<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON DECEMBER 16, 1997
REGISTRATION STATEMENT NO. 333-40041
333-40041-01
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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AMENDMENT NO. 2
TO
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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PATRIOT AMERICAN HOSPITALITY PATRIOT AMERICAN HOSPITALITY, INC.
OPERATING COMPANY
(EXACT NAME OF REGISTRANT AS SPECIFIED (EXACT NAME OF REGISTRANT AS SPECIFIED
IN ITS CHARTER) IN ITS CHARTER)
DELAWARE DELAWARE
(STATE OR OTHER JURISDICTION OF (STATE OR OTHER JURISDICTION OF
INCORPORATION OR ORGANIZATION) INCORPORATION OR ORGANIZATION)
7011 6798
(PRIMARY STANDARD INDUSTRIAL (PRIMARY STANDARD INDUSTRIAL
CLASSIFICATION CODE) CLASSIFICATION CODE)
94-2878485 94-0358820
(I.R.S. EMPLOYER IDENTIFICATION NO.) (I.R.S. EMPLOYER IDENTIFICATION NO.)
1950 STEMMONS FREEWAY 1950 STEMMONS FREEWAY
SUITE 6001 SUITE 6001
DALLAS, TX 75207 DALLAS, TX 75207
(214) 863-1000 (214) 863-1000
(ADDRESS, INCLUDING ZIP CODE AND (ADDRESS, INCLUDING ZIP CODE AND
TELEPHONE NUMBER, TELEPHONE NUMBER,
INCLUDING AREA CODE, OF REGISTRANT'S INCLUDING AREA CODE, OF REGISTRANT'S
PRINCIPAL EXECUTIVE OFFICE) PRINCIPAL EXECUTIVE OFFICE)
PAUL A. NUSSBAUM PAUL A. NUSSBAUM
CHAIRMAN OF THE BOARD AND CHIEF CHAIRMAN OF THE BOARD AND CHIEF
EXECUTIVE OFFICER EXECUTIVE OFFICER
PATRIOT AMERICAN HOSPITALITY OPERATING PATRIOT AMERICAN HOSPITALITY, INC.
COMPANY 1950 STEMMONS FREEWAY
1950 STEMMONS FREEWAY SUITE 6001
SUITE 6001 DALLAS, TX 75207
DALLAS, TX 75207 (214) 863-1000
(214) 863-1000 (NAME, ADDRESS, INCLUDING ZIP CODE AND
(NAME, ADDRESS, INCLUDING ZIP CODE AND TELEPHONE NUMBER, INCLUDING AREA CODE,
TELEPHONE NUMBER, INCLUDING AREA CODE, OF AGENT FOR SERVICE)
OF AGENT FOR SERVICE)
---------------
COPIES TO:
GILBERT G. MENNA, P.C. JEFFREY N. SIEGEL, ESQ.
STEPHEN W. CARR, P.C. SHACK & SIEGEL, P.C.
GOODWIN, PROCTER & HOAR LLP 530 FIFTH AVENUE, 16TH FLOOR
EXCHANGE PLACE NEW YORK, NY 10036
BOSTON, MA 02109-2881 (212) 782-0700
(617) 570-1000
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: Upon
consummation of the merger of Patriot American Hospitality Operating Company
Acquisition Subsidiary ("Acquisition Sub"), a subsidiary of Patriot American
Hospitality Operating Company ("PAHOC"), with and into WHG Resorts & Casinos
Inc. ("WHG") pursuant to an Agreement and Plan of Merger dated as of September
30, 1997, described in the enclosed Proxy Statement and 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. [_]
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [_]
If this form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration
statement. [_]
---------------
THE REGISTRANTS HEREBY AMEND THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANTS
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.
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<PAGE>
WHG RESORTS & CASINOS INC.
6063 EAST ISLA VERDE AVENUE
CAROLINA, PUERTO RICO 00979
December 17, 1997
Dear Stockholder:
You are cordially invited to attend a Special Meeting of the Stockholders of
WHG Resorts & Casinos Inc. ("WHG") to be held at The Breakers, One South
County Road, Palm Beach, Florida 33480, on January 16, 1998 at 10:30 a.m.
local time (the "Special Meeting").
At the Special Meeting, you will be asked to approve the Agreement and Plan
of Merger dated as of September 30, 1997 (the "Merger Agreement") by and among
Patriot American Hospitality Operating Company ("PAHOC"), Patriot American
Hospitality Operating Company Acquisition Subsidiary ("Acquisition Sub"),
Patriot American Hospitality, Inc. ("Patriot") and WHG.
Pursuant to the Merger Agreement, Acquisition Sub will merge with and into
WHG (the "Merger") and WHG Stockholders will be entitled to receive for each
issued and outstanding share of WHG voting common stock, par value $.01 per
share ("WHG Common Stock"), held by them at the effective time of the Merger
(the "Effective Time") .784 paired shares of PAHOC and Patriot common stock
(the "Exchange Ratio"), which shares of PAHOC and Patriot are paired and trade
as a single unit on the New York Stock Exchange (the "Paired Shares");
provided, however, that in the event that (i) the average closing price of the
Paired Shares over the ten trading days immediately preceding the third
business day prior to the date on which the Special Meeting is to be convened
(the "Average Closing Price") is greater than $31.25 and the Effective Time is
before February, 1998, the Exchange Ratio will be adjusted such that the
product of the Exchange Ratio and the Average Closing Price (the "Exchange
Ratio Product") equals $24.50; (ii) the Average Closing Price is greater than
$31.75 and the Effective Time is in February, 1998, the Exchange Ratio will be
adjusted such that the Exchange Ratio Product equals $24.89; (iii) the Average
Closing Price is greater than $32.25 and the Effective Time is after February,
1998, the Exchange Ratio will be adjusted such that the Exchange Ratio Product
equals $25.28; (iv) the Average Closing Price is less than or equal to $25.50,
but greater than or equal to $19.50, the Exchange Ratio will be adjusted such
that the Exchange Ratio Product equals $20.00; or (v) the Average Closing
Price is less than $19.50, the Exchange Ratio will equal 1.026, provided,
however, that in such circumstance WHG has the right, waivable by it, to
terminate the Merger Agreement. In addition, WHG Stockholders will be entitled
to receive for each issued and outstanding share of WHG Series B Convertible
Preferred Stock, par value $.01 per share ("WHG Preferred Stock"), held by
them at the Effective Time that number of Paired Shares as the holder of such
share of WHG Preferred Stock would have the right to receive assuming
conversion of such share, together with any accrued and unpaid dividends
thereon, into WHG Common Stock immediately prior to the Effective Time. On
December 12, 1997, the closing price of a Paired Share as reported on the New
York Stock Exchange was $28.50.
The Merger will be treated as a taxable exchange. Accordingly, WHG
Stockholders will recognize gain or loss measured by the difference between
the fair market value of the Paired Shares (including any cash received in
lieu of fractional shares) received in the Merger and such WHG Stockholder's
adjusted basis in the WHG Common Stock and WHG Preferred Stock.
Approval of the Merger Agreement requires the affirmative vote of a majority
of the votes entitled to be cast at the Special Meeting, assuming a quorum is
present.
<PAGE>
YOUR BOARD OF DIRECTORS BELIEVES THAT THE MERGER AGREEMENT AND THE
TRANSACTIONS CONTEMPLATED THEREBY ARE FAIR TO, AND IN THE BEST INTERESTS OF,
WHG STOCKHOLDERS. THE WHG BOARD OF DIRECTORS' REASONS FOR THIS BELIEF ARE SET
FORTH IN "THE MERGER--WHG'S REASONS FOR THE MERGER; RECOMMENDATION OF THE WHG
BOARD" IN THE ACCOMPANYING PROXY STATEMENT AND PROSPECTUS (THE "PROXY
STATEMENT/PROSPECTUS"). THE INVESTMENT BANKING FIRM OF OPPENHEIMER & CO., INC.
(NOW KNOWN AS CIBC OPPENHEIMER CORP.) HAS ISSUED ITS OPINION TO THE WHG BOARD
OF DIRECTORS, A COPY OF WHICH IS ATTACHED AS ANNEX B TO THE ACCOMPANYING 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 OPPENHEIMER & CO., INC. SET FORTH IN SUCH OPINION, THE
CONSIDERATION TO BE RECEIVED BY THE HOLDERS OF WHG COMMON STOCK AND WHG
PREFERRED STOCK IN THE MERGER IS FAIR TO SUCH HOLDERS FROM A FINANCIAL POINT
OF VIEW. THE WHG BOARD OF DIRECTORS HAS UNANIMOUSLY APPROVED THE MERGER
AGREEMENT AND THE TRANSACTIONS CONTEMPLATED THEREBY AND UNANIMOUSLY RECOMMENDS
THAT YOU VOTE TO APPROVE THE MERGER AGREEMENT AND THE TRANSACTIONS
CONTEMPLATED THEREBY.
The accompanying Proxy Statement/Prospectus provides detailed information
concerning the proposed Merger, the reasons for your Board of Directors'
recommendation to approve the Merger Agreement and the transactions
contemplated thereby and certain additional information, including, without
limitation, the information set forth under the heading "Risk Factors," which
describes, among other things, potential adverse effects to WHG Stockholders
as a result of the Merger. We urge you to carefully consider all the
information in the Proxy Statement/Prospectus. IT IS IMPORTANT THAT YOUR
SHARES OF WHG COMMON STOCK AND SHARES OF WHG PREFERRED STOCK BE REPRESENTED AT
THE SPECIAL MEETING, REGARDLESS OF THE NUMBER OF SHARES YOU HOLD. THEREFORE,
PLEASE COMPLETE, SIGN, DATE AND RETURN YOUR PROXY AS SOON AS POSSIBLE, WHETHER
OR NOT YOU PLAN TO ATTEND THE SPECIAL MEETING. THIS WILL NOT PREVENT YOU FROM
VOTING YOUR SHARES IN PERSON IF YOU SUBSEQUENTLY CHOOSE TO ATTEND THE SPECIAL
MEETING.
Sincerely,
/s/ Louis J. Nicastro
Louis J. Nicastro
Chairman of the Board and Chief
Executive Officer
2
<PAGE>
WHG RESORTS & CASINOS INC.
6063 EAST ISLE VERDE AVENUE
CAROLINA, PUERTO RICO 00979
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NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD JANUARY 16, 1998
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To the Stockholders of WHG Resorts & Casinos Inc.:
NOTICE IS HEREBY GIVEN that a Special Meeting of the Stockholders of WHG
Resorts & Casinos Inc. ("WHG") will be held at The Breakers, One South County
Road, Palm Beach, Florida 33480, on January 16, 1998 at 10:30 a.m. local time
(the "Special Meeting"), for the following purposes:
1. To consider and vote upon a proposal to approve and adopt the
Agreement and Plan of Merger dated as of September 30, 1997 (the "Merger
Agreement") by and among Patriot American Hospitality Operating Company, a
Delaware corporation ("PAHOC"), Patriot American Hospitality Operating
Company Acquisition Subsidiary, a Delaware corporation ("Acquisition Sub"),
Patriot American Hospitality, Inc., a Delaware corporation ("Patriot"), and
WHG. Pursuant to the Merger Agreement, WHG Stockholders will be entitled to
receive for each issued and outstanding share of WHG voting common stock,
par value $.01 per share ("WHG Common Stock"), held by them at the
effective time of the Merger (the "Effective Time") .784 paired shares of
PAHOC and Patriot common stock (the "Exchange Ratio"), which shares of
PAHOC and Patriot are paired and trade as a single unit on the New York
Stock Exchange (the "Paired Shares"); provided, however, that in the event
that (i) the average closing price of the Paired Shares over the ten
trading days immediately preceding the third business day prior to the date
on which the Special Meeting is to be convened (the "Average Closing
Price") is greater than $31.25 and the Effective Time is before February,
1998, the Exchange Ratio will be adjusted such that the product of the
Exchange Ratio and the Average Closing Price (the "Exchange Ratio Product")
equals $24.50; (ii) the Average Closing Price is greater than $31.75 and
the Effective Time is in February, 1998, the Exchange Ratio will be
adjusted such that the Exchange Ratio Product equals $24.89; (iii) the
Average Closing Price is greater than $32.25 and the Effective Time is
after February, 1998, the Exchange Ratio will be adjusted such that the
Exchange Ratio Product equals $25.28; (iv) the Average Closing Price is
less than or equal to $25.50, but greater than or equal to $19.50, the
Exchange Ratio will be adjusted such that the Exchange Ratio Product equals
$20.00; or (v) the Average Closing Price is less than $19.50, the Exchange
Ratio will equal 1.026, provided, however, that in such circumstance WHG
has the right, waivable by it, to terminate the Merger Agreement. In
addition, WHG Stockholders will be entitled to receive for each issued and
outstanding share of WHG Series B Convertible Preferred Stock, par value
$.01 per share ("WHG Preferred Stock"), held by them at the Effective Time
that number of Paired Shares as the holder of such share of WHG Preferred
Stock would have the right to receive assuming conversion of such share,
together with any accrued and unpaid dividends thereon, into WHG Common
Stock immediately prior to the Effective Time. On December 12, 1997, the
closing price of a Paired Share as reported on the New York Stock Exchange
was $28.50. A copy of the Merger Agreement is attached as Annex A to the
Proxy Statement and Prospectus (the "Proxy Statement/Prospectus")
accompanying this Notice; and
2. To transact such other business as may properly come before the
Special Meeting or at any and all adjournments or postponements thereof.
The Board of Directors has fixed the close of business on December 11, 1997
as the record date for determination of stockholders entitled to notice of,
and to vote at, the Special Meeting. Only stockholders of record at the close
of business on such date will be entitled to notice of, and to vote at, the
Special Meeting or at any and all adjournments or postponements thereof.
<PAGE>
All stockholders who are entitled to vote, even if they plan to attend the
Special Meeting, are requested to execute the enclosed proxy and return it
without delay in the enclosed postage-paid envelope. You may revoke your proxy
at any time before it is voted by giving written notice to WHG. If you attend
the Special Meeting and vote in person, your vote will supersede your proxy.
By Order of the Board of Directors,
Barbara M. Norman
Secretary
Carolina, Puerto Rico
December 17, 1997
YOUR VOTE IS IMPORTANT REGARDLESS OF THE NUMBER OF SHARES OF WHG COMMON
STOCK OR WHG PREFERRED STOCK YOU OWN. YOU ARE EARNESTLY REQUESTED, WHETHER OR
NOT YOU PLAN TO BE PRESENT AT THE SPECIAL MEETING, TO MARK, DATE, SIGN AND
RETURN PROMPTLY THE ACCOMPANYING PROXY IN THE ENCLOSED ENVELOPE TO WHICH NO
POSTAGE NEED BE AFFIXED IF MAILED IN THE UNITED STATES.
PLEASE DO NOT SEND ANY CERTIFICATES FOR YOUR SHARES AT THIS TIME.
2
<PAGE>
WHG RESORTS & CASINOS INC.
PROXY STATEMENT
----------------
PATRIOT AMERICAN HOSPITALITY OPERATING COMPANY
PATRIOT AMERICAN HOSPITALITY, INC.
PROSPECTUS
This Proxy Statement and Prospectus and the Annexes hereto (the "Proxy
Statement/Prospectus") relates to the proposed business combination between
WHG Resorts & Casinos Inc. ("WHG") and Patriot American Hospitality Operating
Company ("PAHOC") by means of the merger of Patriot American Hospitality
Operating Company Acquisition Subsidiary, a subsidiary of PAHOC ("Acquisition
Sub"), with and into WHG, with WHG being the surviving company (the "Merger"),
pursuant to the terms of an Agreement and Plan of Merger, dated as of
September 30, 1997, by and among PAHOC, Acquisition Sub, Patriot American
Hospitality, Inc. ("Patriot") and WHG (the "Merger Agreement").
This Proxy Statement/Prospectus is being furnished in connection with the
solicitation of proxies by the Board of Directors of WHG (the "WHG Board") to
be used at the Special Meeting of the Stockholders of WHG scheduled to be held
at The Breakers, One South County Road, Palm Beach, Florida 33480, on January
16, 1998 at 10:30 a.m. local time (the "Special Meeting"), and at any
adjournments or postponements thereof. At the Special Meeting, holders of the
voting common stock, par value $.01 per share, of WHG (the "WHG Common Stock")
and Series B Convertible Preferred Stock, par value $.01 per share, of WHG
(the "WHG Preferred Stock") (collectively, the WHG Common Stock and WHG
Preferred Stock are referred to herein as the "WHG Stock") will be asked to
consider and vote upon a proposal to approve and adopt the Merger Agreement
and the transactions contemplated thereby, including the Merger. Any proxy
given pursuant to this solicitation may be revoked by the grantor at any time
prior to the voting thereof at the Special Meeting.
Pursuant to the Merger Agreement, stockholders of WHG (the "WHG
Stockholders") will be entitled to receive for each issued and outstanding
share of WHG Common Stock held by them at the effective time of the Merger
(the "Effective Time") .784 paired shares of PAHOC and Patriot common stock
(the "Exchange Ratio"), which shares of PAHOC and Patriot are paired and trade
as a single unit on the New York Stock Exchange (the "Paired Shares");
provided, however, that in the event that (i) the average closing price of the
Paired Shares over the ten trading days immediately preceding the third
business day prior to the date on which the Special Meeting is to be convened
(the "Average Closing Price") is greater than $31.25 and the Effective Time is
before February, 1998, the Exchange Ratio will be adjusted such that the
product of the Exchange Ratio and the Average Closing Price (the "Exchange
Ratio Product") equals $24.50; (ii) the Average Closing Price is greater than
$31.75 and the Effective Time is in February, 1998, the Exchange Ratio will be
adjusted such that the Exchange Ratio Product equals $24.89; (iii) the Average
Closing Price is greater than $32.25 and the Effective Time is after February,
1998, the Exchange Ratio will be adjusted such that the Exchange Ratio Product
equals $25.28; (iv) the Average Closing Price is less than or equal to $25.50,
but greater than or equal to $19.50, the Exchange Ratio will be adjusted such
that the Exchange Ratio Product equals $20.00; or (v) the Average Closing
Price is less than $19.50, the Exchange Ratio will equal 1.026, provided,
however, that in such circumstance WHG has the right, waivable by it, to
terminate the Merger Agreement. In addition, WHG Stockholders will be entitled
to receive for each issued and outstanding share of WHG Preferred Stock held
by them at the Effective Time that number of Paired Shares as the holder of
such share of WHG Preferred Stock would have the right to receive assuming
conversion of such share, together with any accrued and unpaid dividends
thereon, into WHG Common Stock immediately prior to the Effective Time.
No fractional Paired Shares will be issued in the Merger and, in lieu
thereof, holders of shares of WHG Common Stock and WHG Preferred Stock who
would otherwise be entitled to a fractional share interest will be paid an
amount in cash equal to the product of such fractional share interest and the
average closing price of a Paired Share on the New York Stock Exchange (the
"NYSE") on the five trading days immediately preceding the Closing Date.
<PAGE>
The Merger will be treated as a taxable exchange. Accordingly, WHG
Stockholders will recognize gain or loss measured by the difference between
the fair market value of the Paired Shares (including any cash received in
lieu of fractional shares) received in the Merger and such WHG Stockholder's
adjusted basis in the WHG Stock.
This Proxy Statement/Prospectus constitutes the prospectus of PAHOC and
Patriot with respect to the issuance of up to 7,036,342 Paired Shares in the
Merger to holders of WHG Stock.
The WHG Board has fixed the close of business on December 11, 1997 as the
record date for determination of WHG Stockholders entitled to notice of, and
to vote at, the Special Meeting. Only WHG Stockholders of record at the close
of business on such date will be entitled to notice of, and to vote at, the
Special Meeting or at any and all adjournments or postponements thereof.
This Proxy Statement/Prospectus and the accompanying form of proxy are first
being mailed to WHG Stockholders on or about December 17, 1997.
Approval of the Merger Agreement requires the affirmative vote of a majority
of the votes entitled to be cast at the Special Meeting, assuming a quorum is
present. Pursuant to (i) an Agreement, dated as of September 30, 1997, Louis
J. Nicastro has agreed to vote, subject to certain conditions, a total of
1,158 shares of WHG Common Stock and 300,000 shares of WHG Preferred Stock
beneficially owned by him (as of September 30, 1997, representing
approximately 19.9% of the total votes entitled to be cast at the Special
Meeting) in favor of the Merger and (ii) a Voting Agreement, dated as of
September 30, 1997, Sumner M. Redstone and National Amusements, Inc., a
Maryland corporation, have agreed to vote, subject to certain conditions, all
of the shares of WHG Stock owned beneficially by them in favor of the Merger
(as of September 30, 1997, representing approximately 22.9% of the total votes
entitled to be cast at the Special Meeting).
FOR CERTAIN FACTORS WHICH SHOULD BE CONSIDERED IN EVALUATING THE MERGER, SEE
"RISK FACTORS" BEGINNING ON PAGE 42.
All information contained in this Proxy Statement/Prospectus with respect to
Patriot and PAHOC has been provided by Patriot and PAHOC, respectively. All
information contained in this Proxy Statement/Prospectus with respect to WHG
has been provided by WHG.
A WHG 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 PROXY STATEMENT/PROSPECTUS. ANY REPRESENTATION TO
THE CONTRARY IS A CRIMINAL OFFENSE.
The date of this Proxy Statement/Prospectus is December 17, 1997.
(ii)
<PAGE>
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATION NOT CONTAINED IN OR INCORPORATED BY REFERENCE IN THIS 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 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 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 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 BY REFERENCE SINCE THE DATE HEREOF.
AVAILABLE INFORMATION
Patriot, PAHOC and WHG 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 Patriot, PAHOC and WHG 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, Citicorp 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. Patriot,
PAHOC and WHG 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 Patriot, PAHOC and WHG
can be inspected at the offices of the NYSE, 20 Broad Street, New York, New
York 10005, on which the Paired Shares and WHG Common Stock are currently
listed.
This 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, of which this Proxy Statement/Prospectus is a part
(the "Registration Statement"), and which Patriot and PAHOC have filed with
the Commission under the Securities Act of 1933, as amended (the "Securities
Act"). Reference is made to such Registration Statement for further
information with respect to Patriot, PAHOC and the Paired Shares offered
hereby. Statements contained herein or incorporated herein by reference
concerning the provisions of documents are summaries of such documents. 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.
(iii)
<PAGE>
INCORPORATION OF DOCUMENTS BY REFERENCE
The following documents previously filed with the Commission are hereby
incorporated by reference into this Proxy Statement/Prospectus:
PATRIOT AND PAHOC
1. Current Reports on Form 8-K of Patriot American Hospitality, Inc. and
Patriot American Hospitality Operating Company dated (i) July 1, 1997 (Nos.
001-09319, 001-09320 filed July 15, 1997), (ii) July 15, 1997 (Nos. 001-09319,
001-09320 filed July 21, 1997), (iii) July 22, 1997 (Nos. 001-09319, 001-09320
filed July 22, 1997), (iv) September 17, 1997 (Nos. 001-09319, 001-09320 filed
September 17, 1997), (v) September 30, 1997, as amended (Nos. 001-09319, 001-
09320 filed October 14, 1997 and October 28, 1997), (vi) September 30, 1997
(Nos. 001-09319, 001-09320 filed November 12, 1997), (vii) December 2, 1997
(Nos. 001-09319, 001-09320 filed December 4, 1997) and (viii) December 10,
1997 (Nos. 001-09319, 001-09320 filed December 10, 1997);
2. The description of the Paired Shares of Patriot Common Stock and PAHOC
Common Stock contained or incorporated by reference in Patriot American
Hospitality, Inc.'s and Patriot American Hospitality Operating Company's
Registration Statement on Form 8-A, including any amendments thereto (Nos.
001-09319, 001-09320 filed November 30, 1986, July 17, 1997 and July 21,
1997);
3. Quarterly Report on Form 10-Q of Patriot American Hospitality, Inc. and
Patriot American Hospitality Operating Company (Nos. 001-09319, 001-09320
filed August 14, 1997) for the fiscal quarter ended June 30, 1997; and
4. Quarterly Report on Form 10-Q of Patriot American Hospitality, Inc. and
Patriot American Hospitality Operating Company (Nos. 001-09319, 001-09320
filed November 14, 1997) for the fiscal quarter ended September 30, 1997.
CAL JOCKEY AND BAY MEADOWS
1. Annual Report on Form 10-K of California Jockey Club and Bay Meadows
Operating Company (Nos. 001-09319, 001-09320 filed March 31, 1997) for the
fiscal year ended December 31, 1996;
2. Current Reports on Form 8-K of California Jockey Club and Bay Meadows
Operating Company dated (i) February 24, 1997 (Nos. 001-09319, 001-09320 filed
March 3, 1997) and (ii) May 28, 1997 (Nos. 001-09319, 001-09320 filed June 5,
1997);
3. Quarterly Report on Form 10-Q of California Jockey Club and Bay Meadows
Operating Company (Nos. 001-09319, 001-09320 filed May 12, 1997) for the
fiscal quarter ended March 31, 1997; and
4. Quarterly Report on Form 10-Q/A of California Jockey Club and Bay Meadows
Operating Company (Nos. 001-09319, 001-09320 filed May 16, 1997) for the
fiscal quarter ended March 31, 1997.
PATRIOT AMERICAN HOSPITALITY, INC. (OLD PATRIOT)
1. Annual Report on Form 10-K of Patriot American Hospitality, Inc. (No.
001-13898 filed March 26, 1997) for the fiscal year ended December 31, 1996;
2. Current Reports on Form 8-K of Patriot American Hospitality, Inc. dated
(i) April 2, 1996, as amended (No. 001-13898 filed April 17, 1996 and June 14,
1996), (ii) December 5, 1996 (No. 001-13898 filed December 5, 1996), (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), (iv) February 24,
1997 (No. 001-13898 filed March 3, 1997) and (v) April 14, 1997, as amended
(No. 001-13898 filed April 17, 1997 and April 18, 1997); and
3. Quarterly Report on Form 10-Q of Patriot American Hospitality, Inc. (No.
001-13898 filed May 12, 1997) for the fiscal quarter ended March 31, 1997.
(iv)
<PAGE>
WYNDHAM HOTEL CORPORATION
1. Annual Report on Form 10-K of Wyndham Hotel Corporation (No. 001-11723
filed March 27, 1997) for the fiscal year ended December 31, 1996;
2. Current Reports on Form 8-K of Wyndham Hotel Corporation dated (i) April
14, 1997 (No. 001-11723 filed April 23, 1997) and (ii) July 31, 1997, as
amended (No. 001-11723 filed August 15, 1997 and September 18, 1997);
3. Quarterly Report on Form 10-Q of Wyndham Hotel Corporation (No. 001-11723
filed May 12, 1997) for the quarter ended March 31, 1997;
4. Quarterly Report on Form 10-Q/A of Wyndham Hotel Corporation (No. 001-
11723 filed June 2, 1997) for the quarter ended March 31, 1997;
5. Quarterly Report on Form 10-Q of Wyndham Hotel Corporation (No. 001-11723
filed August 14, 1997) for the quarter ended June 30, 1997;
6. Quarterly Report on Form 10-Q/A of Wyndham Hotel Corporation (No. 001-
11723 filed August 29, 1997) for the quarter ended June 30, 1997;
7. Proxy Statement of Wyndham Hotel Corporation (No. 001-11723 filed March
27, 1997) for the Annual Meeting of Stockholders held April 28, 1997;
8. Current Report on Form 8-K/A of Wyndham Hotel Corporation dated September
18, 1997 (No. 001-11723 filed September 18, 1997); and
9. Quarterly Report on Form 10-Q of Wyndham Hotel Corporation (No. 001-11723
filed November 14, 1997) for the quarter ended September 30, 1997.
In addition, all reports and other documents filed by each of Patriot,
PAHOC, Cal Jockey, Bay Meadows, Old Patriot and Wyndham Hotel Corporation
pursuant to Section 13(a), 13(c), 14 or 15(d) of the Exchange Act subsequent
to the date hereof and prior to the Special Meeting shall be deemed to be
incorporated by reference herein and to be made 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 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 Proxy Statement/Prospectus.
THIS 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
PROXY STATEMENT/PROSPECTUS IS DELIVERED BY DIRECTING REQUESTS AS FOLLOWS: IN
THE CASE OF DOCUMENTS RELATING TO PATRIOT, PAHOC, CAL JOCKEY, BAY MEADOWS OR
OLD PATRIOT, 1950 STEMMONS FREEWAY, SUITE 6001, DALLAS, TEXAS 75207,
ATTENTION: SHAREHOLDER RELATIONS (TELEPHONE NO. (214) 863-1000), OR, IN THE
CASE OF DOCUMENTS RELATING TO WYNDHAM HOTEL CORPORATION, 1950 STEMMONS
FREEWAY, SUITE 6001, DALLAS, TEXAS 75207, ATTENTION: CARLA S. MORELAND
(TELEPHONE NO. (214) 863-1000). IN ORDER TO ENSURE TIMELY DELIVERY OF THE
DOCUMENTS, ANY REQUEST SHOULD BE MADE BY JANUARY 8, 1998.
(v)
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TABLE OF CONTENTS
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SUMMARY................................................................... 1
General................................................................. 1
The Companies........................................................... 1
The Patriot Companies................................................. 1
Acquisition Sub....................................................... 4
WHG................................................................... 4
Recent Developments..................................................... 5
WHG................................................................... 5
The Patriot Companies................................................. 5
The Special Meeting..................................................... 5
Date, Time and Place.................................................. 5
Purpose of the Special Meeting........................................ 6
Record Date; Quorum................................................... 6
Required Vote......................................................... 6
Proxies............................................................... 6
The Merger.............................................................. 7
Terms of the Merger................................................... 7
WHG's Reasons for the Merger; Recommendation of the WHG Board......... 7
The Patriot Companies' Reason for the Merger.......................... 7
Opinion of WHG Financial Advisor...................................... 7
Interests of Certain Officers, Directors and WHG Stockholders......... 8
Certain Federal Income Tax Consequences............................... 8
Accounting Treatment.................................................. 8
Certain Resale Restrictions........................................... 8
Listing Application................................................... 8
No Dissenters' Rights................................................. 8
Voting and Option Agreement........................................... 8
Voting Agreement...................................................... 9
Comparison of Stockholders' Rights.................................... 9
Risk Factors............................................................ 9
The Merger Agreement.................................................... 12
Effective Time of the Merger.......................................... 12
Exchange of WHG Certificates.......................................... 12
Conditions to the Merger.............................................. 12
Termination........................................................... 13
Termination Amount and Expenses....................................... 14
Acquisition Proposals................................................. 15
COMPARATIVE STOCK PRICES.................................................. 16
SELECTED COMPARATIVE PER SHARE DATA....................................... 18
SUMMARY FINANCIAL INFORMATION............................................. 20
DISTRIBUTION AND DIVIDEND POLICY.......................................... 41
RISK FACTORS.............................................................. 42
Failure to Manage Rapid Growth and Integrate Operations Following the
Merger and the Other Transactions...................................... 42
Substantial Debt Obligations............................................ 42
Dilution to Earnings Caused by Acquisition of Wyndham and IHC........... 43
Financing............................................................... 43
Potential Conflicts of Interest Between Patriot and PAHOC............... 43
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Potential Conflicts of Interest of Certain Officers, Directors and WHG
Stockholders........................................................... 44
Patriot Tax Risks....................................................... 44
Dependence on Qualification as a REIT................................. 44
Adverse Effects of REIT Minimum Distribution Requirements............. 45
Patriot's Dependence on Lessees and Payments under the Participating
Leases................................................................. 45
Hotel Industry Risks.................................................... 45
Operating Risks....................................................... 45
Operating Costs and Capital Expenditures; Hotel Renovations........... 46
Competition for Hotel Acquisition Opportunities....................... 46
Seasonality........................................................... 46
Real Estate Investment Risks............................................ 47
General Risks......................................................... 47
Value and Illiquidity of Real Estate.................................. 47
Property Taxes........................................................ 47
Consents of Ground Lessor Required for Sale of Certain Hotels......... 47
Environmental Matters................................................. 47
Compliance with Americans with Disabilities Act....................... 48
Uninsured and Underinsured Losses..................................... 48
Acquisition and Development Risks..................................... 48
Dependence on Management Contracts...................................... 49
Possible Adverse Effects of Failure to Consummate the Other
Transactions........................................................... 49
Risks of Operating Hotels Under Franchise or Brand Affiliations......... 49
Lack of Control Over Operations of Certain Hotels Leased or Managed by
Third Parties.......................................................... 50
Stock Price Fluctuations................................................ 50
Conflicts in Certain Hotel Markets...................................... 51
Horse Racing Industry Risks............................................. 51
Casino Gaming Regulation................................................ 51
Risks Associated with the Patriot Companies' Higher Proportion of Owned
Properties............................................................. 51
Comparison of Stockholders' Rights...................................... 52
Possible Adverse Effects on Market Price of Paired Shares Arising from
Shares Available for Future Sale....................................... 52
Adverse Effect of Increase in Market Interest Rates on Price of Paired
Shares................................................................. 52
THE COMPANIES............................................................. 53
The Patriot Companies................................................... 53
General............................................................... 53
The Wyndham Merger.................................................... 54
The Gencom and CHCI Transactions...................................... 56
Other Acquisitions and Agreements..................................... 57
Acquisition Sub......................................................... 58
WHG..................................................................... 59
General............................................................... 59
Strategy and Marketing................................................ 59
The Condado Plaza..................................................... 61
El San Juan........................................................... 62
El Conquistador....................................................... 62
WHGI.................................................................. 63
Casino Credit Policy.................................................. 63
Government Regulation and Licensing................................... 64
Seasonality........................................................... 65
Competition........................................................... 65
Employees............................................................. 66
Properties............................................................ 66
Legal Proceedings..................................................... 68
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RECENT DEVELOPMENTS....................................................... 69
WHG..................................................................... 69
The Patriot Companies................................................... 69
Patriot/IHC Merger.................................................... 69
Other Owners.......................................................... 71
Revolving Credit Facility and Term Loan............................... 71
THE SPECIAL MEETING....................................................... 72
Date, Time and Place.................................................... 72
Record Date; Quorum..................................................... 72
Required Vote........................................................... 72
Proxies................................................................. 72
Manner and Expense of Solicitation...................................... 73
THE MERGER................................................................ 74
General................................................................. 74
Background of the Merger................................................ 74
WHG's Reasons for the Merger; Recommendation of the WHG Board........... 76
The Patriot Companies' Reason for the Merger............................ 79
Opinion of WHG Financial Advisor........................................ 79
Valuation of WHG...................................................... 81
Valuation of Patriot and PAHOC........................................ 82
Interests of Certain Officers, Directors and WHG Stockholders........... 84
Ownership of WHG Common Stock......................................... 84
Ownership of WHG Preferred Stock...................................... 85
Employment Agreements................................................. 87
Indemnification....................................................... 90
WHG/Patriot Subscription Agreement...................................... 90
Merger Consideration.................................................... 91
Exchange of WHG Certificates; Fractional Shares......................... 91
WHG Options............................................................. 93
Effective Time of the Merger............................................ 93
Acquisition Proposals................................................... 93
Conduct of Business..................................................... 94
Conditions to the Merger................................................ 95
Representations and Warranties.......................................... 97
Termination; Termination Fees........................................... 97
No Dissenters' Rights................................................... 98
Accounting Treatment.................................................... 98
Regulatory Approval..................................................... 98
Listing Application..................................................... 99
Certain Resale Restrictions............................................. 99
Expenses................................................................ 99
Amendments.............................................................. 100
CERTAIN RELATED AGREEMENTS................................................ 101
Voting and Option Agreement............................................. 101
Voting Agreement........................................................ 102
INFORMATION ABOUT WHG..................................................... 103
Management's Discussion and Analysis of Financial Condition and Results
of Operations.......................................................... 103
Financial Condition................................................... 103
Inflation............................................................. 107
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(viii)
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Seasonality........................................................... 107
Security Ownership of Certain Beneficial Owners......................... 108
Security Ownership of Management........................................ 110
CERTAIN FEDERAL INCOME TAX CONSIDERATIONS................................. 111
Tax Consequences of the Merger.......................................... 111
REIT Qualification...................................................... 112
General............................................................... 112
Paired Shares......................................................... 112
Potential Reallocation of Income...................................... 113
Sale of Land by Patriot............................................... 113
Classification of Patriot Partnership as a Publicly Traded
Partnership.......................................................... 113
Built-In Gain Tax..................................................... 114
Effects of Compliance with REIT Requirements............................ 114
Taxation of PAHOC; Non-Controlled Subsidiaries.......................... 115
Federal Income Taxation of Holders of Paired Shares..................... 115
Separate Taxation..................................................... 115
Taxation of Taxable U.S. Stockholders................................. 115
Taxation of Stockholders on the Disposition of Paired Shares.......... 117
Information Reporting Requirements and Backup Withholding............. 117
Taxation of Tax-Exempt Stockholders................................... 117
PRO FORMA FINANCIAL STATEMENTS............................................ 118
DESCRIPTION OF THE PATRIOT COMPANIES' CAPITAL STOCK....................... 199
General................................................................. 199
The Pairing Agreement................................................... 199
Common Stock/Paired Shares.............................................. 199
Restrictions on Ownership............................................. 199
Transfer Agent........................................................ 200
Preferred Stock......................................................... 200
Restrictions on Transfer of Capital Stock............................... 200
Effect of the Wyndham Transactions...................................... 202
General............................................................... 202
The Cooperation Agreement............................................. 203
The Amended Pairing Agreement......................................... 209
Common Stock/Paired Shares............................................ 210
Patriot Series A Preferred Stock...................................... 210
PAHOC Series A Preferred Stock and PAHOC Series B Preferred Stock..... 211
Certain Provisions of the Restated Charters and Restated Bylaws....... 211
COMPARISON OF STOCKHOLDERS' RIGHTS........................................ 216
Comparison of Rights of WHG Stockholders to Stockholders of Patriot and
PAHOC.................................................................. 216
Amendment of Charter.................................................. 216
Amendment of Bylaws................................................... 217
Directors............................................................. 217
Limitation of Liability............................................... 218
Indemnification....................................................... 218
Special Meetings of Stockholders...................................... 219
Action by Stockholders Without a Meeting.............................. 219
Restrictions on Ownership and Transfer; Pairing....................... 219
Stockholder Approval of Certain Business Combination Transactions..... 220
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(ix)
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Rights Agreement...................................................... 220
Transactions with Certain Affiliated Persons.......................... 222
Dissenters' Rights.................................................... 222
Repurchase and Redemption of Shares................................... 222
Non-Voting Common Stock; Preferred Stock.............................. 222
Payment of Dividends.................................................. 223
Dissolution........................................................... 223
Inspection of Books and Records....................................... 223
Differences Resulting from the Pairing Agreement...................... 223
Changes in Rights of Stockholders of Patriot and PAHOC Following the
Consummation of the Wyndham Transactions............................... 224
Restrictions on Ownership and Transfer................................ 224
Amendment of Bylaws................................................... 224
Differences Resulting from the Cooperation Agreement.................. 225
Differences Resulting from the Amended Pairing Agreement.............. 225
LEGAL OPINION............................................................. 225
EXPERTS................................................................... 226
Independent Auditors for the Patriot Companies.......................... 226
Independent Auditors for WHG............................................ 228
STOCKHOLDER PROPOSALS..................................................... 228
VOTING PROCEDURES......................................................... 228
GLOSSARY OF DEFINED TERMS................................................. 229
FINANCIAL STATEMENTS...................................................... F-1
ANNEXES
Agreement and Plan of Merger............................................ A-1
Fairness Opinion of Oppenheimer & Co., Inc.............................. B-1
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(x)
<PAGE>
SUMMARY
The following is a summary of certain information contained elsewhere in this
Proxy Statement/Prospectus relating to the Merger Agreement. This summary does
not purport to contain all information relating to the Merger Agreement and the
transactions contemplated thereby, including the Merger, and is qualified in
its entirety by the more detailed information and financial statements
contained or incorporated by reference in this Proxy Statement/Prospectus. WHG
STOCKHOLDERS SHOULD READ CAREFULLY THIS PROXY STATEMENT/PROSPECTUS INCLUDING
THE ANNEXES ATTACHED HERETO. CAPITALIZED TERMS USED IN THIS PROXY
STATEMENT/PROSPECTUS AND NOT OTHERWISE DEFINED HEREIN HAVE THE MEANINGS
ASCRIBED TO SUCH TERMS UNDER THE SECTION OF THIS PROXY STATEMENT/PROSPECTUS
ENTITLED "GLOSSARY OF DEFINED TERMS," WHICH BEGINS ON PAGE 229.
GENERAL
This Proxy Statement/Prospectus relates to the proposed business combination
between WHG and PAHOC, by means of the Merger, pursuant to the terms of the
Merger Agreement. Upon consummation of the Merger, WHG will become a subsidiary
of PAHOC and Acquisition Sub will cease to exist as a separate entity. The full
text of the Merger Agreement is attached hereto as Annex A and is incorporated
by reference herein.
THE COMPANIES
The Patriot Companies
On July 1, 1997, Old Patriot consummated its acquisition of Cal Jockey and
Bay Meadows. In the Cal Jockey Merger, Old Patriot merged with and into Cal
Jockey, with Cal Jockey being the surviving company. Upon consummation of the
Cal Jockey Merger, Cal Jockey changed its name to "Patriot American
Hospitality, Inc." and Bay Meadows changed its name to "Patriot American
Hospitality Operating Company." Each share of Patriot Common Stock is "paired"
and trades on the NYSE as a unit with one share of PAHOC Common Stock. As a
result of the Cal Jockey Merger, Patriot became one of two hotel REITs with a
paired share ownership structure.
Patriot is a self-administered REIT which as of December 12, 1997, owned
interests in 81 hotels with an aggregate of over 20,400 guest rooms. 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. The hotels include 70 full service hotels, six resort hotels,
four limited service hotels and an executive conference center. Seventy-eight
of the hotels are operated under franchise or brand affiliations with
nationally recognized hotel companies, including Marriott(R), Crowne Plaza(R),
Radisson(R), Ramada(R), Hilton(R), Hyatt(R), Four Points by Sheraton(R),
Holiday Inn(R), Wyndham SM, Wyndham Garden(R), WestCoast(R), Doubletree(R),
Embassy Suites(R), Hampton Inn(R), Registry(R), Carefree(R) and Grand
Heritage(R). See "The Companies--The Patriot Companies."
PAHOC currently leases from Patriot 43 hotels, 25 of which were purchased by
Patriot subsequent to the Cal Jockey Merger. Additionally, Patriot expects that
a significant portion of its future acquisitions, including the hotels to be
acquired in connection with the Other Hotel Acquisitions, if consummated, will
be leased to PAHOC. In 1997, PAHOC acquired the management operations of Grand
Heritage Hotels and Carefree Resorts, and PAHOC currently provides management
services to the hotels and resorts acquired in those transactions.
<PAGE>
In addition to leasing and managing hotels, PAHOC is also engaged 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, PAHOC 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. The Racecourse also 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. See "The Companies--The Patriot Companies."
On April 14, 1997, Patriot entered into the Wyndham Merger Agreement, as well
as the Wyndham Stock Purchase Agreement, pursuant to which, subject to the
waiver or satisfaction of certain conditions, Wyndham will merge with and into
Patriot with Patriot being the surviving company. The terms of the Wyndham
Merger Agreement provide that each share of Wyndham Common Stock generally will
be converted into 1.372 Paired Shares; provided, however, that if the average
closing price of a Paired Share over the 20 trading days immediately preceding
the fifth business day prior to the special meeting of Wyndham stockholders
(the "Patriot/Wyndham Average Closing Price") is less than $21.86 but greater
than or equal to $20.87, each share of Wyndham Common Stock, other than shares
as to which Cash Consideration is to be received, will be converted into the
number of Paired Shares equal to $30.00 divided by the Patriot/Wyndham Average
Closing Price, and, in the event that the Patriot/Wyndham Average Closing Price
is less than $20.87, each such share of Wyndham Common Stock will be converted
into 1.438 Paired Shares (the applicable conversion ratio being referred to
herein as the "Wyndham Exchange Ratio"), unless Wyndham exercises its right to
terminate the Wyndham Merger Agreement in such event. However, if the effective
time of the Wyndham Merger does not occur on or prior to December 31, 1997,
other than as a result of the failure, caused by Wyndham, of certain closing
conditions to be satisfied (a "Wyndham Delay"), and the Patriot/Wyndham Average
Closing Price is less than $27.50 but greater than or equal to $25.50, the
Wyndham Exchange Ratio will be adjusted so that each share of Wyndham Common
Stock, other than shares as to which Cash Consideration is to be received, will
be converted into the right to receive the number of Paired Shares equal to
$37.73 divided by the Patriot/Wyndham Average Closing Price. If the Effective
Time of the Wyndham Merger does not occur on or prior to December 31, 1997
other than as a result of a Wyndham Delay, and the Patriot/Wyndham Average
Closing Price is less than $25.50, the Wyndham Exchange Ratio will be adjusted
so that each share of Wyndham Common Stock, other than shares as to which Cash
Consideration is to be received, will be converted into the right to receive
1.480 Paired Shares, unless Wyndham exercises its right to terminate the
Wyndham Merger Agreement in such event.
In connection with the proposed Wyndham Merger, Patriot also entered into a
definitive agreement with partnerships affiliated with members of the Crow
Family providing for Patriot's acquisition of up to 11 full-service Wyndham-
branded hotels with 3,072 rooms for an aggregate purchase price of
approximately $332 million in cash, plus up to $14 million in additional cash
consideration if two of the hotels meet certain cash flow targets. Patriot
expects that most of such hotels will be purchased in December, 1997 and the
Wyndham Merger will become effective early in January, 1998. However, because
the Wyndham Transactions are subject to various closing conditions, including
approval of the Wyndham Merger by the stockholders of Patriot and Wyndham in
the case of the Wyndham Merger, no assurance can be given that the Wyndham
Transactions will be consummated.
In September and October, 1997, Patriot acquired ten hotels (including an
approximate 50% controlling ownership interest in one of the hotels) from
entities affiliated with the Gencom American Hospitality group of companies
("Gencom") and CHC International, Inc. ("CHCI") for an aggregate purchase price
of approximately $237 million. Financing for the purchase of the hotels
consisted of cash from the Revolving Credit Facility and the issuance of Paired
Shares and paired OP Units in a private placement. In connection with the
foregoing transactions, Patriot acquired the leasehold interests relating to
eight of 25 hotels which were previously leased by CHC Lease Partners, Inc.
("CHC Lease Partners") (previously the largest independent
2
<PAGE>
lessee of Patriot's hotels) for a purchase price of approximately $53 million,
and PAHOC purchased an approximate 50% managing and controlling ownership
interest in GAH-II, L.P. ("GAH"), an affiliate of CHCI and Gencom, from
affiliates of Gencom for a purchase price of approximately $14 million. Prior
to the acquisition of the leasehold interests, the management contracts with
GAH relating to the eight hotels were terminated. These transactions were
financed with cash, the issuance of paired OP Units in the Patriot Partnerships
and the issuance of preferred OP Units in the PAHOC Partnership.
In addition, on September 30, 1997, Patriot, PAHOC and CHCI entered into the
CHCI Merger Agreement providing, subject to certain conditions including
regulatory approvals, for the merger of the hospitality-related businesses of
CHCI with and into PAHOC with PAHOC 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 certain conditions including receipt of all
necessary regulatory approvals. As a result of the CHCI Merger, PAHOC, through
its subsidiaries, will acquire the remaining 50% investment interest in GAH,
the remaining 17 leasehold interests relating to hotels leased by CHC Lease
Partners and 16 of the associated management contracts related to the Patriot
hotels leased by CHC Lease Partners, three management contracts related to
Patriot hotels leased by PAHOC, 12 third-party management contracts, two third-
party lease contracts, the Grand Bay and Registry Hotels & Resorts proprietary
brand names and certain other hospitality management assets. See "The
Companies--The Patriot Companies."
Pursuant to the CHCI Merger, each issued and outstanding CHCI Share and
certain stock option rights will be converted into the right to receive shares
of PAHOC Series A Preferred Stock and shares of PAHOC Series B Preferred Stock.
See "Description of the Patriot Companies' Capital Stock--Effect of Other
Transactions--PAHOC Series A Preferred Stock and PAHOC Series B Preferred
Stock." The formula for determining the exchange ratio of CHCI Shares for PAHOC
Series A Preferred Stock and PAHOC Series B Preferred Stock is based on the
issuance of an aggregate of approximately 4,396,000 shares of PAHOC 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 after September 30, 1997. Generally, the
aggregate number of shares of PAHOC Preferred Stock that each stockholder will
have the right to receive pursuant to the CHCI Merger will consist of, to the
extent possible, an equal number of PAHOC Series A Preferred Stock and PAHOC
Series B Preferred Stock. The Unaudited Pro Forma Financial Statements set
forth in this Proxy Statement/Prospectus show the effects on the Patriot
Companies of the transactions consummated in September and October 1997 with
Gencom and CHCI, as well as the CHCI Merger. See "Unaudited Pro Forma Financial
Statements." There can be no assurance that the CHCI Merger will be
consummated.
As part of the Gencom and CHCI transactions described above, Karim Alibhai,
the Chief Executive Officer of Gencom, was appointed to the positions of
President, Chief Operating Officer and Director of PAHOC. PAHOC has entered
into an employment agreement with Mr. Alibhai pursuant to which Mr. Alibhai
serves as President and Chief Operating Officer of PAHOC for a term of three
years. See "The Companies--The Patriot Companies."
Patriot has also entered into agreements or letters of intent to purchase
three additional hotels aggregating 1,623 rooms for an aggregate purchase price
of approximately $236.7 million (the "Other Hotel Acquisitions"). The Other
Hotel Acquisitions are subject to various closing conditions and no assurances
can be given that the Other Hotel Acquisitions will be consummated.
On September 30, 1997, the Patriot Companies exercised their right to call
2,000,033 units of limited partnership interests in each of the Patriot
Partnerships held by The Morgan Stanley Real Estate Fund, L.P. and certain
related entities (the "Morgan Stanley Call"). The exercise price on the Morgan
Stanley Call was $25.875 per pair of OP Units.
3
<PAGE>
Pursuant to an underwriting agreement dated November 13, 1997, the Patriot
Companies sold 1,000,033 Paired Shares to PaineWebber (the "PaineWebber Direct
Placement") at a purchase price per Paired Share of $27.6875, or aggregate
consideration of approximately $27.7 million (the "Direct Placement Purchase
Price"). In addition, pursuant to a stock purchase agreement dated November 13,
1997, the Patriot Companies sold 1,000,000 Paired Shares to LaSalle Advisors
Limited Partnership ("LaSalle"), as agent for certain clients of LaSalle, at a
purchase price per Paired Share of $27.65, or aggregate consideration of
approximately $27.7 million (the "LaSalle Direct Placement").
Depending on market conditions and other relevant factors the Patriot
Companies may seek additional debt or equity financing prior to the Effective
Time.
The Patriot Companies' principal executive offices are located at 1950
Stemmons Freeway, Suite 6001, Dallas, Texas 75207 and the telephone number at
this location is (214) 863-1000.
Acquisition Sub
Acquisition Sub was organized as a subsidiary of PAHOC solely to facilitate
the Merger and has not engaged in any significant business activity.
WHG
WHG owns interests in three of the leading hotels and casinos in Puerto
Rico--the Condado Plaza Hotel & Casino (the "Condado Plaza"), the El San Juan
Hotel & Casino (the "El San Juan") and the El Conquistador Resort & Country
Club (the "El Conquistador"). These three hotels are managed by Williams
Hospitality Group Inc. ("WHGI"), which is 62% owned by WHG. In all, WHG owns
interests in and manages 1,875 suites and hotel rooms, 36,300 square feet of
casino floor space containing 120 gaming tables and 940 slot machines and
approximately 146,000 square feet of convention and meeting space. These
properties also include a total of 22 restaurants, 41 shops, one showroom,
three health and fitness centers, 13 tennis courts, an 18-hole championship
golf course, a marina and 25 cocktail and entertainment lounges.
WHG's hotels are each focused on different market segments: the Condado Plaza
primarily services the business traveler, the El San Juan caters to individual
vacation travelers, as well as to small groups and conferences and corporate
executives and the El Conquistador offers extensive group and conference
facilities and also attracts the individual leisure traveler.
The Condado Plaza was recently awarded a "Four Diamond" rating by the
American Automobile Association for the tenth consecutive year. The Condado
Plaza maintained an average occupancy during the fiscal year ended June 30,
1997 of 82.4% and an average daily room rate of $142.83.
The El San Juan was recently awarded a "Four Diamond" rating by the American
Automobile Association for the eleventh year in a row as well as the
prestigious Gold Key Award by Meetings & Conventions Magazine which recognizes
the world's best meeting resorts. The El San Juan maintained an average
occupancy during the fiscal year ended June 30, 1997 of 80.6% and an average
daily room rate of $188.42.
The El Conquistador has received the Gold Key Award by Meetings & Conventions
Magazine and the Paragon Award by Corporate Meetings & Incentives Magazine for
excellence in meetings and conventions. It has been awarded the American
Automobile Association "Four Diamond" rating for each of its three full years
of operation. The Las Casitas Village at the El Conquistador was recently
awarded a "Five Diamond" rating by the American Automobile Association. During
the fiscal year ended March 31, 1997, the resort's third full fiscal year of
operation, the El Conquistador had an average occupancy of 72.0% and an average
daily room rate of $202.86.
WHG is the sole owner of Posadas de Puerto Rico Associates, Incorporated
("PPRA"), which owns the Condado Plaza. The El San Juan and WHGI are owned in
part by WHG and in part by unaffiliated third parties (the "Other Owners"). WHG
was formed in 1983 and in that same year, together with the Other Owners,
formed
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PPRA and WHGI for the purpose of acquiring and managing the hotel and casino
property now known as the Condado Plaza. A year later, WHG, together with the
Other Owners, caused the formation of Posadas de San Juan Associates for the
purpose of acquiring and managing, through WHGI, the hotel and casino property
now known as the El San Juan. Since 1983, WHG has increased its ownership
interests in PPRA and WHGI and WHG currently owns 100% of PPRA, a 50% interest
in the El San Juan and 62% of WHGI. In 1990, WHG, together with the Other
Owners, caused the formation of WKA El Con Associates ("WKA"). The El
Conquistador Partnership L.P. (the "El Con Partnership") was formed by WKA and
Kumagai Caribbean, Inc. ("Kumagai"), a subsidiary of Kumagai Gumi Co., Ltd., a
large Japanese construction company, for the purpose of acquiring and
renovating the hotel and casino property now known as the El Conquistador.
WHG's interest in WKA represents a 23.3% effective ownership interest in the El
Conquistador. The El Conquistador is also managed by WHGI.
Prior to April 21, 1997, WHG was a wholly owned subsidiary of WMS Industries
Inc., a Delaware corporation ("WMS"). Effective April 21, 1997 (the
"Distribution Date"), WMS distributed (the "Distribution") all of the
outstanding shares of WHG Common Stock to its stockholders as a tax free
dividend on its common stock (the "WMS Common Stock"). As a result of the
Distribution, WHG became an independent public company. See "The Companies--
WHG."
WHG's principal executive offices are located at 6063 East Isla Verde Avenue,
Carolina, Puerto Rico 00979 and the telephone number at this location is (787)
791-2222.
RECENT DEVELOPMENTS
WHG
On November 5, 1997, the El Con Partnership entered into the Supplement to
Letter of Credit and Reimbursement Agreement with The Bank of Tokyo-Mitsubishi,
Ltd. in order to extend the term of the letter of credit securing the first
mortgage on the El Conquistador for an additional three months until June 9,
1998. The extension of the letter of credit effectively extended the term of
the first mortgage on the El Conquistador for an additional three months from
February 1, 1998 until May 1, 1998. The GDB has similarly extended the term of
the El Conquistador's $6.0 million revolving credit facility. See "Recent
Developments--WHG."
The Patriot Companies
On December 2, 1997, Patriot and PAHOC entered into an Agreement and Plan of
Merger dated as of December 2, 1997 by and among Patriot, PAHOC and Interstate
Hotels Company ("IHC") (the "Patriot/IHC Merger Agreement"), pursuant to which
IHC will merge with and into Patriot with Patriot being the surviving
corporation (the "Patriot/IHC Merger"). As a result of the Patriot/IHC Merger,
Patriot will acquire all of the assets and liabilities of IHC, including IHC's
portfolio of 222 owned, leased or managed hotels located in the United States,
Canada, the Caribbean and Russia. Of IHC's portfolio, 40 hotels aggregating
approximately 11,580 rooms are owned or controlled by IHC, 90 hotels
aggregating approximately 10,354 rooms are leased and 92 hotels aggregating
approximately 23,183 rooms are managed or subject to service agreements. IHC
operates its hotels under a variety of brand names, including Marriott(R),
Embassy Suites(R), Hilton(TM), Holiday Inn(R), Radisson(TM), Westin(R),
Sheraton(TM), Doubletree(TM), Residence Inn(TM), Hampton Inn(R), Comfort
Inn(TM), Homewood Suites(TM) and Colony(R). As a result of the Patriot/IHC
Merger, Patriot will assume or refinance all of IHC's existing indebtedness,
which totaled approximately $790 million as of December 2, 1997. See "Recent
Developments--The Patriot Companies."
THE SPECIAL MEETING
Date, Time and Place
The Special Meeting will be held at The Breakers, One South County Road, Palm
Beach, Florida 33480, on January 16, 1998 at 10:30 a.m. local time.
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Purpose of the Special Meeting
The purpose of the Special Meeting is to consider and vote upon a proposal to
approve and adopt the Merger Agreement and the transactions contemplated
thereby, pursuant to which, among other things, Acquisition Sub will be merged
with and into WHG. As a result of the Merger, WHG will continue as the
surviving corporation and as a subsidiary of PAHOC. See "The Special Meeting."
A copy of the Merger Agreement is attached hereto as Annex A.
Record Date; Quorum
The Record Date for the Special Meeting is December 11, 1997. Only holders of
record of WHG Common Stock and WHG Preferred Stock on the Record Date will be
entitled to notice of and to vote at the Special Meeting. Each share of WHG
Common Stock outstanding on the Record Date is entitled to one vote at the
Special Meeting. There were 6,050,200 shares of WHG Common Stock outstanding on
the Record Date. Each share of WHG Preferred Stock outstanding on the Record
Date is entitled to five votes at the Special Meeting. There were 300,000
shares of WHG Preferred Stock outstanding on the Record Date. The WHG Common
Stock and WHG Preferred Stock will vote together as a single class at the
Special Meeting. The presence, in person or by proxy, of the holders of a
majority of the shares entitled to vote at the Special Meeting is necessary to
constitute a quorum for the transaction of business at the Special Meeting. See
"The Special Meeting--Record Date; Quorum."
Required Vote
Pursuant to the DGCL and the WHG Bylaws, assuming a quorum is present, the
affirmative vote of a majority of all of the votes entitled to be cast at the
Special Meeting is required to approve the Merger. See "The Special Meeting--
Required Vote" and "The Merger--Conditions to the Merger." Pursuant to the
Voting and Option Agreement, Louis J. Nicastro, among other things, irrevocably
appointed PAHOC, as proxy with full power of substitution, to vote each share
of WHG Common Stock and WHG Preferred Stock owned by him at every meeting of
the WHG Stockholders in favor of the Merger Agreement and the transactions
contemplated thereby. Additionally, pursuant to the Voting Agreement, Sumner M.
Redstone and National Amusements, Inc. (collectively, the "NAI Group"), among
other things and subject to certain limitations, agreed to vote all shares of
WHG Common Stock beneficially owned by them at all meetings of the WHG
Stockholders in favor of the adoption of the Merger Agreement and the
transactions contemplated thereby. As a result of the Voting and Option
Agreement and the Voting Agreement, stockholders owning shares of WHG having
the right to cast approximately 42.79% of the possible votes to be cast at the
Special Meeting have agreed to vote, subject to certain conditions, in favor of
the Merger Agreement and the transactions contemplated thereby. See
"Information About WHG--Security Ownership of Certain Beneficial Owners" and
"Certain Related Agreements--Voting and Option Agreement" and "--Voting
Agreement."
Proxies
A proxy is enclosed for use at the Special Meeting. A proxy may be revoked at
any time prior to its exercise at the Special Meeting. WHG Common Stock and WHG
Preferred Stock represented by properly executed proxies received at or prior
to the Special Meeting which have not been revoked will be voted in accordance
with the instructions specified therein. If no instructions are given, such
proxies will be voted "FOR" approval and adoption of the Merger Agreement and
the transactions contemplated thereby. See "The Special Meeting--Proxies."
THE WHG BOARD HAS UNANIMOUSLY APPROVED THE MERGER AGREEMENT AND THE
TRANSACTIONS CONTEMPLATED THEREBY AND UNANIMOUSLY RECOMMENDS THAT WHG
STOCKHOLDERS VOTE FOR APPROVAL OF THE MERGER AGREEMENT AND THE TRANSACTIONS
CONTEMPLATED THEREBY. SEE "THE MERGER--BACKGROUND OF THE MERGER" AND "--WHG'S
REASONS FOR THE MERGER; RECOMMENDATION OF THE WHG BOARD."
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THE MERGER
Terms of the Merger
PAHOC, Acquisition Sub, Patriot and WHG entered into the Merger Agreement
dated as of September 30, 1997 pursuant to which Acquisition Sub will merge
with and into WHG, with WHG as the surviving company. Each of the PAHOC Board,
the Acquisition Sub Board, the Patriot Board and the WHG Board has approved the
Merger Agreement and the transactions contemplated thereby.
Pursuant to the Merger Agreement, WHG Stockholders will be entitled to
receive for each issued and outstanding share of WHG Common Stock held by them
at the Effective Time 0.784 Paired Shares (the "Exchange Ratio"); provided,
however, that in the event that (i) the average closing price of the Paired
Shares over the ten trading days immediately preceding the third business day
prior to the date on which the Special Meeting is to be convened (the "Average
Closing Price") is greater than $31.25 and the Effective Time is before
February, 1998, the Exchange Ratio will be adjusted such that the product of
the Exchange Ratio and the Average Closing Price (the "Exchange Ratio Product")
equals $24.50; (ii) the Average Closing Price is greater than $31.75 and the
Effective Time is in February, 1998, the Exchange Ratio will be adjusted such
that the Exchange Ratio Product equals $24.89; (iii) the Average Closing Price
is greater than $32.25 and the Effective Time is after February, 1998, the
Exchange Ratio will be adjusted such that the Exchange Ratio Product equals
$25.28; (iv) the Average Closing Price is less than or equal to $25.50, but
greater than or equal to $19.50, the Exchange Ratio will be adjusted such that
the Exchange Ratio Product equals $20.00; or (v) the Average Closing Price is
less than $19.50, the Exchange Ratio will equal 1.026, provided, however, that
in such circumstance WHG has the right, waivable by it, to terminate the Merger
Agreement. In addition, WHG Stockholders will be entitled to receive for each
issued and outstanding share of WHG Preferred Stock held by them at the
Effective Time that number of Paired Shares as the holder of such share of WHG
Preferred Stock would have the right to receive assuming conversion of such
share, together with any accrued and unpaid dividends thereon, into WHG Common
Stock immediately prior to the Effective Time. See "The Merger--Merger
Consideration."
No fractional Paired Shares will be issued in the Merger and, in lieu
thereof, holders of shares of WHG Common Stock and WHG Preferred Stock who
would otherwise be entitled to a fractional share interest will be paid an
amount in cash equal to the product of such fractional share interest and the
average closing price of a Paired Share on the NYSE on the five trading days
immediately preceding the Closing Date.
The Paired Shares to be issued to holders of WHG Common Stock and WHG
Preferred Stock in the Merger, together with any cash payment in lieu of
fractional shares, are referred to herein as the "Merger Consideration."
WHG's Reasons for the Merger; Recommendation of the WHG Board
The WHG Board concluded that the terms of the Merger are fair to, and in the
best interests of, the WHG Stockholders. Accordingly, the WHG Board has
unanimously approved and adopted the Merger Agreement and the transactions
contemplated thereby. The WHG Board recommends a vote FOR approval and adoption
of the Merger Agreement and the transactions contemplated thereby. For a
discussion of the circumstances leading up to the execution of the Merger
Agreement and the factors considered by the WHG Board in making its
recommendation, see "The Merger--WHG's Reasons for the Merger; Recommendation
of the WHG Board" and "--Background of the Merger."
The Patriot Companies' Reason for the Merger
The Patriot Companies' reason for entering into the Merger Agreement was to
acquire all of the equity interest in WHG. See "The Merger--The Patriot
Companies' Reason for the Merger."
Opinion of WHG Financial Advisor
Oppenheimer delivered its opinion to the WHG Board on September 30, 1997 to
the effect that as of such date, the Merger Consideration to be received by the
holders of WHG Common Stock and WHG Preferred Stock is fair to such holders
from a financial point of view. The full text of the written opinion of
Oppenheimer, which
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sets forth the assumptions made, matters considered and limitations on the
review undertaken in connection with the opinion, is attached hereto as Annex B
and is incorporated herein by reference. WHG Stockholders are urged to, and
should, read such opinion in its entirety. The opinion of Oppenheimer is
directed to the WHG Board and relates only to the fairness of the Merger
Consideration from a financial point of view to the WHG Stockholders, does not
address any other aspect of the Merger or related transactions and does not
constitute a recommendation to any WHG Stockholder as to how such WHG
Stockholder should vote at the Special Meeting. See "The Merger--Opinion of WHG
Financial Advisor."
Interests of Certain Officers, Directors and WHG Stockholders
In considering the recommendation of the WHG Board with respect to the
Merger, WHG Stockholders should be aware that certain officers, directors and
WHG Stockholders have certain interests summarized herein that may present
actual or potential conflicts of interest in connection with the Merger. For a
more detailed discussion of such interests, see "The Merger--Interests of
Certain Officers, Directors and WHG Stockholders." The WHG Board was aware of
the potential or actual conflicts of interest and considered them along with
other matters described under "The Merger--WHG's Reasons for the Merger;
Recommendation of the WHG Board."
Certain Federal Income Tax Consequences
The Merger will be treated as a taxable exchange for U.S. federal income tax
purposes. WHG Stockholders will be required to recognize gain or loss with
respect to their WHG Stock exchanged in the Merger, measured by the difference
between the fair market value of the Merger Consideration they receive and such
stockholder's adjusted tax basis in the WHG Stock. See "Certain Federal Income
Tax Considerations--Tax Consequences of the Merger."
Accounting Treatment
PAHOC will account for the Merger as a purchase in accordance with Accounting
Principles Board Opinion No. 16. See "The Merger--Accounting Treatment."
Certain Resale Restrictions
All Paired Shares received by WHG Stockholders in the Merger will be freely
transferable as Paired Shares, except that Paired Shares received by persons
who are deemed to be "affiliates" (as such term is defined under the Securities
Act) of WHG at the time of the Special Meeting may be resold by them only in
certain permitted circumstances. See "The Merger--Interests of Certain
Officers, Directors and WHG Stockholders" and "--Certain Resale Restrictions."
Listing Application
It is a condition to the obligations of Patriot, PAHOC, Acquisition Sub and
WHG to consummate the Merger that, prior to the Effective Time, PAHOC and
Patriot obtain the approval for the listing on the NYSE of the Paired Shares
issuable in the Merger, subject to official notice of issuance. Following the
Merger, the Paired Shares will continue to trade on the NYSE under the symbol
"PAH." See "The Merger--Listing Application" and "--Conditions to the Merger."
No Dissenters' Rights
Under the DGCL, WHG Stockholders are not entitled to dissenters' rights in
connection with the Merger. See "The Merger--No Dissenters' Rights."
Voting and Option Agreement
As a condition to the willingness of PAHOC, Acquisition Sub and Patriot to
enter into the Merger Agreement, Mr. Nicastro entered into an agreement with
PAHOC, Acquisition Sub and Patriot dated as of
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September 30, 1997 in which, subject to the terms contained therein, he (i)
granted PAHOC an irrevocable proxy to vote 1,158 shares of WHG Common Stock and
300,000 shares of WHG Preferred Stock in favor of the Merger Agreement and the
transactions contemplated thereby, (ii) agreed to not offer, sell, contract to
sell, make any short sale, pledge, grant any option to purchase or otherwise
dispose of the Paired Shares received as Merger Consideration in the Merger for
a period of 90 days after the Effective Time; provided, however, that he may
during such period sell Paired Shares in compliance with the law provided that
the aggregate proceeds of such sales do not exceed $3,000,000, and (iii)
granted PAHOC or its designee an irrevocable option to purchase 300,000 shares
of WHG Preferred Stock. Mr. Nicastro also entered into an employment agreement
with WHGI, which agreement will not become effective until the Effective Time.
See "Certain Related Agreements--Voting and Option Agreement" and "The Merger--
Interests of Certain Officers, Directors and WHG Stockholders."
Voting Agreement
As a condition to the willingness of PAHOC, Acquisition Sub and Patriot to
enter into the Merger Agreement, the NAI Group entered into an agreement with
PAHOC, Acquisition Sub and Patriot dated as of September 30, 1997 in which it
agreed to vote and granted a proxy with respect to, subject to the terms
contained therein, the shares of WHG Common Stock which are beneficially owned
by the NAI Group in favor of the Merger Agreement and the transactions
contemplated thereby. See "Certain Related Agreements--Voting Agreement" and
"The Merger--Interests of Certain Officers, Directors and WHG Stockholders."
Comparison of Stockholders' Rights
The rights of WHG Stockholders and stockholders of Patriot and PAHOC differ
in certain respects. See generally, "Comparison of Stockholders' Rights."
Although WHG, Patriot and PAHOC are Delaware corporations, the organizational
documents that govern each of them differ in a variety of ways. The current
material differences in the organizational documents governing the rights of
WHG Stockholders and stockholders of Patriot and PAHOC are, although not
limited to, the percentage of stockholder votes required for amending their
respective corporate charters, the percentage of stockholder votes required for
amending their respective bylaws, the percentage of stockholder votes required
for removing directors and the reasons for removal of their respective
directors, the rights of stockholders to act without a meeting, restrictions on
ownership and transfer of the companies' respective common stock, the
percentage of stockholder votes required for certain business combinations, the
absence of a stockholders rights agreement in the Patriot and PAHOC
organizational documents, the absence of the right to issue non-voting common
stock by the Patriot Board and the PAHOC Board and differences resulting from
the Pairing Agreement. See "Comparison of Stockholders' Rights--Comparison of
Rights of WHG Stockholders to Stockholders of Patriot and PAHOC" for greater
detail and a more expansive description of the rights of WHG Stockholders and
the stockholders of Patriot and PAHOC.
Assuming consummation of the Other Transactions, the rights of stockholders
of Patriot and PAHOC will differ in certain respects from the rights of
stockholders of Patriot and PAHOC prior to the consummation of the Other
Transactions. Accordingly, when considering the differences in stockholders'
rights as currently stated, it should also be recognized, and carefully
considered, that these rights will differ if, and when, the Wyndham
Transactions are consummated including differences resulting from the
Cooperation Agreement. For changes in stockholders' rights following the
consummation of the Other Transactions, see "Comparison of Stockholders'
Rights--Changes in Rights of Stockholders of Patriot and PAHOC Following the
Consummation of the Other Transactions."
RISK FACTORS
In considering whether to approve the Merger Agreement, WHG Stockholders
should consider, in addition to the other information in this Proxy
Statement/Prospectus, the matters discussed under "Risk Factors." Such matters
include:
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. Risks associated with the Patriot Companies' rapid growth, and the Patriot
Companies' ability to manage their operations following the Merger and the
Other Transactions. Based upon the respective portfolios of the Patriot
Companies, Wyndham and IHC at December 1, 1997, the Patriot Companies'
aggregate rooms portfolio after giving effect to the Other Transactions will
be approximately 103,000 rooms, representing an increase in the Patriot
Companies' rooms portfolio of over 98,800 since Patriot's Initial Offering.
Failure of the Patriot Companies to expand their operations to satisfy the
needs of a rapidly growing asset base in a functionally and economically
efficient manner or the failure of the Patriot Companies to successfully
integrate their operations with those being acquired could have a material
adverse effect on the results of operations and financial condition of the
Patriot Companies and could result in the Patriot Companies' failure to
recognize the anticipated benefits of these acquisitions. See "Risk
Factors--Failure to Manage Rapid Growth and Integrate Operations Following
the Merger and the Other Transactions."
. Possible adverse consequences to the stockholders of the Patriot Companies
as a result of (i) the increase in the amount of pro forma combined total
indebtedness of the Patriot Companies following the Merger and assuming
consummation of the Other Transactions to approximately $2.8 billion
(approximately $22.4 million attributable to the Merger) from approximately
$790 million (on a pro forma basis as of September 30, 1997 without giving
effect to the Patriot/IHC Merger, the Buena Vista Acquisition, the Merger
and the Wyndham Transactions), and (ii) the increase in the pro forma ratio
of combined debt to total market capitalization of the Patriot Companies
following the Merger and assuming consummation of the Other Transactions to
39.6%. The calculation of the pro forma ratio of combined debt to total
market capitalization is based on a $28.50 closing price for a Paired Share
on December 12, 1997. See "Risk Factors--Substantial Debt Obligations."
. Risks associated with the failure to consummate the Other Transactions. The
consummation of the Wyndham Transactions is subject to, among other things,
regulatory approval and the approval of the stockholders of Wyndham, Patriot
and PAHOC. The consummation of the CHCI Merger is subject to, among other
things, regulatory approval and the approval of the stockholders of CHCI.
The consummation of the Patriot/IHC Merger is subject to, among other
things, regulatory approval and the approval of the stockholders of IHC,
Patriot and PAHOC. No assurance can be given that the Other Transactions
will be consummated. If the Other Transactions are not consummated, the
Patriot Companies will not acquire (i) Wyndham's portfolio of hotels,
management and franchise agreements or proprietary brand names, (ii) CHCI's
hospitality-related businesses or proprietary brand names or (iii) IHC's
portfolio of owned, leased or managed hotels.
. Risks associated with the actual and potential conflicts of interest between
Patriot and PAHOC. Patriot and PAHOC will have, immediately following the
Merger and the Other Transactions, several of the same directors. Patriot
believes that this overlap of directors and the provisions of the
Cooperation Agreement (if and when entered into) will help decrease the
possibility of disagreements between the two companies. No assurance can be
given, however, that the interests of the directors of one company will not
conflict with their interests as 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 Patriot and PAHOC" and "Description of the
Patriot Companies' Capital Stock--The Cooperation Agreement."
. Risks associated with the various agreements entered into between the
Patriot Companies and certain members of WHG Senior Management in connection
with the Merger, and certain other benefits which may be received by the
officers and directors of WHG as a result of the Merger. The decision to
enter into these agreements in connection with the Merger, as well as
certain other benefits which may be received by certain members of WHG
Senior Management in connection with the Merger, raises issues concerning
certain potential and actual conflicts of interest. See "Risk Factors--
Potential Conflicts of Interest of Certain Officers, Directors and WHG
Stockholders," "The Merger--Interests of Certain Officers, Directors and WHG
Stockholders" and "--Background of the Merger."
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. Patriot leases substantially all of its existing hotels to the Lessees and
to PAHOC pursuant to separate Participating Leases. Patriot's ability to
make distributions to stockholders depends primarily upon the ability of the
Lessees to make rent payments under the Participating Leases (which ability
in turn is dependent primarily on the Lessees' ability to generate
sufficient revenues from those hotels which are leased to them). Any failure
or delay by the Lessees in making rent payments may adversely affect
Patriot's ability to make distributions to stockholders following the
Merger. See "Risk Factors--Patriot's Dependence on Lessees and Payments
under the Participating Leases."
. The primary businesses of the Patriot Companies is that of buying, selling,
leasing, franchising and managing hotels which are subject to operating
risks common to the hotel industry. These risks include, among other things,
(i) competition for guests from other hotels, a number of which may have
greater marketing and financial resources and experience than the Patriot
Companies 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. See "Risk Factors--Hotel Industry
Risks--Operating Risks."
. Patriot's ability to acquire additional hotels could be negatively impacted
by the paired share structure because hotel management companies,
franchisees and others who historically approached Old Patriot with
acquisition opportunities in hopes of establishing lessee relationships may
not do so in the future knowing that following the consummation of the Other
Transactions, Patriot will rely primarily on PAHOC or Wyndham to manage the
acquired properties. Such persons may instead provide such acquisition
opportunities to hotel companies that will allow them to manage the
properties following the sale. This could have a negative impact on
Patriot's acquisition activities in the future. See "Risk Factors--Hotel
Industry Risks--Competition for Hotel Acquisition Opportunities."
. Patriot's investments are 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 that manage the hotels (the
"Operators") and Wyndham to make rent payments from the operation of hotels,
the relative illiquidity of real estate, increases in interest rates,
increases in taxes caused by increased assessed values or property tax
rates, and potential liabilities, including liabilities from known or
unknown or future environmental problems, all of which could have a material
adverse effect on the results of operations and financial condition of the
Patriot Companies. See "Risk Factors--Real Estate Investment Risks" and "--
Risks Associated with the Patriot Companies' Higher Proportion of Owned
Properties."
. Risks associated with the adoption of legislation, regulations, or
administrative interpretation which affect the Patriot Companies' paired
share structure. Section 269B(a)(3) of the Code provides that if the shares
of a REIT and 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 Patriot and PAHOC,
then Patriot 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 June 30, 1983 and the REIT was taxable as a REIT on June 30, 1983.
As a result of this "grandfathering" rule, Section 269B(a)(3) did not apply
to Cal Jockey for periods prior to the Cal Jockey Merger, and, by its terms,
this "grandfathering" rule continued to apply to Patriot after the Cal
Jockey Merger and will continue to apply to Patriot following the Other
Transactions and the Merger. On November 5, 1997, Representative William
Archer, Chairman of the Ways and Means Committee of the House of
Representatives, publicly announced that he plans to review this
"grandfathering" rule. While Representative Archer stated that he does not
plan to eliminate the "grandfathering" rule, no assurance can be given that
new legislation, new regulations or administrative interpretations with
respect to the grandfathering rules of Section 269B will not be adopted. The
adoption of any such legislation, regulations or administrative
interpretations could have a material adverse effect on
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the results of operations and financial condition of the Patriot Companies.
See "Risk Factors--Patriot Tax Risks--Dependence on Qualification as a
REIT."
THE MERGER AGREEMENT
Effective Time of the Merger
In accordance with the DGCL, the Effective Time will occur upon the
acceptance for recording of the Certificate of Merger by the Delaware Secretary
of State unless the Certificate of Merger specifies a later date. Subject to
the fulfillment or waiver of the other conditions to the obligations of
Patriot, PAHOC, Acquisition Sub and WHG to consummate the Merger, it is
currently expected that the Merger will be consummated as soon as practicable
following the approval by the WHG Stockholders of the Merger Agreement and the
transactions contemplated thereby at the Special Meeting. See "The Merger--
Effective Time of the Merger."
Exchange of WHG Certificates
Promptly after the Effective Time, the Exchange Agent will mail to the WHG
Stockholders a letter of transmittal (the "Letter of Transmittal") and
instructions to each holder of record of a certificate representing shares of
WHG Common Stock and WHG Preferred Stock as of the Effective Time for use in
effecting the surrender of the WHG Certificates. Upon surrender of a WHG
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 WHG Certificate will be entitled to receive in
exchange therefor a certificate representing the number of Paired Shares to
which such holder shall be entitled, issued back-to-back, plus an amount of
cash in lieu of fractional Paired Shares, if any, due such holder as provided
in the Merger Agreement after giving effect to any required withholding tax,
and the WHG Certificate so surrendered will be canceled. See "The Merger--
Exchange of WHG Certificates; Fractional Shares."
Conditions to the Merger
The obligations of each of PAHOC, Acquisition Sub, Patriot and WHG to effect
the Merger and the transactions contemplated by the Merger Agreement are
subject to the fulfillment or waiver of certain conditions at or prior to the
Closing Date including, among others, that: (i) approval of the Merger
Agreement by the requisite vote of WHG Stockholders shall have been obtained;
(ii) the waiting period applicable to consummation of the Merger, including
under the HSR Act, shall have expired or been terminated; (iii) none of the
Parties shall be subject to any order, ruling or injunction of a court of
competent jurisdiction which prohibits consummation of the transactions
contemplated by the Merger Agreement, the WHG/Patriot Subscription Agreement or
the Ancillary Agreements; (iv) 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; and (v) Patriot and PAHOC shall have obtained
approval for the listing of the Paired Shares issuable in the Merger on the
NYSE, subject to official notice of issuance. See "The Merger--Conditions to
the Merger."
The obligation of WHG to effect the Merger is further subject to the
fulfillment or waiver of certain other conditions at or prior to the Closing
Date (the "WHG Merger Conditions") including, among others, that: (i) with
certain exceptions, each of the representations and warranties of PAHOC,
Acquisition Sub and Patriot contained in the Merger Agreement were true and
correct in all material respects when made and shall be true and correct in all
material respects as though made on and as of the Closing Date; (ii) PAHOC,
Acquisition Sub and Patriot shall have performed or complied in all material
respects with all agreements and covenants required by the Merger Agreement and
the WHG/Patriot Subscription Agreement to be performed or complied with by
PAHOC, Acquisition Sub or Patriot, as the case may be, prior to the Closing;
(iii) each of PAHOC, Acquisition Sub and Patriot shall have delivered to WHG a
certificate of its respective President or Chief Financial Officer
12
<PAGE>
dated the Closing Date to the effect that the conditions referred to in clauses
(i) and (ii) above with respect to PAHOC, Acquisition Sub or Patriot, as the
case may be, have been satisfied; and (iv) all consents, authorizations, orders
and approvals of (or filings or registrations with) any governmental
commissions, boards, other regulatory bodies or third parties, lenders, joint
venturers and partners required to be made or obtained by PAHOC, Acquisition
Sub and Patriot and their respective subsidiaries and affiliated entities (or
in the case of WHG and the WHG Subsidiaries and their respective subsidiaries
and affiliated entities with respect to any changes in the applicable law or
regulations after September 30, 1997) in connection with the execution,
delivery and performance of the Merger Agreement, the WHG/Patriot Subscription
Agreement and the Ancillary Agreements shall have been obtained or made other
than such consents, authorizations, orders or approvals which if not obtained
or made would not, individually or in the aggregate, have a PAHOC/Patriot
Material Adverse Effect. See "The Merger--Conditions to the Merger."
The obligation of PAHOC, Acquisition Sub and Patriot to effect the Merger is
further subject to the fulfillment or waiver of certain other conditions at or
prior to the Closing Date (the "PAHOC Merger Conditions") including, among
others, that: (i) with certain exceptions, each of the representations and
warranties of WHG contained in the Merger Agreement were true and correct in
all material respects when made and shall be true and correct in all material
respects as though made on and as of the Closing Date; (ii) WHG shall have
performed or complied in all material respects with all agreements and
covenants required by the Merger Agreement to be performed or complied with by
WHG on or prior to the Closing Date; (iii) no changes concerning WHG or any WHG
Subsidiary shall have occurred that, when combined with all other changes, have
had or would have a WHG Material Adverse Effect; (iv) WHG shall have delivered
to PAHOC, Acquisition Sub and Patriot a certificate of the Chairman of the
Board, the President and the Chief Financial Officer of WHG dated the Closing
Date to the effect that the conditions referred to in clauses (i), (ii) and
(iii) above have been satisfied; (v) with certain exceptions, all consents,
authorizations, orders and approvals of (or filings or registrations with) any
governmental commissions, boards, other regulatory bodies or third parties,
lenders, joint venturers and partners required to be made or obtained by WHG,
WHG Subsidiaries or their respective subsidiaries and affiliated entities (or
in the case of PAHOC, Acquisition Sub and Patriot and their respective
subsidiaries and affiliated entities with respect to any changes in the
applicable law or regulations after September 30, 1997) in connection with (a)
the execution, delivery and performance of the Merger Agreement, the
WHG/Patriot Subscription Agreement and the Ancillary Agreements and (b) the
Distribution, shall have been obtained or made other than such consents,
authorizations, orders or approvals which if not obtained or made would not,
individually or in the aggregate, have a WHG Material Adverse Effect; and (vi)
from September 30, 1997, through the Closing Date, no bankruptcy, insolvency,
receivership, rearrangement, foreclosure or similar action or proceeding,
whether voluntary or involuntary, relating to WHG, any WHG Subsidiary or any
WHG Property shall have (by the giving of any notice required as a precondition
to any such action or proceeding or otherwise) commenced or be pending. See
"The Merger--Conditions to the Merger."
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) by
mutual written consent of the Parties; (ii) by PAHOC, Acquisition Sub, Patriot
or WHG, 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 and such order, decree, ruling or other action shall
have become final and nonappealable; (iii) by PAHOC, Acquisition Sub, Patriot
or WHG, if the Merger shall not have been consummated on or before March 31,
1998; (iv) by PAHOC, Acquisition Sub or Patriot, if WHG shall have (a)
withdrawn, modified or amended in any respect adverse to PAHOC, Acquisition Sub
or Patriot its approval or recommendation of the Merger Agreement or any of the
transactions contemplated thereby, (b) recommended any Acquisition Proposal
from a person other than PAHOC, Acquisition Sub or Patriot, (c) publicly
expressed no opinion and remained neutral toward any Acquisition Proposal, or
(d) resolved or agreed
13
<PAGE>
to do any of the foregoing, provided that, in any such case, WHG will be
required to immediately pay PAHOC an amount in cash equal to $5,000,000; (v) by
WHG, if the WHG Board authorizes or desires, after making a determination in
good faith, based on and consistent with the written advice of WHG Legal
Counsel, that such action is necessary in order for the WHG Board to comply
with the directors' fiduciary duties to WHG Stockholders under applicable law,
to authorize WHG to execute an agreement providing for a Superior Proposal (a
"Superior Proposal Agreement"), provided that WHG has, immediately prior to the
termination of the Merger Agreement and/or the execution of such Superior
Proposal Agreement, paid PAHOC an amount in cash equal to $5,000,000; (vi) by
WHG, if (a) PAHOC, Acquisition Sub or Patriot has failed to perform in any
material respect any of its obligations required to be performed by it under
the Merger 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 Merger Agreement by WHG, or (b) Patriot has failed to perform in any
material respect any of its obligations required to be performed by it under
the WHG/Patriot 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 WHG/Patriot Subscription Agreement by WHG; (vii) by PAHOC,
Acquisition Sub or Patriot, if (a) WHG shall have failed to perform in any
material respect any of its obligations required to be performed by it under
the Merger 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 Merger Agreement by PAHOC, Acquisition Sub or Patriot, or (b) if WHG has
failed to perform in any material respect any of its obligations required to be
performed by it under the WHG/Patriot 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 WHG/Patriot Subscription
Agreement by Patriot; (viii) by WHG, if the Average Closing Price is less than
$19.50 (as adjusted pursuant to the Merger Agreement); (ix) by PAHOC,
Acquisition Sub or Patriot if the Merger does not receive the authorization of
the Executive Director of the Tourism Company of Puerto Rico regarding the
Grants if such authorization is required by law; or (x) by PAHOC, Acquisition
Sub or Patriot, if any bankruptcy, insolvency, receivership, rearrangement,
foreclosure or similar action or proceeding, whether voluntary or involuntary,
relating to WHG, any WHG Subsidiary or any WHG Property shall have commenced or
is pending. See "The Merger--Termination; Termination Fees."
Termination Amount and Expenses
In the event that (i) WHG terminates the Merger Agreement because the WHG
Board determines in good faith, based on and consistent with the written advice
of WHG Legal Counsel, that such action is necessary in order for the WHG Board
to comply with the directors' fiduciary duties to the WHG Stockholders under
applicable law and the WHG Board authorizes or desires to authorize WHG to
execute a Superior Proposal Agreement providing for a Superior Proposal, or
(ii) PAHOC, Acquisition Sub or Patriot terminates the Merger Agreement because
WHG has (a) withdrawn, modified or amended in any respect adverse to PAHOC,
Acquisition Sub or Patriot its approval or recommendation of the Merger
Agreement or any of the transactions contemplated thereby, (b) recommended any
Acquisition Proposal from a person other than PAHOC, Acquisition Sub or
Patriot, (c) publicly expressed no opinion and remained neutral toward any
Acquisition Proposal, or (d) resolved or agreed to do any of the foregoing, WHG
is required to immediately pay PAHOC an amount in cash (payable by wire
transfer of immediately available funds to an account designated by PAHOC)
equal to $5,000,000.
In the event PAHOC, Acquisition Sub or Patriot terminates the Merger
Agreement because a bankruptcy, insolvency, receivership, rearrangement,
foreclosure or similar action or proceeding, whether voluntary or involuntary,
relating to WHG, any WHG Subsidiary or any WHG Property has (by the giving of
any notice required as a precondition to any such action or proceeding or
otherwise) commenced or is pending, WHG is required to pay PAHOC an amount in
cash (payable by wire transfer of immediately available funds to an account
designated by PAHOC) equal to PAHOC's, Acquisition Sub's and Patriot's actual
out-of-pocket expenses incurred in connection with the negotiation and
preparation of the Merger Agreement, the WHG/Patriot Subscription Agreement and
the Ancillary Agreements and the transactions, consents and filings
contemplated
14
<PAGE>
thereby, including, but not limited to, all attorneys' and accountants' fees
and expenses, filing fees, printing expenses, and expenses incurred in
connection with this Proxy Statement/Prospectus.
Except as described above or otherwise provided in the Merger Agreement, the
Parties have agreed that all costs and expenses incurred in connection with the
Merger Agreement and the Ancillary Agreements shall be paid by the party
incurring such expenses, except that (i) the filing fees in connection with the
filing of the Proxy Statement/Prospectus and Registration Statement, (ii) the
filing fee in connection with the listing of the Paired Shares on the NYSE, if
any, (iii) the expenses incurred for printing, if any, the Registration
Statement and the Proxy Statement/Prospectus, (iv) the filing fee in connection
with the filings under the HSR Act and (v) the expenses incurred, if any, in
connection with the delivery of the statements of accumulated and current E&P
of WHG, shall be shared equally by WHG, on the one hand, and PAHOC, Acquisition
Sub and Patriot, on the other hand. The Parties have also agreed that all costs
and expenses for professional services rendered pursuant to the transactions
contemplated by the Merger Agreement and the Ancillary Agreements including,
but not limited to, investment banking and legal services, will be paid by the
party incurring such services. Notwithstanding the foregoing, PAHOC,
Acquisition Sub and Patriot have agreed to be solely responsible for
incremental costs of all parties incurred after the mailing of the Proxy
Statement/Prospectus in order to amend or supplement the Proxy
Statement/Prospectus and the Registration Statement if such amendment or
supplement is necessitated solely by reason of a material transaction with any
of PAHOC, Acquisition Sub, Patriot or their affiliates (other than any such
transaction involving WHG, any of the WHG Subsidiaries or any of the WHG
Properties). See "The Merger--Termination; Termination Fees."
Acquisition Proposals
In the Merger Agreement, WHG agreed to terminate any discussions or
negotiations regarding any Acquisition Proposal by any third party, and, until
the termination of the Merger Agreement, neither WHG nor any of its wholly
owned subsidiaries may take certain specified actions with respect to any
Acquisition Proposal by a third party. However, WHG may furnish information to
and participate in discussions or negotiations with a third party with respect
to an unsolicited Acquisition Proposal if the WHG Board shall have determined,
based on and consistent with the written advice of WHG Legal Counsel, that such
action is necessary in order to comply with the directors' fiduciary duties to
the WHG Stockholders under applicable law and the third party has executed a
confidentiality and standstill agreement similar in scope to those executed by
PAHOC and Patriot. See "The Merger--Acquisition Proposals."
WHG may terminate the Merger Agreement in order to enter into a Superior
Proposal Agreement, and in that event and in certain other circumstances would
be required to pay PAHOC a $5,000,000 fee as discussed above under "The
Merger--Termination; Termination Fees" and "--Expenses."
15
<PAGE>
COMPARATIVE STOCK PRICES
On July 1, 1997, Old Patriot merged with and into Cal Jockey and Cal Jockey
changed its name to Patriot. The Cal Jockey Merger was accounted for as a
reverse acquisition and, consequently, the historical financial information of
Old Patriot became the historical financial information of Patriot. The
following table sets forth (i) the quarterly high and low closing sales prices
per share as reported on the NYSE of Old Patriot Common Stock (symbol "PAH")
from September 27, 1995 (the date Old Patriot's shares began trading on the
NYSE) through July 1, 1997, and the distributions paid by Old Patriot with
respect to each such period, (ii) the quarterly high and low sales prices per
share of the Paired Shares as reported on the NYSE (symbol "PAH") from and
after July 2, 1997 and (iii) the quarterly high and low sales prices per share
of WHG Common Stock as reported on the NYSE (symbol "WHG") since the first day
of when-issued trading of such shares on April 17, 1997. The sales prices and
distributions for the Paired Shares in the table through July 1, 1997 have been
adjusted to reflect Old Patriot's 2-for-1 stock split in March 1997 and the
sales prices from and after July 1, 1997 have been adjusted to reflect the
Patriot Companies' July 1997 92.7% stock dividend. Historically, no dividends
have been paid on shares of WHG Common Stock.
<TABLE>
<CAPTION>
PAIRED SHARES OF PATRIOT COMMON
STOCK AND PAHOC COMMON STOCK(1) WHG COMMON STOCK
------------------------------------ -----------------
PER SHARE
HIGH LOW DIVIDENDS HIGH LOW
---------- ---------- -------------- -------- --------
<S> <C> <C> <C> <C> <C>
1995:
First Quarter......... N/A N/A N/A N/A N/A
Second Quarter........ N/A N/A N/A N/A N/A
Third Quarter......... $ 12.81 $ 12.38 N/A N/A N/A
Fourth Quarter........ 12.88 11.75 $ 0.2400 N/A N/A
1996:
First Quarter......... 14.38 12.94 0.2400 N/A N/A
Second Quarter........ 14.81 13.38 0.2400 N/A N/A
Third Quarter......... 16.81 14.06 0.2400 N/A N/A
Fourth Quarter........ 21.75 16.31 0.2625 N/A N/A
1997:
First Quarter......... 26.38 20.75 0.2625 N/A N/A
Second Quarter........ 25.50 20.25 0.3225(2) $ 12.00 $ 8.38
Third Quarter......... 32.00 23.36 0.2625 20.50 10.88
Fourth Quarter
(through December 12,
1997)................ 33.38 28.50 N/A 23.50 19.13
</TABLE>
- --------
(1) Represents shares of Patriot Common Stock for periods through July 1, 1997
and Paired Shares for periods after July 1, 1997.
(2) Includes a $0.06 per share special dividend paid in connection with the Cal
Jockey Merger.
16
<PAGE>
The following table sets forth the last reported sales prices of WHG Common
Stock and Paired Shares (i) on September 4, 1997, one week prior to the
announcement by WHG of a potential transaction on September 11, 1997, (ii) on
September 10, 1997, the last full trading day preceding the public announcement
by WHG that it was in discussions with an unidentified party (which was
Patriot) regarding a possible transaction, pursuant to which holders of WHG
Common Stock would receive consideration having a value of approximately $20
per share, (iii) on September 30, 1997, the last full trading day preceding the
public announcement that PAHOC, Acquisition Sub, Patriot and WHG entered into
the Merger Agreement and (iv) on December 12, 1997.
<TABLE>
<CAPTION>
PAIRED SHARES OF
PATRIOT COMMON STOCK WHG
AND PAHOC COMMON STOCK COMMON STOCK
---------------------- ------------
<S> <C> <C>
September 4, 1997........................ $23.98 $14.31
September 10, 1997....................... 25.56 19.25
September 30, 1997....................... 31.88 20.50
December 12, 1997........................ 28.50 21.63
</TABLE>
WHG STOCKHOLDERS ARE URGED TO OBTAIN A CURRENT MARKET QUOTATION FOR WHG
COMMON STOCK AND THE PAIRED SHARES.
At December 12, 1997, there were approximately 2,000 holders of record of WHG
Common Stock and approximately 19,000 holders of record of Paired Shares.
17
<PAGE>
SELECTED COMPARATIVE PER SHARE DATA
The following table sets forth the combined historical per share data, the
unaudited pro forma per share data giving effect to the Merger and the Other
Transactions using the purchase method of accounting and the equivalent
unaudited pro forma combined per share amounts for WHG. 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 and the Other Transactions.
The information shown below should be read in conjunction with (i) the
consolidated financial statements and notes thereto of Patriot, PAHOC, Old
Patriot, Cal Jockey and Bay Meadows and Wyndham incorporated herein by
reference, (ii) the consolidated historical financial statements of WHG
included elsewhere herein, and (iii) the pro forma condensed combined financial
statements, including the notes thereto, which are contained in this Proxy
Statement/Prospectus.
Unless otherwise indicated, all references to the number of shares and per
share amounts have been restated to reflect the impact of (i) the conversion of
each share of Old Patriot Common Stock into 0.51895 Paired Shares issued in the
Cal Jockey Merger, (ii) the 1.927-for-1 stock split on the Paired Shares
effected in the form of a stock dividend distributed on July 25, 1997 to
stockholders of record on July 15, 1997, and (iii) the 2-for-1 stock split on
Old Patriot Common Stock effected in the form of a stock dividend distributed
on March 18, 1997 to stockholders of record on March 7, 1997, as applicable.
<TABLE>
<CAPTION>
TWELVE MONTHS ENDED NINE MONTHS ENDED
DECEMBER 31, 1996 SEPTEMBER 30, 1997
------------------------------------ -------------------------------------
PRO WHG PRO WHG
HISTORICAL FORMA EQUIVALENT(2) HISTORICAL FORMA EQUIVALENT(2)
---------- ----------- ------------- ----------- ----------- -------------
(UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
Net Income/(Loss):
Patriot/PAHOC(1)(3)..... $ 1.06 $ 0.12 $ (0.08) $ 0.28
WHG (unaudited)(4)...... 1.20 $ 0.07 (0.19) $ 0.25
Patriot/PAHOC (post-
Merger)(5)............. 0.09 0.32
Cash
Distributions/Dividends:
Patriot/PAHOC........... $0.9825 N/A $0.8475 N/A
WHG..................... -- N/A -- N/A
Patriot/PAHOC (post-
Merger)................ N/A N/A
Book Value per Common
Share:
Patriot/PAHOC(6)........ $ 10.02 $14.91 $ 12.94 $14.77
WHG(4).................. 9.14 $12.27 9.45 $12.20
Patriot/PAHOC (post-
Merger)(6)............. 15.65 15.56
</TABLE>
18
<PAGE>
NOTES TO COMPARATIVE PER SHARE DATA (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(1) The pro forma combined per share data for Patriot and PAHOC for the year
ended December 31, 1996 and the nine months ended September 30, 1997 is
presented as if the Cal Jockey Merger, the GAH Acquisition, the CHCI
Merger, the Wyndham Transactions and certain other recent transactions
(which include (i) the sale of substantially all of the Cal Jockey land to
an affiliate of PaineWebber; (ii) the leaseback of the land on which the
Racecourse is situated from the PaineWebber affiliate to Patriot; (iii) the
sublease of the Racecourse land and related improvements from Patriot to
PAHOC; (iv) the leasing of certain land from Patriot to Borders, Inc.; (v)
the acquisition of 23 hotels by Patriot (excluding the Park Shore Hotel and
the Sheraton City Centre); (vi) the funding of $103,000 in mortgage notes
to affiliates of CHC Lease Partners; (vii) the replacement of the Old Line
of Credit facility with the Revolving Credit Facility and the Term Loan;
(viii) the acquisition of a participating note; (ix) consummation of the
Offering of 10,580 Paired Shares; (x) the leasing of 61 hotels to PAHOC
(excluding the Sheraton City Centre and including the two hotels currently
leased to Crow Hotel Lessee, Inc.); and (xi) the acquisition of 24 hotels,
the private placement of equity securities and the public offering of
common stock, which were consummated by Old Patriot during 1996) had
occurred as of January 1, 1996.
(2) The equivalent pro forma combined share amounts of WHG are calculated by
multiplying pro forma net income per Paired Share, pro forma cash
distributions/dividends per Paired Share and pro forma book value per
Paired Share (post-Merger) by a relative value ratio of existing Paired
Shares to WHG (based on the Exchange Ratio of WHG Common Stock to Paired
Shares of 0.784).
(3) The pro forma combined net income per share for Patriot and PAHOC for the
year ended December 31, 1996 and the nine months ended September 30, 1997
is based on weighted average Paired Shares and Paired Share equivalents
outstanding prior to the Merger of 102,543 and 103,117, respectively.
(4) WHG's fiscal year end is June 30. The unaudited historical net income
(loss) per share for WHG has been presented for the twelve months ended
December 31, 1996 and the nine months ended September 30, 1997 and is based
on WHG's operating results for these periods. The historical book value per
common share for WHG is based on stockholders' equity as reflected in the
historical financial statements as of June 30, 1997 and September 30, 1997.
(5) The pro forma information is presented as if the Merger had occurred as of
January 1, 1996. The pro forma combined net income per share for Patriot
and PAHOC after the effect of the Merger for the year ended December 31,
1996 and the nine months ended September 30, 1997 is based on weighted
average Paired Shares and Paired Share equivalents outstanding of 107,547
and 108,178, respectively.
(6) 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. The pro forma book value
per common share of Patriot and PAHOC prior to the Merger is based on total
outstanding Paired Shares (including convertible preferred securities) of
101,678 at December 31, 1996 and September 30, 1997.
The pro forma book value per common share of Patriot and PAHOC after the
Merger is based on total outstanding Paired Shares of 106,682 at December
31, 1996 and September 30, 1997.
19
<PAGE>
SUMMARY FINANCIAL INFORMATION
PATRIOT AND PAHOC
SELECTED HISTORICAL FINANCIAL DATA
The following tables set forth separate and combined historical financial
information for Patriot and PAHOC, as well as combined historical information
for the Combined Lessees, which as of September 30, 1997 included CHC Lease
Partners, NorthCoast Hotels, L.L.C. ("NorthCoast Lessee"), DTR North
Canton, Inc. ("Doubletree Lessee"), Crow Hotel Lessee, Inc., Metro Hotel
Leasing Corporation ("Metro Lease Partners"), Grand Heritage Leasing, L.L.C.
and PAH RSI, L.L.C. ("PAH RSI Lessee"). The following financial information
should be read in conjunction with, and is qualified in its entirety by, the
historical financial statements and notes thereto of Patriot, PAHOC, Old
Patriot, CHC Lease Partners, NorthCoast Lessee and PAH RSI Lessee incorporated
by reference into this Proxy Statement/Prospectus.
The Cal Jockey Merger that occurred on July 1, 1997 has been accounted for as
a reverse acquisition whereby Cal Jockey was considered to be the acquired
company for accounting purposes. Consequently, the historical financial
information of Old Patriot became the historical financial information for
Patriot. Similarly, PAHOC commenced its operations for accounting purposes
concurrent with the closing of the Cal Jockey Merger.
Unless otherwise indicated, all references to the number of shares and per
share amounts of Patriot, PAHOC and Old Patriot have been restated to reflect
the impact of the conversion of each share of Old Patriot Common Stock into
0.51895 Paired Shares issued in the Cal Jockey Merger and the 1.927-for-1 stock
split effected in the form of a stock dividend distributed in July, 1997. In
addition, all references to the number of shares and per share amounts related
to periods prior to March, 1997 have been restated to reflect the impact of the
2-for-1 stock split on Old Patriot Common Stock effected in the form of a stock
dividend distributed in March 1997.
20
<PAGE>
PATRIOT AND PAHOC
SELECTED CONDENSED COMBINED HISTORICAL FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
PERIOD
OCTOBER 2, 1995 YEAR-
(INCEPTION OF ENDED NINE MONTHS
OPERATIONS) THROUGH DECEMBER 31, ENDED
DECEMBER 31, 1995 1996 SEPTEMBER 30, 1997
------------------- ------------ ------------------
(UNAUDITED)
<S> <C> <C> <C>
OPERATING DATA:
Total revenue............. $ 11,095 $ 76,493 $ 154,756
Income before income tax
provision, minority
interests and
extraordinary item....... 7,064 44,813 1,480
Income (loss) before
extraordinary item....... 6,096 37,991 (1,304)
Net income (loss)
applicable to common
stockholders............. $ 5,359 $ 37,991 $ (3,838)
PER SHARE DATA(1):
Income (loss) before
extraordinary item....... $ 0.21 $ 1.06 $ (0.03)
Extraordinary item, net of
minority interests....... (0.03) -- (0.05)
--------- --------- ----------
Net income (loss) per
common Paired Share...... $ 0.18 $ 1.06 $ (0.08)
========= ========= ==========
Dividends per common
Paired Share(2).......... $ 0.24 $ 0.9825 $ 0.8475
========= ========= ==========
Weighted average number of
common shares and common
share equivalents
outstanding.............. 29,350 35,938 51,104
========= ========= ==========
CASH FLOW DATA:
Cash provided by operating
activities............... $ 7,618 $ 61,196 $ 75,886
Cash used in investing
activities............... (306,948) (419,685) (710,127)
Cash provided by financing
activities............... 304,099 360,324 649,152
<CAPTION>
DECEMBER 31, DECEMBER 31, SEPTEMBER 30,
1995 1996 1997
------------------- ------------ ------------------
(UNAUDITED)
<S> <C> <C> <C>
BALANCE SHEET DATA:
Investment in real estate
and related improvements,
at cost, net............. $ 265,759 $ 641,825 $1,477,512
Total assets.............. 324,224 760,931 1,980,107
Total debt................ 9,500 214,339 727,177
Minority interest in
Patriot Partnerships..... 41,522 68,562 257,274
Minority interest in
consolidated
subsidiaries............. -- 11,711 29,284
Stockholders' equity...... 261,778 437,039 880,329
<CAPTION>
PERIOD
OCTOBER 2, 1995 YEAR-
(INCEPTION OF ENDED NINE MONTHS
OPERATIONS) THROUGH DECEMBER 31, ENDED
DECEMBER 31, 1995 1996 SEPTEMBER 30, 1997
------------------- ------------ ------------------
(UNAUDITED)
<S> <C> <C> <C>
OTHER DATA:
Funds from operations(3).. $ 9,798 $ 64,463 $ 78,112
Cash available for
distribution(4).......... 8,603 55,132 65,533
Weighted average number of
common shares and OP
Units outstanding(5)..... 34,001 42,200 59,630
</TABLE>
(Notes on page 24)
21
<PAGE>
PATRIOT
SELECTED CONDENSED CONSOLIDATED HISTORICAL FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
PERIOD
OCTOBER 2, 1995 YEAR-
(INCEPTION OF ENDED NINE MONTHS
OPERATIONS) THROUGH DECEMBER 31, ENDED
DECEMBER 31, 1995 1996 SEPTEMBER 30, 1997
------------------- ------------ ------------------
(UNAUDITED)
<S> <C> <C> <C>
OPERATING DATA:
Total revenue.............. $11,095 $76,493 $123,308
Income before minority
interests and
extraordinary item........ 7,064 44,813 549
Income (loss) before
extraordinary item........ 6,096 37,991 (2,013)
Net income (loss)
applicable to common
stockholders.............. $ 5,359 $37,991 $ (4,547)
PER SHARE DATA(1):
Income (loss) before
extraordinary item........ $ 0.21 $ 1.06 $ (0.04)
Extraordinary item, net of
minority interests........ (0.03) -- (0.05)
------- ------- --------
Net income (loss) per
common share.............. $ 0.18 $ 1.06 $ (0.09)
======= ======= ========
Dividends per common
share(2).................. $ 0.24 $0.9825 $ 0.8475
======= ======= ========
Weighted average number of
common shares and common
share equivalents
outstanding............... 29,350 35,938 51,104
======= ======= ========
</TABLE>
PAHOC
SELECTED CONDENSED CONSOLIDATED HISTORICAL FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
SEPTEMBER 30, 1997
------------------
(UNAUDITED)
<S> <C>
OPERATING DATA:
Total revenue.............................................. $44,184
Income before income tax provision and minority interests.. 931
Net income applicable to common stockholders............... $ 709
PER SHARE DATA:
Net income per common share................................ $ 0.01
=======
Dividends per common share(2).............................. $ --
=======
Weighted average number of common shares and common share
equivalents outstanding................................... 51,104
=======
</TABLE>
(Notes on page 24)
22
<PAGE>
COMBINED LESSEES
SELECTED COMBINED HISTORICAL FINANCIAL DATA
(IN THOUSANDS)
<TABLE>
<CAPTION>
PERIOD
OCTOBER 2, 1995
(INCEPTION OF YEAR ENDED NINE MONTHS
OPERATIONS) THROUGH DECEMBER 31, ENDED
DECEMBER 31, 1995 1996 SEPTEMBER 30, 1997
------------------- ------------ ------------------
(UNAUDITED)
<S> <C> <C> <C>
FINANCIAL DATA:
Room revenue.............. $21,508 $155,856 $207,924
Food and beverage reve-
nue...................... 8,649 56,833 82,628
Conference center reve-
nue...................... 576 2,354 1,870
Club, club membership and
spa revenue.............. -- -- 21,500
Shopping center revenue... -- -- 1,311
Telephone and other reve-
nue...................... 1,732 14,467 26,268
------- -------- --------
Total revenue............. 32,465 229,510 341,501
Hotel operating expenses.. 20,801 150,037 228,686
Participating Lease pay-
ments.................... 10,582 75,893 104,534
------- -------- --------
Income before Lessee ex-
penses................... 1,082 3,580 8,281
Lessee expenses(6)........ 573 4,588 8,260
------- -------- --------
Net income (loss)......... $ 509 $ (1,008) $ 21
======= ======== ========
</TABLE>
(Notes on following page)
23
<PAGE>
NOTES TO PATRIOT, PAHOC AND COMBINED LESSEES SELECTED FINANCIAL INFORMATION
(1) On January 30, 1997, the Old Patriot Board 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. On July 1, 1997, by operation of
the Cal Jockey Merger, each issued and outstanding share of Old Patriot
Common Stock was converted into 0.51895 Paired Shares. In addition, on July
10, 1997, the respective Boards of Directors of Patriot and PAHOC declared
a 1.927-for-1 stock split on its shares of common stock effected in the
form of a stock dividend distributed on July 25, 1997 to stockholders of
record on July 15, 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
the Cal Jockey Merger and the above-described stock splits, as applicable.
(2) Dividends paid for the nine months ended September 30, 1997 include a
special dividend of $0.06 per share paid by Old Patriot on June 30, 1997.
To maintain its qualification as a REIT prior to consummation of the Cal
Jockey Merger, Old Patriot was required to distribute to its stockholders
any undistributed "real estate investment trust taxable income" of Old
Patriot for Old Patriot's short taxable year ending with the consummation
of the Cal Jockey Merger. No dividends have been paid by PAHOC for the
three months ended September 30, 1997.
(3) 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. Adjustments for Patriot's unconsolidated
subsidiaries are calculated to reflect funds from operations on the same
basis. Patriot and PAHOC have also made certain adjustments to funds from
operations for real estate related amortization expense and the write off
of certain costs of acquiring leaseholds. 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 and
PAHOC to incur and service debt and make capital expenditures.
(4) 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.
(5) The number of OP Units used in the calculation is based on the equivalent
number of shares of Patriot Common Stock and PAHOC Common Stock after
giving effect to the change in the OP Unit conversion factor which
coincides with the 2-for-1 stock split, the conversion of shares in the Cal
Jockey Merger and the 1.927-for-1 stock split.
(6) Historical Lessee expenses represent management fees paid to the Operators
and Lessee overhead expenses, net of dividend and interest income earned by
the Lessees.
24
<PAGE>
WHG RESORTS & CASINOS INC.
SELECTED CONSOLIDATED HISTORICAL FINANCIAL DATA
The following tables set forth selected consolidated historical financial
information for WHG and should be read in conjunction with, and are qualified
in their entirety by, the historical financial statements and notes thereto of
WHG, the separate financial statements of unconsolidated affiliates and notes
thereto and other financial information included elsewhere herein. See also
"Information About WHG--Management's Discussion and Analysis of Financial
Condition and Results of Operations."
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEARS ENDED JUNE 30, SEPTEMBER 30,
---------------------------------------------------------- --------------------
1993 1994 1995 1996 1997 1996 1997
---------- ---------- ---------- ---------- ---------- --------- ---------
(UNAUDITED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF INCOME DA-
TA:
Revenues................ $ 70,680 $ 75,480 $ 70,878 $ 68,694 $ 69,634 $ 12,879 $ 14,571
Operating income........ 14,162 13,892 7,624 13,558 17,087 790 1,572
Interest expense
(income), net.......... (3,873) (3,551) (1,752) (1,859) (931) (301) 10
Equity in (loss) of
nonconsolidated
affiliates............. (135) (3,534) (7,003) (3,465) (1,196) (1,289) (1,010)
Merger costs to date.... -- -- -- -- -- -- (1,000)
Income (loss) before tax
provision and minority
interests.............. 10,154 6,807 (1,131) 8,234 14,960 (800) (428)
Credit (provision) for
income taxes........... (1,050) 7 234 (1,645) (3,397) 89 (163)
Minority interests in
income................. (3,332) (4,597) (2,910) (3,636) (4,000) (421) (535)
Dividend on preferred
stock of Condado
Plaza.................. -- -- (557) (516) (246) (82) --
---------- ---------- ---------- ---------- ---------- --------- ---------
Net income (loss)....... $ 5,772 $ 2,217 $ (4,364) $ 2,437 $ 7,317 $ (1,214) $ (1,126)
========== ========== ========== ========== ========== ========= =========
Primary earnings (loss)
per share.............. $ 0.95 $ 0.37 $ (0.72) $ 0.40 $ 1.20 $ (0.20) $ (0.19)
---------- ---------- ---------- ---------- ---------- --------- ---------
Shares used in primary
earnings per share
calculations........... 6,050,200 6,050,200 6,050,200 6,050,200 6,086,443 6,050,200 6,050,200
---------- ---------- ---------- ---------- ---------- --------- ---------
Fully diluted earnings
(loss) per share....... $ 0.95 $ 0.37 $ (0.72) $ 0.40 $ 1.17 $ (0.20) $ (0.19)
---------- ---------- ---------- ---------- ---------- --------- ---------
Shares used in fully
diluted earnings per
share calculations..... 6,050,200 6,050,200 6,050,200 6,050,200 6,247,241 6,050,200 6,050,200
---------- ---------- ---------- ---------- ---------- --------- ---------
Pro forma net income
(loss) reflecting
income taxes on a
separate return basis
(unaudited)(1)......... $ 5,579 $ 1,257 $ (6,500) $ 1,537 $ 7,236 $ (1,675)
========== ========== ========== ========== ========== =========
</TABLE>
<TABLE>
<CAPTION>
AS OF JUNE 30, AS OF
-------------------------------------------- SEPTEMBER 30,
1993 1994 1995 1996 1997 1997
-------- -------- -------- -------- -------- -------------
(UNAUDITED)
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Investments in,
receivables and
advances to
nonconsolidated
affiliates............. $ 28,018 $ 31,367 $ 29,696 $ 27,734 $ 31,708 $31,522
Property and equipment,
net.................... 45,454 51,627 48,660 44,919 43,861 43,955
Total assets............ 103,276 116,144 111,306 104,734 117,473 118,352
Long-term debt,
including current
maturities............. 36,069 30,309 30,741 26,854 23,549 22,363
Minority interests...... 14,229 16,387 16,363 18,810 19,990 20,410
Stockholders' equity.... 37,210 39,427 35,063 37,500 55,324 57,151
</TABLE>
- --------
(1) Pro forma net income (loss) reflecting income taxes on a separate return
basis (unaudited) reflects the provision for income taxes without the tax
benefits allocated to WHG from WMS for utilization of partnership losses in
the WMS consolidated federal income tax return.
25
<PAGE>
WYNDHAM HOTEL CORPORATION
SELECTED CONSOLIDATED HISTORICAL FINANCIAL DATA
The following tables set forth selected consolidated historical financial
information for Wyndham and should be read in conjunction with, and are
qualified in their entirety by, the historical financial statements and notes
thereto of Wyndham incorporated by reference into this Proxy
Statement/Prospectus.
WYNDHAM HOTEL CORPORATION
SELECTED CONSOLIDATED HISTORICAL FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31, NINE MONTHS
---------------------------------------------- ENDED
1992 1993 1994 1995 1996 SEPTEMBER 30, 1997
-------- -------- -------- -------- -------- ------------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
OPERATING DATA:
Total revenue........... $ 56,802 $ 61,277 $ 76,266 $ 87,890 $148,075 $165,256
Operating income........ 8,419 7,094 12,337 14,625 26,003 28,796
Net income.............. 163 1,654 6,265 7,949 23,966 10,203
Net income per share.... N/A N/A N/A N/A $ 1.20 $ 0.50
Weighted average number
of common shares
outstanding............ N/A N/A N/A N/A 20,018 20,382
<CAPTION>
AS OF DECEMBER 31,
---------------------------------------------- AS OF
1992 1993 1994 1995 1996 SEPTEMBER 30, 1997
-------- -------- -------- -------- -------- ------------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Total assets............ $108,647 $113,465 $113,276 $133,403 $242,962 $450,299
Total partners' capital
and stockholders'
equity (deficit)....... (7,303) (1,488) 1,716 17,557 75,584 138,252
</TABLE>
26
<PAGE>
INTERSTATE HOTELS COMPANY
SELECTED CONSOLIDATED HISTORICAL FINANCIAL DATA
The following tables set forth selected consolidated historical financial
information for IHC and should be read in conjunction with, and are qualified
in their entirety by, the historical financial statements and notes thereto of
IHC incorporated by reference into this Proxy Statement/Prospectus.
INTERSTATE HOTELS COMPANY
SELECTED CONSOLIDATED HISTORICAL FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31, NINE MONTHS
---------------------------------------- ENDED
1992 1993 1994 1995 1996 SEPTEMBER 30, 1997
------- ------- ------- ------- -------- ------------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
OPERATING DATA:
Total revenue........... $19,873 $25,564 $36,726 $45,018 $190,385 $ 469,589
Operating income........ 3,622 6,904 12,345 15,537 34,133 83,752
Net income (loss)....... 3,620 6,910 12,389 15,839 (1,616) 32,500
Net income per share.... N/A N/A N/A N/A N/A $ 0.91
Weighted average number
of common shares
outstanding............ N/A N/A N/A N/A N/A 35,638
<CAPTION>
AS OF DECEMBER 31,
---------------------------------------- AS OF
1992 1993 1994 1995 1996 SEPTEMBER 30, 1997
------- ------- ------- ------- -------- ------------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Total assets............ $24,270 $24,436 $30,741 $61,401 $883,761 $1,350,253
Total equity............ 16,685 16,627 18,858 9,256 409,298 445,117
</TABLE>
27
<PAGE>
PATRIOT AND PAHOC
SELECTED UNAUDITED PRO FORMA COMBINED FINANCIAL DATA
On September 30, 1997, Patriot, Acquisition Sub, PAHOC and WHG entered into
the Merger Agreement providing for the merger of Acquisition Sub with and into
WHG, with WHG being the surviving company. As a result of the Merger, PAHOC
will acquire the Condado Plaza, a 50% interest in the El San Juan and a 23.3%
interest in the El Conquistador, all of which are located in Puerto Rico, as
well as a 62% interest in WHGI, the management company for the three hotels and
the Las Casitas Village at the El Conquistador.
Under the terms of the Merger Agreement, each share of WHG Common Stock will
be converted into the right to receive 0.784 Paired Shares; provided, however,
that in the event that (i) the Average Closing Price is greater than $31.25 and
the Effective Time is before February, 1998, the Exchange Ratio will be
adjusted such that the Exchange Ratio Product equals $24.50, (ii) the Average
Closing Price is greater than $31.75 and the Effective Time is in February,
1998, the Exchange Ratio will be adjusted such that the Exchange Ratio Product
equals $24.89, (iii) the Average Closing Price is greater than $32.25 and the
Effective Time is after February, 1998, the Exchange Ratio will be adjusted
such that the Exchange Ratio Product equals $25.28, (iv) the Average Closing
Price is less than or equal to $25.50, but greater than or equal to $19.50, the
Exchange Ratio will be adjusted such that the Exchange Ratio Product equals
$20.00, or (v) the Average Closing Price is less than $19.50, the Exchange
Ratio will equal 1.026, provided, however, that in such circumstance WHG has
the right, waivable by it, to terminate the Merger Agreement. In addition, each
issued and outstanding share of WHG Preferred Stock will be converted into the
right to receive that number of Paired Shares that the holder of such shares of
WHG Preferred Stock would have the right to receive assuming conversion of such
shares, together with any accrued and unpaid dividends thereon, into shares of
WHG Common Stock immediately prior to the Effective Time.
The following tables set forth pro forma financial information for Patriot
and PAHOC and should be read in conjunction with, and are qualified in their
entirety by, the historical financial statements and notes thereto of Patriot,
PAHOC, Old Patriot, Cal Jockey and Bay Meadows incorporated by reference into
this Proxy Statement/Prospectus. This information should also be read in
conjunction with, and is qualified in its entirety by, the pro forma financial
statements and notes thereto located elsewhere in this Proxy
Statement/Prospectus. The pro forma operating information is presented as if
the Cal Jockey Merger, the GAH Acquisition, the CHCI Merger and certain other
transactions (which include (i) the sale of substantially all of the Cal Jockey
land to an affiliate of PaineWebber; (ii) the leaseback of the land on which
the Racecourse is situated from the PaineWebber affiliate to Patriot; (iii) the
sublease of the Racecourse land and related improvements from Patriot to PAHOC;
(iv) the leasing of certain land from Patriot to Borders, Inc.; (v) the
acquisition of 23 hotels by Patriot (excluding the Park Shore Hotel and the
Sheraton City Centre); (vi) the funding of $103,000 in mortgage notes to
affiliates of CHC Lease Partners; (vii) the replacement of the Old Line of
Credit facility with the Revolving Credit Facility and the Term Loan; (viii)
the acquisition of a participating note; (ix) consummation of the offering of
10,580,000 Paired Shares; (x) the lease of 59 hotel properties to PAHOC
(excluding the Sheraton City Centre); and (xi) the acquisition of 24 hotels,
the private placement of equity securities and the public offering of common
stock, which were consummated by Old Patriot during 1996) had occurred on
January 1, 1996. The pro forma combined balance sheet data of Patriot and PAHOC
is presented as if the CHCI Merger and certain other transactions, as described
above, had occurred as of September 30, 1997. The pro forma financial
statements which are adjusted to account for the Wyndham Transactions begin on
page 149. The pro forma financial statements which are adjusted to account for
the Patriot/IHC Merger and the Buena Vista Acquisition begin on page 182. The
pro forma financial statements which are adjusted to account for the Merger
begin on page 172.
28
<PAGE>
PATRIOT AND PAHOC
SELECTED COMBINED PRO FORMA FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
PRO FORMA(1)
-------------------------------
NINE MONTHS
ENDED
YEAR ENDED SEPTEMBER 30,
DECEMBER 31, 1996 1997
----------------- -------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C>
OPERATING DATA:
Total revenue................................ $686,236 $ 553,326
Income before income tax provision and
minority interests.......................... 41,798 49,337
Net income applicable to common
stockholders................................ $ 33,834 $ 40,874
PER SHARE DATA:
Net income per common share.................. $ 0.45 $ 0.54
======== ==========
Weighted average number of common shares and
common share equivalents outstanding........ 75,516 76,090
======== ==========
<CAPTION>
SEPTEMBER 30,
1997
-------------
(UNAUDITED)
<S> <C>
BALANCE SHEET DATA:
Investment in real estate and related
improvements, net........................... $1,657,283
Total assets................................. 2,107,152
Total debt................................... 789,930
Minority interest in the Patriot
Partnerships................................ 264,862
Stockholders' equity......................... 935,217
</TABLE>
PATRIOT
SELECTED CONSOLIDATED PRO FORMA FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
PRO FORMA(1)
------------------------------------
NINE MONTHS
YEAR ENDED ENDED
DECEMBER 31, 1996 SEPTEMBER 30, 1997
----------------- ------------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C>
OPERATING DATA:
Total revenue........................... $222,110 $180,229
Income before minority interests........ 67,450 58,539
Net income applicable to common
stockholders........................... $ 56,416 $ 48,742
PER SHARE DATA:
Net income per common share............. $ 0.75 $ 0.64
======== ========
Weighted average number of common shares
and common share equivalents
outstanding............................ 75,516 76,090
======== ========
</TABLE>
(Notes on page 31)
29
<PAGE>
PAHOC
SELECTED CONSOLIDATED PRO FORMA FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
PRO FORMA(1)
------------------------------------
NINE MONTHS
YEAR ENDED ENDED
DECEMBER 31, 1996 SEPTEMBER 30, 1997
----------------- ------------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C>
OPERATING DATA:
Total revenue........................... $647,772 $516,958
Loss before income tax provision and
minority interests..................... (25,652) (9,202)
Net loss applicable to common
stockholders........................... $(22,582) $ (7,868)
PER SHARE DATA:
Net loss per common share............... $ (0.30) $ (0.10)
======== ========
Weighted average number of common shares
and common share equivalents
outstanding............................ 75,516 76,090
======== ========
</TABLE>
COMBINED LESSEES
SELECTED 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 CHC Lease
Partners, PAH RSI Lessee and Grand Heritage Leasing, L.L.C.) and should be read
in conjunction with, and is qualified in its entirety by, the historical
financial statements and notes thereto of Patriot, PAHOC, Old Patriot and
NorthCoast Lessee which are incorporated by reference into this Proxy
Statement/Prospectus. This information should also be read in conjunction with
the pro forma financial statements and notes thereto of the Combined Lessees
located elsewhere in this Proxy Statement/Prospectus. The pro forma operating
information is presented as if the 18 hotels that Patriot leases to the Lessees
pursuant to Participating Leases (excluding the Park Shore Hotel) had been
leased as of January 1, 1996. The pro forma financial data assumes the 25
hotels formerly leased to CHC Lease Partners and the eight hotels formerly
leased to PAH RSI Lessee are leased to PAHOC and the three hotel leases held by
Grand Heritage Leasing, L.L.C. were acquired by PAHOC.
<TABLE>
<CAPTION>
PRO FORMA(2)
------------------------------------
NINE MONTHS
YEAR ENDED ENDED
DECEMBER 31, 1996 SEPTEMBER 30, 1997
----------------- ------------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C>
FINANCIAL DATA:
Room revenue............................. $88,410 $72,100
Food and beverage revenue................ 36,878 28,663
Telephone and other hotel revenue........ 7,837 6,193
------- -------
Total revenue............................ 133,125 106,956
Hotel operating expenses................. 90,929 69,507
Participating Lease payments(3).......... 41,749 34,373
------- -------
Income before Lessee expenses............ 447 3,076
Lessee expenses(4)....................... 3,914 2,493
------- -------
Net income (loss)........................ $(3,467) $ 583
======= =======
</TABLE>
(Notes on following page)
30
<PAGE>
NOTES TO PATRIOT, PAHOC AND COMBINED LESSEES SELECTED FINANCIAL INFORMATION (IN
THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(1) The pro forma information does not purport to represent what Patriot's and
PAHOC's combined financial position or Patriot's, PAHOC's or the Lessees'
results of operations actually would have been if the Cal Jockey Merger,
the GAH Acquisition, the CHCI Merger and certain other transactions
(including (i) the lease of 59 hotel properties to PAHOC (excluding the
Sheraton City Centre), (ii) the sale of substantially all of the Cal Jockey
land to the PaineWebber affiliate, (iii) the leaseback of the land on which
the Racecourse is situated from the PaineWebber affiliate to Patriot, (iv)
the sublease of the Racecourse land and related improvements from Patriot
to PAHOC, (v) the leasing of certain land from Patriot to Borders, Inc.,
(vi) the acquisition of 23 hotels by Patriot (excluding the Park Shore
Hotel and the Sheraton City Centre), (vii) the funding of $103,000 in
mortgage notes to affiliates of CHC Lease Partners, (viii) the replacement
of the Old Line of Credit facility with the Revolving Credit Facility and
the Term Loan, (ix) the acquisition of a participating note and (x) the
consummation of the offering of 10,580 Paired Shares) had in fact occurred
on such date or at the beginning of the period presented, or to project the
results of operations of Patriot or PAHOC for any future periods.
Additionally, if the interest rate increases by 0.25%, the resulting pro
forma net income would be $32,477 and $39,860, or $0.43 and $0.53 per Paired
Share for the year ended December 31, 1996 and the nine months ended
September 30, 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 Cal Jockey
Merger and certain other 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 CHC Lease Partners, which
leased 25 hotels, PAH RSI Lessee, which leased eight hotels, and Grand
Heritage Leasing, L.L.C. which leased three hotels. The pro forma financial
data assumes these hotels are leased to PAHOC.
(3) Participating lease payments from the Lessees to Patriot 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.
(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 100 OP Units of the Patriot Partnerships, 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.
31
<PAGE>
PATRIOT AND PAHOC
ADJUSTED FOR THE WYNDHAM TRANSACTIONS
SELECTED UNAUDITED PRO FORMA COMBINED FINANCIAL DATA
The following tables set forth pro forma financial information for Patriot
and PAHOC and should be read in conjunction with, and are qualified in their
entirety by, the historical financial statements and notes thereto of Patriot,
PAHOC, Old Patriot, Cal Jockey, Bay Meadows, Wyndham and the combined
historical financial statements of the Crow Family Hotel Partnerships
incorporated by reference into this Proxy Statement/Prospectus. This
information should also be read in conjunction with the pro forma financial
statements and notes thereto located elsewhere in this Proxy
Statement/Prospectus. The pro forma operating information is presented as if
the Wyndham Transactions, the Cal Jockey Merger, the GAH Acquisition, the CHCI
Merger and certain other transactions (which include (i) the sale of
substantially all of the Cal Jockey land to an affiliate of PaineWebber; (ii)
the leaseback of the land on which the Racecourse is situated from the
PaineWebber affiliate to Patriot; (iii) the sublease of the Racecourse land and
related improvements from Patriot to PAHOC; (iv) the leasing of certain land
from Patriot to Borders, Inc.; (v) the acquisition of 23 hotels by Patriot
(excluding the Park Shore Hotel and the Sheraton City Centre); (vi) the funding
of $103,000 in mortgage notes to affiliates of CHC Lease Partners; (vii) the
replacement of the Old Line of Credit facility with the Revolving Credit
Facility and the Term Loan; (viii) the acquisition of a participating note;
(ix) consummation of the offering of 10,580,000 Paired Shares; (x) the lease of
61 hotel properties to PAHOC (excluding the Sheraton City Centre and including
the two hotels currently leased to Crow Hotel Lessee, Inc.); and (xi) the
acquisition of 24 hotels, the private placement of equity securities and the
public offering of common stock, which were consummated by Old Patriot during
1996) had occurred on January 1, 1996. The pro forma combined balance sheet
data of Patriot and PAHOC is presented as if the Wyndham Transactions and the
CHCI Merger and certain other transactions, as described above, had occurred as
of September 30, 1997.
PATRIOT AND PAHOC
ADJUSTED FOR THE WYNDHAM TRANSACTIONS
SELECTED COMBINED PRO FORMA FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
PRO FORMA(1)
------------------------------------
YEAR ENDED NINE MONTHS ENDED
DECEMBER 31, 1996 SEPTEMBER 30, 1997
----------------- ------------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C>
OPERATING DATA:
Total revenue........................... $1,020,041 $837,571
Income before income tax provision and
minority interests..................... 8,741 38,167
Net income applicable to common
stockholders........................... $ 12,688 $ 29,185
PER SHARE DATA:
Net income per common Paired Share...... $ 0.12 $ 0.28
========== ========
Weighted average number of common shares
and common share equivalents
outstanding............................ 102,543 103,117
========== ========
</TABLE>
<TABLE>
<CAPTION>
PRO FORMA(1)
------------------
SEPTEMBER 30, 1997
------------------
(UNAUDITED)
<S> <C>
BALANCE SHEET DATA:
Investment in real estate and related improvements, net.... $2,433,525
Total assets............................................... 3,478,366
Total debt................................................. 1,472,911
Minority interests in the Patriot Partnerships............. 264,862
Stockholders' equity....................................... 1,501,291
</TABLE>
(Notes on page 35)
32
<PAGE>
PATRIOT
ADJUSTED FOR THE WYNDHAM TRANSACTIONS
SELECTED CONSOLIDATED PRO FORMA FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
PRO FORMA(1)
------------------------------------
NINE MONTHS
YEAR ENDED ENDED
DECEMBER 31, 1996 SEPTEMBER 30, 1997
----------------- ------------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C>
OPERATING DATA:
Total revenue........................... $300,459 $253,779
Income before income tax provision and
minority interests..................... 26,461 40,318
Net income applicable to common
stockholders........................... $ 21,735 $ 34,183
PER SHARE DATA:
Net income per common share............. $ 0.21 $ 0.33
======== ========
Weighted average number of common shares
and common share equivalents
outstanding............................ 102,543 103,117
======== ========
</TABLE>
PAHOC
ADJUSTED FOR THE WYNDHAM TRANSACTIONS
SELECTED CONSOLIDATED PRO FORMA FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
PRO FORMA(1)
------------------------------------
NINE MONTHS
YEAR ENDED ENDED
DECEMBER 31, 1996 SEPTEMBER 30, 1997
----------------- ------------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C>
OPERATING DATA:
Total revenue........................... $990,096 $808,209
Loss before income tax provision and
minority interest...................... (22,765) (732)
Net loss applicable to common
stockholders........................... $ (9,047) $ (4,998)
PER SHARE DATA:
Net loss per common share............... $ (0.09) $ (0.05)
======== ========
Weighted average number of common shares
and common share equivalents
outstanding............................ 102,543 103,117
======== ========
</TABLE>
(Notes on page 35)
33
<PAGE>
COMBINED LESSEES
ADJUSTED FOR THE WYNDHAM TRANSACTIONS
SELECTED 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 CHC Lease
Partners, PAH RSI Lessee, Crow Hotel Lessee, Inc. and Grand Heritage Leasing,
L.L.C.) and should be read in conjunction with, and is qualified in its
entirety by, the historical financial statements and notes thereto of Patriot,
PAHOC, Old Patriot, Wyndham and NorthCoast Lessee incorporated by reference
into this 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 Proxy Statement/Prospectus. The pro
forma operating information is presented as if the 16 Patriot hotels leased to
the Lessees (excluding the Park Shore Hotel and the hotels leased to CHC Lease
Partners, PAH RSI Lessee, Crow Hotel Lessee, Inc., and Grand Heritage Leasing,
L.L.C.) pursuant to Participating Leases had been leased as of January 1, 1996.
<TABLE>
<CAPTION>
PRO FORMA(2)
-------------------------------
NINE MONTHS
ENDED
YEAR ENDED SEPTEMBER 30,
DECEMBER 31, 1996 1997
----------------- -------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C>
FINANCIAL DATA:
Room revenue.................................. $72,182 $59,441
Food and beverage revenue..................... 28,499 22,355
Telephone and other hotel revenue............. 5,906 4,852
------- -------
Total revenue................................. 106,587 86,648
Hotel operating expenses...................... 73,837 56,346
Participating Lease payments(3)............... 32,730 27,367
------- -------
Income before Lessee expenses................. 20 2,935
Lessee expenses(4)............................ 2,889 1,835
------- -------
Net income (loss)............................. $(2,869) $ 1,100
======= =======
</TABLE>
(Notes on following page)
34
<PAGE>
NOTES TO PATRIOT, PAHOC AND COMBINED LESSEES SELECTED FINANCIAL INFORMATION AS
ADJUSTED FOR THE WYNDHAM TRANSACTIONS (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(1) The pro forma information does not purport to represent what Patriot's and
PAHOC's combined financial position or Patriot's, PAHOC's or the Combined
Lessees' results of operations actually would have been if the Wyndham
Transactions (and the Cal Jockey Merger, the GAH Acquisition, the CHCI
Merger and certain other recent transactions) had in fact occurred on such
date or at the beginning of the period presented, or to project the results
of operations of Patriot, PAHOC or the Combined Lessees for any future
periods.
The pro forma combined financial data assumes stockholders holding shares of
Wyndham Common Stock with an aggregate value of $100,000 elect to receive
cash, and the remaining outstanding shares of Wyndham Common Stock are
exchanged for Paired Shares. If no stockholders holding shares of Wyndham
Common Stock elect to receive cash and all outstanding Wyndham Common Stock
is exchanged for Paired Shares, the resulting combined pro forma net income
of Patriot and PAHOC would be $19,315 and $34,302 for the year ended
December 31, 1996 and the nine months ended September 30, 1997,
respectively. The resulting pro forma net income per paired share would be
$0.18 and $0.32 for the year ended December 31, 1996 and the nine months
ended September 30, 1997, respectively.
Additionally, if the interest rate increases by 0.25%, the resulting
combined pro forma net income of Patriot and PAHOC, assuming stockholders
holding shares of Wyndham Common Stock with an aggregate value of $100,000
elect to receive cash, would be $8,862 and $26,583, or $0.09 and $0.26 per
Paired Share for the year ended December 31, 1996 and the nine months ended
September 30, 1997, respectively. If all outstanding Wyndham Common Stock is
exchanged for Paired Shares, the resulting pro forma net income would be
$15,702 and $31,859, or $0.15 and $0.30 per Paired Share for the year ended
December 31, 1996 and the nine months ended September 30, 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 Wyndham
Transactions (and the Cal Jockey Merger, the GAH Acquisition, the CHCI
Merger and certain other recent 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 CHC Lease Partners, which
leased 25 hotels, PAH RSI Lessee, which leased eight hotels, Crow Hotel
Lessee, Inc., which leased the Wyndham Garden Hotel--Midtown and the
Wyndham Greenspoint Hotel, and Grand Heritage Leasing, L.L.C., which leased
three hotels. The pro forma financial data assumes that the leases with
Crow Hotel Lessee, Inc. related to the Wyndham Garden Hotel--Midtown and
the Wyndham Greenspoint Hotel will be terminated in connection with the
Wyndham Merger, and Patriot will lease these hotel properties to PAHOC.
(3) Participating lease payments from the Lessees to Patriot 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 100 OP Units of the Patriot Partnerships, 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.
35
<PAGE>
PATRIOT AND PAHOC
ADJUSTED FOR THE MERGER
SELECTED UNAUDITED PRO FORMA COMBINED FINANCIAL DATA
The following unaudited Pro Forma Condensed Combined financial data as
adjusted for the Merger is derived from (i) the Patriot and the PAHOC Pro Forma
Condensed Combined Balance Sheet and Statements of Operations as adjusted for
the Wyndham Transactions for the year ended December 31, 1996 and the nine
months ended September 30, 1997 included elsewhere in this Proxy
Statement/Prospectus and (ii) the Consolidated Financial Statements of WHG for
the year ended June 30, 1997 and the three months ended September 30, 1997
which are included elsewhere herein.
The following tables set forth pro forma financial information for Patriot
and PAHOC and should be read in conjunction with, and are qualified in their
entirety by, the historical financial statements and notes thereto of Patriot,
PAHOC, Old Patriot, Cal Jockey, Bay Meadows and Wyndham and the combined
historical financial statements of the Crow Family Hotel Partnerships
incorporated by reference into this Proxy Statement/Prospectus and the
historical financial statements of WHG included elsewhere in this Proxy
Statement/Prospectus. This information should also be read in conjunction with
the pro forma financial statements and notes thereto located elsewhere in this
Proxy Statement/Prospectus. In addition to the Merger, the pro forma operating
information is presented as if the Wyndham Transactions, the Cal Jockey Merger,
the GAH Acquisition, the CHCI Merger and certain other recent transactions
(which include (i) the sale of substantially all of the Cal Jockey land to an
affiliate of PaineWebber; (ii) the leaseback of the land on which the
Racecourse is situated from the PaineWebber affiliate to Patriot; (iii) the
sublease of the Racecourse land and related improvements from Patriot to PAHOC;
(iv) the leasing of certain land from Patriot to Borders, Inc.; (v) the
acquisition of 23 hotels by Patriot (excluding the Park Shore Hotel and the
Sheraton City Centre); (vi) the funding of $103,000 in mortgage notes to
affiliates of CHC Lease Partners; (vii) the replacement of the Old Line of
Credit facility with the Revolving Credit Facility and the Term Loan; (viii)
the acquisition of a participating note; (ix) consummation of the offering of
10,580,000 Paired Shares; (x) the leasing of 61 hotels to PAHOC (excluding
Sheraton City Centre and including the two hotels currently leased to Crow
Hotel Lessee, Inc.) and (xi) the acquisition of 24 hotels, the private
placement of equity securities and the public offering of common stock, which
were consummated by Old Patriot during 1996) had occurred on January 1, 1996.
The pro forma combined balance sheet data of Patriot and PAHOC is presented as
if the Merger, the Wyndham Transactions, the CHCI Merger and certain other
transactions, as described above, had occurred as of September 30, 1997.
The pro forma combined financial statements of Patriot and PAHOC which are
adjusted to account for the transactions described above (except for the Merger
and the Wyndham Transactions) begin on page 120. The pro forma combined
financial statements which are adjusted to account for the Wyndham Transactions
described above begin on page 149.
