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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT PURSUANT TO SECTION 13 OR
15(D) OF THE SECURITIES EXCHANGE ACT OF 1934
DATE OF REPORT (DATE OF EARLIEST EVENT REPORTED)
SEPTEMBER 30, 1997
COMMISSION FILE NUMBER 1-9319 COMMISSION FILE NUMBER 1-9320
PATRIOT AMERICAN HOSPITALITY, PATRIOT AMERICAN HOSPITALITY
INC. OPERATING COMPANY
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(Exact name of registrant (Exact name of registrant
as specified in its charter) as specified in its charter)
DELAWARE DELAWARE
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(State or other jurisdiction of (State or other jurisdiction of
incorporation or organization) incorporation or organization)
94-0358820 94-2878485
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(I.R.S. Employer (I.R.S. Employer
Identification No.) Identification No.)
3030 LBJ FREEWAY, SUITE 1500 3030 LBJ FREEWAY, SUITE 1500
DALLAS, TEXAS 75234 DALLAS, TEXAS 75234
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(Address of principal (Zip Code) (Address of principal (Zip Code)
executive offices) executive offices)
(972) 888-8000 (972) 888-8000
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(Registrant's telephone number, (Registrant's telephone number,
including area code) including area code)
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PATRIOT AMERICAN HOSPITALITY, INC. AND
PATRIOT AMERICAN HOSPITALITY OPERATING COMPANY
ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS
In September 1997, Patriot American Hospitality, Inc. ("Patriot REIT"),
through certain of its subsidiaries, acquired six hotels (including an
approximate 50% controlling ownership interest in the Omni Inner Harbor Hotel).
In addition, Patriot REIT, through certain of its subsidiaries, has contracted
to acquire and expects to close the acquisition of three additional hotels in
October 1997. The nine hotels have been (or will be) acquired from entities
affiliated with the Gencom American Hospitality group of companies ("Gencom")
and CHC International, Inc. ("CHCI") for an aggregate purchase price of
approximately $221.7 million. In addition, Patriot REIT has entered into a non-
binding agreement whereby Patriot REIT may indirectly acquire the remaining
ownership interest in the Omni Inner Harbor Hotel through a merger of the parent
company of the Gencom-related entity that owns such interest with Patriot REIT
or by other means. The nine hotels will be leased to and managed by Patriot
American Hospitality Operating Company ("Patriot Operating Company") and its
subsidiaries. Patriot REIT's shares of common stock are paired and trade as a
single unit with Patriot Operating Company's common shares. The purchase of the
nine hotels was financed with approximately $42 million of cash drawn on the
Patriot REIT revolving credit facility and by issuing 2,534,656 paired shares of
Patriot REIT common stock and Patriot Operating Company common stock and
1,648,258 paired units of limited partnership interest ("OP Units") in Patriot
American Hospitality Partnership, L.P., a subsidiary of Patriot REIT (the
"Patriot REIT Partnership") and Patriot American Hospitality Operating Company
Partnership, L.P., a subsidiary of Patriot Operating Company (the "Patriot
Operating Company Partnership," and collectively with the Patriot REIT
Partnership, the "Patriot Partnerships"). Additionally, Patriot REIT Partnership
has entered into a contract, subject to franchisor approval, to acquire the
Melbourne Hilton at Rialto Place in Melbourne, Florida for a purchase price of
approximately $9 million.
In addition, Patriot REIT acquired the leasehold interests related to eight
hotels which were previously leased by CHC Lease Partners and re-leased such
hotels to Patriot Operating Company. Prior to such acquisition, the management
contracts with GAH-II, L.P. ("GAH"), an affiliate of CHCI and Gencom, related to
the eight hotels were terminated. The aggregate purchase price of the leasehold
interests was approximately $52.8 million. The acquisition was financed with
approximately $644,000 of cash and by issuing an aggregate of 2,388,932 OP Units
of the Patriot REIT Partnership (which are paired with the 2,388,932 OP Units of
the Patriot Operating Company Partnership issued in the transaction described
below).
In connection with the above-described transactions, Patriot Operating
Company purchased an approximate 50% managing, controlling ownership interest in
GAH from affiliates of Gencom for a purchase price of approximately $13.9
million. The acquisition was financed by issuing an aggregate of 2,388,932 OP
Units and 476,682 preferred OP Units of Patriot Operating Company Partnership.
