wyndham Exchange Ratio will be adjusted so that
each outstanding share of Wyndham Common Stock will be converted into the
right to receive a number of paired shares equal to $30.00 divided by the
Average Trading Price. If the Average Trading Price is less than $40.21 per
paired share, the Wyndham Exchange Ratio will be fixed at 0.746; however, in
such circumstances, Wyndham has the right, waivable by it, to terminate the
Wyndham Merger Agreement without liability. On May 28, 1997, the closing price
of the Paired Shares as reported on the AMEX was $41 1/2. In lieu of receiving
paired shares, Wyndham stockholders have the right to elect to receive cash in
an amount per share equal to the Wyndham Exchange Ratio (as it may be
adjusted) multiplied by the average closing price of the paired shares over
the five trading days immediately preceding the closing of the Wyndham Merger.
If stockholders holding shares of Wyndham Common Stock with a value in excess
of $100 million elect to receive cash, such cash will be allocated on a pro
rata basis among such stockholders. In connection with the
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Wyndham Merger, New Patriot REIT also will assume Wyndham's existing
indebtedness which is approximately $146 million as of May 28, 1997.
In connection with the execution of the Wyndham Merger Agreement, Patriot
also entered into agreements with partnerships affiliated with members of the
Trammell Crow family providing for the acquisition by New Patriot REIT of 11
full-service Wyndham-branded hotels with 3,072 rooms, located throughout the
United States, for approximately $331.7 million in cash, plus approximately
$14 million in additional consideration, if two hotels meet certain
operational targets. The Wyndham Merger and the Crow Acquisition, which are
expected to be consummated concurrently, are subject to various conditions
including, without limitation, consummation of the Merger and approval of the
Proposed Wyndham Transactions by the stockholders of New Patriot REIT, New
Patriot Operating Company and Wyndham. It is currently anticipated that the
stockholder meetings to approve the Proposed Wyndham Transactions will occur
in the fourth quarter of 1997. If the Proposed Wyndham Transactions are
approved and consummated, it is anticipated that the current stockholders of
Patriot would hold approximately 53.4% and the current stockholders of Cal
Jockey and Bay Meadows would hold in the aggregate approximately 13.4% of the
outstanding shares of New Patriot REIT Common Stock and New Patriot Operating
Company Common Stock following consummation of the Proposed Wyndham
Transactions (assuming no Wyndham stockholders exercise their cash election
rights in the Wyndham Merger). The pro forma combined assets of New Patriot
REIT and New Patriot Operating Company at March 31, 1997 assuming consummation
of the Proposed Wyndham Transactions would be approximately $2.6 billion of
which approximately 8.2% would be attributable to Cal Jockey and Bay Meadows,
approximately 46.0% would be attributable to Patriot and approximately 45.8%
would be attributable to Wyndham and partnerships associated with members of
the Trammell Crow family. In addition, the pro forma combined revenues of New
Patriot REIT and New Patriot Operating Company for the year ended December 31,
1996 and the three months ended March 31, 1997 assuming consummation of the
Proposed Wyndham Transactions would be approximately $583 million and $173
million, respectively, of which approximately 9.0% and 12.0%, respectively,
would be attributable to Cal Jockey and Bay Meadows, approximately 35.3% and
33.5%, respectively, would be attributable to Patriot and approximately 55.7%
and 54.5%, respectively, would be attributable to Wyndham and partnerships
associated with members of the Trammell Crow family. The Unaudited Pro Forma
Financial Statements set forth in this Joint Proxy Statement/Prospectus show
the effects of the Proposed Wyndham Transactions on New Patriot REIT and New
Patriot Operating Company. See "Unaudited Pro Forma Combined Financial
Statements." Certain material risks with respect to the Proposed Wyndham
Transactions also are set forth under "Risk Factors--Risks Relating to
Proposed Wyndham Transactions."
In connection with the consummation of the Proposed Wyndham Transactions,
certain changes will be made with respect to the officers and members of the
Boards of Directors of New Patriot REIT and New Patriot Operating Company.
Paul A. Nussbaum will remain Chairman and Chief Executive Officer of New
Patriot REIT and William W. Evans III, who currently serves in Patriot's
Office of the Chairman, will become President of New Patriot REIT replacing
Thomas W. Lattin who will become Executive Vice President--Property Management
for New Patriot Operating Company. James D. Carreker, Wyndham's Chairman and
Chief Executive Officer, will serve as Chairman and Chief Executive Officer of
New Patriot Operating Company, Rex E. Stewart, who currently serves as
Patriot's Chief Financial Officer and who will serve as Chief Financial
Officer of New Patriot REIT and New Patriot Operating Company following the
Merger, will remain as Chief Financial Officer of New Patriot Operating
Company and Anne L. Raymond, currently the Chief Financial Officer of Wyndham,
will serve as Chief Financial Officer of New Patriot REIT. It is also
anticipated that the Boards of Directors of New Patriot REIT and New Patriot
Operating Company will be reconstituted in connection with the consummation of
the Proposed Wyndham Transactions so that each Board of Directors will consist
of 11 members, including (i) two designees of Wyndham and one designee of the
Trammell Crow family to the New Patriot REIT Board of Directors and (ii) three
designees of Wyndham and one designee of the Trammell Crow family to the New
Patriot Operating Company Board of Directors. It is currently anticipated that
Harlan R. Crow will serve as the Trammell Crow family's representative on the
New Patriot REIT Board of Directors. The remaining members for each Board of
Directors will be selected by New Patriot REIT and will include members of
Patriot's existing Board of Directors as well as additional persons to be
selected prior to the
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Wyndham Merger. Paul A. Nussbaum and James D. Carreker (who will be one of the
Wyndham designees) will serve as directors of both New Patriot REIT and New
Patriot Operating Company and a majority of the directors of each company will
not serve as directors of the other company.
Other Recent Developments
As described above, Patriot has entered into contracts or letters of intent
to purchase the properties comprising the Proposed Acquisitions for an
aggregate purchase price (excluding closing costs and other acquisition-
related expenses) of approximately $271.4 million. The consummation of each of
the Proposed Acquisitions is subject to satisfactory completion of a number of
contingencies including, among other things, the satisfactory completion of
Patriot's due diligence investigation of the transactions and the negotiation
of definitive acquisition agreements. No assurances can be given that Patriot,
New Patriot REIT or New Patriot Operating Company will acquire any or all of
the Proposed Acquisitions. The Proposed Acquisitions include:
. Union Station Hotel. The 124-room Union Station Hotel in Nashville,
Tennessee for a purchase price in cash and OP Units of the Patriot
Partnership of approximately $9.6 million.
. Doubletree Hotels. Four Doubletree Hotels in Houston, Texas, Anaheim,
California, St. Louis, Missouri and Overland Park, Kansas, with an
aggregate of 1,483 rooms, for an aggregate purchase price of approximately
$147.2 million in cash and OP Units of the Patriot Partnership. These
hotels will be acquired by a partnership owned 85% by Patriot and 15% by an
affiliate of Doubletree.
. Snavely Joint Venture. Four hotels to be purchased by Patriot through
joint ventures with the Snavely Group, a Cleveland developer, including the
Holiday Inn Westlake, the Radisson Beachwood and the Courtyard by Marriott
Beachwood, all of which are located in Cleveland, Ohio, and the Radisson
Hotel in Akron, Ohio, and one hotel, the Holiday Inn Beachwood in
Cleveland, Ohio, to be purchased by Patriot directly, with an aggregate of
878 rooms, for an aggregate purchase price of approximately $65.5 million
in cash.
. Holiday Inn and Ramada Inn. The Holiday Inn and the Ramada Inn at the
San Francisco International Airport with an aggregate of 547 rooms, for an
aggregate purchase price of approximately $36.5 million in cash, and a
leasehold interest, in the case of the Ramada Inn only, and the assumption
of indebtedness.
. Ambassador West Hotel. The 219-room Ambassador West Hotel in Chicago,
Illinois for a purchase price of approximately $15.75 million in cash.
. Park Shore Hotel. The 227-room Park Shore Hotel in Honolulu, Hawaii for
a purchase price of approximately $24 million in cash.
Additionally, Patriot has entered into an agreement to acquire Grand
Heritage Hotels, a hotel management and marketing company, and other Grand
Heritage subsidiaries including an investment in the Broadview Hotel in
Wichita, Kansas. The total acquisition price for the Grand Heritage
Acquisition (including the hotel management and marketing company) is
estimated to be approximately $25.25 million. The consummation of the Grand
Heritage Acquisition is subject to satisfactory completion of a number of
contingencies including, among other things, the satisfactory completion of
Patriot's due diligence investigation of the transactions, the consummation of
the Merger, the completion of the acquisition of, or financing for, the
Ambassador West Hotel, the Union Station Hotel, the Broadview Hotel and the
Holiday Inn Redmont Hotel and the negotiation of a definitive acquisition
agreement. No assurances can be given that Patriot, New Patriot or New Patriot
Operating Company will consummate the Grand Heritage Acquisitions.
Patriot has agreed in principle to loan an aggregate of $103 million to
partnerships affiliated with the members of CHC Lease Partners to enable such
partnerships to refinance existing indebtedness relating to four hotels, the
Sheraton Grand Hotel in Tampa, the Sheraton Gateway Hotel in Miami (also known
as the River House Hotel), the Grand Bay Hotel in Miami, and the Doubletree
Hotel in Glenview, Illinois. The loans would mature in two years, bear
interest at a rate per annum equal to 30-day LIBOR plus 2.75%, and would be
secured by first priority liens on the assets of the respective partnerships,
including first mortgages on the hotels. There can be no assurance as to
whether this agreement in principle to make such loans will lead to definitive
loan documents or on what terms said loans will be made.
67
<PAGE>
Set forth below is a property chart which contains certain information
concerning the hotels in which New Patriot REIT will hold interests following
the consummation of the Merger:
<TABLE>
<CAPTION>
NUMBER OF
GUEST YEAR BUILT/
OWNED HOTELS LOCATION ROOMS RENOVATED
------------ -------------------------- --------- -----------
<S> <C> <C> <C>
Full Service Hotels:
Bourbon Orleans Hotel.. New Orleans, LA 216 1800s/1995
Crowne Plaza Ravinia... Atlanta, GA 495 1986/1997
Del Mar Hilton......... Del Mar (San Diego), CA 245 1989
Doubletree Allen
Center................. Houston, TX 341 1978/1984
Doubletree Hotel....... Westminster (Denver), CO 180 1980/1992
Doubletree Hotel....... Tallahassee, FL 244 1977/*
Doubletree Hotel....... Tulsa, OK 417 1982
Embassy Suites......... Hunt Valley, MD 223 1985/1995
Fairmount Hotel........ San Antonio, TX 37 1906/1994
Four Points by
Sheraton............... Saginaw, MI 156 1984
Hilton Cleveland
South.................. Independence, OH 191 1980/1994
Hilton Inn Myrtle
Beach.................. Myrtle Beach, SC 385 1974
Holiday Inn............ Des Plaines (Chicago), IL 242 1969/*
Holiday Inn
Aristocrat............. Dallas, TX 172 1925/1994
Holiday Inn Crockett... San Antonio, TX 206 1909/1996
Holiday Inn Miami
Airport Lakes.......... Miami, FL 264 1975/*
Holiday Inn Northwest
Plaza.................. Austin, TX 193 1984/1994
Holiday Inn Northwest.. Houston, TX 193 1982/1994
Holiday Inn............ San Angelo, TX 148 1984/1994
Holiday Inn Lenox...... Atlanta, GA 297 1987/1995
Holiday Inn Select..... Farmers Branch (Dallas),TX 374 1979/1994
Holiday Inn............ Sebring, FL 148 1983/1995
Holiday Inn Redmont
Hotel.................. Birmingham, AL 112 1925/1991
Hyatt Newporter........ Newport Beach, CA 410 1962
Hyatt Regency.......... Lexington, KY 365 1977/1992
Luxeford Suites Hotel.. Minneapolis, MN 230 1986
Marriott Hotel......... Troy, MI 350 1990
Marriott WindWatch
Hotel.................. Long Island, NY 360 1989
The Mayfair Hotel...... St. Louis, MO 182 1925/1990
Radisson Suites Town &
Country................ Houston, TX 173 1986/1992
<CAPTION>
TWELVE MONTHS ENDED DECEMBER 31, 1996
--------------------------------------------------------
(DOLLARS IN THOUSANDS, EXCEPT ADR AND REVPAR)
REVENUE PER
AVERAGE AVAILABLE
TOTAL AVERAGE DAILY RATE ROOM
OWNED HOTELS REVENUE OCCUPANCY (ADR) (REVPAR)
------------ ------------ ------------- -------------- --------------
<S> <C> <C> <C> <C>
Full Service Hotels:
Bourbon Orleans Hotel.. $ 8,248 83.3% $ 120.17 $ 100.16
Crowne Plaza Ravinia... 24,230 71.0 119.74 85.05
Del Mar Hilton......... 8,204 69.8 84.50 58.99
Doubletree Allen
Center................. 13,207 66.6 91.82 61.13
Doubletree Hotel....... 5,566 73.4 73.99 54.28
Doubletree Hotel....... 3,816 59.4 47.73 28.37
Doubletree Hotel....... 10,699 68.7 63.03 43.29
Embassy Suites......... 6,358 71.8 84.07 60.38
Fairmount Hotel........ 2,838 77.6 144.71 112.32
Four Points by
Sheraton............... 3,980 70.5 62.95 44.38
Hilton Cleveland
South.................. 8,117 69.2 86.34 59.74
Hilton Inn Myrtle
Beach.................. 14,722 69.2 88.62 61.33
Holiday Inn............ 5,144 81.4 56.67 46.10
Holiday Inn
Aristocrat............. 4,881 69.7 88.10 61.45
Holiday Inn Crockett... 5,090 65.1 85.43 55.64
Holiday Inn Miami
Airport Lakes.......... 4,393 54.5 71.43 38.91
Holiday Inn Northwest
Plaza.................. 6,222 79.6 83.75 66.55
Holiday Inn Northwest.. 3,046 62.7 54.69 34.31
Holiday Inn............ 3,124 71.3 60.54 43.15
Holiday Inn Lenox...... 7,891 68.2 88.95 60.63
Holiday Inn Select..... 10,271 69.4 75.06 52.08
Holiday Inn............ 2,510 55.2 57.78 31.91
Holiday Inn Redmont
Hotel.................. 1,735 53.2 58.45 31.07
Hyatt Newporter........ 19,931 74.6 98.54 73.50
Hyatt Regency.......... 12,457 63.2 84.12 53.17
Luxeford Suites Hotel.. 6,084 68.7 77.31 53.12
Marriott Hotel......... 18,815 78.2 109.41 85.61
Marriott WindWatch
Hotel.................. 18,939 75.5 104.00 78.49
The Mayfair Hotel...... 4,318 57.7 89.53 51.64
Radisson Suites Town &
Country................ 4,422 70.1 83.08 58.27
</TABLE>
68
<PAGE>
<TABLE>
<CAPTION>
TWELVE MONTHS ENDED DECEMBER 31, 1996
-------------------------------------------------------
(DOLLARS IN THOUSANDS, EXCEPT ADR AND REVPAR)
REVENUE PER
NUMBER OF AVERAGE AVAILABLE
GUEST YEAR BUILT/ TOTAL AVERAGE DAILY RATE ROOM
OWNED HOTELS LOCATION ROOMS RENOVATED REVENUE OCCUPANCY (ADR) (REVPAR)
------------ ------------------- --------- ----------- ------------ ----------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Radisson Hotel &
Suites................ Dallas, TX 198 1986/1994 $ 5,278 72.4% $ 76.53 $ 55.43
Radisson Northbrook.... Northbrook, IL 313 1976/1994 6,783 67.6 67.87 45.89
Radisson New Orleans
Hotel................. New Orleans, LA 759 1924/1995 20,720 68.1 81.08 55.17
Radisson Overland
Park.................. Overland Park, KS 190 1974 4,507 67.0 67.62 45.29
Sheraton Park Place.... Minneapolis, MN 298 1981 10,868 76.0 69.20 52.59
Tremont House.......... Boston, MA 288 1925/* 10,318 75.2 102.36 76.96
The Tutwiler........... Birmingham, AL 147 1913/1986 4,084 67.8 101.43 68.77
WestCoast Valley River
Inn................... Eugene, OR 257 1973 9,963 67.9 88.76 60.24
WestCoast Wenatchee
Center Hotel.......... Wenatchee, WA 147 1988/1994 4,229 64.1 59.19 37.94
WestCoast Gateway...... Seattle, WA 145 1990 2,726 83.4 55.55 46.31
WestCoast Hotel &
Marina................ Long Beach, CA 192 1978/* 2,934 44.7 58.17 25.98
West Coast Pickwick
Hotel................. San Francisco, CA 189 1928/* 3,411 60.8 71.51 43.50
WestCoast Plaza Park
Suites................ Seattle, WA 193 1990 6,479 73.3 114.38 83.83
WestCoast Roosevelt
Hotel................. Seattle, WA 152 1929/1987 4,102 73.8 92.38 68.19
Wyndham Garden Hotel--
Midtown............... Atlanta, GA 191 1987/1994 7,475 72.8 93.67 68.20
Wyndham Greenspoint
Hotel................. Houston, TX 472 1985/1995 19,063 72.6 85.60 62.13
Limited Service Hotels:
Hampton Inn
Jacksonville Airport.. Jacksonville, FL 113 1985 2,165 85.9 58.53 50.26
Hampton Inn............ Rochester, NY 113 1986 2,202 76.9 67.13 51.64
Hampton Inn Cleveland
Airport............... North Olmsted, OH 113 1986 1,968 73.5 62.85 46.18
Hampton Inn............ Canton, OH 108 1985 1,535 68.5 54.19 37.14
Conference Center:
Peachtree Conference Peachtree City
Center................ (Atlanta), GA 250 1984/* 15,086 59.3 117.28 69.52
Resorts:
Carmel Valley Ranch+... Carmel, CA 100 1987 15,971 76.2 235.80 179.63
The Boulders+.......... Scottsdale, AZ 160 1985 54,390 78.7 333.14 262.33
The Lodge at Ventana
Canyon+............... Tucson, AZ 49 1985/1995 12,698 68.0 184.85 125.67
The Peaks Resort and
Spa+.................. Telluride, CO 177 1992/1993 19,774 57.6 221.26 127.36
The Registry Resort &
Spa................... Ft. Lauderdale, FL 492 1981/* 18,273 51.2 92.50 47.33
</TABLE>
- ------
* This hotel is currently undergoing renovations.
+ Each of these resorts is branded as a Carefree Resort.
69
<PAGE>
<TABLE>
<CAPTION>
TWELVE MONTHS ENDED DECEMBER 31, 1996
-------------------------------------------------------
(DOLLARS IN THOUSANDS, EXCEPT ADR AND REVPAR)
REVENUE PER
NUMBER OF AVERAGE AVAILABLE
GUEST YEAR BUILT/ TOTAL AVERAGE DAILY RATE ROOM
PROPOSED ACQUISITIONS LOCATION ROOMS RENOVATED REVENUE OCCUPANCY (ADR) (REVPAR)
--------------------- ------------------- --------- ----------- ------------ ----------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Union Station.......... Nashville, TN 124 1986 $ 3,571 56.1% $ 94.44 $ 52.99
Park Shore Honolulu.... Honolulu, HI 227 1968 7,419 82.8 74.54 61.70
Holiday Inn............ San Francisco, CA 224 1964 7,636 87.3 72.95 63.72
Ramada................. San Francisco, CA 323 1962 7,419 82.8 74.54 61.70
Snavely Holiday Inn
Westlake............... Beachwood, OH 266 1980 8,052 75.0 72.01 54.04
Snavely Marriott
Courtyard.............. Beachwood, OH 113 1986 3,159 83.8 80.44 67.44
Snavely Radisson....... Beachwood, OH 196 1968 5,634 80.6 69.73 56.19
Snavely Holiday Inn.... Beachwood, OH 173 1974 2,809 73.7 80.96 59.68
Snavely Radisson....... Akron, OH 130 1989 2,982 68.8 72.79 50.11
Ambassador West........ Chicago, IL 219 1924 8,146 66.2 106.11 70.28
Doubletree--St. Louis.. Chesterfield, MO 223 1984 12,341 74.3 90.76 67.45
Doubletree--Post Oak... Houston, TX 449 1982 19,942 72.2 94.17 67.98
Doubletree--Anaheim.... Orange, CA 454 1984 13,473 70.3 69.54 48.88
Doubletree--Overland
Park................... Overland Park, KS 357 1982/1992 14,572 75.1 88.10 66.18
Broadview Hotel........ Wichita, KS 235 1922/1985 2,465 28.9 62.34 18.03
Wyndham Hotel
Corporation Hotels:
Wyndham Garden Hotel... Brookfield, WI 178 1990 4,605 65.9 75.18 49.52
Wyndham Garden Hotel... Charlotte, NC 173 1989 4,854 71.1 77.13 54.85
Wyndham Garden Hotel... Commerce, CA 201 1991 6,391 62.1 84.83 52.66
Wyndham Garden Hotel... Indianapolis, IN 171 1990 4,779 71.3 74.37 53.01
Wyndham Garden Hotel... Schaumburg, IL 188 1986 4,983 70.0 79.66 55.74
Wyndham Garden Hotel... Overland Park, KS 181 1972 3,663 72.6 52.53 38.12
Wyndham Garden
Vinings................ Atlanta, GA 159 1986 5,581 67.2 97.47 65.51
Toronto,
Wyndham Bristol Place.. Ontario, Canada 287 1974 10,480 70.2 76.15 53.42
Rose Hall Resort....... Montego Bay,Jamaica 489 1968 16,508 55.8 86.86 48.46
Market Center Dallas
Quality Inn............ Dallas, TX 230 1970 2,479 35.2 55.50 19.52
Crow Family Hotels++:
Wyndham Bel Age........ Los Angeles, CA 199 1984 14,818 77.3 140.17 108.29
Wyndham Franklin
Plaza.................. Philadelphia, PA 758 1979 33,368 74.0 96.28 71.28
Wyndham Milwaukee
Center................. Milwaukee, WI 221 1988 10,860 75.4 99.88 75.26
Wyndham Northwest
Chicago................ Chicago, IL 408 1983 23,252 67.8 102.85 69.74
Wyndham Hotel.......... Palm Springs, CA 410 1987 13,103 56.7 95.07 53.89
Wyndham Riverfront
Hotel.................. New Orleans, LA 202 1996 4,133 54.4 124.92 67.90
Wyndham Las Colinas.... Dallas, TX 168 1986 5,740 72.6 100.47 72.95
Wyndham Novi........... Detroit, MI 148 1988 4,308 75.9 74.83 56.77
Wyndham Garden Hotel... Pleasanton, CA 171 1985 4,659 73.5 82.62 60.71
Wyndham Wood Dale...... Chicago, IL 162 1986 5,282 71.4 86.76 61.97
</TABLE>
- ----
++ During 1996 the LaGuardia Airport Hotel was closed for renovation and as a
result the hotel reported no historical results of operations for 1996 and
therefore has been excluded from this chart.
70
<PAGE>
New Credit Facility
Patriot has entered into a commitment letter with PaineWebber Real Estate
and Chase regarding expanding and replacing the Line of Credit with the New
Credit Facility which Patriot expects will have availability of up to
approximately $1.2 billion. The New Credit Facility will consist of a three-
year $700 million unsecured revolving line of credit and a 60-month $500
million term loan. It is anticipated that the term loan portion of the New
Credit Facility will be secured by specific assets and properties of Patriot
(and following the Merger, the assets and properties of New Patriot REIT and
New Patriot Operating Company) that will be transferred to a special purpose
"bankruptcy remote" entity. The revolving line of credit will be used for the
acquisition of additional properties, business and other assets, for capital
expenditures and for general working capital purposes. The term loan will be
used to finance payments to be made in connection with the Proposed Wyndham
Transactions and the acquisition of certain other properties. The interest
rates for the New Credit Facility are proposed to be as follows: (i) the
revolving line of credit will have an interest rate per annum ranging from
LIBOR plus 1.50% to 2.00% (depending on Patriot's leverage ratio) or the
customary alternate base rate announced from time to time (the "Alternate Base
Rate") plus 0.0% to 0.50% (depending on Patriot's leverage ratio), at the
election of the borrower, and (ii) the term loan will have an interest rate
per annum equal to LIBOR plus 1.75%. While negotiations concerning the New
Credit Facility are ongoing, there can be no assurance that such a credit
facility will be obtained, or if obtained, when it will become effective or
available or what the specific terms of such credit facility will be.
DESCRIPTION OF THE PARTNERSHIP AGREEMENTS
PATRIOT PARTNERSHIP
Patriot owned an approximate 83.7% interest in the Patriot Partnership as of
May 28, 1997. The Patriot Partnership owns, directly or through subsidiaries,
all of Patriot's interests in its hotels and leases all but two of such hotels
to the Lessees. Patriot holds its interest in the Patriot Partnership through
two wholly-owned subsidiaries, PAH GP and PAH LP. PAH GP is the sole general
partner of the Patriot Partnership and owns a 1.0% general partnership
interest in the Patriot Partnership. Through PAH GP, Patriot controls the
Patriot Partnership and its assets. PAH LP is one of the Patriot Partnership's
limited partners (the "Patriot Limited Partners") and owns an approximate
82.7% limited partnership interest in the Patriot Partnership. In their
capacity as such, the Patriot Limited Partners have no authority to transact
business for, or participate in the management, activities or decisions of,
the Patriot Partnership. To satisfy certain REIT requirements in connection
with the Merger, Patriot will liquidate PAH GP and PAH LP and New Patriot REIT
will form two new qualified REIT subsidiaries to hold Patriot's general
partnership interest and limited partnership interests in the Patriot
Partnership. The following is a summary of the material terms of the
partnership agreement of the Patriot Partnership (the "Patriot Partnership
Agreement").
Voting Rights
Under the Patriot Partnership Agreement, the Patriot Limited Partners do not
have voting rights relating to the operation and management of the Patriot
Partnership except in connection with certain amendments to the Patriot
Partnership Agreement. Amendments to the Patriot Partnership Agreement may be
made by the Patriot Partnership's general partner (the "Patriot General
Partner").
Transferability of Interests
PAH GP and PAH LP may not voluntarily withdraw from the Patriot Partnership
or transfer or assign their interests in the Patriot Partnership unless the
transaction in which such withdrawal or transfer occurs results in receipt of
Redemption Rights (as hereinafter defined) by the Patriot Limited Partners'
(other than PAH LP) immediately prior to such transaction, or unless the
successors to PAH GP and PAH LP contribute substantially all of their assets
to the Patriot Partnership in return for an interest in the Patriot
Partnership. Except in limited
71
<PAGE>
circumstances (including a merger involving Patriot), a person may not be
admitted as a substitute or successor general partner unless a majority-in-
interest of the Patriot Limited Partners (other than PAH LP) consent in
writing to the admission of such substitute or successor general partner,
which consent may be withheld at the sole discretion of such Patriot Limited
Partners.
Following the consummation of the Merger and the Related Transactions, the
Patriot Partnership Agreement will be amended to prohibit the transfer of OP
Units other than in certain specified transactions in order to enable the
Patriot Partnership to quality for a safe harbor from treatment as a "publicly
traded partnership." A person to whom an OP Unit has been assigned or
transferred shall not be admitted as a Patriot Limited Partner without the
written consent of the Patriot General Partner, which consent may be withheld
at the sole discretion of the Patriot General Partner.
Issuance of Additional Units
The Patriot Partnership is authorized to issue limited partnership units and
other partnership interests to its partners or to other persons for such
consideration and on such terms and conditions as the Patriot General Partner,
at its sole discretion, may deem appropriate.
Redemption Rights
Pursuant to the Patriot Partnership Agreement, the Patriot Limited Partners,
other than PAH LP, have redemption rights which, subject to certain
limitations, enable them to cause the Patriot Partnership to redeem each
Patriot OP Unit for cash equal to the value of two shares of Patriot Common
Stock or, at Patriot's election, Patriot may purchase each Patriot OP Unit
offered for redemption for two shares of Patriot Common Stock (the "Redemption
Rights").
Following the consummation of the Merger and the Related Transactions, the
Patriot Partnership Agreement will be amended to provide that for Patriot
Limited Partners to redeem their OP Units of the Patriot Partnership, they
must also redeem an equivalent number of OP Units of the New Patriot Operating
Partnership. In addition, to enable the Patriot Partnership to quality for a
safe harbor from treatment as a "publicly traded partnership," the existing
redemption rights of the Patriot Limited Partners will be limited.
Upon the redemption of each OP Unit of the Patriot Partnership and OP Unit
of the New Patriot Operating Partnership, the redeeming Patriot Limited
Partner shall receive cash equal to the value of a paired share of New Patriot
REIT Common Stock and New Patriot Operating Company Common Stock; provided
that New Patriot REIT and New Patriot Operating Company may elect to purchase
each tendered OP Unit of the Patriot Partnership and OP Unit of the New
Patriot Operating Partnership in exchange for a paired share of New Patriot
REIT Common Stock and New Patriot Operating Company Common Stock.
Management Liability and Indemnification
The Patriot Partnership Agreement generally provides that the Patriot
General Partner will incur no liability to the Patriot Partnership or any
Patriot Limited Partner for losses sustained or liabilities incurred as a
result of errors in judgment or of any act or omission if the Patriot General
Partner acted in good faith. In addition, the Patriot General Partner is not
responsible for any misconduct or negligence on the part of its agents
provided the Patriot General Partner appointed such agents in good faith. The
Patriot Partnership Agreement also provides for indemnification of the Patriot
General Partner, PAH LP, Patriot, their respective directors and officers, and
such other persons as the Patriot General Partner may from time to time
designate, against any and all losses, claims, damages, liabilities, joint or
several expenses (including reasonable legal fees and expenses), judgments,
fines, settlements and other amounts arising from any and all claims, demands,
actions, suits or proceedings, civil, criminal, administrative or
investigative, that relate to the operations of the Patriot Partnership in
which such person may be involved.
72
<PAGE>
Amendment
The Patriot General Partner may amend the Patriot Partnership Agreement
without the consent of the Patriot Limited Partners, except to the extent that
certain amendments that would, among other things, adversely affect the rights
of any Patriot Limited Partner to receive distributions, alter the allocation
of profits or losses to the Patriot Limited Partners, affect the Redemption
Rights (except as permitted in connection with a merger or similar transaction
or to prevent the Patriot Partnership from being treated as a publicly traded
partnership) in a manner adverse to the Patriot Limited Partners, or impose on
the Patriot Limited Partners any obligation to make additional capital
contributions, require the consent of Patriot Limited Partners (other than PAH
LP) holding more than 50% of the interests of Patriot Limited Partners (other
than PAH LP). In connection with the consummation of the Merger, the Patriot
Partnership Agreement will be amended to, among other things, substitute the
Patriot General Partner, permit disproportionate like-kind distributions,
restrict the transfer of OP Units and modify the Redemption Rights in the
manner described above. Because none of these amendments fall within the
matters requiring approval of Patriot Limited Partners which are set forth in
the first sentence of this paragraph, the Patriot General Partner may adopt
such amendments without the approval or consent of the Patriot Limited
Partners.
Management Fees and Expenses
In addition to the administrative and operating costs and expenses incurred
by the Patriot Partnership, the Patriot Partnership will pay all
administrative costs and expenses of Patriot, PAH GP and PAH LP (the "Patriot
Expenses") and the Patriot Expenses will be treated as expenses of the Patriot
Partnership. Patriot Expenses generally will include (i) all expenses relating
to the formation and continuity of existence of Patriot, PAH GP and PAH LP,
(ii) all expenses relating to the public offering and registration of
securities by Patriot, (iii) all expenses associated with the preparation and
filing of any periodic reports by Patriot under federal, state or local laws
or regulations, (iv) all expenses associated with compliance by Patriot, PAH
GP and PAH LP with laws, rules and regulations promulgated by any regulatory
body and (v) all other operating or administrative costs of PAH GP incurred in
the ordinary course of its business on behalf of the Patriot Partnership.
Patriot Expenses, however, will not include any administrative and operating
costs and expenses incurred by Patriot that are attributable to hotel
properties or partnership interests in a subsidiary partnership that are owned
by Patriot directly.
Distributions and Allocations
The Patriot Partnership Agreement provides that the Patriot Partnership will
distribute cash from operations (including net sale or refinancing proceeds,
but excluding net proceeds from the sale of the Patriot Partnership's property
in connection with the liquidation of the Patriot Partnership) on a quarterly
(or, at the election of the Patriot General Partner, more frequently) basis,
in amounts determined by the Patriot General Partner in its sole discretion,
to the partners in accordance with their respective percentage interests in
the Patriot Partnership, subject to the terms of the preferred OP Units (the
"Preferred OP Units"). Upon liquidation of the Patriot Partnership, after
payment of, or adequate provision for, debts and obligations of the Patriot
Partnership, including any partner loans, any remaining assets of the Patriot
Partnership will be distributed to all partners with positive capital accounts
in accordance with their respective positive capital account balances. If the
General Partner has a negative balance in its capital account following a
liquidation of the Patriot Partnership, it will be obligated to contribute
cash to the Patriot Partnership equal to the negative balance in its capital
account.
Profit and loss of the Patriot Partnership for each fiscal year of the
Patriot Partnership generally will be allocated among the partners in
accordance with their respective interests in the Patriot Partnership. Taxable
income and loss will be allocated in the same manner, subject to compliance
with the provisions of Code sections 704(b) and 704(c) and Treasury
Regulations promulgated thereunder.
73
<PAGE>
Term
The Patriot Partnership will continue until December 31, 2050, or until
sooner dissolved upon (i) the bankruptcy, dissolution or withdrawal of the
Patriot General Partner (unless the Patriot Limited Partners elect to continue
the Patriot Partnership), (ii) the sale or other disposition of all or
substantially all of the assets of the Patriot Partnership, (iii) the
redemption of all limited partnership interests in the Patriot Partnership
(other than those held by PAH LP), or (iv) the election by the Patriot General
Partner.
Tax Matters
Pursuant to the Patriot Partnership Agreement, the Patriot General Partner
will be the tax matters partner of the Patriot Partnership and, as such, will
have authority to handle tax audits and to make tax elections under the Code
on behalf of the Patriot Partnership.
Preferred OP Units
As of May 28, 1997 the Patriot Partnership had issued 662,391 Preferred OP
Units. The Preferred OP Units pay distributions equal to 103% of the current
annual dividend paid on the outstanding Patriot Common Stock, subject to
increase or decrease by the dollar amount of any increase or decrease in the
dividend paid on the Patriot Common Stock. In addition, if, for any taxable
year of the Patriot Partnership ending on or before December 31, 1998, that
portion of the Preferred OP Units holder's distributive share of Patriot
Partnership taxable income which consists of "unrelated business taxable
income" as defined in section 512(a)(1) of the Code ("UBTI") exceeds 20% (any
such excess, the "Excess UBTI"), then the Preferred OP Unit holder will be
entitled to an additional distribution (the "UBTI Adjuster") from the Patriot
Partnership with respect to such taxable year equal to the product of (i) the
Excess UBTI multiplied by (ii) the federal tax rate applicable to the Excess
UBTI. Prior to the third anniversary of issuance, the Preferred OP Units
generally will not be convertible into Patriot Common Stock, except under
certain limited circumstances. On or after the third anniversary of issuance,
the holders may exchange one Preferred OP Unit for two shares of Patriot
Common Stock (after consummation of the Merger, one Preferred OP Unit may be
exchanged for one share of New Patriot REIT Common Stock and one share of New
Patriot Operating Company Common Stock), subject to adjustment and to an
ownership limitation of 4.9% of all outstanding Patriot Common Stock. After
the tenth anniversary of issuance, Patriot may exchange the Preferred OP Units
for shares of Patriot Common Stock. The foregoing exchange rights are in lieu
of the conversion rights in the Patriot Partnership Agreement, which are not
applicable to the Preferred OP Units, with the exception of the anti-dilution
provisions.
NEW PATRIOT OPERATING PARTNERSHIP
The partnership agreement of the New Patriot Operating Partnership will not
contain any terms which are materially different from the terms of the Patriot
Partnership Agreement, although preferred partnership units will not carry a
UBTI Adjuster.
74
<PAGE>
THE MEETINGS OF STOCKHOLDERS
CAL JOCKEY SPECIAL MEETING
The Cal Jockey Special Meeting will be held at the Clubhouse of Bay Meadows
Racecourse, 2600 South Delaware Street, San Mateo, California, on July 1,
1997, at 10:15 a.m., Pacific time. At the Cal Jockey Special Meeting, holders
of shares of Cal Jockey Common Stock will consider and vote upon the Merger
Proposal and the Cal Jockey Charter and Bylaw Amendment Proposal. Each of the
Merger Proposal and the Cal Jockey Charter and Bylaw Amendment Proposal must
be approved by the holders of a majority of the outstanding shares of Cal
Jockey Common Stock. Holders of Cal Jockey Common Stock are entitled to one
vote per share. At the present time, it is not anticipated that any other
matters will be brought before the Cal Jockey Special Meeting for
consideration and vote by holders of shares of Cal Jockey Common Stock,
including, without limitation, any motion to adjourn such meeting. In the
event of any vote to adjourn the Cal Jockey Special Meeting in order to allow
Cal Jockey to solicit votes in favor of the Merger Proposal, proxies voting
AGAINST the Merger Proposal will be voted AGAINST the motion to adjourn the
Cal Jockey Special Meeting.
Cal Jockey has fixed the close of business on May 16, 1997 as the Cal Jockey
Record Date for determining holders entitled to notice of and to vote at the
Cal Jockey Special Meeting. Only holders of shares of Cal Jockey Common Stock
at the close of business on the Cal Jockey Record Date will be entitled to
notice of and to vote at the Cal Jockey Special Meeting. As of the Cal Jockey
Record Date, there were outstanding and entitled to vote 5,763,257 shares of
Cal Jockey Common Stock. As of the Cal Jockey Record Date, directors and
executive officers of Cal Jockey and their affiliates who own collectively
162,022 shares (representing 2.8% of the outstanding shares) have indicated
that they intend to vote all of their shares of Cal Jockey Common Stock to
approve the Merger Proposal and the Cal Jockey Charter and Bylaw Amendment
Proposal.
All shares of Cal Jockey Common Stock represented by properly executed
proxies will, unless such proxies have been previously revoked, be voted in
accordance with the instructions indicated in such proxies. IF NO INSTRUCTIONS
ARE INDICATED, SUCH SHARES OF CAL JOCKEY COMMON STOCK WILL BE VOTED IN FAVOR
OF THE MERGER PROPOSAL AND THE CAL JOCKEY CHARTER AND BYLAW AMENDMENT
PROPOSAL. A stockholder who has given a proxy may revoke it at any time prior
to its exercise by giving written notice thereof to the Secretary of Cal
Jockey, by signing and returning a later-dated proxy or by voting in person at
the Cal Jockey Special Meeting; however, mere attendance at the Cal Jockey
Special Meeting will not in and of itself have the effect of revoking the
proxy.
Votes cast by proxy or in person at the Cal Jockey Special Meeting will be
tabulated by the inspector(s) of election appointed for the meeting and will
determine whether or not a quorum is present. The presence in person or by
properly executed proxy of the holders of a majority of the issued and
outstanding shares of Cal Jockey Common Stock entitled to vote at the Cal
Jockey Special Meeting is necessary to constitute a quorum at the Cal Jockey
Special Meeting. Abstentions and broker non-votes will be treated as shares
that are present at the Cal Jockey Special Meeting for purposes of determining
whether a quorum exists. To be approved, the Merger Proposal and the Cal
Jockey Charter and Bylaw Amendment Proposal must receive the affirmative vote
of the holders of a majority of the issued and outstanding shares of Cal
Jockey Common Stock entitled to vote thereon. Abstentions and broker non-votes
will have the effect of votes against the approval of the Merger Proposal and
the Cal Jockey Charter and Bylaw Amendment Proposal.
Although each of the Proposals will be voted on and tabulated separately,
under the Merger Agreement it is a condition to the obligation of each of
Patriot, Cal Jockey and Bay Meadows to consummate the Merger and the Related
Transactions that each of the Proposals be approved. BECAUSE EACH OF THE
PROPOSALS IS A CONDITION TO CLOSING, IF ANY OF THE PROPOSALS ARE NOT ADOPTED,
THE PARTIES WILL NOT BE REQUIRED TO CONSUMMATE THE MERGER OR ANY OF THE
RELATED TRANSACTIONS. IN THE EVENT THE CAL JOCKEY CHARTER AND BYLAW AMENDMENT
PROPOSAL AND THE
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BAY MEADOWS CHARTER AND BYLAW AMENDMENT PROPOSAL ARE APPROVED BUT THE MERGER
PROPOSAL IS NOT APPROVED, THE CAL JOCKEY CHARTER AND BYLAW AMENDMENT PROPOSAL
AND THE BAY MEADOWS CHARTER AND BYLAW AMENDMENT PROPOSAL WILL NOT TAKE EFFECT.
Cal Jockey will bear its own cost of solicitation of proxies. Brokerage
firms, fiduciaries, nominees and others will be reimbursed for their out-of-
pocket expenses in forwarding proxy materials to beneficial owners of shares
of Cal Jockey Common Stock held in their names. In addition to the use of the
mails, proxies may be solicited by directors, officers and regular employees
of Cal Jockey, who will not be specifically compensated for such services, by
means of personal calls upon, or telephonic or telegraphic communications
with, stockholders or their representatives. D.F. King & Co., Inc. has been
engaged by Cal Jockey to act as proxy solicitors and will receive a fee of
$5,000 plus expenses. In addition, ChaseMellon Shareholder Services, L.L.C.
("ChaseMellon") has been engaged by Cal Jockey to mail proxies to the holders
of Cal Jockey Common Stock on the Cal Jockey Record Date and will receive a
fee of approximately $3,000.
THE BOARD OF DIRECTORS OF CAL JOCKEY HAS UNANIMOUSLY APPROVED THE MERGER
PROPOSAL AND THE CAL JOCKEY CHARTER AND BYLAW AMENDMENT PROPOSAL AND
UNANIMOUSLY RECOMMENDS THAT STOCKHOLDERS OF CAL JOCKEY VOTE FOR APPROVAL OF
THE MERGER PROPOSAL AND FOR THE CAL JOCKEY CHARTER AND BYLAW AMENDMENT
PROPOSAL. SEE "THE MERGER AND SUBSCRIPTION--BACKGROUND OF THE MERGER" AND "--
REASONS FOR THE MERGER AND THE RELATED TRANSACTIONS; RECOMMENDATION OF THE
BOARD OF DIRECTORS OF CAL JOCKEY."
BAY MEADOWS SPECIAL MEETING
The Bay Meadows Special Meeting will be held at the Clubhouse of Bay Meadows
Racecourse, 2600 South Delaware Street, San Mateo, California, on July 1,
1997, at 9:00 a.m., Pacific time. At the Bay Meadows Special Meeting, holders
of shares of Bay Meadows Common Stock will consider and vote upon the Merger
Proposal and the Bay Meadows Charter and Bylaw Amendment Proposal. Each of the
Merger Proposal and the Bay Meadows Charter and Bylaw Amendment Proposal must
be approved by the holders of a majority of the outstanding shares of Bay
Meadows Common Stock. Holders of Bay Meadows Common Stock are entitled to one
vote per share. At the present time, it is not anticipated that any other
matters will be brought before the Bay Meadows Special Meeting for
consideration and vote by holders of shares of Bay Meadows Common Stock
including without limitation any motion to adjourn such meeting. In the event
of any vote to adjourn the Bay Meadows Special Meeting in order to allow Bay
Meadows to solicit votes in favor of the Merger Proposal, proxies voting
AGAINST the Merger Proposal will be voted AGAINST the motion to adjourn the
Bay Meadows Special Meeting.
Bay Meadows has fixed the close of business on May 16, 1997 as the Bay
Meadows Record Date for determining holders entitled to notice of and to vote
at the Bay Meadows Special Meeting. Only holders of shares of Bay Meadows
Common Stock at the close of business on the Bay Meadows Record Date will be
entitled to notice of and to vote at the Bay Meadows Special Meeting. As of
the Bay Meadows Record Date, there were outstanding and entitled to vote
5,763,257 shares of Bay Meadows Common Stock. As of the Bay Meadows Record
Date, directors and executive officers of Bay Meadows and their affiliates who
own collectively 190,149 shares (representing 3.3% of the outstanding shares)
have indicated that they intend to vote all of their shares of Bay Meadows
Common Stock to approve the Merger Proposal and the Bay Meadows Charter and
Bylaw Amendment Proposal.
All shares of Bay Meadows Common Stock represented by properly executed
proxies will, unless such proxies have been previously revoked, be voted in
accordance with the instructions indicated in such proxies. IF NO INSTRUCTIONS
ARE INDICATED, SUCH SHARES OF BAY MEADOWS COMMON STOCK WILL BE VOTED IN FAVOR
OF THE MERGER PROPOSAL AND THE BAY MEADOWS CHARTER AND BYLAW AMENDMENT
PROPOSAL. A stockholder who has given a proxy may revoke
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it at any time prior to its exercise by giving written notice thereof to the
Secretary of Bay Meadows, by signing and returning a later-dated proxy or by
voting in person at the Bay Meadows Special Meeting; however, mere attendance
at the Bay Meadows Special Meeting will not in and of itself have the effect
of revoking the proxy.
Votes cast by proxy or in person at the Bay Meadows Special Meeting will be
tabulated by the inspector(s) of election appointed for the meeting and will
determine whether or not a quorum is present. The presence in person or by
properly executed proxy of the holders of a majority of the issued and
outstanding shares of Bay Meadows Common Stock entitled to vote at the Bay
Meadows Special Meeting is necessary to constitute a quorum at the Bay Meadows
Special Meeting. Abstentions and broker non-votes will be treated as shares
that are present at the Bay Meadows Special Meeting for purposes of
determining whether a quorum exists. To be approved, the Merger Proposal and
the Bay Meadows Charter and Bylaw Amendment Proposal must receive the
affirmative vote of the holders of a majority of the issued and outstanding
shares of Bay Meadows Common Stock entitled to vote thereon. Abstentions and
broker non-votes will have the effect of votes against the approval of the
Merger Proposal and the Bay Meadows Charter and Bylaw Amendment Proposal.
Although each of the Proposals will be voted on and tabulated separately,
under the Merger Agreement it is a condition to the obligation of each of
Patriot, Bay Meadows and Cal Jockey to consummate the Merger and the Related
Transactions that each of the Proposals be approved. BECAUSE EACH OF THE
PROPOSALS IS A CONDITION TO CLOSING, IF ANY OF THE PROPOSALS ARE NOT ADOPTED,
THE PARTIES WILL NOT BE REQUIRED TO CONSUMMATE THE MERGER OR ANY OF THE
RELATED TRANSACTIONS. IN THE EVENT THE CAL JOCKEY CHARTER AND BYLAW AMENDMENT
PROPOSAL AND THE BAY MEADOWS CHARTER AND BYLAW AMENDMENT PROPOSAL ARE APPROVED
BUT THE MERGER PROPOSAL IS NOT APPROVED, THE CAL JOCKEY CHARTER AND BYLAW
AMENDMENT PROPOSAL AND THE BAY MEADOWS CHARTER AND BYLAW AMENDMENT PROPOSAL
WILL NOT TAKE EFFECT.
Bay Meadows will bear its own cost of solicitation of proxies. Brokerage
firms, fiduciaries, nominees and others will be reimbursed for their out-of-
pocket expenses in forwarding proxy materials to beneficial owners of shares
of Bay Meadows Common Stock held in their names. In addition to the use of the
mails, proxies may be solicited by directors, officers and regular employees
of Bay Meadows, who will not be specifically compensated for such services, by
means of personal calls upon, or telephonic or telegraphic communications
with, stockholders or their representatives. D.F. King & Co., Inc. has been
engaged by Bay Meadows to act as proxy solicitors and will receive a fee of
$5,000 plus expenses. In addition, ChaseMellon has been engaged by Bay Meadows
to mail proxies to the holders of Bay Meadows Common Stock on the Bay Meadows
Record Date and will receive a fee of approximately $3,000.
THE BOARD OF DIRECTORS OF BAY MEADOWS HAS UNANIMOUSLY APPROVED THE MERGER
PROPOSAL AND THE BAY MEADOWS CHARTER AND BYLAW AMENDMENT PROPOSAL AND
UNANIMOUSLY RECOMMENDS THAT STOCKHOLDERS OF BAY MEADOWS VOTE FOR APPROVAL OF
THE MERGER PROPOSAL AND FOR THE BAY MEADOWS CHARTER AND BYLAW AMENDMENT
PROPOSAL. SEE "THE MERGER AND SUBSCRIPTION--BACKGROUND OF THE MERGER" AND "--
REASONS FOR THE MERGER AND THE RELATED TRANSACTIONS; RECOMMENDATION OF THE
BOARD OF DIRECTORS OF BAY MEADOWS."
PATRIOT SPECIAL MEETING
The Patriot Special Meeting will be held at the Holiday Inn Select, Dallas,
Texas, on July 1, 1997, at 11:00 a.m., local time. At the Patriot Special
Meeting, holders of Patriot Common Stock will consider and vote upon the
Merger Proposal and the Patriot Incentive Plan Proposal. The Merger Proposal
must be approved by the affirmative vote of the holders of two-thirds of the
outstanding shares of Patriot Common Stock entitled to vote thereon. The
Patriot Incentive Plan Proposal must be approved by the affirmative vote of
the holders of a majority of the shares of Patriot Common Stock present in
person or by proxy and entitled to vote at the Patriot Special Meeting.
Holders of Patriot Common Stock are entitled to one vote per share. At the
present time, it is not anticipated that any other matters will be brought
before the Patriot Special Meeting for consideration and vote by holders of
shares of Patriot Common Stock including without limitation any motion to
adjourn such meeting.
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In the event of any vote to adjourn the Patriot Special Meeting in order to
allow Patriot to solicit votes in favor of the Merger Proposal, proxies voting
AGAINST the Merger Proposal will be voted AGAINST the motion to adjourn the
Patriot Special Meeting pursuant to its discretionary authority.
The Patriot Board of Directors has fixed the close of business on May 16,
1997 as the Patriot Record Date for determining holders entitled to notice of
and to vote at the Patriot Special Meeting. Only holders of Patriot Common
Stock at the close of business on the Patriot Record Date will be entitled to
notice of and to vote at the Patriot Special Meeting. As of the Patriot Record
Date, there were outstanding and entitled to vote 44,243,496 shares of Patriot
Common Stock. As of the Patriot Record Date, directors and executive officers
of Patriot and their affiliates who own collectively 877,210 shares
(representing 2.0% of the outstanding shares) have indicated that they intend
to vote all of their shares of Patriot Common Stock to approve the Merger
Proposal and the Patriot Stock Incentive Plan Proposal.
All shares of Patriot Common Stock represented by properly executed proxies
will, unless such proxies have been previously revoked, be voted in accordance
with the instructions indicated in such proxies. IF NO INSTRUCTIONS ARE
INDICATED, SUCH SHARES OF PATRIOT COMMON STOCK WILL BE VOTED IN FAVOR OF THE
MERGER PROPOSAL AND THE PATRIOT INCENTIVE PLAN PROPOSAL. A stockholder who has
given a proxy may revoke it at any time prior to its exercise by giving
written notice thereof to the Secretary of Patriot, by signing and returning a
later-dated proxy or by voting in person at the Patriot Special Meeting;
however, mere attendance at the Patriot Special Meeting will not in and of
itself have the effect of revoking the proxy.
Votes cast by proxy or in person at the Patriot Special Meeting will be
tabulated by the inspector(s) of election appointed for the meeting and will
determine whether or not a quorum is present. The presence in person or by
properly executed proxy of the holders of a majority of the issued and
outstanding shares of Patriot Common Stock at the Patriot Special Meeting is
necessary to constitute a quorum at the Patriot Special Meeting. Abstentions
and broker non-votes will be treated as shares that are present at the Patriot
Special Meeting for purposes of determining whether a quorum exists. To be
approved, the Merger Proposal must receive the affirmative vote of the holders
of two-thirds of the issued and outstanding shares of Patriot Common Stock
entitled to vote thereon. Abstentions and broker non-votes will have the
effect of votes against the approval of the Merger Proposal. To be approved,
the Patriot Incentive Plan Proposal must be approved by the affirmative vote
of the holders of a majority of the shares of Patriot Common Stock present in
person or by proxy and entitled to vote at the Patriot Special Meeting.
Abstentions will have the effect of votes against the Patriot Incentive Plan
Proposal. Broker non-votes will have no effect on the Patriot Incentive Plan
Proposal because, for purposes of Virginia law and other applicable statutes
and regulations, broker non-votes are considered not to be entitled to vote on
the Patriot Incentive Plan Proposal.
Although each of the Proposals will be voted on and tabulated separately,
under the Merger Agreement it is a condition to the obligation of each of
Patriot, Bay Meadows and Cal Jockey to consummate the Merger and the Related
Transactions that each of the Proposals be approved. BECAUSE EACH OF THE
PROPOSALS IS A CONDITION TO CLOSING, IF ANY OF THE PROPOSALS ARE NOT ADOPTED,
THE PARTIES WILL NOT BE REQUIRED TO CONSUMMATE THE MERGER OR ANY OF THE
RELATED TRANSACTIONS. HOWEVER, APPROVAL OF THE PATRIOT INCENTIVE PLAN PROPOSAL
IS NOT A CONDITION TO THE CONSUMMATION OF THE MERGER AND THE RELATED
TRANSACTIONS.
Patriot will bear its own cost of solicitation of proxies. Brokerage firms,
fiduciaries, nominees and others will be reimbursed for their out-of-pocket
expenses in forwarding proxy materials to beneficial owners of shares of
Patriot Common Stock held in their names. In addition to the use of the mails,
proxies may be solicited by directors, officers and regular employees of
Patriot, who will not be specifically compensated for such services, by means
of personal calls upon, or telephonic or telegraphic communications with,
stockholders or their representatives. In addition, McKenzie Partners, Inc.
has been engaged by Patriot to act as proxy solicitors and will receive a fee
of approximately $10,000 plus expenses.
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THE BOARD OF DIRECTORS OF PATRIOT HAS UNANIMOUSLY APPROVED THE MERGER
PROPOSAL AND THE PATRIOT INCENTIVE PLAN PROPOSAL AND UNANIMOUSLY RECOMMENDS
THAT STOCKHOLDERS OF PATRIOT VOTE FOR APPROVAL OF THE MERGER PROPOSAL AND THE
PATRIOT INCENTIVE PLAN PROPOSAL. SEE "THE MERGER AND SUBSCRIPTION--BACKGROUND
OF THE MERGER," "--REASONS FOR THE MERGER AND THE RELATED TRANSACTIONS;
RECOMMENDATION OF THE BOARD OF DIRECTORS OF PATRIOT" AND "PROPOSAL TO APPROVE
THE AMENDMENT AND RESTATEMENT OF THE PATRIOT INCENTIVE PLAN."
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THE MERGER AND SUBSCRIPTION
TERMS OF THE MERGER AND SUBSCRIPTION
On October 31, 1996, Patriot, Cal Jockey and Bay Meadows entered into the
October 31, 1996 Agreement pursuant to which the parties agreed to engage in a
business combination transaction. The parties, together with the Patriot
Partnership, thereafter entered into the Merger Agreement which by its terms
supersedes the October 31, 1996 Agreement and more fully details the
transactions to be consummated by the parties. The Board of Directors of each
of Patriot, Cal Jockey and Bay Meadows has approved the October 31, 1996
Agreement, the Merger Agreement and the Related Transactions, including,
without limitation, the Merger, the Subscription, the issuance of up to
approximately 30,500,000 shares of Cal Jockey Common Stock and 30,500,000
shares of Bay Meadows Common Stock, the contribution of certain of the assets
of Bay Meadows to the New Patriot Operating Partnership in exchange for OP
Units of the New Patriot Operating Partnership and the contribution of certain
of the assets of Cal Jockey to the Patriot Partnership in exchange for OP
Units of the Patriot Partnership. Pursuant to the Merger Agreement, at the
Effective Time of the Merger, Patriot will be merged with and into Cal Jockey,
with Cal Jockey being the surviving company in the Merger. In connection with
the Merger, Cal Jockey's name will be changed to "Patriot American
Hospitality, Inc." and Bay Meadows' name will be changed to "Patriot American
Hospitality Operating Company." Presently, shares of Cal Jockey Common Stock
and shares of Bay Meadows Common Stock are paired and are transferable only as
a single unit pursuant to the Pairing Agreement. The Pairing Agreement will
continue after the Merger and, accordingly, each share of New Patriot REIT
Common Stock and each share of New Patriot Operating Company Common Stock will
also be paired and transferable only as a single unit.
Pursuant to the Merger, each outstanding Paired Share of Cal Jockey Common
Stock and Bay Meadows Common Stock will remain outstanding after the Merger
and will automatically, without any action on the part of the stockholders of
Cal Jockey and Bay Meadows, represent the same number of paired shares of New
Patriot REIT Common Stock and New Patriot Operating Company Common Stock.
By operation of the Merger, each issued and outstanding share of Patriot
Common Stock will be converted into the right to receive 0.51895 shares of New
Patriot REIT Common Stock, subject to certain REIT qualification requirements.
If the Patriot Average Trading Price is less than $17.125, then each share of
Patriot Common Stock will be converted into the number of paired shares equal
to the Patriot Average Trading Price divided by $33.00. The Patriot
Partnership will, in connection with the Merger, subscribe for the Subscribed
Shares in an amount equal to the number of shares of New Patriot REIT Common
Stock that will be issued to Patriot stockholders in the Merger. Immediately
prior to the Merger, the Patriot Partnership will fund the Subscription and
Patriot and the Patriot Partnership will designate the Patriot stockholders as
the recipients of the Subscribed Shares, in compliance with the Pairing
Agreement, on the basis of 0.51895 Subscribed Shares for each share of Patriot
Common Stock outstanding at the Effective Time, subject to certain REIT
qualification requirements and to any adjustments to the Exchange Ratio. The
result of the Merger and Subscription will be that Patriot stockholders will
have the right to receive 0.51895 shares of New Patriot REIT Common Stock and
0.51895 shares of New Patriot Operating Company Common Stock, subject to
certain REIT qualification requirements and to any adjustments to the Exchange
Ratio, for each share of Patriot Common Stock held by them at the Effective
Time of the Merger, which shares of New Patriot REIT Common Stock and New
Patriot Operating Company Common Stock will be paired and transferable only as
a single unit.
The Restated Charters will provide that no person or entity may own, be
deemed to own by virtue of the applicable attribution provisions of the Code
or be deemed to beneficially own pursuant to the applicable provisions of the
Exchange Act, shares of any class or series of Equity Stock of New Patriot
REIT or New Patriot Operating Company at or after the Merger in excess of the
Ownership Limit. If any holder of Patriot Common Stock would receive in the
Merger and the Subscription a number of paired shares of New Patriot REIT
Common Stock and New Patriot Operating Company Common Stock which would cause
such holder or any other person
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or entity to own, or be deemed to own, paired shares of New Patriot REIT
Common Stock and New Patriot Operating Company Common Stock in excess of the
Ownership Limit, then such holder shall acquire no right or interest in such
number of paired shares of New Patriot REIT Common Stock and New Patriot
Operating Company Common Stock that would cause the Ownership Limit to be
exceeded, but such holder shall, in lieu of receiving the Excess Paired
Shares, have the right to be paid by New Patriot REIT as the surviving company
an amount in cash for such Excess Paired Shares equal to product of the Fair
Market Value per Excess Paired Share multiplied by the number of such Excess
Paired Shares. Assuming the Merger had been consummated on May 28, 1997, the
Fair Market Value of an Excess Paired Share would have been $41.91 per Excess
Paired Share.
No fractional shares of New Patriot REIT Common Stock will be issued in
connection with the Merger and no fractional shares of the Subscribed Shares
will be issued in connection with the Subscription. In lieu thereof, a holder
of Patriot Common Stock otherwise entitled to fractional paired shares of New
Patriot REIT Common Stock and New Patriot Operating Company Common Stock in
the Merger and Subscription will be paid an amount in cash (without interest),
rounded to the nearest cent, determined by multiplying the Fair Market Value
by the fractional amount of the paired shares of New Patriot REIT and New
Patriot Operating Company to which such holder would otherwise be entitled in
the Merger and Subscription.
Based upon the number of Paired Shares of Cal Jockey Common Stock and Bay
Meadows Common Stock outstanding at May 28, 1997, the number of shares of
Patriot Common Stock outstanding at May 28, 1997 and assuming that no options
or OP Units are exchanged for shares of Patriot Common Stock immediately prior
to the Merger and assuming that the Exchange Ratio is not adjusted due to a
Patriot Average Trading price below $17.125, the former Patriot stockholders
will hold, immediately after the Merger, approximately 23 million paired
shares of New Patriot REIT Common Stock and New Patriot Operating Company
Common Stock, representing approximately 80% of the aggregate number of
outstanding paired shares of New Patriot REIT Common Stock and New Patriot
Operating Company Common Stock.
As a result of the Merger and without any action on the part of the holder
thereof, at the Effective Time, all shares of Patriot Common Stock will cease
to be outstanding, will be canceled and retired and will cease to exist. Each
holder of a Certificate will thereafter cease to have any rights with respect
to such shares of Patriot Common Stock, except the right to receive paired
shares of New Patriot REIT Common Stock and New Patriot Operating Company
Common Stock and cash in lieu of Excess Paired Shares, if any, and fractional
paired shares, if any, of New Patriot REIT Common Stock and New Patriot
Operating Company Common Stock upon the surrender of such Certificate.
Promptly after the Effective Time, the Exchange Agent will mail a letter of
transmittal and instructions to each holder of a Certificate as of the
Effective Time for use in effecting the surrender of the Certificate in
exchange for certificates representing paired shares of New Patriot REIT
Common Stock and New Patriot Operating Company Common Stock and cash in lieu
of Excess Paired Shares and fractional Paired Shares, if any. See "The Merger
Agreement--Exchange of Patriot Stock Certificates."
BACKGROUND OF THE MERGER
On August 4, 1995, the principal of Hudson Bay acquired his first Paired
Shares in Cal Jockey and Bay Meadows, and in September and October 1995 met
several times with a director of Cal Jockey to discuss the history of the
companies, the status of operations, use of the paired share structure and
possible opportunities with respect to developing Cal Jockey's real property.
Several preliminary meetings between Hudson Bay and Cal Jockey took place in
February, March and April 1996. On April 8, 1996, the Board of Directors of
Cal Jockey agreed to explore and discuss possible transactions between Cal
Jockey and interested parties, and further authorized the retention of
investment bankers to assist in such process.
In mid-April 1996, Bay Meadows received a telephone call from another
interested party ("Company A") regarding a possible acquisition of Cal Jockey
and Bay Meadows. On or about April 18, 1996, Company A delivered to Bay
Meadows a written outline of a proposed transaction with the companies. On
April 24, 1996,
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the Board of Directors of Bay Meadows decided to continue the discussions that
had involved Bay Meadows' management about a possible transaction with Company
A and to consider the engagement of Montgomery as Bay Meadows' investment
banker. Management of each of Cal Jockey and Bay Meadows had several
exploratory discussions and meetings with representatives of Company A during
April 1996. In late April 1996, Hudson Bay presented separately to the
management of Cal Jockey and Bay Meadows its ideas related to a business
combination with the two companies.
On May 15, 1996, the Boards of Directors of Cal Jockey and Bay Meadows each
retained Montgomery as its investment banker. On May 20, 1996, Company A
submitted a revised proposal at a valuation of $20.00 per Paired Share. During
May and June 1996, Cal Jockey's and Bay Meadows' management and financial
advisors continued discussions with Hudson Bay and Company A, and Montgomery
solicited indications of interest from a number of other potential parties.
During this same period, the Board of Directors of each of Cal Jockey and Bay
Meadows held several meetings at which the status of discussions with Hudson
Bay, Company A and any other interested parties were discussed.
On July 1 and 2, 1996, the principal of Hudson Bay met with representatives
of the Boards of Directors of Cal Jockey and Bay Meadows, respectively, to
formally outline a transaction with the companies at a valuation of $20.00 per
Paired Share. During July 1996, the companies engaged in further discussions
and negotiations with Hudson Bay and Company A regarding a possible
transaction. However, Cal Jockey, Bay Meadows and Company A reached an impasse
concerning valuation of Cal Jockey and Bay Meadows and control over leasing
and management of properties in the surviving entity, and discussions and
negotiations with Company A ceased by the end of July. By letter dated July
12, 1996, Hudson Bay expressed its intent to pursue a transaction with both
Cal Jockey and Bay Meadows.
While the foregoing activities and discussions were occurring, a committee
of dissident stockholders sued Cal Jockey over the timing of its 1996 annual
meeting of stockholders, and then in August Cal Jockey sued this group, Bay
Meadows and Bay Meadows' Chairman and President in connection with the Cal
Jockey annual meeting and a Bay Meadows special meeting. See "Stockholders'
Meetings, Litigation and Disagreements."
During the first two weeks of August 1996, Cal Jockey and Hudson Bay engaged
in further discussions and negotiations regarding the terms of a proposed
transaction with Hudson Bay. Cal Jockey also engaged in a review and due
diligence investigation of Hudson Bay's investment strategy and the types of
real estate assets proposed to be acquired, among other things. During the
first week of August 1996, Bay Meadows received and reviewed certain materials
relating to a potential transaction with Hudson Bay and informed Cal Jockey of
key questions and objections it had with respect to such a transaction. On
August 7, 1996, Bay Meadows indicated that it would postpone further
discussions with respect to a transaction with Hudson Bay until after the Cal
Jockey annual meeting scheduled for August 30, 1996.
On August 12, 14 and 18, 1996, the Cal Jockey Board of Directors met at
length with its legal and financial advisors to consider the terms of the
proposed transaction with Hudson Bay, the governing agreement (the "Formation
Agreement") and the additional agreements contemplated thereby. On August 18,
1996, after reviewing the terms of the Hudson Bay transaction and considering,
among other things, the oral presentations by its legal and financial advisors
and Montgomery's opinion addressed to the Cal Jockey Board of Directors as to
the fairness, from a financial point of view, of the consideration to be
received by the stockholders of Cal Jockey and Bay Meadows in the proposed
transaction, the Cal Jockey Board of Directors approved the Hudson Bay
transaction by a vote of four to one with one abstention and authorized Cal
Jockey to enter into the Formation Agreement and related agreements. Ms.
Marylin Gunderson voted against the Hudson Bay transaction but did not state
her reasons for doing so, and Mr. Richard Perazzo abstained on the grounds
that he needed more time to consider the proposed transaction. Legal counsel
for Cal Jockey inquired about Ms. Gunderson's and Mr. Perazzo's reasons for
voting in such manner. Ms. Gunderson declined to explain her reason for voting
against the proposal and Mr. Perazzo noted no particular term or provision of
the proposal giving rise to his concerns or causing him to abstain from
voting. The Cal Jockey Board of Directors also approved the adoption of
indemnification agreements between Cal Jockey and each of its directors. See
"--Interests of Certain Officers and Directors."
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On August 19, 1996, Cal Jockey publicly announced that it had entered into
the Formation Agreement. Later that same day, Bay Meadows publicly announced
that it expected to continue negotiations with Hudson Bay non-exclusively,
thereby remaining open for discussions with other interested parties. The
Formation Agreement as signed by Cal Jockey contemplated that, among other
things, (a) Cal Jockey and Bay Meadows would each become the sole general
partner of a limited partnership (the "Realty Partnership" and the "Hudson Bay
Operating Partnership," respectively) to which Cal Jockey and Bay Meadows
would each contribute all of its assets (subject to substantially all of its
liabilities) in exchange for an approximate 27.8% interest in such Realty
Partnership and the Hudson Bay Operating Partnership, respectively, and (b)
Hudson Bay would be obligated to contribute $291 million and $9 million over a
period of up to three years to the Realty Partnership and the Hudson Bay
Operating Partnership, respectively, in exchange for an approximate 72.2%
limited partnership interest in each of the Realty Partnership and the Hudson
Bay Operating Partnership. The limited partnership interests in the Realty
Partnership and the Hudson Bay Operating Partnership held by Hudson Bay were
exchangeable for up to approximately 72.2% of the issued and outstanding
Paired Shares, subject to certain adjustments. The foregoing transaction was
valued effectively at $20.00 per Paired Share. The Formation Agreement also
provided that Cal Jockey and Bay Meadows would grant to Hudson Bay a warrant
to purchase up to 5 million units in each of the Realty Partnership and the
Hudson Bay Operating Partnership, at a combined exercise price of $25.69 per
pair of units, which would later be exchangeable for Paired Shares. In
addition, Cal Jockey and Bay Meadows would adopt an option agreement pursuant
to which up to 576,300 Paired Shares would be granted to persons who might
become managers or employees of Cal Jockey or Bay Meadows, including the
principal of Hudson Bay. Further, the Formation Agreement provided that Cal
Jockey and Bay Meadows could use up to $10 million to repurchase outstanding
Paired Shares for cash from the stockholders of Cal Jockey and Bay Meadows at
a price not to exceed $20.00 per Paired Share. Hudson Bay's obligations under
the Formation Agreement were conditioned upon Hudson Bay securing adequate
financing, and consummation of the transactions provided for in the Formation
Agreement was conditioned upon Bay Meadows' approval of the Formation
Agreement. Under the terms of the Formation Agreement, in the event that,
prior to the consummation of the Hudson Bay transaction, the Cal Jockey Board
of Directors accepted another offer from a third party, Hudson Bay would be
entitled to receive a $2.9 million termination fee. Cal Jockey was generally
prohibited from initiating discussions with regard to alternative transactions
by the terms of the Formation Agreement. However, Cal Jockey expressly
reserved the right, to the extent required by its fiduciary obligations, to
furnish non-public information with respect to Cal Jockey in response to an
unsolicited request and discuss that information and, upon receipt of any bona
fide proposal related to the acquisition of Cal Jockey that the directors
determined could result in a more favorable transaction to the Cal Jockey
stockholders than the Hudson Bay transaction (an "Overbid"), participate in
discussions and negotiations regarding that proposal.
After the announcement of the Hudson Bay transaction, a number of parties
indicated to Montgomery or Bay Meadows an interest in engaging Cal Jockey and
Bay Meadows in a possible transaction. On August 21, 1996, Company A
reinitiated discussions with Bay Meadows regarding a possible transaction with
Cal Jockey and Bay Meadows. On August 23, 1996, Bay Meadows met with Company A
to discuss a possible acquisition. The following day, Bay Meadows met with
another party (later disclosed to be Starwood Capital Group, L.L.C. ("Company
B")) which was interested in pursuing a transaction with the companies. On
August 24, 1996, Bay Meadows was also contacted by another interested party,
with whom Bay Meadows met on August 27, 1996.
The Bay Meadows Board of Directors met on August 28, 1996 to, among other
things, consider the proposed Hudson Bay transaction. Hudson Bay made a
presentation at the meeting and responded to questions of directors concerning
its formation, its investment strategy, the business background and experience
of its principal, its ability to raise the necessary capital, a possible
distribution of real estate sale proceeds to existing holders of Paired Shares
rather than the Realty Partnership and the Hudson Bay Operating Partnership,
the remedies available for Hudson Bay's failure to make promised cash
contributions to the Realty Partnership and the Hudson Bay Operating
Partnership and the prospects for continued horse racing at Bay Meadows.
Following the presentation, the Bay Meadows Board of Directors determined to
continue considering other unsolicited proposals, as well as to continue
considering the Hudson Bay transaction. Concerns expressed by directors of Bay
Meadows relating to the Hudson Bay transaction included Hudson Bay's relative
lack of experience in
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directly purchasing and operating real properties, the limited $10 million in
cash available to the holders of Paired Shares as an alternative to remaining
stockholders in the surviving entity, the nonproportionate sharing of "upside"
results due to the warrants and options included in the Hudson Bay transaction
and Hudson Bay's unproven ability to raise and advantageously invest its $300
million commitment to the Realty Partnership and the Hudson Bay Operating
Partnership. At the same meeting, the Bay Meadows Board of Directors
authorized (i) indemnification agreements for directors and officers and (ii)
severance agreements with specified officers with potential severance
benefits, following a change of control as defined in the agreements, of from
one to two years' compensation. See "--Interests of Certain Officers and
Directors."
On or about August 30, 1996, the companies received a written indication of
interest from Company B. Between August 30, 1996 and September 24, 1996, a
number of additional interested parties contacted Montgomery and in some
instances, either Cal Jockey or Bay Meadows, to request information and to
discuss, with varying levels of specificity, the possibility of an alternative
transaction to the Hudson Bay transaction. In each case, Cal Jockey and its
legal counsel reviewed its obligations under the Formation Agreement to ensure
compliance with the "no solicitation" provisions of that agreement. On
September 19, 1996, Bay Meadows requested Montgomery to advise all appropriate
parties of the "opportunity that exists with respect to Bay Meadows." Cal
Jockey did not join in such request. During this period, Cal Jockey signed
confidentiality agreements with a number of interested parties.
Representatives of Cal Jockey and Bay Meadows, including their financial
advisors, had various exploratory meetings with several of these parties
during this same period of time.
Beginning in late August 1996, Patriot began to consider the possibility of
acquiring Bay Meadows and Cal Jockey, primarily because of the perceived
advantages which the paired share structure would provide Patriot and its
stockholders. For a description of these advantages, see "--Reasons for the
Merger and the Related Transactions; Recommendation of the Board of Directors
of Patriot." In these initial discussions, it was anticipated that both
Patriot and PaineWebber would be involved in the acquisition. Under this
proposed acquisition structure, following consummation of the transaction,
Patriot's stockholders would control 99% of the outstanding Paired Shares, Bay
Meadows' horse racing operations and liabilities would be spun off to Bay
Meadows' existing stockholders, and substantially all of Cal Jockey's real
properties would be transferred to a Patriot/PaineWebber-sponsored realty
partnership. In light of Cal Jockey's agreement with Hudson Bay, Patriot and
PaineWebber decided that no contact would be made with Cal Jockey, but that
instead PaineWebber would approach Bay Meadows concerning a possible
transaction.
On September 24, 1996, Bay Meadows' President met with PaineWebber, which
represented an interested party later disclosed to be Patriot, to discuss a
possible transaction with Cal Jockey and Bay Meadows. On September 29, 1996,
PaineWebber forwarded to Bay Meadows a draft of a legally-binding letter
agreement among a PaineWebber affiliate, Bay Meadows and an undesignated
party, disclosed two days later to be Patriot. The letter agreement
contemplated a transaction in which the following would occur: (i) cash
distributions aggregating $20.00 on the Paired Shares would be made by the
companies; (ii) Bay Meadows would distribute to its stockholders stock in a
newly-formed subsidiary to which all of Bay Meadows' horse racing properties,
operations and liabilities, and $1.5 million of operating cash, would be
transferred; (iii) the spun-off horse racing company would enter into a 10-
year lease with a Patriot/PaineWebber-sponsored realty partnership with the
realty partnership making $8-10 million available for stable improvements;
(iv) Cal Jockey would merge with Patriot, with Cal Jockey as the surviving
entity; and (v) in the proposed merger, the existing Cal Jockey and Bay
Meadows shares would remain outstanding, but Patriot stockholders would
receive Paired Shares constituting 99% of the outstanding Paired Shares.
Simultaneously with the closing of this proposed transaction, the existing
members of Cal Jockey's and Bay Meadows' Boards of Directors would be replaced
by persons designated by Patriot. The letter agreement was not subject to any
financing contingency. The letter agreement required Bay Meadows to terminate
other pending discussions, and not to solicit other proposals, while the
agreement remained in effect. Bay Meadows was, however, permitted to negotiate
unsolicited proposals to the extent required by the fiduciary duties of its
Board of Directors and to terminate the agreement in order to accept a
superior proposal (and in certain other circumstances) upon payment to Patriot
of a $4.5 million termination fee. The letter agreement called for the
transaction to be submitted to the stockholders of Cal Jockey, Bay Meadows and
Patriot for approval.
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On October 1, 1996, Bay Meadows informed Montgomery, without revealing
Patriot's name, that it was engaged in discussions with an interested third
party. On October 1, 1996 and October 2, 1996, representatives of Bay Meadows,
Patriot and PaineWebber met to discuss the draft letter agreement from
Patriot. The discussions were conducted under confidentiality restrictions
insisted upon by Patriot and PaineWebber that, at that time, precluded
disclosure of the proposal or Patriot's identity to Cal Jockey. Under
Montgomery's joint engagement by Cal Jockey and Bay Meadows, participation by
Montgomery in the Bay Meadows-Patriot discussions without disclosing the
identity of the parties and the substance of the discussions to Cal Jockey was
precluded.
On October 4, 1996, Montgomery notified the Boards of Directors of Bay
Meadows and Cal Jockey that several other interested parties were likely to
submit proposals in the near future. By letter dated October 5, 1996, Company
B presented a proposal to the companies for a possible transaction with the
Company based on a value of $21.00 in cash per Paired Share.
On October 5, 1996, the Board of Directors of Patriot met to consider the
proposed transaction with Cal Jockey and Bay Meadows. At this meeting,
Patriot's senior management, together with its legal and financial advisors,
reviewed with its Board of Directors the current operations and properties of
Cal Jockey and Bay Meadows, the paired share structure of Cal Jockey and Bay
Meadows and its utility, the background of the proposed merger, and certain
financial and valuation analyses of the transaction. Patriot's senior
management also discussed with the Board of Directors the strategic rationale
for the transaction and the potential benefits and negative consequences of
the proposed merger and the related transactions to Patriot and its
stockholders. For a discussion of these benefits and negative consequences,
see "--Reasons for the Merger and the Related Transactions; Recommendation of
the Board of Directors of Patriot." Patriot's legal counsel also discussed
with the Patriot Board of Directors, among other things, the terms of the
legal documentation relating to the proposed merger, the timetable for signing
such definitive documentation and its fiduciary duties to its stockholders.
Following these presentations, the directors asked numerous questions of
management and its legal and financial advisors and discussed at length the
issues raised by these presentations. At the conclusion of these discussions,
the Patriot Board of Directors decided that PaineWebber would not be a party
to the transaction and thus following the transaction Cal Jockey's real estate
assets would be owned and controlled exclusively by Patriot. The Patriot Board
of Directors authorized management to proceed with the submission of a revised
bid concerning the acquisition of Bay Meadows and Cal Jockey and the
negotiation of definitive documentation for the transaction with Bay Meadows.
On October 5, 1996, the Bay Meadows Board of Directors met for a
presentation by Montgomery regarding the Hudson Bay transaction and related
topics. Montgomery reviewed the terms of the Hudson Bay transaction and the
status of Hudson Bay's efforts to seek the necessary investment commitments,
and discussed other potential transactions. Montgomery reported that, in
response to Bay Meadows' September 19, 1996 letter, it had requested a waiver
from Hudson Bay of the limitations contained in the Formation Agreement
against Cal Jockey's solicitation of other proposals, and that Hudson Bay had
declined to grant the requested waiver. Montgomery stated, however, that it
had received a number of unsolicited indications of interest to make proposals
of alternatives to the Hudson Bay transaction, and reviewed such indications
of interest with the Board of Directors of Bay Meadows.
On October 7, 1996, Company B announced publicly a proposal for a possible
business transaction with Cal Jockey and Bay Meadows with a value of $22.00
per Paired Share, a $1.00 increase over its October 5, 1996 proposal. On
October 8, 1996, the Companies also received a written preliminary proposal
from another party ("Company C") in the range of $20.00 to $24.00 per Paired
Share. On October 9, 1996, Bay Meadows publicly announced that it would
consult with Cal Jockey regarding Company B's offer and would continue to
consider and have discussions with Company B and other interested parties.
Between October 5, 1996 and October 9, 1996, negotiations between Bay
Meadows and Patriot continued. On October 9, 1996, Patriot submitted a
proposal to Bay Meadows, which revised its previous proposal, among other
ways, to: (i) change the structure to eliminate the cash distribution on the
Paired Shares and substitute a merger of Patriot into Cal Jockey in which the
stockholders could elect to receive cash consideration; (ii) increase the cash
consideration available at the election of the stockholders of Cal Jockey and
Bay Meadows from $20.00
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to $22.00 per Paired Share; (iii) permit the stockholders of Cal Jockey and
Bay Meadows to elect to either retain their stock interest, valued at $22.00
in cash per Paired Share, or to receive $22.00 cash per Paired Share; (iv)
limit the amount available for improvements to the spun-off horse racing
company's stables to $8 million; (v) shorten the term of the lease between the
spun-off horse racing company and the post-merger realty partnership to seven
years or less (depending on the cost of the stables) and revise the annual
rent; (vi) add a dividend of Bay Meadows preferred stock with an approximate
value of $0.60 for each Paired Share, and (vii) reduce the fee owed to Patriot
upon a termination of the transaction by the companies to $2.9 million. The
Patriot proposal assumed that Cal Jockey would be required to pay a $2.9
million termination fee to Hudson Bay.
On October 9, 1996, Patriot and PaineWebber consented to the disclosure of
the Patriot proposal to Cal Jockey (subject to Cal Jockey's entry into a
confidentiality agreement similar to the one previously signed by Bay
Meadows). That day, Bay Meadows disclosed to Montgomery that Patriot was the
previously undisclosed third party, and described the terms of Patriot's
proposal. After signing a confidentiality agreement, Cal Jockey was provided
with a draft letter agreement among Patriot, a PaineWebber affiliate, Bay
Meadows and Cal Jockey in the form that was then under discussion between
Patriot, PaineWebber and Bay Meadows.
On the evening of October 9, 1996, the Bay Meadows Board of Directors met,
with Montgomery and Bay Meadows' counsel present, to consider the Patriot
proposal. The terms of the Patriot proposal were reviewed by Bay Meadows'
legal counsel, including changes that had been proposed by Bay Meadows but not
accepted by Patriot. During the meeting of the Bay Meadows Board of Directors,
Cal Jockey faxed a letter to the Bay Meadows Board of Directors asking it to
not make a definitive decision regarding the Patriot transaction in light of
the other offers recently received and the fact that Cal Jockey had just that
day learned of the terms of the Patriot proposal. The Bay Meadows Board of
Directors did not consider this letter to have any material effect on its
discussions and continued its deliberations. After discussion, the Bay Meadows
Board of Directors resolved, based in part on Montgomery's recommendation, to
continue to negotiate for improvements and clarification in Patriot's proposal
and to invite Cal Jockey to join the negotiations.
On October 10, 1996, the Bay Meadows Board of Directors reconvened, with Bay
Meadows' counsel present. Hudson Bay made a second presentation to the Board
of Directors on the Formation Agreement and addressed concerns expressed by
directors following its initial presentation. Hudson Bay indicated a possible
willingness to increase the valuation of the Paired Shares in the Hudson Bay
transaction to $21.00 or $22.00 per Paired Share. At the conclusion of Hudson
Bay's presentation, a Bay Meadows director expressed the earlier reservations
but said he might reconsider his position if Hudson Bay increased the
valuation of the proposed transaction to $25.00-$26.00 per Paired Share.
Hudson Bay said it would not be productive to pursue such discussions.
Following Hudson Bay's presentation, three of Cal Jockey's directors,
together with Cal Jockey's counsel and Montgomery, joined the Bay Meadows
Board of Directors meeting for a joint review and discussion of the Patriot
proposal and other proposals. Montgomery reviewed the Patriot proposal and the
status of the proposals by Hudson Bay, Company B and Company C. Bay Meadows'
counsel reviewed the terms of the Patriot proposal and the issues that Bay
Meadows regarded as unresolved. At the conclusion of the meeting, the Bay
Meadows Board of Directors and the Cal Jockey Board of Directors
representatives, based in part on Montgomery's recommendation, agreed to
jointly continue negotiations with Patriot for improvements and clarification
in Patriot's proposal and to continue discussions with other parties that had
submitted Overbids. A negotiation meeting of Patriot, Bay Meadows and Cal
Jockey, and their respective financial and legal representatives, was
scheduled for October 14, 1996, and Montgomery was directed to contact all
parties that had submitted Overbids.
On October 11, 1996, after learning that Montgomery was contacting those
parties that had submitted Overbids, Patriot requested both Bay Meadows and
Cal Jockey to enter into an exclusive negotiations agreement. Following
discussions, the requested agreement called for both companies not to
negotiate with parties other than Patriot, or encourage other parties to make
proposals, for a 10-day period, which would be subject to termination at any
time by either company in order to pursue negotiation of a binding agreement
for a transaction with
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another party which its Board of Directors deemed superior. Bay Meadows
indicated it would be willing to sign such an agreement as it was a condition
for continuation of negotiations by Patriot. Cal Jockey indicated that,
although it wished to continue negotiations with Patriot, it was not willing
to sign the exclusivity agreement in light of the other unsolicited offers on
the table, its obligations under the Formation Agreement and the fact that Cal
Jockey had only recently learned of the Patriot proposal and had not had
sufficient time to evaluate the proposal.
Over the weekend of October 11, 1996 to October 13, 1996, Cal Jockey and its
legal advisors continued to evaluate all offers and commenced a more specific
evaluation and analysis of the Patriot proposal, including a limited legal and
financial due diligence review in order to determine the viability of
consummating a business combination transaction with Patriot.
On October 14, 1996, representatives of Bay Meadows, Cal Jockey and Patriot,
including their respective legal and financial advisors, met. Cal Jockey
stated that, although it was interested in commencing discussions regarding a
possible transaction with Patriot, in light of the other unsolicited offers on
the table and its commitments under the Formation Agreement, it was not
willing to execute a binding letter agreement on the time schedule
contemplated by Patriot. Because of Cal Jockey's position on this issue,
Patriot withdrew its offer at the conclusion of the meeting. Later that day,
Montgomery was contacted by Company B and Company C regarding the status of
their respective offers.
On October 15, 1996, Cal Jockey held a meeting of its Board of Directors at
which Montgomery presented details regarding the proposals from Company B and
Company C as well as the unsolicited indications of interest received from
other parties. The Cal Jockey Board of Directors set a deadline of Monday,
October 21, 1996 at 5:00 p.m. (which was subsequently extended to October 25,
1996), after which it would move to sign a commitment with the highest bidder.
Montgomery was instructed to contact all parties that had previously submitted
Overbids and inform them of this deadline.
During the period from October 16, 1996 to October 24, 1996, there were
daily telephone conversations between Montgomery and various parties,
including Hudson Bay, Patriot, Company A, Company B and Company C and two
additional parties ("Company D" and "Company E"), both of whom had contacted
Montgomery and requested information and meetings with the management of Cal
Jockey and Bay Meadows. During this period, there also were discussions
between Company D and Patriot concerning the submission of a joint bid for Cal
Jockey and Bay Meadows. The parties also discussed the possible acquisition of
Company D by Patriot concurrently with Patriot's acquisition of Cal Jockey and
Bay Meadows. The discussions between the parties with respect to the
submission of a joint bid broke off on October 25, 1996.
On October 24, 1996, Cal Jockey held a meeting of its Board of Directors to
consider and discuss outstanding proposals. The Cal Jockey Board of Directors
invited the Bay Meadows Board of Directors to attend a joint meeting on
October 25, 1996 to discuss all offers received by the deadline.
On October 25, 1996, the Patriot Board of Directors held a meeting at which,
among other things, management, together with the company's legal counsel and
financial advisors, updated the Patriot Board of Directors on the status of
the negotiations with Bay Meadows and Cal Jockey including the deadline set
for submission of bids. The directors then asked numerous questions concerning
the transaction, the identity of other bidders, and the likely range of bids
which could be submitted by such parties. After reviewing the potential
benefits of the transaction to Patriot and its stockholders, the Patriot Board
of Directors approved the submission of a bid pursuant to which stockholders
of Cal Jockey and Bay Meadows would receive (a) the entire equity interest in
a new company to be spun-off from Bay Meadows, (b) shares of preferred stock
of Bay Meadows with an aggregate face amount of $3.5 million and an annual
coupon of 5% and (c) an amount per Paired Share (in either cash or in the form
of a continuing interest in the surviving companies) which would bring the
aggregate consideration (including consideration described in clauses (a) and
(b)) to $27.50, provided that the
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consideration referred to in this clause (c) would in no event be less than
$24.00 per Paired Share. Such bid also contemplated an up-front payment by
Patriot to Cal Jockey of $2.9 million to cover Cal Jockey's obligations with
respect to the Hudson Bay termination fee as well as a $4.5 million break-up
fee.
On October 25, 1996, the Boards of Directors of Cal Jockey and Bay Meadows
held a joint meeting which was also attended by Montgomery and the respective
legal counsel of Cal Jockey and Bay Meadows to discuss all offers received by
the deadline. At the meeting, Montgomery distributed Overbids received from
Patriot, Company B, Company D, Company E and Hudson Bay, and reviewed the
details of each offer. The directors of both companies asked questions and
discussed at length each bid. The Boards of Directors each decided to pursue a
possible transaction with Company D exclusively, in which Paired Shares were
valued at $30.00 per Paired Share. Accordingly, the Boards of Directors
directed Montgomery to contact Company D to clarify issues related to its
proposal and to contact all other parties, including Hudson Bay, to inform
them that the companies were pursuing negotiations with another party.
Cal Jockey's legal counsel, with input from Bay Meadows' legal counsel,
began drafting documentation for a potential transaction with Company D and
commenced legal due diligence, with Bay Meadows intending to commence its own
legal due diligence shortly thereafter. Montgomery also commenced financial
due diligence with respect to Company D.
On October 29, 1996, the Patriot Board of Directors met to discuss the
status of the negotiations with Cal Jockey and Bay Meadows and to decide
whether or not to submit another bid with respect to the transaction.
Management, along with Patriot's legal and financial advisors, updated the
Board of Directors on the events that had occurred since its last meeting,
including that the companies had informed Patriot that they were pursuing a
transaction with another company. Patriot's management then reviewed with the
Board of Directors the strategic rationale for the transaction and its
potential benefits and consequences to the Patriot stockholders. The Board of
Directors then had a lengthy discussion concerning the transaction and whether
Patriot should submit another bid or alternatively to allow Cal Jockey and Bay
Meadows to proceed with a transaction with Company D. Following this
discussion, the Board of Directors directed management to submit a bid
pursuant to which Patriot would acquire all of the outstanding shares of Bay
Meadows Common Stock and Cal Jockey Common Stock at $33.00 per share (either
in cash or in the form of a continuing interest in the surviving company).
PaineWebber then made a presentation to the Board of Directors concerning its
financial analysis of the proposed transaction and provided an oral opinion as
to the fairness, from a financial point of view, of the consideration to be
received by holders of Patriot Common Stock in the proposed merger. The Board
of Directors then authorized management to send a letter to Bay Meadows and
Cal Jockey outlining their bid and to begin immediately negotiating a
definitive agreement relating to the transaction.
On October 29, 1996, the companies received an unsolicited proposal from
Patriot valued at $33.00 per Paired Share. Under the terms of the proposal,
stockholders of Cal Jockey and Bay Meadows would be given the opportunity to
receive either $33.00 cash per Paired Share or paired shares in the surviving
companies valued at $33.00. Patriot would merge with and into Cal Jockey, with
Cal Jockey being the surviving company. The proposal did not contain any
financing contingency and did not require a due diligence period. The proposal
also provided for preservation of the paired structure between Cal Jockey and
Bay Meadows. Montgomery informed Company D that another proposal had been
submitted which the Boards of Directors of Cal Jockey and Bay Meadows would be
considering.
On the advice of legal counsel, Cal Jockey called a meeting of its Board of
Directors for the morning of October 30, 1996 to discuss and evaluate the
Patriot proposal. Cal Jockey directed Montgomery and Cal Jockey's legal
counsel to pursue discussions and negotiations with Patriot. Later that same
day, Company D submitted a revised bid that valued the Paired Shares at $33.00
per Paired Share.
On the evening of October 30, 1996, the Board of Directors of Cal Jockey and
Bay Meadows held a joint meeting to consider and evaluate the proposals from
Patriot and Company D. The directors reviewed both
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proposals and asked questions of their respective financial advisors and legal
counsel. Among other things, the Boards of Directors of Cal Jockey and Bay
Meadows considered that (i) Company D's proposal did not include a mechanism
for the Cal Jockey and Bay Meadows stockholders to receive cash for all of
their Paired Shares where Patriot's proposal allowed substantially all of the
stockholders to be cashed out, (ii) consummation of a transaction with Company
D was conditioned on the receipt of certain third party consents by Company D
which there was no assurance could be obtained immediately, if at all, where
Patriot's proposal included no such condition and (iii) Company D's proposal
was conditioned on a satisfactory due diligence review period where Patriot's
proposal included no diligence review period. Based on these factors, the
Boards of Directors of each of Cal Jockey and Bay Meadows decided to pursue a
transaction with Patriot. The Boards of Directors also agreed to seek
inclusion of the following additional terms in the Patriot transaction: (a) a
fixed exchange ratio for the Paired Shares to be issued to Patriot
stockholders in the merger which would be based on the value of Patriot's
stock on October 30, 1996 (which was $34.25 (prior to Patriot's 2-for-1 stock
split)) to allow Cal Jockey and Bay Meadows stockholders to benefit from any
increase in Patriot's stock price, and a floor of $33.00 per Paired Share in
cash to be received by holders of Paired Shares who might elect to receive
cash rather than stock in the surviving company; and (b) Patriot's agreement
to fund the $2.9 million termination fee owed to Hudson Bay as a result of
entering into the Patriot transaction. The directors of the companies did not
direct their advisors to present Company D with an opportunity to meet these
additional terms because the directors found Patriot's bid (without these
additional terms) to be preferable to Company D's bid because of factors (i)
through (iii) described above, one of which could not be changed by Company D
(i.e., Company D's requirement to obtain third party consents). The directors
directed their respective legal counsel and Montgomery to discuss these and
other points with Patriot. Patriot responded by agreeing to include such terms
in the October 31, 1996 Agreement. After further joint discussions, the Boards
of Directors of Cal Jockey and Bay Meadows met separately to consider and
evaluate the proposals. Both Boards of Directors voted unanimously to enter
into an agreement with Patriot.
Throughout the evening of October 30, 1996, legal counsel for Patriot, Cal
Jockey and Bay Meadows negotiated the balance of the terms of the October 31,
1996 Agreement which included setting out the details surrounding the
Subscription, the Offer and the structure of the proposed merger of Patriot
into Cal Jockey, with attention paid to preserving the paired structure of Cal
Jockey and Bay Meadows following consummation of the transaction. The parties
also agreed that Patriot's payment of the Hudson Bay termination fee would be
in the form of a $2.9 million loan to Cal Jockey to be repaid by Cal Jockey in
the event of termination of the October 31, 1996 Agreement.
On the morning of October 31, 1996, Cal Jockey and Bay Meadows entered into
the October 31, 1996 Agreement with Patriot. That day, Cal Jockey notified
Hudson Bay that it was terminating the Formation Agreement and subsequently
wired to Hudson Bay its $2.9 million termination fee.
Following the signing of the October 31, 1996 Agreement through February 24,
1997, legal counsel for Patriot, Cal Jockey and Bay Meadows drafted and
negotiated the terms of the Merger Agreement. The purpose of the Merger
Agreement was to provide further details of the steps required to consummate
the transactions contemplated in the October 31, 1996 Agreement while
maintaining the terms and provisions negotiated in the October 31, 1996
Agreement. The negotiations pertaining to the Merger Agreement centered
primarily on certain terms of the Restated Charters, specifically the
staggered board provisions, the conditional nature of the Proposals, the
rights of Patriot and Cal Jockey to make distributions to their respective
stockholders prior to consummation of the Merger and the process by which the
relative value of the Cal Jockey Common Stock and the Bay Meadows Common Stock
would be determined for purposes of the Offer.
The Patriot Board of Directors unanimously approved the form of the merger
agreement at a meeting on January 30, 1997. During such meeting, the Patriot
Board of Directors reviewed the terms of the merger agreement and thereafter
authorized management to complete negotiations of, and execute, the merger
agreement.
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The Cal Jockey Board of Directors unanimously approved the form of the
merger agreement at a meeting on February 21, 1997. During such meeting, the
Cal Jockey Board of Directors reviewed the terms of the Merger Agreement and
thereafter authorized management to complete negotiations of, and execute, the
Merger Agreement.
The Bay Meadows Board of Directors unanimously approved the form of the
merger agreement at a meeting on February 26, 1997. At the meeting, the Bay
Meadows Board of Directors and Bay Meadows' legal counsel discussed the
features of the merger agreement and the differences between the merger
agreement and the October 31, 1996 Agreement. The Bay Meadows Board of
Directors also consulted with its financial advisor, Montgomery.
Subsequently, in the course of making the required securities filings in
connection with the Merger, certain timing issues relating to the Offer and
the Merger arose. In light of the fact that the Cal Jockey and Bay Meadows
stockholders had for over six months enjoyed the ability to realize more than
the $33.00 cash per Paired Share price provided for in the Offer by selling
their Paired Shares on the AMEX, the parties agreed to amend and restate the
Merger Agreement to, among other things, (i) eliminate the Offer, (ii) provide
a mechanism to adjust the Exchange Ratio (but only in the event that the
Patriot Average Trading Price were to fall below $17.125 per share so that the
stockholders of Cal Jockey and Bay Meadows as of the time of the Merger would
hold paired shares of New Patriot REIT and New Patriot Operating Company equal
in value, as of a date shortly before the Merger, to $33.00 per Paired Share,
(iii) extend from June 30, 1997 to July 14, 1997 the date on or after which
the parties could terminate the Merger Agreement if the conditions to their
respective obligations under the Merger Agreement were not satisfied or
waived, and (iv) provide that stockholders of Patriot would not receive any
dividend payments prior to the Effective Time for Patriot earnings during the
period between June 30, 1997 and the date of the closing of the Merger.
The Cal Jockey Board of Directors unanimously approved the Merger Agreement
at a meeting on May 28, 1997. At the meeting, the Cal Jockey Board of
Directors considered and discussed with its legal counsel and its financial
advisor, among other things, the features of the Merger Agreement, the
differences between the Merger Agreement and the Agreement and Plan of Merger
dated as of February 24, 1997 (the "February 24, 1997 Agreement"), the
opportunities that Cal Jockey stockholders desiring to receive cash for their
Paired Shares had enjoyed for over six months to realize more than the $33.00
cash per Paired Share price provided for in the Offer by selling their Paired
Shares on the AMEX, the effects of the proposed mechanism to adjust the
Exchange Ratio (if necessary) so that Cal Jockey stockholders would hold
paired shares of New Patriot REIT Common Stock and New Patriot Operating
Company Common Stock as of the time of the Merger equal in value, as of a date
shortly before the Merger, to $33.00 per Paired Share, the timing issues
relating to the Offer and the Merger, the considerations involved in delaying
the Merger, and Montgomery's updating opinion, rendered orally to the Board of
Directors of Cal Jockey, to the effect that, as of that date, the financial
terms of the Merger and the Subscription, taken as a whole, were fair to the
stockholders of Cal Jockey and Bay Meadows from a financial point of view. At
the meeting the Cal Jockey Board of Directors also approved the payment of an
aggregate of $600,000 to the Directors and the sole employee of Cal Jockey as
compensation for services previously rendered to Cal Jockey by such
individuals. See "--Interests of Certain Officers and Directors."
The Bay Meadows Board of Directors unanimously approved the Merger Agreement
at a meeting on May 27, 1997. At the meeting, the Bay Meadows Board of
Directors considered and discussed with its legal counsel and its financial
advisor, among other things, the features of the Merger Agreement, the
differences between the Merger Agreement and the February 24, 1997 Agreement,
the opportunities that Bay Meadows stockholders desiring to receive cash for
their Paired Shares had enjoyed for over six months to realize more than the
$33.00 cash per Paired Share price provided for in the Offer by selling their
Paired Shares on the AMEX, the effects of the proposed mechanism to adjust the
Exchange Ratio (if necessary) so that Bay Meadows stockholders would hold
paired shares of New Patriot REIT Common Stock and New Patriot Operating
Company Common Stock as of the time of the Merger equal in value, as of a date
shortly before the Merger, to $33.00 per Paired Share, the timing issues
relating to the Offer and the Merger, the considerations involved in delaying
the
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Merger and Montgomery's updating opinion, rendered orally to the Board of
Directors of Bay Meadows, to the effect that, as of that date, the financial
terms of the Merger and the Subscription, taken as a whole, were fair to the
stockholders of Cal Jockey and Bay Meadows from a financial point of view.
On May 27, 1997 the Patriot Board of Directors unanimously approved the
Merger Agreement. The Patriot Board of Directors unanimously concluded that
the proposed amendments (including the elimination of the Offer and the
addition of a provision in the Merger Agreement providing for adjustment of
the Exchange Ratio if the Patriot Average Trading Price is less than $17.125)
were in the best interests of Patriot and its stockholders.
REASONS FOR THE MERGER AND THE RELATED TRANSACTIONS; RECOMMENDATION OF THE
BOARD OF DIRECTORS OF PATRIOT
The Board of Directors of Patriot unanimously approved the October 31, 1996
Agreement at a meeting of the Patriot Board on October 29, 1996, thereafter
unanimously approved the February 24, 1997 Agreement on January 30, 1997 and
thereafter unanimously approved the Merger Agreement on May 27, 1997. THE
BOARD OF DIRECTORS OF PATRIOT BELIEVES THAT THE MERGER AND THE RELATED
TRANSACTIONS ARE FAIR TO AND IN THE BEST INTERESTS OF PATRIOT AND ITS
STOCKHOLDERS AND UNANIMOUSLY RECOMMENDS THAT ITS STOCKHOLDERS VOTE "FOR" THE
MERGER PROPOSAL. In reaching this determination, the Board of Directors of
Patriot consulted with Patriot management, as well as its financial advisors,
legal counsel and accountants, and considered a number of factors. The
material factors considered by the Patriot Board of Directors in reaching the
foregoing conclusions are described below.
In making its determination with respect to the Merger and the Related
Transactions, the Patriot Board considered the following factors, all of which
the Patriot Board of Directors deemed favorable, in approving the October 31,
1996 Agreement, the February 24, 1997 Agreement and thereafter the Merger
Agreement and the Related Transactions:
(i) Through the Merger, Patriot's stockholders will be able to realize
the value inherent in the paired share REIT structure of Cal Jockey and Bay
Meadows. Under this paired share structure, shares of a REIT and an
operating company are paired together and are traded as a single unit. The
Patriot Board of Directors believes that this structure will allow Patriot,
in combination with its paired operating company, to become a fully
integrated owner and operator of hotels. Because the Code was amended in
1983 to prohibit the pairing of shares between a REIT and an operating
company, Cal Jockey and Bay Meadows is one of only four publicly-traded
paired share REITs remaining in existence.
(ii) With the paired share structure, Patriot would have a competitive
advantage over most other hotel REITs. Currently, like most other hotel
REITs, Patriot is prohibited from operating its hotels and must lease its
hotels to third party operators. These leases must be structured so that
the third party operator captures a portion of each hotel's current cash
flow and current growth. With the paired share structure, New Patriot
Operating Company will be able to lease and operate newly acquired hotels
as well as any of Patriot's existing hotels that are re-leased to New
Patriot Operating Company and thus stockholders will be able to retain the
economic benefit of both the lease payments received by New Patriot REIT
and the operating profits of New Patriot Operating Company. Only one other
publicly-traded hotel REIT, Starwood Lodging Trust ("Starwood"), has a
paired share structure.
(iii) The paired share structure will permit New Patriot Operating
Company to assume direct operational control over hotels owned by New
Patriot REIT that are leased to and managed by New Patriot Operating
Company. Thus, New Patriot Operating Company will be able to directly
control strategic business decisions with respect to the marketing and
management of hotels acquired following the Merger or existing hotels that
are re-leased to New Patriot Operating Company following the Merger.
(iv) Following the Merger, Patriot will have increased flexibility in
potential hotel acquisitions. To date, Patriot has acquired hotels
principally through an innovative multiple lessee structure. Following the
Merger, New Patriot REIT will have the ability to lease its hotels to New
Patriot Operating Company or, as appropriate, to independent lessees. The
Patriot Board of Directors also believes that the Merger will
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significantly increase the universe of Patriot's potential hotel
acquisitions because, in addition to hotels, it will be able to acquire
hotel operators, independent hotel management companies and owners of hotel
franchises or brands through New Patriot Operating Company.
(v) The Patriot Board of Directors believes the Merger may have a
favorable effect on the FFO multiple at which Patriot's stock is traded.
Since its Initial Offering, Patriot has traded at an FFO multiple discount
to Starwood. Based in part on discussions with PaineWebber and other
investment banking firms, the Patriot Board of Directors believes that the
paired share structure is an important reason why Starwood trades at a
significant multiple premium to all other hotel REITs, including Patriot.
The Board of Directors believes that the acquisition of this paired share
structure may help to narrow or eliminate this multiple differential, and
thus reduce Patriot's cost of capital over time.
(vi) The opinion, analyses and presentations of PaineWebber described
below under "--Opinion of Patriot's Financial Advisor," including the
opinion of PaineWebber that the consideration to be received by holders of
Patriot Common Stock in connection with the Merger is fair, from a
financial point of view, to holders of Patriot Common Stock. The Patriot
Board of Directors did not perform its own financial analysis in evaluating
the Merger and the Related Transactions, but rather relied on PaineWebber's
financial analyses in its overall evaluation of the Merger and viewed such
analyses as favorable to its determination. The Patriot Board of Directors
viewed PaineWebber's opinion as favorable to its determination because
PaineWebber is an internationally recognized investment banking firm with
experience in the valuation of businesses and their securities in
connection with mergers and acquisitions and in providing advisory services
and raising capital for companies in the real estate industry.
The Patriot Board of Directors also considered the following factors, all of
which the Patriot Board of Directors considered negative, in its deliberations
concerning the Merger:
(i) The amount of the premium which Patriot is paying to acquire Cal
Jockey and Bay Meadows and the significant transaction costs involved in
connection with consummating the Merger and the Related Transactions
(estimated at approximately $14.3 million), the loan to Cal Jockey to pay
the $2.9 million break-up fee to Hudson Bay, and the substantial management
time and effort required to effectuate the Merger and the Related
Transactions and to integrate the structures of Patriot, Cal Jockey and Bay
Meadows. As a result of the acquisition price being paid by Patriot for Cal
Jockey and Bay Meadows, the Merger has a dilutive effect on Patriot's net
income per share, FFO per share and Cash Available for Distribution per
share on a pro forma basis for 1996 and may have a dilutive effect on net
income per share, FFO per share and Cash Available for Distribution per
share in future years. See "Unaudited Pro Forma Combined Financial
Statements."
(ii) Although the paired share structure will permit Patriot to maintain
flexibility with respect to hotel acquisitions in the future, the Patriot
Board of Directors believes that stockholders would expect New Patriot
Operating Company to lease and manage as many of Patriot's hotel properties
as possible in order to maximize the stockholders' cash flow returns. As a
result, hotel management companies, franchises and others who currently
approach Patriot with acquisition opportunities in hopes of establishing
lessee relationships with Patriot may be reluctant to do so in the future
out of concern that Patriot will rely on New Patriot Operating Company to
lease and manage the acquired property. This could have a negative effect
on Patriot's acquisition activities in the future. See "Risk Factors--Hotel
Industry Risks."
(iii) The Merger could have a negative effect on Patriot's relationship
with its existing Lessees who could be concerned that they will lose
operating control over leased hotels upon expiration of the current lease
term. Because Patriot is dependent upon lease payments from Lessees for
substantially all of its income, this could have an adverse effect on
Patriot's results of operations in the future. See "Risk Factors--
Dependence on Lessees and Payments under the Participating Leases."
(iv) Patriot will acquire the horse racing operations of Bay Meadows, a
business which has been experiencing a trend of declining track attendance
and in which Patriot has no prior experience. See "Risk Factors--Horse
Racing Industry Risks."
(v) The risk that the anticipated benefits of the Merger and the Related
Transactions, particularly the paired share structure, might not be fully
realized.
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(vi) The benefits of the transaction to be received by certain officers
and directors of Bay Meadows. See "--Interests of Certain Officers and
Directors."
In the opinion of the Patriot Board of Directors, the factors listed above
represent the material potential risks and adverse consequences to Patriot's
existing stockholders which could occur as a result of the transaction. In
considering the Merger and the Related Transactions, the Patriot Board of
Directors considered the impact of these risks and consequences on Patriot's
existing stockholders. In the opinion of the Patriot Board of Directors,
however, these potential risks and consequences were outweighed by the
potential positive factors considered by the Board of Directors which are
described above. Accordingly, the Patriot Board of Directors voted to approve
the Merger Proposal.
In view of the wide variety of factors considered by the Patriot Board of
Directors, the Patriot Board of Directors did not find it practicable to, and
did not, quantify or otherwise attempt to assign relative weights to the
specific factors considered in making its determination.
In the event the Merger and the Related Transactions are not consummated for
any reason, Patriot will continue to pursue its business objectives of (i)
maximizing FFO and cash available for distribution to holders of Patriot
Common Stock, (ii) increasing distributions per share of Patriot Common Stock,
(iii) increasing the value of its properties by continuing its growth through
the active acquisition and development of new hotels and other properties and
(iv) holding its properties for long-term investment. In addition, Patriot may
seek other business combination opportunities and additional debt or equity
financing.
OPINION OF PATRIOT'S FINANCIAL ADVISOR
Patriot retained PaineWebber on August 23, 1996 to act as financial advisor
in connection with, among other things, a possible business combination with
Cal Jockey and Bay Meadows. In such capacity, PaineWebber participated in
discussions and negotiations among Patriot, Cal Jockey and Bay Meadows and
rendered financial advice to Patriot including rendering an opinion as to
whether the consideration to be received by holders of Patriot Common Stock in
connection with the Merger was fair, from a financial point of view, to
holders of Patriot Common Stock.
The Patriot Board of Directors was familiar with certain individuals at
PaineWebber because those individuals assisted Patriot with its Initial
Offering and the Follow-On Offering, arranged for the Line of Credit and have
provided general financial advisory services to Patriot. Based upon these
relationships, the Patriot Board of Directors retained PaineWebber to act as
its financial advisor. The Patriot Board of Directors also based its decision
to retain PaineWebber upon PaineWebber's prominence as an investment banking
and financial advisory firm with experience in the valuation of businesses and
their securities in connection with mergers and acquisitions, negotiated
underwritings, secondary distributions of securities, private placements and
valuations for corporate purposes, especially with respect to REITs and other
real estate companies.
On October 29, 1996, PaineWebber delivered its oral opinion to the Patriot
Board of Directors to the effect that, as of the date of such opinion, based
on PaineWebber's review and subject to certain assumptions and limitations set
forth therein, the consideration to be received by holders of Patriot Common
Stock in the Merger (taking into account the funds to be provided by Patriot
to Cal Jockey and Bay Meadows to purchase outstanding shares of Cal Jockey
Common Stock and Bay Meadows Common Stock in the Offer) was fair, from a
financial point of view, to holders of Patriot Common Stock. PaineWebber
subsequently confirmed its oral opinion by delivery of a written opinion dated
October 29, 1996. PaineWebber's opinion (the "PaineWebber Opinion") does not
constitute a recommendation to any stockholder of Patriot as to how any such
stockholder should vote on the Merger Proposal or any other proposal.
Additionally, the PaineWebber Opinion does not address the business decision
of the Patriot Board of Directors to engage in the transactions contemplated
by the Merger Agreement. In accordance with the provisions of the engagement
letter, dated August 23, 1996, between Patriot and PaineWebber (the
"PaineWebber Engagement Letter"), Patriot has not requested that PaineWebber
provide, and PaineWebber will not provide, an update of the PaineWebber
Opinion.
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A COPY OF THE PAINEWEBBER OPINION DATED OCTOBER 29, 1996, WHICH SETS FORTH
THE ASSUMPTIONS MADE, MATTERS CONSIDERED AND CERTAIN LIMITATIONS ON THE SCOPE
OF THE REVIEW UNDERTAKEN BY PAINEWEBBER, IS ATTACHED HERETO AS ANNEX F AND IS
INCORPORATED HEREIN BY REFERENCE. THE DESCRIPTION OF THE PAINEWEBBER OPINION
SET FORTH HEREIN IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE FULL TEXT OF
SUCH OPINION. STOCKHOLDERS OF PATRIOT ARE URGED TO READ THE PAINEWEBBER
OPINION IN ITS ENTIRETY. THE PAINEWEBBER OPINION IS ADDRESSED TO THE BOARD OF
DIRECTORS OF PATRIOT AND ADDRESSES ONLY THE FAIRNESS FROM A FINANCIAL POINT OF
VIEW OF THE MERGER CONSIDERATION AND DOES NOT CONSTITUTE A RECOMMENDATION TO
ANY PATRIOT STOCKHOLDER AS TO HOW SUCH STOCKHOLDER SHOULD VOTE AT THE PATRIOT
SPECIAL MEETING.
In connection with rendering its opinion, PaineWebber, among other things:
(i) reviewed Patriot's Annual Report, Form 10-K and related financial
information for the fiscal year ended December 31, 1995, and Patriot's Forms
10-Q and the related unaudited financial information for the quarterly periods
ended March 31, 1996 and June 30, 1996; (ii) reviewed the Annual Reports,
Forms 10-K and related financial information for the three fiscal years ended
December 31, 1995, December 31, 1994 and December 31, 1993 of each of Cal
Jockey and Bay Meadows, and the Forms 10-Q and the related unaudited financial
information for the quarterly periods ended March 31, 1996 and June 30, 1996
of each of Cal Jockey and Bay Meadows; (iii) reviewed certain information,
including financial forecasts, relating to the business, earnings, cash flow,
assets and prospects of Patriot, Cal Jockey and Bay Meadows furnished to
PaineWebber by Patriot, Cal Jockey and Bay Meadows, respectively, including,
without limitation, certain assumptions provided to PaineWebber by Patriot
about the availability, cost and timing of acquisitions and dispositions of
assets following the Merger and the Related Transactions; (iv) conducted
discussions with members of senior management of Patriot, Cal Jockey and Bay
Meadows, concerning their respective businesses and prospects; (v) reviewed
the financial terms of the October 29, 1996 draft of the October 31, 1996
Agreement; and (vi) reviewed such other financial studies and analyses and
performed such other investigations and took into account such other matters
as PaineWebber deemed necessary.
In preparing the PaineWebber Opinion, PaineWebber relied on the accuracy and
completeness of all information that was either publicly available or
supplied, communicated or otherwise made available to it by or on behalf of
Patriot, Cal Jockey or Bay Meadows, and PaineWebber did not assume any
responsibility to independently verify such information or undertake an
independent appraisal of the assets of Patriot, Cal Jockey and Bay Meadows.
With respect to the financial forecasts examined by it, PaineWebber assumed
that they were reasonably prepared on bases reflecting the best currently
available estimates and good faith judgments of the respective managements of
Patriot, Cal Jockey and Bay Meadows, and their respective assets. Also in that
regard, at Patriot's direction, PaineWebber assumed that after the Merger and
the Related Transactions, New Patriot REIT will not be subject to Section 269B
of the Code, that the representations and warranties of each of the parties to
the October 31, 1996 Agreement (including, without limitation, those relating
to REIT status and the Pairing Agreement), are true and correct and will
remain so following consummation of the transactions contemplated by the
October 31, 1996 Agreement and that the tax costs to Patriot and its
stockholders resulting from the transactions contemplated by the October 31,
1996 Agreement will be immaterial. PaineWebber's analyses used in preparing
the PaineWebber Opinion assumed a closing date of the Merger of March 31,
1997. The PaineWebber Opinion is based upon regulatory, economic, monetary and
market conditions existing on the date thereof. PaineWebber assumed, with
Patriot's consent, that all material assets and liabilities (contingent or
otherwise, known or unknown) of Patriot, Cal Jockey and Bay Meadows are as set
forth in their respective consolidated financial statements.
The preparation of a fairness opinion involves various determinations as to
the most appropriate and relevant quantitative methods of financial analyses
and the application of those methods to the particular circumstances, and
therefore, such an opinion is not readily susceptible to partial analysis or
summary description. Accordingly, PaineWebber believes that its analysis must
be considered as a whole and that considering any portion of the analysis and
of the factors considered, without considering all analyses and factors, could
create a misleading or incomplete picture of the process underlying the
PaineWebber Opinion. Any estimates contained in these
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analyses are not necessarily indicative of actual values or predictive of
future results or values, which may be significantly more or less favorable
than as set forth therein. In addition, analyses relating to the values of
businesses do not purport to be appraisals or to reflect the prices at which
businesses may actually be sold. Accordingly, such analyses and estimates are
inherently subject to substantial uncertainty and neither Patriot nor
PaineWebber assumes responsibility for the accuracy of such analyses or
estimates.
The following paragraphs summarize the material analyses performed by
PaineWebber in arriving at the PaineWebber Opinion. PaineWebber performed its
analyses prior to Patriot effecting a 2-for-1 stock split; accordingly, the
following summary does not reflect the 2-for-1 stock split effected by Patriot
in the form of a stock dividend distributed on March 18, 1997.
Valuation of Paired Share Structure
Discounted Cash Flow Analysis. PaineWebber undertook a discounted cash flow
analysis of the paired share structure of Cal Jockey and Bay Meadows. At the
direction of Patriot, PaineWebber assumed in determining such valuation that
New Patriot REIT would consummate $300 million in acquisitions annually over
the ten years following the closing of the Merger and that 70.0%, or $210
million, of such acquisitions annually would be consummated utilizing the
paired share structure (that is, that the fee interest in the applicable real
property would be acquired by New Patriot REIT and the property would be
leased to and managed by New Patriot Operating Company). PaineWebber's
analysis also assumed a variable cost of management by New Patriot Operating
Company of each hotel property of New Patriot REIT equal to 1.125% of
anticipated gross revenues of such hotel property acquired by New Patriot
REIT. This assumption compared to an increasing scale of cash flow retained by
a third party lessee associated with leasing such a hotel property to, and
such hotel property being managed by, a third party lessee beginning at 3% of
gross revenues of such a hotel property in the first year following its
acquisition by New Patriot REIT and increasing to 5.2% of gross revenue over a
ten-year period. PaineWebber also made certain other assumptions with respect
to the relationship between gross revenues and the acquisition cost of hotel
properties, the fixed costs associated with internal management of hotels and
the growth rates of gross revenues and the fixed costs associated with
internal management. Applying discount rates ranging from 12.5% to 14.0% to
the resulting difference in net operating income and a range of terminal exit
multiples of 8.5x to 10.0x, PaineWebber derived a valuation range for the
paired share structure of $95.9 million to $119.1 million. PaineWebber noted
that this valuation does not assign any value to the potential for future
leasing and management by New Patriot Operating Company of hotel properties
currently owned by Patriot and currently leased and managed by third parties
when the leases for such hotel properties begin to expire in 2005.
Comparative Multiple Analysis. PaineWebber undertook an analysis of the
potential impact of the paired share structure on the multiple of FFO per
share at which Patriot Common Stock trades. PaineWebber compared the price
performance of Patriot Common Stock to that of the common stock of Starwood,
Patriot's principal competitor among hotel REITs focused on high quality,
full-service hotel properties in major United States markets and the only
existing hotel REIT which has the paired share structure. For the 30 trading
days prior to October 29, 1996, PaineWebber noted that Starwood's common stock
traded at an 18% to 26% FFO multiple premium to Patriot Common Stock (based on
daily mean First Call FFO estimates for 1996), a premium which many in the
industry attribute principally to Starwood's paired share structure. Assuming
a $107.5 million purchase price for the paired share structure of Cal Jockey
and Bay Meadows (the midpoint of PaineWebber's valuation range) financed with
debt at an interest rate of 8.0%, PaineWebber determined that the purchase of
the paired share structure at this price would be dilutive on a pro forma
basis to New Patriot REIT's FFO per share, assuming no additional acquisitions
were made utilizing the benefits of the paired share structure. However,
PaineWebber noted that the potential multiple expansion which could result
from Patriot's acquisition of the paired share structure appeared to more than
compensate for this reduction in FFO. Assuming multiple increases of 60% to
80% of the difference between FFO multiples of the price of Patriot Common
Stock and the common stock of Starwood for the 30 trading day period prior to
October 29, 1996, PaineWebber calculated an implied price range per paired
share of New Patriot Operating Company Common Stock and New Patriot REIT
Common Stock of $33.06 to $34.31 which reflects an increase over the average
share price of Patriot Common Stock for the 30 trading day period prior to
October 29, 1996 of $0.05 to $1.30, respectively, notwithstanding the
acquisition's initial dilutive impact to Patriot's FFO per share.
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PaineWebber utilized the above comparative multiple analysis as a means of
validating its valuation of the paired share structure, recognizing that the
paired share structure is a unique corporate asset which does not itself
generate cash flow. Accordingly, PaineWebber believed it was reasonable to
consider the potential impact of the paired share structure on Patriot's
multiple in connection with rendering its fairness opinion. This comparative
multiple analysis is, however, only an analytical method of valuation, and
there can be no assurance that Patriot's FFO multiple will rise in the manner
suggested by this analysis.
Valuation of Race Operations
Selected Comparable Public Companies Analysis. Using publicly available
information, PaineWebber compared selected historical and projected financial,
operating and stock market performance data of Bay Meadows to the
corresponding data of certain publicly traded companies that PaineWebber
considered comparable (collectively, the "PaineWebber Comparable Companies").
The PaineWebber Comparable Companies were selected principally based upon
their operation of pari-mutuel horse racing and satellite wagering facilities
and their lack of other businesses or assets which may have an impact on their
respective valuations. The PaineWebber Comparable Companies consisted of
Canterbury Park Holding Corporation, Churchill Downs Incorporated,
International Thoroughbred Breeders, Inc. and Penn National Gaming, Inc.
PaineWebber derived a range of values for Bay Meadow's race operations (the
"Race Operations") by applying the Race Operations' estimated 1996 earnings
before interest, taxes, depreciation and amortization ("EBITDA"), as adjusted
by Bay Meadows, to a corresponding EBITDA multiple for the PaineWebber
Comparable Companies. The corresponding EBITDA multiples for the PaineWebber
Comparable Companies were based on the latest 12 months of available financial
statements and the average closing stock prices for each of the PaineWebber
Comparable Companies for the 30 trading day period prior to October 29, 1996.
PaineWebber observed that the EBITDA multiple for the PaineWebber Comparable
Companies ranged from 8.4x to 21.3x, with a median of 10.3x.
PaineWebber computed a value for the Race Operations by multiplying the Race
Operations' estimated 1996 EBITDA, as adjusted by Bay Meadows to an EBITDA
multiple range of 8.0x to 9.5x. PaineWebber observed that this method produced
a valuation range for the Race Operations of $29.3 million to $34.8 million.
Discounted Cash Flow Analysis. PaineWebber used projections and other
information supplied by the managements of Patriot and Bay Meadows to estimate
the cash flow of the Race Operations for the years 1997 through 2003,
inclusive, using discount rates ranging from 13% to 15%. PaineWebber estimated
the terminal value of the Race Operations by taking the Race Operations'
estimated EBITDA in 2003, including a reduction for payments under an assumed
lease between New Patriot REIT and New Patriot Operating Company covering the
land underlying the Racecourse (the "Racecourse Lease"), and applying a range
of terminal multiples of 8.0x to 9.5x to the resulting total. PaineWebber then
discounted the range of terminal values back using discount rates ranging from
13% to 15%, the same discount rates used in valuing the cash flow for the
years 1997 through 2003, inclusive. PaineWebber then added together the range
of present values of the free cash flow and the range of present values of the
terminal value to arrive at a discounted cash flow valuation range for the
Race Operations of $26.2 million to $31.0 million.
Valuation of Cal Jockey
Discounted Cash Flow Analysis. Using information and assumptions provided by
Patriot and Cal Jockey, PaineWebber used a discounted cash flow methodology to
value the individual parcels of real estate owned by Cal Jockey, including (i)
the Stable Area, assumed to be sold to Property Resources pursuant to the
Franklin Agreement, (ii) the Training Track Area, assumed to be sold to
Airdial pursuant to the Iacocca Agreement, (iii) the remaining acres
underlying the Racecourse, assumed to be retained in order to continue the
Race Operations (the "Racecourse Area"), (iv) the Tennis Club Parcel and (v)
the parcel adjacent to the Racecourse, which is to be subject to the Borders
Lease.
Valuation of the Stable Area, Training Track Area and Racecourse
Area. PaineWebber used projections and other information and assumptions
provided by the managements of Cal Jockey and Patriot to estimate the
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quarterly cash flow of Cal Jockey's real estate portfolio (defined as revenue
and sale proceeds less net entitlement costs, commissions and other similar
costs) for the period beginning March 31, 1997 and ending at an assumed date
of closing of the pending sales of the Stable Area and the Training Track Area
of April 30, 1998. PaineWebber estimated the cash flow associated with the
pending sales of the Stable Area and the Training Track Area pursuant to the
terms of the Franklin Agreement and the Iacocca Agreement, respectively,
assuming the consummation of such pending sales. Based on the terms and
conditions of such agreements and assumptions supplied by Patriot and Cal
Jockey, PaineWebber assumed that Patriot would receive approximately $51.0
million in aggregate proceeds from the sales of the Stable Area and the
Training Track Area, net of entitlement and off-site costs associated with
development. While PaineWebber noted that there can be no assurance as to
whether the sales of the Stable Area and the Training Track Area pursuant to
the Franklin Agreement and the Iacocca Agreement will in fact be consummated,
PaineWebber believed that the discount rates it utilized in its analysis
fairly reflected this contingency. Moreover, PaineWebber was advised that the
transactions were negotiated at arms' length among credible parties and,
accordingly, PaineWebber concluded that the price to be paid in these
transactions represented fair value for the real property.
With respect to the Racecourse Area, PaineWebber assumed the existence of
the Racecourse Lease. Using assumptions provided by Patriot, PaineWebber
estimated the cash flow generated by the Racecourse Area for the period
beginning March 31, 1997 and ending March 31, 2004. PaineWebber computed the
terminal value of the Racecourse Area by multiplying the remaining acres
available for development by the average sale price per acre of the Stable
Area and the Training Track Area after applying an annual 2% growth rate over
a seven-year period and deducting applicable selling expenses.
PaineWebber computed an aggregate value for the Stable Area, the Training
Track Area and the Racecourse Area as of March 31, 1997 by discounting the
cash flow and terminal values associated with the respective properties at
discount rates ranging from 19% to 21%. PaineWebber noted that the discounted
cash flow valuation produced a range of aggregate values for the Stable Area,
the Training Track Area and the Racecourse Area of $74.1 million to $77.9
million.
Valuation of Pending Sale of Tennis Club Parcel. Based on the July 1996
agreement with Public Storage Inc. described in "The Companies--Cal Jockey--
Pending Sales and Negotiations," PaineWebber calculated the present value
range, as of March 31, 1997, assuming a sale date of December 31, 1997, of the
pending sale of the Tennis Club Parcel, to be $1.96 million to $2.0 million,
by applying a discount rate range of 9.0% to 12.0%. PaineWebber noted that
while there can be no assurance as to whether the pending sale of the Tennis
Club Parcel will in fact be consummated, PaineWebber believed that the
discount rates it utilized in its analysis fairly reflected this contingency.
Moreover, PaineWebber was advised that the transaction was negotiated at arms'
length between credible parties and, accordingly, PaineWebber concluded that
the sale price represented fair value for the Tennis Club Parcel.
Valuation of Borders Lease. PaineWebber also undertook a valuation of the
land subject to the Borders Lease described in "The Companies--Cal Jockey--
Pending Sales and Negotiations." Using a capitalization rate range of 12% to
14% applied to payments under the Borders Lease, PaineWebber calculated the
range of implied net proceeds resulting from the sale of the parcel of land
subject to the Borders Lease to be $1.9 million to $2.3 million. PaineWebber
noted that there could be no assurance as to whether the Borders Lease would
in fact be executed.
Aggregate Value of Components
The individual valuations of the assets and business of Cal Jockey and Bay
Meadows, including the paired share structure, produced a valuation range of
$200.1 million to $236.1 million, or a range of approximately $33.48 to $39.50
per share. PaineWebber observed that the $33.00 per share value to be paid to
stockholders of Cal Jockey and Bay Meadows pursuant to the Merger and the
Offer was below the range produced by PaineWebber's valuation analysis.
Pursuant to the PaineWebber Engagement Letter, PaineWebber will receive a
fee of $250,000 for delivery of the PaineWebber Opinion. In addition,
PaineWebber is entitled to receive a fee (the "Acquisition Fee") in an
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amount equal to 1% of the aggregate consideration involved in the Merger and
the Offer (based on an acquisition price of $33.00 per Paired Share). This fee
will be due and payable upon consummation of the Merger. If within 180 days of
the termination or expiration of Patriot's engagement of PaineWebber in
connection with the transactions contemplated by the PaineWebber Engagement
Letter, any of Patriot or its affiliates engages, without a financial advisor
or with a financial advisor other than PaineWebber or its affiliates, in a
transaction pursuant to which PaineWebber would have otherwise been entitled
to the Acquisition Fee pursuant to the PaineWebber Engagement Letter, Patriot
will pay PaineWebber at the closing of such transaction a fee equal to 0.5% of
the aggregate consideration involved in such transaction. Patriot has agreed
to reimburse PaineWebber for its reasonable out-of-pocket expenses including
the fees and disbursements of its legal counsel. Patriot has also agreed to
indemnify PaineWebber, its affiliates and their respective officers,
directors, employees, agents, controlling person, representative or agent
against certain liabilities, including liabilities under federal securities
laws. In addition to $250,000 for delivery of the PaineWebber Opinion, Patriot
will pay PaineWebber an Acquisition Fee of approximately $2 million, assuming
there are 5,763,257 Paired Shares outstanding and 162,000 Paired Shares
underlying unexercised stock options.
In the past, PaineWebber has provided financial advisory services and
investment banking services and has acted as a lender, to Patriot (including
acting as an underwriter for Patriot) and received fees for the rendering of
these services. PaineWebber may provide financial advisory or investment
banking services to, and act as an underwriter or placement agent for or
lender to, Patriot, Cal Jockey or Bay Meadows in the future. In the ordinary
course of PaineWebber's business, PaineWebber trades the equity and debt
securities of Patriot, Cal Jockey and Bay Meadows for its own account and for
the accounts of its customers and, accordingly, may at any time hold long or
short positions in such securities. PaineWebber and certain executive officers
and directors of Patriot and certain affiliates of Patriot have had
discussions regarding joint investments and/or acquisitions (and financing
therefor).
During the negotiations which eventually resulted in the execution of the
October 31, 1996 Agreement, PaineWebber engaged in discussions with Patriot
regarding a potential acquisition by PaineWebber or an affiliate thereof of
certain of the real estate assets of Cal Jockey following consummation of the
transactions contemplated by the October 31, 1996 Agreement. See "--Background
of the Merger." These discussions, however, had terminated prior to the time
that PaineWebber had finalized the valuation analyses described above and
delivered its fairness opinion to the Patriot Board of Directors. Thus,
neither Patriot nor PaineWebber believe that PaineWebber had any conflict of
interest at the time that PaineWebber delivered the PaineWebber Opinion. In
December 1996, PaineWebber and Patriot resumed such discussions and
subsequently reached an agreement in principle pursuant to which an affiliate
of PaineWebber would purchase substantially all of the land owned by Cal
Jockey following consummation of the Merger for a purchase price of $78.05
million in cash. See "The Companies--Surviving Companies--Proposed PaineWebber
Land Sale."
REASONS FOR THE MERGER AND THE RELATED TRANSACTIONS; RECOMMENDATION OF THE
BOARD OF DIRECTORS OF CAL JOCKEY
The Cal Jockey Board of Directors unanimously approved the October 31, 1996
Agreement at a meeting of the Cal Jockey Board of Directors on October 30,
1996, unanimously approved the February 24, 1997 Agreement, at a meeting of
the Cal Jockey Board of Directors on February 21, 1997 and thereafter
unanimously approved the Merger Agreement and the Related Transactions at a
meeting of the Cal Jockey Board of Directors on May 28, 1997. THE CAL JOCKEY
BOARD OF DIRECTORS BELIEVES THAT THE TERMS OF THE MERGER ARE IN THE BEST
INTERESTS OF CAL JOCKEY AND ITS STOCKHOLDERS AND RECOMMENDS THAT THE
STOCKHOLDERS OF CAL JOCKEY VOTE "FOR" APPROVAL OF THE MERGER PROPOSAL AND
"FOR" APPROVAL OF THE CAL JOCKEY CHARTER AND BYLAW AMENDMENT PROPOSAL.
In unanimously approving the October 31, 1996 Agreement, the February 24,
1997 Agreement, the Merger Agreement and the Related Transactions and in
recommending that Cal Jockey's stockholders approve the Merger Proposal and
the Cal Jockey Charter and Bylaw Amendment Proposal, the Cal Jockey Board of
Directors
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consulted with Cal Jockey's management, as well as its financial and legal
advisors, and considered a number of factors. The material factors considered
by the Cal Jockey Board of Directors in reaching the foregoing conclusions are
described below.
(i) Historical and Recent Market Prices Compared to Consideration to be
Received by Holders of Paired Shares. At each meeting, the Cal Jockey Board
of Directors reviewed the historical market prices and recent trading
activity of the Paired Shares. The Cal Jockey Board of Directors considered
as favorable to its determination the fact that Cal Jockey stockholders
would hold Paired Shares as of the time of the Merger that had a market
value, as of a date shortly before the Merger, of not less than $33.00 per
Paired Share, representing a premium of 33% over the closing sale price of
$24.875 for Paired Shares on October 30, 1996, the last trading day
preceding Cal Jockey's announcement that Cal Jockey and Patriot had signed
the October 31, 1996 Agreement and an approximate premium of 130% over the
average sale price of $14.36 for Paired Shares during the first quarter of
1996, prior to receipt of merger inquiries from any potential acquiror. At
the October 30, 1996 and the February 21, 1997 meetings, the Cal Jockey
Board of Directors also considered as favorable the mechanism contained in
the February 24, 1997 Agreement that gave stockholders the ability to
benefit from appreciation in the Patriot Common Stock at prices above
$34.25 while eliminating exposure to declines in the price of Patriot
Common Stock by fixing the tender price in the Offer at $33.00 per Paired
Share. At the May 28, 1997 meeting, in deciding to eliminate the Offer from
the Merger Agreement, the Cal Jockey Board of Directors considered the fact
that the stockholders of Cal Jockey and Bay Meadows had for over six months
enjoyed the ability to realize more than the $33.00 cash per Paired Share
price provided for in the Offer by selling their Paired Shares on the AMEX.
The Cal Jockey Board of Directors also considered the effects of the
mechanism contained in the Merger Agreement that adjusted the Exchange
Ratio, in the event the price of Patriot Common Stock were to fall below
$17.125, the equivalent of $33.00 per Paired Share based on the Exchange
Ratio so that the stockholders of Cal Jockey and Bay Meadows as of the time
of the Merger would hold paired shares of New Patriot REIT and New Patriot
Operating Company equal in value, as of a date shortly before the Merger,
to $33.00 per Paired Share. The Cal Jockey Board of Directors also
considered the timing issues pertaining to the Offer and the Merger, as
well as the considerations involved in delaying the Merger.
(ii) Cal Jockey's Business, Condition and Prospects. The Cal Jockey Board
of Directors considered information with respect to the financial
condition, results of operations and business of Cal Jockey and Bay
Meadows, on both a historical and prospective basis, and current industry,
economic and market conditions. In particular, the Cal Jockey Board of
Directors considered the potential impact in the future on Cal Jockey's
revenues due to a steady decline in daily on-track attendance on a
nationwide basis and an increase in competition from other gaming and
leisure activities. The Cal Jockey Board of Directors considered favorable
to its determination that a combination with Patriot would allow Cal Jockey
to enjoy significant growth opportunities, including expansion into the
lodging industry, as a result of the Merger.
(iii) Patriot's Business, Condition and Prospects. The Cal Jockey Board
of Directors considered information with respect to the financial
condition, results of operations and business of Patriot, on both a
historical and prospective basis, and current industry, economic and market
conditions. Cal Jockey's financial representatives made presentations to
and provided the Cal Jockey Board of Directors with information regarding
Patriot's financial condition and prospects after conducting business and
financial due diligence. Cal Jockey's legal representatives made
presentations to the Cal Jockey Board of Directors and conducted legal due
diligence. In evaluating Patriot's prospects, the Cal Jockey Board of
Directors considered, among other things, the performance of its hotels,
the geographical distribution of its hotels, the strength of its management
team, the success of its recent hotel acquisitions and the reputation of
Patriot in the hotel industry. The Cal Jockey Board of Directors also found
favorable the fact that New Patriot REIT would enjoy increased market
capitalization, increased liquidity and greater financial strength.
(iv) Termination Provisions and Termination Fee. The Cal Jockey Board of
Directors considered the provisions contained in the October 31, 1996
Agreement and retained in the February 24, 1997 Agreement and in the Merger
Agreement that permit the Cal Jockey Board of Directors to continue to
receive unsolicited inquiries and proposals, negotiate and give information
to third parties and to terminate the Merger Agreement upon payment to
Patriot of the $5,000,000 termination fee (in addition to the repayment
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to Patriot of the $2,900,000 Loan, the proceeds of which were used to pay a
termination fee paid in connection with the termination of the Hudson Bay
transaction), if by reason of an alternative proposal being made or the Cal
Jockey Board of Directors' determination that it will not recommend
approval of the Merger or its withdrawal of such recommendation in the
exercise of its fiduciary duties. The Cal Jockey Board of Directors
believed this termination fee was within the range of fees payable in
comparable transactions and that the fee would not, in and of itself,
preclude alternative proposals.
(v) Opinion of Montgomery Securities. At the October 30, 1996 Meeting,
the Cal Jockey Board of Directors considered as favorable to its
determination the oral opinion delivered to the Cal Jockey Board of
Directors at that meeting by Montgomery (which it subsequently confirmed in
a written opinion dated October 30, 1996) that, as of the date of such
opinion, and based upon and subject to certain matters stated therein, the
consideration to be received by holders of Cal Jockey Common Stock and Bay
Meadows Common Stock pursuant to the Merger and the Offer in accordance
with the terms provided in the draft of the October 31, 1996 Agreement
provided to Montgomery was fair, from a financial point of view, to such
holders. At the May 28, 1997 meeting, the Cal Jockey Board of Directors
viewed as favorable to its determination to eliminate the Offer an updating
opinion rendered orally by Montgomery (which Montgomery subsequently
updated in a written opinion dated the date of this Joint Proxy
Statement/Prospectus) to the effect that, as of that date, the financial
terms of the Merger and the Subscription, taken as a whole, were fair from
a financial point of view to the Cal Jockey and Bay Meadows stockholders.
(vi) Ability of Stockholders of Cal Jockey to Obtain a Continuing Equity
Interest in Patriot. The Cal Jockey Board of Directors regarded as
favorable to its determination the fact that the terms of the Merger permit
holders of Paired Shares to continue to hold an equity interest in New
Patriot REIT and New Patriot Operating Company following the Merger.
(vii) Other Indications of Interest. The Cal Jockey Board of Directors
reviewed its numerous discussions over time with other companies regarding
a potential transaction with Cal Jockey as described in "--Background of
the Merger." In particular, the Cal Jockey Board of Directors discussed the
indications of interest it had received during its discussions with Patriot
and the terms of the proposed Hudson Bay transaction. The Cal Jockey Board
of Directors regarded as favorable to its determination that the proposed
Hudson Bay transaction and the Cal Jockey Board of Directors' discussions
over time with other parties, in particular Company D, failed to yield a
transaction on terms as favorable as those presented in the October 31,
1996 Agreement and restated in the February 24, 1997 Agreement and in the
Merger Agreement.
(viii) Termination Fee of Hudson Bay Transaction. The Cal Jockey Board of
Directors considered its obligation under the agreement governing the
Hudson Bay transaction to pay a $2,900,000 termination fee in the event Cal
Jockey decided to enter into a transaction with another party. In
particular, the Cal Jockey Board of Directors considered the fact that the
Patriot transaction is an economically superior alternative to the Hudson
Bay transaction, and included the $2,900,000 Loan to Cal Jockey.
The Cal Jockey Board of Directors also considered the following potentially
negative factors in its deliberations concerning the Merger:
(i) Failure to Satisfy Conditions. The Cal Jockey Board of Directors
considered the various conditions to Patriot's obligations to consummate
the Merger. See "The Merger Agreement--Conditions to the Merger."
(ii) Leverage of the Surviving Company. The Cal Jockey Board of Directors
considered the fact that the surviving company would have substantial debt
obligations as compared to no indebtedness of Cal Jockey.
(iii) Dilutive Effect of the Merger. The Cal Jockey Board of Directors
considered the fact that the holders of Paired Shares prior to the Merger
would own a lesser percentage of shares of the total number of paired
shares of New Patriot REIT and New Patriot Operating Company because of the
shares issued to Patriot stockholders in the Merger.
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(iv) No Solicitation of Other Proposals; Termination Fees. The Cal Jockey
Board of Directors considered the fact that under the terms of the October
31, 1996 Agreement, Cal Jockey and its representatives would be prohibited
from encouraging, soliciting or initiating the submission of any
Acquisition Proposal (see "The Merger Agreement--Certain Covenants"),
entering into any agreement for an Acquisition Proposal or participating in
any way in discussions or negotiations with any person in connection with
any Acquisition Proposal, unless such action was required for the Cal
Jockey Board of Directors to comply with its fiduciary duties to
stockholders under applicable law. The Cal Jockey Board of Directors also
considered the possibility that Cal Jockey could be required, if the Merger
Agreement was terminated under certain circumstances, to pay Patriot a
termination fee of $5,000,000 in addition to the repayment to Patriot of
the $2,900,000 Loan. The Cal Jockey Board of Directors recognized that the
inclusion of such provisions in the October 31, 1996 Agreement would render
it unlikely that a more attractive offer for the acquisition of Cal Jockey
would be presented to Cal Jockey and its stockholders; however, the Cal
Jockey Board of Directors believed that, based on its efforts to find a
buyer for Cal Jockey, the October 31, 1996 Agreement, the February 24, 1997
Agreement and the Merger Agreement represented the best offer reasonably
available to Cal Jockey and its stockholders. See "The Merger Agreement--
Certain Covenants," "--Loan for Hudson Bay Termination Fee" and "--
Termination Amount and Expenses."
The Cal Jockey Board of Directors was aware of the potential benefits to the
directors discussed below in "--Interests of Certain Officers and Directors,"
including the provisions of the October 31, 1996 Agreement affording
indemnification and directors' insurance to the directors of Cal Jockey for
actions and omissions of such persons occurring prior to the Effective Time.
These provisions were important to the Cal Jockey Board of Directors; however,
these factors did not affect the Cal Jockey Board of Directors' evaluation or
recommendation of the transaction because such provisions are customary in
agreements relating to business combinations.
In the opinion of the Cal Jockey Board of Directors, the above factors
represent the material potential adverse consequences which could occur as a
result of the Merger. In considering the Merger and the Related Transactions,
the Cal Jockey Board of Directors considered the impact of these factors on
Cal Jockey's existing stockholders. In the opinion of the Cal Jockey Board of
Directors, however, these potentially negative factors were outweighed by the
potential positive factors considered by the Cal Jockey Board of Directors
which are described above. Accordingly, the Cal Jockey Board of Directors
voted to approve the Merger Proposal.
In view of the wide variety of factors considered in connection with its
evaluation of the Merger, the Cal Jockey Board of Directors did not find it
practicable to, and did not, quantify or otherwise attempt to assign relative
weights to the specific factors considered in reaching its determination.
REASONS FOR THE MERGER AND THE RELATED TRANSACTIONS; RECOMMENDATION OF THE
BOARD OF DIRECTORS OF BAY MEADOWS
The Bay Meadows Board of Directors unanimously approved the October 31, 1996
Agreement at a meeting of the Bay Meadows Board of Directors on October 30,
1996, unanimously approved the February 24, 1997 Agreement at a meeting of the
Bay Meadows Board of Directors on February 26, 1997 and thereafter unanimously
approved the Merger Agreement and the Related Transactions at a meeting of the
Bay Meadows Board of Directors on May 27, 1997. THE BAY MEADOWS BOARD OF
DIRECTORS BELIEVES THAT THE TERMS OF THE MERGER AGREEMENT ARE IN THE BEST
INTERESTS OF BAY MEADOWS AND ITS STOCKHOLDERS AND RECOMMENDS THAT THE
STOCKHOLDERS OF BAY MEADOWS VOTE "FOR" APPROVAL OF THE MERGER PROPOSAL AND
"FOR" APPROVAL OF THE BAY MEADOWS CHARTER AND BYLAW AMENDMENT PROPOSAL.
In unanimously approving the October 31, 1996 Agreement, the February 24,
1997 Agreement, the Merger Agreement and the Related Transactions, and in
recommending that Bay Meadows' stockholders approve the Merger Proposal and
the Bay Meadows Charter and Bylaw Amendment Proposal, the Bay Meadows Board of
Directors consulted with Bay Meadows' management, as well as Bay Meadows'
financial and legal advisors, and considered a number of factors. The material
factors considered by the Bay Meadows Board of Directors in reaching the
foregoing conclusions are described below.
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(i) Historical and Recent Market Prices Compared to Consideration to be
Received by Holders of Paired Shares. At each meeting, the Bay Meadows
Board of Directors reviewed the historical market prices and recent trading
activity of the Paired Shares. The Bay Meadows Board of Directors
considered as favorable to its determination the fact that Bay Meadows
stockholders would hold Paired Shares as of the time of the Merger that had
a market value, as of a date shortly before the Merger, of not less than
$33.00 per Paired Share, representing a premium of 33% over the closing
sale price of $24.875 for Paired Shares on October 30, 1996, the last
trading day preceding Bay Meadows' announcement that Bay Meadows, Cal
Jockey and Patriot had signed the October 31, 1996 Agreement, and an
approximate premium of 130% over the average sale price of $14.36 for
Paired Shares during the first quarter of 1996, prior to the receipt of
merger inquiries from any potential acquiror. At the October 30, 1996 and
the February 26, 1997 meetings, the Bay Meadows Board of Directors also
considered as favorable the mechanism contained in the February 24, 1997
Agreement that gave stockholders the ability to benefit in price
appreciation of the Patriot Common Stock at prices above $34.25, while
eliminating exposure to declines in the price of Patriot Common Stock by
fixing the tender price in the Offer at $33.00 per Paired Share. At the May
27, 1997 meeting, in deciding to eliminate the Offer from the Merger
Agreement, the Bay Meadows Board of Directors considered the fact that the
stockholders of Cal Jockey and Bay Meadows had for over six months enjoyed
the ability to realize more than the $33.00 cash per Paired Share price
provided for in the Offer by selling their Paired Shares on the AMEX. The
Bay Meadows Board of Directors also considered the effects of the mechanism
contained in the Merger Agreement that adjusted the Exchange Ratio, but
only in the event the price of Patriot's Common Stock were to fall below
$17.125, the equivalent of $33.00 per Paired Share based on the Exchange
Ratio, so that the stockholders of Cal Jockey and Bay Meadows as of the
time of the Merger would hold shares of New Patriot REIT and New Patriot
Operating Company equal in value, as of a date shortly before the Merger,
to $33.00 per Paired Share. The Bay Meadows Board of Directors also
considered the timing issues pertaining to the Offer and the Merger, as
well as the considerations involved in delaying the Merger.
(ii) Bay Meadows' Business, Condition and Prospects. The Bay Meadows
Board of Directors considered information with respect to the financial
condition, results of operations, business and business risks of Bay
Meadows and Cal Jockey, on both a historical and prospective basis, and
current industry, economic and market conditions. The Bay Meadows Board of
Directors considered favorable to its determination that a combination with
Patriot would allow Bay Meadows to enjoy significant growth and
diversification opportunities, including expansion into the lodging
industry, as a result of the Merger.
(iii) Patriot's Business, Condition and Prospects. The Bay Meadows Board
of Directors considered information with respect to the financial
condition, results of operations and business of Patriot, on both a
historical and prospective basis, and current industry, economic and market
conditions. Bay Meadows' financial representatives made presentations to
and provided the Bay Meadows Board of Directors with information regarding
Patriot's financial condition and prospects after conducting business and
financial due diligence. Bay Meadows' legal representatives made
presentations to the Bay Meadows Board of Directors and conducted legal due
diligence. In evaluating Patriot's prospects, the Bay Meadows Board of
Directors considered, among other things, the performance of its hotels,
the geographical distribution of its hotels, the strength of its management
team, the success of its recent hotel acquisitions and the reputation of
Patriot in the hotel industry. The Bay Meadows Board of Directors found
favorable the fact that Bay Meadows and Cal Jockey would enjoy increased
market capitalization, increased liquidity and greater financial strength.
(iv) Termination Provisions and Termination Fee. The Bay Meadows Board of
Directors considered the provisions contained in the October 31, 1996
Agreement and retained in the February 24, 1997 Agreement and the Merger
Agreement that permit the Bay Meadows Board of Directors to continue to
receive unsolicited inquiries and proposals, negotiate and give information
to third parties and to terminate the Merger Agreement upon payment to
Patriot of the $5,000,000 termination fee (in addition to the repayment by
Cal Jockey to Patriot of the $2,900,000 loan made by Patriot in connection
with the termination of the Hudson Bay transaction), if by reason of an
alternative proposal being made or the Bay Meadows Board of Directors
determines that it will not recommend approval of the Merger, or withdraws
such recommendation, in the exercise of its fiduciary duties. The Bay
Meadows Board of Directors believed
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this termination fee was within the range of fees payable in comparable
transactions and that the fee would not, in and of itself, preclude
alternative proposals.
(v) Opinion of Montgomery Securities. At the October 30, 1996 meeting,
the Bay Meadows Board of Directors considered as favorable to its
determination the oral opinion delivered to the Bay Meadows Board of
Directors at that meeting by Montgomery (which it subsequently confirmed in
a written opinion dated as of October 30, 1996) that as of the date of such
opinion, and based upon and subject to certain matters stated therein, the
consideration to be received by holders of Cal Jockey Common Stock and Bay
Meadows Common Stock pursuant to the Merger and the Offer in accordance
with the terms provided in the draft of the October 31, 1996 Agreement
provided to Montgomery was fair, from a financial point of view, to such
holders. At the May 27, 1997 meeting, the Bay Meadows Board of Directors
viewed as favorable to its determination to eliminate the Offer an updating
opinion rendered orally by Montgomery (which Montgomery subsequently
updated in a written opinion dated the date of this Joint Proxy
Statement/Prospectus) to the effect that, as of that date, the financial
terms of the Merger and the Subscription, taken as a whole were fair from a
financial point of view, to the Cal Jockey and Bay Meadows stockholders.
(vi) Ability of Stockholders of Bay Meadows to Obtain a Continuing Equity
Interest in Patriot. The Bay Meadows Board of Directors regarded as
favorable to its determination the fact that the terms of the Merger permit
holders of Paired Shares to continue to hold an equity interest in New
Patriot REIT and New Patriot Operating Company following the Merger.
(vii) Other Indications of Interest. The Bay Meadows Board of Directors
reviewed the numerous discussions over time with other companies regarding
a potential transaction with Bay Meadows as described in "--Background of
the Merger." In particular, the Bay Meadows Board of Directors discussed
the indications of interest received during its discussions with Patriot
and the terms of the proposed Hudson Bay transaction. The Bay Meadows Board
of Directors regarded as favorable to its determination that the proposed
Hudson Bay transaction and discussions over time with other parties, in
particular Company D, failed to yield a transaction on terms as favorable
as those presented in the February 24, 1997 Agreement and in the Merger
Agreement.
(viii) Ability to Terminate Consideration of Hudson Bay
Transaction. Because Cal Jockey had signed an agreement with Hudson Bay,
the Bay Meadows Board of Directors was considering such agreement and how
to improve the terms which the Bay Meadows Board of Directors found
objectionable. The Bay Meadows Board of Directors viewed as favorable the
fact that the Merger Agreement is an economically superior alternative to
the Hudson Bay transaction and does not raise the concerns that the Hudson
Bay transaction raised. See "--Background of the Merger."
The Bay Meadows Board of Directors believes that the Merger offers the
opportunity to create a combined company with greater financial resources and
flexibility, competitive strengths and business opportunities than would be
possessed by Bay Meadows alone.
The Bay Meadows Board of Directors also considered the following potentially
negative factors in its deliberations concerning the Merger:
(i) Failure to Satisfy Conditions. The Bay Meadows Board of Directors
considered the various conditions to Patriot's obligations to consummate
the Merger which, if not fulfilled, would permit Patriot to not consummate
the Merger. See "The Merger Agreement--Conditions to the Merger."
(ii) Failure to Achieve Anticipated Benefits. The Bay Meadows Board of
Directors considered the risk that the anticipated benefits of the Merger
may not be realized as a result of, among other things, possible changes in
the hospitality and real estate markets.
(iii) Leverage of the Surviving Company. The Bay Meadows Board of
Directors considered the fact that the surviving company would have
substantial debt obligations as compared to no indebtedness of Bay Meadows.
(iv) Dilutive Effect of the Merger. The Bay Meadows Board of Directors
considered the fact that the holders of Paired Shares prior to the Merger
would own a lesser percentage of shares of the total number of
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paired shares of New Patriot REIT and New Patriot Operating Company because
of the shares issued to Patriot stockholders in the Merger.
(v) No Solicitation of Other Proposals; Termination Fees. The Bay Meadows
Board of Directors considered the fact that under the terms of the October
31, 1996 Agreement, the February 24, 1997 Agreement and the Merger
Agreement, Bay Meadows and its directors, officers, employees, agents and
representatives would be prohibited from initiating, soliciting,
encouraging, participating in negotiations or otherwise facilitating a
proposal of an acquisition by or business combination with a party other
than Patriot, and the possibility that Bay Meadows and Cal Jockey may be
required, if the Merger Agreement is terminated under certain
circumstances, to pay Patriot a termination fee of $5,000,000 (in addition
to Cal Jockey's obligation to repay the $2,900,000 Loan). See "The Merger
Agreement--Termination Amount and Expenses." The Bay Meadows Board of
Directors recognized that the inclusion of such provisions in the Merger
Agreement would render it less likely that a more attractive offer for the
acquisition of Bay Meadows would be presented to the companies and their
stockholders. The Bay Meadows Board of Directors believed, however, that,
based on its efforts to find a buyer for the companies and consideration of
earlier proposals, the October 31, 1996 Agreement, the February 24, 1997
Agreement and the Merger Agreement represent the best offer reasonably
available to the companies and their stockholders.
The Bay Meadows Board of Directors also was aware of the provisions of the
Merger Agreement affording indemnification and directors' insurance to the
directors of Bay Meadows for actions and omissions of such persons occurring
prior to the Effective Time. These provisions were important to the Bay
Meadows Board of Directors but this factor did not affect the Bay Meadows
Board of Directors' evaluation or recommendation of the transaction because
such provisions are customary in agreements relating to business combinations.
The Bay Meadows Board of Directors also was aware that some Bay Meadows
employees hold options to purchase Paired Shares and/or had entered into
severance agreements with Bay Meadows which would provide them certain
benefits upon consummation of the Merger. See "--Interests of Certain Officers
and Directors." This factor did not affect the Bay Meadows Board of Directors'
evaluation or recommendation of the transaction because such benefits are
common in business transactions and would likely arise in a business
combination with any party.
In the opinion of the Bay Meadows Board of Directors, the above factors
represent the material potential adverse consequences which could occur as a
result of the Merger. In considering the Merger and the Related Transactions,
the Bay Meadows Board of Directors considered the impact of these factors on
Bay Meadows' existing stockholders. In the opinion of the Bay Meadows Board of
Directors, however, these potentially negative factors were outweighed by the
potential positive factors considered by the Bay Meadows Board of Directors
which are described above. Accordingly, the Bay Meadows Board of Directors
voted to approve the Merger Proposal.
In view of the wide variety of factors considered in connection with its
evaluation of the Merger, the Bay Meadows Board of Directors did not find it
practicable to, and did not, quantify or otherwise attempt to assign relative
weights to the specific factors considered in reaching its determination.
OPINION OF FINANCIAL ADVISOR FOR CAL JOCKEY AND BAY MEADOWS
Pursuant to engagement letters dated May 15, 1996, each of Cal Jockey and
Bay Meadows, respectively, retained Montgomery to act as its exclusive
financial advisor in connection with the consideration by each such company of
a sale of an interest in one or both of the companies to a third party.
Montgomery is a nationally recognized firm and, as part of its investment
banking activities, is regularly engaged in the valuation of businesses and
their securities in connection with merger transactions and other types of
acquisitions, negotiated underwritings, secondary distributions of listed and
unlisted securities, private placements and valuations for corporate and other
purposes. Each of Cal Jockey and Bay Meadows selected Montgomery as its
financial advisor on the basis of Montgomery's experience and its reputation
in the investment community.
On October 30, 1996, Montgomery delivered to the Boards of Directors of each
of Cal Jockey and Bay Meadows, at a joint meeting of those Boards of
Directors, its oral opinion, subsequently confirmed in writing as of the same
date, that the consideration to be received by the stockholders of Cal Jockey
and Bay Meadows in the Merger and the Offer in accordance with the terms
provided in the draft of the October 31, 1996 Agreement
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provided to Montgomery was fair to such stockholders from a financial point of
view, as of that date. Montgomery also has rendered orally to the Board of
Directors of each of Cal Jockey and Bay Meadows, at meetings of those Boards
of Directors on May 28 and May 27, 1997, respectively, its updating opinions
to the effect that, as of those respective dates, the financial terms of the
Merger and the Subscription, taken as a whole, were fair to the stockholders
of Cal Jockey and Bay Meadows from a financial point of view. In addition,
Montgomery has updated its oral opinions rendered on May 27 and May 28, 1997
by delivery of a written opinion dated the date of this Joint Proxy
Statement/Prospectus to the effect that, as of such date the financial terms
of the Merger and the Subscription, taken as a whole, are fair to the
stockholders of Cal Jockey and Bay Meadows from a financial point of view. The
amount of such consideration pursuant to the October 31, 1996 Agreement and
the financial terms of the transactions pursuant to the Merger Agreement were
determined pursuant to negotiations between Cal Jockey, Bay Meadows and
Patriot, and not pursuant to recommendations of Montgomery. No limitations
were imposed by Cal Jockey or Bay Meadows on Montgomery with respect to the
investigations made or procedures followed in rendering its opinion.
THE FULL TEXT OF MONTGOMERY'S WRITTEN OPINION TO THE BOARDS OF DIRECTORS OF
CAL JOCKEY AND BAY MEADOWS DATED AS OF THE DATE OF THIS JOINT PROXY
STATEMENT/PROSPECTUS IS ATTACHED HERETO AS ANNEX G AND IS INCORPORATED HEREIN
BY REFERENCE. THE FOLLOWING SUMMARY OF MONTGOMERY'S OPINION IS QUALIFIED IN
ITS ENTIRETY BY REFERENCE TO THE FULL TEXT OF THE OPINION. MONTGOMERY'S
OPINION IS DIRECTED TO THE BOARDS OF DIRECTORS OF CAL JOCKEY AND BAY MEADOWS
AND DOES NOT CONSTITUTE A RECOMMENDATION TO ANY STOCKHOLDER OF CAL JOCKEY, BAY
MEADOWS OR PATRIOT AS TO HOW SUCH STOCKHOLDER SHOULD VOTE WITH RESPECT TO THE
PROPOSALS. IN FURNISHING ITS OPINION, MONTGOMERY DID NOT ADMIT THAT IT IS AN
EXPERT WITHIN THE MEANING OF THE TERM "EXPERT" AS USED IN THE SECURITIES ACT,
AND A STATEMENT TO SUCH EFFECT IS INCLUDED IN THE TEXT OF MONTGOMERY'S WRITTEN
OPINION.
In connection with its opinions, Montgomery, among other things: (i)
reviewed publicly available financial and other data with respect to Cal
Jockey, Bay Meadows and Patriot, including the consolidated financial
statements for recent years and interim periods, in connection with its
opinion dated October 30, 1996, to June 30, 1996 and, in connection with the
updating opinions rendered on May 27 and May 28, 1997 and the written opinion
dated the date of this Joint Proxy Statement/Prospectus, to March 31, 1997,
and, in each case, certain other relevant financial and operating data
relating to Cal Jockey and Bay Meadows made available to Montgomery from
published sources and from the internal records of Cal Jockey and Bay Meadows;
(ii) reviewed the financial terms and conditions of, in connection with its
opinion dated October 30, 1996, the October 30, 1996 draft of the October 31,
1996 Agreement, and, in connection with the updating opinions rendered on May
27 and May 28 and the written opinion dated the date of this Joint Proxy
Statement/Prospectus, the financial terms and conditions of the Merger
Agreement, in each case as provided to Montgomery by the management of Cal
Jockey and Bay Meadows; (iii) reviewed drafts of this Joint Proxy
Statement/Prospectus, in connection with the updating opinions rendered on May
27 and May 28, 1997 and the written opinion dated the date of this Joint Proxy
Statement/Prospectus; (iv) reviewed certain publicly available information
concerning the trading of, and the trading market for, the Paired Shares and
Patriot Common Stock; (v) reviewed and discussed with representatives of the
management of Cal Jockey and Bay Meadows certain information of a business and
financial nature regarding Cal Jockey and Bay Meadows, furnished to Montgomery
by them, including a summary analysis prepared by Cal Jockey management of the
70 net acres on which the Racecourse is located; (vi) reviewed and discussed
with representatives of the management of Cal Jockey and Bay Meadows financial
forecasts and related assumptions of Cal Jockey and Bay Meadows prepared by
Montgomery in consultation with Cal Jockey and Bay Meadows management;
(vii) made inquiries regarding and discussed, in connection with its opinion
dated October 30, 1996, the October 31, 1996 Agreement and the terms of the
Merger and the Offer as described therein, and, in connection with the
updating opinions rendered on May 27 and May 28, 1997 and the written opinion
dated the date of this Joint Proxy Statement/Prospectus, the Merger Agreement
and the terms of the Merger as described therein, and, in each case, other
matters related thereto with counsel of Cal Jockey and Bay Meadows; (viii)
reviewed the terms of certain transfers of real property which Montgomery
deemed comparable to the real property owned by Cal Jockey, including the
terms of two real property sales by Cal Jockey announced in 1996; and
(ix) performed such other analyses and examinations as Montgomery deemed
appropriate.
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In connection with its review, Montgomery did not assume any obligation to
independently verify the foregoing information and relied on its being
accurate and complete in all material respects. With respect to the financial
forecasts prepared by Montgomery in consultation with the respective
managements of Cal Jockey and Bay Meadows, as described above, Montgomery
assumed for purposes of its opinions that such forecasts reflect the best
available estimates and judgments of the respective managements of Cal Jockey
and Bay Meadows at the time of such consultation as to the future financial
performance of Cal Jockey and Bay Meadows, and that they provide a reasonable
basis upon which Montgomery could form its opinions. Neither Cal Jockey nor
Bay Meadows publicly discloses internal management forecasts of the type
prepared by Montgomery in consultation with the respective managements of Cal
Jockey and Bay Meadows in connection with Montgomery's review of the Merger.
Such forecasts were not prepared with a view toward public disclosure. In
addition, such forecasts were based upon numerous variables and assumptions
that are inherently uncertain, including, without limitation, factors related
to general economic and competitive conditions. Accordingly, actual results
could vary significantly from those set forth in such forecasts. Montgomery
has assumed no liability for such forecasts. With respect to the summary
analysis prepared by Cal Jockey's management of the 70 net acres on which the
Racecourse is located, upon its advice and with the consent of the Boards of
Cal Jockey and Bay Meadows, Montgomery assumed for purposes of its opinions
that such summary analysis reflects the best available estimates and judgments
of Cal Jockey's management at the time of preparation as to the value of that
real property and that it provides a reasonable basis upon which Montgomery
could form its opinions. Montgomery also assumed that there have been no
material changes in the assets, financial condition, results of operations,
business or prospects of Cal Jockey, Bay Meadows or Patriot since the
respective dates of their last financial statements made available to
Montgomery. Montgomery relied on advice of counsel and independent accountants
to Cal Jockey and Bay Meadows as to all legal and financial reporting matters
with respect to Cal Jockey, Bay Meadows, the draft of the October 31, 1996
Agreement and the Merger Agreement and the transactions contemplated therein.
Montgomery assumed that the Merger, the Subscription and the Offer would be
consummated in a manner that complies in all respects with the applicable
provisions of the Securities Act, the Exchange Act and all other applicable
federal and state statutes, rules and regulations. In addition, Montgomery did
not assume responsibility for making an independent evaluation, appraisal or
physical inspection of any of the assets or liabilities (contingent or
otherwise) of Cal Jockey, Bay Meadows or Patriot, nor was Montgomery furnished
with any such appraisals. Finally, Montgomery's opinions are based on
economic, monetary and market and other conditions as in effect on, and the
information made available to Montgomery as of, October 30, 1996 or, in the
case of the updating opinions rendered orally on May 27 and May 28, 1997 and
the written opinion dated the date of this Joint Proxy Statement/Prospectus,
as of the respective dates such opinions were rendered or delivered.
For purposes of its opinion dated October 30, 1996, Montgomery analyzed the
Merger and the Offer as a whole, and did not analyze any part of such
transactions on an individual basis. Accordingly, it was Montgomery's
understanding that, pursuant to the Merger and the Offer, each holder of a
Paired Share would have received either (i) $33.00 cash for each Paired Share
or (ii) a paired share of New Patriot REIT and New Patriot Operating Company.
For purposes of its updating opinions rendered orally on May 27 and May 28,
1997 and its written opinion dated the date of this Joint Proxy
Statement/Prospectus, Montgomery analyzed the Merger and the Subscription
taken as a whole, and did not analyze any part of such transactions on an
individual basis.
Montgomery also assumed, with the consent of the managements of Cal Jockey
and Bay Meadows, that the transactions pursuant to the Merger Agreement,
including, in connection with its opinion dated October 30, 1996, the Offer,
would be consummated in accordance with the terms described in the draft of
the October 31, 1996 Agreement or, in connection with the updating opinions
rendered orally on May 27 and May 28, 1997 and its written opinion dated the
date of this Joint Proxy Statement/Prospectus, the Merger Agreement that was
provided to it, without any amendments thereto, and without waiver by Cal
Jockey or Bay Meadows of any of the conditions to their respective obligations
thereunder.
Set forth below is a brief summary of the report presented by Montgomery to
the Boards of Directors of Cal Jockey and Bay Meadows on October 30, 1996 in
connection with its opinion dated such date.
Real Estate Valuation Analysis. Using public and other available
information, including the summary analysis prepared by Cal Jockey management
of the real estate on which Cal Jockey's racetrack is located, as
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noted above, Montgomery calculated the imputed value of a Paired Share, based
on the value of the real estate owned by Cal Jockey. In connection with this
analysis, Montgomery reviewed the present value of projected cash flows from
operations of Cal Jockey and Bay Meadows, as provided to Montgomery by the
managements of Cal Jockey and Bay Meadows, and the present value of the
currently planned sales in 1997 of two parcels of land and a sale in 2001 of
the remaining real estate currently owned by Cal Jockey, based on potential
sales prices provided by the management of Cal Jockey. Montgomery also
reviewed the consideration paid in fifteen sales or listings of real estate
announced since April 1992 that Montgomery deemed to be comparable to the real
estate owned by Cal Jockey. This analysis indicated an imputed equity (defined
as aggregate value minus net debt) of Cal Jockey and Bay Meadows of between
$84.5 million and $101.9 million, or between $14.66 and $17.68 per Paired
Share.
Discounted Cash Flow Analysis. Montgomery applied a discounted cash flow
analysis to the financial cash flow forecasts for Cal Jockey and Bay Meadows
for 1997 through 2001, prepared by Montgomery in consultation with management
of Cal Jockey and Bay Meadows. In conducting this analysis, Montgomery first
calculated the present values of the forecasted cash flows. Second, Montgomery
estimated the aggregate value of Cal Jockey and Bay Meadows at the end of 2001
by applying multiples ranging from 5.5x to 7.5x to Cal Jockey's and Bay
Meadows' estimated EBITDA. Such cash flow streams and aggregate values were
discounted to present values using discount rates ranging from 14.0% to 16.0%,
chosen to reflect different assumptions regarding Cal Jockey's and Bay
Meadows' cost of capital, and such present values were then reduced by Cal
Jockey's and Bay Meadows' net debt as of October 30, 1996. This analysis
indicated an imputed equity value of Cal Jockey and Bay Meadows of between
$87.4 million and $96.8 million, or between $15.17 and $16.79 per Paired
Share.
Comparable Company Analysis. Using public and other available information,
Montgomery calculated the imputed value of a Paired Share based on the
multiples of estimated 1996 EBITDA at which five publicly traded horse racing
companies, comprised of Churchill Downs Inc., Hollywood Park, Inc.,
International Thoroughbred Breeders, Inc., Penn National Gaming Inc. and Santa
Anita Realty Enterprises, Inc. (the "Montgomery Comparable Companies"), were
trading on October 30, 1996. The October 30, 1996 stock prices of the
Montgomery Comparable Companies reflected multiples of 7x to 8x 1996 EBITDA to
aggregate value (defined as market capitalization plus total debt less cash
and cash equivalents). Montgomery applied the foregoing multiples to the
applicable statistic for Cal Jockey and Bay Meadows, and made applicable
adjustments to reflect Cal Jockey's and Bay Meadows' net debt (defined as debt
minus cash) at October 30, 1996. This analysis indicated an imputed equity
value of Cal Jockey and Bay Meadows of between $95.7 million and $102.6
million, or between $16.60 and $17.81 per Paired Share.
Estimated Paired Share Benefits. Montgomery also analyzed the increment to
the imputed equity value of Paired Shares that may be attributable to the
paired share structure. In such analysis, Montgomery analyzed the increment to
the equity value of Cal Jockey and Bay Meadows attributable to the paired
share structure, and did not analyze the potential increment to the equity
value of any other company that could be obtained through the paired share
structure. Montgomery estimated that the profits of lessees of typical REITs
in the lodging industry amount to approximately 2-3% of the EBITDA of such
REITs. Applying that rate to the estimated 1996 EBITDA of Cal Jockey and Bay
Meadows, Montgomery calculated an estimated amount of $100,000 to $200,000.
Montgomery also derived the multiple of share price to estimated 1996 funds
from operations of 11 comparable REITs in the lodging industry, comprised of
American General Hospitality Corp., Equity Inns, Inc., FelCor Suite Hotels,
Inc., Hospitality Properties Trust, Innkeepers USA Trust, Jameson Inns, Inc.,
Patriot, RFS Hotel Investors Inc., Starwood Lodging Trust, Sunstone Hotel
Investors, Inc. and Winston Hotels, Inc., based on the share prices of those
companies on October 30, 1996. Such multiples indicated an implied equity
value increment resulting from such operating profits of Bay Meadows of $1.4
million to $2.5 million or between $0.24 and $0.44 per Paired Share.
No other company, REIT or transaction used in the comparable company
analysis or the estimated paired share benefits analysis as a comparison is
identical to Cal Jockey, Bay Meadows or the Merger or the Offer. Accordingly,
an analysis of the results of the foregoing is not mathematical; rather, it
involves complex considerations and judgments concerning differences in
financial and operating characteristics of the companies and other factors
that could affect the public trading value of the companies to which Cal
Jockey and Bay Meadows and the Merger and the Offer are being compared.
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While the foregoing summary describes all analyses and examinations that
Montgomery deems material to its opinion dated October 30, 1996, it is not a
comprehensive description of all analyses and examinations actually conducted
by Montgomery. The preparation of a fairness opinion necessarily is not
susceptible to partial analysis or summary description. Montgomery believes
that its analyses and the summary set forth above must be considered as a
whole and that selecting portions of its analyses and of the factors
considered, without considering all analyses and factors, would create an
incomplete view of the process underlying the analyses set forth in its
presentation to the Boards of Directors of Cal Jockey and Bay Meadows.
Accordingly, the ranges of valuations resulting from any particular analysis
described above should not be taken to be Montgomery's view of the actual
value of Cal Jockey and Bay Meadows. In performing its analyses, Montgomery
made numerous assumptions with respect to industry performance, general
business and economic conditions and other matters, many of which are beyond
the control of Cal Jockey, Bay Meadows and Patriot.
The analyses performed by Montgomery are not necessarily indicative of
actual values or actual future results, which may be significantly more or
less favorable than those suggested by such analyses. Such analyses were
prepared solely as part of Montgomery's analysis of the fairness of the
Merger, the Subscription and the Offer to the stockholders of Cal Jockey and
Bay Meadows and were provided to the Boards of Directors of Cal Jockey and Bay
Meadows in connection with the delivery of Montgomery's October 30, 1996
opinion. The analyses do not purport to be appraisals or to reflect the prices
at which a company might actually be sold or the prices at which any
securities may trade at any time in the future. Montgomery used in its
analyses various projections of future performance prepared by the managements
of Cal Jockey and Bay Meadows. The projections are based on numerous variables
and assumptions which are inherently unpredictable and must be considered not
certain of occurrence as projected. Accordingly, actual results could vary
significantly from those set forth in such projections.
As described above, Montgomery's opinions and presentation to Cal Jockey and
Bay Meadows were among the many factors taken into consideration by Cal Jockey
and Bay Meadows in making their respective determinations to approve, and to
recommend that its stockholders approve, the Proposals.
Pursuant to separate letter agreements dated May 15, 1996 (the "Montgomery
Engagement Letters"), each of Cal Jockey and Bay Meadows engaged Montgomery to
act as its respective exclusive financial advisor in connection with the
Merger. Upon execution of the Montgomery Engagement Letters, Cal Jockey and
Bay Meadows paid Montgomery a combined amount of $50,000. In addition, if the
Merger is effected, the Montgomery Engagement Letters provide for Cal Jockey
and Bay Meadows to pay Montgomery a fee equal to a percentage of the combined
value retained by the existing stockholders of Cal Jockey and Bay Meadows
after the closing of the Merger, determined in accordance with the applicable
percentage: (i) 1.3% in the case of a combined value retained of up to $100
million; (ii) 1.3%, declining ratably to 1.1%, in the case of a combined value
retained of $100-200 million; or (iii) 0.95% in the case of a combined value
retained over $200 million. Although the precise amount of such fee cannot be
determined until the closing of the Merger, based on the number of shares and
options outstanding as of April 3, 1997 and the high and low closing prices
for Patriot Common Stock (after the 2-for-1 stock split) over the 30 day
period ending April 3, 1997 (which were $26.38 and $22.38, respectively),
Montgomery's fee is estimated to be between $2.9 million and $2.4 million. The
obligation of Cal Jockey and Bay Meadows to pay such fee is not conditioned on
the outcome of Montgomery's opinions or whether or not such opinions were
deemed to be favorable for any party's purposes, although the obligation to
pay such fee is contingent upon the consummation of the Merger. Accordingly,
the payment of a substantial majority of Montgomery's total fee is subject to
the consummation of the Merger. The $50,000 fee noted above will be credited
against the fee payable to Montgomery if the Merger is consummated. The Boards
of Directors of Cal Jockey and Bay Meadows were aware of this fee structure
and took it into account in considering Montgomery's opinions and in approving
the October 31, 1996 Agreement, the February 24, 1997 Agreement and the Merger
Agreement. The Montgomery Engagement Letters also call for Cal Jockey and Bay
Meadows to reimburse Montgomery for its reasonable out-of-pocket expenses,
each to a maximum of $10,000 unless it otherwise consents. Pursuant to
separate letter agreements, each of Cal Jockey and Bay Meadows have agreed to
indemnify Montgomery, its affiliates, and their respective partners,
directors, officers, agents, consultants, employees and controlling persons
against certain liabilities, including liabilities under the federal
securities laws.
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In the ordinary course of its business, Montgomery actively trades the
equity securities of Patriot for its own account and for the accounts of
customers and, accordingly, may at any time hold a long or short position in
such securities. Montgomery also has acted as an underwriter in connection
with offerings of securities of Patriot and performed various investment
banking services for Patriot.
INTERESTS OF CERTAIN OFFICERS AND DIRECTORS
In considering the recommendation of the Boards of Directors of Patriot, Cal
Jockey and Bay Meadows to approve the Merger Proposal, stockholders of
Patriot, Cal Jockey and Bay Meadows should be aware that certain members of
the managements and the Boards of Directors of Patriot, Cal Jockey and Bay
Meadows have certain interests in, and will receive benefits as a consequence
of, the Merger and the Related Transactions that are separate from the
interests of, and benefits to, stockholders of Patriot, Cal Jockey and Bay
Meadows generally.
Cal Jockey Compensation. On May 28, 1997, at the same meeting at which the
Cal Jockey Board approved the Merger Agreement, the Cal Jockey Board of
Directors agreed to pay its members, Kjell H. Qvale, James M. Harris, James P.
Conn, David M. Gjerdrum and Ronald J. Volkman and the sole employee of Cal
Jockey, Ray Kuratek, the aggregate sum of $600,000 to be allocated by the Cal
Jockey Board of Directors at a subsequent Board meeting. The Cal Jockey Board
of Directors agreed to pay such amount as compensation for services previously
rendered to Cal Jockey by such individuals, particularly in recognition of
their significant contributions to the Merger process. The compensation
payments are conditioned upon consummation of the Merger and the Related
Transactions. The fact that Cal Jockey has only one employee, combined with
the complex structure of the Merger and Related Transactions, has resulted in
significant efforts and time commitments from these individuals in connection
with the Merger.
Bay Meadows Severance Agreements. On August 30, 1996, Bay Meadows entered
into individual Severance Agreements with the following Officers: Eugene F.
Barsotti, Jr., Sharon Kelly, F. Jack Liebau, Michael Scalzo, Frank Trigeiro
and Nathaniel Wess. Each of the Severance Agreements with the Officers provide
that, if following a change in control of Bay Meadows, the respective
Officer's employment is terminated prior to January 1, 1998, or within 24
months following a change in control of Bay Meadows prior to January 1998, he
or she will be entitled receive (i) payments of full base salary, and accrued
vacation and personal holidays from the date of notice of termination to the
date of termination (not to be less than 30 days) at the highest rate in
effect during the 12 months immediately preceding notice of termination, (ii)
an amount equal to his or her annual base salary at the highest rate in effect
during the 12 months immediately preceding notice of termination (or, with
respect to Messrs. Liebau and Barsotti, two times such amount), and (iii) an
amount equal to the amount of any bonus or other incentive compensation paid
during the 12 months immediately preceding notice of termination or calendar
year 1996, whichever is higher. As of May 28, 1997, the payments that would be
made pursuant to clauses (ii) through (iii) would be $141,000, $695,000,
$65,000, $120,000, $65,000 and $65,000 for Messrs. Barsotti, Liebau, Scalzo,
Trigeiro, Wess and Ms. Kelly, respectively. In addition to the payments that
would be made pursuant to clauses (i) through (iii) above, the Officers would
be entitled to receive (a) continued contribution by Bay Meadows into any
pension or retirement plan in effect with regard to the Officer, as well as
continued designation as an employee for this purpose, until January 1, 1998
at the highest rate in effect during the 12 months immediately preceding
notice of termination or a lump sum payment of the actuarial equivalent of
such continued contribution, (b) the right to purchase the Bay Meadows
automobile assigned to him or her for book value, (c) payment of all legal
fees and expenses incurred as the result of termination and (d) two years of
continued coverage under Bay Meadows' health care and welfare benefit plans.
Stock Options. As of May 28, 1997, Bay Meadows had granted to the Officers a
total of 137,500 options to purchase Paired Shares as follows: 12,500, 95,000,
7,500, 7,500, 7,500 and 7,500 to Messrs. Barsotti, Liebau, Scalzo, Trigeiro,
Wess and Ms. Kelly, respectively. As of May 28, 1997, a total of 126,668 of
the options granted to the Officers were vested as follows: 11,667, 86,667,
6,667, 7,500, 7,500 and 6,667 options of Messrs. Barsotti, Liebau, Scalzo,
Trigeiro, Wess and Ms. Kelly, respectively. According to the terms of such
options, all options which are not currently vested will become fully vested
and immediately exercisable in connection with the Merger and the Related
Transactions. In the event the Officers exercise the 137,500 options then,
based on the $41 1/2 closing price of a Paired Share as quoted on the AMEX as
of the close of business on May 28, 1997, the
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aggregate value (net of the exercise price) for such options would be
$3,761,875, including $343,125, $2,623,750, $196,875, $200,625, $200,625 and
$196,875 for the options of Messrs. Barsotti, Liebau, Scalzo, Trigeiro, Wess
and Ms. Kelly, respectively. If the Officers choose not to exercise their
options prior to the Merger and the Related Transactions, they will hold fully
vested options to purchase 137,500 paired shares of New Patriot REIT Common
Stock and New Patriot Operating Company Common Stock. Presently there is a
disagreement between Bay Meadows and Cal Jockey concerning the total number of
outstanding options to purchase Cal Jockey Common Stock that have been granted
to Bay Meadows in connection with its issuance of options to purchase Paired
Shares to the Officers and certain other employees of Bay Meadows. For a
description of such disagreement, see "Stockholders' Meetings, Litigation and
Disagreements."
James P. Conn, currently a director of Cal Jockey, served as President and
Chief Executive Officer of Bay Meadows from March 1988 to November 1992. In
connection with such service, Mr. Conn holds a fully vested stock option for
20,000 Paired Shares. In the event Mr. Conn exercises such option, the
aggregate value (net of the exercise price) for such option would be $585,000
based on the $41 1/2 closing price of a Paired Share as quoted on the AMEX on
May 28, 1997. If Mr. Conn chooses not to exercise his option prior to the
Merger and the Related Transactions, he will hold a fully vested option to
purchase 20,000 paired shares of New Patriot REIT Common Stock and New Patriot
Operating Company Common Stock.
Indemnification Agreements. In August 1996 and November 1996, Cal Jockey
entered into indemnification agreements (the "Cal Jockey Indemnification
Agreements") with Kjell H. Qvale, James M. Harris, James P. Conn, Brian M.
Herrera, Richard E. Perazzo, Marylin K. Gunderson, David M. Gjerdrum and
Ronald J. Volkman (each a "Cal Jockey Indemnitee"). The Cal Jockey
Indemnification Agreements provide indemnification and advancement of expenses
for claims relating to the Cal Jockey Indemnitee's capacity as a director to
the fullest extent permitted by the DGCL, as amended from time to time, if the
Cal Jockey Indemnitee acted in good faith and in a manner he reasonably
believed to be in the best interests of Cal Jockey, and such indemnification
shall continue after the Cal Jockey Indemnitee has ceased to serve as a
director of Cal Jockey. The Cal Jockey Indemnification Agreements also provide
that, to the extent directors' and officers' liability insurance is maintained
by Cal Jockey, Cal Jockey will provide for the continued coverage of the Cal
Jockey Indemnitee under such directors' and officers' liability insurance
policies for the term of the respective agreements. Each Cal Jockey
Indemnification Agreement terminates upon the later of: (i) 10 years after the
date the Cal Jockey Indemnitee ceased to serve as a director or (ii) the final
termination of a proceeding then pending.
Bay Meadows entered into indemnification agreements (the "Bay Meadows
Indemnification Agreements") in August 1996 with Eugene F. Barsotti, Jr., Greg
S. Gunderson, John C. Harris, F. Jack Liebau, Lee R. Tucker, Anthony J. Zidich
and Frank Trigeiro, and in January 1997 with F. Scott Gross (each a "Bay
Meadows Indemnitee"). The Bay Meadows Indemnification Agreements provide
indemnification and advancement of expenses for claims relating to the Bay
Meadows Indemnitee's capacity as a director or officer to the fullest extent
permitted by the DGCL, as amended from time to time, and, to the extent
directors' and officers' liability insurance is maintained by Bay Meadows, the
agreements also provide for the continued coverage of the Bay Meadows
Indemnitee under such directors' and officers' liability insurance policies
for the term of the respective agreements. The Bay Meadows Indemnification
Agreements further provide that Bay Meadows' indemnification obligations will
be secured by a standby letter of credit in the amount of $1,000,000 naming
each of the Bay Meadows Indemnitees as beneficiaries. To date Bay Meadows has
not obtained such letter of credit and none of Bay Meadows, Cal Jockey or
Patriot intend to obtain such letter of credit. These parties do not believe
that the failure to obtain such letter of credit will delay or otherwise
affect the closing of the Merger. In the Merger Agreement, Patriot has agreed
to provide the directors, officers, employees, and agents of Bay Meadows with
all rights to indemnification existing under their respective indemnification
agreements, including the obligation to secure the standby letter of credit,
and thus New Patriot REIT will be contractually bound following the Merger to
honor these agreements and provide such persons with any amounts to which they
are due under such agreements. See "--Indemnification Covenant."
Indemnification Covenant. Pursuant to the terms of the Merger Agreement,
Patriot has agreed to cause New Patriot REIT and New Patriot Operating Company
to provide the directors, officers, employees and agents of Cal Jockey and Bay
Meadows and each of their respective subsidiaries with all rights to
indemnification or
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exculpation existing under their respective charters, bylaws or
indemnification agreements in effect as of the date of the Merger Agreement
with respect to matters occurring at or prior to the Effective Time and to
provide for the survival of all such indemnification agreements and provide
such persons with all rights to indemnification or exculpation under the Cal
Jockey Charter, the Bay Meadows Charter, the Cal Jockey Bylaws and the Bay
Meadows Bylaws as in effect as of the date of the Merger Agreement for a
period of not less than six years after the Effective Time. Patriot has also
agreed, subject to certain conditions, to cause New Patriot REIT and New
Patriot Operating Company to maintain in effect any current policies of the
directors' and officers' liability insurance maintained by Cal Jockey and Bay
Meadows for Cal Jockey's and Bay Meadows' directors and officers for a period
of six years from the Effective Time. In addition, Patriot has agreed that New
Patriot REIT, in all cases, will guarantee the indemnification obligations of
New Patriot Operating Company. See "The Merger Agreement--Indemnification."
Interests of Certain Patriot Executive Officers. Certain executive officers
of Patriot own all of the membership interests in PAH RSI Lessee. PAH RSI
Lessee presently leases the Carefree Resorts and four additional hotels from
Patriot, and is currently expected by the Effective Time to lease from Patriot
nine additional hotels which are the subject of Proposed Acquisitions. See
"The Companies--Surviving Companies--Operations of New Patriot REIT and New
Patriot Operating Company Following the Merger." PAH RSI Lessee also owns
certain non-leasable assets relating to the Carefree Resorts. Following
consummation of the Merger, New Patriot REIT expects to terminate such leases
with PAH RSI Lessee by paying the fair market value of the leasehold interests
to PAH RSI Lessee or otherwise seek to have New Patriot Operating Company
acquire such leaseholds. In addition, New Patriot Operating Company will offer
to acquire the non-leasable assets from PAH RSI Lessee at the then fair market
value of such assets. Based on current market conditions, Patriot presently
believes that the fair market value of the leasehold interests and assets (net
of liabilities) currently held by PAH RSI Lessee is approximately $225,000. No
assurances can be made as to what the purchase price of the leasehold
interests and assets will be or as to whether the owners will sell the assets.
See "Risk Factors--Certain Conflicts of Interests Relating to Patriot."
ACCOUNTING TREATMENT
Cal Jockey will account for the Merger as a purchase in accordance with
Accounting Principles Board Opinion No. 16. Purchase accounting for a
combination is similar to the accounting treatment used in the acquisition of
any asset group. Although Cal Jockey and Bay Meadows are issuing their Paired
Shares to Patriot stockholders and will be the surviving legal companies
following the Merger, Cal Jockey and Bay Meadows are considered the acquired
companies for accounting purposes as the Patriot stockholders will represent
the majority stockholders of New Patriot REIT and New Patriot Operating
Company. The fair market value of the consideration (cash, stock, etc.) given
by the acquiring company (i.e., Patriot for such purposes) is used as the
valuation basis for the combination. The assets and liabilities of the
acquired companies (i.e., Cal Jockey and Bay Meadows for such purposes) are
revalued to their respective fair market values at the combination date. The
financial statements of the acquiring company reflect the combined operations
from the date of combination.
REGULATORY APPROVAL
Patriot, Cal Jockey and Bay Meadows believe that the Merger and the Related
Transactions may be consummated without notification being given or certain
information being furnished by any of these parties to the Federal Trade
Commission (the "FTC") or the Antitrust Division of the Department of Justice
(the "Antitrust Division") pursuant to the Hart-Scott-Rodino Antitrust
Improvements Act of 1976, as amended (the "HSR Act"), and that no waiting
period requirements under the HSR Act are applicable to the parties with
respect to the Merger and the Related Transactions. However, there can be no
assurance that the consummation of the Merger and the Related Transactions
will not be delayed by reason of the HSR Act. At any time before or after
consummation of the Merger and the Related Transactions, the Antitrust
Division or the FTC could take such action under the antitrust laws as it
deems necessary or desirable in the public interest, including seeking to
enjoin the consummation of the Merger and the Related Transactions or seeking
divestiture of substantial assets of Patriot, Cal Jockey or Bay Meadows. At
any time before or after the Effective Time, any state could take such action
under its own antitrust laws as it deems necessary or desirable. Such action
could include seeking to
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enjoin the consummation of the Merger and the Related Transactions or seeking
divestiture of substantial assets of Patriot, Cal Jockey or Bay Meadows.
Private parties may also seek to take legal action under antitrust laws under
certain circumstances.
An annual license is required from the CHRB to conduct a Thoroughbred horse
racing meet and to act as a satellite facility in California. Bay Meadows has
received its license for the 1997 horse racing season. See "The Companies--Bay
Meadows." Following the Merger and the Related Transactions, New Patriot
Operating Company will be required to file an amendment to Bay Meadows' CHRB
application for its 1997 license reflecting that New Patriot Operating Company
will be conducting Bay Meadows' horse racing operations as the reconstituted
Bay Meadows during the remainder of its 1997 horse racing meet. In informal
discussions, representatives of the CHRB have indicated to Bay Meadows'
management that the CHRB would not object to such an amendment to Bay Meadows'
application. No assurances can be given, however, that the CHRB will not
object to such an amendment when it is filed. Failure to receive timely
approval of such an amendment to its application could have a material adverse
effect on New Patriot Operating Company. Additionally, California law requires
that each of the directors and certain employees of New Patriot Operating
Company must be licensed with the CHRB. While Patriot and Bay Meadows do not
foresee any difficulties in obtaining such licenses, no assurances can be
given that the CHRB will grant licenses to each of the proposed directors and
each of such employees of New Patriot Operating Company. If a director or
employee required to be licensed were denied a license by the CHRB, New
Patriot Operating Company would have to replace such director or employee with
a director or employee who was so licensed.
CERTAIN RESALE RESTRICTIONS
All paired shares of New Patriot REIT Common Stock and New Patriot Operating
Company Common Stock received by Patriot stockholders in the Merger and the
Related Transactions will be freely transferable, except that paired shares of
New Patriot REIT Common Stock and New Patriot Operating Company Common Stock
received by persons who are deemed to be "affiliates" (as such term is defined
under the Securities Act) of Patriot at the time of the Patriot Special
Meeting may be resold by them only in transactions permitted by the resale
provision of Rule 145 promulgated under the Securities Act (or Rule 144
promulgated under the Securities Act in the case of such persons who become
affiliates of Cal Jockey or Bay Meadows) or as otherwise permitted under the
Securities Act. Persons who may be deemed to be affiliates of Patriot, Cal
Jockey or Bay Meadows generally include individuals or entities that control,
are controlled by, or are under common control with, such party and may
include certain officers and directors of such party as well as principal
stockholders of such party. The Merger Agreement requires Patriot to exercise
its reasonable best efforts to cause each of its affiliates to execute a
written agreement to the effect that such person will not offer to sell,
transfer or otherwise dispose of any of the paired shares of New Patriot REIT
Common Stock and New Patriot Operating Company Common Stock issued to such
person in or pursuant to the Merger and the Related Transactions unless (i)
such sale, transfer or other disposition has been registered under the
Securities Act, (ii) such sale, transfer or other disposition is made in
conformity with Rule 145 under the Securities Act or (iii) in the opinion of
counsel, which opinion and counsel shall be reasonably satisfactory to New
Patriot REIT and New Patriot Operating Company, such sale, transfer or other
disposition is exempt from registration under the Securities Act.
NEW YORK STOCK EXCHANGE LISTING
It is a condition to the obligations of Patriot, Cal Jockey and Bay Meadows
to consummate the Merger and the Related Transactions that the parties obtain
the approval for the listing of the paired shares of New Patriot REIT Common
Stock and New Patriot Operating Company Common Stock outstanding as of the
Merger and issuable in the Merger and the Related Transactions on the NYSE,
subject to official notice of issuance. See "The Merger Agreement--Conditions
to the Merger."
DISSENTERS' RIGHTS
As provided under the DGCL and the VSCA, stockholders of Cal Jockey, Bay
Meadows and Patriot do not have dissenters' rights in connection with the
Merger and the Related Transactions.
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THE MERGER AGREEMENT
GENERAL
The Merger Agreement provides for a number of transactions among Patriot,
the Patriot Partnership, Cal Jockey and Bay Meadows, including the Merger of
Patriot with and into Cal Jockey and the Subscription for the Subscribed
Shares. This Joint Proxy Statement/Prospectus provides a summary of the
material terms of the Merger Agreement. The discussion and description of the
material terms of the Merger Agreement in this Joint Proxy
Statement/Prospectus are subject to and qualified in their entirety by
reference to the Merger Agreement, a copy of which is attached to this Joint
Proxy Statement/Prospectus as Annex A and which is incorporated herein by
reference.
THE MERGER AND SUBSCRIPTION
Pursuant to the Merger Agreement, at the Effective Time of the Merger,
Patriot will be merged with and into Cal Jockey, with Cal Jockey being the
surviving company in the Merger. The Merger Agreement provides for, among
other things, the contribution of certain of the assets of Bay Meadows to the
New Patriot Operating Partnership in exchange for OP Units of the New Patriot
Operating Partnership and the contribution of certain of the assets of Cal
Jockey to the Patriot Partnership in exchange for OP Units of the Patriot
Partnership. In connection with the Merger, Cal Jockey's name will be changed
to "Patriot American Hospitality, Inc." and Bay Meadows' name will be changed
to "Patriot American Hospitality Operating Company." Presently shares of Cal
Jockey Common Stock and shares of Bay Meadows Common Stock are paired and are
transferable only as a single unit pursuant to the Pairing Agreement. The
Pairing Agreement will continue after the Merger and the Related Transactions
and, accordingly, each share of New Patriot REIT Common Stock and each share
of New Patriot Operating Company Common Stock will also be paired and
transferable only as a single unit.
In the Merger, each outstanding Paired Share of Cal Jockey Common Stock and
Bay Meadows Common Stock will remain outstanding after the Merger and will,
without any action on the part of the stockholders of Cal Jockey and Bay
Meadows, represent the same number of paired shares of New Patriot REIT Common
Stock and New Patriot Operating Company Common Stock. By operation of the
Merger, each issued and outstanding share of Patriot Common Stock, except
shares issued and held in Patriot's treasury (which will be canceled pursuant
to the Merger Agreement), will be converted into the right to receive 0.51895
shares of New Patriot REIT Common Stock, subject to certain REIT qualification
requirements described below. If the Patriot Average Trading Price is less
than $17.125, then each share of Patriot Common Stock will be converted into
the number of paired shares equal to the Patriot Average Trading Price divided
by $33.00. The Patriot Partnership will, in connection with the Merger,
subscribe for the Subscribed Shares of New Patriot Operating Company Common
Stock in an amount equal to the number of shares of New Patriot REIT Common
Stock which will be issued to Patriot stockholders in the Merger. Immediately
prior to the Merger, the Patriot Partnership will fund the Subscription.
Patriot and the Patriot Partnership will designate the Patriot stockholders as
the recipients of the Subscribed Shares, in compliance with the Pairing
Agreement, on the basis of 0.51895 Subscribed Shares for each outstanding
share of Patriot Common Stock outstanding at the Effective Time, subject to
certain REIT qualification requirements describe below and to any adjustment
to the Exchange Ratio. The result of the Merger and Subscription will be that
Patriot stockholders will have the right to receive for each share of Patriot
Common Stock held by them at the effective time of the Merger 0.51895 shares
of New Patriot REIT Common Stock and 0.51895 shares of New Patriot Operating
Company Common Stock, subject to certain REIT qualification requirements
described below and to any adjustment to the Exchange Ratio, which shares will
be paired and transferable only in a single unit.
The Restated Charters of New Patriot REIT and New Patriot Operating Company
will provide that no person or entity may own, be deemed to own by virtue of
the applicable attribution provisions of the Code or be deemed to beneficially
own pursuant to the applicable provisions of the Exchange Act, shares of any
class or series of Equity Stock of New Patriot REIT or New Patriot Operating
Company at or after the Merger in excess of the Ownership Limit. If any holder
of Patriot Common Stock would receive in the Merger and the
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Subscription a number of paired shares of New Patriot REIT Common Stock and
New Patriot Operating Company Common Stock such that the holder or any other
person or entity would own, or be deemed to own, paired shares of New Patriot
REIT Common Stock and New Patriot Operating Company Common Stock in excess of
the Ownership Limit, then such holder shall acquire no right or interest in
such number of paired shares which would cause such holder or any other person
or entity to exceed the Ownership Limit, but such holder shall, in lieu of
receiving the Excess Paired Shares, have the right to be paid an amount in
cash for such Excess Paired Shares equal to the product of the Fair Market
Value per Excess Paired Share multiplied by the number of such Excess Paired
Shares. Assuming the Merger had been consummated on May 28, 1997, the Fair
Market Value of an Excess Paired Share would have been $41.91 per Excess
Paired Share.
EFFECTIVE TIME OF THE MERGER
In accordance with the DGCL and the VSCA, the Effective Time of the Merger
will occur upon the approval and acceptance for recordation of the Certificate
of Merger by the Delaware Secretary and the issuance of a Certificate of
Merger by the Virginia State Corporation Commission. Subject to the
fulfillment or waiver of the other conditions to the obligations of Patriot,
Cal Jockey and Bay Meadows to consummate the Merger and the Related
Transactions, it is currently expected that the Merger will be consummated on
the fifth business day following Cal Jockey and Bay Meadows publicly
announcing the satisfaction or waiver of the conditions to the Merger.
EXCHANGE OF PATRIOT STOCK CERTIFICATES
As of the Effective Time, (i) Cal Jockey shall deposit with the Exchange
Agent selected by Patriot on or prior to the Effective Time, for the benefit
of the holders of shares of Patriot Common Stock, a certificate representing
the shares of Cal Jockey Common Stock to be issued to, and the cash in lieu of
Excess Paired Shares and fractional Paired Shares to be paid to, the Patriot
stockholders in exchange for the outstanding shares of Patriot Common Stock
and (ii) Bay Meadows shall simultaneously deposit with the Exchange Agent, for
the benefit of the holders of shares of Patriot Common Stock, a certificate
representing the Subscribed Shares to be issued to the Patriot stockholders
pursuant to the Subscription.
Promptly after the Effective Time, Patriot, Cal Jockey and Bay Meadows will
cause the Exchange Agent to mail to each holder of record of a Certificate
representing shares of Patriot Common Stock outstanding as of the Effective
Time (i) a letter of transmittal which shall specify that delivery will be
effected, and risk of loss and title to the Certificates will pass, only upon
delivery of the Certificates to the Exchange Agent (the "Letter of
Transmittal") and (ii) instructions for use in effecting the surrender of the
Certificates. Upon surrender of a Certificate for cancellation to the Exchange
Agent together with such Letter of Transmittal duly executed and completed in
accordance with the instructions thereto, the holder of such Certificate shall
be entitled to receive in exchange therefor (x) a certificate representing the
number of whole shares of New Patriot REIT Common Stock to which such holder
shall be entitled issued back-to-back with a certificate representing the
whole number of shares of New Patriot Operating Company Common Stock to which
such holder shall be entitled and (y) a check representing the amount of cash
in lieu of Excess Paired Shares, if any, and fractional paired shares, if any,
due such holder plus the amount of any dividends or distribution, if any, as
described below, after giving effect to any required withholding tax. The
Certificate so surrendered will be canceled. PATRIOT STOCKHOLDERS SHOULD NOT
SEND IN THEIR CERTIFICATES UNTIL THEY RECEIVE A LETTER OF TRANSMITTAL.
Cal Jockey and Bay Meadows stockholders shall, as a result of the Merger,
continue to own and hold their Paired Shares. These outstanding Paired Shares
shall automatically represent the same number of paired shares of New Patriot
REIT Common Stock and New Patriot Operating Company Common Stock after the
Merger without any requirement to cancel or exchange the existing stock
certificates representing said Paired Shares. BAY MEADOWS AND CAL JOCKEY
STOCKHOLDERS DO NOT NEED TO SURRENDER THEIR CERTIFICATES.
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No dividends or other distributions on paired shares of New Patriot REIT
Common Stock and New Patriot Operating Company Common Stock will be paid with
respect to any shares of Patriot Common Stock represented by a Certificate
until such Certificate is surrendered for exchange as provided above. Any such
dividend or distribution amounts with a record date after the Effective Time
and a payment date prior to the surrender of such Certificate shall be
deposited (less the amount of any withholding taxes which may be required
thereon) with the Exchange Agent on the applicable payment date, to be held by
the Exchange Agent in a non-interest bearing account until the surrender of
such Certificate. Following surrender of any such Certificate, the holder
thereof shall be entitled to receive in addition to the paired shares of New
Patriot REIT Common Stock and New Patriot Operating Company Common Stock
issued in exchange therefor, without interest, (i) at the time of such
surrender, the amount of dividends or other distributions with a record date
after the Effective Time theretofore payable with respect to such paired
shares of New Patriot REIT Common Stock and New Patriot Operating Company
Common Stock and not paid to such holder, less the amount of any withholding
taxes which may be required thereon and (ii) at the appropriate payment date,
the amount of any dividends or other distributions with a record date after
the Effective Time but prior to surrender and a payment date subsequent to
surrender payable with respect to such whole paired shares of New Patriot REIT
Common Stock and New Patriot Operating Company Common Stock, less the amount
of any withholding taxes which may be required thereon.
No fractional paired shares of New Patriot REIT Common Stock and New Patriot
Operating Company Common Stock will be issued in connection with the Merger.
Each holder of Patriot Common Stock otherwise entitled to a fractional paired
shares of New Patriot REIT Common Stock and New Patriot Operating Company
Common Stock shall receive, in lieu thereof, upon surrender of a Certificate,
an amount in cash (without interest), rounded to the nearest cent, determined
by multiplying (i) the Fair Market Value by (ii) the fraction of a paired
share of New Patriot REIT Common Stock and New Patriot Operating Company
Common Stock to which such holder would otherwise be entitled.
At and after the Effective Time, there will be no transfers on the stock
transfer books of Patriot of the shares of Patriot Common Stock which were
outstanding immediately prior to the Effective Time.
Any portion of the monies from which cash payments in lieu of Excess Paired
Shares and fractional interests in paired shares of New Patriot REIT Common
Stock and New Patriot Operating Company Common Stock, any dividends or
distributions and any shares of New Patriot REIT Common Stock and any shares
of New Patriot Operating Company Common Stock deposited for the benefit of the
holders of shares of Patriot Common Stock that remain unclaimed by the former
stockholders of Patriot one year after the Effective Time will be distributed
as follows: any cash for Excess Paired Shares and fractional paired shares,
and dividends or distributions of New Patriot REIT or shares of New Patriot
REIT Common Stock shall be returned to New Patriot REIT and any dividends or
distributions of New Patriot Operating Company and any Subscribed Shares shall
be returned to New Patriot Operating Company. Any former stockholders of
Patriot who have not complied with the exchange procedures described above
within one year after the Effective Time shall thereafter look only to New
Patriot REIT for issuance or payment of that portion of their paired shares
representing New Patriot REIT Common Stock and cash in lieu of Excess Paired
Shares, if any, and fractional paired shares, if any, and to New Patriot
Operating Company for issuance or payment of that portion of their paired
shares representing New Patriot Operating Company Common Stock (plus, in each
case, dividends and distributions, if any, as determined pursuant to the
Merger Agreement, without any interest thereon). None of New Patriot REIT, New
Patriot Operating Company, Patriot, the Exchange Agent or any other person
will be liable to any former holder of shares of Patriot Common Stock for any
amount properly delivered to a public official pursuant to applicable
abandoned property, escheat or similar laws.
No interest will be paid or accrued on cash in lieu of Excess Paired Shares
and fractional paired shares or on any dividend or distribution, payable to
holders of Certificates.
In the event any Certificate has been lost, stolen or destroyed, upon the
making of an affidavit of that fact by the person claiming such Certificate to
be lost, stolen or destroyed and, if required by New Patriot REIT and New
Patriot Operating Company, the posting by such person of a bond in such
reasonable amount as New Patriot
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REIT and New Patriot Operating Company may direct as indemnity against any
claim that may be made against it with respect to such Certificate, the
Exchange Agent or New Patriot REIT and New Patriot Operating Company will
issue in exchange for such lost, stolen or destroyed Certificate the paired
shares of New Patriot REIT Common Stock and New Patriot Operating Company
Common Stock and cash in lieu of Excess Paired Shares, if any, and fractional
paired shares, if any (plus, to the extent applicable, dividends and
distributions payable, if any).
At the Effective Time, each outstanding option to purchase Paired Shares of
Cal Jockey Common Stock and Bay Meadows Common Stock issued by Bay Meadows
that is outstanding immediately prior to the Effective Time (that will not
automatically terminate by its terms as a result of the Merger) shall remain
outstanding and shall continue to represent the right to purchase the same
number of paired shares of New Patriot REIT Common Stock and New Patriot REIT
Operating Company Common Stock.
At the Effective Time, Patriot's obligations with respect to each
outstanding option to acquire capital stock or other equity interest in
Patriot or a subsidiary of Patriot (exclusive of the redemption rights of the
OP Units of the Patriot Partnership) that will not automatically terminate by
its terms at the Effective Time (the "Existing Patriot Options") will be
assumed by New Patriot REIT (the "Assumed Options"), subject to the provision
that the Existing Patriot Options will continue to have, and be subject to,
the same terms and conditions as set forth in the stock option plans and
agreements (as in effect immediately prior to the Effective Time) pursuant to
which such Existing Patriot Options were issued, except that (i) each Existing
Patriot Option will be exercisable for that number of paired shares of New
Patriot REIT Common Stock and New Patriot Operating Company Common Stock equal
to the product of the number of shares of Patriot Common Stock covered by such
Existing Patriot Option immediately prior to the Effective Time multiplied by
the Exchange Ratio and rounded to the nearest whole number of paired shares of
New Patriot REIT Common Stock and New Patriot Operating Company Common Stock
and (ii) the exercise price per paired shares of New Patriot REIT Common Stock
and New Patriot Operating Company Common Stock under such Existing Patriot
Option will be equal to the exercise price per share of Patriot Common Stock
under the Existing Patriot Option divided by the Exchange Ratio and rounded to
the nearest cent. The adjustment with respect to any Existing Patriot Options
that are "incentive stock options" (as defined in Section 422 of the Code)
will be and is intended to be effected in a manner that is consistent, to the
extent possible, with Section 424(a) of the Code. Notwithstanding the
foregoing, in no event shall a holder of an Assumed Option be permitted to
exercise any portion of such Assumed Option that will result in any person
owning, or being deemed to own, paired shares of New Patriot REIT Common Stock
and New Patriot REIT Operating Company Common Stock in excess of the Ownership
Limit or otherwise in violation of any restrictions on ownership and transfer
contained in the Restated Charter or the Restated Bylaws of New Patriot REIT
and New Patriot REIT Operating Company. New Patriot Operating Company will
grant to New Patriot REIT options to acquire shares of New Patriot Operating
Company Common Stock equal to that number of shares of New Patriot REIT Common
Stock that will be issuable under the Assumed Options and such options will
have an exercise price equal to the fair market value of the New Patriot
Operating Company Common Stock to be issued upon such exercise, as determined
in accordance with the Pairing Agreement by mutual agreement of New Patriot
REIT and New Patriot Operating Company or if the parties are unable to agree
on such exercise price the determination shall be made by an independent third
party, and shall be exercisable by New Patriot REIT only if and to the extent
a holder of an Assumed Option exercises his or her Assumed Option.
Notwithstanding the immediately preceding sentence, in no event shall New
Patriot REIT be permitted to hold any such options that would result in any
person or entity owning, or being deemed to own under the applicable
attribution rules of the Code, paired shares of New Patriot REIT Common Stock
and New Patriot Operating Company Common Stock after the Merger in excess of
the Ownership Limit or in violation of any other restrictions contained in the
Restated Charters and Restated Bylaws, and in no event shall New Patriot REIT
be permitted to exercise such options to the extent that such exercise would
result in New Patriot REIT owning, or being deemed to own under the applicable
attribution rules of the Code, at any time, New Patriot Operating Company
Common Stock in excess of the Ownership Limit or in violation of any other
restrictions contained in the Restated Charter or Restated Bylaws of New
Patriot Operating Company, as amended and restated.
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CONDITIONS TO THE MERGER
The respective obligations of Patriot, Cal Jockey and Bay Meadows to effect
the Merger and the Related Transactions are subject to the fulfillment or
waiver of several conditions at or prior to the Effective Time including,
among others, that: (i) all waivers, consents, authorizations, orders,
approvals and expiration of waiting periods required under law, regulation or
agreement to be obtained in order to consummate the Merger and Related
Transactions shall have been obtained except where the failure to obtain any
such waiver, consent, authorization, order or approval would not have a
Patriot Material Adverse Effect, a Cal Jockey Material Adverse Effect, or a
Bay Meadows Material Adverse Effect (each as defined below), as the case may
be; (ii) the representations and warranties of the other parties contained in
the Merger Agreement shall be true and correct in all material respects as of
the Effective Time; (iii) the other parties shall have complied in all
material respects with all agreements and covenants required by the Merger
Agreement and Subscription Agreement to be complied with by it; (iv) no
injunction, restraining order or other order of any federal or state court
shall be in effect which prevents the consummation of the Merger and the
Related Transactions; (v) approval of the Proposals by the requisite vote of
stockholders of each of Patriot, Cal Jockey and Bay Meadows shall have been
obtained; (vi) no statute, rule or regulation shall have been enacted by any
state or governmental agency that would prevent consummation of the Merger;
(vii) the Registration Statement, of which this Joint Proxy
Statement/Prospectus is a part, shall have been declared effective by the
Commission under the Securities Act, and no stop order suspending the
effectiveness of the Registration Statement shall have been issued by the
Commission and no proceedings for that purpose shall have been initiated or
threatened by the Commission; and (viii) Cal Jockey and Bay Meadows shall have
obtained approval for the listing of the paired shares of New Patriot REIT
Common Stock and New Patriot Operating Company Common Stock outstanding as of
the Merger and issuable in the Merger on the NYSE, subject to official notice
of issuance.
The obligation of Patriot to effect the Merger and the Related Transactions
is also subject to the fulfillment or waiver of certain conditions at or prior
to the Effective Time including among others, that: (i) no substantial change
occurred in the principal business, principal assets or structure of Cal
Jockey or Bay Meadows or in the "grandfathered" status of Cal Jockey pursuant
to Section 136(c) of the Deficit Reduction Act of 1984, as amended, shall have
occurred or be pending; (ii) no change shall have occurred concerning Cal
Jockey or any of its subsidiaries or Bay Meadows or any of its subsidiaries
that has had or could be reasonably likely to have a material adverse effect
on the assets, financial condition, results of operations or businesses of (x)
Cal Jockey and its subsidiaries taken as a whole (a "Cal Jockey Material
Adverse Effect") or (y) Bay Meadows, Cal Jockey and their subsidiaries taken
as a whole (a "Bay Meadows Material Adverse Effect"), other than any
developments that generally affect the industry in which Cal Jockey or Bay
Meadows operate; (iii) Cal Jockey and Bay Meadows shall not be financially
insolvent on a combined balance sheet basis immediately prior to the Effective
Time; and (iv) each of the directors of Cal Jockey and each of the directors
of Bay Meadows shall have resigned as of the Effective Time from their
respective Boards of Directors and the persons designated by Patriot shall be
appointed the directors of each of New Patriot REIT and New Patriot Operating
Company.