36
<PAGE>
PATRIOT AND PAHOC
ADJUSTED FOR THE MERGER
SELECTED COMBINED PRO FORMA FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
PRO FORMA(1)
------------------------------------
YEAR ENDED NINE MONTHS ENDED
DECEMBER 31, 1996 SEPTEMBER 30, 1997
----------------- ------------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C>
OPERATING DATA:
Total revenue........................... $1,090,017 $893,739
Income before income tax provision and
minority interests..................... 12,821 47,431
Net income applicable to common
stockholders........................... $ 10,518 $ 34,698
PER SHARE DATA:
Net income per common paired share...... $ 0.09 $ 0.32
========== ========
Weighted average number of common shares
and common share equivalents
outstanding............................ 107,547 108,178
========== ========
</TABLE>
<TABLE>
<CAPTION>
PRO FORMA(1)
------------------
SEPTEMBER 30, 1997
------------------
(UNAUDITED)
<S> <C>
BALANCE SHEET DATA:
Investment in real estate and related improvements, net.... $2,514,216
Total assets............................................... 3,711,334
Total debt................................................. 1,495,274
Minority interests in the Patriot Partnerships............. 264,862
Stockholders' equity....................................... 1,660,187
</TABLE>
(Note on the following page)
37
<PAGE>
PATRIOT
ADJUSTED FOR THE MERGER
SELECTED CONSOLIDATED PRO FORMA FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
PRO FORMA(1)
------------------------------------
NINE MONTHS
YEAR ENDED ENDED
DECEMBER 31, 1996 SEPTEMBER 30, 1997
----------------- ------------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C>
OPERATING DATA:
Total revenue........................... $300,459 $253,779
Income before income tax provision and
minority interests..................... 26,461 40,318
Net income applicable to common
stockholders........................... $ 21,856 $ 34,374
PER SHARE DATA:
Net income per common share............. $ 0.20 $ 0.31
======== ========
Weighted average number of common shares
and common share equivalents
outstanding............................ 107,547 108,178
======== ========
</TABLE>
PAHOC
ADJUSTED FOR THE MERGER
SELECTED CONSOLIDATED PRO FORMA FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
PRO FORMA(1)
------------------------------------
NINE MONTHS
YEAR ENDED ENDED
DECEMBER 31, 1996 SEPTEMBER 30, 1997
----------------- ------------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C>
OPERATING DATA:
Total revenue........................... $1,060,072 $864,377
Income (loss) before income tax
provision and minority interest........ (18,685) 8,532
Net income (loss) applicable to common
stockholders........................... $ (11,338) $ 324
PER SHARE DATA:
Net income (loss) per common share...... $ (0.11) $ 0.01
========== ========
Weighted average number of common shares
and common share equivalents
outstanding............................ 107,547 108,178
========== ========
</TABLE>
- --------
(1) The pro forma information does not purport to represent what Patriot's and
PAHOC's combined financial position or Patriot's or PAHOC's results of
operations actually would have been if the Merger (and the Wyndham
Transactions, the Cal Jockey Merger, the GAH Acquisition, the CHCI Merger
and certain other recent transactions) had in fact occurred on such date or
at the beginning of the period presented, or to project the results of
operations of Patriot or PAHOC for any future periods.
If the interest rate increases by 0.25%, the resulting combined pro forma
net income of Patriot and PAHOC would be $13,821 and $32,082, or $0.12 and
$0.30 per Paired Share for the year ended December 31, 1996 and the nine
months ended September 30, 1997, respectively.
38
<PAGE>
PATRIOT AND PAHOC
ADJUSTED FOR THE PATRIOT/IHC MERGER AND BUENA VISTA ACQUISITION
SELECTED UNAUDITED PRO FORMA COMBINED FINANCIAL DATA
The following tables set forth pro forma financial information for Patriot
and PAHOC and should be read in conjunction with, and are qualified in their
entirety by, the historical financial statements and notes thereto of Patriot,
PAHOC, Old Patriot, Cal Jockey, Bay Meadows, IHC and Wyndham and the combined
historical financial statements of the Crow Family Hotel Partnerships
incorporated by reference into this Proxy Statement/Prospectus and the
historical financial statements of WHG included elsewhere in this Proxy
Statement/Prospectus. This information should also be read in conjunction with
the pro forma financial statements and notes thereto located elsewhere in this
Proxy Statement/Prospectus. The pro forma operating information is presented as
if the Patriot/IHC Merger, the acquisition of an aggregate 95% ownership
interest in the Buena Vista Palace Hotel (the "Buena Vista Acquisition"), the
Merger, the Wyndham Transactions, the Cal Jockey Merger, the GAH Acquisition,
the CHCI Merger and certain other recent transactions (which include (i) the
sale of substantially all of the Cal Jockey land to an affiliate of
PaineWebber; (ii) the leaseback of the land on which the Racecourse is situated
from the PaineWebber affiliate to Patriot; (iii) the sublease of the Racecourse
land and related improvements from Patriot to PAHOC; (iv) the leasing of
certain land from Patriot to Borders, Inc.; (v) the acquisition of 23 hotels by
Patriot (excluding the Park Shore Hotel and the Sheraton City Centre); (vi) the
funding of $103,000 in mortgage notes to affiliates of CHC Lease Partners;
(vii) the replacement of the Old Line of Credit facility with the Revolving
Credit Facility and the Term Loan; (viii) the acquisition of a participating
note; (ix) consummation of the offering of 10,580 Paired Shares; (x) the
leasing of 61 hotels to PAHOC (excluding the Sheraton City Centre and including
the two hotels leased to Crow Hotel Lessee, Inc.) and (xi) the acquisition of
24 hotels, the private placement of equity securities and the public offering
of common stock, which were consummated by Old Patriot during 1996) had
occurred on January 1, 1996. The pro forma combined balance sheet data of
Patriot and PAHOC is presented as if the Patriot/IHC Merger, the Buena Vista
Acquisition, the Merger, the Wyndham Transactions, the CHCI Merger and certain
other transactions, as described above, had occurred as of September 30, 1997.
PATRIOT AND PAHOC
ADJUSTED FOR THE PATRIOT/IHC MERGER AND BUENA VISTA ACQUISITION
SELECTED COMBINED PRO FORMA FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
PRO FORMA(1)
------------------------------------
YEAR ENDED NINE MONTHS ENDED
DECEMBER 31, 1996 SEPTEMBER 30, 1997
----------------- ------------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C>
OPERATING DATA:
Total revenue........................... $1,887,086 $1,530,764
Income (loss) before income tax
provision and minority interests....... (31,125) 34,534
Net income (loss) applicable to common
stockholders........................... $ (40,809) $ 16,352
PER SHARE DATA:
Net income (loss) per common Paired
Share.................................. $ (0.30) $ 0.11
========== ==========
Weighted average number of common shares
and common share equivalents
outstanding............................ 139,598 140,229
========== ==========
</TABLE>
<TABLE>
<CAPTION>
PRO FORMA(1)
------------------
SEPTEMBER 30, 1997
------------------
(UNAUDITED)
<S> <C>
BALANCE SHEET DATA:
Investment in real estate and related improvements, net.... $4,560,435
Total assets............................................... 6,186,728
Total debt................................................. 2,828,325
Minority interests in the Patriot Partnerships............. 266,940
Stockholders' equity....................................... 2,647,154
</TABLE>
(Note on following page)
39
<PAGE>
PATRIOT
ADJUSTED FOR THE PATRIOT/IHC MERGER AND BUENA VISTA ACQUISITION
SELECTED CONSOLIDATED PRO FORMA FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
PRO FORMA(1)
------------------------------------
NINE MONTHS
YEAR ENDED ENDED
DECEMBER 31, 1996 SEPTEMBER 30, 1997
----------------- ------------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C>
OPERATING DATA:
Total revenue........................... $557,429 $472,678
Income (loss) before income tax
provision and minority interests....... (22,750) 23,401
Net income (loss) applicable to common
stockholders........................... $(28,795) $ 15,976
PER SHARE DATA:
Net income (loss) per common share...... $ (0.21) $ 0.11
======== ========
Weighted average number of common shares
and common share equivalents
outstanding............................ 139,598 140,229
======== ========
</TABLE>
PAHOC
ADJUSTED FOR THE PATRIOT/IHC MERGER AND BUENA VISTA ACQUISITION
SELECTED CONSOLIDATED PRO FORMA FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
PRO FORMA(1)
------------------------------------
NINE MONTHS
YEAR ENDED ENDED
DECEMBER 31, 1996 SEPTEMBER 30, 1997
----------------- ------------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C>
OPERATING DATA:
Total revenue........................... $1,857,141 $1,501,402
Income (loss) before income tax
provision and minority interest........ (14,201) 11,175
Net income (loss) applicable to common
stockholders........................... $ (12,014) $ 376
PER SHARE DATA:
Net income (loss) per common share...... $ (0.09) $ 0.00
========== ==========
Weighted average number of common shares
and common share equivalents
outstanding............................ 139,598 140,229
========== ==========
</TABLE>
- --------
(1) The pro forma information does not purport to represent what Patriot's and
PAHOC's combined financial position or Patriot's and PAHOC's results of
operations actually would have been if the Patriot/IHC Merger and the Buena
Vista Acquisition (and the Merger, the Wyndham Transactions, the Cal Jockey
Merger, the GAH Acquisition, the CHCI Merger and certain other recent
transactions) had in fact occurred on such date or at the beginning of the
period presented, or to project the results of operations of Patriot and
PAHOC for any future periods.
If the interest rate increases by 0.25%, the resulting combined pro forma
operating results of Patriot and PAHOC would be net loss of $45,145 , or
$0.32 per Paired Share for the year ended December 31, 1996 and net income
of $13,031, or $0.09 per Paired Share for the nine months ended September
30, 1997, respectively.
40
<PAGE>
DISTRIBUTION AND DIVIDEND POLICY
Old Patriot paid a regular quarterly dividend of $0.24 per share of Old
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 three quarters of 1997 (or Old Patriot prior to
the Cal Jockey Merger). In addition, in connection with the Cal Jockey Merger,
Old Patriot paid a special dividend of $0.06 per share on June 30, 1997.
Patriot has announced that the quarterly dividend will be increased to $0.32
per share for the fourth quarter of 1997. Such dividend amounts represent
dividends of $0.9825 per share for the full year of 1996 and $1.1075 per share
(or $1.1675 per share including the special dividend) for the full year of
1997. The 22% increase in Patriot's dividend for the fourth quarter of 1997
represents an annualized dividend of $1.28 per share. Historically, PAHOC has
not paid dividends.
Distributions by Patriot 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 unless properly designated as capital
gain dividends. 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 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
$0.8475 per share dividends paid by Patriot for 1996 and for the year to date
for 1997, respectively, exceeded Patriot's earnings and profits. Given the
dynamic nature of Patriot's acquisition strategy and the fact that any future
acquisitions could alter this calculation, no assurances can be given regarding
what percent of future distributions, if any, will constitute return of capital
for federal income tax purposes.
Distributions by Patriot will be at the discretion of the Patriot Board and
will depend on the actual cash flow of Patriot, its financial condition,
capital requirements, the annual distribution requirements under the REIT
provisions of the Code and such other factors as the Patriot Board deems
relevant. However, Patriot currently intends to maintain Patriot's quarterly
distribution of $0.32 per share. See "Risk Factors--Patriot Tax Risks--Adverse
Effects of REIT Minimum Distribution Requirements."
For a discussion of the tax consequences on the payment of dividends by the
Patriot Companies, see "Certain Federal Income Tax Considerations--Federal
Income Taxation of Holders of Paired Shares."
41
<PAGE>
RISK FACTORS
WHG Stockholders, in considering whether to approve the Merger, should
consider, in addition to the other information in this Proxy
Statement/Prospectus, the matters discussed in this section.
Any statements in this Proxy Statement/Prospectus, including the documents
that are incorporated by reference as set forth in "Available Information" and
"Incorporation of Documents by Reference," that are not strictly historical
are forward-looking statements within the meaning of the safe harbor
provisions of the Private Securities Litigation Reform Act. These statements
include, among other things, statements regarding the intent, belief or
expectations of the Patriot Companies and WHG and their respective directors
and officers with respect to, as applicable, (i) the declaration or payment of
distributions by the Patriot Companies, (ii) the consummation of the Merger,
(iii) the ownership, management and operation of hotels, (iv) potential
acquisitions or dispositions by the Patriot Companies including the Other
Transactions and the Other Hotel Acquisitions, (v) the policies of the Patriot
Companies regarding investments, acquisitions, dispositions, financing,
conflicts of interest and other matters, (vi) Patriot'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 Term Loan, (ix) interest rates, (x) general economic
conditions and (xi) trends affecting the Patriot Companies financial condition
or results of operations. WHG Stockholders are cautioned that any such forward
looking statements reflect the respective companies' good faith beliefs, they
are not guarantees of future performance and involve known and unknown risks,
and that actual results may differ materially from those in the forward
looking statements as a result of various factors. The accompanying
information contained or incorporated by reference in this Proxy
Statement/Prospectus, including, without limitation, the information set forth
below identify important factors that could cause such differences.
FAILURE TO MANAGE RAPID GROWTH AND INTEGRATE OPERATIONS FOLLOWING THE MERGER
AND THE OTHER TRANSACTIONS
The Patriot Companies currently are experiencing a period of rapid growth.
Since the Initial Offering in October 1995, the Patriot Companies have
consummated acquisitions of Cal Jockey and Bay Meadows, Carefree Resorts,
Grand Heritage Hotels and Gencom, and have entered into definitive agreements
relating to the acquisition of Wyndham, the Crow Assets, CHCI, WHG and IHC.
Based upon the respective portfolios of the Patriot Companies, Wyndham and IHC
at December 1, 1997, the Patriot Companies' aggregate rooms portfolio after
giving effect to the Other Transactions will be approximately 103,000 rooms,
representing an increase in the Patriot Companies' rooms portfolio of over
98,800 since Patriot's Initial Offering. Failure of the Patriot Companies to
expand their operations to satisfy the needs of a rapidly growing asset base
in a functionally and economically efficient manner, or the failure of the
Patriot Companies to successfully integrate their operations with those being
acquired could have a material adverse effect on the results of operations and
financial condition of the Patriot Companies, and could result in the Patriot
Companies' failure to recognize the anticipated benefits of these
acquisitions.
SUBSTANTIAL DEBT OBLIGATIONS
Subsequent to the consummation of the Merger and the Other Transactions, the
Patriot Companies will have approximately $2.8 billion of pro forma combined
total indebtedness (approximately $22.4 million attributable to the Merger) as
compared to pro forma combined total indebtedness of the Patriot Companies,
without giving effect to the Merger, the Patriot/IHC Merger and the Wyndham
Transactions, of $790 million. The pro forma ratio of combined debt to total
market capitalization of the Patriot Companies, assuming an aggregate
indebtedness of approximately $2.8 billion, will be approximately 39.6%. The
calculation of the pro forma ratio of combined debt to total market
capitalization is based on the $28.50 closing price of the Paired Shares on
the NYSE on December 12, 1997. The Patriot Companies also may borrow
additional amounts from the same or other lenders in the future, may assume
debt in connection with acquisitions or may issue corporate debt securities in
public or private offerings. Substantially all of the Patriot Companies'
combined debt bears interest at variable rates and Patriot currently expects
that the Term Loan will bear interest at a variable rate.
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The interest rate of the Revolving Credit Facility bears interest at a
variable rate based, in part, on the Patriot Companies' leverage ratio. The
Patriot Companies anticipate that the Term Loan will bear interest on similar
terms. Consequently, the incurrence of indebtedness in connection with the
Patriot/IHC Merger, and the resulting increase in the Patriot Companies'
leverage ratio, may result in increased interest expense under the Revolving
Credit Facility and a higher interest rate on the Term Loan, if consummated.
The Patriot Companies may issue additional equity securities in an attempt to
lower their debt to market capitalization ratio.
There can be no assurance that the Patriot Companies, following consummation
of the Merger and the Other Transactions, will be able to meet their debt
service obligations and, to the extent that they cannot, the Patriot Companies
risk the loss of some or all of their assets, including their hotels, to
foreclosure. Adverse economic conditions could cause the terms on which
borrowing becomes available to be unfavorable. In such circumstances, if the
Patriot Companies are in need of capital to repay indebtedness in accordance
with its terms or otherwise, they could be required to liquidate one or more
investments in properties at times which may not permit realization of the
maximum return on such investments.
The foregoing risks associated with debt obligations of the Patriot
Companies may adversely affect the market price of the Paired Shares following
the Merger and may inhibit the ability of the Patriot Companies to raise
capital in both the public and private markets following the consummation of
the Merger, and the Other Transactions.
DILUTION TO EARNINGS CAUSED BY ACQUISITION OF WYNDHAM AND IHC
If and when consummated, the Wyndham Transactions and the Patriot/IHC Merger
will have a dilutive effect on the Patriot Companies on net income per share
on a pro forma combined basis for the year ended December 31, 1996 and the
nine months ended September 30, 1997. The Unaudited Pro Forma Financial
Statements contained herein illustrate the effect of the Wyndham Transactions
and the Patriot/IHC Merger on the net income per Paired Share for the year
ended December 31, 1996 and the nine months ended September 30, 1997. On a pro
forma combined basis (post-Patriot/IHC Merger) for the Patriot Companies
(which also assumes consummation of the Patriot/IHC Merger and the Buena Vista
Acquisition, the Merger, the Wyndham Transactions, the CHCI Merger and other
transactions), net loss per Paired Share is $0.30 for the year ended December
31, 1996 and net income per Paired Share is $0.11 for the nine months ended
September 30, 1997, as compared to net income per Paired Share of $0.12 and
$0.28 for the year ended December 31, 1996 and the nine months ended September
30, 1997, respectively, on a pro forma combined basis for the Patriot
Companies without giving effect to the Merger, the Wyndham Transactions, the
Patriot/IHC Merger and the Buena Vista Acquisition. See "Unaudited Pro Forma
Financial Statements."
FINANCING
In order to satisfy certain requirements resulting from the Patriot/IHC
Merger and to finance in part the Patriot/IHC Merger, the Patriot Companies
are exploring alternative means by which to obtain additional financing prior
to the effective time of the Patriot/IHC Merger. Such financing may consist of
public or private equity or debt, or a combination thereof. While the Patriot
Companies have received "highly confident" letters from both PaineWebber Real
Estate and Chase with respect to financing the cash portion of the Patriot/IHC
Merger consideration, no assurance can be given that the Patriot Companies
will successfully obtain the financing necessary to consummate the Patriot/IHC
Merger, or if obtained, as to the terms and conditions of any such financing.
POTENTIAL CONFLICTS OF INTEREST BETWEEN PATRIOT AND PAHOC
Patriot and PAHOC are separate corporate entities with separate Boards of
Directors. A majority of the directors of each of Patriot and PAHOC do not
serve as directors or officers of the other company. In addition,
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Patriot and PAHOC generally have different employees, separate creditors and
are subject to different state law licensing and regulatory requirements. As a
result, the interests of the Board of Directors of each company may conflict,
and such conflicts may possibly rise to disputes between the companies. No
assurance can be given that conflicts will not arise between the companies or
that such conflicts will not have a material adverse effect on the results of
operations and financial condition of Patriot and PAHOC. Patriot and PAHOC
currently have the same Chief Executive Officer and Chief Financial Officer
(moreover, if the Wyndham Merger becomes effective PAHOC will have a new
Chairman of the Board and Chief Executive Officer; See "The Companies--The
Patriot Companies") as well as two of the same directors. The Patriot
Companies believe this overlap in management will help decrease the
possibility of disagreements between the two companies.
Patriot and PAHOC will be entering into the Cooperation Agreement and, when
and if the Wyndham Merger becomes effective, will have several of the same
directors, which Patriot and PAHOC believe will help decrease the possibility
of disagreements between Patriot and PAHOC. See "Description of the Patriot
Companies' Capital Stock--Effect of Other Transactions--The Cooperation
Agreement." No assurance can be given, however, that the interests of the
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. In addition, 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 Patriot and PAHOC.
POTENTIAL CONFLICTS OF INTEREST OF CERTAIN OFFICERS, DIRECTORS AND WHG
STOCKHOLDERS
In considering the recommendation of the WHG Board to approve the Merger
Agreement and the transactions contemplated thereby, WHG Stockholders should
be aware that certain members of WHG Senior Management have certain interests
in, and will receive benefits as a consequence of, the Merger that involve
certain potential and actual conflicts of interests. See "The Merger--
Interests of Certain Officers, Directors and WHG Stockholders" and "--
Background of the Merger."
PATRIOT TAX RISKS
Dependence on Qualification as a REIT
Patriot has operated, and following the Merger, Patriot 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 Patriot has operated or will be
able to continue to operate in a manner as to so 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 an
operating company with which its stock is paired. Qualification as a REIT also
involves the determination of various factual matters and circumstances not
entirely within Patriot's control. In addition, Patriot'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 PAHOC. 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
Patriot, in which case Patriot would not qualify as a REIT for any taxable
year. On November 5, 1997, Representative William Archer, Chairman of the Ways
and Means Committee of the House of Representatives, publicly announced that
he plans to review this "grandfathering" rule. While Representative Archer
stated that he does not plan to eliminate the "grandfathering" rule, 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.
Qualification of Patriot as a REIT also generally depends on the REIT
qualification of Old Patriot for periods prior to the Cal Jockey Merger.
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If Patriot fails to qualify as a REIT, Patriot will be subject to federal
income tax (including any applicable alternative minimum tax) on its taxable
income at corporate rates. In addition, unless entitled to relief under
certain statutory provisions and subject to the discussion above regarding the
impact if Patriot failed to qualify as a REIT in 1983, Patriot 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 Patriot available for distribution to
stockholders because of the additional tax liability to Patriot 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 Patriot's qualifying as a REIT, Patriot 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 Patriot.
Adverse Effects of REIT Minimum Distribution Requirements
In order to qualify as a REIT, Patriot is generally required each year to
distribute to its stockholders at least 95% of its taxable income (excluding
any net capital gain). In addition, if Patriot disposes of assets acquired
from a taxable corporation (such as Wyndham or IHC) in a tax-free merger
during the ten-year period following such merger, Patriot will be required to
distribute at least 95% of the amount of any "built-in gain" attributable to
such assets that Patriot recognizes in the disposition, less the amount of any
tax paid with respect to such recognized built-in gain. See "Certain Federal
Income Tax Considerations--REIT Qualification--Built-In Gain Tax." In
addition, Patriot generally is 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.
Patriot intends to make distributions to its stockholders to comply with the
95% distribution requirement and to avoid the nondeductible excise tax.
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 Patriot to borrow funds on a short-term basis to meet
the 95% distribution requirement and to avoid the nondeductible excise tax.
Distributions by the Patriot Companies are 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 Patriot) 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 Patriot), nontaxable return of capital, or a combination
thereof. The Patriot Companies will provide stockholders with annual
statements as to the taxability of distributions.
PATRIOT'S DEPENDENCE ON LESSEES AND PAYMENTS UNDER THE PARTICIPATING LEASES
Patriot leases substantially all of its existing hotels, including those
hotels leased to PAHOC, to the Lessees pursuant to separate Participating
Leases. Patriot's ability to make distributions to stockholders depends
primarily upon the ability of the Lessees to make rent payments under the
Participating Leases (which ability in turn is dependent primarily on the
Lessees' ability to generate sufficient revenues from those hotels which are
leased to them). A failure or delay to make such payments may be caused by
reductions in revenue from such hotels or in the net operating income of the
Lessees or otherwise. Any failure or delay by the Lessees in making rent
payments may adversely affect Patriot's ability to make distributions to
stockholders.
HOTEL INDUSTRY RISKS
Operating Risks
The primary businesses of the Patriot Companies are buying, selling, leasing
and managing hotels which are subject to operating risks common to the hotel
industry. These risks include, among other things, (i)
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competition for guests from other hotels, a number of which may have greater
marketing and financial resources and experience than the Patriot Companies
and the Lessees, (ii) increases in operating costs due to inflation and other
factors, which increases may not have been offset in past years, and may not
be offset in future years, by increased room rates, (iii) dependence on
business and commercial travelers and tourism, which business may fluctuate
and be seasonal, (iv) increases in energy costs and other expenses of travel,
which may deter travelers and (v) adverse effects of general and local
economic conditions. These factors could adversely affect the ability of the
Lessees or PAHOC following the Merger to generate revenues and to make lease
payments to Patriot and therefore Patriot's ability to make distributions to
stockholders.
The Patriot Companies are also subject to the risk that in connection with
the acquisition of hotels and hotel operating companies it may not be possible
to transfer certain operating licenses, such as food and beverage licenses, to
the Lessees, the Operators or PAHOC, 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 Patriot or PAHOC 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 or Operators to generate revenues and make lease payments to
Patriot.
Operating Costs and Capital Expenditures; Hotel Renovations
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. If capital expenditures exceed PAHOC's expectations, the
additional cost could have an adverse effect on PAHOC's cash available for
distribution. In addition, the Patriot Companies 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
The Patriot Companies may be competing for investment opportunities with
entities that have substantially greater financial resources. These entities
may generally be able to accept more risk than the Patriot Companies can
prudently manage, including risks with respect to the creditworthiness of a
hotel operator or the geographic proximity of its investments. Competition may
generally reduce the number of suitable investment opportunities offered to
the Patriot Companies and increase the bargaining power of property owners
seeking to sell.
Additionally, the Patriot Companies' ability to acquire additional hotels
could be negatively impacted by the paired share ownership structure and the
Wyndham Merger because hotel management companies, franchisees and others who
historically approached Patriot with acquisition opportunities in hopes of
establishing lessee or management relationships may not do so in the future
knowing that Patriot will rely primarily on PAHOC or Wyndham to lease and/or
manage the acquired properties. Such persons may instead provide such
acquisition opportunities to hotel companies that will allow them to manage
the properties following the sale. This could have a negative impact on the
Patriot Companies' acquisition activities in the future.
Seasonality
The hotel industry is seasonal in nature. Revenues at certain hotels are
greater in the first and second quarters of a calendar year and at other
hotels in the second and third quarters of a calendar year. Seasonal
variations in revenue at hotels may cause quarterly fluctuations in the
operating revenues of PAHOC and Wyndham and the lease revenues of Patriot.
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REAL ESTATE INVESTMENT RISKS
General Risks
Patriot Companies' investments are subject to varying degrees of risk
generally incident to the ownership of real property. The underlying value of
Patriot Companies' real estate investments and Patriot Companies' income and
ability to make distributions to its stockholders will be dependent upon the
ability of the Lessees and the Operators to operate Patriot Companies' 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 Patriot Companies. Income from Patriot Companies' 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, hurricanes and other natural
disasters (which may result in uninsured losses), acts of war and other
factors which are beyond the control of the Patriot Companies.
Value and Illiquidity of Real Estate
Real estate investments are relatively illiquid. The ability of the Patriot
Companies to vary their portfolio in response to changes in economic and other
conditions will therefore be limited. If the Patriot Companies must sell an
investment, there can be no assurance that the Patriot Companies will be able
to dispose of it in the time period they desire or that the sales price of any
investment will recoup or exceed the amount of the Patriot Companies'
investment.
Property Taxes
The Patriot Companies' hotels and the Racecourse are subject to real
property taxes. The real property taxes on hotel properties as well as the
Racecourse in which Patriot 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 Wyndham 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, the
Patriot Companies' ability to make distributions to its stockholders could be
adversely affected.
Consents of Ground Lessor Required for Sale of Certain Hotels
Certain of Patriot's hotels and the Racecourse are subject to ground leases
with third party lessors. In addition, Patriot may acquire hotels in the
future that are subject to ground leases. Any proposed sale of a property that
is subject to a ground lease by Patriot or any proposed assignment of
Patriot's leasehold interest in the ground lease may require the consent of
third party lessors. As a result, Patriot may not be able to sell, assign,
transfer or convey its interest in any such property in the future absent the
consent of such third parties, even if such transaction may be in the best
interests of the stockholders.
Environmental Matters
The operating costs of the Patriot Companies may be affected by the
obligation to pay for the cost of complying with existing environmental laws,
ordinances and regulations, as well as the cost of complying with future
legislation. Under various federal, state and local environmental laws,
ordinances and regulations, a current or previous owner or operator of real
property may be liable for the costs of removal or remediation of hazardous or
toxic substances on, under, or in such property. Such laws often impose
liability whether or not the owner or operator knew of, or was responsible
for, the presence of such hazardous or toxic substances. In addition, the
presence of hazardous or toxic substances, or the failure to remediate such
property properly, may adversely affect the owner's ability to borrow by using
such real property as collateral. Persons who arrange for
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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 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 and the Racecourse, the
Patriot Companies, the Lessees or the Operators may be potentially liable for
any such costs. The cost of defending against claims of liability or
remediating contaminated property and the cost of complying with environmental
laws could materially adversely affect Patriot's results of operations and
financial condition. Phase I ESAs have been conducted at all of Patriot's
hotels and the Racecourse by qualified independent environmental engineers.
The purpose of Phase I ESAs is to identify potential sources of contamination
for which any of Patriot's hotels or the Racecourse may be responsible and to
assess the status of environmental regulatory compliance. The ESAs have not
revealed any environmental liability or compliance concerns that Patriot
believes would have a material adverse effect on its 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 Patriot's hotels or the
Racecourse.
Compliance with Americans with Disabilities Act
Under the ADA, all public accommodations are required to meet certain
federal requirements related to access and use by disabled persons. A
determination that the Patriot Companies, Wyndham, IHC or WHG is not in
compliance with the ADA could result in the imposition of fines or an award of
damages to private litigants. If the Patriot Companies were required to make
modifications to comply with the ADA, the ability of the Patriot Companies to
make expected distributions to their stockholders could be adversely affected.
Uninsured and Underinsured Losses
Each of the Participating Leases specifies comprehensive insurance to be
maintained on each of the applicable leased hotels, including liability, fire
and extended coverage. 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 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 the Patriot Companies will
use their discretion in determining amounts, coverage limits and deductibility
provisions of insurance, with a view to maintaining appropriate insurance
coverage on the investments of Patriot, 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 Patriot. 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 Patriot might not be
adequate to restore its economic position with respect to such property.
Acquisition and Development Risks
The Patriot Companies currently intend to pursue acquisitions of additional
hotels and hotel operating companies and, under appropriate circumstances, may
pursue development opportunities. Acquisitions entail risks that such acquired
hotels or hotel operating companies will fail to perform in accordance with
expectations and that estimates of the cost of improvements necessary to
market, acquire and operate properties will prove
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inaccurate as well as general risks associated with any new real estate or
operating company acquisition. In addition, hotel development is subject to
numerous risks, including risks of construction delays or cost overruns that
may increase project costs, new project commencement risks such as receipt of
zoning, occupancy and other required governmental approvals and permits and
the incurrence of development costs in connection with projects that are not
pursued to completion. The fact that Patriot generally is required to
distribute 95% of its ordinary taxable income in order to maintain its
qualification as a REIT may limit Patriot'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 Patriot's cash available for distribution might be adversely
affected.
DEPENDENCE ON MANAGEMENT CONTRACTS
Management contracts are acquired, terminated, renegotiated or converted to
franchise agreements in the ordinary course of Wyndham's business. As of
November 3, 1997, Wyndham managed approximately 45 hotels (including the
Wyndham WindWatch hotel owned by Patriot) pursuant to management agreements
with various parties. While the average remaining term of Wyndham's management
contracts for Wyndham brand hotels as of December 31, 1996 was approximately
14 years (including renewals that Wyndham may elect to exercise), these
management contracts generally may be terminated by the owner of the hotel
property if Wyndham fails to meet certain performance standards, if the
property is sold to a third-party, if the property owner defaults on
indebtedness encumbering the property and/or upon a foreclosure of the
property. Other grounds for termination of Wyndham's upscale hotel management
contracts include a hotel owner's election to close a hotel and certain
business combinations involving Wyndham in which the Wyndham name or current
management team does not survive.
There can be no assurance that following consummation of the Wyndham Merger,
the Patriot Companies will be able to replace terminated management contracts
or that the terms of renegotiated or converted contracts will be as favorable
as the terms that existed before such renegotiation or conversion. The Patriot
Companies also will be subject to the risk of deterioration in the financial
condition of a hotel owner and such owner's ability to pay management fees to
the Patriot Companies. In addition, in certain circumstances, the Patriot
Companies may be required to make loans to or capital investments or advances
in hotel properties in connection with management contracts. A material
deterioration in the operating results of one or more of these hotel
properties and/or a loss of the related management contracts could adversely
affect the value of the Patriot Companies' investment in such hotel
properties.
POSSIBLE ADVERSE EFFECTS OF FAILURE TO CONSUMMATE THE OTHER TRANSACTIONS
The consummation of the Wyndham Transactions is subject to, among other
things, regulatory approval and the approval of the stockholders of Wyndham,
Patriot and PAHOC. The consummation of the CHCI Merger is subject to, among
other things, regulatory approval and the approval of the stockholders of
CHCI. The consummation of the Patriot/IHC Merger is subject to, among other
things, regulatory approval and the approval of the stockholders of IHC,
Patriot and PAHOC. No assurance can be given that the Other Transactions will
be consummated. If the Other Transactions are not consummated, the Patriot
Companies will not acquire (i) Wyndham's portfolio of hotels, management and
franchise agreements or proprietary brand names, (ii) CHCI's hospitality-
related businesses or proprietary brand names or (iii) IHC's portfolio of
owned or managed hotels.
RISKS OF OPERATING HOTELS UNDER FRANCHISE OR BRAND AFFILIATIONS
As of December 12, 1997, 78 of Patriot's hotels were operated under
franchise or brand affiliations. In addition, hotels in which Patriot
subsequently invests may be operated pursuant to franchise or brand
affiliations. The continuation of the franchise licenses relating to the
franchised hotels (the "Franchise Licenses") is subject to specified operating
standards and other terms and conditions. The continued use of a brand is
generally contingent upon the continuation of the management agreement related
to that hotel with the branded Operator. Franchisors typically inspect
licensed properties periodically to confirm adherence to operating standards.
Action on the part of any of the Patriot Companies, the Lessees or the
Operators could result in a breach of such
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standards or other terms and conditions of the Franchise Licenses and could
result in the loss or cancellation of a Franchise License. It is possible that
a franchisor could condition the continuation of a Franchise License on the
completion of capital improvements which the Patriot Board determines are too
expensive or otherwise unwarranted in light of general economic conditions or
the operating results or prospects of the affected hotel. In that event, the
Patriot Board may elect to allow the Franchise License to lapse which could
under certain circumstance result in Patriot incurring significant costs for
terminating such Franchise License. In any case, if a franchise or brand
affiliation is terminated, Patriot 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.
IHC's hotel portfolio consists of owned, leased and managed hotels and
hotels subject to service agreements. IHC operates its hotels under a variety
of brand names subject to franchise agreements (the "Franchise Agreements")
with the owners of the brands (the "Brand Owners"). Following the Patriot/IHC
Merger, the Patriot Companies intend to convert a number of the hotels in
IHC's owned portfolio to the Wyndham brand. The ability of the Patriot
Companies to convert such hotels to the Wyndham brand will be subject to the
conditions of the Franchise Agreements, and the termination of such agreements
prior to the expiration of their respective terms will generally require the
consent of the Brand Owner and/or the payment of certain termination
penalties. In addition, any such consent, if obtained, may require the Patriot
Companies to pay additional consideration to the Brand Owner. Although the
Patriot Companies believe that the Marriott Letter of Intent will facilitate
the conversion of a number of IHC owned hotels to the Wyndham brand, the
Marriott Letter of Intent is non-binding and therefore no assurances can be
given that the Marriott franchise agreements will be terminated. Failure of
the Patriot Companies to successfully convert IHC hotels to the Wyndham brand,
or to convert such hotels in a cost effective manner, could result in the
failure of the Patriot Companies to recognize certain of the anticipated
strategic and economic benefits of the Patriot/IHC Merger including, without
limitation, the achievement of greater brand awareness with respect to the
Wyndham brand and the economic benefits to the holders of Paired Shares
resulting from the ownership of the Wyndham brand.
The terms of agreements governing the relationships between IHC and certain
third parties require the consent of such third parties in the event of a
transaction involving a change of control of IHC or similar event affecting
IHC. If such consents are not obtained prior to or in connection with the
consummation of the Patriot/IHC Merger, the Patriot Companies may be required
to pay termination or other fees to such third parties as a result of
consummation of the Patriot/IHC Merger. No assurance can be given that the
Patriot Companies will successfully obtain required third party consents in
connection with the Patriot/IHC Merger or that the Patriot Companies will not
incur significant expenses whether or not such consents are obtained.
LACK OF CONTROL OVER OPERATIONS OF CERTAIN HOTELS LEASED OR MANAGED BY THIRD
PARTIES
Patriot relies on the ability of PAHOC, the Lessees and the Operators to
manage the operations of hotels that are leased or operated by them. Under the
terms of the Participating Leases, Patriot has the authority to review annual
budgets for the hotels which are leased to PAHOC or the Lessees and to approve
certain items. However, Patriot is unable to directly implement strategic
business decisions with respect to the setting of room rates, repositioning of
a franchise, redevelopment of food and beverage operations and certain similar
decisions with respect to such hotels.
STOCK PRICE FLUCTUATIONS
The relative stock prices of shares of the Paired Shares and the shares of
WHG Common Stock at the Effective Time may vary significantly from the prices
as of the date of execution of the Merger Agreement, the date hereof or the
date on which WHG Stockholders vote on the Merger Agreement and the
transactions contemplated thereby, due to changes in the business, operations
and prospects of Patriot, PAHOC and/or WHG, market assessments of the
likelihood that the Merger will be consummated and the timing thereof, general
market
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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 the Paired Shares and/or the
shares of WHG Common Stock will not decline between the date of this Proxy
Statement/Prospectus and the Effective Time.
CONFLICTS IN CERTAIN HOTEL MARKETS
Patriot, IHC and Wyndham currently own or operate hotels that are in the
same local market. In a number of cases, such hotels are in direct competition
for guests, with the result that the ability of Patriot and PAHOC to maximize
results of operations in certain markets may be limited. Further, consummation
of the Other Transactions may result in Patriot, IHC or Wyndham being in
breach of noncompetition covenants contained in certain agreements relating to
such hotels, unless consents are obtained from the other parties to such
agreements. No assurance can be given that all of such consents can be
obtained or, if they are not obtained, that the consequences of such failure
would not be material.
HORSE RACING INDUSTRY RISKS
PAHOC's 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 PAHOC. The CHRB also has the
discretion to limit the number of days and dates on which PAHOC may conduct
live horse racing. No assurance can be given as to how many, or which, horse
racing days the CHRB will allocate to PAHOC in the future, nor can there be
any assurance that an issued license will not be modified or revoked. Any
change in the CHRB regulations or how many, or which, horse racing days are
allocated to PAHOC could have a material adverse effect on PAHOC's financial
condition and results of operations.
PAHOC manages the Racecourse's horse racing operations, an area in which Old
Patriot had no experience prior to the Cal Jockey Merger. Although PAHOC has
retained certain members of Bay Meadows' former management and personnel to
continue to manage these horse racing operations, there can be no assurance
that PAHOC will be able to continue to employ said management and personnel.
Failure to retain such management and personnel could have a material adverse
effect on the results of operations and financial condition of PAHOC.
CASINO GAMING REGULATION
The ownership and operation of casinos in Puerto Rico and elsewhere is
heavily regulated. The El San Juan, the Condado Plaza and WHGI, on behalf of
the El Conquistador, were each granted a casino franchise as an owner of the
casinos that they currently operate and certain of their employees must be
licensed to work in the casinos. Each casino is required to renew its casino
franchise quarterly; and, unless a change of ownership of a franchisee has
occurred or regulators have reason to believe that reinvestigation of the
franchisees is necessary, renewal is generally automatic. Although WHG has no
reason to believe that any of the current casino franchises will not be
renewed, there can be no assurance of such renewal.
RISKS ASSOCIATED WITH THE PATRIOT COMPANIES' HIGHER PROPORTION OF OWNED
PROPERTIES
Following the Merger, WHG Stockholders will continue to be subject to the
risks associated with substantial capital investment in a hotel portfolio,
including interest rate fluctuations, changes in hotel property taxes,
liabilities specifically related to property ownership (including
environmental liabilities), losses in property value and investment
illiquidity. In addition, in the event of poor hotel operating performance,
the negative impact upon a hotel portfolio with a high percentage of owned
properties tends to be greater than the negative impact upon a hotel portfolio
with a high percentage of managed and leased hotels.
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COMPARISON OF STOCKHOLDERS' RIGHTS
The rights of the stockholders of PAHOC currently are governed by the DGCL,
the PAHOC Charter, and the PAHOC Bylaws, the rights of Patriot stockholders
currently are governed by the DGCL, the Patriot Charter and the Patriot
Bylaws, and the rights of the WHG Stockholders currently are governed by the
DGCL, the WHG Charter and the WHG Bylaws. At the Effective Time, WHG
Stockholders will become stockholders of Patriot and PAHOC, each a Delaware
corporation, and their rights as stockholders of Patriot and PAHOC will
thereafter be governed by the DGCL, the Patriot Charters, the Patriot Bylaws
and the PAHOC Bylaws and, assuming the Wyndham Merger becomes effective by
then, the provisions of the Restated Charters and the Restated Bylaws. In
considering the recommendation of the WHG Board to approve the Merger
Agreement and the transactions contemplated thereby, WHG Stockholders should
be aware that following the Merger their rights as stockholders of Patriot and
PAHOC under the provisions of the Patriot Charters and the Patriot Bylaws and
PAHOC Bylaws, in the event the Wyndham Merger is not consummated, or the
Restated Charters and the Restated Bylaws, in the event the Wyndham Merger
becomes effective, will differ in certain respects from the existing rights of
the WHG Stockholders under the WHG Charter and the WHG Bylaws. WHG
Stockholders should carefully read the Patriot Charters, the Patriot Bylaws,
the PAHOC Bylaws and the Restated Charters, which have been filed as exhibits
to the Registration Statement of which this Proxy Statement/Prospectus forms a
part. See "Description of the Patriot Companies Capital Stock" and "Comparison
of Stockholders' Rights."
POSSIBLE ADVERSE EFFECTS ON MARKET PRICE OF PAIRED SHARES 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 Paired Shares following the Merger and the Other Transactions if
and when they are consummated. Sales of substantial amounts of Paired Shares
(including Paired Shares issued in connection with outstanding stock options
or the exchange or sale of OP Units of the Patriot Partnerships) or the
perception that such sales could occur, could adversely affect the prevailing
market price for Paired Shares. With the exception of the Paired Shares issued
to affiliates of WHG in connection with the Merger, all of the Paired Shares
to be issued to WHG Stockholders in connection with the Merger will be freely
transferable, subject, in the case of Mr. Nicastro, to the Voting and Option
Agreement and subject, in the case of the NAI Group, to certain volume
limitations.
In addition, certain outstanding options to purchase WHG Common Stock held
by officers, directors and employees of WHG or WHGI will be converted into
options to purchase an aggregate of 268,128 Paired Shares, assuming an
Exchange Ratio of 0.784 (which is subject to adjustment, as described under
"The Merger--Merger Consideration"). The Paired Shares underlying these
options will be registered under the Securities Act following the Merger.
ADVERSE EFFECT OF INCREASE IN MARKET INTEREST RATES ON PRICE OF PAIRED SHARES
One of the factors that may influence the price of the Paired Shares in
public trading markets will be the annual yield from distributions by Patriot
on the Paired Shares 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.
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THE COMPANIES
THE PATRIOT COMPANIES
General
As a result of the Cal Jockey Merger, Patriot became one of two hotel REITs
with a paired share ownership structure. This paired share ownership structure
permits Patriot to lease certain of its existing hotels, as well as newly-
acquired hotels, to PAHOC, thereby retaining for the Patriot Companies'
stockholders the economic benefits of both the lease payments received by
Patriot and the operating profits realized by PAHOC, while maintaining the tax
benefits of Patriot's status as a REIT under the Code. The paired share
ownership structure also facilitates the Patriot Companies' acquisition and
development of hotel management and franchise businesses, operations which
Patriot would have difficulty pursuing within a traditional REIT structure. In
connection with the Cal Jockey Merger, Bay Meadows formed the PAHOC
Partnership into which Bay Meadows contributed its assets in exchange for
partnership units ("OP Units") of this partnership, and Cal Jockey contributed
certain of its assets to the Patriot Partnership in exchange for OP Units of
this partnership. Since the Cal Jockey Merger, substantially all of the
operations of Patriot and PAHOC have been conducted through the Patriot
Partnership and the PAHOC Partnership, respectively, and their subsidiaries
and affiliates (collectively, "the Patriot Partnerships") As of December 3,
1997, Patriot holds an approximate 85% limited partnership interest and the
sole 1% general partnership interest in the Patriot Partnership and PAHOC
holds an approximate 83.6% limited partnership interest and the sole 1%
general partnership interest in the PAHOC Partnership. Patriot conducts
substantially all of its business and operations through the Patriot
Partnership, and subsidiaries of the partnership and other entities which it
directly or indirectly controls, and PAHOC conducts substantially all of its
business and operations through the PAHOC Partnership, and subsidiaries of the
partnership and other entities which it directly or indirectly controls.
As of December 12, 1997, the Patriot Partnership had issued 1,324,804 REIT
OP Preferred Units. The REIT OP Preferred 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 REIT OP Preferred Unit 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 REIT OP Preferred
Unit holder will be entitled to an additional distribution 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 (the "UBTI Adjuster"). Prior to the third anniversary of issuance, the
REIT OP Preferred Units generally are not and 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 REIT OP
Preferred Unit for one Paired Share, 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 REIT OP Preferred Units for
Paired Shares. The foregoing exchange rights are in lieu of the conversion
rights in the Patriot Partnership Agreement, which are not applicable to the
REIT OP Preferred Units, with the exception of the anti-dilution provisions.
As of December 12, 1997, the PAHOC Partnership had issued 2,733,458
Operating Company OP Preferred Units. The Operating Company OP Preferred Units
pay preferred distributions equal to the amount of dividends paid per share on
the Patriot Common Stock. Pursuant to a redemption rights agreement with
PAHOC, each Operating Company OP Preferred Unit may be exchanged by the holder
thereof for, at PAHOC's election, one Paired Share or the cash equivalent of
one Paired Share.
Patriot is a self-administered REIT which as of December 12, 1997, owned
interests in 81 hotels with an aggregate of over 20,400 guest rooms. 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
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Canyon in Tucson, Arizona; The Peaks Resort & Spa in Telluride, Colorado;
Carmel Valley Ranch Resort in Carmel, California; and prominent hotels in
major tourist destinations. The hotels include 70 full service hotels, six
resort hotels, four limited service hotels and an executive conference center.
Seventy-eight of the hotels are operated under franchise or brand affiliations
with nationally recognized hotel companies, including Marriott(R), Crowne
Plaza(R), Radisson(R), Ramada(R), Hilton(R), Hyatt(R), Four Points by
Sheraton(R), Holiday Inn(R), WyndhamSM, 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 12 of its hotels through joint venture arrangements.
Patriot holds a 90% ownership interest with regard to five of such hotels, an
85% ownership interest with regard to six of such hotels and a 92.5% interest
with regard to one hotel. Pursuant to its alliance with the Snavely Group,
Patriot owns four of its hotels through limited liability companies of which
Patriot holds a 90% ownership interest.
PAHOC currently leases from Patriot 43 hotels, 25 of which were purchased by
Patriot subsequent to the Cal Jockey Merger. Additionally, Patriot expects
that a significant portion of its future acquisitions, including the hotels to
be acquired in connection with the Other Hotel Acquisitions, if consummated,
will be leased to PAHOC. In 1997, PAHOC acquired the management operations of
Grand Heritage Hotels and Carefree Resorts and thus provides management
service to the hotels and resorts acquired in these transactions.
In addition to leasing and managing hotels, PAHOC is also engaged in the
business of conducting and offering pari-mutuel wagering on thoroughbred horse
racing at the Racecourse. The Racecourse also 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. In addition to live horse racing at the
Racecourse, PAHOC simulcasts its live horse races to as many as 31 sites in
California and 450 sites in the remainder of the world. PAHOC faces
significant competition for the sports and entertainment dollar in the San
Francisco Bay Area because of the numerous professional and amateur sporting
events and other entertainment attractions located there. PAHOC's revenues
from its operations of the Racecourse are subject to seasonal variations
depending on the scheduling of its live race meet.
As of December 12, 1997, the Patriot Companies had total outstanding
indebtedness of approximately $864.2 million, of which approximately $592.6
million was outstanding under the Revolving Credit Facility. The Revolving
Credit Facility generally is used for the acquisition of additional
properties, businesses and other assets, for capital expenditures and for
general working capital purposes. The interest rate for the Revolving Credit
Facility ranges from LIBOR plus 1.00% to 2.00% (depending on the Patriot
Companies' leverage ratio or credit rating) or the customary alternate base
rate announced from time to time plus 0.0% to 0.50% (depending on the Patriot
Companies' leverage ratio).
The Wyndham Merger
On April 14, 1997, Patriot entered into the Wyndham Merger Agreement, as
well as the Wyndham Stock Purchase Agreement, pursuant to which, subject to
the waiver or satisfaction of certain conditions, Wyndham will merge with and
into Patriot with Patriot being the surviving company. The terms of the
Wyndham Merger Agreement provide that each share of Wyndham Common Stock
generally will be converted into 1.372 Paired Shares; provided, however, that
if the Patriot/Wyndham Average Closing Price is less than $21.86 but greater
than or equal to $20.87, each share of Wyndham Common Stock, other than shares
as to which Cash Consideration is to be received, will be converted into the
number of Paired Shares equal to $30.00 divided by the Patriot/Wyndham Average
Closing Price, and, in the event that the Patriot/Wyndham Average Closing
Price is less than $20.87, each such share of Wyndham Common Stock will be
converted into 1.438 Paired Shares (the applicable conversion ratio being
referred to herein as the "Wyndham Exchange Ratio"), unless Wyndham exercises
its right to terminate the Wyndham Merger Agreement in such event. However, if
the effective time of the Wyndham Merger does not occur on or prior to
December 31, 1997, other than as a result of a Wyndham Delay, and the
Patriot/Wyndham Average Closing Price is less than $27.50 but greater than or
equal to $25.50, the Wyndham Exchange Ratio will be adjusted so that each
share of Wyndham Common Stock, other than
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shares as to which Cash Consideration is to be received, will be converted
into the right to receive the number of Paired Shares equal to $37.73 divided
by the Patriot/Wyndham Average Closing Price. However, if the effective time
of the Wyndham Merger does not occur on or prior to December 31, 1997 other
than as a result of a Wyndham Delay, and the Patriot/Wyndham Average Closing
Price is less than $25.50, the Wyndham Exchange Ratio will be adjusted so that
each share of Wyndham Common Stock, other than shares as to which Cash
Consideration is to be received, will be converted into the right to receive
1.480 Paired Shares, unless Wyndham exercises its right to terminate the
Wyndham Merger Agreement in such event.
The Wyndham Merger Agreement also provides that stockholders of Wyndham will
be entitled to receive additional cash consideration under certain
circumstances in the event that the Wyndham Merger is not consummated on or
prior to January 5, 1998. In addition, the Wyndham Merger Agreement provides
that if any dividend is declared on Patriot Common Stock or PAHOC Common Stock
the record date for which is on or after November 26, 1997 but prior to the
Wyndham Merger, stockholders of Wyndham will receive additional consideration
in the Wyndham Merger that will result in such stockholders receiving the
economic benefit of the dividend as if they had been holders of Paired Shares
on the dividend record date.
In lieu of receiving Paired Shares, Wyndham stockholders have the right
under the Wyndham Merger Agreement to elect to receive cash, and CF Securities
has an equivalent right under the Wyndham Stock Purchase Agreement; provided,
however, that the maximum aggregate amount of cash to be paid to Wyndham
stockholders and CF Securities pursuant to such Cash Election rights will be a
total of $100 million. The amount per share payable upon a Cash Election is
fixed such that stockholders of Wyndham who make a Cash Election will be
entitled to receive Cash Consideration in an amount per share equal to $42.80.
In the event that holders of Wyndham Common Stock and CF Securities elect to
receive more than $100 million in cash, such cash will be allocated on a pro
rata basis among such stockholders and CF Securities based on the respective
number of shares of Wyndham Common Stock as to which they have elected to
receive cash, and the Wyndham stockholders (other than CF Securities) will
receive Paired Shares at the Wyndham Exchange Ratio for their shares of
Wyndham Common Stock which are not converted into Cash Consideration. CF
Securities has delivered to Patriot a Cash Election pursuant to which CF
Securities has elected to receive Cash Consideration with respect to all
9,447,745 shares of Wyndham Common Stock beneficially owned by CF Securities.
Consequently, the maximum amount of cash available to be paid to other holders
of Wyndham Common Stock in the Wyndham Merger is expected to be approximately
$56.3 million. If no other stockholders of Wyndham make a Cash Election, CF
Securities will receive the entire $100 million of cash available for Cash
Elections.
In connection with the proposed Wyndham Merger, Patriot also entered into a
definitive agreement with partnerships affiliated with members of the Crow
Family providing for Patriot's acquisition of up to 11 full-service Wyndham-
branded hotels with 3,072 rooms for an aggregate purchase price of
approximately $332 milion in cash, plus up to $14 million in additional cash
consideration if two of the hotels meet certain cash flow targets. Patriot
expects that most of such hotels will be purchased in December, 1997 and the
Wyndham Merger will become effective early in January, 1998. However, because
the Wyndham Transactions are subject to various closing conditions, including
approval of the Wyndham Merger by the stockholders of Patriot and Wyndham in
the case of the Wyndham Merger, no assurance can be given that the Wyndham
Transactions will be consummated.
In order to satisfy certain REIT qualifications applicable to Patriot, an
affiliate of the Crow Family, which is a significant stockholder of Wyndham,
may be issued shares of unpaired preferred stock of Patriot in lieu of Paired
Shares, for a portion of the Wyndham shares it owns. Shares of the unpaired
preferred stock of Patriot, if issued, will be structured to replicate the
economic benefits of Paired Shares. Following the Wyndham Merger, the Crow
Family affiliate may own up to 9.8% of the Paired Shares, along with
additional shares of unpaired preferred stock of Patriot. All such shares will
be subject to certain voting and resale restrictions for a minimum of 18
months from the date of the Wyndham Merger.
In connection with the consummation of the Wyndham Transactions, certain
changes are expected to be made with respect to the officers and members of
the Patriot Board and the PAHOC Board. Paul A. Nussbaum
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will remain Chairman and Chief Executive Officer of Patriot and William W.
Evans III, who currently serves in Patriot's Office of the Chairman, is
expected to become President of Patriot. Thomas W. Lattin, who currently
serves as President of Patriot, is expected to become Executive Vice President
of PAHOC, responsible for the further development of the Wyndham brand through
third party management and franchising. James D. Carreker, Wyndham's Chairman
and Chief Executive Officer, is expected to serve as Chairman and Chief
Executive Officer of PAHOC, Rex E. Stewart is expected to remain as Chief
Financial Officer of PAHOC and Anne L. Raymond, currently the Chief Financial
Officer of Wyndham, is expected to serve as Chief Financial Officer of
Patriot. It is also anticipated that the Patriot Board and the PAHOC Board
will be reconstituted in connection with the consummation of the Wyndham
Transactions so that each Board of Directors will consist of 11 members,
including, (i) two designees of Wyndham and one designee of the Crow Family to
the Patriot Board and (ii) three designees of Wyndham and one designee of the
Crow Family to the PAHOC Board. It is currently anticipated that Harlan R.
Crow will serve as the Crow Family's representative on the Patriot Board. The
remaining members for each Board of Directors will be selected by PAHOC and
will include members of the Patriot Companies' existing Boards of Directors as
well as additional persons to be selected prior to the completion of the
Wyndham Transactions. Paul A. Nussbaum and James D. Carreker (who will be one
of the Wyndham designees) are expected to serve as directors of both Patriot
and PAHOC, but a majority of the directors of each company are not expected to
serve as directors of the other company. In connection with the Patriot/IHC
Merger, W. Thomas Parrington, Jr., President, Chief Executive Officer and a
director of IHC, is expected to become the Vice Chairman of PAHOC and Milton
Fine, Chairman of the Board of Directors of IHC, is expected to become a
member of the Patriot Board.
In connection with the Wyndham transactions, Patriot expects to terminate
the existing leases under which the Wyndham Garden Hotel-Midtown and Wyndham
Greenspoint Hotel are currently leased to Crow Hotel Lessee, Inc. and to re-
lease such hotels to PAHOC.
The Gencom and CHCI Transactions
In September and October, 1997, Patriot acquired ten hotels (including an
approximate 50% controlling ownership interest in the Omni Inner Harbor Hotel)
from entities affiliated with the Gencom American Hospitality group of
companies ("Gencom") and CHC International, Inc. ("CHCI") for an aggregate
purchase price of approximately $237 million. Financing for the purchase of
the hotels consisted of cash from the Revolving Credit Facility and the
issuance of Paired Shares and paired OP Units in a private placement. In
connection with the foregoing transactions, Patriot acquired the leasehold
interests relating to eight of 25 hotels which were previously leased by CHC
Lease Partners (previously the largest independent lessee of Patriot's hotels)
for a purchase price of approximately $53 million, and PAHOC purchased an
approximate 50% managing and controlling ownership interest in GAH-II, L.P.
("GAH"), an affiliate of CHCI and Gencom, from affiliates of Gencom for a
purchase price of approximately $14 million. Prior to the acquisition of the
leasehold interests, the management contracts with GAH relating to the eight
hotels were terminated. These transactions were financed with cash, the
issuance of paired OP Units in the Patriot Partnerships and the issuance of
preferred OP Units in the PAHOC Partnership.
In addition, on September 30, 1997, Patriot, PAHOC and CHCI entered into the
CHCI Merger Agreement providing, subject to certain conditions including
regulatory approvals, for the merger of the hospitality-related businesses of
CHCI with and into PAHOC with PAHOC 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 certain conditions including receipt of all
necessary regulatory approvals. As a result of the CHCI Merger, PAHOC, through
its subsidiaries, will acquire the remaining 50% investment interest in GAH,
the remaining 17 leasehold interests relating to hotels leased by CHC Lease
Partners and 16 of the associated management contracts related to the Patriot
hotels leased by CHC Lease Partners, three management contracts related to
Patriot hotels leased by PAHOC, 12 third-party management contracts, two
third-party lease contracts, the Grand Bay and Registry Hotels & Resorts
proprietary brand names and certain other hospitality management assets.
Pursuant to the CHCI Merger, each issued and outstanding CHCI Share and
certain stock option rights will be converted into the right to receive shares
of PAHOC Series A Preferred Stock and shares of PAHOC Series
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B Preferred Stock. See "Description of the Patriot Companies' Capital Stock--
Effect of Other Transactions--PAHOC Series A Preferred Stock and PAHOC Series
B Preferred Stock." The formula for determining the exchange ratio of CHCI
Shares of PAHOC Series A Preferred Stock and PAHOC Series B Preferred Stock is
based on the issuance of an aggregate of approximately 4,396,000 shares of
PAHOC 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 after September
30, 1997. Generally, the aggregate number of shares of PAHOC Preferred Stock
that each stockholder will have the right to receive pursuant to the CHCI
Merger will consist of, to the extent possible, an equal number of PAHOC
Series A Preferred Stock and PAHOC Series B Preferred Stock. The Unaudited Pro
Forma Financial Statements set forth in this Proxy Statement/Prospectus show
the effects of the transactions consummated in September and October 1997 with
Gencom and CHCI, as well as the CHCI Merger, on the Patriot Companies. See
"Unaudited Pro Forma Financial Statements." There can be no assurance that the
CHCI Merger will be consummated.
As part of the Gencom and CHCI transactions described above, Karim Alibhai,
the Chief Executive Officer of Gencom, was appointed to the positions of
President, Chief Operating Officer and Director of PAHOC. PAHOC has entered
into an employment agreement with Mr. Alibhai, pursuant to which Mr. Alibhai
serves as President and Chief Operating Officer of PAHOC 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
PAHOC Board. 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 of the PAHOC Board, 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 at an exercise price of $32.0625 per paired share (the closing
market price of Paired Shares on the date of grant). The options to purchase
Paired Shares vests in equal quarterly installments over a period of three
years.
Other Acquisitions and Agreements
Patriot has also entered into agreements or letters of intent to purchase
three additional hotels aggregating 1,623 rooms for an aggregate purchase
price of approximately $236.7 million. The Other Hotel Acquisitions are
subject to various closing conditions and no assurances can be given that the
Other Hotel Acquisitions will be consummated.
Patriot agreed with partnerships affiliated with the members of CHC Lease
Partners to make or acquire mortgage loans aggregating $103 million relating
to four hotels owned by the partnerships: the Sheraton Grand Hotel in Tampa,
Florida, the Sheraton Gateway Hotel in Miami, Florida (also known as the River
House Hotel), the Grand Bay Hotel in Miami, Florida and the Doubletree Hotel
in Glenview, Illinois. Patriot has loaned approximately $46 million of the
total amount to such partnerships, relating to the Doubletree Hotel in
Glenview, Illinois and the River House Hotel. In connection with such loans,
Patriot entered into a short-term financing arrangement with an affiliate of
Paine Webber Real Estate, whereby such affiliate loaned Patriot $103 million
through April 15, 1998 at a rate equal to the greater of 30-day LIBOR plus
1.75% or the borrowing rate on the Revolving Credit Facility. This financing
is secured by a collateral assignment of the mortgage loans encumbering the
four hotels. In October, 1997, Patriot acquired 100% of the ownership
interests in the four partnerships that own the four hotels. Additionally,
Patriot has purchased two additional loans on which partnerships affiliated
with the members of CHC Lease Partners are borrowers for an aggregate purchase
price of $57 million. One of the purchased loans, in the principal amount of
approximately $30.7 million, matures in December 2000 and bears interests at a
rate per annum equal to 8.0% until November 30, 1997, 8.5% from December 1,
1997 until November 30, 1999, and 9.0% from December 1, 1999 until December 1,
2000. The second purchased loan, in the principal amount of approximately
$24.4 million, matures on December 31, 1999 and bears interest at a rate per
annum equal to 8.0% until December 31, 1997 and 9.5% from January 1, 1998
until December 31, 1999. Each of the purchased loans is secured by first
priority liens on the respective hotels.
Patriot has entered into an agreement to purchase the 173-room Holiday Inn
Beachwood located in Cleveland, Ohio for a purchase price of approximately
$14.5 million in cash. In addition, Patriot has entered into
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an agreement to purchase the 436-room Wyndham Emerald Plaza Hotel in San
Diego, California for an aggregate purchase price of approximately $74.25
million, payable in cash and OP Units of the Patriot Partnerships.
Patriot has also entered into agreements to purchase an aggregate 95% equity
interest in the 1,014-room Buena Vista Palace Hotel in Orlando, Florida for an
aggregate purchase price of approximately $97.25 million (the "Buena Vista
Acquisition"). As part of the agreement, Patriot also was granted an option to
acquire the remaining 5% equity interest in the hotel. The Buena Vista Palace
Hotel is owned by a joint venture between Equitable Life Insurance Company,
which owns a 55% interest, and Hotel Venture Partners, Ltd., which owns a 45%
interest. In August 1997, PAHOC purchased a participating loan related to the
hotel from National Resort Ventures, L.P. for approximately $23.75 million. In
connection with the Buena Vista Acquisition, Patriot will purchase the
participating loan from PAHOC and repay certain other indebtedness related to
the joint venture. The hotel will remain subject to a ground lease and a first
leasehold mortgage in the amount of approximately $50.7 million.
The purchase of each of the Other Hotel Acquisitions is subject to
satisfactory completion of various closing conditions, and no assurance can be
given that Patriot will acquire any or all of the Other Hotel Acquisitions.
On September 30, 1997, the Patriot Companies exercised their right to call
2,000,033 units of limited partnership interests in each of the Patriot
Partnerships held by The Morgan Stanley Real Estate Fund, L.P. and certain
related entities (the "Morgan Stanley Call"). The exercise price on the Morgan
Stanley Call was $25.875 per pair of such OP Units.
Pursuant to an underwriting agreement dated November 13, 1997, the Patriot
Companies sold 1,000,033 Paired Shares to PaineWebber (the "PaineWebber Direct
Placement") at a purchase price per Paired Share of $27.6875, or aggregate
consideration of approximately $27.7 million (the "Direct Placement Purchase
Price"). In addition, pursuant to a stock purchase agreement dated November
13, 1997, the Patriot Companies also sold 1,000,000 Paired Shares to LaSalle
Advisors Limited Partnership ("LaSalle"), as agent for certain clients of
LaSalle, at a purchase price per Paired Share of $27.65, or aggregate
consideration of approximately $27.7 million (the "LaSalle Direct Placement").
The Patriot Companies believe that market conditions remain favorable for
the acquisition of additional hotels and hotel portfolios and it is expected
that they will continue their aggressive acquisition activities. Additionally,
the Patriot Companies intend to explore opportunities to acquire management
contracts, hotel leases, hotel operators, owners of hotel franchises and
independent hotel management companies. As part of their ongoing business, the
Patriot Companies continually engage in discussions with public and private
real estate entities, including without limitation current lessees of the
Patriot Companies' hotels, regarding possible portfolio or single asset
acquisitions, as well as the acquisition of hotel leasing and management
operations. No assurance can be given, however, that the Patriot Companies
will locate attractive acquisition opportunities or that they will consummate
such acquisitions.
The Patriot Companies' principal executive offices are located at 1950
Stemmons Freeway, Suite 6001, Dallas, Texas 75207, and the telephone number at
this location is (214) 863-1000.
ACQUISITION SUB
Acquisition Sub was organized as a subsidiary of PAHOC solely to facilitate
the Merger and has not engaged in any significant business activity.
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WHG
General
WHG, through its subsidiaries and affiliates as detailed below, owns
interests in three of the leading hotels and casinos in Puerto Rico--the
Condado Plaza Hotel & Casino (the "Condado Plaza"), the El San Juan Hotel &
Casino (the "El San Juan") and the El Conquistador Resort & Country Club (the
"El Conquistador"). These three hotels and casinos are managed by Williams
Hospitality Group Inc. ("WHGI"), which is 62% owned by WHG. In all, WHG owns
interests in and manages 1,875 suites and hotel rooms, 36,300 square feet of
casino floor space containing 120 gaming tables and 940 slot machines and
approximately 146,000 square feet of convention and meeting space. These
properties also include a total of 22 restaurants, 41 shops, one showroom,
three health and fitness centers, 13 tennis courts, an 18-hole championship
golf course, a marina and 25 cocktail and entertainment lounges.
WHG's hotels are each focused on different market segments: the Condado
Plaza primarily services the business traveler, the El San Juan caters to
individual vacation travelers, as well as to small groups and conferences and
corporate executives and the El Conquistador offers extensive group and
conference facilities as well as attracting the individual leisure traveler.
WHG is the sole owner of Posadas de Puerto Rico Associates, Incorporated
("PPRA") which owns the Condado Plaza. The El San Juan and WHGI are owned in
part by WHG and in part by unaffiliated third parties (the "Other Owners").
WHG was formed in 1983 and in that same year, together with the Other Owners,
formed PPRA and WHGI for the purpose of acquiring and managing the hotel and
casino property now known as the Condado Plaza. A year later, WHG, together
with the Other Owners, caused the formation of Posadas de San Juan Associates
("PSJA") for the purpose of acquiring and managing, through WHGI, the hotel
and casino property now known as the El San Juan. Since 1983, WHG has
increased its ownership interests in PPRA and WHGI and WHG currently owns 100%
of PPRA, a 50% interest in the El San Juan and 62% of WHGI. In 1990, WHG,
together with the Other Owners, caused the formation of WKA El Con Associates
("WKA"). The El Conquistador Partnership L.P. ("El Con Partnership") was
formed by WKA and Kumagai Caribbean, Inc. ("Kumagai"), a subsidiary of Kumagai
Gumi Co., Ltd., a large Japanese construction company, for the purpose of
acquiring and renovating the hotel and casino property now known as the El
Conquistador. WHG's interest in WKA represents a 23.3% effective ownership
interest in the El Conquistador. The El Conquistador is also managed by WHGI.
In April 1993, WKA became a limited partner in Las Casitas Development
Company I, S en C (S.E.) which acquired certain land from the El Conquistador
for the purpose of developing and selling approximately 90 condominiums known
as Las Casitas Village. The project was substantially completed in or about
January 1997. Almost all of the owners of the condominiums have entered into
rental arrangements with the El Conquistador pursuant to which the units are
made available as additional guest rooms of the resort. Las Casitas Village
now provides the El Conquistador with 167 additional luxury rooms.
WHG's operations are divided into two industry segments: the Condado Plaza
and WHGI. WHG's investments in the El San Juan and the El Conquistador are
accounted for in WHG's Consolidated Financial Statements on the equity method.
See Note 15 of the Notes to the WHG Consolidated Financial Statements
contained elsewhere herein.
Strategy and Marketing
WHG's business strategy is to maximize the economic potential of its
existing properties while building on its hotel and casino expertise by
seeking other opportunities to manage and/or own hotels and casinos in Puerto
Rico, the Caribbean and elsewhere.
WHG is constantly seeking new ways to reduce operating costs as well as
upgrade or add amenities to its hotel and casino properties to enhance the
overall experience of its guests. The lobby of the Condado Plaza was
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fully renovated during fiscal year 1997 and restaurants, a nightclub and shops
were added. The El San Juan recently completed a major renovation and
refurbishment which included all of its guest rooms, guest room corridors, an
additional restaurant and public areas. The El Conquistador recently opened
three new restaurants, a nightclub and nine new retail shops.
WHG currently employs approximately 400 managers in its three hotels and
casinos. These managers provide a pool of experienced talent to WHG for
purposes of operating its existing properties as well as for future training
and expansion. In fiscal 1997, WHGI initiated a twelve-month training program
for senior managers and department heads in order to identify the next
generation of managerial leaders and insure its continued track record of
successful management of hotels and casinos in keeping with its long-term
management philosophy and commitment to excellence and service.
WHG maintains centralized reservation and purchasing systems staffed by
trained personnel. The centralized reservation system handles over 500,000
telephone inquiries per year and provides WHG with the opportunity to cross-
sell its properties depending on supply and demand, guest type and various
other factors. The centralized purchasing system enables WHG to reduce
operating costs and achieve certain economies of scale so that it can more
effectively compete with larger hotel chains as well as provide its guests
with first-class amenities at lower incremental costs.
WHG directs its marketing to three distinct hotel guest customers--the
corporate-executive traveler, the individual vacation and leisure traveler and
the group and convention traveler. WHG believes that the Condado Plaza and the
El San Juan are attractive to the corporate-executive traveler because they
are easily accessible from the San Juan International Airport and from Hato
Rey, San Juan's business and commercial center and they include an aggregate
of 56,000 square feet of convention and meeting space. The individual vacation
traveler is attracted to all facilities by the Caribbean climate and resort
amenities including casinos, swimming pools, whirlpools and spas, tennis, golf
and water sports facilities, health clubs and entertainment lounges. The group
and convention traveler is attracted by the combination of business and resort
amenities at all facilities. Because of its emphasis on business-related
services and facilities, the Condado Plaza attracts groups and conventions
meeting to conduct business in Puerto Rico. The El San Juan, a luxury resort
hotel, attracts small groups and conferences interested in a combination of
business, recreational and social activities while in Puerto Rico. "Blue Chip"
corporate and incentive groups comprise a significant portion of the El
Conquistador's clientele in addition to appealing to the upscale leisure
traveler.
WHG's marketing strategy includes attracting to its hotel and casino
facilities members of the local business community, residents of Puerto Rico
and vacation travelers staying at other hotel and lodging accommodations. WHG
believes that a substantial percentage of the casino, restaurant, nightclub
and bar revenues at all of its facilities are from local clientele. Local
business people entertain in the hotels' restaurants and lounges on a regular
basis. Residents of Puerto Rico frequently utilize the casinos, shops and
recreational facilities. Many local social events and receptions are held in
the ballrooms and banquet facilities of WHG's properties.
WHG's hotel and casino facilities are marketed primarily in the United
States, as well as in Canada, Mexico, Europe and South America. In addition to
its in-house marketing staff of approximately 35 employees, WHG has a U.S.
mainland exclusive marketing service with 40 employees located primarily in
Miami and New York, sales agents in South America and Europe, as well as
strategic relationships with major airlines, cruise ship operators and travel
industry partners. This combined marketing effort promotes the hotels and
casinos to tour operators, meeting planners, corporate incentive groups,
wholesale and retail travel agencies and airlines, as well as to individuals.
In addition, the marketing staff solicits casino business by identifying and
contacting individual players and through the efforts of commissioned sales
representatives. The activities of the sales force include direct sales
promotions, telephone and direct mail solicitations, participation in trade
shows and public relations.
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Set forth below is a chart which contains certain historical, descriptive
and financial (for the most recent fiscal year) information concerning the
Condado Plaza (fiscal year ended June 30, 1997), the El San Juan (fiscal year
ended June 30, 1997) and the El Conquistador (fiscal year ended March 31,
1997):
<TABLE>
<CAPTION>
NUMBER YEAR AVERAGE
OF GUEST BUILT/ DATE RENOVATION AVERAGE DAILY REVENUE PER
HOTEL LOCATION ROOMS RENOVATED ACQUIRED EXPENDITURES OCCUPANCY RATE AVAILABLE ROOM
----- ------------ -------- --------- ---------- ---------------- --------- ------- --------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Condado Plaza........... San Juan, 570 1959/1962 September, 1997: $3,181,000 82.4% $142.83 $44,963
Puerto Rico 1983 1996: $1,285,000
1995: $2,487,000
El San Juan............. Carolina, 388 1958/1984 July, 1984 1997: $4,059,000 80.6% $188.42 $58,219
Puerto Rico 1996: $2,502,000
1995: $3,310,000
El Conquistador......... Las Croabas, 751 1962/ February, 1997: $1,428,000 72.0% $202.86 $53,294
Puerto Rico 1991-1992 1991 1996: $ 864,000
1995: $3,002,000
</TABLE>
The Condado Plaza
The Condado Plaza is owned by PPRA, which is a wholly owned subsidiary of
WHG. Such ownership interest was increased from 95% to 100% on April 11, 1997.
The main building of the Condado Plaza fronting the ocean was originally
constructed in 1962. The Laguna Wing was built in 1959. Acquired by WHG in
1983, the Condado Plaza has since become one of the leading hotels in the
Caribbean. Located on the Atlantic Ocean in the Condado area of San Juan, the
Condado Plaza is a ten-minute drive from Hato Rey, the city's business and
commercial center. The Condado Plaza has 570 rooms and consists of two
separate structures on a five-acre site--the 13-story main building, which is
owned by PPRA, and the 11-story Laguna Wing, which is leased from certain of
the Other Owners. The Laguna Wing lease expires March 31, 2004 and is
renewable through September 30, 2008. In fiscal 1997, the American Automobile
Association awarded the Condado Plaza a "Four Diamond" rating for the tenth
consecutive year.
During the fiscal years ended June 30, 1997, 1996 and 1995, the Condado
Plaza's capital expenditures for the purchase of property, plant and equipment
were $3,181,000, $1,285,000 and $2,487,000, respectively. On September 17,
1997, PPRA entered into an agreement with the owners and managers of The
Regency Hotel which is located adjacent to the Condado Plaza pursuant to the
terms of which PPRA would acquire the 127-room hotel and adjacent land upon
the completion to its satisfaction of its due diligence investigation and
various other conditions.
The Condado Plaza guest accommodations are geared to the needs of traveling
executives and include "The Plaza Club," a hotel-within-a-hotel with 72 deluxe
guest rooms and suites, private lounges and a specially-trained staff
providing concierge services. The Condado Plaza has an executive service
center which offers all necessary business-related services and facilities,
conference facilities which can accommodate groups of up to 1,000, seven
restaurants, two retail shops, a health and fitness center, three tennis
courts and three pools with spas.
Most restaurants and all of the shops located in the Condado Plaza are owned
and operated by unaffiliated concessionaires which pay WHG rent based
primarily on a percentage of their revenues. In addition, the water sports and
parking are operated as concessions.
The Condado Plaza maintained an average occupancy during the fiscal year
ended June 30, 1997 of 82.4% compared with 87.4% for the fiscal year ended
June 30, 1996 and 84.5% for the fiscal year ended June 30, 1995. The 82.4%
occupancy was achieved notwithstanding the opening of several new hotels in
the greater San Juan area during recent years. Occupancy is based upon
available rooms excluding immaterial numbers of rooms under renovation or
otherwise unavailable for occupancy from time to time. The average daily room
rates at the Condado Plaza during the fiscal years ended June 30, 1997, 1996
and 1995 were $142.83, $138.68 and $143.73, respectively.
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El San Juan
The El San Juan is owned by PSJA, a partnership which is 50% owned by a
wholly owned subsidiary of WHG and 50% owned by the Other Owners. The El San
Juan was originally constructed in 1958 and was acquired and substantially
renovated by WHG in 1984. The El San Juan is located in the Isla Verde area of
metropolitan San Juan on a 13-acre oceanfront site 25 minutes from the
shopping and historic sights of Old San Juan. The hotel consists of four
structures, each from one to nine stories, contains 388 guest rooms and
suites, and offers conference and meeting space of 36,000 square feet with a
seating capacity of 3,000. With its marble floors, elaborate chandeliers and
carved mahogany ceilings and walls, the El San Juan was awarded a "Four
Diamond" rating by the American Automobile Association for the eleventh year
in a row in fiscal 1997. The El San Juan was also awarded its sixth
consecutive Gold Key Award by Meetings & Conventions Magazine which recognizes
the world's best meeting resorts as well as the Award of Excellence from
Corporate & Incentive Travel Magazine for the seventh consecutive year, the
Pinnacle Award from Successful Meetings Magazine and the Paragon Award by
Corporate Meetings & Incentives Magazine for excellence in the accommodations
for meetings and conventions.
During the fiscal years ended June 30, 1997, 1996 and 1995, the El San
Juan's capital expenditures for the purchase of property, plant and equipment
were $4,059,000, $2,502,000 and $3,310,000, respectively.
The El San Juan caters to individual vacation travelers, as well as to small
groups and conferences and corporate-executive travelers. The El San Juan
guest rooms and suites have luxury appointments and amenities and many have
private balconies, whirlpools and spas. The Roof Top Health Spa, two swimming
pools, three tennis courts and beach area all contribute to the attractiveness
of the property.
The El San Juan maintained an average occupancy during the fiscal year ended
June 30, 1997 of 80.6% compared with 82.3% for the fiscal year ended June 30,
1996 and 82.4% for the fiscal year ended June 30, 1995. The average daily room
rates at the El San Juan during the fiscal years ended June 30, 1997, 1996 and
1995 were $188.42, $185.30 and $184.41, respectively.
The El San Juan also features an indoor shopping arcade designed to resemble
a European village, which features 12 fashionable stores serving hotel guests
and community residents. All of the stores in the El San Juan and all of the
restaurants except "La Veranda" and "Tequila Bar & Grill" are owned and
operated by unaffiliated concessionaires which pay the El San Juan rent based
primarily on a percentage of their revenues. In addition, the water sports and
valet parking are operated as concessions.
El Conquistador
On January 12, 1990, WHGI entered into an agreement with the El Con
Partnership for the management of the El Conquistador. The El Conquistador is
23.3% owned by a wholly owned subsidiary of WHG, 26.7% owned by the Other
Owners and 50% owned by Kumagai. The hotel was originally built as a 388 room
hotel in 1962. The El Conquistador was substantially renovated and expanded
during 1991 and 1992 with Kumagai acting as construction manager and WHGI
rendering technical development services during the construction phase. The
completed resort opened for business in November 1993.
The El Conquistador, a world class destination resort complex, is located at
the old El Conquistador site in Las Croabas. The resort has 751 guest rooms,
an 18-hole championship golf course, a marina, seven tennis courts, 90,000
square feet of convention and meeting facilities, six lounges and nightclubs,
12 restaurants, a 10,000 square foot casino, 25 retail shops, a fitness center
and five pool areas, all situated on a bluff overlooking the convergence of
the Atlantic Ocean and the Caribbean Sea. The El Conquistador also features a
secluded beach located on a private island three miles offshore. In addition,
the El Conquistador has available 90 condominium units known as the Las
Casitas Village. Las Casitas Village provides another 167 rooms to the
inventory of luxury rooms available to the El Conquistador bringing the total
available rooms at the resort to 918. The resort has received the prestigious
Gold Key Award by Meetings & Conventions Magazine and the Paragon Award by
Corporate Meetings & Incentives Magazine for excellence in meeting and
conventions. The
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American Automobile Association has awarded the resort a "Four Diamond" rating
for each of its three full years of operation and recently awarded a "Five
Diamond" rating to Las Casitas Village.
During the fiscal years ended March 31, 1997, 1996 and 1995, the El
Conquistador's capital expenditures for the purchase of property and equipment
were $1,428,000, $864,000 and $3,002,000, respectively.
The El Conquistador finished its third full fiscal year ended March 31, 1997
with an average occupancy of 72.0% and gross revenues of $94,423,000. This
compares to an average occupancy of 70.9% and gross revenues of $90,351,000
for the fiscal year ended March 31, 1996 and an average occupancy of 73.3% and
gross revenues of $85,948,000 for the fiscal year ended March 31, 1995. The
average daily room rates at the El Conquistador during the fiscal years ended
March 31, 1997, 1996 and 1995 were $202.86, $198.99 and $188.87, respectively.
WHGI
WHGI is owned 62% by PPRA and 38% by certain of the Other Owners and
currently provides hotel and casino management services to properties owned by
WHG. It has managed the Condado Plaza since 1983, the El San Juan since 1985
and the El Conquistador since 1993. The management contracts with the Condado
Plaza, the El San Juan and the El Conquistador expire in the years 2003, 2005
and 2013, respectively. It earns basic management fees based on gross revenues
and incentive management fees based on gross operating profits. In fiscal
1997, WHGI earned $7,391,000 in basic management fees and $5,327,000 in
incentive management fees from the three properties. WHGI is reimbursed for
certain administrative expenses incurred in connection with its management of
such properties and receives fees with respect to certain centralized services
being rendered for all hotel and casino properties. In addition to supervising
the daily operations of WHG's hotels and casinos, WHGI supervises marketing,
sales and promotions and recommends long-term policies for the three hotels
and casinos.
Casino Credit Policy
All of WHG's casinos extend credit to qualified players who satisfy its
credit review procedures. The procedures include external credit verification
and internal management level approvals.
Credit play at the Condado Plaza for the fiscal years ended June 30, 1997,
1996 and 1995 represented 35.1%, 36% and 32%, respectively, of total play at
the casino. Casino credit receivables, net of allowance for doubtful accounts,
at the Condado Plaza at each of the fiscal years ended June 30, 1997, 1996 and
1995 were $1,333,000, $464,000 and $1,330,000, respectively, representing
3.4%, 1.2% and 3.9% of annual credit play.
Credit play at the El San Juan for the fiscal years ended June 30, 1997,
1996 and 1995 represented 52.7%, 55% and 60%, respectively, of total play at
the casino. Casino credit receivables, net of allowance for doubtful accounts,
at the El San Juan at each of the fiscal years ended June 30, 1997, 1996 and
1995 were $1,203,000, $473,000 and $2,265,000, respectively, representing
2.4%, 0.8% and 2.9% of annual credit play.
Credit play at the El Conquistador has not been significant since its
opening in November 1993.
The credit players represent a significant portion of total play at the El
San Juan and Condado Plaza casinos and WHG believes that collection losses
have not been unusual or material to the results of operations, except for the
collection losses at the El San Juan casino in fiscal years 1995, 1994 and
1993, where the losses were $3.7 million, $4.2 million and $2.6 million,
respectively. Gaming debts are enforceable in Puerto Rico and the majority of
States in the United States. Those states that do not enforce gaming debts
will nonetheless generally allow enforcement of a judgment obtained in a
jurisdiction such as Puerto Rico. Due to the unenforceability generally of
gaming debts in Latin America, where a significant number of WHG's players
reside, procedures have been established to obtain promissory notes from most
Latin American credit casino clients.
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Government Regulation and Licensing
The Commonwealth of Puerto Rico legalized gambling by the adoption of Law
No. 221 on May 15, 1948 (the "Gaming Act"). The Office of the Commissioner of
Financial Institutions of the Commonwealth of Puerto Rico is responsible for
investigating and licensing casino owners and the Gaming Division (the "Gaming
Division") of the Tourism Company of Puerto Rico (the "TCPR") regulates and
supervises casino operations. A government inspector must be on-site whenever
a casino is open. Among its responsibilities, the Gaming Division licenses all
casino employees and enforces regulations relating to method of play and
operation of the casino.
The casinos at the Condado Plaza, the El San Juan and the El Conquistador
are subject to strict internal controls imposed by WHG over all facets of
their operations, including the handling of cash and security measures. Until
the adoption of amendments to the Gaming Act in 1997, as discussed below, all
slot machines at these and all other casinos on the island were owned and
maintained by the Commonwealth of Puerto Rico and 34% of the profits from slot
machines was received by the casino and the remaining 66% was allocated to
Puerto Rico government agencies and educational institutions. Each casino pays
the Commonwealth of Puerto Rico a casino franchise fee depending on total play
or drop in the casino, which fee ranges from $50,000 to $200,000. The Condado
Plaza and the El San Juan each pay an annual casino franchise fee of $200,000
and the El Conquistador pays an annual casino franchise fee of $150,000 in
quarterly installments. Each casino is required to renew its casino franchise
quarterly; and, unless a change of ownership of the franchisee has occurred or
the gaming authorities have reason to believe that reinvestigation of the
franchisee is necessary, renewal is generally automatic.
The hotels and casinos are also subject to various local laws and
regulations affecting their business, including provisions relating to fire
safety, sanitation, health and the sale of alcoholic beverages.
In recent years, the Legislature of the Commonwealth of Puerto Rico has
liberalized its gaming laws. The amendments adopted to the Gaming Act in 1996
(the "1996 Law") approved a variety of new table games, increased table
maximum bets, provided flexibility in the acquisition and regulation of new
table games, authorized the acquisition by the TCPR of approximately 1,600 new
slot machines and increased the ratio of slot machines to table games
permitted in a casino from 1:1 to 1.5:1. In fiscal 1997, the TCPR added 44 new
slot machines and replaced 270 of the older slot machines in WHG's casinos. As
permitted by the 1996 Law, the Condado Plaza and the El San Juan increased
their table maximums in order to entice higher stakes gamblers and introduced
two new table games, Caribbean Stud Poker and Let It Ride.
The amendments adopted to the Gaming Act in 1997 (the "1997 Law") authorize
owners of hotels which possess a casino gaming franchise and are licensed to
operate slot machines located within their casinos to acquire the slot
machines currently in their casinos as well as new slot machines for use in
their casinos. In order to acquire new slot machines, the casino owner is
required to purchase from the TCPR at book value or assume the lease of the
slot machines currently in its casino, to assume all other obligations of the
TCPR relating to those slot machines, offer employment (under specified
conditions) to the attendants and slot machine technicians employed by the
TCPR in their casino, and to provide evidence to the TCPR that all suppliers
of slot-machine-related services to their casino are duly licensed. The 1997
Law increases the ratio of slot machines to table games (up to 6 slot machines
are now permitted for every position at gaming tables located in the casino if
the casino owns or leases its slot machines) and authorizes the installation
of $5 and $25 slot machines in the casino. Rules relating to hours of
operation, service of liquor and the conduct of entertainment within the
casino were also liberalized by the 1997 Law and are now similar to those of
other major gaming jurisdictions in the United States. Under the 1997 Law, the
TCPR is now responsible for the licensing of slot machine producers, sellers,
distributors, technicians and attendants, the types of slot machines that may
be acquired and operated by a casino and the requirements pursuant to which
producers, sellers and distributors may sell or lease slot machines to a
casino.
WHG's casinos expect to take full advantage of these changes which they
believe will enable them to be more competitive with other gaming
jurisdictions in the Caribbean as well as the new casinos opening in Puerto
Rico.
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The 1997 Law also changed the distribution of the net annual income per
casino slot machine (as determined pursuant to a specified formula) ("NAI").
For the TCPR fiscal years ended June 30, 1998, 1999 and 2000, the TCPR is
entitled to 66% and the casino owner is entitled to 34% of the casino's NAI up
to the amount of slot machine revenue (as adjusted pursuant to the 1997 Law)
received by the TCPR from that casino for its 1997 fiscal year ("Base Period
Income"). Thereafter, the TCPR is entitled to 90% of the excess over Base
Period Income ("Excess") and the casino owner is entitled to 10% of the
Excess, provided, if the Excess is greater than $30.0 million, then the casino
owner is entitled to 60% of the amount over $30.0 million and the TCPR is
entitled to 40% of the amount over $30.0 million. For the TCPR fiscal year
ending June 30, 2001 and thereafter, the TCPR is entitled to 66% of the Base
Period Income and 40% of the Excess and the casino owner is entitled to 34% of
the Base Period Income and 60% of the Excess.
Seasonality
Tourism in Puerto Rico is at its peak during the months of December through
April. Most hotels, despite reducing their room rates during the off-season
months, experience decreased occupancy and lower revenues. By attracting
business travelers and residents of Puerto Rico on a year-round basis, the
Condado Plaza has reduced, to some extent, the seasonality of its operations.
The El San Juan and the El Conquistador expect that group business developed
during the off-season and the shoulder-season will reduce the effect of
seasonality.
Seasonal fluctuations in the tourism industry do not have as much of an
effect on the Condado Plaza as they have on other Caribbean hotels since
approximately 40% of the Condado Plaza's accommodations are booked by business
travelers. As a result, the Condado Plaza's monthly occupancy for the fiscal
year ended June 30, 1997 ranged from 68.9% to 89% with an average occupancy of
82.4%. The in-season average occupancy figure for December 1996 to April 1997
was 83.7% compared to 88.6% and 87.6% for such period in the fiscal years 1996
and 1995, respectively. The Condado Plaza, like other Caribbean hotels,
reduces its rates during the off-season months but, unlike many other
Caribbean hotels, occupancy remains at relatively high levels.
During the fiscal year ended June 30, 1997, the El San Juan's monthly
occupancy ranged from 52.8% to 91.2%, with an average occupancy of 80.6%. The
in-season average occupancy for December 1996 to April 1997 was 84.7% compared
to 85.8% and 88.3% for such period in the fiscal years 1996 and 1995,
respectively.
During the fiscal year ended March 31, 1997, the El Conquistador's monthly
occupancy ranged from 47.1% to 89.6%, with an average occupancy of 72.0%. The
in-season average occupancy for December 1996 to April 1997 was 79.8% compared
to 77.1% and 80.8% for such period in the fiscal years 1996 and 1995,
respectively.
Competition
The hotel and casino business in the Caribbean region is highly competitive.
WHG's facilities compete with each other and with numerous hotels and resorts
on the island of Puerto Rico (including 16 other hotels and resorts with
casinos) and on other Caribbean islands and in the southeastern United States
and Mexico. WHG competes with such chains as Hyatt, Marriott, Hilton, Embassy
Suites, Holiday Inn and Westin as well as numerous other hotel and resort
chains and local hotel and motel operators. WHG also competes for hotel and
casino customers to a lesser extent with the Nevada and New Jersey hotels and
casinos as well as other casinos now operating in the United States. The
principal methods of competition for casino players include maintaining
promotional allowance packages that are comparable to other casinos and
providing outstanding service to players in the hotel and casino. The
promotional allowance package will vary depending upon the size of the play
and may include reduced or complimentary hotel and restaurant charges and
airfares. Some of these competing properties are owned or managed by hotel
companies possessing substantially greater financial and marketing resources
than those of WHG.
At September 30, 1997, there were 25 hotels in the San Juan area designated
as "tourist hotels" by the TCPR offering a total of approximately 5,205 rooms,
of which only ten hotels offered more than 200 rooms; approximately 3,210
additional rooms were offered in 21 tourist hotels elsewhere on the island of
Puerto Rico.
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The island of Puerto Rico also has numerous commercial hotels and guest
houses. Approximately 31 cruise ships operate out of Puerto Rico in the
winter. Currently, 20 ships include San Juan as a port of call while 17 ships
have made San Juan their home base.
WHG believes that Puerto Rico offers many advantages over geographical areas
in which competing properties are located. Unlike most other Caribbean
islands, Puerto Rico is served by many direct air flights from the continental
United States and has a highly developed economy and a well-educated
population. Moreover, Puerto Rico is a Commonwealth of the United States,
freeing mainland visitors from concerns about foreign currencies or customs
and immigration laws. Unlike resort areas in the southeastern United States,
Puerto Rico enjoys a mild subtropical climate throughout the year and offers
legalized gambling.
Employees
The Condado Plaza employs approximately 840 persons, 570 of whom are
represented by two labor unions (410 employees belong to the hotel union and
160 employees belong to the casino union). The Condado Plaza's contract with
the Hotel and Restaurant Employees International Union expired August 31, 1997
and negotiations with respect to a new contract are currently being conducted.
The Condado Plaza's contract with the Puerto Rico Association of Casino
Employees expires May 31, 1999.
The El San Juan employs approximately 822 persons, 225 of whom are casino
employees. The Teamsters Union was certified by the National Labor Relations
Board on May 12, 1995 to represent the 93 non-managerial casino employees and
the contract that was signed on May 31, 1996 and expires on May 31, 1999.
The El Conquistador employs approximately 1,490 persons, of whom 120 are
casino employees. WHGI employs approximately 57 persons, including the
executive office staff and the reservation staffs for all operations of the
hotels and casinos. None of WHG's employees at the El Conquistador or WHGI are
represented by a labor union.
The number of persons employed by WHG varies from season to season and is at
its highest during the high season when occupancy is at its highest. WHG
considers its current relationships with all employees, union and non-union,
to be satisfactory.
Properties
WHG owns interests in and manages 1,875 suites and hotel rooms, 36,300
square feet of casino floor space containing 120 gaming tables and 940 slot
machines and approximately 146,000 square feet of convention and meeting
space. These properties also include a total of 22 restaurants, 41 shops, one
showroom, three health and fitness centers, 13 tennis courts, 25 cocktail and
entertainment lounges, an 18-hole championship golf course and a marina.
The following table sets forth, with respect to WHG's principal properties,
the location, principal use, approximate floor space and the ownership
interest/annual rent and lease expiration date, where leased, or encumbrances
at September 30, 1997.
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WHG's management believes that all of the facilities listed in the following
table are in good repair and are adequate for their respective purposes. WHG
owns substantially all of the machinery, equipment, furnishings, goods and
fixtures used in its businesses, all of which are well maintained and
satisfactory for the purposes intended. WHG's personal property utilized in
the Condado Plaza, the El San Juan and the El Conquistador operations is
subject to security interests.
<TABLE>
<CAPTION>
OWNERSHIP
APPROXIMATE INTEREST/ EXP.
LOCATION PRINCIPAL USE SQUARE FEET ANNUAL RENT DATE ENCUMBRANCES
-------- --------------- ----------- ------------------ -------- ------------
<S> <C> <C> <C> <C> <C>
Las Croabas, PR......... El Conquistador 854,000 23.3% Owned by WHG -- (1)
Resort
San Juan, PR............ Condado Plaza 136,081 100% Owned by WHG -- (2)
Hotel/Casino
San Juan, PR............ Condado Plaza 60,500 $684,000(3) 03/31/04(3) (2)
Laguna Wing
San Juan, PR............ Condado Plaza 28,611 100% Owned by WHG -- (4)
Parking Lots
San Juan, PR............ Condado Plaza 8,343 100% Owned by WHG -- (4)
Parking Lot
Carolina, PR............ El San Juan 162,500 50% Owned by WHG -- (5)
Hotel/Casino
Carolina, PR............ El San Juan 10,663 62% Owned by WHG -- (4)
Parking Lot
Carolina, PR............ El San Juan 105,850 $150,000 11/16/02 --
Parking Lot
Carolina, PR............ WHGI 10,000 62% Owned by WHG -- (6)
Admin. Offices
</TABLE>
- --------
(1) Subject to a first mortgage lien in the amount of $146,612,000 securing:
(i) a $120,000,000 loan from the Puerto Rico Industrial, Medical,
Educational and Environmental Pollution Control Facilities Financing
Authority; (ii) a $120,000,000 letter of credit issued by The Mitsubishi
Bank, Limited, now known as The Bank of Tokyo-Mitsubishi, Ltd., which
serves as collateral for the loan referred to in (i) above; and (iii)
termination liability up to $20,000,000 under an Interest Rate Swap
Agreement with respect to interest due on the loan referred to in (i)
above; subject to a second mortgage lien securing a $25,000,000 loan from
the Government Development Bank for Puerto Rico (the "GDB"); subject to a
third mortgage lien securing a $6,000,000 revolving credit facility from
the GDB; and subject to a fourth mortgage lien in the amount of $6,000,000
securing interest due under an $8,000,000 loan from the GDB to the
partners of the El Con Partnership, the proceeds of which were loaned to
the El Conquistador.
(2) Subject to mortgage liens to secure a loan in the original principal
amount of $35,500,000 from Scotiabank de Puerto Rico under the terms of an
Operating Credit and Term Loan Agreement dated August 30, 1988, as
amended.
(3) Annual rent of $684,000 is fixed through September 30, 1998; thereafter,
$752,000 through September 30, 2003 and $827,000 through March 31, 2004.
WHG has an option to renew the lease for an additional four and one half
years, through September 30, 2008.
(4) Subject to a mortgage in favor of the GDB to secure a $4,000,000 loan to
WKA, the proceeds of which were loaned to the El Conquistador.
(5) Subject to a first mortgage lien to secure a loan in the original
principal amount of $34,000,000 from The Bank of Nova Scotia under the
terms of a Credit Agreement dated as of January 20, 1993.
(6) Subject to a first mortgage lien to secure a loan in the original
principal amount of $800,000 from Scotiabank de Puerto Rico.
The El Conquistador is situated on approximately 220 acres in the Las
Croabas area of Fajardo, Puerto Rico. WHG owns an interest in approximately 42
additional acres of land in the vicinity of the El Conquistador which have
various uses including employee parking facilities for the El Conquistador.
WHG, through ESJ Hotel Corporation, also owns approximately 150 acres of
vacant land adjacent to the El Conquistador.
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Legal Proceedings
In July 1993, Chung Lung, Inc. and its owner Wei-Yang Li (collectively
"Chung Lung"), which operated the Lotus Flower Restaurant at the Condado
Plaza, instituted a declaratory judgment action against PPRA and WHGI before
the Puerto Rico Superior Court, San Juan Part. The action sought a declaration
as to the rights and obligations of the parties under the concession agreement
pursuant to which the restaurant was operating. In a related case, Chung Lung
claimed damages in the amount of $87,858.50, plus interest, costs and
attorney's fees. WHGI and PPRA have filed a counterclaim in this case seeking
damages of $1,000 per day from October 1, 1993. All parties base their claims
for damages on alleged breaches of the concession agreement. Both cases were
consolidated with PPRA's case for eviction of Chung Lung from the Condado
Plaza premises. On May 15, 1995, the parties agreed to a temporary settlement,
endorsed by the court, in which they would maintain the prevailing working
conditions until January 15, 1996, at which time Chung Lung would either
continue the relationship with the Condado Plaza for a new term of 10 years,
or proceed with the litigation. On January 10, 1996, Chung Lung informed the
court that it had decided to continue with the litigation and was ceasing
operations at the Condado Plaza. Both parties amended their respective
pleadings in the case to increase their claims for damages. Chung Lung is now
claiming $3,250,000 and PPRA is claiming in excess of $1,000,000. The court
divided the case into two parts. The first involves the issue of whether Chung
Lung had the right to remain in the premises after the contract term had
expired. If the court decides that Chung Lung had such right, the case will
enter a second phase for the determination of damages in favor of Chung Lung.
Trial on the first phase was held in April 1997. The court recently rendered
its decision that Chung Lung had no right to remain in the premises and
therefore had no right to damages. Chung Lung's time to appeal from the
court's decision has not yet expired.
On November 8, 1996, Gaucho Tourism Adventure S.E. ("Gaucho"), a restaurant
concessionaire at the El Conquistador, instituted an action before the Fajardo
Superior Court in Humacao, Puerto Rico against the El Con Partnership and WHGI
("El Con/Williams") alleging that El Con/Williams deceived Gaucho prior to
entering into the concession agreement by making representations which were
not later honored. Gaucho also alleges that El Con/Williams sought to
eliminate Gaucho's competition in violation of federal and local antitrust
laws. Gaucho claims damages of $3,000,000, as well as injunctive relief. El
Con/Williams answered the complaint, filed an opposition to Gaucho's request
for equitable relief, filed a counterclaim against Gaucho and requested its
eviction. The court has denied Gaucho's request for preliminary injunction.
The parties are currently in the discovery stage of the proceedings.
In May 1997, Homero San Antonio Mendoza, Magda Rosario and Eduardo Bidot
Gonzalez filed an action in the United States District Court for the District
of Puerto Rico against WMS, WHGI, PPRA, Stuart C. Levene, Louis J. Nicastro
and Brian R. Gamache. The plaintiffs, former employees at the Condado Plaza,
allege age discrimination, infringement of Puerto Rico's Minimum Wage Act and
defamation and libel and seek actual damages of $6,000,000; their back pay and
benefits in excess of $341,737; loss of income of not less than $3,696,645;
emotional and mental suffering of $200,000 arising from the alleged libel and
defamation of plaintiffs and seek reinstatement. The plaintiffs claim that
they are entitled to double the foregoing damages under Puerto Rico's
Antidiscrimination Statute. None of the defendants have been served with the
complaint, and the court has already dismissed the complaint as to the
individuals named as defendants.
In addition to the matters set forth above, WHG currently and from time to
time is involved in litigation incidental to the conduct of its business. WHG
is not currently a party to any lawsuit or proceeding which, in the opinion of
WHG, is likely to have a material adverse effect on WHG including those
described above.
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RECENT DEVELOPMENTS
WHG
On November 5, 1997, the El Con Partnership entered into the Supplement to
Letter of Credit and Reimbursement Agreement with The Bank of Tokyo-
Mitsubishi, Ltd. in order to extend the term of the letter of credit securing
the first mortgage on the El Conquistador for an additional three months until
June 9, 1998. The extension of the letter of credit effectively extended the
term of the first mortgage on the El Conquistador for an additional three
months from February 1, 1998 until May 1, 1998. The GDB has similarly extended
the term of the El Conquistador's $6.0 million revolving credit facility.
THE PATRIOT COMPANIES
Patriot/IHC Merger
On December 2, 1997, Patriot and PAHOC entered into the Patriot/IHC Merger
Agreement with IHC, pursuant to which IHC will merge with and into Patriot
with Patriot being the surviving corporation. As a result of the Patriot/IHC
Merger, Patriot will acquire all of the assets and liabilities of IHC,
including IHC's portfolio of 222 owned, leased or managed hotels located in
the United States, Canada, the Caribbean and Russia. Of IHC's portfolio, 40
hotels aggregating approximately 11,580 rooms are owned or controlled by IHC,
90 hotels aggregating approximately 10,354 rooms are leased and 92 hotels
aggregating approximately 23,183 rooms are managed or subject to service
agreements. IHC operates its hotels under a variety of brand names, including
Marriott(R), Embassy Suites(R), Hilton(TM), Holiday Inn(R), Radisson(TM),
Westin(R), Sheraton(TM), Doubletree(TM), Residence Inn(TM), Hampton Inn(R),
Comfort Inn(TM), Homewood Suites(TM) and Colony(R). As a result of the
Patriot/IHC Merger, Patriot will assume or refinance all of IHC's existing
indebtedness, which totaled approximately $790 million as of December 2, 1997.
Upon consummation of the Patriot/IHC Merger, and subject to proration as
described below, IHC stockholders may elect to convert their shares of IHC
Common Stock into the right to receive either (i) Patriot/IHC Cash
Consideration consisting of an amount of cash equal to $37.50 per share of IHC
Common Stock, or (ii) Paired Shares at the Patriot/IHC Exchange Ratio. The
Patriot/IHC Merger Agreement provides that, except under certain circumstances
involving the payment of cash to IHC stockholders who exercise dissenters'
appraisal rights in connection with the Patriot/IHC Merger, approximately 40%
of the total issued and outstanding shares of IHC Common Stock (the "IHC
Outstanding Shares") will be converted into the right to receive the
Patriot/IHC Cash Consideration and the remaining approximately 60% of the IHC
Outstanding Shares will be converted into the right to receive Paired Shares
at the Patriot/IHC Exchange Ratio. Accordingly, the aggregate Patriot/IHC Cash
Consideration (the "Aggregate Patriot/IHC Cash Consideration") to be received
by holders of IHC Common Stock who receive Patriot/IHC Cash Consideration
generally will be an amount equal to 40% of the IHC Outstanding Shares
multiplied by $37.50, or an aggregate of approximately $530 million based on
the number of shares of IHC Common Stock outstanding as of December 1, 1997.
The aggregate number of Paired Shares to be received by holders of IHC Common
Stock who receive Paired Shares in the Patriot/IHC Merger (the "Aggregate
Paired Share Consideration") generally will equal 60% of the IHC Outstanding
Shares multiplied by the Patriot/IHC Exchange Ratio. Upon consummation of the
Patriot/IHC Merger, holders of outstanding options to acquire IHC Common Stock
will receive cash in an amount equal to the spread between the exercise price
of such options and $37.50, except that certain senior executives of IHC may
elect to have their options assumed by Patriot.
The Patriot/IHC Merger Agreement provides that, in the event that the
holders of IHC Outstanding Shares elect to receive Patriot/IHC Cash
Consideration with respect to more than 14,168,500 shares of IHC Common Stock
(approximately 40% of the IHC Outstanding Shares), such holders will receive
the Aggregate Patriot/IHC Cash Consideration on a pro rata basis based on the
respective numbers of shares of IHC Common Stock with respect to which each
such holder has elected to receive Patriot/IHC Cash Consideration. Under such
circumstances, such holders' remaining shares of IHC Common Stock that are not
converted into the right to receive Patriot/IHC Cash Consideration will be
converted into the right to receive Paired Shares at the
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Patriot/IHC Exchange Ratio. In the event that the aggregate number of shares
of IHC Common Stock with respect to which the holders thereof have elected to
receive Paired Shares at the Patriot/IHC Exchange Ratio is greater than
approximately 60% of the IHC Outstanding Shares, such holders will receive the
Aggregate Paired Share Consideration on a pro rata basis based on the
respective numbers of shares of IHC Common Stock with respect to which each
such holder has elected to receive Paired Shares. Under such circumstances,
such holders' remaining shares of IHC Common Stock that are not converted into
the right to receive Paired Shares will be converted into the right to receive
Patriot/IHC Cash Consideration.
Under the terms of the Patriot/IHC Merger Agreement and subject to proration
as described above, each issued and outstanding share of IHC Common Stock with
respect to which the holder thereof has made an election to receive Paired
Shares in the Patriot/IHC Merger generally will be converted into the right to
receive a number of Paired Shares equal to $37.50 divided by the Patriot/IHC
Average Closing Price. However, the Patriot/IHC Exchange Ratio is subject to
adjustment if the Patriot/IHC Average Closing Price is less than $27.97 or
greater than $34.186. If the Patriot/IHC Average Closing Price is less than
$27.97 but greater than or equal to $26.416, the Patriot/IHC Exchange Ratio
will be equal to 1.341. If the Patriot/IHC Average Closing Price is greater
than $34.186 but less than or equal to $37.294 ($38.848, if the Patriot/IHC
Merger is consummated after March 30, 1998), the Patriot/IHC Exchange Ratio
will be equal to 1.097. If the Patriot/IHC Average Closing Price is greater
than $37.294 ($38.848, if the Patriot/IHC Merger is consummated after March
30, 1998) the Patriot/IHC Exchange Ratio will be equal to $40.912 ($42.616, if
the Patriot/IHC Merger is consummated after March 30, 1998) divided by the
Patriot/IHC Average Closing Price. If the Patriot/IHC Average Closing Price is
less than $26.416, the Patriot/IHC Exchange Ratio will be equal to 1.341, but
IHC will have the right to terminate the Patriot/IHC Merger Agreement unless
Patriot decides to increase the Patriot/IHC Exchange Ratio to an amount equal
to $35.424 divided by the Patriot/IHC Average Closing Price, and in the event
Patriot exercises such right IHC will no longer have the right to terminate
the Patriot/IHC Merger Agreement.
The Patriot/IHC Merger is subject to various conditions including, without
limitation, approval of the Patriot/IHC Merger by the stockholders of Patriot,
PAHOC and IHC. Subject to the terms of a shareholders agreement, certain
shareholders of IHC have agreed with Patriot and PAHOC to vote 19.9% of the
outstanding shares of IHC Common Stock in favor of the Patriot/IHC Merger. It
is currently anticipated that the Patriot/IHC Merger will be consummated in
the first quarter of 1998. In the event that the Patriot/IHC Merger Agreement
is terminated under certain circumstances, including in order to allow IHC to
pursue a superior proposal (as defined in the Patriot/IHC Merger Agreement),
IHC will be required to pay Patriot a break-up fee of $50 million. Likewise,
if the Patriot/IHC Merger Agreement is terminated by IHC as a result of
Patriot's failure to recommend approval of the Patriot/IHC Merger to its
stockholders, Patriot will be required to pay a $50 million break-up fee to
IHC.
The pro forma combined assets of Patriot and PAHOC at September 30, 1997
assuming consummation of the Patriot/IHC Merger would be approximately $6.2
billion (which also assumes consummation of the Wyndham Transactions, the CHCI
Merger and the Merger), of which approximately 62% would be attributable to
Patriot and PAHOC combined and approximately 38% would be attributable to IHC.
In addition, the pro forma combined revenues of Patriot and PAHOC for the year
ended December 31, 1996 and the nine months ended September 30, 1997 assuming
consummation of the Patriot/IHC Merger would be approximately $1.9 billion and
$1.5 billion, respectively (which also assumes consummation of the Wyndham
Transactions, the CHCI Merger and the Merger), of which approximately 61% and
62%, respectively, would be attributable to Patriot and PAHOC combined and
approximately 39% and 38%, respectively, would be attributable to IHC. See
"Unaudited Pro Forma Financial Statements."
In connection with the Patriot/IHC Merger, W. Thomas Parrington, Jr.,
President, Chief Executive Officer and a director of IHC, is expected to
become the Vice Chairman of PAHOC and Milton Fine, Chairman of the Board of
Directors of IHC, is expected to become a member of the Patriot Board.
In connection with the execution of the Patriot/IHC Merger Agreement,
Patriot entered into a non-binding letter of intent dated as of December 1,
1997 with Marriott International, Inc. ("Marriott") which provides for
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Patriot's termination of franchise agreements relating to ten Marriott hotels
currently owned and operated by IHC and the conversion of these hotels to the
Wyndham brand (the "Marriott Letter of Intent"). In return, Marriott will
assume management of ten franchised Marriott hotels currently owned and
operated by IHC for the term of the franchise agreements. Subsidiaries
controlled by PAHOC will continue to operate 36 franchised Marriott hotels
which are owned by third parties.
Other Owners
The Patriot Companies are currently in negotiations with certain of the
Other Owners to acquire their interests in PSJA, WHGI and WKA and an option to
acquire all the equity interests of the partnership which owns the Laguna Wing
of the Condado Plaza. In addition, the Patriot Companies are currently in
negotiations with Kumagai to acquire its 50% interest in the El Con
Partnership. The aggregate purchase price for these interests would be
approximately $80 million, payable partly in cash and partly in Paired Shares.
No assurance can be given that any of these transactions will be consummated.
Revolving Credit Facility and Term Loan
On December 16, 1997, Patriot, Paine Webber Real Estate and Chase entered
into an agreement providing for (i) an increase of $200 million in
availability under the Revolving Credit Facility (the "Credit Facility
Amendment") for aggregate availability of $900 million on substantially the
same terms as the Revolving Credit Facility, and (ii) an unsecured term loan
in the aggregate principal amount of $350 million (the "Term Loan"). The Term
Loan has an interest rate per annum ranging from LIBOR plus 1.00% to 2.00%
(depending on the Patriot Companies' leverage ratio or the investment grade
rating received from the rating agencies) or the customary alternate base rate
announced from time to time plus 0.0% to 0.5% (depending on the Patriot
Companies' leverage ratio). The Term Loan will be used primarily to refinance
substantially all of the existing indebtedness of Wyndham and to finance
payments to be made in connection with the Wyndham Transactions. In addition,
it is expected that the Patriot Companies' existing Revolving Credit Facility
will be used to retire that portion of existing indebtedness of Wyndham that
is not refinanced through the Credit Facility Amendment and the Term Loan.
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THE SPECIAL MEETING
This Proxy Statement/Prospectus is being furnished to the WHG Stockholders
in connection with the solicitation of proxies by the WHG Board from holders
of outstanding shares of WHG Common Stock and WHG Preferred Stock to be voted
at the Special Meeting. This Proxy Statement/Prospectus and the accompanying
proxy are being mailed to the WHG Stockholders on or about December 17, 1997.
At the Special Meeting, the holders of WHG Common Stock and WHG Preferred
Stock on the Record Date will consider and vote upon a proposal to approve and
adopt the Merger Agreement and the transactions contemplated thereby, pursuant
to which, among other things, Acquisition Sub, a subsidiary of PAHOC, will be
merged with and into WHG. WHG will be the surviving corporation in the Merger
and will become a subsidiary of PAHOC.
DATE, TIME AND PLACE
The Special Meeting will be held at The Breakers, One South County Road,
Palm Beach, Florida 33480, on January 16, 1998 at 10:30 a.m. local time.
RECORD DATE; QUORUM
The Record Date for the Special Meeting is December 11, 1997. Accordingly,
holders of record of WHG Common Stock and WHG Preferred Stock as of the Record
Date are entitled to notice of and to vote at, the Special Meeting. Each share
of WHG Common Stock outstanding on the Record Date is entitled to one vote at
the Special Meeting. There were 6,050,200 shares of WHG Common Stock
outstanding on the Record Date. Each share of WHG Preferred Stock outstanding
on the Record Date is entitled to five votes at the Special Meeting. There
were 300,000 shares of WHG Preferred Stock outstanding on the Record Date. The
WHG Common Stock and WHG Preferred Stock will vote together as a single class
at the Special Meeting. The presence, in person or by proxy, of the holders of
a majority of the shares entitled to vote at the Special Meeting is necessary
to constitute a quorum for the transaction of business at the Special Meeting.
REQUIRED VOTE
Pursuant to the DGCL and the WHG Bylaws, assuming a quorum is present, the
affirmative vote of a majority of all of the votes entitled to be cast at the
Special Meeting is required to approve the Merger. Pursuant to the Voting and
Option Agreement, Mr. Nicastro granted PAHOC an irrevocable proxy to vote
1,158 shares of WHG Common Stock and 300,000 shares of WHG Preferred Stock in
favor of the Merger Agreement and the transactions contemplated thereby,
subject to the terms contained therein. Additionally, pursuant to the Voting
Agreement, the NAI Group, among other things and subject to certain
limitations, agreed to vote the shares of WHG Common Stock which are
beneficially owned by the NAI Group at all meetings of the WHG Stockholders in
favor of the Merger Agreement and the transactions contemplated thereby. As of
September 30, 1997, the Voting and Option Agreement and the Voting Agreement
relate to approximately 42.79% of the possible votes to be cast at the Special
Meeting. See "Information about WHG--Security Ownership of Certain Beneficial
Owners" and "Certain Related Agreements--Voting and Option Agreement" and "--
Voting Agreement."
PROXIES
A proxy is enclosed for use at the Special Meeting. A proxy may be revoked
at any time prior to its exercise at the Special Meeting. WHG Common Stock and
WHG Preferred Stock represented by properly executed proxies received at or
prior to the Special Meeting and which have not been revoked will be voted in
accordance with the instructions specified therein. If no instructions are
given, such proxies will be voted "FOR" approval and adoption of the Merger
Agreement and the transactions contemplated thereby. A proxy may be revoked at
any time prior to its exercise by written notice to WHG, by submission of
another proxy bearing a later date or by voting in person at the Special
Meeting. Such revocation will not affect a vote on any matters taken prior
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thereto. The mere presence at the Special Meeting of the person appointing a
proxy will not revoke the appointment.
If the Special Meeting is adjourned or postponed for any purpose, at any
subsequent reconvening of the Special Meeting, all proxies will be voted in
the same manner as such proxies would have been voted at the original
convening of the Special Meeting (except for any proxies which have
theretofore effectively been revoked or withdrawn), notwithstanding that they
may have been effectively voted on the same or any other matter at a previous
meeting.
HOLDERS OF WHG COMMON STOCK OR WHG PREFERRED STOCK SHOULD NOT SEND ANY
CERTIFICATES REPRESENTING SUCH WHG STOCK WITH THEIR PROXIES. THE PROCEDURES
FOR THE EXCHANGE OF CERTIFICATES REPRESENTING WHG STOCK FOR CERTIFICATES
REPRESENTING PAIRED SHARES, IN THE EVENT THE MERGER IS CONSUMMATED, ARE AS SET
FORTH ELSEWHERE IN THIS PROXY STATEMENT/ PROSPECTUS. See "The Merger--Exchange
of WHG Certificates; Fractional Shares."
MANNER AND EXPENSE OF SOLICITATION
The solicitation of proxies in the accompanying form is made by the WHG
Board and all costs thereof will be borne by WHG. In addition to the
solicitation of proxies by use of the mails, some of the officers, directors
and other employees of WHG may also solicit proxies personally or by mail,
telephone or telegraph, but they will not receive additional compensation for
such services. WHG may retain the services of a professional proxy
solicitation firm if it deems it to be necessary. Brokerage firms, custodians,
banks, trustees, nominees or other fiduciaries holding shares of WHG Common
Stock in their names will be requested by WHG to forward proxy material to
their principals and will be reimbursed for their reasonable out of pocket
expenses in such connection.
THE WHG BOARD HAS UNANIMOUSLY APPROVED THE MERGER AGREEMENT AND THE
TRANSACTIONS CONTEMPLATED THEREBY AND UNANIMOUSLY RECOMMENDS THAT WHG
STOCKHOLDERS VOTE "FOR" APPROVAL OF THE MERGER AGREEMENT AND THE TRANSACTIONS
CONTEMPLATED THEREBY. SEE "THE MERGER--BACKGROUND OF THE MERGER" AND "--WHG'S
REASONS FOR THE MERGER; RECOMMENDATION OF THE WHG BOARD."
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THE MERGER
GENERAL
This Proxy Statement/Prospectus provides a summary of the material terms of
the Merger Agreement and the transactions contemplated thereby. The discussion
and description of the material terms of the Merger Agreement in this 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 Proxy
Statement/Prospectus as Annex A and which is incorporated herein by reference.
On September 30, 1997, the Parties entered into the Merger Agreement
pursuant to which Acquisition Sub will merge with and into WHG, with WHG as
the surviving company. Each of the PAHOC Board, the Acquisition Sub Board, the
Patriot Board and the WHG Board has approved the Merger Agreement and the
transactions contemplated thereby.
BACKGROUND OF THE MERGER
On October 31, 1996, Patriot entered into a binding acquisition agreement to
acquire Cal Jockey and Bay Meadows. This acquisition, which was consummated on
July 1, 1997, allowed Patriot and PAHOC to become a fully integrated owner and
operator of hotels. Since the execution of the Cal Jockey and Bay Meadows
agreement, Patriot and PAHOC have been exploring strategic opportunities to
acquire hotel operators and owners of hotel brands to further develop the
Patriot Companies as a fully integrated owner and operator of hotels.
WHG's business strategy since at least April 21, 1997, when it became an
independent public company, has been to maximize the economic potential of its
existing properties while seeking other opportunities to manage and/or own
hotels in Puerto Rico, the Caribbean and elsewhere. The execution of this
business strategy, however, is constrained by WHG's limited financial
resources and its limited ability to raise substantial additional capital due
to, among other matters, its size, the complex ownership structure of WHGI and
certain of the hotels and casinos in which WHG owns interests, and the
uncertainties surrounding the refinancing of the first mortgage at the El
Conquistador.
In early June 1997, a financial advisor retained by the El Conquistador in
connection with the possible refinancing of its first mortgage contacted Mr.
Leslie Ng, Senior Vice President of Acquisitions of Patriot, to discuss the
possible refinancing. In mid June 1997, this financial advisor advised Mr.
Nicastro, Chairman of the Board and Chief Executive Officer of WHG, that a
major REIT, later identified as Patriot, was interested in exploring the
possible refinancing. Patriot requested certain non-public information about
WHG. Mr. Nicastro advised that non-public information could not be furnished
to Patriot unless and until Patriot had entered into an appropriate standstill
and confidentiality agreement.
On July 2, 1997 and July 3, 1997, Mr. Ng met with representatives of WHG and
its financial advisor in Puerto Rico and toured the El Conquistador and, upon
his request, the El San Juan and the Condado Plaza. During the week beginning
July 7th, Mr. Ng requested and received public financial information relating
to WHG, WHGI and the three hotels.
Following this visit, the financial advisor who introduced Patriot to WHG
advised Mr. Nicastro that the Patriot Companies would consider a business
combination transaction with WHG. Mr. Nicastro indicated that WHG was not
seeking such a transaction, but he believed that the WHG Board might be
willing to discuss a proposal if the consideration to be received by WHG
Stockholders would be more than $20.00 per share of WHG Common Stock. Mr.
Nicastro also indicated that any party seeking a business combination with WHG
would need to be willing to assist in the pending efforts to refinance the
first mortgage at the El Conquistador.
Shortly thereafter, during a telephone conversation, Mr. Brian R. Gamache,
President and Chief Operating Officer of WHG, introduced Mr. Nicastro to Mr.
Ng and the three discussed a possible acquisition of WHG by the Patriot
Companies and their mutual interest in exploring the possibility of such a
transaction. During this
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conversation, it was agreed that a meeting would be arranged between Mr.
Nicastro and Mr. William W. Evans III, Office of the Chairman of Patriot.
On July 15, 1997, Messrs. Gamache, Nicastro, Ng and Evans, together with
representatives of WHG's and the Patriot Companies' legal and financial
advisors, met in New York City at the Patriot Companies' offices to discuss
alternative transaction approaches for the acquisition of WHG and possible
terms of such transactions. In the course of this meeting it was agreed that
the Patriot Companies would begin their due diligence review of WHG and that
the parties would begin negotiating confidentiality and exclusivity agreements
to provide, among other things, an exclusive due diligence period for the
Patriot Companies.
On July 23, 1997, the WHG Board met to consider, among other matters, a
possible business combination transaction with the Patriot Companies.
Representatives of Oppenheimer, WHG's financial advisors, attended the meeting
and reported Oppenheimer's preliminary views of the Patriot Companies based
upon publicly available filings of the Patriot Companies. The WHG Board
reviewed and discussed a draft of the proposed confidentiality and exclusivity
agreement. After consideration of numerous matters, the WHG Board determined
to authorize WHG to execute a confidentiality and exclusivity agreement with
each of Patriot and PAHOC. The confidentiality and exclusivity agreements were
executed in early August. The WHG Board also authorized the retention of
Oppenheimer to assist in the negotiation of, and to provide a fairness opinion
in connection with, any transaction with the Patriot Companies.
Among the matters considered by the WHG Board in agreeing to explore a
transaction with the Patriot Companies were the need for additional capital to
finance expansion, the difficulties in refinancing the first mortgage at the
El Conquistador, the Patriot Companies' financial strength and ability to
consummate a transaction and assist in the El Conquistador refinancing, the
then current market price of $12.625 per share of WHG Common Stock in relation
to consideration of at least $20.00 per share in a transaction with the
Patriot Companies, the potential for the Paired Shares to increase in value in
the future and the possible effect on WHG's operations of the public
announcement of such a transaction. In deciding to grant a 60 day exclusivity
and due diligence period, the WHG Board considered that this period was
required by the Patriot Companies to induce the Patriot Companies to expend
the finance and management resources necessary to conduct due diligence and
conclude a transaction. Moreover, the WHG Board was not desirous of pursuing
alternative transactions believing that doing so would be disruptive to WHG's
operations, its employee morale and its relations with its co-owners and
lenders.
Discussions continued during August and on August 26, 1997, the Patriot
Companies submitted a transaction term sheet which (i) contemplated a mostly
tax-free merger transaction requiring certain restructuring of the ownership
and operation of the El Conquistador, the El San Juan, the Condado Plaza and
WHGI, (ii) contemplated a collar arrangement which would have permitted the
Merger Consideration to be received by WHG Stockholders to be as little as
$18.40 or as much as $23.20 per share of WHG Common Stock, (iii) permitted the
Patriot Companies to elect to not close the transaction if the trading price
of the Paired Shares exceeded $29.00 and (iv) required payment by WHG of a
break-up fee ranging from $7,500,000 to $10,000,000, plus expenses, under
certain circumstances. WHG advised the Patriot Companies that the proposed
restructuring, the terms of the collar and the amount of the break-up fee were
all unacceptable. Negotiations of these matters between WHG, the Patriot
Companies and their legal and financial advisors continued from time to time
until the date the Merger Agreement was executed, and representatives of the
Patriot Companies and WHG had virtually daily contact to conduct due diligence
and negotiate the terms of the proposed transaction.
On September 5, 1997, Mr. Paul A. Nussbaum, Chairman and Chief Executive
Officer of Patriot, and other representatives of the Patriot Companies
traveled to Puerto Rico and met with representatives of WHG and its financial
advisor and toured the El Conquistador, the El San Juan and the Condado Plaza.
On September 6, 1997, Mr. Ng, Mr. Richard F. Johnson, Chief Financial Officer
of WHG, certain other representatives of WHG, and WHG's accountants met at the
El Conquistador to discuss WHG's financial statements and operations.
On September 11, 1997, WHG publicly announced that it was exclusively
negotiating a business combination with an unidentified party in which WHG
Stockholders would receive consideration of
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approximately $20.00 per share. During the week following the public
announcement, WHG received four preliminary indications of interest from third
parties, two by telephone and two in writing. Each of the companies who
submitted an indication of interest was advised that WHG was bound by a
confidentiality and exclusivity agreement and could not pursue discussions at
that time. None of the companies indicating preliminary interest made an offer
to WHG, although one company indicated that it may have been prepared to offer
"in excess of $20.00 per share" subject to review of more detailed information
and meeting with senior management of WHG.
At a meeting of the Boards of Directors of Patriot and PAHOC held on
September 24, 1997, Mr. Nussbaum and Mr. Evans, with the assistance of the
Patriot Companies' legal advisor, described a possible acquisition of the WHG
Stock. The Patriot Board and PAHOC Board reviewed with the Patriot Companies'
legal advisor the terms of a proposed acquisition and authorized management to
complete negotiations of, and execute, a merger agreement with WHG.
On September 29, 1997, WHG received an unsolicited proposal from a fifth
company stating its willingness to pay $24.00 in cash for WHG's outstanding
shares or, at that company's discretion, $25.00, half in cash and half in that
entity's publicly-traded stock. That proposal was expressly subject to a
satisfactory review of due diligence materials and the negotiation and
execution of documentation.
On September 30, 1997, the WHG Board met to consider the proposed
transaction with the Patriot Companies, to review the Merger Agreement which
had been previously circulated to the members of the WHG Board, to consider
available alternatives and to receive a fairness opinion from Oppenheimer.
During that meeting, a representative of WHG telephoned a representative of
the Patriot Companies to advise the Patriot Companies of the unsolicited
proposal described in the preceding paragraph. Negotiations ensued which
resulted in the Patriot Companies raising the upper-end value of the proposed
Merger Consideration from $23.52 per share of WHG Common Stock to $24.50 per
share of WHG Common Stock. After full discussion, and the receipt of the oral
opinion from Oppenheimer that as of September 30, 1997, the Merger
Consideration was fair to the WHG Stockholders from a financial point of view,
the WHG Board unanimously approved the form of Merger Agreement and authorized
management to complete negotiations of and to execute the Merger Agreement.
On September 30, 1997, the Boards of Directors of Patriot and PAHOC held a
meeting and received an update from Messrs. Nussbaum and Evans on the
negotiations between the Parties regarding the acquisition of WHG and on the
current terms of the agreement between the Parties. The PAHOC Board, the
Patriot Board and the Acquisition Sub Board approved the proposed merger.
Following such approval, the Merger Agreement and related documents were
executed and the Merger was publicly announced the morning of October 1, 1997.
WHG'S REASONS FOR THE MERGER; RECOMMENDATION OF THE WHG BOARD
The WHG Board unanimously approved the Merger Agreement and the transactions
contemplated thereby at a meeting of the WHG Board on September 30, 1997. THE
WHG BOARD BELIEVES THAT THE TERMS OF THE MERGER AGREEMENT AND THE TRANSACTIONS
CONTEMPLATED THEREBY ARE IN THE BEST INTERESTS OF THE WHG STOCKHOLDERS AND
RECOMMENDS THAT THE WHG STOCKHOLDERS VOTE "FOR" APPROVAL OF THE MERGER
AGREEMENT AND THE TRANSACTIONS CONTEMPLATED THEREBY.
In unanimously approving the Merger Agreement and the transactions
contemplated thereby and in recommending that the WHG Stockholders approve the
Merger Agreement and the transactions contemplated thereby, the WHG Board
consulted with WHG's management, as well as its financial and legal advisors,
and considered a number of factors. The material factors considered by the WHG
Board in reaching its conclusions are described below.
(i) Amount of Merger Consideration. The WHG Board considered as favorable to
its determination the fact that the Merger Consideration receivable by the WHG
Stockholders pursuant to the Merger Agreement could not be less than $20.00
per share of WHG Common Stock and could be as much as $24.50 per share of WHG
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Common Stock depending on the market price of a Paired Share shortly before
the date the WHG Stockholders vote on the Merger Agreement. At September 30,
1997, the date of the WHG Board meeting to approve the Merger Agreement and
the transactions contemplated thereby, the price of a Paired Share was in
excess of the price required to provide $24.50 per share for each share of WHG
Common Stock. At $20.00 or $24.50 per share, the Merger Consideration
represents a premium of 122% or 172% over the $9.00 closing price of WHG
Common Stock on the first day of when-issued public trading of such shares on
April 17, 1997; a premium of 43.5% or 75.8% over the $13.94 closing price of
WHG Common Stock on August 14, 1997, four weeks prior to the WHG press release
concerning a potential transaction and a premium of 39.8% or 71.2% over the
$14.31 closing price of WHG Common Stock on September 4, 1997, one week prior
to the press release. If the Effective Time does not occur by January 31,
1998, the Merger Consideration per share of WHG Common Stock could increase to
as much as $24.89 if the Effective Time occurs in February 1998, and to as
much as $25.28 if the Effective Time occurs in March 1998.
(ii) WHG's Business, Condition and Prospects. The WHG Board considered
information with respect to the financial condition, results of operations and
business of WHG on both a historical and prospective basis, and current
industry, economic and market conditions. In particular, the WHG Board
considered the potential impact of WHG's limited financial resources on its
ability to pursue expansion opportunities, the difficulty in raising
substantial new capital due to, among other matters, uncertainties surrounding
the El Conquistador refinancing and the complicated ownership structure of
certain of the hotels and WHGI, the significance of any potential loss of
management fees from the El Conquistador, and the concentration of WHG's
business on the island of Puerto Rico and the consequent risks such as
hurricanes, droughts, strikes and adequate airline service. The WHG Board
considered favorable to its determination that a combination with the Patriot
Companies would allow WHG Stockholders to diversify their investment and to
enjoy significant growth opportunities as a result of the Merger by reason of
the Patriot Companies' strong financial condition and expansion plans.
(iii) The Patriot Companies' Business, Condition and Prospects. The WHG
Board considered information with respect to the financial condition, results
of operations and business of the Patriot Companies, on both a historical and
prospective basis, and current industry, economic and market conditions. WHG's
financial advisor made presentations to and provided the WHG Board with
information regarding the Patriot Companies' financial condition and prospects
after conducting business and financial due diligence.
(iv) Termination Provisions and Termination Fee. The WHG Board considered
the provisions contained in the Merger Agreement that permit the WHG Board to
continue to receive unsolicited inquiries and proposals, negotiate and give
information to third parties and to terminate the Merger Agreement in the
exercise of its fiduciary duties upon payment to PAHOC of the $5,000,000
termination fee by reason of a Superior Proposal being made. The WHG Board
believed this termination fee is within the range of fees payable in
comparable transactions and that the fee would not, in and of itself, preclude
alternative proposals.
(v) The Patriot Companies' Willingness to Assist in the El Conquistador
Refinancing. The WHG Board considered as favorable to their determination the
willingness of Patriot to provide a $20.0 million subordinated participation
in the letter of credit provided by The Bank of Tokyo-Mitsubishi, Ltd. in an
effort to induce that bank to extend the due date of the El Conquistador first
mortgage financing.
(vi) Major Stockholder Support. The WHG Board considered as favorable to its
determination the willingness of the NAI Group, the holders of 28.6% of the
outstanding WHG Common Stock, to agree to vote in favor of the Merger
Agreement and the transactions contemplated thereby. See "Certain Related
Agreements--Voting Agreement."
(vii) Opinion of Oppenheimer. At the September 30, 1997 board meeting, the
WHG Board considered as favorable to its determination, the oral opinion
delivered to the WHG Board at that meeting by Oppenheimer (which it
subsequently confirmed in a written opinion dated September 30, 1997) 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
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of WHG Common Stock and WHG Preferred Stock pursuant to the Merger Agreement
was fair, from a financial point of view, to such holders.
(viii) Ability of WHG Stockholders to Obtain a Continuing Equity Interest in
the Patriot Companies. The WHG Board considered as favorable to its
determination the fact that the terms of the Merger will permit holders of WHG
Common Stock to continue to hold an equity interest in the Patriot Companies
following the Merger.
(ix) Few Closing Conditions. The WHG Board discussed the fact that there
were relatively few material conditions to consummation of the Merger, other
than the approval of the WHG Stockholders.
(x) Other Indications of Interest. The WHG Board discussed the indications
of interest it had received during its discussions with the Patriot Companies,
and the fact that a possible transaction at approximately $20.00 per share had
been publicly announced on September 11, 1997, allowing more than two weeks
for third party proposals to surface. The WHG Board regarded as favorable to
its determination that the other indications of interest were either non-
specific or conditional and were, in the judgment of the WHG Board, unlikely
to yield a transaction on terms as favorable as those presented in the Merger
Agreement. In particular, the WHG Board was concerned that other potential
business transaction partners would have to deal with the same issues of
complex ownership structure, the El Conquistador refinancing and other issues
as the Patriot Companies and might not be able to conclude a transaction which
was as unconditional as the Merger.
The WHG Board also considered the following potentially negative factors in
its deliberations concerning the Merger:
(i) Taxable Transaction. The WHG Board considered that the receipt of the
Paired Shares pursuant to the Merger Agreement would be taxable to the WHG
Stockholders. In originally discussing with Patriot the possible terms of a
transaction, WHG expressed its preference for a tax free transaction. By
reason of Patriot's paired share status, a merger of WHG with Patriot, a REIT,
in which Paired Shares were exchanged for WHG Common Stock could potentially
be structured as a tax free transaction to the extent of the value of the
Patriot shares, with the value of PAHOC shares constituting taxable boot.
Patriot believes that 95% of the value of the Paired Shares is attributable to
the Patriot shares and 5% to the PAHOC shares. However, a merger with Patriot
would require the leasing of certain of WHG's hotels to third parties which
might require the consent of the other owners. The merger with Patriot without
such leasing might have put Patriot's REIT tax status in jeopardy.
Accordingly, the transaction has been structured as a merger of WHG with a
subsidiary of PAHOC so as to avoid any such leasing conditions. Although the
transaction as so structured is fully taxable to WHG Stockholders, it is not
conditioned upon the consent of any other owners of WHG's hotels. In the view
of the WHG Board, the certainty of concluding a transaction was more important
than the tax treatment.
(ii) No Solicitation of Other Proposals; Termination Fees. The WHG Board
considered the fact that WHG has not actively solicited other proposals and
under the terms of the Merger Agreement, WHG and its representatives would be
prohibited from encouraging, soliciting or initiating the submission of any
Acquisition Proposal (see "The Merger--Acquisition Proposals"), 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 WHG Board to comply with its
fiduciary duties to the WHG Stockholders under applicable law. The WHG Board
also considered the possibility that WHG could be required, if the Merger
Agreement was terminated under certain circumstances, to pay PAHOC a
termination fee of $5,000,000. The WHG Board recognized that the inclusion of
such provisions in the Merger Agreement might render it less likely that a
more attractive offer for the acquisition of WHG would be presented to WHG and
the WHG Stockholders; however, the WHG Board believed that in view of the
impending need to refinance the El Conquistador, and the complexities of the
ownership of certain of the hotels and WHGI, that it would be in the best
interest of the WHG Stockholders not to jeopardize the transaction with the
Patriot Companies while pursuing other less certain situations and that the
Merger Agreement represented the best transaction reasonably available to WHG
and the WHG Stockholders.
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The WHG Board was aware of the potential benefits to the directors discussed
below in "The Merger--Interests of Certain Officers, Directors and WHG
Stockholders," including the payment to directors for their stock options,
employment agreements and WHG Preferred Stock and the provisions of the Merger
Agreement affording indemnification and directors' insurance to the directors
of WHG for actions and omissions of such persons occurring prior to the
Effective Time. These matters were considered by the WHG Board; however, these
factors did not affect the WHG Board's evaluation or recommendation of the
transaction because the honoring of existing contractual arrangements and the
indemnification provisions are customary in agreements relating to business
combinations.
In the opinion of the WHG Board, the above factors represent the material
potential adverse factors relating to the Merger. In considering the Merger,
the WHG Board considered the impact of these factors on the WHG Stockholders.
In the opinion of the WHG Board, however, these potentially negative factors
were outweighed by the potential positive factors considered by the WHG Board.
Accordingly, the WHG Board voted unanimously to approve the Merger Agreement
and the transactions contemplated thereby.
In view of the wide variety of factors considered in connection with its
evaluation of the Merger, the WHG Board 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.
THE PATRIOT COMPANIES' REASON FOR THE MERGER
The Patriot Companies' reason for entering into the Merger Agreement was to
acquire all of the equity interest in WHG.
OPINION OF WHG FINANCIAL ADVISOR
WHG retained Oppenheimer to act as its financial advisor in connection with
the Merger and to render an opinion as to the fairness, from a financial point
of view, to the WHG Stockholders of the Merger Consideration to be paid for
each share of WHG Common Stock and WHG Preferred Stock. At the September 30,
1997 meeting of the WHG Board, Oppenheimer delivered an oral opinion, which
was confirmed by a written opinion dated the same day, that as of such date
and based on the matters described therein, the Merger Consideration is fair
to the WHG Stockholders from a financial point of view.
In preparing its opinion, Oppenheimer did not assume the responsibility for
independent verification of any information, whether publicly available or
furnished to it by WHG, Patriot, PAHOC and their respective subsidiaries or
affiliates, concerning WHG, Patriot, PAHOC or their respective subsidiaries or
affiliates, including, without limitation, any financial information,
forecasts or projections, considered by it in connection with the rendering of
its opinion. Accordingly, Oppenheimer assumed and relied upon the accuracy and
completeness of all such information. With respect to the financial forecasts
and projections provided by WHG, Patriot and PAHOC to Oppenheimer and used in
its analysis, the management of each of WHG, Patriot and PAHOC advised
Oppenheimer that such financial forecasts and projections and other data were
reasonably prepared on bases reflecting their best available estimates and
judgments as to the matters covered thereby. In rendering its opinion,
Oppenheimer expressed no views as to the reasonableness of such forecasts and
projections or the assumptions on which they are based. Oppenheimer's opinion
is necessarily based upon economic, financial, stock market and other
conditions and circumstances as they existed and could be evaluated, and the
information made available to it as of, the date of its opinion. In arriving
at its opinion, Oppenheimer neither made nor obtained any independent
evaluation or appraisal of the assets or liabilities (contingent or otherwise)
of WHG, Patriot or PAHOC, nor was it furnished with any such evaluations or
appraisals. No limitations were imposed by WHG on Oppenheimer with respect to
the investigation made or procedures followed by Oppenheimer. Oppenheimer
expresses no opinion as to what the value of the Paired Shares actually will
be when issued to the WHG Stockholders pursuant to the Merger Agreement or the
price at which the Paired Shares will trade subsequent to the Merger.
Oppenheimer was not requested or authorized to solicit, and did not solicit,
any proposals from any third parties for the acquisition of WHG or any of the
assets or businesses of WHG nor has
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Oppenheimer made any determination as to whether any such proposal could be
obtained if solicited; however, Oppenheimer did review unsolicited indications
of interest received by WHG from third parties.