GAH, directly and through certain of its subsidiaries, owns eight management
contracts related to hotels leased by Patriot Operating Company, 16 third-party
management contracts, and certain other hospitality management assets.
Concurrent with Patriot Operating Company's purchase of its controlling interest
in GAH, Patriot Operating Company also entered into a Hospitality Advisory,
Asset Management and Support Services Agreement with CHCI and GAH whereby
Patriot Operating Company will provide certain hospitality advisory, asset
management and support services to certain CHCI and GAH subsidiaries for a base
fee ranging from $350,000 to $400,000 per month plus a percentage of excess cash
flows of the hotels.
Patriot REIT, Patriot Operating Company and CHCI have also entered into an
Agreement and Plan of Merger dated as of September 30, 1997, providing, subject
to regulatory approvals, for the merger of the hospitality-related businesses of
CHCI with and into Patriot Operating Company with Patriot Operating Company
being the surviving company (the "CHCI Merger"). Subject to regulatory
approvals, CHCI's gaming operations will be transferred to a new legal entity
prior to the CHCI Merger and such operations will not be a part of the
transaction. It is anticipated that the CHCI Merger will be consummated in the
first or second quarter of 1998, although the precise timing is subject to
receipt of all necessary regulatory approvals. As a result of the CHCI Merger,
Patriot Operating Company, through its subsidiaries, will acquire the remaining
50% investment interest in GAH, the remaining 17 leases and 16 of the associated
management contracts related to the Patriot REIT hotels leased by CHC Lease
Partners, 3 management contracts related to Patriot REIT hotels leased by
Patriot Operating Company, 12 third-party management contracts, 2 third-party
lease contracts the Grand Bay and Registry Hotels & Resorts proprietary brand
names and certain other hospitality management assets. Patriot Operating Company
has also agreed to provide CHCI with a $7 million line of credit until such time
as the CHCI Merger is completed.
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By operation of the CHCI Merger, each issued and outstanding share of common
stock, par value $0.005 per share, of CHCI ("CHCI Shares") and certain stock
option rights will be converted into the right to receive shares of Series A
Redeemable Convertible Preferred Stock, par value $0.01 per share of Patriot
Operating Company (the "Series A Preferred Stock") and shares of Series B
Redeemable Convertible Preferred Stock, par value $0.01 per share, of Patriot
Operating Company (the "Series B Preferred Stock"). The formula for determining
the exchange ratio of CHCI Shares for Series A Preferred Stock and Series B
Preferred Stock is based on issuing an aggregate of approximately 4,380,000
shares of Patriot Operating Company preferred stock (based on an aggregate
purchase value of approximately $102.2 million and a market price per paired
share of $23.25), subject to reduction if certain specified events occur and
subject to increase representing adjustments for dividends paid on paired shares
of Patriot REIT and Patriot Operating Company common stock after September 30,
1997. Generally, the aggregate number of shares of Patriot Operating Company
preferred stock that each shareholder shall have the right to receive pursuant
to the CHCI Merger shall consist of, to the extent possible, an equal number of
Series A Preferred Stock and the Series B Preferred Stock.
Generally, each share of Patriot Operating Company Series A Preferred Stock
may be redeemed for one paired share of Patriot REIT common stock and Patriot
Operating Company common stock at any time following the one-year anniversary of
the closing of the CHCI Merger. Each share of Patriot Operating Company Series B
Preferred Stock may be redeemed for one paired share of Patriot REIT common
stock and Patriot Operating Company common stock, however, such redemption is
generally restricted until the fifth-year anniversary of the closing of the CHCI
Merger. The value of a paired share at the time of redemption (the "Redemption
Value") may, at Patriot Operating Company's option, be paid in cash. Further,
if Patriot Operating Company fails to comply with certain restrictions, the
preferred shares may be redeemed for cash or, at Patriot Operating Company's
option, paired shares at the Redemption Value plus a premium. The dividend rate
on the shares of preferred stock is equivalent to the dividend rate on the
paired shares of Patriot REIT common stock and Patriot Operating Company common
stock. Dividends on Series B Preferred Stock are subject to increase during the
five years subsequent to the closing of the CHCI Merger if the shares are
transferred by the original holder. If the dividends on the preferred shares are
not paid when due, dividends will instead accrue at the rate of 15% per annum on
a compounded basis. The preferred shares are redeemable at Patriot Operating
Company's option at the Redemption Value, plus a premium in the case of the
original holders thereof and certain permitted transferees.