Similarly, Cal Jockey's and Bay Meadows' obligations to effect the Merger
and the Related Transactions are also subject to the fulfillment or waiver of
the condition that no change shall have occurred concerning Patriot or any of
its subsidiaries that has had or could be reasonably likely to have a material
adverse effect on the business, results of operations or financial condition
of Patriot and its subsidiaries taken as a whole (a "Patriot Material Adverse
Effect"), other than any developments that generally affect the industry in
which Patriot operates.
Of the conditions described in the three preceding paragraphs, the following
conditions are not waivable by the parties: (i) no injunction, restraining
order or other order of any federal or state court preventing the consummation
of the Merger; (ii) approval of the Proposals by the requisite vote of the
stockholders of each of Patriot, Cal Jockey and Bay Meadows; (iii) no statute,
rule or regulation being enacted preventing the consummation of the Merger;
(iv) the Registration Statement being declared effective by the Commission and
no stop order or proceeding suspending the effectiveness thereof being issued;
and (v) obtaining approval for the listing of the paired shares of New Patriot
REIT Common Stock and New Patriot Operating Company Common Stock on the NYSE.
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REPRESENTATIONS AND WARRANTIES
The Merger Agreement contains various representations and warranties
relating to, among other things: (i) the due organization, corporate power,
authority and standing of Patriot, Bay Meadows and Cal Jockey and their
respective subsidiaries and similar corporate matters; (ii) the authorization,
execution, delivery and enforceability of the Merger Agreement; (iii) the
capital structure of Patriot, Bay Meadows and Cal Jockey; (iv) lack of
conflicts under charters or bylaws and violations of any instruments, and
required consents or approvals; (v) certain documents filed by each of
Patriot, Bay Meadows and Cal Jockey with the Commission and the accuracy of
information contained therein; (vi) conduct of business in the ordinary course
and the absence of certain changes or material adverse effects; (vii) taxes;
(viii) real property; (ix) permits; (x) receipt of fairness opinions; and (xi)
the Pairing Agreement. These representations and warranties do not survive the
Merger.
CERTAIN COVENANTS
Each of Cal Jockey and Bay Meadows agreed to terminate any discussions or
negotiations relating to, or that may reasonably be expected to lead to, any
Acquisition Proposal (as defined below). Until the earlier to occur of the
termination of the Merger Agreement or the consummation of the transactions
contemplated therein, neither Cal Jockey nor Bay Meadows nor any of their
subsidiaries shall, directly or indirectly, take any action to (i) encourage,
solicit or initiate the submission of any Acquisition Proposal, (ii) enter
into any agreement for an Acquisition Proposal with a party unrelated to
Patriot, or (iii) participate in any way in discussions or negotiations with,
or furnish any non-public information to, any person in connection with any
Acquisition Proposal. Notwithstanding the above, either Cal Jockey or Bay
Meadows or their representatives may, in response to an unsolicited bona fide
offer or proposal made by a third party to it, provide information to or have
discussions or negotiations with such third party to the extent required by
the fiduciary obligations of its respective Board of Directors under
applicable law, if such Board of Directors shall have received advice from
outside counsel to such effect. Cal Jockey and Bay Meadows will immediately
communicate to Patriot the receipt of any third party solicitation, proposal
or bona fide inquiry that Cal Jockey, Bay Meadows or any of their
representatives may receive in respect of any such transaction, or of any
request for such information.
An "Acquisition Proposal" is any proposed (i) merger, consolidation or
similar transaction involving Bay Meadows or Cal Jockey, (ii) sale, lease or
other disposition directly or indirectly by merger, consolidation, share
exchange or otherwise of (A) any assets of Bay Meadows or its subsidiaries
representing 15% or more of the consolidated assets of Bay Meadows and its
subsidiaries or (B) any assets of Cal Jockey or its subsidiaries representing
15% or more of the consolidated assets of Cal Jockey and its subsidiaries
(excluding in each case any transactions relating to the disposition of
certain Cal Jockey property on terms substantially similar and no less
favorable than those previously publicly disclosed to the Commission or
pursuant to the agreements previously provided to Patriot), (iii) issue, sale
or other disposition of (including by way of merger, consolidation, share
exchange or any similar transaction) securities (or options, rights or
warrants to purchase, or securities convertible into, such securities)
representing 15% or more of the votes attached to the outstanding securities
of Bay Meadows or Cal Jockey, (iv) transaction in which any person shall
acquire beneficial ownership (as such term is defined in Rule 13d-3
promulgated under the Exchange Act), or the right to acquire beneficial
ownership or any "group" (as such term is defined under the Exchange Act)
shall have been formed which beneficially owns or has the right to acquire
beneficial ownership of 15% or more of the outstanding shares of Bay Meadows
Common Stock or Cal Jockey Common Stock, (v) recapitalization, restructuring,
liquidation, dissolution, or other similar type of transaction with respect to
Cal Jockey, Bay Meadows or any of their subsidiaries or (vi) transaction which
is similar in form, substance or purpose to any of the foregoing transactions.
Patriot, Cal Jockey and Bay Meadows have each agreed to use their best
efforts to take all action necessary (i) to convene a meeting of their
stockholders as promptly as practicable to consider and vote upon the approval
of the Proposals, (ii) to cause their respective Board of Directors to
recommend and declare advisable to their respective stockholders such approval
and (iii) to take all lawful action to solicit, and use all best efforts to
obtain, approval of their respective stockholders. Cal Jockey and Bay Meadows
have each agreed that none of the Board of Directors of Bay Meadows, the Board
of Directors of Cal Jockey or any committee of any of the Boards of
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Directors shall (i) withdraw or modify the approval or recommendation by such
Board of Directors or such committee of the Merger Agreement and the
transactions thereunder, (ii) approve or recommend any Acquisition Proposal or
(iii) cause Cal Jockey or Bay Meadows to enter into any letter of intent,
agreement in principle, acquisition agreement or other similar agreement with
respect to any Acquisition Proposal. Notwithstanding the foregoing, in the
event that either of the Boards of Directors of Cal Jockey or Bay Meadows
determines in good faith after receiving advice of its respective outside
counsel that such action is necessary in order for such Board of Directors to
comply with its fiduciary duties to stockholders under applicable law, the
Board of Directors of Bay Meadows or Cal Jockey, as the case may be, may (i)
withdraw or modify its approval or recommendation of the transactions, (ii)
approve or recommend a bona fide Acquisition Proposal with terms the Boards of
Directors of Cal Jockey or Bay Meadows determine are more favorable from a
financial point of view to Cal Jockey's stockholders or Bay Meadows'
stockholders (a "Superior Proposal") or (iii) terminate the Merger Agreement.
Patriot has agreed that neither its Board of Directors nor any committee of
its Board of Directors shall withdraw or modify the approval or recommendation
by such Board of Directors or such committee of the Proposals. Notwithstanding
the foregoing, in the event that the Patriot Board of Directors determines in
good faith after receiving advice of Patriot's outside counsel that such
action is necessary in order for the Board of Directors of Patriot to comply
with its fiduciary duties to stockholders under applicable law, the Board of
Directors of Patriot may withdraw or modify its approval or recommendation of
the Merger Agreement and the transactions thereunder.
Each of Patriot, Bay Meadows, Cal Jockey and their subsidiaries have agreed
to afford the other full access during normal business hours to all of its
properties, books, contracts, commitments and records and shall furnish
promptly to such parties (i) a copy of each report, schedule and other
document filed or received by it pursuant to the requirements of federal or
state securities laws and (ii) all other information concerning its business,
properties and personnel as such party may reasonably request, including any
financial and operating data.
Each of Patriot, Cal Jockey and Bay Meadows have agreed to use their
respective reasonable best efforts to (i) obtain all material consents,
authorizations, orders and approvals required in connection with the Merger
Agreement and the transactions thereunder, (ii) resolve any action, suit,
proceeding or investigation which shall have been instituted or which a
governmental agency shall have indicated its intention to institute which
jeopardizes any of the transactions and, (iii) subject to the terms and
conditions of the Merger Agreement, to take, or cause to be taken, all action
and to do, or cause to be done, all things necessary, proper or advisable
under applicable laws and regulations to consummate the Merger and the Related
Transactions; provided, however, that none of them are obligated to take any
action which, in the reasonable opinion of such party, would (x) have a
material adverse effect on such party and its subsidiaries taken as a whole
(with regard to Bay Meadows, would have a Bay Meadows Material Adverse Effect)
or (y) have a material adverse effect or otherwise materially restrict or
impair the effective operation of Bay Meadows, Cal Jockey or Patriot following
the time of consummation of the Transactions (with regard to Bay Meadows,
would have a Bay Meadows Material Adverse Effect). Patriot, Cal Jockey and Bay
Meadows have each agreed to consult and cooperate with each other and agree
upon the terms and substance of all press releases, announcements and public
statements with respect to the Merger and the Merger Agreement.
Except as expressly required or permitted by the Merger Agreement, each of
Bay Meadows and Cal Jockey will, prior to the Effective Time, and will cause
its respective subsidiaries to (i) operate its businesses in the ordinary
course of business, (ii) not take any action or fail to take any action which
would or could reasonably be expected to terminate Cal Jockey's status as a
REIT or the paired status of the stock of Bay Meadows and Cal Jockey, (iii)
not take any extraordinary action or fail to take any action, the failure of
which to take would itself be an extraordinary action (including, without
limitation, entering into any new or modifying any existing contract between
Bay Meadows and Cal Jockey or any of their respective subsidiaries or
affiliates), and (iv) not declare, set aside or pay any dividend or other
distribution in respect of its capital stock, whether in stock, cash or other
property, other than, in the case of Cal Jockey, dividends required in order
to preserve Cal Jockey's status as a REIT or to avoid federal income or excise
taxes on its undistributed income. Cal Jockey shall not sell, transfer or
encumber any Cal Jockey property or any interest therein or take any other
action or fail to take
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any action if the effect of such action or inaction materially adversely
affects any Cal Jockey property, provided that nothing in the Merger Agreement
shall be deemed to prohibit Cal Jockey from consummating the transactions
relating to the disposition of certain Cal Jockey property on terms
substantially similar and no less favorable than those previously publicly
disclosed by Cal Jockey or pursuant to the agreements previously provided to
Patriot.
Patriot will not, prior to the Effective Time, without the consent of Cal
Jockey and Bay Meadows, (i) raise more than $500,000,000 through the sale of
shares of Patriot Common Stock, (ii) materially alter the nature of its
fundamental business operations, (iii) take any action or fail to take any
action which would or could reasonably be expected to terminate Patriot's
status as a REIT or (iv) declare, set aside or pay any dividend or other
distribution in respect of its capital stock, whether in stock, cash or other
property, other than dividends required in order to preserve Patriot's status
as a REIT or to avoid federal income or excise taxes on its undistributed
income; provided that the amount of any such dividends shall be calculated
assuming that the Effective Time occurs on June 30, 1997.
Subject to the terms and conditions of the Merger Agreement each of Patriot,
Cal Jockey and Bay Meadows shall: (i) to the extent required, promptly make
their respective filings and thereafter make any other required submissions
under the HSR Act with respect to the Merger and the Related Transactions;
(ii) use all reasonable best efforts to cooperate with one another in (A)
determining which filings are required to be made prior to the Effective Time
with, and which consents, approvals, permits or authorizations are required to
be obtained prior to the closing from, any governmental or regulatory
authorities and any third parties in connection with the execution and
delivery of the Merger Agreement, the consummation of the Merger and the
transactions thereunder and (B) timely making all such filings and timely
seeking all such consents, approvals, permits or authorizations; (iii) use all
reasonable best efforts to obtain in writing any consents required from third
parties to effectuate the Merger and the Related Transactions; and (iv) use
all reasonable best efforts to take, or cause to be taken, all other actions
and do, or cause to be done, all other things necessary, proper or appropriate
to consummate and make effective the Merger and the Related Transactions.
Each of Patriot, Cal Jockey and Bay Meadows have agreed to cooperate and
promptly prepare and submit to the NYSE all reports, applications and other
documents that may be necessary or desirable to enable all of the Paired
Shares of Cal Jockey Common Stock and Bay Meadows Common Stock that will be
outstanding or will be reserved for issuance at the Effective Time to be
listed for trading on the NYSE.
Patriot has agreed to use its reasonable best efforts to deliver or cause to
be delivered to Cal Jockey prior to the Effective Time from each of Patriot's
affiliates, within the meaning of Rule 145 promulgated under the Securities
Act, including, without limitation, all directors and executive officers of
Patriot, an affiliate letter.
Each of Cal Jockey and Bay Meadows have agreed to provide to Patriot copies
of all engagement letters, contracts, arrangements or understandings with
agents, brokers, investment bankers, financial advisors or other persons or
firms which may result in the obligation of Cal Jockey or Bay Meadows to pay
any finder's fees, brokerage or agent's commissions or other like payments in
connection with the negotiations leading to the Merger Agreement or the
consummation of the transactions thereunder.
LOAN FOR HUDSON BAY TERMINATION FEE
In connection with the transactions contemplated by the Merger Agreement, on
October 31, 1996, Patriot made the $2,900,000 Loan to Cal Jockey, which was
used to pay the termination fee due to Hudson Bay under the Hudson Bay
Agreement. Cal Jockey caused such amount to be paid to Hudson Bay in
accordance with the Hudson Bay Agreement. In accordance with the promissory
note, as amended and restated, the $2,900,000 Loan is payable on July 14, 1997
and accrues interest at a rate of 5% per annum. In the event of the
termination of the Merger Agreement for any reason, Cal Jockey has agreed to
immediately repay to Patriot the $2,900,000 Loan. In addition, in the event of
termination of the Merger Agreement for certain reasons, Patriot may be
required to pay up to $2,900,000 to Cal Jockey, which amount Patriot may
offset against the principal amount due on the $2,900,000 Loan. See "--
Termination Amount and Expenses."
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TERMINATION
The Merger Agreement may be terminated and abandoned at any time prior to
the Effective Time in a number of circumstances including, among others: (i)
such time as the parties shall mutually agree, (ii) at the option of Bay
Meadows and Cal Jockey, acting jointly, but not individually, on or after July
14, 1997, if by that date all of the conditions to Bay Meadows' and Cal
Jockey's obligations shall not have been satisfied or waived (see "--
Conditions to the Merger"); (iii) at the option of Patriot, on or after July
14, 1997, if by that date all of the conditions to Patriot's obligations shall
not have been satisfied or waived (see "--Conditions to the Merger"); (iv) at
the option of Patriot if at any time prior to the Effective Time the number of
horse race days permitted to be held during 1997 at the premises currently
operated by Bay Meadows is less than 80; (v) at the option of Bay Meadows or
Cal Jockey if the Board of Directors of either determines in good faith after
receiving advice of its respective outside counsel that such action is
necessary in order for such Board of Directors to comply with its fiduciary
duties to stockholders under applicable law; (vi) at the option of Patriot if
the Board of Directors of either of Bay Meadows or Cal Jockey or any committee
of either Board of Directors has (A) withdrawn or modified its approval or
recommendation of the Merger Agreement or the Related Transactions, (B) failed
to recommend that the stockholders of Bay Meadows and Cal Jockey vote in favor
of such transactions, (C) approved or recommended any Acquisition Proposal or
(D) resolved to do any of the foregoing; or (vii) at the option of any of the
parties to the Merger Agreement if the stockholders of Patriot, Cal Jockey or
Bay Meadows do not approve any of the Proposals.
TERMINATION AMOUNT AND EXPENSES
In the event the Merger Agreement is terminated (i) because of the failure
to obtain Cal Jockey or Bay Meadows stockholder approval of any of the
Proposals and during the 12-month period following such termination Cal Jockey
or Bay Meadows enters into a binding acquisition agreement with a third party
or (ii) at the option of Cal Jockey or Bay Meadows because either of their
respective Boards of Directors determines such action is necessary to comply
with its fiduciary duties to stockholders under applicable laws, then Cal
Jockey or Bay Meadows, as the case may be, shall pay to Patriot $5,000,000 in
immediately available funds (in addition to Cal Jockey's obligation to repay
the $2,900,000 Loan). In addition, in the event the Merger Agreement is
terminated by Patriot because the Board of Directors or any committee of the
Board of Directors of either Cal Jockey or Bay Meadows (a) withdraws or
modifies its approval or recommendation of the Proposals, (b) fails to
recommend that the stockholders of Cal Jockey and Bay Meadows vote in favor of
the Proposals, (c) approves or recommends any Acquisition Proposal with a
third party or (d) resolves to do any of the foregoing, Cal Jockey and Bay
Meadows shall pay to Patriot $5,000,000 in immediately available funds or with
a note due within 90 days accruing interest at 7% per annum (in addition to
Cal Jockey's obligation to repay of the $2,900,000 Loan).
In the event the Merger Agreement is terminated because of (i) a breach of
Patriot's representations and warranties that would have a Patriot Material
Adverse Effect, (ii) the failure by Patriot to comply with all covenants and
agreements set forth in the Merger Agreement or (iii) the failure to obtain
Cal Jockey, Bay Meadows or Patriot stockholder approval of any of the
Proposals, Patriot shall pay to Cal Jockey $2,900,000 or such lesser amount
requested by Cal Jockey (which amount will offset the principal amount due on
the $2,900,000 Loan); provided, that such amount shall be immediately repaid
by Cal Jockey to Patriot if during the 12-month period following any such
termination on account of a failure to obtain Cal Jockey or Bay Meadows
stockholder approval of any of the Proposals, Cal Jockey or Bay Meadows enters
into a binding acquisition agreement with a third party. In the event (a) the
Patriot Board of Directors withdraws or modifies its approval or
recommendation of the Merger Proposal or (b) Patriot's stockholders fail to
approve the Merger Proposal, Patriot shall promptly reimburse Cal Jockey and
Bay Meadows for their out-of-pocket costs and expenses incurred in connection
with the Merger Agreement and the Related Transactions in an amount requested
by Cal Jockey and Bay Meadows up to $1,000,000 in the aggregate. In the event
Cal Jockey and Bay Meadows stockholders approve the Merger Proposal but fail
to approve either the Cal Jockey Charter and Bylaw Amendment Proposal or the
Bay Meadows Charter and Bylaws Amendment Proposal and Patriot terminates the
Merger Agreement because of such failure, Patriot shall promptly pay to Cal
Jockey and Bay Meadows $5,000,000 or such lesser amount requested by Cal
Jockey and Bay Meadows. In addition, pursuant to the terms
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of the Wyndham Merger Agreement, if the Merger is not consummated by September
1, 1997, then either Patriot or Wyndham could terminate the Wyndham Merger
Agreement and Patriot would be required to pay Wyndham a $25 million
termination fee.
Except as described above or otherwise provided in the Merger Agreement,
Patriot, Cal Jockey and Bay Meadows have agreed that all costs and expenses
incurred in connection with the Merger and the Related Transactions shall be
paid by the party incurring such expenses, except that (i) the filing fee in
connection with the HSR Act filing, if any, (ii) the filing fee in connection
with the Registration Statement or the Joint Proxy Statement/Prospectus with
the Commission, (iii) the filing fee in connection with the listing of the
paired shares on the NYSE, if any, and (iv) the expenses incurred for printing
and mailing the Registration Statement and the Joint Proxy
Statement/Prospectus, shall be shared equally by Patriot on the one hand, Cal
Jockey and Bay Meadows on the other hand. Patriot, Cal Jockey and Bay Meadows
have also agreed that all costs and expenses for professional services
rendered pursuant to the transactions contemplated by the Merger Agreement
including, but not limited to, investment banking and legal services, will be
paid by the party incurring such services.
INDEMNIFICATION
In connection with the Merger, New Patriot REIT and New Patriot Operating
Company will maintain in effect all rights to indemnification existing in
favor of any director, officer, employee or agent of Cal Jockey or Bay Meadows
and their respective subsidiaries which are in effect as of the date of the
Merger Agreement with respect to matters occurring at or prior to the
Effective Time for a period of six years after the Effective Time; provided,
that in the event any claim or claims are asserted or made within such six-
year period, all rights to indemnification in respect of any such claim or
claims will continue until disposition of any and all such claims. In
addition, New Patriot REIT and New Patriot Operating Company shall cause to be
maintained in effect for a period of six years from the Effective Time any
current policies of directors' and officers' liability insurance maintained by
Cal Jockey and/or Bay Meadows as of the date of the Merger Agreement or
substitute policies with the same coverage and conditions, subject to certain
limitations.
AMENDMENTS
Patriot, Bay Meadows and Cal Jockey may amend the Merger Agreement by
written agreement at any time before or after approval of matters presented in
connection with the Merger by the stockholders of Patriot or the stockholders
of Bay Meadows and Cal Jockey, but after any such stockholder approval, no
amendment shall be made which by law requires the further approval of
stockholders without obtaining such further approval.
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PROPOSALS TO APPROVE THE AMENDMENT AND RESTATEMENT OF THE CAL JOCKEY AND BAY
MEADOWS CHARTERS AND BYLAWS
(FOR CAL JOCKEY AND BAY MEADOWS STOCKHOLDERS ONLY)
PROPOSED AMENDMENT AND RESTATEMENT OF CAL JOCKEY'S AND BAY MEADOWS' CHARTERS
AND BYLAWS
At the Cal Jockey Special Meeting, the stockholders of Cal Jockey will be
asked to consider and vote upon a proposal to amend and restate the Cal Jockey
Charter and the Cal Jockey Bylaws and, at the Bay Meadows Special Meeting, the
stockholders of Bay Meadows will be asked to consider and vote upon a proposal
to amend and restate the Bay Meadows Charter and the Bay Meadows Bylaws.
Under the terms of the Merger Agreement, it is a condition to the obligation
of each of Patriot, Cal Jockey and Bay Meadows to consummate the Merger and
the Related Transactions that both the Cal Jockey Charter and Bylaw Amendment
Proposal and the Bay Meadows Charter and Bylaw Amendment Proposal be approved.
The affirmative vote of a majority of the issued and outstanding shares of
each of Cal Jockey Common Stock and Bay Meadows Common Stock is required to
approve each of the Cal Jockey Charter and Bylaw Amendment Proposal and the
Bay Meadows Charter and Bylaw Amendment Proposal, respectively. See "The
Meetings of Stockholders--Cal Jockey Special Meeting" and "--Bay Meadows
Special Meeting."
Under the terms of the Merger Agreement, assuming no options or OP Units are
exchanged for shares of Patriot Common Stock prior to the Merger and assuming
that the Exchange Ratio is not adjusted due to a Patriot Average Trading price
below $17.125, the stockholders of Patriot, upon consummation of the Merger
and the Related Transactions, will hold in the aggregate approximately 80% of
the outstanding paired shares of New Patriot REIT Common Stock and New Patriot
Operating Company Common Stock. Accordingly, Patriot, Cal Jockey and Bay
Meadows agreed that the certificates of incorporation and the bylaws of Cal
Jockey and Bay Meadows would be amended and restated to reflect differences
contained in the Patriot Charter and the Patriot Bylaws. In addition, the
parties wish to amend and restate the certificates of incorporation and bylaws
of Cal Jockey and Bay Meadows to, among other things, incorporate changes in
Delaware law that are not currently contained therein, to implement a
staggered board of directors and to substantially increase the number of
authorized shares of Cal Jockey and Bay Meadows Common Stock, preferred stock,
par value $0.10 per share, of Cal Jockey ("Cal Jockey Preferred Stock") and
preferred stock, par value $0.10 per share, of Bay Meadows ("Bay Meadows
Preferred Stock").
If the Cal Jockey Charter and Bylaw Amendment Proposal and the Bay Meadows
Charter and Bylaw Amendment Proposal are approved, the current directors of
Cal Jockey and Bay Meadows will resign and the resulting vacancies will be
filled by persons designated by Patriot to be appointed to the Boards of
Directors of New Patriot REIT and New Patriot Operating Company. Such
designees shall be classified, with respect to the term for which they
severally hold office, into three classes and shall serve as directors for the
remainder of their full terms. For more information concerning the Patriot
designees, see "Management of New Patriot REIT and New Patriot Operating
Company."
Certain of the proposed amendments to the certificates of incorporation and
bylaws of Cal Jockey and Bay Meadows could have a potential anti-takeover
effect on New Patriot REIT and New Patriot Operating Company. The
implementation of a staggered board, for example, would prevent stockholders
from voting on the election of more than one class of directors at each annual
meeting and thus could have the effect of keeping the members of the Boards of
Directors of New Patriot REIT and New Patriot Operating Company in control for
a longer period of time. The staggered board provision, the fact that
directors of New Patriot REIT and New Patriot Operating Company would be
removable only for cause, the fact that stockholders would not be permitted to
call a special meeting of stockholders and the fact that the written consent
of all stockholders entitled to vote on a matter would be required for
stockholders to take action on such a matter without a meeting could have the
effect of making it more difficult for a third party to acquire control of New
Patriot REIT and New Patriot Operating Company, including certain acquisitions
which stockholders may deem to be in their best interests. For a more detailed
discussion of the proposed amendments to the certificates of incorporation and
bylaws of
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Cal Jockey and Bay Meadows, see "Description of Capital Stock--Certain
Provisions of the Restated Charters and Restated Bylaws" and "Comparison of
Stockholder Rights."
Stockholders of Cal Jockey and Bay Meadows should carefully read the forms
of Restated Charters and Restated Bylaws attached as Annexes B, C, D and E to
this Joint Proxy Statement/Prospectus and the information under the heading
"Comparison of Stockholder Rights."
THE BOARD OF DIRECTORS OF CAL JOCKEY RECOMMENDS THAT THE CAL JOCKEY CHARTER
AND BYLAW AMENDMENT PROPOSAL BE APPROVED AND THEREFORE RECOMMENDS A VOTE "FOR"
THIS PROPOSAL. THE BOARD OF DIRECTORS OF BAY MEADOWS RECOMMENDS THAT THE BAY
MEADOWS CHARTER AND BYLAW AMENDMENT PROPOSAL BE APPROVED AND THEREFORE
RECOMMENDS A VOTE "FOR" THIS PROPOSAL.
PROPOSAL TO APPROVE THE AMENDMENT AND RESTATEMENT OF THE
PATRIOT INCENTIVE PLAN
(FOR PATRIOT STOCKHOLDERS ONLY)
The Patriot Board of Directors has amended and restated the Patriot
Incentive Plan and is recommending such amendment and restatement to Patriot
stockholders for approval. If approved by the Patriot stockholders, the number
of shares of Patriot Common Stock available for issuance under the Patriot
Incentive Plan would be increased from 2,000,000 to 5,000,000 shares. The
amendment and restatement of the Patriot Incentive Plan also provides for
alternative forms of awards (such as deferred stock units and dividend
equivalent rights), increases the annual individual option grant limit and
provides that all awards will become fully vested upon a Change of Control
(as defined in the Patriot Incentive Plan) of Patriot unless otherwise
provided in the applicable award agreement. All options and other awards of
Patriot that are outstanding immediately prior to the Merger will be assumed
by New Patriot REIT following the consummation of the Merger. The approval of
the Patriot Incentive Plan is not a condition to the obligation of each of
Patriot, Cal Jockey and Bay Meadows to consummate the Merger and the Related
Transactions.
REASONS FOR THE PATRIOT INCENTIVE PLAN PROPOSAL
The Patriot Compensation Committee of the Patriot Board of Directors (the
"Patriot Compensation Committee") believes that the Patriot Incentive Plan has
been, and continues to be, an important incentive in attracting, maintaining
and motivating the caliber of directors, officers and other employees
necessary to continue Patriot's success and growth. The Patriot Compensation
Committee believes that the ability to grant additional options and
alternative forms of stock-based awards will help retain and attract
directors, officers and other employees who are in a position to contribute to
the successful conduct of the business and affairs of Patriot and, in
addition, will help stimulate in such individuals an increased desire to
render greater service to Patriot.
By using long-term stock incentives that vest over time as a significant
component of total compensation, the Patriot Compensation Committee believes
the interests of Patriot's executives will be more closely aligned with the
interests of Patriot's stockholders. The Patriot Compensation Committee also
believes that for a fast-growing company like Patriot, it is important to
attract and retain talent by paying competitive total compensation. Using
stock-based compensation as a significant component of total compensation will
allow Patriot's executives to receive at or above competitive salary levels if
Patriot's performance continues to be superior.
Patriot believes it has performed in a stellar fashion since September 1995
when measured by almost any standard of excellence. As of May 28, 1997, the
stock price has increased by 79.2% and total shareholder return of
approximately 91.5% has been achieved. Patriot's total market capitalization
has grown from an initial equity market of approximately $350 million to total
capitalization of approximately $1.7 billion. Assuming all of the Proposed
Acquisitions are consummated, New Patriot REIT's hotel portfolio will include
70 hotels, aggregating 16,833 rooms, representing a 300% increase in the size
of New Patriot REIT's room portfolio since Patriot's
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Initial Offering. Patriot's performance based on total stockholder return for
1996 was second highest in its peer group of high performing REITs and lodging
corporations.
The Patriot Compensation Committee believes that much of the extraordinary
performance of Patriot since its Initial Offering is attributable to the
leadership of Paul A. Nussbaum, the Chairman of the Board and Chief Executive
Officer. To award Mr. Nussbaum appropriately, the Patriot Compensation
Committee has engaged a compensation consultant to prepare a review of
compensation arrangements for chief executive officers at a peer group of
comparable high performing REITs and lodging corporations (including both
hotel REITs and hotel operating companies) and to design a long-term incentive
program for Mr. Nussbaum. The Patriot Compensation Committee believes that in
light of the Merger and the Related Transactions and the resulting unique
paired share structure of New Patriot REIT and New Patriot Operating Company,
it is appropriate to compare compensation arrangements for chief executive
officers at both hotel REITs and hotel operating companies.
After much study and consideration, the Patriot Compensation Committee has
concluded that the foundation of Patriot's long-term incentive program for Mr.
Nussbaum should be a significant grant of non-qualified options which will be
his sole equity award for the next five years. To reinforce a long-term pay
strategy that maximizes the interests of stockholders and to keep Mr.
Nussbaum's long-term compensation arrangement competitive with other chief
executive officers in Patriot's peer group, on April 1, 1997, the Patriot
Compensation Committee awarded a two-tier option program to Mr. Nussbaum. The
tier one award is a ten-year option to purchase 1,350,000 shares of Patriot
Common Stock with an exercise price equal to $22.375 per share, the fair
market value at the time of grant. This option would not be exercisable until
the end of five years. The tier two award is a ten-year premium-priced option
to purchase 1,250,000 shares of Patriot Common Stock. This grant has five
equal tranches of 250,000 shares each with an increasing exercise price
ranging from $24.61 to $36.04. This tier two option would not be exercisable
until April 1, 2002. It is the view of the Patriot Compensation Committee that
the use of fair market value options and, in particular, options priced in
excess of fair market value, would incentivize Mr. Nussbaum to continue to
strive to achieve superior performance for Patriot and to increase the total
return to Patriot's stockholders. If Patriot's share value does not increase
above the option exercise prices, Mr. Nussbaum would not be able to realize
value from either option grant.
To accommodate the above-described option grants, upon the recommendation of
the Patriot Compensation Committee, the Patriot Board of Directors amended and
restated the Patriot Incentive Plan to authorize the issuance of an additional
3,000,000 shares of Patriot Common Stock and to increase the individual limit
on option grants. Since January 1, 1997, Patriot has also issued 541.35
deferred stock units to non-employee directors in lieu of cash fees. The
effectiveness of these grants of deferred stock units and the above-referenced
option grants to the Patriot Chief Executive Officer, as well as any future
grants of awards under the Patriot Incentive Plan, however, are contingent
upon the approval of the Patriot Incentive Plan Proposal by the Patriot
stockholders.
As of May 28, 1997, options to purchase 3,955,600 shares of Patriot Common
Stock and grants of 642,800 shares of restricted stock and 541.35 deferred
stock units were outstanding under the Patriot Incentive Plan.
The closing price of the Patriot Common Stock as reported on the NYSE on May
28, 1997 was $21 1/2 per share.
THE PATRIOT BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT THE PATRIOT
INCENTIVE PLAN PROPOSAL BE APPROVED, AND THEREFORE RECOMMENDS A VOTE "FOR"
THIS PROPOSAL.
SUMMARY OF THE PATRIOT INCENTIVE PLAN
The material terms of the Patriot Incentive Plan are summarized below. The
summary is qualified in its entirety by the full text of the Patriot Incentive
Plan.
Plan Administration; Eligibility. The Patriot Incentive Plan is administered
by the Patriot Compensation Committee of the Patriot Board of Directors. All
members of the Patriot Compensation Committee must be
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"non-employee directors" as that term is defined under the rules promulgated
by the Commission and "outside directors" as defined in Section 162(m) of the
Code and the regulations promulgated thereunder.
The Patriot Compensation Committee has full power to select, from among the
persons eligible for awards, the individuals to whom awards will be granted,
to make any combination of awards to participants, and to determine the
specific terms of each award, subject to the provisions of the Patriot
Incentive Plan. Persons eligible to participate in the Patriot Incentive Plan
are generally those employees and consultants of Patriot and its subsidiaries
whose efforts contribute to the performance or success of Patriot and its
subsidiaries, as selected from time to time by the Patriot Compensation
Committee. Non-employee directors of Patriot are also eligible for awards
under the Patriot Incentive Plan and may elect to take all or a portion of
their fees in the form of deferred stock units.
Stock Options. The Patriot Incentive Plan permits the granting of both
options to purchase Patriot Common Stock intended to qualify as incentive
stock options ("Incentive Options") under Section 422 of the Code and options
that do not so qualify ("Non-Qualified Options"). The option exercise price of
each option will be determined by the Patriot Compensation Committee but may
not be less than 100% of the fair market value of the shares on the date of
grant except that in connection with the initial employment of an individual,
the Patriot Compensation Committee may grant such individuals Non-Qualified
Options at no less than 85% of the fair market value of the shares on the date
of grant.
The term of each option will be fixed by the Patriot Compensation Committee
and may not exceed ten years from date of grant in the case of an Incentive
Option. The Patriot Compensation Committee will determine at what time or
times each option may be exercised and, subject to the provisions of the
Patriot Incentive Plan, the period of time, if any, after retirement, death,
disability or termination of employment during which options may be exercised.
Options may be made exercisable in installments, and the exercisability of
options may be accelerated by the Patriot Compensation Committee.
Upon exercise of options, the option exercise price must be paid in full
either in cash or a cash equivalent acceptable to the Patriot Compensation
Committee or, if the Patriot Compensation Committee so permits, by delivery of
shares of Patriot Common Stock already owned by the optionee. The exercise
price may also be delivered to Patriot by a broker pursuant to irrevocable
instructions to the broker from the optionee.
To qualify as Incentive Options, options must meet additional federal tax
requirements, including limits on the value of shares subject to Incentive
Options which first become exercisable in any one year, and a shorter term and
higher minimum exercise price in the case of certain large shareholders.
To satisfy the performance-based compensation exception to the $1 million
cap on Patriot's tax deduction imposed by Section 162(m) of the Code, the
Patriot Incentive Plan also provides that no individual may be granted options
in any calendar year to purchase more than 2,600,000 shares of Patriot Common
Stock. Prior to the amendment, the individual limit was 500,000 shares of
Patriot Common Stock.
Restricted Stock. The Patriot Compensation Committee may also award shares
of Patriot Common Stock to eligible participants subject to such conditions
and restrictions as the Patriot Compensation Committee may determine
("Restricted Stock"). These conditions and restrictions may include the
achievement of certain performance goals and/or continued employment with
Patriot through a specified restricted period. These performance objectives
may include return on equity, FFO, cash available for distribution, earnings
per share, return on assets or capital, or increase in fair market value of
Patriot Common Stock. The purchase price, if any, of shares of Restricted
Stock will be determined by the Patriot Compensation Committee. If the
performance goals and other restrictions are not attained, the participants
may forfeit their awards of Restricted Stock.
Unrestricted Stock. The Patriot Compensation Committee may also grant shares
of Patriot Common Stock (at no cost or for a purchase price determined by the
Patriot Compensation Committee) which are free from any restrictions under the
Patriot Incentive Plan ("Unrestricted Stock"). Unrestricted Stock may be
issued to eligible
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participants in recognition of past services or other valid consideration, and
may be issued in lieu of cash compensation to be paid to such eligible
participants.
Deferred Stock Units. Subject to the approval of the Patriot Compensation
Committee, an eligible participant may, pursuant to an advance written
election, receive all or a portion of his compensation in deferred stock
units. These units would have the same value as shares and would receive
dividend equivalent rights.
Performance Share Awards. The Patriot Compensation Committee may grant
awards ("Performance Share Awards") to eligible participants entitling the
recipient to receive shares of Patriot Common Stock upon the achievement of
individual or Patriot performance goals and such other conditions as the
Patriot Compensation Committee shall determine. Except as otherwise determined
by the Patriot Compensation Committee, rights under a Performance Share Award
not yet earned will terminate upon a participant's termination of employment.
Performance Share Awards may be awarded independently or in connection with
stock options or other awards under the Patriot Incentive Plan.
Dividend Equivalent Rights. The Patriot Compensation Committee may grant
dividend equivalent rights, which entitle the recipient to receive credits for
dividends that would be paid if the recipient had held specified shares of
Patriot Common Stock. Dividend equivalent rights may be granted as a component
of another award or as a freestanding award. Dividend equivalents credited
under the Patriot Incentive Plan may be paid currently or may be deemed to be
reinvested in additional shares of Patriot Common Stock, which may thereafter
accrue additional dividend equivalents at fair market value at the time of
deemed reinvestment. Dividend equivalent rights may be settled in cash, shares
of Patriot Common Stock, or a combination thereof, in a single installment or
installments, as specified in the award.
Adjustments for Stock Dividends, Mergers, Etc. The Patriot Compensation
Committee will make appropriate adjustments in outstanding awards to reflect
stock dividends, stock splits and similar events. In the event of a merger,
liquidation or similar event, the Patriot Compensation Committee in its
discretion may provide for substitution or adjustments or may (subject to the
provisions described below under "--Change of Control Provisions") accelerate
or, upon payment or other consideration for the vested portion of any awards
as the Patriot Compensation Committee deems equitable in the circumstances,
terminate such awards. Upon consummation of the Merger, all outstanding awards
may be adjusted in accordance with the Exchange Ratio and will be converted to
either options to acquire paired shares of New Patriot REIT Common Stock and
New Patriot Operating Company Common Stock, restricted paired shares or
deferred stock units payable in the form of paired shares, as the case may be.
Tax Withholding. Patriot Incentive Plan participants are responsible for the
payment of any federal, state or local taxes which Patriot is required by law
to withhold from the value of any award. Patriot may deduct any such taxes
from any payment otherwise due to the participant. Participants may elect to
have such tax obligations satisfied either by authorizing Patriot to withhold
shares of stock to be issued pursuant to an award under the Patriot Incentive
Plan or by transferring to Patriot shares of Patriot Common Stock having a
value equal to the amount of such taxes.
Amendments and Termination. The Patriot Board of Directors may amend or
terminate the Patriot Incentive Plan from time to time, and the Patriot
Compensation Committee may at any time amend or cancel outstanding awards for
the purpose of satisfying changes in the law or for any other lawful purpose.
However, no such action may be taken which adversely affects any rights under
outstanding awards without the holder's consent. Further, amendments to the
Patriot Incentive Plan shall be subject to approval by Patriot's stockholders
if (i) the amendment increases the aggregate number of shares of Patriot
Common Stock that may be issued under the Patriot Incentive Plan, (ii) the
amendment changes the class of individuals eligible to become participants, or
(iii) the amendment materially increases the benefits that may be provided
under the Patriot Incentive Plan.
Change of Control Provisions. The Patriot Incentive Plan provides that in
the event of a Change of Control of Patriot, unless otherwise provided in the
applicable award agreement, all stock options shall automatically
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become fully exercisable and any risk of forfeiture included in any stock
awards, dividend equivalent rights and deferred stock units shall lapse. The
award agreement for Mr. Nussbaum's tier two option grant provides that the
tier two option would not vest in the event of a change of control of Patriot.
In addition, at any time prior to or after a Change of Control, the Patriot
Compensation Committee may accelerate awards and waive conditions and
restrictions on any awards to the extent it may determine appropriate. The
Patriot Compensation Committee will not take such actions in connection with
the Merger with Cal Jockey.
STOCKHOLDERS' VOTE REQUIRED TO APPROVE PROPOSAL
The amendment and restatement of the Patriot Incentive Plan will become
effective upon the affirmative vote of the holders of a majority of the
Patriot Common Stock present in person or by proxy at the Patriot Special
Meeting and entitled to vote on the matter so long as the holders of at least
50% of the outstanding Patriot Common Stock vote on the matter.
NEW PLAN BENEFITS TABLE
Approximately 16 employees and six non-employee directors are eligible to
participate in the Patriot Incentive Plan. As of May 28, 1997, the following
grants have been made under the Patriot Incentive Plan with respect to the
proposed increase in shares available for issuance. No other grants have been
made with respect to the proposed increase in shares available for issuance.
PATRIOT AMERICAN HOSPITALITY, INC. 1995 INCENTIVE PLAN
<TABLE>
<CAPTION>
NUMBER OF
DOLLAR NUMBER OF DEFERRED
VALUE STOCK OPTIONS STOCK UNITS
---------- ------------- -----------
<S> <C> <C> <C>
Paul A. Nussbaum..................... $ 0 2,600,000(1) 0
Chairman of the Board of Directors
and Chief Executive Officer
Executive Group...................... $ 0 2,600,000 0
Non-Executive Director Group......... $11,639.03(2) 0 541.35(3)
</TABLE>
- --------
(1) Includes a ten-year option to purchase 1,350,000 shares of Patriot Common
Stock with an exercise price of $22.375 per share. Such option would not
be exercisable until April 1, 2002. Also includes a ten-year option to
purchase 1,250,000 shares of Patriot Common Stock with five equal tranches
of 250,000 shares with exercise prices of $24.61, $27.07, $29.78, $32.76
and $36.04, respectively. Such option would not be exercisable until April
1, 2002.
(2) Valuation is based on the May 28, 1997 closing price of Patriot Common
Stock as reported on the NYSE of $21 1/2.
(3) The deferred stock units were granted at values ranging from $22.50 to
$26.00.
TAX ASPECTS UNDER THE U.S. INTERNAL REVENUE CODE
The following is a summary of the principal federal income tax consequences
of option grants under the Patriot Incentive Plan. It does not describe all
federal tax consequences under the Patriot Incentive Plan, nor does it
describe state or local tax consequences.
Incentive Options. No taxable income is realized by the optionee upon the
grant or exercise of an Incentive Option. If shares issued to an optionee
pursuant to the exercise of an Incentive Option are not sold or transferred
within two years from the date of grant or within one year after the date of
exercise, then (a) upon sale of such shares, any amount realized in excess of
the option price (the amount paid for the shares) will be taxed to the
optionee as a long-term capital gain and any loss sustained will be a long-
term capital loss, and (b) there will be no deduction for Patriot for federal
income tax purposes. The exercise of an Incentive Option will give rise to an
item of tax preference that may result in alternative maximum tax liability
for the optionee.
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If shares of Patriot Common Stock acquired upon the exercise of an Incentive
Option are disposed of prior to the expiration of the two-year and one-year
holding periods described above (a "disqualifying disposition"), generally (a)
the optionee will realize ordinary income in the year of disposition in an
amount equal to the excess (if any) of the fair market value of the shares at
exercise (or, if less, the amount realized on a sale of such shares) over the
option price thereof, and (b) Patriot will be entitled to deduct such amount.
Special rules will apply where all or a portion of the exercise price of the
Incentive Option is paid by tendering shares of Patriot Common Stock.
If an Incentive Option is exercised at a time when it no longer qualifies
for the tax treatment described above, the option is treated as a Non-
Qualified Option. Generally, except in the case of death, an Incentive Option
will not be eligible for the tax treatment described above if it is exercised
more than three months following termination of employment (or one year in the
case of termination of employment by reason of death or disability).
Non-Qualified Options. With respect to Non-Qualified Options under the
Patriot Incentive Plan, no income is realized by the optionee at the time the
option is granted. Generally, (a) at exercise, ordinary income is realized by
the optionee in an amount equal to the difference between the option price and
the fair market value of the shares on the date of exercise, and Patriot
receives a tax deduction for the same amount, and (b) at disposition,
appreciation or depreciation after the date of exercise is treated as either
short-term or long-term capital gain or loss depending on how long the shares
have been held. Special rules will apply where all or a portion of the
exercise price of the Non-Qualified Option is paid by tendering shares of
Patriot Common Stock.
Payments in Respect of a Change of Control. The Patriot Incentive Plan
provides for acceleration or payment of awards and related shares in the event
of a Change of Control. Such acceleration or payment may cause the
consideration involved to be treated in whole or in part as "parachute
payments" under the Code. Acceleration of benefits under other Patriot stock
and benefits plans and other contracts with employees in the event of a Change
of Control could be subject to being combined with Patriot Incentive Plan
accelerations for "parachute payment" purposes. Any such "parachute payments"
may be non-deductible to Patriot in whole or in part, and the recipient may be
subject to a 20% excise tax on all or part of such payments (in addition to
other taxes ordinarily payable).
Limitation on Patriot's Deduction. As a result of new Section 162(m) of the
Code, Patriot's tax deduction for certain awards under the Patriot Incentive
Plan may be limited to the extent that a "covered employee" (e.g., the chief
executive officer and four other executives named in the Summary Compensation
Table in Patriot's Annual Report on Form 10-K for the fiscal year ended
December 31, 1996) receives compensation in excess of $1,000,000 in such
taxable year of Patriot (other than performance-based compensation that
otherwise meets the requirements of Section 162(m) of the Code).
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CERTAIN FEDERAL INCOME TAX CONSIDERATIONS
The following is a general summary of all material United States federal
income tax consequences of the Merger and the Related Transactions to Patriot,
Cal Jockey and Bay Meadows and their respective 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 shares of New Patriot REIT Common Stock and New Patriot
Operating Company Common Stock. 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 of the Merger
and the Related Transactions that may be relevant to stockholders of Patriot,
Cal Jockey and Bay Meadows. 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 a particular stockholder of Patriot, Cal Jockey
or Bay Meadows.
THE FOLLOWING DISCUSSION MAY NOT APPLY TO PARTICULAR CATEGORIES OF HOLDERS
OF SHARES OF PATRIOT COMMON STOCK, CAL JOCKEY COMMON STOCK OR BAY MEADOWS
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 PATRIOT, CAL JOCKEY AND BAY MEADOWS ARE URGED TO CONSULT THEIR
TAX ADVISORS TO DETERMINE THE SPECIFIC TAX CONSEQUENCES OF THE MERGER AND THE
RELATED TRANSACTIONS, INCLUDING ANY STATE, LOCAL OR OTHER TAX CONSEQUENCES OF
THE MERGER AND THE RELATED TRANSACTIONS.
TAX CONSEQUENCES OF THE MERGER
Goodwin, Procter & Hoar LLP, counsel for Patriot, has delivered its opinion
to Patriot substantially to the effect that, on the basis of facts,
representations and assumptions set forth in such opinion, the Merger will be
treated for United States federal income tax purposes as a reorganization
within the meaning of Section 368(a) of the Code. Accordingly, no gain or loss
will be recognized by Patriot as a result of the Merger. Stockholders of
Patriot will recognize gain, but not loss, on the exchange of shares of
Patriot Common Stock for paired shares of New Patriot REIT Common Stock and
New Patriot Operating Company Common Stock in an amount equal to the lesser of
(a) the fair market value of the New Patriot Operating Company Common Stock as
of the Effective Time that they receive (plus the amount of cash received for
Excess Paired Shares or in lieu of fractional shares of New Patriot Operating
Company, if any) (such value and cash received by a stockholder is referred to
herein as the stockholder's "boot") or (b) the amount by which the fair market
value of the paired shares of New Patriot REIT Common Stock and New Patriot
Operating Company Common Stock as of the Effective Time (plus the amount of
cash received for Excess Paired Shares or in lieu of fractional paired shares
of New Patriot REIT Common Stock and New Patriot Operating Company Common
Stock, if any) exceeds the stockholder's adjusted tax basis in the Patriot
Common Stock exchanged therefor. Any such gain will be characterized as
capital gain (assuming the Patriot Common Stock exchanged was a capital asset
in the hands of the stockholder) unless the boot received has the effect of
the distribution of a dividend, in which case the gain would be treated as a
dividend to the extent of the stockholder's ratable share of Patriot's
undistributed earnings and profits (see below). The companies' estimate of the
value of a share of New Patriot Operating Company Common Stock is discussed
below. No gain or loss will be recognized by Cal Jockey as a result of the
Merger. Bay Meadows, which is not a party to the Merger, will not recognize
gain or loss, nor will stockholders of Cal Jockey and Bay Meadows as of the
Effective Time. Goodwin, Procter & Hoar LLP's opinion is based, in part, upon
a representation by the management of Patriot to the effect that, to the best
knowledge of Patriot's management, there is no plan or intention on the part
of the stockholders of Patriot to dispose of a number of paired shares of New
Patriot REIT Common Stock and New Patriot Operating Company Common Stock
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received in the Merger that would reduce the aggregate value of the New
Patriot REIT Common Stock held by Patriot stockholders to less than 50% of the
value of the Patriot Common Stock as of the Effective Time, and upon counsel's
assumption to the effect that such representation is correct as if made
without such "best knowledge" qualification. The opinion referred to above has
been filed as an exhibit to the Registration Statement, of which this Joint
Proxy Statement/Prospectus is a part.
In general, the determination as to whether the gain recognized by a Patriot
stockholder in the Merger will be treated as capital gain or dividend income
depends upon whether and to what extent the transactions related to the Merger
will be deemed to reduce the stockholder's percentage stock ownership of New
Patriot REIT. For purposes of that determination, the stockholder is treated
as if it first exchanged all of its shares of Patriot Common Stock solely for
New Patriot REIT Common Stock and then New Patriot REIT immediately redeemed
(the "deemed redemption") a portion of such New Patriot REIT Common Stock in
exchange for the boot the stockholder actually received. If, under Section 302
of the Code, the deemed redemption is "not essentially equivalent to a
dividend" with respect to the stockholder then any gain recognized by the
stockholder in the transaction will be capital gain. In general, in order for
the deemed redemption to be "not essentially equivalent to a dividend," the
deemed redemption must result in a "meaningful reduction" in the stockholder's
deemed percentage stock ownership of New Patriot REIT. In general, that
determination requires a comparison of (i) the percentage of the outstanding
stock of New Patriot REIT the stockholder owned immediately before the deemed
redemption and (ii) the percentage of the outstanding stock of New Patriot
REIT the stockholder owns immediately after the deemed redemption. Stock owned
for this purpose includes stock actually owned as well as stock deemed owned
under the constructive ownership rules of Section 318 of the Code. The IRS has
indicated in a published ruling that, in the case of a small minority holder
of a publicly held corporation who exercises no control over corporate
affairs, a reduction in the holder's proportionate interest in the corporation
from .0001118% to .0001081% would constitute a meaningful reduction.
The aggregate tax basis of the shares of New Patriot REIT Common Stock
received by a Patriot stockholder in the Merger (including any fractional
shares for which cash is received) will be the same as the aggregate tax basis
of his or her shares of Patriot Common Stock exchanged therefor, increased by
any gain recognized in the transaction (whether capital gain or dividend
income), and decreased by the fair market value of the New Patriot Operating
Company Common Stock received, any cash received in lieu of fractional shares
of New Patriot Operating Company Common Stock and any cash received for Excess
Paired Shares. The holding period for shares of New Patriot REIT Common Stock
received by a stockholder will include the period that such shares of Patriot
Common Stock were held by the holder, provided such shares were held as a
capital asset at the Effective Time.
If a Patriot stockholder has differing basis and/or holding periods in
respect of his shares of Patriot Common Stock, he should consult his tax
advisor prior to the exchange with regard to computing his gain with respect
to particular blocks of Patriot Common Stock and identifying the particular
bases and/or holding periods of the particular shares of New Patriot REIT
Common Stock he receives in the exchange.
The aggregate tax basis of the shares of New Patriot Operating Company
Common Stock received by a Patriot stockholder in the Merger will be equal to
the fair market value of the New Patriot Operating Company Common Stock as of
the Effective Time. The holding period for shares of New Patriot Operating
Company Common Stock received by a stockholder will begin on the day it is
distributed.
Cash received in lieu of a fractional shares of New Patriot REIT Common
Stock will be treated as received in redemption for such fractional interest,
and gain or loss will be recognized, measured by the difference between the
amount of cash received and the portion of the basis of the shares of New
Patriot REIT Common Stock allocable to such fractional shares. Such gain or
loss will constitute capital gain or loss from the sale of stock if the
stockholder holds its Patriot Common Stock as a capital asset at the Effective
Time, and will be long-term capital gain or loss if the holding period for
such shares of Patriot Common Stock was greater than one year at the Effective
Time.
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In connection with the Merger and Subscription, Patriot, Cal Jockey and Bay
Meadows are obligated to agree on the relative values of a share of Cal Jockey
Common Stock and a share of Bay Meadows Common Stock that comprise a Paired
Share. The companies have determined that the value of a share of New Patriot
Operating Company Common Stock as of the Effective Time should represent 5% of
the then value of a Paired Share. There can be no assurance, however, that the
IRS will agree with such valuation, and Patriot cannot assure its stockholders
that the IRS will not challenge such valuation.
PRE-MERGER DIVIDEND
To maintain its qualification as a REIT prior to the Merger, Patriot will be
required to distribute to its stockholders immediately prior to the Merger at
least 95% of any undistributed "real estate investment trust taxable income"
of Patriot for Patriot's short taxable year ending with the Merger (the "Pre-
Merger Dividend"). See "Risk Factors--REIT Tax Risks." The Pre-Merger Dividend
made to Patriot's taxable U.S. Stockholders 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."
Immediately prior to the consummation of the Merger, Cal Jockey will pay a
dividend to the holders of Paired Shares. See "Summary--Distribution and
Dividend Policy--Cal Jockey and Bay Meadows." This dividend will be taxable to
Cal Jockey's taxable U.S. Stockholders as ordinary income (or capital gain in
the case of any portion properly designated as a capital gain dividend) 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 to
corporations. See "Certain Federal Income Tax Considerations--Federal Income
Taxation of Holders of Paired Shares."
SALE OF LAND BY NEW PATRIOT REIT
The agreements governing Cal Jockey's sales of the Stable Area and the
Training Track Area and the agreement governing the Proposed PaineWebber Land
Sale provide that the purchasers will cooperate with Cal Jockey in structuring
the transactions as tax-deferred like-kind exchanges. There can be no
assurances that the transactions will qualify as tax-deferred like-kind
exchanges or that suitable properties for exchange will be located and the
exchanges completed within the relatively short time periods allowed by
applicable IRS regulations. If the sales cannot be qualified as tax-deferred
like-kind exchanges, but the gain qualifies for capital gains treatment, New
Patriot REIT can elect to distribute the gain (Patriot estimates the maximum
gain to be approximately $73 million if the Proposed PaineWebber Land Sale is
consummated) to its stockholders, who would be taxed at applicable capital
gains rates. If the proceeds are not distributed, the gain will be taxed to
New Patriot REIT at applicable capital gains rates. To the extent that the
gain does not qualify for capital gains treatment, the gain will be combined
with New Patriot REIT's other taxable income, 95% of which must be distributed
each year in order to maintain New Patriot REIT's status as a REIT. There can
be no assurance, however, that New Patriot REIT will make any such
distribution. Legislative proposals to restrict like-kind exchanges, if
enacted with an effective date that included the Proposed PaineWebber Land
Sale, could adversely affect New Patriot REIT's ability to complete a like-
kind exchange, although it is currently anticipated that the new rules would
not apply to exchanges made pursuant to binding agreements in place at the
time of enactment and thus would not apply to the Proposed PaineWebber Land
Sale.
Notwithstanding the foregoing, in the event that any of the property
proposed to be sold by New Patriot REIT in the Proposed PaineWebber Land Sale
constitutes dealer property, then the sales 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 New Patriot REIT as a REIT; provided that the 100% tax would
not apply and the amount of gain would not disqualify New Patriot REIT as a
REIT if the sales were eligible for a certain statutory safe harbor (but the
gain would have to be distributed to maintain REIT qualification if the
properties nonetheless constituted dealer property). Although Cal Jockey
believes that the Stable Area and the Training Track Area do not constitute
dealer property, and Patriot believes that the Proposed PaineWebber Land Sale
will not constitute a sale of dealer property, whether or not such sales
constitute sales of dealer property are factual determinations not susceptible
of legal opinion, and the companies are not receiving
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opinions from counsel on such determinations. Moreover, there can be no
assurance that the proposed sales will qualify for the statutory safe harbor
referred to above. As a result, the opinion rendered by Goodwin, Procter &
Hoar LLP regarding New Patriot REIT's qualification as a REIT for periods
following the Merger necessarily relies on representations from Patriot to the
effect that none of the proposed sales will constitute sales of dealer
property.
REIT QUALIFICATION
General
If certain detailed conditions imposed by the provisions of the Code are
met, entities such as Cal Jockey and Patriot 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.
Prior to the consummation of the Merger, Cal Jockey and Patriot have been
and will continue to be operated in a manner intended to allow each of them to
qualify as a REIT. Patriot intends that New Patriot REIT will operate
following the Merger in a manner so that New Patriot REIT will continue to
qualify as a REIT. If New Patriot REIT fails to qualify as a REIT in any
taxable year, New Patriot REIT will be subject to federal income taxation as
if it were a domestic corporation, and New Patriot REIT's stockholders will be
taxed in the same manner as stockholders of ordinary corporations. In this
event, New Patriot REIT could be subject to potentially significant tax
liabilities, and the amount of cash available for distribution to stockholders
would be reduced and possibly eliminated. Moreover, the liabilities of New
Patriot REIT following the Merger will include any unpaid taxes of Cal Jockey
and Patriot, including taxes resulting if Cal Jockey or Patriot failed to
qualify as REIT for periods prior to the Merger, which also could reduce or
eliminate cash available for distribution to New Patriot REIT's stockholders
following the Merger. Unless entitled to relief under certain Code provisions,
and subject to the discussion below regarding Section 269B(a)(3) of the Code,
New Patriot REIT also would be disqualified from re-electing REIT status for
the four taxable years following the year during which qualification was lost.
New Patriot REIT's qualification and taxation as a REIT following the Merger
will depend upon New Patriot REIT's continuing ability to meet, through actual
operating results, the income and asset requirements, distribution levels,
diversity of stock ownership and other requirements for qualification as a
REIT under the Code. Counsel will not review New Patriot REIT's compliance
with these 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 New Patriot REIT'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--REIT Tax
Risks." Accordingly, no assurance can be given that New Patriot REIT will
satisfy such tests on a continuing basis. Moreover, New Patriot REIT's ability
to qualify as a REIT following the Merger also generally will depend on the
qualification of Cal Jockey and of Patriot as REITs for periods prior to the
Merger. See "Risk Factors--REIT Tax Risks."
In connection with the mailing of this Joint Proxy Statement/Prospectus,
Goodwin Procter & Hoar LLP has rendered an opinion regarding (i) Patriot's
qualification as a REIT for periods prior to the Merger, (ii) Cal Jockey's
qualification as a REIT for periods prior to the Merger and (iii) New Patriot
REIT's ability to qualify as a REIT following the Merger. The opinion of
Goodwin Procter & Hoar llp has been filed as an exhibit to the Registration
Statement, of which the Joint Proxy Statement/Prospects is a part. This
opinion is based on representations from Patriot and Cal Jockey regarding
Patriot's, Cal Jockey's and New Patriot REIT's compliance with the
requirements for REIT qualification, and none are binding on the IRS.
Moreover, each of Patriot's, Cal Jockey's and New Patriot REIT's qualification
as a REIT depends on its having met or meeting, as
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the case may be, through actual operating results, the various requirements
for qualification as a REIT under the Code. Counsel has not verified and will
not verify the companies' compliance with those tests. Accordingly, no
assurance can be given that the IRS will not challenge the status of Cal
Jockey or Patriot as a REIT prior to the Merger or the status of New Patriot
REIT as a REIT following the Merger.
Paired Shares; Potential Reallocation of Income
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 New Patriot REIT and New Patriot Operating
Company, then New Patriot REIT 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) has not applied to Cal Jockey and Bay Meadows. By its
terms, this grandfathering rule will continue to apply to New Patriot REIT
after the Merger. There are, however, no judicial or administrative
authorities interpreting this "grandfathering" rule in the context of a merger
or otherwise, and this interpretation, as well as the opinion of Goodwin,
Procter & Hoar LLP regarding Cal Jockey's qualification as a REIT prior to the
Merger and the opinion of Goodwin, Procter & Hoar LLP regarding New Patriot
REIT's qualification as a REIT following the Merger, are based solely on the
literal language of the statute. Moreover, if for any reason Cal Jockey failed
to qualify as a REIT in 1983, the benefit of the "grandfathering" rule would
not be available to Cal Jockey or New Patriot REIT, in which case neither Cal
Jockey nor New Patriot REIT would qualify as a REIT for any taxable year.
Even though Section 269B(a)(3) of the Code should not apply to New Patriot
REIT and New Patriot Operating Company, the IRS could assert that New Patriot
REIT and New Patriot Operating Company should be treated as one entity under
general tax principles. In general, such an assertion should only be upheld if
the separate corporate identities are a sham or unreal. A majority of the
directors of each of New Patriot REIT and New Patriot Operating Company
immediately following the Merger will not serve as directors of the other
company. In addition, New Patriot REIT and New Patriot Operating Company have
different employees, separate creditors and are subject to different state law
licensing and regulatory requirements. Patriot has represented that New
Patriot REIT and New Patriot Operating Company and their respective subsidiary
entities will each maintain separate books and records and all material
transactions among them have been and will be negotiated and structured with
the intention of achieving an arm's-length result.
Potential Reallocation of Income
Due to the paired share structure, New Patriot REIT, New Patriot Operating
Company, the Patriot Partnership, the New Patriot Operating Partnership, and
their respective subsidiary entities will be 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. Patriot believes that all material transactions
between New Patriot REIT and New Patriot 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. Cal Jockey and Bay Meadows
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 New Patriot REIT or New Patriot 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.
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TAXATION OF NEW PATRIOT OPERATING COMPANY
As a "C" corporation under the Code, New Patriot Operating Company will be
subject to United States federal income tax on its taxable income at corporate
rates.
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 Patriot's
hotels, other than hotels held by taxable entities in which Patriot does not
hold voting control (currently the Crowne Plaza Ravinia Hotel and the Marriott
WindWatch Hotel), have been leased to Lessees and will continue to be leased
after the Merger. Similarly, Cal Jockey has leased the Racecourse to Bay
Meadows and New Patriot REIT will continue to lease the Racecourse for so long
as New Patriot REIT owns the Racecourse (or will sublease it following the
Proposed PaineWebber Land Sale). 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 New Patriot REIT 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. New Patriot REIT also may not provide services, other than
customary services, to the Lessees or their subtenants. In addition, the
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 Participating
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 New Patriot REIT owns, directly or indirectly, 10% or
more of the ownership interests in the relevant Lessee. Constructive ownership
rules apply, such that, for instance, New Patriot REIT is deemed to own the
assets of stockholders who own 10% or more in value of the stock of New
Patriot REIT. The Restated Charters are therefore designed to prevent a
stockholder of New Patriot REIT from owning New Patriot REIT Common Stock or
New Patriot Operating Company Common Stock that would cause New Patriot REIT
to own, actually or constructively, 10% or more of the ownership interests in
a Lessee (including New Patriot Operating Company and the New Patriot
Operating Partnership). Thus, New Patriot REIT 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 New
Patriot REIT has no knowledge, will not cause New Patriot REIT 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 New Patriot
REIT. 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. If the gross income subject to the 100% tax, when added to gain
from the sale of (i) stock or securities held for less than one year and (ii)
real property held for less than four years (with certain exceptions) exceeds
30% of New Patriot REIT's gross income in any taxable year, New Patriot REIT
will fail to qualify as a REIT. See "--Sale of Land by New Patriot REIT."
Minimum distribution requirements also will apply to New Patriot REIT, as
discussed elsewhere in this Joint Proxy Statement/Prospectus. See "Risk
Factors--REIT Tax Risks--Adverse Effects of REIT Minimum Distribution
Requirements."
Any profits earned by the New Patriot Operating Company from hotel
operations in excess of the rents payable to the Patriot Partnership will be
taxed at regular corporate rates.
TAX ASPECTS OF NEW PATRIOT REIT'S INVESTMENT IN THE PATRIOT PARTNERSHIP AND
NEW PATRIOT OPERATING COMPANY'S INVESTMENT IN THE NEW PATRIOT OPERATING
PARTNERSHIP
Patriot holds substantially all of its assets through the Patriot
Partnership and the Patriot Partnership's subsidiary partnerships, and, as a
result of the Merger, New Patriot REIT will acquire Patriot's general partner
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and limited partner interests in the Patriot Partnership. In addition, New
Patriot Operating Company will conduct substantially all of its operations
through the New Patriot Operating Partnership. New Patriot REIT's interest in
the Patriot Partnership and New Patriot Operating Company's investment in the
New Patriot Operating Partnership involve special tax considerations,
including those described below.
Classification as Publicly Traded Partnership
Notwithstanding that the Patriot Partnership and the New Patriot Operating
Partnership are partnerships rather than associations taxable as corporations,
the IRS could allege that the Patriot Partnership or the New Patriot Operating
Partnership is a "publicly traded partnership" under Section 7704 of the Code.
If such an assertion were successfully made, such partnership would be subject
to tax as a corporation under the Code unless certain conditions regarding the
nature of its income were satisfied. In the case of the Patriot Partnership,
taxation as a corporation would disqualify New Patriot REIT 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 tradable on a secondary market (or the substantial equivalent
thereof)." A publicly traded partnership is not taxed as a corporation,
however, if at least 90% of its gross income for each taxable year consists of
certain passive income, including interest, dividends, real property rents,
and gains from the sale or other disposition of real property.
Interests in the Patriot Partnership or its subsidiary partnerships have not
been traded on an established securities market and no interests in such
partnerships will be traded on an established securities market following the
Merger and the Related Transactions. Moreover, Patriot believes that, for
periods ending on or before the Merger, the Patriot Partnership and each
subsidiary partnership has qualified and will qualify for a certain safe
harbor from treatment as a publicly traded partnership based on the number of
partners in such partnerships as well as the 90% qualifying income exemption
referred to above. It is currently anticipated that following the Merger,
these partnerships will continue to rely on the safe harbor based on the
number of their partners and/or the qualifying income exception and that the
New Patriot Operating Partnership will rely on the safe harbor based on the
number of its partners. Alternatively, following the Merger, the Patriot
Partnership Agreement and the New Patriot Operating Partnership may rely on
restrictions on transfers and redemptions to be included in their respective
partnership agreements designed to prevent such partnerships being taxed as
corporations under Section 7704 of the Code. There can be no assurance,
however, that efforts to avoid taxation as a corporation under these
provisions will be successful.
Tax Allocations with Respect to Contributed Properties
Several of Patriot's hotels or interests therein have been acquired by
contribution, and the Patriot Partnership and may acquire assets by
contribution in the future. The New Patriot Operating Partnership will be
formed in part through contribution and also may acquire assets by
contribution in the future. Pursuant to Section 704(c) of the Code, income,
gain, loss and deduction attributable to appreciated or depreciated property
that is contributed to a partnership must be allocated in a manner such that
for federal income tax purposes the contributing partner is charged with, or
benefits from, respectively, the unrealized gain or unrealized loss associated
with the property at the time of the contribution. Allocations required by
Section 704(c) are solely for federal income tax purposes and do not affect
the book capital accounts or other economic or legal arrangements among the
partners. Depending on the method chosen for making allocations required by
Section 704(c), New Patriot REIT and New Patriot Operating Company (i) may be
allocated smaller depreciation and other deductions with respect to assets
contributed to the Patriot Partnership or the New Patriot Operating
Partnership, respectively, than would be allocated to New Patriot REIT and New
Patriot Operating Company if the assets had a tax basis equal to their fair
market value at the time of their contribution and (ii) may be allocated
taxable gain in the event of a sale of assets contributed to their respective
partnerships in excess of the economic profit allocated to them as a result of
the sale. These allocations could cause New Patriot REIT to recognize
additional taxable income, which might adversely affect New Patriot REIT's
ability to comply with the distribution requirements for REITs, and also could
result in increased taxes payable by New Patriot Operating Company.
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PAH RAVINIA, PAH WINDWATCH AND PAH BOULDERS
The Patriot Partnership owns 100% of the non-voting stock of PAH Ravinia and
PAH Boulders and 100% of the non-voting member interests in PAH WindWatch, and
owns, indirectly, 4% of the voting equity interests in PAH Ravinia and PAH
WindWatch, representing approximately 99% of the economic interests in each of
the entities. In addition, the Patriot Partnership owns mortgage notes on the
hotels held by PAH Ravinia and PAH WindWatch. By virtue of its ownership of OP
Units in the Patriot Partnership, New Patriot REIT will be considered to own
its pro rata share of such equity interests and mortgage notes.
To qualify as a REIT, neither Patriot nor New Patriot REIT may own more than
10% of the voting securities of any issuer. Further, neither Patriot nor New
Patriot REIT may own equity or unsecured debt securities of any single issuer
if the value of such securities exceeds 5% of the total value of New Patriot
REIT's assets. Patriot believes that it has, and that New Patriot REIT will,
satisfy these requirements with respect to PAH Ravinia, PAH WindWatch and PAH
Boulders. If the IRS were to successfully challenge these determinations,
however, New Patriot REIT would fail to qualify as a REIT.
Each of PAH Ravinia, PAH Boulders and PAH WindWatch currently pays federal,
state and local income taxes on its taxable income at normal corporate rates.
The amount of any such taxes reduce amounts available for distribution to
stockholders.
STATE AND LOCAL TAXATION
New Patriot REIT, New Patriot Operating Company, the Patriot Partnership,
the New Patriot Operating Partnership 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, Patriot, Cal Jockey and
Bay Meadows stockholders should consult their own tax advisors regarding the
effect of state and local tax laws on the ownership of paired shares of New
Patriot REIT Common Stock and New Patriot Operating Company Common Stock.
FEDERAL INCOME TAXATION OF HOLDERS OF PAIRED SHARES
Separate Taxation
Notwithstanding that paired shares of New Patriot REIT Common Stock and New
Patriot Operating Company Common Stock 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 New Patriot REIT Common Stock and of New
Patriot 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 New Patriot REIT Common
Stock and each share of New Patriot Operating Company Common Stock contained
within each paired share. The tax basis and holding period for each share of
New Patriot REIT Common Stock and each share of New Patriot Operating Company
Common Stock also must be determined separately. See "--Tax Consequences of
the Merger." Upon a taxable sale of a paired share, the amount realized should
be allocated between New Patriot REIT Common Stock and the New Patriot
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
fiduciaries 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).
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As long as New Patriot REIT qualifies as a REIT, distributions made to New
Patriot REIT'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. Distributions that are designated as capital gain dividends will
be taxed as long-term capital gains (to the extent they do not exceed New
Patriot REIT's actual net capital gain for the taxable year) without regard to
the period for which the stockholder has held his New Patriot REIT 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 New Patriot REIT 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 New Patriot REIT Common Stock, such distributions will be
included in income as long-term capital gain (or short-term capital gain if
the New Patriot REIT 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 New Patriot REIT 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 New Patriot REIT and received by
the stockholder on December 31 of such year, provided that the distribution is
actually paid by New Patriot REIT during January of the following calendar
year.
Distributions from New Patriot Operating Company up to the amount of New
Patriot Operating Company's current or accumulated earnings and profits 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 New Patriot
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 New Patriot Operating Company Common Stock, but rather will
reduce the adjusted basis of such New Patriot Operating Company Common Stock.
To the extent that such distributions exceed the adjusted basis of a holder's
New Patriot Operating Company Common Stock they will be included in income as
long-term capital gain (or short-term capital gain if the stock has been held
for one year or less) assuming the shares are a capital asset in the hands of
the stockholder.
Taxable distributions from New Patriot REIT or New Patriot Operating Company
and gain or loss from the disposition of shares of New Patriot REIT Common
Stock and New Patriot 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 New Patriot REIT or New
Patriot Operating Company generally will be treated as investment income for
purposes of the investment interest limitations. Capital gains from the
disposition of paired shares of New Patriot REIT Common Stock and New Patriot
Operating Company Common Stock (or distributions from either company treated
as such) will be treated as investment income only if the stockholder so
elects, in which case such capital gains will be taxed at ordinary income
rates. New Patriot REIT and New Patriot 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 New Patriot REIT) capital gain.
Stockholders may not include in their individual income tax returns any net
operating losses or capital losses of New Patriot REIT or of New Patriot
Operating Company.
Taxation of Stockholders on the Disposition of Paired Shares
In general, any gain or loss realized upon a taxable disposition of paired
shares of New Patriot REIT Common Stock and New Patriot Operating Company
Common Stock by a stockholder who is not a dealer in securities will be
treated as long-term capital gain or loss if the paired shares of New Patriot
REIT Common Stock and New Patriot Operating Company Common Stock have been
held for more than one year and otherwise as short-term capital gain or loss.
Existing Patriot stockholders who receive paired shares of New Patriot REIT
Common Stock and New Patriot Operating Company Common Stock in the Merger will
have different holding periods with respect
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to their New Patriot REIT Common Stock and their New Patriot Operating Company
Common Stock. Accordingly, the portions of the gain or loss recognized on the
disposition of paired shares attributable to New Patriot REIT Common Stock or
New Patriot Operating Company Common Stock may not have the same character for
federal income tax purposes. In addition, any loss upon a sale or exchange of
New Patriot REIT 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 New Patriot
REIT 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
of New Patriot REIT Common Stock and New Patriot Operating Company Common
Stock may be disallowed if other paired shares of New Patriot REIT Common
Stock and New Patriot Operating Company Common Stock are purchased within 30
days before or after the disposition.
Information Reporting Requirements and Backup Withholding
New Patriot REIT and New Patriot 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 New Patriot REIT and New Patriot
Operating Company with his 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, New Patriot REIT may be required to withhold a portion of capital
gain distributions to any stockholders who fail to certify their nonforeign
status to New Patriot REIT. The IRS issued proposed regulations in April 1996
regarding the backup withholding rules. These proposed regulations would alter
the current system of backup withholding compliance.
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 UBTI. While many investments in real estate generate UBTI,
amounts distributed by New Patriot REIT to Exempt Organizations generally
should not constitute UBTI, nor should dividends paid by New Patriot Operating
Company generally constitute UBTI. However, if an Exempt Organization finances
its acquisition of paired shares with debt, a portion of its income from New
Patriot REIT and New Patriot 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 New Patriot REIT and New Patriot Operating
Company as UBTI.
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CALIFORNIA JOCKEY CLUB, BAY MEADOWS OPERATING COMPANY AND
PATRIOT AMERICAN HOSPITALITY, INC.
INDEX TO UNAUDITED PRO FORMA FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
PRO FORMA FINANCIAL INFORMATION--MERGER
<S> <C>
NEW PATRIOT REIT AND NEW PATRIOT OPERATING COMPANY:
Pro Forma Condensed Combined Statement of Operations for the year ended
December 31, 1996 (unaudited). ........................................ 143
Pro Forma Condensed Combined Statement of Operations for the three
months ended March 31, 1997 (unaudited). .............................. 145
Pro Forma Condensed Combined Balance Sheet as of
March 31, 1997 (unaudited). ........................................... 148
NEW PATRIOT REIT:
Pro Forma Condensed Consolidated Statement of Operations for the year
ended December 31, 1996 (unaudited).................................... 150
Pro Forma Condensed Consolidated Statement of Operations for the three
months ended March 31, 1997 (unaudited). .............................. 151
NEW PATRIOT OPERATING COMPANY:
Pro Forma Condensed Consolidated Statement of Operations for the year
ended
December 31, 1996 (unaudited).......................................... 152
Pro Forma Condensed Consolidated Statement of Operations for the three
months ended March 31, 1997 (unaudited). .............................. 154
COMBINED LESSEES:
Pro Forma Condensed Combined Statement of Operations for the year ended
December 31, 1996 (unaudited).......................................... 157
Pro Forma Condensed Combined Statement of Operations for the three
months ended March 31, 1997 (unaudited). .............................. 158
PRO FORMA FINANCIAL INFORMATION--AS ADJUSTED
FOR THE PROPOSED WYNDHAM TRANSACTIONS
NEW PATRIOT REIT AND NEW PATRIOT OPERATING COMPANY:
Pro Forma Condensed Combined Statement of Operations for the year ended
December 31, 1996 (unaudited).......................................... 161
Pro Forma Condensed Combined Statement of Operations for the three
months ended March 31, 1997 (unaudited). .............................. 163
Pro Forma Condensed Combined Balance Sheet as of
March 31, 1997 (unaudited)............................................. 166
NEW PATRIOT REIT:
Pro Forma Condensed Consolidated Statement of Operations for the year
ended
December 31, 1996 (unaudited).......................................... 169
Pro Forma Condensed Consolidated Statement of Operations for the three
months ended March 31, 1997 (unaudited). .............................. 171
NEW PATRIOT OPERATING COMPANY:
Pro Forma Condensed Consolidated Statement of Operations for the year
ended
December 31, 1996 (unaudited).......................................... 173
Pro Forma Condensed Consolidated Statement of Operations for the three
months ended March 31, 1997 (unaudited). .............................. 175
COMBINED LESSEES:
Pro Forma Condensed Combined Statement of Operations for the year ended
December 31, 1996 (unaudited).......................................... 178
Pro Forma Condensed Combined Statement of Operations for the three
months ended March 31, 1997 (unaudited). .............................. 179
PRO FORMA FINANCIAL INFORMATION--PRE MERGER
PATRIOT:
Pro Forma Condensed Consolidated Statement of Operations for the year
ended
December 31, 1996 (unaudited). ........................................ 182
Pro Forma Condensed Consolidated Statement of Operations for the three
months ended March 31, 1997 (unaudited). .............................. 184
Pro Forma Condensed Consolidated Balance Sheet as of
March 31, 1997 (unaudited)............................................. 186
</TABLE>
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NEW PATRIOT REIT AND NEW PATRIOT OPERATING COMPANY
INTRODUCTION TO
PRO FORMA FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)
On October 31, 1996, Patriot, Cal Jockey and Bay Meadows entered into the
October 31, 1996 Agreement pursuant to which the parties agreed to engage in a
business combination. Cal Jockey and Bay Meadows (collectively, "CJC/BMOC")
are two separate companies whose shares of common stock are paired and trade
together as a single unit (referred to herein as a "paired share" ownership
structure). On February 24, 1997, the parties entered into the February 24,
1997 Agreement, pursuant to which Patriot will merge with and into Cal Jockey,
with Cal Jockey being the surviving company. Immediately following the Merger,
Cal Jockey's name will be changed to "Patriot American Hospitality, Inc." and
Bay Meadows' name will be changed to "Patriot American Hospitality Operating
Company."
Pursuant to the Merger Agreement, Patriot stockholders will be entitled to
receive, for each share of Patriot Common Stock held by them at the effective
time of the Merger, 0.51895 shares of New Patriot REIT Common Stock and
0.51895 shares of New Patriot Operating Company Common Stock, which shares
will be paired and transferable only as a single unit. In the event, however,
that the Patriot Average Trading Price is below $17.125, then each share of
Patriot Common Stock will be converted into the number of paired shares equal
to the Patriot Average Trading Price divided by $33.00. In addition, each
outstanding Paired Share will remain outstanding after the Merger and will
represent the same number of paired shares of New Patriot REIT Common Stock
and New Patriot Operating Company Common Stock.
The unaudited Pro Forma Financial Statements have been adjusted for the
purchase method of accounting whereby the Racecourse facility and related
leasehold improvements owned by CJC/BMOC are adjusted to estimated fair market
value. Although CJC/BMOC are issuing their Paired Shares to Patriot
stockholders and will be the surviving legal entities following the Merger,
CJC/BMOC are considered the acquired companies for accounting purposes as the
current Patriot stockholders will hold the majority of the combined paired
shares of New Patriot REIT Common Stock and New Patriot Operating Company
Common Stock subsequent to the Merger (approximately 80%, assuming no options
or OP Units of the Patriot Partnership are exchanged for shares of Patriot
Common Stock prior to the Merger and assuming the Exchange Ratio is not
adjusted due to a Patriot Average Trading Price below $17.125 as described
above). The fair market values of the assets and liabilities of CJC/BMOC have
been determined based upon preliminary estimates and are subject to change as
additional information is obtained. Management of Patriot does not anticipate
that the preliminary allocation of purchase costs based upon the estimated
fair market value of the assets and liabilities of CJC/BMOC will materially
change; however, the allocations of purchase costs are subject to final
determination based upon estimates and other evaluations of fair market value
as of the close of the transaction. Therefore, the allocations reflected in
the following unaudited Pro Forma Financial Statements may differ from the
amounts ultimately determined.
In the first quarter of 1997, Patriot acquired ownership interests in four
hotel properties (the "Recent Acquisitions") which include the Radisson
Overland Park Hotel in Overland Park, Kansas, the Radisson Hotel in
Northbrook, Illinois, the Luxeford Suites Hotel in Minneapolis, Minnesota and
the Holiday Inn Redmont Hotel in Birmingham, Alabama. Additionally, in April
1997, Patriot acquired the Sheraton Park Place Hotel in Minneapolis, Minnesota
and in May 1997, Patriot acquired the Myrtle Beach Hilton Oceanfront Golf
Resort. The acquisitions were financed primarily with funds drawn on the Line
of Credit.
In January 1997, Patriot acquired the Carefree Resorts for a total purchase
price of approximately $264 million. This acquisition was primarily financed
with funds drawn on the Line of Credit and the issuance of 1,295,077 OP Units
of the Patriot Partnership.
Patriot leases each of its hotels, except the Crowne Plaza Ravinia Hotel and
the Marriott WindWatch Hotel (which are separately owned through Non-
Controlled Subsidiaries), to Lessees. Patriot's investments in these Non-
Controlled Subsidiaries are accounted for using the equity method of
accounting and Patriot's share of their net income is reflected in Equity in
Earnings of Unconsolidated Subsidiaries in the accompanying unaudited Pro
Forma Financial Statements. The Lessees, in turn, have entered into separate
agreements with Operators to manage the hotels. Following the Merger, New
Patriot REIT expects to terminate its leases with PAH RSI Lessee
141
<PAGE>
relating to the Carefree Resorts, the Radisson Northbrook Hotel, the Luxeford
Suites Hotel, the Sheraton Park Place Hotel and the Myrtle Beach Hilton
Oceanfront Golf Resort and re-lease such hotel properties to New Patriot
Operating Company. In addition, it is anticipated that New Patriot Operating
Company will offer to acquire certain
assets of PAH RSI Lessee including inventories, trade names and the right to
receive certain royalty fees subsequent to the Merger and the Related
Transactions.
As of March 31, 1997 Patriot owned interests in 54 hotels and resorts and
had an approximate 83.1% interest in the Patriot Partnership. This ownership
interest in the Patriot Partnership is also reflected for unaudited Pro Forma
Financial Statement presentation purposes.
Patriot and PaineWebber have entered into an agreement pursuant to which
following the close of the Merger an affiliate of PaineWebber will purchase
substantially all of the land of Cal Jockey, including the land subject to the
Franklin Agreement and Iaccoca Agreement, but excluding the land subject to
the Borders Lease, for a purchase price of $78.05 million. New Patriot REIT
would retain ownership of the improvements located on the land. Simultaneously
with the consummation of such purchase, the PaineWebber affiliate and New
Patriot REIT would enter into a ground lease covering that portion of the land
on which the Racecourse is situated. New Patriot REIT would then sublease the
Racecourse land and related improvements to New Patriot Operating Company.
The following unaudited Pro Forma Condensed Combined Statements of
Operations presented on pages 143 through 145 assume the following
transactions have occurred at the beginning of the periods presented: (i) the
Merger and the Related Transactions have been consummated on terms set forth
in the Merger Agreement; (ii) the Proposed PaineWebber Land Sale has been
consummated, the PaineWebber affiliate has leased that portion of the land
upon which the Racecourse is situated to New Patriot REIT, and New Patriot
REIT has subleased this land to New Patriot Operating Company; (iii) New
Patriot REIT has leased certain land to Borders; (iv) Patriot has acquired the
Recent Acquisitions and the Carefree Resorts and (v) the mortgage notes to
affiliates of CHC Lease Partners have been funded. In addition, the unaudited
Pro Forma Combined Balance Sheet data on page 148 is presented as if the
transactions discussed above had occurred on March 31, 1997.
The following unaudited Pro Forma Condensed Combined Statements of
Operations for the year ended December 31, 1996 and the three months ended
March 31, 1997 of New Patriot REIT and New Patriot Operating Company are
derived from the individual unaudited Pro Forma Condensed Consolidated
Statements of Operations of New Patriot REIT and New Patriot Operating Company
which are located on pages 150 through 154. These Pro Forma Condensed Combined
Statements of Operations are also derived from the unaudited Pro Forma
Condensed Consolidated Statements of Operations of Patriot which are located
on pages 182 through 184. Such pro forma information is based in part upon the
Separate and Combined Statements of Income of CJC/BMOC filed with CJC/BMOC's
Annual Report on Form 10-K for the year ended December 31, 1996 and Quarterly
Report on Form 10-Q for the three months ended March 31, 1997, as amended; the
Consolidated Statements of Operations of Patriot filed with Patriot's Annual
Report on Form 10-K for the year ended December 31, 1996 and Quarterly Report
on Form 10-Q for the three months ended March 31, 1997; the historical
financial statements of certain hotels acquired by Patriot filed in Patriot's
Current Reports on Form 8-K dated April 2, 1996, as amended, December 5, 1996
and January 16, 1997, as amended; and the Pro Forma Condensed Combined
Statements of Operations of the Lessees which are located on pages 157 and
158. In management's opinion, all material adjustments necessary to reflect
the effects of these transactions have been made. The following unaudited Pro
Forma Condensed Combined Statements of Operations do not include the results
of operations of the Sheraton Park Place Hotel acquired by Patriot in April
1997 and the Myrtle Beach Hilton Oceanfront Golf Resort acquired by Patriot in
May 1997. Pro forma financial information which is adjusted for the Proposed
Wyndham Transactions begins on page 161.
The following unaudited Pro Forma Condensed Combined Statements of
Operations are not necessarily indicative of what the actual results of
operations of New Patriot REIT and New Patriot Operating Company would have
been assuming such transactions had been completed as of the beginning of the
period presented, nor do they purport to represent the results of operations
for future periods. Further, the unaudited Pro Forma Condensed Combined
Statement of Operations for the interim period ended March 31, 1997 is not
necessarily indicative of the results of operations for the full year.
142
<PAGE>
NEW PATRIOT REIT AND NEW PATRIOT OPERATING COMPANY
PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1996
(UNAUDITED)
<TABLE>
<CAPTION>
NEW PATRIOT
NEW PATRIOT OPERATING
REIT COMPANY PRO FORMA
PRO FORMA PRO FORMA ELIMINATIONS TOTAL
----------- ----------- ------------ ----------
(IN THOUSANDS, EXCEPT FOR PER SHARE DATA)
<S> <C> <C> <C> <C>
Revenue:
Participating lease rev-
enue................... $130,570 $ -- $(25,967)(A) $104,603
Hotel revenue........... -- 58,685(B) -- 58,685
Club and spa revenue.... -- 24,710 -- 24,710
Racecourse facility rev-
enue................... 6,682 51,946 (6,348)(C) 52,280
Club membership reve-
nue.................... -- 4,277 -- 4,277
Shopping center reve-
nue.................... -- 1,730 -- 1,730
Interest and other in-
come................... 10,765 12,274 (1,204)(D) 21,835
-------- -------- -------- --------
Total revenue........... 148,017 153,622 (33,519) 268,120
-------- -------- -------- --------
Expenses:
Departmental costs--ho-
tel operations......... -- 47,280 -- 47,280
Racing facility opera-
tions.................. -- 47,180 (6,348)(C) 40,832
Ground lease expense.... 5,354 -- -- 5,354
General and administra-
tive................... 5,992 10,181 (34)(D) 16,139
Repair and maintenance.. -- 8,045 -- 8,045
Utilities............... -- 4,082 -- 4,082
Interest expense........ 45,201 1,300 (1,170)(D) 45,331 (E)
Real estate and personal
property taxes and ca-
sualty insurance....... 13,372 398 -- 13,770
Marketing............... -- 7,767 -- 7,767
Management fees......... -- 3,194 -- 3,194
Depreciation and amorti-
zation................. 38,335 1,072 -- 39,407
Participating lease pay-
ments.................. -- 25,967 (25,967)(A) --
General liability insur-
ance................... -- 656 -- 656
-------- -------- -------- --------
Total expenses.......... 108,254 157,122 (33,519) 231,857
-------- -------- -------- --------
Income (loss) before eq-
uity in earnings of un-
consolidated subsidiar-
ies, income tax provi-
sion and minority inter-
ests.................... 39,763 (3,500) -- 36,263
Equity in earnings of
unconsolidated subsidi-
aries.................. 7,560 -- -- 7,560
-------- -------- -------- --------
Income (loss) before in-
come tax provision and
minority interests...... 47,323 (3,500) -- 43,823
Income tax provision.... -- (62) -- (62)
-------- -------- -------- --------
Income (loss) before mi-
nority interests........ 47,323 (3,562) -- 43,761
Minority interest in the
Patriot Partnerships... (6,548) 499 -- (6,049)
Minority interest in
other partnerships..... (553) -- -- (553)
-------- -------- -------- --------
Net income (loss) appli-
cable to common share-
holders................. $ 40,222 $ (3,063) $ -- $ 37,159 (E)
======== ======== ======== ========
Net income (loss) per
common paired share(F).. $ 1.40 $ (0.11) $ 1.29 (E)
======== ======== ========
Weighted average number
of common paired shares
and common paired share
equivalents
outstanding............. 28,793 28,793 28,793 (E)
======== ======== ========
</TABLE>
- --------
(A) Represents elimination of participating lease revenue and expense related
to the six hotel properties leased by New Patriot REIT to New Patriot
Operating Company.
(B) Hotel revenue includes revenue from rooms of $38,940 and food and beverage
sales of $19,745.
(C) Represents elimination of rental income and expense related to the
Racecourse facility and land leased by New Patriot REIT to New Patriot
Operating Company.
(D) Represents the elimination of $1,170 of interest income and expense
related to a note receivable issued to Patriot in connection with the sale
of certain assets to PAH RSI Lessee, which assets are assumed to be
acquired by New Patriot Operating Company, and the elimination of other
intercompany income and expense items.
(E) The pro forma amounts presented assume an average interest rate of 7.2502%
per annum (representing LIBOR plus 1.7%) on the outstanding debt
obligations with a term of three years. An increase of 0.25% in the
interest rate would increase pro forma interest expense to $46,652,
decrease net income applicable to common shareholders to $36,244 and
decrease net income per common share to $1.26.
143
<PAGE>
Patriot has entered into a commitment letter with PaineWebber Real Estate
and Chase which will modify and extend the Line of Credit up to $700,000
and provide for a term loan of $500,000. The additional availability under
this New Credit Facility will be primarily used to finance future
acquisitions and the term loan will be used to finance the Proposed Wyndham
Transactions. In the event Patriot is successful in obtaining the New
Credit Facility, deferred loan costs totaling approximately $16,325,
including fees, legal and other expenses are expected to be incurred in
connection with the New Credit Facility (of which approximately $10,150
relates to the modification and extension of the Line of Credit and has
been reflected in the pro forma financial information).
(F) In February 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 128 Earnings Per Share
("Statement 128"). Statement 128 specifies the computation, presentation
and disclosure requirements for basic earnings per share and diluted
earnings per share. Management believes that adoption of Statement 128
will not have a material effect on the earnings per share of New Patriot
REIT and New Patriot Operating Company.
144
<PAGE>
NEW PATRIOT REIT AND NEW PATRIOT OPERATING COMPANY
PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 1997
(UNAUDITED)
<TABLE>
<CAPTION>
NEW PATRIOT
NEW PATRIOT OPERATING
REIT COMPANY PRO FORMA
PRO FORMA PRO FORMA ELIMINATIONS TOTAL
----------- ----------- ------------ ----------
(IN THOUSANDS, EXCEPT FOR PER SHARE DATA)
<S> <C> <C> <C> <C>
Revenue:
Participating lease rev-
enue................... $36,551 $ -- $ (9,428)(A) $27,123
Hotel revenue........... -- 19,068(B) -- 19,068
Club and spa revenue.... -- 8,706 -- 8,706
Racecourse facility rev-
enue................... 1,760 20,269 (1,677)(C) 20,352
Club membership reve-
nue.................... -- 348 -- 348
Shopping center reve-
nue.................... -- 474 -- 474
Interest and other in-
come................... 2,669 4,459 (317)(D) 6,811
------- ------- -------- -------
Total revenue........... 40,980 53,324 (11,422) 82,882
------- ------- -------- -------
Expenses:
Departmental costs--ho-
tel operations......... -- 13,828 -- 13,828
Racing facility opera-
tions.................. -- 16,949 (1,677)(C) 15,272
Ground lease expense.... 1,336 -- -- 1,336
General and administra-
tive................... 3,502 2,591 -- 6,093
Repair and maintenance.. -- 2,247 -- 2,247
Utilities............... -- 949 -- 949
Interest expense........ 11,709 319 (317)(D) 11,711(E)
Real estate and personal
property taxes and ca-
sualty insurance....... 3,404 129 -- 3,533
Marketing............... -- 1,870 -- 1,870
Management fees......... -- 1,482 -- 1,482
Depreciation and amorti-
zation................. 9,862 268 -- 10,130
Participating lease pay-
ments.................. -- 9,428 (9,428)(A) --
General liability insur-
ance................... -- 252 -- 252
------- ------- -------- -------
Total expenses.......... 29,813 50,312 (11,422) 68,703
------- ------- -------- -------
Income (loss) before eq-
uity in earnings of un-
consolidated subsidiar-
ies, income tax provi-
sion and minority inter-
ests.................... 11,167 3,012 -- 14,179
Equity in earnings of
unconsolidated subsidi-
aries.................. 1,021 -- -- 1,021
------- ------- -------- -------
Income (loss) before in-
come tax provision and
minority interests...... 12,188 3,012 -- 15,200
Income tax provision.... -- (1,205) -- (1,205)
------- ------- -------- -------
Income (loss) before mi-
nority interests........ 12,188 1,807 -- 13,995
Minority interest in the
Patriot Partnerships... (1,676) (253) -- (1,929)
Minority interest in
other partnerships..... (219) -- -- (219)
------- ------- -------- -------
Net income (loss) appli-
cable to common share-
holders................. $10,293 $ 1,554 $ -- $11,847 (E)
======= ======= ======== =======
Net income (loss) per
common paired share(F).. $ 0.35 $ 0.05 $ 0.40 (E)
======= ======= =======
Weighted average number
of common paired shares
and common paired share
equivalents
outstanding............. 29,074 29,074 29,074 (E)
======= ======= =======
</TABLE>
- --------
(A) Represents elimination of participating lease revenue and expense related
to the six hotel properties leased by New Patriot REIT to New Patriot
Operating Company.
(B) Hotel revenue includes revenue from rooms of $13,177 and food and beverage
sales of $5,891.
(C) Represents elimination of rental income and expense related to the
Racecourse facility and land leased by New Patriot REIT to New Patriot
Operating Company.
(D) Represents the elimination of $293 of interest income and expense related
to a note receivable issued to Patriot in connection with the sale of
certain assets to PAH RSI Lessee, which assets are assumed to be acquired
by New Patriot Operating Company, and the elimination of other
intercompany income and expense items.
(E) The pro forma amounts presented assume an average interest rate of 7.2012%
per annum (representing LIBOR plus 1.7%) on the outstanding debt
obligations with a term of three years. An increase of 0.25% in the
interest rate would increase pro forma interest expense to $12,073 and
decrease net income applicable to common shareholders to $11,590. Net
income per common share would be unchanged.
145
<PAGE>
Patriot has entered into a Commitment Letter with PaineWebber Real Estate
and Chase which will modify and extend the Line of Credit up to $700,000
and provide for a term loan of $500,000. The additional availability under
this New Credit Facility will be primarily used to finance future
acquisitions and the term loan will be used to finance the Proposed Wyndham
Transactions. In the event Patriot is successful in obtaining the New
Credit Facility, deferred loan costs totaling approximately $16,325,
including fees, legal and other expenses are expected to be incurred in
connection with the New Credit Facility (of which approximately $10,150
relates to the modification and extension of the Line of Credit and has
been reflected in the pro forma financial information).
(F) In February 1997, the Financial Accounting Standards Board issued
Statement No. 128 which specifies the computation, presentation and
disclosure requirements for basic earnings per share and diluted earnings
per share. Management believes that adoption of Statement 128 will not
have a material effect on the earnings per share of New Patriot REIT and
New Patriot Operating Company.
146
<PAGE>
NEW PATRIOT REIT AND NEW PATRIOT OPERATING COMPANY
PRO FORMA CONDENSED COMBINED BALANCE SHEET
The following unaudited Pro Forma Condensed Combined Balance Sheet is
presented as if the Merger and the Related Transactions, as well as (i) the
sale of substantially all of the Cal Jockey land to an affiliate of
PaineWebber, (ii) the subsequent leaseback of certain land by New Patriot REIT
on which the Racecourse is situated, (iii) the sub-lease of the Racecourse
land and related improvements from New Patriot REIT to New Patriot Operating
Company, and (iv) the lease of certain land of New Patriot REIT to Borders,
had occurred as of March 31, 1997. The following unaudited Pro Forma Condensed
Combined Balance Sheet is also derived from Patriot's Pro Forma Condensed
Consolidated Balance Sheet as of March 31, 1997 included elsewhere in this
Joint Proxy Statement/Prospectus which is presented as if the funding of the
mortgage notes to affiliates of CHC Lease Partners had occurred as of March
31, 1997. Such pro forma information is based in part upon CJC/BMOC's Combined
Balance Sheet as of March 31, 1997 and Patriot's Consolidated Balance Sheet as
of March 31, 1997 and should be read in conjunction with the financial
statements filed with CJC/BMOC's and Patriot's respective Quarterly Reports on
Form 10-Q for the three months ended March 31, 1997. In management's opinion,
all material adjustments necessary to reflect the effect of these transactions
have been made. The following unaudited Pro Forma Condensed Combined Balance
Sheet does not include the Sheraton Park Place Hotel acquired by Patriot in
April 1997 and the Myrtle Beach Hilton Oceanfront Golf Resort acquired by
Patriot in May 1997.
Although Cal Jockey and Bay Meadows are issuing their Paired Shares to
Patriot stockholders and will be the surviving legal entities following the
Merger, CJC/BMOC are considered the acquired companies for accounting purposes
as the current Patriot stockholders will hold the majority of paired shares of
the combined companies subsequent to the Merger (approximately 80%, assuming
no options or OP Units of the Patriot Partnership are exchanged for shares of
Patriot Common Stock prior to the Merger and assuming the Exchange Ratio is
not adjusted due to a Patriot Average Trading Price below $17.125).
Accordingly, the accompanying Pro Forma Condensed Combined Balance Sheet
reflects adjustments to record the net assets of CJC/BMOC at their estimated
fair market values and the elimination of CJC/BMOC's historical shareholders'
equity. The fair market values of the assets and liabilities of CJC/BMOC have
been determined based upon preliminary estimates and are subject to change as
additional information is obtained. Management of Patriot does not anticipate
that the preliminary allocation of purchase costs based upon the estimated
fair market value of the assets and liabilities of CJC/BMOC will materially
change; however, the allocations of purchase costs are subject to final
determination based upon estimates and other evaluations of fair market value
as of the close of the transaction. Therefore, the allocations reflected in
the following unaudited Pro Forma Condensed Combined Balance Sheet may differ
from the amounts ultimately determined. The following unaudited Pro Forma
Condensed Combined Balance Sheet is not necessarily indicative of what the
actual financial position would have been assuming such transactions had been
completed as of March 31, 1997, nor does it purport to represent the future
financial position of New Patriot REIT and New Patriot Operating Company.
147
<PAGE>
NEW PATRIOT REIT AND NEW PATRIOT OPERATING COMPANY
PRO FORMA CONDENSED COMBINED BALANCE SHEET
AS OF MARCH 31, 1997
(UNAUDITED)
(IN THOUSANDS, EXCEPT FOR SHARE DATA)
<TABLE>
<CAPTION>
CJC/
PATRIOT BMOC PRO FORMA
PRO FORMA HISTORICAL ADJUSTMENTS TOTAL
---------- ---------- ----------- ----------
<S> <C> <C> <C> <C>
ASSETS
Net investment in hotel and
resort properties and land
held for sale.............. $ 947,722 $ -- $ -- $ 947,722
Net investment in Racecourse
facility and related im-
provements................. -- 18,800 5,465 (A) 24,265
Mortgage notes and other re-
ceivables from unconsoli-
dated subsidiaries......... 73,622 -- -- 73,622
Notes receivable............ 113,189 -- (9,237)(B) 103,952
Investment in unconsolidated
subsidiaries............... 12,140 -- -- 12,140
Cash and equivalents........ 6,271 7,708 -- 13,979
Restricted cash............. -- -- 78,050 (C) 78,050
Securities available for
sale....................... -- 5,609 -- 5,609
Accounts receivable......... 15,648 1,269 -- 16,917
Goodwill.................... -- -- 97,216 (D) 97,216
Deferred expenses, net...... 14,447 -- -- 14,447
Prepaid expenses and other
assets..................... 12,009 733 6,337 (B) 19,079
Deferred income taxes....... -- 227 -- 227
---------- ------- -------- ----------
Total assets............... $1,195,048 $34,346 $177,831 $1,407,225
========== ======= ======== ==========
LIABILITIES AND SHAREHOLD-
ERS' EQUITY
Borrowings under a line of
credit and mortgage notes.. $ 579,862 $ -- $ -- (G) $ 579,862
Dividends and distributions
payable.................... 13,938 -- -- 13,938
Accounts payable and accrued
expenses................... 13,498 7,738 14,252 (E) 35,488
Note payable................ -- 2,900 (2,900)(B) --
Due to unconsolidated sub-
sidiaries.................. 6,098 -- -- 6,098
Minority interest in the Pa-
triot Partnership.......... 127,262 -- -- 127,262
Minority interest in other
partnerships............... 13,774 -- -- 13,774
Shareholders' equity:
Preferred stock............ -- -- -- --
Common stock............... -- 116 457 (F) 573
Paid-in capital............ 457,178 18,385 171,229 (G) 646,792
Unearned stock compensa-
tion, net................. (16,261) -- -- (16,261)
Unrealized gain on securi-
ties available for sale... -- 1,323 (1,323)(G) --
Retained earnings.......... (301) 3,884 (3,884)(G) (301)
---------- ------- -------- ----------
Total shareholders' equi-
ty........................ 440,616 23,708 166,479 630,803
---------- ------- -------- ----------
Total liabilities and
shareholders' equity...... $1,195,048 $34,346 $177,831 $1,407,225
========== ======= ======== ==========
</TABLE>
- --------
(A) Represents adjustment for the purchase method of accounting whereby the
Racecourse facility and related leasehold improvements owned by CJC/BMOC
are adjusted to estimated fair market value after the sale of
substantially all of the Cal Jockey land to an affiliate of PaineWebber
for $78,050.
(B) Represents the elimination of $9,237 notes receivable and accrued interest
between New Patriot REIT and PAH RSI Lessee which relate to certain
assets, trade names and the right to receive certain royalty fees which
are to be acquired by New Patriot Operating Company. In addition, the
$2,900 note payable between CJC/BMOC and Patriot issued in connection with
the Merger has been eliminated.
(C) Represents the cash proceeds from the sale of substantially all of the Cal
Jockey land to an affiliate of PaineWebber. It is assumed that the sale of
the land will be structured as a tax-deferred exchange. In order to
qualify as a tax-deferred exchange, suitable properties must be located
and exchanged and the exchange must be effectuated within a relatively
short time period allowed by applicable IRS regulations. Until such time
that suitable properties are located, the proceeds from the sale of land
will be maintained in a restricted trust account.
(D) Represents the purchase consideration in excess of the fair market value
of the net assets of CJC/BMOC. Patriot primarily attributes this amount to
the paired share structure that, subsequent to the Merger, will enable New
Patriot REIT and New Patriot Operating Company to be a fully integrated
owner and operator of hotels. The paired share tax treatment is no longer
available under the Code; however, CJC/BMOC is one of only four publicly-
held companies in existence for which this structure has been
"grandfathered."
(E) Represents adjustment for accrued Merger costs including, legal and
accounting fees, printing and various other professional fees anticipated
in connection with the Merger and the Related Transactions.
148
<PAGE>
(F) Represents the exchange of shares of Patriot Common Stock for paired shares
of New Patriot REIT Common Stock and New Patriot Operating Company Common
Stock. Pursuant to the Merger Agreement, Patriot stockholders are entitled
to receive, for each share of Patriot Common Stock held by them at the
Effective Time, 0.51895 shares of New Patriot REIT Common Stock and 0.51895
shares of New Patriot Operating Company Common Stock, which shares will be
paired and transferable only as a single unit. At March 31, 1997, Patriot
had 44,093,496 shares of Patriot Common Stock outstanding which were
assumed to be exchanged for approximately 22,882,320 paired shares of New
Patriot REIT Common Stock and New Patriot Operating Company Common Stock,
resulting in an increase in common stock of approximately $457, which has
been offset by a corresponding adjustment to Paid-in Capital.
(G) Pursuant to the Merger Agreement, Patriot stockholders will receive 0.51895
shares of New Patriot REIT Common Stock and 0.51895 shares of New Patriot
Operating Company Common Stock (subject to certain REIT qualification
requirements and assuming the Exchange Ratio is not adjusted due to a
Patriot Average Trading Price below $17.125) for each Patriot share. The
estimated value of the CJC/BMOC shares, based on the closing price of
Patriot shares on October 30, 1996, of $17.125 (adjusted for the 2-for-1
stock split), is $33.00 per paired share. Based on 5,763,257 CJC/BMOC
Paired Shares outstanding, the total purchase consideration is
approximately $190,187. The adjustments to shareholders' equity eliminate
CJC/BMOC historical equity accounts totaling $23,708 and record equity
based on the number of Paired Shares held by CJC/BMOC that remain
outstanding after the Merger at $33.00 per Paired Share.
149
<PAGE>
NEW PATRIOT REIT
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1996
(UNAUDITED)
<TABLE>
<CAPTION>
PATRIOT CAL JOCKEY
PRO FORMA HISTORICAL MERGER PRO FORMA
(A) (B) ADJUSTMENTS TOTAL
--------- ----------- ----------- ---------
(IN THOUSANDS, EXCEPT FOR PER SHARE DATA)
<S> <C> <C> <C> <C>
Revenue:
Participating lease revenue..... $130,570 $ -- $ -- $130,570
Rental of Racecourse facility
and land....................... -- 4,918 1,764 (C) 6,682
Interest and other income....... 10,271 494 -- 10,765
-------- ------- ------ --------
Total revenue................... 140,841 5,412 1,764 148,017
-------- ------- ------ --------
Expenses:
Ground lease expense............ 1,390 -- 3,964 (D) 5,354
General and administrative...... 5,342 5,696 (5,046)(E) 5,992
Interest expense................ 45,201 -- -- 45,201
Real estate and personal prop-
erty taxes and casualty insur-
ance........................... 13,372 -- -- 13,372
Depreciation and amortization... 35,123 932 2,280 (F) 38,335
-------- ------- ------ --------
Total expenses.................. 100,428 6,628 1,198 108,254
-------- ------- ------ --------
Income (loss) before equity in
earnings of unconsolidated sub-
sidiaries and minority inter-
ests............................ 40,413 (1,216) 566 39,763
Equity in earnings of unconsoli-
dated subsidiaries............. 7,560 -- -- 7,560
-------- ------- ------ --------
Income (loss) before minority in-
terests......................... 47,973 (1,216) 566 47,323
Minority interest in the Patriot
Partnership.................... (8,014) -- 1,466 (G) (6,548)
Minority interest in other part-
nerships....................... (553) -- -- (553)
-------- ------- ------ --------
Net income (loss) applicable to
common shareholders............. $ 39,406 $(1,216) $2,032 $ 40,222
======== ======= ====== ========
Net income (loss) per common
share(H)........................ $ 0.89 $ (0.21) $ 1.40
======== ======= ========
Weighted average number of common
shares and common share equiva-
lents outstanding............... 44,378 5,763 28,793
======== ======= ========
</TABLE>
- --------
(A) Represents Patriot's pro forma results of operations for the year ended
December 31, 1996. See page 182.
(B) Represents the historical results of operations of Cal Jockey for the year
ended December 31, 1996.
(C) Represents adjustments to Racecourse facility rental revenue as a result
of (i) a proposed lease agreement between New Patriot REIT and New Patriot
Operating Company subsequent to the Merger and the Related Transactions
and the Proposed PaineWebber Land Sale and (ii) rental income related to
the Borders Lease.
(D) Represents ground lease payments to be made with respect to the proposed
ground lease with an affiliate of PaineWebber.
(E) Represents adjustment for certain administrative salaries and other
expenses not expected to be incurred by New Patriot REIT of $568 and
approximately $1,194 of non-recurring legal fees and Merger related costs
of $3,284.
(F) Represents adjustment to reduce depreciation related to the Racecourse
facility by $93, offset by amortization of goodwill of $2,373 which
results from the adjustment for purchase method of accounting whereby the
Racecourse facility and retained leasehold improvements owned by CJC/BMOC
are adjusted to estimated fair market value. Depreciation is computed
using the straight-line method and is based upon the estimated useful
lives of 20 years for the Racecourse facility and 5 to 7 years for F, F &
E. These estimated useful lives are based on management's knowledge of the
properties and the industry in general. Amortization of goodwill is
computed using the straight-line method over a 40 year estimated useful
life. Because the paired share structure is "grandfathered" under the
Code, Patriot believes the life of the paired share structure is
perpetual. Under generally accepted accounting principles, however, the
maximum amortization period is 40 years for intangible assets.
(G) Represents the adjustments to minority interest to reflect the estimated
minority interest percentage subsequent to the Merger of approximately
14.0%.
(H) In February 1997, the Financial Accounting Standards Board issued
Statement 128 which specifies the computation, presentation and disclosure
requirements for basic earnings per share and diluted earnings per share.
Management believes that adoption of Statement 128 will not have a
material effect on the earnings per share of New Patriot REIT.
150
<PAGE>
NEW PATRIOT REIT
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 1997
(UNAUDITED)
<TABLE>
<CAPTION>
PATRIOT CAL JOCKEY
PRO FORMA HISTORICAL MERGER PRO FORMA
(A) (B) ADJUSTMENTS TOTAL
--------- ----------- ----------- ---------
(IN THOUSANDS, EXCEPT FOR PER SHARE DATA)
<S> <C> <C> <C> <C>
Revenue:
Participating lease revenue...... $36,551 $ -- $ -- $36,551
Rental of Racecourse facility and
land............................ -- 1,660 100 (C) 1,760
Interest and other income........ 2,555 114 -- 2,669
------- ------ ----- -------
Total revenue.................... 39,106 1,774 100 40,980
------- ------ ----- -------
Expenses:
Ground lease expense............. 345 -- 991 (D) 1,336
General and administrative....... 3,461 456 (415)(E) 3,502
Interest expense................. 11,709 36 (36)(F) 11,709
Real estate and personal property
taxes and casualty insurance.... 3,380 24 -- 3,404
Depreciation and amortization.... 9,064 239 559 (G) 9,862
------- ------ ----- -------
Total expenses................... 27,959 755 1,099 29,813
------- ------ ----- -------
Income (loss) before equity in
earnings of unconsolidated sub-
sidiaries and minority inter-
ests............................. 11,147 l,019 (999) 11,167
Equity in earnings of unconsoli-
dated subsidiaries.............. 1,021 -- -- 1,021
------- ------ ----- -------
Income (loss) before minority in-
terests.......................... 12,168 1,019 (999) 12,188
Minority interest in the Patriot
Partnership..................... (2,019) -- 343 (H) (1,676)
Minority interest in other part-
nerships........................ (219) -- -- (219)
------- ------ ----- -------
Net income (loss) applicable to
common shareholders.............. $ 9,930 $1,019 $(656) $10,293
======= ====== ===== =======
Net income (loss) per common
share(I)......................... $ 0.22 $ 0.18 $ 0.35
======= ====== =======
Weighted average number of common
shares and common share equiva-
lents outstanding................ 44,919 5,763 29,074
======= ====== =======
</TABLE>
- --------
(A) Represents Patriot's pro forma results of operations for the three months
ended March 31, 1997. See page 184.
(B) Represents the historical results of operations of Cal Jockey for the
three months ended March 31, 1997.
(C) Represents adjustments to Racecourse facility rental revenue as a result
of (i) a proposed lease agreement between New Patriot REIT and New Patriot
Operating Company subsequent to the Merger and the Related Transactions
and the Proposed PaineWebber Land Sale and (ii) rental income related to
the Borders Lease.
(D) Represents ground lease payments to be made with respect to the proposed
ground lease with an affiliate of PaineWebber.
(E) Represents adjustment for non-recurring legal fees and Merger-related
costs not expected to be incurred by New Patriot REIT.
(F) Represents elimination of $36 of interest expense related to the $2,900
note payable between CJC/BMOC and Patriot.
(G) Represents adjustment to reduce depreciation related to the Racecourse
facility by $30, offset by amortization of goodwill of $589 which results
from the adjustment for purchase method of accounting whereby the
Racecourse facility and retained leasehold improvements owned by CJC/BMOC
are adjusted to estimated fair market value. Depreciation is computed
using the straight-line method and is based upon the estimated useful
lives of 20 years for the Racecourse facility and 5 to 7 years for F, F &
E. These estimated useful lives are based on management's knowledge of the
properties and the industry in general. Amortization of goodwill is
computed using the straight-line method over a 40 year estimated useful
life. Because the paired share structure is "grandfathered" under the
Code, Patriot believes the life of the paired share structure is
perpetual. Under generally accepted accounting principles, however, the
maximum amortization period is 40 years for intangible assets.
(H) Represents the adjustments to minority interest to reflect the estimated
minority interest percentage subsequent to the Merger of approximately
14.0%.
(I) In February 1997, the Financial Accounting Standards Board issued
Statement 128 which specifies the computation, presentation and disclosure
requirements for basic earnings per share and diluted earnings per share.
Management believes that adoption of Statement 128 will not have a
material effect on the earnings per share of New Patriot REIT.
151
<PAGE>
NEW PATRIOT OPERATING COMPANY
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1996
(UNAUDITED)
<TABLE>
<CAPTION>
PRO FORMA ADJUSTMENTS
---------------------------------------
BAY
MEADOWS CAREFREE RECENT
HISTORICAL RESORTS ACQUISITIONS PRO FORMA
(A) (B) (C) ADJUSTMENTS TOTAL
---------- -------- ------------ ----------- ---------
(IN THOUSANDS, EXCEPT FOR PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
Revenue:
Room revenue........... $ -- $29,251 $ 9,689 $ -- $ 38,940
Food and beverage...... -- 17,356 2,389 -- 19,745
Club and spa revenue... -- 24,710 -- -- 24,710
Pari-mutuel revenue.... 41,476 -- -- -- 41,476
Other racing income.... 10,470 -- -- -- 10,470
Club membership reve-
nue................... -- 4,277 -- -- 4,277
Shopping center reve-
nue................... -- 1,730 -- -- 1,730
Telephone and other ho-
tel revenue........... -- 9,569 769 -- 10,338
Interest and other in-
come.................. 1,526 410 -- -- 1,936
------- ------- ------- ----- --------
Total revenue.......... 53,472 87,303 12,847 -- 153,622
------- ------- ------- ----- --------
Expenses:
Departmental costs--
hotel, club and spa
operations............ -- 42,175 5,105 -- 47,280
Direct operating costs
of racing facility.... 20,950 -- -- -- 20,950
Purses and incentive
awards................ 17,054 -- -- -- 17,054
Commissions, concession
costs and Racecourse
facility rental....... 8,483 -- -- 693 (D) 9,176
General and administra-
tive.................. 3,552 6,229 961 (561)(E) 10,181
Repair and mainte-
nance................. -- 7,386 659 -- 8,045
Utilities.............. -- 3,480 602 -- 4,082
Marketing.............. 1,436 5,589 742 -- 7,767
Management fees........ -- 2,971 223 -- 3,194
Depreciation and amor-
tization.............. 754 -- -- 318 (F) 1,072
Participating lease
payments.............. -- 21,464 (G) 4,503 (G) -- 25,967
Interest expense....... 130 1,170 (H) -- -- 1,300
Real estate and per-
sonal property taxes
and insurance......... 398 -- -- -- 398
General liability
insurance............. -- 492 164 -- 656
------- ------- ------- ----- --------
Total expenses......... 52,757 90,956 12,959 450 157,122
------- ------- ------- ----- --------
Income (loss) before
income tax provision
and minority interest.. 715 (3,653) (112) (450) (3,500)
Income tax (provision)
benefit............... (260) -- -- 198 (I) (62)
------- ------- ------- ----- --------
Income (loss) before
minority interest...... 455 (3,653) (112) (252) (3,562)
Minority interest in
the Patriot Operating
Partnership........... -- 511 (J) 16 (J) (28) (J) 499
------- ------- ------- ----- --------
Net income (loss)
applicable to common
shareholders........... $ 455 $(3,142) $ (96) $(280) $ (3,063)
======= ======= ======= ===== ========
Net income (loss) per
common share(K)........ $ 0.08 $ (0.11)
======= ========
Weighted average number
of common shares and
common share
equivalents
outstanding............ 5,763 28,793
======= ========
</TABLE>
- --------
(A) Represents the historical results of operations of Bay Meadows for the
year ended December 31, 1996.
(B) Represents adjustments to New Patriot Operating Company's results of
operations assuming the Carefree Resort properties had been leased to New
Patriot Operating Company at the beginning of the period presented.
(C) Represents adjustments to New Patriot Operating Company's results of
operations assuming the Radisson Northbrook Hotel and the Luxeford Suites
Hotel had been leased to New Patriot Operating Company at the beginning of
the period presented.
(D) Represents adjustment to Racecourse facility rental expense as a result of
(i) a proposed lease agreement between New Patriot REIT and New Patriot
Operating Company subsequent to the Merger and the Related Transactions
and (ii) the Proposed PaineWebber Land Sale.
152
<PAGE>
(E) Represents adjustment for estimated incremental general and administrative
expenses of approximately $300 and certain expenses not expected to be
incurred by New Patriot Operating Company of $861, including approximately
$472 of non-recurring legal fees and approximately $389 of Merger-related
costs.
(F) Represents an increase in depreciation of furniture and equipment of $245,
and amortization of goodwill of $73 which results from the adjustment for
purchase method of accounting whereby the furniture and equipment owned by
Bay Meadows is adjusted to estimated fair market value. Depreciation is
computed using the straight-line method and is based upon the estimated
useful lives of 5 to 7 years for F, F & E. Amortization of goodwill is
computed using the straight-line method over a 40 year estimated useful
life. Because the paired share structure is "grandfathered" under the
Code, Patriot believes the life of the paired share structure is
perpetual. Under generally accepted accounting principles, however, the
maximum amortization period is 40 years for intangible assets.
(G) Represents lease payments from New Patriot Operating Company to New
Patriot REIT calculated on a pro forma basis by applying the provisions of
the Participating Leases to the historical revenue of the hotels for the
period presented.
(H) Represents interest expense incurred on promissory notes issued to the
Patriot Partnership by PAH RSI Lessee in connection with the acquisition
of certain assets, which assets are assumed to be acquired by New Patriot
Operating Company.
(I) Represents an adjustment to the estimated federal and state tax liability
as a result of the pro forma operating loss of the Carefree Resorts and
the pro forma adjustments to Bay Meadows for the year ended December 31,
1996.
(J) Represents the adjustments to minority interest to reflect the estimated
minority interest percentage subsequent to the Merger of approximately
14.0%.
(K) In February 1997, the Financial Accounting Standards Board issued
Statement 128 which specifies the computation, presentation and disclosure
requirements for basic earnings per share and diluted earnings per share.
Management believes that adoption of Statement 128 will not have a
material effect on the earnings per share of New Patriot Operating
Company.
153
<PAGE>
NEW PATRIOT OPERATING COMPANY
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 1997
(UNAUDITED)
<TABLE>
<CAPTION>
PRO FORMA ADJUSTMENTS
--------------------------------------
BAY
MEADOWS CAREFREE RECENT
HISTORICAL RESORTS ACQUISITIONS PRO FORMA
(A) (B) (C) ADJUSTMENTS TOTAL
---------- -------- ------------ ----------- ---------
(IN THOUSANDS, EXCEPT FOR PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
Revenue:
Room revenue........... $ -- $11,059 $2,118 $ -- $13,177
Food and beverage...... -- 5,440 451 -- 5,891
Club and spa revenue... -- 8,706 -- -- 8,706
Pari-mutuel revenue.... 17,099 -- -- -- 17,099
Other racing income.... 3,170 -- -- -- 3,170
Club membership reve-
nue................... -- 348 -- -- 348
Shopping center reve-
nue................... -- 474 -- -- 474
Telephone and other ho-
tel revenue........... -- 3,588 181 -- 3,769
Interest and other in-
come.................. 232 458 -- -- 690
------- ------- ------ ----- -------
Total revenue.......... 20,501 30,073 2,750 -- 53,324
------- ------- ------ ----- -------
Expenses:
Departmental costs--
hotel, club and spa
operations............ -- 12,670 1,158 -- 13,828
Direct operating costs
of racing facility.... 6,608 -- -- -- 6,608
Purses and incentive
awards................ 7,240 -- -- -- 7,240
Commissions, concession
costs and Racecourse
facility rental....... 3,084 -- -- 17 (D) 3,101
General and administra-
tive.................. 783 1,809 248 (249)(E) 2,591
Repair and mainte-
nance................. -- 2,105 142 -- 2,247
Utilities.............. -- 759 190 -- 949
Marketing.............. 465 1,185 220 -- 1,870
Management fees........ -- 1,425 57 -- 1,482
Depreciation and amor-
tization.............. 181 -- -- 87 (F) 268
Participating lease
payments.............. -- 8,292 (G) 1,136 (G) -- 9,428
Interest expense....... 26 293 (H) -- -- 319
Real estate and per-
sonal property taxes
and insurance......... 129 -- -- -- 129
General liability
insurance............. 122 108 22 -- 252
------- ------- ------ ----- -------
Total expenses......... 18,638 28,646 3,173 (145) 50,312
------- ------- ------ ----- -------
Income (loss) before
income tax provision
and minority interest.. 1,863 1,427 (423) 145 3,012
Income tax (provision)
benefit............... (748) -- -- (457)(I) (1,205)
------- ------- ------ ----- -------
Income (loss) before
minority interest...... 1,115 1,427 (423) (312) 1,807
Minority interest in
the Patriot Operating
Partnership........... -- (200)(J) 59 (J) (112)(J) (253)
------- ------- ------ ----- -------
Net income (loss)
applicable to common
shareholders........... $ 1,115 $ 1,227 $ (364) $(424) $ 1,554
======= ======= ====== ===== =======
Net income (loss) per
common share(K)........ $ 0.19 $ 0.05
======= =======
Weighted average number
of common shares and
common share
equivalents
outstanding............ 5,763 29,074
======= =======
</TABLE>
- --------
(A) Represents the historical results of operations of Bay Meadows for the
three months ended March 31, 1997.
(B) Represents adjustments to New Patriot Operating Company's results of
operations assuming the Carefree Resort properties had been leased to New
Patriot Operating Company at the beginning of the period presented.
(C) Represents adjustments to New Patriot Operating Company's results of
operations assuming the Radisson Northbrook Hotel and the Luxeford Suites
Hotel had been leased to New Patriot Operating Company at the beginning of
the period presented.
(D) Represents adjustment to Racecourse facility rental expense as a result of
(i) a proposed lease agreement between New Patriot REIT and New Patriot
Operating Company subsequent to the Merger and the Related Transactions
and (ii) the Proposed PaineWebber Land Sale.
(E) Represents adjustment for estimated incremental general and administrative
expenses of approximately $75 and certain expenses not expected to be
incurred by New Patriot Operating Company of $324, including approximately
$257 of non-recurring legal fees and approximately $67 of Merger related
costs.
154
<PAGE>
(F) Represents an increase in depreciation of furniture and equipment of $69,
and amortization of goodwill of $18 which results from the adjustment for
purchase method of accounting whereby the furniture and equipment owned by
Bay Meadows is adjusted to estimated fair market value. Depreciation is
computed using the straight-line method and is based upon the estimated
useful lives of 5 to 7 years for F, F & E. Amortization of goodwill is
computed using the straight-line method over a 40 year estimated useful
life. Because the paired share structure is "grandfathered" under the
Code, Patriot believes the life of the paired share structure is
perpetual. Under generally accepted accounting principles, however, the
maximum amortization period is 40 years for intangible assets.
(G) Represents lease payments from New Patriot Operating Company to New
Patriot REIT calculated on a pro forma basis by applying the provisions of
the Participating Leases to the historical revenue of the hotels for the
period presented.
(H) Represents interest expense incurred on promissory notes issued to the
Patriot Partnership by PAH RSI Lessee in connection with the acquisition
of certain assets, which assets are assumed to be acquired by New Patriot
Operating Company.
(I) Represents an adjustment to the estimated federal and state tax liability
as a result of the pro forma operating income of the Carefree Resorts and
the pro forma adjustments to Bay Meadows for the three months ended March
31, 1997.
(J) Represents the adjustments to minority interest to reflect the estimated
minority interest percentage subsequent to the Merger of approximately
14.0%.
(K) In February 1997, the Financial Accounting Standards Board issued
Statement 128 which specifies the computation, presentation and disclosure
requirements for basic earnings per share and diluted earnings per share.
Management believes that adoption of Statement 128 will not have a
material effect on the earnings per share of New Patriot Operating
Company.
155
<PAGE>
COMBINED LESSEES
PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
Patriot leases each of its hotels, except the Crowne Plaza Ravinia Hotel and
the Marriott WindWatch Hotel, which are separately owned through the Non-
Controlled Subsidiaries, to Lessees. The Combined Lessees subsequent to the
Merger and the Related Transactions are expected to consist of CHC Lease
Partners (which leases 25 hotels), NorthCoast Lessee (which leases 9 hotels),
Doubletree Lessee (which leases 6 hotels), Wyndham Lessee (which leases 2
hotels), Metro Lease Partners (which leases 1 hotel) and Grand Heritage Lessee
(which leases 3 hotels). With respect to the hotels leased to PAH RSI Lessee,
New Patriot REIT expects to terminate its leases with PAH RSI Lessee and re-
lease such hotels to New Patriot Operating Company. PAH RSI Lessee leased six
hotels from Patriot as of March 31, 1997 which have been eliminated in the
following unaudited Pro Forma Condensed Combined Statements of Operations.
Patriot acquired the Sheraton Park Place Hotel in April 1997 and the Myrtle
Beach Hilton Oceanfront Golf Resort in May 1997 and then leased these hotels
to PAH RSI Lessee. The operations of the Sheraton Park Place Hotel and the
Myrtle Beach Hilton Oceanfront Golf Resort have not been included in the
following pro forma financial data. The Participating Leases provide for
staggered terms of ten to twelve years and the payment of the greater of base
or participating rent, plus certain additional charges, as applicable.
The Combined Lessees' unaudited Pro Forma Condensed Combined Statements of
Operations for the year ended December 31, 1996 and the three months ended
March 31, 1997 are presented as if 46 of the hotels that Patriot currently
leases to the Combined Lessees pursuant to Participating Leases had been
leased as of January 1, 1996. Six of the hotels leased to PAH RSI Lessee
(excluding the Sheraton Park Place Hotel, which was acquired by Patriot in
April 1997, and the Myrtle Beach Hilton Oceanfront Golf Resort, which was
acquired by Patriot in May 1997) are assumed to have been leased to New
Patriot Operating Company and, therefore, have been eliminated from the Pro
Forma Condensed Combined Statements of Operations for the Combined Lessees.
The pro forma information is based in part upon the Statements of Operations
of CHC Lease Partners, and the Statement of Operations of NorthCoast Lessee
filed with Patriot's Annual Report on Form 10-K for the year ended December
31, 1996 and the Statements of Operations of CHC Lease Partners, the Statement
of Operations of NorthCoast Lessee and the Statement of Operations of PAH RSI
Lessee filed with Patriot's Quarterly Report on Form 10-Q for the three months
ended March 31, 1997. In management's opinion, all adjustments necessary to
reflect the effects of these transactions have been made.
The unaudited Pro Forma Condensed Combined Statements of Operations are not
necessarily indicative of what the actual results of operations of the
Combined Lessees would have been assuming such transactions had been completed
as of the beginning of the periods presented, nor do they purport to represent
the results of operations for future periods. Further, the unaudited Pro Forma
Condensed Combined Statement of Operations for the interim period ended March
31, 1997 is not necessarily indicative of the results of operations for the
full year.
156
<PAGE>
COMBINED LESSEES
PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1996
(UNAUDITED)
<TABLE>
<CAPTION>
LESSEES COMBINED
PRE-MERGER MERGER LESSEES
PRO FORMA ADJUSTMENTS PRO FORMA
(A) (G) TOTAL
----------- ------------ ---------
(IN THOUSANDS)
<S> <C> <C> <C>
Revenue:
Room................................... $260,991 $(38,940) $222,051
Food and beverage...................... 105,234 (19,745) 85,489
Conference center...................... 2,354 -- 2,354
Club and spa revenue................... 24,710 (24,710) --
Club membership revenue................ 4,277 (4,277) --
Shopping center revenue................ 1,730 (1,730) --
Telephone and other.................... 32,667 (10,748) 21,919
--------- -------- --------
Total revenue....................... 431,963 (100,150) 331,813
--------- -------- --------
Expenses:
Departmental costs and expenses........ 177,861 (47,280) 130,581
General and administrative............. 38,371 (6,822) 31,549
Ground lease expense................... 2,064 -- 2,064
Repair and maintenance................. 24,460 (8,045) 16,415
Utilities.............................. 19,793 (4,082) 15,711
Marketing.............................. 35,646 (6,331) 29,315
Interest expense....................... 1,173 (B) (1,170) 3
Insurance.............................. 2,881 (656) 2,225
Participating lease payments........... 130,570 (C) (25,967) 104,603
--------- -------- --------
Total expenses...................... 432,819 (100,353) 332,466
--------- -------- --------
Income (loss) before lessee income (ex-
pense)................................. (856) 203 (653)
--------- -------- --------
Dividend and interest income............ 1,543 (D) -- 1,543
Management fees......................... (10,265)(E) 3,195 (7,070)
Lessee general and administrative....... (2,043)(F) 367 (1,676)
--------- -------- --------
(10,765) 3,562 (7,203)
--------- -------- --------
Net loss................................ $ (11,621) $ 3,765 $ (7,856)
========= ======== ========
</TABLE>
- --------
(A) The Lessees pre-Merger pro forma results of operations represent the
combined pro forma operating results of the Lessees. These Lessees' pro
forma results of operations include (i) the combined historical results of
operations of CHC Lease Partners and Metro Lease Partners for the year
ended December 31, 1996 and NorthCoast Lessee, Doubletree Lessee, Wyndham
Lessee and Grand Heritage Lessee for the period from their respective
inception of operations through December 31, 1996 and (ii) adjustments to
the Lessees' combined results of operations assuming the 52 hotels
currently leased by Patriot to the Lessees (including six of the hotel
properties leased to PAH RSI Lessee as of March 31, 1997 and excluding the
Sheraton Park Place Hotel acquired in April 1997 and the Myrtle Beach
Hilton Oceanfront Golf Resort acquired in May 1997) had been leased at the
beginning of the period presented.
(B) Represents pro forma interest expense on promissory notes issued in
connection with the acquisition of certain assets by PAH RSI Lessee,
assuming the notes were outstanding at the beginning of the period
presented.
(C) Represents lease payments calculated on a pro forma basis by applying the
provisions of the Participating Leases to the historical revenue of the
hotels.
(D) Includes dividend income on OP Units in the Patriot Partnership which form
a portion of the required capitalization of CHC Lease Partners and
NorthCoast Lessee, respectively. Pro forma amounts exclude additional
dividend income earned on OP Units held by certain Lessees, and pro forma
interest income earned on invested cash balances.
(E) Represents pro forma management fees paid to the Operators under the terms
of their respective management agreements with the Lessees.
(F) Represents pro forma overhead expenses, which include an estimate of the
Lessees' salaries and benefits, professional fees, insurance costs and
administrative expenses.
(G) Represents the elimination of the pro forma results of operations for the
four Carefree Resorts, the Radisson Northbrook Hotel and the Luxeford
Suites Hotel which are expected to be leased to New Patriot Operating
Company following the Merger.
157
<PAGE>
COMBINED LESSEES
PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 1997
(UNAUDITED)
<TABLE>
<CAPTION>
LESSEES COMBINED
PRE-MERGER MERGER LESSEES
PRO FORMA ADJUSTMENTS PRO FORMA
(A) (G) TOTAL
----------- ------------ ---------
(IN THOUSANDS)
<S> <C> <C> <C>
Revenue:
Room................................... $ 69,862 $(13,177) $56,685
Food and beverage...................... 27,891 (5,891) 22,000
Conference center...................... 748 -- 748
Club and spa revenue................... 8,706 (8,706) --
Club membership revenue................ 348 (348) --
Shopping center........................ 474 (474) --
Telephone and other.................... 9,658 (4,227) 5,431
-------- -------- -------
Total revenue....................... 117,687 (32,823) 84,864
-------- -------- -------
Expenses:
Departmental costs..................... 46,332 (13,828) 32,504
General and administrative............. 9,610 (1,927) 7,683
Ground lease........................... 320 -- 320
Repairs and maintenance................ 6,322 (2,247) 4,075
Utilities.............................. 4,622 (949) 3,673
Marketing.............................. 9,081 (1,405) 7,676
Interest............................... 293 (B) (293) --
Insurance.............................. 631 (130) 501
Participating lease payments........... 36,551 (C) (9,428) 27,123
-------- -------- -------
113,762 (30,207) 83,555
-------- -------- -------
Income (loss) before lessee income (ex-
pense)................................. 3,925 (2,616) 1,309
-------- -------- -------
Dividend and interest income............ 945 (D) -- 945
Management fees......................... (3,117)(E) 1,482 (1,635)
Lessee general and administrative....... (575)(F) 120 (455)
-------- -------- -------
(2,747) 1,602 (1,145)
-------- -------- -------
Net income (loss)....................... $ 1,178 $ (1,014) $ 164
======== ======== =======
</TABLE>
- --------
(A) The Lessees pre-Merger pro forma results of operations represent the
combined pro forma operating results of the Lessees. These Lessees' pro
forma results of operations include (i) the combined historical results of
operations of CHC Lease Partners, Metro Lease Partners, NorthCoast Lessee,
Doubletree Lessee, Wyndham Lessee and Grand Heritage Lessee for the three
months ended March 31, 1997 and, for PAH RSI Lessee, for the period from
inception of operations through March 31, 1997 and (ii) adjustments to the
Lessees' combined results of operations assuming the 52 hotels currently
leased by Patriot to the Lessees (including six of the hotel properties
currently leased to PAH RSI Lessee as of March 31, 1997 and excluding the
Sheraton Park Place Hotel acquired in April 1997 and the Myrtle Beach
Hilton Oceanfront Golf Resort acquired in May 1997) had been leased at the
beginning of the period presented.
(B) Represents pro forma interest expense on promissory notes issued in
connection with the acquisition of certain assets by PAH RSI Lessee,
assuming the notes were outstanding at the beginning of the period
presented.
(C) Represents lease payments calculated on a pro forma basis by applying the
provisions of the Participating Leases to the historical revenue of the
hotels.
(D) Includes dividend income on OP Units in the Patriot Partnership which form
a portion of the required capitalization of CHC Lease Partners and
NorthCoast Lessee, respectively. Pro forma amounts exclude additional
dividend income earned on OP Units held by certain Lessees, and pro forma
interest income earned on invested cash balances.
(E) Represents pro forma management fees paid to the Operators under the terms
of their respective management agreements with the Lessees.
(F) Represents pro forma overhead expenses, which include an estimate of the
Lessees' salaries and benefits, professional fees, insurance costs and
administrative expenses.
(G) Represents the elimination of the pro forma results of operations for the
four Carefree Resorts, the Radisson Northbrook Hotel and the Luxeford
Suites Hotel which are expected to be leased to New Patriot Operating
Company following the Merger.
158
<PAGE>
NEW PATRIOT REIT AND NEW PATRIOT OPERATING COMPANY
ADJUSTED FOR THE PROPOSED WYNDHAM TRANSACTIONS
INTRODUCTION TO
PRO FORMA FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)
On April 14, 1997, Patriot and Wyndham entered into the Wyndham Merger
Agreement pursuant to which Wyndham will merge with and into New Patriot REIT
with New Patriot REIT being the surviving company. As a result of the Wyndham
Merger, New Patriot REIT will acquire all of the assets and liabilities of
Wyndham, including Wyndham's portfolio of 23 owned and leased hotels with an
aggregate of 4,877 rooms, Wyndham's 64 managed and franchised properties,
management and franchise agreements that have been executed for 15 properties
that are currently closed for renovation or construction or are in the process
of being converted to the Wyndham brand, and the proprietary brand names
Wyndham, Wyndham Garden and Wyndham Hotels & Resorts. Pursuant to the Wyndham
Merger Agreement, upon consummation of the Wyndham Merger each outstanding
share of Wyndham Common Stock will be converted into the right to receive
0.712 paired shares, subject to certain adjustments based on the Average
Trading Price of the paired shares.
In lieu of receiving paired shares in the Wyndham Merger, Wyndham
stockholders have the right to elect to receive cash in an amount per share
equal to the Wyndham Exchange Ratio (as it may be adjusted) multiplied by the
average closing price of the paired shares over the five trading days
immediately preceding the closing of the Wyndham Merger, subject to an
aggregate limitation of $100,000 of cash. If stockholders holding shares of
Wyndham Common Stock with a value in excess of $100,000 elect to receive cash,
such cash will be allocated on a pro rata basis among such stockholders.
Following the Wyndham Merger, New Patriot REIT, through certain of its
subsidiaries, will own the ten Wyndham hotels and will lease such hotels to
New Patriot Operating Company. The 13 hotel leases assumed by New Patriot REIT
will be sub-leased to New Patriot Operating Company. The 79 management and
franchise contracts; the Wyndham, Wyndham Garden and Wyndham Hotels & Resorts
proprietary brand names; and the Wyndham hotel management company will be
transferred to corporate subsidiaries of New Patriot REIT (collectively, the
"New Wyndham Entities"). New Patriot REIT will own a 99% non-voting interest
and New Patriot Operating Company will own the 1% controlling voting interest
in each of the New Wyndham Entities. Therefore, the operating results of the
New Wyndham Entities will be consolidated with those of New Patriot Operating
Company for financial reporting purposes. New Patriot REIT will account for
its investment in the New Wyndham Entities using the equity method of
accounting.
New Patriot REIT will also assume Wyndham's existing indebtedness,
substantially all of which is expected to be refinanced with funds drawn on
the New Credit Facility.
The Pro Forma Financial Statements have been adjusted for the purchase
method of accounting whereby the hotels and related improvements and other
assets and liabilities owned by Wyndham are adjusted to estimated fair market
value. The fair market value of the assets and liabilities of Wyndham has been
determined based upon preliminary estimates and is subject to change as
additional information is obtained. Management of Patriot does not anticipate
that the preliminary allocation of purchase costs based upon the estimated
fair market value of the assets and liabilities of Wyndham will materially
change; however, the allocation of purchase costs are subject to final
determination based upon estimates and other evaluations of fair market value
as of the close of the transaction. Therefore, the allocation reflected in the
following unaudited Pro Forma Financial Statements may differ from the amounts
ultimately determined.
In connection with the execution of the Wyndham Merger Agreement, Patriot
also entered into agreements with partnerships affiliated with members of the
Trammell Crow family providing for the acquisition by New Patriot REIT of 11
full-service Wyndham-branded hotels with 3,072 rooms for approximately
$331,664 in cash, plus approximately $14,000 in additional consideration if
two hotels meet certain operational targets. Subsequent
159
<PAGE>
to the Crow Acquisition, New Patriot REIT will lease the 11 hotels to New
Patriot Operating Company. In addition, in connection with the Crow
Acquisition, the leases with the Wyndham Lessee related to the Wyndham Garden
Hotel-Midtown and the Wyndham Greenspoint Hotel will be terminated and New
Patriot REIT will lease these hotel properties to New Patriot Operating
Company. The Crow Acquisition and the Wyndham Merger are collectively referred
to herein as the Proposed Wyndham Transactions.
The Wyndham Merger and the Crow Acquisition are to be consummated
concurrently and are subject to various conditions, including the consummation
of the Merger and approval of the Proposed Wyndham Transactions by the
stockholders of New Patriot REIT, New Patriot Operating Company and Wyndham.
It is currently anticipated that the stockholders meetings to approve the
Proposed Wyndham Transactions will occur in the fourth quarter of 1997.
The following unaudited Pro Forma Condensed Combined Statements of
Operations as adjusted for the Proposed Wyndham Transactions for the year
ended December 31, 1996 and the three months ended March 31, 1997 assume the
Proposed Wyndham Transactions occurred on January 1, 1996. The Pro Forma
Condensed Combined Statements of Operations are derived from the New Patriot
REIT and New Patriot Operating Company Pro Forma Condensed Combined Statements
of Operations for the year ended December 31, 1996 and the three months ended
March 31, 1997 included elsewhere in this Joint Proxy Statement/Prospectus,
the Consolidated Statements of Income of Wyndham filed with Wyndham's Annual
Report on Form 10-K for the year ended December 31, 1996 and the Quarterly
Report on Form 10-Q for the three months ended March 31, 1997, and the
Combined Crow Family Hotel Partnerships financial statements for the year
ended December 31, 1996 and the three months ended March 31, 1997 included
elsewhere in this Joint Proxy Statement/Prospectus. During 1996, one of the
hotels (The La Guardia Airport Hotel) was closed for renovation. As a result,
the hotel reported no historical results of operations for 1996 and therefore
is not included in the following unaudited Pro Forma Condensed Combined
Statement of Operations for the year ended December 31, 1996 and the three
months ended March 31, 1997. In management's opinion, all material adjustments
necessary to reflect the effects of these transactions have been made.
The New Patriot REIT and New Patriot Operating Company pro forma information
is also presented as if (i) the Merger and the Related Transactions were
consummated on terms set forth in the Merger Agreement; (ii) the Proposed
PaineWebber Land Sale was consummated, the PaineWebber affiliate leased that
portion of the land upon which the Racecourse is situated to New Patriot REIT,
and New Patriot REIT subleased this land to New Patriot Operating Company;
(iii) New Patriot REIT leased certain land to Borders; and (iv) Patriot
acquired the Recent Acquisitions and the Carefree Resorts at the beginning of
the period presented. Such pro forma information is based in part upon the
Separate and Combined Statements of Income of CJC/BMOC filed with CJC/BMOC's
Annual Report on Form 10-K for the year ended December 31, 1996 and the
Quarterly Report on Form 10-Q for the three months ended March 31, 1997, as
amended; the Consolidated Statements of Operations filed with Patriot's Annual
Report on Form 10-K for the year ended December 31, 1996 and the Quarterly
Report on Form 10-Q for the three months ended March 31, 1997; the historical
financial statements of certain hotels acquired by Patriot filed in Patriot's
Current Reports on Form 8-K dated April 2, 1996, as amended, December 5, 1996
and January 16, 1997, as amended; and the Pro Forma Condensed Combined
Statements of Operations of the Lessees included elsewhere in this Joint Proxy
Statement/Prospectus.
The following unaudited Pro Forma Condensed Combined Statements of
Operations are not necessarily indicative of what the actual results of
operations of New Patriot REIT and New Patriot Operating Company as adjusted
for the Merger and the Related Transactions and the Proposed Wyndham
Transactions would have been assuming such transactions had been completed as
of the beginning of the periods presented, nor do they purport to represent
the results of operations for future periods. Further, the unaudited Pro Forma
Condensed Combined Statement of Operations for the interim period ended March
31, 1997 is not necessarily indicative of the results of operations for the
full year.
160
<PAGE>
NEW PATRIOT REIT AND NEW PATRIOT OPERATING COMPANY
ADJUSTED FOR THE PROPOSED WYNDHAM TRANSACTIONS
PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1996
(UNAUDITED)
<TABLE>
<CAPTION>
NEW PATRIOT
NEW PATRIOT OPERATING
REIT COMPANY
AND WYNDHAM AND WYNDHAM PRO FORMA
PRO FORMA PRO FORMA ELIMINATIONS TOTAL
----------- ----------- ------------ ----------
(IN THOUSANDS, EXCEPT FOR PER SHARE DATA)
<S> <C> <C> <C> <C>
Revenue:
Participating lease
revenue............... $187,791 $ -- $ (92,207)(A) $ 95,584
Hotel revenue.......... -- 324,862 (B) -- 324,862
Club and spa revenue... -- 24,710 -- 24,710
Racecourse facility
revenue and hotel
lease revenue......... 18,451 51,946 (18,117)(C) 52,280
Management fees........ -- 15,815 -- 15,815
Club membership
revenue............... -- 4,277 -- 4,277
Shopping center
revenue............... -- 1,730 -- 1,730
Service fees........... -- 3,962 -- 3,962
Reimbursement fees..... -- 14,506 -- 14,506
Interest and other
income................ 11,265 33,187 (1,204)(D) 43,248
-------- -------- --------- --------
Total revenue.......... 217,507 474,995 (111,528) 580,974
-------- -------- --------- --------
Expenses:
Departmental costs--
hotel operations...... -- 171,649 -- 171,649
Racing facility
operations............ -- 47,180 (6,348)(C) 40,832
Ground lease and hotel
lease expense......... 16,485 11,769 (11,769)(C) 16,485
Direct operating costs
of management
company............... -- 12,035 -- 12,035
Service department
expenses.............. -- 4,970 -- 4,970
Reimbursement
expenses.............. -- 15,448 -- 15,448
General and
administrative........ 6,292 31,554 (34)(D) 37,812
Repair and
maintenance........... -- 18,941 -- 18,941
Utilities.............. -- 14,306 -- 14,306
Interest expense....... 83,664 1,300 (1,170)(D) 83,794
Real estate and
personal property
taxes and casualty
insurance............. 21,831 398 -- 22,229
Marketing.............. -- 26,229 -- 26,229
Management fees........ -- 3,194 -- 3,194
Depreciation and
amortization.......... 64,498 16,879 -- 81,377
Participating lease
payments.............. -- 92,207 (92,207)(A) --
General liability
insurance............. -- 3,964 -- 3,964
Equity participation
compensation.......... -- 2,919 -- 2,919
Miscellaneous.......... -- 1,426 -- 1,426
-------- -------- --------- --------
Total expenses......... 192,770 476,368 (111,528) 557,610
-------- -------- --------- --------
Income (loss) before
equity in earnings of
unconsolidated
subsidiaries, income
tax provision and
minority interests..... 24,737 (1,373) -- 23,364
Equity in earnings of
unconsolidated
subsidiaries.......... 4,987 -- 2,573 (E) 7,560
-------- -------- --------- --------
Income (loss) before
income tax provision
and minority
interests.............. 29,724 (1,373) 2,573 30,924
Income tax provision... (175) (2,192) -- (2,367)
-------- -------- --------- --------
Income (loss) before
minority interests..... 29,549 (3,565) 2,573 28,557
Minority interests in
the Patriot
Partnerships.......... (2,842) 97 -- (2,745)
Minority interest in
consolidated
subsidiaries and other
partnerships.......... (553) 2,573 (2,573)(E) (553)
-------- -------- --------- --------
Net income (loss)
applicable to common
shareholders........... $ 26,154 $ (895) $ -- $ 25,259 (F)
======== ======== ========= ========
Net income (loss) per
common paired
share(G)............... $ 0.60 $ (0.02) $ 0.58 (F)
======== ======== ========
Weighted average number
of common paired shares
and common paired share
equivalents
outstanding............ 43,721 43,721 43,721 (F)
======== ======== ========
</TABLE>
- --------
(A) Represents elimination of participating lease revenue and expense related
to the 29 hotel properties leased by New Patriot REIT to New Patriot
Operating Company.
(B) Hotel revenue includes revenue from rooms of $225,202 and food and
beverage sales of $99,660.
(C) Represents elimination of rental income and expense related to the
Racecourse facility, land leased and the hotels sub-leased by New Patriot
REIT to New Patriot Operating Company.
(D) Represents the elimination of $1,170 of interest income and expense
related to a note receivable issued to Patriot in connection with the sale
of certain assets to PAH RSI Lessee, which assets are assumed to be
acquired by New Patriot Operating Company and the elimination of other
intercompany income and expense items.
(E) Represents the elimination of equity in losses of the New Wyndham
Entities.
161
<PAGE>
(F) The pro forma amounts presented assume all of the outstanding Wyndham
Common Stock is exchanged for paired shares of New Patriot REIT Common
Stock and New Patriot Operating Company Common Stock. Set forth below is a
summary comparison of the net impact to pro forma net income applicable to
common shareholders and net income per paired share (i) assuming no
Wyndham stockholders elect to receive cash ("All Stock"); (ii) assuming
approximately 3,295 shares of Wyndham Common Stock are purchased for cash
("Cash Option") (based on total funds available of $100,000, an estimated
market price per paired share of $42.61 (based upon the average closing
price for the five days prior to May 12, 1997 of Patriot's Common Stock of
$22.12) and a Wyndham Exchange Ratio equal to 0.712 paired shares of New
Patriot REIT Common Stock and New Patriot Operating Company Common Stock
for each share of Wyndham Common Stock); and (iii) assuming an interest
rate of 7.30% on the incremental borrowings per annum related to the term
loan (representing LIBOR plus 1.75%) on outstanding debt obligations of
approximately $482,089 for All Stock and $582,089 for Cash Option with
terms of 3 to 5 years.
<TABLE>
<CAPTION>
ALL CASH
STOCK OPTION
------- -------
<S> <C> <C>
Increase in interest expense as a result of additional
borrowings to fund the purchase of Wyndham Common
Stock.................................................. $ -- $ 7,300
======= =======
Income before minority interests in the Patriot
Partnerships and income tax provision (after minority
interest in consolidated subsidiaries and other
partnerships).......................................... $30,371 $23,071
Income tax provision.................................... (2,367) (2,367)
Minority interests in the Patriot Partnerships.......... (2,745) (2,132)
------- -------
Net income applicable to common shareholders............ $25,259 $18,572
======= =======
Net income per paired share............................. $ 0.58 $ 0.45
======= =======
Estimated minority interest percentage in the Patriot
Partnerships subsequent to the Proposed Wyndham
Transactions........................................... 9.8% 10.3%
======= =======
Weighted average number of common paired shares and
common paired share equivalents outstanding............ 43,721 41,375
======= =======
</TABLE>
The Wyndham Exchange Ratio is subject to adjustment in the event that the
Average Trading Price of the paired shares is less than $42.13 per paired
share. If the Average Trading Price is less than $42.13 per paired share,
the Wyndham Exchange Ratio will be adjusted so that each outstanding share
of Wyndham Common Stock will be converted into the right to receive a number
of paired shares equal to $30.00 divided by the Average Trading Price.
However, if the Average Trading Price is less than $40.21 per paired share,
there will be no further adjustments to the Wyndham Exchange Ratio; but in
such circumstances Wyndham has the right, waivable by it, to terminate the
Wyndham Merger Agreement without liability. As a result, the maximum Wyndham
Exchange Ratio would be 0.746 paired shares for each share of Wyndham Common
Stock (the "Maximum Wyndham Exchange Ratio"). On a pro forma basis, the
effect of the Maximum Wyndham Exchange Ratio assuming All Stock would result
in a decrease in total consideration to approximately $600,482 which would
decrease pro forma amortization of goodwill by $265. As a result, pro forma
net income would be $25,499 and net income per common paired share would be
$0.58. On a pro forma basis, the effect of the Maximum Wyndham Exchange
Ratio assuming Cash Option would result in net income of $18,810 and net
income per common paired share of $0.45.
Additionally, the following table presents the net impact to pro forma net
income applicable to common shareholders and net income per common paired
share assuming the interest rate increases by 0.25%.
<TABLE>
<CAPTION>
ALL CASH
STOCK OPTION
------- -------
<S> <C> <C>
Increase in interest expense as a result of additional
borrowings to fund the purchase of Wyndham Common
Stock.................................................. $ -- $ 7,550
======= =======
Income before income tax provision and minority
interests in the Patriot Partnerships (after minority
interest in consolidated subsidiaries and other
partnerships).......................................... $27,845 $20,295
Income tax provision.................................... (2,367) (2,367)
Minority interests in the Patriot Partnerships.......... (2,497) (1,847)
------- -------
Net income applicable to common shareholders............ $22,981 $16,081
======= =======
Net income per paired share............................. $ 0.53 $ 0.39
======= =======
Estimated minority interest percentage in the Patriot
Partnerships subsequent to the Proposed Wyndham
Transactions........................................... 9.8% 10.3%
======= =======
Weighted average number of common paired shares and
common paired share equivalents outstanding............ 43,721 41,375
======= =======
</TABLE>
Patriot has entered into a commitment letter with PaineWebber Real Estate
and Chase which will modify and extend the Line of Credit up to $700,000
and provide for a term loan of $500,000. The additional availability under
this New Credit Facility will be primarily used to finance future
acquisitions and the term loan will be used to finance the Proposed Wyndham
Transactions. Deferred loan costs of approximately $6,175 related to the
financing associated with the Proposed Wyndham Transactions has been
reflected in the pro forma financial information.
(G) In February 1997, the Financial Accounting Standards Board issued
Statement 128 which specifies the computation, presentation and disclosure
requirements for basic earnings per share and diluted earnings per share.
Management believes that adoption of Statement 128 will not have a
material effect on the earnings per share of New Patriot REIT and New
Patriot Operating Company.
162
<PAGE>
NEW PATRIOT REIT AND NEW PATRIOT OPERATING COMPANY
ADJUSTED FOR THE PROPOSED WYNDHAM TRANSACTIONS
PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 1997
(UNAUDITED)
<TABLE>
<CAPTION>
NEW PATRIOT
NEW PATRIOT OPERATING
REIT COMPANY
AND WYNDHAM AND WYNDHAM PRO FORMA
PRO FORMA PRO FORMA ELIMINATIONS TOTAL
----------- ----------- ------------ ----------
(IN THOUSANDS, EXCEPT FOR PER SHARE DATA)
<S> <C> <C> <C> <C>
Revenue:
Participating lease
revenue............... $52,665 $ -- $(28,107)(A) $ 24,558
Hotel revenue.......... -- 95,879 (B) -- 95,879
Club and spa revenue... -- 8,706 -- 8,706
Racecourse facility
revenue and hotel
lease revenue......... 7,189 20,269 (7,106)(C) 20,352
Management fees........ -- 4,809 -- 4,809
Club membership
revenue............... -- 348 -- 348
Shopping center
revenue............... -- 474 -- 474
Service fees........... -- 1,062 -- 1,062
Reimbursement fees..... -- 3,370 -- 3,370
Interest and other
income................ 2,669 10,866 (317)(D) 13,218
------- -------- -------- --------
Total revenue.......... 62,523 145,783 (35,530) 172,776
------- -------- -------- --------
Expenses:
Departmental costs--
hotel operations...... -- 44,381 -- 44,381
Racing facility
operations............ -- 16,949 (1,677)(C) 15,272
Ground lease and hotel
lease expense......... 6,505 5,429 (5,429)(C) 6,505
Direct operating costs
of management
company............... -- 4,243 -- 4,243
Service department
expenses.............. -- 1,152 -- 1,152
Reimbursement
expenses.............. -- 3,370 -- 3,370
General and
administrative........ 3,577 8,845 -- 12,422
Repair and
maintenance........... -- 5,499 -- 5,499
Utilities.............. -- 4,089 -- 4,089
Interest expense....... 21,361 319 (317)(D) 21,363
Real estate and
personal property
taxes and casualty
insurance............. 6,717 129 -- 6,846
Marketing.............. -- 7,779 -- 7,779
Management fees........ -- 1,482 -- 1,482
Depreciation and
amortization.......... 16,402 4,457 -- 20,859
Participating lease
payments.............. -- 28,107 (28,107)(A) --
General liability
insurance............. -- 994 -- 994
Miscellaneous.......... -- (6) -- (6)
------- -------- -------- --------
Total expenses......... 54,562 137,218 (35,530) 156,250
------- -------- -------- --------
Income before equity in
earnings of
unconsolidated
subsidiaries, income
tax provision and
minority interests..... 7,961 8,565 -- 16,526
Equity in earnings of
unconsolidated
subsidiaries.......... 1,950 -- (963)(E) 987
------- -------- -------- --------
Income before income tax
provision and minority
interests.............. 9,911 8,565 (963) 17,513
Income tax provision... (44) (4,031) -- (4,075)
------- -------- -------- --------
Income before minority
interests.............. 9,867 4,534 (963) 13,438
Minority interests in
the Patriot
Partnerships.......... (946) (350) -- (1,296)
Minority interest in
consolidated
subsidiaries and other
partnerships.......... (219) (963) 963(E) (219)
------- -------- -------- --------
Net income applicable to
common shareholders.... $ 8,702 $ 3,221 $ -- $ 11,923 (F)
======= ======== ======== ========
Net income per common
paired share(G)........ $ 0.20 $ 0.07 $ 0.27 (F)
======= ======== ========
Weighted average number
of common paired shares
and common paired share
equivalents
outstanding............ 44,214 44,214 44,214 (F)
======= ======== ========
</TABLE>
- --------
(A) Represents elimination of participating lease revenue and expense related
to the 29 hotel properties leased by New Patriot REIT to New Patriot
Operating Company.
(B) Hotel revenue includes revenue from rooms of $66,280 and food and beverage
sales of $29,599.
(C) Represents elimination of rental income and expense related to the
Racecourse facility, land leased and the hotels sub-leased by New Patriot
REIT to New Patriot Operating Company.
(D) Represents primarily the elimination of $293 of interest income and
expense related to a note receivable issued to Patriot in connection with
the sale of certain assets to PAH RSI Lessee, which assets are assumed to
be acquired by New Patriot Operating Company and the elimination of other
intercompany income and expense items.
163
<PAGE>
(E) Represents the elimination of equity in income of the New Wyndham
Entities.
(F) The pro forma amounts presented assume all of the outstanding Wyndham
Common Stock is exchanged for paired shares of New Patriot REIT Common
Stock and New Patriot Operating Company Common Stock. Set forth below is a
summary comparison of the net impact to pro forma net income applicable to
common shareholders and net income per paired share (i) assuming Wyndham
stockholders elect to receive cash All Stock; (ii) assuming approximately
3,295 shares of Wyndham Common Stock are purchased pursuant to the Cash
Option (based on total funds available of $100,000, an estimated market
price per paired share of $42.61 (based upon the average closing for the
five days prior to May 12, 1997 of Patriot's Common Stock of $22.12) and a
Wyndham Exchange Ratio equal to 0.712 paired shares of New Patriot REIT
Common Stock and New Patriot Operating Company Common Stock for each share
of Wyndham Common Stock); and (iii) assuming an average interest rate of
7.251% per annum related to the term loan (representing LIBOR plus 1.75%)
on outstanding debt obligations of approximately $482,089 for All Stock
and $582,089 for Cash Option with terms of 3 to 5 years.
<TABLE>
<CAPTION>
ALL CASH
STOCK OPTION
------- -------
<S> <C> <C>
Increase in interest expense as a result of additional
borrowings to fund the purchase of Wyndham Common
Stock.................................................. $ -- $ 1,813
======= =======
Income before minority interests in the Patriot
Partnerships and income tax provision (after minority
interest in consolidated subsidiaries and other
partnerships).......................................... $17,294 $15,481
Income tax provision.................................... (4,075) (4,075)
Minority interests in the Patriot Partnerships.......... (1,296) (1,175)
------- -------
Net income applicable to common shareholders............ $11,923 $10,231
======= =======
Net income per paired share............................. $ 0.27 $ 0.24
======= =======
Estimated minority interest percentage in the Patriot
Partnerships subsequent to the Proposed Wyndham
Transactions........................................... 9.8% 10.3%
======= =======
Weighted average number of common paired shares and
common paired share equivalents outstanding............ 44,214 41,868
======= =======
</TABLE>
The Wyndham Exchange Ratio is subject to adjustment in the event that the
Average Trading Price of the paired shares is less than $42.13 per paired
share. If the Average Trading Price is less than $42.13 per paired share,
the Wyndham Exchange Ratio will be adjusted so that each outstanding share
of Wyndham Common Stock will be converted into the right to receive a number
of paired shares equal to $30.00 divided by the Average Trading Price.
However, if the Average Trading Price is less than $40.21 per paired share,
there will be no further adjustments to the Wyndham Exchange Ratio; but in
such circumstances Wyndham has the right, waivable by it, to terminate the
Wyndham Merger Agreement without liability. As a result, the Maximum Wyndham
Exchange Ratio would be 0.746 paired shares for each share of Wyndham Common
Stock. On a pro forma basis, the effect of the Maximum Wyndham Exchange
Ratio assuming All Stock would result in a decrease in total consideration
to approximately $600,482 which would decrease pro forma amortization of
goodwill by $66. As a result pro forma net income would be $11,984 and net
income per common paired share would be $0.27. On a pro forma basis, the
effect of the Maximum Wyndham Exchange Ratio assuming Cash Option would
result in net income of $10,291 and net income per common paired share of
$0.25.
Additionally, the following table presents the net impact to pro forma net
income applicable to common stockholders and net income per common paired
share assuming the interest rate increases by 0.25%.
<TABLE>
<CAPTION>
ALL CASH
STOCK OPTION
------- -------
<S> <C> <C>
Increase in interest expense as a result of additional
borrowings to fund the purchase of Wyndham Common
Stock.................................................. $ -- $ 1,875
======= =======
Income before income tax provision and minority
interests in the Patriot Partnerships (after minority
interest in consolidated subsidiaries and other
partnerships).......................................... $16,631 $14,756
Income tax provision.................................... (4,075) (4,075)
Minority interests in the Patriot Partnerships.......... (1,231) (1,100)
------- -------
Net income applicable to common shareholders............ $11,325 $ 9,581
======= =======
Net income per paired share............................. $ 0.26 $ 0.23
======= =======
Estimated minority interest percentage in the Patriot
Partnerships subsequent to the Proposed Wyndham
Transactions........................................... 9.8% 10.3%
======= =======
Weighted average number of common paired shares and
common paired share equivalents outstanding............ 44,214 41,868
======= =======
</TABLE>
Patriot has entered into a commitment letter with PaineWebber Real Estate
and Chase which will modify and extend the Line of Credit up to $700,000
and provide for a term loan of $500,000. The additional availability under
this New Credit Facility will be primarily used to finance future
acquisitions and the term loan will be used to finance the Proposed Wyndham
Transactions. Deferred loan costs of approximately $6,175 related to the
financing associated with the Proposed Wyndham Transactions has been
reflected in the pro forma financial information.
(G) In February 1997, the Financial Accounting Standards Board issued
Statement 128 which specifies the computation, presentation and disclosure
requirements for basic earnings per share and diluted earnings per share.
Management believes that adoption of Statement 128 will not have a
material effect on the earnings per share of New Patriot REIT and New
Patriot Operating Company.
164
<PAGE>
NEW PATRIOT REIT AND NEW PATRIOT OPERATING COMPANY
ADJUSTED FOR THE PROPOSED WYNDHAM TRANSACTIONS
PRO FORMA CONDENSED COMBINED BALANCE SHEET
The following unaudited Pro Forma Condensed Combined Balance Sheet is
presented as if the Proposed Wyndham Transactions had occurred as of March 31,
1997. The Pro Forma Condensed Combined Balance Sheet is also derived from the
New Patriot REIT and New Patriot Operating Company Pro Forma Condensed
Combined Balance Sheet as of March 31, 1997 included elsewhere in this Joint
Proxy Statement/Prospectus which is presented as if (i) the Merger and Related
Transactions were consummated on terms set forth in the Merger Agreement; (ii)
the Proposed PaineWebber Land Sale was consummated, the PaineWebber affiliate
leased that portion of the land upon which the Racecourse is situated to New
Patriot REIT and New Patriot REIT subleased this land to New Patriot Operating
Company; and (iii) New Patriot REIT leased certain land to Borders. Such pro
forma information is based in part upon Wyndham's Consolidated Balance Sheet
as of March 31, 1997, Patriot's Consolidated Balance Sheet as of March 31,
1997, and CJC/BMOC's Combined Balance Sheet as of March 31, 1997 and should be
read in conjunction with the financial statements filed with Wyndham's,
Patriot's and CJC/BMOC's respective Quarterly Reports on Form 10-Q for the
three months ended March 31, 1997. In management's opinion, all material
adjustments necessary to reflect the effect of these transactions have been
made.
The accompanying Pro Forma Condensed Combined Balance Sheet reflects
adjustments to record the net assets of the Proposed Wyndham Transactions at
their estimated fair market values and the elimination of Wyndham's historical
shareholders' equity. The fair market values of the assets and liabilities of
Wyndham have been determined based upon preliminary estimates and are subject
to change as additional information is obtained. Management of Patriot does
not anticipate that the preliminary allocation of purchase costs based upon
the estimated fair market values of the assets and liabilities of Wyndham will
materially change; however, the allocations of purchase costs are subject to
final determination based upon estimates and other evaluations of fair market
value as of the close of the transaction. Therefore, the allocations reflected
in the following unaudited Pro Forma Condensed Combined Balance Sheet may
differ from the amounts ultimately determined. The following unaudited Pro
Forma Condensed Combined Balance Sheet is not necessarily indicative of what
the actual financial position would have been assuming such transactions had
been completed as of March 31, 1997, nor does it purport to represent the
future financial position of New Patriot REIT and New Patriot Operating
Company as adjusted for the Merger and the Related Transactions and the
Proposed Wyndham Transactions.
165
<PAGE>
NEW PATRIOT REIT AND NEW PATRIOT OPERATING COMPANY
ADJUSTED FOR THE PROPOSED WYNDHAM TRANSACTIONS
PRO FORMA CONDENSED COMBINED BALANCE SHEET
AS OF MARCH 31, 1997
(UNAUDITED)
<TABLE>
<CAPTION>
NEW PATRIOT
REIT AND
NEW PATRIOT
OPERATING
COMPANY CROW
PRO FORMA ACQUISITION WYNDHAM PRO FORMA
TOTAL(A) PRO FORMA(B) HISTORICAL(C) ADJUSTMENTS TOTAL
----------- ------------ ------------- ----------- ----------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
ASSETS
Net investment in hotel
and resort properties
and land held for
sale................... $ 947,722 $343,388 $140,923 $174,962 (D) $1,606,995
Net investment in
Racecourse facility and
related improvements... 24,265 -- -- -- 24,265
Mortgage notes and other
receivables from
unconsolidated
subsidiaries........... 73,622 -- -- -- 73,622
Notes and other
receivables from
affiliates............. -- -- 27,350 -- 27,350
Notes receivable........ 103,952 -- 6,340 -- 110,292
Investment in
unconsolidated
subsidiaries........... 12,140 -- 1,091 -- 13,231
Cash and cash
equivalents............ 13,979 -- 7,087 -- 21,066
Restricted cash......... 78,050 -- 450 -- 78,500
Securities available for
sale................... 5,609 -- -- -- 5,609
Accounts receivable,
net.................... 16,917 -- 18,743 -- 35,660
Goodwill................ 97,216 -- -- 280,695 (E) 377,911
Deferred expenses, net.. 14,447 -- 7,629 (1,454)(F) 20,622
Management contract
costs.................. -- -- 11,290 52,292 (G) 63,582
Trade name and franchise
costs.................. -- -- -- 85,550 (H) 85,550
Prepaid expenses and
other assets........... 19,079 -- 31,062 -- 50,141
Deferred income taxes... 227 -- 15,629 (15,551)(I) 305
---------- -------- -------- -------- ----------
Total assets........... $1,407,225 $343,388 $267,594 $576,494 $2,594,701
========== ======== ======== ======== ==========
LIABILITIES AND SHARE-
HOLDERS' EQUITY
Borrowings under a line
of credit and mortgage
notes.................. $ 579,862 $343,388 $138,331 $ 30,026 (J) $1,091,607
Dividends and
distributions payable.. 13,938 -- -- -- 13,938
Accounts payable and
accrued expenses....... 34,968 -- 32,912 -- 67,880
Deferred income tax
liability.............. 520 -- -- 50,609 (I) 51,129
Deposits................ -- -- 1,307 -- 1,307
Deferred gain........... -- -- 11,880 (11,880)(I) --
Due to unconsolidated
subsidiaries........... 6,098 -- -- -- 6,098
Minority interests in
the Patriot
Partnerships........... 127,262 -- -- -- 127,262
Minority interest in
other partnerships..... 13,774 -- -- -- 13,774
Shareholders' equity:
Common stock........... 573 -- 200 85 (K) 858
Paid-in capital........ 646,792 -- 84,342 540,203 (L) 1,271,337
Unearned stock compen-
sation, net........... (16,261) -- -- (16,261)
Unrealized gain from
exchange loss......... -- -- (33) -- (33)
Notes receivable from
stockholders.......... -- -- (16,639)(M) -- (16,639)
Receivable from affili-
ates.................. -- -- (1,255)(N) -- (1,255)
Retained earnings...... (301) -- 16,549 (32,549)(L) (16,301)
---------- -------- -------- -------- ----------
Total shareholders' eq-
uity.................. 630,803 -- 83,164 507,739 1,221,706
---------- -------- -------- -------- ----------
Total liabilities and
shareholders' equity.. $1,407,225 $343,388 $267,594 $576,494 $2,594,701
========== ======== ======== ======== ==========
</TABLE>
See notes on following page.
166
<PAGE>
- --------
(A) Represents the Pro forma Condensed Combined Balance Sheet of New Patriot
REIT and New Patriot Operating Company as of March 31, 1997 which reflects
the Merger and the Related Transactions.
(B) Represents adjustments to New Patriot REIT's and New Patriot Operating
Company's pro forma financial position assuming the acquisition of the 11
hotel properties from partnerships affiliated with members of the Trammell
Crow family had occurred at March 31, 1997.
(C) Represents historical balance sheet of Wyndham as of March 31, 1997.
(D) Represents adjustment for the purchase method of accounting whereby the
investments in hotel properties owned by Wyndham are adjusted to record
the assets at their estimated fair market values.
(E) Represents the purchase consideration in excess of fair market value of
the net assets of Wyndham.
(F) Represents the additional loan fees to be incurred in conjunction with the
financing for the Proposed Wyndham Transactions, net of Wyndham's
historical deferred loan fees.
(G) Represents adjustment for the purchase method of accounting whereby the
management contracts held by Wyndham are adjusted to their estimated fair
market values. Wyndham holds management contracts with certain of its
affiliates and with unrelated third parties for 79 hotels. The contracts
have an average remaining life of 14.6 years and provide for payment of
management fees ranging from 1% to 5% of gross revenues plus certain
incentive fees based on specified criteria as defined in the respective
management agreements.
(H) Represents the estimated fair market value of the Wyndham tradenames and
other franchise related assets.
(I) Pursuant to the Wyndham Merger, deferred income taxes, the deferred income
tax liability and the deferred gain which resulted from the sale and
lease-back of the hotel properties leased by GHALP, Inc., an affiliate of
Wyndham, have been adjusted to reflect the effects of the Wyndham Merger.
(J) Represents financing of $6,175 of additional loan fees related to the
financing of the Proposed Wyndham Transactions, estimated mortgage
prepayment penalties of $16,000, and $7,851 of acquisition-related costs
incurred in connection with the Proposed Wyndham Transactions.
(K) Represents the exchange of Wyndham Common Stock, for paired shares of New
Patriot REIT Common Stock and New Patriot Operating Company Common Stock.
Pursuant to the Wyndham Merger, Wyndham stockholders are entitled to
receive, for each share of Wyndham Common Stock held by them, the Wyndham
Exchange Ratio equal to 0.712 paired shares of New Patriot REIT Common
Stock and New Patriot Operating Company Common Stock. At March 31, 1997,
20,018 shares of Wyndham Common Stock were outstanding which were assumed
to be exchanged for approximately 14,253 paired shares of New Patriot REIT
Common Stock and New Patriot Operating Company Common Stock, resulting in
an adjustment to increase Wyndham Common Stock.
(L) Pursuant to the Wyndham Merger Agreement, Wyndham stockholders may elect
to receive for each share of Wyndham Common Stock held by them either (i)
cash for shares or (ii) 0.712 shares of New Patriot REIT Common Stock and
0.712 shares of New Patriot Operating Company Common Stock. The estimated
market price per paired share is $42.88 (based upon the closing price on
April 11, 1997, the business day prior to the date of the execution of the
Wyndham Merger Agreement, of Patriot's Common Stock of $22.25). Based on
20,018 shares of Wyndham Common Stock outstanding, the total purchase
consideration is approximately $611,099. The adjustments to shareholders'
equity eliminate Wyndham's historical equity accounts totaling $101,091
and record equity based on the number of paired shares of New Patriot REIT
Common Stock and New Patriot Operating Company Common Stock issued in the
exchange.
The pro forma balances assume all of the outstanding Wyndham Common Stock is
exchanged for paired shares of New Patriot REIT Common Stock and New Patriot
Operating Company Common Stock. Set forth below is a summary comparison of
the net impact to pro forma borrowings and shareholders' equity (i) assuming
Wyndham stockholders elect to receive All Stock; (ii) assuming approximately
3,295 shares of Wyndham Common Stock are purchased pursuant to the Cash
Option (based on total funds available of $100,000, an estimated market
price per paired share of $42.61, based upon the average closing price for
the five days prior to May 12, 1997, of Patriot's Common Stock of $22.12,
and the Wyndham Exchange Ratio equal to 0.712 paired shares of New Patriot
REIT Common Stock and New Patriot Operating Company Common Stock for each
share of Wyndham Common Stock); and (iii) assuming an interest rate of
7.251% related to the term loan (representing LIBOR plus 1.75%) on
outstanding debt obligations of approximately $482,089 for All Stock and
approximately $582,089 for the Cash Option with terms of 3 to 5 years.
<TABLE>
<CAPTION>
ALL STOCK CASH OPTION
--------- -----------
<S> <C> <C>
Number of shares of Wyndham Common Stock purchased
for cash........................................... -- 3,295
======== ========
Cash paid for shares of Wyndham Common Stock
(assumed to be financed through the New Credit
Facility or other similar financing sources)....... $ -- $100,000
Number of paired shares issued pursuant to the
Wyndham Merger..................................... 14,253 11,906
======== ========
Purchase consideration for shares................... $611,099 $511,099
Adjustment to common stock for paired shares
issued............................................. (285) (238)
Outstanding options to purchase common stock assumed
in the Wyndham Merger.............................. 13,731 13,731
Book value of Wyndham paid-in capital............... (84,342) (84,342)
-------- --------
Adjustment to paid-in capital....................... 540,203 440,250
-------- --------
Mortgage prepayment penalties incurred from
refinancing of Wyndham debt........................ (16,000) (16,000)
Elimination of historical retained earnings......... (16,549) (16,549)
-------- --------
Adjustment to retained earnings..................... (32,549) (32,549)
Adjustment to common stock.......................... 85 38
-------- --------
Adjustment to shareholders' equity................. $507,739 $407,739
======== ========
</TABLE>
The Wyndham Exchange Ratio is subject to adjustment in the event that the
Average Trading Price of the paired shares is less than $42.13 per paired
share. If the Average Trading Price is less than $42.13 per paired share,
the Wyndham Exchange Ratio will be adjusted so that each outstanding share
of Wyndham Common Stock will be converted into the right to receive a number
of paired shares equal to $30.00 divided by the Average Trading Price.
However, if the Average Trading Price is less than $40.21 per paired share,
there will be no further adjustments to the Wyndham Exchange Ratio; but in
such circumstances Wyndham has the right, waivable by it, to terminate the
Wyndham Merger Agreement without liability. As a result, the Maximum Wyndham
Exchange Ratio would be 0.746 paired shares for each share of Wyndham Common
Stock. On a pro forma basis, the effect of the Maximum Wyndham Exchange
Ratio would decrease total consideration to approximately $600,482.
167
<PAGE>
In connection with the Wyndham Merger, options to purchase approximately
1,064 shares of Wyndham Common Stock which were issued by Wyndham to
certain officers and employees of Wyndham will be converted to options to
purchase 757 paired shares of New Patriot REIT Common Stock and New Patriot
Operating Company Common Stock. Such options to purchase paired shares will
vest immediately upon consummation of the Wyndham Merger. The stated
exercise prices will be adjusted to reflect the Wyndham Exchange Ratio. The
excess of the estimated value of a paired share of New Patriot REIT Common
Stock and New Patriot Operating Company Common Stock on the date the
Wyndham Merger is consummated (based upon the closing price on April 11,
1997, the business day prior to the date of the execution of the Wyndham
Merger Agreement, of Patriot's Common Stock of $22.25 and the Wyndham
Exchange Ratio) over the stated exercise price of the options (as adjusted
for the Wyndham Exchange Ratio) is reflected as additional purchase
consideration for the Wyndham Merger.
(M) Represents shareholder notes purchased by Wyndham in conjunction with its
initial offering. In connection with the Wyndham Merger, New Patriot REIT
will acquire these notes at their historical cost which approximates their
estimated fair value.
(N) Represents deferred management fees owed by an affiliate of Wyndham that
are deferred until certain operating criteria, as defined per the
management and loan agreement, are met. Such deferred management fees will
be acquired by New Patriot REIT at their stated historical cost, which
approximates their estimated fair value, as a result of the Wyndham
Merger.
168
<PAGE>
NEW PATRIOT REIT
ADJUSTED FOR THE PROPOSED WYNDHAM TRANSACTIONS
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1996
(UNAUDITED)
<TABLE>
<CAPTION>
NEW
PATRIOT
REIT CROW WYNDHAM
PRO FORMA ACQUISITION MERGER PRO FORMA
TOTAL(A) PRO FORMA(B) PRO FORMA(C) ADJUSTMENTS TOTAL
--------- ------------ ------------ ----------- ---------
(IN THOUSANDS, EXCEPT FOR PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
Revenue:
Participating lease
revenue............... $130,570 $38,046 $ 19,175 $ -- $187,791
Rental of Racecourse
facility, land and
hotels................ 6,682 -- 9,404 2,365 (D) 18,451
Interest and other
income................ 10,765 -- 500 -- 11,265
-------- ------- -------- ------ --------
Total revenue.......... 148,017 38,046 29,079 2,365 217,507
-------- ------- -------- ------ --------
Expenses:
Ground and hotel lease
expense............... 5,354 1,325 9,806 -- 16,485
General and
administrative........ 5,992 100 (E) 200 (E) -- 6,292
Interest expense....... 45,201 25,068 (F) 11,810 (F) 1,585 (F) 83,664
Real estate and
personal property
taxes and casualty
insurance............. 13,372 4,233 4,226 -- 21,831
Depreciation and
amortization.......... 38,335 13,077 (G) 13,086 (G) -- 64,498
-------- ------- -------- ------ --------
Total expenses......... 108,254 43,803 39,128 1,585 192,770
-------- ------- -------- ------ --------
Income (loss) before
equity in earnings of
unconsolidated
subsidiaries, income
tax provision and
minority interests..... 39,763 (5,757) (10,049) 780 24,737
Equity in earnings
(losses) of
unconsolidated
subsidiaries.......... 7,560 -- -- (2,573)(H) 4,987
-------- ------- -------- ------ --------
Income (loss) before
income tax provision
and minority
interests.............. 47,323 (5,757) (10,049) (1,793) 29,724
Income tax provision... -- -- -- (175)(I) (175)
-------- ------- -------- ------ --------
Income (loss) before mi-
nority interests....... 47,323 (5,757) (10,049) (1,968) 29,549
Minority interest in
the Patriot Partner-
ship.................. (6,548) 564 (J) 985 (J) 2,157 (J) (2,842)
Minority interest in
other partnerships.... (553) -- -- -- (553)
-------- ------- -------- ------ --------
Net income (loss)
applicable to common
shareholders........... $ 40,222 $(5,193) $ (9,064) $ 189 $ 26,154 (K)
======== ======= ======== ====== ========
Net income per common
share(L)............... $ 1.40 $ 0.60 (K)
======== ========
Weighted average number
of common shares and
common share
equivalents
outstanding............ 28,793 43,721 (K)
======== ========
</TABLE>
- -------
(A) Represents the pro forma results of operations of New Patriot REIT for the
year ended December 31, 1996 which reflects the impact of the Merger and
the Related Transactions. See page 150.
(B) Represents adjustments to New Patriot REIT's results of operations
assuming the Crow Acquisition had occurred at the beginning of the period
presented. One of the hotels was closed during 1996 due to renovation. As
a result, the pro forma results of operations for the Crow Acquisition
reflects the results of operations for ten hotels for the year ended
December 31, 1996.
(C) Represents adjustments to New Patriot REIT's results of operations
assuming the Wyndham Merger had been consummated at the beginning of the
period presented.
(D) Represents the increase in hotel lease revenue for those hotels which are
leased by New Patriot REIT from third parties and then sub-leased to New
Patriot Operating Company.
(E) Represents adjustment for estimated incremental administrative salaries
and other expenses expected to be incurred by New Patriot REIT.
(F) For the Crow Acquisition, the adjustment represents interest expense
incurred on net borrowings under the New Credit Facility which will be
used to purchase the hotel properties. For the Wyndham Merger, the
adjustment represents interest expense on current debt obligations and
interest expense related to certain capital lease obligations which are
expected to be assumed in connection with the Wyndham Merger. New Patriot
REIT expects to refinance Wyndham's long-term debt with borrowings under
the New Credit Facility. New Patriot REIT will pay an estimated $16,000 in
mortgage prepayment penalties. This amount will be reported as an
extraordinary item in New Patriot REIT's results of operations following
the completion of the Proposed Wyndham Transactions and has been reflected
as an adjustment to retained earnings for pro forma presentation purposes.
Certain of the debt to be repaid contains restrictions regarding the
payment of dividends with which New Patriot REIT would be unable to
comply. In addition, the New Credit Facility generally has a more
favorable interest rate than the debt expected to be repaid. The
adjustment of $1,585 represents amortization of $1,235 related to
additional loan fees to be incurred in connection with new borrowings for
the Proposed Wyndham Transactions and incremental interest expense of
$350. The deferred loan costs are being amortized using the straight-line
method over the terms of the loans. Interest expense incurred on the New
Credit Facility borrowings
169
<PAGE>
assumes an average interest rate of 7.30% per annum related to the term loan
(representing LIBOR plus 1.75%). An increase of 0.25% in the interest rate
would increase pro forma interest expense to $86,191, decrease net income
applicable to common shareholders to $23,876 and decrease net income per
common share to $0.55.
(G) Depreciation is computed using the straight-line method and is based upon
the estimated useful lives of 35 years for hotel buildings and
improvements and 5 to 7 years for F, F & E . These estimated useful lives
are based on management's knowledge of the properties and the hotel
industry in general.
(H) Represents equity in losses of the New Wyndham Entities which own the
Wyndham tradenames and franchise related assets, the management and
franchising contracts and the hotel management company, which will be
controlled by New Patriot Operating Company.
(I) Represents provision for New Patriot REIT's estimated state tax liability.
(J) Represents the adjustments to minority interest to reflect the estimated
minority interest percentage subsequent to the Proposed Wyndham
Transactions of approximately 9.8%. The estimated minority interest
percentage subsequent to the Merger (and prior to the Proposed Wyndham
Transactions) is approximately 14.0%.
(K) The pro forma amounts presented assume all of the outstanding Wyndham
Common Stock is exchanged for paired shares of New Patriot REIT Common
Stock and New Patriot Operating Company Common Stock. If the maximum
number of shares of Wyndham Common Stock are purchased for cash (based on
total funds available of $100,000, an estimated market price per paired
share of $42.61, based upon the average closing price for the five days
prior to May 12, 1997, of Patriot's Common Stock of $22.12, and a Wyndham
Exchange Ratio equal to 0.712 paired shares of New Patriot REIT Common
Stock and New Patriot Operating Company Common Stock for each share of
Wyndham Common Stock), pro forma interest expense would increase by
$7,300, net income would be $19,461, and net income per common share would
be $0.47, based on 41,375 weighted average number of common shares and
common share equivalents outstanding.
(L) In February 1997, the Financial Accounting Standards Board issued
Statement 128 which specifies the computation, presentation and disclosure
requirements for basic earnings per share and diluted earnings per share.
Management believes that adoption of Statement 128 will not have a
material effect on the earnings per share of New Patriot REIT.
170
<PAGE>
NEW PATRIOT REIT
ADJUSTED FOR THE PROPOSED WYNDHAM TRANSACTIONS
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 1997
(UNAUDITED)
<TABLE>
<CAPTION>
NEW
PATRIOT
REIT CROW WYNDHAM
PRO FORMA ACQUISITION MERGER PRO FORMA
TOTAL(A) PRO FORMA(B) PRO FORMA(C) ADJUSTMENTS TOTAL
--------- ------------ ------------ ----------- ---------
(IN THOUSANDS, EXCEPT FOR PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
Revenue:
Participating lease
revenue............... $36,551 $10,851 $ 5,263 $ -- $52,665
Rental of Racecourse
facility, land and
hotels................ 1,760 -- 4,838 591 (D) 7,189
Interest and other
income................ 2,669 -- -- -- 2,669
------- ------- -------- ------ -------
Total revenue.......... 40,980 10,851 10,101 591 62,523
------- ------- -------- ------ -------
Expenses:
Ground and hotel lease
expense............... 1,336 331 4,838 -- 6,505
General and
administrative........ 3,502 25 (E) 50 (E) -- 3,577
Interest expense....... 11,709 6,225 (F) 3,550 (F) (123)(F) 21,361
Real estate and
personal property
taxes and casualty
insurance............. 3,404 1,156 2,157 -- 6,717
Depreciation and
amortization.......... 9,862 3,269 (G) 3,271 (G) -- 16,402
------- ------- -------- ------ -------
Total expenses......... 29,813 11,006 13,866 (123) 54,562
------- ------- -------- ------ -------
Income (loss) before
equity in earnings of
unconsolidated
subsidiaries, income
tax provision and
minority interests..... 11,167 (155) (3,765) 714 7,961
Equity in earnings
(losses) of
unconsolidated
subsidiaries.......... 1,021 -- (34) 963 (H) 1,950
------- ------- -------- ------ -------
Income (loss) before
income tax provision
and minority
interests.............. 12,188 (155) (3,799) 1,677 9,911
Income tax provision... -- -- -- (44)(I) (44)
------- ------- -------- ------ -------
Income (loss) before mi-
nority interests....... 12,188 (155) (3,799) 1,633 9,867
Minority interest in
the Patriot Partner-
ship.................. (1,676) 15 (J) 372 (J) 343 (J) (946)
Minority interest in
other partnerships.... (219) -- -- -- (219)
------- ------- -------- ------ -------
Net income (loss)
applicable to common
shareholders........... $10,293 $ (140) $ (3,427) $1,976 $ 8,702 (K)
======= ======= ======== ====== =======
Net income (loss) per
common share(L)........ $ 0.35 $ 0.20 (K)
======= =======
Weighted average number
of common shares and
common share
equivalents
outstanding............ 29,074 44,214 (K)
======= =======
</TABLE>
- --------
(A) Represents the pro forma results of operations of New Patriot REIT for the
three months ended March 31, 1997 which reflects the impact of the Merger
and the Related Transactions. See page 151.
(B) Represents adjustments to New Patriot REIT's results of operations
assuming the Crow Acquisition had occurred at the beginning of the period
presented. One of the hotels was closed during 1996 due to renovation. As
a result, the pro forma results of operations for the Crow Acquisition
reflects the results of operations for ten hotels for the three months
ended March 31, 1997.
(C) Represents adjustments to New Patriot REIT's results of operations
assuming the Wyndham Merger had been consummated at the beginning of the
period presented.
(D) Represents the increase in hotel lease revenue for those hotels which are
leased by New Patriot REIT from third parties and then sub-leased to New
Patriot Operating Company.
(E) Represents adjustment for estimated incremental administrative salaries
and other expenses expected to be incurred by New Patriot REIT.
(F) For the Crow Acquisition, the adjustment represents interest expense
incurred on net borrowings under the New Credit Facility which will be
used to purchase the hotel properties. For the Wyndham Merger, the
adjustment represents interest expense on current debt obligations and
interest expense related to certain capital lease obligations which are
expected to be assumed in connection with the Wyndham Merger. New Patriot
REIT expects to refinance Wyndham's long-term debt with borrowings under
the New Credit Facility. New Patriot REIT will pay approximately $16,000
in mortgage prepayment penalties. This amount will be reported as an
extraordinary item in New Patriot REIT's results of operations following
the completion of the Proposed Wyndham Transactions and has been reflected
as an adjustment to retained earnings for pro forma presentation purposes.
Certain of the debt to be repaid contains restrictions regarding the
payment of dividends with which New Patriot REIT would be unable to
comply. In addition, the New Credit Facility generally has a more
favorable interest rate than the debt expected to be repaid. The
adjustment of $(123) represents amortization of $408 related to additional
loan fees to be incurred in connection with new borrowings for the
Proposed Wyndham Transactions and reduction in interest expense of $531.
The deferred loan costs are being amortized using the straight-line method
over the terms of the
171
<PAGE>
loans. Interest expense incurred on the New Credit Facility borrowings
assumes an average interest rate of 7.251% per annum related to the term
loan (representing LIBOR plus 1.75%). An increase of 0.25% in the interest
rate would increase pro forma interest expense to $22,023, decrease net
income applicable to common shareholders to $8,104 and decrease net income
per common share to $0.18, based on 44,214 weighted average number of
common shares and common share equivalents outstanding.
(G) Depreciation is computed using the straight-line method and is based upon
the estimated useful lives of 35 years for hotel buildings and
improvements and 5 to 7 years for F, F & E. These estimated useful lives
are based on management's knowledge of the properties and the hotel
industry in general.
(H) Represents equity in income of the New Wyndham Entities which own the
Wyndham tradenames and franchise related assets, the management and
franchising contracts and the hotel management company, which will be
controlled by New Patriot Operating Company.
(I) Represents provision for New Patriot REIT's estimated state tax liability.
(J) Represents the adjustments to minority interest to reflect the estimated
minority interest percentage subsequent to the Proposed Wyndham
Transactions of approximately 9.8%. The estimated minority interest
percentage subsequent to the Merger (and prior to the Proposed Wyndham
Transactions) is approximately 14.0%.
(K) The pro forma amounts presented assume all of the outstanding Wyndham
Common Stock is exchanged for paired shares of New Patriot REIT Common
Stock and New Patriot Operating Company Common Stock. If the maximum
number of shares of Wyndham Common Stock are purchased for cash (based on
total funds available of $100,000, an estimated market price per paired
share of $42.61, based upon the average closing price for the five days
prior to May 12, 1997, of Patriot's Common Stock of $22.12, and a Wyndham
Exchange Ratio equal to 0.712 paired shares of New Patriot REIT Common
Stock and New Patriot Operating Company Common Stock for each share of
Wyndham Common Stock), pro forma interest expense would increase by
$1,813, net income would be $7,028, and net income per common share would
be $0.17, based on 41,868 weighted average number of common shares and
common share equivalents outstanding.
(L) In February 1997, the Financial Accounting Standards Board issued
Statement 128 which specifies the computation, presentation and disclosure
requirements for basic earnings per share and diluted earnings per share.
Management believes that adoption of Statement 128 will not have a
material effect on the earnings per share of New Patriot REIT.
172
<PAGE>
NEW PATRIOT OPERATING COMPANY
ADJUSTED FOR THE PROPOSED WYNDHAM TRANSACTIONS
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1996
(UNAUDITED)
<TABLE>
<CAPTION>
NEW PATRIOT ADJUSTMENTS
OPERATING ------------------------------------------
COMPANY CROW WYNDHAM
PRO FORMA ACQUISITION MERGER WYNDHAM PRO FORMA
TOTAL(A) PRO FORMA(B) PRO FORMA(C) PRO FORMA(D) ADJUSTMENTS TOTAL
----------- ------------ ------------ ------------ ----------- ---------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C>
Revenue:
Room revenue............ $ 38,940 $ 70,450 $ 99,584 $16,228 $ -- $225,202
Food and beverage....... 19,745 39,330 32,206 8,379 -- 99,660
Club and spa revenue.... 24,710 -- -- -- -- 24,710
Pari-mutuel revenue..... 41,476 -- -- -- -- 41,476
Other racing income..... 10,470 -- -- -- -- 10,470
Management fees......... -- -- 22,524 -- (6,709)(E) 15,815
Club membership
revenue................ 4,277 -- -- -- -- 4,277
Shopping center
revenue................ 1,730 -- -- -- -- 1,730
Service fees............ -- -- 3,962 -- -- 3,962
Reimbursement income.... -- -- 14,506 -- -- 14,506
Telephone and other
hotel revenue.......... 10,338 9,744 6,988 1,931 -- 29,001
Interest and other
income................. 1,936 -- 2,250 -- -- 4,186
-------- -------- -------- ------- -------- --------
Total revenue........... 153,622 119,524 182,020 26,538 (6,709) 474,995
-------- -------- -------- ------- -------- --------
Expenses:
Departmental costs--
hotel, club and spa
operations............. 47,280 49,367 65,053 9,949 -- 171,649
Direct operating costs
of Racecourse
facility............... 20,950 -- -- -- -- 20,950
Purses and incentive
awards................. 17,054 -- -- -- -- 17,054
Commissions, concession
costs and racing
facility rental........ 9,176 -- -- -- -- 9,176
Ground lease and hotel
lease expense.......... -- -- -- -- 11,769 (F) 11,769
Direct operating costs
of management company
....................... -- -- 12,035 -- -- 12,035
Service department
expenses............... -- -- 4,970 -- -- 4,970
Reimbursement expenses.. -- -- 15,448 -- -- 15,448
General and
administrative......... 10,181 10,314 7,888 2,971 200 (G) 31,554
Repair and maintenance.. 8,045 5,219 4,533 1,144 -- 18,941
Utilities............... 4,082 4,584 4,585 1,055 -- 14,306
Marketing............... 7,767 9,104 7,620 1,738 -- 26,229
Management fees......... 3,194 5,783 -- 926 (6,709)(E) 3,194
Depreciation and
amortization........... 1,072 -- 8,110 (H) -- 7,697 (H) 16,879
Participating lease
payments............... 25,967 (I) 38,046 (I) 19,175 (I) 9,019 (I) -- 92,207
Interest expense........ 1,300 -- -- -- -- 1,300
Real estate and personal
property taxes and
insurance.............. 398 -- -- -- -- 398
General liability
insurance.............. 656 624 2,449 235 -- 3,964
Equity participation
compensation .......... -- -- 2,919 -- -- 2,919
Miscellaneous .......... -- 871 555 99 (99) 1,426
-------- -------- -------- ------- -------- --------
Total expenses.......... 157,122 123,912 155,340 27,136 12,858 476,368
-------- -------- -------- ------- -------- --------
Income (loss) before
income tax provision and
minority interests...... (3,500) (4,388) 26,680 (598) (19,567) (1,373)
Income tax (provision)
benefit................ (62) -- (3,991)(J) -- 1,861 (J) (2,192)
-------- -------- -------- ------- -------- --------
Income (loss) before mi-
nority interests........ (3,562) (4,388) 22,689 (598) (17,706) (3,565)
Minority interest in the
Patriot Operating
Partnership............ 499 430 (K) (2,224)(K) 59 (K) 1,333 (K) 97
Minority interest in
consolidated
subsidiaries........... -- -- -- -- 2,573 (L) 2,573
-------- -------- -------- ------- -------- --------
Net income (loss)
applicable to common
shareholders............ $ (3,063) $ (3,958) $ 20,465 $ (539) $(13,800) $ (895)(M)
======== ======== ======== ======= ======== ========
Net income (loss) per
common share(N)......... $ (0.11) $ (0.02)(M)
======== ========
Weighted average number
of common shares and
common share equivalents
outstanding............. 28,793 43,721 (M)
======== ========
</TABLE>
See notes on following page.
173
<PAGE>
- --------
(A) Represents the pro forma results of operations of New Patriot Operating
Company for the year ended December 31, 1996 which reflects the Merger and
the Related Transactions. See page 152.
(B) Represents adjustments to New Patriot Operating Company's results of
operations assuming the Crow Acquisition had occurred at the beginning of
the period presented. One of the hotels was closed during 1996 due to
renovation. As a result, the pro forma results of operations for the Crow
Acquisition reflects the results of operations for ten hotels for the year
ended December 31, 1996.
(C) Represents adjustments to New Patriot Operating Company's results of
operations assuming the Wyndham Merger had been consummated at the
beginning of the period presented.
(D) Represents adjustments to New Patriot Operating Company's results of
operations assuming the two hotels currently leased by Wyndham Lessee were
leased by New Patriot Operating Company at the beginning of the period
presented.
(E) Represents the elimination of management fees for the hotels previously
leased to the Wyndham Lessee which are assumed to be leased by New Patriot
Operating Company and managed by a New Wyndham Entity.
(F) Represents pro forma lease expense related to the sub-lease agreement with
New Patriot REIT for those hotel properties leased by New Patriot REIT
from third party owners.
(G) Represents incremental general and administrative expenses expected to be
incurred by New Patriot Operating Company.
(H) Represents adjustments to depreciation of furniture and equipment and
amortization of goodwill, tradenames and franchise-related intangible
assets. Depreciation is computed using the straight-line method and is
based upon the estimated useful lives of 5 to 7 years for F, F & E.
Amortization of goodwill, tradenames and franchise costs is computed using
the straight-line method over a 40-year estimated useful life.
Amortization of management contracts is computed using the straight-line
method over the 14.6-year average remaining term of the related franchise
agreements.
(I) Represents lease payments from New Patriot Operating Company to New
Patriot REIT calculated on a pro forma basis by applying the provisions of
the Participating Leases to the historical revenue of the hotels for the
period presented.
(J) Represents adjustments to New Patriot Operating Company's estimated
federal and state tax provision for the Proposed Wyndham Transactions.
(K) Represents the adjustments to minority interest to reflect the estimated
minority interest percentage subsequent to the Proposed Wyndham
Transactions of approximately 9.8%. The estimated minority interest
percentage subsequent to the Merger (and prior to the Proposed Wyndham
Transactions) is approximately 14.0%.
(L) Represents adjustment for minority interest in the New Wyndham Entities
held by New Patriot REIT.
(M) The pro forma amounts presented assume all of the outstanding Wyndham
Common Stock is exchanged for paired shares of New Patriot REIT and New
Patriot Operating Company Common Stock. If the maximum number of shares of
Wyndham Common Stock are purchased for cash (based on total funds
available of $100,000, an estimated market price per paired share of
$42.61, based upon the average closing price for the five days prior to
May 12, 1997, of Patriot's Common Stock averaging $22.12, and a Wyndham
Exchange Ratio equal to 0.712 paired shares of New Patriot REIT Common
Stock and New Patriot Operating Company Common Stock for each share of
Wyndham Common Stock), pro forma net loss would be $(890), and net loss
per common share would be $(0.02), based on 41,375 weighted average number
of common shares and common share equivalents outstanding.
(N) In February 1997, the Financial Accounting Standards Board issued
Statement 128 which specifies the computation, presentation and disclosure
requirements for basic earnings per share and diluted earnings per share.
Management believes that adoption of Statement 128 will not have a
material effect on the earnings per share of New Patriot Operating
Company.
174
<PAGE>
NEW PATRIOT OPERATING COMPANY
ADJUSTED FOR THE PROPOSED WYNDHAM TRANSACTIONS
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 1997
(UNAUDITED)
<TABLE>
<CAPTION>
NEW PATRIOT ADJUSTMENTS
OPERATING ------------------------------------------
COMPANY CROW WYNDHAM
PRO FORMA ACQUISITION MERGER WYNDHAM PRO FORMA
TOTAL(A) PRO FORMA(B) PRO FORMA(C) PRO FORMA(D) ADJUSTMENTS TOTAL
----------- ------------ ------------ ------------ ----------- ---------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C>
Revenue:
Room revenue........... $13,177 $20,031 $28,576 $4,496 $ -- $ 66,280
Food and beverage...... 5,891 10,311 11,060 2,337 -- 29,599
Club and spa revenue... 8,706 -- -- -- -- 8,706
Pari-mutuel revenue.... 17,099 -- -- -- -- 17,099
Other racing income.... 3,170 -- -- -- -- 3,170
Management fees........ -- -- 6,098 -- (1,289)(E) 4,809
Club membership
revenue............... 348 -- -- -- -- 348
Shopping center
revenue............... 474 -- -- -- -- 474
Service fees........... -- -- 1,062 -- -- 1,062
Reimbursement income... -- -- 3,370 -- -- 3,370
Telephone and other
hotel revenue......... 3,769 2,598 2,688 490 -- 9,545
Interest and other
income................ 690 -- 631 -- -- 1,321
------- ------- ------- ------ ------- --------
Total revenue.......... 53,324 32,940 53,485 7,323 (1,289) 145,783
------- ------- ------- ------ ------- --------
Expenses:
Departmental costs--
hotel, club and spa
operations............ 13,828 13,298 14,641 2,614 -- 44,381
Operating expense...... -- -- 4,243 -- -- 4,243
Service department
expenses.............. -- -- 1,152 -- -- 1,152
Reimbursement
expenses.............. -- -- 3,370 -- -- 3,370
Direct operating costs
of Racecourse
facilities............ 6,608 -- -- -- -- 6,608
Purses and incentive
awards................ 7,240 -- -- -- -- 7,240
Commissions,
concessions costs and
racing facility
rental................ 3,101 -- -- -- -- 3,101
General and
administrative........ 2,591 2,841 2,642 729 50 (G) 8,853
Sublease for GHALP
Hotels................ -- -- -- -- 5,429 (F) 5,429
Repair and
maintenance........... 2,247 1,346 1,636 270 -- 5,499
Utilities.............. 949 1,304 1,577 259 -- 4,089
Marketing.............. 1,870 2,502 2,951 456 -- 7,779
Management fees........ 1,482 1,050 -- 239 (1,289)(E) 1,482
Depreciation and
amortization.......... 268 -- 2,559 -- 1,630 (H) 4,457
Participating lease
payments.............. 9,428 10,851 (I) 5,263 (I) 2,565 (I) -- 28,107
Interest expense....... 319 -- -- -- -- 319
Real estate and
personal property
taxes and casuality
insurance ............ 129 -- -- -- -- 129
General liability
insurance ............ 252 97 612 33 -- 994
Foreign currency
exchange.............. -- -- (6) -- -- (6)
Other.................. -- 39 (47) 54 (54) (8)
------- ------- ------- ------ ------- --------
Total expenses......... 50,312 33,328 40,593 7,219 5,766 137,218
------- ------- ------- ------ ------- --------
Income (loss) before
income tax provision
and minority
interests.............. 3,012 (388) 12,892 104 (7,055) 8,565
Income tax (provision)
benefit............... (1,205) -- (2,992)(J) -- 166 (J) (4,031)
------- ------- ------- ------ ------- --------
Income (loss) before mi-
nority interests....... 1,807 (388) 9,900 104 (6,889) 4,534
Minority interest in
the Patriot Operating
Partnership........... (253) 38 (K) (970)(K) (10)(K) 845 (K) (350)
Minority interest in
consolidated
subsidiaries.......... -- -- -- -- (963)(L) (963)
------- ------- ------- ------ ------- --------
Net income (loss)
applicable to common
shareholders........... $ 1,554 $ (350) $ 8,930 $ 94 $(7,007) $ 3,221 (M)
======= ======= ======= ====== ======= ========
Net income per common
share(N)............... $ 0.05 $ 0.07 (M)
======= ========
Weighted average number
of common shares and
common share
equivalents
outstanding............ 29,074 44,214 (M)
======= ========
</TABLE>
See notes on following page.
175
<PAGE>
- --------
(A) Represents the pro forma results of operations of New Patriot Operating
Company for the three months ended March 31, 1997 which reflects the
Merger and the Related Transactions. See page 154.
(B) Represents adjustments to New Patriot Operating Company's results of
operations assuming the Crow Acquisition had occurred at the beginning of
the period presented. One of the hotels was closed during 1996 due to
renovation. As a result, the pro forma results of operations for the Crow
Acquisition reflects the results of operations for ten hotels for the year
ended December 31, 1996.
(C) Represents adjustments to New Patriot Operating Company's results of
operations assuming the Wyndham Merger had been consummated at the
beginning of the period presented.
(D) Represents adjustments to New Patriot Operating Company's results of
operations assuming the two hotels currently leased by Wyndham Lessee has
been leased by New Patriot Operating Company at the beginning of the
period presented.
(E) Represents the elimination of management fees for the hotels previously
leased to the Wyndham Lessee which are assumed to be leased by New Patriot
Operating Company and managed by a New Wyndham Entity.
(F) Represents pro forma lease expense related to the sub-lease agreement with
New Patriot REIT for those hotel properties leased by New Patriot REIT
from third party owners.
(G) Represents incremental general and administrative expenses expected to be
incurred by New Patriot Operating Company.
(H) Represents adjustments to depreciation of furniture and equipment and
amortization of goodwill, tradenames and franchise-related intangible
assets. Depreciation is computed using the straight-line method and is
based upon the estimated useful lives of 5 to 7 years for F, F & E.
Amortization of goodwill, tradenames and franchise costs is computed using
the straight-line method over a 40-year estimated useful life.
Amortization of management contracts is computed using the straight-line
method over the 14.6-year average remaining term of the related franchise
agreements.
(I) Represents lease payments from New Patriot Operating Company to New
Patriot REIT calculated on a pro forma basis by applying the provisions of
the Participating Leases to the historical revenue of the hotels for the
period presented.
(J) Represents adjustments to New Patriot Operating Company's estimated
federal and state tax provision for the Proposed Wyndham Transactions.
(K) Represents the adjustments to minority interest to reflect the estimated
minority interest percentage subsequent to the Proposed Wyndham
Transactions of approximately 9.8%. The estimated minority interest
percentage subsequent to the Merger (and prior to the Proposed Wyndham
Transactions) is approximately 14.0%.
(L) Represents adjustment for minority interest in the New Wyndham Entities
held by New Patriot REIT.
(M) The pro forma amounts presented assume all of the outstanding Wyndham
Common Stock is exchanged for paired shares of New Patriot REIT and New
Patriot Operating Company Common Stock. If the maximum number of shares of
Wyndham Common Stock are purchased for cash (based on total funds
available of $100,000, an estimated market price per paired share of
$42.61, based upon the average closing price for the five days prior to
May 12, 1997, of Patriot's Common Stock of $22.12, and a Wyndham Exchange
Ratio equal to 0.712 paired shares of New Patriot REIT Common Stock and
New Patriot Operating Company Common Stock for each share of Wyndham
Common Stock), pro forma net income would be $3,203, and net income per
common share would be $0.08, based on 41,868 weighted average number of
common shares and common share equivalents outstanding.
(N) In February 1997, the Financial Accounting Standards Board issued
Statement 128 which specifies the computation, presentation and disclosure
requirements for basic earnings per share and diluted earnings per share.
Management believes that adoption of Statement 128 will not have a
material effect on the earnings per share of New Patriot Operating
Company.
176
<PAGE>
COMBINED LESSEES
ADJUSTED FOR THE PROPOSED WYNDHAM TRANSACTIONS
PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
Patriot leases each of its hotels, except the Crowne Plaza Ravinia Hotel and
the Marriott WindWatch Hotel, which are separately owned through Non-
Controlled Subsidiaries, to Lessees. The Combined Lessees subsequent to the
Proposed Wyndham Transactions and the Merger and the Related Transactions are
expected to consist of CHC Lease Partners (which leases 25 hotels), NorthCoast
Lessee (which leases 9 hotels), Doubletree Lessee (which leases 6 hotels),
Metro Lease Partners (which leases 1 hotel) and Grand Heritage Lessee (which
leases 3 hotels). With respect to the hotels leased to PAH RSI Lessee,
subsequent to completion of the Merger and the Related Transactions, New
Patriot REIT expects to terminate its leases with PAH RSI Lessee and re-lease
such hotels to New Patriot Operating Company. With respect to the two hotels
currently leased to Wyndham Lessee (the Wyndham Garden Hotel-Midtown and the
Wyndham Greenspoint Hotel), subsequent to the completion of the Proposed
Wyndham Transactions, New Patriot REIT expects to terminate its leases with
Wyndham Lessee and re-lease such hotels to New Patriot Operating Company. The
Participating Leases provide for staggered terms of ten to twelve years and
the payment of the greater of base or participating rent, plus certain
additional charges, as applicable.
The following Combined Lessees' unaudited Pro Forma Condensed Combined
Statements of Operations for the year ended December 31, 1996 and the three
months ended March 31, 1997 are presented as if the hotels that Patriot
currently leases to the Combined Lessees pursuant to Participating Leases had
been leased as of January 1, 1996. Six of the hotels leased to PAH RSI Lessee
(excluding the Sheraton Park Place Hotel which was acquired in April 1997 and
the Myrtle Beach Hilton Oceanfront Golf Resort which was acquired by Patriot
in May 1997) and the two hotels leased to Wyndham Lessee are assumed to have
been leased to New Patriot Operating Company and, therefore, have been
eliminated from the Pro Forma Condensed Combined Statements of Operations for
the Combined Lessees. The pro forma information is based in part upon the
Statements of Operations of CHC Lease Partners and the Statement of Operations
of NorthCoast Lessee filed with Patriot's Annual Report on Form 10-K for the
year ended December 31, 1996 and the Statements of Operations of CHC Lease
Partners, the Statement of Operations of NorthCoast Lessee and the Statement
of Operations of PAH RSI Lessee filed with Patriot's Quarterly Report on Form
10-Q for the three months ended March 31, 1997 and the Pro Forma Statement of
Operations of the Combined Lessees located elsewhere in this Joint Proxy
Statement/Prospectus. In management's opinion, all material adjustments
necessary to reflect the effects of these transactions have been made.
The unaudited Pro Forma Condensed Combined Statements of Operations are not
necessarily indicative of what the actual results of operations of the
Combined Lessees would have been assuming such transactions had been completed
as of the beginning of the periods presented, nor do they purport to represent
the results of operations for future periods. Further, the unaudited Pro Forma
Condensed Combined Statement of Operations for the interim period ended March
31, 1997 is not necessarily indicative of the results of operations for the
full year.