THE FULL TEXT OF THE WRITTEN OPINION OF OPPENHEIMER DATED SEPTEMBER 30,
1997, WHICH SETS FORTH THE ASSUMPTIONS MADE, MATTERS CONSIDERED AND
LIMITATIONS ON THE REVIEW UNDERTAKEN, IS ATTACHED HERETO AS ANNEX B AND IS
INCORPORATED HEREIN BY REFERENCE. HOLDERS OF WHG COMMON STOCK AND WHG
PREFERRED STOCK ARE URGED TO READ THIS OPINION CAREFULLY IN ITS ENTIRETY. THE
OPINION OF OPPENHEIMER IS DIRECTED TO THE WHG BOARD AND RELATES ONLY TO THE
FAIRNESS OF THE MERGER CONSIDERATION TO BE RECEIVED BY THE HOLDERS OF WHG
COMMON STOCK AND WHG PREFERRED STOCK FROM A FINANCIAL POINT OF VIEW, DOES NOT
ADDRESS ANY OTHER ASPECT OF THE MERGER AND DOES NOT CONSTITUTE A
RECOMMENDATION TO ANY WHG STOCKHOLDER AS TO HOW SUCH STOCKHOLDER SHOULD VOTE
AT THE SPECIAL MEETING. THE SUMMARY OF THE OPINION OF OPPENHEIMER SET FORTH IN
THIS PROXY STATEMENT/PROSPECTUS IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
THE FULL TEXT OF SUCH OPINION.
Oppenheimer is a nationally recognized firm and, as part of its investment
banking business, is regularly engaged in valuations of businesses and
securities in connection with mergers and acquisitions, underwritings,
secondary distributions of securities, private placements and valuations for
other purposes. WHG selected Oppenheimer based on its long-standing
familiarity with WHG and its experience in analyses of transactions of this
type.
Oppenheimer's opinion did not recommend to the WHG Board that any specific
amount of consideration constituted the appropriate consideration for the
Merger. The amount to be paid for each share of WHG Common Stock and WHG
Preferred Stock was offered by Patriot and negotiated by WHG. Oppenheimer's
opinion to the WHG Board addresses only the fairness from a financial point of
view of the Merger and does not constitute a recommendation to the WHG
Stockholders as to how such stockholders should vote at the Special Meeting.
Oppenheimer expressed no opinion as to the tax consequences of the Merger, and
Oppenheimer's opinion as to the fairness of the Merger Consideration to be
paid for each share of WHG Common Stock and WHG Preferred Stock does not take
into account the particular tax status or position of any WHG Stockholder.
In connection with the preparation of its opinion, Oppenheimer, among other
things: (i) reviewed the Merger Agreement; (ii) reviewed WHG's audited and
unaudited financial statements for the fiscal years ended June 30, 1995, 1996
and 1997; (iii) reviewed audited and unaudited financial statements of the
Condado Plaza, the El San Juan, the El Conquistador and WHGI for the fiscal
years ended 1995, 1996 and 1997; (iv) reviewed PAHOC's and Patriot's audited
financial statements for the fiscal years ended December 1994, 1995 and 1996
and unaudited statements for the six months ended June 30, 1996 and 1997, as
well as historical and projected financial results on a pro forma basis
assuming the Cal Jockey Merger and the consummation of the Wyndham Merger; (v)
reviewed proxy information for PAHOC and Patriot dated June 2, 1997; (vi)
visited WHG's hotel properties; (vii) held discussions with senior management
of WHG and Patriot and PAHOC with respect to the businesses and prospects of
WHG and Patriot and PAHOC; (viii) reviewed financial projections of WHG
prepared by WHG; (ix) reviewed financial projections of Patriot and PAHOC
prepared by Patriot and PAHOC, respectively; (x) reviewed financial
projections of the Condado Plaza, the El San Juan, the El Conquistador and
WHGI prepared by WHG; (xi) reviewed current and historical market prices and
trading volume of WHG Common Stock and the Paired Shares; (xii) reviewed and
analyzed certain publicly available financial data for certain public
companies Oppenheimer deemed comparable to WHG and Patriot and PAHOC; (xiii)
reviewed and analyzed certain publicly available financial data for
transactions that Oppenheimer deemed comparable to the Merger; (xiv) performed
discounted cash flow analysis of WHG, the Condado Plaza, the El San Juan, the
El Conquistador and WHGI using certain assumptions regarding future
performance provided to Oppenheimer by the management of WHG; (xv) reviewed
other public information concerning WHG and Patriot and PAHOC; and (xvi)
performed such other analyses and reviewed such other information as
Oppenheimer deemed appropriate.
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Valuation of WHG
Oppenheimer performed five primary valuation analyses of WHG: (i) a
Comparable Public Company Analysis, which consisted of reviewing and
considering certain financial and stock market data for certain publicly
traded hotel companies; (ii) a Comparable Mergers and Acquisitions Transaction
Analysis, which consisted of reviewing certain financial data of selected
comparable acquisitions involving companies deemed by Oppenheimer to be
similar to WHG; (iii) a Discounted Cash Flow Analysis; (iv) a Premium Paid
Analysis; and (v) a Stock Market Analysis. Although these analyses were
applied to the results of WHG on a consolidated and de-consolidated basis,
Oppenheimer concluded that the consolidated basis was less appropriate due to
the existence of certain minority interests in income and equity in loss of
nonconsolidated affiliates as well as the varying performance levels and
intercompany debt levels of the various properties.
In establishing the range of values resulting from the application of each
of the analyses, Oppenheimer made qualitative judgments as to the
meaningfulness of the valuation measurements. The judgments were based upon a
comparable analysis of the financial performance and growth prospects of WHG
and the Comparable Companies, the number and similarity of comparable
transactions, as well as predictability and volatility of future operating
results when assessing the relative significance of the Discounted Cash Flow
Analysis. The relative appropriateness of certain other valuation measurements
as used generally for comparative purposes, were also taken into account in
making such judgments.
Comparable Public Company Analysis. Oppenheimer compared WHG to 15 other
publicly traded hotel companies (the "Comparable Companies"). Oppenheimer
compared WHG to the Comparable Companies on the basis of size, financial
performance and growth prospects. Using publicly available information,
Oppenheimer analyzed, among other things, the market values and certain
financial criteria for the Comparable Companies including their earnings
before interest expense, income taxes, depreciation and amortization
("EBITDA") for the most recent 12 months for which financial data were
available and, on an estimated basis, for the fiscal years ended 1998 and
1999. In making these comparisons, Oppenheimer determined that EBITDA was a
more appropriate measure than net income to evaluate the performance and
prospects of an entity which has significant depreciation charges and minority
interests. Oppenheimer utilized EBITDA multiples which were at discounts to
the Comparable Companies for the following reasons: (i) the financial
condition of the El Conquistador; (ii) the significant portion of WHGI's
management and incentive fees related to the El Conquistador; (iii) WHG's
dependence on Puerto Rico as the location for all its properties; (iv)
volatility of financial results of WHG; (v) the complicated ownership
structure of certain of WHG's hotels and WHGI; (vi) the fact that WHG is
smaller than many of the Comparable Companies; (vii) the limited growth of
WHG; and (viii) the lease of the Laguna Wing at the Condado Plaza. Based on
the aforementioned facts, Oppenheimer concluded that the valuation of WHG
based on the Comparable Public Company Analysis was approximately $17.50 to
$19.50 per share of WHG Common Stock.
Comparable Mergers and Acquisitions Transaction Analysis. Oppenheimer
analyzed a number of publicly disclosed merger and acquisition transactions
involving companies and businesses it deemed to have similarities to WHG. In
this analysis, earnings and cash flow multiples for the most recent 12 months
for which financial data was available were calculated for the target
companies based upon the respective purchase prices in those transactions. A
comparative analysis of size, financial performance and growth prospects
between WHG and the target companies in the publicly disclosed merger and
acquisition transactions formed the basis for the selection of the appropriate
multiples for WHG. Multiples compared included Aggregate Value (market
capitalization plus debt minus cash)/Revenues, Aggregate Value/EBITDA,
Aggregate Value/EBIT, Equity Value/Net Income and Equity Value/Book Value.
Oppenheimer deemed the Comparable Mergers and Acquisitions Transaction
Analysis to be the least appropriate measure of the value of WHG. Oppenheimer
concluded that the valuation of WHG based on the Comparable Mergers and
Acquisitions Transaction Analysis was approximately $18.00 to $20.00 per share
of WHG Common Stock.
Discounted Cash Flow Analysis. Oppenheimer performed two methods of
discounted cash flow analysis utilizing projections on a de-consolidated basis
in order to develop implied equity values for WHG. The present
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value of interim cash flows was determined using a risk-adjusted rate of
return or "discount rate." Oppenheimer utilized a discount rate ranging from
8% to 16% for each of WHGI, the Condado Plaza and the El San Juan, and a
discount rate ranging from 10% to 18% for the El Conquistador. Provisions for
the value of WHG at the end of the forecast period, or terminal value, were
made based upon (i) a multiple of 2002 EBITDA discounted to reflect the
predictability and volatility of future operating results and (ii) the present
value of the 2002 cash flow received in perpetuity. Based on the foregoing,
Oppenheimer concluded that the valuation of WHG based on the Discounted Cash
Flow Analysis ranged from approximately $17.00 to $19.00 per share of WHG
Common Stock.
Premium Paid Analysis. Oppenheimer analyzed the acquisition premium (the
difference between the acquisition price and the unaffected trading price)
paid for WHG based on the WHG Common Stock price one week prior to the
announcement of a potential transaction on September 11, 1997 (the
"Announcement Date"), (September 4, 1997), four weeks prior to the
Announcement Date and following WHG's earnings press release on August 14,
1997 (August 14, 1997), and at the time the WHG Board initially considered
Patriot's indication of interest at $20.00 per share (July 23, 1997). Under
this method, Oppenheimer evaluated the impact of control premiums on publicly
traded companies by looking at share prices prior to and after the
announcement of an acquisition.
The acquisition premiums implied at a purchase price of $20.00 per share of
WHG Common Stock are 58.42%, 43.50% and 39.76% based on the WHG Common Stock
prices on July 23, 1997, August 14, 1997 and September 4, 1997, respectively.
The acquisition premiums implied at a purchase price of $24.50 per share of
WHG Common Stock are 94.06%, 75.78% and 71.21% based on the same dates. Based
on Oppenheimer's analysis of other acquisitions, premiums paid over the
trading price four weeks prior to the announcement of an acquisition are
generally approximately 35%. Applying this premium to the price of WHG Common
Stock at a date four weeks prior to the Announcement Date, results in a value
of approximately $19.00 per share of WHG Common Stock.
Stock Market Analysis. Oppenheimer analyzed the trading activity of WHG
Common Stock during the period April 17, 1997, the first day of trading on a
when-issued basis of WHG Common Stock, through September 11, 1997. Oppenheimer
reviewed the stock price performance, trading values and the effects of
significant events on the price of WHG Common Stock. The significant events
during such period included: (i) the sell-off following the Distribution; (ii)
the Schedule 13D filing on June 12, 1997 by Libra Advisors representing 6.2%
of the outstanding WHG Common Stock; (iii) the release of fiscal year end
earnings on August 14, 1997; (iv) the Schedule 13D filing on September 2, 1997
by Waveland Partners, L.P. representing 5.8% of the outstanding WHG Common
Stock; (v) the increase of the price of WHG Common stock on September 9, 1997;
and (vi) the announcement on the Announcement Date of a potential transaction
involving consideration of approximately $20.00 for each share of WHG Common
Stock. Oppenheimer noted that from April 17, 1997 to September 10, 1997 (one
day prior to the Announcement Date), WHG Common Stock traded between a high of
$19.25 and a low of $8.375 per share, and that approximately 75% of WHG Common
Stock traded at prices between $8.375 to $14.00 per share. Oppenheimer also
noted that the average daily trading volume for WHG Common Stock during such
period was approximately 56,000 shares.
Valuation of Patriot and PAHOC
In consideration of the fact that the Merger involves the exchange of Paired
Shares for WHG Common Stock and WHG Preferred Stock as described in the Merger
Agreement, Oppenheimer performed a valuation of Patriot and PAHOC.
Comparable Public Company Analysis. Oppenheimer utilized the business plan
and projections of future operations of Patriot and PAHOC prepared by Patriot,
assuming the Wyndham Merger and the Cal Jockey Merger had been completed and
excluding the potential impact of the Merger, to value Patriot and PAHOC.
Oppenheimer reviewed the forecast of funds from operations (the "FFO")
developed by Patriot and reflected in their financial forecast and business
plan. Oppenheimer derived a range of values for the Paired Shares by applying
forecasted FFO for Patriot and PAHOC for the calendar year ending December 31,
1998 to the
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corresponding range of FFO multiples for certain comparable companies (the
"Patriot Comparable Companies") which Oppenheimer considered comparable to
Patriot and PAHOC. The Patriot Comparable Companies selected by Oppenheimer
were three real estate investment trusts which own hotel properties: FelCor
Suite Hotels, Inc.; Hospitality Properties Trust; and Starwood Lodging Trust.
The per share forecasted FFO multiples for the Patriot Comparable Companies
were based upon average independently published estimates for calendar year
1998, the last period for which such estimates were currently available. In
calculating FFO multiples for the selected period, the September 26, 1997
closing stock prices for the Patriot Comparable Companies were used.
Oppenheimer observed that the FFO multiples for the Patriot Comparable
Companies, for the year ending December 31, 1998, ranged from 11.8x to 14.9x.
Based on the foregoing, Oppenheimer estimated a range of value for the Paired
Shares of $29.00 to $36.75.
Valuation Conclusion. In reviewing the Comparable Public Company Analysis,
the Comparable Mergers and Acquisitions Transaction Analysis and the
Discounted Cash Flow Analysis performed for WHG, as well as the Premium Paid
Analysis and the Stock Market Analysis, Oppenheimer placed relatively greater
weight on the Comparable Public Company Analysis, the Discounted Cash Flow
Analysis and the Premium Paid Analysis. Based upon the valuation of WHG and
Patriot and PAHOC, it is the opinion of Oppenheimer that the Merger
Consideration based on the Exchange Ratio, is fair, from a financial point of
view, to the WHG Stockholders.
A fairness opinion is the product of a complex process and cannot
necessarily be partially analyzed or readily summarized. Examining portions of
the analyses summarized above, without considering the analyses as a whole,
could create an incomplete view of the processes underlying Oppenheimer's
opinion. In arriving at its opinion, Oppenheimer considered the results of all
of such analyses as were relevant. The analyses were prepared by Oppenheimer
solely for purposes of providing its opinion as to the fairness of the
consideration provided in the Merger Agreement, from a financial point of
view, to the holders of WHG Common Stock and WHG Preferred Stock. Analyses
based upon forecasts of future results are inherently subject to substantial
uncertainties and are not necessarily indicative of actual future results,
which may be significantly more or less favorable than suggested by such
analyses. Additionally, analyses relating to the values of business do not
purport to be appraisals or to reflect the prices at which businesses may
actually be sold or combined. Accordingly, Oppenheimer expresses no opinion as
to what the value of the Paired Shares actually will be when issued to holders
of WHG Common Stock and WHG Preferred Stock pursuant to the Merger Agreement
or the price at which the Paired Shares will trade subsequent to the Merger.
As described above, Oppenheimer's opinion and presentation to the WHG Board
was one of many factors taken into consideration by the WHG Board in making
its determination to approve the Merger Agreement and should not be viewed as
determinative of the views of the WHG Board or management with respect to the
consideration for the WHG Common Stock and WHG Preferred Stock or the proposed
Merger. The foregoing summary does not purport to be a complete description of
the analyses performed by Oppenheimer.
Fees and Expenses. Pursuant to an agreement entered into August 14, 1997,
Oppenheimer was retained by WHG to render certain financial advisory and
investment banking services, including analyzing the fairness of the Merger to
the WHG Stockholders, from a financial point of view. WHG has agreed to pay
Oppenheimer (a) a retainer fee of $50,000, which amount will be deducted from
the Transaction Fee (as hereinafter defined), (b) upon the closing of the
Merger, a transaction fee (the "Transaction Fee") equal to 0.75% of the
aggregate consideration received by WHG and the WHG Stockholders, and (c) upon
delivery of the fairness opinion (which was delivered on September 30, 1997),
a fee of $400,000, which amount will be deducted from the Transaction Fee. In
no event will the aggregate fee payable to Oppenheimer by WHG exceed
$1,600,000.
In addition, WHG has agreed, among other things, to reimburse Oppenheimer
for reasonable fees and disbursements of counsel and other reasonable out-of-
pocket expenses incurred in connection with the services provided by
Oppenheimer, not to exceed $25,000 in the aggregate unless otherwise agreed to
by WHG. WHG has also agreed to indemnify and hold harmless Oppenheimer and
certain of its related parties to the full extent lawful from and against
liabilities, including certain liabilities under the federal securities laws,
incurred in connection with the firm's engagement.
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Oppenheimer is currently rendering financial advisory services to WMS in
connection with WMS' corporate restructuring, and is receiving customary
compensation in connection therewith. Additionally, Oppenheimer has rendered
financial advisory services to WMS, Midway Games Inc., a subsidiary which is
86.8% owned by WMS, and WHG in the past, including rendering a fairness
opinion in connection with the Distribution, and received customary
compensation in connection therewith. Mr. Richard D. White, a Managing
Director of Oppenheimer, is a director of Midway Games Inc.
INTERESTS OF CERTAIN OFFICERS, DIRECTORS AND WHG STOCKHOLDERS
In considering the recommendation of the WHG Board with respect to the
Merger, the WHG Stockholders should be aware that certain officers, directors
and WHG Stockholders have certain interests summarized below that may present
potential or actual conflicts of interest in connection with the Merger. The
WHG Board was aware of the potential or actual conflicts of interest and
considered them along with other matters described under "The Merger--WHG's
Reasons for the Merger; Recommendation of the WHG Board."
Ownership of WHG Common Stock
As of the date of this Proxy Statement/Prospectus, the executive officers
and directors of WHG beneficially owned an aggregate of 463,508 shares of WHG
Common Stock, constituting approximately 7.1% of all the outstanding WHG
Common Stock (excluding WHG Preferred Stock convertible into WHG Common
Stock). Such 463,508 shares of WHG Common Stock consist of 11,508 shares of
WHG Common Stock and 452,000 shares of WHG Common Stock issuable pursuant to
currently exercisable stock options to purchase WHG Common Stock.
Pursuant to the Merger Agreement, the executive officers and directors of
WHG will be entitled to receive the Merger Consideration for each share of WHG
Common Stock held by them. In addition, as of the Record Date, the executive
officers and directors of WHG held options to acquire an aggregate of 536,000
shares of WHG Common Stock. At the Effective Time, options to acquire 84,000
of such shares will be converted into options to acquire Paired Shares, and
options to acquire 190,000 of such shares (150,000 of which are held by Mr.
Brian R. Gamache, an officer and director of WHG) will be converted into the
right to receive cash in an amount equal to the excess, if any, of the
Exchange Ratio Product over the exercise price for such options ($8.375)
multiplied by the number of shares of WHG Common Stock subject to such
options, which cash amount, based on the average closing price for the Paired
Shares on the NYSE for the ten day trading period preceding December 11, 1997
of $30.5375, would aggregate approximately $2,957,600. Additionally, at the
Effective Time, to the extent Mr. Nicastro, Mr. George R. Baker and Ms.
Barbara M. Norman exercise their rights under their respective employment
agreements with WHG to require WHG to purchase their options to purchase WHG
Common Stock pursuant thereto, PAHOC and Patriot will pay, or permit WHG to
pay, at or after the Effective Time any amounts due pursuant to the Merger
Agreement with respect to such options. Mr. Nicastro, Mr. Baker and Ms. Norman
hold options to purchase 150,000, 87,000 and 25,000 shares of WHG Common
Stock, respectively. Each of such persons has advised the WHG Board that he or
she intends to exercise such rights at the Effective Time.
As a condition of the willingness of PAHOC, Acquisition Sub and Patriot to
enter into the Merger Agreement, the NAI Group entered into the Voting
Agreement. Mr. Redstone and National Amusements, Inc. beneficially own 858,450
and 870,975 shares of WHG Common Stock, respectively, representing an
aggregate of 28.6% of the outstanding shares of WHG Common Stock, and 22.9% of
the combined voting power of WHG Common Stock and WHG Preferred Stock.
Pursuant to the Voting Agreement, the NAI Group agreed, at every meeting of
the WHG Stockholders or any adjournment thereof or in connection with any
written consent of the WHG Stockholders, to vote (or cause to be voted) during
the Voting Agreement Proxy Term all shares owned by the NAI Group except as
specifically requested by PAHOC in advance, (i) in favor of the adoption of
the Merger Agreement and approval of the
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Merger and the other transactions contemplated by the Merger Agreement, (ii)
against (x) any Acquisition Proposal and any proposal for any action or
agreement that would result in a breach of any covenant, representation or
warranty or any other obligation or agreement of WHG under the Merger
Agreement or which is reasonably likely to result in any of the conditions of
WHG's obligations under the Merger Agreement not being fulfilled and (y) any
change in the directors of WHG, any change in the present capitalization of
WHG or any amendment to the WHG Charter or the WHG Bylaws, any other material
change in WHG's corporate structure or business, or any other action which in
the case of each of the matters referred to in this clause (y) could
reasonably be expected to impede, interfere with, delay, postpone or
materially adversely affect the transactions contemplated by the Merger
Agreement or the likelihood of such transactions being consummated, and (iii)
in favor of any other matter necessary for consummation of the transactions
contemplated by the Merger Agreement which is considered at any such meeting
of WHG Stockholders or in such consent, and in connection therewith to execute
any documents which are necessary or appropriate in order to effectuate the
foregoing.
During the Voting Agreement Proxy Term, the NAI Group agreed, among other
things, not to (a) deposit their shares of WHG Common Stock into a voting
trust or enter into a voting agreement or arrangement with respect to such
shares or grant any proxy or power of attorney with respect thereto, or (b)
take any action that would have the effect of preventing or disabling either
of them from performing their obligations under the Voting Agreement.
The NAI Group has the right to terminate the Voting Agreement (i) following
the making of a Stockholder Superior Proposal to the WHG Board or (ii) within
10 business days after the date on which the average closing price per share
of Paired Shares, as reported on the NYSE over the 10 trading days immediately
preceding the day of determination, is less than $19.50 per share. A
"Stockholder Superior Proposal" means any bona fide Acquisition Proposal made
after September 30, 1997 in writing, the terms of which provide for the WHG
Stockholders to receive value superior to the value to be received under the
Merger Agreement.
The Voting Agreement provides that nothing in the Voting Agreement shall
prohibit the NAI Group from disposing of any of its shares of WHG Common Stock
free and clear from the restrictions in the Voting Agreement or from pledging
such shares in connection with the receipt of margin loans or otherwise.
For further description of the Voting Agreement see "Certain Related
Agreements--Voting Agreement."
Ownership of WHG Preferred Stock
As of the date of this Proxy Statement/Prospectus, there were 300,000 shares
of WHG Preferred Stock outstanding all of which are owned by Mr. Nicastro and
which represent 19.9% of the combined voting power of WHG Common Stock and WHG
Preferred Stock. Pursuant to the Merger Agreement, at the Effective Time each
share of WHG Preferred Stock issued and outstanding immediately prior to the
Effective Time will be converted into the right to receive that number or
fraction thereof of Paired Shares as the holder of such shares of WHG
Preferred Stock would have the right to receive assuming conversion of such
shares of WHG Preferred Stock, together with any accrued and unpaid dividends
thereon, into WHG Common Stock immediately prior to the Effective Time. The
300,000 shares of WHG Preferred Stock outstanding are convertible into 333,333
shares of WHG Common Stock, excluding any accrued and unpaid dividends.
As a condition of the willingness of PAHOC, Acquisition Sub and Patriot to
enter into the Merger Agreement, Mr. Nicastro entered into the Voting and
Option Agreement.
Pursuant to the Voting and Option Agreement, Mr. Nicastro irrevocably
appointed PAHOC as proxy with full power of substitution during and for the
Voting and Option Proxy Term to vote each share of (a) WHG Common Stock and
(b) WHG Preferred Stock owned by him on September 30, 1997 or thereafter (such
shares of the WHG Common Stock and WHG Preferred Stock collectively referred
to as the "Nicastro Shares") at every meeting of the WHG Stockholders or any
adjournment thereof or in connection with any written consent of the WHG
Stockholders, (i) in favor of the adoption of the Merger Agreement and
approval of the Merger and
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the other transactions contemplated by the Merger Agreement, (ii) against (x)
any Acquisition Proposal and any proposal for any action or agreement that
would result in a breach of any covenant, representation or warranty or any
other obligation or agreement of WHG under the Merger Agreement or which could
result in any of the conditions of WHG's obligations under the Merger
Agreement not being fulfilled and (y) any change in the directors of WHG, any
change in the present capitalization of WHG or any amendment to the WHG
Charter or WHG Bylaws, any other material change in WHG's corporate structure
or business, or any other action which in the case of each of the matters
referred to in this clause (y) could reasonably be expected to impede,
interfere with, delay, postpone or materially adversely affect the
transactions contemplated by the Merger Agreement or the likelihood of such
transactions being consummated, and (iii) in favor of any other matter
necessary for consummation of the transactions contemplated by the Merger
Agreement which is considered at any such meeting of WHG Stockholders or in
such consent, and in connection therewith to execute any documents which are
necessary or appropriate in order to effectuate the foregoing including the
ability for PAHOC or its nominees to vote such shares directly.
To the extent PAHOC does not vote the Nicastro Shares as set forth above,
Mr. Nicastro agreed, except as otherwise requested in writing by PAHOC, to
vote the Nicastro Shares as set forth in (i), (ii) and (iii) of the previous
paragraph.
Additionally, pursuant to the Voting and Option Agreement, Mr. Nicastro
granted PAHOC an option to purchase all but not less than all of the 300,000
shares of WHG Preferred Stock held by him at the exercise price set forth
therein. The option terminates on April 15, 1998, or, if the March 31, 1998
termination date of the Merger Agreement is extended, 15 days after the
termination of the Merger Agreement.
The exercise price for each share of WHG Preferred Stock pursuant to the
Voting and Option Agreement is the greater of (i) $22.22 or (ii) the product
of 1.11 times the Value of the Paired Shares. The "Value of the Paired Shares"
means the product of (x) the average of the closing prices of the Paired
Shares on the NYSE on the ten trading days ending immediately prior to the
date PAHOC exercises the option (the "Calculation Price") and (y) the Exchange
Ratio determined pursuant to the Merger Agreement as if the Average Closing
Price were equal to the Calculation Price.
As additional consideration for the purchase of the WHG Preferred Stock,
PAHOC has agreed to pay Mr. Nicastro, as and when received by PAHOC, in cash
or in kind, 50% of the amount by which (i) any proceeds received prior to the
date which is 180 days after the option closing by PAHOC from the sale,
exchange, transfer or other disposition of the WHG Preferred Stock sold at the
option closing or the WHG Common Stock issued upon conversion of such WHG
Preferred Stock exceeds (ii) the sum of (a) the aggregate amount paid pursuant
to the exercise of the option and (b) if the exercise price for the option
closing is determined pursuant to clause (ii) of the previous paragraph, an
amount equal to any dividends accrued which are unpaid as of the date of such
closing on the Nicastro Shares purchased at the option closing.
Mr. Nicastro agreed, among other things, during the Voting and Option Proxy
Term not to (a) sell, tender, transfer, pledge, encumber, assign or otherwise
dispose of any of the Nicastro Shares, (b) deposit the Nicastro Shares into a
voting trust or enter into a voting agreement or arrangement with respect to
such Nicastro Shares or grant any proxy or power of attorney with respect
thereto, or (c) enter into any contract, option or other arrangement or
undertaking with respect to the direct or indirect sale, transfer, pledge,
encumbrance, assignment or other disposition of any of the Nicastro Shares.
Finally, Mr. Nicastro agreed that from the Closing Date and until 90 days
after the Effective Time, he would not offer, sell, contract to sell, make any
short sale, pledge, grant any option to purchase or otherwise dispose of any
Paired Shares that he receives in the Merger or any securities of Patriot,
PAHOC or Acquisition Sub that he receives in the Merger which are
substantially similar to, or derivative of, Paired Shares, or which are
convertible into or exchangeable or exercisable for, or that otherwise
represent the right to receive, Paired Shares without the prior written
consent of Patriot, PAHOC or Acquisition Sub; provided, however, that he may
during such period sell Paired Shares in compliance with law provided that the
aggregate proceeds of such sales do not exceed $3,000,000.
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For further description of the Voting and Option Agreement see "Certain
Related Agreements--Voting and Option Agreement."
Mr. Nicastro acquired the WHG Preferred Stock on July 31, 1997 as a result
of WHG exercising its put option under the Put and Call Agreement dated as of
April 21, 1997 between Mr. Nicastro and WHG (the "Put and Call Agreement").
The Put and Call Agreement provided that at any time prior to December 31,
1999, WHG would have the right to require (the "Put Option") Mr. Nicastro to
purchase 300,000 shares of WHG Preferred Stock for an aggregate purchase price
of $3,000,000. Mr. Nicastro also had the right to purchase (the "Call Option")
300,000 shares of WHG Preferred Stock for an aggregate purchase price of
$3,300,000 prior to December 31, 1999 but only in the event that prior to such
date any non-exempt person or entity or group of persons or entities acting in
concert acquired or announced the intention to acquire beneficial ownership of
10% or more of the WHG Common Stock. The Put and Call Agreement also provided
that so long as the Put Option and Call Option remained outstanding, WHG would
not increase the number of or change, alter or otherwise impair the relative
rights, preferences or other provisions of the WHG Preferred Stock nor would
WHG, except with the consent of two-thirds of the WHG Board, authorize the
issuance of, or become bound to issue, any shares of capital stock having
voting rights other than the 12,000,000 authorized shares of WHG Common Stock
and such limited voting rights as may be required by law. Mr. Nicastro also
has registration rights with respect to any shares of WHG Common Stock issued
upon conversion of the WHG Preferred Stock. The Put Option and Call Option
were not transferable and were to terminate on the earlier to occur of
December 31, 1999 or the death of Mr. Nicastro. The Put and Call Agreement was
designed to enable WHG to raise additional capital and to provide Mr. Nicastro
a sufficient equity interest in WHG to induce Mr. Nicastro to continue as
Chairman of the Board of Directors and Chief Executive Officer of WHGI so as
to prevent the premature imposition of super majority voting requirements at
WHGI. WHG exercised the Put Option on July 23, 1997 and Mr. Nicastro paid the
exercise price and was issued 300,000 shares of the WHG Preferred Stock on
July 31, 1997.
Employment Agreements
Mr. Nicastro entered into an employment agreement with WHG dated as of April
21, 1997 pursuant to which he serves as Chairman of the Board and Chief
Executive Officer of WHG for a term of five years with an annual base salary
of not less than $400,000 per annum, plus bonus compensation in an amount
equal to two percent of the pre-tax income of WHG. Mr. Nicastro is also
entitled to participate in WHG's employee benefit plans for which he is
eligible and which are made available to other executive officers of WHG. Mr.
Nicastro has agreed not to engage in any competitive business with WHG during
the term of the agreement and for one year thereafter. The employment
agreement is terminable at the election of Mr. Nicastro upon the occurrence
without his consent or acquiescence of any one or more of the following
events: (i) the placement of Mr. Nicastro in a position of lesser stature or
the assignment to Mr. Nicastro of duties, performance requirements or working
conditions significantly different from or at a variance with those presently
in effect; (ii) the treatment of Mr. Nicastro in a manner which is in
derogation of his status as a senior executive; (iii) the cessation of service
of Mr. Nicastro as a member of the WHG Board; (iv) the discontinuance or
reduction of amounts payable or personal benefits available to Mr. Nicastro
pursuant to such agreement; or (v) the requirement that Mr. Nicastro work
outside his agreed-upon metropolitan area. In any such event, and in the event
WHG is deemed to have wrongfully terminated Mr. Nicastro's employment
agreement under the terms thereof, WHG is obligated (a) to make a lump sum
payment to Mr. Nicastro equal in amount to the sum of the aggregate base
salary during the remaining term of his employment agreement and the bonus
(assuming pre-tax income of WHG during the remainder of the term of the
employment agreement is earned at the highest level achieved in either of the
last two full fiscal years prior to such termination) and (b) to purchase at
the election of Mr. Nicastro all stock options held by him with respect to WHG
Common Stock at a price equal to the spread between the option price and the
fair market price of such stock as defined in the agreement. The employment
agreement is also terminable at the election of Mr. Nicastro if individuals
constituting the WHG Board, or successors approved by such WHG Board members,
cease for any reason to constitute at least a majority of the WHG Board. Upon
such an event, WHG may be required to purchase the stock options held by Mr.
Nicastro and make payments similar to those
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described above. Mr. Nicastro also receives additional compensation of $22,500
per annum for his services as a Director of WHGI.
Pursuant to the Merger Agreement and arrangements between Mr. Nicastro and
Patriot and PAHOC, Mr. Nicastro's employment agreement with WHG shall
terminate at the Effective Time. Pursuant to the terms of the employment
agreement, Mr. Nicastro will be paid approximately $2.6 million in cash, which
amount represents Mr. Nicastro's base salary and bonus (based on the fiscal
1997 bonus) for the remainder of the term of the employment agreement and
which amount will vary depending on the Effective Time. Mr. Nicastro will also
be paid in respect of the option to purchase 150,000 shares of WHG Common
Stock held by him a cash amount equal to 150,000 times the excess, if any, of
the Exchange Ratio Product over the exercise price of such options ($8.375),
which cash amount, based on the average closing price for the Paired Shares on
the NYSE for the ten day trading period preceding December 11, 1997 of
$30.5375, would aggregate approximately $2,334,960.
Mr. Nicastro has entered into an employment agreement with PAHOC and WHGI
commencing at the Effective Time and terminating on April 30, 1999. Pursuant
to the Employment Agreement, Mr. Nicastro will continue to serve as Chairman
of the Board and Chief Executive Officer of WHGI, will regularly exercise the
functions of the Chief Executive Officer of WHGI, and will have such other
powers and duties as may from time to time be prescribed by the Board of
Directors of WHGI for a salary of $1.00 per annum. Mr. Nicastro has agreed not
to engage in any competitive business with WHGI in Puerto Rico or elsewhere in
the Caribbean during the term of the employment agreement.
Mr. George R. Baker entered into a three-year employment agreement with WHG
dated April 21, 1997 pursuant to which he serves as a Vice Chairman of the WHG
Board and as a Director of WHGI. The agreement provides for an annual base
salary of not less than $100,000. WHG has agreed that Mr. Baker may engage in
other activities which may command his full-time and attention and that it is
anticipated that he will not be required to render services for more than 20
hours per month. Mr. Baker is also entitled to participate in WHG's employee
benefit plans for which he is eligible and which are made available to other
executive officers of WHG. The employment agreement is terminable at the
election of Mr. Baker upon the occurrence without his consent or acquiescence
of any one or more of the following events: (i) the placement of Mr. Baker in
a position of lesser stature or the assignment to Mr. Baker of duties,
performance requirements or working conditions significantly different from or
at a variance with those presently in effect; (ii) the treatment of Mr. Baker
in a manner which is in derogation of his status as a senior executive; (iii)
the cessation of service of Mr. Baker as a member of the WHG Board; or (iv)
the discontinuance or reduction of amounts payable or personal benefits
available to Mr. Baker pursuant to such agreement. In any such event, and in
the event WHG is deemed to have wrongfully terminated Mr. Baker's employment
agreement under the terms thereof, WHG is obligated (a) to make a lump sum
payment to Mr. Baker equal in amount to the sum of the aggregate base salary
during the remaining term of his employment agreement and (b) to purchase at
the election of Mr. Baker all stock options held by him with respect to WHG
Common Stock at a price equal to the spread between the option price and the
fair market price of such stock as defined in the agreement. The employment
agreement is also terminable at the election of Mr. Baker if individuals
constituting the WHG Board, or successors approved by such WHG Board members,
cease for any reason to constitute at least a majority of the WHG Board. Upon
such an event, WHG may be required to purchase the stock options held by Mr.
Baker and make payments similar to those described above. Mr. Baker also
receives additional compensation of $22,500 per annum for his services as a
Director of WHGI.
Mr. Baker has informed WHG that at the Effective Time he will elect to
terminate his employment agreement. At such time WHG will be obligated to pay
Mr. Baker a lump sum in cash equal to (i) the aggregate base salary that would
otherwise have been paid to Mr. Baker during the term of his agreement, which
amount as of December 15, 1997 would be approximately $234,600, and (ii)
87,000 (the number of shares covered by his outstanding options) times the
excess, if any, of the Exchange Ratio Product over the exercise price ($8.375)
of Mr. Baker's options, which cash amount, based on the average closing price
for the Paired Shares on the NYSE for the ten day trading period preceding
December 11, 1997 of $30.5375, would aggregate approximately $1,354,280.
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Mr. Brian R. Gamache is employed as President and Chief Operating Officer of
WHGI pursuant to an employment agreement dated October 27, 1996. The two-year
term of the agreement ends October 27, 1998 and is automatically extended from
year to year thereafter. The agreement provides for a minimum annual base
salary of $300,000 as well as a minimum bonus of $50,000 for the 1997 fiscal
year. Additionally, Mr. Gamache is entitled to bonus compensation at the
discretion of the Board of Directors of WHGI, as well as participation, to the
extent eligible, in any health and life insurance plans generally available to
executive officers of WHGI; provided that WHGI is obligated, to the extent
available at normal rates, to provide Mr. Gamache with $500,000 of term life
insurance and additional whole life insurance in a face amount equal to the
lesser of $500,000 or such amount of whole life insurance as may be obtained
for annual premiums of $5,000. Mr. Gamache shall also be entitled to any cash
surrender value with respect to the aforementioned whole life insurance
policy. WHGI may terminate the agreement without cause upon at least 90 days'
prior written notice. In such event, Mr. Gamache will receive an amount equal
to two years' base salary, payable one-half on the termination date and the
balance a year later. Mr. Gamache has the right to terminate his employment
agreement by providing WHGI at least 90 days' notice. Upon receipt of such
notice, WHGI has the right to terminate Mr. Gamache's employment at an earlier
date by providing Mr. Gamache notice thereof. In such event, Mr. Gamache will
receive one year's base salary, payable 25% upon termination and the balance
to be paid in equal installments commencing on the first customary salary
payment date of WHGI occurring three months after the termination date. Mr.
Gamache has agreed not to engage in any competitive business with WHGI in
Puerto Rico and the Caribbean during the term of his agreement and for one
year thereafter. Mr. Gamache also entered into an employment agreement dated
April 21, 1997 with WHG pursuant to which he serves as President and Chief
Operating Officer. The term of this agreement coincides with the term of Mr.
Gamache's employment agreement with WHGI. Mr. Gamache is paid an annual salary
of $50,000 for his service to WHG. The agreement provides that Mr. Gamache
will devote such time to the business of WHG that is reasonable to perform his
duties thereunder. Mr. Gamache is conducting discussions with the Patriot
Companies for the continuation of his employment by PAHOC in an executive
capacity following the Effective Time on terms and conditions acceptable to
Mr. Gamache and the Patriot Companies. The satisfactory conclusion of such
discussions is not a condition to the closing of the Merger.
Mr. Richard F. Johnson is employed as Senior Vice President and Chief
Financial Officer of WHGI pursuant to an employment agreement which commenced
March 1, 1997 and terminates February 28, 1999, which term may be extended by
mutual agreement on a year-to-year basis. The agreement provides for a minimum
annual base salary of $185,000. Additionally, Mr. Johnson is entitled to
participate in any bonus, incentive and salary deferment plans generally
available to senior executives of WHGI. He is also entitled to participate, to
the extent he is eligible, in any health, medical, disability and life
insurance plans generally available to executives of WHGI. Upon 10 days'
notice, WHGI may terminate Mr. Johnson for cause (as defined in the
agreement). In the event the current owners of WHGI cease to own 50% of WHGI,
Mr. Johnson may terminate his employment and WHGI will be obligated to pay his
base salary and to provide health and life insurance benefits from the date of
termination until the earlier of: (i) the expiration of the term of the
agreement; (ii) one year after the date of the change of ownership; or (iii)
the date Mr. Johnson begins other employment, provided that if Mr. Johnson's
compensation level at such new employment is less than his base salary at
WHGI, then WHGI will pay Mr. Johnson the difference thereof until the earlier
to occur of (i) or (ii) above. If a change in ownership occurs, WHGI may
terminate Mr. Johnson's employment and pay him severance equal to one year's
base salary. Under certain other circumstances, WHGI will be obligated to pay
Mr. Johnson severance equal to six months' base salary. WHGI also paid Mr.
Johnson certain other amounts in connection with his relocation to Puerto
Rico. On April 21, 1997, Mr. Johnson became Chief Financial Officer and
Treasurer of WHG.
Ms. Barbara M. Norman entered into a one and one-half year employment
agreement with WHG dated June 16, 1997 pursuant to which she serves as Vice
President, Secretary, General Counsel and Director of WHG. The agreement
provides for a minimum annual base salary of not less than $175,000. Ms.
Norman is also entitled to participate in WHG's employee benefit plans for
which she is eligible and which are made available to other senior executive
officers of WHG. The employment agreement is terminable at the election of Ms.
Norman upon the occurrence without her consent or acquiescence of any one or
more of the following events: (i) the placement
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of Ms. Norman in a position of lesser stature or the assignment to Ms. Norman
of duties, performance requirements or working conditions significantly
different from or at a variance with those presently in effect; (ii) the
treatment of Ms. Norman in a manner which is in derogation of her status as a
senior executive; (iii) the cessation of service of Ms. Norman as a member of
the WHG Board; or (iv) the discontinuance or reduction of amounts payable or
personal benefits available to Ms. Norman pursuant to such agreement. In any
such event, and in the event WHG is deemed to have wrongfully terminated Ms.
Norman's employment agreement under the terms thereof, WHG is obligated (a) to
make a lump sum payment to Ms. Norman equal in amount to the sum of the
aggregate base salary during the remaining term of her employment agreement,
(b) to purchase at the election of Ms. Norman all stock options held by her
with respect to WHG Common Stock at a price equal to the spread between the
option price and the fair market price of such stock as defined in the
agreement, (c) to reimburse Ms. Norman for all reasonable costs and expenses
of relocation to the New York area (limited to $10,000) and (d) either (i) pay
Ms. Norman for any financial loss, as defined in the agreement, she may suffer
as a result of the sale of her Puerto Rico condominium or (ii) if Ms. Norman
is unable to sell the condominium for a period of three months after such
termination, purchase the condominium from Ms. Norman at the price defined in
the agreement. The employment agreement is also terminable at the election of
Ms. Norman if individuals constituting the WHG Board, or successors approved
by such WHG Board members, cease for any reason to constitute at least a
majority of the WHG Board. Upon such an event, WHG may be required to purchase
the stock options held by Ms. Norman and make payments similar to those
described above.
Ms. Norman has informed WHG that as of the Effective Time she will elect to
terminate her employment agreement. At such time WHG will be obligated to pay
Ms. Norman a lump sum in cash equal to (i) the aggregate base salary that
would otherwise have been paid to Ms. Norman during the term of her agreement,
which amount as of December 15, 1997 would be approximately $175,000, and (ii)
25,000 (the number of shares covered by her outstanding options) times the
excess, if any, of the Exchange Ratio Product over the exercise price ($8.375)
of Ms. Norman's options, which cash amount, based on the average closing price
for the Paired Shares on the NYSE for the ten day trading period preceding
December 11, 1997 of $30.5375, would aggregate approximately $389,160.
Indemnification
Pursuant to the Merger Agreement, PAHOC, Acquisition Sub and Patriot have
agreed that all rights to indemnification existing in favor, and all
limitations on the personal liability, of a director or officer of WHG or any
WHG Subsidiary (any such person or entity, an "Indemnified Party") provided
for in the WHG Charter or the WHG Bylaws or the charter or bylaws or similar
organizational documents of any of the WHG Subsidiaries, if and to the extent
applicable, or pursuant to the indemnification agreements between WHG and its
officers and directors, as in effect on September 30, 1997 with respect to
matters occurring prior to the Effective Time shall, subject to the terms
thereof, (i) survive the Merger and (ii) continue in full force and effect for
a period of not less than six 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, PAHOC will
purchase or keep in effect directors' and officers' liability insurance
coverage for WHG's directors and officers in a form reasonably acceptable to
WHG which shall provide such directors and officers with so-called tail or
other coverage for six 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 WHG.
WHG/PATRIOT SUBSCRIPTION AGREEMENT
Under the terms of the Merger Agreement, immediately prior to the closing of
the Merger, WHG, PAHOC, and Patriot will enter into the WHG/Patriot
Subscription Agreement pursuant to which WHG or PAHOC will agree to pay for,
and Patriot will issue directly to the WHG Stockholders as part of the
consideration to be paid to such stockholders in the Merger, the Subscribed
Shares. Pursuant to the terms of the WHG/Patriot Subscription Agreement,
Patriot shall, at the request of WHG (or PAHOC) and on terms mutually
agreeable to Patriot and WHG (or PAHOC), immediately prior to the consummation
of the Merger, lend to WHG an amount
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equal to the Aggregate Purchase Price, less the aggregate par value of the
Issuable Shares. The Subscribed Shares will be issued in accordance with the
terms of the Merger Agreement providing for the issuance of the number of
shares of Patriot Common Stock equal to the number of shares of PAHOC Common
Stock to be issued to the WHG Stockholders in the Merger and will be paired
with the PAHOC Common Stock in accordance with the Pairing Agreement, and WHG
and PAHOC shall not at any time become a stockholder of Patriot.
MERGER CONSIDERATION
When and if the Merger becomes effective, WHG Stockholders will be entitled
to receive for each issued and outstanding share of WHG Common Stock held by
them at the Effective Time .784 Paired Shares; provided, however, that in the
event that (i) the Average Closing Price is greater than $31.25 and the
Effective Time is before February, 1998, the Exchange Ratio will be adjusted
such that the Exchange Ratio Product equals $24.50; (ii) the Average Closing
Price is greater than $31.75 and the Effective Time is in February, 1998, the
Exchange Ratio will be adjusted such that the Exchange Ratio Product equals
$24.89; (iii) the Average Closing Price is greater than $32.25 and the
Effective Time is after February, 1998, the Exchange Ratio will be adjusted
such that the Exchange Ratio Product equals $25.28; (iv) the Average Closing
Price is less than or equal to $25.50, but greater than or equal to $19.50,
the Exchange Ratio will be adjusted such that the Exchange Ratio Product
equals $20.00; or (v) the Average Closing Price is less than $19.50, the
Exchange Ratio will equal 1.026, provided, however, that in such circumstance
WHG has the right, waivable by it, to terminate the Merger Agreement. In
addition, WHG Stockholders will be entitled to receive for each issued and
outstanding share of WHG Preferred Stock held by them at the Effective Time
that number of Paired Shares as the holder of such share of WHG Preferred
Stock would have the right to receive assuming conversion of such share,
together with any accrued and unpaid dividends thereon, into WHG Common Stock
immediately prior to the Effective Time.
No fractional Paired Shares will be issued in the Merger and, in lieu
thereof, holders of shares of WHG Common Stock and WHG Preferred Stock who
would otherwise be entitled to a fractional share interest will be paid an
amount in cash equal to the product of such fractional share interest and the
average closing price of a Paired Share on the NYSE on the five trading days
immediately preceding the Closing Date.
The Paired Shares to be issued to holders of WHG Common Stock and WHG
Preferred Stock in the Merger, together with any cash payment in lieu of
fractional shares, are referred to herein as the "Merger Consideration."
EXCHANGE OF WHG CERTIFICATES; FRACTIONAL SHARES
As of the Effective Time, (i) PAHOC will deposit, or shall cause to be
deposited, with the Exchange Agent selected by PAHOC on or prior to the
Effective Time, for the benefit of the holders of shares of WHG Common Stock
and WHG Preferred Stock, for exchange pursuant to the terms of the Merger
Agreement a certificate representing the shares of PAHOC Common Stock to be
issued pursuant to the terms of the Merger Agreement, and the cash in lieu of
fractional Paired Shares to be paid pursuant to the terms of the Merger
Agreement in exchange for outstanding shares of WHG Common Stock and WHG
Preferred Stock and simultaneously (ii) Patriot shall deposit, or cause to be
deposited, with the Exchange Agent, for the benefit of the holders of shares
of WHG Common Stock and WHG Preferred Stock pursuant to the terms of the
Merger Agreement, for distribution pursuant to the terms of the Merger
Agreement, a certificate representing the Subscribed Shares, to be paired with
the shares of PAHOC Common Stock described in clause (i) above (such
certificates for shares of PAHOC Common Stock, the certificates for Subscribed
Shares and cash in lieu of fractional Paired Shares shall hereinafter be
referred to as the "Exchange Fund").
Promptly after the Effective Time, the Parties will cause the Exchange Agent
to mail to each holder of record of a WHG Certificate or WHG Certificates (i)
a Letter of Transmittal specifying that delivery will be effected, and risk of
loss and title to the WHG Certificates will pass, only upon delivery of the
WHG Certificates to the Exchange Agent and will be in such form and have such
other provisions as PAHOC or Patriot may reasonably specify and (ii)
instructions for use in effecting the surrender of the WHG Certificates in
exchange for certificates printed "back-to-back" evidencing Paired Shares and
cash in lieu of fractional Paired Shares, if
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any. Upon surrender of a WHG 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 WHG Certificate will be entitled to receive in exchange therefor (x) a
certificate representing the number of whole Paired Shares to which such
holder shall be entitled, and (y) a check for the cash to be paid in lieu of
fractional Paired Shares, if any, due such holder pursuant to the terms of the
Merger Agreement plus the amount of any dividends or distributions, pursuant
to the terms of the Merger Agreement, if any, after giving effect to any
required withholding tax, and the WHG Certificate so surrendered shall
forthwith be canceled. No interest will be paid or accrued on the amount
payable in lieu of fractional Paired Shares, if any, or on the dividends or
distributions, if any, due and payable to holders of WHG Certificates pursuant
to the terms of the Merger Agreement. In the event of a transfer of ownership
of WHG Common Stock or WHG Preferred Stock which is not registered in the
stock transfer records of WHG, a certificate representing the proper number of
Paired Shares, together with a check for the cash to be paid in lieu of
fractional Paired Shares, if any, pursuant to the terms of the Merger
Agreement, plus, to the extent applicable, the amount of any dividends or
distributions, if any, due and payable pursuant to the terms of the Merger
Agreement, may be issued to such a transferee if the WHG Certificate
representing shares of such WHG Common Stock or WHG Preferred 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.
Notwithstanding any other provisions of the Merger Agreement, dividends or
other distributions on Paired Shares after the Effective Time with respect to
any shares of WHG Common Stock or WHG Preferred Stock represented by a WHG
Certificate that has not been surrendered for exchange will be paid only
pursuant to the terms of the Merger Agreement. Following surrender of any such
WHG Certificate, the holder thereof will be entitled, subject to the
provisions and effect of applicable abandoned property, escheat or similar
laws, to receive for the whole Paired Shares 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.
At and after the Effective Time, there will be no transfers on the stock
transfer books of WHG of the shares of WHG Common Stock or WHG Preferred Stock
which were outstanding immediately prior to the Effective Time and if, after
the Effective Time, WHG Certificates are presented for transfer, they will be
canceled against delivery of the Merger Consideration. WHG Certificates
surrendered for exchange by any person constituting an "affiliate" of WHG 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, will
not be exchanged until PAHOC has received an affiliate letter (the "Affiliate
Letter") from such person.
No fractional Paired Shares shall be issued pursuant to the terms of the
Merger Agreement. In lieu of the issuance of any fractional Paired Shares
pursuant to the Merger Agreement, each holder of WHG Common Stock or WHG
Preferred Stock upon surrender of a WHG Certificate for exchange will be paid
an amount in cash (without interest), rounded to the nearest cent, determined
by multiplying (i) the average closing price of the Paired Shares on the NYSE
on the five trading days immediately preceding the Closing Date (the "Fair
Market Value") by (ii) the fractional amount of the Paired Shares which such
holder would otherwise be entitled to receive pursuant to the terms of the
Merger Agreement.
All Merger Consideration issued or paid, as the case may be, upon the
surrender for exchange of WHG Certificates representing shares of WHG Common
Stock or WHG Preferred Stock pursuant to the terms of the Merger Agreement
will be deemed to have been issued (and paid) in full satisfaction of all
rights pertaining to the shares of WHG Common Stock or WHG Preferred Stock
exchanged for Merger Consideration theretofore represented by such WHG
Certificates.
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WHG OPTIONS
Pursuant to the Merger Agreement, at the Effective Time, WHG's obligations
with respect to the Existing WHG Options shall be assumed by the Patriot
Companies (the "Assumed Options"), subject to the provisions described herein.
The Assumed Options shall continue to have, and be subject to, the same terms
and conditions as set forth in WHG's 1997 Stock Option Plan and related option
agreements (as in effect immediately prior to the Effective Time) pursuant to
which the Existing WHG Options were issued, provided that (i) all references
to WHG shall be deemed to be references to PAHOC or Patriot, as the case may
be, and all references to WHG Common Stock shall be deemed to be references to
Paired Shares, (ii) each Assumed Option shall be exercisable for that number
of whole Paired Shares equal to the product of the number of shares of WHG
Common Stock covered by the Existing WHG Option immediately prior to the
Effective Time multiplied by the Exchange Ratio and rounded to the nearest
whole number of Paired Shares and (iii) the exercise price per share of Paired
Shares under each Assumed Option shall be equal to the exercise price per
share of WHG Common Stock under the Existing WHG Option immediately prior to
the Effective Time divided by the Exchange Ratio and rounded to the nearest
cent. At or prior to the Effective Time, PAHOC or WHG shall offer to purchase
each Existing WHG Option which is currently exercisable in full for cash in an
amount equal to the product of (i) the excess, if any, of the Exchange Ratio
Product over the exercise price per share of WHG Common Stock under such
Existing WHG Option and (ii) the number of shares covered by such Existing WHG
Option. To the extent that any of the optionees exercise their right under any
existing employment agreements with WHG to require WHG to purchase his or her
Existing WHG Options pursuant thereto, PAHOC and Patriot have agreed to pay,
or permit WHG to pay, at or after the Effective Time any amounts due pursuant
to the Merger Agreement with respect to such Existing WHG Options. In the
event that any such optionee exercises his or her rights under his or her
employment agreement, such options shall not be assumed by PAHOC and Patriot.
EFFECTIVE TIME OF THE MERGER
In accordance with the DGCL, the Effective Time of the Merger will occur
upon the approval and acceptance for recording of the Certificate of Merger by
the Delaware Secretary of State unless the Certificate of Merger provides for
a later date. Subject to the fulfillment or waiver of the other conditions to
the obligations of Patriot, PAHOC, Acquisition Sub and WHG to consummate the
Merger it is currently expected that the Merger will be consummated as soon as
practicable following the approval by the WHG Stockholders of the Merger
Agreement and the transactions contemplated thereby to be voted upon at the
Special Meeting.
ACQUISITION PROPOSALS
Pursuant to the terms of the Merger Agreement, WHG agreed to terminate all
discussions or negotiations relating to, or that may reasonably be expected to
lead to, any Acquisition Proposal. Until the termination of the Merger
Agreement, WHG is prohibited from and is required to prohibit any Wholly Owned
Subsidiary from authorizing or permitting any officer, director, employee,
agent, advisor or representative of WHG or any Wholly Owned Subsidiary or any
person designated by WHG or any Wholly Owned Subsidiary to serve as a director
or member of a venturers' committee of any Partially-Owned Subsidiary 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 (provided, however, that for
purposes of that section of the Merger Agreement, WHGI shall be considered a
Partially-Owned Subsidiary and not a Wholly Owned Subsidiary). Notwithstanding
anything to the contrary in the Merger Agreement, WHG may (i) 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 WHG and/or any WHG Subsidiary pursuant to a merger,
consolidation, share exchange, business combination, tender or exchange offer
or other similar transaction if the WHG Board determines, based on the written
advice of WHG Legal Counsel, that such action is necessary in order to comply
with the directors' fiduciary duties to the WHG Stockholders under applicable
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law; provided, however, that prior to WHG's furnishing such information or
participating in such discussions or negotiations, such person or entity shall
have executed a confidentiality and standstill agreement with WHG having terms
substantially similar to those contained in the Confidentiality Agreements,
relating to the provision of Evaluation Material (as defined in the
Confidentiality Agreements) between WHG and PAHOC and Patriot, respectively,
and (ii) comply with Rules 14d-9 and 14e-2 promulgated under the Exchange Act
with respect to an Acquisition Proposal.
The term "Acquisition Proposal" is defined in the Merger Agreement to mean
any proposed or actual (i) merger, consolidation or similar transaction
involving WHG, (ii) sale, lease or other disposition, directly or indirectly,
by merger, consolidation, share exchange or otherwise, of any assets of WHG or
WHG Subsidiaries representing 15% or more of the consolidated assets of WHG
and WHG Subsidiaries, (iii) issuance, sale or other disposition of (including
by way of merger, consolidation, share exchange or any similar transaction
other than upon conversion of the WHG Preferred Stock) securities (or options,
rights or warrants to purchase, or securities convertible into, such
securities other than pursuant to the Rights Agreement) representing 15% or
more of the votes attached to the outstanding securities of WHG, (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
WHG Common Stock or WHG Preferred Stock, (v) recapitalization, restructuring,
liquidation, dissolution, or other similar type of transaction with respect to
WHG or any WHG Subsidiary, 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 by the Merger Agreement.
The Merger Agreement provides that WHG promptly shall advise PAHOC and
Patriot orally and in writing of any Acquisition Proposal, made after
September 30, 1997 including the terms thereof and any changes thereto and any
termination thereof, or any inquiry regarding any Acquisition Proposal and the
identity of the person making such Acquisition Proposal or inquiry.
CONDUCT OF BUSINESS
Except as otherwise specifically permitted by the Merger Agreement, WHG has
agreed that it: (i) shall use its reasonable best efforts, and shall cause
each WHG Subsidiary to use its reasonable best efforts, to preserve intact
their business organizations and goodwill and keep available the services of
their respective officers (other than officers designated by the minority
owners of the Partially-Owned Subsidiaries) and material employees; (ii) shall
confer on a regular basis with one or more representatives of PAHOC,
Acquisition Sub and Patriot to report on material operational matters and any
proposals to engage in material transactions; (iii) shall promptly notify
PAHOC, Acquisition Sub and Patriot 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 properties under management by
WHG or any WHG Subsidiary), 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 in the Merger Agreement; (iv) shall promptly deliver to
PAHOC, Acquisition Sub and Patriot true and correct copies of any report,
statement or schedule filed by or with respect to it with the Commission after
September 30, 1997; (v) shall, and shall cause each WHG Subsidiary to, conduct
its operations according to their usual, regular and ordinary course in
substantially the same manner as heretofore conducted; (vi) shall not, and
shall cause each Wholly Owned Subsidiary not to, and shall not authorize or
give any Partially-Owned Subsidiary consent 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; (vii) shall not amend the WHG Charter or the WHG Bylaws, and
shall cause each WHG Subsidiary not to amend its charter, bylaws, joint
venture documents, partnership agreements or equivalent
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documents; (viii) 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 WHG Options or upon
the conversion of any shares of WHG Preferred Stock, (b) grant, confer or
award any option, warrant, conversion right or other right not existing on the
date of the Merger Agreement 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 WHG Benefit Plans in any material respect, except
for changes which are not more favorable to participants in such plans or are
otherwise required to comply with applicable law; (ix) shall not (a) declare,
set aside or pay any dividend (except as required by the terms of the WHG
Preferred Stock) or make any other distribution or payment with respect to any
shares of its capital stock, or (b) directly or indirectly redeem, purchase or
otherwise acquire any shares of its capital stock or capital stock of any
Partially-Owned Subsidiary, or make any commitment for any such action; (x)
shall not, shall cause all Wholly Owned Subsidiaries not to, and shall not
authorize or give any WHG Subsidiary consent to, sell, lease or otherwise
dispose of, or agree to the sale, lease or other disposition of (a) any WHG
Properties or any portion thereof or any of the capital stock of or
partnership or other interests owned by WHG or any Wholly Owned Subsidiary in
any WHG Subsidiary or (b) except in the ordinary course of business, any of
its or their other assets which are material, individually or in the
aggregate; (xi) shall not, and shall not authorize or give any WHG Subsidiary
consent to, make any loans, advances or capital contributions to, or
investments in, any other person (except WHG or a Wholly Owned Subsidiary);
(xii) shall not, and shall not permit any WHG Subsidiary 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 WHG included in the WHG SEC Reports or
incurred in the ordinary course of business consistent with past practice or
pursuant to the terms of the Merger Agreement or entered into in accordance
with the Merger Agreement or the settlement of claims and litigation in the
ordinary course of business in an amount in excess of $50,000; (xiii) shall
not, shall cause all Wholly Owned Subsidiaries not to, and shall not authorize
or give any WHG Subsidiary consent to, enter into any Commitment not provided
for in the capital expenditure budgets previously delivered to PAHOC which may
result in total payments or liability by it in excess of $50,000 per year
(provided, however, that nothing contained in this clause (xiii) shall permit
WHG or any WHG Subsidiary to take any action prohibited by the terms of the
Merger Agreement, other than Commitments for expenses of attorneys,
accountants and investment bankers incurred in connection with the
transactions contemplated by the Merger Agreement or, if and to the extent
consistent with the Merger Agreement, any Acquisition Proposal; (xiv) shall
not, shall cause all Wholly Owned Subsidiaries not to, and shall not authorize
or give any WHG Subsidiary consent to, enter into any material Commitment with
any officer, director, consultant or affiliate of WHG or any WHG Subsidiary;
and (xv) shall not amend or, without the written consent of PAHOC and Patriot,
waive any rights under, extend any time periods set forth in or delay the
effectiveness of the Rights Agreement, provided, however, that if WHG makes a
written request for the consent of PAHOC and Patriot to any such waiver,
extension or delay and either PAHOC or Patriot does not so consent, then WHG
shall have the right to issue securities pursuant to the Rights Agreement.
CONDITIONS TO THE MERGER
The respective obligations of the Parties to effect the Merger and the other
transactions contemplated in the Merger Agreement are subject to the
fulfillment or waiver of the following conditions at or prior to the Closing
Date: (i) the Merger Agreement shall have been approved by the requisite vote
of the WHG Stockholders; (ii) the waiting period under the HSR Act applicable
to the Merger, if any, shall have expired or been terminated; (iii) none of
the Parties shall be subject to any order, ruling or injunction of a court of
competent jurisdiction which prohibits consummation of the transactions
contemplated by the Merger Agreement, the WHG/Patriot Subscription Agreement
or the Ancillary Agreements; (iv) the Registration Statement, of which this
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
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Commission, and no proceedings for that purpose shall have been initiated or
threatened by the Commission; and (v) PAHOC and Patriot shall have obtained
the approval for the listing of the Paired Shares issuable in the Merger on
the NYSE, subject to official notice of issuance.
The obligation of WHG to effect the Merger and the other transactions
contemplated in the Merger Agreement is subject to the fulfillment of the
following additional conditions at or prior to the Closing Date, unless waived
by WHG: (i) each of the representations and warranties of PAHOC, Acquisition
Sub and Patriot contained in the Merger Agreement shall have been true and
correct in all material respects when made and shall be true and correct in
all material respects as though made on and as of the Closing Date except for
any representations and warranties made as of a specific date, in which case
such representations and warranties shall be true and correct in all material
respects as of such date; (ii) PAHOC, Acquisition Sub and Patriot shall have
performed or complied in all material respects with all agreements and
covenants required by the Merger Agreement and the WHG/Patriot Subscription
Agreement to be performed or complied with by PAHOC, Acquisition Sub or
Patriot, at or prior to the Closing; (iii) each of PAHOC, Acquisition Sub and
Patriot shall have delivered to WHG a certificate of its respective President
or Chief Financial Officer dated the Closing Date to the effect that the
statements set forth in (i) and (ii) above in this paragraph with respect to
PAHOC, Acquisition Sub or Patriot, as the case may be, are true and correct;
and (iv) all consents, authorizations, orders and approvals of (or filings or
registrations with) any governmental commissions, boards, other regulatory
bodies or third parties, lenders, joint venturers and partners required to be
made or obtained by PAHOC, Acquisition Sub and Patriot and their respective
subsidiaries and affiliated entities (or in the case of WHG and the WHG
Subsidiaries and their respective subsidiaries and affiliated entities with
respect to any changes in the applicable law or regulations after September
30, 1997) in connection with the execution, delivery and performance of the
Merger Agreement, the WHG/Patriot Subscription Agreement and the Ancillary
Agreements shall have been obtained or made other than such consents,
authorizations, orders or approvals which if not obtained or made would not,
individually or in the aggregate, have a PAHOC/Patriot Material Adverse
Effect.
The obligations of PAHOC, Acquisition Sub and Patriot to effect the Merger
and the other transactions contemplated in the Merger Agreement are subject to
the fulfillment of the following additional conditions at or prior to the
Closing Date, unless waived by PAHOC, Acquisition Sub and Patriot: (i) each of
the representations and warranties of WHG contained in the Merger Agreement
shall have been true and correct in all material respects when made and shall
be true and correct in all material respects as though made on and as of the
Closing Date except for any representations and warranties made as of a
specific date, in which case such representations and warranties shall be true
and correct in all material respects as of such date; (ii) WHG shall have
performed or complied in all material respects with all agreements and
covenants required by the Merger Agreement to be performed or complied with by
WHG, at or prior to the Closing; (iii) from September 30, 1997 through the
Closing Date, there shall not have occurred any changes concerning WHG or any
WHG Subsidiary that, when combined with all other changes, have had or would
have a WHG Material Adverse Effect; (iv) WHG shall have delivered to PAHOC,
Acquisition Sub and Patriot a certificate of the Chairman of the Board, the
President and the Chief Financial Officer of WHG dated the Closing Date to the
effect that the statements set forth in (i), (ii) and (iii) above in this
paragraph are true and correct; (v) all consents, authorizations, orders and
approvals of (or filings or registrations with) any governmental commissions,
boards, other regulatory bodies or third parties, lenders, joint venturers and
partners required to be made or obtained by WHG, WHG Subsidiaries or their
respective subsidiaries and affiliated entities (or in the case of PAHOC,
Acquisition Sub and Patriot and their respective subsidiaries and affiliated
entities with respect to any changes in the applicable law or regulations
after September 30, 1997) in connection with (a) the execution, delivery and
performance of the Merger Agreement, the WHG/Patriot Subscription Agreement
and the Ancillary Agreements and (b) the Distribution shall have been obtained
or made other than such consents, authorizations, orders or approvals which if
not obtained or made would not, individually or in the aggregate, have a WHG
Material Adverse Effect; and (vi) from September 30, 1997 through the Closing
Date, no bankruptcy, insolvency, receivership, rearrangement, foreclosure or
similar action or proceeding, whether voluntary or involuntary, relating to
WHG, any WHG Subsidiary or any WHG Property shall have (by the giving of any
notice required as a precondition to any such action or proceeding or
otherwise) commenced or be pending.
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REPRESENTATIONS AND WARRANTIES
The Merger Agreement contains various representations and warranties made by
WHG to PAHOC, Acquisition Sub and Patriot relating to, among other things: (i)
the due organization, corporate powers, authority and standing of WHG and the
WHG Subsidiaries; (ii) the authorization, execution, delivery and enforcement
of the Merger Agreement, the WHG/Patriot Subscription Agreement and the
Ancillary Agreements; (iii) the capital structure of WHG; (iv) the ownership
of the WHG Subsidiaries; (v) ownership in other interests; (vi) the lack of
conflicts under charters or bylaws and violations of any instruments, and
required consents or approvals; (vii) certain documents filed by WHG with the
Commission; (viii) litigation; (ix) the conduct of business in the ordinary
course and the absence of certain changes or material adverse effects; (x)
taxes; (xi) books and records; (xii) properties; (xiii) compliance with law;
(xiv) environmental matters; (xv) employee matters; (xvi) labor matters;
(xvii) broker's and finder's fees with respect to the Merger; (xviii) receipt
of a fairness opinion; (xix) related party transactions; (xx) undisclosed
liabilities; (xxi) contracts and commitments; (xxii) the disclosures made by
WHG; (xxiii) insurance; and (xxiv) the nonexistence of any bankruptcy,
receivership, insolvency, rearrangement, foreclosure or similar action or
proceeding.
The Merger Agreement contains various representations and warranties made by
PAHOC, Acquisition Sub and Patriot to WHG relating to, among other things: (i)
the due organization, corporate powers, authority and standing and compliance
with law of PAHOC, Acquisition Sub and Patriot; (ii) the authorization,
execution, delivery and enforcement of the Merger Agreement, the WHG/Patriot
Subscription Agreement and the Ancillary Agreements; (iii) the lack of
conflicts under charters or bylaws and violations of any instruments, and
required consents or approvals; (iv) the nature of information provided for
inclusion in this Proxy Statement/Prospectus; (vi) the due authorization of
the stock to be issued in the Merger; (vii) certain documents filed by PAHOC
and Patriot with the Commission; (viii) the absence of brokers' fees; (ix)
taxes; and (x) litigation.
TERMINATION; TERMINATION FEES
The Merger 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 WHG Stockholders: (a) by mutual written
consent of the Parties; (b) by PAHOC, Acquisition Sub, Patriot or WHG, 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 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; (c) by PAHOC, Acquisition Sub, Patriot or WHG, if the Merger shall not
have been consummated on or before March 31, 1998 (other than due to the
failure of the party seeking to terminate the Merger Agreement to perform its
obligations under the Merger Agreement required to be performed at or prior to
the Effective Time); (d) by PAHOC, Acquisition Sub or Patriot, if WHG shall
have (i) withdrawn, modified or amended in any respect adverse to PAHOC,
Acquisition Sub or Patriot its approval or recommendation of the Merger
Agreement or any of the transactions contemplated thereby, (ii) failed to
include such recommendation in the Proxy Statement/Prospectus, (iii)
recommended any Acquisition Proposal from a person other than PAHOC,
Acquisition Sub or Patriot, (iv) publicly expressed no opinion and remained
neutral toward any Acquisition Proposal, or (v) resolved or agreed to do any
of the foregoing, provided that in any such case, WHG is required to pay PAHOC
$5,000,000 in accordance with the terms of the Merger Agreement; (e) by WHG,
if the WHG Board determines in good faith, based on and consistent with the
written advice of WHG Legal Counsel, that such action is necessary in order
for the WHG Board to comply with the directors' fiduciary duties to the WHG
Stockholders under applicable law and the WHG Board authorizes or desires to
authorize WHG to execute a Superior Proposal Agreement providing for a
Superior Proposal, provided that WHG has, immediately prior to the termination
of the Merger Agreement and/or the execution of such Superior Proposal
Agreement, paid PAHOC $5,000,000 in accordance with the terms of the Merger
Agreement; (f) by WHG, if (i) PAHOC, Acquisition Sub or Patriot has failed to
perform in any material respect any of its obligations required to be
performed by it under the Merger 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 Merger Agreement by WHG, or
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(ii) Patriot has failed to perform in any material respect any of its
obligations required to be performed by it under the WHG/Patriot 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
WHG/Patriot Subscription Agreement by WHG; (g) by either PAHOC, Acquisition
Sub or Patriot, if (i) WHG shall have failed to perform in any material
respect any of its obligations required to be performed by it under the Merger
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
Merger Agreement by PAHOC, Acquisition Sub or Patriot, or (ii) if WHG has
failed to perform in any material respect any of its obligations required to
be performed by it under the WHG/Patriot 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 WHG/Patriot
Subscription Agreement by Patriot; (h) by WHG if the Average Closing Price of
a Paired Share is less than $19.50; (i) by either PAHOC, Acquisition Sub or
Patriot if the Merger does not receive the authorization of the Executive
Director of the TCPR regarding the Grants if such authorization is required by
law; or (j) by either PAHOC, Acquisition Sub or Patriot, if any bankruptcy,
insolvency, receivership, rearrangement, foreclosure or similar action or
proceeding, whether voluntary or involuntary, relating to WHG, any WHG
Subsidiary or any WHG Property has (by the giving of any notice required as a
precondition to any such action or proceeding or otherwise) commenced or is
pending; provided that if PAHOC, Acquisition Sub or Patriot terminates the
Merger Agreement under these circumstances, WHG is required to immediately pay
PAHOC an amount in cash (payable by wire transfer of immediately available
funds to an account designated by PAHOC) equal to PAHOC's, Acquisition Sub's
and Patriot's actual out-of-pocket expenses incurred in connection with the
negotiation and preparation of the Merger Agreement, the WHG/Patriot
Subscription Agreement and the Ancillary Agreements and the transactions,
consents and filings contemplated thereby, including, but not limited to, all
attorneys' and accountants' fees and expenses, filing fees, printing expenses,
and expenses incurred in connection with this Proxy Statement/Prospectus.
NO DISSENTERS' RIGHTS
As provided under the DGCL, WHG Stockholders do not have dissenters' rights
in connection with the Merger.
ACCOUNTING TREATMENT
PAHOC 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. The fair market value of the consideration (cash, stock,
etc.) given by the acquiring company (i.e., PAHOC) is used as the valuation
basis for the combination. The assets and liabilities of the acquired company
(i.e., WHG) are revalued to their respective fair market values at the
combination date. The financial statements of the acquiring company will after
the Merger reflect the combined operations from the date of combination.
REGULATORY APPROVAL
Under the HSR Act and the rules promulgated thereunder by the U.S. Federal
Trade Commission (the "FTC"), the Merger may not be consummated without
notification being given and certain information being furnished to the FTC
and the Antitrust Division of the U.S. Department of Justice (the "Antitrust
Division"), and until specified waiting period requirements have been
terminated or have expired. On November 13, 1997, each of the Patriot
Companies and WHG filed notification and report forms under the HSR Act with
the FTC and the Antitrust Division. The Antitrust Division informed the
Parties that the waiting period was terminated early effective December 1,
1997. At any time before or after consummation of the Merger, the Antitrust
Division or the FTC could take such action under the HSR Act as it deems
necessary or desirable in the public interest, including seeking to enjoin the
consummation of the Merger or seeking divestiture of substantial assets of
PAHOC or WHG. 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 enjoin the
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consummation of the Merger or seeking divestiture of substantial assets of
PAHOC or WHG. Private parties may also seek to take legal action under
antitrust laws under certain circumstances.
LISTING APPLICATION
The Parties 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 that will be outstanding or will
be reserved for issuance at the Effective Time to be listed for trading on the
NYSE. Each Party agreed to furnish all information about itself and its
business and operation and all necessary financial information to the others
Parties as such Parties may reasonably request in connection with the NYSE
listing process. Each Party agreed 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 Party agreed to 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.
CERTAIN RESALE RESTRICTIONS
All Paired Shares received by WHG Stockholders in the Merger will be freely
transferable, except that Paired Shares received by persons who are deemed to
be "affiliates" (as such term is defined under the Securities Act) of WHG at
the time of the Special Meeting may be resold by them only in transactions
permitted by the resale provisions of Rule 145 (or Rule 144 promulgated under
the Securities Act in the case of such persons who become affiliates of
Patriot or PAHOC) or as otherwise permitted under the Securities Act. Persons
who may be deemed to be affiliates of WHG, Patriot or PAHOC 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 WHG 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 issued to such person in or pursuant to the Merger 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 of counsel shall be reasonably satisfactory to Patriot
and PAHOC, such sale, transfer or other disposition is exempt from
registration under the Securities Act.
EXPENSES
Subject to the terms of the Merger Agreement, all costs and expenses
incurred in connection with the Merger Agreement, the Ancillary Agreements and
the transactions contemplated thereby shall be paid by the party incurring
such expenses, except that (a) the filing fees in connection with the filing
of the Proxy Statement/Prospectus and the Registration Statement with the
Commission, (b) the filing fee in connection with the listing of the Paired
Shares on the NYSE, if any, (c) the expenses incurred for printing the
Registration Statement and the Proxy Statement/Prospectus, (d) the filing fee
in connection with the filings under the HSR Act, and (e) the expenses
incurred, if any, in connection with providing accumulated and current E&P,
shall be shared equally by WHG, on the one hand, and PAHOC, Acquisition Sub
and Patriot, on the other hand. Subject to the terms of the Merger Agreement,
all costs and expenses for professional services rendered in connection with
the transactions contemplated by the Merger Agreement and the Ancillary
Agreements including, but not limited to, investment banking and legal
services, will be paid by each party incurring such costs and expenses.
Notwithstanding the foregoing, PAHOC, Acquisition Sub and Patriot shall be
solely responsible for incremental costs of all Parties incurred after the
mailing of the Proxy Statement/Prospectus in order to amend or supplement the
Proxy Statement/Prospectus and Registration Statement if such amendment or
supplement is necessitated solely by reason of a material transaction with any
of PAHOC, Acquisition Sub or Patriot or their affiliates (other than any such
transaction involving WHG, any of the WHG Subsidiaries or any of the WHG
Properties).
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Additionally, WHG has agreed to pay PaineWebber Incorporated of Puerto Rico
a finder's fee upon consummation of the Merger in an amount equal to 0.75% of
the aggregate Merger Consideration received by the WHG Stockholders, but in no
event more than $1,200,000.
AMENDMENTS
The Merger Agreement may be amended by the Parties, 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 WHG Stockholders, but
after any such stockholder approval, no amendment shall be made which by law
requires the further approval of the WHG Stockholders without obtaining such
further approval. The Merger Agreement may not be amended except by an
instrument in writing signed on behalf of each of the Parties.
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CERTAIN RELATED AGREEMENTS
VOTING AND OPTION AGREEMENT
As a condition to the willingness of PAHOC, Acquisition Sub and Patriot to
enter into the Merger Agreement, Mr. Nicastro entered into the Voting and
Option Agreement.
Pursuant to the Voting and Option Agreement, Mr. Nicastro irrevocably
appointed PAHOC as proxy with full power of substitution during and for the
Voting and Option Proxy Term to vote each of the Nicastro Shares at every
meeting of the WHG Stockholders or any adjournment thereof or in connection
with any written consent of the WHG Stockholders (i) in favor of the adoption
of the Merger Agreement and approval of the Merger and the other transactions
contemplated by the Merger Agreement, (ii) against (x) any Acquisition
Proposal, and any proposal for any action or agreement that would result in a
breach of any covenant, representation or warranty or any other obligation or
agreement of WHG under the Merger Agreement or which could result in any of
the conditions of WHG's obligations under the Merger Agreement not being
fulfilled and (y) any change in the directors of WHG, any change in the
present capitalization of WHG or any amendment to the WHG Charter or the WHG
Bylaws, any other material change in WHG's corporate structure or business, or
any other action which in the case of each of the matters referred to in this
clause (y) could reasonably be expected to impede, interfere with, delay,
postpone or materially adversely affect the transactions contemplated by the
Merger Agreement or the likelihood of such transactions being consummated, and
(iii) in favor of any other matter necessary for consummation of the
transactions contemplated by the Merger Agreement which is considered at any
such meeting of WHG Stockholders or in such consent, and in connection
therewith to execute any documents which are necessary or appropriate in order
to effectuate the foregoing including the ability for PAHOC or its nominees to
vote such shares directly. The shares of WHG Common Stock and WHG Preferred
Stock owned by Mr. Nicastro represent 19.9% of the combined voting power of
WHG Common Stock and WHG Preferred Stock.
To the extent PAHOC does not vote the Nicastro Shares as set forth above,
Mr. Nicastro agreed, except as otherwise requested in writing by PAHOC, to
vote the Nicastro Shares as set forth in (i), (ii) and (iii) of the previous
paragraph.
Additionally, pursuant to the Voting and Option Agreement, Mr. Nicastro
granted PAHOC an option to purchase all but not less than all of the 300,000
shares of WHG Preferred Stock held by him at the exercise price set forth
therein. The option terminates on April 15, 1998, or, if the March 31, 1998
termination date of the Merger Agreement is extended, 15 days after the
termination of the Merger Agreement.
The exercise price for each share of WHG Preferred Stock pursuant to the
Voting and Option Agreement is the greater of (i) $22.22 or (ii) the product
of 1.11 times the Value of the Paired Shares.
As additional consideration for the purchase of the WHG Preferred Stock,
PAHOC has agreed to pay Mr. Nicastro, as and when received by PAHOC, in cash
or in kind, 50% of the amount by which (i) any proceeds received prior to the
date which is 180 days after the option closing by PAHOC from the sale,
exchange, transfer or other disposition of the WHG Preferred Stock sold at the
option closing or the WHG Common Stock issued upon conversion of such WHG
Preferred Stock exceeds (ii) the sum of (a) the aggregate amount paid pursuant
to the exercise of the option and (b) if the exercise price for the option
closing is determined pursuant to clause (ii) of the previous paragraph, an
amount equal to any dividends accrued which are unpaid as of the date of such
closing on the Nicastro Shares purchased at the option closing.
Mr. Nicastro agreed, during the Voting and Option Proxy Term, not to (a)
sell, tender, transfer, pledge, encumber, assign or otherwise dispose of any
of the Nicastro Shares, (b) deposit the Nicastro Shares into a voting trust or
enter into a voting agreement or arrangement with respect to such Nicastro
Shares or grant any proxy or power of attorney with respect thereto, or (c)
enter into any contract, option or other arrangement or undertaking with
respect to the direct or indirect sale, transfer, pledge, encumbrance,
assignment or other disposition of any Nicastro Shares.
101
<PAGE>
Finally, Mr. Nicastro agreed that from the Closing Date and until 90 days
after the Effective Time, he would not offer, sell, contract to sell, make any
short sale, pledge, grant any option to purchase or otherwise dispose of any
Paired Shares that he receives in the Merger or any securities of Patriot,
PAHOC or Acquisition Sub that he receives in the Merger which are
substantially similar to, or derivative of, Paired Shares, or which are
convertible into or exchangeable or exercisable for, or that otherwise
represent the right to receive, Paired Shares without the prior written
consent of Patriot, PAHOC or Acquisition Sub; provided, however, that he may
during such period sell Paired Shares in compliance with law provided that the
aggregate proceeds of such sales do not exceed $3,000,000.
VOTING AGREEMENT
As a condition of the willingness of PAHOC, Acquisition Sub and Patriot to
enter into the Merger Agreement, the NAI Group entered into the Voting
Agreement. Mr. Redstone and National Amusements, Inc. beneficially own 858,450
and 870,975 shares of WHG Common Stock, respectively, representing an
aggregate of 28.6% of the outstanding shares of WHG Common Stock, and 22.9% of
the combined voting power of WHG Common Stock and WHG Preferred Stock.
Pursuant to the Voting Agreement, the NAI Group agreed, at every meeting of
the WHG Stockholders or any adjournment thereof or in connection with any
written consent of the WHG Stockholders, to vote (or cause to be voted) during
the Voting Agreement Proxy Term all shares owned by the NAI Group except as
specifically requested by PAHOC in advance, (i) in favor of the adoption of
the Merger Agreement and approval of the Merger and the other transactions
contemplated by the Merger Agreement, (ii) against (x) any Acquisition
Proposal and any proposal for any action or agreement that would result in a
breach of any covenant, representation or warranty or any other obligation or
agreement of WHG under the Merger Agreement or which is reasonably likely to
result in any of the conditions of WHG's obligations under the Merger
Agreement not being fulfilled or (y) any change in the directors of WHG, any
change in the present capitalization of WHG or any amendment to the WHG
Charter or the WHG Bylaws, any other material change in WHG's corporate
structure or business, or any other action which in the case of each of the
matters referred to in this clause (y) could reasonably be expected to impede,
interfere with, delay, postpone or materially adversely affect the
transactions contemplated by the Merger Agreement or the likelihood of such
transactions being consummated, and (iii) in favor of any other matter
necessary for consummation of the transactions contemplated by the Merger
Agreement which is considered at any such meeting of WHG Stockholders or in
such consent, and in connection therewith to execute any documents which are
necessary or appropriate in order to effectuate the foregoing.
During the Voting Agreement Proxy Term, the NAI Group agreed, among other
things, not to (a) deposit their shares of WHG Common Stock into a voting
trust or enter into a voting agreement or arrangement with respect to such
shares or grant any proxy or power of attorney with respect thereto, or (b)
take any action that would have the effect of preventing or disabling either
of them from performing their obligations under the Voting Agreement.
The Voting Agreement provides that nothing in the Voting Agreement shall
prohibit the NAI Group from disposing of any of its shares of WHG Common Stock
free and clear from the restrictions in the Voting Agreement or from pledging
such shares in connection with the receipt of margin loans or otherwise.
The NAI Group has the right to terminate the Voting Agreement (i) following
the making of a Stockholder Superior Proposal to the WHG Board or (ii) within
10 business days after the date on which the average closing price per share
of Paired Shares, as reported on the NYSE over the 10 trading days immediately
preceding the day of determination, is less than $19.50 per share.
102
<PAGE>
INFORMATION ABOUT WHG
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
Financial Condition
Cash flows from consolidated operating, investing and financing activities
of WHG during fiscal 1997 resulted in net cash provided of $11,270,000
compared with net cash provided of $2,989,000 during fiscal 1996.
Cash flows from consolidated operating, investing and financing activities
of WHG during the three months ended September 30, 1997 resulted in net cash
provided of $1,055,000 compared with net cash (required) of ($1,244,000)
during the three months ended September 30, 1996.
Cash provided by operating activities before changes in operating assets and
liabilities was $18,933,000 during fiscal 1997 compared with cash provided of
$19,664,000 for fiscal 1996. This decrease was primarily due to a decrease in
deferred tax expense of $2,892,000 and a lower loss from nonconsolidated
affiliates included in net income of 2,269,000 in fiscal 1997. This was offset
by an increase in net income to $7,317,000 in fiscal 1997 from $2,437,000 in
fiscal 1996.
Cash provided by operating activities was $1,520,000 during the three months
ended September 30, 1997 compared with cash provided of $2,237,000 for the
three months ended September 30, 1996. This decrease of $717,000 was due to an
increase in accrued management fees and expenses owed by the El San Juan of
$779,000 at September 30, 1997.
The changes in operating assets and liabilities, as shown in the
consolidated statements of cash flows, resulted in cash outflow of $4,243,000
during fiscal 1997 and $1,760,000 during fiscal 1996, due in both cases to the
increase in net amounts due from nonconsolidated affiliates.
Cash used by investing activities was $2,893,000 in fiscal 1997 and $164,000
in fiscal 1996. Cash used for the purchase of property and equipment was
$3,153,000 in fiscal 1997 and $1,149,000 in fiscal 1996.
Cash used by investing activities was $1,664,000 in the three months ended
September 30, 1997 as compared to $517,000 in the three months ended September
30, 1996. This was primarily due to cash used for the purchase of property and
equipment of $1,466,000 in the three months ended September 30, 1997 as
compared to $331,000 in the three months ended September 30, 1996.
Cash used by financing activities during fiscal 1997 was $527,000 compared
with cash used of $14,751,000 during fiscal 1996. Net payments of long-term
debt were $4,203,000 and $3,887,000 in fiscal 1997 and 1996, respectively. Net
intercompany transactions with WMS (prior to the Distribution) resulted in
cash provided of $4,273,000 in fiscal 1997 compared to cash used of $6,275,000
in fiscal 1996. During fiscal 1996 PPRA, redeemed $3,400,000 of its preferred
stock then owned by WMS.
Cash provided by financing activities during the three months ended
September 30, 1997 was $1,199,000 compared with cash used of $2,964,000 during
the three months ended September 30, 1996. Payment of long-term debt and notes
payable was $1,686,000 and $2,285,000 in the three months ended September 30,
1997 and 1996, respectively. The issuance of the WHG Preferred Stock on July
31, 1997 provided $3,000,000 in cash for the three month period ended
September 30, 1997. Net intercompany transactions with WMS resulted in cash
used of $528,000 in the three months ended September 30, 1996.
The Condado Plaza, the El San Juan, the El Conquistador and WHGI provide for
their off-season cash needs through their own cash and from individual short-
term note arrangements. Annual capital expenditures are
103
<PAGE>
provided for each year as part of the annual budgeting process. Capital
expenditures are initiated taking into account available cash and available
financing, if necessary.
The Condado Plaza has a $2,000,000 bank line of credit available on which
$500,000 was borrowed at September 30, 1997. The El San Juan has a $1,000,000
bank line of credit available of which none was borrowed at September 30,
1997. The El San Juan and the El Conquistador long-term debt agreements
provide that advances and other payments to the owners are to be based on
defined levels of cash flow from the respective hotels and casinos which based
on historical results limits and prohibits, respectively, such transactions.
The long-term debt agreements and other agreements permit the payment to WHGI
of certain management fees and intercompany charges from WHG's hotels and
casinos. There are no agreements restricting WHGI from paying dividends or
otherwise making advances and WHG expects to receive dividends from WHGI cash
flow to provide for its operating expenses. Management of WHG believes that
cash flow from the operations of the Condado Plaza and the El San Juan will be
adequate to pay or refinance its long-term debt as it becomes due and provide
for its normal planned capital additions for the next 12 months.
In September, 1997, WHG executed an asset purchase agreement to acquire an
existing 127 room hotel and related land next to the Condado Plaza for
$9,600,000, subject to certain terms and conditions. If the agreement is
finalized, WHG intends to finance the purchase price through long-term
financing and the use of excess cash currently available.
The El Conquistador will have $120,000,000 of indebtedness due on May 1,
1998, unless extended, which is secured by substantially all of the assets of
the El Conquistador. The El Conquistador has retained investment advisors to
assist in structuring the refinancing of the El Conquistador debt. Based on
the operating history of the El Conquistador, WHG believes such refinancing
will be achieved, but there can be no assurance thereof. If such financing is
not renewed or replaced and as a consequence thereof the existing lenders
foreclose on the El Conquistador, WHG would probably incur a loss on its
investment in and receivables from the El Conquistador which would adversely
affect the financial position of WHG. In addition, WHGI would, most likely,
cease to receive management fees from the El Conquistador. See Note 4 to the
consolidated financial statements of WHG included elsewhere herein.
RESULTS OF OPERATIONS
The following summarizes the unaudited consolidated statements of operations
for the periods shown in the format presented as segment information in Note
15 to the consolidated financial statements of WHG for the three months ended
September 30, 1997 included elsewhere herein:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
SEPTEMBER 30,
--------------------
1996 1997
--------- ---------
(IN THOUSANDS)
<S> <C> <C>
Revenues:
Condado Plaza.......................................... $ 10,944 $ 12,315
WHGI................................................... 2,622 3,198
Intersegment revenue elimination--WHGI fees charged to
Condado Plaza......................................... (687) (942)
--------- ---------
Total revenues....................................... $ 12,879 $ 14,571
========= =========
Segment operating income (loss):
Condado Plaza.......................................... $ (329) $ 549
WHGI................................................... 1,212 1,533
General corporate administrative expenses.............. (93) (510)
--------- ---------
Total operating income............................... $ 790 $ 1,572
========= =========
</TABLE>
104
<PAGE>
THREE MONTHS ENDED SEPTEMBER 30, 1997 COMPARED WITH THREE MONTHS ENDED
SEPTEMBER 30, 1996
Consolidated revenues increased by $1,692,000 or 13.1% in the fiscal quarter
ended September 30, 1997 to $14,571,000 from $12,879,000 in the fiscal quarter
ended September 30, 1996. The increase was due to increased casino chip sales
and favorable win percentage at the Condado Plaza and increased management
fees earned by WHGI at the Condado Plaza and the El San Juan as discussed
below.
Operating income in the Condado Plaza segment was $549,000 for the fiscal
quarter ended September 30, 1997 compared to a loss of ($329,000) for the
fiscal quarter ended September 30, 1996, a favorable variance of $878,000. The
improved results were primarily due to increased casino win of $1,536,000 due
to: higher chip sales of $4,229,000 resulting in additional casino revenue of
$912,000 and a higher win percentage of 18.1%, compared to 14.6% during the
corresponding period in fiscal 1996, resulting in additional casino revenues
of $624,000. In addition, the hotel had slightly higher occupancy and average
daily room rates.
Operating income in the WHGI segment increased by $321,000 due to increased
management fees from the Condado Plaza of $168,000 and the El San Juan of
$189,000 or $357,000 in the aggregate due to increased casino and hotel
revenues.
General corporate expenses increased to $510,000 for the fiscal quarter
ended September 30, 1997 compared to $93,000 for the fiscal quarter ended
September 30, 1996 due to incremental costs incurred as a result of the
Distribution. In the prior year, WHG was a wholly owned subsidiary of WMS.
The equity in loss of nonconsolidated affiliates was ($1,010,000) for the
fiscal quarter ended September 30, 1997 compared with a loss of ($1,289,000)
for the fiscal quarter ended September 30, 1996. The 50% equity in loss of the
El San Juan was ($469,000) in the fiscal quarter ended September 30, 1997
compared with ($854,000) in the fiscal quarter ended September 30, 1996. The
improved results at the El San Juan were due primarily to higher casino
revenues resulting from higher chip sales of $4,828,000 resulting in
additional casino win of $942,000 and partially offset by increased casino
expenses of $645,000 due to higher volume in the casino. The 23.3% equity in
loss of the El Conquistador was ($541,000) in the fiscal quarter ended June
30, 1997 compared with ($430,000) in the fiscal quarter ended June 30, 1996.
The increased loss was due to increased operating expenses in the fiscal
quarter ended June 30, 1997.
The income tax provision for the fiscal quarter ended September 30, 1997
results primarily from Puerto Rico and federal income tax provisions for WHGI.
The income tax provision for the fiscal quarter ended September 30, 1996
results from federal taxes or credit allocated from WMS on the equity in
income or loss of nonconsolidated affiliates.
Net (loss) in the fiscal quarter ended September 30, 1997 was ($1,126,000)
compared with a net loss of ($1,214,000) in the fiscal quarter ended September
30, 1996. Improved operating results at the Condado Plaza and WHGI were offset
by $1,000,000 in costs incurred in connection with the Merger Agreement.
FISCAL 1997 COMPARED WITH FISCAL 1996
Segment data discussed below is taken or derived from segment disclosure in
Note 15 to the consolidated financial statements of WHG included elsewhere
herein.
Consolidated revenues increased by $940,000 or 1.4% in fiscal 1997 to
$69,634,000 from $68,694,000 in fiscal 1996. In fiscal 1997, segment revenues
of WHGI increased $565,000 and segment revenues of Condado Plaza increased
$375,000.
Operating income in the Condado Plaza segment was $6,348,000 in fiscal 1997
compared to $2,830,000 in fiscal 1996. The increase was primarily due to
reductions in costs and expenses in all departments of $3,143,000 resulting
from cost reduction efforts of management of $2,182,000 and reduced provision
for casino doubtful accounts receivable of $961,000.
105
<PAGE>
Operating income in the WHGI segment increased due to increased management
fees from the El San Juan of $487,000 and the Condado Plaza of $551,000
because of their improved operations.
Consolidated operating income increased by 26% in fiscal 1997 to $17,087,000
from $13,558,000 in fiscal 1996 due primarily to cost reductions at the
Condado Plaza of $3,143,000 and increased management fees primarily from the
El San Juan of $487,000.
The equity in loss of nonconsolidated affiliates was ($1,196,000) for fiscal
1997 compared with a loss of ($3,465,000) for fiscal 1996. The 50% equity in
income of the El San Juan was $988,000 in fiscal 1997 compared with equity in
loss of ($679,000) in fiscal 1996. The improved results at the El San Juan
were due primarily to a $1,450,000 increase in casino revenues resulting from
a win percentage of 16.4%, compared to 13.6% during fiscal 1996, and lower
costs and expenses resulting from cost reduction efforts by management and
reduced provision for doubtful accounts receivable as set forth above. The
23.3% equity in loss of the El Conquistador was ($2,184,000) in fiscal 1997
compared with ($2,786,000) in fiscal 1996.
The income tax provision results primarily from Puerto Rico and federal
income tax provisions for WHGI and federal taxes or credits allocated from WMS
(prior to the Distribution) primarily on the equity in the income or loss of
nonconsolidated affiliates. The income tax provision in fiscal 1997 was
$3,397,000 compared with $1,645,000 in fiscal 1996. The increase is primarily
due to higher federal income taxes on WHGI income of $1,892,000 and a lower
equity in loss on nonconsolidated affiliates of $2,269,000.
Net income in fiscal 1997 was $7,317,000 compared with net income of
$2,437,000 in fiscal 1996. The net income increased by approximately 200% due
primarily to higher casino revenues at the El San Juan and cost reductions and
reduced provision for doubtful accounts receivable at all the hotels and
casinos in which WHG owns interests notwithstanding the higher income taxes
all as discussed above.
FISCAL 1996 COMPARED TO FISCAL 1995
Consolidated revenues were $68,694,000 in fiscal 1996 representing a 3.1%
decrease from fiscal 1995 consolidated revenues of $70,878,000. The decrease
was due primarily to a reduction in net casino revenues (casino revenues minus
casino promotional allowances) at the Condado Plaza from $17,712,000 in fiscal
1995 to $15,452,000 in fiscal 1996. The decrease in the Condado Plaza net
casino revenues was due primarily to a lower win percentage resulting in
reduced revenues when casino promotional allowances remained constant.
Consolidated operating income increased by 78% in fiscal 1996 to $13,558,000
from $7,624,000 in fiscal 1995 due primarily to cost reductions and lower
expenses at the Condado Plaza of $6,323,000 and increased management fee
revenues at WHGI primarily from the El Conquistador of $1,430,000.
Operating income of the Condado Plaza segment was $2,830,000 in fiscal 1996
compared with an operating loss of ($1,465,000) in fiscal 1995. This
improvement in operating results was achieved by cost reductions initiated by
management of $6,323,000 and reduced provision for doubtful accounts
receivable of $385,000 and insurance expense of $1,097,000 and the incurrence
in fiscal 1995 of approximately $452,000 of additional expenses related to
emergency water costs associated with the drought experienced in Puerto Rico
during that fiscal year.
Operating income of the WHGI segment increased to $10,837,000 or 18% in
fiscal 1996 compared with $9,174,000 in fiscal 1995. In fiscal 1996 revenues
from central services declined by $2,151,000, and management fee revenues
increased by $1,739,000 in comparison to fiscal 1995. Operating income
resulting from lower revenue from central services is negligible in comparison
to increased operating income from incremental management fees.
Consolidated selling and administrative expenses decreased to $9,487,000 in
fiscal 1996 from $12,301,000 in fiscal 1995 primarily at the Condado Plaza due
to cost reductions initiated by management and reduced provision for doubtful
accounts receivable and insurance expense as set forth above.
106
<PAGE>
The equity in the loss of nonconsolidated affiliates was ($3,465,000) in
fiscal 1996 compared with ($7,003,000) in fiscal 1995, representing a 50.5%
improvement in fiscal 1996 over fiscal 1995. The decrease in equity in loss
was primarily due to lower costs and expenses at the El Conquistador resulting
from cost reduction activities of $11,264,000 during the second full year of
operation after opening in November 1993 and from increased revenues from
hotel operations at the El San Juan of $1,875,000 with only minor increases in
hotel operating expenses. The 50% equity in loss of the El San Juan was
($679,000) in fiscal 1996 compared with ($1,200,000) in fiscal 1995. The 23.3%
equity in loss of the El Conquistador was ($2,786,000) in fiscal 1996 compared
with ($5,803,000) in fiscal 1995.
The provision for income taxes in fiscal 1996 of $1,645,000 represents
federal and Puerto Rico income taxes on WHGI reduced by the tax benefit
allocated from WMS on the equity in loss of nonconsolidated affiliates. A net
income tax credit of $234,000 occurred in fiscal 1995 because the allocated
tax benefit from WMS, due to the size of the equity in loss, exceeded the tax
provision for WHGI.
Consolidated net income was $2,437,000 in fiscal 1996 compared with the net
loss of ($4,364,000) in fiscal 1995. The improved results were attributable
primarily to cost reductions at the Condado Plaza increasing operating income
and decreased equity in loss of nonconsolidated affiliates partially offset by
the change in the provision for income taxes, as described above.
Inflation
During the past three years, the level of inflation affecting WHG has been
relatively low. The ability of WHG to pass on future cost increases in the
form of higher room rates and other price increases will continue to be
dependent on the prevailing competitive environment and the acceptance of
WHG's services in the market place.
Seasonality
The hotel and casino business in Puerto Rico is highly seasonal. From
December through April the occupancies of the hotels are greater than other
months and the average room rates are higher than other months resulting in
higher revenues and net income primarily in the third quarter of the June 30
fiscal year. The first quarter of the June 30 fiscal year normally has a net
loss.
107
<PAGE>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
The following table sets forth as of December 1, 1997 (except as otherwise
footnoted) information regarding the beneficial ownership of shares of WHG
Common Stock for each person known by WHG who was on such date the beneficial
owner of more than five percent of the outstanding WHG Common Stock.
<TABLE>
<CAPTION>
AMOUNT AND NATURE OF
BENEFICIAL OWNERSHIP PERCENTAGE OF
NAME AND ADDRESS OF OF WHG COMMON OUTSTANDING
BENEFICIAL OWNER STOCK(1) WHG COMMON STOCK(2)
------------------- -------------------- -------------------
<S> <C> <C>
Patriot American Hospitality Operat-
ing Company
1950 Stemmons Freeway, Suite 6001
Dallas, TX 75207.................... 2,063,916(3) 32.3%
Sumner M. Redstone and National
Amusements, Inc.
200 Elm Street
Dedham, MA 02026.................... 1,729,425(4) 28.6%
Louis J. Nicastro
Cleft Road
Mill Neck, NY 11765................. 1,651,158(5) 21.4%
Libra Fund, L.P., Libra Advisors,
Ranjan Tandon and
Chandrika Tandon
277 Park Avenue
New York, NY 10017.................. 479,550(6) 7.9%
FMR Corp.
82 Devonshire Street
Boston, MA 02109.................... 413,925(7) 6.8%
Waveland Partners, L.P., Waveland
Capital Management, L.P. and
Clincher Capital Corporation
333 West Wacker Drive #1600
Chicago, IL 60606................... 350,100(8) 5.8%
</TABLE>
- --------
(1) Pursuant to Rule 13d-3(d)(1) of the Exchange Act, a beneficial owner of a
security includes any person or entity who, directly or indirectly,
through any contract, arrangement, understanding, relationship, or
otherwise has or shares voting power which includes the power to vote, or
to direct the voting of, such security and/or investment power which
includes the power to dispose, or to direct the disposition of, such
security. Additionally, pursuant to Rule 13d-3(d)(1) of the Exchange Act,
shares underlying options are deemed to be beneficially owned if the
holder of the options has the right to acquire beneficial ownership of
such shares within 60 days.
(2) For purposes of calculating the percentage of outstanding WHG Common Stock
owned by each person or entity listed, (i) shares issuable upon the
exercise of options held by such persons or entities which options are
currently exercisable or become exercisable within 60 days have been
deemed to be outstanding and (ii) an additional 1,500,000 shares of WHG
Common Stock have been deemed to be outstanding in the case of Mr.
Nicastro by reason of his ownership of 300,000 shares of WHG Preferred
Stock, each share of which is entitled to five votes.
(3) The number of shares reported is based on the beneficial ownership
acquired by PAHOC pursuant to the Voting Agreement and the Voting and
Option Agreement. See "Certain Related Agreements--Voting and Option
Agreement" and "--Voting Agreement." WHG Preferred Stock is entitled to
five votes per share. Pursuant to the Voting Agreement and the Voting and
Option Agreement PAHOC has the right to vote an aggregate of 42.8% of the
combined voting power of WHG Common Stock and WHG Preferred Stock.
(4) The number of shares reported is based upon information contained in
Amendment No. 1 to Schedule 13D dated October 3, 1997 filed by the NAI
Group with the Commission. Pursuant to such amendment, Mr. Redstone and
National Amusements, Inc., a Maryland corporation, reported beneficial
ownership of and sole
108
<PAGE>
investment power with respect to 858,450 and 870,975 shares, respectively,
of WHG Common Stock and that Mr. Redstone is the beneficial owner of 75% of
the issued and outstanding shares of the common stock of National
Amusements, Inc. Pursuant to the Voting Agreement, the NAI Group agreed to
vote all of the shares that it beneficially owns in favor of the Merger.
See "Certain Related Agreements--Voting Agreement."
(5) On July 31, 1997, Mr. Nicastro acquired 300,000 shares of WHG Preferred
Stock, which shares entitle him to five votes per share of WHG Preferred
Stock and, thus, represent voting power of the equivalent of 1,500,000
shares of WHG Common Stock. The 300,000 shares of WHG Preferred Stock
owned by Mr. Nicastro represent 100% of the shares of such class. In
addition, Mr. Nicastro holds a currently exercisable stock option to
purchase 150,000 shares of WHG Common Stock and owns directly 1,158 shares
of WHG Common Stock. Mr. Nicastro has shared voting power with respect to
1,651,158 votes and sole dispositive power (subject to the Voting and
Option Agreement) with respect to 484,491 shares of WHG Common Stock
consisting of the 1,158 shares of WHG Common Stock owned directly by him,
the 150,000 shares of WHG Common Stock issuable pursuant to currently
exercisable stock options and 333,333 shares of WHG Common Stock issuable
upon conversion of the WHG Preferred Stock. Pursuant to the Voting and
Option Agreement, Mr. Nicastro granted PAHOC an irrevocable proxy to vote
his 1,158 shares of WHG Common Stock and his 300,000 shares of WHG
Preferred Stock. See "Certain Related Agreements--Voting and Option
Agreement."
(6) The number of shares reported is based upon information contained in
Amendment No. 1 to Schedule 13D dated July 3, 1997 filed by Libra Fund,
L.P., Libra Advisors, Inc., Mr. Ranjan Tandon and Ms. Chandrika Tandon
with the Commission. Pursuant to such Amendment, Libra Fund, L.P. reported
beneficial ownership of 256,450 shares of WHG Common Stock and reported
that Libra Advisors, Inc., as general partner to Libra Fund, L.P., has the
power to vote and to direct the voting of and the power to dispose and
direct the disposition of the 256,450 shares of WHG Common Stock owned by
Libra Fund, L.P. The Amendment reported that Mr. Tandon is the sole
stockholder and president of Libra Advisors, Inc. Also pursuant to such
Amendment, Ms. Tandon reported beneficial ownership of 223,100 shares of
WHG Common Stock and that she has the sole power to vote and to direct the
voting of and the sole power to dispose and direct the disposition of the
223,100 shares of WHG Common Stock owned by her.
(7) The number of shares reported is based upon information contained in a
letter dated June 27, 1997 from FMR Corp. to counsel for WHG with respect
to the WHG Common Stock. Pursuant to such letter, FMR Corp. reported that
Fidelity Management & Research Company, a wholly owned subsidiary of FMR
Corp. and an investment adviser registered under Section 203 of the
Investment Advisers Act of 1940, as amended, is the beneficial owner of
409,900 shares of WHG Common Stock as a result of acting as investment
adviser to various investment companies registered under Section 8 of the
Investment Company Act of 1940, as amended. Additionally, pursuant to such
letter, FMR Corp. reported that Fidelity Management Trust Company, a
wholly owned subsidiary of FMR Corp. and a bank as defined in Section
3(a)(6) of the Exchange Act, is the beneficial owner of 4,025 shares of
WHG Common Stock as a result of its serving as investment manager of
certain institutional account(s). FMR Corp. reported it has sole power to
dispose of or direct the disposition of all such shares and sole power to
vote 4,025 of such shares.
(8) The number of shares reported is based upon information contained in the
Schedule 13D dated September 12, 1997 filed by Waveland Partners, L.P., an
Illinois limited partnership ("Waveland"), Waveland Capital Management,
L.P., an Illinois limited partnership ("Waveland Capital") and Clincher
Capital Corporation, an Illinois corporation ("Clincher"). Pursuant to
such Schedule, Waveland, Waveland Capital and Clincher reported shared
voting and dispositive power with respect to the 350,100 shares of WHG
Common Stock owned.
109
<PAGE>
SECURITY OWNERSHIP OF MANAGEMENT
The following table sets forth as of December 1, 1997 information regarding
the beneficial ownership of shares of WHG Common Stock for all WHG directors
and executive officers individually and as a group.
<TABLE>
<CAPTION>
SHARES PERCENTAGE
OF WHG OF
COMMON OUTSTANDING
STOCK WHG
POSITION WITH WHG AND DIRECTOR BENEFICIALLY COMMON
NAME (AGE) PRINCIPAL OCCUPATION SINCE OWNED(1) STOCK(2)
---------- --------------------- -------- ------------ -----------
<S> <C> <C> <C> <C>
Louis J. Nicastro (69).. Chairman of the Board of 1983 1,651,158(3) 21.4%
Directors and Chief Executive
Officer
George R. Baker (68).... Vice Chairman of the Board of 1997 92,550(4) 1.5%
Directors
Brian R. Gamache (41)... President, Chief Operating 1997 150,000(5) 2.4%
Officer and Director
David M. Satz, Jr. Director and Attorney, Saiber 1997 21,000(6) *
(71)................... Schlesinger Satz & Goldstein
Joseph A. Lamendella Director and Attorney, Lamendella 1997 20,025(7) *
(60)................... & Daniel, P.C.
Barbara M. Norman (59).. Vice President, Secretary, 1997 28,775(8) *
General Counsel and Director
Richard F. Johnson Chief Financial Officer and 0 0
(51)................... Treasurer
Directors and Executive
Officers as a group (7
persons)............... 1,963,508(9) 24.4%
</TABLE>
- --------
* Less than 1% of the number of outstanding shares of WHG Common Stock on
December 1, 1997.
(1) Pursuant to Rule 13d-3(d)(1) of the Exchange Act, a beneficial owner of a
security includes any person who, directly or indirectly, through any
contract, arrangement, understanding, relationship, or otherwise has or
shares voting power which includes the power to vote, or to direct the
voting of, such security and/or investment power which includes the power
to dispose, or to direct the disposition of, such security. Additionally,
pursuant to Rule 13d-3(d)(1) of the Exchange Act, shares underlying
options are deemed to be beneficially owned if the holder of the option
has the right to acquire beneficial ownership of such shares within 60
days.
(2) For purposes of calculating the percentage of outstanding WHG Common Stock
owned by each person listed, (i) shares issuable upon the exercise of
options held by such persons which options are currently exercisable
within 60 days have been deemed to be outstanding and (ii) 1,500,000
shares of WHG Common Stock have been deemed to be outstanding in the case
of Mr. Nicastro by reason of his ownership of 300,000 shares of WHG
Preferred Stock each share of which is entitled to five votes.
(3) Includes certain shares of WHG Common Stock which Mr. Nicastro is deemed
to beneficially own. See footnote (5) under "Security Ownership of Certain
Beneficial Owners."
(4) Includes 87,000 shares of WHG Common Stock which Mr. Baker has the right
to acquire upon the exercise of stock options.
(5) Includes 150,000 shares of WHG Common Stock which Mr. Gamache has the
right to acquire upon the exercise of stock options.
(6) Includes 20,000 shares of WHG Common Stock which Mr. Satz has the right to
acquire upon the exercise of stock options.
(7) Includes 20,000 shares of WHG Common Stock which Mr. Lamendella has the
right to acquire upon the exercise of stock options.
(8) Includes 25,000 shares of WHG Common Stock which Ms. Norman has the right
to acquire upon the exercise of stock options.
(9) Includes 452,000 shares of WHG Common Stock which directors and executive
officers have the right to acquire upon the exercise of currently
exercisable stock options and the 1,500,000 shares of WHG Common Stock
deemed to be outstanding with respect to the 300,000 shares of WHG
Preferred Stock held by Mr. Nicastro. See footnote (5) under "Security
Ownership of Certain Beneficial Owners."
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CERTAIN FEDERAL INCOME TAX CONSIDERATIONS
The following is a general summary of the material United States federal
income tax consequences of the Merger and the Ancillary Agreements to taxable
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. The following
discussion is based upon current provisions of the Code, 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 Ancillary Agreements that may be relevant
to WHG Stockholders. 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 WHG Stockholder.
THE FOLLOWING DISCUSSION MAY NOT APPLY TO PARTICULAR CATEGORIES OF HOLDERS
OF SHARES OF WHG COMMON STOCK AND WHG PREFERRED 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. WHG STOCKHOLDERS ARE URGED TO CONSULT
THEIR TAX ADVISORS TO DETERMINE THE SPECIFIC TAX CONSEQUENCES OF THE MERGER,
INCLUDING ANY STATE, LOCAL OR OTHER TAX CONSEQUENCES OF THE MERGER.
TAX CONSEQUENCES OF THE MERGER
Goodwin, Procter & Hoar LLP, counsel for the Patriot Companies, has rendered
an opinion substantially to the effect that, on the basis of facts,
representations and assumptions set forth in such opinion, for federal income
tax purposes the Merger will be treated as a taxable exchange by the WHG
Stockholders of their WHG Stock for the Merger Consideration received in
exchange therefor. Accordingly, a WHG Stockholder will recognize gain or loss
with respect to his or her WHG Stock measured by the difference between the
fair market value of the Merger Consideration received in the Merger by such
stockholder in exchange therefor and such stockholder's adjusted tax basis in
his or her WHG Stock. Such gain or loss will constitute capital gain or loss
if the WHG Stock is held as a capital asset at the Effective Time. Such gain
or loss will be treated as long-term capital gain or loss if the stockholder's
WHG Stock has been held (or is treated as having been held) for more than one
year (or, in the case of individuals, trusts and estates, mid-term capital
gain or loss if the WHG Stock has been held, or treated as held, for more than
one year but not more than 18 months and long-term capital gain if the WHG
Stock has been held, or is treated as held, for more than 18 months), and
otherwise as short-term capital gain or loss.
The aggregate initial tax basis of a Paired Share received in the Merger by
a WHG Stockholder will be the fair market value at the Effective Time of such
Paired Share. The aggregate tax basis of a Paired Share received in the Merger
must be allocated between the share of Patriot Common Stock and the share of
PAHOC Common Stock that comprise the Paired Share, based on the relative
values of such shares at the time of the Merger. Under the terms of the
Pairing Agreement, the Patriot Companies are obligated to agree on the
relative values of a share of Patriot Common Stock and a share of PAHOC Common
Stock that comprise a Paired Share. As of the date of mailing of this Proxy
Statement/Prospectus, the Patriot Companies have previously agreed that the
value of a share of PAHOC Common Stock represents 5% of the value of a Paired
Share. There can be no assurance that these relative values will not change
prior to the Effective Time or that the IRS will not challenge this valuation.
The holding period of the shares of Patriot Common Stock and PAHOC Common
Stock that comprise Paired Shares received in the Merger by WHG Stockholders
will commence on the day following the date of the Effective Time.
If a WHG Stockholder has differing tax bases and/or holding periods for
different blocks of his or her WHG Stock, or if he or she holds blocks of both
WHG Common Stock and WHG Preferred Stock, he or she must compute his or her
gain or loss separately with respect to each such block of WHG Stock.
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REIT QUALIFICATION OF PATRIOT
General
If certain detailed conditions imposed by the provisions of the Code are
met, entities such as 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 a corporate structure.
Prior to the consummation of the Merger, Patriot has been and will continue
to be operated in a manner intended to allow it to qualify as a REIT. Patriot
intends to operate following the Merger in a manner so that Patriot will
continue to qualify as a REIT. If Patriot fails to qualify as a REIT in any
taxable year, Patriot will be subject to federal income taxation as if it were
a domestic corporation, and Patriot's stockholders will be taxed in the same
manner as stockholders of ordinary corporations. In this event, Patriot could
be subject to potentially significant tax liabilities, and the amount of cash
available for distribution to stockholders would be reduced and possibly
eliminated. Unless entitled to relief under certain Code provisions, and
subject to the discussion below regarding Section 269B(a)(3) of the Code,
Patriot also would be disqualified from re-electing REIT status for the four
taxable years following the year during which qualification was lost. Failure
of Old Patriot to have qualified as a REIT also could disqualify Patriot as a
REIT and/or subject Patriot to significant tax liabilities.
Patriot's qualification and taxation as a REIT following the Merger will
depend upon Patriot'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 has not reviewed and will not review Patriot'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
Patriot'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--Patriot Tax Risks." Accordingly, no
assurance can be given that Patriot will satisfy such tests on a continuing
basis following the Merger.
In connection with the mailing of this Proxy Statement/Prospectus, Goodwin,
Procter & Hoar LLP has rendered an opinion to the effect that (i) for periods
ending on or before the date of such opinion, Patriot has qualified to be
treated as a REIT and (ii) for subsequent periods, including periods following
the Merger, the proposed form of organization and manner of operations of
Patriot will enable Patriot to continue to qualify as a REIT. The opinion of
Goodwin, Procter & Hoar LLP has been filed as an exhibit to the Registration
Statement of which this Proxy Statement/Prospectus is a part. This opinion is
based on representations from Patriot regarding Old Patriot's and Patriot's
compliance with the requirements for REIT qualification and is not binding on
the IRS. Each of Old Patriot's and Patriot's qualification as a REIT depends
on its having met or meeting, as 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 Patriot as a REIT.
In rendering its opinion regarding REIT qualification, Goodwin, Procter &
Hoar LLP has relied upon the representations of Patriot that it will
distribute with respect to the taxable year in which the proposed Wyndham
Merger closes all earnings and profits inherited from Wyndham and that it will
distribute with respect to the taxable year in which the proposed Patriot/IHC
Merger closes all earnings and profits inherited from IHC. If the IRS were to
determine that Wyndham's or IHC's actual earnings and profits exceeded the
amount distributed, Patriot would be disqualified as a REIT.
Paired Shares
Section 269B(a)(3) of the Code provides that if the shares of a REIT and a
non-REIT are paired, then the REIT and the non-REIT shall be treated as one
entity for purposes of determining whether either company
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qualifies as a REIT. If Section 269B(a)(3) applied to Patriot and PAHOC, then
Patriot 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
June 30, 1983 and the REIT was taxable as a REIT on June 30, 1983. As a result
of this "grandfathering" rule, Section 269B(a)(3) did not apply to Cal Jockey
for periods prior to the Cal Jockey Merger, and, by its terms, this
"grandfathering" rule continued to apply to Patriot after the Cal Jockey
Merger and will continue to apply to Patriot following 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 Patriot's qualification as a REIT, is based solely on the literal
language of the statute. Moreover, if for any reason Patriot failed to qualify
as a REIT in 1983, the benefit of the "grandfathering" rule would not be
available to Patriot, and Patriot would not qualify as a REIT for any taxable
year. See "Risk Factors--Patriot Tax Risks--Dependence on Qualification as a
REIT."
Potential Reallocation of Income
Due to the paired share structure, Patriot, PAHOC, the Patriot Partnership,
the PAHOC Partnership, and their respective subsidiary entities are and 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 and
PAHOC believe that all future material transactions between Patriot and PAHOC,
and among them and/or their subsidiary entities, will be negotiated and
structured with the intention of achieving an arm's-length result. Patriot and
PAHOC believe that all prior material transactions among them and/or their
subsidiary entities have been similarly negotiated and structured with the
intention of achieving an arm's-length result. If such beliefs are correct,
the potential application of Section 482 of the Code should not have a
material effect on Patriot or PAHOC following the Merger. There can be no
assurance, however, that the IRS will not challenge the terms of such
transactions, or that any such challenge would not be successful.
Sale of Land by Patriot
The sale following the Cal Jockey Merger of certain land previously owned by
Cal Jockey to an affiliate of PaineWebber (the "PaineWebber Land Sale") was
structured to qualify as a tax-deferred like-kind exchange. There can be no
assurances, however, that such transaction will qualify as a like-kind
exchange. If and to the extent the sale does not qualify as a tax-deferred
like-kind exchange, any capital gains recognized by Patriot will be taxed to
Patriot at applicable capital gains rates, unless Patriot distributes such
gains to its stockholders. To the extent that the gain does not qualify for
capital gains treatment, the gain will be combined with Patriot's other
taxable income, 95% of which must be distributed each year in order to
maintain Patriot's status as a REIT. Notwithstanding the foregoing, in the
event that the property in the PaineWebber Land Sale constituted "dealer
property," then the sale would not qualify as a like-kind exchange, the gain
would be subject to a 100% tax, and the amount of gain would constitute
nonqualifying income that likely would disqualify Patriot as a REIT. Although
Patriot believes that the PaineWebber Land Sale did not constitute a sale of
dealer property, whether or not such sale constituted a sale of dealer
property is a factual determination not susceptible of legal opinion, and
Patriot did not receive opinions from counsel on such determination. As a
result, the opinion rendered by Goodwin, Procter & Hoar llp regarding
Patriot's qualification as a REIT necessarily relies on representations from
Patriot to the effect that the sale did not constitute a sale of dealer
property.
Classification of Patriot Partnership as a Publicly Traded Partnership
Section 7704 of the Code treats certain "publicly traded partnerships" as
corporations. If the Patriot Partnership were taxed as a corporation under
these rules, Patriot would be disqualified as a REIT. A partnership is a
publicly traded partnership if interests in such partnership are either traded
on an established securities market or are readily tradeable on a secondary
market (or the substantial equivalent thereof). Interests in the Patriot
Partnership have not and will not be traded on an established securities
market. Currently, the Patriot Partnership relies on restrictions on transfers
and redemptions included in its partnership agreement in order to
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avoid being taxed as a corporation under Section 7704 of the Code. Prior to
such amendments, the Patriot Partnership relied on an exemption from the
publicly traded partnership rules based on the nature of its income as well as
a safe harbor based on the number of its partners. There can be no assurance
that efforts to avoid taxation as a corporation under these provisions have
been or will be successful.
Built-In Gain Tax
If Patriot recognizes gain on the disposition of an asset acquired in a tax-
free merger with a taxable "C" corporation (such as Wyndham or IHC) during the
ten-year period following the merger, then to the extent of the asset's
"built-in gain" (i.e., the excess of the fair market value of such asset at
the time of the merger over its then tax basis), Patriot will be subject to
tax on such gain at the highest regular corporate rate applicable, pursuant to
Treasury Regulations not yet promulgated. Patriot would have to distribute 95%
of the excess of the amount of recognized built-in gain over the amount of tax
paid in order to maintain its qualification as a REIT. The foregoing assumes
that Patriot makes an election pursuant to IRS Notice 88-19 with respect to
the merger. If Patriot failed to make the election the ten-year built-in gain
tax would not apply, but instead the entire amount of the built-in gain would
be taxed at the time of the merger. Patriot will make the election pursuant to
IRS Notice 88-19 with respect to the Wyndham Merger and the Patriot/IHC Merger
if such election is available.
EFFECTS OF COMPLIANCE WITH REIT REQUIREMENTS
Operating income derived from hotels or a racetrack does not constitute
qualifying income under the REIT requirements. Accordingly, Patriot leases all
of its hotels, other than certain hotels held by taxable entities in which
Patriot does not hold voting control, to lessees and PAHOC, and Patriot will
continue to lease such hotels after the Merger. Similarly, Patriot has
subleased the land underlying the Racecourse and leased the related
improvements to PAHOC. 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 Patriot 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. Patriot (other
than certain corporate subsidiaries that Patriot does not control) also may
not provide services, other than customary services and, beginning in 1998, de
minimus non-customary services, to the lessees or their subtenants. In
addition, the leases also must 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 Patriot leases constitute "true" leases. Therefore, there can be no
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 Patriot owns, directly or indirectly, 10% or more of
the ownership interests in the relevant lessee. Constructive ownership rules
apply, such that, for instance, Patriot is deemed to own the assets of
stockholders who own 10% or more in value of the stock of Patriot. The Patriot
Charters are therefore designed to prevent a stockholder of Patriot from
owning Patriot stock or PAHOC stock that would cause Patriot to own, actually
or constructively, 10% or more of the ownership interests in a lessee
(including PAHOC and the PAHOC Partnership). Thus, Patriot 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
assurance can be given that such transfers, or other events of which Patriot
has no knowledge, will not cause Patriot 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
impose a number of other restrictions on the operations of Patriot. For
example, net income from sales of property sold to customers in the ordinary
course of business (other than inventory acquired by reason of certain
foreclosures) is subject to a 100% tax unless eligible for a certain safe
harbor. Minimum distribution requirements also generally require Patriot to
distribute each year at least 95% of its taxable income for the year
(excluding any net capital gain). In addition, certain asset tests limit
Patriot's ability to acquire non-real estate assets.
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TAXATION OF PAHOC; NON-CONTROLLED SUBSIDIARIES
As a "C" corporation under the Code, PAHOC is subject to United States
federal income tax on its taxable income at corporate rates. Certain corporate
subsidiaries of the Patriot Partnership which the Patriot Partnership does not
control also are subject to federal income tax.
FEDERAL INCOME TAXATION OF HOLDERS OF PAIRED SHARES
Separate Taxation
Notwithstanding that Paired Shares may only be transferred as a unit,
holders of Paired Shares will be treated for U.S. federal income tax purposes
as holding equal numbers of shares of Patriot Common Stock and of PAHOC Common
Stock. The tax treatment of distributions to stockholders and of any gain or
loss upon the 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 Patriot Common Stock and each share of PAHOC Common Stock
contained within each Paired Share. The tax basis and holding period for each
share of Patriot Common Stock and each share of PAHOC Common Stock also must
be determined separately. See "--Tax Consequences of the Merger" for a
discussion of the initial tax basis and holding period of Paired Shares
received in the Merger. Holders should note that distributions in excess of
earnings and profits from one or both of the corporations may change the
relative tax basis of the shares comprising a Paired Share. Upon a taxable
sale of a Paired Share, the amount realized must be allocated between the
share of Patriot Common Stock and the share of PAHOC Common Stock comprising
such Paired Share 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 (A) is (i) a citizen or
resident of the United States, (ii) a corporation, partnership, or other
entity created or organized in or under the laws of the United States or any
political subdivision thereof, (iii) an estate, the income of which is subject
to United States federal income taxation regardless of its source or (iv) a
trust, if a court within the United States is able to exercise primary
supervision over the administration of the trust and one or more United States
persons have the authority to control all substantial decisions of the trust;
and (B) is not an entity that has a special status under the Code (such as a
tax-exempt organization or a dealer in securities).
As long as Patriot qualifies as a REIT, distributions made to Patriot's
taxable U.S. Stockholders out of current or accumulated earnings and profits
(and not designated as capital gain dividends) will be taken into account by
such U.S. Stockholders as ordinary income and will not be eligible for the
dividends received deduction generally available to corporations. For purposes
of determining whether distributions on Patriot Common Stock are out of
current or accumulated earnings and profits, the earnings and profits of
Patriot will be allocated first to Patriot's outstanding preferred stock (if
any), and then allocated to the Patriot Common Stock. Subject to the
discussion below regarding changes to the capital gains tax rates,
distributions that are designated as capital gain dividends will be taxed as
capital gains (to the extent they do not exceed Patriot's actual net capital
gain for the taxable year) without regard to the period for which the
stockholder has held his or her Patriot 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 Patriot
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 Patriot Common Stock,
such distributions will be included in income as long-term capital gain (or,
in the case of individuals, trusts and estates, mid-term capital gain if the
Patriot Common Stock has been held for more than one year but not more than 18
months, and in the case of all taxpayers short-term capital gain if the
Patriot Common Stock has been held for one year or less), assuming the shares
are a capital asset in the hands of the stockholder. In addition, any
distribution declared by Patriot 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 Patriot and received by the stockholder on
December 31 of such year, provided that the distribution is actually paid by
Patriot during January of the following calendar year.
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Distributions from PAHOC up to the amount of PAHOC's current or accumulated
earnings and profits (less any earnings and profits allocable to distributions
on any preferred stock of PAHOC) 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 PAHOC'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 PAHOC Common Stock, but
rather will reduce the adjusted basis of such PAHOC Common Stock. To the
extent that such distributions exceed the adjusted basis of a holder's PAHOC
Common Stock, they will be included in income as long-term capital gain (or,
in the case of individuals, trusts and estates, mid-term capital gain if the
PAHOC Common Stock has been held for more than one year but not more than 18
months, and in the case of all taxpayers short-term capital gain if the PAHOC
Common Stock has been held for one year or less), assuming the shares are a
capital asset in the hands of the stockholder.
Patriot may elect to retain and pay income tax on its net capital gain
recognized during the taxable year. For taxable years beginning after December
31, 1997, if Patriot so elects for a taxable year, its stockholders would
include in income as capital gain their proportionate share of such portion of
Patriot's net capital gain as Patriot may designate. Such retained capital
gains may be further designated by Patriot as 20% rate gain, unrecaptured
section 1250 gain or 28% rate gain, as discussed below. Stockholders must
account for their share of such retained capital gains in accordance with such
additional designation. If no such additional designation is made, they are
treated as 28% rate gain. A stockholder would be deemed to have paid its share
of the tax paid by Patriot, which would be credited or refunded to the
stockholder. The stockholder's basis in his or her shares of Patriot Common
Stock would be increased by the amount of undistributed capital gains (less
the capital gains tax paid by Patriot included in the stockholder's capital
gains).
Taxable distributions from Patriot or PAHOC and gain or loss from the
disposition of shares of Patriot Common Stock and PAHOC 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 Patriot
or PAHOC generally will be treated as investment income for purposes of the
investment interest deduction limitations. Capital gain dividends from
Patriot, capital gains (other than short-term capital gains) from the
disposition of Paired Shares and actual or deemed distributions from either
company treated as such, including capital gains (other than short-term
capital gains) recognized on account of nontaxable distributions in excess of
a stockholder's basis and any deemed capital gain dividends to a Patriot
stockholder on account of undistributed capital gains of Patriot, will be
treated as investment income for purposes of the investment interest deduction
limitation only if and to the extent the stockholder so elects, in which case
such capital gain dividends and gains will be taxed at ordinary income rates
to the extent of such election. Patriot and PAHOC 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 Patriot) capital gain. Stockholders may not include in
their individual income tax returns any net operating losses or capital losses
of Patriot or PAHOC.
The Relief Act alters the taxation of capital gain income. Under the Relief
Act, individuals, trusts and estates that hold certain investments for more
than 18 months may be taxed at a maximum long-term capital gain rate of 20% on
the sale or exchange of those investments. Individuals, trusts and estates
that hold certain assets for more than one year, but not more than 18 months,
may be taxed at a maximum mid-term capital gain rate of 28% on the sale or
exchange of those investments. The Relief Act also provides a maximum rate of
25% for "unrecaptured section 1250 gain" for individuals, trusts and estates,
special rules for "qualified 5-year gain," as well as other changes to prior
law. The Relief Act allows the IRS to prescribe regulations on how the Relief
Act's new capital gain rates will apply to sales of assets by, and sales of
interests in, "pass-through entities," which include REITs such as Patriot.
Pursuant to this grant of regulatory authority, the IRS has announced that it
will issue temporary regulations providing that a REIT such as Patriot may
designate a capital gain dividend as a 20% rate gain distribution, an
unrecaptured section 1250 gain distribution, or a 28% rate gain distribution.
If no such additional designation is made regarding a capital gain dividend,
it is a 28% rate gain distribution. In general, the regulations will provide
that a REIT must determine the maximum amounts which may be
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designated in each class of capital gain dividends as if the REIT were an
individual whose ordinary income is subject to a marginal tax rate of at least
28 percent. Similar rules will apply in the case of designated retained
capital gains (see above discussion). Patriot will notify stockholders after
the close of Patriot's taxable year as to the portions of the distributions
attributable to that year that constitute ordinary income, return of capital,
and capital gain (and, with respect to capital gain dividends, the portions
constituting 20% rate gain distributions, unrecaptured section 1250 gain
distributions, and 28% rate gain distributions), as well as the amounts of any
designated retained capital gains (including the amounts thereof constituting
20% rate gain, unrecaptured section 1250 gain, and 28% rate gain) and
Patriot's taxes with respect to any designated retained capital gains. Final
regulations when issued may alter the rules of the temporary regulations. In
addition, the IRS has not prescribed regulations regarding the application of
the new rates to sales of interests in REITs such as Patriot, and it remains
unclear how the new rules will affect such sales (if at all). WHG Stockholders
are urged to consult their own tax advisors with respect to the new rules
contained in the Relief Act.
Taxation of Stockholders on the Disposition of Paired Shares
Subject to the discussion above regarding the Relief Act, in general, any
gain or loss realized upon a taxable disposition of Paired Shares by a
stockholder who is not a dealer in securities will be treated as long-term
capital gain or loss if the Paired Shares have been held for more than one
year (or, in the case of individuals, trusts and estates, mid-term capital
gain or loss if the Paired Shares have been held for more than one year but
not more than 18 months, and long-term capital gain or loss if the Paired
Shares have been held for more than 18 months), and otherwise as short-term
capital gain or loss. In addition, any loss upon a sale or exchange of Patriot
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 Patriot or undistributed
capital gains required to be treated by such stockholder as long-term capital
gain. All or a portion of any loss realized upon a taxable disposition of
Paired Shares may be disallowed if other Paired Shares are purchased within 30
days before or after the disposition. The foregoing assumes that the
stockholder has the same holding period for the Patriot Common Stock and the
PAHOC Common Stock that comprise the shares sold (as will be the case with
Paired Shares acquired by the WHG Stockholders in the Merger). If that was not
the case, the character of the gain recognized could be different for the
Patriot Common Stock and the PAHOC Common Stock.
Information Reporting Requirements and Backup Withholding
Patriot and PAHOC 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 Patriot and
PAHOC with his, her or its correct taxpayer identification number also may be
subject to penalties imposed by the IRS. Any amount paid as backup withholding
will be creditable against the stockholder's income tax liability. In
addition, Patriot may be required to withhold a portion of capital gain
distributions to any stockholders who fail to certify their nonforeign status
to Patriot.
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 Patriot to Exempt Organizations generally should not
constitute UBTI, nor should dividends paid by PAHOC generally constitute UBTI.
However, if an Exempt Organization finances its acquisition of Paired Shares
with debt, a portion of its income from Patriot and PAHOC 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 Patriot and PAHOC as UBTI.
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PATRIOT AMERICAN HOSPITALITY, INC., PATRIOT AMERICAN HOSPITALITY OPERATING
COMPANY AND WHG RESORTS & CASINOS INC.
INDEX TO UNAUDITED PRO FORMA FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
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PRO FORMA FINANCIAL INFORMATION
<S> <C>
PATRIOT AND PAHOC:
Pro Forma Condensed Combined Statement of Operations for the year ended
December 31, 1996 (unaudited). ........................................ 128
Pro Forma Condensed Combined Statement of Operations for the nine months
ended September 30, 1997 (unaudited). ................................. 130
Pro Forma Condensed Combined Balance Sheet as of
September 30, 1997 (unaudited). ....................................... 133
PATRIOT:
Pro Forma Condensed Consolidated Statement of Operations for the year
ended December 31, 1996 (unaudited).................................... 135
Pro Forma Condensed Consolidated Statement of Operations for the nine
months ended September 30, 1997 (unaudited). .......................... 138
PAHOC:
Pro Forma Condensed Consolidated Statement of Operations for the year
ended December 31, 1996 (unaudited).................................... 141
Pro Forma Condensed Consolidated Statement of Operations for the nine
months ended September 30, 1997 (unaudited). .......................... 144
COMBINED LESSEES:
Pro Forma Condensed Combined Statement of Operations for the year ended
December 31, 1996 (unaudited) and the nine months ended September
30, 1997 (unaudited) .................................................. 148
PRO FORMA FINANCIAL INFORMATION--AS ADJUSTED
FOR THE WYNDHAM TRANSACTIONS
PATRIOT AND PAHOC:
Pro Forma Condensed Combined Statement of Operations for the year ended
December 31, 1996 (unaudited).......................................... 154
Pro Forma Condensed Combined Statement of Operations for the nine months
ended September 30, 1997 (unaudited). ................................. 156
Pro Forma Condensed Combined Balance Sheet as of
September 30, 1997 (unaudited)......................................... 159
PATRIOT:
Pro Forma Condensed Consolidated Statement of Operations for the year
ended December 31, 1996 (unaudited).................................... 162
Pro Forma Condensed Consolidated Statement of Operations for the nine
months ended September 30, 1997 (unaudited). .......................... 164
PAHOC:
Pro Forma Condensed Consolidated Statement of Operations for the year
ended December 31, 1996 (unaudited).................................... 166
Pro Forma Condensed Consolidated Statement of Operations for the nine
months ended September 30, 1997 (unaudited). .......................... 168
COMBINED LESSEES:
Pro Forma Condensed Combined Statement of Operations for the year ended
December 31, 1996 (unaudited) and the nine months ended September
30, 1997 (unaudited)................................................... 171
</TABLE>
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PATRIOT AMERICAN HOSPITALITY, INC., PATRIOT AMERICAN HOSPITALITY OPERATING
COMPANY AND WHG RESORTS & CASINOS INC.
INDEX TO UNAUDITED PRO FORMA FINANCIAL STATEMENTS--CONTINUED
PRO FORMA FINANCIAL INFORMATION--AS ADJUSTED FOR THE MERGER
<TABLE>
<CAPTION>
PAGE
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<S> <C>
PATRIOT AND PAHOC:
Pro Forma Condensed Combined Statement of Operations for the year ended
December 31, 1996 (unaudited).......................................... 174
Pro Forma Condensed Combined Statement of Operations for the nine months
ended September 30, 1997 (unaudited). ................................. 175
Pro Forma Condensed Combined Balance Sheet as of
September 30, 1997 (unaudited)......................................... 177
PAHOC:
Pro Forma Condensed Consolidated Statement of Operations for the year
ended December 31, 1996 (unaudited).................................... 179
Pro Forma Condensed Consolidated Statement of Operations for the nine
months ended September 30, 1997 (unaudited). .......................... 180
</TABLE>
PRO FORMA FINANCIAL INFORMATION--AS ADJUSTED FOR THE PATRIOT/IHC MERGER AND
BUENA VISTA ACQUISITION
<TABLE>
<S> <C>
PATRIOT AND PAHOC:
Pro Forma Condensed Combined Statement of Operations for the year ended
December 31, 1996 (unaudited)........................................... 185
Pro Forma Condensed Combined Statement of Operations for the nine months
ended September 30, 1997 (unaudited). .................................. 186
Pro Forma Condensed Combined Balance Sheet as of
September 30, 1997 (unaudited).......................................... 188
</TABLE>
<TABLE>
<S> <C>
PATRIOT:
Pro Forma Condensed Consolidated Statement of Operations for the year
ended December 31, 1996 (unaudited)..................................... 191
Pro Forma Condensed Consolidated Statement of Operations for the nine
months ended September 30, 1997 (unaudited). ........................... 193
PAHOC:
Pro Forma Condensed Consolidated Statement of Operations for the year
ended December 31, 1996 (unaudited)..................................... 195
Pro Forma Condensed Consolidated Statement of Operations for the nine
months ended September 30, 1997 (unaudited). ........................... 197
</TABLE>
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PATRIOT AND PAHOC
INTRODUCTION TO
PRO FORMA FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)
THE MERGER
On September 30, 1997, Patriot, PAHOC and WHG entered into the Merger
Agreement providing for the merger of a newly-formed subsidiary of PAHOC with
and into WHG, with WHG being the surviving corporation. As a result of the WHG
Merger, PAHOC will acquire the Condado Plaza Hotel, a 50% interest in the El
San Juan and a 23.3% interest in the El Conquistador, all of which are located
in Puerto Rico, as well as a 62% interest in Williams Hospitality Group, Inc.,
the management company for the three hotels and the Las Casitas Village at El
Conquistador.
Under the terms of the Merger Agreement, each share of WHG Common Stock
generally will be converted into the right to receive 0.784 Paired Shares;
provided, however, that in the event that (i) the Average Closing Price is
greater than $31.25 and the Effective Time is before February 1998, the
Exchange Ratio will be adjusted such that the Exchange Ratio Product equals
$24.50, (ii) the Average Closing Price is greater than $31.75 and the
Effective Time is in February 1998, the Exchange Ratio will be adjusted such
that the Exchange Ratio Product equals $24.89, (iii) the Average Closing Price
is greater than $32.25 and the Effective Time is after February 1998, the
Exchange Ratio will be adjusted such that the Exchange Ratio Product equals
$25.28, (iv) the Average Closing Price is less than or equal to $25.50, but
greater than or equal to $19.50, the Exchange Ratio will be adjusted such that
the Exchange Ratio Product equals $20.00, or (v) the Average Closing Price is
less than $19.50, the Exchange Ratio will equal 1.026, provided, however, that
in such circumstances WHG has the right, waivable by it, to terminate the
Merger Agreement.
In addition, each issued and outstanding share of WHG Preferred Stock will
be converted into the right to receive that number of Paired Shares that the
holder of such shares of WHG Preferred Stock would have the right to receive
assuming conversion of such shares, together with any accrued and unpaid
dividends thereon, into shares of WHG Common Stock immediately prior to the
Effective Time.
The Patriot Companies are currently in negotiations with certain of the
Other Owners to acquire their interests in PSJA, WHGI and WKA and an option to
acquire all the equity interests of the partnership which owns the Laguna Wing
of the Condado Plaza. In addition, the Patriot Companies are currently in
negotiations with Kumagai to acquire its 50% interest in the El Con
Partnership. The aggregate purchase price for these interests would be
approximately $80,000, payable partly in cash and partly in Paired Shares. No
assurance can be given that any of these transactions will be consummated.
In addition to the Merger Agreement, Patriot and PAHOC have recently entered
into merger agreements with CHCI, Wyndham and IHC, and entered into or
completed a series of other transactions which are described in greater detail
on the following pages.