In connection with the acquisition of GAH, preferred OP Units of the Patriot
Operating Company Partnership with a value of approximately $5 million have been
held back and the CHCI Merger equity consideration is subject to reduction in
the amount of approximately approximately $5 million if the hotels and
leaseholds acquired fail to achieve certain operating targets over the period
prior to the closing of the CHCI Merger.
In addition, on September 30, 2000 and September 30, 2002, Patriot Operating
Company may be obligated to pay the CHCI stockholders and a subsidiary of
Patriot Operating Company may be obligated to pay a Gencom-related entity
additional consideration, in each case based upon the delivery and performance
of certain specified assets.
As part of the above-described acquisitions, Karim Alibhai, the chief
executive officer of Gencom, was appointed to the position of president, chief
operating officer and director of Patriot Operating Company. Patriot Operating
Company has entered into an employment agreement with Mr. Alibhai, pursuant to
which Mr. Alibhai serves as president and chief operating officer of Patriot
Operating Company for a term of three years at an initial annual base
compensation of $350,000, subject to any increases in base compensation approved
by the Compensation Committee of the Patriot Operating Company Board of
Directors. In addition, under the terms of the employment contract, Mr. Alibhai
is eligible to receive cash incentive compensation in an amount to be determined
by the Compensation Committee, but not less than $75,000 per year, up to 80% of
his annual base compensation, as adjusted. In addition, Mr. Alibhai was granted
nonqualified options to purchase 280,000 paired shares of Patriot REIT and
Patriot Operating Company common stock at an exercise price of $32.0625 per
paired share (the closing market price of Patriot REIT and Patriot Operating
Company common stock on the date of grant). The options to purchase common stock
vest in equal quarterly installments over a period of three years.
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ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL STATEMENTS AND EXHIBITS
(A) FINANCIAL STATEMENTS OF BUSINESSES ACQUIRED
Management of Patriot REIT and Patriot Operating Company has determined
that it is impracticable to file the financial information for GAH-II, L.P.
(d/b/a Gencom American Hospitality), the Hospitality Division of CHC
International, Inc., the "Acquired Hotels" (which consists of the Omni
Inner Harbor Hotel, the Radisson Riverwalk Hotel, the Doubletree Guest
Suites in Glenview, Illinois, the Crowne Plaza Toledo, the Radisson Suites
Hotel in Kansas City, Missouri, the Melbourne Hilton at Rialto Place in
Melbourne, Florida and the Holiday Inn Y.O. Ranch); G.B.H. Joint Venture
(d/b/a the Grand Bay Hotel); River House Associates (d/b/a the Sheraton
Gateway Hotel); and W-L Tampa, Ltd. (which includes the Sheraton Grand
Hotel) as prescribed by Article 3 of Regulation S-X. Such statements will
be filed by amendment as soon as practicable, but in no event later than
December 15, 1997.
(B) PRO FORMA FINANCIAL INFORMATION
Management of Patriot REIT and Patriot Operating Company has determined
that it is impracticable to file separate and combined pro forma financial
statements for Patriot REIT and Patriot Operating Company and for Patriot
REIT's Combined Lessees, as prescribed by Article 11 of Regulation S-X.
Such statements will be filed by amendment as soon as practicable, but in
no event later than December 15, 1997.
(C) EXHIBITS
Exhibit
Number Description
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None.
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SIGNATURE
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
Registrants have duly caused the report to be signed on their behalf by the
undersigned thereunto duly authorized.
DATED: October 14, 1997
PATRIOT AMERICAN HOSPITALITY, INC.
By: /s/ Rex E. Stewart
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Rex E. Stewart
Executive Vice President and Chief Financial Officer
(Principal Accounting and Financial Officer)
PATRIOT AMERICAN HOSPITALITY OPERATING COMPANY
By: /s/ Rex E. Stewart
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Rex E. Stewart
Executive Vice President and Chief Financial Officer
(Principal Accounting and Financial Officer)
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