177
<PAGE>
COMBINED LESSEES
ADJUSTED FOR THE PROPOSED WYNDHAM TRANSACTIONS
PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1996
(UNAUDITED)
<TABLE>
<CAPTION>
COMBINED
LESSEES WYNDHAM
PRO FORMA LESSEE PRO FORMA
TOTAL(A) PRO FORMA(B) TOTAL
--------- ------------ ---------
(IN THOUSANDS)
<S> <C> <C> <C>
Revenue:
Room.................................... $222,051 $(16,228) $205,823
Food and beverage....................... 85,489 (8,379) 77,110
Conference center....................... 2,354 -- 2,354
Telephone and other..................... 21,919 (1,931) 19,988
-------- -------- --------
Total revenue........................ 331,813 (26,538) 305,275
-------- -------- --------
Expenses:
Departmental costs and expenses......... 130,581 (9,949) 120,632
General and administrative.............. 31,549 (2,971) 28,578
Ground lease expense.................... 2,064 -- 2,064
Repair and maintenance.................. 16,415 (1,144) 15,271
Utilities............................... 15,711 (1,055) 14,656
Marketing............................... 29,315 (1,738) 27,577
Interest expense........................ 3 -- 3
Insurance............................... 2,225 (235) 1,990
Participating lease payments............ 104,603 (C) (9,019) 95,584
-------- -------- --------
Total expenses....................... 332,466 (26,111) 306,355
-------- -------- --------
Income (loss) before lessee income
(expense)............................... (653) (427) (1,080)
-------- -------- --------
Dividend and interest income............. 1,543 (D) -- 1,543
Management fees.......................... (7,070)(E) 926 (6,144)
Lessee general and administrative........ (1,676)(F) 99 (1,577)
-------- -------- --------
(7,203) 1,025 (6,178)
-------- -------- --------
Net loss................................. $ (7,856) $ 598 $ (7,258)
======== ======== ========
</TABLE>
- --------
(A) The Combined Lessees pro forma results of operations represent the
combined pro forma operating results of the Lessees after consummation of
the Merger and the Related Transactions. See page 157. These Lessees' pro
forma results of operations include (i) the combined historical results of
operations of CHC Lease Partners and Metro Lease Partners for the year
ended December 31, 1996 and the combined historical results of operations
of NorthCoast Lessee, Doubletree Lessee, Wyndham Lessee and Grand Heritage
Lessee for the period from their respective inception of operations
through December 31, 1996 and (ii) adjustments to the combined Lessees
results of operations assuming the 46 hotels currently leased by Patriot
to the Lessees (excluding six of the hotel properties leased to PAH RSI
Lessee as of March 31, 1997 and excluding the Sheraton Park Place Hotel
acquired by Patriot in April 1997 and the Myrtle Beach Hilton Oceanfront
Golf Resort acquired by Patriot in May 1997) had been leased at the
beginning of the period presented.
(B) Represents the elimination of the pro forma results of operations for the
Wyndham Garden Hotel-Midtown and the Wyndham Greenspoint Hotel which are
currently leased to the Wyndham Lessee and which, following the Proposed
Wyndham Transactions, are expected to be leased to New Patriot Operating
Company.
(C) Represents lease payments calculated on a pro forma basis by applying the
provisions of the Participating Leases to the historical revenue of the
hotels.
(D) Includes dividend income on OP Units in the Patriot Partnership which form
a portion of the required capitalization of CHC Lease Partners and
NorthCoast Lessee, respectively. Pro forma amounts exclude additional
dividend income earned on OP Units held by certain Lessees, and pro forma
interest income earned on invested cash balances.
(E) Represents pro forma management fees paid to the Operators under the terms
of their respective management agreements with the Lessees.
(F) Represents pro forma overhead expenses, which include an estimate of the
Lessees' salaries and benefits, professional fees, insurance costs and
administrative expenses.
178
<PAGE>
COMBINED LESSEES
ADJUSTED FOR THE PROPOSED WYNDHAM TRANSACTIONS
PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 1997
(UNAUDITED)
<TABLE>
<CAPTION>
COMBINED
LESSEES WYNDHAM
PRO FORMA LESSEE PRO FORMA
TOTAL(A) PRO FORMA(B) TOTAL
--------- ------------ ---------
(IN THOUSANDS)
<S> <C> <C> <C>
Revenue:
Room..................................... $56,685 $(4,496) $52,189
Food and beverage........................ 22,000 (2,337) 19,663
Conference center........................ 748 -- 748
Telephone and other...................... 5,431 (490) 4,941
------- ------- -------
Total revenue......................... 84,864 (7,323) 77,541
------- ------- -------
Expenses:
Departmental costs and expenses.......... 32,504 (2,614) 29,890
General and administrative............... 7,683 (729) 6,954
Ground lease expense..................... 320 -- 320
Repair and maintenance................... 4,075 (270) 3,805
Utilities................................ 3,673 (259) 3,414
Marketing................................ 7,676 (456) 7,220
Insurance................................ 501 (33) 468
Participating lease payments............. 27,123 (C) (2,565) 24,558
------- ------- -------
Total expenses........................ 83,555 (6,926) 76,629
------- ------- -------
Income (loss) before lessee income
(expense)................................ 1,309 (397) 912
------- ------- -------
Dividend and interest income.............. 945 (D) -- 945
Management fees........................... (1,635)(E) 239 (1,396)
Lessee general and administrative......... (455)(F) 54 (401)
------- ------- -------
(1,145) 293 (852)
------- ------- -------
Net income (loss)......................... $ 164 $ (104) $ 60
======= ======= =======
</TABLE>
- --------
(A) The Combined Lessees' pro forma results of operations represent the
combined pro forma operating results of the Lessees after consummation of
the Merger and the Related Transactions. See page 158. These Lessees' pro
forma results of operations include (i) the combined historical results of
operations of CHC Lease Partners, Metro Lease Partners, NorthCoast Lessee,
Doubletree Lessee, Wyndham Lessee and Grand Heritage Lessee for the three
months ended March 31, 1997 and (ii) adjustments to the combined Lessees
results of operations assuming the 46 hotels currently leased by Patriot
to the Lessees (excluding six of the hotel properties leased to PAH RSI
Lessee as of March 31, 1997 and excluding the Sheraton Park Place Hotel
acquired by Patriot in April 1997 and the Myrtle Beach Hilton Oceanfront
Golf Resort acquired by Patriot in May 1997) had been leased at the
beginning of the period presented.
(B) Represents the elimination of the pro forma results of operations for the
Wyndham Garden Hotel-Midtown and the Wyndham Greenspoint Hotel which are
currently leased to the Wyndham Lessee and which, following the Proposed
Wyndham Transactions, are expected to be leased to New Patriot Operating
Company.
(C) Represents lease payments calculated on a pro forma basis by applying the
provisions of the Participating Leases to the historical revenue of the
hotels.
(D) Includes dividend income on OP Units in the Patriot Partnership which form
a portion of the required capitalization of CHC Lease Partners and
NorthCoast Lessee, respectively. Pro forma amounts exclude additional
dividend income earned on OP Units held by certain Lessees, and pro forma
interest income earned on invested cash balances.
(E) Represents pro forma management fees paid to the Operators under the terms
of their respective management agreements with the Lessees.
(F) Represents pro forma overhead expenses, which include an estimate of the
Lessees' salaries and benefits, professional fees, insurance costs and
administrative expenses.
179
<PAGE>
PATRIOT (PRE MERGER)
PRO FORMA FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)
Patriot completed the Initial Offering on October 2, 1995 and commenced
operations. Upon completion of the Initial Offering, Patriot, through its
wholly-owned subsidiary, PAH LP, contributed substantially all of the net
proceeds of the Initial Offering to the Patriot Partnership in exchange for an
approximate 85.3% limited partnership interest in the Patriot Partnership.
Patriot, through its wholly-owned subsidiary, PAH GP, is the sole general
partner and the holder of a 1.0% general partnership interest in the Patriot
Partnership.
The Patriot Partnership used approximately $263,600 of the net proceeds of
the Initial Offering to acquire ownership interests in 20 hotels (the "Initial
Hotels") from various entities (the "Selling Entities") and to repay existing
mortgage and other indebtness of the Initial Hotels. In consideration for the
sale of the Initial Hotels, certain owners in the Selling Entities, including
affiliates of Patriot, elected to receive OP Units in the Patriot Partnership.
The 2,324,312 OP Units received by such owners represented an approximate
13.7% equity interest in the Patriot Partnership as Patriot commenced
operations. The balance of the proceeds from the Initial Offering, together
with proceeds from the Line of Credit, were used to finance acquisitions of
two additional hotel investments, to provide for renovations to existing
hotels and for general working capital during 1995.
During 1996, Patriot acquired 24 additional hotel properties, utilizing cash
drawn on its Line of Credit and issuing 600,703 OP Units of the Patriot
Partnership in connection with the purchases. In May 1996, Patriot sold an
aggregate of approximately $40,000 of equity securities in the Private
Placement. The proceeds of the Private Placement were used primarily to reduce
amounts outstanding under the Line of Credit.
During the third quarter of 1996, Patriot completed the Follow-On Offering.
The offering price of all shares sold in the Follow-On Offering was $14.125
per share, resulting in net proceeds (less the underwriters' discount and
offering expenses) of approximately $160,222, of which approximately $151,963
was used to reduce amounts outstanding under the Line of Credit. As a result,
at December 31, 1996, the Patriot Partnership owned interests in 46 hotels in
18 states with an aggregate 11,340 guest rooms and Patriot owned an
approximate 87.3% interest in the Patriot Partnership.
In the first quarter of 1997, Patriot acquired ownership interests in the
Recent Acquisitions. Subsequent to March 31, 1997, Patriot acquired the
Sheraton Park Place Hotel in Minneapolis, Minnesota and the Myrtle Beach
Hilton Oceanfront Golf Resort. These acquisitions were financed primarily with
funds drawn on the Line of Credit.
In addition, in January 1997, Patriot acquired the Carefree Resorts for a
total purchase price of approximately $264 million. The acquisition of the
Carefree Resorts was primarily financed with funds drawn on the Line of Credit
and the issuance of 1,295,077 OP Units of the Patriot Partnership.
As of March 31, 1997, Patriot owned interests in 54 hotels and resorts in 21
states with an aggregate of 12,671 guest rooms and had an approximate 83.1%
interest in the Patriot Partnership.
The following unaudited Pro Forma Condensed Consolidated Statements of
Operations for the year ended December 31, 1996 and the three months ended
March 31, 1997 of Patriot are presented as if (i) the Private Placement and
the Follow-On Offering, (ii) the acquisition of 24 additional hotel properties
in 1996 including a hotel owned through a Non-Controlled Subsidiary, (iii) the
acquisition of the Carefree Resorts and the Recent Acquisitions (excluding the
Sheraton Park Place Hotel acquired by Patriot in April 1997 and the Myrtle
Beach Hilton Oceanfront Golf Resort acquired by Patriot in May 1997 and leased
to PAH RSI Lessee) and (iv) the funding of the mortgage notes to affiliates of
CHC Lease Partners had occurred on January 1, 1996. Such pro forma information
is based in part upon the Consolidated Statements of Operations of Patriot
filed with Patriot's Annual Report on Form 10-K for the year ended December
31, 1996 and the Quarterly Report on Form 10-Q for the three months ended
March 31, 1997; the historical financial statements of certain hotels acquired
by Patriot
180
<PAGE>
filed in Patriot's Current Reports on Form 8-K dated April 2, 1996, as
amended, December 5, 1996 and January 16, 1997, as amended; and the Pro Forma
Condensed Combined Statements of Operations of the Lessees. In management's
opinion, all adjustments necessary to reflect the effects of these
transactions have been made. The following unaudited Pro Forma Financial
Statements do not reflect the Merger and the Related Transactions.
The following unaudited Pro Forma Condensed Consolidated Statements of
Operations are not necessarily indicative of what actual results of operations
of Patriot would have been assuming such transactions had been completed as of
January 1, 1996, nor do they purport to represent the results of operations
for future periods. Further, the unaudited Pro Forma Condensed Consolidated
Statement of Operations for the interim period ended March 31, 1997 is not
necessarily indicative of the results of operations for the full year.
181
<PAGE>
PATRIOT (PRE MERGER)
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1996
(UNAUDITED)
<TABLE>
<CAPTION>
PRO FORMA ADJUSTMENTS
------------------------------------
PATRIOT RECENT CAREFREE
HISTORICAL ADJUSTMENTS ACQUISITIONS RESORTS PRO FORMA
(A) (B) (C) (D) TOTAL
---------- ----------- ------------ -------- ---------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
Revenue:
Participating lease
revenue............... $75,893 $27,111 (E) $6,102 (E) $21,464 (E) $130,570
Interest and other in-
come.................. 600 8,501 (F) -- 1,170 (F) 10,271
------- ------- ------ ------- --------
Total revenue.......... 76,493 35,612 6,102 22,634 140,841
------- ------- ------ ------- --------
Expenses:
Ground lease expense... 1,075 315 (G) -- -- 1,390
General and administra-
tive.................. 4,500 742 (H) -- 100 (H) 5,342
Interest expense....... 7,380 20,502 (I) 3,240 (I) 14,079 (I) 45,201
Real estate and per-
sonal property taxes
and casualty
insurance............. 7,150 3,703 (J) 1,076 (J) 1,443 (J) 13,372
Depreciation and amor-
tization.............. 17,420 8,451 (K) 1,843 (K) 7,409 (K) 35,123
------- ------- ------ ------- --------
Total expenses......... 37,525 33,713 6,159 23,031 100,428
------- ------- ------ ------- --------
Income (loss) before
equity in earnings of
unconsolidated
subsidiaries and
minority interests..... 38,968 1,899 (57) (397) 40,413
Equity in earnings of
unconsolidated
subsidiaries.......... 5,845 1,372 (L) -- 343 (M) 7,560
------- ------- ------ ------- --------
Income (loss) before
minority interests..... 44,813 3,271 (57) (54) 47,973
Minority interest in
the Patriot
Partnership........... (6,767) (1,247) -- -- (8,014)(N)
Minority interest in
other partnerships.... (55) (650)(O) 152 (O) -- (553)
------- ------- ------ ------- --------
Net income (loss)
applicable to common
shareholders........... $37,991 $ 1,374 $ 95 $ (54) $ 39,406
======= ======= ====== ======= ========
Net income per common
share (P)(Q)........... $ 1.06 $ 0.89
======= ========
Weighted average number
of common shares and
common share
equivalents outstanding
(P) ................... 35,938 44,378
======= ========
</TABLE>
- --------
(A) Represents Patriot's historical results of operations for the year ended
December 31, 1996.
(B) Represents adjustments to Patriot's results of operations assuming the
Private Placement, the Follow-On Offering and the acquisition of the 24
hotels in 1996 had occurred as of the beginning of the period presented.
(C) Represents adjustments to Patriot's results of operations assuming the
acquisition of the four Recent Acquisitions: the Luxeford Suites Hotel,
the Holiday Inn Redmont Hotel, the Radisson Overland Park Hotel and the
Radisson Northbrook Hotel, had occurred at the beginning of the period
presented.
(D) Represents adjustments to Patriot's results of operations assuming the
acquisition of the Carefree Resort properties had occurred at the
beginning of the period presented. Sales and cost of sales related to the
residential real estate which was owned, developed and sold by the
Carefree Resorts are excluded because Patriot anticipates selling the
residential real estate to an affiliate at fair market value. Therefore,
no gain or loss on the sale of the residential real estate is expected.
(E) Represents lease payments from the Lessees to the Patriot Partnership
calculated on a pro forma basis by applying the provisions of the
Participating Leases to the historical revenue of the hotels for the
period presented.
(F) Pro forma interest and other income consists of historical interest and
other income of approximately $600 related to the 46 hotels owned as of
December 31, 1996, an adjustment for pro forma interest income of $21
earned on notes receivable issued to the Patriot Partnership by certain of
the Non-Controlled Subsidiaries, and pro forma interest income of $1,170
earned on notes receivable issued to the Patriot Partnership by PAH RSI
Lessee in connection with the sale of certain assets and the right to
receive certain royalty fees (assuming such notes were outstanding at the
beginning of the period presented), resulting in pro forma interest and
other income of $1,791. In addition, pro forma interest and other income
has been adjusted to include $8,480 of interest income earned on $103,000
of mortgage notes receivable from certain affiliates of CHC Lease Partners
which bear interest at an annual rate equal to LIBOR plus 2.75%.
(G) Represents ground lease payments to be made with respect to certain of the
hotels.
(H) Represents increased salaries, insurance, travel, audit, legal and other
expenses associated with operating as a public company and the continued
growth of Patriot. Also includes annual amortization of unearned stock
compensation computed on a straight-line basis over the three to four year
vesting periods.
182
<PAGE>
(I) Pro forma interest expense consists of historical interest expense and
amortization of deferred loan costs of $7,380, pro forma interest expense
of approximately $8,966 related to the 46 hotels owned as of December 31,
1996, pro forma interest expense of approximately $3,240 related to the
Recent Acquisitions, and pro forma interest expense of approximately
$14,079 related to the acquisition of Carefree Resorts. Pro forma interest
expense also includes an adjustment to reflect interest expense of
approximately $7,391 incurred on net borrowings under the Line of Credit
which will be used to fund $103,000 in mortgage notes receivable from
certain affiliates of CHC Lease Partners. In addition, pro forma interest
expense includes adjustments to reflect additional interest expense of
approximately $762 related to borrowings under the Line of Credit used to
fund deferred loan costs of approximately $10,150 associated with the
modification and extension of the Line of Credit and amortization of such
deferred loan costs of approximately $3,383. Deferred loan costs are
amortized over the term of the related loan.
Additionally, a 0.25% increase in the interest rate on the Line of Credit
would increase interest expense to $46,522, decrease net income to $38,308
and decrease net income per common share to $0.86 per share.
Patriot has entered into a commitment letter with PaineWebber Real Estate
and Chase which will modify and extend the Line of Credit up to $700,000
and provide for a term loan of $500,000. The additional availability under
this New Credit Facility will be primarily used to finance future
acquisitions and the term loan will be used to finance the Proposed Wyndham
Transactions. In the event Patriot is successful in obtaining the New
Credit Facility, deferred loan costs totaling approximately $16,325,
including fees, legal and other expenses are expected to be incurred in
connection with New Credit Facility (of which approximately $10,150 relate
to the modification and extension of the Line of Credit and have been
reflected in the pro forma financial information).
(J) Represents real estate and personal property taxes, and casualty insurance
to be paid by the Patriot Partnership.
(K) Represents adjustments to depreciation on the Patriot hotels owned as of
December 31, 1996 of $8,441 and amortization of $10. the adjustments
related to the Recent Acquisitions and the Carefree Resorts acquisition
represent depreciation. Depreciation is computed using the straight-line
method and is based upon the estimated useful lives of 35 years for hotel
buildings and improvements and 5 to 7 years for F, F & E. These estimated
useful lives are based on management's knowledge of the properties and the
hotel industry in general. Amortization of franchise fees is computed
using the straight-line method over the terms of the related franchise
agreement.
(L) Represents equity in income of the unconsolidated subsidiaries which own
the Crowne Plaza Ravinia Hotel and the Marriott WindWatch Hotel.
(M) Represents equity in income of PAH Boulders, Inc.
(N) Represents the adjustments to minority interest assuming the acquisition
of the 24 hotels by Patriot in 1996, including the hotels owned through
the Non-Controlled Subsidiaries, the Private Placement and the Follow-On
Offering of Patriot's common stock, the acquisition of the Recent
Acquisitions, and the acquisition of the Carefree Resorts had occurred at
the beginning of the period presented. Prior to the acquisition of the
Recent Acquisitions and the Carefree Resorts, the minority interest
percentage was approximately 12.7%. Subsequent to the acquisition of the
Carefree Resorts, the minority interest percentage was approximately
16.9%.
(O) Represents the minority interest related to the partnerships with DTR PAH
Holding, Inc., assuming such entities had been formed and the six hotels
owned by such partnerships had been acquired at the beginning of the
period presented.
(P) The net income per common share and the weighted average number of common
shares and common share equivalents have been adjusted for the 2-for-1
stock split effected in the form of a stock dividend.
(Q) In February 1997, the Financial Accounting Standards Board issued
Statement 128 which specifies the computation, presentation and disclosure
requirements for basic earnings per share and diluted earnings per share.
Management believes that adoption of Statement 128 will not have a
material effect on the earnings per share of Patriot.
183
<PAGE>
PATRIOT (PRE MERGER)
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 1997
(UNAUDITED)
<TABLE>
<CAPTION>
PRO FORMA ADJUSTMENTS
-------------------------------------
PATRIOT RECENT CAREFREE
HISTORICAL ACQUISITIONS RESORTS PRO FORMA
(A) ADJUSTMENTS (B) (C) TOTAL
---------- ----------- ------------ -------- ---------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
Revenue:
Participating lease
revenue............... $35,013 $ -- $ 618 (D) $ 920 (D) $36,551
Interest and other in-
come.................. 375 2,125 (E) -- 55 (E) 2,555
------- ------- ----- ----- -------
Total revenue.......... 35,388 2,125 618 975 39,106
------- ------- ----- ----- -------
Expenses:
Ground lease expense... 345 -- -- -- 345
General and administra-
tive.................. 2,782 679 (F) -- -- 3,461
Interest expense....... 7,805 2,870 (G) 365 (G) 669 (G) 11,709
Real estate and per-
sonal property taxes
and casualty
insurance............. 3,201 -- 120 (H) 59 (H) 3,380
Depreciation and amor-
tization.............. 8,496 -- 229 (I) 339 (I) 9,064
------- ------- ----- ----- -------
Total expenses......... 22,629 3,549 714 1,067 27,959
------- ------- ----- ----- -------
Income (loss) before
equity in earnings of
unconsolidated
subsidiaries and
minority interests..... 12,759 (1,424) (96) (92) 11,147
Equity in earnings of
unconsolidated
subsidiaries.......... 1,021 -- -- -- 1,021
------- ------- ----- ----- -------
Income (loss) before
minority interests..... 13,780 (1,424) (96) (92) 12,168
Minority interest in
the Patriot
Partnership........... (2,232) 213 (J) -- -- (2,019)(J)
Minority interest in
other partnerships.... (200) -- (19) (K) -- (219)
------- ------- ----- ----- -------
Net income (loss)
applicable to common
shareholders........... $11,348 $(1,211) $(115) $ (92) $ 9,930
======= ======= ===== ===== =======
Net income per common
share (L)(M)........... $ 0.25 $ 0.22
======= =======
Weighted average number
of common shares and
common share
equivalents outstanding
(L) ................... 44,552 44,919
======= =======
</TABLE>
- --------
(A) Represents Patriot's historical results of operations for the three months
ended March 31, 1997.
(B) Represents adjustments to Patriot's results of operations assuming the
acquisition of the four Recent Acquisitions: the Luxeford Suites Hotel,
the Holiday Inn Redmont Hotel, the Radisson Overland Park Hotel and the
Radisson Northbrook Hotel, had occurred at the beginning of the period
presented.
(C) Represents adjustments to Patriot's results of operations assuming the
acquisition of the Carefree Resort properties had occurred at the
beginning of the period presented. Sales and cost of sales related to the
residential real estate which was owned, developed and sold by the
Carefree Resorts are excluded because Patriot anticipates selling the
residential real estate to an affiliate at fair market value. Therefore,
no gain or loss on the sale of the residential real estate is expected.
(D) Represents lease payments from the Lessees to the Patriot Partnership
calculated on a pro forma basis by applying the provisions of the
Participating Leases to the historical revenue of the hotels for the
period presented.
(E) Pro forma interest and other income consists of historical interest and
other income of $375 related to the 54 hotels owned as of March 31, 1997
and pro forma interest income of $55 earned on notes receivable issued to
the Patriot Partnership by PAH RSI Lessee in connection with the sale of
certain assets and the right to receive certain royalty fees (assuming
such notes were outstanding at the beginning of the period presented),
resulting in pro forma interest and other income of $430. In addition, pro
forma interest and other income has been adjusted to include $2,125 of
interest income earned on $103,000 of mortgage notes receivable from
certain affiliates of CHC Lease Partners which bear interest at an annual
rate equal to LIBOR plus 2.75%, assuming such notes were outstanding at
the beginning of the period presented.
(F) Represents amortization of unearned stock compensation computed on a
straight-line basis over the three to four year vesting periods.
(G) Pro forma interest expense consists of historical interest expense and
amortization of deferred loan costs of $7,805, pro forma interest expense
of approximately $365 incurred on the net borrowings under the Line of
Credit related to the Recent Acquisitions and pro forma interest expense
of approximately $669 incurred on the Carefree Resorts, resulting in pro
forma interest expense of $8,839. Pro forma interest expense also includes
an adjustment to reflect interest expense of approximately $1,835 incurred
on net borrowings under the Line of Credit which will be used to fund
$103,000 in mortgage notes receivable from certain affiliates of CHC Lease
Partners. In
184
<PAGE>
addition, pro forma interest expense includes adjustments to reflect
additional interest expense of approximately $189 related to borrowings
under the Line of Credit used to fund deferred loan costs of approximately
$10,150 associated with the expansion and modification of the Line of
Credit and the amortization of such deferred loan costs of approximately
$846. Deferred loan costs are amortized over the term of the related loan.
Additionally, a 0.25% increase in the interest rate on the Line of Credit
would increase interest expense to $12,071, decrease net income to $9,628
and decrease net income per common share to $0.21 per share.
Patriot has entered into a commitment letter with PaineWebber Real Estate
and Chase which will modify and extend the Line of Credit up to $700,000
and provide for a term loan of $500,000. The additional availability under
this New Credit Facility will be primarily used to finance future
acquisitions and the term loan will be used to finance the Proposed Wyndham
Transactions. In the event Patriot is successful in obtaining the New
Credit Facility, deferred loan costs totaling approximately $16,325,
including fees, legal and other expenses are expected to be incurred in
connection with the New Credit Facility (of which approximately $10,150
relate to the modification and extension of the Line of Credit and have
been reflected in the pro forma financial information).
(H) Re presents real estate and personal property taxes, and casualty insurance
to be paid by the Patriot Partnership.
(I) Represents adjustments to depreciation on the Recent Acquisitions and the
Carefree Resorts. Depreciation is computed using the straight-line method
and is based upon the estimated useful lives of 35 years for hotel
buildings and improvements and 5 to 7 years for F, F & E. These estimated
useful lives are based on management's knowledge of the properties and the
hotel industry in general.
(J) Represents the adjustments to minority interest assuming the acquisition
of the Recent Acquisitions and the acquisition of the Carefree Resorts had
occurred at the beginning of the period presented. Prior to the
acquisition of the Recent Acquisitions and the Carefree Resorts, the
minority interest percentage was approximately 12.7%. Subsequent to the
acquisition of the Carefree Resorts, the minority interest percentage was
approximately 16.9%.
(K) Represents the minority interest related to the partnerships with DTR PAH
Holding, Inc., assuming such entities had been formed and the six hotels
owned by such partnerships had been acquired at the beginning of the
period presented.
(L) The net income per common share and the weighted average number of common
shares and common share equivalents have been adjusted for the 2-for-1
stock split effected in the form of a stock dividend.
(M) In February 1997, the Financial Accounting Standards Board issued
Statement 128 which specifies the computation, presentation and disclosure
requirements for basic earnings per share and diluted earnings per share.
Management believes that adoption of Statement 128 will not have a
material effect on the earnings per share of Patriot.
185
<PAGE>
PATRIOT (PRE MERGER)
PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
AS OF MARCH 31, 1997
(UNAUDITED)
The following unaudited Pro Forma Condensed Consolidated Balance Sheet is
presented as if the funding of the mortgage notes to certain affiliates of CHC
Lease Partners had occurred on March 31, 1997. Such pro forma information is
based in part upon Patriot's Consolidated Balance Sheet as of March 31, 1997
and should be read in conjunction with the financial statements filed with
Patriot's Quarterly Report on Form 10-Q for the period ended March 31, 1997.
In management's opinion, all adjustments necessary to reflect the effect of
this transaction have been made.
The following unaudited Pro Forma Condensed Consolidated Balance Sheet is
not necessarily indicative of what the actual financial position would have
been assuming the above described transaction had been completed as of March
31, 1997, nor does it purport to represent the future financial position of
Patriot.
<TABLE>
<CAPTION>
PATRIOT PRO FORMA PRO FORMA
HISTORICAL ADJUSTMENTS TOTAL
---------- ----------- ----------
(IN THOUSANDS, EXCEPT SHARE DATA)
<S> <C> <C> <C>
ASSETS
Net investment in hotel and resort prop-
erties and land held for sale.......... $947,722 $ -- $ 947,722
Mortgage notes and other receivables
from unconsolidated subsidiaries....... 73,622 -- 73,622
Notes receivable........................ 10,189 103,000(A) 113,189
Investment in unconsolidated subsidiar-
ies.................................... 12,140 -- 12,140
Cash and cash equivalents............... 6,271 -- 6,271
Accounts receivable..................... 15,648 -- 15,648
Deferred expenses, net.................. 4,297 10,150(B) 14,447
Prepaid expenses and other assets....... 12,009 -- 12,009
---------- -------- ----------
Total assets........................... $1,081,898 $113,150 $1,195,048
========== ======== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Borrowings under line of credit and
mortgage notes......................... $466,712 $113,150(C) $ 579,862
Dividends and distributions payable..... 13,938 -- 13,938
Accounts payable and accrued expenses... 13,498 -- 13,498
Due to unconsolidated subsidiaries...... 6,098 -- 6,098
Minority interest in the Patriot Part-
nership................................ 127,262 -- 127,262
Minority interest in other partner-
ships.................................. 13,774 -- 13,774
Shareholders' equity:
Preferred stock........................ -- -- --
Common stock........................... -- -- --
Paid-in capital........................ 457,178 -- 457,178
Unearned stock compensation, net....... (16,261) -- (16,261)
Retained earnings...................... (301) -- (301)
---------- -------- ----------
Total shareholders' equity............. 440,616 -- 440,616
---------- -------- ----------
Total liabilities and shareholders' eq-
uity.................................. $1,081,898 $113,150 $1,195,048
========== ======== ==========
</TABLE>
- --------
(A) Represents mortgage notes issued to the Patriot Partnership by certain
affiliates of CHC Lease Partners.
(B) Represents deferred loan costs to be incurred in connection with
modification and extension of the Line of Credit.
(C) Represents draws on the Line of Credit related to the funding of mortgage
notes receivable from certain affiliates of CHC Lease Partners. Patriot
has entered into a commitment letter with PaineWebber Real Estate and
Chase which will modify and extend the Line of Credit up to $700,000 and
provide for a term loan of $500,000. The additional availability under
this New Credit Facility will be primarily used to finance future
acquisitions and the term loan will be used to finance the Proposed
Wyndham Transactions. In the event Patriot is successful in obtaining the
New Credit Facility, deferred loan costs totaling approximately $16,325,
including fees, legal and other expenses are expected to be incurred in
connection with the New Credit Facility (of which approximately $10,150
relate to the modification and extension of the Line of Credit and have
been reflected in the pro forma financial information).
186
<PAGE>
MANAGEMENT OF NEW PATRIOT REIT AND NEW PATRIOT OPERATING COMPANY
NEW PATRIOT REIT
The current members of the Board of Directors of Patriot will become members
of the Board of Directors of New Patriot REIT following the Merger. Three
current executive officers of Patriot will become the executive officers of
New Patriot REIT following the Merger. The age, positions and business
experience of the directors and executive officers of New Patriot REIT are set
forth below. Assuming the Restated Charter is approved by stockholders, the
Board of Directors of New Patriot REIT will be segregated into three classes,
with terms ending in 1997, 1998 and 1999 at the annual meetings of
stockholders, respectively. Directors elected at future stockholder meetings
will hold office for three year terms. Executive officers are elected annually
by the Board of Directors for terms ending on the next annual meeting of the
Board of Directors.
<TABLE>
<CAPTION>
NAME POSITION WITH NEW PATRIOT REIT AGE
---- ------------------------------ ---
<C> <S> <C>
Paul A. Nussbaum...... Chairman of the Board of Directors, Chief Executive 49
Officer and President
(term expires 1997)
William W. Evans III.. Office of the Chairman 45
Rex E. Stewart........ Chief Financial Officer and Treasurer 49
John H. Daniels....... Director (term expires 1999) 70
Leonard Boxer......... Independent Director (term expires 1997) 58
John C. Deterding..... Independent Director (term expires 1999) 65
Gregory R. Dillon..... Independent Director (term expires 1998) 74
Thomas S. Foley....... Independent Director (term expires 1998) 68
Arch K. Jacobson...... Independent Director (term expires 1997) 69
</TABLE>
Paul A. Nussbaum became Chairman of the Board of Directors and Chief
Executive Officer of Patriot in April 1995 and will continue in such capacity
and will assume the position of President for New Patriot REIT following the
Merger. Mr. Nussbaum founded the Patriot American group of companies ("Patriot
American") in 1991 and has been its Chief Executive Officer since its
inception. Prior to his association with Patriot American, Mr. Nussbaum
practiced real estate and corporate law in New York for 20 years, the last 12
years of which as chairman of the real estate department of Schulte Roth &
Zabel. He currently serves as a member of the Dallas Citizens' Council and is
a member of the Urban Land Institute, the American College of Real Estate
Lawyers and the Advisory Board of the Real Estate Center of the Wharton School
of Business, University of Pennsylvania. Mr. Nussbaum is a member of the Board
of Visitors of the Georgetown University Law Center and an Overseer of Colby
College, Waterville, Maine. He holds a B.A. from the State University of New
York at Buffalo and a J.D. from the Georgetown University Law Center.
William W. Evans III began serving in the Office of the Chairman of Patriot
in March 1997 and will continue in such capacity for New Patriot REIT
following the Merger. Previously, Mr. Evans was a Managing Director in
PaineWebber's Real Estate Group with responsibility for the origination and
structuring of principal transactions. He joined PaineWebber as a result of
the firm's acquisition of Kidder, Peabody and Co. Incorporated in December
1994. Prior to joining Kidder, Peabody in 1992, Mr. Evans was a First Vice
President and head of the Real Estate Financing Division of Swiss Bank
Corporation, responsible for all real estate activities of the U.S.
organization of the bank. Mr. Evans is a graduate of the University of
Virginia.
Rex E. Stewart became Executive Vice President and Chief Financial Officer
of Patriot in April 1995 and will serve in the position as Chief Financial
Officer and Treasurer for New Patriot REIT following the Merger. From 1993
until joining Patriot, he served as Chief Financial Officer and Treasurer of
Metro Joint Venture, an independent hotel management company based in Dallas,
Texas, which currently manages the Holiday Inn Select, North Dallas and the
Embassy Suites, Hunt Valley. He served in the same capacities for Metro
Hotels, Inc. from 1986 until 1993. Previously, Mr. Stewart was the Chief
Financial Officer of Lincoln Hotel Corporation, which owned and operated a
chain of upscale and luxury hotels across the United States. Prior to his
employment
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with Lincoln Hotel Corporation, Mr. Stewart was an audit manager with Arthur
Andersen & Co. in Dallas, Texas. He holds a B.B.A. from Texas A&M University
and an M.B.A. from the University of Southern California. He is a certified
public accountant.
John H. Daniels became a director of Patriot in September 1995 and will
continue in such capacity for New Patriot REIT following the Merger. He has
served as President of The Daniels Group Inc., a real estate development and
management company, since 1984. Mr. Daniels has also served as Vice Chairman
of Patriot American since its inception in 1991. Prior to forming The Daniels
Group Inc., Mr. Daniels served as Chairman and Chief Executive Officer of
Cadillac Fairview Corporation, a publicly held real estate development and
management company. Mr. Daniels has more than 40 years of real estate
development and management experience. Mr. Daniels is also a director of
Cineplex-Odeon Corporation, Consolidated H.C.I. Corporation, Samoth Capital
Corporation and Anitech Enterprises Inc. Mr. Daniels holds a B.S. in
Architecture from the University of Toronto.
Leonard Boxer became a director of Patriot in September 1995 and will
continue in such capacity for New Patriot REIT following the Merger. He has
been a partner and chairman of the real estate department of the law firm of
Stroock & Stroock & Lavan in New York, New York since 1987. Previously, he was
a founder and managing partner and head of the real estate department of
Olnick Boxer Blumberg Lane & Troy, a real estate law firm in New York. Mr.
Boxer is a member of the Board of Trustees of New York University Law School.
He is a member of the New York Regional Cabinet of the United States Holocaust
Memorial Museum. Mr. Boxer holds a B.A. and an L.L.B. from New York
University.
John C. Deterding became a director of Patriot in September 1995 and will
continue in such capacity for New Patriot REIT following the Merger. He has
been the owner of Deterding Associates, a real estate consulting company,
since June 1993. From 1975 until June 1993, he served as Senior Vice President
and General Manager of the Commercial Real Estate division of General Electric
Capital Corporation ("GECC"). In directing the real estate activities at GECC,
he was responsible for both domestic and international lending activities,
portfolio purchases, joint ventures, asset management and real estate
securitization. From November 1989 to June 1993, Mr. Deterding served as
Chairman of the General Electric Real Estate Investment Company, a privately
held REIT. He served as Director of GECC Financial Corporation from 1986 to
1993. Mr. Deterding is also a former member and trustee of the Urban Land
Institute. He holds a B.S. from the University of Illinois.
Gregory R. Dillon became a director of Patriot in September 1995 and will
continue in such capacity for New Patriot REIT following the Merger. He has
been Vice Chairman Emeritus of Hilton Hotels Corporation ("Hilton") since
1993. He has been a director of Hilton since 1977 and was elected Vice
Chairman in 1990. Mr. Dillon served as an Executive Vice President of Hilton
from 1980 until 1993. Mr. Dillon was also Executive Vice President of Hilton's
franchise company, Hilton Inns, Inc., from 1971 to 1986. He is a director of
the Conrad N. Hilton Foundation and is a founding member of the American Hotel
Association's Industry Real Estate Financing Advisory Council and the National
Association of Corporate Real Estate Executives. In addition to his
undergraduate degree, Mr. Dillon holds an L.L.B. from DePaul University.
Thomas S. Foley became a director of Patriot in September 1995 and will
continue in such capacity for New Patriot REIT following the Merger. He has
been a partner in the Washington, D.C. office of Akin, Gump, Strauss, Hauer &
Feld, L.L.P. since January 1995. From 1965 through 1994, Mr. Foley served 15
terms in the U.S. House of Representatives. Mr. Foley was Speaker of the U.S.
House of Representatives from June 1989 through December 1994. Mr. Foley
currently is a director of the H.J. Heinz Company, and he serves on the Global
Advisory Board of Coopers & Lybrand L.L.P., the Board of Advisors for the
Center for Strategic and International Studies and the Board of Directors for
the Center for National Policy. Mr. Foley holds a B.A. and an L.L.B. from the
University of Washington.
Arch K. Jacobson became a director of Patriot in September 1995 and will
continue in such capacity for New Patriot REIT following the Merger. He has
served as President of Jacobson-Berger Capital Group, Inc., a commercial
mortgage banking firm, since 1993. From 1986 to 1993, Mr. Jacobson was
Chairman of Union
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Pacific Realty Co., a real estate management and development company. He
served in various capacities with the Real Estate Department of The Prudential
Insurance Company from 1955 to 1980 and was President and Chief Executive
Officer of the Prudential Development Company (a subsidiary of the Prudential
Insurance Company) from 1982 to 1986. Mr. Jacobson currently serves as a
director of Walden Residential Properties, Inc., a publicly traded multifamily
apartment REIT. He was formerly a director of La Quinta Limited Partners, and
chaired the committee of independent directors that negotiated the tender
offer for and purchase of that company in 1994. Mr. Jacobson holds a B.S. from
Texas A&M University.
NEW PATRIOT OPERATING COMPANY
Following the consummation of the Merger, the current executive officers of
Patriot will become executive officers of New Patriot Operating Company and
the persons listed below will become directors of New Patriot Operating
Company. The ages, positions and business experience of these executive
officers and directors are set forth below. Assuming approval of the Restated
Charter, the Board of Directors of New Patriot Operating Company will be
segregated into three classes, with terms ending in 1997, 1998 and 1999 at the
annual meeting of stockholders, respectively. Directors elected at future
stockholder meetings will hold office for three years. Executive officers are
elected annually by the Board of Directors for terms ending on the next annual
meeting of the Board of Directors.
<TABLE>
<CAPTION>
NAME POSITION WITH NEW PATRIOT OPERATING COMPANY AGE
- ---- ------------------------------------------- ---
<S> <C> <C>
Paul A. Nussbaum........... Chairman of the Board of Directors and Chief 49
Executive Officer
Thomas W. Lattin........... President and Chief Operating Officer 52
Rex E. Stewart............. Chief Financial Officer and Treasurer 49
Michael Murphy............. Senior Vice President--Acquisitions 40
Leslie Ng.................. Senior Vice President--Acquisitions 38
Arch K. Jacobson........... Independent Director 69
</TABLE>
In connection with the consummation of the Merger and the Related
Transactions, three additional independent directors will be appointed to the
Board of Directors of New Patriot Operating Company.
Paul A. Nussbaum will become Chairman of the Board of Directors and Chief
Executive Officer for New Patriot Operating Company following the Merger. For
biographical information on Mr. Nussbaum, see "--New Patriot REIT."
Thomas W. Lattin became President and Chief Operating Officer of Patriot in
April 1995 and will continue in such capacity for New Patriot Operating
Company following the Merger. He has more than 25 years of experience in the
hotel industry as an executive and consultant. From 1976 through 1983, Mr.
Lattin served as President of the Mariner Corporation, a hotel development and
management company based in Houston, Texas. During his tenure, Mariner's hotel
portfolio of owned and managed properties grew from two hotels to 25 hotels
throughout the Sunbelt states. In 1984, he founded Great West Hotels, a hotel
management and consulting company, and served as President and Chief Executive
Officer through 1987. From 1987 through 1994, he served as the National
Partner of the hospitality industry consulting practice of Laventhol & Horwath
and subsequently as a partner in the national hospitality consulting group of
Coopers & Lybrand L.L.P. In 1994, he joined the Hospitality Group of Kidder,
Peabody & Co. Incorporated as a Senior Vice President and later served as a
Senior Vice President with PaineWebber, following PaineWebber's acquisition of
certain assets of Kidder, Peabody & Co. Mr. Lattin is a contributing author of
an introductory textbook on hotel management, which is used by colleges and
universities worldwide. Mr. Lattin holds a B.S. and M.S. in Hotel Management
from the Cornell School of Hotel Administration. He is a certified public
accountant.
Rex E. Stewart will become Chief Financial Officer and Treasurer for New
Patriot Operating Company following the Merger. For biographical information
on Mr. Stewart, see "--New Patriot REIT."
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Michael Murphy became Senior Vice President--Acquisitions of Patriot in
April 1996 and will continue in such capacity for New Patriot Operating
Company following the Merger. From 1994 through 1996, Mr. Murphy was Chief
Executive Officer and Founder of The Stonebridge Group, Inc., a company
specializing in structuring and negotiating capital market financing
transactions. From 1988 to 1994 Mr. Murphy was a Principal of Affirmative
Equities Company, a New York real estate and advising firm. Mr. Murphy
graduated from Williams College, Williamstown, Massachusetts and holds a J.D.
from Fordham University School of Law, New York.
Leslie Ng became Senior Vice President--Acquisitions of Patriot in June 1995
and will continue in such capacity for New Patriot Operating Company following
the Merger. From 1992 to June 1995, he served as Senior Vice President,
Development of CHC International, Inc. From 1987 until 1992, Mr. Ng was Vice
President, Real Estate of Tobishima Associates, Ltd., a multinational real
estate investment and development company. Prior to his association with
Tobishima Associates, Ltd., Mr. Ng was a management consultant at Deloitte &
Touche from 1985 to 1987 and a structural engineer at Burns and Roe, Inc., an
engineering and construction management company, from 1980 to 1983. Mr. Ng
holds a B.E. in civil engineering from The Cooper Union and an M.B.A. from the
Wharton School, University of Pennsylvania.
Arch K. Jacobson will become a director of New Patriot Operating Company
upon consummation of the Merger. For biographical information on Mr. Jacobson,
see "Management of New Patriot REIT and New Patriot Operating Company--New
Patriot REIT."
OVERLAP OF MANAGEMENT OF NEW PATRIOT REIT AND NEW PATRIOT OPERATING COMPANY
Paul A. Nussbaum and Rex E. Stewart will serve as the Chief Executive
Officer and Chief Financial Officer, respectively, for both New Patriot REIT
and New Patriot Operating Company. Patriot believes that this type of
management structure will decrease the possibility of disagreements between
the management and Board of Directors of these two entities and avoid
situations like those currently occurring between Bay Meadows and Cal Jockey.
See "The Companies--Cal Jockey" and "Stockholders' Meetings, Litigation and
Disagreements." However, no assurance can be given that Messrs. Nussbaum's and
Stewart's interests as officers of one company will not conflict with their
interests as officers of the other company. See "Risk Factors--Potential
Conflicts of Interest Between New Patriot REIT and New Patriot Operating
Company." This overlap in management will terminate in connection with the
consummation of the Proposed Wyndham Transactions. See "The Companies--
Surviving Companies--The Proposed Wyndham Transactions." At the present time,
it is impossible to predict the percentages of time which Messrs. Nussbaum and
Stewart will provide services to New Patriot REIT and New Patriot Operating
Company, respectively. Such percentages will vary from year to year depending
on the respective amount and types of business performed by each such entity.
Messrs. Nussbaum and Stewart will not receive a full salary from each company;
instead, the Compensation Committees of the Boards of Directors of the two
companies will meet on an annual basis to determine the appropriate allocation
of their salaries between the two companies. Each company shall be responsible
for paying its allocable portion of the salaries.
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DESCRIPTION OF CAPITAL STOCK
Upon approval of the Proposals, the rights of stockholders of New Patriot
REIT and New Patriot Operating Company will be governed by the Restated
Charters and the Restated Bylaws. The following discussion summarizes certain
of the key terms of the Restated Charter and the Restated Bylaws. This summary
does not purport to be complete and is subject to and qualified in its
entirety by reference to the Restated Charters and the Restated Bylaws, which
are attached to this Joint Proxy Statement/Prospectus as Annexes B and D and
Annexes C and E, respectively, and the relevant provisions of the DGCL.
Stockholders of Patriot, Cal Jockey and Bay Meadows should carefully read the
Restated Charters and the Restated Bylaws.
Cal Jockey currently has the authority to issue 10,000,000 shares of Cal
Jockey Common Stock and 3,000,000 shares of Cal Jockey Preferred Stock under
the Cal Jockey Charter. Bay Meadows currently has the authority to issue
10,000,000 shares of Bay Meadows Common Stock and 3,000,000 shares of Bay
Meadows Preferred Stock under the Bay Meadows Charter. Patriot currently has
the authority to issue 200,000,000 shares of Patriot Common Stock and
20,000,000 shares of preferred stock, no par value. Under the Restated
Charters, each of New Patriot REIT and New Patriot Operating Company will have
the authority to issue 650,000,000 shares of New Patriot REIT Common Stock and
New Patriot Operating Company Common Stock, respectively, 100,000,000 shares
of preferred stock, par value $.01 per share (the "Preferred Stock"), and
750,000,000 shares of excess stock, par value $.01 per share (the "Excess
Stock"). No shares of Preferred Stock or Excess Stock will be outstanding
immediately following the consummation of the Merger.
COMMON STOCK
The holders of paired shares of New Patriot REIT Common Stock and New
Patriot Operating Company Common Stock will be entitled to one vote per share
on all matters voted on by stockholders, including elections of directors.
Except as otherwise required by law, by the Restated Charters with respect to
Excess Stock or provided in any resolution adopted by the Board of Directors
of either New Patriot REIT or New Patriot Operating Company with respect to
any series of Preferred Stock, the holders of paired shares of New Patriot
REIT Common Stock and New Patriot Operating Company Common Stock exclusively
possess all voting power. The Restated Charters do not provide for cumulative
voting in the election of directors. Subject to any preferential rights of any
outstanding series of Preferred Stock and the rights of holders of Excess
Stock, the holders of paired shares of New Patriot REIT Common Stock and New
Patriot Operating Company Common Stock are entitled to such dividends as may
be declared from time to time by the Boards of Directors of New Patriot REIT
and New Patriot Operating Company from funds available for such purpose, and
upon liquidation will be entitled to receive pro rata all assets of New
Patriot REIT and New Patriot Operating Company available for distribution to
such holders. All paired shares of New Patriot REIT Common Stock and New
Patriot Operating Company Common Stock issued pursuant to the Merger will be
fully paid and nonassessable, and the holders thereof will not have preemptive
rights.
PREFERRED STOCK
The Board of Directors of each of New Patriot REIT and New Patriot Operating
Company is authorized to provide for the issuance of shares of Preferred Stock
in one or more series, to establish the number of shares in each series and to
fix the designation, powers, preferences and rights of each such series and
the qualifications, limitations or restrictions thereof. Because the Board of
Directors of each of New Patriot REIT and New Patriot Operating Company has
the power to establish the preferences and rights of each class or series of
Preferred Stock, each Board of Directors may afford the holders of any series
or class of Preferred Stock preferences, powers and rights, voting or
otherwise, senior to the rights of holders of shares of New Patriot REIT
Common Stock or New Patriot Operating Company Common Stock, respectively. The
issuance of shares of Preferred Stock could have the effect of delaying or
preventing a change in control of New Patriot REIT and New Patriot Operating
Company.
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EXCESS STOCK
Upon the violation of certain transfer restrictions contained in the
Restated Charters, shares of any class or series of Equity Stock of New
Patriot REIT and New Patriot Operating Company will automatically be converted
into an equal number of shares of Excess Stock of New Patriot REIT or New
Patriot 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 New Patriot REIT and New Patriot Operating Company and
shall be held by the trustee of the Trust (the "Trustee") for the benefit of a
charitable beneficiary (a "Beneficiary"). 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 New Patriot REIT or New Patriot 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. Upon the sale of the
shares of Excess Stock to either a permitted transferee under the Restated
Charters (the "Permitted Transferee") or to New Patriot REIT and New Patriot
Operating Company, such shares of Excess Stock will be automatically converted
into an equal number of shares of Equity Stock of the same class or series
from which such Excess Stock was converted.
THE PAIRING AGREEMENT
Under the Pairing Agreement, shares of New Patriot REIT Common Stock and New
Patriot Operating Company Common Stock and shares of Preferred Stock that are
convertible into shares of New Patriot REIT Common Stock and New Patriot
Operating Company Common Stock shall not be transferrable or transferred on
the books of such company unless a simultaneous transfer is made by the same
transferor to the same transferee of an equal number of shares of that same
class or series of Equity Stock of the other company. Neither New Patriot REIT
nor New Patriot Operating Company may issue shares of New Patriot REIT Common
Stock and New Patriot Operating Company Common Stock or shares of Preferred
Stock that are convertible into shares of New Patriot REIT Common Stock and
New Patriot Operating Company Common Stock 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 Equity Stock of the other company and
for the pairing of such shares. Each certificate issued for paired shares of
New Patriot REIT or New Patriot Operating Company must be issued "back-to-
back" with a certificate evidencing the same number of shares of the other
company. The certificates must bear a conspicuous legend on its face referring
to the restrictions on ownership and transfer under the Pairing Agreement.
In addition, neither New Patriot REIT nor New Patriot 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.
CERTAIN PROVISIONS OF THE RESTATED CHARTERS AND RESTATED BYLAWS
Restrictions on Ownership and Transfer
For New Patriot REIT to qualify as a REIT under the Code, it must meet
certain requirements concerning the ownership of its outstanding shares of
capital stock. Specifically, not more than 50% in value of New Patriot REIT's
outstanding shares of 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, and New Patriot REIT must be
beneficially owned by 100 or more persons during at least 335 days of a
taxable year of twelve months or during a proportionate part of a shorter
taxable year. In addition, New Patriot REIT must meet certain requirements
regarding the nature of its gross income in order to qualify as a REIT. One
such requirement is that at least 75% of
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New Patriot REIT's gross income for each year must consist of rents from real
property and income from certain other real property investments. The rents
received by the Patriot Partnership and its subsidiary partnerships from the
Lessees will not qualify as rents from real property if New Patriot REIT owns,
actually or constructively, 10% or more of the ownership interests in any
Lessee within the meaning of Section 856(d)(2)(B) of the Code, the result of
which would be the loss of REIT status for New Patriot REIT. See "Certain
Federal Income Tax Considerations--REIT Qualification."
The Restated Charters provide, pursuant to the Ownership Limit, that no
person or entity may Beneficially Own or Constructively Own (as those terms
are defined below) in excess of 9.8% of the outstanding shares of any class or
series of Equity Stock of New Patriot REIT or New Patriot Operating Company,
unless the Ownership Limit is waived by the Board of Directors of the relevant
corporation in accordance with the Restated Charters. Any transfer of Equity
Stock of New Patriot REIT or New Patriot Operating Company that would (i)
result in any person or entity owning, directly or indirectly, shares of
Equity Stock of New Patriot REIT or New Patriot 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 Restated
Charters, (ii) result in the capital stock of New Patriot REIT 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 New Patriot REIT being "closely held" within the meaning of
Section 856(h) of the Code or (iv) cause New Patriot REIT to own, actually or
constructively, 10% or more of the ownership interests in a tenant of the real
property of New Patriot REIT or a subsidiary of New Patriot REIT 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. For purposes of the Restated Charters, "Beneficial Ownership" means,
with respect to any individual or entity, ownership of shares of Equity Stock
equal to the sum of (i) the shares of Equity Stock directly or indirectly
owned by such individual or entity, (ii) the number of shares of Equity Stock
treated as owned directly or indirectly by such individual or entity through
the application of the constructive ownership rules of Section 544 of the
Code, as modified by Section 856(h)(1)(B) of the Code, and (iii) the number of
shares of Equity Stock which such individual or entity is deemed to
beneficially own pursuant to Rule 13d-3 under the Exchange Act. For purposes
of computing the percentage of shares of any class or series of Equity Stock
of New Patriot REIT or New Patriot Operating Company Beneficially Owned by any
person or entity, any shares of Equity Stock of New Patriot REIT or New
Patriot Operating Company which are deemed to be Beneficially Owned by such
person or entity pursuant to Rule 13d-3 of the Exchange Act but which are not
outstanding shall be deemed to be outstanding. The terms "Beneficial Owner,"
"Beneficially Owns" and "Beneficially Owned" shall have correlative meanings.
Also for purposes of the Restated Charters, "Constructive Ownership" means
ownership of shares of Equity Stock by an individual or entity who is or would
be treated as a direct or indirect owner of such shares of Equity Stock
through the application of Section 318 of the Code, as modified by Section
856(d)(5) of the Code. The terms "Constructive Owner," "Constructively Owns"
and "Constructively Owned" shall have correlative meanings.
Upon the occurrence of a purported transfer of shares that would result in a
violation of any of the foregoing transfer restrictions, that number of shares
that violate the transfer restrictions shall be automatically converted into
an equal number of shares of Excess Stock and transferred to a Trust for the
benefit of the Beneficiary, effective on the Trading Day (as hereinafter
defined) prior to the date of the purported transfer of such shares, and the
record holder of the shares of Equity Stock that are converted into shares of
Excess Stock (a "Prohibited Owner") shall submit such number of shares of
Equity Stock to New Patriot REIT or New Patriot Operating Company, as the case
may be, for registration in the name of the Trustee. 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 New Patriot REIT or New Patriot Operating Company,
and shall thereupon be restored to the status of authorized but unissued
shares of the particular class
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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.
Shares of Equity Stock that are converted into shares of Excess Stock and
transferred to a Trust shall be held in trust for the exclusive benefit of the
Beneficiary. Shares of Excess Stock will remain issued and outstanding shares
of stock. Each share of Excess Stock shall be entitled to the same dividends
and distributions (as to both timing and amount) as may be declared by the
Board of Directors of New Patriot REIT or New Patriot 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, as record holder of the shares
of Excess Stock, shall be entitled to receive all dividends and distributions
and shall hold all such dividends or distributions in trust for the benefit of
the Beneficiary. The Prohibited Owner with respect to such shares of Excess
Stock shall repay to the Trust the amount of any dividends or distributions
received by it (i) that are attributable to any shares of Equity Stock that
have been converted into shares of Excess Stock and (ii) the record date of
which was on or after the date that such shares were converted into shares of
Excess Stock. New Patriot REIT and New Patriot Operating Company shall take
all measures that they determine reasonably necessary to recover the amount of
any such dividend or distribution paid to a Prohibited Owner, including, if
necessary, withholding any portion of future dividends or distributions
payable on shares of Equity Stock beneficially owned or constructively owned
by the person who, but for the restrictions on transfer, would constructively
own or beneficially own the shares of Excess Stock and, as soon as reasonably
practicable following receipt or withholding thereof, shall pay over to the
Trust for the benefit of the Beneficiary the dividends so received or
withheld, as the case may be.
In the event of any voluntary or involuntary liquidation of, or winding up
of, or any distribution of the assets of, New Patriot REIT or New Patriot
Operating Company, each holder of shares of Excess Stock shall be entitled to
receive, ratably with each other holder of shares of Equity Stock of the same
class or series from which the Equity Stock was converted, that portion of the
assets of New Patriot REIT or New Patriot Operating Company, as the case may
be, that is available for distribution to the holders of such class or series
of Equity Stock. The Trust shall distribute to the Prohibited Owner the
amounts received upon such liquidation, dissolution, or winding up, or
distribution; provided, however, that the Prohibited Owner shall not be
entitled to receive amounts in excess of, 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 the shares into shares of Excess Stock,
the price per share, if any, such Prohibited Owner paid for the shares of
Equity Stock (which, in the case of Equity Stock that is paired, shall equal
the price paid per share multiplied by the most recent Valuation Percentage
(as hereinafter defined)) and, 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 the shares into
shares of Excess Stock, the price per share equal to the Market Price (as
hereinafter defined) on the date of such non-transfer event or transfer. Any
remaining amount in such Trust shall be distributed to the Beneficiary.
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 holders
of shares of Excess Stock converted from the same class or series of Equity
Stock shall vote together with the holders of such Equity Stock as a single
class on all such matters. The Trustee, as record holder of the shares of
Excess Stock, shall be entitled to vote all shares of Excess Stock. Any vote
taken by a Prohibited Owner prior to the discovery by New Patriot REIT or New
Patriot Operating Company, as the case may be, that the shares of Equity Stock
were exchanged for shares of Excess Stock will be rescinded as void ab initio.
The Trustee shall have the exclusive and absolute right to designate a
Permitted Transferee of any and all shares of Excess Stock if New Patriot REIT
or New Patriot 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 valuable consideration (whether in a public or private sale) the
shares of Excess Stock (which, in the case of Excess Stock that is paired,
shall equal the price paid per share multiplied by the most recent Valuation
Percentage) and (ii) the Permitted Transferee so designated may
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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 New Patriot REIT or New Patriot 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 Directors of New Patriot
REIT or New Patriot 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 New Patriot REIT or New Patriot 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 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. Such conversion and transfer to
the Trust shall be effective as of the close of trading on the Trading Day
prior to the date of the transfer to the purported Permitted Transferee and
the provisions of the Restated Charters regarding compensation to a Prohibited
Owner shall apply to such shares with respect to any future transfer of such
shares by the Trust.
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 (which, in the case of
Excess Stock that is paired, shall be determined based on the Valuation
Percentage) 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 on the
date of such non-transfer event or transfer and (ii) the price per share
(which, in the case of Excess Stock that is paired, shall be determined based
on the Valuation Percentage) 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.
Shares of Excess Stock shall be deemed to have been offered for sale by a
Trust to New Patriot REIT or New Patriot 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 (which, in the case
of Excess Stock that is paired, shall be determined based on the Valuation
Percentage) 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
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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 New Patriot REIT nor New Patriot 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.
"Market Price" on any date shall mean the average of the Closing Price for
the five consecutive Trading Days ending on such date. "Closing Price" on any
date shall mean the last sale price, regular way, or, in case no such sale
takes place on such day, the average of the closing bid and asked prices,
regular way, in either case as reported in the principal consolidated
transaction reporting system with respect to securities listed or admitted to
trading on the NYSE or, if the shares of Equity Stock are not listed or
admitted to trading on the NYSE, as reported in the principal consolidated
transaction reporting system with respect to securities listed on the
principal national securities exchange on which the shares of Equity Stock are
listed or admitted to trading or, if the shares of Equity Stock are not listed
or admitted to trading on any national securities exchange, the last quoted
price, or if not so quoted, the average of the high bid and low asked prices
in the over-the-counter market, as reported by the National Association of
Securities Dealers, Inc. Automated Quotation System or, if such system is no
longer in use, the principal other automated quotation system that may then be
in use or, if the shares of Equity Stock are not quoted by any such
organization, the average of the closing bid and asked prices as furnished by
a professional market maker making a market in the shares of Equity Stock. In
the case of Equity Stock that is paired, "Market Price" shall mean the "Market
Price" for paired shares multiplied by a fraction (expressed as a percentage)
determined by dividing the value for such Equity Stock most recently
determined under the Pairing Agreement over the value of a paired share most
recently determined under the Pairing Agreement (the "Valuation Percentage").
"Trading Day" shall mean a day on which the principal national securities
exchange on which the shares of Equity Stock are listed or admitted to trading
is open for the transaction of business or, if the shares of Equity Stock are
not listed or admitted to trading on any national securities exchange, shall
mean any day other than a Saturday, a Sunday or a day on which banking
institutions in the State of New York are authorized or obligated by law or
executive order to close.
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 New Patriot REIT or New Patriot
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 New Patriot REIT'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 New Patriot REIT or New Patriot 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 New Patriot REIT'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 New Patriot REIT
or New Patriot Operating Company shall, within 30 days after January 1 of each
year, provide to New Patriot REIT or New Patriot 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.
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 New
Patriot REIT determines that it is no longer in the best interests of New
Patriot REIT to attempt to qualify, or to continue to qualify, as a REIT.
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The restrictions on transfer contained in the Restated Charters could have
the effect of discouraging a takeover or other transaction in which holders of
some, or a majority, of shares of Equity Stock might receive a premium from
their shares of Equity Stock over the then prevailing Market Price or which
such holders might believe to be otherwise in their best interest.
Number of Directors; Removal; Filling Vacancies
The Restated Charters and the Restated Bylaws provide that the number of
directors of each of New Patriot REIT and New Patriot Operating Company shall
be fixed by resolution duly adopted from time to time by the Board of
Directors. Pursuant to the terms of the Restated Charters, the directors are
divided into three classes with the term of office of one class expiring each
year. As the term of each class expires, directors in that class will be
elected for a term of three years and until their successors are duly elected
and qualified.
The Restated Charters and the Restated Bylaws each provide that a director
may be removed, only for cause, by the vote of holders of at least 75% of the
outstanding shares of capital stock entitled to vote for the election of
directors at a special meeting of the stockholders called for the purpose of
removing such director. "Cause," with respect to the removal of any director,
is defined in the Restated Charters to mean only (i) conviction of a felony,
(ii) declaration of unsound mind by order of court, (iii) gross dereliction of
duty, (iv) commission of any action involving moral turpitude or (v)
commission of an action which constitutes intentional misconduct or a knowing
violation of law if such action in either event results both in an improper
substantial personal benefit and a material injury to New Patriot REIT or New
Patriot Operating Company, as the case may be. Any and all vacancies in the
Board of Directors, however occurring, shall be filled solely by the
affirmative vote of a majority of the remaining directors then in office, even
if less than a quorum of the Board of Directors. Any director so appointed
shall hold office for the remainder of the full term of the class of directors
in which the vacancy occurred and until such director's successor is duly
elected and qualified or, if earlier, such director's earlier resignation or
removal.
The staggered board provision prevents stockholders of New Patriot REIT and
New Patriot Operating Company from voting on the election of all directors at
each annual meeting. The existence of a staggered board, the fact that
directors may only be removed for cause and the fact that vacancies in the
Board of Directors shall be filled soley by the remaining directors may have
the effect of delaying or deferring a change in control of New Patriot REIT
and New Patriot Operating Company or the removal of incumbent management.
Special Meetings of Stockholders
The Restated Bylaws provide that a special meeting of stockholders may only
be called by the Chairman of the Board of Directors or a majority of the Board
of Directors. Accordingly, stockholders of New Patriot REIT and New Patriot
Operating Company will have no ability to call a special meeting of
stockholders.
Limitation of Liability and Indemnification
The Restated Charters, in conjunction with the DGCL, eliminate a director's
personal liability to New Patriot REIT or New Patriot Operating Company, as
the case may be, or their respective stockholders for breach of fiduciary
duty, except for liability (i) for any breach of the director's duty of
loyalty to New Patriot REIT or New Patriot Operating Company, as the case may
be, or their respective stockholders, (ii) for acts or omissions not in good
faith or which involve intentional misconduct or a knowing violation of law,
(iii) under Section 174 of the DGCL or (iv) for any transaction from which the
director derived an improper personal benefit.
The DGCL permits, but does not require, a corporation to indemnify its
directors, officers, employees or agents and expressly provides that the
indemnification provided for under the DGCL shall not be deemed exclusive of
any indemnification right under any bylaw, vote of stockholders or
disinterested directors, or otherwise. The DGCL permits indemnification
against expenses and certain other liabilities arising out of legal actions
brought or threatened against such persons for their conduct on behalf of the
corporation, provided that
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each such person acted in good faith and in a manner that he or she reasonably
believed was in or not opposed to the corporation's best interests and in the
case of a criminal proceeding, had no reasonable cause to believe his or her
conduct was unlawful. The DGCL does not allow indemnification of directors in
the case of an action by or in the right of the corporation (including
stockholder derivative suits) unless the directors successfully defend the
action or indemnification is ordered by the court. The Restated Bylaws provide
for indemnification to the fullest extent authorized by the DGCL and,
therefore, these statutory indemnification rights are available to the
directors, officers, employees and agents of New Patriot REIT and New Patriot
Operating Company.
Amendment of Restated Charters and Restated Bylaws
The Restated Charters provide that, with the exception of certain provisions
concerning business combinations with interested stockholders which require
the approval of a greater proportion, the Restated Charter may be amended in
the manner prescribed by the DGCL, which requires the approval of the Board of
Directors and the approval of the stockholders by the affirmative vote of a
majority of the outstanding shares entitled to vote on such amendment.
The Restated Bylaws may be amended or repealed (i) except as otherwise
provided by law, by the affirmative vote of a majority of the directors then
in office or (ii) at any meeting of stockholders by the affirmative vote of at
least two-thirds of the shares present in person or represented by proxy at
such meeting and entitled to vote on such amendment or repeal, voting together
as a single class; provided, however, that if the Board of Directors
recommends that stockholders approve such amendment or repeal at such meeting
of stockholders, such amendment or repeal shall only require the affirmative
vote of the majority of the shares present in person or represented by proxy
at such meeting and entitled to vote on such amendment or repeal, voting
together as a single class.
Business Combinations
The DGCL requires that a merger, consolidation or any sale, lease or
exchange of all or substantially all of a corporation's property and assets
(collectively, "business combinations") be approved by a majority of the
outstanding shares of the corporation entitled to vote on such a matter, or a
greater proportion if required by the certificate of incorporation. In
addition, under the DGCL, a publicly-held corporation may not engage in a
business combination with an "interested stockholder" for a period of three
years following the time of the transaction in which the person became an
interested stockholder, unless (i) prior to such time the board of directors
of the corporation approved either the business combination or the transaction
which resulted in the stockholder becoming an interested stockholder, (ii)
upon consummation of the transaction which resulted in the stockholder's
becoming an interested stockholder, the interested stockholder owned at least
85% of the voting stock of the corporation outstanding at the time the
transaction commenced or (iii) at or subsequent to such time, the business
combination is approved by the board of directors and authorized at an annual
or special meeting of stockholders, and not by written consent, by the vote of
66 2/3% of the outstanding voting stock which is not owned by the interested
stockholder. Subject to certain exceptions, the DGCL defines an "interested
stockholder" as a person who, together with affiliates and associates, owns,
or within three years did own, 15% or more of the corporation's voting stock.
The Restated Bylaws provide that any corporate action shall be approved at a
stockholder meeting at which a quorum is present by the affirmative vote of a
majority of shares present in person or by proxy at such meeting and entitled
to vote on the matter, except where a larger vote is required by law, the
Restated Charters or the Restated Bylaws. The DGCL provides for a larger vote
with respect to business combinations and, therefore, a business combination
involving New Patriot REIT or New Patriot Operating Company requires the
approval of a majority of the outstanding shares of New Patriot REIT or New
Patriot Operating Company, as the case may be. In addition, the Restated
Charters provide that a business combination with a Related Person (as defined
below) requires, with certain exceptions, the approval of 66 2/3% of the
outstanding shares of capital stock of New Patriot REIT or New Patriot
Operating Company, as the case may be, which shall include the affirmative
vote of at least 50% of the outstanding shares of capital stock held by
stockholders other than the Related Person.
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However, such 66 2/3% voting requirement shall not be applicable if the
business combination was approved by the Board of Directors prior to the
acquisition by such Related Person of the beneficial ownership of 5% or more
of the outstanding shares of the capital stock of New Patriot REIT or New
Patriot Operating Company, as the case may be. For purposes of the Restated
Charters, a "Related Person" is defined as any person or entity who
beneficially owns (as defined in Rule 13d-3 promulgated under the Exchange
Act) more than 5% of the outstanding shares of capital stock of New Patriot
REIT or New Patriot Operating Company, as the case may be, and any "affiliate"
or "associate" (as those terms are defined in Rule 12b-2 promulgated under the
Exchange Act).
The business combination provisions of the DGCL, together with the Related
Person provision of the Restated Charters, may have the effect of deterring
certain takeovers of New Patriot REIT and New Patriot Operating Company.
COMPARISON OF STOCKHOLDER RIGHTS
The rights of Patriot stockholders are presently governed by the VSCA, the
Patriot Charter and the Patriot Bylaws and the rights of the stockholders of
Cal Jockey and Bay Meadows are presently governed by the DGCL, the Cal Jockey
Charter, the Bay Meadows Charter, the Cal Jockey Bylaws and the Bay Meadows
Bylaws. Under the terms of the Merger Agreement, upon stockholder approval of
the Proposals, the Cal Jockey Charter and the Cal Jockey Bylaws and the Bay
Meadows Charter and the Bay Meadows Bylaws will be amended and restated and
such amended and restated charters and bylaws will become the Restated
Charters and the Restated Bylaws of New Patriot REIT and New Patriot Operating
Company, respectively. At the Effective Time, stockholders of Patriot, and
stockholders of Cal Jockey and Bay Meadows will become stockholders of New
Patriot REIT and New Patriot Operating Company and their rights will
thereafter be governed by the DGCL, the Restated Charters and the Restated
Bylaws. In considering the recommendation of the Boards of Directors of
Patriot, Cal Jockey and Bay Meadows to approve the Proposals, stockholders of
Patriot, Cal Jockey and Bay Meadows should be aware that the rights of
stockholders of New Patriot REIT and New Patriot Operating Company under the
Restated Charters and the Restated Bylaws will differ significantly from the
existing rights of the Patriot stockholders under the Patriot Charter and
Patriot Bylaws as well as the existing rights of the stockholders of Cal
Jockey and Bay Meadows under the Cal Jockey Charter, the Bay Meadows Charter,
the Cal Jockey Bylaws and the Bay Meadows Bylaws.
The following discussion summarizes (i) certain differences between the
rights of stockholders of Patriot and the rights of stockholders of New
Patriot REIT and New Patriot Operating Company and (ii) certain differences
between the rights of stockholders of Cal Jockey and Bay Meadows and the
rights of stockholders of New Patriot REIT and New Patriot Operating Company.
This summary does not purport to be complete and is subject to and qualified
in its entirety by reference to: the Restated Charters and the Restated
Bylaws, which are attached as Annexes B and D and Annexes C and E,
respectively, to this Joint Proxy Statement/Prospectus; the Patriot Charter,
the Patriot Bylaws, the Cal Jockey Charter, the Bay Meadows Charter, the Cal
Jockey Bylaws and the Bay Meadows Bylaws (which are incorporated by reference
as exhibits to the Registration Statement of which this Joint Proxy
Statement/Prospectus is a part); and the relevant provisions of the DGCL.
Stockholders of Patriot, Cal Jockey and Bay Meadows should carefully read the
Restated Charters and the Restated Bylaws.
COMPARISON OF RIGHTS OF PATRIOT STOCKHOLDERS TO STOCKHOLDERS OF NEW PATRIOT
REIT AND NEW PATRIOT OPERATING COMPANY
Amendment of Charter
In conformity with the VSCA, amendment of the Patriot Charter generally
requires the approval of a majority of the votes entitled to be cast by each
voting group that is entitled to vote on the matter, with the exception of
certain provisions of the Patriot Charter, which require the approval of
greater proportions.
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The Restated Charters provide that, with the exception of certain provisions
concerning business combinations with interested stockholders which require
the approval of a greater proportion, the Restated Charter may be amended in
the manner prescribed by the DGCL, which requires the approval of the Board of
Directors and the approval of the stockholders by the affirmative vote of a
majority of the outstanding shares entitled to vote on such amendment.
Accordingly, the stockholders of New Patriot REIT and New Patriot Operating
Company will generally have the same ability to amend the Restated Charters
that Patriot stockholders have to amend the Patriot Charter.
Amendment of Bylaws
In conformity with the VSCA, the Patriot Bylaws may be amended or altered at
any meeting of the Board of Directors by the vote of a majority of the number
of directors fixed by the Patriot Bylaws. The stockholders entitled to vote in
respect of the election of directors, however, shall have the power, by the
vote of a majority of the votes entitled to be cast at a meeting at which a
quorum is present, to rescind, amend, alter or repeal any bylaw and enact any
bylaw which, if expressly so provided, may not be amended, altered or repealed
by the Board of Directors.
The Restated Bylaws may be amended or repealed (i) except as otherwise
provided by law, by the affirmative vote of a majority of the directors then
in office or (ii) at any meeting of stockholders by the affirmative vote of at
least two-thirds of the shares present in person or represented by proxy at
such meeting and entitled to vote on such amendment or repeal, voting together
as a single class; provided, however, that if the Board of Directors
recommends that stockholders approve such amendment or repeal at such meeting
of stockholders, such amendment or repeal shall only require the affirmative
vote of the majority of the shares present in person or represented by proxy
at such meeting and entitled to vote on such amendment or repeal, voting
together as a single class.
Thus, stockholders of New Patriot REIT and New Patriot Operating Company
will generally have a lesser ability to amend or repeal the Restated Bylaws
than Patriot stockholders have to amend or repeal the Patriot Bylaws.
Directors
The Patriot Charter and the Patriot Bylaws provide that Patriot shall have
not fewer than three nor more than fifteen directors. In addition, the Patriot
Bylaws provide that the minimum and maximum number of directors may be changed
by vote of the stockholders and that the number of directors may be changed,
within the minimum and maximum range, by the Board of Directors. Pursuant to
the terms of the Patriot Charter, each director will hold office for a one-
year term expiring at the annual meeting of stockholders to be held the
following year and until his or her successor is duly elected and qualified.
The Patriot Charter and the Patriot Bylaws provide that a director may be
removed, with or without cause, by the vote of holders of at least 75% of the
outstanding shares of capital stock entitled to vote for the election of
directors at a special meeting of the stockholders called for the purpose of
removing such director. The Patriot Charter does not contain a definition of
what constitutes "cause." Any vacancy occurring in the Board of Directors may
be filled by the affirmative vote of the majority of the remaining directors,
even if less than a quorum of the Board of Directors, and the term of office
of any director so elected shall expire at the next stockholders' meeting at
which directors are elected.
The Restated Charters and Restated Bylaws provide that the number of
directors shall be fixed by resolution duly adopted from time to time by the
Board of Directors. Pursuant to the Restated Charters, the directors are
divided into three classes with the term of office of one class expiring each
year. As the term of each class expires, directors in that class will be
elected for a term of three years and until their successors are duly elected
and qualified.
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The Restated Charters and Restated Bylaws provide that a director may be
removed, only for cause, by the vote of holders of at least 75% of the
outstanding shares of capital stock entitled to vote for the election of
directors at a special meeting of the stockholders called for the purpose of
removing such director. "Cause," with respect to the removal of any director,
is defined in the Restated Charters to mean only (i) conviction of a felony,
(ii) declaration of unsound mind by order of court, (iii) gross dereliction of
duty, (iv) commission of any action involving moral turpitude, or (v)
commission of an action which constitutes intentional misconduct or a knowing
violation of law if such action in either event results both in an improper
substantial personal benefit and a material injury to New Patriot REIT or New
Patriot Operating Company, as the case may be.
Any and all vacancies in the Board of Directors, however occurring, shall be
filled solely by the affirmative vote of a majority of the remaining directors
then in office, even if less than a quorum of the Board of Directors. Any
director so appointed shall hold office for the remainder of the full term of
the class of directors in which the vacancy occurred and until such director's
successor shall have duly elected and qualified or until such director's
earlier resignation or removal.
The staggered board provision in the Restated Charters prevents stockholders
of New Patriot REIT and New Patriot Operating Company from voting on the
election of all directors at each annual meeting. The existence of a staggered
board and the fact that directors may only be removed for cause may have the
effect of delaying or deferring a change in control of New Patriot REIT and
New Patriot Operating Company or the removal of incumbent management.
Limitation of Liability
The Patriot Charter, in conjunction with the VSCA, provides that, in any
proceeding brought by or in the right of Patriot or brought by or on behalf of
stockholders of Patriot, no director or officer of Patriot shall be liable to
Patriot or its stockholders for monetary damages with respect to any
transaction, occurrence or course of conduct, whether prior or subsequent to
the effective date of the Patriot Charter, except for liability resulting from
such person's having engaged in willful misconduct or a knowing violation of
the criminal law or any federal or state securities law.
The Restated Charters, in conjunction with the DGCL, eliminate a director's
personal liability to New Patriot REIT or New Patriot Operating Company, as
the case may be, or their respective stockholders for breach of fiduciary
duty, except for liability (i) for any breach of the director's duty of
loyalty to New Patriot REIT or New Patriot Operating Company, as the case may
be, or their respective stockholders, (ii) for acts or omissions not in good
faith or which involve intentional misconduct or a knowing violation of law,
(iii) under Section 174 of the DGCL or (iv) for any transaction from which the
director derived an improper personal benefit.
Indemnification
The VSCA requires a corporation to indemnify its directors and officers
against reasonable expenses incurred by them in defense of any proceeding to
which they are made a party because of their position with the corporation and
in which they prevail, unless the corporation's articles of incorporation
limit this right. The VSCA also authorizes a corporation to more broadly
indemnify its directors and officers, and to extend such indemnification to
its employees and agents, and to make additional provisions for advances and
reimbursement of expenses to them, subject to certain limitations, including
restrictions against indemnification for willful misconduct or knowing
violation of the criminal law. The VSCA does not permit a corporation to
indemnify its directors, however, in connection with a proceeding (i) by or in
the right of the corporation in which the director was adjudged liable to the
corporation or (ii) in which a director has been adjudged liable on the basis
that a benefit was improperly received by him. These statutory indemnification
rights of directors and officers are not limited by the Patriot Charter and
are, therefore, available to Patriot's directors and officers. In addition,
the Patriot Charter provides that the Patriot Board of Directors is empowered
to cause Patriot to indemnify any person, other than a director or officer of
Patriot, to the same extent as it would indemnify a director or officer.
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The DGCL permits, but does not require, a corporation to indemnify its
directors, officers, employees or agents and expressly provides that the
indemnification provided for under the DGCL shall not be deemed exclusive of
any indemnification right under any bylaw, vote of stockholders or
disinterested directors, or otherwise. The DGCL permits indemnification
against expenses and certain other liabilities arising out of legal actions
brought or threatened against such persons for their conduct on behalf of the
corporation, provided that each such person acted in good faith and in a
manner that he reasonably believed was in or not opposed to the corporation's
best interests and in the case of a criminal proceeding, had no reasonable
cause to believe his or her conduct was unlawful. The DGCL does not allow
indemnification of directors in the case of an action by or in the right of
the corporation (including stockholder derivative suits) unless the directors
successfully defend the action or indemnification is ordered by the court. The
Restated Bylaws provide for indemnification to the fullest extent authorized
by the DGCL and, therefore, these statutory indemnification rights are
available to the directors, officers, employees and agents of New Patriot REIT
and New Patriot Operating Company.
Special Meetings of Stockholders
The Patriot Bylaws provide that a special meeting of the stockholders may be
called by the Chairman of the Board of Directors, a majority of the Board of
Directors, or as otherwise provided for in the Patriot Charter. The Patriot
Charter provides that a special meeting of stockholders shall be called by the
Secretary upon the written request of the holders of shares entitled to cast
not less than 25% of all the votes entitled to be cast at such meeting. In
addition, unless requested by stockholders entitled to cast a majority of all
the votes entitled to be cast at such meeting, a special meeting need not be
called to consider any matter that is substantially the same as a matter voted
on at any meeting of the stockholders held during the preceding twelve months.
The Restated Bylaws provide that a special meeting of stockholders may only
be called by the Chairman of the Board of Directors or a majority of the Board
of Directors.
Accordingly, unlike Patriot stockholders, stockholders of New Patriot REIT
and New Patriot Operating Company will have no ability to call a special
meeting of stockholders.
Action by Stockholders Without a Meeting
The VSCA provides that any action required or permitted to be taken at an
annual or special meeting of stockholders may be taken by written consent
without a meeting if the action is taken by all the stockholders entitled to
vote on the action.
The Restated Charters provide that any action required or permitted to be
taken at any annual or special meeting of stockholders may be taken in lieu of
such meeting only by unanimous written consent of the stockholders signed by
each stockholder entitled to vote on the matter.
Accordingly, stockholders of New Patriot REIT and New Patriot Operating
Company will have the same ability to take action without a meeting as the
stockholders of Patriot currently have.
Restrictions on Ownership and Transfer; Pairing
The Patriot Charter, subject to certain exceptions described below,
provides, pursuant to an ownership limit, that no person or entity may own, or
be deemed to own by virtue of the attribution provisions of the Code, more
than 9.8% of either (a) the outstanding shares of any class of common stock or
(b) the outstanding shares of any class or series of preferred stock (subject
to the look-through ownership limit applicable to certain stockholders, as
described below). Any transfer of common stock or preferred stock that would
(i) result in any person or entity owning, directly or indirectly, common
stock or preferred stock in excess of the ownership limit, (ii) result in
common stock and preferred stock being owned by fewer than 100 persons
(determined without reference to any rule of attribution), (iii) result in
Patriot's being "closely held" within the meaning of Section 856(h) of the
Code or (iv) cause Patriot to own, actually or constructively, 10% or more of
the ownership interests in a tenant of the real property of Patriot, the
Patriot Partnership or a subsidiary partnership within the meaning of
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Section 856(d)(2)(B) of the Code, will be null and void, and the intended
transferee will acquire no rights in such shares of common stock or preferred
stock.
Pursuant to the Patriot Charter, certain types of entities, such as pension
trusts qualifying under Section 401(a) of the Code, mutual funds qualifying as
regulated investment companies under Section 851 of the Code and corporations,
will be looked through for purposes of the "closely held" test in Section
856(h) of the Code. The Patriot Charter allows such an entity under the look-
through ownership limit to own up to 15% of the shares of any class or series
of Patriot's capital stock, provided that such ownership does not cause any
beneficial owner of such entity to exceed the ownership limit or otherwise
result in a violation of clauses (ii), (iii) and (iv) of the preceding
paragraph.
The Restated Bylaws provide that, until such time as the limitation on
transfer provided for in the Pairing Agreement shall be terminated, shares of
New Patriot REIT Common Stock and New Patriot Operating Company Common Stock
and shares of Preferred Stock which are convertible into shares of New Patriot
REIT Common Stock and New Patriot Operating Company Common Stock shall not be
transferable or transferred on the books of either company unless a
simultaneous transfer is made by the same transferor to the same transferee of
an equal number of shares of that same class or series of Equity Stock of the
other company and such shares are paired with one another. In addition,
pursuant to the Pairing Agreement, New Patriot REIT and New Patriot Operating
Company may not issue shares of New Patriot REIT Common Stock and New Patriot
Operating Company Common Stock or shares of Preferred Stock that are
convertible into shares of New Patriot REIT Common Stock and New Patriot
Operating Company Common Stock 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 Equity Stock of the other company and
for the pairing of such shares.
The Restated Charters provide, pursuant to the Ownership Limit, that no
person or entity may Beneficially Own or Constructively Own in excess of 9.8%
of the outstanding shares of any class or series of Equity Stock of New
Patriot REIT or New Patriot Operating Company, unless the Ownership Limit is
waived by the Board of Directors of the relevant corporation in accordance
with the Restated Charters. For purposes of computing the percentage of shares
of any class or series of Equity Stock of New Patriot REIT or New Patriot
Operating Company Beneficially Owned by any person or entity, any shares of
Equity Stock of New Patriot REIT or New Patriot Operating Company which are
deemed to be Beneficially Owned by such person or entity pursuant to Rule 13d-
3 of the Exchange Act but which are not outstanding shall be deemed to be
outstanding. Any transfer of shares of Equity Stock of New Patriot REIT or New
Patriot Operating Company that would (i) result in any person or entity
owning, directly or indirectly, shares of Equity Stock of New Patriot REIT or
New Patriot 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 Restated Charters, (ii) result in the
capital stock of New Patriot REIT 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 New Patriot REIT being
"closely held" within the meaning of Section 856(h) of the Code or (iv) cause
New Patriot REIT to own, actually or constructively, 10% or more of the
ownership interests in a tenant of the real property of New Patriot REIT or a
subsidiary of New Patriot REIT within the meaning of Section 856(d)(2)(B) of
the Code, shall be void ab initio, and the intended transferee will acquire no
rights in such shares of Equity Stock.
Thus, the ownership and transfer restrictions provided for in the Restated
Charter and the Restated Bylaws, by virtue of the provisions regarding pairing
and the ownership limit, are more stringent than those provided for in the
Patriot Charter. Such ownership and transfer restrictions may have the effect
of delaying, deferring or preventing the acquisition of control of Patriot or
New Patriot REIT and New Patriot Operating Company.
Stockholder Approval of Certain Business Combination Transactions
The VSCA requires that a merger or share exchange shall be approved by each
voting group entitled to vote on the merger or share exchange by more than
two-thirds of all the votes entitled to be cast by that voting group;
provided, however, that the articles of incorporation may provide for a
greater or lesser vote so long as
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the vote provided for is not less than a majority of all the votes cast on the
plan by each voting group entitled to vote on the transaction at a meeting at
which a quorum of the voting group exists. In addition, the VSCA contains a
statute which prohibits, with certain exceptions, a publicly-held corporation
from entering into an "affiliated transaction" with an "interested
stockholder." The VSCA defines an "affiliated transaction" as any transaction
between the corporation and an "interested stockholder." The VSCA defines an
"interested stockholder" as any beneficial owner of more than 10% of any class
of the outstanding voting shares for a period of three years after the
stockholder crosses the 10% threshold. The Patriot Charter provides that a
merger or share exchange shall be approved by at least two-thirds of the votes
entitled to be cast by each voting group that is entitled to vote on such
transaction.
The DGCL requires that a business combination be approved by a majority of
the outstanding shares of the corporation entitled to vote on such a matter,
or a greater proportion if required by the certificate of incorporation. In
addition, under the DGCL, a publicly-held corporation may not engage, with
certain exceptions, in a business combination with an "interested stockholder"
for a period of three years following the time of the transaction in which the
person became an interested stockholder. Subject to certain exceptions, the
DGCL defines an "interested stockholder" as a person who, together with
affiliates and associates, owns, or within three years did own, 15% or more of
the corporation's voting stock.
The Restated Bylaws provide that any corporate action, except where a larger
vote is required by law, the Restated Charters or the Restated Bylaws, shall
be approved at a stockholder meeting at which a quorum is present by the
affirmative vote of a majority of shares present in person or by proxy at such
meeting and entitled to vote on the matter. The DGCL provides for a larger
vote with respect to business combinations and, therefore, a business
combination involving New Patriot REIT or New Patriot Operating Company
requires the approval of a majority of the outstanding shares of New Patriot
REIT or New Patriot Operating Company, as the case may be. In addition, the
Restated Charters provide that a business combination with a Related Person
requires, with certain exceptions, the approval of 66 2/3% of the outstanding
shares of the capital stock of New Patriot REIT or New Patriot Operating
Company, as the case may be, which shall include the affirmative vote of at
least 50% of the outstanding shares the capital stock held by stockholders
other than the Related Person. However, such 66 2/3% voting requirement shall
not be applicable if the business combination was approved by the Board of
Directors prior to the acquisition by such Related Person of the beneficial
ownership of 5% or more of the outstanding shares of the capital stock of New
Patriot REIT or New Patriot Operating Company, as the case may be.
The higher percentage of stockholder approval required for a business
combination with a Related Person under the Restated Charters may make it more
difficult for a person or entity to acquire control of New Patriot REIT or New
Patriot Operating Company.
Transactions with Certain Affiliated Persons
Both the Patriot Bylaws and the Restated Bylaws provide that any action
pertaining to any transaction involving Patriot, New Patriot REIT or New
Patriot Operating Company, as the case may be, in which an advisor, director
or officer of such corporation, or any affiliate of any of the foregoing
persons, has any direct or indirect interest other than solely as a result of
their status as a director, officer, or stockholder of such corporation, must
be approved by a majority of the directors, including a majority of the
Independent Directors (as defined in the Patriot Bylaws and the Restated
Bylaws), even if the Independent Directors constitute less than a quorum.
Thus, approval by the Patriot Board of Directors of transactions between
Patriot and such affiliated persons of Patriot requires the same voting
threshold as does approval by the New Patriot REIT Board of Directors or
transactions between New Patriot REIT and such affiliated persons of New
Patriot REIT.
Control Share Acquisitions
The VSCA provides that shares acquired in a transaction that would cause the
acquiring person's voting strength to cross any of three thresholds (20%, 33%
or 50%) have no voting rights unless granted by a majority
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vote of shares not owned by the acquiring person or any officer or employee-
director of the corporation. The acquiring stockholder can request a special
meeting of the stockholders to consider granting voting rights to shares that
he owns or proposes to acquire. The request generally must be voted on at a
special meeting of stockholders to be called within 10 days thereafter. Any
special meeting to consider whether to grant voting rights must be held no
earlier than 30 days and no later than 50 days from the date of the request.
The Patriot Charter contains a provision exempting any and all acquisitions of
Patriot's shares of capital stock from the foregoing provisions of the VSCA.
Delaware does not have a control share acquisition statute.
Dissenters' Rights
Pursuant to both the VSCA and the DGCL, a stockholder of a corporation
engaging in certain transactions may, under certain circumstances, dissent
from a merger, consolidation or other transaction and demand payment in cash
in the amount of the fair value of his or her shares (as appraised pursuant to
judicial proceedings) in lieu of the consideration such stockholder would
otherwise receive in such transaction.
Under the VSCA, stockholders of a corporation are entitled to dissent from
certain mergers, consolidations or share exchanges by such corporation, or
upon the disposition of all or substantially all of its assets. However,
unless otherwise provided in the articles of incorporation, stockholders
generally have no appraisal rights with respect to their shares if the shares
(i) are listed on a national securities exchange or (ii) held by at least
2,000 record stockholders.
Under the DGCL, stockholders of a corporation are entitled to appraisal
rights only with respect to certain statutory mergers or consolidations.
Unless otherwise provided in the certificate of incorporation, the DGCL does
not grant appraisal rights to (i) stockholders with respect to a merger or
consolidation of a corporation, the shares of which are either listed on a
national securities exchange or are held of record by more than 2,000 holders,
if such stockholders receive only shares of the surviving corporation or
shares of any other corporation which are either listed on a national
securities exchange or held of record by more than 2,000 holders or (ii)
stockholders of a corporation surviving a merger if no vote of the
stockholders of such corporation is required to approve the merger.
Repurchase and Redemption of Shares
The VSCA expressly authorizes a corporation to reacquire shares it has
previously issued; provided, however, that the purchase of shares by the
corporation must be approved by the board of directors and will not be
permitted if, as a result, (i) the corporation would not be able to pay its
debts as they become due in the normal course of business or (ii) the
corporation's total assets would be less than the sum of its total liabilities
plus (unless the articles of incorporation permit otherwise) the amount that
would be needed, if the corporation were to be dissolved at the time of the
distribution, to satisfy the preferential rights upon dissolution of
stockholders whose preferential rights were superior to those whose shares
were reacquired.
The DGCL provides generally that the stock of any series or class may be
made subject to redemption by the corporation at its option or at the option
of the holders of such stock or upon the happening of an event; provided,
however, that (i) at the time of the redemption the corporation must have
outstanding shares of at least one class or series, which shares are not
redeemable and are endowed with full voting powers and (ii) such repurchase or
redemption must not impair the capital of the corporation.
Payment of Dividends
The VSCA provides that the board of directors of a corporation may
authorize, and the corporation may make, distributions to stockholders,
subject to any restrictions that may be contained in the articles of
incorporation; provided, however, that no distribution may be made if, after
giving it effect (i) the corporation
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would not be able to pay its debts as they become due in the normal course of
business or (ii) the corporation's total assets would be less than the sum of
its total liabilities plus (unless the articles of incorporation provide
otherwise) the amount that would be needed, if the corporation were to be
dissolved at the time of the distribution, to satisfy the preferential rights
upon dissolution of stockholders whose preferential rights are superior to
those receiving the distribution. The Patriot Charter provides that, subject
to the right of holders of preferred stock, the holders of common stock shall
be entitled to receive such dividend and other distributions in cash, stock or
property of Patriot as may be declared thereon by the Patriot Board of
Directors from time to time.
The DGCL provides that a corporation may, unless otherwise restricted by its
certificate of incorporation, declare and pay dividends out of surplus, or if
no surplus exists, out of its net profits for the current or preceding fiscal
year, provided that the amount of capital of the corporation following the
declaration and payment of the dividend is not less than the aggregate amount
of the capital represented by the issued and outstanding stock of all classes
having a preference upon the distribution of assets. The Restated Charters
provide that, subject to the rights of holders of preferred stock, holders of
New Patriot REIT Common Stock and New Patriot Operating Company Common Stock
shall be entitled to receive such dividends and other distributions in cash,
stock or property of New Patriot REIT or New Patriot Operating Company, as the
case may be, as may be declared thereon by the respective Board of Directors
from time to time.
Dissolution
Under the VSCA, voluntary dissolution of a corporation generally requires
the recommendation of the board of directors and the approval of holders of
more than two-thirds of all votes entitled to be cast on the proposal to
dissolve.
Under the DGCL, voluntary dissolution of a corporation generally requires
the adoption of a board of directors' resolution by a majority of the entire
board of directors approving the dissolution and the affirmative vote of a
majority of the outstanding shares entitled to vote thereon.
Thus, a lesser vote of the stockholders of New Patriot REIT and New Patriot
Operating Company is required to authorize voluntary dissolution than is
currently required for Patriot stockholders.
Inspection of Books and Records
The Patriot Bylaws, in conjunction with the VSCA, provide that any person
who has been a stockholder of record for at least six months or is the holder
of at least 5% of all of the outstanding shares of Patriot may inspect and
copy, during regular business hours, the books and records of Patriot at its
principal office, provided that such stockholder gives Patriot written notice
of his or her demand at least five business days before the date on which he
wishes to inspect and copy the records. In addition, for a period of at least
10 days before each meeting of stockholders, a complete list of stockholders
entitled to vote at such meeting shall be made available by Patriot to any
stockholder at any time during usual business hours.
Under the DGCL, any stockholder of record has a right to examine the books
and records and the stockholder list of the corporation for a "proper
purpose." The DGCL defines a "proper purpose" as any purpose reasonably
related to such a person's interest as a stockholder, and allows a stockholder
of record to inspect the stockholder list during the 10-day period preceding a
meeting of the stockholders for any purpose germane to the meeting.
Thus, the books and records of New Patriot REIT and New Patriot Operating
Company will be more accessible to their stockholders than are the books and
records of Patriot.
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COMPARISON OF RIGHTS OF STOCKHOLDERS OF CAL JOCKEY AND BAY MEADOWS TO
STOCKHOLDERS OF NEW PATRIOT REIT AND NEW PATRIOT OPERATING COMPANY
Amendment of Bylaws
Each of the Cal Jockey Bylaws and the Bay Meadows Bylaws provides that,
except as otherwise provided by law, the Cal Jockey Bylaws or the Bay Meadows
Bylaws, as the case may be, may be amended or repealed, (i) with the exception
of certain provisions of the Cal Jockey Bylaws and the Bay Meadows Bylaws, by
the affirmative vote of a majority of the respective company's directors
present at any meeting at which there is a quorum and (ii) by the affirmative
vote of stockholders entitled to exercise a majority of the voting power of
the respective companies or by the written assent of such stockholders.
The Restated Bylaws may be amended or repealed (i) except as otherwise
provided by law, by the affirmative vote of a majority of the directors then
in office and (ii) at any meeting of stockholders by the affirmative vote of
at least two-thirds of the shares present in person or represented by proxy at
such meeting and entitled to vote on such amendment or repeal, voting together
as a single class; provided, however, that if the Board of Directors
recommends that stockholders approve such amendment or repeal at such meeting
of stockholders, such amendment or repeal shall only require the affirmative
vote of the majority of the shares present in person or represented by proxy
at such meeting and entitled to vote on such amendment or repeal, voting
together as a single class.
Thus, stockholders of New Patriot REIT and New Patriot Operating Company
will generally have a lesser ability to amend or repeal the Restated Bylaws
than the stockholders of Cal Jockey and Bay Meadows have to amend or repeal
the Cal Jockey Bylaws and the Bay Meadows Bylaws.
Directors
Each of the Cal Jockey Bylaws and the Bay Meadows Bylaws provides that each
of the Board of Directors shall have not fewer than one director, and that the
number of directors subject to the minimum of one may be changed by resolution
of the Board of Directors, subject to the power of the stockholders to change
such action of the directors. In addition, the Cal Jockey Bylaws and the Bay
Meadows Bylaws establish that each director will hold office for a one-year
term expiring at the annual meeting of stockholders to be held the following
year and until his or her successor is duly elected and qualified. Pursuant to
the terms of the Cal Jockey Charter and the Bay Meadows Charter, upon one
company's stockholder's notice of intention to cumulate such stockholders'
votes for electing candidates to the Board of Directors, all stockholders may
cumulate their votes for candidates in nomination. That is, each stockholder
is entitled to the number of votes that is equal to the number of shares owned
by such stockholder multiplied by the number of directors to be elected, and
such stockholder may cumulate such votes for a single candidate or distribute
such votes among as many candidates as he deems appropriate. The candidates
receiving the highest number of affirmative votes of the shares entitled to be
voted for them up to the number of directors to be elected by such shares are
elected. Each of the Cal Jockey Bylaws and the Bay Meadows Bylaws provides
that stockholders may remove any director, with or without cause, by the
affirmative vote of the holders of a majority of the outstanding shares of
stock entitled to vote. Neither the Cal Jockey Bylaws nor the Bay Meadows
Bylaws contains a definition of what constitutes "cause." Pursuant to the Cal
Jockey Charter and the Bay Meadows Charter, vacancies may be filled by a
majority of the directors then in office, even if less than a quorum, or by a
sole remaining director, and the directors so chosen shall hold office until
the next annual election or until their successors are duly elected and shall
qualify, unless sooner displaced.
The Restated Charters and Restated Bylaws provide that the number of
directors shall be fixed by resolution duly adopted from time to time by the
Board of Directors. Pursuant to the Restated Charters, the directors are
divided into three classes with the term of office of one class expiring each
year. As the term of each class expires, directors in that class will be
elected for a term of three years and until their successors are duly elected
and qualified. The Restated Charters and Restated Bylaws provide that a
director may be removed, only for cause, by the vote of holders of at least
75% of the outstanding shares of capital stock entitled to vote for the
election of
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directors at a special meeting of the stockholders called for the purpose of
removing such director. "Cause," with respect to the removal of any director,
is defined in the Restated Charters to mean only (i) conviction of a felony,
(ii) declaration of unsound mind by order of court, (iii) gross dereliction of
duty, (iv) commission of any action involving moral turpitude, or (v)
commission of an action which constitutes intentional misconduct or a knowing
violation of law if such action in either event results both in an improper
substantial personal benefit and a material injury to New Patriot REIT or New
Patriot Operating Company, as the case may be.
Any and all vacancies in the Board of Directors, however occurring, shall be
filled solely by the affirmative vote of a majority of the remaining directors
then in office, even if less than a quorum of the Board of Directors. Any
director so appointed shall hold office for the remainder of the full term of
the class of directors in which the vacancy occurred and until such director's
successor shall have duly elected and qualified or until such director's
earlier resignation or removal.
This staggered board provision prevents stockholders of New Patriot REIT and
New Patriot Operating Company from voting on the election of all directors at
each annual meeting. The existence of a staggered board and the fact that
directors may not be removed without cause may have the effect of delaying or
deferring a change in control of New Patriot REIT and New Patriot Operating
Company or removal of incumbent management. Eliminating cumulative voting for
directors means that directors are elected by a majority stockholder vote
rather than a majority of outstanding shares.
Special Meetings of Stockholders
Each of the Cal Jockey Bylaws and the Bay Meadows Bylaws provides that a
special meeting of the stockholders may be called at any time by the act of a
majority of the directors present at any meeting at which there is a quorum of
the respective Board of Directors.
The Restated Bylaws provide that a special meeting of the stockholders may
only be called by the Chairman of the Board of Directors or a majority of the
Board of Directors.
Accordingly, the directors of Cal Jockey and Bay Meadows have a similar
ability to call a special meeting of the stockholders as do the directors of
New Patriot REIT and New Patriot Operating Company, with the exception that
the Chairman of the Board of New Patriot REIT and New Patriot Operating
Company may call a special meeting of the stockholders independent of his or
her Board of Directors.
Action by Stockholders Without a Meeting
Each of the Cal Jockey Bylaws and the Bay Meadows Bylaws provides that any
action required or permitted to be taken at an annual or special meeting of
stockholders may be taken by written consent without a meeting if the action
is taken by the holders of outstanding stock having not less than the minimum
number of votes that would be necessary to authorize or take such action at a
meeting at which all shares entitled to vote thereon were presented and voted.
The Restated Charters provide that any action required or permitted to be
taken at any annual or special meeting of stockholders may be taken in lieu of
such meeting only by unanimous written consent of the stockholders signed by
each stockholder entitled to vote on the matter.
Because all stockholders are required to consent for New Patriot REIT and
New Patriot Operating Company stockholders to act without a meeting rather
than a majority of stockholders as is currently required by the Cal Jockey
Bylaws and the Bay Meadows Bylaws, it will be more difficult for the
stockholders of New Patriot REIT and New Patriot Operating Company to take
action without a meeting.
Restrictions on Ownership and Transfer; Pairing
Each of the Cal Jockey Bylaws and the Bay Meadows Bylaws provides that if
the Board of Directors shall at any time and in good faith be of the opinion
that direct or constructive ownership of shares has or may become
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concentrated to an extent which would cause Cal Jockey to fail to qualify or
to be disqualified to be taxed as a REIT under the Code, or would cause any
rent paid to Cal Jockey to fail to qualify or to be disqualified as "rent from
real properties," as defined by the Code, the Cal Jockey Board of Directors
shall have the power to call for purchase from any stockholder of Cal Jockey,
and the Bay Meadows Board of Directors shall have the power to call for
purchase from any stockholder of Bay Meadows, such number of shares as is
sufficient in the opinion of the directors of Cal Jockey or the directors of
Bay Meadows to maintain or bring the direct or indirect ownership of shares
into conformity with the Code, and to refuse to register any proposed transfer
of shares which would result in Cal Jockey's being unable to conform to the
requirements of the Code. Thus, Cal Jockey and Bay Meadows have the power to
repurchase shares from any stockholder of Cal Jockey or Bay Meadows who
actually or constructively owns 10% or more of the outstanding Paired Shares
and to refuse to register any transfer of shares which would result in a
holder actually or constructively owning 10% or more of the outstanding Paired
Shares.
In addition, the shares of Cal Jockey Common Stock and the shares of Bay
Meadows Common Stock are paired and neither shares are transferable or
transferred on the books of either company, unless a simultaneous transfer is
made by the same transferor to the same transferee of an equivalent number of
shares of Cal Jockey Common Stock or Bay Meadows Common Stock, as the case may
be, and such shares are paired with one another.
The Restated Bylaws provide that until such time as the limitation on
transfer provided for in the Pairing Agreement shall be terminated, shares of
New Patriot REIT Common Stock and New Patriot Operating Company Common Stock
and Shares of Preferred Stock that are convertible into shares of New Patriot
REIT Common Stock and New Patriot Operating Company Common Stock shall not be
transferable or transferred on the books of either company unless a
simultaneous transfer is made by the same transferor to the same transferee of
an equal number of shares of that same class or series of Equity Stock of the
other company and such shares are paired with one another. In addition,
pursuant to the Pairing Agreement, New Patriot REIT and New Patriot Operating
Company may not issue shares of New Patriot REIT Common Stock and New Patriot
Operating Company Common Stock or shares of Preferred Stock that are
convertible into shares of New Patriot REIT Common Stock and New Patriot
Operating Company Common Stock 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 Equity Stock of the other company and
for the pairing of such shares.
The Restated Charters provide, pursuant to the Ownership Limit, that no
person or entity may Beneficially Own or Constructively Own in excess of 9.8%
of the outstanding shares of any class or series of Equity Stock of New
Patriot REIT or New Patriot Operating Company, unless the Ownership Limit is
waived by the Board of Directors of the relevant corporation in accordance
with the Restated Charters. For purposes of computing the percentage of shares
of any class or series of Equity Stock of New Patriot REIT or New Patriot
Operating Company Beneficially Owned by any person or entity, any shares of
Equity Stock of New Patriot REIT or New Patriot Operating Company which are
deemed to be Beneficially Owned by such person or entity pursuant to Rule 13d-
3 of the Exchange Act but which are not outstanding shall be deemed to be
outstanding. Any transfer of shares of Equity Stock of New Patriot REIT or New
Patriot Operating Company that would (i) result in any person or entity
owning, directly or indirectly, shares of Equity Stock of New Patriot REIT or
New Patriot 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 Restated Charters, (ii) result in the
capital stock of New Patriot REIT 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 New Patriot REIT being
"closely held" within the meaning of Section 856(h) of the Code or (iv) cause
New Patriot REIT to own, actually or constructively, 10% or more of the
ownership interests in a tenant of the real property of New Patriot REIT or a
subsidiary of New Patriot REIT within the meaning of Section 856(d)(2)(B) of
the Code, shall be void ab initio and the intended transferee will acquire no
rights in such shares of Equity Stock. Upon the occurrence of a purported
transfer of shares that would result in a violation of any of the foregoing
restrictions, that number of shares that violate the transfer restriction
shall be automatically converted into an equal number
209
<PAGE>
of shares of Excess Stock and transferred to a Trust, effective on the Trading
Day prior to the date of the purported transfer of such shares, and the
Prohibited Owner shall submit such number of shares of Equity Stock to New
Patriot REIT or New Patriot Operating Company, as the case may be, for
registration in the name of the Trustee.
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 (which, in the case of
Excess Stock that is paired, shall be determined based on the Valuation
Percentage) 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 on the
date of such non-transfer event or transfer or (ii) the price per share
(which, in the case of Excess Stock that is paired, shall be determined based
on the Valuation Percentage) 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.
The Restated Charters provide for the transfer of Excess Stock into a Trust,
whereas each of the Cal Jockey Bylaws and the Bay Meadows Bylaws allow their
respective Board of Directors to purchase excess shares from stockholders. In
addition, these ownership and transfer restrictions may have the effect of
delaying, deferring or preventing the acquisition of control of Cal Jockey and
Bay Meadows or New Patriot REIT and New Patriot Operating Company.
Transactions with Certain Affiliated Persons
Unlike the Cal Jockey Bylaws and the Bay Meadows Bylaws, the Restated Bylaws
provide that any action pertaining to any transaction involving New Patriot
REIT or New Patriot Operating Company, as the case may be, in which an
advisor, director or officer of such corporation, or any affiliate of any of
the foregoing persons, has any direct or indirect interest other than solely
as a result of their status as a director, officer, or shareholder of such
corporation, must be approved by a majority of the directors, including a
majority of the Independent Directors (as defined in the Restated Bylaws),
even if the Independent Directors constitute less than a quorum.
Thus, the Restated Bylaws place stronger restrictions on transactions with
affiliated persons than do the Cal Jockey Bylaws and the Bay Meadows Bylaws.
Dissenters' Rights
Pursuant to the DGCL, stockholders of a corporation are entitled to
appraisal rights only with respect to certain statutory mergers or
consolidations. Unless otherwise provided in the certificate of incorporation,
the DGCL does not grant appraisal rights to (i) stockholders with respect to a
merger or consolidation of a corporation, the shares of which are either
listed on a national securities exchange or are held of record by more than
2,000 holders, if such stockholders receive only shares of the surviving
corporation or shares of any other corporation which are either listed on a
national securities exchange or held of record by more than 2,000 holders or
(ii) stockholders of a corporation surviving a merger if no vote of the
stockholders of such corporation is required to approve the merger.
210
<PAGE>
STOCKHOLDERS' MEETINGS, LITIGATION AND DISAGREEMENTS
On August 30, 1996, Cal Jockey held its annual meeting of stockholders,
which included a contested election for directors, and Bay Meadows separately
held a special meeting of stockholders to vote on a resolution to continue on-
site stabling at the Racecourse. At the Bay Meadows special meeting, a
majority of stockholders approved a resolution authorizing the Bay Meadows
Board of Directors to pursue on-site stabling. At the Cal Jockey annual
meeting, Cal Jockey stockholders elected three incumbent directors and two
directors nominated by the California Jockey Club Shareholders Committee (the
"Shareholders Committee").
Prior to these meetings, three lawsuits were filed in anticipation of such
meetings. On July 3, 1996, the Shareholders Committee filed a suit to compel
Cal Jockey to hold its annual meeting. The San Mateo City Superior Court set
the annual meeting for August 30, 1996. On August 14, 1996, Cal Jockey filed
suit against the members of the Shareholders Committee, Bay Meadows, and Bay
Meadows' Chairman and President, alleging violations of securities laws in
connection with the contested election and the Bay Meadows special meeting.
The parties subsequently agreed to place this case on inactive status. On
August 16, 1996, Property Resources who had contracted with Cal Jockey to
acquire the Stable Area pursuant to the Franklin Agreement, filed a suit
against Bay Meadows, its Board of Directors and executive officers and the
Shareholders Committee for interference with such contract as a result of
actions taken in connection with the Bay Meadows special meeting. The parties
subsequently agreed to settle the dispute.
Generally, as a result of the paired share structure of Cal Jockey and Bay
Meadows, when one company has desired to grant options to purchase Paired
Shares to its employees such company has requested the other company to grant
an option to it to cover the portion of the option relating to the other
company's stock. Presently Cal Jockey and Bay Meadows disagree as to the total
number of options Cal Jockey has agreed to grant to Bay Meadows to cover Bay
Meadows' outstanding options to its executive officers and employees. As of
March 27, 1997, Bay Meadows has granted options to purchase up to 162,000
Paired Shares to persons who are or were Bay Meadows executive officers and
employees. Bay Meadows maintains that Cal Jockey agreed to and is obligated to
provide stock options to Bay Meadows for the purchase of 162,000 shares of Cal
Jockey Common Stock to match the options granted by Bay Meadows. Cal Jockey
has acknowledged agreement to grant to Bay Meadows options to purchase up to
107,500 shares of Cal Jockey Common Stock to back up the option grants by Bay
Meadows. Presently, there has been no resolution of this disagreement over
said option amounts.
OTHER MATTERS
It is not expected that any matters other than those described in this Joint
Proxy Statement/Prospectus will be brought before the Patriot Special Meeting,
the Cal Jockey Special Meeting or the Bay Meadows Special Meeting. If any
other matters are presented, however, it is the intention of the persons named
in the Patriot proxy, the Cal Jockey proxy and the Bay Meadows proxy to vote
the proxy, respectively, in accordance with their best judgment.
LEGAL MATTERS
Certain legal matters in connection with the Merger and Related Transactions
will be passed upon for Patriot by Goodwin, Procter & Hoar LLP, Boston,
Massachusetts. Certain legal matters in connection with the Merger and Related
Transactions and the validity of the shares of Cal Jockey Common Stock to be
issued pursuant to the Merger will be passed upon for Cal Jockey by Latham &
Watkins, San Francisco, California. Certain legal matters in connection with
the Merger and Related Transactions and the validity of the Subscribed Shares
to be issued pursuant to the Subscription will be passed upon for Bay Meadows
by McCutchen, Doyle, Brown & Enersen, LLP, San Francisco, California.
211
<PAGE>
EXPERTS
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, 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. 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, the statement of Direct Revenue and Direct
Operating Expenses for the Holiday Inn-- Miami Airport for the year ended
August 31, 1996, and the Consolidated Financial Statements of Wyndham Hotel
Corporation and Subsidiaries as of December 31, 1995 and 1996 and for the
three years in the period ended December 31, 1996, incorporated by reference
in this Joint Proxy Statement/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,
incorporated by reference in this Joint Proxy Statement/Prospectus, have been
audited by Pannell Kerr Forster PC, independent auditors, as set forth in
their report thereon. 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.
212
<PAGE>
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 Joint Proxy
Statement/ Prospectus, have been so incorporated in reliance on the report of
Price Waterhouse LLP, independent accountants, given on the authority of said
firm as experts in auditing and accounting.
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
Joint Proxy Statement/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 the proposed merger and certain disagreements between Cal Jockey
and Bay Meadows), and are incorporated by reference herein in reliance upon
the report of such firm given upon their authority as experts in accounting
and auditing.
The Combined Financial Statements of the Crow Family Hotel Partnerships
included in this Joint Proxy Statement/Prospectus have been audited by Arthur
Andersen LLP, independent public accountants, as indicated in their reports
with respect thereto, and are included herein in reliance upon the authority
of said firm as experts.
STOCKHOLDER PROPOSALS
Any Cal Jockey stockholder who wishes to submit a proposal for presentation
at Cal Jockey's 1997 Annual Meeting of Stockholders must have submitted the
proposal to California Jockey Club, 2600 South Delaware Street, P.O. Box 1117,
San Mateo, California 94403, Attention: Secretary. Such proposal must have
been received not later than April 15, 1997 for inclusion, if appropriate, in
Cal Jockey's proxy statement and form of proxy relating to its 1997 Annual
Meeting.
Any Bay Meadows stockholder who wishes to submit a proposal for presentation
at Bay Meadows' 1997 Annual Meeting of Stockholders must have submitted the
proposal to Bay Meadows Operating Company, 2600 South Delaware Street, P.O.
Box 5050, San Mateo, California 94402, Attention: Secretary. Such proposal
must have been received not later than February 15, 1997 for inclusion, if
appropriate, in Bay Meadows' proxy statement and form of proxy relating to its
1997 Annual Meeting.
Any Patriot stockholder who wishes to submit a proposal for presentation at
Patriot's 1997 Annual Meeting of Stockholders (which will be held only if the
Merger has not been consummated prior to the date the meeting is to be held)
must have submitted the proposal to Patriot American Hospitality, Inc., 3030
LBJ Freeway, Suite 1500, Dallas, Texas 75234, Attention: Shareholder
Relations. Such proposal must have been received not later than November 29,
1996 in order to be considered for inclusion, if appropriate, in Patriot's
proxy statement and form of proxy relating to its 1997 Annual Meeting.
213
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Partners
Crow Family Hotel Partnerships
We have audited the accompanying combined balance sheets of Crow Family
Hotel Partnerships (identified in Note 1) (collectively the "Partnerships") as
of December 31, 1996 and 1995 and the related combined statements of
operations, partners' deficit and cash flows for each of the three years in
the period ended December 31, 1996. These financial statements are the
responsibility of the Partnerships' management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
The accompanying combined financial statements were prepared to present the
balance sheets and related results of operations and cash flows of the
Partnerships, which are to be acquired by Patriot American Hospitality, Inc.,
and may not necessarily reflect the financial position, results of operations
and cash flows of the Partnerships that might have resulted had they actually
operated as a stand-alone entity.
In our opinion, the combined financial statements referred to above present
fairly, in all material respects, the combined financial position of the
Partnerships as of December 31, 1996 and 1995 and the combined results of
their operations and their cash flows for each of the three years in the
period ended December 31, 1996, in conformity with generally accepted
accounting principles.
Dallas, Texas ARTHUR ANDERSEN LLP
May 6, 1997
F-1
<PAGE>
CROW FAMILY HOTEL PARTNERSHIPS
COMBINED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31 MARCH 31
------------------ -----------
1995 1996 1997
-------- -------- -----------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents.................... $ 1,443 $ 2,377 $ 4,172
Cash, restricted............................. 2,626 3,062 2,771
Accounts receivable, less allowance of $119
and $112 in 1995 and 1996, respectively..... 5,284 6,733 8,087
Inventories.................................. 988 1,002 954
Prepaid expenses and other................... 1,123 1,429 2,166
-------- -------- --------
Total current assets....................... 11,464 14,603 18,150
-------- -------- --------
Cash, restricted for noncurrent assets......... 4,567 3,593 4,248
Property and equipment, net.................... 164,429 176,501 180,276
Other assets................................... 8,846 8,773 8,438
-------- -------- --------
Total assets............................... $189,306 $203,470 $211,112
======== ======== ========
LIABILITIES AND PARTNERS' DEFICIT
---------------------------------
Current liabilities:
Accounts payable and accrued expenses........ $ 18,070 $ 18,951 $ 17,419
Due to affiliates............................ 4,206 384 5,727
Due to operator.............................. 1,925 2,855 3,662
Advance deposits............................. 857 1,206 1,310
Current portion of long-term debt (net of
discount of $1,779 and $1,746 in 1995 and
1996) and capital lease obligations......... 1,901 68,078 69,582
-------- -------- --------
Total current liabilities.................. 26,959 91,474 97,700
-------- -------- --------
Advances from partners......................... 4,679 4,911 5,358
Long-term debt and capital lease obligations... 219,804 163,858 164,255
-------- -------- --------
224,483 168,769 169,613
-------- -------- --------
Commitments and contingencies
Partners' deficit.............................. (62,136) (56,773) (56,201)
-------- -------- --------
Total liabilities and partners' deficit.... $189,306 $203,470 $211,112
======== ======== ========
</TABLE>
The accompanying notes are an integral part of the combined financial
statements.
F-2
<PAGE>
CROW FAMILY HOTEL PARTNERSHIPS
COMBINED STATEMENTS OF OPERATIONS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31 QUARTER ENDED MARCH 31
------------------------- ------------------------
1994 1995 1996 1996 1997
------- ------- ------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenues:
Rooms................... $48,038 $56,608 $70,450 $ 15,113 $ 20,031
Food and beverage....... 34,163 37,238 39,330 7,861 10,311
Telephone............... 2,711 3,746 4,727 1,039 1,238
Other departmental reve-
nues................... 2,284 2,916 3,167 705 809
Other income............ 790 1,302 1,893 325 551
------- ------- ------- ----------- -----------
87,986 101,810 119,567 25,043 32,940
------- ------- ------- ----------- -----------
Operating costs and
expenses:
Rooms................... 11,464 13,826 16,418 3,752 4,444
Food and beverage....... 23,997 26,784 28,832 6,290 7,767
Telephone............... 1,181 1,552 1,745 417 478
Lease expense........... 2,274 2,298 2,296 549 641
Management fees......... 3,632 4,370 5,783 862 1,169
Energy costs............ 3,574 4,383 4,584 1,139 1,304
Property insurance and
taxes.................. 3,499 4,002 4,233 1,066 1,147
General and administra-
tive................... 17,780 20,979 24,290 5,740 6,485
Depreciation and amorti-
zation................. 6,429 7,178 8,784 1,874 2,533
Other expenses.......... 2,494 2,531 3,244 515 647
------- ------- ------- ----------- -----------
76,324 87,903 100,209 22,204 26,615
------- ------- ------- ----------- -----------
Operating income...... 11,662 13,907 19,358 2,839 6,325
Interest income........... 85 179 76 -- --
Interest expense.......... (18,415) (20,465) (21,258) (4,930) (5,753)
------- ------- ------- ----------- -----------
Net income (loss)......... $(6,668) $(6,379) $(1,824) $ (2,091) $ 572
======= ======= ======= =========== ===========
</TABLE>
The accompanying notes are an integral part of the combined financial
statements.
F-3
<PAGE>
CROW FAMILY HOTEL PARTNERSHIPS
COMBINED STATEMENTS OF PARTNERS' DEFICIT
(IN THOUSANDS)
<TABLE>
<S> <C>
Balance at December 31, 1993........................................ $ (88,878)
Capital contributions............................................. 14,558
Contribution of note payable...................................... 11,608
Capital distributions............................................. (610)
Net loss.......................................................... (6,668)
---------
Balance at December 31, 1994........................................ (69,990)
Capital contributions............................................. 16,379
Capital distributions............................................. (2,146)
Net loss.......................................................... (6,379)
---------
Balance at December 31, 1995........................................ (62,136)
Capital contributions............................................. 7,740
Capital distributions............................................. (553)
Net loss.......................................................... (1,824)
---------
Balance at December 31, 1996........................................ (56,773)
Net income (unaudited)............................................ 572
---------
Balance at March 31, 1997 (unaudited)............................... $ (56,201)
=========
</TABLE>
The accompanying notes are an integral part of the combined financial
statements.
F-4
<PAGE>
CROW FAMILY HOTEL PARTNERSHIPS
COMBINED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
QUARTER
ENDED
YEAR ENDED DECEMBER 31 MARCH 31
------------------------- -----------
1994 1995 1996 1997
------- ------- ------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net income (loss)..................... $(6,668) $(6,379) $(1,824) $ 572
Adjustments to reconcile net income
(loss) to net cash provided by
operating activities:
Depreciation and amortization....... 6,429 7,178 8,784 2,533
Amortization of loan cost........... 385 704 538 194
(Increase) decrease in accounts
receivable......................... (2,634) 1,256 (1,449) (1,354)
Net decrease (increase) in due from
affiliates......................... 181 (218) (1,464) 5,343
(Increase) decrease in inventories.. (268) 76 (14) 48
(Increase) decrease in prepaid
expenses........................... (81) 234 (327) (737)
Decrease (increase) in other
assets............................. 562 (1,102) (343) (141)
Increase (decrease) in accounts
payable and accrued expenses....... 3,823 1,665 788 (1,532)
Increase in due to operator......... 141 524 930 807
Increase in advance deposits........ 12 238 349 104
(Increase) decrease in restricted
cash............................... (487) (148) (435) 291
------- ------- ------- ------
Net cash provided by operating
activities....................... 1,395 4,028 5,533 6,128
------- ------- ------- ------
Cash flow from investing activities:
Property and equipment additions...... (28,148) (37,283) (19,916) (6,026)
(Increase) decrease in cash restricted
for noncurrent assets................ (1,058) 893 975 (655)
------- ------- ------- ------
Net cash used in investing
activities....................... (29,206) (36,390) (18,941) (6,681)
------- ------- ------- ------
Cash flows from financing activities:
Net (increase) decrease in advances
from partners........................ (637) (1,740) (2,126) 447
Proceeds from long-term debt.......... 22,256 21,481 12,299 2,908
Repayments of long-term debt and capi-
tal lease obligations................ (6,546) (2,667) (3,019) (1,007)
Partners' contributions............... 14,558 16,379 7,740 --
Partners' distributions............... (610) (2,146) (552) --
Other................................. (901) (20) -- --
------- ------- ------- ------
Net cash provided by financing
activities....................... 28,120 31,287 14,342 2,348
------- ------- ------- ------
Increase (decrease) in cash and cash
equivalents............................ 309 (1,075) 934 1,795
Cash and cash equivalents at beginning
of year................................ 2,209 2,518 1,443 2,377
------- ------- ------- ------
Cash and cash equivalents at end of
year................................... $ 2,518 $ 1,443 $ 2,377 $4,172
======= ======= ======= ======
Supplemental cash flow information:
Cash paid for interest................ $14,795 $18,943 $21,619 $6,900
Noncash activity:
Capital lease obligations............. 265 259 -- --
Interest added to principal of notes
payable.............................. 401 448 1,161 --
Contribution of note payable.......... 11,608 -- -- --
</TABLE>
The accompanying notes are an integral part of the combined financial
statements.
F-5
<PAGE>
CROW FAMILY HOTEL PARTNERSHIPS
NOTES TO COMBINED FINANCIAL STATEMENTS
1. COMBINED PARTNERSHIPS DESCRIPTION AND BASIS OF PRESENTATION:
The accompanying combined financial statements include the accounts of 11
hotel partnerships (the "Partnerships") which are owned by various
corporations, partnerships and joint ventures. These partnerships are
beneficially owned or controlled by various members of the family of Trammell
Crow. The Partnerships along with Wyndham Hotel Corporation ("WHC"), which
manages the 11 hotels, are being considered for acquisition by Patriot
American Hospitality, Inc., a publicly traded real estate investment trust
("REIT").
The accompanying combined financial statements were prepared to present the
balance sheets and related results of operations and cash flows of the
Partnerships and may not necessarily reflect the financial position, results
of operations and cash flows of the Partnerships that might have resulted had
they actually operated as a stand-alone entity.
The accounts of the Partnerships and related hotels consist of the following
hotel entities:
<TABLE>
<CAPTION>
PARTNERSHIPS HOTELS
------------ ------
<S> <C>
Hotel Bel Age Associates, L.P. Wyndham Bel Age
Franklin Plaza Associates Wyndham Franklin Plaza
MTD Associates Wyndham Milwaukee Center
Itasca Hotel Company Wyndham Northwest Chicago
WHC-LG Hotel Associates, L.P. Garden Hotel at LaGuardia Airport
CLC Limited Partnership Wyndham Garden Hotel-Las Colinas
Novi Garden Hotel Associates Wyndham Garden Hotel-Novi
Pleasanton Hotel Associates, Ltd. Wyndham Garden Hotel-Pleasanton
Wood Dale Garden Hotel Partnership Wyndham Garden Hotel-Wood Dale
Convention Center Boulevard Hotel, Wyndham Riverfront
Limited Wyndham Palm Springs
Hotel and Convention Center Partners
I-XI, Ltd.
</TABLE>
Interim Financial Statements
The interim financial statements have been prepared by the Partnerships
without audit, pursuant to the rules and regulations of the Securities and
Exchange Commission (SEC). Certain information and footnote disclosures
normally included in the financial statements prepared in accordance with
generally accepted accounting principles have been condensed or omitted
pursuant to SEC rules and regulations; nevertheless, management believes that
the disclosures herein are adequate to prevent the information presented from
being misleading. In the opinion of management, all adjustments, consisting
only of normal recurring adjustments, necessary to present fairly the
financial position of the Partnerships with respect to the results of their
operations for the interim periods from January 1, 1996 to March 31, 1996, and
from January 1, 1997 to March 31, 1997, have been included herein. The results
of operations for the interim periods are not necessarily indicative of the
results for the full year.
Use of Estimates and Assumptions
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the dates of the financial
statements and the reported amount of revenues and expenses during the
reporting periods. Actual results could differ from those estimates.
Concentration of Credit Risk
Financial instruments that potentially subject the Partnerships to
concentration of credit risk consist principally of cash investments. The
Partnerships maintain cash and cash equivalents in accounts with major
F-6
<PAGE>
CROW FAMILY HOTEL PARTNERSHIPS
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
financial institutions in excess of the amount insured by the Federal Deposit
Insurance Corporation. Management believes credit risk related to these
deposits is minimal.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Cash and cash equivalents
For purposes of reporting cash flows, all highly liquid debt instruments
with original maturities of three months or less are considered to be cash
equivalents.
Restricted cash consists of amounts in escrow for the payment of property
taxes and interest. Cash restricted for noncurrent assets consists of a
reserve for fixed asset repairs and replacements and hotel renovations.
Inventories
Inventories consisting of food, beverage, china, linen, glassware,
silverware, uniforms and supplies are stated at cost which approximates
market, with cost determined using the first-in, first-out method.
Property and Equipment
Buildings and site improvements are carried at cost and are depreciated
using the straight-line method over 40 and 20 years, respectively. Furniture
and equipment are recorded at cost and are depreciated using the straight-line
method over their estimated useful lives of approximately 5 years. Normal
repairs and maintenance are charged to expense as incurred.
Investment in property is recorded at cost, except when it has been
determined that the property has sustained a permanent impairment in value. At
such time, a write-down is recorded to reduce the property to its estimated
recoverable amount. Long-lived assets are reviewed for impairment whenever
events or changes in circumstances indicate that the carrying amount of an
asset may not be recoverable.
Cost of assets under construction are reported as construction in progress.
Construction in progress is not depreciated until the construction is
completed and the related assets are in use. Interest and taxes incurred
during the construction period are capitalized as part of the building cost.
Other Assets
Other assets consist primarily of unamortized loan costs, capitalized
organization costs and capitalized lease acquisition costs. Other assets are
stated at cost, except when it has been determined that the asset has
sustained a permanent impairment in value. These costs are amortized using the
straight-line method over the following periods:
<TABLE>
<S> <C>
Loan costs Over the term of the loan
Organization costs 60 months
Preopening expenses 12 months
Lease acquisition costs Over the term of the lease
</TABLE>
Income Taxes
The Partnerships are not taxable entities and the results of their
operations are included in the tax returns of the partners. The Partnerships'
tax returns and the amount of allocable income or loss are subject to
examination
F-7
<PAGE>
CROW FAMILY HOTEL PARTNERSHIPS
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
by federal and state taxing authorities. If such examinations result in
changes to income or loss, the tax liability of the partners could be changed
accordingly.
Revenue Recognition
Room, food and beverage, telephone and other revenues are recognized when
earned.
Self-Insurance
The Partnerships are self-insured for various levels of general liability,
workers' compensation and employee medical coverages. The general and auto
liability premiums are paid to a related party who maintains a loss reserve
fund. Workers' compensation premiums are paid to an independent insurance
company. The Partnerships' workers' compensation insurance is subject to a
"retro adjustment" which could result in additional premiums or a refund of
premiums based on actual claims settled by the insurance company.
3. PROPERTY AND EQUIPMENT:
Property and equipment consists of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31
------------------
1995 1996
-------- --------
<S> <C> <C>
Land.................................................. $ 18,575 $ 21,924
Buildings............................................. 148,644 162,764
Furniture, fixtures and equipment..................... 23,124 28,763
Construction in progress.............................. 12,329 8,345
-------- --------
202,672 221,796
Less accumulated depreciation......................... (38,243) (45,295)
-------- --------
$164,429 $176,501
======== ========
</TABLE>
Substantially all the Partnerships' property and equipment are pledged as
collateral for mortgage notes payable.
4. MANAGEMENT AGREEMENTS AND RELATED PARTY TRANSACTIONS:
The Partnerships entered into management agreements with a wholly-owned
subsidiary of Wyndham Hotel Corporation (the "Operator"). These management
agreements, having terms ranging from 10 to 22 years, provide for base
management fees and chain service fees ranging from 2.5% to 5% of gross
revenues, plus incentive fees ranging from 14% to 25% of income after fixed
charges or excess cash, as defined in the respective management agreements.
The Partnerships incurred incentive management fees of $509,000, $870,000 and
$1,638,000, during the years ended December 31, 1994, 1995 and 1996,
respectively. In addition, the agreements require the Partnerships to pay a
marketing contribution to the Operator equal to 1.5% of monthly room revenues.
The Partnerships made marketing contributions of $721,000, $850,000 and
$1,056,000 in 1994, 1995 and 1996, respectively. Due to operator represents
management fees, chain service fees and other expenses payable to the
Operator.
The Partnerships receive services from and provide services to affiliates,
which are reimbursed in the normal course of business. In 1994, 1995 and 1996,
the Partnerships reimbursed the Operator for services such as administrative,
tax, legal, accounting, finance, risk management, sales and central
reservations totaling $1,283,000, $1,566,000 and $1,497,000, respectively.
F-8
<PAGE>
CROW FAMILY HOTEL PARTNERSHIPS
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
Certain partnerships, in the normal course of business, have made advances
to or received advances from (including operating deficit loans) the partners
and their affiliates. Such amounts are classified as "Due to affiliates" in
the accompanying combined financial statements and accrue interest at rates
ranging from 2.62% to 10%. Interest expense of $222,000, $305,000 and $303,000
in 1994, 1995 and 1996, respectively, on advances from partners and affiliates
is included in other accrued expenses in the accompanying combined financial
statements. No due dates have been specified for these advances and such
advances may be repaid from available cash flow.
Pursuant to one of the partnership agreements, the general partner of the
partnership earns an annual management fee for services rendered in connection
with the business of the partnership equal to 1% of gross revenues ($207,000,
$220,000 and $233,000 in 1994, 1995 and 1996, respectively). Unpaid general
partner management fees are classified as "Due to affiliates" in the
accompanying combined financial statements.
The Partnerships participate in a centralized cash management system with
affiliates who are excluded from these combined financial statements. Gross
receipts from the hotels are deposited into the centralized cash management
system, from which operating expenses and other disbursements are paid. The
net position with the pool is reported as "Due to affiliates" in the
accompanying combined financial statements.
5. ACCOUNTS PAYABLE AND ACCRUED EXPENSES:
Accounts payable and accrued expenses consist of the following (in
thousands):
<TABLE>
<CAPTION>
DECEMBER 31
---------------
1995 1996
------- -------
<S> <C> <C>
Accounts payable............................................... $ 4,092 $ 4,755
Taxes.......................................................... 3,219 3,067
Accrued interest............................................... 6,716 6,136
Payroll and related costs...................................... 2,433 2,961
Other.......................................................... 1,610 2,032
------- -------
$18,070 $18,951
======= =======
</TABLE>
F-9
<PAGE>
CROW FAMILY HOTEL PARTNERSHIPS
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
6. LONG-TERM DEBT:
Substantially all of the hotel property is pledged as collateral for long-
term debt consisting of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31
---------------
1995 1996
------- -------
<S> <C> <C>
Mortgage note, bearing interest at 10% with monthly payments
of interest only, maturing August 1, 1997.................... $11,308 $11,308
Mortgage note, bearing interest at 10%, with monthly payments
of interest only at 5%, pay rate increasing 1% per year (7%
and 8% at December 31, 1995 and 1996). Net cash flow, as de-
fined, is payable quarterly and is applied first to deferred
interest with balance, if any, applied to principal. Note ma-
tures August 1, 1997......................................... 7,627 6,662
Note payable to a financial institution, for which payment is
guaranteed by certain partners, bearing interest at 9.75%.
Interest only is payable through November 1, 1996, with prin-
cipal and interest payable in monthly installments commencing
November 1, 1996. Additional interest of 30% of net cash
flow, as defined, is payable quarterly. Note matures October
31, 2000..................................................... 8,500 8,470
Mortgage note, bearing interest at 10%, with monthly payments
of interest only. Note matures August 1, 1997................ 10,521 10,521
Mortgage note, bearing interest at 10.71%, with current pay
rate of 6.5% increasing to 8.5% on January 1, 1997, with an-
nual increases of .5% per year to maturity. The difference
between the amount of interest accrued and that paid is pay-
able quarterly from available gross income, as defined. The
amounts accrued at December 31, 1995 and 1996, respectively,
were $3,132,000 and $1,866,000. In addition, additional in-
terest, based on net cash flows, as defined, is payable
through December 31, 1997. No additional interest was paid in
1994, 1995, or 1996. At maturity, April 1, 2001, or upon
sale, an additional amount equal to 40% of the residual val-
ue, as defined, is due....................................... 47,000 47,000
Noninterest bearing mortgage shortfall payable, maturing April
1, 2001...................................................... 2,917 2,917
Mortgage note, bearing interest at 9.82%, principal and inter-
est payable in monthly installments through October, 1999,
maturing October 13, 1999.................................... 10,781 10,591
Mortgage note, bearing interest at 10.875%, principal and in-
terest payable in monthly installments, contingent interest
equal to 5% of gross room sales, as defined, payable monthly,
principal maturing December 31, 2023......................... 17,774 17,701
Mortgage note, bearing interest at annually increasing rates
ranging from 5.78% to 13.07%. Specified interest payments are
due monthly, with the difference between the amount of inter-
est paid and accrued at the contract rate added to the prin-
cipal of the note. Additional interest is due quarterly equal
to 30% of adjusted gross revenue, as defined. The note ma-
tures on October 13, 2004. At maturity, the lender is due
Shared Appreciation Interest, as defined. The note is call-
able after February 1, 2000. The loan has an interest reserve
account of $1,028,000 and $1,000,000, as of December 31, 1995
and 1996, respectively. The related partnership may make
withdrawals from this reserve to cover any interest
shortfalls, as defined. The loan agreement provides for a re-
lease of the interest reserve account to the related partner-
ship after October 1, 1997, if certain conditions are met.... 9,219 9,378
Mortgage note, bearing interest at 11%, principal and interest
payable monthly through July 1997, maturing August 1997...... 24,928 24,446
Note payable, due on April 21, 2003, or on demand by lender... 10 10
</TABLE>
F-10
<PAGE>
CROW FAMILY HOTEL PARTNERSHIPS
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
<TABLE>
<CAPTION>
DECEMBER 31
------------------
1995 1996
-------- --------
<S> <C> <C>
Mortgage note, bearing interest at 9.25% with interest
only. Payments through January 1, 1998, and principal and
interest payable monthly beginning February 1, 1998, based
upon a twenty year amortization. In addition, net cash
flow, as defined, is payable quarterly. On December 31,
2000, all remaining principal and interest are due, net
cash flow, as defined, payable quarterly.................. 6,876 12,610
Mortgage note, bearing interest at an initial rate of
9.125%, adjusted for the Citibank Base Rate plus .625%.
All principal and interest payable on January 12, 1997,
extended to April 12, 1997. The loan was subsequently
refinanced with a $13,750,000 note bearing interest at
8.25%, with monthly payments of principal and interest
totaling $118,150 through September 2001, with the
remaining balance due October 1, 2001..................... 6,105 13,430
Certificates of Participation, bearing interest at a
variable rate, adjusted weekly to be the rate necessary to
remarket the certificates at par (4.8% and 4% at December
31, 1995 and 1996). Interest payments are due monthly, and
principal payments are due annually until maturity in
2014. Upon the occurrence of certain events, the variable
interest rate will convert to a fixed rate. The
certificates were issued at a discount of $2,046,000 which
is being amortized to interest expense over the life of
the certificates using the effective interest method. In
addition to the hotel property, the certificates are
secured by letters of credit totaling the outstanding
principal balance of the certificates. The letters of
credit are secured by other property and ownership
interests owned by the partners of the hotel partnership.
The letters of credit bear an annual fee of 2% of the
outstanding principal balance of the certificates. Until
expiration in December 1995, pursuant to the terms of an
interest rate swap agreement, interest payments were fixed
at 5.69% for the hotel partnership, and the counterparty
paid interest at one half of its daily prime rate. The
original cost of the agreement was capitalized as an other
asset and amortized over the life of the swap agreement
using the straight line method. Additional interest
expense incurred as a result of the swap agreement totaled
$1,130 and $449 in 1994 and 1995.......................... 59,300 58,200
Discount on certificates................................... (1,779) (1,746)
-------- --------
221,087 231,498
Current portion of long-term debt.......................... (1,720) (67,893)
-------- --------
Long-term debt, excluding current portion.................. $219,367 $163,605
======== ========
</TABLE>
The annual principal requirements of the long-term debt for the five years
subsequent to December 31, 1996 (excluding a discount of $1,746,000) are as
follows (in thousands):
<TABLE>
<S> <C>
Year ending December 31:
1997 $ 67,893
1998 1,864
1999 11,874
2000 22,303
2001 52,244
Thereafter.................................................... 77,066
--------
Total long-term debt at December 31, 1996................... $233,244
========
</TABLE>
As discussed above, certain of the mortgage notes payable contain provisions
which require additional payments to the lenders based on residual values or
shared appreciation of the properties at the maturity of the
F-11
<PAGE>
CROW FAMILY HOTEL PARTNERSHIPS
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
loan or sale of the property. If the properties are acquired, management
estimates that additional payments related to these provisions ranging from
$11,500,000 to $14,000,000 will be paid to the lenders from the proceeds of
the sale. These amounts are considered as additional costs to sell the
properties and they will be reflected in the financial statements at the time
the transaction is completed.
The terms of substantially all of the mortgage notes require the respective
partnerships to make deposits, on a monthly basis, to tax escrow accounts for
the payment of real estate and personal property taxes and assessments. The
terms of the mortgage notes also require hotel partnerships to maintain
furniture, fixture and equipment reserve accounts ("FF&E Reserve") equal to an
amount ranging from 3% to 4% of gross revenues, as defined, to be used for
capital expenditures. The balances of the tax escrow accounts and the FF&E
Reserve are included in "Cash, restricted" and "Cash, restricted for
noncurrent assets", respectively, in the accompanying combined financial
statements.
The Partnerships will use the proceeds from the sale of the properties to
repay existing debt. Approximately $67,900,000 of the combined partnerships'
debt matures in 1997. In the event the assets are not sold before the debt
matures, management intends to extend or refinance these existing mortgage
notes.
7. CONTRIBUTION OF NOTE PAYABLE:
In May 1994, a revolving credit facility utilized by one of the hotel
partnerships was converted to a related party note payable and was then
contributed by the partners to the hotel partnership. This contribution is
reflected on the accompanying combined statement of partners' deficit for the
year ended December 31, 1994. Prior to the conversion, the revolving credit
facility bore interest at LIBOR plus .65% and was secured by property owned by
affiliates of the partners of the hotel partnership.
8. EMPLOYEE BENEFIT PLANS:
All employees at the Partnerships are employees of WHC. The Partnerships
reimburse WHC for all expenses and charges related to the employees'
participation in any of the WHC benefit programs. Included in these plans are
the Wyndham Employees Savings and Retirement Plan, a 401(k) retirement savings
plan (the "Plan") and a self-insured group health plan.
Employees who are over 21 years of age and have completed one year of
service are eligible to participate in the Plan. The Plan matches employee
contributions up to 4% of the employee's salary. For the years ended December
31, 1994, 1995 and 1996, the Partnerships reimbursed WHC $215,000, $198,000
and $282,000, respectively for the Plan.
The Partnerships also reimburse WHC for costs related to the employees'
participation in a self-insured group health plan. For the years ended
December 31, 1994, 1995 and 1996, the Partnership reimbursed WHC $910,000,
$1,036,000 and $1,112,000, respectively.
One hotel makes contributions, based on monthly rates per employee, as
specified in union agreements, to union-administered, multi-employer, defined
benefit retirement plans. Because the plans cover numerous employees from many
organizations, no plan benefit information is presented. Expenses relating to
these plans totaled $82,000, $80,000 and $105,000 in 1994, 1995 and 1996
respectively.
F-12
<PAGE>
CROW FAMILY HOTEL PARTNERSHIPS
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
9. COMMITMENTS AND CONTINGENCIES:
Certain hotel partnerships lease equipment and land under capital and
operating leases having noncancellable agreements extending beyond one year.
Capital leases have imputed interest rates ranging from 8% to 14.29%. Future
minimum lease payments required under the capital leases (together with the
present value of net minimum lease payments) and operating leases at December
31, 1996 are as follows (in thousands):
<TABLE>
<CAPTION>
CAPITAL OPERATING
LEASES LEASE
------- ---------
<S> <C> <C>
Year ending December 31:
1997 $224 $ 1,639
1998 172 1,616
1999 68 1,508
2000 45 1,499
2001 -- 1,482
Thereafter............................................ -- 49,367
---- -------
Total minimum lease payments............................ 509 $57,111
=======
Less imputed interest................................... 71
----
Present value of net minimum lease payment.............. 438
Less current portion.................................... 185
----
Long-term portion of net minimum lease payments......... $253
====
</TABLE>
A partnership leases the land on which the hotel is built through two lease
agreements. Rent of $1 is payable annually to one of the partners under one of
these leases. The partner financed this purchase of land with an interest-free
advance from the partnership of $3,625,000. The remainder of the land is
leased from a state authority for $653,000 annually, payable in quarterly
installments of $163,000. These leases are dated July 31, 1978, with an
initial term of 65 years, and two renewal options of 15 years each, subject to
the term of the lessor's legal existence.
Another hotel partnership leases the land on which the hotel is built under
a sub-lease effective January 1, 1985, with an initial term of 75 years and
one renewal option of 25 years. Lease payments include two components: (1)
"basic rent" which escalate every 5 years based on the consumer price index,
and (2) "additional rent," as defined in the master lease, to the extent that
it exceeds basic rent. Basic rent payments are due annually on December 20 on
a prepaid basis, and the current basic rent payment is $672,000 per year. To
date, no additional rent has been paid as the basic rent exceeds all amounts
calculated as additional rent.
The Partnerships incurred rent expense totaling $2,245,000, 2,272,000 and
$2,259,000 in 1994, 1995 and 1996, respectively, which includes operating
leases and the three land leases.
The Partnerships may be subject to certain litigation and claims in the
ordinary course of business which are generally covered by insurance policies.
In management's opinion, litigation and claims will not have a material
adverse effect upon the financial position or results of operations of the
Partnerships.
10. FAIR VALUE OF FINANCIAL INSTRUMENTS:
The Partnerships have estimated the fair value of its financial instruments
at December 31, 1996 as required by Statement of Financial Accounting
Standards No. 107. The carrying values of cash and cash equivalents, accounts
receivable and accrued expenses are reasonable estimates of their fair values
due to their short-term maturities. Long-term debt had a fair value of
approximately $226,265,000 and $238,581,000 at December 31, 1995 and 1996,
respectively. Fair value was estimated using an interest rate of prime plus
one percent at December 31, 1995 and 1996.
F-13
<PAGE>
================================================================================
ANNEX A
AGREEMENT AND PLAN OF MERGER
AMONG
PATRIOT AMERICAN HOSPITALITY, INC.,
PATRIOT AMERICAN HOSPITALITY PARTNERSHIP, L.P.,
CALIFORNIA JOCKEY CLUB
AND
BAY MEADOWS OPERATING COMPANY
================================================================================
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<C> <S> <C>
ARTICLE 1. THE SUBSCRIPTION.............................................. A-1
1.1 Subscription Agreement.............................................. A-1
1.2 Subscribed Shares................................................... A-1
ARTICLE 2. [INTENTIONALLY OMITTED]....................................... A-2
ARTICLE 3. THE MERGER.................................................... A-2
3.1 The Merger.......................................................... A-2
3.2 The Closing......................................................... A-2
3.3 Effective Time...................................................... A-2
3.4 Merger Structure.................................................... A-2
ARTICLE 4. CERTIFICATE OF INCORPORATION AND BYLAWS OF EACH OF CAL JOCKEY
AND BMOC...................................................... A-2
4.1 Charter............................................................. A-2
4.2 Bylaws.............................................................. A-3
4.3 Amendments of Governing Documents of the Companies' Subsidiaries.... A-3
ARTICLE 5. EXCHANGE OF STOCK............................................. A-3
5.1 Outstanding Paired Shares of Cal Jockey Stock and BMOC Stock........ A-3
5.2 Conversion of Patriot Stock......................................... A-3
5.3 Exchange of Certificates Representing Patriot Stock................. A-5
5.4 Return of Exchange Fund............................................. A-6
5.5 Lost or Stolen Certificates......................................... A-7
ARTICLE 6. REGISTRATION AND SOLICITATION PROCESS......................... A-7
6.1 Proxy Statement; Registration Statement............................. A-7
ARTICLE 7. REPRESENTATIONS AND WARRANTIES OF PATRIOT..................... A-8
7.1 Organization and Qualifications..................................... A-8
7.2 Capitalization...................................................... A-8
7.3 Authority Relative to this Agreement................................ A-9
7.4 No Conflict; Required Filings and Consents.......................... A-9
7.5 Fairness Opinion.................................................... A-10
7.6 SEC Reports and Financial Statements................................ A-10
7.7 Absence of Certain Changes or Events; Obligations................... A-10
7.8 REIT Status......................................................... A-10
7.9 Permits............................................................. A-10
ARTICLE 8. REPRESENTATIONS AND WARRANTIES OF BMOC........................ A-11
8.1 Organization and Qualifications..................................... A-11
8.2 Capitalization...................................................... A-11
8.3 Authority Relative to this Agreement................................ A-11
8.4 No Conflict; Required Filings and Consents.......................... A-11
8.5 Fairness Opinion.................................................... A-12
8.6 SEC Reports and Financial Statements................................ A-12
8.7 Absence of Certain Changes or Events; Obligations................... A-12
8.8 Pairing Agreement................................................... A-13
</TABLE>
(i)
<PAGE>
<TABLE>
<CAPTION>
PAGE
----
<C> <S> <C>
ARTICLE 9. REPRESENTATIONS AND WARRANTIES OF CAL JOCKEY................... A-13
9.1 Organization and Qualifications.................................... A-13
9.2 Capitalization..................................................... A-13
9.3 Authority Relative to this Agreement............................... A-13
9.4 No Conflict; Required Filings and Consents......................... A-13
9.5 Fairness Opinion................................................... A-14
9.6 SEC Reports and Financial Statements............................... A-14
9.7 Absence of Certain Changes or Events; Obligations.................. A-15
9.8 Real Property...................................................... A-15
9.9 Permits............................................................ A-15
9.10 REIT Status........................................................ A-15
9.11 Pairing Agreement.................................................. A-16
ARTICLE 10. COVENANTS..................................................... A-16
10.1 No Solicitation.................................................... A-16
10.2 Access............................................................. A-18
10.3 Consents........................................................... A-18
10.4 Efforts............................................................ A-18
10.5 Announcements...................................................... A-18
10.6 Interim Operations................................................. A-19
10.7 Filings; Other Action.............................................. A-19
10.8 Listing Application................................................ A-19
10.9 Affiliates of Patriot.............................................. A-20
10.10 Expenses........................................................... A-20
10.11 Brokers and Finders................................................ A-20
10.12 Indemnification and Insurance...................................... A-20
ARTICLE 11. CONDITIONS.................................................... A-21
11.1 Conditions to BMOC's and Cal Jockey's Obligations.................. A-21
11.2 Conditions to Patriot's Obligations................................ A-22
ARTICLE 12. TERMINATION................................................... A-23
12.1 Termination........................................................ A-23
12.2 Extension; Waiver.................................................. A-24
12.3 Payment of Fee to Hudson Bay Partners, L.P. ....................... A-24
ARTICLE 13. GENERAL PROVISIONS............................................ A-25
13.1 San Mateo City Council Meeting..................................... A-25
13.2 Nonsurvival of Representations, Warranties and Agreements.......... A-25
13.3 Notices............................................................ A-26
13.4 Assignment; Binding Effect; Benefit................................ A-26
13.5 Entire Agreement................................................... A-27
13.6 Governing Law...................................................... A-27
13.7 Counterparts....................................................... A-27
13.8 Headings........................................................... A-27
13.9 Incorporation...................................................... A-27
13.10 Severability....................................................... A-27
13.11 Interpretation and Certain Definitions............................. A-28
</TABLE>
(ii)
<PAGE>
AGREEMENT AND PLAN OF MERGER
This AGREEMENT AND PLAN OF MERGER (this "Agreement"), dated as of
February 24, 1997, as amended and restated as of May 28, 1997, by and among
Patriot American Hospitality, Inc., a Virginia corporation ("Patriot"),
Patriot American Hospitality Partnership, L.P. ("Patriot Operating
Partnership"), California Jockey Club, a Delaware corporation ("Cal Jockey"),
and Bay Meadows Operating Company, a Delaware corporation ("BMOC"). Cal Jockey
and BMOC may from time to time be referred to herein collectively as the
"Companies."
W I T N E S S E T H:
WHEREAS, the parties hereto entered into an Agreement and Plan of Merger
dated as of February 24, 1997 (the "February 24 Agreement") and the parties
desire to amend and restate the February 24 Agreement in order, among other
things, to eliminate the Offer (as such term is defined in February 24
Agreement);
WHEREAS, the parties hereto desire and have agreed that the representations,
warranties, covenants and agreements contained herein are and shall be deemed
to have been made as of February 24, 1997 unless otherwise specifically
indicated to the contrary herein;
WHEREAS, the shares of common stock, par value $.01 per share, of Cal Jockey
("Cal Jockey Stock") and the shares of common stock, par value $.01 per share,
of BMOC ("BMOC Stock") are paired and transferable and traded only in
combination as a single unit (the "Paired Shares") on the American Stock
Exchange;
WHEREAS, Patriot, Cal Jockey and BMOC entered into a binding acquisition
agreement dated as of October 31, 1996 (the "Acquisition Agreement") pursuant
to which the parties agreed to engage in a business combination among Patriot,
Cal Jockey and BMOC. This Agreement constitutes one of the "Implementation
Agreements" referenced in the Acquisition Agreement;
WHEREAS, the Board of Directors of each of Patriot, Cal Jockey and BMOC have
determined that a business combination among Patriot, Cal Jockey and BMOC is
in the best interest each of their respective companies and stockholders and
presents an opportunity for their respective companies to achieve long-term
strategic and financial benefits, and accordingly have agreed to effect the
transactions provided for herein (the "Transactions") upon the terms and
subject to the conditions set forth herein; and
WHEREAS, Patriot, Patriot Operating Partnership, Cal Jockey and BMOC desire
to make certain representations, warranties, covenants and agreements in
connection with the Transactions contemplated by this Agreement.
NOW, THEREFORE, in consideration of the foregoing and in consideration of
the representations, warranties, covenants and agreements contained herein,
the parties hereby agree as follows:
ARTICLE 1.
THE SUBSCRIPTION
1.1 Subscription Agreement. Immediately prior to Closing (as hereinafter
defined), Patriot Operating Partnership and BMOC shall enter into a
subscription agreement in substantially the form of Exhibit A attached hereto
(the "Subscription Agreement") pursuant to which Patriot Operating Partnership
will agree to subscribe for, and BMOC will issue, a number of shares (the
"Subscribed Shares") of BMOC Stock equal to the number of shares of Cal Jockey
Stock to be issued to stockholders of Patriot pursuant to the Merger (as
hereinafter defined).
1.2 Subscribed Shares. The parties hereto acknowledge and agree that the
Subscribed Shares will be issued in accordance with Section 5.3(a) hereof to
the stockholders of Patriot in connection with the Merger and will be
A-1
<PAGE>
paired with the Cal Jockey Stock issued in the Merger in accordance with that
certain Pairing Agreement, dated as of February 17, 1983 and amended from time
to time thereafter, by and between Cal Jockey and BMOC (the "Pairing
Agreement") and neither Patriot nor Patriot Operating Partnership will at any
time become a stockholder of BMOC.
ARTICLE 2.
[INTENTIONALLY OMITTED]
ARTICLE 3.
THE MERGER
3.1 The Merger. Subject to the terms and conditions of this Agreement, at
the Effective Time (as defined in Section 3.3 hereof), Patriot shall be merged
with and into Cal Jockey in accordance with this Agreement and the separate
corporate existence of Patriot shall thereupon cease (the "Merger"). Cal
Jockey shall be the surviving corporation in the Merger (sometimes hereinafter
referred to as the "Surviving Corporation"). The Merger shall have the effects
specified in Section 259 of the Delaware General Corporation Law (the "DGCL")
and Section 13.1-721 of the Virginia Stock Corporation Act (the "VSCA").
3.2 The Closing. Subject to the terms and conditions of this Agreement, the
closing of the Merger (the "Closing") shall take place (a) at the offices of
Goodwin, Procter & Hoar LLP, on the day on which Cal Jockey and BMOC issue a
press release announcing that the last of the conditions set forth in Article
11 have been fulfilled or waived in accordance herewith or (b) at such other
time, date or place as the parties hereto may agree. The date on which the
Closing occurs is hereinafter referred to as the "Closing Date."
3.3 Effective Time. If all of the conditions to the Merger set forth in
Article 11 shall have been fulfilled or waived in accordance herewith and this
Agreement shall not have been terminated as provided in Article 12, the
parties hereto shall cause a Certificate of Merger satisfying the requirements
of the DGCL and Articles of Merger satisfying the requirements of the VSCA to
be properly executed, verified and delivered for filing in accordance with the
DGCL and the VSCA on the Closing Date. The Merger shall become effective upon
the acceptance for record of the Certificate of Merger by the Secretary of
State of Delaware in accordance with the DGCL and issuance of a Certificate of
Merger by the State Corporation Commission of Virginia or at such later time
which the parties hereto shall have agreed upon and designated in such filing
in accordance with applicable law as the effective time of the Merger (the
"Effective Time").
3.4 Merger Structure. In connection with the Merger, each of the parties
hereto acknowledges and agrees to take all actions and enter into such
agreements, instruments and documents in forms mutually acceptable to Patriot,
Cal Jockey and BMOC necessary to effectuate the transactions (other than the
Offer) contemplated by that certain memorandum, dated as of February 24, 1997,
from Goodwin, Procter & Hoar llp delivered concurrently herewith, including,
without limitation, the creation of a BMOC operating partnership, the
contribution of BMOC's assets to such BMOC operating partnership in connection
with the Merger and the contribution of Cal Jockey's assets to Patriot
Operating Partnership in connection with the Merger.
ARTICLE 4.
CERTIFICATE OF INCORPORATION AND BYLAWS OF EACH OF CAL JOCKEY AND BMOC
4.1 Charter. Prior to the Effective Time of the Merger and subject to
approval of the stockholders of Cal Jockey and BMOC, the Certificate of
Incorporation of Cal Jockey shall have been amended and restated in the form
of Exhibit B and the Certificate of Incorporation of BMOC shall have been
amended and restated in a form substantially similar to Exhibit B with such
changes as the parties shall mutually agree. The Certificate of
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Incorporation of the Surviving Corporation shall be the Certificate of
Incorporation of Cal Jockey, as so amended and restated.
4.2 Bylaws. Prior to the Effective Time of the Merger, the Bylaws of Cal
Jockey shall have been amended and restated in the form of Exhibit C and the
Bylaws of BMOC shall have been amended and restated in a form substantially
similar to Exhibit C with such changes as the parties shall mutually agree.
The Bylaws of the Surviving Corporation shall be the Bylaws of Cal Jockey, as
so amended and restated.
4.3 Amendments of Governing Documents of the Companies' Subsidiaries. In
connection with the Closing, the charter, bylaws, partnership agreements and
equivalent documents for the subsidiaries (as defined in Section 13.11 hereof)
of each of Cal Jockey and BMOC shall be amended to change the name of the
entity and to make certain other changes to such documents requested by
Patriot in order to reflect the Transactions contemplated by this Agreement,
provided that any such changes shall be subject to the prior consent of Cal
Jockey and BMOC, which consent shall not be unreasonably withheld. Each of Cal
Jockey, BMOC and their respective subsidiaries will take all actions which are
necessary to effectuate such amendments and will use their best efforts to
cause all of the stockholders, partners or members in any subsidiary of Cal
Jockey or BMOC to approve such amendments and to take such other actions to
effectuate such amendments and the Transactions contemplated by this Agreement
as may be reasonably requested by Patriot.
ARTICLE 5.
EXCHANGE OF STOCK
5.1 Outstanding Paired Shares of Cal Jockey Stock and BMOC Stock.
(a) At the Effective Time, each Paired Share of Cal Jockey Stock and BMOC
Stock outstanding immediately prior to the Effective Time which was not
tendered and accepted for payment pursuant to the Offer shall remain
outstanding and shall continue to represent one Paired Share of Cal Jockey
Stock and BMOC Stock.
(b) At the Effective Time, each option exercisable for a Paired Share of Cal
Jockey Stock and BMOC Stock outstanding immediately prior to the Effective
Time (that will not automatically terminate by its terms at the Effective
Time) shall remain outstanding and shall continue to represent an option to
purchase a Paired Share of Cal Jockey Stock and BMOC Stock.
5.2 Conversion of Patriot Stock.
(a) At the Effective Time, each share of common stock, no par value per
share, of Patriot (the "Patriot Stock") issued and outstanding immediately
prior to the Effective Time (other than those shares of Patriot Stock to be
canceled pursuant to Section 5.2(d)) shall, by virtue of the Merger and
without any action on the part of Patriot, Cal Jockey, BMOC or the holders of
any of the securities of any of these corporations, be converted into 0.51895
shares of Cal Jockey Stock; provided, however, if the Average Closing Price
(as hereinafter defined) of a share of Patriot Stock is less than $17.125 per
share, then each share of Patriot Stock issued and outstanding immediately
prior to the Effective Time (other than those shares of Patriot Stock to be
canceled pursuant to Section 5.2(d)) shall, by virtue of the Merger and
without any action on the part of Patriot, Cal Jockey, BMOC or the holders of
any of the securities of these corporations, be converted into a number of
shares of Cal Jockey Stock equal to the Average Closing Price divided by
$33.00; provided further, however, that the applicable number of shares of Cal
Jockey Stock to be issued upon such conversion as provided above shall be
subject to adjustment for stock splits, recapitalizations, stock dividends and
similar transactions (the applicable number of shares of Cal Jockey Stock to
be issued upon conversion as provided herein being the "Exchange Ratio").
Simultaneously, at the Effective Time, each Patriot stockholder shall be
entitled to receive pursuant to the Subscription Agreement an equivalent
number of Subscribed Shares for each share of Patriot Stock, as so converted
pursuant to this Section 5.2(a), such that the Subscribed Shares and the
shares of Cal Jockey Stock received by a Patriot stockholder in the Merger
shall become Paired Shares which are transferable only as a single unit. The
provisions of this Section 5.2(a) are intended to comply with Sections 2(a)
and 2(b) of the Pairing
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Agreement. For purposes of this Agreement, the term "Average Closing Price"
shall mean the average per share closing price of a share of Patriot Stock as
reported for New York Stock Exchange composite transactions in the Wall Street
Journal over the twenty (20) trading days immediately preceding the third
trading day prior to the date on which the meetings of stockholders of Cal
Jockey, BMOC and Patriot to approve the transactions contemplated by this
Agreement are to be convened.
(b) Notwithstanding anything contained in this Agreement to the contrary, in
order for the Surviving Corporation to qualify and maintain status as a real
estate investment trust (a "REIT") within the meaning of Section 856 of the
Internal Revenue Code of 1986, as amended (the "Code"), no person or entity
shall own, or be deemed to own by virtue of the attribution provisions of
Section 544 (as modified by Section 856(h)(1)(B)) or Section 318 (as modified
by Section 856(d)(5)) of the Code more than 9.8% of the outstanding Paired
Shares of Cal Jockey Stock and BMOC Stock (the "Ownership Limit") at or after
the Merger. Therefore, if any holder of Patriot Stock would receive in
connection with the Merger and the Subscription a number of Paired Shares of
Cal Jockey Stock and BMOC Stock such that any person or entity would own, or
be deemed to own under the applicable attribution rules of the Code referred
to above, Paired Shares of Cal Jockey Stock and BMOC Stock in excess of the
Ownership Limit, then such holder shall acquire no right or interest in such
number of Paired Shares of Cal Jockey Stock and BMOC Stock which would cause
such person or entity to exceed the Ownership Limit, but such holder shall, in
lieu of receiving those Paired Shares of Cal Jockey Stock and BMOC Stock which
would cause the Ownership Limit to be exceeded (the "Excess Paired Shares"),
have the right to be paid by the Surviving Corporation an amount in cash for
such Excess Paired Shares equal to the product of the Fair Market Value (as
hereinafter defined) per Excess Paired Share multiplied by the number of such
Excess Paired Shares. "Fair Market Value" shall be equal to the greater of (i)
the average closing price of a Paired Share of Cal Jockey Stock and BMOC Stock
as reported for composite transactions on the American Stock Exchange in the
Wall Street Journal on the four (4) trading days immediately preceding the
Closing Date and (ii) the average closing price of a share of Patriot Stock as
reported for composite transactions on the New York Stock Exchange in the Wall
Street Journal on the four (4) trading days immediately preceding the Closing
Date multiplied by 1.92697, subject to adjustment to account for changes in
the Exchange Ratio pursuant to Section 5.2(a).
(c) As a result of the Merger and without any action on the part of the
holders thereof, all shares of Patriot Stock shall cease to be outstanding,
shall be canceled and retired and shall cease to exist and each holder of a
certificate (a "Certificate" and, collectively, the "Certificates")
representing any shares of Patriot Stock shall thereafter cease to have any
rights with respect to such shares of Patriot Stock, except the right to
receive, without interest, Paired Shares of Cal Jockey Stock and BMOC Stock,
dividend(s) payable in accordance with Section 5.3(c) and cash in lieu of
Excess Paired Shares (if any) and fractional Paired Shares of Cal Jockey Stock
and BMOC Stock in accordance with Sections 5.2(b) and 5.3(e), respectively,
upon the surrender of such Certificate.
(d) Each share of Patriot Stock issued and held in Patriot's treasury at the
Effective Time, if any, by virtue of the Merger, shall cease to be
outstanding, shall be canceled and retired and shall cease to exist and no
payment of any consideration shall be made with respect thereto.
(e) At the Effective Time, Patriot's obligations with respect to each stock
option and other security convertible into or exchangeable for any capital
stock or other equity interest in Patriot or a subsidiary of Patriot
(exclusive of the redemption rights of the limited partnership units of the
Patriot Operating Partnership) that will not automatically terminate by its
terms at the Effective Time (the "Existing Patriot Options") shall be assumed
by Cal Jockey (the "Assumed Options"). The Assumed Options shall, unless
otherwise amended prior to the Effective Date, continue to have, and be
subject to, the same terms and conditions as set forth in the plans and
agreements (as in effect immediately prior to the Effective Time) pursuant to
which the Existing Patriot Options were issued, except that (i) all references
to Patriot shall be deemed to be references to Cal Jockey, (ii) each Existing
Patriot Option shall be exercisable for that number of whole Paired Shares of
Cal Jockey Stock and BMOC Stock equal to the product of the number of shares
of Patriot Stock covered by such Existing Patriot Option immediately prior to
the Effective Time multiplied by the Exchange Ratio and rounded to the nearest
whole number of Paired Shares of Cal Jockey Stock and BMOC Stock and (iii) the
exercise price per Paired Share of Cal Jockey Stock and BMOC Stock under such
Existing Patriot Option shall be equal to the exercise
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price per share of Patriot Stock under the Existing Patriot Option divided by
the Exchange Ratio and rounded to the nearest cent. To the extent permitted by
law, the adjustment provided herein with respect to any Existing Patriot
Options that are "incentive stock options" (as defined in Section 422 of the
Code) shall be and is intended to be effected in a manner that is consistent
with Section 424(a) of the Code. Notwithstanding the foregoing, in no event
shall a holder of an Assumed Option be permitted to exercise any portion of
such Assumed Option that will result in any person or entity owning, or being
deemed to own, Paired Shares of Cal Jockey Stock and BMOC Stock at or after
the Merger in excess of the Ownership Limit or otherwise in violation of any
restrictions contained in the Certificates of Incorporation or Bylaws of Cal
Jockey and BMOC, as amended and restated. BMOC shall agree to grant to Cal
Jockey options to acquire shares of BMOC Stock equal to that number of shares
of Cal Jockey Stock that will be issuable under the Assumed Options in
accordance with this Section 5.2(e); such options shall have an exercise price
equal to the then fair market value of the BMOC Stock to be issued upon such
exercise, as determined in accordance with the Pairing Agreement by mutual
agreement of the parties hereto or if the parties are unable to agree on such
exercise price the determination shall be made by an independent third party
chosen by mutual agreement of Patriot, Cal Jockey and BMOC, and shall be
exercisable by Cal Jockey only if and to the extent a holder of an Assumed
Option exercises his or her Assumed Option. Notwithstanding the immediately
preceding sentence, (i) in no event shall Cal Jockey be permitted to hold any
such options that would result in any person or entity owning, or being deemed
to own under the applicable attribution rules of the Code referred to in
Section 5.2(b) hereof, Paired Shares of Cal Jockey Stock and BMOC Stock after
the Merger in excess of the Ownership Limit or in violation of any other
restrictions contained in the Certificates of Incorporation or Bylaws of Cal
Jockey and BMOC, as amended and restated (assuming for such purpose that such
options constitute "options" within the meaning of such attribution rules);
and (ii) in no event shall Cal Jockey be permitted to exercise such options to
the extent that such exercise would result in Cal Jockey owning, or being
deemed to own under the applicable attribution rules of the Code referred to
in Section 5.2(b) hereof, at any time, BMOC Stock in excess of the Ownership
Limit or in violation of any other restrictions contained in the Certificate
of Incorporation or Bylaws of BMOC, as amended and restated. Each of Cal
Jockey and BMOC shall reserve for issuance the number of shares of Cal Jockey
Stock or BMOC Stock, as the case may be, that will become issuable upon the
exercise of such Assumed Options pursuant to this Section 5.2(e) and the
Surviving Corporation shall promptly after the Effective Time issue to each
holder of an outstanding Existing Patriot Option a document evidencing the
assumption by the Surviving Corporation of Patriot's obligations with respect
thereto under this Section 5.2(e).
5.3 Exchange of Certificates Representing Patriot Stock.
(a) As of the Effective Time, (i) Cal Jockey shall deposit, or shall cause
to be deposited, with an exchange agent selected by Patriot on or prior to the
Effective Time (the "Exchange Agent"), for the benefit of the holders of
shares of Patriot Stock, for exchange in accordance with this Article 5, a
certificate representing the shares of Cal Jockey Stock to be issued pursuant
to Section 5.2(a) and the cash in lieu of Excess Paired Shares and fractional
Paired Shares paid pursuant to Section 5.2(b) and this Section 5.3,
respectively, in exchange for outstanding shares of Patriot Stock and
simultaneously (ii) BMOC shall deposit, or shall cause to be deposited, with
the Exchange Agent, for the benefit of the holders of shares of Patriot Stock,
for distribution in accordance with Section 5.2(a), a certificate representing
the Subscribed Shares, to be paired with the shares of Cal Jockey Stock
described in clause (i) above (such certificates for shares of Cal Jockey
Stock and the certificates for Subscribed Shares and such cash in lieu of
Excess Paired Shares and fractional Paired Shares shall hereinafter be
referred to as the "Exchange Fund"). The provisions of this Section 5.3 are
intended to comply with Sections 2(a) and 2(b) of the Pairing Agreement.
(b) Promptly after the Effective Time, the parties hereto shall cause the
Exchange Agent to mail to each holder of record of a Certificate or
Certificates (i) a letter of transmittal which shall specify that delivery
shall be effected, and risk of loss and title to the Certificates shall pass,
only upon delivery of the Certificates to the Exchange Agent and shall be in
such form and have such other provisions as Cal Jockey and BMOC may reasonably
specify and (ii) instructions for use in effecting the surrender of the
Certificates in exchange for certificates printed "back-to-back" evidencing
Paired Shares of Cal Jockey Stock and BMOC Stock and cash in lieu of Excess
Paired Shares, if any, and fractional Paired Shares, if any. Upon surrender of
a Certificate for
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cancellation to the Exchange Agent together with such letter of transmittal,
duly executed and completed in accordance with the instructions thereto, the
holder of such Certificate shall be entitled to receive in exchange therefor
(x) a certificate representing the number of whole Paired Shares of Cal Jockey
Stock and BMOC Stock to which such holder shall be entitled, and (y) a check
representing the amount of cash in lieu of Excess Paired Shares, if any, and
fractional Paired Shares, if any, due such holder plus the amount of any
dividends or distributions, if any, pursuant to clause (c) of this Section
5.3, after giving effect to any required withholding tax, and the Certificate
so surrendered shall forthwith be canceled. No interest will be paid or
accrued on the cash in lieu of Excess Paired Shares, if any, and fractional
Paired Shares, if any, or on the dividends or distributions, if any, payable
to holders of Certificates pursuant to this Section 5.3. In the event of a
transfer of ownership of Patriot Stock which is not registered in the stock
transfer records of Patriot, a certificate representing the proper number of
Paired Shares of Cal Jockey Stock and BMOC Stock, together with a check for
the cash to be paid in lieu of Excess Paired Shares, if any, and fractional
Paired Shares, if any, plus, to the extent applicable, the amount of any
dividends or distributions, if any, payable pursuant to clause (c) of this
Section 5.3, may be issued to such a transferee if the Certificate
representing shares of such Patriot Stock is presented to the Exchange Agent,
accompanied by all documents required to evidence and effect such transfer and
to evidence that any applicable stock transfer taxes have been paid.
(c) Notwithstanding any other provisions of this Agreement, dividends or
other distributions on Paired Shares of Cal Jockey Stock and BMOC Stock with
respect to any shares of Patriot Stock represented by a Certificate that has
not been surrendered for exchange shall be paid only as provided herein. Any
such dividend or distribution amounts with a record date after the Effective
Time and a payment date prior to the surrender of such Certificate shall be
deposited (less the amount of any withholding taxes which may be required
thereon) with the Exchange Agent on the applicable payment date, to be held by
the Exchange Agent in a non-interest bearing account until the surrender of
such Certificate. Following surrender of any such Certificate, the holder
thereof shall be entitled to receive for the whole Paired Shares of Cal Jockey
Stock and BMOC Stock issued in exchange therefor, without interest, (i) at the
time of such surrender, the amount of dividends or other distributions with a
record date after the Effective Time theretofore payable with respect to such
whole Paired Shares and not paid, less the amount of any withholding taxes
which may be required thereon, and (ii) at the appropriate payment date, the
amount of dividends or other distributions with a record date after the
Effective Time but prior to surrender and a payment date subsequent to
surrender payable with respect to such Paired Shares, less the amount of any
withholding taxes which may be required thereon.
(d) At and after the Effective Time, there shall be no transfers on the
stock transfer books of Patriot of the shares of Patriot Stock which were
outstanding immediately prior to the Effective Time and if, after the
Effective Time, Certificates are presented for transfer, they shall be
canceled and exchanged for certificates for Paired Shares of Cal Jockey Stock
and BMOC Stock, dividends and cash in lieu of Excess Paired Shares, if any,
and fractional Paired Shares, if any, in accordance with this Section 5.3.
Certificates surrendered for exchange by any person constituting an
"affiliate" of Patriot for purposes of Rule 145, as such rule may be amended
from time to time ("Rule 145"), of the rules and regulations promulgated under
the Securities Act of 1933, as amended (the "Securities Act"), shall not be
exchanged until Cal Jockey has received an affiliate letter (the "Affiliate
Letter") from such person as provided in Section 10.9.
(e) No fractional Paired Shares of Cal Jockey Stock and BMOC Stock shall be
issued pursuant hereto. In lieu of the issuance of any fractional Paired
Shares pursuant to this Agreement, each holder of Patriot Stock upon surrender
of a Certificate for exchange shall be paid an amount in cash (without
interest), rounded to the nearest cent, determined by multiplying (i) the Fair
Market Value by (ii) the fractional amount of the Paired Shares of Cal Jockey
Stock and BMOC Stock which such holder would otherwise be entitled to receive
under this Article 5.
5.4 Return of Exchange Fund. Any portion of the Exchange Fund (including any
cash for Excess Paired Shares and fractional Paired Shares, any dividends or
distributions of Cal Jockey or BMOC and any shares of Cal Jockey Stock or any
Subscribed Shares) that remains unclaimed by the former stockholders of
Patriot one year after the Effective Time shall be distributed as follows: any
cash for Excess Paired Shares and fractional
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Paired Shares, any dividends or distributions of Cal Jockey or shares of Cal
Jockey Stock shall be returned to Cal Jockey and any dividends or
distributions of BMOC and any Subscribed Shares shall be returned to BMOC
(provided that Cal Jockey and BMOC shall agree to issue said cash or shares in
accordance with this Article 5 to former stockholders of Patriot who
thereafter surrender their Certificates). Any former stockholders of Patriot
who have not theretofore complied with this Article 5 shall thereafter look
only to Cal Jockey for issuance or payment of that portion of their Paired
Shares representing Cal Jockey Stock and cash in lieu of Excess Paired Shares,
if any, and fractional Paired Shares, if any, and to BMOC for issuance or
payment of that portion of their Paired Shares representing BMOC Stock (plus,
in each case, dividends and distributions to the extent set forth in Section
5.3(c), if any), as determined pursuant to this Agreement, without any
interest thereon. None of Cal Jockey, BMOC, Patriot, the Exchange Agent or any
other person shall be liable to any former holder of shares of Patriot Stock
for any amount properly delivered to a public official pursuant to applicable
abandoned property, escheat or similar laws.
5.5 Lost or Stolen Certificates. In the event any Certificate shall have
been lost, stolen or destroyed, upon the making of an affidavit of that fact
by the person claiming such Certificate to be lost, stolen or destroyed and,
if required by Cal Jockey and BMOC, the posting by such person of a bond in
such reasonable amount as Cal Jockey and BMOC may direct as indemnity against
any claim that may be made against it with respect to such Certificate, the
Exchange Agent or Cal Jockey and BMOC will issue in exchange for such lost,
stolen or destroyed Certificate the Paired Shares of Cal Jockey Stock and BMOC
Stock and cash in lieu of Excess Paired Shares, if any, and fractional Paired
Shares, if any, to which such person is entitled under Section 5.3(b) (and to
the extent applicable, dividends and distributions payable pursuant to Section
5.3(c)).
ARTICLE 6.
REGISTRATION AND SOLICITATION PROCESS
6.1 Proxy Statement; Registration Statement.
(a) As promptly as practicable after execution of this Agreement, (i) each
of Patriot, Cal Jockey and BMOC shall prepare and file with the SEC (with
appropriate requests for confidential treatment, unless the parties hereto
otherwise agree) under the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), a joint proxy statement/prospectus and forms of proxies (such
joint proxy statement/prospectus together with any amendments to supplements
thereto, the "Proxy Statement") relating to the stockholder meetings of each
of Patriot, Cal Jockey and BMOC and the vote of the stockholders of Patriot,
Cal Jockey and BMOC with respect to the Merger and the Transactions and (ii)
following clearance by the SEC of the Proxy Statement, Cal Jockey and BMOC
shall prepare and file with the SEC under the Securities Act a registration
statement on Form S-4 (such registration statement, together with any
amendments or supplements thereto, the "Form S-4"), in which the Proxy
Statement will be included as a prospectus, in connection with the
registration under the Securities Act of the shares of Cal Jockey Stock and
the Subscribed Shares to be distributed to the stockholders of Patriot in the
Merger. The respective parties will cause the Proxy Statement and the Form S-4
to comply as to form in all material respects with the applicable provisions
of the Securities Act, the Exchange Act and the rules and regulations
thereunder. Each of Patriot, Cal Jockey and BMOC shall furnish all information
about itself and its business and operations and all necessary financial
information to the other as the other may reasonably request in connection
with the preparation of the Proxy Statement and the Form S-4. Each of Cal
Jockey and BMOC shall use its reasonable best efforts, and Patriot will
cooperate with them, to have the Form S-4 declared effective by the SEC as
promptly as practicable (including clearing the Proxy Statement with the SEC).
Each of Patriot, Cal Jockey and BMOC agrees promptly to correct any
information provided by it for use in the Proxy Statement and the Form S-4 if
and to the extent that such information shall have become false or misleading
in any material respect, and each of the parties thereto further agrees to
take all steps necessary to amend or supplement the Proxy Statement and the
Form S-4 and to cause the Proxy Statement and the Form S-4 as so amended or
supplemented to be filed with the SEC and to be disseminated to their
respective stockholders, in each case as and to the extent required by
applicable federal and state securities laws. Each of Cal Jockey, BMOC and
Patriot
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agrees that the information provided by it for inclusion in the Proxy
Statement or the Form S-4 and each amendment or supplement thereto, at the
time of mailing thereof and at the time of the respective meetings of
stockholders of Cal Jockey, BMOC and Patriot, will not include an untrue
statement of a material fact or omit to state a material fact required to be
stated therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading. Each of Cal Jockey
and BMOC will advise and deliver copies (if any) to Patriot, promptly after it
receives notice thereof, of any request by the SEC for amendment of the Proxy
Statement or the Form S-4 or comments thereon and responses thereto or
requests by the SEC for additional information, or notice of the time when the
Form S-4 has become effective or any supplement or amendment has been filed,
the issuance of any stop order, the suspension of the qualification of the Cal
Jockey Stock issuable in connection with the Merger or of the Subscribed
Shares for offering or sale in any jurisdiction.
(b) Each of Patriot, Cal Jockey and BMOC shall use its best efforts to
timely mail the joint proxy statement/prospectus contained in the Form S-4 to
its stockholders. It shall be a condition to the mailing of the joint proxy
statement/prospectus that (i) Cal Jockey and BMOC each shall have received a
"comfort" letter from Ernst & Young, LLP, independent public accountants for
Patriot, of the kind contemplated by the Statement of Auditing Standards with
respect to Letters to Underwriters promulgated by the American Institute of
Certified Public Accountants (the "AICPA Statement"), dated as of the date on
which the Form S-4 shall become effective and as of the Effective Time, each
addressed to Cal Jockey and BMOC, in form and substance reasonably
satisfactory to Cal Jockey and BMOC, concerning the procedures undertaken by
Ernst & Young, LLP with respect to the financial statements and information of
Patriot and its subsidiaries contained in the Form S-4 and the other matters
contemplated by the AICPA Statement and otherwise customary in scope and
substance for letters delivered by independent public accountants in
connection with transactions such as those contemplated by this Agreement and
(ii) Patriot shall have received a "comfort" letter from Deloitte & Touche
LLP, independent public accountants for Cal Jockey and BMOC, of the kind
contemplated by the AICPA Statement, dated as of the date on which the Form S-
4 shall become effective and as of the Effective Time, each addressed to
Patriot, in form and substance reasonably satisfactory to Patriot, concerning
the procedures undertaken by Deloitte & Touche LLP with respect to the
financial statements and information of Cal Jockey and BMOC and their
subsidiaries contained in the Form S-4 and the other matters contemplated by
the AICPA Statement and otherwise customary in scope and substance for letters
delivered by independent public accountants in connection with transactions
such as those contemplated by this Agreement.
ARTICLE 7.
REPRESENTATIONS AND WARRANTIES OF PATRIOT
Except as set forth in the disclosure schedule delivered concurrently
herewith to Cal Jockey and BMOC, which shall refer to the relevant Sections of
this Agreement (the "Patriot Disclosure Schedule"), Patriot represents and
warrants to Cal Jockey and BMOC as follows:
7.1 Organization and Qualifications. Patriot and each subsidiary of Patriot
is a corporation, partnership, limited liability company or other legal entity
duly incorporated or organized, validly existing and in good standing under
the laws of the jurisdiction of its incorporation or organization and has the
requisite power and authority and all governmental permits, approvals and
other authorizations necessary to own, lease and operate its properties and to
carry on its business as it is now being conducted, except where the failure
to be so organized, existing or in good standing or to have such power,
authority and governmental permits, approvals and other authorizations would
not, individually or in the aggregate, have a material adverse effect on the
assets, financial condition, results of operations or businesses (a "Material
Adverse Effect") of Patriot and its subsidiaries, taken as a whole (a "Patriot
Material Adverse Effect").
7.2 Capitalization. The authorized capital stock of Patriot is as set forth
on the Patriot Disclosure Schedule. Except as set forth thereon, as of the
date hereof, no shares of capital stock or other voting securities of Patriot
were issued, reserved for issuance or outstanding. Except as set forth thereon
and except as contemplated herein,
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there are no options or agreements relating to the issued or unissued capital
stock of Patriot or any subsidiary of Patriot, or obligating Patriot or any
subsidiary to issue, transfer, grant or sell any shares of capital stock of,
or other equity interests in, or securities convertible into or exchangeable
for any capital stock or other equity interests in, Patriot or any subsidiary.
There are no outstanding contractual obligations of Patriot or any subsidiary
to repurchase, redeem or otherwise acquire any shares of capital stock of
Patriot or any subsidiary.
7.3 Authority Relative to this Agreement. Patriot has all necessary
corporate power and authority to execute and deliver this Agreement, to
perform its obligations hereunder and, subject to adoption and approval of
this Agreement and the Transactions by the stockholders of Patriot as
contemplated hereby, to consummate the Transactions. The execution and
delivery of this Agreement by Patriot and the consummation by it of the
Transactions have been duly and validly authorized by all necessary corporate
action and no other corporate proceedings on the part of Patriot are necessary
to authorize this Agreement or to consummate the Transactions (other than the
stockholder approval referenced above). This Agreement has been duly and
validly executed and delivered by Patriot and, assuming the due authorization,
execution and delivery thereof by each other party hereto, constitutes the
legal, valid and binding obligation of Patriot, enforceable against it in
accordance with its terms, except as enforcement may be limited by bankruptcy,
insolvency, moratorium or other similar laws relating to creditors' rights
generally and by equitable principles to which the remedies of specific
performance and injunctive and similar forms of relief are subject.
7.4 No Conflict; Required Filings and Consents.
(a) The execution and delivery of this Agreement by Patriot does not, and
the performance of its obligations hereunder and the consummation of the
Transactions by it will not, (A) conflict with or violate the certificate of
incorporation or bylaws or equivalent organizational documents of Patriot or
any of its subsidiaries, (B) subject to the making of the filings and
obtaining the approvals identified herein, conflict with or violate any law,
rule, regulation, order, judgment or decree (collectively, "Laws") applicable
to Patriot or any of its subsidiaries or by which any property or asset of
Patriot or any of its subsidiaries is bound or affected, or (C) except as
disclosed in the Patriot Disclosure Schedule, conflict with or result in any
breach of or constitute a default (or an event which with notice or lapse of
time or both would become a default) under, result in the loss or modification
in a manner materially adverse to Patriot or its subsidiaries of any material
right or benefit under, or give to others any right of termination, amendment,
acceleration, repurchase or repayment, increased payments or cancellation of,
or result in the creation of a lien or other encumbrance on any property or
asset of Patriot or any subsidiary pursuant to, any note, bond, mortgage,
indenture, contract, agreement, lease, license, permit, franchise, or other
instrument or obligation, whether written or oral (collectively, "Contracts"),
to which Patriot or any subsidiary is a party or by which Patriot or any
subsidiary or any property or asset of Patriot or any subsidiary is bound or
affected, except, in the case of clauses (B) and (C) for any such conflicts or
violations which would not prevent or delay in any material respect
consummation of the Transactions, or otherwise, individually or in the
aggregate, prevent Patriot from performing its obligations under this
Agreement in any material respect, and would not, individually or in the
aggregate, have a Patriot Material Adverse Effect.
(b) The execution and delivery of this Agreement by Patriot does not, and
the performance of its obligations hereunder and the consummation of the
Transactions by it will not, require any consent, approval, authorization or
permit of, or filing with or notification to, any federal, state or local
governmental or regulatory agency, authority, commission or instrumentality,
whether domestic or foreign (each a "Governmental Entity"), except (A) for
applicable requirements of (1) the Exchange Act, the Securities Act, and state
securities or "blue sky" laws ("Blue Sky Law") and (2) the Hart-Scott Rodino
Antitrust Improvements Act (the "HSR Act"), (B) for any consents related to
the transfer of liquor licenses or any consents required by the appropriate
California gaming and entertainment authorities, and (C) where the failure to
obtain such consents, approvals, authorizations or permits, or to make such
filings or notifications, would not, individually or in the aggregate, prevent
or delay in any material respect consummation of the Transactions, or
otherwise prevent Patriot from performing its obligations hereunder in any
material respect, and would not, individually or in the aggregate, have a
Patriot Material Adverse Effect.
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7.5 Fairness Opinion. Patriot has received a written fairness opinion from
PaineWebber Incorporated, its financial advisor, to the effect that the
Transactions are fair to the holders of Patriot Stock from a financial point
of view, and Patriot has delivered a true and correct copy of such opinion to
Cal Jockey and BMOC.
7.6 SEC Reports and Financial Statements. Each form, report, schedule,
registration statement and definitive proxy statement filed by Patriot with
the SEC since December 31, 1995 and prior to the date hereof (as such
documents have been amended prior to the date hereof, collectively, the
"Patriot SEC Reports"), as of their respective dates, complied in all material
respects with the applicable requirements of the Securities Act, Exchange Act
and the rules and regulations thereunder. None of the Patriot SEC Reports, as
of their respective dates, contained any untrue statement of a material fact
or omitted to state a material fact required to be stated therein or necessary
to make the statements therein, in the light of the circumstances under which
they were made, not misleading, except for such statements, if any, as have
been modified or superseded by subsequent filings prior to the date hereof.
The consolidated financial statements of Patriot and its subsidiaries included
in such reports comply in all material respects with applicable accounting
requirements and with the published rules and regulations of the SEC with
respect thereto, have been prepared in accordance with generally accepted
accounting principles applied on a consistent basis throughout the periods
involved (except as may be indicated in the notes thereto or, in the case of
the unaudited interim financial statements, as permitted by Form 10-Q of the
SEC) and fairly present (subject, in the case of the unaudited interim
financial statements, to normal, year-end audit adjustments) the respective
consolidated financial position of Patriot and its subsidiaries as of the
dates thereof and the consolidated results of their operations and cash flows
for the periods then ended. Since December 31, 1995, neither Patriot nor any
of its subsidiaries has incurred any liabilities or obligations (whether
absolute, accrued, fixed, contingent, liquidated, unliquidated or otherwise
and whether due or to become due) of any nature, except liabilities,
obligations or contingencies (i) which are reflected on the unaudited balance
sheet of Patriot and its subsidiaries, as of June 30, 1996 (including the
notes thereto), or (ii) which (A) were incurred in the ordinary course of
business after June 30, 1996 and are consistent with past practices, (B) are
disclosed in the Patriot SEC Reports filed after June 30, 1996, or (C) would
not, individually or in the aggregate, have a Patriot Material Adverse Effect.
Since December 31, 1995, there has been no change in any of the significant
accounting (including tax accounting) policies, practices or procedures of
Patriot or any material subsidiary.
7.7 Absence of Certain Changes or Events; Obligations. Except as
contemplated by this Agreement, as disclosed in any Patriot SEC Report filed
before October 31, 1996 or as set forth in the Patriot Disclosure Schedule,
since December 31, 1995, (i) Patriot and its subsidiaries have conducted their
respective businesses only in the ordinary course, consistent with past
practice, and (ii) there has not occurred or arisen any event that,
individually or in the aggregate, has had or, insofar as reasonably can be
foreseen, is likely in the future to have, a Patriot Material Adverse Effect
other than any developments that generally affect the industry in which
Patriot operates.
7.8 REIT Status. Patriot (A) will be taxed for the tax year ended December
31, 1995 and for the tax year ended December 31, 1996 as a REIT within the
meaning of Section 856 of the Code, (B) has complied (or will comply) with all
applicable provisions of the Code relating to a REIT, for 1995 and 1996 and
that portion of the 1997 tax year ending upon the consummation of the Merger,
(C) has operated, and intends to continue to operate, in such a manner as to
qualify as a REIT for 1995 and 1996 and that portion of the 1997 tax year
ending upon the consummation of the Merger, and (D) has not taken or omitted
to take any action which could reasonably be expected to result in a challenge
to its status as a REIT, and no such challenge is pending or, to Patriot's
knowledge, threatened.
7.9 Permits. To the knowledge of Patriot, Patriot has all licenses, permits,
orders, consents, approvals, registrations, authorizations, qualifications and
filings with and under all federal, state, local or foreign laws and
governmental or regulatory bodies and all industry or other nongovernmental
self-regulatory organizations ("Permits") required for the operation of its
properties and businesses as they are currently being operated, and are in
compliance therewith, except for those Permits the lack of which would not
have a Patriot Material Adverse Effect. To the knowledge of Patriot, none of
such Permits shall be canceled as a result of the
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consummation of the Transactions, except for those Permits the lack of which
would not have a Patriot Material Adverse Effect.
ARTICLE 8.
REPRESENTATIONS AND WARRANTIES OF BMOC
Except as set forth in the disclosure schedule delivered concurrently
herewith to Patriot, which shall refer to the relevant Sections of this
Agreement (the "BMOC Disclosure Schedule"), BMOC severally represents and
warrants to Patriot as follows:
8.1 Organization and Qualifications. BMOC and each subsidiary of BMOC is a
corporation, partnership or other legal entity duly incorporated or organized,
validly existing and in good standing under the laws of the jurisdiction of
its incorporation or organization and has the requisite corporate power and
authority and all governmental permits, approvals and other authorizations
necessary to own, lease and operate its properties and to carry on its
business as it is now being conducted, except where the failure to be so
organized, existing or in good standing or to have such power, authority and
governmental permits, approvals and other authorizations would not,
individually or in the aggregate, have a Material Adverse Effect on BMOC, Cal
Jockey and their respective subsidiaries, taken as a whole (a "BMOC Material
Adverse Effect").
8.2 Capitalization. The authorized capital stock of BMOC is as set forth on
the BMOC Disclosure Schedule. Except as set forth thereon, as of the date
hereof, no shares of capital stock or other voting securities of BMOC were
issued, reserved for issuance or outstanding. Except as set forth above and
except as contemplated herein, there are no options or agreements relating to
the issued or unissued capital stock of BMOC or any subsidiary of BMOC, or
obligating BMOC or any subsidiary to issue, transfer, grant or sell any shares
of capital stock of, or other equity interests in, or securities convertible
into or exchangeable for any capital stock or other equity interests in, BMOC
or any subsidiary. There are no outstanding contractual obligations of BMOC or
any subsidiary to repurchase, redeem or otherwise acquire any shares of
capital stock of BMOC or any subsidiary.
8.3 Authority Relative to this Agreement. BMOC has all necessary corporate
power and authority to execute and deliver this Agreement, to perform its
obligations hereunder and, subject to adoption and approval of this Agreement
and the Transactions by the stockholders of BMOC as contemplated hereby, to
consummate the Transactions. The execution and delivery of this Agreement by
BMOC and the consummation by it of the Transactions have been duly and validly
authorized by all necessary corporate action and no other corporate
proceedings on the part of BMOC are necessary to authorize this Agreement or
to consummate the Transactions (other than the stockholder approval referenced
above). This Agreement has been duly and validly executed and delivered by
BMOC and, assuming the due authorization, execution and delivery thereof by
each other party hereto, constitutes the legal, valid and binding obligation
of BMOC, enforceable against it in accordance with its terms, except as
enforcement may be limited by bankruptcy, insolvency, moratorium or other
similar laws relating to creditors' rights generally and by equitable
principles to which the remedies of specific performance and injunctive and
similar forms of relief are subject.
8.4 No Conflict; Required Filings and Consents.
(a) The execution and delivery of this Agreement by BMOC does not, and the
performance of its obligations hereunder and the consummation of the
Transactions by it will not, (A) conflict with or violate the certificate of
incorporation or bylaws or equivalent organizational documents of BMOC or any
of its subsidiaries, (B) subject to the making of the filings and obtaining
the approvals identified herein, conflict with or violate any Laws applicable
to BMOC or any of its subsidiaries or by which any property or asset of BMOC
or any of its subsidiaries is bound or affected, or (C) except as disclosed in
the BMOC Disclosure Schedule, conflict with or result in any breach of or
constitute a default (or an event which with notice or lapse of time or both
would become a default) under, result in the loss or modification in a manner
materially adverse to BMOC or its
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subsidiaries of any material right or benefit under, or give to others any
right of termination, amendment, acceleration, repurchase or repayment,
increased payments or cancellation of, or result in the creation of a lien or
other encumbrance on any property or asset of BMOC or any subsidiary pursuant
to, any Contract to which BMOC or any subsidiary is a party or by which BMOC
or any subsidiary or any property or asset of BMOC or any subsidiary is bound
or affected, except, in the case of clauses (B) and (C) for any such conflicts
or violations which would not prevent or delay in any material respect
consummation of the Transactions, or otherwise, individually or in the
aggregate, prevent BMOC from performing its obligations under this Agreement
in any material respect, and would not, individually or in the aggregate, have
a BMOC Material Adverse Effect.
(b) The execution and delivery of this Agreement by BMOC does not, and the
performance of its obligations hereunder and the consummation of the
Transactions by it will not, require any consent, approval, authorization or
permit of, or filing with or notification to, any Governmental Entity, except
(A) for applicable requirements of (1) the Exchange Act, the Securities Act,
and Blue Sky Laws and (2) the HSR Act, (B) for any consents related to the
transfer of liquor licenses or any consents required by the appropriate
California gaming and entertainment authorities, and (C) where the failure to
obtain such consents, approvals, authorizations or permits, or to make such
filings or notifications, would not, individually or in the aggregate, prevent
or delay in any material respect consummation of the Transactions, or
otherwise prevent BMOC from performing its obligations hereunder in any
material respect, and would not, individually or in the aggregate, have a BMOC
Material Adverse Effect.
8.5 Fairness Opinion. BMOC has received a written fairness opinion from
Montgomery Securities ("Montgomery"), its financial advisor, to the effect
that the Transactions are fair to the holders of BMOC Stock from a financial
point of view, and BMOC has delivered a true and correct copy of such opinion
to Patriot.
8.6 SEC Reports and Financial Statements. Except as set forth on the BMOC
Disclosure Schedule, each form, report, schedule, registration statement and
definitive proxy statement filed by BMOC with the SEC since December 31, 1995
and prior to the date hereof (as such documents have been amended prior to the
date hereof and relate to BMOC, collectively, the "BMOC SEC Reports"), as of
their respective dates, complied in all material respects with the applicable
requirements of the Securities Act, the Exchange Act and the rules and
regulations thereunder. Except as set forth in the BMOC Disclosure Schedule,
none of the BMOC SEC Reports, as of their respective dates, contained any
untrue statement of a material fact or omitted to state a material fact
required to be stated therein or necessary to make the statements therein, in
the light of the circumstances under which they were made, not misleading,
except for such statements, if any, as have been modified or superseded by
subsequent filings prior to the date hereof. The combined financial statements
of BMOC, Cal Jockey and their respective subsidiaries included in such reports
comply in all material respects with applicable accounting requirements and
with the published rules and regulations of the SEC with respect thereto, have
been prepared in accordance with generally accepted accounting principles
applied on a consistent basis throughout the periods involved (except as may
be indicated in the notes thereto or, in the case of the unaudited interim
financial statements, as permitted by Form 10-Q of the SEC) and fairly present
(subject, in the case of the unaudited interim financial statements, to
normal, year-end audit adjustments) the combined financial position of BMOC,
Cal Jockey and their subsidiaries as of the dates thereof and the combined
results of their operations and cash flows for the periods then ended. Except
as set forth in the BMOC Disclosure Schedule, since December 31, 1995, neither
BMOC nor any of its subsidiaries has incurred any liabilities or obligations
(whether absolute, accrued, fixed, contingent, liquidated, unliquidated or
otherwise and whether due or to become due) of any nature, except liabilities,
obligations or contingencies (i) which are reflected on the unaudited balance
sheet of BMOC and its subsidiaries, as of June 30, 1996 (including the notes
thereto), or (ii) which (A) were incurred in the ordinary course of business
after June 30, 1996 and are consistent with past practices, (B) are disclosed
in the BMOC SEC Reports filed after June 30, 1996, or (C) would not,
individually or in the aggregate, have a BMOC Material Adverse Effect. Since
December 31, 1995, there has been no change in any of the significant
accounting (including tax accounting) policies, practices or procedures of
BMOC or any material subsidiary.
8.7 Absence of Certain Changes or Events; Obligations. Except as
contemplated by this Agreement, as disclosed in any BMOC SEC Report filed
before October 31, 1996 or as set forth in the BMOC Disclosure
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<PAGE>
Schedule, since December 31, 1995, (i) BMOC and its subsidiaries have
conducted their respective businesses only in the ordinary course, consistent
with past practice, and have not taken any action that would be inconsistent
with the covenants set forth in Section 10.6, and (ii) there has not occurred
or arisen any event that, individually or in the aggregate, has had or,
insofar as reasonably can be foreseen, is likely in the future to have, a BMOC
Material Adverse Effect other than any developments that generally affect the
industry in which BMOC operates.
8.8 Pairing Agreement. The Pairing Agreement was duly and validly authorized
and is a legal, valid and binding agreement of BMOC enforceable against BMOC
in accordance with its terms. The outstanding shares of Cal Jockey are paired
with the outstanding shares of BMOC pursuant to the Pairing Agreement, and
such pairing is permitted pursuant to Section 136(c) of the Deficit Reduction
Act of 1984 (the "Deficit Act").
ARTICLE 9.
REPRESENTATIONS AND WARRANTIES OF CAL JOCKEY
Except as set forth in the disclosure schedule delivered concurrently
herewith to the execution hereof to Patriot, which shall refer to the relevant
Sections of this Agreement (the "Cal Jockey Disclosure Schedule"), Cal Jockey
severally represents and warrants to Patriot as follows:
9.1 Organization and Qualifications. Cal Jockey and each subsidiary of Cal
Jockey is a corporation, partnership or other legal entity duly incorporated
or organized, validly existing and in good standing under the laws of the
jurisdiction of its incorporation or organization and has the requisite
corporate power and authority and all governmental permits, approvals and
other authorizations necessary to own, lease and operate its properties and to
carry on its business as it is now being conducted, except where the failure
to be so organized, existing or in good standing or to have such power,
authority and governmental permits, approvals and other authorizations would
not, individually or in the aggregate, have a Material Adverse Effect on Cal
Jockey and its subsidiaries, taken as a whole (a "Cal Jockey Material Adverse
Effect").
9.2 Capitalization. The authorized capital stock of Cal Jockey is as set
forth on the Cal Jockey Disclosure Schedule. Except as set forth thereon, as
of the date hereof, no shares of capital stock or other voting securities of
Cal Jockey were issued, reserved for issuance or outstanding. Except as set
forth above and except as contemplated herein, there are no options or
agreements relating to the issued or unissued capital stock of Cal Jockey or
any subsidiary of Cal Jockey, or obligating Cal Jockey or a subsidiary to
issue, transfer, grant or sell any shares of capital stock of, or other equity
interests in, or securities convertible into or exchangeable for any capital
stock or other equity interests in, Cal Jockey or any subsidiary. There are no
outstanding contractual obligations of Cal Jockey or any subsidiary to
repurchase, redeem or otherwise acquire any shares of capital stock of Cal
Jockey or any subsidiary.
9.3 Authority Relative to this Agreement. Cal Jockey has all necessary
corporate power and authority to execute and deliver this Agreement, to
perform its obligations hereunder and, subject to adoption and approval of
this Agreement and the Transactions by the stockholders of Cal Jockey as
contemplated hereby, to consummate the Transactions. The execution and
delivery of this Agreement by Cal Jockey and the consummation by it of the
Transactions have been duly and validly authorized by all necessary corporate
action and no other corporate proceedings on the part of Cal Jockey are
necessary to authorize this Agreement or to consummate the Transactions (other
than the stockholder approval referenced above). This Agreement has been duly
and validly executed and delivered by Cal Jockey and, assuming the due
authorization, execution and delivery thereof by each other party hereto,
constitutes the legal, valid and binding obligation of Cal Jockey, enforceable
against it in accordance with its terms, except as enforcement may be limited
by bankruptcy, insolvency, moratorium or other similar laws relating to
creditors' rights generally and by equitable principles to which the remedies
of specific performance and injunctive and similar forms of relief are
subject.
9.4 No Conflict; Required Filings and Consents.
(a) The execution and delivery of this Agreement by Cal Jockey does not, and
the performance of its obligations hereunder and the consummation of the
Transactions by it will not, (A) conflict with or violate the
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certificate of incorporation or bylaws or equivalent organizational documents
of Cal Jockey or any of its subsidiaries, (B) subject to the making of the
filings and obtaining the approvals identified herein, conflict with or
violate any Laws applicable to Cal Jockey or any of its subsidiaries or by
which any property or asset of Cal Jockey or any of its subsidiaries is bound
or affected, or (C) except as disclosed in the Cal Jockey Disclosure Schedule,
conflict with or result in any breach of or constitute a default (or an event
which with notice or lapse of time or both would become a default) under,
result in the loss or modification in a manner materially adverse to Cal
Jockey or its subsidiaries of any material right or benefit under, or give to
others any right of termination, amendment, acceleration, repurchase or
repayment, increased payments or cancellation of, or result in the creation of
a lien or other encumbrance on any property or asset of Cal Jockey or any
subsidiary pursuant to, any Contract to which Cal Jockey or any subsidiary is
a party or by which Cal Jockey or any subsidiary or any property or asset of
Cal Jockey or any subsidiary is bound or affected, except, in the case of
clauses (B) and (C) for any such conflicts or violations which would not
prevent or delay in any material respect consummation of the Transactions, or
otherwise, individually or in the aggregate, prevent Cal Jockey from
performing its obligations under this Agreement in any material respect, and
would not, individually or in the aggregate, have a Cal Jockey Material
Adverse Effect.
(b) The execution and delivery of this Agreement by Cal Jockey does not, and
the performance of its obligations hereunder and the consummation of the
Transactions by it will not, require any consent, approval, authorization or
permit of, or filing with or notification to, any Governmental Entity except
(A) for applicable requirements of (1) the Exchange Act, the Securities Act
and Blue Sky Laws and (2) the HSR Act, (B) for any consents related to the
transfer of liquor licenses or any consents required by the appropriate
California gaming and entertainment authorities and (C) where the failure to
obtain such consents, approvals, authorizations or permits, or to make such
filings or notifications, would not, individually or in the aggregate, prevent
or delay in any material respect consummation of the Transactions, or
otherwise prevent Cal Jockey from performing its obligations hereunder in any
material respect, and would not, individually or in the aggregate, have a Cal
Jockey Material Adverse Effect.
9.5 Fairness Opinion. Cal Jockey has received a written fairness opinion
from Montgomery, its financial advisor, to the effect that the Transactions
are fair to the holders of Cal Jockey Stock from a financial point of view,
and Cal Jockey has delivered a true and correct copy of such opinion to
Patriot.
9.6 SEC Reports and Financial Statements. Except as set forth in the Cal
Jockey Disclosure Schedules, each form, report, schedule, registration
statement and definitive proxy statement filed by Cal Jockey with the SEC
since December 31, 1995 and prior to the date hereof (as such documents have
been amended prior to the date hereof and relate to Cal Jockey, collectively,
the "Cal Jockey SEC Reports"), as of their respective dates, complied in all
material respects with the applicable requirements of the Securities Act, the
Exchange Act and the rules and regulations thereunder. Except as set forth in
the Cal Jockey Disclosure Schedules, none of the Cal Jockey SEC Reports, as of
their respective dates, contained any untrue statement of a material fact or
omitted to state a material fact required to be stated therein or necessary to
make the statements therein, in the light of the circumstances under which
they were made, not misleading, except for such statements, if any, as have
been modified or superseded by subsequent filings prior to the date hereof.
The consolidated financial statements of Cal Jockey and its subsidiaries
included in such reports comply in all material respects with applicable
accounting requirements and with the published rules and regulations of the
SEC with respect thereto, have been prepared in accordance with generally
accepted accounting principles applied on a consistent basis throughout the
periods involved (except as may be indicated in the notes thereto or, in the
case of the unaudited interim financial statements, as permitted by Form 10-Q
of the SEC) and fairly present (subject, in the case of the unaudited interim
financial statements, to normal, year-end audit adjustments) the respective
consolidated financial position of Cal Jockey and its subsidiaries as of the
dates thereof and the consolidated results of their operations and cash flows
for the periods then ended. Except as set forth in the Cal Jockey Disclosure
Schedule, since December 31, 1995, neither Cal Jockey nor any of its
subsidiaries has incurred any liabilities or obligations (whether absolute,
accrued, fixed, contingent, liquidated, unliquidated or otherwise and whether
due or to become due) of any nature, except liabilities, obligations or
contingencies (i) which are reflected on the unaudited balance
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sheet of Cal Jockey and its subsidiaries, as of June 30, 1996 (including the
notes thereto), or (ii) which (A) were incurred in the ordinary course of
business after June 30, 1996 and consistent with past practices, (B) are
disclosed in the Cal Jockey SEC Reports filed after June 30, 1996, or (C)
would not, individually or in the aggregate, have a Cal Jockey Material
Adverse Effect. Since December 31, 1995, there has been no change in any of
the significant accounting (including tax accounting) policies, practices or
procedures of Cal Jockey or any material subsidiary.
9.7 Absence of Certain Changes or Events; Obligations. Except as
contemplated by this Agreement, as disclosed in any Cal Jockey SEC Report
filed before October 31, 1996 or as set forth in the Cal Jockey Disclosure
Schedule, since December 31, 1995, (i) Cal Jockey and its subsidiaries have
conducted their respective businesses only in the ordinary course, consistent
with past practice, and have not taken any action that would be inconsistent
with the covenants set forth in Section 10.6, and (ii) there has not occurred
or arisen any event that, individually or in the aggregate, has had or,
insofar as reasonably can be foreseen, is likely in the future to have, a Cal
Jockey Material Adverse Effect other than any developments that generally
affect the industry in which Cal Jockey operates.
9.8 Real Property. The Cal Jockey Disclosure Schedule lists all of the real
property owned by, or subject to a lease with, Cal Jockey (the "Cal Jockey
Properties" and, individually, a "Cal Jockey Property"). To the knowledge of
Cal Jockey, except as set forth in the title reports listed in the Cal Jockey
Disclosure Schedule or as otherwise disclosed in the Cal Jockey Disclosure
Schedule, each of the Cal Jockey Properties is owned by (or in the case of
leases, leased by) Cal Jockey free and clear of any mortgages, liens, pledges,
options, charges, claims, easements, restrictions, security interests, rights-
of-way or other encumbrances ("Encumbrances") other than Encumbrances which,
individually or in the aggregate, would not have a Cal Jockey Material Adverse
Effect. To the knowledge of Cal Jockey, Cal Jockey is in compliance with all
applicable laws, statues, ordinances and regulations, whether federal, state
or local (including those applicable to zoning, environmental conditions and
racing) except where the failure to comply would not have a Cal Jockey
Material Adverse Effect.
9.9 Permits. To the knowledge of Cal Jockey, Cal Jockey has all Permits
required for the operation of its properties and businesses as they are
currently being operated, and are in compliance therewith, except for those
Permits the lack of which would not have a Cal Jockey Material Adverse Effect.
To the knowledge of Cal Jockey, none of such Permits shall be canceled as a
result of the consummation of the Transactions, except for those Permits the
lack of which would not have a Cal Jockey Material Adverse Effect. The Cal
Jockey Disclosure Schedule sets forth a true and correct list (to the
knowledge of Cal Jockey) of all Permits that are (i) material to the operation
of its properties and business as they are currently being operated or (ii)
required for the execution, delivery and performance by Cal Jockey of this
Agreement, except for those Permits, the absence of which would not reasonably
be expected to (x) have a Cal Jockey Material Adverse Effect or (y) prevent or
materially delay the consummation of the Transactions. To the knowledge of Cal
Jockey, except as disclosed in the Cal Jockey Disclosure Schedule, the Cal
Jockey SEC Reports or in reports of consultants delivered to Patriot with the
Cal Jockey Disclosure Schedule, there are no structural, mechanical, HVAC,
environmental or zoning violations relating to the Cal Jockey Properties which
would reasonably be expected to have a Cal Jockey Material Adverse Effect.
9.10 REIT Status. Cal Jockey (A) will be taxed for the tax year ended
December 31, 1995 and for the tax year ended December 31, 1996 as a REIT
within the meaning of Section 856 of the Code, (B) has complied (or will
comply) with all applicable provisions of the Code relating to a REIT for 1995
and 1996 and that portion of the 1997 tax year ending upon the consummation of
the Merger, (C) has operated, and intends to continue to operate, in such a
manner as to qualify as a REIT for 1995 and 1996 and that portion of the 1997
tax year ending upon the consummation of the Merger, and (D) has not taken or
omitted to take any action which could reasonably be expected to result in a
challenge to its status as a REIT, and no such challenge is pending or, to Cal
Jockey's knowledge, threatened. Cal Jockey is "grandfathered" from the
application of Section 269B(a)(3) of the Code pursuant to Section 136(c)(3) of
the Deficit Act, and no challenge to such "grandfathered" status is pending,
or to Cal Jockey's knowledge, threatened.