The following unaudited Pro Forma Financial Statements (of which this
introduction is a part) present pro forma financial information before giving
effect to the Wyndham Transactions, the Merger, the Patriot/IHC Merger and the
Buena Vista Acquisition. The unaudited Pro Forma Financial Statements as
adjusted for the Merger begin on page 172. The unaudited Pro Forma Financial
Statements as adjusted for the Wyndham Transactions and the other transactions
(before giving effect to the Merger) begin on page 149. The unaudited Pro
Forma Financial Statement as adjusted for the Patriot/IHC Merger and the Buena
Vista Acquisition, the Merger, the Wyndham Transactions and certain other
transactions begin on page 182.
The following unaudited Pro Forma Condensed Combined Statements of
Operations are not necessarily indicative of what the actual results of
operations of Patriot and PAHOC as adjusted for the Merger and the
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other transactions described herein 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 Combined Statement of Operations for the interim period ended
September 30, 1997 is not necessarily indicative of the results of operations
for the full year.
Each of the Pro Forma Financial Statements presented include adjustments for
the purchase method of accounting whereby the hotels and related improvements
and other assets and liabilities acquired by Patriot and PAHOC in connection
with the Merger, the Wyndham Transactions, the Patriot/IHC Merger and certain
other transactions, are adjusted to estimated fair market value. The fair
market value of the assets and liabilities have been determined based upon
preliminary estimates and are subject to change as additional information is
obtained. Management does not anticipate that the preliminary allocation of
purchase costs based upon the estimated fair market value of the assets and
liabilities 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 each of the transactions. Therefore,
the allocation reflected in the following unaudited Pro Forma Financial
Statements may differ from the amounts ultimately determined.
BACKGROUND
On July 1, 1997, pursuant to the Cal Jockey Merger, Old Patriot merged with
and into Cal Jockey, with Cal Jockey being the surviving legal entity. In
connection with the Cal Jockey Merger, Cal Jockey changed its name to Patriot
and Bay Meadows changed its name to PAHOC. Shares of Patriot Common Stock are
paired and trade together with the shares of PAHOC Common Stock as a single
unit pursuant to the Pairing Agreement.
By operation of the Cal Jockey Merger, each issued and outstanding share of
Old Patriot Common Stock was converted into 0.51895 shares of Patriot Common
Stock and 0.51895 shares of PAHOC Common Stock (prior to giving effect to the
1.927-for-1 stock split discussed below), which shares are paired and
transferable only as a single unit. Each paired share of Cal Jockey and Bay
Meadows common stock remained outstanding and represented the same number of
paired shares of Patriot Common Stock and PAHOC Common Stock.
In connection with the Cal Jockey Merger, Bay Meadows formed the PAHOC
Partnership into which Bay Meadows contributed its assets in exchange for OP
Units of the PAHOC Partnership, and Cal Jockey contributed certain of its
assets to the Patriot Partnership in exchange for OP Units of the Patriot
Partnership. Subsequent to completion of the Cal Jockey Merger and the related
transactions contemplated by the Cal Jockey Merger Agreement, substantially
all of the operations of Patriot and PAHOC have been conducted through the
Patriot Partnerships and their subsidiaries.
The unaudited Pro Forma Financial Statements have been adjusted for the
purchase method of accounting whereby the Racecourse facilities and related
leasehold improvements owned by Cal Jockey and Bay Meadows are adjusted to
estimated fair market value. The Cal Jockey Merger has been accounted for as a
reverse acquisition whereby Cal Jockey is considered to be the acquired
company for accounting purposes.
On July 10, 1997, the respective Boards of Directors of Patriot and PAHOC
declared a 1.927-for-1 stock split on its shares of common stock effected in
the form of a stock dividend distributed on July 25, 1997 to stockholders of
record on July 15, 1997.
Unless otherwise indicated, all references in the pro forma financial
statements to the number of shares, per share amounts, and market prices of
the common stock and options to purchase common stock have been restated to
reflect the impact of the conversion of each share of Old Patriot Common Stock
into 0.51895 Paired Shares issued in the Cal Jockey Merger and the 1.927-for-1
stock split. In addition, all references in the pro forma financial statements
to the number of shares, per share amounts, and market prices of the common
stock and options to purchase common stock related to periods prior to the 2-
for-1 stock split on Old Patriot Common Stock effected in the form of a stock
dividend distributed on March 18, 1997 to stockholders of record on March 7,
1997 have been restated to reflect the impact of such stock split.
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Patriot leases each of its hotels, except the Crowne Plaza Ravinia Hotel and
the Wyndham WindWatch Hotel, which are separately owned through Non-Controlled
Subsidiaries, to either PAHOC or a Lessee that is responsible for operating
such hotel. The hotels are leased for periods ranging from one to 12-years
pursuant to separate Participating Leases providing for the payment of the
greater of base or participating rent, plus certain additional charges, as
applicable. The Lessees, in turn, have entered into separate agreements with
the Operators to manage the hotels. The Crowne Plaza Ravinia Hotel and the
Wyndham WindWatch Hotel were structured without lessees and are managed
directly by an Operator.
As of December 12, 1997, 36 of Patriot's hotels are leased to separate
Lessees (including the Park Shore Hotel), and 43 hotels are leased to PAHOC
(including the Sheraton City Centre).
BUSINESSES ACQUIRED
Since January 1, 1997, Patriot, through the Patriot Partnership and its
subsidiaries, has invested approximately $730,588 in the acquisition of 20
hotels and five resort properties with a total of 6,024 guest rooms (the
"Recent Acquisitions"). These acquisitions were financed primarily with funds
drawn on the Revolving Credit Facility (and prior to the Cal Jockey Merger,
the Old Line of Credit facility) and other mortgage debt, the issuance of
3,204,243 OP Units valued at approximately $73,662 and the assumption of
mortgage debt in the amount of approximately $34,263. In addition, in
connection with certain other transactions described below (see "Acquisition
of Gencom American Hospitality and Merger with CHC International, Inc."),
Patriot, through the Patriot Partnership and its subsidiaries, has invested
approximately $236,984 in the acquisition of ten additional hotels with a
total of 3,119 rooms (the "CHC Hotels").
On July 14, 1997, Patriot sold approximately 174 acres of land in San Mateo,
California, representing substantially all of the land which was owned by Cal
Jockey prior to the Cal Jockey Merger, to an affiliate of PaineWebber for a
purchase price of approximately $80,864. These funds were placed in a
restricted trust account in order to facilitate a tax-deferred, like-kind
exchange through the acquisition of suitable hotel properties. During July
1997, three suitable hotels (the Holiday Inn at the San Francisco
International Airport, the Ambassador West Hotel and the Union Station Hotel)
were acquired using a portion of the proceeds from this restricted account.
Patriot retained ownership of the improvements located on the land, including
the Racecourse and its related facilities. Simultaneously with the
consummation of the PaineWebber Land Sale, the PaineWebber affiliate and
Patriot entered into a ground lease covering a portion of the land on which
the Racecourse is situated for a term of seven years. The lease provides for
quarterly rental payments of $750 through March 1998, $813 through March 1999,
$875 through March 2000, $1,000 through March 2002 and $1,250 through July
2004. Additionally, Patriot subleased the Racecourse land and leased the
related improvements to PAHOC in order to permit PAHOC to continue horseracing
operations at the Racecourse through the term of Patriot's lease. The sublease
is for a term of seven years with annual payments based on percentages of
revenue generated. In addition, Patriot has leased certain land adjacent to
the Racecourse to Borders, Inc. (the "Borders Lease") for an initial term of
20 years with a fixed net annual rent of $279 for years 1 through 10, $362 for
years 11 through 15 and $416 for years 16 through 20. In connection with the
sale, Patriot assigned all of its rights and benefits under existing leases,
contracts, permits and entitlements relating to the land sold (excluding the
Borders Lease) to the PaineWebber affiliate, and the PaineWebber affiliate
assumed all of Patriot's development obligations including, but not limited
to, all obligations for on and off-site improvements and all obligations under
existing leases and contracts. The parties have the option to renew such
leases upon their expiration under certain circumstances.
In August 1997, Patriot, through the Patriot Partnership and its
subsidiaries, acquired the 227-room Park Shore Hotel in Honolulu, Hawaii. The
following unaudited Pro Forma Condensed Combined Statements of Operations do
not include adjustments to reflect the results of operations of the Park Shore
Hotel.
In August 1997, the Patriot Companies acquired Grand Heritage Hotels, Inc.,
a hotel management and marketing company, and other Grand Heritage
subsidiaries including Grand Heritage Leasing, L.L.C., which
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leased three hotels from Patriot (the "Grand Heritage Acquisition"). The
acquisition was financed primarily through the issuance of 931,972 Class A
preferred OP Units of the PAHOC Partnership.
Effective October 1, 1997, PAHOC, through certain of its subsidiaries,
acquired the members' interest of PAH RSI, L.L.C., a limited liability company
owned and controlled by certain executive officers of the Patriot Companies
("PAH RSI Lessee") for approximately $143. PAH RSI Lessee leased eight of
Patriot's hotels. As a result of the acquisition, PAHOC holds these leasehold
interests.
In August 1997, PAHOC purchased a participating loan from National Resort
Ventures, L.P., a Delaware limited partnership, related to the 1,014-room
Buena Vista Palace Hotel in Orlando, Florida for $23,750 in cash (the
"Participating Note"). The Buena Vista Palace Hotel is owned by a joint
venture (the "Buena Vista Joint Venture") between Equitable Life Insurance
Company ("Equitable"), which owns a 55% interest, and Hotel Venture Partners,
Ltd. ("HVP"), a Florida limited partnership, which owns a 45% interest.
Patriot, through certain of its subsidiaries, has entered into a Contribution
Agreement dated October 7, 1997 to acquire approximately 90% of HVP's 45%
interest in the Buena Vista Joint Venture for approximately $14,000 in cash
and OP Units in the Patriot Partnerships. Patriot was also granted an option
to acquire HVP's remaining interest in the Buena Vista Joint Venture. In
addition, pursuant to a Purchase and Sale Agreement dated November 6, 1997,
Patriot, through certain of its subsidiaries, agreed to acquire Equitable's
55% interest in the Buena Vista Joint Venture for approximately $53,500 in
cash. Patriot will also acquire the Participating Note investment held by
PAHOC for $23,750 in cash and also agreed to repay outstanding mezzanine debt
of approximately $6,004. Subsequent to acquisition of these joint venture
interests, Patriot, through certain of its subsidiaries, will hold an
aggregate 95% ownership interest (including a 1% general partnership interest)
in the Buena Vista Joint Venture with an option to acquire the remaining 5%
interest in three years. The hotel will remain subject to a ground lease and a
first leasehold mortgage note in the amount of approximately $50,700.
On November 25, 1997, Patriot, through the Patriot Partnership, acquired a
92.5% general partner interest in a partnership formed for the purpose of
acquiring the 353-room Sheraton City Centre hotel (the "Sheraton City Centre
Partnership"). A third party (the "Minority Partner") owns the remaining 7.5%
limited partner interest in the Sheraton City Centre Partnership (the
"Minority Interest"). The Patriot Partnership contributed approximately
$36,800 for its general partner interest, financed primarily with funds drawn
on the Revolving Credit Facility. Patriot has leased the Sheraton City Centre
hotel to PAHOC. Beginning in November 1999, the Minority Partner may require
Patriot Partnership to purchase the Minority Interest at a price equal to the
estimated value (as calculated in accordance with the provisions of the
partnership agreement). In addition, beginning in November 2001, the Patriot
Partnership has the option to purchase the Minority Interest for the greater
of $5,500 or the estimated value of Minority Interest (as defined in the
partnership agreement). The following unaudited Pro Forma Condensed Combined
Statements of Operations do not include the results of operations of the
Sheraton City Centre.
FINANCING TRANSACTIONS
On July 21, 1997, the Patriot Companies entered into the Revolving Credit
Facility with Paine Webber Real Estate, Chase and certain other lenders for a
three-year $700,000 unsecured revolving line of credit. The Patriot Companies
have entered into an agreement with Paine Webber Real Estate and Chase to
increase the amount available under the Revolving Credit Facility to $900,000.
Borrowings have been made under the Revolving Credit Facility to repay all
outstanding amounts under Old Patriot's secured line of credit with Paine
Webber Real Estate (the "Old Line of Credit"). The Revolving Credit Facility
generally is used for the acquisition of additional properties, businesses and
other assets, for capital expenditures and for general working capital
purposes. In addition, it is expected that the Revolving Credit Facility will
be used to refinance that portion of existing Wyndham indebtedness that is not
refinanced through the Term Loan (see below). The interest rate for the
Revolving Credit Facility ranges from LIBOR plus 1.0% to 2.0% (depending on
the Patriot Companies' leverage ratio or the investment grade rating received
from the rating agencies) or the customary alternate base rate announced from
time to time plus 0.0% to 0.5%
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(depending on the Patriot Companies' leverage ratio). The weighted average
interest rate in effect for the Revolving Credit Facility for the period ended
September 30, 1997 was 7.62% per annum.
Additionally, Patriot has entered into an agreement with Paine Webber Real
Estate and Chase for the $350,000 Term Loan. In connection with the Patriot
Companies' negotiations to increase the amount available under the Revolving
Credit Facility, the Term Loan commitment amount was reduced from $500,000 to
$350,000. The Term Loan will be unsecured. The Term Loan will be used
primarily to refinance substantially all of the existing indebtedness of
Wyndham and to finance payments to be made in connection with the Wyndham
Transactions. The Term Loan has an interest rate per annum equal to the
interest rate incurred on the Revolving Credit Facility.
In June 1997, Patriot loaned approximately $20,500 to a partnership
affiliated with members of CHC Lease Partners relating to the Doubletree Hotel
in Glenview, Illinois. In July 1997, Patriot loaned approximately $25,600 to
another partnership affiliated with members of CHC Lease Partners, relating to
the Sheraton Gateway Hotel in Miami, Florida (also known as the Sheraton River
House Hotel). Both loans mature in two years, bear interest at a rate per
annum equal to 30-day LIBOR plus 2.75%, and are secured by first priority
liens on the respective hotels. Additionally, Patriot has purchased two
additional loans on which partnerships affiliated with the members of CHC
Lease Partners are borrowers for an aggregate purchase price of $57,000. One
of the purchased loans, in the principal amount of approximately $30,700,
matures in December 2000 and bears interest at a rate per annum equal to 8.0%
until November 30, 1997, 8.5% from December 1, 1997 until November 30, 1999,
and 9.0% from December 1, 1999 until December 1, 2000. The second purchased
loan, in the principal amount of approximately $24,400, matures on December
31, 1999 and bears interest at a rate per annum equal to 8.0% until December
31, 1997 and 9.5% from January 1, 1998 until December 31, 1999. Each of the
purchased loans is secured by first priority liens on the respective hotels.
The notes contain certain penalties for early repayment. In connection with
such loans, Patriot has entered into a short-term financing arrangement with
an affiliate of Paine Webber Real Estate (the "Paine Webber Mortgage
Financing"), whereby such affiliate loaned Patriot $103,000 through April 15,
1998 at a rate equal to the greater of 30-day LIBOR plus 1.75% or the
borrowing rate on the Revolving Credit Facility. This financing is secured by
a collateral assignment of the mortgage loans encumbering the four hotels. In
October 1997, Patriot, through certain of its subsidiaries, acquired 100% of
the ownership interests in the four partnerships that own these hotels (see
"Acquisition of Gencom American Hospitality and Merger with CHC International,
Inc." below). As a result, the note balances and the related interest income
and expense are eliminated in Patriot's consolidated financial statements.
In August 1997, the Patriot Companies completed a public offering (the
"Offering") of 10,580,000 Paired Shares (including 1,380,000 Paired Shares
issued upon exercise of the underwriters' over-allotment option), with net
proceeds (less underwriter discount and expenses) of approximately $240,795.
The net proceeds were primarily used to reduce the outstanding debt under the
Revolving Credit Facility.
On September 30, 1997, the Patriot Companies exercised their right to call
2,000,033 OP Units in each of the Patriot Partnerships held by The Morgan
Stanley Real Estate Fund, L.P., and certain related entities (the "Morgan
Stanley Call"). The exercise price on the Morgan Stanley Call was $25.875 per
pair of OP Units. The Morgan Stanley Call was funded with the proceeds of the
PaineWebber Direct Placement and the LaSalle Direct Placement.
On November 13, 1997, pursuant to a letter agreement dated September 30,
1997, the Patriot Companies sold 1,000,033 Paired Shares to PaineWebber (the
"PaineWebber Direct Placement") for a purchase price per Paired Share of
$27.6875, or aggregate consideration of $27,688. In addition, pursuant to a
letter agreement dated September 30, 1997, the Patriot Companies sold
1,000,000 Paired Shares to LaSalle Advisors Limited ("LaSalle"), as agent for
certain clients of LaSalle (the "LaSalle Direct Placement"), at a purchase
price per Paired Share of $27.65, or aggregate consideration of $27,650.
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ACQUISITION OF GENCOM AMERICAN HOSPITALITY AND MERGER WITH CHC INTERNATIONAL,
INC.
In September 1997, Patriot, through certain of its subsidiaries, acquired
seven hotels (including an approximate 50% controlling ownership interest in
the Omni Inner Harbor Hotel) and in October 1997, Patriot, through certain of
its subsidiaries, acquired three additional hotels. The ten CHC Hotels were
acquired from entities affiliated with the Gencom and CHCI for an aggregate
purchase price of approximately $236,984. In addition, Patriot has entered
into an agreement whereby Patriot may indirectly acquire the remaining
ownership interest in the Omni Inner Harbor Hotel for approximately $19,314.
The CHC Hotels are leased to and managed by PAHOC and its subsidiaries. The
purchase of the hotels was financed with approximately $45,000 of cash drawn
on the Revolving Credit Facility and by issuing 1,703,943 Paired Shares and
2,174,773 paired OP Units in the Patriot Partnerships in a private placement.
Four of the hotels are encumbered by the mortgage loans, in the aggregate
amount of approximately $103,443 including accrued interest, that Patriot made
in connection with the Paine Webber Mortgage Financing discussed above.
In addition, Patriot acquired the leasehold interests related to eight
hotels which were previously leased by CHC Lease Partners and re-leased such
hotels to PAHOC. Prior to such acquisition, the management contracts with GAH,
an affiliate of CHCI and Gencom, related to the eight hotels were terminated.
The aggregate purchase price of the leasehold interests was approximately
$52,766. Concurrently, PAHOC purchased an approximate 50% managing,
controlling ownership interest in GAH from affiliates of Gencom for a purchase
price of approximately $13,860. These transactions were financed with
approximately $644 of cash, and by issuing 2,388,932 paired OP Units of the
Patriot Partnership and the PAHOC Partnership and 476,682 Class C preferred OP
Units of the PAHOC Partnership. In connection with Patriot's acquisition of
the eight leasehold interests from CHC Lease Partners, CHC Lease Partners was
liquidated and its remaining 17 leasehold interests became leasehold interests
of CHCI, the ultimate remaining owner of CHC Lease Partners at the time of its
liquidation. These 17 leasehold interests will be acquired by PAHOC if the
CHCI Merger is consummated, as described below.
GAH, directly and through certain of its subsidiaries, owns nine management
contracts related to hotels leased by PAHOC, 15 third-party management
contracts, and certain other hospitality management assets. Concurrently with
PAHOC's purchase of its controlling interest in GAH, PAHOC also entered into a
Hospitality Advisory, Asset Management and Support Services Agreement with
CHCI and GAH whereby PAHOC will provide certain hospitality advisory, asset
management and support services to certain CHCI and GAH subsidiaries for base
fees aggregating approximately $750 per month plus a percentage of excess cash
flows of the hotels.
Patriot, PAHOC and CHCI have also entered into an Agreement and Plan of
Merger dated as of September 30, 1997 for the merger of the hospitality-
related businesses of CHCI with and into PAHOC with PAHOC being the surviving
company. 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 certain conditions, including receipt of all
necessary regulatory approvals. As a result of the CHCI Merger, PAHOC, 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 hotels leased by CHC Lease Partners, three management contracts
related to Patriot hotels leased by PAHOC, 12 third-party management
contracts, two third-party lease contracts, the Grand Bay and Registry Hotels
& Resorts proprietary brand names and certain other hospitality management
assets. PAHOC has also agreed to provide CHCI with a $7,000 line of credit
until such time as the CHCI Merger is completed. PAHOC's acquisition of GAH,
both the acquisition of an approximate 50% interest in GAH in September 1997
and the acquisition of the remaining approximate 50% interest in connection
with the CHCI Merger, is referred to as the "GAH Acquisition" when used in
connection with the presentation of pro forma financial data.
By operation of the CHCI Merger and the transactions related thereto, each
issued and outstanding CHCI Share and certain stock option rights will be
converted into the right to receive shares of PAHOC Series A
125
<PAGE>
Preferred Stock and shares of PAHOC Series B Preferred Stock (collectively,
the PAHOC Series A Preferred Stock and the PAHOC Series B Preferred Stock are
referred to herein as the "PAHOC Preferred Stock"). The formula for
determining the exchange ratio of CHCI Shares for PAHOC Series A Preferred
Stock and PAHOC Series B Preferred Stock is based on issuing an aggregate of
approximately 4,396,000 shares of PAHOC Preferred Stock (based on an aggregate
purchase value of approximately $102,200 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 after
September 30, 1997. Generally, the aggregate number of shares of PAHOC
Preferred Stock that each stockholder shall have the right to receive pursuant
to the CHCI Merger shall consist of, to the extent possible, an equal number
of PAHOC Series A Preferred Stock and PAHOC Series B Preferred Stock.
Generally, each share of PAHOC Series A Preferred Stock may be redeemed for
one Paired Share at any time following the one-year anniversary of the closing
of the CHCI Merger. Each share of PAHOC Series B Preferred Stock may be
redeemed for one Paired Share, 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 PAHOC's option, be paid in cash. Further, if PAHOC fails to comply
with certain restrictions, the preferred shares may be redeemed for cash or,
at PAHOC's option, Paired Shares at the Redemption Value plus a premium. The
dividend rate on the shares of PAHOC Preferred Stock is equivalent to the
dividend rate on the Paired Shares. Dividends on PAHOC 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 shares of PAHOC Preferred Stock are not paid when due,
dividends will instead accrue at the rate of 115% per annum on a compounded
basis. The shares of PAHOC Preferred Stock are redeemable at PAHOC'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 GAH Acquisition preferred OP Units of the PAHOC
Partnership with a value of approximately $5,000 have been held back, and the
CHCI Merger equity consideration is subject to reduction in the amount of
approximately $5,000 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, PAHOC may be
obligated to pay the CHCI stockholders, and a subsidiary of PAHOC may be
obligated to pay a Gencom-related entity, additional consideration, in each
case based upon the delivery and performance of certain specified assets.
SUMMARY
As of December 12, 1997, Patriot owned interests in 81 hotels and resorts
and held an approximate 86.0% ownership interest in the Patriot Partnership.
PAHOC held an approximate 84.6% ownership interest in the PAHOC Partnership.
The unaudited Pro Forma Financial Statements reflect an approximate 13.8%
minority ownership interest in the Patriot Partnership and a 14.5% minority
ownership interest in the PAHOC Partnership, which represents the estimated
ownership interest subsequent to consummation of the GAH Acquisition, the CHCI
Merger, the PaineWebber Direct Placement and the LaSalle Direct Placement.
The following unaudited Pro Forma Condensed Combined Statement of Operations
for the year ended December 31, 1996 and the nine months ended September 30,
1997 of Patriot and PAHOC are derived from the individual unaudited Pro Forma
Condensed Consolidated Statements of Operations of Patriot and PAHOC which are
located on pages 135 through 146. Such pro forma information is based in part
upon:
(i) the Separate and Combined Statements of Income of Cal Jockey and Bay
Meadows filed with the Cal Jockey and Bay Meadows Joint Annual Report on
Form 10-K for the year ended December 31, 1996;
(ii) the Consolidated Statements of Operations of Old Patriot filed with
the Old Patriot Annual Report on Form 10-K for the year ended December 31,
1996;
126
<PAGE>
(iii) the Separate and Combined Statements of Operations of Patriot and
PAHOC filed with the Patriot Companies' Joint Quarterly Report on Form 10-Q
for the nine months ended September 30, 1997;
(iv) the historical financial statements of certain hotels acquired by
Old Patriot filed in Old Patriot's Current Reports on Form 8-K dated April
2, 1996, as amended, December 5, 1996 and January 16, 1997, as amended;
(v) the historical financial statements of the certain hotels and
businesses acquired by Patriot and PAHOC filed in the Patriot Companies'
Joint Current Reports on Form 8-K dated September 17, 1997, September 30,
1997, as amended, and December 10, 1997; and
(vi) the Pro Forma Condensed Combined Statements of Operations of the
Lessees which are located on page 148.
The following unaudited Pro Forma Condensed Combined Statements of
Operations assume the following transactions (the "Recent Transactions") have
occurred at the beginning of the periods presented:
(i) the Cal Jockey Merger and the related transactions have been
consummated on terms set forth in the Cal Jockey Merger Agreement;
(ii) the PaineWebber Land Sale has been consummated, the PaineWebber
affiliate has leased that portion of the land upon which the Racecourse is
situated to Patriot, and Patriot has subleased the land and related
improvements to PAHOC;
(iii) Patriot has leased certain land to Borders, Inc.;
(iv) PAHOC has completed the Grand Heritage Acquisition and the
acquisition of PAH RSI Lessee;
(v) Patriot has acquired the Recent Acquisitions (excluding the Park
Shore Hotel and the Sheraton City Centre);
(vi) the mortgage notes to affiliates of CHC Lease Partners have been
funded;
(vii) Patriot has replaced the Old Line of Credit with the Revolving
Credit Facility and the Term Loan;
(viii) PAHOC has acquired the Participating Note; and
(ix) the Offering of 10,580,000 Paired Shares has been completed.
The unaudited Pro Forma Condensed Combined Statements of Operations also
assume the following additional transactions have occurred at the beginning of
the periods presented:
(i) Patriot has acquired the CHC Hotels and leased such hotels to PAHOC;
(ii) PAHOC has completed the GAH Acquisition; and
(iii) the CHCI Merger has been consummated on the terms set forth in the
CHCI Merger Agreement.
The pro forma results of operations for the year ended December 31, 1996
assume the 24 hotels acquired during 1996 and the private placement of equity
securities and the public offering of common stock completed by Old Patriot
during 1996 had occurred as of January 1, 1996.
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 are not necessarily
indicative of what the actual results of operations of Patriot and PAHOC 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 Combined Statement of Operations for
the interim period ended September 30, 1997 is not necessarily indicative of
the results of operations for the full year.
127
<PAGE>
PATRIOT AND PAHOC
PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1996
(UNAUDITED)
<TABLE>
<CAPTION>
PATRIOT PAHOC PRO FORMA
PRO FORMA PRO FORMA ELIMINATIONS TOTAL
--------- --------- ------------ ----------
(IN THOUSANDS, EXCEPT FOR PER SHARE
AMOUNTS)
<S> <C> <C> <C> <C>
Revenue:
Participating lease revenue.. $213,868 $ -- $(172,119)(A) $ 41,749
Hotel revenue................ -- 572,292 -- 572,292
Racecourse facility and land
lease revenue .............. 5,945 51,946 (5,611)(B) 52,280
Management fee and service
fee income.................. -- 13,522 -- 13,522
Interest and other income.... 2,297 10,012 (5,916)(C) 6,393
-------- -------- --------- --------
Total revenue................ 222,110 647,772 (183,646) 686,236
-------- -------- --------- --------
Expenses:
Departmental costs--hotel
operations.................. -- 241,792 -- 241,792
Racecourse facility
operations.................. -- 46,351 (5,611)(B) 40,740
Direct operating costs of
management company, service
department and development
costs....................... -- 11,143 -- 11,143
Ground lease expense......... 5,693 733 -- 6,426
General and administrative... 6,797 71,700 (34)(C) 78,463
Repair and maintenance....... -- 29,897 -- 29,897
Utilities.................... -- 26,843 -- 26,843
Interest expense............. 64,518 1,393 (5,882)(C) 60,029 (D)
Real estate and personal
property taxes and casualty
insurance................... 22,488 398 -- 22,886
Marketing.................... -- 51,238 -- 51,238
Management fees.............. -- 9,469 -- 9,469
Depreciation and
amortization................ 62,723 10,348 -- 73,071
Participating lease
payments.................... -- 172,119 (172,119)(A) --
-------- -------- --------- --------
Total expenses............... 162,219 673,424 (183,646) 651,997
-------- -------- --------- --------
Income (loss) before equity in
earnings of unconsolidated
subsidiaries, income tax
provision and minority
interests.................... 59,891 (25,652) -- 34,239
Equity in earnings of
unconsolidated
subsidiaries................ 7,559 -- -- 7,559
-------- -------- --------- --------
Income (loss) before income
tax provision and minority
interests.................... 67,450 (25,652) -- 41,798
Income tax provision......... (170) (760) -- (930)
-------- -------- --------- --------
Income (loss) before minority
interests.................... 67,280 (26,412) -- 40,868
Minority interest in the
Patriot Partnerships........ (9,032) 3,830 -- (5,202)
Minority interest in
consolidated subsidiaries... (1,832) -- -- (1,832)
-------- -------- --------- --------
Net income (loss) applicable
to common stockholders(E).... $ 56,416 $(22,582) $ -- $ 33,834 (D)
======== ======== ========= ========
Net income (loss) per common
Paired Share(F).............. $ 0.75 $ (0.30) $ 0.45 (D)
======== ======== ========
</TABLE>
- --------
(A) Represents elimination of participating lease revenue and expense related
to the 59 hotels (including the 17 leases to be acquired in connection
with the CHCI Merger) leased by Patriot to PAHOC (excluding the Sheraton
City Centre).
(B) Represents elimination of rental income and expense related to the
Racecourse facility and land leased by Patriot to PAHOC.
(C) In connection with the Cal Jockey Merger, Patriot Partnership subscribed
for shares of Bay Meadows common stock (which became shares of PAHOC
Common Stock in connection with the Cal Jockey Merger) in an amount equal
to the number of shares of Patriot Common Stock that were issued to Old
Patriot stockholders in the Cal Jockey Merger. In addition, Patriot
Partnership similarly subscribed for OP Units in the PAHOC Partnership in
an amount equal to the number of Patriot Partnership OP Units that were
outstanding subsequent to the Cal Jockey Merger. The subscription for the
shares and OP Units was funded through the issuance of promissory notes in
the aggregate amount of $58,901 (the "Subscription Notes") payable to
PAHOC. The Subscription Notes accrue interest at a rate of 8% per annum
and mature December 31, 1997. The pro forma adjustments represent the
elimination of $4,712 of interest income and expense related to the
Subscription Notes, the elimination of $1,170 of interest income and
expense related to a note receivable issued to Old Patriot in connection
with the sale of certain assets to PAH RSI Lessee, which assets were
acquired by PAHOC, and the elimination of $34 of other intercompany income
and expense items.
(D) The pro forma amounts presented assume an average interest rate of 7.183%
per annum (representing LIBOR plus 1.7%) on the amounts outstanding under
the Revolving Credit Facility. An increase of 0.25% in the interest rate
would increase pro forma interest expense to $61,604, decrease net income
applicable to common stockholders to $32,477 and decrease net income per
common share to $0.43.
128
<PAGE>
In connection with the closing of the Revolving Credit Facility, deferred
loan costs totaling approximately $11,605, including fees, legal and other
expenses were incurred and amortization expense of approximately $3,868 is
reflected in pro forma interest expense. Amortization of deferred loan costs
is computed using the straight-line method over the 3-year loan term. As a
result of closing the Revolving Credit Facility, deferred loan costs
totaling approximately $2,910 related to the Old Line of Credit were written
off. This amount was reported as an extraordinary item in the Patriot
Companies' results of operations for the nine months ended September 30,
1997.
(E) In connection with the GAH Acquisition and the CHCI Merger, Patriot
acquired eight Participating Leases held by CHC Lease Partners (and leased
these hotels to PAHOC) and PAHOC acquired the remaining 17 Participating
Leases held by CHC Lease Partners for aggregate consideration of
approximately $105,532. Because the intent of the accompanying pro forma
condensed combined statement of operations for the year ended December 31,
1996 is to reflect the expected continuing impact of the above-described
transactions on the Patriot Companies, the adjustment to write off the
cost of acquiring these leases has been excluded. This expense will be
recorded as an operating expense on Patriot's and PAHOC's respective
statements of operations.
(F) Pro forma earnings per share is computed based on 75,516 weighted average
common Paired Shares and common Paired Share equivalents outstanding for
the period. The number of shares used for the calculation includes
adjustments to reflect the impact of the conversion of shares of PAHOC
Preferred Stock into Paired Shares. In addition, the net income per common
Paired Share and the weighted average number of common Paired Shares and
common Paired Share equivalents have been adjusted for (i) the March 1997
2-for-1 stock split on Old Patriot Common Stock effected in the form of a
stock dividend, (ii) the conversion of each share of Old Patriot Common
Stock into 0.51895 Paired Shares issued in the Cal Jockey Merger, and
(iii) the July 1997 1.927-for-1 stock split effected in the form of a
stock dividend.
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.
Under the new requirements for calculating basic earnings per share, the
dilutive effect of stock options and convertible preferred securities will
be excluded. Pro forma basic earnings per share for the year ended December
31, 1996 would be $0.45 per common Paired Share. The impact of Statement 128
on the calculation of diluted earnings per share is not expected to differ
significantly from the earnings per share amounts reported.
129
<PAGE>
PATRIOT AND PAHOC
PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997
(UNAUDITED)
<TABLE>
<CAPTION>
PATRIOT PAHOC PRO FORMA
PRO FORMA PRO FORMA ELIMINATIONS TOTAL
--------- --------- ------------ ----------
(IN THOUSANDS, EXCEPT FOR PER SHARE
AMOUNTS)
<S> <C> <C> <C> <C>
Revenue:
Participating lease revenue.. $172,682 $ -- $(138,309)(A) $ 34,373
Hotel revenue................ -- 462,484 -- 462,484
Racecourse facility and land
lease revenue............... 3,504 33,399 (3,246)(B) 33,657
Management fee and service
fee income.................. -- 14,701 -- 14,701
Interest and other income.... 4,043 6,374 (2,306)(C) 8,111
-------- -------- --------- --------
Total revenue................ 180,229 516,958 (143,861) 553,326
-------- -------- --------- --------
Expenses:
Departmental costs--hotel
operations.................. -- 187,784 -- 187,784
Racecourse facility
operations.................. -- 30,114 (3,246)(B) 26,868
Direct operating costs of
management company and
service department.......... -- 12,568 -- 12,568
General and administrative... 6,937 54,225 (24)(C) 61,138
Ground lease expense......... 5,535 523 -- 6,058
Repair and maintenance....... -- 24,230 -- 24,230
Utilities.................... -- 20,341 -- 20,341
Interest expense............. 48,329 936 (2,282)(C) 46,983 (D)
Real estate and personal
property taxes and casualty
insurance................... 17,812 290 -- 18,102
Marketing.................... -- 41,734 -- 41,734
Management fees.............. -- 9,657 -- 9,657
Depreciation and
amortization................ 47,565 5,449 -- 53,014
Participating lease
payments.................... -- 138,309 (138,309)(A) --
-------- -------- --------- --------
Total expenses............... 126,178 526,160 (143,861) 508,477
-------- -------- --------- --------
Income (loss) before equity in
earnings of unconsolidated
subsidiaries, income tax
provision and minority
interests.................... 54,051 (9,202) -- 44,849
Equity in earnings of
unconsolidated
subsidiaries................ 4,488 -- -- 4,488
-------- -------- --------- --------
Income (loss) before income
tax provision and minority
interests.................... 58,539 (9,202) -- 49,337
Income tax (provision)
benefit..................... (125) -- -- (125)
-------- -------- --------- --------
Income (loss) before minority
interests.................... 58,414 (9,202) -- 49,212
Minority interest in the
Patriot Partnerships........ (7,803) 1,334 -- (6,469)
Minority interest in
consolidated subsidiaries... (1,869) -- -- (1,869)
-------- -------- --------- --------
Net income (loss) applicable
to common stockholders(E).... $ 48,742 $ (7,868) $ -- $ 40,874 (D)
======== ======== ========= ========
Net income (loss) per common
Paired Share(F).............. $ 0.64 $ (0.10) $ 0.54 (D)
======== ======== ========
</TABLE>
- --------
(A) Represents elimination of participating lease revenue and expense related
to the 59 hotels (including the 17 leases to be acquired in connection
with the CHCI Merger) leased by Patriot to PAHOC (excluding the Sheraton
City Centre).
(B) Represents elimination of rental income and expense related to the
Racecourse facility and land leased by Patriot to PAHOC.
(C) The pro forma adjustments represent the elimination of $1,450 of interest
income and expense related to the Subscription Notes issued to PAHOC in
connection with the subscription for shares of PAHOC Common Stock and
PAHOC Partnership OP Units issued in connection with the Cal Jockey
Merger, the elimination of $832 of interest income and expense related to
a note receivable issued to Old Patriot in connection with the sale of
certain assets to PAH RSI Lessee, which assets were acquired by PAHOC, and
the elimination of $24 of other intercompany income and expense items.
(D) The pro forma amounts presented assume an average interest rate of 7.303%
per annum (representing LIBOR plus 1.7%) on the amounts outstanding under
the Revolving Credit Facility. An increase of 0.25% in the interest rate
would increase pro forma interest expense to $48,159 and decrease net
income applicable to common stockholders to $39,860. Net income per common
share would be $0.53. In connection with the closing of the Revolving
Credit Facility, deferred loan costs totaling approximately $11,605,
including fees, legal and other expenses were incurred and amortization
expense of approximately $2,901 is reflected in pro forma interest
expense.
130
<PAGE>
Amortization of deferred loan costs is computed using the straight-line
method over the 3-year loan term. As a result of closing the Revolving
Credit Facility, deferred loan costs totaling approximately $2,910 related
to the Old Line of Credit were written off. This amount was reported as an
extraordinary item in the Patriot Companies' historical results of
operations for the nine months ended September 30, 1997 and has been
eliminated from operating results for pro forma presentation purposes.
(E) In connection with the GAH Acquisition and the CHCI Merger, Patriot
acquired eight Participating Leases held by CHC Lease Partners (and leased
these hotels to PAHOC) and PAHOC acquired the remaining 17 Participating
Leases held by CHC Lease Partners for aggregate consideration of
approximately $105,532. Because the intent of the accompanying pro forma
condensed combined statement of operations for the nine months ended
September 30, 1997 is to reflect the expected continuing impact of the
above-described transactions on the Patriot Companies, the adjustment to
write off the cost of acquiring these leases has been excluded. This
expense will be recorded as an operating expense on Patriot's and PAHOC's
respective statements of operations.
(F) Pro forma earnings per share is computed based on 76,090 weighted average
common Paired Shares and common Paired Share equivalents outstanding for
the period. The number of shares used for the calculation includes
adjustments to reflect the impact of the conversion of shares of PAHOC
Preferred Stock into Paired Shares. In addition, the net income per common
Paired Share and the weighted average number of common Paired Shares and
common Paired Share equivalents have been adjusted to reflect the impact
of the 1.927-for-1 stock split effected in the form of a stock dividend.
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.
Under the new requirements for calculating basic earnings per share, the
dilutive effect of stock options and convertible preferred securities will
be excluded. Pro forma basic earnings per share for the nine months ended
September 30, 1997 would be $0.58 per common Paired Share. The impact of
Statement 128 on the calculation of diluted earnings per share is not
expected to differ significantly from the earnings per share amounts
reported.
131
<PAGE>
PATRIOT AND PAHOC
PRO FORMA CONDENSED COMBINED BALANCE SHEET
The following unaudited Pro Forma Condensed Combined Balance Sheet assumes
the following Recent Transactions have occurred as of September 30, 1997:
(i) Patriot has acquired the three CHC Hotels and The Buttes (which were
acquired subsequent to September 30, 1997) and has acquired the remaining
approximate 50% interest in the Omni Inner Harbor Hotel and leased such
hotels to PAHOC;
(ii) PAHOC has acquired the members' interests in PAH RSI Lessee;
(iii) PAHOC has completed the GAH Acquisition; and
(iv) the CHCI Merger has been consummated on the terms set forth in the
CHCI Merger Agreement.
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 is derived from Patriot's and PAHOC's
Combined Balance Sheet as of September 30, 1997 and should be read in
conjunction with the financial statements filed with the Patriot Companies'
Joint Quarterly Report on Form 10-Q for the nine months ended September 30,
1997.
The following 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 September 30, 1997, nor does it purport
to represent the future financial position of Patriot and PAHOC.
132
<PAGE>
PATRIOT AND PAHOC
PRO FORMA CONDENSED COMBINED BALANCE SHEET
AS OF SEPTEMBER 30, 1997
(UNAUDITED)
<TABLE>
<CAPTION>
PATRIOT
AND
PAHOC
COMBINED OTHER CHC HOTELS CHCI PRO
HISTORICAL ACQUISITIONS ACQUISITION MERGER FORMA
(A) (B) (C) (D) TOTAL
----------- ------------ ----------- -------- ----------
(IN THOUSANDS, EXCEPT FOR SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C>
ASSETS
Net investment in real
estate and related
improvements............ $ 1,477,512 $63,755 $116,016 $ -- $1,657,283
Mortgage notes and other
receivables from
unconsolidated
subsidiaries............ 74,053 -- -- -- 74,053
Other notes and
receivables............. 98,538 -- (82,625)(E) -- 15,913
Management contracts..... 22,453 -- -- 22,911 (F) 45,364
Trade names.............. 2,500 -- -- 5,000 (F) 7,500
Investment in
unconsolidated
subsidiaries............ 12,061 -- -- -- 12,061
Cash and cash
equivalents............. 21,515 -- -- -- 21,515
Restricted cash (G)...... 38,196 -- -- 38,196
Accounts receivable...... 38,540 -- -- -- 38,540
Goodwill................. 120,839 -- -- 7,269 (H) 128,108
Deferred expenses, net... 16,626 -- -- -- 16,626
Deferred acquisition
costs................... 46,036 -- (6,066) -- 39,970
Prepaid expenses and
other assets............ 10,538 (1,002) 1,393 394 11,323
Deferred income taxes.... 700 -- -- -- 700
----------- ------- -------- -------- ----------
Total assets............ $ 1,980,107 $62,753 $ 28,718 $ 35,574 $2,107,152
=========== ======= ======== ======== ==========
LIABILITIES AND
STOCKHOLDERS' EQUITY
Borrowings under a line
of credit facility and
mortgage notes.......... $ 727,177 $62,753 $ -- $ -- $ 789,930
Accounts payable and
accrued expenses........ 48,561 -- 1,816 (I) -- 50,377
Dividends and
distributions payable... 21,727 -- -- -- 21,727
Sales taxes payable...... 2,968 -- -- -- 2,968
Deposits................. 2,037 -- -- -- 2,037
Deferred income tax
liability............... 4,846 -- -- -- 4,846
Due to unconsolidated
subsidiaries............ 5,904 -- -- -- 5,904
Minority interest in the
Patriot Partnerships.... 257,274 -- 7,588(J) -- 264,862
Minority interest in
consolidated
subsidiaries............ 29,284 -- -- -- 29,284
Shareholders' equity:
Preferred stock......... -- -- -- 44 (L) 44
Common stock............ 1,360 -- 17 (K) -- 1,377
Paid-in capital......... 941,674 -- 19,297 (K) 88,296 (L) 1,049,267
Unearned stock
compensation, net...... (15,075) -- -- -- (15,075)
Retained earnings....... (47,630) -- -- (52,766)(L) (100,396)
----------- ------- -------- -------- ----------
Total stockholders'
equity................. 880,329 -- 19,314 35,574 935,217
----------- ------- -------- -------- ----------
Total liabilities and
stockholders' equity... $ 1,980,107 $62,753 $ 28,718 $ 35,574 $2,107,152
=========== ======= ======== ======== ==========
</TABLE>
See notes on following page.
133
<PAGE>
PATRIOT AND PAHOC NOTES TO PRO FORMA CONDENSED COMBINED BALANCE SHEET AS OF
SEPTEMBER 30, 1997 (IN THOUSANDS, EXCEPT FOR SHARE AMOUNTS):
(A) Represents the historical combined financial position of Patriot and PAHOC
as of September 30, 1997.
(B) Represents adjustments to the Patriot Companies' pro forma financial
position assuming Patriot had acquired The Buttes resort as of September
30, 1997.
(C) Represents adjustments to the Patriot Companies' pro forma financial
position assuming the three CHC Hotels purchased in October 1997 and the
remaining approximate 50% ownership interest in the Omni Inner Harbor
Hotel had been acquired as of September 30, 1997.
(D) Represents adjustments to the Patriot Companies' pro forma financial
position assuming the CHCI Merger had been consummated as of September 30,
1997.
(E) Represents the elimination of the principal balance of the mortgage notes
held by Patriot encumbering three of the CHC Hotels.
(F) Represents the estimated value of the management contracts and trade names
acquired.
(G) The restricted cash balance represents the cash proceeds from the
PaineWebber Land Sale (in the initial amount of $80,864) that were placed
in a restricted trust account in order to facilitate a tax-deferred, like-
kind exchange through the acquisition of suitable hotel properties. 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 IRS regulations. Management
believes that the three hotel properties that have been purchased thus far
with PaineWebber Land Sale proceeds are suitable hotel properties that
qualify as a tax-deferred, like-kind exchange.
(H) Represents the purchase consideration in excess of the fair market value
of the net assets.
(I) Represents adjustment for accounts payable and accrued expenses assumed or
incurred in connection with the acquisition of hotel properties.
(J) Represents adjustments to reflect the issuance of 326,348 OP Units of the
Patriot Partnerships in connection with the acquisition of three of the
CHC Hotels.
(K) Represents adjustments to reflect the issuance of 830,713 Paired Shares in
connection with the acquisition of the remaining approximate 50% interest
in the Omni Inner Harbor Hotel.
(L) Represents the following adjustments to Stockholders' Equity:
<TABLE>
<CAPTION>
PREFERRED PAID-IN RETAINED
STOCK CAPITAL EARNINGS
--------- ------- --------
<S> <C> <C> <C>
Pursuant to issuance of a total of approxi-
mately 4,395,700 shares of Series A Pre-
ferred Stock and Series B Preferred Stock
of PAHOC in connection with the CHCI Merg-
er........................................ $ 44 $88,296 $ --
Write-off the estimated cost to acquire 17
Participating Leases related to hotels
leased by Patriot to CHC Lease Partners
and related
transactions.............................. -- -- (52,766)
---- ------- --------
$ 44 $88,296 $(52,766)
==== ======= ========
</TABLE>
In connection with the CHCI Merger, PAHOC will acquire the remaining 17
Participating Leases held by CHC Lease Partners, issuing a combination of
PAHOC Series A Preferred Stock and PAHOC Series B Preferred Stock in
connection with the transaction. The cost of acquiring these leases will be
recorded as an operating expense in PAHOC's results of operations. However,
because the intent of the pro forma financial statements is to reflect,
among other things, the expected continuing impact of the CHCI Merger on
PAHOC, this adjustment has been excluded from the pro forma statements of
operations and has been reflected as an adjustment to retained earnings for
pro forma presentation purposes.
134
<PAGE>
PATRIOT
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1996
(UNAUDITED)
<TABLE>
<CAPTION>
OLD PATRIOT CAL JOCKEY RECENT CHC HOTELS
HISTORICAL HISTORICAL TRANSACTIONS ACQUISITION OTHER PRO FORMA
(A) (B) (C) (D) ADJUSTMENTS TOTAL
----------- ---------- ------------ ----------- ----------- ---------
(IN THOUSANDS, EXCEPT FOR PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C>
Revenue:
Participating lease
revenue............... $75,893 $ -- $98,428 (E) $39,702 (E) $ (155) $213,868
Rental of Racecourse
facility and land..... -- 4,918 1,027 (F) -- -- 5,945
Interest and other in-
come.................. 600 494 1,203 (G) -- -- 2,297
------- ------- ------- ------- ------- --------
Total revenue.......... 76,493 5,412 100,658 39,702 (155) 222,110
------- ------- ------- ------- ------- --------
Expenses:
Ground lease expense... 1,075 -- 4,238 (H) 380 -- 5,693
General and administra-
tive.................. 4,500 5,696 (3,399)(I) -- -- 6,797
Interest expense....... 7,380 -- 46,372 (J) 7,753 (J) 3,013 (J) 64,518 (R)
Real estate and
personal property
taxes and casualty
insurance............. 7,150 -- 10,121 (K) 5,217 (K) -- 22,488
Depreciation and amor-
tization.............. 17,420 932 32,894 (L) 11,477 (L) -- 62,723
------- ------- ------- ------- ------- --------
Total expenses......... 37,525 6,628 90,226 24,827 3,013 162,219
------- ------- ------- ------- ------- --------
Income (loss) before
equity in earnings of
unconsolidated
subsidiaries, income
tax provision and
minority interests..... 38,968 (1,216) 10,432 14,875 (3,168) 59,891
Equity in earnings of
unconsolidated
subsidiaries........... 5,845 -- 1,714 (M) -- -- 7,559
------- ------- ------- ------- ------- --------
Income (loss) before
income tax provision
and minority
interests.............. 44,813 (1,216) 12,146 14,875 (3,168) 67,450
Income tax provision.... -- -- -- -- (170)(N) (170)
------- ------- ------- ------- ------- --------
Income (loss) before mi-
nority interests....... 44,813 (1,216) 12,146 14,875 (3,338) 67,280
Minority interest in
Patriot Partnership... (6,767) -- 405 (O) -- (2,670)(O) (9,032)
Minority interest in
consolidated
subsidiaries.......... (55) -- (1,777)(P) -- -- (1,832)
------- ------- ------- ------- ------- --------
Net income (loss)
applicable to common
stockholders........... $37,991 $(1,216) $10,774 $14,875 $(6,008) $ 56,416 (R)
======= ======= ======= ======= ======= ========
Net income (loss) per
common share (Q)....... $ 1.06 $ (0.11) $ 0.75 (R)
======= ======= ========
</TABLE>
See notes on following page.
135
<PAGE>
NOTES TO PATRIOT PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS FOR
THE YEAR ENDED DECEMBER 31, 1996 (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS):
(A) Represents Old Patriot's historical results of operations for the year
ended December 31, 1996.
(B) Represents the historical results of operations of Cal Jockey for the
year ended December 31, 1996.
(C) Represents adjustment to Patriot's results of operations assuming (i) the
Cal Jockey Merger and the related transactions have been consummated;
(ii) the PaineWebber Land Sale has been consummated, the PaineWebber
affiliate has leased the Racecourse land to Patriot and Patriot has
subleased this land to PAHOC; (iii) Patriot has leased certain land to
Borders, Inc.; (iv) Patriot has completed the Recent Acquisitions
(excluding the Park Shore Hotel and the Sheraton City Centre); (v) the
mortgage notes to affiliates of CHC Lease Partners have been funded; (vi)
Patriot has replaced the Old Line of Credit with the Revolving Credit
Facility and the Term Loan; (vii) the Offering has been completed; and
(viii) the 24 hotels acquired by Patriot, the private placement of equity
securities and the public offering of common stock completed by Old
Patriot during 1996 had occurred as of January 1, 1996.
(D) Represents adjustment to Patriot's results of operations assuming the CHC
Hotels had been acquired as of January 1, 1996.
(E) Represents adjustments to participating lease revenue assuming the 77
hotels owned by Patriot and its subsidiaries (excluding the Crowne Plaza
Ravinia Hotel and the Wyndham WindWatch Hotel which are not leased to
Lessees and excluding the Park Shore Hotel and the Sheraton City Centre)
had been leased to the Lessees or PAHOC as of January 1, 1996.
(F) Represents adjustments to Racecourse facility rental revenue as a result
of (i) the new lease agreement between Patriot and PAHOC subsequent to
the Cal Jockey Merger and the related transactions and the PaineWebber
Land Sale and (ii) rental income related to the Borders Lease.
(G) Represents the following adjustments to interest and other income:
<TABLE>
<S> <C>
Related to interest 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.................................................. $ 1,170
Related to the $500 mortgage note receivable issued to the
Patriot Partnership by NorthCoast Lessee...................... 48
Related to interest earned from notes receivable from an
unconsolidated subsidiary..................................... 21
Related to the elimination of interest earned on the $2,900
note receivable issued to Old Patriot by Cal Jockey in
connection with the Cal Jockey Merger......................... (36)
-------
$ 1,203
=======
</TABLE>
(H) Represents ground lease payments pursuant to the ground lease agreement
with an affiliate of PaineWebber of $3,964 and pro forma ground lease
payments to be made with respect to certain of the hotels of $274.
(I) Represents the following adjustments to general and administrative
expense:
<TABLE>
<S> <C>
Related to elimination of administrative salaries and other
expenses not expected to be incurred by Patriot .............. $ (568)
Related to elimination of non-recurring legal fees............. (1,344)
Related to elimination of Cal Jockey Merger related costs...... (3,284)
Related to increased salaries, insurance, travel, audit, legal
and other expenses associated with operating as a public
company and the continued growth of Patriot .................. 150
Related to the annual amortization of unearned stock
compensation computed on a straight-line basis over the 3 to
5-year vesting periods........................................ 1,647
-------
$(3,399)
=======
</TABLE>
(J) Interest expense consists of the following components:
<TABLE>
<S> <C>
Historical interest expense..................................... $ 7,380
Interest expense related to 47 hotels acquired by Patriot since
January 1, 1996 (excluding the Park Shore Hotel, the Sheraton
City Centre and the CHC Hotels)................................ 37,569
Interest expense related to the Subscription Notes payable to
PAHOC.......................................................... 4,712
Interest expense related to amortization of deferred loan costs
(including $3,868 of amortization related to costs associated
with the Revolving Credit Facility)............................ 3,998
Interest expense related to amortization of capitalized
interest....................................................... 93
Interest expense related to four of the CHC Hotels encumbered by
mortgage loans held by Patriot ................................ 7,753
Interest expense related to the acquisition of the 10 CHC
Hotels......................................................... 3,013
-------
$64,518
=======
</TABLE>
(K) Represents real estate and personal property taxes and casualty insurance
to be paid by Patriot related to the 47 hotels acquired since January 1,
1996 (except for the Park Shore Hotel and the Sheraton City Centre) and
the 10 CHC Hotels.
136
<PAGE>
(L) Represents the following adjustments to depreciation and amortization:
<TABLE>
<S> <C>
Depreciation related to 47 hotels acquired by Patriot since
January 1, 1996 (excluding the Park Shore Hotel, the Sheraton
City Centre and the CHC Hotels).............................. $30,603
Reduction of depreciation expense related to the Racecourse
facility..................................................... (93)
Amortization of goodwill resulting from the adjustment for
purchase method of accounting whereby the Racecourse facility
and retained leasehold improvements owned by Cal Jockey are
adjusted to estimated fair market value...................... 2,384
-------
$32,894
=======
Depreciation related to the CHC Hotels........................ $11,477
=======
</TABLE>
Depreciation is computed using the straight-line method and is based upon
the estimated useful lives of 35 years for hotel buildings and
improvements, 20 years for the Racecourse facility and 5 to 7 years for
furniture, fixtures and equipment ("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, management
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.
(M) Represents equity in income of PAH WindWatch, L.L.C. and PAH Boulders,
Inc. acquired in September 1996 and January 1997, respectively.
(N) Represents an adjustment for estimated state income tax liabilities.
(O) Represents the adjustment to minority interest to reflect the estimated
minority interest percentage subsequent to the assumed transactions. The
estimated minority interest percentage subsequent to the Recent
Transactions is approximately 11.8%. The estimated minority interest
percentage subsequent to the acquisition of the CHC Hotels, the GAH
Acquisition, the CHCI Merger, the PaineWebber Direct Placement and the
LaSalle Direct Placement is approximately 13.8%.
(P) Represents the minority interest related to the partnerships with an
affiliate of Doubletree Hotels Corporation and the limited liability
companies which own certain other hotels assuming such entities had been
formed and the 15 hotels owned by such entities had been acquired at
January 1, 1996.
(Q) Pro forma earnings per share is computed based on 75,516 weighted average
common shares and common share equivalents outstanding for the period.
The number of shares used for the calculation includes adjustments to
reflect the impact of the conversion of shares of PAHOC Preferred Stock
into Paired Shares. In addition, the net income per common share and the
weighted average number of common shares and common share equivalents
have been adjusted for (i) the March 1997 2-for-1 stock split on Old
Patriot Common Stock effected in the form of a stock dividend, (ii) the
conversion of each share of Old Patriot Common Stock into 0.51895 Paired
Shares issued in the Cal Jockey Merger, and (iii) the July 1997 1.927-
for-1 stock split effected in the form of a stock dividend, as
applicable. Historical basis earnings per share is computed based on
35,938 and 11,106 weighted average common shares and common share
equivalents outstanding for Old Patriot and Cal Jockey, respectively.
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.
Under the new requirements for calculating basic earnings per share, the
dilutive effect of stock options and convertible preferred securities will
be excluded. Pro forma basic earnings per share for the year ended December
31, 1996 would be $0.75 per common share. The impact of Statement 128 on
the calculation of diluted earnings per share is not expected to differ
significantly from the earnings per share amounts reported.
(R) If the interest rates on Patriot's variable rate debt increased by 0.25%,
interest expense would increase to approximately $66,093, net income
would decrease to $55,059 and net income per common share would decrease
to $0.73.
137
<PAGE>
PATRIOT
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997
(UNAUDITED)
<TABLE>
<CAPTION>
PATRIOT RECENT CHC HOTELS
HISTORICAL TRANSACTIONS ACQUISITION PRO FORMA
(A) (B) (C) TOTAL
---------- ------------ ----------- ---------
(IN THOUSANDS, EXCEPT FOR PER SHARE AMOUNTS)
<S> <C> <C> <C> <C>
Revenue:
Participating lease
revenue................ $117,770 $29,280 (D) $25,632 (D) $172,682
Rental of Racecourse
facility and land...... 1,323 2,181 (E) -- 3,504
Interest and other
income................. 4,215 (172)(F) -- 4,043
-------- ------- ------- --------
Total revenue........... 123,308 31,289 25,632 180,229
-------- ------- ------- --------
Expenses:
Ground lease expense.... 1,993 3,340 (G) 202 5,535
General and
administrative......... 7,582 (645)(H) -- 6,937
Interest expense........ 31,977 11,633 (I) 4,719 (I) 48,329 (R)
Real estate and personal
property taxes and
casualty insurance..... 11,219 3,276 (J) 3,317 (J) 17,812
Cost of acquiring
leaseholds............. 43,820 (43,820)(K) -- --
Depreciation and
amortization........... 30,656 10,391 (L) 6,518 (L) 47,565
-------- ------- ------- --------
Total expenses.......... 127,247 (15,825) 14,756 126,178
-------- ------- ------- --------
Income (loss) before
equity in earnings of
unconsolidated
subsidiaries, income tax
provision, minority
interests and
extraordinary item...... (3,939) 47,114 10,876 54,051
Equity in earnings of
unconsolidated
subsidiaries........... 4,488 -- -- 4,488
-------- ------- ------- --------
Income (loss) before
income tax provision,
minority interests and
extraordinary item...... 549 47,114 10,876 58,539
Income tax provision.... -- (125)(M) -- (125)
-------- ------- ------- --------
Income (loss) before
minority interests and
extraordinary item...... 549 46,989 10,876 58,414
Minority interest in
Patriot Partnership.... (1,194) (4,195)(N) (2,414)(N) (7,803)
Minority interest in
consolidated
subsidiaries........... (1,368) (501)(O) -- (1,869)
-------- ------- ------- --------
Income (loss) before
extraordinary item...... (2,013) 42,293 8,462 48,742
Extraordinary loss from
early extinguishment of
debt, net of minority
interest............... (2,534) 2,534 (P) -- --
-------- ------- ------- --------
Net income (loss)
applicable to common
stockholders............ $ (4,547) $44,827 $ 8,462 $ 48,742 (R)
======== ======= ======= ========
Net income (loss) per
common share:
Income (loss) before ex-
traordinary item....... $ (0.04) $ 0.64
Extraordinary loss...... (0.05) --
-------- --------
Net income (loss) per
common share (Q)........ $ (0.09) $ 0.64 (R)
======== ========
</TABLE>
See notes on following page.
138
<PAGE>
NOTES TO PATRIOT PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS FOR
THE NINE MONTHS ENDED SEPTEMBER 30, 1997 (IN THOUSANDS, EXCEPT PER SHARE
AMOUNTS):
(A) Represents Patriot's historical results of operations for the nine months
ended September 30, 1997.
(B) Represents adjustments to Patriot's results of operations assuming (i)
the Cal Jockey Merger and the related transactions have been consummated;
(ii) the PaineWebber Land Sale has been consummated, the PaineWebber
affiliate has leased the Racecourse land to Patriot and Patriot has
subleased this land to PAHOC; (iii) Patriot has leased certain land to
Borders, Inc.; (iv) Patriot has completed the Recent Acquisitions
(excluding the Park Shore Hotel and the Sheraton City Centre); (v) the
mortgage notes to affiliates of CHC Lease Partners have been funded; (vi)
Patriot has replaced the Old Line of Credit with the Revolving Credit
Facility and the Term Loan; and (vii) the Offering has been completed as
of January 1, 1996.
(C) Represents adjustments to Patriot's results of operations assuming the
CHC Hotels had been acquired as of January 1, 1996.
(D) Represents adjustments to participating lease revenue assuming the 77
hotels owned by Patriot and its subsidiaries (excluding the Crowne Plaza
Ravinia Hotel and the Wyndham WindWatch Hotel which are not leased to
Lessees and excluding the Park Shore Hotel and the Sheraton City Centre)
had been leased to the Lessees or PAHOC as of January 1, 1996.
(E) Represents adjustments to Racecourse facility rental revenue including
adjustments as a result of (i) the new lease agreement between Patriot
and PAHOC subsequent to the Cal Jockey Merger and the related
transactions and the PaineWebber Land Sale and (ii) rental income related
to the Borders Lease.
(F) Represents the following adjustments to interest and other income:
<TABLE>
<S> <C>
Related to interest 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 roy-
alty fees.................................................... $ 46
Cal Jockey historical interest income prior to the Cal Jockey
Merger....................................................... 1,715
Eliminate interest earned on the mortgage notes receivable
from affiliates of CHC Lease Partners........................ (1,869)
Related to interest earned on other notes receivable ......... (64)
--------
$ (172)
========
</TABLE>
(G) Represents ground lease payments pursuant to the ground lease agreement
with an affiliate of PaineWebber.
(H) Represents the following adjustments to general and administrative
expense:
<TABLE>
<S> <C>
Cal Jockey historical general and administrative expense for
the six month period prior to the Cal Jockey Merger........... $ 2,657
Elimination of non-recurring legal fees and Cal Jockey Merger
related costs................................................. (2,092)
Adjustment to the amortization of unearned stock compensation
computed on the straight-line method over the 3 to 5-year
vesting periods (primarily to allocate a portion of the costs
to Patriot Operating Company)................................. (1,210)
--------
$ (645)
========
</TABLE>
(I) Interest expense consists of the following components:
<TABLE>
<S> <C>
Historical interest expense..................................... $31,977
Interest expense related to the hotels acquired by Patriot since
January 1, 1997 (excluding the Park Shore Hotel, the Sheraton
City Centre and the CHC Hotels)................................ 7,115
Interest expense related to the Subscription Notes payable to
PAHOC.......................................................... 1,450
Interest expense related to amortization of deferred loan costs
(including $2,901 of amortization related to costs associated
with the Revolving Credit Facility)............................ 2,998
Interest expense related to amortization of capitalized
interest....................................................... 70
Interest expense related to three CHC Hotels encumbered by
mortgage loans held by Patriot acquired subsequent to September
30, 1997....................................................... 4,719
-------
$48,329
=======
</TABLE>
(J) Represents real estate and personal property taxes and casualty insurance
to be paid by Patriot related to the hotels acquired since January 1,
1997 (except for the Park Shore Hotel and the Sheraton City Centre).
(K) Represents elimination of the cost of acquiring seven leaseholds related
to Participating Lease agreements for seven hotels leased by CHC Lease
Partners recorded as an operating expense in Patriot's historical results
of operations. Because the intent of the pro forma financial statements is
to reflect the expected continuing impact of certain transactions on the
Patriot Companies, this non-recurring expense has been excluded from the
pro forma statements of operations.
(L) Represents the following adjustments to depreciation and amortization:
<TABLE>
<S> <C>
Depreciation related to hotels acquired by Patriot from January
1, 1997 through September 30, 1997 (excluding the Park Shore
Hotel and the Sheraton City Centre)........................... $ 9,536
Reduction of depreciation expense related to the Racecourse
facility...................................................... (240)
Amortization of goodwill resulting from the adjustment for
purchase method of accounting whereby the Racecourse facility
and retained leasehold improvements owned by Cal Jockey are
adjusted to estimated fair market value....................... 1,095
-------
$10,391
=======
Depreciation related to the CHC Hotels......................... $ 6,518
=======
</TABLE>
139
<PAGE>
Depreciation is computed using the straight-line method and is based upon
the estimated useful lives of 35 years for hotel buildings and
improvements, 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,
management 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.
(M) Represents an adjustment for estimated state income tax liabilities.
(N) Represents the adjustment to minority interest to reflect the estimated
minority interest percentage subsequent to the assumed transactions. The
estimated minority interest percentage subsequent to the Recent
Transactions is approximately 11.8%. The estimated minority interest
percentage subsequent to the acquisition of the CHC Hotels, the GAH
Acquisition, the CHCI Merger, the PaineWebber Direct Placement and the
LaSalle Direct Placement is approximately 13.8%.
(O) Represents adjustments to the minority interest related to the
partnerships with an affiliate of Doubletree Hotels Corporation and the
limited liability companies which own certain other hotels assuming such
entities had been formed and the 15 hotels owned by such entities had been
acquired as of January 1, 1996.
(P) Represents elimination of extraordinary loss from the early extinguishment
of debt. Patriot recognized the loss as a result of the write-off of
unamortized deferred loan costs related to the Old Line of Credit when it
was replaced with the Revolving Credit Facility. Because the intent of the
pro forma financial statements is to reflect the expected continuing
impact of certain transactions on the Patriot Companies, this non-
recurring expense has been excluded from the pro forma statements of
operations.
(Q) Pro forma earnings per share is computed based on 76,090 weighted average
common shares and common share equivalents outstanding for the period. The
number of shares used for the calculation includes adjustments to reflect
the impact of the conversion of shares of PAHOC Preferred Stock into
Paired Shares. In addition, the historical net income per common share and
the weighted average number of common shares and common share equivalents
have been adjusted for the conversion of each share of Old Patriot Common
Stock into 0.51895 Paired Shares issued in the Cal Jockey Merger, and the
July 1997 1.927-for-1 stock split effected in the form of a stock
dividend, as applicable. Historical basis earnings per share is computed
based on 51,104 weighted average common shares and common share
equivalents outstanding.
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.
Under the new requirements for calculating basic earnings per share, the
dilutive effect of stock options and convertible preferred securities will
be excluded. Pro forma basic earnings per share for the nine months ended
September 30, 1997 would be $0.69 per common share. The impact of Statement
128 on the calculation of diluted earnings per share is not expected to
differ significantly from the earnings per share amounts reported.
(R) If the interest rates on Patriot's variable rate debt the Revolving Credit
Facility increased by 0.25%, interest expense would increase to
approximately $49,505, net income would decrease to $47,728 and net income
per common share would decrease to $0.63.
140
<PAGE>
PAHOC
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1996
(UNAUDITED)
<TABLE>
<CAPTION>
BAY CHC HOTELS CHCI
MEADOWS RECENT AND LEASE GAH HOSPITALITY
HISTORICAL TRANSACTIONS ACQUISITION HISTORICAL DIVISION PRO FORMA
(A) (B) (C) (D) (E) OTHER TOTAL
---------- ------------ ----------- ---------- ----------- ------- ---------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C> <C>
Revenue:
Room revenue........... $ -- $145,801 $187,365 $ -- $ 5,282 $ -- $338,448
Other hotel revenue.... -- 132,243 97,250 -- 4,351 -- 233,844
Racecourse facility
revenue............... 51,946 -- -- -- -- -- 51,946
Management fee and
service fee income.... -- 3,165 -- 7,270 9,032 (5,945)(F) 13,522
Interest and other
income................ 1,526 7,757 (G) -- 14 715 -- 10,012
------- -------- -------- ------ ------- ------- --------
Total revenue.......... 53,472 288,966 284,615 7,284 19,380 (5,945) 647,772
------- -------- -------- ------ ------- ------- --------
Expenses:
Departmental costs--
hotel operations...... -- 124,924 112,873 -- 3,995 -- 241,792
Racecourse facility
operations............ 45,658 693 (H) -- -- -- -- 46,351
Management company,
service department and
development costs..... -- 1,595 -- 4,882 4,666 -- 11,143
General and
administrative........ 4,381 28,264 (I) 28,568 (J) 1,056(J) 9,431 (J) -- 71,700
Ground lease expense... -- 733 -- -- -- -- 733
Repair and
maintenance........... -- 16,777 13,120 -- -- -- 29,897
Utilities.............. -- 12,676 14,167 -- -- -- 26,843
Marketing.............. 1,436 22,717 27,085 -- -- -- 51,238
Management fees........ -- 8,743 6,671 -- -- (5,945)(F) 9,469
Depreciation and
amortization.......... 754 1,591 (K) -- 112 853 7,038 (K) 10,348
Participating lease
payments.............. -- 78,240 (L) 93,879 (L) -- -- -- 172,119
Interest expense....... 130 1,240 -- 23 3,304 (3,304)(M) 1,393
Real estate and
personal property
taxes and casualty
insurance............. 398 -- -- -- -- -- 398
------- -------- -------- ------ ------- ------- --------
Total expenses......... 52,757 298,193 296,363 6,073 22,249 (2,211) 673,424
------- -------- -------- ------ ------- ------- --------
Income (loss) before in-
come tax
provision and minority
interests.............. 715 (9,227) (11,748) 1,211 (2,869) (3,734) (25,652)
Income tax provision... (260) -- -- -- (92)(N) (408)(N) (760)
------- -------- -------- ------ ------- ------- --------
Income (loss) before
minority interest...... 455 (9,227) (11,748) 1,211 (2,961) (4,142) (26,412)
Minority interest in
PAHOC Partnership..... -- 1,123 (O) -- -- -- 2,707 (O) 3,830
------- -------- -------- ------ ------- ------- --------
Net income (loss) appli-
cable to common stock-
holders................ $ 455 $ (8,104) $(11,748) $1,211 $(2,961) $(1,435) $(22,582)
======= ======== ======== ====== ======= ======= ========
Net income per common
share (P).............. $ 0.04 $ (0.30)
======= ========
</TABLE>
See notes on following page.
141
<PAGE>
NOTES TO PAHOC PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS FOR
THE YEAR ENDED DECEMBER 31, 1996 (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS):
(A) Represents the historical results of operations of PAHOC (formerly known
as Bay Meadows) for the year ended December 31, 1996.
(B) Represents adjustments to PAHOC's results of operations assuming 24 of
Patriot's hotel properties had been leased to PAHOC as of January 1, 1996.
These hotel properties include 11 of the Recent Acquisitions (excluding
the Sheraton City Centre), the eight hotels previously leased to PAH RSI
Lessee, the three hotels previously leased to Grand Heritage Leasing,
L.L.C., the Doubletree Hotel at Allen Center, the Doubletree Hotel in
Tulsa, Oklahoma and The Buttes.
(C) Represents the combined results of operations for the year ended December
31, 1996 of the 10 CHC Hotels and 25 hotels leased by CHC Lease Partners
assuming that such hotels were leased to PAHOC as of January 1, 1996.
(D) Represents the results of operations of GAH for the year ended December
31, 1996, assuming it had been acquired by PAHOC as of January 1, 1996.
(E) Represents the results of operations for the contracts acquired as a
result of the CHCI Merger for the twelve months ended November 30, 1996,
assuming such contracts had been acquired by PAHOC as of January 1, 1996.
(F) Represents the elimination of management fees for Patriot hotels
previously managed by Gencom and CHCI, which subsequent to the GAH
Acquisition and the CHCI Merger, such hotels are assumed to be managed by
PAHOC.
(G) Adjustments to interest and other income consist of the following
components:
<TABLE>
<S> <C>
Interest and other income related to PAH RSI Lessee............. $ 2,030
Interest income related to the Subscription Notes receivable
from Patriot................................................... 4,712
Interest income related to the Participating Note............... 1,015
-------
$ 7,757
=======
</TABLE>
All other interest and other income balances presented represent historical
amounts recorded by hotels and businesses acquired.
(H) Represents adjustment to Racecourse facility rental expense as a result of
(i) the new lease agreement between Patriot and PAHOC subsequent to the
Cal Jockey Merger and the related transactions and (ii) the PaineWebber
Land Sale.
(I) Represents the following adjustments to general and administrative
expense:
<TABLE>
<S> <C>
Represents expense related to the hotels recently acquired..... $24,497
Represents general liability insurance expense................. 1,441
Related to elimination of costs related to the Cal Jockey Merg-
er............................................................ (861)
Related to increased salaries, insurance, travel, audit, legal
and other expenses associated with operating as a public com-
pany and the continued growth of PAHOC........................ 300
Represents expense related to the annual amortization of un-
earned stock compensation computed on a straight-line basis
over the 3 to 5-year vesting periods.......................... 2,887
-------
$28,264
=======
</TABLE>
(J) Represent general and administrative expense related to the 10 CHC Hotels
and general and administrative expense related to the contracts acquired
in connection with the GAH Acquisition and the CHCI Merger.
(K) Represents the following adjustments to depreciation and amortization:
<TABLE>
<S> <C>
Adjustment to increase depreciation related to F, F & E......... $ 245
Adjustment to reflect amortization of goodwill.................. 438
Adjustment to reflect amortization of trade names............... 125
Adjustment to reflect amortization of management contract
costs.......................................................... 783
-------
$ 1,591
=======
Adjustment to increase depreciation related to F, F & E......... $ 86
Adjustment to reflect amortization of goodwill.................. 600
Adjustment to reflect amortization of trade names............... 250
Adjustment to amortization of management contract costs......... 6,102
-------
$ 7,038
=======
</TABLE>
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 related to the Cal Jockey Merger is computed using the straight-
line method over a 40 year estimated useful life. Because the paired share
structure is "grandfathered" under the Code, management 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. Amortization of goodwill related to the acquisition of
the management operations of Grand Heritage Hotels, Inc., GAH and CHCI is
computed using the straight-line method over a 20 year estimated useful
life. Amortization of trade names is computed using the straight-line method
over a 20 year estimated useful life. Amortization of management contract
costs is computed using the straight-line method over the estimated
remaining term of the contracts.
(L) Represents lease payments from PAHOC to Patriot 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.
(M) Represents the elimination of interest expense related to debt that PAHOC
will not assume in connection with the CHCI Merger.
142
<PAGE>
(N) Represents an adjustment to the estimated federal and state tax liability
as a result of the pro forma adjustments to the operating results of PAHOC
for the year ended December 31, 1996.
(O) Represents the adjustment to minority interest to reflect the estimated
minority interest percentage subsequent to the assumed transactions. The
estimated minority interest percentage subsequent to the Recent
Transactions is approximately 11.8%. The estimated minority interest
percentage subsequent to the acquisition of the CHC Hotels, the GAH
Acquisition, the CHCI Merger, the PaineWebber Direct Placement and the
LaSalle Direct Placement is approximately 14.5%.
(P) Pro forma earnings per share is computed based on 75,516 weighted average
common shares and common share equivalents outstanding for the period. The
number of shares used for the calculation includes adjustments to reflect
the impact of the conversion of shares of PAHOC Preferred Stock into
Paired Shares. In addition, the historical net income per common share and
the weighted average number of common shares and common share equivalents
have been adjusted for (i) the March 1997 2-for-1 stock split on Old
Patriot Common Stock effected in the form of a stock dividend, (ii) the
conversion of each share of Old Patriot Common Stock into 0.51895 Paired
Shares issued in the Cal Jockey Merger, and (iii) the July 1997 1.927-for-
1 stock split effected in the form of a stock dividend, as applicable.
Historical basis earnings per share is computed based on 11,106 weighted
average common shares and common share equivalents outstanding.
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.
Under the new requirements for calculating basic earnings per share, the
dilutive effect of stock options and convertible preferred securities will
be excluded. Pro forma basic earnings per share for the year ended December
31, 1996 would be a net loss of $0.30 per common share. The impact of
Statement 128 on the calculation of diluted earnings per share is not
expected to differ significantly from the earnings per share amounts
reported.
143
<PAGE>
PAHOC
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997
(UNAUDITED)
<TABLE>
<CAPTION>
CHC HOTELS CHCI
PAHOC RECENT AND LEASE GAH HOSPITALITY
HISTORICAL TRANSACTIONS ACQUISITION HISTORICAL DIVISION PRO FORMA
(A) (B) (C) (D) (E) OTHER TOTAL
---------- ------------ ----------- ---------- ----------- ------- ---------
(IN THOUSANDS, EXCEPT FOR PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C> <C>
Revenue:
Room revenue........... $20,437 $108,831 $146,163 $ -- $ 4,164 $ -- $279,595
Other hotel revenue.... 9,834 98,144 71,352 -- 3,559 -- 182,889
Racecourse facility
revenue............... 10,861 22,538 -- -- -- -- 33,399
Management fee and
service fee income.... 1,577 2,836 -- 6,805 6,747 (3,264)(F) 14,701
Interest and other
income................ 1,475 1,876 983 142 590 1,308 (G) 6,374
------- -------- -------- ------ ------- ------- --------
Total revenue.......... 44,184 234,225 218,498 6,947 15,060 (1,956) 516,958
------- -------- -------- ------ ------- ------- --------
Expenses:
Departmental costs--
hotel operations...... 10,032 90,512 84,047 -- 3,193 -- 187,784
Racecourse facility
operations............ 10,536 19,664 (H) -- -- -- (86)(H) 30,114
Management company and
service department
operations............ 260 1,458 -- 2,147 8,703 -- 12,568
General and
administrative........ 4,081 22,598 (I) 21,186 (I) 3,413(I) 5,573 (I) (2,626)(J) 54,225
Ground lease expense... -- 523 -- -- -- -- 523
Repair and
maintenance........... 1,186 13,077 9,967 -- -- -- 24,230
Utilities.............. 1,450 8,589 10,302 -- -- -- 20,341
Marketing.............. 3,122 16,402 21,678 532 -- -- 41,734
Management fees........ 699 7,395 4,827 -- -- (3,264)(F) 9,657
Depreciation and
amortization.......... 1,142 370 -- 103 792 3,042 (K) 5,449
Participating lease
payments.............. 10,686 57,947 (L) 69,676 (L) -- -- -- 138,309
Interest expense....... 11 912 -- 13 1,934 (1,934)(M) 936
Real estate and
personal property
taxes and casualty
insurance............. 48 220 -- 22 -- -- 290
------- -------- -------- ------ ------- ------- --------
Total expenses......... 43,253 239,667 221,683 6,230 20,195 (4,868) 526,160
------- -------- -------- ------ ------- ------- --------
Income (loss) before
income tax provision
and minority
interests.............. 931 (5,442) (3,185) 717 (5,135) 2,912 (9,202)
Income tax (provision)
benefit............... (94) 471 (N) -- -- (74)(N) (303)(N) --
------- -------- -------- ------ ------- ------- --------
Income (loss) before
minority interest...... 837 (4,971) (3,185) 717 (5,209) 2,609 (9,202)
Minority interest in
PAHOC Partnership..... (115) 604 (O) -- -- -- 845 (O) 1,334
Minority interest in
consolidated
subsidiaries.......... (13) -- -- -- -- 13 --
------- -------- -------- ------ ------- ------- --------
Net income (loss)
applicable to common
stockholders........... $ 709 $ (4,367) $ (3,185) $ 717 $(5,209) $ 3,467 $ (7,868)
======= ======== ======== ====== ======= ======= ========
Net income (loss) per
common share (P)....... $ 0.01 $ (0.10)
======= ========
</TABLE>
See notes on following page.
144
<PAGE>
NOTES TO PAHOC PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS FOR
THE NINE MONTHS ENDED SEPTEMBER 30, 1997 (IN THOUSANDS, EXCEPT PER SHARE
AMOUNTS):
(A) Represents the historical results of operations of PAHOC for the three
months ended September 30, 1997. As a result of the Cal Jockey Merger on
July 1, 1997, PAHOC is considered for financial reporting purposes to have
commenced operations as of such date.
(B) Represents adjustments to PAHOC's results of operations assuming 24 of
Patriot's hotel properties had been leased to PAHOC as of January 1, 1996.
These hotel properties include 11 of the Recent Acquisitions (excluding
the Sheraton City Centre), the eight hotels previously leased to PAH RSI
Lessee, the three hotels previously leased to Grand Heritage Leasing,
L.L.C., the Doubletree Hotel at Allen Center, the Doubletree Hotel in
Tulsa, Oklahoma and The Buttes.
(C) Represents the combined results of operations for the nine months ended
September 30, 1997 of the 10 CHC Hotels and 25 leases of CHC Lease
Partners leased by CHC Lease Partners assuming that such hotels were
leased to PAHOC as of January 1, 1996.
(D) Represents the results of operations of GAH for the nine months ended
September 30, 1997, assuming it had been acquired by PAHOC as of January
1, 1996.
(E) Represents the results of operations for the contracts acquired as a
result of the CHCI Merger for the nine months ended August 31, 1997, as if
they were acquired by PAHOC as of January 1, 1996.
(F) Represents the elimination of management fees for Patriot hotels
previously managed by Gencom and CHCI, which subsequent to the GAH
Acquisition and the CHCI Merger such hotels are assumed to be managed by
PAHOC.
(G) Adjustments to interest and other income consists of the following
components:
<TABLE>
<S> <C>
Interest income related to the Subscription Notes receivable
from Patriot.................................................. $ 723
Interest income related to the Participating Note.............. 585
-------
$ 1,308
=======
</TABLE>
All other interest and other income balances presented represent historical
amounts recorded by hotels and businesses acquired.
(H) Represents historical expense amount of $19,664 recorded by Bay Meadows
for the six months prior to the Cal Jockey Merger and an adjustment in the
amount of $86 to Racecourse facility rental expense as a result of (i) the
new lease agreement between Patriot and PAHOC subsequent to the Cal Jockey
Merger and the related transactions and (ii) the PaineWebber Land Sale.
(I) Represent general and administrative expense related to the hotels
acquired and general and administrative expense related to the contracts
acquired in connection with the GAH Acquisition and the CHCI Merger.
(J) Represents the following adjustments to general and administrative
expense:
<TABLE>
<S> <C>
Eliminate costs related to the Cal Jockey Merger................ $(4,792)
Expense related to annual amortization of unearned stock compen-
sation computed on a straight-line basis over the 3 to 5-year
vesting periods................................................ 2,166
-------
$(2,626)
=======
</TABLE>
(K) Depreciation and amortization expense consists of the following
components:
<TABLE>
<S> <C>
Depreciation related to F, F & E and other assets................. $2,306
Amortization of goodwill.......................................... 546
Amortization of trade names....................................... 94
Amortization of management contract costs......................... 2,503
------
$5,449
======
</TABLE>
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 related to the Cal Jockey Merger is computed using the straight-
line method over a 40 year estimated useful life. Because the paired share
structure is "grandfathered" under the Code, management 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. Amortization of goodwill related to the acquisition of
the management operations of Grand Heritage Hotels, Inc., GAH and CHCI is
computed using the straight-line method over a 20 year estimated useful
life. Amortization of trade names is computed using the straight-line method
over a 20 year estimated useful life. Amortization of management contract
costs is computed using the straight-line method over the estimated
remaining term of the contracts.
(L) Represents lease payments from PAHOC to Patriot 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.
(M) Represents the elimination of interest expense related to debt which PAHOC
will not assume in connection with the CHCI Merger.
(N) Represents an adjustment to the estimated federal and state tax liability
as a result of the pro forma adjustment to PAHOC for the nine months ended
September 30, 1997.
(O) Represents the adjustment to minority interest to reflect the estimated
minority interest percentage subsequent to the assumed transactions. The
estimated minority interest percentage subsequent to the Recent
Transactions is approximately 11.8%. The estimated minority interest
percentage subsequent to the acquisition of the CHC Hotels, the GAH
Acquisition, the CHCI Merger and the PaineWebber Direct Placement and the
LaSalle Direct Placement is approximately 14.5%.
145
<PAGE>
(P) Pro forma earnings per share is computed based on 76,090 weighted average
common shares and common share equivalents outstanding for the period. The
number of shares used for the calculation includes adjustments to reflect
the impact of the conversion of shares of PAHOC Preferred Stock into
Paired Shares. In addition, the historical net income per common share and
the weighted average number of common shares and common share equivalents
have been adjusted for the conversion of each share of Old Patriot Common
Stock into 0.51895 Paired Shares issued in the Cal Jockey Merger, and the
July 1997 1.927-for-1 stock split effected in the form of a stock
dividend, as applicable. Historical basis earnings per share is computed
based on 51,104 weighted average common shares and common share
equivalents outstanding.
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.
Under the new requirements for calculating basic earnings per share, the
dilutive effect of stock options and convertible preferred securities will
be excluded. Pro forma basic earnings per share for the nine months ended
September 30, 1997 would be a net loss of $0.11 per common share. The impact
of Statement 128 on the calculation of diluted earnings per share is not
expected to differ significantly from the earnings per share amounts
reported.
146
<PAGE>
COMBINED LESSEES
PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
Patriot leases each of its hotels to Lessees, except those hotels leased to
PAHOC and except the Crowne Plaza Ravinia Hotel and the Wyndham WindWatch
Hotel, which are separately owned through the Non-Controlled Subsidiaries and
are managed directly by Operators. The Combined Lessees subsequent to (i) the
Cal Jockey Merger and the related transactions; (ii) the Grand Heritage
Acquisition (which included the acquisition of Grand Heritage Leasing, L.L.C.
which leased three hotels from Patriot); (iii) the acquisition of PAH RSI
Lessee (which included the acquisition of eight Patriot hotel leases); and
(iv) the GAH Acquisition and the CHCI Merger (which included the acquisition
of 25 Patriot hotel leases from CHC Lease Partners) consist of NorthCoast
Lessee which leases 11 hotels (excluding the Park Shore Hotel), Doubletree
Lessee which leases four hotels, Crow Hotel Lessee, Inc. which leases two
hotels, and Metro Lease Partners which leases one hotel. The Participating
Leases provide for staggered terms of one 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 nine months ended
September 30, 1997 are presented as if the 18 hotels that Patriot leases to
the Combined Lessees pursuant to Participating Leases (excluding the Park
Shore Hotel) had been leased as of January 1, 1996. The eight hotels which
were leased to PAH RSI Lessee, the 25 hotels which were leased to CHC Lease
Partners, and the three hotels leased to Grand Heritage Leasing, L.L.C. are
assumed to have been leased to PAHOC 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 NorthCoast Lessee filed with Old Patriot's Annual Report on Form
10-K for the year ended December 31, 1996 and the Statements of Operations of
NorthCoast Lessee filed with Patriot's and PAHOC's Joint Quarterly Report on
Form 10-Q for the nine months ended September 30, 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 January 1, 1996, 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 September 30,
1997 is not necessarily indicative of the results of operations for the full
year.
147
<PAGE>
COMBINED LESSEES
PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1996 AND THE NINE MONTHS ENDED SEPTEMBER 30,
1997
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS
YEAR ENDED ENDED
DECEMBER 31, SEPTEMBER 30,
1996 1997
------------ -------------
(IN THOUSANDS)
<S> <C> <C> <C>
Revenue:
Room........................................... $ 88,410 $72,100
Food and beverage.............................. 36,878 28,663
Telephone and other............................ 7,837 6,193
--------- -------
Total revenue............................... 133,125 106,956
--------- -------
Expenses:
Departmental costs and expenses................ 54,564 42,397
General and administrative..................... 12,595 9,520
Ground lease expense........................... 2,496 985
Repair and maintenance......................... 6,670 5,072
Utilities...................................... 5,435 4,038
Marketing...................................... 9,169 7,495
Participating lease payments(A)................ 41,749 34,373
--------- -------
Total expenses.............................. 132,678 103,880
--------- -------
Income (loss) before lessee income (expense).... 447 3,076
--------- -------
Dividend and interest income(B)................. 142 1,087
Management fees(C).............................. (3,479) (3,102)
Lessee general and administrative(D)............ (577) (478)
--------- -------
(3,914) (2,493)
--------- -------
Net income (loss)............................... $ (3,467) $ 583
========= =======
</TABLE>
- --------
(A) Represents lease payments calculated on a pro forma basis by applying the
provisions of the Participating Leases to the historical revenue of the
hotels.
(B) Includes dividend income on OP Units in the Patriot Partnerships which
form a portion of the required capitalization of NorthCoast Lessee. 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.
(C) Represents pro forma management fees paid to the Operators under the terms
of their respective management agreements with the Lessees.
(D) Represents pro forma overhead expenses, which include an estimate of the
Lessees' salaries and benefits, professional fees, insurance costs and
administrative expenses.
148
<PAGE>
PATRIOT AND PAHOC
ADJUSTED FOR THE WYNDHAM TRANSACTIONS
INTRODUCTION TO
PRO FORMA FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)
Pursuant to the Wyndham Merger Agreement, and the transactions contemplated
thereby, Wyndham will merge with and into Patriot, with Patriot being the
surviving corporation. In addition, pursuant to a Stock Purchase Agreement
dated as of April 14, 1997, Patriot will purchase up to 9,447,745 shares of
Wyndham Common Stock owned by CF Securities, the principal stockholder of
Wyndham, immediately prior to the Wyndham Merger. Following the Merger,
Patriot will continue to be referred to as "Patriot American Hospitality,
Inc." and PAHOC will change its name to "Wyndham International, Inc."
Pursuant to the Wyndham Merger Agreement, subject to certain adjustments and
the right of Wyndham stockholders to elect to receive cash as described below,
Wyndham stockholders will be entitled to receive, for each share of Wyndham
Common Stock held by them at the effective time of the Wyndham Merger, 1.372
shares of Patriot Common Stock and 1.372 shares of PAHOC Common Stock (subject
to certain REIT qualification requirements and the Excess Share Provisions),
which shares will be paired and transferable only as a single unit. If the
effective time of the Wyndham Merger is on or prior to December 31, 1997 and
the Patriot/Wyndham Average Closing Price is less than $21.86 but greater than
or equal to $20.87, Wyndham stockholders will be entitled to receive, for each
share of Wyndham Common Stock held by them at the effective time of the
Wyndham Merger, the number of Paired Shares equal to $30.00 divided by the
Patriot/Wyndham Average Closing Price. If the effective time of the Wyndham
Merger is on or prior to December 31, 1997 and the Patriot/Wyndham Average
Closing Price is less than $20.87, Wyndham stockholders will be entitled to
receive, for each share of Wyndham Common Stock held by them at the effective
time of the Wyndham Merger, 1.438 Paired Shares, provided, however, that in
the event that the Patriot/Wyndham Average Closing Price is less than $20.87,
Wyndham has the right, waivable by it, to terminate the Wyndham Merger
Agreement. Each Paired Share of Patriot Common Stock and PAHOC Common Stock
outstanding immediately prior to the Wyndham Merger will remain outstanding
after the Wyndham Merger and will represent the same number of Paired Shares
of Patriot Common Stock and PAHOC Common Stock.
Pursuant to the Wyndham Second Amendment, if the effective time of the
Wyndham Merger does not occur on or prior to December 31, 1997, other than as
a result of the failure, caused by Wyndham, of certain closing conditions to
be satisfied (a "Wyndham Delay"), and the Patriot/Wyndham Average Closing
Price is less than $27.50 but greater than or equal to $25.50, the Wyndham
Exchange Ratio will be adjusted so that each share of Wyndham Common Stock,
other than shares as to which Cash Consideration is to be received, will be
converted into the right to receive the number of Paired Shares equal to
$37.73 divided by the Patriot/Wyndham Average Closing Price. If the effective
time of the Wyndham Merger does not occur on or prior to December 31, 1997
other than as a result of a Wyndham Delay, and the Patriot/Wyndham Average
Closing Price is less than $25.50, the Wyndham Exchange Ratio will be adjusted
so that each share of Wyndham Common Stock, other than shares as to which Cash
Consideration is to be received, will be converted into the right to receive
1.480 Paired Shares, provided, however, that in such circumstances Wyndham has
the right, waivable by it, to terminate the Merger Agreement.
As of December 9, 1997, the average closing price of a Paired Share over the
previous 20 trading days was $30.71. Management of the Patriot Companies does
not anticipate that the Patriot/Wyndham Average Closing Price, as calculated
at the effective time of the Wyndham Merger (assuming a closing date of
January 5, 1998), will result in an adjustment to the Wyndham Exchange Ratio.
In lieu of receiving Paired Shares, Wyndham stockholders have the right
under the Wyndham Merger Agreement to make a Cash Election to receive Cash
Consideration, and CF Securities has an equivalent right
149
<PAGE>
under the Wyndham Stock Purchase Agreement; provided, however, that the
maximum aggregate amount of cash to be paid to Wyndham stockholders and CF
Securities pursuant to such Cash Election rights will be a total of $100,000.
Pursuant to the Wyndham Second Amendment, Patriot, PAHOC and Wyndham also
agreed to change the amount per share payable upon a Cash Election to a fixed
amount so that stockholders of Wyndham who make a Cash Election will be
entitled to receive Cash Consideration in an amount per share equal to equal
to $42.80. In the event that holders of Wyndham Common Stock and CF Securities
elect to receive more than $100,000 in cash, such cash will be allocated on a
pro rata basis among such stockholders and CF Securities based upon the
respective number of shares of Wyndham Common Stock as to which they have made
a Cash Election, and the Wyndham stockholders (other than CF Securities) will
receive Paired Shares at the Wyndham Exchange Ratio for their shares of
Wyndham Common Stock which are not converted into Cash Consideration. CF
Securities has delivered to Patriot a Cash Election pursuant to which CF
Securities has elected to receive Cash Consideration with respect to all
9,447,745 shares of Wyndham Common Stock beneficially owned by CF Securities.
Because CF Securities has made a Cash Election with respect to all of the
shares of Wyndham Common Stock beneficially owned by it, the maximum amount of
cash available to be paid to other holders of Wyndham Common Stock in the
Wyndham Merger is expected to be approximately $56,300. If no other
stockholders of Wyndham make a Cash Election, CF Securities will receive the
entire $100,000 of cash available for Cash Elections. Under such
circumstances, CF Securities may receive a combination of Paired Shares and
Patriot Series A Preferred Stock pursuant to the terms of the Stock Purchase
Agreement for its shares of Wyndham Common Stock which are not converted into
Cash Consideration, subject to certain REIT qualification limitations that
could, under certain limited circumstances, result in the payment of cash in
lieu of shares of Patriot Series A Preferred Stock.
The Wyndham Second Amendment also provides that in addition to receiving
Paired Shares at the Wyndham Exchange Ratio, and/or Cash Consideration in the
case of shares of Wyndham Common Stock as to which a Cash Election has been
made, holders of Wyndham Common Stock will be entitled to receive an
additional cash payment (the "Additional Cash Consideration") equal to the sum
of (i) the Pro Forma Dividend Amount (as defined below), if any, and (ii) if
the effective time of the Wyndham Merger does not occur on or prior to January
5, 1998 other than as a result of a Wyndham Delay, a per share amount equal to
the product of the Full Dilution Percentage (as defined below) and the Per
Share Deferral Amount (as defined below), if any. Under the terms of the
Wyndham Second Amendment, the term "Pro Forma Dividend Amount" is defined as
the amount equal to the aggregate per share amount of all dividends declared
on the Patriot Common Stock and the PAHOC Common Stock the record date for
which is on or after November 26, 1997 but prior to the effective time of the
Wyndham Merger, multiplied by the Wyndham Exchange Ratio. Under the terms of
the Wyndham Second Amendment, the term "Per Share Deferral Amount" is defined
as follows: (X) so long as there is not in effect an order, ruling or
injunction in any action brought by or on behalf of one or more stockholders
of Wyndham or in the right of Wyndham (a "Wyndham Stockholder Injunction")
that causes the condition under the Wyndham Merger Agreement that there exist
no order, ruling or injunction of a court which prohibits consummation of the
Wyndham Merger (the "Injunction Condition") to not be satisfied, (a) if the
effective time of the Wyndham Merger is on or before January 31, 1998, the Per
Share Deferral Amount shall be an amount equal to $10,000, divided by the
total number of shares of Wyndham Common Stock outstanding immediately prior
to the effective time of the Wyndham Merger (the "Wyndham Outstanding
Shares"), (b) if the effective time of the Wyndham Merger is after January 31,
1998 but on or before February 28, 1998, the Per Share Deferral Amount shall
be an amount equal to $21,000, divided by the Wyndham Outstanding Shares, and
(c) if the effective time of the Wyndham Merger is after February 28, 1998,
the Per Share Deferral Amount shall be an amount equal to $32,000, divided by
the Wyndham Outstanding Shares; and (Y) in the event that there is in effect a
Wyndham Stockholder Injunction that causes the Injunction Condition to not be
satisfied, (A) if the effective time of the Wyndham Merger is on or before
January 31, 1998, the Per Share Deferral Amount shall be equal to zero, (B) if
the Effective Time is after January 31, 1998 but on or before February 28,
1998, the Per Share Deferral Amount shall be an amount equal to $15,000,
divided by the Wyndham Outstanding Shares, and (C) if the effective time of
the Wyndham Merger is after February 28, 1998, the Per Share Deferral Amount
shall be an amount equal to $30,000, divided by the Wyndham Outstanding
Shares. Under the terms of the Wyndham Second Amendment, the term "Full
Dilution Percentage" is defined as (A) the total number of shares
150
<PAGE>
of Wyndham Common Stock outstanding immediately prior to the effective time of
the Wyndham Merger, divided by (B) the sum of the total number of shares of
Wyndham Common Stock in clause (A) above and the total number of shares of
Wyndham Common Stock as to which the assumed options are or may become
exercisable (whether or not currently exercisable). The Full Dilution
Percentage will cause the portion of the Additional Cash Consideration
attributable to the Per Share Deferral Amount to be calculated on a fully-
diluted basis assuming exercise of all of Wyndham's stock options.
The parties to the Wyndham Stock Purchase Agreement have confirmed that the
change in the Wyndham Merger Consideration resulting from the Wyndham Second
Amendment will have a corresponding effect under the Stock Purchase Agreement.
At November 3, 1997, Wyndham's portfolio of owned, leased or managed hotels
consisted of 93 hotels operated by Wyndham, as well as 8 franchised hotels,
which in the aggregate contained 24,083 rooms. Wyndham's portfolio includes 84
upscale hotel properties and 17 midscale properties operating under the
ClubHouse brand. Wyndham acquired through merger in July 1997: Kansas City-
based ClubHouse, a privately-held hospitality company with a portfolio of 17
hotels. Of the hotels comprising ClubHouse's portfolio, Wyndham acquired
through the merger or in related acquisition transactions ownership of 13
ClubHouse hotels and partial ownership of three ClubHouse hotels. Wyndham also
acquired through the merger ownership of the "ClubHouse" brand name, as well
as license rights with respect to one franchised ClubHouse hotel.
Following the Wyndham Merger, Patriot, through certain of its subsidiaries,
will own the 10 Wyndham hotels and 13 ClubHouse hotels and will lease such
hotels to PAHOC. The 13 hotel leases to be assumed by Patriot will be sub-
leased to PAHOC. Wyndham's remaining management and franchise contracts, the
Wyndham and the ClubHouse proprietary brand names and the Wyndham hotel
management company will be transferred to corporate subsidiaries of Patriot
(collectively, the "New Non-Controlled Subsidiaries"). Patriot will own a 99%
non-voting interest and PAHOC will own the 1% controlling voting interest in
each of the New Non-Controlled Subsidiaries. Therefore, the operating results
of the New Non-Controlled Subsidiaries will be combined with those of PAHOC
for financial reporting purposes. Patriot will account for its investment in
the New Non-Controlled Subsidiaries using the equity method of accounting.
Patriot will also assume Wyndham's existing indebtedness, substantially all
of which is expected to be refinanced with funds drawn on the Term Loan and/or
the Revolving 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 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, the
Patriot Partnership also entered into agreements with the Crow Family Entities
providing for the acquisition by Patriot of 11 full-service Wyndham-brand
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. However, Patriot currently expects that the purchase of the Milwaukee
Hotel will be delayed up to 24 months pending the receipt of certain third
party consents. Accordingly, the Pro Forma Financial Statements include only
the results of operations of the 10 hotels with 2,851 rooms expected to be
acquired subject to the Crow Assets Acquisition which represent approximately
$308,633 of the total purchase price. Subsequent to the Crow Assets
Acquisition, Patriot will lease the 10 hotels to PAHOC. In addition, in
connection with the Crow Assets Acquisition, the leases with the Wyndham
Lessee
151
<PAGE>
related to the Wyndham Garden Hotel-Midtown and the Wyndham Greenspoint Hotel
will be terminated and Patriot will lease these hotel properties to PAHOC.
In connection with the execution of the Patriot/IHC Merger Agreement, the
Patriot Partnership and the Crow Family Entities have agreed in principle that
the closing of the Crow Assets Acquisition would be scheduled for December 16,
1997 as to nine of the hotels and that they would waive any conditions to the
closing that the Wyndham Merger shall be consummated concurrently with
consummation of the Crow Assets Acquisition. The acquisition of the Wyndham
Palm Springs hotel is expected to close during the first quarter of 1998. The
parties also agreed that in the event that the Wyndham Merger does not close
on or before March 31, 1998, other than as a result of (i) a Wyndham Delay or
(ii) the failure of the closing of the nine aformentioned hotels under certain
circumstances, the Patriot Partnership will be required to pay additional
consideration (the "Additional Consideration") for the purchased hotels to the
Crow Family Entities such that the total purchase price equals the Crow Hotel
Properties' budgeted net operating income (with appropriate deductions for
management fees, trade name fees and F, F & E reserves) for 1998 capitalized
at an 8% rate. The Additional Consideration, if payable, will be payable 60%
in Paired Shares (with the value thereof equal to the average closing price of
a Paired Share over the ten trading days prior to March 31, 1998) (the "Non-
Cash Additional Consideration") and 40% in cash, provided that the Crow Family
Entities in certain circumstances will have the option of receiving the Non-
Cash Additional Consideration in the form of OP Units of the Patriot
Partnerships. The Patriot Partnership and entities affiliated with the Crow
Family also agreed that the entities affiliated with the Crow Family would
receive registration rights with respect to the Paired Shares (or the Paired
Shares into which OP Units may be redeemable) received as Non-Cash Additional
Consideration based on the terms and conditions of the Registration Rights
Agreement relating to the Paired Shares and shares of Patriot Series A
Preferred Stock to be received by the certain large Wyndham stockholders
pursuant to the Wyndham Merger and the Wyndham Stock Purchase Agreement.
The Wyndham Merger and the related transactions and the Crow Assets
Acquisition are collectively referred to herein as the "Wyndham Transactions."
The Wyndham Merger and the transactions related thereto are expected to be
consummated on January 5, 1998 and are subject to various conditions,
including approval of the Wyndham Merger by the stockholders of Patriot, PAHOC
and Wyndham. The Crow Assets Acquisition, as described above, is expected to
be consummated on or shortly after December 16, 1997 and is subject to various
conditions.
The following unaudited Pro Forma Condensed Combined Statements of
Operations as adjusted for the Wyndham Transactions for the year ended
December 31, 1996 and the nine months ended September 30, 1997 assume the
Wyndham Merger and the Crow Assets Acquisition had occurred on January 1,
1996. The pro forma information is also presented as if the following Recent
Transactions had occurred on January 1, 1996:
(i) the Cal Jockey Merger and the related transactions have been
consummated on terms set forth in the Cal Jockey Merger Agreement;
(ii) the PaineWebber Land Sale has been consummated, the PaineWebber
affiliate has leased that portion of the land upon which the Racecourse is
situated to Patriot, and Patriot has subleased this land and the related
improvements to PAHOC;
(iii) Patriot has leased certain land to Borders, Inc.;
(iv) PAHOC has completed the Grand Heritage Acquisition and the
acquisition of PAH RSI Lessee;
(v) Patriot has acquired the Recent Acquisitions (excluding the Park
Shore Hotel and the Sheraton City Centre);
(vi) the mortgage notes to affiliates of CHC Lease Partners have been
funded;
(vii) Patriot has replaced the Old Line of Credit with the Revolving
Credit Facility and the Term Loan;
(viii) PAHOC has acquired the Participating Note; and
(ix) the Offering of 10,580,000 Paired Shares has been completed.
The unaudited Pro Forma Condensed Combined Statements of Operations also
assume the following additional transactions have occurred at the beginning of
the periods presented:
152
<PAGE>
(i) Patriot has acquired the CHC Hotels and leased such hotels to PAHOC;
(ii) PAHOC has completed the GAH Acquisition; and
(iii) the CHCI Merger has been consummated on terms set forth in the CHCI
Merger Agreement.
In addition, the pro forma results of operations for the year ended December
31, 1996 assume the 24 hotels acquired during 1996 and the private placement
of equity securities and the public offering of common stock completed by Old
Patriot during 1996 had occurred as of January 1, 1996.
In management's opinion, all material adjustments necessary to reflect the
effects of these transactions have been made.
The Pro Forma Condensed Combined Statements of Operations are derived from
(i) the Patriot and PAHOC Pro Forma Condensed Combined Statements of
Operations for the year ended December 31, 1996 and the nine months ended
September 30, 1997; (ii) 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 nine months ended
September 30, 1997; and (iii) the Combined Crow Family Hotel Partnerships
financial statements for the year ended December 31, 1996 and the nine months
ended September 30, 1997, all of which are incorporated by reference in this
Proxy Statement/Prospectus. During 1996, one of the hotels to be acquired in
the Crow Assets Acquisition (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 Statements of Operations for the year ended December 31,
1996 and the nine months ended September 30, 1997. The following pro forma
financial information is also based in part upon:
(i) the Separate and Combined Statements of Income of Cal Jockey and Bay
Meadows filed with the Cal Jockey and Bay Meadows Joint Annual Report on
Form 10-K for the year ended December 31, 1996;
(ii) the Consolidated Statements of Operations of Old Patriot filed with
the Old Patriot Annual Report on Form 10-K for the year ended December 31,
1996;
(iii) the Separate and Combined Statements of Operations of Patriot and
PAHOC filed with the Patriot Companies' Joint Quarterly Report on Form 10-Q
for the nine months ended September 30, 1997;
(iv) the historical financial statements of certain hotels acquired by
Old Patriot filed in Old Patriot's Current Reports on Form 8-K dated April
2, 1996, as amended, December 5, 1996 and January 16, 1997, as amended;
(v) the historical financial statements of certain hotels and businesses
acquired by the Patriot Companies filed in the Patriot Companies' Joint
Current Reports on Form 8-K dated September 17, 1997, September 30, 1997,
as amended, and December 10, 1997; and
(vi) the Pro Forma Condensed Combined Statements of Operations of the
Combined Lessees which are located elsewhere in this 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 Patriot and PAHOC as adjusted for the Wyndham Transactions 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 Combined Statement of Operations
for the interim period ended September 30, 1997 is not necessarily indicative
of the results of operations for the full year.
153
<PAGE>
PATRIOT AND PAHOC
ADJUSTED FOR THE WYNDHAM TRANSACTIONS
PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1996
(UNAUDITED)
<TABLE>
<CAPTION>
PATRIOT PAHOC
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................ $279,948 $ -- $(247,218)(A) $ 32,730
Hotel revenue........... -- 876,663 -- 876,663
Racecourse facility
revenue, hotel and land
lease revenue.......... 17,714 51,946 (17,380)(B) 52,280
Management fee, service
fee and reimbursement
income................. -- 49,225 -- 49,225
Interest and other
income................. 2,797 12,262 (5,916)(C) 9,143
-------- --------- --------- ----------
Total revenue........... 300,459 990,096 (270,514) 1,020,041
-------- --------- --------- ----------
Expenses:
Departmental costs--
hotel operations....... -- 368,568 -- 368,568
Racecourse facility
operations............. -- 46,351 (5,611)(B) 40,740
Direct operating costs
of management company,
service department,
development and
reimbursement
expenses............... -- 43,809 -- 43,809
General and
administrative......... 7,097 103,877 (34)(C) 110,940
Ground lease and hotel
lease expense.......... 16,824 12,502 (11,769)(B) 17,557
Repair and maintenance.. -- 41,991 -- 41,991
Utilities............... -- 36,834 -- 36,834
Interest expense........ 124,637 1,393 (5,882)(C) 120,148
Real estate and personal
property taxes and
casualty insurance..... 34,542 847 -- 35,389
Marketing............... -- 70,577 -- 70,577
Management fees......... -- 9,469 -- 9,469
Depreciation and
amortization........... 93,775 29,425 -- 123,200
Participating lease
payments............... -- 247,218 (247,218)(A) --
-------- --------- --------- ----------
Total expenses.......... 276,875 1,012,861 (270,514) 1,019,222
-------- --------- --------- ----------
Income (loss) before
equity in earnings of
unconsolidated
subsidiaries, income tax
provision and minority
interests............... 23,584 (22,765) -- 819
Equity in earnings of
unconsolidated
subsidiaries........... 2,877 -- 5,045 (D) 7,922
-------- --------- --------- ----------
Income (loss) before
income tax provision and
minority interests...... 26,461 (22,765) 5,045 8,741
Income tax (provision)
benefit................ (345) 7,532 -- 7,187
-------- --------- --------- ----------
Income (loss) before
minority interests...... 26,116 (15,233) 5,045 15,928
Minority interests in
the Patriot
Partnerships........... (2,549) 1,141 -- (1,408)
Minority interest in
consolidated
subsidiaries .......... (1,832) 5,045 (5,045)(D) (1,832)
-------- --------- --------- ----------
Net income (loss)
applicable to common
stockholders............ $ 21,735 $ (9,047) $ -- $ 12,688 (E)
======== ========= ========= ==========
Net income (loss) per
common Paired Share(F).. $ 0.21 $ (0.09) $ 0.12 (E)
======== ========= ==========
</TABLE>
- --------
(A) Represents elimination of participating lease revenue and expense related
to the 61 hotel properties leased by Patriot to PAHOC (excluding the
Sheraton City Centre and including the two hotels leased by Crow Hotel
Lessee, Inc.).
(B) Represents elimination of rental income and expense related to the
Racecourse facility, land leased and the hotels sub-leased by Patriot to
PAHOC.
(C) The pro forma adjustments represent the elimination of $1,170 of interest
income and expense related to a note receivable issued to Old Patriot in
connection with the sale of certain assets to PAH RSI Lessee, which assets
are assumed to be acquired by PAHOC, the elimination of $4,712 of interest
income and expense related to the Subscription Notes issued to PAHOC in
connection with the subscription for shares of PAHOC Common Stock and
PAHOC Partnership OP Units issued in connection with the Cal Jockey Merger
and the elimination of $34 of other intercompany income and expense items.
(D) Represents the elimination of equity in losses of the New Non-Controlled
Subsidiaries.
(E) The pro forma balances assume Wyndham stockholders elect to receive cash
for their shares of Wyndham Common Stock up to the maximum funds available
of $100,000 and the remaining outstanding shares of Wyndham Common Stock
are exchanged for Paired Shares. Set forth below is a summary comparison
of the net impact to pro forma net income applicable to common
stockholders and net income per Paired Share (i) assuming approximately
2,336 shares of Wyndham Common Stock are purchased for cash ("Cash
Option"), based on total funds available of $100,000 and Cash
Consideration of $42.80 per share of Wyndham Common Stock; (ii) assuming
no Wyndham stockholders elect to receive cash ("All Stock"); and (iii)
assuming an average interest rate of 7.333% per annum on the incremental
borrowings related to the Revolving Credit Facility and the Term Loan
(representing LIBOR plus 1.85%) on outstanding debt obligations of
approximately $1,472,911 for Cash Option and $1,372,911 for All Stock.
154
<PAGE>
<TABLE>
<CAPTION>
CASH ALL
OPTION STOCK
------- -------
<S> <C> <C>
Decrease in interest expense as a result of reduced
borrowings............................................. $ -- $(7,333)
======= =======
Income before income tax benefit and minority interests
in the Patriot Partnerships (after minority interest in
consolidated subsidiaries and other partnerships)...... $ 6,909 $14,242
Income tax benefit...................................... 7,187 7,187
Minority interests in the Patriot Partnerships.......... (1,408) (2,114)
------- -------
Net income applicable to common shareholders............ $12,688 $19,315
======= =======
Net income per common Paired Share...................... $ 0.12 $ 0.18
======= =======
Estimated minority interest percentage in the Patriot
Partnerships subsequent to the Wyndham Transactions:
Patriot Partnership................................... 10.5% 10.2%
======= =======
PAHOC Partnership..................................... 11.2% 10.9%
======= =======
Weighted average number of common Paired Shares and
common Paired Share equivalents outstanding............ 102,543 105,758
======= =======
</TABLE>
Pursuant to the April Merger Agreement, if the Patriot/Wyndham Average
Closing Price of the Paired Shares is less than $21.86, the Wyndham Exchange
Ratio would be subject to adjustment. Pursuant to the Wyndham Second
Amendment, if the effective time of the Wyndham Merger occurs after December
31, 1997, other than as a result of a Wyndham Delay, and the Patriot/Wyndham
Average Closing Price is less than $27.50, the Wyndham Exchange Ratio would
be subject to adjustment. As of December 9, 1997, the average closing price
of a Paired Share as reported on the NYSE over the previous 20 trading days
was $30.71. Management of the Patriot Companies does not anticipate that the
Patriot/Wyndham Average Closing Price, as calculated at the effective time
of the Wyndham Merger (assuming a closing on January 5, 1998), will result
in an adjustment to the Wyndham Exchange Ratio.
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>
CASH ALL
OPTION STOCK
------- -------
<S> <C> <C>
Decrease in interest expense as a result of reduced
borrowings ............................................ $ -- $(7,583)
======= =======
Income before income tax benefit and minority interests
in the Patriot Partnerships (after minority interest in
consolidated subsidiaries and other partnerships)...... $2,635 $10,218
Income tax benefit...................................... 7,187 7,187
Minority interests in the Patriot Partnerships.......... (960) (1,703)
------- -------
Net income applicable to common stockholders............ $ 8,862 $15,702
======= =======
Net income per common Paired Share...................... $ 0.09 $ 0.15
======= =======
Estimated minority interest percentage in the Patriot
Partnerships subsequent to the Wyndham Transactions:
Patriot Partnership................................... 10.5% 10.2%
======= =======
PAHOC Partnership..................................... 11.2% 10.9%
======= =======
Weighted average number of common Paired Shares and
common Paired Share equivalents outstanding............ 102,543 105,758
======= =======
</TABLE>
The Patriot Companies are negotiating with PaineWebber Real Estate and
Chase to increase the amount available under the Revolving Credit Facility
to $900,000 and to arrange for a new Term Loan commitment for an unsecured
Term Loan of $350,000. The Revolving Credit Facility and the Term Loan will
be used to finance the Wyndham Transactions. Deferred loan costs of
approximately $6,737 related to the financing associated with the Wyndham
Transactions have been reflected in the pro forma financial information.
(F) Pro forma earnings per share is computed based on 102,543 weighted average
common Paired Shares and common Paired Share equivalents outstanding for
the period. The number of shares used for the calculation includes
adjustments to reflect the impact of the conversion of shares of PAHOC
Preferred Stock into Paired Shares.
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.
Under the new requirements for calculating basic earnings per share, the
dilutive effect of stock options and convertible preferred securities will
be excluded. Pro forma basic earnings per share for the year ended December
31, 1996 would be $0.13 per Paired Share. The impact of Statement 128 on
the calculation of diluted earnings per share is not expected to differ
significantly from the earnings per share amounts reported.
155
<PAGE>
PATRIOT AND PAHOC
ADJUSTED FOR THE WYNDHAM TRANSACTIONS
PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997
(UNAUDITED)
<TABLE>
<CAPTION>
PATRIOT PAHOC
AND WYNDHAM AND WYNDHAM PRO FORMA
PRO FORMA PRO FORMA ELIMINATIONS TOTAL
----------- ----------- ------------ ----------
(IN THOUSANDS, EXCEPT FOR PER SHARE AMOUNTS)
<S> <C> <C> <C> <C>
Revenue:
Participating lease
revenue................. $229,977 $ -- $(202,610)(A) $ 27,367
Hotel revenue............ -- 720,754 -- 720,754
Racecourse facility
revenue, hotel and land
lease revenue........... 19,759 33,399 (19,501)(B) 33,657
Management fee, service
fee and reimbursement
income.................. -- 45,549 -- 45,549
Interest and other
income.................. 4,043 8,507 (2,306)(C) 10,244
-------- -------- --------- --------
Total revenue............ 253,779 808,209 (224,417) 837,571
-------- -------- --------- --------
Expenses:
Departmental costs--hotel
operations.............. -- 282,402 -- 282,402
Racecourse facility
operations.............. -- 30,114 (3,246)(B) 26,868
Direct operating costs of
management company,
service department,
development and
reimbursement expenses.. -- 40,331 -- 40,331
General and
administrative.......... 7,137 81,670 (24)(C) 88,783
Ground lease and hotel
lease expense........... 20,017 16,778 (16,255)(B) 20,540
Repair and maintenance... -- 34,512 -- 34,512
Utilities................ -- 29,841 -- 29,841
Interest expense......... 94,414 936 (2,282)(C) 93,068
Real estate and personal
property taxes and
casualty insurance...... 27,066 290 -- 27,356
Marketing................ -- 59,095 -- 59,095
Management fees.......... -- 9,657 -- 9,657
Depreciation and
amortization............ 70,854 20,705 -- 91,559
Participating lease
payments................ -- 202,610 (202,610)(A) --
-------- -------- --------- --------
Total expenses........... 219,488 808,941 (224,417) 804,012
-------- -------- --------- --------
Income before equity in
earnings of
unconsolidated
subsidiaries, income tax
provision and minority
interests................ 34,291 (732) -- 33,559
Equity in earnings of
unconsolidated
subsidiaries............ 6,027 -- (1,419)(D) 4,608
-------- -------- --------- --------
Income before income tax
provision and minority
interests................ 40,318 (732) (1,419) 38,167
Income tax provision
benefit................. (256) (3,477) -- (3,733)
-------- -------- --------- --------
Income before minority
interests................ 40,062 (4,209) (1,419) 34,434
Minority interests in the
Patriot Partnerships.... (4,010) 630 -- (3,380)
Minority interest in
consolidated
subsidiaries............ (1,869) (1,419) 1,419 (D) (1,869)
-------- -------- --------- --------
Net income applicable to
common stockholders...... $ 34,183 $ (4,998) $ -- $ 29,185 (E)
======== ======== ========= ========
Net income per common
Paired Share(F).......... $ 0.33 $ (0.05) $ 0.28 (E)
======== ======== ========
</TABLE>
- --------
(A) Represents elimination of participating lease revenue and expense related
to the 61 hotel properties leased by Patriot to PAHOC (excluding the
Sheraton City Centre and including the two hotels leased by Crow Hotel
Lessee, Inc.).
(B) Represents elimination of rental income and expense related to the
Racecourse facility, land leased and the hotels sub-leased by Patriot to
PAHOC.
(C) Represents primarily the elimination of $832 of interest income and
expense related to a note receivable issued to Old Patriot in connection
with the sale of certain assets to PAH RSI Lessee, which assets are
assumed to be acquired by PAHOC, the elimination of $1,450 of interest
income and expense related to the Subscription Notes issued to PAHOC in
connection with the subscription for shares of PAHOC Common Stock and
PAHOC Partnership OP Units issued in connection with the Cal Jockey
Merger, and the elimination of $24 of other intercompany income and
expense items.
(D) Represents the elimination of equity in income of the New Non-Controlled
Subsidiaries.
(E) The pro forma balances assume Wyndham stockholders elect to receive cash
for their shares of Wyndham Common Stock up to the maximum funds available
of $100,000 and the remaining outstanding shares of Wyndham Common Stock
are exchanged for Paired Shares. Set forth below is a summary comparison
of the net impact to pro forma net income applicable to common
stockholders and net income per Paired Share (i) assuming approximately
2,336 shares of Wyndham Common Stock are purchased pursuant to the Cash
Option (based on total funds available of $100,000 and Cash Consideration
of $42.80 per share of Wyndham Common Stock); (ii) assuming Wyndham
stockholders elect to receive All Stock; and (iii) assuming an average
interest rate of 7.453% per annum on the incremental borrowings related to
the Revolving Credit Facility and the Term Loan (representing LIBOR plus
1.85%) on outstanding debt obligations of approximately $1,472,911 for
Cash Option and $1,372,911 for All Stock.
156
<PAGE>
<TABLE>
<CAPTION>
CASH ALL
OPTION STOCK
------- -------
<S> <C> <C>
Decrease in interest expense as a result of reduced
borrowings to fund the purchase of Wyndham Common
Stock.................................................. $ -- $(5,590)
======= =======
Income before income tax provision and minority
interests in the Patriot Partnerships (after minority
interest in consolidated subsidiaries and other
partnerships).......................................... $36,298 $41,888
Income tax provision.................................... (3,733) (3,733)
Minority interests in the Patriot Partnerships.......... (3,380) (3,853)
------- -------
Net income applicable to common shareholders............ $29,185 $34,302
======= =======
Net income per common Paired Share...................... $ 0.28 $ 0.32
======= =======
Estimated minority interest percentage in the Patriot
Partnerships subsequent to the Wyndham Transactions:
Patriot Partnership................................... 10.5% 10.2%
======= =======
PAHOC Partnership..................................... 11.2% 10.9%
======= =======
Weighted average number of common Paired Shares and
common Paired Share equivalents outstanding............ 103,117 106,332
======= =======
</TABLE>
Pursuant to the Wyndham Merger Agreement, if the Patriot/Wyndham Average
Closing Price of the Paired Shares is less than $21.86, the Wyndham
Exchange Ratio would be subject to adjustment. Pursuant to the Wyndham
Second Amendment, if the effective time of the Wyndham Merger occurs after
December 31, 1997, other than as a result of a Wyndham Delay, and the
Patriot/Wyndham Average Closing Price is less than $27.50, the Wyndham
Exchange Ratio would be subject to adjustment. As of December 9, 1997, the
average closing price of a Paired Share as reported on the NYSE over the
previous 20 trading days was $30.71. Management of the Patriot Companies
does not anticipate that the Patriot/Wyndham Average Closing Price, as
calculated at the effective time of the Wyndham Merger (assuming a closing
on January 5, 1998), will result in an adjustment to the Wyndham Exchange
Ratio.
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>
CASH ALL
OPTION STOCK
------- -------
<S> <C> <C>
Decrease in interest expense as a result of reduced
borrowings ............................................ $ -- $(5,777)
======= =======
Income before income tax provision and minority
interests in the Patriot Partnerships (after minority
interest in consolidated subsidiaries and other
partnerships).......................................... $33,391 $39,168
Income tax provision.................................... (3,733) (3,733)
Minority interests in the Patriot Partnerships.......... (3,075) (3,576)
------- -------
Net income applicable to common shareholders............ $26,583 $31,859
======= =======
Net income per common Paired Share...................... $ 0.26 $ 0.30
======= =======
Estimated minority interest percentage in the Patriot
Partnerships subsequent to the Wyndham Transactions:
Patriot Partnership................................... 10.5% 10.2%
======= =======
PAHOC................................................. 11.2% 10.9%
======= =======
Weighted average number of common Paired Shares and
common Paired Share equivalents outstanding............ 103,117 106,332
======= =======
</TABLE>
The Patriot Companies are negotiating with PaineWebber Real Estate and
Chase to increase the amount available under the Revolving Credit Facility
to $900,000 and to arrange for a new Term Loan commitment for an unsecured
Term Loan of $350,000. The Revolving Credit Facility and the Term Loan will
be used to finance the Wyndham Transactions. Deferred loan costs of
approximately $6,737 related to the financing associated with the Wyndham
Transactions have been reflected in the pro forma financial information.
(F) Pro forma earnings per share is computed based on 103,117 weighted average
common Paired Shares and common Paired Share equivalents outstanding for
the period. The number of shares used for the calculation includes
adjustments to reflect the impact of the conversion of shares of PAHOC
Preferred Stock into Paired Shares.
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.
Under the new requirements for calculating basic earnings per share, the
dilutive effect of stock options and convertible preferred securities will
be excluded. Pro forma basic earnings per share for the nine months ended
September 30, 1997 would be $0.30 per Paired Share. The impact of Statement
128 on the calculation of diluted earnings per share is not expected to
differ significantly from the earnings per share amounts reported.
157
<PAGE>
PATRIOT AND PAHOC
ADJUSTED FOR THE WYNDHAM TRANSACTIONS
PRO FORMA CONDENSED COMBINED BALANCE SHEET
The following unaudited Pro Forma Condensed Combined Balance Sheet is
presented as if the Wyndham Transactions had occurred as of September 30, 1997
and is based on the applicable terms of the Wyndham Merger Agreement in effect
assuming the effective time of the Wyndham Merger is January 5, 1998, and that
ten hotels are purchased in the Crow Assets Acquisition under the terms in
effect if the closing of the Crow Assets Acquisition occurs on or before
December 16, 1997. The Pro Forma Condensed Combined Balance Sheet is derived
from the Patriot and PAHOC Pro Forma Condensed Combined Balance Sheet as of
September 30, 1997 included elsewhere in this Proxy Statement/Prospectus,
which is presented as if the following transactions have occurred as of
September 30, 1997:
(i) Patriot acquired the three CHC Hotels and The Buttes (which were
acquired subsequent to September 30, 1997) and has acquired the remaining
approximate 50% interest in the Omni Inner Harbor Hotel and leased such
hotels to PAHOC;
(ii) PAHOC acquired the members' interests in PAH RSI Lessee;
(iii) PAHOC completed the GAH Acquisition; and
(iv) the CHCI Merger was consummated on terms set forth in the CHCI
Merger Agreement.
Such pro forma information is based in part upon Wyndham's Consolidated
Balance Sheet as of September 30, 1997 and Patriot's and PAHOC's Combined
Balance Sheet as of September 30, 1997 and should be read in conjunction with
the financial statements filed with Wyndham's and the Patriot Companies'
respective Quarterly Reports on Form 10-Q for the nine months ended September
30, 1997 incorporated by reference herein. 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 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 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 September 30, 1997, nor does it purport to represent the
future financial position of Patriot and PAHOC as adjusted for the Wyndham
Transactions.
158
<PAGE>
PATRIOT AND PAHOC
ADJUSTED FOR THE WYNDHAM TRANSACTIONS
PRO FORMA CONDENSED COMBINED BALANCE SHEET
AS OF SEPTEMBER 30, 1997
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
PATRIOT
AND CROW
PAHOC ASSETS
PRO FORMA ACQUISITION WYNDHAM PRO FORMA
TOTAL(A) PRO FORMA(B) PRO FORMA(C) ADJUSTMENTS TOTAL
---------- ------------ ------------ ----------- ----------
<S> <C> <C> <C> <C> <C>
ASSETS
Net investment in real
estate and related
improvements........... $1,657,283 $320,357 $290,391 $165,494 (D) $2,433,525
Mortgage notes and other
receivables from
unconsolidated
subsidiaries........... 74,053 -- -- -- 74,053
Notes and other
receivables from
affiliates............. -- -- 24,800 -- 24,800
Notes receivable........ 15,913 -- 1,931 -- 17,844
Investment in
unconsolidated
subsidiaries........... 12,061 -- 4,092 -- 16,153
Cash and cash
equivalents............ 21,515 -- 14,819 -- 36,334
Restricted cash......... 38,196 -- 936 -- 39,132
Accounts receivable,
net.................... 38,540 -- 15,682 -- 54,222
Goodwill................ 128,108 -- 20,857 311,584 (E) 460,549
Deferred expenses, net.. 16,626 -- 8,019 18 (F) 24,663
Deferred acquisition
costs.................. 39,970 -- -- -- 39,970
Management contract
costs.................. 45,364 -- 11,419 53,463 (G) 110,246
Trade name and franchise
costs.................. 7,500 -- -- 85,550 (H) 93,050
Prepaid expenses and
other assets........... 11,323 -- 41,006 -- 52,329
Deferred income taxes... 700 -- 16,347 (15,551)(I) 1,496
---------- -------- -------- -------- ----------
Total assets........... $2,107,152 $320,357 $450,299 $600,558 $3,478,366
========== ======== ======== ======== ==========
LIABILITIES AND STOCK-
HOLDERS' EQUITY
Borrowings under a line
of credit and mortgage
notes.................. $ 789,930 $320,357 $228,986 $133,638 (J) $1,472,911
Accounts payable and
accrued expenses....... 50,377 -- 45,756 -- 96,133
Dividends and
distributions payable.. 21,727 -- -- -- 21,727
Sales taxes payable..... 2,968 -- -- -- 2,968
Deferred income tax
liability.............. 4,846 -- 20,970 50,609 (I) 76,425
Deposits................ 2,037 -- 1,996 -- 4,033
Deferred gain........... -- -- 11,511 (11,511)(I) --
Due to unconsolidated
subsidiaries........... 5,904 -- -- -- 5,904
Minority interests in
the Patriot
Partnerships........... 264,862 -- -- -- 264,862
Minority interest in
consolidated
subsidiaries........... 29,284 -- 2,828 -- 32,112
Stockholders' equity:
Preferred stock........ 44 -- -- -- 44
Common stock........... 1,377 -- 216 313 (K) 1,906
Paid-in capital........ 1,049,267 -- 133,137 466,650 (L) 1,649,054
Unearned stock compen-
sation, net........... (15,075) -- -- (15,075)
Notes receivable from
stockholders.......... -- -- (17,138)(M) -- (17,138)
Receivable from affili-
ates.................. -- -- (1,229)(N) -- (1,229)
Unrealized gain on se-
curities available for
sale.................. -- -- 790 (790)(L) --
Unrealized foreign ex-
change loss........... -- -- (192) 192 (L) --
Retained earnings...... (100,396) -- 22,668 (38,543)(L) (116,271)
---------- -------- -------- -------- ----------
Total stockholders' eq-
uity.................. 935,217 -- 138,252 427,822 1,501,291
---------- -------- -------- -------- ----------
Total liabilities and
stockholders' equity.. $2,107,152 $320,357 $450,299 $600,558 $3,478,366
========== ======== ======== ======== ==========
</TABLE>
See notes on following page.
159
<PAGE>
PATRIOT AND PAHOC, ADJUSTED FOR THE WYNDHAM TRANSACTIONS NOTES TO PRO FORMA
CONDENSED COMBINED BALANCE SHEET AS OF SEPTEMBER 30, 1997 (IN THOUSANDS,
EXCEPT PER SHARE AMOUNTS):
(A) Represents the Pro Forma Condensed Combined Balance Sheet of Patriot and
PAHOC as of September 30, 1997, which reflects the Cal Jockey Merger and
the transactions related thereto.
(B) Represents adjustments to Patriot's and PAHOC's pro forma financial
position assuming consummation of the Crow Assets Acquisition had occurred
at September 30, 1997.
(C) Represents Wyndham's pro forma financial position as of September 30,
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 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 (including the management contracts
acquired in the ClubHouse acquisition) are adjusted to their estimated
fair market values. Wyndham holds management contracts with certain of its
affiliates and with unrelated third parties for 44 hotels. The contracts
have an average remaining life of approximately 14 years and provide for
payment of management fees including a base fee 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 and ClubHouse
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 $6,737 of additional loan fees related to the
financing of the Wyndham Transactions, estimated mortgage prepayment
penalties of $15,875, acquisition-related costs of $11,026 incurred in
connection with the Wyndham Transactions, and $100,000 of cash paid for
shares of Wyndham Common Stock.
(K) Represents an adjustment to record the exchange of Wyndham Common Stock
for Paired Shares. 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, up to a maximum of $100,000 of
total funds available or (ii) 1.372 shares of Patriot Common Stock and
1.372 shares of PAHOC Common Stock. As of September 30, 1997, 21,618
shares of Wyndham Common Stock were outstanding. The pro forma balances
assume approximately 2,336 shares of Wyndham Common Stock are purchased
for cash pursuant to the Cash Option (based on total funds available of
$100,000 and Cash Consideration of $42.80 per share of Wyndham Common
Stock). The remaining 19,282 shares of Wyndham Common Stock were assumed
to be exchanged for approximately 26,455 Paired Shares, resulting in an
adjustment to increase common stock.
(L) Represents adjustments to stockholders' equity to eliminate Wyndham's pro
forma equity accounts totaling $156,619 and record equity based on the
number of Paired Shares issued in the Wyndham Merger. The pro forma
balances assume Wyndham stockholders elect to receive cash for their
shares of Wyndham Common Stock up to the maximum funds available of
$100,000. As a result, approximately 2,336 shares of Wyndham Common Stock
were assumed to be purchased for cash (based on total funds available of
$100,000 and Cash Consideration of $42.80 per share of Wyndham Common
Stock). The total purchase consideration for the Wyndham Merger is
approximately $688,413 (based upon 19,282 shares of Wyndham Common Stock
assumed to be exchanged for approximately 26,455 Paired Shares and an
estimated market price per Paired Share of $22.25 (which is 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 Old Patriot Common Stock)
and $100,000 of cash consideration).
Set forth below is a summary comparison of the net impact to pro forma
borrowings and stockholders' equity (i) assuming approximately 2,336 shares
of Wyndham Common Stock are purchased pursuant to the Cash Option (the
basis used for pro forma balance sheet presentation purposes), and (ii)
assuming Wyndham stockholders elect to receive All Stock.
<TABLE>
<CAPTION>
CASH OPTION ALL STOCK
----------- ---------
<S> <C> <C>
Number of shares of Wyndham Common Stock purchased
for cash............................................ 2,336 --
======== ========
Cash paid for shares of Wyndham Common Stock (assumed
to be financed through the Revolving Credit Facility
or the Term Loan)................................... $100,000 $ --
Number of Paired Shares issued pursuant to the
Wyndham Merger...................................... 26,455 29,660
======== ========
Purchase consideration for shares.................... $588,413 $659,942
Adjustment to common stock for Paired Shares issued.. (529) (593)
Outstanding options to purchase common stock assumed
in the Wyndham Merger............................... 11,903 11,903
Book value of Wyndham paid-in capital................ (133,137) (133,137)
-------- --------
Adjustment to paid-in capital........................ 466,650 538,115
-------- --------
Mortgage prepayment penalties incurred from
refinancing of Wyndham debt......................... (15,875) (15,875)
Elimination of historical retained earnings.......... (22,668) (22,668)
-------- --------
Adjustment to retained earnings...................... (38,543) (38,543)
Adjustment to common stock........................... 313 377
Unrealized gain on securities available for sale..... (790) (790)
Unrealized foreign exchange loss..................... 192 192
-------- --------
Adjustment to stockholders' equity.................. $427,822 $499,351
======== ========
</TABLE>
160
<PAGE>
Pursuant to the April Merger Agreement, if the Patriot/Wyndham Average
Closing Price of the Paired Shares is less than $21.86, the Wyndham
Exchange Ratio would be subject to adjustment. Pursuant to the Wyndham
Second Amendment, if the effective time of the Wyndham Merger occurs after
December 31, 1997, other than as a result of a Wyndham Delay, and the
Patriot/Wyndham Average Closing Price is less than $27.50, the Wyndham
Exchange Ratio would be subject to adjustment. As of December 9, 1997, the
average closing price of a Paired Share as reported on the NYSE over the
previous 20 trading days was $30.71. Management of the Patriot Companies
does not anticipate that the Patriot/Wyndham Average Closing Price, as
calculated at the effective time of the Wyndham Merger (assuming a closing
on January 5, 1998), will result in an adjustment to the Wyndham Exchange
Ratio.
In connection with the Wyndham Merger, options to purchase approximately
1,017 shares of Wyndham Common Stock which were issued by Wyndham to
certain officers and employees of Wyndham will be converted to options to
purchase 1,395 Paired Shares. Such options to purchase Paired Shares will
vest immediately upon consummation of the Wyndham Merger and become
exercisable in full. The stated exercise prices will be adjusted to reflect
the Wyndham Exchange Ratio. The excess of the estimated value of a Paired
Share 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 execution of
the April Merger Agreement, of Old Patriot Common Stock on the NYSE 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 stockholder notes purchased by Wyndham in conjunction with its
initial public offering. In connection with the Wyndham Merger, Patriot
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 Patriot at their stated historical cost, which approximates
their estimated fair value, as a result of the Wyndham Merger.
161
<PAGE>
PATRIOT
ADJUSTED FOR THE WYNDHAM TRANSACTIONS
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1996
(UNAUDITED)
<TABLE>
<CAPTION>
CROW
PATRIOT ASSETS WYNDHAM
PRO FORMA ACQUISITION MERGER PRO FORMA
TOTAL(A) PRO FORMA(B) PRO FORMA(C) ADJUSTMENTS TOTAL
--------- ------------ ------------ ----------- ---------
(IN THOUSANDS, EXCEPT FOR PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C>
Revenue:
Participating lease
revenue............... $213,868 $34,235 $ 31,845 $ -- $279,948
Racecourse facility,
hotel and land lease
revenue............... 5,945 -- 9,404 2,365 (D) 17,714
Interest and other
income................ 2,297 -- 500 -- 2,797
-------- ------- --------- -------- --------
Total revenue.......... 222,110 34,235 41,749 2,365 300,459
-------- ------- --------- -------- --------
Expenses:
Ground lease and hotel
lease expense......... 5,693 1,325 9,806 -- 16,824
General and
administrative........ 6,797 100 (E) 200 (E) -- 7,097
Interest expense....... 64,518 23,492 (F) 18,342 (F) 18,285 (F) 124,637
Real estate and
personal property
taxes and casualty
insurance............. 22,488 3,783 8,271 -- 34,542
Depreciation and
amortization.......... 62,723 12,033 (G) 19,019 (G) -- 93,775
-------- ------- --------- -------- --------
Total expenses......... 162,219 40,733 55,638 18,285 276,875
-------- ------- --------- -------- --------
Income (loss) before
equity in earnings of
unconsolidated
subsidiaries, income
tax provision and
minority interests..... 59,891 (6,498) (13,889) (15,920) 23,584
Equity in earnings
(losses) of
unconsolidated
subsidiaries.......... 7,559 -- 363 (5,045)(H) 2,877
-------- ------- --------- -------- --------
Income (loss) before
income tax provision
and minority
interests.............. 67,450 (6,498) (13,526) (20,965) 26,461
Income tax provision... (170) -- -- (175)(I) (345)
-------- ------- --------- -------- --------
Income (loss) before mi-
nority interests....... 67,280 (6,498) (13,526) (21,140) 26,116
Minority interest in
the Patriot Partner-
ship.................. (9,032) 682 1,420 4,381 (J) (2,549)
Minority interest in
consolidated subsidi-
aries................. (1,832) -- -- -- (1,832)
-------- ------- --------- -------- --------
Net income (loss)
applicable to common
stockholders .......... $ 56,416 $(5,816) $ (12,106) $(16,759) $ 21,735 (K)
======== ======= ========= ======== ========
Net income per common
share(L)............... $ 0.75 $ 0.21 (K)
======== ========
</TABLE>
- --------
(A) Represents the pro forma results of operations of Patriot for the year
ended December 31, 1996 assuming the following transactions had occurred
at the beginning of the period presented: (i) the Cal Jockey Merger and
the transactions related thereto; (ii) the PaineWebber Land Sale was
consummated, the PaineWebber affiliate leased that portion of the land
upon which the Racecourse is situated to Patriot and Patriot subleased
this land and the related improvements to PAHOC; (iii) Patriot leased
certain land to Borders, Inc.; (iv) Patriot acquired the Recent
Acquisitions (excluding the Park Shore Hotel and the Sheraton City Centre)
and the CHC Hotels; (v) the mortgage notes to affiliates of CHC Lease
Partners have been funded; (vi) Patriot replaced the Old Line of Credit
with the Revolving Credit Facility and the Term Loan; (vii) Patriot
acquired the Participating Note; (viii) the Offering of 10,580 Paired
Shares was completed; and (ix) Patriot acquired eight leases from CHC
Lease Partners and re-leased such hotels to PAHOC. In addition, the pro
forma results of operations assume the 24 hotels acquired during 1996 and
the private placement and public offering of equity securities completed
by Old Patriot during 1996 had occurred as of January 1, 1996. See page
135.
(B) Represents adjustments to Patriot's results of operations assuming the
Crow Assets Acquisition (10 hotels) 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
Assets Acquisition reflects the results of operations for nine hotels for
the year ended December 31, 1996 (excluding the La Guardia Airport Hotel
which was closed for renovation during 1996).
(C) Represents adjustments to Patriot'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 Patriot from third parties and then sub-leased to PAHOC.
(E) Represents adjustment for estimated incremental administrative salaries
and other expenses expected to be incurred by Patriot.
162
<PAGE>
(F) For the Crow Assets Acquisition, the adjustment represents interest
expense incurred on net borrowings under the Revolving Credit Facility and
Term Loan, 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. Patriot expects to refinance substantially all of
Wyndham's long-term debt with borrowings under the Revolving Credit
Facility and Term Loan. Patriot will pay an estimated $15,875 in mortgage
prepayment penalties. This amount will be reported as an extraordinary
item in Patriot's results of operations following the completion of the
Wyndham Transactions and has been reflected as an adjustment to retained
earnings for pro forma presentation purposes. In addition, the Revolving
Credit Facility and Term Loan generally have more favorable interest rates
than the debt expected to be repaid. The deferred loan costs are being
amortized using the straight-line method over the terms of the loans.
Interest expense incurred on the Revolving Credit Facility and Term Loan
borrowings assumes an average interest rate of 7.333% (representing LIBOR
plus 1.85%). An increase of 0.25% in the interest rate would increase pro
forma interest expense to $128,911, decrease net income applicable to
common shareholders to $17,909 and decrease net income per common share to
$0.17, based on 102,543 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 losses of the New Non-Controlled Subsidiaries which
own the Wyndham tradenames and franchise related assets, the management
and franchising contracts and the hotel management company, which will be
controlled by PAHOC.
(I) Represents provision for Patriot's estimated state tax liability.
(J) Represents the adjustments to minority interest to reflect the estimated
minority interest percentage subsequent to the Wyndham Transactions of
approximately 10.5%. The estimated minority interest percentage prior to
the Wyndham Transactions is approximately 13.8%.
(K) The pro forma balances assume Wyndham stockholders elect to receive cash
for their shares of Wyndham Common Stock up to the maximum funds available
of $100,000 and the remaining outstanding shares of Wyndham Common Stock
are exchanged for Paired Shares. If no Wyndham stockholders elect to
receive cash (and, therefore, all outstanding shares of Wyndham Common
Stock are exchanged for Paired Shares), pro forma interest expense would
decrease by $7,333, net income would be $28,392 and net income per common
share would be $0.27, based on 105,758 weighted average number of common
shares and common share equivalents outstanding.
(L) Pro forma earnings per share is computed based on 102,543 weighted average
common shares and common share equivalents outstanding for the period. The
number of shares used for the calculation includes adjustments to reflect
the impact of the conversion of shares of PAHOC Preferred Stock into
Paired Shares.
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.
Under the new requirements for calculating basic earnings per share, the
dilutive effect of stock options and convertible preferred securities will
be excluded. Pro forma basic earnings per share for the year ended December
31, 1996 would be $0.22 per common share. The impact of Statement 128 on the
calculation of diluted earnings per share is not expected to differ
significantly from the earnings per share amounts reported.
163
<PAGE>
PATRIOT
ADJUSTED FOR THE WYNDHAM TRANSACTIONS
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997
(UNAUDITED)
<TABLE>
<CAPTION>
PATRIOT CROW ASSETS WYNDHAM
PRO FORMA ACQUISITION MERGER PRO FORMA
TOTAL(A) PRO FORMA(B) PRO FORMA(C) ADJUSTMENTS TOTAL
--------- ------------ ------------ ----------- ---------
(IN THOUSANDS, EXCEPT FOR PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C>
Revenue:
Participating lease
revenue............... $172,682 $30,857 $ 26,438 $ -- $229,977
Racecourse facility,
hotel and land lease
revenue .............. 3,504 -- 14,482 1,773 (D) 19,759
Interest and other
income................ 4,043 -- -- -- 4,043
-------- ------- -------- -------- --------
Total revenue.......... 180,229 30,857 40,920 1,773 253,779
-------- ------- -------- -------- --------
Expenses:
Ground lease and hotel
lease expense......... 5,535 -- 14,482 -- 20,017
General and
administrative........ 6,937 50 (E) 150 (E) -- 7,137
Interest expense....... 48,329 17,907 (F) 11,788 (F) 16,390 (F) 94,414
Real estate and
personal property
taxes and casualty
insurance............. 17,812 3,018 6,236 -- 27,066
Depreciation and
amortization.......... 47,565 9,025 (G) 14,264 (G) -- 70,854
-------- ------- -------- -------- --------
Total expenses......... 126,178 30,000 46,920 16,390 219,488
-------- ------- -------- -------- --------
Income (loss) before
equity in earnings of
unconsolidated
subsidiaries, income
tax provision and
minority interests..... 54,051 857 (6,000) (14,617) 34,291
Equity in earnings of
unconsolidated
subsidiaries.......... 4,488 -- 120 1,419 (H) 6,027
-------- ------- -------- -------- --------
Income (loss) before
income tax provision
and minority
interests.............. 58,539 857 (5,880) (13,198) 40,318
Income tax provision... (125) -- -- (131) (I) (256)
-------- ------- -------- -------- --------
Income (loss) before mi-
nority interests....... 58,414 857 (5,880) (13,329) 40,062
Minority interest in
the Patriot
Partnership........... (7,803) (90) 617 3,266 (J) (4,010)
Minority interest in
consolidated subsidi-
aries................. (1,869) -- -- -- (1,869)
-------- ------- -------- -------- --------
Net income (loss)
applicable to common
stockholders........... $ 48,742 $ 767 $ (5,263) $(10,063) $ 34,183 (K)
======== ======= ======== ======== ========
Net income per common
share(L)............... $ 0.64 $ 0.33 (K)
======== ========
</TABLE>
- --------
(A) Represents the pro forma results of operations of Patriot for the nine
months ended September 30, 1997 assuming the following transactions had
occurred at the beginning of the period presented: (i) the Cal Jockey
Merger and the transactions related thereto; (ii) the PaineWebber Land
Sale was consummated, the PaineWebber affiliate leased that portion of the
land upon which the Racecourse is situated to Patriot and Patriot
subleased this land and the related improvements to PAHOC; (iii) Patriot
leased certain land to Borders, Inc.; (iv) Patriot acquired the Recent
Acquisitions (excluding the Park Shore Hotel and the Sheraton City Centre)
and the CHC Hotels; (v) the mortgage notes to affiliates of CHC Lease
Partners have been funded; (vi) Patriot replaced the Old Line of Credit
with the Revolving Credit Facility and the Term Loan; (vii) PAHOC acquired
the Participating Note; (viii) the Offering of 10,580,000 Paired Shares
was completed; and (ix) Patriot acquired eight leases from CHC Lease
Partners and re-leased such hotels to PAHOC. See page 138.
(B) Represents adjustments to Patriot's results of operations assuming the
Crow Assets Acquisition (10 hotels) had occurred at the beginning of the
period presented. The pro forma results of operations for the Crow Assets
Acquisition reflects the results of operations for ten hotels for the nine
months ended September 30, 1997.
(C) Represents adjustments to Patriot'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 Patriot from third parties and then sub-leased to PAHOC.
(E) Represents adjustment for estimated incremental administrative salaries
and other expenses expected to be incurred by Patriot.
(F) For the Crow Assets Acquisition, the adjustment represents interest
expense incurred on net borrowings under the Revolving Credit Facility and
Term Loan, 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. Patriot expects to refinance Wyndham's long-term debt with
borrowings under the
164
<PAGE>
Revolving Credit Facility and Term Loan. Patriot will pay approximately
$15,875 in mortgage prepayment penalties. This amount will be reported as an
extraordinary item in Patriot's results of operations following the
completion of the Wyndham Transactions and has been reflected as an
adjustment to retained earnings for pro forma presentation purposes. In
addition, the Revolving Credit Facility and Term Loan generally have more
favorable interest rates than the debt expected to be repaid. The deferred
loan costs are being amortized using the straight-line method over the terms
of the loans. Interest expense incurred on the Revolving Credit Facility and
Term Loan borrowings assumes an average interest rate of 7.453%
(representing LIBOR plus 1.85%). An increase of 0.25% in the interest rate
would increase pro forma interest expense to $97,321, decrease net income
applicable to common stockholders to $31,581 and decrease net income per
common share to $0.31, based on 103,117 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 Non-Controlled Subsidiaries which
own the Wyndham tradenames and franchise related assets, the management
and franchising contracts and the hotel management company, which will be
controlled by PAHOC.
(I) Represents provision for Patriot's estimated state tax liability.
(J) Represents the adjustments to minority interest to reflect the estimated
minority interest percentage subsequent to the Wyndham Transactions of
approximately 10.5%. The estimated minority interest percentage prior to
the Wyndham Transactions is approximately 13.8%.
(K) The pro forma balances assume Wyndham stockholders elect to receive cash
for their shares of Wyndham Common Stock up to the maximum funds available
of $100,000 and the remaining outstanding shares of Wyndham Common Stock
are exchanged for Paired Shares. If no Wyndham stockholders elect to
receive cash (and, therefore, all outstanding shares of Wyndham Common
Stock are exchanged for Paired Shares) pro forma interest expense would
decrease by $5,590, net income would be $39,317 and net income per common
share would be $0.37, based on 106,332 weighted average number of common
shares and common share equivalents outstanding.
(L) Pro forma earnings per share is computed based on 103,117 weighted average
common shares and common share equivalents outstanding for the period. The
number of shares used for the calculation includes adjustments to reflect
the impact of the conversion of shares of PAHOC Preferred Stock into
Paired Shares.
In February 1997, the Financial Accounting Standards Board issue Statement
128 which specifies the computation, presentation and disclosure
requirements for basic earnings per share and diluted earnings per share.
Under the new requirements for calculating basic earnings per share, the
dilutive effect of stock options and convertible preferred securities will
be excluded. Pro forma basic earnings per share for the nine months ended
September 30, 1997 would be $0.35 per common share. The impact of Statement
128 on the calculation of diluted earnings per share is not expected to
differ significantly from the earnings per share amounts reported.
165
<PAGE>
PAHOC
ADJUSTED FOR THE WYNDHAM TRANSACTIONS
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1996
(UNAUDITED)
<TABLE>
<CAPTION>
ADJUSTMENTS
------------------------------------------
PAHOC CROW ASSETS 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 AMOUNTS)
<S> <C> <C> <C> <C> <C> <C>
Revenue:
Room revenue........... $338,448 $ 64,362 $128,248 $16,228 $ -- $ 547,286
Other hotel revenue.... 233,844 44,303 40,920 10,310 -- 329,377
Racecourse facility
revenue............... 51,946 -- -- -- -- 51,946
Management fee, service
fee and reimbursement
income................ 13,522 -- 41,978 -- (6,275)(E) 49,225
Interest and other
income................ 10,012 -- 2,250 -- -- 12,262
-------- -------- -------- ------- -------- ---------
Total revenue.......... 647,772 108,665 213,396 26,538 (6,275) 990,096
-------- -------- -------- ------- -------- ---------
Expenses:
Departmental costs--
hotel, club and spa
operations............ 241,792 44,914 71,913 9,949 -- 368,568
Racecourse facility
operations............ 46,351 -- -- -- -- 46,351
Direct operating costs
of management company,
service department,
development and
reimbursement
expenses.............. 11,143 -- 32,666 -- -- 43,809
General and
administrative........ 71,700 10,495 18,276 3,305 101 (G) 103,877
Ground lease and hotel
lease expense ........ 733 -- -- -- 11,769 (F) 12,502
Repair and
maintenance........... 29,897 4,884 6,066 1,144 -- 41,991
Utilities.............. 26,843 4,351 4,585 1,055 -- 36,834
Marketing.............. 51,238 8,375 9,226 1,738 -- 70,577
Management fees........ 9,469 5,349 (E) -- 926 (E) (6,275)(E) 9,469
Depreciation and
amortization.......... 10,348 -- 13,016 (H) -- 6,061 (H) 29,425
Participating lease
payments(I)........... 172,119 34,235 31,845 9,019 -- 247,218
Interest expense....... 1,393 -- -- -- -- 1,393
Real estate and
personal property
taxes and insurance... 398 -- 449 -- -- 847
-------- -------- -------- ------- -------- ---------
Total expenses......... 673,424 112,603 188,042 27,136 11,656 1,012,861
-------- -------- -------- ------- -------- ---------
Income (loss) before
income tax provision
and minority
interests.............. (25,652) (3,938) 25,354 (598) (17,931) (22,765)
Income tax (provision)
benefit............... (760) -- (4,177)(J) -- 12,469 (J) 7,532
-------- -------- -------- ------- -------- ---------
Income (loss) before mi-
nority interests....... (26,412) (3,938) 21,177 (598) (5,462) (15,233)
Minority interest in
the PAHOC
Partnership........... 3,830 441 (K) (2,372)(K) 67 (K) (825) (K) 1,141
Minority interest in
consolidated
subsidiaries.......... -- -- -- -- 5,045 (L) 5,045
-------- -------- -------- ------- -------- ---------
Net loss applicable to
common stockholders.... $(22,582) $ (3,497) $ 18,805 $ (531) $ (1,242) $ (9,047)
======== ======== ======== ======= ======== =========
Net loss per common
share(M)............... $ (0.30) $ (0.09)
======== =========
</TABLE>
See notes on following page.
- --------
(A) Represents the pro forma results of operations of PAHOC for the year ended
December 31, 1996 assuming the following transactions had occurred at the
beginning of the period presented: (i) the Cal Jockey Merger and the
transactions related thereto; (ii) the Paine Webber Land Sale was
consummated, the Paine Webber affiliate leased that portion of the land
upon which the Racecourse is situated to Patriot and Patriot subleased
this land and the related improvements to PAHOC; (iii) Patriot leased
certain land to Borders, Inc.; (iv) PAHOC completed the Grand Heritage
Acquisition and acquired PAH RSI Lessee; (v) Patriot acquired the Recent
Acquisitions (except for the Park Shore Hotel and the Sheraton City
Centre) and the CHC Hotels and leased 21 of such hotels to PAHOC; (vi) the
mortgage notes to affiliates of CHC Lease Partners have been funded; (vii)
Patriot replaced the Old Line of Credit with the Revolving Credit Facility
and the Term Loan; (viii) PAHOC acquired the Participating Note; (ix) the
Offering of 10,580 Paired Shares was completed; (x) the GAH Acquisition
was completed; and (xi) the CHCI Merger was completed. See page 141.
(B) Represents adjustments to PAHOC's results of operations assuming the Crow
Assets Acquisition (10 hotels) 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 Assets
Acquisition reflects the results of operations for nine hotels for the
year ended December 31, 1996.
166
<PAGE>
(C) Represents adjustments to PAHOC's results of operations assuming the
Wyndham Merger and the related transactions had been consummated as of
January 1, 1996. The pro forma adjustments are based on the historical
results of operations of Wyndham as of December 31, 1996 adjusted for
certain transactions, including the acquisition of ClubHouse, all hotels
and management contracts acquired during 1996 and Wyndham's initial public
offering and related transactions, as if such transactions had occurred as
of January 1, 1996.
(D) Represents adjustments to PAHOC's results of operations assuming the two
hotels currently leased by Crow Hotel Lessee, Inc. had been leased by
PAHOC at the beginning of the period presented.
(E) Represents the elimination of management fees for the hotels previously
leased to the Crow Hotel Lessee, Inc. which are assumed to be leased by
PAHOC and managed by a New Non-Controlled Subsidiary.
(F) Represents pro forma lease expense related to the sub-lease agreement with
Patriot for those hotel properties leased by Patriot from third party
owners.
(G) Represents incremental general and administrative expenses expected to be
incurred by PAHOC of $200 and the elimination of certain other expenses of
$99.
(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 estimated useful lives ranging from 20 to 35
years. Amortization of management contracts is computed using the
straight-line method over the 14-year average remaining term of the
related management agreements.
(I) Represents lease payments from PAHOC to Patriot 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 PAHOC's estimated federal and state tax
provision for the Wyndham Transactions.
(K) Represents the adjustments to minority interest to reflect the estimated
minority interest percentage subsequent to the Wyndham Transactions of
approximately 11.2%. The estimated minority interest percentage prior to
the Wyndham Transactions is approximately 14.5%.
(L) Represents adjustment for minority interest in the New Non-Controlled
Subsidiaries held by Patriot.
(M) Pro forma earnings per share is computed based on 102,543 weighted average
common shares and common share equivalents outstanding for the period. The
number of shares used for the calculation includes adjustments to reflect
the impact of the conversion of shares of PAHOC Preferred Stock into
Paired Shares.
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.
Under the new requirements for calculating basic earnings per share, the
dilutive effect of stock options and convertible preferred securities will
be excluded. Pro forma basic earnings per share for the year ended December
31, 1996 would be a net loss of $0.09 per common share. The impact of
Statement 128 on the calculation of diluted earnings per share is not
expected to differ significantly from the earnings per share amounts
reported.
167
<PAGE>
PAHOC
ADJUSTED FOR THE WYNDHAM TRANSACTIONS
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997
(UNAUDITED)
<TABLE>
<CAPTION>
ADJUSTMENTS
------------------------------------------
PAHOC CROW ASSETS 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> <C>
Revenue:
Room revenue........... $279,595 $58,044 $108,868 $12,659 $ -- $459,166
Other hotel revenue.... 182,889 35,548 35,502 7,649 -- 261,588
Racecourse facility
revenue............... 33,399 -- -- -- -- 33,399
Management fee, service
fee and reimbursement
income................ 14,701 -- 35,785 -- (4,937)(E) 45,549
Interest and other
income................ 6,374 -- 2,133 -- -- 8,507
-------- ------- -------- ------- -------- --------
Total revenue.......... 516,958 93,592 182,288 20,308 (4,937) 808,209
-------- ------- -------- ------- -------- --------
Expenses:
Departmental costs--
hotel, club and spa
operations............ 187,784 37,199 49,712 7,707 -- 282,402
Racecourse facility
operations............ 30,114 -- -- -- -- 30,114
Direct operating costs
of management company,
service department and
reimbursement
expenses.............. 12,568 -- 27,763 -- -- 40,331
General and
administrative........ 54,225 9,324 15,539 2,382 200 (F) 81,670
Ground lease and hotel
lease expense......... 523 -- -- -- 16,255 (G) 16,778
Repair and
maintenance........... 24,230 4,005 5,366 911 -- 34,512
Utilities.............. 20,341 3,745 4,918 837 -- 29,841
Marketing.............. 41,734 6,743 9,294 1,324 -- 59,095
Management fees........ 9,657 4,279 -- 658 (4,937)(E) 9,657
Depreciation and
amortization.......... 5,449 -- 10,739 (H) -- 4,517 (H) 20,705
Participating lease
payments(I)........... 138,309 30,857 26,438 7,006 -- 202,610
Interest expense....... 936 -- -- -- -- 936
Real estate and
personal property
taxes and casuality
insurance ............ 290 -- -- -- -- 290
-------- ------- -------- ------- -------- --------
Total expenses......... 526,160 96,152 149,769 20,825 16,035 808,941
-------- ------- -------- ------- -------- --------
Income (loss) before
income tax provision
and minority
interests.............. (9,202) (2,560) 32,519 (517) (20,972) (732)
Income tax (provision)
benefit............... -- -- (9,240)(J) -- 5,763 (J) (3,477)
-------- ------- -------- ------- -------- --------
Income (loss) before mi-
nority interests....... (9,202) (2,560) 23,279 (517) (15,209) (4,209)
Minority interest in
the PAHOC
Partnership........... 1,334 287 (K) (2,607)(K) 58 (K) 1,558 (K) 630
Minority interest in
consolidated
subsidiaries.......... -- -- -- -- (1,419)(L) (1,419)
-------- ------- -------- ------- -------- --------
Net income (loss)
applicable to common
stockholders........... $ (7,868) $(2,273) $ 20,672 $ (459) $(15,070) $ (4,998)
======== ======= ======== ======= ======== ========
Net loss per common
share(M)............... $ (0.10) $ (0.05)
======== ========
</TABLE>
See notes on following page.
168
<PAGE>
PAHOC, ADJUSTED FOR THE WYNDHAM TRANSACTIONS
NOTES TO PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997 (IN THOUSANDS, EXCEPT PER SHARE
AMOUNTS):
(A) Represents the pro forma results of operations of PAHOC for the nine
months ended September 30, 1997 assuming the following transactions had
occurred at the beginning of the period presented: (i) the Cal Jockey
Merger and the transactions related thereto (ii) the PaineWebber Land Sale
was consummated, the PaineWebber affiliate leased that portion of the land
upon which the Racecourse is situated to Patriot and Patriot subleased
this land and the related improvements to PAHOC; (iii) Patriot leased
certain land to Borders, Inc.; (iv) PAHOC completed the Grand Heritage
Acquisition and acquired PAH RSI Lessee; (v) Patriot acquired the Recent
Acquisitions (except for the Park Shore Hotel and the Sheraton City
Centre) and the CHC Hotels and leased 21 of such hotels to PAHOC; (vi) the
mortgage notes to affiliates of CHC Lease Partners have been funded; (vii)
Patriot replaced the Old Line of Credit with the Revolving Credit Facility
and the Term Loan; (viii) PAHOC acquired the Participating Note; (ix) the
Offering of 10,580 Paired Shares was completed; (x) the GAH Acquisition
was completed; and (xi) the CHCI Merger was completed. See page 144.
(B) Represents adjustments to PAHOC's results of operations assuming the Crow
Assets Acquisition (10 hotels) had occurred as of January 1, 1996. The pro
forma results of operations for the Crow Assets Acquisition reflects the
results of operations for ten hotels for the nine months ended September
30, 1997.
(C) Represents adjustments to PAHOC's results of operations assuming the
Wyndham Merger had been consummated at the beginning of the period
presented. The pro forma adjustments are based on the historical results
of operations of Wyndham as of September 30, 1997 adjusted for certain
transactions, including the acquisition of ClubHouse and all hotels and
management contracts acquired during the first nine months of 1997, as if
such transactions had occurred as of January 1, 1996.
(D) Represents adjustments to PAHOC's results of operations assuming the two
hotels currently leased by Crow Hotel Lessee, Inc. had been leased by
Wyndham International as of January 1, 1996.
(E) Represents the elimination of management fees for the hotels previously
leased to the Crow Hotel Lessee, Inc. which are assumed to be leased by
PAHOC and managed by a New Non-Controlled Subsidiary.
(F) Represents incremental general and administrative expenses expected to be
incurred by PAHOC of $200.
(G) Represents pro forma lease expense related to the sub-lease agreement with
Patriot for those hotel properties leased by Patriot from third party
owners.
(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 estimated useful lives ranging from 20 to 35
years. Amortization of management contracts is computed using the
straight-line method over the 14-year average remaining term of the
related management agreements.
(I) Represents lease payments from PAHOC to Patriot 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 PAHOC's estimated federal and state tax
provision for the Wyndham Transactions.
(K) Represents the adjustments to minority interest to reflect the estimated
minority interest percentage subsequent to the Wyndham Transactions of
approximately 11.2%. The estimated minority interest percentage prior to
the Wyndham Transactions is approximately 14.5%.
(L) Represents adjustment for minority interest in the New Non-Controlled
Subsidiaries held by Patriot.
(M) Pro forma earnings per share is computed based on 103,117 weighted average
common shares and common share equivalents outstanding for the period. The
number of shares used for the calculation includes adjustments to reflect
the impact of the conversion of shares of PAHOC A/B Preferred Stock into
Paired Shares.
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.
Under the new requirements for calculating basic earnings per share, the
dilutive effect of stock options and convertible preferred securities will
be excluded. Pro forma basic earnings per share for the nine months ended
September 30, 1997 would be a net loss of $0.05 per common share. The impact
of Statement 128 on the calculation of diluted earnings per share is not
expected to differ significantly from the earnings per share amounts
reported.
169
<PAGE>
COMBINED LESSEES
ADJUSTED FOR THE WYNDHAM TRANSACTIONS
PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
Patriot leases each of its hotels, except those hotels leased to PAHOC and
except the Crowne Plaza Ravinia Hotel and the Wyndham WindWatch Hotel, which
are separately owned through Non-Controlled Subsidiaries, to Lessees. The
Combined Lessees subsequent to (i) the Wyndham Transactions, (ii) the Cal
Jockey Merger and the transactions related thereto, (iii) the Grand Heritage
Acquisition (which included the acquisition of Grand Heritage Leasing, L.L.C.
which leased three hotels from Patriot), (iv) the acquisition of PAH RSI
Lessee (which included the acquisition of eight Patriot hotel leases); and (v)
the GAH Acquisition and the CHCI Merger (which included the acquisition of 25
Patriot hotel leases from CHC Lease Partners) consist of NorthCoast Lessee
which leases 11 hotels (excluding the Park Shore Hotel), Doubletree Lessee
which leases four hotels, and Metro Lease Partners which leases one hotel.
Patriot also leases two hotels to Crow Hotel Lessee, Inc. (the Wyndham Garden
Hotel-Midtown and the Wyndham Greenspoint Hotel). Subsequent to the completion
of the Wyndham Transactions, Patriot expects to terminate its leases with Crow
Hotel Lessee, Inc. and re-lease such hotels to PAHOC. The Participating Leases
provide for staggered terms of one 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 nine
months ended September 30, 1997 are presented as if the 16 hotels that Patriot
leases to the Combined Lessees pursuant to Participating Leases (excluding the
Park Shore Hotel) had been leased as of January 1, 1996. The 25 hotels leased
to CHC Lease Partners, the eight hotels leased to PAH RSI Lessee, the three
hotels leased to Grand Heritage Leasing, L.L.C. and the two hotels leased to
Crow Hotel Lessee, Inc. are assumed to have been leased to PAHOC 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 NorthCoast Lessee filed
with Old Patriot's Annual Report on Form 10-K for the year ended December 31,
1996 and the Statements of Operations of NorthCoast Lessee filed with
Patriot's and PAHOC's Joint Quarterly Report on Form 10-Q for the nine months
ended September 30, 1997 and the Pro Forma Statement of Operations of the
Combined Lessees located elsewhere or incorporated by reference in this 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
September 30, 1997 is not necessarily indicative of the results of operations
for the full year.
170
<PAGE>
COMBINED LESSEES
ADJUSTED FOR THE WYNDHAM TRANSACTIONS
PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1996 AND THE NINE MONTHS ENDED SEPTEMBER 30,
1997
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS
YEAR ENDED ENDED
DECEMBER 31, SEPTEMBER 30,
1996 1997
------------ -------------
(IN THOUSANDS)
<S> <C> <C>
Revenue:
Room................................................ $72,182 $59,441
Food and beverage................................... 28,499 22,355
Telephone and other................................. 5,906 4,852
------- -------
Total revenue.................................... 106,587 86,648
------- -------
Expenses:
Departmental costs and expenses..................... 44,615 34,690
General and administrative.......................... 9,389 7,138
Ground lease expense................................ 2,496 985
Repair and maintenance.............................. 5,526 4,161
Utilities........................................... 4,380 3,201
Marketing........................................... 7,431 6,171
Participating lease payments(A)..................... 32,730 27,367
------- -------
Total expenses................................... 106,567 83,713
------- -------
Income before lessee income (expense)................ 20 2,935
------- -------
Dividend and interest income(B)...................... 142 1,087
Management fees(C)................................... (2,553) (2,444)
Lessee general and administrative(D)................. (478) (478)
------- -------
(2,889) (1,835)
------- -------
Net income (loss).................................... $(2,869) $ 1,100
======= =======
</TABLE>
- --------
(A) Represents lease payments calculated on a pro forma basis by applying the
provisions of the Participating Leases to the historical revenue of the
hotels.
(B) Includes dividend income on OP Units in the Patriot Partnerships which
form a portion of the required capitalization of NorthCoast Lessee. 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.
(C) Represents pro forma management fees paid to the Operators under the terms
of their respective management agreements with the Lessees.
(D) Represents pro forma overhead expenses, which include an estimate of the
Lessees' salaries and benefits, professional fees, insurance costs and
administrative expenses.
171
<PAGE>
PATRIOT AND PAHOC ADJUSTED FOR THE MERGER
INTRODUCTION TO PRO FORMA FINANCIAL STATEMENTS (IN THOUSANDS, EXCEPT PER SHARE
DATA)
On September 30, 1997, Patriot, PAHOC and WHG entered into the Merger
Agreement providing for the merger of a newly-formed subsidiary of PAHOC with
and into WHG, with WHG being the surviving corporation. As a result of the WHG
Merger, PAHOC will acquire the Condado Plaza, a 50% interest in the El San
Juan and a 23.3% interest in the El Conquistador, all of which are located in
Puerto Rico, as well as a 62% interest in WHGI, the management company for the
three hotels and the Las Casitas Village at El Conquistador.
Under the terms of the Merger Agreement, each share of WHG Common Stock will
be converted into the right to receive 0.784 Paired Shares; provided, however,
that in the event that (i) the Average Closing Price is greater than $31.25
and the Effective Time is before February 1998, the Exchange Ratio will be
adjusted such that the Exchange Ratio Product equals $24.50, (ii) the Average
Closing Price is greater than $31.75 and the Effective Time is in February
1998, the Exchange Ratio will be adjusted such that the Exchange Ratio Product
equals $24.89, (iii) the Average Closing Price is greater than $32.25 and the
Effective Time is after February 1998, the Exchange Ratio will be adjusted
such that the Exchange Ratio Product equals $25.28, (iv) the Average Closing
Price is less than or equal to $25.50, but greater than or equal to $19.50,
the Exchange Ratio will be adjusted such that the Exchange Ratio Product
equals $20.00, or (v) the Average Closing Price is less than $19.50, the
Exchange Ratio will equal 1.026, provided, however, that in such circumstances
WHG has the right, waivable by it, to terminate the Merger Agreement.
In addition, each issued and outstanding share of WHG Preferred Stock will
be converted into the right to receive that number of Paired Shares that the
holder of such shares of WHG Preferred Stock would have the right to receive
assuming conversion of such shares, together with any accrued and unpaid
dividends thereon, into shares of WHG Common Stock immediately prior to the
Effective Time.
As a result of the Merger, PAHOC will pay approximately $7,036 to buy out
options to purchase WHG Common Stock, will assume certain severance
obligations of approximately $3,010 and will incur approximately $2,825 in
other fees and expenses. Management anticipates these costs will be paid from
available cash.
The Pro Forma Financial Statements have been adjusted for the purchase
method of accounting whereby the hotel and related improvements and other
assets and liabilities acquired by Patriot and PAHOC, including the assets and
liabilities owned by WHG, are adjusted to estimated fair market value. The
fair market value of the assets and liabilities of WHG has been determined
based upon preliminary estimates and is subject to change as additional
information is obtained. Management does not anticipate that the preliminary
allocation of purchase costs based upon the estimated fair market value of the
assets and liabilities of WHG 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.
The Patriot Companies are currently in negotiations with certain of the
Other Owners to acquire their interests in PSJA, WHGI and WKA and an option to
acquire all the equity interests of the partnership which owns the Laguna Wing
of the Condado Plaza. In addition, the Patriot Companies are currently in
negotiations with Kumagai to acquire its 50% interest in the El Con
Partnership. The aggregate purchase price for these interests would be
approximately $80,000, payable partly in cash and partly in Paired Shares. No
assurance can be given that any of these transactions will be consummated.
The following unaudited Pro Forma Condensed Combined Statement of Operations
as adjusted for the Merger for the year ended December 31, 1996 and the nine
months ended September 30, 1997 are derived from (i) the Patriot and the PAHOC
Pro Forma Condensed Combined Statements of Operations as adjusted for the
Wyndham Transactions for the year ended December 31, 1996 and the nine months
ended September 30, 1997 included elsewhere in this Proxy Statement/Prospectus
and (ii) the Consolidated Statements of Operations of WHG for the year ended
June 30, 1997 and the three months ended September 30, 1997 which are included
172
<PAGE>
elsewhere herein. As a result of the Merger, WHG will become a subsidiary of
PAHOC. Consequently the Merger has minimal impact on the pro forma operating
results of Patriot. As a result, separate unaudited Pro Forma Condensed
Statements of Operations for Patriot adjusted for the Merger have not been
presented.
The following unaudited Pro Forma Condensed Combined Statements of
Operations are not necessarily indicative of what the actual results of
operations of Patriot and PAHOC as adjusted for the Merger 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 Combined Statement of Operations
for the interim period ended September 30, 1997 is not necessarily indicative
of the results of operations for the full year.
173
<PAGE>
PATRIOT AND PAHOC
ADJUSTED FOR THE MERGER
PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1996
(UNAUDITED)
<TABLE>
<CAPTION>
PATRIOT PAHOC PRO FORMA
PRO FORMA(A) PRO FORMA(B) ELIMINATIONS TOTAL
------------ ------------ ------------ ----------
(IN THOUSANDS, EXCEPT FOR PER SHARE DATA)
<S> <C> <C> <C> <C>
Revenue:
Participating lease
revenue................. $279,948 $ -- $(247,218)(C) $ 32,730
Hotel revenue............ -- 931,559 -- 931,559
Racecourse facility
revenue, hotel and land
lease revenue........... 17,714 51,946 (17,380)(D) 52,280
Management fee, service
fee and reimbursement
income.................. -- 62,221 -- 62,221
Interest and other
income.................. 2,797 14,346 (5,916)(E) 11,227
-------- ---------- --------- ----------
Total revenue............ 300,459 1,060,072 (270,514) 1,090,017
-------- ---------- --------- ----------
Expenses:
Departmental costs--hotel
operations.............. -- 403,122 -- 403,122
Racecourse facility
operations.............. -- 46,351 (5,611)(D) 40,740
Direct operating costs of
management company,
service department,
development and
reimbursement expenses.. -- 47,564 -- 47,564
General and
administrative.......... 7,097 110,110 (34)(E) 117,173
Ground lease and hotel
lease expense........... 16,824 12,502 (11,769)(D) 17,557
Repair and maintenance... -- 41,991 -- 41,991
Utilities................ -- 36,834 -- 36,834
Interest expense......... 124,637 4,866 (5,882)(E) 123,621
Real estate and personal
property taxes and
casualty insurance...... 34,542 847 -- 35,389
Marketing................ -- 73,533 -- 73,533
Management fees.......... -- 9,469 -- 9,469
Depreciation and
amortization............ 93,775 40,943 -- 134,718
Participating lease
payments................ -- 247,218 (247,218)(C) --
-------- ---------- --------- ----------
Total expenses........... 276,875 1,075,350 (270,514) 1,081,711
-------- ---------- --------- ----------
Income (loss) before
equity in earnings of
unconsolidated
subsidiaries, income tax
provision and minority
interests................ 23,584 (15,278) -- 8,306
Equity in earnings of
unconsolidated
subsidiaries............ 2,877 (3,407) 5,045 (F) 4,515
-------- ---------- --------- ----------
Income (loss) before
income tax provision and
minority interests....... 26,461 (18,685) 5,045 12,821
Income tax (provision)
benefit................. (345) 4,647 -- 4,302
-------- ---------- --------- ----------
Income (loss) before
minority interests....... 26,116 (14,038) 5,045 17,123
Minority interests in the
Patriot Partnerships.... (2,428) 1,359 -- (1,069)
Minority interest in
consolidated
subsidiaries ........... (1,832) 1,341 (5,045)(F) (5,536)
-------- ---------- --------- ----------
Net income (loss)
applicable to common
stockholders............. $ 21,856 $ (11,338) $ -- $ 10,518
======== ========== ========= ==========
Net income (loss) per
common Paired Share(G)... $ 0.20 $ (0.11) $ 0.09
======== ========== ==========
</TABLE>
- --------
(A) Patriot Pro Forma balances are derived from the pro forma results of
operations of Patriot for the year ended December 31, 1996 as adjusted for
the Wyndham Transactions. See page 162. Minority interest in the Patriot
Partnership has been decreased by $121 to reflect the decrease in the
estimated minority interest percentage subsequent to the Merger to
approximately 10.0%. The estimated minority interest percentage prior to
the Merger is approximately 10.5%.
(B) PAHOC Pro Forma balances are derived from the pro forma results of
operations of PAHOC for the year ended December 31, 1996 appearing on page
179.
(C) Represents elimination of participating lease revenue and expense related
to the 61 hotel properties leased by Patriot to PAHOC (excluding the
Sheraton City Centre and including the two hotels leased by Crow Hotel
Lessee, Inc.).
(D) Represents elimination of rental income and expense related to the
Racecourse facility, land leased and the hotels sub-leased by Patriot to
PAHOC.
(E) The pro forma adjustments represent the elimination of $1,170 of interest
income and expense related to a note receivable issued to Old Patriot in
connection with the sale of certain assets to PAH RSI Lessee, which assets
are assumed to be acquired by PAHOC, the elimination of $4,712 of interest
income and expense related to the Subscription Notes issued to PAHOC in
connection with the subscription for shares of PAHOC Common Stock and
PAHOC Partnership OP Units issued in connection with the Cal Jockey Merger
and the elimination of $34 of other intercompany income and expense items.
(F) Represents the elimination of equity in losses of the New Non-Controlled
Subsidiaries.
(G) Pro forma earnings per share is computed based on 107,547 weighted average
common Paired Shares and common Paired Share equivalents outstanding for
the period. The number of shares used for the calculation includes
adjustments to reflect the impact of the conversion of shares of PAHOC
Preferred Stock into Paired Shares and the conversion of WHG Preferred
Stock into Paired Shares.
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.
Under the new requirements for calculating basic earnings per share, the
dilutive effect of stock options and convertible preferred securities will
be excluded. Pro forma basic earnings per share for the year ended December
31, 1996 would be $0.10 per common Paired Share. The impact of Statement 128
on the calculation of diluted earnings per share is not expected to differ
significantly from the earnings per share amounts reported.
174
<PAGE>
PATRIOT AND PAHOC
ADJUSTED FOR THE MERGER
PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997
(UNAUDITED)
<TABLE>
<CAPTION>
PATRIOT PAHOC PRO FORMA
PRO FORMA(A) PRO FORMA(B) ELIMINATIONS TOTAL
------------ ------------ ------------ ----------
(IN THOUSANDS, EXCEPT FOR PER SHARE AMOUNTS)
<S> <C> <C> <C> <C>
Revenue:
Participating lease
revenue.................. $229,977 $ -- $(202,610)(C) $ 27,367
Hotel revenue............. -- 763,616 -- 763,616
Racecourse facility
revenue, hotel and land
lease revenue............ 19,759 33,399 (19,501)(D) 33,657
Management fee, service
fee and reimbursement
income................... -- 56,838 -- 56,838
Interest and other
income................... 4,043 10,524 (2,306)(E) 12,261
-------- -------- --------- --------
Total revenue............. 253,779 864,377 (224,417) 893,739
-------- -------- --------- --------
Expenses:
Departmental costs--hotel
operations............... -- 307,597 -- 307,597
Racecourse facility
operations............... -- 30,114 (3,246)(D) 26,868
Direct operating costs of
management company,
service department, and
reimbursement expenses... -- 43,427 -- 43,427
General and
administrative........... 7,137 87,322 (24)(E) 94,435
Ground lease and hotel
lease expense............ 20,017 16,778 (16,255)(D) 20,540
Repair and maintenance.... -- 34,512 -- 34,512
Utilities................. -- 29,841 -- 29,841
Interest expense.......... 94,414 3,291 (2,282)(E) 95,423
Real estate and personal
property taxes and
casualty insurance....... 27,066 290 -- 27,356
Marketing................. -- 61,334 -- 61,334
Management fees........... -- 9,657 -- 9,657
Depreciation and
amortization............. 70,854 29,489 -- 100,343
Participating lease
payments................. -- 202,610 (202,610)(C) --
-------- -------- --------- --------
Total expenses............ 219,488 856,262 (224,417) 851,333
-------- -------- --------- --------
Income before equity in
earnings of unconsolidated
subsidiaries, income tax
provision and minority
interests................. 34,291 8,115 -- 42,406
Equity in earnings of
unconsolidated
subsidiaries............. 6,027 417 (1,419)(F) 5,025
-------- -------- --------- --------
Income before income tax
provision and minority
interests................. 40,318 8,532 (1,419) 47,431
Income tax (provision)
benefit.................. (256) (3,477) -- (3,733)
-------- -------- --------- --------
Income before minority
interests................. 40,062 5,055 (1,419) 43,698
Minority interests in the
Patriot Partnerships..... (3,819) (39) -- (3,858)
Minority interest in
consolidated
subsidiaries............. (1,869) (4,692) 1,419 (F) (5,142)
-------- -------- --------- --------
Net income applicable to
common stockholders....... $ 34,374 $ 324 $ -- $ 34,698
======== ======== ========= ========
Net income per common
Paired Share(G)........... $ 0.31 $ 0.01 $ 0.32
======== ======== ========
</TABLE>
- --------
(A) Patriot Pro Forma balances are derived from the pro forma results of
operations of Patriot for the nine months ended September 30, 1997 as
adjusted for the Wyndham Transactions. See page 164. Minority interest in
the Patriot Partnership has been decreased by $191 to reflect the decrease
in the estimated minority interest percentage subsequent to the Merger to
approximately 10.0%. The estimated minority interest percentage prior to
the Merger is approximately 10.5%.
(B) PAHOC Pro Forma balances are derived from the pro forma results of
operations of PAHOC for the nine months ended September 30, 1997 appearing
on page 180.
(C) Represents elimination of participating lease revenue and expense related
to the 61 hotel properties leased by Patriot to PAHOC (excluding the
Sheraton City Centre and including the two hotels leased by Crow Hotel
Lessee, Inc.).
(D) Represents elimination of rental income and expense related to the
Racecourse facility, land leased and the hotels sub-leased by Patriot to
PAHOC.
(E) Represents primarily the elimination of $832 of interest income and
expense related to a note receivable issued to Old Patriot in connection
with the sale of certain assets to PAH RSI Lessee, which assets are
assumed to be acquired by PAHOC, the elimination of $1,450 of interest
income and expense related to the Subscription Notes issued to PAHOC in
connection with the subscription for shares of PAHOC Common Stock and
PAHOC Partnership OP Units issued in connection with the Cal Jockey
Merger, and the elimination of $24 of other intercompany income and
expense items.
(F) Represents the elimination of equity in income of the New Non-Controlled
Subsidiaries.
(G) Pro forma earnings per share is computed based on 108,178 weighted average
common Paired Shares and common Paired Share equivalents outstanding for
the period. The number of shares used for the calculation includes
adjustments to reflect the impact of the conversion of shares of PAHOC
Preferred Stock into Paired Shares and the conversion of WHG Preferred
Stock into Paired Shares.
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.
Under the new requirements for calculating basic earnings per share, the
dilutive effect of stock options and convertible preferred securities will
be excluded. Pro forma basic earnings per share for the nine months ended
September 30, 1997 would be $0.34 per common Paired Share. The impact of
Statement 128 on the calculation of diluted earnings per share is not
expected to differ significantly from the earnings per share amounts
reported.
175
<PAGE>
PATRIOT AND PAHOC
ADJUSTED FOR THE MERGER
PRO FORMA CONDENSED COMBINED BALANCE SHEET
The following unaudited Pro Forma Condensed Combined Balance Sheet is
presented as if the Merger had occurred as of September 30, 1997. The Pro
Forma Condensed Combined Balance Sheet is also derived from the Patriot and
PAHOC Pro Forma Condensed Combined Balance Sheet as adjusted for the Wyndham
Transactions as of September 30, 1997 included elsewhere in this Proxy
Statement/Prospectus. In management's opinion, all material adjustments
necessary to reflect the effect of these transactions have been made.
Such pro forma information is based in part upon WHG's Consolidated Balance
Sheet as of September 30, 1997, Wyndham's Consolidated Balance Sheet as of
September 30, 1997, and Patriot's and PAHOC's Combined Balance Sheet as of
September 30, 1997 and should be read in conjunction with the financial
statements filed with Wyndham's and the Patriot Companies' respective
Quarterly Reports on Form 10-Q for the nine months ended September 30, 1997
and with WHG's financial statements presented elsewhere in this Proxy
Statement/Prospectus.
The accompanying Pro Forma Condensed Combined Balance Sheet reflects
adjustments to record the net assets of WHG at their estimated fair market
values and the elimination of WHG's historical stockholders' equity. The fair
market values of the assets and liabilities of WHG have been determined based
upon preliminary estimates and are subject to change as additional information
is obtained. Management does not anticipate that the preliminary allocation of
purchase costs based upon the estimated fair market values of the assets and
liabilities of WHG 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 September 30, 1997,
nor does it purport to represent the future financial position of Patriot and
PAHOC as adjusted for the Merger.
176
<PAGE>
PATRIOT AND PAHOC
ADJUSTED FOR THE MERGER
PRO FORMA CONDENSED COMBINED BALANCE SHEET
AS OF SEPTEMBER 30, 1997
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
PATRIOT
AND PAHOC
PRO FORMA WHG PRO FORMA
TOTAL(A) HISTORICAL(B) ADJUSTMENTS TOTAL
---------- ------------- ----------- ----------
<S> <C> <C> <C> <C>
ASSETS
Net investment in real
estate and related
improvements.............. $2,433,525 $ 49,050 $ 31,641 (C) $2,514,216
Mortgage notes and other
receivables from
unconsolidated
subsidiaries.............. 74,053 1,731 40,308 (D) 116,092
Notes and other receivables
from affiliates........... 24,800 -- -- 24,800
Notes receivable........... 17,844 -- -- 17,844
Investment in
unconsolidated
subsidiaries.............. 16,153 29,791 (21,399)(E) 24,545
Cash and cash equivalents.. 36,334 18,941 -- 55,275
Restricted cash............ 39,132 -- -- 39,132
Accounts receivable, net... 54,222 3,454 -- 57,676
Goodwill................... 460,549 8,613 20,499 (F) 489,661
Deferred expenses, net..... 24,663 -- -- 24,663
Deferred acquisition
costs..................... 39,970 -- -- 39,970
Management contract costs.. 110,246 -- 43,567 (G) 153,813
Trade name and franchise
costs..................... 93,050 -- -- 93,050
Prepaid expenses and other
assets.................... 52,329 6,772 -- 59,101
Deferred income taxes...... 1,496 -- -- 1,496
---------- -------- -------- ----------
Total assets.............. $3,478,366 $118,352 $114,616 $3,711,334
========== ======== ======== ==========
LIABILITIES AND STOCKHOLD-
ERS' EQUITY
Borrowings under a line of
credit and mortgage
notes..................... $1,472,911 $ 22,363 $ -- $1,495,274
Notes and other
liabilities............... -- 5,032 -- 5,032
Accounts payable and
accrued expenses.......... 96,133 11,204 12,871 120,208
Dividends and distributions
payable................... 21,727 -- -- 21,727
Sales tax payable.......... 2,968 -- -- 2,968
Deferred income tax
liability................. 76,425 2,192 -- 78,617
Deposits................... 4,033 -- -- 4,033
Due to unconsolidated
subsidiaries.............. 5,904 -- -- 5,904
Minority interests in the
Patriot Partnerships...... 264,862 -- -- 264,862
Minority interest in
consolidated
subsidiaries.............. 32,112 20,410 -- 52,522
Stockholders' equity:
Preferred stock........... 44 3 (3)(H) 44
Common stock.............. 1,906 61 39 (H) 2,006
Paid-in capital........... 1,649,054 17,293 141,503 (I) 1,807,850
Unearned stock compensa-
tion, net................ (15,075) -- -- (15,075)
Notes receivable from
stockholders............. (17,138) -- -- (17,138)
Receivable from affili-
ates..................... (1,229) -- -- (1,229)
Retained earnings......... (116,271) 39,794 (39,794)(I) (116,271)
---------- -------- -------- ----------
Total stockholders' equi-
ty....................... 1,501,291 57,151 101,745 1,660,187
---------- -------- -------- ----------
Total liabilities and
stockholders' equity..... $3,478,366 $118,352 $114,616 $3,711,334
========== ======== ======== ==========
</TABLE>
See notes on following page.
177
<PAGE>
PATRIOT AND PAHOC, ADJUSTED FOR THE MERGER
NOTES TO PRO FORMA CONDENSED COMBINED BALANCE SHEET AS OF SEPTEMBER 30, 1997
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS):
(A) Reflects the Pro Forma Condensed Combined Balance Sheet of Patriot and
PAHOC as of September 30, 1997, which reflects (i) the Recent
Transactions, including the Cal Jockey Merger; (ii) the acquisition of the
CHC Hotels, the GAH Acquisition and the CHCI Merger; and (iii) the Wyndham
Transactions. See page 159.
(B) Represents the Consolidated Balance Sheet of WHG as of September 30, 1997.
(C) Represents adjustment for the purchase method of accounting whereby the
investment in the hotel properties owned by WHG is adjusted to record the
assets at their estimated fair market values.
(D) Represents the reclassification of receivables from/advances to WHG
unconsolidated subsidiaries, stated at their historical cost which
approximates their fair value.
(E) Represents the following adjustments:
<TABLE>
<S> <C>
Adjustment to state investments in WHG unconsolidated
subsidiaries at estimated fair market value................. $ 18,909
Reclassify receivables from/advances to WHG unconsolidated
subsidiaries................................................ (40,308)
--------
$(21,399)
========
</TABLE>
(F) Represents purchase consideration in excess of fair market value of the
net assets of WHG.
(G) Represents adjustment for the purchase method of accounting whereby the
management contracts held by WHG are adjusted to their estimated fair
market values. WHG, through certain of its subsidiaries, holds management
contracts for the 3 hotels and casinos that it holds ownership interests
in. The contracts have remaining lives of 6 to 14 years and provide for
payment of management fees including a base fee plus certain incentive
fees based on specified criteria as defined in the respective management
agreements.
(H) Represents adjustments to record the exchange of WHG Common Stock for
Paired Shares and the conversion of the WHG Preferred Stock outstanding
into its Paired Share equivalent. Pursuant to the Merger Agreement, WHG
Stockholders will receive 0.784 Paired Shares for each share of WHG Common
Stock held by them at the time of the Merger, subject to certain
adjustments. At September 30, 1997, 6,050 shares of WHG Common Stock were
outstanding and were assumed to be exchanged for approximately 4,743
Paired Shares (with a par value equal to $0.02 per Paired Share) resulting
in an adjustment to increase common stock.
At September 30, 1997, 300 shares of WHG Preferred Stock were outstanding.
The WHG Preferred Stock has a stated value of $10.00 per share (plus
adjustment for accrued, unpaid dividends) and is convertible into WHG Common
Stock based on a value of $9.00 per share for the WHG Common Stock. The
outstanding shares of WHG Preferred Stock were assumed to be converted into
approximately 261 Paired Shares (which represents the number of Paired
Shares the holder of such preferred stock would have the right to receive
assuming conversion of such shares into WHG Common Stock).
(I) Represents the following adjustments to stockholders' equity:
<TABLE>
<S> <C>
Purchase consideration for shares (based on a total of 5,005
Paired Shares issued in the Merger and the closing price of
the Paired Shares on the business day prior to the date of
the execution of the Merger Agreement of $31.75)............ $158,899
Adjustment to preferred stock assumed to be exchanged for
Paired Shares............................................... (3)
Adjustment to common stock for Paired Shares issued.......... (39)
Book value of WHG common stock............................... (61)
Book value of WHG paid-in capital............................ (17,293)
--------
Adjustment to paid-in capital............................... 141,503
Elimination of WHG historical retained earnings.............. (39,794)
Adjustment to preferred stock................................ (3)
Adjustment to common stock................................... 39
--------
Adjustment to stockholders' equity.......................... $101,745
========
</TABLE>
178
<PAGE>
PAHOC
ADJUSTED FOR THE MERGER
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1996
(UNAUDITED)
<TABLE>
<CAPTION>
PAHOC
PRO FORMA WHG PRO FORMA
TOTAL(A) HISTORICAL(B) ADJUSTMENTS TOTAL
---------- ------------- ----------- ----------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C>
Revenue:
Room revenue........... $ 547,286 $25,131 $ -- $ 572,417
Other hotel revenues... 329,377 29,765 -- 359,142
Racecourse facility
revenue............... 51,946 -- -- 51,946
Management fee, service
fee and reimbursement
income................ 49,225 12,996 -- 62,221
Interest and other
income................ 12,262 2,084 -- 14,346
---------- ------- ------- ----------
Total revenue.......... 990,096 69,976 -- 1,060,072
---------- ------- ------- ----------
Expenses:
Departmental costs--
hotel, club and spa
operations............ 368,568 34,554 -- 403,122
Racecourse facility
operations............ 46,351 -- -- 46,351
Direct operating costs
of management company,
service department,
development and
reimbursement
expenses.............. 43,809 3,755 -- 47,564
General and
administrative........ 103,877 6,233 -- 110,110
Ground lease and hotel
lease expense ........ 12,502 -- -- 12,502
Repair and
maintenance........... 41,991 -- -- 41,991
Utilities.............. 36,834 -- -- 36,834
Marketing.............. 70,577 2,956 -- 73,533
Management fees........ 9,469 -- -- 9,469
Depreciation and
amortization.......... 29,425 5,549 5,969 (C) 40,943
Participating lease
payments.............. 247,218 -- -- 247,218
Interest expense....... 1,393 3,473 -- 4,866
Real estate and
personal property
taxes and insurance... 847 -- -- 847
---------- ------- ------- ----------
Total expenses......... 1,012,861 56,520 5,969 1,075,350
---------- ------- ------- ----------
Income (loss) before
equity earnings of
unconsolidated
subsidiaries........... (22,765) 13,456 (5,969) (15,278)
Equity in earnings of
unconsolidated
subsidiaries........... -- (2,896) (511)(D) (3,407)
---------- ------- ------- ----------
Income (loss) before
income tax provision
and minority
interests.............. (22,765) 10,560 (6,480) (18,685)
Income tax (provision)
benefit............... 7,532 (2,152) (733)(E) 4,647
---------- ------- ------- ----------
Income (loss) before mi-
nority interests....... (15,233) 8,408 (7,213) (14,038)
Minority interest in
the PAHOC
Partnership........... 1,141 -- 218 (F) 1,359
Minority interest in
consolidated
subsidiaries.......... 5,045 (3,704) -- 1,341
---------- ------- ------- ----------
Net income (loss)
applicable to common
stockholders........... $ (9,047) $ 4,704 $(6,995) $ (11,338)
========== ======= ======= ==========
Net loss per common
share(G)............... $ (0.09) $ (0.11)
========== ==========
</TABLE>
- --------
(A) Represents the pro forma results of operations of PAHOC for the year ended
December 31, 1996 which reflects adjustments for (i) the Recent
Transactions, including the Cal Jockey Merger and the related
transactions; (ii) the acquisition of the CHC Hotels, the GAH Acquisition
and the CHCI Merger; and (iii) the Wyndham Transactions. See page 166.
(B) Represents the historical consolidated results of operations of WHG for
the twelve months ended December 31, 1996 (excluding the adjustment to
reflect dividends on preferred stock of the Condado Plaza).
(C) Represents an increase in depreciation and amortization which results from
the adjustment for the purchase method of accounting whereby the asset
values are adjusted to their estimated fair market value. The adjustment
represents increases in depreciation expense of $907, amortization of
goodwill of $519 and amortization of management contracts of $4,543.
Depreciation is computed using the straight-line method and is based upon
the estimated useful lives of 35 years for buildings and improvements and
5 to 7 years for F, F & E. Amortization of goodwill is computed using the
straight-line method over a 20-year estimated useful life. Amortization of
management contract costs is computed using the straight-line method over
the remaining terms of the related contracts.
(D) Represents adjustment to equity in earnings of unconsolidated subsidiaries
which results from the adjustment for the purchase method of accounting
whereby the investment values are adjusted to their estimated fair market
value. The adjustment to the investment balance is being amortized using
the straight-line method based upon an estimated useful life of 35 years.
(E) Represents adjustments to PAHOC's estimated federal and state tax
provision for the Merger.
(F) Represents the adjustments to minority interest to reflect the estimated
minority interest percentage subsequent to the Merger of approximately
10.7%. The estimated minority interest percentage prior to the Merger is
approximately 11.2%.
(G) Pro forma earnings per share subsequent to the Merger is computed based on
107,547 weighted average common shares and common share equivalents
outstanding for the period. The number of shares used for the calculation
includes adjustments to reflect the impact of the conversion of shares of
PAHOC Preferred Stock into Paired Shares and the conversion of WHG
Preferred Stock into Paired Shares.
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.
Under the new requirements for calculating basic earnings per share, the
dilutive effect of stock options and convertible preferred securities will
be excluded. Pro forma basic earnings per share for the year ended December
31, 1996 would be unchanged. The impact of Statement 128 on the calculation
of diluted earnings per share is not expected to differ significantly from
the earnings per share amounts reported.
179
<PAGE>
PAHOC
ADJUSTED FOR THE MERGER
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997
(UNAUDITED)
<TABLE>
<CAPTION>
PAHOC
PRO FORMA WHG PRO FORMA
TOTAL(A) HISTORICAL(B) ADJUSTMENTS TOTAL
--------- ------------- ----------- ---------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C>
Revenue:
Room revenue................. $459,166 $19,627 $ -- $478,793
Other hotel revenue.......... 261,588 23,235 -- 284,823
Racecourse facility revenue.. 33,399 -- -- 33,399
Management fee, service fee
and reimbursement income.... 45,549 11,289 -- 56,838
Interest and other income.... 8,507 2,017 -- 10,524
-------- ------- ------- --------
Total revenue................ 808,209 56,168 -- 864,377
-------- ------- ------- --------
Expenses:
Departmental costs--hotel,
club and spa operations..... 282,402 25,195 -- 307,597
Racecourse facility
operations.................. 30,114 -- -- 30,114
Direct operating costs of
management company, service
department, and
reimbursement expenses...... 40,331 3,096 -- 43,427
General and administrative... 81,670 6,652 (1,000)(C) 87,322
Ground lease and hotel lease
expense..................... 16,778 -- -- 16,778
Repair and maintenance....... 34,512 -- -- 34,512
Utilities.................... 29,841 -- -- 29,841
Marketing.................... 59,095 2,239 -- 61,334
Management fees.............. 9,657 -- -- 9,657
Depreciation and
amortization................ 20,705 4,412 4,372 (D) 29,489
Participating lease
payments.................... 202,610 -- -- 202,610
Interest expense............. 936 2,355 -- 3,291
Real estate and personal
property taxes and casualty
insurance .................. 290 -- -- 290
-------- ------- ------- --------
Total expenses............... 808,941 43,949 3,372 856,262
-------- ------- ------- --------
Income (loss) before equity
in earnings of
unconsolidated
subsidiaries................ (732) 12,219 (3,372) 8,115
Equity in earnings of
unconsolidated
subsidiaries................ -- 822 (405)(E) 417
-------- ------- ------- --------
Income (loss) before income
tax provision and minority
interests.................... (732) 13,041 (3,777) 8,532
Income tax (provision) bene-
fit......................... (3,477) (3,336) 3,336 (F) (3,477)
-------- ------- ------- --------
Income (loss) before minority
interests.................... (4,209) 9,705 (441) 5,055
Minority interest in the
PAHOC Partnership........... 630 -- (669)(G) (39)
Minority interest in
consolidated subsidiaries... (1,419) (3,273) -- (4,692)
-------- ------- ------- --------
Net income (loss) applicable
to common stockholders....... $ (4,998) $ 6,432 $(1,110) $ 324
======== ======= ======= ========
Net income (loss) per common
share(H)..................... $ (0.05) $ 0.01
======== ========
</TABLE>
- --------
(A) Represents the pro forma results of operations of PAHOC for the nine
months ended September 30, 1997 which reflects adjustments for (i) the
Recent Transactions, including the Cal Jockey Merger and the related
transactions; (ii) the acquisition of the CHC Hotels, the GAH Acquisition
and the CHCI Merger; and (iii) the Wyndham Transactions. See page 168.
(B) Represents the historical consolidated results of operations of WHG for
the nine months ended September 30, 1997 (excluding the adjustment to
reflect dividends on preferred stock of the Condado Plaza).
(C) Represents adjustment to eliminate non-recurring Merger related costs.
(D) Represents an increase in depreciation and amortization which results from
the adjustment for the purchase method of accounting whereby the asset
values are adjusted to their estimated fair market value. The adjustment
represents increases in depreciation expense of $678, amortization of
goodwill of $286 and amortization of management contracts of $3,408.
Depreciation is computed using the straight-line method and is based upon
the estimated useful lives of 35 years for buildings and improvements and
5 to 7 years for F, F & E. Amortization of goodwill is computed using the
straight-line method over a 20-year estimated useful life. Amortization of
management contract costs is computed using the straight-line method over
the remaining terms of the related contracts.
180
<PAGE>
(E) Represents adjustment to equity in earnings of unconsolidated subsidiaries
which results from the adjustment for the purchase method of accounting
whereby the investment values are adjusted to their estimated fair market
value. The adjustment to the investment balance is being amortized using
the straight-line method based upon an estimated useful life of 35 years.
(F) Represents adjustments to PAHOC's estimated federal and state tax
provision for the Merger.
(G) Represents the adjustments to minority interest to reflect the estimated
minority interest percentage subsequent to the Merger of approximately
10.7%. The estimated minority interest percentage prior to the Merger is
approximately 11.2%.
(H) Pro forma earnings per share subsequent to the Merger is computed based on
108,178 weighted average common shares and common share equivalents
outstanding for the period. The number of shares used for the calculation
includes adjustments to reflect the impact of the conversion of shares of
PAHOC Preferred Stock into Paired Shares and the conversion of WHG
Preferred Stock into Paired Shares.
In February 1997, the Financing Accounting Standards Board issued Statement
128 which specifies the computation, presentation and disclosure
requirements for basic earnings per share and diluted earnings per share.
Under the new requirements for calculating basic earnings per share, the
dilutive effect of stock options and convertible preferred securities will
be excluded. Pro forma basic earnings per share for the nine months ended
September 30, 1997 would be unchanged. The impact of Statement 128 on the
calculation of diluted earnings per share is not expected to differ
significantly from the earnings per share amounts reported.
181
<PAGE>
PATRIOT AND PAHOC
ADJUSTED FOR THE PATRIOT/IHC MERGER AND BUENA VISTA ACQUISITION
INTRODUCTION TO
PRO FORMA FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
On December 2, 1997, Patriot and PAHOC entered into the Patriot/IHC Merger
Agreement with IHC, pursuant to which IHC will merge with and into Patriot
with Patriot being the surviving corporation. As a result of the Patriot/IHC
Merger, Patriot will acquire all of the assets and liabilities of IHC,
including IHC's portfolio of 222 owned, leased or managed hotels located in
the United States, Canada, the Caribbean and Russia. Of IHC's portfolio, 40
hotels aggregating approximately 11,580 rooms are owned or controlled by IHC,
90 hotels aggregating approximately 10,354 rooms are leased and 92 hotels
aggregating approximately 23,183 rooms are managed or subject to service
agreements. IHC operates its hotels under a variety of brand names, including
Marriott(R), Embassy Suites(R), Hilton(TM), Holiday Inn(R), Radisson(TM),
Westin(R), Sheraton(TM), Doubletree(TM), Residence Inn(TM), Hampton Inn(R),
Comfort Inn(TM), Homewood Suites(TM) and Colony(R). As a result of the
Patriot/IHC Merger, Patriot will assume or refinance all of IHC's existing
indebtedness, which totaled approximately $776,000 as of September 30, 1997,
will pay approximately $24,300 to buy out options to purchase IHC Common Stock
and will assume certain severance obligations of approximately $30,000.
Upon consummation of the Patriot/IHC Merger, and subject to proration as
described below, IHC stockholders may elect to convert their shares of IHC
Common Stock into the right to receive either (i) Patriot/IHC Cash
Consideration consisting of an amount of cash equal to $37.50 per share of IHC
Common Stock, or (ii) Paired Shares at the Patriot/IHC Exchange Ratio. The
Patriot/IHC Merger Agreement provides that, except under certain circumstances
involving the payment of cash to IHC stockholders who exercise dissenters'
appraisal rights in connection with the Patriot/IHC Merger, approximately 40%
of the IHC Outstanding Shares will be converted into the right to receive the
Patriot/IHC Cash Consideration and the remaining approximately 60% of the IHC
Outstanding Shares will be converted into the right to receive Paired Shares
at the Patriot/IHC Exchange Ratio. Accordingly, the Aggregate Patriot/IHC Cash
Consideration to be received by holders of IHC Common Stock who elect to
receive Patriot/IHC Cash Consideration generally will be an amount equal to
40% of the IHC Outstanding Shares multiplied by $37.50, or an aggregate of
approximately $530,000 based on the number of shares of IHC Common Stock
outstanding as of December 1, 1997. The Aggregate Paired Share Consideration
to be received by holders of IHC Common Stock who elect to receive Paired
Shares in the Patriot/IHC Merger generally will equal 60% of the IHC
Outstanding Shares multiplied by the Patriot/IHC Exchange Ratio. Upon
consummation of the Patriot/IHC Merger, holders of outstanding options to
acquire IHC Common Stock will receive cash in an amount equal to the spread
between the exercise price of such options and $37.50, except that certain
senior executives of IHC may elect to have their options assumed by Patriot.
The Patriot/IHC Merger Agreement provides that, in the event that the
holders of IHC Outstanding Shares elect to receive Patriot/IHC Cash
Consideration with respect to more than 14,168,500 shares of IHC Common Stock
(approximately 40% of the IHC Outstanding Shares), such holders will receive
the Aggregate Patriot/IHC Cash Consideration on a pro rata basis based on the
respective numbers of shares of IHC Common Stock with respect to which each
such holder has elected to receive Patriot/IHC Cash Consideration. Under such
circumstances, such holders' remaining shares of IHC Common Stock that are not
converted into the right to receive Patriot/IHC Cash Consideration will be
converted into the right to receive Paired Shares at the Patriot/IHC Exchange
Ratio. In the event that the aggregate number of shares of IHC Common Stock
with respect to which the holders thereof have elected to receive Paired
Shares at the Patriot/IHC Exchange Ratio is greater than approximately 60% of
the IHC Outstanding Shares, such holders will receive the Aggregate Paired
Share Consideration on a pro rata basis based on the respective numbers of
shares of IHC Common Stock with respect to which each such holder has elected
to receive Paired Shares. Under such circumstances, such holders' remaining
shares of IHC Common Stock that are not converted into the right to receive
Paired Shares will be converted into the right to receive Patriot/IHC Cash
Consideration.
182
<PAGE>
Under the terms of the Patriot/IHC Merger Agreement and subject to proration
as described above, each issued and outstanding share of IHC Common Stock with
respect to which the holder thereof has made an election to receive Paired
Shares in the Patriot/IHC Merger generally will be converted into the right to
receive a number of Paired Shares equal to $37.50 divided by the Patriot/IHC
Average Closing Price. However, the Patriot/IHC Exchange Ratio is subject to
adjustment if the Patriot/IHC Average Closing Price is less than $27.97 or
greater than $34.186. If the Patriot/IHC Average Closing Price is less than
$27.97 but greater than or equal to $26.416, the Patriot/IHC Exchange Ratio
will be equal to 1.341. If the Patriot/IHC Average Closing Price is greater
than $34.186 but less than or equal to $37.294 ($38.848, if the Patriot/IHC
Merger is consummated after March 30, 1998), the Patriot/IHC Exchange Ratio
will be equal to 1.097. If the Patriot/IHC Average Closing Price is greater
than $37.294 ($38.848, if the Patriot/IHC Merger is consummated after March
30, 1998), the Patriot/IHC Exchange Ratio will be equal to $40.912 ($42.616,
if the Patriot/IHC Merger is consummated after March 30, 1998) divided by the
Patriot/IHC Average Closing Price. If the Patriot/IHC Average Closing Price is
less than $26.416, the Patriot/IHC Exchange Ratio will be equal to 1.341, but
IHC will have the right to terminate the Patriot/IHC Merger Agreement unless
Patriot decides to increase the Patriot/IHC Exchange Ratio to an amount equal
to $35.424 divided by the Patriot/IHC Average Closing Price and in the event
Patriot exercises such right, IHC will no longer have the right to terminate
the Patriot/IHC Merger Agreement.
Following the Patriot/IHC Merger, Patriot, directly or through its
subsidiaries, will own the 40 IHC hotels and will lease such hotels to PAHOC.
The 90 hotel leases acquired by Patriot subsidiaries (of which 88 were leased
by IHC as of September 30, 1997) will be sub-leased to PAHOC. IHC's remaining
92 management and franchise contracts, the IHC hotel management company and
other hotel management-related assets will be transferred to corporate
subsidiaries of Patriot (collectively, the "Patriot/IHC Non-Controlled
Subsidiaries"). Patriot will own a 99% non-voting interest and PAHOC will own
the 1% controlling voting interest in each of the Patriot/IHC Non-Controlled
Subsidiaries. Therefore, the operating results of the Patriot/IHC Non-
Controlled Subsidiaries will be combined with those of PAHOC for financial
reporting purposes. Patriot will account for its investment in the Patriot/IHC
Non-Controlled Subsidiaries using the equity method of accounting.
The Patriot Companies intend to enter into forward commitment arrangements
to place $200,000 of Paired Shares concurrent with the closing of the
Patriot/IHC Merger, the proceeds from which will be used to satisfy certain
cash requirements resulting from the Patriot/IHC Merger. Consummation of these
forward commitment arrangements is subject to various conditions and no
assurances can be given that the Patriot Companies will be successful in their
efforts to place $200,000 of Paired Shares concurrently with the closing of
the Patriot/IHC Merger.
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 IHC are adjusted to estimated fair market
value. The fair market value of the assets and liabilities of IHC has been
determined based upon preliminary estimates and is subject to change as
additional information is obtained. Management does not anticipate that the
preliminary allocation of purchase costs based upon the estimated fair market
value of the assets and liabilities of IHC 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 addition, the Patriot Companies have entered into agreements for the
Buena Vista Acquisition. Patriot, through certain of its subsidiaries, has
entered into a Contribution Agreement dated October 7, 1997 to acquire
approximately 90% of HVP's 45% interest in the Buena Vista Joint Venture for
approximately $14,000 in cash and OP Units of the Patriot Partnerships.
Patriot was also granted an option to acquire HVP's remaining interest in the
Buena Vista Joint Venture. In addition, pursuant to a Purchase and Sale
Agreement dated November 6, 1997, Patriot, through certain of its
subsidiaries, agreed to acquire Equitable's 55% interest in the Buena Vista
Joint Venture for approximately $53,500 in cash and also agreed to repay
outstanding mezzanine debt of
183
<PAGE>
approximately $6,004. Patriot will acquire the participating loan investment
held by PAHOC for approximately $23,750 in cash. Subsequent to the acquisition
of these joint venture interests, Patriot, through certain of its
subsidiaries, will hold an aggregate 95% ownership interest (including a 1%
general partnership interest) in the Buena Vista Joint Venture with an option
to acquire the remaining 5% interest in three years. The Buena Vista Palace
Hotel will remain subject to a ground lease and a first leasehold mortgage
note in the amount of approximately $50,700.
The Patriot/IHC Merger is subject to various conditions, including approval
of the Patriot/IHC Merger by the stockholders of Patriot, PAHOC and IHC. In
the event that the Patriot/IHC Merger Agreement is terminated under certain
circumstances, including in order to allow IHC to pursue a superior proposal
(as defined in the Patriot/IHC Merger Agreement), IHC will be required to pay
Patriot a break-up fee of $50,000. Likewise, if the Patriot/IHC Merger
Agreement is terminated by IHC as a result of Patriot's failure to recommend
approval of the Patriot/IHC Merger to its stockholders, Patriot will be
required to pay a $50,000 break-up fee to IHC. The Buena Vista Acquisition is
subject to various conditions, including completion of the Patriot Companies'
due diligence procedures.
The following unaudited Pro Forma Condensed Combined Statements of
Operations, as adjusted for the Patriot/IHC Merger and Buena Vista Acquisition
for the year ended December 31, 1996 and the nine months ended September 30,
1997, are derived from (i) the Patriot and PAHOC Pro Forma Condensed Combined
Statements of Operations as adjusted for the Wyndham Merger for the year ended
December 31, 1996 and the nine months ended September 30, 1997 included
elsewhere in this Proxy Statement/Prospectus, (ii) the Pro Forma Statements of
Income of IHC for the year ended December 31, 1996 and the nine months ended
September 30, 1997, (iii) the Consolidated Statements of Operations of IHC for
the year ended December 31, 1996 and the nine months ended September 30, 1997,
and (iv) the statements of operations of Royal Palace Hotel Associates for the
year ended December 31, 1996 and the nine months ended September 30, 1997, all
of which were filed with the Patriot Companies' Joint Current Report on Form
8-K dated December 10, 1997 which is incorporated by reference herein. The
following unaudited Pro Forma Condensed Combined Statements of Operations
assume the Patriot/IHC Merger and the Buena Vista Acquisition had occurred on
January 1, 1996.
The following unaudited Pro Forma Condensed Combined Statements of
Operations are not necessarily indicative of what the actual results of
operations of Patriot and PAHOC as adjusted for the Patriot/IHC Merger and the
Buena Vista Acquisition 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
Combined Statement of Operations for the interim period ended September 30,
1997 is not necessarily indicative of the results of operations for the full
year.
184
<PAGE>
PATRIOT AND PAHOC
ADJUSTED FOR THE PATRIOT/IHC MERGER AND BUENA VISTA ACQUISITION
PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1996
(UNAUDITED)
<TABLE>
<CAPTION>
PATRIOT PAHOC PRO FORMA
PRO FORMA PRO FORMA ELIMINATIONS TOTAL
--------- ---------- ------------ ----------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C>
Revenue:
Participating lease revenue.. $453,764 $ -- $(421,034)(A) $ 32,730
Hotel revenue................ -- 1,686,214 -- 1,686,214
Racecourse facility revenue,
hotel and land lease
revenue..................... 100,868 51,946 (100,534)(B) 52,280
Management fee, service fee
and reimbursement income.... -- 102,979 -- 102,979
Interest and other income.... 2,797 16,002 (5,916)(C) 12,883
-------- ---------- --------- ----------
Total revenue................ 557,429 1,857,141 (527,484) 1,887,086
-------- ---------- --------- ----------
Expenses:
Departmental costs--hotel
operations.................. -- 682,451 -- 682,451
Racecourse facility
operations.................. -- 46,351 (5,611)(B) 40,740
Direct operating costs of
management company, service
department, and
reimbursement expenses...... -- 66,458 -- 66,458
General and administrative... 7,097 184,492 (34)(C) 191,555
Ground lease and hotel lease
expense..................... 99,570 100,263 (94,923)(B) 104,910
Repair and maintenance....... -- 75,549 -- 75,549
Utilities.................... -- 68,535 -- 68,535
Interest expense............. 234,882 4,866 (5,882)(C) 233,866
Real estate and personal
property taxes and casualty
insurance................... 56,849 3,104 -- 59,953
Marketing.................... -- 136,080 -- 136,080
Management fees.............. -- 15,800 -- 15,800
Depreciation and
amortization................ 183,877 62,952 -- 246,829
Participating lease
payments.................... -- 421,034 (421,034)(A) --
-------- ---------- --------- ----------
Total expenses............... 582,275 1,867,935 (527,484) 1,922,726
-------- ---------- --------- ----------
Loss before equity in earnings
of unconsolidated
subsidiaries, income tax
provision and minority
interests.................... (24,846) (10,794) -- (35,640)
Equity in earnings of
unconsolidated
subsidiaries................ 2,096 (3,407) 5,826 (D) 4,515
-------- ---------- --------- ----------
Loss before income tax
provision and minority
interests.................... (22,750) (14,201) 5,826 (31,125)
Income tax provision......... (1,045) (1,048) -- (2,093)
-------- ---------- --------- ----------
Income (loss) before minority
interests.................... (23,795) (15,249) 5,826 (33,218)
Minority interests in the
Patriot Partnerships........ (232) 1,113 -- 881
Minority interest in
consolidated subsidiaries .. (4,768) 2,122 (5,826)(D) (8,472)
-------- ---------- --------- ----------
Net loss applicable to common
stockholders................. $(28,795) $ (12,014) $ -- $ (40,809)
======== ========== ========= ==========
Net loss per common Paired
Share(E)..................... $ (0.21) $ (0.09) $ (0.30)
======== ========== ==========
</TABLE>
- --------
(A) Represents the elimination of participating lease revenue and expense
related to those hotel properties leased by Patriot to PAHOC.
(B) Represents the elimination of rental income and expense related to the
Racecourse facility, land leased and the hotels sub-leased by Patriot to
PAHOC.
(C) The pro forma adjustments represent the elimination of $1,170 of interest
income and expense related to a note receivable issued to Old Patriot in
connection with the sale of certain assets to PAH RSI Lessee, which assets
are assumed to be acquired by PAHOC, the elimination of $4,712 of interest
income and expense related to the Subscription Notes issued to PAHOC in
connection with the subscription for shares of PAHOC Common Stock and
PAHOC Partnership OP Units issued in connection with the Cal Jockey Merger
and the elimination of $34 of other intercompany income and expense items.
(D) Represents the elimination of equity in losses of the New Non-Controlled
Subsidiaries and the Patriot/IHC Non-Controlled Subsidiaries.
(E) Pro forma earnings per share is computed based on 139,598 weighted average
common Paired Shares and common Paired Share equivalents outstanding for
the period. The number of shares used for the calculation includes
adjustments to reflect the impact of the conversion of preferred stock
into Paired Shares.
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.
Under the new requirements for calculating basic earnings per share, the
dilutive effect of stock options and convertible preferred securities will
be excluded. Pro forma basic earnings per share for the year ended December
31, 1996 would be a net loss of $0.30 per Paired Share. The impact of
Statement 128 on the calculation of diluted earnings per share is not
expected to differ significantly from the earnings per share amounts
reported.
185
<PAGE>
PATRIOT AND PAHOC
ADJUSTED FOR THE PATRIOT/IHC MERGER AND BUENA VISTA ACQUISITION
PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997
(UNAUDITED)
<TABLE>
<CAPTION>
PATRIOT PAHOC PRO FORMA
PRO FORMA PRO FORMA ELIMINATIONS TOTAL
--------- ---------- ------------ ----------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C>
Revenue:
Participating lease
revenue................. $376,299 $ -- $ (348,932)(A) $ 27,367
Hotel revenue............ -- 1,368,550 -- 1,368,550
Racecourse facility
revenue, hotel and land
lease revenue........... 92,336 33,399 (92,078)(B) 33,657
Management fee, service
fee and reimbursement
income.................. -- 87,715 -- 87,715
Interest and other
income.................. 4,043 11,738 (2,306)(C) 13,475
-------- ---------- ---------- ---------
Total revenue............ 472,678 1,501,402 (443,316) 1,530,764
-------- ---------- ---------- ---------
Expenses:
Departmental costs--hotel
operations.............. -- 525,457 -- 525,457
Racecourse facility
operations.............. -- 30,114 (3,246)(B) 26,868
Direct operating costs of
management company,
service department, and
reimbursement expenses.. -- 59,138 -- 59,138
General and
administrative.......... 7,137 145,137 (24)(C) 152,250
Ground lease and hotel
lease expense........... 90,828 93,181 (88,832)(B) 95,177
Repair and maintenance... -- 60,241 -- 60,241
Utilities................ -- 53,539 -- 53,539
Interest expense......... 174,063 3,291 (2,282)(C) 175,072
Real estate and personal
property taxes and
casualty insurance...... 43,469 2,027 -- 45,496
Marketing................ -- 108,417 -- 108,417
Management fees.......... -- 15,174 -- 15,174
Depreciation and
amortization............ 138,430 45,996 -- 184,426
Participating lease
payments................ -- 348,932 (348,932)(A) --
-------- ---------- ---------- ---------
Total expenses........... 453,927 1,490,644 (443,316) 1,501,255
-------- ---------- ---------- ---------
Income before equity in
earnings of
unconsolidated
subsidiaries, income tax
provision and minority
interests............... 18,751 10,758 -- 29,509
Equity in earnings of
unconsolidated
subsidiaries............ 4,650 417 (42)(D) 5,025
-------- ---------- ---------- ---------
Income before income tax
provision and minority
interests................ 23,401 11,175 (42) 34,534
Income tax (provision)
benefit................. (781) (7,449) -- (8,230)
-------- ---------- ---------- ---------
Income before minority
interests................ 22,620 3,726 (42) 26,304
Minority interests in the
Patriot Partnerships.... (2,485) (35) -- (2,520)
Minority interest in
consolidated
subsidiaries............ (4,159) (3,315) 42 (D) (7,432)
-------- ---------- ---------- ---------
Net income applicable to
common stockholders...... $ 15,976 $ 376 $ -- $ 16,352 (E)
======== ========== ========== =========
Net income per common
Paired Share............. $ 0.11 $ 0.00 $ 0.11 (E)
======== ========== =========
</TABLE>
- --------
(A) Represents elimination of participating lease revenue and expense related
to those hotel properties leased by Patriot to PAHOC.
(B) Represents elimination of rental income and expense related to the
Racecourse facility, land leased and the hotels sub-leased by Patriot to
PAHOC.
(C) Represents primarily the elimination of $832 of interest income and
expense related to a note receivable issued to Old Patriot in connection
with the sale of certain assets to PAH RSI Lessee, which assets are
assumed to be acquired by PAHOC, the elimination of $1,450 of interest
income and expense related to the Subscription Notes issued to PAHOC in
connection with the subscription for shares of PAHOC Common Stock and
PAHOC Partnership OP Units issued in connection with the Cal Jockey
Merger, and the elimination of $24 of other intercompany income and
expense items.
(D) Represents the elimination of equity in income of the New Non-Controlled
Subsidiaries and the Patriot/IHC Non-Controlled Subsidiaries.
(E) Pro forma earnings per share is computed based on 140,229 weighted average
common Paired Shares and common Paired Share equivalents outstanding for
the period. The number of shares used for the calculation includes
adjustments to reflect the impact of the conversion of preferred stock
into Paired Shares.
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.
Under the new requirements for calculating basic earnings per share, the
dilutive effect of stock options and convertible preferred securities will
be excluded. Pro forma basic earnings per share for the nine months ended
September 30, 1997 would be $0.11 per Paired Share. The impact of Statement
128 on the calculation of diluted earnings per share is not expected to
differ significantly from the earnings per share amounts reported.
186
<PAGE>
PATRIOT AND PAHOC
ADJUSTED FOR THE PATRIOT/IHC MERGER AND BUENA VISTA ACQUISITION
PRO FORMA CONDENSED COMBINED BALANCE SHEET
AS OF SEPTEMBER 30, 1997
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
The following unaudited Pro Forma Condensed Combined Balance Sheet is
presented as if the Patriot/IHC Merger and the Buena Vista Acquisition had
occurred as of September 30, 1997. The Pro Forma Condensed Combined Balance
Sheet is derived from the Patriot and PAHOC Pro Forma Condensed Combined
Balance Sheet as of September 30, 1997 included elsewhere herein.
Such pro forma information is based in part upon the Consolidated Balance
Sheets of IHC and Wyndham and the Combined Balance Sheet of Patriot and PAHOC
as of September 30, 1997 which are incorporated by reference herein. This pro
forma information is also based in part upon WHG's Consolidated Balance Sheet
as of September 30, 1997 which is included herein. Such information should
also be read in conjunction with the financial statements filed in IHC's,
Wyndham's and the Patriot Companies' respective Quarterly Reports on Form 10-Q
for the period ended September 30, 1997, all of which are incorporated by
reference herein. 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 IHC at their estimated fair market
values and the elimination of IHC's historical shareholders' equity. The fair
market values of the assets and liabilities of IHC have been determined based
upon preliminary estimates and are subject to change as additional information
is obtained. Management does not anticipate that the preliminary allocation of
purchase costs based upon the estimated fair market values of the assets and
liabilities of IHC 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 September 30, 1997,
nor does it purport to represent the future financial position of Patriot and
PAHOC as adjusted for the Patriot/IHC Merger and the Buena Vista Acquisition.
187
<PAGE>
PATRIOT AND PAHOC
ADJUSTED FOR THE PATRIOT/IHC MERGER AND BUENA VISTA ACQUISITION
PRO FORMA CONDENSED COMBINED BALANCE SHEET
AS OF SEPTEMBER 30, 1997
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
PATRIOT
AND BUENA
PAHOC VISTA PATRIOT/IHC
PRO FORMA ACQUISITION IHC MERGER PRO FORMA
TOTAL(A) PRO FORMA(B) HISTORICAL(C) ADJUSTMENTS(D) TOTAL
---------- ------------ ------------- -------------- ----------
<S> <C> <C> <C> <C> <C>
ASSETS
Net investment in real
estate and related
improvements........... $2,514,216 $145,720 $1,140,291 $760,208 (E) $4,560,435
Mortgage notes and other
receivables from
unconsolidated
subsidiaries........... 116,092 -- -- -- 116,092
Notes and other
receivables from
affiliates............. 24,800 -- -- -- 24,800
Notes receivable........ 17,844 -- 5,184 (5,184)(F) 17,844
Investment in
unconsolidated
subsidiaries........... 24,545 -- 24,518 -- 49,063
Cash and cash
equivalents............ 55,275 1,064 31,924 -- 88,263
Restricted cash......... 39,132 5,222 7,745 -- 52,099
Accounts receivable,
net.................... 57,676 3,895 48,653 -- 110,224
Goodwill................ 489,661 -- 21,501 123,911 (G) 635,073
Deferred expenses, net.. 24,663 2,787 13,979 8,512 (H) 49,941
Deferred acquisition
costs.................. 39,970 (23,750) -- -- 16,220
Management contract and
leasehold costs........ 153,813 -- 28,344 101,987 (I) 284,144
Trade name and franchise
costs.................. 93,050 -- -- -- 93,050
Prepaid expenses and
other assets........... 59,101 769 25,831 -- 85,701
Deferred income taxes... 1,496 -- 2,283 -- 3,779
---------- -------- ---------- -------- ----------
Total assets........... $3,711,344 $135,707 $1,350,253 $989,434 $6,186,728
========== ======== ========== ======== ==========
LIABILITIES AND STOCK-
HOLDERS' EQUITY
Borrowings under a line
of credit and mortgage
notes.................. $1,495,274 $123,423 $775,504 $434,124 (J) $2,828,325
Notes and other
liabilities............ 5,032 279 -- -- 5,311
Accounts payable and
accrued expenses....... 120,208 7,904 98,613 -- 226,725
Dividends and
distributions payable.. 21,727 -- -- -- 21,727
Sales taxes payable..... 2,968 -- -- -- 2,968
Deferred income tax
liability.............. 78,617 -- 13,878 13,460 (K) 105,955
Deposits................ 4,033 2,023 -- -- 6,056
Deferred gain........... -- -- -- -- --
Due to unconsolidated
subsidiaries........... 5,904 -- -- -- 5,904
Minority interests in
the Patriot
Partnerships........... 264,862 2,078 -- -- 266,940
Minority interest in
consolidated
subsidiaries........... 52,522 -- 17,141 -- 69,663
Stockholders' equity:
Preferred stock........ 44 -- -- -- 44
Common stock........... 2,006 -- 354 287 (L) 2,647
Paid-in capital........ 1,807,850 -- 411,644 574,682 (M) 2,794,176
Unearned stock compen-
sation, net........... (15,075) -- (813) 813 (M) (15,075)
Notes receivable from
stockholders.......... (17,138) -- -- -- (17,138)
Receivable from affili-
ates.................. (1,229) -- -- -- (1,229)
Retained earnings...... (116,271) -- 33,932 (33,932) (M) (116,271)
---------- -------- ---------- -------- ----------
Total stockholders' eq-
uity.................. 1,660,187 -- 445,117 541,850 (M) 2,647,154
---------- -------- ---------- -------- ----------
Total liabilities and
stockholders' equity.. $3,711,344 $135,707 $1,350,253 $989,434 $6,186,728
========== ======== ========== ======== ==========
</TABLE>
See notes on following page.
188
<PAGE>
PATRIOT AND PAHOC, ADJUSTED FOR THE PATRIOT/IHC MERGER AND BUENA VISTA
ACQUISITION NOTES TO PRO FORMA CONDENSED COMBINED BALANCE SHEET AS OF
SEPTEMBER 30, 1997 (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS):
(A) Represents the pro forma combined balance sheet of Patriot and PAHOC as of
September 30, 1997 as adjusted for the Wyndham Transactions and the
Merger. See page 177.
(B) Represents adjustments to Patriot and PAHOC's combined balance sheet
assuming the Buena Vista Acquisition had occurred on September 30, 1997.
(C) Represents the historical balance sheet of IHC as of September 30, 1997.
(D) Represents adjustments to Patriot and PAHOC's Combined Balance Sheet as
adjusted for the Patriot/IHC Merger.
(E) Represents adjustments for the purchase method of accounting whereby the
investments in hotel properties owned by IHC are adjusted to record the
assets at their estimated fair market values.
(F) Represents adjustment to eliminate notes receivable from officers which
are to be extinguished prior to the Patriot/IHC Merger.
(G) Represents the purchase consideration in excess of the fair market value
of the net assets of IHC.
(H) Represents an increase in deferred loan costs expected to be incurred in
connection with an increase in the Revolving Credit Facility to finance
the cash portion of the purchase price and Patriot/IHC Merger related
costs.
(I) Represents adjustments for the purchase method of accounting whereby the
third-party management contracts and leaseholds held by IHC are adjusted
to their estimated fair market value. The management contracts have an
average remaining life of approximately 5 years. The leaseholds have an
average remaining life of 14 years.
(J) Represents additional borrowings assumed to be incurred in connection with
the Patriot/IHC Merger as follows:
<TABLE>
<S> <C>
Cash required to finance the acquisition of 40% of the IHC Out-
standing Shares at $37.50 per share............................. $ 531,312
Less: Net proceeds from concurrent offering (see Note L)......... (190,000)
---------
Cash required to finance stock purchase.......................... 341,312
Estimated transaction costs...................................... 30,000
Buyout of IHC options............................................ 24,300
Estimated severance costs........................................ 30,000
Additional loan costs............................................ 8,512
---------
Total cash requirements......................................... $ 434,124
=========
</TABLE>
In addition, immediately following the Patriot/IHC Merger, the stockholders
of IHC and Patriot will receive a special dividend in order to distribute
the current and accumulated earnings and profits of IHC and Patriot through
the date of the Patriot/IHC Merger.
(K) Represents adjustments to eliminate $11,800 of the deferred tax liability
of IHC which is associated with timing differences related to depreciation
of real property which will be owned by Patriot following the Patriot/IHC
Merger offset by an increase in the deferred tax liability of $25,260
related to purchased management contracts.
(L) Represents adjustments to record the exchange of IHC Common Stock for
Paired Shares. Pursuant to the Patriot/IHC Merger Agreement, IHC
Stockholders may elect to receive for each share of IHC Common Stock held
by them, either (i) cash for shares equal to $37.50 per share or (ii)
Paired Shares, for which the exchange ratio is determined by dividing
$37.50 by the average closing price for a Paired Share as reported on the
NYSE over the 20 consecutive trading day period ending on the trading day
immediately preceding the fifth trading day prior to the date on which the
shareholder meeting is held (subject to certain adjustments). The
Patriot/IHC Merger Agreement also provides for purchase of 40% of the IHC
Outstanding Shares for cash, with the remainder in Paired Shares. At
September 30, 1997, there were 35,421 shares of IHC Common Stock
outstanding. Assuming 40% of the IHC Outstanding Shares are tendered for
cash, the remaining 21,253 shares will be exchanged for 25,621 Paired
Shares (based upon the average closing price of the Paired Shares for the
20 trading days ended November 26, 1997 of $31.106). In addition, the
Patriot Companies are negotiating a forward commitment to place $200,000
of Paired Shares concurrent with the Patriot/IHC Merger. Assuming the
Paired Shares were offered at the average closing price of the Paired
Shares for the trading 20 days ended November 26, 1997 of $31.106, an
additional 6,430 Paired Shares will be outstanding following the
Patriot/IHC Merger. The increase in common stock is summarized as follows:
<TABLE>
<S> <C>
Paired Shares exchanged in Patriot/IHC Merger........................ 25,621
Paired Shares offered in concurrent offering......................... 6,430
======
Increase in Paired Shares............................................ 32,051
Par value of each Paired Share....................................... $ 0.02
======
Increase in common stock............................................. $ 641
Less: IHC historical common stock.................................... (354)
------
Adjustment to common stock........................................ $ 287
======
</TABLE>
189
<PAGE>
(M) Represents adjustments to stockholders' equity to eliminate IHC's
historical equity accounts and record equity based upon the number of
Paired Shares issued in the Patriot/IHC Merger and the concurrent offering
of Paired Shares as follows:
<TABLE>
<S> <C>
Purchase consideration for IHC Outstanding Shares (35,421 shares
of IHC Common Stock at $37.50 per share)....................... $1,328,279
Less: IHC Common Stock to be purchased for cash................. (531,312)
----------
Purchase consideration for shares............................... 796,967
Net proceeds from concurrent offering........................... 190,000
Book value of IHC paid-in capital............................... (411,644)
Adjustment to common stock...................................... (641)
----------
Adjustment to Paid-in Capital.................................. $ 574,682
----------
Elimination of IHC historical retained earnings................. (33,932)
Adjustment to unearned stock compensation....................... 813
Adjustment to common stock...................................... 287
----------
Adjustment to stockholders' equity............................. $ 541,850
==========
</TABLE>
190
<PAGE>
PATRIOT
ADJUSTED FOR THE PATRIOT/IHC MERGER AND BUENA VISTA ACQUISITION
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1996
(UNAUDITED)
<TABLE>
<CAPTION>
BUENA
PATRIOT VISTA PATRIOT/IHC
PRO FORMA ACQUISITION MERGER PRO FORMA
TOTAL(A) PRO FORMA(B) ADJUSTMENTS(C) TOTAL
--------- ------------ -------------- ---------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C>
Revenue:
Participating lease
revenue............... $279,948 $22,434 $151,382 (D) $453,764
Racecourse facility,
hotel and land lease
revenue............... 17,714 -- 83,154 (E) 100,868
Interest and other
income................ 2,797 -- -- 2,797
-------- ------- -------- --------
Total revenue.......... 300,459 22,434 234,536 557,429
-------- ------- -------- --------
Expenses:
Ground lease and hotel
lease expense......... 16,824 -- 82,746 (F) 99,570
General and
administrative........ 7,097 -- -- 7,097
Interest expense....... 124,637 10,543 (G) 99,702 (G) 234,882
Real estate and
personal property
taxes and casualty
insurance............. 34,542 2,543 19,764 (H) 56,849
Depreciation and
amortization.......... 93,775 5,692 84,410 (I) 183,877
-------- ------- -------- --------
Total expenses......... 276,875 18,778 286,622 582,275
-------- ------- -------- --------
Income (loss) before
equity in earnings of
unconsolidated
subsidiaries, income
tax provision and
minority interests..... 23,584 3,656 (52,086) (24,846)
Equity in earnings
(losses) of
unconsolidated
subsidiaries.......... 2,877 -- (781)(J) 2,096
-------- ------- -------- --------
Income (loss) before
income tax provision
and minority
interests.............. 26,461 3,656 (52,867) (22,750)
Income tax provision... (345) -- (700)(K) (1,045)
-------- ------- -------- --------
Income (loss) before mi-
nority interests....... 26,116 3,656 (53,567) (23,795)
Minority interest in
the Patriot Partner-
ship.................. (2,428) -- 2,196 (L) (232)
Minority interest in
consolidated subsidi-
aries................. (1,832) (183) (2,753)(M) (4,768)
-------- ------- -------- --------
Net income (loss)
applicable to common
shareholders .......... $ 21,856 $ 3,473 $(54,124) $(28,795)(N)
======== ======= ======== ========
Net income (loss) per
common share........... $ 0.20 $ (0.21)(N)
======== ========
</TABLE>
- --------
(A) Represents the pro forma results of operations of Patriot for the year
ended December 31, 1996 as adjusted for the Wyndham Transactions and the
Merger. See page 174.
(B) Represents adjustments to Patriot's results of operations assuming the
Buena Vista Acquisition had occurred as of January 1, 1996.
(C) Represents adjustments to Patriot's results of operations assuming the
Patriot/IHC Merger had occurred as of January 1, 1996.
(D) Represents pro forma lease payments from PAHOC to Patriot for the 40 IHC
hotels Patriot will own subsequent to the Patriot/IHC Merger, based upon
the historical revenue for the hotels for the period presented.
(E) Represents pro forma hotel lease payments from PAHOC to Patriot for the 88
hotels leased by IHC at September 30, 1997 that Patriot will sublease to
PAHOC subsequent to the Patriot/IHC Merger, based upon the historical
revenue of the hotels for the period presented.
(F) Represents ground lease expense of $1,602 related to certain of the hotels
acquired by Patriot in the Patriot/IHC Merger and hotel lease expense of
$81,144 related to the 88 hotels leased from third-party owners that
Patriot will sublease to PAHOC subsequent to the Patriot/IHC Merger.
(G) For the Buena Vista Acquisition, the adjustment represents interest
expense on debt assumed and interest expense incurred on additional
borrowings under the Revolving Credit Facility, which will be used to
purchase the hotel. For the Patriot/IHC Merger, the adjustment represents
interest expense of $59,086 on approximately $775,504 of IHC debt assumed
in connection with the transaction, interest expense of $32,486 incurred
on borrowings which will be used to finance a portion of the Patriot/IHC
Merger, and amortization of deferred loan costs of $6,191. Amount also
represents an adjustment of $1,939 to reflect an increase in the interest
rate charged on borrowings under the Revolving Credit Facility and Term
Loan (to LIBOR plus 2%) based on Patriot's estimated leverage ratio
following the Patriot/IHC Merger.
The deferred loan costs incurred on the new borrowings are being amortized
over the term of the loan. Interest expense on the Revolving Credit Facility
and Term Loan assumes an average interest rate of 7.483% (LIBOR plus 2%). An
increase of 0.25% in the interest rate would increase pro forma interest
expense to $239,381, increase net loss applicable to common stockholders to
$33,140 and increase net loss per common share to $0.24, based on 139,598
weighted average common shares and common share equivalents outstanding.
191
<PAGE>
(H) Represents real estate and personal property taxes and casualty insurance
related to the 40 IHC owned hotels which will be paid by Patriot following
the Patriot/IHC Merger.
(I) Represents adjustment to increase depreciation of the real estate and
amortization of the cost of leaseholds acquired in the Patriot/IHC Merger.
Depreciation is computed using the straight-line method and is based upon
the estimated useful lives of 35 years for buildings and improvements and
5 to 7 years for F, F&E. These estimates are based upon management's
knowledge of the properties and the hotel industry in general. Leasehold
costs are amortized on a straight-line basis over the remaining term of
the lease.
(J) Represents Patriot's share of the earnings of the Patriot/IHC Non-
Controlled Subsidiaries which will own the management contracts and hotel
management business and will be controlled by PAHOC following the
Patriot/IHC Merger.
(K) Represents provision for Patriot's estimated state tax liability.
(L) Represents adjustments to minority interest to reflect the estimated
minority interest percentage subsequent to the Buena Vista Acquisition and
Patriot/IHC Merger of approximately 10%. The estimated minority interest
percentage prior to the Buena Vista Acquisition and Patriot/IHC Merger is
also approximately 10%.
(M) Represents the minority interest in income of consolidated entities which
will be acquired by Patriot in connection with the Patriot/IHC Merger.
(N) Pro forma earnings per share is computed based on 139,598 weighted average
common shares and common share equivalents outstanding for the period. The
number of shares used for the calculation includes adjustments to reflect
the impact of the conversion of preferred stock into Paired Shares.
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.
Under the new requirements for calculating basic earnings per share, the
dilutive effect of stock options and convertible preferred securities will
be excluded. Pro forma basic earnings per share for the year ended December
31, 1996 would be a net loss of $0.21 per common share. The impact of
Statement 128 on the calculation of diluted earnings per share is not
expected to differ significantly from the earnings per share amounts
reported.
192
<PAGE>
PATRIOT
ADJUSTED FOR THE PATRIOT/IHC MERGER AND BUENA VISTA ACQUISITION
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997
(UNAUDITED)
<TABLE>
<CAPTION>
PATRIOT BUENA VISTA PATRIOT/IHC
PRO FORMA ACQUISITION MERGER PRO FORMA
TOTAL(A) PRO FORMA(B) ADJUSTMENTS(C) TOTAL
--------- ------------ -------------- ---------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C>
Revenue:
Participating lease
revenue............... $229,977 $19,348 $126,974 (D) $376,299
Racecourse facility,
hotel and land lease
revenue .............. 19,759 -- 72,577 (E) 92,336
Interest and other
income................ 4,043 -- -- 4,043
-------- ------- -------- --------
Total revenue.......... 253,779 19,348 199,551 472,678
-------- ------- -------- --------
Expenses:
Ground lease and hotel
lease expense......... 20,017 -- 70,811 (F) 90,828
General and
administrative........ 7,137 -- -- 7,137
Interest expense....... 94,414 8,082 (G) 71,567 (G) 174,063
Real estate and
personal property
taxes and casualty
insurance............. 27,066 1,914 14,489 (H) 43,469
Depreciation and
amortization.......... 70,854 4,269 63,307 (I) 138,430
-------- ------- -------- --------
Total expenses......... 219,488 14,265 220,174 453,927
-------- ------- -------- --------
Income (loss) before
equity in earnings of
unconsolidated
subsidiaries, income
tax provision and
minority interests..... 34,291 5,083 (20,623) 18,751
Equity in earnings
(losses) of
unconsolidated
subsidiaries.......... 6,027 -- (1,377)(J) 4,650
-------- ------- -------- --------
Income (loss) before
income tax provision
and minority
interests.............. 40,318 5,083 (22,000) 23,401
Income tax provision... (256) -- (525)(K) (781)
-------- ------- -------- --------
Income (loss) before mi-
nority interests....... 40,062 5,083 (22,525) 22,620
Minority interest in
the Patriot
Partnership........... (3,819) -- 1,334 (L) (2,485)
Minority interest in
consolidated subsidi-
aries................. (1,869) (254) (2,036)(M) (4,159)
-------- ------- -------- --------
Net income (loss)
applicable to common
stockholders........... $ 34,374 $ 4,829 $(23,227) $ 15,976 (N)
======== ======= ======== ========
Net income per common
share.................. $ 0.31 $ 0.11 (N)
======== ========
</TABLE>
- --------
(A) Represents the pro forma results of operations of Patriot for the nine
months ended September 30, 1997 as adjusted for the Wyndham Transactions
and the Merger. See page 175.
(B) Represents adjustments to Patriot's results of operations assuming the
Buena Vista Acquisition had occurred as of January 1, 1996.
(C) Represents adjustments to Patriot's results of operations assuming the
Patriot/IHC Merger had occurred as of January 1, 1996.
(D) Represents pro forma lease payments from PAHOC to Patriot for the 40 IHC
hotels Patriot will own subsequent to the Patriot/IHC Merger, based upon
the historical revenue for the hotels for the period presented.
(E) Represents pro forma hotel lease payments from PAHOC to Patriot for the 88
hotels leased by IHC at September 30, 1997 that Patriot will sublease to
PAHOC subsequent to the Patriot/IHC Merger, based upon the historical
revenue of the hotels for the period presented.
(F) Represents ground lease expense of $1,138 related to certain of the hotels
acquired by Patriot in the Patriot/IHC Merger and hotel lease expense of
$69,673 related to the 88 hotels leased from third-party owners that
Patriot will sublease to PAHOC subsequent to the Patriot/IHC Merger.
(G) For the Buena Vista Acquisition, the adjustment represents interest
expense on debt assumed and interest expense incurred on additional
borrowings under the Revolving Credit Facility, which will be used to
purchase the hotel. For the Patriot/IHC Merger, the adjustment represents
interest expense of $40,657 on approximately $775,504 of IHC debt assumed
in connection with the transaction, interest expense of $24,754 incurred
on borrowings which will be used to finance a portion of the Patriot/ IHC
Merger, and amortization of deferred loan costs of $4,666. Amount also
represents an adjustment of $1,490 to reflect an increase in the interest
rate charged on borrowings under the Revolving Credit Facility and Term
Loan (to LIBOR plus 2%) based on Patriot's estimated leverage ratio
following the Patriot/IHC Merger.
The deferred loan costs incurred on the new borrowings are being amortized
over the term of the loan. Interest expense on the Revolving Credit Facility
and Term Loan assumes an average interest rate of 7.603% (LIBOR plus 2%). An
increase of 0.25% in the interest rate would increase pro forma interest
expense to $177,501, decrease net income applicable to common stockholders
to $12,655 and decrease net income per common share to $0.09, based on
140,229 weighted average common shares and common share equivalents
outstanding.
193
<PAGE>
(H) Represents real estate and personal property taxes and casualty insurance
related to the 40 IHC owned hotels which will be paid by Patriot following
the Patriot/IHC Merger.
(I) Represents adjustment to increase depreciation of the real estate and
amortization of the cost of leaseholds acquired in the Patriot/IHC Merger.
Depreciation is computed using the straight-line method and is based upon
the estimated useful lives of 35 years for buildings and improvements and
5 to 7 years for F, F&E. These estimates are based upon management's
knowledge of the properties and the hotel industry in general. Leasehold
costs are amortized on a straight-line basis over the remaining term of
the lease.
(J) Represents Patriot's share of the earnings of the Patriot/IHC Non-
Controlled Subsidiaries which will own the management contracts and hotel
management business and will be controlled by PAHOC following the
Patriot/IHC Merger.
(K) Represents provision for Patriot's estimated state tax liability.
(L) Represents adjustments to minority interest to reflect the estimated
minority interest percentage subsequent to the Buena Vista Acquisition and
Patriot/IHC Merger of approximately 10%. The estimated minority interest
percentage prior to the Buena Vista Acquisition and Patriot/IHC Merger is
also approximately 10%.
(M) Represents the minority interest in income of consolidated entities which
will be acquired by Patriot in connection with the Patriot/IHC Merger.
(N) Pro forma earnings per share is computed based on 140,229 weighted average
common shares and common share equivalents outstanding for the period. The
number of shares used for the calculation includes adjustments to reflect
the impact of the conversion of preferred stock into Paired Shares.
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.
Under the new requirements for calculating basic earnings per share, the
dilutive effect of stock options and convertible preferred securities will
be excluded. Pro forma basic earnings per share for the nine months ended
September 30, 1997 would be $0.12 per common share. The impact of Statement
128 on the calculation of diluted earnings per share is not expected to
differ significantly from the earnings per share amounts reported.
194
<PAGE>
PAHOC
ADJUSTED FOR THE PATRIOT/IHC MERGER AND BUENA VISTA ACQUISITION
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1996
(UNAUDITED)
<TABLE>
<CAPTION>
ADJUSTMENTS
------------------------------------------
PAHOC BUENA VISTA PATRIOT/IHC
PRO FORMA ACQUISITION IHC MERGER PRO FORMA
TOTAL(A) PRO FORMA(B) PRO FORMA(C) ADJUSTMENTS(D) TOTAL
---------- ------------ ------------ -------------- ----------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C>
Revenue:
Room revenue........... $ 572,417 $38,089 $490,330 $ -- $1,100,836
Other hotel revenue.... 359,142 24,402 201,834 -- 585,378
Racecourse facility
revenue............... 51,946 -- -- -- 51,946
Management fee, service
fee and reimbursement
income................ 62,221 -- 40,758 -- 102,979
Interest and other
income................ 14,346 -- 1,656 -- 16,002
---------- ------- -------- -------- ----------
Total revenue.......... 1,060,072 62,491 734,578 -- 1,857,141
---------- ------- -------- -------- ----------
Expenses:
Departmental costs--
hotel, club and spa
operations............ 403,122 25,927 253,402 -- 682,451
Racecourse facility
operations............ 46,351 -- -- -- 46,351
Direct operating costs
of management company,
service department and
reimbursement
expenses.............. 47,564 -- 18,894 -- 66,458
General and
administrative........ 110,110 4,313 70,069 -- 184,492
Ground lease and hotel
lease expense ........ 12,502 4,607 1,602 81,552 (E) 100,263
Repair and
maintenance........... 41,991 2,318 31,240 -- 75,549
Utilities.............. 36,834 2,522 29,179 -- 68,535
Marketing.............. 73,533 3,681 64,394 (5,528)(F) 136,080
Management fees........ 9,469 1,677 661 3,993 (G) 15,800
Depreciation and
amortization.......... 40,943 -- 48,024 (26,015)(H) 62,952
Participating lease
payments.............. 247,218 22,434 81,144 (I) 70,238 (I) 421,034
Interest expense....... 4,866 -- 59,086 (59,086)(J) 4,866
Real estate and
personal property
taxes and insurance... 847 -- 22,021 (19,764)(J) 3,104
---------- ------- -------- -------- ----------
Total expenses......... 1,075,350 67,479 679,716 45,390 1,867,935
---------- ------- -------- -------- ----------
Income (loss) before eq-
uity earnings of uncon-
solidated subsidiaries
income tax provision,
and minority
interests.............. (15,278) (4,988) 54,862 (45,390) (10,794)
Equity in earnings of
unconsolidated subsidi-
aries.................. (3,407) -- -- -- (3,407)
---------- ------- -------- -------- ----------
Income (loss) before
income tax provision
and minority
interests.............. (18,685) (4,988) 54,862 (45,390) (14,201)
Income tax (provision)
benefit............... 4,647 -- (19,801) 14,106 (K) (1,048)
---------- ------- -------- -------- ----------
Income (loss) before mi-
nority interests....... (14,038) (4,988) 35,061 (31,284) (15,249)
Minority interest in
the PAHOC
Partnership........... 1,359 -- -- (246)(L) 1,113
Minority interest in
consolidated
subsidiaries.......... 1,341 -- (2,753) 3,534 (M) 2,122
---------- ------- -------- -------- ----------
Net income (loss)
applicable to common
stockholders........... $ (11,338) $(4,988) $ 32,308 $(27,996) $ (12,014)(N)
========== ======= ======== ======== ==========
Net loss per common
share.................. $ (0.11) $ (0.09) (N)
========== ==========
</TABLE>
See notes on following page.
195
<PAGE>
PAHOC, ADJUSTED FOR THE PATRIOT/IHC MERGER AND BUENA VISTA ACQUISITION NOTES
TO PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS FOR THE YEAR ENDED
DECEMBER 31, 1996 (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS):
(A) Represents the pro forma results of operations of PAHOC for the year ended
December 31, 1996 as adjusted for the Wyndham Transactions and the Merger.
See page 179.
(B) Represents adjustments to PAHOC's results of operations assuming the Buena
Vista had been acquired on January 1, 1996.
(C) Represents the pro forma results of operations of IHC for the year ended
December 31, 1996 prior to the Patriot/IHC Merger.
(D) Represents adjustments to PAHOC's results of operations assuming the
Patriot/IHC Merger had occurred as of January 1, 1996.
(E) Represents the following adjustments to pro forma ground lease and hotel
lease expense:
<TABLE>
<S> <C>
Eliminate ground lease expense which will be paid by Patriot
subsequent to the Patriot/IHC Merger........................... $(1,602)
Reclassification of hotel lease expense for financial statement
presentation purposes related to the 88 hotels IHC leased from
third-party owners at September 30, 1997. Subsequent to the
Patriot/IHC Merger, these hotels will be sub-leased by Patriot
to PAHOC (see Note I).......................................... 81,144
Incremental hotel lease expense related to the sub-lease of the
88 hotels by Patriot to PAHOC.................................. 2,010
-------
$81,552
=======
</TABLE>
(F) Represents the historical costs of IHC franchise fee payments related to
franchise agreements for ten Marriott hotels which are assumed to be
terminated concurrently with the Patriot/IHC Merger.
(G) Represents additional management fees to be incurred by IHC pursuant to
new management agreements with Marriott which are assumed to be executed
concurrently with the Patriot/IHC Merger.
(H) Represents an adjustment of $45,887 to allocate the IHC pro forma
depreciation and amortization related to real estate to Patriot, partially
offset by an increase of $19,872 in amortization expense related to
amortization of goodwill and management contracts. The goodwill related to
the management business is amortized on a straight-line basis over an
estimated useful life of 20 years. Management contracts are amortized on a
straight-line basis over their estimated remaining lives of 5 years.
(I) The participating lease payment amount of $81,144 reflected in the IHC Pro
Forma Statement of Operations represents hotel lease payments made to
third parties in connection with the 88 leaseholds held by IHC as of
September 30, 1997. Following the Patriot/IHC Merger, Patriot will
sublease these hotel leaseholds to PAHOC. The pro forma adjustment of
$70,238 is composed of the following adjustments:
<TABLE>
<S> <C>
Pro forma participating lease payments related to the 40 owned
hotels leased by Patriot to PAHOC subsequent to the
Patriot/IHC Merger............................................ $151,382
Reclassification of hotel lease expense for financial statement
presentation purposes related to the 88 hotels IHC leased from
third-party owners at September 30, 1997. Subsequent to the
Patriot/IHC Merger, these hotels will be sub-leased by Patriot
to PAHOC (see Note E)......................................... (81,144)
--------
$ 70,238
========
</TABLE>
(J) Represents adjustments to the IHC pro forma results of operations to
eliminate interest expense and real estate and personal property taxes and
casualty insurance to be paid by Patriot subsequent to the Patriot/IHC
Merger.
(K) Represents an adjustment to the IHC pro forma tax expense to reflect the
tax provision based upon PAHOC's pro forma taxable income following the
Patriot/IHC Merger.
(L) Represents the adjustment to minority interest to reflect the estimated
minority interest percentage subsequent to the Patriot/IHC Merger to
8.48%.
(M) Represents an adjustment of $2,753 to eliminate the IHC pro forma minority
interest in certain consolidated subsidiaries which will be owned by
Patriot following the Patriot/IHC Merger, and an adjustment of $781 to
reflect allocation to Patriot of losses from the Patriot/IHC Non-
Controlled Subsidiaries.
(N) Pro forma earnings per share subsequent to the Patriot/IHC Merger is
computed based on 139,598 weighted average common shares and common share
equivalents outstanding for the period. The number of shares used for the
calculation includes adjustments to reflect the impact of the conversion
of preferred stock into Paired Shares.
In February 1997, the Financing Accounting Standards Board issued Statement
128 which specifies the computation, presentation and disclosure
requirements for basic earnings per share and diluted earnings per share.
Under the new requirements for calculating basic earnings per share, the
dilutive effect of stock options and convertible preferred securities will
be excluded. Pro forma basic earnings per share for the year ended December
31, 1996 would be a net loss of $0.09. The impact of Statement 128 on the
calculation of diluted earnings per share is not expected to differ
significantly from the earnings per share amounts reported.
196
<PAGE>
PAHOC
ADJUSTED FOR THE PATRIOT/IHC MERGER AND BUENA VISTA ACQUISITION
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997
(UNAUDITED)
<TABLE>
<CAPTION>
ADJUSTMENTS
------------------------------------------
PAHOC BUENA VISTA PATRIOT/IHC
PRO FORMA ACQUISITION IHC MERGER PRO FORMA
TOTAL(A) PRO FORMA(B) PRO FORMA(C) ADJUSTMENTS(D) TOTAL
--------- ------------ ------------ -------------- ---------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C>
Revenue:
Room revenue........... $478,793 $31,573 $400,419 $ -- $ 910,785
Other hotel revenue.... 284,823 20,610 152,332 -- 457,765
Racecourse facility
revenue............... 33,399 -- -- -- 33,399
Management fee, service
fee and reimbursement
income................ 56,838 -- 30,877 -- 87,715
Interest and other
income................ 10,524 -- 1,214 -- 11,738
-------- ------- -------- -------- ---------
Total revenue.......... 864,377 52,183 584,842 -- 1,501,402
-------- ------- -------- -------- ---------
Expenses:
Departmental costs--
hotel, club and spa
operations............ 307,597 21,294 196,566 -- 525,457
Racecourse facility
operations............ 30,114 -- -- -- 30,114
Direct operating costs
of management company,
service department and
reimbursement
expenses.............. 43,427 -- 15,711 -- 59,138
General and
administrative........ 87,322 3,267 54,548 -- 145,137
Ground lease and hotel
lease expense ........ 16,778 3,826 1,138 71,439 (E) 93,181
Repair and
maintenance........... 34,512 2,239 23,490 -- 60,241
Utilities.............. 29,841 1,802 21,896 -- 53,539
Marketing.............. 61,334 2,529 48,962 (4,408)(F) 108,417
Management fees........ 9,657 1,464 765 3,288 (G) 15,174
Depreciation and
amortization.......... 29,489 -- 34,179 (17,672)(H) 45,996
Participating lease
payments.............. 202,610 19,348 69,673 (I) 57,301 (I) 348,932
Interest expense....... 3,291 -- 40,657 (40,657)(J) 3,291
Real estate and
personal property
taxes and insurance... 290 -- 16,226 (14,489)(J) 2,027
-------- ------- -------- -------- ---------
Total expenses......... 856,262 55,769 523,811 54,802 1,490,644
-------- ------- -------- -------- ---------
Income (loss) before eq-
uity earnings of uncon-
solidated subsidiaries
income tax provision,
and minority
interests.............. 8,115 (3,586) 61,031 (54,802) 10,758
Equity in earnings of
unconsolidated subsidi-
aries.................. 417 -- -- -- 417
-------- ------- -------- -------- ---------
Income (loss) before
income tax provision
and minority
interests.............. 8,532 (3,586) 61,031 (54,802) 11,175
Income tax (provision)
benefit............... (3,477) -- (22,418)(K) 18,446 (K) (7,449)
-------- ------- -------- -------- ---------
Income (loss) before mi-
nority interests....... 5,055 (3,586) 38,613 (36,356) 3,726
Minority interest in
the PAHOC
Partnership........... (39) -- -- 4 (L) (35)
Minority interest in
consolidated
subsidiaries.......... (4,692) -- (2,036) 3,413 (M) (3,315)
-------- ------- -------- -------- ---------
Net income (loss)
applicable to common
stockholders........... $ 324 $(3,586) $ 36,577 $(32,939) $ 376 (N)
======== ======= ======== ======== =========
Net income per common
share.................. $ 0.01 $ 0.00 (N)
======== =========
</TABLE>
See notes on following page.
197
<PAGE>
PAHOC, ADJUSTED FOR THE PATRIOT/ICH MERGER AND BUENA VISTA ACQUISITION NOTES
TO PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS FOR THE NINE
MONTHS ENDED SEPTEMBER 30, 1997 (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS):
(A) Represents the pro forma results of operations of PAHOC for the nine
months ended September 30, 1997 as adjusted for the Wyndham Transactions
and the Merger. See page 180.
(B) Represents adjustments to PAHOC's results of operations assuming the Buena
Vista had been acquired on January 1, 1996.
(C) Represents the pro forma results of operations of IHC for the nine months
ended September 30, 1997 prior to the Patriot/IHC Merger.
(D) Represents adjustments to PAHOC's results of operations assuming the
Patriot/IHC Merger had occurred as of January 1, 1996.
(E) Represents the following adjustments to pro forma ground lease and hotel
lease expense:
<TABLE>
<S> <C>
Eliminate ground lease expense which will be paid by Patriot
subsequent to the Patriot/IHC ................................. $(1,138)
Reclassification of hotel lease expense for financial statement
presentation purposes related to the 88 hotels IHC leased from
third-party owners at September 30, 1997. Subsequent to the
Patriot/IHC Merger, these hotels will be sub-leased by Patriot
to PAHOC (see Note I).......................................... 69,673
Incremental hotel lease expense related to the sub-lease of the
88 hotels by Patriot to PAHOC.................................. 2,904
-------
$71,439
=======
</TABLE>
(F) Represents the historical costs of IHC franchise fee payments related to
franchise agreements for ten Marriott International, Inc. hotels which are
assumed to be terminated concurrently with the Patriot/IHC Merger.
(G) Represents additional management fees to be incurred by IHC pursuant to
new management agreements with Marriott International, Inc., which are
assumed to be executed concurrently with the Patriot/IHC Merger.
(H) Represents an adjustment of $32,943 to allocate the IHC pro forma
depreciation and amortization related to real estate to Patriot, partially
offset by an increase of $15,271 in amortization expense related to
amortization of goodwill and management contracts. The goodwill related to
the management business is amortized on a straight-line basis over an
estimated useful life of 20 years. Management contracts are amortized on a
straight-line basis over their estimated remaining lives of 5 years.
(I) The participating lease payment amount of $69,673 reflected in the IHC Pro
Forma Statement of Operations represents hotel lease payments made to
third parties in connection with the 88 leaseholds held by IHC as of
September 30, 1997. Following the Patriot/IHC Merger, Patriot will
sublease these hotel leaseholds to PAHOC. The pro forma adjustment of
$57,301 is composed of the following adjustments:
<TABLE>
<S> <C>
Pro forma participating lease payments related to the 40 owned
hotels leased by Patriot to PAHOC subsequent to the
Patriot/IHC Merger............................................ $126,974
Reclassification of hotel lease expense for financial statement
presentation purposes related to the 88 hotels IHC leased from
third-party owners at September 30, 1997. Subsequent to the
Patriot/IHC Merger, these hotels will be sub-leased by Patriot
to PAHOC (see Note E)......................................... (69,673)
--------
$ 57,301
========
</TABLE>
(J) Represents adjustments to the IHC pro forma results of operations to
eliminate interest expense and real estate and personal property taxes and
casualty insurance to be paid by Patriot subsequent to the Patriot/IHC
Merger.
(K) Represents an adjustment to the IHC pro forma tax expense to reflect the
tax provision based upon PAHOC's pro forma taxable income following the
Patriot/IHC Merger.
(L) Represents the adjustment to minority interest to reflect the estimated
minority interest percentage subsequent to the Patriot/IHC Merger to 8.48%
(M) Represents an adjustment of $2,036 to eliminate the IHC pro forma minority
interest in certain consolidated subsidiaries which will be owned by
Patriot following the Patriot/IHC Merger, and an adjustment of $1,377 to
reflect allocation to Patriot of earnings from the Patriot/IHC Non-
Controlled Subsidiaries.
(N) Pro forma earnings per share subsequent to the Patriot/IHC Merger is
computed based on 140,229 weighted average common shares and common share
equivalents outstanding for the period. The number of shares used for the
calculations includes adjustments to reflect the impact of the conversion
of preferred stock into Paired Shares.
In February 1997, the Financing Accounting Standards Board issued Statement
128 which specifies the computation, presentation and disclosure
requirements for basic earnings per share and diluted earnings per share.
Under the new requirements for calculating basic earnings per share, the
dilutive effect of stock options and convertible preferred securities will
be excluded. Pro forma basic earnings per share for the nine months ended
September 30, 1997 would be $0.00. The impact of Statement 128 on the
calculation of diluted earnings per share is not expected is not expected to
differ significantly from the earnings per share amounts reported.
198
<PAGE>
DESCRIPTION OF THE PATRIOT COMPANIES' CAPITAL STOCK
GENERAL
The PAHOC Charter presently authorizes the issuance of 650 million shares of
PAHOC Common Stock and 100 million shares of PAHOC Preferred Stock. The
Patriot Charter presently authorizes the issuance of 650 million shares of
Patriot Common Stock and 100 million shares of Patriot Preferred Stock. Shares
of PAHOC Common Stock and Patriot Common Stock are paired and trade as a
single unit, the Paired Shares. As of December 12, 1997, 70,026,716 Paired
Shares were issued and outstanding, no shares of PAHOC Preferred Stock were
issued and outstanding and no shares of Patriot Preferred Stock were issued
and outstanding.
THE PAIRING AGREEMENT
Under the Pairing Agreement, Paired Shares and shares of Patriot Preferred
Stock and PAHOC Preferred Stock that are convertible into Paired Shares shall
not be transferrable or transferred on the books of Patriot or PAHOC 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 common stock or
preferred stock of the other company. Neither Patriot nor PAHOC may issue
shares of Patriot Common Stock or PAHOC Common Stock, as the case may be, or
shares of Patriot Preferred Stock or PAHOC Preferred Stock, as the case may
be, that are convertible into Paired Shares unless provision has been made for
the simultaneous issuance or transfer to the same person of the same number of
shares of that same class or series of common stock or preferred stock of the
other company and for the pairing of such shares. Each certificate issued for
Paired Shares must be issued "back-to-back" with a certificate evidencing the
same number of shares of the other company. Each certificate must bear a
conspicuous legend on its face referring to the restrictions on ownership and
transfer under the PAHOC Bylaws and Patriot Bylaws.
In addition, neither Patriot nor PAHOC 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.
COMMON STOCK/PAIRED SHARES
Paired Shares are fully paid and nonassessable and have no preemptive
rights.
Subject to the preferential rights of any other class or series of stock,
holders of Paired Shares are entitled to receive dividends and other
distributions in cash, stock or property of Patriot or PAHOC, as the case may
be, as and when authorized and declared by the respective Board of Directors
of each company out of assets legally available therefor and to share ratably
in the assets of the respective company legally available for distribution to
its respective stockholders in the event of its liquidation, dissolution or
winding up after payment of, or adequate provision for, all known debts and
liabilities of Patriot or PAHOC, as the case may be.
Each outstanding Paired Share entitles its holder to one vote on all matters
submitted to a vote of stockholders, including the election of Directors and,
except as otherwise required by law or except as provided with respect to any
other class or series of stock, the holders of Paired Shares possess exclusive
voting power.
Holders of Paired Shares have no conversion, sinking fund or redemption
rights, or preemptive rights to subscribe for any securities of Patriot or
PAHOC.
All Paired Shares have equal dividend, distribution, liquidation and other
rights, and have no preference, appraisal or exchange rights.
Restrictions on Ownership
For Patriot 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 Patriot's outstanding
shares
199
<PAGE>
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 Patriot must be beneficially owned by 100 or
more persons during at least 335 days of a taxable year of 12 months or during
a proportionate part of a shorter taxable year. In addition, Patriot 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 Patriot'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 Patriot 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 Patriot. See "Certain Federal Income Tax
Considerations--REIT Qualification of Patriot."
Transfer Agent
The transfer agent and registrar for the Paired Shares is American Stock
Transfer & Trust Company of New York, New York.
PREFERRED STOCK
Each of the PAHOC Board and the Patriot Board 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 each of the PAHOC Board and the Patriot Board
will have the power to establish the preferences and rights of each class or
series of preferred stock, each such Board of Directors will be able to,
subject to the terms of the Cooperation Agreement (when and if entered into),
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 PAHOC Common Stock or Patriot Common Stock, respectively. The
issuance of shares of preferred stock could have the effect of delaying or
preventing a change in control of PAHOC or Patriot.
RESTRICTIONS ON TRANSFER OF CAPITAL STOCK
The Patriot Charters provide that no person or entity may Beneficially Own
or Constructively Own (as those terms are defined in the Patriot Charters) in
excess of 9.8% of the outstanding shares of any class or series of capital
stock (collectively, the "Equity Stock") of Patriot or PAHOC (the "Ownership
Limit"), unless the Ownership Limit is waived by the Board of Directors of the
relevant company in accordance with the Patriot Charters. Any transfer of
Equity Stock of Patriot or PAHOC that would (i) result in any person or entity
owning, directly or indirectly, shares of Equity Stock of Patriot or PAHOC in
excess of the Ownership Limit, unless the Ownership Limit is waived by the
Board of Directors of the relevant company in accordance with the Patriot
Charters, (ii) result in the capital stock of Patriot being beneficially owned
by fewer than 100 persons (within the meaning of Section 856(a)(5) of the
Code) of the Code, (iii) result in Patriot 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 or a subsidiary of Patriot within the meaning of
Section 856(d)(2)(B) of the Code, shall be void ab initio, and the intended
transferee will acquire no right or interest in such shares of Equity Stock.
Upon the violation of any of the foregoing transfer restrictions contained
in the Patriot Charters, that number of shares which violate any of such
transfer restrictions shall automatically be converted into an equal number of
shares of Excess Stock of Patriot or PAHOC, 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 Patriot and PAHOC and shall be
held by the trustee of a Trust (the "Trustee") for the benefit of a charitable
beneficiary (a "Beneficiary"). In the case of Equity Stock that is paired,
upon the conversion of a share of Equity Stock into a share of Excess Stock,
the corresponding paired share of that same class or series of Equity Stock of
the other company shall simultaneously be converted into a share of Excess
Stock; such shares of Excess Stock shall be paired and shall be simultaneously
transferred to a Trust. Upon the occurrence of such a conversion of shares of
any class or
200
<PAGE>
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 either the Patriot Board or the PAHOC Board, and shall
thereupon be restored to the status of authorized but unissued shares of the
particular class or series of Equity Stock from which such Excess Stock was
converted and may be reissued as that particular class or series of Equity
Stock. The Trustee and the Beneficiary shall be designated pursuant to the
terms of the Pairing Agreement. Each share of Excess Stock shall entitle the
holder to the number of votes the holder would have if such share of Excess
Stock was a share of Equity Stock of the same class or series from which such
Excess Stock was converted, on all matters submitted to a vote at any meeting
of stockholders. The Trustee, as record holder of the Excess Stock, shall be
entitled to vote all shares of Excess Stock. Each share of Excess Stock shall
be entitled to the same dividends and distributions (as to timing and amount)
as may be declared by the Patriot Board or the PAHOC Board, 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 a 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 such Trust.
Pursuant to the Patriot Charters, the Trustee shall have the exclusive and
absolute right to designate a permitted transferee (a "Permitted Transferee")
of any and all shares of Excess Stock if Patriot or PAHOC or both, in the case
of Paired Shares, fail to exercise its or their option with respect to such
shares as described below; provided, however, that (i) the Permitted
Transferee so designated purchases for consideration (whether in a public or
private sale) the shares of Excess Stock and (ii) the Permitted Transferee so
designated may acquire such shares of Excess Stock without violating any of
the aforementioned transfer restrictions and without such acquisition
resulting in the exchange of such shares of Equity Stock so acquired for
shares of Excess Stock and the transfer of such shares of Excess Stock to a
Trust. Upon the designation by the Trustee of a Permitted Transferee, the
Trustee shall cause to be transferred to the Permitted Transferee that number
of shares of Excess Stock of Patriot or PAHOC, 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 Patriot Board or the PAHOC Board, 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 Patriot or PAHOC or both, in the case
of Paired Shares, that the Permitted Transferee is the holder of record of
such number of shares of Equity Stock and (ii) distribute to the Beneficiary
any and all amounts held with respect to the shares of Excess Stock after
making payment to the record holders of the shares of Equity Stock that were
converted into Excess Stock (each, a "Prohibited Owner"). If the transfer of
shares of Excess Stock to a purported Permitted Transferee shall violate any
of the aforementioned transfer restrictions including, without limitation, the
Ownership Limit, such transfer shall be void ad initio as to that number of
shares of Excess Stock that cause the violation of any such restriction when
such shares are converted into shares of Equity Stock and the purported
permitted Transferee shall be deemed to be a Prohibited Owner and shall
acquire no rights in such shares of Excess Stock. Such shares of Equity Stock
shall be automatically re-converted into Excess Stock and transferred to the
Trust from which they were originally sold.
A Prohibited Owner shall be entitled to receive from the Trustee following
the sale or other disposition of such shares of Excess Stock the lesser of
(i)(a) in the case of a purported transfer in which the Prohibited Owner gave
value for shares of Equity Stock and which transfer resulted in the conversion
of such shares into shares of Excess Stock, the price per share, if any, such
Prohibited Owner paid for the shares of Equity Stock and (b) in the case of a
non-transfer event or a 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
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may be, resulted in the conversion of such shares into shares of Excess Stock,
the price per share equal to the market price (as determined in the manner set
forth in the Patriot Charters) on the date of such non-transfer event or
transfer and (ii) the price per share received by the Trustee from the sale or
other disposition of such shares of Excess Stock. Any amounts received by the
Trustee in respect of such shares of Excess Stock and in excess of such
amounts to be paid the Prohibited Owner shall be distributed to the
Beneficiary.
In addition, shares of Excess Stock shall be deemed to have been offered for
sale by a Trust to Patriot or PAHOC or both, in the case of Paired Shares, or
a designee of such company or companies, at a price per share equal to the
lesser of (i) the price per share in the transaction that created such shares
of Excess Stock (or, in the case of devise, gift or non-transfer event, the
market price at the time of such devise, gift or non-transfer event) or (ii)
the market price on the date either company or both companies, in the case of
Paired Shares, accept such offer. Either company or both companies, in the
case of Paired Shares, shall have the right to accept such offer for a period
of 90 days following the later of (a) the date of the non-transfer or
purported transfer which results in such shares of Excess Stock or (b) the
date on which either company or both companies, in the case of Paired Shares,
determine in good faith that a transfer or non-transfer event resulting in
shares of Excess Stock has previously occurred, if either company or both
companies, in the case of Paired Shares, do not receive a notice of such
transfer or non-transfer event. In the case of shares of Excess Stock that are
paired, neither Patriot nor PAHOC shall accept such an offer with respect to
its shares of Excess Stock without the agreement of the other company to
accept such offer with respect to the corresponding Paired Shares of its
Excess Stock.
Any person or entity that acquires or attempts to acquire shares of Equity
Stock in violation of the aforementioned transfer restrictions, or any person
or entity that owned shares of Equity Stock that were transferred to a Trust,
shall immediately give written notice to Patriot or PAHOC 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 Patriot'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 Patriot or PAHOC 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
Patriot'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 Patriot or PAHOC shall, within 30 days after January
1 of each year, provide to Patriot or PAHOC 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 Patriot Board determines that it
is no longer in the best interests of Patriot to attempt to qualify, or to
continue to qualify, as a REIT.
The restrictions on transfer contained in the Patriot Charters could have
the effect of delaying, deferring or preventing the acquisition of control of
Patriot and PAHOC, including certain acquisitions that stockholders might deem
to be in their best interest.
EFFECT OF THE WYNDHAM TRANSACTIONS
General
If and when the Wyndham Transactions become effective, the rights of
stockholders of PAHOC and Patriot will be governed by the Restated Charters,
the Restated Bylaws, the terms of the Amended Pairing Agreement and the
Cooperation Agreement. The following discussion summarizes the Cooperation
Agreement and certain of
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the key differences between the terms of (i) the Patriot Charters, the Patriot
Bylaws, the PAHOC Bylaws, and the Pairing Agreement and (ii) the Restated
Charters, the Restated Bylaws and the Amended Pairing Agreement.
The Cooperation Agreement
Although a paired share structure may result in stockholders of the paired
companies realizing certain economic benefits not realizable by stockholders
of companies not having a paired share structure, each paired company is a
separate corporate entity with separate Boards of Directors and different
management teams. Accordingly, the interests of the Board of Directors and
management of each of the paired companies may conflict and such conflicts may
possibly rise to disputes between the companies. Prior to the Cal Jockey
Merger, Cal Jockey and Bay Meadows experienced certain disagreements and
disputes, some of which resulted in litigation between the companies. Patriot
and PAHOC believe that these disagreements and disputes compromised the
ability of Cal Jockey and Bay Meadows to operate the companies in a manner
designed to maximize the potential economic benefits that could be realized
for stockholders of the paired companies. Patriot and PAHOC believe that to
increase the likelihood that the stockholders of the two companies may fully
realize the economic benefits of the paired share structure, it is in the best
interests of the companies and their respective stockholders that the risk of
potential conflicts between the two companies be minimized. Accordingly,
Patriot and PAHOC have agreed to enter into the Cooperation Agreement.
Under the terms of the Cooperation Agreement, Patriot and PAHOC will be
obligated to cooperate to the fullest extent possible in the conduct of their
respective operations and to take all necessary action to preserve the paired
share structure and to maximize the economic and tax advantages associated
therewith. One of the primary objectives of the Cooperation Agreement will be
to set forth the understanding of the Patriot Companies that Patriot shall
have the sole right and power to authorize, effect and control issuances of
paired equity (including securities convertible into paired equity) of the two
companies. The Cooperation Agreement will provide for a number of corporate
governance mechanisms designed to accomplish this objective and the other
objectives set forth therein. These mechanisms include (i) the establishment
of a cooperation committee (the "Cooperation Committee") that will normally
consider and propose the agenda listing the matters to be considered at any
joint meeting of the Patriot Board and the PAHOC Board, (ii) the establishment
of corporate matters categories and procedures for the consideration and
reconsideration of matters brought before the Patriot Board and the PAHOC
Board, (iii) the establishment of a hotel acquisitions committee (the "Hotel
Acquisitions Committee") that will analyze, evaluate and consider potential
acquisitions by the Patriot Companies of hotel properties and related assets,
(iv) provisions that will govern the sole authority of Patriot to authorize,
effect and control issuances of paired equity (including securities
convertible into paired equity) of the two companies, and (v) the
establishment of an unpaired equity committee (the "Unpaired Equity
Committee") that will have the sole authority to authorize and approve
issuances of unpaired equity by PAHOC.
Cooperation Committee. Pursuant to the Cooperation Agreement, the Patriot
Companies will establish, as promptly as practicable following the closing of
the Wyndham Merger, the Cooperation Committee consisting of (i) the Chairman
of the Patriot Board (who shall be the Chairman of the Cooperation Committee),
(ii) the Chairman of the PAHOC Board, (iii) a designee of the Patriot Board
reasonably acceptable to PAHOC (who shall serve at the pleasure of the Patriot
Board and may be removed and replaced at any time), and (iv) the President of
PAHOC. Immediately following consummation of the Wyndham Merger, the
Cooperation Committee will consist of Paul A. Nussbaum (who will be Chairman
of the Patriot Board and Chief Executive Officer of Patriot ), James D.
Carreker (who will be Chairman of the PAHOC Board and Chief Executive Officer
of PAHOC), William W. Evans III (who will be a director of Patriot) and Karim
Alibhai (who will be President of PAHOC). The Cooperation Committee will
normally consider and propose the agenda listing the matters to be considered
at any joint meeting of the Boards of Directors of the companies.
Corporate Matters Categories. Pursuant to the Cooperation Agreement, all
matters to be considered by the Patriot Board or the PAHOC Board and all
matters related thereto, except (i) a change in Patriot's line of business and
(ii) issuances of paired equity and issuances of unpaired equity, will be
classified into the most appropriate of the following three categories: (x)
routine corporate governance matters, such as approval and
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retention of independent accountants, the fixing of employee compensation and
other like matters (each, a "Category 1 Matter"); (y) all other matters, other
than a Change of Control and the removal of the Chairman or Chief Executive
Officer of Patriot or PAHOC and, after the third anniversary of the Wyndham
Merger, all other matters (including a Change of Control), other than the
removal of the Chairman or Chief Executive Officer of Patriot or PAHOC (each,
a "Category 2 Matter"); and (z) the removal of the Chairman or Chief Executive
Officer of either Patriot or PAHOC and, until the third anniversary of the
Wyndham Merger, any proposed action by Patriot or PAHOC, as the case may be,
that would result in a Change of Control (each, a "Category 3 Matter").
The term "Change in Control" as defined in the Cooperation Agreement will
mean the occurrence, with respect to either Patriot or PAHOC, of any one of
the following events (Patriot and PAHOC being referred to below, as the case
may be, as the "Company"): (i) any "person," as such term is used in Sections
13(d) and 14(d) of the Exchange Act (other than the Company or any trustee
fiduciary or other person or entity holding securities under any employee
benefit plan or trust of the Company, together with all "affiliates" and
"associates" (as such terms are defined in Rule 12b-2 under the Exchange Act)
of such person, shall become the "beneficial owner" (as such term is defined
in Rule 13d-3 under the Exchange Act), directly or indirectly, of securities
of the Company representing 50% or more of either (A) the combined voting
power of the Company's then outstanding securities having the right to vote
generally in an election of the Company's Board of Directors (the "Voting
Securities") or (B) the then outstanding Paired Shares (in either such case
other than as a result of an acquisition of securities directly from the
Company); or (ii) (A) any consolidation or merger of the Company where the
stockholders of the Company, immediately prior to the consolidation or merger,
would not, immediately after the consolidation or merger, beneficially own (as
such term is defined in Rule 13d-3 under the Exchange Act), directly or
indirectly, securities representing in the aggregate 50% or more of the voting
securities of the corporation issuing cash or securities in the consolidation
or merger (or of its ultimate parent corporation, if any), (B) any sale,
lease, exchange or other transfer (in one transaction or a series of
transactions contemplated or arranged by any party as a single plan) of all or
substantially all of the assets of the Company or (C) any plan or proposal for
the liquidation or dissolution of the Company. Notwithstanding the foregoing,
as defined in the Cooperation Agreement, a "Change of Control" will not be
deemed to have occurred for purposes of the foregoing clause (i) solely as the
result of an acquisition of securities by the Company which, by reducing the
number of Paired Shares or other Voting Securities outstanding, increases (x)
the proportionate number of Paired Shares beneficially owned by any person to
50% or more of the Paired Shares then outstanding or (y) the proportionate
voting power represented by the Voting Securities beneficially owned by any
person to 50% or more of the combined voting power of all then outstanding
Voting Securities; provided, however, that if any person referred to in clause
(x) or (y) of this sentence shall thereafter become the beneficial owner of
any additional Paired Shares or other Voting Securities (other than pursuant
to a stock split, stock dividend or similar transaction) and whose ownership
immediately thereafter shall equal or exceed the amounts set forth in clauses
(x) or (y), then a "Change of Control" shall be deemed to have occurred for
purposes of the foregoing clause (i).
At any meeting of the Patriot Board or the PAHOC Board (whether or not held
jointly), each of Patriot and PAHOC, as the case may be, may (the Board
submitting any matter being referred to herein as the "Proposing Board") (i)
submit a Category 1 Matter to the consideration and vote of its Board,
irrespective of any consideration or vote by the other Board, (ii) submit a
Category 2 Matter to the consideration and vote of its Board, and (iii) submit
a Category 3 Matter to the consideration and vote of its Board, with such
matter requiring a 66 2/3% vote of its Board for approval.