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9.11 Pairing Agreement. The Pairing Agreement was duly and validly
authorized and is a legal, valid and binding agreement of Cal Jockey
enforceable against Cal Jockey in accordance with its terms. The outstanding
shares of Cal Jockey are paired with the outstanding shares of BMOC pursuant
to the Pairing Agreement, and such pairing is permitted pursuant to Section
136(c) of the Deficit Act.
ARTICLE 10.
COVENANTS
10.1 No Solicitation.
(a) Each of Cal Jockey and BMOC represent and warrant with respect to itself
only that it has terminated any discussions or negotiations relating to, or
that may reasonably be expected to lead to, any Acquisition Proposal (as
hereinafter defined). Until the earlier of the termination of this Agreement
pursuant to its terms or the consummation of the Transactions, neither Cal
Jockey nor BMOC nor any of their subsidiaries shall, directly or indirectly,
take (nor shall Cal Jockey or BMOC authorize, and they shall use their best
efforts not to permit, any of their subsidiaries, officers, directors,
employees, representatives, investment bankers, attorneys, accountants or
other agents or affiliates (collectively, the "Representatives") to take) any
action to (i) encourage, solicit or initiate the submission of any Acquisition
Proposal, (ii) enter into any agreement for a Third Party Transaction (as
hereafter defined) or (iii) participate in any way in discussions or
negotiations with, or furnish any non-public information to, any person in
connection with any Acquisition Proposal. Notwithstanding any other provision
of this Section 10.1(a), either Cal Jockey or BMOC or their Representatives
may, in response to an unsolicited bona fide offer or proposal made by a third
party to it, provide information to or have discussions or negotiations with
such third party to the extent required by the fiduciary obligations of its
respective Board of Directors under applicable law, if such Board of Directors
shall have received advice from outside counsel to such effect. Cal Jockey and
BMOC will immediately communicate to Patriot the receipt of any third party
solicitation, proposal or bona fide inquiry that Cal Jockey, BMOC or any of
their Representatives may receive in respect of any such transaction, or of
any request for such information.
(b) As used herein, the term "Acquisition Proposal" shall mean any proposed
(i) merger, consolidation or similar transaction involving BMOC or Cal Jockey,
(ii) sale, lease or other disposition directly or indirectly by merger,
consolidation, share exchange or otherwise of (A) any assets of BMOC or its
subsidiaries representing 15% or more of the consolidated assets of BMOC and
its subsidiaries or (B) any assets of Cal Jockey or its subsidiaries
representing 15% or more of the consolidated assets of Cal Jockey and its
subsidiaries (excluding in each case any transactions relating to the
disposition of certain Cal Jockey property on terms substantially similar and
no less favorable than those previously publicly disclosed in the Cal Jockey
SEC Reports or pursuant to the agreements previously provided to Patriot),
(iii) issue, sale or other disposition of (including by way of merger,
consolidation, share exchange or any similar transaction) securities (or
options, rights or warrants to purchase, or securities convertible into, such
securities) representing 15% or more of the votes attached to the outstanding
securities of BMOC or Cal Jockey, (iv) transaction in which any person shall
acquire beneficial ownership (as such term is defined in Rule 13d-3 under the
Exchange Act), or the right to acquire beneficial ownership or any "group" (as
such term is defined under the Exchange Act) shall have been formed which
beneficially owns or has the right to acquire beneficial ownership of 15% or
more of the outstanding shares of common stock of BMOC or Cal Jockey, (v)
recapitalization, restructuring, liquidation, dissolution, or other similar
type of transaction with respect to Cal Jockey, BMOC or any of their
subsidiaries, or (vi) transaction which is similar in form, substance or
purpose to any of the foregoing transactions.
(c) As used herein, the term "Third Party Transaction" shall mean a
transaction, with a party unrelated to Patriot, referred to in an Acquisition
Proposal.
(d) Cal Jockey will use its best efforts to take all action necessary in
accordance with applicable law and its Certificate of Incorporation and Bylaws
to convene a meeting of its stockholders as promptly as practicable to
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consider and vote upon each of the following proposals: (i) approval of this
Agreement and the Transactions contemplated herein including the Merger and
the contribution of Cal Jockey's assets to the Patriot Operating Partnership;
(ii) approval of the amendment and restatement of Cal Jockey's Certificate of
Incorporation and Bylaws in the form of Exhibits B and C, respectively (the
"Cal Jockey Charter Proposal"); and (iii) such other proposals (if any) as the
parties shall mutually agree (proposals (i) and (iii) are collectively
referred to as the "Cal Jockey Stockholder Proposals"). BMOC will use its best
efforts to take all action necessary in accordance with applicable law and its
Certificate of Incorporation and Bylaws to convene a meeting of its
stockholders as promptly as practicable to consider and vote upon each of the
following proposals: (i) approval of this Agreement and the Transactions
contemplated herein including the issuance of the Subscribed Shares and the
contribution of BMOC's assets to an operating partnership; (ii) approval of
the amendment and restatement of BMOC's Certificate of Incorporation and
Bylaws in forms substantially similar to Exhibits B and C, respectively, with
such changes as the parties shall mutually agree (the "BMOC Charter
Proposal"); and (iii) such other proposals (if any) as the parties shall
mutually agree (proposals (i) and (iii) are collectively referred to as the
"BMOC Stockholder Proposals"). The parties hereto each agree that the Proxy
Statement shall provide that each of the above-described proposals must be
approved by the respective stockholders to consummate the Transaction
contemplated herein. The Boards of Directors of Cal Jockey and BMOC shall
recommend and declare advisable to their respective stockholders approval of
such proposals and Cal Jockey and BMOC shall take all lawful action to
solicit, and use their best efforts to obtain, approval of their respective
stockholders, and none of the Board of Directors of BMOC, the Board of
Directors of Cal Jockey nor any committee of either Board of Directors shall
(i) withdraw or modify the approval or recommendation by such Board of
Directors or such committee of the Transactions, (ii) approve or recommend any
Acquisition Proposal, or (iii) cause Cal Jockey or BMOC to enter into any
letter of intent, agreement in principle, an acquisition agreement or other
similar agreement with respect to any Acquisition Proposal. Notwithstanding
the foregoing, in the event that either of the Board of Directors of Cal
Jockey or the Board of Directors of BMOC determines in good faith after
receiving advice of its respective outside counsel that such action is
necessary in order for such Board of Directors to comply with its fiduciary
duties to stockholders under applicable law, the Board of Directors of BMOC or
Cal Jockey, as the case may be, may (subject to the following sentences of
this Section 10.1(d)) withdraw or modify its approval or recommendation of the
Transactions, approve or recommend a Superior Proposal (as hereinafter
defined) or terminate this Agreement, but in each case only concurrently with
the payment(s) as required by Section 12.1(e), 12.1(f) or 12.3, as applicable.
For purposes of this Agreement, a "Superior Proposal" means any bona fide
Acquisition Proposal, the terms of which the Board of Directors of Cal Jockey
or the Board of Directors of BMOC determines in its good faith judgment (based
on the advice of a financial advisor of nationally recognized reputation) to
be more favorable from a financial point of view to Cal Jockey's or BMOC's
stockholders than the Transactions.
(e) Patriot will use its best efforts to take all action necessary in
accordance with applicable law and its Certificate of Incorporation and Bylaws
to convene a meeting of its stockholders as promptly as practicable to
consider and vote upon each of the following proposals: (i) approval of this
Agreement and the Transactions contemplated herein including the Merger; and
(ii) such other proposals (if any) as the parties shall mutually agree
(collectively, the "Patriot Stockholder Proposals"). The Board of Directors of
Patriot shall recommend and declare advisable approval of such proposals and
Patriot shall take all lawful action to solicit, and use its best efforts to
obtain, such approval, and neither the Board of Directors of Patriot nor any
committee thereof shall withdraw or modify the approval or recommendation by
such Board of Directors or such committee of the Transactions. Notwithstanding
the foregoing, in the event that the Board of Directors of Patriot determines
in good faith after receiving advice of Patriot's outside counsel that such
action is necessary in order for the Board of Directors of Patriot to comply
with its fiduciary duties to Patriot's stockholders under applicable law, the
Board of Directors of Patriot may (subject to the following sentence) withdraw
or modify its approval or recommendation of the Transactions. In the event
that (i) Patriot's Board of Directors withdraws or modifies its approval or
recommendation of the Transactions or (ii) approval of the Patriot Stockholder
Proposals is not obtained, Patriot shall promptly reimburse Cal Jockey and
BMOC for their out-of-pocket costs and expenses incurred in connection with
this Agreement and the transactions contemplated hereby in an amount requested
by Cal Jockey and BMOC up to $1 million in the aggregate; provided that Cal
Jockey's right to receive such
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payment shall be conditioned on the receipt by Cal Jockey of a written opinion
(satisfactory to Cal Jockey) from Cal Jockey's tax counsel to the effect that
receipt of such payment will not result in a loss of Cal Jockey's REIT status.
In the event that stockholder approval is obtained for the BMOC Stockholder
Proposals and the Cal Jockey Stockholder Proposals, but is not obtained for
either the BMOC Charter Proposal or the Cal Jockey Charter Proposal and
Patriot terminates this Agreement pursuant to Section 12.1(g), Patriot shall
promptly pay $5 million in the aggregate to Cal Jockey and BMOC in immediately
available funds as well as any additional amounts due under Section 12.3;
provided that Cal Jockey's right to receive such payment shall be conditioned
on the receipt by Cal Jockey of a written opinion (satisfactory to Cal Jockey)
from Cal Jockey's tax counsel to the effect that receipt of such payment will
not result in a loss of Cal Jockey's REIT status.
10.2 Access. Each of BMOC and Cal Jockey shall (and shall cause each of
their subsidiaries to) afford to Patriot, Patriot Operating Partnership and
their Representatives full access during normal business hours to all of its
properties, books, contracts, commitments and records and shall (and shall
cause each of its subsidiaries to) furnish promptly to such parties (i) a copy
of each report, schedule and other document filed or received by it pursuant
to the requirements of federal or state securities laws and (ii) all other
information concerning its business, properties and personnel as such party
may reasonably request, including any financial and operating data. Each of
Patriot and Patriot Operating Partnership shall (and shall cause each of their
subsidiaries to) afford to each of Cal Jockey and BMOC and their respective
Representatives full access during normal business hours to all of its
properties, books, contracts, commitments and records and shall (and shall
cause each of its subsidiaries to) furnish promptly to such parties (x) a copy
of each report, schedule and other document filed or received by it pursuant
to the requirements of federal or state securities laws and (y) all other
information concerning its business, properties and personnel as Cal Jockey or
BMOC may reasonably request, including any financial and operating data. Any
such access shall commence forthwith, and shall be conducted in such a manner
so as not to interfere unreasonably with the business or operations of BMOC,
Cal Jockey, Patriot or Patriot Operating Partnership, respectively. Treatment
of all information obtained as contemplated above shall be subject to the
agreement, dated as of September 25, 1996, between Patriot and BMOC and
relating to confidentiality, and the agreement dated October 8, 1996 between
Patriot, Cal Jockey and Montgomery Securities relating to confidentiality
(collectively, the "Confidentiality Agreements"); provided that the parties
hereto agree that such Confidentiality Agreements shall be deemed to be among
all of the parties hereto and shall apply to any information exchanged among
any of the parties hereto.
10.3 Consents. The parties hereto will use their respective reasonable best
efforts to (i) obtain all material consents, authorizations, orders and
approvals required in connection with this Agreement and the Transactions and
(ii) resolve any action, suit, proceeding or investigation which shall have
been instituted or which a governmental agency shall have indicated its
intention to institute which jeopardizes any of the Transactions; provided,
however, that no party hereto shall be obligated to take any action which, in
the reasonable opinion of such party (following consultation with its
counsel), would (x) have a Material Adverse Effect on such party and its
subsidiaries taken as a whole (with regard to BMOC, would have a BMOC Material
Adverse Effect) or (y) have a Material Adverse Effect or otherwise materially
restrict or impair the effective operation of BMOC, Cal Jockey, or Patriot
following the time of consummation of the Transactions (with regard to BMOC,
would have a BMOC Material Adverse Effect).
10.4 Efforts. Subject to the terms and conditions herein provided each of
the parties hereto agrees to use all reasonable efforts to take, or cause to
be taken, all action and to do, or cause to be done, all things necessary,
proper or advisable under applicable laws and regulations to consummate the
Transactions; provided, however, that no party hereto shall be obligated to
take any action which, in the reasonable opinion of such party (following
consultation with its counsel) would (x) have a Material Adverse Effect on
such party and its subsidiaries taken as a whole (with regard to BMOC, would
have a BMOC Material Adverse Effect) or (y) have a Material Adverse Effect or
otherwise materially restrict the operations of such party following the
consummation of the Transactions (with regard to BMOC, would have a BMOC
Material Adverse Effect).
10.5 Announcements. The parties hereto will consult and cooperate with each
other and agree upon the terms and substance of all press releases,
announcements and public statements with respect to this Agreement
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and the Transactions, provided that such consultation and cooperation shall
not interfere with any obligation of any party hereto to disclose any
information as required by applicable law. Any press release or other
announcement by any party with respect to the Transactions will be subject to
the consent and approval of the other parties, which consent or approval shall
not be unreasonably withheld.
10.6 Interim Operations.
(a) Except as expressly required or permitted by this Agreement, from and
after October 31, 1996 until the earlier of (i) the consummation of the
Transactions or (ii) the termination of this Agreement pursuant to its terms,
(1) each of BMOC and Cal Jockey covenant to Patriot that each of them will and
will cause its respective subsidiaries to (w) operate its businesses in the
ordinary course of business, (x) not take any action or fail to take any
action which would or could reasonably be expected to terminate Cal Jockey's
status as a REIT or the pairing status of the stock of BMOC and Cal Jockey,
(y) not take any extraordinary action or fail to take any action, the failure
of which to take would itself be an extraordinary action (including, without
limitation, entering into any new or modifying any existing contract between
BMOC and Cal Jockey or any of their respective subsidiaries or affiliates),
and (z) except as set forth in the Cal Jockey Disclosure Schedule, not
declare, set aside or pay any dividend or other distribution in respect of its
capital stock, whether in stock, cash or other property, other than, in the
case of Cal Jockey, dividends required in order to preserve Cal Jockey's
status as a REIT or to avoid federal income or excise taxes on its
undistributed income and (2) Cal Jockey covenants to Patriot that it shall not
sell, transfer or encumber any Cal Jockey Property or any interest therein or
take any other action or fail to take any action if the effect of such action
or inaction materially adversely affects any Cal Jockey Property, provided
that nothing herein shall be deemed to prohibit Cal Jockey from consummating
the transactions relating to the disposition of certain Cal Jockey Property on
terms substantially similar and no less favorable than those previously
publicly disclosed in the Cal Jockey SEC Reports or pursuant to the agreements
previously provided to Patriot.
(b) From and after October 31, 1996, until the earlier of (i) the
consummation of the Transactions or (ii) the termination of this Agreement
pursuant to its terms, Patriot will not, without the consent of Cal Jockey and
BMOC, (1) raise more than $500 million through the sale of shares of its
common stock, (2) materially alter the nature of its fundamental business
operations, (3) take any action or fail to take any action which would or
could reasonably be expected to terminate Patriot's status as a REIT, and (4)
declare, set aside or pay any dividend or other distribution in respect of its
capital stock, whether in stock, cash or other property, other than (x) the
dividends disclosed in the Patriot Disclosure Schedule, or (y) dividends
required in order to preserve Patriot's status as a REIT or to avoid federal
income or excise taxes on its undistributed income; provided, that the amount
of any such dividends shall be calculated assuming that the Effective Time
occurs on June 30, 1997.
10.7 Filings; Other Action. Subject to the terms and conditions herein
provided, each of Patriot, Cal Jockey and BMOC shall: (a) to the extent
required, promptly make their respective filings and thereafter make any other
required submissions under the HSR Act with respect to the Transactions; (b)
use all reasonable best efforts to cooperate with one another in (i)
determining which filings are required to be made prior to the Effective Time
with, and which consents, approvals, permits or authorizations are required to
be obtained prior to the Closing from, governmental or regulatory authorities
of the United States, the several states and foreign jurisdictions and any
third parties in connection with the execution and delivery of this Agreement,
the consummation of the Transactions and (ii) timely making all such filings
and timely seeking all such consents, approvals, permits or authorizations;
(c) use all reasonable best efforts to obtain in writing any consents required
from third parties to effectuate the Transactions, such consents to be in
reasonably satisfactory form to each of Patriot, Cal Jockey and BMOC; and (d)
use all reasonable best efforts to take, or cause to be taken, all other
actions and do, or cause to be done, all other things necessary, proper or
appropriate to consummate and make effective the Transactions. If, at any time
after the Effective Time, any further action is necessary or desirable to
carry out the purpose of this Agreement, the parties hereto shall take all
such necessary action.
10.8 Listing Application. Each of Patriot, Cal Jockey and BMOC shall
cooperate and promptly prepare and submit to the New York Stock Exchange (the
"NYSE") all reports, applications and other documents that may
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be necessary or desirable to enable all of the shares of Cal Jockey Stock and
BMOC Stock that will be outstanding or will be reserved for issuance at the
Effective Time to be listed for trading on the NYSE. Each of Patriot, Cal
Jockey and BMOC shall furnish all information about itself and its business
and operation and all necessary financial information to the other as the
other may reasonably request in connection with the such NYSE listing process.
Each of Cal Jockey, BMOC and Patriot agrees promptly to correct any
information provided by it for use in the NYSE listing process if and to the
extent that such information shall have become false or misleading in any
material respect. Each of Patriot, Cal Jockey and BMOC will advise and deliver
copies (if any) to the other parties, promptly after it receives notice
thereof, of any request by the NYSE for amendment of any submitted materials
or comments thereon and responses thereto or requests by the NYSE for
additional information.
10.9 Affiliates of Patriot. Prior to the Closing Date, Patriot shall deliver
to Cal Jockey a list of names and addresses of those persons who were, in
Patriot's reasonable judgment, at the record date for its stockholders'
meeting to approve the Merger, "affiliates" (each such person, an "Affiliate")
of Patriot within the meaning of Rule 145, including without limitation all
directors and executive officers of Patriot. Patriot shall use its reasonable
efforts to deliver or cause to be delivered to Cal Jockey, from each of the
Affiliates identified in the foregoing list, an Affiliate Letter, and from
each person who may be deemed to have become an "affiliate" of Patriot within
the meaning of Rule 145 after delivery of the first such list hereunder and
prior to the Effective Time.
10.10 Expenses. Subject to the provisions of Section 10.1(e), all costs and
expenses incurred in connection with this Agreement and the Transactions shall
be paid by the party incurring such expenses, except that (a) the filing
fee(s) in connection with the filing of the Offer Documents and the Form S-4
with the SEC, (b) the filing fee in connection with the listing of the Paired
Shares on the NYSE, if any, and (c) the expenses incurred for printing and
mailing the Offer Documents, the Form S-4 and the joint proxy
statement/prospectus, shall be shared equally by Patriot, on the one hand, and
Cal Jockey and BMOC, on the other hand. Subject to the provisions of Section
10.1(e), all costs and expenses for professional services rendered pursuant to
the transactions contemplated by this Agreement including, but not limited to,
investment banking and legal services, will be paid by each party incurring
such services.
10.11 Brokers and Finders. The Cal Jockey Disclosure Schedule and the BMOC
Disclosure Schedule set forth all engagement letters, contracts, arrangements
or understandings with agents, brokers, investment bankers, financial advisors
or other persons or firms which may result in the obligation of Cal Jockey or
BMOC to pay any finder's fees, brokerage or agent's commissions or other like
payments in connection with the negotiations leading to this Agreement or the
consummation of the Transactions and true and correct copies of such documents
have been delivered to Patriot. Other than the foregoing disclosed
arrangements, neither Cal Jockey nor BMOC is aware of any claim for payment of
any finder's fees, brokerage or agent's commissions or other like payments in
connection with the negotiations leading to this Agreement or the consummation
of the Transactions, and each of Cal Jockey and BMOC acknowledges and agrees
that all such finder's fees, brokerage or agent's commissions or other like
payments shall be the responsibility of Cal Jockey and BMOC and not that of
Patriot. Patriot acknowledges and agrees that any finder's fees, brokerage or
agent's commissions or other like payments incurred by any agents, brokers,
investment bankers, financial advisors or other persons or firms engaged by
Patriot in connection with the negotiations leading to this Agreement or the
consummation of the Transactions, including the arrangement(s) disclosed in
the Patriot Disclosure Schedule, shall be the responsibility of Patriot and
not that of Cal Jockey or BMOC.
10.12 Indemnification and Insurance. The Surviving Corporation and BMOC,
respectively, will maintain in effect all rights to indemnification existing
in favor of any director, officer, employee or agent of Cal Jockey and/or BMOC
and their respective subsidiaries (the "Indemnified Parties") as provided in
their respective Certificates of Incorporation, Bylaws or in indemnification
agreements with Cal Jockey and/or BMOC or any of their respective subsidiaries
which are in effect as of the date hereof (or disclosed in the BMOC Disclosure
Schedule) with respect to matters occurring at or prior to the Effective Time,
and all of such rights of
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indemnification shall survive the consummation of the Transactions and shall
continue in full force and effect for a period of not less than six (6) years
from the Effective Time; provided, that in the event any claim or claims are
asserted or made within such six-year period, all rights to indemnification in
respect of any such claim or claims shall continue until final disposition of
any and all such claims. It is understood and agreed that the Surviving
Corporation and BMOC shall advance, indemnify and hold harmless, as and to the
full extent permitted by applicable law, each Indemnified Party against any
losses, claims, damages, liabilities, costs, expenses (including attorneys'
fees and expenses), judgments, fines and amounts paid in settlement in
connection with any threatened or actual claim, action, suit, proceeding or
investigation (whether asserted or arising before or after the Effective
Time). In addition, the Surviving Corporation and BMOC shall cause to be
maintained in effect for not less than six (6) years from the Effective Time
any current policies of the directors' and officers' liability insurance
maintained by Cal Jockey and/or BMOC as of the date hereof; provided, that
such corporations will be permitted to substitute therefor policies of at
least the same coverage containing terms and conditions which are no less
advantageous and provided that such substitution shall not result in any gaps
or lapses in coverage with respect to matters occurring prior to the Effective
Time; provided, further, that such corporations shall not be required to pay
an annual premium in excess of 200% of the last annual premium paid by Cal
Jockey and/or BMOC prior to the date hereof and if they are unable to obtain
the insurance required, they shall obtain as much comparable insurance as
possible for an annual premium equal to such maximum amount. In all cases, the
Surviving Corporation guarantees the indemnification obligations of BMOC with
respect to any claims of the Indemnified Parties under this Section 10.12. The
parties hereto acknowledge and agree that this Section 10.12 is intended to
grant third party rights to the Indemnified Parties to enforce the covenants
contained in this Section 10.12.
ARTICLE 11.
CONDITIONS
11.1 Conditions to BMOC's and Cal Jockey's Obligations. The obligations of
BMOC and Cal Jockey to consummate the Transactions are subject to the
satisfaction of each of the following conditions:
(a) All waivers, consents, authorizations, orders, approvals or expiration
of waiting periods required under any law, regulation or agreement to be
obtained by any of the parties hereto in order to consummate the Transactions
shall have been obtained, except where the failure to have obtained any such
waiver, consent, authorization, order or approval would not have a BMOC
Material Adverse Effect, a Cal Jockey Material Adverse Effect, or a Patriot
Material Adverse Effect, as the case may be.
(b) The representations and warranties of Patriot set forth herein shall be
true and correct in all respects as of the date hereof, and as of the time the
Transactions are consummated (except for representations and warranties that
speak as of a specific date or time which need only be true and correct in all
respects as of such date or time), other than, in all such cases, such
failures to be true and/or correct as would not in the aggregate reasonably be
expected to have a Patriot Material Adverse Effect; provided, however, that if
any of the representations and warranties are already qualified in any respect
by materiality or as to a Patriot Material Adverse Effect for purposes of this
Section such materiality or Patriot Material Adverse Effect qualification will
be in all respects ignored (but subject to the overall standard as to Patriot
Material Adverse Effect set forth immediately prior to this proviso).
(c) Patriot shall have complied in all material respects with all covenants
and agreements set forth herein to be performed by it prior to the Effective
Time and Patriot Operating Partnership shall have complied in all material
respects with all covenants and agreements set forth herein and in the
Subscription Agreement to be performed by it prior to the Effective Time.
(d) No injunction, restraining order or other order of any federal or state
court which prevents the consummation of the Transactions shall be in effect.
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(e) No statute, rule or regulation shall have been enacted by any state or
governmental agency that would prevent the consummation of the Transactions.
(f) Stockholder approval of the BMOC Charter Proposal, the BMOC Stockholder
Proposals, the Cal Jockey Charter Proposal and the Cal Jockey Stockholder
Proposals shall have been obtained.
(g) Stockholder approval of the Patriot Stockholder Proposals shall have
been obtained.
(h) The Form S-4 shall have been declared effective by the SEC under the
Securities Act, and no stop order suspending the effectiveness of the Form S-4
shall have been issued by the SEC, and no proceedings for that purpose shall
have been initiated or threatened by the SEC.
(i) Cal Jockey and BMOC shall have obtained the approval for the listing of
the Paired Shares of common stock of Cal Jockey and BMOC on the NYSE effective
upon consummation of the Merger, subject to official notice of issuance.
(j) No Patriot Material Adverse Effect shall have occurred between the date
hereof and consummation of the Transactions other than any developments that
generally affect the industry in which Patriot operates.
11.2 Conditions to Patriot's Obligations. The obligation of Patriot to
consummate the Transactions is subject to the satisfaction of each of the
following conditions:
(a) All waivers, consents, authorizations, orders, approvals or expiration
of waiting periods required under any law, regulation or agreement to be
obtained by any of the parties hereof in order to consummate the Transactions
shall have been obtained, except where the failure to have obtained any
waiver, consent, authorization, order or approval would not have a Patriot
Material Adverse Effect, a BMOC Material Adverse Effect or a Cal Jockey
Material Adverse Effect, as the case may be.
(b) The representations and warranties of each of BMOC and Cal Jockey set
forth herein shall be true and correct in all respects as of the date hereof,
and as of the time the Transactions are consummated (except for
representations and warranties that speak as of a specific date or time which
need only be true and correct in all respects as of such date or time), other
than, in all such cases, such failures to be true and/or correct as would not
in the aggregate reasonably be expected to have a Cal Jockey Material Adverse
Effect or a BMOC Material Adverse Effect, as the case may be; provided,
however, that if any of the representations and warranties is already
qualified in any respect by materiality or as to a Cal Jockey Material Adverse
Effect or a BMOC Material Adverse Effect for purposes of this Section such
materiality or Cal Jockey Material Adverse Effect or BMOC Material Adverse
Effect qualification will be in all respects ignored (but subject to the
overall standard as to Material Adverse Effect set forth immediately prior to
this proviso).
(c) Each of BMOC and Cal Jockey shall have complied in all material respects
with all covenants and agreements set forth herein and the Subscription
Agreement (with respect to BMOC only) to be performed by each of them prior to
the Effective Time.
(d) No injunction, restraining order or other order of any federal or state
court which prevents the consummation of the Transactions shall be in effect.
(e) No statute, rule or regulation shall have been enacted by any state or
governmental agency that would prevent the consummation of the Transactions.
(f) (i) Except as required or permitted by this Agreement or as set forth in
the BMOC Disclosure Schedule or the Cal Jockey Disclosure Schedule, no
substantial change in the principal business, principal assets or structure of
BMOC or Cal Jockey or in the "grandfathered" status of Cal Jockey pursuant to
Section 136(c) of the Deficit Act between the date hereof and the consummation
of the Transactions shall have occurred or be pending (provided that nothing
herein shall be deemed to prohibit Cal Jockey from consummating the
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transactions relating to the disposition of certain Cal Jockey Property on
terms substantially similar and no less favorable than those previously
publicly disclosed in the Cal Jockey SEC Reports and pursuant to the
agreements previously provided to Patriot except as otherwise provided in
Section 13.1 hereof) and (ii) no BMOC Material Adverse Effect or Cal Jockey
Material Adverse Effect shall have occurred between the date hereof and
consummation of the Transactions other than any developments that generally
affect the industry in which BMOC or Cal Jockey operates.
(g) Stockholder approval of the BMOC Stockholder Proposals, the BMOC Charter
Proposal, the Cal Jockey Stockholder Proposals and the Cal Jockey Charter
Proposal shall have been obtained.
(h) Stockholder approval of the Patriot Stockholder Proposals shall have
been obtained.
(i) The Form S-4 shall have been declared effective by the SEC under the
Securities Act, and no stop order suspending the effectiveness of the Form S-4
shall have been issued by the SEC, and no proceedings for that purpose shall
have been initiated or threatened by the SEC.
(j) Cal Jockey and BMOC shall have obtained the approval for the listing of
the Paired Shares of common stock of Cal Jockey and BMOC on the NYSE effective
upon consummation of the Merger, subject to official notice of issuance.
(k) BMOC and Cal Jockey shall not be financially insolvent on a combined
balance sheet basis immediately prior to consummation of the Transactions.
(l) Each of the directors of Cal Jockey and each of the directors of BMOC
shall have resigned as of the Effective Time from their respective Boards of
Directors and the persons designated by Patriot and disclosed in the Form S-4
or other person later nominated by Patriot shall be appointed the directors of
each of Cal Jockey and BMOC as of the Effective Time.
ARTICLE 12.
TERMINATION
12.1 Termination. This Agreement shall terminate at the earlier of:
(a) Such time as the parties shall mutually agree.
(b) At the option of BMOC and Cal Jockey, acting jointly, but not
individually, on or after July 14, 1997, if by that date all of the conditions
set forth in Section 11.1 shall not have been satisfied or waived.
(c) At the option of Patriot, on or after July 14, 1997, if by that date all
of the conditions set forth in Section 11.2 shall not have been satisfied or
waived.
(d) At the option of Patriot, if at any time prior to the Closing the number
of race days permitted to be held during 1997 at the premises currently
operated by BMOC is less than 80.
(e) At the option of BMOC or Cal Jockey in accordance with Section 10.1(d),
provided the terminating party has complied with all provisions thereof, and
provided further that the terminating party simultaneously pays to Patriot the
sum of $5 million (or such lesser amount requested by Patriot) in immediately
available funds; provided that Patriot's right to receive such payment shall
be conditioned upon receipt by Patriot of a written opinion (satisfactory to
Patriot) from Patriot's tax counsel to the effect that receipt of such payment
will not result in a loss of Patriot's REIT status.
(f) At the option of Patriot, if (i) the Board of Directors of BMOC or Cal
Jockey or any committee of either Board of Directors shall have (A) withdrawn
or modified its approval or recommendation of this Agreement or
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the Transactions, or (B) failed to recommend that the stockholders of BMOC and
Cal Jockey vote in favor of the Transactions, or (C) approved or recommended
any Acquisition Proposal, or (ii) the Board of Directors of BMOC or Cal Jockey
or any committee of either Board of Directors shall have resolved to do any of
the foregoing; provided that BMOC and Cal Jockey (jointly and severally) shall
promptly following termination for any of the reasons set forth in this clause
(f) pay to Patriot the sum of $5 million (or such lesser amount requested by
Patriot) in immediately available funds or with a note due within 90 days
accruing interest at 7% per annum; provided that Patriot's right to receive
such payment shall be conditioned upon receipt by Patriot of a written opinion
(satisfactory to Patriot) from Patriot's tax counsel to the effect that
receipt of such payment will not result in a loss of Patriot's REIT status.
(g) At the option of any of the parties hereto, if the stockholder approval
is not obtained for any of the BMOC Stockholder Proposals, the Cal Jockey
Stockholder Proposals, the BMOC Charter Proposal, the Cal Jockey Charter
Proposal or the Patriot Stockholder Proposals at the respective stockholder
meetings called for that purpose.
In the event that (x) this Agreement is terminated pursuant to Section
12.1(g) (i) by Cal Jockey or Bay Meadows because stockholder approval is not
obtained for any of the BMOC Stockholder Proposals, the Cal Jockey Stockholder
Proposals, the BMOC Charter Approval, or the Cal Jockey Charter Approval or
(ii) by Patriot because stockholder approval is not obtained for any of the
BMOC Stockholder Proposals or Cal Jockey Stockholder Proposals, and (y) prior
to twelve (12) months following such termination, BMOC or Cal Jockey enters
into a binding agreement for a Third Party Transaction, BMOC or Cal Jockey, as
the case may be, shall pay to Patriot the aggregate amount of $5 million (or
such lesser amount requested by Patriot) in immediately available funds;
provided that Patriot's right to receive such payment shall be conditioned
upon receipt by Patriot of a written opinion (satisfactory to Patriot) from
Patriot's tax counsel to the effect that receipt of such payment will not
result in a loss of Patriot's REIT status.
12.2 Extension; Waiver. At any time prior to the Effective Time, any party
hereto, by action taken by its Board of Directors, may, to the extent legally
allowed, (a) extend the time for the performance of any of the obligations or
other acts of the other parties hereto, (b) waive any inaccuracies in the
representations and warranties made to such party contained herein or in any
document delivered pursuant hereto and (c) waive compliance with any of the
agreements or conditions for the benefit of such party contained herein. Any
agreement on the part of a party hereto to any such extension or waiver shall
be valid only if set forth in an instrument in writing signed on behalf of
such party. The waiver by any party hereto of a breach of any term or
provision hereof shall not be construed as a waiver of any subsequent breach.
12.3 Payment of Fee to Hudson Bay Partners, L.P. On October 31, 1996,
Patriot loaned to Cal Jockey $2.9 million (the "Loan"), the terms of which are
set forth in the Promissory Note attached hereto as Exhibit D (the "Promissory
Note") and which Loan was used to pay the termination fee due to Hudson Bay
Partners, L.P. ("Hudson Bay") under Section 11.2(c) of the Formation
Agreement, dated as of August 18, 1996, among Cal Jockey, BMOC and Hudson Bay
(the "Hudson Bay Agreement"). Cal Jockey caused such amount to be paid to
Hudson Bay in accordance with the Hudson Bay Agreement. The parties hereto
acknowledge and agree that the reference in paragraph numbered 1 of the
Promissory Note to "Section 14 of the Agreement" shall hereinafter be deemed
to refer to Section 12.1 of this Agreement. In the event of the termination of
this Agreement, Cal Jockey shall immediately repay to Patriot the Loan in
immediately available funds. If this Agreement is terminated (i) because of
the failure of Patriot to satisfy the conditions set forth in Sections 11.1(b)
or 11.1(c) or (ii) under Section 12.1(g), then Patriot shall pay Cal Jockey
$2.9 million or such lesser amount requested by Cal Jockey (the "Patriot
Payment"); provided that Cal Jockey's right to receive such payment shall be
conditioned on the receipt by Cal Jockey of a written opinion (satisfactory to
Cal Jockey) from Cal Jockey's tax counsel to the effect that receipt of such
payment will not result in a loss of Cal Jockey's REIT status. Notwithstanding
the foregoing, in the event that (x) this Agreement is terminated under
Section 12.1(g) (i) by Cal Jockey or Bay Meadows because of the failure to
obtain approval of the BMOC Stockholder Proposals, the Cal Jockey Stockholder
Proposals, the BMOC Charter Proposal or the Cal Jockey Charter Proposal or
(ii) by Patriot because of the failure to obtain approval of any of the BMOC
Stockholder Proposals or Cal Jockey Stockholder Proposals
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and (y) during the twelve (12) month period following said termination BMOC or
Cal Jockey enters into a binding agreement for a Third Party Transaction, Cal
Jockey shall immediately repay the Patriot Payment to Patriot in immediately
available funds without interest.
ARTICLE 13.
GENERAL PROVISIONS
13.1 San Mateo City Council Meeting. The parties hereto agree that no action
taken prior to the date hereof by the San Mateo City Council with respect to
the issuance of any of the Entitlements (as hereinafter defined), including
final certification of the final Environmental Impact Report of Cal Jockey and
BMOC, shall be deemed a Material Adverse Effect for purposes of this
Agreement or shall be construed in any way to be a breach of representations,
warranties or covenants contained in this Agreement. The term "Entitlements"
shall have the meaning ascribed to such term under the Agreement of Purchase
and Sale, dated as of May 31, 1995, by and between Cal Jockey and Property
Resources, Inc., as amended, and the Agreement of Purchase and Sale, dated as
of December 15, 1995, by and between Cal Jockey and Lee Iacocca & Associates,
Inc., as amended.
13.2 Nonsurvival of Representations, Warranties and Agreements. All
representations, warranties and agreements in this Agreement or in any
instrument delivered pursuant to this Agreement shall terminate as of the
Effective Time and shall not survive the Merger, provided, however, that the
agreements contained in Articles 2 and 5, the last sentence of Section 10.7,
Section 10.12 and this Article 13 shall survive the Merger.
13.3 Notices. Any notice required to be given hereunder shall be in writing
and shall be sent by facsimile transmission (confirmed by any of the methods
that follow), courier service (with proof of service), hand delivery or
certified or registered mail (return receipt requested and first-class postage
prepaid) and addressed as follows:
If to Patriot: Patriot American Hospitality, Inc.
3030 LBJ Freeway, Suite 1500
Dallas, TX 75234
Attn: Paul A. Nussbaum
Fax: (972) 888-8029
With copies to:Goodwin, Procter & Hoar LLP
Exchange Place, 53 State Street
Boston, MA 02109
Attn: Gilbert G. Menna, P.C.
Fax: (617) 523-1231
If to Cal Jockey:California Jockey Club
2600 South Delaware Street
P.O. Box 1117
San Mateo, CA 94403
Attn: Kjell H. Qvale
Fax: (415) 776-9826
With copies to:Latham & Watkins
505 Montgomery Street
Suite 1900
San Francisco, CA 94111
Attn: Christopher Kaufman, Esq.
Fax: (415) 395-8095
If to BMOC:Bay Meadows Operating Company
2600 South Delaware Street
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P.O. Box 5050
San Mateo, CA 94402
Attn: F. Jack Liebau
Fax: (415) 573-7825
With copies to: McCutchen Doyle Brown & Enersen, LLP
Three Embarcadero Center
San Francisco, CA 94111-4066
Attn: Bartley C. Deamer, Esq.
Fax: (415) 393-2286
or to such other address as any party shall specify by written notice so
given, and such notice shall be deemed to have been delivered as of the date
so delivered.
13.4 Assignment; Binding Effect; Benefit. This Agreement shall be binding
upon and inure to the benefit of the parties hereto and their respective
successors. This Agreement may not be assigned by any party without prior
consent of all parties hereto, provided that any party hereto may assign its
rights and obligations hereunder to any affiliate to implement the
Transactions, provided that (i) such affiliate agrees to be bound hereby, (ii)
such party remains liable hereunder, and (iii) such assignment does not
adversely affect the Transactions from the perspective of the other parties.
13.5 Entire Agreement. This Agreement, the Exhibits attached hereto, the
Patriot Disclosure Schedule, the Cal Jockey Disclosure Schedule, the BMOC
Disclosure Schedule, the Subscription Agreement and any documents delivered by
the parties and their affiliates in connection herewith constitute the entire
agreement among the parties with respect to the subject matter hereof and
thereof and supersede all prior agreements and understandings among the
parties with respect thereto, including the Acquisition Agreement and the
February 24 Agreement, except that the Confidentiality Agreements shall remain
in effect and shall be binding upon the parties in accordance with their
terms. No addition to or modification or amendment of any provision of this
Agreement shall be binding upon any party hereto unless made in accordance
with Section 12.2 or otherwise made in writing and signed by all parties
hereto. Except as provided in this Agreement, no action taken pursuant to this
Agreement, including, without limitation, any investigation by or on behalf of
any party, shall be deemed to constitute a waiver by the party taking such
action of compliance with any representations, warranties, covenants or
agreements contained in this Agreement.
13.6 Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of Delaware without regard to its rules
of conflict of laws. Each of the parties hereto hereby irrevocably and
unconditionally consents to submit to the exclusive jurisdiction of the courts
of the State of Delaware and of the United States of America located in the
State of Delaware (the "Delaware Courts") for any litigation arising out of or
relating to this Agreement and the transactions contemplated hereby (and
agrees not to commence any litigation relating thereto except in such courts),
waives any objection to the laying of venue of any such litigation in the
Delaware Courts and agrees not to plead or claim in any Delaware Court that
such litigation brought therein has been brought in any inconvenient forum.
Each of the parties hereto agrees, (a) to the extent such party is not
otherwise subject to service of process in the State of Delaware, to appoint
and maintain an agent in the State of Delaware as such party's agent for
acceptance of legal process, and (b) that service of process may also be made
on such party by prepaid certified mail with a proof of mailing receipt
validated by the United States Postal Service constituting evidence of valid
service. Service made pursuant to (a) or (b) above shall have the same legal
force and effect as if served upon such party personally within the State of
Delaware. For purposes of implementing the parties' agreement to appoint and
maintain an agent for service of process in the State of Delaware, each such
party does hereby appoint The Corporation Trust Company, 1209 Orange Street,
Wilmington, New Castle County, Delaware 19801, as such agent.
13.7 Counterparts. This Agreement may be executed by the parties hereto in
separate counterparts, each of which so executed and delivered shall be an
original, but all such counterparts shall together constitute one and
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the same instrument. Each counterpart may consist of a number of copies hereof
each signed by less than all, but together signed by all of the parties
hereto.
13.8 Headings. Headings of the Articles and Sections of this Agreement are
for the convenience of the parties only, and shall be given no substantive or
interpretive effect whatsoever.
13.9 Incorporation. The Patriot Disclosure Schedule, the Cal Jockey
Disclosure Schedule, the BMOC Disclosure Schedule and all Exhibits attached
hereto and thereto and referred to herein and therein are hereby incorporated
herein and made a part hereof for all purposes as if fully set forth herein.
13.10 Severability. Any term or provision of this Agreement which is invalid
or unenforceable in any jurisdiction shall, as to that jurisdiction, be
ineffective to the extent of such invalidity or unenforceability without
rendering invalid or unenforceable the remaining terms and provisions of this
Agreement or affecting the validity or enforceability of any of the terms or
provisions of this Agreement in any other jurisdiction. If any provision of
this Agreement is so broad as to be unenforceable, the provision shall be
interpreted to be only so broad as is enforceable.
13.11 Interpretation and Certain Definitions.
(a) In this Agreement, unless the context otherwise requires, words
describing the singular number shall include the plural and vice versa, and
words denoting any gender shall include both genders.
(b) As used in this Agreement, the word "subsidiary" or "subsidiaries" when
used with respect to any party means any corporation, partnership, joint
venture, business trust or other entity, of which such party directly or
indirectly owns or controls at least a majority of the securities or other
interests having by their terms ordinary voting power to elect a majority of
the board of directors or others performing similar functions with respect to
such corporation or other organization.
(c) As used in this Agreement, the word "person" means an individual, a
corporation, a partnership, an association, a joint-stock company, a trust, a
limited liability company, any unincorporated organization or any other
entity.
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IN WITNESS WHEREOF, the parties have executed this Agreement and caused the
same to be duly delivered on their behalf on the day and year first written
above.
PATRIOT AMERICAN HOSPITALITY, INC.
ATTEST:
By:
/s/ Rex E. Stewart By:/s/ Paul A. Nussbaum
--------------------------------- ---------------------------------
Name: Rex E. Stewart Name: Paul A. Nussbaum
Title: Executive Vice President Title: Chairman
PATRIOT AMERICAN HOSPITALITY
PARTNERSHIP, L.P.
ATTEST: By: PAH GP, Inc., its general
partner
By:
/s/ Rex E. Stewart By:/s/ Paul A. Nussbaum
--------------------------------- ---------------------------------
Name: Rex E. Stewart Name: Paul A. Nussbaum
Title: Executive Vice President Title: Chairman
CALIFORNIA JOCKEY CLUB
ATTEST:
By:
/s/ Lillian Eva Fredriksson By:/s/ Kjell H. Qvale
--------------------------------- ---------------------------------
Name: Lillian Eva Fredriksson Name: Kjell H. Qvale
Title: Assistant Title: Chairman
BAY MEADOWS OPERATING COMPANY
ATTEST:
By: /s/ Frank Trigeiro By:/s/ F. Jack Liebau
------------------------------- ---------------------------------
Name: Frank Trigeiro Name: F. Jack Liebau
Title: Vice President--Finance Title: President
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<PAGE>
ANNEX B
PROPOSED FORM OF
AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF
PATRIOT AMERICAN HOSPITALITY, INC.
Patriot American Hospitality, Inc., a corporation organized and existing
under the laws of the State of Delaware (the "Corporation"), hereby certifies
as follows:
1. The name of the Corporation is Patriot American Hospitality, Inc. The
date of the filing of its original Certificate of Incorporation with the
Secretary of State of the State of Delaware was January 27, 1983 (the
"Original Certificate of Incorporation"). The name under which the Corporation
filed the Original Certificate of Incorporation was Bay Meadows Realty
Enterprises, Inc. The name of the Corporation was changed to California Jockey
Club on March 31, 1983, by way of amendment to the Original Certificate of
Incorporation. Pursuant to this Amended and Restated Certificate of
Incorporation, the name of the Corporation is hereby changed to Patriot
American Hospitality, Inc.
2. This Amended and Restated Certificate of Incorporation (the
"Certificate") amends, restates and integrates the provisions of the Original
Certificate of Incorporation, was duly adopted by the Board of Directors of
the Corporation in accordance with the provisions of Sections 242 and 245 of
the Delaware General Corporation Law, as amended from time to time (the
"DGCL"), and was duly adopted by the stockholders of the Corporation in
accordance with the applicable provisions of Sections 242 and 245 of the DGCL.
3. The text of the Original Certificate of Incorporation, as amended to
date, is hereby amended and restated in its entirety to provide as herein set
forth in full.
I.
NAME
The name of the corporation is Patriot American Hospitality, Inc.
II.
PURPOSES
The nature of business or purposes to be conducted or promoted by the
Corporation is to engage in any lawful act for which corporations may be
organized under the DGCL.
III.
REGISTERED OFFICE
The address of the registered office of the Corporation in the State of
Delaware is 1209 Orange Street, in the City of Wilmington, County of New
Castle. The name of its registered agent at such address is The Corporation
Trust Company.
IV.
CAPITAL STOCK
The Corporation shall have the authority to issue 650,000,000 shares of
common stock, par value $.01 per share (the "Common Stock"), 750,000,000
shares of excess stock, par value $.01 per share (the "Excess Stock"), and
100,000,000 shares of preferred stock, par value $.01 per share (the
"Preferred Stock"). The rights, preferences, voting powers and the
qualifications, limitations and restrictions of the authorized stock shall be
as follows:
B-1
<PAGE>
A. Common Stock.
1. Voting Rights. Each share of Common Stock shall be entitled to one
vote on all matters submitted to a vote at any meeting of stockholders.
2. Dividend Rights. Subject to the rights of holders of Preferred Stock
and subject to any other provisions of this Certificate or any amendment
hereto, holders of Common Stock shall be entitled to receive such dividends
and other distributions in cash, stock or property of the Corporation as
may be declared thereon by the Board of Directors from time to time.
3. Action Without a Meeting. Any action required or permitted to be taken
by the stockholders of the Corporation at any annual or special meeting of
stockholders of the Corporation may be taken in lieu of such a meeting only
by an unanimous written consent of the stockholders signed by each
stockholder entitled to vote on the matter.
B. Preferred Stock.
1. The Preferred Stock may be issued from time to time in one or more
series, with such distinctive designations, rights and preferences as shall
be stated and expressed herein or in the resolution or resolutions
providing for the issue of shares of a particular series, and in such
resolution or resolutions providing for the issue of shares of such series,
the Board of Directors is expressly authorized to fix or establish the
basis for determining:
a. The annual or other periodic dividend rate for such series, the
dividend payment dates, the date from which dividends on all shares of
such series issued shall be cumulative, and the extent of participation
rights, if any;
b. The redemption price or prices, if any, for such series and other
terms and conditions on which such series may be retired and redeemed;
c. The obligation, if any, of the Corporation to purchase and retire
or redeem shares of such series as a sinking fund or otherwise, and the
terms and conditions of any such redemption;
d. The designation and maximum number of shares of such series
issuable;
e. The right to vote, if any, with holders of shares of any other
class or series, either generally or as a condition to specified
corporate action;
f. The amount payable upon shares in the event of involuntary
liquidation;
g. The amount payable upon shares in the event of voluntary
liquidation;
h. The rights, if any, of the holders of shares of such series to
convert such shares into other classes of stock of the Corporation, or
to exchange such shares for other securities or assets, and the terms
and conditions of any such conversion or exchange; and
i. Such other rights as may be specified by the Board of Directors
and not prohibited by law.
All shares of Preferred Stock of any one series shall be identical with
each other in all respects except, if so determined by the Board of
Directors, as to the dates from which dividends thereon shall be
cumulative; and all shares of Preferred Stock shall be of equal rank with
each other, regardless of series, and shall be identical with each other in
all respects except as provided herein or in the resolution or resolutions
providing for the issue of a particular series. In case dividends on all
shares of Preferred Stock for any regular dividend period are not paid in
full, all such shares shall participate ratably in any partial payment of
dividends for such period in proportion to the full amounts of dividends
for such period to which they are respectively entitled.
B-2
<PAGE>
C. Restrictions on Ownership and Transfer of Equity Stock.
1. Definitions. For purposes of this Article IV, the following terms
shall have the meanings set forth below:
"Beneficial Ownership" shall mean, with respect to any Person, ownership
of shares of Equity Stock equal to the sum of (i) the shares of Equity
Stock directly or indirectly owned by such Person, (ii) the number of
shares of Equity Stock treated as owned directly or indirectly by such
Person through the application of the constructive ownership rules of
Section 544 of the Internal Revenue Code of 1986, as amended (the "Code"),
as modified by Section 856(h)(l)(B) of the Code, and (iii) the number of
shares of Equity Stock which such person is deemed to beneficially own
pursuant to Rule 13d-3 under the Securities Exchange Act of 1934, as
amended (the "Exchange Act"). The terms "Beneficial Owner," "Beneficially
Owns" and "Beneficially Owned" shall have correlative meanings.
"Beneficiary" shall mean, with respect to any Trust, one or more
organizations described in each of Section 170(b)(1)(A) (other than clauses
(vii) and (viii) thereof) and Section 170(c)(2) of the Code that are named
by the Corporation as the beneficiary or beneficiaries of such Trust, in
accordance with the provisions of Section (D)(4) of this Article IV.
"Constructive Ownership" shall mean ownership of shares of Equity Stock
by a Person who is or would be treated as a direct or indirect owner of
such shares of Equity Stock through the application of Section 318 of the
Code, as modified by Section 856(d)(5) of the Code. The terms "Constructive
Owner," "Constructively Owns" and "Constructively Owned" shall have
correlative meanings.
"Equity Stock" shall mean Common Stock and Preferred Stock of the
Corporation.
"Market Price" on any date shall mean the average of the Closing Price
for the five consecutive Trading Days ending on such date. The "Closing
Price" on any date shall mean the last sale price, regular way, or, in case
no such sale takes place on such day, the average of the closing bid and
asked prices, regular way, in either case as reported in the principal
consolidated transaction reporting system with respect to securities listed
or admitted to trading on the New York Stock Exchange or, if the shares of
Equity Stock are not listed or admitted to trading on the New York Stock
Exchange, as reported in the principal consolidated transaction reporting
system with respect to securities listed on the principal national
securities exchange on which the shares of Equity Stock are listed or
admitted to trading or, if the shares of Equity Stock are not listed or
admitted to trading on any national securities exchange, the last quoted
price, or if not so quoted, the average of the high bid and low asked
prices in the over-the-counter market, as reported by the Nasdaq Stock
Market, Inc. or, if such system is no longer in use, the principal other
automated quotation system that may then be in use or, if the shares of
Equity Stock are not quoted by any such organization, the average of the
closing bid and asked prices as furnished by a professional market maker
selected by the Board of Directors making a market in the shares of Equity
Stock. In the case of Equity Stock that is paired, "Market Price" shall
mean the "Market Price" for paired shares multiplied by a fraction
(expressed as a percentage) determined by dividing the value for such
Equity Stock most recently determined under Section 2(c) of the Pairing
Agreement by the value of a paired share most recently determined under
Section 2(c) of the Pairing Agreement (the "Valuation Percentage").
"Non-Transfer Event" shall mean an event other than a purported Transfer
that would cause any Person to Beneficially Own or Constructively Own
shares of Equity Stock in excess of the Ownership Limit, including, but not
limited to, (i) the granting of any option or entering into any agreement
for the sale, transfer or other disposition of shares of Equity Stock or
(ii) the sale, transfer, assignment or other disposition of interests in
any Person or of any securities or rights convertible into or exchangeable
for shares of Equity Stock that results in changes in Beneficial Ownership
or Constructive Ownership of shares of Equity Stock.
"Ownership Limit" shall mean, with respect to any class or series of
Equity Stock, 9.8% of the number of outstanding shares of such class or
series of Equity Stock. For purposes of computing the percentage of shares
of any class or series of Equity Stock of the Corporation that is
Beneficially Owned by any Person, any shares of Equity Stock of the
Corporation which are deemed to be Beneficially Owned by such Person
pursuant to Rule 13d-3 of the Exchange Act but which are not outstanding
shall be deemed to be outstanding.
B-3
<PAGE>
"Pairing Agreement" shall mean the Pairing Agreement, dated as of
February 17, 1983, by and between Bay Meadows Realty Enterprises, Inc. (the
predecessor of California Jockey Club) and Bay Meadows Operating Company,
as amended from time to time in accordance with the provisions thereof.
"Permitted Transferee" shall mean any Person designated as a Permitted
Transferee in accordance with the provisions of Section (D)(8) of this
Article IV.
"Person" shall mean (a) an individual or any corporation, partnership,
estate, trust, association, private foundation, joint stock company or any
other entity and (b) a "group" as that term is defined for purposes of Rule
13d-5 of the Exchange Act.
"Prohibited Owner" shall mean, with respect to any purported Transfer or
Non-Transfer Event, any Person who is prevented from being or becoming the
owner of record title to shares of Equity Stock by the provisions of
Section (D)(1) of this Article IV.
"Restriction Termination Date" shall mean the first day on which the
Board of Directors determines that it is no longer in the best interests of
the Corporation to attempt to, or continue to, qualify under the Code as a
real estate investment trust (a "REIT").
"Trading Day" shall mean a day on which the principal national securities
exchange on which shares of Equity Stock are listed or admitted to trading
is open for the transaction of business or, if shares of Equity Stock are
not listed or admitted to trading on any national securities exchange, any
day other than a Saturday, a Sunday or a day on which banking institutions
in the State of New York are authorized or obligated by law or executive
order to close.
"Transfer" (as a noun) shall mean any sale, transfer, gift, assignment,
devise or other disposition of shares of Equity Stock, whether voluntary or
involuntary, whether of record, constructively or beneficially and whether
by operation of law or otherwise. "Transfer" (as a verb) shall have the
correlative meaning.
"Trust" shall mean any separate trust created and administered in
accordance with the terms of Section (D) of this Article IV, for the
exclusive benefit of any Beneficiary.
"Trustee" shall mean any Person or entity unaffiliated with both the
Corporation and any Prohibited Owner designated by the Corporation to act
as trustee of any Trust, or any successor trustee thereof. The Trustee
shall be designated by the Corporation and Patriot American Hospitality
Operating Company (the "Operating Company") in accordance with the Pairing
Agreement.
2. Restriction on Ownership and Transfer.
a. Except as provided in Section (C)(4) of this Article IV, until the
Restriction Termination Date, (i) no Person shall Beneficially Own or
Constructively Own outstanding shares of Equity Stock in excess of the
Ownership Limit and (ii) any Transfer (whether or not the result of a
transaction entered into through the facilities of the New York Stock
Exchange) that, if effective, would result in any Person Beneficially
Owning or Constructively Owning shares of Equity Stock in excess of the
Ownership Limit shall be void ab initio as to the Transfer of that
number of shares of Equity Stock which would be otherwise Beneficially
Owned or Constructively Owned by such Person in excess of the Ownership
Limit and the intended transferee shall acquire no rights in such
shares of Equity Stock.
b. Until the Restriction Termination Date, any Transfer (whether or
not the result of a transaction entered into through the facilities of
the New York Stock Exchange) of shares of Equity Stock that, if
effective, would result in the Corporation being "closely held" within
the meaning of Section 856(h) of the Code shall be void ab initio as to
the Transfer of that number of shares of Equity Stock that would cause
the Corporation to be "closely held" within the meaning of Section
856(h) of the Code, and the intended transferee shall acquire no rights
in such shares of Equity Stock.
c. Until the Restriction Termination Date, any Transfer (whether or
not the result of a transaction entered into through the facilities of
the New York Stock Exchange) of shares of Equity Stock that, if
effective, would cause the Corporation to Constructively Own 10% or
more of the ownership interests in a tenant of the real property of the
Corporation or any direct or indirect subsidiary (whether a
corporation, partnership, limited liability company or other entity) of
the Corporation (a "Subsidiary"), within the meaning of Section
856(d)(2)(B) of the Code, shall be void ab initio as to the Transfer of
that number of shares of Equity Stock that would cause the Corporation
to Constructively Own 10%
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or more of the ownership interests in a tenant of the real property of
the Corporation or a Subsidiary within the meaning of Section
856(d)(2)(B) of the Code, and the intended transferee shall acquire no
rights in such shares of Equity Stock.
d. Until the Restriction Termination Date, any Transfer (whether or
not the result of a transaction entered into through the facilities of
the New York Stock Exchange) that, if effective, would result in the
shares of 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 shall be
void ab initio and the intended transferee shall acquire no rights in
such shares of Equity Stock.
3. Owners Required to Provide Information. Until the Restriction
Termination Date:
a. Every Beneficial Owner or Constructive Owner of 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 shall, within 30 days after January 1 of each year,
provide to the Corporation a written statement or affidavit stating the
name and address of such Beneficial Owner or Constructive Owner, the
number of shares of Equity Stock Beneficially Owned or Constructively
Owned, and a description of how such shares are held. Each such
Beneficial Owner or Constructive Owner shall provide to the Corporation
such additional information as the Corporation may request to ensure
compliance with the restrictions in this Section C of this Article IV.
b. Each Person who is a Beneficial Owner or Constructive Owner of
shares of Equity Stock and each Person (including the stockholder of
record) who is holding shares of Equity Stock for a Beneficial Owner or
Constructive Owner shall provide to the Corporation a written statement
or affidavit stating such information as the Corporation may request in
order to determine the Corporation's status as a REIT and to ensure
compliance with the Ownership Limit.
4. Exception. The Board of Directors, upon receipt of a ruling from the
Internal Revenue Service or an opinion of counsel in each case to the
effect that the restrictions contained in Sections (C)(2)(b) through (d) of
this Article IV would not be violated, may exempt a Person from the
Ownership Limit, provided that (A) the Board of Directors obtains such
representations and undertakings from such Person as are reasonably
necessary to ascertain that no Person's Beneficial Ownership or
Constructive Ownership of shares of Equity Stock will (i) 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, (ii) result in the
Corporation being "closely held" within the meaning of Section 856(h) of
the Code or (iii) cause the Corporation to Constructively Own 10% or more
of the ownership interests in the real property of a tenant of the
Corporation or a Subsidiary within the meaning of Section 856(d)(2)(B) of
the Code and (B) such Person agrees in writing that any violation or
attempted violation of the Ownership Limit will result in the conversion of
such shares into shares of Excess Stock pursuant to Section (D)(1) of this
Article IV.
5. New York Stock Exchange Transactions. Notwithstanding any provision
contained herein to the contrary, nothing in this Certificate shall
preclude the settlement of any transaction entered into through the
facilities of the New York Stock Exchange.
D. Excess Stock.
1. Conversion into Excess Stock.
a. If, notwithstanding the other provisions contained in this Article
IV, prior to the Restriction Termination Date, there is a purported
Transfer or Non-Transfer Event such that any Person would either
Beneficially Own or Constructively Own shares of Equity Stock in excess
of the Ownership Limit, then, (i) except as otherwise provided in
Section (C)(4) of this Article IV, the purported transferee shall be
deemed to be a Prohibited Owner and shall acquire no right or interest
(or, in the case of a Non-Transfer Event, the Person holding record
title to the shares of Equity Stock Beneficially
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Owned or Constructively Owned by such Beneficial Owner or Constructive
Owner, shall cease to own any right or interest) in such number of
shares of Equity Stock which would cause such Beneficial Owner or
Constructive Owner to Beneficially Own or Constructively Own shares of
Equity Stock in excess of the Ownership Limit, (ii) such number of
shares of Equity Stock in excess of the Ownership Limit (rounded up to
the nearest whole share) shall be automatically converted into an equal
number of shares of Excess Stock and transferred to a Trust in
accordance with Section (D)(4) of this Article IV and (iii) the
Prohibited Owner shall submit such number of shares of Equity Stock to
the Corporation for registration in the name of the Trustee of the
Trust. Such conversion into Excess Stock and transfer to a Trust shall
be effective as of the close of trading on the Trading Day prior to the
date of the Transfer or Non-Transfer Event, as the case may be.
b. If, notwithstanding the other provisions contained in this Article
IV, prior to the Restriction Termination Date, there is a purported
Transfer or Non-Transfer Event that, if effective, would (i) 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, (ii) result in the
Corporation being "closely held" within the meaning of Section 856(h)
of the Code or (iii) cause the Corporation to Constructively Own 10% or
more of the ownership interest in a tenant of the Corporation's or a
Subsidiary's real property within the meaning of Section 856(d)(2)(B)
of the Code, then (x) the purported transferee shall be deemed to be a
Prohibited Owner and shall acquire no right or interest (or, in the
case of a Non-Transfer Event, the Person holding record title of the
shares of Equity Stock with respect to which such Non-Transfer Event
occurred, shall cease to own any right or interest) in such number of
shares of Equity Stock, the ownership of which by such purported
transferee or record holder would (A) result in the shares of 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, (B) result in the Corporation
being "closely held" within the meaning of Section 856(h) of the Code
or (C) cause the Corporation to Constructively Own 10% or more of the
ownership interests in a tenant of the Corporation's or a Subsidiary's
real property within the meaning of Section 856(d)(2)(B) of the Code,
(y) such number of shares of Equity Stock (rounded up to the nearest
whole share) shall be automatically converted into an equal number of
shares of Excess Stock and transferred to a Trust in accordance with
Section (D)(4) of this Article IV and (z) the Prohibited Owner shall
submit such number of shares of Equity Stock to the Corporation for
registration in the name of the Trustee of the Trust. Such conversion
into Excess Stock and transfer to a Trust shall be effective as of the
close of trading on the Trading Day prior to the date of the Transfer
or Non-Transfer Event, as the case may be.
c. 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 the
Corporation, 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 by the Corporation as that particular class or series of
Equity Stock.
2. Remedies for Breach. If the Corporation, or its designees, shall at
any time determine in good faith that a Transfer has taken place in
violation of Section (C)(2) of this Article IV or that a Person intends to
acquire or has attempted to acquire Beneficial Ownership or Constructive
Ownership of any shares of Equity Stock in violation of Section (C)(2) of
this Article IV, the Corporation shall take such action as it deems
advisable to refuse to give effect to or to prevent such Transfer or
acquisition, including, but not limited to, refusing to give effect to such
Transfer on the stock transfer books of the Corporation or instituting
proceedings to enjoin such Transfer or acquisition.
3. Notice of Restricted Transfer. Any Person who acquires or attempts to
acquire shares of Equity Stock in violation of Section (C)(2) of this
Article IV, or any Person who owns shares of Equity Stock that were
converted into shares of Excess Stock and transferred to a Trust pursuant
to Sections (D)(1) and (D)(4) of this Article IV, shall immediately give
written notice to the Corporation of such event and shall provide
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to the Corporation such other information as the Corporation may request in
order to determine the effect, if any, of such Transfer or Non-Transfer
Event, as the case may be, on the Corporation's status as a REIT.
4. Ownership in Trust. Upon any Transfer or Non-Transfer Event that
results in Excess Stock pursuant to Section (D)(1) of this Article IV, such
Excess Stock shall be automatically transferred to a Trust to be held for
the exclusive benefit of the Beneficiary. The Corporation and the Operating
Company shall name a Beneficiary for each Trust pursuant to the terms of
the Pairing Agreement. Any conversion of shares of Equity Stock into shares
of Excess Stock and transfer to a Trust shall be effective as of the close
of trading on the Trading Day prior to the date of the Transfer or Non-
Transfer Event that results in the conversion. Shares of Excess Stock so
held in trust shall remain issued and outstanding shares of stock of the
Corporation.
5. Dividend Rights. Each share of Excess Stock shall be entitled to the
same dividends and distributions (as to both timing and amount) as may be
declared by the Board of Directors as shares of the class or series of
Equity Stock from which such Excess Stock was converted. The Trustee, as
record holder of the shares of Excess Stock, shall be entitled to receive
all dividends and distributions and shall hold all such dividends or
distributions in trust for the benefit of the Beneficiary. The Prohibited
Owner with respect to such shares of Excess Stock shall repay to the Trust
the amount of any dividends or distributions received by it (i) that are
attributable to any shares of Equity Stock that have been converted into
shares of Excess Stock and (ii) the record date of which was on or after
the date that such shares were converted into shares of Excess Stock. The
Corporation shall take all measures that it determines reasonably necessary
to recover the amount of any such dividend or distribution paid to a
Prohibited Owner, including, if necessary, withholding any portion of
future dividends or distributions payable on shares of Equity Stock
Beneficially Owned or Constructively Owned by the Person who, but for the
provisions of this Article IV, would Constructively Own or Beneficially Own
the shares of Equity Stock that were converted into shares of Excess Stock;
and, as soon as reasonably practicable following the Corporation's receipt
or withholding thereof, shall pay over to the Trust for the benefit of the
Beneficiary the dividends so received or withheld, as the case may be.
6. Rights upon Liquidation. In the event of any voluntary or involuntary
liquidation of, or winding up of, or any distribution of the assets of, the
Corporation, each holder of shares of Excess Stock shall be entitled to
receive, ratably with each other holder of shares of Equity Stock of the
same class or series from which the Equity Stock was converted, that
portion of the assets of the Corporation that is available for distribution
to the holders of such class or series of Equity Stock. The Trust shall
distribute to the Prohibited Owner the amounts received upon such
liquidation, dissolution, or winding up, or distribution; provided,
however, that the Prohibited Owner shall not be entitled to receive amounts
in excess of, 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 the shares into shares of Excess Stock, the price per
share, if any, such Prohibited Owner paid for the shares of Equity Stock
(which, in the case of Equity Stock that is paired, shall equal the price
per paired share multiplied by the most recent Valuation Percentage) and,
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 the shares into shares of Excess
Stock, the price per share equal to the Market Price on the date of such
Non-Transfer Event or Transfer. Any remaining amount in such Trust shall be
distributed to the Beneficiary.
7. Voting Rights. 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 holders of shares of Excess Stock converted
from the same class or series of Equity Stock shall vote together with the
holders of such Equity Stock as a single class on all such matters. The
Trustee, as record holder of the Excess Stock, shall be entitled to vote
all shares of Excess Stock. Any vote by a Prohibited Owner as a purported
holder of shares of Equity Stock prior to the discovery by the Corporation
that the shares of Equity Stock have been converted into shares of Excess
Stock shall, subject to applicable law, be rescinded and shall be void ab
initio with respect to such shares of Excess Stock, and the Prohibited
Owner
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shall be deemed to have given, as of the close of trading on the Trading
Day prior to the date of the purported Transfer or Non-Transfer Event that
results in the conversion of the shares of Equity Stock into shares of
Excess Stock and the transfer of such shares to a Trust pursuant to
Sections (D)(1) and (D)(4) of this Article IV, an irrevocable proxy to the
Trustee to vote the shares of Excess Stock in the manner in which the
Trustee, in its sole and absolute discretion, desires.
8. Designation of Permitted Transferee.
a. The Trustee shall have the exclusive and absolute right to
designate a Permitted Transferee of any and all shares of Excess Stock
if the Company fails to exercise its option with respect to such shares
pursuant to Section (D)(10) hereof within the time period set forth
therein. As soon as practicable, but in an orderly fashion so as not to
materially adversely affect the Market Price of the shares of Excess
Stock, the Trustee shall designate any Person as a Permitted
Transferee; provided, however, that (i) the Permitted Transferee so
designated purchases for valuable consideration (whether in a public or
private sale) the shares of Excess Stock (which, in the case of paired
Excess Stock, shall be determined based on the Valuation Percentage)
and (ii) the Permitted Transferee so designated may acquire such shares
of Excess Stock without violating any of the restrictions set forth in
Section (C)(2) of this Article IV and without such acquisition
resulting in the conversion of the shares of Equity Stock so acquired
into shares of Excess Stock and the transfer of such shares to a Trust
pursuant to Sections (D)(1) and (D)(4) of this Article IV.
b. Upon the designation by the Trustee of a Permitted Transferee in
accordance with the provisions of this Section (D)(8), the Trustee
shall cause to be transferred to the Permitted Transferee that number
of shares of Excess Stock 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. 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 Directors of the Corporation, and shall thereupon be restored
to the status of authorized but unissued shares of Excess Stock and may
be reissued by the Corporation as Excess Stock.
c. The Trustee shall (i) cause to be recorded on the stock transfer
books of the Corporation 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 Prohibited Owner pursuant to
Section (D)(9) of this Article IV.
d. If the Transfer of shares of Excess Stock to a purported Permitted
Transferee shall violate any of the transfer restrictions set forth in
Section (C)(2) of this Article IV, 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 (as described in clause (b) above) and the
purported Permitted Transferee shall be deemed to be a Prohibited Owner
and shall acquire no rights in such shares of Excess Stock or Equity
Stock. Such shares of Equity Stock shall be automatically re-converted
into Excess Stock and transferred to the Trust from which they were
originally Transferred. Such conversion and transfer to the Trust shall
be effective as of the close of trading on the Trading Day prior to the
date of the Transfer to the purported Permitted Transferee and the
provisions of this Article IV shall apply to such shares, including,
without limitation, the provisions of Sections D(8) through (D)(10)
with respect to any future Transfer of such shares by the Trust.
9. Compensation to Record Holder of Shares of Equity Stock that are
Converted into Shares of Excess Stock. Any Prohibited Owner shall be
entitled (following discovery of the shares of Excess Stock and subsequent
designation of the Permitted Transferee in accordance with Section (D)(8)
of this Article IV or following the acceptance of the offer to purchase
such shares in accordance with Section (D)(10) of this Article IV) 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,
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the price per share, if any, such Prohibited Owner paid for the shares of
Equity Stock (which, in the case of paired Excess Stock, shall be
determined based on the Valuation Percentage) 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 on the date of such Non-Transfer
Event or Transfer or (ii) the price per share (which, in the case of paired
Excess Stock, shall be determined based on the Valuation Percentage)
received by the Trustee from the sale or other disposition of such shares
of Excess Stock in accordance with this Section (D)(9) or Section (D)(10)
of this Article IV. 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 pursuant to this Section (D)(9) shall be distributed to
the Beneficiary in accordance with the provisions of Section (D)(8) of this
Article IV. Each Beneficiary and Prohibited Owner shall waive any and all
claims that it may have against the Trustee and the Trust arising out of
the disposition of shares of Excess Stock, except for claims arising out of
the gross negligence or willful misconduct of, or any failure to make
payments in accordance with this Section (D) of this Article IV by, such
Trustee or the Corporation.
10. Purchase Right in Excess Stock. Shares of Excess Stock shall be
deemed to have been offered for sale to the Corporation or its designee, at
a price per share equal to the lesser of (i) the price per share (which, in
the case of paired Excess Stock, shall be determined based on the Valuation
Percentage) 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 the Corporation, or its designee, accepts such offer. The
Corporation 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 the Corporation determines in good faith that a Transfer or
Non-Transfer Event resulting in shares of Excess Stock has previously
occurred, if the Corporation does not receive a notice of such Transfer or
Non-Transfer Event pursuant to Section (D)(3) of this Article IV.
E. Preemptive Rights. No holder of shares of any class or series of capital
stock shall as such holder have any preemptive or preferential right to
purchase or subscribe to (i) any shares of any class or series of capital
stock of the Corporation, whether now or hereafter authorized, (ii) any
warrants, rights or options to purchase any such capital stock or (iii) any
obligations convertible into any such capital stock or into warrants, rights
or options to purchase any such capital stock.
F. Remedies Not Limited. Nothing contained in this Article IV shall limit
the authority of the Corporation to take such other action as it deems
necessary or advisable to protect the Corporation and the interests of its
stockholders by preservation of the Corporation's status as a REIT and to
ensure compliance with the requirements of the Pairing Agreement and with the
restrictions set forth in Section C of this Article IV.
G. Ambiguity. In the case of an ambiguity in the application of any of the
provisions of this Article IV, including any definition contained in Section
(C)(1) of this Article IV, the Board of Directors shall have the power to
determine the application of the provisions of this Article IV with respect to
any situation based on the facts known to it.
H. Legend. Each certificate for shares of Equity Stock shall bear the
following legend:
"The shares of Patriot American Hospitality, Inc. and Patriot American
Hospitality Operating Company represented by this combined certificate are
subject to restrictions in the respective Amended and Restated Certificate
of Incorporation of each company which prohibit (a) any Person from
Beneficially Owning or Constructively Owning (as these terms are defined in
the respective Amended and Restated Certificate of Incorporation of each
company) in excess of 9.8% of the number of outstanding shares of any class
or series of Equity Stock (as that term is defined in the respective
Amended and Restated Certificate of Incorporation of each company), (b) any
Person (as that term is defined in the respective Amended and Restated
Certificate of Incorporation of each company), from acquiring or
maintaining any ownership interest in the stock of either company that is
inconsistent with (i) the requirements of the Internal Revenue Code of
1986, as amended, pertaining to real estate investment trusts or (ii)
Article IV of the respective Amended and Restated Certificate of
Incorporation of each company and (c) any transfer of shares of any
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class or series of Equity Stock of either company that are paired pursuant
to the Pairing Agreement, dated as of February 17, 1983, by and between the
two companies, as amended from time to time in accordance with the
provisions thereof (the "Pairing Agreement"), except in combination with an
equal number of shares of the other company in accordance with the
respective Amended and Restated Bylaws of each company and the Pairing
Agreement, copies of which are on file with the transfer agent, and the
holder of this certificate by his acceptance hereof consents to be bound by
such restrictions.
Patriot American Hospitality, Inc. and Patriot American Hospitality
Operating Company will furnish without charge to each stockholder who so
requests a copy of the relevant provisions of the respective Amended and
Restated Certificate of Incorporation and the respective Amended and
Restated Bylaws of each company, a copy of the Pairing Agreement and a copy
of the provisions setting forth the designations, preferences, privileges
and rights of each class of stock or series thereof that each company is
authorized to issue and the qualifications, limitations and restrictions of
such preferences and/or rights. Any such request may be addressed to the
Secretary of either company or to the transfer agent named on the face
hereof."
I. Severability. Each provision of this Article IV shall be severable and an
adverse determination as to any such provision shall be in no way affect the
validity of any other provision.
V.
DIRECTORS
A. General Powers. The property, affairs and business of the Corporation
shall be managed under the direction of the Board of Directors and, except as
otherwise expressly provided by law, the Bylaws or this Certificate, all of
the powers of the Corporation shall be vested in such Board.
B. Number of Directors. The number of directors shall be fixed by resolution
duly adopted from time to time by the Board of Directors. A director need not
be a stockholder of the Corporation.
C. Terms of Directors. The directors shall be classified, with respect to
the term for which they severally hold office, into three classes, as nearly
equal in number as possible. The initial Class I Directors of the Corporation
shall be Paul A. Nussbaum, Arch K. Jacobson and Leonard Boxer; the initial
Class II Directors of the Corporation shall be Thomas S. Foley and Gregory R.
Dillon; and the initial Class III Directors of the Corporation shall be John
H. Daniels and John C. Deterding. The initial Class I Directors shall serve
for a term expiring at the annual meeting of stockholders to be held in 1997;
the initial Class II Directors shall serve for a term expiring at the annual
meeting of stockholders to be held in 1998; and the initial Class III
Directors shall serve for a term expiring at the annual meeting of
stockholders to be held in 1999. At each annual meeting of stockholders, the
successor or successors of the class of directors whose term expires at that
meeting shall be elected by a plurality of the votes of the shares present in
person or represented by proxy at such meeting and entitled to vote on the
election of directors, and shall hold office for a term expiring at the annual
meeting of stockholders held in the third year following the year of their
election. The directors elected to each class shall hold office until their
successors are duly elected and qualified or until their earlier resignation
or removal.
Notwithstanding the foregoing, whenever, pursuant to the provisions of
Article IV of this Certificate, the holders of any one or more series of
Preferred Stock shall have the right, voting separately as a series or
together with holders of other such series, to elect directors at an annual or
special meeting of stockholders, the election, term of office, filling of
vacancies and other features of such directorships shall be governed by the
terms of this Certificate and any certificates of designation applicable
thereto, and such directors so elected shall not be divided into classes
pursuant to this Section C of this Article V.
During any period when the holders of any series of Preferred Stock have the
right to elect additional directors as provided for or fixed pursuant to the
provisions of Article IV of this Certificate, then upon commencement and for
the duration of the period during which such right continues: (a) the then
otherwise total authorized number of directors of the Corporation shall
automatically be increased by such specified number of directors, and the
holders of such Preferred Stock shall be entitled to elect the additional
directors so provided for or fixed pursuant to said provisions and (b) each
such additional director shall serve until such director's
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successor shall have been duly elected and qualified, or until such director's
right to hold such office terminates pursuant to said provisions, whichever
occurs earlier, subject to such director's earlier death, disqualification,
resignation or removal. Except as otherwise provided by the Board in the
resolution or resolutions establishing such series, whenever the holders of
any series of Preferred Stock having such right to elect additional directors
are divested of such right pursuant to the provisions of such stock, the terms
of office of all such additional directors elected by the holders of such
stock, or elected to fill any vacancies resulting from the death, resignation,
disqualification or removal of such additional directors, shall forthwith
terminate and the total and authorized number of directors of the Corporation
shall be reduced accordingly.
D. Removal of Directors. Subject to the rights, if any, of any series of
Preferred Stock to elect directors and to remove any director whom the holders
of any such stock have the right to elect, any director (including persons
elected by directors to fill vacancies in the Board of Directors) may be
removed from office (a) only with cause and (b) only by the affirmative vote
of the holders of at least 75% of the shares then entitled to vote at an
election of directors. At least 30 days prior to any meeting of stockholders
at which it is proposed that any director be removed from office, written
notice of such proposed removal shall be sent to the director whose removal
will be considered at the meeting. For purposes of this Certificate, "cause,"
with respect to the removal of any director shall mean only (i) conviction of
a felony, (ii) declaration of unsound mind by order of a court, (iii) gross
dereliction of duty, (iv) commission of any act involving moral turpitude or
(v) commission of an act that constitutes intentional misconduct or a knowing
violation of law if such action in either event results both in an improper
substantial personal benefit to such director and a material injury to the
Corporation.
E. Vacancies. Subject to the rights, if any, of the holders of any series of
Preferred Stock to elect directors and to fill vacancies in the Board of
Directors relating thereto, any and all vacancies in the Board of Directors,
however occurring, including, without limitation, by reason of an increase in
size of the Board of Directors, or the death, resignation, disqualification or
removal of a director, shall be filled solely by the affirmative vote of a
majority of the remaining directors then in office, even if less than a quorum
of the Board of Directors. Any director appointed in accordance with the
preceding sentence shall hold office for the remainder of the full term of the
class of directors in which the new directorship was created or the vacancy
occurred and until such director's successor shall have been duly elected and
qualified or until such director's earlier resignation or removal. Subject to
the rights, if any, of the holders of any series of Preferred Stock, when the
number of directors is increased or decreased, the Board of Directors shall
determine the class or classes to which the increased or decreased number of
directors shall be apportioned; provided, however, that no decrease in the
number of directors shall shorten the term of any incumbent director. In the
event of a vacancy in the Board of Directors, the remaining directors, except
as otherwise provided by law, may exercise the powers of the full Board of
Directors until such vacancy is filled.
VI.
LIMITATION OF LIABILITY
A director of the Corporation shall not be personally liable to the
Corporation or its stockholders for monetary damages for breach of fiduciary
duty as a director, except for liability (a) for any breach of the director's
duty of loyalty to the Corporation or its stockholders, (b) for acts or
omissions not in good faith or which involve intentional misconduct or a
knowing violation of law, (c) under Section 174 of the DGCL or (d) for any
transaction from which the director derived an improper personal benefit. If
the DGCL is amended after the effective date of this Certificate to authorize
corporate action further eliminating or limiting the personal liability of
directors, then the liability of a director of the Corporation shall be
eliminated or limited to the fullest extent permitted by the DGCL, as so
amended.
Any repeal or modification of this Article VI by either (i) the stockholders
of the Corporation or (ii) an amendment to the DGCL shall not adversely affect
any right or protection existing at the time of such repeal or modification
with respect to any acts or omissions occurring before such repeal or
modification of a person serving as a director at the time of such repeal or
modification.
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VII.
MAINTENANCE OF REIT STATUS
For so long as the Board of Directors deems the maintenance of REIT status
to be in the best interests of the Corporation, it shall be the duty of the
Board of Directors to ensure that the Corporation satisfies the requirements
for qualification as a REIT under the Code, including, but not limited to, the
ownership of its outstanding stock, the nature of its assets, the sources of
its income, and the amount and timing of its distributions to its
stockholders.
VIII.
RELATED PERSON TRANSACTION
The affirmative vote of the holders of not less than 66 2/3% of the
outstanding shares of capital stock of this corporation, which shall include
the affirmative vote of at least 50% of the outstanding shares of capital
stock held by shareholders other than a "Related Person" (as hereinafter
defined), shall be required for the approval or authorization of any "Business
Combination" (as hereinafter defined) of this corporation with any Related
Person; provided, however, that such 66 2/3% voting requirement shall not be
applicable if the Business Combination was approved by the Board of Directors
of the corporation prior to the acquisition by such Related Person of the
beneficial ownership of 5% or more of the outstanding shares of the capital
stock of the corporation.
For purposes of this Article VIII:
1. The term "Business Combination" shall mean (a) any merger, reorganization
or consolidation of this corporation with or into a Related Person, (b) any
sale, lease, exchange, transfer or other disposition, including, without
limitation, a mortgage or any other security device, of all or any substantial
part of the assets of this corporation (including, without limitation, any
voting securities of a subsidiary) or of a subsidiary, to a Related Person,
(c) any merger or consolidation of a Related Person with or into this
corporation or a subsidiary of this corporation and (d) any sale, lease,
exchange, transfer or other disposition of all or any substantial part of the
assets of a Related Person to this corporation or a subsidiary of this
corporation.
2. The term "Related Person" shall mean and include any individual,
corporation, partnership or other person or entity which, together with its
"affiliates" and "associates" (defined below), beneficially (as defined in
Rule 13d-3 of the Securities Exchange Act of 1934), owns in the aggregate five
percent (5%) or more of the outstanding shares of the capital stock of this
corporation, and any "affiliate" or "associate" (as those terms are defined in
Rule 12b-2 of the Exchange Act) of any such individual, corporation,
partnership or other person or entity; provided, however, that the term
"Related Person" shall not include either Patriot American Hospitality
Operating Company or any subsidiary of this corporation.
3. The term "substantial part of the assets" shall mean assets having a fair
market value or book value, whichever is greater, equal to 25% or more of such
value of the total assets as reflected on the most recent quarterly balance
sheet of the corporation as of a date no earlier than forty-five (45) days
prior to any acquisition of such assets.
4. Without limitation, any share of capital stock of this corporation which
any Related Person has the right to acquire pursuant to any agreement or upon
exercise of conversion rights, warrants or options, or otherwise shall be
deemed beneficially owned by such Related Person.
The provisions set forth in this Article VIII may not be repealed or amended
in any respect, unless such action is approved by the affirmative vote of the
holders of not less than 66 2/3% of the outstanding shares of capital stock of
this corporation; provided, however, that if there is a Related Person (as
defined herein), such 66 2/3% vote must include the affirmative vote of at
least 50% of the outstanding shares of capital stock held by shareholders
other than the Related Person.
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IX.
AMENDMENT OF CERTIFICATE OF INCORPORATION
Subject to Article VIII of this Certificate, the Corporation reserves the
right to amend or repeal this Certificate in the manner now or hereafter
prescribed by statute and this Certificate, and all rights conferred upon
stockholders herein are granted subject to this reservation.
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ANNEX C
PROPOSED FORM OF
AMENDED AND RESTATED
BYLAWS
OF
PATRIOT AMERICAN HOSPITALITY, INC.
ARTICLE I.
DEFINITIONS
For purposes of these Bylaws, the following words shall have the meanings
set forth below:
(a) "Affiliate" of a Person shall mean (i) any Person that, directly or
indirectly, controls or is controlled by or is under common control with such
other Person, (ii) any Person that owns, beneficially, directly or indirectly,
5% or more of the outstanding capital stock, shares or equity interests of
such other Person or (iii) any officer, director, employee, partner or trustee
of such other Person or any Person controlling, controlled by or under common
control with such Person (excluding directors and Persons serving in similar
capacities who are not otherwise Affiliates of such Person). For the purposes
of this definition, the term "Person" shall mean, and includes, any natural
person, corporation, partnership, association, trust, limited liability
company or any other legal entity. For the purposes of this definition,
"control" (including the correlative meanings of the terms "controlled by" and
"under common control with"), as used with respect to any Person, shall mean
the possession, directly or indirectly, of the power to direct or cause the
direction of the management and policies of such Person, through the ownership
of voting securities, partnership interests or other equity interests.
(b) "Certificate" shall mean the Amended and Restated Certificate of
Incorporation of the Corporation, as amended from time to time.
(c) "Corporation" shall mean Patriot American Hospitality, Inc.
(d) "DGCL" shall mean the Delaware General Corporation Law, as amended from
time to time.
(e) "Equity Stock" shall mean the common stock, par value $.01 per share,
and the preferred stock, par value $.01 per share of the Corporation and the
Operating Company.
(f) "Independent Director" shall mean a director of the Corporation who is
not (i) an officer or employee of the Corporation, (ii) a director or officer
of Operating Company or (iii) an Affiliate of (a) any lessee of any property
of the Corporation, (b) a subsidiary of the Corporation or (c) any partnership
that is an affiliate of the Corporation.
(g) "Operating Company" shall mean Patriot American Hospitality Operating
Company.
(h) "Public Announcement" shall mean: (i) disclosure in a press release
reported by the Dow Jones News Service, Associated Press or comparable
national news service, (ii) a report or other document filed publicly with the
Securities and Exchange Commission (including, without limitation, a Form 8-K)
or (iii) a letter or report sent to stockholders of record of the Corporation
at the time of the mailing of such letter or report.
ARTICLE II.
MEETINGS OF STOCKHOLDERS
2.1 Places of Meetings. All meetings of the stockholders shall be held at
such place, either within or without the State of Delaware, as from time to
time may be fixed by the Board of Directors.
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2.2 Annual Meetings. The annual meeting of the stockholders, for the
election of directors and transaction of such other business as may come
properly before the meeting, shall be held at such date and time as shall be
determined by the Board of Directors.
2.3 Special Meetings. A special meeting of the stockholders for any purpose
or purposes may be called at any time only by the Chairman of the Board or by
a majority of the Board of Directors. At a special meeting no business shall
be transacted and no corporate action shall be taken other than that stated in
the notice of the meeting.
2.4 Notice of Meetings; Adjournments. A written notice of each annual
meeting stating the hour, date and place of such annual meeting shall be given
by the Secretary or an Assistant Secretary of the Corporation (or other person
authorized by these Bylaws or by law) not less than 10 days nor more than 60
days before the annual meeting, to each stockholder entitled to vote thereat
and to each stockholder who, by law or under the Certificate or under these
Bylaws, is entitled to such notice, by delivering such notice to him or her or
by mailing it, postage prepaid, addressed to such stockholder at the address
of such stockholder as it appears on the stock transfer books of the
Corporation. Such notice shall be deemed to be delivered when hand delivered
to such address or deposited in the mail so addressed, with postage prepaid.
Notice of all special meetings of stockholders shall be given in the same
manner as provided for annual meetings, except that the written notice of all
special meetings shall state the purpose or purposes for which the meeting has
been called.
Notice of an annual meeting or special meeting of stockholders need not be
given to a stockholder if a written waiver of notice is signed before or after
such meeting by such stockholder or if such stockholder attends such meeting,
unless such attendance was for the express purpose of objecting at the
beginning of the meeting to the transaction of any business because the
meeting was not lawfully called or convened. Neither the business to be
transacted at, nor the purpose of, any annual meeting or special meeting of
stockholders need be specified in any written waiver of notice.
The Board of Directors may postpone and reschedule any previously scheduled
annual meeting or special meeting of stockholders and any record date with
respect thereto, regardless of whether any notice or public disclosure with
respect to any such meeting has been sent or made pursuant to this Section 2.4
or otherwise. In no event shall the Public Announcement of an adjournment,
postponement or rescheduling of any previously scheduled meeting of
stockholders commence a new time period for the giving of a stockholder's
notice under Section 2.9 of these Bylaws.
When any meeting is convened, the presiding officer of the meeting may
adjourn the meeting if (a) no quorum is present for the transaction of
business, (b) the Board of Directors determines that adjournment is necessary
or appropriate to enable the stockholders to consider fully information that
the Board of Directors determines has not been made sufficiently or timely
available to stockholders or (c) the Board of Directors determines that
adjournment is otherwise in the best interests of the Corporation. When any
annual meeting or special meeting of stockholders is adjourned to another
hour, date or place, notice need not be given of the adjourned meeting, other
than an announcement at the meeting at which the adjournment is taken, of the
hour, date and place to which the meeting is adjourned; provided, however,
that if the adjournment is for more than 30 days, or if after the adjournment
a new record date is fixed for the adjourned meeting, notice of the adjourned
meeting shall be given to each stockholder of record entitled to vote thereat
and each stockholder who, by law or under the Certificate or under these
Bylaws, is entitled to such notice.
2.5 Quorum. Except as otherwise required by the Certificate, any number of
stockholders together holding at least a majority of the outstanding shares of
capital stock entitled to vote with respect to the business to be transacted,
who shall be present in person or represented by proxy at any meeting duly
called, shall constitute a quorum for the transaction of business. If less
than a quorum shall be in attendance at the time for which a meeting shall
have been called, the meeting may be adjourned from time to time by a majority
of the stockholders present or represented by proxy.
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2.6 Voting and Proxies. Stockholders shall have one vote for each share of
stock entitled to vote owned by them of record according to the stock transfer
books of the Corporation, unless otherwise provided by law or by the
Certificate. Stockholders may vote either in person or by written proxy, but
no proxy shall be voted or acted upon after three years from its date, unless
the proxy provides for a longer period. Proxies shall be filed with the
secretary of the meeting before being voted. Except as otherwise limited
therein or as otherwise provided by law, proxies shall entitle the persons
authorized thereby to vote at any adjournment of such meeting, but they shall
not be valid after final adjournment of such meeting. A proxy with respect to
stock held in the name of two or more persons shall be valid if executed by or
on behalf of any one of them unless at or prior to the exercise of the proxy
the Corporation receives a specific written notice to the contrary from any
one of them. A proxy purporting to be executed by or on behalf of a
stockholder shall be deemed valid, and the burden of proving invalidity shall
rest on the challenger.
2.7 Action at Meeting. When a quorum is present, any matter before any
meeting of stockholders shall be decided by the affirmative vote of the
majority of shares present in person or represented by proxy at such meeting
and entitled to vote on such matter, except where a larger vote is required by
law, by the Certificate or by these Bylaws. Any election by stockholders shall
be determined by a plurality of the votes of the shares present in person or
represented by proxy at the meeting and entitled to vote on the election of
directors, except where a larger vote is required by law, by the Certificate
or by these Bylaws. The Corporation shall not directly or indirectly vote any
shares of its own stock; provided, however, that the Corporation may vote
shares which it holds in a fiduciary capacity to the extent permitted by law.
2.8 Stockholder List. The officer or agent having charge of the stock
transfer books of the Corporation shall make, at least 10 days before every
annual meeting or special meeting of stockholders, a complete list of the
stockholders entitled to vote at the meeting or any adjournment thereof, in
alphabetical order, and showing the address of each stockholder and the number
of shares registered in the name of each stockholder. Such list shall be open
to the examination of any stockholder, for any purpose germane to the meeting,
during ordinary business hours, for a period of at least 10 days prior to the
meeting, either at a place within the city where the meeting is to be held,
which place shall be specified in the notice of the meeting, or, if not so
specified, at the place where the meeting is to be held. The list shall also
be produced and kept at the hour, date and place of the meeting during the
whole time thereof, and may be inspected by any stockholder who is present.
2.9 Stockholder Proposals. In addition to any other applicable requirements,
for business to be properly brought before an annual meeting by a stockholder
of record (both as of the time notice of such proposal is given by the
stockholder as set forth below and as of the record date for the annual
meeting in question) of any shares of capital stock entitled to vote at such
annual meeting, such stockholder shall: (i) give timely written notice as
required by this Section 2.9 to the Secretary of the Corporation and (ii) be
present at such meeting, either in person or by a representative. For the
first annual meeting following the end of the fiscal year ended December 31,
1996, a stockholder's notice shall be timely if delivered to, or mailed to and
received by, the Corporation at its principal executive office not later than
the close of business on the 15th day following the day on which the Public
Announcement of the date of such annual meeting is first made by the
Corporation. For all subsequent annual meetings, a stockholder's notice shall
be timely if delivered to, or mailed to and received by, the Corporation at
its principal executive office not later than 90 days prior to the anniversary
date of the immediately preceding annual meeting (the "Anniversary Date");
provided, however, that in the event the annual meeting is scheduled to be
held on a date more than 30 days before the Anniversary Date or more than 60
days after the Anniversary Date, a stockholder's notice shall be timely if
delivered to, or mailed to and received by, the Corporation at its principal
executive office not later than the close of business on the later of (1) the
90th day prior to the scheduled date of such annual meeting or (2) the 15th
day following the day on which Public Announcement of the date of such annual
meeting is first made by the Corporation.
A stockholder's notice to the Secretary of the Corporation shall set forth
as to each matter proposed to be brought before an annual meeting: (i) a brief
description of the business the stockholder desires to bring before such
annual meeting and the reasons for conducting such business at such annual
meeting, (ii) the name and address, as they appear on the stock transfer books
of the Corporation, of the stockholder proposing such
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business, (iii) the class and number of shares of the capital stock of the
Corporation beneficially owned by the stockholder proposing such business,
(iv) the names and addresses of the beneficial owners, if any, of any capital
stock of the Corporation registered in such stockholder's name on such books,
and the class and number of shares of the capital stock of the Corporation
beneficially owned by such beneficial owners, (v) the names and addresses of
other stockholders known by the stockholder proposing such business to support
such proposal, and the class and number of shares of the capital stock of the
Corporation beneficially owned by such other stockholders and (vi) any
material interest of the stockholder proposing to bring such business before
such meeting (or any other stockholders known to be supporting such proposal)
in such proposal.
If the Board of Directors or a designated committee thereof determines that
any stockholder proposal was not made in a timely fashion in accordance with
the provisions of this Section 2.9 or that the information provided in a
stockholder's notice does not satisfy the information requirements of this
Section 2.9 in any material respect, such proposal shall not be presented for
action at the annual meeting in question. If neither the Board of Directors
nor such committee makes a determination as to the validity of any stockholder
proposal in the manner set forth above, the presiding officer of the annual
meeting shall determine whether the stockholder proposal was made in
accordance with the terms of this Section 2.9. If the presiding officer
determines that any stockholder proposal was not made in a timely fashion in
accordance with the provisions of this Section 2.9 or that the information
provided in a stockholder's notice does not satisfy the information
requirements of this Section 2.9 in any material respect, such proposal shall
not be presented for action at the annual meeting in question. If the Board of
Directors, a designated committee thereof or the presiding officer determines
that a stockholder proposal was made in accordance with the requirements of
this Section 2.9, the presiding officer shall so declare at the annual meeting
and ballots shall be provided for use at the meeting with respect to such
proposal.
Notwithstanding the foregoing provisions of this Section 2.9, a stockholder
shall also comply with all applicable requirements of the Securities Exchange
Act of 1934, as amended (the "Exchange Act"), and the rules and regulations
thereunder with respect to the matters set forth in this Section 2.9, and
nothing in this Section 2.9 shall be deemed to affect any rights of
stockholders to request inclusion of proposals in the Corporation's proxy
statement pursuant to Rule 14a-8 under the Exchange Act.
2.10 Inspectors of Elections. The Corporation shall, in advance of any
meeting of stockholders, appoint one or more inspectors to act at the meeting
and make a written report thereof. The Corporation may designate one or more
persons as alternate inspectors to replace any inspector who fails to act. If
no inspector or alternate is able to act at a meeting of stockholders, the
presiding officer shall appoint one or more inspectors to act at the meeting.
Any inspector may, but need not, be an officer, employee or agent of the
Corporation. Each inspector, before entering upon the discharge of his or her
duties, shall take and sign an oath faithfully to execute the duties of
inspector with strict impartiality and according to the best of his or her
ability. The inspectors shall perform such duties as are required by the DGCL,
including the counting of all votes and ballots. The inspectors may appoint or
retain other persons or entities to assist the inspectors in the performance
of the duties of the inspectors. The presiding officer may review all
determinations made by the inspectors, and in so doing the presiding officer
shall be entitled to exercise his or her sole judgment and discretion and he
or she shall not be bound by any determinations made by the inspectors. All
determinations by the inspectors and, if applicable, the presiding officer,
shall be subject to further review by any court of competent jurisdiction.
2.11 Presiding Officer. The Chairman of the Board, if one is elected, or if
not elected or in his or her absence, the President, shall preside at all
annual meetings or special meetings of stockholders and shall have the power,
among other things, to adjourn such meeting at any time and from time to time,
subject to Sections 2.4 and 2.5 of this Article II. The order of business and
all other matters of procedure at any meeting of the stockholders shall be
determined by the presiding officer.
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ARTICLE III.
DIRECTORS
3.1 General Powers. The property, affairs and business of the Corporation
shall be managed under the direction of the Board of Directors and, except as
otherwise expressly provided by law, the Certificate or these Bylaws, all of
the powers of the Corporation shall be vested in such Board.
3.2 Number of Directors. The number of directors shall be fixed by
resolution duly adopted from time to time by the Board of Directors.
3.3 Election and Removal of Directors; Quorum.
(a) Directors shall be elected and removed in the manner provided for in
Article V of the Certificate.
(b) Vacancies in the Board of Directors shall be filled in the manner
provided for in Article V of the Certificate.
(c) At any meeting of the Board of Directors, a majority of the number of
directors then in office shall constitute a quorum for the transaction of
business. However, if less than a quorum is present at a meeting, a
majority of the directors present may adjourn the meeting from time to
time, and the meeting may be held as adjourned without further notice,
except that when any meeting of the Board of Directors, either regular of
special, is adjourned for 30 days or more, notice of the adjourned meeting
shall be given as in the case of the original meeting.
3.4 Meetings of Directors. Meetings of the Board of Directors shall be held
at places within or without the State of Delaware and at times fixed by
resolution of the Board of Directors, or upon call of the Chairman of the
Board, and the Secretary of the Corporation or officer performing the
Secretary's duties shall give not less than 24 hours' notice by letter,
facsimile, telegraph or telephone (or in person) of all meetings of the Board
of Directors, provided that notice need not be given of the annual meeting or
of regular meetings held at times and places fixed by resolution of the Board
of Directors. Meetings may be held at any time without notice if all of the
directors are present, or if those not present waive notice in writing either
before or after the meeting; provided, however, that attendance at a meeting
for the express purpose of objecting at the beginning of a meeting to the
transaction of any business because the meeting is not lawfully convened shall
not be considered a waiver of notice.
3.5 Nominations. Nominations of candidates for election as directors of the
Corporation at any annual meeting may be made only (a) by, or at the direction
of, a majority of the Board of Directors or (b) by any holder of record (both
as of the time notice of such nomination is given by the stockholder as set
forth below and as of the record date for the annual meeting in question) of
any shares of the capital stock of the Corporation entitled to vote at such
annual meeting who complies with the timing, informational and other
requirements set forth in this Section 3.5. Any stockholder who has complied
with the timing, informational and other requirements set forth in this
Section 3.5 and who seeks to make such a nomination must be, or his, her or
its representative must be, present in person at the annual meeting. Only
persons nominated in accordance with the procedures set forth in this Section
3.5 shall be eligible for election as directors at an annual meeting.
Nominations, other than those made by, or at the direction of, the Board of
Directors shall be made pursuant to timely notice in writing to the Secretary
of the Corporation as set forth in this Section 3.5. For the first annual
meeting following the end of the fiscal year ended December 31, 1996, a
stockholder's notice shall be timely if delivered to, or mailed to and
received by, the Corporation at its principal executive office not later than
the close of business on the 15th day following the day on which the Public
Announcement of the date of such annual meeting is first made by the
Corporation. For all subsequent annual meetings, a stockholder's notice shall
be timely if delivered to, or mailed to and received by, the Corporation at
its principal executive office not less than 90 days prior to the Anniversary
Date; provided, however, that in the event the annual meeting is scheduled to
be held on a date more than 30 days before the Anniversary Date or more than
60 days after the Anniversary
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Date, a stockholder's notice shall be timely if delivered to, or mailed and
received by, the Corporation at its principal executive office not later than
the close of business on the later of (x) the 90th day prior to the scheduled
date of such annual meeting or (y) the 15th day following the day on which
Public Announcement of the date of such annual meeting is first made by the
Corporation.
A stockholder's notice to the Secretary of the Corporation shall set forth
as to each person whom the stockholder proposes to nominate for election or
re-election as a director: (1) the name, age, business address and residence
address of such person; (2) the principal occupation or employment of such
person; (3) the class and number of shares of the capital stock of the
Corporation which are beneficially owned by such person on the date of such
stockholder notice; and (4) the consent of each nominee to serve as a director
if elected. A stockholder's notice to the Secretary of the Corporation shall
further set forth as to the stockholder giving such notice: (a) the name and
address, as they appear on the stock transfer books of the Corporation, of
such stockholder and of the beneficial owners (if any) of the capital stock of
the Corporation registered in such stockholder's name and the name and address
of other stockholders known by such stockholder to be supporting such
nominee(s); (b) the class and number of shares of the capital stock of the
Corporation which are held of record, beneficially owned or represented by
proxy by such stockholder and by any other stockholders known by such
stockholder to be supporting such nominee(s) on the record date for the annual
meeting in question (if such date shall then have been made publicly
available) and on the date of such stockholder's notice; and (c) a description
of all arrangements or understandings between such stockholder and each
nominee and any other person or persons (naming such person or persons)
pursuant to which the nomination or nominations are to be made by such
stockholder.
If the Board of Directors or a designated committee thereof determines that
any stockholder nomination was not made in accordance with the terms of this
Section 3.5 or that the information provided in a stockholder's notice does
not satisfy the informational requirements of this Section 3.5 in any material
respect, then such nomination shall not be considered at the annual meeting in
question. If neither the Board of Directors nor such committee makes a
determination as to whether a nomination was made in accordance with the
provisions of this Section 3.5, the presiding officer of the annual meeting
shall determine whether a nomination was made in accordance with such
provisions. If the presiding officer determines that any stockholder
nomination was not made in accordance with the terms of this Section 3.5 or
that the information provided in a stockholder's notice does not satisfy the
informational requirements of this Section 3.5 in any material respect, then
such nomination shall not be considered at the annual meeting in question. If
the Board of Directors, a designated committee thereof or the presiding
officer determines that a nomination was made in accordance with the terms of
this Section 3.5, the presiding officer shall so declare at the annual meeting
and ballots shall be provided for use at the meeting with respect to such
nominee.
Notwithstanding anything to the contrary in the second paragraph of this
Section 3.5, in the event that the number of directors to be elected to the
Board of Directors is increased and there is no Public Announcement by the
Corporation naming all of the nominees for director or specifying the size of
the increased Board of Directors at least 90 days prior to the Anniversary
Date, a stockholder's notice required by this Section 3.5 shall also be
considered timely, but only with respect to nominees for any new positions
created by such increase, if such notice shall be delivered to, or mailed to
and received by, the Corporation at its principal executive office not later
than the close of business on the 15th day following the day on which such
Public Announcement is first made by the Corporation.
No person shall be elected by the stockholders as a director of the
Corporation unless nominated in accordance with the procedures set forth in
this Section 3.5. Election of directors at an annual meeting need not be by
written ballot, unless otherwise provided by the Board of Directors or
presiding officer at such annual meeting. If written ballots are to be used,
ballots bearing the names of all the persons who have been nominated for
election as directors at the annual meeting in accordance with the procedures
set forth in this Section 3.5 shall be provided for use at the annual meeting.
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3.6 Voting.
(a) Except as provided in subsection (c) of this Section 3.6, the action
of the majority of the directors present at a meeting at which a quorum is
present shall be the action of the Board of Directors, unless a larger vote
is required for such action by the Certificate, these Bylaws or by law.
(b) Any action required or permitted to be taken at any meeting of the
Board of Directors may be taken without a meeting if all members of the
Board of Directors consent thereto in writing. Such written consent shall
be filed with the records of the meetings of the Board of Directors and
shall be treated for all purposes as a vote at a meeting of the Board of
Directors.
(c) Notwithstanding anything in these Bylaws to the contrary, (i) any
action pertaining to a sale or other disposition of any of the following
hotels: (1) Radisson New Orleans; (2) Bourbon Orleans; (3) North Dallas
Holiday Inn; and (4) San Angelo Holiday Inn and (ii) any other action
pertaining to any transaction involving the Corporation, including the
purchase, sale, lease, or mortgage of any real estate asset, entering into
joint venture investments or any other transaction, in which an advisor,
director or officer of the Corporation, or any Affiliate of any of the
foregoing persons, has any direct or indirect interest other than solely as
a result of their status as a director, officer, or stockholder of the
Corporation, must be approved by a majority of the directors, including a
majority of the Independent Directors, even if the Independent Directors
constitute less than a quorum.
3.7 Manner of Participation. Directors may participate in meetings of the
Board of Directors by means of conference telephone or similar communications
equipment by means of which all directors participating in the meeting can
hear each other, and participation in a meeting in accordance herewith shall
constitute presence in person at such meeting for purposes of these Bylaws.
3.8 Compensation. By resolution of the Board of Directors, directors may be
allowed a fee and expenses for attendance at all meetings, but nothing herein
shall preclude directors from serving the Corporation in other capacities and
receiving compensation for such other services.
ARTICLE IV.
COMMITTEES
4.1 Executive Committee. The Board of Directors, by resolution duly adopted,
may elect an Executive Committee which shall consist of not less than two
directors, including the Chairman of the Board. The members of the Executive
Committee shall serve until their successors are designated by the Board of
Directors, until removed, or until the Executive Committee is dissolved by the
Board of Directors. All vacancies that may occur in the Executive Committee
shall be filled by the Board of Directors.
When the Board of Directors is not in session, the Executive Committee shall
have all power vested in the Board of Directors by law, by the Certificate, or
by these Bylaws, except as otherwise provided in the DGCL. The Executive
Committee shall report at the next regular or special meeting of the Board of
Directors all action that the Executive Committee may have taken on behalf of
the Board of Directors since the last regular or special meeting of the Board
of Directors.
Meetings of the Executive Committee shall be held at such places and at such
times fixed by resolution of the Executive Committee, or upon call of the
Chairman of the Board. Not less than 12 hours' notice shall be given by
letter, facsimile, telegraph or telephone (or in person) of all meetings of
the Executive Committee; provided, however, that notice need not be given of
regular meetings held at times and places fixed by resolution of the Executive
Committee and that meetings may be held at any time without notice if all of
the members of the Executive Committee are present or if those not present
waive notice in writing either before or after the meeting; provided, further,
that attendance at a meeting for the express purpose of objecting at the
beginning of a meeting to the transaction of any business because the meeting
is not lawfully convened shall not be considered a waiver of notice. A
majority of the members of the Executive Committee then serving shall
constitute a quorum for the transaction of business at any meeting of the
Executive Committee.
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4.2 Compensation Committee. The Board of Directors, at its regular annual
meeting, shall designate a Compensation Committee which shall consist of two
or more non-employee directors. In addition, the Board of Directors at any
time may designate one or more alternate members of the Compensation
Committee, who shall be non-employee directors, who may act in place of any
absent regular member upon invitation by the chairman or secretary of the
Compensation Committee.
With respect to bonuses, the Compensation Committee shall have and may
exercise the powers to determine the amounts annually available for bonuses
pursuant to any bonus plan or formula approved by the Board of Directors, to
determine bonus awards to executive officers and to exercise such further
powers with respect to bonuses as may from time to time be conferred by the
Board of Directors.
With respect to salaries, the Compensation Committee shall have and may
exercise the power to fix and determine from time to time all salaries of the
executive officers of the Corporation, and such further powers with respect to
salaries as may from time to time be conferred by the Board of Directors.
The Compensation Committee shall administer the Corporation's stock
incentive plans and from time to time may grant, consistent with the plans,
stock options and other awards permissible under such plans.
Vacancies in the Compensation Committee shall be filled by the Board of
Directors, and members of the Compensation Committee shall be subject to
removal by the Board of Directors at any time.
The Compensation Committee shall fix its own rules of procedure. A majority
of the number of regular members then serving on the Compensation Committee
shall constitute a quorum; and regular and alternate members present shall be
counted to determine whether there is a quorum. The Compensation Committee
shall keep minutes of its meetings, and all action taken by it shall be
reported to the Board of Directors.
4.3 Audit Committee. The Board of Directors, at its regular annual meeting,
shall designate an Audit Committee which shall consist of two or more
directors whose membership on the Audit Committee shall meet the requirements
set forth in the rules of the New York Stock Exchange, as amended from time to
time. Vacancies in the Audit Committee shall be filled by the Board of
Directors with directors meeting the requirements set forth above, giving
consideration to continuity of the Audit Committee, and members shall be
subject to removal by the Board of Directors at any time. The Audit Committee
shall fix its own rules of procedure and a majority of the members serving
shall constitute a quorum. The Audit Committee shall meet at least twice per
year with both the internal and the Corporation's outside auditors present at
each meeting and shall keep minutes of its meetings and all action taken shall
be reported to the Board of Directors. The Audit Committee shall review the
reports and minutes of any audit committees of the Corporation's subsidiaries.
The Audit Committee shall review the Corporation's financial reporting
process, including accounting policies and procedures. The Audit Committee
shall examine the report of the Corporation's outside auditors, consult with
them with respect to their report and the standards and procedures employed by
them in their audit, report to the Board of Directors the results of its study
and recommend the selection of auditors for each fiscal year.
4.4 Nominating Committee. The Board of Directors, by resolution duly
adopted, shall designate a Nominating Committee which shall consist of three
or more directors. The Nominating Committee shall make recommendations to the
Board of Directors regarding nominees for election as directors by the
stockholders at each annual meeting of stockholders and make such other
recommendations regarding tenure, classification and compensation of directors
as the Nominating Committee may deem advisable from time to time. The
Nominating Committee shall fix its own rules of procedure and a majority of
the members then serving shall constitute a quorum.
4.5 Other Committees. The Board of Directors, by resolution adopted, may
establish such other standing or special committees of the Board of Directors
as it may deem advisable, and the members, terms and authority of such
committees shall be as set forth in the resolutions establishing the same.
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ARTICLE V.
OFFICERS
5.1 Election of Officers; Terms. The officers of the Corporation shall be
elected by the Board of Directors and shall include a Chairman of the Board, a
President, one or more Vice Presidents, a Secretary and a Treasurer or Chief
Financial Officer. Other officers, including Executive Vice Presidents and
Senior Vice Presidents, may be specified by the Board of Directors, and
assistant and subordinate officers, may from time to time be elected by the
Board of Directors. All officers shall hold office until the next annual
meeting of the Board of Directors and until their successors are duly elected
and qualified. The Chairman of the Board shall be chosen from among the
directors. Any two officers may be combined in the same person as the Board of
Directors may determine.
5.2 Removal of Officers; Vacancies. Any officer of the Corporation may be
removed with or without cause, at any time, by the Board of Directors.
Vacancies shall be filled by the Board of Directors.
5.3 Duties. The officers of the Corporation shall have such duties as
generally pertain to their offices, respectively, as well as such powers and
duties as are prescribed by law or are hereinafter provided or as from time to
time shall be conferred by the Board of Directors. The Board of Directors may
require any officer to give such bond for the faithful performance of his or
her other duties as the Board of Directors may see fit.
5.4 Duties of the Chairman of the Board. The Chairman of the Board shall be
the Chief Executive Officer of the Corporation and shall be responsible for
the execution of the policies of the Board of Directors, shall serve as the
Chairman of the Executive Committee and shall have direct supervision over the
business of the Corporation and its several officers, subject to the ultimate
authority of the Board of Directors. He or she shall be a director, and,
except as otherwise provided in these Bylaws or in the resolutions
establishing such committees, he or she shall be ex officio a member of all
committees of the Board of Directors. He or she shall preside at all meetings
of stockholders, the Board of Directors and the Executive Committee. He or she
may sign and execute in the name of the Corporation share certificates, deeds,
mortgages, bonds, contracts or other instruments except in cases where the
signing and the execution thereof shall be expressly delegated by the Board of
Directors or by these Bylaws to some other officer or agent of the Corporation
or shall be required by law otherwise to be signed or executed. In addition,
he or she shall perform all duties incident to the office of the Chairman of
the Board and Chief Executive Officer and such other duties as from time to
time may be assigned to him or her by the Board of Directors.
5.5 Duties of the President. Unless the Board of Directors, by resolution
duly adopted, designates some other person to serve as the Chief Operating
Officer of the Corporation, the President shall serve as Chief Operating
Officer and shall have direct supervision over the business of the Corporation
and its several officers, subject to the authority of the Board of Directors
and the Chairman of the Board, and shall consult with and report to the
aforementioned officer. The President may sign and execute in the name of the
Corporation deeds, mortgages, bonds, contracts or other instruments, except in
cases where the signing and the execution thereof shall be expressly delegated
by the Board of Directors or by these Bylaws to some other officer or agent of
the Corporation or shall be required by law otherwise to be signed or
executed. In addition, he or she shall perform all duties incident to the
office of the President and such other duties as from time to time may be
assigned to him or her by the Board of Directors or the Chairman of the Board.
5.6 Duties of the Vice Presidents. Each Vice President, if any, shall have
such powers and duties as may from time to time be assigned to him or her by
the Chairman of the Board or the Board of Directors. When there shall be more
than one Vice President of the Corporation, the Board of Directors may from
time to time designate one of them to perform the duties of the President in
the absence of the President. Any Vice President may sign and execute in the
name of the Corporation deeds, mortgages, bonds, contracts or other
instruments authorized by the Board of Directors, except where the signing and
execution of such documents shall be expressly delegated by the Board of
Directors or the Chairman of the Board to some other officer or agent of the
Corporation or shall be required by law or otherwise to be signed or executed.
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5.7 Duties of the Treasurer or Chief Financial Officer. The Treasurer or
Chief Financial Officer shall have charge and custody of and be responsible
for all funds and securities of the Corporation, and shall cause all such
funds and securities to be deposited in such banks and depositories as shall
be designated by the Board of Directors. He or she shall be responsible (i)
for maintaining adequate financial accounts and records in accordance with
generally accepted accounting practices, (ii) for the preparation of
appropriate operating budgets and financial statements, (iii) for the
preparation and filing of all tax returns required by law and (iv) for the
performance of all duties incident to the office of Treasurer or Chief
Financial Officer and such other duties as from time to time may be assigned
to him or her by the Board of Directors, the Audit Committee or the Chairman
of the Board. The Treasurer or Chief Financial Officer may sign and execute in
the name of the Corporation share certificates, deeds, mortgages, bonds,
contracts or other instruments, except where the signing and execution of such
documents shall be expressly delegated by the Board of Directors or the
Chairman of the Board to some other officer or agent of the Corporation or
shall be required by law or otherwise to be signed or executed.
5.8 Duties of the Secretary. The Secretary shall act as secretary of all
meetings of the Board of Directors, all committees of the Board of Directors
and stockholders of the Corporation. He or she shall (i) keep and preserve the
minutes of all such meetings in permanent books, (ii) ensure that all notices
required to be given by the Corporation are duly given and served, (iii) have
custody of the seal of the Corporation and shall affix the seal or cause it to
be affixed to all share certificates of the Corporation and to all documents
the execution of which on behalf of the Corporation under its corporate seal
is duly authorized in accordance with law or the provisions of these Bylaws,
(iv) have custody of all deeds, leases, contracts and other important
corporate documents, (v) have charge of the books, records and papers of the
Corporation relating to its organization and management as a Corporation, (vi)
see that all reports, statements and other documents required by law (except
tax returns) are properly filed and (vii) in general, perform all the duties
incident to the office of Secretary and such other duties as from time to time
may be assigned to him or her by the Board of Directors or the Chairman of the
Board.
ARTICLE VI.
CAPITAL STOCK
6.1 Certificates. Each stockholder shall be entitled to a certificate of the
capital stock of the Corporation in such form as may from time to time be
prescribed by the Board of Directors. Such certificate shall be signed by the
Chairman of the Board, the President or a Vice President and by the Treasurer
or an Assistant Treasurer, or the Secretary or an Assistant Secretary. The
Corporation seal and the signatures by the Corporation's officers, the
transfer agent or the registrar may be facsimiles. In case any officer,
transfer agent or registrar who has signed or whose facsimile signature has
been placed on such certificate shall have ceased to be such officer, transfer
agent or registrar before such certificate is issued, the certificate may be
issued by the Corporation with the same effect as if he or she were such
officer, transfer agent or registrar at the time of its issue. Every
certificate for shares of stock which are subject to a restriction on transfer
(as provided in Article IV of the Certificate) and every certificate issued
when the Corporation is authorized to issue more than one class or series of
stock shall contain such legend (as provided in Article IV of the Certificate)
with respect thereto as is required by law.
6.2 Pairing. Until the limitation on transfer provided for in the Pairing
Agreement, dated as of February 17, 1983, by and between Bay Meadows Realty
Enterprises, Inc. (the predecessor of California Jockey Club) and Bay Meadows
Operating Company (the "Pairing Agreement"), as amended from time to time in
accordance with the provisions thereof, shall be terminated:
(a) The shares of Equity Stock of the Corporation that are paired
pursuant to the Pairing Agreement shall not be transferable, and shall not
be transferred on the stock transfer books of the Corporation, unless (i) a
simultaneous transfer is made by the same transferor to the same transferee
or (ii) arrangements have been made with the Operating Company for the
acquisition by the transferee, of a like number of shares of the same class
or series of Equity Stock of the Operating Company and such shares are
paired with one another.
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(b) Each certificate evidencing ownership of shares of Equity Stock of
the Corporation that are paired pursuant to the Pairing Agreement and
issued and not canceled prior to the Effective Time of the Restriction
shall be deemed to evidence a like number of shares of the same class or
series of Equity Stock of the Operating Company.
(c) A legend shall be placed on the face of each certificate evidencing
ownership of shares of Equity Stock of the Corporation that are paired
pursuant to the Pairing Agreement referring to the restrictions on transfer
set forth herein.
(d) Notwithstanding the foregoing, the Corporation may issue or transfer
shares of its Equity Stock to the Operating Company without regard to the
restrictions of this Section 6.2.
(e) To the extent that a paired share of Equity Stock of the Corporation
is converted into a share of excess stock, par value $.01 per share (the
"Excess Stock"), of the Corporation in accordance with the provisions of
Article IV of the Certificate, such share of Excess Stock of the
Corporation, together with the corresponding share of Excess Stock of the
Operating Company, which has been converted from a share of Equity Stock of
the Operating Company in accordance with Article IV of the Certificate and
the Pairing Agreement, shall be automatically transferred to a trust
established by the Corporation and the Operating Company for such purpose
in accordance with Article IV of the Certificate.
6.3 Lost, Destroyed and Mutilated Certificates. Holders of the shares of the
Corporation shall immediately notify the Corporation of any loss, destruction
or mutilation of the certificate therefor, and the Board of Directors may in
its discretion cause one or more new certificates for the same number of
shares in the aggregate to be issued to such stockholder upon the surrender of
the mutilated certificate or upon satisfactory proof of such loss or
destruction, and the deposit of a bond in such form and amount and with such
surety as the Board of Directors may require.
6.4 Transfer of Stock. Subject to the restrictions on transfer of stock
described in Section 6.2 of these Bylaws and Article IV of the Certificate,
the stock of the Corporation shall be transferable or assignable only on the
stock transfer books of the Corporation by the holder in person or by attorney
on surrender of the certificate for such shares duly endorsed and, if sought
to be transferred by attorney, accompanied by a written power of attorney to
have the same transferred on the stock transfer books of the Corporation. The
Corporation will recognize, however, the exclusive right of the person
registered on its stock transfer books as the owner of shares to receive
dividends and to vote as such owner.
6.5 Fixing Record Date. For the purpose of determining stockholders entitled
to notice of or to vote at any meeting of stockholders or any adjournment
thereof, or entitled to receive payment of any dividend, or to make a
determination of stockholders for any other proper purpose, the Board of
Directors may fix in advance a date as the record date for any such
determination of stockholders, such date in any case to be not less than 10
nor more than 60 days prior to the date on which the particular action
requiring such determination of stockholders, is to be taken. If no record
date is fixed for the determination of stockholders entitled to notice of or
to vote at a meeting of stockholders, or stockholders entitled to receive
payment of a dividend, the date on which notices of the meeting are mailed or
the date on which the resolution of the Board of Directors declaring such
dividend is adopted, as the case may be, shall be the record date for such
determination of stockholders. When a determination of stockholders entitled
to notice of or to vote at any meeting of stockholders has been made as
provided in this section, such determination shall apply to any adjournment
thereof.
ARTICLE VII.
INDEMNIFICATION
7.1 Definitions. For purposes of this Article VII:
(a) "Corporate Status" describes the status of a person who (i) in the
case of a Director, is or was a director of the Corporation and is or was
acting in such capacity, (ii) in the case of an Officer, is or was an
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officer, employee or agent of the Corporation or is or was a director,
officer, employee or agent of any other corporation, partnership, joint
venture, trust, employee benefit plan or other enterprise that such Officer
is or was serving at the request of the Corporation and (iii) in the case
of a Non-Officer Employee, is or was an employee of the Corporation or is
or was a director, officer, employee or agent of any other corporation,
partnership, joint venture, trust, employee benefit plan or other
enterprise that such Non-Officer Employee is or was serving at the request
of the Corporation;
(b) "Director" means any person who serves or has served the Corporation
as a director on the Board of Directors;
(c) "Disinterested Director" means, with respect to each Proceeding in
respect of which indemnification is sought hereunder, a Director of the
Corporation who is not and was not a party to such Proceeding;
(d) "Expenses" means all reasonable attorneys' fees, retainers, court
costs, transcript costs, fees of expert witnesses, private investigators
and professional advisors (including, without limitation, accountants and
investment bankers), travel expenses, duplicating costs, printing and
binding costs, costs of preparation of demonstrative evidence and other
courtroom presentation aids and devices, costs incurred in connection with
document review, organization, imaging and computerization, telephone
charges, postage, delivery service fees, and all other disbursements, costs
or expenses of the type customarily incurred in connection with
prosecuting, defending, preparing to prosecute or defend, investigating,
being or preparing to be a witness in, settling or otherwise participating
in, a Proceeding;
(e) "Non-Officer Employee" means any person who serves or has served as
an employee of the Corporation, but who is not or was not a Director or
Officer;
(f) "Officer" means any person who serves or has served the Corporation
as an officer appointed by the Board of Directors; and
(g) "Proceeding" means any threatened, pending or completed action, suit,
arbitration, alternate dispute resolution mechanism, inquiry,
investigation, administrative hearing or other proceeding, whether civil,
criminal, administrative, arbitrative or investigative.
7.2 Indemnification of Directors and Officers. Subject to the operation of
Section 7.4 of these Bylaws, each Director and Officer shall be indemnified
and held harmless by the Corporation to the fullest extent authorized by the
DGCL, as the same exists or may hereafter be amended (but, in the case of any
such amendment, only to the extent that such amendment permits the Corporation
to provide broader indemnification rights than such law permitted the
Corporation to provide prior to such amendment) against any and all Expenses,
judgments, penalties, fines and amounts reasonably paid in settlement that are
incurred by such Director or Officer or on such Director's or Officer's behalf
in connection with any threatened, pending or completed Proceeding or any
claim, issue or matter therein, which such Director or Officer is, or is
threatened to be made, a party to or participant in by reason of such
Director's or Officer's Corporate Status, if such Director or Officer acted in
good faith and in a manner such Director or Officer reasonably believed to be
in or not opposed to the best interests of the Corporation and, with respect
to any criminal proceeding, had no reasonable cause to believe his or her
conduct was unlawful. The rights of indemnification provided by this Section
7.2 shall exist as to a Director or Officer after he or she has ceased to be a
Director or Officer and shall inure to the benefit of his or her heirs,
executors, administrators and personal representatives. Notwithstanding the
foregoing, the Corporation shall indemnify any Director or Officer seeking
indemnification in connection with a Proceeding initiated by such Director or
Officer only if such Proceeding was authorized by the Board of Directors.
7.3 Indemnification of Non-Officer Employees. Subject to the operation of
Section 7.4 of these Bylaws, each Non-Officer Employee may, in the discretion
of the Board of Directors, be indemnified by the Corporation to the fullest
extent authorized by the DGCL, as the same exists or may hereafter be amended
(but, in the case of any such amendment, only to the extent that such
amendment permits the Corporation to provide broader indemnification rights
than such law permitted the Corporation to provide prior to such amendment),
against any
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and all Expenses, judgments, penalties, fines and amounts reasonably paid in
settlement that are incurred by such Non-Officer Employee or on such Non-
Officer Employee's behalf in connection with any threatened, pending or
completed Proceeding, or any claim, issue or matter therein, which such Non-
Officer Employee is, or is threatened to be made, a party to or participant in
by reason of such Non-Officer Employee's Corporate Status, if such Non-Officer
Employee acted in good faith and in a manner such Non-Officer Employee
reasonably believed to be in or not opposed to the best interests of the
Corporation and, with respect to any criminal proceeding, had no reasonable
cause to believe his or her conduct was unlawful. The rights of
indemnification provided by this Section 7.3 shall exist as to a Non-Officer
Employee after he or she has ceased to be a Non-Officer Employee and shall
inure to the benefit of his or her heirs, personal representatives, executors
and administrators. Notwithstanding the foregoing, the Corporation may
indemnify any Non-Officer Employee seeking indemnification in connection with
a Proceeding initiated by such Non-Officer Employee only if such Proceeding
was authorized by the Board of Directors.
7.4 Good Faith. Unless ordered by a court, no indemnification shall be
provided pursuant to this Article VII to a Director, to an Officer or to a
Non-Officer Employee unless a determination shall have been made that such
person acted in good faith and in a manner such person reasonably believed to
be in or not opposed to the best interests of the Corporation and, with
respect to any criminal Proceeding, such person had no reasonable cause to
believe his or her conduct was unlawful. Such determination shall be made by
(a) a majority vote of the Disinterested Directors, even though less than a
quorum of the Board of Directors, (b) if there are no such Disinterested
Directors, or if a majority of Disinterested Directors so direct, by
independent legal counsel in a written opinion or (c) by the stockholders of
the Corporation.
7.5 Advancement of Expenses to Directors Prior to Final Disposition. The
Corporation shall advance all Expenses incurred by or on behalf of any
Director in connection with any Proceeding in which such Director is involved
by reason of such Director's Corporate Status within 10 days after the receipt
by the Corporation of a written statement from such Director requesting such
advance or advances from time to time, whether prior to or after final
disposition of such Proceeding. Such statement or statements shall reasonably
evidence the Expenses incurred by such Director and shall be preceded or
accompanied by an undertaking by or on behalf of such Director to repay any
Expenses so advanced if it shall ultimately be determined that such Director
is not entitled to be indemnified against such Expenses.
7.6 Advancement of Expenses to Officers and Non-Officer Employees Prior to
Final Disposition. The Corporation may, in the discretion of the Board of
Directors, advance any or all Expenses incurred by or on behalf of any Officer
or Non-Officer Employee in connection with any Proceeding in which such
Officer or Non-Officer Employee is involved by reason of such Officer or Non-
Officer Employee's Corporate Status upon the receipt by the Corporation of a
statement or statements from such Officer or Non-Officer Employee requesting
such advance or advances from time to time, whether prior to or after final
disposition of such Proceeding. Such statement or statements shall reasonably
evidence the Expenses incurred by such Officer or Non-Officer Employee and
shall be preceded or accompanied by an undertaking by or on behalf of such
Officer or Non-Officer Employee to repay any Expenses so advanced if it shall
ultimately be determined that such Officer or Non-Officer Employee is not
entitled to be indemnified against such Expenses.
7.7 Contractual Nature of Rights. The foregoing provisions of this Article
VII shall be deemed to be a contract between the Corporation and each Director
and Officer entitled to the benefits hereof at any time while this Article VII
is in effect, and any repeal or modification thereof shall not affect any
rights or obligations then existing with respect to any state of facts then or
theretofore existing or any Proceeding theretofore or thereafter brought based
in whole or in part upon any such state of facts. If a claim for
indemnification or advancement of Expenses hereunder by a Director or Officer
is not paid in full by the Corporation within (a) 60 days after the receipt by
the Corporation of a written claim for indemnification or (b) in the case of a
Director, 10 days after the receipt by the Corporation of documentation of
Expenses and the required undertaking, such Director or Officer may at any
time thereafter bring suit against the Corporation to recover the unpaid
amount of the claim, and if successful in whole or in part, such Director or
Officer shall also be entitled to be paid the expenses of prosecuting such
claim. The failure of the Corporation (including its Board of Directors or any
committee thereof, independent legal counsel, or stockholders) to make a
determination concerning the permissibility of
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such indemnification or, in the case of a Director, advancement of Expenses,
under this Article VII shall not be a defense to the action and shall not
create a presumption that such indemnification or advancement is not
permissible.
7.8 Non-Exclusivity of Rights. The rights to indemnification and advancement
of Expenses set forth in this Article VII shall not be exclusive of any other
right which any Director, Officer or Non-Officer Employee may have or
hereafter acquire under any statute, provision of the Certificate or these
Bylaws, agreement, vote of stockholders or Disinterested Directors or
otherwise.
7.9 Insurance. The Corporation may maintain insurance, at its expense, to
protect itself and any Director, Officer or Non-Officer Employee against any
liability of any character asserted against or incurred by the Corporation or
any such Director, Officer or Non-Officer Employee, or arising out of any such
person's Corporate Status, whether or not the Corporation would have the power
to indemnify such person against such liability under the DGCL or the
provisions of this Article VII.
ARTICLE VIII.
MISCELLANEOUS PROVISIONS
8.1 Seal. The seal of the Corporation shall consist of a flat-faced circular
die, of which there may be any number of counterparts, on which there shall be
engraved the word "Seal" and the name of the Corporation.
8.2 Fiscal Year. The fiscal year of the Corporation shall end on such date
and shall consist of such accounting periods as may be fixed by the Board of
Directors.
8.3 Checks, Notes and Drafts. Checks, notes, drafts and other orders for the
payment of money shall be signed by such persons as the Board of Directors
from time to time may authorize. When the Board of Directors so authorizes,
however, the signature of any such person may be a facsimile.
8.4 Amendment of Bylaws.
(a) Amendment by Directors. Except as provided otherwise by law, these
Bylaws may be amended or repealed by the Board of Directors by the
affirmative vote of a majority of the directors then in office.
(b) Amendment by Stockholders. These Bylaws may be amended or repealed at
any annual meeting of stockholders, or special meeting of stockholders
called for such purpose, by the affirmative vote of at least two-thirds of
the shares present in person or represented by proxy at such meeting and
entitled to vote on such amendment or repeal, voting together as a single
class; provided, however, that if the Board of Directors recommends that
stockholders approve such amendment or repeal at such meeting of
stockholders, such amendment or repeal shall only require the affirmative
vote of a majority of the shares present in person or represented by proxy
at such meeting and entitled to vote on such amendment or repeal, voting
together as a single class.
8.5 Voting of Stock Held. Unless otherwise provided by resolution of the
Board of Directors or of the Executive Committee, if any, the Chairman of the
Board may from time to time appoint an attorney or attorneys or agent or
agents of the Corporation, in the name and on behalf of the Corporation, to
cast the vote that the Corporation may be entitled to cast as a stockholder or
otherwise in any other corporation, any of whose securities may be held by the
Corporation, at meetings of the holders of the shares or other securities of
such other corporation, or to consent in writing to any action by any such
other corporation; and the Chairman of the Board shall instruct the person or
persons so appointed as to the manner of casting such votes or giving such
consent and may execute or cause to be executed on behalf of the Corporation,
and under its corporate seal or
otherwise, such written proxies, consents, waivers or other instruments as may
be necessary or proper in the premises. In lieu of such appointment, the
Chairman of the Board may himself or herself attend any meetings of the
holders of shares or other securities of any such other corporation and there
vote or exercise any or all power of the Corporation as the holder of such
shares or other securities of such other corporation.
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ANNEX D
AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF
PATRIOT AMERICAN HOSPITALITY OPERATING COMPANY
Patriot American Hospitality Operating Company, a corporation organized and
existing under the laws of the State of Delaware (the "Corporation"), hereby
certifies as follows:
1. The name of the Corporation is Patriot American Hospitality Operating
Company. The date of the filing of its original Certificate of Incorporation
with the Secretary of State of the State of Delaware was January 27, 1983 (the
"Original Certificate of Incorporation"). The name under which the Corporation
filed the Original Certificate of Incorporation was Bay Meadows Operating
Company. Pursuant to this Amended and Restated Certificate of Incorporation,
the name of the Corporation is hereby changed to Patriot American Hospitality
Operating Company.
2. This Amended and Restated Certificate of Incorporation (the
"Certificate") amends, restates and integrates the provisions of the Original
Certificate of Incorporation, was duly adopted by the Board of Directors of
the Corporation in accordance with the provisions of Sections 242 and 245 of
the Delaware General Corporation Law, as amended from time to time (the
"DGCL"), and was duly adopted by the stockholders of the Corporation in
accordance with the applicable provisions of Sections 242 and 245 of the DGCL.
3. The text of the Original Certificate of Incorporation, as amended to
date, is hereby amended and restated in its entirety to provide as herein set
forth in full.
I.
NAME
The name of the corporation is Patriot American Hospitality Operating
Company.
II.
PURPOSES
The nature of business or purposes to be conducted or promoted by the
Corporation is to engage in any lawful act for which corporations may be
organized under the DGCL.
III.
REGISTERED OFFICE
The address of the registered office of the Corporation in the State of
Delaware is 1209 Orange Street, in the City of Wilmington, County of New
Castle. The name of its registered agent at such address is The Corporation
Trust Company.
IV.
CAPITAL STOCK
The Corporation shall have the authority to issue 650,000,000 shares of
common stock, par value $.01 per share (the "Common Stock"), 750,000,000
shares of excess stock, par value $.01 per share (the "Excess
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Stock"), and 100,000,000 shares of preferred stock, par value $.01 per share
(the "Preferred Stock"). The rights, preferences, voting powers and the
qualifications, limitations and restrictions of the authorized stock shall be
as follows:
A. Common Stock.
1. Voting Rights. Each share of Common Stock shall be entitled to one
vote on all matters submitted to a vote at any meeting of stockholders.
2. Dividend Rights. Subject to the rights of holders of Preferred Stock
and subject to any other provisions of this Certificate or any amendment
hereto, holders of Common Stock shall be entitled to receive such dividends
and other distributions in cash, stock or property of the Corporation as
may be declared thereon by the Board of Directors from time to time.
3. Action Without a Meeting. Any action required or permitted to be taken
by the stockholders of the Corporation at any annual or special meeting of
stockholders of the Corporation may be taken in lieu of such a meeting only
by an unanimous written consent of the stockholders signed by each
stockholder entitled to vote on the matter.
B. Preferred Stock.
1. The Preferred Stock may be issued from time to time in one or more
series, with such distinctive designations, rights and preferences as shall
be stated and expressed herein or in the resolution or resolutions
providing for the issue of shares of a particular series, and in such
resolution or resolutions providing for the issue of shares of such series,
the Board of Directors is expressly authorized to fix or establish the
basis for determining:
a. The annual or other periodic dividend rate for such series, the
dividend payment dates, the date from which dividends on all shares of
such series issued shall be cumulative, and the extent of participation
rights, if any;
b. The redemption price or prices, if any, for such series and other
terms and conditions on which such series may be retired and redeemed;
c. The obligation, if any, of the Corporation to purchase and retire
or redeem shares of such series as a sinking fund or otherwise, and the
terms and conditions of any such redemption;
d. The designation and maximum number of shares of such series
issuable;
e. The right to vote, if any, with holders of shares of any other
class or series, either generally or as a condition to specified
corporate action;
f. The amount payable upon shares in the event of involuntary
liquidation;
g. The amount payable upon shares in the event of voluntary
liquidation;
h. The rights, if any, of the holders of shares of such series to
convert such shares into other classes of stock of the Corporation, or
to exchange such shares for other securities or assets, and the terms
and conditions of any such conversion or exchange; and
i. Such other rights as may be specified by the Board of Directors
and not prohibited by law.
All shares of Preferred Stock of any one series shall be identical with
each other in all respects except, if so determined by the Board of
Directors, as to the dates from which dividends thereon shall be
cumulative; and all shares of Preferred Stock shall be of equal rank with
each other, regardless of series, and shall be identical with each other in
all respects except as provided herein or in the resolution or resolutions
providing for the issue of a particular series. In case dividends on all
shares of Preferred Stock for any regular dividend period are not paid in
full, all such shares shall participate ratably in any partial payment of
dividends for such period in proportion to the full amounts of dividends
for such period to which they are respectively entitled.
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C. Restrictions on Ownership and Transfer of Equity Stock.
1. Definitions. For purposes of this Article IV, the following terms
shall have the meanings set forth below:
"Beneficial Ownership" shall mean, with respect to any Person, ownership
of shares of Equity Stock equal to the sum of (i) the shares of Equity
Stock directly or indirectly owned by such Person, (ii) the number of
shares of Equity Stock treated as owned directly or indirectly by such
Person through the application of the constructive ownership rules of
Section 544 of the Internal Revenue Code of 1986, as amended (the "Code"),
as modified by Section 856(h)(1)(B) of the Code, and (iii) the number of
shares of Equity Stock which such Person is deemed to beneficially own
pursuant to Rule 13d-3 under the Securities Exchange Act of 1934, as
amended (the "Exchange Act"). The terms "Beneficial Owner," "Beneficially
Owns" and "Beneficially Owned" shall have correlative meanings.
"Beneficiary" shall mean, with respect to any Trust, one or more
organizations described in each of Section 170(b)(1)(A) (other than clauses
(vii) and (viii) thereof) and Section 170(c)(2) of the Code that are named
by the Corporation as the beneficiary or beneficiaries of such Trust, in
accordance with the provisions of Section (D)(4) of this Article IV.
"Constructive Ownership" shall mean ownership of shares of Equity Stock
by a Person who is or would be treated as a direct or indirect owner of
such shares of Equity Stock through the application of Section 318 of the
Code, as modified by Section 856(d)(5) of the Code. The terms "Constructive
Owner," "Constructively Owns" and "Constructively Owned" shall have
correlative meanings.
"Equity Stock" shall mean Common Stock and Preferred Stock of the
Corporation.
"Market Price" on any date shall mean the average of the Closing Price
for the five consecutive Trading Days ending on such date. The "Closing
Price" on any date shall mean the last sale price, regular way, or, in case
no such sale takes place on such day, the average of the closing bid and
asked prices, regular way, in either case as reported in the principal
consolidated transaction reporting system with respect to securities listed
or admitted to trading on the New York Stock Exchange or, if the shares of
Equity Stock are not listed or admitted to trading on the New York Stock
Exchange, as reported in the principal consolidated transaction reporting
system with respect to securities listed on the principal national
securities exchange on which the shares of Equity Stock are listed or
admitted to trading or, if the shares of Equity Stock are not listed or
admitted to trading on any national securities exchange, the last quoted
price, or if not so quoted, the average of the high bid and low asked
prices in the over-the-counter market, as reported by the Nasdaq Stock
Market, Inc. or, if such system is no longer in use, the principal other
automated quotation system that may then be in use or, if the shares of
Equity Stock are not quoted by any such organization, the average of the
closing bid and asked prices as furnished by a professional market maker
selected by the Board of Directors making a market in the shares of Equity
Stock. In the case of Equity Stock that is paired, "Market Price" shall
mean the "Market Price" for paired shares multiplied by a fraction
(expressed as a percentage) determined by dividing the value for such
Equity Stock most recently determined under Section 2(c) of the Pairing
Agreement by the value of a paired share most recently determined under
Section 2(c) of the Pairing Agreement (the "Valuation Percentage").
"Non-Transfer Event" shall mean an event other than a purported Transfer
that would cause any Person to Beneficially Own or Constructively Own
shares of Equity Stock in excess of the Ownership Limit, including, but not
limited to, (i) the granting of any option or entering into any agreement
for the sale, transfer or other disposition of shares of Equity Stock or
(ii) the sale, transfer, assignment or other disposition of interests in
any Person or of any securities or rights convertible into or exchangeable
for shares of Equity Stock that results in changes in Beneficial Ownership
or Constructive Ownership of shares of Equity Stock.
"Ownership Limit" shall mean, with respect to any class or series of
Equity Stock, 9.8% of the number of outstanding shares of such class or
series of Equity Stock. For purposes of computing the percentage of shares
of any class or series of Equity Stock of the Corporation that is
Beneficially Owned by
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any Person, any shares of Equity Stock of the Corporation which are deemed
to be Beneficially Owned by such Person pursuant to Rule 13d-3 of the
Exchange Act but which are not outstanding shall be deemed to be
outstanding.
"Pairing Agreement" shall mean the Pairing Agreement, dated as of
February 17, 1983, by and between Bay Meadows Realty Enterprises, Inc. (the
predecessor of California Jockey Club) and Bay Meadows Operating Company,
as amended from time to time in accordance with the provisions thereof.
"Permitted Transferee" shall mean any Person designated as a Permitted
Transferee in accordance with the provisions of Section (D)(8) of this
Article IV.
"Person" shall mean (a) an individual or any corporation, partnership,
estate, trust, association, private foundation, joint stock company or any
other entity and (b) a "group" as that term is defined for purposes of Rule
13d-5 of the Exchange Act.
"Prohibited Owner" shall mean, with respect to any purported Transfer or
Non-Transfer Event, any Person who is prevented from being or becoming the
owner of record title to shares of Equity Stock by the provisions of
Section (D)(1) of this Article IV.
"Restriction Termination Date" shall mean the first day on which the
Corporation is no longer a party to the Pairing Agreement, the Pairing
Agreement terminates or the Corporation is no longer required by the
Pairing Agreement to maintain the restrictions set forth in this Section C
of this Article IV.
"Trading Day" shall mean a day on which the principal national securities
exchange on which shares of Equity Stock are listed or admitted to trading
is open for the transaction of business or, if shares of Equity Stock are
not listed or admitted to trading on any national securities exchange, any
day other than a Saturday, a Sunday or a day on which banking institutions
in the State of New York are authorized or obligated by law or executive
order to close.
"Transfer" (as a noun) shall mean any sale, transfer, gift, assignment,
devise or other disposition of shares of Equity Stock, whether voluntary or
involuntary, whether of record, constructively or beneficially and whether
by operation of law or otherwise. "Transfer" (as a verb) shall have the
correlative meaning.
"Trust" shall mean any separate trust created and administered in
accordance with the terms of Section (D) of this Article IV, for the
exclusive benefit of any Beneficiary.
"Trustee" shall mean any Person or entity unaffiliated with both the
Corporation and any Prohibited Owner designated by the Corporation to act
as trustee of any Trust, or any successor trustee thereof. The Trustee
shall be designated by the Corporation and Patriot American Hospitality,
Inc. ("Patriot REIT") in accordance with the Pairing Agreement.
2. Restriction on Ownership and Transfer.
a. Except as provided in Section (C)(4) of this Article IV, until the
Restriction Termination Date, (i) no Person shall Beneficially Own or
Constructively Own outstanding shares of Equity Stock in excess of the
Ownership Limit and (ii) any Transfer (whether or not the result of a
transaction entered into through the facilities of the New York Stock
Exchange) that, if effective, would result in any Person Beneficially
Owning or Constructively Owning shares of Equity Stock in excess of the
Ownership Limit shall be void ab initio as to the Transfer of that
number of shares of Equity Stock which would be otherwise Beneficially
Owned or Constructively Owned by such Person in excess of the Ownership
Limit and the intended transferee shall acquire no rights in such
shares of Equity Stock.
b. Until the Restriction Termination Date, any Transfer (whether or
not the result of a transaction entered into through the facilities of
the New York Stock Exchange) of shares of Equity Stock that are paired
pursuant to the Pairing Agreement that, if effective, would result in
Patriot REIT being "closely held" within the meaning of Section 856(h)
of the Code shall be void ab initio as to the Transfer of that number
of shares of Equity Stock that are paired pursuant to the Pairing
Agreement that would cause Patriot REIT to be "closely held" within the
meaning of Section 856(h) of the Code, and the intended transferee
shall acquire no rights in such shares of Equity Stock.
D-4
<PAGE>
c. Until the Restriction Termination Date, any Transfer (whether or
not the result of a transaction entered into through the facilities of
the New York Stock Exchange) of shares of Equity Stock that, if
effective, would cause Patriot REIT to Constructively Own 10% or more
of the ownership interests in a tenant of the real property of Patriot
REIT or any direct or indirect subsidiary (whether a corporation,
partnership, limited liability company or other entity) of Patriot REIT
(a "Subsidiary"), within the meaning of Section 856(d)(2)(B) of the
Code, shall be void ab initio as to the Transfer of that number of
shares of Equity Stock that would cause Patriot REIT to Constructively
Own 10% or more of the ownership interests in a tenant of the real
property of Patriot REIT or a Subsidiary within the meaning of Section
856(d)(2)(B) of the Code, and the intended transferee shall acquire no
rights in such shares of Equity Stock.
d. Until the Restriction Termination Date, any Transfer (whether or
not the result of a transaction entered into through the facilities of
the New York Stock Exchange) of Equity Stock that is paired pursuant to
the Pairing Agreement that, if effective, would result in the capital
stock of Patriot REIT 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 shall be void ab initio and
the intended transferee shall acquire no rights in such shares of
Equity Stock.
3. Owners Required To Provide Information. Until the Restriction
Termination Date:
a. Every Beneficial Owner or Constructive Owner of 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 shall, within 30 days after January 1 of each year,
provide to the Corporation a written statement or affidavit stating the
name and address of such Beneficial Owner or Constructive Owner, the
number of shares of Equity Stock Beneficially Owned or Constructively
Owned, and a description of how such shares are held. Each such
Beneficial Owner or Constructive Owner shall provide to the Corporation
such additional information as the Corporation may request to ensure
compliance with the restrictions in this Section C of this Article IV.
b. Each Person who is a Beneficial Owner or Constructive Owner of
shares of Equity Stock and each Person (including the stockholder of
record) who is holding shares of Equity Stock for a Beneficial Owner or
Constructive Owner shall provide to the Corporation a written statement
or affidavit stating such information as the Corporation may request to
ensure compliance with the restrictions set forth in this Section C of
this Article IV.
4. Exception. The Board of Directors may exempt a Person from the
Ownership Limit, provided that (A) such exemption is permitted by and made
in accordance with the Pairing Agreement and (B) such Person agrees in
writing that any violation or attempted violation of the Ownership Limit
will result in the conversion of such shares into shares of Excess Stock
pursuant to Section (D)(1) of this Article IV and provides such other
representations and undertakings as the Board of Directors may reasonably
require.
5. New York Stock Exchange Transactions. Notwithstanding any provision
contained herein to the contrary, nothing in this Certificate shall
preclude the settlement of any transaction entered into through the
facilities of the New York Stock Exchange.
D. Excess Stock.
1. Conversion into Excess Stock.
a. If, notwithstanding the other provisions contained in this Article
IV, prior to the Restriction Termination Date, there is a purported
Transfer or Non-Transfer Event such that any Person would either
Beneficially Own or Constructively Own shares of Equity Stock in excess
of the Ownership Limit, then, (i) except as otherwise provided in
Section (C)(4) of this Article IV, the purported transferee shall be
deemed to be a Prohibited Owner and shall acquire no right or interest
(or, in the case of a Non-Transfer Event, the Person holding record
title to the shares of Equity Stock Beneficially Owned or
Constructively Owned by such Beneficial Owner or Constructive Owner,
shall cease to own any right or interest) in such number of shares of
Equity Stock which would cause such Beneficial
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Owner or Constructive Owner to Beneficially Own or Constructively Own
shares of Equity Stock in excess of the Ownership Limit, (ii) such
number of shares of Equity Stock in excess of the Ownership Limit
(rounded up to the nearest whole share) shall be automatically
converted into an equal number of shares of Excess Stock and
transferred to a Trust in accordance with Section (D)(4) of this
Article IV and (iii) the Prohibited Owner shall submit such number of
shares of Equity Stock to the Corporation for registration in the name
of the Trustee of the Trust. Such conversion into Excess Stock and
transfer to a Trust shall be effective as of the close of trading on
the Trading Day prior to the date of the Transfer or Non-Transfer
Event, as the case may be.
b. If, notwithstanding the other provisions contained in this Article
IV, prior to the Restriction Termination Date, there is a purported
Transfer or Non-Transfer Event that, if effective, would (i) result in
the capital stock of Patriot REIT 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, (ii) result in
Patriot REIT being "closely held" within the meaning of Section 856(h)
of the Code or (iii) cause Patriot REIT to Constructively Own 10% or
more of the ownership interest in a tenant of Patriot REIT's or a
Subsidiary's real property within the meaning of Section 856(d)(2)(B)
of the Code, then (x) the purported transferee shall be deemed to be a
Prohibited Owner and shall acquire no right or interest (or, in the
case of a Non-Transfer Event, the Person holding record title of the
shares of Equity Stock with respect to which such Non-Transfer Event
occurred, shall cease to own any right or interest) in such number of
shares of Equity Stock, the ownership of which by such purported
transferee or record holder would (A) result in the capital stock of
Patriot REIT 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, (B) result in Patriot REIT being
"closely held" within the meaning of Section 856(h) of the Code or
(C) cause Patriot REIT to Constructively Own 10% or more of the
ownership interests in a tenant of Patriot REIT's or a Subsidiary's
real property within the meaning of Section 856(d)(2)(B) of the Code,
(y) such number of shares of Equity Stock (rounded up to the nearest
whole share) shall be automatically converted into an equal number of
shares of Excess Stock and transferred to a Trust in accordance with
Section (D)(4) of this Article IV and (z) the Prohibited Owner shall
submit such number of shares of Equity Stock to the Corporation for
registration in the name of the Trustee of the Trust. Such conversion
into Excess Stock and transfer to a Trust shall be effective as of the
close of trading on the Trading Day prior to the date of the Transfer
or Non-Transfer Event, as the case may be.
c. 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 the
Corporation, 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 by the Corporation as that particular class or series of
Equity Stock.
2. Remedies for Breach. If the Corporation, or its designees, shall at
any time determine in good faith that a Transfer has taken place in
violation of Section (C)(2) of this Article IV or that a Person intends to
acquire or has attempted to acquire Beneficial Ownership or Constructive
Ownership of any shares of Equity Stock in violation of Section (C)(2) of
this Article IV, the Corporation shall take such action as it deems
advisable to refuse to give effect to or to prevent such Transfer or
acquisition, including, but not limited to, refusing to give effect to such
Transfer on the stock transfer books of the Corporation or instituting
proceedings to enjoin such Transfer or acquisition.
3. Notice of Restricted Transfer. Any Person who acquires or attempts to
acquire shares of Equity Stock in violation of Section (C)(2) of this
Article IV, or any Person who owns shares of Equity Stock that were
converted into shares of Excess Stock and transferred to a Trust pursuant
to Sections (D)(1) and (D)(4) of this Article IV, shall immediately give
written notice to the Corporation of such event and shall provide to the
Corporation such other information as the Corporation may request in order
to determine the effect,
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if any, of such Transfer or Non-Transfer Event, as the case may be, on the
Corporation's compliance with the terms of the Pairing Agreement, including
the effect on Patriot REIT's status as a real estate investment trust.
4. Ownership in Trust. Upon any Transfer or Non-Transfer Event that
results in Excess Stock pursuant to Section (D)(1) of this Article IV, such
Excess Stock shall be automatically transferred to a Trust to be held for
the exclusive benefit of the Beneficiary. The Corporation and Patriot REIT
shall name a Beneficiary for each Trust pursuant to the terms of the
Pairing Agreement. Any conversion of shares of Equity Stock into shares of
Excess Stock and transfer to a Trust shall be effective as of the close of
trading on the Trading Day prior to the date of the Transfer or Non-
Transfer Event that results in the conversion. Shares of Excess Stock so
held in trust shall remain issued and outstanding shares of stock of the
Corporation.
5. Dividend Rights. Each share of Excess Stock shall be entitled to the
same dividends and distributions (as to both timing and amount) as may be
declared by the Board of Directors as shares of the class or series of
Equity Stock from which such Excess Stock was converted. The Trustee, as
record holder of the shares of Excess Stock, shall be entitled to receive
all dividends and distributions and shall hold all such dividends or
distributions in trust for the benefit of the Beneficiary. The Prohibited
Owner with respect to such shares of Excess Stock shall repay to the Trust
the amount of any dividends or distributions received by it (i) that are
attributable to any shares of Equity Stock that have been converted into
shares of Excess Stock and (ii) the record date of which was on or after
the date that such shares were converted into shares of Excess Stock. The
Corporation shall take all measures that it determines reasonably necessary
to recover the amount of any such dividend or distribution paid to a
Prohibited Owner, including, if necessary, withholding any portion of
future dividends or distributions payable on shares of Equity Stock
Beneficially Owned or Constructively Owned by the Person who, but for the
provisions of this Article IV, would Constructively Own or Beneficially Own
the shares of Equity Stock that were converted into shares of Excess Stock;
and, as soon as reasonably practicable following the Corporation's receipt
or withholding thereof, shall pay over to the Trust for the benefit of the
Beneficiary the dividends so received or withheld, as the case may be.
6. Rights upon Liquidation. In the event of any voluntary or involuntary
liquidation of, or winding up of, or any distribution of the assets of, the
Corporation, each holder of shares of Excess Stock shall be entitled to
receive, ratably with each other holder of shares of Equity Stock of the
same class or series from which the Equity Stock was converted, that
portion of the assets of the Corporation that is available for distribution
to the holders of such class or series of Equity Stock. The Trust shall
distribute to the Prohibited Owner the amounts received upon such
liquidation, dissolution, or winding up, or distribution; provided,
however, that the Prohibited Owner shall not be entitled to receive amounts
in excess of, 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 the shares into shares of Excess Stock, the price per
share, if any, such Prohibited Owner paid for the shares of Equity Stock
(which, in the case of Equity Stock that is paired, shall equal the price
per paired share multiplied by the most recent Valuation Percentage) and,
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 the shares into shares of Excess
Stock, the price per share equal to the Market Price on the date of such
Non-Transfer Event or Transfer. Any remaining amount in such Trust shall be
distributed to the Beneficiary.
7. Voting Rights. 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 holders of shares of Excess Stock converted
from the same class or series of Equity Stock shall vote together with the
holders of such Equity Stock as a single class on all such matters. The
Trustee, as record holder of the Excess Stock, shall be entitled to vote
all shares of Excess Stock. Any vote by a Prohibited
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Owner as a purported holder of shares of Equity Stock prior to the
discovery by the Corporation that the shares of Equity Stock have been
converted into shares of Excess Stock shall, subject to applicable law, be
rescinded and shall be void ab initio with respect to such shares of Excess
Stock, and the Prohibited Owner shall be deemed to have given, as of the
close of trading on the Trading Day prior to the date of the purported
Transfer or Non-Transfer Event that results in the conversion of the shares
of Equity Stock into shares of Excess Stock and the transfer of such shares
to a Trust pursuant to Sections (D)(1) and (D)(4) of this Article IV, an
irrevocable proxy to the Trustee to vote the shares of Excess Stock in the
manner in which the Trustee, in its sole and absolute discretion, desires.
8. Designation of Permitted Transferee.
a. The Trustee shall have the exclusive and absolute right to
designate a Permitted Transferee of any and all shares of Excess Stock
if the Company fails to exercise its option with respect to such shares
pursuant to Section (D)(10) hereof within the time period set forth
therein. As soon as practicable, but in an orderly fashion so as not to
materially adversely affect the Market Price of the shares of Excess
Stock, the Trustee shall designate any Person as a Permitted
Transferee; provided, however, that (i) the Permitted Transferee so
designated purchases for valuable consideration (whether in a public or
private sale) the shares of Excess Stock (which, in the case of paired
Excess Stock, shall be determined based on the Valuation Percentage)
and (ii) the Permitted Transferee so designated may acquire such shares
of Excess Stock without violating any of the restrictions set forth in
Section (C)(2) of this Article IV and without such acquisition
resulting in the conversion of the shares of Equity Stock so acquired
into shares of Excess Stock and the transfer of such shares to a Trust
pursuant to Sections (D)(1) and (D)(4) of this Article IV.
b. Upon the designation by the Trustee of a Permitted Transferee in
accordance with the provisions of this Section (D)(8), the Trustee
shall cause to be transferred to the Permitted Transferee that number
of shares of Excess Stock 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. 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 Directors of the Corporation, and shall thereupon be restored
to the status of authorized but unissued shares of Excess Stock and may
be reissued by the Corporation as Excess Stock.
c. The Trustee shall (i) cause to be recorded on the stock transfer
books of the Corporation 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 Prohibited Owner pursuant to
Section (D)(9) of this Article IV.
d. If the Transfer of shares of Excess Stock to a purported Permitted
Transferee shall violate any of the transfer restrictions set forth in
Section (C)(2) of this Article IV, 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 (as described in clause (b) above) and the
purported Permitted Transferee shall be deemed to be a Prohibited Owner
and shall acquire no rights in such shares of Excess Stock or Equity
Stock. Such shares of Equity Stock shall be automatically re-converted
into Excess Stock and transferred to the Trust from which they were
originally Transferred. Such conversion and transfer to the Trust shall
be effective as of the close of trading on the Trading Day prior to the
date of the Transfer to the purported Permitted Transferee and the
provisions of this Article IV shall apply to such shares, including,
without limitation, the provisions of Sections D(8) through (D)(10)
with respect to any future Transfer of such shares by the Trust.
9. Compensation to Record Holder of Shares of Equity Stock that are
Converted into Shares of Excess Stock. Any Prohibited Owner shall be
entitled (following discovery of the shares of Excess Stock and subsequent
designation of the Permitted Transferee in accordance with Section (D)(8)
of this Article IV or following the acceptance of the offer to purchase
such shares in accordance with Section (D)(10) of this
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Article IV) 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 (which, in the case of
paired Excess Stock, shall be determined based on the Valuation Percentage)
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
on the date of such Non-Transfer Event or Transfer or (ii) the price per
share (which, in the case of paired Excess Stock, shall be determined based
on the Valuation Percentage) received by the Trustee from the sale or other
disposition of such shares of Excess Stock in accordance with this Section
(D)(9) or Section (D)(10) of this Article IV. 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 pursuant to this Section (D)(9)
shall be distributed to the Beneficiary in accordance with the provisions
of Section (D)(8) of this Article IV. Each Beneficiary and Prohibited Owner
shall waive any and all claims that it may have against the Trustee and the
Trust arising out of the disposition of shares of Excess Stock, except for
claims arising out of the gross negligence or willful misconduct of, or any
failure to make payments in accordance with this Section (D) of this
Article IV by, such Trustee or the Corporation.
10. Purchase Right in Excess Stock. Shares of Excess Stock shall be
deemed to have been offered for sale to the Corporation or its designee, at
a price per share equal to the lesser of (i) the price per share (which, in
the case of paired Excess Stock, shall be determined based on the Valuation
Percentage) 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 the Corporation, or its designee, accepts such offer. The
Corporation 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 the Corporation determines in good faith that a Transfer or
Non-Transfer Event resulting in shares of Excess Stock previously has
occurred, if the Corporation does not receive a notice of such Transfer or
Non-Transfer Event pursuant to Section (D)(3) of this Article IV.
E. Preemptive Rights. No holder of shares of any class or series of capital
stock shall as such holder have any preemptive or preferential right to
purchase or subscribe to (i) any shares of any class or series of capital
stock of the Corporation, whether now or hereafter authorized, (ii) any
warrants, rights or options to purchase any such capital stock or (iii) any
obligations convertible into any such capital stock or into warrants, rights
or options to purchase any such capital stock.
F. Remedies Not Limited. Nothing contained in this Article IV shall limit
the authority of the Corporation to take such other action as it deems
necessary or advisable to protect the Corporation and the interests of its
stockholders to ensure compliance with the requirements of the Pairing
Agreement and with the restrictions set forth in Section C of this Article IV.
G. Ambiguity. In the case of an ambiguity in the application of any of the
provisions of this Article IV, including any definition contained in Section
(C)(1) of this Article IV, the Board of Directors shall have the power to
determine the application of the provisions of this Article IV with respect to
any situation based on the facts known to it.
H. Legend. Each certificate for shares of Equity Stock shall bear the
following legend:
"The shares of Patriot American Hospitality, Inc. and Patriot American
Hospitality Operating Company represented by this combined certificate are
subject to restrictions in the respective Amended and Restated Certificate
of Incorporation of each company which prohibit (a) any Person from
Beneficially Owning or Constructively Owning (as these terms are defined in
the respective Amended and Restated
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Certificate of Incorporation of each company) in excess of 9.8% of the
number of outstanding shares of any class or series of Equity Stock (as
that term is defined in the respective Amended and Restated Certificate of
Incorporation of each company), (b) any Person (as that term is defined in
the respective Amended and Restated Certificate of Incorporation of each
company) from acquiring or maintaining any ownership interest in the stock
of either company that is inconsistent with (i) the requirements of the
Internal Revenue Code of 1986, as amended, pertaining to real estate
investment trusts or (ii) Article IV of the respective Amended and Restated
Certificate of Incorporation of each company and (c) any transfer of shares
of any class or series of Equity Stock of either company that are paired
pursuant to the Pairing Agreement, dated as of February 17, 1997 between
the two companies, as amended from time to time in accordance with the
provisions thereof (the "Pairing Agreement"), except in combination with an
equal number of shares of the other company in accordance with the
respective Amended and Restated Bylaws of each company and the Pairing
Agreement, copies of which are on file with the transfer agent, and the
holder of this certificate by his acceptance hereof consents to be bound by
such restrictions.
Patriot American Hospitality, Inc. and Patriot American Hospitality
Operating Company will furnish without charge to each stockholder who so
requests a copy of the relevant provisions of the respective Amended and
Restated Certificates of Incorporation and the respective Amended and
Restated Bylaws of each company, a copy of the Pairing Agreement and a copy
of the provisions setting forth the designations, preferences, privileges
and rights of each class of stock or series thereof that each company is
authorized to issue and the qualifications, limitations and restrictions of
such preferences and/or rights. Any such request may be addressed to the
Secretary of either Company or to the transfer agent named on the face
hereof."
I. Severability. Each provision of this Article IV shall be severable and an
adverse determination as to any such provision shall be in no way affect the
validity of any other provision.
V.
DIRECTORS
A. General Powers. The property, affairs and business of the Corporation
shall be managed under the direction of the Board of Directors and, except as
otherwise expressly provided by law, the Bylaws or this Certificate, all of
the powers of the Corporation shall be vested in such Board.
B. Number of Directors. The number of directors shall be fixed by resolution
duly adopted from time to time by the Board of Directors. A director need not
be a stockholder of the Corporation.
C. Terms of Directors. The directors shall be classified, with respect to
the term for which they severally hold office, into three classes, as nearly
equal in number as possible. The initial Class I Directors of the Corporation
shall be ; the initial Class II Directors of the
Corporation shall be ; and the initial Class III
Directors of the Corporation shall be . The initial Class
I Directors shall serve for a term expiring at the annual meeting of
stockholders to be held in 1997; the initial Class II Directors shall serve
for a term expiring at the annual meeting of stockholders to be held in 1998;
and the initial Class III Directors shall serve for a term expiring at the
annual meeting of stockholders to be held in 1999. At each annual meeting of
stockholders, the successor or successors of the class of directors whose term
expires at that meeting shall be elected by a plurality of the votes of the
shares present in person or represented by proxy at such meeting and entitled
to vote on the election of directors, and shall hold office for a term
expiring at the annual meeting of stockholders held in the third year
following the year of their election. The directors elected to each class
shall hold office until their successors are duly elected and qualified or
until their earlier resignation or removal.
Notwithstanding the foregoing, whenever, pursuant to the provisions of
Article IV of this Certificate, the holders of any one or more series of
Preferred Stock shall have the right, voting separately as a series or
together with holders of other such series, to elect directors at an annual or
special meeting of stockholders, the election,
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term of office, filling of vacancies and other features of such directorships
shall be governed by the terms of this Certificate and any certificates of
designation applicable thereto, and such directors so elected shall not be
divided into classes pursuant to this Section C of this Article V.
During any period when the holders of any series of Preferred Stock have the
right to elect additional directors as provided for or fixed pursuant to the
provisions of Article IV of this Certificate, then upon commencement and for
the duration of the period during which such right continues: (a) the then
otherwise total authorized number of directors of the Corporation shall
automatically be increased by such specified number of directors, and the
holders of such Preferred Stock shall be entitled to elect the additional
directors so provided for or fixed pursuant to said provisions and (b) each
such additional director shall serve until such director's successor shall
have been duly elected and qualified, or until such director's right to hold
such office terminates pursuant to said provisions, whichever occurs earlier,
subject to such director's earlier death, disqualification, resignation or
removal. Except as otherwise provided by the Board in the resolution or
resolutions establishing such series, whenever the holders of any series of
Preferred Stock having such right to elect additional directors are divested
of such right pursuant to the provisions of such stock, the terms of office of
all such additional directors elected by the holders of such stock, or elected
to fill any vacancies resulting from the death, resignation, disqualification
or removal of such additional directors, shall forthwith terminate and the
total and authorized number of directors of the Corporation shall be reduced
accordingly.
D. Removal of Directors. Subject to the rights, if any, of any series of
Preferred Stock to elect directors and to remove any director whom the holders
of any such stock have the right to elect, any director (including persons
elected by directors to fill vacancies in the Board of Directors) may be
removed from office (a) only with cause and (b) only by the affirmative vote
of the holders of at least 75% of the shares then entitled to vote at an
election of directors. At least 30 days prior to any meeting of stockholders
at which it is proposed that any director be removed from office, written
notice of such proposed removal shall be sent to the director whose removal
will be considered at the meeting. For purposes of this Certificate, "cause,"
with respect to the removal of any director shall mean only (i) conviction of
a felony, (ii) declaration of unsound mind by order of a court, (iii) gross
dereliction of duty, (iv) commission of any act involving moral turpitude or
(v) commission of an act that constitutes intentional misconduct or a knowing
violation of law if such action in either event results both in an improper
substantial personal benefit to such director and a material injury to the
Corporation.
E. Vacancies. Subject to the rights, if any, of the holders of any series of
Preferred Stock to elect directors and to fill vacancies in the Board of
Directors relating thereto, any and all vacancies in the Board of Directors,
however occurring, including, without limitation, by reason of an increase in
size of the Board of Directors, or the death, resignation, disqualification or
removal of a director, shall be filled solely by the affirmative vote of a
majority of the remaining directors then in office, even if less than a quorum
of the Board of Directors. Any director appointed in accordance with the
preceding sentence shall hold office for the remainder of the full term of the
class of directors in which the new directorship was created or the vacancy
occurred and until such director's successor shall have been duly elected and
qualified or until such director's earlier resignation or removal. Subject to
the rights, if any, of the holders of any series of Preferred Stock, when the
number of directors is increased or decreased, the Board of Directors shall
determine the class or classes to which the increased or decreased number of
directors shall be apportioned; provided, however, that no decrease in the
number of directors shall shorten the term of any incumbent director. In the
event of a vacancy in the Board of Directors, the remaining directors, except
as otherwise provided by law, may exercise the powers of the full Board of
Directors until such vacancy is filled.
VI.
LIMITATION OF LIABILITY
A director of the Corporation shall not be personally liable to the
Corporation or its stockholders for monetary damages for breach of fiduciary
duty as a director, except for liability (a) for any breach of the
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director's duty of loyalty to the Corporation or its stockholders, (b) for
acts or omissions not in good faith or which involve intentional misconduct or
a knowing violation of law, (c) under Section 174 of the DGCL or (d) for any
transaction from which the director derived an improper personal benefit. If
the DGCL is amended after the effective date of this Certificate to authorize
corporate action further eliminating or limiting the personal liability of
directors, then the liability of a director of the Corporation shall be
eliminated or limited to the fullest extent permitted by the DGCL, as so
amended.
Any repeal or modification of this Article VI by either (i) the stockholders
of the Corporation or (ii) an amendment to the DGCL shall not adversely affect
any right or protection existing at the time of such repeal or modification
with respect to any acts or omissions occurring before such repeal or
modification of a person serving as a director at the time of such repeal or
modification.
VII.
RELATED PERSON TRANSACTION
The affirmative vote of the holders of not less than 66 2/3% of the
outstanding shares of capital stock of this corporation, which shall include
the affirmative vote of at least 50% of the outstanding shares of capital
stock held by shareholders other than a "Related Person" (as hereinafter
defined), shall be required for the approval or authorization of any "Business
Combination" (as hereinafter defined) of this corporation with any Related
Person; provided, however, that such 66 2/3% voting requirement shall not be
applicable if the Business Combination was approved by the Board of Directors
of the corporation prior to the acquisition by such Related Person of the
beneficial ownership of 5% or more of the outstanding shares of the capital
stock of the corporation.
For purposes of this Article VII:
1. The term "Business Combination" shall mean (a) any merger, reorganization
or consolidation of this corporation with or into a Related Person, (b) any
sale, lease, exchange, transfer or other disposition, including, without
limitation, a mortgage or any other security device, of all or any substantial
part of the assets of this corporation (including, without limitation, any
voting securities of a subsidiary) or of a subsidiary, to a Related Person,
(c) any merger or consolidation of a Related Person with or into this
corporation or a subsidiary of this corporation and (d) any sale, lease,
exchange, transfer or other disposition of all or any substantial part of the
assets of a Related Person to this corporation or a subsidiary of this
corporation.
2. The term "Related Person" shall mean and include any individual,
corporation, partnership or other person or entity which, together with its
"affiliates" and "associates" (defined below), beneficially (as defined in
Rule 13d-3 of the Securities Exchange Act of 1934), owns in the aggregate five
percent (5%) or more of the outstanding shares of the capital stock of this
corporation, and any "affiliate" or "associate" (as those terms are defined in
Rule 12b-2 of the Exchange Act) of any such individual, corporation,
partnership or other person or entity; provided, however, that the term
"Related Person" shall not include either Patriot REIT or any subsidiary of
this corporation.
3. The term "substantial part of the assets" shall mean assets having a fair
market value or book value, whichever is greater, equal to 25% or more of such
value of the total assets as reflected on the most recent quarterly balance
sheet of the corporation as of a date no earlier than forty-five (45) days
prior to any acquisition of such assets.
4. Without limitation, any share of capital stock of this corporation which
any Related Person has the right to acquire pursuant to any agreement or upon
exercise of conversion rights, warrants or options, or otherwise shall be
deemed beneficially owned by such Related Person.
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The provisions set forth in this Article VII may not be repealed or amended
in any respect, unless such action is approved by the affirmative vote of the
holders of not less than 66 2/3% of the outstanding shares of capital stock of
this corporation; provided, however, that if there is a Related Person (as
defined herein), such 66 2/3% vote must include the affirmative vote of at
least 50% of the outstanding shares of capital stock held by shareholders
other than the Related Person.
VIII.
AMENDMENT OF CERTIFICATE OF INCORPORATION
Subject to Article VII of this Certificate, the Corporation reserves the
right to amend or repeal this Certificate in the manner now or hereafter
prescribed by statute and this Certificate, and all rights conferred upon
stockholders herein are granted subject to this reservation.
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ANNEX E
AMENDED AND RESTATED
BYLAWS
OF
PATRIOT AMERICAN HOSPITALITY OPERATING COMPANY
ARTICLE I.
DEFINITIONS
For purposes of these Bylaws, the following words shall have the meanings
set forth below:
(a) "Affiliate" of a Person shall mean (i) any Person that, directly or
indirectly, controls or is controlled by or is under common control with such
other Person, (ii) any Person that owns, beneficially, directly or indirectly,
5% or more of the outstanding capital stock, shares or equity interests of
such other Person or (iii) any officer, director, employee, partner or trustee
of such other Person or any Person controlling, controlled by or under common
control with such Person (excluding directors and Persons serving in similar
capacities who are not otherwise Affiliates of such Person). For the purposes
of this definition, the term "Person" shall mean, and includes, any natural
person, corporation, partnership, association, trust, limited liability
company or any other legal entity. For the purposes of this definition,
"control" (including the correlative meanings of the terms "controlled by" and
"under common control with"), as used with respect to any Person, shall mean
the possession, directly or indirectly, of the power to direct or cause the
direction of the management and policies of such Person, through the ownership
of voting securities, partnership interests or other equity interests.
(b) "Certificate" shall mean the Amended and Restated Certificate of
Incorporation of the Corporation, as amended from time to time.
(c) "Corporation" shall mean Patriot American Hospitality Operating Company.
(d) "DGCL" shall mean the Delaware General Corporation Law, as amended from
time to time.
(e) "Equity Stock" shall mean the common stock, par value $.01 per share,
and the preferred stock, par value $.01 per share of the Corporation and
Patriot REIT.
(f) "Independent Director" shall mean a director of the Corporation who is
not (i) an officer or employee of the Corporation, (ii) a director or officer
of Patriot REIT or (iii) an Affiliate of (a) any lessee of any property of the
Corporation, (b) a subsidiary of the Corporation or (c) any partnership that
is an Affiliate of the Corporation.
(g) "Patriot REIT" shall mean Patriot American Hospitality, Inc.
(h) "Public Announcement" shall mean: (i) disclosure in a press release
reported by the Dow Jones News Service, Associated Press or comparable
national news service, (ii) a report or other document filed publicly with the
Securities and Exchange Commission (including, without limitation, a Form 8-K)
or (iii) a letter or report sent to stockholders of record of the Corporation
at the time of the mailing of such letter or report.
ARTICLE II.
MEETINGS OF STOCKHOLDERS
2.1 Places of Meetings. All meetings of the stockholders shall be held at
such place, either within or without the State of Delaware, as from time to
time may be fixed by the Board of Directors.
2.2 Annual Meetings. The annual meeting of the stockholders, for the
election of directors and transaction of such other business as may come
properly before the meeting, shall be held at such date and time as shall be
determined by the Board of Directors.
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2.3 Special Meetings. A special meeting of the stockholders for any purpose
or purposes may be called at any time only by the Chairman of the Board or by
a majority of the Board of Directors. At a special meeting no business shall
be transacted and no corporate action shall be taken other than that stated in
the notice of the meeting.
2.4 Notice of Meetings; Adjournments. A written notice of each annual
meeting stating the hour, date and place of such annual meeting shall be given
by the Secretary or an Assistant Secretary of the Corporation (or other person
authorized by these Bylaws or by law) not less than 10 days nor more than 60
days before the annual meeting, to each stockholder entitled to vote thereat
and to each stockholder who, by law or under the Certificate or under these
Bylaws, is entitled to such notice, by delivering such notice to him or her or
by mailing it, postage prepaid, addressed to such stockholder at the address
of such stockholder as it appears on the stock transfer books of the
Corporation. Such notice shall be deemed to be delivered when hand delivered
to such address or deposited in the mail so addressed, with postage prepaid.
Notice of all special meetings of stockholders shall be given in the same
manner as provided for annual meetings, except that the written notice of all
special meetings shall state the purpose or purposes for which the meeting has
been called.
Notice of an annual meeting or special meeting of stockholders need not be
given to a stockholder if a written waiver of notice is signed before or after
such meeting by such stockholder or if such stockholder attends such meeting,
unless such attendance was for the express purpose of objecting at the
beginning of the meeting to the transaction of any business because the
meeting was not lawfully called or convened. Neither the business to be
transacted at, nor the purpose of, any annual meeting or special meeting of
stockholders need be specified in any written waiver of notice.
The Board of Directors may postpone and reschedule any previously scheduled
annual meeting or special meeting of stockholders and any record date with
respect thereto, regardless of whether any notice or public disclosure with
respect to any such meeting has been sent or made pursuant to this Section 2.4
or otherwise. In no event shall the Public Announcement of an adjournment,
postponement or rescheduling of any previously scheduled meeting of
stockholders commence a new time period for the giving of a stockholder's
notice under Section 2.9 of these Bylaws.
When any meeting is convened, the presiding officer of the meeting may
adjourn the meeting if (a) no quorum is present for the transaction of
business, (b) the Board of Directors determines that adjournment is necessary
or appropriate to enable the stockholders to consider fully information that
the Board of Directors determines has not been made sufficiently or timely
available to stockholders or (c) the Board of Directors determines that
adjournment is otherwise in the best interests of the Corporation. When any
annual meeting or special meeting of stockholders is adjourned to another
hour, date or place, notice need not be given of the adjourned meeting, other
than an announcement at the meeting at which the adjournment is taken, of the
hour, date and place to which the meeting is adjourned; provided, however,
that if the adjournment is for more than 30 days, or if after the adjournment
a new record date is fixed for the adjourned meeting, notice of the adjourned
meeting shall be given to each stockholder of record entitled to vote thereat
and each stockholder who, by law or under the Certificate or under these
Bylaws, is entitled to such notice.
2.5 Quorum. Except as otherwise required by the Certificate, any number of
stockholders together holding at least a majority of the outstanding shares of
capital stock entitled to vote with respect to the business to be transacted,
who shall be present in person or represented by proxy at any meeting duly
called, shall constitute a quorum for the transaction of business. If less
than a quorum shall be in attendance at the time for which a meeting shall
have been called, the meeting may be adjourned from time to time by a majority
of the stockholders present or represented by proxy.
2.6 Voting and Proxies. Stockholders shall have one vote for each share of
stock entitled to vote owned by them of record according to the stock transfer
books of the Corporation, unless otherwise provided by law or
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by the Certificate. Stockholders may vote either in person or by written
proxy, but no proxy shall be voted or acted upon after three years from its
date, unless the proxy provides for a longer period. Proxies shall be filed
with the secretary of the meeting before being voted. Except as otherwise
limited therein or as otherwise provided by law, proxies shall entitle the
persons authorized thereby to vote at any adjournment of such meeting, but
they shall not be valid after final adjournment of such meeting. A proxy with
respect to stock held in the name of two or more persons shall be valid if
executed by or on behalf of any one of them unless at or prior to the exercise
of the proxy the Corporation receives a specific written notice to the
contrary from any one of them. A proxy purporting to be executed by or on
behalf of a stockholder shall be deemed valid, and the burden of proving
invalidity shall rest on the challenger.
2.7 Action at Meeting. When a quorum is present, any matter before any
meeting of stockholders shall be decided by the affirmative vote of the
majority of shares present in person or represented by proxy at such meeting
and entitled to vote on such matter, except where a larger vote is required by
law, by the Certificate or by these Bylaws. Any election by stockholders shall
be determined by a plurality of the votes of the shares present in person or
represented by proxy at the meeting and entitled to vote on the election of
directors, except where a larger vote is required by law, by the Certificate
or by these Bylaws. The Corporation shall not directly or indirectly vote any
shares of its own stock; provided, however, that the Corporation may vote
shares which it holds in a fiduciary capacity to the extent permitted by law.
2.8 Stockholder List. The officer or agent having charge of the stock
transfer books of the Corporation shall make, at least 10 days before every
annual meeting or special meeting of stockholders, a complete list of the
stockholders entitled to vote at the meeting or any adjournment thereof, in
alphabetical order, and showing the address of each stockholder and the number
of shares registered in the name of each stockholder. Such list shall be open
to the examination of any stockholder, for any purpose germane to the meeting,
during ordinary business hours, for a period of at least 10 days prior to the
meeting, either at a place within the city where the meeting is to be held,
which place shall be specified in the notice of the meeting, or, if not so
specified, at the place where the meeting is to be held. The list shall also
be produced and kept at the hour, date and place of the meeting during the
whole time thereof, and may be inspected by any stockholder who is present.
2.9 Stockholder Proposals. In addition to any other applicable requirements,
for business to be properly brought before an annual meeting by a stockholder
of record (both as of the time notice of such proposal is given by the
stockholder as set forth below and as of the record date for the annual
meeting in question) of any shares of capital stock entitled to vote at such
annual meeting, such stockholder shall: (i) give timely written notice as
required by this Section 2.9 to the Secretary of the Corporation and (ii) be
present at such meeting, either in person or by a representative. For the
first annual meeting following the end of the fiscal year ended December 31,
1996, a stockholder's notice shall be timely if delivered to, or mailed to and
received by, the Corporation at its principal executive office not later than
the close of business on the 15th day following the day on which the Public
Announcement of the date of such annual meeting is first made by the
Corporation. For all subsequent annual meetings, a stockholder's notice shall
be timely if delivered to, or mailed to and received by, the Corporation at
its principal executive office not later than 90 days prior to the anniversary
date of the immediately preceding annual meeting (the "Anniversary Date");
provided, however, that in the event the annual meeting is scheduled to be
held on a date more than 30 days before the Anniversary Date or more than 60
days after the Anniversary Date, a stockholder's notice shall be timely if
delivered to, or mailed to and received by, the Corporation at its principal
executive office not later than the close of business on the later of (1) the
90th day prior to the scheduled date of such annual meeting or (2) the 15th
day following the day on which Public Announcement of the date of such annual
meeting is first made by the Corporation.
A stockholder's notice to the Secretary of the Corporation shall set forth
as to each matter proposed to be brought before an annual meeting: (i) a brief
description of the business the stockholder desires to bring before such
annual meeting and the reasons for conducting such business at such annual
meeting, (ii) the name and address, as they appear on the stock transfer books
of the Corporation, of the stockholder proposing such business, (iii) the
class and number of shares of the capital stock of the Corporation
beneficially owned by the
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stockholder proposing such business, (iv) the names and addresses of the
beneficial owners, if any, of any capital stock of the Corporation registered
in such stockholder's name on such books, and the class and number of shares
of the capital stock of the Corporation beneficially owned by such beneficial
owners, (v) the names and addresses of other stockholders known by the
stockholder proposing such business to support such proposal, and the class
and number of shares of the capital stock of the Corporation beneficially
owned by such other stockholders and (vi) any material interest of the
stockholder proposing to bring such business before such meeting (or any other
stockholders known to be supporting such proposal) in such proposal.
If the Board of Directors or a designated committee thereof determines that
any stockholder proposal was not made in a timely fashion in accordance with
the provisions of this Section 2.9 or that the information provided in a
stockholder's notice does not satisfy the information requirements of this
Section 2.9 in any material respect, such proposal shall not be presented for
action at the annual meeting in question. If neither the Board of Directors
nor such committee makes a determination as to the validity of any stockholder
proposal in the manner set forth above, the presiding officer of the annual
meeting shall determine whether the stockholder proposal was made in
accordance with the terms of this Section 2.9. If the presiding officer
determines that any stockholder proposal was not made in a timely fashion in
accordance with the provisions of this Section 2.9 or that the information
provided in a stockholder's notice does not satisfy the information
requirements of this Section 2.9 in any material respect, such proposal shall
not be presented for action at the annual meeting in question. If the Board of
Directors, a designated committee thereof or the presiding officer determines
that a stockholder proposal was made in accordance with the requirements of
this Section 2.9, the presiding officer shall so declare at the annual meeting
and ballots shall be provided for use at the meeting with respect to such
proposal.
Notwithstanding the foregoing provisions of this Section 2.9, a stockholder
shall also comply with all applicable requirements of the Securities Exchange
Act of 1934, as amended (the "Exchange Act"), and the rules and regulations
thereunder with respect to the matters set forth in this Section 2.9, and
nothing in this Section 2.9 shall be deemed to affect any rights of
stockholders to request inclusion of proposals in the Corporation's proxy
statement pursuant to Rule 14a-8 under the Exchange Act.
2.10 Inspectors of Elections. The Corporation shall, in advance of any
meeting of stockholders, appoint one or more inspectors to act at the meeting
and make a written report thereof. The Corporation may designate one or more
persons as alternate inspectors to replace any inspector who fails to act. If
no inspector or alternate is able to act at a meeting of stockholders, the
presiding officer shall appoint one or more inspectors to act at the meeting.
Any inspector may, but need not, be an officer, employee or agent of the
Corporation. Each inspector, before entering upon the discharge of his or her
duties, shall take and sign an oath faithfully to execute the duties of
inspector with strict impartiality and according to the best of his or her
ability. The inspectors shall perform such duties as are required by the DGCL,
including the counting of all votes and ballots. The inspectors may appoint or
retain other persons or entities to assist the inspectors in the performance
of the duties of the inspectors. The presiding officer may review all
determinations made by the inspectors, and in so doing the presiding officer
shall be entitled to exercise his or her sole judgment and discretion and he
or she shall not be bound by any determinations made by the inspectors. All
determinations by the inspectors and, if applicable, the presiding officer,
shall be subject to further review by any court of competent jurisdiction.
2.11 Presiding Officer. The Chairman of the Board, if one is elected, or if
not elected or in his or her absence, the President, shall preside at all
annual meetings or special meetings of stockholders and shall have the power,
among other things, to adjourn such meeting at any time and from time to time,
subject to Sections 2.4 and 2.5 of this Article II. The order of business and
all other matters of procedure at any meeting of the stockholders shall be
determined by the presiding officer.
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ARTICLE III.
DIRECTORS
3.1 General Powers. The property, affairs and business of the Corporation
shall be managed under the direction of the Board of Directors and, except as
otherwise expressly provided by law, the Certificate or these Bylaws, all of
the powers of the Corporation shall be vested in such Board.
3.2 Number of Directors. The number of directors shall be fixed by
resolution duly adopted from time to time by the Board of Directors.
3.3 Election and Removal of Directors; Quorum.
(a) Directors shall be elected and removed in the manner provided for in
Article V of the Certificate.
(b) Vacancies in the Board of Directors shall be filled in the manner
provided for in Article V of the Certificate.
(c) At any meeting of the Board of Directors, a majority of the number of
directors then in office shall constitute a quorum for the transaction of
business. However, if less than a quorum is present at a meeting, a
majority of the directors present may adjourn the meeting from time to
time, and the meeting may be held as adjourned without further notice,
except that when any meeting of the Board of Directors, either regular of
special, is adjourned for 30 days or more, notice of the adjourned meeting
shall be given as in the case of the original meeting.
3.4 Meetings of Directors. Meetings of the Board of Directors shall be held
at places within or without the State of Delaware and at times fixed by
resolution of the Board of Directors, or upon call of the Chairman of the
Board, and the Secretary of the Corporation or officer performing the
Secretary's duties shall give not less than 24 hours' notice by letter,
facsimile, telegraph or telephone (or in person) of all meetings of the Board
of Directors, provided that notice need not be given of the annual meeting or
of regular meetings held at times and places fixed by resolution of the Board
of Directors. Meetings may be held at any time without notice if all of the
directors are present, or if those not present waive notice in writing either
before or after the meeting; provided, however, that attendance at a meeting
for the express purpose of objecting at the beginning of a meeting to the
transaction of any business because the meeting is not lawfully convened shall
not be considered a waiver of notice.
3.5 Nominations. Nominations of candidates for election as directors of the
Corporation at any annual meeting may be made only (a) by, or at the direction
of, a majority of the Board of Directors or (b) by any holder of record (both
as of the time notice of such nomination is given by the stockholder as set
forth below and as of the record date for the annual meeting in question) of
any shares of the capital stock of the Corporation entitled to vote at such
annual meeting who complies with the timing, informational and other
requirements set forth in this Section 3.5. Any stockholder who has complied
with the timing, informational and other requirements set forth in this
Section 3.5 and who seeks to make such a nomination must be, or his, her or
its representative must be, present in person at the annual meeting. Only
persons nominated in accordance with the procedures set forth in this Section
3.5 shall be eligible for election as directors at an annual meeting.
Nominations, other than those made by, or at the direction of, the Board of
Directors shall be made pursuant to timely notice in writing to the Secretary
of the Corporation as set forth in this Section 3.5. For the first annual
meeting following the end of the fiscal year ended December 31, 1996, a
stockholder's notice shall be timely if delivered to, or mailed to and
received by, the Corporation at its principal executive office not later than
the close of business on the 15th day following the day on which the Public
Announcement of the date of such annual meeting is first made by the
Corporation. For all subsequent annual meetings, a stockholder's notice shall
be timely if delivered to, or mailed to and received by, the Corporation at
its principal executive office not less than 90 days prior to the Anniversary
Date; provided, however, that in the event the annual meeting is scheduled
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to be held on a date more than 30 days before the Anniversary Date or more
than 60 days after the Anniversary Date, a stockholder's notice shall be
timely if delivered to, or mailed and received by, the Corporation at its
principal executive office not later than the close of business on the later
of (x) the 90th day prior to the scheduled date of such annual meeting or (y)
the 15th day following the day on which Public Announcement of the date of
such annual meeting is first made by the Corporation.
A stockholder's notice to the Secretary of the Corporation shall set forth
as to each person whom the stockholder proposes to nominate for election or
re-election as a director: (1) the name, age, business address and residence
address of such person; (2) the principal occupation or employment of such
person; (3) the class and number of shares of the capital stock of the
Corporation which are beneficially owned by such person on the date of such
stockholder notice; and (4) the consent of each nominee to serve as a director
if elected. A stockholder's notice to the Secretary of the Corporation shall
further set forth as to the stockholder giving such notice: (a) the name and
address, as they appear on the stock transfer books of the Corporation, of
such stockholder and of the beneficial owners (if any) of the capital stock of
the Corporation registered in such stockholder's name and the name and address
of other stockholders known by such stockholder to be supporting such
nominee(s); (b) the class and number of shares of the capital stock of the
Corporation which are held of record, beneficially owned or represented by
proxy by such stockholder and by any other stockholders known by such
stockholder to be supporting such nominee(s) on the record date for the annual
meeting in question (if such date shall then have been made publicly
available) and on the date of such stockholder's notice; and (c) a description
of all arrangements or understandings between such stockholder and each
nominee and any other person or persons (naming such person or persons)
pursuant to which the nomination or nominations are to be made by such
stockholder.
If the Board of Directors or a designated committee thereof determines that
any stockholder nomination was not made in accordance with the terms of this
Section 3.5 or that the information provided in a stockholder's notice does
not satisfy the informational requirements of this Section 3.5 in any material
respect, then such nomination shall not be considered at the annual meeting in
question. If neither the Board of Directors nor such committee makes a
determination as to whether a nomination was made in accordance with the
provisions of this Section 3.5, the presiding officer of the annual meeting
shall determine whether a nomination was made in accordance with such
provisions. If the presiding officer determines that any stockholder
nomination was not made in accordance with the terms of this Section 3.5 or
that the information provided in a stockholder's notice does not satisfy the
informational requirements of this Section 3.5 in any material respect, then
such nomination shall not be considered at the annual meeting in question. If
the Board of Directors, a designated committee thereof or the presiding
officer determines that a nomination was made in accordance with the terms of
this Section 3.5, the presiding officer shall so declare at the annual meeting
and ballots shall be provided for use at the meeting with respect to such
nominee.
Notwithstanding anything to the contrary in the second paragraph of this
Section 3.5, in the event that the number of directors to be elected to the
Board of Directors is increased and there is no Public Announcement by the
Corporation naming all of the nominees for director or specifying the size of
the increased Board of Directors at least 90 days prior to the Anniversary
Date, a stockholder's notice required by this Section 3.5 shall also be
considered timely, but only with respect to nominees for any new positions
created by such increase, if such notice shall be delivered to, or mailed to
and received by, the Corporation at its principal executive office not later
than the close of business on the 15th day following the day on which such
Public Announcement is first made by the Corporation.
No person shall be elected by the stockholders as a director of the
Corporation unless nominated in accordance with the procedures set forth in
this Section 3.5. Election of directors at an annual meeting need not be by
written ballot, unless otherwise provided by the Board of Directors or
presiding officer at such annual meeting. If written ballots are to be used,
ballots bearing the names of all the persons who have been nominated for
election as directors at the annual meeting in accordance with the procedures
set forth in this Section 3.5 shall be provided for use at the annual meeting.
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3.6 Voting.
(a) Except as provided in subsection (c) of this Section 3.6, the action
of the majority of the directors present at a meeting at which a quorum is
present shall be the action of the Board of Directors, unless a larger vote
is required for such action by the Certificate, these Bylaws or by law.
(b) Any action required or permitted to be taken at any meeting of the
Board of Directors may be taken without a meeting if all members of the
Board of Directors consent thereto in writing. Such written consent shall
be filed with the records of the meetings of the Board of Directors and
shall be treated for all purposes as a vote at a meeting of the Board of
Directors.
(c) Notwithstanding anything in these Bylaws to the contrary, any action
pertaining to any transaction involving the Corporation, including entering
into joint venture investments or any other transaction, in which an
advisor, director or officer of the Corporation, or any Affiliate of any of
the foregoing persons, has any direct or indirect interest other than
solely as a result of their status as a director, officer, or stockholder
of the Corporation, must be approved by a majority of the directors,
including a majority of the Independent Directors, even if the Independent
Directors constitute less than a quorum.
3.7 Manner of Participation. Directors may participate in meetings of the
Board of Directors by means of conference telephone or similar communications
equipment by means of which all directors participating in the meeting can
hear each other, and participation in a meeting in accordance herewith shall
constitute presence in person at such meeting for purposes of these Bylaws.
3.8 Compensation. By resolution of the Board of Directors, directors may be
allowed a fee and expenses for attendance at all meetings, but nothing herein
shall preclude directors from serving the Corporation in other capacities and
receiving compensation for such other services.
ARTICLE IV.
COMMITTEES
4.1 Executive Committee. The Board of Directors, by resolution duly adopted,
may elect an Executive Committee which shall consist of not less than two
directors, including the Chairman of the Board. The members of the Executive
Committee shall serve until their successors are designated by the Board of
Directors, until removed, or until the Executive Committee is dissolved by the
Board of Directors. All vacancies that may occur in the Executive Committee
shall be filled by the Board of Directors.
When the Board of Directors is not in session, the Executive Committee shall
have all power vested in the Board of Directors by law, by the Certificate, or
by these Bylaws, except as otherwise provided in the DGCL. The Executive
Committee shall report at the next regular or special meeting of the Board of
Directors all action that the Executive Committee may have taken on behalf of
the Board of Directors since the last regular or special meeting of the Board
of Directors.
Meetings of the Executive Committee shall be held at such places and at such
times fixed by resolution of the Executive Committee, or upon call of the
Chairman of the Board. Not less than 12 hours' notice shall be given by
letter, facsimile, telegraph or telephone (or in person) of all meetings of
the Executive Committee; provided, however, that notice need not be given of
regular meetings held at times and places fixed by resolution of the Executive
Committee and that meetings may be held at any time without notice if all of
the members of the Executive Committee are present or if those not present
waive notice in writing either before or after the meeting; provided, further,
that attendance at a meeting for the express purpose of objecting at the
beginning of a meeting to the transaction of any business because the meeting
is not lawfully convened shall not be considered a waiver of notice. A
majority of the members of the Executive Committee then serving shall
constitute a quorum for the transaction of business at any meeting of the
Executive Committee.
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4.2 Compensation Committee. The Board of Directors, at its regular annual
meeting, shall designate a Compensation Committee which shall consist of two
or more non-employee directors. In addition, the Board of Directors at any
time may designate one or more alternate members of the Compensation
Committee, who shall be non-employee directors, who may act in place of any
absent regular member upon invitation by the chairman or secretary of the
Compensation Committee.
With respect to bonuses, the Compensation Committee shall have and may
exercise the powers to determine the amounts annually available for bonuses
pursuant to any bonus plan or formula approved by the Board of Directors, to
determine bonus awards to executive officers and to exercise such further
powers with respect to bonuses as may from time to time be conferred by the
Board of Directors.
With respect to salaries, the Compensation Committee shall have and may
exercise the power to fix and determine from time to time all salaries of the
executive officers of the Corporation, and such further powers with respect to
salaries as may from time to time be conferred by the Board of Directors.
The Compensation Committee shall administer the Corporation's stock
incentive plans and from time to time may grant, consistent with the plans,
stock options and other awards permissible under such plans.
Vacancies in the Compensation Committee shall be filled by the Board of
Directors, and members of the Compensation Committee shall be subject to
removal by the Board of Directors at any time.
The Compensation Committee shall fix its own rules of procedure. A majority
of the number of regular members then serving on the Compensation Committee
shall constitute a quorum; and regular and alternate members present shall be
counted to determine whether there is a quorum. The Compensation Committee
shall keep minutes of its meetings, and all action taken by it shall be
reported to the Board of Directors.
4.3 Audit Committee. The Board of Directors, at its regular annual meeting,
shall designate an Audit Committee which shall consist of two or more
directors whose membership on the Audit Committee shall meet the requirements
set forth in the rules of the New York Stock Exchange, as amended from time to
time. Vacancies in the Audit Committee shall be filled by the Board of
Directors with directors meeting the requirements set forth above, giving
consideration to continuity of the Audit Committee, and members shall be
subject to removal by the Board of Directors at any time. The Audit Committee
shall fix its own rules of procedure and a majority of the members serving
shall constitute a quorum. The Audit Committee shall meet at least twice per
year with both the internal and the Corporation's outside auditors present at
each meeting and shall keep minutes of its meetings and all action taken shall
be reported to the Board of Directors. The Audit Committee shall review the
reports and minutes of any audit committees of the Corporation's subsidiaries.
The Audit Committee shall review the Corporation's financial reporting
process, including accounting policies and procedures. The Audit Committee
shall examine the report of the Corporation's outside auditors, consult with
them with respect to their report and the standards and procedures employed by
them in their audit, report to the Board of Directors the results of its study
and recommend the selection of auditors for each fiscal year.
4.4 Nominating Committee. The Board of Directors, by resolution duly
adopted, shall designate a Nominating Committee which shall consist of three
or more directors. The Nominating Committee shall make recommendations to the
Board of Directors regarding nominees for election as directors by the
stockholders at each annual meeting of stockholders and make such other
recommendations regarding tenure, classification and compensation of directors
as the Nominating Committee may deem advisable from time to time. The
Nominating Committee shall fix its own rules of procedure and a majority of
the members then serving shall constitute a quorum.
4.5 Other Committees. The Board of Directors, by resolution adopted, may
establish such other standing or special committees of the Board of Directors
as it may deem advisable, and the members, terms and authority of such
committees shall be as set forth in the resolutions establishing the same.
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ARTICLE V.
OFFICERS
5.1 Election of Officers; Terms. The officers of the Corporation shall be
elected by the Board of Directors and shall include a Chairman of the Board, a
President, one or more Vice Presidents, a Secretary and a Treasurer or Chief
Financial Officer. Other officers, including Executive Vice Presidents and
Senior Vice Presidents, may be specified by the Board of Directors, and
assistant and subordinate officers, may from time to time be elected by the
Board of Directors. All officers shall hold office until the next annual
meeting of the Board of Directors and until their successors are duly elected
and qualified. The Chairman of the Board shall be chosen from among the
directors. Any two officers may be combined in the same person as the Board of
Directors may determine.
5.2 Removal of Officers; Vacancies. Any officer of the Corporation may be
removed with or without cause, at any time, by the Board of Directors.
Vacancies shall be filled by the Board of Directors.
5.3 Duties. The officers of the Corporation shall have such duties as
generally pertain to their offices, respectively, as well as such powers and
duties as are prescribed by law or are hereinafter provided or as from time to
time shall be conferred by the Board of Directors. The Board of Directors may
require any officer to give such bond for the faithful performance of his or
her other duties as the Board of Directors may see fit.
5.4 Duties of the Chairman of the Board. The Chairman of the Board shall be
the Chief Executive Officer of the Corporation and shall be responsible for
the execution of the policies of the Board of Directors, shall serve as the
Chairman of the Executive Committee and shall have direct supervision over the
business of the Corporation and its several officers, subject to the ultimate
authority of the Board of Directors. He or she shall be a director, and,
except as otherwise provided in these Bylaws or in the resolutions
establishing such committees, he or she shall be ex officio a member of all
committees of the Board of Directors. He or she shall preside at all meetings
of stockholders, the Board of Directors and the Executive Committee. He or she
may sign and execute in the name of the Corporation share certificates, deeds,
mortgages, bonds, contracts or other instruments except in cases where the
signing and the execution thereof shall be expressly delegated by the Board of
Directors or by these Bylaws to some other officer or agent of the Corporation
or shall be required by law otherwise to be signed or executed. In addition,
he or she shall perform all duties incident to the office of the Chairman of
the Board and Chief Executive Officer and such other duties as from time to
time may be assigned to him or her by the Board of Directors.
5.5 Duties of the President. Unless the Board of Directors, by resolution
duly adopted, designates some other person to serve as the Chief Operating
Officer of the Corporation, the President shall serve as Chief Operating
Officer and shall have direct supervision over the business of the Corporation
and its several officers, subject to the authority of the Board of Directors
and the Chairman of the Board, and shall consult with and report to the
aforementioned officer. The President may sign and execute in the name of the
Corporation deeds, mortgages, bonds, contracts or other instruments, except in
cases where the signing and the execution thereof shall be expressly delegated
by the Board of Directors or by these Bylaws to some other officer or agent of
the Corporation or shall be required by law otherwise to be signed or
executed. In addition, he or she shall perform all duties incident to the
office of the President and such other duties as from time to time may be
assigned to him or her by the Board of Directors or the Chairman of the Board.
5.6 Duties of the Vice Presidents. Each Vice President, if any, shall have
such powers and duties as may from time to time be assigned to him or her by
the Chairman of the Board or the Board of Directors. When there shall be more
than one Vice President of the Corporation, the Board of Directors may from
time to time designate one of them to perform the duties of the President in
the absence of the President. Any Vice President may sign and execute in the
name of the Corporation deeds, mortgages, bonds, contracts or other
instruments authorized by the Board of Directors, except where the signing and
execution of such documents shall be expressly delegated by the Board of
Directors or the Chairman of the Board to some other officer or agent of the
Corporation or shall be required by law or otherwise to be signed or executed.
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5.7 Duties of the Treasurer or Chief Financial Officer. The Treasurer or
Chief Financial Officer shall have charge and custody of and be responsible
for all funds and securities of the Corporation, and shall cause all such
funds and securities to be deposited in such banks and depositories as shall
be designated by the Board of Directors. He or she shall be responsible (i)
for maintaining adequate financial accounts and records in accordance with
generally accepted accounting practices, (ii) for the preparation of
appropriate operating budgets and financial statements, (iii) for the
preparation and filing of all tax returns required by law and (iv) for the
performance of all duties incident to the office of Treasurer or Chief
Financial Officer and such other duties as from time to time may be assigned
to him or her by the Board of Directors, the Audit Committee or the Chairman
of the Board. The Treasurer or Chief Financial Officer may sign and execute in
the name of the Corporation share certificates, deeds, mortgages, bonds,
contracts or other instruments, except where the signing and execution of such
documents shall be expressly delegated by the Board of Directors or the
Chairman of the Board to some other officer or agent of the Corporation or
shall be required by law or otherwise to be signed or executed.
5.8 Duties of the Secretary. The Secretary shall act as secretary of all
meetings of the Board of Directors, all committees of the Board of Directors
and stockholders of the Corporation. He or she shall (i) keep and preserve the
minutes of all such meetings in permanent books, (ii) ensure that all notices
required to be given by the Corporation are duly given and served, (iii) have
custody of the seal of the Corporation and shall affix the seal or cause it to
be affixed to all share certificates of the Corporation and to all documents
the execution of which on behalf of the Corporation under its corporate seal
is duly authorized in accordance with law or the provisions of these Bylaws,
(iv) have custody of all deeds, leases, contracts and other important
corporate documents, (v) have charge of the books, records and papers of the
Corporation relating to its organization and management as a Corporation, (vi)
see that all reports, statements and other documents required by law (except
tax returns) are properly filed and (vii) in general, perform all the duties
incident to the office of Secretary and such other duties as from time to time
may be assigned to him or her by the Board of Directors or the Chairman of the
Board.
ARTICLE VI.
CAPITAL STOCK
6.1 Certificates. Each stockholder shall be entitled to a certificate of the
capital stock of the Corporation in such form as may from time to time be
prescribed by the Board of Directors. Such certificate shall be signed by the
Chairman of the Board, the President or a Vice President and by the Treasurer
or an Assistant Treasurer, or the Secretary or an Assistant Secretary. The
Corporation seal and the signatures by the Corporation's officers, the
transfer agent or the registrar may be facsimiles. In case any officer,
transfer agent or registrar who has signed or whose facsimile signature has
been placed on such certificate shall have ceased to be such officer, transfer
agent or registrar before such certificate is issued, the certificate may be
issued by the Corporation with the same effect as if he or she were such
officer, transfer agent or registrar at the time of its issue. Every
certificate for shares of stock which are subject to a restriction on transfer
(as provided in Article IV of the Certificate) and every certificate issued
when the Corporation is authorized to issue more than one class or series of
stock shall contain such legend (as provided in Article IV of the Certificate)
with respect thereto as is required by law.
6.2 Pairing. Until the limitation on transfer provided for in the Pairing
Agreement, dated as of February 17, 1983, by and between Bay Meadows Realty
Enterprises, Inc. (the predecessor of California Jockey Club) and Bay Meadows
Operating Company (the "Pairing Agreement"), as amended from time to time in
accordance with the provisions thereof, shall be terminated:
(a) The shares of Equity Stock of the Corporation that are paired
pursuant to the Pairing Agreement shall not be transferable, and shall not
be transferred on the stock transfer books of the Corporation, unless (i) a
simultaneous transfer is made by the same transferor to the same transferee
or (ii) arrangements have been made with Patriot REIT for the acquisition
by the transferee, of a like number of shares of the same class or series
of Equity Stock of Patriot REIT and such shares are paired with one
another.
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(b) Each certificate evidencing ownership of shares of Equity Stock of
the Corporation that are paired pursuant to the Pairing Agreement and
issued and not canceled prior to the Effective Time of the Restriction
shall be deemed to evidence a like number of shares of the same class or
series of Equity Stock of Patriot REIT.
(c) A legend shall be placed on the face of each certificate evidencing
ownership of shares of Equity Stock of the Corporation that are paired
pursuant to the Pairing Agreement referring to the restrictions on transfer
set forth herein.
(d) Notwithstanding the foregoing, the Corporation may issue or transfer
shares of its Equity Stock to Patriot REIT without regard to the
restrictions of this Section 6.2.
(e) To the extent that a paired share of Equity Stock of the Corporation
is converted into a share of excess stock, par value $.01 per share (the
"Excess Stock"), of the Corporation in accordance with the provisions of
Article IV of the Certificate, such share of Excess Stock of the
Corporation, together with the corresponding share of Excess Stock of
Patriot REIT, which has been converted from a share of Equity Stock of
Patriot REIT in accordance with Article IV of the Amended and Restated
Certificate of Incorporation of Patriot REIT and the Pairing Agreement,
shall be automatically transferred to a trust established by the
Corporation and Patriot REIT for such purpose in accordance with Article IV
of the Certificate.
6.3 Lost, Destroyed and Mutilated Certificates. Holders of the shares of the
Corporation shall immediately notify the Corporation of any loss, destruction
or mutilation of the certificate therefor, and the Board of Directors may in
its discretion cause one or more new certificates for the same number of
shares in the aggregate to be issued to such stockholder upon the surrender of
the mutilated certificate or upon satisfactory proof of such loss or
destruction, and the deposit of a bond in such form and amount and with such
surety as the Board of Directors may require.
6.4 Transfer of Stock. Subject to the restrictions on transfer of stock
described in Section 6.2 of these Bylaws and Article IV of the Certificate,
the stock of the Corporation shall be transferable or assignable only on the
stock transfer books of the Corporation by the holder in person or by attorney
on surrender of the certificate for such shares duly endorsed and, if sought
to be transferred by attorney, accompanied by a written power of attorney to
have the same transferred on the stock transfer books of the Corporation. The
Corporation will recognize, however, the exclusive right of the person
registered on its stock transfer books as the owner of shares to receive
dividends and to vote as such owner.
6.5 Fixing Record Date. For the purpose of determining stockholders entitled
to notice of or to vote at any meeting of stockholders or any adjournment
thereof, or entitled to receive payment of any dividend, or to make a
determination of stockholders for any other proper purpose, the Board of
Directors may fix in advance a date as the record date for any such
determination of stockholders, such date in any case to be not less than 10
nor more than 60 days prior to the date on which the particular action
requiring such determination of stockholders, is to be taken. If no record
date is fixed for the determination of stockholders entitled to notice of or
to vote at a meeting of stockholders, or stockholders entitled to receive
payment of a dividend, the date on which notices of the meeting are mailed or
the date on which the resolution of the Board of Directors declaring such
dividend is adopted, as the case may be, shall be the record date for such
determination of stockholders. When a determination of stockholders entitled
to notice of or to vote at any meeting of stockholders has been made as
provided in this section, such determination shall apply to any adjournment
thereof.
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ARTICLE VII.
INDEMNIFICATION
7.1 Definitions. For purposes of this Article VII:
(a) "Corporate Status" describes the status of a person who (i) in the
case of a Director, is or was a director of the Corporation and is or was
acting in such capacity, (ii) in the case of an Officer, is or was an
officer, employee or agent of the Corporation or is or was a director,
officer, employee or agent of any other corporation, partnership, joint
venture, trust, employee benefit plan or other enterprise that such Officer
is or was serving at the request of the Corporation and (iii) in the case
of a Non-Officer Employee, is or was an employee of the Corporation or is
or was a director, officer, employee or agent of any other corporation,
partnership, joint venture, trust, employee benefit plan or other
enterprise that such Non-Officer Employee is or was serving at the request
of the Corporation;
(b) "Director" means any person who serves or has served the Corporation
as a director on the Board of Directors;
(c) "Disinterested Director" means, with respect to each Proceeding in
respect of which indemnification is sought hereunder, a Director of the
Corporation who is not and was not a party to such Proceeding;
(d) "Expenses" means all reasonable attorneys' fees, retainers, court
costs, transcript costs, fees of expert witnesses, private investigators
and professional advisors (including, without limitation, accountants and
investment bankers), travel expenses, duplicating costs, printing and
binding costs, costs of preparation of demonstrative evidence and other
courtroom presentation aids and devices, costs incurred in connection with
document review, organization, imaging and computerization, telephone
charges, postage, delivery service fees, and all other disbursements, costs
or expenses of the type customarily incurred in connection with
prosecuting, defending, preparing to prosecute or defend, investigating,
being or preparing to be a witness in, settling or otherwise participating
in, a Proceeding;
(e) "Non-Officer Employee" means any person who serves or has served as
an employee of the Corporation, but who is not or was not a Director or
Officer;
(f) "Officer" means any person who serves or has served the Corporation
as an officer appointed by the Board of Directors; and
(g) "Proceeding" means any threatened, pending or completed action, suit,
arbitration, alternate dispute resolution mechanism, inquiry,
investigation, administrative hearing or other proceeding, whether civil,
criminal, administrative, arbitrative or investigative.