If the Proposing Board at any such meeting that is not held jointly (the
"Proposing Board Meeting") shall have approved any Category 2 Matter or
Category 3 Matter, such Proposing Board shall promptly provide notice (the
"Proposing Board Notice") to the other company pursuant to the terms of the
Cooperation Agreement of the occurrence of such meeting and the Category 2
Matters or Category 3 Matters approved at such meeting. The Cooperation
Committee shall convene promptly (in any event, within ten business days)
following the Proposing Board Meeting to consider the actions taken by the
Proposing Board. If the Cooperation Committee votes to approve the action
taken by the Proposing Board with respect to any such matter, then the action
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authorized by the Proposing Board may be implemented without consideration of
such matter by the other Board. If the Cooperation Committee does not approve
the action taken by the Proposing Board, the other company's Board (the
"Responding Board") may then hold a meeting within 15 business days following
receipt by such other company of the Proposing Board Notice to consider and
vote upon the Category 2 Matters or Category 3 Matters approved by the
Proposing Board and during such period the action authorized by the Proposing
Board may not be implemented. In the event that the Responding Board approves
at such a meeting the action taken by the Proposing Board or the Responding
Board does not hold a meeting within 15 business days following receipt of the
Proposing Board Notice, the action authorized by the Proposing Board may
thereafter be implemented.
In the event the Responding Board holds a meeting within 15 business days
following receipt of the Proposing Board Notice but does not approve the
action authorized by the Proposing Board, the action authorized by the
Proposing Board may not be implemented. In such an event, the Cooperation
Committee will convene promptly following the meeting of the Responding Board
to consider the contrary positions of the Proposing Board and the Responding
Board and recommend a resolution of such contrary positions in connection with
the reconsideration process described below (the "Reconsideration Process").
The Boards will then follow the Reconsideration Process.
At any joint meeting of the Patriot Board and the PAHOC Board, in the event
that the Proposing Board approves a Category 2 Matter or Category 3 Matter but
the other Board does not, the action authorized by the Proposing Board may not
be implemented. The Cooperation Committee shall convene immediately following
the joint meeting (unless a quorum of the Cooperation Committee is not
present, in which case the Cooperation Committee shall convene as soon as
practicable thereafter) to consider the votes of the Boards taken at such
meeting. The Boards will then follow the Reconsideration Process described
below.
Reconsideration Process. Following any meeting of the Cooperation Committee
as described above, any Proposing Board may reconsider a Category 2 Matter at
any subsequent meeting of such Board and, if the Proposing Board approves such
matter by a majority vote at such subsequent meeting, then the Proposing Board
may take the action contemplated by such matter regardless of the position of
the other Board. Following any meeting of the Cooperation Committee as
described above, the Proposing Board may reconsider a Category 3 Matter at any
subsequent meeting of such Board and, if the Proposing Board approves such
matter by a 66 2/3% vote at such subsequent meeting, then the Proposing Board
may take the action contemplated by such matter (but only if the other Board
approves such matter by a majority vote in the case of a Change in Control).
Change in Patriot's Line of Business. Until the third anniversary of the
Wyndham Merger, any change in Patriot's line of business shall require a 66
2/3% vote of the Patriot Board and a majority vote of the PAHOC Board for
approval.
Hotel Acquisitions Committee. Pursuant to the Cooperation Agreement, Patriot
and PAHOC will establish, as promptly as practicable following the closing of
the Wyndham Merger, and thereafter continue in effect as provided in the
Cooperation Agreement, a Hotel Acquisitions Committee to analyze, evaluate and
consider potential acquisitions by the Patriot Companies of hotel properties
and related assets (which properties and related assets may consist of a
portfolio of hotel properties and related assets, and which may be acquired in
any form, such as by merger, asset acquisition or otherwise) ("Hotel
Acquisitions"). The Hotel Acquisitions Committee will have the sole power and
authority to authorize Patriot or PAHOC, as the case may be, to enter into a
binding agreement with respect to Hotel Acquisitions involving a proposed
purchase price (inclusive of any indebtedness to be assumed in connection
therewith) not exceeding (with respect to each Hotel Acquisition or such
series of Hotel Acquisitions as are reasonably likely to be considered an
integrated transaction) 5% of the total combined market capitalization of the
Patriot Companies computed as of the last business day of the month
immediately preceding the month during which such Hotel Acquisition is to be
authorized and based on the average closing sale price of a Paired Share over
the five trading days immediately preceding such business day. The Hotel
Acquisitions Committee shall consist of six members as follows: (i) the
Chairman of the Patriot Board, (ii) the Chairman of the PAHOC Board, (iii) the
President of Patriot, (iv) the President of PAHOC, (v) a non-employee director
of the Patriot Board selected by the Chairman of the Patriot Board and
reasonably
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satisfactory to the PAHOC Board, and (vi) a non-employee director of the PAHOC
Board selected by the Chairman of the PAHOC Board and reasonably satisfactory
to the Patriot Board. Notwithstanding the foregoing, in the event that Paul A.
Nussbaum fails to serve or continue to serve on the Hotel Acquisitions
Committee for any reason, the Patriot Board shall have the right to select an
individual to replace Mr. Nussbaum, provided that such individual shall be
reasonably satisfactory to James D. Carreker (so long as he is Chief Executive
Officer of PAHOC), Harlan R. Crow (so long as CF Securities continues to meet
the Crow Ownership Threshold (as defined below)) and the Wyndham designees to
the PAHOC Board under the Wyndham Merger Agreement (a "Wyndham-OPCO Designee")
other than Mr. Carreker (with respect to each such designee, so long as such
designee continues to serve on the Board of Directors of either Patriot or
PAHOC). Further, in the event that Mr. Carreker fails to serve or continue to
serve on the Hotel Acquisitions Committee for any reason, Mr. Crow (so long as
CF Securities continues to meet the Crow Ownership Threshold) and the
remaining Wyndham-OPCO Designees (with respect to each such designee, so long
as such designee continues to serve on the Board of Directors of either
Patriot or PAHOC) shall have the right to select an individual to replace Mr.
Carreker (and in the event that neither Mr. Crow nor any of the Wyndham-OPCO
Designees are then serving on the Board of Directors of PAHOC, then the PAHOC
Board shall have the right to select an individual to replace Mr. Carreker),
provided that such individual shall be reasonably satisfactory to the Patriot
Board. Notwithstanding the foregoing, the Hotel Acquisitions Committee shall
no longer have the power and authority described herein on and after the third
anniversary of the Wyndham Merger.
The term "Crow Ownership Threshold" as defined in the Cooperation Agreement
generally will mean the beneficial ownership of at least five percent of the
lesser of (x) the sum of (i) the number of then outstanding Paired Shares and
(ii) the number of then outstanding shares of unpaired preferred stock of
Patriot, or (y) the sum of (i) the number of Paired Shares outstanding
immediately after the Wyndham Merger and (ii) the number of shares of unpaired
preferred stock of Patriot outstanding immediately after the Wyndham Merger.
Authority to Issue Paired Equity. The Cooperation Agreement will provide
that, from and after the date of the Cooperation Agreement until the date
which is 12 months after the date on which the Pairing Agreement is no longer
in effect (the "Termination Date"), the Patriot Board will have the sole right
to authorize and to effect, or to cause PAHOC and the PAHOC Board to effect,
an Issuance of Paired Equity (as defined below) and to take or cause to be
taken any and all action in contemplation of, or in connection with, an
Issuance of Paired Equity, and PAHOC's certificate of incorporation and bylaws
shall so provide. In connection therewith, the Patriot Board also will have
the authority to cause PAHOC to comply with the procedures to be set forth in
the Cooperation Agreement.
The term "Issuance of Paired Equity" as defined in the Cooperation Agreement
will mean a private or public offering, sale, issuance or delivery of, or
commitment or agreement to commit to offer, sell, issue or deliver (whether
through the issuance or granting of options, warrants, commitments,
subscriptions, rights to purchase or otherwise) any stock of any class or any
other debt or equity securities of PAHOC (including, without limitation,
indebtedness having the right to vote, indebtedness convertible into any
equity of any class or any other securities) or limited partnership interests
or units of the PAHOC Partnership), or equity equivalents of either
(including, without limitation, stock appreciation rights), if it is
contemplated that such stock or other securities, or any securities underlying
such stock or other securities, would or could be paired with shares of
Patriot Common Stock or any other securities of Patriot, or, in the case of
limited partnership interests or units of the PAHOC Partnership, it is
contemplated that such interests or units would be economically (or otherwise)
"paired" (even if not pursuant to the Amended Pairing Agreement) with the
limited partnership interests or units of the Patriot Partnership. Issuance of
Paired Equity also will mean (A) the related issuance by Patriot or the
Patriot Partnership of the securities of Patriot or the Patriot Partnership
which are paired with the securities of PAHOC or the PAHOC Partnership and (B)
any reorganization, recapitalization, reclassification, stock dividend, stock
split, combination of shares, exchange of shares for other shares of the
companies, repurchase or redemption of shares, change in corporate structure
or the like in which the outstanding Paired Shares would be increased,
decreased, changed into or exchanged for a different number or kind of Paired
Shares or other paired securities.
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Pursuant to the Cooperation Agreement, Patriot will be entitled to designate
from time to time one or more officers of Patriot to serve as a "Paired Equity
Officer/Director." The Patriot Board will have the authority to appoint any
such Paired Equity Officer/Director to the positions of vice president and
assistant secretary of PAHOC. Any Paired Equity Officer/Director may resign or
be removed by Patriot at any time and, at any time thereafter, Patriot may
designate a new Paired Equity Officer/Director. Any Paired Equity
Officer/Director will have the express authority to do any and all acts and
things related to any Issuance of Paired Equity, including, without
limitation, the execution and delivery in the name and on behalf of PAHOC of
any and all documents, certificates (including stock certificates) and other
instruments necessary or appropriate in connection with the issuance of any
shares of PAHOC Common Stock pursuant to an Issuance of Paired Equity, the
engagement of investment bankers, accountants, attorneys and other
professionals, and the incurrence of any and all other transaction costs
related thereto.
The Cooperation Agreement will provide that Patriot shall have, and PAHOC
shall at all times and in all circumstances maintain and support the position
that Patriot has, the sole right and power to authorize and effect, or to
cause PAHOC and the PAHOC Board to effect, the Issuance of Paired Equity and
PAHOC will further agree not to assert otherwise in any forum, proceeding,
action or communication or take any other action which is inconsistent with
its obligations under the Cooperation Agreement.
Under the terms of the Cooperation Agreement, PAHOC will expressly release
any and all claims, causes of action, rights, defenses and arguments that any
Issuance of Paired Equity approved by Patriot in any way violates or infringes
any rights that PAHOC or its past, present or future officers, directors,
employees, stockholders or affiliates may have, including, without limitation,
that any Issuance of Paired Equity approved by Patriot in any way breaches,
violates or infringes any fiduciary duties, duties of one stockholder to
another, partnership duties, joint venturer duties, or any other duties or
obligations that may exist or exist in the future; provided, that nothing
contained in the Cooperation Agreement will be, or be asserted to be, an
admission that any such duties exist. Further, PAHOC will expressly disclaim,
and will agree not to assert that, any such duties or obligations exist in any
way that would interfere with the sole rights of Patriot with respect to the
Issuance of Paired Equity.
The Cooperation Agreement will require that Patriot shall give notice (an
"Issuance Notice") to PAHOC as promptly as practicable of each determination
by Patriot to engage in an Issuance of Paired Equity. Such Issuance Notice
shall include the proposed material terms of such issuance, to the extent
determined by Patriot including whether such issuance is proposed to be
pursuant to a public or private offering, the amount of Paired Shares proposed
to be issued, and the manner of determining the offering price and other terms
thereof.
Upon receipt of an Issuance Notice, PAHOC and the PAHOC Board shall promptly
cooperate with Patriot in every way to effect such Issuance of Paired Equity
pursuant to the terms and schedule thereof as established by Patriot,
including, without limitation, in certain respects as prescribed in the
Cooperation Agreement.
The Cooperation Agreement will provide that upon any Issuance of Paired
Equity the net proceeds therefrom shall be allocated 95% to Patriot and 5% to
PAHOC, unless and until a different allocation is agreed to by mutual consent
of Patriot and PAHOC in accordance with the Pairing Agreement, as amended from
time to time.
From time to time, PAHOC may request that Patriot effect an Issuance of
Paired Equity in connection with employee benefit plans, other forms of
incentive compensation and other arrangements or commitments of PAHOC. To the
extent that Patriot approves in writing any such plan, arrangement or
commitment, Patriot will agree that it will either (A) issue the shares of
Patriot Common Stock which form a part of the Paired Shares when the Paired
Shares are required to be issued pursuant to the terms of any such plan,
arrangement or commitment or (B) indemnify PAHOC to the fullest extent
permitted under applicable law from and against any and all damages, as
specified in the Cooperation Agreement, of PAHOC which arise out of any
failure by Patriot to issue such shares of Patriot Common Stock.
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Authority to Issue Unpaired Equity. From and after the date of the
Cooperation Agreement until the Termination Date, each of Patriot and PAHOC
will have the right to engage in an Issuance of Unpaired Equity (as defined
below) in accordance with and pursuant to the procedures contained in the
Cooperation Agreement, and to take any and all action in contemplation of, or
in connection with, an Issuance of Unpaired Equity.
The term "Issuance of Unpaired Equity," as defined in the Cooperation
Agreement, will mean, in the case of PAHOC, a public or private offering,
sale, issuance, delivery or commitment or agreement to commit to offer, sell,
issue or deliver (whether through the issuance or granting of options,
warrants, commitments, subscriptions, rights to purchase or otherwise) any or
all securities described in the definition of "Issuance of Paired Equity" if
it is contemplated that such stock or other securities, and any securities
underlying such stock or other securities, would not or could not be paired
with shares of Patriot Common Stock or any other securities of Patriot or, in
the case of limited partnership interests or units of the PAHOC Partnership,
it is contemplated that such interests or units would not or could not
economically (or otherwise) be "paired" with the limited partnership interests
or units of the Patriot Partnership. "Issuance of Unpaired Equity" means, in
the case of Patriot, a public or private offering, sale, issuance or delivery
of, or commitment or agreement to commit to offer, sell, issue or deliver
(whether through the issuance or granting of options, warrants, commitments,
subscriptions, rights to purchase or otherwise), any stock of any class or any
other debt or equity securities of Patriot (including, without limitation,
indebtedness having the right to vote and indebtedness convertible into any
equity of any class or any other securities) or limited partnership interests
or units of the Patriot Partnership, or equity equivalents of either
(including, without limitation, stock appreciation rights), if it is
contemplated that such stock or other securities, and any securities
underlying such stock or other securities, would not or could not be paired
with shares of PAHOC Common Stock or any other securities of PAHOC or, in the
case of limited partnership interests or units of the Patriot Partnership, it
is contemplated that such interests or units would not or could not
economically (or otherwise) be "paired" (even if not pursuant to the Amended
Pairing Agreement) with the limited partnership interests or units of the
PAHOC Partnership.
PAHOC will have the right to engage in an Issuance of Unpaired Equity upon
the affirmative vote of a majority of the members of the Unpaired Equity
Committee. Patriot will have the right to engage in an Issuance of Unpaired
Equity upon the affirmative vote of a majority of the members of the Patriot
Board.
Pursuant to the Cooperation Agreement, the Unpaired Equity Committee will
consist of (i) the Chairman of the Patriot Board, (ii) the Chairman of the
PAHOC Board, (iii) two designees of Patriot from either of the Patriot Board
or the PAHOC Board and (iv) one designee of PAHOC from either of the Patriot
Board or the PAHOC Board. Upon consummation of the Wyndham Merger, the members
of the Unpaired Equity Committee will consist of (i) Paul A. Nussbaum until
such time as he shall no longer serve as Chairman of the Patriot Board and,
after such time, the Chairman of the Patriot Board, (ii) James D. Carreker
until such time as he shall no longer serve as Chairman of the PAHOC Board
and, after such time, the Chairman of the PAHOC Board, (iii) two designees of
Patriot from either the Patriot Board or the PAHOC Board and (iv) one designee
of PAHOC from either the Patriot Board or the PAHOC Board.
Holders of Unpaired Equity. Under the terms of the Cooperation Agreement,
whenever, from time to time, there shall be outstanding any class of equity
securities of Patriot or PAHOC or any of their respective subsidiaries, which
securities are not paired with corresponding securities of the other company
or its subsidiaries, but are convertible or exchangeable into or for Paired
Shares (including, without limitation, any shares of unpaired Preferred Stock
of Patriot issued to CF Securities after the date of the Cooperation
Agreement) (the "Unpaired Shares"), then, so long as any such Unpaired Shares
are issued in accordance with the terms of the Cooperation Agreement, Patriot
and PAHOC will issue shares of Patriot Common Stock or shares of PAHOC Common
Stock, as the case may be, underlying such Unpaired Shares in accordance with
the terms thereof. The covenants of Patriot and PAHOC set forth in the
Cooperation Agreement will be made for the benefit of the holders of such
Unpaired Shares and such holders will be express third party beneficiaries
thereof. Any shares of unpaired Preferred Stock of Patriot issued to CF
Securities pursuant to the Wyndham Stock Purchase Agreement will be deemed to
have been issued in accordance with the terms of the Cooperation Agreement.
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Indemnification by Patriot. Under the Cooperation Agreement, Patriot will be
obligated to indemnify and hold harmless all directors and officers of PAHOC
from and against all losses, claims, damages, liabilities and expenses
("Damages") to which any such directors or officers may become subject insofar
as such Damages arise out of an Issuance of Paired Equity or an Issuance of
Unpaired Equity prior to the termination of the Cooperation Agreement to the
same extent, and on the same terms and conditions (including, without
limitation, provision for advancement of expenses and contribution) that
Patriot indemnifies its own directors and officers with respect to such
matters, provided that in no event shall a director or officer of PAHOC
receive greater indemnification for Damages than would a director or officer,
as the case may be, of Patriot in a like circumstance.
Removal of Directors. If at any time any director of PAHOC shall interfere
or fail to cooperate fully with any Issuance of Paired Equity, such director
will be deemed to be no longer acting within the scope of his authority with
respect to the management of the affairs of PAHOC and to have failed to remain
qualified as a director. In such event, such director shall automatically
cease to be a director. The determination of whether any director of PAHOC has
interfered or failed to cooperate fully with any Issuance of Paired Equity
will be made by the Patriot Board and notice of any such determination shall
be given by Patriot to PAHOC within ten days after the date of such
determination. Notwithstanding when such determination and notice shall be
made and given, any such director shall be deemed to have ceased to be a
director at the time of any interference or failure to cooperate; provided,
however, that for purposes of the indemnification provided under the
Cooperation Agreement and any other right to indemnification to which such
director would otherwise be entitled, such director shall be deemed to have
been acting as a director until such time as such determination and notice
shall be made and given, and such director's right to indemnification, if any,
shall in no way be prejudiced solely by reason of having acted as a director
during the period from the time of such interference or failure to cooperate
until such determination and notice are made and given.
Termination. Unless earlier terminated at any time by the mutual consent of
Patriot and PAHOC, the Cooperation Agreement will terminate on the Termination
Date. In the event of any termination of the Cooperation Agreement, neither
Patriot nor PAHOC (or any of their directors, officers, employees or agents)
will have any liability or further obligation to any other party.
Amendment. The corporate governance provisions of the Cooperation Agreement,
including those related to the Cooperation Committee and the Hotel
Acquisitions Committee, and the provisions related to the Issuance of Paired
Equity and Issuance of Unpaired Equity, termination of directors of PAHOC and
termination of the Cooperation Agreement, may only be waived, amended,
supplemented or modified with the approval of a 66 2/3% vote of each of the
Patriot Board and the PAHOC Board.
The Amended Pairing Agreement
The Amended Pairing Agreement will provide that each of Patriot and PAHOC
will be able to issue shares of capital stock of any class or series (other
than Patriot Common Stock and PAHOC Common Stock), irrespective of whether
such shares are convertible into shares of Patriot Common Stock and PAHOC
Common Stock, without making provision for the simultaneous issuance or
transfer to the same person of the same number of shares of that same class or
series of capital stock of the other company and for the pairing of such
shares.
In addition, pursuant to the Amended Pairing Agreement, neither Patriot nor
PAHOC will be able to declare a stock dividend consisting in whole or in part
of Patriot Common Stock or PAHOC Common Stock, issue any rights or warrants to
purchase any shares of Patriot Common Stock or PAHOC Common Stock or
subdivide, combine or otherwise reclassify the shares of Patriot Common Stock
or PAHOC Common Stock unless the other company simultaneously takes the same
or equivalent action.
Pursuant to the Amended Pairing Agreement, as desired from time to time, but
no less than once each calendar year, Patriot and PAHOC will be required to
jointly arrange for the determination of the fair market value of the PAHOC
Common Stock outstanding on such valuation date. Such valuation may be used
from time
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to time by Patriot and PAHOC to change the allocation between the companies of
the net proceeds from any Issuance of Paired Equity. The Amended Pairing
Agreement will be terminable by either the Patriot Board or the PAHOC Board
upon 30 days' written notice to the other company that such termination has
been approved by the affirmative vote of the holders of a majority of the
outstanding shares of common stock of the company seeking to terminate the
agreement. In the event the Amended Pairing Agreement is terminated, Patriot
and PAHOC have agreed to cooperate to effect a separation of the Paired Shares
of both companies so as to permit the separate issuance and transfer thereof.
Pursuant to the Amended Pairing Agreement, the conversion of Equity Stock of
Patriot or PAHOC into Excess Stock, or the conversion of Excess Stock of
Patriot or PAHOC into Equity Stock, requires conversion of the corresponding
shares of Patriot or PAHOC, as the case may be.
Common Stock/Paired Shares
The holders of Paired Shares will still 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 terms of the Patriot Series A Preferred
Stock, the PAHOC Series A Preferred Stock and the PAHOC Series B Preferred
Stock (collectively, the PAHOC Series A Preferred Stock and the PAHOC Series B
Preferred Stock is referred to herein as the "PAHOC A/B Preferred Stock"), by
the Restated Charters with respect to Excess Stock or provided in any
resolution adopted by either of the PAHOC Board or the Patriot Board with
respect to any series of Preferred Stock, the holders of Paired Shares will
exclusively possess all voting power. Subject to the terms of the Patriot
Series A Preferred Stock, the terms of the PAHOC A/B Preferred Stock and any
preferential rights of any other outstanding series of Preferred Stock and the
rights of holders of Excess Stock, the holders of Paired Shares will be
entitled to such dividends as may be declared from time to time by the PAHOC
Board and the Patriot Board from funds available for such purpose, and upon
liquidation will be entitled to receive pro rata all assets of PAHOC and
Patriot available for distribution to such holders. If and when the Wyndham
Transactions become effective, all Paired Shares issued pursuant to the
Wyndham Transactions will be fully paid and nonassessable, and the holders
thereof will not have preemptive rights.
Patriot Series A Preferred Stock
If Patriot purchases the shares of Wyndham Common Stock owned by CF
Securities in connection with the Wyndham Merger, the Patriot Series A
Preferred Stock will be issued to CF Securities in exchange therefor and will
have the provisions of the Certificate of Designation for the Patriot Series A
Preferred Stock (the "Certificate of Designation"). The Patriot Series A
Preferred Stock will be a series designated out of the preferred stock of
Patriot. The following is a summary of certain provisions of the Patriot
Series A Preferred Stock. This summary does not purport to be complete and is
subject to, and qualified in its entirety by, the provisions of the Restated
Charter of Patriot which is incorporated by reference into the Registration
Statement of which this Proxy Statement/Prospectus forms a part.
Pursuant to the Certificate of Designation, the Patriot Board will be
authorized to issue up to 13,600,000 shares of Patriot Series A Preferred
Stock, provided that Patriot will only issue such number of shares of Patriot
Series A Preferred Stock as is permitted by the terms of the Wyndham Stock
Purchase Agreement. Each share of Patriot Series A Preferred Stock will be
entitled to dividends when, as and if, declared and paid on the Paired Shares
in an amount equal to the sum of the dividends paid on the Paired Shares.
Dividends on the Patriot Series A Preferred Stock will rank pari passu with
dividends on the Paired Shares.
The Patriot Series A Preferred Stock will be entitled to one vote per share,
voting together as a class with the shares of Patriot Common Stock, on any
matter submitted for a vote of the stockholders of Patriot. The Patriot Series
A Preferred Stock will be convertible at any time into Paired Shares on a one-
for-one basis by the holders thereof, subject to the Excess Share Provisions
set forth in the Restated Charters. In addition, the Patriot Series A
Preferred Stock will be mandatorily convertible at any time and in any amount
upon notice by Patriot, provided
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that the amount so converted will not cause a violation of the Excess Share
Provisions set forth in the Restated Charters.
Upon a liquidation, dissolution or winding up of Patriot, the holders of the
Patriot Series A Preferred Stock will be entitled to receive, on a per share
basis, (i) the PAHOC Dissolution Preference (as defined below) and (ii) a
ratable share, together with the holders of Patriot Common Stock, in the
assets of Patriot available for distribution on the Patriot Common Stock. As
used in the Certificate of Designation, "PAHOC Dissolution Preference" means,
as applicable, either (A) if PAHOC has previously been or is simultaneously
liquidated, dissolved or wound up, a preference equal to the amount per share
of PAHOC Common Stock which was or will be received by the holders of PAHOC
Common Stock upon the liquidation, dissolution or winding up of PAHOC or (B)
if PAHOC has not previously been or is not simultaneously liquidated,
dissolved or wound up, a preference per share equal to an amount determined by
an independent investment banker selected by the Patriot Board (with the
agreement of the majority holder of the Patriot Series A Preferred Stock, if
there is one at such time) to be equal to the then current value of a share of
PAHOC Common Stock, without regard to the paired share structure of the
Patriot Companies. If PAHOC has been previously liquidated, dissolved or wound
up, then any PAHOC Dissolution Preference will accrue interest at the
applicable federal rate from the date the liquidating distributions were made
on the PAHOC Common Stock unless and until paid.
PAHOC Series A Preferred Stock and PAHOC Series B Preferred Stock
By operation of the CHCI Merger, each issued and outstanding CHCI Share and
certain stock option rights will be converted into the right to receive shares
of PAHOC Series A/B Preferred Stock. Generally, the aggregate number of shares
of PAHOC A/B Preferred Stock that each stockholder shall have the right to
receive pursuant to the CHCI Merger shall consist of, to the extent possible,
an equal number of shares of PAHOC Series A Preferred Stock and shares of
PAHOC Series B Preferred Stock.
Generally, each share of PAHOC Series A Preferred Stock will be redeemable,
at the option of the holder, for one Paired Share at any time following the
first anniversary of the closing of the CHCI Merger. Each share of PAHOC
Series B Preferred Stock may be redeemed, at the option of the holder, for one
Paired Share; however, such redemption is generally restricted until the fifth
anniversary of the closing of the CHCI Merger. The value of a Paired Share at
the time of redemption (the "Redemption Value") will, at PAHOC's option, be
payable in cash. Further, if PAHOC fails to comply with certain restrictions,
the PAHOC A/B Preferred Stock will be redeemable, at the option of the holder,
for cash or, at PAHOC's option, Paired Shares at the Redemption Value plus a
premium. The dividend rate on the shares of PAHOC A/B Preferred Stock will be
equivalent to the dividend rate on the Paired Shares. Dividends on PAHOC
Series B Preferred Stock will be 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 PAHOC A/B Preferred Stock are not
paid when due, dividends will instead accrue at the rate of 15% per annum on a
compounding basis. The PAHOC A/B Preferred Stock will be redeemable at PAHOC's
option at the Redemption Value, plus a premium in the case of the original
holders thereof and certain permitted transferees.
Certain Provisions of the Restated Charters and Restated Bylaws
In order to protect Patriot against the risk of losing its status as a REIT
and to otherwise protect Patriot from the consequences of a concentration of
ownership among its stockholders, the Restated Charters provide, subject to
certain exceptions, that no single person (which includes a "group" of
persons) (other than a Look- Through Entity) may Beneficially Own or
Constructively Own (as those terms are defined below) in excess of 8.0% (as
opposed to the Ownership Limit (9.8%) in the Patriot Charters) of the
outstanding shares of any class or series of Equity Stock of Patriot or PAHOC
(the "Restated Ownership Limit"), unless the Restated Ownership Limit is
waived by the Board of Directors of the relevant company in accordance with
the Restated Charters. Any transfer of Equity Stock of Patriot or PAHOC that
would (i) result in any person or entity owning, directly or indirectly,
shares of Equity Stock of Patriot or PAHOC in excess of the Restated Ownership
Limit, unless the Restated Ownership Limit is waived by the Board of Directors
of the relevant company in accordance
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with the Restated Charters, (ii) result in the capital stock of Patriot being
beneficially owned by fewer than 100 persons (within the meaning of Section
856(a)(5) of the Code), (iii) result in Patriot 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 or a subsidiary of Patriot 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. The Restated Charters provide
that pension plans described in Section 401(a) of the Code and mutual funds
registered under the Investment Company Act of 1940 are treated as Look-
Through Entities that are subject to a 9.8% "Look-Through Ownership Limit."
Pension plans and mutual funds are among the entities that are not treated as
holders of stock under the Five or Fewer Requirement and the beneficial owners
of such entities will be counted as holders for this purpose. For purposes of
computing the percentage of shares of any class or series of Equity Stock of
Patriot or PAHOC Beneficially Owned by any person or entity, any shares of
Equity Stock of Patriot or PAHOC 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 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 "Restated
Prohibited Owner") shall submit such number of shares of Equity Stock to
Patriot or PAHOC, 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 either the Patriot Board or the PAHOC Board, and shall
thereupon be restored to the status of authorized but unissued shares of the
particular class or series of Equity Stock from which such Excess Stock was
converted and may be reissued as that particular class or series of Equity
Stock.
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
Patriot Board or the PAHOC Board, 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 Restated
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
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Excess Stock. Patriot and PAHOC shall take all measures that they determine
reasonably necessary to recover the amount of any such dividend or
distribution paid to a Restated 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 Beneficially Own or Constructively
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, Patriot or PAHOC, 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 Patriot or PAHOC, as
the case may be, that is available for distribution to the holders of such
class or series of Equity Stock. The Trustee shall distribute to the Restated
Prohibited Owner the amounts received upon such liquidation, dissolution, or
winding up, or distribution; provided, however, that the Restated Prohibited
Owner shall not be entitled to receive amounts in excess of, in the case of a
purported transfer in which the Restated 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 Restated
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) and, in the case of a non-transfer
event or a transfer in which the Restated 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.
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
by a Restated Prohibited Owner prior to the discovery by Patriot or PAHOC, 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 one or
more Permitted Transferees of any and all shares of Excess Stock if Patriot or
PAHOC 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 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 Patriot or PAHOC, 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
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required by the Patriot Board or the PAHOC Board, 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 Patriot or PAHOC 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 Restated 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 Restated 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 Restated 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 Restated Prohibited Owner
shall apply to such shares with respect to any future transfer of such shares
by the Trust.
A Restated 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 Restated
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 Restated 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 a transfer in which the Restated 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 Restated 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 Patriot or PAHOC 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 a devise, gift or non-
transfer event, the Market Price at the time of such devise, gift or non-
transfer event) or (ii) the Market Price on the date either company or both
companies, in the case of Paired Shares, accept such offer. Either company or
both companies, in the case of Paired Shares, shall have the right to accept
such offer for a period of 90 days following the later of (a) the date of the
non-transfer event or purported transfer which results in such shares of
Excess Stock or (b) the date on which either company or both companies, in the
case of Paired Shares, determine in good faith that a transfer or a 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 Patriot nor PAHOC 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
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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 Patriot or PAHOC 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 Patriot'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 Patriot or PAHOC 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
Patriot's status as a REIT and to ensure compliance with the Restated
Ownership Limit or the Look-Through Ownership Limit, as the case may be. 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 Patriot or PAHOC shall, within 30 days after January
1 of each year, provide to Patriot or PAHOC 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 Patriot Board determines that it
is no longer in the best interests of Patriot to attempt to qualify, or to
continue to qualify, as a REIT.
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.
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COMPARISON OF STOCKHOLDERS' RIGHTS
The rights of WHG Stockholders are presently governed by the DGCL, the WHG
Charter and the WHG Bylaws and the rights of the stockholders of Patriot and
PAHOC are presently governed by the DGCL, the Patriot Charter and the PAHOC
Charter (together, the "Patriot Charters"), the Patriot Bylaws and the PAHOC
Bylaws. In addition, the rights of Patriot stockholders and PAHOC stockholders
are presently governed by the Pairing Agreement and the Cooperation Agreement
(if and when entered into). Under the terms of the Merger Agreement, at the
Effective Time, WHG Stockholders, will become stockholders of Patriot and of
PAHOC and their rights will thereafter be governed by the DGCL, the Patriot
Charters, the Patriot Bylaws, the PAHOC Bylaws, the Pairing Agreement and the
Cooperation Agreement (if and when entered into).
In considering the recommendation of the WHG Board to approve the Merger
Agreement and the transactions contemplated thereby, WHG Stockholders should
be aware that the rights of WHG Stockholders under the Patriot Charters, the
Patriot Bylaws, the PAHOC Bylaws, the Pairing Agreement and the Cooperation
Agreement (if and when entered into) will differ in certain respects from the
existing rights of the WHG Stockholders under the WHG Charter and the WHG
Bylaws. In addition, in connection with the consummation of the Wyndham
Transactions, the Patriot Charter and the PAHOC Charter will be amended and
restated and such amended and restated charters will become the Restated
Charters of Patriot and PAHOC. Furthermore, in connection with the
consummation of the Wyndham Transactions, the Patriot Bylaws and the PAHOC
Bylaws will be amended and restated to be consistent with the Restated
Charters and will become the Restated Bylaws of Patriot and PAHOC and the
Pairing Agreement will be amended to become the Amended Pairing Agreement.
The following discussion summarizes (i) certain differences between the
rights of WHG Stockholders and the rights of stockholders of Patriot and PAHOC
and (ii) certain changes in the existing rights of stockholders of Patriot and
PAHOC following the consummation of the Wyndham Transactions. This summary
does not purport to be complete and is subject to and qualified in its
entirety by reference to: the Patriot Charters, the Patriot Bylaws, the PAHOC
Bylaws, the Pairing Agreement, the Cooperation Agreement, the Restated
Charters and the Amended Pairing Agreement all of which are incorporated by
reference as exhibits to the Registration Statement of which this Proxy
Statement/Prospectus is a part, and the relevant provisions of the DGCL.
COMPARISON OF RIGHTS OF WHG STOCKHOLDERS TO STOCKHOLDERS OF PATRIOT AND PAHOC
Amendment of Charter
In conformity with the DGCL, amendment of the WHG Charter generally requires
the approval of the WHG Board and the approval of the WHG Stockholders by the
affirmative vote of a majority of the outstanding shares entitled to vote on
such amendment, with the exception of a number of provisions of the WHG
Charter which require the approval of the holders of at least 80% of the
voting power of all the outstanding shares entitled to vote generally for the
election of directors, voting together as a single class.
The Patriot Charters provide that, with the exception of certain provisions
concerning business combinations with interested stockholders which require
the approval of greater proportions, the Patriot Charters may be amended in
the manner prescribed by the DGCL, which requires the approval of the Board of
Directors of the relevant company and the approval of the stockholders of the
relevant company by the affirmative vote of a majority of the outstanding
shares entitled to vote on such amendment. With respect to the provisions of
the Restated Charters relating to the provisions of the Cooperation Agreement,
an amendment or repeal of any of such provisions requires a 66 2/3% vote of
the Board of Directors of the relevant company and thereafter the affirmative
vote of a majority of the outstanding shares entitled to vote on such
amendment or repeal.
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Amendment of Bylaws
The WHG Bylaws may be amended or altered (i) by the WHG Board by the vote of
a majority of the directors then in office or (ii) by the affirmative vote of
the holders of at least 80% of the outstanding shares entitled to vote
thereon.
The Patriot Bylaws and PAHOC Bylaws may be amended by a majority vote of the
stockholders of the respective companies.
Thus, stockholders of Patriot and PAHOC have the ability to amend or repeal
the Patriot Bylaws and the PAHOC Bylaws with a lower proportion of the votes
of the stockholders than the WHG Stockholders currently have to amend or
repeal the WHG Bylaws. The Patriot Board and the PAHOC Board, however, do not
have the ability to amend the bylaws of the respective companies.
Directors
The WHG Charter and WHG Bylaws provide that the number of directors of WHG
shall be fixed from time to time by action of not less than a majority of the
members of the WHG Board then in office, though less than a quorum, and in any
event shall not be less than five nor more than 15. The directors are divided
into three classes, designated Class I, Class II and Class III, with the
number of directors in each class equal to, as nearly as possible, one-third
of the total number of directors constituting the entire WHG Board. Pursuant
to the WHG Charter, the term of office of one class of directors expires 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. If the number of directors is changed, any increase or decrease
in directorships shall be apportioned among the classes so as to maintain the
number of directors in each class as nearly equal as possible, and any
additional directors of any class elected to fill a vacancy resulting from an
increase in such class shall hold office only until the next election of
directors of that class by the WHG Stockholders, but in no case will a
decrease in the number of directors shorten the term of any incumbent
director. Subject to the rights of the holders of any class or series of
preferred stock, any vacancy occurring in the WHG Board may be filled only by
a majority vote of the directors then in office, even if less than a quorum of
the WHG Board and any directors so chosen shall hold office for a term
expiring at the annual meeting of WHG Stockholders at which the term of office
of the class to which his predecessor belonged expires, or if such director
was elected as a result of an increase in the number of directors, then for
the term indicated in the preceding sentence. The WHG Charter provides that a
director may be removed only for cause and only by the vote of the holders of
80% of the outstanding stock of WHG then entitled to vote for the election of
directors, considered as one class. "Cause," with respect to the removal of
any director, is defined in the WHG Charter to mean only (i) conviction of a
felony or (ii) being adjudged to be liable for negligence or misconduct in the
performance of his or her duty to WHG.
The WHG Charter provides that whenever the holder of any class or series of
preferred stock shall have the right, voting separately by class or series, to
elect directors, such directorship shall be governed by the terms of the WHG
Charter or any applicable resolutions adopted by the WHG Board creating such
class or series and such directors shall not be divided into classes unless
otherwise provided.
The Patriot Charters and the Patriot Bylaws and the PAHOC Bylaws provide
that the number of directors shall be fixed by resolution duly adopted from
time to time by the Board of Directors of the relevant company. Pursuant to
the Patriot 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 Patriot Charters 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. With
respect to the removal of any director, "cause" is defined in the Patriot
Charters to 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 action involving moral
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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 Patriot or PAHOC, as the case may be.
Under the terms of the Patriot Charters, any and all vacancies on the Board
of Directors of the relevant company, 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 of the
relevant company. 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 been duly elected and
qualified or until such director's earlier resignation or removal.
The staggered board provision in the Patriot Charters prevents stockholders
of Patriot and PAHOC 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 Patriot and PAHOC or the removal of incumbent management.
Limitation of Liability
The WHG Charter provides that, to the fullest extent permitted by the DGCL,
a director shall not be personally liable to WHG or the WHG Stockholders for
monetary damages for breach of fiduciary duty as a director.
The Patriot Charters, in conjunction with the DGCL, eliminate a director's
personal liability (and the personal liability of a member of any duly
authorized and constituted committee of Patriot or PAHOC, as the case may be,
or of their respective Boards) to Patriot or PAHOC, 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 Patriot or
PAHOC, 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 DGCL permits a corporation to indemnify its directors, officers,
employees or agents but requires indemnification for expenses reasonably
incurred by any present or former director or officer who is successful in
defending against any action or claim. The DGCL 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 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 WHG Charter provides 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 WHG.
Similarly, the Patriot Bylaws and the PAHOC 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 Patriot and PAHOC.
WHG has entered into indemnity agreements with each of its directors and
executive officers whereby WHG will, in general, indemnify such directors and
executive officers, to the extent permitted by the DGCL, against any expenses
(including attorneys' fees), judgments, fines and amounts paid in settlement
incurred in connection with any actual or threatened action or proceeding to
which such director or officer is made or threatened to be made a party by
reason of the fact that such person is or was a director or an officer of WHG.
The foregoing
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description of the indemnity agreements is qualified in its entirety by
reference to WHG's form of indemnity agreement.
Special Meetings of Stockholders
The WHG Charter and WHG Bylaws provide that a special meeting of
stockholders may only be called by the Chairman of the Board or the President
of WHG or by a majority of the WHG Board. Similarly, the Patriot Bylaws and
the PAHOC 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 of the relevant company.
Accordingly, like the WHG Stockholders, stockholders of Patriot and PAHOC
have no ability to call a special meeting of stockholders.
Action by Stockholders Without a Meeting
The WHG Charter provides that any action required or permitted to be taken
at any annual or special meeting of stockholders may only be taken upon the
vote of the stockholders at an annual or special meeting duly called and may
not be taken by written consent of the stockholders, except as otherwise
provided in resolutions of the WHG Board designating any series of preferred
stock.
The Patriot 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, unlike the WHG Stockholders, stockholders of Patriot and PAHOC
have the ability to take action without an annual or special meeting of the
stockholders by unanimous written consent.
Restrictions on Ownership and Transfer; Pairing
The WHG Charter and the WHG Bylaws do not include any provisions restricting
the ownership or transfer of WHG Stock.
The Patriot Charters provide that until such time as the limitation on
transfer provided for in the Pairing Agreement shall be terminated, shares of
Patriot Common Stock and PAHOC Common Stock and shares of Preferred Stock
which are convertible into shares of Patriot Common Stock and PAHOC 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, Patriot and PAHOC may not issue
shares of Patriot Common Stock and PAHOC Common Stock or shares of Preferred
Stock that are convertible into shares of Patriot Common Stock and PAHOC
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 Patriot 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 Patriot or
PAHOC, unless the Ownership Limit is waived by the Board of Directors of the
relevant company in accordance with the Patriot Charter and the PAHOC Charter,
as the case may be. For purposes of computing the percentage of shares of any
class or series of Equity Stock of Patriot or PAHOC Beneficially Owned by any
person or entity, any shares of Equity Stock of Patriot or PAHOC 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 Patriot or PAHOC that
would (i) result in any person or entity owning, directly or indirectly,
shares of Equity Stock of Patriot or PAHOC in excess of the Ownership Limit,
unless the Ownership Limit is waived by the Board of Directors of the relevant
company in accordance with the Patriot Charter and the PAHOC Charter, as the
case may be, (ii) result in the capital stock
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of Patriot being beneficially owned by fewer than 100 persons (within the
meaning of Section 856(a)(5) of the Code), (iii) result in Patriot 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 or a subsidiary of
Patriot 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, WHG Stockholders who become stockholders of Patriot and PAHOC will be
subject to the ownership and transfer provisions provided for in the Patriot
Charters and the Patriot Bylaws and PAHOC Bylaws. Such ownership and transfer
restrictions may have the effect of delaying, deferring or preventing the
acquisition or control of Patriot and PAHOC.
Stockholder Approval of Certain Business Combination Transactions
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 WHG Bylaws provide that any corporate
action, except the election of directors or if otherwise required by law or
the WHG Charter, shall be approved by a majority of the votes cast at a
meeting of stockholders by the holders of shares entitled to vote thereon.
The Patriot Bylaws and the PAHOC Bylaws provide that any corporate action,
except where a larger vote is required by law, the Patriot Charters or the
Patriot Bylaws and the PAHOC Bylaws, shall be approved at a stockholders
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 Patriot or PAHOC
requires the approval of a majority of the outstanding shares of Patriot or
PAHOC, 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
Patriot or PAHOC, 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. However, such 66 2/3% voting
requirement shall not be applicable if the business combination was approved
by the Board of Directors of the relevant company 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 Patriot or PAHOC, as the case may
be.
The higher percentage of stockholder approval required for a business
combination with a Related Person under the Patriot Charters may make it more
difficult for a person or entity to acquire control of Patriot or PAHOC.
Rights Agreement
WHG is a party to a rights agreement (the "Rights Agreement"). The Rights
Agreement provides that one Right will be issued with each share of WHG Common
Stock issued (whether originally issued or from WHG's treasury) on or after
the Distribution Date and prior to the Rights Distribution Date. The Rights
are not exercisable until the Rights Distribution Date and will expire at the
close of business on December 31, 2007 (the "Final Expiration Date") unless
previously redeemed by WHG as described below. When exercisable, each Right
entitles the owner to purchase from WHG one one-hundredth (.01) of a share of
WHG's Series A Preferred Stock at an exercise price of $100.00, subject to
certain antidilution adjustments. The Rights will not, however, be
exercisable, transferable separately or trade separately from the shares of
WHG Common Stock until (a) the tenth business day after the "Stock Acquisition
Date" (i.e., the date of a public announcement that a person or group is an
"Acquiring Person") or (b) the tenth business day (or such later day as the
WHG Board, with the
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concurrence of a majority of Continuing Directors (as defined), determines)
after a person or group announces a tender or exchange offer, which, if
consummated, would result in such person or group beneficially owning 15% or
more of the WHG Common Stock (the earlier of such dates being the "Rights
Distribution Date"). In general, any person or group of affiliated persons
(other than WHG, any of its subsidiaries, any person who as of the
Distribution Date beneficially owned 15% or more of the WHG Common Stock,
certain of WHG's benefit plans and any person or group of affiliated persons
whose acquisition of 15% or more is approved by the WHG Board in advance) who,
after the date of adoption of the Rights Agreement, acquires beneficial
ownership of 15% or more of the WHG Common Stock will be considered an
"Acquiring Person." If a person or group of affiliated persons becomes an
Acquiring Person, then each Right (other than Rights owned by such Acquiring
Person and its affiliates and associates, which will be null and void) will
entitle the holder thereof to purchase, for the exercise price, a number of
shares of WHG Common Stock having a then current market value of twice the
exercise price. Accordingly, at the original exercise price, each Right would
entitle its registered holder to purchase $200.00 worth of WHG Common Stock
for $100.00.
If at any time after the Stock Acquisition Date, (a) WHG merges into another
entity, (b) an acquiring entity merges into WHG and WHG Common Stock is
changed into or exchanged for other securities or assets of the acquiring
entity or (c) WHG sells more than 50% of its assets or earning power, then
each Right will entitle the holder thereof to purchase, for the exercise
price, the number of shares of common stock of such other entity having a
current market value of twice the exercise price. The foregoing will not apply
to (i) a transaction approved by a majority of the WHG Board (or from and
after the Stock Acquisition Date, a majority of the Continuing Directors) or
(ii) a merger which follows a cash tender offer approved by the WHG Board (or
after the Stock Acquisition Date, a majority of the Continuing Directors) for
all outstanding shares of WHG Common Stock so long as the consideration
payable in the merger is the same in form and not less than the amount as was
paid in the tender offer. A Continuing Director is a director in office prior
to the distribution of the Rights and any director recommended or approved for
election by such directors but does not include any representative of an
Acquiring Person.
Subject to the limitations summarized below, the Rights are redeemable at
WHG's option, at any time prior to the earlier of the Stock Acquisition Date
or the Final Expiration Date, for $.01 per Right, payable in cash or shares of
WHG Common Stock. Under certain circumstances, the decision to redeem requires
the concurrence of a majority of the Continuing Directors. In the event a
majority of the WHG Board is changed by vote of the WHG Stockholders, the
Rights shall not be redeemable for a period of ten business days after the
date that the new directors so elected take office and it shall be a condition
to such redemption that any tender or exchange offer then outstanding be kept
open within such ten business day period. At any time after any person becomes
an Acquiring Person, the WHG Board may exchange the Rights (other than Rights
owned by the Acquiring Person and associates, which will be null and void), in
whole or in part, for WHG Common Stock on the basis of an exchange ratio of
one share of WHG Common Stock for each Right (subject to adjustment).
As long as the Rights are attached to WHG Common Stock, each share of WHG
Common Stock issued by WHG will also evidence one Right. Until the Rights
Distribution Date, the Rights will be represented by WHG Common Stock
certificates and will be transferred only with WHG Common Stock certificates;
separate certificates representing the Rights will be mailed, however, to
holders of WHG Common Stock as of the Rights Distribution Date. The holders of
Rights will not have any voting rights or be entitled to dividends until the
Rights are exercised.
The purchase price payable, and the number of shares of preferred stock or
other securities or property issuable, upon exercise of the Rights are subject
to adjustment from time to time to prevent dilution in the event of certain
stock dividends on, or subdivisions, combinations or reclassifications of, the
shares of WHG Common Stock prior to the Rights Distribution Date, and in
certain other events.
The WHG Board may amend the Rights Agreement prior to the Rights
Distribution Date. After the Rights Distribution Date, the WHG Board may amend
the Rights Agreement only to cure ambiguities, to shorten or
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lengthen any time period (subject to certain limitations) or if such amendment
does not adversely affect the interests of the Rights holders and does not
relate to any principal economic term of the Rights.
Neither Patriot nor PAHOC is a party to any similar agreement.
In connection with the approval of the Merger Agreement and the transactions
contemplated thereby, the WHG Board took action to make the Rights Agreement
inapplicable to the Merger Agreement and the transactions contemplated
thereby. In connection therewith, the WHG Board defined, for purposes of the
Rights Agreement, each of PAHOC, Acquisition Sub and Patriot as an "Exempt
Person," as such term is defined in the Rights Agreement, but only to the
extent any of them become the beneficial owner of any shares of WHG Stock
pursuant to the Merger Agreement and the Ancillary Agreements.
Transactions with Certain Affiliated Persons
The Patriot Bylaws and the PAHOC Bylaws provide that any action pertaining
to any transaction involving Patriot or PAHOC, 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 PAHOC Bylaws), even if the Independent Directors constitute less than a
quorum. The WHG Charter and the WHG Bylaws do not include provisions with
respect to transactions with certain affiliated persons.
Thus, approval by the respective Boards of Directors of Patriot and PAHOC of
transactions between Patriot or PAHOC, as the case may be, and such affiliated
persons of Patriot or PAHOC requires a greater voting threshold than does
approval by the WHG Board for transactions between WHG and such affiliated
persons of WHG.
Dissenters' Rights
Pursuant to 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 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. Thus, the
stockholders of Patriot and PAHOC have the same rights with respect to
approval rights as do the stockholders of WHG.
Repurchase and Redemption of Shares
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.
Non-Voting Common Stock; Preferred Stock
Each of the WHG Charter and the Patriot Charters authorize the Board of
Directors of the relevant company to provide for the issuance of preferred
stock in one or more series, to establish the number of shares in each
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series and to fix the designation, powers, preferences and rights of each such
series and the qualifications, limitations or restrictions thereof. In
addition, the WHG Charter authorizes the WHG Board to provide for the issuance
of non-voting common 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.
Payment of Dividends
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 WHG Charter and the WHG Bylaws provide that, subject to the rights of
holders of preferred stock who shall be entitled to fixed dividends as may be
declared by the WHG Board, holders of WHG Common Stock and WHG non-voting
common stock shall be entitled to receive such dividends as may be declared by
the WHG Board from time to time. Similarly, the Patriot Charters provide that,
subject to the rights of holders of Preferred Stock, holders of Patriot Common
Stock and PAHOC Common Stock shall be entitled to receive such dividends and
other distributions in cash, stock or property of Patriot or PAHOC, as the
case may be, as may be declared thereon by the respective Board of Directors
from time to time.
Dissolution
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, the same vote of the stockholders of Patriot and PAHOC is required to
authorize voluntary dissolution as is currently required for WHG Stockholders.
Inspection of Books and Records
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 ten-day period preceding
a meeting of the stockholders for any purpose germane to the meeting.
Thus, the books and records of Patriot and PAHOC will be as accessible to
their stockholders as are the books and records of WHG to the WHG
Stockholders.
Differences Resulting from the Pairing Agreement
The Pairing Agreement currently provides that shares of Patriot Common Stock
and PAHOC Common Stock or shares of Preferred Stock which are convertible into
shares of Patriot Common Stock or PAHOC 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, Patriot and PAHOC may not issue shares of Patriot Common Stock and
PAHOC Common Stock or shares of Preferred Stock that are convertible into
shares of Patriot Common Stock or PAHOC 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. Thus, WHG Stockholders who become
stockholders of Patriot and PAHOC will be subject to the terms of the Pairing
Agreement.
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CHANGES IN RIGHTS OF STOCKHOLDERS OF PATRIOT AND PAHOC FOLLOWING THE
CONSUMMATION OF THE WYNDHAM TRANSACTIONS
Restrictions on Ownership and Transfer
The Restated Bylaws will provide that, until such time as the limitation on
transfer provided for in the Pairing Agreement shall be terminated, shares of
Patriot Common Stock and PAHOC 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 common stock of the other company and such shares are paired with
one another. In addition, pursuant to the Amended Pairing Agreement, Patriot
and PAHOC may not issue shares of Patriot Common Stock and PAHOC Common Stock
unless provision has been made for the simultaneous issuance or transfer to
the same person of the same number of shares of common stock of the other
company and for the pairing of such shares.
The Restated Charters will provide, pursuant to the Restated Ownership
Limit, that no person or entity (other than a Look-Through Entity) may
Beneficially Own or Constructively Own in excess of 8.0% of the outstanding
shares of any class or series of Equity Stock of Patriot or PAHOC, unless the
Restated Ownership Limit is waived by the Board of Directors of the relevant
company in accordance with its Restated Charter. For purposes of computing the
percentage of shares of any class or series of Equity Stock of Patriot or
PAHOC Beneficially Owned by any person or entity, any shares of Equity Stock
of Patriot or PAHOC 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 Patriot or PAHOC that would (i) result in any person or entity
owning, directly or indirectly, shares of Equity Stock of Patriot or PAHOC in
excess of the Restated Ownership Limit, unless the Restated Ownership Limit is
waived by the Board of Directors of the relevant company in accordance with
the Restated Charters, (ii) result in the capital stock of Patriot being
beneficially owned by fewer than 100 persons (within the meaning of Section
856(a)(5) of the Code), (iii) result in Patriot 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 or a subsidiary of Patriot 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. The Restated
Charters provide that pension plans described in Section 401(a) of the Code
and mutual funds registered under the Investment Company Act of 1940 are Look-
Through Entities that are subject to a 9.8% Look-Through Restated Ownership
Limit. Pension plans and mutual funds are among the entities that are not
treated as holders of stock under the Five or Fewer Requirement and the
beneficial owners of such entities will be counted as holders for this
purpose.
Thus, stockholders of Patriot and PAHOC will be subject to the ownership and
transfer provisions provided for in the Restated Charters and the Restated
Bylaws, which provisions provide for (i) except in the case of Look-Through
Entities, a lower ownership limit (8.0%) than that currently provided for in
the Patriot Charters, and (ii) the issuance and transfer of shares of capital
stock that are convertible into paired shares of Patriot Common Stock and
PAHOC Common Stock without the simultaneous issuance and transfer to the same
person of the same number of shares of that same class or series of capital
stock of the other company and the pairing of such shares. Such ownership and
transfer restrictions may have the effect of delaying, deferring or preventing
the acquisition or control of Patriot and PAHOC.
Amendment of Bylaws
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 66 2/3% 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 of the
relevant company 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
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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.
Differences Resulting from the Cooperation Agreement
Under the terms of the Cooperation Agreement (if and when entered into),
Patriot and PAHOC will agree to cooperate to the fullest extent possible in
the conduct of their respective operations and to take all necessary action to
preserve the paired share structure and to maximize the economic and tax
advantages associated therewith. One of the primary objectives of the
Cooperation Agreement is to set forth the understanding of Patriot and PAHOC
that Patriot shall have the sole right and power to authorize, effect and
control issuances of paired equity (including securities convertible into
paired equity) of the two companies. The Cooperation Agreement provides for a
number of corporate governance mechanisms designed to accomplish this
objective and the other objectives set forth therein. These mechanisms include
(i) the establishment of a Cooperation Committee that shall consider and
propose the agenda listing the matters to be considered at any joint meeting
of the Patriot Board and the PAHOC Board, (ii) the establishment of corporate
matters categories and procedures for the consideration and reconsideration of
matters brought before the Patriot Board and the PAHOC Board, (iii) the
establishment of a Hotel Acquisitions Committee that shall analyze, evaluate
and consider potential acquisitions by Patriot of hotel properties and related
assets, (iv) provisions governing the sole authority of Patriot to authorize,
effect and control issuances of paired equity (including securities
convertible into paired equity) of the two companies, and (v) the
establishment of an Unpaired Equity Committee that shall have the sole
authority to authorize and approve issuances of unpaired equity by PAHOC. See
"Description of the Patriot Companies' Capital Stock--The Cooperation
Agreement."
The rights and obligations of Patriot and PAHOC under the Cooperation
Agreement will survive the Wyndham Merger. The existence of the Cooperation
Agreement may have the effect of delaying, deferring or preventing the
acquisition or control of Patriot or PAHOC.
Differences Resulting from the Amended Pairing Agreement
The Amended Pairing Agreement provides that shares of Patriot Common Stock
and PAHOC Common Stock shall not be transferable 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 common stock of the other company.
In addition, neither Patriot or PAHOC may issue shares of Patriot Common Stock
and PAHOC Common Stock unless provision has been made for the simultaneous
issuance or transfer to the same person of the same number of shares of common
stock of the other company and for the pairing of such shares.
Thus, stockholders of Patriot and PAHOC will be subject to the terms of the
Amended Pairing Agreement, which provides for the issuance and transfer of
shares of capital stock that are convertible into paired shares of Patriot
Common Stock and PAHOC Common Stock without the simultaneous issuance and
transfer to the same person of the same number of shares of that same class or
series of capital stock of the other company and the pairing of such shares.
LEGAL OPINION
The legality of the securities offered hereby and certain tax consequences
of the Merger will be passed upon by Goodwin, Procter & Hoar llp, Boston,
Massachusetts.
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EXPERTS
INDEPENDENT AUDITORS FOR THE PATRIOT COMPANIES
The (a) Consolidated Financial Statements of Old 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 Old Patriot's 1996 Annual Report on Form 10-K (and with respect
to the Consolidated Financial Statements of Old Patriot referred to above also
appearing in the Joint Current Report on Form 8-K of Patriot and PAHOC dated
July 1, 1997), have been audited by Ernst & Young LLP, independent auditors,
as set forth in their reports thereon included therein and incorporated herein
by reference. With respect to the Combined Financial Statements of the Initial
Hotels, such report is based in part on the reports of Coopers & Lybrand
L.L.P., independent accountants, as set forth in their respective reports for
Certain of the Initial Hotels and Troy Hotel Investors. The (a) Financial
Statements of Buckhead Hospitality Joint Venture as of December 31, 1995 and
for the year then ended, (b) the Combined Financial Statements of Gateway
Hotel Limited Partnership and Wenatchee Hotel Limited Partnership as of
December 31, 1995 and for the year then ended, and (c) the individual
Statements of Direct Revenue and Direct Operating Expenses for the Plaza Park
Suites Hotel and the Roosevelt Hotel for the year ended December 31, 1995,
appearing in Old 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 Old 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) Financial Statements
of CV Ranch Limited Partnership as of and for the years ended December 31,
1996 and 1995, and (c) Financial Statements of Telluride Resort and Spa
Limited Partnership as of and for the years ended December 31, 1996 and 1995,
appearing in Old Patriot's Current Report on Form 8-K, dated January 16, 1997,
as amended (filed January 31, 1997, February 21, 1997, April 8, 1997, April 9,
1997, and May 19, 1997) have been audited by Ernst & Young LLP, independent
auditors, as set forth in their reports thereon included therein and
incorporated herein by reference. The (a) Consolidated Financial Statements of
GAH-II, L.P. as of December 31, 1996 and 1995 and for the years then ended,
(b) the Financial Statements of G.B.H. Joint Venture (d/b/a Grand Bay Hotel)
as of December 31, 1996 and 1995 and for the years then ended, (c) the
Financial Statements of River House Associates (d/b/a Sheraton Gateway Hotel)
as of December 31, 1996 and 1995 and for the years then ended, and (d) the
Financial Statements of W-L Tampa, Ltd. (the Sheraton Grand Hotel) as of
December 31, 1996 and 1995 and for the years then ended, appearing in the
Joint Current Report on Form 8-K of Patriot and PAHOC dated September 30,
1997, as amended (filed October 14, 1997 and October 28, 1997), have been
audited by Ernst & Young LLP, independent auditors, as set forth in their
reports thereon included therein and incorporated herein by reference. The (a)
Consolidated Financial Statements of ClubHouse Hotels, Inc. as of December 31,
1996 and 1995, and for each of the three years in the period ended December
31, 1996, (b) the Combined Financial Statements of ClubHouse Acquisition
Hotels as of December 31, 1996 and 1995 and for the years then ended, and (c)
the Financial Statements of Valdosta C. I. Associates, L.P. as of December 31,
1994 and for the year then ended, appearing in Wyndham's Current Report on
Form 8-K, dated July 31, 1997, as amended (filed August 15, 1997 and September
18, 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 is included
herein or incorporated herein by reference in reliance upon such reports given
upon the authority of such firm as experts in accounting and auditing.
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The Financial Statements of Certain of the Initial Hotels as of December 31,
1994 and for the period from January 1, 1995 to October 1, 1995 and for the
year ended December 31, 1994, the Financial Statements of Troy Hotel Investors
as of October 1, 1995 and for the period January 1, 1995 to October 1, 1995
and Troy Park Associates as of December 29, 1994 and for the period January 1,
1994 through December 29, 1994, included in Old Patriot's 1996 Annual Report
on Form 10-K, the statement of Direct Revenue and Direct Operating Expenses
for the Holiday Inn--Miami Airport for the year ended August 31, 1996 included
in Old Patriot's Current Report on Form 8-K dated December 5, 1996, the
Consolidated Financial Statements of Wyndham Hotel Corporation as of December
31, 1995 and 1996 and for each of the three years in the period ended December
31, 1996, included in the Annual Report on Form 10-K dated March 26, 1997 of
Wyndham Hotel Corporation, the Combined Financial Statements of Minneapolis
Hotels as of and for the year ended December 31, 1996, the Combined Financial
Statements of Snavely Hotels as of and for the year ended December 31, 1996,
and the combined statement of Direct Revenue and Direct Operating Expenses for
the Met Life Hotels for the year ended December 31, 1996, included in the
Report on Form 8-K dated September 17, 1997, the Financial Statements of SCP
("Buttes") Inc. as of December 31, 1996 and for the year then ended, included
in the Report on Form 8-K dated September 30, 1997, the financial statements
of Royal Palace Hotel Associates (the "Buena Vista Palace Hotel") as of
December 31, 1995 and 1996 and for the years then ended, included in the Joint
Current Report on Form 8-K dated December 10, 1997, incorporated by reference
in this Proxy Statement/Prospectus, and the financial statements of Interstate
Hotels Company as of December 31, 1995 and 1996 and for each of the three
years in the period ended December 31, 1996 included in the Report on Form 8-K
dated December 10, 1997, which is incorporated by reference herein 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 expert in accounting and auditing.
The Financial Statements of Historic Hotel Partners of Birmingham Limited
Partnership as of December 31, 1994 and 1995 and for the years then ended, the
Financial Statements of Historic Hotel Partners of Chicago, Limited
Partnership as of December 31, 1996 and for the year then ended, and the
Financial Statements of Historic Hotel Partners of Nashville, Limited
Partnership as of December 31, 1996 and for the year then ended incorporated
by reference in this Proxy Statement/Prospectus, have been audited by Pannell
Kerr Forster PC, independent auditors, as set forth in their report thereon.
Each of the above referenced financial statements have been incorporated by
reference herein in reliance upon the authority of said firm as experts in
accounting and auditing.
The CHC Lease Partners financial statements as of December 31, 1996 and 1995
and for the year ended December 31, 1996 and the period inception (October 2,
1995) through December 31, 1995, incorporated by reference in this Proxy
Statement/Prospectus, by reference to the Current Report on Form 8-K dated
July 1, 1997, and the CHC International, Inc. Hospitality Division financial
statements as of November 30, 1996 and 1995 and for the years then ended,
incorporated by reference in this Proxy Statement/Prospectus, by reference to
the Current Report on Form 8-K dated September 30, 1997, as amended, and the
Joint Current Report on Form 8-K dated December 10, 1997, have been so
incorporated in reliance on the reports of Price Waterhouse LLP, independent
certified public accountants, given on the authority of said firm as experts
in auditing and accounting.
The Separate and Combined Financial Statements of Patriot and PAHOC and its
subsidiary (formerly known as Cal Jockey and Bay Meadows) as of December 31,
1996 and 1995, and for each of the three years in the period ended December
31, 1996, incorporated in this Proxy Statement/Prospectus by reference from
the Annual Report on Form 10-K for the year ended December 31, 1996 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), which is incorporated
herein by reference. The combined financial statements of the Partnerships of
Acquired Hotels as of December 31, 1996 and 1995 and for each of the two years
in the period ended December 31, 1996, incorporated in this Proxy
Statement/Prospectus by reference from the report on Form 8-K/A No. 1 dated
September 30, 1997 of Patriot and PAHOC have been audited by Deloitte & Touche
LLP, independent auditors, as stated in their report, which is incorporated
herein by reference. Each of the financial statements referenced in this
paragraph are incorporated herein by reference in reliance upon the reports of
such firm given upon their authority as experts in accounting and auditing.
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The Combined Financial Statements of the Crow Family Hotel Partnerships
appearing in the Joint Current Report on Form 8-K of Patriot and PAHOC dated
December 10, 1997 have been audited by Arthur Andersen. LLP, independent
public accountants, as indicated in their reports with respect thereto, and
are incorporated herein in reliance upon the authority of said firm as experts
in accounting and auditing in giving such reports.
The Financial Statements of each of Wichita C.I. Associates III, L.P.,
Topeka C.I. Associates, L.P., Albuquerque C.I. Associates, L.P. and C.I.
Nashville, Inc. as of December 31, 1995 and 1994 and for the two years in the
period ended December 31, 1995, incorporated by reference in this Proxy
Statement/Prospectus have been audited by Mayer Hoffman McCann L.C.,
independent auditors, as stated in their report with respect thereto and
incorporated herein by reference.
INDEPENDENT AUDITORS FOR WHG
The (a) Consolidated Financial Statements of WHG as of June 30, 1997 and
1996, and for each of the three years in the period ended June 30, 1997 and
the related financial statement schedule, (b) Financial Statements of PSJA as
of June 30, 1997 and 1996, and for each of the three years in the period ended
June 30, 1997 and the related financial statement schedule, (c) Financial
Statements of WKA as of June 30, 1997 and 1996, and for each of the three
years in the period ended June 30, 1997, and (d) Financial Statements of the
El Con Partnership as of March 31, 1997 and 1996, and for each of the three
years in the period ended March 31, 1997, included in and made part of this
Proxy Statement/Prospectus and the related Registration Statement, have been
audited by Ernst & Young LLP, independent auditors, as set forth in their
reports appearing elsewhere herein. Each of the above referenced financial
statements is included herein in reliance upon such reports given upon the
authority of such firm as experts in accounting and auditing.
WHG expects representatives of Ernst & Young LLP to be available by
telephone or to be present at the Special Meeting at which time they will
respond to appropriate questions submitted by WHG Stockholders and make such
statements as they may desire.
STOCKHOLDER PROPOSALS
Pursuant to the DGCL and the WHG Bylaws, no other business may be transacted
at the Special Meeting. If the Merger is not consummated for any reason, then,
in accordance with regulations issued by the Commission, WHG Stockholder
proposals in respect of matters to be acted upon at WHG's next Annual Meeting
of Stockholders must be received by the Secretary of WHG on or before January
31, 1998 in order that they may be considered for inclusion in WHG's proxy
materials. Proposals should be mailed via certified mail and addressed to:
Secretary, WHG Resorts & Casinos Inc., 6063 East Isla Verde Avenue, Carolina,
PR 00979.
VOTING PROCEDURES
Pursuant to the Commission's rules, boxes are provided on the proxy for WHG
Stockholders to vote for or against, or to abstain from voting with respect
to, the approval and adoption of the Merger Agreement and the transactions
contemplated thereby. Votes withheld in connection with the approval and
adoption of the Merger Agreement and the transactions contemplated thereby
will not be counted in determining the votes cast and will have the effect of
a vote against the Merger and the transactions contemplated thereby.
Under the rules of the National Association of Securities Dealers, brokers
who hold shares in street name for customers have the authority to vote on
certain items when they have not received instructions from beneficial owners.
The vote on the Merger Agreement and the transactions contemplated thereby is
not an item with respect to which brokers have such authority. Therefore,
under the DGCL, a broker non-vote will have the effect of a vote against the
Merger and the transactions contemplated thereby.
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GLOSSARY OF DEFINED TERMS
Unless the context otherwise requires, the following capitalized terms shall
have the meanings set forth below for the purposes of this Proxy
Statement/Prospectus:
"1996 Law" means the amendments adopted to the Gaming Act in 1996.
"1997 Law" means the amendments adopted to the Gaming Act in 1997.
"ACMs" means asbestos-containing materials.
"Acquisition Proposal" has the meaning given such term in the Merger
Agreement and as set forth in "The Merger--Acquisition Proposals."
"Acquisition Sub" means Patriot American Hospitality Operating Company
Acquisition Subsidiary, a Delaware corporation and a subsidiary of PAHOC.
"Acquisition Sub Board" means the Board of Directors of Acquisition Sub.
"ADA" means the Americans with Disabilities Act of 1990.
"Aggregate Paired Share Consideration" means the aggregate number of Paired
Shares to be received by holders of IHC Common Stock who receive Paired Shares
in the Patriot/IHC Merger.
"Aggregate Patriot/IHC Cash Consideration" means the aggregate Patriot/IHC
Cash Consideration to be received by holders of IHC Common Stock who receive
Patriot/IHC Cash Consideration.
"Aggregate Purchase Price," as used in the WHG/Patriot Subscription
Agreement, means the product of (i) the Purchase Price multiplied by (ii) the
number of Issuable Shares. The term "Purchase Price" is defined as equal to
the product of the Fair Market Value of a Paired Share multiplied by the
relative value of a share of Patriot Common Stock as compared to a share of
PAHOC Common Stock, determined by the parties to the agreement.
"Amended Pairing Agreement" means the Pairing Agreement, to be amended
pursuant to the Pairing Agreement Amendment.
"Ancillary Agreements," as used in the Merger Agreement, means the Voting
and Option Agreement, the Voting Agreement and the Employment Agreement.
"Announcement Date" means September 11, 1997.
"Antitrust Division" means the Antitrust Division of the U.S. Department of
Justice.
"April Merger Agreement" means that certain Agreement and Plan of Merger,
dated as of April 14, 1997, between Old Patriot and Wyndham.
"Assumed Options," as used in the Merger Agreement, means Existing WHG
Options which will be assumed by the Patriot Companies.
"Average Closing Price," as used in the Merger Agreement, means the average
closing price of the Paired Shares over the ten trading days immediately
preceding the third business day prior to the date on which the Special
Meeting is to be convened.
"Base Period Income" means the amount of slot machine revenue (as adjusted
pursuant to the 1997 Law) received by the TCPR from a specified casino in its
1997 fiscal year.
"Bay Meadows" means Bay Meadows Operating Company, the predecessor in
interest of PAHOC.
"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. The terms "Beneficial Owner," "Beneficially Owns" and
"Beneficially Owned" shall have the correlative meanings.
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"Beneficiary" means a charitable beneficiary of a Trust.
"Brand Owners" means the owners of the brands under which IHC operates its
hotels.
"Buena Vista Acquisition" means the acquisition of an aggregate 95%
ownership interest in the Buena Vista Palace Hotel.
"Buena Vista Joint Venture" means the joint venture between Equitable and
HVP owning respectively a 55% interest and 45% interest in the Buena Vista
Palace Hotel.
"Cal Jockey" means California Jockey Club, a Delaware corporation, the
predecessor in interest of Patriot.
"Cal Jockey Merger" means the merger, on July 1, 1997, of Patriot with Cal
Jockey, with Cal Jockey as the surviving company (which changed its name to
"Patriot American Hospitality, Inc.").
"Calculation Price" means the average of the closing price of the Paired
Shares on the NYSE on the ten trading days immediately prior to the date, if
any, PAHOC exercises the option in the Voting and Option Agreement.
"Carefree Resorts" means, collectively, the following resorts in Patriot's
portfolio: 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.
"Cash Consideration" means the cash, if any, to be received by Wyndham
stockholders and CF Securities pursuant to the election by the Wyndham
stockholders and CF Securities to receive cash in lieu of receiving Paired
Shares pursuant to the Wyndham Merger Agreement and the Wyndham Stock Purchase
Agreement, respectively.
"Cash Consideration Fair Market Value" means an amount per share equal to
the Wyndham Exchange Ratio multiplied by the average closing price of a Paired
Share over the five trading days immediately preceding the closing of the
Wyndham Merger.
"Cash Election" means the election by the Wyndham stockholders and CF
Securities to receive cash in lieu of receiving Paired Shares pursuant to the
Wyndham Merger Agreement and the Wyndham Stock Purchase Agreement,
respectively.
"Category 1 Matter" means routine corporate governance matters, such as
approval and retention of independent accountants, the fixing of employee
compensation and other like matters to be considered by the Patriot Board or
the PAHOC Board.
"Category 2 Matter" means matters, other than Category 1 Matters and
Category 3 Matters and other than a Change of Control and the removal of the
Chairman or Chief Executive Officer of Patriot or PAHOC and, after the third
anniversary of the Wyndham Merger, all other matters (including a Change in
Control), other than the removal of the Chairman or Chief Executive Officer of
either Patriot or PAHOC, to be considered by the Patriot Board or the PAHOC
Board.
"Category 3 Matter" means matters to be considered by the Patriot Board or
the PAHOC Board concerning the removal of the Chairman or Chief Executive
Officer of either Patriot or PAHOC and, until the third anniversary of the
Wyndham Merger, any proposed action by either Patriot or PAHOC, as the case
may be, that would result in a Change of Control.
"Certificate of Designation" means the Certificate of Designation for the
Patriot Series A Preferred Stock.
"Certificate of Merger" means a Certificate of Merger that satisfies the
requirements of the DGCL.
"CF Securities" means CF Securities, L.P., the principal stockholder of
Wyndham.
"Change in Control" has the meaning given such term in the Cooperation
Agreement and set forth in "Description of the Patriot Companies' Capital
Stock--Effect of the Wyndham Transactions--The Cooperation Agreement."
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"Chase" means The Chase Manhattan Bank.
"CHC Hotels" has the meaning set forth in "Unaudited Pro Forma Financial
Information--Patriot and PAHOC--Introduction to Pro Forma Financial
Statements--Business Acquired."
"CHC Lease Partners" means CHC Lease Partners, Inc.
"CHCI" means CHC International, Inc., a Delaware corporation.
"CHCI Merger" means the merger of the hospitality-related businesses of CHCI
with and into PAHOC, with PAHOC being the surviving company.
"CHCI Merger Agreement" means that certain Agreement and Plan of Merger
entered into on September 30, 1997, among Patriot, PAHOC and CHCI.
"CHCI Shares" means the shares of common stock, par value $.005 per share,
of CHCI.
"CHRB" means the California Horse Racing Board.
"Chung Lung" means Chung Lung, Inc. and its owner Wei-Yang Li.
"Claim" has the meaning given such term in the Merger Agreement and set
forth in "The Merger--Interests of Certain Officers, Directors and WHG
Stockholders--Indemnification."
"Closing," as used in the Merger Agreement, means the closing of the Merger.
"Closing Date" means the closing date of the Merger.
"Closing Price" on any date means 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.
"Code" means the Internal Revenue Code of 1986, as amended.
"Combined Lessees" means all of the Lessees except CHC Lease Partners, PAH
RSI Lessee, Crow Hotel Lessee, Inc. and Grand Heritage Leasing, L.L.C.
"Commission" means the Securities and Exchange Commission.
"Commitment," as used in the Merger Agreement, means any material
commitment, contractual obligation, borrowing, capital expenditure or
transaction entered into by WHG or any WHG Subsidiary outside the ordinary
course of business except for commitments for expenses of attorneys,
accountants and investment bankers or finders incurred in connection with the
Merger and the transactions contemplated by the Merger Agreement.
"Comparable Companies" means the 15 publicly traded hotel companies compared
to WHG by Oppenheimer.
"Condado Plaza" means the Condado Plaza Hotel & Casino.
"Confidentiality Agreements" means those certain letter agreements, dated
August 1, 1997 between (i) PAHOC and WHG and (ii) Patriot and WHG, relating to
the provision of Evaluation Material by WHG to PAHOC and Patriot,
respectively.
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"Constructive Ownership," as used in the Restated Charters, 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 the correlative meanings.
"Cooperation Agreement" means the Cooperation Agreement to be entered into
between Patriot and PAHOC in connection with the Wyndham Merger.
"Cooperation Committee" means a cooperation committee that shall consider
and propose the agenda listing the matters to be considered at any joint
meeting of the Patriot and the PAHOC Board.
"Crow Assets" means up to 11 full-service Wyndham brand hotels with 3,072
rooms to be acquired by the Patriot Partnership pursuant to the omnibus
purchase and sale agreement and the underlying purchase and sale agreements
with the Crow Family.
"Crow Assets Acquisition" means the acquisition of the Crow Assets by the
Patriot Partnership pursuant to the omnibus purchase and sale agreement and
the underlying purchase and sale agreements with the Crow Family.
"Crow Family" means Mr. and Mrs. Trammel S. Crow, various descendants of Mr.
and Mrs. Trammel S. Crow and various corporations, partnerships, trusts and
other entities beneficially owned or controlled by such persons.
"Crow Ownership Threshold" means generally with respect to the Cooperation
Agreement, the beneficial ownership of at least 5% of the lesser of (x) the
sum of (i) the number of then outstanding Paired Shares and (ii) the number of
then outstanding shares of unpaired preferred stock of Patriot, or (y) the sum
of (i) the number of Paired Shares outstanding immediately after the Wyndham
Merger and (ii) the number of shares of unpaired preferred stock of Patriot
outstanding immediately after the Wyndham Merger.
"DGCL" means the Delaware General Corporation Law.
"Direct Placement Closing Price" means the closing price of a Paired Share
on the trading day immediately prior to the date of settlement of the
PaineWebber Direct Placement.
"Direct Placement Purchase Price" means the purchase price per Paired Share
in the PaineWebber Direct Placement.
"Distribution" means the distribution effective April 21, 1997, in which WMS
distributed all of the outstanding shares of WHG Common Stock to its
stockholders as a tax free dividend on the WMS Common Stock.
"Distribution Date" means April 21, 1997, the date WMS distributed all of
the outstanding shares of WHG Common Stock to its stockholders as a tax free
dividend on the WMS Common Stock.
"E&P" means earnings and profits.
"EBIT" means earnings before interest income and income taxes.
"EBITDA" means earnings before interest expense, income taxes, depreciation
and amortization.
"Effective Time" means the effective time of the Merger.
"El Con Partnership" means the El Conquistador Partnership L.P., a Delaware
limited partnership.
"El Conquistador" means the El Conquistador Resort & Country Club.
"El Con/Williams" means the El Con Partnership and WHGI.
"El San Juan" means the El San Juan Hotel & Casino.
"Employment Agreement" means the Executive Employment Agreement dated as of
September 30, 1997, by and among PAHOC, WHGI and Louis J. Nicastro.
"EPS" means earnings per share.
"Equitable" means Equitable Life Insurance Company.
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"Equity Stock" means, at any time, the collective outstanding shares of any
class or series of capital stock of either of the Patriot Companies.
"ESAs" means environmental site assessments.
"Evaluation Material" has the meaning given such term in the Confidentiality
Agreements.
"Excess" means the amount of slot machine revenue in a given TCPR fiscal
year in excess of the Base Period Income.
"Excess Share Provisions" means provisions contained in the Restated
Charters that limit the number of Paired Shares which may be beneficially
owned by any person or entity.
"Excess Stock" means excess stock, par value $.01 per share, of Patriot and
PAHOC into which Excess Paired Shares shall be automatically converted.
"Excess UBTI" means that portion of the REIT Preferred OP Unit holder's
distributive share of Patriot Partnership taxable income which consists of
UBTI and exceeds 20%.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Exchange Agent" means the party retained by PAHOC and Patriot to facilitate
the exchange of the Merger Consideration for the WHG Certificates.
"Exchange Fund" has the meaning set forth in "The Merger--Exchange of WHG
Certificates; Fractional Shares."
"Exchange Ratio" means the number of Paired Shares which WHG Stockholders
will be entitled to receive for each issued and outstanding share of WHG
Common Stock held by them at the Effective Time.
"Exchange Ratio Product" means the product of the Exchange Ratio and the
Average Closing Price.
"Exempt Organizations" means tax-exempt entities, including qualified
employee pension and profit sharing trusts and individual retirement accounts.
"Existing WHG Options," as used in the Merger Agreement, means outstanding
options to purchase shares of WHG Common Stock that are outstanding
immediately prior to the Effective Time.
"F, F & E" means furniture, fixtures and equipment.
"Fair Market Value" means the average closing price of the Paired Shares on
the NYSE on the five trading days immediately preceding the Closing Date.
"FFO" means funds from operations.
"Franchise Agreements" means the franchise agreements to which the hotels
operated by IHC under a variety of brand names are subject to.
"Franchise Licenses" has the meaning set forth in "Risk Factors--Risks of
Operating Hotels Under Franchise or Brand Affiliations."
"FTC" means the U.S. Federal Trade Commission.
"GAH" means GAH-II, L.P., an affiliate of CHCI and Gencom.
"GAH Acquisition" means Patriot's acquisitioin of ten hotels from entities
affiliated with Gencom and CHCI for an aggregate purchase price of
approximately $237 million and the transactions related to such acquisition.
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"Gaming Act" means Law No. 221 enacted by the Commonwealth of Puerto Rico on
May 15, 1948.
"Gaming Division" means the Gaming Division of the TCPR.
"Gaucho" means Gaucho Tourism Adventure S.E.
"GDB" means the Government Development Bank for Puerto Rico.
"Gencom" means the Gencom American Hospitality group of companies.
"Grand Heritage Hotels" means those hotels acquired in the Grand Heritage
Acquisition as that term is set forth in "Unaudited Pro Forma Financial
Statements--Patriot and PAHOC--Introduction to Pro Forma Financial
Statements."
"Grants," as used in the Merger Agreement, means the tax exemptions held by
PPRA, WHGI, PSJA and the El Con Partnership.
"Hotel Acquisitions" means acquisitions by the Patriot Companies of hotel
properties and related assets.
"Hotel Acquisitions Committee" means a hotel acquisitions committee that
will analyze, evaluate and consider potential acquisitions by the Patriot
Companies of hotel properties and related assets.
"HSR Act" means the Hart-Scott Rodino Antitrust Improvements Act of 1976, as
amended.
"HVP" means the Hotel Venture Partners, Ltd., a Florida limited partnership.
"IHC" means Interstate Hotels Company, a Pennsylvania corporation.
"IHC Common Stock" means the shares of common stock, par value $.01 per
share, of IHC.
"IHC Outstanding Shares" means the total issued and outstanding shares of
IHC Common Stock.
"Indemnified Party" has the meaning given such term in the Merger Agreement
and set forth in "The Merger--Interests of Certain Officers, Directors and WHG
Stockholders--Indemnification."
"Initial Offering" means the initial public offering of Old Patriot Common
Stock in October 1995.
"IRS" means Internal Revenue Service.
"Issuable Shares," as used in the WHG/Patriot Subscription Agreement, means
the shares of Patriot Common Stock required to be issued and paired with the
PAHOC Common Stock to be issued in the Merger.
"Issuance Notice" means the notice that Patriot must give under the
Cooperation Agreement to PAHOC of each determination by Patriot to engage in
an Issuance of Paired Equity.
"Issuance of Paired Equity" has the meaning given such term in the
Cooperation Agreement and set forth in "Description of the Patriot Companies'
Capital Stock--The Cooperation Agreement--Authority to Issue Paired Equity."
"Issuance of Unpaired Equity" has the meaning given such term in the
Cooperation Agreement and set forth in "Description of the Patriot Companies'
Capital Stock--The Cooperation Agreement--Authority to Issue Unpaired Equity."
"Kumagai" means Kumagai Caribbean, Inc., a Texas corporation.
"LaSalle" means LaSalle Advisors Limited Partnership.
"LaSalle Direct Placement" means the transaction pursuant to a letter
agreement dated September 30, 1997, in which the Patriot Companies agreed to
sell 1,000,000 Paired Shares to LaSalle as agent for certain clients of
LaSalle.
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"Lessees" means the lessees to which Patriot leases each of its existing
hotels (except the hotels leased to PAHOC).
"Letter of Transmittal" means a letter of transmittal to be mailed by the
Exchange Agent to the WHG Stockholders promptly after the Effective Time.
"Look-Through Entity" means a person that is either a trust as described in
Section 401(a) of the Code and exempt from tax under Section 501(a) of the
Code, or a person that is registered under the Investment Company Act of 1940.
"Look-Through Ownership Limit" has the meaning given such term in the
Restated Charters and set forth in "Description of the Patriot Companies'
Capital Stock--Effect of the Wyndham Transactions--Certain Provisions of the
Restated Charters and Restated Bylaws."
"Market Price" means, on any date, the average of the Closing Price for the
five consecutive Trading Days ending on such date.
"Marriott" means Marriott International, Inc.
"Marriott Letter of Intent" means the non-binding letter of intent dated as
of December 1, 1997, between Patriot and Marriott which provides for Patriot's
termination of franchise agreements relating to ten Marriott hotels and the
assumption of the management of ten franchised Marriott hotels.
"Merger" means the merger of Acquisition Sub with and into WHG, with WHG
being the surviving company.
"Merger Agreement" means that certain Agreement and Plan of Merger, dated as
of September 30, 1997, by and among PAHOC, Acquisition Sub, Patriot and WHG.
"Merger Consideration" means the Paired Shares to be issued to holders of
WHG Common Stock and WHG Preferred Stock in the Merger, together with any cash
payment in lieu of fractional shares.
"Minority Interest" means the remaining 7.5% limited partner interest in the
Sheraton City Centre Partnership.
"Minority Partner" means the third party owning the remaining 7.5% limited
partner interest in the Sheraton City Centre Partnership.
"Morgan Stanley Call" means the exercise of an option by the Patriot
Companies on September 30, 1997, to call 2,000,033 units of the limited
partnership interest in each of the Patriot Partnerships held by The Morgan
Stanley Real Estate Fund, L.P. and certain related entities.
"NAI" means the net annual income per casino slot machine.
"NAI Group" means collectively Sumner M. Redstone and National Amusements,
Inc., a Maryland corporation.
"New Non-Controlled Subsidiaries" means the corporate subsidiaries of
Patriot to which Wyndham's management and franchise contracts, the Wyndham and
ClubHouse proprietary brand names and the Wyndham hotel management company
will be transferred.
"New Patriot Changes" means any changes through the Wyndham Closing Date
concerning Patriot or any of the Patriot Subsidiaries combined, without
duplication, with all other changes concerning Patriot, any of the Patriot
Subsidiaries, PAHOC, or any of the PAHOC Subsidiaries.
"Nicastro Shares" means the shares of WHG Common Stock and WHG Preferred
Stock owned by Mr. Nicastro on September 30, 1997 or thereafter.
"Non-Controlled Subsidiaries" means PAH Ravinia, Inc., PAH WindWatch, L.L.C.
and PAH Boulders, Inc.
"NYSE" means the New York Stock Exchange.
"Offering" means the August, 1997 public offering by the Patriot Companies
of 10,580,000 Paired Shares (including 1,380,000 Paired Shares issued upon
exercise of the underwriters' over-allotment option), with net proceeds (less
underwriter discount and expenses) of approximately $240,795,000.
"Old Line of Credit" means Old Patriot's secured line of credit with Paine
Webber Real Estate.
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"Old Patriot" includes Patriot American Hospitality, Inc., a Virginia
corporation, and its subsidiaries and affiliated partnerships.
"Old Patriot Board" means the Board of Directors of Old Patriot.
"Old Patriot Common Stock" means the common stock, par value $.01 per share,
of Old Patriot.
"OP Units" means the units of partner interests in the Patriot Partnerships.
"Operating Company OP Preferred Units" means preferred OP Units issued by
the PAHOC Partnership.
"Operators" has the meaning set forth in "Summary--Risk Factors."
"Oppenheimer" means, as of November 3, 1997, CIBC Oppenheimer Corp. Any
reference to Oppenheimer with respect to periods before November 3, 1997,
means Oppenheimer & Co., Inc.
"Other Hotel Acquisitions" means the transactions contemplated by agreements
or letters of intent entered into by Patriot to purchase two hotels with an
aggregate of 1,623 rooms for an aggregate purchase price of approximately
$236.7 million.
"Other Owners" means the unaffiliated third parties that own a part of the
El San Juan, WHGI and WKA.
"Other Transactions" means the Wyndham Transactions, the CHCI Merger, the
Patriot/IHC Merger and the Buena Vista Acquisition.
"Ownership Limit" means the maximum amount (9.8% of the outstanding shares)
of Equity Stock of Patriot or PAHOC that a person or entity may Beneficially
Own or Constructively Own pursuant to the Patriot Charters.
"PAHOC" means, prior to the Wyndham Merger, Patriot American Hospitality
Operating Company, a Delaware corporation, formerly known as "Bay Meadows
Operating Company" and, where the context requires, the PAHOC Partnership and
their subsidiaries; and, after the Wyndham Merger, Wyndham International, and,
where the context requires, the PAHOC Partnership and their subsidiaries.
"PAHOC A/B Preferred Stock" means the PAHOC Series A Preferred Stock
together with the PAHOC Series B Preferred Stock.
"PAHOC Board" means the Board of Directors of PAHOC.
"PAHOC Bylaws" means the Amended and Restated Bylaws of PAHOC.
"PAHOC Charter" means the Amended and Restated Certificate of Incorporation
of PAHOC.
"PAHOC Common Stock" means the common stock, par value $.01 per share, of
PAHOC.
"PAHOC Merger Conditions" means certain conditions which must be fulfilled
or waived, at or prior to the Closing Date, before PAHOC, Acquisition Sub and
Patriot are obligated to effect the Merger.
"PAHOC Partnership" means Patriot American Hospitality Operating
Partnership, L.P., a subsidiary of PAHOC.
"PAHOC/Patriot Material Adverse Effect," as used in the Merger Agreement,
means a material adverse effect on the combined business, assets, prospects,
results of operations or financial condition of PAHOC and the PAHOC
Subsidiaries and Patriot and the Patriot Subsidiaries taken as a whole.
"PAHOC Preferred Stock" means the preferred stock, par value $.01 per share,
of PAHOC.
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"PAHOC Ratification Agreement" means that certain Ratification Agreement,
dated as of July 24, 1997, where PAHOC ratified the Wyndham Merger Agreement.
"PAHOC Series A Preferred Stock" means shares of Series A Redeemable
Convertible Preferred Stock, par value $.01 per share, of PAHOC.
"PAHOC Series B Preferred Stock" means shares of Series B Redeemable
Convertible Preferred Stock, par value $.01 per share, of PAHOC.
"PAHOC Subsidiaries" means any of the PAHOC Subsidiaries as that term is
defined in the Merger Agreement.
"PaineWebber" means PaineWebber Incorporated.
"PaineWebber Direct Placement" means the transaction pursuant to a letter
agreement dated September 30, 1997, in which the Patriot Companies agreed to
sell 1,000,033 Paired Shares to PaineWebber.
"PaineWebber Land Sale" means the sale following the Cal Jockey Merger of
certain land previously owned by Cal Jockey to an affiliate of PaineWebber.
"Paired Equity Officer/Director" means one or more officers of Patriot
designated by Patriot to serve as a "Paired Equity Officer/Director" pursuant
to the Cooperation Agreement.
"Paired Shares" means the shares of Patriot Common Stock and PAHOC Common
Stock that are paired and trade as a single unit on the NYSE.
"Pairing Agreement" means the Pairing Agreement, dated February 17, 1983, as
amended, between Patriot and PAHOC.
"Pairing Agreement Amendment" means the contemplated amendment to the
Pairing Agreement.
"Partially-Owned Subsidiary," as used in the Merger Agreement, means any
corporation, partnership, joint venture, business trust or other entity, in
which WHG owns an interest but of which WHG does not directly or indirectly
own or control 100% of the securities or other interests therein, which
entities include PSJA, El Conquistador Ferryboat Inc., WKA, WKA Development,
S.E, Isla Verde Tourism Parking Corporation and the El Con Partnership;
provided, however, that Partially-Owned Subsidiary does not include Las
Casitas Development Company I, S en C (S.E.).
"Participating Leases" means the separate participating leases pursuant to
which Patriot leases each of its existing hotels, except the Crowne Plaza
Ravinia and the Marriott WindWatch, to the Lessees and to PAHOC.
"Participating Note" means the participating loan purchased by PAHOC for
$23,750,000 from National Resort Ventures, L. P., a Delaware limited
partnership, related to the 1,014-room Buena Vista Palace Hotel in Orlando,
Florida.
"Parties" means PAHOC, Acquisition Sub, Patriot and WHG.
"Patriot" means Patriot American Hospitality, Inc., a Delaware corporation,
formerly known as "California Jockey Club," and, where the context requires,
the Patriot Partnership and their subsidiaries.
"Patriot Board" means the Board of Directors of Patriot.
"Patriot Bylaws" means the Amended and Restated Bylaws of Patriot.
"Patriot Charter" means the Amended and Restated Certificate of
Incorporation of Patriot.
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"Patriot Charters" means, collectively, the Amended and Restated
Certificates of Incorporation of Patriot and PAHOC, currently in effect as of
the date of this Proxy Statement/Prospectus.
"Patriot Common Stock" means the common stock, par value $.01 per share, of
Patriot.
"Patriot Companies" means Patriot and PAHOC.
"Patriot Comparable Companies" has the meaning set forth in "The Merger--
Opinion of the WHG Financial Advisor--Valuation of Patriot and PAHOC."
"Patriot Partnership" means Patriot American Hospitality Partnership, L.P.,
a subsidiary of Patriot.
"Patriot Partnership Agreement" means the partnership agreement of the
Patriot Partnership.
"Patriot Partnerships" means the Patriot Partnership together with the PAHOC
Partnership.
"Patriot Preferred Stock" means the preferred stock, par value $.01 per
share, of Patriot.
"Patriot Ratification Agreement" means that certain Ratification Agreement
dated as of July 24, 1997 between Patriot and Wyndham whereby Patriot ratified
the Wyndham Merger Agreement.
"Patriot Series A Preferred Stock" means the Series A Convertible Preferred
Stock, par value $.01 per share, of Patriot.
"Patriot Subsidiaries" means any of the subsidiaries of Patriot referred to
in the Merger Agreement.
"Patriot/IHC Average Closing Price" means the average closing price of the
Paired Shares over a specified period prior to the meeting of stockholders of
IHC to consider the Patriot/IHC Merger.
"Patriot/IHC Exchange Ratio" means the number of Paired Shares which
stockholders of IHC will be entitled to receive for each issued and
outstanding share of IHC Common Stock held by them at the effective time of
the Patriot/IHC Merger.
"Patriot/IHC Merger" means the merger of IHC with and into Patriot with
Patriot being the surviving corporation.
"Patriot/IHC Merger Agreement" means that certain Agreement and Plan of
Merger, dated as of December 2, 1997, by and among Patriot, PAHOC and IHC.
"Patriot/IHC Non-Controlled Subsidiaries" means corporate subsidiaries of
Patriot which will own the management contracts and hotel management business
and will be controlled by PAHOC following the Patriot/IHC Merger. Patriot will
own a 99% non-voting interest and PAHOC will own the 1% controlling voting
interest in each of the Patriot/IHC Non-Controlled Subsidiaries.
"Patriot/Wyndham Average Closing Price" means the average closing price of a
Paired Share as reported on the NYSE over the 20 trading days immediately
preceding the fifth business day prior to the special meeting of the
stockholders of Wyndham to consider the Wyndham Merger.
"Permitted Transferee" means a permitted transferee under the Patriot
Charters and the Restated Charters, as applicable.
"PPRA" means Posadas de Puerto Rico Associates, Incorporated, a Delaware
corporation.
"Preferred Stock" means the preferred stock, par value $.01 per share, of
each of Patriot and PAHOC.
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"Prohibited Owner" means the record holder of the shares of Equity Stock
that are converted into shares of Excess Stock.
"Proposing Board" means the Board of Directors submitting any matter at any
meeting of the Patriot Board or the PAHOC Board.
"Proxy Agreement" means the Proxy Agreement dated as of April 14, 1997,
between Old Patriot, CF Securities and the Wyndham Management Stockholders.
"Proxy Statement/Prospectus" means this Proxy Statement and Prospectus and
the Annexes hereto.
"PSJA" means Posadas de San Juan Associates, a New York general partnership.
"Racecourse" means the Bay Meadows Racecourse located in San Mateo,
California.
"Ratification Agreement" means the Patriot Ratification Agreement together
with the PAHOC Ratification Agreement.
"Recent Transactions" has the meaning set forth in "Unaudited Pro Forma
Financial Statements--Patriot and PAHOC--Pro Forma Financial Statements."
"Record Date" means December 11, 1997.
"Redemption Value" means the value of a Paired Share at the time of
redemption.
"Registration Statement" means the Registration Statement on Form S-4 and
Exhibits relating thereto, including any amendments, of which this Proxy
Statement/Prospectus is a part.
"REIT" means a real estate investment trust.
"REIT OP Preferred Units" means preferred OP Units issued by the Patriot
Partnership.
"Related Person" means, with respect to the Restated Charters, (i) 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 Patriot or Wyndham, as the case may be, and any (ii) "affiliate" or
"associate" (as those terms are defined in Rule 12b-2 promulgated under the
Exchange Act) of the Related Person.
"Related Transactions" means the transactions contemplated in the Wyndham
Merger Agreement, including, without limitation, the transactions contemplated
by the Wyndham Stock Purchase Agreement, but excluding the Crow Assets
Acquisition.
"Relief Act" means the Taxpayer Relief Act of 1997.
"Responding Board" means the Board of Directors responding to the Proposing
Board.
"Restated Bylaws" means, collectively, the Amended and Restated Patriot
Bylaws and PAHOC Bylaws, as amended and restated a second time in connection
with the Wyndham Merger.
"Restated Charters" means, collectively, the Amended and Restated
Certificates of Incorporation of Patriot and PAHOC, as amended and restated in
connection with the Wyndham Merger.
"Restated Ownership Limit" means the maximum amount (8.0% of the outstanding
shares ) of Equity Stock of Patriot or PAHOC that a person or entity may
Beneficially Own or Constructively Own pursuant to the Restated Charters.
239
<PAGE>
"Revolving Credit Facility" means that certain revolving credit facility
entered into by the Patriot Companies and PaineWebber Real Estate, The Chase
Manhatten Bank and certain other lenders party to the Revolving Credit
Facility.
"Rights Agreement," as used in the Merger Agreement, means the Rights
Agreement, dated as of April 21, 1997, between WHG and The Bank of New York.
"Securities Act" means the Securities Act of 1933, as amended.
"Sheraton City Centre Partnership" means the acquisition by Patriot, through
the Patriot Partnership, of a 92.5% general partner interest in a partnership
formed for the purpose of acquiring the 353-room Sheraton City Centre hotel.
"Special Meeting" means the special meeting of the WHG Stockholders to
approve the Merger Agreement and the transactions contemplated thereby.
"Stockholder Superior Proposal" means any bona fide Acquisition Proposal
made after September 30, 1997 in writing, the terms of which provide for the
WHG Stockholders to receive value superior to the value to be received under
the Merger Agreement.
"Subscribed Shares" means the shares of Patriot Common Stock to be issued to
the WHG Stockholders in connection with the Merger.
"Subscripton Notes" means the promissory notes in the aggregate original
principal amount of $58,901,000 payable to PAHOC.
"Superior Proposal," as used in the Merger Agreement, means any bona fide
Acquisition Proposal, the terms of which the WHG Board determines in its good
faith judgment, after being advised by its financial advisor of national
standing that such Acquisition Proposal is more favorable from a financial
point of view to the WHG Stockholders than the Merger, are more favorable to
the WHG Stockholders than the Merger.
"Superior Proposal Agreement" means an agreement providing for a Superior
Proposal.
"TCPR" means the Tourism Company of Puerto Rico.
"Term Loan" means the $350,000,000 term loan contemplated by the commitment
letter between Patriot, PaineWebber Real Estate and The Chase Manhattan Bank.
"Termination Date" means the date which is 12 months after the date on which
the Pairing Agreement is no longer in effect.
"Trading Day" means 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.
"Trust" means a trust to which shares of Excess Stock of Patriot or PAHOC,
as the case may be, shall be transferred upon the violation of certain
transfer restrictions contained in the Patriot Charters and the Restated
Charters, as applicable.
"Trustee" means the trustee of a Trust to be designated pursuant to the
terms of the Pairing Agreement, or where the context requires, the Amended
Pairing Agreement.
"U.S. Stockholder" has the meaning set forth in "Certain Federal Income Tax
Considerations--Federal Income Taxation of Paired Shares--Taxation of Taxable
U.S. Stockholders."
"UBTI" means "unrelated business taxable income" as defined in section
512(a)(1) of the Code.
240
<PAGE>
"UBTI Adjuster" means an additional distribution to which a REIT OP
Preferred Unit holder with Excess UBTI is entitled to, with respect to such
taxable year, from the Patriot Partnership equal to the product of (i) the
Excess UBTI multiplied by (ii) the federal tax rate applicable to the Excess
UBTI.
"Unpaired Equity Committee" means an unpaired equity committee comprised of
directors of Patriot and PAHOC that shall have the sole authority under the
Cooperation Agreement to authorize and approve any issuance of unpaired equity
by PAHOC.
"Unpaired Shares" has the definition set forth in "Description of the
Patriot Companies' Capital Stock--Effect of the Wyndham Transactions--The
Cooperation Agreement--Holders of Unpaired Equity."
"Valuation Percentage" means a fraction (expressed as a percentage)
determined by dividing the value for Equity Stock most recently determined
under the Pairing Agreement over the value of a Paired Share most recently
determined under the Pairing Agreement.
"Value of the Paired Shares" means the product of the Calculation Price and
the Exchange Ratio as if the Average Closing Price were equal to the
Calculation Price.
"Voting Agreement" means the Voting Agreement, dated as of September 30,
1997, among PAHOC, Acquisition Sub, Patriot and the NAI Group.
"Voting Agreement Proxy Term," as used in the Voting Agreement, means the
period from the execution of the Voting Agreement until the earlier of (i) the
termination of the Merger Agreement pursuant to Section 11.1 of the Merger
Agreement, (ii) March 31, 1998, or (iii) the termination of the Voting
Agreement in accordance with Section 2.02(c) of the Voting Agreement.
"Voting and Option Agreement" means the Agreement, dated as of September 30,
1997, among PAHOC, Acquisition Sub, Patriot and Louis J. Nicastro.
"Voting and Option Agreement Proxy Term," as used in the Voting and Option
Agreement, means the period from the execution of the Voting and Option
Agreement until the earliest of (i) the termination of the Merger Agreement
pursuant to Section 11.1 (other than Section 11.1(g)) of the Merger Agreement,
(ii) April 15, 1998, or (iii) the Effective Time of the Merger.
"Voting Securities" has the meaning set forth in "Description of the Patriot
Companies' Capital Stock--The Cooperation Agreement."
"WHG" means WHG Resorts & Casinos Inc., a Delaware corporation.
"WHG Benefit Plans," as used in the Merger Agreement, means all the employee
benefit plans, programs and arrangements maintained for the benefit of any
current or former employee, officer or director of WHG or any WHG Subsidiary.
"WHG Board" means the Board of Directors of WHG.
"WHG Bylaws" means the Amended and Restated Bylaws of WHG.
"WHG Certificate" means a certificate representing shares of WHG Stock.
"WHG Charter" means the Amended and Restated Certificate of Incorporation of
WHG.
"WHG Common Stock" means the voting common stock, par value $.01 per share,
of WHG.
"WHG Legal Counsel," as used in the Merger Agreement, means WHG's outside
legal counsel.
241
<PAGE>
"WHG Material Adverse Effect," as used in the Merger Agreement, means a
material adverse effect on the business, assets, prospects, results of
operations or financial condition of WHG and the WHG Subsidiaries taken as a
whole.
"WHG Merger Conditions" means certain conditions which must be fulfilled or
waived, at or prior to the Closing Date, before WHG is obligated to effect the
Merger.
"WHG/Patriot Subscription Agreement," as used in the Merger Agreement, means
the contract to be entered into by WHG, PAHOC and Patriot immediately prior to
the Closing pursuant to which WHG or PAHOC will pay for, and Patriot will
issue directly to the WHG Stockholders as part of the Merger Consideration,
the Subscribed Shares.
"WHG Preferred Stock" means the Series B Convertible Preferred Stock, par
value $.01 per share, of WHG.
"WHG Property," as used in the Merger Agreement, means each of the real
properties identified in Section 6.12 of the WHG Disclosure Letter (as such
term is defined in the Merger Agreement).
"WHG SEC Reports," as used in the Merger Agreement, means WHG's reports
filed with the Commission.
"WHG Senior Management" means the current executive officers of WHG.
"WHG Stock" means collectively the WHG Common Stock and WHG Preferred Stock.
"WHG Stockholders" means the stockholders of WHG.
"WHG Subsidiary," as used in the Merger Agreement, means any Wholly Owned
Subsidiary or Partially-Owned Subsidiary.
"WHGI" means Williams Hospitality Group Inc., a Delaware corporation.
"Wholly Owned Subsidiary," as used in the Merger Agreement, means any
corporation, partnership, joint venture, business trust or other entity, of
which WHG directly or indirectly owns or controls 100% (except in the case of
WHGI) of the securities or other interests therein, which entities include
WHGI, PPRA, ESJ Hotel Corporation, Posadas Finance Corporation and WHG El Con
Corp.
"WKA" means WKA El Con Associates, a New York general partnership.
"WMS" means WMS Industries Inc., a Delaware corporation.
"WMS Common Stock" means the common stock of WMS.
"Wyndham" means Wyndham Hotel Corporation, a Delaware corporation and, where
the context requires, its subsidiaries and predecessors.
"Wyndham Closing Date" means the date of the closing of the Wyndham Merger.
"Wyndham Common Stock" means the common stock, par value $.01 per share of
Wyndham.
"Wyndham Delay" means the failure, caused by Wyndham, of certain closing
conditions to be satisfied in connection with the Wyndham Merger.
"Wyndham Exchange Ratio" means the right of each Wyndham Common Stockholders
to receive 1.327 Paired Shares (subject to adjustment) for each issued and
outstanding share of Wyndham Common Stock upon consummation of the Wyndham
Merger.
"Wyndham International" means PAHOC, and, where the context requires, the
PAHOC Partnership and their subsidiaries, following the Wyndham Merger.
242
<PAGE>
"Wyndham Merger" means the merger of Wyndham with and into Patriot, pursuant
to the Wyndham Merger Agreement, with Patriot being the surviving company.
"Wyndham Merger Agreement" means that certain Agreement and Plan of Merger,
dated as of April 14, 1997, between Old Patriot and Wyndham, as ratified by
Patriot pursuant to the Patriot Ratification Agreement, dated as of July 24,
1997 between Patriot and Wyndham, and as ratified by PAHOC pursuant to the
PAHOC Ratification Agreement dated as of July 24, 1997 between PAHOC, Patriot,
Wyndham and CF Securities, and as amended pursuant to the Wyndham Merger
Agreement Amendment and the Wyndham Second Amendment; provided, however, that
if the context requires, the term "Wyndham Merger Agreement" is intended to
refer to the Wyndham Merger Agreement for periods prior to the date of the
Wyndham Merger Agreement Amendment.
"Wyndham Merger Agreement Amendment" means Amendment No. 1 to Agreement and
Plan of Merger dated as of November 3, 1997, between Patriot, PAHOC and
Wyndham.
"Wyndham Second Amendment" means Amendment No. 2 to Agreement and Plan of
Merger dated as of December 9, 1997, between Patriot, PAHOC and Wyndham.
"Wyndham Stock Purchase" means the purchase by Patriot of up to 9,447,745
shares of Wyndham Common Stock beneficially owned by CF Securities pursuant to
the Wyndham Stock Purchase Agreement.
"Wyndham Stock Purchase Agreement" means that certain Stock Purchase
Agreement, dated as of April 14, 1997, between Old Patriot and CF Securities,
the principal stockholder of Wyndham.
"Wyndham Superior Proposal," as used in the Wyndham Merger Agreement, 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
financial advisor of national standing, to be more favorable to Wyndham's
stockholders than the Wyndham Merger.
"Wyndham Superior Proposal Agreement" means an agreement, to be executed by
Wyndham, providing for a Wyndham Superior Proposal.
"Wyndham Transactions" means the Wyndham Merger and the agreement entered
into by Patriot with partnerships affiliated with members of the Crow Family
concurrently with the execution of the Wyndham Merger Agreement providing for
the acquisition of 11 full-service Wyndham-branded hotels.
243
<PAGE>
PATRIOT AMERICAN HOSPITALITY, INC.
PATRIOT AMERICAN HOSPITALITY OPERATING COMPANY
WHG RESORTS & CASINOS INC.
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<S> <C>
WHG RESORTS & CASINOS INC.
Report of Independent Auditors.......................................... F-2
Consolidated Balance Sheets at June 30, 1997 and 1996 and September 30,
1997 (unaudited)....................................................... F-3
Consolidated Statements of Operations for the years ended June 30, 1997,
1996 and 1995 and the three months ended September 30, 1997 and 1996
(unaudited)............................................................ F-4
Consolidated Statements of Cash Flows for the years ended June 30, 1997,
1996 and 1995 and the three months ended September 30, 1997 and 1996
(unaudited)............................................................ F-5
Consolidated Statements of Stockholders' Equity for the years ended June
30, 1997, 1996 and 1995 and the three months ended September 30, 1997
(unaudited)............................................................ F-6
Notes to Consolidated Financial Statements.............................. F-7
Financial Statement Schedule II--Valuation and Qualifying Accounts for
the years ended June 30, 1997, 1996 and 1995........................... F-20
POSADAS DE SAN JUAN ASSOCIATES, a significant nonconsolidated affiliate of
WHG
Report of Independent Auditors.......................................... F-21
Balance Sheets at June 30, 1997 and 1996 and September 30, 1997
(unaudited)............................................................ F-22
Statements of Operations and Deficit for the years ended June 30, 1997,
1996 and 1995 and the three months ended September 30, 1997 and 1996
(unaudited)............................................................ F-23
Statements of Cash Flows for the years ended June 30, 1997, 1996 and
1995 and the three months ended September 30, 1997 and 1996
(unaudited)............................................................ F-24
Notes to Financial Statements........................................... F-25
Financial Statement Schedule II--Valuation and Qualifying Accounts for
the years ended June 30, 1997, 1996 and 1995........................... F-30
WKA EL CON ASSOCIATES, a significant nonconsolidated affiliate of WHG
Report of Independent Auditors.......................................... F-31
Balance Sheets at June 30, 1997 and 1996 and September 30, 1997
(unaudited)............................................................ F-32
Statements of Operations and Deficit for the years ended June 30, 1997,
1996 and 1995 and the three months ended September 30, 1997 and 1996
(unaudited)............................................................ F-33
Statements of Cash Flows for the years ended June 30, 1997, 1996 and
1995 and the three months ended September 30, 1997 and 1996
(unaudited)............................................................ F-34
Notes to Financial Statements........................................... F-35
EL CONQUISTADOR PARTNERSHIP L.P., a significant nonconsolidated affiliate
of WHG
Report of Independent Auditors.......................................... F-38
Balance Sheets at March 31, 1997 and 1996 and June 30, 1997
(unaudited)............................................................ F-39
Statements of Operations and (Deficiency in) Partners' Capital for the
years ended March 31, 1997, 1996 and 1995 and the three months ended
June 30, 1997 and 1996 (unaudited)..................................... F-40
Statements of Cash Flows for the years ended March 31, 1997, 1996 and
1995 and the three months ended June 30, 1997 and 1996 (unaudited)..... F-41
Notes to Financial Statements........................................... F-42
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT AUDITORS
To the Stockholders and Board of
Directors
WHG Resorts & Casinos Inc.
We have audited the accompanying consolidated balance sheets of WHG Resorts
& Casinos Inc. as of June 30, 1997 and 1996, and the related consolidated
statements of operations, cash flows and stockholders' equity for each of the
three years in the period ended June 30, 1997. Our audits also included the
financial statement schedule of valuation and qualifying accounts for each of
the three years in the period ended June 30, 1997. These financial statements
and schedule are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements and
schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of WHG
Resorts & Casinos Inc. as of June 30, 1997 and 1996, and the results of its
operations and its cash flows for each of the three years in the period ended
June 30, 1997 in conformity with generally accepted accounting principles.
Also in our opinion, the related financial statement schedule, when considered
in relation to the basic financial statements taken as a whole, presents
fairly in all material respects the information set forth therein.
/s/ Ernst & Young LLP
San Juan, Puerto Rico
August 7, 1997, except for Note 18,
as to which the date is September
17, 1997.
F-2
<PAGE>
WHG RESORTS & CASINOS INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
SEPTEMBER 30, JUNE 30,
------------- -----------------
1997 1997 1996
------------- -------- --------
(UNAUDITED)
(THOUSANDS OF DOLLARS)
<S> <C> <C> <C>
ASSETS
- ------
Current assets:
Cash and cash equivalents.................... $ 18,941 $ 17,886 $ 6,616
Receivables, net of allowances of $649 and
$475 at June 30, 1997 and 1996,
respectively, and $809 at September 30,
1997........................................ 3,454 3,477 2,534
Receivables from nonconsolidated affiliates.. 1,731 1,105 608
Inventories.................................. 575 590 651
Other current assets......................... 931 791 689
-------- -------- --------
Total current assets....................... 25,632 23,849 11,098
Investments in, receivables and advances to
nonconsolidated affiliates.................... 29,791 30,603 27,126
Property and equipment, net.................... 43,955 43,861 44,919
Land held as investment........................ 5,095 5,095 5,095
Excess of purchase cost over amount assigned to
net assets acquired, net of accumulated
amortization of $3,739 and $3,340 at June 30,
1997 and 1996, respectively, and $3,836 at
September 30, 1997............................ 8,613 8,710 9,109
Other assets................................... 5,266 5,355 7,387
-------- -------- --------
$118,352 $117,473 $104,734
======== ======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------
Current liabilities:
Accounts payable............................. $ 3,952 $ 3,760 $ 3,297
Accrued compensation and related benefits.... 2,342 2,855 2,128
Other accrued liabilities.................... 4,910 3,723 2,721
Dividend payable on preferred stock of
Condado Plaza............................... -- -- 94
Notes payable................................ 500 1,000 2,000
Current maturities of long-term debt......... 3,869 3,681 3,299
-------- -------- --------
Total current liabilities.................. 15,573 15,019 13,539
Long-term debt, less current maturities........ 18,494 19,868 23,555
Deferred income taxes.......................... 2,192 2,638 2,291
Other noncurrent liabilities................... 4,532 4,532 4,542
Payable to WMS Industries Inc.................. -- 102 397
Minority interests............................. 20,410 19,990 18,810
Preferred stock of Condado Plaza held by WMS
Industries Inc................................ -- -- 4,100
Stockholders' equity:
Preferred stock, $.01 par value, 2,000,000
shares authorized, 300,000 shares
outstanding................................. 3 -- --
Common stock, class A, $.01 par value, non-
voting, 3,000,000 shares authorized......... -- -- --
Common stock, $.01 par value, 12,000,000
shares authorized, 6,050,200 shares
outstanding in 1997 and 1,000 shares
authorized and 100 shares outstanding in
1996........................................ 61 61 1
Additional paid-in capital..................... 17,293 14,296 3,849
Retained earnings.............................. 39,794 40,967 33,650
-------- -------- --------
Total stockholders' equity................. 57,151 55,324 37,500
-------- -------- --------
$118,352 $117,473 $104,734
======== ======== ========
</TABLE>
See Notes to Consolidated Financial Statements.
F-3
<PAGE>
WHG RESORTS & CASINOS INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
THREE MONTHS ENDED
SEPTEMBER 30, YEARS ENDED JUNE 30,
-------------------- -------------------------------
1997 1996 1997 1996 1995
--------- --------- --------- --------- ---------
(UNAUDITED)
(THOUSANDS OF DOLLARS)
<S> <C> <C> <C> <C> <C>
Revenues:
WHGI management fees
from nonconsolidated
affiliates............ $ 2,256 $ 1,935 $ 13,937 $ 13,372 $ 13,348
Condado Plaza
hotel/casino:
Casino................. 6,172 4,635 23,720 22,438 24,584
Casino promotional
allowances............ (2,018) (1,432) (7,721) (6,986) (6,872)
Rooms.................. 5,159 4,849 25,629 25,477 25,210
Food and beverages..... 2,255 2,240 11,034 11,478 11,412
Other.................. 747 652 3,035 2,915 3,196
--------- --------- --------- --------- ---------
12,315 10,944 55,697 55,322 57,530
--------- --------- --------- --------- ---------
Total revenues........ 14,571 12,879 69,634 68,694 70,878
Costs and expenses:
WHGI operating expenses
(excl. depreciation).. 1,013 870 3,910 3,882 5,175
Condado Plaza operating
expenses (excl.
depreciation):
Casino................. 2,917 2,629 11,334 12,375 13,737
Rooms.................. 1,844 1,752 7,639 8,593 9,081
Food and beverages..... 2,071 2,050 9,076 10,088 10,503
Other.................. 1,112 1,188 4,968 5,281 6,463
--------- --------- --------- --------- ---------
7,944 7,619 33,017 36,337 39,784
Selling and
administrative......... 2,528 2,205 9,913 9,487 12,301
Depreciation and
amortization........... 1,514 1,395 5,707 5,430 5,994
--------- --------- --------- --------- ---------
Total costs and ex-
penses............... 12,999 12,089 52,547 55,136 63,254
--------- --------- --------- --------- ---------
Operating income........ 1,572 790 17,087 13,558 7,624
Interest income,
primarily from
nonconsolidated
affiliates, and other
income................. 774 547 2,334 1,830 2,548
Interest expense........ (764) (848) (3,265) (3,689) (4,300)
Equity in loss of
nonconsolidated
affiliates............. (1,010) (1,289) (1,196) (3,465) (7,003)
Merger costs to date.... (1,000) -- -- -- --
--------- --------- --------- --------- ---------
Income (loss) before tax
credit (provision) and
minority interests..... (428) (800) 14,960 8,234 (1,131)
Credit (provision) for
income taxes........... (163) 89 (3,397) (1,645) 234
Minority interests in
income................. (535) (421) (4,000) (3,636) (2,910)
Dividend on preferred
stock of Condado
Plaza.................. -- (82) (246) (516) (557)
--------- --------- --------- --------- ---------
Net income (loss)....... $ (1,126) $ (1,214) $ 7,317 $ 2,437 $ (4,364)
========= ========= ========= ========= =========
Primary earnings (loss)
per share.............. $ (0.19) $ (0.20) $ 1.20 $ .40 $ (.72)
========= ========= ========= ========= =========
Shares used in primary
earnings per share
calculation............ 6,050,000 6,050,000 6,086,443 6,050,200 6,050,200
========= ========= ========= ========= =========
Fully diluted earnings
(loss) per share....... $ (0.19) $ (0.20) $ 1.17 $ .40 $ (.72)
========= ========= ========= ========= =========
Shares used in fully
diluted earnings per
share calculation...... 6,050,000 6,050,000 6,247,241 6,050,200 6,050,200
========= ========= ========= ========= =========
Pro forma information
reflecting income taxes
on a separate return
basis (unaudited):
Income (loss) before
tax provision and
minority interests.... $ (800) $ 14,960 $ 8,234 $ (1,131)
Provision for income
taxes................. (372) (3,478) (2,545) (1,902)
Minority interests in
income................ (421) (4,000) (3,636) (2,910)
Dividend on preferred
stock of Condado
Plaza................. (82) (246) (516) (557)
--------- --------- --------- ---------
Net income (loss)..... $ (1,675) $ 7,236 $ 1,537 $ (6,500)
========= ========= ========= =========
</TABLE>
See Notes to Consolidated Financial Statements.
F-4
<PAGE>
WHG RESORTS & CASINOS INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
THREE MONTHS ENDED
SEPTMBER 30, YEARS ENDED JUNE 30,
-------------------- -------------------------
1997 1996 1997 1996 1995
--------- --------- ------- ------- -------
(UNAUDITED)
(THOUSANDS OF DOLLARS)
<S> <C> <C> <C> <C> <C>
Operating activities:
Net income (loss)............ $ (1,126) $ (1,214) $ 7,317 $ 2,437 $(4,364)
Adjustments to reconcile net
income (loss) to net cash
provided by operating
activities:
Depreciation and
amortization.............. 1,514 1,395 5,707 5,430 5,994
Provision for loss on
receivables............... 160 72 366 1,457 1,842
Undistributed loss of
nonconsolidated
affiliates................ 1010 1,289 1,196 3,465 7,003
Deferred income taxes...... (446) -- 347 3,239 (1,626)
Minority interests......... 535 421 4,000 3,636 2,910
Increase (decrease)
resulting from changes in
operating assets and
liabilities:
Receivables............... (137) 119 (1,309) 342 (541)
Other current assets...... (125) (303) 54 459 471
Accounts payable and
accruals................. 866 655 2,192 (12) (1,152)
Net amounts due from
nonconsolidated
affiliates............... (626) (596) (5,170) (1,931) (5,906)
Other assets and
liabilities not reflected
elsewhere................ (105) 399 (10) (618) 218
--------- --------- ------- ------- -------
Net cash provided by
operating activities........ 1,520 2,237 14,690 17,904 4,849
Investing activities:
Purchase of property and
equipment................... (1,466) (331) (3,153) (1,149) (2,066)
Purchase of additional shares
of subsidiaries............. -- -- (1,500) -- (3,925)
Investments in and advances
to nonconsolidated
affiliates.................. (198) (186) -- -- (1,360)
Collections from
nonconsolidated affiliates.. -- -- -- 985 2,010
Other investing.............. -- -- 1,760 -- --
--------- --------- ------- ------- -------
Net cash used in investing
activities.................. (1,664) (517) (2,893) (164) (5,341)
Financing activities:
Payment of long-term debt and
notes payable............... (1,686) (2,285) (8,703) (3,887) (4,568)
Proceeds from short-term
note........................ -- -- 4,500 -- --
Capital contribution from WMS
Industries Inc.............. -- -- 1,643 -- --
Net intercompany transactions
with WMS Industries Inc..... -- (528) 4,273 (6,275) 3,125
Issuance of preferred stock.. 3,000 -- -- -- --
Purchase of preferred stock
of Condado Plaza by WMS
Industries Inc.............. -- -- -- -- 2,500
Redemption of preferred stock
of Condado Plaza from WMS
Industries Inc.............. -- -- -- (3,400) --
Dividends paid to minority
shareholders of subsidiary.. (115) (151) (2,240) (1,189) (783)
--------- --------- ------- ------- -------
Net cash (used) provided by
financing activities........ 1,199 (2,964) (527) (14,751) 274
--------- --------- ------- ------- -------
Increase (decrease) in cash
and cash equivalents......... 1,055 (1,244) 11,270 2,989 (218)
Cash and cash equivalents at
beginning of year............ 17,886 6,616 6,616 3,627 3,845
--------- --------- ------- ------- -------
Cash and cash equivalents at
end of year.................. $ 18,941 $ 5,372 $17,886 $ 6,616 $ 3,627
========= ========= ======= ======= =======
</TABLE>
See Notes to Consolidated Financial Statements.
F-5
<PAGE>
WHG RESORTS & CASINOS INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
ADDITIONAL TOTAL
PREFERRED COMMON PAID-IN RETAINED STOCKHOLDERS'
STOCK STOCK CAPITAL EARNINGS EQUITY
--------- ------ ---------- -------- -------------
(THOUSANDS OF DOLLARS)
<S> <C> <C> <C> <C> <C>
Balance as of June 30,
1994....................... $-- $ 1 $ 3,849 $35,577 $39,427
Net loss.................. -- -- -- (4,364) (4,364)
---- ---- ------- ------- -------
Balance as of June 30,
1995....................... -- 1 3,849 31,213 35,063
Net income................ -- -- -- 2,437 2,437
---- ---- ------- ------- -------
Balance as of June 30,
1996....................... -- 1 3,849 33,650 37,500
Net income................ -- -- -- 7,317 7,317
Capital contributions by
WMS Industries Inc. ..... -- -- 10,507 -- 10,507
6,050.2 for 1 stock
split.................... -- 60 (60) -- --
---- ---- ------- ------- -------
Balance as of June 30,
1997....................... -- 61 14,296 40,967 55,324
Net loss (unaudited)...... -- -- -- (1,126) (1,126)
Issue preferred stock
(unaudited).............. 3 -- 2,997 -- 3,000
Preferred stock dividends
(unaudited).............. -- -- -- (47) (47)
---- ---- ------- ------- -------
Balance as of September 30,
1997 (unaudited)........... $ 3 $ 61 $17,293 $39,794 $57,151
==== ==== ======= ======= =======
</TABLE>
See Notes to Consolidated Financial Statements.
F-6
<PAGE>
WHG RESORTS & CASINOS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1: BASIS OF PRESENTATION AND COMPANY OPERATIONS
Basis of Presentation
WHG Resorts & Casinos Inc. ("WHG") was formerly known as WMS Hotel
Corporation. Prior to the April 21, 1997 spin-off, WHG was a wholly owned
subsidiary of Williams Hotel Corporation ("WHC"). WHC was a wholly-owned
subsidiary of WMS Industries Inc. ("WMS"). WMS merged WHC, just prior to the
April 21, 1997 spin-off, into WHG at which time the predecessor financial
statements of WHC appearing herein became the financial statements of WHG.
The consolidated financial statements of WHG reflect results of operations,
cash flows, financial position and changes in stockholders' equity and have
been prepared using the historical basis in the assets and liabilities and
historical results of operations of WHG and subsidiaries and affiliates.
The pro forma information reflecting income taxes on a separate return basis
(unaudited), included with the consolidated statements of operations, reflects
the provision for income taxes without the tax benefits allocated to WHG from
WMS for utilization of partnership losses in the WMS consolidated Federal
income tax return, see Note 6--Income Taxes. WHG during the periods presented
did not have income subject to Federal income tax that could have been
included in its consolidated Federal income tax return or in the separate tax
returns of certain of its subsidiaries along with the partnership losses to be
able to realize the tax benefits.
Company Operations
WHG through its subsidiaries and affiliates owns, operates and manages two
of the leading hotels and casinos located in San Juan, Puerto Rico, and
through a second affiliate, the El Conquistador Resort & Country Club, a
destination resort complex in Las Croabas, Puerto Rico. WHG's holdings
include: a 100% interest in Posadas de Puerto Rico Associates, Incorporated,
the owner of the Condado Plaza Hotel & Casino ("Condado Plaza"); a 50%
interest in Posadas de San Juan Associates, a partnership which owns the El
San Juan Hotel & Casino ("El San Juan"); a 23.3% indirect interest in El
Conquistador Partnership L.P. which owns the El Conquistador Resort & Country
Club; and a 62% interest in Williams Hospitality Group Inc. ("WHGI"), the
management company for the above properties.
WHG was a wholly owned subsidiary of WMS prior to April 21, 1997. On April
21, 1997 WMS distributed 100% of the outstanding voting common stock of WHG to
WMS's stockholders, thereby creating a new independent public corporation.
The consolidated interim financial statements as of and for the three months
ended September 30, 1997 and 1996 included herein are unaudited. Such
information reflects all adjustments consisting solely of normal recurring
adjustments, which are in the opinion of management necessary for a fair
presentation of the consolidated balance sheet as of September 30, 1997 and
the consolidated results of operations and cash flows for the three months
ended September 30, 1997 and 1996. Due to the seasonality of the businesses,
the reported results are not necessarily indicative of those expected for the
entire year. Certain information and disclosures normally included in annual
financial statements in accordance with generally accepted accounting
principles have been excluded or omitted in presentation of the consolidated
interim financial statements.
NOTE 2: PRINCIPAL ACCOUNTING POLICIES
Consolidation Policy
The consolidated financial statements include the accounts of WHG and its
majority-owned subsidiaries (the "Company"). All significant intercompany
accounts and transactions have been eliminated. Investments in companies that
are 20% to 50% owned are accounted for by the equity method. WHG records its
equity in the results of operations of El Conquistador Partnership L.P., based
on that partnership's fiscal year end of March 31.
F-7
<PAGE>
WHG RESORTS & CASINOS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Use of Estimates
The preparation of the 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 date of the financial
statements and revenue and expenses during the period reported. Actual results
could differ from those estimates.
Cash and Cash Equivalents
All highly liquid investments with a maturity of three months or less when
purchased are considered to be cash equivalents.
Inventories
Inventories, which consist mainly of food, beverages and supplies, are
valued at the lower of cost (determined by the first-in, first-out method) or
market.
Property and Equipment
Property and equipment are stated at cost and depreciated by the straight-
line method over their estimated useful lives.
Excess of Purchase Cost Over Amount Assigned to Net Assets Acquired
(Goodwill)
Goodwill arising from acquisitions is being amortized by the straight-line
method over 20 to 40 years.
Casino Revenues
Casino revenues are the net win from gaming activities, which is the
difference between gaming wins and losses.
Casino Promotional Allowances
Casino promotional allowances represent the retail value of complimentary
food, beverages and hotel services furnished to patrons, commissions and
transportation costs.
Advertising Expense
The cost of advertising is charged to earnings as incurred and for fiscal
1997, 1996 and 1995 was $809,000, $988,000 and $1,103,000, respectively.
NOTE 3: ACQUISITIONS
In July 1994, the Company acquired 5% of Williams Hospitality increasing its
interest from 57% to 62%. In July 1994, the Company acquired 2.5% of Posadas
de Puerto Rico Associates, Incorporated increasing its interest from 92.5% to
95%. In April 1997, the Company acquired the remaining 5% of Posadas de Puerto
Rico Associates, Incorporated increasing its interest from 95% to 100%.
NOTE 4: INVESTMENTS IN NONCONSOLIDATED AFFILIATES
Investments in nonconsolidated affiliates consist of a 50% interest in
Posadas de San Juan Associates, a partnership ("PSJA") and a 23.3% indirect
interest in El Conquistador Partnership L.P. ("El Conquistador") through a
46.5% interest in WKA El Con Associates, a partnership ("WKA El Con").
F-8
<PAGE>
WHG RESORTS & CASINOS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Current receivables from nonconsolidated affiliates at June 30 were:
<TABLE>
<CAPTION>
1997 1996
------- -------
(IN THOUSANDS)
<S> <C> <C>
PSJA..................................................... $ 252 $ 61
WKA El Con............................................... 85 64
El Conquistador.......................................... 768 483
------- -------
$ 1,105 $ 608
======= =======
Investments in and noncurrent receivables and advances to nonconsolidated
affiliates at June 30 were:
<CAPTION>
1997 1996
------- -------
(IN THOUSANDS)
<S> <C> <C>
Investments:
PSJA................................................... $(6,690) $(7,678)
WKA El Con............................................. (2,813) (612)
Receivables and advances:
PSJA................................................... 25,541 23,148
WKA El Con............................................. 5,062 4,556
El Conquistador........................................ 9,503 7,712
------- -------
$30,603 $27,126
======= =======
</TABLE>
PSJA operates as a partnership, therefore, 50% of its accumulated deficit is
recorded as an investment. Summarized financial data for PSJA's financial
position at June 30, 1997 and 1996 and PSJA's results of operations for fiscal
1997, 1996 and 1995 and the three months ended September 30, 1997 and 1996
were:
<TABLE>
<CAPTION>
SEPTEMBER 30, SEPTEMBER 30,
1997 1996 JUNE 30, 1997 JUNE 30, 1996 JUNE 30, 1995
------------- ------------- ------------- ------------- -------------
(IN THOUSANDS) (IN THOUSANDS)
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Current assets.......... $ -- -- $ 8,133 $ 6,558 --
Noncurrent assets....... -- -- 35,804 35,198 --
Total assets............ -- -- 43,937 41,756 --
Payable to affiliates... -- -- 237 61 --
Other current
liabilities............ -- -- 10,659 10,101 --
Total current
liabilities............ -- -- 10,896 10,162 --
Noncurrent payable to
affiliates............. -- -- 25,591 23,148 --
Other noncurrent
liabilities............ -- -- 20,831 23,803 --
Total noncurrent
liabilities............ -- -- 46,422 46,951 --
Partners' capital
deficiency............. -- -- (13,381) (15,357) --
Total liabilities and
partners' capital
deficiency............. -- -- 43,937 41,756 --
Revenues................ $10,944 9,600 51,732 50,124 $51,797
Management fees and
interest payable to
WHGI................... 955 836 5,325 4,738 4,691
Other costs and
expenses............... 10,927 10,472 44,431 46,746 49,507
Net income (loss)....... $ (938) $(1,708) $ 1,976 $ (1,360) $(2,401)
</TABLE>
F-9
<PAGE>
WHG RESORTS & CASINOS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The Company has a 46.5% interest in WKA El Con which has a 50% interest in
El Conquistador. Summarized financial data for WKA El Con's financial position
at June 30, 1997 and 1996 and WKA El Con's results of operations for fiscal
1997, 1996 and 1995 and the three months ended September 30, 1997 and 1996
were:
<TABLE>
<CAPTION>
SEPTEMBER 30, SEPTEMBER 30, JUNE 30, JUNE 30, JUNE 30,
1997 1996 1997 1996 1995
------------- ------------- -------- -------- --------
(IN THOUSANDS) (IN THOUSANDS)
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Loans receivable from El
Conquistador........... -- -- $ 18,343 $16,116 --
Investment in El
Conquistador, net...... -- -- (12,464) (7,763) --
Other assets, net....... -- -- 2,384 3,566 --
Total assets............ -- -- 8,263 11,919 --
Current payable to
WHGI................... -- -- 85 64 --
Long-term note payable
including interest..... -- -- 5,527 5,197 --
Long-term notes payable
to partners including
interest............... -- -- 10,475 9,791 --
Partners' (capital
deficiency)............ -- -- (7,824) (3,133) --
Total liabilities and
partners' capital
deficiency............. -- -- 8,263 11,919 --
Net operating income
(loss)................. $ 5 $ (11) 10 (178) $ (356)
Equity in net loss of El
Conquistador to
March 31 for fiscal
years and to June 30
for the three months
ended September 30..... (1,168) (922) (4,701) (6,120) (13,739)
Equity in income of Las
Casitas................ -- -- -- 313 1,627
Net (loss).............. $(1,163) $(933) $ (4,691) $(5,985) $(12,468)
</TABLE>
The WKA El Con's long-term note payable is collateralized by a pledge of a
second mortgage on land owned by the Company that cost $3,761,000 and a WMS
guarantee of $1,000,000 as to which WHG will indemnify WMS in the event of any
payments made on the guarantee. The other partners of WKA El Con have pledged
cash and a portion of their interest in WHGI stock, in proportion to their
interests in WKA El Con, to WHG to be used in the event the guarantee is drawn
on.
F-10
<PAGE>
WHG RESORTS & CASINOS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
El Conquistador is a destination resort and casino which began operations in
November 1993. Summarized financial data for El Conquistador's financial
position at March 31, 1997 and 1996 (the partnership's fiscal year end) and El
Conquistador's results of operations for fiscal years ended March 31, 1997,
1996 and 1995 and the three months ended June 30, 1997 and 1996 were:
<TABLE>
<CAPTION>
JUNE 30, JUNE 30, MARCH 31, MARCH 31, MARCH 31,
1997 1996 1997 1996 1995
-------- -------- --------- --------- ---------
(IN THOUSANDS) (IN THOUSANDS)
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Current assets............. -- -- $13,618 $ 11,823 --
Land, building and
equipment, net............ -- -- 185,552 190,463 --
Deferred debt issuance and
pre-opening costs, net.... -- -- 5,841 8,587 --
Other assets............... -- -- 419 818 --
Total assets............... -- -- 205,430 211,691 --
Current liabilities........ -- -- 22,829 23,281 --
Debt due February 1, 1998.. -- -- 120,000 -- --
Long-term debt............. -- -- 26,660 149,324 --
Long-term due to partners
and affiliates............ -- -- 48,869 42,611 --
Partners' (capital
deficiency)............... -- -- (12,928) (3,525) --
Total liabilities and
capital deficiency........ -- -- 205,430 211,691 --
Revenues................... $24,438 $23,995 92,958 89,214 $ 84,743
Management fees and
interest payable to WHGI.. 1,529 1,503 6,282 5,820 3,874
Interest payable to
partners.................. 611 702 2,498 2,598 1,898
Other costs and expenses... 22,326 21,358 84,434 82,538 95,324
Depreciation and
amortization.............. 2,307 2,276 9,147 10,499 11,124
Net (loss)................. $(2,335) $(1,844) $(9,403) $(12,241) $(27,477)
</TABLE>
At March 31, 1997 WHGI has provided guarantees amounting to $2,170,000 in
connection with leasing and other financing transactions of El Conquistador.
Debt of the El Conquistador of $120,000,000 is collateralized by a letter of
credit which terminates on March 9, 1998. Under the terms of the loan
agreement, such debt is required to be repaid on February 1, 1998 in the event
the letter of credit is not renewed or replaced prior to November 9, 1997. El
Conquistador has engaged investment advisors to investigate obtaining an
alternative letter of credit or financing arrangement. If such an alternative
is not found, the Company's investment in, receivables from, advances to and
potential payments on guarantees for El Conquistador totaling $18,463,000 at
June 30, 1997 may not be recoverable. In the event this amount is not
recovered the 38% minority interest in WHGI would absorb approximately
$5,900,000 of the charge. WHGI would also incur a loss of future management
fees from El Conquistador. For the years ended June 30, 1997, 1996 and 1995,
the Company accrued approximately $5,650,000, $5,395,000 and $3,704,000,
respectively, in management fee revenue from El Conquistador. The Company also
recorded equity in losses of El Conquistador of $2,188,000, $2,786,000 and
$5,803,000 in the years ending June 30, 1997, 1996 and 1995, respectively.
Consolidated retained earnings of the Company at June 30, 1997 is reduced by
$23,262,000 for the Company's ownership percentage in the accumulated deficit
of PSJA and WKA El Con which are accounted for under the equity method.
Interest earned by the Company from all the nonconsolidated affiliates for
the years ended June 30, 1997, 1996 and 1995 was $1,823,000, $1,650,000 and
$1,373,000, respectively.
F-11
<PAGE>
WHG RESORTS & CASINOS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 5: PROPERTY AND EQUIPMENT
At June 30 net property and equipment were:
<TABLE>
<CAPTION>
1997 1996
------- -------
(IN THOUSANDS)
<S> <C> <C>
Land..................................................... $ 7,535 $ 7,535
Buildings and improvements............................... 47,865 45,294
Furniture, fixtures and equipment........................ 31,975 30,473
------- -------
87,375 83,302
Less accumulated depreciation............................ (43,514) (38,383)
------- -------
Net property and equipment............................... $43,861 $44,919
======= =======
</TABLE>
NOTE 6: INCOME TAXES
The Company's two operating subsidiaries and two nonconsolidated affiliates
operate under the provisions of the Puerto Rico Tourism Incentives Act of 1993
which provides a ten-year incentive grant which may be extended for ten years.
Major benefits include a 90% exemption from income taxes on income deemed to
be derived from tourism operations. The grant also provides a 90% exemption
from municipal real and personal property taxes. Income deemed to be derived
from casino operations are not covered by the grant.
The two operating subsidiaries, the Condado Plaza and WHGI elect to file
income tax returns under Section 936 of the United States Internal Revenue
Code which provides for total or, after 1994, partial exemption from Federal
income taxes on income from sources within Puerto Rico if certain conditions
are met. The portion of taxes that can be exempt under Section 936 is
determined by the calculation of certain limits prescribed by Section 936.
These limits are either based on certain costs and expenses ("economic
activity method") or a fixed percentage as prescribed in Section 936
("percentage limitation method"). Corporations that operate under Section 936
cannot be members of a consolidated Federal income tax return. The tax
exemption under Section 936 generally decreases each year until the benefits
terminate in 2005.
The Condado Plaza elected the economic activity method which results in a
100% exemption from Federal income taxes. WHGI elected the percentage
limitation method which resulted in a Federal tax provision of $2,793,000 in
fiscal 1997, $1,741,000 in fiscal 1996 and $1,149,000 in fiscal 1995.
Deferred income taxes reflect the net tax effects of temporary differences
between the amount of assets and liabilities for financial reporting purposes
and the amounts used for income taxes in the consolidated Federal income tax
return of WMS and allocated to the Company through April 22, 1997.