7.2 Indemnification of Directors and Officers. Subject to the operation of
Section 7.4 of these Bylaws, each Director and Officer shall be indemnified
and held harmless by the Corporation to the fullest extent authorized by the
DGCL, as the same exists or may hereafter be amended (but, in the case of any
such amendment, only to the extent that such amendment permits the Corporation
to provide broader indemnification rights than such law permitted the
Corporation to provide prior to such amendment) against any and all Expenses,
judgments, penalties, fines and amounts reasonably paid in settlement that are
incurred by such Director or Officer or on such Director's or Officer's behalf
in connection with any threatened, pending or completed Proceeding or any
claim, issue or matter therein, which such Director or Officer is, or is
threatened to be made, a party to or participant in by reason of such
Director's or Officer's Corporate Status, if such Director or Officer acted in
good faith and in a manner such Director or Officer reasonably believed to be
in or not opposed to the best interests of the Corporation and, with respect
to any criminal proceeding, had no reasonable cause to believe his or her
conduct was unlawful. The rights of indemnification provided by this Section
7.2 shall exist as to a Director or Officer after he or she has ceased to be a
Director or Officer and shall inure to the benefit of his or her heirs,
executors, administrators and personal representatives. Notwithstanding the
foregoing, the Corporation
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<PAGE>
shall indemnify any Director or Officer seeking indemnification in connection
with a Proceeding initiated by such Director or Officer only if such
Proceeding was authorized by the Board of Directors.
7.3 Indemnification of Non-Officer Employees. Subject to the operation of
Section 7.4 of these Bylaws, each Non-Officer Employee may, in the discretion
of the Board of Directors, be indemnified by the Corporation to the fullest
extent authorized by the DGCL, as the same exists or may hereafter be amended
(but, in the case of any such amendment, only to the extent that such
amendment permits the Corporation to provide broader indemnification rights
than such law permitted the Corporation to provide prior to such amendment),
against any and all Expenses, judgments, penalties, fines and amounts
reasonably paid in settlement that are incurred by such Non-Officer Employee
or on such Non-Officer Employee's behalf in connection with any threatened,
pending or completed Proceeding, or any claim, issue or matter therein, which
such Non-Officer Employee is, or is threatened to be made, a party to or
participant in by reason of such Non-Officer Employee's Corporate Status, if
such Non-Officer Employee acted in good faith and in a manner such Non-Officer
Employee reasonably believed to be in or not opposed to the best interests of
the Corporation and, with respect to any criminal proceeding, had no
reasonable cause to believe his or her conduct was unlawful. The rights of
indemnification provided by this Section 7.3 shall exist as to a Non-Officer
Employee after he or she has ceased to be a Non-Officer Employee and shall
inure to the benefit of his or her heirs, personal representatives, executors
and administrators. Notwithstanding the foregoing, the Corporation may
indemnify any Non-Officer Employee seeking indemnification in connection with
a Proceeding initiated by such Non-Officer Employee only if such Proceeding
was authorized by the Board of Directors.
7.4 Good Faith. Unless ordered by a court, no indemnification shall be
provided pursuant to this Article VII to a Director, to an Officer or to a
Non-Officer Employee unless a determination shall have been made that such
person acted in good faith and in a manner such person reasonably believed to
be in or not opposed to the best interests of the Corporation and, with
respect to any criminal Proceeding, such person had no reasonable cause to
believe his or her conduct was unlawful. Such determination shall be made by
(a) a majority vote of the Disinterested Directors, even though less than a
quorum of the Board of Directors, (b) if there are no such Disinterested
Directors, or if a majority of Disinterested Directors so direct, by
independent legal counsel in a written opinion or (c) by the stockholders of
the Corporation.
7.5 Advancement of Expenses to Directors Prior to Final Disposition. The
Corporation shall advance all Expenses incurred by or on behalf of any
Director in connection with any Proceeding in which such Director is involved
by reason of such Director's Corporate Status within 10 days after the receipt
by the Corporation of a written statement from such Director requesting such
advance or advances from time to time, whether prior to or after final
disposition of such Proceeding. Such statement or statements shall reasonably
evidence the Expenses incurred by such Director and shall be preceded or
accompanied by an undertaking by or on behalf of such Director to repay any
Expenses so advanced if it shall ultimately be determined that such Director
is not entitled to be indemnified against such Expenses.
7.6 Advancement of Expenses to Officers and Non-Officer Employees Prior to
Final Disposition. The Corporation may, in the discretion of the Board of
Directors, advance any or all Expenses incurred by or on behalf of any Officer
or Non-Officer Employee in connection with any Proceeding in which such
Officer or Non-Officer Employee is involved by reason of such Officer or Non-
Officer Employee's Corporate Status upon the receipt by the Corporation of a
statement or statements from such Officer or Non-Officer Employee requesting
such advance or advances from time to time, whether prior to or after final
disposition of such Proceeding. Such statement or statements shall reasonably
evidence the Expenses incurred by such Officer or Non-Officer Employee and
shall be preceded or accompanied by an undertaking by or on behalf of such
Officer or Non-Officer Employee to repay any Expenses so advanced if it shall
ultimately be determined that such Officer or Non-Officer Employee is not
entitled to be indemnified against such Expenses.
7.7 Contractual Nature of Rights. The foregoing provisions of this Article
VII shall be deemed to be a contract between the Corporation and each Director
and Officer entitled to the benefits hereof at any time while
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<PAGE>
this Article VII is in effect, and any repeal or modification thereof shall
not affect any rights or obligations then existing with respect to any state
of facts then or theretofore existing or any Proceeding theretofore or
thereafter brought based in whole or in part upon any such state of facts. If
a claim for indemnification or advancement of Expenses hereunder by a Director
or Officer is not paid in full by the Corporation within (a) 60 days after the
receipt by the Corporation of a written claim for indemnification or (b) in
the case of a Director, 10 days after the receipt by the Corporation of
documentation of Expenses and the required undertaking, such Director or
Officer may at any time thereafter bring suit against the Corporation to
recover the unpaid amount of the claim, and if successful in whole or in part,
such Director or Officer shall also be entitled to be paid the expenses of
prosecuting such claim. The failure of the Corporation (including its Board of
Directors or any committee thereof, independent legal counsel, or
stockholders) to make a determination concerning the permissibility of such
indemnification or, in the case of a Director, advancement of Expenses, under
this Article VII shall not be a defense to the action and shall not create a
presumption that such indemnification or advancement is not permissible.
7.8 Non-Exclusivity of Rights. The rights to indemnification and advancement
of Expenses set forth in this Article VII shall not be exclusive of any other
right which any Director, Officer or Non-Officer Employee may have or
hereafter acquire under any statute, provision of the Certificate or these
Bylaws, agreement, vote of stockholders or Disinterested Directors or
otherwise.
7.9 Insurance. The Corporation may maintain insurance, at its expense, to
protect itself and any Director, Officer or Non-Officer Employee against any
liability of any character asserted against or incurred by the Corporation or
any such Director, Officer or Non-Officer Employee, or arising out of any such
person's Corporate Status, whether or not the Corporation would have the power
to indemnify such person against such liability under the DGCL or the
provisions of this Article VII.
ARTICLE VIII.
MISCELLANEOUS PROVISIONS
8.1 Seal. The seal of the Corporation shall consist of a flat-faced circular
die, of which there may be any number of counterparts, on which there shall be
engraved the word "Seal" and the name of the Corporation.
8.2 Fiscal Year. The fiscal year of the Corporation shall end on such date
and shall consist of such accounting periods as may be fixed by the Board of
Directors.
8.3 Checks, Notes and Drafts. Checks, notes, drafts and other orders for the
payment of money shall be signed by such persons as the Board of Directors
from time to time may authorize. When the Board of Directors so authorizes,
however, the signature of any such person may be a facsimile.
8.4 Amendment of Bylaws.
(a) Amendment by Directors. Except as provided otherwise by law, these
Bylaws may be amended or repealed by the Board of Directors by the
affirmative vote of a majority of the directors then in office.
(b) Amendment by Stockholders. These Bylaws may be amended or repealed at
any annual meeting of stockholders, or special meeting of stockholders
called for such purpose, by the affirmative vote of at least two-thirds of
the shares present in person or represented by proxy at such meeting and
entitled to vote on such amendment or repeal, voting together as a single
class; provided, however, that if the Board of Directors recommends that
stockholders approve such amendment or repeal at such meeting of
stockholders, such amendment or repeal shall only require the affirmative
vote of a majority of the shares present in person or represented by proxy
at such meeting and entitled to vote on such amendment or repeal, voting
together as a single class.
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<PAGE>
8.5 Voting of Stock Held. Unless otherwise provided by resolution of the
Board of Directors or of the Executive Committee, if any, the Chairman of the
Board may from time to time appoint an attorney or attorneys or agent or
agents of the Corporation, in the name and on behalf of the Corporation, to
cast the vote that the Corporation may be entitled to cast as a stockholder or
otherwise in any other corporation, any of whose securities may be held by the
Corporation, at meetings of the holders of the shares or other securities of
such other corporation, or to consent in writing to any action by any such
other corporation; and the Chairman of the Board shall instruct the person or
persons so appointed as to the manner of casting such votes or giving such
consent and may execute or cause to be executed on behalf of the Corporation,
and under its corporate seal or otherwise, such written proxies, consents,
waivers or other instruments as may be necessary or proper in the premises. In
lieu of such appointment, the Chairman of the Board may himself or herself
attend any meetings of the holders of shares or other securities of any such
other corporation and there vote or exercise any or all power of the
Corporation as the holder of such shares or other securities of such other
corporation.
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<PAGE>
ANNEX F
October 29, 1996
Board of Directors
Patriot American Hospitality, Inc.
3030 LBJ Freeway, Suite 1500
Dallas, Texas 75234
Ladies and Gentlemen:
We understand that Patriot American Hospitality, Inc., a Virginia
corporation (the "Company"), is contemplating entering into an Acquisition
Agreement (the "Acquisition Agreement") with Bay Meadows Operating Company
("BMOC") and California Jockey Club ("CJ"), pursuant to which the following
transactions, among other things, would occur (collectively, the "Proposed
Transaction"): (i) the Company would enter into a subscription agreement (the
"Subscription Agreement") to purchase for cash a number of shares of common
stock, $.01 par value per share, of BMOC (the "BMOC Stock") equal to the
number of shares of common stock, $.01 par value per share, of CJ (the "CJ
Stock" and, together with the BMOC Stock, the "Paired Stock") to be issued to
the holders of the outstanding shares of common stock, no par value, of the
Company (the "Company Stockholders") in connection with the Merger (as
hereinafter defined); (ii) prior to consummation of the Merger, each of BMOC
and CJ would commence a self-tender offer (collectively, the "Tender Offer")
for the outstanding shares of Paired Stock at an aggregate price of $33.00 per
share of Paired Stock; provided, that the holders of the Paired Stock prior to
the Merger own at least 1% of the outstanding shares of paired stock of the
Surviving Corporation (as hereinafter defined), which Tender Offer would be
financed with funds received from the Company pursuant to the Subscription
Agreement and a loan from the Company; (iii) the Company would effect a merger
(the "Merger") with and into CJ, pursuant to which CJ would be the surviving
corporation (the "Surviving Corporation"); and (iv) in the Merger, each
Company Share would be converted into the right to receive 1.0379 shares of
Paired Stock (the "Merger Consideration").
You have requested our opinion as to the fairness, from a financial point of
view, of the Merger Consideration (taking into account the funds to be
provided by the Company to CJ and BMOC to purchase outstanding shares of
Paired Stock in the Tender Offer) to be received by the Company Stockholders
in the Proposed Transaction.
We understand that all approvals required for the consummation of the
Proposed Transaction have been obtained, or prior to consummation of the
Proposed Transaction will be obtained. We understand that the Merger will be
accounted for under the purchase method of accounting.
In arriving at the opinion set forth below, we have, among other things:
(1) Reviewed the Company's Annual Report, Form 10-K and related financial
information for the fiscal year ended December 31, 1995, and the Company's
Forms 10-Q and the related unaudited financial information for the
quarterly periods ended March 31, 1996 and June 30, 1996;
(2) Reviewed the Annual Reports, Forms 10-K and related financial information
for the three fiscal years ended December 31, 1995, December 31, 1994 and
December 31, 1993 of each of BMOC and CJ, and the Forms 10-Q and the
related unaudited financial information for the quarterly periods ended
March 31, 1996 and June 30, 1996 of each of BMOC and CJ;
ANNEX F-1
<PAGE>
Board of Directors
Patriot American Hospitality, Inc.
Page 2
October 29, 1996
(3) Reviewed certain information, including financial forecasts, relating to
the business, earnings, cash flow, assets and prospects of the Company,
BMOC and CJ, furnished to us by the Company, BMOC and CJ, respectively,
including, without limitation, certain assumptions provided to us by the
Company about the availability, cost and timing of acquisitions and
dispositions of assets following the Merger;
(4) Conducted discussions with members of senior management of the Company,
BMOC and CJ, concerning their respective business and prospects;
(5) Reviewed the financial terms of the October 29, 1996 draft of the
Acquisition Agreement; and
(6) Reviewed such other financial studies and analyses and performed such
other investigations and took into account such other matters as we deemed
necessary.
In preparing our opinion, we have relied on the accuracy and completeness of
all information that was either publicly available or supplied, communicated
or otherwise made available to us by or on behalf of BMOC, CJ and the Company,
and we have not assumed any responsibility to independently verify such
information or undertaken an independent appraisal of the assets of BMOC, CJ
or the Company. With respect to the financial forecasts examined by us, we
have assumed that they were reasonably prepared on bases reflecting the best
currently available estimates and good faith judgments of the respective
managements of the Company, BMOC and CJ, respectively, and their respective
assets. Also in that regard, at the Company's direction, we have assumed that
after the Merger, the Surviving Corporation will not be subject to Section
269B of the Internal Revenue Code of 1986, as amended, that the
representations and warranties of each of the parties to the Acquisition
Agreement (including, without limitation, those relating to "REIT Status" and
the "Pairing Agreement") are true and correct and will remain so following
consummation of the transactions contemplated by the Acquisition Agreement and
that the tax costs to the Company and its stockholders resulting from the
Proposed Transaction will be immaterial. Our analyses used in preparing our
opinion assumed a closing date of the Merger of March 31, 1997. Our opinion is
based upon regulatory, economic, monetary and market conditions existing on
the date hereof. We have assumed, with your consent, that all material assets
and liabilities (contingent or otherwise, known or unknown) of the Company,
BMOC and CJ are as set forth in their respective consolidated financial
statements.
This opinion does not address the business decision of the Board of
Directors of the Company to engage in the Proposed Transaction or constitute a
recommendation to any Company Stockholder as to how any such Company
Stockholder should vote on the Proposed Transaction. No opinion is expressed
herein as to the price or trading range at which the Company Shares or the
shares of Paired Stock may trade at any time.
This opinion has been prepared for the use of the Board of Directors of the
Company and shall not be reproduced, summarized, described or referred to, or
given to any other person or otherwise made public, without the prior written
consent of PaineWebber Incorporated; provided, however, that this letter may
be reproduced in full in a joint proxy statement/prospectus of the Company,
BMOC and CJ with respect to the meetings of their respective stockholders in
connection with the Proposed Transaction.
As you are aware, PaineWebber Incorporated is currently acting as financial
advisor to the Company and will receive a fee for rendering this opinion and
will receive an additional fee upon consummation of the Proposed Transaction.
In the past, PaineWebber Incorporated has provided financial advisory services
and investment banking services to the Company (including acting as an
underwriter for the Company) and received fees for the rendering of these
services. We may provide financial advisory or investment banking services to,
and act as an underwriter or placement agent for, the Company, BMOC or CJ in
the future. Moreover, as you are aware, prior to the date hereof, PaineWebber
Incorporated engaged in discussions with the Company
ANNEX F-2
<PAGE>
Board of Directors
Patriot American Hospitality, Inc.
Page 3
October 29, 1996
regarding a potential acquisition by PaineWebber Incorporated or an affiliate
thereof of certain of the real estate assets of CJ following consummation of
the transactions contemplated by the Acquisition Agreement. Such discussions
have not resulted in an agreement between the Company, on the one hand, and
PaineWebber Incorporated or an affiliate thereof, on the other hand, and are
not ongoing on the date hereof, but such discussions may commence again in the
future. We understand that the foregoing facts regarding such discussions have
been made known to you in connection with your consideration of the
transactions contemplated by the Acquisition Agreement.
In the ordinary course of our business, we trade the equity and debt
securities of the Company, BMOC and CJ for our own account and for the
accounts of our customers and, accordingly, may at any time hold long or short
positions in such securities. We and certain executive officers and directors
of the Company have had discussions regarding joint investments and/or
acquisitions (and financing therefor).
On the basis of, and subject to the foregoing, we are of the opinion that,
as of the date hereof, the Merger Consideration (taking into account the funds
to be provided by the Company to CJ and BMOC to purchase outstanding shares of
Paired Stock in the Tender Offer) is fair from a financial point of view to
the Company Stockholders.
Very truly yours,
PAINEWEBBER INCORPORATED
ANNEX F-3
<PAGE>
ANNEX G
May 30, 1997
Board of Directors
California Jockey Club
2600 South Delaware Street
San Mateo, California 94403
Board of Directors
Bay Meadows Operating Company
2600 South Delaware Street
San Mateo, California 94402
Gentlemen:
We understand that Bay Meadows Operating Company, a Delaware corporation
("BMOC"), California Jockey Club, a Delaware corporation ("CJC"), Patriot
American Hospitality, Inc., a Virginia corporation ("PAH"), and Patriot
American Hospitality Partnership, L.P. ("PAH LP"), have entered into an
Agreement and Plan of Merger dated as of February 24, 1997, as amended and
restated as of May 28, 1997 (as so amended and restated, the "Agreement"),
pursuant to which, among other things, PAH will merge (the "Merger") with and
into CJC, with CJC as the surviving corporation. Pursuant to the Merger, as
more fully described in the Agreement and as further described to us by
management of CJC and BMOC, each outstanding share of the common stock of PAH
("PAH Common Stock") (other than treasury stock) will be converted into
0.51895 of a share of the common stock of CJC ("CJC Common Stock") (reflecting
the 2-for-1 split of PAH Common Stock effective in March 1997, and subject to
certain adjustments), or, if the average closing price of a share of PAH
Common Stock as reported for New York Stock Exchange composite transactions
over the 20 trading days immediately preceding the third business day prior to
the date on which the meetings of the stockholders of CJC, BMOC and PAH to
approve the Merger and related transactions are to be convened (the "Average
Closing Price") is less than $17.125, such number of shares of CJC Common
Stock as is equal to (i) the Average Closing Price divided by (ii) $33.00.
Notwithstanding the foregoing, if any holder of PAH Common Stock would own (or
be deemed to own) more than 9.8% of the Paired Shares (as defined below) after
the Merger (giving effect to the Subscription, as defined below), such holder
would receive, in respect of such number of Paired Shares as would otherwise
exceed such amount, and in lieu of such Paired Shares, the right to receive in
cash the fair market value of such Paired Shares, determined as provided in
the Agreement.
In connection with the Merger, as more fully described in the Agreement and
the related Subscription Agreement and as further described to us by
management of CJC and BMOC, PAH LP will purchase from BMOC (the "Subscription"
and, together with the Merger, the "Transactions") shares of the common stock
of BMOC ("BMOC Common Stock"), for a price per share equal to the product of
(i) the greater of $33.00 and the "fair market value" of a Paired Share (as
defined in the Subscription Agreement) multiplied by (ii) the quotient of the
value of a share of BMOC Common Stock divided by the value of a Paired Share,
as determined in accordance with the Subscription Agreement. Such shares of
BMOC Common Stock will be issued to holders of the PAH Common Stock being
converted into shares of CJC Common Stock in the Merger, and such shares of
BMOC Common Stock will be paired with such shares of CJC Common Stock. The
managements of CJC and BMOC have informed us that upon consummation of the
Transactions, based upon certain assumptions described in the Joint Proxy
Statement/Prospectus (as defined below), the current stockholders of CJC and
BMOC will hold in the aggregate approximately 20% of the outstanding Paired
Shares.
G-1
<PAGE>
Board of Directors
California Jockey Club
Bay Meadows Operating Company
May 30, 1997
Page Two
For purposes hereof, "Paired Share" means a unit consisting of one share of
CJC Common Stock and one share of BMOC Common Stock, which we understand are
paired pursuant to a pairing agreement, dated February 15, 1983, between CJC
and BMOC.
You have asked for our opinion as investment bankers as to whether the
financial terms of the Transactions, as described herein, taken as a whole,
are fair to the stockholders of CJC and BMOC from a financial point of view,
as of the date hereof.
In connection with our opinion, we have, among other things: (i) reviewed
publicly available financial and other data with respect to CJC, BMOC and PAH,
including the consolidated financial statements for recent years and interim
periods to March 31, 1997, and certain other relevant financial and operating
data relating to CJC and BMOC made available to us from published sources and
from the internal records of CJC and BMOC; (ii) reviewed the financial terms
and conditions of the Agreement, provided to us by management of CJC and BMOC;
(iii) reviewed the May 27, 1997 draft of the joint proxy statement and
prospectus relating to the Agreement (the "Joint Proxy Statement/Prospectus");
(iv) reviewed certain publicly available information concerning the trading
of, and the trading market for, the Paired Shares and the PAH Common Stock;
(v) reviewed and discussed with representatives of the management of CJC and
BMOC certain information of a business and financial nature regarding CJC and
BMOC, furnished to us by them, including a summary analysis prepared by CJC
management of the seventy net acres on which CJC's racetrack is located; (vi)
reviewed and discussed with representatives of the management of CJC and BMOC
financial forecasts and related assumptions of CJC and BMOC prepared by us in
consultation with CJC and BMOC management; (vii) made inquiries regarding and
discussed the Joint Proxy Statement/Prospectus, the Transactions and the
Agreement and other matters related thereto with counsel to CJC and BMOC;
(viii) reviewed the terms of certain transfers of real property which we
deemed comparable to the real property owned by CJC, including the terms of
two real property sales by CJC announced in 1996; and (ix) performed such
other analyses and examinations as we have deemed appropriate.
In connection with our review, we have not assumed any obligation
independently to verify the foregoing information and have relied on its being
accurate and complete in all material respects. With respect to the financial
forecasts for CJC and BMOC prepared by us in consultation with the respective
managements of CJC and BMOC, upon their advice and with your consent we have
assumed for purposes of our opinion that such forecasts reflect the best
available estimates and judgments of their respective managements at the time
of such consultation with us as to the future financial performance of CJC and
BMOC and that they provide a reasonable basis upon which we can form our
opinion. With respect to the summary analysis prepared by CJC management of
the seventy net acres on which CJC's racetrack is located, upon its advice and
with your consent we have assumed for purposes of our opinion that such
summary analysis reflects the best available estimates and judgments of CJC's
management at the time of preparation as to the value of that real property
and that it provides a reasonable basis upon which we can form our opinion. We
have also assumed that there have been no material changes in CJC's, BMOC's or
PAH's assets, financial condition, results of operations, business or
prospects since the respective dates of their last financial statements made
available to us. We have relied on advice of counsel and independent
accountants to CJC and BMOC, respectively, as to all legal and financial
reporting matters with respect to CJC and BMOC, the Transactions and the
Agreement. We have assumed that the Transactions will be consummated in a
manner that complies in all respects with the applicable provisions of the
Securities Act of 1933, as amended (the "Securities Act"), the Securities
Exchange Act of 1934, as amended, and all other applicable federal and state
statutes, rules and regulations. In addition, we have not assumed
responsibility for making an independent evaluation, appraisal or physical
inspection of any of the assets or
G-2
<PAGE>
Boards of Directors
California Jockey Club
Bay Meadows Operating Company
May 30, 1997
Page Three
liabilities (contingent or otherwise) of CJC, BMOC or PAH. Finally, our
opinion is based on economic, monetary and market and other conditions as in
effect on, and the information made available to us as of, the date hereof.
We have further assumed with your consent that the Transactions will be
consummated in accordance with the terms described in the Agreement, without
any further amendments thereto, and without waiver by CJC or BMOC of any of
the conditions to their respective obligations thereunder.
We have acted as financial advisor to CJC and BMOC in connection with the
Transactions and will receive a fee for our services, including rendering this
opinion, substantially all of which is contingent upon the consummation of the
Transactions.
Based upon the foregoing and in reliance thereon, it is our opinion as
investment bankers that the financial terms of the Transactions, taken as a
whole, are fair to the stockholders of CJC and BMOC from a financial point of
view, as of the date hereof.
We are not expressing an opinion regarding the price at which the Paired
Shares to be retained by the stockholders of CJC and BMOC in the Transactions
may trade at any future time.
In the ordinary course of our business, we actively trade the equity
securities of PAH for our own account and for the accounts of customers and,
accordingly, may at any time hold a long or short position in such securities.
We have also acted as an underwriter in connection with offerings of
securities of PAH and performed various investment banking services for PAH
and would expect to continue to do so in the future.
This opinion is directed to the Boards of Directors of BMOC and CJC in their
consideration of the Transactions and is not a recommendation to any
stockholder as to how such stockholder should vote with respect to the
Transactions. This opinion may not be used or referred to by BMOC or CJC, or
quoted or disclosed to any person in any manner, without our prior written
consent, which consent is hereby given to the inclusion of this opinion in the
Joint Proxy Statement/Prospectus. In furnishing this opinion, we do not admit
that we are experts within the meaning of the term "experts" as used in the
Securities Act and the rules and regulations promulgated thereunder.
Very truly yours,
Montgomery Securities
G-3
<PAGE>
PART II. INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Pursuant to Section 145 of the DGCL, the Cal Jockey Charter and the Bay
Meadows Charter each include a provision which eliminates any personal
liability for a director to Cal Jockey or Bay Meadows, 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 Cal Jockey or Bay Meadows, 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 Cal Jockey Charter and the Bay Meadows 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 Cal Jockey or Bay Meadows shall be eliminated or limited to the
fullest extent permitted by the DGCL, as so amended.
Article VII of each of the Cal Jockey Bylaws and the Bay Meadows Bylaws
provide for indemnification by Cal Jockey or Bay Meadows, 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 Section 317 of the California
General Corporation Law (the "CGCL"), as amended from time to time, and Cal
Jockey and Bay Meadows may, by action of their respective Boards of Directors,
indemnify all other persons Cal Jockey or Bay Meadows may indemnify under the
DGCL and the CGCL.
Cal Jockey has entered into indemnification agreements with each of its
directors and Bay Meadows has entered into indemnification agreements with
each of its directors and one executive officer. The indemnification
agreements generally reflect the foregoing provisions and require the
advancement of expenses in proceedings, if such person had no reasonable cause
to believe his or her conduct was unlawful.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(A) EXHIBITS
<TABLE>
<CAPTION>
NUMBER DESCRIPTION
------ -----------
<C> <S>
2.1 Agreement and Plan of Merger, dated as of February 24, 1997, as amended
and restated as of May 28, 1997, by and among Patriot American
Hospitality, Inc., Patriot American Hospitality Partnership, L.P.,
California Jockey Club and Bay Meadows Operating Company (the "Merger
Agreement"), attached as Annex A to the Joint Proxy
Statement/Prospectus included in Part I of this Registration Statement
and incorporated herein by reference. Patriot, Cal Jockey and Bay
Meadows hereby undertake to furnish supplementally to the Commission
upon request a copy of any omitted schedule or exhibit to the Merger
Agreement.
*2.2 Form of Subscription Agreement by and between Patriot American
Hospitality Partnership, L.P. and Bay Meadows Operating Company.
3.1 Certificate of Incorporation, as amended, of California Jockey Club,
incorporated by reference to Exhibit 3.1 to Cal Jockey's Annual Report
on Form 10-K for the year ended December 31, 1987 (Nos. 001-09319, 001-
09320).
3.2 Certificate of Incorporation, as amended, of Bay Meadows Operating
Company, incorporated by reference to Exhibit 3.1 to Bay Meadows'
Annual Report on Form 10-K for the year ended December 31, 1987 (Nos.
001-09319, 001-09320).
3.3 Agreement of Merger, dated March 24, 1983, between California Jockey
Club and Bay Meadows Realty Enterprises, Inc., Article II of which
changed the name of Bay Meadows Realty Enterprises, Inc. to California
Jockey Club, incorporated herein by reference to Exhibit 2 to Cal
Jockey's and Bay Meadows' Registration Statement on Form S-2 as filed
with the Securities and Exchange Commission on November 14, 1986 (Nos.
001-09319, 001-09320).
</TABLE>
II-1
<PAGE>
<TABLE>
<CAPTION>
NUMBER DESCRIPTION
-------- -----------
<C> <S>
3.4 Bylaws, as amended, of California Jockey Club, incorporated by
reference to Exhibit 3.3 to Cal Jockey's Annual Report on Form 10-K
for the year ended December 31, 1987, Exhibit 28.1 to Cal Jockey's
Quarterly Report on Form 10-Q for the quarter ended September 30,
1989, and Exhibit 3.5 of Cal Jockey's Annual Report on Form 10-K for
the year ended December 31, 1995 (Nos. 001-09319, 001-09320).
3.5 Bylaws, as amended, of Bay Meadows Operating Company, incorporated by
reference to Exhibit 3.4 to Bay Meadows' Annual Report on Form 10-K
for the year ended December 31, 1987, Exhibit 28.2 to Bay Meadows'
Quarterly Report on Form 10-Q for the quarter ended September 30,
1989, and Exhibit 3.6 of Bay Meadows' Annual Report on Form 10-K for
the year ended December 31, 1995 (Nos. 001-09319, 001-09320).
3.6 Amended and Restated Articles of Incorporation of Patriot American
Hospitality, Inc., incorporated by reference to Exhibit 3.2 to
Patriot's Registration Statement on Form S-11 (No. 33-94612).
3.7 Bylaws of Patriot American Hospitality, Inc., incorporated by
reference to Exhibit 3.4 to Patriot's Registration Statement on Form
S-11 (No. 33-94612).
3.8 Form of Amended and Restated Certificate of Incorporation of New
Patriot REIT attached as Annex B to the Joint Proxy
Statement/Prospectus, included in Part I of this Registration
Statement and incorporated herein by reference.
3.9 Form of Amended and Restated Certificate of Incorporation of New
Patriot Operating Company attached as Annex C to the Joint Proxy
Statement/Prospectus, included in Part I of this Registration
Statement and incorporated herein by reference.
3.10 Form of Amended and Restated Bylaws of New Patriot REIT attached as
Annex D to the Joint Proxy Statement/Prospectus, included in Part I
of this Registration Statement and incorporated herein by reference.
3.11 Form of Amended and Restated Bylaws of New Patriot Operating Company,
attached as Annex E to the Joint Proxy Statement/Prospectus, included
in Part I of this Registration Statement and incorporated herein by
reference.
4.1 Agreement (the "Pairing Agreement"), dated February 15, 1983 and as
amended February 18, 1988, between Bay Meadows Operating Company and
California Jockey Club (formerly named Bay Meadows Realty
Enterprises, Inc.), as amended, incorporated by reference to Exhibit
4.3 to Cal Jockey's and Bay Meadows' Registration Statement on Form
S-2, and to Exhibit 4.2 to Cal Jockey's and Bay Meadows' Annual
Report on Form 10-K for the year ended December 31, 1987 (Nos.
001-09319, 001-09320).
*4.2 Form of Amendment No. 2 to the Pairing Agreement.
*4.3 Specimen Certificates for shares of Common Stock, par value $.01 per
share, of New Patriot REIT and shares of Common Stock, par value $.01
per share, of New Patriot Operating Company.
*5.1 Opinion of Latham & Watkins as to legality of the securities being
offered by California Jockey Club.
*5.2 Opinion of McCutchen, Doyle, Brown & Enersen, LLP as to the legality
of the securities being offered by Bay Meadows Operating Company.
*8.1 Opinion of Goodwin, Procter & Hoar llp regarding tax consequences of
the Merger.
*8.2 Opinion of Goodwin, Procter & Hoar llp regarding (i) Patriot's
qualification as a REIT for periods prior to the Merger, (ii) Cal
Jockey's qualification as a REIT for periods prior to the Merger and
(iii) New Patriot REIT's ability to qualify as a REIT following the
Merger.
*10.1(1) Second Amended and Restated Agreement of Limited Partnership of
Patriot American Hospitality Partnership, L.P.
*10.1(2) First Amendment to the Second Amended and Restated Agreement of
Limited Partnership of Patriot American Hospitality Partnership, L.P.
</TABLE>
II-2
<PAGE>
<TABLE>
<CAPTION>
NUMBER DESCRIPTION
-------- -----------
<C> <S>
*10.1(3) Form of Second Amendment to the Second Amended and Restated Agreement
of Limited Partnership of Patriot American Hospitality Partnership,
L.P.
*10.2 Form of Agreement of Limited Partnership of Patriot American
Hospitality Operating Partnership, L.P.
*10.3 Form of Amended and Restated Patriot American Hospitality, Inc. 1995
Incentive Plan.
10.4 Lease Agreement, dated March 29, 1993, and First Amendment to Lease
dated September 30, Lease Agreement, dated March 29, 1993, and First
Amendment to Lease dated September 30, 1993, between California
Jockey Club and Bay Meadows Operating Company, incorporated by
reference to Exhibit 10.10 to Cal Jockey's and Bay Meadows' 1993 10-K
for the year ended December 31, 1993 (Nos. 001-09319, 001-09320).
10.5 Agreement of Purchase and Sale dated December 21, 1995 between
California Jockey Club and Lee Iacocca & Associates, Inc.,
incorporated by reference to Exhibit 10.19 to Cal Jockey's Annual
Report on Form 10-K for the year ended December 31, 1993 (No. 001-
09319).
10.6 Agreement of Purchase and Sale dated May 31, 1995, First Amendment
dated June 12, 1995, Second Amendment dated December , 1995, Third
Amendment dated January 31, 1996, and Fourth Amendment dated March
18, 1996, between California Jockey Club and Property Resources,
Inc., incorporated by reference to Exhibit 10.20 to the Cal Jockey's
Annual Report on Form 10-K for the year ended December 31, 1995 (No.
001-09319).
10.7 Fifth Amendment to Agreement of Purchase and Sale dated April , 1996
between California Jockey Club and Property Resources, Inc.,
incorporated by reference to Exhibit 20.2 to Cal Jockey's Quarterly
Report on Form 10-Q for the quarter ended September 30, 1996 (No.
001-09319).
10.8 Sixth Amendment to Agreement of Purchase and Sale dated August 18,
1996, between California Jockey Club and Property Resources, Inc.,
incorporated by reference to Exhibit 20.1 to Cal Jockey's Quarterly
Report on Form 10-Q for the quarter ended September 30, 1996 (No.
001-09319).
10.9 Amendment No. 3 to Agreement of Purchase and Sale dated June 28 1996,
amending the Agreement of Purchase and Sale dated December 21, 1995
between California Jockey Club and Lee Iacocca & Associates, Inc.,
incorporated by reference to Exhibit 20.3 to Cal Jockey's Quarterly
Report on Form 10-Q for the quarter ended September 30, 1996 (No.
001-09319).
10.10 Amendment No. 2 to Agreement of Purchase and Sale dated may 31, 1996,
amending the Agreement of Purchase and Sale dated December 21, 1995
between California Jockey Club and Lee Iacocca & Associates, Inc.,
incorporated by reference to Exhibit 20.4 to Cal Jockey's Quarterly
Report on Form 10-Q for the quarter ended September 30, 1996 (No.
001-09319).
10.11 Amendment No. 1 to Agreement of Purchase and Sale dated March 5,
1996, amending the Agreement of Purchase and Sale dated December 21,
1995 between California Jockey Club and Lee Iacocca & Associates,
Inc., incorporated by reference to Exhibit 20.5 to Cal Jockey's
Quarterly Report on Form 10-Q for the quarter ended September 30,
1996 (No. 001-09319).
10.12 Agreement for Purchase and Sale of Real Property and Joint Escrow
Instructions dated July 18, 1996, between California Jockey Club and
Public Storage, Inc., incorporated by reference to Cal Jockey's
Annual Report on Form 10-K for the year ended December 31, 1996 (No.
001-09319).
10.13 Amendment to Agreement for Purchase and Sale of Real Property and
Joint Escrow Instructions dated as of January 31, 1997, between
California Jockey Club and Public Storage, Inc., incorporated by
reference to Cal Jockey's Annual Report on Form 10-K for the year
ended December 31, 1996 (No. 001-09319).
10.14 Ground Lease dated November 22, 1996, between California Jockey Club
and Borders, Inc., incorporated by reference to Cal Jockey's Annual
Report on Form 10-K for the year ended December 31, 1996 (No. 001-
09319).
10.15 Indemnification Agreement between Bay Meadows Operating Company and
Eugene F. Barsotti, Jr. dated August 30, 1996, incorporated by
reference to Exhibit 10.7 of Bay Meadows' Quarterly Report on Form
10-Q for the quarter ended September 30, 1996 (No. 001-09320).
</TABLE>
II-3
<PAGE>
<TABLE>
<CAPTION>
NUMBER DESCRIPTION
------ -----------
<C> <S>
10.16 Indemnification Agreement between Bay Meadows Operating Company and
Greg S. Gunderson dated August 30, 1996, incorporated by reference to
Exhibit 10.8 of Bay Meadows' Quarterly Report on Form 10-Q for the
quarter ended September 30, 1996 (No. 001-09320).
10.17 Indemnification Agreement between Bay Meadows Operating Company and F.
Jack Liebau dated August 30, 1996, incorporated by reference to Exhibit
10.9 of Bay Meadows' Quarterly Report on Form 10-Q for the quarter
ended September 30, 1996 (No. 001-09320).
10.18 Indemnification Agreement between Bay Meadows Operating Company and
John C. Harris dated August 30, 1996, incorporated by reference to
Exhibit 10.10 of Bay Meadows' Quarterly Report on Form 10-Q for the
quarter ended September 30, 1996 (No. 001-09320).
10.19 Indemnification Agreement between Bay Meadows Operating Company and Lee
Tucker dated August 30, 1996, incorporated by reference to Exhibit
10.11 of Bay Meadows' Quarterly Report on Form 10-Q for the quarter
ended September 30, 1996 (No. 001-09320).
10.20 Indemnification Agreement between Bay Meadows Operating Company and An-
thony J. Zidich dated August 30, 1996, incorporated by reference to Ex-
hibit 10.12 of Bay Meadows' Quarterly Report on Form 10-Q for the quar-
ter ended September 30, 1996 (No. 001-09320).
10.21 Indemnification Agreement between Bay Meadows Operating Company and
Frank Trigeiro dated August 30, 1996, incorporated by reference to Ex-
hibit 10.13 of Bay Meadows' Quarterly Report on Form 10-Q for the quar-
ter ended September 30, 1996 (No. 001-09320).
10.22 Indemnification Agreement between Bay Meadows Operating Company and F.
Scott Gross dated January 3, 1997, incorporated by reference to Exhibit
10.1 of Bay Meadows' Quarterly Report on Form 10-Q for the quarter
ended March 30, 1997 (No. 001-09320)
10.23 Form of California Jockey Club Indemnification Agreement incorporated
by reference to Exhibit 10.14 of Cal Jockey's Quarterly Report on Form
10-Q for the quarter ended September 30, 1996 (No. 001-09320).
10.24 Severance Agreement between Bay Meadows Operating Company and Eugene F.
Barsotti, Jr. dated August 30, 1996, incorporated by reference to Ex-
hibit 10.1 of Bay Meadows' Quarterly Report on Form 10-Q for the quar-
ter ended September 30, 1996 (No. 001-09320).
10.25 Severance Agreement between Bay Meadows Operating Company and Sharon
Kelley dated August 30, 1996, incorporated by reference to Exhibit 10.2
of Bay Meadows' Quarterly Report on Form 10-Q for the quarter ended
September 30, 1996 (No. 001-09320).
10.26 Severance Agreement between Bay Meadows Operating Company and F. Jack
Liebau dated August 30, 1996, incorporated by reference to Exhibit 10.3
of Bay Meadows' Quarterly Report on Form 10-Q for the quarter ended
September 30, 1996 (No. 001-09320).
10.27 Severance Agreement between Bay Meadows Operating Company and Michael
Scalzo dated August 30, 1996, incorporated by reference to Exhibit 10.4
of Bay Meadows' Quarterly Report on Form 10-Q for the quarter ended
September 30, 1996 (No. 001-09320).
10.28 Severance Agreement between Bay Meadows Operating Company and Frank
Trigeiro dated August 30, 1996, incorporated by reference to Exhibit
10.5 of Bay Meadows' Quarterly Report on Form 10-Q for the quarter
ended September 30, 1996 (No. 001-09320).
10.29 Severance Agreement between Bay Meadows Operating Company and Nathaniel
Wess dated August 30, 1996, incorporated by reference to Exhibit 10.6
of Bay Meadows' Quarterly Report on Form 10-Q for the quarter ended
September 30, 1996 (No. 001-09320).
*10.30 Agreement and Plan of Merger, dated as of April 14, 1997, between Pa-
triot American Hospitality, Inc. and Wyndham Hotel Corporation.
*10.31 Stock Purchase Agreement, dated as of April 14, 1997, between Patriot
American Hospitality, Inc. and CF Securities, L.P.
*10.32 Omnibus Purchase and Sale Agreement, dated as of April 14, 1997, by and
among the Crow Family Entities and Patriot American Hospitality Part-
nership, L.P.
</TABLE>
II-4
<PAGE>
<TABLE>
<CAPTION>
NUMBER DESCRIPTION
------ -----------
<C> <S>
*10.33 Agreement of Purchase and Sale and Joint Escrow Instructions, dated as
of April 18, 1997 between Patriot American Hospitality, Inc. and PW
Acquisitions IV, LLC.
*10.34 Credit Facilities Committment Letter, dated as of May 23, 1997, between
Patriot American Hospitality, Inc., Paine Webber Real Estate
Securities, Inc. and The Chase Manhattan Bank.
21.1 Subsidiaries of Bay Meadows Operating Company, incorporated by
reference to Bay Meadows' Annual Report on Form 10-K for the year ended
December 31, 1996 (No. 001-09320).
21.2 Subsidiaries of Patriot American Hospitality, Inc., incorporated by
reference to Patriot's Annual Report on Form 10-K for the year ended
December 31, 1996 (No. 001-13898).
*23.1 Consent of Ernst & Young LLP (Dallas, Texas).
*23.2 Consent of Ernst & Young LLP (Seattle, Washington).
*23.3 Consent of Ernst & Young LLP (Phoenix, Arizona).
*23.4 Consent of Coopers & Lybrand L.L.P. (Fort Lauderdale, Florida).
*23.5 Consent of Coopers & Lybrand, L.L.P. (Pittsburgh, Pennsylvania).
*23.6 Consent of Coopers & Lybrand L.L.P. (Dallas, Texas).
*23.7 Consent of Coopers & Lybrand L.L.P. (Dallas, Texas).
*23.8 Consent of Pannell Kerr Forster PC (Alexandria, Virginia).
*23.9 Consent of Price Waterhouse LLP (Miami, Florida).
*23.10 Consent of Deloitte & Touche LLP (San Francisco, California).
*23.11 Consent of Arthur Andersen LLP (Dallas, Texas).
23.12 Consent of Latham & Watkins (included in Exhibit 5.1).
23.13 Consent of McCutchen, Doyle, Brown & Enerson, LLP (included in Exhibit
5.2).
23.14 Consent of Goodwin, Procter & Hoar llp (included in Exhibit 8.1).
24.1 Powers of Attorney (included in Part II of this Registration
Statement).
99.1 Opinion of PaineWebber Incorporated as to the fairness of the
transaction to stockholders of Patriot, attached as Annex F to the
Joint Proxy Statement/Prospectus.
99.2 Opinion of Montgomery Securities as to the fairness of the transaction
to stockholders of Cal Jockey and Bay Meadows, attached as Annex G to
the Joint Proxy Statement/Prospectus.
*99.3 Consent of Montgomery Securities.
*99.4 Consent of PaineWebber Incorporated.
*99.5 Form of California Jockey Club Proxy.
*99.6 Form of Bay Meadows Operating Company Proxy.
*99.7 Form of Patriot American Hospitality, Inc. Proxy.
</TABLE>
- --------
* Filed herewith
(B) FINANCIAL STATEMENT SCHEDULES
None.
(C) ITEM 4(B) INFORMATION
The opinion of PaineWebber Incorporated will be included, and the opinion of
Montgomery Securities is included, as Annex F and Annex G, respectively, to
the Joint Proxy Statement/Prospectus included in this Registration Statement.
II-5
<PAGE>
ITEM 22. 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.
(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.
(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.
(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 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 (and, where applicable, each filing of an employee benefit plan's
annual report pursuant to Section 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) The registrant hereby undertakes as follows: that prior to any public
reoffering of the securities registered hereunder through use of a prospectus
which is a part of this registration statement, by any person or party who is
deemed to be an underwriter within the meaning of Rule 145(c), the issuer
undertakes that such reoffering prospectus will contain the information called
for by the applicable registration form with respect to reofferings by persons
who may be deemed underwriters, in addition to the information called for by
the other items of the applicable form.
(d) The registrant undertakes that every prospectus: (i) that is filed
pursuant to paragraph (c) immediately preceding, or (ii) that purports to meet
the requirements of Section 10(a)(3) of the Act and is used in connection with
an offering of securities subject to Rule 415, will be filed as a part of an
amendment to the registration statement and will not be used until such
amendment is effective, and that, for purposes 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.
(e) 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
II-6
<PAGE>
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 Act and will be governed by
the final adjudication of such issue.
(f) The registrant hereby undertakes to respond to requests for information
that is incorporated by reference into the prospectus pursuant to Item 4,
10(b), 11, or 13 of this form, within one business day of receipt of such
request, and to send the incorporated documents by first class mail or other
equally prompt means. This includes information contained in documents filed
subsequent to the effective date of the registration statement through the
date of responding to the request.
(g) The registrant hereby undertakes to supply by means of a post-effective
amendment all information concerning a transaction, and the company being
acquired involved therein, that was not the subject of and included in the
registration statement when it became effective.
II-7
<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 SAN
MATEO, STATE OF CALIFORNIA, MAY 30, 1997.
CALIFORNIA JOCKEY CLUB BAY MEADOWS OPERATING COMPANY
/s/ Kjell H. Qvale /s/ F. Jack Liebau
By: ___________________________ By: _________________________________
KJELL H. QVALE, F. JACK LIEBAU, PRESIDENT AND
CHAIRMAN OF THE BOARD CHIEF 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 KJELL H. QVALE AND JAMES M. HARRIS 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 INTENTS 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/ James P. Conn Director, California May 30, 1997
- ----------------------------------- Jockey Club
JAMES P. CONN
/s/ David Gjerdrum Director, California May 30, 1997
- ----------------------------------- Jockey Club
DAVID GJERDRUM
/s/ James M. Harris Director, President, May 30, 1997
- ----------------------------------- Treasurer and
JAMES M. HARRIS Secretary, California
Jockey Club (Principal
Executive Officer,
Principal Financial
Officer and Principal
Accounting Officer)
/s/ Kjell H. Qvale Chairman of the Board, May 30, 1997
- ----------------------------------- California Jockey Club
KJELL H. QVALE
/s/ Ronald J. Volkman Director, California May 30, 1997
- ----------------------------------- Jockey Club
RONALD J. VOLKMAN
</TABLE>
II-8
<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 F. JACK LIEBAU AND FRANK TRIGEIRO 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 INTENTS 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/ Eugene F. Barsotti, Jr. Director and Vice May 30, 1997
- ------------------------------------- President--Racing,
EUGENE F. BARSOTTI, JR. Bay Meadows
Operating Company
/s/ F. Scott Gross Director, Bay May 30, 1997
- ------------------------------------- Meadows Operating
F. SCOTT GROSS Company
/s/ Greg S. Gunderson Director, Bay May 30, 1997
- ------------------------------------- Meadows Operating
GREG S. GUNDERSON Company
Chairman of the May 30, 1997
/s/ John C. Harris Board, Bay Meadows
- ------------------------------------- Operating Company
JOHN C. HARRIS
/s/ F. Jack Liebau Director, President May 30, 1997
- ------------------------------------- and Chief Executive
F. JACK LIEBAU Officer, Bay
Meadows Operating
Company
/s/ Frank Trigeiro Chief Financial May 30, 1997
- ------------------------------------- Officer and Vice
FRANK TRIGEIRO President--Finance,
Bay Meadows
Operating Company
(Principal
Financial Officer
and Principal
Accounting Officer)
/s/ Lee R. Tucker Director and May 30, 1997
- ------------------------------------- Secretary, Bay
LEE R. TUCKER Meadows Operating
Company
Director and May 30, 1997
/s/ Anthony J. Zidich Treasurer, Bay
- ------------------------------------- Meadows Operating
ANTHONY J. ZIDICH Company
</TABLE>
II-9
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
NUMBER DESCRIPTION PAGE
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<C> <S> <C>
2.1 Agreement and Plan of Merger, dated as of February 24, 1997, as
amended and restated as of May 28, 1997, by and among Patriot
American Hospitality, Inc., Patriot American Hospitality
Partnership, L.P., California Jockey Club and Bay Meadows
Operating Company (the "Merger Agreement"), attached as Annex A
to the Joint Proxy Statement/Prospectus included in Part I of
this Registration Statement and incorporated herein by
reference. Patriot, Cal Jockey and Bay Meadows hereby undertake
to furnish supplementally to the Commission upon request a copy
of any omitted schedule or exhibit to the Merger Agreement.
*2.2 Form of Subscription Agreement by and between Patriot American
Hospitality Partnership, L.P. and Bay Meadows Operating Company.
3.1 Certificate of Incorporation, as amended, of California Jockey
Club, incorporated by reference to Exhibit 3.1 to Cal Jockey's
Annual Report on Form 10-K for the year ended December 31, 1987
(Nos. 001-09319, 001-09320).
3.2 Certificate of Incorporation, as amended, of Bay Meadows
Operating Company, incorporated by reference to Exhibit 3.1 to
Bay Meadows' Annual Report on Form 10-K for the year ended
December 31, 1987 (Nos. 001-09319, 001-09320).
3.3 Agreement of Merger, dated March 24, 1983, between California
Jockey Club and Bay Meadows Realty Enterprises, Inc., Article II
of which changed the name of Bay Meadows Realty Enterprises,
Inc. to California Jockey Club, incorporated herein by reference
to Exhibit 2 to Cal Jockey's and Bay Meadows' Registration
Statement on Form S-2 as filed with the Securities and Exchange
Commission on November 14, 1986 (Nos. 001-09319, 001-09320).
3.4 Bylaws, as amended, of California Jockey Club, incorporated by
reference to Exhibit 3.3 to Cal Jockey's Annual Report on Form
10-K for the year ended December 31, 1987, Exhibit 28.1 to Cal
Jockey's Quarterly Report on Form 10-Q for the quarter ended
September 30, 1989, and Exhibit 3.5 of Cal Jockey's Annual
Report on Form 10-K for the year ended December 31, 1995 (Nos.
001-09319, 001-09320).
3.5 Bylaws, as amended, of Bay Meadows Operating Company,
incorporated by reference to Exhibit 3.4 to Bay Meadows' Annual
Report on Form 10-K for the year ended December 31, 1987,
Exhibit 28.2 to Bay Meadows' Quarterly Report on Form 10-Q for
the quarter ended September 30, 1989, and Exhibit 3.6 of Bay
Meadows' Annual Report on Form 10-K for the year ended December
31, 1995 (Nos. 001-09319, 001-09320).
3.6 Amended and Restated Articles of Incorporation of Patriot
American Hospitality, Inc., incorporated by reference to Exhibit
3.2 to Patriot's Registration Statement on Form S-11 (No. 33-
94612).
3.7 Bylaws of Patriot American Hospitality, Inc., incorporated by
reference to Exhibit 3.4 to Patriot's Registration Statement on
Form S-11 (No. 33-94612).
3.8 Form of Amended and Restated Certificate of Incorporation of New
Patriot REIT attached as Annex B to the Joint Proxy
Statement/Prospectus, included in Part I of this Registration
Statement and incorporated herein by reference.
3.9 Form of Amended and Restated Certificate of Incorporation of New
Patriot Operating Company attached as Annex C to the Joint Proxy
Statement/Prospectus, included in Part I of this Registration
Statement and incorporated herein by reference.
3.10 Form of Amended and Restated Bylaws of New Patriot REIT attached
as Annex D to the Joint Proxy Statement/Prospectus, included in
Part I of this Registration Statement and incorporated herein by
reference.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
NUMBER DESCRIPTION PAGE
-------- ----------- ----
<C> <S> <C>
3.11 Form of Amended and Restated Bylaws of New Patriot Operating
Company, attached as Annex E to the Joint Proxy
Statement/Prospectus, included in Part I of this Registration
Statement and incorporated herein by reference.
4.1 Agreement (the "Pairing Agreement"), dated February 15, 1983
and as amended February 18, 1988, between Bay Meadows
Operating Company and California Jockey Club (formerly named
Bay Meadows Realty Enterprises, Inc.), as amended,
incorporated by reference to Exhibit 4.3 to Cal Jockey's and
Bay Meadows' Registration Statement on Form S-2, and to
Exhibit 4.2 to Cal Jockey's and Bay Meadows' Annual Report on
Form 10-K for the year ended December 31, 1987 (Nos.
001-09319, 001-09320).
*4.2 Form of Amendment No. 2 to the Pairing Agreement.
*4.3 Specimen Certificates for shares of Common Stock, par value
$.01 per share, of New Patriot REIT and shares of Common
Stock, par value $.01 per share, of New Patriot Operating
Company.
*5.1 Opinion of Latham & Watkins as to legality of the securities
being offered by California Jockey Club.
*5.2 Opinion of McCutchen, Doyle, Brown & Enersen, LLP as to the
legality of the securities being offered by Bay Meadows
Operating Company.
*8.1 Opinion of Goodwin, Procter & Hoar llp regarding tax
consequences of the Merger.
*8.2 Opinion of Goodwin, Procter & Hoar llp regarding (i) Patriot's
qualification as a REIT for periods prior to the Merger, (ii)
Cal Jockey's qualification as a REIT for periods prior to the
Merger and (iii) New Patriot REIT's ability to qualify as a
REIT following the Merger.
*10.1(1) Second Amended and Restated Agreement of Limited Partnership
of Patriot American Hospitality Partnership, L.P.
*10.1(2) First Amendment to the Second Amended and Restated Agreement
of Limited Partnership of Patriot American Hospitality
Partnership, L.P.
*10.1(3) Form of Second Amendment to the Second Amended and Restated
Agreement of Limited Partnership of Patriot American
Hospitality Partnership, L.P.
*10.2 Form of Agreement of Limited Partnership of Patriot American
Hospitality Operating Partnership, L.P.
*10.3 Form of Amended and Restated Patriot American Hospitality,
Inc. 1995 Incentive Plan.
10.4 Lease Agreement, dated March 29, 1993, and First Amendment to
Lease dated September 30, Lease Agreement, dated March 29,
1993, and First Amendment to Lease dated September 30, 1993,
between California Jockey Club and Bay Meadows Operating
Company, incorporated by reference to Exhibit 10.10 to Cal
Jockey's and Bay Meadows' 1993 10-K for the year ended
December 31, 1993 (Nos. 001-09319, 001-09320).
10.5 Agreement of Purchase and Sale dated December 21, 1995 between
California Jockey Club and Lee Iacocca & Associates, Inc.,
incorporated by reference to Exhibit 10.19 to Cal Jockey's
Annual Report on Form 10-K for the year ended December 31,
1993 (No. 001-09319).
10.6 Agreement of Purchase and Sale dated May 31, 1995, First
Amendment dated June 12, 1995, Second Amendment dated December
, 1995, Third Amendment dated January 31, 1996, and Fourth
Amendment dated March 18, 1996, between California Jockey Club
and Property Resources, Inc., incorporated by reference to
Exhibit 10.20 to the Cal Jockey's Annual Report on Form 10-K
for the year ended December 31, 1995 (No. 001-09319).
10.7 Fifth Amendment to Agreement of Purchase and Sale dated April
, 1996 between California Jockey Club and Property Resources,
Inc., incorporated by reference to Exhibit 20.2 to Cal
Jockey's Quarterly Report on Form 10-Q for the quarter ended
September 30, 1996 (No. 001-09319).
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
NUMBER DESCRIPTION PAGE
------ ----------- ----
<C> <S> <C>
10.8 Sixth Amendment to Agreement of Purchase and Sale dated August
18, 1996, between California Jockey Club and Property Resources,
Inc., incorporated by reference to Exhibit 20.1 to Cal Jockey's
Quarterly Report on Form 10-Q for the quarter ended September
30, 1996 (No. 001-09319).
10.9 Amendment No. 3 to Agreement of Purchase and Sale dated June 28
1996, amending the Agreement of Purchase and Sale dated December
21, 1995 between California Jockey Club and Lee Iacocca &
Associates, Inc., incorporated by reference to Exhibit 20.3 to
Cal Jockey's Quarterly Report on Form 10-Q for the quarter ended
September 30, 1996 (No. 001-09319).
10.10 Amendment No. 2 to Agreement of Purchase and Sale dated may 31,
1996, amending the Agreement of Purchase and Sale dated December
21, 1995 between California Jockey Club and Lee Iacocca &
Associates, Inc., incorporated by reference to Exhibit 20.4 to
Cal Jockey's Quarterly Report on Form 10-Q for the quarter ended
September 30, 1996 (No. 001-09319).
10.11 Amendment No. 1 to Agreement of Purchase and Sale dated March 5,
1996, amending the Agreement of Purchase and Sale dated December
21, 1995 between California Jockey Club and Lee Iacocca &
Associates, Inc., incorporated by reference to Exhibit 20.5 to
Cal Jockey's Quarterly Report on Form 10-Q for the quarter ended
September 30, 1996 (No. 001-09319).
10.12 Agreement for Purchase and Sale of Real Property and Joint
Escrow Instructions dated July 18, 1996, between California
Jockey Club and Public Storage, Inc., incorporated by reference
to Cal Jockey's Annual Report on Form 10-K for the year ended
December 31, 1996 (No. 001-09319).
10.13 Amendment to Agreement for Purchase and Sale of Real Property
and Joint Escrow Instructions dated as of January 31, 1997,
between California Jockey Club and Public Storage, Inc.,
incorporated by reference to Cal Jockey's Annual Report on Form
10-K for the year ended December 31, 1996 (No. 001-09319).
10.14 Ground Lease dated November 22, 1996, between California Jockey
Club and Borders, Inc., incorporated by reference to Cal
Jockey's Annual Report on Form 10-K for the year ended December
31, 1996 (No. 001-09319).
10.15 Indemnification Agreement between Bay Meadows Operating Company
and Eugene F. Barsotti, Jr. dated August 30, 1996, incorporated
by reference to Exhibit 10.7 of Bay Meadows' Quarterly Report on
Form 10-Q for the quarter ended September 30, 1996 (No. 001-
09320).
10.16 Indemnification Agreement between Bay Meadows Operating Company
and Greg S. Gunderson dated August 30, 1996, incorporated by
reference to Exhibit 10.8 of Bay Meadows' Quarterly Report on
Form 10-Q for the quarter ended September 30, 1996 (No. 001-
09320).
10.17 Indemnification Agreement between Bay Meadows Operating Company
and F. Jack Liebau dated August 30, 1996, incorporated by
reference to Exhibit 10.9 of Bay Meadows' Quarterly Report on
Form 10-Q for the quarter ended September 30, 1996 (No. 001-
09320).
10.18 Indemnification Agreement between Bay Meadows Operating Company
and John C. Harris dated August 30, 1996, incorporated by
reference to Exhibit 10.10 of Bay Meadows' Quarterly Report on
Form 10-Q for the quarter ended September 30, 1996 (No. 001-
09320).
10.19 Indemnification Agreement between Bay Meadows Operating Company
and Lee Tucker dated August 30, 1996, incorporated by reference
to Exhibit 10.11 of Bay Meadows' Quarterly Report on Form 10-Q
for the quarter ended September 30, 1996 (No. 001-09320).
10.20 Indemnification Agreement between Bay Meadows Operating Company
and Anthony J. Zidich dated August 30, 1996, incorporated by
reference to Exhibit 10.12 of Bay Meadows' Quarterly Report on
Form 10-Q for the quarter ended September 30, 1996 (No. 001-
09320).
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
NUMBER DESCRIPTION PAGE
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<C> <S> <C>
10.21 Indemnification Agreement between Bay Meadows Operating Company
and Frank Trigeiro dated August 30, 1996, incorporated by refer-
ence to Exhibit 10.13 of Bay Meadows' Quarterly Report on Form
10-Q for the quarter ended September 30, 1996 (No. 001-09320).
10.22 Indemnification Agreement between Bay Meadows Operating Company
and F. Scott Gross dated January 3, 1997, incorporated by refer-
ence to Exhibit 10.1 of Bay Meadows' Quarterly Report on Form
10-Q for the quarter ended March 30, 1997 (No. 001-09320)
10.23 Form of California Jockey Club Indemnification Agreement incor-
porated by reference to Exhibit 10.14 of Cal Jockey's Quarterly
Report on Form 10-Q for the quarter ended September 30, 1996
(No. 001-09320).
10.24 Severance Agreement between Bay Meadows Operating Company and
Eugene F. Barsotti, Jr. dated August 30, 1996, incorporated by
reference to Exhibit 10.1 of Bay Meadows' Quarterly Report on
Form 10-Q for the quarter ended September 30, 1996 (No. 001-
09320).
10.25 Severance Agreement between Bay Meadows Operating Company and
Sharon Kelley dated August 30, 1996, incorporated by reference
to Exhibit 10.2 of Bay Meadows' Quarterly Report on Form 10-Q
for the quarter ended September 30, 1996 (No. 001-09320).
10.26 Severance Agreement between Bay Meadows Operating Company and F.
Jack Liebau dated August 30, 1996, incorporated by reference to
Exhibit 10.3 of Bay Meadows' Quarterly Report on Form 10-Q for
the quarter ended September 30, 1996 (No. 001-09320).
10.27 Severance Agreement between Bay Meadows Operating Company and
Michael Scalzo dated August 30, 1996, incorporated by reference
to Exhibit 10.4 of Bay Meadows' Quarterly Report on Form 10-Q
for the quarter ended September 30, 1996 (No. 001-09320).
10.28 Severance Agreement between Bay Meadows Operating Company and
Frank Trigeiro dated August 30, 1996, incorporated by reference
to Exhibit 10.5 of Bay Meadows' Quarterly Report on Form 10-Q
for the quarter ended September 30, 1996 (No. 001-09320).
10.29 Severance Agreement between Bay Meadows Operating Company and
Nathaniel Wess dated August 30, 1996, incorporated by reference
to Exhibit 10.6 of Bay Meadows' Quarterly Report on Form 10-Q
for the quarter ended September 30, 1996 (No. 001-09320).
*10.30 Agreement and Plan of Merger, dated as of April 14, 1997, be-
tween Patriot American Hospitality, Inc. and Wyndham Hotel Cor-
poration.
*10.31 Stock Purchase Agreement, dated as of April 14, 1997, between
Patriot American Hospitality, Inc. and CF Securities, L.P.
*10.32 Omnibus Purchase and Sale Agreement, dated as of April 14, 1997,
by and among the Crow Family Entities and Patriot American Hos-
pitality Partnership, L.P.
*10.33 Agreement of Purchase and Sale and Joint Escrow Instructions,
dated as of April 18, 1997 between Patriot American Hospitality,
Inc. and PW Acquisitions IV, LLC.
*10.34 Credit Facilities Committment Letter, dated as of May 23, 1997,
between Patriot American Hospitality, Inc., Paine Webber Real
Estate Securities, Inc. and The Chase Manhattan Bank.
21.1 Subsidiaries of Bay Meadows Operating Company, incorporated by
reference to Bay Meadows' Annual Report on Form 10-K for the
year ended December 31, 1996 (No. 001-09320).
21.2 Subsidiaries of Patriot American Hospitality, Inc., incorporated
by reference to Patriot's Annual Report on Form 10-K for the
year ended December 31, 1996 (No. 001-13898).
*23.1 Consent of Ernst & Young LLP (Dallas, Texas).
*23.2 Consent of Ernst & Young LLP (Seattle, Washington).
*23.3 Consent of Ernst & Young LLP (Phoenix, Arizona).
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
NUMBER DESCRIPTION PAGE
------ ----------- ----
<C> <S> <C>
*23.4 Consent of Coopers & Lybrand L.L.P. (Fort Lauderdale, Florida).
*23.5 Consent of Coopers & Lybrand, L.L.P. (Pittsburgh, Pennsylvania).
*23.6 Consent of Coopers & Lybrand L.L.P. (Dallas, Texas).
*23.7 Consent of Coopers & Lybrand L.L.P. (Dallas, Texas).
*23.8 Consent of Pannell Kerr Forster PC (Alexandria, Virginia).
*23.9 Consent of Price Waterhouse LLP (Miami, Florida).
*23.10 Consent of Deloitte & Touche LLP (San Francisco, California).
*23.11 Consent of Arthur Andersen LLP (Dallas, Texas).
23.12 Consent of Latham & Watkins (included in Exhibit 5.1).
23.13 Consent of McCutchen, Doyle, Brown & Enerson, LLP (included in
Exhibit 5.2).
23.14 Consent of Goodwin, Procter & Hoar llp (included in Exhibit
8.1).
24.1 Powers of Attorney (included in Part II of this Registration
Statement).
99.1 Opinion of PaineWebber Incorporated as to the fairness of the
transaction to stockholders of Patriot, attached as Annex F to
the Joint Proxy Statement/Prospectus.
99.2 Opinion of Montgomery Securities as to the fairness of the
transaction to stockholders of Cal Jockey and Bay Meadows,
attached as Annex G to the Joint Proxy Statement/Prospectus.
*99.3 Consent of Montgomery Securities.
*99.4 Consent of PaineWebber Incorporated.
*99.5 Form of California Jockey Club Proxy.
*99.6 Form of Bay Meadows Operating Company Proxy.
*99.7 Form of Patriot American Hospitality, Inc. Proxy.
</TABLE>
- --------
* Filed herewith
<PAGE>
Exhibit 2.2
-----------
FORM OF
SUBSCRIPTION AGREEMENT
This Subscription Agreement (the "Agreement"), dated as of __________ __,
---------
1997, is entered into by and between Patriot American Hospitality Partnership,
L.P., a Virginia limited partnership ("Patriot OP") and Bay Meadows Operating
----------
Company, a Delaware corporation ("BMOC").
----
W I T N E S S E T H:
-------------------
WHEREAS, the shares of common stock, par value $.01 per share, of BMOC
("BMOC Stock") and the shares of common stock, par value $.01 per share ("Cal
----------- ---
Jockey Stock"), of California Jockey Club ("Cal Jockey") are paired and trade as
- ------------ ----------
a single unit on the American Stock Exchange in accordance with that certain
Pairing Agreement, dated as of February 17, 1983, as amended, between Cal Jockey
and BMOC (the "Pairing Agreement"); and
-----------------
WHEREAS, Patriot American Hospitality, Inc. ("Patriot"), BMOC and Cal
-------
Jockey have entered into an Agreement and Plan of Merger dated as of February
24, 1997 (the "Merger Agreement") pursuant to which Patriot will merge with and
----------------
into Cal Jockey (the "Merger") and Patriot's stockholders will be entitled to
------
receive shares of Cal Jockey Stock pursuant to the terms and subject to the
conditions set forth in the Merger Agreement. Capitalized terms used herein
without definition shall have the respective meanings ascribed to such terms in
the Merger Agreement; and
WHEREAS, to maintain the paired-share structure of Cal Jockey and BMOC and
to comply with the Pairing Agreement, Patriot OP wishes to subscribe for, and
BMOC wishes to issue an aggregate number of whole shares of BMOC Stock (the
"Subscribed Shares") that will be equal to, and paired with, the number of whole
-----------------
shares of Cal Jockey Stock to be issued to the Patriot stockholders pursuant to
the Merger upon the terms and subject to the conditions set forth in this
Agreement; and
WHEREAS, to effect a distribution-in-kind to certain partners of Patriot OP
which are wholly-owned subsidiaries of Patriot, Patriot OP and Patriot desire to
have BMOC issue the Subscribed Shares directly to the stockholders of Patriot.
NOW, THEREFORE, in consideration of the foregoing and the mutual covenants
contained herein, the parties hereto agree as follows:
1. Subscription of Shares.
----------------------
(a) Subject to the satisfaction or waiver of the conditions set forth
in Article 11 of the Merger Agreement, Patriot OP hereby agrees to subscribe for
the Subscribed Shares and to pay to BMOC, immediately prior to the consummation
of the Merger, the aggregate
<PAGE>
Purchase Price (as defined below) for the Subscribed Shares. Subject to the
satisfaction or waiver of the conditions set forth in Article 11 of the Merger
Agreement, BMOC hereby agrees to accept Patriot OP's subscription and to issue
the Subscribed Shares to the designees of Patriot OP or any subsequent designees
thereof (the "Designees") in accordance with Section 2 below, provided that
--------- --------
upon such issuance of Subscribed Shares to any Designee there is a simultaneous
issuance of an equivalent number of shares of Cal Jockey Stock to such Designee
in compliance with the provisions of the Pairing Agreement. The purchase price
per Subscribed Share (the "Purchase Price") shall be equal to the product of (x)
--------------
the greater of $33.00 and the "fair market value" (as defined below) of a Paired
Share, multiplied by (y) the relative value of a share of BMOC stock as compared
to a share of Cal Jockey Stock (which relative value shall be determined in
accordance with the third sentence of Section 2.1(a) of the Merger Agreement).
For purposes of this Agreement, the term "fair market value" shall mean the
-----------------
average closing price of the Paired Shares of Cal Jockey Stock and BMOC Stock on
the American Stock Exchange on the four (4) trading days immediately preceding
the Closing Date the Merger.
(b) The parties hereto acknowledge and agree that the Subscribed
Shares will be issued directly to the stockholders of Patriot in connection with
the Merger and will be paired with the Cal Jockey Stock issued in the Merger and
neither Patriot OP nor Patriot will at any time become a stockholder of BMOC.
2. Payment and Issuance of Subscribed Shares.
-----------------------------------------
(a) Subject to the terms and conditions of this Agreement and subject
to the satisfaction or waiver of the conditions set forth in Article 11 of the
Merger Agreement, Patriot OP shall immediately prior to the consummation of the
Merger cause to be paid to BMOC the aggregate Purchase Price for the Subscribed
Shares by check or wire transfer in immediately available funds. Simultaneously
with the payment of the aggregate Purchase Price, the Designees shall be
identified as the recipients of the Subscribed Shares.
(b) Immediately following payment of the aggregate Purchase Price and
the identification of the Designees pursuant to clause (a) above, BMOC shall
cause the Subscribed Shares to be deposited with the Exchange Agent pursuant to
and in accordance with Section 5.3(a) of the Merger Agreement for issuance in
accordance with Article 5 of the Merger Agreement.
(c) No fractional Subscribed Shares will be issued to any Designee
hereunder and in lieu thereof payment (if any) will be made pursuant to and in
accordance with Section 5.3(e) of the Merger Agreement.
3. Authorization and Reservation. BMOC shall take all actions necessary
-----------------------------
to authorize and reserve for issuance the Subscribed Shares pursuant to this
Agreement.
2
<PAGE>
4. Registration of Subscribed Shares. BMOC shall cause the Subscribed
---------------------------------
Shares to be registered with the SEC in accordance with the provisions of
Section 6.1 of the Merger Agreement.
5. Representations and Warranties of BMOC. BMOC hereby represents and
--------------------------------------
warrants to Patriot OP as follows:
(a) BMOC has all necessary corporate power and authority to execute
and deliver this Agreement and to perform its obligations hereunder. The
execution and delivery of this Agreement by BMOC, assuming approval of the
Merger and the Transactions by the stockholders of Bay Meadows, and the
performance by it of its obligations hereunder have been duly and validly
authorized by all necessary corporate action and no other corporate proceedings
on the part of BMOC are necessary to authorize this Agreement or to consummate
the transactions hereunder. Assuming approval of the Merger and the
Transactions by the stockholders of Bay Meadows, this Agreement has been duly
and validly executed and delivered by BMOC and, assuming the due authorization,
execution and delivery thereof by Patriot OP, constitutes the legal, valid and
binding obligation of BMOC, enforceable against it in accordance with its terms,
except as enforcement may be limited by bankruptcy, insolvency, moratorium or
other similar laws relating to creditors' rights generally and by equitable
principles to which the remedies of specific performance and injunctive and
similar forms of relief are subject.
(b) The Subscribed Shares, when issued, sold and delivered in
accordance with this Agreement, will be validly issued, outstanding, fully paid
and nonassessable, and free and clear of any and all liens, pledges,
encumbrances, charges or claims created by BMOC, and not subject to preemptive
or any other similar rights created by BMOC in the stockholders of BMOC, Cal
Jockey or others.
(c) The execution and delivery of this Agreement by BMOC does not, and
the performance of its obligations hereunder and the consummation of the
subscription by it will not, (A) conflict with or violate the certificate of
incorporation or bylaws or equivalent organizational documents of BMOC or any of
its subsidiaries, (B) subject to the making of the filings and obtaining the
approvals identified herein or in the Merger Agreement, conflict with or violate
any Laws applicable to BMOC or any of its subsidiaries or by which any property
or asset of BMOC or any of its subsidiaries is bound or affected, or (C)
conflict with or result in any breach of or constitute a default (or an event
which with notice or lapse of time or both would become a default) under, result
in the loss or modification in a manner materially adverse to BMOC or its
subsidiaries of any material right or benefit under, or give to others any right
of termination, amendment, acceleration, repurchase or repayment, increased
payments or cancellation of, or result in the creation of a lien or other
encumbrance on any property or asset of BMOC or any subsidiary pursuant to, any
Contract to which BMOC or any subsidiary is a party or by which BMOC or any
subsidiary or any property or asset of BMOC or any subsidiary is bound or
affected, except, in the case of clauses (B) and (C) for any such conflicts or
violations which would not prevent or delay in any material respect
3
<PAGE>
consummation of the Transactions, or otherwise, individually or in the
aggregate, prevent BMOC from performing its obligations under this Agreement in
any material respect, and would not, individually or in the aggregate, have a
BMOC Material Adverse Effect.
(d) The execution and delivery of this Agreement by BMOC does not, and
the performance of its obligations hereunder and the consummation of the
subscription by it will not, require any consent, approval, authorization or
permit of, or filing with or notification to, any Governmental Entity, except
(A) for applicable requirements of (1) the Exchange Act, the Securities Act, and
Blue Sky Laws and (2) the HSR Act, (B) for any consents related to the transfer
of liquor licenses or any consents required by the appropriate California gaming
and entertainment authorities, and (C) where the failure to obtain such
consents, approvals, authorizations or permits, or to make such filings or
notifications, would not, individually or in the aggregate, prevent or delay in
any material respect consummation of the subscription, or otherwise prevent BMOC
from performing its obligations hereunder in any material respect, and would
not, individually or in the aggregate, have a BMOC Material Adverse Effect.
6. Representations and Warranties of Patriot OP. Patriot OP hereby
--------------------------------------------
represents and warrants to BMOC as follows:
(a) Patriot OP has all necessary power and authority to execute and
deliver this Agreement and to perform its obligations hereunder. The execution
and delivery of this Agreement by Patriot OP and the performance by it of its
obligations hereunder have been duly and validly authorized by all necessary
action and no other proceedings on the part of Patriot OP are necessary to
authorize this Agreement or to consummate the transactions hereunder. This
Agreement has been duly and validly executed and delivered by Patriot OP and,
assuming the due authorization, execution and delivery thereof by BMOC,
constitutes the legal, valid and binding obligation of Patriot OP, enforceable
against it in accordance with its terms, except as enforcement may be limited by
bankruptcy, insolvency, moratorium or other similar laws relating to creditors'
rights generally and by equitable principles to which the remedies of specific
performance and injunctive and similar forms of relief are subject.
(b) The execution and delivery by Patriot OP of this Agreement does
not, and the consummation by Patriot OP of the transactions contemplated hereby
will not, violate any provision of, or result in a breach, default or
acceleration of any obligation under any contract, agreement or other instrument
to which Patriot OP is a party or by which Patriot OP is bound.
7. Termination. This Agreement shall terminate effective upon
-----------
termination of the Merger Agreement pursuant to Section 12.1 thereof.
8. Governing Law. This Agreement shall be governed by and construed in
-------------
accordance with the laws of the State of Delaware.
4
<PAGE>
9 Assignment; Binding Effect; Benefit. This Agreement shall be binding
-----------------------------------
upon and inure to the benefit of the parties hereto and their respective
successors. This Agreement may not be assigned by either party without prior
written consent of the other party; provided, however, that Patriot OP may
-------- -------
assign its rights and obligations hereunder to an affiliate of Patriot OP,
provided that (i) such affiliate agrees to be bound hereby, (ii) Patriot OP
remains liable hereunder, and (iii) such assignment does not adversely effect
the Transactions from the perspective of the other parties.
10. Severability. Any term or provision of this Agreement which is
------------
invalid or unenforceable in any jurisdiction shall, as to that jurisdiction, be
ineffective to the extent of such invalidity or unenforceability without
rendering invalid or unenforceable the remaining terms and provisions of this
Agreement or affecting the validity or enforceability of any of the terms or
provisions of this Agreement in any other jurisdiction. If any provision of
this Agreement is so broad as to be unenforceable, the provision shall be
interpreted to be only so broad as is enforceable.
11. Counterparts. This Agreement may be executed in any number of
------------
counterparts, each of which shall be deemed an original and all of which shall
constitute one agreement.
[END OF TEXT]
5
<PAGE>
IN WITNESS WHEREOF the parties hereto have executed this Subscription
Agreement as of the date first set forth above.
BAY MEADOWS OPERATING COMPANY
By:___________________________________
Name:
Title:
PATRIOT AMERICAN HOSPITALITY
PARTNERSHIP, L.P.
By: PAH GP, Inc., its general partner
By:___________________________________
Name:
Title:
6
<PAGE>
Exhibit 4.2
-----------
FORM OF
AMENDMENT NO. 2 TO
PAIRING AGREEMENT
THIS AMENDMENT is made as of ___________ ____, 1997 to the Pairing
Agreement dated as of February 17, 1983 and amended as of February 18, 1988 (the
"Pairing Agreement") between CALIFORNIA JOCKEY CLUB (formerly Bay Meadows Realty
Enterprises, Inc.), a Delaware corporation ("Realty"), and BAY MEADOWS OPERATING
COMPANY, a Delaware corporation ("Operating Company").
WHEREAS, Realty, Patriot American Hospitality, Inc., a Virginia corporation
("Patriot"), Patriot American Hospitality Partnership, L.P., a Virginia limited
partnership, and Operating Company have entered into an Agreement and Plan of
Merger dated as of February 24, 1997 (the "Merger Agreement") whereby Patriot
will merge with and into Realty (the "Merger") and in connection with the Merger
(i) Realty's name will be changed to "Patriot American Hospitality, Inc." and
(ii) Operating Company's name will be changed to "Patriot American Hospitality
Operating Company"; and
WHEREAS, to assist Realty in qualifying and maintaining its status as a
real estate investment trust, the Amended and Restated Certificate of
Incorporation of Realty and the Amended and Restated Certificate of
Incorporation of Operating Company (collectively, the "New Charters") will
provide that (i) no Person (as defined in the New Charters) may Beneficially Own
or Constructively Own (as these terms are defined in the New Charters) shares of
any class or series of common stock, par value $.01 per share, or preferred
stock, par value $.01 per share (collectively, "Equity Stock"), of Realty or
Operating Company in excess of 9.8% of the total outstanding shares of such
class or series of Equity Stock of Realty or Operating Company (the "Ownership
Limit"), unless the Ownership Limit is waived by the Board of Directors of the
relevant corporation, and that (ii) any Transfer (as defined in the New
Charters) that, if effective, would (a) result in any Person Beneficially Owning
or Constructively Owning shares of Equity Stock in excess of the Ownership
Limit, (b) result in the shares of capital stock of Realty being beneficially
owned (within the meaning of Section 856(a)(5) of the Internal Revenue Code of
1986, as amended (the "Code")) by fewer than 100 persons within the meaning of
Section 856(a)(5) of the Code, (c) result in Realty being "closely held" within
the meaning of Section 856(h) of the Code or (d) cause Realty to Constructively
Own (as defined in the New Charters) 10% or more of the ownership interest in a
tenant of the real property of Realty or a subsidiary of Realty within the
meaning of Section 856(d)(2)(B) of the Code (collectively, the "Transfer
Restrictions"), shall be void ab initio, and the intended transferee shall
acquire no right or interest in such shares of Equity Stock; and
<PAGE>
WHEREAS, the New Charters will each provide that any shares of any class or
series of Equity Stock of Realty or Operating Company that are Transferred to a
Person in excess of the Ownership Limit or in violation of any of the Transfer
Restrictions shall, subject to certain provisions of the New Charters, be
automatically converted into an equal number of shares of excess stock, par
value $.01 per share ("Excess Stock"), of Realty or Operating Company, as the
case may be, and shall be simultaneously transferred to a trust (a "Trust") and
registered in the name of a trustee (a "Trustee") and that such Trust and
Trustee shall be designated by Realty and Operating Company in accordance with
the Pairing Agreement; and
WHEREAS, the New Charters will each provide that all shares of Excess Stock
of Realty and Operating Company shall be held in a Trust for the exclusive
benefit of a beneficiary (a "Beneficiary") and that such Beneficiary shall be
designated by Realty and Operating Company pursuant to the terms of the Pairing
Agreement; and
WHEREAS, pursuant to and in compliance with Section 9 of the Pairing
Agreement, Realty and Operating Company desire to amend the Pairing Agreement to
provide for the coordination of any exemption from the Ownership Limit, the
designation of a Trustee and a Beneficiary and for the termination of the
Ownership Limit and the Transfer Restrictions as set forth in this Amendment.
NOW THEREFORE, in consideration of the mutual agreements set forth herein
and in the Pairing Agreement, the parties hereto agree as follows:
1. Section 6 of the Pairing Agreement is hereby deleted in its entirety
and shall be replaced with the following:
"6. Shares in Excess of the Ownership Limit or in Violation of
the Transfer Restrictions; Designation of Trustee and Beneficiaries. Until
such time as the Board of Directors of Realty determine that it is no
longer in the best interest of Realty to attempt to, or continue to,
qualify under the Internal Revenue Code of 1986, as amended (the "Code"),
as a real estate investment trust (a "REIT"):
(a) Upon the conversion of a share of any class or series of
common stock, par value $.01 per share, or preferred stock, par
value $.01 per share (collectively, "Equity Stock"), of Realty
into a share of excess stock, par value $.01 per share ("Excess
Stock"), of Realty in accordance with the provisions of the
Amended and Restated Certificate of Incorporation of Realty (the
"Realty Charter"), if such share of Equity Stock was paired prior
to its conversion into Excess Stock, the corresponding paired
share of that same class or series of Equity Stock of Operating
Company shall be simultaneously converted into a share of Excess
Stock of Operating Company; such shares of Excess Stock of Realty
and Operating Company shall be paired and shall be simultaneously
transferred to a trust established by Realty and Operating
Company for such purpose (a "Trust").
<PAGE>
(b) Upon the conversion of a share of any class or series of
Equity Stock of Operating Company into a share of Excess Stock of
Operating Company in accordance with the provisions of the
Amended and Restated Certificate of Incorporation of Operating
Company (the "Operating Company Charter"), if such share of
Equity Stock was paired prior to its conversion into Excess
Stock, the corresponding paired share of that same class or
series of Equity Stock of Realty shall be simultaneously
converted into a share of Excess Stock of Realty; such shares of
Excess Stock of Realty and Operating Company shall be paired and
shall be simultaneously transferred to a Trust.
(c) Upon the conversion of a share of Excess Stock of Realty
into a share of Equity Stock of Realty of the same class or
series from which such Excess Stock was converted in accordance
with the provisions of the Realty Charter, if such share of
Excess Stock was paired prior to its conversion from Equity Stock
into Excess Stock, the corresponding paired share of Excess Stock
of Operating Company shall be simultaneously converted into a
share of Equity Stock of Operating Company of the same class or
series from which such Excess Stock was converted and such shares
of Equity Stock shall be paired.
(d) Upon the conversion of a share of Excess Stock of Operating
Company into a share of Equity Stock of Operating Company of the
same class or series from which such Excess Stock was converted
in accordance with the provisions of the Operating Company
Charter, if such share of Excess Stock was paired prior to its
conversion from Equity Stock into Excess Stock, the corresponding
paired share of Excess Stock of Realty shall be simultaneously
converted into a share of Equity Stock of Realty of the same
class or series from which such Excess Stock was converted and
such shares of Equity Stock shall be paired.
(e) With respect to an offer made by the Trust to Realty or
Operating Company to purchase shares of Excess Stock from a Trust
pursuant to the Realty Charter or the Operating Company Charter
(together, the "New Charters"), as the case may be, in the case
of shares of Excess Stock that are paired, neither Realty nor
Operating Company shall accept such 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.
(f) The Trustee (as defined in the New Charters) of each Trust
shall initially be [________________] and any successor trustee
shall thereafter be designated by mutual agreement of the Board
of Directors of Realty and the Board of Directors of Operating
Company.
(g) The Beneficiary (as defined in the New Charters) with
respect to each Trust shall be designated by mutual agreement of
the Board of Directors of Realty and the Board of Directors of
Operating Company.
<PAGE>
(h) At such time that the Board of Directors of Realty no longer
deems it in the best interests of Realty to attempt to, or
continue to, qualify under the Code as a REIT, it shall notify
the Board of Directors of Operating Company in writing of such
determination and the Ownership Limit and the Transfer
Restrictions shall cease to have effect, as provided in Section C
of Article IV of the New Charters."
2. Section 10 is hereby added to the Pairing Agreement and shall read in
its entirety as follows:
"10. Exemption from the Ownership Limit. Operating Company agrees
that it shall not exempt any Person (as defined in the New Charters) from
the Ownership Limit (as defined in the New Charters) pursuant to Section C
of Article IV of the New Charters without the prior written consent of
Realty, which consent shall not be unreasonably withheld."
3. This Amendment shall become effective as of the Effective Time of the
Merger (as defined in the Merger Agreement).
4. Subject to the Amendment set forth herein, the Pairing Agreement shall
continue to be in full force and effect.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Amendment as of
the day and year first above written.
CALIFORNIA JOCKEY CLUB,
a Delaware Corporation,
By_____________________________________
Kjell H. Qvale, Chairman of the Board
BAY MEADOWS OPERATING
COMPANY, a Delaware Corporation
By_____________________________________
F. Jack Liebau, President and Chief
Executive Officer
<PAGE>
Exhibit 4.3
-----------
TEMPORARY CERTIFICATE - EXCHANGEABLE FOR DEFINITIVE ENGRAVED CERTIFICATE WHEN
READY FOR DELIVERY
COMMON STOCK [LOGO] COMMON STOCK
PATRIOT AMERICAN HOSPITALITY, INC.
INCORPORATED UNDER THE LAWS OF THE STATE OF DELAWARE
SEE REVERSE FOR CERTAIN DEFINITIONS
CUSIP
This certifies that
is the owner of
FULLY PAID AND NONASSESSABLE SHARES OF THE COMMON STOCK, PAR VALUE
$.01 PER SHARE, OF
Patriot American Hospitality, Inc. transferable only on the books of the
Corporation by the holder hereof in person or by duly authorized Attorney in
accordance with certain requirements of transfer, as set forth on the reverse
hereof, upon surrender of this Certificate properly endorsed. This Certificate
is not valid until countersigned and registered by the Transfer Agent and
Registrar.
Witness the facsimile seal of the Corporation and the facsimile signatures
of its duly authorized officers.
Dated:
/s/ /s/
CHAIRMAN OF THE BOARD AND
TREASURER CHIEF EXECUTIVE OFFICER
COUNTERSIGNED AND REGISTERED:
AMERICAN STOCK TRANSFER & TRUST COMPANY
(NEW YORK, NY) TRANSFER AGENT
AND REGISTRAR
BY
AUTHORIZED SIGNATURE.
<PAGE>
PATRIOT AMERICAN HOSPITALITY OPERATING COMPANY
INCORPORATED UNDER THE LAWS OF THE STATE OF DELAWARE
SHARES OF COMMON STOCK
THIS CERTIFIES THAT the person (or persons) designated on the reverse hereof
is the owner of a number of fully paid and nonassessable shares of the common
stock, par value $.01 per share, of Patriot American Hospitality Operating
Company equal to the number of shares shown on the reverse hereof. The shares
are transferable on the books of the Corporation by the holder hereof in
person or by duly authorized Attorney in accordance with certain requirements
of transfer, as set forth below, upon surrender of this Certificate properly
endorsed. This Certificate is not valid until countersigned and registered by
the Transfer Agent and the Registrar on the reverse hereof.
WITNESS the facsimile seal of the Corporation and the facsimile signatures of
its duly authorized officers.
Dated as of the date on the reverse hereof.
/s/ /s/
Treasurer Chairman of the Board and
Chief Executive Officer
The shares of Patriot American Hospitality, Inc. and Patriot American
Hospitality Operating Company represented by this combined certificate are
subject to restrictions in the respective Amended and Restated Certificate of
Incorporation of each company which prohibit (a) any Person from Beneficially
Owning or Constructively Owning (as these terms are defined in the respective
Amended and Restated Certificate of Incorporation of each company) in excess of
9.8% of the number of outstanding shares of any class or series of Equity Stock
(as that term is defined in the respective Amended and Restated Certificate of
Incorporation of each company) (b) any Person (as that term is defined in the
respective Amended and Restated Certificate of Incorporation of each company)
from acquiring or maintaining any ownership interest in the stock of either
company that is inconsistent with (i) the requirements of the Internal Revenue
Code of 1986, as amended, pertaining to real estate investment trusts or (ii)
Article IV of the respective Amended and Restated Certificate of Incorporation
of each company and (c) any transfer of shares of any class or series of
Equity Stock of either company that are paired pursuant to the Pairing
Agreement, dated as of February 17, 1983, by and between the two companies, as
amended from time to time in accordance with the provisions thereof (the
"Pairing Agreement"), except in combination with an equal number of shares of
the other company in accordance with the respective Amended and Restated
Bylaws of each company and the Pairing Agreement, copies of which are on file
with the transfer agent, and the holder of this certificate by his acceptance
hereof consents to be bound by such restrictions.
Patriot American Hospitality, Inc. and Patriot American Hospitality Operating
Company will furnish without charge to each stockholder who so requests a copy
of the relevant provisions of the respective Amended and Restated Certificate
of Incorporation and the respective Amended and Restated Bylaws of each
company, a copy of the Pairing Agreement and a copy of the provisions setting
forth the designations, preferences, privileges and rights of each class of
stock or series thereof that each company is authorized to issue and the
qualifications, limitations and restrictions of such preferences and/or rights.
Any such request may be addressed to the Secretary of either company or to the
transfer agent named on the face hereof.
The following abbreviations, when used in the inscription on the face of this
certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
TEN COM - as tenants in common
TEN ENT - as tenants by the entireties
JT TEN - as joint tenants with right of
survivorship and not as tenants
in common
UNIF GIFT MIN ACT -- Custodian
--------- ---------
(Cust) (Minor)
under Uniform Gifts to Minors
Act
------------------------
(State)
Additional abbreviations may also be used though not in the above list.
For value received, hereby sell, assign and transfer unto
---------------------
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
- ---------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS INCLUDING POSTAL ZIP
CODE OF ASSIGNEE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Shares
- ------------------------------------------------------------------------
of the Common Stock of Patriot American Hospitality, Inc. and a like number of
Shares of the Common Stock of Patriot American Hospitality Operating Company
represented by the within Certificates, and do hereby irrevocably constitute and
appoint
------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Attorney to transfer the said stocks on the books of the within-named
Corporations with full power of substitution in the premises.
Dated,
---------------------
-----------------------------------
Signature(s) Guaranteed:
- -----------------------------------
THE SIGNATURE(S) SHOULD BE GUARANTEED BY AN ELIGIBLE GUARANTOR INSTITUTION
(BANKS, STOCKBROKERS, SAVINGS AND LOAN ASSOCIATIONS AND CREDIT UNIONS WITH
MEMBERSHIP IN AN APPROVED SIGNATURE GUARANTEE MEDALLION PROGRAM), PURSUANT TO
S.E.C. RULE 17Ad-15.
NOTICE: THE SIGNATURE TO THIS ASSIGNMENT MUST CORRESPOND WITH THE NAME AS
WRITTEN UPON THE FACE OF THE CERTIFICATE IN EVERY PARTICULAR, WITHOUT
ALTERATION OR ENLARGEMENT, OR ANY CHANGE WHATEVER.
<PAGE>
Exhibit 5.1
-----------
[LETTERHEAD OF LATHAM & WATKINS APPEARS HERE]
May 30, 1997
California Jockey Club
2600 South Delaware Street
P.O. Box 1117
San Mateo, California 94403
Ladies and Gentlemen:
In connection with the registration of up to 30,500,000 shares of common
stock of California Jockey Club (the "Company"), $.01 par value (the "Cal Jockey
Shares"), under the Securities Act of 1933, as amended (the "Act"), pursuant to
a Registration Statement on Form S-4 (the "Registration Statement"), filed with
the Securities and Exchange Commission (the "Commission") on May 29, 1997, to be
issued to the stockholders of Patriot American Hospitality, Inc. ("Patriot") in
the merger of Patriot with and into the Company, and to be issued upon the
exchange of limited partnership units in accordance with the First Amendment to
the Second Amended and Restated Agreement of Partnership of Patriot American
Hospitality Partnership L.P. (the "Partnership Agreement"), you have requested
our opinion with respect to the matters set forth below.
In our capacity as your counsel in connection with such registration, we
are familiar with the proceedings taken and proposed to be taken by the Company
in connection with the authorization, issuance and sale of the Cal Jockey
Shares, and for the purposes of this opinion, have assumed such proceedings will
be timely completed in the manner presently proposed. In addition, we have made
such legal and factual examinations and inquiries, including an examination of
originals or copies certified or otherwise identified to our satisfaction of
such documents, corporate records and instruments, as we have deemed necessary
or appropriate for purposes of this opinion.
In our examination, we have assumed the genuineness of all signatures, the
authenticity of all documents submitted to us as originals, and the conformity
to authentic original documents of all documents submitted to us as copies.
<PAGE>
Our opinion below assumes that, prior to the issuance of the Cal Jockey
Shares, (i) the Agreement and Plan of Merger, dated as of February 24, 1997, as
amended and restated as of May 28, 1997, by and among Patriot, Patriot American
Hospitality Partnership, L.P. (the "Patriot Partnership"), the company and Bay
Meadows Operating Company (the "Merger Agreement"), including without limitation
the proposed Amended and Restated Certificate of Incorporation of the Company
(the "Restated Certificate") and the proposed Amended and Restated Bylaws of the
Company, will have been validly approved by the requisite approval of the
stockholders of the Company; (ii) the proposed Restated Certificate will have
been filed with the Delaware Secretary of State; (iii) the proposed form of the
Partnership Agreement will have been duly executed and delivered by the Patriot
Partnership and constitute the valid, binding and enforceable obligations of the
Patriot Partnership; and (iv) the transactions contemplated by the Merger
Agreement will have been consumated.
We are opining herein as to the effect on the subject transaction of only
the General Corporation Law of the State of Delaware and we express no opinion
with respect to the applicability thereto or the effect thereon of any other
laws or as to any matters of municipal law or any other local agencies within
any state.
Subject to the foregoing, and in reliance thereon, it is our opinion that
the Cal Jockey Shares will be duly authorized and, upon issuance, delivery and
payment therefor in the manner contemplated by the Registration Statement and
the Partnership Agreement, will be validly issued, fully paid and nonassessable.
We consent to your filing this opinion as an exhibit to the Registration
Statement and to the reference to our name in the section of the Registration
Statement entitled "Legal Matters."
Very truly yours,
/s/ LATHAM & WATKINS
<PAGE>
Exhibit 5.2
-----------
[LETTERHEAD OF MCCUTCHEN, DOYLE, BROWN &
ENERSEN, LLP APPEARS HERE]
May 30, 1997
Bay Meadows Operating Company
2600 South Delaware Street
P.O. Box 5050
San Mateo, California 94402-0050
MERGER OF PATRIOT AMERICAN HOSPITALITY, INC. AND CALIFORNIA
JOCKEY CLUB
Ladies and Gentlemen:
We have acted as counsel for Bay Meadows Operating Company, a Delaware
corporation ("Bay Meadows"), in connection with the planned merger ("Merger") of
Patriot American Hospitality, Inc., a Virginia corporation ("Patriot"), with and
into California Jockey Club, a Delaware corporation ("Cal Jockey"), pursuant to
an Agreement and Plan of Merger dated as of February 24, 1997, as amended and
restated as of May 28, 1997 ("Merger Agreement") among Patriot, Patriot American
Hospitality Partnership, L.P., a Virginia limited partnership ("Patriot
Partnership"), Cal Jockey and Bay Meadows. Pursuant to the Merger Agreement, Bay
Meadows and Patriot Partnership will enter into that certain Subscription
Agreement ("Subscription Agreement") to be executed and dated the date of the
Closing (as defined in the Merger Agreement), pursuant to which Bay Meadows will
issue a number of shares of Bay Meadows Common Stock, par value $.01 per share
("Bay Meadows Common Stock"), equal to the number of shares of Cal Jockey Common
Stock, par value $.01 per share, to be issued to stockholders of Patriot
pursuant to the Merger Agreement. Further, pursuant to the Merger Agreement, Bay
Meadows and Patriot Partnership will enter into that certain Agreement of
Limited Partnership of Patriot American Hospitality Operating Partnership
("Operating Partnership Agreement") to be executed and dated the date of the
Closing, pursuant to which Bay Meadows may issue additional shares of Bay
Meadows Common Stock in connection with the redemption of partnership units. The
shares of Bay Meadows Common Stock to be issued pursuant to the Subscription
Agreement and the shares of Bay Meadows Common Stock which may be issued
pursuant to the Operating Partnership Agreement are collectively referred to
herein as the "Shares."
<PAGE>
Bay Meadows Operating Company
May 30, 1997
Page 2
In rendering the opinion hereinafter expressed, we have examined and relied
upon such documents and instruments as we have deemed appropriate, including the
following:
A. The proposed form of Subscription Agreement;
B. The proposed form of Operating Partnership Agreement;
C. Proposed resolutions of the Board of Directors of Bay Meadows in
connection with the Merger Agreement, Subscription Agreement and Operating
Partnership Agreement;
D. The proposed Amended and Restated Certificate of Incorporation of Bay
Meadows ("Proposed Restated Certificate"), attached as Annex D to the definitive
Joint Proxy Statement/Prospectus of Cal Jockey, Bay Meadows and Patriot ("Joint
Proxy Statement/Prospectus");
E. The proposed Amended and Restated Bylaws of Bay Meadows ("Proposed
Restated Bylaws"), attached as Annex E to the definitive Joint Proxy
Statement/Prospectus; and
F. A proposed form of certificate of certain officers of Bay Meadows as
to certain factual matters.
We have assumed the genuineness of all signatures on documents by parties
other than Bay Meadows not signed in our presence, the authenticity of all items
submitted to us as originals, the conformity with originals of all items
submitted to us as copies and the authenticity of the originals of such copies.
Our opinion below assumes that (i) the Merger Agreement, including without
limitation the Proposed Restated Certificate and the Proposed Restated Bylaws of
Bay Meadows, has been validly approved by the requisite approval of the
stockholders of Bay Meadows; (ii) that the Proposed Restated Certificate has
been filed with the Delaware Secretary of State; (iii) the proposed forms of the
Subscription Agreement and Operating Partnership Agreement have been duly
executed and delivered by Patriot Partnership and constitute the valid, binding
and enforceable obligations of Patriot Partnership; (iv) the consideration for
the Shares provided for in the Subscription Agreement and the Operating
Partnership Agreement has been received by Bay Meadows; (v) the requisite
Certificate of Limited Partnership for the Operating Partnership has been duly
executed and filed with the Delaware Secretary of State; (vi) the proposed
resolutions by the Board of Directors of Bay Meadows have been duly adopted by
the
<PAGE>
Bay Meadows Operating Company
May 30, 1997
Page 3
Board of Directors of Bay Meadows and (viii) the proposed form of certificate of
certain officers of Bay Meadows has been duly executed and delivered.
We are of the opinion that, upon the issuance of certificates representing
the Shares in accordance with the Subscription Agreement and the Operating
Partnership Agreement, the Shares will be duly authorized, validly issued, fully
paid and nonassessable.
We hereby consent to the filing of this opinion as Exhibit 5.2 to the
registration statement on Form S-4 filed May 30, 1997 by Cal Jockey, Bay Meadows
and Patriot in connection with the Merger Agreement ("Registration Statement")
and to the use of our name under the caption "Legal Matters" in the Registration
Statement in the Joint Proxy Statement/Prospectus included therein.
Very truly yours,
McCutchen, Doyle, Brown & Enersen, LLP
/s/ William J. Newell
A Member of the Firm
<PAGE>
Exhibit 8.1
-----------
[LETTERHEAD OF GOODWIN, PROCTER & HOAR LLP APPEARS HERE]
May 30, 1997
Patriot American Hospitality, Inc.
3030 LBJ Freeway, Suite 1500
Dallas, Texas 75234
Re: Merger of Patriot American Hospitality, Inc. and California Jockey
------------------------------------------------------------------
Club
----
Ladies and Gentlemen:
We have acted as counsel to Patriot American Hospitality, Inc., a Virginia
corporation ("Patriot"), in connection with the planned merger (the "Merger") of
Patriot with and into California Jockey Club, a Delaware corporation ("Cal
Jockey"), pursuant to an Agreement and Plan of Merger dated as of February 24,
1997 (the "Merger Agreement") among Patriot, Patriot American Hospitality
Partnership, L.P., a Virginia limited partnership, Cal Jockey and Bay Meadows
Operating Company, a Delaware corporation ("Bay Meadows").
For purposes of the opinion set forth below, we have reviewed and relied
upon (i) the Merger Agreement, (ii) the Joint Proxy Statement and Prospectus
(the "Joint Proxy Statement/Prospectus") included in the Registration Statement
on Form S-4 (the "Registration Statement") filed by Patriot, Cal Jockey and Bay
Meadows with the Securities and Exchange Commission in connection with the
Merger, and (iii) such other documents, records and instruments as we have
deemed necessary or appropriate as a basis for our opinion. In addition, in
rendering our opinion we have relied upon certain statements, representations
and warranties made by Cal Jockey and Patriot contained in certain certified
representations (the "Certified Representations"), which we have neither
investigated nor verified. We have assumed that such statements,
representations and warranties are true, correct, complete and not breached and
will continue to be so through the Effective Time (as defined in the Merger
Agreement), and that no actions that are inconsistent with such statements,
representations and warranties will be taken. We also have assumed that all
representations made in the Certified Representations "to the best knowledge of"
any person(s) or party(ies) or with similar qualification are true, correct, and
complete as if made without such qualification.
In addition, we have assumed that (i) the Merger will be consummated in
accordance with the Merger Agreement and as described in the Joint Proxy
Statement/Prospectus (including satisfaction of all covenants and conditions to
the obligations of the parties without amendment or waiver thereof), (ii) the
Merger will qualify as a merger under the applicable laws of Virginia and
Delaware, (iii) each of Cal Jockey and Patriot will comply with all reporting
obligations with respect to the Merger required under the Internal Revenue Code
of 1986, as amended (the "Code"), and the Treasury regulations thereunder and
(iv) the Merger
<PAGE>
Patriot American Hospitality, Inc.
As of May 30, 1997
Page 2
Agreement and all other documents and instruments referred to therein or in the
Joint Proxy Statement/Prospectus are valid and binding in accordance with their
terms. We further 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 and (vi) the accuracy and completeness of all records made available to
us.
Any inaccuracy in, or breach of, any of the aforementioned statements,
representations, warranties and assumptions or any change after the date hereof
in applicable law could adversely affect our opinion. No ruling has been (or
will be) sought from the Internal Revenue Service by Patriot, Cal Jockey or Bay
Meadows as to the federal income tax consequences of any aspect of the Merger.
Based upon and subject to the foregoing, as well as the limitations set
forth below, it is our opinion, under presently applicable federal income tax
laws, that the Merger of Patriot with and into Cal Jockey will be treated for
United States federal income tax purposes as a reorganization within the meaning
of Section 368(a) of the Code.
* * * *
No opinion is expressed as to any matter not specifically addressed above.
Also, no opinion is expressed as to the tax consequences of any of the
transactions under any foreign, state, or local tax law. Furthermore, our
opinion is based on current federal income tax law and administrative practice,
and we do not undertake to advise you as to any changes after the Effective Time
in federal income tax law or administrative practice that may affect our opinion
unless we are specifically retained to do so.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to the reference to this firm in the Registration
Statement under the captions "Certain Federal Income Tax Considerations" and
"Legal Matters."
Very truly yours,
/s/ GOODWIN, PROCTER & HOAR LLP
<PAGE>
Exhibit 8.2
-----------
[LETTERHEAD OF GOODWIN, PROCTER & HOAR LLP APPEARS HERE]
May 30, 1997
Patriot American Hospitality, Inc.
3030 LBJ Freeway, Suite 1500
Dallas, Texas 75234
Re: Certain Federal Income Tax Matters
----------------------------------
Ladies and Gentlemen:
This opinion is delivered to you in our capacity as counsel to Patriot
American Hospitality, Inc., a Virginia corporation ("Patriot"), in connection
with the Registration Statement on Form S-4 (the "Registration Statement") filed
by California Jockey Club, a Delaware corporation ("Cal Jockey"), Bay Meadows
Operating Company, a Delaware corporation ("BMOC"), and Patriot with the
Securities and Exchange Commission relating to (a) the merger (the "Merger") of
Patriot with and into Cal Jockey pursuant to an Agreement and Plan of Merger
dated as of February 24, 1997 (the "Merger Agreement"), as amended and restated
as of May 28, 1997, among Patriot, Patriot American Hospitality Partnership,
L.P., a Virginia limited partnership, Cal Jockey and Bay Meadows, (b) the
issuance of paired shares of the common stock of Cal Jockey and of BMOC and (c)
the other transactions contemplated by the Registration Statement. Pursuant to
the Merger Agreement, Cal Jockey will be the surviving company in the Merger and
will change its name to Patriot American Hospitality, Inc. ("New Patriot REIT").
Also pursuant to the Merger Agreement, BMOC will change its name to Patriot
American Hospitality Operating Company ("New Patriot Operating Company"). This
opinion relates to the ability of New Patriot REIT to qualify as a real estate
investment trust ("REIT") under the Internal Revenue Code of 1986, as amended
(the "Code"), following the Merger, and the qualifications of Patriot and Cal
Jockey as REITs for periods prior to the Merger.
In rendering the following opinion, we have reviewed the Registration
Statement and the descriptions set forth therein of New Patriot REIT and its
proposed investments and activities. We also have examined (i) the proposed form
of the Amended and Restated Certificate of Incorporation of New Patriot REIT and
the proposed form of the Amended and Restated Bylaws of New Patriot REIT set
forth as Annexes B and C, respectively, to the Joint Proxy Statement and
Prospectus (the "Joint Proxy Statement Prospectus") included in the Registration
Statement, (ii) the Articles of Incorporation and Bylaws of Patriot and the
Certificate of Incorporation and Bylaws or Cal Jockey, each as of the beginning
of the first taxable year for which they elected to be a REIT, and as amended to
date, (iii) the Merger Agreement, (iv) the Pairing Agreement dated as of
<PAGE>
Patriot American Hospitality, Inc.
May 30, 1997
Page 2
February 17, 1983, as amended and as proposed to be amended, by and between Cal
Jockey and BMOC and (v) 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."
We have relied upon certain representations of Patriot set forth in letters
regarding the manner in which Patriot has been owned and operated and will be
owned and operated prior to the Merger and the manner in which New Patriot REIT
will be owned and operated and (ii) certain representations of Cal Jockey set
forth in a representation letter regarding the manner in which Cal Jockey has
been owned and operated and will be owned and operated prior to the Merger. We
also have relied on the statements contained in the Documents regarding the
operation and ownership of Patriot, Cal Jockey, and New Patriot REIT 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 and that no action will occur from the date hereof
until the Merger that is inconsistent with such representations.
We assume that the Merger and related transactions contemplated by the
Documents will be consummated in accordance with the Documents and as described
in the Registration Statement (including satisfaction of all covenants and
conditions to the obligations of the parties without amendment or waiver
thereof) and that all entities have operated and will operate in accordance with
governing documents and applicable laws.
<PAGE>
Patriot American Hospitality, Inc.
May 30, 1997
Page 3
In rendering the opinion 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.
Based upon and subject to the foregoing, we are of the opinion that:
(1) the form of organization of New Patriot REIT and its operations and
anticipated operations following the Merger are such as to enable New
Patriot REIT to qualify as a REIT under the Code for the taxable year
ending December 31, 1997 and for subsequent taxable years.
(2) The form of organization of Patriot and its operations and anticipated
operations for periods prior to the Merger are such as to enable
Patriot to have qualified and continue to qualify as a REIT under the
Code for the taxable year ending December 31, 1995 and for subsequent
taxable years through the short taxable year ending with the Merger.
(3) The form of organization of Cal Jockey and its operations and
anticipated operations for periods prior to the Merger are such as to
enable Cal Jockey to have qualified and continue to qualify as a REIT
under the Code for the taxable year ending December 31, 1983 and for
subsequent taxable years through that portion of its 1997 taxable year
ending with the Merger.
* * * * *
We express no opinion herein other than those expressly set forth above.
You should recognize that our opinion is not binding on a court or the Internal
Revenue Service (the "IRS") and that a court or the IRS may disagree with the
opinion contained herein. Although we believe that our opinion will be
<PAGE>
Patriot American Hospitality, Inc.
May 30, 1997
Page 4
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. Future changes in applicable law could adversely
affect our opinion.
We consent to being named as Counsel to Patriot in the Registration
Statement, to the references in the Registration Statement to our firm including
the references under the captions "Certain 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 10.1(1)
---------------
SECOND AMENDED AND RESTATED AGREEMENT
OF LIMITED PARTNERSHIP
OF
PATRIOT AMERICAN HOSPITALITY PARTNERSHIP, L.P.
APRIL 11, 1997
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C>
ARTICLE I
DEFINED TERMS.................................................................. 1
ARTICLE II
PARTNERSHIP CONTINUATION AND IDENTIFICATION.................................... 9
2.01 Continuation.............................................................. 9
2.02 Name, Office and Registered Agent......................................... 9
2.03 Partners.................................................................. 9
2.04 Term and Dissolution...................................................... 9
2.05 Filing of Certificate and Perfection of Limited Partnership.............. 10
ARTICLE III
BUSINESS OF THE PARTNERSHIP.................................................... 10
ARTICLE IV
CAPITAL CONTRIBUTIONS AND ACCOUNTS............................................. 11
4.01 Capital Contributions..................................................... 11
4.02 Additional Capital Contributions and Issuances of Additional Partnership
Interests................................................................. 11
4.03 Additional Funding........................................................ 14
4.04 Capital Accounts.......................................................... 14
4.05 Percentage Interests...................................................... 14
4.06 No Interest on Contributions.............................................. 15
4.07 Return of Capital Contributions........................................... 15
4.08 No Third Party Beneficiary................................................ 15
4.09 Stock Incentive Plans..................................................... 15
ARTICLE V
PROFITS AND LOSSES; DISTRIBUTIONS.............................................. 17
5.01 Allocation of Profit and Loss............................................. 17
5.02 Operating Distributions................................................... 18
5.03 REIT Distribution Requirements............................................ 19
5.04 No Right to Distributions in Kind......................................... 19
5.05 Limitations on Return of Capital Contributions............................ 19
5.06 Distributions Upon Liquidation............................................ 19
</TABLE>
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<PAGE>
<TABLE>
<S> <C>
5.07 Substantial Economic Effect............................................... 20
5.08 Additional Distributions Provisions and Definitions
Relating to Preferred Units............................................... 20
ARTICLE VI
RIGHTS, OBLIGATIONS AND POWERS OF THE GENERAL PARTNER.......................... 22
6.01 Management of the Partnership............................................. 22
6.02 Delegation of Authority................................................... 24
6.03 Indemnification and Exculpation of Indemnitees............................ 24
6.04 Liability of the General Partner.......................................... 26
6.05 Expenditures by Partnership............................................... 27
6.06 Outside Activities........................................................ 27
6.07 Employment or Retention of Affiliates..................................... 27
6.08 General Partner Participation............................................. 28
6.09 Title to Partnership Assets............................................... 28
6.10 Miscellaneous............................................................. 28
ARTICLE VII
CHANGES IN GENERAL PARTNER..................................................... 29
7.01 Transfer of the General Partner's Partnership Interest.................... 29
7.02 Admission of a Substitute or Successor General............................ 30
7.03 Effect of Bankruptcy, Withdrawal, Death or Dissolution of a General Partner 31
7.04 Removal of a General Partner.............................................. 31
ARTICLE VIII
RIGHTS AND OBLIGATIONS OF THE LIMITED PARTNERS................................. 33
8.01 Management of the Partnership............................................. 33
8.02 Power of Attorney......................................................... 33
8.03 Limitation on Liability of Limited Partners............................... 33
8.04 Ownership by Limited Partner of Corporate General Partner or Affiliate.... 33
8.05 Redemption Right.......................................................... 33
ARTICLE IX
TRANSFERS OF LIMITED PARTNERSHIP INTERESTS..................................... 37
9.01 Purchase for Investment................................................... 37
9.02 Restrictions on Transfer of Limited Partnership Interests................. 37
</TABLE>
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<PAGE>
<TABLE>
<S> <C>
9.03 Admission of Substitute Limited Partner................................... 38
9.04 Rights of Assignees of Partnership Interests.............................. 39
9.05 Effect of Bankruptcy, Death, Incompetence or Termination of a Limited Partner 39
9.06 Joint Ownership of Interests.............................................. 40
ARTICLE X
BOOKS AND RECORDS; ACCOUNTING; TAX MATTERS...................................... 40
10.01 Books and Records......................................................... 40
10.02 Custody of Partnership Funds; Bank Accounts............................... 41
10.03 Fiscal and Taxable Year................................................... 41
10.04 Annual Tax Information and Report......................................... 41
10.05 Tax Matters Partner; Tax Elections;
Special Basis Adjustments................................................. 41
10.06 Reports to Limited Partners............................................... 42
ARTICLE XI
AMENDMENT OF AGREEMENT.......................................................... 42
ARTICLE XII
GENERAL PROVISIONS.............................................................. 43
12.01 Notices................................................................... 43
12.02 Survival of Rights........................................................ 43
12.03 Additional Documents...................................................... 44
12.04 Severability.............................................................. 44
12.05 Entire Agreement.......................................................... 44
12.06 Pronouns and Plurals...................................................... 44
12.07 Headings.................................................................. 44
12.08 Counterparts.............................................................. 44
12.09 Governing Law............................................................. 44
12.10 Guaranty by Company....................................................... 44
</TABLE>
EXHIBITS
EXHIBIT A - Partners, Capital Contributions and Percentage Interests
EXHIBIT B - Notice of Exercise of Redemption Right
-iii-
<PAGE>
SECOND AMENDED AND RESTATED AGREEMENT
OF LIMITED PARTNERSHIP
OF
PATRIOT AMERICAN HOSPITALITY PARTNERSHIP, L.P.
RECITALS
Patriot American Hospitality Partnership, L.P. (the "Partnership") was
formed as a limited partnership under the laws of the Commonwealth of Virginia
by a Certificate of Limited Partnership filed with the Clerk of the State
Corporation Commission of Virginia on April 17, 1995. The Partnership is
governed by a First Amended and Restated Agreement of Limited Partnership dated
as of October 2, 1995, maintained at the offices of the Partnership (the
"Current Agreement").
The General Partner desires to restate the Current Agreement in its
entirety.
AGREEMENT
---------
NOW, THEREFORE, in consideration of the foregoing, of mutual covenants
between the parties hereto, and of other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties hereto
agree to amend the Current Agreement to read in its entirety as follows:
ARTICLE I
DEFINED TERMS
-------------
The following defined terms used in this Agreement shall have the meanings
specified below:
"ACT" means the Virginia Revised Uniform Limited Partnership Act, as it may
be amended from time to time.
"ADDITIONAL FUNDS" has the meaning set forth in Section 4.03 hereof.
"ADDITIONAL LIMITED PARTNER" means a Person admitted to this Partnership as
a Limited Partner pursuant to Section 4.02 hereof.
"ADDITIONAL SECURITIES" means any additional REIT Shares (other than REIT
Shares issued in connection with a redemption pursuant to Section 8.05 hereof)
or rights, options, warrants or convertible or exchangeable securities
containing the right to subscribe for or purchase REIT Shares, as set forth in
Section 4.02(a)(ii).
<PAGE>
"ADMINISTRATIVE EXPENSES" means (i) all administrative and operating costs
and expenses incurred by the Partnership, (ii) those administrative costs and
expenses of the General Partner, including any salaries or other payments to
directors, officers or employees of the General Partner, and any accounting and
legal expenses of the General Partner, which expenses, the Partners have agreed,
are expenses of the Partnership and not the General Partner, and (iii) to the
extent not included in clause (ii) above, REIT Expenses; provided, however, that
-------- -------
Administrative Expenses shall not include any administrative costs and expenses
incurred by the Company that are attributable to Properties or partnership
interests in a Subsidiary Partnership that are owned by the Company directly.
"AFFILIATE" means, (i) any Person that, directly or indirectly, controls or
is controlled by or is under common control with such Person, (ii) any other
Person that owns, beneficially, directly or indirectly, 10% or more of the
outstanding capital stock, shares or equity interests of such Person, or (iii)
any officer, director, employee, partner or trustee of such Person or any Person
controlling, controlled by or under common control with such Person (excluding
trustees and persons serving in similar capacities who are not otherwise an
Affiliate of such Person). For the purposes of this definition, "control"
(including the correlative meanings of the terms "controlled by" and "under
common control with"), as used with respect to any Person, shall mean the
possession, directly or indirectly, of the power to direct or cause the
direction of the management and policies of such Person, through the ownership
of voting securities, partnership interests or other equity interests.
"AGREED VALUE" means the fair market value of a Partner's non-cash Capital
Contribution as agreed to by the Partners. The names and addresses of the
Partners, number of Partnership Units issued to each Partner, and the Agreed
Value of non-cash Capital Contributions as of the date hereof is set forth on
Exhibit A.
- ---------
"AGREEMENT" means this Second Amended and Restated Agreement of Limited
Partnership.
"ARTICLES OF INCORPORATION" means the Amended and Restated Articles of
Incorporation of the Company filed with the State Corporation Commission of the
Commonwealth of Virginia, as amended or restated from time to time.
"CAPITAL ACCOUNT" has the meaning provided in Section 4.04 hereof.
"CAPITAL CONTRIBUTION" means the total amount of capital initially
contributed or agreed to be contributed, as the context requires, to the
Partnership by each Partner pursuant to the terms of the Agreement. Any
reference to the Capital Contribution of a Partner shall include the Capital
Contribution made by a predecessor holder of the Partnership Interest of such
Partner. The paid-in Capital Contribution shall mean the cash amount or the
Agreed Value of other assets actually contributed by each Partner to the capital
of the Partnership.
-2-
<PAGE>
"CAPITAL TRANSACTION" means the refinancing, sale, exchange, condemnation,
recovery of a damage award or insurance proceeds (other than business or rental
interruption insurance proceeds not reinvested in the repair or reconstruction
of Properties), or other disposition of any Property (or the Partnership's
interest therein).
"CASH AMOUNT" means an amount of cash per Partnership Unit equal to the
value of the REIT Shares Amount on the date of receipt by the Company of a
Notice of Redemption. The value of the REIT Shares Amount shall be based on the
average of the daily market price of REIT Shares for the ten consecutive trading
days immediately preceding the date of such valuation. The market price for
each such trading day shall be: (i) if the REIT Shares are listed or admitted to
trading on any securities exchange or the NYSE, the sale price, regular way, on
such day, or if no such sale takes place on such day, the average of the closing
bid and asked prices, regular way, on such day, (ii) if the REIT Shares are not
listed or admitted to trading on any securities exchange or the NYSE, the last
reported sale price on such day or, if no sale takes place on such day, the
average of the closing bid and asked prices on such day, as reported by a
reliable quotation source designated by the Company, or (iii) if the REIT Shares
are not listed or admitted to trading on any securities exchange or the NYSE and
no such last reported sale price or closing bid and asked prices are available,
the average of the reported high bid and low asked prices on such day, as
reported by a reliable quotation source designated by the Company, or if there
shall be no bid and asked prices on such day, the average of the high bid and
low asked prices, as so reported, on the most recent day (not more than ten days
prior to the date in question) for which prices have been so reported; provided
--------
that if there are no bid and asked prices reported during the ten days prior to
- ----
the date in question, the value of the REIT Shares shall be determined by the
Company acting in good faith on the basis of such quotations and other
information as it considers, in its reasonable judgment, appropriate. In the
event the REIT Shares Amount includes rights that a holder of REIT Shares would
be entitled to receive, then the value of such rights shall be determined by the
Company acting in good faith on the basis of such quotations and other
information as it considers, in its reasonable judgment, appropriate.
"CERTIFICATE" means any instrument or document that is required under the
laws of the Commonwealth of Virginia, or any other jurisdiction in which the
Partnership conducts business, to be signed and sworn to by the Partners of the
Partnership (either by themselves or pursuant to the power-of-attorney granted
to the General Partner in Section 8.02 hereof) and filed for recording in the
appropriate public offices within the Commonwealth of Virginia or such other
jurisdiction to perfect or maintain the Partnership as a limited partnership, to
effect the admission, withdrawal, or substitution of any Partner of the
Partnership, or to protect the limited liability of the Limited Partners as
limited partners under the laws of the Commonwealth of Virginia or such other
jurisdiction.
"CODE" means the Internal Revenue Code of 1986, as amended, and as
hereafter amended from time to time. Reference to any particular provision of
the Code shall mean that provision in the Code at the date hereof and any
successor provision of the Code.
-3-
<PAGE>
"COMMISSION" means the U.S. Securities and Exchange Commission.
"COMPANY" means Patriot American Hospitality, Inc., a Virginia corporation,
and its successors.
"CONVERSION FACTOR" means 2.0, provided that in the event that the Company
-------------
(i) declares or pays a dividend on its outstanding REIT Shares in REIT Shares or
makes a distribution to all holders of its outstanding REIT Shares in REIT
Shares, (ii) subdivides its outstanding REIT Shares, or (iii) combines its
outstanding REIT Shares into a smaller number of REIT Shares, the Conversion
Factor shall be adjusted by multiplying the Conversion Factor by a fraction, the
numerator of which shall be the number of REIT Shares issued and outstanding on
the record date for such dividend, distribution, subdivision or combination
(assuming for such purposes that such dividend, distribution, subdivision or
combination has occurred as of such time), and the denominator of which shall be
the actual number of REIT Shares (determined without the above assumption)
issued and outstanding on such date. Any adjustment to the Conversion Factor
shall become effective immediately after the effective date of such event
retroactive to the record date, if any, for such event; provided, however, that
-------- -------
if the Company receives a Notice of Redemption after the record date, but prior
to the effective date of such dividend, distribution, subdivision or
combination, the Conversion Factor shall be determined as if the Company had
received the Notice of Redemption immediately prior to the record date for such
dividend, distribution, subdivision or combination.
"EVENT OF BANKRUPTCY" as to any Person means the filing of a petition for
relief as to such Person as debtor or bankrupt under the Bankruptcy Code of 1978
or similar provision of law of any jurisdiction (except if such petition is
contested by such Person and has been dismissed within 90 days); insolvency or
bankruptcy of such Person as finally determined by a court proceeding; filing by
such Person of a petition or application to accomplish the same or for the
appointment of a receiver or a trustee for such Person or a substantial part of
his assets; commencement of any proceedings relating to such Person as a debtor
under any other reorganization, arrangement, insolvency, adjustment of debt or
liquidation law of any jurisdiction, whether now in existence or hereinafter in
effect, either by such Person or by another, provided that if such proceeding is
commenced by another, such Person indicates his approval of such proceeding,
consents thereto or acquiesces therein, or such proceeding is contested by such
Person and has not been finally dismissed within 90 days.
"GENERAL PARTNER" means PAH GP and any Person who becomes a substitute or
additional General Partner as provided herein, and any of their successors as
General Partner.
"GENERAL PARTNERSHIP INTEREST" means a Partnership Interest held by the
General Partner that is a general partnership interest.
"INCENTIVE RIGHTS" has the meaning set forth in Section 4.09 hereof.
-4-
<PAGE>
"INDEMNITEE" means (i) any Person made a party to a proceeding by reason of
its status as the Company, the REIT Limited Partner or the General Partner or a
director or officer of the Company, the REIT Limited Partner, the Partnership or
the General Partner, and (ii) such other Persons (including Affiliates of the
Company, General Partner or the Partnership) as the General Partner may
designate from time to time, in its sole and absolute discretion.
"INDEPENDENT DIRECTORS" means a director of the Company who is not an
officer or employee of the Company, any Affiliate of an officer or employee or
any Affiliate of (i) any lessee of any property of the Company or any Subsidiary
of the Company, (ii) any Subsidiary of the Company, or (iii) any partnership
that is an Affiliate of the Company.
"LIMITED PARTNER" means any Person named as a Limited Partner on Exhibit A
---------
attached hereto, and any Person who becomes a Substitute or Additional Limited
Partner, in such Person's capacity as a Limited Partner in the Partnership.
"LIMITED PARTNERSHIP INTEREST" means the ownership interest of a Limited
Partner in the Partnership at any particular time, including the right of such
Limited Partner to any and all benefits to which such Limited Partner may be
entitled as provided in this Agreement and in the Act, together with the
obligations of such Limited Partner to comply with all the provisions of this
Agreement and of such Act.
"LOSS" has the meaning provided in Section 5.01(f) hereof.
"MINIMUM LIMITED PARTNERSHIP INTEREST" means the lesser of (i) 1% or (ii)
if the total Capital Contributions to the Partnership exceeds $50 million, 1%
divided by the ratio of the total Capital Contributions to the Partnership to
$50 million; provided, however, that the Minimum Limited Partnership Interest
-------- -------
shall not be less than 0.2% at any time.
"NOTICE OF REDEMPTION" means the Notice of Exercise of Redemption Right
substantially in the form attached as Exhibit C hereto.
---------
"NYSE" means the New York Stock Exchange.
"OFFER" has the meaning set forth in Section 7.01(c) hereof.
"PAH GP" means PAH GP, Inc., a Virginia corporation and wholly-owned
subsidiary of the Company.
"PAH LP" means PAH LP, Inc., a Virginia corporation and wholly-owned
subsidiary of the Company.
-5-
<PAGE>
"PARTNER" means any General Partner or Limited Partner.
"PARTNER NONRECOURSE DEBT MINIMUM GAIN" has the meaning set forth in
Regulations Section 1.704-2(i). A Partner's share of Partner Nonrecourse Debt
Minimum Gain shall be determined in accordance with Regulations Section 1.704-
2(i)(5).
"PARTNERSHIP INTEREST" means an ownership interest in the Partnership held
by either a Limited Partner or the General Partner and includes any and all
benefits to which the holder of such a Partnership Interest may be entitled as
provided in this Agreement, together with all obligations of such Person to
comply with the terms and provisions of this Agreement.
"PARTNERSHIP MINIMUM GAIN" has the meaning set forth in Regulations Section
1.704-2(d). In accordance with Regulations Section 1.704-2(d), the amount of
Partnership Minimum Gain is determined by first computing, for each Partnership
nonrecourse liability, any gain the Partnership would realize if it disposed of
the property subject to that liability for no consideration other than full
satisfaction of the liability, and then aggregating the separately computed
gains. A Partner's share of Partnership Minimum Gain shall be determined in
accordance with Regulations Section 1.704-2(g)(1).
"PARTNERSHIP RECORD DATE" means the record date established by the General
Partner for the distribution of cash pursuant to Section 5.02 hereof, which
record date shall be the same as the record date established by the Company for
a distribution to its shareholders of some or all of its portion of such
distribution.
"PARTNERSHIP UNIT" means a fractional, undivided share of the Partnership
Interests of all Partners issued hereunder (and includes any Preferred Units).
The allocation of Partnership Units among the Partners shall be as set forth on
Exhibit A, as may be amended from time to time.
- ---------
"PERCENTAGE INTEREST" means the percentage ownership interest in the
Partnership of each Partner, as determined by dividing the Partnership Units
owned by a Partner (including any outstanding Preferred Units) by the total
number of Partnership Units outstanding (including any outstanding Preferred
Units). The Percentage Interest of each Partner shall be as set forth on
Exhibit A, as may be amended from time to time. For purposes of applying
- ---------
Section 5.02(a), a Partner's Percentage Interest shall be calculated with the
modifications provided in section 5.02(a)(2).
"PERSON" means any individual, partnership, corporation, joint venture,
trust or other entity.
"PREFERRED UNIT" means a limited partnership interest represented by
fractional, undivided share of the Partnership Interests of all Partners issued
hereunder which has the
-6-
<PAGE>
rights, preferences and other privileges designated herein. The allocation of
Preferred Units among the Partners shall be set forth on Exhibit A, as may be
---------
amended from time to time.
"PREFERRED UNITHOLDER" means a limited partner that holds Preferred Units.
"PROFIT" has the meaning provided in Section 5.01(f) hereof.
"PROPERTY" means any hotel property or other investment in which the
Partnership holds an ownership interest.
"REDEEMING PARTNER" has the meaning provided in Section 8.05(a) hereof.
"REDEMPTION AMOUNT" means either the Cash Amount or the REIT Shares Amount,
as selected by the General Partner or the Company in its sole discretion
pursuant to Section 8.05(b) hereof.
"REDEMPTION RIGHT" has the meaning provided in Section 8.05(a) hereof.
"REGULATIONS" means the Federal Income Tax Regulations issued under the
Code, as amended and as hereafter amended from time to time. Reference to any
particular provision of the Regulations shall mean that provision of the
Regulations on the date hereof and any successor provision of the Regulations.
"REIT" means a real estate investment trust under Sections 856 through 860
of the Code.
"REIT EXPENSES" means (i) costs and expenses relating to the formation and
continuity of existence of the Company and any Subsidiaries thereof (which
Subsidiaries shall, for purposes hereof, be included within the definition of
Company), including taxes, fees and assessments associated therewith, any and
all costs, expenses or fees payable to any director, officer, or employee of the
Company, (ii) costs and expenses relating to the public offering and
registration of securities by the Company and all statements, reports, fees and
expenses incidental thereto, including underwriting discounts and selling
commissions applicable to any such offering of securities, (iii) costs and
expenses associated with the preparation and filing of any periodic reports by
the Company under federal, state or local laws or regulations, including filings
with the Commission, (iv) costs and expenses associated with compliance by the
Company with laws, rules and regulations promulgated by any regulatory body,
including the Commission, and (v) all other operating or administrative costs of
the Company incurred in the ordinary course of its business on behalf of or in
connection with the Partnership.
"REIT LIMITED PARTNER" means PAH LP and any person who becomes a Substitute
or Additional Limited Partner to PAH LP's limited partner interest, and any of
their successors as the REIT Limited Partner.
-7-
<PAGE>
"REIT SHARE" means a share of common stock of the Company, no par value.
"REIT SHARES AMOUNT" shall mean a number of REIT Shares equal to the
product of the number of Partnership Units offered for redemption by a Redeeming
Partner, multiplied by the Conversion Factor; provided that in the event the
-------------
Company issues to all holders of REIT Shares rights, options, warrants or
convertible or exchangeable securities entitling the shareholders to subscribe
for or purchase REIT Shares, or any other securities or property (collectively,
the "rights"), then the REIT Shares Amount shall also include such rights that a
holder of that number of REIT Shares would be entitled to receive.
"SERVICE" means the Internal Revenue Service.
"SPECIFIED REDEMPTION DATE" means the first business day that is at least
60 business days after the receipt by the Company of the Notice of Redemption.
"STOCK INCENTIVE PLANS" means the Patriot American Hospitality, Inc. 1995
Incentive Plan and this Patriot American Hospitality, Inc. Non-Employee
Directors' Incentive Plan, as either such plan may be amended from time to time,
or any stock incentive plan adopted in the future by the Company.
"SUBSIDIARY" means, with respect to any Person, any corporation or other
entity of which a majority of (i) the voting power of the voting equity
securities or (ii) the outstanding equity interests is owned, directly or
indirectly, by such Person.
"SUBSIDIARY PARTNERSHIP" means any partnership of which the majority of the
limited or general partnership interests therein are owned, directly or
indirectly, by the Partnership.
"SUBSTITUTE LIMITED PARTNER" means any Person admitted to the Partnership
as a Limited Partner pursuant to Section 9.03 hereof.
"SURVIVING GENERAL PARTNER" has the meaning set forth in Section 7.01(d)
hereof.
"TRANSACTION" has the meaning set forth in Section 7.01(c) hereof.
"TRANSFER" has the meaning set forth in Section 9.02(a) hereof.
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<PAGE>
ARTICLE II
PARTNERSHIP CONTINUATION AND IDENTIFICATION
-------------------------------------------
2.01 CONTINUATION. The Partners hereby agree to continue the
------------
Partnership pursuant to the Act and upon the terms and conditions set forth in
this Agreement.
2.02 NAME, OFFICE AND REGISTERED AGENT. The name of the Partnership
---------------------------------
shall be Patriot American Hospitality Partnership, L.P. The specified office
and place of business of the Partnership shall be 3030 LBJ Freeway, Suite 1500,
Dallas, Texas 75234. The General Partner may at any time change the location
of such office, provided the General Partner gives notice to the Partners of any
such change. The name and address of the Partnership's registered agent is
Edward R. Parker, 5511 Staples Mill Road, Richmond, Virginia 23228. The sole
duty of the registered agent as such is to forward to the Partnership any notice
that is served on him as registered agent.
2.03 PARTNERS.
--------
(a) As of the date hereof, the General Partner of the Partnership
shall be PAH GP. Its principal place of business shall be the same as that of
the Partnership.
(b) The Limited Partners shall be those Persons identified as Limited
Partners on Exhibit A hereto, as amended from time to time.
---------
2.04 TERM AND DISSOLUTION.
--------------------
(a) The term of the Partnership shall continue in full force and
effect until December 31, 2050, except that the Partnership shall be dissolved
upon the first to occur of any of the following events:
(i) The occurrence of an Event of Bankruptcy as to a General
Partner or the dissolution, death, removal or withdrawal of a General
Partner unless the business of the Partnership is continued pursuant to
Section 7.03(b) hereof; provided that if a General Partner is on the date
-------- ----
of such occurrence a partnership, the dissolution of such General Partner
as a result of the dissolution, death, withdrawal, removal or Event of
Bankruptcy of a partner in such partnership shall not be an event of
dissolution of the Partnership if the business of such General Partner is
continued by the remaining partner or partners, either alone or with
additional partners, and such General Partner and such partners comply with
any other applicable requirements of this Agreement;
(ii) The passage of 90 days after the sale or other disposition
of all or substantially all of the assets of the Partnership (provided that
-------- ----
if the Partnership
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<PAGE>
receives an installment obligation as consideration for such sale or other
disposition, the Partnership shall continue, unless sooner dissolved under
the provisions of this Agreement, until such time as such note or notes are
paid in full);
(iii) The redemption of all Limited Partnership Interests (other
than any of such interests held by the REIT Limited Partner); or
(iv) The election by the General Partner that the Partnership
should be dissolved.
(b) Upon dissolution of the Partnership (unless the business of the
Partnership is continued pursuant to Section 7.03(b) hereof), the General
Partner (or its trustee, receiver, successor or legal representative) shall
amend or cancel the Certificate and liquidate the Partnership's assets and apply
and distribute the proceeds thereof in accordance with Section 5.06 hereof.
Notwithstanding the foregoing, the liquidating General Partner may either (i)
defer liquidation of, or withhold from distribution for a reasonable time, any
assets of the Partnership (including those necessary to satisfy the
Partnership's debts and obligations), or (ii) distribute the assets to the
Partners in kind.
2.05 FILING OF CERTIFICATE AND PERFECTION OF LIMITED PARTNERSHIP.
------------------------------------------------------------
The General Partner shall execute, acknowledge, record and file at the expense
of the Partnership, the Certificate and any and all amendments thereto and all
requisite fictitious name statements and notices in such places and
jurisdictions as may be necessary to cause the Partnership to be treated as a
limited partnership under, and otherwise to comply with, the laws of each state
or other jurisdiction in which the Partnership conducts business.
ARTICLE III
BUSINESS OF THE PARTNERSHIP
---------------------------
The purpose and nature of the business to be conducted by the Partnership
is (i) to conduct any business that may be lawfully conducted by a limited
partnership organized pursuant to the Act, provided, however, that such business
shall be limited to and conducted in such a manner as to permit the Company at
all times to qualify as a REIT, unless the Company otherwise ceases to qualify
as a REIT, (ii) to enter into any partnership, joint venture or other similar
arrangement to engage in any of the foregoing or the ownership of interests in
any entity engaged in any of the foregoing and (iii) to do anything necessary or
incidental to the foregoing. In connection with the foregoing, and without
limiting the Company's right in its sole discretion to cease qualifying as a
REIT, the Partners acknowledge that the Company's current status as a REIT
inures to the benefit of all the Partners and not solely to the Company. The
General Partner shall also be empowered to do any and all acts and things
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<PAGE>
necessary or prudent to ensure that the Partnership will not be classified as a
"publicly traded partnership" for the purposes of Section 7704 of the Code.
ARTICLE IV
CAPITAL CONTRIBUTIONS AND ACCOUNTS
----------------------------------
4.01 CAPITAL CONTRIBUTIONS. The General Partner and the Limited
---------------------
Partners have contributed to the capital of the Partnership cash and other
interests as set forth opposite their names on Exhibit A.
---------
4.02 ADDITIONAL CAPITAL CONTRIBUTIONS AND ISSUANCES OF ADDITIONAL
------------------------------------------------------------
PARTNERSHIP INTERESTS. Except as provided in this Section 4.02 or in Section
- ---------------------
4.03, the Partners shall have no right or obligation to make any additional
Capital Contributions or loans to the Partnership. The General Partner may
contribute additional capital to the Partnership, from time to time, and receive
additional Partnership Interests in respect thereof, in the manner contemplated
in this Section 4.02.
(a) Issuances of Additional Partnership Interests.
---------------------------------------------
(i) General. The General Partner is hereby authorized to cause
-------
the Partnership to issue such additional Partnership Interests in the form
of Partnership Units for any Partnership purpose at any time or from time
to time, to the Partners (including the General Partner and the REIT
Limited Partner) or to other Persons for such consideration and on such
terms and conditions as shall be established by the General Partner in its
sole and absolute discretion, all without the approval of any Limited
Partners. Any additional Partnership Interests issued thereby may be
issued in one or more classes, or one or more series of any of such
classes, with such designations, preferences and relative, participating,
optional or other special rights, powers and duties, including rights,
powers and duties senior to Limited Partnership Interests, all as shall be
determined by the General Partner in its sole and absolute discretion and
without the approval of any Limited Partner, subject to Virginia law,
including, without limitation, (i) the allocations of items of Partnership
income, gain, loss, deduction and credit to each such class or series of
Partnership Interests; (ii) the right of each such class or series of
Partnership Interests to share in Partnership distributions; and (iii) the
rights of each such class or series of Partnership Interests upon
dissolution and liquidation of the Partnership; provided, however, that no
-------- -------
additional Partnership Interests shall be issued to the General Partner or
the REIT Limited Partner unless either:
(1)(A) the additional Partnership Interests are issued in
connection with an issuance of REIT Shares of or other interests in the
Company,
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<PAGE>
which shares or interests have designations, preferences and other rights,
all such that the economic interests are substantially similar to the
designations, preferences and other rights of the additional Partnership
Interests issued to the General Partner or the REIT Limited Partner by the
Partnership in accordance with this Section 4.02 and (B) the General
Partner or the REIT Limited Partner shall make a Capital Contribution to
the Partnership in an amount equal to the proceeds raised in connection
with the issuance of such shares of stock of or other interests in the
Company,
(2) the additional Partnership Interests are issued
pursuant to Section 7.01(d), or
(3) the additional Partnership Interests are issued to
all Partners in proportion to their respective Percentage Interests.
Without limiting the foregoing, the General Partner is expressly authorized to
cause the Partnership to issue Partnership Units for less than fair market
value, so long as the General Partner concludes in good faith that such issuance
is in the best interests of the General Partner and the Partnership.
(ii) Upon Issuance of Additional Securities. The Company
--------------------------------------
shall not issue any additional REIT Shares (other than REIT Shares issued
in connection with a redemption pursuant to Section 8.05 hereof) or rights,
options, warrants or convertible or exchangeable securities containing the
right to subscribe for or purchase REIT Shares (collectively, "Additional
Securities") other than to all holders of REIT Shares, unless (A) the
General Partner shall cause the Partnership to issue to the General Partner
and the REIT Limited Partner, as the Company may designate, Partnership
Interests or rights, options, warrants or convertible or exchangeable
securities of the Partnership having designations, preferences and other
rights, all such that the economic interests are substantially similar to
those of the Additional Securities, and (B) the Company contributes the
proceeds from the issuance of such Additional Securities and from any
exercise of rights contained in such Additional Securities, through the
General Partner and the REIT Limited Partner to the Partnership; provided,
however, that the Company is allowed to issue Additional Securities in
connection with an acquisition of a property to be held directly by the
Company, but if and only if, such direct acquisition and issuance of
Additional Securities have been approved and determined to be in the best
interests of the Company and the Partnership by a majority of the
Independent Directors. Without limiting the foregoing, the Company is
expressly authorized to issue Additional Securities for less than fair
market value, and to cause the Partnership to issue to the General Partner
corresponding Partnership Interests, so long as (x) the General Partner
concludes in good faith that such issuance is in the best interests of the
General Partner and the Partnership, including without limitation, the
issuance of REIT Shares and corresponding Partnership Units pursuant to an
employee stock purchase plan providing for employee
-12-
<PAGE>
purchases of REIT Shares at a discount from fair market value or employee
stock options that have an exercise price that is less than the fair market
value of the REIT Shares, either at the time of issuance or at the time of
exercise, and (y) the Company contributes all proceeds from such issuance,
through the General Partner and the REIT Limited Partner, to the
Partnership. For example, in the event the Company issues REIT Shares for a
cash purchase price and contributes all of the proceeds of such issuance,
through the General Partner and the REIT Limited Partner, to the
Partnership as required hereunder, the General Partner and the REIT Limited
Partner, as the Company may so designate, shall be issued a number of
additional Partnership Units equal to the product of (A) the number of such
REIT Shares issued by the Company, the proceeds of which were so
contributed, multiplied by (B) a fraction, the numerator of which is 100%,
and the denominator of which is the Conversion Factor in effect on the date
of such contribution.
(b) Certain Deemed Contributions of Proceeds of Issuance of REIT
------------------------------------------------------------
Shares. In connection with any and all issuances of REIT Shares, the Company
- ------
shall contribute all of the proceeds raised in connection with such issuance to
the General Partner and the REIT Limited Partner as the Company determines, and
in turn, the General Partner and the REIT Limited Partner shall make Capital
Contributions to the Partnership of such proceeds, provided that if the proceeds
-------- ----
actually received and contributed by the Company to the General Partner and the
REIT Limited Partner are less than the gross proceeds of such issuance as a
result of any underwriter's discount or other expenses paid or incurred in
connection with such issuance, then the General Partner and the REIT Limited
Partner shall be deemed to have made Capital Contributions to the Partnership in
the aggregate amount of the gross proceeds of such issuance and the Partnership
shall be deemed simultaneously to have paid such offering expenses in connection
with the required issuance of additional Partnership Units to the General
Partner and the REIT Limited Partner for such Capital Contributions pursuant to
Section 4.02(a) hereof.
(c) Minimum Limited Partnership Interest. In the event that either a
------------------------------------
redemption pursuant to Section 8.05 hereof or additional Capital Contributions
by the General Partner and the REIT Limited Partner would result in the Limited
Partners (other than the REIT Limited Partner), in the aggregate, owning less
than the Minimum Limited Partnership Interest, the General Partner and the
Limited Partners shall form another partnership and contribute sufficient
Limited Partnership Interests together with such other Limited Partners so that
the limited partners (other than the REIT Limited Partner) of such partnership
own at least the Minimum Limited Partnership Interest.
(d) Exchange of Preferred Units.
---------------------------
(i) In the event the General Partner or the Company acquires
Preferred Units from the Preferred Unitholders (in exchange for cash or
REIT Shares), the Partnership shall, as soon as practicable thereafter,
exchange each Preferred Unit
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<PAGE>
held by the General Partner or the Company for such number of Partnership
Units which are not designated as Preferred Units, as determined by the
Conversion Factor then in effect.
(ii) In the event the Company qualifies under the Department
of Labor regulations as a "real estate operating company" or a "venture
capital operating company" and has the authority to issue preferred capital
stock having the same designations, preferences and other rights as the
Preferred Units, all such that the economic interests of the preferred
stock are substantially similar to those of the Preferred Units, in the
sole and absolute discretion of the Company, each Preferred Unit will be
immediately converted into one share of preferred stock having the same
designating preferences and other rights as the Preferred Units.
Notwithstanding the foregoing, as a condition to such conversion the
Company shall deliver to each Preferred Unitholder who so requests a legal
opinion, in form and substance reasonably satisfactory to the Preferred
Unitholder, as to the Company's qualification as a "real estate operating
company" or a "venture capital operating company."
4.03 ADDITIONAL FUNDING. If the General Partner determines that it is
------------------
in the best interests of the Partnership to provide for additional Partnership
funds ("Additional Funds") for any Partnership purpose, the General Partner may
(i) cause the Partnership to obtain such funds from outside borrowings, or (ii)
elect to have the General Partner or the REIT Limited Partner provide such
Additional Funds to the Partnership through loans or otherwise.
4.04 CAPITAL ACCOUNTS. A separate capital account (a "Capital
----------------
Account") shall be established and maintained for each Partner in accordance
with Regulations Section 1.704-1(b)(2)(iv). If (i) a new or existing Partner
acquires an additional Partnership Interest in exchange for more than a de
--
minimis Capital Contribution, (ii) the Partnership distributes to a Partner more
- -------
than a de minimis amount of Partnership property as consideration for a
-- -------
Partnership Interest, or (iii) the Partnership is liquidated within the meaning
of Regulation Section 1.704-1(b)(2)(ii)(g), the General Partner shall revalue
the property of the Partnership to its fair market value (taking into account
Section 7701(g) of the Code) in accordance with Regulations Section 1.704-
1(b)(2)(iv)(f). When the Partnership's property is revalued by the General
Partner, the Capital Accounts of the Partners shall be adjusted in accordance
with Regulations Sections 1.704-1(b)(2)(iv)(f) and (g), which generally require
such Capital Accounts to be adjusted to reflect the manner in which the
unrealized gain or loss inherent in such property (that has not been reflected
in the Capital Accounts previously) would be allocated among the Partners
pursuant to Section 5.01 if there were a taxable disposition of such property
for its fair market value (taking into account Section 7701(g) of the Code) on
the date of the revaluation.
4.05 PERCENTAGE INTERESTS. If the number of outstanding Partnership
--------------------
Units increases or decreases during a taxable year, each Partner's Percentage
Interest shall be adjusted to a percentage equal to the number of Partnership
Units held by such Partner divided by the
-14-
<PAGE>
aggregate number of outstanding Partnership Units. If the Partners' Percentage
Interests are adjusted pursuant to this Section 4.05, the Profits and Losses for
the taxable year in which the adjustment occurs shall be allocated between the
part of the year ending on the day when the Partnership's property is revalued
by the General Partner and the part of the year beginning on the following day
either (i) as if the taxable year had ended on the date of the adjustment or
(ii) based on the number of days in each part. The General Partner, in its sole
discretion, shall determine which method shall be used to allocate Profits and
Losses for the taxable year in which the adjustment occurs. The allocation of
Profits and Losses for the earlier part of the year shall be based on the
Percentage Interests before adjustment, and the allocation of Profits and Losses
for the later part shall be based on the adjusted Percentage Interests.
4.06 NO INTEREST ON CONTRIBUTIONS. No Partner shall be entitled to
----------------------------
interest on its Capital Contribution.
4.07 RETURN OF CAPITAL CONTRIBUTIONS. No Partner shall be entitled to
-------------------------------
withdraw any part of its Capital Contribution or its Capital Account or to
receive any distribution from the Partnership, except as specifically provided
in this Agreement. Except as otherwise provided herein, there shall be no
obligation to return to any Partner or withdrawn Partner any part of such
Partner's Capital Contribution for so long as the Partnership continues in
existence.
4.08 NO THIRD PARTY BENEFICIARY. No creditor or other third party
--------------------------
having dealings with the Partnership shall have the right to enforce the right
or obligation of any Partner to make Capital Contributions or loans or to pursue
any other right or remedy hereunder or at law or in equity, it being understood
and agreed that the provisions of this Agreement shall be solely for the benefit
of, and may be enforced solely by, the parties hereto and their respective
successors and assigns. None of the rights or obligations of the Partners
herein set forth to make Capital Contributions or loans to the Partnership shall
be deemed an asset of the Partnership for any purpose by any creditor or other
third party, nor may such rights or obligations be sold, transferred or assigned
by the Partnership or pledged or encumbered by the Partnership to secure any
debt or other obligation of the Partnership or of any of the Partners. In
addition, it is the intent of the parties hereto that no distribution to any
Limited Partner shall be deemed a return of money or other property in violation
of the Act. However, if any court of competent jurisdiction holds that,
notwithstanding the provisions of this Agreement, any Limited Partner is
obligated to return such money or property, such obligation shall be the
obligation of such Limited Partner and not of the General Partner. Without
limiting the generality of the foregoing, a deficit Capital Account of a Partner
shall not be deemed to be a liability of such Partner nor an asset or property
of the Partnership.
4.09 STOCK INCENTIVE PLANS. (a) If grants of REIT Shares are made in
---------------------
connection with a Stock Incentive Plan:
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<PAGE>
(i) The Company, through the General Partner and the REIT
Limited Partner, shall contribute, as soon as practicable after such grant,
to the Partnership (to be thereafter taken into account for the purposes of
calculating any cash distributable to the Partners), an amount equal to the
price, if any, paid to the Company by the party receiving such REIT Shares;
(ii) The Partnership shall issue to the General Partner and the
REIT Limited Partner an aggregate number of additional Partnership Units
equal to the product of (1) the number of such REIT Shares issued by the
Company, multiplied by (2) a fraction, the numerator of which is 100%, and
-------------
the denominator of which is the Conversion Factor in effect on the date of
such contribution; and
(iii) The General Partner's and the REIT Limited Partner's
Percentage Interest and the Percentage Interests of the other Limited
Partners shall be adjusted as set forth in Section 4.02.
(b) If stock options granted in connection with a Stock Incentive
Plan are exercised:
(i) The Company, through the General Partner and the REIT
Limited Partner, shall contribute, as soon as practicable after such
exercise, to the Partnership (to be thereafter taken into account for
purposes of calculating any cash distributable to the Partners), an amount
equal to the exercise price, if any, paid to the Company by the exercising
party in connection with the exercise of the option or warrant;
(ii) The Partnership shall issue to the General Partner and the
REIT Limited Partner an aggregate number of additional Partnership Units
equal to the product of (1) the number of REIT Shares issued by the Company
in satisfaction of such exercised option or warrant, multiplied by (2) a
-------------
fraction, the numerator of which is 100%, and the denominator of which is
the Conversion Factor in effect on the date of such contribution; and
(iii) The General Partner's and the REIT Limited Partner's
Percentage Interest and the Percentage Interests of the other Limited
Partners shall be adjusted as set forth in Section 4.02.
(c) If the Company grants any director, officer or employee share
appreciation rights, performance share awards or other similar rights
("Incentive Rights"), then simultaneously, the Partnership shall grant the
General Partner and the REIT Limited Partner corresponding and economically
equivalent rights. Consequently, upon the cash payment by the Company to its
directors, officers or employees pursuant to such Incentive
-16-
<PAGE>
Rights, the Partnership shall make an equal cash payment to the General Partner
and the REIT Limited Partner.
ARTICLE V
PROFITS AND LOSSES; DISTRIBUTIONS
---------------------------------
5.01 ALLOCATION OF PROFIT AND LOSS.
-----------------------------
(a) General. Profit and Loss of the Partnership for each fiscal
-------
year of the Partnership shall be allocated among the Partners in accordance with
their respective Percentage Interests.
(b) Minimum Gain Chargeback. Notwithstanding any provision to
-----------------------
the contrary, (i) any expense of the Partnership that is a "nonrecourse
deduction" within the meaning of Regulations Section 1.704-2(b)(1) shall be
allocated in accordance with the Partners' respective Percentage Interests, (ii)
any expense of the Partnership that is a "partner nonrecourse deduction" within
the meaning of Regulations Section 1.704-2(i)(2) shall be allocated in
accordance with Regulations Section 1.704-2(i)(1), (iii) if there is a net
decrease in Partnership Minimum Gain within the meaning of Regulations Section
1.704-2(f)(1) for any Partnership taxable year, items of gain and income shall
be allocated among the Partners in accordance with Regulations Section 1.704-
2(f) and the ordering rules contained in Regulations Section 1.704-2(j), and
(iv) if there is a net decrease in Partner Nonrecourse Debt Minimum Gain within
the meaning of Regulations Section 1.704-2(i)(4) for any Partnership taxable
year, items of gain and income shall be allocated among the Partners in
accordance with Regulations Section 1.704-2(i)(4) and the ordering rules
contained in Regulations Section 1.704-2(j). A Partner's "interest in
partnership profits" for purposes of determining its share of the nonrecourse
liabilities of the Partnership within the meaning of Regulations Section 1.752-
3(a)(3) shall be such Partner's Percentage Interest.
(c) Qualified Income Offset. If a Limited Partner receives in
-----------------------
any taxable year an adjustment, allocation, or distribution described in
subparagraphs (4), (5), or (6) of Regulations Section 1.704-1(b)(2)(ii)(d) that
causes or increases a negative balance in such Partner's Capital Account that
exceeds the sum of such Partner's shares of Partnership Minimum Gain and Partner
Nonrecourse Debt Minimum Gain, as determined in accordance with Regulations
Sections 1.704-2(g) and 1.704-2(i), such Partner shall be allocated specially
for such taxable year (and, if necessary, later taxable years) items of income
and gain in an amount and manner sufficient to eliminate such negative Capital
Account balance as quickly as possible as provided in Regulations Section 1.704-
1(b)(2)(ii)(d). After the occurrence of an allocation of income or gain to a
Limited Partner in accordance with this Section 5.01(c), to the extent permitted
by Regulations Section 1.704-1(b), items of expense or loss shall be
-17-
<PAGE>
allocated to such Partner in an amount necessary to offset the income or gain
previously allocated to such Partner under this Section 5.01(c).
(d) Capital Account Deficits. Loss shall not be allocated to a
------------------------
Limited Partner to the extent that such allocation would cause a deficit in such
Partner's Capital Account (after reduction to reflect the items described in
Regulations Section 1.704-1(b)(2)(ii)(d)(4), (5) and (6)) to exceed the sum of
such Partner's shares of Partnership Minimum Gain and Partner Nonrecourse Debt
Minimum Gain. Any Loss in excess of that limitation shall be allocated to the
General Partner. After the occurrence of an allocation of Loss to the General
Partner in accordance with this Section 5.01(d), to the extent permitted by
Regulations Section 1.704-1(b), Profit shall be allocated to such Partner in an
amount necessary to offset the Loss previously allocated to such Partner under
this Section 5.01(d).
(e) Allocations Between Transferor and Transferee. If a Partner
---------------------------------------------
transfers any part or all of its Partnership Interest, the distributive shares
of the various items of Profit and Loss allocable among the Partners during such
fiscal year of the Partnership shall be allocated between the transferor and the
transferee Partner either (i) as if the Partnership's fiscal year had ended on
the date of the transfer, or (ii) based on the number of days of such fiscal
year that each was a Partner without regard to the results of Partnership
activities in the respective portions of such fiscal year in which the
transferor and the transferee were Partners. The General Partner, in its sole
discretion, shall determine which method shall be used to allocate the
distributive shares of the various items of Profit and Loss between the
transferor and the transferee Partner.
(f) Definition of Profit and Loss. "Profit" and "Loss" and any
-----------------------------
items of income, gain, expense, or loss referred to in this Agreement shall be
determined in accordance with federal income tax accounting principles, as
modified by Regulations Section 1.704-1(b)(2)(iv), except that Profit and Loss
shall not include items of income, gain and expense that are specially allocated
pursuant to Section 5.01(b), 5.01(c), or 5.01(d). All allocations of income,
Profit, gain, Loss, and expense (and all items contained therein) for federal
income tax purposes shall be identical to all allocations of such items set
forth in this Section 5.01, except as otherwise required by Section 704(c) of
the Code and Regulations Section 1.704-1(b)(4). The General Partner shall have
the authority to elect the method to be used by the Partnership for allocating
items of income, gain, and expense as required by Section 704(c) of the Code and
such election shall be binding on all Partners.
5.02 OPERATING DISTRIBUTIONS.
-----------------------
(a) Except as otherwise provided in Section 5.06, cash available
for distribution by the Partnership shall be distributed as follows:
(1) First, if there are any Preferred Units outstanding on
any record date for payment of a dividend on the REIT Shares, the General
Partner shall distribute
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<PAGE>
to the Preferred Unitholder(s) of record on such date (concurrently with
the payment of such REIT Share dividend) an amount with respect to each
such Preferred Unit equal to the Preferred Distribution Amount.
(2) Second, the General Partner shall distribute any
remaining cash available for distribution on a quarterly (or, at the
election of the General Partner, more frequent) basis, in an amount
determined by the General Partner in its sole discretion, to the Partners
who are Partners on the Partnership Record Date for such quarter (or other
distribution period) in accordance with their respective Percentage
Interests on the Partnership Record Date. For purposes of this Section
5.02(a)(2), Percentage Interests shall not include any Preferred Units.
(b) In no event may a Partner receive a distribution of cash with
respect to a Partnership Unit if such Partner is entitled to receive a dividend
with respect to a REIT Share for which all or part of such Partnership Unit has
been or will be exchanged.
5.03 REIT DISTRIBUTION REQUIREMENTS. The General Partner shall use
------------------------------
its reasonable efforts to cause the Partnership to distribute amounts sufficient
to enable the Company to pay shareholder dividends that will allow the Company
to (i) meet its distribution requirement for qualification as a REIT as set
forth in Section 857(a)(1) of the Code and (ii) avoid any federal income or
excise tax liability imposed by the Code.
5.04 NO RIGHT TO DISTRIBUTIONS IN KIND. The General Partner may
---------------------------------
distribute property, other than cash to the Partners in any manner determined by
the General Partner. No Partner shall be entitled to demand property other than
cash in connection with any distributions by the Partnership.
5.05 LIMITATIONS ON RETURN OF CAPITAL CONTRIBUTIONS. Notwithstanding
----------------------------------------------
any of the provisions of this Article V, no Partner shall have the right to
receive and the General Partner shall not have the right to make, a distribution
that includes a return of all or part of a Partner's Capital Contributions,
unless after giving effect to the return of a Capital Contribution, the sum of
all Partnership liabilities, other than the liabilities to a Partner for the
return of his Capital Contribution, does not exceed the fair market value of the
Partnership's assets.
5.06 DISTRIBUTIONS UPON LIQUIDATION.
------------------------------
(a) Upon liquidation of the Partnership, after payment of, or
adequate provision for, debts and obligations of the Partnership, including any
Partner loans, any remaining assets of the Partnership shall be distributed to
all Partners with positive Capital Accounts in accordance with their respective
positive Capital Account balances. For purposes of the preceding sentence, the
Capital Account of each Partner shall be determined after all adjustments made
in accordance with Sections 5.01 and 5.02 resulting from Partnership
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<PAGE>
operations and from all sales and dispositions of all or any part of the
Partnership's assets. Any distributions pursuant to this Section 5.06 shall be
made by the end of the Partnership's taxable year in which the liquidation
occurs (or, if later, within 90 days after the date of the liquidation). To the
extent deemed advisable by the General Partner, appropriate arrangements
(including the use of a liquidating trust) may be made to assure that adequate
funds are available to pay any contingent debts or obligations.
(b) If the General Partner has a negative balance in its Capital
Account following a liquidation of the Partnership, as determined after taking
into account all Capital Account adjustments in accordance with Sections 5.01
and 5.02 resulting from Partnership operations and from all sales and
dispositions of all or any part of the Partnership's assets, the General Partner
shall contribute to the Partnership an amount of cash equal to the negative
balance in its Capital Account and such cash shall be paid or distributed by the
Partnership to creditors, if any, and then to the Limited Partners in accordance
with Section 5.06(a). Such contribution by the General Partner shall be made by
the end of the Partnership's taxable year in which the liquidation occurs (or,
if later, within 90 days after the date of the liquidation).
5.07 SUBSTANTIAL ECONOMIC EFFECT. It is the intent of the Partners
---------------------------
that the allocations of Profit and Loss under the Agreement have substantial
economic effect (or be consistent with the Partners' interests in the
Partnership in the case of the allocation of losses attributable to nonrecourse
debt) within the meaning of Section 704(b) of the Code as interpreted by the
Regulations promulgated pursuant thereto. Article V and other relevant
provisions of this Agreement shall be interpreted in a manner consistent with
such intent.
5.08 ADDITIONAL DISTRIBUTIONS PROVISIONS AND DEFINITIONS RELATING TO
---------------------------------------------------------------
PREFERRED UNITS.
---------------
Notwithstanding any other provision to the contrary in this Agreement, as
long as there remain any Preferred Units outstanding, the following additional
distribution provisions and definitions shall apply.
(a) "Preferred Distribution Amount" shall mean, for any quarter
or other period with respect to which a REIT Share dividend is paid and a
distribution is required to be made pursuant to Section 5.02(a)(1), an amount
equal to the sum of the following: (i) such amount that if it were the sole
amount distributed on a Preferred Unit pursuant to Section 5.02(a)(1) for such
quarter or other period would provide the Preferred Unitholder with a
distribution on such Preferred Unit equal to 103% of the corresponding REIT
Share dividend to be paid for such quarter or other period plus (ii) the UBTI
Adjuster, if any, required to be paid during such quarter or other period
pursuant to Section 5.08(b). Notwithstanding the foregoing, the aggregate
Preferred Distribution Amount with respect to any Preferred Unitholder shall not
exceed the Preferred Unitholder's Capital Account balance (after reducing such
balance to reflect the items described in Regulations section 1.704-
1(b)(ii)(2)(d)(4), (5) and (6) and after increasing such Capital Account balance
to reflect such Preferred
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Unitholder's shares of Partnership Minimum Gain and Partner Nonrecourse Debt
Minimum Gain), determined as of the date of the relevant distribution.
(b) "UBTI Adjuster." If, for any fiscal year of the Partnership,
the amount of a Preferred Unitholder's distributive share of UBTI exceeds 20% of
the aggregate amount of income and gain allocated to such Preferred Unitholder
for the fiscal year, (any such excess referred to as the "Excess UBTI" for such
fiscal year) the Preferred Unitholder shall be entitled to an additional
distribution from the Partnership (each such distribution a "UBTI Adjuster") on
account of such Excess UBTI equal to the product of (i) the Excess UBTI
multiplied by (ii) the Applicable Rate; provided, however, that in the case of
any fiscal year beginning on or after January 1, 1999, a Preferred Unitholder
shall be entitled to receive a UBTI Adjuster only for the Excess UBTI that
arises in the first fiscal year beginning after January 1, 1999 for which the
Preferred Unitholder has Excess UBTI, and such Preferred Unitholder shall not be
entitled to a UBTI Adjuster for Excess UBTI in any other fiscal year beginning
on or after January 1, 1999. The "Applicable Rate" means the marginal federal
income tax rate applicable to UBTI of the Preferred Unitholder for the fiscal
year during which the corresponding Excess UBTI arises with respect to such
Excess UBTI, assuming for this purpose that the Preferred Unitholder has no UBTI
from any source other than the Partnership and taking into account the character
of such income. "UBTI" for a fiscal year means "unrelated business taxable
income" within the meaning of section 512(a)(1) of the Code, as determined in
accordance with the "Schedule K-1" of the Preferred Unitholder for such fiscal
year; provided, however, that for purposes of determining Excess UBTI and the
amount of any UBTI Adjuster, it shall be assumed (notwithstanding any
determination to the contrary or the fact that a greater amount of UBTI may
appear on the Schedule K-1) that the Partnership and its subsidiary partnerships
as of the date hereof meet the requirements of section 514(c)(9)(B)(vi)(III) of
the Code, unless the failure to satisfy such requirements results from
amendments made to the partnership agreement of the Partnership or any such
subsidiary partnership without the consent of the Preferred Unitholders
subsequent to the issuance of the Preferred Units. Any UBTI Adjuster required to
be paid as a result of Excess UBTI for a fiscal year shall be distributed
concurrently with the Partnership distribution immediately following the
Preferred Unitholder's receipt of the Schedule K-1 for the fiscal year in which
the Excess UBTI arises and shall be included in the computation of the Preferred
Distribution Amount for the quarter or other distribution period for which such
distribution is made.
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ARTICLE VI
RIGHTS, OBLIGATIONS AND
POWERS OF THE GENERAL PARTNER
-----------------------------
6.01 MANAGEMENT OF THE PARTNERSHIP.
-----------------------------
(a) Except as otherwise expressly provided in this Agreement,
the General Partner shall have full, complete and exclusive discretion to manage
and control the business of the Partnership for the purposes herein stated, and
shall make all decisions affecting the business and assets of the Partnership.
Subject to the restrictions specifically contained in this Agreement, the powers
of the General Partner shall include, without limitation, the authority to take
the following actions on behalf of the Partnership:
(i) to acquire, purchase, own, lease and dispose of any
real property and any other property or assets that the General Partner
determines are necessary or appropriate or in the best interests of the
business of the Partnership;
(ii) to construct buildings and make other improvements on
the properties owned or leased by the Partnership;
(iii) to borrow money for the Partnership, issue evidences
of indebtedness in connection therewith, refinance, guarantee, increase the
amount of, modify, amend or change the terms of, or extend the time for the
payment of, any indebtedness or obligation to the Partnership, and secure
such indebtedness by mortgage, deed of trust, pledge or other lien on the
Partnership's assets;
(iv) to pay, either directly or by reimbursement, for all
operating costs and general administrative expenses of the Company, the
General Partner, the REIT Limited Partner or the Partnership, to third
parties or to the General Partner as set forth in this Agreement;
(v) to lease all or any portion of any of the
Partnership's assets, whether or not the terms of such leases extend beyond
the termination date of the Partnership and whether or not any portion of
the Partnership's assets so leased are to be occupied by the lessee, or, in
turn, subleased in whole or in part to others, for such consideration and
on such terms as the General Partner may determine;
(vi) to prosecute, defend, arbitrate, or compromise any and
all claims or liabilities in favor of or against the Partnership, on such
terms and in such manner as the General Partner may reasonably determine,
and similarly to prosecute, settle or defend litigation with respect to the
Partners, the Partnership, or the Partnership's
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assets; provided, however, that the General Partner may not, without the
consent of all of the Partners, confess a judgment against the Partnership;
(vii) to file applications, communicate, and otherwise deal
with any and all governmental agencies having jurisdiction over, or in any
way affecting, the Partnership's assets or any other aspect of the
Partnership business;
(viii) to make or revoke any election permitted or required
of the Partnership by any taxing authority;
(ix) to maintain such insurance coverage for public
liability, fire and casualty, and any and all other insurance for the
protection of the Partnership, for the conservation of Partnership assets,
or for any other purpose convenient or beneficial to the Partnership, in
such amounts and such types, as it shall determine from time to time;
(x) to determine whether or not to apply any insurance
proceeds for any property to the restoration of such property or to
distribute the same;
(xi) to retain legal counsel, accountants, consultants,
real estate brokers, and such other persons, as the General Partner may
deem necessary or appropriate in connection with the Partnership business
and to pay therefor such reasonable remuneration as the General Partner may
deem reasonable and proper;
(xii) to retain other services of any kind or nature in
connection with the Partnership business, and to pay therefor such
remuneration as the General Partner may deem reasonable and proper;
(xiii) to negotiate and conclude agreements on behalf of the
Partnership with respect to any of the rights, powers and authority
conferred upon the General Partner;
(xiv) to maintain accurate accounting records and to file
promptly all federal, state and local income tax returns on behalf of the
Partnership;
(xv) to distribute Partnership cash or other Partnership
assets in accordance with this Agreement;
(xvi) to form or acquire an interest in, and contribute
property to, any further limited or general partnerships, joint ventures or
other relationships that it deems desirable (including, without limitation,
the acquisition of interests in, and the contributions of property to, its
Subsidiaries and any other Person in which it has an equity interest from
time to time);
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(xvii) to establish Partnership reserves for working
capital, capital expenditures, contingent liabilities, or any other valid
Partnership purpose; and
(xviii) to take such other action, execute, acknowledge,
swear to or deliver such other documents and instruments, and perform any
and all other acts that the General Partner deems necessary or appropriate
for the formation, continuation and conduct of the business and affairs of
the Partnership (including, without limitation, all actions consistent with
allowing the Company at all times to qualify as a REIT unless the Company
voluntarily terminates its REIT status) and to possess and enjoy all of the
rights and powers of a general partner as provided by the Act.
(b) Except as otherwise provided herein, to the extent the duties of
the General Partner require expenditures of funds to be paid to third parties,
the General Partner shall not have any obligations hereunder except to the
extent that partnership funds are reasonably available to it for the performance
of such duties, and nothing herein contained shall be deemed to authorize or
require the General Partner, in its capacity as such, to expend its individual
funds for payment to third parties or to undertake any individual liability or
obligation on behalf of the Partnership.
6.02 DELEGATION OF AUTHORITY. The General Partner may delegate any or
-----------------------
all of its powers, rights and obligations hereunder, and may appoint, employ,
contract or otherwise deal with any Person for the transaction of the business
of the Partnership, which Person may, under supervision of the General Partner,
perform any acts or services for the Partnership as the General Partner may
approve.
6.03 INDEMNIFICATION AND EXCULPATION OF INDEMNITEES.
----------------------------------------------
(a) The Partnership shall indemnify an Indemnitee from and against
any and all losses, claims, damages, liabilities, joint or several, expenses
(including reasonable legal fees and expenses), judgments, fines, settlements,
and other amounts arising from any and all claims, demands, actions, suits or
proceedings, civil, criminal, administrative or investigative, that relate to
the operations of the Partnership as set forth in this Agreement in which any
Indemnitee may be involved, or is threatened to be involved, as a party or
otherwise, unless it is established that: (i) the act or omission of the
Indemnitee was material to the matter giving rise to the proceeding and either
was committed in bad faith or was the result of active and deliberate
dishonesty; (ii) the Indemnitee actually received an improper personal benefit
in money, property or services; or (iii) in the case of any criminal proceeding,
the Indemnitee had reasonable cause to believe that the act or omission was
unlawful. The termination of any proceeding by judgment, order or settlement
does not create a presumption that the Indemnitee did not meet the requisite
standard of conduct set forth in this Section 6.03(a). The termination of any
proceeding by conviction or upon a plea of nolo contendere or its equivalent, or
an entry of an order of probation prior to judgment, creates a rebuttable
presumption that the Indemnitee acted in a manner contrary to that specified in
this Section
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6.03(a). Any indemnification pursuant to this Section 6.03 shall be made only
out of the assets of the Partnership.
(b) The Partnership shall reimburse an Indemnitee for reasonable
expenses incurred by an Indemnitee who is a party to a proceeding in advance of
the final disposition of the proceeding upon receipt by the Partnership of (i) a
written affirmation by the Indemnitee of the Indemnitee's good faith belief that
the standard of conduct necessary for indemnification by the Partnership as
authorized in this Section 6.03 has been met, and (ii) a written undertaking by
or on behalf of the Indemnitee to repay the amount if it shall ultimately be
determined that the standard of conduct has not been met.
(c) The indemnification provided by this Section 6.03 shall be in
addition to any other rights to which an Indemnitee or any other Person may be
entitled under any agreement, pursuant to any vote of the Partners, as a matter
of law or otherwise, and shall continue as to an Indemnitee who has ceased to
serve in such capacity.
(d) The Partnership may purchase and maintain insurance, on behalf of
the Indemnitees and such other Persons as the General Partner shall determine,
against any liability that may be asserted against or expenses that may be
incurred by such Person in connection with the Partnership's activities,
regardless of whether the Partnership would have the power to indemnify such
Person against such liability under the provisions of this Agreement.
(e) For purposes of this Section 6.03, the Partnership shall be deemed
to have requested an Indemnitee to serve as fiduciary of an employee benefit
plan whenever the performance by it of its duties to the Partnership also
imposes duties on, or otherwise involves services by, it to the plan or
participants or beneficiaries of the plan; excise taxes assessed on an
Indemnitee with respect to an employee benefit plan pursuant to applicable law
shall constitute fines within the meaning of this Section 6.03; and actions
taken or omitted by the Indemnitee with respect to an employee benefit plan in
the performance of its duties for a purpose reasonably believed by it to be in
the interest of the participants and beneficiaries of the plan shall be deemed
to be for a purpose which is not opposed to the best interests of the
Partnership.
(f) In no event may an Indemnitee subject the Limited Partners to
personal liability by reason of the indemnification provisions set forth in this
Agreement.
(g) An Indemnitee shall not be denied indemnification in whole or in
part under this Section 6.03 because the Indemnitee had an interest in the
transaction with respect to which the indemnification applies if the transaction
was otherwise permitted by the terms of this Agreement.
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<PAGE>
(h) The provisions of this Section 6.03 are for the benefit of the
Indemnitees, their heirs, successors, assigns and administrators and shall not
be deemed to create any rights for the benefit of any other Persons.
6.04 LIABILITY OF THE GENERAL PARTNER.
--------------------------------
(a) Notwithstanding anything to the contrary set forth in this
Agreement, the General Partner shall not be liable for monetary damages to the
Partnership or any Partners for losses sustained or liabilities incurred as a
result of errors in judgment or of any act or omission if the General Partner
acted in good faith.
(b) The Limited Partners expressly acknowledge that the General
Partner is acting on behalf of the Partnership, the Company and the Company's
shareholders collectively, that the General Partner is under no obligation to
consider the separate interests of the Limited Partners (including, without
limitation, the tax consequences to Limited Partners) in deciding whether to
cause the Partnership to take (or decline to take) any actions. In the event of
a conflict between the interests of the shareholders of the Company on one hand
and the Limited Partners on the other, the General Partner shall endeavor in
good faith to resolve the conflict in a manner not adverse to either the
shareholders of the Company or the Limited Partners; provided, however, that for
so long as the Company, through PAH GP and PAH LP, owns a controlling interest
in the Partnership, any such conflict that cannot be resolved in a manner not
adverse to either the shareholders of the Company or the Limited Partners shall
be resolved in favor of the shareholders. The General Partner shall not be
liable for monetary damages for losses sustained, liabilities incurred, or
benefits not derived by Limited Partners in connection with such decisions,
provided that the General Partner has acted in good faith.
(c) Subject to its obligations and duties as General Partner set
forth in Section 6.01 hereof, the General Partner may exercise any of the powers
granted to it under this Agreement and perform any of the duties imposed upon it
hereunder either directly or by or through its agents. The General Partner shall
not be responsible for any misconduct or negligence on the part of any such
agent appointed by it in good faith.
(d) Notwithstanding any other provisions of this Agreement or the
Act, any action of the General Partner on behalf of the Partnership or any
decision of the General Partner to refrain from acting on behalf of the
Partnership, undertaken in the good faith belief that such action or omission is
necessary or advisable in order (i) to protect the ability of the Company to
continue to qualify as a REIT or (ii) to prevent the Company from incurring any
taxes under Section 857, Section 4981, or any other provision of the Code, is
expressly authorized under this Agreement and is deemed approved by all of the
Limited Partners.
(e) Any amendment, modification or repeal of this Section 6.04 or
any provision hereof shall be prospective only and shall not in any way affect
the limitations on the
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General Partner's liability to the Partnership and the Limited Partners under
this Section 6.04 as in effect immediately prior to such amendment, modification
or repeal with respect to matters occurring, in whole or in part, prior to such
amendment, modification or repeal, regardless of when claims relating to such
matters may arise or be asserted.
6.05 EXPENDITURES BY PARTNERSHIP. The General Partner is hereby
---------------------------
authorized to pay compensation for accounting, administrative, legal, technical,
management and other services rendered to the Partnership. All of the aforesaid
expenditures (including Administrative Expenses) shall be made on behalf of the
Partnership, and the General Partner shall be entitled to reimbursement by the
Partnership for any expenditure (including Administrative Expenses) incurred by
it on behalf of the Partnership which shall be made other than out of the funds
of the Partnership. The Partnership shall also assume, and pay when due, all
Administrative Expenses.
6.06 OUTSIDE ACTIVITIES. Subject to Section 6.08 hereof, the Articles
------------------
of Incorporation and any agreements entered into by the General Partner or its
Affiliates with the Partnership or a Subsidiary, any officer, director,
employee, agent, trustee, Affiliate or shareholder of the General Partner shall
be entitled to and may have business interests and engage in business activities
in addition to those relating to the Partnership, including business interests
and activities substantially similar or identical to those of the Partnership.
Neither the Partnership nor any of the Limited Partners shall have any rights by
virtue of this Agreement in any such business ventures, interest or activities.
None of the Limited Partners nor any other Person shall have any rights by
virtue of this Agreement or the partnership relationship established hereby in
any such business ventures, interests or activities, and the General Partner
shall have no obligation pursuant to this Agreement to offer any interest in any
such business ventures, interests and activities to the Partnership or any
Limited Partner, even if such opportunity is of a character which, if presented
to the Partnership or any Limited Partner, could be taken by such Person.
6.07 EMPLOYMENT OR RETENTION OF AFFILIATES.
-------------------------------------
(a) Any Affiliate of the General Partner may be employed or
retained by the Partnership and may otherwise deal with the Partnership (whether
as a buyer, lessor, lessee, manager, furnisher of goods or services, broker,
agent, lender or otherwise) and may receive from the Partnership any
compensation, price, or other payment therefor which the General Partner
determines to be fair and reasonable.
(b) The Partnership may lend or contribute to its Subsidiaries or
other Persons in which it has an equity investment, and such Persons may borrow
funds from the Partnership, on terms and conditions established in the sole and
absolute discretion of the General Partner. The foregoing authority shall not
create any right or benefit in favor of any Subsidiary or any other Person.
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<PAGE>
(c) The Partnership may transfer assets to joint ventures, other
partnerships, corporations or other business entities in which it is or thereby
becomes a participant upon such terms and subject to such conditions as the
General Partner deems are consistent with this Agreement and applicable law.
(d) Except as expressly permitted by this Agreement, neither the
General Partner nor any of its Affiliates shall sell, transfer or convey any
property to, or purchase any property from, the Partnership, directly or
indirectly, except pursuant to transactions that are on terms that are fair and
reasonable to the Partnership.
6.08 GENERAL PARTNER PARTICIPATION. The General Partner agrees that
-----------------------------
all business activities of the General Partner, including activities pertaining
to the acquisition, development or ownership of hotels or other property, shall
be conducted through the Partnership or one or more Subsidiary Partnerships;
provided, however, that the Company is allowed to make a direct acquisition, but
- -------- -------
if and only if, such acquisition is made in connection with the issuance of
Additional Securities, which direct acquisition and issuance have been approved
and determined to be in the best interests of the Company and the Partnership by
a majority of the Independent Directors.
6.09 TITLE TO PARTNERSHIP ASSETS. Title to Partnership assets,
---------------------------
whether real, personal or mixed and whether tangible or intangible, shall be
deemed to be owned by the Partnership as an entity, and no Partner, individually
or collectively, shall have any ownership interest in such Partnership assets or
any portion thereof. Title to any or all of the Partnership assets may be held
in the name of the Partnership, the General Partner or one or more nominees, as
the General Partner may determine, including Affiliates of the General Partner.
The General Partner hereby declares and warrants that any Partnership assets for
which legal title is held in the name of the General Partner or any nominee or
Affiliate of the General Partner shall be held by the General Partner for the
use and benefit of the Partnership in accordance with the provisions of this
Agreement; provided, however, that the General Partner shall use its best
-------- -------
efforts to cause beneficial and record title to such assets to be vested in the
Partnership as soon as reasonably practicable. All Partnership assets shall be
recorded as the property of the Partnership in its books and records,
irrespective of the name in which legal title to such Partnership assets is
held.
6.10 MISCELLANEOUS. In the event the Company redeems any REIT Shares
-------------
or securities convertible into or redeemable or exchangeable for REIT Shares,
then the General Partner shall cause the Partnership to purchase from the
General Partner and the REIT Limited Partner a number of Partnership Units as
determined based on the application of the Conversion Factor on the same terms
that the Company redeemed such securities. Moreover, if the Company makes a
cash tender offer or other offer to acquire REIT Shares or securities
convertible into or redeemable or exchangeable for REIT Shares, then the General
Partner shall cause the Partnership to make a corresponding offer to the General
Partner and the REIT Limited Partner to acquire an equal number of Partnership
Units held by the General Partner
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and the REIT Limited Partner. In the event any REIT Shares or securities
convertible into or redeemable or exchangeable for REIT Shares are redeemed by
the Company pursuant to such offer, the Partnership shall redeem an equivalent
number of the General Partner's and the REIT Limited Partner's Partnership Units
for an equivalent purchase price based on the application of the Conversion
Factor.
ARTICLE VII
CHANGES IN GENERAL PARTNER
--------------------------
7.01 TRANSFER OF THE GENERAL PARTNER'S PARTNERSHIP INTEREST.
------------------------------------------------------
(a) The General Partner shall not transfer all or any portion of
its General Partnership Interest or withdraw as General Partner except as
provided in Section 7.01(c) or in connection with a transaction described in
Section 7.01(d).
(b) The General Partner agrees that it and PAH LP will at all
times own in the aggregate at least a 20% Percentage Interest.
(c) Except as otherwise provided in Section 6.06(b) or Section
7.01(d) hereof, the Company shall not engage in any merger, consolidation or
other combination with or into another Person or sale of all or substantially
all of its assets, or any reclassification, or any recapitalization or change of
outstanding REIT Shares (other than a change in par value, or from par value to
no par value, or as a result of a subdivision or combination of REIT Shares) (a
"Transaction"), unless (i) the Transaction also includes a merger of the
Partnership or sale of substantially all of the assets of the Partnership as a
result of which all Limited Partners will receive for each Partnership Unit an
amount of cash, securities, or other property equal to the product of the
Conversion Factor and the greatest amount of cash, securities or other property
paid in the Transaction to a holder of one REIT Share in consideration of one
REIT Share, provided that if, in connection with the Transaction, a purchase,
-------- ----
tender or exchange offer ("Offer") shall have been made to and accepted by the
holders of more than 50% of the outstanding REIT Shares, each holder of
Partnership Units shall be given the option to exchange its Partnership Units
for the greatest amount of cash, securities, or other property which a Limited
Partner would have received had it (A) exercised its Redemption Right and (B)
sold, tendered or exchanged pursuant to the Offer the REIT Shares received upon
exercise of the Redemption Right immediately prior to the expiration of the
Offer; and (ii) no more than 75% of the equity securities of the acquiring
Person in such Transaction shall be owned, after consummation of such
Transaction, by the General Partner or Persons who were Affiliates of the
Partnership or the General Partner immediately prior to the date on which the
Transaction is consummated.
(d) Notwithstanding Section 7.01(c), the Company or the General
Partner may merge with or into or consolidate with another entity if immediately
after such merger or
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consolidation (i) substantially all of the assets of the successor or surviving
entity (the "Surviving General Partner"), other than Partnership Units held by
the General Partner, are contributed, directly or indirectly, to the Partnership
as a Capital Contribution in exchange for Partnership Units with a fair market
value equal to the value of the assets so contributed as determined by the
Surviving General Partner in good faith and (ii) the Surviving General Partner
expressly agrees to assume all obligations of the General Partner or the
Company, as appropriate, hereunder. Upon such contribution and assumption, the
Surviving General Partner shall have the right and duty to amend this Agreement
as set forth in this Section 7.01(d). The Surviving General Partner shall in
good faith arrive at a new method for the calculation of the Cash Amount, the
REIT Shares Amount and Conversion Factor for a Partnership Unit after any such
merger or consolidation so as to approximate the existing method for such
calculation as closely as reasonably possible. Such calculation shall take into
account, among other things, the kind and amount of securities, cash and other
property that was receivable upon such merger or consolidation by a holder of
REIT Shares or options, warrants or other rights relating thereto, and to which
a holder of Partnership Units could have acquired had such Partnership Units
been redeemed immediately prior to such merger or consolidation. Such amendment
to this Agreement shall provide for adjustment to such method of calculation,
which shall be as nearly equivalent as may be practicable to the adjustments
provided for with respect to the Conversion Factor. The Surviving General
Partner also shall in good faith modify the definition of REIT Shares and make
such amendments to Section 8.05 hereof so as to approximate the existing rights
and obligations set forth in Section 8.05 as closely as reasonably possible. The
above provisions of this Section 7.01(d) shall similarly apply to successive
mergers or consolidations permitted hereunder.
7.02 ADMISSION OF A SUBSTITUTE OR SUCCESSOR GENERAL PARTNER. Except
------------------------------------------------------
as otherwise provided in Section 7.01(d), a Person shall be admitted as a
substitute or successor General Partner of the Partnership only if the following
terms and conditions are satisfied:
(a) a majority in interest of the Limited Partners (other than
the REIT Limited Partner) shall have consented in writing to the admission of
the substitute or successor General Partner, which consent may be withheld in
the sole discretion of such Limited Partners;
(b) the Person to be admitted as a substitute or additional
General Partner shall have accepted and agreed to be bound by all the terms and
provisions of this Agreement by executing a counterpart thereof and such other
documents or instruments as may be required or appropriate in order to effect
the admission of such Person as a General Partner, and a certificate evidencing
the admission of such Person as a General Partner shall have been filed for
recordation and all other actions required by Section 2.05 hereof in connection
with such admission shall have been performed;
(c) if the Person to be admitted as a substitute or additional
General Partner is a corporation or a partnership it shall have provided the
Partnership with evidence
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<PAGE>
satisfactory to counsel for the Partnership of such Person's authority to become
a General Partner and to be bound by the terms and provisions of this Agreement;
and
(d) counsel for the Partnership shall have rendered an opinion
(relying on such opinions from other counsel and the state or any other
jurisdiction as may be necessary) that the admission of the person to be
admitted as a substitute or additional General Partner is in conformity with the
Act, that none of the actions taken in connection with the admission of such
Person as a substitute or additional General Partner will cause (i) the
Partnership to be classified other than as a partnership for federal income tax
purposes, or (ii) the loss of any Limited Partner's limited liability.
7.03 EFFECT OF BANKRUPTCY, WITHDRAWAL, DEATH OR DISSOLUTION OF A
------------------------------------------------------------
GENERAL PARTNER.
- ---------------
(a) Upon the occurrence of an Event of Bankruptcy as to a General
Partner (and its removal pursuant to Section 7.04(a) hereof) or the death,
withdrawal, removal or dissolution of a General Partner (except that, if a
General Partner is on the date of such occurrence a partnership, the withdrawal,
death, dissolution, Event of Bankruptcy as to, or removal of a partner in, such
partnership shall be deemed not to be a dissolution of such General Partner if
the business of such General Partner is continued by the remaining partner or
partners), the Partnership shall be dissolved and terminated unless the
Partnership is continued pursuant to Section 7.03(b) hereof.
(b) Following the occurrence of an Event of Bankruptcy as to a
General Partner (and its removal pursuant to Section 7.04(a) hereof) or the
death, withdrawal, removal or dissolution of a General Partner (except that, if
a General Partner is on the date of such occurrence a partnership, the
withdrawal, death, dissolution, Event of Bankruptcy as to, or removal of a
partner in, such partnership shall be deemed not to be a dissolution of such
General Partner if the business of such General Partner is continued by the
remaining partner or partners), the Limited Partners, within 90 days after such
occurrence, may elect to reconstitute the Partnership and continue the business
of the Partnership for the balance of the term specified in Section 2.04 hereof
by selecting, subject to Section 7.02 hereof and any other provisions of this
Agreement, a substitute General Partner by unanimous consent of the Limited
Partners. If the Limited Partners elect to reconstitute the Partnership and
admit a substitute General Partner, the relationship with the Partners and of
any Person who has acquired an interest of a Partner in the Partnership shall be
governed by this Agreement.
7.04 REMOVAL OF A GENERAL PARTNER.
----------------------------
(a) Upon the occurrence of an Event of Bankruptcy as to, or the
dissolution of, a General Partner, such General Partner shall be deemed to be
removed automatically; provided, however, that if a General Partner is on the
-------- -------
date of such occurrence a partnership, the withdrawal, death, dissolution, Event
of Bankruptcy as to or removal of a partner in such
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partnership shall be deemed not to be a dissolution of the General Partner if
the business of such General Partner is continued by the remaining partner or
partners.
(b) If a General Partner has been removed pursuant to this
Section 7.04 and the Partnership is continued pursuant to Section 7.03 hereof,
such General Partner shall promptly transfer and assign its General Partnership
Interest in the Partnership to the substitute General Partner approved by a
majority in interest of the Limited Partners (excluding PAH LP) in accordance
with Section 7.03(b) hereof and otherwise admitted to the Partnership in
accordance with Section 7.02 hereof. At the time of assignment, the removed
General Partner shall be entitled to receive from the substitute General Partner
the fair market value of the General Partnership Interest of such removed
General Partner as reduced by any damages caused to the Partnership by such
General Partner. Such fair market value shall be determined by an appraiser
mutually agreed upon by the General Partner and a majority in interest of the
Limited Partners (excluding the REIT Limited Partner) within 10 days following
the removal of the General Partner. In the event that the parties are unable to
agree upon an appraiser, the removed General Partner and a majority in interest
of the Limited Partners (excluding the REIT Limited Partner) each shall select
an appraiser. Each such appraiser shall complete an appraisal of the fair market
value of the removed General Partner's General Partnership Interest within 30
days of the General Partner's removal, and the fair market value of the removed
General Partner's General Partnership Interest shall be the average of the two
appraisals; provided, however, that if the higher appraisal exceeds the lower
-------- -------
appraisal by more than 20% of the amount of the lower appraisal, the two
appraisers, no later than 40 days after the removal of the General Partner,
shall select a third appraiser who shall complete an appraisal of the fair
market value of the removed General Partner's General Partnership Interest no
later than 60 days after the removal of the General Partner. In such case, the
fair market value of the removed General Partner's General Partnership Interest
shall be the average of the two appraisals closest in value.
(c) The General Partnership Interest of a removed General
Partner, during the time after default until transfer under Section 7.04(b),
shall be converted to that of a special Limited Partner; provided, however,
-------- -------
such removed General Partner shall not have any rights to participate in the
management and affairs of the Partnership, and shall not be entitled to any
portion of the income, expense, profit, gain or loss allocations or cash
distributions allocable or payable, as the case may be, to the Limited Partners.
Instead, such removed General Partner shall receive and be entitled only to
retain distributions or allocations of such items that it would have been
entitled to receive in its capacity as General Partner, until the transfer is
effective pursuant to Section 7.04(b).
(d) All Partners shall have given and hereby do give such
consents, shall take such actions and shall execute such documents as shall be
legally necessary and sufficient to effect all the foregoing provisions of this
Section.
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ARTICLE VIII
RIGHTS AND OBLIGATIONS
OF THE LIMITED PARTNERS
-----------------------
8.01 MANAGEMENT OF THE PARTNERSHIP. The Limited Partners shall not
-----------------------------
participate in the management or control of Partnership business nor shall they
transact any business for the Partnership, nor shall they have the power to sign
for or bind the Partnership, such powers being vested solely and exclusively in
the General Partner.
8.02 POWER OF ATTORNEY. Each Limited Partner hereby irrevocably
-----------------
appoints the General Partner its true and lawful attorney-in-fact, who may act
for each Limited Partner and in its name, place and stead, and for its use and
benefit, to sign, acknowledge, swear to, deliver, file and record, at the
appropriate public offices, any and all documents, certificates, and instruments
as may be deemed necessary or desirable by the General Partner to carry out
fully the provisions of this Agreement and the Act in accordance with their
terms, which power of attorney is coupled with an interest and shall survive the
death, dissolution or legal incapacity of the Limited Partner, or the transfer
by the Limited Partner of any part or all of its Partnership Interest.
8.03 LIMITATION ON LIABILITY OF LIMITED PARTNERS. No Limited Partner
-------------------------------------------
shall be liable for any debts, liabilities, contracts or obligations of the
Partnership. A Limited Partner shall be liable to the Partnership only to make
payments of its Capital Contribution, if any, as and when due hereunder. After
its Capital Contribution is fully paid, no Limited Partner shall, except as
otherwise required by the Act, be required to make any further Capital
Contributions or other payments or lend any funds to the Partnership.
8.04 OWNERSHIP BY LIMITED PARTNER OF CORPORATE GENERAL PARTNER OR
------------------------------------------------------------
AFFILIATE. No Limited Partner shall at any time, either directly or indirectly,
- ---------
own any stock or other interest in the General Partner or in any Affiliate
thereof, if such ownership by itself or in conjunction with other stock or other
interests owned by other Limited Partners would, in the opinion of counsel for
the Partnership, jeopardize the classification of the Partnership as a
partnership for federal income tax purposes. The General Partner shall be
entitled to make such reasonable inquiry of the Limited Partners as is required
to establish compliance by the Limited Partners with the provisions of this
Section.
8.05 REDEMPTION RIGHT.
----------------
(a) Subject to Sections 8.05(b), 8.05(c), 8.05(d), 8.05(e) and
8.05(f), each Limited Partner, other than PAH LP, shall have the right (the
"Redemption Right"), on or after the first anniversary of the date on which he
acquires Partnership Units (or such later or earlier date as shall be determined
in the sole and absolute discretion of the General Partner at the time of the
issuance of the Partnership Units), to require the Partnership to redeem on a
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Specified Redemption Date all or a portion of the Partnership Units held by such
Limited Partner at a redemption price equal to and in a form of the Cash Amount
to be paid by the Partnership. The Redemption Right shall be exercised pursuant
to a Notice of Redemption delivered to the Partnership (with a copy to the
General Partner) by the Limited Partner who is exercising the Redemption Right
(the "Redeeming Partner"); provided, however, that the Partnership shall not be
obligated to satisfy such Redemption Right if the Company and/or the General
Partner elects to purchase the Partnership Units subject to the Notice of
Redemption pursuant to Section 8.05(b); and provided, further, that no Limited
Partner may deliver more than two Notices of Redemption during each calendar
year. A Limited Partner may not exercise the Redemption Right for less than
1,000 Partnership Units or, if such Limited Partner holds less than 1,000
Partnership Units, all of the Partnership Units held by such Partner. The
Redeeming Partner shall have no right, with respect to any Partnership Units so
redeemed, to receive any distribution paid with respect to Partnership Units if
the record date for such distribution is on or after the Specified Redemption
Date.
(b) Notwithstanding the provisions of Section 8.05(a), a Limited
Partner that exercises the Redemption Right shall be deemed to have offered to
sell the Partnership Units described in the Notice of Redemption to the General
Partner and the Company, and either of the General Partner or the Company (or
both) may, in its sole and absolute discretion, elect to purchase directly and
acquire such Partnership Units by paying to the Redeeming Partner either the
Cash Amount or the REIT Shares Amount, as elected by the General Partner or the
Company (in its sole and absolute discretion), on the Specified Redemption Date,
whereupon the General Partner or the Company shall acquire the Partnership Units
offered for redemption by the Redeeming Partner and shall be treated for all
purposes of this Agreement as the owner of such Partnership Units. If the
General Partner and/or the Company shall elect to exercise its right to purchase
Partnership Units under this Section 8.05(b) with respect to a Notice of
Redemption, they shall so notify the Redeeming Partner within five Business Days
after the receipt by the General Partner of such Notice of Redemption. Unless
the General Partner and/or the Company (in its sole and absolute discretion)
shall exercise its right to purchase Partnership Units from the Redeeming
Partner pursuant to this Section 8.05(b), neither the General Partner nor the
Company shall have any obligation to the Redeeming Partner or the Partnership
with respect to the Redeeming Partner's exercise of the Redemption Right. In
the event the General Partner or the Company shall exercise its right to
purchase Partnership Units with respect to the exercise of a Redemption Right in
the manner described in the first sentence of this Section 8.05(b), the
Partnership shall have no obligation to pay any amount to the Redeeming Partner
with respect to such Redeeming Partner's exercise of such Redemption Right, and
each of the Redeeming Partner, the Partnership, and the General Partner or the
Company, as the case may be, shall treat the transaction between the General
Partner or the Company, as the case may be, and the Redeeming Partner for
federal income tax purposes as a sale of the Redeeming Partner's Partnership
Units to the General Partner or the Company, as the case may be. Each Redeeming
Partner agrees to execute such documents as the General Partner may reasonably
require in connection with the issuance of REIT Shares upon exercise of the
Redemption Right.
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<PAGE>
(c) Notwithstanding the provisions of Section 8.05(a) and
8.05(b), a Limited Partner shall not be entitled to exercise the Redemption
Right if the delivery of REIT Shares to such Partner on the Specified Redemption
Date by the General Partner or the Company pursuant to Section 8.05(b)
(regardless of whether or not the General Partner or the Company would in fact
exercise its rights under Section 8.05(b)) would (i) result in such Partner or
any other person owning, directly or indirectly, REIT Shares in excess of the
Ownership Limitation or the Look-Through Ownership Limitation, if applicable,
(as defined in the Articles of Incorporation) and calculated in accordance
therewith, except as provided in the Articles of Incorporation, (ii) result in
REIT Shares being owned by fewer than 100 persons (determined without reference
to any rules of attribution), except as provided in the Articles of
Incorporation, (iii) result in the Company being "closely held" within the
meaning of Section 856(h) of the Code, (iv) cause the Company to own, directly
or constructively, 10% or more of the ownership interests in a tenant of the
General Partner's, the Partnership's, or a Subsidiary Partnership's, real
property, within the meaning of Section 856(d)(2)(B) of the Code, or (v) cause
the acquisition of REIT Shares by such Partner to be "integrated" with any other
distribution of REIT Shares for purposes of complying with the registration
provisions of the Securities Act of 1933, as amended (the "Securities Act"). The
General Partner or the Company, in their sole discretion, may waive the
restriction on redemption set forth in this Section 8.05(c); provided, however,
-------- -------
that in the event such restriction is waived, the Redeeming Partner shall be
paid the Cash Amount.
(d) Any Cash Amount to be paid to a Redeeming Partner pursuant
to this Section 8.05 shall be paid on the Specified Redemption Date;
provided, however, that the Company or the General Partner may elect to cause
- -------- -------
the Specified Redemption Date to be delayed for up to an additional 180 days to
the extent required for the Company to cause additional REIT Shares to be issued
to provide financing to be used to make such payment of the Cash Amount.
Notwithstanding the foregoing, the Company and the General Partner agree to use
their best efforts to cause the closing of the acquisition of redeemed
Partnership Units hereunder to occur as quickly as reasonably possible.
(e) In the event that the General Partner permits the pledge of a
Limited Partner's Partnership Units to a lender, the General Partner may agree
to allow such lender, upon foreclosure of such Partnership Units, to redeem such
Partnership Units prior to the expiration of the one-year period described in
section 8.05(a); provided, that any such redemption shall be effected by the
Partnership in the form of the Cash Amount.
(f) Notwithstanding any other provision of this Agreement, the
General Partner shall place appropriate restrictions on the ability of the
Limited Partners to exercise their Redemption Rights as and if deemed necessary
to ensure that the Partnership does not constitute a "publicly traded
partnership" under section 7704 of the Code. If and when the General Partner
determines that imposing such restrictions is necessary, the General Partner
shall give prompt written notice thereof (a "Restriction Notice") to each of the
Limited Partners, which notice shall be accompanied by a copy of an opinion of
counsel to the
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Partnership which states that, in the opinion of such counsel, restrictions are
necessary in order to avoid the Partnership being treated as a "publicly traded
partnership" under section 7704 of the Code. Any such restriction shall become
effective on the later of (i) the fifth business day after the Restriction
Notice is received by the Limited Partner or (ii) the date on which the
regulations under section 7704 of the Code that would cause the Partnership to
be classified as a "publicly traded partnership" become effective.
(g) Notwithstanding any other provision of this Agreement, the
holders of Preferred Units shall not have the Redemption Right specified in
section 8.05.
8.06 REGISTRATION.
------------
(a) Payment of REIT Shares Amount. In the event that the General
-----------------------------
Partner or the Company elects to acquire from a Redeeming Partner Partnership
Units issued to such Redeeming Partner prior to March 27, 1996 (the "Registrable
Units") by paying to such Partner the REIT Shares Amount, such shares will be
issued pursuant to an effective registration statement under the Securities Act.
(b) Shelf Registration of the Common Stock. Prior to or on the
--------------------------------------
first date upon which the Registrable Units owned by any Limited Partner may be
redeemed (or such other date as may be required under applicable provisions of
the Securities Act), the Company agrees to file with the Securities and Exchange
Commission (the "Commission"), a shelf registration statement on Form S-3 under
Rule 415 of the Securities Act (a "Registration Statement"), or any similar rule
that may be adopted by the Commission, with respect to all of the shares of
Common Stock that may be issued upon redemption of such Registrable Units
pursuant to Section 8.05 hereof ("Redemption Shares"). The Company will use its
best efforts to have the Registration Statement declared effective under the
Securities Act. The Company need not file a separate Registration Statement,
but may file one Registration Statement covering Redemption Shares issuable to
more than one Limited Partner. The Company further agrees to supplement or make
amendments to each Registration Statement, if required by the rules, regulations
or instructions applicable to the registration form utilized by the Company or
by the Securities Act or rules and regulations thereunder for such Registration
Statement.
(c) Listing on Securities Exchange. If the Company shall list or
------------------------------
maintain the listing of any shares of Common Stock on any securities exchange or
national market system, it will, at its expense and as necessary to permit the
registration and sale of the Redemption Shares hereunder, list thereon, maintain
and, when necessary, increase such listing to include such Redemption Shares."
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ARTICLE IX
TRANSFERS OF LIMITED PARTNERSHIP INTERESTS
------------------------------------------
9.01 PURCHASE FOR INVESTMENT.
-----------------------
(a) Each Limited Partner hereby represents and warrants to the
General Partner, to the Company and to the Partnership that the acquisition of
his Partnership Interests is made as a principal for his account for investment
purposes only and not with a view to the resale or distribution of such
Partnership Interest.
(b) Each Limited Partner agrees that he will not sell, assign or
otherwise transfer his Partnership Interest or any fraction thereof, whether
voluntarily or by operation of law or at judicial sale or otherwise, to any
Person who does not make the representations and warranties to the General
Partner set forth in Section 9.01(a) above and similarly agree not to sell,
assign or transfer such Partnership Interest or fraction thereof to any Person
who does not similarly represent, warrant and agree.
9.02 RESTRICTIONS ON TRANSFER OF LIMITED PARTNERSHIP INTERESTS.
---------------------------------------------------------
(a) Subject to the provisions of 9.02(b), (c) and (d), a Limited
Partner may offer, sell, assign, hypothecate, pledge or otherwise transfer all
or any portion of his Limited Partnership Interest or any of such Limited
Partner's economic rights as a Limited Partner, whether voluntarily or by
operation of law or at judicial sale or otherwise (collectively, a "Transfer")
with or without the consent of the General Partner; provided however that upon
-------- -------
Transfer of any Preferred Units, the holder thereof shall not be entitled to the
additional UBTI Adjuster distribution as set forth in Section 5.08(b). Any
assignee or transferee of a Limited Partnership Interest pursuant to this
Section 9.02(a) may only become a substitute Limited Partner pursuant to Section
9.03 hereof. The General Partner may require as a condition of any Transfer,
that the transferor assume all costs incurred by the Partnership in connection
therewith.
(b) No Limited Partner may effect a Transfer of its Limited
Partnership Interest, in whole or in part, if, in the opinion of legal counsel
for the Partnership, such proposed Transfer would require the registration of
the Limited Partnership Interest under the Securities Act of 1933, as amended,
or would otherwise violate any applicable federal or state securities or blue
sky law (including investment suitability standards).
(c) No transfer by a Limited Partner of its Partnership Units, in
whole or in part, may be made to any Person if (i) in the opinion of legal
counsel for the Partnership, the transfer would result in the Partnership's
being treated as an association taxable as a corporation (other than a qualified
REIT subsidiary within the meaning of Section 856(i) of the Code), (ii) in the
opinion of legal counsel for the Partnership, it would adversely affect the
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ability of the Company to continue to qualify as a REIT or subject the Company
to any additional taxes under Section 857 or Section 4981 of the Code, or (iii)
such transfer is effectuated through an "established securities market" or a
"secondary market (or the substantial equivalent thereof)" within the meaning of
Section 7704 of the Code.
(d) No transfer of any Partnership Units may be made to a lender
to the Partnership or any Person who is related (within the meaning of
Regulations Section 1.752-4(b)) to any lender to the Partnership whose loan
constitutes a nonrecourse liability (within the meaning of Regulations Section
1.752-1(a)(2)), without the consent of the General Partner, which may be
withheld in its sole and absolute discretion, provided that as a condition to
-------- ----
such consent the lender will be required to enter into an arrangement with the
Partnership and the General Partner to exchange or redeem for the Cash Amount
any Partnership Units in which a security interest is held simultaneously with
the time at which such lender would be deemed to be a partner in the Partnership
for purposes of allocating liabilities to such lender under Section 752 of the
Code.
(e) Any Transfer in contravention of any of the provisions of
this Article IX shall be void and ineffectual and shall not be binding upon, or
recognized by, the Partnership.
9.03 ADMISSION OF SUBSTITUTE LIMITED PARTNER.
---------------------------------------
(a) Subject to the other provisions of this Article IX, an
assignee of the Limited Partnership Interest of a Limited Partner (which shall
be understood to include any purchaser, transferee, donee, or other recipient of
any disposition of such Limited Partnership Interest) shall be deemed admitted
as a Limited Partner of the Partnership only upon the satisfactory completion of
the following:
(i) The assignee shall have accepted and agreed to be
bound by the terms and provisions of this Agreement by executing a
counterpart or an amendment thereof, including a revised Exhibit A, and
---------
such other documents or instruments as the General Partner may require in
order to effect the admission of such Person as a Limited Partner.
(ii) To the extent required, an amended Certificate
evidencing the admission of such Person as a Limited Partner shall have
been signed, acknowledged and filed for record in accordance with the Act.
(iii) The assignee shall have delivered a letter containing
the representation set forth in Section 9.01(a) hereof and the agreement
set forth in Section 9.01(b) hereof.
(iv) If the assignee is a corporation, partnership or trust,
the assignee shall have provided the General Partner with evidence
satisfactory to counsel for the
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<PAGE>
Partnership of the assignee's authority to become a Limited Partner under
the terms and provisions of this Agreement.
(v) The assignee shall have executed a power of attorney
containing the terms and provisions set forth in Section 8.02 hereof.
(vi) The assignee shall have paid all reasonable legal fees
of the Partnership and the General Partner and filing and publication costs
in connection with its substitution as a Limited Partner.
(vii) The assignee has obtained the prior written consent of
the General Partner to its admission as a Substitute Limited Partner, which
consent may be given or denied in the exercise of the General Partner's
sole and absolute discretion.
(b) For the purpose of allocating Profits and Losses and
distributing cash received by the Partnership, a Substitute Limited Partner
shall be treated as having become, and appearing in the records of the
Partnership as, a Partner upon the filing of the Certificate described in
Section 9.03(a)(ii) hereof or, if no such filing is required, the later of the
date specified in the transfer documents or the date on which the General
Partner has received all necessary instruments of transfer and substitution.
(c) The General Partner shall cooperate with the Person seeking
to become a Substitute Limited Partner by preparing the documentation required
by this Section and making all official filings and publications. The
Partnership shall take all such action as promptly as practicable after the
satisfaction of the conditions in this Article IX to the admission of such
Person as a Limited Partner of the Partnership.
9.04 RIGHTS OF ASSIGNEES OF PARTNERSHIP INTERESTS.
--------------------------------------------
(a) Subject to the provisions of Sections 9.01 and 9.02 hereof,
except as required by operation of law, the Partnership shall not be obligated
for any purposes whatsoever to recognize the assignment by any Limited Partner
of its Partnership Interest until the Partnership has received notice thereof.
(b) Any Person who is the assignee of all or any portion of a
Limited Partner's Limited Partnership Interest, but does not become a Substitute
Limited Partner and desires to make a further assignment of such Limited
Partnership Interest, shall be subject to all the provisions of this Article IX
to the same extent and in the same manner as any Limited Partner desiring to
make an assignment of its Limited Partnership Interest.
9.05 EFFECT OF BANKRUPTCY, DEATH, INCOMPETENCE OR TERMINATION OF A
-------------------------------------------------------------
LIMITED PARTNER. The occurrence of an Event of Bankruptcy as to a Limited
- ---------------
Partner, the death of a Limited Partner or a final adjudication that a Limited
Partner is incompetent (which term shall
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<PAGE>
include, but not be limited to, insanity) shall not cause the termination or
dissolution of the Partnership, and the business of the Partnership shall
continue if an order for relief in a bankruptcy proceeding is entered against a
Limited Partner, the trustee or receiver of his estate or, if he dies, his
executor, administrator or trustee, or, if he is finally adjudicated
incompetent, his committee, guardian or conservator, shall have the rights of
such Limited Partner for the purpose of settling or managing his estate property
and such power as the bankrupt, deceased or incompetent Limited Partner
possessed to assign all or any part of his Partnership Interest and to join with
the assignee in satisfying conditions precedent to the admission of the assignee
as a Substitute Limited Partner.
9.06 JOINT OWNERSHIP OF INTERESTS. A Partnership Interest may be
----------------------------
acquired by two individuals as joint tenants with right of survivorship,
provided that such individuals either are married or are related and share the
same home as tenants in common. The written consent or vote of both owners of
any such jointly held Partnership Interest shall be required to constitute the
action of the owners of such Partnership Interest; provided, however, that the
-------- -------
written consent of only one joint owner will be required if the Partnership has
been provided with evidence satisfactory to the counsel for the Partnership that
the actions of a single joint owner can bind both owners under the applicable
laws of the state of residence of such joint owners. Upon the death of one owner
of a Partnership Interest held in a joint tenancy with a right of survivorship,
the Partnership Interest shall become owned solely by the survivor as a Limited
Partner and not as an assignee. The Partnership need not recognize the death of
one of the owners of a jointly-held Partnership Interest until it shall have
received notice of such death. Upon notice to the General Partner from either
owner, the General Partner shall cause the Partnership Interest to be divided
into two equal Partnership Interests, which shall thereafter be owned separately
by each of the former owners.