Significant components of the Company's deferred tax assets and liabilities
at June 30 were:
<TABLE>
<CAPTION>
1997 1996
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Deferred tax liabilities resulting from:
Tax over book deductions of WKA El Con................ $(1,033) $ (686)
Tax over book deductions of PSJA...................... (1,605) (1,605)
-------- --------
Deferred tax liability................................ $(2,638) $(2,291)
======== ========
</TABLE>
F-12
<PAGE>
WHG RESORTS & CASINOS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The Company's provision for income taxes was calculated on a historical
basis. WHG and certain of its subsidiaries were members of the WMS
consolidated Federal income tax return since their inception until April 21,
1997, the effective date of the spin off. Accordingly, losses for Federal
income tax purposes which were primarily generated by the Company's equity in
loss of nonconsolidated affiliates in the form of partnership losses were
utilized by WMS in its consolidated tax return and resulted in tax benefits.
The Company received the tax benefits of $428,000, $4,139,000 and $510,000 for
usage of such losses during the years ended June 30, 1997, 1996 and 1995,
respectively.
Significant components of the (provision) credit for income taxes for the
years ended June 30, 1997, 1996 and 1995 were:
<TABLE>
<CAPTION>
1997 1996 1995
------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
Current:
Federal:
Certain Puerto Rico corporate income subject
to federal tax............................... $(2,793) $(1,741) $(1,149)
U.S. subsidiaries--primarily partnership
losses of nonconsolidated affiliates......... 428 4,139 510
------- ------- -------
Total federal............................... (2,365) 2,398 (639)
Puerto Rico.................................... (685) (804) (753)
------- ------- -------
Total current (provision) credit............ (3,050) 1,594 (1,392)
Deferred--federal, primarily from book to tax
differences on partnership losses.............. (347) (3,239) 1,626
------- ------- -------
(Provision) credit for income taxes............. $(3,397) $(1,645) $ 234
======= ======= =======
For financial reporting purposes, income (loss) before income tax credit
(provision) and minority interests is comprised of the following components
for the years ended June 30:
<CAPTION>
1997 1996 1995
------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
Income (loss) before income tax credit
(provision) and minority interests:
Puerto Rico corporate income.................. $16,908 $11,487 $ 5,652
U.S. subsidiaries--primarily partnership
losses of nonconsolidated affiliates......... (1,948) (3,253) (6,783)
------- ------- -------
$14,960 $ 8,234 $(1,131)
======= ======= =======
The provision (credit) for income taxes differs from the amount computed
using the statutory federal income tax rate as follows for the years ended
June 30:
<CAPTION>
1997 1996 1995
------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
Statutory federal income tax at 35%............. $ 5,236 $ 2,882 $ (395)
Puerto Rico corporate loss resulting in no tax
benefit........................................ -- 199 1,525
Puerto Rico corporate income taxed at lower
rates.......................................... (2,180) (1,671) (1,602)
Other, net...................................... 341 235 238
------- ------- -------
$ 3,397 $ 1,645 $ (234)
======= ======= =======
</TABLE>
F-13
<PAGE>
WHG RESORTS & CASINOS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Undistributed earnings of the Puerto Rico subsidiaries that operate as
Section 936 corporations under Federal income tax regulations were
approximately $41,800,000 at June 30, 1997. Those earnings are considered
indefinitely reinvested and, accordingly, no provision for income or toll gate
taxes has been provided thereon. Upon distribution of those earnings in the
form of dividends, the Company would be subject to U.S. income tax of
approximately $2,300,000 and toll gate withholding taxes of approximately
$750,000.
WHG and WMS have entered into a tax sharing agreement that provides for the
rights and obligations of each company regarding deficiencies and refunds, if
any, relating to Federal and Puerto Rico income taxes for tax years up to and
including fiscal 1997.
During fiscal 1997, 1996 and 1995 income taxes paid to taxing authorities
were $2,728,000, $2,289,000 and $1,549,000, respectively.
NOTE 7: NOTES PAYABLE AND LONG-TERM DEBT
The Condado Plaza has a $2,000,000 bank line of credit which is payable on
demand with interest at the prime rate plus 1 percentage point, 9.5% and 9.25%
at June 30, 1997 and 1996, respectively. Borrowings under the line were
$1,000,000 on June 30, 1997 and $2,000,000 on June 30, 1996. The line of
credit is collateralized by a mortgage on the Condado Plaza property and
accounts receivable.
Long-term debt at June 30 was:
<TABLE>
<CAPTION>
1997 1996
------- -------
(IN THOUSANDS)
<S> <C> <C>
Condado Plaza mortgage note, due in increasing semi-
annual amounts through 1999, 12%....................... $21,900 $24,150
Other................................................... 1,649 2,704
------- -------
23,549 26,854
Less current maturities................................. (3,681) (3,299)
------- -------
$19,868 $23,555
======= =======
</TABLE>
Scheduled payments by fiscal year on long-term debt are as follows:
$3,681,000 in 1998 and $19,868,000 in 1999.
The amount of interest paid during fiscal 1997, 1996 and 1995 was
$3,255,000, $3,679,000 and $4,306,000, respectively.
NOTE 8: AUTHORIZED SHARES
At June 30, 1997 the authorized common stock of WHG consists of 12,000,000
shares of $.01 par value of which 6,050,200 shares were issued and
outstanding. The Company's capital structure at June 30, 1997 also consists of
3,000,000 shares of Class A non-voting common stock of which none are
outstanding. The Company also has 2,000,000 shares of authorized preferred
stock, none were issued at June 30, 1997. The preferred stock will be issuable
in series, and the relative rights and preferences and the number of shares in
each series are established by the Board of Directors. At June 30, 1997,
300,000 shares of the Preferred Stock were designated as Series B Preferred
Stock and reserved for issuance. See Note 16. At June 30, 1996 the capital
structure consisted of 1,000 shares of no par value common stock of which 100
were issued and outstanding.
F-14
<PAGE>
WHG RESORTS & CASINOS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 9: STOCK OPTION PLAN
The Company's stock option plan allows for the grant of both incentive stock
options and nonqualified options on shares of voting common stock through the
year 2007. The stock option plan allows for the grant of options on 900,000
shares of common stock to officers, directors, employees and under certain
conditions to consultants and advisers to the Company and its subsidiaries.
The stock option committee has the authority to fix the terms and conditions
upon which each option is granted, but in no event shall the term exceed ten
years or be granted at less than 100% of the fair market value of the stock at
the date of grant in the case of incentive stock options and 85% of the fair
market value of the stock on the date of grant in the case of non-qualified
stock options.
The Company accounts for stock options for purposes of determining net
income in accordance with APB Opinion No. 25 "Accounting for Stock Issued to
Employees." SFAS No. 123 regarding stock option plans permits the use of APB
No. 25 but requires the inclusion of certain pro forma disclosures in the
footnotes.
If the Company had adopted the expensing provisions of SFAS No. 125 the
Company's pro forma net income for fiscal 1997 would have been $5,876,000. Pro
forma primary and fully diluted earnings per share for fiscal 1997 would have
been $0.97 and $0.96, respectively. There is no effect on reported amounts for
fiscal 1996, since the options were not granted until fiscal 1997.
The fair value of each option grant is estimated on the date of grant using
the Black-Scholes option-pricing model with the following weighted average
assumptions used for grants, all of which were in 1997: dividend yield 0%;
expected volatility 32%; risk free interest rates of 6.2%; and expected lives
of four years.
The Black-Scholes option valuation model was developed for use in estimating
the fair value of traded options which have no vesting restrictions and are
fully transferable. In addition, option valuation models require the input of
highly subjective assumptions including the expected stock price volatility.
Because the Company's stock options have characteristics significantly
different from those of traded options, and because changes in the subjective
input assumptions can materially affect the fair value estimate, in
management's opinion, the existing models do not necessarily provide a
reliable single measure of the fair value of its stock options.
During fiscal 1997, there were 898,000 options granted, all of which were
outstanding on June 30, 1997 and have a weighted average exercise price of
$8.49, a weighted average fair market value of $2.94, a weighted average
contractual life of 9.8 years and exercise prices that range from $8.38 to
$11.00. At June 30, 1997, 472,000 options are exercisable with a weighted
average exercise price of $8.38.
NOTE 10: CONCENTRATION OF CREDIT AND MARKET RISK AND FAIR VALUE DISCLOSURES OF
FINANCIAL INSTRUMENTS
Financial instruments which potentially subject the Company to
concentrations of credit and market risk consist primarily of cash equivalents
and accounts receivable. By policy, the Company places its cash equivalents
only in high credit quality securities and limits the amounts invested in any
one security. At June 30, 1997, accounts receivable are from hotel and casino
guests and travel agents located throughout North America and Latin America
and because of the number and geographic distribution, concentration is
limited.
The estimated fair value of financial instruments at June 30, 1997 has been
determined by the Company, using available market information and valuation
methodologies considered to be appropriate. The amounts reported for cash
equivalents and current notes payable are considered to be a reasonable
estimate of their fair value.
At June 30, 1997, the $21,900,000 Condado Plaza 12% mortgage note payable is
estimated to have a fair value of $22,781,000 using discounted cash flow
analysis based on an estimated interest rate of 8.25%. The mortgage note is
subject to a substantial prepayment penalty based on interest rate
differentials plus a fixed percentage.
F-15
<PAGE>
WHG RESORTS & CASINOS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 11: LEASE COMMITMENTS
Operating leases relate principally to hotel facilities and equipment. A
portion of the Condado Plaza hotel facilities are leased from a partnership
owned by a former minority shareholder of the Condado Plaza. The former
minority shareholder lease extends through 2008 at an annual rent of $684,000
through September 30, 1998 with periodic escalations thereafter to an annual
rent of $827,000 in 2004. Rent expense for fiscal 1997, 1996 and 1995 was
$760,000, $1,027,000 and $1,077,000, respectively (including $684,000, paid in
each fiscal 1997, 1996 and 1995, under the former minority shareholder lease
at the Condado Plaza). Total net future lease commitments for minimum rentals
at June 30, 1998, 1999, 2000, 2001, 2002 and thereafter are $718,000,
$769,000, $786,000, $786,000, $786,000 and $1,490,000, respectively.
NOTE 12: TRANSACTIONS WITH WMS
The Company's two operating subsidiaries and two nonconsolidated affiliates
have each provided for its off-season cash needs through its own operating
cash and from individual short-term note arrangements. Plant and equipment
additions at each property have also generally been provided by its own cash
from operations or third party financing. Cash advances from WMS, for the
periods reported, have been used for investment purposes. A summary of
advances and repayments between WMS and the Company prior to the April 21,
1997 spin-off for the years ended June 30, 1997, 1996 and 1995 were:
<TABLE>
<CAPTION>
1997 1996 1995
------ ------- ------
(IN THOUSANDS)
<S> <C> <C> <C>
Advances from (repayments to) WMS by use or
source:
Purchase of additional shares in subsidiaries.... $ -- $ -- $3,738
Investment in and advances to (repayments from)
WKA El Con...................................... -- (546) 157
Cash primarily generated from Williams
Hospitality dividends........................... -- (1,590) (260)
Cash received from WMS for cumulative tax
benefits........................................ 4,357 -- --
Other, net....................................... 409 -- --
Income tax benefits from partnership losses
utilized by WMS--see Note 6..................... (493) (4,139) (510)
------ ------- ------
$4,273 $(6,275) $3,125
====== ======= ======
</TABLE>
During fiscal 1995 the Condado Plaza sold to WMS 50 shares of 8% non-voting
preferred stock with a liquidation preference of $50,000 per share for
$2,500,000 bringing the total of such preferred stock held by WMS to 150
shares and $7,500,000 at June 30, 1995. During fiscal 1996 the Condado Plaza
redeemed 68 of those preferred shares at $50,000 per share for $3,400,000.
During fiscal 1997 the remaining 82 preferred shares were contributed to the
capital of WHG. In April 1997, the Condado Plaza redeemed 41 of those
preferred shares at $50,000 per share for $2,050,000. Subsequent to June 30,
1997 (July and August 1997), an additional 24 shares were redeemed at $50,000
per share for $1,200,000.
<TABLE>
<S> <C>
During fiscal 1997 WMS contributed the following to the capital of
WHG (in thousands):
Net, intercompany payable to WMS................................. $ 4,764
Cash contribution................................................ 1,643
82 preferred shares of PPRA, liquidation preference of $50,000... 4,100
-------
Total contribution............................................... $10,507
=======
</TABLE>
NOTE 13: PENSION PLAN
Certain subsidiaries are required to make contributions on behalf of
unionized employees to defray part of the costs of the multi-employer pension
plans established by their respective labor unions. Such contributions are
computed using a fixed charge per employee. Contributions to the plans for
fiscal 1997, 1996 and 1995 were $377,000, $340,000 and $352,000, respectively.
F-16
<PAGE>
WHG RESORTS & CASINOS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 14: QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
Summarized quarterly financial information for fiscal 1997 and 1996 are as
follows, in thousands except per share amounts:
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31, MARCH 31, JUNE 30,
1996 1996 1997 1997
------------- ------------ ---------- ----------
<S> <C> <C> <C> <C>
Fiscal 1997 Quarters:
Revenues................... $ 12,879 $ 17,175 $ 21,592 $ 17,988
========== ========== ========== ==========
Operating income........... $ 790 $ 4,312 $ 8,115 $ 3,870
Interest expense, net...... (301) (282) (263) (85)
Equity in income (loss) of
nonconsolidated
affiliates................ (1,289) (1,739) 633 1,199
Credit (provision) for
income taxes.............. 89 (313) (2,078) (1,095)
Minority interests......... (421) (841) (1,670) (1,068)
Dividend on preferred stock
of subsidiary............. (82) (82) (82) --
---------- ---------- ---------- ----------
Net income (loss).......... $ (1,214) $ 1,055 $ 4,655 $ 2,821
========== ========== ========== ==========
Primary earnings per
share..................... $ (.20) $ (.17) $ .77 $ .46
========== ========== ========== ==========
Shares used in
calculation............... 6,050,200 6,050,200 6,050,200 6,195,774
========== ========== ========== ==========
Fully diluted earnings per
share..................... $ (.20) $ (.17) $ .77 $ .45
========== ========== ========== ==========
Shares used in
calculation............... 6,050,200 6,050,200 6,050,200 6,247,241
========== ========== ========== ==========
Pro forma net income (loss)
reflecting income taxes on
a separate return basis... $ (1,675) $ 435 $ 5,121 $ 3,355
========== ========== ========== ==========
<CAPTION>
SEPTEMBER 30, DECEMBER 31, MARCH 31, JUNE 30,
1996 1996 1997 1997
------------- ------------ ---------- ----------
<S> <C> <C> <C> <C>
Fiscal 1996 Quarters:
Revenues................... $ 13,404 $ 17,452 $ 21,450 $ 16,388
========== ========== ========== ==========
Operating income (loss).... $ (226) $ 4,069 $ 7,248 $ 2,467
Interest expense, net...... (560) (493) (395) (411)
Equity in income (loss) of
nonconsolidated
affiliates................ (2,087) (1,510) (318) 450
Credit (provision) for
income taxes.............. 448 (153) (1,005) (935)
Minority interests......... (298) (896) (1,585) (857)
Dividend on preferred stock
of subsidiary............. (150) (146) (126) (94)
---------- ---------- ---------- ----------
Net income (loss).......... $ (2,873) $ 871 $ 3,819 $ 620
========== ========== ========== ==========
Earnings per share......... $ (.47) $ .14 $ .63 $ .10
========== ========== ========== ==========
Shares used................ 6,050,200 6,050,200 6,050,200 6,050,200
========== ========== ========== ==========
Pro forma net income (loss)
reflecting income taxes on
a separate return basis... $ (3,623) $ 361 $ 3,713 $ 1,086
========== ========== ========== ==========
</TABLE>
For pro forma net income (loss), see Note 1--Basis of Presentation.
F-17
<PAGE>
WHG RESORTS & CASINOS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 15: SEGMENT INFORMATION
The Company's operations are conducted through two industry segments: the
operation of the Condado Plaza and the management of hotels/casinos. Industry
segment information for the fiscal years ended June 30 follows:
<TABLE>
<CAPTION>
1997 1996 1995
-------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Revenues
Condado Plaza.................................... $ 55,697 $ 55,322 $ 57,530
WHGI............................................ 18,227 16,939 17,350
Intersegment revenues elimination--WHGI fees
charged to Condado Plaza....................... (4,290) (3,567) (4,002)
-------- -------- --------
Total revenues................................ $ 69,634 $ 68,694 $ 70,878
======== ======== ========
Operating income (loss)
Condado Plaza................................... $ 6,348 $ 2,830 $ (1,465)
WHGI............................................ 11,923 10,837 9,174
General corporate administrative expenses....... (1,184) (109) (85)
-------- -------- --------
Total operating income........................ $ 17,087 $ 13,558 $ 7,624
======== ======== ========
Identifiable assets
Condado Plaza................................... $ 55,385 $ 53,323 $ 57,879
WHGI............................................ 15,086 18,582 17,737
General investment and corporate................ 15,294 5,095 5,994
Investments in, receivables and advances to
nonconsolidated affiliates..................... 31,708 27,734 29,696
-------- -------- --------
Total identifiable assets..................... $117,473 $104,734 $111,306
======== ======== ========
Depreciation of property and equipment
Condado Plaza................................... $ 4,227 $ 4,120 $ 4,656
WHGI............................................ 777 769 681
-------- -------- --------
Total depreciation of property and equipment.. $ 5,004 $ 4,889 $ 5,337
======== ======== ========
Capital expenditures
Condado Plaza................................... $ 3,181 $ 1,078 $ 2,030
WHGI............................................ 41 71 36
-------- -------- --------
Total capital expenditures.................... $ 3,222 $ 1,149 $ 2,066
======== ======== ========
</TABLE>
NOTE 16: CONTINGENT LIABILITIES
The Company is involved in various disputes arising in the ordinary course
of business, which may result in litigation. Management expects no material
adverse effect on the Company's financial condition as a result of these
matters.
NOTE 17: SALE OF PREFERRED STOCK SUBSEQUENT TO JUNE 30, 1997
The Board of Directors exercised the put provisions of a Put Option and Call
Option Agreement that was established on April 21, 1997 which resulted in the
Chairman of the Board purchasing on July 31, 1997, 300,000 shares of Series B
Preferred Stock for $3,000,000 in cash. Each share of Series B Preferred Stock
has 5 votes
F-18
<PAGE>
WHG RESORTS & CASINOS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
per share voting collectively with the common stockholders and a liquidation
preference of $10.00 per share plus accrued dividends, has a quarterly
dividend equal to the prime rate plus one half percent calculated on the
liquidation preference and the holder has a redemption right after three years
or earlier in the event of two unpaid quarterly dividends. The holder of the
Series B Preferred Stock can convert into shares of common stock. The
conversion price is $9.00, which is the lower of the closing price of the
voting common stock on its first day of official trading ($9.00) and the
closing price in the New York Stock Exchange at the close of business on the
business day immediately prior to the date of issuance of the Preferred Stock
($12.50).
NOTE 18: PROPOSED ACQUISITION SUBSEQUENT TO JUNE 30, 1997
On September 17, 1997, the Company executed an asset purchase agreement to
acquire an existing 127 room Hotel and related land next to the Condado Plaza
for $9,600,000, subject to certain terms and conditions, including
satisfactory due diligence. If the agreement is finalized, the Company intends
to finance the purchase price through long term financing and the use of
excess cash currently available.
F-19
<PAGE>
SCHEDULE II
WHG RESORTS & CASINOS INC.
SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED JUNE 30, 1997, 1996 AND 1995
<TABLE>
<CAPTION>
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E
-------- ------------ --------------------- ------------ ----------
BALANCE AT CHARGED TO CHARGED TO DEDUCTIONS-- BALANCE AT
BEGINNING OF COSTS AND OTHER AMOUNTS END OF
DESCRIPTION PERIOD EXPENSES ACCOUNTS WRITTEN OFF PERIOD
----------- ------------ ---------- ---------- ------------ ----------
<S> <C> <C> <C> <C> <C>
Allowance for
receivables:
1997.................. $474,000 $ 366,000 $-- $ 191,000 $649,000
======== ========== ==== ========== ========
1996.................. $399,000 $1,457,000 $-- $1,382,000 $474,000
======== ========== ==== ========== ========
1995.................. $755,000 $1,842,000 $-- $2,198,000 $399,000
======== ========== ==== ========== ========
Unrealized holding loss
on noncurrent
marketable equity
securities:
1997.................. $ -- $ -- $-- $ -- $ --
======== ========== ==== ========== ========
1996.................. $ -- $ -- $-- $ -- $ --
======== ========== ==== ========== ========
1995.................. $ -- $ -- $-- $ -- $ --
======== ========== ==== ========== ========
</TABLE>
- --------
(1) Included as a direct reduction of stockholders' equity.
F-20
<PAGE>
REPORT OF INDEPENDENT AUDITORS
The Partners
Posadas de San Juan Associates
We have audited the accompanying balance sheets of Posadas de San Juan
Associates as of June 30, 1997 and 1996, and the related statements of
operations and deficit, and cash flows for each of the three years in the
period ended June 30, 1997. Our audits also included the financial statement
schedule of valuation and qualifying accounts for each of the three years in
the period ended June 30, 1997. These financial statements and schedule are
the responsibility of the Partnership's management. Our responsibility is to
express an opinion on these financial statements and schedule based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Posadas de San Juan
Associates at June 30, 1997 and 1996, and the results of its operations and
its cash flows for each of the three years in the period ended June 30, 1997,
in conformity with generally accepted accounting principles. Also, in our
opinion, the related financial statement schedule, when considered in relation
to the basic financial statements taken as a whole, presents fairly in all
material respects the information set forth therein.
/s/ Ernst & Young LLP
San Juan, Puerto Rico
August 7, 1997
F-21
<PAGE>
POSADAS DE SAN JUAN ASSOCIATES
BALANCE SHEETS
<TABLE>
<CAPTION>
JUNE 30,
SEPTEMBER 30, --------------------------
1997 1997 1996
------------- ------------ ------------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents........ $ 2,787,000 $ 2,681,100 $ 2,443,700
Trade accounts receivable, less
allowance for doubtful accounts
of $606,300 and $357,100 at June
30, 1997 and 1996, respectively,
and $947,300 at September 30,
1997............................ 3,697,600 3,692,000 2,370,700
Inventories...................... 893,800 969,500 906,400
Prepaid expenses................. 534,300 790,300 837,100
------------ ------------ ------------
Total current assets........... 7,912,700 8,132,900 6,557,900
Land, building and equipment:
Land............................. 3,300,000 3,300,000 3,300,000
Building......................... 14,350,700 14,350,700 14,350,700
Building improvements............ 14,533,900 14,285,400 12,439,600
Furniture, fixtures and
equipment....................... 36,234,900 36,114,600 33,814,000
Construction in progress......... 658,200 113,400 --
------------ ------------ ------------
69,077,700 68,164,100 63,904,300
Less accumulated depreciation.... 34,203,200 33,353,000 30,080,700
------------ ------------ ------------
34,874,500 34,811,100 33,823,600
Operating equipment, net........... 434,300 523,000 570,700
Deferred financing costs, less
accumulated amortization of
$662,400 and $530,900 at June 30,
1997 and 1996, respectively, and
$696,000 at September 30, 1997.... 368,400 402,000 533,500
Other assets....................... 172,900 68,300 270,500
------------ ------------ ------------
Total assets....................... $ 43,762,800 $ 43,937,300 $ 41,756,200
============ ============ ============
LIABILITIES AND DEFICIENCY IN PARTNERSHIP CAPITAL
Current liabilities:
Trade accounts payable........... $ 4,187,400 $ 4,078,700 $ 4,039,900
Accrued compensation and related
benefits........................ 1,419,900 1,376,600 1,139,300
Other accrued liabilities........ 2,345,100 2,032,600 1,458,700
Due to affiliated companies...... 1,040,900 237,600 11,600
Note payable to bank............. -- -- 300,000
Current portion of long-term
debt............................ 3,170,600 3,170,600 3,152,000
------------ ------------ ------------
Total current liabilities...... 12,163,900 10,896,100 10,101,500
Long-term debt, net of current
portion........................... 20,045,600 20,831,400 23,805,000
Due to Williams Hospitality Group
Inc............................... 25,872,900 25,590,800 23,206,700
Deficiency in partnership capital:
Capital contribution............. 7,000,000 7,000,000 7,000,000
Deficit.......................... (21,319,600) (20,381,000) (22,357,000)
------------ ------------ ------------
Total deficiency in partnership
capital........................... (14,319,600) (13,381,000) (15,357,000)
------------ ------------ ------------
Total liabilities and deficiency in
partnership capital............... $ 43,762,800 $ 43,937,300 $ 41,756,200
============ ============ ============
</TABLE>
See accompanying notes.
F-22
<PAGE>
POSADAS DE SAN JUAN ASSOCIATES
STATEMENTS OF OPERATIONS AND DEFICIT
<TABLE>
<CAPTION>
THREE MONTHS ENDED
SEPTEMBER 30, YEAR ENDED JUNE 30,
-------------------------- ----------------------------------------
1997 1996 1997 1996 1995
------------ ------------ ------------ ------------ ------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenues:
Rooms................. $ 4,264,700 $ 3,760,000 $ 22,588,800 $ 22,016,700 $ 21,517,300
Food and beverage..... 2,476,300 2,370,800 13,218,000 13,424,400 12,688,200
Casino................ 4,917,500 3,926,700 19,582,200 18,117,600 22,575,400
Rental and other
income............... 871,000 665,600 3,255,800 3,503,000 2,852,400
Less casino
promotional
allowances........... (1,586,000) (1,002,400) (6,905,300) (6,937,900) (7,836,300)
------------ ------------ ------------ ------------ ------------
Net revenues........ 10,943,500 9,720,700 51,739,500 50,123,800 51,797,000
Costs and expenses:
Rooms................. 1,643,500 1,493,200 6,764,600 6,891,000 6,775,000
Food and beverage..... 1,920,000 1,900,900 9,297,400 9,506,100 9,340,600
Casino................ 2,524,500 2,439,200 9,729,000 10,716,800 14,027,100
Selling, general and
administrative....... 2,352,500 2,293,800 8,803,200 9,094,000 8,953,700
Management and
incentive management
fees................. 773,400 589,100 4,336,700 3,850,100 3,893,000
Property operation,
maintenance and
energy costs......... 1,060,400 1,150,000 4,509,700 4,803,200 4,416,800
Depreciation and
amortization......... 891,900 818,500 3,438,800 3,595,300 3,617,300
------------ ------------ ------------ ------------ ------------
11,166,200 10,684,700 46,879,400 48,456,500 51,023,500
------------ ------------ ------------ ------------ ------------
Income (loss) from
operations......... (222,700) (964,000) 4,860,100 1,667,300 773,500
Interest income......... -- -- -- -- 2,500
Interest expense........ (715,900) (743,700) (2,884,100) (3,026,800) (3,176,800)
------------ ------------ ------------ ------------ ------------
Net income (loss)....... (938,600) (1,707,700) 1,976,000 (1,359,500) (2,400,800)
Deficit at beginning of
year................... (20,381,000) (22,357,000) (22,357,000) (20,997,500) (18,596,700)
------------ ------------ ------------ ------------ ------------
Deficit at end of year.. $(21,319,600) $(24,064,700) $(20,381,000) $(22,357,000) $(20,997,500)
============ ============ ============ ============ ============
</TABLE>
See accompanying notes.
F-23
<PAGE>
POSADAS DE SAN JUAN ASSOCIATES
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
THREE MONTHS ENDED
SEPTEMBER 30, YEAR ENDED JUNE 30,
----------------------- -------------------------------------
1997 1996 1997 1996 1995
---------- ----------- ----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Operating Activities
Net income (loss)....... $ (938,600) $(1,707,700) $ 1,976,000 $(1,359,500) $(2,400,800)
Adjustments to reconcile
net income (loss) to
net cash provided by
operating activities:
Depreciation and
amortization......... 891,900 818,500 3,438,800 3,595,300 3,617,300
Provision for losses
on accounts
receivable........... 214,900 214,900 150,600 1,278,200 3,880,400
Gain or sale of
equipment............ -- -- -- (46,600) --
Changes in operating
assets and
liabilities:
Amounts due to/from
affiliated
companies........... 1,085,400 461,500 2,610,100 2,086,700 639,600
Trade accounts
receivable.......... (220,500) 212,600 (1,471,900) 503,900 833,200
Inventories and
prepaid expenses.... 331,700 121,700 (16,400) 193,600 21,600
Other assets......... (112,700) (734,500) 167,200 (10,500) (125,600)
Trade accounts
payable, accrued
expenses and other
accrued
liabilities......... 464,500 551,700 850,000 (990,600) (2,493,100)
---------- ----------- ----------- ----------- -----------
Net cash provided by
operating
activities......... 1,716,600 (61,300) 7,704,400 5,250,500 3,972,600
Investing Activities
Proceeds from sale of
equipment............ -- -- -- 119,300 --
Purchases of property
and equipment........ (913,600) (457,400) (4,059,700) (2,502,800) (3,310,000)
Purchases of operating
equipment--net....... 88,700 25,400 47,700 78,800 635,900
---------- ----------- ----------- ----------- -----------
Net cash used in
investing
activities......... (824,900) (432,000) (4,012,000) (2,304,700) (2,674,100)
Financing Activities
Proceeds from long-
term debt............ -- -- -- -- 156,200
Proceeds from short-
term borrowings...... -- 300,000 -- 300,000 --
Payment of short-term
borrowings........... -- -- (300,000) -- --
Payments of long-term
debt................. (785,800) (785,800) (3,155,000) (2,326,400) (2,046,800)
---------- ----------- ----------- ----------- -----------
Net cash used in
financing
activities......... (785,800) (485,800) (3,455,000) (2,026,400) (1,890,600)
---------- ----------- ----------- ----------- -----------
Net increase (decrease)
in cash and cash
equivalents............ 105,900 (979,100) 237,400 919,400 (592,100)
Cash at beginning of
year................... 2,681,100 2,443,700 2,443,700 1,524,300 2,116,400
---------- ----------- ----------- ----------- -----------
Cash and cash
equivalents at end of
year................... $2,787,000 $ 1,464,600 $ 2,681,100 $ 2,443,700 $ 1,524,300
========== =========== =========== =========== ===========
Included in cash
provided by operating
activities above:
Interest paid......... -- -- $ 2,887,600 $ 3,031,400 $ 3,232,500
========== =========== =========== =========== ===========
</TABLE>
See accompanying notes.
F-24
<PAGE>
POSADAS DE SAN JUAN ASSOCIATES
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1997
1. INTERIM INFORMATION (UNAUDITED)
The interim financial statements as of and for the three months ended
September 30, 1997 and 1996 included herein are unaudited. Such information
reflects all adjustments, consisting solely of normal recurring adjustments,
which are in the opinion of management necessary for a fair presentation of the
balance sheet as of September 30, 1997 and the results of operations and cash
flows for the three months ended September 30, 1997 and 1996. Due to the
seasonality of the business, the reported results are not necessarily
indicative of those expected for the entire year. Certain information and
disclosures normally included in annual financial statements in accordance with
generally accepted accounting principles have been excluded or omitted in
presentation of the interim financial statements.
2. ORGANIZATION AND PRINCIPAL ACCOUNTING POLICIES
Organization
Posadas de San Juan Associates (the Partnership), is a joint venture
organized under the General Partnership Laws of the State of New York, pursuant
to a Joint Venture Agreement dated July 27, 1984, as amended (the Agreement).
The Partnership is 50% owned by ESJ Hotel Corporation, a wholly- owned
subsidiary of Posadas de Puerto Rico Associates, Incorporated (Posadas de
Puerto Rico), with the remainder owned by entities owned by individual
investors (collectively, the Partners). Posadas de Puerto Rico is 100% owned by
WHG Resorts & Casinos Inc., a publicly-held corporation. The Partnership shall
continue to exist until July 27, 2024, unless terminated earlier by mutual
agreement of the Partners pursuant to the Agreement. The Agreement provides
that the net profits or losses of the Partnership shall be allocated to the
Partners in the same proportion as their capital contributions.
The Partnership owns and operates the El San Juan Hotel & Casino (the
"Hotel"), a luxury resort hotel and casino property in San Juan, Puerto Rico.
Basis of Presentation
The financial statements have been prepared in conformity with generally
accepted accounting principles which require management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Cash Equivalents
The Partnership considers all highly liquid investments with a maturity of
three months or less when purchased as cash equivalents.
Inventories
Inventories, which consist mainly of food, beverages and supplies, are valued
at the lower of cost (first-in, first-out method) or market.
Land, Building and Equipment
Land, building and equipment are stated on the basis of cost. Building and
equipment are depreciated by the straight-line method over their estimated
useful lives.
F-25
<PAGE>
POSADAS DE SAN JUAN ASSOCIATES
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
JUNE 30, 1997
Deferred Financing Costs
Deferred financing costs are being amortized over the maturities of the
related debt.
Casino Revenues
Casino revenues are the net win from gaming activities, which is the
difference between gaming wins and losses.
Promotional Allowances
Casino promotional allowances represent the retail value of complimentary
food, beverage and hotel services furnished to patrons, commissions and
transportation costs.
Advertising Costs
Advertising costs are charged to operations as incurred. Advertising costs
for fiscal years 1997, 1996 and 1995 amounted to approximately $1,388,000,
$1,394,000 and $1,299,000, respectively.
Fair Values of Financial Instruments
The methods and assumptions used to estimate the fair value of the different
classes of financial instruments were as follows:
Long-term debt: The carrying amount of the long-term borrowings at June 30,
1997 approximates fair value. The fair values were estimated using discounted
cash flows, based on the current borrowing rates for similar types of
borrowing arrangements.
3. FURNITURE, FIXTURES AND EQUIPMENT FUND
In accordance with the terms of the Management Agreement and a certain loan
agreement (see Note 6), the Partnership is required to deposit cash equal to
4% of hotel gross revenues each month into a furniture, fixtures and equipment
fund.
Williams Hospitality Group Inc. (Williams Hospitality), a hotel/casino
management company that is an affiliated company, (on behalf of the
Partnership) withdraws from the fund amounts required to pay the cost of
replacements of, and additions to, furniture, fixtures and equipment at the
Hotel. At June 30, 1997 and 1996, there were no unexpended funds available.
4. TRADE ACCOUNTS RECEIVABLE
At June 30, 1997 and 1996 trade accounts receivable consisted of the
following:
<TABLE>
<CAPTION>
1997 1996
---------- ----------
<S> <C> <C>
Trade accounts receivable--casino................... $2,001,600 $1,045,100
Less allowance for doubtful accounts................ 516,100 266,100
---------- ----------
1,485,500 779,000
Trade accounts receivable--hotel.................... 2,296,700 1,682,700
Less allowance for doubtful accounts................ 90,200 91,000
---------- ----------
2,206,500 1,591,700
---------- ----------
$3,692,000 $2,370,700
========== ==========
</TABLE>
F-26
<PAGE>
POSADAS DE SAN JUAN ASSOCIATES
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
JUNE 30, 1997
Approximately 51% and 31% of the trade accounts receivable--casino, as of
June 30, 1997 and 1996, respectively, are from customers in Latin America.
5. DUE TO AFFILIATED COMPANY
Amounts due to affiliated company consist of fees earned by Williams
Hospitality and other payments made by Williams Hospitality for services
rendered on behalf of the Partnership. At June 30, 1997 and 1996 amounts due
to an affiliated company consisted of the following:
<TABLE>
<CAPTION>
1997 1996
----------- -----------
<S> <C> <C>
Due to Williams Hospitality--noncurrent:
Incentive management fees....................... $11,283,400 $ 9,878,900
Interest on incentive management fees........... 5,506,400 4,526,800
Basic management fees........................... 8,801,000 8,801,000
----------- -----------
$25,590,800 $23,206,700
=========== ===========
</TABLE>
Payment of substantially all the noncurrent amounts due to Williams
Hospitality are restricted under the terms of the Loan Agreement (see Note 6).
6. LINE OF CREDIT
The Partnership has available a $1,000,000 revolving line of credit with a
bank, which is payable on demand, bearing interest at one percentage over the
prime rate. The line of credit is collateralized by substantially all trade
accounts receivable and leases with concessionaires as well as the mortgage
covering long-term debt. As of June 30, 1997, there was no balance outstanding
under the line of credit.
7. LONG-TERM DEBT
Long-term debt at June 30, 1997 and 1996 consisted of the following:
<TABLE>
<CAPTION>
1997 1996
----------- -----------
<S> <C> <C>
Mortgage note payable to bank.......................... $23,250,000 $26,250,000
Capital lease obligation bearing interest at 11.18%
payable in monthly installments of $3,450, including
interest through 1999................................. 70,000 109,600
Capital lease obligation bearing interest at 9.5%
payable in monthly installments of $10,413, including
interest through 2001................................. 396,100 480,700
Chattel mortgage note payable bearing interest at 9%,
payable in monthly installments of $3,900, including
interest through 1998, collateralized with personal
property.............................................. 85,900 116,700
Note payable to a non-related party, non-interest
bearing, payable in two annual installments of
$100,000 beginning on October 1, 1998................. 200,000 --
----------- -----------
24,002,000 26,957,000
Less current portion................................... 3,170,600 3,152,000
----------- -----------
$20,831,400 $23,805,000
=========== ===========
</TABLE>
The mortgage note payable to bank is collateralized by all the Partnership's
real and personal property. The note is payable in accelerating monthly
installments with a final installment of $7,500,000 due in fiscal 2003.
F-27
<PAGE>
POSADAS DE SAN JUAN ASSOCIATES
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
JUNE 30, 1997
Interest is payable at rates from 6.7% to 7.3% on $18,250,000 of the note.
Interest rates have not been fixed on $5,000,000 of the note, which at June
30, 1997 was at an interest rate of 7.97%, which is reset every seven days.
Under the terms of the loan agreement, 50% of the excess net free cash flow,
as defined, each year is required to be used to prepay the final installment
of the note until it is reduced to $3,000,000. Further, distributions to the
partners and payment of basic and incentive management fees and accrued
interest thereon outstanding at the date of the borrowing may only be paid to
the extent of the remaining 50% of the excess net free cash flow. Excess net
free cash flow, as defined, amounted to $648,000 at June 30, 1997.
Maturities of long-term debt are as follows:
<TABLE>
<S> <C>
Fiscal year ending in:
1998........................................................... $ 3,170,600
1999........................................................... 3,392,000
2000........................................................... 3,726,000
2001........................................................... 3,588,400
2002........................................................... 2,625,000
Thereafter..................................................... 7,500,000
-----------
$24,002,000
===========
</TABLE>
8. INCOME TAXES
The Partnership operated under the provisions of the Puerto Rico Tourism
Incentives Act of 1993 (the 1993 Act). The 1993 Act provides for a ten-year
grant which may be extended for an additional ten-year term. Major benefits of
this grant are: a 90% exemption from income taxes on hotel income through the
entire term of the grant, and a 90% exemption from municipal real and personal
property taxes for the first five years. The Partnership's casino operations
are not covered by the tax exemption grant and are fully taxable.
As of June 30, 1997, the Partnership had net operating loss carryforwards of
approximately $20,391,600, net of approximately $1,600,000 used to offset 1997
taxable income for Puerto Rico income tax purposes from its combined hotel and
casino operations and, accordingly, no Puerto Rico taxes have been provided in
the accompanying financial statements. Such losses may be utilized to offset
future Puerto Rico taxable income through June 30, 2001 as follows: 1998,
$2,064,000; 1999, $3,271,000; 2000, $3,896,600; 2001, $6,046,000 and 2002,
$5,114,000.
Following the provisions of SFAS No. 109, the deferred tax asset that
results from the cumulative net operating loss carryforwards has been fully
reserved.
For Puerto Rico income tax purposes the Partnership is taxed as if it were a
corporation. Income of the Partnership for federal income tax purposes is
taxable to the Partners.
9. TRANSACTIONS WITH RELATED PARTIES
The Partnership has an Operating and Management Agreement (the Management
Agreement) dated October 2, 1986 with Williams Hospitality. The Management
Agreement provides that Williams Hospitality is to manage the Hotel until the
year 2005 for a basic management fee of 5% of the Hotel's gross revenues (as
defined in the Management Agreement) and an incentive management fee of 12% of
the Hotel's gross operating profits (as defined in the Management Agreement).
In addition, the Partnership is required to pay certain administrative
expenses incurred by Williams Hospitality in connection with management of the
Hotel.
F-28
<PAGE>
POSADAS DE SAN JUAN ASSOCIATES
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
JUNE 30, 1997
During fiscal years 1997, 1996 and 1995 basic management fees amounted to
$2,932,200, $2,852,500 and $2,981,600, respectively. Incentive management fees
amounted to $1,404,500, $997,600 and $911,500, respectively, for the same
fiscal years. Administrative costs and service fees charged by Williams
Hospitality during fiscal years 1997, 1996 and 1995, amounted to $1,422,600,
$1,446,700 and $1,844,000, respectively.
During fiscal years 1997, 1996 and 1995, interest at 10% charged to the
Partnership by Williams Hospitality amounted to $987,900, $888,100 and
$797,000, respectively.
During fiscal years 1997, 1996 and 1995, the Partnership was charged by
Posadas de Puerto Rico $338,100, $243,600 and $92,800, respectively, for
certain services provided.
During fiscal years 1997, 1996 and 1995, the Partnership charged Posadas de
Puerto Rico $337,400, $256,100 and $191,500, respectively, for certain
services rendered.
F-29
<PAGE>
SCHEDULE II
POSADAS DE SAN JUAN ASSOCIATES
SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED JUNE 30, 1997, 1996 AND 1995
<TABLE>
<CAPTION>
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E
-------- ------------ --------------------- ------------ ----------
BALANCE AT CHARGED TO CHARGED TO DEDUCTIONS-- BALANCE AT
BEGINNING OF COSTS AND OTHER AMOUNTS END OF
DESCRIPTION PERIOD EXPENSES ACCOUNTS WRITTEN OFF PERIOD
----------- ------------ ---------- ---------- ------------ ----------
<S> <C> <C> <C> <C> <C>
Allowance for receiv-
ables:
1997.................. $ 357,100 $ 150,600 $-- $ (98,599) $606,299
========== ========== ==== ========== ========
1996.................. $ 434,546 $1,278,200 $-- $1,355,646 $357,100
========== ========== ==== ========== ========
1995.................. $1,290,819 $3,880,413 $-- $4,736,686 $434,546
========== ========== ==== ========== ========
</TABLE>
F-30
<PAGE>
REPORT OF INDEPENDENT AUDITORS
The Partners
WKA El Con Associates
We have audited the accompanying balance sheets of WKA El Con Associates (a
joint venture partnership) as of June 30, 1997 and 1996, and the related
statements of operations and deficit, and cash flows for each of the three
years in the period ended June 30, 1997. These financial statements are the
responsibility of the Partnership's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of WKA El Con Associates as
of June 30, 1997 and 1996, and the results of its operations and its cash
flows for each of the three years in the period ended June 30, 1997, in
conformity with generally accepted accounting principles.
The accompanying financial statements have been prepared assuming that WKA
El Con Associates will continue as a going-concern. As more fully described in
Note 8, El Conquistador Partnership L.P., a 50% owned partnership, has not
renewed or replaced a letter of credit collateralizing $120,000,000 of
indebtedness. In the event that the letter of credit is not renewed or
replaced prior to November 9, 1997, the debt will be required to be repaid on
February 1, 1998. This condition raises substantial doubt about the
Partnership's ability to continue as a going concern. The financial statements
do not include any adjustments to reflect the possible future effects on the
recoverability and classifications of assets or the amounts and
classifications of liabilities that may result from the outcome of this
uncertainty.
/s/ Ernst & Young LLP
San Juan, Puerto Rico
August 11, 1997
F-31
<PAGE>
WKA EL CON ASSOCIATES
BALANCE SHEETS
<TABLE>
<CAPTION>
JUNE 30,
SEPTEMBER 30, ------------------------
1997 1997 1996
------------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Cash................................... $ 3,600 $ 3,600 $ 3,200
Notes receivable from affiliated
company............................... 18,863,700 18,343,200 16,116,000
Investment in Las Casitas Development
Company............................... -- 242,600 1,292,600
Capitalized interest, less accumulated
amortization of $100,400 and $71,000
at June 30, 1997 and 1996,
respectively, and $107,700 at
September 30, 1997.................... 1,360,800 1,368,100 1,397,500
Deferred debt issuance costs and other
assets, less accumulated amortization
of $598,600 and $496,200 at June 30,
1997 and 1996, respectively, and
$624,400 at September 30, 1997........ 744,000 769,800 872,200
----------- ----------- -----------
Total assets....................... $20,972,100 $20,727,300 $19,681,500
=========== =========== ===========
LIABILITIES AND DEFICIENCY IN PARTNERS' CAPITAL
Liabilities:
Long-term note payable............... $ 5,526,200 $ 5,527,400 $ 5,197,000
Due to affiliated company............ 90,600 85,100 64,200
Due to partners...................... 10,653,900 10,475,100 9,790,700
Losses in excess of equity investment
in El Conquistador Partnership
L.P. ............................... 13,689,200 12,464,200 7,762,600
----------- ----------- -----------
Total liabilities.................. 29,959,900 28,551,800 22,814,500
Deficiency in partners' capital:
Contributed.......................... 20,286,200 20,286,200 20,286,200
Deficit.............................. 29,274,000) 28,110,700) 23,419,200)
----------- ----------- -----------
Total deficiency in partners'
capital........................... (8,987,800) (7,824,500) (3,133,000)
----------- ----------- -----------
Total liabilities and deficiency in
partners' capital................. $20,972,100 $20,727,300 $19,681,500
=========== =========== ===========
</TABLE>
See accompanying notes.
F-32
<PAGE>
WKA EL CON ASSOCIATES
STATEMENTS OF OPERATIONS AND DEFICIT
<TABLE>
<CAPTION>
THREE MONTHS ENDED
SEPTEMBER 30, YEAR ENDED JUNE 30,
-------------------------- ----------------------------------------
1997 1996 1997 1996 1995
------------ ------------ ------------ ------------ ------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Interest income......... $ 325,300 $ 295,500 $ 1,241,100 $ 1,150,100 $ 1,027,600
Costs and expenses:
Interest.............. 282,400 265,400 1,078,400 1,145,800 1,137,600
Professional fees..... 5,500 7,400 20,900 40,100 83,400
Amortization.......... 33,100 33,100 131,800 142,000 163,200
------------ ------------ ------------ ------------ ------------
321,000 305,900 1,231,100 1,327,900 1,384,200
------------ ------------ ------------ ------------ ------------
Income (loss) before
equity in operations of
investees.............. 4,300 (10,400) 10,000 (177,800) (356,600)
Equity in operations of
investees:
El Conquistador
Partnership L.P. .... (1,167,600) (923,500) (4,701,500) (6,120,500) (13,738,400)
Las Casitas
Development Company.. -- -- -- 313,200 1,627,100
------------ ------------ ------------ ------------ ------------
(1,167,600) (923,500) (4,701,500) (5,807,300) (12,111,300)
------------ ------------ ------------ ------------ ------------
Net loss................ (1,163,300) (933,900) (4,691,500) (5,985,100) (12,467,900)
Accumulated deficit at
beginning of year...... (28,110,700) (23,419,200) (23,419,200) (17,434,100) (4,966,200)
------------ ------------ ------------ ------------ ------------
Accumulated deficit at
end of year............ $(29,274,000) $(24,353,100) $(28,110,700) $(23,419,200) $(17,434,100)
============ ============ ============ ============ ============
</TABLE>
See accompanying notes.
F-33
<PAGE>
WKA EL CON ASSOCIATES
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
THREE MONTHS ENDED
SEPTEMBER 30, YEAR ENDED JUNE 30,
----------------------- ----------------------------------------
1997 1996 1997 1996 1995
------------ --------- ------------ ------------ ------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Operating Activities
Net loss............... $(1,163,300) $(933,900) $(4,691,500) $(5,985,100) $(12,467,900)
Adjustments to
reconcile net loss to
net cash provided by
(used in) operating
activities:
Amortization......... 33,100 33,100 131,800 142,000 163,200
Equity in operations
of affiliates
including $1,050,000
and $950,000 in cash
distributions
received in fiscal
years 1997 and 1996,
respectively, and
$300,100 and
$600,000 in cash
distributions
received during the
three months ended
September 30, 1997
and 1996,
respectively........ 1,467,600 1,523,500 5,751,600 6,757,300 12,111,300
Changes in operating
assets and
liabilities:
Accrued interest
income added to
notes receivable.... (351,400) (626,900) (1,177,200) (1,122,800) (1,000,600)
Other receivables.... -- -- -- -- 13,200
Accrued interest
expense added to
long-term
liabilities......... -- -- 330,400 1,102,900 974,500
Accounts payable..... (1,200) 94,200 -- -- (36,700)
Due to affiliated
company............. 5,500 7,500 -- 58,900 --
------------ --------- ------------ ------------ ------------
Net cash provided
by (used in)
operating
activities....... (9,700) 97,500 345,100 953,200 (243,000)
Investing Activities
Sale of certificate of
deposit held in
escrow................ -- -- -- 682,500 100,000
Increase on deferred
debt issuance costs
and other assets...... -- -- -- -- (230,400)
Increase in notes
receivable from
affiliated company.... (169,100) (268,200) (1,050,000) (950,000) (423,500)
------------ --------- ------------ ------------ ------------
Net cash used in
investing
activities....... (169,100) (268,200) (1,050,000) (267,500) (553,900)
Financing Activities
Partners' contributed
capital............... -- -- -- 1,295,700 1,870,500
Partners' loans--net... 178,800 171,100 684,400 (852,900) 323,500
Payments to affiliated
company............... -- -- 20,900 (1,125,300) (1,397,100)
------------ --------- ------------ ------------ ------------
Net cash provided by
(used in) financing
activities............ 178,800 171,100 705,300 (682,500) 796,900
------------ --------- ------------ ------------ ------------
Net increase in cash... -- 400 400 3,200 --
Cash at beginning of
year.................. 3,600 3,200 3,200 -- --
------------ --------- ------------ ------------ ------------
Cash at end of year.... $ 3,600 $ 3,600 $ 3,600 $ 3,200 $ --
============ ========= ============ ============ ============
</TABLE>
See accompanying notes.
F-34
<PAGE>
WKA EL CON ASSOCIATES
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1997
1. INTERIM INFORMATION (UNAUDITED)
The interim financial statements as of and for the three months ended
September 30, 1997 and 1996, included herein are unaudited. Such information
reflects all adjustments, consisting solely of normal recurring adjustments,
which are in the opinion of management necessary for a fair presentation of
the balance sheet as of September 30, 1997 and the results of operations and
cash flows for the three months ended September 30, 1997 and 1996. Due to the
seasonality of the business, the reported results are not necessarily
indicative of those expected for the entire year. Certain information and
disclosures normally included in annual financial statements in accordance
with generally accepted accounting principles have been excluded or omitted in
presentation of the interim financial statements.
2. ORGANIZATION AND PRINCIPAL ACCOUNTING POLICIES
Organization
WKA El Con Associates (the Partnership) is a joint venture organized under
the General Partnership Law of the State of New York, pursuant to a Joint
Venture Agreement (the Agreement) dated January 9, 1990, as amended, for the
purpose of becoming a general and limited partner of El Conquistador
Partnership L.P. (El Con). The Partnership is owned 46.54% by WHG El Con Corp.
(formerly known as WMS El Con Corp.), which is wholly-owned by WHG Resorts &
Casino Inc., 37.23% by AMK Conquistador, S.E. and 16.23% by Hospitality
Investor Group, S.E. The Partnership shall continue to exist until January 9,
2040, unless terminated earlier pursuant to the Agreement. Net profits or
losses of the Partnership will be allocated to the partners in accordance with
the terms of the Agreement.
The Partnership is a 50% limited partner in Las Casitas Development Company
I, S en C (S.E.) ("Las Casitas"), a joint venture constructing and selling
condominiums on property adjacent to El Con.
Basis of Presentation
The financial statements have been prepared in conformity with generally
accepted accounting principles which require management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Investments in Affiliated Companies
The investments in affiliated companies are accounted for under the equity
method. El Con equity is recorded by the Partnership based on El Con's fiscal
year of March 31. Las Casitas equity is recorded by the Partnership based on
Las Casitas' fiscal year of June 30. Capitalized interest is being amortized
by the straight-line method over the estimated useful life of the El
Conquistador property.
Deferred Debt Issuance Costs and Other Assets
Deferred debt issuance costs include legal and bank fees incurred in
connection with the issuance of the debt, and are being amortized over the
maturity of the related debt. Certain other capital and pre-opening costs
relating to El Con were incurred by the Partnership and are being amortized
over 5 to 50 years.
Fair Values of Financial Instruments
Note payable: The carrying amount of the note payable at June 30, 1997
approximates fair value. The fair value was estimated using discounted cash
flows, based on the current borrowing rates for similar types of borrowing
arrangements.
F-35
<PAGE>
WKA EL CON ASSOCIATES
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
JUNE 30, 1997
3. NOTES RECEIVABLE FROM AFFILIATED COMPANY
At June 30, 1997 and 1996 notes receivable from El Con consisted of the
following:
<TABLE>
<CAPTION>
1997 1996
----------- -----------
<S> <C> <C>
Note receivable due on demand...................... $ 136,000 $ 136,000
Note receivable due through May, 2002 (See Note
5)................................................ 4,000,000 4,000,000
Subordinated notes receivable due in 2003 to 2005
(See Note 4)...................................... 8,229,700 8,229,700
Accrued interest receivable........................ 3,977,500 2,800,300
Deficiency loan participation...................... 2,000,000 950,000
----------- -----------
$18,343,200 $16,116,000
=========== ===========
</TABLE>
Repayment of the notes, including accrued interest, is subordinated to other
long-term debt of El Con.
4. INVESTMENT IN AFFILIATED COMPANIES
In 1991, the Partnership borrowed $9,000,000 from Williams Hospitality Group
Inc. (Williams Hospitality), a hotel/casino management company that is an
affiliated company, and invested the proceeds in the partnership capital of El
Con, a joint venture organized to acquire the El Conquistador property. The
Partnership owns a 50% interest, as both a general and limited partner, of El
Con (See Note 4).
Summarized financial information for El Con as of March 31, 1997 and 1996
and for the years then is as follows:
<TABLE>
<CAPTION>
1997 1996
------------ ------------
<S> <C> <C>
Total assets...................................... $205,430,000 $211,691,000
Total liabilities................................. 218,359,000 215,216,000
Deficiency in partners capital.................... 12,929,000 3,525,000
Revenues.......................................... 92,958,000 89,214,000
Net loss.......................................... 9,403,000 12,241,000
</TABLE>
The Partnership's investment in Las Casitas amounts to $5,000.
5. DUE TO AFFILIATED COMPANY AND PARTNERS
At various times, the partners loaned the Partnership $8,229,700 under the
terms of loan agreements. The notes are payable in 2003 to 2005 and bear
interest at the prime rate commencing on various dates. The Partnership has
advanced the same amount under a subordinated note to El Con under the same
terms as the borrowing from the partners. (See Note 3).
In November 1993, the partners advanced $782,500 to the Partnership that was
invested in a bank certificate of deposit. During fiscal year 1996 the
remaining balance of $682,500 was withdrawn from the certificate and
distributed to the partners. The certificate of deposit was held in escrow and
was pledged as collateral to the bank for a bank loan of an equal amount to El
Con. Interest accrued on the partners' advances at the same interest rate
earned on the certificate of deposit.
During fiscal year 1997 and 1996, respectively, the Partnership purchased
from Williams Hospitality $1,050,000 and $950,000, respectively, of
participation in a deficiency loan to El Con. The loan and interest at 9.16%
are payable from specified future cash flow of El Con. The partnership
guarantees a revolving credit facility with a bank in the aggregate amount of
up to $4,000,000 of El Conquistador.
F-36
<PAGE>
WKA EL CON ASSOCIATES
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
JUNE 30, 1997
6. LONG-TERM NOTE PAYABLE
The long-term note payable to a bank includes accrued interest of $1,527,400
and $1,197,000 at June 30, 1997 and 1996, respectively. The note is payable in
quarterly installments of $250,000 commencing in May 2000. Any unpaid
principal and interest is payable in May 2002. The note bears interest at a
variable rate, computed quarterly, equal to LIBOR, plus 1.75%. Under the terms
of the Credit Facility Agreement dated May 5, 1992, interest payments are
deferred during the first five years. The $4,000,000 borrowing was loaned to
El Conquistador under similar terms. (See Note 3).
The note is collateralized by second mortgages on parcels of land owned by
Williams Hospitality and Posadas de Puerto Rico Associates, Incorporated,
affiliated companies through common ownership, with a cost of approximately
$3,761,000, and a guarantee of $1,000,000 by WHG Resorts & Casino Inc., the
ultimate owner of WHG El Con Corp.
7. INCOME TAXES
The Partnership is not taxable for Puerto Rico income tax purposes pursuant
to an election submitted to the Puerto Rico Treasury Department. Instead, each
partner reports their distributive share of the Partnership's profit or losses
in their respective income tax returns and, therefore, no provision for income
taxes has been made in the accompanying financial statements. Income or loss
of the Partnership for Federal income tax purposes is reported by the
partners.
8. REFINANCING
El Con, a partnership 50% owned by the Partnership, has not renewed or
replaced a letter of credit collateralizing $120,000,000 of Industrial Revenue
Bonds, which expires on March 9, 1998. The debt is required to be repaid on
February 1, 1998 in the event the letter of credit is not renewed or replaced
prior to November 9, 1997. El Con has retained an investment banking firm to
assist in structuring the refinancing of El Con's debt. Based on operating
history of the El Con resort, El Con's management believes such refinancing
will be achieved, but there can be no assurance thereof. If such refinancing
is not renewed or replaced, it raises substantial doubt about El Con's and the
Partnership's ability to continue as going-concerns.
F-37
<PAGE>
REPORT OF INDEPENDENT AUDITORS
The Partners
El Conquistador Partnership L.P.
We have audited the accompanying balance sheets of El Conquistador
Partnership L.P. as of March 31, 1997 and 1996, and the related statements of
operations and (deficiency in) partners' capital, and cash flows for each of
the three years in the period ended March 31, 1997. These financial statements
are the responsibility of the Partnership's management. Our responsibility is
to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of El Conquistador
Partnership L.P. at March 31, 1997 and 1996, and the results of its operations
and its cash flows for each of the three years in the period ended March 31,
1997, in conformity with generally accepted accounting principles.
The accompanying financial statements have been prepared assuming that El
Conquistador Partnership L.P. will continue as a going-concern. As more fully
described in Note 14, to date El Conquistador Partnership L.P. has not renewed
or replaced a letter of credit collateralizing $120,000,000 of indebtedness.
In the event that the letter of credit is not renewed or replaced prior to
November 9, 1997, the debt will be required to be repaid on February 1, 1998.
This condition raises substantial doubt about the El Conquistador Partnership
L.P.'s ability to continue as a going concern. The financial statements do not
include any adjustments to reflect the possible future effects on the
recoverability and classifications of assets or the amounts and
classifications of liabilities that may result from the outcome of this
uncertainty.
/s/ Ernst & Young LLP
San Juan, Puerto Rico
May 2, 1997
F-38
<PAGE>
EL CONQUISTADOR PARTNERSHIP L.P.
BALANCE SHEETS
<TABLE>
<CAPTION>
MARCH 31,
JUNE 30, --------------------------
1997 1997 1996
------------ ------------ ------------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
- ------
Current assets:
Cash................................ $ 937,088 $ 2,380,218 $ 856,983
Restricted cash and investments held
by bank............................ 3,438,722 3,360,607 2,879,355
Trade accounts receivable, less
allowance for doubtful accounts of
$269,115 and $301,765 at March 31,
1997 and 1996, respectively, and
$263,336 at June 30, 1997.......... 5,259,173 4,764,607 5,302,884
Due from affiliated companies....... 496,268 428,987 314,999
Inventories......................... 1,722,260 1,662,877 1,522,463
Prepaid expenses and other current
assets............................. 1,506,524 1,020,716 945,905
------------ ------------ ------------
Total current assets............... 13,360,035 13,618,012 11,822,589
Due from affiliated company.......... 258,185 418,957 817,868
Land, building and equipment:
Land................................ 14,372,707 14,372,707 14,372,707
Building............................ 158,039,190 158,039,190 158,039,190
Furniture, fixture and equipment.... 32,968,909 32,664,796 31,359,202
------------ ------------ ------------
205,380,806 205,076,693 203,771,099
Less accumulated depreciation....... 22,721,318 21,116,551 14,777,283
------------ ------------ ------------
182,659,488 183,960,142 188,993,816
Operating equipment, net............. 1,463,570 1,592,219 1,469,350
Deferred debt issuance costs, net of
accumulated amortization of
$5,709,747 and $4,731,745 at March
31, 1997 and 1996, respectively, and
$3,921,345 at June 30, 1994......... 2,736,120 2,980,622 3,958,624
Deferred pre-opening costs, net of
accumulated amortization of
$10,519,175 and $8,751,425 at March
31, 1997 and 1996, respectively, and
$10,961,112 at June 30, 1997........ 2,418,567 2,860,504 4,628,254
------------ ------------ ------------
Total assets....................... $202,895,965 $205,430,456 $211,690,501
============ ============ ============
LIABILITIES AND DEFICIENCY IN
PARTNERS' CAPITAL
- -----------------------------
Current liabilities:
Trade accounts payable.............. $ 5,037,984 $ 5,474,496 $ 7,657,546
Bank overdraft...................... 1,023,130 -- --
Advance deposits.................... 2,192,643 5,572,317 3,568,390
Accrued interest.................... 1,701,436 1,785,687 1,510,080
Other accrued liabilities........... 5,070,540 5,271,335 4,673,189
Due to affiliated companies......... 768,358 545,824 652,896
Note payable to bank................ 3,500,000 1,500,000 2,773,359
Current portion of long-term debt... 120,000,000 120,000,000 --
Current portion of chattel mortgages
and capital lease obligations...... 2,679,819 2,679,819 2,444,993
------------ ------------ ------------
Total current liabilities.......... 141,973,910 142,829,478 23,280,453
Long-term debt....................... 25,000,000 25,000,000 145,000,000
Chattel mortgages and capital lease
obligations, net of current
portion............................. 1,038,142 1,660,040 4,324,358
Due to affiliated companies.......... 12,246,673 11,491,977 8,531,671
Due to partners...................... 37,900,913 37,377,424 34,079,309
Deficiency in partners' capital:
Limited partners.................... (12,974,122) (10,989,193) (2,996,497)
General partners.................... (2,289,551) (1,939,270) (528,793)
------------ ------------ ------------
Total deficiency in partners' capi-
tal............................... (15,263,673) (12,928,463) (3,525,290)
------------ ------------ ------------
Total liabilities and deficiency in
partners' capital.................. $202,895,965 $205,430,456 $211,690,501
============ ============ ============
</TABLE>
See accompanying notes.
F-39
<PAGE>
EL CONQUISTADOR PARTNERSHIP L.P.
STATEMENTS OF OPERATIONS AND (DEFICIENCY IN) PARTNERS' CAPITAL
<TABLE>
<CAPTION>
THREE MONTHS ENDED
JUNE 30, YEAR ENDED MARCH 31,
------------------------- --------------------------------------
1997 1996 1997 1996 1995
------------ ----------- ------------ ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenues:
Rooms.................. $ 10,110,204 $ 9,763,440 $ 40,023,903 $38,817,160 $37,942,821
Food and beverage...... 7,558,329 8,061,916 26,235,365 26,188,693 27,298,340
Casino................. 1,278,377 1,395,740 6,005,242 6,179,133 6,054,569
Rental and other
income................ 5,691,174 5,057,452 21,959,328 19,165,969 14,652,328
------------ ----------- ------------ ----------- -----------
24,638,084 24,278,548 94,223,838 90,350,955 85,948,058
Less casino promotional
allowances............ (200,573) (283,888) (1,265,710) (1,136,499) (1,205,380)
------------ ----------- ------------ ----------- -----------
Net revenues.......... 24,437,511 23,994,660 92,958,128 89,214,456 84,742,678
Costs and expenses:
Rooms.................. 3,606,885 3,243,593 12,377,694 12,853,157 14,755,239
Food and beverage...... 4,805,250 5,014,481 17,602,484 17,638,186 20,797,173
Casino................. 903,494 944,037 3,848,981 3,686,904 3,923,817
Selling, general and
administrative........ 4,661,954 4,295,248 14,657,312 12,992,841 18,115,433
Management and
incentive management
fees.................. 1,450,084 1,479,997 5,680,355 5,394,675 3,703,819
Property operation,
maintenance and energy
costs................. 2,190,925 1,974,600 12,382,577 12,396,063 14,408,347
Depreciation and
amortization.......... 2,306,617 2,276,010 9,146,664 10,499,296 11,124,075
Other expenses......... 2,446,679 2,460,549 9,702,212 9,201,228 9,722,662
------------ ----------- ------------ ----------- -----------
22,371,888 21,688,515 85,398,279 84,662,350 96,550,565
------------ ----------- ------------ ----------- -----------
Income (loss) from op-
erations............. 2,065,623 2,306,145 7,559,849 4,552,106 (11,807,887)
Interest income......... -- -- 199,110 228,625 467,922
Interest expense........ 4,400,833 4,150,594 17,162,132 17,021,764 16,136,755
------------ ----------- ------------ ----------- -----------
Net loss................ (2,335,210) (1,844,449) (9,403,173) (12,241,033) (27,476,720)
(Deficiency in)
partners' capital at
beginning of year...... (12,928,463) (3,525,290) (3,525,290) 8,715,743 36,191,325
Partners' capital
contribution........... -- -- -- -- 1,138
------------ ----------- ------------ ----------- -----------
Deficiency in partners'
capital at end of
year................... $(15,263,673) $(5,369,739) $(12,928,463) $(3,525,290) $ 8,715,743
============ =========== ============ =========== ===========
</TABLE>
See accompanying notes.
F-40
<PAGE>
EL CONQUISTADOR PARTNERSHIP L.P.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
THREE MONTHS ENDED
JUNE 30, YEAR ENDED MARCH 31,
------------------------ ----------------------------------------
1997 1996 1997 1996 1995
----------- ----------- ------------ ------------ ------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
OPERATING ACTIVITIES
Net loss................ $(2,335,210) $(1,844,449) $(9,403,173) $(12,241,033) $(27,476,720)
Adjustments to reconcile
net loss to net cash
provided by (used in)
operating activities:
Depreciation and
amortization.......... 2,306,617 2,276,010 9,146,664 10,499,296 11,124,075
Provision for losses on
accounts receivable... 28,000 45,400 205,400 363,245 1,808,641
Incentive management
fees.................. 587,751 630,222 2,375,526 2,224,381 679,259
Deferred interest
expense to partners
and affiliates........ 562,568 530,471 3,100,085 2,995,431 2,063,981
Changes in operating
assets and liabili-
ties:
Restricted cash and
investments held by
bank.................. (78,115) (83,038) (481,252) 503,353 2,549,446
Trade accounts
receivable............ (522,566) 1,328,065 332,877 1,987,789 2,187,211
Inventories............ (59,383) 219 (140,414) 529,503 61,249
Prepaid expenses and
other current assets.. (501,219) (183,159) (74,811) 26,105 491,032
Trade accounts payable
and advance deposits.. (3,816,186) (3,180,618) (179,123) (3,663,803) (1,323,693)
Accrued interest and
other accrued
liabilities........... 738,084 (319,669) 873,753 (1,220,058) 1,156,483
Affiliated companies,
net................... 316,025 (79,210) 99,017 (97,985) 1,967,073
----------- ----------- ------------ ------------ ------------
Net cash provided by
(used in) operating
activities............. (2,773,634) (879,756) 5,854,549 1,906,224 (4,711,963)
INVESTING ACTIVITIES
Purchases of property
and equipment.......... (304,113) (189,259) (1,305,594) (826,611) (3,525,762)
Usage of operating
equipment, net......... 128,649 (25,638) (122,869) (37,454) 523,641
----------- ----------- ------------ ------------ ------------
Net cash used in
investing activities... (175,464) (214,897) (1,428,463) (864,065) (3,002,121)
FINANCING ACTIVITIES
Payments of principal on
long-term debt......... (621,898) (262,449) (2,429,492) (2,198,146) (1,976,625)
Proceeds from long-term
debt................... -- -- -- -- 772,000
Proceeds from notes
payable to bank........ 2,000,000 4,000,000 9,500,000 7,684,685 --
Payments of principal on
notes payable to bank.. -- (2,773,359) (10,773,359) (6,549,685) (200,000)
Proceeds from partners'
and affiliated loans,
and capital
contributions.......... 127,866 195,019 800,000 -- 8,698,134
----------- ----------- ------------ ------------ ------------
Net cash used in
financing activities... 1,505,968 1,159,211 (2,902,851) (1,063,146) 7,293,509
----------- ----------- ------------ ------------ ------------
Net increase (decrease)
in cash................ (1,443,130) 64,558 1,523,235 (20,987) (420,575)
Cash at beginning of
year................... 2,380,218 856,983 856,983 877,970 1,298,545
----------- ----------- ------------ ------------ ------------
Cash at end of year..... $ 937,088 $ 921,541 $ 2,380,218 $ 856,983 $ 877,970
=========== =========== ============ ============ ============
Supplemental disclosure
of cash flow
information:
Interest paid.......... -- -- $ 13,789,097 $ 14,026,453 $ 14,314,600
=========== =========== ============ ============ ============
</TABLE>
See accompanying notes.
F-41
<PAGE>
EL CONQUISTADOR PARTNERSHIP L.P.
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 1997
1. INTERIM INFORMATION (UNAUDITED)
The interim financial statements as of and for the three months ended June
30, 1997 and 1996 included herein are unaudited. Such information reflects all
adjustments consisting solely of normal recurring adjustments, which are in
the opinion of management necessary for a fair presentation of the balance
sheet as of June 30, 1997 and the results of operations and cash flows for the
three months ended June 30, 1997 and 1996. Due to the seasonality of the
business, the reported results are not necessarily indicative of those
expected for the entire year. Certain information and disclosures normally
included in annual financial statements in accordance with generally accepted
accounting principles have been excluded or omitted in presentation of the
interim financial statements.
2. ORGANIZATION AND PRINCIPAL ACCOUNTING POLICIES
Organization
El Conquistador Partnership L.P. (the Partnership), is a limited partnership
organized under the laws of Delaware, pursuant to a Joint Venture Agreement
dated January 12, 1990 (the Agreement). The Partnership is 50% owned by WKA El
Con Associates (WKA El Con), a partnership owned by several partners
affiliated with Williams Hospitality Group Inc. (Williams Hospitality), and
50% by Kumagai Caribbean, Inc. (Kumagai), a wholly-owned subsidiary of Kumagai
International USA, Inc. The joint venture partners (Partners) are both General
Partners and Limited Partners in the Partnership. The Partnership shall
continue to exist until March 31, 2030, unless terminated earlier by mutual
agreement of the General Partners. The Agreement provides that net profits or
losses of the Partnership after deducting a preferred cumulative annual return
of 8.5% on the Partners unrecovered capital accounts, as defined, will be
allocated to the Partners on a 50-50 ratio subject to certain exceptions, as
defined.
The Partnership owns and operates a luxury resort hotel and casino in Las
Croabas, Puerto Rico (the Resort).
Basis of Presentation
The financial statements have been prepared in conformity with generally
accepted accounting principles which 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 date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Inventories
Inventories, which consist mainly of food, beverages and supplies, are
valued at the lower of cost (first-in, first-out method) or market.
Land, Building and Equipment
Land, building and equipment are stated on the basis of cost. Building and
equipment are depreciated by the straight-line method over their estimated
useful lives.
Deferred Debt Issuance Costs
Debt issuance costs include legal and underwriting fees, other fees incurred
in connection with the financing and other costs. These costs are being
amortized on a straight-line basis over the term of the debt.
F-42
<PAGE>
EL CONQUISTADOR PARTNERSHIP L.P.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
MARCH 31, 1997
Deferred Pre-Opening Costs
Pre-opening costs consist of amounts incurred in connection with the
marketing, organization, planning and development of the Resort. Such costs
include staffing, marketing, legal and other costs incurred prior to the
commencement of operations of the Resort. The costs are being amortized on a
straight-line basis over a five year period through November 1998.
Casino Revenues
Casino revenues are the net win from gaming activities, which is the
difference between gaming wins and losses.
Casino Promotional Allowances
Casino promotional allowances represent the retail value of complimentary
rooms, food, beverage and hotel services furnished to patrons.
3. RESTRICTED CASH AND INVESTMENTS HELD BY BANK
Pursuant to the terms of the bond agreement (see Note 9), the Partnership
had cash and investments on deposit with the trustee for the following:
<TABLE>
<CAPTION>
MARCH 31,
---------------------
1997 1996
---------- ----------
<S> <C> <C>
Interest due May 1................................... $1,778,961 $1,584,000
Interest due August 1................................ 1,581,646 1,295,355
---------- ----------
$3,360,607 $2,879,355
========== ==========
</TABLE>
4. TRADE ACCOUNTS RECEIVABLE
Trade accounts receivable consisted of the following:
<TABLE>
<CAPTION>
MARCH 31,
---------------------
1997 1996
---------- ----------
<S> <C> <C>
Trade accounts receivable--hotel.................... $4,559,108 $5,259,478
Less allowance for doubtful accounts................ 144,615 217,362
---------- ----------
4,414,493 5,042,116
Trade accounts receivable--casino................... 474,614 345,171
Less allowance for doubtful accounts................ 124,500 84,403
---------- ----------
350,114 260,768
---------- ----------
Trade accounts receivable, net...................... $4,764,607 $5,302,884
========== ==========
</TABLE>
5. TRANSACTIONS WITH RELATED PARTIES
The Partnership has an Operating and Management Agreement (the Management
Agreement) with Williams Hospitality. The Management Agreement provides that
Williams Hospitality will manage the Resort for a period of 20 years for a
basic management fee of 3.5% of the Resorts' gross revenues, as defined, and
an incentive management fee of 10% of the Resorts' operating profit, as
defined. Incentive management fees accrued each year are not payable until
significant cash flows levels are achieved. In addition, the Partnership is
required to pay certain administrative expenses incurred by Williams
Hospitality in connection with management of the Resort.
F-43
<PAGE>
EL CONQUISTADOR PARTNERSHIP L.P.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
MARCH 31, 1997
During fiscal years 1997 and 1996, basic management fees amounted to
$3,305,000 and $3,170,000, respectively. Incentive management fees amounted to
approximately $2,376,000 and $2,224,000 during fiscal years 1997 and 1996,
respectively. In addition, Williams Hospitality charged the Partnership
approximately $3,258,000 and $2,728,000 in fiscal years 1997 and 1996,
respectively, for services provided to the Resort.
In addition, the Partnership was charged by Posadas de Puerto Rico
Associates, Incorporated (Posadas de Puerto Rico), hotel and casino operations
affiliated through common ownership, approximately $410,000 and $437,000 in
fiscal years 1997 and 1996, respectively, for services provided to the Resort.
As of March 31, 1997 each partner had advanced $8,365,685 to the Partnership
under notes that are due for various periods up to ten years with interest at
the Citibank, N.A. in New York base rate. Repayment of interest and principal
is subordinated to other long-term debt. In addition, each partner had
advanced to the Partnership $4,000,000 under a May 5, 1992 loan agreement. The
loan agreement provides for the payment of interest at a variable rate,
computed quarterly, equal to LIBOR plus 1.75%. Interest payments will be
deferred during the first five years. The principal and deferred interest
accrued at March 31, 1997 is payable in quarterly installments of $250,000
commencing in March 2000 and a final lump-sum payment in February 2002. The
loan is collateralized by a subordinated pledge of the Partnership's assets.
As of March 31, 1997 each partner had provided $3,800,000 to cover cash flow
deficiency in the Partnership's operations as provided by the Agreement. The
deficiency loans consist of $3,800,000 in cash by Kumagai, and the conversion
of amounts due from the Partnership to Williams Hospitality to loans for WKA
El Con. The deficiency loans bear interest at 9.16%. Repayment of interest and
principal is subordinated to other long-term debt.
As of March 31, 1997, the outstanding balance of advances made by the
Partnership to Williams Hospitality for the purchase of transportation
equipment leased to the Partnership under a five year service agreement
amounted to $727,200. Service agreement payments by the Partnership are equal
to the $39,819 monthly amounts receivable under the advance. Repayment of the
advances by Williams Hospitality are limited to amounts payable under the
service agreement. This transportation equipment is pledged as collateral by
Williams Hospitality to the Partnership's chattel mortgage notes.
In addition, a subsidiary of Williams Hospitality financed other
transportation equipment from an external borrowing amounting to $441,000
repayable over five years. Monthly payments amount to $9,699. Also, in
February 1997, a subsidiary of Williams Hospitality financed a ferryboat from
an external borrowing amounting to $456,000, repayable over seven years.
Monthly payments amount to $7,561. The Partnership chartered the
transportation equipment and ferryboat under terms similar to the transaction
described in the preceding paragraph.
In October 1996, each partner advanced $400,000 as required by a loan
agreement (see Note 7). The notes bear interest at the prime rate at the Chase
Bank in the New York base rate. Repayment of principal are subordinated to
other debt.
The chattel mortgage notes payable (see Note 8) are collateralized by a bank
standby letter of credit of $3,423,000. The letter of credit is collateralized
by certificates of deposit for $2,000,000 issued by the bank in equal amounts
to Williams Hospitality and Kumagai. The chattel mortgage notes, and capital
leases are guaranteed by Williams Hospitality and Kumagai.
F-44
<PAGE>
EL CONQUISTADOR PARTNERSHIP L.P.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
MARCH 31, 1997
6. NOTES PAYABLE TO BANK
On October 4, 1996 the Partnership entered into an amendment to a loan
agreement whereby the Government Development Bank for Puerto Rico (GDB)
extended the Partnership a $6,000,000 credit facility. The notes issued under
the credit facility will bear interest at 1% over LIBOR, and are secured by a
mortgage note on the Partnership's real property and a leasehold mortgage note
on leased land of $120,000. At March 31, 1997 the Partnership had outstanding
borrowings of $1,500,000 with an interest rate at March 31, 1997 of 6.56%.
As of March 31, 1996, the Partnership's borrowings of $2,500,000 with a bank
were repaid during fiscal year 1997.
7. DUE TO AFFILIATED COMPANIES AND PARTNERS
Amounts due to affiliated companies consist of fees earned by Williams
Hospitality, funds advanced to the Partnership and other payments made by
Williams Hospitality, and for services rendered by Posadas de Puerto Rico and
Posadas de San Juan. Amounts due to affiliated companies consisted of the
following:
<TABLE>
<CAPTION>
MARCH 31,
-----------------------
1997 1996
----------- -----------
<S> <C> <C>
Current:
Due to Williams Hospitality:
Basic management fees.......................... $ 435,309 $ 414,718
Other.......................................... 83,891 195,523
Due to Posadas de Puerto Rico.................. 26,624 37,380
Due to Posadas de San Juan..................... -- 5,275
----------- -----------
$ 545,824 $ 652,896
=========== ===========
Non current:
Affiliate:
Due to Williams Hospitality:
Incentive management fees.................... $ 5,542,528 $ 3,167,002
Interest at 10% on incentive management
fees........................................ 338,405 89,350
Advances..................................... 3,800,000 3,800,000
Interest on advances......................... 856,282 503,368
Other........................................ 375,528 375,528
----------- -----------
10,912,743 7,935,248
Due to KG Caribbean............................ 579,234 596,423
----------- -----------
$11,491,977 $ 8,531,671
=========== ===========
Partners:
Due to WKA El Con:
Advances....................................... $12,765,685 $12,365,685
Interest on advances........................... 3,594,886 2,522,285
Due to Kumagai:
Advances....................................... 16,565,685 16,165,685
Interest on advances........................... 4,451,168 3,025,654
----------- -----------
$37,377,424 $34,079,309
=========== ===========
</TABLE>
F-45
<PAGE>
EL CONQUISTADOR PARTNERSHIP L.P.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
MARCH, 1997
8. CHATTEL MORTGAGES AND CAPITAL LEASE OBLIGATIONS
Chattel mortgages and capital lease obligations on equipment consisted of the
following:
<TABLE>
<CAPTION>
MARCH 31,
---------------------
1997 1996
---------- ----------
<S> <C> <C>
Chattel mortgage notes payable bearing interest at
9%, payable in monthly installments of $215,784,
including interest, through 1998, collateralized
with personal property.............................. $3,868,202 $6,023,820
Capital lease obligations bearing interest at 11.5%,
payable in monthly installments of $28,335,
including interest, through 1998, collateralized
with personal property, net of $48,307 in 1997 and
$121,571 in 1996 representing interest.............. 471,657 745,531
---------- ----------
4,339,859 6,769,351
Less current portion................................. 2,679,819 2,444,993
---------- ----------
$1,660,040 $4,324,358
========== ==========
</TABLE>
Maturities of chattel mortgages and capital lease obligations are as follows:
<TABLE>
<S> <C>
1998............................................................ $2,679,819
1999............................................................ 1,660,040
----------
$4,339,859
==========
</TABLE>
See Note 5 for additional collateral and guarantees.
Assets and accumulated depreciation recorded under capital lease obligations
are included in land, building and equipment as follows:
<TABLE>
<CAPTION>
MARCH 31,
---------------------
1997 1996
---------- ----------
<S> <C> <C>
Equipment............................................. $1,288,373 $1,288,373
Less accumulated depreciation......................... 880,393 622,717
---------- ----------
$ 407,980 $ 665,656
========== ==========
</TABLE>
9. LONG-TERM DEBT
At March 31, 1997 and 1996, long-term debt consisted of the following:
<TABLE>
<CAPTION>
MARCH 31,
-------------------------
1997 1996
------------ ------------
<S> <C> <C>
Industrial Revenue Bonds Series A................. $ 90,000,000 $ 90,000,000
Industrial Revenue Bonds Series B................. 30,000,000 30,000,000
Government Development Bank of Puerto Rico........ 25,000,000 25,000,000
------------ ------------
145,000,000 145,000,000
Less current portion.............................. 120,000,000 --
------------ ------------
$ 25,000,000 $145,000,000
============ ============
</TABLE>
F-46
<PAGE>
EL CONQUISTADOR PARTNERSHIP L.P.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
MARCH 31, 1997
On February 7, 1991 the Puerto Rico Industrial, Medical, Educational and
Environmental Pollution Control Facilities Financing Authority (the Authority)
sold industrial revenue bonds (Bonds) for $120,000,000 and loaned the proceeds
to the Partnership to be used for the payment of project costs pursuant to a
Loan Agreement. The Loan Agreement provides that the Partnership will pay all
interest and principal on the Bonds.
The Authority issued 1991 Series A, Industrial Revenue Bonds for $90,000,000
and 1991 Series B, Industrial Revenue Bonds for $30,000,000.
Commencing on May 1, 1996, the Bonds are subject to redemption at the
Partnership's option at par plus accrued interest, if any. The Bonds are due
on November 1, 1999 and interest is payable quarterly. The 1991 Series A Bonds
and the 1991 Series B Bonds bear interest at a variable rate, computed
quarterly, equal to 100% and 94%, respectively, of a LIBOR rate minus 1/8th of
1%. Effective November 1, 1996, the interest rate on the 1991 Series A Bonds
increased to 100% of the LIBOR rate. On February 7, 1991 the Partnership
entered into an Interest Swap Agreement that expires on March 8, 1998 by which
the Partnership agrees to pay, effective May 1, 1991, a fixed rate of 7.55% on
the outstanding principal of $120,000,000 in exchange for the counterparty's
obligation to pay the variable interest rate described above.
The Loan Agreement provides that the Partnership will deposit with the
trustee all interest which will become due not later than the 124th day
preceding the date of payment. The Bonds are collateralized by a letter of
credit, that terminates on February 7, 1998, issued by the Mitsubishi Bank,
Limited.
The Partnership pays an annual letter of credit fee of approximately 1.25%
of the Bond principal except under certain circumstances the rate may be
reduced to 1.2%. In addition, in connection with the letter of credit the
Partnership pays an annual agent's fee of approximately .25% of the Initial
Stated Amount, as defined.
Under the provisions of a term loan agreement with the GDB, the Partnership
borrowed $25,000,000 for the payment of project costs. The loan is due on
February 7, 2006. The loan agreement provides for a variable interest rate
equivalent to a LIBOR rate minus .5% plus an add-on margin as provided in the
loan agreement. Interest is payable quarterly in arrears.
Commencing on April 1, 1993, the Partnership is required to deposit annually
with an escrow agent 50% of the Available Cash Flow, as defined in the Loan
Agreement with GDB, up to a maximum of $1,666,700 plus any prior year
requirement in arrears. Through March 31, 1997, there had been no amounts
deposited in escrow under this provision.
The Bonds and the term loan with GDB are collateralized by a first and
second mortgage lien on the Resort, a chattel mortgage on personal property,
and an assignment of various contracts and a management agreement with a
related party. The collateral is subject to a subordination agreement in favor
of the Mitsubishi Bank, Limited.
10. FAIR VALUE OF FINANCIAL INSTRUMENTS
Financial Accounting Standards Board Statement No. 107 "Disclosures About
Fair Value of Financial Instruments", requires the disclosure of the fair
value of the Partnership's financial instruments at March 31, 1997 and 1996.
The carrying amount of cash and investments, notes payable to bank, chattel
mortgage notes and capitalized leases approximates fair value because of the
short maturity of the instruments or recent issuance. The fair value of the
Partnership's long-term debt has not been determined because similar terms and
conditions may no longer be available.
F-47
<PAGE>
EL CONQUISTADOR PARTNERSHIP L.P.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
MARCH 31, 1997
11. INCOME TAXES
The Partnership is not taxable for Puerto Rico income tax purposes pursuant
to an election submitted to the Puerto Rico Treasury Department. Instead, each
Partner reports their distributive share of the Partnership's profit and
losses in their respective income tax returns and, therefore, no provision for
income taxes has been made in the accompanying financial statements.
During 1997, the Partnership was granted a tax exemption grant under the
provisions of the Puerto Rico Tourism Incentives Act of 1993 (the Tourism
Act). The Tourism Act provides for a ten-year grant which may be extended for
an additional ten-year term. Major benefits of this Act are: a 90% exemption
from income taxes on hotel income, and a 90% exemption from municipal real and
personal property taxes through the entire term of the grant. The
Partnership's casino operations are not covered by the tax exemption grant and
are fully taxable.
12. ADVERTISING COSTS
The Partnership recognizes the costs of advertising as expense in the year
in which they are incurred. Advertising costs amounted to approximately
$1,446,000 and $847,000 for fiscal years 1997 and 1996, respectively.
13. COMMITMENTS
The Partnership leases land under an operating lease agreement for thirty-
one years with renewal options for two five-year periods. Following are the
minimum annual rental payments on the operating lease subsequent to March 31,
1997:
<TABLE>
<S> <C>
1998............................................................ $ 190,000
1999............................................................ 210,000
2000............................................................ 210,000
2001............................................................ 210,000
2002............................................................ 210,000
Thereafter...................................................... 5,840,000
----------
$6,870,000
==========
</TABLE>
Total rent expense for fiscal years 1997, and 1996 amounted to approximately
$1,391,000 and $985,000, respectively.
14. REFINANCING
The Industrial Revenues Bonds amounting to $120,000,000 at March 31, 1997
are collateralized by a letter of credit which expires on March 9, 1998. Under
the terms of the loan agreement, such debt is required to be repaid on
February 1, 1998 in the event the letter of credit is not renewed or replaced
prior to November 9, 1997 (See Note 9). El Conquistador Partnership L.P. has
engaged an investment banking firm to assist in structuring the refinancing of
El Conquistador Partnership L.P.'s debt. Based on operating history of the
Resort, El Conquistador Partnership L.P.'s management believes such
refinancing will be achieved, but there can be no assurance thereof. If such
refinancing is not renewed or replaced, it raises substantial doubt about El
Conquistador Partnership L.P.'s ability to continue as a going-concern.
F-48
<PAGE>
ANNEX A
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
AGREEMENT AND PLAN OF MERGER
BY AND AMONG
PATRIOT AMERICAN HOSPITALITY OPERATING COMPANY
AND
PATRIOT AMERICAN HOSPITALITY OPERATING COMPANY ACQUISITION SUBSIDIARY
AND
PATRIOT AMERICAN HOSPITALITY, INC.
AND
WHG RESORTS & CASINOS INC.
DATED AS OF SEPTEMBER 30, 1997
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<C> <S> <C>
ARTICLE 1. THE MERGER................................................ A-2
1.1 The Merger................................................ A-2
1.2 The Closing............................................... A-2
1.3 Effective Time............................................ A-2
1.4 Ancillary Agreements...................................... A-2
ARTICLE 2. THE WHG/PATRIOT SUBSCRIPTION.............................. A-2
2.1 WHG/Patriot Subscription Agreement........................ A-2
2.2 Subscribed Shares......................................... A-2
ARTICLE 3. CERTIFICATE OF INCORPORATION AND BYLAWS OF THE SURVIVING
CORPORATION............................................... A-3
3.1 Charter................................................... A-3
3.2 Bylaws.................................................... A-3
ARTICLE 4. DIRECTORS AND OFFICERS OF THE SURVIVING CORPORATION....... A-3
4.1 Directors of Surviving Corporation........................ A-3
4.2 Officers of Surviving Corporation......................... A-3
ARTICLE 5. EXCHANGE OF STOCK......................................... A-3
5.1 Outstanding Common Stock of Acquisition Sub............... A-3
5.2 Conversion of WHG Stock................................... A-3
5.3 Exchange of Certificates Representing WHG Common Stock and
WHG Preferred Stock....................................... A-5
5.4 Return of Exchange Fund................................... A-6
5.5 Lost or Stolen Certificates............................... A-7
ARTICLE 6. REPRESENTATIONS AND WARRANTIES OF WHG..................... A-7
6.1 Existence; Good Standing; Authority....................... A-7
6.2 Authorization, Validity and Effect of Agreements.......... A-7
6.3 Capitalization............................................ A-8
6.4 Subsidiaries.............................................. A-8
6.5 Other Interests........................................... A-9
6.6 No Violation.............................................. A-9
6.7 SEC Documents............................................. A-9
6.8 Litigation................................................ A-10
6.9 Absence of Certain Changes................................ A-10
6.10 Taxes..................................................... A-11
6.11 Books and Records......................................... A-12
6.12 Properties................................................ A-12
6.13 Compliance with Law; Environmental Matters................ A-13
6.14 Employee Matters.......................................... A-14
6.15 Labor Matters............................................. A-15
6.16 No Brokers................................................ A-15
6.17 Opinion of Financial Advisor.............................. A-15
6.18 Related Party Transactions................................ A-15
6.19 Undisclosed Liabilities................................... A-16
6.20 Contracts and Commitments................................. A-16
6.21 Disclosure................................................ A-17
6.22 Insurance................................................. A-17
6.23 Bankruptcy................................................ A-17
6.24 Las Casitas Development Co. I, S en C (S.E.).............. A-17
ARTICLE 7. REPRESENTATIONS AND WARRANTIES OF PAHOC AND ACQUISITION
SUB....................................................... A-17
7.1 Existence; Good Standing; Authority; Compliance With Law.. A-17
</TABLE>
(i)
<PAGE>
<TABLE>
<CAPTION>
PAGE
----
<C> <S> <C>
7.2 Authorization, Validity and Effect of Agreements.......... A-18
7.3 Consents and Approvals; No Violations..................... A-18
7.4 Proxy Statement........................................... A-18
7.5 Issuance of PAHOC Stock................................... A-19
7.6 SEC Documents............................................. A-19
7.7 No Brokers................................................ A-19
7.8 Taxes..................................................... A-19
7.9 Litigation................................................ A-20
ARTICLE 8. REPRESENTATIONS AND WARRANTIES OF PATRIOT................. A-20
8.1 Existence; Good Standing; Authority; Compliance With Law.. A-20
8.2 Authorization, Validity and Effect of Agreements.......... A-20
8.3 Consents and Approvals; No Violations..................... A-20
8.4 Proxy Statement........................................... A-21
8.5 Issuance of Patriot Stock................................. A-21
8.6 SEC Documents............................................. A-21
8.7 No Brokers................................................ A-22
8.8 Taxes..................................................... A-22
8.9 Litigation................................................ A-22
ARTICLE 9. COVENANTS................................................. A-22
9.1 Acquisition Proposals..................................... A-22
9.2 Conduct of Businesses..................................... A-23
9.3 Meeting of WHG Stockholders............................... A-25
9.4 Estoppel Certificates..................................... A-25
9.5 Filings; Other............................................ A-25
9.6 Access to Information..................................... A-26
9.7 Publicity................................................. A-26
9.8 Proxy Statement; Registration Statement................... A-26
9.9 Listing Application....................................... A-27
9.10 Further Action............................................ A-27
9.11 Affiliates of WHG......................................... A-27
9.12 Expenses.................................................. A-28
9.13 Indemnification........................................... A-28
9.14 Stop Transfer............................................. A-28
9.15 WHG's Accumulated and Current Earnings and Profits........ A-29
ARTICLE 10. CONDITIONS................................................ A-29
10.1 Conditions to Each Party's Obligation to Effect the
Merger.................................................... A-29
10.2 Conditions to Obligations of WHG to Effect the Merger..... A-29
10.3 Conditions to Obligation of PAHOC, Acquisition Sub and
Patriot to Effect the Merger.............................. A-30
ARTICLE 11. TERMINATION; AMENDMENT; WAIVER............................ A-31
11.1 Termination............................................... A-31
11.2 Effect of Termination..................................... A-32
11.3 Termination Fees and Expenses............................. A-32
11.4 Extension; Waiver......................................... A-32
ARTICLE 12. GENERAL PROVISIONS........................................ A-33
12.1 Nonsurvival of Representations, Warranties and
Agreements................................................ A-33
12.2 Notices................................................... A-33
12.3 Assignment; Binding Effect; Benefit....................... A-33
12.4 Entire Agreement.......................................... A-34
12.5 Amendment................................................. A-34
12.6 Governing Law............................................. A-34
</TABLE>
(ii)
<PAGE>
<TABLE>
<CAPTION>
PAGE
----
<C> <S> <C>
12.7 Counterparts....................................................... A-34
12.8 Headings........................................................... A-34
12.9 Interpretation..................................................... A-34
12.10 Waivers............................................................ A-34
12.11 Incorporation...................................................... A-35
12.12 Severability....................................................... A-35
12.13 Enforcement of Agreement........................................... A-35
12.14 Certain Definitions................................................ A-35
</TABLE>
(iii)
<PAGE>
AGREEMENT AND PLAN OF MERGER
This AGREEMENT AND PLAN OF MERGER (this "Agreement"), is made and entered
into as of September 30, 1997, by and among Patriot American Hospitality
Operating Company, a Delaware corporation ("PAHOC"), Patriot American
Hospitality Operating Company Acquisition Subsidiary, a Delaware corporation
and a wholly owned subsidiary of PAHOC ("Acquisition Sub"), Patriot American
Hospitality, Inc., a Delaware corporation ("Patriot"), and WHG Resorts &
Casinos Inc., a Delaware corporation ("WHG").
RECITALS
WHEREAS, the boards of directors of PAHOC, Patriot, Acquisition Sub and WHG
have each determined that it is advisable and in the best interests of their
respective stockholders to consummate, and have approved, the business
combination transaction provided for herein in which Acquisition Sub would
merge with and into WHG and WHG would become a wholly-owned subsidiary of
PAHOC (the "Merger");
WHEREAS, the boards of directors of PAHOC, Patriot, Acquisition Sub and WHG,
respectively, have determined that the Merger is in the best interests of
their respective companies 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 and in
the Ancillary Agreements (as hereinafter defined) upon the terms and subject
to the conditions set forth herein and therein;
WHEREAS, the shares of common stock, par value $.01 per share, of PAHOC (the
"PAHOC Stock") and the shares of common stock, par value $.01 per share, of
Patriot, (the "Patriot Stock") are paired and transferable and traded only in
combination as a single unit (the "Paired Shares") on the New York Stock
Exchange (the "NYSE");
WHEREAS, contemporaneously with the execution of this Agreement, Louis J.
Nicastro ("Nicastro") is entering into (a) an agreement with PAHOC,
Acquisition Sub and Patriot in which Nicastro has agreed to (i) grant PAHOC an
irrevocable proxy to vote his shares of voting common stock, par value $.01
per share, of WHG (the "WHG Common Stock") and preferred stock, par value $.01
per share, of WHG (the "WHG Preferred Stock") (the WHG Common Stock and WHG
Preferred Stock are collectively referred to herein as the "WHG Stock")
subject to the terms contained therein, (ii) not offer, sell, contract to
sell, make any short sale, pledge, grant any option to purchase or otherwise
dispose of the Paired Shares received by Nicastro in the Merger for a period
of 90 days after the Effective Time (as hereinafter defined) subject to the
terms contained therein, and (iii) grant PAHOC or its designee an irrevocable
option to purchase his shares of WHG Stock subject to the terms contained
therein, and (b) an employment agreement with the Surviving Corporation (as
hereinafter defined);
WHEREAS, contemporaneously with the execution of this Agreement, Sumner M.
Redstone and National Amusements, Inc. are entering into an agreement with
PAHOC, Acquisition Sub and Patriot in which they have agreed to vote their
shares of WHG Stock subject to the terms contained therein; and
WHEREAS, PAHOC, Acquisition Sub, Patriot and WHG 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:
A-1
<PAGE>
ARTICLE 1.
The Merger
1.1 The Merger. Subject to the terms and conditions of this Agreement, at
the Effective Time (as hereinafter defined), Acquisition Sub shall be merged
with and into WHG in accordance with this Agreement, and the separate
corporate existence of Acquisition Sub shall thereupon cease. WHG 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").
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 first business day immediately
following the day on which the last of the conditions set forth in Article 10
shall be fulfilled or waived in accordance herewith, or at such other time,
date or place as the parties hereto may agree. 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 meeting of stockholders
held pursuant to Section 9.3. 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 10 shall have been fulfilled or waived in accordance herewith and this
Agreement shall not have been terminated as provided in Article 11, 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. As an inducement to PAHOC, Acquisition Sub and
Patriot to enter into this Agreement, the following agreements are being
executed contemporaneously with the execution of this Agreement: (i) the
Agreement dated as of the date hereof among PAHOC, Acquisition Sub and Patriot
and Nicastro; (ii) the Voting Agreement dated as of the date hereof among
PAHOC, Acquisition Sub, Patriot, Sumner M. Redstone and National Amusements,
Inc.; and (iii) the Employment Agreement dated as of the date hereof between
PAHOC and Nicastro ((i), (ii) and (iii) collectively, the "Ancillary
Agreements").
ARTICLE 2.
The WHG/Patriot Subscription
2.1 WHG/Patriot Subscription Agreement. Immediately prior to the Closing,
WHG, PAHOC and Patriot shall enter into a contract in the form previously
agreed upon by all the parties (the "WHG/Patriot Subscription Agreement")
pursuant to which WHG or PAHOC will pay for, and Patriot will issue directly
to the stockholders of WHG as part of the consideration to be paid to such
stockholders in the Merger (the "Patriot Stock Issuance"), a number of shares
(the "Subscribed Shares") of Patriot Stock equal to the number of shares of
PAHOC Stock to be issued to stockholders of WHG 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 WHG in connection with the Merger and will be paired with
the PAHOC Stock issued in the Merger and that WHG and PAHOC shall not at any
time become a stockholder of Patriot.
A-2
<PAGE>
ARTICLE 3.
Certificate of Incorporation and Bylaws of the Surviving Corporation
3.1 Charter. The certificate of incorporation of WHG in effect immediately
prior to the Effective Time (the "WHG Certificate") shall be the certificate
of incorporation of the Surviving Corporation, until duly amended in
accordance with applicable law (the "Surviving Corporation Certificate").
3.2 Bylaws. The bylaws of WHG in effect immediately prior to the Effective
Time (the "WHG Bylaws") shall be the bylaws of the Surviving Corporation,
until duly amended in accordance with applicable law (the "Surviving
Corporation Bylaws").
ARTICLE 4.
Directors and Officers of the Surviving Corporation
4.1 Directors of Surviving Corporation. The directors of Acquisition Sub
immediately prior to the Effective Time shall be the directors of the
Surviving Corporation immediately after the Effective Time until their
successors shall have been duly elected or appointed and qualified or until
their earlier death, resignation or removal in accordance with the Surviving
Corporation's Certificate and Bylaws. Upon the reasonable request of PAHOC,
WHG will use reasonable efforts to cause the directors of WHG to resign as
directors of WHG as of the Effective Time, and to cause any directors of the
Wholly-Owned Subsidiaries (as hereinafter defined) to resign as of the
Effective Time (except that in the case of Williams Hospitality Group, Inc.,
WHG shall only be required to cause any director who is a designee of WHG on
the Board of Directors to resign) and to cause any director or member of a
venturers' committee who is a designee of WHG on the Board of Directors or
venturers' committee of any of the Partially-Owned Subsidiaries (as
hereinafter defined) to resign as of the Effective Time.
4.2 Officers of Surviving Corporation. The officers of Acquisition Sub
immediately prior to the Effective Time shall be the officers of the Surviving
Corporation immediately after the Effective Time.
ARTICLE 5.
Exchange of Stock
5.1 Outstanding Common Stock of Acquisition Sub. At and after the Effective
Time, each share of common stock of Acquisition Sub outstanding immediately
prior to the Effective Time shall be converted into and become one share of
the common stock of the Surviving Corporation.
5.2 Conversion of WHG Stock.
(a) At the Effective Time, each share of WHG Common Stock issued and
outstanding immediately prior to the Effective Time (other than those shares
of WHG Common Stock to be canceled pursuant to Section 5.2(d)) shall, by
virtue of the Merger and without any action on the part of WHG, Patriot or
PAHOC or the holders of any of the securities of any of such corporations, be
converted into the right to receive .784 Paired Shares (the "Exchange Ratio");
provided, however, that in the event that the Average Closing Price (as
hereinafter defined) of a Paired Share is:
(i) greater than $31.25 per share, then the Exchange Ratio will be
adjusted such that the product of the Exchange Ratio and the Average
Closing Price equals $24.50;
(ii) less than or equal to $25.50 but greater than or equal to $19.50,
the Exchange Ratio will be adjusted such that the product of the Exchange
Ratio and the Average Closing Price equals $20.00; or
(iii) less than $19.50, the Exchange Ratio will equal 1.026; provided,
however, that if the Average Closing Price is less than $19.50, WHG shall
have the right, waivable by it, to terminate this Agreement
A-3
<PAGE>
without any liability on its part by giving written notice of its election
to do so to PAHOC prior to 5:00 p.m., Dallas, Texas time on the second
business day after the expiration of the Measurement Period (as hereinafter
defined).
If the Effective Time is after January 31, 1998, and the Average Closing
Price is greater than $31.25, then the provisions of Section 5.2(a)(i) above
shall no longer be applicable and the following provisions shall be
substituted therefor:
(i) If the Effective Time is on or before February 28, 1998, and the
Average Closing Price is greater than $31.75, then the Exchange Ratio will
be adjusted such that the product of the Exchange Ratio and the Average
Closing Price equals $24.89; and
(ii) If the Effective Time is after February 28, 1998, and the Average
Closing Price is greater than $32.25, then the Exchange Ratio will be
adjusted such that the product of the Exchange Ratio and the Average
Closing Price equals $25.28.
For purposes of this Agreement, the term "Average Closing Price" shall mean
the average per share closing price of a Paired Share as reported on the NYSE
over the ten (10) trading days immediately preceding the third business day
prior to the date on which the meeting of WHG's stockholders is to be convened
pursuant to Section 9.3 hereof, and such ten (10) trading day period is
referred to herein as the "Measurement Period".
(b) At the Effective Time, each share of WHG Preferred Stock issued and
outstanding immediately prior to the Effective Time shall, by virtue of the
Merger and without any action on the part of WHG, Patriot or PAHOC or the
holders of any of the securities of any of such corporations, be converted
into the right to receive that number or fraction thereof of Paired Shares as
the holder of such share of WHG Preferred Stock would have the right to
receive assuming conversion of such share of WHG Preferred Stock, together
with any accrued and unpaid dividends thereon, into WHG Common Stock
immediately prior to the Effective Time. The term "Merger Consideration" shall
mean the Paired Shares to be issued to holders of WHG Common Stock and to
holders of WHG Preferred Stock in the Merger together with cash in lieu of
fractional Paired Shares paid in accordance with Section 5.3(e).
(c) As a result of the Merger and without any action on the part of the
holders thereof, all shares of WHG Common Stock and WHG Preferred 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 WHG Common Stock or WHG Preferred
Stock (other than those shares of WHG Common Stock or WHG Preferred Stock to
be canceled pursuant to Section 5.2(d)) shall thereafter cease to have any
rights with respect to such shares of WHG Common Stock and WHG Preferred
Stock, except the right to receive, without interest, the Merger Consideration
in accordance with Sections 5.2(a), 5.2(b) and 5.3(e) and dividend(s) payable
in accordance with Section 5.3(c), upon the surrender of such Certificate.
(d) Each share of WHG Common Stock or WHG Preferred Stock issued and held in
WHG's treasury or owned by PAHOC, Acquisition Sub or Patriot 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.
(e) At the Effective Time, WHG's obligations with respect to each stock
option (collectively, the "Existing WHG Options") listed in Section 6.3(e) of
the WHG Disclosure Letter (as defined in Article 6 hereof) shall be assumed by
PAHOC and Patriot (the "Assumed Options"), subject to the provisions of
Section 5.3(f). The Assumed Options shall continue to have, and be subject to,
the same terms and conditions as set forth in WHG's 1997 Stock Option Plan and
related option agreements (as in effect immediately prior to the Effective
Time) pursuant to which the Existing WHG Options were issued, provided that
(i) all references to WHG shall be deemed to be references to PAHOC or
Patriot, as the case may be, and all references to WHG Common Stock shall be
deemed to be references to Paired Shares, (ii) each Assumed Option shall be
exercisable for that number of whole Paired Shares equal to the product of the
number of shares of WHG Common Stock covered by the
A-4
<PAGE>
Existing WHG Option immediately prior to the Effective Time multiplied by the
Exchange Ratio and rounded to the nearest whole number of Paired Shares and
(iii) the exercise price per share of Paired Shares under each Assumed Option
shall be equal to the exercise price per share of WHG Common Stock under the
Existing WHG Option immediately prior to the Effective Time divided by the
Exchange Ratio and rounded to the nearest cent. PAHOC shall (A) reserve for
issuance the number of shares of PAHOC 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 WHG Option a document evidencing the assumption by PAHOC of WHG's
obligations with respect thereto under this Section 5.2(e). 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 WHG Option a document evidencing the assumption by
Patriot of WHG's obligations with respect thereto under this Section 5.2(e).
(f) At or prior to the Effective Time, PAHOC or WHG shall offer to purchase
each Existing WHG Option which is listed in Section 6.3(f) of the WHG
Disclosure Letter and is currently exercisable in full for cash in an amount
equal to the product of (i) the excess, if any, of (a) the product of the
Average Closing Price and the Exchange Ratio over (b) the exercise price per
share of WHG Common Stock under such Existing WHG Option and (ii) the number
of shares covered by such Existing WHG Option.
(g) To the extent that any of the optionees listed in Section 6.3(g) of the
WHG Disclosure Letter exercise their right under any existing employment
agreements with WHG to require WHG to purchase his or her Existing WHG Options
pursuant thereto, PAHOC and Patriot agree to pay, or permit WHG to pay each
such optionee, at or after the Effective Time, an amount equal to the product
of (i) the excess, if any, of (a) the product of the Average Closing Price and
the Exchange Ratio over (b) the exercise price per share of WHG Common Stock
under such Existing WHG Option and (ii) the number of shares covered by such
Existing WHG Option. Notwithstanding the provisions of Section 5.2(e), in the
event that any such optionee exercises his or her rights under his or her
employment agreement, such options shall not be assumed by PAHOC and Patriot
pursuant to Section 5.2(e).
5.3 Exchange of Certificates Representing WHG Common Stock and WHG Preferred
Stock.
(a) As of the Effective Time, (i) PAHOC shall deposit, or shall cause to be
deposited, with an exchange agent selected by PAHOC on or prior to the
Effective Time (the "Exchange Agent"), for the benefit of the holders of
shares of WHG Common Stock and WHG Preferred Stock, for exchange in accordance
with this Article 5, a certificate representing the shares of PAHOC Stock to
be issued pursuant to Sections 5.2(a) and 5.2(b), and the cash in lieu of
fractional Paired Shares to be paid pursuant to this Section 5.3, in exchange
for outstanding shares of WHG Common Stock and WHG Preferred Stock and
simultaneously (ii) Patriot shall deposit, or shall cause to be deposited,
with the Exchange Agent, for the benefit of the holders of shares of WHG
Common Stock and WHG Preferred Stock, for distribution in accordance with
Sections 5.2(a) and 5.2(b), a certificate representing the Subscribed Shares,
to be paired with the shares of PAHOC Stock described in clause (i) above
(such certificates for shares of PAHOC Stock, the certificates for Subscribed
Shares and cash in lieu of fractional Paired Shares shall hereinafter be
referred to as the "Exchange Fund").
(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 PAHOC or Patriot 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 and cash in lieu of 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 to which such holder shall be
entitled, and (y) a check for the cash to be paid in lieu of fractional
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Paired Shares, if any, due such holder pursuant to Section 5.3(e) plus the
amount of any dividends or distributions, pursuant to Section 5.3(c), if any,
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 in lieu of fractional Paired Shares, if any, or on the
dividends or distributions, if any, due and payable to holders of Certificates
pursuant to this Section 5.3. In the event of a transfer of ownership of WHG
Common Stock or WHG Preferred Stock which is not registered in the stock
transfer records of WHG, a certificate representing the proper number of
Paired Shares, together with a check for the cash to be paid in lieu of
fractional Paired Shares, if any, pursuant to Section 5.3(e), plus, to the
extent applicable, the amount of any dividends or distributions, if any, due
and payable pursuant to Section 5.3(c), may be issued to such a transferee if
the Certificate representing shares of such WHG Common Stock or WHG Preferred
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 after the Effective Time with respect to
any shares of WHG Common Stock or WHG Preferred Stock represented by a
Certificate that has not been surrendered for exchange shall be paid only as
provided herein. Following surrender of any such Certificate, the holder
thereof shall be entitled, subject to the provisions and effect of applicable
abandoned property, escheat or similar laws, to receive for the whole Paired
Shares 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 WHG of the shares of WHG Common Stock or WHG Preferred
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 WHG 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 PAHOC has received an affiliate letter (the "Affiliate
Letter") from such person as provided in Section 9.10.
(e) No fractional Paired Shares shall be issued pursuant hereto. In lieu of
the issuance of any fractional Paired Shares pursuant to this Agreement, each
holder of WHG Common Stock or WHG Preferred 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 average closing
price of PAHOC Stock and Patriot Stock on the NYSE on the five (5) trading
days immediately preceding the Closing Date (the "Fair Market Value") by (ii)
the fractional amount of the Paired Shares which such holder would otherwise
be entitled to receive under this Article 5.
(f) All Merger Consideration issued or paid, as the case may be, upon the
surrender for exchange of Certificates representing shares of WHG Common Stock
or WHG Preferred Stock in accordance with the terms of this Article 5 shall be
deemed to have been issued (and paid) in full satisfaction of all rights
pertaining to the shares of WHG Common Stock or WHG Preferred Stock exchanged
for Merger Consideration theretofore represented by such Certificates.
5.4 Return of Exchange Fund. Any portion of the Exchange Fund (including any
cash payable for fractional Paired Shares, and any shares of PAHOC Stock or
any Subscribed Shares) that remains unclaimed by the former stockholders of
WHG one year after the Effective Time shall be distributed as follows: any
cash for fractional Paired Shares and any shares of PAHOC Stock shall be
returned to PAHOC and any Subscribed Shares shall be returned to Patriot
(provided that PAHOC and Patriot shall issue said shares or pay such cash in
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accordance with this Article 5 to former stockholders of WHG who thereafter
surrender their Certificates), subject to the provisions and effect of
applicable abandoned property, escheat or similar laws. Any former
stockholders of WHG who have not theretofore complied with this Article 5
shall thereafter look only to PAHOC for issuance or payment of that portion of
their Paired Shares representing PAHOC Stock and cash in lieu of fractional
Paired Shares, if any, and to Patriot for issuance or payment of that portion
of their Paired Shares representing Patriot Stock, as determined pursuant to
this Agreement, without any interest thereon. None of PAHOC, Patriot, WHG, the
Exchange Agent or any other person shall be liable to any former holder of
shares of WHG Common Stock or WHG Preferred Stock for any shares of stock or
cash 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 PAHOC or Patriot, the posting by such person of a bond in such
reasonable amount as PAHOC or Patriot may direct as indemnity against any
claim that may be made against it with respect to such Certificate, the
Exchange Agent or PAHOC and Patriot will issue in exchange for such lost,
stolen or destroyed Certificate the Paired Shares and cash in lieu of
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.
Representations and Warranties of WHG
Except as set forth in the disclosure letter delivered at or prior to the
execution hereof to PAHOC, Acquisition Sub and Patriot, which shall refer to
the relevant Sections of this Agreement (the "WHG Disclosure Letter"), WHG
represents and warrants to PAHOC, Acquisition Sub and Patriot as follows:
6.1 Existence; Good Standing; Authority.
(a) WHG is a corporation duly incorporated, validly existing and in good
standing under the laws of Delaware. WHG is duly licensed or qualified to do
business as a foreign corporation and is in good standing under the laws of
each jurisdiction 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 would not have a material adverse effect on the business, assets,
prospects, results of operations or financial condition of WHG and the WHG
Subsidiaries taken as a whole (a "WHG Material Adverse Effect"). WHG 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 WHG Subsidiary 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 would not have a WHG Material Adverse Effect.
(c) WHG's certificate of incorporation, WHG's bylaws, and the organizational
documents and partnership and joint venture agreements (and in each such case,
all amendments thereto) of WHG and each WHG Subsidiary are listed in Section
6.1 of the WHG Disclosure Letter, and the copies of such documents, all of
which have previously been delivered to PAHOC and its counsel, are true,
correct and complete.
6.2 Authorization, Validity and Effect of Agreements. WHG has the requisite
power and authority to enter into and perform 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 WHG has unanimously approved
this Agreement, the Merger, the WHG/Patriot Subscription Agreement, the
Ancillary Agreements to which WHG is a party and the other transactions
contemplated by this Agreement, the WHG/Patriot Subscription Agreement and the
Ancillary Agreements and has resolved to recommend that the holders of WHG
Common Stock adopt
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and approve this Agreement at the WHG stockholders' meeting to be held in
accordance with the provisions of Section 9.3 hereof. In connection with the
foregoing, the Board of Directors of WHG has taken such actions and votes as
are necessary on its part to (i) render the provisions of Section 203 of the
DGCL, all other applicable takeover statutes of the DGCL, and the Rights
Agreement, dated as of April 21, 1997 between WHG and The Bank of New York
(the "Rights Agreement"), inapplicable to this Agreement, the WHG/Patriot
Subscription Agreement, the Merger, the Ancillary Agreements and the
transactions contemplated by this Agreement, the WHG/Patriot Subscription
Agreement and the Ancillary Agreements without the payment of consideration to
holders of WHG Common Stock and WHG Preferred Stock other than the Merger
Consideration, and (ii) define each of PAHOC, Acquisition Sub and Patriot as
an "Exempt Person", as such term is defined in the Rights Agreement, but only
to the extent any of them becomes the beneficial owner of any shares of WHG
Common Stock or WHG Preferred Stock pursuant to the terms of the Ancillary
Agreements or this Agreement. As of the date hereof, all of the directors and
executive officers of WHG have indicated that they presently intend to vote
all WHG Common Stock and all WHG Preferred Stock which they own to approve
this Agreement. The execution by WHG of this Agreement, the WHG/Patriot
Subscription Agreement and the Ancillary Agreements to which it is a party and
the consummation of the transactions contemplated by this Agreement, the
WHG/Patriot Subscription Agreement and the Ancillary Agreements have been duly
authorized by all requisite corporate action on the part of WHG, subject, in
the case of this Agreement only, to the approval of the Merger by a majority
of the votes entitled to be cast by the holders of the outstanding WHG Common
Stock and WHG Preferred Stock voting as a single class. This Agreement
constitutes and the WHG/Patriot Subscription Agreement and the Ancillary
Agreements to which it has or will become a party (when executed and delivered
pursuant hereto) will constitute, the valid and legally binding obligations of
WHG, enforceable against WHG in accordance with their respective terms.
6.3 Capitalization. The authorized capital stock of WHG consists of
12,000,000 shares of WHG Common Stock, 3,000,000 shares of Class A non-voting
common stock, par value $.01 per share (the "Class A Common Stock"), and
2,000,000 shares of WHG Preferred Stock. WHG has (i) 6,050,200 shares of WHG
Common Stock issued and outstanding, (ii) 0 shares of Class A Common Stock
issued and outstanding, (iii) 300,000 shares of WHG Preferred Stock issued and
outstanding, and (iv) 0 shares of WHG Common Stock, 0 shares of Class A Common
Stock, and 0 shares of WHG Preferred Stock held in the treasury of WHG. WHG
has no shares of WHG Common Stock reserved for issuance other than shares of
WHG Stock reserved for issuance pursuant to the Rights Agreement, (ii) the WHG
1997 Stock Option Plan and (iii) upon conversion of WHG Preferred Stock into
WHG Common Stock. All such issued and outstanding shares of capital stock of
WHG are duly authorized, validly issued, fully paid, nonassessable and free of
preemptive rights. The Conversion Price (as such term is defined in the
Certificate of Designation, Preferences and Rights of the Series B Preferred
Stock of WHG Resorts & Casinos Inc.) for the WHG Preferred Stock is $9.00. WHG
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 WHG on any
matter. Except as set forth in Section 6.3 of the WHG Disclosure Letter, WHG
does not have any existing options, warrants, calls, subscriptions,
convertible securities, or other rights, agreements or commitments which
obligate WHG to issue, transfer or sell any shares of capital stock of WHG.
Except as set forth in Section 6.3 of the WHG Disclosure Letter, there are no
agreements or understandings to which WHG is a party with respect to the
voting of any shares of capital stock of WHG or which restrict the transfer of
any such shares, nor does WHG 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 may be disclosed in any SEC filing
made prior to the date hereof by any stockholder of WHG. Except as set forth
in Section 6.3 of the WHG Disclosure Letter, there are no outstanding
contractual obligations of WHG or any WHG Subsidiary to repurchase, redeem or
otherwise acquire any shares of capital stock, partnership interests or any
other securities of WHG or any WHG Subsidiary. Except as set forth in Section
6.3 of the WHG Disclosure Letter, neither WHG nor any WHG Subsidiary is under
any obligation, contingent or otherwise, by reason of any agreement to
register any of their securities under the Securities Act.
6.4 Subsidiaries. Except as set forth in Section 6.4 of the WHG Disclosure
Letter, WHG owns directly or indirectly each of the outstanding shares of
capital stock or all of the partnership or other equity interests of
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each WHG Subsidiary. Each of the outstanding shares of capital stock in each
WHG Subsidiary having corporate form is duly authorized, validly issued, fully
paid and nonassessable. Except as set forth in Section 6.4 of the WHG
Disclosure Letter, each of the outstanding shares of capital stock of, or
partnership or other equity interests in, each Wholly Owned Subsidiary is
owned, directly or indirectly, by WHG free and clear of all liens, pledges,
security interests, claims or other encumbrances. Except as set forth in
Section 6.4 of the WHG Disclosure Letter, each of the outstanding shares of
capital stock of, or partnership or other equity interests in, each Partially-
Owned Subsidiary which is owned, directly or indirectly, by WHG, is owned by
WHG or a WHG Subsidiary free and clear of all liens, pledges, security
interests, claims or other encumbrances. The following information for each
WHG Subsidiary is set forth in Section 6.4 of the WHG 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 Section 6.4 and 6.5 of the WHG
Disclosure Letter, neither WHG nor any WHG Subsidiary owns directly or
indirectly any interest or investment (whether equity or indebtedness for
borrowed money of $100,000 or more) in any corporation, partnership, joint
venture, business, trust or other entity (other than investments in short-term
investment securities).
6.6 No Violation. Except as set forth in Schedule 6.6 of the WHG Disclosure
Letter, neither the execution, performance and delivery by WHG of this
Agreement, the WHG/Patriot Subscription Agreement or the Ancillary Agreements
nor the consummation by WHG of the transactions contemplated by this
Agreement, the WHG/Patriot Subscription Agreement and the Ancillary Agreements
in accordance with their terms, will: (i) violate, 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 the WHG
Certificate, the WHG Bylaws, or the organizational documents, partnership
agreements or joint venture agreements of WHG or any WHG Subsidiary; (ii)
result in a breach or violation of, a default under, or the triggering of any
payment or other material obligation pursuant to, or accelerate vesting under,
any stock option plan, or option issued by, WHG or any of the WHG
Subsidiaries, or any grant or award under any of the foregoing; (iii) violate,
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 or assets of WHG or any WHG Subsidiary 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 or
other instrument, commitment or obligation to which WHG or any WHG Subsidiary
is a party, or by which WHG or any WHG Subsidiary or any of their properties
is bound or affected, except for any of the foregoing matters which,
individually or in the aggregate, would not have a WHG Material Adverse Effect
and would not prevent or delay the consummation of the transactions
contemplated hereby or by the WHG/Patriot Subscription Agreement or the
Ancillary Agreements; or (iv) other than the filings provided for in Article 1
and Section 9.4 of this Agreement or required under 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, including, but
not limited to, all gaming related filings required in the Commonwealth of
Puerto Rico, except where the failure to obtain any such consent, approval or
authorization of, or declaration, filing or registration with, any
governmental or regulatory authority including, but not limited to all Puerto
Rico agencies, would not have a WHG Material Adverse Effect and would not
prevent or delay the consummation of the transactions contemplated hereby or
by the Ancillary Agreements.
6.7 SEC Documents.
(a) WHG has filed all required forms, reports and documents, including, but
not limited to WHG's Form 10-K filed with respect to the year ended June 30,
1997, with the Securities and Exchange Commission ("SEC")
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since the earliest date on which WHG became subject to the reporting
obligations of Section 13 or 15(d) of the Exchange Act (collectively, the "WHG
SEC Reports") all of which were prepared in accordance with the applicable
requirements of the Exchange Act and the Securities Act and the rules and
regulations promulgated thereunder (collectively, the "Securities Laws"). As
of their respective dates, the WHG 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 WHG and
of any non-consolidated entity included in or incorporated by reference into
the WHG SEC Reports (including the related notes and schedules) fairly
presents the consolidated financial position of WHG and such non-consolidated
entities as of their dates and each of the consolidated statements of income,
retained earnings and cash flows of WHG and of any non-consolidated entity
included in or incorporated by reference into the WHG 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 WHG and the
consolidated WHG Subsidiaries and the non-consolidate entities 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, in the case of the
unaudited statements, as permitted by Form 10-Q pursuant to Section 13 or
15(d) of the Exchange Act.
(b) WHG's consolidated financial statements at and for the year ending June
30, 1997 (the "1997 Financial Statements"), including the statement of
financial condition at June 30, 1997 included therein (the "Base Balance
Sheet"), a copy of which has been provided by WHG to PAHOC which have been
certified by Ernst & Young LLP, independent public accountants fairly present
the consolidated financial position of WHG and the consolidated WHG
Subsidiaries as of its date, and each of the consolidated statements of
income, retained earnings and cash flows of WHG and the consolidated WHG
Subsidiaries included in or incorporated by reference into the 1997 Financial
Statements (including any related notes and schedules) fairly present the
results of operations, retained earnings or cash flows, as the case may be, of
WHG and the consolidated WHG Subsidiaries for the periods set forth therein,
in each case in accordance with generally accepted accounting principles
consistently applied during the periods involved.
6.8 Litigation. Except as set forth in Section 6.8 to the WHG Disclosure
Letter, there are (i) no continuing orders, injunctions or decrees of any
court, arbitrator or governmental authority to which WHG or any WHG Subsidiary
is a party or by which any of its properties or assets are bound or, to the
knowledge of WHG, to which any of its directors, officers, employees or
agents, in such capacity, is a party or, to the knowledge of WHG, by which any
of their properties or assets are bound, and (ii) no actions, suits or
proceedings pending against WHG or any WHG Subsidiary or, to the knowledge of
WHG, against any of its directors, officers, employees or agents, in such
capacities, or, to the knowledge of WHG, threatened against WHG or any WHG
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 instrumentality, that would, individually
or in the aggregate, have a WHG Material Adverse Effect.
6.9 Absence of Certain Changes. Except as disclosed in the WHG SEC Reports
filed with the SEC prior to the date hereof or as set forth in Section 6.9 of
the WHG Disclosure Letter, since June 30, 1997, WHG and the WHG Subsidiaries
have conducted their business only in the ordinary course of such business and
there has not been (i) any WHG Material Adverse Effect; (ii) any declaration,
setting aside or payment of any dividend or other distribution with respect to
the WHG Common Stock; (iii) any material commitment, contractual obligation,
borrowing, capital expenditure or transaction (each, a "Commitment") entered
into by WHG or any WHG Subsidiary outside the ordinary course of business
except for commitments for expenses of attorneys, accountants and investment
bankers or finders incurred in connection with the Merger and the transactions
contemplated hereby and thereby; or (iv) any material change in WHG's
accounting principles, practices or methods.
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6.10 Taxes. Except as set forth in Section 6.10 of the WHG Disclosure
Letter:
(a) WHG and each WHG Subsidiary and (to the knowledge of WHG and any WHG
Subsidiary) WMS have paid or caused to be paid all federal, state, Puerto
Rico, local, municipal, foreign, and other taxes, including without
limitation, income taxes, estimated taxes, alternative minimum taxes, excise
taxes, room taxes, sales taxes, use taxes, value-added taxes, gross receipts
taxes, municipal taxes ("patentes"), construction 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 except for (i) Taxes, which are being contested in good faith by
such party and for which WHG has adequate reserves on its Base Balance Sheet
or on the balance sheet of a WHG Subsidiary which is a non-consolidated
affiliate, (ii) real estate taxes owed by El Conquistador Partnership L.P.,
which real estate taxes are, to WHG's knowledge, adequately reserved against
in the El Conquistador Partnership L.P. financial statements, and (iii) any
other unpaid Taxes, or portions thereof, which in the aggregate do not exceed
$250,000.
(b) WHG and each WHG Subsidiary, and (to the knowledge of WHG and any WHG
Subsidiary) WMS have timely filed all federal, state, Puerto Rico, local,
municipal and foreign tax returns required to be filed by any of them 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 including, but not limited to, the Puerto Rico Treasury Department
is now asserting by written notice to WHG any WHG Subsidiary or (to the
knowledge of WHG and any WHG Subsidiary) WMS Industries Inc. ("WMS") or, to
the knowledge of WHG or WHG Subsidiaries, threatening to assert against WHG,
WMS or any WHG Subsidiary any deficiency or claim for additional Taxes. No
claim has ever been made by a taxing authority in a jurisdiction where WHG
does not file reports and returns that WHG is or may be subject to taxation by
that jurisdiction. There are no security interests nor statutory tax liens on
any of the assets of WHG or any WHG Subsidiary that arose in connection with
any failure (or alleged failure) to pay any Taxes. WHG has never entered into
a closing agreement pursuant to Section 7121 of the Internal Revenue Code of
1986, as amended (the "Code") nor pursuant to Section 6126 of the Puerto Rico
Internal Revenue Code of 1994, as amended (the "PR Code").
(d) Neither WHG nor, to WHG's knowledge, WMS has received written notice of
any audit of any tax return filed by WHG or WMS, and neither WHG nor, to WHG's
knowledge, WMS has been notified by any tax authority that any such audit is
contemplated or pending. Neither WHG, any WHG Subsidiary, nor, to WHG's
knowledge, WMS has executed or filed with the IRS or the Puerto Rico Treasury
Department 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 or with respect to WHG is in force. True, correct and complete
copies of all federal, commonwealth, state, Puerto Rico and local income or
franchise tax returns with respect to any fiscal period ending on or after
June 30, 1993, filed by WHG, WMS, or any WHG Subsidiary and all communications
relating thereto have been delivered to PAHOC or made available to
representatives of PAHOC. For this purpose, a federal tax return of WMS shall
mean only the portion of the WMS consolidated tax return which includes any of
WHG or the WHG Subsidiaries.
(e) WHG and each WHG 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) WHG estimates that as of June 30, 1997, the accumulated and current
earnings and profits ("E&P") of WHG (as determined for federal income tax
purposes) was approximately $20 million.
(g) Except as set forth in Section 6.10 of the WHG Disclosure Letter,
Posadas de Puerto Rico Associates, Incorporated is the holder of a grant of
tax exemption issued by the Governor of Puerto Rico in Case No. 96-78-T-19,
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Williams Hospitality Group Inc. is the holder of grants of tax exemption
issued by the Governor of Puerto Rico in Case Nos. 97-78-T-16, 97-78-T-21 and
97-78-T-18, Posadas de San Juan Associates is the holder of a grant of tax
exemption issued by the Governor of Puerto Rico in Case No. 96-78-T-17 and El
Conquistador Partnership L.P. is the holder of a grant of tax exemption issued
by the Governor of Puerto Rico in Case No. 96-78-T-13 (each holder, a
"Grantee" and each grant, a "Grant"). Each Grant is in full force and effect
and is valid and enforceable. Except for the amendments described in Section
6.10 of the WHG Disclosure Letter, with respect to each Grant, neither the
Grant nor the Order Fixing the Date of Commencement of Operations of the Grant
has been amended or modified. Each Grantee has complied at all times with all
the provisions of its respective Grant and the provisions of all applicable
laws, statutes, rules, regulations, ordinances, orders, procedures, or
proclamations, the breach of which would result in the revocation of the
Grant. There are no facts or circumstances existing or pending, or, to the
knowledge of WHG, threatened actions or proceedings, that would result in the
revocation of each Grant.
6.11 Books and Records. Except as set forth in Section 6.11 of the WHG
Disclosure Letter:
(a) The books of account and other financial records of WHG and each WHG
Subsidiary 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
WHG SEC Reports.
(b) The minute books and other records of WHG and each WHG Subsidiary have
been made available to PAHOC or its representatives, 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 WHG and each WHG Subsidiary
and all actions of the partners of each WHG Subsidiary.
6.12 Properties. All of the real estate properties owned or leased by WHG
and each WHG Subsidiary are set forth in Section 6.12 of the WHG Disclosure
Letter. Except as set forth in Section 6.12 of the WHG Disclosure Letter, WHG
and each WHG Subsidiary own fee simple title to each of the real properties
identified in Section 6.12 of the WHG Disclosure Letter (the "WHG
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") and the WHG Properties
are not subject to any rights of way, written agreements, laws, ordinances and
regulations affecting building use or occupancy, or reservations of an
interest in title (collectively, "Property Restrictions"), except for (i)
Property Restrictions imposed or promulgated by law or any governmental body
or authority with respect to real property, including zoning regulations, that
do not and as a consequence of the Closing will not adversely affect the
current use of the property or materially detract from the value of or
materially interfere with the present use of the property, (ii) Encumbrances
and Property Restrictions disclosed on existing title reports or surveys (in
either case copies of which title reports and surveys have been delivered or
made available to PAHOC or its representatives and which title reports are
listed in Section 6.12 of the WHG Disclosure Letter), and (iii) mechanics',
carriers', 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 and as a consequence of
the Closing will not materially detract from the value of or materially
interfere with the present use of any of the WHG Properties subject thereto or
affected thereby, and do not and as a consequence of the Closing will not
otherwise materially impair business operations conducted by WHG and WHG
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 WHG Disclosure
Letter, valid policies of title insurance have been issued insuring WHG's or
the applicable WHG Subsidiary's fee simple title to each of the WHG 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 WHG has no knowledge of any facts or circumstances which would
constitute the basis for such a claim. Except as set forth in Section 6.12 of
the WHG Disclosure Letter, (i) no certificate, permit or license from any
governmental authority having jurisdiction over any of the WHG 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 WHG
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 WHG
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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, to
the knowledge of WHG, of any of same nor is WHG nor any WHG Subsidiary
currently in default under any REA Agreement and the WHG Properties are in
full compliance in all material respects with all governmental permits,
licenses and certificates; (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 WHG Properties has been issued by any
governmental authority; (iii) there are no material structural defects
relating to any of the WHG Properties; (iv) there is no WHG Property whose
building systems are not in working order in any material respect; (v) there
is no physical damage to any WHG Property in excess of $200,000 for which
there is no insurance in effect covering the full cost of the restoration
(subject to insurance deductibles, which in no case exceed $200,000, as
provided in the insurance policies of WHG and the WHG Subsidiaries); and (vi)
there is no current renovation or restoration or tenant improvements to any
WHG Property or any portion thereof, the cost of which exceeds $75,000, except
in each instance as set forth in Section 6.12 of the WHG Disclosure Letter.
Except as set forth in Section 6.12 of the WHG Disclosure Letter, the use and
occupancy of each of the WHG Properties complies in all material respects with
all applicable codes and zoning and gaming laws and regulations, and WHG has
no knowledge of any pending or threatened proceeding or action that will in
any adverse manner affect the size of, use of, improvements on, construction
on, or access to any of the WHG Properties, with such exceptions as are not
material and do not interfere with the use made and proposed to be made of
such WHG Properties. Neither WHG nor any WHG Subsidiary has received any
notice to the effect that (A) any betterment assessments have been levied
against, or any condemnation or rezoning proceedings are pending or threatened
with respect to any of the WHG 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 WHG Properties or by the continued maintenance,
operation or use of the parking areas. Except as set forth in Section 6.12 of
the WHG Disclosure Letter and except as would otherwise not have a WHG
Material Adverse Effect, following a casualty, each of the WHG Properties
could be reconstructed and used for hotel and casino purposes under applicable
zoning and gaming 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 Section 6.12 of the WHG Disclosure
Letter and except as would otherwise not have a WHG Material Adverse Effect,
there are no outstanding abatement proceedings or appeals with respect to the
assessment of any WHG 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 WHG Property.
6.13 Compliance with Law; Environmental Matters. Except as set forth in
Section 6.13 of the WHG Disclosure Letter:
(a) Neither WHG nor any WHG Subsidiary is in violation of any order of
any court, governmental authority or arbitration board or tribunal, or any
law, including but not limited to all maritime laws, ordinance,
governmental rule or regulation to which WHG or any WHG Subsidiary or any
of their respective properties or assets is subject. WHG and WHG
Subsidiaries have obtained all material licenses, permits and other
authorizations and have taken all actions required by applicable law or
governmental regulations in connection with their businesses as now or
previously conducted.
(b) WHG and each WHG Subsidiary have all permits required for the
operation of its properties and businesses as they are currently being
operated, and are in compliance therewith. None of such permits shall be
terminated or canceled as a result of the consummation of the transactions
contemplated by this Agreement and the Ancillary Agreements, except for
those permits the lack of which would not have a WHG Material Adverse
Effect. Section 6.13 of the WHG Disclosure Letter sets forth a true,
complete and correct list of all permits that are (i) material to the
operation of its properties and businesses as they are currently being
operated or (ii) required for the execution, delivery and performance by
WHG of this Agreement and the Ancillary Agreements, except for those
permits, the absence of which would not have a WHG Material Adverse Effect
or prevent or materially delay the consummation of the transactions
contemplated by this Agreement and the Ancillary Agreements.
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(c) WHG and the WHG Subsidiaries are in compliance with all Environmental
Laws (as defined below), except where any such non-compliance, when
combined with all other such noncompliance, would not have a WHG Material
Adverse Effect. As used in this Agreement, "Environmental Laws" shall mean
all federal, state, Puerto Rico and local laws, rules, regulations,
ordinances and orders that regulate the release of hazardous substances or
other materials into the environment, or impose requirements relating to
environmental protection. WHG has previously made available to PAHOC copies
of all documents concerning any environmental or health and safety matter
adversely affecting WHG and copies of current 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, petroleum products or fractions thereof,
pollutants or contaminants. Except as set forth in Section 6.13 of the WHG
Disclosure Letter or disclosed in the WHG SEC Reports and except for any
matter, which if the outcome were adverse, would not have a WHG Material
Adverse Effect, there is no administrative or judicial enforcement
proceeding pending or to the knowledge of WHG threatened against WHG or any
current and former WHG Subsidiary or with respect to any of the properties
now or formerly owned or used by any of them under any Environmental Law.
Except as set forth in Section 6.13 of the WHG Disclosure Letter or
disclosed in the WHG SEC Reports and except for any matter, which if the
outcome were adverse, would not have a WHG Material Adverse Effect, neither
WHG nor any such WHG Subsidiary or, to the knowledge of WHG, any legal
predecessor, affiliate or former affiliate of WHG or any WHG 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 knowledge of WHG, neither WHG nor any such WHG 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 including, but not limited to, those in the National Priorities
List, as defined under the United States Comprehensive Environmental
Response, Compensation, and Liability Act, or any location proposed for
inclusion on that list or at any location on any analogous state or other
list. Except as set forth in Section 6.13 of the WHG Disclosure Letter, and
except for any matter which, if the outcome were adverse, would not have a
WHG Material Adverse Effect, WHG and each such WHG Subsidiary has no
knowledge of any release on the real property now or formerly owned or
leased by WHG or any WHG Subsidiary or any of either's predecessor entities
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 knowledge of WHG, there is no
hazardous waste treatment, storage or disposal facility, and except for the
following which, to the knowledge of WHG, would not have a WHG 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 WHG or any WHG Subsidiary or
predecessor entity or facilities utilized by WHG or the WHG Subsidiaries.
6.14 Employee Matters. 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 WHG or any WHG Subsidiary (the "WHG Benefit
Plans"), except as set forth in Section 6.14 of the WHG Disclosure Letter or
in the WHG SEC Reports, (a) each WHG Benefit Plan and any related trust
intended to be qualified under Sections 401(a) and 501(a) of the Code or under
Section 1165 of the PR Code has received a favorable determination letter from
the IRS or the Puerto Rico Treasury Department as applicable 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 WHG Benefit Plan or related trust, (b) each WHG 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
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WHG Benefit Plan have been timely made, (c) neither WHG nor any WHG Subsidiary
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 WHG Benefit
Plan or other retirement plan or arrangement, and WHG has no knowledge of any
fact or event 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 WHG Benefit Plan have been made in
full and in proper form, (e) neither WHG nor any WHG Subsidiary 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 WHG Benefit Plan currently or previously maintained
by WHG or any WHG Subsidiary provides any post-retirement health or life
insurance benefits, and neither WHG nor any WHG Subsidiary 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 WHG Benefit
Plan and (h) no benefit or amount payable or which may become payable by WHG
or any WHG Subsidiary pursuant to any WHG 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 WHG
Disclosure Letter, neither WHG nor any WHG 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 WHG, threatened against WHG or any WHG Subsidiary relating to
their business, except for any such proceeding which would not have a WHG
Material Adverse Effect. To the knowledge of WHG, there are no organizational
efforts with respect to the formation of a collective bargaining unit
presently being made or threatened involving employees of WHG or any WHG
Subsidiary. Except as set forth in Section 6.15 of the WHG Disclosure Letter,
no union contracts involving WHG or any WHG Subsidiary have been terminated or
have expired since January 1, 1997 that have not been renewed or replaced.
6.16 No Brokers. Neither WHG nor any WHG Subsidiary has entered into any
contract, arrangement or understanding with any person or firm which may
result in the obligation of such entity, PAHOC, Acquisition Sub 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 the
consummation of the transactions contemplated hereby, except that WHG has
retained Oppenheimer & Co., Inc. ("Oppenheimer") as its financial advisor and
PaineWebber Incorporated of Puerto Rico ("PaineWebber") as its finder. True,
correct and complete copies of the executed financial advisory agreements
between WHG and Oppenheimer and the finder's fee agreement between WHG and
PaineWebber have been provided to PAHOC and Patriot. Other than the foregoing
arrangements, WHG 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 the consummation of the transactions
contemplated hereby.
6.17 Opinion of Financial Advisor. WHG has received the written opinion of
Oppenheimer to the effect that, as of the date hereof, the Merger
Consideration is fair, from a financial point of view, to the holders of WHG
Common Stock.
6.18 Related Party Transactions. Filed as an exhibit to the WHG SEC Reports
or listed on Section 6.18 of the WHG Disclosure Letter is a list of all
arrangements, agreements and contracts entered into by WHG or any WHG
Subsidiary (which are or will be in effect as of or after the date of this
Agreement) involving annual payments in excess of $60,000 with any person who
is an officer, director or affiliate of WHG or any WHG Subsidiary, any
relative of any of the foregoing or any entity of which any of the foregoing
is an affiliate. Copies of such documents, all of which have previously been
provided or made available to PAHOC and its counsel, are true, correct, and
complete copies.
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6.19 Undisclosed Liabilities. Except as and to the extent reflected,
reserved against or otherwise specifically disclosed in its Base Balance Sheet
(including the notes thereto) or in the WHG SEC Reports, neither WHG nor any
WHG Subsidiary has any liabilities or obligations of any kind, whether
accrued, absolute, known or unknown, asserted or unasserted, contingent or
otherwise, whether or not prepared in accordance with generally accepted
accounting principles consistently applied, which would have, individually or
in the aggregate, a WHG Material Adverse Effect.