ARTICLE X
BOOKS AND RECORDS; ACCOUNTING; TAX MATTERS
------------------------------------------
10.01 BOOKS AND RECORDS. At all times during the continuance of the
-----------------
Partnership, the Partners shall keep or cause to be kept at the Partnership's
specified office true and complete books of account in accordance with generally
accepted accounting principles, including: (a) a current list of the full name
and last known business address of each Partner, (b) a copy of the Certificate
of Limited Partnership and all certificates of amendment thereto, (c) copies of
the Partnership's federal, state and local income tax returns and reports, (d)
copies of the Agreement and any financial statements of the Partnership for the
three most recent years and (e) all documents and information required under the
Act. Any Partner or its duly authorized representative, upon paying the costs
of collection, duplication and mailing, shall be entitled to inspect or copy
such records during ordinary business hours.
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10.02 CUSTODY OF PARTNERSHIP FUNDS; BANK ACCOUNTS.
-------------------------------------------
(a) All funds of the Partnership not otherwise invested shall be
deposited in one or more accounts maintained in such banking or brokerage
institutions as the General Partner shall determine, and withdrawals shall be
made only on such signature or signatures as the General Partner may, from time
to time, determine.
(b) All deposits and other funds not needed in the operation of
the business of the Partnership may be invested by the General Partner in
investment grade instruments (or investment companies whose portfolio consists
primarily thereof), government obligations, certificates of deposit, bankers'
acceptances and municipal notes and bonds. The funds of the Partnership shall
not be commingled with the funds of any other Person except for such commingling
as may necessarily result from an investment in those investment companies
permitted by this Section 10.02(b).
10.03 FISCAL AND TAXABLE YEAR. The fiscal and taxable year of the
-----------------------
Partnership shall be the calendar year.
10.04 ANNUAL TAX INFORMATION AND REPORT. Within 75 days after the
---------------------------------
end of each fiscal year of the Partnership, the General Partner shall furnish to
each person who was a Limited Partner at any time during such year the tax
information necessary to file such Limited Partner's individual tax returns as
shall be reasonably required by law.
10.05 TAX MATTERS PARTNER; TAX ELECTIONS; SPECIAL BASIS ADJUSTMENTS.
-------------------------------------------------------------
(a) The General Partner shall be the Tax Matters Partner of the
Partnership within the meaning of Section 6231(a)(7) of the Code. As Tax
Matters Partner, the General Partner shall have the right and obligation to take
all actions authorized and required, respectively, by the Code for the Tax
Matters Partner. The General Partner shall have the right to retain
professional assistance in respect of any audit of the Partnership by the
Service and all out-of-pocket expenses and fees incurred by the General Partner
on behalf of the Partnership as Tax Matters Partner shall constitute Partnership
expenses. In the event the General Partner receives notice of a final
Partnership adjustment under Section 6223(a)(2) of the Code, the General Partner
shall either (i) file a court petition for judicial review of such final
adjustment within the period provided under Section 6226(a) of the Code, a copy
of which petition shall be mailed to all Limited Partners on the date such
petition is filed, or (ii) mail a written notice to all Limited Partners, within
such period, that describes the General Partner's reasons for determining not to
file such a petition.
(b) All elections required or permitted to be made by the
Partnership under the Code or any applicable state or local tax law shall be
made by the General Partner in its sole discretion.
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<PAGE>
(c) In the event of a transfer of all or any part of the
Partnership Interest of any Partner, the Partnership, at the option of the
General Partner, may elect pursuant to Section 754 of the Code to adjust the
basis of the Properties. Notwithstanding anything contained in Article V of this
Agreement, any adjustments made pursuant to Section 754 shall affect only the
successor in interest to the transferring Partner and in no event shall be taken
into account in establishing, maintaining or computing Capital Accounts for the
other Partners for any purpose under this Agreement. Each Partner will furnish
the Partnership with all information necessary to give effect to such election.
10.06 REPORTS TO LIMITED PARTNERS.
---------------------------
(a) As soon as practicable after the close of each fiscal quarter
(other than the last quarter of the fiscal year), the General Partner shall
cause to be mailed to each Limited Partner a quarterly report containing
financial statements of the Partnership, or of the Company if such statements
are prepared solely on a consolidated basis with the Company, for such fiscal
quarter, presented in accordance with generally accepted accounting principles.
As soon as practicable after the close of each fiscal year, the General Partner
shall cause to be mailed to each Limited Partner an annual report containing
financial statements of the Partnership, or of the Company if such statements
are prepared solely on a consolidated basis with the Company, for such fiscal
year, presented in accordance with generally accepted accounting principles.
The annual financial statements shall be audited by accountants selected by the
General Partner.
(b) Any Partner shall further have the right to a private audit of the
books and records of the Partnership, provided such audit is made for
Partnership purposes, at the expense of the Partner desiring it and is made
during normal business hours.
ARTICLE XI
AMENDMENT OF AGREEMENT
----------------------
11.01 VOTING RIGHTS OF COMMON UNITHHOLDERS. The General Partner,
------------------------------------
without the consent of the Limited Partners, may amend this Agreement in any
respect; provided, however, that the following amendments shall require the
-------- -------
consent of Limited Partners (other than the REIT Limited Partner) holding more
than 50% of the Percentage Interests of the Limited Partners (other than the
REIT Limited Partner):
(a) any amendment affecting the operation of the Conversion
Factor or the Redemption Right (except as provided in Section 8.05(d) or 7.01(d)
hereof) in a manner adverse to the Limited Partners;
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(b) any amendment that would adversely affect the rights of the
Limited Partners to receive the distributions payable to them hereunder;
(c) any amendment that would alter the Partnership's allocations
of Profit and Loss to the Limited Partners; or
(d) any amendment that would impose on the Limited Partners any
obligation to make additional Capital Contributions to the Partnership.
11.02 VOTING RIGHTS OF PREFERRED UNITHOLDERS. The holders of record of
--------------------------------------
Preferred Units shall not be entitled to vote on any matter on which Limited
Partners are entitled to vote, or on any other matters, provided that the
holders of Preferred Units shall have the right to vote as a separate class of
Partnership Units on the following, each of which shall require the consent of
holders of record of Preferred Units representing more than 50% of Preferred
Units:
(a) Any amendment that would adversely affect the rights of the
Preferred Unitholders to receive the distributions payable to them hereunder;
(b) Any amendment that would alter the Partnership's allocations
or Profit and Loss to the Preferred Unitholders; or
(c) Any amendment that would impose on the Preferred Unitholders
any obligation to make additional Capital Contributions to the Partnership.
ARTICLE XII
GENERAL PROVISIONS
------------------
12.01 NOTICES. All communications required or permitted under this
-------
Agreement shall be in writing and shall be deemed to have been given when
delivered personally or upon deposit in the United States mail, registered,
postage prepaid return receipt requested, to the Partners at the addresses set
forth in Exhibit A attached hereto; provided, however, that any Partner may
--------- -------- -------
specify a different address by notifying the General Partner in writing of such
different address. Notices to the Partnership shall be delivered at or mailed
to its specified office.
12.02 SURVIVAL OF RIGHTS. Subject to the provisions hereof limiting
------------------
transfers, this Agreement shall be binding upon and inure to the benefit of the
Partners and the Partnership and their respective legal representatives,
successors, transferees and assigns.
-43-
<PAGE>
12.03 ADDITIONAL DOCUMENTS. Each Partner agrees to perform all further
--------------------
acts and execute, swear to, acknowledge and deliver all further documents which
may be reasonable, necessary, appropriate or desirable to carry out the
provisions of this Agreement or the Act.
12.04 SEVERABILITY. If any provision of this Agreement shall be
------------
declared illegal, invalid, or unenforceable in any jurisdiction, then such
provision shall be deemed to be severable from this Agreement (to the extent
permitted by law) and in any event such illegality, invalidity or
unenforceability shall not affect the remainder hereof.
12.05 ENTIRE AGREEMENT. This Agreement and exhibits attached hereto
----------------
constitute the entire Agreement of the Partners and supersede all prior written
agreements and prior and contemporaneous oral agreements, understandings and
negotiations with respect to the subject matter hereof.
12.06 PRONOUNS AND PLURALS. When the context in which words are used
--------------------
in the Agreement indicates that such is the intent, words in the singular number
shall include the plural and the masculine gender shall include the neuter or
female gender as the context may require.
12.07 HEADINGS. The Article headings or sections in this Agreement are
--------
for convenience only and shall not be used in construing the scope of this
Agreement or any particular Article.
12.08 COUNTERPARTS. This Agreement may be executed in several
------------
counterparts, each of which shall be deemed to be an original copy and all of
which together shall constitute one and the same instrument binding on all
parties hereto, notwithstanding that all parties shall not have signed the same
counterpart.
12.09 GOVERNING LAW. This Agreement shall be governed by and construed
-------------
in accordance with the laws of the Commonwealth of Virginia.
12.10 GUARANTY BY COMPANY. The Company unconditionally and irrevocably
-------------------
guarantees to the Limited Partners the performance by the General Partner and
the REIT Limited Partner of the respective obligations of the General Partner
and the REIT Limited Partner under this Agreement. This guaranty is exclusively
for the benefit of the Limited Partners and shall not extend to the benefit of
any creditor of the Partnership.
-44-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have hereunder affixed their
signatures to this Second Amended and Restated Agreement of Limited Partnership,
all as of the 11th day of April, 1997.
GENERAL PARTNER:
---------------
PAH GP, INC.
By: /s/ Paul A. Nussbaum
-------------------------------
Paul A. Nussbaum
Chairman of the Board and Chief
Executive Officer
LIMITED PARTNERS:
-----------------
By: PAH GP, INC., as attorney-in-fact for each of
the Limited Partners
By: /s/ Paul A. Nussbaum
-------------------------------
Paul A. Nussbaum
Chairman of the Board and Chief
Executive Officer
-45-
<PAGE>
EXHIBIT B
---------
NOTICE OF EXERCISE OF REDEMPTION RIGHT
In accordance with Section 8.05 of the First Amended and Restated
Agreement of Limited Partnership (the "Agreement") of Patriot American
Hospitality Partnership, L.P., the undersigned hereby irrevocably (i) presents
for redemption ________ Partnership Units in Patriot American Hospitality
Partnership, L.P. in accordance with the terms of the Agreement and the
Redemption Right referred to in Section 8.05 thereof, (ii) surrenders such
Partnership Units and all right, title and interest therein, and (iii) directs
that the Cash Amount or REIT Shares (as defined in the Agreement) as determined
by the General Partner deliverable upon exercise of the Redemption Right be
delivered to the address specified below, and if REIT Shares are to be
delivered, such REIT Shares be registered or placed in the name(s) and at the
address(es) specified below.
Dated:________ __, _____
Name of Limited Partner:
_________________________________
(Signature of Limited Partner)
_________________________________
(Mailing Address)
_________________________________
(City) (State) (Zip Code)
Signature Guaranteed by:
_________________________________
If REIT Shares are to be issued, issue to:
Please insert social security or identifying number:
Name:
-46-
<PAGE>
Exhibit 10.1(2)
---------------
PATRIOT AMERICAN HOSPITALITY PARTNERSHIP, L.P.
FIRST AMENDMENT TO THE
SECOND AMENDED AND RESTATED
AGREEMENT OF LIMITED PARTNERSHIP
This First Amendment is made as of May 7, 1997 by PAH GP, Inc., a Virginia
corporation, as general partner (the "General Partner") of Patriot American
Hospitality Partnership, L.P. (the "Partnership"), for the purpose of amending
the Second Amended and Restated Agreement of Limited Partnership of the
Partnership dated April 11, 1997 (as amended, the "Partnership Agreement"). All
capitalized terms used herein and not defined shall have the respective meanings
ascribed to them in the Partnership Agreement.
WHEREAS, in accordance with Article XI of the Partnership Agreement, the
General Partner desires to amend the terms and provisions of the Partnership
Agreement as provided in this Amendment.
NOW THEREFORE, in consideration of the mutual covenants herein contained,
and other good and valuable consideration, the receipt and sufficiency of which
is hereby acknowledged, the parties hereto agree as follows:
1. Section 7.01 (d) is amended by deleting clause (i) of the first
sentence and inserting the following in lieu thereof:
"(i) substantially all of the assets of the successor or surviving
entity (the "Surviving General Partner"), other than Partnership Units held
by the General Partner, are contributed, directly or indirectly, to the
Partnership as a Capital Contribution with a fair market value equal to the
value of the assets so contributed as determined by the Surviving General
Partner in good faith; provided, however, that the Surviving General
-------- -------
Partner may retain certain of its assets if, and only if, a majority of the
Independent Directors determine it to be in the best interests of the
Company and the Partnership and"
2. The Partnership Agreement and this Amendment shall be read together
and shall have the same effect as if the provisions of the Partnership Agreement
and this Amendment were contained in one agreement. Any provision of the
Partnership Agreement not amended by this Amendment shall remain in full force
and effect as provided in the Partnership Agreement immediately prior to the
date hereof.
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Amendment to be executed
as of the day and year first written above.
GENERAL PARTNER
PAH GP, INC.
/s/ Rex E. Stewart
----------------------------------------
By: Rex E. Stewart
Its: Executive Vice President
LIMITED PARTNERS
By: PAH GP, Inc.
Its: Attorney-in-fact
/s/ Rex E. Stewart
----------------------------------------
By: Rex E. Stewart
Its: Executive Vice President
2
<PAGE>
Exhibit 10.1(3)
---------------
[FORM OF AMENDMENT]
PATRIOT AMERICAN HOSPITALITY PARTNERSHIP, L.P.
SECOND AMENDMENT TO
SECOND AMENDED AND RESTATED
AGREEMENT OF LIMITED PARTNERSHIP
This Second Amendment is made as of [Closing], 1997 by PAH GP, Inc., a
Delaware corporation, as general partner (the "General Partner") of Patriot
American Hospitality Partnership, L.P., a Virginia limited partnership (the
"Partnership"), and as attorney-in-fact for each of the limited partners of the
Partnership (collectively, the "Limited Partners") for the purpose of amending
the Second Amended and Restated Agreement of Limited Partnership of the
Partnership dated as of the 2nd day of October, 1995, as amended to date (the
"Partnership Agreement"). All capitalized terms used herein and not defined
shall have the respective meanings ascribed to them in the Partnership
Agreement.
WHEREAS, upon an election by a Limited Partner to redeem units of limited
partner interest in the Partnership ("Partnership Units"), the General Partner
or Patriot American Hospitality, Inc. ("Patriot REIT") has the option to acquire
such Partnership Units in exchange for shares of the common stock of Patriot
REIT;
WHEREAS, pursuant to a merger of Patriot REIT with and into California
Jockey Club, a Delaware corporation to be renamed as Patriot American
Hospitality, Inc. ("New Patriot REIT"), the holders of the common stock of
Patriot REIT are entitled to receive 0.51895 shares of the common stock of New
Patriot REIT plus 0.51895 shares of the common stock of Bay Meadows Operating
Company, a Delaware corporation to be renamed as Patriot American Hospitality
Operating Company, Inc., a Delaware corporation ("Patriot Operating Company"),
which shares are paired for purposes of trading on the public securities markets
(each paired share of the common stock of New Patriot REIT and Patriot Operating
Company, a "Paired Share");
WHEREAS, in connection with the merger transaction, the Limited Partners
other than PAH LP, Inc. have become limited partners in Patriot American
Hospitality Operating Partnership, L.P., a Delaware limited partnership
("Management Partnership"), the general partner of which is Patriot Operating
Company, and have redemption rights with respect to their units of limited
partner interest in Management Partnership ("Management Units") that permit
Patriot Operating Company to purchase Management Units tendered for redemption
in exchange for shares of its common stock;
WHEREAS, it is necessary and desirable to coordinate the exercise of the
redemption rights granted pursuant to the Partnership Agreement with those
granted pursuant to the agreement of limited partnership of the Management
Partnership (the "Management Partnership Agreement") so that Property Units and
Management Units may be exchanged for publicly traded Paired Shares, and the
General Partner is authorized pursuant to Section
<PAGE>
7.01(d) of the Partnership Agreement to modify the Redemption Right of the
Limited Partners to reflect the kind and amount of securities issuable to a
holder of REIT Shares upon the occurrence of a merger;
WHEREAS, it is also necessary and desirable to impose certain restrictions
on the exercise of the redemption rights granted under the Partnership Agreement
so that the Partnership may avoid treatment as a publicly traded partnership,
and the General Partner is authorized pursuant to Article III and Section
8.05(f) of the Partnership Agreement to make such amendments;
WHEREAS, the General Partner desires to make certain other conforming
amendments in connection with the foregoing, which amendments may be made in the
General Partner's discretion pursuant to Section 11.01 of the Partnership
Agreement;
NOW, THEREFORE, the General Partner undertakes to implement the following
amendments to the Partnership Agreement:
Section 1. Amendments to Text of Partnership Agreement.
-------------------------------------------
A. Article I, Defined Terms, is amended to add the following definitions of
"LP Unit Percentage," "New Cash Amount," "Paired Share," "Private Transfer,"
"New Redemption Right," and "Notice 88-75."
"LP UNIT PERCENTAGE" means a percentage of the total interests in
Partnership capital or Partnership profits (whichever is greater)
determined without regard to Partnership Units held by the General Partner
and any other person related to the General Partner within the meaning of
Section 267(b) or 707(b)(1) of the Code (and after applying the rules of
Section 856(i) of the Code), all as determined under Regulations Section
1.7704-1(k) and Section II.F of Notice 88-75 using any reasonable method
selected by the General Partner.
"MANAGEMENT PARTNERSHIP UNIT" means a unit of limited partner
interest in Patriot American Hospitality Operating Partnership, L.P., a
Delaware limited partnership ("Management Partnership").
"NEW CASH AMOUNT" means an amount of cash per Partnership Unit equal
to the value of the REIT Shares Amount on the Specified Redemption Date.
The value of the REIT Shares Amount on the date of such valuation shall be
determined in the manner provided in the definition of "Cash Amount."
"NEW REDEMPTION RIGHT" has the meaning provided in Section 8.05(g)
hereof.
"NOTICE 88-75" means IRS Notice 88-75, 1988-2 C.B. 386, regarding
certain safe harbors from treatment as a publicly traded partnership.
2
<PAGE>
"PAIRED SHARE" means a share of common stock of the Company, par
value $.01 per share as paired to a share of common stock of Patriot
American Hospitality Operating Co., Inc., par value $.01 per share.
"PRIVATE TRANSFER" means a Transfer described in one of the
following clauses:
(i) A Transfer in which the basis of the Partnership Unit
in the hands of the transferee is determined, in whole or in part, by
reference to its basis in the hands of the transferor Partner or is
determined under Section 732 of the Code;
(ii) A Transfer at death;
(iii) A Transfer between members of a family as defined
under Section 267(c)(4) of the Code, (i.e., to the Partner's brother,
----
sister (by whole or half blood), spouse, ancestor or lineal
descendant);
(iv) A Transfer involving a distribution from a retirement
plan qualified under Section 401(a) of the Code; or
(v) A Transfer that, when aggregated with other Transfers
by the Partner and any related persons (within the meaning of Section
267(b) or 707(b)(1) of the Code) during any 30 calendar day period,
represents a Transfer of Partnership Units representing an LP Unit
Percentage of more than five percent (5%).
The foregoing definition of "Private Transfer" is intended to include
only such Transfers as would be disregarded in determining whether
Partnership Units are readily tradable on a secondary market or the
substantial equivalent thereof pursuant to Treasury Regulations
Section 1.7704-1(e) (i), (ii), (iii), (v) and (vi) and pursuant to
Section II.B of Notice 88-75, and shall be construed and administered
in accordance therewith. The General Partner may modify this
definition of Private Transfer from time to time in its discretion to
ensure that the terms of the definition comply and continue to comply
with such requirements.
B. Article I, Defined Terms, is amended to replace the definitions of "Cash
Amount," "Company", "Redeeming Partner" and "REIT Share" with the following
definitions. All other terms defined in Article I shall remain in full force and
effect.
"CASH AMOUNT" means an amount of cash per Partnership Unit equal to
the value of the REIT Shares Amount on the date of receipt by the Company
of a Notice of Redemption. The value of the REIT Shares Amount shall be
equal to the REIT Shares Percentage (as defined below) times the average of
the daily market price of Paired Shares for the ten consecutive trading
days immediately preceding the date of such
3
<PAGE>
valuation. The market price for each such trading day shall be: (i) if the
Paired Shares are listed or admitted to trading on any securities exchange
or the NYSE, the sale price, regular way, on such day, or if no such sale
takes place on such day, the average of the closing bid and asked prices,
regular way, on such day, (ii) if the Paired Shares are not listed or
admitted to trading on any securities exchange or the NYSE, the last
reported sale price on such day or, if no sale takes place on such day, the
average of the closing bid and asked prices on such day, as reported by a
reliable quotation source designated by the Company, or (iii) if the Paired
Shares are not listed or admitted to trading on any securities exchange or
the NYSE and no such last reported sale price or closing bid and asked
prices are available, the average of the reported high bid and low asked
prices on such day, as reported by a reliable quotation source designated
by the Company, or if there shall be no bid and asked prices on such day,
the average of the high bid and low asked prices, as so reported, on the
most recent day (not more than ten days prior to the date in question) for
which prices have been so reported; provided that if there are no bid and
-------- ----
asked prices reported during the ten days prior to the date in question,
the value of the Paired Shares shall be determined by the Company acting in
good faith on the basis of such quotations and other information as it
considers, in its reasonable judgment, appropriate. In the event the REIT
Shares Amount includes rights that a holder of Paired Shares would be
entitled to receive, then the value of such rights shall be determined by
the Company acting in good faith on the basis of such quotations and other
information as it considers, in its reasonable judgment, appropriate. For
purposes of this definition, the "REIT Shares Percentage" shall equal the
percentage of the value of a Paired Share that is represented by a REIT
Share, as determined pursuant to that certain Pairing Agreement dated as of
February 17, 1983, as amended from time to time, by and between the Company
and Patriot American Hospitality Operating Company. In the event that the
REIT Shares are no longer paired with shares of the common stock of Patriot
American Hospitality Operating Company, the REIT Shares Amount shall be
based on the value of REIT Shares as determined in accordance with the
principles applied to the valuation of Paired Shares.
"COMPANY" means Patriot American Hospitality, Inc., a Delaware
corporation, and its successors.
"REDEEMING PARTNER" has the meanings provided in Sections 8.05(a) and
8.05(g) hereof, as the context so requires.
"REIT SHARE" means a share of common stock of the Company, $.01 par
value per share.
C. Article VIII, Rights and Obligations of the Limited Partners, shall be
amended to replace the first phrase of the first sentence of Section 8.05(a)
with the following phrase:
"Subject to Sections 8.05(b), 8.05(c), 8.05(d), 8.05(e), 8.05(f),
8.05(g), 8.05(i) and 8.05(j),"
4
<PAGE>
D. Article VIII, Rights and Obligations of the Limited Partners, shall be
amended to append the following phrase to the end of the Section 8.05(e):
"and shall be subject to any other restrictions imposed on the exercise by
a Limited Partner of the Redemption Right or the New Redemption Right as
set forth in this Section 8.05."
E. Article VIII, Rights and Obligations of the Limited Partners, shall be
amended to add paragraphs (h), (i) and (j) to section 8.05, as follows:
(h) New Redemption Rights. Subject to certain other provisions
---------------------
of this Article VIII as provided below, each Limited Partner, other than
PAH LP, shall have the right (the "New Redemption Right"), on or after the
first anniversary of the date on which he acquires Partnership Units (or
such later or earlier date as shall be determined in the sole and absolute
discretion of the General Partner at the time of the issuance of the
Partnership Units), to require the Partnership to redeem on a Specified
Redemption Date all or a portion of the Partnership Units held by such
Limited Partner at a redemption price equal to and in a form of the New
Cash Amount to be paid by the Partnership. The New Redemption Right shall
be exercised pursuant to a Notice of Redemption delivered to the
Partnership (with a copy to the General Partner) by the Limited Partner who
is exercising the New Redemption Right (the "Redeeming Partner"); provided,
however, that the Partnership shall not be obligated to satisfy such
Redemption Right if the Company and/or the General Partner elects to
purchase the Partnership Units subject to the Notice of Redemption pursuant
to Section 8.05(b); and provided, further, that no Limited Partner may
deliver more than two Notices of Redemption during each calendar year. A
Limited Partner may not exercise the New Redemption Right for less than
1,000 Partnership Units or, if such Limited Partner holds less than 1,000
Partnership Units, all of the Partnership Units held by such Partner,
unless the General Partner consents, in its sole discretion. The Redeeming
Partner shall have no right, with respect to any Partnership Units so
redeemed, to receive any distribution paid with respect to Partnership
Units if the record date for such distribution is on or after the Specified
Redemption Date.
The foregoing New Redemption Right shall be subject to the provisions of
Section 8.05(b), reading "New Redemption Right" for "Redemption Right" and
"New Cash Amount" for "Cash Amount"; provided that if the General Partner
and/or the Company shall elect to exercise its right to purchase
Partnership Units under Section 8.05(b) with respect to a Notice of
Redemption under this Section 8.05(h), the General Partner and/or the
Company shall not be required to so notify the Redeeming Partner until five
Business Days prior to the Specified Redemption Date. The foregoing New
Redemption Right shall also be subject to the provisions of Sections
8.05(c), 8.05(d), 8.05(e), 8.05(f) and 8.05(g), also reading "New
Redemption Right" for "Redemption Right" and "New Cash Amount" for "Cash
Amount" where the context requires. The foregoing New Redemption Right
also shall be subject to Sections 8.05(i) and 8.05(j) below.
5
<PAGE>
The foregoing New Redemption Right is intended to comply with the
requirements of Regulations Section 1.7704-1(f) and Section II.E.1 of
Notice 88-75 and shall be construed and administered in accordance
therewith. The General Partner may modify the New Redemption Right from
time to time in its discretion to ensure that the terms of the New
Redemption Right comply and continue to comply with such requirements.
(i) Restrictions on Exercise of Redemption Right and New
----------------------------------------------------
Redemption Right.
----------------
(i) Notwithstanding the provisions of Sections 8.05(a) and
8.05(b), a Limited Partner shall be entitled to exercise the
Redemption Right only if the redemption or purchase of the Limited
Partner's Partnership Units would constitute a Private Transfer
(within the meaning of clause (v) of the definition of Private
Transfer).
(ii) Notwithstanding the provisions of Sections 8.05(h) and
8.05(b), a Limited Partner shall be entitled to exercise the New
Redemption Right only if (x) the redemption or purchase of the Limited
Partner's Partnership Units would constitute a Private Transfer
(within the meaning of clause (v) of the definition of Private
Transfer) or (y) the number of Partnership Units to be purchased or
redeemed, when aggregated with other Transfers of Partnership Units
within the same taxable year of the Partnership (but not including
Private Transfers), would constitute an LP Unit Percentage of ten
percent (10%) or less.
(iii) The General Partner may establish such policies and
procedures as it may deem necessary or desirable in its sole
discretion to administer the 10% LP Unit Percentage limit set forth in
subparagraph (ii) above, including without limitation imposing further
limitations on the number of LP Units with respect to which the New
Redemption Right may be exercised during any period of time shorter
than a calendar year and establishing procedures to allocate the
ability to exercise the New Redemption Right among the Limited
Partners.
(iv) The restrictions set forth in this paragraph (i) shall
continue in effect until such time as the Partnership is no longer
potentially subject to classification as a publicly traded
partnership, as defined in Section 7704 of the Code, in the absence of
such restrictions, as determined by the General Partner in its
discretion. The restrictions set forth in this paragraph (i),
together with the restrictions on the Transfer of Partnership Units
set forth in Section 9.02, are intended to limit transfers of
interests in the Partnership in such a manner as to permit the
Partnership to qualify for the safe harbors from treatment as a
publicly traded partnership set forth in both Treasury Regulations
Sections 1.7704-1(d), (e), (f) and (j) and Sections II.B, II.C.2 and
II.E.1 of Notice 88-75 and shall be construed and administered in
accordance therewith.
6
<PAGE>
The General Partner may modify the restrictions set forth in this
paragraph (i), and the provisions of Section 9.02, from time to time
in its discretion to ensure that the Partnership complies and
continues to comply with such requirements.
(j) Paired Shares. Notwithstanding the provisions of Sections
-------------
8.05(a), 8.05(b) and 8.05(h), a Limited Partner shall not be entitled to
exercise the Redemption Right or the New Redemption Right with respect to
any Partnership Units unless the Limited Partner is entitled to exercise
and simultaneously exercises its redemption right under the Management
Partnership Agreement with respect to an equal number of Management
Partnership Units of the same class or series so that the General Partner
and/or the Company, in cooperation with Patriot Operating Company, may
deliver Paired Shares in redemption of such Partnership Units and
Management Partnership Units. The restriction set forth in this paragraph
(j) shall continue in effect until such time as the provisions of that
certain Pairing Agreement, dated as of February 17, 1983, as amended from
time to time, by and between Patriot American Hospitality, Inc. and Patriot
American Hospitality Operating Co., Inc. shall terminate and be of no
further force or effect.
F. Article IX, Transfers of Limited Partnership Interests, shall be amended to
replace the first sentence of Section 9.02(a) with the following:
Subject to Sections 9.02(b), 9.02(c), 9.02(d) and 9.02(e), a Limited
Partner may offer, sell, assign, hypothecate, pledge or otherwise transfer
all or any portion of his Limited Partnership Interest or any of such
Limited Partner's economic rights as a Limited Partner, whether voluntarily
(including by exercise of any redemption or conversion rights) or by
operation of law or at judicial sale or otherwise (collectively, a
"Transfer") with or without the consent of the General Partner; provided
--------
however that upon Transfer of any Preferred Units, the holder thereof shall
not be entitled to the additional UBTI Adjuster distribution as set forth
in Section 5.08(b).
G. Article IX, Transfers of Limited Partnership Interests, shall be amended to
redesignate Section 9.02(e) as Section 9.02(f) and to insert the following new
Section 9.02(e):
(e) No Limited Partner may effect a Transfer of its Limited
Partnership Interest, in whole or in part, unless (i) the Transfer is a
Private Transfer, (ii) the Transfer is a redemption or sale permitted by
the provisions of Section 8.05, or (iii) the Transfer satisfies both of the
following tests, (x) when aggregated with other Transfers of Partnership
Units within the same taxable year of the Partnership (but not including
Private Transfers or Transfers pursuant to exercises of the New Redemption
Right), the Transfer would constitute an LP Unit Percentage of two percent
(2%) or less, and (y) when aggregated with other Transfers of Partnership
Units within the same taxable year of the Partnership (but not including
Private Transfers), the Transfer would constitute an LP Unit Percentage of
ten percent (10%) or less. The General Partner may establish such policies
and procedures as it may deem necessary or desirable in its sole discretion
to administer the 2% and 10% LP Unit Percentage limits
7
<PAGE>
set forth in the foregoing subclause (iii) in the manner described in
Section 8.05(i)(iii). Solely for purposes of this paragraph (e), the term
"Transfer" shall not include (except as provided in the following clause)
the mere pledge, hypothecation or grant of a security interest in a
Partnership Unit, but shall include any transfer of a Partnership Unit
within the meaning of Treasury Regulations Section 1.7704-1(a)(3) (other
than transfers that have not been recognized by the Partnership) or any
transaction treated as a transfer for purposes of Notice 88-75. The
restrictions set forth in this paragraph (e) shall continue in effect until
such time as the Partnership is no longer potentially subject to
classification as a publicly traded partnership, as defined in Section 7704
of the Code, as determined by the General Partner in its discretion.
H. Exhibit B to the Agreement, Form of Notice of Exercise of Redemption Right,
shall be replaced with Exhibit B appended hereto.
---------
Section 2. Effective Date. The amendments to the text of the Partnership
--------------
Agreement provided in Section 1 of this First Amendment shall take effect as of
the date first set forth above. Except as amended by Section 1 of this First
Amendment, the terms of the Agreement shall remain in full force and effect.
[End of Page]
8
<PAGE>
IN WITNESS WHEREOF, the General Partner has executed this First Amendment
as of the date first written above.
GENERAL PARTNER
PAH GP, INC.
__________________________________
By: Thomas W. Lattin
LIMITED PARTNERS
By: PAH GP, Inc. as attorney-in-fact
for each of the Limited Partners
___________________________________
By: Thomas W. Lattin
9
<PAGE>
EXHIBIT B
---------
NOTICE OF EXERCISE OF REDEMPTION RIGHT
In accordance with Section 8.05 of the Second Amended and Restated
Agreement of Limited Partnership (the "REIT Partnership Agreement") of Patriot
American Hospitality Partnership, L.P. (the "REIT Partnership"), and Section
8.05 of the Agreement of Limited Partnership (the "Management Partnership
Agreement") of Patriot American Hospitality Operating Partnership, L.P. (the
"Management Partnership"), the undersigned hereby irrevocably: (i) presents for
redemption ________ Partnership Units in the REIT Partnership and _________
Partnership Units in the Management Partnership in accordance with the terms of
the REIT Partnership Agreement and the Management Partnership Agreement; (ii)
surrenders such Partnership Units and all right, title and interest therein;
(iii) directs that the Cash Amount, New Cash Amount or Paired Shares (as defined
in the REIT Partnership Agreement and/or the Management Partnership Agreement,
as applicable), as determined by the General Partners of the REIT Partnership
and the Management Partnership to be deliverable upon exercise of the Redemption
Right or New Redemption Right (as defined in the REIT Partnership Agreement
and/or the Management Partnership Agreement, as applicable), be delivered to the
address specified below; and (iv) if Paired Shares are to be delivered, such
Paired Shares be registered or placed in the name(s) and at the address(es)
specified below.
This Notice applies to (check one):
___ An exercise of the Redemption Rights granted under Section 8.05(a) of
the REIT Partnership Agreement and the Management Partnership
Agreement.
___ An exercise of the New Redemption Right and Deferred Redemption Right
under Section 8.05(h) of the REIT Partnership Agreement and the
Management Partnership Agreement, respectively.
Name of Limited Partner: Signature Guaranteed by:
_________________________________ __________________________
(Signature of Limited Partner)
_________________________________ Dated:________ __, _____
(Mailing Address)
_________________________________
(City) (State) (Zip Code)
If Paired Shares are to be issued, issue to:
Please insert social security or identifying number:
Name:
10
<PAGE>
Exhibit 10.2
------------
FORM OF
AGREEMENT
OF LIMITED PARTNERSHIP
OF
PATRIOT AMERICAN HOSPITALITY OPERATING PARTNERSHIP, L.P.
JUNE __, 1997
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TABLE OF CONTENTS
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ARTICLE I DEFINED TERMS.............................................................. 1
ARTICLE II PARTNERSHIP FORMATION AND IDENTIFICATION................................... 10
2.01 Formation.................................................................. 10
2.02 Name, Office and Registered Agent.......................................... 10
2.03 Partners................................................................... 10
2.04 Term and Dissolution....................................................... 10
2.05 Filing of Certificate and Perfection of Limited Partnership................ 11
ARTICLE III BUSINESS OF THE PARTNERSHIP................................................ 11
ARTICLE IV CAPITAL CONTRIBUTIONS AND ACCOUNTS......................................... 12
4.01 Capital Contributions...................................................... 12
4.02 Additional Capital Contributions and Issuances of Additional Partnership
Interests.................................................................. 12
4.03 Additional Funding......................................................... 14
4.04 Capital Accounts........................................................... 15
4.05 Percentage Interests....................................................... 15
4.06 No Interest on Contributions............................................... 15
4.07 Return of Capital Contributions............................................ 15
4.08 No Third Party Beneficiary................................................. 16
4.09 Stock Incentive Plans...................................................... 16
ARTICLE V PROFITS AND LOSSES; DISTRIBUTIONS.......................................... 17
5.01 Allocation of Profit and Loss.............................................. 17
5.02 Operating Distributions.................................................... 19
5.03 [Intentionally Omitted].................................................... 19
5.04 No Right to Distributions in Kind.......................................... 19
5.05 Limitations on Return of Capital Contributions............................. 19
5.06 Distributions Upon Liquidation............................................. 20
5.07 Substantial Economic Effect................................................ 20
5.08 Additional Distributions Provisions and Definitions Relating to Preferred
Units...................................................................... 20
ARTICLE VI RIGHTS, OBLIGATIONS AND POWERS OF THE GENERAL
PARTNER.................................................................... 21
6.01 Management of the Partnership.............................................. 21
6.02 Delegation of Authority.................................................... 23
6.03 Indemnification and Exculpation of Indemnitees............................. 23
6.04 Liability of the General Partner........................................... 25
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6.05 Expenditures by Partnership................................................ 26
6.06 Outside Activities......................................................... 26
6.07 Employment or Retention of Affiliates...................................... 26
6.08 General Partner Participation.............................................. 27
6.09 Title to Partnership Assets................................................ 27
6.10 Miscellaneous.............................................................. 27
ARTICLE VII CHANGES IN GENERAL PARTNER................................................. 28
7.01 Transfer of the General Partner's Partnership Interest..................... 28
7.02 Admission of a Substitute or Successor General............................. 29
7.03 Effect of Bankruptcy, Withdrawal, Death or Dissolution of a
General Partner............................................................ 30
7.04 Removal of a General Partner............................................... 30
ARTICLE VIII RIGHTS AND OBLIGATIONS OF THE LIMITED PARTNERS............................. 32
8.01 Management of the Partnership.............................................. 32
8.02 Power of Attorney.......................................................... 32
8.03 Limitation on Liability of Limited Partners................................ 32
8.04 Ownership by Limited Partner of General Partner or Affiliate............... 32
8.05 Redemption Right........................................................... 32
ARTICLE IX TRANSFERS OF LIMITED PARTNERSHIP INTERESTS................................. 37
9.01 Purchase for Investment.................................................... 37
9.02 Restrictions on Transfer of Limited Partnership Interests.................. 37
9.03 Admission of Substitute Limited Partner.................................... 39
9.04 Rights of Assignees of Partnership Interests............................... 40
9.05 Effect of Bankruptcy, Death, Incompetence or Termination of a Limited
Partner.................................................................... 40
9.06 Joint Ownership of Interests............................................... 40
ARTICLE X BOOKS AND RECORDS; ACCOUNTING; TAX MATTERS................................. 41
10.01 Books and Records.......................................................... 41
10.02 Custody of Partnership Funds; Bank Accounts................................ 41
10.03 Fiscal and Taxable Year.................................................... 41
10.04 Annual Tax Information and Report.......................................... 41
10.05 Tax Matters Partner; Tax Elections; Special Basis Adjustments.............. 42
10.06 Reports to Limited Partners................................................ 42
ARTICLE XI AMENDMENT OF AGREEMENT..................................................... 43
ARTICLE XII GENERAL PROVISIONS......................................................... 44
12.01 Notices.................................................................... 44
12.02 Survival of Rights......................................................... 44
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12.03 Additional Documents....................................................... 44
12.04 Severability............................................................... 44
12.05 Entire Agreement........................................................... 44
12.06 Pronouns and Plurals....................................................... 44
12.07 Headings................................................................... 44
12.08 Counterparts............................................................... 44
12.09 Governing Law.............................................................. 45
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EXHIBITS
EXHIBIT A - Partners, Capital Contributions and Percentage Interests
EXHIBIT B - Notice of Exercise of Redemption Right
(iii)
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AGREEMENT
OF LIMITED PARTNERSHIP
OF
PATRIOT AMERICAN HOSPITALITY OPERATING PARTNERSHIP, L.P.
This Agreement of Limited Partnership is made as of June __, 1997 by and
among Patriot American Hospitality Operating Company, a Delaware corporation as
general partner, and those persons and entities listed on Schedule A hereto, as
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limited partners.
ARTICLE I
DEFINED TERMS
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The following defined terms used in this Agreement shall have the meanings
specified below:
"ACT" means the Delaware Revised Uniform Limited Partnership Act, as it may
be amended from time to time.
"ADDITIONAL FUNDS" has the meaning set forth in Section 4.03 hereof.
"ADDITIONAL LIMITED PARTNER" means a Person admitted to this Partnership as
a Limited Partner pursuant to Section 4.02 hereof.
"ADDITIONAL SECURITIES" means any additional Company Shares (other than
Company Shares issued in connection with a redemption pursuant to Section 8.05
hereof) or rights, options, warrants or convertible or exchangeable securities
containing the right to subscribe for or purchase Company Shares, as set forth
in Section 4.02(a)(ii).
"ADMINISTRATIVE EXPENSES" means (i) all administrative and operating costs
and expenses incurred by the Partnership, (ii) those administrative costs and
expenses of the General Partner, including any salaries or other payments to
directors, officers or employees of the General Partner, and any accounting and
legal expenses of the General Partner, which expenses, the Partners have agreed,
are expenses of the Partnership and not the General Partner, and (iii) to the
extent not included in clause (ii) above, Company Expenses; provided, however,
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that Administrative Expenses shall not include any administrative costs and
expenses incurred by the Company that are attributable to Properties or
partnership interests in a Subsidiary Partnership that are owned by the Company
directly.
"AFFILIATE" means, (i) any Person that, directly or indirectly, controls or
is controlled by or is under common control with such Person, (ii) any other
Person that owns, beneficially, directly or indirectly, 10% or more of the
outstanding capital stock, shares or equity interests
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of such Person, or (iii) any officer, director, employee, partner or trustee of
such Person or any Person controlling, controlled by or under common control
with such Person (excluding trustees and persons serving in similar capacities
who are not otherwise an Affiliate of such Person). For the purposes of this
definition, "control" (including the correlative meanings of the terms
"controlled by" and "under common control with"), as used with respect to any
Person, shall mean the possession, directly or indirectly, of the power to
direct or cause the direction of the management and policies of such Person,
through the ownership of voting securities, partnership interests or other
equity interests.
"AFFILIATE LIMITED PARTNER" means any wholly-owned subsidiary of the
Company designated by the Company to hold Partnership Units and any person who
becomes a Substitute or Additional Limited Partner to an Affiliate's Limited
Partnership Interest, and any of their successors as an Affiliate Limited
Partner.
"AGREED VALUE" means the fair market value of a Partner's non-cash Capital
Contribution as agreed to by the Partners. The names and addresses of the
Partners, number of Partnership Units issued to each Partner, and the Agreed
Value of non-cash Capital Contributions as of the date hereof is set forth on
Exhibit A.
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"AGREEMENT" means this Agreement of Limited Partnership.
"CAPITAL ACCOUNT" has the meaning provided in Section 4.04 hereof.
"CAPITAL CONTRIBUTION" means the total amount of capital initially
contributed or agreed to be contributed, as the context requires, to the
Partnership by each Partner pursuant to the terms of the Agreement. Any
reference to the Capital Contribution of a Partner shall include the Capital
Contribution made by a predecessor holder of the Partnership Interest of such
Partner. The paid-in Capital Contribution shall mean the cash amount or the
Agreed Value of other assets actually contributed by each Partner to the capital
of the Partnership.
"CAPITAL TRANSACTION" means the refinancing, sale, exchange, condemnation,
recovery of a damage award or insurance proceeds (other than business or rental
interruption insurance proceeds not reinvested in the repair or reconstruction
of Properties), or other disposition of any Property (or the Partnership's
interest therein).
"CASH AMOUNT" means an amount of cash per Partnership Unit equal to the
value of the Company Shares Amount on the date of receipt by the Company of a
Notice of Redemption. The value of the Company Shares Amount shall be equal to
the Company Shares Percentage (as defined below) times the average of the daily
market price of Paired Shares for the ten consecutive trading days immediately
preceding the date of such valuation. The market price for each such trading
day shall be: (i) if the Paired Shares are listed or admitted to trading on any
securities exchange or the NYSE, the sale price, regular way, on such day, or if
no such sale takes place on such day, the average of the closing bid and asked
prices, regular way, on such day, (ii) if the Paired Shares are not listed or
admitted to trading on any
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securities exchange or the NYSE, the last reported sale price on such day or, if
no sale takes place on such day, the average of the closing bid and asked prices
on such day, as reported by a reliable quotation source designated by the
Company, or (iii) if the Paired Shares are not listed or admitted to trading on
any securities exchange or the NYSE and no such last reported sale price or
closing bid and asked prices are available, the average of the reported high bid
and low asked prices on such day, as reported by a reliable quotation source
designated by the Company, or if there shall be no bid and asked prices on such
day, the average of the high bid and low asked prices, as so reported, on the
most recent day (not more than ten days prior to the date in question) for
which prices have been so reported; provided that if there are no bid and asked
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prices reported during the ten days prior to the date in question, the value of
the Paired Shares shall be determined by the Company acting in good faith on the
basis of such quotations and other information as it considers, in its
reasonable judgment, appropriate. In the event the Company Shares Amount
includes rights that a holder of Paired Shares would be entitled to receive,
then the value of such rights shall be determined by the Company acting in good
faith on the basis of such quotations and other information as it considers, in
its reasonable judgment, appropriate. For purposes of this definition, the
"Company Shares Percentage" shall equal the percentage of the value of a Paired
Share that is represented by a Company Share, as determined pursuant to the
Pairing Agreement. In the event that the Company Shares are no longer paired
with shares of the common stock of Patriot REIT, the Company Shares Amount shall
be based on the value of Company Shares as determined in accordance with the
principles applied to the valuation of Paired Shares.
"CERTIFICATE" means any instrument or document that is required under the
laws of the State of Delaware, or any other jurisdiction in which the
Partnership conducts business, to be signed and sworn to by the Partners of the
Partnership (either by themselves or pursuant to the power-of-attorney granted
to the General Partner in Section 8.02 hereof) and filed for recording in the
appropriate public offices within the State of Delaware or such other
jurisdiction to perfect or maintain the Partnership as a limited partnership, to
effect the admission, withdrawal, or substitution of any Partner of the
Partnership, or to protect the limited liability of the Limited Partners as
limited partners under the laws of the State of Delaware or such other
jurisdiction.
"CERTIFICATE OF INCORPORATION" means the Amended and Restated Certificate
of Incorporation of the Company filed with the Secretary of State of the State
of Delaware, as amended or restated from time to time.
"CODE" means the Internal Revenue Code of 1986, as amended, and as
hereafter amended from time to time. Reference to any particular provision of
the Code shall mean that provision in the Code at the date hereof and any
successor provision of the Code.
"COMMISSION" means the U.S. Securities and Exchange Commission.
"COMPANY" means Patriot American Hospitality Operating Company, a Delaware
corporation, and its successors.
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"COMPANY EXPENSES" means (i) costs and expenses relating to the formation
and continuity of existence of the Company and any Subsidiaries thereof (which
Subsidiaries shall, for purposes hereof, be included within the definition of
Company), including taxes, fees and assessments associated therewith, any and
all costs, expenses or fees payable to any director, officer, or employee of the
Company, (ii) costs and expenses relating to the public offering and
registration of securities by the Company and all statements, reports, fees and
expenses incidental thereto, including underwriting discounts and selling
commissions applicable to any such offering of securities, (iii) costs and
expenses associated with the preparation and filing of any periodic reports by
the Company under federal, state or local laws or regulations, including filings
with the Commission, (iv) costs and expenses associated with compliance by the
Company with laws, rules and regulations promulgated by any regulatory body,
including the Commission, and (v) all other operating or administrative costs of
the Company incurred in the ordinary course of its business on behalf of or in
connection with the Partnership.
"COMPANY SHARE" means a share of common stock of the Company, $.01 par
value per share.
"COMPANY SHARES AMOUNT" shall mean a number of Company Shares equal to the
product of the number of Partnership Units offered for redemption by a Redeeming
Partner, multiplied by the Conversion Factor; provided that in the event the
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Company issues to all holders of Company Shares rights, options, warrants or
convertible or exchangeable securities entitling the shareholders to subscribe
for or purchase Company Shares, or any other securities or property
(collectively, the "rights"), then the Company Shares Amount shall also include
such rights that a holder of that number of Company Shares would be entitled to
receive.
"CONVERSION FACTOR" means 2.0, provided that in the event that the Company
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(i) declares or pays a dividend on its outstanding Company Shares in Company
Shares or makes a distribution to all holders of its outstanding Company Shares
in Company Shares, (ii) subdivides its outstanding Company Shares, or (iii)
combines its outstanding Company Shares into a smaller number of Company Shares,
the Conversion Factor shall be adjusted by multiplying the Conversion Factor by
a fraction, the numerator of which shall be the number of Company Shares issued
and outstanding on the record date for such dividend, distribution, subdivision
or combination (assuming for such purposes that such dividend, distribution,
subdivision or combination has occurred as of such time), and the denominator of
which shall be the actual number of Company Shares (determined without the above
assumption) issued and outstanding on such date. Any adjustment to the
Conversion Factor shall become effective immediately after the effective date of
such event retroactive to the record date, if any, for such event; provided,
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however, that if the Company receives a Notice of Redemption after the record
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date, but prior to the effective date of such dividend, distribution,
subdivision or combination, the Conversion Factor shall be determined as if the
Company had received the Notice of Redemption immediately prior to the record
date for such dividend, distribution, subdivision or combination.
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"DEFERRED CASH AMOUNT" means an amount of cash per Partnership Unit equal
to the value of the Company Shares Amount on the Specified Redemption Date. The
value of the Company Shares Amount on the date of such valuation shall be
determined in the manner provided in the definition of "Cash Amount."
"DEFERRED REDEMPTION RIGHT" has the meaning provided in Section 8.05(h)
hereof.
"EVENT OF BANKRUPTCY" as to any Person means the filing of a petition for
relief as to such Person as debtor or bankrupt under the Bankruptcy Code of 1978
or similar provision of law of any jurisdiction (except if such petition is
contested by such Person and has been dismissed within 90 days); insolvency or
bankruptcy of such Person as finally determined by a court proceeding; filing by
such Person of a petition or application to accomplish the same or for the
appointment of a receiver or a trustee for such Person or a substantial part of
his assets; commencement of any proceedings relating to such Person as a debtor
under any other reorganization, arrangement, insolvency, adjustment of debt or
liquidation law of any jurisdiction, whether now in existence or hereinafter in
effect, either by such Person or by another, provided that if such proceeding is
commenced by another, such Person indicates his approval of such proceeding,
consents thereto or acquiesces therein, or such proceeding is contested by such
Person and has not been finally dismissed within 90 days.
"GENERAL PARTNER" means Patriot American Hospitality Operating Company and
any Person who becomes a substitute or additional General Partner as provided
herein, and any of their successors as General Partner.
"GENERAL PARTNERSHIP INTEREST" means a Partnership Interest held by the
General Partner that is a general partnership interest.
"INCENTIVE RIGHTS" has the meaning set forth in Section 4.09 hereof.
"INDEMNITEE" means (i) any Person made a party to a proceeding by reason of
its status as the Company, the Company Limited Partner or the General Partner or
a director or officer of the Company, the Company Limited Partner, the
Partnership or the General Partner, and (ii) such other Persons (including
Affiliates of the Company, General Partner or the Partnership) as the General
Partner may designate from time to time, in its sole and absolute discretion.
"INDEPENDENT DIRECTORS" means a director of the Company who is not an
officer or employee of the Company, any Affiliate of an officer or employee or
any Affiliate of (i) any lessee of any property of the Company or any Subsidiary
of the Company, (ii) any Subsidiary of the Company, or (iii) any partnership
that is an Affiliate of the Company.
"LP UNIT PERCENTAGE" means a percentage of the total interests in
Partnership capital or Partnership profits (whichever is greater) determined
without regard to Partnership Units held by the General Partner and any other
person related to the General Partner within the
5
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meaning of Section 267(b) or 707(b)(1) of the Code (and after applying the rules
of Section 856(i) of the Code), all as determined under Regulations Section
1.7704-1(k) and Section II.F of Notice 88-75 using any reasonable method
selected by the General Partner.
"LIMITED PARTNER" means any Person named as a Limited Partner on Exhibit A
---------
attached hereto, and any Person who becomes a Substitute or Additional Limited
Partner, in such Person's capacity as a Limited Partner in the Partnership.
"LIMITED PARTNERSHIP INTEREST" means the ownership interest of a Limited
Partner in the Partnership at any particular time, including the right of such
Limited Partner to any and all benefits to which such Limited Partner may be
entitled as provided in this Agreement and in the Act, together with the
obligations of such Limited Partner to comply with all the provisions of this
Agreement and of such Act.
"LOSS" has the meaning provided in Section 5.01(f) hereof.
"MINIMUM LIMITED PARTNERSHIP INTEREST" means the lesser of (i) 1% or (ii)
if the total Capital Contributions to the Partnership exceeds $50 million, 1%
divided by the ratio of the total Capital Contributions to the Partnership to
$50 million; provided, however, that the Minimum Limited Partnership Interest
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shall not be less than 0.2% at any time.
"NOTICE 88-75" means IRS Notice 88-75, 1988-2 C.B. 386, regarding certain
safe harbors from treatment as a publicly traded partnership.
"NOTICE OF REDEMPTION" means the Notice of Exercise of Redemption Right
substantially in the form attached as Exhibit B hereto.
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"NYSE" means the New York Stock Exchange.
"OFFER" has the meaning set forth in Section 7.01(c) hereof.
"PAIRED SHARE" means a share of common stock of the Company, par value $.01
per share as paired to a share of common stock of Patriot REIT par value $.01
per share.
"PAIRING AGREEMENT" means the Pairing Agreement, dated as of February 17,
1983, as amended from time to time, by and between the Company and Patriot REIT.
"PARTNER" means any General Partner or Limited Partner.
"PARTNER NONRECOURSE DEBT MINIMUM GAIN" has the meaning set forth in
Regulations Section 1.704-2(i). A Partner's share of Partner Nonrecourse Debt
Minimum Gain shall be determined in accordance with Regulations Section 1.704-
2(i)(5).
6
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"PARTNERSHIP INTEREST" means an ownership interest in the Partnership held
by either a Limited Partner or the General Partner and includes any and all
benefits to which the holder of such a Partnership Interest may be entitled as
provided in this Agreement, together with all obligations of such Person to
comply with the terms and provisions of this Agreement.
"PARTNERSHIP MINIMUM GAIN" has the meaning set forth in Regulations Section
1.704-2(d). In accordance with Regulations Section 1.704-2(d), the amount of
Partnership Minimum Gain is determined by first computing, for each Partnership
nonrecourse liability, any gain the Partnership would realize if it disposed of
the property subject to that liability for no consideration other than full
satisfaction of the liability, and then aggregating the separately computed
gains. A Partner's share of Partnership Minimum Gain shall be determined in
accordance with Regulations Section 1.704-2(g)(1).
"PARTNERSHIP RECORD DATE" means the record date established by the General
Partner for the distribution of cash pursuant to Section 5.02 hereof, which
record date shall be the same as the record date established by the Company for
a distribution to its shareholders of some or all of its portion of such
distribution.
"PARTNERSHIP UNIT" means a fractional, undivided share of the Partnership
Interests of all Partners issued hereunder (and includes any Preferred Units).
The allocation of Partnership Units among the Partners shall be as set forth on
Exhibit A, as may be amended from time to time.
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"PATRIOT REIT" means Patriot American Hospitality, Inc., a Delaware
corporation.
"PERCENTAGE INTEREST" means the percentage ownership interest in the
Partnership of each Partner, as determined by dividing the Partnership Units
owned by a Partner (including any outstanding Preferred Units) by the total
number of Partnership Units outstanding (including any outstanding Preferred
Units). The Percentage Interest of each Partner shall be as set forth on
Exhibit A, as may be amended from time to time. For purposes of applying
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Section 5.02(a), a Partner's Percentage Interest shall be calculated with the
modifications provided in section 5.02(a)(2).
"PERSON" means any individual, partnership, corporation, joint venture,
trust or other entity.
"PREFERRED UNIT" means a limited partnership interest represented by
fractional, undivided share of the Partnership Interests of all Partners issued
hereunder which has the rights, preferences and other privileges designated
herein. The allocation of Preferred Units among the Partners shall be set forth
on Exhibit A, as may be amended from time to time.
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"PREFERRED UNITHOLDER" means a Limited Partner that holds Preferred Units.
7
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"PRIVATE TRANSFER" means a Transfer described in one of the following
clauses:
(i) A Transfer in which the basis of the Partnership Unit in
the hands of the transferee is determined, in whole or in part, by
reference to its basis in the hands of the transferor Partner or is
determined under Section 732 of the Code;
(ii) A Transfer at death;
(iii) A Transfer between members of a family as defined under
Section 267(c)(4) of the Code, (i.e., to the Partner's brother, sister (by
----
whole or half blood), spouse, ancestor or lineal descendant);
(iv) A Transfer involving a distribution from a retirement plan
qualified under Section 401(a) of the Code; or
(v) A Transfer that, when aggregated with other Transfers by
the Partner and any related persons (within the meaning of Section 267(b)
or 707(b)(1) of the Code) during any 30 calendar day period, represents a
Transfer of Partnership Units representing an LP Unit Percentage of more
than five percent (5%).
The foregoing definition of "Private Transfer" is intended to include only
such Transfers as would be disregarded in determining whether Partnership
Units are readily tradable on a secondary market or the substantial
equivalent thereof pursuant to Treasury Regulations Section 1.7704-1(e)
(i), (ii), (iii), (v) and (vi) and pursuant to Section II.B of Notice 88-
75, and shall be construed and administered in accordance therewith. The
General Partner may modify this definition of Private Transfer from time to
time in its discretion to ensure that the terms of the definition comply
and continue to comply with such requirements.
"PROFIT" has the meaning provided in Section 5.01(f) hereof.
"PROPERTY" means any hotel property or other investment in which the
Partnership holds an ownership interest.
"REDEEMING PARTNER" has the meaning provided in Sections 8.05(a) and
8.05(g) hereof as the context requires.
"REDEMPTION AMOUNT" means the Cash Amount, the Deferred Cash Amount or the
Company Shares Amount, as selected by the General Partner or the Company in its
sole discretion pursuant to Section 8.05(b) hereof.
"REDEMPTION RIGHT" has the meaning provided in Section 8.05(a) hereof.
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"REGULATIONS" means the Federal Income Tax Regulations issued under the
Code, as amended and as hereafter amended from time to time. Reference to any
particular provision of the Regulations shall mean that provision of the
Regulations on the date hereof and any successor provision of the Regulations.
"REIT" means a real estate investment trust under Sections 856 through 860
of the Code.
"REIT PARTNERSHIP" means Patriot American Hospitality Partnership, L.P., a
Virginia limited partnership.
"REIT PARTNERSHIP AGREEMENT" means the Second Amended and Restated
Agreement of Limited Partnership, dated April 11, 1997, of the REIT Partnership,
as amended from time to time.
"REIT PARTNERSHIP UNITS" are units of limited partnership interest in the
REIT Partnership.
"SERVICE" means the Internal Revenue Service.
"SPECIFIED REDEMPTION DATE" means the first business day that is at least
60 business days after the receipt by the Company of the Notice of Redemption.
"STOCK INCENTIVE PLANS" means the Patriot American Hospitality, Inc. 1995
Incentive Plan and the Patriot American Hospitality, Inc. Non-Employee
Directors' Incentive Plan, as either such plan may be amended from time to time,
or any stock incentive plan adopted in the future by the Company.
"SUBSIDIARY" means, with respect to any Person, any corporation or other
entity of which a majority of (i) the voting power of the voting equity
securities or (ii) the outstanding equity interests is owned, directly or
indirectly, by such Person.
"SUBSIDIARY PARTNERSHIP" means any partnership of which the majority of the
limited or general partnership interests therein are owned, directly or
indirectly, by the Partnership.
"SUBSTITUTE LIMITED PARTNER" means any Person admitted to the Partnership
as a Limited Partner pursuant to Section 9.03 hereof.
"SURVIVING GENERAL PARTNER" has the meaning set forth in Section 7.01(d)
hereof.
"TRANSACTION" has the meaning set forth in Section 7.01(c) hereof.
"TRANSFER" has the meaning set forth in Section 9.02(a) hereof.
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ARTICLE II
PARTNERSHIP FORMATION AND IDENTIFICATION
----------------------------------------
2.01 FORMATION. There is hereby created a limited partnership
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pursuant to the Act.
2.02 NAME, OFFICE AND REGISTERED AGENT. The name of the Partnership
---------------------------------
shall be Patriot American Hospitality Operating Partnership, L.P. The specified
office and place of business of the Partnership shall be 3030 LBJ Freeway, Suite
1500, Dallas, Texas 75234. The General Partner may at any time change the
location of such office, provided the General Partner gives notice to the
Partners of any such change. The name and address of the Partnership's
registered agent is The Corporation Trust Company, 1209 Orange Street,
Wilmington, Delaware. The sole duty of the registered agent as such is to
forward to the Partnership any notice that is served on him as registered agent.
2.03 PARTNERS.
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(a) As of the date hereof, the General Partner of the Partnership
shall be Patriot American Hospitality Operating Company. Its principal place of
business shall be the same as that of the Partnership.
(b) The Limited Partners shall be those Persons identified as
Limited Partners on Exhibit A hereto, as amended from time to time.
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2.04 TERM AND DISSOLUTION.
--------------------
(a) The term of the Partnership shall commence on the date of
this Agreement and shall continue in full force and effect until December 31,
2050, except that the Partnership shall be dissolved upon the first to occur of
any of the following events:
(i) The occurrence of an Event of Bankruptcy as to a General
Partner or the dissolution, death, removal or withdrawal of a General
Partner unless the business of the Partnership is continued pursuant to
Section 7.03(b) hereof; provided that if a General Partner is on the date
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of such occurrence a partnership, the dissolution of such General Partner
as a result of the dissolution, death, withdrawal, removal or Event of
Bankruptcy of a partner in such partnership shall not be an event of
dissolution of the Partnership if the business of such General Partner is
continued by the remaining partner or partners, either alone or with
additional partners, and such General Partner and such partners comply with
any other applicable requirements of this Agreement;
(ii) The passage of 90 days after the sale or other
disposition of all or substantially all of the assets of the Partnership
(provided that if the Partnership receives an installment obligation as
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consideration for such sale or other disposition,
10
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the Partnership shall continue, unless sooner dissolved under the
provisions of this Agreement, until such time as such note or notes are
paid in full);
(iii) The redemption of all Limited Partnership Interests
(other than any of such interests that may be held by the Company); or
(iv) The election by the General Partner that the
Partnership should be dissolved.
(b) Upon dissolution of the Partnership (unless the business of
the Partnership is continued pursuant to Section 7.03(b) hereof), the General
Partner (or its trustee, receiver, successor or legal representative) shall
amend or cancel the Certificate and liquidate the Partnership's assets and apply
and distribute the proceeds thereof in accordance with Section 5.06 hereof.
Notwithstanding the foregoing, the liquidating General Partner may either (i)
defer liquidation of, or withhold from distribution for a reasonable time, any
assets of the Partnership (including those necessary to satisfy the
Partnership's debts and obligations), or (ii) distribute the assets to the
Partners in kind.
2.05 FILING OF CERTIFICATE AND PERFECTION OF LIMITED PARTNERSHIP. The
-----------------------------------------------------------
General Partner shall execute, acknowledge, record and file at the expense of
the Partnership, the Certificate and any and all amendments thereto and all
requisite fictitious name statements and notices in such places and
jurisdictions as may be necessary to cause the Partnership to be treated as a
limited partnership under, and otherwise to comply with, the laws of each state
or other jurisdiction in which the Partnership conducts business.
ARTICLE III
BUSINESS OF THE PARTNERSHIP
---------------------------
The purpose and nature of the business to be conducted by the Partnership
is (i) to conduct any business that may be lawfully conducted by a limited
partnership organized pursuant to the Act, (ii) to enter into any partnership,
joint venture or other similar arrangement to engage in any of the foregoing or
the ownership of interests in any entity engaged in any of the foregoing and
(iii) to do anything necessary or incidental to the foregoing. In connection
with the foregoing, the Partners acknowledge that the benefits associated with
the paired share structure of the Company and Patriot REIT, the maintenance of
which requires compliance with the Pairing Agreement, inures to all of the
Partners and not solely to the Company. The General Partner shall also be
empowered to do any and all acts and things necessary or prudent to ensure that
the Partnership will not be classified as a "publicly traded partnership" for
the purposes of Section 7704 of the Code.
11
<PAGE>
ARTICLE IV
CAPITAL CONTRIBUTIONS AND ACCOUNTS
----------------------------------
4.01 CAPITAL CONTRIBUTIONS. The General Partner and the Limited
---------------------
Partners have contributed to the capital of the Partnership cash and other
interests as set forth opposite their names on Exhibit A.
---------
4.02 ADDITIONAL CAPITAL CONTRIBUTIONS AND ISSUANCES OF ADDITIONAL
------------------------------------------------------------
PARTNERSHIP INTERESTS. Except as provided in this Section 4.02 or in Section
- ---------------------
4.03, the Partners shall have no right or obligation to make any additional
Capital Contributions or loans to the Partnership. The General Partner may
contribute additional capital to the Partnership, from time to time, and receive
additional Partnership Interests in respect thereof, in the manner contemplated
in this Section 4.02.
(a) Issuances of Additional Partnership Interests.
---------------------------------------------
(i) General. The General Partner is hereby authorized to
-------
cause the Partnership to issue such additional Partnership Interests in the
form of Partnership Units for any Partnership purpose at any time or from
time to time, to the Partners (including the General Partner) or to other
Persons for such consideration and on such terms and conditions as shall be
established by the General Partner in its sole and absolute discretion, all
without the approval of any Limited Partners. Any additional Partnership
Interests issued thereby may be issued in one or more classes, or one or
more series of any of such classes, with such designations, preferences and
relative, participating, optional or other special rights, powers and
duties, including rights, powers and duties senior to Limited Partnership
Interests, all as shall be determined by the General Partner in its sole
and absolute discretion and without the approval of any Limited Partner,
subject to Delaware law, including, without limitation, (i) the allocations
of items of Partnership income, gain, loss, deduction and credit to each
such class or series of Partnership Interests, (ii) the right of each such
class or series of Partnership Interests to share in Partnership
distributions, and (iii) the rights of each such class or series of
Partnership Interests upon dissolution and liquidation of the Partnership;
provided, however, that no additional Partnership Interests shall be issued
-------- -------
to the General Partner unless either:
(1)(A) the additional Partnership Interests are issued in
connection with an issuance of Company Shares of or other interests in the
Company, which shares or interests have designations, preferences and other
rights, all such that the economic interests are substantially similar to
the designations, preferences and other rights of the additional
Partnership Interests issued to the General Partner by the Partnership in
accordance with this Section 4.02 and (B) the General Partner shall make a
Capital Contribution to the Partnership in an amount equal to the proceeds
12
<PAGE>
raised in connection with the issuance of such shares of stock of or other
interests in the Company;
(2) the additional Partnership Interests are issued
pursuant to Section 7.01(d); or
(3) the additional Partnership Interests are issued to
all Partners in proportion to their respective Percentage Interests.
Without limiting the foregoing, the General Partner is expressly authorized to
cause the Partnership to issue Partnership Units for less than fair market
value, so long as the General Partner concludes in good faith that such issuance
is in the best interests of the General Partner and the Partnership.
(ii) Upon Issuance of Additional Securities. The Company
--------------------------------------
shall not issue any additional Company Shares (other than Company Shares
issued in connection with a redemption pursuant to Section 8.05 hereof) or
rights, options, warrants or convertible or exchangeable securities
containing the right to subscribe for or purchase Company Shares
(collectively, "Additional Securities") other than to all holders of
Company Shares, unless (A) the General Partner shall cause the Partnership
to issue to the Company Partnership Interests or rights, options, warrants
or convertible or exchangeable securities of the Partnership having
designations, preferences and other rights, all such that the economic
interests are substantially similar to those of the Additional Securities,
and (B) the Company contributes the proceeds from the issuance of such
Additional Securities and from any exercise of rights contained in such
Additional Securities to the Partnership; provided, however, that the
-------- -------
Company is allowed to issue Additional Securities in connection with an
acquisition of a property to be held directly by the Company, but if and
only if, such direct acquisition and issuance of Additional Securities have
been approved and determined to be in the best interests of the Company and
the Partnership by a majority of the Independent Directors. Without
limiting the foregoing, the Company is expressly authorized to issue
Additional Securities for less than fair market value, and to cause the
Partnership to issue to the Company corresponding Partnership Interests,
including without limitation, the issuance of Company Shares and
corresponding Partnership Units pursuant to an employee stock purchase plan
providing for employee purchases of Company Shares at a discount from fair
market value or employee stock options that have an exercise price that is
less than the fair market value of the Company Shares, either at the time
of issuance or at the time of exercise, so long as (x) the General Partner
concludes in good faith that such issuance is in the best interests of the
General Partner and the Partnership, and (y) the Company contributes all
proceeds from such issuance to the Partnership. For example, in the event
the Company issues Company Shares for a cash purchase price and contributes
all of the proceeds of such issuance to the Partnership as required
hereunder, the Company shall be issued a number of additional Partnership
Units equal to the product of (A) the number of such Company
13
<PAGE>
Shares issued by the Company, the proceeds of which were so contributed,
multiplied by (B) a fraction, the numerator of which is 100%, and the
denominator of which is the Conversion Factor in effect on the date of such
contribution.
(b) Certain Deemed Contributions of Proceeds of Issuance of
-------------------------------------------------------
Company Shares. In connection with any and all issuances of Company Shares,
- ------ ------
the Company shall contribute all of the proceeds raised in connection with such
issuance to the Partnership, provided that if the proceeds actually received and
-------- ----
contributed by the Company to the Partnership are less than the gross proceeds
of such issuance as a result of any underwriter's discount or other expenses
paid or incurred in connection with such issuance, then the Company shall be
deemed to have made Capital Contributions to the Partnership in the aggregate
amount of the gross proceeds of such issuance and the Partnership shall be
deemed simultaneously to have paid such offering expenses in connection with the
required issuance of additional Partnership Units to the Company for such
Capital Contributions pursuant to Section 4.02(a) hereof.
(c) Minimum Limited Partnership Interest. In the event that
------------------------------------
either a redemption pursuant to Section 8.05 hereof or additional Capital
Contributions by the Company would result in the Limited Partners (other than
the Company), in the aggregate, owning less than the Minimum Limited Partnership
Interest, the General Partner and the Limited Partners shall form another
partnership and contribute sufficient Limited Partnership Interests together
with such other Limited Partners so that the limited partners (other than the
Company) of such partnership own at least the Minimum Limited Partnership
Interest.
(d) Exchange of Preferred Units.
---------------------------
(i) In the event the General Partner acquires Preferred
Units from the Preferred Unitholders (in exchange for cash or Company
Shares), the Partnership shall, as soon as practicable thereafter, exchange
each Preferred Unit held by the General Partner for such number of
Partnership Units which are not designated as Preferred Units, as
determined by the Conversion Factor then in effect.
(ii) If REIT Preferred Units are converted into preferred
stock of Patriot REIT, then the Preferred Units shall be converted into
preferred stock of the Company having the same designations, preferences
and other rights as the Preferred Units, provided, however, that no such
conversion will occur unless the Company has the authority to issue such
preferred stock.
4.03 ADDITIONAL FUNDING. If the General Partner determines that it is
------------------
in the best interests of the Partnership to provide for additional Partnership
funds ("Additional Funds") for any Partnership purpose, the General Partner may
(i) cause the Partnership to obtain such funds from outside borrowings, or (ii)
elect to have the Company provide such Additional Funds to the Partnership
through loans or otherwise.
14
<PAGE>
4.04 CAPITAL ACCOUNTS. A separate capital account (a "Capital
----------------
Account") shall be established and maintained for each Partner in accordance
with Regulations Section 1.704-1(b)(2)(iv). If (i) a new or existing Partner
acquires an additional Partnership Interest in exchange for more than a de
--
minimis Capital Contribution, (ii) the Partnership distributes to a Partner more
- -------
than a de minimis amount of Partnership property as consideration for a
-- -------
Partnership Interest, or (iii) the Partnership is liquidated within the meaning
of Regulation Section 1.704-1(b)(2)(ii)(g), the General Partner shall revalue
the property of the Partnership to its fair market value (taking into account
Section 7701(g) of the Code) in accordance with Regulations Section 1.704-
1(b)(2)(iv)(f). When the Partnership's property is revalued by the General
Partner, the Capital Accounts of the Partners shall be adjusted in accordance
with Regulations Sections 1.704-1(b)(2)(iv)(f) and (g), which generally require
such Capital Accounts to be adjusted to reflect the manner in which the
unrealized gain or loss inherent in such property (that has not been reflected
in the Capital Accounts previously) would be allocated among the Partners
pursuant to Section 5.01 if there were a taxable disposition of such property
for its fair market value (taking into account Section 7701(g) of the Code) on
the date of the revaluation.
4.05 PERCENTAGE INTERESTS. If the number of outstanding Partnership
--------------------
Units increases or decreases during a taxable year, each Partner's Percentage
Interest shall be adjusted to a percentage equal to the number of Partnership
Units held by such Partner divided by the aggregate number of outstanding
Partnership Units. If the Partners' Percentage Interests are adjusted pursuant
to this Section 4.05, the Profits and Losses for the taxable year in which the
adjustment occurs shall be allocated between the part of the year ending on the
day when the Partnership's property is revalued by the General Partner and the
part of the year beginning on the following day either (i) as if the taxable
year had ended on the date of the adjustment or (ii) based on the number of days
in each part. The General Partner, in its sole discretion, shall determine
which method shall be used to allocate Profits and Losses for the taxable year
in which the adjustment occurs. The allocation of Profits and Losses for the
earlier part of the year shall be based on the Percentage Interests before
adjustment, and the allocation of Profits and Losses for the later part shall be
based on the adjusted Percentage Interests.
4.06 NO INTEREST ON CONTRIBUTIONS. No Partner shall be entitled to
----------------------------
interest on its Capital Contribution.
4.07 RETURN OF CAPITAL CONTRIBUTIONS. No Partner shall be entitled to
-------------------------------
withdraw any part of its Capital Contribution or its Capital Account or to
receive any distribution from the Partnership, except as specifically provided
in this Agreement. Except as otherwise provided herein, there shall be no
obligation to return to any Partner or withdrawn Partner any part of such
Partner's Capital Contribution for so long as the Partnership continues in
existence.
15
<PAGE>
4.08 NO THIRD PARTY BENEFICIARY. No creditor or other third party
--------------------------
having dealings with the Partnership shall have the right to enforce the right
or obligation of any Partner to make Capital Contributions or loans or to pursue
any other right or remedy hereunder or at law or in equity, it being understood
and agreed that the provisions of this Agreement shall be solely for the benefit
of, and may be enforced solely by, the parties hereto and their respective
successors and assigns. None of the rights or obligations of the Partners
herein set forth to make Capital Contributions or loans to the Partnership shall
be deemed an asset of the Partnership for any purpose by any creditor or other
third party, nor may such rights or obligations be sold, transferred or assigned
by the Partnership or pledged or encumbered by the Partnership to secure any
debt or other obligation of the Partnership or of any of the Partners. In
addition, it is the intent of the parties hereto that no distribution to any
Limited Partner shall be deemed a return of money or other property in violation
of the Act. However, if any court of competent jurisdiction holds that,
notwithstanding the provisions of this Agreement, any Limited Partner is
obligated to return such money or property, such obligation shall be the
obligation of such Limited Partner and not of the General Partner. Without
limiting the generality of the foregoing, a deficit Capital Account of a Partner
shall not be deemed to be a liability of such Partner nor an asset or property
of the Partnership.
4.09 STOCK INCENTIVE PLANS. (a) If grants of Company Shares are made
---------------------
in connection with a Stock Incentive Plan:
(i) The Company shall contribute, as soon as practicable
after such grant, to the Partnership (to be thereafter taken into account
for the purposes of calculating any cash distributable to the Partners), an
amount equal to the price, if any, paid to the Company by the party
receiving such Company Shares;
(ii) The Partnership shall issue to the Company an
aggregate number of additional Partnership Units equal to the product of
(1) the number of such Company Shares issued by the Company, multiplied by
---------- --
(2) a fraction, the numerator of which is 100%, and the denominator of
which is the Conversion Factor in effect on the date of such contribution;
and
(iii) The Company's Percentage Interest and the Percentage
Interests of the other Limited Partners shall be adjusted as set forth in
Section 4.02.
(b) If stock options granted in connection with a Stock Incentive
Plan are exercised:
(i) The Company shall contribute, as soon as practicable
after such exercise, to the Partnership (to be thereafter taken into
account for purposes of calculating any cash distributable to the
Partners), an amount equal to the exercise price, if any, paid to the
Company by the exercising party in connection with the exercise of the
option or warrant;
16
<PAGE>
(ii) The Partnership shall issue to the Company an
aggregate number of additional Partnership Units equal to the product of
(1) the number of Company Shares issued by the Company in satisfaction of
such exercised option or warrant, multiplied by (2) a fraction, the
---------- --
numerator of which is 100%, and the denominator of which is the Conversion
Factor in effect on the date of such contribution; and
(iii) The Company's Percentage Interest and the Percentage
Interests of the other Limited Partners shall be adjusted as set forth in
Section 4.02.
(c) If the Company grants any director, officer or employee share
appreciation rights, performance share awards or other similar rights
("Incentive Rights"), then simultaneously, the Partnership shall grant the
Company corresponding and economically equivalent rights. Consequently, upon
the cash payment by the Company to its directors, officers or employees pursuant
to such Incentive Rights, the Partnership shall make an equal cash payment to
the Company.
ARTICLE V
PROFITS AND LOSSES; DISTRIBUTIONS
---------------------------------
5.01 ALLOCATION OF PROFIT AND LOSS.
-----------------------------
(a) General. Profit and Loss of the Partnership for each fiscal
-------
year of the Partnership shall be allocated among the Partners in accordance
with their respective Percentage Interests.
(b) Minimum Gain Chargeback. Notwithstanding any provision to the
-----------------------
contrary, (i) any expense of the Partnership that is a "nonrecourse deduction"
within the meaning of Regulations Section 1.704-2(b)(1) shall be allocated in
accordance with the Partners' respective Percentage Interests, (ii) any expense
of the Partnership that is a "partner nonrecourse deduction" within the meaning
of Regulations Section 1.704-2(i)(2) shall be allocated in accordance with
Regulations Section 1.704-2(i)(1), (iii) if there is a net decrease in
Partnership Minimum Gain within the meaning of Regulations Section 1.704-2(f)(1)
for any Partnership taxable year, items of gain and income shall be allocated
among the Partners in accordance with Regulations Section 1.704-2(f) and the
ordering rules contained in Regulations Section 1.704-2(j), and (iv) if there is
a net decrease in Partner Nonrecourse Debt Minimum Gain within the meaning of
Regulations Section 1.704-2(i)(4) for any Partnership taxable year, items of
gain and income shall be allocated among the Partners in accordance with
Regulations Section 1.704-2(i)(4) and the ordering rules contained in
Regulations Section 1.704-2(j). A Partner's "interest in partnership profits"
for purposes of determining its share of the nonrecourse liabilities of the
Partnership within the meaning of Regulations Section 1.752-3(a)(3) shall be
such Partner's Percentage Interest.
17
<PAGE>
(c) Qualified Income Offset. If a Limited Partner receives in
-----------------------
any taxable year an adjustment, allocation, or distribution described in
subparagraphs (4), (5), or (6) of Regulations Section 1.704-1(b)(2)(ii)(d) that
causes or increases a negative balance in such Partner's Capital Account that
exceeds the sum of such Partner's shares of Partnership Minimum Gain and Partner
Nonrecourse Debt Minimum Gain, as determined in accordance with Regulations
Sections 1.704-2(g) and 1.704-2(i), such Partner shall be allocated specially
for such taxable year (and, if necessary, later taxable years) items of income
and gain in an amount and manner sufficient to eliminate such negative Capital
Account balance as quickly as possible as provided in Regulations Section 1.704-
1(b)(2)(ii)(d). After the occurrence of an allocation of income or gain to a
Limited Partner in accordance with this Section 5.01(c), to the extent permitted
by Regulations Section 1.704-1(b), items of expense or loss shall be allocated
to such Partner in an amount necessary to offset the income or gain previously
allocated to such Partner under this Section 5.01(c).
(d) Capital Account Deficits. Loss shall not be allocated to a
------------------------
Limited Partner to the extent that such allocation would cause a deficit in such
Partner's Capital Account (after reduction to reflect the items described in
Regulations Section 1.704-1(b)(2)(ii)(d)(4), (5) and (6)) to exceed the sum of
such Partner's shares of Partnership Minimum Gain and Partner Nonrecourse Debt
Minimum Gain. Any Loss in excess of that limitation shall be allocated to the
General Partner. After the occurrence of an allocation of Loss to the General
Partner in accordance with this Section 5.01(d), to the extent permitted by
Regulations Section 1.704-1(b), Profit shall be allocated to such Partner in an
amount necessary to offset the Loss previously allocated to such Partner under
this Section 5.01(d).
(e) Allocations Between Transferor and Transferee. If a Partner
---------------------------------------------
transfers any part or all of its Partnership Interest, the distributive shares
of the various items of Profit and Loss allocable among the Partners during such
fiscal year of the Partnership shall be allocated between the transferor and the
transferee Partner either (i) as if the Partnership's fiscal year had ended on
the date of the transfer, or (ii) based on the number of days of such fiscal
year that each was a Partner without regard to the results of Partnership
activities in the respective portions of such fiscal year in which the
transferor and the transferee were Partners. The General Partner, in its sole
discretion, shall determine which method shall be used to allocate the
distributive shares of the various items of Profit and Loss between the
transferor and the transferee Partner.
(f) Definition of Profit and Loss. "Profit" and "Loss" and any
-----------------------------
items of income, gain, expense, or loss referred to in this Agreement shall be
determined in accordance with federal income tax accounting principles, as
modified by Regulations Section 1.704-1(b)(2)(iv), except that Profit and Loss
shall not include items of income, gain and expense that are specially allocated
pursuant to Section 5.01(b), 5.01(c), or 5.01(d). All allocations of income,
Profit, gain, Loss, and expense (and all items contained therein) for federal
income tax purposes shall be identical to all allocations of such items set
forth in this Section 5.01, except as otherwise required by Section 704(c) of
the Code and Regulations Section 1.704-1(b)(4). The General Partner shall have
the authority to elect the method to be used by the
18
<PAGE>
Partnership for allocating items of income, gain, and expense as required by
Section 704(c) of the Code and such election shall be binding on all Partners.
5.02 OPERATING DISTRIBUTIONS.
-----------------------
(a) Except as otherwise provided in Section 5.06, cash available
for distribution by the Partnership shall be distributed as follows:
(1) First, if there are any Preferred Units outstanding on
any record date for payment of a Company Share dividend, the General
Partner shall distribute to the Preferred Unitholder(s) of record on such
date (concurrently with the payment of such distribution) an amount with
respect to each such Preferred Unit equal to the Preferred Distribution
Amount.
(2) Second, the General Partner shall distribute any
remaining cash available for distribution on a quarterly (or, at the
election of the General Partner, more frequent) basis, in an amount
determined by the General Partner in its sole discretion, to the Partners
who are Partners on the Partnership Record Date for such quarter (or other
distribution period) in accordance with their respective Percentage
Interests on the Partnership Record Date. For purposes of this Section
5.02(a)(2), Percentage Interests shall not include any Preferred Units.
(b) In no event may a Partner receive a distribution of cash with
respect to a Partnership Unit if such Partner is entitled to receive a dividend
with respect to a Company Share for which all or part of such Partnership Unit
has been or will be exchanged.
5.03 [INTENTIONALLY OMITTED]
-----------------------
5.04 NO RIGHT TO DISTRIBUTIONS IN KIND. The General Partner may
---------------------------------
distribute property, other than cash to the Partners in any manner determined by
the General Partner. No Partner shall be entitled to demand property other than
cash in connection with any distributions by the Partnership.
5.05 LIMITATIONS ON RETURN OF CAPITAL CONTRIBUTIONS. Notwithstanding
----------------------------------------------
any of the provisions of this Article V, no Partner shall have the right to
receive and the General Partner shall not have the right to make, a distribution
that includes a return of all or part of a Partner's Capital Contributions,
unless after giving effect to the return of a Capital Contribution, the sum of
all Partnership liabilities, other than the liabilities to a Partner for the
return of his Capital Contribution, does not exceed the fair market value of the
Partnership's assets.
19
<PAGE>
5.06 DISTRIBUTIONS UPON LIQUIDATION.
------------------------------
(a) Upon liquidation of the Partnership, after payment of, or
adequate provision for, debts and obligations of the Partnership, including any
Partner loans, any remaining assets of the Partnership shall be distributed to
all Partners with positive Capital Accounts in accordance with their respective
positive Capital Account balances. For purposes of the preceding sentence, the
Capital Account of each Partner shall be determined after all adjustments made
in accordance with Sections 5.01 and 5.02 resulting from Partnership operations
and from all sales and dispositions of all or any part of the Partnership's
assets. Any distributions pursuant to this Section 5.06 shall be made by the end
of the Partnership's taxable year in which the liquidation occurs (or, if later,
within 90 days after the date of the liquidation). To the extent deemed
advisable by the General Partner, appropriate arrangements (including the use of
a liquidating trust) may be made to assure that adequate funds are available to
pay any contingent debts or obligations.
(b) If the General Partner has a negative balance in its Capital
Account following a liquidation of the Partnership, as determined after taking
into account all Capital Account adjustments in accordance with Sections 5.01
and 5.02 resulting from Partnership operations and from all sales and
dispositions of all or any part of the Partnership's assets, the General Partner
shall contribute to the Partnership an amount of cash equal to the negative
balance in its Capital Account and such cash shall be paid or distributed by the
Partnership to creditors, if any, and then to the Limited Partners in accordance
with Section 5.06(a). Such contribution by the General Partner shall be made by
the end of the Partnership's taxable year in which the liquidation occurs (or,
if later, within 90 days after the date of the liquidation).
5.07 SUBSTANTIAL ECONOMIC EFFECT. It is the intent of the Partners
---------------------------
that the allocations of Profit and Loss under the Agreement have substantial
economic effect (or be consistent with the Partners' interests in the
Partnership in the case of the allocation of losses attributable to nonrecourse
debt) within the meaning of Section 704(b) of the Code as interpreted by the
Regulations promulgated pursuant thereto. Article V and other relevant
provisions of this Agreement shall be interpreted in a manner consistent with
such intent.
5.08 ADDITIONAL DISTRIBUTIONS PROVISIONS AND DEFINITIONS RELATING TO
---------------------------------------------------------------
PREFERRED UNITS. Notwithstanding any other provision to the contrary in this
- ---------------
Agreement, as long as there remain any Preferred Units outstanding, the
following additional distribution provisions and definitions shall apply.
"Preferred Distribution Amount" shall mean, for any quarter or other period
with respect to which a Company Share dividend is paid and a distribution is
required to be made pursuant to Section 5.02(a)(1), an amount equal to such
amount that if it were the sole amount distributed on a Preferred Unit pursuant
to Section 5.02(a)(1) for such quarter or other period would provide the
Preferred Unitholder with a distribution on such Preferred Unit equal to 103% of
the corresponding Company Share dividend to be paid for such quarter or other
period. Notwithstanding the foregoing, the aggregate Preferred Distribution
Amount with
20
<PAGE>
respect to any Preferred Unitholder shall not exceed the Preferred Unitholder's
Capital Account balance (after reducing such balance to reflect the items
described in Regulations section 1.704-1(b)(ii)(2)(d)(4), (5) and (6) and after
increasing such Capital Account balance to reflect such Preferred Unitholder's
shares of Partnership Minimum Gain and Partner Nonrecourse Debt Minimum Gain),
determined as of the date of the relevant distribution.
ARTICLE VI
RIGHTS, OBLIGATIONS AND
POWERS OF THE GENERAL PARTNER
-----------------------------
6.01 MANAGEMENT OF THE PARTNERSHIP.
-----------------------------
(a) Except as otherwise expressly provided in this Agreement, the
General Partner shall have full, complete and exclusive discretion to manage and
control the business of the Partnership for the purposes herein stated, and
shall make all decisions affecting the business and assets of the Partnership.
Subject to the restrictions specifically contained in this Agreement, the powers
of the General Partner shall include, without limitation, the authority to take
the following actions on behalf of the Partnership:
(i) to acquire, purchase, own, lease and dispose of any real
property and any other property or assets that the General Partner
determines are necessary or appropriate or in the best interests of the
business of the Partnership;
(ii) to construct buildings and make other improvements on the
properties owned or leased by the Partnership;
(iii) to borrow money for the Partnership, issue evidences of
indebtedness in connection therewith, refinance, guarantee, increase the
amount of, modify, amend or change the terms of, or extend the time for the
payment of, any indebtedness or obligation to the Partnership, and secure
such indebtedness by mortgage, deed of trust, pledge or other lien on the
Partnership's assets;
(iv) to pay, either directly or by reimbursement, for all
operating costs and general administrative expenses of the Company, the
General Partner or the Partnership, to third parties or to the General
Partner as set forth in this Agreement;
(v) to lease all or any portion of any of the Partnership's
assets, whether or not the terms of such leases extend beyond the
termination date of the Partnership and whether or not any portion of the
Partnership's assets so leased are to be occupied by the lessee, or, in
turn, subleased in whole or in part to others, for such consideration and
on such terms as the General Partner may determine;
21
<PAGE>
(vi) to prosecute, defend, arbitrate, or compromise any and
all claims or liabilities in favor of or against the Partnership, on such
terms and in such manner as the General Partner may reasonably determine,
and similarly to prosecute, settle or defend litigation with respect to the
Partners, the Partnership, or the Partnership's assets; provided, however,
-------- -------
that the General Partner may not, without the consent of all of the
Partners, confess a judgment against the Partnership;
(vii) to file applications, communicate, and otherwise deal
with any and all governmental agencies having jurisdiction over, or in any
way affecting, the Partnership's assets or any other aspect of the
Partnership business;
(viii) to make or revoke any election permitted or required of
the Partnership by any taxing authority;
(ix) to maintain such insurance coverage for public liability,
fire and casualty, and any and all other insurance for the protection of
the Partnership, for the conservation of Partnership assets, or for any
other purpose convenient or beneficial to the Partnership, in such amounts
and such types, as it shall determine from time to time;
(x) to determine whether or not to apply any insurance
proceeds for any property to the restoration of such property or to
distribute the same;
(xi) to retain legal counsel, accountants, consultants, real
estate brokers, and such other persons, as the General Partner may deem
necessary or appropriate in connection with the Partnership business and to
pay therefor such reasonable remuneration as the General Partner may deem
reasonable and proper;
(xii) to retain other services of any kind or nature in
connection with the Partnership business, and to pay therefor such
remuneration as the General Partner may deem reasonable and proper;
(xiii) to negotiate and conclude agreements on behalf of the
Partnership with respect to any of the rights, powers and authority
conferred upon the General Partner;
(xiv) to maintain accurate accounting records and to file
promptly all federal, state and local income tax returns on behalf of the
Partnership;
(xv) to distribute Partnership cash or other Partnership
assets in accordance with this Agreement;
(xvi) to form or acquire an interest in, and contribute
property to, any further limited or general partnerships, joint ventures or
other relationships that it
22
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deems desirable (including, without limitation, the acquisition of
interests in, and the contributions of property to, its Subsidiaries and
any other Person in which it has an equity interest from time to time);
(xvii) to establish Partnership reserves for working capital,
capital expenditures, contingent liabilities, or any other valid
Partnership purpose; and
(xviii) to take such other action, execute, acknowledge, swear
to or deliver such other documents and instruments, and perform any and all
other acts that the General Partner deems necessary or appropriate for the
formation, continuation and conduct of the business and affairs of the
Partnership to comply with the provisions of the Pairing Agreement and to
possess and enjoy all of the rights and powers of a general partner as
provided by the Act.
(b) Except as otherwise provided herein, to the extent the duties of
the General Partner require expenditures of funds to be paid to third parties,
the General Partner shall not have any obligations hereunder except to the
extent that partnership funds are reasonably available to it for the performance
of such duties, and nothing herein contained shall be deemed to authorize or
require the General Partner, in its capacity as such, to expend its individual
funds for payment to third parties or to undertake any individual liability or
obligation on behalf of the Partnership.
6.02 DELEGATION OF AUTHORITY. The General Partner may delegate any or
-----------------------
all of its powers, rights and obligations hereunder, and may appoint, employ,
contract or otherwise deal with any Person for the transaction of the business
of the Partnership, which Person may, under supervision of the General Partner,
perform any acts or services for the Partnership as the General Partner may
approve.
6.03 INDEMNIFICATION AND EXCULPATION OF INDEMNITEES.
----------------------------------------------
(a) The Partnership shall indemnify an Indemnitee from and against
any and all losses, claims, damages, liabilities, joint or several, expenses
(including reasonable legal fees and expenses), judgments, fines, settlements,
and other amounts arising from any and all claims, demands, actions, suits or
proceedings, civil, criminal, administrative or investigative, that relate to
the operations of the Partnership as set forth in this Agreement in which any
Indemnitee may be involved, or is threatened to be involved, as a party or
otherwise, unless it is established that: (i) the act or omission of the
Indemnitee was material to the matter giving rise to the proceeding and either
was committed in bad faith or was the result of active and deliberate
dishonesty; (ii) the Indemnitee actually received an improper personal benefit
in money, property or services; or (iii) in the case of any criminal proceeding,
the Indemnitee had reasonable cause to believe that the act or omission was
unlawful. The termination of any proceeding by judgment, order or settlement
does not create a presumption that the Indemnitee did not meet the requisite
standard of conduct set forth in this Section 6.03(a). The termination of any
proceeding by conviction or upon a plea of nolo contendere or its
23
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equivalent, or an entry of an order of probation prior to judgment, creates a
rebuttable presumption that the Indemnitee acted in a manner contrary to that
specified in this Section 6.03(a). Any indemnification pursuant to this Section
6.03 shall be made only out of the assets of the Partnership.
(b) The Partnership shall reimburse an Indemnitee for reasonable
expenses incurred by an Indemnitee who is a party to a proceeding in advance of
the final disposition of the proceeding upon receipt by the Partnership of (i) a
written affirmation by the Indemnitee of the Indemnitee's good faith belief that
the standard of conduct necessary for indemnification by the Partnership as
authorized in this Section 6.03 has been met, and (ii) a written undertaking by
or on behalf of the Indemnitee to repay the amount if it shall ultimately be
determined that the standard of conduct has not been met.
(c) The indemnification provided by this Section 6.03 shall be in
addition to any other rights to which an Indemnitee or any other Person may be
entitled under any agreement, pursuant to any vote of the Partners, as a matter
of law or otherwise, and shall continue as to an Indemnitee who has ceased to
serve in such capacity.
(d) The Partnership may purchase and maintain insurance, on behalf of
the Indemnitees and such other Persons as the General Partner shall determine,
against any liability that may be asserted against or expenses that may be
incurred by such Person in connection with the Partnership's activities,
regardless of whether the Partnership would have the power to indemnify such
Person against such liability under the provisions of this Agreement.
(e) For purposes of this Section 6.03, the Partnership shall be
deemed to have requested an Indemnitee to serve as fiduciary of an employee
benefit plan whenever the performance by it of its duties to the Partnership
also imposes duties on, or otherwise involves services by, it to the plan or
participants or beneficiaries of the plan; excise taxes assessed on an
Indemnitee with respect to an employee benefit plan pursuant to applicable law
shall constitute fines within the meaning of this Section 6.03; and actions
taken or omitted by the Indemnitee with respect to an employee benefit plan in
the performance of its duties for a purpose reasonably believed by it to be in
the interest of the participants and beneficiaries of the plan shall be deemed
to be for a purpose which is not opposed to the best interests of the
Partnership.
(f) In no event may an Indemnitee subject the Limited Partners to
personal liability by reason of the indemnification provisions set forth in this
Agreement.
(g) An Indemnitee shall not be denied indemnification in whole or in
part under this Section 6.03 because the Indemnitee had an interest in the
transaction with respect to which the indemnification applies if the transaction
was otherwise permitted by the terms of this Agreement.
24
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(h) The provisions of this Section 6.03 are for the benefit of the
Indemnitees, their heirs, successors, assigns and administrators and shall not
be deemed to create any rights for the benefit of any other Persons.
6.04 LIABILITY OF THE GENERAL PARTNER.
--------------------------------
(a) Notwithstanding anything to the contrary set forth in this
Agreement, the General Partner shall not be liable for monetary damages to the
Partnership or any Partners for losses sustained or liabilities incurred as a
result of errors in judgment or of any act or omission if the General Partner
acted in good faith.
(b) The Limited Partners expressly acknowledge that the General
Partner is acting on behalf of the Partnership, the Company and the Company's
shareholders collectively, that the General Partner is under no obligation to
consider the separate interests of the Limited Partners (including, without
limitation, the tax consequences to Limited Partners) in deciding whether to
cause the Partnership to take (or decline to take) any actions. In the event of
a conflict between the interests of the shareholders of the Company on one hand
and the Limited Partners on the other, the General Partner shall endeavor in
good faith to resolve the conflict in a manner not adverse to either the
shareholders of the Company or the Limited Partners; provided, however, that for
so long as the Company owns a controlling interest in the Partnership, any such
conflict that cannot be resolved in a manner not adverse to either the
shareholders of the Company or the Limited Partners shall be resolved in favor
of the shareholders. The General Partner shall not be liable for monetary
damages for losses sustained, liabilities incurred, or benefits not derived by
Limited Partners in connection with such decisions, provided that the General
Partner has acted in good faith.
(c) Subject to its obligations and duties as General Partner set
forth in Section 6.01 hereof, the General Partner may exercise any of the powers
granted to it under this Agreement and perform any of the duties imposed upon it
hereunder either directly or by or through its agents. The General Partner shall
not be responsible for any misconduct or negligence on the part of any such
agent appointed by it in good faith.
(d) Notwithstanding any other provisions of this Agreement or the
Act, any action of the General Partner on behalf of the Partnership or any
decision of the General Partner to refrain from acting on behalf of the
Partnership, undertaken in the good faith belief that such action or omission is
necessary or advisable in order to protect the ability of the Company to comply
with the terms of the Pairing Agreement or maximize the benefits of the paired
structure of the Company and Partiot REIT is expressly authorized under this
Agreement and is deemed approved by all of the Limited Partners.
(e) Any amendment, modification or repeal of this Section 6.04 or any
provision hereof shall be prospective only and shall not in any way affect the
limitations on the General Partner's liability to the Partnership and the
Limited Partners under this Section 6.04 as in effect immediately prior to such
amendment, modification or repeal with respect to
25
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matters occurring, in whole or in part, prior to such amendment, modification or
repeal, regardless of when claims relating to such matters may arise or be
asserted.
6.05 EXPENDITURES BY PARTNERSHIP. The General Partner is hereby
---------------------------
authorized to pay compensation for accounting, administrative, legal, technical,
management and other services rendered to the Partnership. All of the aforesaid
expenditures (including Administrative Expenses) shall be made on behalf of the
Partnership, and the General Partner shall be entitled to reimbursement by the
Partnership for any expenditure (including Administrative Expenses) incurred by
it on behalf of the Partnership which shall be made other than out of the funds
of the Partnership. The Partnership shall also assume, and pay when due, all
Administrative Expenses.
6.06 OUTSIDE ACTIVITIES. Subject to Section 6.08 hereof, the Certificate
------------------
of Incorporation and any agreements entered into by the General Partner or its
Affiliates with the Partnership or a Subsidiary, any officer, director,
employee, agent, trustee, Affiliate or shareholder of the General Partner shall
be entitled to and may have business interests and engage in business activities
in addition to those relating to the Partnership, including business interests
and activities substantially similar or identical to those of the Partnership.
Neither the Partnership nor any of the Limited Partners shall have any rights by
virtue of this Agreement in any such business ventures, interest or activities.
None of the Limited Partners nor any other Person shall have any rights by
virtue of this Agreement or the partnership relationship established hereby in
any such business ventures, interests or activities, and the General Partner
shall have no obligation pursuant to this Agreement to offer any interest in any
such business ventures, interests and activities to the Partnership or any
Limited Partner, even if such opportunity is of a character which, if presented
to the Partnership or any Limited Partner, could be taken by such Person.
6.07 EMPLOYMENT OR RETENTION OF AFFILIATES.
-------------------------------------
(a) Any Affiliate of the General Partner may be employed or retained
by the Partnership and may otherwise deal with the Partnership (whether as a
buyer, lessor, lessee, manager, furnisher of goods or services, broker, agent,
lender or otherwise) and may receive from the Partnership any compensation,
price, or other payment therefor which the General Partner determines to be fair
and reasonable.
(b) The Partnership may lend or contribute to its Subsidiaries or
other Persons in which it has an equity investment, and such Persons may borrow
funds from the Partnership, on terms and conditions established in the sole and
absolute discretion of the General Partner. The foregoing authority shall not
create any right or benefit in favor of any Subsidiary or any other Person.
(c) The Partnership may transfer assets to joint ventures, other
partnerships, corporations or other business entities in which it is or thereby
becomes a participant upon
26
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such terms and subject to such conditions as the General Partner deems are
consistent with this Agreement and applicable law.
(d) Except as expressly permitted by this Agreement, neither the
General Partner nor any of its Affiliates shall sell, transfer or convey any
property to, or purchase any property from, the Partnership, directly or
indirectly, except pursuant to transactions that are on terms that are fair and
reasonable to the Partnership.
6.08 GENERAL PARTNER PARTICIPATION. The General Partner agrees that all
-----------------------------
business activities of the General Partner, including activities pertaining to
the acquisition, development or ownership of hotels or other property, shall be
conducted through the Partnership or one or more Subsidiary Partnerships;
provided, however, that the Company is allowed to make a direct acquisition, but
- -------- -------
if and only if, such acquisition is made in connection with the issuance of
Additional Securities, which direct acquisition and issuance have been approved
and determined to be in the best interests of the Company and the Partnership by
a majority of the Independent Directors.
6.09 TITLE TO PARTNERSHIP ASSETS. Title to Partnership assets, whether
---------------------------
real, personal or mixed and whether tangible or intangible, shall be deemed to
be owned by the Partnership as an entity, and no Partner, individually or
collectively, shall have any ownership interest in such Partnership assets or
any portion thereof. Title to any or all of the Partnership assets may be held
in the name of the Partnership, the General Partner or one or more nominees, as
the General Partner may determine, including Affiliates of the General Partner.
The General Partner hereby declares and warrants that any Partnership assets for
which legal title is held in the name of the General Partner or any nominee or
Affiliate of the General Partner shall be held by the General Partner for the
use and benefit of the Partnership in accordance with the provisions of this
Agreement; provided, however, that the General Partner shall use its best
-------- -------
efforts to cause beneficial and record title to such assets to be vested in the
Partnership as soon as reasonably practicable. All Partnership assets shall be
recorded as the property of the Partnership in its books and records,
irrespective of the name in which legal title to such Partnership assets is
held.
6.10 MISCELLANEOUS. In the event the Company redeems any Company Shares
-------------
or securities convertible into or redeemable or exchangeable for Company Shares,
then the General Partner shall cause the Partnership to purchase from the
Company a number of Partnership Units as determined based on the application of
the Conversion Factor on the same terms that the Company redeemed such
securities. Moreover, if the Company makes a cash tender offer or other offer to
acquire Company Shares or securities convertible into or redeemable or
exchangeable for Company Shares, then the General Partner shall cause the
Partnership to make a corresponding offer to the Company to acquire an equal
number of Partnership Units held by the Company. In the event any Company Shares
or securities convertible into or redeemable or exchangeable for Company Shares
are redeemed by the Company pursuant to such offer, the Partnership shall redeem
an equivalent number of the
27
<PAGE>
Company's Partnership Units for an equivalent purchase price based on the
application of the Conversion Factor.
ARTICLE VII
CHANGES IN GENERAL PARTNER
--------------------------
7.01 TRANSFER OF THE GENERAL PARTNER'S PARTNERSHIP INTEREST.
------------------------------------------------------
(a) The General Partner shall not transfer all or any portion of its
General Partnership Interest or withdraw as General Partner except as provided
in Sections 7.01(c) and (d) or in connection with a transaction described in
Section 7.01(e).
(b) The General Partner agrees that it and any permitted transferees
of its interests will at all times own in the aggregate at least a 20%
Percentage Interest.
(c) The General Partner may transfer any portion of its General
Partnership Interest to a wholly-owned subsidiary of the Company. Additionally,
the Company may transfer any portion of its Limited Partnership Interest to an
Affiliate Limited Partner.
(d) Except as otherwise provided in Section 6.06(b) or Section
7.01(e) hereof, the Company shall not engage in any merger, consolidation or
other combination with or into another Person or sale of all or substantially
all of its assets, or any reclassification, or any recapitalization or change of
outstanding Company Shares (other than a change in par value, or from par value
to no par value, or as a result of a subdivision or combination of Company
Shares) (a "Transaction"), unless (i) the Transaction also includes a merger of
the Partnership or sale of substantially all of the assets of the Partnership as
a result of which all Limited Partners will receive for each Partnership Unit an
amount of cash, securities, or other property equal to the product of the
Conversion Factor and the greatest amount of cash, securities or other property
paid in the Transaction to a holder of one Company Share in consideration of one
Company Share, provided that if, in connection with the Transaction, a purchase,
-------- ----
tender or exchange offer ("Offer") shall have been made to and accepted by the
holders of more than 50% of the outstanding Company Shares, each holder of
Partnership Units shall be given the option to exchange its Partnership Units
for the greatest amount of cash, securities, or other property which a Limited
Partner would have received had it (A) exercised its Redemption Right and (B)
sold, tendered or exchanged pursuant to the Offer the Company Shares received
upon exercise of the Redemption Right immediately prior to the expiration of the
Offer; and (ii) no more than 75% of the equity securities of the acquiring
Person in such Transaction shall be owned, after consummation of such
Transaction, by the General Partner or Persons who were Affiliates of the
Partnership or the General Partner immediately prior to the date on which the
Transaction is consummated.
28
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(e) Notwithstanding Section 7.01(d), the Company may merge with or
into or consolidate with another entity if immediately after such merger or
consolidation (i) substantially all of the assets of the successor or surviving
entity (the "Surviving General Partner"), other than Partnership Units held by
the Company, are contributed, directly or indirectly, to the Partnership as a
Capital Contribution in exchange for Partnership Units with a fair market value
equal to the value of the assets so contributed as determined by the Surviving
General Partner in good faith; provided, however, that the Surviving General
Partner may retain certain of its assets if, and only if, a majority of the
Independent Directors determine it to be in the best interests of the Company
and the Partnership and (ii) the Surviving General Partner expressly agrees to
assume all obligations of the General Partner or the Company, as appropriate,
hereunder. Upon such contribution and assumption, the Surviving General Partner
shall have the right and duty to amend this Agreement as set forth in this
Section 7.01(e). The Surviving General Partner shall in good faith arrive at a
new method for the calculation of the Cash Amount, the Company Shares Amount and
Conversion Factor for a Partnership Unit after any such merger or consolidation
so as to approximate the existing method for such calculation as closely as
reasonably possible. Such calculation shall take into account, among other
things, the kind and amount of securities, cash and other property that was
receivable upon such merger or consolidation by a holder of Company Shares or
options, warrants or other rights relating thereto, and to which a holder of
Partnership Units could have acquired had such Partnership Units been redeemed
immediately prior to such merger or consolidation. Such amendment to this
Agreement shall provide for adjustment to such method of calculation, which
shall be as nearly equivalent as may be practicable to the adjustments provided
for with respect to the Conversion Factor. The Surviving General Partner also
shall in good faith modify the definition of Company Shares and make such
amendments to Section 8.05 hereof so as to approximate the existing rights and
obligations set forth in Section 8.05 as closely as reasonably possible. The
above provisions of this Section 7.01(e) shall similarly apply to successive
mergers or consolidations permitted hereunder.
7.02 ADMISSION OF A SUBSTITUTE OR SUCCESSOR GENERAL PARTNER. Except as
------------------------------------------------------
otherwise provided in Section 7.01(e), a Person shall be admitted as a
substitute or successor General Partner of the Partnership only if the following
terms and conditions are satisfied:
(a) a majority in interest of the Limited Partners (other than the
Company) shall have consented in writing to the admission of the substitute or
successor General Partner, which consent may be withheld in the sole discretion
of such Limited Partners;
(b) the Person to be admitted as a substitute or additional General
Partner shall have accepted and agreed to be bound by all the terms and
provisions of this Agreement by executing a counterpart thereof and such other
documents or instruments as may be required or appropriate in order to effect
the admission of such Person as a General Partner, and a certificate evidencing
the admission of such Person as a General Partner shall have been filed for
recordation and all other actions required by Section 2.05 hereof in connection
with such admission shall have been performed;
29
<PAGE>
(c) if the Person to be admitted as a substitute or additional
General Partner is a corporation or a partnership it shall have provided the
Partnership with evidence satisfactory to counsel for the Partnership of such
Person's authority to become a General Partner and to be bound by the terms and
provisions of this Agreement; and
(d) counsel for the Partnership shall have rendered an opinion
(relying on such opinions from other counsel and the state or any other
jurisdiction as may be necessary) that the admission of the person to be
admitted as a substitute or additional General Partner is in conformity with the
Act, that none of the actions taken in connection with the admission of such
Person as a substitute or additional General Partner will cause (i) the
Partnership to be classified other than as a partnership for federal income tax
purposes, or (ii) the loss of any Limited Partner's limited liability.
7.03 EFFECT OF BANKRUPTCY, WITHDRAWAL, DEATH OR DISSOLUTION OF A GENERAL
-------------------------------------------------------------------
PARTNER.
- -------
(a) Upon the occurrence of an Event of Bankruptcy as to a General
Partner (and its removal pursuant to Section 7.04(a) hereof) or the death,
withdrawal, removal or dissolution of a General Partner (except that, if a
General Partner is on the date of such occurrence a partnership, the withdrawal,
death, dissolution, Event of Bankruptcy as to, or removal of a partner in, such
partnership shall be deemed not to be a dissolution of such General Partner if
the business of such General Partner is continued by the remaining partner or
partners), the Partnership shall be dissolved and terminated unless the
Partnership is continued pursuant to Section 7.03(b) hereof.
(b) Following the occurrence of an Event of Bankruptcy as to a
General Partner (and its removal pursuant to Section 7.04(a) hereof) or the
death, withdrawal, removal or dissolution of a General Partner (except that, if
a General Partner is on the date of such occurrence a partnership, the
withdrawal, death, dissolution, Event of Bankruptcy as to, or removal of a
partner in, such partnership shall be deemed not to be a dissolution of such
General Partner if the business of such General Partner is continued by the
remaining partner or partners), the Limited Partners, within 90 days after such
occurrence, may elect to reconstitute the Partnership and continue the business
of the Partnership for the balance of the term specified in Section 2.04 hereof
by selecting, subject to Section 7.02 hereof and any other provisions of this
Agreement, a substitute General Partner by unanimous consent of the Limited
Partners. If the Limited Partners elect to reconstitute the Partnership and
admit a substitute General Partner, the relationship with the Partners and of
any Person who has acquired an interest of a Partner in the Partnership shall be
governed by this Agreement.
7.04 REMOVAL OF A GENERAL PARTNER.
----------------------------
(a) Upon the occurrence of an Event of Bankruptcy as to, or the
dissolution of, a General Partner, such General Partner shall be deemed to be
removed automatically; provided, however, that if a General Partner is on the
-------- -------
date of such occurrence a partnership,
30
<PAGE>
the withdrawal, death, dissolution, Event of Bankruptcy as to or removal of a
partner in such partnership shall be deemed not to be a dissolution of the
General Partner if the business of such General Partner is continued by the
remaining partner or partners.
(b) If a General Partner has been removed pursuant to this Section
7.04 and the Partnership is continued pursuant to Section 7.03 hereof, such
General Partner shall promptly transfer and assign its General Partnership
Interest in the Partnership to the substitute General Partner approved by a
majority in interest of the Limited Partners in accordance with Section 7.03(b)
hereof and otherwise admitted to the Partnership in accordance with Section 7.02
hereof. At the time of assignment, the removed General Partner shall be
entitled to receive from the substitute General Partner the fair market value of
the General Partnership Interest of such removed General Partner as reduced by
any damages caused to the Partnership by such General Partner. Such fair market
value shall be determined by an appraiser mutually agreed upon by the General
Partner and a majority in interest of the Limited Partners (excluding the
Company) within 10 days following the removal of the General Partner. In the
event that the parties are unable to agree upon an appraiser, the removed
General Partner and a majority in interest of the Limited Partners (excluding
the Company) each shall select an appraiser. Each such appraiser shall complete
an appraisal of the fair market value of the removed General Partner's General
Partnership Interest within 30 days of the General Partner's removal, and the
fair market value of the removed General Partner's General Partnership Interest
shall be the average of the two appraisals; provided, however, that if the
-------- -------
higher appraisal exceeds the lower appraisal by more than 20% of the amount of
the lower appraisal, the two appraisers, no later than 40 days after the removal
of the General Partner, shall select a third appraiser who shall complete an
appraisal of the fair market value of the removed General Partner's General
Partnership Interest no later than 60 days after the removal of the General
Partner. In such case, the fair market value of the removed General Partner's
General Partnership Interest shall be the average of the two appraisals closest
in value.
(c) The General Partnership Interest of a removed General Partner,
during the time after default until transfer under Section 7.04(b), shall be
converted to that of a special Limited Partner; provided, however, such removed
-------- -------
General Partner shall not have any rights to participate in the management and
affairs of the Partnership, and shall not be entitled to any portion of the
income, expense, profit, gain or loss allocations or cash distributions
allocable or payable, as the case may be, to the Limited Partners. Instead,
such removed General Partner shall receive and be entitled only to retain
distributions or allocations of such items that it would have been entitled to
receive in its capacity as General Partner, until the transfer is effective
pursuant to Section 7.04(b).
(d) All Partners shall have given and hereby do give such consents,
shall take such actions and shall execute such documents as shall be legally
necessary and sufficient to effect all the foregoing provisions of this Section.
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ARTICLE VIII
RIGHTS AND OBLIGATIONS
OF THE LIMITED PARTNERS
-----------------------
8.01 MANAGEMENT OF THE PARTNERSHIP. The Limited Partners shall not
-----------------------------
participate in the management or control of Partnership business nor shall they
transact any business for the Partnership, nor shall they have the power to sign
for or bind the Partnership, such powers being vested solely and exclusively in
the General Partner.
8.02 POWER OF ATTORNEY. Each Limited Partner hereby irrevocably appoints
-----------------
the General Partner its true and lawful attorney-in-fact, who may act for each
Limited Partner and in its name, place and stead, and for its use and benefit,
to sign, acknowledge, swear to, deliver, file and record, at the appropriate
public offices, any and all documents, certificates, and instruments as may be
deemed necessary or desirable by the General Partner to carry out fully the
provisions of this Agreement and the Act in accordance with their terms, which
power of attorney is coupled with an interest and shall survive the death,
dissolution or legal incapacity of the Limited Partner, or the transfer by the
Limited Partner of any part or all of its Partnership Interest.
8.03 LIMITATION ON LIABILITY OF LIMITED PARTNERS. No Limited Partner
-------------------------------------------
shall be liable for any debts, liabilities, contracts or obligations of the
Partnership. A Limited Partner shall be liable to the Partnership only to make
payments of its Capital Contribution, if any, as and when due hereunder. After
its Capital Contribution is fully paid, no Limited Partner shall, except as
otherwise required by the Act, be required to make any further Capital
Contributions or other payments or lend any funds to the Partnership.
8.04 OWNERSHIP BY LIMITED PARTNER OF GENERAL PARTNER OR AFFILIATE. No
------------------------------------------------------------
Limited Partner shall at any time, either directly or indirectly, own any stock
or other interest in the General Partner or in any Affiliate thereof, if such
ownership by itself or in conjunction with other stock or other interests owned
by other Limited Partners would, in the opinion of counsel for the Partnership,
jeopardize the classification of the Partnership as a partnership for federal
income tax purposes. The General Partner shall be entitled to make such
reasonable inquiry of the Limited Partners as is required to establish
compliance by the Limited Partners with the provisions of this Section.
8.05 REDEMPTION RIGHT.
----------------
(a) Subject to Sections 8.05(b), 8.05(c), 8.05(d), 8.05(e), 8.05(f),
8.05(g), 8.05(h), 8.05(i) and 8.05(j), each Limited Partner (other than the
Company) shall have the right (the "Redemption Right"), on or after the first
anniversary of the date on which he acquires Partnership Units from the
Partnership (or such later or earlier date as shall be determined in the sole
and absolute discretion of the General Partner at the time of the issuance of
the Partnership Units), to require the Partnership to redeem on a Specified
32
<PAGE>
Redemption Date all or a portion of the Partnership Units held by such Limited
Partner at a redemption price equal to and in a form of the Cash Amount to be
paid by the Partnership. The Redemption Right shall be exercised pursuant to a
Notice of Redemption delivered to the Partnership (with a copy to the Company)
by the Limited Partner who is exercising the Redemption Right (the "Redeeming
Partner"); provided, however, that the Partnership shall not be obligated to
satisfy such Redemption Right if the Company elects to purchase the Partnership
Units subject to the Notice of Redemption pursuant to Section 8.05(b); and
provided, further, that no Limited Partner may deliver more than two Notices of
Redemption during each calendar year. A Limited Partner may not exercise the
Redemption Right for less than 1,000 Partnership Units or, if such Limited
Partner holds less than 1,000 Partnership Units, all of the Partnership Units
held by such Partner. The Redeeming Partner shall have no right, with respect
to any Partnership Units so redeemed, to receive any distribution paid with
respect to Partnership Units if the record date for such distribution is on or
after the Specified Redemption Date.
(b) Notwithstanding the provisions of Section 8.05(a), a Limited
Partner that exercises the Redemption Right shall be deemed to have offered to
sell the Partnership Units described in the Notice of Redemption to the Company,
and the Company may, in its sole and absolute discretion, elect to purchase
directly and acquire such Partnership Units by paying to the Redeeming Partner
either the Cash Amount or the Company Shares Amount, as elected by the Company
(in its sole and absolute discretion), on the Specified Redemption Date,
whereupon the Company shall acquire the Partnership Units offered for redemption
by the Redeeming Partner and shall be treated for all purposes of this Agreement
as the owner of such Partnership Units. If the Company shall elect to exercise
its right to purchase Partnership Units under this Section 8.05(b) with respect
to a Notice of Redemption, it shall so notify the Redeeming Partner within five
Business Days after the receipt by the Company of such Notice of Redemption.
Unless the Company (in its sole and absolute discretion) shall exercise its
right to purchase Partnership Units from the Redeeming Partner pursuant to this
Section 8.05(b), the Company shall not have any obligation to the Redeeming
Partner or the Partnership with respect to the Redeeming Partner's exercise of
the Redemption Right. In the event the Company shall exercise its right to
purchase Partnership Units with respect to the exercise of a Redemption Right in
the manner described in the first sentence of this Section 8.05(b), the
Partnership shall have no obligation to pay any amount to the Redeeming Partner
with respect to such Redeeming Partner's exercise of such Redemption Right, and
each of the Redeeming Partner, the Partnership, and the Company, as the case may
be, shall treat the transaction between the Company and the Redeeming Partner
for federal income tax purposes as a sale of the Redeeming Partner's Partnership
Units to the Company. Each Redeeming Partner agrees to execute such documents
as the Company may reasonably require in connection with the issuance of Company
Shares upon exercise of the Redemption Right.
(c) Notwithstanding the provisions of Section 8.05(a) and 8.05(b), a
Limited Partner shall not be entitled to exercise the Redemption Right if the
delivery of Company Shares to such Partner on the Specified Redemption Date by
the Company pursuant to Section 8.05(b) (regardless of whether or not the
Company would in fact exercise its rights
33
<PAGE>
under Section 8.05(b)) would (i) result in such Partner or any other person
owning, directly or indirectly, Company Shares in excess of the Ownership Limit
(as defined in the Certificate of Incorporation) and calculated in accordance
therewith, except as provided in the Certificate of Incorporation, (ii) result
in the capital stock of Patriot REIT being owned by fewer than 100 persons
within the meaning of Section 856(a)(5) of the Code, except as provided in the
Certificate of Incorporation, (iii) result in Patriot REIT being "closely held"
within the meaning of Section 856(h) of the Code, (iv) cause Patriot REIT to
own, directly or constructively, 10% or more of the ownership interests in a
tenant of the real property of Patriot REIT, the REIT Partnership, or a
subsidiary of the REIT Partnership, within the meaning of Section 856(d)(2)(B)
of the Code, or (v) cause the acquisition of Company Shares by such Limited
Partner to be "integrated" with any other distribution of Company Shares for
purposes of complying with the registration provisions of the Securities Act of
1933, as amended (the "Securities Act"). The Company, in its sole discretion,
may waive the restriction on redemption set forth in this Section 8.05(c);
provided, however, that in the event such restriction is waived, the Redeeming
- -------- -------
Partner shall be paid the Cash Amount.
(d) Any Cash Amount to be paid to a Redeeming Partner pursuant to
this Section 8.05 shall be paid on the Specified Redemption Date; provided,
--------
however, that the Company may elect to cause the Specified Redemption Date to be
- -------
delayed for up to an additional 180 days to the extent required for the Company
to cause additional Company Shares to be issued to provide financing to be used
to make such payment of the Cash Amount. Notwithstanding the foregoing, the
Company agrees to use its best efforts to cause the closing of the acquisition
of redeemed Partnership Units hereunder to occur as quickly as reasonably
possible.
(e) In the event that the General Partner permits the pledge of a
Limited Partner's Partnership Units to a lender, the General Partner may agree
to allow such lender, upon foreclosure of such Partnership Units, to redeem such
Partnership Units prior to the expiration of the one-year period described in
section 8.05(a); provided, that any such redemption shall be effected by the
Partnership in the form of the Cash Amount and shall be subject to any other
restrictions imposed on the exercise by a Limited Partner of the Redemption
Right or the Deferred Redemption Right as set forth in this Section 8.05.
(f) Notwithstanding any other provision of this Agreement, the
General Partner shall place appropriate restrictions on the ability of the
Limited Partners to exercise their Redemption Rights as and if deemed necessary
to ensure that the Partnership does not constitute a "publicly traded
partnership" under section 7704 of the Code. If and when the General Partner
determines that imposing such restrictions is necessary, the General Partner
shall give prompt written notice thereof (a "Restriction Notice") to each of the
Limited Partners, which notice shall be accompanied by a copy of an opinion of
counsel to the Partnership which states that, in the opinion of such counsel,
restrictions are necessary in order to avoid the Partnership being treated as a
"publicly traded partnership" under section 7704 of the Code. Any such
restriction shall become effective on the later of (i) the fifth business day
after the Restriction Notice is received by the Limited Partner or (ii) the date
on
34
<PAGE>
which the regulations under section 7704 of the Code that would cause the
Partnership to be classified as a "publicly traded partnership" become
effective.
(g) Notwithstanding any other provision of this Agreement, the
holders of Preferred Units shall not have the Redemption Right specified in
section 8.05.
(h) Deferred Redemption Rights. Subject to certain other provisions
--------------------------
of this Article VIII as provided below, each Limited Partner (other than the
Company) shall have the right (the "Deferred Redemption Right"), on or after the
first anniversary of the date on which he acquires Partnership Units (or such
later or earlier date as shall be determined in the sole and absolute discretion
of the General Partner at the time of the issuance of the Partnership Units), to
require the Partnership to redeem on a Specified Redemption Date all or a
portion of the Partnership Units held by such Limited Partner at a redemption
price equal to and in a form of the Deferred Cash Amount to be paid by the
Partnership. The Deferred Redemption Right shall be exercised pursuant to a
Notice of Redemption delivered to the Partnership (with a copy to the Company)
by the Limited Partner who is exercising the Deferred Redemption Right (the
"Redeeming Partner"); provided, however, that the Partnership shall not be
obligated to satisfy such Deferred Redemption Right if the Company elects to
purchase the Partnership Units subject to the Notice of Redemption pursuant to
Section 8.05(b); and provided, further, that no Limited Partner may deliver more
than two Notices of Redemption during each calendar year. A Limited Partner may
not exercise the Deferred Redemption Right for less than 1,000 Partnership Units
or, if such Limited Partner holds less than 1,000 Partnership Units, all of the
Partnership Units held by such Partner, unless the General Partner consents, in
its sole discretion. The Redeeming Partner shall have no right, with respect to
any Partnership Units so redeemed, to receive any distribution paid with respect
to Partnership Units if the record date for such distribution is on or after the
Specified Redemption Date.
The foregoing Deferred Redemption Right shall be subject to the provisions
of Section 8.05(b), reading "Deferred Redemption Right" for "Redemption Right"
and "Deferred Cash Amount" for "Cash Amount"; provided that if the Company shall
elect to exercise its right to purchase Partnership Units under Section 8.05(b)
with respect to a Notice of Redemption under this Section 8.05(h), the Company
shall not be required to so notify the Redeeming Partner until five Business
Days prior to the Specified Redemption Date. The foregoing Deferred Redemption
Right shall also be subject to the provisions of Sections 8.05(c), 8.05(d),
8.05(e), 8.05(f) and 8.05(g), also reading "Deferred Redemption Right" for
"Redemption Right" and "Deferred Cash Amount" for "Cash Amount" where the
context requires. The foregoing Deferred Redemption Right also shall be subject
to Sections 8.05(i) and 8.05(j) below.
The foregoing Deferred Redemption Right is intended to comply with the
requirements of Regulations Section 1.7704-1(f) and Section II.E.1 of Notice 88-
75 and shall be construed and administered in accordance therewith. The General
Partner may modify the Deferred Redemption Right from time to time in its
discretion to ensure that the terms of the Deferred Redemption Right comply and
continue to comply with such requirements.
35
<PAGE>
(i) Restrictions on Exercise of Redemption Right and Deferred
---------------------------------------------------------
Redemption Right.
- ----------------
(i) Notwithstanding the provisions of Sections 8.05(a) and
8.05(b), a Limited Partner shall be entitled to exercise the Redemption
Right only if the redemption or purchase of the Limited Partner's
Partnership Units would constitute a Private Transfer (within the meaning
of clause (v) of the definition of Private Transfer).
(ii) Notwithstanding the provisions of Sections 8.05(h) and
8.05(b), a Limited Partner shall be entitled to exercise the Deferred
Redemption Right only if (x) the redemption or purchase of the Limited
Partner's Partnership Units would constitute a Private Transfer (within the
meaning of clause (v) of the definition of Private Transfer) or (y) the
number of Partnership Units to be purchased or redeemed, when aggregated
with other Transfers of Partnership Units within the same taxable year of
the Partnership (but not including Private Transfers), would constitute an
LP Unit Percentage of ten percent (10%) or less.
(iii) The General Partner may establish such policies and
procedures as it may deem necessary or desirable in its sole discretion to
administer the 10% LP Unit Percentage limit set forth in subparagraph (ii)
above, including without limitation imposing further limitations on the
number of LP Units with respect to which the Deferred Redemption Right may
be exercised during any period of time shorter than a calendar year and
establishing procedures to allocate the ability to exercise the Deferred
Redemption Right among the Limited Partners.
(iv) The restrictions set forth in this paragraph (i) shall
continue in effect until such time as the Partnership is no longer
potentially subject to classification as a publicly traded partnership, as
defined in Section 7704 of the Code, in the absence of such restrictions,
as determined by the General Partner in its discretion. The restrictions
set forth in this paragraph (i), together with the restrictions on the
Transfer of Partnership Units set forth in Section 9.02, are intended to
limit transfers of interests in the Partnership in such a manner as to
permit the Partnership to qualify for the safe harbors from treatment as a
publicly traded partnership set forth in both Treasury Regulations Sections
1.7704-1(d), (e), (f) and (j) and Sections II.B, II.C.2 and II.E.1 of
Notice 88-75, and shall be construed and administered in accordance
therewith. The General Partner may modify the restrictions set forth in
this paragraph (i), and the provisions of Section 9.02, from time to time
in its discretion to ensure that the Partnership complies and continues to
comply with such requirements.
(j) Paired Shares. Notwithstanding the provisions of Sections
-------------
8.05(a), 8.05(b) and 8.05(h), a Limited Partner shall not be entitled to
exercise the Redemption Right or the Deferred Redemption Right with respect to
any Partnership Units unless the Limited Partner is entitled to exercise and
simultaneously exercises its redemption right under the
36
<PAGE>
REIT Partnership Agreement with respect to an equal number of REIT Partnership
Units of the same class or series so that the General Partner, in cooperation
with Patriot REIT, may deliver Paired Shares in redemption of such Partnership
Units and REIT Partnership Units. The restriction set forth in this paragraph
(j) shall continue in effect until such time as the provisions of the Pairing
Agreement shall terminate and be of no further force or effect.
ARTICLE IX
TRANSFERS OF LIMITED PARTNERSHIP INTERESTS
------------------------------------------
9.01 PURCHASE FOR INVESTMENT.
-----------------------
(a) Each Limited Partner hereby represents and warrants to the
General Partner and to the Partnership that the acquisition of his Partnership
Interests is made as a principal for his account for investment purposes only
and not with a view to the resale or distribution of such Partnership Interest.
(b) Each Limited Partner agrees that he will not sell, assign or
otherwise transfer his Partnership Interest or any fraction thereof, whether
voluntarily or by operation of law or at judicial sale or otherwise, to any
Person who does not make the representations and warranties to the General
Partner set forth in Section 9.01(a) above and similarly agree not to sell,
assign or transfer such Partnership Interest or fraction thereof to any Person
who does not similarly represent, warrant and agree.
9.02 RESTRICTIONS ON TRANSFER OF LIMITED PARTNERSHIP INTERESTS.
---------------------------------------------------------
(a) Subject to Sections 9.02(b), 9.02(c), 9.02(d) and 9.02(e), a
Limited Partner may offer, sell, assign, hypothecate, pledge or otherwise
transfer all or any portion of his Limited Partnership Interest or any of such
Limited Partner's economic rights as a Limited Partner, whether voluntarily
(including by exercise of any redemption or conversion rights) or by operation
of law or at judicial sale or otherwise (collectively, a "Transfer") with or
without the consent of the General Partner. Any assignee or transferee of a
Limited Partnership Interest pursuant to this Section 9.02(a) may only become a
substitute Limited Partner pursuant to Section 9.03 hereof. The General Partner
may require as a condition of any Transfer, that the transferor assume all costs
incurred by the Partnership in connection therewith.
(b) No Limited Partner may effect a Transfer of its Limited
Partnership Interest, in whole or in part, if, in the opinion of legal counsel
for the Partnership, such proposed Transfer would require the registration of
the Limited Partnership Interest under the Securities Act of 1933, as amended,
or would otherwise violate any applicable federal or state securities or blue
sky law (including investment suitability standards).
37
<PAGE>
(c) No transfer by a Limited Partner of its Partnership Units, in
whole or in part, may be made to any Person if (i) in the opinion of legal
counsel for the Partnership, the transfer would result in the Partnership's
being treated as an association taxable as a corporation, (ii) in the opinion of
legal counsel for the Partnership, it would adversely affect the ability of the
Company to continue to comply with the Pairing Agreement,(iii) such transfer is
effectuated through an "Established Securities Market" or a "Secondary Market"
(or the substantial equivalent thereof)" with the meaning of Section 7704 of the
Code, or (iv) such transfer would cause any amount received or accrued by
Patriot REIT to fail to qualify as "rents from real property" within the meaning
of Section 856(d) of the Code or otherwise adversely affect the ability of
Patriot REIT to qualify as a REIT.
(d) No transfer of any Partnership Units may be made to a lender to
the Partnership or any Person who is related (within the meaning of Regulations
Section 1.752-4(b)) to any lender to the Partnership whose loan constitutes a
nonrecourse liability (within the meaning of Regulations Section 1.752-1(a)(2)),
without the consent of the General Partner, which may be withheld in its sole
and absolute discretion, provided that as a condition to such consent the lender
-------- ----
will be required to enter into an arrangement with the Partnership and the
General Partner to exchange or redeem for the Cash Amount any Partnership Units
in which a security interest is held simultaneously with the time at which such
lender would be deemed to be a partner in the Partnership for purposes of
allocating liabilities to such lender under Section 752 of the Code.
(e) No Limited Partner may effect a Transfer of its Limited
Partnership Interest, in whole or in part, unless (i) the Transfer is a Private
Transfer, (ii) the Transfer is a redemption or sale permitted by the provisions
of Section 8.05, or (iii) the Transfer satisfies both of the following tests,
(x) when aggregated with other Transfers of Partnership Units within the same
taxable year of the Partnership (but not including Private Transfers or
Transfers pursuant to exercises of the Deferred Redemption Right), the Transfer
would constitute an LP Unit Percentage of two percent (2%) or less, and (y) when
aggregated with other Transfers of Partnership Units within the same taxable
year of the Partnership (but not including Private Transfers), the Transfer
would constitute an LP Unit Percentage of ten percent (10%) or less. The
General Partner may establish such policies and procedures as it may deem
necessary or desirable in its sole discretion to administer the 2% and 10% LP
Unit Percentage limits set forth in the foregoing subclause (iii) in the manner
described in Section 8.05(i)(iii). Solely for purposes of this paragraph (e),
the term "Transfer" shall not include (except as provided in the following
clause) the mere pledge, hypothecation or grant of a security interest in a
Partnership Unit, but shall include any transfer of a Partnership Unit within
the meaning of Treasury Regulations Section 1.7704-1(a)(3) (other than transfers
that have not been recognized by the Partnership) or any transaction treated as
a transfer for purposes of Notice 88-75. The restrictions set forth in this
paragraph (e) shall continue in effect until such time as the Partnership is no
longer potentially subject to classification as a publicly traded partnership,
as defined in Section 7704 of the Code, as determined by the General Partner in
its discretion.
38
<PAGE>
(f) Any Transfer in contravention of any of the provisions of this
Article IX shall be void and ineffectual and shall not be binding upon, or
recognized by, the Partnership.
9.03 ADMISSION OF SUBSTITUTE LIMITED PARTNER.
---------------------------------------
(a) Subject to the other provisions of this Article IX, an assignee
of the Limited Partnership Interest of a Limited Partner (which shall be
understood to include any purchaser, transferee, donee, or other recipient of
any disposition of such Limited Partnership Interest) shall be deemed admitted
as a Limited Partner of the Partnership only upon the satisfactory completion of
the following:
(i) The assignee shall have accepted and agreed to be bound by
the terms and provisions of this Agreement by executing a counterpart or an
amendment thereof, including a revised Exhibit A, and such other documents
---------
or instruments as the General Partner may require in order to effect the
admission of such Person as a Limited Partner.
(ii) To the extent required, an amended Certificate evidencing
the admission of such Person as a Limited Partner shall have been signed,
acknowledged and filed for record in accordance with the Act.
(iii) The assignee shall have delivered a letter containing the
representation set forth in Section 9.01(a) hereof and the agreement set
forth in Section 9.01(b) hereof.
(iv) If the assignee is a corporation, partnership or trust,
the assignee shall have provided the General Partner with evidence
satisfactory to counsel for the Partnership of the assignee's authority to
become a Limited Partner under the terms and provisions of this Agreement.
(v) The assignee shall have executed a power of attorney
containing the terms and provisions set forth in Section 8.02 hereof.
(vi) The assignee shall have paid all reasonable legal fees of
the Partnership and the General Partner and filing and publication costs in
connection with its substitution as a Limited Partner.
(vii) The assignee has obtained the prior written consent of the
General Partner to its admission as a Substitute Limited Partner, which
consent may be given or denied in the exercise of the General Partner's
sole and absolute discretion.
(b) For the purpose of allocating Profits and Losses and distributing
cash received by the Partnership, a Substitute Limited Partner shall be treated
as having become, and appearing in the records of the Partnership as, a Partner
upon the filing of the Certificate
39
<PAGE>
described in Section 9.03(a)(ii) hereof or, if no such filing is required, the
later of the date specified in the transfer documents or the date on which the
General Partner has received all necessary instruments of transfer and
substitution.
(c) The General Partner shall cooperate with the Person seeking to
become a Substitute Limited Partner by preparing the documentation required by
this Section and making all official filings and publications. The Partnership
shall take all such action as promptly as practicable after the satisfaction of
the conditions in this Article IX to the admission of such Person as a Limited
Partner of the Partnership.
9.04 RIGHTS OF ASSIGNEES OF PARTNERSHIP INTERESTS.
--------------------------------------------
(a) Subject to the provisions of Sections 9.01 and 9.02 hereof,
except as required by operation of law, the Partnership shall not be obligated
for any purposes whatsoever to recognize the assignment by any Limited Partner
of its Partnership Interest until the Partnership has received notice thereof.
(b) Any Person who is the assignee of all or any portion of a Limited
Partner's Limited Partnership Interest, but does not become a Substitute Limited
Partner and desires to make a further assignment of such Limited Partnership
Interest, shall be subject to all the provisions of this Article IX to the same
extent and in the same manner as any Limited Partner desiring to make an
assignment of its Limited Partnership Interest.
9.05 EFFECT OF BANKRUPTCY, DEATH, INCOMPETENCE OR TERMINATION OF A LIMITED
---------------------------------------------------------------------
PARTNER. The occurrence of an Event of Bankruptcy as to a Limited of a Limited
- -------
Partner or a final adjudication that a Limited Partner is incompetent (which
term shall include, but not be limited to, insanity) shall not cause the
termination or dissolution of the Partnership, and the business of the
Partnership shall continue if an order for relief in a bankruptcy proceeding is
entered against a Limited Partner, the trustee or receiver of his estate or, if
he dies, his executor, administrator or trustee, or, if he is finally
adjudicated incompetent, his committee, guardian or conservator, shall have the
rights of such Limited Partner for the purpose of settling or managing his
estate property and such power as the bankrupt, deceased or incompetent Limited
Partner possessed to assign all or any part of his Partnership Interest and to
join with the assignee in satisfying conditions precedent to the admission of
the assignee as a Substitute Limited Partner.
9.06 JOINT OWNERSHIP OF INTERESTS. A Partnership Interest may be acquired
----------------------------
by two individuals as joint tenants with right of survivorship, provided that
such individuals either are married or are related and share the same home as
tenants in common. The written consent or vote of both owners of any such
jointly held Partnership Interest shall be required to constitute the action of
the owners of such Partnership Interest; provided, however, that the written
-------- -------
consent of only one joint owner will be required if the Partnership has been
provided with evidence satisfactory to the counsel for the Partnership that the
actions of a single joint owner can bind both owners under the applicable laws
of the state of residence of such joint owners.
40
<PAGE>
Upon the death of one owner of a Partnership Interest held in a joint tenancy
with a right of survivorship, the Partnership Interest shall become owned solely
by the survivor as a Limited Partner and not as an assignee. The Partnership
need not recognize the death of one of the owners of a jointly-held Partnership
Interest until it shall have received notice of such death. Upon notice to the
General Partner from either owner, the General Partner shall cause the
Partnership Interest to be divided into two equal Partnership Interests, which
shall thereafter be owned separately by each of the former owners.
ARTICLE X
BOOKS AND RECORDS; ACCOUNTING; TAX MATTERS
------------------------------------------
10.01 BOOKS AND RECORDS. At all times during the continuance of the
-----------------
Partnership, the Partners shall keep or cause to be kept at the Partnership's
specified office true and complete books of account in accordance with generally
accepted accounting principles, including: (a) a current list of the full name
and last known business address of each Partner, (b) a copy of the Certificate
of Limited Partnership and all certificates of amendment thereto, (c) copies of
the Partnership's federal, state and local income tax returns and reports, (d)
copies of the Agreement and any financial statements of the Partnership for the
three most recent years and (e) all documents and information required under the
Act. Any Partner or its duly authorized representative, upon written request
and paying the costs of collection, duplication and mailing, shall be entitled
to inspect or copy such records during ordinary business hours.
10.02 CUSTODY OF PARTNERSHIP FUNDS; BANK ACCOUNTS.
-------------------------------------------
(a) All funds of the Partnership not otherwise invested shall be
deposited in one or more accounts maintained in such banking or brokerage
institutions as the General Partner shall determine, and withdrawals shall be
made only on such signature or signatures as the General Partner may, from time
to time, determine.
(b) All deposits and other funds not needed in the operation of the
business of the Partnership may be invested by the General Partner in investment
grade instruments (or investment companies whose portfolio consists primarily
thereof), government obligations, certificates of deposit, bankers' acceptances
and municipal notes and bonds. The funds of the Partnership shall not be
commingled with the funds of any other Person except for such commingling as may
necessarily result from an investment in those investment companies permitted by
this Section 10.02(b).
10.03 FISCAL AND TAXABLE YEAR. The fiscal and taxable year of the
-----------------------
Partnership shall be the calendar year.
10.04 ANNUAL TAX INFORMATION AND REPORT. Within 75 days after the end of
---------------------------------
each fiscal year of the Partnership, the General Partner shall furnish to each
person who was a
41
<PAGE>
Limited Partner at any time during such year the tax information necessary to
file such Limited Partner's individual tax returns as shall be reasonably
required by law.
10.05 TAX MATTERS PARTNER; TAX ELECTIONS; SPECIAL BASIS ADJUSTMENTS.
-------------------------------------------------------------
(a) The General Partner shall be the Tax Matters Partner of the
Partnership within the meaning of Section 6231(a)(7) of the Code. As Tax
Matters Partner, the General Partner shall have the right and obligation to take
all actions authorized and required, respectively, by the Code for the Tax
Matters Partner. The General Partner shall have the right to retain
professional assistance in respect of any audit of the Partnership by the
Service and all out-of-pocket expenses and fees incurred by the General Partner
on behalf of the Partnership as Tax Matters Partner shall constitute Partnership
expenses. In the event the General Partner receives notice of a final
Partnership adjustment under Section 6223(a)(2) of the Code, the General Partner
shall either (i) file a court petition for judicial review of such final
adjustment within the period provided under Section 6226(a) of the Code, a copy
of which petition shall be mailed to all Limited Partners on the date such
petition is filed, or (ii) mail a written notice to all Limited Partners, within
such period, that describes the General Partner's reasons for determining not to
file such a petition.
(b) All elections required or permitted to be made by the Partnership
under the Code or any applicable state or local tax law shall be made by the
General Partner in its sole discretion.
(c) In the event of a transfer of all or any part of the Partnership
Interest of any Partner, the Partnership, at the option of the General Partner,
may elect pursuant to Section 754 of the Code to adjust the basis of the
Properties. Notwithstanding anything contained in Article V of this Agreement,
any adjustments made pursuant to Section 754 shall affect only the successor in
interest to the transferring Partner and in no event shall be taken into account
in establishing, maintaining or computing Capital Accounts for the other
Partners for any purpose under this Agreement. Each Partner will furnish the
Partnership with all information necessary to give effect to such election.
10.06 REPORTS TO LIMITED PARTNERS.
---------------------------
(a) As soon as practicable after the close of each fiscal quarter
(other than the last quarter of the fiscal year), the General Partner shall
cause to be mailed to each Limited Partner a quarterly report containing
financial statements of the Partnership, or of the Company if such statements
are prepared solely on a consolidated basis with the Company, for such fiscal
quarter, presented in accordance with generally accepted accounting principles.
As soon as practicable after the close of each fiscal year, the General Partner
shall cause to be mailed to each Limited Partner an annual report containing
financial statements of the Partnership, or of the Company if such statements
are prepared solely on a consolidated basis with the Company, for such fiscal
year, presented in accordance with generally accepted
42
<PAGE>
accounting principles. The annual financial statements shall be audited by
accountants selected by the General Partner.
(b) Any Partner shall further have the right to a private audit of
the books and records of the Partnership, provided such audit is made for
Partnership purposes, at the expense of the Partner desiring it and is made
during normal business hours.
ARTICLE XI
AMENDMENT OF AGREEMENT
----------------------
11.01 VOTING RIGHTS OF COMMON UNITHOLDERS. The General Partner, without
-----------------------------------
the consent of the Limited Partners, may amend this Agreement in any respect;
provided, however, that the following amendments shall require the consent of
- -------- -------
Limited Partners (other than the Company) holding more than 50% of the
Percentage Interests of the Limited Partners (other than the Company):
(a) any amendment affecting the operation of the Conversion Factor or
the Redemption Right (except as provided in Section 8.05(d) or 7.01(e) hereof)
in a manner adverse to the Limited Partners;
(b) any amendment that would adversely affect the rights of the
Limited Partners to receive the distributions payable to them hereunder;
(c) any amendment that would alter the Partnership's allocations of
Profit and Loss to the Limited Partners; or
(d) any amendment that would impose on the Limited Partners any
obligation to make additional Capital Contributions to the Partnership.
11.02 VOTING RIGHTS OF PREFERRED UNITHOLDERS. The holders of record of
--------------------------------------
Preferred Units shall not be entitled to vote on any matter on which Limited
Partners are entitled to vote, or on any other matters, provided that the
holders of Preferred Units shall have the right to vote as a separate class of
Partnership Units on the following, each of which shall require the consent of
holders of record of Preferred Units representing more than 50% of Preferred
Units:
(a) any amendment that would adversely affect the rights of the
Preferred Unitholders to receive the distributions payable to them hereunder;
(b) any amendment that would alter the Partnership's allocations or
Profit and Loss to the Preferred Unitholders; or
43
<PAGE>
(c) any amendment that would impose on the Preferred Unitholders any
obligation to make additional Capital Contributions to the Partnership.
ARTICLE XII
GENERAL PROVISIONS
------------------
12.01 NOTICES. All communications required or permitted under this
-------
Agreement shall be in writing and shall be deemed to have been given when
delivered personally or upon deposit in the United States mail, registered,
postage prepaid return receipt requested, to the Partners at the addresses set
forth in Exhibit A attached hereto; provided, however, that any Partner may
--------- -------- -------
specify a different address by notifying the General Partner in writing of such
different address. Notices to the Partnership shall be delivered at or mailed
to its specified office.
12.02 SURVIVAL OF RIGHTS. Subject to the provisions hereof limiting
------------------
transfers, this Agreement shall be binding upon and inure to the benefit of the
Partners and the Partnership and their respective legal representatives,
successors, transferees and assigns.
12.03 ADDITIONAL DOCUMENTS. Each Partner agrees to perform all further
--------------------
acts and execute, swear to, acknowledge and deliver all further documents which
may be reasonable, necessary, appropriate or desirable to carry out the
provisions of this Agreement or the Act.
12.04 SEVERABILITY. If any provision of this Agreement shall be declared
------------
illegal, invalid, or unenforceable in any jurisdiction, then such provision
shall be deemed to be severable from this Agreement (to the extent permitted by
law) and in any event such illegality, invalidity or unenforceability shall not
affect the remainder hereof.
12.05 ENTIRE AGREEMENT. This Agreement and exhibits attached hereto
----------------
constitute the entire Agreement of the Partners and supersede all prior written
agreements and prior and contemporaneous oral agreements, understandings and
negotiations with respect to the subject matter hereof.
12.06 PRONOUNS AND PLURALS. When the context in which words are used in
--------------------
the Agreement indicates that such is the intent, words in the singular number
shall include the plural and the masculine gender shall include the neuter or
female gender as the context may require.
12.07 HEADINGS. The Article headings or sections in this Agreement are
--------
for convenience only and shall not be used in construing the scope of this
Agreement or any particular Article.
44
<PAGE>
12.08 COUNTERPARTS. This Agreement may be executed in several
------------
counterparts, each of which shall be deemed to be an original copy and all of
which together shall constitute one and the same instrument binding on all
parties hereto, notwithstanding that all parties shall not have signed the same
counterpart.
12.09 GOVERNING LAW. This Agreement shall be governed by and construed in
-------------
accordance with the laws of the State of Delaware.
[Remainder of Page Intentionally Left Blank]
45
<PAGE>
IN WITNESS WHEREOF, the parties hereto have hereunder affixed their
signatures to this Agreement of Limited Partnership, all as of the _______ day
of June, 1997.
GENERAL PARTNER:
---------------
Patriot American Hospitality Operating Company
By: _____________________________________________
Paul A. Nussbaum, Chairman of the Board
and Chief Executive Officer
LIMITED PARTNERS:
-----------------
[List all LPs]
46
<PAGE>
EXHIBIT B
---------
NOTICE OF EXERCISE OF REDEMPTION RIGHT
In accordance with Section 8.05 of the Agreement of Limited Partnership
(the "Company Partnership Agreement") of Patriot American Hospitality Operating
Partnership, L.P. (the "Company Partnership"), and Section 8.05 of the Second
Amended and Restated Agreement of Limited Partnership (the "REIT Partnership
Agreement") of Patriot American Hospitality Partnership, L.P. (the "REIT
Partnership"), the undersigned hereby irrevocably: (i) presents for redemption
________ Partnership Units in the Company Partnership and _________ Partnership
Units in the REIT Partnership in accordance with the terms of the Company
Partnership Agreement and the REIT Partnership Agreement; (ii) surrenders such
Partnership Units and all right, title and interest therein; (iii) directs that
the Cash Amount, Deferred Cash Amount or Paired Shares (as defined in the
Company Partnership Agreement and/or the REIT Partnership Agreement, as
applicable), as determined by the General Partners of the Company Partnership
and the REIT Partnership to be deliverable upon exercise of the Redemption Right
or Deferred Redemption Right (as defined in the Company Partnership Agreement
and/or the REIT Partnership Agreement, as applicable), be delivered to the
address specified below; and (iv) if Paired Shares are to be delivered, such
Paired Shares be registered or placed in the name(s) and at the address(es)
specified below.
This Notice applies to (check one):
___ An exercise of the Redemption Rights granted under Section 8.05(a) of
the REIT Partnership Agreement and the Management Partnership
Agreement.
___ An exercise of the New Redemption Right and Deferred Redemption Right
under Section 8.05(h) of the REIT Partnership Agreement and the
Management Partnership Agreement, respectively.
Dated:________ __, _____
Name of Limited Partner: Signature Guaranteed by:
_________________________________ ________________________________________
(Signature of Limited Partner)
_________________________________
(Mailing Address)
_________________________________
(City) (State) (Zip Code)
If Paired Shares are to be issued, issue to:
Please insert social security or identifying number:
Name:
47
<PAGE>
Exhibit 10.3
------------
PATRIOT AMERICAN HOSPITALITY, INC.
1995 INCENTIVE PLAN
AS AMENDED AND RESTATED
AS OF MARCH 24, 1997
<PAGE>
PATRIOT AMERICAN HOSPITALITY, INC.
1995 INCENTIVE PLAN
AS AMENDED AND RESTATED
AS OF MARCH 24, 1997
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
Page
----
<S> <C>
ARTICLE I - DEFINITIONS.................................................... 1
1.01 Administrator.................................................. 1
1.02 Affiliate...................................................... 1
1.03 Agreement...................................................... 1
1.04 Board.......................................................... 1
1.05 Code........................................................... 1
1.06 Committee...................................................... 1
1.07 Common Stock................................................... 1
1.08 Company........................................................ 1
1.09 Deferred Stock Unit............................................ 1
1.10 Dividend Equivalent Right...................................... 2
1.11 Exchange Act................................................... 2
1.12 Fair Market Value.............................................. 2
1.13 Option......................................................... 2
1.14 Participant.................................................... 2
1.15 Performance Shares............................................. 2
1.16 Plan........................................................... 2
1.17 Stock Award.................................................... 2
1.18 Ten Percent Shareholder........................................ 3
ARTICLE II - PURPOSES...................................................... 3
ARTICLE III - ADMINISTRATION............................................... 3
ARTICLE IV - ELIGIBILITY................................................... 5
ARTICLE V - STOCK SUBJECT TO PLAN.......................................... 5
5.01 Shares Issued.................................................. 5
5.02 Aggregate Limit................................................ 5
5.03 Reallocation of Shares......................................... 5
ARTICLE VI - OPTIONS....................................................... 6
6.01 Award.......................................................... 6
</TABLE>
(i)
<PAGE>
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
6.02 Option Price................................................. 6
6.03 Maximum Option Period........................................ 7
6.04 Nontransferability........................................... 7
6.05 Transferable Options......................................... 7
6.06 Employee Status.............................................. 8
6.07 Exercise..................................................... 8
6.08 Payment...................................................... 9
6.09 Shareholder Rights........................................... 9
6.10 Disposition of Stock......................................... 9
ARTICLE VII - STOCK AWARDS............................................ 10
7.01 Award........................................................ 10
7.02 Vesting...................................................... 10
7.03 Performance Objectives....................................... 10
7.04 Employee Status.............................................. 11
7.05 Shareholder Rights........................................... 11
ARTICLE VIII - PERFORMANCE SHARE AWARDS............................... 11
8.01 Award........................................................ 12
8.02 Earning the Award............................................ 12
8.03 Payment...................................................... 12
8.04 Shareholder Rights........................................... 13
8.05 Nontransferability........................................... 13
8.06 Transferable Performance Shares.............................. 13
8.07 Employee Status.............................................. 14
ARTICLE IX - DEFERRED STOCK UNITS..................................... 14
9.01 Elections to Receive Deferred Stock Units in Lieu of
Compensation................................................ 14
9.02 Terms and Conditions......................................... 14
9.03 Form of Payment.............................................. 14
9.04 Shareholder Rights........................................... 15
9.05 Nontransferability........................................... 15
ARTICLE X - DIVIDEND EQUIVALENT RIGHTS................................ 15
10.01 Awards....................................................... 15
10.02 Payment...................................................... 16
10.03 Shareholder Rights........................................... 16
10.04 Nontransferability........................................... 16
ARTICLE XI - CHANGE IN CONTROL PROVISIONS............................. 17
ARTICLE XII - ADJUSTMENT UPON CHANGE IN COMMON STOCK.................. 19
12.01 Adjustments.................................................. 19
</TABLE>
(ii)
<PAGE>
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
12.02 Mergers or Other Corporate Transaction............................ 20
ARTICLE XIII - COMPLIANCE WITH LAW.......................................... 21
ARTICLE XIV - GENERAL PROVISIONS............................................ 22
14.01 Effect on Employment and Service.................................. 22
14.02 Unfunded Plan..................................................... 22
14.03 Rules of Construction............................................. 23
ARTICLE XV - AMENDMENT...................................................... 23
ARTICLE XVI - DURATION OF PLAN.............................................. 23
ARTICLE XVII - EFFECTIVE DATE OF PLAN....................................... 23
</TABLE>
(iii)
<PAGE>
PATRIOT AMERICAN HOSPITALITY, INC.
1995 INCENTIVE PLAN
AS AMENDED AND RESTATED
AS OF MARCH 24, 1997
ARTICLE - DEFINITIONS
---------------------
1.01 Administrator means the Committee and any delegate of the Committee
-------------
that is appointed in accordance with Article III.
1.02 Affiliate means any "subsidiary" or "parent" corporation (within the
---------
meaning of Section 424 of the Code) of the Company.
1.03 Agreement means a written agreement (including any amendment or
---------
supplement thereto) between the Company and a Participant specifying the terms
and conditions of a Stock Award, an award of Performance Shares or an award of
Deferred Stock Units, Options or Dividend Equivalent Right granted to such
Participant.
1.04 Board means the Board of Directors of the Company.
-----
1.05 Code means the Internal Revenue Code of 1986, and any amendments
----
thereto.
1.06 Committee means the Compensation Committee of the Board. Each
---------
member of the Committee shall be an "outside director" within the meaning of
Section 162(m) of the Code and the regulations promulgated thereunder and a
"non-employee director" within the meaning of Rule 16b-3(b)(3)(i) promulgated
under the Exchange Act.
1.07 Common Stock means the common stock of the Company.
------------
1.08 Company means Patriot American Hospitality, Inc.
-------
1.09 Deferred Stock Unit means an award granted pursuant to Article IX
-------------------
which entitles the holder to defer receipt of current cash compensation in
exchange for a right to receive shares of Common Stock in the future at the
price or prices set forth in the Agreement.
<PAGE>
1.10 Dividend Equivalent Right means an award granted pursuant to
-------------------------
Article X which entitles the holder to receive compensation based on cash
dividends payable by the Company with respect to its Common Stock.
1.11 Exchange Act means the Securities Exchange Act of 1934, as amended
------------
and as in effect on the date of this Agreement.
1.12 Fair Market Value means, on any given date, the highest closing
-----------------
price of a share of Common Stock reported on the New York Stock Exchange. In any
case, if no sale of Common Stock is made on the New York Stock Exchange on that
date, then Fair Market Value shall be determined as of the next preceding day on
which there was a sale.
1.13 Option means a stock option that entitles the holder to purchase
------
from the Company a stated number of shares of Common Stock at the price set
forth in an Agreement.
1.14 Participant means an employee of the Company or an Affiliate, a
-----------
member of the Board, or an individual whose efforts contribute to the
performance or success of the Company or an Affiliate, who satisfies the
requirements of Article IV and is selected by the Administrator to receive a
Stock Award, an Option, an award of Performance Shares, Dividend Equivalent
Right or Deferred Stock Units or a combination thereof.
1.15 Performance Shares means an award, in the amount determined by the
------------------
Administrator and specified in an Agreement, stated with reference to a
specified number of shares of Common Stock, that entitles the holder to receive
a payment for each specified share equal to the Fair Market Value of Common
Stock on the date of payment.
1.16 Plan means the Patriot American Hospitality, Inc. 1995 Incentive
----
Plan.
1.17 Stock Award means Common Stock awarded to a Participant under
-----------
Article VII.
2
<PAGE>
1.18 Ten Percent Shareholder means any individual owning more than ten
-----------------------
percent (10%) of the total combined voting power of all classes of stock of the
Company or of an Affiliate. An individual shall be considered to own any voting
stock owned (directly or indirectly) by or for his brothers, sisters, spouse,
ancestors or lineal descendants and shall be considered to own proportionately
any voting stock owned (directly or indirectly) by or for a corporation,
partnership, estate or trust of which such individual is a shareholder, partner
or beneficiary.
ARTICLE II - PURPOSES
---------------------
The Plan is intended to assist the Company and its Affiliates in recruiting
and retaining individuals with ability and initiative by enabling such persons
to participate in the future success of the Company and its Affiliates and to
associate their interests with those of the Company and its shareholders. The
Plan is intended to permit the grant of both Options qualifying under Section
422 of the Code ("incentive stock options") and Options not so qualifying, and
the grant of Stock Awards, Performance Shares, Deferred Stock Units and Dividend
Equivalent Rights. No Option that is intended to be an incentive stock option
shall be invalid for failure to qualify as an incentive stock option. The
proceeds received by the Company from the sale of Common Stock pursuant to this
Plan shall be used for general corporate purposes.
ARTICLE III - ADMINISTRATION
----------------------------
The Plan shall be administered by the Administrator. The Administrator
shall have authority to grant Stock Awards, Performance Shares, Options,
Deferred Stock Units and Dividend Equivalent Rights upon such terms (not
inconsistent with the provisions of this Plan)
3
<PAGE>
as the Administrator may consider appropriate. Such terms may include conditions
(in addition to those contained in this Plan) on the exercisability of all or
any part of an Option or on the transferability or forfeitability of any award.
Notwithstanding any such conditions, the Administrator may, in its discretion,
accelerate the time at which any Option may be exercised, or the time at which a
Stock Award may become transferable or nonforfeitable or the time at which
Performance Shares, Deferred Stock Units and Dividend Equivalent Rights may be
settled. In addition, the Administrator shall have complete authority to
interpret all provisions of this Plan; to prescribe the form of Agreements; to
adopt, amend, and rescind rules and regulations pertaining to the administration
of the Plan; and to make all other determinations necessary or advisable for the
administration of this Plan. The express grant in the Plan of any specific power
to the Administrator shall not be construed as limiting any power or authority
of the Administrator. Any decision made, or action taken, by the Administrator
or in connection with the administration of this Plan shall be final and
conclusive. Neither the Administrator nor any member of the Committee shall be
liable for any act done in good faith with respect to this Plan or any Agreement
or award. All expenses of administering this Plan shall be borne by the Company.
The Committee, in its discretion, may delegate to one or more officers of
the Company all or part of the Committee's authority and duties with respect to
grants and awards to individuals who are not "covered employees" within the
meaning of Section 162(m) of the Code or subject to the reporting and other
provisions of Section 16 of the Exchange Act. The Committee may revoke or amend
the terms of a delegation at any time but such action shall
4
<PAGE>
not invalidate any prior actions of the Committee's delegate or delegates that
were consistent with the terms of the Plan.
ARTICLE IV - ELIGIBILITY
------------------------
Any employee of the Company or an Affiliate (including a corporation that
becomes an Affiliate after the adoption of this Plan) or a person whose efforts
contribute to the performance or success of the Company or an Affiliate
(including a corporation that becomes an Affiliate after the adoption of this
Plan) is eligible to participate in this Plan if the Administrator, in its sole
discretion, determines that such person has contributed significantly or can be
expected to contribute significantly to the profits or growth of the Company or
an Affiliate. Directors of the Company are also eligible to participate in this
Plan.
ARTICLE - STOCK SUBJECT TO PLAN
-------------------------------
5.01 Shares Issued. Upon the award of shares of Common Stock pursuant
-------------
to a Stock Award, the Company may issue shares of Common Stock from its
authorized but unissued Common Stock. Upon the exercise of an Option, the
Company may deliver to the Participant (or the Participant's broker if the
Participant so directs), shares of Common Stock from its authorized but unissued
Common Stock.
5.02 Aggregate Limit. The maximum aggregate number of shares of Common
---------------
Stock that may be issued under this Plan is increased from 2,000,000 shares to
5,000,000 shares. The maximum aggregate number of shares that may be issued
under this Plan shall be subject to adjustment as provided in Article XII.
5.03 Reallocation of Shares. If an Option is terminated, in whole or in
----------------------
part, for any reason other than its exercise, the number of shares of Common
Stock allocated to the Option
5
<PAGE>
or portion thereof may be reallocated to other awards to be granted under this
Plan. If an award of Deferred Stock Units is terminated, in whole or in part,
for any reason other than its settlement, the number of shares of Common Stock
underlying such award or portion thereof may be reallocated to other awards to
be granted under this Plan. If an award of Performance Shares or Stock Award is
terminated, in whole or in part, the number of shares of Common Stock allocated
to the Performance Share award, Stock Award or portion thereof may be
reallocated to other awards to be granted under this Plan.
ARTICLE VI - OPTIONS
--------------------
6.01 Award. In accordance with the provisions of Article IV, the
-----
Administrator will designate each individual to whom an Option is to be granted
and will specify the number of shares of Common Stock covered by such awards;
provided, however, that no individual may be granted Options in any calendar
year covering more than 2,600,000 shares of Common Stock.
6.02 Option Price. The price per share for Common Stock purchased on the
------------
exercise of an Option shall be determined by the Administrator on the date of
grant; provided, however, that the price per share for Common Stock purchased on
the exercise of any Option shall not be less than the Fair Market Value on the
date of grant or, with respect to Options granted in connection with the initial
employment of an individual following the effective date of the registration
statement relating to the Company's initial public offering of Common Stock,
eighty-five percent (85%) of the Fair Market Value on the date the Option is
granted. Notwithstanding the preceding sentence, the price per share for Common
Stock purchased on the exercise of any Option that is an incentive stock option
shall not be less than the Fair
6
<PAGE>
Market Value on the date the Option is granted or, in the case of an incentive
stock option granted to an individual who is a Ten Percent Shareholder on the
date such option is granted, shall not be less than one hundred ten percent
(110%) of the Fair Market Value on the date the Option is granted.
6.03 Maximum Option Period. The maximum period in which an Option may be
---------------------
exercised shall be determined by the Administrator on the date of grant, except
that no Option that is an incentive stock option shall be exercisable after the
expiration of ten years from the date such Option was granted. In the case of
an incentive stock option that is granted to a Participant who is a Ten Percent
Shareholder on the date of grant, such option shall not be exercisable after the
expiration of five years from the date of grant. The terms of any Option that
is an incentive stock option may provide that it is exercisable for a period
less than such maximum period.
6.04 Nontransferability. Except as provided in Section 6.05, each Option
------------------
granted under this Plan shall be nontransferable except by will or by the laws
of descent and distribution. During the lifetime of the Participant to whom the
Option is granted, the Option may be exercised only by the Participant. No
right or interest of a Participant in any Option shall be liable for, or subject
to, any lien, obligation, or liability of such Participant.
6.05 Transferable Options. Section 6.04 to the contrary notwithstanding,
--------------------
if the Agreement provides, an Option that is not an incentive stock option may
be transferred by a Participant to the Participant's children, grandchildren,
spouse, one or more trusts for the benefit of such family members or a
partnership in which such family members are the only partners or a charitable
organization; provided, however, that the Participant may not receive
7
<PAGE>
any consideration for the transfer. In addition to transfers described in the
preceding sentence the Administrator may grant Options that are not incentive
stock options that are transferable on other terms and conditions as may be
permitted under Securities Exchange Commission Rule 16b-3 as in effect from time
to time. The holder of an Option transferred pursuant to this section shall be
bound by the same terms and conditions that governed the Option during the
period that it was held by the Participant.
6.06 Employee Status. For purposes of determining the applicability of
---------------
Section 422 of the Code (relating to incentive stock options), or in the event
that the terms of any Option provide that it may be exercised only during
employment or within a specified period of time after termination of employment,
the Administrator may decide to what extent leaves of absence for governmental
or military service, illness, temporary disability, or other reasons shall not
be deemed interruptions of continuous employment.
6.07 Exercise. Subject to the provisions of this Plan and the applicable
--------
Agreement, an Option may be exercised in whole at any time or in part from time
to time at such times and in compliance with such requirements as the
Administrator shall determine; provided, however, that incentive stock options
(granted under the Plan and all plans of the Company and its Affiliates) may not
be first exercisable in a calendar year for stock having a Fair Market Value
(determined as of the date an Option is granted) exceeding $100,000. An Option
granted under this Plan may be exercised with respect to any number of whole
shares less than the full number for which the Option could be exercised. A
partial exercise of an Option shall not affect the right to exercise the Option
from time to time in accordance with
8
<PAGE>
this Plan and the applicable Agreement with respect to the remaining shares
subject to the Option.
6.08 Payment. Unless otherwise provided by the Agreement, payment of the
-------
Option price shall be made in cash or a cash equivalent acceptable to the
Administrator. If the Agreement provides, payment of all or part of the option
price may be made by surrendering shares of Common Stock to the Company that are
not then subject to restrictions under any Company plan and that have been
beneficially owned by the Participant for at least six months. If Common Stock
is used to pay all or part of the Option price, the sum of the cash and cash
equivalent and the Fair Market Value (determined as of the day preceding the
date of exercise) of the shares surrendered must not be less than the option
price of the shares for which the Option is being exercised. If the Agreement
provides, payment of all or part of the option price may be made by the
Participant delivering to the Company a properly executed exercise notice
together with irrevocable instructions to a broker to promptly deliver to the
Company cash or a check payable and acceptable to the Company to pay the
purchase price; provided that in the event the optionee chooses to pay the
purchase price as so provided, the optionee and the broker shall comply with
such procedures and enter into such agreements of indemnity and other agreements
as the Administrator shall prescribe as a condition of such payment procedure.
6.09 Shareholder Rights. No Participant shall have any rights as a
------------------
shareholder with respect to shares subject to his Option until the date of
exercise of such Option.
6.10 Disposition of Stock. A Participant shall notify the Company of any
--------------------
sale or other disposition of Common Stock acquired pursuant to an Option that
was an incentive stock
9
<PAGE>
option if such sale or disposition occurs (i) within two years of the grant of
an Option or (ii) within one year of the issuance of the Common Stock to the
Participant. Such notice shall be in writing and directed to the Secretary of
the Company.
ARTICLE VII - STOCK AWARDS
--------------------------
7.01 Award. In accordance with the provisions of Article IV, the
-----
Administrator will designate each individual to whom a Stock Award is to be made
and will specify the number of shares of Common Stock covered by such awards.
7.02 Vesting. The Administrator, on the date of the award, may prescribe
-------
that a Participant's rights in the Stock Award shall be forfeitable or otherwise
restricted for a period of time or subject to such conditions as may be set
forth in the Agreement. If imposed, the period of restriction shall be at least
three years; provided, however, that the minimum period of restriction shall be
at least one year in the case of a Stock Award that will become transferable and
nonforfeitable on account of the satisfaction of performance objectives
prescribed by the Administrator. The Administrator may also provide in the
Agreement that a Stock Award is not subject to any restrictions.
7.03 Performance Objectives. In accordance with Section 7.02, the
----------------------
Administrator may prescribe that Stock Awards will become vested or transferable
or both based on objectives stated with respect to the Company's, an Affiliate's
or an operating unit's return on equity, funds from operations, cash available
for distribution, earnings per share, total earnings, earnings growth, return on
capital, return on assets, or Fair Market Value of the Common Stock. If the
Administrator, on the date of award, prescribes that a Stock Award shall become
nonforfeitable and transferable only upon the attainment of performance
10
<PAGE>
objectives stated with respect to one or more of the foregoing criteria, the
shares subject to such Stock Award shall become nonforfeitable and transferable
only to the extent that the Administrator certifies that such objectives have
been achieved.
7.04 Employee Status. In the event that the terms of any Stock Award
---------------
provide that shares may become transferable and nonforfeitable thereunder only
after completion of a specified period of employment, the Administrator may
decide in each case to what extent leaves of absence for governmental or
military service, illness, temporary disability, or other reasons shall not be
deemed interruptions of continuous employment.
7.05 Shareholder Rights. Prior to their forfeiture (in accordance with
------------------
the applicable Agreement and while the shares of Common Stock granted pursuant
to the Stock Award may be forfeited or are nontransferable), a Participant will
have all rights of a shareholder with respect to a Stock Award, including the
right to receive dividends and vote the shares; provided, however, that during
such period (i) a Participant may not sell, transfer, pledge, exchange,
hypothecate, or otherwise dispose of shares of Common Stock granted pursuant to
a Stock Award, (ii) the Company shall retain custody of the certificates
evidencing shares of Common Stock granted pursuant to a Stock Award, and (iii)
the Participant will deliver to the Company a stock power, endorsed in blank,
with respect to each Stock Award. The limitations set forth in the preceding
sentence shall not apply after the shares of Common Stock granted under the
Stock Award are transferable and are no longer forfeitable.
11
<PAGE>
ARTICLE VIII - PERFORMANCE SHARE AWARDS
---------------------------------------
8.01 Award. In accordance with the provisions of Article IV, the
-----
Administrator will designate each individual to whom an award of Performance
Shares is to be made and will specify the number of shares of Common Stock
covered by such awards.
8.02 Earning the Award. The Administrator, on the date of the grant of
-----------------
an award, may prescribe that the Performance Shares, or portion thereof, will be
earned, and the Participant will be entitled to receive payment pursuant to the
award of Performance Shares only upon the satisfaction of certain requirements
or the attainment of certain objectives. By way of example and not of
limitation, the restrictions may provide that Performance Shares will be
forfeited without payment if the Participant separates from the service of the
Company and its Related Entities before the expiration of a stated term or
unless the Company, an Affiliate or an operating unit achieves objectives stated
with reference to the Company's an Affiliate's or an operating unit's return on
equity, funds from operations, cash available for distribution, earnings per
share, total earnings, earnings growth, return on capital, return on assets or
Fair Market Value of the Common Stock. If the Administrator, on the date of
award, prescribes that no payments will be made with respect to Performance
Shares unless performance objectives stated with respect to the foregoing
criteria are attained, no such payment will be made unless, and then only to the
extent that, the Administrator certifies that such objectives have been
achieved.
8.03 Payment. In the discretion of the Administrator, the amount payable
-------
when an award of Performance Shares is earned may be settled in cash, by the
issuance of Common Stock or a combination of cash and Common Stock. A
fractional share shall not be deliverable
12
<PAGE>
when an award of Performance Shares is earned, but a cash payment will be made
in lieu thereof.
8.04 Shareholder Rights. No Participant shall, as a result of receiving
------------------
an award of Performance Shares, have any rights as a shareholder until and to
the extent that the award of Performance Shares is earned and settled by the
issuance of Common Stock. After an award of Performance Shares is earned, if
settled completely or partially in Common Stock, a Participant will have all the
rights of a shareholder with respect to such Common Stock.
8.05 Nontransferability. Except as provided in Section 8.06, Performance
------------------
Shares granted under this Plan shall be nontransferable except by will or by the
laws of descent and distribution. No right or interest of a Participant in any
Performance Shares shall be liable for, or subject to, any lien, obligation, or
liability of such Participant.
8.06 Transferable Performance Shares. Section 8.05 to the contrary
-------------------------------
notwithstanding, if the Agreement provides, an award of Performance Shares may
be transferred by a Participant to the Participant's children, grandchildren,
spouse, one or more trusts for the benefit of such family members or a
partnership in which such family members are the only partners or a charitable
organization; provided, however, that the Participant may not receive any
consideration for the transfer. In addition to transfers described in the
preceding sentence the Administrator may grant Performance Shares that are
transferable on other terms and conditions as may be permitted under Securities
Exchange Commission Rule 16b-3 as in effect from time to time. The holder of
Performance Shares transferred pursuant to this section shall be bound by the
same terms and conditions that governed the Performance Shares during the period
that they were held by the Participant.
13
<PAGE>
8.07 Employee Status. In the event that the terms of any Performance
---------------
Share award provides that no payment will be made unless the Participant
completes a stated period of employment, the Administrator may decide to what
extent leaves of absence for government or military service, illness, temporary
disability, or other reasons shall not be deemed interruptions of continuous
employment.
ARTICLE IX - DEFERRED STOCK UNITS
---------------------------------
9.01 Elections to Receive Deferred Stock Units in Lieu of Compensation.
-----------------------------------------------------------------
Upon the request of a Participant and with the consent of the Administrator,
each such Participant may, pursuant to an advance written election delivered to
the Company no later than the date specified by the Administrator, elect to
defer receipt of all or a portion of the cash compensation otherwise due to such
Participant. The amount of the deferred compensation shall be converted to
Deferred Stock Units at the Fair Market Value of the Common Stock (or such other
lower price determined by the Administrator) on the date the cash compensation
would otherwise be paid.
9.02 Terms and Conditions. At the time the Participant makes a deferred
--------------------
compensation election, the Administrator shall direct the Company to enter into
an Agreement with the Participant which sets forth the terms and conditions of
deferral, including the timing of payment and any vesting schedule. During the
term of deferral, the Participant's Deferred Stock Units will be credited with
Dividend Equivalent Rights.
9.03 Form of Payment. Deferred Stock Units shall be settled in shares of
---------------
Common Stock, in a single installment or installments. A fractional share of
Deferred Stock Unit shall be settled in cash.
14
<PAGE>
9.04 Shareholder Rights. No Participant shall, as a result of receiving
------------------
Deferred Stock Units, have any rights as a shareholder until and to the extent
that the Deferred Stock Units are settled by the issuance of Common Stock.
After the Deferred Stock Units are settled in Common Stock, a Participant will
have all the rights of a shareholder with respect to such Common Stock.
9.05 Nontransferability. Deferred Stock Units shall be nontransferable
------------------
except by will or by the laws of descent and distribution. No right or interest
of a Participant in any Deferred Stock Units shall be liable for, or subject to,
any lien, obligation, or liability of such Participant.
ARTICLE X - DIVIDEND EQUIVALENT RIGHTS
--------------------------------------
10.01 Awards. In accordance with the provisions of Article IV, the
------
Administrator will designate each individual to whom an award of Dividend
Equivalent Rights is to be made. A Dividend Equivalent Right is an Award
entitling the recipient to receive credits based on cash dividends that would be
paid on the shares of Common Stock specified in the Dividend Equivalent Right
(or other award to which it relates) if such shares were held by the recipient.
A Dividend Equivalent Right may be granted hereunder to any Participant as a
component of another award or as a freestanding award. The terms and conditions
of Dividend Equivalent Rights shall be specified in the grant. Dividend
equivalents credited to the holder of a Dividend Equivalent Right may be paid
currently or may be deemed to be reinvested in additional shares of Common
Stock, which may thereafter accrue additional equivalents. Any such
reinvestment shall be at Fair Market Value on the date of reinvestment or such
other price as may then apply under a dividend reinvestment plan sponsored by
the Company, if
15
<PAGE>
any. A Dividend Equivalent Right granted as a component of another award may
provide that such Dividend Equivalent Right shall be settled upon exercise,
settlement, or payment of, or lapse of restrictions on, such other award, and
that such Dividend Equivalent Right shall expire or be forfeited or annulled
under the same conditions as such other award. A Dividend Equivalent Right
granted as a component of another award may also contain terms and conditions
different from such other award.
10.02 Payment. In the discretion of the Administrator and as provided in
-------
the Agreement, Dividend Equivalent Rights may be settled in cash or shares of
Common Stock or a combination thereof, in a single installment or installments.
10.03 Shareholder Rights. No Participant shall, as a result of receiving
------------------
an award of Dividend Equivalent Rights, have any rights as a shareholder until
and to the extent that the award of Dividend Equivalent Rights is earned and
settled by the issuance of Common Stock. After an award of Dividend Equivalent
Rights is earned, if settled completely or partially in Common Stock, a
Participant will have all the rights of a shareholder with respect to such
Common Stock.
10.04 Nontransferability. Unless otherwise provided in the Agreement,
------------------
Dividend Equivalent Rights granted under this Plan shall be nontransferable
except by will or by the laws of descent and distribution. No right or interest
of a Participant in any Dividend Equivalent Right shall be liable for, or
subject to, any lien, obligation, or liability of such Participant.
16
<PAGE>
ARTICLE XI - CHANGE IN CONTROL PROVISIONS
------------------------------------------
(a) A "Change in Control" with respect to the Company shall be deemed to
have taken place if any of the following events occurs:
(i) Any person, as that term is used in Section 13(d) and Section
14(d)(2) of the Exchange Act, becomes, is discovered to be or files a report on
Schedule 13D or 14D-1 (or any successor schedule, form or report) disclosing
that such person is, a beneficial owner (as defined in Rule 13d-3 under the
Exchange Act or any successor rule or regulation), directly or indirectly, of
securities of the Company representing 20% or more of the combined voting power
of the Company's then outstanding securities entitled to vote generally in the
election of directors (unless such person is known to be already such a
beneficial owner on October 25, 1996);
(ii) Individuals who, as of October 25, 1996, constitute the Board
of Directors of the Company cease for any reason to constitute at least a
majority of the Board of Directors of the Company, unless any such change is
approved by a unanimous vote of the members of the Board of Directors of the
Company in office immediately prior to such cessation;
(iii) The Company is merged, consolidated or reorganized into or
with another corporation or other legal person, or securities of the Company are
exchanged for securities of another corporation or other legal person, and
immediately after such merger, consolidation, reorganization or exchange less
than a majority of the combined voting power of the then-outstanding securities
of such corporation or person immediately after such transaction are held,
directly or indirectly, in the aggregate by the holders of securities entitled
17
<PAGE>
to vote generally in the election of directors of the Company immediately prior
to such transaction;
(iv) The Company in any transaction or series of related
transactions, sells all or substantially all of its assets to any other
corporation or other legal person and less than a majority of the combined
voting power of the then-outstanding securities of such corporation or person
immediately after such sale or sales are held, directly or indirectly, in the
aggregate by the holders of securities entitled to vote generally in the
election of directors of the Company immediately prior to such sale;
(v) The Company and its affiliates shall sell or dispose of (in
a single transaction or series of related transactions) business operations that
generated two-thirds of the consolidation revenues (determined on the basis of
the Company's four most recently completed fiscal quarters for which reports
have been filed under the Exchange Act) of the Company and its subsidiaries
immediately prior thereto;
(vi) The Company files a report or proxy statement with the
Securities and Exchange Commission pursuant to the Exchange Act disclosing in
response to Form 8-K or Schedule 14A (or any successor schedule, form or report
or item therein) that a change in control of the Company has or may have
occurred or will or may occur in the future pursuant to any then-existing
contract or transaction; or
(vii) Any other transaction or series of related transactions occur
that have substantially the effect of the transactions specified in any of the
preceding clauses in this sentence.
18
<PAGE>
Notwithstanding the provisions of Section (a)(i) or (a)(iv) hereof, unless
otherwise determined in a specific case by majority vote of the Board of
Directors of the Company, a Change in Control shall not be deemed to have
occurred for purposes of this Plan solely because (i) the Company, (ii) an
entity in which the Company directly or indirectly beneficially owns 50% or more
of the voting securities or (iii) any Company-sponsored employee stock ownership
plan, or any other employee benefit plan of the Company, either files or becomes
obligated to file a report or a proxy statement under or in response to Schedule
13D, Schedule 14D, Form 8-K or Schedule 14A (or any successor schedule, form or
report or item thereon) under the Exchange Act, disclosing beneficial ownership
by it of shares of stock of the Company, or because the Company reports that a
Change in Control of the Company has or may have occurred or will or may occur
in the future by reason of such beneficial ownership.
(b) Upon the occurrence of a Change in Control, unless otherwise provided
in the applicable Agreement, each Participant shall have immediate vesting of,
and the immediate right to, exercise all outstanding Options, and any risk of
forfeiture included in any Stock Award, Dividend Equivalent Rights and Deferred
Stock Units shall lapse.
ARTICLE XII - ADJUSTMENT UPON CHANGE IN COMMON STOCK
----------------------------------------------------
12.01 Adjustments. The maximum number of shares as to which awards may be
-----------
granted under this Plan, the terms of outstanding awards and the per individual
limitations on the number of shares for which Options, Stock Awards and
Performance Shares may be granted, shall be adjusted as the Committee shall
determine to be equitably required in the event that (a) the Company (i) effects
one or more stock dividends, stock split-ups,
19
<PAGE>
subdivisions or consolidations of shares or (ii) engages in a transaction to
which Section 424 of the Code applies or (b) there occurs any other event which,
in the judgment of the Committee necessitates such action. Any determination
made under this Article XII by the Committee shall be final and conclusive.
The issuance by the Company of shares of stock of any class, or securities
convertible into shares of stock of any class, for cash or property, or for
labor or services, either upon direct sale or upon the exercise of rights or
warrants to subscribe therefor, or upon conversion of shares or obligations of
the Company convertible into such shares or other securities, shall not affect,
and no adjustment by reason thereof shall be made with respect to, the maximum
number of shares as to which awards may be granted, the per individual
limitations on the number of shares for which Options, Stock Awards and
Performance Shares may be granted or the terms of outstanding awards.
The Committee may grant awards in substitution for performance shares,
phantom shares, stock awards, stock options, stock appreciation rights, or
similar awards held by an individual who becomes an employee of the Company or
an Affiliate in connection with a transaction described in the first paragraph
of this Section 12.01. Notwithstanding any provision of the Plan (other than
the limitation of Section 5.02), the terms of such substituted award shall be as
the Committee, in its discretion, determines is appropriate.
12.02 Mergers or Other Corporate Transaction. Upon consummation of a
--------------------------------------
consolidation or merger or sale of all or substantially all of the assets of the
Company in which outstanding shares of Common Stock are exchanged for
securities, cash or other property of an unrelated corporation or business
entity or in the event of a liquidation of the Company (in
20
<PAGE>
each case, a "Transaction"), the Board, or the board of directors of any
corporation assuming the obligations of the Company, may, in its discretion,
take any one or more of the following actions, as to outstanding Options: (i)
provide that such Options shall be assumed or equivalent options shall be
substituted, by the acquiring or succeeding corporation (or an affiliate
thereof), (ii) upon written notice to the optionees, provide that all
unexercised Options will terminate immediately prior to the consummation of the
Transaction unless exercised by the optionee within a specified period following
the date of such notice, and/or (iii) in the event of a business combination
under the terms of which holders of the Common Stock of the Company will receive
upon consummation thereof a cash payment for each share surrendered in the
business combination, make or provide for a cash payment to the optionees equal
to the difference between (A) the value (as determined by the Committee) of the
consideration payable per share of Common Stock pursuant to the business
combination (the "Merger Price") times the number of shares of Common Stock
subject to such outstanding Options (to the extent then exercisable at prices
not in excess of the Merger Price) and (B) the aggregate exercise price of all
such outstanding Options in exchange for the termination of such Options. In the
event Options will terminate upon the consummation of the Transaction, each
optionee shall be permitted, within a specified period determined by the
Committee, to exercise all non-vested Options, subject to the consummation of
the Transaction.
ARTICLE XIII - COMPLIANCE WITH LAW
AND APPROVAL OF REGULATORY BODIES
---------------------------------
No Option shall be exercisable, no Common Stock shall be issued, no
certificates for shares of Common Stock shall be delivered, and no payment shall
be made under this Plan except in compliance with all applicable federal and
state laws and regulations (including,
21
<PAGE>
without limitation, withholding tax requirements), any listing agreement to
which the Company is a party, and the rules of all domestic stock exchanges on
which the Company's shares may be listed. The Company shall have the right to
rely on an opinion of its counsel as to such compliance. Any share certificate
issued to evidence Common Stock when a Stock Award is granted or for which an
Option is exercised or a Performance Share settled may bear such legends and
statements as the Administrator may deem advisable to assure compliance with
federal and state laws and regulations. No Option shall be exercisable, no Stock
Award shall be granted, no Common Stock shall be issued, no certificate for
shares shall be delivered, and no payment shall be made under this Plan until
the Company has obtained such consent or approval as the Administrator may deem
advisable from regulatory bodies having jurisdiction over such matters.
ARTICLE XIV - GENERAL PROVISIONS
--------------------------------
14.01 Effect on Employment and Service. Neither the adoption of this
--------------------------------
Plan, its operation, nor any documents describing or referring to this Plan (or
any part thereof) shall confer upon any individual any right to continue in the
employ or service of the Company or an Affiliate or in any way affect any right
and power of the Company or an Affiliate to terminate the employment or service
of any individual at any time with or without assigning a reason therefor.
14.02 Unfunded Plan. The Plan, insofar as it provides for grants, shall
-------------
be unfunded, and the Company shall not be required to segregate any assets that
may at any time be represented by grants under this Plan. Any liability of the
Company to any person with respect to any grant under this Plan shall be based
solely upon any contractual obligations that
22
<PAGE>
may be created pursuant to this Plan. No such obligation of the Company shall be
deemed to be secured by any pledge of, or other encumbrance on, any property of
the Company.
14.03 Rules of Construction. Headings are given to the articles and
---------------------
sections of this Plan solely as a convenience to facilitate reference. The
reference to any statute, regulation, or other provision of law shall be
construed to refer to any amendment to or successor of such provision of law.
ARTICLE XY - AMENDMENT
----------------------
The Board may amend or terminate this Plan from time to time; provided,
however, that no amendment may become effective until shareholder approval is
obtained if (i) the amendment increases the aggregate number of shares of Common
Stock that may be issued under the Plan, (ii) the amendment changes the class of
individuals eligible to become Participants or (iii) the amendment materially
increases the benefits that may be provided under the Plan. No amendment shall,
without a Participant's consent, adversely affect any rights of such Participant
under any award outstanding at the time such amendment is made.
ARTICLE XVI - DURATION OF PLAN
------------------------------
No award may be granted under this Plan with respect to the reserved shares
of Common Stock added to the Plan as a result of the amendment and restatement
of this Plan more than ten years after the date this amended and restated Plan
is adopted by the Board. Awards granted before that date shall remain valid in
accordance with their terms.
ARTICLE XVII - EFFECTIVE DATE OF PLAN
-------------------------------------
Options, Deferred Stock Units, Dividend Equivalent Rights and Performance
Share Awards may be granted under this amended and restated Plan upon its
adoption by the Board,
23
<PAGE>
provided that no such award shall be effective or exercisable unless this Plan
is approved by the holders of a majority of the votes present or represented and
entitled to be cast by the Company's shareholders, voting either in person or by
proxy, at a duly held shareholders' meeting. Stock Awards may be granted under
this Plan upon the later of its adoption by the Board or its approval by
shareholders in accordance with the preceding sentence.
24
<PAGE>
Exhibit 10.30
-------------
================================================================================
AGREEMENT AND PLAN OF MERGER
between
PATRIOT AMERICAN HOSPITALITY, INC.
and
WYNDHAM HOTEL CORPORATION
Dated as of April 14, 1997
================================================================================
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
ARTICLE 1. THE MERGER.......................................................... 3
1.1 The Merger.......................................................... 3
1.2 The Closing......................................................... 3
1.3 Effective Time...................................................... 4
ARTICLE 2. THE WYNDHAM/BMOC SUBSCRIPTION....................................... 5
2.1 Wyndham/BMOC Subscription Agreement................................. 5
2.2 Subscribed Shares................................................... 5
ARTICLE 3. CERTIFICATE OF INCORPORATION AND BYLAWS OF THE
3.1 SURVIVING CORPORATION 6
3.2 Charter......................................................... 6
Bylaws.............................................................. 6
ARTICLE 4. DIRECTORS AND OFFICERS OF THE SURVIVING CORPORATION................. 6
4.1 Directors of the Surviving Corporation.............................. 6
4.2 Officers of the Surviving Corporation............................... 8
4.3 Directors of BMOC................................................... 8
4.4 Officers of BMOC.................................................... 10
ARTICLE 5. EXCHANGE OF STOCK................................................... 10
5.1 Outstanding Paired Shares of Patriot Stock and BMOC Stock........... 10
5.2 Conversion of Wyndham Common Stock.................................. 10
5.3 Cash Election....................................................... 13
5.4 Exchange of Certificates Representing Wyndham Common Stock.......... 15
5.5 Return of Exchange Fund............................................. 17
5.6 Lost or Stolen Certificates......................................... 18
ARTICLE 6. REPRESENTATIONS AND WARRANTIES OF WYNDHAM........................... 18
6.1 Existence; Good Standing; Authority; Compliance With Law............ 18
6.2 Authorization, Validity and Effect of Agreements.................... 19
6.3 Capitalization...................................................... 20
6.4 Subsidiaries........................................................ 21
6.5 Other Interests..................................................... 21
6.6 No Violation........................................................ 22
6.7 SEC Documents....................................................... 22
6.8 Litigation.......................................................... 23
6.9 Absence of Certain Changes.......................................... 23
6.10 Taxes............................................................... 24
</TABLE>
(i)
<PAGE>
<TABLE>
<CAPTION>
Page
----
<S> <C>
6.11 Books and Records................................................... 25
6.12 Properties.......................................................... 25
6.13 Environmental Matters............................................... 27
6.14 Employee Benefit Plans.............................................. 28
6.15 Labor Matters....................................................... 29
6.16 No Brokers.......................................................... 29
6.17 Opinion of Financial Advisors....................................... 29
6.18 Related Party Transactions.......................................... 30
6.19 Contracts and Commitments........................................... 30
6.20 Disclosure.......................................................... 31
6.21 Definition of Wyndham's Knowledge................................... 31
ARTICLE 7. REPRESENTATIONS AND WARRANTIES OF PATRIOT........................... 31
7.1 Existence; Good Standing; Authority; Compliance With Law............ 32
7.2 Authorization, Validity and Effect of Agreements.................... 32
7.3 Capitalization...................................................... 33
7.4 Subsidiaries........................................................ 34
7.5 No Violation........................................................ 34
7.6 SEC Documents....................................................... 35
7.7 Litigation.......................................................... 35
7.8 Absence of Certain Changes.......................................... 36
7.9 Taxes............................................................... 36
7.10 Books and Records................................................... 37
7.11 Properties.......................................................... 37
7.12 Environmental Matters............................................... 39
7.13 Employee Benefit Plans.............................................. 40
7.14 Labor Matters....................................................... 41
7.15 No Brokers.......................................................... 41
7.16 Opinion of Financial Advisor........................................ 41
7.17 Wyndham Stock Ownership............................................. 41
7.18 Related Party Transactions.......................................... 42
7.19 Contracts and Commitments........................................... 42
7.20 Patriot Stock....................................................... 42
7.21 Disclosure.......................................................... 42
7.22 Definition of Patriot's Knowledge................................... 43
ARTICLE 8. COVENANTS........................................................... 43
8.1 Acquisition Proposals............................................... 43
8.2 Conduct of Businesses............................................... 44
8.3 Meetings of Stockholders............................................ 52
8.4 Filings; Other...................................................... 53
</TABLE>
(ii)
<PAGE>
<TABLE>
<CAPTION>
Page
----
<S> <C>
8.5 Access to Information.............................................. 53
8.6 Publicity.......................................................... 54
8.7 Proxy Statement; Registration Statement............................ 54
8.8 Listing Application................................................ 56
8.9 Further Action..................................................... 56
8.10 Affiliates of Wyndham.............................................. 56
8.11 Expenses........................................................... 57
8.12 Indemnification.................................................... 57
8.13 Reorganization..................................................... 59
8.14 Stop Transfer...................................................... 59
8.15 Brand Conversions.................................................. 60
8.16 Ratification by New Patriot........................................ 60
8.17 Wyndham's Accumulated and Current Earnings and Profits............. 60
8.18 Private Letter Ruling.............................................. 60
8.19 Employee Benefit Matters........................................... 61
8.20 Stock Purchase Agreement; Purchase and Sale Agreement.............. 61
ARTICLE 9. CONDITIONS......................................................... 61
9.1 Conditions to Each Party's Obligation to Effect the Merger......... 61
9.2 Conditions to Obligations of Wyndham to Effect the Merger.......... 63
9.3 Conditions to Obligation of Patriot to Effect the Merger........... 65
ARTICLE 10. TERMINATION; AMENDMENT; WAIVER..................................... 67
10.1 Termination........................................................ 67
10.2 Effect of Termination.............................................. 69
10.3 Termination Fees and Expenses...................................... 70
10.4 Payment of Termination Amount or Expenses.......................... 71
10.5 Extension; Waiver.................................................. 72
ARTICLE 11. GENERAL PROVISIONS................................................. 72
11.1 Nonsurvival of Representations, Warranties and Agreements.......... 72
11.2 Notices............................................................ 72
11.3 Assignment; Binding Effect; Benefit................................ 73
11.4 Entire Agreement................................................... 74
11.5 Amendment.......................................................... 74
11.6 Governing Law...................................................... 74
11.7 Counterparts....................................................... 74
11.8 Headings........................................................... 74
11.9 Interpretation..................................................... 74
11.10 Waivers............................................................ 75
11.11 Incorporation...................................................... 75
</TABLE>
(iii)
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
11.12 Severability....................................................... 75
11.13 Enforcement of Agreement........................................... 75
11.14 Certain Definitions................................................ 75
11.15 Schedules.......................................................... 76
</TABLE>
EXHIBIT A - Registration Rights Agreement
EXHIBIT B - Patriot Ratification Agreement
EXHIBIT C - BMOC Ratification Agreement
EXHIBIT D - Master Leasehold Agreement
EXHIBIT E - Cooperation Agreement
EXHIBIT F - Wyndham/BMOC Subscription Agreement
EXHIBIT G - Form of Affiliate Letter
(iv)
<PAGE>
AGREEMENT AND PLAN OF MERGER
This AGREEMENT AND PLAN OF MERGER (this "Agreement"), is made and entered
into as of April 14, 1997, between Patriot American Hospitality, Inc., a
Virginia corporation which operates as a real estate investment trust
("Patriot"), and Wyndham Hotel Corporation, a Delaware corporation ("Wyndham").
RECITALS
WHEREAS, Patriot, California Jockey Club ("CJC") and Bay Meadows Operating
Company ("BMOC") have entered into an Agreement and Plan of Merger dated as of
February 24, 1997 (the "Business Combination Agreement"), pursuant to which
Patriot, CJC and BMOC agreed to engage in a business combination among Patriot,
CJC and BMOC, upon the terms and subject to the conditions set forth in the
Business Combination Agreement (the "Business Combination");
WHEREAS, the shares of common stock, par value $.01 per share, of CJC (the
"CJC Stock") and the shares of common stock, par value $.01 per share, of BMOC
(the "BMOC Stock") are paired and transferable and traded only in combination as
a single unit (the "Paired Shares") on the American Stock Exchange;
WHEREAS, upon consummation of the Business Combination, Patriot will have
merged with and into CJC with CJC being the surviving company ("New Patriot"),
New Patriot will change its name to "Patriot American Hospitality, Inc." and
BMOC will change its name to "Patriot American Hospitality Operating Company";
WHEREAS, contemporaneously with the execution of this Agreement, Patriot
and certain entities owned or controlled, directly or indirectly, by the Crow
family and/or various related parties (collectively, the "Crow Family Entities")
have entered into an Omnibus Purchase and Sale Agreement (the "Purchase and Sale
Agreement") pursuant to which certain real estate and related assets (the "Crow
Family Assets") will be sold to Patriot American Hospitality Partnership, L.P.,
a Virginia limited partnership ("Patriot OP"), and an operating partnership to
be formed by BMOC in connection with the Business Combination ("BMOC OP"), for
cash, upon the terms and subject to the conditions set forth in the Purchase and
Sale Agreement (the "Purchase and Sale");
WHEREAS, contemporaneously with the execution of this Agreement, CF
Securities, L.P. (the "Principal Stockholder") and Patriot have entered into a
stock purchase agreement (the "Stock Purchase Agreement") pursuant to which
Patriot shall purchase from the Principal Stockholder, and the Principal
Stockholder shall sell to Patriot and BMOC, all 9,447,745 shares of common
stock, par value $.01 per share, of Wyndham (the "Wyndham Common Stock")
currently owned by the Principal Stockholder (the "Stock Purchase"), and as
consideration therefor, Patriot shall pay cash to the Principal Stockholder,
and/or issue to the Principal Stockholder shares of unpaired Class A preferred
stock, par value $.01 per share, of
<PAGE>
Patriot (the "Unpaired Patriot Stock") and issue to the Principal Stockholder
Paired Shares of Patriot Stock and BMOC Stock, upon the terms and subject to the
conditions set forth in the Stock Purchase Agreement;
WHEREAS, contemporaneously with the execution of this Agreement, Patriot
and the Principal Stockholder have entered into a standstill agreement (the
"Standstill Agreement") pursuant to which the Principal Stockholder has agreed
to refrain from taking certain actions and to perform certain other obligations
with respect to Patriot and BMOC and the securities of Patriot and BMOC to be
issued to the Principal Stockholder pursuant to the Stock Purchase Agreement,
upon the terms and subject to the conditions set forth in the Standstill
Agreement;
WHEREAS, as a condition to the willingness of Patriot to enter into this
Agreement, (i) certain management stockholders of Wyndham (the "Management
Stockholders") and the Principal Stockholder have entered into a Proxy
Agreement, dated as of the date hereof, with Patriot (the "Proxy Agreement"),
pursuant to which each of the Management Stockholders and the Principal
Stockholder has, among other things, granted to Patriot an irrevocable proxy to
vote his, her or its shares of Wyndham Common Stock in favor of the approval of
the Merger (as hereinafter defined), this Agreement and the other transactions
contemplated hereby and the approval of any other matter relating to
consummation of the transactions contemplated by this Agreement, upon the terms
and subject to the conditions set forth in the Proxy Agreement, and (ii) the
Management Stockholders, the Principal Stockholder and certain members of
Patriot's management have entered into Voting Agreements, dated as of the date
hereof, with Patriot (collectively, the "Voting Agreements"), pursuant to which
such stockholders have agreed to certain matters with respect to the voting
securities of Patriot and BMOC held by such stockholders after the Merger;
WHEREAS, contemporaneously with the execution of this Agreement, certain
officers of Patriot and certain officers of Wyndham have entered into employment
agreements with Patriot (the "Employment Agreements"), upon the terms and
subject to the conditions set forth therein, including, without limitation,
conditions that the Employment Agreements shall not become effective unless the
Merger is consummated;
WHEREAS, the Board of Directors of Patriot and the Board of Directors of
Wyndham each have determined that a business combination between Patriot and
Wyndham with related agreements with BMOC is in the best interests of their
respective companies and stockholders and presents an opportunity for their
respective companies to achieve long-term strategic and financial benefits, and
accordingly have agreed to effect the transactions provided for herein upon the
terms and subject to the conditions set forth herein;
WHEREAS, immediately following consummation of the transactions
contemplated by this Agreement, the shares of BMOC Stock and the shares of
common stock, par value $.01 per share, of New Patriot will be paired and
transferable and traded only in combination as a single unit on the New York
Stock Exchange;
2
<PAGE>
WHEREAS, it is intended that the Stock Purchase by Patriot and the Merger
provided for herein be treated as an integrated transaction that, for federal
income tax purposes, qualifies as a reorganization within the meaning of Section
368(a) of the Internal Revenue Code of 1986, as amended (the "Code"), and
pursuant to which the consideration received by all of the stockholders of
Wyndham shall be tax-free to such stockholders to the extent such consideration
consists of Patriot Unpaired Stock and, to the extent consisting of Patriot
Stock, Paired Shares of Patriot Stock and BMOC Stock, and for financial
accounting purposes shall be accounted for as a "purchase";
WHEREAS, Patriot and Wyndham have each received a fairness opinion from
their respective financial advisors, and the special committee of the Board of
Directors of Wyndham (the "Wyndham Special Committee") has received a fairness
opinion from its financial advisor, relating to the transactions contemplated
hereby as more fully described herein; and
WHEREAS, Patriot and Wyndham desire to make certain representations,
warranties and agreements in connection with the Merger.
NOW, THEREFORE, in consideration of the foregoing, and of the
representations, warranties, covenants and agreements contained herein, the
parties hereto hereby agree as follows:
ARTICLE 1. THE MERGER
1.1 The Merger. Subject to the terms and conditions of this
----------
Agreement, at the Effective Time (as hereinafter defined), Wyndham shall be
merged with and into New Patriot in accordance with this Agreement, and the
separate corporate existence of Wyndham shall thereupon cease (the "Merger").
New Patriot shall be the surviving corporation in the Merger (sometimes
hereinafter referred to as the "Surviving Corporation"). The Merger shall have
the effects specified in Section 259 of the Delaware General Corporation Law
(the "DGCL"). As used in this Agreement, (i) any reference to "Patriot" means
Patriot prior to consummation of the Business Combination and New Patriot
following consummation of the Business Combination, (ii) any reference to a
"Patriot Subsidiary" means a Subsidiary of Patriot prior to consummation of the
Business Combination and a Subsidiary of New Patriot following consummation of
the Business Combination, and (iii) any reference to "Patriot Stock" means the
shares of common stock, no par value, of Patriot prior to consummation of the
Business Combination and the shares of common stock, par value $.01 per share,
of New Patriot following consummation of the Business Combination.
1.2 The Closing. Subject to the terms and conditions of this
-----------
Agreement, the closing of the Merger (the "Closing") shall take place at the
offices of Goodwin, Procter & Hoar LLP, Exchange Place, Boston, Massachusetts,
at 10:00 a.m., local time, on the date which is the later of (a) October 1, 1997
or (b) the first business day immediately following the day on which the last of
the conditions set forth in Article 9 shall be fulfilled or waived in accordance
3
<PAGE>
herewith, or at such other time, date or place as the parties hereto may agree;
provided, however, that, subject to the provisions of Section 10.1(c), Patriot
may, by notice in writing to Wyndham not less than ten (10) days prior to the
then scheduled date of the meeting of Wyndham stockholders pursuant to Section
8.3, extend the date which is the later of the dates specified in the foregoing
clauses (a) and (b) if Patriot determines in its reasonable judgment, after
consultation with Wyndham, that such action is necessary to allow Patriot to
receive the Ruling (as hereinafter defined) prior to Closing. Unless the
parties shall otherwise agree, the parties shall use their reasonable best
efforts to cause the Closing to occur as soon as possible after the meetings of
stockholders held pursuant to Section 8.3, and, if Patriot shall provide the
foregoing notice to Wyndham extending the date which is the later of the dates
specified in the foregoing clauses (a) and (b), then Wyndham may adjourn its
stockholders' meeting so as to cause it to occur as close as reasonably possible
to the anticipated Closing Date. The date on which the Closing occurs is
hereinafter referred to as the "Closing Date."
1.3 Effective Time. If all of the conditions to the Merger set forth
--------------
in Article 9 shall have been fulfilled or waived in accordance herewith and this
Agreement shall not have been terminated as provided in Article 10, the parties
hereto shall promptly cause a Certificate of Merger satisfying the requirements
of the DGCL (the "Certificate of Merger") to be properly executed, verified and
delivered for filing in accordance with the DGCL on the Closing Date. The Merger
shall become effective upon the acceptance for record of the Certificate of
Merger by the Secretary of State of Delaware in accordance with the DGCL or at
such later time which the parties hereto shall have agreed upon and designated
in such filing in accordance with applicable law as the effective time of the
Merger (the "Effective Time").
1.4 Ancillary Agreements. At the Closing and prior to the Effective
--------------------
Time,(i) Patriot and the Principal Stockholder shall consummate the Stock
Purchase, subject to the terms of the Stock Purchase Agreement,(ii) Wyndham and
BMOC shall consummate the BMOC Stock Issuance (as hereinafter defined), subject
to the terms of the Wyndham/BMOC Subscription Agreement (as hereinafter
defined), and (iii) Wyndham and BMOC OP shall consummate the Asset Sale (as
hereinafter defined) in the event that the Ruling is not obtained prior to the
Effective Time. At the Closing, (i) the Crow Family Entities shall consummate
the Purchase and Sale of the Crow Family Assets to Patriot OP and BMOC OP,
subject to the terms of the Purchase and Sale Agreement, and (ii) Patriot, BMOC,
the Principal Stockholder, certain of the Management Stockholders and certain
other stockholders of Wyndham shall enter into a registration rights agreement
in substantially the form of Exhibit A attached hereto (the "Registration Rights
---------
Agreement"). Following consummation of the Business Combination and subject to
the terms and conditions of this Agreement, (x) Patriot and Wyndham shall enter
into an agreement substantially in the form set forth on Exhibit B attached
---------
hereto pursuant to which, among other things, Patriot shall make certain
representations and warranties to Wyndham in connection with the transactions
contemplated by this Agreement (the "Patriot Ratification Agreement"), and (y)
BMOC and Wyndham shall enter into an agreement substantially in the form set
forth on Exhibit C attached hereto pursuant to which, among other things, BMOC
---------
will make certain representations and warranties to Wyndham in connection with
the transactions contemplated by this Agreement
4
<PAGE>
(the "BMOC Ratification Agreement"). At or prior to the Closing, Patriot and
BMOC shall enter into a Master Leasehold Agreement having such terms as to which
Patriot and BMOC shall hereafter agree, in addition to the terms set forth on
Exhibit D attached hereto (the "Master Leasehold Agreement"), provided that
- ---------
Wyndham shall first be given a reasonable opportunity to review and comment upon
the terms of such agreement. No later than eleven (11) business days prior to
the Closing, Patriot and BMOC shall enter into a Cooperation Agreement in
substantially the form of Exhibit E attached hereto (the "Cooperation
---------
Agreement"). The Stock Purchase Agreement, Purchase and Sale Agreement,
Cooperation Agreement, Standstill Agreement, Proxy Agreement, Registration
Rights Agreement, Patriot Ratification Agreement, BMOC Ratification Agreement,
Voting Agreements, Employment Agreements, Wyndham/BMOC Subscription Agreement,
the Option Agreement of even date herewith between Patriot and the grantors
named therein (the "ISIS Owners") pursuant to which the ISIS Owners have granted
to Patriot an option to acquire the equity interests owned by the ISIS Owners in
ISIS 2000 L.P., and the Option Agreement of even date herewith between Patriot
and the grantors named therein (the "MIS Owners") pursuant to which the MIS
Owners have granted to Patriot an option to acquire the equity interests owned
by the MIS Owners in Kinetic Group Limited Partnership (formerly known as CW
Synergistech, LP), are referred to collectively herein as the "Ancillary
Agreements."
ARTICLE 2. THE WYNDHAM/BMOC SUBSCRIPTION
2.1 Wyndham/BMOC Subscription Agreement. Immediately prior to the
-----------------------------------
Closing, Wyndham and BMOC shall enter into a contract in substantially the form
of Exhibit F attached hereto (the "Wyndham/BMOC Subscription Agreement")
---------
pursuant to which Wyndham will agree to pay for, and BMOC will issue directly to
the stockholders of Wyndham as part of the consideration to be paid to such
stockholders in the Merger (the "BMOC Stock Issuance"), a number of shares (the
"Subscribed Shares") of BMOC Stock equal to the number of shares of Patriot
Stock to be issued to stockholders of Wyndham pursuant to the Merger.
2.2 Subscribed Shares. The parties hereto acknowledge and agree that
-----------------
the Subscribed Shares will be issued in accordance with Section 5.2(a) hereof to
the stockholders of Wyndham in connection with the Merger and will be paired
with the Patriot Stock issued in the Merger in accordance with that certain
Pairing Agreement, dated as of February 17, 1983 and amended from time to time
thereafter, by and between CJC and BMOC (the "Pairing Agreement"), and Wyndham
shall not at any time become a stockholder of BMOC. The provisions of this
Article 2, the BMOC Stock Issuance and the Wyndham/BMOC Subscription Agreement
are intended to comply and shall be interpreted in a manner consistent with
Sections 2(a) and 2(b) of the Pairing Agreement.
5
<PAGE>
ARTICLE 3. CERTIFICATE OF INCORPORATION AND BYLAWS OF THE SURVIVING
CORPORATION
3.1 Charter. The Amended and Restated Certificate of Incorporation
-------
of Patriot in effect immediately prior to the Effective Time (the "Patriot
Certificate") shall be the Certificate of Incorporation of the Surviving
Corporation, until duly amended in accordance with applicable law, and shall
contain terms required by and consistent with this Agreement, the Stock Purchase
Agreement and the Cooperation Agreement and terms not otherwise prohibited from
being contained in such certificate by any of such agreements (the "Surviving
Corporation Certificate").
3.2 Bylaws. The Amended and Restated Bylaws of Patriot in effect
------
immediately prior to the Effective Time (the "Patriot Bylaws") shall be the
Bylaws of the Surviving Corporation, until duly amended in accordance with
applicable law, and shall contain terms required by and consistent with this
Agreement, the Stock Purchase Agreement and the Cooperation Agreement and terms
not otherwise prohibited from being contained in such bylaws by any of such
agreements (the "Surviving Corporation Bylaws").
ARTICLE 4. DIRECTORS AND OFFICERS OF THE SURVIVING CORPORATION AND BMOC
4.1 Directors of the Surviving Corporation.
--------------------------------------
(a) At the Effective Time, the number of directors of the
Surviving Corporation shall be fixed at eleven. At the Effective Time, eight of
the directors of the Surviving Corporation shall be Paul Nussbaum, William W.
Evans III, Arch Jacobson, John Daniels and John Deterding, and three individuals
designated by Patriot prior to the Effective Time who shall be reasonably
acceptable to Wyndham (the foregoing eight individuals being referred to herein
collectively as the "Patriot Designees"); provided, however, that for purposes
of the foregoing, Wyndham acknowledges that the individuals listed on Section
4.1 of the Patriot Disclosure Letter (as hereinafter defined) are reasonably
acceptable Patriot Designees. At the Effective Time, two of the directors of the
Surviving Corporation shall be James Carreker and an individual designated by
Wyndham prior to the Effective Time who shall be reasonably acceptable to
Patriot (the foregoing two individuals being referred to herein collectively as
the "Wyndham Designees"). The remaining director shall be designated by the Crow
Family Entities prior to the Effective Time and shall be reasonably acceptable
to Patriot (the "Family Designee"); provided, however, that for purposes of the
foregoing, Patriot acknowledges that Harlan Crow is a reasonably acceptable
Family Designee and that the term of the Family Designee on the Board of
Directors of Patriot shall commence on the third day immediately following the
Effective Time (the "Family-Designee Date").
(b) In the event that immediately following consummation of the
Business Combination the Board of Directors of Patriot is divided into classes,
then, at the Effective
6
<PAGE>
Time, the directors of each of the classes of the Board of Directors of the
Surviving Corporation shall be as follows (subject to the provisions of this
Section 4.1):
<TABLE>
<CAPTION>
Class Designee Term Expires
----- -------- ------------
<S> <C> <C>
I Paul Nussbaum 1998
I Family Designee 1998
I John Deterding 1998
I Patriot Designee 1998
II John Daniels 1999
II Patriot Designee 1999
II Patriot Designee 1999
II Wyndham Designee 1999
III James Carreker 2000
III Arch Jacobson 2000
III William W. Evans III 2000
</TABLE>
(c) Patriot and Wyndham agree that in the event that any Patriot
Designee is unable or otherwise fails to serve, for any reason, as a director of
Patriot at the Effective Time, Patriot shall have the right to designate another
individual to serve as a director of Patriot at the Effective Time in place of
such Patriot Designee (or if a vacancy shall be deemed to have occurred in
respect thereof, Patriot shall have the right to fill such vacancy,
notwithstanding any other provision to the contrary contained herein); provided,
however, that such individual shall be reasonably satisfactory to Wyndham.
Patriot and Wyndham shall each cause such designee of Patriot to be elected to
the Board of Directors of Patriot at the Effective Time in place of such Patriot
Designee.
(d) Patriot and Wyndham agree that in the event that any Wyndham
Designee is unable or otherwise fails to serve, for any reason, as a director of
Patriot at the Effective Time, Wyndham shall have the right to designate another
individual to serve as a director of Patriot at the Effective Time in place of
such Wyndham Designee (or if a vacancy shall be deemed to have occurred in
respect thereof, Wyndham shall have the right to fill such vacancy,
notwithstanding any other provision to the contrary contained herein); provided,
however, that such individual shall be reasonably satisfactory to Patriot.
Patriot and Wyndham shall each cause such designee of Wyndham to be elected to
the Board of Directors of Patriot at the Effective Time in place of such Wyndham
Designee.
(e) Patriot and Wyndham agree that in the event that the Family
Designee is unable or otherwise fails to serve, for any reason, as a director of
Patriot on the Family-Designee Date, the Crow Family Entities shall have the
right to designate another individual to serve as a director of Patriot on the
Family-Designee Date in place of such Family Designee (or if a vacancy shall be
deemed to have occurred in respect thereof, the Crow Family Entities shall have
the right to fill such vacancy, notwithstanding any other provision to the
contrary contained herein); provided, however, that such individual shall be
reasonably satisfactory to
7
<PAGE>
Patriot. Patriot and Wyndham shall each cause such designee of the Crow Family
Entities to be elected to the Board of Directors of Patriot on the Family-
Designee Date in place of such Family Designee.
(f) Notwithstanding any of the foregoing provisions of this
Section 4.1 or any other provision of this Agreement to the contrary, the
parties agree that in no event shall a majority of the directors of the
Surviving Corporation immediately following the Effective Time be executive
officers or directors of BMOC.
4.2 Officers of the Surviving Corporation. At the Effective Time,
-------------------------------------
the officers of the Surviving Corporation shall include, but not be limited to,
Paul Nussbaum, who shall be Chairman of the Board of Directors and Chief
Executive Officer, William Evans, who shall be President, and Anne Raymond, who
shall be Chief Financial Officer and an Executive Vice President.
4.3 Directors of BMOC.
-----------------
(a) At or prior to the Effective Time, the number of directors
of BMOC shall be fixed at eleven. At the Effective Time, seven of the directors
of BMOC shall be Paul Nussbaum, Leonard Boxer, Arch Jacobson and Rusty Lyons,
and three individuals designated by Patriot prior to the Effective Time who
shall be reasonably acceptable to Wyndham (the foregoing seven individuals being
referred to herein collectively as the "Patriot-BMOC Designees"); provided,
however, that for purposes of the foregoing, Wyndham acknowledges that the
individuals listed on Section 4.3 of the Patriot Disclosure Letter are
reasonably acceptable Patriot-BMOC Designees. At the Effective Time, three of
the directors of BMOC shall be James Carreker and two individuals designated by
Wyndham prior to the Effective Time who shall be reasonably acceptable to
Patriot (the foregoing three individuals being referred to herein collectively
as the "Wyndham-BMOC Designees"); provided, however, that for purposes of the
foregoing, Patriot acknowledges that the individual listed on Section 4.3 of the
Wyndham Disclosure Letter (as hereinafter defined) is a reasonably acceptable
Wyndham-BMOC Designee. The remaining director shall be designated by the Crow
Family Entities prior to the Effective Time and shall be reasonably acceptable
to Patriot (the "Family-BMOC Designee"); provided, however, that for purposes of
the foregoing, Patriot acknowledges that Harlan Crow is a reasonably acceptable
Family-BMOC Designee and that the term of the Family-BMOC Designee on the Board
of Directors of BMOC shall commence on the third day immediately following the
Effective Time (the "Family-BMOC-Designee Date").
(b) In the event that immediately following consummation of the
Business Combination the Board of Directors of BMOC is divided into classes,
then, at the Effective Time, the directors of each class of the Board of
Directors of BMOC shall be as follows (subject to the provisions of this Section
4.3):
8
<PAGE>
<TABLE>
<CAPTION>
Class Designee Term Expires
----- -------- ------------
<S> <C> <C>
I James Carreker 1998
I Rusty Lyons 1998
I Wyndham-BMOC Designee 1998
I Patriot-BMOC Designee 1998
II Arch Jacobson 1999
II Leonard Boxer 1999
II Family-BMOC Designee 1999
II Patriot-BMOC Designee 1999
III Paul Nussbaum 2000
III Patriot-BMOC Designee 2000
III Wyndham-BMOC Designee 2000
</TABLE>
(c) Patriot, Wyndham and BMOC agree that in the event that any
Patriot-BMOC Designee is unable or otherwise fails to serve, for any reason, as
a director of BMOC at the Effective Time, Patriot shall have the right to
designate another individual to serve as a director of BMOC at the Effective
Time in place of such Patriot-BMOC Designee (or if a vacancy shall be deemed to
have occurred in respect thereof, Patriot shall have the right to fill such
vacancy, notwithstanding any other provision to the contrary contained herein);
provided, however, that such individual shall be reasonably satisfactory to
Wyndham. BMOC and Wyndham shall each cause such designee of Patriot to be
elected to the Board of Directors of BMOC at the Effective Time in place of such
Patriot-BMOC Designee.
(d) Patriot, Wyndham and BMOC agree that in the event that any
Wyndham-BMOC Designee is unable or otherwise fails to serve, for any reason, as
a director of BMOC at the Effective Time, Wyndham shall have the right to
designate another individual to serve as a director of BMOC at the Effective
Time in place of such Wyndham-BMOC Designee (or if a vacancy shall be deemed to
have occurred in respect thereof, Wyndham shall have the right to fill such
vacancy, notwithstanding any other provision to the contrary contained herein);
provided, however, that such individual shall be reasonably satisfactory to
Patriot. BMOC and Wyndham shall each cause such designee of Wyndham to be
elected to the Board of Directors of BMOC at the Effective Time in place of such
Wyndham-BMOC Designee.
(e) Patriot, Wyndham and BMOC agree that in the event that the
Family-BMOC Designee is unable or otherwise fails to serve, for any reason, as a
director of BMOC on the Family-BMOC-Designee Date, the Crow Family Entities
shall have the right to designate another individual to serve as a director of
BMOC on the Family-BMOC-Designee Date in place of such Family-BMOC Designee (or
if a vacancy shall be deemed to have occurred in respect thereof, the Crow
Family Entities shall have the right to fill such vacancy, notwithstanding any
other provision to the contrary contained herein); provided, however, that such
individual shall be reasonably satisfactory to Patriot. BMOC and Wyndham shall
each
9
<PAGE>
cause such designee of the Crow Family Entities to be elected to the Board of
Directors of BMOC on the Family-BMOC-Designee Date in place of such Family-BMOC
Designee.
(f) Notwithstanding any of the foregoing provisions of this
Section 4.3 or any other provision of this Agreement to the contrary, Patriot,
Wyndham and BMOC agree that in no event shall a majority of the directors of
BMOC immediately following the Effective Time be executive officers or directors
of the Surviving Corporation.
4.4 Officers of BMOC. At the Effective Time, the officers of BMOC
----------------
shall include, but not be limited to, James Carreker, who shall be Chairman of
the Board of Directors and Chief Executive Officer, Rex Stewart, who shall be
Chief Financial Officer and an Executive Vice President, and Thomas Lattin, who
shall be an Executive Vice President.
4.5 Change of Name. At the Effective Time, (i) BMOC and Patriot or a
--------------
Subsidiary of Patriot shall enter into a license agreement pursuant to which
Patriot or such Subsidiary of Patriot shall license to BMOC use of the "Wyndham"
brand, and (ii) the Certificate of Incorporation of BMOC shall be amended (the
"BMOC Charter Amendment") to change the name of BMOC to "Wyndham International"
and shall contain terms required by and consistent with this Agreement, the
Stock Purchase Agreement and the Cooperation Agreement and terms not otherwise
prohibited from being contained in such certificate by any of such agreements.
ARTICLE 5. EXCHANGE OF STOCK
5.1 Outstanding Paired Shares of Patriot Stock and BMOC Stock.
---------------------------------------------------------
(a) At and after the Effective Time, each Paired Share of
Patriot Stock and BMOC Stock outstanding immediately prior to the Effective Time
shall remain outstanding and shall continue to represent one Paired Share of
Patriot Stock and BMOC Stock.
(b) At and after the Effective Time, each option exercisable for
a Paired Share of Patriot Stock and BMOC Stock outstanding immediately prior to
the Effective Time shall remain outstanding and shall continue to represent an
option to purchase a Paired Share of Patriot Stock and BMOC Stock.
5.2 Conversion of Wyndham Common Stock.
----------------------------------
(a) Except as otherwise provided in Section 5.3(a) with respect
to holders of Wyndham Common Stock who make a Cash Election (as defined therein)
and except as otherwise provided herein, at the Effective Time, each share of
Wyndham Common Stock issued and outstanding immediately prior to the Effective
Time (other than those shares of Wyndham Common Stock to be canceled pursuant to
Section 5.2(c)) shall, by virtue of the Merger and without any action on the
part of Wyndham, Patriot, BMOC or the holders of any
10
<PAGE>
of the securities of any of these corporations, be converted into the right to
receive 0.712 Paired Shares of Patriot Stock and BMOC Stock; provided, however,
that in the event that the Average Closing Price (as hereinafter defined) of a
Paired Share of Patriot Stock and BMOC Stock is less than $42.13 per share
(subject to adjustment as provided below) but greater than or equal to $40.21
per share (subject to adjustment as provided below), then each share of Wyndham
Common Stock issued and outstanding immediately prior to the Effective Time
(other than those shares of Wyndham Common Stock to be canceled pursuant to
Section 5.2(c)) shall be converted into the right to receive a number of Paired
Shares of Patriot Stock and BMOC Stock equal to $30.00 divided by the Average
Closing Price; provided, further, that in the event that the Average Closing
Price of a Paired Share of Patriot Stock and BMOC Stock is less than $40.21 per
share (subject to adjustment as provided below), (A) each share of Wyndham
Common Stock issued and outstanding immediately prior to the Effective Time
(other than those shares of Wyndham Common Stock to be canceled pursuant to
Section 5.2(c)) shall be converted into the right to receive a number of Paired
Shares of Patriot Stock and BMOC Stock equal to 0.746 (the applicable percentage
of a share of Patriot Stock to be issued upon such conversion herein being the
"Exchange Ratio"), and (B) Wyndham shall have the right, waivable by it, to
terminate this Agreement pursuant to Section 10.1(l) without any liability on
its part by giving written notice of its election to do so to Patriot prior to
11:59 p.m., Dallas, Texas time on the first business day after the expiration of
the Measurement Period (as hereinafter defined). The Paired Shares of Patriot
Stock and BMOC Stock to be issued to holders of Wyndham Common Stock in the
Merger are referred to herein as the "Stock Consideration." For purposes of this
Agreement, the term "Average Closing Price" shall mean the average per share
closing price of a Paired Share of a Patriot Stock and BMOC Stock as reported on
the NYSE over the twenty (20) trading days immediately preceding the fifth
business day prior to the date on which the meeting of Wyndham's stockholders is
to be convened pursuant to Section 8.3 hereof such twenty (20) trading day
period being referred to herein as the "Measurement Period"). Notwithstanding
the foregoing, if between the date of this Agreement and the Effective Time the
outstanding Paired Shares of CJC Stock and BMOC Stock, the outstanding Paired
Shares of Patriot Stock and BMOC Stock or the outstanding shares of Wyndham
Common Stock shall have been changed, other than pursuant to this Agreement or
the Business Combination Agreement, into a different number of shares or a
different class or series, by reason of any stock dividend, subdivision,
reclassification, recapitalization, split, combination or exchange of shares (or
if between the date of this Agreement and the effective date of the Business
Combination the outstanding shares of Patriot Stock shall have been so changed
and no adjustment shall have been made on account thereof pursuant to Section
5.2(a) of the Business Combination Agreement), the Exchange Ratio and the per
share reference prices of Paired Shares referred to above shall be
correspondingly adjusted to reflect such stock dividend, subdivision,
reclassification, recapitalization, split, combination or exchange of shares;
provided that none of Patriot, BMOC or Wyndham shall effect any such change
during or, until the Effective Time, following the Measurement Period.
(b) As a result of the Merger and without any action on the part
of the holders thereof, all shares of Wyndham Common Stock shall cease to be
outstanding, shall be canceled and retired and shall cease to exist and each
holder of a certificate (a "Certificate"
11
<PAGE>
and, collectively, the "Certificates") representing any shares of Wyndham Common
Stock (other than those shares of Wyndham Common Stock to be canceled pursuant
to Section 5.2(c)) shall thereafter cease to have any rights with respect to
such shares of Wyndham Common Stock, except the right to receive, without
interest, Stock Consideration in accordance with Section 5.2(a) and/or cash
consideration in accordance with Section 5.3(a), dividend(s) payable in
accordance with Section 5.4(c) and cash in lieu of Excess Paired Shares (if any)
and fractional Paired Shares of Patriot Stock and BMOC Stock in accordance with
Sections 5.2(b) and 5.4(e), respectively, upon the surrender of such
Certificate.
(c) Each share of Wyndham Common Stock issued and held in
Wyndham's treasury and each share of Wyndham Common Stock held by Patriot, BMOC
or any of the Patriot Subsidiaries or BMOC Subsidiaries immediately prior to the
Effective Time, if any, by virtue of the Merger shall cease to be outstanding,
shall be canceled and retired and shall cease to exist and no payment of any
consideration shall be made with respect thereto.
(d) At the Effective Time, Wyndham's obligations with respect to
each stock option (collectively, the "Existing Wyndham Options") set forth in
Section 6.3 of the Wyndham Disclosure Letter (as defined in Article 6 hereof)
shall be assumed by Patriot (the "Assumed Options"), subject to the provisions
described in this Section. The Assumed Options shall not terminate in connection
with the Merger and shall continue to have, and be subject to, the same terms
and conditions as set forth in the stock option plans and agreements (as in
effect immediately prior to the Effective Time) pursuant to which the Existing
Wyndham Options were issued, provided that (i) all references to Wyndham shall
be deemed to be references to Patriot or BMOC, as the case may be, and all
references to Wyndham Common Stock shall be deemed to be references to Paired
Shares of Patriot Stock and BMOC Stock, (ii) each option shall fully vest and
become exercisable in accordance with its terms, and (iii) each option shall be
exercisable for that number of whole Paired Shares of Patriot Stock and BMOC
Stock equal to the product of the number of shares of Wyndham Common Stock
covered by such option immediately prior to the Effective Time multiplied by the
Exchange Ratio and rounded to the nearest whole number of Paired Shares of
Patriot Stock and BMOC Stock and (v) the exercise price per share of Paired
Patriot Stock and BMOC Stock under such option shall be equal to the exercise
price per share of Wyndham Common Stock under the Existing Wyndham Option
divided by the Exchange Ratio and rounded to the nearest cent. Patriot shall (A)
reserve for issuance the number of shares of Patriot Stock that will become
issuable upon the exercise of such Assumed Options pursuant to this Section
5.2(e) and (B) promptly after the Effective Time issue to each holder of an
outstanding Existing Wyndham Option a document evidencing the assumption by
Patriot of Wyndham's obligations with respect thereto under this Section. BMOC
shall (A) reserve for issuance the number of shares of BMOC Stock that will
become issuable upon the exercise of such Assumed Options pursuant to this
Section 5.2(d) and (B) promptly after the Effective Time issue to each holder of
an outstanding Existing Wyndham Option a document evidencing the assumption by
BMOC of Wyndham's obligations with respect thereto under this Section. Patriot,
BMOC and Wyndham shall consider in good faith whether any of the Assumed Options
will provide that Patriot or BMOC, as the case may be, shall have the discretion
to settle any option exercise with a cash
12
<PAGE>
amount equal to the difference between the option exercise price and the fair
market value of the Paired Shares of Patriot Stock and BMOC Stock, less any
applicable tax withholding.
5.3 Cash Election.
-------------
(a) (i) Notwithstanding the provisions of Section 5.2(a), each
person who, on the Election Date (as hereinafter defined), is a record holder of
shares of Wyndham Common Stock (other than those shares of Wyndham Common Stock
to be canceled pursuant to Section 5.2(c)) will be entitled, with respect to
that number of such holder's shares of Wyndham Common Stock specified in such
holder's Form of Election (as defined in Section 5.3(b)) but not in excess of
the total number of shares of Wyndham Common Stock held by such holder (each
such share of Wyndham Common Stock being referred to herein as a "Cash Electing
Share," and the aggregate number of shares of Wyndham Common Stock with respect
to which such holder has made a Cash Election being referred to herein as such
holder's "Cash Electing Shares"), to make an election (a "Cash Election") on or
prior to such Election Date to receive from Patriot following the Effective Time
an amount in cash and Stock Consideration determined as follows:
(A) If the Aggregate Cash Electing Shares (as
hereinafter defined) is less than or equal to the Cash Conversion
Number (as hereinafter defined), then such holder shall be entitled to
receive for each such Cash Electing Share an amount of cash equal to
the Per Share Cash Amount (as hereinafter defined); or
(B) If the Aggregate Cash Electing Shares is greater
than the Cash Conversion Number, then such holder shall be entitled to
receive (x) with respect to that number of such holder's Cash Electing
Shares equal to such holder's total Cash Electing Shares multiplied by
the Cash Proration Factor (as hereinafter defined), with the result
rounded to the next lower whole share (the "Prorated Cash Electing
Shares"), an amount of cash equal to the product of such holder's
Prorated Cash Electing Shares and the Per Share Cash Amount, and (y)
Stock Consideration in accordance with Section 5.2 with respect to
that number of such holder's Cash Electing Shares equal to the
difference between such holder's total Cash Electing Shares and such
holder's Prorated Cash Electing Shares.
(ii) For purposes of this Agreement:
"Aggregate Cash Electing Shares" shall mean the total number
of Cash Electing Shares for all holders of Wyndham Common Stock.
13
<PAGE>
"Cash Election Price" shall mean the product of the Exchange
Ratio and the Fair Market Value.
"Cash Conversion Number" shall mean $100,000,000 divided by
the Cash Election Price.
"Cash Proration Factor" shall mean the Cash Conversion
Number divided by the Aggregate Cash Electing Shares, with the result
rounded to four decimal points.
"Fair Market Value" shall mean the average closing price of
the Paired Shares of Patriot Stock and BMOC Stock on the NYSE on the five
(5) trading days immediately preceding the Closing Date.
"Per Share Cash Amount" shall mean the product of the Fair
Market Value multiplied by the Exchange Ratio.
For purposes of the foregoing definitions in this clause
(ii), the number of shares of Wyndham Common Stock held of record by the
Principal Stockholder and its permitted assignees, if any, as to which the
Principal Stockholder and its permitted assignees have made an election to
receive cash pursuant to Section 1.1(b) of the Stock Purchase Agreement
shall be treated as "Cash Electing Shares," but all consideration to be
paid for such shares shall be paid or delivered by Patriot and BMOC
pursuant to the Stock Purchase Agreement and not pursuant to this
Agreement.
(iii) The aggregate consideration to be received by holders
of Wyndham Common Stock pursuant to Section 5.2(a) and this Section 5.3(a),
any dividends and cash in lieu of Excess Paired Shares, if any, to be
received by holders of Wyndham Common Stock in accordance with Section
5.2(b), and fractional Paired Shares, if any, to be received by the holders
of Wyndham Common Stock in accordance with Section 5.4, are referred to
herein collectively as the "Merger Consideration."
(b) Patriot shall prepare a form of election, which form shall
be subject to the reasonable approval of Wyndham (the "Form of Election"), and
Wyndham shall mail such Form of Election with the Proxy Statement (as
hereinafter defined) to the record holders of Wyndham Common Stock as of the
record date for the Wyndham stockholders' meeting which will be held in
accordance with the provisions of Section 8.3 hereof, which Form of Election
shall be used by each record holder of shares of Wyndham Common Stock who wishes
to make a Cash Election with respect to any or all shares of Wyndham Common
Stock held by such holder. Patriot will use its best efforts to make the Form of
Election and the Proxy Statement available to all persons who become holders of
Wyndham Common Stock during the period between such record date and the Election
Date referred to below. Any such holder's Cash Election shall have been properly
made only if the Exchange Agent (as hereinafter defined) shall have received at
its designated office, by 5:00 p.m., New York City time, on the Election Date, a
Form of Election properly completed and signed and accompanied by certificates
for the shares of Wyndham Common Stock to which such Form of Election relates,
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duly endorsed in blank or otherwise in form acceptable for transfer on the books
of Patriot (or by an appropriate guarantee of delivery of such certificates as
set forth in such Form of Election from a firm which is a member of a registered
national securities exchange or of the National Association of Securities
Dealers, Inc. or a commercial bank or trust company having an office or
correspondent in the United States, provided such certificates are in fact
delivered to the Exchange Agent within three NYSE trading days after the date of
execution of such guarantee of delivery). As used herein, the "Election Date"
means two (2) business days prior to the Closing Date or such other date, agreed
upon by Patriot and Wyndham, which date shall be announced by Patriot, in a news
release delivered to Dow Jones News Service, as the last day on which Forms of
Election will be accepted, which date shall be at least five business days
following the date of such news release.
(c) Any Form of Election may be revoked by the stockholder
submitting it to the Exchange Agent only by written notice received by the
Exchange Agent prior to 5:00 p.m., New York City time, on the Election Date. In
addition, all Forms of Election shall automatically be revoked if the Exchange
Agent is notified in writing by Patriot and Wyndham that the Merger has been
abandoned. If a Form of Election is revoked, the certificate or certificates (or
guarantees of delivery, as appropriate) for the shares of Wyndham Common Stock
to which such Form of Election relates shall be promptly returned to the
stockholder submitting the same to the Exchange Agent.
(d) The determination of the Exchange Agent shall be binding as
to whether or not a Cash Election has been properly made or revoked pursuant to
this Section 5.3 with respect to shares of Wyndham Common Stock. If the Exchange
Agent determines that any Cash Election was not properly made with respect to
shares of Wyndham Common Stock, such shares shall be treated by the Exchange
Agent as shares that were not Cash Electing Shares at the Effective Time, and
such shares shall be exchanged in the Merger pursuant to Section 5.2(a). The
Exchange Agent may, with the mutual agreement of Patriot and Wyndham, make such
rules as are consistent with this Section 5.3 for the implementation of the
election provided for herein as shall be necessary or desirable fully to effect
such election.
5.4 Exchange of Certificates Representing Wyndham Common Stock.
----------------------------------------------------------
(a) As of the Effective Time, (i) Patriot shall deposit, or
shall cause to be deposited, with an exchange agent selected by Patriot on or
prior to the Effective Time (the "Exchange Agent"), for the benefit of the
holders of shares of Wyndham Common Stock, for exchange in accordance with this
Article 5, a certificate representing the shares of Patriot Stock to be issued
pursuant to Section 5.2(a), cash in an aggregate amount sufficient to pay the
aggregate cash consideration payable to holders of Wyndham Common Stock who have
made a Cash Election pursuant to Section 5.3(a), if any, the cash in lieu of
Excess Paired Shares, if any, to be paid pursuant to Section 5.2(b) and
fractional Paired Shares to be paid pursuant to this Section 5.4, in exchange
for outstanding shares of Wyndham Common Stock and simultaneously (ii) BMOC
shall deposit, or shall cause to be deposited, with the Exchange Agent, for the
benefit of the holders of shares of Wyndham Common Stock, for distribution in
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accordance with Section 5.2(a), a certificate representing the Subscribed
Shares, to be paired with the shares of Patriot Stock described in clause (i)
above (such certificates for shares of Patriot Stock, cash, the certificates for
Subscribed Shares and cash in lieu of Excess Paired Shares and fractional Paired
Shares shall hereinafter be referred to as the "Exchange Fund"). The provisions
of this Section 5.4 are intended to comply and shall be interpreted in a manner
consistent with Sections 2(a) and 2(b) of the Pairing Agreement.
(b) Promptly after the Effective Time, the parties hereto shall
cause the Exchange Agent to mail to each holder of record of a Certificate or
Certificates (i) a letter of transmittal which shall specify that delivery shall
be effected, and risk of loss and title to the Certificates shall pass, only
upon delivery of the Certificates to the Exchange Agent and shall be in such
form and have such other provisions as Patriot and BMOC may reasonably specify
and (ii) instructions for use in effecting the surrender of the Certificates in
exchange for certificates printed "back-to-back" evidencing Paired Shares of
Patriot Stock and BMOC Stock and cash in lieu of Excess Paired Shares, if any,
and fractional Paired Shares, if any. Upon surrender of a Certificate for
cancellation to the Exchange Agent and delivery of such letter of transmittal,
duly executed and completed in accordance with the instructions thereto to the
Exchange Agent, the holder of such Certificate shall be entitled to receive in
exchange therefor (x) a certificate representing the number of whole Paired
Shares of Patriot Stock and BMOC Stock to which such holder shall be entitled,
and (y) a check representing the amount payable to holders of Wyndham Common
Stock who have made a Cash Election pursuant to Section 5.3(a), if any, plus
amount of cash in lieu of Excess Paired Shares, if any, and fractional Paired
Shares, if any, due such holder plus the amount of any dividends or
distributions, if any, pursuant to Section 5.4(c), after giving effect to any
required withholding tax, and the Certificate so surrendered shall forthwith be
canceled. No interest will be paid or accrued on the amount payable to holders
of Wyndham Common Stock who have made a Cash Election pursuant to Section
5.3(a), if any, the cash in lieu of Excess Paired Shares, if any, and fractional
Paired Shares, if any, or on the dividends or distributions, if any, due and
payable to holders of Certificates pursuant to this Section 5.4. In the event of
a transfer of ownership of Wyndham Common Stock which is not registered in the
stock transfer records of Wyndham, a certificate representing the proper number
of Paired Shares of Patriot Stock and BMOC Stock, together with a check for the
cash to be paid to holders of Wyndham Common Stock who have made a Cash Election
pursuant to Section 5.3(a) plus cash to be paid in lieu of Excess Paired Shares,
if any, and fractional Paired Shares, if any, plus, to the extent applicable,
the amount of any dividends or distributions, if any, due and payable pursuant
to Section 5.4(c), may be issued to such a transferee if the Certificate
representing shares of such Wyndham Common Stock is presented to the Exchange
Agent, accompanied by all documents required to evidence and effect such
transfer and to evidence that any applicable stock transfer taxes have been
paid.
(c) Notwithstanding any other provisions of this Agreement, dividends
or other distributions on Paired Shares of Patriot Stock and BMOC Stock with
respect to any shares of Wyndham Common Stock represented by a Certificate that
has not been surrendered for exchange shall be paid only as provided herein.
Any such dividend or distribution
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amounts with a record date after the Effective Time and a payment date prior to
both the first anniversary of the Effective Time and the surrender of such
Certificate shall be deposited (less the amount of any withholding taxes which
may be required thereon) with the Exchange Agent on the applicable payment date,
to be held by the Exchange Agent in a non-interest bearing account until the
surrender of such Certificate. Following surrender of any such Certificate, the
holder thereof shall be entitled to receive for the whole Paired Shares of
Patriot Stock and BMOC Stock issued in exchange therefor, without interest, (i)
at the time of such surrender, the amount of dividends or other distributions
with a record date after the Effective Time theretofore payable with respect to
such whole Paired Shares and not paid, less the amount of any withholding taxes
which may be required thereon, and (ii) at the appropriate payment date, the
amount of dividends or other distributions with a record date after the
Effective Time but prior to surrender and a payment date subsequent to surrender
payable with respect to such Paired Shares, less the amount of any withholding
taxes which may be required thereon.
(d) At and after the Effective Time, there shall be no transfers on
the stock transfer books of Wyndham of the shares of Wyndham Common Stock which
were outstanding immediately prior to the Effective Time and if, after the
Effective Time, Certificates are presented for transfer, they shall be canceled
against delivery of the Merger Consideration as hereinabove provided.
Certificates surrendered for exchange by any person constituting an "affiliate"
of Wyndham for purposes of Rule 145, as such rule may be amended from time to
time ("Rule 145"), of the rules and regulations promulgated under the Securities
Act of 1933, as amended (the "Securities Act"), shall not be exchanged until
Patriot has received an affiliate letter (the "Affiliate Letter") from such
person as provided in Section 8.10.
(e) No fractional Paired Shares of Patriot Stock and BMOC Stock shall
be issued pursuant hereto. In lieu of the issuance of any fractional Paired
Shares pursuant to this Agreement, each holder of Wyndham Common Stock upon
surrender of a Certificate for exchange shall be paid an amount in cash (without
interest), rounded to the nearest cent, determined by multiplying (i) the Fair
Market Value by (ii) the fractional amount of the Paired Shares of Patriot Stock
and BMOC Stock which such holder would otherwise be entitled to receive under
this Article 5.
(f) All cash paid upon the surrender for exchange of certificates
representing shares of Wyndham Common Stock in accordance with the terms of this
Article 5 (including any cash for Excess Paired Shares and fractional Paired
Shares) shall be deemed to have been issued (and paid) in full satisfaction of
all rights pertaining to the shares of Wyndham Common Stock exchanged for cash
theretofore represented by such certificates.
5.5 Return of Exchange Fund. Any portion of the Exchange Fund (including
-----------------------
any cash payable to holders of Wyndham Common Stock who have made a Cash
Election pursuant to Section 5.3(a), any cash for Excess Paired Shares and
fractional Paired Shares, any dividends or distributions of Patriot or BMOC and
any shares of Patriot Stock or any Subscribed Shares) that remains unclaimed by
the former stockholders of
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Wyndham one year after the Effective Time shall be distributed as follows: any
cash payable to holders of Wyndham Common Stock who have made a Cash Election
pursuant to Section 5.3(a), any cash for Excess Paired Shares and fractional
Paired Shares, any dividends or distributions of Patriot and any shares of
Patriot Stock shall be returned to Patriot and any dividends or distributions of
BMOC and any Subscribed Shares shall be returned to BMOC (provided that Patriot
and BMOC shall issue said cash or shares in accordance with this Article 5 to
former stockholders of Wyndham who thereafter surrender their Certificates),
subject to the provisions and effect of applicable abandoned property, escheat
or similar laws. Any former stockholders of Wyndham who have not theretofore
complied with this Article 5 shall thereafter look only to Patriot for payment
of any cash consideration payable as a result of the Merger or for issuance or
payment of that portion of their Paired Shares representing Patriot Stock and
cash in lieu of Excess Paired Shares, if any, and fractional Paired Shares, if
any, and to BMOC for issuance or payment of that portion of their Paired Shares
representing BMOC Stock (plus, in each case, dividends and distributions to the
extent set forth in Section 5.4(c), if any), as determined pursuant to this
Agreement, without any interest thereon. None of Patriot, BMOC, Wyndham, the
Exchange Agent or any other person shall be liable to any former holder of
shares of Wyndham Common Stock for any shares of stock or cash properly
delivered to a public official pursuant to applicable abandoned property,
escheat or similar laws.
5.6 Lost or Stolen Certificates. In the event any Certificate shall have
---------------------------
been lost, stolen or destroyed, upon the making of an affidavit of that fact by
the person claiming such Certificate to be lost, stolen or destroyed and, if
required by Patriot and BMOC, the posting by such person of a bond in such
reasonable amount as Patriot and BMOC may direct as indemnity against any claim
that may be made against it with respect to such Certificate, the Exchange Agent
or Patriot and BMOC will issue in exchange for such lost, stolen or destroyed
Certificate the Paired Shares of Patriot Stock and BMOC Stock and cash in lieu
of Excess Paired Shares, if any, and fractional Paired Shares, if any, to which
such person is entitled under Section 5.4(b) (and to the extent applicable,
dividends and distributions payable pursuant to Section 5.4(c)).
ARTICLE 6. REPRESENTATIONS AND WARRANTIES OF WYNDHAM
Except as set forth in the disclosure letter delivered at or prior to the
execution hereof to Patriot, which shall refer to the relevant Sections of this
Agreement (the "Wyndham Disclosure Letter"), Wyndham represents and warrants to
Patriot as follows:
6.1 Existence; Good Standing; Authority; Compliance With Law.
--------------------------------------------------------
(a) Wyndham is a corporation duly organized, validly existing and in
good standing under the laws of Delaware. Wyndham is duly licensed or qualified
to do business as a foreign corporation and is in good standing under the laws
of any other state of the United States in which the character of the properties
owned or leased by it therein or in which the transaction of its business makes
such qualification necessary, except where the failure to be so
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licensed or qualified could not reasonably be expected to have a material
adverse effect on the business, results of operations or financial condition of
Wyndham and the Wyndham Subsidiaries taken as a whole (a "Wyndham Material
Adverse Effect"). Wyndham has all requisite corporate power and authority to
own, operate, lease and encumber its properties and carry on its business as now
conducted.
(b) Each of the Wyndham Subsidiaries is a corporation or partnership
duly incorporated or organized, validly existing and in good standing under the
laws of its jurisdiction of incorporation or organization, has the corporate or
partnership power and authority to own its properties and to carry on its
business as it is now being conducted, and is duly qualified to do business and
is in good standing in each jurisdiction in which the ownership of its property
or the conduct of its business requires such qualification, except for
jurisdictions in which such failure to be so qualified or to be in good standing
could not reasonably be expected to have a Wyndham Material Adverse Effect.
(c) Neither Wyndham nor any of the Wyndham Subsidiaries is in
violation of any order of any court, governmental authority or arbitration board
or tribunal, or any law, ordinance, governmental rule or regulation to which
Wyndham or any Wyndham Subsidiary or any of their respective properties or
assets is subject, where such violation could have a Wyndham Material Adverse
Effect. Wyndham and the Wyndham Subsidiaries have obtained all licenses,
permits and other authorizations and have taken all actions required by
applicable law or governmental regulations in connection with their business as
now conducted, where the failure to obtain any such license, permit or
authorization or to take any such action could reasonably be expected to have a
Wyndham Material Adverse Effect.
(d) Copies of the Amended and Restated Certificate of Incorporation of
Wyndham (the "Wyndham Certificate") and Bylaws of Wyndham (the "Wyndham Bylaws")
and the other charter documents, bylaws, organizational documents and
partnership and joint venture agreements (and in each such case, all amendments
thereto) of each of the Wyndham Subsidiaries are listed in Section 6.1 of the
Wyndham Disclosure Letter, and the copies of such documents, which have
previously been delivered or made available to Patriot and its counsel, are true
and correct. For the purposes of this Agreement, the term "Wyndham Subsidiary"
shall include any of the entities listed under such heading in Section 6.4 of
the Wyndham Disclosure Letter.
6.2 Authorization, Validity and Effect of Agreements. Each of Wyndham and
------------------------------------------------
the Wyndham Subsidiaries has the requisite power and authority to enter into the
transactions contemplated hereby and to execute and deliver this Agreement and
the Ancillary Agreements to which it is a party. The Board of Directors of
Wyndham has approved this Agreement, the Merger, and the Ancillary Agreements to
which it is a party and the other transactions contemplated by this Agreement
and has resolved to recommend that the holders of Wyndham Common Stock adopt and
approve this Agreement, as ratified by New Patriot pursuant to the Patriot
Ratification Agreement, at the Wyndham stockholders' meeting which will be held
in accordance with the provisions of Section 8.3 hereof. In connection with the
foregoing, the
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Board of Directors of Wyndham has taken such actions and votes as are necessary
on its part to render the provisions of Section 203 of the DGCL and all other
applicable takeover statutes inapplicable to this Agreement, the Merger, the
Stock Purchase Agreement, the Stock Purchase and the transactions contemplated
by this Agreement and the other Ancillary Agreements. As of the date hereof, all
of the directors and executive officers of Wyndham have indicated that they
presently intend to vote all shares of Wyndham Common Stock which they own to
approve this Agreement, as ratified by New Patriot pursuant to the Patriot
Ratification Agreement, at the Wyndham stockholders' meeting which will be held
in accordance with the provisions of Section 8.3. Subject only to the approval
of this Agreement, as ratified by New Patriot pursuant to the Patriot
Ratification Agreement, by the holders of two-thirds of the outstanding shares
of Wyndham Common Stock, the execution by Wyndham of this Agreement, the
Ancillary Agreements to which it is a party and consummation of the transactions
contemplated by this Agreement and the Ancillary Agreements have been duly
authorized by all requisite corporate action on the part of Wyndham. This
Agreement constitutes, and the Ancillary Agreements to which it is a party (when
executed and delivered pursuant hereto) will constitute, the valid and legally
binding obligations of Wyndham, enforceable against Wyndham in accordance with
their respective terms, subject to applicable bankruptcy, insolvency, moratorium
or other similar laws relating to creditors' rights and general principles of
equity.
6.3 Capitalization.
--------------
(a) The authorized capital stock of Wyndham consists of 45,000,000
shares of Wyndham Common Stock and 5,000,000 shares of preferred stock, par
value $.01 per share (the "Wyndham Preferred Stock"). As of the date of this
Agreement, (i) 20,018,299 shares of Wyndham Common Stock are issued and
outstanding, (ii) 2,133,811 and 50,000 shares of Wyndham Common Stock are
reserved for issuance pursuant to the Wyndham's 1996 Long Term Incentive Plan
and rights under the Wyndham's Non-Employee Directors' Retainer Stock Plan
(collectively, the "Wyndham Stock Plans"), respectively, subject to adjustment
on the terms set forth in the Wyndham Stock Plans, (iii) no shares of Wyndham
Preferred Stock were issued and outstanding, and (iv) no shares of Wyndham
Common Stock or Wyndham Preferred Stock were held in the treasury of Wyndham.
As of the date of this Agreement, Wyndham had no shares of Wyndham Common Stock
reserved for issuance other than as described above. All such issued and
outstanding shares of capital stock of Wyndham are duly authorized, validly
issued, fully paid, nonassessable and free of preemptive rights. Except as set
forth in Section 6.3 of the Wyndham Disclosure Letter, Wyndham has no
outstanding bonds, debentures, notes or other obligations the holders of which
have the right to vote (or which are convertible into or exercisable for
securities having the right to vote) with the stockholders of Wyndham on any
matter. Except for the Existing Wyndham Options (all of which have been issued
under the Wyndham Stock Plans), there are not at the date of this Agreement any
existing options, warrants, calls, subscriptions, convertible securities, or
other rights, agreements or commitments which obligate Wyndham to issue,
transfer or sell any shares of capital stock of Wyndham. Section 6.3 of the
Wyndham Disclosure Letter sets forth a full list of the Existing Wyndham
Options, including the name of the person to whom
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such stock options have been granted, the number of shares subject to each
option, the per share exercise price for each option and the vesting schedule
for each option. Pursuant to the terms of the Wyndham Stock Plans, at the
Effective Time, all Existing Wyndham Options will be assumed by Patriot or BMOC
in accordance with the provisions of Section 5.2(d). Except as set forth in
Section 6.3 of the Wyndham Disclosure Letter, there are no agreements or
understandings to which Wyndham or any Wyndham Subsidiary is a party with
respect to the voting of any shares of capital stock of Wyndham or which
restrict the transfer of any such shares, nor does Wyndham have knowledge of any
such agreements or understandings with respect to the voting of any such shares
or which restrict the transfer of any such shares. Except as set forth in
Section 6.3 of the Wyndham Disclosure Letter, there are no outstanding
contractual obligations of Wyndham or any Wyndham Subsidiary to repurchase,
redeem or otherwise acquire any shares of capital stock, partnership interests
or any other securities of Wyndham or any Wyndham Subsidiary. Except as set
forth in Section 6.3 of the Wyndham Disclosure Letter, neither Wyndham nor any
Wyndham Subsidiary is under any obligation, contingent or otherwise, by reason
of any agreement to register the offer and sale or resale of any of their
securities under the Securities Act. After the Effective Time, except to the
extent set forth in Section 5.2(d), the Surviving Corporation will have no
obligation to issue, transfer or sell any shares of capital stock or other
equity interest of Wyndham or the Surviving Corporation pursuant to any Wyndham
Stock Plan or any other Wyndham Benefit Plan (as defined in Section 6.14
hereof).
6.4 Subsidiaries. Except as set forth in Section 6.4 of the Wyndham
------------
Disclosure Letter, Wyndham owns directly or indirectly each of the outstanding
shares of capital stock or all of the partnership or other equity interests of
each of the Wyndham Subsidiaries. Each of the outstanding shares of capital
stock in each of the Wyndham Subsidiaries having corporate form is duly
authorized, validly issued, fully paid and nonassessable. Except as set forth
in Section 6.4 of the Wyndham Disclosure Letter, each of the outstanding shares
of capital stock of, or partnership or other equity interests in, each of the
Wyndham Subsidiaries is owned, directly or indirectly, by Wyndham free and clear
of all liens, pledges, security interests, claims or other encumbrances. The
following information for each Wyndham Subsidiary as of the date hereof is set
forth in Section 6.4 of the Wyndham Disclosure Letter: (i) its name and
jurisdiction of incorporation or organization; (ii) its authorized capital stock
or share capital or partnership or other interests; (iii) the name of each
stockholder or owner of a partnership or other equity interest and the number of
issued and outstanding shares of capital stock or share capital or percentage
ownership for non-corporate entities held by it; and (iv) the name of the
general partners, if applicable.
6.5 Other Interests. Except as set forth in Sections 6.4 and 6.5 of the
---------------
Wyndham Disclosure Letter and except for such Other Interests (as hereinafter
defined) of Wyndham or any of the Wyndham Subsidiaries that would not, in the
aggregate, be material to Wyndham and the Wyndham Subsidiaries, taken as a
whole, neither Wyndham nor any Wyndham Subsidiary owns directly or indirectly
any interest or investment (whether equity or debt) in any corporation,
partnership, joint venture, business, trust or other entity (other than
investments in short-term investment securities) (collectively "Other
Interests").
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6.6 No Violation. Except as set forth in Section 6.6 of the Wyndham
------------
Disclosure Letter (copies of which documents, except as set forth in Annex 6.6A,
have been reviewed by Patriot), neither the execution and delivery by Wyndham of
this Agreement or the Ancillary Agreements nor consummation by Wyndham of the
transactions contemplated by this Agreement or the Ancillary Agreements in
accordance with their terms hereof, will: (i) conflict with or result in a
breach of any provisions of the Wyndham Certificate, the Wyndham Bylaws, or the
organizational documents, partnership agreements or joint venture agreements of
Wyndham or any Wyndham Subsidiary; (ii) violate, or conflict with, or result in
a breach of any provision of, or constitute a default (or an event which, with
notice or lapse of time or both, would constitute a default) under, or result in
the termination or in a right of termination or cancellation of, or accelerate
the performance required by, or result in the creation of any lien, security
interest, charge or encumbrance upon any of the properties of Wyndham or the
Wyndham Subsidiaries under, or result in being declared void, voidable or
without further binding effect, any of the terms, conditions or provisions of
any note, bond, mortgage, indenture, deed of trust or any license, franchise,
permit, lease, contract, agreement (including, without limitation, any
management or franchise agreement) or other instrument, commitment or obligation
to which Wyndham or any of the Wyndham Subsidiaries is a party, or by which
Wyndham or any of the Wyndham Subsidiaries or any of their properties is bound
or affected, except for any of the foregoing matters which, individually or in
the aggregate, could not reasonably be expected to have a Wyndham Material
Adverse Effect; or (iii) other than the filings provided for in Article 1 of
this Agreement, the Hart-Scott-Rodino Antitrust Improvements Act of 1976 (the
"HSR Act"), the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), the Securities Act or applicable state securities and "Blue Sky" laws
(collectively, the "Regulatory Filings"), require any consent, approval or
authorization of, or declaration, filing or registration with, any governmental
or regulatory authority, except where the failure to obtain any such consent,
approval or authorization of, or declaration, filing or registration with, any
governmental or regulatory authority could not reasonably be expected to have a
Wyndham Material Adverse Effect.
6.7 SEC Documents. Wyndham has filed all required forms, reports and
-------------
documents with the Securities and Exchange Commission ("SEC") since the earliest
date on which Wyndham became subject to the reporting obligations of Section 13
or 15(d) of the Exchange Act (collectively, the "Wyndham SEC Reports"), all of
which were prepared in accordance with the applicable requirements of the
Exchange Act, the Securities Act and the rules and regulations promulgated
thereunder (the "Securities Laws"). The Wyndham SEC Reports were filed with the
SEC in a timely manner and constitute all forms, reports and documents required
to be filed by Wyndham under the Securities Laws since the earliest date on
which Wyndham became subject to the reporting obligations of Section 13 or 15(d)
of the Exchange Act. As of their respective dates, the Wyndham SEC Reports (i)
complied as to form in all material respects with the applicable requirements of
the Securities Laws and (ii) did not contain any untrue statement of a material
fact or omit to state a material fact required to be stated therein or necessary
to make the statements made therein, in the light of the circumstances under
which they were made, not misleading. Each of the consolidated balance sheets
of Wyndham included in or incorporated by reference into the Wyndham SEC Reports
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(including the related notes and schedules) fairly presents the consolidated
financial position of Wyndham and the Wyndham Subsidiaries as of its date and
each of the consolidated statements of income, retained earnings and cash flows
of Wyndham included in or incorporated by reference into the Wyndham SEC Reports
(including any related notes and schedules) fairly presents the results of
operations, retained earnings or cash flows, as the case may be, of Wyndham and
the Wyndham Subsidiaries for the periods set forth therein (subject, in the case
of unaudited statements, to normal year-end audit adjustments which would not be
material in amount or effect), in each case in accordance with generally
accepted accounting principles consistently applied during the periods involved,
except as may be noted therein and except, in the case of the unaudited
statements, as permitted by Form 10-Q pursuant to Section 13 or 15(d) of the
Exchange Act.
6.8 Litigation. Except as set forth in Section 6.8 of the Wyndham
----------
Disclosure Letter, there are (i) no continuing orders, injunctions or decrees of
any court, arbitrator or governmental authority to which Wyndham or any Wyndham
Subsidiary is a party or by which any of its properties or assets are bound or,
to the reasonable best knowledge of Wyndham, to which any of its directors,
officers, employees or, agents, in such capacities, is a party or by which any
of their properties or assets are bound, and (ii) no actions, suits or
proceedings pending against Wyndham or any Wyndham Subsidiary or, to the
reasonable best knowledge of Wyndham, against any of its directors, officers,
employees or agents, in such capacities, or, to the reasonable best knowledge of
Wyndham, threatened against Wyndham or any Wyndham Subsidiary or against any of
its directors, officers, employees or agents, at law or in equity, or before or
by any federal or state commission, board, bureau, agency or instrumentality,
that are reasonably likely, individually or in the aggregate, to have a Wyndham
Material Adverse Effect.
6.9 Absence of Certain Changes. Except as disclosed in the Wyndham SEC
--------------------------
Reports filed with the SEC prior to the date hereof or as set forth in Section
6.9 of the Wyndham Disclosure Letter or as permitted by Section 8.2, since
December 31, 1996, Wyndham and the Wyndham Subsidiaries have conducted their
business only in the ordinary course of such business and there has not been:
(i) any Wyndham Material Adverse Effect; (ii) as of the date hereof, any
declaration, setting aside or payment of any dividend or other distribution with
respect to the Wyndham Common Stock; (iii) any material commitment, contractual
obligation (including, without limitation, any management or franchise
agreement, any lease (capital or otherwise) or any letter of intent), borrowing,
guaranty, capital expenditure or transaction (each, a "Commitment") entered into
by Wyndham or any of the Wyndham Subsidiaries outside the ordinary course of
business except for Commitments for expenses of attorneys, accountants and
investment bankers incurred in connection with the Merger and the transactions
contemplated hereby and thereby; or (iv) any material change in Wyndham's
accounting principles, practices or methods.
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6.10 Taxes. Except as set forth in Section 6.10 of the Wyndham Disclosure
-----
Letter and except as would otherwise not be reasonably expected to have a
Wyndham Material Adverse Effect (other than with respect to subsection (f)
below):
(a) Wyndham and each of the Wyndham Subsidiaries has paid or caused to
be paid all federal, state, local, foreign, and other taxes, including without
limitation, income taxes, estimated taxes, alternative minimum taxes, excise
taxes, sales taxes, use taxes, value-added taxes, gross receipts taxes,
franchise taxes, capital stock taxes, employment and payroll-related taxes,
withholding taxes, stamp taxes, transfer taxes, windfall profit taxes,
environmental taxes and real and personal property taxes, whether or not
measured in whole or in part by net income, and all deficiencies, or other
additions to tax, interest, fines and penalties (collectively, "Taxes"), owed or
accrued by it through the date hereof.
(b) Wyndham and each of the Wyndham Subsidiaries has timely filed all
federal, state, local and foreign tax returns required to be filed by any of
them through the date hereof, and all such returns completely and accurately set
forth the amount of any Taxes relating to the applicable period.
(c) Neither the Internal Revenue Service ("IRS") nor any other
governmental authority is now asserting by written notice to Wyndham or any
Wyndham Subsidiary or, to the knowledge of Wyndham or the Wyndham Subsidiaries,
threatening to assert against Wyndham or any Wyndham Subsidiary any deficiency
or claim for additional Taxes. There is no dispute or claim concerning any tax
liability of Wyndham or any Wyndham Subsidiary, either claimed or raised by any
governmental authority, or as to which any director or officer of Wyndham or any
Wyndham Subsidiary has reason to believe may be claimed or raised by any federal
or state governmental authority. No claim has ever been made by a taxing
authority in a jurisdiction where Wyndham does not file reports and returns that
Wyndham is or may be subject to taxation by that jurisdiction. There are no
security interests on any of the assets of Wyndham or any Wyndham Subsidiary
that arose in connection with any failure (or alleged failure) to pay any Taxes.
Wyndham has never entered into a closing agreement pursuant to Section 7121 of
the Code.
(d) Wyndham has not received written notice of any audit of any tax
return filed by Wyndham, and Wyndham has not been notified by any tax authority
that any such audit is contemplated or pending. Neither Wyndham nor any of the
Wyndham Subsidiaries has executed or filed with the IRS or any other taxing
authority any agreement now in effect extending the period for assessment or
collection of any income or other Taxes, and no extension of time with respect
to any date on which a tax return was or is to be filed by Wyndham is in force.
True, correct and complete copies of all federal, state and local income or
franchise tax returns filed by Wyndham and each of the Wyndham Subsidiaries and
all communications relating thereto have been delivered to Patriot or made
available to representatives of Patriot.
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(e) Wyndham and each Wyndham Subsidiary has withheld and paid all
taxes required to have been withheld and paid in connection with amounts paid or
owing to any employee, independent contractor, creditor, stockholder or other
party.
(f) Wyndham estimates that as of December 31, 1996, the accumulated
and current earnings and profits ("E&P") of Wyndham (as determined for federal
income tax purposes) was not in excess of $15 million.
6.11 Books and Records.
-----------------
(a) The books of account and other financial records of Wyndham and
each of the Wyndham Subsidiaries are true, complete and correct in all material
respects, have been maintained in accordance with good business practices, and
are accurately reflected in all material respects in the financial statements
included in the Wyndham SEC Reports.
(b) The minute books and other records of Wyndham and each of the
Wyndham Subsidiaries have been made available to Patriot, contain in all
material respects accurate records of all meetings and accurately reflect in all
material respects all other corporate action of the stockholders and directors
and any committees of the Board of Directors of Wyndham and each of the Wyndham
Subsidiaries and all actions of the partners of each of the Wyndham
Subsidiaries.
6.12 Properties. All of the real estate properties owned or leased by
----------
Wyndham and each of the Wyndham Subsidiaries are set forth in Section 6.12 of
the Wyndham Disclosure Letter. Wyndham has no direct or indirect ownership
interest in any real property other than the properties owned by Wyndham and the
Wyndham Subsidiaries and set forth in Sections 6.5 and 6.12 of the Wyndham
Disclosure Letter. Except as set forth in Section 6.12 of the Wyndham
Disclosure Letter, Wyndham and each Wyndham Subsidiary own fee simple or
leasehold title (each as indicated in Section 6.12 of the Wyndham Disclosure
Letter) to each of the real properties identified in Section 6.12 of the Wyndham
Disclosure Letter (the "Wyndham Properties"), free and clear of liens, mortgages
or deeds of trust, claims against title, charges which are liens, security
interests or other encumbrances on title (collectively, "Encumbrances"). The
Wyndham Properties are not subject to any easements, rights of way, covenants,
conditions, restrictions or other written agreements, laws, ordinances and
regulations affecting building use or occupancy, or reservations of an interest
in title (collectively, "Property Restrictions"), except for (i) Encumbrances,
Property Restrictions and other matters set forth in Section 6.12 of the Wyndham
Disclosure Letter, (ii) Property Restrictions imposed or promulgated by law or
any governmental body or authority with respect to real property, including
zoning regulations, that do not adversely affect the current use of the
property, materially detract from the value of or materially interfere with the
present use of the property, (iii) Encumbrances and Property Restrictions
disclosed on existing title policies, commitments (and the documents listed as
exceptions therein), reports, certificates of title, title opinions or current
surveys (in each case copies of which title policies, commitments (and the
documents listed as exceptions therein), reports and surveys have been delivered
or
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made available to Patriot and are listed in Section 6.12 of the Wyndham
Disclosure Letter), and (iv) mechanics', carriers', supplier's workmen's or
repairmen's liens and other Encumbrances, Property Restrictions and other
limitations of any kind, if any, which, individually or in the aggregate, are
not material in amount, do not materially detract from the value of or
materially interfere with the present use of any of the Wyndham Properties
subject thereto or affected thereby, and do not otherwise materially impair
business operations conducted by Wyndham and the Wyndham Subsidiaries and which
have arisen or been incurred only in the ordinary course of business. Except as
set forth in Section 6.12 of the Wyndham Disclosure Letter, valid policies of
title insurance have been issued insuring Wyndham's or the applicable Wyndham
Subsidiary's fee simple (or leasehold to the extent disclosed in Section 6.12 of
the Wyndham Disclosure Letter) title to each of the Wyndham Properties in
amounts at least equal to the purchase price thereof or, if acquired through
merger, the stipulated value thereof, and such policies are, at the date hereof,
in full force and effect and no claim has been made against any such policy and
Wyndham has no knowledge of any facts or circumstances which would constitute
the basis for such a claim. To the best knowledge of Wyndham, except as set
forth in Section 6.12 of the Wyndham Disclosure Letter, (A) no certificate,
permit or license from any governmental authority having jurisdiction over any
of the Wyndham Properties or any agreement, easement or other right which is
necessary to permit the lawful use and operation of the buildings and
improvements on any of the Wyndham Properties as currently operated or which is
necessary to permit the lawful use and operation of all driveways, roads and
other means of egress and ingress to and from any of the Wyndham Properties (a
"REA Agreement") has not been obtained and is not in full force and effect, and
there is no pending threat of modification or cancellation of any of same nor is
Wyndham nor any Wyndham Subsidiary currently in default under any REA Agreement
and the Wyndham Properties are in full compliance with all governmental permits,
licenses and certificates, except for such defaults which or where such
noncompliance could not reasonably be expected to have a Patriot Material
Adverse Effect; (B) no written notice of any violation of any federal, state or
municipal law, ordinance, order, regulation or requirement affecting any portion
of any of the Wyndham Properties has been issued by any governmental authority;
(C) there are no material structural defects relating to any of the Wyndham
Properties; (D) there is no Wyndham Property whose building systems are not in
working order in any material respect; (E) there is no physical damage to any
Wyndham Property in excess of $20,000 for which there is no insurance in effect
(other than reasonable and customary deductibles) covering the full cost of the
restoration; and (F) there is no current renovation or restoration or tenant
improvements to any Wyndham Property or any portion thereof in process or
committed to be performed, the cost of which exceeds $50,000, except in each
instance as set forth in Section 6.12 of the Wyndham Disclosure Letter. Except
as noted in Section 6.12 of the Wyndham Disclosure Letter, the use and occupancy
of each of the Wyndham Properties complies in all material respects with all
applicable codes and zoning laws and regulations, and Wyndham has no knowledge
of any pending or threatened proceeding or action that will in any manner affect
the size of, use of, improvements on, construction on, or access to any of the
Wyndham Properties, with such exceptions as are not material and do not
interfere with the use made and proposed to be made of such Wyndham Properties.
Neither Wyndham nor any of the Wyndham Subsidiaries has received any written
26
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notice to the effect that (x) any betterment assessments have been levied
against, or any condemnation or rezoning proceedings are pending or threatened
with respect to any of the Wyndham Properties or (y) any zoning, building or
similar law, code, ordinance, order or regulation is or will be violated by the
continued maintenance, operation or use of any buildings or other improvements
on any of the Wyndham Properties or by the continued maintenance, operation or
use of the parking areas. Except as set forth on Schedule 6.12 of the Wyndham
Disclosure Letter and except as could otherwise not have a Wyndham Material
Adverse Effect, following a casualty, each of the Wyndham Properties could be
reconstructed and used for hotel purposes under applicable zoning laws and
regulations, except that in certain circumstances such reconstruction would have
to comply with the dimensional requirements of applicable zoning laws and
regulations in effect at the time of reconstruction. Except as set forth in
Sections 6.10 and 6.12 of the Wyndham Disclosure Letter and except as could
otherwise not have a Wyndham Material Adverse Effect, there are no outstanding
abatement proceedings or appeals with respect to the assessment of any Wyndham
Property for the purpose of real property taxes, and there are no agreements
with any governmental authority with respect to such assessments or tax rates on
any Wyndham Property.
6.13 Environmental Matters. Wyndham and the Wyndham Subsidiaries are in
---------------------
compliance with all Environmental Laws (as defined below), except for any
noncompliance that, either singly or in the aggregate, could not have a Wyndham
Material Adverse Effect. As used in this Agreement, "Environmental Laws" shall
mean all federal, state and local laws, rules, regulations, ordinances and
orders that purport to regulate the release of hazardous substances or other
materials into the environment, or impose requirements relating to environmental
protection. Wyndham has previously made available to Patriot copies of all
documents concerning any environmental or health and safety matter adversely
affecting Wyndham and copies of environmental audits or risk assessments, site
assessments, documentation regarding off-site disposal of Hazardous Materials
(as defined below), spill control plans and material correspondence with any
federal, state or local government, court, administrative agency, commission, or
other governmental authority, domestic or foreign, regarding the foregoing. As
used in this Agreement, "Hazardous Materials" means any "hazardous waste" as
defined in either the United States Resource Conservation and Recovery Act or
regulations adopted pursuant to said act, any "hazardous substances" or
"hazardous materials" as defined in the United States Comprehensive
Environmental Response, Compensation and Liability Act and, to the extent not
included in the foregoing, any medical waste, oil or fractions thereof,
pollutants or contaminants. Except as set forth in Section 6.13 of the Wyndham
Disclosure Letter or disclosed in the Wyndham SEC Reports and except for any
matter, which if the outcome were adverse, would not reasonably be expected to
have a Wyndham Material Adverse Effect, there is no administrative or judicial
enforcement proceeding pending or to the best knowledge of Wyndham, threatened
against Wyndham or any Wyndham
27
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Subsidiary under any Environmental Law. Except as set forth in Section 6.13 of
the Wyndham Disclosure Letter or disclosed in the Wyndham SEC Reports and except
for any matter, which if the outcome were adverse, would not reasonably be
expected to have a Wyndham Material Adverse Effect, neither Wyndham nor any
Wyndham Subsidiary or, to the best knowledge of Wyndham, any legal predecessor
of Wyndham or any Wyndham Subsidiary, has received any written notice that it is
potentially responsible under any Environmental Law for response costs or
natural resource damages, as those terms are defined under the Environmental
Laws, at any location and, to the best knowledge of Wyndham, neither Wyndham nor
any Wyndham Subsidiary has transported or disposed of, or allowed or arranged
for any third party to transport or dispose of, any waste containing Hazardous
Materials at any location included on the National Priorities List, as defined
under the Comprehensive Environmental Response, Compensation, and Liability Act,
or any location proposed for inclusion on that list or at any location on any
analogous state list. Except as set forth in Section 6.13 of the Wyndham
Disclosure Letter, and except for any matter, which if the outcome were adverse,
would not reasonably be expected to have a Wyndham Material Adverse Effect,
Wyndham has no knowledge of any release on the real property owned or leased by
Wyndham or any Wyndham Subsidiary or predecessor entity of Hazardous Materials
in a manner that could reasonably be expected to result in an order to perform a
response action or in material liability under the Environmental Laws and, to
the best knowledge of Wyndham, there is no hazardous waste treatment, storage or
disposal facility, and except for the following which, to the best knowledge of
Wyndham, would not reasonably be expected to have a Wyndham Material Adverse
Effect based on its current condition, underground storage tank, landfill,
surface impoundment, underground injection well, friable asbestos or PCB's, as
those terms are defined under the Environmental Laws, located at any of the real
property owned or leased by Wyndham or any Wyndham Subsidiary or predecessor
entity or facilities utilized by Wyndham or the Wyndham Subsidiaries.
6.14 Employee Benefit Plans. With respect to all the employee benefit
----------------------
plans, programs and arrangements maintained for the benefit of any current or
former employee, officer or director of Wyndham or any of the Wyndham
Subsidiaries (the "Wyndham Benefit Plans"), except as set forth in Section 6.14
of the Wyndham Disclosure Letter or in the Wyndham SEC Reports, (a) each Wyndham
Benefit Plan and any related trust intended to be qualified under Sections
401(a) and 501(a) of the Code has received a favorable determination letter from
the IRS that it is so qualified and nothing has occurred since the date of such
letter that could reasonably be expected to materially adversely affect the
qualified status of such Wyndham Benefit Plan or related trust, (b) each Wyndham
Benefit Plan has been operated in all material respects in accordance with the
terms and requirements of applicable law and all required returns and filings
for each Wyndham Benefit Plan have been timely made, (c) neither Wyndham nor any
of the Wyndham Subsidiaries has incurred any direct or indirect material
liability under, arising out of or by operation of Title I or Title IV of the
Employee Retirement Income Security Act of 1974, as amended ("ERISA"), in
connection with any Wyndham Benefit Plan or other retirement plan or
arrangement, and no fact or event exists that could reasonably be expected to
give rise to any such material liability, (d) all material contributions due and
payable on or before the date hereof in respect of each Wyndham Benefit Plan
have been made in full and in proper form, (e) neither Wyndham nor any of the
Wyndham Subsidiaries have ever sponsored or been obligated to contribute to any
"multiemployer plan" (as defined in Section 3(37) of ERISA), "multiple employer
plan" (as defined in Section 413 of the Code) or "defined benefit plan" (as
defined in Section 3(35) of ERISA), (f) except as otherwise required under
ERISA, the Code and applicable state laws, no
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Wyndham Benefit Plan currently or previously maintained by Wyndham or any of its
subsidiaries provides any post-retirement health or life insurance benefits, and
neither Wyndham nor any of its subsidiaries maintains any obligations to provide
post-retirement health or life insurance benefits in the future, (g) all
material reporting and disclosure obligations imposed under ERISA and the Code
have been satisfied with respect to each Wyndham Benefit Plan and (h) no benefit
or amount payable or which may become payable by Wyndham or any of the Wyndham
Subsidiaries pursuant to any Wyndham Benefit Plan, agreement or contract with
any employee, shall constitute an "excess parachute payment," within the meaning
of Section 280G of the Code, which is or may be subject to the imposition of any
excise tax under Section 4999 of the Code or which would not be deductible by
reason of Section 280G of the Code.
6.15 Labor Matters. Except as set forth in Section 6.15 of the Wyndham
-------------
Disclosure Letter, neither Wyndham nor any Wyndham Subsidiary is a party to, or
bound by, any collective bargaining agreement, contract or other agreement or
understanding with a labor union or labor union organization. There is no
unfair labor practice or labor arbitration proceeding pending or, to the
knowledge of Wyndham, threatened against Wyndham or any of the Wyndham
Subsidiaries relating to their business, except for any such proceeding which
could not reasonably be expected to have a Wyndham Material Adverse Effect. To
the knowledge of Wyndham, there are no organizational efforts with respect to
the formation of a collective bargaining unit presently being made or threatened
involving employees of Wyndham or any of the Wyndham Subsidiaries.
6.16 No Brokers. Neither Wyndham nor any of the Wyndham Subsidiaries has
----------
entered into any contract, arrangement or understanding with any person or firm
which may result in the obligation of such entity or Patriot to pay any finder's
fees, brokerage or agent's commissions or other like payments in connection with
the negotiations leading to this Agreement or consummation of the transactions
contemplated hereby, except that Wyndham has retained Smith Barney Inc. ("Smith
Barney") as its financial advisor in connection with the transactions
contemplated by this Agreement and the Special Committee has retained Merrill
Lynch, Pierce, Fenner & Smith Incorporated ("Merrill Lynch") as its financial
advisor in connection with the transactions contemplated by this Agreement.
Other than the foregoing arrangements, Patriot's arrangements with PaineWebber
Incorporated ("PaineWebber") and Salomon Brothers Inc. ("Salomon Brothers"), and
the Crow Family Entities' arrangements with Montgomery Securities, Wyndham is
not aware of any claim for payment of any finder's fees, brokerage or agent's
commissions or other like payments in connection with the negotiations leading
to this Agreement or consummation of the transactions contemplated hereby.
6.17 Opinion of Financial Advisors. Wyndham has received the oral opinion
-----------------------------
of Smith Barney to the effect that, as of the date hereof, the Merger
Consideration is fair, from a financial point of view, to the holders of Wyndham
Common Stock. The Special Committee of the Board of Directors of Wyndham has
received the oral opinion of Merrill Lynch to the effect that, as of the date
hereof, the consideration to be received by the holders of Wyndham
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Common Stock (other than the Principal Stockholder) is fair to the holders of
Wyndham Common Stock from a financial point of view.
6.18 Related Party Transactions. Set forth in the Wyndham SEC Reports
--------------------------
and/or Section 6.18 of the Wyndham Disclosure Letter is a list of all
arrangements, agreements and contracts entered into by Wyndham or any of the
Wyndham Subsidiaries (which are or will be in effect as of or after the date of
this Agreement) involving payments in excess of $60,000 with (i) any consultant
(excluding legal counsel, accountants and financial advisors), or (ii) any
person who is an officer, director or affiliate of Wyndham or any of the Wyndham
Subsidiaries, any relative of any of the foregoing or any entity of which any of
the foregoing is an affiliate or (iii) any person who acquired Wyndham Stock in
a private placement. All such documents are listed in Schedule A of Section
6.18 of the Wyndham Disclosure Letter, and the copies of such documents, which,
other than as set forth in Annex 6.18 to Section 6.18 of the Wyndham Disclosure
Letter, have previously been provided or made available to Patriot and its
counsel, are true and correct copies.
6.19 Contracts and Commitments.
-------------------------
(a) Sections 6.5, 6.6, 6.12 and 6.19 of the Wyndham Disclosure Letter
sets forth (i) all notes, debentures, bonds and other evidence of indebtedness
which are secured or collateralized by (A) mortgages, deeds of trust or other
security interests in the Wyndham Properties or personal property of Wyndham or
any of the Wyndham Subsidiaries, or (B) any direct or indirect ownership
interest in Wyndham or any of the Wyndham Subsidiaries, (ii) each Commitment
entered into by Wyndham or any of the Wyndham Subsidiaries other than
Commitments entered into with unaffiliated third parties in the ordinary course
of operations at Wyndham's individual hotels which may result in total payments
by or liability of Wyndham or any Wyndham Subsidiary in excess of $50,000 and
(iii) all material leases and subleases entered into by Wyndham or any of the
Wyndham Subsidiaries as lessee or sublessee which may result in total payments
or liability in excess of $50,000. Descriptions of the foregoing are listed in
Sections 6.5, 6.6, 6.12 and 6.19 of the Wyndham Disclosure Letter, and the
copies of such documents, which, other than as set forth in Annex 6.6 to Section
6.6 of the Wyndham Disclosure Letter and Annex 6.19 to Section 6.19 of the
Wyndham Disclosure Letter, have previously been provided or made available to
Patriot and its counsel, are true and correct. None of Wyndham or any of the
Wyndham Subsidiaries has received any written notice of a default that has not
been cured under any of the documents described or is in default respecting any
payment obligations thereunder beyond any applicable grace periods except where
such default could not reasonably be expected to have a Wyndham Material Adverse
Effect.
(b) All joint venture agreements to which Wyndham or any of the
Wyndham Subsidiaries is a party are set forth in Sections 6.5, 6.6 and 6.19 of
the Wyndham Disclosure Letter and neither Wyndham nor any of the Wyndham
Subsidiaries is in default with respect to any obligations, which individually
or in the aggregate are material, thereunder.
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(c) Section 6.19 of the Wyndham Disclosure Letter sets forth all of
the franchise, management, marketing, affiliation or other agreements or
contracts pursuant to which Wyndham or any of the Wyndham Subsidiaries provide
franchise, license, sales, marketing, reservation, management or operation
services to or for any hotels (collectively, the "Operating Agreements").
Except as expressly set forth in Section 6.19 of the Wyndham Disclosure Letter,
(i) other than as set forth in Annex 6.19 to Section 6.19 of the Wyndham
Disclosure Letter, Wyndham has delivered or made available to Patriot and its
counsel true, correct and complete copies of all of the Operating Agreements;
(ii) each of the Operating Agreements is legal, valid, binding, enforceable and
in full force and effect as to Wyndham and/or the applicable Wyndham
Subsidiaries, and, except as could not reasonably be expected to have a Wyndham
Material Adverse Effect, will continue to be legal, valid, binding, enforceable
and in full force and effect on identical terms after the Closing; (iii) neither
Wyndham nor any of the Wyndham Subsidiaries is in breach or default thereof in
any material respect; (iv) none of the Operating Agreements have been modified
in any material respect, except to the extent disclosed in the documents
delivered or made available to Patriot and its counsel; (v) except as set forth
in Section 6.4 of the Wyndham Disclosure Letter, neither Wyndham nor any of the
Wyndham Subsidiaries have assigned, transferred, conveyed, mortgaged or
encumbered any interest in any of the Operating Agreements; (vii) except as
could not reasonably be expected to have a Wyndham Material Adverse Effect,
neither Wyndham nor any of the Wyndham Subsidiaries have in the past been
required, are currently required or anticipate being required to make any
payments or loans to any party under any of the Operating Agreements as a result
of the failure of a hotel to meet or exceed any performance thresholds or to
prevent any other party from exercising a right to terminate any of the
Operating Agreements.
6.20 Disclosure. The representations, warranties and statements made by
----------
Wyndham in this Agreement, the Ancillary Agreements and in the Wyndham
Disclosure Letter and in the certificates and other documents expressly
identified in this Agreement as having been delivered pursuant hereto do not
contain any untrue statement of a material fact, and, when taken together with
each other and the Wyndham SEC Reports, do not omit to state any material fact
necessary to make such representations, warranties and statements, in light of
the circumstances under which they are made, not misleading.
6.21 Definition of Wyndham's Knowledge. As used in this Agreement, the
---------------------------------
phrase "to the knowledge of Wyndham" or "to the best knowledge of Wyndham" or
any similar phrase means the actual, not the constructive or imputed, knowledge
of those individuals identified in Section 6.21 of the Wyndham Disclosure
Letter.
ARTICLE 7. REPRESENTATIONS AND WARRANTIES OF PATRIOT
Except as set forth in the disclosure letter delivered at or prior to the
execution hereof to Wyndham, which shall refer to the relevant Sections of this
Agreement (the "Patriot Disclosure Letter"), Patriot represents and warrants to
Wyndham as follows:
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7.1 Existence; Good Standing; Authority; Compliance With Law.
--------------------------------------------------------
(a) Patriot is a corporation duly incorporated, validly existing and
in good standing under the laws of the state of its incorporation. Patriot is
duly licensed or qualified to do business as a foreign corporation and is in
good standing under the laws of any other state of the United States in which
the character of the properties owned or leased by it therein or in which the
transaction of its business makes such qualification necessary, except where the
failure to be so licensed or qualified could not reasonably be expected to have
a material adverse effect on the business, results of operations or financial
condition of Patriot and the Patriot Subsidiaries taken as a whole (a "Patriot
Material Adverse Effect"). Patriot has all requisite corporate power and
authority to own, operate, lease and encumber its properties and carry on its
business as now conducted.
(b) Each of the Patriot Subsidiaries is a corporation or partnership
duly incorporated or organized, validly existing and in good standing under the
laws of its jurisdiction of incorporation or organization, has the corporate or
partnership power and authority to own its properties and to carry on its
business as it is now being conducted, and is duly qualified to do business and
is in good standing in each jurisdiction in which the ownership of its property
or the conduct of its business requires such qualification, except for
jurisdictions in which such failure to be so qualified or to be in good standing
could not reasonably be expected to have a Patriot Material Adverse Effect.
(c) Neither Patriot nor any Patriot Subsidiary is in violation of any
order of any court, governmental authority or arbitration board or tribunal, or
any law, ordinance, governmental rule or regulation to which Patriot or any
Patriot Subsidiary or any of their respective properties or assets is subject,
where such violation could have a Patriot Material Adverse Effect. Patriot and
the Patriot Subsidiaries have obtained all licenses, permits and other
authorizations and have taken all actions required by applicable law or
governmental regulations in connection with their business as now conducted,
where the failure to obtain any such license, permit or authorization or to take
any such action could have a Patriot Material Adverse Effect.
(d) Copies of the Patriot Certificate, the Patriot Bylaws and the
charter documents, bylaws, organizational documents and partnership and joint
venture agreements (and in each such case, all amendments thereto) of each of
the Patriot Subsidiaries are listed in Section 7.1 of the Patriot Disclosure
Letter, and the copies of such documents, which have previously been delivered
or made available to Wyndham or its counsel, are true and correct copies. For
purposes of this Agreement, the term "Patriot Subsidiary" shall include any of
the entities set forth under such heading in Section 7.4 of the Patriot
Disclosure Letter.
7.2 Authorization, Validity and Effect of Agreements. Each of Patriot and
------------------------------------------------
the Patriot Subsidiaries has the requisite power and authority to enter into the
transactions contemplated hereby and to execute and deliver this Agreement and
the Ancillary Agreements to which it is a party. The Board of Directors of
Patriot has approved this Agreement, the
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Merger, the Stock Purchase Agreement, the Pairing Agreement Amendment (as
hereinafter defined) and the other Ancillary Agreements to which it is a party
and the other transactions contemplated by this Agreement and has resolved to
recommend that the holders of Patriot Stock adopt and approve this Agreement, as
ratified by New Patriot pursuant to the Patriot Ratification Agreement, the
Pairing Agreement Amendment and, if stockholder approval of the Stock Purchase
Agreement is required by applicable law or the rules of the NYSE, the Stock
Purchase Agreement, at the stockholders' meeting of Patriot which will be held
in accordance with the provisions of Section 8.3 hereof. As of the date hereof,
all of the directors and executive officers of Patriot have indicated that they
presently intend to vote all shares of Patriot Stock which they will own
following consummation of the Business Combination to approve this Agreement, as
ratified by New Patriot pursuant to the Patriot Ratification Agreement, the
Pairing Agreement Amendment and, if stockholder approval of the Stock Purchase
Agreement is required by applicable law or the rules of the NYSE, the Stock
Purchase Agreement, at the Patriot stockholders' meeting which will be held in
accordance with the provisions of Section 8.3. Except as set forth in Section
7.2 of the Patriot Disclosure Letter, the execution by Patriot of this
Agreement, the Ancillary Agreements and consummation of the transactions
contemplated by this Agreement and the Ancillary Agreements have been duly
authorized by all requisite corporate action on the part of Patriot. This
Agreement constitutes, and the Ancillary Agreements to which it will become a
party (when executed and delivered pursuant hereto) will constitute, the valid
and legally binding obligations of Patriot, enforceable against Patriot in
accordance with their respective terms, subject to applicable bankruptcy,
insolvency, moratorium or other similar laws relating to creditors' rights and
general principles of equity.
7.3 Capitalization. The authorized capital stock of Patriot consists of
--------------
200,000,000 shares of Patriot Stock, and 20,000,000 shares of preferred stock,
no par value ("Patriot Preferred Stock"). As of the date hereof, Patriot has
43,613,496 shares of Patriot Stock and no shares of Patriot Preferred Stock
issued and outstanding. Patriot has reserved for issuance only the following
shares of Patriot Stock: (i) 8,962,418 shares of Patriot Stock to be issued upon
the conversion of units of limited partnership interests in Patriot OP, and (ii)
5,000,000 shares, 300,000 shares and 860,000 shares of Patriot Stock to be
issued pursuant to Patriot's 1995 Incentive Plan, Patriot's Non-Employee
Directors' Incentive Plan (collectively, the "Patriot Stock Plans"), and grants
made outside of such plans, respectively (collectively, the "Existing Patriot
Options"). All such issued and outstanding shares of Patriot Stock are duly
authorized, validly issued, fully paid, nonassessable and free of preemptive
rights. Patriot has no outstanding bonds, debentures, notes or other
obligations the holders of which have the right to vote (or which are
convertible into or exercisable for securities having the right to vote) with
the stockholders of Patriot on any matter. Except as set forth in Section 7.3
of the Patriot Disclosure Letter and except for the Existing Patriot Options,
there are not at the date of this Agreement any existing options, warrants,
calls, subscriptions, convertible securities, or other rights, agreements or
commitments which obligate Patriot to issue, transfer or sell any shares of
Patriot Stock. Except as set forth in Section 7.3 of the Patriot Disclosure
Letter, there are no agreements or understandings to which Patriot or any
Patriot Subsidiary is a party with respect to the voting of any shares of
Patriot Stock or which restrict the transfer of any
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such shares, nor does Patriot have knowledge of any such agreements or
understandings with respect to the voting of any such shares or which restrict
the transfer of such shares. Except as set forth in Section 7.3 of the Patriot
Disclosure Letter, there are no outstanding material contractual obligations of
Patriot or any Patriot Subsidiary to repurchase, redeem or otherwise acquire any
shares of capital stock, partnership interests or any other securities of
Patriot or any Patriot Subsidiary. Except as set forth in Section 7.3 of the
Patriot Disclosure Letter, neither Patriot nor any Patriot Subsidiary is under
any obligation, contingent or otherwise, by reason of any agreement to register
the offer and sale or resale of any of their securities under the Securities
Act.
7.4 Subsidiaries. Except as set forth in Section 7.4 of the Patriot
------------
Disclosure Letter, Patriot owns all of the outstanding shares of capital stock
or all of the partnership or other equity interests of each of the Patriot
Subsidiaries. All of the outstanding shares of capital stock of each of the
Patriot Subsidiaries having corporate form are duly authorized, validly issued,
fully paid and nonassessable. Except as set forth in Section 7.4 of the Patriot
Disclosure Letter, each of the outstanding shares of capital stock of, or
partnership or other equity interests in, each of the Patriot Subsidiaries is
owned, directly or indirectly, by Patriot free and clear of all liens, pledges,
security interests, claims or other encumbrances. The following information as
of the date hereof is set forth in Section 7.4 of the Patriot Disclosure Letter
for each Patriot Subsidiary: (i) its name and jurisdiction of incorporation or
organization; (ii) its authorized capital stock or share capital or partnership
or other interests; (iii) the name of each stockholder or owner of a partnership
or other equity interest and the number of issued and outstanding shares of
capital stock or share capital or percentage ownership for non-corporate
entities held by it; and (iv) the name of the general partners, if applicable.
Except as set forth in Section 7.4 of the Patriot Disclosure Letter, neither
Patriot nor any Patriot Subsidiary owns directly or indirectly any interest or
investment (whether equity or debt) in any corporation, partnership, joint
venture, business, trust or other entity (other than investments in short-term
investment securities).
7.5 No Violation. Except as set forth in Section 7.5 of the Patriot
------------
Disclosure Letter, neither the execution and delivery by Patriot of this
Agreement or the Ancillary Agreements nor consummation by Patriot of the
transactions contemplated by this Agreement or the Ancillary Agreements in
accordance with their terms, will: (i) conflict with or result in a breach of
any provisions of the Patriot Certificate, the Surviving Corporation
Certificate, the Patriot Bylaws, or the Surviving Corporation Bylaws, or the
organizational documents, partnership agreements or joint venture agreements of
Patriot or any Patriot Subsidiary; (ii) result in a breach or violation of, a
default under, or the triggering of any payment or other material obligations
pursuant to, or accelerate vesting under, any of the Patriot Stock Plans, or any
grant or award under any of the foregoing; (iii) violate, or conflict with, or
result in a breach of any provision of, or constitute a default (or an event
which, with notice or lapse of time or both, would constitute a default) under,
or result in the termination or in a right of termination or cancellation of, or
accelerate the performance required by, or result in the creation of any lien,
security interest, charge or encumbrance upon any of the properties of Patriot
or any of the Patriot Subsidiaries under, or result in being declared void,
voidable, or
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without further binding effect, any of the terms, conditions or provisions of
any note, bond, mortgage, indenture, deed of trust or any license, franchise,
permit, lease, contract, agreement or other instrument, commitment or obligation
to which Patriot or any of the Patriot Subsidiaries is a party, or by which
Patriot or any of the Patriot Subsidiaries or any of their properties is bound
or affected, except for any of the foregoing matters which, individually or in
the aggregate, could not reasonably be expected to have a Patriot Material
Adverse Effect; or (iv) other than the Regulatory Filings, require any consent,
approval or authorization of, or declaration, filing or registration with, any
governmental or regulatory authority except where the failure to obtain any such
consent, approval or authorization of, or declaration, filing or registration
with, any governmental or regulatory authority could not reasonably be expected
to have a Patriot Material Adverse Effect.
7.6 SEC Documents. Patriot has filed all required forms, reports and
-------------
documents with the SEC since December 31, 1995 (collectively, the "Patriot SEC
Reports") all of which were prepared in accordance with the applicable
requirements of the Securities Laws. The Patriot SEC Reports were filed with
the SEC in a timely manner and constitute all forms, reports and documents
required to be filed by Patriot since December 31, 1995 under the Securities
Laws. As of their respective dates, the Patriot SEC Reports (i) complied as to
form in all material respects with the applicable requirements of the Securities
Laws and (ii) did not contain any untrue statement of a material fact or omit to
state a material fact required to be stated therein or necessary to make the
statements made therein, in light of the circumstances under which they were
made, not misleading. Each of the consolidated balance sheets of Patriot
included in or incorporated by reference into the Patriot SEC Reports (including
the related notes and schedules) fairly presents the consolidated financial
position of Patriot and the Patriot Subsidiaries as of its date and each of the
consolidated statements of income, retained earnings and cash flows of Patriot
included in or incorporated by reference into the Patriot SEC Reports (including
any related notes and schedules) fairly presents the results of operations,
retained earnings or cash flows, as the case may be, of Patriot and the Patriot
Subsidiaries for the periods set forth therein (subject, in the case of
unaudited statements, to normal year-end audit adjustments which would not be
material in amount or effect), in each case in accordance with generally
accepted accounting principles consistently applied during the periods involved,
except as may be noted therein and except, in the case of the unaudited
statements, as permitted by Form 10-Q pursuant to Section 13 or 15(d) of the
Exchange Act.
7.7 Litigation. There are (i) no continuing orders, injunctions or
----------
decrees of any court, arbitrator or governmental authority to which Patriot or
any Patriot Subsidiary is a party or by which any of its properties or assets
are bound or, to the reasonable best knowledge of Patriot, to which any of its
directors, officers, employees or agents, in such capacities, is a party or by
which any of their properties or assets are bound, and (ii) no actions, suits or
proceedings pending against Patriot or any Patriot Subsidiary or, to the
reasonable best knowledge of Patriot, against any of its directors, officers,
employees or agents or, to the reasonable best knowledge of Patriot, threatened
against Patriot or any Patriot Subsidiary or against any of its directors,
officers, employees or agents, in such capacities, at law or in equity, or
before or by any federal or state commission, board, bureau, agency or
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instrumentality, that are reasonably likely, individually or in the aggregate,
to have a Patriot Material Adverse Effect.
7.8 Absence of Certain Changes. Except as disclosed in the Patriot SEC
--------------------------
Reports filed with the SEC prior to the date hereof, since December 31, 1996 and
except as set forth in Section 7.8 of the Patriot Disclosure Letter or as
permitted by Section 8.2, Patriot and the Patriot Subsidiaries have conducted
their business only in the ordinary course of such business and there has not
been (i) any Patriot Material Adverse Effect; (ii) as of the date hereof, any
declaration, setting aside or payment of any dividend or other distribution with
respect to the Patriot Stock, except dividends of $0.2625 per share to be paid
on April 30, 1997; or (iii) any material change in Patriot's accounting
principles, practices or methods.
7.9 Taxes. Except as set forth in Section 7.9 of the Patriot Disclosure
-----
Letter and except as would otherwise not be reasonably expected to have a
Patriot Material Adverse Effect:
(a) Patriot and each of the Patriot Subsidiaries has paid or caused to
be paid Taxes, owed or accrued by it through the date hereof.
(b) Patriot and each of the Patriot Subsidiaries has timely filed all
federal, state, local and foreign tax returns required to be filed by any of
them through the date hereof, and all such returns completely and accurately set
forth the amount of any Taxes relating to the applicable period.
(c) Neither the IRS nor any other governmental authority is now
asserting by written notice to Patriot or any Patriot Subsidiary or, to the
knowledge of Patriot or the Patriot Subsidiaries, threatening to assert against
Patriot any deficiency or claim for additional Taxes. There is no dispute or
claim concerning any tax liability of Patriot, either claimed or raised by any
governmental authority, or as to which any director or officer of Patriot has
reason to believe may be claimed or raised by any governmental authority. No
claim has ever been made by a taxing authority in a jurisdiction where Patriot
does not file reports and returns that Patriot is or may be subject to taxation
by that jurisdiction. There are no security interests on any of the assets of
Patriot or any Patriot Subsidiary that arose in connection with any failure (or
alleged failure) to pay any Taxes. Patriot has never entered into a closing
agreement pursuant to Section 7121 of the Code.
(d) Patriot has not received written notice of any audit of any tax
return filed by Patriot, no such audit is in progress, and Patriot has not been
notified by any tax authority that any such audit is contemplated or pending.
Neither Patriot nor any of the Patriot Subsidiaries has executed or filed with
the IRS or any other taxing authority any agreement now in effect extending the
period for assessment or collection of any income or other Taxes, and no
extension of time with respect to any date on which a tax return was or is to be
filed by Patriot is in force. True, correct and complete copies of all federal,
state and local income or franchise tax returns filed by Patriot and each of the
Patriot Subsidiaries and all
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communications relating thereto have been delivered to Wyndham or made available
to representatives of Wyndham.
(e) Patriot and each Patriot Subsidiary has withheld and paid all
taxes required to have been withheld and paid in connection with amounts paid or
owing to any employee, independent contractor, creditor, stockholder or other
party.
(f) Each of the corporate Patriot Subsidiaries of which all the
outstanding capital stock is owned solely by Patriot is a Qualified REIT
Subsidiary as defined in Section 856(i) of the Code.
(g) Patriot has qualified, and shall be qualified through the date of
consummation of the Business Combination, to be treated as a REIT within the
meaning of Sections 856-860 of the Code, including, without limitation, the
requirements of Sections 856 and 857 of the Code, for all applicable tax years
to which Patriot's federal income tax returns are subject to audit and Patriot
is subject to assessment for taxes reportable therein.
(h) Assuming the accuracy of the representations made by CJC in
Sections 9.10 and 9.11 of the Business Combination Agreement and the
representations made by BMOC in Section 8.8 of the Business Combination
Agreement, the consummation of the Business Combination and the Merger would
not, if consummated as of the date of this Agreement, with the Merger
immediately following the Business Combination, cause CJC to lose its exemption
from the application of Section 269B(a)(3) of the Code pursuant to Section
136(c)(3) of the Deficit Reduction Act of 1984 (the "Deficit Act"). As of the
date hereof, Patriot has no knowledge, without independent inquiry, of any facts
indicating that the foregoing representations made by CJC and BMOC are
inaccurate.
7.10 Books and Records.
-----------------
(a) The books of account and other financial records of Patriot and
each of the Patriot Subsidiaries are true, complete and correct in all material
respects, have been maintained in accordance with good business practices, and
are accurately reflected in all material respects in the financial statements
included in the Patriot SEC Reports.
(b) The minute books and other records of Patriot and each of the
Patriot Subsidiaries have been made available to Wyndham, contain in all
material respects accurate records of all meetings and accurately reflect in all
material respects all other corporate action of the shareholders and directors
and any committees of the Board of Directors of Patriot and each of the Patriot
Subsidiaries.
7.11 Properties. All of the real estate properties owned or leased by
----------
Patriot and each of the Patriot Subsidiaries are set forth in Section 7.11 of
the Patriot Disclosure Letter. Except as set forth in Section 7.11 of the
Patriot Disclosure Letter, Patriot owns fee simple or leasehold title (each as
indicated in Section 7.11 of the Patriot Disclosure Letter) to each of the
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real properties identified in Section 7.11 of the Patriot Disclosure Letter (the
"Patriot Properties"), free and clear of Encumbrances, and except as set forth
in Section 7.11 of the Patriot Disclosure Letter, there are no Encumbrances
which affect such properties. The Patriot Properties (specifically including the
leasehold interest therein granted to a tenant) are not subject to any Property
Restrictions, except for (i) Encumbrances and Property Restrictions and other
matters set forth in Section 7.11 of the Patriot Disclosure Letter, (ii)
Property Restrictions imposed or promulgated by law or any governmental body or
authority with respect to real property, including zoning regulations that do
not adversely affect the current use of the property, materially detract from
the value or materially interfere with the present use of the property, (iii)
Encumbrances and Property Restrictions disclosed on existing title policies,
commitments (and the documents listed as exceptions therein), reports or current
surveys (in each case, except as provided in Section 7.11 of the Patriot
Disclosure Letter, copies of which title policies, commitments (and the
documents listed as exceptions therein), reports and surveys have been delivered
or made available to Wyndham and are listed in Section 7.11 of the Patriot
Disclosure Letter), and (iv) mechanics', carriers', supplier's, workmen's or
repairmen's liens and other Encumbrances, Property Restrictions and other
limitations of any kind, if any, which, individually or in the aggregate, are
not material in amount, do not materially detract from the value of or
materially interfere with the present use of any of the Patriot Properties
subject thereto or affected thereby, and do not otherwise materially impair
business operations conducted by Patriot, or its tenant, and the Patriot
Subsidiaries and which have arisen or been incurred only in the ordinary course
of business. Such Encumbrances and Property Restrictions described in Section
7.11 of the Patriot Disclosure Letter are not convertible into shares of capital
stock of Patriot or any Patriot Subsidiary nor does Patriot or any Patriot
Subsidiary hold a participating interest therein. Valid policies of title
insurance have been issued insuring Patriot's the fee simple title (or, to the
extent disclosed in Section 7.11 of the Patriot Disclosure Letter, the leasehold
estate) in the Patriot Properties and Patriot is the named insured in such title
insurance policies. Such policies are maintained with respect to each of the
Patriot Properties in an amount of (i) the cost of acquisition of such property
(or, if acquired through merger, the stipulated value thereof) or (ii) the cost
of construction by Patriot and the Patriot Subsidiaries of the improvements
located on such property (measured at the time of such construction), except, in
each case, (x) as listed in Section 7.11 of the Patriot Disclosure Letter or (y)
where the failure to maintain such title insurance could not have a Patriot
Material Adverse Effect. Such policies are, at the date hereof, in full force
and effect and no claim has been made against any such policy and Patriot has no
knowledge of any facts or circumstances which would constitute a basis for such
a claim. To the best knowledge of Patriot, (i) no certificate, permit or license
from any governmental authority having jurisdiction over any of the Patriot
Properties or any agreement, easement or other right which is necessary to
permit the lawful use and operation of the buildings and improvements on any of
the Patriot Properties or which is necessary to permit the lawful use and
operation of all driveways, roads and other means of egress and ingress to and
from any of the Patriot Properties has not been obtained and is not in full
force and effect, and there is no pending threat of modification or cancellation
of any of same; (ii) no written notice of any violation of any federal, state or
municipal law, ordinance, order, regulation or requirement affecting any portion
of any of the Patriot Properties has been issued
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by any governmental authority; (iii) there are no structural defects relating to
any of the Patriot Properties; (iv) there is no Patriot Property whose building
systems are not in working order in any material respect; (v) there is no
physical damage to any Patriot Property in excess of $20,000 for which there is
no insurance in effect (other than reasonable and customary deductibles)
covering the full cost of the restoration; and (vi) there is no current
renovation or restoration to any Patriot Property, the cost of which exceeds
$50,000, except in each instance as set forth in Section 7.11 of the Patriot
Disclosure Letter. Except as noted in Section 7.11 of the Patriot Disclosure
Letter, Patriot and the Patriot Subsidiaries have valid and subsisting leases
for all leased Patriot Properties, the use and occupancy of each of the Patriot
Properties complies in all material respects with all applicable codes and
zoning laws and regulations, and Patriot has no knowledge of any pending or
threatened proceeding or action that will in any manner affect the size of, use
of, improvements on, construction on, or access to any of the Patriot
Properties, with such exceptions as are not material and do not interfere with
the use made and proposed to be made of such Patriot Properties. Neither Patriot
nor any of the Patriot Subsidiaries has received any written notice to the
effect that (A) any condemnation or rezoning proceedings are pending or
threatened with respect to any of the Patriot Properties or (B) any zoning,
building or similar law, code, ordinance, order or regulation is or will be
violated by the continued maintenance, operation or use of any buildings or
other improvements on any of the Patriot Properties or by the continued
maintenance, operation or use of the parking areas. Except as set forth on
Schedule 7.11 of the Patriot Disclosure Letter and except as could otherwise not
have a Patriot Material Adverse Effect, following a casualty, each of the
Patriot Properties could be reconstructed and used for hotel purposes under
applicable zoning laws and regulations, except that in certain circumstances
such reconstruction would have to comply with the dimensional requirements of
applicable zoning laws and regulations in effect at the time of reconstruction.
Except as set forth in Sections 7.9 and 7.11 of the Patriot Disclosure Letter
and except as could otherwise not have a Patriot Material Adverse Effect, there
are no outstanding abatement proceedings or appeals with respect to the
assessment of any Patriot Property for the purpose of real property taxes, and
there are no agreements with any governmental authority with respect to such
assessments or tax rates on any Patriot Property.
7.12 Environmental Matters. Patriot and the Patriot Subsidiaries are in
---------------------
compliance with all Environmental Laws, except for any noncompliance that,
either singly or in the aggregate, could not have a Patriot Material Adverse
Effect. Except as set forth in Section 7.12 of the Patriot Disclosure Letter,
Patriot has previously made available to Wyndham copies of all documents
concerning any environmental or health and safety matter adversely affecting
Patriot and copies of environmental audits or risk assessments, site
assessments, documentation regarding off-site disposal of Hazardous Materials,
spill control plans and material correspondence with any federal, state or local
government, court, administrative agency, commission, or other governmental
authority, domestic or foreign, regarding the foregoing. Except as set forth in
Section 7.12 of the Patriot Disclosure Letter or disclosed in the Patriot SEC
Reports and except for any matter, which if the outcome were adverse, would not
reasonably be expected to have a Patriot Material Adverse Effect, there is no
administrative or judicial enforcement proceeding pending or to the best
knowledge of Patriot,
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<PAGE>
threatened against Patriot or any Patriot Subsidiary under any Environmental
Law. Except as set forth in Section 7.12 of the Patriot Disclosure Letter or
disclosed in the Patriot SEC Reports and except for any matter, which if the
outcome were adverse, would not reasonably be expected to have a Patriot
Material Adverse Effect, neither Patriot nor any Patriot Subsidiary or, to the
best knowledge of Patriot, any legal predecessor of Patriot or any Patriot
Subsidiary, has received any written notice that it is potentially responsible
under any Environmental Law for response costs or natural resource damages, as
those terms are defined under the Environmental Laws, at any location and, to
the best knowledge of Patriot, neither Patriot nor any Patriot Subsidiary has
transported or disposed of, or allowed or arranged for any third party to
transport or dispose of, any waste containing Hazardous Materials at any
location included on the National Priorities List, as defined under the
Comprehensive Environmental Response, Compensation, and Liability Act, or any
location proposed for inclusion on that list or at any location on any analogous
state list. Except as set forth in Section 7.12 of the Patriot Disclosure
Letter, and except for any matter, which if the outcome were adverse, would not
reasonably be expected to have a Patriot Material Adverse Effect, Patriot has no
knowledge of any release on the real property owned or leased by Patriot or any
Patriot Subsidiary or predecessor entity of Hazardous Materials in a manner that
could reasonably be expected to result in an order to perform a response action
or in material liability under the Environmental Laws and, to the best knowledge
of Patriot, there is no hazardous waste treatment, storage or disposal facility,
and except for the following which, to the best knowledge of Patriot, would not
reasonably be expected to have Patriot Material Adverse Effect based on its
current condition, underground storage tank, landfill, surface impoundment,
underground injection well, friable asbestos or PCB's, as those terms are
defined under the Environmental Laws, located at any of the real property owned
or leased by Patriot or any Patriot Subsidiary or predecessor entity or
facilities utilized by Patriot or the Patriot Subsidiaries.
7.13 Employee Benefit Plans. With respect to all the employee benefit
----------------------
plans, programs and arrangements maintained for the benefit of any current or
former employee, officer or director of Patriot or any of its subsidiaries (the
"Patriot Benefit Plans"), except as set forth in Section 7.13 of the Patriot
Disclosure Letter or in the Patriot SEC Reports, (a) each Patriot Benefit Plan
has been operated in all material respects in accordance with the terms and
requirements of applicable law and all required returns and filings for each
Patriot Benefit Plan have been timely made, (b) neither Patriot nor any of the
Patriot Subsidiaries has incurred any direct or indirect material liability
under, arising out of or by operation of Title I or Title IV of ERISA, in
connection with any Patriot Benefit Plan or other retirement plan or
arrangement, and no fact or event exists that could reasonably be expected to
give rise to any such material liability, (c) all material contributions due and
payable on or before the date hereof in respect of each Patriot Benefit Plan
have been made in full and in proper form, (d) neither Patriot nor any of the
Patriot Subsidiaries have ever sponsored or been obligated to contribute to any
"multiemployer plan" (as defined in Section 3(37) of ERISA), "multiple employer
plan" (as defined in Section 413 of the Code) or "pension plan" (as defined in
Section 3(2) of ERISA), (e) except as otherwise required under ERISA, the Code
and applicable state laws, no Patriot Benefit Plan currently or previously
maintained by Patriot or
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any of the Patriot Subsidiaries provides any post-retirement health or life
insurance benefits, and neither Patriot nor any of the Patriot Subsidiaries
maintains any obligations to provide post-retirement health or life insurance
benefits in the future, (f) all material reporting and disclosure obligations
imposed under ERISA and the Code have been satisfied with respect to each
Patriot Benefit Plan and (g) no benefit or amount payable or which may become
payable by Patriot or any of the Patriot Subsidiaries pursuant to any Patriot
Benefit Plan, agreement or contract with any employee in connection with the
Merger, shall constitute an "excess parachute payment," within the meaning of
Section 280G of the Code, which is or may be subject to the imposition of any
excise tax under Section 4999 of the Code or which would not be deductible by
reason of Section 280G of the Code.
7.14 Labor Matters. Except as set forth in Section 7.14 of the Patriot
-------------
Disclosure Letter, neither Patriot nor any Patriot Subsidiary is a party to, or
bound by, any collective bargaining agreement, contract or other agreement or
understanding with a labor union or labor union organization. There is no
unfair labor practice or labor arbitration proceeding pending or, to the
knowledge of Patriot, threatened against Patriot or any of the Patriot
Subsidiaries relating to their business, except for any such proceeding which
could not reasonably be expected to have a Patriot Material Adverse Effect. To
the knowledge of Patriot, there are no organizational efforts with respect to
the formation of a collective bargaining unit presently being made or threatened
involving employees of Patriot or any of the Patriot Subsidiaries.
7.15 No Brokers. Neither Patriot nor any of the Patriot Subsidiaries has
----------
entered into any contract, arrangement or understanding with any person or firm
which may result in the obligation of such entity or Wyndham to pay any finder's
fees, brokerage or agent's commissions or other like payments in connection with
the negotiations leading to this Agreement or consummation of the transactions
contemplated hereby, except that Patriot has retained PaineWebber and Salomon
Brothers as its financial advisors in connection with the transactions
contemplated by this Agreement. Other than the foregoing arrangements,
Wyndham's arrangements with Smith Barney, the arrangement of the Special
Committee with Merrill Lynch, and the Crow Family Entities' arrangements with
Montgomery Securities, Patriot is not aware of any claim for payment of any
finder's fees, brokerage or agent's commissions or other like payments in
connection with the negotiations leading to this Agreement or consummation of
the transactions contemplated hereby.
7.16 Opinion of Financial Advisor. Patriot has received the opinion of
----------------------------
PaineWebber to the effect that, as of the date hereof, the Merger Consideration
is fair to the holders of Patriot Stock from a financial point of view.
7.17 Wyndham Stock Ownership. Neither Patriot nor any of the Patriot
-----------------------
Subsidiaries owns any shares of capital stock of Wyndham or other securities
convertible into capital stock of Wyndham.
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7.18 Related Party Transactions. Set forth in the Patriot SEC Reports
--------------------------
and/or Section 7.18 of the Patriot Disclosure Letter is a list of all
arrangements, agreements and contracts entered into by Patriot or any of the
Patriot Subsidiaries (which are or will be in effect as of or after the date of
this Agreement) involving payments in excess of $60,000 with (i) any consultant
(excluding legal counsel, accountants and financial advisors), (ii) any person
who is an officer, director or affiliate of Patriot or any of the Patriot
Subsidiaries, any relative of any of the foregoing or any entity of which any of
the foregoing is an affiliate or (iii) any person who acquired Patriot Stock in
a private placement. All such documents are listed in Section 7.18 of the
Patriot Disclosure Letter and the copies of such documents, which have
previously been provided or made available to Wyndham and its counsel, are true
and correct.
7.19 Contracts and Commitments.
-------------------------
(a) Sections 7.5 and 7.19 of the Patriot Disclosure Letter sets forth
(i) all notes, debentures, bonds and other evidence of indebtedness which are
secured or collateralized by mortgages, deeds of trust or other security
interests in the Patriot Properties or personal property of Patriot and each of
the Patriot Subsidiaries, (ii) each Commitment entered into by Patriot or any of
the Patriot Subsidiaries which may result in total payments or liability in
excess of $50,000, and (iii) all leases and subleases entered into by Patriot or
any of the Patriot Subsidiaries, as lessor or sublessor which may result in
total payments or liability in excess of $50,000. Descriptions of the foregoing
are listed in Sections 7.5 and 7.19 of the Patriot Disclosure Letter and the
copies of such documents, which have previously been provided or made available
to Wyndham and its counsel, are true and correct copies. None of Patriot or any
of the Patriot Subsidiaries has received any written notice of a default that
has not been cured under any of the documents described above or is in default
respecting any payment obligations thereunder beyond any applicable grace
periods, except where such default could not reasonably be expected to have a
Patriot Material Adverse Effect.
(b) All joint venture agreements to which Patriot or any of the
Patriot Subsidiaries is a party are set forth in Sections 7.5 and 7.19 of the
Patriot Disclosure Letter and neither Patriot nor any of the Patriot
Subsidiaries is in default with respect to any obligations, which individually
or in the aggregate are material, thereunder.
7.20 Patriot Stock. The Patriot Stock to be issued in connection with the
-------------
Merger and this Agreement, when issued in accordance with the terms of this
Agreement, will have been duly and validly authorized by all necessary corporate
action on the part of Patriot. The Patriot Stock to be issued in connection
with the Merger and this Agreement, when issued in accordance with the terms of
this Agreement, will be validly issued, fully paid, nonassessable and free of
preemptive rights.
7.21 Disclosure. The representations, warranties and statements made by
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Patriot in this Agreement, the Ancillary Agreements and in the Patriot
Disclosure Letter and in the certificates and other documents expressly
identified in this Agreement as having been delivered pursuant hereto do not
contain any untrue statement of a material fact, and, when
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taken together with each other and the Patriot SEC Reports, do not omit to state
any material fact necessary to make such representations, warranties and
statements, in light of the circumstances under which they are made, not
misleading.
7.22 Definition of Patriot's Knowledge. As used in this Agreement, the
---------------------------------
phrase "to the knowledge of Patriot" or "to the best knowledge of Patriot" or
any similar phrase means the actual knowledge of those individuals identified in
Section 7.22 of the Patriot Disclosure Letter.
ARTICLE 8. COVENANTS
8.1 Acquisition Proposals.
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(a) Wyndham represents and warrants that it has terminated any
discussions or negotiations relating to, or that may reasonably be expected to
lead to, any Acquisition Proposal (as defined below). From and after the date
hereof until the termination of this Agreement, Wyndham shall not, nor shall it
permit any of the Wyndham Subsidiaries to, nor shall it authorize or permit any
officer, director, employee, agent, advisor or representative of, Wyndham or any
of the Wyndham Subsidiaries to, directly or indirectly (i) solicit, initiate or
encourage the submission of, any inquiries, proposals or offers from any person
relating to an Acquisition Proposal, (ii) enter into any agreement with respect
to any Acquisition Proposal, or (iii) enter into, engage in, or participate or
continue in, any discussions or negotiations regarding, or furnish to any person
any information with respect to, or take any other action to facilitate any
inquiries or the making of any proposal that constitutes, or would reasonably be
expected to lead to, any Acquisition Proposal. Notwithstanding anything to the
contrary in this Agreement, Wyndham may (A) furnish information to, or
participate in discussions or negotiations with, any person or entity that makes
or expresses a bona fide intention to make an unsolicited proposal to acquire
Wyndham and/or any of the Wyndham Subsidiaries pursuant to a merger,
consolidation, share exchange, business combination, tender or exchange offer or
other similar transaction if the Board of Directors of Wyndham determines, based
on the advice of its outside legal counsel (the "Wyndham Legal Counsel"), that
such action is necessary in order to comply with the directors' fiduciary duties
to the stockholders of Wyndham under applicable law; provided, however, that
prior to Wyndham's furnishing such information or participating in such
discussions or negotiations, such person or entity shall have executed a
confidentiality and standstill agreement with Wyndham having terms substantially
similar to those contained in that certain letter agreement dated January 27,
1997 (the "Patriot Confidentiality Agreement") between Patriot and Wyndham
relating to the provision of Evaluation Material (as defined in the Patriot
Confidentiality Agreement) by Wyndham to Patriot and (B) comply with Rules 14d-9
and 14e-2 promulgated under the Exchange Act with respect to an Acquisition
Proposal.
(b) As used herein, the term "Acquisition Proposal" shall mean any
proposed or actual (i) merger, consolidation or similar transaction involving
Wyndham, (ii)
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sale, lease or other disposition, directly or indirectly, by merger,
consolidation, share exchange or otherwise, of any assets of Wyndham or the
Wyndham Subsidiaries representing 15% or more of the consolidated assets of
Wyndham and the Wyndham Subsidiaries, (iii) issue, sale or other disposition of
(including by way of merger, consolidation, share exchange or any similar
transaction) securities (or options, rights or warrants to purchase, or
securities convertible into, such securities) representing 15% or more of the
votes attached to the outstanding securities of Wyndham, (iv) transaction in
which any person shall acquire beneficial ownership (as such term is defined in
Rule 13d-3 under the Exchange Act), or the right to acquire beneficial
ownership, or any "group" (as such term is defined under the Exchange Act) shall
have been formed which beneficially owns or has the right to acquire beneficial
ownership of, 15% or more of the outstanding shares of Wyndham Common Stock, (v)
recapitalization, restructuring, liquidation, dissolution, or other similar type
of transaction with respect to Wyndham or any of the Wyndham Subsidiaries, or
(vi) transaction which is similar in form, substance or purpose to any of the
foregoing transactions; provided, however, that the term "Acquisition Proposal"
shall not include the Merger and the transactions contemplated thereby.
(c) Unless the Board of Directors of Wyndham determines in good
faith, after receiving advice of Wyndham Legal Counsel, that doing so would
reasonably be expected to be a breach of the directors' fiduciary duties under
applicable law, Wyndham promptly shall advise Patriot orally and in writing of
any Acquisition Proposal or any inquiry regarding any Acquisition Proposal and
the identity of the person making such Acquisition Proposal or inquiry.
8.2 Conduct of Businesses.
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(a) General. Prior to the Effective Time, except as specifically
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permitted by this Agreement, unless the other party has consented in writing
thereto, Patriot and Wyndham and, following the Business Combination, BMOC:
(i) Shall use their reasonable best efforts, and shall cause
each of their respective Subsidiaries to use their reasonable best efforts, to
preserve intact their business organizations and goodwill and keep available the
services of their respective officers and material employees;
(ii) Shall, subject to Section 8.1 and this Section 8.2, confer
on a regular basis with one or more representatives of the other to report on
material operational matters and any proposals to engage in material
transactions;
(iii) Shall, subject to Section 8.1 and this Section 8.2,
promptly notify the other of any material emergency or other material change in
the condition (financial or otherwise), business, properties, assets,
liabilities, prospects or the normal course of their businesses or in the
operation of their properties (including, in the case of Wyndham and the Wyndham
Subsidiaries, properties under management by Wyndham or any of the Wyndham
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Subsidiaries), any material governmental complaints, investigations or hearings
(or communications indicating that the same may be contemplated), or the breach
in any material respect of any representation or warranty contained herein; and
(iv) Shall promptly deliver to the other true and correct
copies of any report, statement or schedule filed by or with respect to it with
the SEC subsequent to the date of this Agreement.
(b) Conduct by Wyndham. Prior to the Effective Time, unless Patriot
------------------
has consented in writing thereto or unless otherwise specifically permitted by
this Agreement, but in any event subject to Section 8.2(f), Wyndham:
(i) Shall, and shall cause each Wyndham Subsidiary to, conduct
its operations according to their usual, regular and ordinary course in
substantially the same manner as heretofore conducted, subject to clauses
(ii)-(x) below;
(ii) Shall not, and shall cause each Wyndham Subsidiary not to,
acquire, enter into an option to acquire or exercise an option or contract
to acquire additional real property or interests therein, incur or
guarantee additional indebtedness, encumber assets or commence or guarantee
construction of, or enter into any agreement or commitment to develop or
construct or guarantee, other real estate projects, except that Wyndham may
incur additional indebtedness under its revolving credit facility as in
effect on the date hereof in an aggregate amount of $50,000,000 and except
for those Commitments set forth in Section 6.19 of the Wyndham Disclosure
Letter;
(iii) Shall not amend the Wyndham Certificate or the Wyndham
Bylaws, and shall cause each Wyndham Subsidiary not to amend its charter,
bylaws, joint venture documents, partnership agreements or equivalent
documents;
(iv) Shall not (A) issue any shares of its capital stock,
effect any stock split, reverse stock split, stock dividend,
recapitalization or other similar transaction, except pursuant to the
Existing Wyndham Options, (B) grant, confer or award any option, warrant,
conversion right or other right not existing on the date hereof to acquire
any shares of its capital stock, (C) increase any compensation, other than
in the ordinary course of business consistent with past practice, or enter
into or amend any employment agreement with any of its present or future
officers or directors, or (D) adopt any new employee benefit plan
(including any stock option, stock benefit or stock purchase plan) or amend
any Wyndham Employee Benefit plan in any material respect, except for
changes which are not more favorable to participants in such plans;
(v) Shall not (A) declare, set aside or pay any dividend or
make any other distribution or payment with respect to any shares of its
capital stock, or (B) except in connection with the use of shares of
capital stock to pay the exercise price or
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tax withholding in connection with the Wyndham Stock Plans, directly or
indirectly redeem, purchase or otherwise acquire any shares of its capital
stock or capital stock of any of the Wyndham Subsidiaries, or make any
commitment for any such action;
(vi) Except pursuant to Commitments set forth in Section 6.19
of the Wyndham Disclosure Letter, shall not, and shall not permit any of
the Wyndham Subsidiaries to, sell, lease or otherwise dispose of (A) any
Wyndham Properties or any portion thereof or any of the capital stock of or
partnership or other interests in any of the Wyndham Subsidiaries or (B)
except in the ordinary course of business, any of its other assets which
are material, individually or in the aggregate;
(vii) Except pursuant to Commitments set forth in Section 6.19
of the Wyndham Disclosure Letter and except to the extent permitted by
Section 8.2(f), shall not, and shall not permit any of the Wyndham
Subsidiaries to, make any loans, advances or capital contributions to, or
investments in, any other person (except Wyndham or a wholly-owned Wyndham
Subsidiary);
(viii) Shall not, and shall not permit any of the Wyndham
Subsidiaries to, pay, discharge or satisfy any claims, liabilities or
obligations (absolute, accrued, asserted or unasserted, contingent or
otherwise), other than the payment, discharge or satisfaction, in the
ordinary course of business consistent with past practice or in accordance
with their terms, of liabilities reflected or reserved against in, or
contemplated by, the most recent consolidated financial statements (or the
notes thereto) of Wyndham included in the Wyndham SEC Reports or incurred
in the ordinary course of business consistent with past practice or
pursuant to Commitments set forth in Section 6.19 of the Wyndham Disclosure
Letter or entered into in accordance with this Agreement;
(ix) Shall not, and shall not permit any of the Wyndham
Subsidiaries to, enter into any Commitment which may result in total
payments or liability by it in excess of $100,000 per year (provided,
however, that nothing contained in this clause (ix) shall permit Wyndham or
any Wyndham Subsidiary to take any action prohibited by the other
provisions of this Section 8.2), other than Commitments for expenses of
attorneys, accountants and investment bankers incurred in connection with
the transactions contemplated by this Agreement; and
(x) Shall not, and shall not permit any of the Wyndham
Subsidiaries to, enter into any material Commitment with any officer,
director, consultant or affiliate of Wyndham or any of the Wyndham
Subsidiaries.
(c) Garden Club Transaction. Notwithstanding any other provisions to
-----------------------
the contrary contained in this Agreement, including, without limitation, Section
8.2(b), Wyndham or any Wyndham Subsidiary may enter into an agreement regarding,
and consummate, an
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acquisition transaction or business combination involving the businesses and/or
assets set forth on Section 8.2(c) of the Wyndham Disclosure Letter.
(d) Conduct by Patriot and BMOC.
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(i) Prior to the Effective Time, unless Wyndham has consented
in writing thereto or unless otherwise specifically permitted by this
Agreement, neither Patriot nor, following consummation of the Business
Combination, BMOC, shall (A) directly or indirectly through a Patriot
Subsidiary or a BMOC Subsidiary, merge or consolidate with, or acquire all
or substantially all of the assets, or beneficial ownership of fifty
percent (50%) or more of the outstanding capital stock or other equity
interests, of any person or entity, or (B) declare, set aside or pay any
dividend or make any other distribution or payment with respect to any
shares of capital stock of Patriot or BMOC, as the case may be, except
quarterly cash dividends not exceeding $50,000,000 in addition to (1)
dividends, distributions or payments to the extent required in order for
Patriot to maintain Patriot's REIT status under the Code or avoid the
imposition of any income or excise tax, or (2) dividends payable to the
stockholders of CJC, or (C) except in connection with the use of shares of
capital stock (x) to pay the exercise price or tax withholding in
connection with any of its existing stock plans or (y) in connection with
the redemption, exercise, exchange or conversion of partnership units of
Patriot OP or BMOC OP, directly or indirectly redeem, purchase or otherwise
acquire any shares of capital stock of Patriot or BMOC, as the case may be,
or capital stock or equity interests of any of the Patriot Subsidiaries or
BMOC Subsidiaries, or make any commitment for any such action, or (D) issue
any shares of Patriot Stock (or, following consummation of the Business
Combination, Paired Shares of Patriot Stock and BMOC Stock) or grant,
confer or award any option, warrant, conversion right or other right not
existing on the date of this Agreement to acquire any shares of Patriot
Stock (or, following consummation of the Business Combination, Paired
Shares of Patriot Stock and BMOC Stock), except (1) pursuant to the Patriot
Stock Plans or other stock option, stock benefit or stock purchase plan of
Patriot or BMOC from time to time in effect, (2) in connection with any
transaction otherwise permitted by the terms of this Agreement, and (3)
pursuant to the offer and sale from time to time of shares of Patriot Stock
(or, following consummation of the Business Combination, Paired Shares of
Patriot Stock and BMOC Stock) or options, warrants, conversion rights or
other rights having an offering price of not more than $500,000,000 in the
aggregate.
(ii) Notwithstanding any other provisions to the contrary
contained in this Agreement, prior to the Effective Time, Patriot, Patriot
OP, BMOC and/or BMOC OP may enter into an agreement regarding, and
consummate, an acquisition transaction or business combination involving
the businesses and/or assets set forth in Section 8.2(d)(ii) of the Patriot
Disclosure Letter (A) under the heading "Sombrero Portfolio" and (B) under
the heading "Rock General Account Unencumbered Assets."
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(iii) The outstanding Indebtedness (as hereinafter defined) of
Patriot, the Patriot Subsidiaries, BMOC and the BMOC Subsidiaries shall not
at any time prior to the Effective Time exceed $1,250,000,000 in the
aggregate. For purposes of this Section 8.2(d)(iii), "Indebtedness" means,
with respect to any person, all obligations of such person for borrowed
money plus all obligations of such person under any purchase money
mortgages plus any note or bond issued by such person. Notwithstanding the
foregoing, the outstanding Indebtedness of any of Patriot, the Patriot
Subsidiaries, BMOC or the BMOC Subsidiaries prior to the Effective Time may
exceed $1,250,000,000 in the aggregate if and to the extent the Interim
Transactions Committee (as hereinafter defined) so approves.
(iv) Except as otherwise provided in this Section 8.2(d),
subject to the provisions of Sections 8.2(e) and 8.2(f) and without
limiting any of the other rights of Patriot set forth herein or otherwise,
prior to the Effective Time, Patriot and the Patriot Subsidiaries may enter
into leases with respect to all or any portion of the Patriot Properties,
acquire, lease, enter into an option to acquire, lease or exercise an
option or contract to acquire, or enter into or invest in a joint venture
or otherwise make an investment in, additional real property, incur
additional indebtedness, encumber assets or commence construction of, or
enter into any agreement or commitment to develop or construct, other real
estate projects.
(v) Without the prior written approval of Wyndham, neither
Patriot (nor, following consummation of the Business Combination, BMOC)
shall, prior to the Effective Time, directly or indirectly, through a
Patriot Subsidiary or a BMOC Subsidiary, (i) enter into or participate in
active negotiations with any third party which would reasonably be expected
to lead to the acquisition by Patriot, BMOC, a Patriot Subsidiary or a BMOC
Subsidiary, of any other brand name that would be competitive with
Wyndham's brand (a "Competitive Brand"), or (ii) enter into any agreement
with respect to the acquisition by Patriot, BMOC, a Patriot Subsidiary or a
BMOC Subsidiary, of a Competitive Brand. Notwithstanding the preceding
sentence, Patriot, BMOC, a Patriot Subsidiary or a BMOC Subsidiary, may,
without the prior written approval of Wyndham, take any other actions not
inconsistent with the foregoing, including, without limitation, responding
to unsolicited inquiries from third parties concerning the acquisition by
Patriot, BMOC, a Patriot Subsidiary or a BMOC Subsidiary, of a Competitive
Brand, but shall promptly advise Wyndham of any such unsolicited inquiries.
(e) Liberty Portfolio. Notwithstanding any other provision to the
-----------------
contrary contained in this Agreement, prior to the Effective Time, Patriot
and/or Patriot OP or any of the Patriot Subsidiaries may make an investment in
all or any portion of the commercial real estate assets set forth in Section
8.2(e) of the Patriot Disclosure Letter (the "Liberty Portfolio") that does not
(A) exceed $220,000,000 in the aggregate or (B) result in Patriot having to
consolidate the accounts of the Liberty Portfolio within the accounts of Patriot
(a "Liberty Consolidation"). Patriot may make additional investments in the
Liberty Portfolio in
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excess of $220,000,000 or take any action that would result in a Liberty
Consolidation (an "Additional Liberty Investment") only in accordance with the
following provisions of this Section 8.2(e).
Prior to the Effective Time, Patriot shall promptly notify Wyndham of any
determination by the Board of Directors of Patriot or any Patriot Subsidiary, or
by the Board of Directors of BMOC or any BMOC Subsidiary, which determination
shall require the unanimous approval of the Board of Directors of Patriot or
BMOC, as the case may be, to enter into an agreement, arrangement or
understanding, or take any other action, pursuant to which Patriot, such Patriot
Subsidiary, or BMOC or such BMOC Subsidiary, would, upon consummation thereof,
make an Additional Liberty Investment, which notice shall include a reasonably
detailed description of the proposed Additional Liberty Investment, and Patriot
or such Patriot Subsidiary, or BMOC or such BMOC Subsidiary, shall not enter
into any such agreement, arrangement or understanding, or take any such other
action, at any time prior to the date which is fifteen business days immediately
following the date of such notice (the "Wyndham Notice Period"), unless Patriot
or BMOC, as the case may be, has received the prior written consent of Wyndham.
Upon expiration of the Wyndham Notice Period, (i) if Wyndham shall not have
previously provided to Patriot or BMOC, as the case may be, written notice of
Wyndham's desire to terminate this Agreement pursuant to Section 10.1(m) (the
"Wyndham Termination Notice"), Patriot or such Patriot Subsidiary, or BMOC or
such BMOC' Subsidiary, may proceed with such Additional Liberty Investment,
Wyndham shall be deemed to have consented thereto for purposes of this
Agreement, and this Agreement shall remain in full force and effect, or (ii) if
Wyndham shall have previously provided to Patriot or BMOC, as the case may be,
the Wyndham Termination Notice, the parties shall nevertheless proceed with the
Merger in accordance with and subject to the terms and conditions of this
Agreement in the event that Patriot or BMOC, as the case may be, provides
written notice to Wyndham no later than the tenth business day following the
expiration of the Wyndham Notice Period (the "Patriot Notice Period") to the
effect that the Board of Directors of Patriot or BMOC, as the case may be, has,
notwithstanding its earlier decision, determined not to proceed with the
proposed Additional Liberty Investment. James Carreker and two directors of
Wyndham selected by Wyndham shall have the right to participate in the
discussions of the Board of Directors of Patriot or BMOC, as the case may be,
that relate to a proposed Additional Liberty Investment, provided, however, that
such persons shall not have the right to participate in final deliberations or
any vote by the Board of Directors of Patriot or BMOC, as the case may be,
regarding such proposed Additional Liberty Investment.
(f) Interim Transactions Committee. Promptly following the execution
------------------------------
of this Agreement, Patriot and Wyndham shall constitute and establish a
committee which shall evaluate and consider proposed acquisitions or other
transactions ("Transactions") by Patriot or Wyndham or any of their respective
Subsidiaries between the date hereof and the Effective Time (the "Interim
Transactions Committee"). The Interim Transactions Committee shall consist of
Paul Nussbaum, an individual selected by Patriot who is reasonably satisfactory
to Wyndham, and two individuals selected by Wyndham who are reasonably
acceptable to Patriot. The Interim Transactions Committee shall be abolished at
the Effective Time.
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Transactions by Patriot or any of the Patriot Subsidiaries involving a
proposed purchase price (inclusive of any indebtedness to be assumed in
connection therewith) (A) exceeding $100,000,000 individually, or (B) that, when
taken together with all previous Transactions entered into by Patriot or any of
the Patriot Subsidiaries between the date of this Agreement and the Effective
Time, would exceed $100,000,000 (the "Patriot Transactions Threshold"), shall
require the approval of a majority of the members of the Interim Transactions
Committee, in addition to any other approvals that may be sought by Patriot or
required by law; provided, however, that this Section 8.2(f) shall not apply to
any of the transactions permitted by Sections 8.2(d)(ii) or 8.2(e); and
provided, further, that between the date of the Business Combination and the
Effective Time, neither BMOC nor any of the BMOC Subsidiaries shall engage in
Transactions exceeding the Patriot Transaction Threshold without the prior
approval of Wyndham (provided that for purposes of this Section 8.2(f), such
Transactions by BMOC or any of the BMOC Subsidiaries shall be included for
purposes of computing the Patriot Transactions Threshold). Notwithstanding
Section 8.2(d)(i)(A), Patriot or any of the Patriot Subsidiaries, or with
respect to the following clause (A), BMOC or any of the BMOC Subsidiaries, may
(A) acquire or invest in any hospitality or related assets involving a proposed
purchase price (inclusive of any indebtedness to be assumed in connection
therewith) not exceeding the Patriot Transactions Threshold, and (B) subject to
Section 8.2(j), merge or consolidate with, or acquire all or substantially all
of the assets, or beneficial ownership of fifty percent (50%) or more of the
outstanding capital stock or other equity interests, of any person or entity,
irrespective of the purchase price involved if such Transaction is first
approved by a majority of the members of the Interim Transactions Committee.
Any such Transaction so approved by the Interim Transaction Committee as
provided herein shall be deemed not to have occurred for purposes of Section
8.2(d)(i) or computing the Patriot Transactions Threshold or otherwise for
purposes of this Section 8.2(f), and any such Transaction not exceeding the
Patriot Transactions Threshold as provided herein shall be deemed not to have
occurred for purposes of Section 8.2(d)(i).
Transactions by Wyndham or any of the Wyndham Subsidiaries involving a
proposed purchase price (inclusive of any indebtedness to be assumed in
connection therewith) (A) exceeding $50,000,000 individually, or (B) that, when
taken together with all previous Transactions entered into by Wyndham or any of
the Wyndham Subsidiaries between the date of this Agreement and the Effective
Time, would exceed $50,000,000 (the "Wyndham Transactions Threshold"), shall
require the approval of a majority of the members of the Interim Transactions
Committee, in addition to any other approvals that may be sought by Wyndham or
required by law; provided, however, that this Section 8.2(f) shall not apply to
any of the transactions permitted by Section 8.2(c). Notwithstanding Section
8.2(b), Wyndham or any of the Wyndham Subsidiaries may (A) acquire or invest in
any non-real estate hospitality assets (including management or franchise
agreements) involving a proposed purchase price (inclusive of any indebtedness
to be assumed in connection therewith) not exceeding the Wyndham Transactions
Threshold, and (B) merge or consolidate with, or acquire all or substantially
all of the assets, or beneficial ownership of fifty percent (50%) or more or
other equity interests, of any person or entity, irrespective of the purchase
price involved if such Transaction is first approved by a majority of the
members of the Interim
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Transactions Committee. Any such transaction approved by the Interim Transaction
Committee as provided herein shall be deemed not to have occurred for purposes
of Section 8.2(b) or computing the Wyndham Transactions Threshold or otherwise
for purposes of this Section 8.2(f), and any such Transaction not exceeding the
Wyndham Transactions Threshold as provided herein shall be deemed not to have
occurred for purposes of Section 8.2(b).
(g) Offices Relocation. Patriot and Wyndham agree that between the
------------------
date hereof and the Effective Time, Patriot and Wyndham shall cooperate with
each other in good faith to arrange for the relocation of the offices of Patriot
and/or Wyndham in a manner mutually satisfactory to the parties.
(h) Organizational Matters. Prior to the Effective Time, Patriot,
----------------------
BMOC and Wyndham shall cooperate with each other in good faith and use all
reasonable efforts to establish and develop a combined organization, management
and operational structure for Patriot and BMOC, provided that Patriot is
satisfied, in its reasonable judgment after consultation with Wyndham, that
there are no adverse tax or regulatory consequences (except for immaterial
consequences). The parties acknowledge the delivery of a memorandum from
Goodwin, Procter & Hoar LLP (the "Structure Memorandum") regarding the
structure of the Merger and the transactions relating thereto, which memorandum
sets forth the structuring plan currently contemplated by Patriot and Wyndham,
and the parties agree to cooperate to implement such plan or find mutually
acceptable alternatives to such plan.
(i) Wyndham Debentures. Prior to the Effective Time, Wyndham shall
------------------
use all reasonable efforts to (A) repurchase, redeem or otherwise retire the 10
1/2% Senior Subordinated Notes Due 2006 (the "Notes") in accordance with the
terms and conditions of the Indenture, dated May 24, 1996, among Wyndham,
certain Wyndham Subsidiaries and Banc One, Columbus, N.A. (the "Indenture") on
terms reasonably satisfactory to Patriot, or (B) take such action, including the
repurchase of Notes, as may be necessary or appropriate to cause the Indenture
to be amended to remove or defease those covenants, agreements and undertakings
selected by Patriot that may be removed or defeased in accordance with the
Indenture on terms reasonably satisfactory to Patriot.
(j) Patriot Change in Line of Business. Notwithstanding anything to
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the contrary contained in this Agreement, prior to the Effective Time, without
the prior approval of the Board of Directors of Wyndham, none of Patriot, BMOC
or their respective Subsidiaries shall enter into any line of business in which
Patriot is not engaged as of the date of this Agreement (a "New Business"),
including, subject to Section 8.2(e), taking any action that would cause the
results of operations of a New Business to be consolidated for financial
reporting purposes with those of Patriot or BMOC; provided, however, that
Patriot shall not be deemed to be engaged in a new line of business by virtue of
any investment in the Liberty Portfolio permitted by Section 8.2(e) or by virtue
of any of the transactions contemplated by Section 8.2(d)(ii).
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(k) Business Combination. To the extent that Patriot's consent is
--------------------
required under the Business Combination Agreement, Patriot shall not consent to
the taking of any action by CJC or BMOC that, if taken by Patriot prior to
consummation of the Business Combination, would be specifically prohibited by
the terms of Section 8.2, unless Patriot is required to give such consent by law
or pursuant to any existing agreements.
8.3 Meetings of Stockholders.
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(a) Promptly following consummation of the Business Combination, (i)
Patriot will take all action necessary in accordance with applicable law and its
certificate of incorporation and bylaws to convene a meeting of its stockholders
as promptly as practicable to consider and vote upon the approval of this
Agreement, as ratified by New Patriot pursuant to the Patriot Ratification
Agreement, the Pairing Agreement Amendment and, if required by applicable law or
the rules of the NYSE, the Stock Purchase Agreement, and (ii) Wyndham will take
all action necessary in accordance with applicable law and its certificate of
incorporation and bylaws to convene a meeting of its stockholders as promptly as
practicable to consider and vote upon the approval of this Agreement as ratified
by New Patriot pursuant to the Patriot Ratification Agreement. The proxy
statement of Patriot related to its stockholders' meeting shall contain the
recommendation of the Board of Directors of Patriot that its stockholders
approve this Agreement, as ratified by New Patriot pursuant to the Patriot
Ratification Agreement, the Pairing Agreement Amendment and, if stockholder
approval of the Stock Purchase Agreement is required by applicable law or the
rules of the NYSE, the Stock Purchase Agreement. The proxy statement of Wyndham
related to its stockholders' meeting shall contain the recommendation of the
Board of Directors of Wyndham that its stockholders approve this Agreement as
ratified by New Patriot pursuant to the Patriot Ratification Agreement. Patriot
and Wyndham, subject to and in accordance with applicable law, each shall use
their reasonable best efforts to obtain such approval, including without
limitation, by timely mailing the Proxy Statement (as defined in Section 8.7
hereof) contained in the Form S-4 (as defined in Section 8.7 hereof) to its
stockholders. Patriot and Wyndham shall coordinate and cooperate with each
other and with BMOC with respect to the timing of their respective stockholders'
meetings and shall use their reasonable best efforts to hold such meetings on
the same day and on the same day as the stockholders' meeting of BMOC.
Notwithstanding any of the foregoing, in no event shall any of Patriot, BMOC or
Wyndham be required to hold its stockholders' meeting prior to September 30,
1997.
(b) Promptly following consummation of the Business Combination, BMOC
will take all action necessary in accordance with applicable law and its
certificate of incorporation and bylaws to convene a meeting of its stockholders
as promptly as practicable to consider the vote upon the approval of the BMOC
Stock Issuance, the BMOC Charter Amendment, the Pairing Agreement Amendment and,
if required by applicable law or the rules of the NYSE, the Stock Purchase
Agreement. The proxy statement of BMOC related to its stockholders meeting
shall contain the recommendation of the Board of Directors of BMOC that its
stockholders approve the BMOC Stock Issuance, the Pairing Agreement Amendment,
the BMOC Charter Amendment and, if stockholder approval of the Stock Purchase
Agreement
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is required under applicable law or the rules of the NYSE, the Stock Purchase
Agreement, and BMOC shall, subject to and in accordance with applicable law, use
its reasonable best efforts to obtain such approval, including, without
limitation, by timely mailing the Proxy Statement (as defined in Section 8.7
hereof) contained in the Form S-4 (as defined in Section 8.7 hereof) to its
stockholders. BMOC shall coordinate and cooperate with Patriot and Wyndham with
respect to the timing of its meeting and their respective meetings and shall use
its reasonable best efforts to hold its meeting on the same day as such other
meetings.
8.4 Filings; Other Action. Subject to the terms and conditions herein
---------------------
provided, Wyndham, Patriot and BMOC shall: (a) to the extent required, promptly
make their respective filings and thereafter make any other required submissions
under the HSR Act with respect to the Merger and, if applicable, the Stock
Purchase; (b) use all reasonable best efforts to cooperate with one another in
(i) determining which filings are required to be made prior to the Effective
Time with, and which consents, approvals, permits or authorizations are required
to be obtained prior to the Effective Time from, governmental or regulatory
authorities of the United States, the several states and foreign jurisdictions
and any third parties in connection with the execution and delivery of this
Agreement, the Wyndham/BMOC Subscription Agreement and the other Ancillary
Agreements and consummation of the transactions contemplated by such agreements
and (ii) timely making all such filings and timely seeking all such consents,
approvals, permits or authorizations; (c) use all reasonable best efforts to
obtain in writing any consents required from third parties to effectuate the
Merger and the transactions contemplated hereby and by the Ancillary Agreements
in reasonably satisfactory form to Wyndham and Patriot; and (d) use all
reasonable best efforts to take, or cause to be taken, all other action and do,
or cause to be done, all other things necessary, proper or appropriate to
consummate and make effective the transactions contemplated by this Agreement,
the Wyndham/BMOC Subscription Agreement and the other Ancillary Agreements. If,
at any time after the Effective Time, any further action is necessary or
desirable to carry out the purpose of this Agreement, the Wyndham/BMOC
Subscription Agreement or the other Ancillary Agreements, the proper officers
and directors of Patriot, BMOC and Wyndham shall take all such necessary action.
8.5 Access to Information.
---------------------
(a) Upon reasonable notice to the other, each of Patriot and Wyndham
shall (and shall cause their respective Subsidiaries to) afford to the officers,
employees, accountants, counsel and other representatives of the other,
reasonable access, during normal business hours during the period prior to the
Effective Time, to all its properties, books, contracts, Commitments and records
and permit such persons to make such inspections as they may reasonably require
and, during such period, each of Patriot and Wyndham and, upon consummation of
the Business combination, BMOC shall (and shall cause its Subsidiaries to)
furnish promptly to the other all information concerning its business,
properties, personnel and accountants as the other may reasonably request.
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(b) All such information shall be deemed "Evaluation Material" as
such term is defined in those certain letter agreements dated January 27, 1997
between Patriot and Wyndham (the "Confidentiality Agreements"), except as
otherwise provided in such Confidentiality Agreements.
8.6 Publicity. Patriot, Wyndham and BMOC shall consult with each other
---------
before issuing any press release or otherwise making any public statements with
respect to this Agreement or any transaction contemplated hereby and shall not
issue any such press release or make any such public statement without the prior
consent of the other parties, which consent shall not be unreasonably withheld;
provided, however, that a party may, without the prior consent of the other
- -------- -------
party, issue such press release or make such public statement as may be required
by law or the applicable rules of any stock exchange if it has used its
reasonable best efforts to consult with the other party and to obtain such
party's consent but has been unable to do so in a timely manner.
8.7 Proxy Statement; Registration Statement.
---------------------------------------
(a) As promptly as practicable following the stockholders' meetings
of CJC and BMOC at which the Business Combination will be submitted to the
stockholders of CJC and BMOC for their approval, (i) each of Patriot, Wyndham
and BMOC shall prepare and file with the SEC (with appropriate requests for
confidential treatment, unless the parties hereto otherwise agree) under the
Exchange Act, a joint proxy statement/prospectus and forms of proxies (such
joint proxy statement/prospectus together with any amendments to supplements
thereto, the "Proxy Statement") relating to the stockholder meetings of each of
Patriot, Wyndham and BMOC and the vote of the stockholders of (A) Patriot and
Wyndham, with respect to this Agreement as ratified by New Patriot pursuant to
the Patriot Ratification Agreement, (B) Patriot, with respect to an amendment to
the Pairing Agreement (the "Pairing Agreement Amendment") pursuant to and in
accordance with the terms of the Stock Purchase Agreement, and (C) BMOC, with
respect to the BMOC Stock Issuance, the Pairing Agreement Amendment and the BMOC
Charter Amendment, and (ii) following clearance by the SEC of the Proxy
Statement, Patriot and BMOC shall prepare and file with the SEC under the
Securities Act a registration statement on Form S-4 (such registration
statement, together with any amendments or supplements thereto, the "Form S-4"),
in which the Proxy Statement will be included as a prospectus, in connection
with the registration under the Securities Act of (A) the Paired Shares of
Patriot Stock and BMOC Stock to be distributed to the stockholders of Wyndham in
the Merger, (B) the Paired Shares of Patriot Stock and BMOC Stock to be issued
and sold to the Principal Stockholder pursuant to the Stock Purchase Agreement,
(C) the shares of Unpaired Patriot Stock to be issued and sold to the Principal
Stockholder pursuant to the Stock Purchase Agreement, (D) the Paired Shares of
Patriot Stock and BMOC Stock to be issued to the Principal Stockholder upon
conversion of the shares of Unpaired Patriot Stock to be issued and sold to the
Principal Stockholder pursuant to the Stock Purchase Agreement, and (E) as
contemplated by the Registration Rights Agreement, the resale of certain Paired
Shares of Patriot Stock and BMOC Stock to be issued in the Merger and pursuant
to the Stock Purchase Agreement (the securities referred to in the foregoing
clauses (A) - (E) being referred
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to herein collectively as the "Registered Securities"). Patriot and BMOC will
cause the Proxy Statement and the Form S-4 to comply as to form in all material
respects with the applicable provisions of the Securities Act, the Exchange Act
and the rules and regulations thereunder, and Wyndham will cause the Proxy
Statement to comply as to form in all material respects with the applicable
provisions of the Exchange Act and the rules and regulations thereunder. Each of
Patriot and BMOC, on the one hand, and Wyndham, on the other hand, shall furnish
all information about itself and its business and operations and all necessary
financial information to the other as the other may reasonably request in
connection with the preparation of the Proxy Statement and the Form S-4. Each of
Patriot and BMOC shall use its reasonable best efforts, and Wyndham will
cooperate with them, to have the Form S-4 declared effective by the SEC as
promptly as practicable (including clearing the Proxy Statement with the SEC).
Each of Patriot, Wyndham, and BMOC agrees promptly to correct any information
provided by it for use in the Proxy Statement and the Form S-4 if and to the
extent that such information shall have become false or misleading in any
material respect, and each of the parties hereto further agrees to take all
steps necessary to amend or supplement the Proxy Statement and, in the case of
Patriot and BMOC, the Form S-4, and to cause the Proxy Statement and, in the
case of Patriot and BMOC, the Form S-4, as so amended or supplemented to be
filed with the SEC and to be disseminated to their respective stockholders, in
each case as and to the extent required by applicable federal and state
securities laws. Each of Patriot, Wyndham, and BMOC agrees that the information
provided by it for inclusion in the Proxy Statement or the Form S-4 and each
amendment or supplement thereto, at the time of mailing thereof and at the time
of the respective meetings of stockholders of Patriot, Wyndham, and BMOC, will
not include an untrue statement of a material fact or omit to state a material
fact required to be stated therein or necessary to make the statements therein,
in light of the circumstances under which they were made, not misleading. Each
of Patriot and BMOC will advise Wyndham, and deliver copies (if any) to Wyndham,
promptly after either receives notice thereof, of any request by the SEC for
amendment of the Proxy Statement or the Form S-4 or comments thereon and
responses thereto or requests by the SEC for additional information, or notice
of the time when the Form S-4 has become effective or any supplement or
amendment has been filed, the issuance of any stop order, the suspension of the
qualification of the Registered Securities issuable in connection with the
Merger or pursuant to the Stock Purchase or of the Registered Securities for
offering or sale in any jurisdiction.
(b) Each of Patriot, Wyndham and BMOC shall use its best efforts to
timely mail the Proxy Statement to its stockholders. It shall be a condition to
the mailing of the Proxy Statement that (i) Patriot shall have received
"comfort" letters from Coopers & Lybrand LLP, independent public accountants for
Wyndham, of the kind contemplated by the Statement of Auditing Standards with
respect to Letters to Underwriters promulgated by the American Institute of
Certified Public Accountants (the "AICPA Statement"), dated as of the date on
which the Form S-4 shall become effective (and Patriot shall also receive such a
letter as of the Effective Time), each addressed to Patriot and BMOC, in form
reasonably satisfactory to Patriot and BMOC, concerning the procedures
undertaken by Coopers & Lybrand LLP with respect to the financial statements and
information of Wyndham and the Wyndham Subsidiaries contained in the Form S-4
and the other matters contemplated by the AICPA
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Statement and otherwise customary in scope and substance for letters delivered
by independent public accountants in connection with transactions such as those
contemplated by this Agreement and (ii) Wyndham shall have received a "comfort"
letter from Ernst & Young LLP, independent public accountants for Patriot and
BMOC, of the kind contemplated by the AICPA Statement, dated as of the date on
which the Form S-4 shall become effective (and Wyndham shall also receive such a
letter as of the Effective Time), each addressed to Wyndham, in form reasonably
satisfactory to Wyndham, concerning the procedures undertaken by Ernst & Young
LLP with respect to the financial statements and information of Patriot and BMOC
and their respective Subsidiaries contained in the Form S-4 and the other
matters contemplated by the AICPA Statement and otherwise customary in scope and
substance for letters delivered by independent public accountants in connection
with transactions such as those contemplated by this Agreement.
8.8 Listing Application. Each of Patriot, Wyndham and BMOC shall
-------------------
cooperate and promptly prepare and submit to the NYSE all reports, applications
and other documents that may be necessary or desirable to enable all of the
Paired Shares of Patriot Stock and BMOC Stock that will be outstanding or will
be reserved for issuance at the Effective Time to be listed for trading on the
NYSE. Each of Patriot, Wyndham and BMOC shall furnish all information about
itself and its business and operation and all necessary financial information to
the other as the other may reasonably request in connection with the such NYSE
listing process. Each of Patriot, Wyndham and BMOC agrees promptly to correct
any information provided by it for use in the NYSE listing process if and to the
extent that such information shall have become false or misleading in any
material respect. Each of Patriot, Wyndham and BMOC will advise and deliver
copies (if any) to the other parties, promptly after it receives notice thereof,
of any request by the NYSE for amendment of any submitted materials or comments
thereon and responses thereto or requests by the NYSE for additional
information.
8.9 Further Action. Each party hereto shall, subject to the fulfillment
--------------
at or before the Effective Time of each of the conditions of performance set
forth herein or the waiver thereof, perform such further acts and execute such
documents as may reasonably be required to effect the Merger and the
transactions contemplated by this Agreement and the Ancillary Agreements. In
connection with the Closing, Wyndham and each Wyndham Subsidiary shall use its
best efforts to deliver to Patriot such deeds, bills of sale, assignments,
certificates, affidavits, indemnities and other agreements and documents as are
reasonably required to effectuate consummation of the transactions described
herein.
8.10 Affiliates of Wyndham.
---------------------
(a) At least 30 days prior to the Closing Date, Wyndham shall deliver
to Patriot a list of names and addresses of those persons who were, in Wyndham's
reasonable judgment, at the record date for its stockholders' meeting to approve
the Merger, "affiliates" (each such person, an "Affiliate") of Wyndham within
the meaning of Rule 145. Wyndham shall provide Patriot such information and
documents as Patriot shall reasonably request for purposes of reviewing such
list. Wyndham shall use its reasonable best efforts to deliver or
56
<PAGE>
cause to be delivered to Patriot, prior to the Closing Date, from each of the
Affiliates of Wyndham identified in the foregoing list, an Affiliate Letter in
the form attached hereto as Exhibit G. Patriot shall be entitled to place
---------
legends as specified in such Affiliate Letters on the certificates evidencing
any Paired Shares of Patriot Stock and BMOC Stock to be received by such
Affiliates pursuant to the terms of this Agreement, and to issue appropriate
stop transfer instructions to the transfer agent for the Paired Shares of
Patriot Stock and BMOC Stock, consistent with the terms of such Affiliate
Letters.
(b) Patriot and BMOC shall each file the reports required to be filed
by it under the Exchange Act and the rules and regulations adopted by the SEC
thereunder, and it will take such further action as any Affiliate of Wyndham may
reasonably request, all to the extent required from time to time to enable such
Affiliate to sell Paired Shares of Patriot Stock and BMOC Stock received by such
Affiliate in the Merger without registration under the Securities Act pursuant
to (i) Rule 145(d)(1) or (ii) any successor rule or regulation hereafter adopted
by the SEC.
8.11 Expenses. Subject to the provisions of Section 10.3, all costs and
--------
expenses incurred in connection with this Agreement and the transactions
contemplated hereby shall be paid by the party incurring such expenses, except
that (a) the filing fee(s) in connection with the filing of the Form S-4 with
the SEC, (b) the filing fee in connection with the listing of the Paired Shares
of Patriot Stock and BMOC Stock on the NYSE, if any, (c) the expenses incurred
for printing and mailing the Form S-4 and the Proxy Statement, and (d) the
filing fee in connection with the filing(s) under the HSR Act, shall be shared
equally by Wyndham, on the one hand, and Patriot, on the other hand, and except
that nothing contained herein shall limit or otherwise affect any provision of
the Registration Rights Agreement, the Proxy Agreement or the Stock Purchase
Agreement. Subject to the provisions of Section 10.3, all costs and expenses
for professional services rendered in connection with the transactions
contemplated by this Agreement including, but not limited to, investment banking
and legal services, will be paid by each party incurring such costs and
expenses.
8.12 Indemnification.
---------------
(a) In the event of any threatened or actual claim, action, suit,
proceeding or investigation, whether civil, criminal or administrative, in which
any person who is now, or has been at any time prior to the date hereof, or who
becomes prior to the Effective Time, a director or officer of Wyndham or any of
the Wyndham Subsidiaries (any such person or entity, an "Indemnified Party") is,
or is threatened to be, made a party based in whole or in part on, or arising in
whole or in part out of, or pertaining to (i) the fact that he is or was a
director (including in his capacity as a member of a committee of the Board of
Directors), officer of Wyndham or any of the Wyndham Subsidiaries, or is or was
serving at the request of Wyndham or any of the Wyndham Subsidiaries as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise, or (ii) this Agreement or any of the
transactions contemplated hereby, whether in any case asserted or arising before
or after the Effective Time, the parties hereto agree to cooperate and use their
reasonable
57
<PAGE>
efforts to defend against and respond thereto. It is understood and agreed that
Wyndham shall indemnify and hold harmless, and after the Effective Time Patriot
shall indemnify and hold harmless, as and to the full extent permitted by
applicable law, each Indemnified Party against any losses, claims, damages,
liabilities, costs, expenses (including reasonable attorneys' fees and
expenses), judgments, fines and amounts paid in settlement in connection with
any such threatened or actual claim, action, suit, proceeding or investigation,
and in the event of any such threatened or actual claim, action, suit,
proceeding or investigation (whether asserted or arising before or after the
Effective Time) and that (x) Wyndham, and Patriot after the Effective Time,
shall promptly pay expenses in advance of the final disposition of any claim,
suit, proceeding or investigation to each Indemnified Party to the fullest
extent permitted by law, and (y) Wyndham, and Patriot after the Effective Time,
shall be entitled to participate therein and, to the extent that Wyndham or
Patriot, as the case may be, so desires, to assume the defense thereof with
counsel selected by Wyndham or Patriot, as the case may be (provided that the
Indemnified Party shall have the right to employ separate counsel but the fees
and expenses of such counsel shall be at the Indemnified Party's expense unless
in such claim or action there is, in the opinion of independent counsel, a
conflict concerning any material issue between the position of Wyndham or
Patriot, as the case may be, and the Indemnified Party, in which case if the
Indemnified Party notifies Wyndham or Patriot, as the case may be, in writing
that the Indemnified Party elects to employ separate counsel at the expense of
Wyndham or Patriot, as the case may be, Wyndham or Patriot, as the case may be,
shall not have the right to assume such defense of such action on behalf of the
Indemnified Party; provided, however, that Wyndham or Patriot, as the case may
be, shall not be required to pay the fees and expenses of more than one separate
counsel for all Indemnified Parties); provided, that neither Patriot nor Wyndham
shall be liable to pay any amounts in any settlement effected without its prior
written consent (which consent shall not be unreasonably withheld). Any
Indemnified Party wishing to claim indemnification under this Section 8.12, upon
learning of any such claim, action, suit, proceeding or investigation, shall
notify in writing Wyndham, and after the Effective Time, Patriot, thereof,
provided that the failure to so notify shall not affect the obligations of
Wyndham or Patriot except to the extent such failure to notify materially
prejudices such party. No settlement of any such claim, action, suit, proceeding
or investigation shall be made without the written consent of the Indemnified
Parties with respect thereto unless such Indemnified Party shall receive a full
and unconditional release thereof.
(b) Patriot agrees that all rights to indemnification existing in
favor, and all limitations on the personal liability, of the Indemnified Parties
provided for in the Wyndham Certificate or the Wyndham Bylaws or the charter or
bylaws or similar organizational documents of any of the Wyndham Subsidiaries,
or pursuant to the indemnification agreements set forth on Section 8.12(b) of
the Wyndham Disclosure Letter, as in effect as of the date hereof with respect
to matters occurring prior to the Effective Time shall survive the Merger and
shall continue in full force and effect for a period of not less than six (6)
years from the Effective Time; provided, however, that all rights to
-------- -------
indemnification in respect of any claim (a "Claim") asserted or made within such
period shall continue until the disposition of such Claim. At or prior to the
Effective Time, Patriot shall purchase directors' and officers'
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liability insurance coverage for Wyndham's directors and officers in a form
reasonably acceptable to Wyndham which shall provide such directors and officers
with coverage for six (6) years following the Effective Time of not less than
the existing coverage under, and have other terms not substantially less
favorable to the insured persons than, the directors' and officers' liability
insurance coverage presently maintained by Wyndham; provided, however, that in
any event the cost of such policy shall not exceed $350,000 per year (the
"Maximum Amount"); and provided, further, that if such coverage cannot be
obtained for such cost, Patriot will maintain, for such six-year period, the
maximum amount of comparable coverage as shall be available for the Maximum
Amount on such terms.
(c) This Section 8.12 is intended for the irrevocable benefit of, and
to grant third party rights to, the Indemnified Parties (as contemplated by
Section 11.3) and shall be binding on all successors and assigns of Patriot and
Wyndham. Each of the Indemnified Parties shall be entitled to enforce the
covenants contained in this Section 8.12. The provisions for indemnification
contained in this Section 8.12 are not intended to be exclusive and are without
prejudice to any other rights to indemnification or advancement of funds which
any Indemnified Party may otherwise have.
(d) In the event Patriot or any of its successors or assigns (i)
consolidates with or merges into any other person or entity and shall not be the
continuing or surviving corporation or entity of such consolidation or merger or
(ii) transfers or conveys all or substantially all of its properties and assets
to any person or entity, then, and in each such case, proper provision shall be
made so that the successors and assigns of Patriot assume the obligations set
forth in this Section 8.12.
8.13 Reorganization.
--------------
(a) From and after the date hereof and until the Effective Time, none
of Patriot, BMOC or Wyndham or any of their respective Subsidiaries or other
affiliates shall knowingly take any action, or knowingly fail to take any
action, that would cause the Merger not to qualify as a reorganization within
the meaning of Section 368(a) of the Code.
(b) If and to the extent so requested by Patriot, and subject to
receipt of the consents referred to in Section 8.13(b) of the Wyndham Disclosure
Letter, Wyndham agrees that prior to the Closing Date, all direct or indirect
Subsidiaries of Wyndham holding "real estate assets" within the meaning of
Section 856 of the Code will be liquidated such that Wyndham holds all such
assets, except as otherwise provided on Section 8.13 of the Wyndham Disclosure
Letter.
8.14 Stop Transfer. Wyndham acknowledges and agrees to be bound by and
-------------
comply with the provisions of the Proxy Agreement as if a party thereto with
respect to transfers of record ownership of shares of the Wyndham Common Stock,
and agrees to notify the transfer agent of the provisions of the Proxy Agreement
and to request that the transfer agent place a stop transfer order on the shares
that are subject to the provisions of such agreement.
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8.15 Brand Conversions. Following the Effective Time, Patriot shall
-----------------
review its portfolio of hospitality assets to determine which of such assets
should in Patriot's reasonable judgment be converted to the Wyndham brand.
8.16 Ratification by New Patriot. Unless this Agreement shall have been
---------------------------
earlier terminated in accordance with Section 10.1, following consummation of
the Business Combination, the Board of Directors of New Patriot shall ratify,
confirm and adopt this Agreement, the Merger and the other transactions
contemplated hereby; shall, pursuant to and in accordance with the terms of this
Agreement, enter into the Patriot Ratification Agreement following consummation
of the Business Combination; and shall recommend that the holders of Patriot
Stock adopt and approve this Agreement, the Patriot Ratification Agreement and
the Pairing Agreement Amendment at the Patriot's stockholders' meeting.
8.17 Wyndham's Accumulated and Current Earnings and Profits. At the
------------------------------------------------------
Closing, Wyndham shall deliver to Patriot (A) a statement of accumulated and
current E&P of Wyndham (as determined for federal income tax purposes) as of a
date not more than thirty (30) days prior to the Closing Date, together with
evidence of such accumulated and current E&P of Wyndham (as determined for
federal income tax purposes) from Coopers & Lybrand LLP in a form reasonably
satisfactory to Patriot, and (B) a statement of estimated accumulated and
current E&P of Wyndham (as determined for federal income tax purposes) as of the
Closing Date. Wyndham further agrees that prior to the Closing Date, it shall
cause Coopers & Lybrand LLP to agree (i) to deliver to Patriot, prior to
December 25, 1997, a statement of accumulated and current E&P of Wyndham (as
determined for federal income tax purposes) at the Effective Time and (ii) that
Patriot 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 owed by it.
8.18 Private Letter Ruling. As soon as reasonably practicable after the
---------------------
execution of this Agreement, Patriot shall request from the Internal Revenue
Service (the "IRS") a private letter ruling (the "Ruling") concerning the
Independent Contractor Issue (as defined below). For purposes hereof, the term
"Independent Contractor Issue" shall mean a conclusion by the IRS that rental
income received by Patriot OP from BMOC and/or BMOC OP with respect to real
estate owned or leased by Patriot OP (the "Owned Real Estate") will constitute
"rents from real property," as such term is defined in Section 856(d) of the
Code, even though a subsidiary of Patriot OP provides services to BMOC and/or
BMOC OP with respect to the Owned Real Estate pursuant to management contracts.
If the Ruling is obtained prior to the Effective Time, Patriot, BMOC and Wyndham
agree that they shall cooperate in good faith to restructure the assets of
Patriot and BMOC consistent with the structure described in the Structure
Memorandum, subject to such modifications as to which Patriot, BMOC and Wyndham
may hereafter agree. If the Ruling is not obtained prior to the Effective Time,
unless Patriot, BMOC and Wyndham otherwise agree, Wyndham shall, prior to the
Effective Time, sell, transfer and convey all issued and outstanding shares of
capital stock of Wyndham
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Management Corporation to BMOC, and at Patriot's election, such sale, transfer
or conveyance shall be qualified under Section 338(h)(10) of the Code.
8.19 Employee Benefit Matters. Patriot and Wyndham agree that the
------------------------
Surviving Corporation and/or BMOC after the Effective Time will provide benefit
plans to the employees of Wyndham and the Wyndham Subsidiaries that will be
comparable, in the aggregate, to those provided by Wyndham and the Wyndham
Subsidiaries to their employees immediately prior to the date of this Agreement.
Notwithstanding the foregoing, nothing contained in this Agreement shall be
construed to grant any right of continued employment to any present employee of
Wyndham or any Wyndham Subsidiary. Patriot and BMOC agree that, as reasonably
promptly as practicable following the Effective Time, Patriot and BMOC shall
cause to be filed a registration statement on an appropriate form under the
Securities Act relating to the stock option plans of Patriot and BMOC then in
effect and covering the shares issuable upon exercise of the Assumed Options.
8.20 Stock Purchase Agreement; Purchase and Sale Agreement. Patriot shall
-----------------------------------------------------
perform its obligations under the Stock Purchase Agreement, and Patriot and BMOC
shall cause each of Patriot OP and BMOC OP, respectively, to perform its
obligations under the Purchase and Sale Agreement, provided that neither the
Principal Stockholder nor the Crow Family Entities are in material breach of the
terms of the Stock Purchase Agreement and Purchase and Sale Agreement,
respectively.
ARTICLE 9. CONDITIONS
9.1 Conditions to Each Party's Obligation to Effect the Merger. The
----------------------------------------------------------
respective obligation of each party to effect the Merger and the other
transactions contemplated herein shall be subject to the fulfillment at or prior
to the Closing Date of the following conditions, any or all of which may be
waived, in whole or in part by the parties hereto, to the extent permitted by
applicable law:
(a) Stockholder Approvals.
---------------------
(i) This Agreement, as ratified by New Patriot pursuant to the
Patriot Ratification Agreement, the Pairing Agreement Amendment and, if
required by applicable law or the rules of the NYSE, the Stock Purchase
Agreement, shall have been approved by the requisite vote of the
stockholders of Patriot; and
(ii) This Agreement, as ratified by New Patriot pursuant to the
Patriot Ratification Agreement, shall have been approved by the requisite
vote of the stockholders of Wyndham; and
(iii) The BMOC Stock Issuance, the Pairing Agreement Amendment,
the BMOC Charter Amendment and, if required by applicable law or the rules
of the
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NYSE, the Stock Purchase Agreement, shall have been approved by the
requisite vote of the stockholders of BMOC.
(b) HSR Act. The waiting period applicable to consummation of the
-------
Merger and, if applicable, the Stock Purchase, under the HSR Act, if applicable,
shall have expired or been terminated.
(c) No Injunctions or Restraints. Neither of the parties hereto
----------------------------
shall be subject to any order, ruling or injunction of a court of competent
jurisdiction which prohibits consummation of the transactions contemplated by
this Agreement. In the event any such order, ruling or injunction shall have
been issued, each party agrees to use its reasonable best efforts to have any
such order, ruling or injunction lifted, stayed or reversed.
(d) Form S-4. The Form S-4 shall have been declared effective by the
--------
SEC under the Securities Act, and no stop order suspending the effectiveness of
the Form S-4 shall have been issued by the SEC, and no proceedings for that
purpose shall have been initiated or, to the knowledge of Patriot or Wyndham,
threatened by the SEC.
(e) Listing. Patriot and BMOC shall have obtained the approval for
-------
the listing of the Paired Shares of Patriot Stock and BMOC Stock issuable in the
Merger and the Stock Purchase on the NYSE, subject to official notice of
issuance.
(f) Consents, Approvals, Etc. All consents, authorizations, orders
------------------------
and approvals of (or filings or registrations with) any governmental commission,
board, other regulatory body or third parties required to be made or obtained by
Patriot, BMOC or Wyndham and their respective subsidiaries and affiliated
entities in connection with the execution, delivery and performance of this
Agreement and the Ancillary Agreements shall have been obtained or made, except
where the failure to have obtained or made any such consent, authorization,
order, approval, filing or registration, could not reasonably be expected to
have (i) a Wyndham Material Adverse Effect or (ii) a material adverse effect on
the business, results of operations or financial condition of New Patriot, the
New Patriot Subsidiaries, BMOC and the BMOC Subsidiaries, taken as a whole (a
"New Patriot Material Adverse Effect"), as the case may be. Notwithstanding the
foregoing provisions of this Section 9.1(f), the amendments, consents,
authorizations, modifications and approvals relating to the matters referred to
in Section 9.3(j) shall not be a condition to the obligations of Wyndham to
effect the Merger.
(g) Business Combination. The Business Combination shall have been
--------------------
consummated.
(h) Opinion of Counsel. At the Closing, Patriot and Wyndham shall
------------------
have received the opinion of Goodwin, Procter & Hoar LLP, or other nationally
recognized law firm selected by Patriot, and subject to customary conditions and
qualifications (including reliance, in part, on representations of Patriot and
Wyndham and certain stockholders of
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Wyndham), (i) to the effect that (x) the Merger and the Stock Purchase will be
treated for federal income tax purposes as a reorganization under Section 368(a)
of the Code, and (y) prior to the Merger, Patriot and New Patriot have qualified
to be treated as a REIT within the meaning of Sections 856-860 of the Code
including, without limitation, the requirements of Sections 856 and 857 of the
Code, for all applicable tax years to which Patriot and New Patriot's federal
income tax returns are subject to audit and Patriot and New Patriot are subject
to assessment for taxes reportable therein, and (z) after the Merger, New
Patriot will be organized in conformity with the requirements for qualifications
as a REIT under Sections 856 through 860 of the code, the manner of operation of
New Patriot has enabled it to meet the requirements for qualification as a REIT
under Sections 856 through 860 of the Code as of the Effective Time of the
Merger and the proposed manner of operations of New Patriot after the Merger
will enable New Patriot to qualify as a REIT under Sections 856 through 860 of
the Code, and (ii) confirming the prior opinions rendered to Wyndham in that
certain opinion letter of Goodwin, Procter & Hoar LLP dated as of the date
hereof.
9.2 Conditions to Obligations of Wyndham to Effect the Merger. The
---------------------------------------------------------
obligation of Wyndham to effect the Merger shall be subject to the fulfillment
at or prior to the Closing Date of the following conditions, unless waived by
Wyndham:
(a) Representations and Warranties. Except as to such breaches of
------------------------------
the representations and warranties of Patriot made in this Agreement, which,
together with any breaches of the representations and warranties made by New
Patriot and BMOC in the Patriot Ratification Agreement and the BMOC Ratification
Agreement, respectively, individually or in the aggregate, could not reasonably
be expected to have a New Patriot Material Adverse Effect (disregarding for such
purposes all materiality and knowledge qualifiers contained in the individual
representations and warranties of Patriot, BMOC and New Patriot contained in
this Agreement, the BMOC Ratification Agreement and the Patriot Ratification
Agreement, respectively), each of the representations and warranties of Patriot,
BMOC and New Patriot contained in this Agreement, the BMOC Ratification
Agreement and the Patriot Ratification Agreement, respectively, were true and
correct when made on the dates of this Agreement, the BMOC Ratification
Agreement and the Patriot Ratification Agreement, respectively, and each of the
representations and warranties of Patriot, BMOC and New Patriot contained in
this Agreement, the BMOC Ratification Agreement and the Patriot Ratification
Agreement, respectively, shall be true and correct in all material respects as
of the Closing Date (or to the extent a representation or warranty is by its
terms made as of another date, then as of such date) as though made on and as of
the Closing Date, except to the extent that the taking by Patriot of any of the
actions permitted by Sections 8.2(d)(i) and 8.2(d)(iii) (collectively, the
"Patriot Permitted Actions") or consummation of the Business Combination or any
of the transactions permitted by Sections 8.2(d)(ii), 8.2 (e) and 8.2(f)
(collectively, the "Permitted Transactions") has resulted in any of such
representations and warranties (other than the representations and warranties
contained in Sections 7.1(c), 7.5(iii) or (iv), 7.7, 7.9, 7.12 and 7.13 of this
Agreement to which this exception shall not apply, unless such inaccuracy
relates to any event, matter or condition disclosed in BMOC's or CJC's Annual
Report on Form 10-K for the fiscal year ended December 31, 1996 filed with the
SEC, the preliminary proxy
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statement filed by Patriot on or about February 26, 1997 relating to the
Business Combination (the "Business Combination Preliminary Proxy Statement") or
the Patriot Disclosure Letter) being inaccurate as of the Closing Date, in which
case, each such representation and warranty shall for such purpose be deemed to
be qualified by the phrase "except to the extent that the [Patriot Permitted
Action(s)] [Patriot Permitted Transaction(s)] has caused this representation and
warranty to be inaccurate as stated as of the Closing Date," and a reference to
the applicable Patriot Permitted Action or Patriot Permitted Actions and/or
Patriot Permitted Transaction or Patriot Permitted Transactions shall be deemed
to be substituted for the phrases "[Patriot Permitted Action(s)]" and "[Patriot
Permitted Transaction(s)]" therein. Wyndham shall have received a certificate,
dated the Closing Date, signed on behalf of Patriot by an authorized officer of
Patriot to the foregoing effect.
(b) Performance of Obligations. Patriot and BMOC shall have
--------------------------
performed or complied in all material respects with all agreements and covenants
required by this Agreement, the New Patriot Ratification Agreement and the BMOC
Ratification Agreement to be performed or complied with by Patriot or BMOC, as
the case may be, on or prior to the Closing Date.
(c) Absence of Patriot Changes. From the date of this Agreement
--------------------------
through the Closing Date, there shall not have occurred any changes concerning
Patriot or any of the Patriot Subsidiaries that, when combined, without
duplication, with all other changes concerning Patriot, any of the Patriot
Subsidiaries, BMOC, any of the BMOC Subsidiaries, CJC or any of the CJC
Subsidiaries (collectively, "New Patriot Changes"), have had or could be
reasonably likely to have a New Patriot Material Adverse Effect; provided,
however, that consummation of any of the Patriot Permitted Transactions or the
taking of any of the Patriot Permitted Actions shall not, in and of itself, be
deemed a New Patriot Material Adverse Effect. Wyndham shall have received a
certificate, dated the Closing Date, signed on behalf of Patriot by an
authorized officer of Patriot to the foregoing effect.
(d) Absence of BMOC and CJC Changes. From the date of this Agreement
-------------------------------
through the Closing Date, there shall not have occurred any changes concerning
BMOC or any of the BMOC Subsidiaries or CJC or any of the CJC Subsidiaries that,
when combined, without duplication, with all other New Patriot Changes, have had
or could be reasonably likely to have a New Patriot Material Adverse Effect;
provided, however, that any event, matter or condition disclosed in BMOC' or
CJC's Annual Report on Form 10-K for the fiscal year ended December 31, 1996
filed with the SEC, the Business Combination Preliminary Proxy Statement or the
Patriot Disclosure Letter shall not be deemed a New Patriot Material Adverse
Effect; and provided, further, that consummation of any of the Patriot Permitted
Transactions or the taking of any of the Patriot Permitted Actions shall not, in
and of itself, be deemed a New Patriot Material Adverse Effect. Wyndham shall
have received a certificate, dated the Closing Date, signed on behalf of Patriot
and BMOC by an authorized officer of Patriot and BMOC, respectively, to the
foregoing affect.
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(e) Stock Purchase Agreement. The Stock Purchase shall have been
------------------------
consummated.
(f) Registration Rights Agreement. Patriot and BMOC shall have
-----------------------------
entered into the Registration Rights Agreement in substantially the form of
Exhibit B.
- ---------
(g) Composition of Board of Directors. The Boards of Directors of
---------------------------------
Patriot and BMOC shall have been fixed and elected in the manner provided in
Sections 4.1 and 4.3 and shall consist of the directors designated as provided
therein, and the officers of Patriot and BMOC shall be elected as provided in
Sections 4.2 and 4.4 and shall consist of the officers designated as provided
therein.
(h) Ratification Agreements; Wyndham/BMOC Subscription Agreement.
------------------------------------------------------------
Patriot shall have entered into the Patriot Ratification Agreement and BMOC
shall have entered into the BMOC Ratification Agreement and the Wyndham/BMOC
Subscription Agreement.
(i) Cooperation Agreement. Patriot and BMOC shall have entered into
---------------------
the Cooperation Agreement in substantially the form of Exhibit A hereto.
---------
9.3 Conditions to Obligation of Patriot to Effect the Merger. The
--------------------------------------------------------
obligations of Patriot to effect the Merger shall be subject to the fulfillment
at or prior to the Closing Date of the following conditions, unless waived by
Patriot:
(a) Representations and Warranties. Except as to such breaches of
------------------------------
the representations and warranties, individually or in the aggregate, which
could not reasonably be expected to have a Wyndham Material Adverse Effect
(disregarding for such purposes all materiality and knowledge qualifiers
contained in the individual representations and warranties of Wyndham contained
in this Agreement), each of the representations and warranties of Wyndham
contained in this Agreement shall be true and correct as of the date of this
Agreement and as of the Closing Date (or to the extent a representation or
warranty is by its terms made as of another date, then as of such date) as
though made on and as of the Closing Date, except to the extent that the taking
by Wyndham of any of the actions permitted by Sections 8.2(b)(ii) and
8.2(b)(vii) (collectively, the "Wyndham Permitted Actions") or any of the
transactions permitted by Sections 8.2(c) and 8.2 (f) (collectively, the
"Wyndham Permitted Transactions") has resulted in any of such representations
and warranties being inaccurate as of the Closing Date, in which case, each such
representation and warranty shall for such purpose be deemed to be qualified by
the phrase "except to the extent that the [Wyndham Permitted Action(s)] [Wyndham
Permitted Transaction(s)] has caused this representation and warranty to be
inaccurate as stated as of the Closing Date," and a reference to the applicable
Wyndham Permitted Action or Wyndham Permitted Action(s) and/or Wyndham Permitted
Transaction or Wyndham Permitted Transactions shall be deemed to be substituted
for the phrases "[Wyndham Permitted Action(s)]" and "[Wyndham Permitted
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Transaction(s)]" therein. Patriot shall have received a certificate, dated the
Closing Date, signed on behalf of Wyndham by an authorized officer of Wyndham to
the foregoing effect.
(b) Performance of Obligations. Wyndham shall have performed or
--------------------------
complied in all material respects with all agreements and covenants required by
this Agreement, the New Patriot Ratification Agreement and the BMOC Ratification
Agreement to be performed or complied with by it on or prior to the Closing
Date.
(c) Absence of Changes. From the date of this Agreement through the
------------------
Closing Date, there shall not have occurred any changes concerning Wyndham or
any of the Wyndham Subsidiaries that, when combined with all other changes, have
had or could be reasonably likely to have a Wyndham Material Adverse Effect, and
Patriot shall have received a certificate, dated the Closing Date, signed on
behalf of Wyndham by an authorized officer of Wyndham to the foregoing effect;
provided, however, that consummation of the transaction permitted by Section
8.2(c) shall not, in and of itself, be deemed a Wyndham Material Adverse Effect.
(d) Purchase and Sale Agreement. The closing of the transactions
---------------------------
contemplated by the Purchase and Sale Agreement shall have become effective
subject only to the Merger becoming effective at the Effective Time, except that
such consummation shall not be a condition to Patriot's obligations if Patriot
is in material breach of the terms of the Purchase and Sale Agreement.
(e) Stock Purchase Agreement. The Stock Purchase shall have been
------------------------
consummated, except that such effectiveness shall not be a condition to
Patriot's obligations if Patriot is in material breach of the terms of the Stock
Purchase Agreement.
(f) Restructuring of Wyndham Assets. Wyndham shall have completed
-------------------------------
the restructuring of certain assets of Wyndham and/or Wyndham Subsidiaries as
described in Section 8.13(b) hereof, and shall have obtained all necessary and
required waivers in connection therewith (or waivers thereof).
(g) Ratification Agreements. Wyndham shall have entered into the
-----------------------
Patriot Ratification Agreement and the BMOC Ratification Agreement.
(h) Cooperation Agreement. Wyndham shall have provided to Patriot,
---------------------
within ten (10) business days following the date on which Patriot and BMOC
execute and deliver the Cooperation Agreement in substantially the form of
Exhibit A hereto, written confirmation of the acknowledgment and acceptance by
- ---------
Wyndham of such execution and delivery, provided that Patriot shall have
provided to Wyndham written notice of such execution and delivery at least
eleven (11) business days prior to the Closing Date.
(i) Wyndham Debentures. Wyndham shall have (A) repurchased, redeemed
------------------
or otherwise retired the Notes in accordance with the terms and conditions of
the Indenture on
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terms reasonably satisfactory to Patriot, or (B) caused the Indenture to be
amended to remove or defease those covenants, agreements and undertakings
selected by Patriot that may be removed or defeased in accordance with the
Indenture, on terms reasonably satisfactory to Patriot.
(j) Anatole and Hospitality Properties Trust. Wyndham shall have
----------------------------------------
received to Patriot's satisfaction (A) all amendments, consents, authorizations,
modifications and approvals summarized in Sections A and C of Schedule II of the
Purchase and Sale Agreement and (B) such amendments, consents, authorizations,
modifications and approvals required under any lease or related management
contract of a Wyndham Property or a hotel property leased or managed by a
Wyndham Affiliate owned by Hospitality Properties Trust or an Affiliate thereof
to the transactions contemplated by this Agreement.
ARTICLE 10. TERMINATION; AMENDMENT; WAIVER
10.1 Termination. This Agreement may be terminated and abandoned at any
-----------
time prior to the Effective Time, whether before or after approval of matters
presented in connection with the Merger by the stockholders of the Wyndham and
Patriot:
(a) by mutual written consent of Patriot and Wyndham; or
(b) by either Patriot or Wyndham, if any United States federal or
state court of competent jurisdiction or other governmental entity shall have
issued a final order, decree or ruling or taken any other action permanently
enjoining, restraining or otherwise prohibiting the Merger or the BMOC Stock
Issuance or the Purchase and Sale and such order, decree, ruling or other action
shall have become final and nonappealable, provided that the party seeking to
terminate shall have used its best efforts to appeal such order, decree, ruling
or other action; or
(c) by either Patriot or Wyndham, if the Merger shall not have been
consummated on or before December 7, 1997 (other than due to the failure of the
party seeking to terminate this Agreement to perform its obligations under this
Agreement required to be performed at or prior to the Effective Time); or
(d) by either Patriot or Wyndham if the Business Combination shall
not have been consummated on or before September 1, 1997 (other than due to the
failure of the party seeking to terminate this Agreement to perform its
obligations under this Agreement required to be performed at or prior to the
Effective Time or, in the case of Patriot, its obligations under the Business
Combination Agreement required to be performed on or prior to September 1,
1997); or
(e) by either Patriot or Wyndham, if any required approval of the
stockholders of Patriot, BMOC or Wyndham that is a condition to the obligations
of Patriot or
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Wyndham under Section 9.1 shall not have been obtained by reason of the failure
to obtain the required vote upon a vote held at a duly held meeting of
stockholders or at any adjournment thereof; or
(f) by either Patriot or Wyndham, if (X) Congress shall have enacted,
or proposed the enactment of, legislation or any bill having the effect of (A)
eliminating the "grandfathered" status of Patriot under Section 269B(a)(3) of
the Code by virtue of Section 136(c)(3) of the Deficit Reduction Act of 1984, or
(B) causing the Merger and the Stock Purchase to fail to be treated for federal
income tax purposes as a reorganization under Section 368(a) of the Code, or
otherwise eliminating the treatment of the Merger and the Stock Purchase for
federal income tax purposes as a reorganization under Section 368(a) of the
Code, or (Y) Congress shall have enacted legislation or any bill having the
effect of causing Wyndham to recognize gain as a result of the Merger; or
(g) by Patriot, if Wyndham shall have (i) withdrawn, modified or
amended in any respect adverse to Patriot its approval or recommendation of this
Agreement or any of the transactions contemplated herein, (ii) failed to include
such recommendation in the Proxy Statement, (iii) recommended any Acquisition
Proposal from a person other than Patriot or any of its Affiliates, (iv)
publicly expressed no opinion and remained neutral toward any Acquisition
Proposal, or (v) resolved to do any of the foregoing, provided that, in any such
case, Wyndham shall within five (5) business days after demand by Patriot,
deposit the Section 10.3(a)(i) Amount (as hereinafter defined) with the escrow
agent to be distributed in accordance with Section 10.4; or
(h) by Wyndham, if, notwithstanding the provisions of Section 8.1,
the Board of Directors of Wyndham determines in good faith, after receiving
advice of Wyndham Legal Counsel, that such action is necessary in order for the
Board of Directors of Wyndham to comply with the directors' fiduciary duties to
stockholders under applicable law and the Board of Directors of Wyndham
authorizes or desires to authorize Wyndham to execute an agreement (a "Superior
Proposal Agreement") providing for a Superior Proposal (as hereinafter defined),
provided that Wyndham has, prior to the termination of this Agreement and/or the
execution of such Superior Proposal Agreement, deposited the Section 10.3(a)(i)
Amount with the escrow agent to be distributed in accordance with Section 10.4.
For purposes of this Agreement, a "Superior Proposal" means any bona fide
Acquisition Proposal, the terms of which the Board of Directors of Wyndham
determines in its good faith judgment, after receiving advice from a financial
advisor of national standing, to be more favorable to Wyndham's stockholders
than the Merger; or
(i) by Wyndham, if (A) Patriot has failed to perform in any material
respect any of its obligations required to be performed by it under this
Agreement, the Patriot Ratification Agreement or the Stock Purchase Agreement
and such failure continues for more than 30 days after notice unless failure to
so perform has been caused by or results from a breach of this Agreement by
Wyndham, or (B) BMOC has failed to perform in any material respect any of its
obligations required to be performed by it under the Wyndham/BMOC
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Subscription Agreement or the BMOC Ratification Agreement and such failure
continues for more than 30 days after notice unless failure to so perform has
been caused by or results from a breach of the Wyndham/BMOC Subscription
Agreement by Wyndham; or
(j) by Wyndham, if the (A) Board of Directors of New Patriot fails to
ratify, confirm and adopt this Agreement, the Patriot Ratification Agreement and
the other transactions contemplated hereby on or prior to the twentieth business
day following consummation of the Business Combination (the "Business
Combination Date"), or in the event that New Patriot shall not have entered into
the New Patriot Ratification Agreement on or prior to such twentieth business
day, or (B) the Board of Directors of BMOC fails to ratify, confirm and adopt
this Agreement, the BMOC Ratification Agreement and the other transactions
contemplated hereby on or prior to the twentieth business day following the
Business Combination Date, or in the event that BMOC shall not have entered into
the BMOC Ratification Agreement on or prior to such twentieth business day; or
(k) by Patriot, if (A) Wyndham shall have failed to perform in any
material respect any of its obligations required to be performed by it under
this Agreement and such failure continues for more than 30 days after notice
unless failure to so perform has been caused by or results from a breach of this
Agreement by Patriot, (B) if Wyndham has failed to perform in any material
respect any of its obligations required to be performed by it under the
Wyndham/BMOC Subscription Agreement and such failure continues for more than 30
days after notice unless failure to so perform has been caused by or results
from a breach of the Wyndham Subscription Agreement by BMOC, or (C) if Wyndham
shall not have entered into the Patriot Ratification Agreement or the BMOC
Ratification Agreement on or prior to the twentieth business day following the
Business Combination Date; or
(l) by Wyndham, in accordance with and subject to Section 5.2(a), if
the Average Closing Price of a Paired Share of Patriot Stock and BMOC Stock is
less than $40.21 (as may be adjusted pursuant to Section 5.2(a)); or
(m) by Wyndham, if (i) Wyndham has provided written notice to Patriot
of its desire to terminate this Agreement upon the expiration of the Wyndham
Notice Period, and (ii) Patriot has not provided written notice to Wyndham prior
to the expiration of the Patriot Notice Period to the effect that the Board of
Directors of Patriot has, notwithstanding its earlier decision, determined not
to proceed with an Additional Liberty Investment, in each case in accordance
with the terms of Section 8.2(e).
(n) by Patriot or Wyndham, if the Stock Purchase Agreement has been
terminated pursuant to Section 1.1(a) or Section 5.7(a)(vi) thereof.
10.2 Effect of Termination. In the event of termination of this Agreement
---------------------
by either Wyndham or Patriot as provided in Section 10.1, this Agreement shall
forthwith become void and have no effect, without any liability or obligation on
the part of Patriot or Wyndham, other than the provisions of Section 8.5(b),
this Section 10.2, Sections 8.11, 10.3 and 11.4 and
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the last sentence of Section 11.3. Nothing contained in this Section 10.2 shall
relieve any party for any willful breach of the representations, warranties,
covenants or agreements set forth in this Agreement.
10.3 Termination Fees and Expenses.
-----------------------------
(a) As a condition to the willingness of Patriot and Wyndham to enter
into this Agreement and to compensate Patriot and Wyndham for entering into this
Agreement, taking action to consummate the transactions hereunder and incurring
the costs and expense related thereto, each of Patriot and Wyndham agree as
follows:
(i) Wyndham shall deposit with the escrow agent an amount in
cash equal to $30,000,000 (the "Section 10.3(a)(i) Amount") in accordance
with and subject to the provisions of Section 10.1(g) and Section 10.1(h).
(ii) If Patriot or Wyndham shall have terminated this Agreement
pursuant to Section 10.1(d), then Patriot shall pay to Wyndham an amount in
cash equal to $25,000,000, provided that in the case of such termination by
Wyndham, such amount shall be payable only if Wyndham is not in material
breach at the time of termination of this Agreement (which breach has
continued for more than 30 days after notice or cannot reasonably be
expected to be cured within such period (unless such breach was caused by
or resulted from a breach of this Agreement by Patriot)).
(iii) If Wyndham shall have terminated this Agreement pursuant to
Section 10.1(j), then Patriot shall pay to Wyndham an amount in cash equal
to $50,000,000.
(iv) If (A) Patriot or Wyndham shall have terminated this
Agreement pursuant to Section 10.1(e) due to the failure of any required
approval of the stockholders of Patriot or BMOC, or (B) Wyndham shall have
terminated this Agreement pursuant to Section 10.1(m), then Patriot shall
pay Wyndham an amount in cash equal to Wyndham's documented out-of-pocket
fees and expenses ("Expenses") actually incurred by it prior to such
termination in connection with this Agreement and the transactions
contemplated hereby, including, without limitation, fees and expenses of
accountants, attorneys and investment bankers; provided that the aggregate
amount of Expenses required to be reimbursed pursuant to this Section
10.3(a)(iv) shall not exceed $7,000,000, and provided, further, that in the
case of such a termination by Wyndham, such amount shall be payable only if
Wyndham is not in material breach at the time of termination of this
Agreement (which breach has continued for more than 30 days after notice or
cannot reasonably be expected to be cured within such period (unless such
breach was caused by or resulted from a breach of this Agreement by
Patriot)).
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(b) Any payment required to be paid by Patriot to Wyndham pursuant to
this Section 10.3 shall be payable (by wire transfer of immediately available
funds to an account designated by Wyndham) contemporaneously with, and as a
condition to the effectiveness of, a termination by Patriot, and, in the case of
a termination by Wyndham, within five (5) business days after demand by Wyndham.
10.4 Payment of Termination Amount or Expenses.
-----------------------------------------
(a) In the event that Wyndham is obligated to deposit with the escrow
agent the Section 10.3(a)(i) Amount as provided in Sections 10.1(g) and 10.1(h),
the escrow agent shall pay to Patriot from the Section 10.3(a)(i) Amount
deposited into escrow in accordance with the next sentence, an amount equal to
the lesser of (i) the Section 10.3(a)(i) Amount and (ii) the sum of (x) the
maximum amount that can be paid to Patriot without causing Patriot to fail to
meet the requirements of Sections 856(c)(2) and (3) of the Code determined as if
the payment of such amount did not constitute income described in Sections
856(c)(2)(A)-(H) or 856(c)(3)(A)-(i) of the Code ("Qualifying Income"), as
determined by Patriot's certified public accountants, plus (y) in the event
Patriot receives either (a) a letter from Patriot's counsel indicating that
Patriot has received a ruling from the IRS described in Section 10.4(b)(ii) or
(b) an opinion from Patriot's counsel as described in Section 10.4(b)(ii), an
amount equal to the Section 10.3(a)(i) Amount less the amount payable under
clause (x) above. To secure Wyndham's obligation to pay these amounts, Wyndham
shall deposit into escrow an amount in cash equal to the Section 10.3(a)(i)
Amount with an escrow agent selected by Patriot and on such terms (subject to
Section 10.4(b) as shall be agreed upon by Patriot and the escrow agent.
(b) The escrow agreement shall provide that the Section 10.3(a)(i)
Amount in escrow or any portion thereof shall not be released to Patriot unless
the escrow agent receives any one or combination of the following: (i) a letter
from Patriot's certified public accountants indicating the maximum amount that
can be paid by the escrow agent to Patriot without causing Patriot to fail to
meet the requirements of Sections 856(c)(2) and (3) of the Code determined as if
the payment of such amount did not constitute Qualifying Income or a subsequent
letter from Patriot's accountants revising that amount, in which case the escrow
agent shall release such amount to Patriot, or (ii) a letter from Patriot's
counsel indicating that Patriot received a ruling from the IRS holding that the
receipt by Patriot of the Section 10.3(a)(i) Amount would either constitute
Qualifying Income or would be excluded from gross income within the meaning of
Sections 856(c)(2) and (3) of the Code (or alternatively, Patriot's legal
counsel has rendered a legal opinion to Patriot to the effect that the receipt
by Patriot of the Section 10.3(a)(i) Amount would either constitute Qualifying
Income or would be excluded from gross income within the meaning of Sections
856(c)(2) and (3) of the Code), in which case the escrow agent shall release the
remainder of the Section 10.3(a)(i) Amount to Patriot. Wyndham agrees to amend
this Section 10.4 at the request of Patriot as may reasonably be necessary (and
without substantial cost or burden to Wyndham) in order to (x) maximize the
portion of the Section 10.3(a)(i) Amount that may be distributed to Patriot
hereunder without causing Patriot to fail to meet the requirements of Sections
856(c)(2) and (3) of the Code, (y) improve Patriot's chances of securing a
favorable ruling described in this
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Section 10.4(b) or (z) assist Patriot in obtaining a favorable legal opinion
from its counsel as described in this Section 10.4(b); provided that Patriot's
legal counsel has rendered a legal opinion to Patriot to the effect that such
amendment would not cause Patriot to fail to meet the requirements of Section
856(c)(2) or (3) of the Code. The escrow agreement shall also provide that any
portion of the Section 10.3(a)(i) Amount held in escrow for fifteen years shall
be released by the escrow agent to Wyndham. Wyndham shall not be a party to such
escrow agreement and shall not bear any cost of or have liability resulting from
the escrow agreement.
(c) Notwithstanding anything to the contrary set forth in this
Agreement, in the event Wyndham has not deposited the Section 10.3(a)(i) Amount
into escrow in accordance with Section 10.4 when obligated to do so and Patriot
is required to file suit to seek all or a portion of the Section 10.3(a)(i)
Amount, it shall be entitled to all expenses, including attorneys' fees and
expenses, which it has incurred in enforcing its rights hereunder; provided that
payment of such expenses shall be subject to the limitations of Section 10.4(a)
(determined as if such expenses were included in the Section 10.3(a)(i) Amount).
10.5 Extension; Waiver. At any time prior to the Effective Time, the
-----------------
parties may (a) extend the time for the performance of any of the obligations or
other acts of the other parties, (b) waive any inaccuracies in the
representations and warranties contained in this Agreement or in any document
delivered pursuant to this Agreement or (c) subject to the first sentence of
Section 11.5, waive compliance with any of the agreements or conditions
contained in this Agreement. Any agreement on the part of a party to any such
extension or waiver shall be valid only if set forth in an instrument in writing
signed on behalf of such party. The failure of any party to this Agreement to
assert any of its rights under this Agreement or otherwise shall not constitute
a waiver of such rights.
ARTICLE 11. GENERAL PROVISIONS
11.1 Nonsurvival of Representations, Warranties and Agreements. All
---------------------------------------------------------
representations, warranties and agreements in this Agreement or in any
instrument delivered pursuant to this Agreement shall not survive the Merger,
provided, however, that the agreements contained in Article 5, the last
- -------- -------
sentences of Sections 8.4, 8.16 and 8.17, and Sections 8.10, 8.12, 8.15, 8.17,
8.18 and 8.19 and this Article 11 shall survive the Merger.
11.2 Notices. Any notice required to be given hereunder shall be in
-------
writing and shall be sent by facsimile transmission (confirmed by any of the
methods that follow), courier service (with proof of service), hand delivery or
certified or registered mail (return receipt requested and first-class postage
prepaid) and addressed as follows:
If to Patriot: Patriot American Hospitality, Inc.
Tri-West Plaza
3030 LBJ Freeway
Suite 1500
Dallas, TX 75234
Attn: Paul A. Nussbaum
72
<PAGE>
With copies to: Goodwin, Procter & Hoar LLP
Exchange Place
Boston, MA 02109
Attn: Gilbert G. Menna, P.C.
If to Wyndham: Wyndham Hotel Corporation
2001 Bryan Street
Suite 2300
Dallas, TX 75201
Attn: James D. Carreker
With copies to: Locke Purnell Rain Harrell
2200 Ross Avenue
Suite 2200
Dallas, TX 75201
Attn: M. Charles Jennings, Esq.
and:
Daniel A. Decker
Chairman, Special Committee of the Board
of Directors of Wyndham Hotel Corporation
2200 Ross Avenue
Suite 4200 West
Dallas, TX 75201
or to such other address as any party shall specify by written notice so given,
and such notice shall be deemed to have been delivered as of the date so
delivered.
11.3 Assignment; Binding Effect; Benefit. Neither this Agreement nor any
-----------------------------------
of the rights, interests or obligations hereunder shall be assigned prior to the
Closing by any of the parties hereto (whether by operation of law or otherwise)
without the prior written consent of the other parties. Subject to the
preceding sentence, this Agreement shall be binding upon and shall inure to the
benefit of the parties hereto and their respective successors and assigns.
Notwithstanding anything contained in this Agreement to the contrary, except for
the provisions of Article 5 and Sections 8.10, 8.12 (including for the benefit
of the Indemnified Parties) and 8.13, nothing in this Agreement, expressed or
implied, is intended to confer on any person other than the parties hereto or
their respective heirs, successors, executors, administrators and assigns any
rights, remedies, obligations or liabilities under or by reason of this
Agreement.
73
<PAGE>
11.4 Entire Agreement. This Agreement, the Exhibits, the Wyndham
----------------
Disclosure Letter and the Patriot Disclosure Letter and any documents expressly
identified in this Agreement as having been delivered by the parties in
connection herewith constitute the entire agreement among the parties with
respect to the subject matter hereof and supersede all prior agreements and
understandings among the partes with respect thereto except that the
Confidentiality Agreements shall remain in effect and shall be binding upon
Patriot and Wyndham in accordance with their respective terms. No addition to
or modification of any provision of this Agreement shall be binding upon any
party hereto unless made in writing and signed by all parties hereto.
11.5 Amendment. This Agreement may be amended by the parties hereto, by
---------
action taken by their respective Boards of Directors, at any time before or
after approval of matters presented in connection with the Merger by the
stockholders of Wyndham, Patriot and BMOC, but after any such stockholder
approval, no amendment shall be made which by law requires the further approval
of stockholders without obtaining such further approval. This Agreement may not
be amended except by an instrument in writing signed on behalf of each of the
parties hereto.
11.6 Governing Law. This Agreement shall be governed by and construed in
-------------
accordance with the laws of the State of Delaware without regard to its rules of
conflict of laws. Each of Wyndham, Patriot and BMOC hereby irrevocably and
unconditionally consents to submit to the exclusive jurisdiction of the courts
of the State of Delaware and of the United States of America located in the
State of Delaware (the "Delaware Courts") for any litigation arising out of or
relating to this Agreement and the transactions contemplated hereby (and agrees
not to commence any litigation relating thereto except in such courts), waives
any objection to the laying of venue of any such litigation in the Delaware
Courts and agrees not to plead or claim in any Delaware Court that such
litigation brought therein has been brought in any inconvenient forum.
11.7 Counterparts. This Agreement may be executed by the parties hereto
------------
in separate counterparts, each of which so executed and delivered shall be an
original, but all such counterparts shall together constitute one and the same
instrument. Each counterpart may consist of a number of copies hereof each
signed by less than all, but together signed by all of the parties hereto.
11.8 Headings. Headings of the Articles and Sections of this Agreement
--------
are for the convenience of the parties only, and shall be given no substantive
or interpretive effect whatsoever.
11.9 Interpretation. In this Agreement, unless the context otherwise
--------------
requires, words describing the singular number shall include the plural and vice
versa, and words denoting any gender shall include all genders and words
denoting natural persons shall include corporations and partnerships and vice
versa.
74
<PAGE>
11.10 Waivers. Except as provided in this Agreement, no action taken
-------
pursuant to this Agreement, including, without limitation, any investigation by
or on behalf of any party, shall be deemed to constitute a waiver by the party
taking such action of compliance with any representations, warranties, covenants
or agreements contained in this Agreement. The waiver by any party hereto of a
breach of any provision hereunder shall not operate or be construed as a waiver
of any prior or subsequent breach of the same or any other provision hereunder.
11.11 Incorporation. The Wyndham Disclosure Letter and the Patriot
-------------
Disclosure Letter and all Exhibits and Schedules attached hereto and thereto and
referred to herein and therein are hereby incorporated herein and made a part
hereof for all purposes as if fully set forth herein.
11.12 Severability. Any term or provision of this Agreement which is
------------
invalid or unenforceable in any jurisdiction shall, as to that jurisdiction, be
ineffective to the extent of such invalidity or unenforceability without
rendering invalid or unenforceable the remaining terms and provisions of this
Agreement or affecting the validity or enforceability of any of the terms or
provisions of this Agreement in any other jurisdiction. If any provision of
this Agreement is so broad as to be unenforceable, the provision shall be
interpreted to be only so broad as is enforceable.
11.13 Enforcement of Agreement. The parties hereto agree that irreparable
------------------------
damage would occur in the event that any of the provisions of this Agreement
were not performed in accordance with its specific terms or was otherwise
breached. It is accordingly agreed that the parties shall be entitled to an
injunction or injunctions and other equitable remedies to prevent breaches of
this Agreement and to enforce specifically the terms and provisions thereof in
any Delaware Court, this being in addition to any other remedy to which they are
entitled at law or in equity. Any requirements for the securing or posting of
any bond with respect to such remedy are hereby waived by each of the parties
hereto.
11.14 Certain Definitions.
-------------------
(a) As used in this Agreement, the word "Subsidiary" or
"Subsidiaries" when used with respect to any party means any corporation,
partnership, joint venture, business trust or other entity, of which such party
directly or indirectly owns or controls at least a majority of the securities or
other interests having by their terms ordinary voting power to elect a majority
of the board of directors or others performing similar functions with respect to
such corporation or other organization or a majority of the economic interest in
such entity.
(b) As used in this Agreement, the word "person" means an
individual, a corporation, a partnership, an association, a joint-stock company,
a trust, a limited liability company, any unincorporated organization or any
other entity.
(c) As used in this Agreement, the word "affiliate" shall have the
meaning set forth in Rule 12b-2 of the Exchange Act.
75
<PAGE>
(d) As used in this Agreement, the phrase "transactions contemplated
by this Agreement" shall include without limitation, each act and transaction to
be performed or completed under this Agreement or any of the Ancillary
Agreements by any party hereto or thereto.
11.15 Schedules. Any fact or item disclosed in one section of any
---------
Disclosure Letter or schedule hereto ("Schedule") shall be deemed to be
disclosed with respect to any other relevant section of such Disclosure Letter
or Schedule, whether or not an explicit cross-reference appears.
[remainder of page intentionally left blank]
76
<PAGE>
{Signature Page to Agreement and Plan of Merger}
IN WITNESS WHEREOF, the parties have executed this Agreement and caused the
same to be duly delivered on their behalf on the day and year first written
above.
WYNDHAM HOTEL CORPORATION
ATTEST:
By: /s/ Carla S. Moreland By: /s/ James D. Carreker
------------------------------------ -----------------------------
Name: Carla s. Moreland Name: James D. Carreker
Title: Vice President, General Counsel Title: President
and Secretary
PATRIOT AMERICAN HOSPITALITY, INC.
ATTEST:
By: /s/ Rex E. Stewart By: /s/ Paul A. Nussbaum
------------------------------------ -----------------------------
Name: Rex E. Stewart Name: Paul A. Nussbaum
Title: PAH GP, Inc., GP Title: Chairman and Chief
Executive Officer
77
<PAGE>
Exhibit 10.31
-------------
STOCK PURCHASE AGREEMENT
------------------------
This STOCK PURCHASE AGREEMENT (this "Agreement"), dated as of April 14,
1997, is between Patriot American Hospitality, Inc., a Virginia corporation
("Purchaser"), and CF Securities, L.P., a Texas limited partnership
("Stockholder").
RECITALS
--------
WHEREAS, Purchaser, California Jockey Club, a Delaware corporation ("Club")
and Bay Meadows Operating Company, a Delaware corporation ("Operating Company")
have entered into an Agreement and Plan of Merger dated as of February 24, 1997,
pursuant to which Purchaser, Club and Operating Company agreed to engage in a
business combination among Purchaser, Club and Operating Company (the "Business
Combination");
WHEREAS, the shares of common stock, par value $.01 per share, of Club and
the shares of common stock, par value $.01 per share, of Operating Company (the
"Operating Company Stock") are paired and transferable and traded only in
combination as a single unit;
WHEREAS, upon the effectiveness of the Business Combination, Purchaser will
have merged with and into Club with Club being the surviving company (the term
"Purchaser", when used in a post-Business Combination context, shall mean Club
after the Business Combination becomes effective);
WHEREAS, the Stockholder is a major stockholder of Wyndham Hotel
Corporation, a Delaware corporation ("Wyndham");
WHEREAS, Purchaser and Wyndham are entering into an Agreement and Plan of
Merger of even date herewith (the "Merger Agreement") (all capitalized terms
used but not defined herein shall have the meanings set forth in the Merger
Agreement), pursuant to which Purchaser and Wyndham are agreeing to engage in a
merger transaction between Purchaser and Wyndham (the "Merger");
WHEREAS, pursuant to the Merger, Wyndham shall, upon consummation thereof,
have merged with and into Purchaser with Purchaser being the surviving
corporation, and holders of common stock, par value $.01 per share, of Wyndham
(the "Wyndham Common Stock") shall be entitled to receive shares of common
stock, par value $.01 per share, of Purchaser (the "Purchaser Stock") and shares
of Operating Company Stock which will be paired and transferable and traded only
in combination as a single unit (the "Paired Shares");
WHEREAS, as a condition to the willingness of Purchaser to enter into this
Agreement and the Merger Agreement, certain management stockholders of Wyndham
(the "Management
<PAGE>
Stockholders") and Stockholder have entered into a Proxy Agreement, dated as of
the date hereof (the "Proxy Agreement"), pursuant to which each of the
Management Stockholders and Stockholder have, among other things, granted to
Purchaser an irrevocable proxy to vote his, her or its shares of Wyndham Common
Stock, including the Stockholder Shares (as hereinafter defined), in favor of
the Merger Agreement;
WHEREAS, as a condition to the willingness of Purchaser to enter into this
Agreement and the Merger Agreement, Stockholder has entered into a Standstill
Agreement, dated as of the date hereof but to be effective upon consummation of
the Merger (the "Standstill Agreement"), pursuant to which Stockholder has
agreed to refrain from taking certain actions and to perform certain other
obligations with respect to Purchaser and the Paired Share Consideration,
Unpaired Share Consideration and Cash Consideration (as such terms are
hereinafter defined) to be issued to Stockholder hereunder, upon the terms and
subject to the conditions set forth in the Standstill Agreement;
WHEREAS, as of the date hereof, Stockholder beneficially owns 9,447,745
shares of Wyndham Common Stock (together with any shares of Wyndham Common Stock
acquired by Stockholder after the date hereof and prior to the termination of
this Agreement, whether upon the exercise of options, conversion of convertible
securities or otherwise, the "Stockholder Shares");
WHEREAS, it is intended that the Merger and the purchase by Purchaser of
the Stockholder Shares pursuant to this Agreement will be treated as an
integrated transaction that for federal income tax purposes qualifies as a
reorganization within the meaning of Section 368(a) of the Internal Revenue Code
of 1986, as amended (the "Code") and pursuant to which the consideration
received by the shareholders pursuant to the Merger Agreement and this Agreement
shall be tax-free to such shareholders to the extent such consideration consists
of Unpaired Share Consideration and, to the extent consisting of Purchaser
Stock, Paired Shares.
WHEREAS, as a condition to its willingness to enter into the Merger
Agreement and consummate the Merger and certain other transactions contemplated
thereby, Purchaser has required that Stockholder agree, and Stockholder has
agreed, to sell to Purchaser the Stockholder Shares on the terms and conditions
provided for herein.
NOW, THEREFORE, in consideration of the premises and the mutual covenants
herein contained and intending to be legally bound, Purchaser and Stockholder
hereby agree as follows:
ARTICLE 1. PURCHASE AND SALE
1.1 Purchase and Sale of Stockholder Shares. On the Closing Date (as
---------------------------------------
hereinafter defined), immediately prior to the Merger (i) Stockholder shall
transfer, assign and deliver to Purchaser, and Purchaser shall purchase from
Stockholder, all of the Stockholder Shares and
2
<PAGE>
(ii) Purchaser shall issue or cause to be issued to Stockholder and, if required
pursuant to the provisions of paragraph (b) below, pay or cause to be paid to
Stockholder in exchange therefor a combination of (x) Paired Shares of Purchaser
Stock and Operating Company Stock, (y) shares of unpaired Series A Preferred
Stock, par value $.01 per share, of Purchaser (the "Unpaired Preferred Stock")
and, if applicable, (z) cash, as follows:
(a) Determination of Consideration. At the Closing (as hereinafter
------------------------------
defined) Purchaser shall pay to Stockholder the number of Paired Shares of
Purchaser Stock and Operating Company Stock (the "Paired Share Consideration")
and the cash consideration, if any, that it would have received pursuant to the
Merger Agreement if it were still a stockholder of Wyndham at the Effective Time
(hereinafter used as defined in the Merger Agreement) and, as such a
stockholder, had made the Stockholder Cash Election (as hereinafter defined),
provided, however, that the Paired Share Consideration to be issued to
Stockholder shall be limited and reduced (after taking into account the cash
consideration to be paid to Stockholder as described above) so that (X) neither
Stockholder nor any other person will, immediately after the Closing, own, or be
deemed to own under the applicable attribution rules of Section 318 (as modified
by Section 856(d)(5)) of the Code, Paired Shares of Purchaser Stock and
Operating Company Stock in excess of 9.8% of the outstanding (excluding any
shares which are outstanding but not vested) Paired Shares of Purchaser Stock
and Operating Company Stock immediately after the Merger, and (Y) the receipt
thereof by Stockholder would not otherwise cause any amount derived or received
by, or allocated to, Purchaser to fail to qualify as "rents from real property"
by reason of Section 856(d)(2)(B) of the Code (such limitations set forth in the
foregoing clauses (X) and (Y) being referred to herein collectively as the
"Paired Ownership Limitations"). Stockholder shall also receive a number of
shares of Unpaired Preferred Stock (the "Unpaired Share Consideration") such
that the aggregate number of Paired Shares and shares of Unpaired Preferred
Stock issued as Paired Share Consideration and Unpaired Share Consideration
equals the number of Paired Shares that otherwise would be issued to the
Stockholders as Paired Share Consideration pursuant to the foregoing provisions
of this paragraph (a) but for the Paired Ownership Limitations; provided,
however, that the shares of Unpaired Preferred Stock to be issued as Unpaired
Share Consideration pursuant to the foregoing shall be reduced to the extent
that the issuance of such stock causes any rent derived or received by Purchaser
or its affiliates to fail to qualify as "rents from real property" by reason of
Section 856(d)(2)(B) of the Code or causes the Purchaser to be "closely held"
within the meaning of Section 856(a)(6) of the Code (such limitations set forth
in this proviso being referred to herein as the "Unpaired Ownership
Limitations"). To the extent that the number of shares of Unpaired Preferred
Stock to be issued as Unpaired Share Consideration is reduced pursuant to the
Unpaired Ownership Limitations, Stockholder shall receive cash in lieu of
Unpaired Share Consideration, with a share of Unpaired Preferred Stock being
valued for such purpose at a value equal to the "Fair Market Value" (determined
in accordance with Section 5.3(a) of the Merger Agreement) of a Paired Share of
Purchaser Stock and Operating Company Stock. Purchaser shall reasonably
determine, after taking into account the results of the investigation described
in Section 2.3 hereof and such other facts and circumstances known to Purchaser
as are relevant to such
3
<PAGE>
determination, the effect, if any, of the Paired Ownership Limitations and the
Unpaired Ownership Limitations on the relative amounts of the types of
consideration to be paid hereunder, but such limitations shall not decrease or
increase the total amount of the consideration payable hereunder; provided,
however, that if the product of the number of Paired Shares of Purchaser Stock
and Operating Company Stock constituting the Paired Share consideration
multiplied by the "Fair Market Value" (determined in accordance with Section
5.3(a) of the Merger Agreement) of a Paired Share of Purchaser Stock and
Operating Company Stock is less than Fifty Million Dollars ($50,000,000), then
Stockholder may terminate this Agreement at or prior to the Closing. The
Unpaired Preferred Stock shall have the provisions described on Exhibit A
hereto, unless Purchaser and Stockholder otherwise agree.
(b) Cash Election.
-------------
On or before the date that is three weeks before the date on which
Purchaser in good faith intends to make the general mailing to its stockholders
of the proxy material soliciting their votes with respect to the Merger
Agreement (but no more than a month before such date, such intended mailing date
being hereinafter referred to as the "Intended Mailing Date"), Purchaser shall
deliver to Stockholder a written notice notifying Stockholder of the date on
which Purchaser intends to make such mailing and requesting Stockholder to make
a cash election (the "Stockholder Cash Election") in the form it would be
permitted to make if it were a holder of Wyndham Common Stock at the Effective
Time. On or before the date that is two weeks before the Intended Mailing Date,
Stockholder shall deliver the Stockholder Cash Election to Purchaser.
1.2 Closing. Subject to the terms and conditions of this Agreement, the
-------
closing of the purchase and sale of the Stockholder Shares (the "Closing") shall
take place (a) at the offices of Goodwin, Procter & Hoar LLP, Exchange Place,
Boston, Massachusetts, at 10:00 a.m., local time, on the day on which the
Closing of the Merger is to occur, assuming the last of the conditions set forth
in Article 3 shall have been fulfilled or waived in accordance herewith, or (b)
at such other time, date or place as the parties hereto may agree. The date on
which the Closing occurs is hereinafter referred to as the "Closing Date." At
the Closing, Purchaser shall transfer, assign and deliver to Stockholder the
Paired Share Consideration, the Unpaired Share Consideration and, if applicable,
any cash due under Section 1.1(a), against delivery to Purchaser of certificates
for the Stockholder Shares so purchased, duly endorsed or accompanied by stock
powers duly executed in blank. If certificates, duly endorsed or accompanied by
stock powers duly executed in blank, for less than all of the Stockholder Shares
are delivered to Purchaser at the Closing, Purchaser may purchase the
Stockholder Shares for which certificates, duly endorsed or accompanied by stock
powers duly executed in blank, have been so delivered. At the Closing, each of
Purchaser and Stockholder shall also execute and deliver to the other the
Registration Rights Agreement attached hereto as Exhibit B. In addition,
Purchaser covenants that, on or before the Closing, Purchaser shall
4
<PAGE>
have taken all actions necessary such that the representations and warranties
set forth in Section 2(a) of such agreement are true and correct at Closing.
ARTICLE 2. REPRESENTATIONS, WARRANTIES AND COVENANTS
2.1 Representations and Warranties of Purchaser. Purchaser hereby
-------------------------------------------
represents and warrants to Stockholder as follows:
(a) Organization and Good Standing. On the date hereof, Purchaser is
------------------------------
a corporation duly organized, validly existing and in good standing under the
laws of the State of Virginia and has all necessary corporate power and
authority to carry on its business and to own and lease the assets which it owns
and leases. At the Closing, Purchaser will be a corporation duly organized,
validly existing and in good standing under the laws of the State of Delaware
and will have all necessary corporate power and authority to carry on its
business and to own and lease the assets which it owns and leases.
(b) Power and Authorization. Purchaser has the legal right, power and
-----------------------
authority to enter into and perform its obligations under this Agreement and the
other agreements and documents required to be delivered by it hereunder. The
execution, delivery and performance by Purchaser of this Agreement have been
duly authorized by all necessary corporate action on the part of Purchaser.
This Agreement constitutes the legal, valid and binding obligation of Purchaser,
enforceable against it in accordance with its terms. The Paired Shares and
shares of Unpaired Preferred Stock issued to the Stockholders at the Closing
will, when issued, be duly authorized, validly issued, fully paid and non-
assessable.
(c) SEC Documents. Purchaser has filed all required forms, reports
-------------
and documents with the Securities and Exchange Commission (the "SEC") since
December 31, 1995 (collectively, the "Purchaser SEC Reports"), which were
required to be filed after that date pursuant to the applicable requirements of
the Securities Act of 1933, as amended (the "Securities Act"), the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and the rules and
regulations promulgated thereunder (collectively, the "Securities Laws"). The
Purchaser SEC Reports were filed with the SEC in a timely manner. As of their
respective dates, the Purchaser SEC Reports (i) complied as to form in all
material respects with the applicable requirements of the Securities Laws and
(ii) did not contain any untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary to make the statements
made therein, in light of the circumstances under which they were made, not
misleading. Each of the consolidated balance sheets of Purchaser included in or
incorporated by reference into the Purchaser SEC Reports (including the related
notes and schedules) fairly presents the consolidated financial position of
Purchaser and the Purchaser Subsidiaries as of its date and each of the
consolidated statements of income, retained earnings and cash flows of Purchaser
included in or incorporated by reference into the Purchaser SEC Reports
(including any related notes and schedules) fairly presents the results of
operations,
5
<PAGE>
retained earnings or cash flows, as the case may be, of Purchaser and the
Purchaser Subsidiaries for the periods set forth therein (subject, in the case
of unaudited statements, to normal year-end audit adjustments), in each case in
accordance with generally accepted accounting principles consistently applied
during the periods involved, except as may be noted therein and except, in the
case of the unaudited statements, as permitted by Form 10-Q pursuant to Section
13 or 15(d) of the Exchange Act.
(d) Consents and Approvals; No Violation. Neither the execution and
------------------------------------
delivery of this Agreement by Purchaser nor the consummation of the transactions
contemplated hereby will (i) conflict with or result in any breach of any
provision of the certificate of incorporation or bylaws of Purchaser, (ii)
require any consent, approval, authorization or permit of, or filing with or
notification to, any governmental or regulatory authority, except (A) as may be
required pursuant to the Hart-Scott-Rodino Antitrust Improvements Act of 1976,
as amended (the "HSR Act"), (B) as may be required under the "blue sky,"
takeover or securities laws of various states, or (C) where the failure to
obtain such consent, approval, authorization or permit, or to make such filing
or notification, would not reasonably be expected to have a material adverse
effect on the business, results of operations or financial condition of
Purchaser and the Purchaser Subsidiaries taken as a whole (a "Purchaser Material
Adverse Effect"), (iii) result in a default (or give rise to any right of
termination, cancellation or acceleration) under any of the terms, conditions or
provisions of any note, license, agreement or other instrument or obligation to
which Purchaser or any of the Purchaser Subsidiaries is a party or by which
Purchaser or any of the Purchaser Subsidiaries or any of their respective assets
may be bound, except for such defaults (or rights of termination, cancellation
or acceleration) as to which requisite waivers or consents have been obtained or
which, in the aggregate, would not reasonably be expected to have a Purchaser
Material Adverse Effect, or (iv) violate any order, writ, injunction, decree,
statute, rule or regulation applicable to Purchaser, any of the Purchaser
Subsidiaries or any of their respective assets, except for violations which
would not reasonably be expected to have a Purchaser Material Adverse Effect.
(e) No Brokers. Neither Purchaser nor any of the Purchaser
----------
Subsidiaries has entered into any contract, arrangement or understanding with
any person or firm which may result in the obligation of such entity or
Stockholder to pay any finder's fees, brokerage or agent's commissions or other
like payments in connection with the negotiations leading to this Agreement or
consummation of the transactions contemplated hereby, except that Purchaser has
engaged PaineWebber Incorporated ("PaineWebber") and Salomon Brothers Inc.
("Salomon Brothers") as its financial advisors in connection with the
transactions contemplated by this Agreement and is responsible for all fees,
commissions, and like payments arising from such engagements. Other than the
foregoing arrangements, Wyndham's arrangements with Smith Barney Inc. ("Smith
Barney"), the Special Committee of the Board of Directors of Wyndham's
arrangements with Merrill Lynch & Co. ("Merrill Lynch"), and the Stockholders'
arrangements with Montgomery Securities, Purchaser is not aware of any claim for
payment of any finder's fees, brokerage or agent's commissions or
6
<PAGE>
other like payments in connection with the negotiations leading to this
Agreement or consummation of the transactions contemplated hereby.
2.2 Representations and Warranties of Stockholder. Stockholder hereby
---------------------------------------------
represents and warrants to Purchaser as follows:
(a) Ownership of Shares. Stockholder (and, if applicable, any
-------------------
Affiliate to which Stockholder has transferred any Stockholder Shares pursuant
to Section 5.14 hereof) owns of record or beneficially the Stockholder Shares
and such shares constitute all of the shares of Common Stock owned of record or
beneficially by such Stockholder. Stockholder will not sell or transfer any
Stockholder Shares except as permitted by Section 5.14 hereof or purchase or
acquire any other shares of Purchaser's stock prior to the Closing. Upon
transfer and delivery by Stockholder to Purchaser of the Stockholder Shares
owned by Stockholder pursuant to this Agreement, Purchaser shall acquire good
and marketable title to such shares, free and clear of all claims, liens,
charges, proxies (other than any agreement with Purchaser), encumbrances and
security interests (other than any created by Purchaser). Wyndham has consented
to the transactions contemplated by this Agreement and has waived any and all
rights it may have with respect to such transactions, including any rights under
the Stockholders' Agreement dated May 24, 1996 among Wyndham and certain of its
Stockholders.
(b) Organization and Good Standing. Stockholder is duly organized,
------------------------------
validly existing and in good standing under the laws of the State of Texas.
(c) Power and Authorization. Stockholder has full legal right, power
-----------------------
and authority to enter into and perform its obligations under this Agreement and
the other agreements and documents required to be delivered by it hereunder.
The execution, delivery and performance by Stockholder of this Agreement have
been duly authorized by all necessary action on the part of Stockholder. This
Agreement constitutes the legal, valid and binding obligation of Stockholder,
enforceable against it in accordance with its terms.
(d) Consents and Approvals: No Violation. Neither the execution and
-------------------------------------
delivery of this Agreement by Stockholder nor the consummation by Stockholder of
the transactions contemplated hereby will (i) conflict with any of the
organizational documents of Stockholder, (ii) require any consent, approval,
authorization or permit of, or filing with or notification to, any governmental
or regulatory authority, except (A) as may be required pursuant to the HSR Act,
(B) as may be required under the "blue sky," takeover or securities laws of
various states, or (C) where the failure to obtain such consent, approval,
authorization or permit, or to make such filing or notification, could not have
a material adverse effect on the transactions contemplated hereby or the
likelihood of their occurring (a "Stockholder Material Adverse Effect"), (iii)
result in a default (or give rise to any right of termination, cancellation or
acceleration) under any of the terms, conditions or provisions of any note,
license, agreement or other instrument or obligation to which Stockholder or any
of its assets
7
<PAGE>
may be bound, except for such defaults (or rights of termination, cancellation
or acceleration) as to which requisite waivers or consents have been obtained or
which, in the aggregate, could not have a Stockholder Material Adverse Effect,
or (iv) violate any order, writ, injunction, decree, statute, rule or regulation
applicable to Stockholder or any of its assets, except for violations which in
the aggregate could not have a Stockholder Material Adverse Effect.
(e) No Brokers. Stockholder has not entered into any contract,
----------
arrangement or understanding with any person or firm which may result in the
obligation of such entity or Purchaser to pay any finder's fees, brokerage or
agent's commissions or other like payments in connection with the negotiations
leading to this Agreement or consummation of the transactions contemplated
hereby, except that Stockholder has engaged Montgomery Securities as
Stockholder's financial advisor in connection with the transactions contemplated
by this Agreement (and is responsible for all fees, commissions and like
payments arising from such engagement). Other than the foregoing arrangements,
Purchaser's arrangements with PaineWebber and Salomon Brothers, and Wyndham's
arrangements with Smith Barney and Merrill Lynch, Stockholder is not aware of
any claim for payment of any finder's fees, brokerage or agent's commissions or
other like payments in connection with the negotiations leading to this
Agreement or consummation of the transactions contemplated hereby.
(f) Tax Matters. There is no plan or intention of Stockholder, and to
-----------
the best of the knowledge of Stockholder there is no intention on the part of
the other stockholders of Wyndham, to sell, exchange, or otherwise dispose of a
number of Paired Shares or Unpaired Preferred Shares received in the Merger or
pursuant to this Agreement that would reduce the Wyndham stockholders' ownership
of Purchaser Stock (including Unpaired Preferred Shares and that portion of
Paired Shares consisting of Purchaser Stock) to a number of shares having a
value, as of the effective date of the Merger, of less than 50 percent of the
value of all of the formerly outstanding stock of Wyndham as of the same date.
For purposes of this representation, shares of Wyndham Common Stock exchanged
for cash or other property (including Paired Shares to the extent they consist
of shares in Operating Company), exchanged for cash in lieu of fractional Paired
Shares or fractional Unpaired Preferred Shares will be treated as outstanding
Wyndham Common Stock on the date of the transaction. Moreover, shares of Wyndham
Common Stock and Paired Shares (to the extent they consist of shares in
Purchaser) and Unpaired Preferred Shares held by Wyndham stockholders and
otherwise sold, redeemed, or disposed of prior or subsequent to the transaction
will be considered in making this representation.
2.3 Covenants of Purchaser and Stockholder.
--------------------------------------
Stockholder agrees to cooperate with Purchaser after the date hereof
in determining and investigating whether there exist any circumstances which
could cause Purchaser to be "closely held" within the meaning of Section 856(a)
of the Code or to derive or accrue or be allocated any amount that is treated as
other than "rents from real property" by reason of Section 856(d)(2)(B) of the
Code and without limiting the foregoing agrees to
8
<PAGE>
provide to Purchaser as promptly as practical all relevant information and
documents (or, with respect to information and documents which Stockholder does
not have or own, use commercially reasonable efforts to obtain and provide them
to Purchaser as promptly as practical) which Purchaser reasonably requests in
connection with such determination and investigation. Purchaser in turn agrees
to cooperate with Stockholder after the date hereof in connection with such
determination and investigation and without limiting the foregoing agrees to
discuss with Stockholder, at mutually convenient times, the facts and
circumstances which Purchaser believes are relevant to any such determination.
ARTICLE 3. CONDITIONS PRECEDENT
--------------------
3.1 Mutual Condition. The obligations of Purchaser and Stockholder to
----------------
enter into and consummate the transactions contemplated hereby are subject to
the satisfaction or waiver by the parties to the Merger Agreement of the
conditions set forth in Section 9.1 of the Merger Agreement and to the approval
by the stockholders of Operating Company, if required, of the issuance of the
Unpaired Preferred Stock as contemplated by this Agreement.
3.2 Certain Conditions Precedent to Purchaser's Obligations. The
-------------------------------------------------------
obligations of Purchaser to enter into and consummate the transactions
contemplated hereby are subject to the fulfillment (or waiver in writing by
Purchaser in its sole discretion) on or prior to the Closing Date of the
conditions that:
(a) the representations and warranties of Stockholder contained in
this Agreement shall be true and correct on and as of the date hereof and in all
material respects on and as of the Closing Date with the same force and effect
as though made on and as of the Closing Date;
(b) Stockholder shall have performed and complied in all material
respects with all covenants and agreements required by this Agreement to be
performed or complied with by Stockholder on or prior to the Closing Date;
(c) Stockholder shall have delivered to Purchaser certificates, dated
the Closing Date and signed by a duly authorized officer of Stockholder, to the
foregoing effect;
(d) Stockholder shall have delivered to Purchaser an opinion of
counsel to Stockholder as to the matters set forth in Sections 2.2(a), (b), (c)
and (d) hereof (provided that with respect to Sections 2.2(a) and (d) the
opinion need only relate to such factual matters as to which such counsel has
knowledge);
(e) the conditions to the obligations of Purchaser to effect the
Merger set forth in Section 9.3 of the Merger Agreement (other than Section
9.3(e) thereof) shall have been satisfied or waived; and
9
<PAGE>
(f) Stockholder shall have delivered a certificate as to its non-
foreign status in accordance with the regulations under Section 1445 of the
Code.
3.3 Certain Conditions Precedent to the Stockholder's Obligations. The
-------------------------------------------------------------
obligation of Stockholder to enter into and complete the transactions
contemplated hereby is subject to the fulfillment (or waiver in writing by
Stockholder in its sole discretion) on or prior to the Closing Date of the
conditions that:
(a) the representations and warranties of Purchaser contained in the
second sentence of Section 2.1(a) and in Sections 2.1(b), (c), (d) and (e) in
this Agreement shall be true and correct on and as of the date hereof and in all
material respects on and as of the Closing Date with the same force and effect
as though made on and as of the Closing Date;
(b) Purchaser shall have performed and complied in all material
respects with all covenants and agreements required by this Agreement to be
performed or complied with by Purchaser on or prior to the Closing Date;
(c) Purchaser shall have delivered to Stockholder a certificate, dated
the Closing Date and signed by a duly authorized officer of Purchaser, to the
foregoing effect;
(d) Purchaser shall have delivered to Stockholder an opinion of
counsel to Purchaser as to the matters set forth in the second sentence of
Section 2.1(a) and in Sections 2.1(b) and (d) hereof (provided that with respect
to Section 2.1(d) the opinion need only relate to agreements as to which such
counsel has knowledge);
(e) Goodwin, Procter & Hoar LLP shall have delivered an opinion
addressed to Stockholder substantially to the same effect as the opinion of
Goodwin, Procter & Hoar LLP addressed to Stockholder and delivered to it on the
date hereof; and
(f) the conditions to the obligations of Wyndham to effect the Merger
set forth in Section 9.2 of the Merger Agreement (other than Section 9.2(e)
thereof) shall have been satisfied or waived.
ARTICLE 4. INDEMNIFICATION
---------------
4.1 Indemnification by Stockholder. Stockholder shall indemnify and hold
------------------------------
Purchaser and its officers, directors and shareholders harmless against and in
respect of any and all losses, costs, expenses, claims, damages, obligations and
liabilities, including interest, costs of investigation, penalties and
reasonable attorneys' fees and disbursements ("Damages") which Purchaser or any
such person may suffer, incur or become subject to arising out of, based upon or
otherwise in respect of any inaccuracy in or breach of any representation or
10
<PAGE>
warranty of Stockholder made in or pursuant to this Agreement or any breach or
nonfulfillment of any covenant or obligation of Stockholder contained in this
Agreement.
4.2 Indemnification by Purchaser. Purchaser shall indemnify and hold
----------------------------
Stockholder and its officers, directors and partners harmless against and in
respect of any and all Damages which Stockholder or any such person may suffer,
incur or become subject to arising out of, based upon or otherwise in respect of
any inaccuracy in or breach of any representation or warranty of Purchaser made
in or pursuant to Sections 2.1(a), (b), (d) and (e) of this Agreement or any
breach or nonfulfillment of any covenant or obligation of Purchaser contained in
this Agreement.
4.3 Third Party Claims.
------------------
(a) Each party shall promptly notify the other of the assertion by any
third party of any claim with respect to which the indemnification set forth in
this Section relates. The indemnifying party shall have the right, upon notice
to the indemnified party within ten (10) business days after the receipt of any
such notice, to undertake the defense of and, with the consent of the
indemnified party (which consent shall not unreasonably be withheld), to settle
or compromise such claim. The failure of the indemnifying party to give such
notice and to undertake the defense of or to settle or compromise such a claim
shall constitute a waiver of the indemnifying party's rights under this Section
4.3(a) and in the absence of gross negligence or willful misconduct on the part
of the indemnified party shall preclude the indemnifying party from disputing
the manner in which the indemnified party may conduct the defense of such claim
or the reasonableness of any amount paid by the indemnified party in
satisfaction of such claim.
(b) The election by the indemnifying party, pursuant to Section
4.3(a), to undertake the defense of a third party claim shall not preclude the
party against which such claim has been made also from participating or
continuing to participate in such defense, so long as such party bears its own
legal fees and expenses for so doing.
ARTICLE 5. MISCELLANEOUS
-------------
5.1 Further Action. Stockholder and Purchaser shall, subject to the
--------------
fulfillment at or before the Closing Date of each of the conditions of
performance set forth herein or the waiver thereof, perform such further acts
and execute such documents as may reasonably be required to effect the
transactions contemplated hereby. Purchaser agrees that following consummation
of the Business Combination it shall use reasonable best efforts to cause
Operating Company to take such actions as this Agreement contemplates that
Operating Company will take in connection with the transactions contemplated
hereby.
5.2 Parties in Interest; Assignment. Neither of the parties to this
-------------------------------
Agreement may assign any of its rights or obligations under this Agreement
without the prior written consent
11
<PAGE>
of the other party hereto provided, however, that Stockholder may assign some or
all of the Stockholder Shares and its rights hereunder with respect to such
shares if and to the extent and in the manner specifically permitted by Section
2.2(a) hereof. Subject to the foregoing, this Agreement shall be binding upon,
inure to the benefit of and be enforceable by the parties hereto and their
respective successors and permitted assigns.
5.3 Entire Agreement; Amendments; Waiver. This Agreement, the Merger
------------------------------------
Agreement, the Proxy Agreement and the Standstill Agreement each contain the
entire understanding between Stockholder and Purchaser with respect to its
specific subject matter. This Agreement may be amended only by written
instrument duly executed by the parties hereto. No party may waive any term,
provision, covenant or restriction of this Agreement except by a duly signed
writing referring to the specific provision to be waived.
5.4 Notices. All notices, requests, claims, demands and other
--------
communications hereunder shall be in writing and shall be delivered personally
or transmitted by telex, fax or telegram, to the respective parties as follows:
(a) If to Stockholder, to it at:
CF Securities, LP.
2001 Ross Avenue
Suite 3200
Dallas, Texas 75201
Attention: Ms. Susan T. Groenteman
12
<PAGE>
with copies to:
Crow Family Holdings
2001 Ross Avenue
Suite 3200
Dallas, Texas 75201
Attention: M. Kevin Bryant, Esq.
and:
Vinson & Elkins L.L.P.
2001 Ross Avenue
Suite 3700
Dallas, Texas 75201
Attention: Derek R. McClain, Esq.
(b) If to Purchaser, to it at:
Patriot American Hospitality, Inc.
3030 LBJ Freeway
Suite 1500
Dallas, Texas 75234
Attention: President
with a copy to:
Goodwin, Procter & Hoar LLP
Exchange Place
Boston, Massachusetts 02109
Attention: Gilbert G. Menna, P.C.
or to such other address as any party may have furnished to the others in
writing.
5.5 Governing Law. This Agreement will be governed by and construed in
-------------
accordance with the internal laws of the State of Delaware.
5.6 Survival. All representations, warranties, covenants and agreements
--------
of the parties hereto shall survive indefinitely after the Closing, except those
contained in Section 2.1(c), which shall not survive the Closing.
13
<PAGE>
5.7 Termination.
-----------
(a) This Agreement may be terminated and the transactions contemplated
herein may be abandoned at any time prior to the Closing:
(i) by Purchaser or Stockholder, if the Merger Agreement shall
have been terminated;
(ii) by mutual consent of Purchaser and Stockholder;
(iii) by Stockholder, if Purchaser has failed to perform in any
material respect any of its respective obligations required to be performed
by it under this Agreement and such failure continues for more than 30 days
after notice unless failure to so perform has been caused by or results
from a breach of this Agreement by Stockholder;
(iv) by Purchaser, if Stockholder shall have failed to perform
in any material respect any of the obligations required to be performed by
Stockholder under this Agreement and such failure continues for more than
30 days after notice unless failure to so perform has been caused by or
results from a breach of this Agreement by Purchaser;
(v) by Stockholder, if the Operating Company Ratification
Agreement (as defined in the Merger Agreement) is not executed and
delivered by Operating Company on or prior to the 20th business day
following the date on which the Business Combination is effected; or
(vi) by Purchaser, at any time (including on the Closing Date)
after the date which is five days following the date on which the Business
Combination becomes effective, if Purchaser shall reasonably conclude that, as a
result of circumstances discovered in connection with the investigation
referenced in Section 2.3 hereof or matters or information obtained in any other
manner, there is a realistic possibility (as such term is defined in Treasury
Regulation (S)1.6694-2(b)) that the amount of cash required to be paid by
Purchaser pursuant to the third sentence of Section 1.1(a) hereof would exceed
Twenty-Five Million Dollars ($25,000,000) (a "Realistic Possibility"). If
Purchaser wishes to exercise its right to terminate this Agreement pursuant to
this Section 5.7(a)(vi), it shall send a notice to Stockholder specifying in
reasonable detail the facts and circumstances, including, if applicable, those
which relate to the attribution of stock ownership, which have caused Purchaser
to conclude that there is a Realistic Possibility, such notice to be sent on or
prior to the date (the "Notice Date") which is at least eleven business days
before the scheduled date for Wyndham's stockholders' meeting to be held to
consider and act upon the Merger, provided, however, that Purchaser may send
such a notice, or amend or supplement any notice previously sent, at any time
prior to the Closing to reflect any change in circumstances or any
14
<PAGE>
additional information obtained or learned by Purchaser within five business
days before, or at any time after, the Notice Date (any notice, amendment or
supplement sent pursuant to this sentence shall be referred to herein as a
"Preliminary Notice"). If Stockholder has not solved or otherwise addressed by
the Final Notice Date (as hereinafter defined), with respect to any Preliminary
Notice, the circumstances, matters or information reflected in any such
Preliminary Notice so that Purchaser no longer reasonably concludes that there
is a Realistic Possibility, then Purchaser may at any time thereafter send
Stockholder, or deliver to Stockholder at the Closing, an additional notice (the
"Final Notice") terminating this Agreement, and any such Final Notice shall be
effective when sent or delivered. The "Final Notice Date" with respect to any
Preliminary Notice shall be (x) the date which is ten business days after the
date on which Purchaser sends such Preliminary Notice pursuant to this Section
5.7(a)(vi); provided, however, that if such Preliminary Notice is sent later
than the Notice Date, the Final Notice Date shall be the later of (y) the date
which is five business days after the date on which the Purchaser sends such
Preliminary Notice or (z) the earlier of (i) the business day prior to the date
scheduled for the Closing or (ii) the Final Notice Date determined pursuant to
clause (x) above; provided further, however, that if the Final Notice Date shall
be determined by using clause (y), the scheduled date for the Closing shall be
postponed until the business day following the Final Notice Date,
notwithstanding anything in this Agreement to the contrary.
(b) A party terminating this Agreement pursuant to this Section 5.7
shall give written notice thereof to each other party hereto, whereupon this
Agreement shall terminate and the transactions contemplated hereby shall be
abandoned without further action by any party; provided, however, that if such
--------
termination is by Purchaser pursuant to Section 5.7(a)(iv) or if such
termination is by Stockholder pursuant to Section 5.7(a)(iii), nothing herein
shall affect the non-breaching party's right to damages on account of such other
party's breach.
5.8 Remedies. Stockholder acknowledge that the Stockholder Shares are
--------
unique and that Purchaser will not have an adequate remedy at law if Stockholder
fails to perform any of its obligations hereunder, and Stockholder agrees that
Purchaser shall have the right, in addition to any other right it has, to
specific performance or equitable relief by way of injunction if Stockholder
fails to perform any of its obligations hereunder. Any requirements for the
securing or posting of any bond with respect to such remedy are hereby waived.
Stockholder agrees that its sole remedy after the Closing concerning the
performance or nonperformance by Purchaser under this Agreement or in any way
related to the subject matter of this Agreement, and regardless of whether a
claim is based in contract or in tort, shall be indemnification pursuant to the
provisions of Section 4 hereof and claims for damages.
5.9 Counterparts; Headings. This Agreement may be executed in two or more
----------------------
counterparts, each of which shall be deemed to be an original, but all of which
together shall constitute one and the same document. The article and section
headings contained herein are
15
<PAGE>
for reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement.
5.10 Expenses. Each of Purchaser and Stockholder shall pay the fees and
--------
expenses it incurs in connection with this Agreement, other than as a result of
the breach hereof by the other party hereto.
5.11 Certain Definitions. For purposes of the Agreement:
-------------------
(a) "beneficially owned" shall have the meaning set forth in Rule 13d-
3 promulgated under the Exchange Act, as such Rule is in effect on the date
hereof.
(b) "business day" means any day which is neither a Saturday or Sunday
nor a legal holiday on which banks are authorized or required to be closed in
New York, New York or Dallas, Texas.
(c) As used in this Agreement, the word "Subsidiary" or "Subsidiaries"
when used with respect to any party means any corporation, partnership, joint
venture, business trust or other entity, of which such party directly or
indirectly owns or controls at least a majority of the securities or other
interests having by their terms ordinary voting power to elect a majority of the
board of directors or others performing similar functions with respect to such
corporation or other organization.
(d) As used in this Agreement, the word "person" means an individual,
a corporation, a partnership, an association, a joint-stock company, a trust, a
limited liability company, any unincorporated organization or any other entity.
(e) As used in this Agreement, the word "affiliate" shall have the
meaning set forth in Rule 12b-2 of the Exchange Act.
5.12 Condition Subsequent. If for any reason the Merger does not become
--------------------
effective on the Closing Date or the first business day thereafter, the
transactions contemplated hereby shall be automatically rescinded, the parties
shall return any consideration they received to the parties who provided such
consideration (with duly executed stock powers, if appropriate), and this
Agreement shall be deemed null and void.
5.13 Consent by Wyndham. Wyndham hereby consents to the execution of this
------------------
Agreement and to the transactions contemplated hereby and hereby waives any
rights it may have with respect to the transactions contemplated hereby under
the Stockholders Agreement dated May 24, 1996 among Wyndham and the stockholders
named therein or any other agreement or document.
16
<PAGE>
5.14 Transfers to Affiliates. Notwithstanding the transfer restrictions
-----------------------
contained in Section 2.2(a) hereof, CF Securities, L.P. may transfer any
Stockholder Shares to an Affiliate (as defined in that certain Standstill
Agreement dated the date hereof by and between Purchaser and CF Securities, L.P.
(the "Standstill Agreement")); provided, that prior to any such transfer any
--------
such Affiliate shall have executed and delivered an agreement with Purchaser
dated the date of the transfer pursuant to which such Affiliate agrees to be
bound by all of the terms and conditions of, and makes, as of a time immediately
prior to such transfer, each of the representations and warranties contained in
(applied to such Affiliate as if such Affiliate were CF Securities L.P. for
purposes thereof), this Agreement, the Standstill Agreement, the Proxy Agreement
and that certain Voting Agreement dated the date hereof by and between Purchaser
and CF Securities, L.P. (the "Voting Agreement"); provided further, that no such
-------- -------
transfer shall relieve CF Securities, L.P. of any obligations in this Agreement,
the Standstill Agreement, the Proxy Agreement or the Voting Agreement, and CF
Securities, L.P. shall continue to be bound by such agreements as if such
transfer had not occurred.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
17
<PAGE>
{Signature Page to Stock Purchase Agreement}
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date first written.
PATRIOT AMERICAN HOSPITALITY, INC.
By:/s/ Paul A. Nussbaum
----------------------------------
Name: Paul A. Nussbaum
Title: Chairman and Chief Executive
Officer
CF SECURITIES, L.P.
By: Mill Springs Holding, Inc.
Its: General Partner
By: /s/ Harlan R. Crow
-------------------------------------
Name: Harlan R. Crow
Title: Chief Executive Officer
<PAGE>
CONSENTED TO FOR THE PURPOSES OF SECTION 5.13:
WYNDHAM HOTEL CORPORATION
By: /s/ Carla S. Moreland
-----------------------------------
<PAGE>
Exhibit 10.32
-------------
OMNIBUS PURCHASE AND SALE AGREEMENT
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
DEFINITIONS................................................................. 2
ARTICLE I - PURCHASE AND SALE OF PROPERTIES................................. 7
1.1 Purchase and Sale of Properties................................... 7
1.2 Closing........................................................... 9
1.3 Option............................................................ 9
1.4 Terminated Merger Election........................................ 9
ARTICLE ARTICLE II - REPRESENTATIONS AND WARRANTIES
OF THE FAMILY ENTITIES................................................. 9
ARTICLE ARTICLE III - COVENANTS............................................. 10
3.1 Covenants of Crow Family Entities................................. 10
ARTICLE IV - CONDITIONS TO CLOSING.......................................... 16
4.1 Conditions to the Obligations of Patriot OP and the
Crow Family Entities.............................................. 16
4.2 Conditions to Patriot OP's Obligations............................ 16
ARTICLE V - TERMINATION OF AGREEMENT........................................ 17
5.1 Termination....................................................... 17
5.2 Notice of Termination............................................. 18
5.3 Effect of Termination............................................. 18
5.4 Termination Fees.................................................. 18
ARTICLE VI - MISCELLANEOUS.................................................. 19
6.1 Marketing......................................................... 19
6.2 Entire Agreement; No Amendment.................................... 19
6.3 Notices........................................................... 20
6.4 No Assignment..................................................... 21
6.5 Governing Law..................................................... 21
6.6 Multiple Counterparts............................................. 21
6.7 Further Assurances................................................ 21
6.8 Miscellaneous..................................................... 21
6.9 Invalid Provisions................................................ 22
6.10 Confidentiality; Publicity........................................ 22
6.11 Time of Essence................................................... 22
6.12 Costs and Expenses................................................ 22
6.13 Enforcement of Agreement.......................................... 22
</TABLE>
(i)
<PAGE>
SCHEDULES
Schedule I - Crow Family Entities, Properties, Allocated Purchase Prices
and NOI
Schedule II - Terms of Anatole Management Contract
EXHIBIT A - Lease Termination Agreement
(ii)
<PAGE>
OMNIBUS PURCHASE AND SALE AGREEMENT
This OMNIBUS PURCHASE AND SALE AGREEMENT (this "Agreement") is entered into
as of the 14th day of April, 1997, by and among those partnerships listed on
Schedule I hereto (the "Crow Family Entities") and Patriot American Hospitality
- ----------
Partnership, L.P., a Virginia limited partnership ("Patriot OP").
RECITALS
WHEREAS, Patriot American Hospitality, Inc., a Virginia corporation
("Patriot"), California Jockey Club, a Delaware corporation ("CJC") and Bay
Meadow Operating Company, a Delaware corporation ("BMOC") have entered into an
Agreement and Plan of Merger ( the "CJC Merger Agreement") dated as of February
24, 1997, pursuant to which Patriot, CJC and BMOC agreed to engage in a business
combination among Patriot, CJC and BMOC (the "CJC Merger");
WHEREAS, the shares of common stock, par value $.01 per share, of CJC and
the shares of common stock, par value $.01 per share, of BMOC are paired and
transferable and traded only in combination as a single unit (the "Paired
Shares") on the American Stock Exchange;
WHEREAS, upon consummation of the CJC Merger, Patriot will have merged with
and into CJC with CJC being the surviving company ("New Patriot");
WHEREAS, contemporaneously with the execution of this Agreement, Patriot
and Wyndham Hotel Corporation, a Delaware corporation ("Wyndham"), have entered
into a merger agreement to effect the merger of Wyndham with and into New
Patriot (the "Wyndham Merger");
WHEREAS, each of the Crow Family Entities (except the Crow Family Entity
that owns Bristol (as hereinafter defined)) has entered into an agreement (a
"Purchase and Sale Agreement") with Patriot OP, pursuant to which certain hotel
properties and related assets of such Crow Family Entity will be sold to Patriot
OP or an affiliate of Patriot OP;
WHEREAS, the Crow Family Entities and Patriot OP desire to set forth
certain conditions and further terms pursuant to which the various obligations
of the parties to the Purchase and Sale Agreements shall be subject and certain
procedures to coordinate among the various provisions of the Purchase and Sale
Agreements;
WHEREAS, the parties hereto understand and acknowledge that Patriot OP may
hereafter, in its sole discretion, undertake a transaction or series of
transactions to effect a structure (a "Private Label REIT"), pursuant to which
transactions it may, by way of
<PAGE>
illustration only, (i) transfer all of its assets, subject to its liabilities,
into a newly organized subsidiary partnership ("New REIT OP"), (ii) contribute
all of its interests in New REIT OP to a newly organized private REIT ("Private
REIT") in exchange for all of the stock of Private REIT (less the shares
required to be issued to at least 99 other investors in order to qualify as a
REIT) and (iii) liquidate Patriot OP, with its partners receiving their
proportionate shares of the stock of Private REIT, but which transactions may
also, in Patriot OP's sole discretion, consist of other transactions that result
in a similar structure;
WHEREAS, the parties hereto desire that Patriot OP have an option
("Option") in the event it chooses to utilize the Private Label REIT, subject to
its sole discretion, to cause New REIT OP to offer to deliver the consideration
for the Properties (as defined below) in units of partnership interests in New
REIT OP (and, at its election, any other partnership that may result from the
CJC Merger) or cash to the partners of the Crow Family Entities (at the
elections of such partners); and
WHEREAS, Patriot OP and the Crow Family Entities desire to make certain
representations, warranties and agreements in connection with this Agreement.
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, each of the parties hereby agrees
as follows:
DEFINITIONS
The following terms as used in this Agreement will have the meanings
attributed to them as set forth below unless the context clearly requires
another meaning. Certain other defined terms shall have the meanings ascribed
to them elsewhere in this Agreement.
"Affiliate" of a Person shall mean any entity in which such Person owns
directly or indirectly fifty percent (50%) or more of any class of securities or
interests issued by such entity or any entity controlling, controlled by or
under common control with such Person.
"Allocated Purchase Price" shall mean, with respect to each Property, that
amount set forth for that Property on Schedule I hereto.
----------
"Anatole" shall mean the Wyndham Anatole Hotel, located in Dallas, Texas.
"BMOC" has the meaning set forth in the recitals.
"Bristol" shall mean the Wyndham Bristol Hotel, located in the District of
Columbia.
"Business Day" shall mean any weekday that is not an official holiday in
the State of Texas.
2
<PAGE>
"CJC" has the meaning set forth in the recitals.
"CJC Merger" has the meaning set forth in the recitals.
"Closing" has the meaning set forth in Section 1.2.
"Closing Adjustments" shall mean, with respect to each Property, "Closing
Adjustments" as such term is defined in the applicable Purchase and Sale
Agreement.
"Crow Family Entity" has the meaning set forth in the Preamble hereof.
"Crow Family Entity Partner" shall mean a holder of a partnership interest,
or other equity interest, in a Crow Family Entity.
"Deposit" has the meaning set forth in Section 3.1(c).
"Earnout" has the meaning set forth in Section 1.1(b).
"Earnout NOI" shall mean, for a Property, the amount by which actual Fiscal
Year 1999 gross revenues from hotel operations (including restaurant, bar and
other services) exceed the aggregate of, without duplication, (a) all operating
expenses of the Property accrued during such period (excluding capital
expenditures), including amounts payable to the Property's manager pursuant to
the applicable Management Contract for the Property (including base and
incentive management fees and trade name fees, which trade name fees shall be
calculated as 1% of gross revenues notwithstanding any provision in the
Management Contract relating thereto that may provide otherwise), (b) Fixed
Charges (other than interest or principal payments on indebtedness and
partnership-related charges but specifically including principal and interest
payments on capital leases provided, however, that Patriot OP shall act in good
faith and in a manner consistent with its reasonable and customary past
practices in the event it should enter into or buy out capital leases with
respect to the Earnout Properties, with the understanding that it shall not
manipulate Earnout NOI in a manner to violate the intention of the parties
hereunder) paid during such period and (c) an allowance of 4% of gross revenues
for capital expenditures. Operating expenses, capital expenditures and Fixed
Charges shall be calculated and determined in the same manner as such items have
been calculated and determined under the Management Contract for the Earnout
Property in question and the operating budgets provided to Patriot OP and its
advisors in connection with the transactions contemplated by this Agreement.
"Earnout Property" shall mean either Riverfront or La Guardia.
"Effective Closing Time" has the meaning set forth in Section 1.2.
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"Effective Date" shall mean the first date hereinabove written.
"Final Crow Family Entities" shall mean those Crow Family Entities that are
parties to one or more of the Final Purchase and Sale Agreements.
"Final Properties" shall mean those Properties (other than Bristol) that
are not Rejected Properties or Undelivered Properties; provided, however, that
in the event that the conditions set forth in Section 4.2 are not satisfied or
waived by Patriot OP with respect to one or more of the Final Properties, then
at the election of Patriot OP, Final Properties shall mean those Final
Properties for which such conditions have been satisfied or waived.
"Final Purchase and Sale Agreements" shall mean those Purchase and Sale
Agreements with respect to the Final Properties.
"Final Related Agreements" shall mean the Final Purchase and Sale
Agreements and all other agreements herein or therein contemplated to be
executed and delivered by both (i) Patriot OP and (ii) one or more of the Final
Crow Family Entities.
"Fixed Charges" shall have the meaning provided therefor in the Uniform
System of Accounts.
"General Partner" shall mean, with respect to a Crow Family Entity, the
general partner or general partners under the limited partnership agreement of
such Crow Family Entity.
"Greenspoint Agreement" has the meaning set forth in Section 4.2(d).
"Greenspoint Partner" has the meaning set forth in Section 4.2(d).
"La Guardia" shall mean the Wyndham La Guardia Garden Hotel, located in
East Elmhurst, New York.
"Management Contract" shall mean, with respect to a Property, that property
management contract in effect as of the Effective Date respecting the management
and operation of such Property.
"Milwaukee" shall mean the Wyndham Milwaukee Theatre District Hotel,
located in Milwaukee, Wisconsin.
"Milwaukee NOI" shall mean, the amount by which, for the twelve-month
period preceding such determination of Milwaukee NOI, gross revenues from hotel
operations (including, restaurant, bar and other services) exceed the aggregate
of, without duplication, (a)
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all operating expenses of the Property accrued during such period (excluding
capital expenditures), including amounts payable to the Property's manager
pursuant to the applicable Management Contract for the Property (including base
and incentive management fees and trade name fees), (b) Fixed Charges (other
than interest or principal payments on indebtedness and partnership-related
charges but specifically including principal and interest payments on capital
leases; provided, however, that the Crow Family Entity owning Milwaukee shall
act in good faith and in a manner consistent with its reasonable and customary
past practices and the operating budgets furnished to Patriot OP and its
advisors in connection herewith in the event it should enter into or buy out
capital leases, with the understanding that it shall not manipulate Milwaukee
NOI in a manner to violate the intention of the parties hereunder as reflected
in such furnished operating budgets) paid during such period and (c) an
allowance of 4% of gross revenues for capital expenditures. Operating expenses,
capital expenditures and Fixed Charges shall be calculated and determined in the
same manner as such items have been calculated and determined under the
Management Contract for Milwaukee and the operating budgets provided to Patriot
OP and its advisors in connection with the transactions contemplated by this
Agreement.
"New Patriot" has the meaning set forth in the recitals.
"New REIT OP" has the meaning set forth in the recitals.
"NOI" shall mean, for each Property, that amount set forth as NOI in
Schedule I for such Property.
- ----------
"Offer" has the meaning set forth in Section 3.1(c).
"Offer Notice" has the meaning set forth in Section 3.1(d).
"Offer Properties" shall mean Bristol and all of the Undelivered
Properties.
"Option" has the meaning set forth in the recitals.
"Palm Springs" shall mean the Wyndham Palm Springs Hotel, located in Palm
Springs, California.
"Patriot" has the meaning set forth in the recitals.
"Patriot GP" shall mean the general partner of Patriot OP.
"Patriot OP" has the meaning set forth in the recitals.
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"Person" shall mean any individual, corporation, partnership, joint
venture, association, joint-stock company, business trust, limited liability
company, trust, unincorporated organization or government or a political
subdivision, agency or instrumentality thereof or other entity or organization
of any kind.
"Private Label REIT" has the meaning set forth in the recitals.
"Private REIT" has the meaning set forth in the recitals.
"Property" shall generally refer to any one of Bristol; the Wyndham Bel Age
Hotel, located in West Hollywood, California; the Wyndham Franklin Plaza Hotel,
located in Philadelphia, Pennsylvania; Milwaukee; Palm Springs; La Guardia; the
Wyndham Northwest Chicago Hotel, located in Itasca, Illinois; the Wyndham Las
Colinas Garden Hotel, located in Irving, Texas; the Windham Novi Garden Hotel,
located in Novi, Michigan; the Pleasanton Garden Hotel, located in Pleasanton,
California; Riverfront; and the Wyndham Wood Dale Garden Hotel, located in Wood
Dale, Illinois, but shall more particularly have the meanings variously ascribed
thereto, as applicable, in the eleven (11) Purchase and Sale Agreements.
"Purchase and Sale Agreements" has the meaning set forth in the recitals.
"Rejected Property" shall mean any of the Properties for which the relevant
Purchase and Sale Agreement is terminated by Patriot OP pursuant to Section
2.4(a) thereof and, upon the rejection of a Property, this Agreement shall be
inapplicable to such Rejected Property except as set forth in Section 6.10.
"Related Agreements" shall mean the Purchase and Sale Agreements and all
other agreements herein or therein contemplated to be executed and delivered in
connection herewith.
"Representation and Warranty Certificate" shall have the meanings, with
respect to each Property, variously ascribed thereto in the Purchase and Sale
Agreements.
"Requisite Consent" has the meanings variously ascribed thereto under the
Purchase and Sale Agreements.
"Right of First Offer" has the meaning set forth in Section 3.1(d).
"Right of First Refusal" has the meaning set forth in Section 3.1(c).
"Riverfront" shall mean the Wyndham Riverfront Hotel, located in New
Orleans, Louisiana.
"Terminated Merger Election" has the meaning set forth in Section 1.4.
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"Undelivered Property" shall mean any Property (other than Bristol) (i)
that is not a Rejected Property and (ii) respecting which the conditions to
Patriot OP's performance of its obligations pursuant to the applicable Purchase
and Sale Agreement shall not have been satisfied or waived as of the Closing.
"Uniform System of Accounts" shall mean the Uniform System of Accounts for
Hotels, Ninth Revised Edition, 1996, as adopted by the American Hotel and Motel
Association and all future amendments and supplements thereto.
"Wyndham" has the meaning set forth in the recitals.
"Wyndham Merger" has the meaning set forth in the recitals.
"Wyndham Merger Agreement" shall mean that certain Agreement and Plan of
Merger of even date herewith by and between Patriot and Wyndham with respect to
the Wyndham Merger.
"Wyndham Merger Closing" shall mean the closing contemplated in the Wyndham
Merger Agreement pursuant to which the Wyndham Merger will be effected.
ARTICLE I - PURCHASE AND SALE OF PROPERTIES
1.1 Purchase and Sale of Properties.
-------------------------------
(a) Payment at Closing. Each Crow Family Entity hereby agrees, with
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respect to the Final Property owned by such Crow Family Entity, to sell and
transfer such Property to Patriot OP and, with respect to any portion of such
Property that Patriot OP may designate, to any Person that Patriot OP so
designates, on the Closing Date pursuant to the applicable Final Purchase and
Sale Agreement and the terms and conditions contained in this Agreement. In
consideration of such sale and transfer by the Final Crow Family Entities and in
reliance on the representations and warranties of the Crow Family Entities in
their respective Purchase and Sale Agreements and in this Agreement, Patriot OP
agrees to pay to each Final Crow Family Entity in consideration for the sale of
its Final Property to Patriot OP, or its designee or designees, the Allocated
Purchase Price for such Final Property, as such Allocated Purchase Price may be
adjusted pursuant to the terms of Closing Adjustments under the applicable Final
Purchase and Sale Agreement.
(b) Payment of Earnout. Certain additional payments ("Earnout") for
------------------
Riverfront (in the event that such Property is sold and transferred in
accordance with Section 1.1(a)) and La Guardia (in the event that such Property
is sold and transferred in accordance with Section 1.1(a)) shall be made on
April 30, 2000 to the applicable Crow Family Entities in the amounts of (i) for
Riverfront, the sum of (A) $9,000,000 multiplied by the ratio of (x) the
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lesser of (*) $200,000 and (**) any excess of Earnout NOI for Riverfront over
$3,537,000 (provided that, if there is no such excess, the amount in this clause
(x) shall be $0.00) to (y) $200,000 and (B) the amount, if any, by which Earnout
NOI for Riverfront exceeds $3,737,000 multiplied by 9.5238 and (ii) for La
Guardia, the sum of (A) $4,750,000 multiplied by the ratio of (x) the lesser of
(*) $290,000 and (**) any excess of Earnout NOI for La Guardia over $2,310,000
(provided that, if there is no such excess, the amount in this clause (x) shall
be $0.00) to (y) $290,000 and (B) the amount, if any, by which Earnout NOI for
La Guardia exceeds $2,600,000 multiplied by 10.5263. Earnout attributable to
Riverfront and La Guardia shall be paid to the applicable Crow Family Entities
c/o Crow Family Holdings at the address set forth in Section 6.3.
(c) Earnout Property Management. From and after the Closing Date,
---------------------------
Patriot OP shall:
(i) operate each Earnout Property in substantially the same
manner as each such Property was operated before the Closing Date
pursuant to the terms of the Management Contracts therefor, and keep
such Properties in good condition, casualty excepted, so as to
maintain the caliber of the operations conducted at such Properties
and the goodwill of all tenants of such Properties and all employees,
guests, and other customers thereof;
(ii) maintain each Earnout Property's books of account and
records in the usual, regular and ordinary manner, in accordance with
sound accounting principles applied on a basis consistent with the
basis used in keeping such books and records under the Management
Contracts;
(iii) within 20 days of the end of each calendar quarter, deliver
to the applicable Crow Family Entity quarterly operating statements
for the previous quarter indicating the gross revenues and gross
operating expenses of the Earnout Properties and all departments
thereof and, by the 60th day of each calendar year, the annual
operating statements for the prior year;
(iv) allocate all national marketing sales, centralized
reservations and other allocated operational costs of the manager to
the Earnout Properties in a manner consistent with current practices
and in a manner such that such Properties shall not bear a
disproportionate share of such costs; and
(v) provide that the applicable Crow Family Entity shall retain
an insurable interest in the Earnout Properties and shall be named
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as an additional insured on the business interruption insurance policy
maintained by Patriot OP. From the date of Closing through the 60th
day following the date for payment of Earnout (if any), Patriot OP
shall maintain business interruption insurance in respect of the
Properties providing the same coverages as the business interruption
insurance currently in effect for the Earnout Properties.
In connection with the payment of the Earnout, the Crow Family Entity owning the
applicable Property shall have the right to audit the books and records relating
to the Property in question and Patriot OP shall (and shall cause the management
company of such Property to) fully cooperate with the Crow Family Entity in
connection with such audit. Each such audit shall be done at the applicable
Crow Family Entity's expense, unless the audit reveals an error was made which
resulted in an understatement of the Earnout NOI by $10,000 or more, in which
case Patriot OP shall pay the cost of such audit.
1.2 Closing. The Closing of the transactions contemplated by this
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Agreement (the "Closing") shall occur at 10:00 a.m. (E.S.T.) on (i) the date
that the Wyndham Merger Closing shall occur and (ii) in the event the Wyndham
Merger Agreement is terminated and a Terminated Merger Election is made pursuant
to Section 1.4 by the Crow Family Entities and Patriot OP, the date that is 30
days after the date of the termination of the Wyndham Merger Agreement pursuant
to Section 10.1 thereof ("Closing Date"). The Closing will occur at the offices
of Goodwin, Procter & Hoar LLP, Exchange Place, Boston, Massachusetts, or at
such other place as Patriot OP shall designate by at least five days' prior
written notice to the Final Crow Family Entities. At the Closing, the parties
hereto will execute and deliver all of the documents required to be delivered,
and take all other action required to be taken, in connection with the
transactions contemplated hereby. Pursuant to the Closing, which Closing shall
be expressly subject to the satisfaction or waiver of all conditions set forth
herein, including, without limitation, those set forth in Article 4 hereof, all
of the actions to be taken and transactions to be effected as of the Closing
pursuant to the terms herein and the Final Purchase and Sale Agreements shall be
taken or deemed to have been taken and shall be effective as of (i) the time at
which the Wyndham Merger shall become effective or (ii) in the event the Wyndham
Merger Agreement has been terminated, the time that Patriot OP shall designate
on the Closing Date (in either case, the "Effective Closing Time"); provided,
however, that the time of the Effective Closing Time shall not affect the time
with respect to which the allocations set forth in Article 8 of each Final
Purchase and Sale Agreement are determined.
1.3 Option. The parties hereto agree to use their commercially reasonable
------
good faith efforts to perform any administrative or ministerial acts reasonably
necessary to enable Patriot OP to exercise its Option, but nothing herein shall
require any Crow Family Entity Partner to elect to receive units of partnership
interests or any other non-cash consideration as consideration in the event of
such exercise.
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1.4 Terminated Merger Election. In the event that the Wyndham Merger
--------------------------
Agreement is terminated pursuant to Section 10.1 thereof and Wyndham is required
to pay any amount pursuant to Section 10.3(a) thereof, (i) Patriot OP may waive
the conditions set forth in Section 4.1(b) to its obligations hereunder and (ii)
a majority of the Crow Family Entities (excluding owners of Rejected Properties)
may waive the conditions set forth in Section 4.1(b) to the obligations
hereunder with respect to all Crow Family Entities, in which case each Crow
Family Entity hereby agrees to do any or all things necessary to effect such
waiver (in the case of either clause (i) or clause (ii), a "Terminated Merger
Election").
ARTICLE II - REPRESENTATIONS AND WARRANTIES
OF THE FAMILY ENTITIES
Each Crow Family Entity, severally and not jointly, hereby represents and
warrants to Patriot OP and Patriot GP, with respect to its Property, as of the
date the Representation and Warranty Certificate is delivered thereunder, that
the representations and warranties of such Crow Family Entity in the applicable
Purchase and Sale Agreement are true and correct in all material respects and
are hereby incorporated as if herein made.
ARTICLE III - COVENANTS
3.1 Covenants of Crow Family Entities.
---------------------------------
(a) Acceleration of Study Period. Each Crow Family Entity hereby
----------------------------
agrees that Patriot OP may, at any time, unilaterally waive any further rights
it may have under the Study Period (as defined in the applicable Purchase and
Sale Agreement).
(b) Option to Purchase Milwaukee. As disclosed in the Purchase and
----------------------------
Sale Agreement for Milwaukee, the approval of and consent to the sale and
purchase of such Property pursuant to such Purchase and Sale Agreement must be
obtained from (i) the current mortgage lender on Milwaukee since its mortgage
loan is closed to prepayment until December 31, 1998 and (ii) the ground lessor
of Milwaukee. In the event Milwaukee is not a Final Property as a result of the
failure to obtain such mortgage lender's and such ground lessor's approval and
consent prior to the Closing, the Crow Family Entity which owns Milwaukee agrees
that it will use all commercially reasonable good faith efforts (in no event,
however, to include any payment or economic concession by such Crow Family
Entity to such ground lessor or to such mortgage lender in excess of the then
outstanding principal amount of such mortgage loan plus all unpaid and accrued
interest thereon (including any amounts based on profit participation or shared
appreciation or similar amounts which would be payable upon such sale and
purchase based on the Allocated Purchase Price for Milwaukee if such mortgage
loan was not closed to prepayment) without such Crow Family Entity's consent in
its sole discretion) to obtain such approvals and consents as quickly as
possible during the twenty-four
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(24) month period commencing on the Closing Date and during such period shall
not enter into any agreement which precludes conveyance of Milwaukee to Patriot
OP. When and if during such twenty-four (24) month period such approvals and
consents are obtained or the prohibition on prepayment expires, Patriot OP shall
have the right to purchase such Property pursuant to terms substantially similar
to the terms respecting which such Property would have been acquired pursuant to
its Purchase and Sale Agreement if such Property had been a Final Property at
Closing (except that the closing date shall be as set forth below) by giving
timely written notice to such effect to such Crow Family Entity as set forth
below, at a purchase price equal to the then Milwaukee NOI multiplied by 10. If
Patriot OP exercises such right to purchase, Patriot OP shall be obligated to
pay the prepayment premium or fee due under such mortgage loan (but not any
principal or accrued interest, including amounts based on profit participation
or shared appreciation or similar amounts), but Patriot OP shall be entitled to
negotiate the amount of any such prepayment premium or fee with the mortgage
lender and such Crow Family Entity shall cooperate in connection therewith.
Promptly upon the occurrence of the ability of the Crow Family Entity owning
Milwaukee to deliver Milwaukee as set forth above, such Crow Family Entity shall
provide notice thereof to Patriot OP and Patriot OP shall then have the right to
elect to purchase Milwaukee upon the foregoing terms and conditions by
delivering written notice of such election to the Crow Family Entity within five
(5) Business Days after receipt of the Crow Family Entity's notice. If Patriot
OP timely notifies the Crow Family Entity that it elects to purchase Milwaukee,
the Crow Family Entity and Patriot OP shall enter into a purchase and sale
agreement within ten (10) Business Days after Patriot OP's election, which
purchase and sale agreement shall provide for a closing date of not more than
sixty (60) days following execution thereof and shall otherwise be substantially
on the terms and conditions set forth in the Purchase and Sale Agreement for
Milwaukee. If Patriot OP does not timely notify the Crow Family Entity that it
elects to purchase Milwaukee, Patriot OP shall have no further right to purchase
Milwaukee except pursuant to Section 3.1(d).
(c) Rights of First Refusal on Offer Properties. The Crow Family
-------------------------------------------
Entities owning Offer Properties agree that, with respect to each Property that
is an Offer Property except for Milwaukee, and for the twenty-four (24) month
period commencing on the Closing Date, Patriot OP shall have a Right of First
Refusal (herein so called) to purchase such Offer Property(ies) from the
respective Crow Family Entity(ies) on the following terms and conditions:
(i) If any Crow Family Entity owning an Offer Property receives
an unsolicited bona fide third party offer to sell, convey, ground
lease or otherwise transfer its Offer Property or a direct or indirect
interest in such Crow Family Entity (each an "Interest"), or if a Crow
Family Entity otherwise intends to market, sell, convey, ground lease
or otherwise transfer an Interest, it shall first deliver to Patriot
OP written notice (the "Negotiation Notice") thereof and Patriot OP
shall have a period of thirty (30) days following receipt of the
Negotiation Notice to negotiate a purchase and sale agreement for the
Interest at
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a price and on other terms and conditions as are acceptable to the
Crow Family Entity and Patriot OP except as otherwise set forth below.
Patriot OP shall have the exclusive right to negotiate with the Crow
Family Entity during such thirty (30) day period. In the event Patriot
OP and the Crow Family Entity enter into a purchase and sale agreement
during this period, Patriot OP shall upon execution thereof deposit
with an escrow agent reasonably satisfactory to Patriot OP and the
Crow Family Entity the amount of five percent (5%) of the purchase
price (which amount may be one-half ( 1/2) in cash and one-half ( 1/2)
in the form of a demand promissory note) as an earnest money deposit
(the "Deposit"). Any study or diligence period in favor of Patriot OP
under such purchase and sale agreement shall be limited to thirty (30)
days in order to allow Patriot OP to update title and to conduct
diligence related to environmental matters. The Deposit may be
returned to Patriot OP only in the event that (i) the purchase and
sale transaction is not closed as a result of a default by the Crow
Family Entity or other event beyond Patriot's OP's reasonable control
without the expenditure of funds by Patriot OP or its Affiliates or
(ii) if Patriot OP terminates the purchase and sale agreement prior to
the expiration of the study or diligence period as the result of an
unacceptable material title or unacceptable material environmental
condition. The closing shall occur within sixty (60) days after
execution of the purchase and sale agreement. Such purchase and sale
agreement shall otherwise be (A) substantially on the terms and
conditions set forth in the Purchase and Sale Agreement on the
applicable Property, if any, and (B) for Bristol, on terms and
conditions substantially similar to those for the Purchase and Sale
Agreements for the Final Properties. In the event Patriot OP and the
Crow Family Entity do not agree to the terms of a purchase and sale
agreement within such thirty (30) day period, such Crow Family Entity
shall have no right to sell, convey, ground lease or otherwise
transfer an Interest except in accordance with the remaining
provisions of this Section 3.1(c).
(ii) If a Crow Family Entity receives a bona fide thirty party
offer to sell, convey, ground lease or otherwise transfer an Interest
in the form of a fully executed letter of intent or term sheet (the
"Letter of Intent") setting forth all of the basic economic terms of
the proposed transaction and the material terms and conditions of any
study or diligence period, which Letter of Intent shall include a
covenant binding on such Crow Family Entity whereby such Crow Family
Entity agrees not to market, advertise or otherwise enter into any
discussions with respect to the sale of the Interest with any party
other than Patriot OP, such Crow Family Entity shall provide notice to
Patriot OP of the Letter of Intent, together with a true and correct
copy thereof. Patriot OP shall then have the right to elect to
purchase the Interest upon the same terms and conditions as are set
forth in the Letter of Intent by delivering written notice of such
election to the Crow Family Entity within five (5) Business Days after
receipt of such
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Crow Family Entity's notice. If Patriot OP timely notifies the Crow
Family Entity that it elects to purchase the Interest, the Crow Family
Entity and Patriot OP shall enter into a purchase and sale agreement
within ten (10) Business Days after Patriot OP's election to purchase
pursuant to its Right of First Refusal upon the terms and conditions
set forth in the Letter of Intent, except as set forth below with
respect to the earnest money deposit, any study or diligence period,
and the closing date. Patriot OP shall, upon execution thereof,
deposit with an escrow agent reasonably satisfactory to Patriot OP and
the Crow Family Entity the Deposit. Any study or diligence period in
favor of the Purchase OP under such purchase and sale agreement shall
be limited to thirty (30) days in order to allow Patriot OP to update
title and to conduct diligence related to environmental matters. The
Deposit may be returned to Patriot OP only in the event that (i) the
purchase and sale transaction is not closed as a result of a default
by the Crow Family Entity or other event beyond Patriot OP's
reasonable control without the expenditure of funds by Patriot OP or
its Affiliates or (ii) if Patriot OP terminates the purchase and sale
agreement prior to the expiration of the study or diligence period as
a result of an unacceptable material title or unacceptable material
environmental condition. If Patriot OP exercises its Right of First
Refusal, the purchase and sale agreement shall provide for a closing
date of not more than sixty (60) days following execution of such
purchase and sale agreement. Such purchase and sale agreement shall
otherwise be (A) substantially on the terms and conditions set forth
in the Purchase and Sale Agreement for the applicable Property, if
any, and (B) for Bristol, on terms and conditions substantially
similar to those for the Purchase and Sale Agreements for the Final
Properties.
(iii) If Patriot OP fails to timely exercise the Right of First
Refusal or fails to timely enter into the purchase and sale agreement,
the Crow Family Entity shall be free to sell, convey, ground lease or
otherwise transfer the Interest to the third party purchaser which
entered into the Letter of Intent or an Affiliate thereof (but not any
other Person) on substantially the same material terms and conditions
as are contained in the Letter of Intent (subject to the last sentence
of this Section 3.1(c)(iii)) within a period of 270 days after such
failure. If such third party purchaser or an Affiliate thereof does
not execute a purchase and sale agreement upon substantially the same
terms and conditions as are set forth in the Letter of Intent (subject
to the last sentence of this Section 3.1(c)(iii)) and close thereunder
within such 270 day period, Patriot OP's rights pursuant to this Right
of First Refusal shall be revived. Notwithstanding the foregoing, the
Crow Family Entity shall not be precluded from negotiating changes to
the terms and conditions set forth in the Letter of Intent so long as
such changes are the result of arm's length negotiations between the
Crow Family Entity and the third party purchaser, such changes do not
result in a net economic return to the Crow Family Entity of less than
92.5% of the net
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economic return to the Crow Family Entity had Patriot OP elected to
exercise the Right of First Refusal, and are not otherwise on other
economic terms and conditions more favorable in any material respect
than those set forth in the Letter of Intent.
(iv) The Right of First Refusal described in this Section 3.1(c)
shall not apply to any sale, conveyance, ground lease or other bona
fide transfer of an Interest to members of Trammel Crow's family,
trusts established for any one or more of the foregoing persons'
benefit, Affiliates of the foregoing parties, or Affiliates of the
applicable Crow Family Entity, in each case as long as the Right of
First Refusal continues to be binding on such transferees.
(d) Right of First Offer on Offer Properties. Each Crow Family Entity
----------------------------------------
agrees as follows in this Section 3.1(d) with respect to its Property that is an
Offer Property which has not previously been conveyed to a third party pursuant
to Section 3.1(c), and with respect to Milwaukee unless Milwaukee has previously
been conveyed pursuant to Section 3.1(b) after such Property can be delivered as
set forth in Section 3.1(b). In the case of the Offer Properties other than
Milwaukee, for the twenty-four (24) month period commencing twenty-four (24)
months after the Closing Date, and in the case of Milwaukee, for the period
commencing on the date Patriot OP fails to exercise its option to purchase
Milwaukee after Milwaukee can be delivered as set forth in Section 3.1(b) and
continuing until that date which is forty-eight (48) months after the Closing
Date, if a Crow Family Entity receives a bona fide third party offer to sell,
convey, ground lease or otherwise transfer an Interest, or if Seller otherwise
intends to market, sell, convey, ground lease or otherwise transfer an Interest,
it shall first deliver to Patriot OP written notice ( the "Offer Notice")
thereof and Patriot OP shall have a Right of First Offer (herein so called) to
purchase such Interest on the following terms and conditions:
(i) Patriot OP shall have a period of thirty (30) days following
receipt of the Offer Notice to negotiate a purchase and sale agreement
for the Interest at a price and on other terms and conditions as are
acceptable to the Crow Family Entity and Patriot OP. Patriot OP shall
have the exclusive right to negotiate with the Crow Family Entity
during this thirty (30) day period. In the event Patriot OP and the
Crow Family Entity enter into a purchase and sale agreement during
this period, Patriot OP shall upon execution thereof, deposit with an
escrow agent reasonably satisfactory to Patriot OP and the Crow Family
Entity the Deposit, which shall be held in accordance with the
applicable provisions of such purchase and sale agreement. The terms
and conditions of such purchase and sale agreement shall otherwise be
(A) substantially on the terms and conditions set forth in the
Purchase and Sale Agreement for the applicable Property, if any, and
(B) for Bristol, on terms and conditions substantially similar to
those for the Purchase and Sale Agreements for the Final
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Properties. The closing shall occur within sixty (60) days after
execution of the purchase and sale agreement.
(ii) In the event Patriot OP and the Crow Family Entity do not
agree to the terms of a purchase and sale agreement within such thirty
(30) day period, the Crow Family Entity shall be entitled to sell,
convey, ground lease or otherwise transfer the Interest; provided,
however, that such sale, conveyance, ground lease or other transfer
does not result in a net economic return to the Crow Family Entity of
less than 92.5% of the net economic return to the Crow Family Entity
had the Crow Family Entity accepted Patriot OP's last written offer
submitted during the thirty (30) day negotiation period and such sale,
conveyance, ground lease or other transfer is closed within two
hundred seventy (270) days following the expiration of such thirty
(30) day period and is not otherwise on other economic terms and
conditions more favorable in any material respect to the purchaser,
grantee, lessee or other transferee than those last offered by Patriot
OP in writing. If the Crow Family does not so transfer the Interest
within such 270 day period, Patriot OP's rights pursuant to this Right
of First Offer shall be revived.
(iii) In the event that, prior the expiration of such 270 day
period, the Crow Family Entity receives a bona fide third party
written offer to sell, convey, ground lease or otherwise transfer the
Interest, whereby the economic return to the Crow Family Entity is
less than 92.5% of the net economic return to the Crow Family Entity
had the Crow Family Entity accepted Patriot OP's last written offer
during the 30 day period or is otherwise on other economic terms and
conditions more favorable in any material respect to the purchaser
than those last offered in writing by Patriot OP during the 30 day
period, that such Crow Family Entity intends to accept, such Crow
Family Entity shall provide notice to Patriot OP of such offer
together with a true and correct copy thereof. Patriot OP shall then
have the right to elect to purchase the Interest upon the same terms
and conditions as are set forth in such offer by delivering written
notice of such election to the Crow Family Entity within five (5)
Business Days after receipt of the Crow Family Entity's notice. If
Patriot OP so elects to purchase the Interest, the parties shall
negotiate and enter into a definitive purchase and sale agreement
within ten (10) Business Days incorporating the terms of such offer
and which shall require Patriot OP to deliver the Deposit to an escrow
agent reasonably satisfactory to Patriot OP and the Crow Family
Entity. The closing shall occur within sixty (60) days after
execution of the purchase and sale agreement. Such purchase and sale
agreement shall otherwise be (A) substantially on the terms and
conditions set forth in the Purchase and Sale Agreement for the
applicable Property, if any, and (B) for Bristol, on terms and
conditions substantially similar to those for the Purchase and Sale
Agreements for the Final Properties. If Patriot OP does
15
<PAGE>
so elect to purchase the Interest within such five (5) Business Day
period or does not timely enter into the purchase and sale agreement,
the Crow Family Entity shall be entitled to sell, convey, ground lease
or otherwise transfer the Interest; provided, however, such sale,
conveyance, ground lease or other transfer does not result in a net
economic return to the Crow Family Entity of less than 92.5% of the
net economic return to the Crow Family Entity had Patriot OP accepted
the offer under this clause (iii) and is not otherwise on other
economic terms and conditions more favorable in any material respect
to the purchaser, grantee, lessee or other transferee and such sale,
conveyance or other transfer is closed within 270 days. If the Crow
Family Entity does not so transfer the Interest within such 270 day
period, Patriot OP's rights pursuant to this Right of First Offer
shall be revived.
(iv) The Right of First Offer described in this Section 3.1(d)
shall not apply to any sale, conveyance, ground lease or other bona
fide transfer of an Interest to members of Trammel Crow's family
trusts established for any one or more of the foregoing persons'
benefit, Affiliates of the foregoing parties, or Affiliates of the
applicable Crow Family Entity, in each case as long as the Right of
First Refusal continues to be binding on such transferees.
(e) Palm Springs Management Contract. The Crow Family Entity that
--------------------------------
owns Palm Springs shall use its commercially reasonable good faith efforts to
cause the Management Contract for Palm Springs to be extended as described in
Section 4.2(b) and shall thereafter use its commercially reasonable good faith
efforts to cause such Management Contract to be continually renewed for a period
of six years with Wyndham, its successor pursuant to the Wyndham Merger, or at
its election, an Affiliate thereof, as manager.
(f) Partner and Lender Consents. Each Crow Family Entity agrees to
---------------------------
use its commercially reasonable good faith efforts diligently to obtain the
Requisite Consents required for its consummation of the transactions
contemplated under the applicable Purchase and Sale Agreement and hereunder.
ARTICLE IV - CONDITIONS TO CLOSING
4.1 Conditions to the Obligations of Patriot OP and the Crow Family
---------------------------------------------------------------
Entities. The obligations of the Crow Family Entities and Patriot OP to
- --------
consummate the transactions contemplated hereunder are subject to the
satisfaction or waiver by Patriot OP and the Crow Family Entities, on or prior
to the Closing, of each of the conditions set forth below.
(a) CJC Merger. The CJC Merger shall be consummated.
----------
16
<PAGE>
(b) Wyndham Merger. The Wyndham Merger shall be consummated
--------------
concurrently with the Closing.
(c) NOI Basket. The NOI attributable to the Final Properties shall be
----------
no less than 65% of the NOI attributable to all of the Properties.
4.2 Conditions to Patriot OP's Obligations. The obligation of Patriot OP
--------------------------------------
to consummate the transactions contemplated hereunder shall be subject to the
satisfaction or waiver, in writing, by Patriot OP, on or prior to the Closing
Date, of each of the conditions set forth below.
(a) Performance of Obligations. Each Final Crow Family Entity shall
--------------------------
have fully complied in all material respects with all of its respective
obligations hereunder.
(b) Management Contracts. An amendment to the management contract
--------------------
with respect to Anatole, on terms in accordance with Schedule II hereof in all
-----------
material respects, shall have been executed and the Management Contract for Palm
Springs shall have been extended to the maximum term that may be effected
without non-Crow Family Entity third-party consent.
(c) Lease Termination Agreement. The actions described in that
---------------------------
agreement, by and among Crow Hotel Lessee, Inc., a Texas corporation
("Greenspoint Lessee"), and Patriot OP, attached hereto as Exhibit A ("Lease
---------
Termination Agreement"), shall have occurred.
(d) Cooperation of Greenspoint Partner. Each Person that received
----------------------------------
limited partnership interests in Patriot OP ("Greenspoint Partner") pursuant to
the consummation of the transactions in that certain Contribution Agreement by
and between Houston Greenspoint Hotel Associates, L.P. and PAH Acquisition
Corporation, as assigned to Patriot OP ("Greenspoint Agreement") shall have
agreed (i) to cooperate and do all administrative and ministerial acts as may be
reasonably requested by Patriot OP to effect a Private Label REIT prior to or
upon Closing and (ii) in the event a Private Label REIT shall not be utilized,
to sell all of its interests in Patriot OP to such Person or Persons as Patriot
OP shall have designated no later than Closing (subject (x) to Patriot OP
satisfying its indemnification obligation under the Greenspoint Agreement and
(y) to the condition that the collapse of Greenspoint Lessee can be effected
without terminating or otherwise adversely affecting the additional
consideration payable under Section 2.5 or 7.3 of the Greenspoint Agreement).
ARTICLE V - TERMINATION OF AGREEMENT
5.1 Termination. This Agreement may be terminated at any time at or prior
-----------
to the Closing:
17
<PAGE>
(a) by mutual agreement of Patriot OP and a majority of the Crow
Family Entities (excluding owners of the Rejected Properties);
(b) by Patriot OP, if there have been material breaches by a majority
of the Crow Family Entities of any representation, warranty, covenant or
agreement in this Agreement on the part of such Crow Family Entities, or if
material representations of a majority of the Crow Family Entities shall fail to
be true in all material respects, in either case, only if after written notice
thereof to each of such Crow Family Entities, such Crow Family Entities fail to
cure such breaches or failures within 15 Business Days after delivery of all
such notices in sufficient number such that a majority of the Crow Family
Entities shall not be in breach or have material representations that fail to be
true in all material respects (except that no cure period shall be provided for
such foregoing breaches by the Crow Family Entities which by their nature or
under the circumstances cannot be cured);
(c) by a majority of the Crow Family Entities (excluding owners of
Rejected Properties), if there has been a material breach by Patriot OP of any
representation, warranty, covenant or agreement set forth in this Agreement on
the part of Patriot OP, or if any material representation of Patriot OP shall
fail to be true in all material respects, in either case which Patriot OP fails
to cure within 15 business days after written notice thereof from the Crow
Family Entities (except that no cure period shall be provided for a breach by
Patriot OP which by its nature or under the circumstances cannot be cured);
(d) by Patriot OP, if all of its conditions for Closing in Sections
4.1 and 4.2, and by a majority of the Final Crow Family Entities if all of such
majority's conditions for Closing in Section 4.1, shall not have been satisfied
or waived on or before the later of (i) the time that the Wyndham Merger
Agreement is terminated under Section 10.1 thereof and (ii) in the event the
Wyndham Merger Agreement shall have been terminated, 5:00 p.m., Dallas time, on
the Closing Date, other than as a result of a breach of this Agreement by the
terminating party;
(e) by either Patriot OP or a majority of the Crow Family Entities
(excluding owners of Rejected Properties) if the Board of Directors of New
Patriot fails to ratify the Wyndham Merger and, as a consequence, the Wyndham
Merger Agreement is terminated;
(f) by either Patriot OP or a majority of the Crow Family Entities
(excluding owners of Rejected Properties) if the New Patriot stockholders fail
to approve the Wyndham Merger and, as a consequence, the Wyndham Merger
Agreement is terminated; and
(g) by Patriot OP in the event that the Wyndham Merger Agreement shall
be terminated pursuant to Section 10.1(h) thereof.
18
<PAGE>
5.2 Notice of Termination. Any termination of this Agreement under
---------------------
Section 5.1 above will be effective by the delivery of written notice by the
terminating party to the other party or parties hereto.
5.3 Effect of Termination. In the case of any termination of this
---------------------
Agreement as provided in this Article 5, this Agreement and the Related
Agreements shall be of no further force and effect (except as provided to the
contrary in Sections 5.4 and 6.10), but nothing herein shall relieve any party
from liability for any breach of this Agreement.
5.4 Termination Fees.
----------------
(a) If this Agreement is terminated pursuant to Section 5.1(f), then
Patriot OP shall reimburse the Crow Family Entities, after receiving appropriate
invoices therefor, (by wire transfer of immediately available funds) for
reasonable expenses incurred and paid by the Crow Family Entities in connection
with this Agreement an amount equal to the lesser of $3,000,000 and the sum of
such expenses. The Crow Family Entities shall not be entitled to receive any
payment under this Section 5.4(a) if, at the time of delivery of the applicable
notice of termination pursuant to Section 5.2, it was reasonably likely that the
condition set forth in Section 4.1(c) would not be satisfied.
(b) If this Agreement is terminated by the Crow Family Entities
pursuant to Section 5.1(e), Patriot OP shall pay to the Crow Family Entities an
amount of $25,000,000 (by wire transfer in immediately available funds) within
two Business Days of such termination.
(c) In the event that (i) this Agreement is terminated as a
consequence of the termination of the Wyndham Merger Agreement, (ii) Wyndham is
required to pay any amount pursuant to Section 10.3(a) of the Wyndham Merger
Agreement and (iii) a Terminated Merger Election shall not have been made (A) by
the Crow Family Entities whose Properties are not Rejected Properties and
Patriot OP shall have made a Terminated Merger Election, then the Crow Family
Entities shall pay to Patriot OP an amount of $11,000,000 (by wire transfer in
immediately available funds) and (B) by Patriot OP and a Terminated Merger
Election shall have been made by a majority of the Crow Family Entities
(excluding owners of Rejected Properties), then Patriot OP shall pay to the Crow
Family Entities an amount of $11,000,000 (by wire transfer in immediately
available funds), in either event, within two Business Days of the date that
this Agreement is terminated.
(d) The parties' obligations to pay the termination fees set forth in
this Section 5.4 are in lieu of any damages or any other payment which such
party might otherwise be obligated to pay to the other party as a result of any
termination. Any payment by the Crow Family Entities pursuant to Section 5.4
shall be paid by the Crow Family Entities in the relative ratios of the
Allocated Purchase Prices of the Properties set forth next to the Crow Family
Entities' names on Schedule I hereto. Any payments made by Patriot OP pursuant
----------
to
19
<PAGE>
section 5.4 shall be made to the Crow Family Entities in the relative ratios of
the Allocated Purchase Prices of the Properties set forth next to the Crow
Family Entities' names on Schedule I hereto. Patriot OP and the Crow Family
----------
Entities agree that, in view of the nature of the issues likely to arise in the
event of such a termination, it would be impracticable or extremely difficult to
fix the actual damages resulting from such termination and proving actual
damages, causation and foreseeability in the case of such termination would be
costly, inconvenient and difficult. In requiring a party to pay a termination
fee as set forth herein, it is the intent of the parties to provide, as of the
date of this Agreement, for a liquidated amount of damages to be paid by such
party to the other party. Such liquidated amount shall be deemed full and
adequate damages for such termination and is not intended by either party to be
a penalty.
ARTICLE VI - MISCELLANEOUS
6.1 Marketing. The Crow Family Entities agree not to offer or market the
---------
Properties for sale during the term of this Agreement or negotiate for or seek
any offer to purchase the Properties with any Person other than Patriot OP and
its Affiliates other than Rejected Properties and other than Properties marketed
and offered in accordance with Article III.
6.2 Entire Agreement; No Amendment. This Agreement and the Related
------------------------------
Agreements represent the entire agreement among the parties hereto. It is
expressly understood that no representations, warranties, guarantees or other
statements shall be valid or binding upon a party unless expressly set forth in
this Agreement or incorporated herein. It is further understood that, except
for the Related Agreements, any prior agreements or understandings between or
among any of the parties have merged in this Agreement, which alone fully
expresses all agreements of the parties hereto and supersedes all such prior
agreements and understandings. This Agreement may not be amended, modified or
otherwise altered except by a written agreement signed by the party or parties
hereto against whom enforcement is sought. It is agreed that no obligation
under this Agreement which by its terms is to be performed or continue to be
performed after Closing and no provision of this Agreement which is expressly to
survive Closing shall merge upon Closing, but shall survive Closing.
6.3 Notices. Any notice, communication or writing required under or
-------
otherwise delivered in connection with this Agreement to any of the parties
hereto will be delivered to such party at the following address:
20
<PAGE>
If to the Crow Family Entities to:
c/o Crow Family Holdings
3200 Trammell Crow Center
Crow Center
2001 Ross Avenue
Attn: Charles R. Brindell, Jr. and Kevin Bryant
Fax: (214) 863-4012
with a copy to:
Vinson & Elkins L.L.P.
3700 Trammel Crow Center
2001 Ross Avenue
Dallas, Texas 74201
Attn: Bryant W. Burke
Fax: (214) 999-7778
If to Patriot OP to:
c/o Patriot American Hospitality, Inc.
3030 LBJ Freeway, Suite 1500
Dallas, TX 75234
Attn: Paul A. Nussbaum, Chairman and Chief Executive Officer
Fax: (972) 888-8075
with a copy to:
Goodwin, Procter & Hoar LLP
Exchange Place
53 State Street
Boston, MA 02109
Attn: Gilbert G. Menna, P.C.
Fax: (617) 523-1231
and a copy to:
Akin, Gump, Strauss, Hauer & Feld, L.L.P.
1700 Pacific Avenue, Suite 4100
Dallas, Texas 75201
Attn: Carl B. Lee, P.C. and Randall M. Ratner, P.C.
Fax: (214) 969-4343
21
<PAGE>
Each notice shall be in writing and shall be sent to the party to receive it,
postage prepaid by certified mail, return receipt requested, by a nationally
recognized overnight courier service that provides tracking and proof of receipt
or by facsimile transmission followed by physical delivery of such notice in
accordance with the foregoing. Notices shall be deemed delivered upon receipt.
6.4 No Assignment. Except as provided in the following sentence, neither
-------------
this Agreement nor any of the rights or obligations hereunder may be assigned by
any party hereto without the prior written consent of the other parties.
Patriot OP may, without such consent, (i) assign its rights hereunder to any
lender as collateral security and/or (ii) assign its rights and obligations
hereunder to BMOC or an Affiliate of either of them, but no such assignment
shall relieve Patriot OP of its obligations and liabilities hereunder. Any
purported assignment in contravention of the foregoing shall be null and void
and have no effect.
6.5 Governing Law. The laws of the State of Texas, shall govern the
-------------
validity, enforcement and interpretation of this Agreement without giving effect
to the conflict of laws provisions thereof.
6.6 Multiple Counterparts. This Agreement may be executed in multiple
---------------------
counterparts. If so executed, all of such counterparts shall constitute but one
agreement.
6.7 Further Assurances. From and after the date of this Agreement and
------------------
after the Closing, the parties hereto shall take such further actions and
execute and deliver such further documents and instruments as may be reasonably
necessary to provide to the respective parties hereto the benefits intended to
be afforded hereby, including, without limitation, all books and records
relating to the Final Properties and any changes in the addresses of the
parties.
6.8 Miscellaneous. Whenever herein the singular number is used, the same
-------------
shall include the plural, and the plural shall include the singular where
appropriate, and words of any gender shall include the other genders when
appropriate. The headings of the Articles and the Sections contained in this
Agreement are for convenience only and shall not be taken into account in
determining the meaning of any provision of this Agreement. The words "hereof"
and "herein" refer to this entire Agreement and not merely the Section in which
such words appear. If the last day for performance of any obligation hereunder
is not a Business Day, then the deadline for such performance or the expiration
of the applicable period or date shall be extended to the next Business Day.
6.9 Invalid Provisions. If any provision of this Agreement is held to be
------------------
illegal, invalid or unenforceable under present or future laws, such provision
shall be fully severable, this Agreement shall be construed and enforced as if
such illegal, invalid or unenforceable provision had never comprised a part of
this Agreement, and the remaining provisions of this Agreement shall remain in
full force and effect and shall not be affected by the illegal, invalid or
unenforceable provision or by its severance from this Agreement.
22
<PAGE>
6.10 Confidentiality; Publicity. Each of the Crow Family Entities and
--------------------------
Patriot OP agrees (i) not to record this Agreement in any public real estate
registry and (ii) to maintain in confidence through the Closing, all
confidential material and information received from any other party hereof or
otherwise, regarding the Properties, Patriot OP, BMOC or their Affiliates, or
any Crow Family Entity, all of which shall be deemed "Evaluation Material" as
such term is defined in those letter agreements dated January 27, 1997 between
Patriot and Wyndham ("Confidentiality Agreements"). In the event this Agreement
is terminated, each party hereof shall either destroy or return to the
applicable Person all copies of documents delivered to such party by such
Person. Each Crow Family Entity and Patriot OP further agree that nothing in
this Section 6.10 shall prevent any of them from disclosing or accessing any
information otherwise deemed confidential under this Section 6.10 to any of
their respective agents, employees, counsel and other third parties to the
extent reasonably necessary to perform due diligence and complete the
transactions contemplated hereby. Notwithstanding anything to the contrary
contained herein, (i) Patriot OP shall have the right, subject to the consent of
each Crow Family Entity with respect to the Property it owns (which consent
shall not be unreasonably withheld), to determine the form, timing and substance
of, and to issue, all publicity concerning, the transactions contemplated by
this Agreement, (ii) nothing in this Section 6.10 shall be construed in a manner
that is inconsistent with the provisions of the Confidentiality Agreements and
(iii) nothing in this Section 6.10 shall prevent another party hereof from
disclosing or accessing any information otherwise deemed confidential under this
Section 6.10 either (A) in connection with such other party's enforcement of its
rights hereunder or (B) pursuant to any stock exchange regulations or legal
requirement, including, without limitation, any securities laws, any reporting
requirement or any accounting or auditing standard.
6.11 Time of Essence. Time is of the essence with respect to this
---------------
Agreement.
6.12 Costs and Expenses. Except as may be set forth to the contrary
------------------
herein, each party hereof shall pay and be solely responsible for all costs,
fees and expenses that it may incur in its performance of its obligations
hereunder.
6.13 Enforcement of Agreement. The parties hereto agree that irreparable
------------------------
damage would occur in the event that any provision of this Agreement were not
performed in accordance with its specific terms or were otherwise breached. It
is accordingly agreed that the parties shall be entitled to an injunction or
injunctions and other equitable remedies to prevent breaches of this Agreement
and to enforce specifically the terms and provisions hereof in any Texas Court,
this being in addition to any other remedy to which they are entitled at law or
in equity. Any requirements for the securing or posting of any bond with
respect to such remedy are hereby waived by each of the parties hereto.
23
<PAGE>
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
24
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Omnibus Purchase
and Sale Agreement as an instrument under seal as of the date and year first
above written.
PATRIOT AMERICAN HOSPITALITY
PARTNERSHIP, L.P., a Virginia limited partnership
By: PAH GP, Inc., a Virginia corporation, its
general partner
By:/s/ Paul A. Nussbaum
------------------------------------------
Name: Paul A. Nussbaum
Title: Chairman and Chief Executive Officer
FAMILY ENTITIES:
---------------
HOTEL BEL AGE ASSOCIATES, L.P., a Texas limited
partnership
By: Hotel Bel Age Partners, L.P., a Texas limited
partnership, its general partner
By: Crow Family, Inc., its general partner
By:/s/ Charles L. Brindell, Jr.
--------------------------------------
Name: Charles L. Brindell, Jr.
Title: Vice President
ITASCA HOTEL COMPANY, an Illinois limited
partnership
By: Crow-Itasca Hotel Company, a Texas limited
partnership, its general partner
By: TCF Hotels L.P., a Texas limited
partnership, its general partner
By: Mill Spring Holdings, Inc., its
general partner
By:/s/ Charles L. Brindell, Jr.
--------------------------------
Name: Charles L. Brindell, Jr.
Title: Vice President
25
<PAGE>
WHC-LG HOTEL ASSOCIATES, L.P., a Texas limited
partnership
By: WHC-LG, Inc., its general partner
By:/s/ Carla S. Moreland
------------------------------------------
Name: Carla S. Moreland
Title: Vice President
NOVI GARDEN HOTEL ASSOCIATES, a Texas general
partnership
By: Novi Garden Hotel Partners Limited
Partnership, a Texas limited partnership, its
general partner
By: Novi Garden Hotel Corporation, its
general partner
By:/s/ Harlan R. Crow
-------------------------------------
Name: Harlan R. Crow
Title: President
/s/ Harlan R. Crow
--------------------------------------------------
Harlan R. Crow, general partner
/s/ Trammell S. Crow
--------------------------------------------------
Trammell S. Crow, general partner
PLEASANTON HOTEL ASSOCIATES, LTD., a Texas limited
partnership
By: CF Hotel, Inc., its general partner
By:/s/ Charles L. Brindell, Jr.
----------------------------
Name: Charles L. Brindell, Jr.
Title: Vice President
26
<PAGE>
CLC LIMITED PARTNERSHIP, a Texas limited
partnership
By: LB-4, Inc., its general partner
By:/s/ Charles L. Brindell, Jr.
------------------------------------------
Name: Charles L. Brindell, Jr.
Title: Vice President
MTD ASSOCIATES, a Texas general partnership
By: MTD Partners, a Texas general partnership,
its general partner
By: TCF Hotels L.P., a Texas limited
partnership, its general partner
By: Mill Spring Holdings, Inc., its
general partner
By:/s/ Charles L. Brindell, Jr.
--------------------------------
Name: Charles L. Brindell, Jr.
Title: Vice President
/s/ Trammell S. Crow
--------------------------------------------------
Trammell S. Crow, its general partner
/s/ Harlan R. Crow
--------------------------------------------------
Harlan R. Crow, its general partner
27
<PAGE>
HOTEL AND CONVENTION CENTER
PARTNERS I, LTD.
HOTEL AND CONVENTION CENTER
PARTNERS II, LTD.
HOTEL AND CONVENTION CENTER
PARTNERS III, LTD.
HOTEL AND CONVENTION CENTER
PARTNERS IV, LTD.
HOTEL AND CONVENTION CENTER
PARTNERS V, LTD.
HOTEL AND CONVENTION CENTER
PARTNERS VI, LTD.
HOTEL AND CONVENTION CENTER
PARTNERS VII, LTD.
HOTEL AND CONVENTION CENTER
PARTNERS VIII, LTD.
HOTEL AND CONVENTION CENTER
PARTNERS XI, LTD.
HOTEL AND CONVENTION CENTER
PARTICLENERS X, LTD.
HOTEL AND CONVENTION CENTER
PARTNERS XI, LTD.
By: CPS, Ltd., a Texas limited partnership, the
general partner for each of the eleven
California limited partnerships listed above
By: Palm Springs Co., a California
corporation, its general partner
By:/s/ Charles L. Brindell, Jr.
-------------------------------------
Name: Charles L. Brindell, Jr.
Title: Vice President
CONVENTION CENTER BOULEVARD HOTEL,
LIMITED, a Louisiana partnership in commendam
By: CFP-Riverfront Hotel Partners, L.P., a Texas
limited partnership, its general partner
By: Crow Family, Inc., its general partner
By:/s/ Charles L. Brindell, Jr.
-------------------------------------
Name: Charles L. Brindell, Jr.
Title: Vice President
28
<PAGE>
WOOD DALE GARDEN HOTEL PARTNERSHIP, a Texas
general partnership
By: TCF Hotels L.P., a Texas limited partnership,
its general partner
By: Mill Spring Holdings, Inc., its general
partner
By:/s/ Charles L. Brindell, Jr.
-------------------------------------
Name: Charles L. Brindell, Jr.
Title: Vice President
By: CBP Wood Dale Partnership, a Texas general
partnership, its general partner
By: TCF Hotels L.P., a Texas limited
partnership, its general partner
By: Mill Spring Holdings, Inc., its
general partner
By:/s/ Charles L. Brindell, Jr.
--------------------------------
Name: Charles L. Brindell, Jr.
Title: Vice President
FRANKLIN PLAZA ASSOCIATES LIMITED
PARTNERSHIP, a Texas limited partnership
By: Franklin Plaza Hotel Corporation, its general
partner
By:/s/ Harlan R. Crow
------------------------------------------
Name: Harlan R. Crow
Title: President
29
<PAGE>
FRANKLIN PLAZA ASSOCIATES, a Pennsylvania limited
partnership
By: HRC No. 1, Inc., a Texas corporation, its
general partner
By:/s/ Harlan R. Crow
------------------------------------------
Name: Harlan R. Crow
Title: President
BRISTOL HOTEL ASSOCIATES, LTD.,
a Texas limited partnership
By: Bristol Hotel Partners, Ltd., a Texas limited
partnership, its general partner
By: Washington BHC, Inc., a Texas corporation,
its general partner
By: /s/ Carla S. Moreland
----------------------------------------------
Name: Carla S. Moreland
Title: Vice President
30
<PAGE>
Exhibit 10.33
-------------
AGREEMENT OF PURCHASE AND SALE
AND JOINT ESCROW INSTRUCTIONS
Bay Meadows Racecourse
San Mateo, California
SELLER: PATRIOT AMERICAN HOSPITALITY, INC.,
a Virginia corporation
BUYER: PW ACQUISITIONS IV, LLC,
a Delaware limited liability company
April 18, 1997
<PAGE>
AGREEMENT OF PURCHASE AND SALE
AND JOINT ESCROW INSTRUCTIONS
-----------------------------
THIS AGREEMENT OF PURCHASE AND SALE AND JOINT ESCROW INSTRUCTIONS ("Agreement")
is made and entered into as of April 18, 1997, and constitutes an agreement by
which PATRIOT AMERICAN HOSPITALITY, INC., a Virginia corporation ("Seller"),
agrees to sell, and PW ACQUISITIONS IV, LLC, a Delaware limited liability
company ("Buyer"), agrees to purchase the following:
A. Those certain parcels of land (the "Land") situated in the City
of San Mateo, State of California, more particularly described on Exhibit A
---------
attached hereto.
B. All rights, privileges, easements, and appurtenances to the Land
and any structures or other improvements situated on the Land (but specifically
excluding any structures or other improvements situated on that portion of the
Land which is (a) referred to as "Parcel Five" in the PTR (as defined in Section
-------
4 below) and (b) not a portion of said Parcel Five under contract to be sold
- -
pursuant to the "Franklin Contract" (as defined in Exhibit B) or the "Iacocca
---------
Contract" (as defined in Exhibit B) (the "Improvements"), and specifically
---------
excluding, however, (i) any intangible property (including, without limitation,
the name "Bay Meadows") (except as specifically set forth herein) ("Intangible
Property"), and (ii) any personal property ("Personal Property"). The term
"Real Property" herein shall refer collectively to the Land, the Improvements,
and all such attendant rights, privileges, easements and appurtenances, but
shall specifically exclude Intangible Property, and Personal Property.
C. The Seller's interest in the contracts affecting the Real
Property which are listed on Exhibit B hereto (the "Contracts"), and the
---------
Seller's interest in any development agreement executed by Seller and the City
of San Mateo after the date hereof but prior to the closing of the transactions
contemplated hereby (the "Development Agreement").
The Real Property and the Contracts are collectively referred to herein as the
"Property."
The terms and conditions of this Agreement and the instructions to Chicago
Title Company (the "Escrow Holder" and "Title Company") with regard to the
escrow (the "Escrow") created pursuant hereto are as follows:
1. Purchase and Sale. For valuable consideration, the receipt and
-----------------
sufficiency of which are hereby acknowledged, Seller agrees to sell the Property
to Buyer, and Buyer agrees to purchase the Property from Seller, upon the terms
and conditions set forth herein.
2
<PAGE>
2. Purchase Price. The purchase price (the "Purchase Price") for the
--------------
Property shall be Seventy Eight Million Fifty Thousand and 00/100 Dollars
($78,050,000.00), subject to any adjustments to the terms hereof, payable as
follows:
(a) Not later than April 30, 1997, Buyer shall deposit with Escrow Holder
the sum of One Million Dollars ($1,000,000.00), which sum shall be
invested by Escrow Holder in an interest-bearing account selected by
Buyer. Such sum plus all accrued interest thereon shall hereafter be
referred to as the "Deposit". The Deposit shall be applied toward
payment of the Purchase Price upon the "Close of Escrow" (as hereafter
defined).
(b) Upon the Close of Escrow, Buyer shall deposit or cause to be deposited
with Escrow Holder, in the form of a confirmed wire transfer of funds,
the balance of the Purchase Price plus such additional funds, if any,
as may be required to pay Buyer's share of prorations and closing
costs, as set forth herein.
3. Escrow.
------
(a) Opening of Escrow. For the purposes of this Agreement, the Escrow
-----------------
shall be deemed opened (the "Opening of Escrow") on the date Escrow
Holder shall have received an executed counterpart of this Agreement
from both Buyer and Seller. Escrow Holder shall notify Buyer and
Seller, in writing, of the date Escrow is opened.
(b) Close of Escrow. For purposes of this Agreement, the "Close of
---------------
Escrow" or "Closing" shall be defined as the date that the grant deed
(the "Grant Deed") conveying the Land to Buyer is recorded. The Escrow
shall close on the date that the Merger (as defined in Section 38
----------
below) closes, unless extended by mutual agreement of Buyer and Seller
("Closing Date"). On or before three (3) business days before the
scheduled Closing Date, Escrow Holder shall prepare a proforma closing
statement, setting forth the estimated adjustments and prorations as
of the scheduled Closing Date.
4. Condition of Title. It shall be a condition to Buyer's obligations
------------------
hereunder that Title Company shall be committed to issue its ALTA Owner's
Extended Coverage Title Insurance Form B-1970 Policy together with such
endorsements as Buyer may reasonably require (the "Title Policy") in the amount
of the Purchase Price, showing fee title to the Land and Improvements vested in
Buyer, subject to the following (the "Condition of Title"):
(a) A lien to secure payment of real estate taxes, not delinquent;
(b) Matters affecting the Condition of Title created with the written
consent of Buyer; and
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<PAGE>
(c) Exceptions disclosed by the current Preliminary Title Report (the
"PTR") with respect to the Land and Improvements issued by the Title
Company and dated March 13, 1997 (excluding the land described in the
PTR as "Parcel Two"), a copy of which is attached as Exhibit C hereto,
---------
which are approved pursuant to this section. Seller shall provide
Buyer with legible copies of the instruments underlying any exceptions
referred to in the PTR (the "Exceptions") within ten (10) days
following the Opening of Escrow, and an ALTA survey of the Land and
Improvements certified to Buyer and the Title Company (the "Survey")
within thirty (30) days following the Opening of Escrow (the PTR, the
Exceptions, and the Survey collectively referred to herein as the
"Title Documents"). Buyer shall have fifteen (15) days following the
delivery of the last of the Exceptions and the Survey to disapprove
any items set forth in the Title Documents. If Buyer fails to notify
Seller within such period, the Title Documents shall conclusively be
deemed approved. If Buyer disapproves any items described therein,
Seller shall thereafter have the right to attempt to eliminate or
ameliorate to Buyer's satisfaction such matters as Buyer shall have so
disapproved on or before the expiration of the Contingency Period.
Seller shall give written notice to Buyer within such period whether
Seller is unable or unwilling to eliminate such disapproved matters.
If Seller so notifies Buyer that it is unable or unwilling to
eliminate any such disapproved matters, Buyer shall have the right,
exercisable by written notice delivered to Seller and Escrow Holder on
or before the date that is fifteen (15) days following the delivery of
such notice, to: (i) waive its prior disapprovals of those matters
which Seller is unable to eliminate, in which event such disapproved
matters shall conclusively be deemed approved, or (ii) terminate the
Escrow, in which event the Deposit shall be returned to Buyer and
thereafter the Escrow, this Agreement and the rights and obligations
of the parties hereunder shall terminate; provided, however, that in
any event Seller shall be obligated to remove any monetary liens
against the Property prior to Closing.
5. Contingency Period. For a period commencing on the Opening of Escrow
------------------
and terminating on the date of the consummation of the Merger (as defined in
Section 38 below) (the "Contingency Period"), Buyer shall have the right to
- ----------
satisfy itself that the physical and legal aspects of the Property are
acceptable to Buyer. Buyer's obligations hereunder shall be conditioned upon
Buyer's satisfaction with or waiver of such matters in its sole discretion. If
Buyer, at any time on or before the expiration of the Contingency Period, fails
to disapprove, in a writing delivered to Seller and Escrow Holder, the matters
set forth in this paragraph, then all of such matters shall conclusively be
deemed approved. If Buyer shall disapprove any such matter in a written notice
given to Seller and Escrow Holder prior to the end of the Contingency Period,
then this Agreement shall terminate, and neither party shall have any further
rights or obligations hereunder, provided that, (a) the Escrow Holder shall be
required to refund the Deposit to Buyer if Buyer shall have terminated this
Agreement (1) prior to May 27, 1997 due to the commencement (by such date) of
any appeal of the approval by the City of San Mateo of the Specific Plan or the
Environmental Impact Report relating to the proposed
4
<PAGE>
development of a portion of the Real Property, or (2) prior to the end of the
Contingency Period due to any act or omission by Cal Jockey that results in a
breach or default by Cal Jockey under the Franklin Contract or Iacocca Contract
or that gives the purchaser under either the Franklin Contract or Iacocca
Contract a right to terminate thereunder, and (b) if Buyer shall have terminated
this Agreement for any reason not set forth in the preceding clause (a) or in
any other Section of this Agreement, then the Escrow Holder shall pay the
Deposit to Seller, and Seller shall be entitled to retain the Deposit in such
case as fair and reasonable consideration for Seller's covenants and agreements
hereunder. During the term of the Escrow, Buyer, its agents, contractors and
subcontractors shall have the right to enter upon the Property at reasonable
times during ordinary business hours, upon reasonable prior notice to Seller and
subject to the rights of tenants under the Leases, to make any and all
inspections and tests as may be necessary or desirable in Buyer's judgment,
subject, however to the terms and conditions of the Acquisition Agreement (as
defined in Section 38 below). Buyer acknowledges and agrees that Seller shall
----------
be entitled to have its representatives present during any time Buyer or its
agents or independent contractors are on the Real Property. Buyer shall (i)
perform all work permitted under this Agreement in a safe and professional
manner, (ii) not create any dangerous or hazardous condition on the Real
Property, (iii) comply with all applicable laws with respect to Buyer's
inspections, and (iv) obtain all permits required to be obtained with respect to
Buyer's inspections. Any investigation which physically alters or changes the
condition of the Real Property in any material respect shall be subject to
Seller's prior approval, which approval shall not be unreasonably withheld or
delayed and also shall be subject to the Acquisition Agreement. Except as
expressly required by applicable law, Buyer shall (and shall request its agents
to) keep confidential the results and findings of Buyer's studies and
investigations of the Property. Buyer shall indemnify and hold Seller harmless
from damages resulting from Buyer's entry and/or activities upon the Real
Property by Buyer, its agents, contractors and/or subcontractors, except to the
extent any such damages are the result of Seller's negligence.
6. Estoppel Certificates. Seller shall use reason-able efforts to cause
---------------------
Cal Jockey (as defined in Section 38 below) to obtain from each of the
----------
respective other parties to the Contracts and deliver to Buyer on or before the
date that is ten (10) days prior to the originally scheduled Closing Date a duly
executed estoppel certificate stating that no default exists under the
applicable Contract (the "Estoppel Certificate(s)"). The Estoppel Certificates
shall be initially pre-pared by Seller, shall be approved by Buyer, and shall be
dated no earlier than thirty (30) days prior to the originally scheduled Closing
Date.
7. Racecourse Leases. During the Contingency Period, Seller and Buyer
-----------------
shall use reasonable good faith efforts to negotiate the form of the following
documents: (a) a new lease (the "Racecourse Lease"), containing the terms and
conditions set forth on the schedule attached hereto as Exhibit D and containing
---------
other reasonable and customary terms for such a lease covering the portion of
the Property designated as the "Main Track & New Barns" on the diagram attached
hereto as Schedule D-l the "Racecourse Parcel"); (b) a lease or other agreement
-------------
providing for the temporary use of the land and existing facilities on the
portion of the Property designated as the "Stables and Training Area" during
the construction of new
5
<PAGE>
stables facilities on the Racecourse Parcel (the "Temporary Stables Lease"); and
(c) a lease or other agreement leasing to Seller at a quarterly rental of Seven
Thousand Five Hundred and 00/100 Dollars ($7,500.00), cancelable on ninety (90)
days notice, that portion of the Property commonly known as the Sun-down Tennis
Club and more fully described as "Parcel One" in the PTR (the "Temporary Tennis
Club Lease"). (The Racecourse Lease, the Temporary Stables Lease, and the
Temporary Tennis Club Lease are collectively referred to hereinafter as the "New
Leases".) Concurrently with Closing, Seller shall terminate the existing lease
between Seller and BMOC dated March 29, 1993 covering the Racecourse Parcel (the
"Old Lease") and shall cause BMOC to enter into a Termination and Release
Agreement in connection therewith, and also concurrently with Closing, Seller
and Buyer shall enter into the New Leases.
8. Buyer's Representations and Warranties. Buyer makes the following
--------------------------------------
representations and warranties to Seller:
(a) This Agreement has been duly and validly authorized, executed and
delivered by Buyer and no other action is requisite to the valid and
binding execution, delivery and performance of this Agreement by
Buyer. Other than as disclosed to Seller, no consents or waivers of or
by any third party are necessary to permit the consummation by Buyer
of the transactions contemplated pursuant to this Agreement. At all
times during the pendency of this Agreement, Buyer shall be a legal
entity duly incorporated or organized, validly existing and in good
standing under the laws of its incorporation or organization, and
shall have the requisite power and authority and all governmental
permits, approvals and authorizations necessary to own, lease and
operate its properties and to carry on its business as it is now being
conducted. Buyer has the financial ability to perform all of its
obligations under this Agreement.
(b) Buyer has not: (i) made a general assignment for the benefit of
creditors, (ii) filed any voluntary petition in bankruptcy or suffered
the filing of any involuntary petition by Buyer's creditors, (iii)
suffered the appointment of a receiver to take possession of all or
substantially all of Buyer's assets, (iv) suffered the attachment or
other judicial seizure of all, or substantially all, of Buyer's
assets, (v) admitted in writing Buyer's inability to pay its debts as
they come due, or (vi) made an offer of settlement, extension, or
composition to its creditors generally.
9. Seller's Representations and Warranties. Solely as a condition of
---------------------------------------
Buyer's obligation to consummate the transactions contemplated by this
Agreement, Seller makes the following representations and warranties to Buyer:
(a) This Agreement has been duly and validly authorized, executed and
delivered by Seller and no other action is requisite to the valid and
binding execution, delivery and performance of this Agreement by
Seller. Other than as disclosed
6
<PAGE>
to Buyer, no consents or waivers of or by any third party are
necessary to permit the consummation by Seller of the transactions
contemplated pursuant to this Agreement. At all times during the
pendency of this Agreement, Seller shall be a legal entity duly
incorporated or organized, validly existing and in good standing under
the laws of its incorporation or organization, and shall have the
requisite power and authority and all governmental permits, approvals
and authorizations necessary to own, lease and operate its properties
and to carry on its business as it is now being conducted.
(b) Except as disclosed in writing to Buyer, to the best of Seller's
knowledge, there are no actions, suits or proceedings pending against
the Property, nor pending proceedings in eminent domain or otherwise
which would affect the Property or any portion thereof.
(c) Except as disclosed in writing to Buyer, to the best of Seller's
knowledge, the Property is in compliance with all applicable laws,
statutes, ordinances and regulations, whether federal, state or local
(including those applicable to zoning, environmental conditions and
racing).
(d) Except as disclosed on Exhibit B attached hereto, there are no
---------
agreements affecting or relating to the right of any party with
respect to possession of the Property, or any portion thereof, which
are obligations which will affect the Property or any portion thereof
subsequent to the recordation of the Deed, except as set forth in the
Contracts or as may be reflected in the Condition of Title. Buyer
expressly acknowledges the existence of the Contracts.
(e) Seller is not a "foreign person" within the meaning of Section 1445 et
--
seq. of the Internal Revenue Code of 1986, as amended.
---
(f) Seller has not: (i) made a general assignment for the benefit of
creditors, (ii) filed any voluntary petition in bankruptcy or suffered
the filing of any involuntary petition by Seller's creditors, (iii)
suffered the appointment of a receiver to take possession of all or
substantially all of Seller's assets, (iv) suffered the attachment or
other judicial seizure of all, or substantially all, of Seller's
assets, (v) admitted in writing Seller's inability to pay its debts as
they come due, or (vi) made an offer of settlement, extension, or
composition to its creditors generally.
The term "best of Seller's knowledge," when used in this Agreement, shall
mean only such information as has actually been communicated to or learned by
William W. Evans III or Darryl Freling, without imputing to such persons the
knowledge of any other person or entity. The persons named above are the persons
employed by Seller with primary responsibility for the operation and management
of the Property and such persons have reviewed the representations and
warranties made by Seller herein.
7
<PAGE>
If prior to the Close of Escrow Seller becomes aware of any fact or
circumstance which changes a representation or warranty, Seller shall promptly
give written notice of such fact or circumstance to Buyer. Upon notification of
any fact or circumstance which changes any representation or warranty contained
herein, Buyer shall have the option of: (a) waiving the breach of warranty that
would be caused by such change, or (b) terminating this Agreement, whereupon the
Escrow Holder shall promptly return the Deposit to Buyer and neither party shall
have any further rights or obligations hereunder. If Buyer does not so
terminate this Agreement and closes this transaction, Buyer shall be deemed to
have waived the failure of such condition or breach of such representation or
warranty. Seller's representations and warranties set forth above shall not
survive the Close of Escrow.
Buyer acknowledges and agrees that, except as expressly provided in this
Section 9, Seller has not made, does not make and specifically disclaims any
representations, warranties, promises, covenants, agreements or guaranties of
any kind or character whatsoever, whether express or implied, oral or written,
past, present or future, of, as to, concerning or with respect to: (a) the
nature, quality or condition of the Property, including, without limitation, the
water, soil and geology, (b) the income to be derived from the Property, (c) the
suitability of the Property for any and all activities and uses which Buyer may
conduct thereon, (d) the compliance of or by the Property or its operation with
any laws, rules, ordinances or regulations of any applicable governmental
authority or body, (e) the habitability, merchantability or fitness for a
particular purpose of the Property, or (f) any other matter with respect to the
Property. Without limiting the foregoing, except as expressly provided in this
paragraph, Seller does not and has not made any representation or warranty
regarding the presence or absence of any hazardous substances in, on, under or
about the Property or the compliance or noncompliance of the Property with the
Comprehensive Environmental Response, Compensation and Liability Act, the
Superfund Amendment and Reauthorization Act, the Resource Conversation Recovery
Act, the Federal Water Pollution Control Act, the Federal Environmental
Pesticides Act, the Clean Water Act, the Clean Air Act, any so called federal,
state or local "superfund" or "superlien" statute, or any other statute, law,
ordinance, code, rule, regulation, order or decree regulating, relating to or
imposing liability or standards of conduct concerning any hazardous substances.
Buyer further acknowledges and agrees that, except as expressly provided in this
Section 9, having been given the opportunity in this Agreement to inspect the
- ---------
Property, Buyer will be purchasing the Property pursuant to its independent
examination, study, inspection and knowledge of the Property and Buyer will rely
upon its own determination of the value of the Property and uses to which the
Property may be put, and not on any information provided or to be provided by
Seller. Buyer acknowledges receipt of the Property Documents and agrees that
Buyer will have reviewed such Property Documents prior to closing the
transactions contemplated hereby. Buyer further acknowledges and agrees that no
representation or warranty respecting the accuracy or completeness of any
information provided or to be provided with respect to the Property from third
party sources (although Seller has no reason to doubt such accuracy) and that
Seller has not made and is not obligated to make any independent investigation
or verification of such information. The occurrence of the Closing shall
constitute an acknowledgment by Buyer that, except as expressly provided in this
paragraph, the Property was accepted without representation or
8
<PAGE>
warranty, express or implied, and otherwise in an "as is", "where is", and "with
all faults" condition based solely upon Buyer's own inspections.
10. Covenants and Interim Responsibilities of Seller. Seller agrees that
----------------------------------------- ------
during the period between the Opening of Escrow and the Closing, Seller shall
use reasonable efforts (subject to any limitations set forth in the Merger
Agreement) to cause Cal Jockey:
(a) Affirmative Covenants. To (i) maintain Cal Jockey's existing
---------------------
insurance policies for the Property, (ii) perform all of Cal Jockey's
obligations under the Contracts and any and all other contracts and
agreements affecting the Property, (iii) comply with all applicable
laws, ordinances, rules, regulations and requirements affecting the
Property, and (iv) commence the construction of the improvements to
the Property required by the Entitlements (as defined in Section 39)
-----------
and/or necessary to achieve the development contemplated under the
Contracts (which reasonable efforts shall not include lending money to
Cal Jockey for such work, indemnifying Cal Jockey for the costs of
such work, incurring any other costs or commencing litigation).
(b) Negative Covenants. To refrain from, without Buyer's prior written
------------------
consent, which shall not be unreasonably withheld, delayed or
conditioned: (i) executing any new lease or materially modify any
existing lease affecting the Property, (ii) entering into any new
contract or materially modifying any existing Contract with respect to
the Property which will survive Closing, (iii) removing any Personal
Property from the Property unless replaced by Personal Property of
equal or greater utility and value, or (iv) alienating, placing a lien
upon, allowing a lien to be placed upon, encumbering or otherwise
transferring the Property or any interest therein.
11. Conditions of Closing.
---------------------
(a) Buyer's obligation to close this transaction shall be subject to the
occurrence and/or satisfaction of the following conditions:
(i) The Merger (as defined in Section 38 below) shall have been
----------
consummated.
(ii) The Title Company is committed to issue the Title Policy
insuring title to the Property vested in Buyer or its nominee
in the amount of the Purchase Price in the approved Condition
of Title.
(iii) As of the Close of Escrow, Seller shall have performed all of
the obligations required to be performed by Seller under this
Agreement.
9
<PAGE>
(iv) All representations and warranties made by Seller to Buyer in
this Agreement shall be materially true and correct as of the
Close of Escrow.
(v) The Old Lease shall have been terminated and the New Leases
shall have been executed.
(vi) Seller shall have obtained all consents, waivers, and other
approvals necessary for Seller to con-summate the transactions
contemplated hereby.
(vii) Buyer shall not have exercised its right to terminate this
Agreement under Section 5 above.
---------
(b) Seller's obligation shall be subject to the occurrence and/or
satisfaction of the following conditions:
(i) The Merger shall have been consummated.
(ii) As of the Close of Escrow, Buyer shall have performed all of
the obligations required to be performed by Buyer under this
Agreement.
(iii) All representations and warranties made by Buyer to Seller in
this Agreement shall be materially true and correct as of the
Close of Escrow (but without regard to the knowledge
qualifications set forth therein).
(iv) Buyer shall have obtained all consents, waivers, and other
approvals necessary for Buyer to consummate the transactions
contemplated hereby.
(v) The Old Lease shall have been terminated and the New Leases
shall have been executed.
12. Deposits By Seller. Prior to the scheduled Closing Date, Seller shall
------------------
deliver to Escrow Holder for recordation or delivery to Buyer upon the Close of
Escrow, the following documents and instruments, fully executed and acknowledged
where appropriate:
(a) The Grant Deed in a form approved by Buyer, Seller, and Title Company.
(b) The New Leases.
(c) A Memorandum of Lease with respect to the Racecourse Lease (the
"Memorandum of Lease").
10
<PAGE>
(d) An assignment and assumption of the Contracts in the form attached
hereto as Exhibit E (the "Assignment of Contracts").
---------
(e) An assignment of the Development Agreement (if applicable) in a form
mutually acceptable to Seller and Buyer in their reasonable discretion
(the "Assignment of Development Agreement") providing for the
assignment and assumption of Seller's rights and obligations under the
Development Agreement.
Seller also shall cause to be transferred to Buyer Seller's interest in all good
faith, earnest money, and other similar deposits made pursuant to the Contracts.
13. Deposits By Buyer. Buyer shall deposit with Escrow Holder the funds
-----------------
which are to be applied towards the payment of the Purchase Price in the amounts
and at the times designated herein, and such other amounts as are required on
account of Buyer's share of closing costs or prorations, as set forth herein. In
addition, at least two (2) business days prior to the scheduled Closing Date,
Buyer shall execute and acknowledge (where appropriate) and deposit with Escrow
Holder for delivery to Seller upon the Close of Escrow counterparts of the New
Leases, the Memorandum of Lease, the Assignment of Contracts and (if
applicable) the Assignment of Development Agreement.
14. Costs and Expenses. Seller and Buyer shall each pay one-half of the
------------------
cost and expenses of this transaction; provided, however, that Seller shall pay
all of the fees and costs due to its counsel, Goodwin, Procter & Hoar LLP, and
Buyer shall pay all of the fees and costs due to its counsel, Wachtell, Lipton,
Rosen & Katz.
15. Prorations. The following items shall be prorated by Escrow Holder
----------
as of the Close of Escrow:
(a) Real property taxes with respect to the Land and Improvements and
personal property taxes based upon the latest available tax
information shall be prorated to the Close of Escrow.
(b) Utilities, services and operating expenses with respect to the Land
and the Improvements shall be prorated to the Close of Escrow based
upon the latest available information.
(c) Premiums for casualty and liability insurance shall not be prorated as
Buyer will obtain its own such insurance upon the Close of Escrow.
If any errors or omissions are made regarding adjustments and prorations as
set forth above, the parties shall make the appropriate corrections promptly
upon the discovery thereof.
16. Disbursements and Other Actions by Escrow Holder. Upon the Close of
------------------------------------------------
Escrow, Escrow Holder shall promptly undertake all of the following in the
manner indicated:
11
<PAGE>
(i) Cause the Deed to be recorded in the Official Records of San
Mateo County.
(ii) Disburse all funds deposited with Escrow Holder by Buyer towards
payment of the Purchase Price for the Property as follows:
(A) Deduct therefrom sums required to pay the closing costs of
Buyer.
(B) Disburse therefrom the sum required to pay to Seller the
amount of the Purchase Price, less sums necessary to pay
the closing costs of Seller.
(C) Disburse the balance, if any, to Buyer.
(iii) Deliver the Title Policy to Buyer.
(iv) Deliver the Bill of Sale, General Assignment, and counterparts of the
New Leases and the Assignment of Contracts executed by Seller to
Buyer.
(v) Deliver counterparts of the New Leases and the Assignment of
Contracts, executed by Buyer to Seller.
(vi) Deliver to both Buyer and Seller copies of all other documents
delivered to either party hereto or recorded pursuant to this
Agreement.
17. [Intentionally omitted.]
18. Partial Invalidity. If any portion of this Agreement shall be
------------------
declared by any court of competent jurisdiction to be invalid, illegal or
unenforceable, such portion shall be deemed severed from this Agreement and the
remaining parts hereof shall remain in full force and effect as fully as though
such invalid, illegal or unenforceable portion had never been part of this
Agreement.
19. Attorneys' Fees. In the event of the bringing of any action or suit
---------------
by a party hereto against another party hereto by reason of any breach of any of
the covenants or agreements or any inaccuracies in any of the representations
and warranties on the part of the other party arising out of this Agreement,
then, in that event, the prevailing party in such action or dispute, whether by
final judgment or out-of-court settlement, shall be entitled to have and recover
of and from the other party all costs and expenses of suit, including actual
attorneys' fees.
20. Notices. All notices or other communications required or permitted
-------
hereunder shall be in writing and shall be personally delivered or sent by
registered or certified mail,
12
<PAGE>
postage prepaid, return receipt requested, delivered or sent by telex, telecopy,
cable or via a reliable overnight courier such as Federal Express, and shall be
deemed received upon the earlier of: (a) if personally delivered or via
overnight courier, the date of delivery to the address of the person to receive
such notice, or (b) if mailed, upon the date of receipt as disclosed on the
return receipt.
To Seller: Patriot American Hospitality, Inc.
3030 LBJ Freeway, Suite 1500
Dallas, Texas 75234
Attn: Mr. Paul A. Nussbaum
and Mr. Darryl Freling
Telecopy: (972) 888-8029
And a copy to: Goodwin, Procter & Hoar LLP
Exchange Place
Boston, Massachusetts 02109
Attn: Andrew Sucoff, Esq.
Telecopy: (617) 523-1231
To Buyer: PW Acquisitions IV, LLC
c/o PaineWebber Incorporated
1295 Avenue of the Americas
19th Floor
New York, New York 10019
Attn: Mr. John Tashjian
Telecopy: (212) 713-7949
With a copy to: Wachtell, Lipton, Rosen & Katz
51 West 52nd Street
New York, New York 10019
Attn: Robin Panovka, Esq.
Telecopy: (212) 403-2000
To Escrow Holder: Chicago Title Company
388 Market Street, Suite 1300
San Francisco, California 94111
Attn: Rod Pasion, Esq.
Telecopy: (415) 434-2176
13
<PAGE>
In addition, a copy of any notice to any party hereunder shall be delivered to:
Graham & James LLP
One Maritime Plaza, Suite 300
San Francisco, California 94111
Attn: Bruce W. Hyman, Esq.
Telecopy: (415) 391-2493
Notice of change of address shall be given by written notice in the manner
detailed in this paragraph. Rejection or other refusal to accept or the
inability to deliver because of changed address of which no notice was given
shall be deemed to constitute receipt of the notice, demand, request or
communication sent.
21. No Brokers. Seller represents and warrants to Buyer, and Buyer
----------
represents and warrants to Seller, that no broker or finder has been engaged by
it, respectively, in connection with any of the transactions contemplated by
this Agreement or, to its knowledge, is in any way connected with any of such
transactions. In the event of any such additional claims for brokers, or
finders, fees for the consummation of this Agreement, then Buyer shall
indemnify, save harmless and defend Seller from and against such claims if they
shall be based upon any statement or representation or agreement by Buyer, and
Seller shall indemnify, save harmless and defend Buyer if such claims shall be
based upon any statement, representation or agreement made by Seller. The
foregoing indemnities shall survive the Close of Escrow or any termination of
this Agreement.
22. Required Actions of Buyer and Seller. Buyer and Seller agree to
------------------------------------
execute such instruments and documents and to diligently undertake such actions
as may be required in order to consummate the purchase and sale herein
contemplated and shall use their good faith to accomplish the Close of Escrow in
accordance with the provisions hereof.
23. Time of Essence. Time is of the essence of each and every term,
---------------
condition, obligation and provision hereof.
24. Counterparts. This Agreement may be executed in multiple
------------
counterparts, each of which shall be deemed an original, but all of which,
together, shall constitute one and the same instrument.
25. Captions. Any captions to, or headings of, the sections, paragraphs
--------
or subparagraphs of this Agreement are solely for the convenience of the parties
hereto, are not a part of this Agreement, and shall not be used for the
interpretation or determination of the validity of this Agreement or any
provision hereof.
26. No Obligations to Third Parties. The execution and delivery of this
-------------------------------
Agreement shall not be deemed to confer any rights upon, nor obligate any of the
parties hereto, to any person or entity other than the parties hereto.
14
<PAGE>
27. Exhibits. The exhibits attached hereto are incorporated herein by this
--------
reference.
28. Amendment to this Agreement. The terms of this Agreement may not be
---------------------------
modified or amended except by an instrument in writing executed by each of the
parties hereto.
29. Waiver. The waiver or failure to enforce any provision of this
------
Agreement shall not operate as a waiver of any future breach of any such
provision or any other provision hereof.
30. Applicable Law. This Agreement shall be governed by and construed in
--------------
accordance with the laws of the State of California.
(Remainder of page intentionally left blank)
15
<PAGE>
31. [Intentionally Omitted.]
32. Entire Agreement. This Agreement supersedes any prior agreements,
----------------
negotiations and communications, oral or written, and contains the entire
agreement between Buyer and Seller as to the subject matter hereof. No
subsequent agreement, representation or promise made by either party hereto, or
by or to an employee, officer, agent or representative of either party, shall be
of any effect unless it is in writing and executed by the party to be bound
thereby.
33. Successors and Assigns. This Agreement and all of the terms,
----------------------
conditions and provisions hereof shall inure to the benefit of and be binding
upon the respective successors. and assigns of the parties hereto. Neither
party hereto shall assign its rights or obligations hereunder without the prior
written consent of the other.
34. Default.
-------
(a) If any of Seller's representations and warranties contained
herein shall not be materially true and correct, or if Seller
shall have materially failed to perform any of the covenants and
agreements contained herein to be performed by Seller within the
time for performance as specified herein, Buyer may elect as
Buyer's sole and exclusive remedy hereunder, to either: (i)
terminate Buyer's obligations under this Agreement by written
notice to Seller with a copy to Escrow Holder whereupon Escrow
Holder shall refund the Deposit to Buyer, and neither party shall
have any further rights or obligations hereunder, or (ii) file an
action for specific performance of the conveyance described in
this Agreement.
(b) UPON EXPIRATION OF THE CONTINGENCY PERIOD AND BUYERS APPROVAL OF
THE MATTERS SET FORTH ABOVE, IF BUYER COMMITS A DEFAULT UNDER
THIS AGREEMENT AND FAILS TO PURCHASE THE PROPERTY, THEN, IN ANY
SUCH EVENT, ESCROW HOLDER MAY BE INSTRUCTED TO CANCEL THE ESCROW
AND SELLER SHALL THEREUPON BE RELEASED FROM ITS OBLIGATIONS
HEREUNDER. BUYER AND SELLER AGREE THAT IT WOULD BE IMPRACTICAL OR
EXTREMELY DIFFICULT TO FIX ACTUAL DAMAGES IN THE CASE OF BUYERS
DEFAULT AND FAILURE TO PURCHASE THE PROPERTY, THAT THE DEPOSIT IS
A REASONABLE ESTIMATE OF SELLERS DAMAGES IN SUCH EVENT
("LIQUIDATED DAMAGES"), AND THAT IN THE EVENT OF A BREACH BY
BUYER AS DESCRIBED ABOVE, THE ESCROW HOLDER, UPON INSTRUCTIONS TO
DO SO, SHALL DISBURSE THE DEPOSIT TO SELLER AND SHALL CANCEL THE
ESCROW CREATED PURSUANT HERETO, IN WHICH EVENT SELLER AND BUYER
16
<PAGE>
SHALL BE RELIEVED FROM ALL LIABILITY HEREUNDER. RECEIPT OF THE
DEPOSIT AS LIQUIDATED DAMAGES SHALL BE SELLER'S SOLE AND
EXCLUSIVE REMEDY IN THE EVENT OF A BREACH BY BUYER AS DESCRIBED
ABOVE AND SELLER HEREBY WAIVES ANY RIGHT TO COMPEL SPECIFIC
PERFORMANCE OF THIS AGREEMENT BY BUYER. ESCROW HOLDER IS HEREBY
RELEASED FROM ANY AND ALL LIABILITY WITH REGARD THERETO. SELLER
AND BUYER ACKNOWLEDGE THAT THEY HAVE READ AND UNDERSTAND THE
PROVISIONS OF THIS PARAGRAPH AND BY THEIR INITIALS IMMEDIATELY
BELOW AGREE TO BE BOUND BY ITS TERMS.
Seller's Initials Buyer's Initials
/s/ WE /s/ TF
------------------ ----------------
35. Computation of Periods. All periods of time referred to in this
----------------------
Agreement shall include all Saturdays, Sundays and national holidays, unless the
period of time specifies business days; provided, however, that if the date to
perform any act or give a notice with respect to this Agreement shall fall on a
Saturday, Sunday or national holiday, such act or notice may be timely performed
on the next succeeding day which is not a Saturday, Sunday or a national
holiday.
36. Recourse. The obligations and liabilities of the parties under this
--------
Agreement and the exhibits attached hereto are intended to be binding only on
the respective parties and shall not be personally binding upon, nor shall any
resort be had to, the private properties of any of the parties, officers,
directors, trustees or shareholders, or of their investment managers, general
partners, officers, directors, trustees or shareholders thereof, or any
employees or agents of the parties or their respective investment managers.
37. Termination of Merger Agreement. In the event the Merger Agreement is
-------------------------------
terminated by the parties thereto without the consummation of the Merger, this
Agreement shall terminate automatically, whereupon the Escrow Holder shall
promptly return the Deposit to Buyer and neither party shall have any further
rights or obligations hereunder.
38. Compliance With Acquisition and Merger Agreements. The parties
-------------------------------------------------
acknowledge and agree that as of the date hereof and until the consummation of
the Merger (as defined below), the Property is and shall be owned by California
Jockey Club, a Delaware corporation ("Cal Jockey"), an entity which is not
affiliated with Seller. Seller is a party to that certain "Acquisition
Agreement" by and among Seller, Cal Jockey, and Bay Meadows Operating Company, a
Delaware corporation ("BMOC"), dated as of October 31, 1996 (the "Acquisition
Agreement") and that certain "Agreement and Plan of Merger" dated as of February
24, 1997 by and among Seller, Cal Jockey and BMOC (the "Merger Agreement"),
17
<PAGE>
and Seller's rights and interests in the Property are as set forth in the
Acquisition Agreement and the Merger Agreement. Upon consummation of the
transactions contemplated by the Acquisition Agreement and the Merger Agreement
(the "Merger"), Seller will be the legal owner of the Property, however until
the consummation of the Merger and notwithstanding anything to the contrary set
forth in this Agreement, all of the terms and conditions hereof (including,
without limitation, the right to inspect the Property) shall be subject to the
provisions and limitations of the Acquisition Agreement and the Merger
Agreement.
39. Joint Due Diligence; Cooperation With Respect to Entitlements. Seller
-------------------------------------------------------------
and Buyer acknowledge that they are jointly performing due diligence
investigations of the Property and have jointly retained attorneys and other
consultants in connection with such joint due diligence. In this regard, Seller
and Buyer agree that Seller and Buyer shall each cooperate in good faith to
agree on the necessary efforts with respect to due diligence, shall each
promptly provide to the other copies of any due diligence reports or other
information received by them, and shall each pay one half of the costs
associated with all mutually agreed-upon due diligence efforts. Seller and
Buyer also agree to cooperate in good faith with respect to providing mutual
guidance and direction to Cal Jockey in connection with Cal Jockey's current
efforts to secure approval of the Bay Meadows Specific Plan and the other
entitlements related thereto. Provided, however, that none of the provisions of
this Section 39 shall be construed to limit or diminish Buyer's agreement to
----------
Seller's disclaimers and acknowledgments with respect to the condition of the
Property set forth in the final paragraph of Section 9 above.
---------
40. 1031 Exchange. Notwithstanding anything in this contract to the
-------------
contrary, Seller may, upon reasonable prior written notice to Buyer, assign this
Agreement to sell the Property as part of a tax deferred exchange under the
provisions of section 1031 of the Internal Revenue Code and the regulations
promulgated thereunder. Buyer agrees to assist and cooperate in such exchange,
and further agrees to execute (subject to Buyer's reasonable approval) all
reasonable, customary documents necessary in connection with any such tax free
exchange and otherwise to cooperate reasonably in connection with such an
exchange, all at no cost or expense to Buyer. Seller may be assigning all
contract rights and/or obligations hereunder to a "qualified intermediary" as
that term is defined in the Internal Revenue Code and relevant Treasury
regulations. As part of such exchange, Seller may convey the Property directly
to Buyer or Buyer's nominee and Buyer shall not be obligated to acquire or
convey any other property as part of such exchange.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
18
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the day and year first set forth above.
SELLER
------
PATRIOT AMERICAN HOSPITALITY,
INC., a Virginia corporation
By: /s/ William W. Evans III
----------------------------
Its:
---------------------------
BUYER
-----
PW ACQUISITIONS IV, LLC,
a Delaware limited liability company
By: PW Realty Partners, LLC, as
Managing Member
By: PW Acquisitions Corp., as
Managing Member
By: /s/ Terrence E. Fancher
----------------------------
Name:
--------------------------
Its:
---------------------------
ESCROW HOLDER APPROVES THE ESCROW
PROVISIONS AND SPECIFIC INSTRUCTIONS
TO ESCROW HOLDER SET FORTH IN THE
FOREGOING AGREEMENT AND AGREES TO
ACT IN ACCORDANCE THEREWITH.
CHICAGO TITLE COMPANY
By:
----------------------------------------------
Its:
---------------------------------------------
Date: , 1997
----------------------------
19
<PAGE>
Exhibit 10.34
-------------
PaineWebber Real Estate Securities, Inc. The Chase Manhattan Bank
1285 Avenue of the Americas, 19th Floor 380 Madison Avenue
New York, NY 10019 New York, New York 10017
May 23, 1997
PATRIOT AMERICAN HOSPITALITY, INC.
3030 LBJ Freeway
Suite 1500
Dallas, Texas 75234
re: Credit Facilities
- ---------------------
Ladies and Gentlemen:
Reference is made to the existing revolving credit facility (the
"Original Facility") previously made available to Patriot American Hospitality,
Inc. ("Patriot") by PaineWebber Real Estate Securities, Inc. ("PaineWebber").
Each of PaineWebber and The Chase Manhattan Bank ("Chase", and together with
PaineWebber, the "Co-Arrangers") is pleased to commit, on a several but not
joint basis, to provide (individually or through its affiliates), (i)
refinancing of, or an amendment and restatement to, the Original Facility in the
form of an unsecured revolving credit facility in a maximum original principal
amount of up to $700,000,000 (the "Revolving Credit Facility") and (ii) a
secured term loan in the original principal amount of $500,000,000 (the "Term
Loan", and together with the Revolving Credit Facility, the "Credit Facility"),
in each case subject to and in accordance with the terms and conditions of this
letter (this "Commitment") and the term sheets annexed hereto as Exhibits A and
B for the Revolving Credit Facility and the Term Loan, respectively (the "Term
Sheets"), and hereby made a part hereof. PaineWebber and Chase will act as sole
Co-Arrangers for the Credit Facility, shall each perform the other roles
described in the Term Sheets, and no additional agents or co-agents will be
appointed except as the Co-Arrangers may determine in their sole discretion.
<PAGE>
2
The commitment of the Co-Arrangers herein set forth with respect to the
Credit Facility shall be subject to there having been no material adverse change
after the date of this Commitment to the syndication, securitization or
placement market for financings similar to the Revolving Credit Facility and the
Term Loan and there not having occurred and being continuing prior to the date
of the closing of the Revolving Credit Facility and the Term Loan, respectively,
a disruption of or adverse change in any of such markets that would have
material adverse effect on the syndication, securitization or placement of the
Term Loan.
Each of the Co-Arrangers reserves the right, prior to or after the
execution of definitive documentation for the Revolving Credit Facility and/or
the Term Loan, to syndicate all or part of its commitment therefor to one or
more financial institutions (together with the Co-Arrangers, the "Lenders"), it
being understood that the commitment of the Co-Arrangers set forth in the first
paragraph above is not conditioned upon a successful syndication of any part of
the Credit Facility. Each of the Co-Arrangers shall have a reasonable right of
approval with respect to the accuracy of factual statements and/or the
materiality of factual omissions contained in any offering materials prepared in
connection with the syndication of the Credit Facility. Each of the Co-Arrangers
reserves the right to commence syndication efforts for the Credit Facility at
any time, including but not limited to promptly after full execution and
delivery of this Commitment and, as an inducement for each of the Co-Arrangers
to execute and deliver this Commitment, Patriot agrees to actively assist the
Co-Arrangers in achieving a syndication of each of the Revolving Credit Facility
and the Term Loan that is satisfactory to them, provided that such actions shall
not (x) materially diminish the rights of any borrower thereunder, (y)
materially increase any such borrower's costs or obligations or (z) change or
affect in a manner adverse to borrower (i) the interest rates applicable to the
Credit Facility, (ii) the stated maturities of the Credit Facility, (iii) the
amortization applicable to the Credit Facility, (iv) fees owed in connection
with the Credit Facility, (v) the collateral security requirements in the Term
Sheets, (vi) prepayment requirements for the Credit Facility, (vii) the priority
of application of funds on deposit in any cash collateral accounts required in
the Term Sheets and (viii) financial covenants set forth in the Term Sheets.
Such syndications will be accomplished by a variety of means, including direct
contact during syndication between Patriot's senior management and advisors and
the proposed syndicate members. Each of Patriot and its subsidiaries and
affiliates shall fully cooperate in the syndication efforts, including, without
limitation, by promptly providing the Co-Arrangers with all information deemed
necessary by them to successfully complete syndication. To assist the Co-
Arrangers in their syndication efforts, Patriot hereby agrees, both before and
after the closing of each of the Revolving Credit Facility and the Term Loan,
(i) to provide and cause its advisors to provide the Co-Arrangers and the other
syndicate members upon request with projections and other data (in suitable
electronic format, if requested by the Co-Arrangers) regarding Patriot, its
subsidiaries and affiliates and their respective assets and all other
information deemed necessary by the Co-Arrangers to complete syndication,
including but not limited to, information and evaluations prepared by Patriot
and its advisors or on Patriot's or their
<PAGE>
-3
behalf relating to the transactions contemplated hereby, (ii) to assist the
Co-Arrangers upon request in the preparation of an Information Memorandum to be
used in connection with the syndication of each of the Revolving Credit Facility
and the Term Loan (and Patriot shall have a reasonable right of approval with
respect to the accuracy of factual statements and/or the materiality of factual
omissions contained therein) and (iii) upon reasonable prior notice and at
reasonable times, to make available each of Patriot's senior officers (including
Paul Nussbaum and William W. Evans III) from time to time to attend and make
presentations regarding Patriot's business and prospects at a meeting or
meetings in New York, New York and Dallas, Texas, of Lenders or prospective
Lenders. In connection with any delegation by any Co-Arranger to its affiliates
of any of such Co-Arranger's obligations in respect of the Credit Facility or
any part thereof, such Co-Arranger will not cause Patriot to incur costs for
reserves, withholding taxes and similar matters in excess of those which would
be incurred if the Credit Facility was funded solely by such Co-Arranger.
Each of the Co-Arrangers has reviewed certain historical and pro forma
financial statements of Patriot, its subsidiaries and affiliates. Each of the
Co-Arrangers and its counsel has not had the opportunity to complete its
inspection, testing and review of the assets and liabilities (including
contingent liabilities) of Patriot, its subsidiaries and affiliates, the
business and operations and the proposed organization and capital structure of
Patriot, its subsidiaries and affiliates after the effective date of the Credit
Facility. Further, neither of the Co-Arrangers nor its attorneys has had the
opportunity to complete the due diligence efforts necessary to substantiate the
financial, legal and factual premises upon which the Commitment is based. Each
of the Co-Arranger's willingness to provide the financings described in the
Commitment is subject to each Co-Arranger's satisfactory completion of such
review and due diligence and each Co-Arranger's continuing satisfaction
therewith and with the organization and capital structure of Patriot, its
subsidiaries and affiliates before and after the effective date of the Credit
Facility. If either Co-Arranger's continuing review of materials about Patriot,
its subsidiaries and affiliates discloses information, or either Co-Arranger
otherwise discovers information not previously disclosed to it that such Co-
Arranger believes has, or could have, a material adverse effect on the business,
operations, property or condition (financial or otherwise) of Patriot, its
subsidiaries and affiliates taken as a whole, such Co-Arranger, in its
discretion, may suggest alternative financing amounts or structures, or decline
to participate in the proposed financing (which Patriot shall have no obligation
to accept). In the event any Co-Arranger declines to provide or participate in
either the Revolving Credit Facility or the Term Loan, the other Co-Arranger may
elect in its sole discretion (but shall have no obligation) to provide any or
all of the declined amount.
Without limiting the generality of the other provisions of this
Commitment and the Term Sheets, each Co-Arranger reserves the right to engage in
one or more transactions in respect of the Term Loan subsequent to or
simultaneous with the funding of the Term Loan with a view to transferring
interests in all or a portion of the Term Loan to other parties. Such
transactions may include a securitization, a placement of all or a portion
<PAGE>
-4
of the Term Loan, a tranched structuring of the Term Loan and/or a splitting of
the Term Loan into one or more loans or other financial instruments, as long as
such transactions shall not (x) materially diminish the rights of any borrower
thereunder, (y) materially increase any such borrower's cost or obligations, or
(z) change or affect in a manner adverse to borrower (i) the interest rates
applicable to the Credit facility, (ii) the stated maturities of the Credit
Facility, (iii) the amortization applicable to the Credit Facility, (iv) fees
owed in connection with the Credit Facility, (v) the collateral security
requirements in the Term Sheets, (vi) prepayment requirements for the Credit
Facility, (vii) the priority of application of funds on deposit in any cash
collateral accounts required in the Term Sheets and (viii) financial covenants
set forth in the Term Sheets. Patriot agrees that it, its subsidiaries and its
affiliates (including the Borrower under the Term Loan) will (i) take such
actions as the Co-Arrangers may reasonably request in connection with the
transactions contemplated with respect to the Term Loan (such actions to
include, without limitation, such steps as may be reasonably required to effect
a securitization with such borrower, subsidiary and/or an affiliate thereof as
the issuer of the securities) and (ii) otherwise cooperate in good faith with
the Co-Arrangers and its affiliates in connection with the implementation of any
such transactions, as long as such transactions shall not (x) materially
diminish the rights of any borrower thereunder, (y) materially increase any such
borrower's cost or obligation, or (z) change or affect in a manner adverse to
borrower (i) the interest rates applicable to the Credit Facility, (ii) the
stated maturities of the Credit Facility, (iii) the amortization applicable to
the Credit Facility, (iv) fees owed in connection with the Credit Facility, (v)
the collateral security requirements in the Term Sheets, (iv) prepayment
requirements for the Credit Facility, (vii) the priority of application of funds
on deposit in any cash collateral accounts required in the Term Sheets and
(viii) financial covenants set forth in the Term Sheets.
Patriot agrees to coordinate any other financings (which for purposes of
this paragraph shall not include equity offerings or purchase money mortgage
financings) by it or any of its subsidiaries or affiliates with the syndication
of the Revolving Credit Facility and to refrain from any such financing during
any such syndication efforts unless such other financings are permitted pursuant
to Exhibit A hereto or as otherwise agreed to by the Co-Arrangers. The
restrictions set forth in this paragraph shall not apply to any financings after
September 30, 1997.
Patriot represents and warrants that the information which has been or
is hereafter made available to either Co-Arranger by it or any of its
subsidiaries or affiliates or any representatives of it or any of its
subsidiaries or affiliates in connection with the transactions contemplated by
this Commitment Letter and Term Sheets, including the Offering Memorandum, is
and will be complete in all material respects. Patriot agrees upon reasonable
request of either Co-Arranger to supplement the information referred to in the
immediately preceding sentence from time to time until completion of the
primary syndication, securitization, placement, transfer or other transactions
contemplated hereby so that the representations and warranties in such sentence
remain correct. In arranging,
<PAGE>
5
syndicating, securitizing, placing, transferring or engaging in such other
transactions contemplated hereby with respect to the Credit Facility or any part
thereof, each Co-Arranger and the other Lenders may use and rely on such
information without independent verification thereof.
To induce the Co-Arrangers to issue this Commitment, Patriot hereby
agrees to pay all costs and expenses of the Co-Arrangers (including the
reasonable fees and expenses of White & Case (as counsel to the Co-Arrangers),
Weil, Gotshal & Manges (as counsel to Chase, in connection with review and
negotiation of and advice with respect to the credit agreement, and due
diligence for the Credit Facility) and local counsel to the extent reasonably
necessary, and each Co-Arranger's out-of-pocket expenses, including, without
limitation, the fees and expenses of accountants, appraisers, environmental
experts, engineers, rating agencies and other experts and consultant(s) arising
in connection with the preparation, execution and delivery of this Commitment
and the definitive documents for the Revolving Credit Facility and the Term Loan
and each Co-Arranger's due diligence, primary syndication, securitization and
placement efforts in connection therewith. The Co-Arrangers agree, and confirm
that White & Case agrees, to provide Patriot with its good faith estimate of
its costs and expenses referred to in the immediately preceding sentence within
one week following the execution and delivery by the parties of this Commitment.
In addition, Patriot hereby agrees to indemnify and hold harmless each of the
Lenders with respect to the Revolving Credit Facility or the Term Loan
(including in any event each Co-Arranger) and each director, officer, employee,
agent, advisor and affiliate thereof (each of the foregoing entities an
"indemnified person") in connection with any losses, claims, damages,
liabilities or other expenses to which such indemnified persons may become
subject, insofar as such losses, claims, damages, liabilities (or actions or
other proceedings commenced or threatened in respect thereof) or other expenses
arise out of claims of third parties which arise out of or in any way relate to
or result from this Commitment or the extensions of the Credit Facility
contemplated by this Commitment (including the syndication, securitization
and/or placement thereof), or in any way arise from any actions taken or omitted
to be taken (including without limitation any untrue statements made or any
statements omitted to be made in a preliminary or final prospectus circulated
with respect to any securitization and/or placement of the Term Loan) by Patriot
or any of its affiliates, or in any way arise from any use or intended use of
this Commitment or the proceeds of the Credit Facility contemplated by this
Commitment, and Patriot agrees to reimburse each indemnified person for any
legal or other expenses incurred in connection with investigating, defending or
participating in any such loss, claim, damage, liability or action or other
proceeding (whether or not such indemnified person is a party to any action or
proceeding out of which any such expenses arise), provided that Patriot shall
have no obligation hereunder to indemnify any indemnified person for any loss of
profits or any loss, claim, damage, liability or expense to the extent that the
same resulted from the gross negligence or willful misconduct or breach of
agreement of such indemnified person. Notwithstanding anything in this paragraph
to the contrary, promptly after receipt by an indemnified person of notice of
any loss, claim, damage or liability or the commencement or threat of any
<PAGE>
6
action or proceeding, such indemnified person shall, if a claim in respect
thereof is to be made by such indemnifed person against Patriot pursuant to this
paragraph, notify Patriot in writing of the loss, claim, damage or liability or
the commencement or threat of the action or proceeding; provided, however, that
the failure to notify Patriot shall not relieve Patriot from any liability which
it may have under this paragraph except to the extent that it has been
materially prejudiced by such failure and, provided further, that the failure to
notify Patriot shall not relieve it from any liability which it may have to an
indemnifed person otherwise than under the indemnification provisions of this
paragraph. If any such claim, action or proceeding shall be brought or
threatened against an indemnified person, and such indemnified person shall
notify Patriot thereof, Patriot shall be entitled to participate therein and, to
the extent that Patriot wishes, to assume the defense thereof with counsel
reasonably satisfactory to such indemnified person. In the event Patriot assumes
the defense of an indemnified person, it may not thereafter dispute its
liability hereunder for any liability the defense of which Patriot has assumed
which may be imposed upon an indemnified person in connection with such claim,
action or proceeding; provided, however, Patriot shall give prompt notice of any
election to assume or not assume the defense of any claim, action or proceeding.
After notice from Patriot to such indemnified person of its election to assume
the defense of such claim, action or proceeding, Patriot shall not be liable to
such indemnified person under this paragraph for any legal or other expenses
subsequently incurred by such indemnified person in connection with the defense
thereof except as provided in the following sentence. The indemnified person
shall have the right to employ separate counsel with respect to any such claim,
action or proceeding and to participate in the defense thereof but the fees and
expenses of such counsel shall be at the expense of such indemnified person
unless: (i) the employment thereof has been specifically authorized by Patriot
in writing; or (ii) with respect to such claim, action or proceeding there is,
in the opinion of independent counsel, a conflict concerning any material issue
between the position of Patriot and such indemnified person, in which case if
such indemnifed person notifies Patriot in writing that such indemnified person
elects to employ separate counsel at the expense of Patriot, Patriot shall not
have the right to assume the defense of such claim, action or proceeding on
behalf of such indemnified person; provided, however, that unless an actual or
potential conflict exists between two or more indemnified persons, Patriot shall
not be required to pay the fees and disbursements of more than one separate
counsel for all indemnified persons. Nothing set forth herein is intended to or
shall impair the right of any indemnifed person to retain separate counsel at
its own expense. Without the prior written consent of each Co-Arranger, neither
Patriot nor any of its affiliates will settle or compromise or consent to the
entry of any judgment in any pending or threatened claim, action or proceeding
in respect of which indemnification may be sought hereunder (whether or not any
indemnified person is an actual or potential party to such claim, action or
proceeding) unless (a) Patriot shall have given each Co-Arranger reasonable
prior written notice thereof and used all reasonable efforts, after consultation
with each Co-Arranger, to obtain an unconditional release of each Co-Arranger
and each other indemnified person from all liability arising out of such claim,
action, suit or proceedings, or (b) Patriot reaffirms in writing its indemnity
obligations hereunder. As long as Patriot
<PAGE>
-7
has complied with its obligations to defend and indemnify hereunder, it shall
not be liable hereunder for any settlement made by each Co-Arranger or any other
indemnified person without Patriot's consent.
This Commitment is furnished for the benefit of Patriot and the
borrowers and guarantors under the Credit Facility only, and may not be relied
upon by any other person or entity. Neither Co-Arranger nor any other Lender
shall be responsible or liable to Patriot or any other person for any
consequential damages which may be alleged as a result of this Commitment. The
provisions of this paragraph, the immediately preceding paragraph and each of
the following paragraphs shall survive any termination of this Commitment, but
upon the execution and effectiveness of the documents for the Credit Facility
all of Patriot's obligations in respect of indemnities and expenses set forth
herein shall be superseded by the provisions set forth therein.
Patriot also hereby agrees to pay the Co-Arrangers the fees set forth in
the Structuring Fee Letter and Facility Fee Letter (the "Fee Letters") dated
the date hereof, with such fees to be earned and payable in accordance with the
terms of the Fee Letters.
Each of the Co-Arrangers reserves the right to employ the services of
its affiliates in providing the services contemplated by this Commitment and to
allocate, in whole or in part, to such affiliates and/or to other Lenders
certain fees payable to such Co-Arranger in such manner as such Co-Arranger and
its affiliates and/or such other Lenders may agree in their sole discretion.
All references to each Co-Arranger herein shall be deemed to include its
affiliates. Patriot acknowledges that, subject to the confidentiality
restrictions set forth herein, each Co-Arranger may share with any of its
affiliates that have agreed to be bound by such confidentiality restrictions,
and such affiliates may share with such Co-Arranger, any information relating to
Patriot and its affiliates, including any information as to the creditworthiness
of any such entities.
Patriot is not authorized to show or circulate, or disclose any
information with respect to, this Commitment and/or the Fee Letters (the
"Commitment Information") to any other person or entity (other than its legal
and financial advisors in connection with its evaluation hereof) unless such
disclosure is compelled in a judicial or administrative proceeding, is otherwise
required by law or is approved by the Co-Arrangers in accordance with the terms
of the next paragraph. Patriot recognizes the concerns of the Co-Arrangers in
preventing disclosure of the Commitment Information to competitors and other
commercial parties and in the event that you need to disclose the Commitment
Information in non-public circumstances such as discussions with analysts or
investors. Patriot will use its best efforts to limit the disclosure to that
reasonably necessary and, to the extent possible, make the disclosure in a
manner that address the Co-Arrangers' concerns. Patriot acknowledges and agrees
that any breach of this provision would cause harm to each Co-Arranger.
Accordingly, Patriot also agrees that in the event of any breach or threatened
breach of this provision, each Co-Arranger, in addition to any other remedies at
law
<PAGE>
(including, without limitation, money damages) or in equity it may have, shall
be entitled without the requirement of posting a bond or other security and
without proof of actual injury, to equitable relief, including injuctive relief
and specific performance. If this Commitment is not accepted by Patriot as
provided herein, Patriot shall immediately return this Commitment (and any
copies hereof) to the undersigned.
The Co-Arrangers shall have the right to review and approve in advance
(which approval will not be unreasonably withheld or delayed) any summary or
other description of or reference to the Commitment Information or any reference
to itself or its affiliates in all public announcements, filings, solicitations,
information memoranda and similar documentation made or distributed by Patriot
and/or its affiliates and advisors relating or referring to the Commitment
Information. Additionally, the Co-Arrangers shall have the right at the Co-
Arrangers' expense to issue press releases and/or tombstone announcements
concerning the Credit Facility, subject to prior review and approval by Patriot
(which approval shall not be unreasonably withheld or delayed) of any summary or
other description of or reference to the Credit Facility or any reference to
Patriot or any of its affiliates therein.
Patriot represents and warrants that neither Patriot nor any person acting
on behalf of Patriot has employed or used a broker in connection with the
transactions contemplated herein, and Patriot agrees to indemnify and hold
harmless each Co-Arranger and each other indemnified person from and against all
loss, cost, damage or expense arising by reason of any claim made by any such
broker. Each Co-Arranger represents and warrants that neither it nor any person
acting on its behalf has employed or used a broker in connection with the
transactions contemplated herein, and each Co-Arranger agrees to indemnify and
hold harmless Patriot and its affiliates from and against all loss, cost, damage
or expense arising by reason of any claim made by any such broker.
Patriot is hereby advised (and hereby agrees) that other entities with
conflicting interests may also be (or become at any time in the future)
customers of any of the Co-Arranger or the other Lenders or any of their
respective affiliates and that any of such parties may be providing financing or
other services to such other customers (subject to the customary procedures of
the applicable Co-Arranger or other Lender relating to conflicts of interest and
the sharing or use of information), and Patriot hereby waives any conflict of
interest (but not any claims relating to breaches of confidentiality obligations
described herein, which confidentiality obligations supersede all prior
agreements relating to confidentiality between Patriot and any of the Co-
Arrangers and the other Lenders or their respective affiliates relating to the
subject matter hereof) that may now exist or hereafter arise by reason of the
provision of any such financing or other services. Patriot also acknowledges
that neither of the Co-Arrangers has any obligation to use in connection with
the transactions contemplated by this Commitment or to furnish to Patriot
confidential information obtained from other sources.
<PAGE>
9
Each Co-Arranger agrees to treat all non-public information received on
a confidential basis from Patriot, its affiliates or advisors relating to
Patriot, its affiliates, the Credit Facility and the other transactions
contemplated by this Commitment as confidential in accordance with its customary
procedures regarding confidentiality, and to endeavor to obtain written
confidentiality letters from proposed participants in the syndication of the
Credit Facility who receive an Information Memorandum from the Co-Arrangers.
Each Co-Arranger agrees to advise their affiliates, potential Lenders and other
parties to whom such Co-Arranger or its affiliates provide information which
has not been publicly disclosed by Patriot, that the use of such information to
trade in securities may violate laws.
The commitment with respect to each of the Revolving Credit Facility and
Term Loan is subject to the negotiation, execution and delivery of definitive
documentation, and the occurrence of the initial funding with respect to the
Revolving Credit Facility (the date of initial funding on the Revolving Credit
Facility, the "Closing Date") on or prior to July 11, 1997 and with respect to
the Term Loan on or prior to December 7, 1997, respectively. The parties hereto
hereby agree to use their best efforts to close the Revolving Credit Facility
earlier than July 11, 1997.
This Commitment may be executed in any number or counterparts and by the
different parties hereto on separate counterparts, each of which counterparts
shall be an original, but all of which shall together constitute one and the
same instrument. This Commitment and the rights and obligations of the parties
hereunder shall be construed in accordance with and governed by the law of the
State of New York, and any right to trial by jury with respect to any claim,
action, suit or proceeding arising out of or contemplated by this Commitment is
hereby waived. Patriot hereby submits to the non-exclusive jurisdiction of the
Federal and New York State courts located in the City of New York in connection
with any dispute related to this Commitment or any matter contemplated hereby.
<PAGE>
If you are in agreement with the foregoing, please sign and return to
the undersigned one fully executed counterpart of each of this Commitment and
the Fee Letters no later than 11:59 p.m., New York time on May 23, 1997. This
Commitment shall terminate at such time unless you accept this Commitment and
the Fee Letters as provided above.
Very truly yours,
PAINE WEBBER REAL ESTATE
SECURITIES, INC.
By /s/ Christopher S. Johnson
------------------------------
Name:
Title:
THE CHASE MANHATTAN BANK
By /s/ James G. Rolison
------------------------------
Name:
Title:
Agreed to and Accepted this
23rd day of May, 1997
PATRIOT AMERICAN HOSPITALITY, INC.
By /s/ William W. Evans III
-----------------------------------
Name:
Title:
<PAGE>
EXHIBIT A
TERM SHEET
FOR
REVOLVING CREDIT FACILITY
(All capitalized terms used in this Term Sheet
without definition shall have the respective
meanings ascribed to them in the Commitment
to which this Term Sheet is attached.)
Co-Arrangers: PaineWebber and Chase.
Borrower
and
Guarantors: Patriot (after giving effect to the Cal Jockey/Bay Meadows
transaction) shall be the Borrower and such of the
affiliates of the Borrower as may be designated by the
Co-Arrangers shall be Guarantors, including, without
limitation, Patriot American Hospitality Partnership, L.P.,
Bay Meadows Operating Company (or its successor); provided,
however, that the foregoing structure shall be subject to
the Co-Arrangers' satisfaction therewith in connection with
due diligence; provided, further, that Guarantors shall not
include subsidiaries or other affiliates of Patriot which,
if so included, would be reasonably likely to have a
material adverse tax consequence to Patriot and/or its
affiliates.
Administrative
Agent: Chase.
Documentation
Agent: PaineWebber.
Lenders: PaineWebber, Chase and such other financial institutions as
shall be arranged by the Co-Arrangers (together with the Co-
Arrangers, the "Lenders").
Facility: Up to $700,000,000 (the "Revolving Credit Facility").
<PAGE>
Use of
Proceeds: To refinance the Original Facility and to fund (i) acquisitions
of properties, assets and businesses, investments, capital
expenditures and expenditures for furniture, fixtures and
equipment in Hospitality/Leisure-Related Businesses (to be
defined in a mutually acceptable manner, including without
limitation, with respect to the primary areas of business in
which Patriot and its affiliates will engage), and (ii) general
working capital needs. No more than $70 million of the
Revolving Credit Facility (including through the issuance of
letters of credit) may be outstanding at any one time for
working capital purposes.
Maturity
Date: Three years after the Closing Date.
Amortization: None.
Voluntary
Prepayment: The loans outstanding under the Revolving Credit Facility may
be prepaid at any time, subject to the Borrower's payment of
applicable breakage costs for LIBOR loans.
Interest
Rate and
Unused
Facility Fees: The monthly per annum interest rates and quarterly Unused
Facility fees (all payable in arrears) applicable to the
Revolving Credit Facility will be determined based on
quarterly tests and set for the quarter following each such
quarterly test as described below:
a) If the LTVR (hereinafter defined) is less than 35%:
Base Rate = Base Rate plus 0.0%
LIBOR Rate = LIBOR Rate plus 1.5%
Unused Facility
Fee = 0.20% on the unused portion of the
Revolving Credit Facility
-2-
<PAGE>
b) if the LTVR is equal to or greater than 35% but less than
45%:
Base Rate = Base Rate plus 0.20%
LIBOR Rate = LIBOR Rate plus 1.70%
Unused Facility
Fee = 0.25% on the unused portion of the Restated
Revolving Credit
c) If the LTVR if equal to or greater than 45% but less than
50%:
Base Rate = Base Rate plus 0.35%
LIBOR Rate = LIBOR Rate plus 1.85%
Unused Facility
Fee = 0.30% on the unused portion of the
Restated Revolving Credit
d) If the LTVR is equal to or greater than 50% but less than
55%:
Base Rate = Base Rate plus 0.50%
LIBOR Rate = LIBOR Rate plus 2.00%
Unused Facility
Fee = 0.35% on the unused portion of the Restated
Revolving Credit
"LTVR" when used herein shall mean the leverage ratio at the
end of any trailing four quarter period of (x) Total
Outstanding Indebtedness (as defined below) to (y) Total Value
(as defined below).
Should the Borrower's long-term unsecured indebtedness receive
and maintain from Standard and Poors ("S&P") or Moody's Ratings
Services ("Moody's") any of the following long-term unsecured
indebtedness ratings described below, the spreads that
correspond to such rating shall apply in lieu of the spreads
described above regardless of leverage ratio (with
corresponding adjustments to the spreads for Base Rate loans)
subject to adjustment from time to time to reflect any change
in the ratings. If the ratings are not equivalent, the higher
rating will apply. If
-3-
<PAGE>
the ratings are two or more levels apart, the interest rate
spread and Unused Facility Fee will be based on the rating
which is one level below the higher rating.
Unused
------
S&P/Moody's Spread Over Facility
----------- ----------- --------
Unsecured Debt Rating LIBOR Fee
--------------------- ----- ---
BBB-/Baa3 137.5 bps 20
BBB/Baa2 125 bps 15
BBB+/Baa1 112.5 bps 15
A-/A3 or better 100 bps 12.5
L/C Issuer: Chase.
L/C Facing Fee: 0.125% per annum, payable quarterly in arrears, for the account
of the Administrative Agent on the average daily undrawn amount
of issued letters of credit.
L/C Fee: A letter of credit fee in an amount equal to the then-current
LIBOR Spread will be payable quarterly in arrears on the
average daily undrawn amount of issued letters of credit.
Drawings Under
Letters of
Credit: Any drawing under issued letters of credit shall be deemed to
constitute an advance under the Revolving Credit Facility and
shall be subject to all terms hereof.
Availability: Availability under the Revolving Credit Facility shall not
exceed 55% of Unencumbered Value prior to the first anniversary
of the Closing Date and 50% thereafter.
Unencumbered Value is defined as:
(i) For Eligible Properties owned by Patriot or any Guarantor
for at least four quarters as of any test date, aggregate
trailing four quarter Adjusted NOI (as defined below)
capitalized at 10%; plus
-4-
<PAGE>
(ii) For Eligible Properties owned by Patriot or any Guarantor for
less than four quarters, or hotels meeting the refurbishment
test described below (and subject to such test), in each case
as of any test date, 95% of undepreciated cost basis; plus
(iii) Eligible Service Fee Revenue multiplied by 3.5.
Eligible Properties are defined as those hotel properties that each
meet the following criteria:
(i) Wholly-owned by the Borrower or any Guarantor or owned in
joint ventures in which the Borrower or any Guarantor has at
least a 50% equity interest, is the managing general partner
or equivalent for the equity and has the ability in its sole
discretion to encumber the asset;
(ii) No associated mortgage liens, springing liens or prohibited
negative pledges;
(iii) Free of all material structural and title defects, as
represented by the Borrower;
(iv) Materially free of environmentally hazardous materials, as
represented by the Borrower;
(v) Fully operating with less than 20% of keys out of service as
of the test date due to a casualty; and
(vi) Operating free of material construction of structural
renovation (other than subject to refurbishing otherwise
covered below).
Adjusted NOI is defined as aggregate net operating income (including
arising from retail operations and golf resort related income)
received by the Borrower or any Guarantor (subject to third party
leases where applicable), and net of the greater of (x) a 3%
management fee, a 7% franchise and marketing fee, and (y) actual
management, franchise and marketing fees, and net of all other
recurring fixed and variable property-specific expenses to the
extent not already deducted from NOI in all cases as
-5-
<PAGE>
verified by audited financial statements, less a deduction for
FF&E equal to 4% of gross hotel operating revenues.
Eligible Service Fee Revenue is defined as fee revenues
received by the Borrower or any Guarantor from management and
franchise agreements, and time share agreements, (including
from properties owned, managed and franchised by Patriot),
which are not subject to any liens, collateral assignments,
negative pledges or restrictions prohibiting the same. Eligible
Service Fee Revenue for Patriot-owned assets managed or
franchised by Wyndham shall be at the lesser of (x) actual
contract rates or (y) market rates, and under contracts to be
mutually agreed upon by Patriot and the Co-Arrangers.
In determining Availability (see above) and Total Value (see
Financial Covenants below), at the Borrower's election,
new/recent hotel property acquisitions which will experience a
disruption in hotel operations due to refurbishment may be
valued at 95% of the Borrower's or its affiliate's total
undepreciated cost (including cost of renovations made) for a
maximum of six fiscal quarters; provided, however, that hotels
valued at 95% of cost pursuant to this paragraph will be
limited in the aggregate to an amount equal to 15% of
Unencumbered Value at any one time, and provided further than
such hotels must be continuously operating with at least 55% of
rooms in service at all times. At closing of the Revolving
Credit Facility existing hotels to be valued in this manner
will be listed on a schedule to the Credit Agreement therefor.
For acquisitions occurring after the closing of the Revolving
Credit Facility, the Borrower must elect the cost basis
valuation methodology within the first four quarters following
the acquisition date, subject to the limitations described
herein.
LIBOR
Options: One, two, three or six months, not to extend beyond the
Maturity Date of the Revolving Credit Facility.
Voluntary
Commitment
-6-
<PAGE>
Reduction: Permanent reductions in the unutilized portion of the Revolving
Credit Facility may be made at any time at the Borrower's
election without premium or penalty.
Conditions to
Closing and to
Advances: Usual and customary for an amendment of this type and as
appropriate for this particular transaction (as reasonably
determined by PaineWebber), including, without limitation, the
following: (i) as to the Closing Date, satisfaction with all
documentation for the Revolving Credit Facility, receipt of all
necessary third party approvals and consents, opinions, payment
of fees, and those conditions otherwise described herein and in
the Commitment and (ii) as to each advance, no matured or
unmatured default and no material adverse change, and all
representations and warranties of the Borrower and the
Guarantors being true and correct in all material respects as
of the date of such advance.
Cal Jockey: The business combination of Patriot and its affiliates with the
California Jockey Club, Bay Meadows Operating Company and their
respective affiliates resulting in a paired REIT structure
shall not be a condition precedent to the Closing Date. If the
Cal Jockey combination described above has not occurred on or
prior to the Closing Date, either Co-Arranger may require the
Borrower and the Guarantors to provide customary mortgages and
security interests similar in scope to the definition of
collateral described in the Term Sheet on Exhibit B on all of
their real property.
Wyndham
Acquisition: The acquisition of Wyndham Hotel shall be permitted
substantially on the basis described to the Co-Arrangers prior
to the Closing Date.
Release of
Collateral: The liens, security interests, mortgages and the like on
collateral currently securing the Original Facility will be
released on the Closing Date.
-7-
<PAGE>
No Exclusivity: The documents for the Revolving Credit Facility shall not
contain exclusivity and rights of first refusal provisions.
Recourse: Full recourse to the Borrowers and the Guarantors.
Security: None.
No Other Negative
Pledges: Neither the Borrower nor any Guarantor shall agree to any
restriction which would prohibit the granting of liens or
security interests on unencumbered properties.
No Joint
Venture: Nothing contained herein will constitute the Lenders or any of
their respective affiliates or any of the Borrowers or any of
the Guarantors or their respective affiliates as members of any
partnership, joint venture, association or other entity or be
construed to impose any liability as such on the Lenders or
their respective affiliates.
Documentation: All documentation required by this Term Sheet or otherwise
deemed necessary or desirable by the Co-Arrangers in connection
with the Revolving Credit Facility, including, without
limitation, opinions of legal counsel in all relevant
jurisdictions and financial reporting documentation, shall be
duly executed, delivered and/or procured, as applicable, and
shall, in each instance, be satisfactory in form and substance
to the Co-Arrangers and the Borrower.
Covenants: It is understood that the Borrower and the Guarantors own, or
may acquire, interests in certain joint venture properties.
Accordingly, unless specified otherwise, the various
definitions referring to EBITDA, NOI, and Indebtedness used in
the following covenants (and in "Availability" above) are
intended to include such entities pro rata interest in such
joint ventures.
Financial covenants and other covenants to be calculated based
on the combined audited financial statements of the entities
comprising the Borrowers and Guarantors, adjusted as described
above (unless specifically referenced otherwise herein) to
reflect such entities pro rata interest in joint ventures.
Compliance with
-8-
<PAGE>
covenants shall be re-certified by an officer of the Borrower
at each borrowing as of the end of the prior month and
calculated no less frequently than quarterly.
1. Limitation on Total Outstanding Indebtedness (Leverage
------------------------------------------------------
Ratio)
-----
Total Outstanding Indebtedness shall not exceed 55% of
Total Value prior to the first anniversary or the Closing
Date and 50% thereafter.
Total Outstanding Indebtedness is defined as total
consolidated secured and unsecured debt of the Borrower
and its consolidated subsidiaries outstanding as of the
test date.
Total Value, subject to limitations set forth under
Investment Restrictions, is defined as the sum of:
(i) For hotel properties owned by Patriot or any
Guarantor for at least four quarters as of any
test date, aggregate trailing four quarter
Adjusted NOI capitalized at 10%; plus
(ii) For hotels owned by Patriot or any Guarantor for
less than four quarters, or hotels meeting the
refurbishment test described above (and subject to
such test), in each case as of any test date, 95%
of undepreciated cost basis; plus
(iii) Total Service Fee Revenue multiplied by 3.5; plus
(iv) Available cash or cash equivalents; plus
(v) Mortgage Notes at 95% of acquisition cost.
Total Service Fee Revenue is defined as fee revenues
received by the Borrower or any Guarantor from management
and franchise agreements. Total Service Fee Revenue for
Patriot-owned assets managed or franchised by Wyndham
shall be at the lower of (x) actual contract rate and (y)
market rates and pursuant to contracts to be mutually
agreed upon by Patriot and the Co-Arrangers.
2. Limitation on Secured Indebtedness
----------------------------------
Total Outstanding Secured Indebtedness shall not exceed
35% of Total Value.
-9-
<PAGE>
Total Outstanding Secured Indebtedness is defined as total
consolidated debt of the Borrower and its consolidated
subsidiaries outstanding as of the test date which is secured or
collateralized by any asset of the Borrower, its subsidiaries or
any Guarantors.
3. Limitation on Recourse Secured Indebtedness
-------------------------------------------
Recourse Secured Indebtedness shall not exceed the lesser of 10%
of Total Value or $250,000,000. Further, in no event shall the
Borrower, its subsidiaries or any Guarantor incur Recourse Secured
Indebtedness on any asset where the loan to value ratio with
respect thereto is 65% of greater based on appraised value.
Recourse Secured Indebtedness is defined as Total Outstanding
Secured Indebtedness, all or a portion of which the Borrower or
Guarantor guarantees or for which recourse can be made against the
Borrower or Guarantor, other than for customary carve-outs in non-
recourse financings.
4. Minimum Interest Coverage Ratio
-------------------------------
The Borrower shall maintain a quarterly minimum ratio of Adjusted
EBITDA to Total Interest Expense of 2.0 to 1 prior to the first
anniversary of the Closing Date and 2.25 to 1 thereafter, tested
using trailing four quarters results.
Total Interest Expense is defined as interest expense on Total
Outstanding Indebtedness (accrued, paid and capitalized during the
relevant period).
Adjusted EBITDA is defined as total EBITDA of the Borrower less a
deduction for FF&E equal to 4% of gross hotel operating revenues.
5. Minimum Unsecured Interest Coverage Ratio
-----------------------------------------
The Borrower shall maintain a quarterly minimum ratio of the sum
of Adjusted Actual NOI from Eligible Properties plus Eligible
Service EBITDA to Unsecured Interest Expense of 2.0 to 1 prior to
the first anniversary
-10-
<PAGE>
of the Closing Date and 2.25 to 1 thereafter, tested
using trailing four quarters results.
Adjusted Actual NOI is defined as aggregate net operating
income (net of actual management and franchise fees and
all other recurring fixed and variable property-specific
expenses to the extent not already deducted from NOI)
less a deduction for FF&E equal to 4% of gross hotel
operating revenues for Eligible Properties.
Eligible Service EBITDA is defined as actual EBITDA from
management and franchise agreements which are not subject
to any liens, collateral assignments, negative pledges or
restrictions prohibiting the pledge of revenues
therefrom.
Unsecured Interest Expense is defined as Total Interest
Expenses on all unsecured indebtedness.
6. Minimum Fixed Charge Coverage Ratio
-----------------------------------
The Borrower shall maintain a quarterly minimum ratio of
Adjusted EBITDA to Fixed Charges of 2.0 to 1, tested
using trailing four quarters results.
Fixed Charges shall be defined as the sum of Total
Interest Expense plus scheduled principal amortization
(excluding balloon payments due at maturity) on Total
Outstanding Indebtedness, plus preferred stock dividends.
7. Minimum Tangible Net Worth
--------------------------
Tangible Net Worth (as defined by GAAP) shall not be less
than the Minimum Tangible Net Worth.
Minimum Tangible Net Worth is defined as 85% of the
Tangible Net Worth at closing plus 85% of future equity
offering proceeds or issuance of stock, stock equivalents
or operating partnership units.
8. Maximum Dividend Payout Ratio
-----------------------------
-11-
<PAGE>
The Borrower shall not make common and preferred dividend
distributions, on a trailing four quarters basis, in
excess of the greater of:
(i) 90% of Funds From Operations ("FFO") and 100% of
Funds Available for Distribution ("FAD"); or
(ii) the minimum amount necessary to maintain tax status
as a REIT.
FFO shall be calculated based on the new NAREIT
definition. FAD shall be defined as FFO less a deduction
for FF&E equal to 4% of gross hotel operating revenues.
Certain Other
Covenants: Sale Encumbrances or Transfer
-----------------------------
Prior to any sale, encumbrance or transfer of any
property (including any partnership or other ownership
interest), the Borrower will notify the Administrative
Agent and provide a certification of compliance with all
loan covenants on a historical and prospective basis. If
a proposed transaction would result in a failure to
comply with any loan covenant, proceeds of such
transaction must first be applied to reduce outstandings
under the Revolving Credit Facility to a level that
results in compliance with all loan covenants.
Investment Restrictions
-----------------------
The Borrower and its subsidiaries and affiliates shall be
limited to engaging in Hospitality/Leisure-Related
Businesses as described above. Investments by the
Borrower and the Guarantors in the following, measured as
a percentage of Total Value, will be limited as follows:
Maximum
Percentage of
Total Value
-----------
(a) Joint Ventures 15%
(b) Mortgage Notes 7.5%
(c) Limited Service or Extended Stay Hotels 15%
-12-
<PAGE>
(d) Non-U.S. Hotels 15%
(e) Independent Hotels (to be defined) 10%
(f) Land and New Construction 15%
provided, however, that the sum of (d) and (e) shall not exceed 20% of
Total Value.
In addition to the investments permitted above, the Borrower and the
Guarantors may make loans to or equity investments in unconsolidated
joint ventures ("Unconsolidated Investments") in amounts which in the
aggregate do not exceed 10% of Total Value.
At the request of Borrower and if the following conditions are met:
(i) the maximum loss of Borrower and the Guarantors is limited to the
amount of the Unconsolidated Investment; and
(ii) any other indebtedness of the unconsolidated joint venture is
completely non-recourse to the Borrower of the Guarantors;
then the Unconsolidated Investment itself and the assets associated
therewith shall not be included in the calculation of Total Value, nor
shall the indebtedness associated therewith be included in the calculation
of Total Outstanding, Indebtedness or Total Outstanding Secured
Indebtedness. NOI and/or EBITDA associated with such Unconsolidated
Investments shall be excluded from the calculation of Minimum Interest
Coverage and Minimum Unsecured Interest Coverage.
Additional Covenants
--------------------
Such additional customary and appropriate negative and affirmative
covenants as the Co-Arrangers shall reasonably require including, without
limitation, additional covenants regarding: maintenance of REIT status:
maintenance of the properties and the FF&E;
-13-
<PAGE>
maintenance of corporate and partnership existence;
limitation on changes in operations or control;
compliance with laws; payment of taxes, insurance and
other obligations, furnishing of financial statements and
reports; notices of material changes, defaults and
litigation.
Events of Default: Customary for facilities of the type, including but not
limited to the following:
. The Revolving Credit Facility will be cross defaulted to
any indebtedness of the Borrower, its subsidiaries or any
Guarantor in excess of $10,000,000.
. Violation of covenants.
. Change of Control (to be defined).
. Monetary default in payment of principal, interest, or
other amounts.
. Breaches of representations and warranties.
. Bankruptcy and other events of insolvency.
. Aggregate money judgments, not adequately insured, in
excess of $3.75 million which remain undischarged,
unbonded for a period of 60 days.
. In the case of a merger, if the Borrower is not the
surviving entity and does not control the Board of
Directors.
Financial Reporting,
Representations,
Warranties,
Conditions Precedent,
Covenants: Customary and appropriate, to be reasonably acceptable to
the Co-Arrangers and its counsel and the Borrower and its
counsel.
Counsel to
Co-Arrangers: White & Case.
-14-
<PAGE>
Governing Law: New York
-15-
<PAGE>
EXHIBIT B
---------
TERM SHEET
FOR
TERM LOAN
(All capitalized terms used in this Term Sheet without
definition shall have the respective meanings
ascribed to them in the Commitment to which
this Term Sheet is attached.)
Borrower: A newly created, bankruptcy remote, single purpose entity
organized for the purpose of owning the Properties (hereinafter
defined) and meeting all applicable Securitization Requirements
(hereinafter defined) for a Securitization (hereinafter defined)
and otherwise reasonably satisfactory to the Lenders (hereinafter
defined) in all respects.
Lenders: PaineWebber Real Estate Investments, Inc. ("PWREI") or one of its
affiliates, as determined by PWREI (such entity, "PaineWebber"),
and The Chase Manhattan Bank ("Chase Bank") or one of its
affiliates, as determined by Chase Bank (such entity, "Chase",
and, together with PaineWebber, and their respective successors
and assigns as holders of the Term Loan, collectively, the
"Lenders").
Agents: PaineWebber and Chase shall be co-lead agents for the Term Loan,
including the Securitization thereof. PaineWebber shall be on the
left in any offering materials relating to a sale of interests in
the Term Loan and in any offering of securities in the
Securitization. PaineWebber shall be the sole bookrunning manager.
Term Loan: A term loan in the original principal amount of $500,000,000 (the
"Term Loan").
Use of
Proceeds: The proceeds of the Term Loan shall be used (i) to finance a pool
of hotel assets that satisfy the credit underwriting parameters
for the Term Loan as set forth herein and are otherwise
satisfactory to the Lenders (the "Properties") and which
Properties shall be mutually agreed upon by the parties not later
than the 15th day following the date of the
<PAGE>
Commitment (subject to the Section of this Term Sheet entitled
"Credit Underwriting"), and (ii) to pay certain costs and
expenses incurred in connection with such financing as approved
by the Lenders.
Maturity: The Term Loan will mature on the interest payment date
immediately following the date which is 60 months following the
funding date of the Term Loan.
Availability: The commitment of each Lender to make its pro rata portion of
the Term Loan available to the Borrower will terminate if the
Term Loan has not been funded by December 7, 1997.
Funding: Subject to the satisfaction of all conditions set forth in the
Commitment, this Term Sheet and the documentation for the Term
Loan, including, without limitation, (i) the closing and
initial funding of the Revolving Credit Facility, (ii) the
closing of the business combination of Patriot and its
affiliates with the California Jockey Club, Bay Meadows
Operating Company and their respective affiliates resulting in
a paired REIT structure substantially on the basis described to
and approved by the Lenders prior to the initial funding of the
Term Loan, (iii) verification by the Lenders in their sole
discretion that the loan-to-value ratio of the Properties after
giving effect to the funding of the Term Loan will not be
greater than 70%, based upon the 1996 actual EBITDA for the
Properties (net of 3% management and 7% franchise and marketing
fees), adjusted for a 5.0% reserve for FF&E and then
capitalized at a rate equal to 11.0% per annum and (iv)
verification by the Lenders in their sole discretion that the
debt service coverage ratio of the Properties after giving
effect to the funding of the Term Loan will not be less than
1.35x, based upon the 1996 actual EBITDA for the Properties
(net of 3% management and 7% franchise and marketing fees),
adjusted for a 5.0% reserve for FF&E, utilizing an assumed debt
constant of 11.0%. The Term Loan will be advanced on one
funding date.
Amortization: The Term Loan will amortize monthly in accordance with a
25-year amortization schedule.
Interest Rate: The Term Loan will bear interest at a rate per annum equal to
one-month LIBOR plus 1.75%. Interest will be payable monthly in
arrears and will be calculated on an actual/360 day basis.
-2-
<PAGE>
Interest Rate
protection: The Borrower will be required to procure interest rate
protection from a provider rated not less than A2 by Moody's
and A by Standard & Poors (or, if a Securitization of the Term
Loan is implemented, rated by such rating agencies at levels
not less than one level below the rating of the highest rated
debt securities in the Securitization), which caps its exposure
to increases in LIBOR to a level where one-month LIBOR plus the
weighted average spread applicable to all portions of the Term
Loan and amortization do not exceed 10.48%, pursuant to
documentation reasonably satisfactory to the Lenders.
Collateral: The collateral securing the Term Loan shall include the
following (collectively, the "Collateral"):
(i) first priority mortgages and assignments of leases and
rents in respect of the Properties;
(ii) assignments of the Borrower's, and to the extent
assignable, the relevant lessees', interest in all maintenance
and service contracts relating to the Properties and all
licenses and permits relating to the Properties (to the extent
assignable), and assignments and subordinations of all
franchise agreements and management agreements relating to the
Properties with affiliates of the Borrower and to the extent
possible with unaffiliated franchisors or managers, failing
which the Borrower shall deliver comfort letters from such
unaffiliated franchisors and managers meeting rating agency
requirements and otherwise reasonably satisfactory to the
Lenders;
(iii) subject to Securitization Requirements, mortgagee title
insurance policies and surveys reasonably satisfactory to the
Lenders relating to the Properties with endorsements
(including, if available, tie-in and cluster endorsements),
sublimits and coverage limitations reasonably determined by the
Lenders;
(iv) casualty and liability insurance reasonably satisfactory
to the Lenders and meeting all applicable Securitization
Requirements, naming the Lenders as additional insureds;
(v) first priority security interests in all personal
property (including FF&E) relating to the Properties, subject
to the rights of unaffiliated lessees and property managers;
-3-
<PAGE>
(vi) first priority security interests in the interest rate
protection procured by the Borrower pursuant hereto; and
(vii) the Cash Collateral Account (hereinafter defined).
Cross-Default: The Term Loan will be cross-defaulted to the Revolving Credit
Facility; provided, that the election of the Lenders in their
sole discretion, such cross-default may be deleted from the
documentation for the Term Loan at any time.
Non-Recourse: The Term Loan will be a non-recourse obligation of the
Borrower, except for carve-outs customary for real estate
secured financings of this type, including without limitation,
fraud, misapplication of proceeds, illegal acts and
environmental matters.
Financial
Reporting,
Representations,
Warranties,
Conditions
Precedent and
Covenants: As specified herein and in the Commitment, and otherwise as are
customary for real estate secured financings of this type and
reasonably acceptable to the Lenders and the Borrower.
Change of
Control: Permitted on the same terms and conditions currently contained
in the Original Facility (modified to reflect the paired share
structure); provided that if a Securitization of the Term Loan
is implemented, the change in control restrictions shall be
modified to reflect the then-current Securitization
Requirements.
Escrows and
Reserves: The Borrower will be required to escrow amounts for debt
service payments on the Term Loan (in an amount equal to one
month of debt service, assuming an interest rate of 10.48% were
applicable to the Term Loan), and (i) if a Securitization of
the Term Loan is implemented, other reserves for taxes,
insurance premiums, capital expenditures, FF&E and
engineering/structural and environmental remediation, based on
independent third party reports where appropriate, and to avoid
any deterioration in subordination levels in
-4-
<PAGE>
the Securitization, or (ii) if a Securitization of the Term Loan
is not implemented and if reasonably required by the Lenders, (a)
an FF&E reserve equal to up to 4% of projected hotel operating
revenues, (b) reserves for capital expenditures, (c) reserves for
correction of deferred maintenance and (d) reserves for completion
of required environmental remediation. Such escrows shall be
collaterally assigned to secure the Term Loan.
Cash Collateral
Account: Cash Collateral Account. As collateral security for the Term Loan,
-----------------------
the Borrower will be required to establish a cash collateral
account (the "Cash Collateral Account") under the sole dominion
and control of the Lenders into which will be deposited (subject
to the rights of unaffiliated lessors and managers, to the extent
applicable) (i) all income, revenues and fees payable to the
Borrower and/or its affiliates in respect of the Properties (the
"Income"), (ii) all proceeds (net of reasonable and customary fees
and expenses payable to third parties and affiliates of the
Borrower, provided that any such fees and expenses payable to
affiliates of the Borrower shall not exceed those which would be
payable to a third party in an arm's length transaction) of the
sale or refinancing (a "Capital Event") of any Property which are
to be received by Patriot or any of its affiliates, including,
without limitation, the Borrower ("Capital Event Proceeds"), and
(iii) all insurance proceeds and condemnation awards (net of
reasonable and customary costs of collection) relating to a
casualty at, or condemnation of, any Property which are to be
received by Patriot or any of its affiliates, including, without
limitation, the Borrower ("Loss Proceeds").
The funds in the Cash Collateral Account shall be released to the
Borrower, provided that if either (x) an Event of Default occurs,
or (y) the actual debt service coverage ratio of the Properties
for any trailing 12 month period is less than 1.35%, the Income on
deposit from time to time in the Cash Collateral Account will
thereafter be applied as follows:
first, the Income will be applied to the payment of interest and
-----
amortization due in respect of the Term Loan;
second, the Income will be applied to the funding of any required
------
reserves for real estate taxes and/or insurance premiums relating
to the Properties:
-5-
<PAGE>
third, the Borrower will be entitled to requisition on a
-----
monthly basis portions of the Income to pay approved operating
expenses relating to the Properties, such requisitions to be
made based upon annual budgets for such Properties which have
been approved by the Lenders;
fourth, the Income will be applied to the funding of any
------
required reserves with respect to the Properties pursuant to
the Section of this Term Sheet entitled "Escrows and Reserves"
(other than those described in paragraph "second" above); and
fifth, the balance of the Income remaining after application
-----
pursuant to paragraphs "first" through "fourth" above, if any,
shall be released to the Borrower.
The Capital Event Proceeds on deposit in the Cash Collateral
Account shall be applied in the manner provided in the Section
of this Term Sheet entitled "Prepayments".
If Loss Proceeds are deposited in the Cash Collateral Account
as hereinabove provided and if the Borrower is permitted or
required to restore the affected Property pursuant to the
documentation for the Term Loan, such Loss Proceeds shall be
disbursed to the Borrower, from time to time, for application
to the costs of restoration of such property or improvement to
such Property as approved by the Lenders, and any balance of
such Loss Proceeds remaining after completion of such
application shall be applied in the manner provided in the
Section of this Term Sheet entitled "Prepayments". In addition,
the Loss Proceeds on deposit in the Cash Collateral Account
which are not to be applied to the restoration or improvement
of the affected Property as provided in the preceding sentence
shall be applied in the manner provided in the Section of this
Term Sheet entitled "Prepayments". There shall be no prepayment
penalty applicable to prepayments made in connection with a
casualty or condemnation unless otherwise required in
connection with a casualty or condemnation affecting
substantially all of a Property in order to comply with
Securitization Requirements in connection with the
Securitization.
Upon the occurrence and during the continuance of a default,
the Lender shall have no obligation to make disbursements to
the Borrower from Cash Collateral Account and shall have all
rights and remedies
-6-
<PAGE>
afforded to a secured creditor at law or in equity in respect
of the Cash Collateral Account and the amounts on deposit
therein.
Prepayment: Voluntary Prepayments. Voluntary prepayments will not be
---------------------
permitted in respect of the Term Loan during the first 21
months of its term (the "Lock-Out Period"); provided, that if
the Lenders notify the Borrower in writing that they do not
intend to effect a Securitization, then from and after the
Lenders' delivery of such notice and their receipt of the
fees payable pursuant to paragraph (ii)(y) of the Fee Letter,
the Lock-Out Period will no longer be effective. Following
expiration of the Lock-Out Period (if applicable) and subject
to the paragraph contained in this Section entitled
"Prepayment Requirements", the Term Loan may be voluntarily
prepaid, in whole or in part, on any interest payment date,
upon not less than 15 days prior written notice to the
Lenders.
Capital Events. The Borrower shall not be permitted to sell
--------------
or refinance any of the Properties or any interest therein
during the Lock-Out Period. If a Capital Event occurs in
respect of a Property, the Borrowers shall comply with the
provisions of this Term Sheet entitled "Release of
Prospectus".
Casualty and Condemnation: In the event of a casualty or
-------------------------
condemnation in respect of a Property (whether occurring
before or after expiration of the Lock-Out Period, if
applicable) and if the Borrower is not permitted or required
to restore the affected Property pursuant to the terms of the
documents for the Term Loan (any such casualty or
condemnation, a "Major Loss"), the Loss Proceeds relating to
such Major Loss shall be applied to the mandatory prepayment
of the Term Loan. The Borrower's obligations in connection
with the occurrence of a casualty or condemnation in respect
of a Property shall satisfy all applicable Securitization
Requirements in the event of a Securitization.
Prepayment Requirements. Any prepayment of the Term Loan,
-----------------------
whether voluntary or mandatory, shall be made on an interest
payment date and shall be accompanied by all interest and
amortization then due in respect of the Term Loan and, if
such prepayment is made during months 22 through 33,
inclusive, of the Term Loan, a prepayment premium equal to
0.5% of the principal amount of the Term Loan being prepaid;
provided, that if the Lenders notify the Borrower in writing
that they do not intend to effect a Securitization, then from
and
-7-
<PAGE>
after the Lenders' delivery of such notice and their receipt of
the fees payable pursuant to paragraph (ii)(y) of the Fee
Letter, such prepayment premium will no longer be effective.
Release of
Properties: The Borrower will not be permitted to sell or refinance any of
the Properties during the Lock-Out Period, if applicable.
Provided that no default then exists under the Term Loan, the
Borrower will have the right, on any interest payment date
(following expiration of the Lock-out Period, if applicable) in
connection with a sale or refinancing of a Property, to obtain
a release of such Property (in whole but not in part) from the
liens of the mortgage and other security documents thereon,
provided that at the time of such release certain conditions to
be specified in the documents for the Term Loan are satisfied,
including, without limitation, (i) prepayment of the Term Loan
in an amount equal to 125% of the portion of the Term Loan
allocated by the Lenders to such Property and (ii) maintenance
of a portfolio debt service coverage ratio at levels consistent
with the greater of (x) the debt service coverage ratio
existing on the funding date of the Term Loan and (y) the debt
service coverage ratio existing immediately prior to such
release, in either case, assuming a fixed constant of 10.48%.
The allocation of the Term Loan among the Properties shall be
determined by the Lenders upon completion of their due
diligence and underwriting review and shall be set forth in the
documentation for the Term Loan.
In addition to the foregoing, in the event of a Major Loss
(whether occurring before or after expiration of the Lock-out
Period, if applicable), the Borrower shall have the right to
obtain a release of the affected Property (in whole but not in
part) from the liens of the mortgage and other security
documents thereon, provided that at the time of such release
the Borrower complies with the conditions for release of a
Property specified in subparagraph (ii) of the preceding
paragraph.
Substitution
of Properties: Subject to the maintenance of portfolio level debt service
coverage and loan-to-value ratios at the levels existing
immediately prior to the substitution, the Borrower will be
permitted to release and substitute up to a limited amount of
Properties within the pool, provided that the Borrower: (i) is
not then in default; (ii) substitutes the released Properties
with Properties that are of equal or greater value and meet
-8-
<PAGE>
other criteria (e.g., satisfactory environmental and
----
engineering reports) acceptable to the Lenders and, if a
Securitization is effected, the rating agencies involved in the
Securitization; and (iii) if a Securitization is effected,
provides reaffirmation of then-current ratings from the Rating
Agencies involved in the Securitization.
Trustee and
Servicer: If a Securitization is effected as contemplated herein and in
the Commitment, a trustee and a servicer acceptable to the
Rating Agencies will be designated by the Lenders and the
Borrower. The trustee will administer the terms of a Trust
Agreement and a Pooling & Servicing Agreement for the benefit
of the certificateholders. The servicer will service the Term
Loan and will make certain advances in the event of a default
by the Borrower. The Lenders will be responsible for the fees
and expenses of the trustee and the servicer.
Additional
Financing: No additional indebtedness may be incurred by the Borrower
prior to satisfaction in full of all obligations in respect of
the Term Loan.
Assignments: The Borrower may not assign its rights or obligations in
respect of the Term Loan without the prior written consent of
the holder of the Term Loan.
Securitization
Transaction: The Lenders may elect to effect a Securitization of the Term
Loan, and Patriot, the Borrower and their respective partners
and affiliates shall, prior to and from and after the closing
of the Term Loan, cooperate in good faith with the Lenders to
effect a Securitization of the Term Loan, and Patriot, the
Borrower and their respective general partner(s) or officers,
as applicable, shall execute and deliver all documentation and
take all action deemed necessary or desirable by the Lenders
(including, without limitation, the execution and delivery of
amendments to all or any of the documents for the Term Loan
and/or the restatement of all or any of the documents for the
Term Loan) for the implementation of any such Securitization
and the issuance and registration of securities in connection
therewith pursuant to the Securities Act of 1933 (such
transactions being herein referred to as the "Securitization";
if being understood and agreed that the Lenders intend to
effect a Securitization wherein (i) the debt securities having
the highest rating are rated not less than AA (or equivalent)
by the Rating
-9-
<PAGE>
Agencies, (ii) the debt securities having the lowest rating may
be unrated, and (iii) there may be a preferred equity and/or
subordinate debt component, at the Lenders' discretion (and
Patriot, the Borrower and Patriot's other affiliates will take
(or refrain from taking, as the case may be) all actions
necessary to avoid any deterioration in the subordination
levels in the Securitization); and (x) all references in this
Term Sheet to "Securitization Requirements" shall be deemed to
refer to those requirements that the Lenders determine will
result in the foregoing ratings being attributed to the debt
securities in the Securitization and (y) all references in this
Term Sheet to "Rating Agencies" shall be deemed to refer to one
or more of Moody's Investors Service, Standard & Poors, Duff &
Phelps and Fitch Investors Service, as determined by the
Lenders in their sole discretion), including, without
limitation, in connection with the preparation, completion,
execution and delivery (including as issuer and/or registrant,
if applicable) of all necessary registration statements,
prospectuses and/or private placement memoranda and the
implementation of all Securitization Requirements in connection
with the Securitization, so long as the implementation of such
Securitization Requirements and/or any amendments to the
documents for the Term Loan and/or any such documentation
executed and delivered in connection with the Securitization
shall not (except as otherwise provided in this Term Sheet) (x)
materially diminish the rights of the Borrower, (y) materially
increase the Borrower's costs or obligations or (z) change or
affect in a manner adverse to the Borrower (i) the interest
rates applicable to the Term Loan, (ii) the stated maturity of
the Term Loan, (iii) the amortization applicable to the Term
Loan, (iv) fees owed in connection with the Term Loan, (v) the
collateral security requirements in this Term Sheet, (vi)
prepayment requirements for the Term Loan, (vii) the priority
of application of funds on deposit in any cash collateral
accounts required in this Term Sheet and (viii) financial
covenants set forth in this Term Sheet.
Patriot agrees to coordinate any other financings (which for
purposes of this paragraph shall not include equity offerings
or purchase money mortgage financings) by it or any of its
subsidiaries or affiliates with the Securitization of the Term
Loan and (i) with respect to the investment grade bonds, to
refrain from any such financings for a period of three weeks
commencing when the Lenders provide the Borrower prior written
notice of their intention to commence Securitization efforts,
and (ii) with respect to the junior bonds, to
-10-
<PAGE>
refrain from any such financings with customary purchasers of
junior bonds for a period of eight weeks commencing when the
Lenders provide the Borrower prior written notice of their
intention to commence Securitization efforts. The restrictions set
forth in this paragraph shall not be applicable if the Lenders
have not notified the Borrower in writing of their intention to
commence Securitization by March 31, 1998.
Patriot, the Borrower and their respective partners, officers and
affiliates shall have a reasonable right of approval with respect
to the accuracy of factual statements and/or the materiality of
factual omissions contained in any registration statement,
prospectus or private placement memorandum filed in connection
with the Securitization or any syndication of the Term Loan.
Credit
Underwriting: Each Lender shall approve in its sole discretion (and it, its
counsel and other experts shall be afforded sufficient time and
information to review) all matters which it considers relevant to
the transactions contemplated hereby, including, without
limitation, the organizational documents and financial statements
of Patriot, the Borrower, any other relevant affiliates of Patriot
and the Collateral and all title matters and other diligence
relating to the Properties, including, without limitation,
insurance policies, environmental and engineering reports, leases,
management agreements and other property-related documents,
appraisal reports, site inspections and NOI audits. The Lenders
will use reasonable efforts to use information heretofore provided
to them by Patriot in connection with their due diligence review,
to the extent the Lenders reasonably determine that such
information is satisfactory for their purposes; provided, that the
Borrower shall provide to the Lenders current financial statements
for the Borrower and the Properties, as well as third-party
reports (or updates of existing third-party reports) dated not
more than one year prior to the Securitization of the Term Loan.
The funding of the Term Loan is contingent upon and subject to (i)
each Lender's complete satisfaction, in its sole discretion, with
the results of its due diligence review and the credit worthiness
of the Term Loan, and (ii) neither Lender discovering any
information, whether as a result of its due diligence review or
otherwise, which it reasonably believes has, or could have, a
material adverse effect on Patriot, the Borrower or any other
relevant affiliates of Patriot taken as a whole.
-11-
<PAGE>
the Collateral or any of the transactions contemplated in this
Term Sheet.
Documentation: All documentation required by this Term Sheet or otherwise
deemed necessary or desirable by the Lenders in connection with
the Term Loan, including, without limitation, opinions of legal
counsel in all relevant jurisdictions and financial reporting
documentation, shall be duly executed, delivered and/or
procured, as applicable, and shall, in each instance, be
mutually acceptable in form and substance to the Lenders,
Patriot and the Borrower.
No Joint
Venture: Nothing contained herein: (i) will constitute the Lenders or
any of their affiliates or Patriot or any of its affiliates as
members of any partnership, joint venture, association or other
separate entity; (ii) will be construed to impose any liability
as such on the Lenders, or (iii) will constitute a general or
limited agency or be deemed to confer on either party hereto
any express, implied or apparent authority to incur any
obligation or liability on behalf of the other.
Governing
Law and
Forum: New York.
-12-
<PAGE>
EXHIBIT 23.1
------------
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Selected
Financial Information" and the caption "Experts" and to the incorporation by
reference in the Registration Statement on Form S-4 and the related Joint
Proxy Statement/Prospectus of California Jockey Club, Bay Meadows Operating
Company and Patriot American Hospitality, Inc. 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 statement
schedules of Patriot American Hospitality, Inc. included in its 1996 Annual
Report on Form 10-K; (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 the 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; and (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, all filed with the
Securities and Exchange Commission.
/s/ ERNST & YOUNG LLP
Dallas, Texas
May 27, 1997
<PAGE>
EXHIBIT 23.2
------------
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Selected
Financial Information" and the caption "Experts" and to the incorporation by
reference in the Registration Statement on Form S-4 and the related Joint
Proxy Statement/Prospectus of California Jockey Club, Bay Meadows Operating
Company and Patriot American Hospitality, Inc. 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.
/s/ ERNST & YOUNG LLP
Seattle, Washington
May 27, 1997
<PAGE>
EXHIBIT 23.3
------------
CONSENT OF INDEPENDENT AUDITORS
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-4 and
the related Joint Proxy Statement/Prospectus of California Jockey Club, Bay
Meadows Operating Company and Patriot American Hospitality, Inc. 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.
/s/ ERNST & YOUNG LLP
Phoenix, Arizona
May 27, 1997
<PAGE>
EXHIBIT 23.4
------------
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the reference to our firm under the caption "Selected
Financial Information" and the caption "Experts" and to the incorporation by
reference in the Registration Statement (Form S-4) and related Joint Proxy
Statement/Prospectus of California Jockey Club, Bay Meadows Operating Company
and Patriot American Hospitality, Inc. of our report dated January 15, 1996,
on our audits of the financial statements of Certain of the Initial Hotels.
/s/ COOPERS & LYBRAND L.L.P.
Fort Lauderdale, Florida
May 27, 1997
<PAGE>
EXHIBIT 23.5
------------
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the reference to our firm under the caption "Selected
Financial Information" and the caption "Experts" and to the incorporation by
reference in the Registration Statement (Form S-4) and related Joint Proxy
Statement/Prospectus of California Jockey Club, Bay Meadows Operating Company
and Patriot American Hospitality, Inc. of our report dated January 17, 1996,
on our audit of the financial statements of Troy Hotel Investors and our
report dated February 7, 1995, on our audit of the financial statements of
Troy Park Associates.
/s/ COOPERS & LYBRAND, L.L.P.
Pittsburgh, Pennsylvania
May 27, 1997
<PAGE>
EXHIBIT 23.6
------------
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the reference to our firm under the caption "Selected
Financial Information" and the caption "Experts" and to the incorporation by
reference in the Registration Statement (Form S-4) and related Joint Proxy
Statement/Prospectus of California Jockey Club, Bay Meadows Operating Company
and Patriot American Hospitality, Inc. of our report, dated October 15, 1996,
on our audit of the Statement of Direct Revenue and Direct Operating Expenses
of the Holiday Inn Miami Airport.
/s/ COOPERS & LYBRAND L.L.P.
Dallas, Texas
May 27, 1997
<PAGE>
EXHIBIT 23.7
------------
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the reference to our firm under the caption "Selected
Financial Information" and the caption "Experts" and to the incorporation by
reference in the Registration Statement (Form S-4) and related Joint Proxy
Statement/Prospectus of California Jockey Club, Bay Meadows Operating Company
and Patriot American Hospitality, Inc. of our report dated February 17, 1997,
on our audits of the financial statements of Wyndham Hotel Corporation as of
December 31, 1996 and 1995, and for the years ended December 31, 1996, 1995
and 1994, which report appears in the December 31, 1996 annual report on
Form 10-K of Wyndham Hotel Corporation.
/s/ COOPERS & LYBRAND L.L.P.
Dallas, Texas
May 27, 1997
<PAGE>
EXHIBIT 23.8
------------
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Selected
Financial Information" and the caption "Experts" and the incorporation by
reference in the Joint Proxy Statement/Prospectus of California Jockey Club,
Bay Meadows Operating Company and Patriot American Hospitality, Inc. of our
report dated March 1, 1996 of the financial statements of Historic Hotel
Partners of Birmingham, Limited Partnership.
/s/ PANNELL KERR FORSTER PC
Alexandria, Virginia
May 27, 1997
<PAGE>
EXHIBIT 23.9
------------
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-4 and related Joint
Proxy Statement/Prospectus of California Jockey Club, Bay Meadows Operating
Company and Patriot American Hospitality, Inc. of our report 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. We
also consent to the reference to us under the heading "Experts" in such
Prospectus.
/s/ PRICE WATERHOUSE LLP
Miami, Florida
May 27, 1997
<PAGE>
EXHIBIT 23.10
-------------
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in this Registration Statement
of Bay Meadows Operating Company and California Jockey Club on Form S-4 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 Joint Proxy Statement/Prospectus, which is part of this
Registration Statement.
/s/ DELOITTE & TOUCHE LLP
San Francisco, California
May 27, 1997
<PAGE>
EXHIBIT 23.11
-------------
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our
report (and to all references to our Firm) included in or made part of this
registration statement.
/s/ Arthur Andersen LLP
Dallas, Texas
May 27, 1997
<PAGE>
Exhibit 99.3
------------
May 30, 1997
Members of the Board of Directors
California Jockey Club
2600 South Delaware Street
San Mateo, California 94403
Members of the Board of Directors
Bay Meadows Operating Company
2600 South Delaware Street
San Mateo, California 94402
Gentlemen:
We hereby consent to the inclusion of our opinion letter dated May 30,
1997 to the Board of Directors of each of California Jockey Club and Bay Meadows
Operating Company (the "Companies") regarding the Merger pursuant to (and as
defined in) the Agreement and Plan of Merger dated as of February 24, 1997, as
amended and restated as of May 28, 1997, by and among Patriot American
Hospitality, Inc. ("Patriot"), Patriot American Hospitality Partnership, L.P.
and each of the Companies, in the Joint Proxy Statement/Prospectus relating to
the Merger and the transactions related thereto which forms a part of the
Registration Statement on Form S-4 (the "Registration Statement") and to the
references therein to our firm and to our opinion under the headings "Summary,"
"Risk Factors--Different Fairness Analyses of Cal Jockey and Bay Meadows by
PaineWebber and Montgomery" and "The Merger and Subscription." In giving the
foregoing consent, we do not admit (i) that we come within the category of
persons whose consent is required under Section 7 of the Securities Act of 1933,
as amended (the "Securities Act"), or the rules and regulations of the
Securities and Exchange Commission promulgated thereunder, or (ii) that we are
experts with respect to any part of the Registration Statement within the
meaning of the term "experts" as used in the Securities Act and the rules and
regulations of the Securities and Exchange Commission promulgated thereunder.
Very truly yours,
/s/ MONTGOMERY SECURITIES
<PAGE>
Exhibit 99.4
------------
We hereby consent to the inclusion of our opinion letter dated October 29,
1996 to the Board of Directors of Patriot American Hospitality, Inc. as an Annex
to the Proxy Statement/Prospectus which forms a part of the Registration
Statement on Form S-4 relating to the proposed transactions among Patriot
American Hospitality, Inc., California Jockey Club and Bay Meadows Operating
Company; and to the references to such opinion in such Proxy
Statement/Prospectus under the captions "Summary--The Merger and Subscription -
Reasons for the Merger and the Related Transactions; Recommendations of the
Boards of Directors," "Summary--The Merger and Subscription - Opinions of
Financial Advisors," "The Merger and Subscription - Reasons for the Merger and
the Related Transactions; Recommendation of the Board of Directors of Patriot"
and "The Merger and Subscription - Opinion of Patriot's Financial Advisor." In
giving such consent, we do not admit and we disclaim that we come within the
category of persons whose consent is required under Section 7 of the Securities
Act of 1933, as amended (the "Securities Act"), or the rules and regulations
issued by the Securities and Exchange Commission thereunder, nor do we admit
that we are experts with respect to any part of such Registration Statement
within the meaning of the term "experts" as used in the Securities Act or the
rules and regulations promulgated thereunder.
PAINEWEBBER INCORPORATED
By: /s/ Terrence E. Fancher
-----------------------
Terrence E. Fancher
New York, New York
May 30, 1997
<PAGE>
Exhibit 99.5
------------
CALIFORNIA JOCKEY CLUB
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned acknowledges receipt of the Notice of the Special Meeting
of Stockholders (the "Cal Jockey Special Meeting of Stockholders") of California
Jockey Club ("Cal Jockey"), a Delaware corporation, and the accompanying Joint
Proxy Statement and Prospectus (the "Joint Proxy Statement/Prospectus"), and
revoking any proxy heretofore given hereby appoints James P. Conn, James M.
Harris and Kjell H. Qvale, or any of them, each with full power substitution, as
proxies of the undersigned, to attend the Cal Jockey Special Meeting of
Stockholders to be held at the Clubhouse of Bay Meadows Racecourse, 2600 South
Delaware Street, San Mateo, California on Tuesday, July 1, 1997, at 10:15 a.m.
(local time) and any adjournment or postponement thereof, and to vote the number
of shares the undersigned would be entitled to vote if personally present at the
meeting.
AS DESCRIBED MORE FULLY IN THE JOINT PROXY STATEMENT/PROSPECTUS, THIS
PROXY WILL BE VOTED AS SPECIFIED OR, IF NO CHOICE IS SPECIFIED, WILL BE VOTED
"FOR" THE APPROVAL OF THE MERGER PROPOSAL (PROPOSAL 1) AND "FOR" THE APPROVAL OF
THE CHARTER AND BYLAW AMENDMENT PROPOSAL (PROPOSAL 2).
(To be completed and signed on reverse side)
Please mark
your vote as [ X ]
indicated in
the example
1. To consider and vote upon a proposal (the "Merger Proposal") to approve the
Agreement and Plan of Merger, dated as of February 24, 1997, as amended and
restated as of May 28, 1997, by and among Patriot American Hospitality, Inc.
("Patriot"). Patriot American Hospitality Partnership, L.P. (the "Patriot
Partnership") Cal Jockey and Bay Meadows Operating Company (collectively, the
"Parties") and the transactions thereunder, including, without limitation,
the merger of Patriot with and into Cal Jockey, the issuance of up to
approximately 30,500,000 shares of Cal Jockey common stock and the
contribution of certain of the assets of Cal Jockey to the Patriot
Partnership in exchange for limited partnership units of the Patriot
Partnership (the "Merger and Related Transactions").
FOR AGAINST ABSTAIN
[_] [_] [_]
2. To consider and vote upon a proposal (the "Charter and Bylaw Amendment
Proposal") to amend and restate the Certificate of Incorporation and Bylaws
of Cal Jockey.
[_] [_] [_]
3. The proxies are authorized to vote in their discretion upon any other matters
as may properly come before the Cal Jockey Special Meeting or any adjournment
or postponement thereof.
IMPORTANT: BECAUSE EACH PROPOSAL REQUIRES THE APPROVAL OF A MAJORITY OF THE
ISSUED AND OUTSTANDING SHARES, A VOTE TO "ABSTAIN" WILL HAVE THE SAME
EFFECT AS A VOTE "AGAINST" SUCH PROPOSAL. IN ADDITION, BECAUSE
CONSUMMATION OF THE MERGER PROPOSAL IS CONDITIONED ON APPROVAL OF THE
CHARTER AND BYLAW AMENDMENT PROPOSAL, IF THE CHARTER AND BYLAW
AMENDMENT PROPOSAL IS NOT ADOPTED, THE PARTIES WILL NOT BE REQUIRED
TO CONSUMMATE THE MERGER AND RELATED TRANSACTIONS.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE APPROVAL OF THE MERGER
PROPOSAL AS SET FORTH IN PROPOSAL 1 AND "FOR" THE APPROVAL OF THE CHARTER AND
BYLAW AMENDMENT PROPOSAL AS SET FORTH IN PROPOSAL 2.
Dated: , 1997
---------------------------------------------
- ---------------------------------------------------------
Signature
- ---------------------------------------------------------
Signature, if held jointly
(Please sign exactly as name appears. When shares are held by Joint tenants,
both should sign. When signing as an attorney, executor, administrator, trustee,
or guardian, please give the full title as such. If a corporation, please sign
in full corporate name by President or other authorized officer. If a
partnership, please sign in partnership name by authorized persons.)
STOCKHOLDERS ARE URGED TO MARK, DATE, SIGN AND RETURN THIS PROXY IN THE ENVELOPE
PROVIDED, WHICH REQUIRES NO POSTAGE IF MAILED IN THE UNITED STATES.
<PAGE>
Exhibit 99.6
------------
BAY MEADOWS OPERATING COMPANY
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned acknowledges receipt of the Notice of the Special Meeting
of Stockholders (the "Bay Meadows Special Meeting of Stockholders") of Bay
Meadows Operating Company ("Bay Meadows"), a Delaware corporation, and the
accompanying Joint Proxy Statement and Prospectus (the "Joint Proxy
Statement/Prospectus"), and revoking any proxy heretofore given hereby appoints
Eugene F. Barsotti, Jr., John C. Harris and F. Jack Liebau, or any of them, each
with full power of substitution, as proxies of the undersigned to attend the Bay
Meadows Special Meeting of Stockholders to be held at the Clubhouse of Bay
Meadows Racecourse, 2600 South Delaware Street, San Mateo, California on
Tuesday, July 1, 1997, at 9:00 a.m. (local time) and any adjournment or
postponement thereof, and to vote the number of shares the undersigned would be
entitled to vote if personally present at the meeting.
AS DESCRIBED MORE FULLY IN THE JOINT PROXY STATEMENT/PROSPECTUS, THIS PROXY
WILL BE VOTED AS SPECIFIED OR, IF NO CHOICE IS SPECIFIED, WILL BE VOTED "FOR"
THE APPROVAL OF THE MERGER PROPOSAL (PROPOSAL 1) AND "FOR" THE APPROVAL OF THE
CHARTER AND BYLAW AMENDMENT PROPOSAL (PROPOSAL 2).
(To be completed and signed on reverse side)
Please mark
your vote as [ X ]
indicated in
the example
1. To consider and vote upon a proposal (the "Merger Proposal") to approve the
restated Agreement and Plan of Merger, dated as of February 24, 1997, as
amended and as of May 28, 1997, by and among Patriot American Hospitality,
Inc. ("Patriot"), Patriot American Hospitality Partnership, L.P., California
Jockey Club and Bay Meadows (collectively, the "Parties") and the
transactions thereunder, including, without limitation, the issuance of up to
approximately 30,500,000 shares of Bay Meadows common stock in connection
with the merger of Patriot into Cal Jockey and the contribution of certain of
the assets of Bay Meadows to a newly formed operating partnership in exchange
for limited partnership units of the operating partnership (the "Merger and
Related Transactions").
FOR AGAINST ABSTAIN
[_] [_] [_]
2. To consider and vote upon a proposal (the "Charter and Bylaw Amendment
Proposal") to amend and restate the Certificate of Incorporation and Bylaws
of Bay Meadows.
[_] [_] [_]
3. The proxies are authorized to vote in their discretion upon any other matters
as may properly come before the Cal Jockey Special Meeting or any adjournment
or postponement thereof.
IMPORTANT: BECAUSE EACH PROPOSAL REQUIRES THE APPROVAL OF A MAJORITY OF THE
ISSUED AND OUTSTANDING SHARES, A VOTE TO "ABSTAIN" WILL HAVE THE SAME
EFFECT AS A VOTE "AGAINST" SUCH PROPOSAL. IN ADDITION, BECAUSE
CONSUMMATION OF THE MERGER PROPOSAL IS CONDITIONED ON APPROVAL OF
THE CHARTER AND BYLAW AMENDMENT PROPOSAL, IF THE CHARTER AND BYLAW
AMENDMENT PROPOSAL, IS NOT ADOPTED, THE PARTIES WILL NOT BE REQUIRED
TO CONSUMMATE THE MERGER AND RELATED TRANSACTIONS.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE APPROVAL OF THE MERGER
PROPOSAL AS SET FORTH IN PROPOSAL 1 AND "FOR" THE APPROVAL OF THE CHARTER AND
BYLAW AMENDMENT PROPOSAL AS SET FORTH IN PROPOSAL 2.
Dated: , 1997
---------------------------------------------
- ---------------------------------------------------------
Signature
- ---------------------------------------------------------
Signature, if held jointly
(Please sign exactly as name appears. When shares are held by Joint tenants,
both should sign. When signing as an attorney, executor, administrator, trustee,
or guardian, please give the full title as such. If a corporation, please sign
in full corporate name by President or other authorized officer. If a
partnership, please sign in partnership name by authorized persons.)
STOCKHOLDERS ARE URGED TO MARK, DATE, SIGN AND RETURN THIS PROXY IN THE ENVELOPE
PROVIDED, WHICH REQUIRES NO POSTAGE IF MAILED IN THE UNITED STATES.
<PAGE>
PATRIOT AMERICAN HOSPITALITY, INC.
3030 LBJ FREEWAY, SUITE 1500, DALLAS, TX 75234
PROXY FOR SPECIAL MEETING OF STOCKHOLDERS TO BE HELD ON JULY 1, 1997
THIS PROXY IS SOLICITED BY THE BOARD OF DIRECTORS
The undersigned hereby constitutes and appoints Paul A. Nussbaum, Thomas W.
Lattin and Rex E. Stewart, and each of them, as Proxies of the undersigned,
with full power of substitution, to vote all shares of Common Stock of Patriot
American Hospitality, Inc. ("Patriot") held of record by the undersigned as of
the close of business on May 16, 1997, on behalf of the undersigned at the
Special Meeting of Stockholders (the "Patriot Special Meeting") to be held at
the Holiday Inn Select, North Dallas, Texas, at 11:00 a.m., local time, on
Tuesday, July 1, 1997, and at any adjournments or postponements thereof.
WHEN PROPERLY EXECUTED, THIS PROXY WILL BE VOTED IN THE MANNER DIRECTED
HEREIN BY THE UNDERSIGNED STOCKHOLDER(S). IF NO DIRECTION IS GIVEN, THIS PROXY
WILL BE VOTED "FOR" PROPOSAL 1 AND "FOR" PROPOSAL 2. IN THEIR DISCRETION, THE
PROXIES ARE EACH AUTHORIZED TO VOTE UPON SUCH OTHER BUSINESS AS MAY PROPERLY
COME BEFORE THE PATRIOT SPECIAL MEETING AND ANY ADJOURNMENTS OR POSTPONEMENTS
THEREOF. A STOCKHOLDER WISHING TO VOTE IN ACCORDANCE WITH THE BOARD OF
DIRECTORS' RECOMMENDATIONS NEED ONLY SIGN AND DATE THIS PROXY AND RETURN IT IN
THE ENCLOSED ENVELOPE.
PLEASE VOTE AND SIGN ON OTHER SIDE AND RETURN PROMPTLY IN THE ENCLOSED
ENVELOPE.
(SEE REVERSE SIDE)
<PAGE>
X PLEASE MARK YOUR
VOTES AS IN THIS
EXAMPLE.
- --
ORF
AGAINST
ABSTAIN
1. To consider and vote upon a proposal to approve the Agreement and Plan of
Merger, dated as of February 24, 1997, as amended and restated as of May 28,
1997, by and among Patriot, Patriot American Hospitality Partnership, L.P.,
California Jockey Club and Bay Meadows Operating Company and the
transactions thereunder.
2. To consider and vote upon a proposal to amend and restate the Patriot
American Hospitality, Inc. 1995 Incentive Plan.
3. To consider and act upon any other matters that may properly be brought
before the Patriot Special Meeting and at any adjournments or postponements
thereof.
The undersigned hereby acknowledge(s) receipt of a copy of the accompanying
Notice of the Patriot Special Meeting and the Joint Proxy Statement/Prospectus
with respect thereto and hereby revoke(s) any proxy or proxies heretofore
given. This proxy may be revoked at any time before it is exercised.
SIGNATURE(S) _____________________ Date ______
NOTE: Please sign exactly as name appears hereon. Joint owners should each
sign. When signing as attorney, executor, administrator, trustee or guardian,
please give full title as such.