6.20 Contracts and Commitments.
(a) Sections 6.5, 6.6, 6.12, 6.18 and 6.20 of the WHG Disclosure Letter set
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 WHG Properties or personal property of WHG or any
WHG Subsidiary, or (B) any direct or indirect ownership interest in any Wholly
Owned Subsidiary or any direct or indirect ownership interest in any
Partially-Owned Subsidiary which is owned by WHG or any Wholly Owned
Subsidiary (provided, however, that for purposes of this Section 6.20(a),
Williams Hospitality Group Inc. ("WHGI") shall be considered a Partially-Owned
Subsidiary and not a Wholly Owned Subsidiary), (ii) each commitment entered
into by WHG or any WHG Subsidiary other than commitments entered into with
unaffiliated third parties in the ordinary course of operations at WHG's
individual hotels which may result in total annual payments by or liability of
WHG or any WHG Subsidiary in excess of $60,000 and (iii) all material leases
and subleases entered into by WHG or any WHG Subsidiary as lessee or sublessee
which may result in total annual payments or liability in excess of $60,000.
Descriptions of the foregoing are listed in Sections 6.5, 6.6, 6.12, 6.18 and
6.20 of the WHG Disclosure Letter, and the copies of such documents, which
have previously been provided or made available to PAHOC and its counsel, are
true, correct and complete. None of WHG or any WHG Subsidiary 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
except where such default, individually or in the aggregate, would not
reasonably be expected to have a WHG Material Adverse Effect.
(b) All joint venture agreements to which WHG or any WHG Subsidiary is a
party are listed in Sections 6.5, 6.6 or 6.20 of the WHG Disclosure Letter and
neither WHG nor any WHG Subsidiary nor, to the knowledge of WHG, any other
party thereto is in default with respect to any obligations except where such
default, individually or in the aggregate, would not have a WHG Material
Adverse Effect.
(c) Section 6.20 of the WHG Disclosure Letter sets forth all of the
franchise, management, marketing, affiliation and other agreements and
contracts pursuant to which WHG or any WHG Subsidiary provide franchise,
license, sales, marketing, reservation, management or operation services to or
for any hotels (collectively, the "Operating Agreements"). Except as set forth
in Section 6.20 of the WHG Disclosure Letter, (i) WHG has delivered or made
available to PAHOC and its counsel true, correct and complete copies of all of
the Operating Agreements as the same may have been amended from time to time;
(ii) each of the Operating Agreements is legal, valid, binding, enforceable
and in full force and effect as to WHG and/or the applicable WHG Subsidiaries
and the other parties thereto, and, except as would not have a WHG 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 WHG
nor any WHG Subsidiary, nor, to the knowledge of WHG, any other parties
thereto, is in breach or default thereof in any material respect; (iv) except
as set forth in Section 6.20 of the WHG Disclosure Letter, neither WHG nor any
WHG Subsidiary have assigned, transferred, conveyed, mortgaged or encumbered
any interest in any of the Operating Agreements; (v) except as set forth in
Section 6.20 of the WHG Disclosure Letter or except as would not have a WHG
Material Adverse Effect, neither WHG nor any WHG Subsidiary have in the past
been required, are currently required or anticipate being required to defer
receiving any payments or to make any payments or loans to any party under any
of the Operating Agreements as a result of the failure of a hotel or any other
person to meet or exceed any performance thresholds or to prevent any other
party from exercising a right to terminate any of the Operating Agreements;
and (vi) no consent or approval of any other parties of the Operating
Agreements is necessary or required in connection with the execution and
delivery of this Agreement or the Ancillary Agreements or the consummation of
the transactions contemplated hereby or thereby.
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6.21 Disclosure. The representations, warranties and statements made by WHG
in this Agreement, the Ancillary Agreements and in the WHG 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
WHG 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. No event or circumstance, exclusive
of general business or economic conditions, has occurred or exists with
respect to WHG or any WHG Subsidiary or their respective businesses,
properties, prospects, operations or financial conditions which may
individually, or in the aggregate, have a WHG Material Adverse Effect.
6.22 Insurance. Section 6.22 of the WHG Disclosure Letter lists all material
insurance policies including, but not limited to, State Insurance Fund
policies and private disability insurance (or SINOT) policies, currently in
effect under which WHG or any WHG Subsidiary is a beneficiary or an insured.
Neither WHG nor any WHG Subsidiary has received any notice that any of the
policies listed in Section 6.22 of the WHG Disclosure Letter has been or will
be canceled prior to its scheduled termination date, or would not be renewed
substantially on the same terms now in effect if the insured party requested
renewal, or has received notice from any of its insurance carriers that any
insurance premiums will be subject to increase in an amount materially
disproportionate to the amount of any increases with respect thereto (or with
respect to similar insurance) in prior years. Neither WHG nor any WHG
Subsidiary is in material default under any such policy and all premiums due
and payable with respect to such coverage have been paid or accrued.
6.23 Bankruptcy. There is no bankruptcy, receivership, insolvency,
rearrangement, foreclosure or similar action or proceeding, whether voluntary
or involuntary, pending or has been or is being (by the giving of any notice
required as a precondition to any such action or proceeding or otherwise)
commenced or is pending against WHG, any WHG Subsidiary or any WHG Property.
6.24 Las Casitas Development Co. I, S en C (S.E.). Except as listed on
Section 6.24 of the WHG Disclosure Letter and to the knowledge of WHG, Las
Casitas Development Co. I, S en C (S.E.) ("Las Casitas"), a Puerto Rico
limited partnership, is duly organized, validly existing and in good standing
under the laws of Puerto Rico, and has the partnership power and authority to
own its properties and to carry on its business as it is now being conducted.
Listed on Exhibit 7 of the WHG Disclosure Letter are the names of all of the
owners of condominiums developed by Las Casitas who have rental agreements
with El Conquistador Partnership L.P.
ARTICLE 7.
Representations and Warranties of PAHOC and Acquisition Sub
PAHOC and Acquisition Sub represent and warrant to WHG and Patriot as
follows:
7.1 Existence; Good Standing; Authority; Compliance With Law.
(a) PAHOC is a corporation duly incorporated, validly existing and in good
standing under the laws of the State of Delaware. PAHOC 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 have a material adverse effect on the
combined business, assets, prospects, results of operations or financial
condition of PAHOC and the subsidiaries of PAHOC (the "PAHOC Subsidiaries")
and Patriot and the subsidiaries of Patriot (the "Patriot Subsidiaries") taken
as a whole (a "PAHOC/Patriot Material Adverse Effect"). PAHOC 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 PAHOC Subsidiary 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
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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 would not have a PAHOC/Patriot Material Adverse Effect.
(c) Copies of the certificate of incorporation or other charter documents
and by-laws (and in each case, all amendments thereto) of PAHOC and
Acquisition Sub as they exist on the date hereof have been delivered or made
available to WHG and its counsel. All such copies are true, correct and
complete.
7.2 Authorization, Validity and Effect of Agreements. Each of PAHOC and
Acquisition Sub has the requisite power and authority to enter into the
transactions contemplated hereby and to execute and deliver this Agreement,
the WHG/Patriot Subscription Agreement and the Ancillary Agreements to which
it is a party. The Boards of Directors of PAHOC and Acquisition Sub have
unanimously approved this Agreement, the Merger, the WHG/Patriot Subscription
Agreement and the Ancillary Agreements to which it is a party, and the other
transactions contemplated by this Agreement, the WHG/Patriot Subscription
Agreement and the Ancillary Agreements. The execution by PAHOC and Acquisition
Sub of this Agreement, the WHG/Patriot Subscription Agreement and the
Ancillary Agreements to which it is a party and the consummation of the
transactions contemplated by this Agreement, the WHG/Patriot Subscription
Agreement and the Ancillary Agreements have been duly authorized by all
requisite corporate action on the part of PAHOC and Acquisition Sub,
respectively. This Agreement constitutes, and the WHG/Patriot Subscription
Agreement and the Ancillary Agreements to which it has or will become a party
(when executed and delivered pursuant hereto) will constitute, the valid and
legally binding obligations of PAHOC and Acquisition Sub, respectively,
enforceable against PAHOC and Acquisition Sub, respectively, in accordance
with their respective terms.
7.3 Consents and Approvals; No Violations. Neither the execution and
delivery by PAHOC or Acquisition Sub of this Agreement, the WHG/Patriot
Subscription Agreement or the Ancillary Agreements, to which it is a party,
nor the consummation by PAHOC or Acquisition Sub of the transactions
contemplated by this Agreement, the WHG/Patriot Subscription Agreement and the
Ancillary Agreements in accordance with their terms, will: (i) violate,
conflict with or result in a breach of any provisions of the certificates of
incorporation or bylaws of either PAHOC or Acquisition Sub, respectively; (ii)
result in a breach or violation of, a default under, the triggering of any
payment or other material obligation pursuant to or accelerate vesting under,
any stock option plan of, or option issued by, PAHOC or any of its affiliates,
or any grant or award under any of the foregoing; (iii) violate, 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 or assets of PAHOC, or any PAHOC Subsidiary 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 or
other instrument, commitment or obligation to which PAHOC or any PAHOC
Subsidiary is a party, or by which PAHOC or any PAHOC Subsidiary or any of
their properties is bound or affected, except for any of the foregoing matters
which, individually or in the aggregate, would not have a PAHOC/Patriot
Material Adverse Effect and would not prevent or delay the consummation of the
transactions contemplated hereby or by the Ancillary Agreements; 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 would not have a PAHOC/Patriot Material
Adverse Effect and would not prevent or delay the consummation of the
transactions contemplated hereby or by the Ancillary Agreements.
7.4 Proxy Statement. On the date the Proxy Statement is mailed to WHG's
stockholders, none of the information supplied by or on behalf of PAHOC or
Acquisition Sub for inclusion in the Proxy Statement will be false or
misleading with respect to any material fact or will omit to state any
material fact required to be stated
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therein or necessary in order to make the statements therein, in light of the
circumstances under which they are made, not misleading or necessary to
correct any statement in any earlier communication with respect to the
stockholders' meeting or the solicitation of proxies therefore which has
become false or misleading. Notwithstanding the foregoing, neither PAHOC nor
Acquisition Sub makes any representation or warranty with respect to
information supplied by WHG or any of its affiliates or representatives in
writing for inclusion in the Proxy Statement.
7.5 Issuance of PAHOC Stock. The shares of PAHOC Stock that are to be issued
to the stockholders of WHG pursuant to the Merger have been duly authorized
and, when so issued in accordance with the terms hereof, shall be validly
issued and outstanding, fully paid and non-assessable, with no personal
liability attaching to the ownership thereof.
7.6 SEC Documents.
(a) PAHOC has filed all required forms, reports and documents with the SEC
since December 31, 1996 (collectively, the "PAHOC SEC Reports"), all of which
were prepared in accordance with the applicable requirements of the Securities
Laws. As of their respective dates, the PAHOC 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 PAHOC included in or incorporated by reference
into the PAHOC SEC Reports (including the related notes and schedules) fairly
presents the consolidated financial position of PAHOC and PAHOC Subsidiaries
as of its date and each of the consolidated statements of income, retained
earnings and cash flows of PAHOC included in or incorporated by reference into
the PAHOC 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 PAHOC and PAHOC 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, 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 No Brokers. As of the date hereof, neither PAHOC, any PAHOC Subsidiary
nor Acquisition Sub has entered into any contract, arrangement or
understanding with any person or firm which may result in the obligation of
such entity, WHG 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 the consummation of the transactions contemplated hereby.
7.8 Taxes. Except as would otherwise not have a PAHOC/Patriot Material
Adverse Effect, as of the date hereof:
(a) PAHOC, Acquisition Sub and each of the PAHOC Subsidiaries has paid or
caused to be paid all Taxes owed or accrued by it through the date hereof
except for Taxes which are being contested in good faith and for which
PAHOC or the PAHOC Subsidiaries, respectively, have adequate reserves on
their financial statements.
(b) PAHOC, Acquisition Sub and each of the PAHOC 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 PAHOC, Acquisition Sub or any PAHOC Subsidiary or, to
the knowledge of PAHOC, Acquisition Sub or the PAHOC Subsidiaries,
threatening to assert against PAHOC or Acquisition Sub any deficiency or
claim for additional Taxes.
(d) PAHOC, Acquisition Sub and each PAHOC Subsidiary has withheld and
paid 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.
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7.9 Litigation.
As of the date hereof, there are (i) no continuing orders, injunctions or
decrees of any court, arbitrator or governmental authority to which PAHOC,
Acquisition Sub or any PAHOC Subsidiary is a party or by which any of its
properties or assets are bound or, to the knowledge of PAHOC or Acquisition
Sub, 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 PAHOC or
Acquisition Sub or any PAHOC Subsidiary or, to the knowledge, in such
capacities, of PAHOC or Acquisition Sub, against any of their directors,
officers, employees or agents or, to the knowledge of PAHOC or Acquisition
Sub, threatened against PAHOC or Acquisition Sub or any PAHOC 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 instrumentality, that are reasonably
likely, individually or in the aggregate, to have a PAHOC/Patriot Material
Adverse Effect.
ARTICLE 8.
Representations and Warranties of Patriot
Patriot represents and warrants to WHG, PAHOC and Acquisition Sub as
follows:
8.1 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 Delaware. 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 would not have a PAHOC/Patriot Material Adverse
Effect.
(b) Each Patriot Subsidiary 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 would not have a PAHOC/Patriot Material Adverse Effect.
(c) Copies of the certificate of incorporation and by-laws (and in each
case, all amendments thereto) of Patriot as they exist on the date hereof have
been delivered or made available to WHG and its counsel. All such copies are
true, correct and complete.
8.2 Authorization, Validity and Effect of Agreements. Patriot has the
requisite power and authority to enter into the transactions contemplated
hereby and to execute and deliver this Agreement, the WHG/Patriot Subscription
Agreement and the Ancillary Agreements to which it is a party. The Board of
Directors of Patriot has unanimously approved this Agreement, the WHG/Patriot
Subscription Agreement, the Merger, the Ancillary Agreements to which it is a
party, and the other transactions contemplated by this Agreement, the
WHG/Patriot Subscription Agreement and the Ancillary Agreements. The execution
by Patriot of this Agreement, the WHG/Patriot Subscription Agreement and the
Ancillary Agreements to which it is a party and the consummation of the
transactions contemplated by this Agreement, the WHG/Patriot Subscription
Agreement, and the Ancillary Agreements have been duly authorized by all
requisite corporate action on the part of Patriot. This Agreement constitutes,
and the WHG/Patriot Subscription Agreement and the Ancillary Agreements to
which it has or 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.
8.3 Consents and Approvals; No Violations. Neither the execution and
delivery by Patriot of this Agreement, the WHG/Patriot Subscription Agreement
or the Ancillary Agreements to which it is a party nor the
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consummation by Patriot of the transactions contemplated by this Agreement,
the WHG/Patriot Subscription Agreement and the Ancillary Agreements in
accordance with their terms, will: (i) conflict with or result in a breach of
any provisions of Patriot's certificate of incorporation or Patriot's bylaws;
(ii) result in a breach or violation of, a default under, the triggering of
any payment or other material obligation pursuant to, or accelerate vesting
under, any stock option plan of, or option issued by, Patriot or any of its
affiliates, or any grant or award under any of the foregoing; (iii) violate,
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 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, would not have a PAHOC/Patriot Material Adverse Effect and
would not prevent or delay the consummation of the transactions contemplated
hereby or by the WHG/Patriot Subscription Agreement or the Ancillary
Agreements; 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 would not have a
PAHOC/Patriot Material Adverse Effect and would not prevent or delay the
consummation of the transactions contemplated hereby or by the Ancillary
Agreements.
8.4 Proxy Statement. On the date the Proxy Statement is mailed to WHG's
stockholders, none of the information supplied by or on behalf of Patriot for
inclusion in the Proxy Statement will be false or misleading with respect to
any material fact or will omit to state any material fact required to be
stated therein or necessary in order to make the statements therein, in light
of the circumstances under which they are made, not misleading or necessary to
correct any statement in any earlier communication with respect to the
Stockholders' Meeting or the solicitation of proxies therefore which has
become false or misleading. Notwithstanding the foregoing, Patriot does not
make any representation or warranty with respect to information supplied by
WHG or any of its affiliates or representatives in writing for inclusion in
the Proxy Statement.
8.5 Issuance of Patriot Stock. The shares of Patriot Stock that are to be
issued to the stockholders of WHG pursuant to the Merger have been duly
authorized and, when so issued in accordance with the terms hereof, shall be
validly issued and outstanding, fully paid and non-assessable, with no
personal liability attaching to the ownership thereof.
8.6 SEC Documents.
(a) Patriot American Hospitality Company, a Virginia corporation, and
Patriot have filed all required forms, reports and documents with the SEC
since December 31, 1996 (collectively, the "Patriot SEC Reports") all of which
were prepared in accordance with the applicable requirements of 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 the 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
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 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, in the case of the unaudited statements, as permitted by
Form 10-Q pursuant to Section 13 or 15(d) of the Exchange Act.
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8.7 No Brokers. As of the date hereof, Patriot has not entered into any
contract, arrangement or understanding with any person or firm which may
result in the obligation of Patriot, WHG, PAHOC or Acquisition Sub 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 contemplated hereby.
8.8 Taxes. Except as would otherwise not have a PAHOC/Patriot Material
Adverse Effect, as of the date hereof:
(a) Patriot and each of the Patriot Subsidiaries has paid or caused to be
paid all Taxes owed or accrued by it through the date hereof except for Taxes
which are being contested in good faith and for which Patriot or the Patriot
Subsidiaries, respectively, have adequate reserves on their financial
statements.
(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.
(d) Patriot and each Patriot Subsidiary has withheld and paid 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.
(e) Patriot is qualified 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.
8.9 Litigation.
As of the date hereof, 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 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
knowledge or Patriot, against any of its directors, officers, employees or
agents, in such capacities, or, to the 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
instrumentality, that are reasonably likely, individually or in the aggregate,
to have a PAHOC/Patriot Material Adverse Effect.
ARTICLE 9.
Covenants
9.1 Acquisition Proposals.
(a) WHG 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, WHG shall not, nor shall it permit any
Wholly Owned Subsidiary to, nor shall it authorize or permit any officer,
director, employee, agent, advisor or representative of WHG or any Wholly
Owned Subsidiary or any person designated by WHG or any Wholly Owned
Subsidiary to serve as a director or member of a venturers' committee of any
Partially-Owned Subsidiary 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
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constitutes, or would reasonably be expected to lead to, any Acquisition
Proposal (provided, however, that for purposes of this Section 9.1(a), WHGI
shall be considered a Partially-Owned Subsidiary and not a Wholly Owned
Subsidiary). Notwithstanding anything to the contrary in this Agreement, WHG
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 WHG and/or any WHG Subsidiary pursuant
to a merger, consolidation, share exchange, business combination, tender or
exchange offer or other similar transaction if the Board of Directors of WHG
determines, based on the written advice of its outside legal counsel (the "WHG
Legal Counsel"), that such action is necessary in order to comply with the
directors' fiduciary duties to the stockholders of WHG under applicable law;
provided, however, that prior to WHG's furnishing such information or
participating in such discussions or negotiations, such person or entity shall
have executed a confidentiality and standstill agreement with WHG having terms
substantially similar to those contained in those certain letter agreements,
dated August 1, 1997 between (i) PAHOC and WHG (the "PAHOC/WHG Confidentiality
Agreements") and (ii) Patriot and WHG (the "Patriot/WHG Confidentiality
Agreements") (collectively, the "Confidentiality Agreements"), relating to the
provision of Evaluation Material (as defined in the Confidentiality
Agreements) by WHG to PAHOC and Patriot, respectively, 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 WHG, (ii)
sale, lease or other disposition, directly or indirectly, by merger,
consolidation, share exchange or otherwise, of any assets of WHG or WHG
Subsidiaries representing 15% or more of the consolidated assets of WHG and
WHG Subsidiaries, (iii) issue, sale or other disposition of (including by way
of merger, consolidation, share exchange or any similar transaction other than
upon conversion of the WHG Preferred Stock) securities (or options, rights or
warrants to purchase, or securities convertible into, such securities other
than pursuant to the Rights Agreement) representing 15% or more of the votes
attached to the outstanding securities of WHG, (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 WHG Common Stock or WHG
Preferred Stock, (v) recapitalization, restructuring, liquidation,
dissolution, or other similar type of transaction with respect to WHG or any
WHG Subsidiary, 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) WHG promptly shall advise PAHOC and Patriot orally and in writing of any
Acquisition Proposal, made after the date hereof including the terms thereof
and any changes thereto and any termination thereof, or any inquiry regarding
any Acquisition Proposal and the identity of the person making such
Acquisition Proposal or inquiry.
9.2 Conduct of Businesses.
(a) Conduct by WHG. Prior to the Effective Time, unless either PAHOC or
Patriot has consented in writing thereto or unless otherwise specifically
permitted by this Agreement, WHG:
(i) shall use its reasonable best efforts, and shall cause each WHG
Subsidiary to use its reasonable best efforts, to preserve intact their
business organizations and goodwill and keep available the services of
their respective officers (other than officers designated by the minority
owners of the Partially-Owned Subsidiaries) and material employees;
(ii) shall confer on a regular basis with one or more representatives of
PAHOC, Acquisition Sub and Patriot to report on material operational
matters and any proposals to engage in material transactions;
(iii) shall promptly notify PAHOC, Acquisition Sub and Patriot 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 properties under management by WHG or any WHG Subsidiary), any
material governmental complaints, investigations or
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hearings (or communications indicating that the same may be contemplated),
or the breach in any material respect of any representation or warranty
contained herein;
(iv) shall promptly deliver to PAHOC, Acquisition Sub and Patriot 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;
(v) shall, and shall cause each WHG Subsidiary to, conduct its operations
according to their usual, regular and ordinary course in substantially the
same manner as heretofore conducted, subject to clauses (vi)-(xiv) below;
(vi) shall not, and shall cause each Wholly Owned Subsidiary not to, and
shall not authorize or give any Partially Owned Subsidiary consent 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;
(vii) shall not amend the WHG Certificate or the WHG Bylaws, and shall
cause each WHG Subsidiary not to amend its charter, bylaws, joint venture
documents, partnership agreements or equivalent documents;
(viii) 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 WHG Options or upon
the conversion of any shares of WHG Preferred Stock, (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 WHG Benefit Plans in any material respect,
except for changes which are not more favorable to participants in such
plans or are otherwise required to comply with applicable law;
(ix) shall not (A) declare, set aside or pay any dividend (except as
required by the terms of the WHG Preferred Stock) or make any other
distribution or payment with respect to any shares of its capital stock, or
(B) directly or indirectly redeem, purchase or otherwise acquire any shares
of its capital stock or capital stock of any Partially Owned Subsidiary, or
make any commitment for any such action;
(x) shall not, shall cause all Wholly-Owned Subsidiaries not to, and
shall not authorize or give any WHG Subsidiary consent to, sell, lease or
otherwise dispose of, or agree to the sale, lease or other disposition of
(A) any WHG Properties or any portion thereof or any of the capital stock
of or partnership or other interests owned by WHG or any Wholly Owned
Subsidiary in any WHG Subsidiary or (B) except in the ordinary course of
business, any of its or their other assets which are material, individually
or in the aggregate;
(xi) shall not, and shall not authorize or give any WHG Subsidiary
consent to, make any loans, advances or capital contributions to, or
investments in, any other person (except WHG or a Wholly Owned Subsidiary);
(xii) shall not, and shall not permit any WHG Subsidiary 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 WHG
included in the WHG SEC Reports or incurred in the ordinary course of
business consistent with past practice or pursuant to Commitments set forth
in Section 6.20 of the WHG Disclosure Letter or entered into in accordance
with this Agreement or the settlement of claims and litigation in the
ordinary course of business in an amount in excess of $50,000;
(xiii) shall not, shall cause all Wholly-Owned Subsidiaries not to, and
shall not authorize or give any WHG Subsidiary consent to, enter into any
Commitment not provided for in the capital expenditure budgets previously
delivered to PAHOC which may result in total payments or liability by it in
excess of $50,000
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per year (provided, however, that nothing contained in this clause (xiii)
shall permit WHG or any WHG Subsidiary to take any action prohibited by the
other provisions of this Section 9.2), other than Commitments for expenses
of attorneys, accountants and investment bankers incurred in connection
with the transactions contemplated by this Agreement or, if and to the
extent consistent with this Agreement, any Acquisition Proposal;
(xiv) shall not, shall cause all Wholly-Owned Subsidiaries not to, and
shall not authorize or give any WHG Subsidiary consent to, enter into any
material Commitment with any officer, director, consultant or affiliate of
WHG or any WHG Subsidiary; and
(xv) shall not amend or, without the written consent of PAHOC and
Patriot, waive any rights under, extend any time periods set forth in or
delay the effectiveness of the Rights Agreement; provided, however, that if
WHG makes a written request for the consent of PAHOC and Patriot to any
such waiver, extension or delay and either PAHOC or Patriot does not so
consent, then WHG shall have the right to issue securities pursuant to the
Rights Agreement.
Any request for consent under this Section 9.2 shall be directed to Mr.
William Evans at the address set forth for PAHOC in Section 12.2 hereof, with
copies to Stephen W. Carr, P.C. at the address set forth for Goodwin, Procter
& Hoar LLP set forth in Section 12.2 hereof.
9.3 Meeting of WHG Stockholders. Promptly following execution of this
Agreement,WHG will take all action necessary in accordance with applicable law
and the WHG Certificate and the WHG Bylaws to convene a meeting of its
stockholders as promptly as practicable to consider and vote upon the approval
of this Agreement and the consummation of the transactions contemplated
hereby. The proxy statement of WHG related to its stockholders' meeting shall
contain the recommendation of the Board of Directors of WHG that its
stockholders approve this Agreement and the consummation of the transactions
contemplated hereby. WHG, subject to and in accordance with applicable law,
shall use its reasonable best efforts to obtain such approval, including
without limitation, by timely mailing the Proxy Statement (as defined in
Section 9.7 hereof) contained in the Form S-4 (as defined in Section 9.7
hereof) to its stockholders.
9.4 Estoppel Certificates. At the request of PAHOC, WHG will, prior to the
Closing, seek to obtain estoppel certificates in the form requested by PAHOC
from one or both of the landlords of the real estate leased by WHG
Subsidiaries; provided, however, that the failure to obtain any such estoppel
certificate shall not be deemed a failure to satisfy any condition of Closing.
9.5 Filings; Other Action. Subject to the terms and conditions herein
provided, WHG, Patriot, PAHOC and Acquisition Sub 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; (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, the Commonwealth of Puerto Rico and
foreign jurisdictions and any third parties in connection with the execution
and delivery of this Agreement, the WHG/Patriot 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 form and substance reasonably satisfactory to
each of WHG, PAHOC, Acquisition Sub 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
WHG/Patriot 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, WHG/Patriot Subscription
Agreement or the other Ancillary Agreements, the proper officers and directors
of PAHOC, Acquisition Sub, Patriot and WHG shall take all such necessary
action.
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9.6 Access to Information.
(a) Upon reasonable notice to the other, PAHOC, Acquisition Sub, Patriot and
WHG shall (and shall cause their respective subsidiaries to) afford to the
officers, employees, accountants, counsel and other representatives of the
others, reasonable access, during normal business hours during the period from
the date hereof 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, PAHOC,
Acquisition Sub, Patriot and WHG shall (and cause their respective
subsidiaries to) furnish promptly to the others all information concerning its
business, properties, personnel and accountants as the others may reasonably
request. Prior to providing access to any of its properties to any
representatives of PAHOC, Acquisition Sub or Patriot seeking access to its
properties for environmental testing or other similar activities, WHG shall
have received evidence of insurance or other form of indemnity for the benefit
of WHG in form reasonably satisfactory to WHG with respect to any damage to
any of WHG's or any WHG Subsidiary's properties or assets which may be caused
by such persons.
(b) All such information shall be deemed "Evaluation Material" as such term
is defined in the Confidentiality Agreements, except as otherwise provided in
such Confidentiality Agreements.
9.7 Publicity. PAHOC, Acquisition Sub, Patriot and WHG shall consult with
each other before issuing any press release or otherwise making any public
statements with respect to this Agreement, the Ancillary Agreements, the
WHG/Patriot Subscription Agreement or any transaction contemplated hereby and
thereby 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 parties, 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 parties and to obtain such parties' consent but has been unable to do so
in a timely manner.
9.8 Proxy Statement; Registration Statement. PAHOC, Acquisition Sub, Patriot
and WHG shall prepare and file with the SEC (with appropriate requests for
confidential treatment, unless the parties hereto otherwise agree) under the
Exchange Act, a proxy statement/prospectus and form of proxies (such proxy
statement/prospectus and form of proxy, together with any amendments to
supplements thereto, the "Proxy Statement") relating to the stockholder
meeting of WHG and the vote of the stockholders of WHG with respect to this
Agreement, and promptly after clearance by the SEC of the Proxy Statement,
PAHOC, Acquisition Sub and Patriot shall prepare and thereafter 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 Paired Shares to be distributed to the stockholders of WHG in the Merger
(being referred to herein collectively as the "Registered Securities"). PAHOC,
Acquisition Sub, Patriot and WHG will cause the Proxy Statement or 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 PAHOC, Acquisition Sub and Patriot, on the one hand, and
WHG, 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 PAHOC, Acquisition Sub and Patriot
shall use its reasonable best efforts, and WHG 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 PAHOC,
Acquisition Sub, WHG, and Patriot 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
PAHOC, Acquisition Sub and Patriot, the Form S-4, and to cause, in the case of
WHG, the Proxy Statement and, in the case of PAHOC, Acquisition Sub and
Patriot, the Form S-4, as so amended or supplemented to be filed with the SEC
and to be disseminated to WHG's stockholders, in each case as and to the
extent required by applicable federal, Puerto Rico and state securities laws
and the DGCL. Each of PAHOC, Acquisition Sub, WHG, and Patriot 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
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time of mailing thereof, will not include 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 therein, in light of the circumstances under
which they were made, not misleading. Each of PAHOC, Acquisition Sub, Patriot
and WHG will advise the other parties, and deliver copies (if any) to them,
promptly after receipt thereof, of (i) any request by or correspondence or
communication from the SEC with respect to the Proxy Statement or the Form S-
4, (ii) any responses thereto and (iii) 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, and the suspension of the qualification of the
Registered Securities for offering or sale in any jurisdiction.
9.9 Listing Application. PAHOC, Acquisition Sub, Patriot and WHG 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 that will be outstanding or will be reserved for
issuance at the Effective Time to be listed for trading on the NYSE. PAHOC,
Acquisition Sub, Patriot and WHG 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. PAHOC, Acquisition Sub, Patriot and WHG agree 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. PAHOC, Acquisition Sub, Patriot and WHG 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.
9.10 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, the WHG/Patriot Subscription
Agreement and the Ancillary Agreements. In connection with the Closing, WHG
and each WHG Subsidiary shall use its reasonable best efforts to deliver to
PAHOC, Acquisition Sub and 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.
9.11 Affiliates of WHG.
(a) At least 30 days prior to the Closing Date, WHG shall deliver to PAHOC,
Acquisition Sub and Patriot a list of names and addresses of those persons who
were, in WHG's reasonable judgment, at the record date for its stockholders'
meeting to approve the Merger, "affiliates" (each such person, an "Affiliate")
of WHG within the meaning of Rule 145. WHG shall provide PAHOC, Acquisition
Sub and Patriot such information and documents as PAHOC, Acquisition Sub or
Patriot shall reasonably request for purposes of reviewing such list. WHG
shall use its reasonable best efforts to deliver or cause to be delivered to
PAHOC, Acquisition Sub and Patriot, prior to the Closing Date, from each of
the Affiliates of WHG identified in the foregoing list, an affiliate letter in
the form attached hereto as Exhibit A. PAHOC, Acquisition Sub and Patriot
shall be entitled to place legends as specified in such affiliate letters on
the certificates evidencing any Paired Shares to be received by such
Affiliates pursuant to the terms of this Agreement (provided, however, that
such legends shall only be inscribed on such certificates to the extent
required by, or to insure compliance with, law and after PAHOC, Acquisition
Sub and Patriot shall have received a written advice of its counsel to that
effect), and to issue appropriate stop transfer instructions to the transfer
agent for the Paired Shares, consistent with the terms of such affiliate
letters.
(b) PAHOC, Acquisition Sub and Patriot 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 shall take such further action as any Affiliate of
WHG may reasonably request, all to the extent required from time to time to
enable such Affiliate to sell Paired Shares 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.
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9.12 Expenses. Subject to the provisions of Section 11.3, all costs and
expenses incurred in connection with this Agreement and the Ancillary
Agreements and the transactions contemplated hereby and thereby shall be paid
by the party incurring such expenses, except that (a) the filing fees in
connection with the filing of the Proxy Statement 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, (c) the expenses incurred for printing the Form S-4 and the
Proxy Statement, (d) the filing fee in connection with the filing(s), if any,
under the HSR Act, and (e) the expenses incurred, if any, in connection with
Section 9.15, shall be shared equally by WHG, on the one hand, and PAHOC,
Acquisition Sub and Patriot, on the other hand, and except that nothing
contained herein shall limit or otherwise affect any provision of the Voting
Agreement or the Stock Option Agreement. Subject to the provisions of Section
11.3, all costs and expenses for professional services rendered in connection
with the transactions contemplated by this Agreement and the Ancillary
Agreements including, but not limited to, investment banking and legal
services, will be paid by each party incurring such costs and expenses.
Notwithstanding the foregoing, PAHOC, Acquisition Sub and Patriot shall be
solely responsible for incremental costs of all parties incurred after the
mailing of the Proxy Statement in order to amend or supplement the Proxy
Statement and Form S-4 if such amendment or supplement is necessitated solely
by reason of a material transaction with any of PAHOC, Acquisition Sub or
Patriot or their affiliates (other than any such transaction involving WHG,
any of the WHG Subsidiaries or any of the WHG Properties).
9.13 Indemnification.
(a) PAHOC, Acquisition Sub and Patriot agree that all rights to
indemnification existing in favor, and all limitations on the personal
liability, of a director or officer of WHG or any WHG Subsidiary (any such
person or entity, an "Indemnified Party") provided for in the WHG Certificate
or the WHG Bylaws or the charter or bylaws or similar organizational documents
of any of the WHG Subsidiaries, if and to the extent applicable, or pursuant
to the indemnification agreements set forth on Section 6.18 of the WHG
Disclosure Letter, as in effect as of the date hereof with respect to matters
occurring prior to the Effective Time shall, subject to the terms thereof, (i)
survive the Merger and (ii) 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, PAHOC shall purchase or keep in effect
directors' and officers' liability insurance coverage for WHG's directors and
officers in a form reasonably acceptable to WHG which shall provide such
directors and officers with so-called tail or other 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 WHG.
(b) This Section 9.13 is intended for the irrevocable benefit of, and to
grant third party rights to, the Indemnified Parties (as contemplated by
Section 12.3) and shall be binding on all successors and assigns of PAHOC and
the Surviving Corporation. Each of the Indemnified Parties shall be entitled
to enforce the covenants contained in this Section 9.13. The provisions for
indemnification contained in this Section 9.13 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.
(c) In the event PAHOC, the Surviving Corporation or any of their 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
PAHOC or the Surviving Corporation, as the case may be, assume the obligations
set forth in this Section 9.12.
9.14 Stop Transfer. WHG acknowledges and agrees to be bound by and comply
with the provisions of the Voting Agreement as if a party thereto with respect
to transfers of record ownership of shares of WHG Common Stock and WHG
Preferred Stock, and agrees to notify the transfer agent of the provisions of
the Voting 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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9.15 WHG's Accumulated and Current Earnings and Profits. At the request of
PAHOC or Patriot, at the Closing WHG shall deliver to PAHOC, Acquisition Sub
and Patriot (A) a statement of accumulated and current E&P of WHG (as
determined for federal income tax purposes) as of a date not more than 30 days
prior to the Closing Date, together with evidence of such accumulated and
current E&P of WHG (as determined for federal income tax purposes) from Ernst
& Young LLP in a form reasonably satisfactory to PAHOC, Acquisition Sub and
Patriot, and (B) a statement of estimated accumulated and current E&P of WHG
(as determined for federal income tax purposes) as of the Closing Date;
provided, however, that any failure to comply with the obligations in this
sentence shall not be deemed a failure to satisfy any condition of Closing.
WHG further agrees that at the request of PAHOC or Patriot, prior to the
Closing Date, it shall cause Ernst & Young LLP or another accounting firm
acceptable to PAHOC and Patriot to agree (i) to deliver to PAHOC and Patriot,
within 45 days after the Closing Date, a statement of accumulated and current
E&P of WHG (as determined for federal income tax purposes) at the Effective
Time and (ii) that PAHOC, Acquisition Sub and 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.
ARTICLE 10.
Conditions
10.1 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. This Agreement shall have been approved by the
requisite vote of the stockholders of WHG.
(b) HSR Act. The waiting period applicable to consummation of the Merger
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, the WHG/Patriot Subscription Agreement or the Ancillary
Agreements. 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 PAHOC,
Acquisition Sub, Patriot or WHG, threatened by the SEC.
(e) Listing. PAHOC and Patriot shall have obtained the approval for the
listing of the Paired Shares issuable in the Merger on the NYSE, subject to
official notice of issuance.
10.2 Conditions to Obligations of WHG to Effect the Merger. The obligation
of WHG to effect the Merger and the other transactions contemplated hereby
shall be subject to the fulfillment at or prior to the Closing Date of the
following conditions, unless waived by WHG:
(a) Representations and Warranties. Each of the representations and
warranties of PAHOC, Acquisition Sub and Patriot contained in this
Agreement shall have been true and correct in all material respects when
made and shall be true and correct in all material respects as though made
on and as of the Closing Date except for any representations and warranties
made as of a specific date, in which case such representations and
warranties shall be true and correct in all material respects as of such
date.
(b) Performance of Obligations. PAHOC, Acquisition Sub and Patriot shall
have performed or complied in all material respects with all agreements and
covenants required by this Agreement and the
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WHG/Patriot Subscription Agreement to be performed or complied with by
PAHOC, Acquisition Sub or Patriot, at or prior to the Closing.
(c) Certificate from Officers. Each of PAHOC, Acquisition Sub and Patriot
shall have delivered to WHG a certificate of its respective President or
Chief Financial Officer dated the Closing Date to the effect that the
statements set forth in paragraphs (a) and (b) above with respect to PAHOC,
Acquisition Sub or Patriot, as the case may be, in this Section 10.2 are
true and correct.
(d) Consents, Approvals, etc. All consents, authorizations, orders and
approvals of (or filings or registrations with) any governmental
commissions, boards, other regulatory bodies or third parties, lenders,
joint venturers and partners required to be made or obtained by PAHOC,
Acquisition Sub and Patriot and their respective subsidiaries and
affiliated entities (or in the case of WHG and the WHG Subsidiaries and
their respective subsidiaries and affiliated entities with respect to any
changes in the applicable law or regulations after the date hereof) in
connection with the execution, delivery and performance of this Agreement,
the WHG/Patriot Subscription Agreement and the Ancillary Agreements shall
have been obtained or made other than such consents, authorizations, orders
or approvals which if not obtained or made would not, individually or in
the aggregate, have a PAHOC/Patriot Material Adverse Effect.
10.3 Conditions to Obligation of PAHOC, Acquisition Sub and Patriot to
Effect the Merger. The obligations of PAHOC, Acquisition Sub and Patriot to
effect the Merger and the other transactions contemplated hereby shall be
subject to the fulfillment at or prior to the Closing Date of the following
conditions, unless waived by PAHOC, Acquisition Subsidiary and Patriot:
(a) Representations and Warranties. Each of the representations and
warranties of WHG contained in this Agreement shall have been true and
correct in all material respects when made and shall be true and correct in
all material respects as though made on and as of the Closing Date except
for any representations and warranties made as of a specific date, in which
case such representations and warranties shall be true and correct in all
material respects as of such date.
(b) Performance of Obligations. WHG shall have performed or complied in
all material respects with all agreements and covenants required by this
Agreement to be performed or complied with by WHG, at or prior to the
Closing.
(c) Absence of Changes. From the date of this Agreement through the
Closing Date, there shall not have occurred any changes concerning WHG or
any WHG Subsidiary that, when combined with all other changes, have had or
would have a WHG Material Adverse Effect.
(d) Certificate from Officers. WHG shall have delivered to PAHOC,
Acquisition Sub and Patriot a certificate of the Chairman of the Board, the
President and the Chief Financial Officer of WHG dated the Closing Date to
the effect that the statements set forth in paragraphs (a), (b) and (c)
above in this Section 10.3 are true and correct.
(e) Consents, Approvals, Etc. All consents, authorizations, orders and
approvals of (or filings or registrations with) any governmental
commissions, boards, other regulatory bodies or third parties, lenders,
joint venturers and partners required to be made or obtained by WHG, WHG
Subsidiaries or their respective subsidiaries and affiliated entities (or
in the case of PAHOC, Acquisition Sub and Patriot and their respective
subsidiaries and affiliated entities with respect to any changes in the
applicable law or regulations after the date hereof) in connection with (i)
the execution, delivery and performance of this Agreement, the WHG/Patriot
Subscription Agreement and the Ancillary Agreements and (ii) the
distribution on April 21, 1997 by WMS of all of its outstanding shares of
common stock to WMS stockholders resulting in WHG becoming an independent
public company, shall have been obtained or made other than such consents,
authorizations, orders or approvals which if not obtained or made would
not, individually or in the aggregate, have a WHG Material Adverse Effect.
For purposes of this Section 10.3(e), the failure to obtain such consents,
authorizations, orders and approvals, filings or registrations with respect
to the items specifically listed on Section 10.3(e) of the WHG Disclosure
Letter will not be deemed a WHG Material Adverse Effect.
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(f) Event of Bankruptcy. From the date of this Agreement through the Closing
Date, no bankruptcy, insolvency, receivership, rearrangement, foreclosure or
similar action or proceeding, whether voluntary or involuntary, relating to
WHG, any WHG Subsidiary or any WHG Property has (by the giving of any notice
required as a precondition to any such action or proceeding or otherwise)
commenced or is pending.
ARTICLE 11.
Termination; Amendment; Waiver
11.1 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 WHG:
(a) by mutual written consent of PAHOC, Acquisition Sub, Patriot and WHG;
(b) by PAHOC, Acquisition Sub, Patriot or WHG, 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 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;
(c) by PAHOC, Acquisition Sub, Patriot or WHG, if the Merger shall not have
been consummated on or before March 31, 1998 (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);
(d) by PAHOC, Acquisition Sub or Patriot, if WHG shall have (i) withdrawn,
modified or amended in any respect adverse to PAHOC, Acquisition Sub or
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 PAHOC, Acquisition Sub or Patriot, (iv) publicly expressed
no opinion and remained neutral toward any Acquisition Proposal, or (v)
resolved or agreed to do any of the foregoing, provided that in any such case,
WHG shall pay PAHOC the Section 11.3(a)(i) Amount (as hereinafter defined) in
accordance with Section 11.3(a)(i);
(e) by WHG, if, notwithstanding the provisions of Section 9.1, the Board of
Directors of WHG determines in good faith, based on and consistent with the
written advice of WHG Legal Counsel, that such action is necessary in order
for the Board of Directors of WHG to comply with the directors' fiduciary
duties to stockholders under applicable law and the Board of Directors of WHG
authorizes or desires to authorize WHG to execute an agreement (a "Superior
Proposal Agreement") providing for a Superior Proposal (as hereinafter
defined), provided that WHG has, immediately prior to the termination of this
Agreement and/or the execution of such Superior Proposal Agreement, paid the
Section 11.3(a)(i) Amount in accordance with Section 11.3(a)(i). For purposes
of this Agreement, a "Superior Proposal" means any bona fide Acquisition
Proposal, the terms of which the Board of Directors of WHG determines in its
good faith judgment, after being advised by its financial advisor of national
standing that such Acquisition Proposal is more favorable from a financial
point of view to WHG's stockholders than the Merger, are more favorable to
WHG's stockholders than the Merger;
(f) by WHG, if (A) PAHOC, Acquisition Sub or Patriot has 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 WHG, or (B) Patriot has failed to perform in any
material respect any of its obligations required to be performed by it under
the WHG/Patriot 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 WHG/Patriot Subscription Agreement by WHG;
(g) by either PAHOC, Acquisition Sub or Patriot, if (A) WHG 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
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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 PAHOC,
Acquisition Sub or Patriot, or (B) if WHG has failed to perform in any
material respect any of its obligations required to be performed by it
under the WHG/Patriot 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 WHG/Patriot Subscription Agreement by
Patriot;
(h) by WHG pursuant to 5.2(a)(iii);
(i) by either PAHOC, Acquisition Sub, or Patriot if the Merger does not
receive the authorization of the Executive Director of the Puerto Rico
Tourism Company ("Tourism") regarding the Grants if such authorization is
required by law; or
(j) by either PAHOC, Acquisition Sub or Patriot, if any bankruptcy,
insolvency, receivership, rearrangement, foreclosure or similar action or
proceeding, whether voluntary or involuntary, relating to WHG, any WHG
Subsidiary or any WHG Property has (by the giving of any notice required as
a precondition to any such action or proceeding or otherwise) commenced or
is pending.
11.2 Effect of Termination. In the event of termination of this Agreement by
either WHG, PAHOC, Acquisition Sub or Patriot as provided in Section 11.1,
this Agreement shall forthwith become void and have no effect, without any
liability or obligation on the part of PAHOC, Acquisition Sub, Patriot or WHG,
other than the provisions of Section 9.6(b), this Section 11.2, Sections 9.12,
11.3 and 12.4 and the last sentence of Section 12.3. Nothing contained in this
Section 11.2 shall relieve any party for any willful breach of the
representations, warranties, covenants or agreements set forth in this
Agreement, the WHG/Patriot Subscription Agreement or any Ancillary Agreements.
11.3 Termination Fees and Expenses. As a condition to the willingness of
PAHOC, Acquisition Sub and Patriot to enter into this Agreement and to
compensate PAHOC, Acquisition Sub and Patriot for entering into this Agreement
and the Ancillary Agreements, taking action to consummate the transactions
hereunder and thereunder and incurring the costs and expense related thereto,
PAHOC, Acquisition Sub, Patriot and WHG agree that in the event (i) WHG
terminates this Agreement pursuant to Section 11.1(e), or PAHOC, Acquisition
Sub or Patriot terminates this Agreement pursuant to Section 11.1(d), WHG
shall immediately pay PAHOC an amount in cash (payable by wire transfer of
immediately available funds to an account designated by PAHOC) equal to
$5,000,000 (the "Section 11.3(a)(i) Amount") or (ii) PAHOC, Acquisition Sub or
Patriot terminates this Agreement pursuant to Section 11.1(j), WHG shall
immediately pay PAHOC an amount in cash (payable by wire transfer of
immediately available funds to an account designated by PAHOC) equal to
PAHOC's, Acquisition Sub's and Patriot's actual out-of-pocket expenses
incurred in connection with the negotiation and preparation of this Agreement,
the WHG/Patriot Subscription Agreement, and the Ancillary Agreements and the
transactions, consents and filings contemplated hereby and thereby, including,
but not limited to, all attorneys' and accountants' fees and expenses, filing
fees, printing expenses, and expenses incurred in connection with the Proxy
Statement.
11.4 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
12.5, 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.
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ARTICLE 12.
General Provisions
12.1 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
sentence of Section 9.4, and Sections 9.10 and 9.12 and this Article 12 shall
survive the Merger.
12.2 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 PAHOC or Patriot American Hospitality Operating Company
Acquisition Sub: Tri-West Plaza
3030 LBJ Freeway, Suite 1500
Dallas, TX 75234
Attention: Paul A. Nussbaum
With copies to: Goodwin, Procter & Hoar LLP
Exchange Place
Boston, MA 02109
Attn: Gilbert G. Menna, P.C. and
Stephen W. Carr, P.C.
If to Patriot: Patriot American Hospitality, Inc.
Tri-West Plaza
3030 LBJ Freeway
Suite 1500
Dallas, TX 75234
Attn: Paul A. Nussbaum
With copies to: Goodwin, Procter & Hoar LLP
Exchange Place
Boston, MA 02109
Attn: Gilbert G. Menna, P.C. and
Stephen W. Carr, P.C.
If to WHG: WHG Resorts & Casinos Inc.
6063 East Isla Verde Avenue
Carolina, Puerto Rico 00979
Attn: Louis J. Nicastro
With copies to: Shack & Siegel, P.C.
530 Fifth Avenue
New York, New York 10036
Attn: Jeffrey N. Siegel
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.
12.3 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
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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 9.10 and 9.12 (including for the benefit of the
Indemnified Parties), 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.
12.4 Entire Agreement. This Agreement, the Ancillary Agreements, the
Exhibits, the WHG Disclosure Letter, the PAHOC 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 the parties hereto and thereto in
accordance with their respective terms; provided, however, to the extent, any
of the terms of the Confidentiality Agreements are inconsistent with this
Agreement or any of the Ancillary Agreements, this Agreement and such
Ancillary Agreements shall be controlling. 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.
12.5 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 WHG, 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.
12.6 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. WHG, Acquisition Sub, Patriot and PAHOC hereby
irrevocably and unconditionally consent 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), waive any objection to the laying of venue of
any such litigation in the Delaware Courts and agree not to plead or claim in
any Delaware Court that such litigation brought therein has been brought in
any inconvenient forum.
12.7 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.
12.8 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.
12.9 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.
12.10 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.
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12.11 Incorporation. The WHG Disclosure Letter, the PAHOC 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.
12.12 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.
12.13 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 hereof 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.
12.14 Certain Definitions.
(a) As used in this Agreement, the term "PAHOC Subsidiary" or "PAHOC
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 including, but not limited to,
Acquisition Sub.
(b) As used in this Agreement, the term "Patriot Subsidiary" or "Patriot
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.
(c) As used in this Agreement, the term "Wholly Owned Subsidiary" or
"Wholly-Owned Subsidiaries" means any corporation, partnership, joint venture,
business trust or other entity, of which WHG directly or indirectly owns or
controls 100% (except in the case of Williams Hospitality Group Inc. ("WHGI"))
of the securities or other interests therein, which entities include WHGI,
Posadas de Puerto Rico Associates, Incorporated, ESJ Hotel Corporation,
Posadas Finance Corporation and WHG El Con Corp.
(d) As used in this Agreement, the term "Partially-Owned Subsidiary" or
"Partially-Owned Subsidiaries" means any corporation, partnership, joint
venture, business trust or other entity, in which WHG owns an interest but of
which WHG does not directly or indirectly own or control 100% of the
securities or other interests therein, which entities include Posadas de San
Juan Associates, El Conquistador Ferryboat Inc., WKA El Con Associates, WKA
Development, S.E, Isla Verde Tourism Parking Corporation and El Conquistador
Partnership L.P.; provided, however, the term Partially-Owned Subsidiary or
Partially-Owned Subsidiaries shall not include those entities listed on
Section 6.5 of the WHG Disclosure Letter.
(e) As used in this Agreement, the term "WHG Subsidiary" or "WHG
Subsidiaries" means any Wholly-Owned Subsidiary or Partially-Owned Subsidiary.
(f) 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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(g) As used in this Agreement, the word "affiliate" shall have the meaning
set forth in Rule 12b-2 of the Exchange Act.
(h) 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, the WHG/Patriot Subscription
Agreement or any of the Ancillary Agreements by any party hereto or thereto.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
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{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.
ATTEST: WHG Resorts & Casinos Inc.
/s/ Brian R. Gamache /s/ Louis J. Nicastro
By: _________________________________ By: _________________________________
Name:Brian R. Gamache Name:Louis J. Nicastro
Title:President Title:Chairman
ATTEST: Patriot American Hospitality
Operating Company
/s/ Rex Stewart /s/ Leslie Ng
By: _________________________________ By: _________________________________
Name:Rex Stewart Name:Leslie Ng
Title:Secretary Title:Senior Vice President
ATTEST: Patriot American Hospitality
Operating Company Acquisition
Subsidiary
/s/ Rex Stewart
By: _________________________________ /s/ William W. Evans, III
Name:Rex Stewart By: _________________________________
Title:Secretary Name:William W. Evans, III
Title:President
ATTEST:
Patriot American Hospitality, Inc.
/s/ Rex Stewart
By: _________________________________ /s/ William W. Evans, III
Name:Rex Stewart By: _________________________________
Title:Secretary Name:William W. Evans, III
Title:President
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<PAGE>
ANNEX B
[LETTERHEAD OF OPPENHEIMER & CO., INC. APPEARS HERE]
September 30, 1997
Board of Directors
WHG Resorts & Casinos Inc.
6063 East Isla Verde Ave.
Carolina, PR 00979
Gentlemen:
You have asked Oppenheimer & Co., Inc. ("Oppenheimer") to render a written
opinion (the "Fairness Opinion") to the Board of Directors of WHG Resorts &
Casinos Inc. ("WHG" or the "Company") as to the fairness to the stockholders
of WHG from a financial point of view of the consideration (the "Merger
Consideration") to be received pursuant to the Plan and Agreement of Merger
(the "Merger Agreement") by and among Patriot American Hospitality Operating
Company ("PAHOC"), Patriot American Operating Company Acquisition Subsidiary,
a wholly owned subsidiary of PAHOC ("Acquisition Sub"), Patriot American
Hospitality, Inc. ("PAH," and collectively with PAHOC, "Patriot") and WHG. The
Merger Agreement provides that Acquisition Sub will merge with and into WHG
and WHG Stockholders will be entitled to receive for each share of WHG voting
common stock, par value $.01 per share ("WHG Common Stock"), held by them at
the effective time of the Merger (the "Effective Time") .784 paired shares of
PAHOC and PAH common stock (the "Exchange Ratio"), which shares of PAHOC and
PAH are paired and trade as a single unit on the New York Stock Exchange (the
"Paired Shares"); provided, however, that in the event that (i) the average
closing price of the Paired Shares over the ten trading days immediately
preceding the third business day prior to the date on which the Special
Meeting of Stockholders of WHG is to be convened (the "Average Closing Price")
is greater than $31.25 and the Effective Time is before February, 1998, the
Exchange Ratio will be adjusted such that the product of the Exchange Ratio
and the Average Closing Price (the "Exchange Ratio Product") equals $24.50;
(ii) the Average Closing Price is greater than $31.75 and the Effective Time
is in February, 1998, the Exchange Ratio will be adjusted such that the
Exchange Ratio Product equals $24.89; (iii) the Average Closing Price is
greater than $32.25 and the Effective Time is after February, 1998, the
Exchange Ratio will be adjusted such that the Exchange Ratio Product equals
$25.28; (iv) the Average Closing Price is less than or equal to $25.50, but
greater than or equal to $19.50, the Exchange Ratio will be adjusted such that
the Exchange Ratio Product equals $20.00; or (v) the Average Closing Price is
less than $19.50, the Exchange Ratio will equal 1.026, provided, however, that
in such circumstances WHG has the right, waivable by it, to terminate the
Merger Agreement. In addition, WHG Stockholders will be entitled to receive
for each issued and outstanding share of WHG Series B Convertible Preferred
Stock, par value $.01 per share ("WHG Preferred Stock"), held by them at the
Effective Time that number of Paired Shares as the holder of such share of WHG
Preferred Stock would have the right to receive assuming conversion of such
share, together with any accrued and unpaid dividends thereon, into WHG Common
Stock immediately prior to the Effective Time.
In arriving at our Fairness Opinion we:
(i) reviewed the draft Merger Agreement dated September 30, 1997;
(ii) reviewed WHG's audited and unaudited financial statements for the
fiscal years ended June 30, 1995, 1996 and 1997;
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(iii) reviewed the Condado Plaza Hotel & Casino's (the "Condado Plaza"),
the El San Juan Hotel & Casino's (the "El San Juan"), the El
Conquistador Resort and Country Club's (the "El Conquistador") and
Williams Hospitality Group's ("WHGI") audited and unaudited financial
statements for the fiscal years ended 1995, 1996, and 1997;
(iv) reviewed Patriot's audited financial statements for the fiscal years
ended December 1994, 1995 and 1996 and unaudited statements for the
six months ended June 30, 1996 and 1997, as well as historical and
projected financial results on a pro forma basis assuming the Wyndham
Hotel Corporation and California Jockey Club acquisitions;
(v) reviewed proxy information for Patriot dated June 2, 1997;
(vi) visited WHG's hotel properties in Puerto Rico;
(vii) held discussions with senior management of WHG and Patriot with
respect to the businesses and prospects of WHG and Patriot;
(viii) reviewed financial projections of WHG prepared by WHG;
(ix) reviewed financial projections of Patriot prepared by Patriot;
(x) reviewed financial projections of Condado Plaza, El San Juan, El
Conquistador and WHGI prepared by WHG;
(xi) reviewed current and historical market prices and trading volume of
WHG Common Stock and the Paired Shares;
(xii) reviewed and analyzed certain publicly available financial data for
certain public companies we deemed comparable to WHG and Patriot;
(xiii) reviewed and analyzed certain publicly available financial data for
transactions that we deemed comparable to the Merger;
(xiv) performed discounted cash flow analysis of WHG, Condado Plaza, El San
Juan, El Conquistador and WHGI, using certain assumptions regarding
future performance provided to us by management of WHG;
(xv) reviewed other public information concerning WHG and Patriot; and
(xvi) performed such other analyses and reviewed such other information as
we deemed appropriate.
In rendering our Fairness Opinion we relied upon and assumed, without
independent verification or investigation, the accuracy and completeness of
all of the financial and other information provided to us by WHG and Patriot,
their employees, representatives and their affiliates. With respect to
forecasts of future financial condition and operating results of WHG and
Patriot provided to us, we assumed, without independent verification or
investigation, that such forecasts were reasonably prepared on bases
reflecting the best available information, estimates and judgement of such
entities' respective managements. We have neither made nor obtained any
independent evaluation or appraisals of the assets or liabilities of WHG or
Patriot, or their affiliated entities. We have assumed, without independent
verification, the accuracy of the advice and conclusions of WHG's and
Patriot's legal counsel and accountants with respect to accounting and tax
matters as provided to Oppenheimer by WHG's and Patriot's managements. We
express no opinion as to what the value of the Paired Shares actually will be
when issued to the holders of WHG Common Stock and WHG Preferred Stock
pursuant to the Merger Agreement or the price at which the Paired Shares will
trade subsequent to the Merger. We were not requested or authorized to
solicit, and did not solicit, any proposals from any third parties for the
acquisition of WHG or any of the assets or businesses of WHG nor have we made
any determination as to whether any such proposals could be obtained if
solicited; however, we did review unsolicited indications of interest received
by WHG from third parties.
Our Fairness Opinion is based upon analyses of the foregoing factors in light
of our assessment of general economic, financial and market conditions as of
the date hereof that can be evaluated by us as of such date.
As part of our investment banking business, we are regularly engaged in
valuations of businesses and securities in connection with mergers and
acquisitions, underwritings, secondary distributions of securities, private
placements and valuations for other purposes.
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We served as financial advisor to WHG in connection with the Merger and will
receive a fee for our services. In the ordinary course of its business,
Oppenheimer and its affiliates may actively trade securities of Patriot or WHG
for their own account and for the accounts of customers and, accordingly, may
at any time hold a long or short position in such securities.
Based upon and subject to the foregoing, and such other factors as we deem
relevant, it is our opinion that, as of the date hereof, the Merger
Consideration to be received by the holders of WHG Common Stock and WHG
Preferred Stock pursuant to the Merger Agreement is fair to such holders, from
a financial point of view. The Fairness Opinion is directed to the Board of
Directors of WHG in its consideration of the Merger and is not a
recommendation to any holder of WHG Common Stock or WHG Preferred Stock as to
how such holder should vote with respect to such Merger. Neither this Fairness
Opinion nor the services provided by Oppenheimer in connection therewith may
be publicly disclosed or referred to in any manner by WHG or Patriot without
Oppenheimer's prior written consent and must be treated as confidential. This
Fairness Opinion may be reproduced in full in any proxy statement or
information statement mailed to the holders of WHG Common Stock or WHG
Preferred Stock and in any registration statement related to the Merger filed
by WHG or Patriot with the Securities and Exchange Commission pursuant to the
Securities Act of 1933, as amended, and Oppenheimer consents to the inclusion
of this Fairness Opinion in any such proxy statement, information statement or
registration statement.
Very truly yours,
/s/ Oppenheimer & Co., Inc.
Oppenheimer & Co., Inc.
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<PAGE>
PART II. INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Pursuant to Section 145 of the DGCL, the Patriot Charter and the PAHOC
Charter contain provisions which eliminate personal liability for directors to
Patriot or PAHOC, as the case may be, and to the stockholders of the relevant
company, 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
Patriot or PAHOC, as the case may be, or to the stockholders of the relevant
company, (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 Patriot Charter and the PAHOC 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
Patriot or PAHOC shall be eliminated or limited to the fullest extent
permitted by the DGCL, as so amended.
Article VII of each of the Patriot Bylaws and the PAHOC Bylaws provides for
indemnification by Patriot or PAHOC, as the case may be, of their respective
officers and 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 Patriot and PAHOC may, by action of their
respective Boards of Directors, indemnify all other persons Patriot or PAHOC
may indemnify under the DGCL.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) The following exhibits are filed as part of this Registration Statement
or incorporated herein by reference:
<TABLE>
<CAPTION>
EXHIBIT DESCRIPTION
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<C> <S>
2.1 Agreement and Plan of Merger, dated as of September 30, 1997, by and
among Patriot American Hospitality Operating Company, Patriot American
Hospitality Operating Company Acquisition Subsidiary, Patriot American
Hospitality, Inc. and WHG Resorts & Casinos Inc. (Annex A to the
Prospectus/Proxy Statement).
*2.2 Form of Subscription Agreement by and among Patriot American
Hospitality Operating Company, Patriot American Hospitality, Inc. and
WHG Resorts & Casinos Inc.
3.1 Amended and Restated Certificate of Incorporation of Patriot American
Hospitality, Inc., incorporated by reference to Exhibit 3.1 to Patriot
American Hospitality, Inc.'s and Patriot American Hospitality
Operating Company's Registration Statement on Form S-3 (No. 333-
29671).
3.2 Amended and Restated Bylaws of Patriot American Hospitality, Inc.,
incorporated by reference to Exhibit 3.2 to Patriot American
Hospitality, Inc.'s and Patriot American Hospitality Operating
Company's Registration Statement on Form S-3 (No. 333-29671).
3.3 Amended and Restated Certificate of Incorporation of Patriot American
Hospitality Operating Company, incorporated by reference to Exhibit
3.3 to Patriot American Hospitality, Inc.'s and Patriot American
Hospitality Operating Company's Registration Statement on Form S-3
(No. 333-29671).
3.4 Amended and Restated Bylaws of Patriot American Hospitality Operating
Company, incorporated by reference to Exhibit 3.4 to Patriot American
Hospitality, Inc.'s and Patriot American Hospitality Operating
Company's Registration Statement on Form S-3 (No. 333-29671).
3.5 Form of Amended and Restated Certificate of Incorporation of Patriot
American Hospitality, Inc., incorporated by reference to Annex F to
Patriot American Hospitality, Inc.'s and Patriot American Hospitality
Operating Company's Joint Registration Statement on Form S-4 (No. 333-
39875).
</TABLE>
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<TABLE>
<CAPTION>
EXHIBIT DESCRIPTION
------- -----------
<C> <S>
3.6 Form of Amended and Restated Certificate of Incorporation of Patriot
American Hospitality Operating Company, incorporated by reference to
Annex G to Patriot American Hospitality, Inc.'s and Patriot American
Hospitality Operating Company's Joint Registration Statement on Form
S-4 (No. 333-39875).
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 Amendment No. 2 to the Pairing Agreement, incorporated by reference
to Exhibit 4.2 to Patriot American Hospitality, Inc.'s and Patriot
American Hospitality Operating Company's Joint Registration Statement
on Form S-4 (No. 333-39875).
4.3 Form of Amendment No. 3 to the Pairing Agreement, incorporated by
reference to Annex E to Patriot American Hospitality, Inc.'s and
Patriot American Hospitality Operating Company's Joint Registration
Statement on Form S-4 (No. 333-39875).
*5.1 Opinion of Goodwin, Procter & Hoar LLP as to the legality of the
securities being offered by Patriot American Hospitality, Inc.
*5.2 Opinion of Goodwin, Procter & Hoar LLP as to the legality of the
securities being offered by Patriot American Hospitality Operating
Company.
**8.1 Opinion of Goodwin, Procter & Hoar LLP regarding (i) tax consequences
of the Merger, (ii) Patriot's qualification as a REIT for periods
prior to the Merger and (iii) Patriot'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., incorporated by
reference to Exhibit 10.1(1) to Cal Jockey's and Bay Meadows'
Registration Statement on Form S-4 (No. 333-28085).
10.1(2) First Amendment to the Second Amended and Restated Agreement of
Limited Partnership of Patriot American Hospitality Partnership,
L.P., incorporated by reference to Exhibit 10.1(2) to Cal Jockey's
and Bay Meadows' Registration Statement on Form S-4 (No. 333-28085).
10.1(3) Second Amendment to the Second Amended and Restated Agreement of
Limited Partnership of Patriot American Hospitality Partnership,
L.P., incorporated by reference to Exhibit 10.1(3) to Patriot
American Hospitality, Inc.'s and Patriot American Hospitality
Operating Company's Joint Registration Statement on Form S-4 (No.
333-39875).
10.1(4) Third Amendment to Second Amended and Restated Agreement of Limited
Partnership of Patriot American Hospitality Partnership, L.P.,
incorporated by reference to Exhibit 10.1(4) to Patriot American
Hospitality, Inc.'s and Patriot American Hospitality Operating
Company's Joint Registration Statement on Form S-4 (No. 333-39875).
10.1(5) Fourth Amendment to Second Amended and Restated Agreement of Limited
Partnership of Patriot American Hospitality Partnership, L.P.,
incorporated by reference to Exhibit 10.1(5) to Patriot American
Hospitality, Inc.'s and Patriot American Hospitality Operating
Company's Joint Registration Statement on Form S-4 (No. 333-39875).
10.2(1) Agreement of Limited Partnership of Patriot American Hospitality
Operating Partnership, L.P., incorporated by reference to Exhibit
10.2(1) to Patriot American Hospitality, Inc.'s and Patriot American
Hospitality Operating Company's Joint Registration Statement on Form
S-4 (No. 333-39875).
</TABLE>
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<TABLE>
<CAPTION>
EXHIBIT DESCRIPTION
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<C> <S>
10.2(2) First Amendment to Agreement of Limited Partnership of Patriot
American Hospitality Operating Partnership, L.P., incorporated by
reference to Exhibit 10.2(2) to Patriot American Hospitality, Inc.'s
and Patriot American Hospitality Operating Company's Joint
Registration Statement on Form S-4 (No. 333-39875).
10.2(3) Second Amendment to Agreement of Limited Partnership of Patriot
American Hospitality Operating Partnership, L.P., incorporated by
reference to Exhibit 10.2(3) to Patriot American Hospitality, Inc.'s
and Patriot American Hospitality Operating Company's Joint
Registration Statement on Form S-4 (No. 333-39875).
10.3 Credit Facilities Commitment Letter, dated as of May 23, 1997, between
Patriot American Hospitality, Inc., Paine Webber Real Estate
Securities, Inc. and The Chase Manhattan Bank, incorporated by
reference to Exhibit 10.34 to Cal Jockey's and Bay Meadows'
Registration Statement on Form S-4 (No. 333-28085).
10.4 Stock Purchase Agreement, dated as of April 14, 1997, between Patriot
American Hospitality, Inc. and CF Securities, L.P., incorporated by
reference to Annex D to Patriot American Hospitality, Inc.'s and
Patriot American Hospitality Operating Company's Joint Registration
Statement on Form S-4 (No. 333-39875).
10.5 Form of Registration Rights Agreement by and between Patriot American
Hospitality, Inc., Patriot American Hospitality Operating Company, and
each of the parties signatory thereto, incorporated by reference to
Exhibit 10.5 to Patriot American Hospitality, Inc.'s and Patriot
American Hospitality Operating Company's Joint Registration Statement
on Form S-4 (No. 333-39875).
10.6 Ratification Agreement, dated July 24, 1997, between Patriot American
Hospitality, Inc. and Wyndham Hotel Corporation, incorporated by
reference to Annex B to Patriot American Hospitality, Inc.'s and
Patriot American Hospitality Operating Company's Joint Registration
Statement on Form S-4 (No. 333-39875).
10.7 Ratification Agreement, dated July 24, 1997, between Patriot American
Hospitality Operating Company, Patriot American Hospitality, Inc.,
Wyndham Hotel Corporation and CF Securities, L.P., incorporated by
reference to Annex C to Patriot American Hospitality, Inc.'s and
Patriot American Hospitality Operating Company's Joint Registration
Statement on Form S-4 (No. 333-39875).
10.8 Form of Cooperation Agreement between Patriot American Hospitality,
Inc. and Patriot American Hospitality Operating Company, incorporated
by reference to Exhibit 10.8 to Patriot American Hospitality, Inc.'s
and Patriot American Hospitality Operating Company's Joint
Registration Statement on Form S-4 (No. 333-39875).
10.9 Standstill Agreement, dated as of April 14, 1997, by and among Patriot
American Hospitality, Inc. and CF Securities, L.P., incorporated by
reference to Exhibit 10.9 to Patriot American Hospitality, Inc.'s and
Patriot American Hospitality Operating Company's Joint Registration
Statement on Form S-4 (No. 333-39875).
10.10 Voting Agreement, dated as of April 14, 1997, by and among Patriot
American Hospitality, Inc. and CF Securities, L.P., incorporated by
reference to Exhibit 10.10 to Patriot American Hospitality, Inc.'s and
Patriot American Hospitality Operating Company's Joint Registration
Statement on Form S-4 (No. 333-39875).
10.11 Voting Agreement, dated as of April 14, 1997, by and among Patriot
American Hospitality, Inc. and Paul A. Nussbaum, incorporated by
reference to Exhibit 10.11 to Patriot American Hospitality, Inc.'s and
Patriot American Hospitality Operating Company's Joint Registration
Statement on Form S-4 (No. 333-39875).
</TABLE>
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<TABLE>
<CAPTION>
EXHIBIT DESCRIPTION
------- -----------
<C> <S>
10.12 Voting Agreement, dated as of April 14, 1997, by and among Patriot
American Hospitality, Inc. and William W. Evans III, incorporated by
reference to Exhibit 10.12 to Patriot American Hospitality, Inc.'s and
Patriot American Hospitality Operating Company's Joint Registration
Statement on Form S-4 (No. 333-39875).
10.13 Voting Agreement, dated as of April 14, 1997, by and among Patriot
American Hospitality, Inc. and Leslie V. Bentley, incorporated by
reference to Exhibit 10.13 to Patriot American Hospitality, Inc.'s and
Patriot American Hospitality Operating Company's Joint Registration
Statement on Form S-4 (No. 333-39875).
10.14 Voting Agreement, dated as of April 14, 1997, by and among Patriot
American Hospitality, Inc. and James D. Carreker, incorporated by
reference to Exhibit 10.14 to Patriot American Hospitality, Inc.'s and
Patriot American Hospitality Operating Company's Joint Registration
Statement on Form S-4 (No. 333-39875).
10.15 Voting Agreement, dated as of April 14, 1997, by and among Patriot
American Hospitality, Inc. and Stanley M. Koonce, Jr., incorporated by
reference to Exhibit 10.15 to Patriot American Hospitality, Inc.'s and
Patriot American Hospitality Operating Company's Joint Registration
Statement on Form S-4 (No. 333-39875).
10.16 Voting Agreement, dated as of April 14, 1997, by and among Patriot
American Hospitality, Inc. and Anne L. Raymond, incorporated by
reference to exhibit 10.16 to Patriot American Hospitality, Inc.'s and
Patriot American Hospitality Operating Company's Joint Registration
Statement on Form S-4 (No. 333-39875).
10.17 Proxy Agreement, dated as of April 14, 1997, among Patriot American
Hospitality, Inc., CF Securities, L.P., James D. Carreker, Leslie V.
Bentley, Anne L. Raymond, Stanley M. Koonce, Jr. and Wyndham Hotel
Corporation, incorporated by reference to Exhibit 10.17 to Patriot
American Hospitality, Inc.'s and Patriot American Hospitality
Operating Company's Joint Registration Statement on Form S-4 (No. 333-
39875).
10.18 Revocable Proxy, dated as of April 14, 1997, by Harlan R. Crow,
incorporated by reference to Exhibit 10.18 to Patriot American
Hospitality, Inc.'s and Patriot American Hospitality Operating
Company's Joint Registration Statement on Form S-4 (No. 333-39875).
10.19 Letter Agreement, dated as of April 14, 1997, by and between Patriot
American Hospitality, Inc. and Wynopt Investment Partnership, L.P.,
incorporated by reference to Exhibit 10.19 to Patriot American
Hospitality, Inc.'s and Patriot American Hospitality Operating
Company's Joint Registration Statement on Form S-4 (No. 333-39875).
10.20 Executive Employment Agreement, dated as of April 14, 1997, between
Patriot American Hospitality, Inc. and James D. Carreker, incorporated
by reference to Exhibit 10.20 to Patriot American Hospitality, Inc.'s
and Patriot American Hospitality Operating Company's Joint
Registration Statement on Form S-4 (No. 333-39875).
10.21 Executive Employment Agreement, dated April 14, 1997, between Patriot
American Hospitality, Inc. and Anne L. Raymond, incorporated by
reference to Exhibit 10.21 to Patriot American Hospitality, Inc.'s and
Patriot American Hospitality Operating Company's Joint Registration
Statement on Form S-4 (No. 333-39875).
10.22 Executive Employment Agreement, dated April 14, 1997, between Patriot
American Hospitality, Inc. and Leslie V. Bentley, incorporated by
reference to Exhibit 10.22 to Patriot American Hospitality, Inc.'s and
Patriot American Hospitality Operating Company's Joint Registration
Statement on Form S-4 (No. 333-39875).
</TABLE>
II-4
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT DESCRIPTION
------- -----------
<C> <S>
10.23 Executive Employment Agreement, dated April 14, 1997, between Patriot
American Hospitality, Inc. and Stanley M. Koonce, Jr., incorporated by
reference to Exhibit 10.23 to Patriot American Hospitality, Inc.'s and
Patriot American Hospitality Operating Company's Joint Registration
Statement on Form S-4 (No. 333-39875).
10.24 Omnibus Purchase and Sale Agreement, dated as of April 14, 1997, by
and among the Crow Family Entities and Patriot American Hospitality
Partnership, L.P., incorporated by reference to Exhibit 10.32 to Cal
Jockey's and Bay Meadows' Registration Statement on Form S-4 (No. 333-
28085).
10.25 Purchase and Sale Agreement, dated as of April 14, 1997, between
Patriot American Hospitality Partnership, L.P. and Hotel Bel Age
Associates, L.P., incorporated by reference to Exhibit 10.25 to
Patriot American Hospitality, Inc.'s and Patriot American Hospitality
Operating Company's Joint Registration Statement on Form S-4 (No. 333-
39875).
10.26 Purchase and Sale Agreement, dated as of April 14, 1997, between
Patriot American Hospitality Partnership, L.P. and Franklin Plaza
Associates Limited Partnership and Franklin Plaza Associates,
incorporated by reference to Exhibit 10.26 to Patriot American
Hospitality, Inc.'s and Patriot American Hospitality Operating
Company's Joint Registration Statement on Form S-4 (No. 333-39875).
10.27 Purchase and Sale Agreement, dated as of April 14, 1997, between
Patriot American Hospitality Partnership, L.P. and WHC-LG Hotel
Associates, L.P., incorporated by reference to Exhibit 10.27 to
Patriot American Hospitality, Inc.'s and Patriot American Hospitality
Operating Company's Joint Registration Statement on Form S-4 (No. 333-
39875).
10.28 Purchase and Sale Agreement, dated as of April 14, 1997, between
Patriot American Hospitality Partnership, L.P. and CLC Limited
Partnership, incorporated by reference to Exhibit 10.28 to Patriot
American Hospitality, Inc.'s and Patriot American Hospitality
Operating Company's Joint Registration Statement on Form S-4 (No. 333-
39875).
10.29 Purchase and Sale Agreement, dated as of April 14, 1997, between
Patriot American Hospitality Partnership, L.P. and MTD Associates,
incorporated by reference to Exhibit 10.29 to Patriot American
Hospitality, Inc.'s and Patriot American Hospitality Operating
Company's Joint Registration Statement on Form S-4 (No. 333-39875).
10.30 Purchase and Sale Agreement, dated as of April 14, 1997, between
Patriot American Hospitality Partnership, L.P. and Itasca Hotel
Company, incorporated by reference to Exhibit 10.30 to Patriot
American Hospitality, Inc.'s and Patriot American Hospitality
Operating Company's Joint Registration Statement on Form S-4 (No. 333-
39875).
10.31 Purchase and Sale Agreement, dated as of April 14, 1997, between
Patriot American Hospitality Partnership, L.P. and Novi Garden Hotel
Associates, incorporated by reference to Exhibit 10.31 to Patriot
American Hospitality, Inc.'s and Patriot American Hospitality
Operating Company's Joint Registration Statement on Form S-4 (No. 333-
39875).
10.32 Purchase and Sale Agreement, dated as of April 14, 1997, between
Patriot American Hospitality Partnership, L.P. and 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 IX, Ltd., Hotel and Convention Center Partners X, Ltd. and
Hotel and Convention Center Partners XI, Ltd., incorporated by
reference to Exhibit 10.32 to Patriot American Hospitality, Inc.'s and
Patriot American Hospitality Operating Company's Joint Registration
Statement on Form S-4 (No. 333-39875).
</TABLE>
II-5
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT DESCRIPTION
------- -----------
<C> <S>
10.33 Purchase and Sale Agreement, dated as of April 14, 1997, between
Patriot American Hospitality Partnership, L.P. and Hotel Pleasanton
Associates, Ltd., incorporated by reference to Exhibit 10.33 to
Patriot American Hospitality, Inc.'s and Patriot American Hospitality
Operating Company's Joint Registration Statement on Form S-4 (No. 333-
39875).
10.34 Purchase and Sale Agreement, dated as of April 14, 1997, between
Patriot American Hospitality Partnership, L.P. and Convention Center
Boulevard Hotel, Limited, incorporated by reference to Exhibit 10.34
to Patriot American Hospitality, Inc.'s and Patriot American
Hospitality Operating Company's Joint Registration Statement on Form
S-4 (No. 333-39875).
10.35 Purchase and Sale Agreement, dated as of April 14, 1997, between
Patriot American Hospitality Partnership, L.P. and Wood Dale Garden
Hotel Partnership, incorporated by reference to Exhibit 10.35 to
Patriot American Hospitality, Inc.'s and Patriot American Hospitality
Operating Company's Joint Registration Statement on Form S-4 (No. 333-
39875).
10.36 Option Agreement, dated as of April 14, 1997, by and among Patriot
American Hospitality Partnership, L.P. and the Grantors Named Therein,
incorporated by reference to Exhibit 10.36 to Patriot American
Hospitality, Inc.'s and Patriot American Hospitality Operating
Company's Joint Registration Statement on Form S-4 (No. 333-39875).
10.37 Option Agreement, dated as of April 14, 1997, by and among Patriot
American Hospitality Partnership, L.P. and the Grantors Named Therein,
incorporated by reference to Exhibit 10.37 to Patriot American
Hospitality, Inc.'s and Patriot American Hospitality Operating
Company's Joint Registration Statement on Form S-4 (No. 333-39875).
10.38 Harlan R. Crow Letter Agreement, dated as of April 14, 1997, re:
Management Agreement between Anatole Hotel Investors, L.P. and Wyndham
Hotel Company, Ltd., incorporated by reference to Exhibit 10.38 to
Patriot American Hospitality, Inc.'s and Patriot American Hospitality
Operating Company's Joint Registration Statement on Form S-4 (No. 333-
39875).
10.39 Form of Subscription Agreement by and between Wyndham Hotel
Corporation and Patriot American Hospitality Operating Company,
incorporated by reference to Exhibit 2.3 to Patriot American
Hospitality, Inc.'s and Patriot American Hospitality Operating
Company's Joint Registration Statement on Form S-4 (No. 333-39875).
*10.40 Executive Employment Agreement made as of September 30, 1997, by and
among Patriot American Hospitality Operating Company, Williams
Hospitality Group Inc. and Louis J. Nicastro.
*10.41 Voting and Option Agreement dated as of September 30, 1997, among
Patriot American Hospitality Operating Company, Patriot American
Hospitality Operating Company Acquisition Subsidiary, Patriot American
Hospitality, Inc. and Louis J. Nicastro.
*10.42 Voting Agreement dated as of September 30, 1997, among Patriot
American Hospitality Operating Company, Patriot American Hospitality
Operating Company Acquisition Subsidiary, Patriot American
Hospitality, Inc. and Sumner M. Redstone and National Amusements, Inc.
10.43 Agreement and Plan of Merger, dated as of April 14, 1997, between
Patriot American Hospitality, Inc. and Wyndham Hotel Corporation,
incorporated by reference to Annex A to Patriot American Hospitality,
Inc.'s and Patriot American Hospitality Operating Company's Joint
Registration Statement on Form S-4 (No. 333-39875).
10.44 Amendment No. 1 to Agreement and Plan of Merger, dated as of November
3, 1997, by and among Patriot American Hospitality, Inc., Patriot
American Hospitality Operating Company and Wyndham Hotel Corporation,
incorporated by reference to Annex A to Patriot American Hospitality,
Inc.'s and Patriot American Hospitality Operating Company's Joint
Registration Statement on Form S-4 (No. 333-39875).
</TABLE>
II-6
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT DESCRIPTION
------- -----------
<C> <S>
10.45 Agreement and Plan of Merger, dated as of September 30, 1997, by and
among Patriot American Hospitality Operating Company, Patriot American
Hospitality, Inc. and CHC International, Inc., incorporated by
reference to Exhibit 10.40 to Patriot American Hospitality, Inc.'s and
Patriot American Hospitality Operating Company's Joint Registration
Statement on Form S-4 (No. 333-39875).
10.46 Voting Agreement, dated as of September 30, 1997, by and among Patriot
American Hospitality Operating Company and Carnival Corporation,
Sherwood M. Weiser and Donald E. Lefton, incorporated by reference to
Exhibit 10.41 to Patriot American Hospitality, Inc.'s and Patriot
American Hospitality Operating Company's Joint Registration Statement
on Form S-4 (No. 333-39875).
10.47 Hospitality Advisory, Asset Management and Support Services Agreement,
dated as of September 30, 1997, by and among Patriot American
Hospitality Operating Partnership, L.P. and certain subsidiaries of
CHC International, Inc., incorporated by reference to Exhibit 10.42 to
Patriot American Hospitality, Inc.'s and Patriot American Hospitality
Operating Company's Joint Registration Statement on Form S-4 (No. 333-
39875).
10.48 Form of Capital Contribution and Loan Commitment Agreement, by and
between Patriot American Hospitality, Inc. and Patriot American
Hospitality Operating Company, incorporated by reference to Exhibit
10.43 to Patriot American Hospitality, Inc.'s and Patriot American
Hospitality Operating Company's Joint Registration Statement on Form
S-4 (No. 333-39875).
10.49 Agreement and Plan of Merger, dated as of December 2, 1997, by and
among Interstate Hotels Company, Patriot American Hospitality, Inc.
and Patriot American Hospitality Operating Company, incorporated by
reference to Exhibit 2.1 to Patriot American Hospitality Inc.'s and
Patriot American Hospitality Operating Company's Current Report on
Form 8-K dated December 2, 1997 (Nos. 001-09319, 001-09320).
10.50 Shareholders Agreement, dated as of December 2, 1997, by and among
Patriot American Hospitality, Inc., Patriot American Hospitality
Operating Company, the shareholders of Interstate Hotels Company named
on the signature pages thereto, and Interstate Hotels Company,
incorporated by reference to Exhibit 10.1 to Patriot American
Hospitality Inc.'s and Patriot American Hospitality Operating
Company's Current Report on Form 8-K dated December 2, 1997 (Nos. 001-
09319, 001-09320).
12.1 Historical Ratio of Earnings to Fixed Charges, incorporated by
reference to Exhibit 12.1 to Patriot American Hospitality, Inc.'s and
Patriot American Hospitality Operating Company's Joint Registration
Statement on Form S-4 (No. 333-39875).
21.1 Subsidiaries of Patriot American Hospitality, Inc., incorporated by
reference to Exhibit 21.1 to Patriot American Hospitality, Inc.'s and
Patriot American Hospitality Operating Company's Joint Registration
Statement on Form S-4 (No. 333-39875).
21.2 Subsidiaries of Patriot American Hospitality Operating Company,
incorporated by reference to Exhibit 21.2 to Patriot American
Hospitality, Inc.'s and Patriot American Hospitality Operating
Company's Joint Registration Statement on Form S-4 (No. 333-39875).
**23.1 Consent of Deloitte & Touche LLP (San Francisco, California).
**23.2 Consent of Deloitte & Touche LLP (Houston, Texas).
**23.3 Consent of Ernst & Young LLP (Dallas, Texas).
**23.4 Consent of Ernst & Young LLP (Seattle, Washington).
**23.5 Consent of Ernst & Young LLP (Phoenix, Arizona).
</TABLE>
II-7
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT DESCRIPTION
------- -----------
<C> <S>
**23.6 Consent of Ernst & Young LLP (Miami, Florida).
**23.7 Consent of Ernst & Young LLP (Kansas City, Missouri).
**23.8 Consent of Ernst & Young LLP (San Juan, Puerto Rico).
**23.9 Consent of Coopers & Lybrand L.L.P. (Fort Lauderdale, Florida).
**23.10 Consent of Coopers & Lybrand L.L.P. (Pittsburgh, Pennsylvania).
**23.11 Consent of Coopers & Lybrand L.L.P. (Dallas, Texas).
**23.12 Consent of Coopers & Lybrand L.L.P. (Newport Beach, California).
**23.13 Consent of Coopers & Lybrand L.L.P. (Phoenix, Arizona).
**23.14 Consent of Coopers & Lybrand L.L.P. (Tampa, Florida)
**23.15 Consent of Pannell Kerr Forster PC (Alexandria, Virginia).
**23.16 Consent of Price Waterhouse LLP (Miami, Florida).
**23.17 Consent of Arthur Andersen LLP (Dallas, Texas).
**23.18 Consent of Mayer Hoffman McCann L.L.C.
*23.19 Consent of Goodwin, Procter & Hoar LLP (in opinions filed as Exhibits
5.1 and 5.2).
**23.20 Consent of Goodwin, Procter & Hoar LLP (in opinion filed as Exhibit
8.1).
**23.21 Consent of Oppenheimer & Co., Inc (included in Annex B to the Proxy
Statement/Prospectus)
*24.1 Powers of Attorney.
**99.1 Opinion of Oppenheimer & Co., Inc. as to the fairness of the
transaction to stockholders of WHG Resorts & Casinos Inc. (Annex B to
the Proxy Statement/Prospectus).
**99.2 Form of WHG Resorts & Casinos Inc. Proxy.
</TABLE>
- --------
*Previously filed.
**Filed herewith.
(b) No financial statement schedules are required to be filed herewith
pursuant to Item 21(b) of this Form.
(c) The Opinion of Oppenheimer & Co., Inc. is included as Annex B to the
Proxy Statement/Prospectus included in this Registration Statement.
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; and
II-8
<PAGE>
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or
any material change to such information in the registration statement.
provided, however, that paragraphs (a)(1)(i) and (a)(1)(ii) herein do not
apply if the information required to be included in a post-effective
amendment by those paragraphs is contained in periodic reports filed with
or furnished to the Commission by the registrant pursuant to Section 13 or
Section 15(d) of the Securities Exchange Act of 1934 that are incorporated
by reference in the registration statement;
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed
to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed
to be the initial bona fide offering thereof; and
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
(b) The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
registrant's annual report pursuant to Section 13(a) or 15(d) of the
Securities Exchange Act of 1934 (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)(1) The undersigned 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.
(2) The undersigned registrant undertakes that every prospectus: (i) that is
filed pursuant to paragraph (1) 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.
(d) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the registrant pursuant to the foregoing provisions, or otherwise, the
registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the
Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer or controlling
person of the registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the Act
and will be governed by the final adjudication of such issue.
(e) The undersigned 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.
(f) The undersigned 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-9
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, EACH OF THE
REGISTRANTS HAS DULY CAUSED THIS AMENDMENT NO. 2 TO THE REGISTRATION STATEMENT
TO BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN
THE CITY OF DALLAS, STATE OF TEXAS, DECEMBER 16, 1997.
Patriot American Hospitality, Inc. Patriot American Hospitality
Operating Company
By: /s/ Rex E. Stewart By: /s/ Rex E. Stewart
--------------------------------- ---------------------------------
REX E. STEWART, REX E. STEWART,
EXECUTIVE VICE PRESIDENT EXECUTIVE VICE PRESIDENT
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS AMENDMENT
NO. 2 TO THE REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS
IN THE CAPACITIES AND ON THE DATES INDICATED.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
* Chairman of the December 16, 1997
- ------------------------------------- Board of Directors,
PAUL A. NUSSBAUM Chief Executive
Officer and
President, Patriot
American
Hospitality, Inc.
(Principal
Executive Officer)
/s/ Rex E. Stewart Chief Financial December 16, 1997
- ------------------------------------- Officer and
REX E. STEWART Treasurer, Patriot
American
Hospitality, Inc.
(Principal
Financial Officer
and Principal
Accounting Officer)
* Office of the December 16, 1997
- ------------------------------------- Chairman and
WILLIAM W. EVANS III Director, Patriot
American
Hospitality, Inc.
* Director, Patriot December 16, 1997
- ------------------------------------- American
JOHN H. DANIELS Hospitality, Inc.
* Director, Patriot December 16, 1997
- ------------------------------------- American
JOHN C. DETERDING Hospitality, Inc.
</TABLE>
II-10
<PAGE>
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
* Director, Patriot December 16, 1997
- ------------------------------------- American
GREGORY R. DILLON Hospitality, Inc.
* Director, Patriot December 16, 1997
- ------------------------------------- American
ARCH K. JACOBSON Hospitality, Inc.
*By: /s/ Rex E. Stewart December 16, 1997
--------------------------------
ATTORNEY IN FACT
</TABLE>
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS AMENDMENT
NO. 2 TO THE REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS
IN THE CAPACITIES AND ON THE DATES INDICATED.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
* Chairman of the December 16, 1997
- ------------------------------------- Board of Directors
PAUL A. NUSSBAUM and Chief Executive
Officer, Patriot
American
Hospitality
Operating Company
(Principal
Executive Officer)
* President, Chief December 16, 1997
- ------------------------------------- Operating Officer
KARIM ALIBHAI and Director,
Patriot American
Hospitality
Operating Company
/s/ Rex E. Stewart Chief Financial December 16, 1997
- ------------------------------------- Officer and
REX E. STEWART Treasurer, Patriot
American
Hospitality
Operating Company
(Principal
Financial Officer
and Principal
Accounting Officer)
</TABLE>
II-11
<PAGE>
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
* Director, Patriot December 16, 1997
- ------------------------------------- American
ARCH K. JACOBSON Hospitality
Operating Company
* Director, Patriot December 16, 1997
- ------------------------------------- American
LEONARD BOXER Hospitality
Operating Company
* Director, Patriot December 16, 1997
- ------------------------------------- American
RUSS LYON, JR. Hospitality
Operating Company
* Director, Patriot December 16, 1997
- ------------------------------------- American
BURTON C. EINSPRUCH Hospitality
Operating Company
* Director, Patriot December 16, 1997
- ------------------------------------- American
SHERWOOD WEISER Hospitality
Operating Company
*By: /s/ Rex E. Stewart December 16, 1997
--------------------------------
ATTORNEY IN FACT
</TABLE>
II-12
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
NUMBER EXHIBIT
------ -------
<C> <S>
2.1 Agreement and Plan of Merger, dated as of September 30, 1997, by and
among Patriot American Hospitality Operating Company, Patriot American
Hospitality Operating Company Acquisition Subsidiary, Patriot American
Hospitality, Inc. and WHG Resorts & Casinos Inc. (Annex A to the
Prospectus/Proxy Statement).
*2.2 Form of Subscription Agreement by and among Patriot American
Hospitality Operating Company, Patriot American Hospitality, Inc. and
WHG Resorts & Casinos Inc.
3.1 Amended and Restated Certificate of Incorporation of Patriot American
Hospitality, Inc., incorporated by reference to Exhibit 3.1 to Patriot
American Hospitality, Inc.'s and Patriot American Hospitality Operating
Company's Registration Statement on Form S-3 (No. 333-29671).
3.2 Amended and Restated Bylaws of Patriot American Hospitality, Inc.,
incorporated by reference to Exhibit 3.2 to Patriot American
Hospitality, Inc.'s and Patriot American Hospitality Operating
Company's Registration Statement on Form S-3 (No. 333-29671).
3.3 Amended and Restated Certificate of Incorporation of Patriot American
Hospitality Operating Company, incorporated by reference to Exhibit 3.3
to Patriot American Hospitality, Inc.'s and Patriot American
Hospitality Operating Company's Registration Statement on Form S-3 (No.
333-29671).
3.4 Amended and Restated Bylaws of Patriot American Hospitality Operating
Company, incorporated by reference to Exhibit 3.4 to Patriot American
Hospitality, Inc.'s and Patriot American Hospitality Operating
Company's Registration Statement on Form S-3 (No. 333-29671).
3.5 Form of Amended and Restated Certificate of Incorporation of Patriot
American Hospitality, Inc., incorporated by reference to Annex F to
Patriot American Hospitality, Inc.'s and Patriot American Hospitality
Operating Company's Joint Registration Statement on Form S-4 (No. 333-
39875).
3.6 Form of Amended and Restated Certificate of Incorporation of Patriot
American Hospitality Operating Company, incorporated by reference to
Annex G to Patriot American Hospitality, Inc.'s and Patriot American
Hospitality Operating Company's Joint Registration Statement on Form S-
4 (No. 333-39875).
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 Amendment No. 2 to the Pairing Agreement, incorporated by reference to
Exhibit 4.2 to Patriot American Hospitality, Inc.'s and Patriot
American Hospitality Operating Company's Joint Registration Statement
on Form S-4 (No. 333-39875).
4.3 Form of Amendment No. 3 to the Pairing Agreement, incorporated by
reference to Annex E to Patriot American Hospitality, Inc.'s and
Patriot American Hospitality Operating Company's Joint Registration
Statement on Form S-4 (No. 333-39875).
*5.1 Opinion of Goodwin, Procter & Hoar LLP as to the legality of the
securities being offered by Patriot American Hospitality, Inc.
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*5.2 Opinion of Goodwin, Procter & Hoar LLP as to the legality of the
securities being offered by Patriot American Hospitality Operating
Company.
**8.1 Opinion of Goodwin, Procter & Hoar LLP regarding (i) tax consequences
of the Merger, (ii) Patriot's qualification as a REIT for periods
prior to the Merger and (iii) Patriot'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., incorporated by
reference to Exhibit 10.1(1) to Cal Jockey's and Bay Meadows'
Registration Statement on Form S-4 (No. 333-28085).
10.1(2) First Amendment to the Second Amended and Restated Agreement of
Limited Partnership of Patriot American Hospitality Partnership,
L.P., incorporated by reference to Exhibit 10.1(2) to Cal Jockey's
and Bay Meadows' Registration Statement on Form S-4 (No. 333-28085).
10.1(3) Second Amendment to the Second Amended and Restated Agreement of
Limited Partnership of Patriot American Hospitality Partnership,
L.P., incorporated by reference to Exhibit 10.1(3) to Patriot
American Hospitality, Inc.'s and Patriot American Hospitality
Operating Company's Joint Registration Statement on Form S-4 (No.
333-39875).
10.1(4) Third Amendment to Second Amended and Restated Agreement of Limited
Partnership of Patriot American Hospitality Partnership, L.P.,
incorporated by reference to Exhibit 10.1(4) to Patriot American
Hospitality, Inc.'s and Patriot American Hospitality Operating
Company's Joint Registration Statement on Form S-4 (No. 333-39875).
10.1(5) Fourth Amendment to Second Amended and Restated Agreement of Limited
Partnership of Patriot American Hospitality Partnership, L.P.,
incorporated by reference to Exhibit 10.1(5) to Patriot American
Hospitality, Inc.'s and Patriot American Hospitality Operating
Company's Joint Registration Statement on Form S-4 (No. 333-39875).
10.2(1) Agreement of Limited Partnership of Patriot American Hospitality
Operating Partnership, L.P., incorporated by reference to Exhibit
10.2(1) to Patriot American Hospitality, Inc.'s and Patriot American
Hospitality Operating Company's Joint Registration Statement on Form
S-4 (No. 333-39875).
10.2(2) First Amendment to Agreement of Limited Partnership of Patriot
American Hospitality Operating Partnership, L.P., incorporated by
reference to Exhibit 10.2(2) to Patriot American Hospitality, Inc.'s
and Patriot American Hospitality Operating Company's Joint
Registration Statement on Form S-4 (No. 333-39875).
10.2(3) Second Amendment to Agreement of Limited Partnership of Patriot
American Hospitality Operating Partnership, L.P., incorporated by
reference to Exhibit 10.2(3) to Patriot American Hospitality, Inc.'s
and Patriot American Hospitality Operating Company's Joint
Registration Statement on Form S-4 (No. 333-39875).
10.3 Credit Facilities Commitment Letter, dated as of May 23, 1997,
between Patriot American Hospitality, Inc., Paine Webber Real Estate
Securities, Inc. and The Chase Manhattan Bank, incorporated by
reference to Exhibit 10.34 to Cal Jockey's and Bay Meadows'
Registration Statement on Form S-4 (No. 333-28085).
10.4 Stock Purchase Agreement, dated as of April 14, 1997, between Patriot
American Hospitality, Inc. and CF Securities, L.P., incorporated by
reference to Annex D to Patriot American Hospitality, Inc.'s and
Patriot American Hospitality Operating Company's Joint Registration
Statement on Form S-4 (No. 333-39875).
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10.5 Form of Registration Rights Agreement by and between Patriot American
Hospitality, Inc., Patriot American Hospitality Operating Company, and
each of the parties signatory thereto, incorporated by reference to
Exhibit 10.5 to Patriot American Hospitality, Inc.'s and Patriot
American Hospitality Operating Company's Joint Registration Statement
on Form S-4 (No. 333-39875).
10.6 Ratification Agreement, dated July 24, 1997, between Patriot American
Hospitality, Inc. and Wyndham Hotel Corporation, incorporated by
reference to Annex B to Patriot American Hospitality, Inc.'s and
Patriot American Hospitality Operating Company's Joint Registration
Statement on Form S-4 (No. 333-39875).
10.7 Ratification Agreement, dated July 24, 1997, between Patriot American
Hospitality Operating Company, Patriot American Hospitality, Inc.,
Wyndham Hotel Corporation and CF Securities, L.P., incorporated by
reference to Annex C to Patriot American Hospitality, Inc.'s and
Patriot American Hospitality Operating Company's Joint Registration
Statement on Form S-4 (No. 333-39875).
10.8 Form of Cooperation Agreement between Patriot American Hospitality,
Inc. and Patriot American Hospitality Operating Company, incorporated
by reference to Exhibit 10.8 to Patriot American Hospitality, Inc.'s
and Patriot American Hospitality Operating Company's Joint Registration
Statement on Form S-4 (No. 333-39875).
10.9 Standstill Agreement, dated as of April 14, 1997, by and among Patriot
American Hospitality, Inc. and CF Securities, L.P., incorporated by
reference to Exhibit 10.9 to Patriot American Hospitality, Inc.'s and
Patriot American Hospitality Operating Company's Joint Registration
Statement on Form S-4 (No. 333-39875).
10.10 Voting Agreement, dated as of April 14, 1997, by and among Patriot
American Hospitality, Inc. and CF Securities, L.P., incorporated by
reference to Exhibit 10.10 to Patriot American Hospitality, Inc.'s and
Patriot American Hospitality Operating Company's Joint Registration
Statement on Form S-4 (No. 333-39875).
10.11 Voting Agreement, dated as of April 14, 1997, by and among Patriot
American Hospitality, Inc. and Paul A. Nussbaum, incorporated by
reference to Exhibit 10.11 to Patriot American Hospitality, Inc.'s and
Patriot American Hospitality Operating Company's Joint Registration
Statement on Form S-4 (No. 333-39875).
10.12 Voting Agreement, dated as of April 14, 1997, by and among Patriot
American Hospitality, Inc. and William W. Evans III, incorporated by
reference to Exhibit 10.12 to Patriot American Hospitality, Inc.'s and
Patriot American Hospitality Operating Company's Joint Registration
Statement on Form S-4 (No. 333-39875).
10.13 Voting Agreement, dated as of April 14, 1997, by and among Patriot
American Hospitality, Inc. and Leslie V. Bentley, incorporated by
reference to Exhibit 10.13 to Patriot American Hospitality, Inc.'s and
Patriot American Hospitality Operating Company's Joint Registration
Statement on Form S-4 (No. 333-39875).
10.14 Voting Agreement, dated as of April 14, 1997, by and among Patriot
American Hospitality, Inc. and James D. Carreker, incorporated by
reference to Exhibit 10.14 to Patriot American Hospitality, Inc.'s and
Patriot American Hospitality Operating Company's Joint Registration
Statement on Form S-4 (No. 333-39875).
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10.15 Voting Agreement, dated as of April 14, 1997, by and among Patriot
American Hospitality, Inc. and Stanley M. Koonce, Jr., incorporated by
reference to Exhibit 10.15 to Patriot American Hospitality, Inc.'s and
Patriot American Hospitality Operating Company's Joint Registration
Statement on Form S-4 (No. 333-39875).
10.16 Voting Agreement, dated as of April 14, 1997, by and among Patriot
American Hospitality, Inc. and Anne L. Raymond, incorporated by
reference to Exhibit 10.16 to Patriot American Hospitality, Inc.'s and
Patriot American Hospitality Operating Company's Joint Registration
Statement on Form S-4 (No. 333-39875).
10.17 Proxy Agreement, dated as of April 14, 1997, among Patriot American
Hospitality, Inc., CF Securities, L.P., James D. Carreker, Leslie V.
Bentley, Anne L. Raymond, Stanley M. Koonce, Jr. and Wyndham Hotel
Corporation, incorporated by reference to Exhibit 10.17 to Patriot
American Hospitality, Inc.'s and Patriot American Hospitality Operating
Company's Joint Registration Statement on Form S-4 (No. 333-39875).
10.18 Revocable Proxy, dated as of April 14, 1997, by Harlan R. Crow,
incorporated by reference to Exhibit 10.18 to Patriot American
Hospitality, Inc.'s and Patriot American Hospitality Operating
Company's Joint Registration Statement on Form S-4 (No. 333-39875).
10.19 Letter Agreement, dated as of April 14, 1997, by and between Patriot
American Hospitality, Inc. and Wynopt Investment Partnership, L.P.,
incorporated by reference to Exhibit 10.19 to Patriot American
Hospitality, Inc.'s and Patriot American Hospitality Operating
Company's Joint Registration Statement on Form S-4 (No. 333-39875).
10.20 Executive Employment Agreement, dated as of April 14, 1997, between
Patriot American Hospitality, Inc. and James D. Carreker, incorporated
by reference to Exhibit 10.20 to Patriot American Hospitality, Inc.'s
and Patriot American Hospitality Operating Company's Joint Registration
Statement on Form S-4 (No. 333-39875).
10.21 Executive Employment Agreement, dated April 14, 1997, between Patriot
American Hospitality, Inc. and Anne L. Raymond, incorporated by
reference to Exhibit 10.21 to Patriot American Hospitality, Inc.'s and
Patriot American Hospitality Operating Company's Joint Registration
Statement on Form S-4 (No. 333-39875).
10.22 Executive Employment Agreement, dated April 14, 1997, between Patriot
American Hospitality, Inc. and Leslie V. Bentley, incorporated by
reference to Exhibit 10.22 to Patriot American Hospitality, Inc.'s and
Patriot American Hospitality Operating Company's Joint Registration
Statement on Form S-4 (No. 333-39875).
10.23 Executive Employment Agreement, dated April 14, 1997, between Patriot
American Hospitality, Inc. and Stanley M. Koonce, Jr., incorporated by
reference to Exhibit 10.23 to Patriot American Hospitality, Inc.'s and
Patriot American Hospitality Operating Company's Joint Registration
Statement on Form S-4 (No. 333-39875).
10.24 Omnibus Purchase and Sale Agreement, dated as of April 14, 1997, by and
among the Crow Family Entities and Patriot American Hospitality
Partnership, L.P., incorporated by reference to Exhibit 10.32 to Cal
Jockey's and Bay Meadows' Registration Statement on Form S-4 (No. 333-
28085).
10.25 Purchase and Sale Agreement, dated as of April 14, 1997, between
Patriot American Hospitality Partnership, L.P. and Hotel Bel Age
Associates, L.P., incorporated by reference to Exhibit 10.25 to Patriot
American Hospitality, Inc.'s and Patriot American Hospitality Operating
Company's Joint Registration Statement on Form S-4 (No. 333-39875).
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10.26 Purchase and Sale Agreement, dated as of April 14, 1997, between
Patriot American Hospitality Partnership, L.P. and Franklin Plaza
Associates Limited Partnership and Franklin Plaza Associates,
incorporated by reference to Exhibit 10.26 to Patriot American
Hospitality, Inc.'s and Patriot American Hospitality Operating
Company's Joint Registration Statement on Form S-4 (No. 333-39875).
10.27 Purchase and Sale Agreement, dated as of April 14, 1997, between
Patriot American Hospitality Partnership, L.P. and WHC-LG Hotel
Associates, L.P., incorporated by reference to Exhibit 10.27 to Patriot
American Hospitality, Inc.'s and Patriot American Hospitality Operating
Company's Joint Registration Statement on Form S-4 (No. 333-39875).
10.28 Purchase and Sale Agreement, dated as of April 14, 1997, between
Patriot American Hospitality Partnership, L.P. and CLC Limited
Partnership, incorporated by reference to Exhibit 10.28 to Patriot
American Hospitality, Inc.'s and Patriot American Hospitality Operating
Company's Joint Registration Statement on Form S-4 (No. 333-39875).
10.29 Purchase and Sale Agreement, dated as of April 14, 1997, between
Patriot American Hospitality Partnership, L.P. and MTD Associates,
incorporated by reference to Exhibit 10.29 to Patriot American
Hospitality, Inc.'s and Patriot American Hospitality Operating
Company's Joint Registration Statement on Form S-4 (No. 333-39875).
10.30 Purchase and Sale Agreement, dated as of April 14, 1997, between
Patriot American Hospitality Partnership, L.P. and Itasca Hotel
Company, incorporated by reference to Exhibit 10.30 to Patriot American
Hospitality, Inc.'s and Patriot American Hospitality Operating
Company's Joint Registration Statement on Form S-4 (No. 333-39875).
10.31 Purchase and Sale Agreement, dated as of April 14, 1997, between
Patriot American Hospitality Partnership, L.P. and Novi Garden Hotel
Associates, incorporated by reference to Exhibit 10.31 to Patriot
American Hospitality, Inc.'s and Patriot American Hospitality Operating
Company's Joint Registration Statement on Form S-4 (No. 333-39875).
10.32 Purchase and Sale Agreement, dated as of April 14, 1997, between
Patriot American Hospitality Partnership, L.P. and 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 IX, Ltd., Hotel and
Convention Center Partners X, Ltd. and Hotel and Convention Center
Partners XI, Ltd., incorporated by reference to Exhibit 10.32 to
Patriot American Hospitality, Inc.'s and Patriot American Hospitality
Operating Company's Joint Registration Statement on Form S-4 (No. 333-
39875).
10.33 Purchase and Sale Agreement, dated as of April 14, 1997, between
Patriot American Hospitality Partnership, L.P. and Hotel Pleasanton
Associates, Ltd., incorporated by reference to Exhibit 10.33 to Patriot
American Hospitality, Inc.'s and Patriot American Hospitality Operating
Company's Joint Registration Statement on Form S-4 (No. 333-39875).
10.34 Purchase and Sale Agreement, dated as of April 14, 1997, between
Patriot American Hospitality Partnership, L.P. and Convention Center
Boulevard Hotel, Limited, incorporated by reference to Exhibit 10.34 to
Patriot American Hospitality, Inc.'s and Patriot American Hospitality
Operating Company's Joint Registration Statement on Form S-4 (No. 333-
39875).
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10.35 Purchase and Sale Agreement, dated as of April 14, 1997, between
Patriot American Hospitality Partnership, L.P. and Wood Dale Garden
Hotel Partnership, incorporated by reference to Exhibit 10.35 to
Patriot American Hospitality, Inc.'s and Patriot American Hospitality
Operating Company's Joint Registration Statement on Form S-4 (No. 333-
39875).
10.36 Option Agreement, dated as of April 14, 1997, by and among Patriot
American Hospitality Partnership, L.P. and the Grantors Named Therein,
incorporated by reference to Exhibit 10.36 to Patriot American
Hospitality, Inc.'s and Patriot American Hospitality Operating
Company's Joint Registration Statement on Form S-4 (No. 333-39875).
10.37 Option Agreement, dated as of April 14, 1997, by and among Patriot
American Hospitality Partnership, L.P. and the Grantors Named Therein,
incorporated by reference to Exhibit 10.37 to Patriot American
Hospitality, Inc.'s and Patriot American Hospitality Operating
Company's Joint Registration Statement on Form S-4 (No. 333-39875).
10.38 Harlan R. Crow Letter Agreement, dated as of April 14, 1997, re:
Management Agreement between Anatole Hotel Investors, L.P. and Wyndham
Hotel Company, Ltd., incorporated by reference to Exhibit 10.38 to
Patriot American Hospitality, Inc.'s and Patriot American Hospitality
Operating Company's Joint Registration Statement on Form S-4 (No. 333-
39875).
10.39 Form of Subscription Agreement by and between Wyndham Hotel Corporation
and Patriot American Hospitality Operating Company, incorporated by
reference to Exhibit 2.3 to Patriot American Hospitality, Inc.'s and
Patriot American Hospitality Operating Company's Joint Registration
Statement on Form S-4 (No. 333-39875).
*10.40 Executive Employment Agreement made as of September 30, 1997, by and
among Patriot American Hospitality Operating Company, Williams
Hospitality Group Inc. and Louis J. Nicastro.
*10.41 Voting and Option Agreement dated as of September 30, 1997, among
Patriot American Hospitality Operating Company, Patriot American
Hospitality Operating Company Acquisition Subsidiary, Patriot American
Hospitality, Inc. and Louis J. Nicastro.
*10.42 Voting Agreement dated as of September 30, 1997, among Patriot American
Hospitality Operating Company, Patriot American Hospitality Operating
Company Acquisition Subsidiary, Patriot American Hospitality, Inc. and
Sumner M. Redstone and National Amusements, Inc.
10.43 Agreement and Plan of Merger, dated as of April 14, 1997, between
Patriot American Hospitality, Inc. and Wyndham Hotel Corporation,
incorporated by reference to Annex A to Patriot American Hospitality,
Inc.'s and Patriot American Hospitality Operating Company's Joint
Registration Statement on Form S-4 (No. 333-39875).
10.44 Amendment No. 1 to Agreement and Plan of Merger, dated as of November
3, 1997, by and among Patriot American Hospitality, Inc., Patriot
American Hospitality Operating Company and Wyndham Hotel Corporation,
incorporated by reference to Annex A to Patriot American Hospitality,
Inc.'s and Patriot American Hospitality Operating Company's Joint
Registration Statement on Form S-4 (No. 333-39875).
10.45 Agreement and Plan of Merger, dated as of September 30, 1997, by and
among Patriot American Hospitality Operating Company, Patriot American
Hospitality, Inc. and CHC International, Inc., incorporated by
reference to Exhibit 10.40 to Patriot American Hospitality, Inc.'s and
Patriot American Hospitality Operating Company's Joint Registration
Statement on Form S-4 (No. 333-39875).
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10.46 Voting Agreement, dated as of September 30, 1997, by and among Patriot
American Hospitality Operating Company and Carnival Corporation,
Sherwood M. Weiser and Donald E. Lefton, incorporated by reference to
Exhibit 10.41 to Patriot American Hospitality, Inc.'s and Patriot
American Hospitality Operating Company's Joint Registration Statement
on Form S-4 (No. 333-39875).
10.47 Hospitality Advisory, Asset Management and Support Services Agreement,
dated as of September 30, 1997, by and among Patriot American
Hospitality Operating Partnership, L.P. and certain subsidiaries of
CHC International, Inc., incorporated by reference to Exhibit 10.42 to
Patriot American Hospitality, Inc.'s and Patriot American Hospitality
Operating Company's Joint Registration Statement on Form S-4 (No. 333-
39875).
10.48 Form of Capital Contribution and Loan Commitment Agreement by and
between Patriot American Hospitality, Inc. and Patriot American
Hospitality Operating Company, incorporated by reference to Exhibit
10.43 to Patriot American Hospitality, Inc.'s and Patriot American
Hospitality Operating Company's Joint Registration Statement on Form
S-4 (No. 333-39875).
10.49 Agreement and Plan of Merger, dated as of December 2, 1997, by and
among Interstate Hotels Company, Patriot American Hospitality, Inc.
and Patriot American Hospitality Operating Company, incorporated by
reference to Exhibit 2.1 to Patriot American Hospitality Inc.'s and
Patriot American Hospitality Operating Company's Current Report on
Form 8-K dated December 2, 1997 (Nos. 001-09319, 001-09320).
10.50 Shareholders Agreement, dated as of December 2, 1997, by and among
Patriot American Hospitality, Inc., Patriot American Hospitality
Operating Company, the shareholders of Interstate Hotels Company named
on the signature pages thereto, and Interstate Hotels Company,
incorporated by reference to Exhibit 10.1 to Patriot American
Hospitality Inc's and Patriot American Hospitality Operating Company's
Current Report on Form 8-K dated December 2, 1997 (Nos. 001-09319,
001-09320).
12.1 Historical Ratio of Earnings to Fixed Charges, incorporated by
reference to Exhibit 12.1 to Patriot American Hospitality, Inc.'s and
Patriot American Hospitality Operating Company's Joint Registration
Statement on Form S-4 (No. 333-39875).
21.1 Subsidiaries of Patriot American Hospitality, Inc., incorporated by
reference to Exhibit 21.1 to Patriot American Hospitality, Inc.'s and
Patriot American Hospitality Operating Company's Joint Registration
Statement on Form S-4 (No. 333-39875).
21.2 Subsidiaries of Patriot American Hospitality Operating Company,
incorporated by reference to Exhibit 21.2 to Patriot American
Hospitality, Inc.'s and Patriot American Hospitality Operating
Company's Joint Registration Statement on Form S-4 (No. 333-39875).
**23.1 Consent of Deloitte & Touche LLP (San Francisco, California).
**23.2 Consent of Deloitte & Touche LLP (Houston, Texas).
**23.3 Consent of Ernst & Young LLP (Dallas, Texas).
**23.4 Consent of Ernst & Young LLP (Seattle, Washington).
**23.5 Consent of Ernst & Young LLP (Phoenix, Arizona).
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**23.6 Consent of Ernst & Young LLP (Miami, Florida).
**23.7 Consent of Ernst & Young LLP (Kansas City, Missouri).
**23.8 Consent of Ernst & Young LLP (San Juan, Puerto Rico).
**23.9 Consent of Coopers & Lybrand L.L.P. (Fort Lauderdale, Florida).
**23.10 Consent of Coopers & Lybrand L.L.P. (Pittsburgh, Pennsylvania).
**23.11 Consent of Coopers & Lybrand L.L.P. (Dallas, Texas).
**23.12 Consent of Coopers & Lybrand L.L.P. (Newport Beach, California).
**23.13 Consent of Coopers & Lybrand L.L.P. (Phoenix, Arizona).
**23.14 Consent of Coopers & Lybrand L.L.P (Tampa, Florida).
**23.15 Consent of Pannell Kerr Forster PC (Alexandria, Virginia).
**23.16 Consent of Price Waterhouse LLP (Miami, Florida).
**23.17 Consent of Arthur Andersen LLP (Dallas, Texas).
**23.18 Consent of Mayer Hoffman McCann L.L.C.
*23.19 Consent of Goodwin, Procter & Hoar LLP (in opinions filed as Exhibits 5.1 and 5.2).
**23.20 Consent of Goodwin, Procter & Hoar LLP (in opinion filed as Exhibit 8.1).
**23.21 Consent of Oppenheimer & Co., Inc (included in Annex B to the Proxy Statement/Prospectus).
*24.1 Powers of Attorney.
**99.1 Opinion of Oppenheimer & Co., Inc. as to the fairness of the transaction to stockholders of WHG
Resorts & Casinos Inc. (Annex B to the Proxy Statement/Prospectus).
**99.2 Form of WHG Resorts & Casinos Inc. Proxy.
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*Previously filed.
**Filed herewith.
<PAGE>
Exhibit 8.1
[LETTERHEAD OF GOODWIN, PROCTER & HOAR LLP APPEARS HERE]
December 15, 1997
Patriot American Hospitality, Inc.
Patriot American Hospitality Operating Company
1950 Stemmons Freeway
Suite 6001
Dallas, TX 75207
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 Delaware corporation (the "Company"), and Patriot
American Hospitality Operating Company, a Delaware corporation (the "OpCo," and,
together with the Company, the "Companies") in connection with the Registration
Statement on Form S-4 (the "Registration Statement") filed by the Companies with
the Securities and Exchange Commission relating to (a) the merger (the "Merger")
of a subsidiary of OpCo ("Merger Sub") with and into WHG Resorts & Casinos,
Inc., a Delaware corporation ("WHG"), pursuant to an Agreement and Plan of
Merger dated as of September 30, 1997 (the "Merger Agreement"), among the
Company, OpCo, Merger Sub and WHG and (b) the issuance of shares of stock of the
Companies.
On July 1, 1997, the Company merged (the "Cal Jockey Merger") with
Patriot American Hospitality, Inc., a Virginia corporation ("Old Patriot"),
pursuant to an Agreement and Plan of Merger dated as of February 24, 1997, as
amended and restated as of May 28, 1997 (the "Cal Jockey Merger Agreement")
among Old Patriot, Patriot American Hospitality Partnership, L.P., a Virginia
limited partnership, the Company and OpCo. Pursuant to the Cal Jockey Merger
Agreement, the Company was the surviving company in the Cal Jockey Merger and
changed its name to Patriot American Hospitality, Inc.
This opinion letter relates to (i) the qualification of the Company as a
real estate investment trust ("REIT") under the Internal Revenue Code of 1986,
as amended (the
<PAGE>
GOODWIN, PROCTER & HOAR LLP
Patriot American Hospitality, Inc.
Patriot American Hospitality Operating Company
December 15, 1997
Page 2
"Code"), (ii) the accuracy of certain statements in the Registration Statement
and (iii) the federal income tax treatment of the Merger.
In rendering the following opinions, we have reviewed the Registration
Statement and the descriptions set forth therein of the Company and its current
and proposed investments and activities. We also have examined (i) the Amended
and Restated Certificate of Incorporation of the Company, as of the beginning of
the first taxable year for which it elected to be a REIT and as amended to date,
and the Amended and Restated Bylaws of the Company, (ii) the Pairing Agreement
dated as of February 17, 1983, as amended, by and between the Company and OpCo,
(iii) the Merger Agreement and (iv) such other records, certificates and
documents as we have deemed necessary or appropriate for purposes of rendering
the opinions set forth herein. The foregoing documents, including the
Registration Statement, are referred to herein as the "Documents."
In rendering our opinions, we have relied upon certain representations of
the Company set forth in a representation letter delivered to us in connection
with this opinion letter regarding the manner in which Company has been owned
and operated and will be owned and operated, and the manner in which Old Patriot
was owned and operated for periods ending on and including the effective time of
the Cal Jockey Merger. We also have relied on the statements contained in the
Documents regarding the operation and ownership of the Company, Old Patriot and
their affiliates. We have neither independently investigated nor verified such
representations or statements, and we assume that such representations and
statements are true, correct and complete and that all representations and
statements made "to the best of the knowledge and belief" of any person(s) or
party(ies) or with similar qualification are and will be true, correct and
complete as if made without such qualification.
In rendering the opinions set forth herein, we have assumed (i) the
genuineness of all signatures on documents we have examined, (ii) the
authenticity of all documents submitted to us as originals, (iii) the conformity
to the original documents of all documents submitted to us as copies, (iv) the
conformity of final documents to all documents submitted to us as drafts, (v)
the authority and capacity of the individual or individuals who executed any
such documents on behalf of any person, (vi) the accuracy and completeness of
all records made available to us, (vii) the factual accuracy of all
representations, warranties and other statements made by all parties, and (viii)
the continued accuracy of all documents, certificates, warranties
<PAGE>
GOODWIN, PROCTER & HOAR LLP
Patriot American Hospitality, Inc.
Patriot American Hospitality Operating Company
December 15, 1997
Page 3
and covenants on which we have relied in rendering the opinions set forth below
and that were given or dated earlier than the date of this letter, insofar as
relevant to the opinions 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:
(i) The Company has been organized and operated in conformity with the
requirements for qualification and taxation as a REIT under the
Code beginning with the Company's taxable year ending December 31,
1983 and for subsequent taxable years through the date hereof, and
the Company's proposed form of organization and method of operation
will enable it to continue to meet the requirements for
qualification and taxation as a REIT under the Code (including for
periods following the Merger).
(ii) The discussion set forth under the caption "Certain Federal Income
Tax Considerations" in the Registration Statement, to the extent
that such discussion constitutes matters of law, summaries of legal
matters or legal conclusions, is accurate in all material respects.
(iii) For federal income tax purposes stockholders of WHG will be treated
as exchanging their WHG stock for the Merger Consideration (as
defined in Registration Statement) received in exchange therefore,
and the Merger will not qualify as a reorganization within the
meaning of Section 368(a) of the Code.
* * * *
We express no opinion herein other than the opinions expressly set forth
above. You should recognize that our opinions are not binding on a court or the
Internal Revenue Service and that a court or the Internal Revenue Service may
disagree with the opinions contained herein. The discussion and conclusions set
forth above are based upon current provisions of the Code and the Income Tax
Regulations and Procedure and
<PAGE>
GOODWIN, PROCTER & HOAR LLP
Patriot American Hospitality, Inc.
Patriot American Hospitality Operating Company
December 15, 1997
Page 4
Administration Regulations promulgated thereunder and existing administrative
and judicial interpretations thereof, all of which are subject to change.
Changes in applicable law could adversely affect our opinions.
We consent to being named as counsel to the Company in the Registration
Statement, to the references in the Registration Statement to our firm,
including the references under the captions "Certain Federal Income Tax
Considerations" and "Legal Opinion," and to the inclusion of a copy of this
opinion letter as an exhibit to the Registration Statement.
Very truly yours,
GOODWIN, PROCTER & HOAR LLP
<PAGE>
EXHIBIT 23.1
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in this Amendment No. 2 to
Registration Statement on Form S-4 of Patriot American Hospitality, Inc. and
Patriot American Hospitality Operating Company of our report dated March 28,
1997 (which expresses an unqualified opinion and includes an explanatory
paragraph relating to a proposed merger and certain disagreements between the
Companies), appearing in the Annual Report on Form 10-K of Bay Meadows Operating
Company and of California Jockey Club for the year ended December 31, 1996 and
to the reference to us under the heading "Experts" in the Prospectus, which is
part of this Amendment No. 2 to Registration Statement.
/s/ DELOITTE & TOUCHE LLP
San Francisco, California
December 15, 1997
<PAGE>
EXHIBIT 23.2
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in this Amendment No. 2 to
Registration Statement Nos. 333-40041 and 333-40041-01 of Patriot American
Hospitality, Inc. and Patriot American Hospitality Operating Company of our
report dated September 30, 1997 (relating to the financial statements of
Partnerships of Acquired Hotels as of December 31, 1996 and 1995 and for each of
the two years in the period ended December 31, 1996) appearing in the report on
Form 8-K/A No. 1 dated September 30, 1997 of Patriot American Hospitality, Inc.
and Patriot American Hospitality Operating Company and to the reference to us
under the heading "Experts" in the Joint Proxy Statement and Prospectus, which
is part of this Amendment No. 2 to the Registration Statement.
/s/ DELOITTE & TOUCHE LLP
Houston, Texas
December 15, 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 Amendment No. 2 to the Joint Registration
Statement on Form S-4 and the related Proxy Statement/Prospectus of Patriot
American Hospitality, Inc and Patriot American Hospitality Operating Company 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 and included in the Joint Current Report on
Form 8-K of Patriot American Hospitality, Inc. and Patriot American Hospitality
Operating Company dated July 1, 1997; (b) dated February 16, 1996, with respect
to the Combined Financial Statements of the Initial Hotels (which is based in
part on the reports of Coopers & Lybrand L.L.P., independent accountants, as set
forth in their reports on Certain of the Initial Hotels and Troy Hotel
Investors) included in Patriot American Hospitality, Inc.'s 1996 Annual Report
on Form 10-K; (c) dated March 5, 1996, with respect to the Financial Statements
of Buckhead Hospitality Joint Venture included in the Current Report on Form 8-K
of Patriot American Hospitality, Inc., dated April 2, 1996, as amended; (d)
dated March 1, 1996 (except for Note 7, as to which the date is April 2, 1996)
with respect to the Combined Financial Statements of Gateway Hotel Limited
Partnership and Wenatchee Hotel Limited Partnership included in the Current
Report on Form 8-K of Patriot American Hospitality, Inc., dated April 2, 1996,
as amended; (e) dated February 28, 1996 (except for Note 5, as to which the date
is April 2, 1996) with respect to the Statement of Direct Revenue and Direct
Operating Expenses of Plaza Park Suites Hotel included in the Current Report on
Form 8-K of Patriot American Hospitality, Inc., dated April 2, 1996, as amended;
(f) dated February 26, 1996 (except for Note 5, as to which the date is April 2,
1996) with respect to the Statement of Direct Revenue and Direct Operating
Expenses of Roosevelt Hotel included in the Current Report on Form 8-K of
Patriot American Hospitality, Inc., dated April 2, 1996, as amended; (g) dated
April 10, 1996 with respect to the Statement of Direct Revenue and Direct
Operating Expenses of Marriott WindWatch Hotel for the year ended December 29,
1995 included in the Current Report on Form 8-K of Patriot American Hospitality,
Inc., dated December 5, 1996; (h) dated August 30, 1996 with respect to the
Financial Statements of Concord O'Hare Limited Partnership for the year ended
December 29, 1995 included in the Current Report on Form 8-K of Patriot American
Hospitality, Inc., dated December 5, 1996; (i) dated September 10, 1996 with
respect to the Statement of Direct Revenue and Direct Operating Expenses of the
Mayfair Suites Hotel for the year ended December 31, 1995 included in the
Current Report on Form 8-K of Patriot American Hospitality, Inc., dated December
5, 1996; and (j) dated January 23, 1997 (except for Note 8, as to which the date
is September 30, 1997) with respect to the Consolidated Financial Statements of
GAH-II, L.P. for the years ended December 31, 1996 and 1995, included in the
Joint Current Report on Form 8-K of Patriot American Hospitality, Inc. and
Patriot American Hospitality Operating Company dated September 30, 1997, as
amended, all filed with the Securities and Exchange Commission.
/s/ ERNST & YOUNG LLP
Dallas, Texas
December 15, 1997
<PAGE>
EXHIBIT 23.4
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" and to the
incorporation by reference in Amendment No. 2 to the Joint Registration
Statement on Form S-4 and the related Proxy Statement/Prospectus of Patriot
American Hospitality, Inc. and Patriot American Hospitality Operating Company 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
December 15, 1997
<PAGE>
EXHIBIT 23.5
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" and to the
incorporation by reference in Amendment No. 2 to the Joint Registration
Statement on Form S-4 and the related Proxy Statement/Prospectus of Patriot
American Hospitality, Inc. and Patriot American Hospitality Operating Company 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
December 15, 1997
<PAGE>
EXHIBIT 23.6
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We consent to the reference to our firm under the caption "Experts" and to the
incorporation by reference in Amendment No. 2 to the Joint Registration
Statement on Form S-4 and the related Proxy Statement/Prospectus of Patriot
American Hospitality, Inc. and Patriot American Hospitality Operating Company of
our reports (a) dated March 13, 1997 (except for the third paragraph of Note 7,
as to which the date is April 2, 1997) with respect to the Financial Statements
of G.B.H. Joint Venture (d/b/a Grand Bay Hotel) for the years ended December 31,
1995 and 1996; (b) dated September 23, 1997 with respect to the Financial
Statements of River House Associates (d/b/a Sheraton Gateway Hotel) for the
years ended December 31, 1995 and 1996; and (c) dated September 19, 1997 with
respect to the Financial Statements of W-L Tampa, Ltd. (the Sheraton Grand
Hotel) for the years ended December 31, 1995 and 1996; all of which are included
in the Joint Current Report on Form 8-K/A No. 1 of Patriot American Hospitality,
Inc. and Patriot American Hospitality Operating Company, dated September 30,
1997, as amended, all filed with the Securities and Exchange Commission.
/s/ ERNST & YOUNG LLP
Miami, Florida
December 15, 1997
<PAGE>
EXHIBIT 23.7
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" and to the
incorporation by reference in Amendment No. 2 to the Joint Registration
Statement on Form S-4 and the related Proxy Statement/Prospectus of Patriot
American Hospitality, Inc. and Patriot American Hospitality Operating Company of
our reports (a) dated April 8, 1997 (except for Note 11, as to which the date is
July 31, 1997) with respect to the Consolidated Financial Statements of
ClubHouse Hotels, Inc. as of December 31, 1996 and 1995 and for each of the
three years in the period ended December 31, 1996; (b) dated April 25, 1997
(except for Note 8, as to which the date is July 31, 1997) with respect to the
Combined Financial Statements of ClubHouse Acquisition Hotels as of December 31,
1996 and 1995 and for the years then ended; and (c) dated September 9, 1997 with
respect to the Financial Statements of Valdosta C.I. Associates, L.P. as of
December 31, 1994 and for the year then ended; all of which are included in the
Current Report on Form 8-K/A of Wyndham Hotel Corporation dated September 18,
1997, all filed with the Securities and Exchange Commission.
/s/ ERNST & YOUNG LLP
Kansas City, Missouri
December 15, 1997
<PAGE>
EXHIBIT 23.8
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" and to the
use of our reports (a) dated August 7, 1997 (except for Note 18, as to which the
date is September 17, 1997) with respect to the Consolidated Financial
Statements of WHG Resorts & Casinos Inc. and related financial statement
schedule; (b) dated August 7, 1997 with respect to the financial statements of
Posadas de San Juan Associates and related financial statement schedule; (c)
dated August 11, 1997 with respect to the financial statements of WKA El Con
Associates; and (d) dated May 2, 1997 with respect to the financial statements
of El Conquistador Partnership L.P.; all of which are included in the Proxy
Statement/Prospectus of Patriot American Hospitality, Inc. and Patriot American
Hospitality Operating Company that is made a part of this Amendment No. 2 to the
Joint Registration Statement on Form S-4.
/s/ ERNST & YOUNG LLP
San Juan, Puerto Rico
December 13, 1997
<PAGE>
EXHIBIT 23.9
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the reference to our firm under the caption "Experts" and to the
incorporation by reference in the Amendment No. 2 of Registration Statement
(Form S-4) and related Proxy Statement/Prospectus of Patriot American
Hospitality, Inc. and Patriot American Hospitality Operating Company (File No.
333-40041) of our report dated January 15, 1996, on our audit of the financial
statements of Certain of the Initial Hotels.
/s/ COOPERS & LYBRAND L.L.P.
Fort Lauderdale, Florida
December 15, 1997
<PAGE>
EXHIBIT 23.10
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the reference to our firm under the caption "Experts" and to the
incorporation by reference in the Amended No. 2 of Registration Statement (Form
S-4) and related Proxy Statement/Prospectus of Patriot American Hospitality,
Inc. and Patriot American Hospitality Operating Company (File No. 333-40041) as
amended of our reports (i) dated February 12, 1997, except for Note 21, Note 22
and the last paragraph of Note 2, as to which the date is December 1, 1997, of
our audit of the consolidated financial statements of Interstate Hotels Company,
(ii) dated January 17, 1996, on our audit of the financial statements of Troy
Hotel Investors and (iii) dated February 7, 1995, on our audit of the financial
statements of Troy Park Associates.
/s/ COOPERS & LYBRAND, L.L.P.
Pittsburgh, Pennsylvania
December 15, 1997
<PAGE>
EXHIBIT 23.11
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the reference to our firm under the caption "Experts" and to the
incorporation by reference in the Amendment No. 2 of Registration Statement
(Form S-4) and related Proxy Statement/Prospectus of Patriot American
Hospitality, Inc. and Patriot American Hospitality Operating Company (File No.
333-40041) of our reports (i) dated October 15, 1996, on our audit of the
statement of Direct Revenue and Direct Operating Expenses of the Holiday Inn
Miami Airport; (ii) dated February 19, 1997, on our audits of the consolidated
financial statements of Wyndham Hotel Corporation as of December 31, 1996 and
1995, and for the years ended December 31, 1996, 1995 and 1994, (iii) dated May
12, 1997 on our audit of the Combined Financial Statements of the Minneapolis
Hotels as of and for the year ended December 31, 1996, (iv) dated June 27, 1997
on our audit of the Combined Statement of Direct Revenue and Direct Operating
Expenses of the Met Life Hotels for the year ended December 31, 1996, and (v)
dated September 8, 1997 on our audit of the Combined Financial Statements of the
Snavely Hotels as of and for the year ended December 31, 1996.
/s/ COOPERS & LYBRAND L.L.P.
Dallas, Texas
December 15, 1997
<PAGE>
EXHIBIT 23.12
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the reference to our firm under the caption "Experts" and to
the incorporation by reference in the Amendment No. 2 of Registration Statement
(Form S-4) and related Proxy Statement/Prospectus of Patriot American
Hospitality, Inc. and Patriot American Hospitality Operating Company (File No.
333-40041) of our report dated March 8, 1996, related to the financial
statements of Newporter Beach Hotel Investments L.L.C. as of December 31, 1995,
and for the period from March 10, 1995 through December 31, 1995.
/s/ COOPERS & LYBRAND L.L.P.
Newport Beach, California
December 15, 1997
<PAGE>
Exhibit 23.13
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the reference to our firm under the caption "Experts" and to the
incorporation by reference in the Amendment No. 2 of Registration Statement
(Form S-4) and related Proxy Statement/Prospectus of Patriot American
Hospitality, Inc. and Patriot American Hospitality Operating Company (File No.
333-40041) of our report (i) dated March 7, 1997 except for note 12 as to which
the date is October 7, 1997 on our audit of the Financial Statements of SCP
(Buttes), Inc., as of and for the year ended December 31, 1996.
/s/ Coopers & Lybrand, L.L.P.
Phoenix, Arizona
December 15, 1997
<PAGE>
EXHIBIT 23.14
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the reference to our firm under the caption "Experts" and to the
incorporation by reference in the Amendment No. 2 of the Registration Statement
(Form S-4) and related Joint Proxy Statement and Prospectus of Wyndham Hotel
Corporation and Patriot American Hospitality, Inc. and Patriot American
Hospitality Operating Company (File No. 333-40041) of our report dated January
17, 1997, except for Note 7, as to which the date is November 25, 1997, on our
audit of the financial statements of Royal Palace Hotel Associates.
/s/ Coopers & Lybrand LLP
Tampa, Florida
December 15, 1997
<PAGE>
Exhibit 23.15
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in this Registration Statement on
Form S-4 of Patriot American Hospitality Operating Company and Patriot American
Hospitality, Inc. of our report dated March 1, 1996 with respect to the
financial statements of Historic Hotel Partners of Birmingham, Limited
Partnership as of and for the year ended December 31, 1995, our reports dated
October 8, 1887 and February 28, 1997 on the financial statements of Historic
Hotel Partners of Chicago Limited Partnership, and our reports dated October 8,
1997 and February 21, 1997 on the financial statements of Historic Hotel
Partners of Nashville Limited Partnership.
/s/ Panell Kerr Forster PC
Alexandria, Virginia
December 15, 1997
<PAGE>
Exhibit 23.16
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We hereby consent to the incorporation by reference in the Prospectus
constituting part of this Amendment No. 2 to the Registration Statement on Form
S-4 (File No. 333-40041 and 333-40041-1) of Patriot American Hospitality, Inc.
and Patriot American Hospitality Operating Company of our reports (a) dated
October 3, 1997 relating to the financial statements of CHC International Inc.
Hospitality Division as of and for the years ended November 30, 1995 and 1996
which appears in the Current Report on Form 8-K of Patriot American Hospitality,
Inc. and Patriot American Hospitality Operating Company dated September 30,
1997; and (b) dated February 13, 1997, except as to Note 4, which is as of March
18, 1997, relating to the financial statements of CHC Lease Partners for the
year ended December 31, 1996 and the period inception (October 2, 1995) through
December 31, 1995 which appears in the Current Report on Form 8-K of Patriot
American Hospitality, Inc. and Patriot American Hospitality Operating Company
dated July 1, 1997. We also consent to the reference to us under the heading
"Experts" in such Prospectus.
/s/ PRICE WATERHOUSE LLP
Miami, Florida
December 15, 1997
<PAGE>
EXHIBIT 23.17
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our report
dated September 17, 1997, on the combined financial statements of the Crow
Family Hotel Partnerships (and to all references to our Firm), included in or
made part of this Amendment No. 2 to the Registration Statement on Form S-4
(File No. 333-40041 and 333-40041-1) of Patriot American Hospitality, Inc. and
Patriot American Hospitality Operating Company.
Dallas, Texas /s/ ARTHUR ANDERSEN LLP
December 15, 1997
<PAGE>
EXHIBIT 23.18
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
We hereby consent to the reference to our firm under the caption "Experts"
and to the incorporation by reference of our reports dated February 8, 1996,
except for Note (4) for which the date is February 15, 1996 (Albuquerque C.I.
Associates, L.P.); February 16, 1996 (C.I. Nashville, Inc.); February 8, 1996
(Wichita C.I. Associates III, L.P.); and February 19, 1996 (Topeka C.I.
Associates, L.P.) appearing in the Amendment No. 2 to the Proxy Statement and
Prospectus of Patriot American Hospitality, Inc. and Patriot American
Hospitality Operating Company filed with the Securities and Exchange Commission
on or about December 16, 1997.
/s/ Mayer Hoffman McCann L.C.
Kansas City, Missouri
December 15, 1997
<PAGE>
WHG RESORTS & CASINOS INC.
PROXY SOLICITED BY THE BOARD OF DIRECTORS
FOR THE SPECIAL MEETING OF STOCKHOLDERS
JANUARY 16, 1998
KNOW ALL MEN BY THESE PRESENTS that the undersigned stockholder of WHG RESORTS
& CASINOS INC. (the "Company") does hereby constitute and appoint LOUIS J.
NICASTRO and BARBARA M. NORMAN (the "Proxies") and each of them (each with full
power of substitution of another) as attorneys, agents and proxies, for and in
the name, place and stead of the undersigned, and with all the powers the
undersigned would possess if personally present, to vote as instructed on the
reverse side hereof, all of the shares of Common Stock of the Company which the
undersigned is entitled to vote at the Special Meeting of Stockholders of the
Company to be held on January 16, 1998 at 10:30 A.M. local time at The
Breakers, One South County Road, Palm Beach, Florida, and at any adjournment or
adjournments thereof, all as set forth in the Notice of Special Meeting and
Proxy Statement.
In their discretion, the Proxies are authorized to vote upon such other and
further business as may properly come before the meeting.
THE SHARES REPRESENTED BY THE PROXY WILL BE VOTED IN ACCORDANCE WITH THE
INSTRUCTIONS GIVEN. IF NO SUCH INSTRUCTIONS ARE GIVEN, THE SHARES REPRESENTED
BY THIS PROXY WILL BE VOTED IN FAVOR OF THE PROPOSAL TO APPROVE AND ADOPT THE
AGREEMENT AND PLAN OF MERGER DATED AS OF SEPTEMBER 30, 1997 BY AND AMONG
PATRIOT AMERICAN HOSPITALITY WHG RESORTS & CASINOS INC.
OPERATING COMPANY, PATRIOT AMERICAN P.O. BOX 11039
HOSPITALITY OPERATING COMPANY NEW YORK, N.Y. 10203-0039
ACQUISITION SUBSIDIARY, PATRIOT
AMERICAN HOSPITALITY, INC. AND THE
COMPANY (THE "MERGER AGREEMENT") AND
THE TRANSACTIONS CONTEMPLATED
THEREBY.
(Continued and to be signed on reverse side)
1. APPROVAL AND ADOPTION OF THE MERGER AGREEMENT AND TRANSACTIONS CONTEMPLATED
THEREBY.
FOR [X] AGAINST [X] ABSTAIN [X]
I (we) will [X] will not [X] attend the Special Meeting in person.
Change of Address and
or Comments Mark Here [X]
IMPORTANT: PLEASE SIGN EXACTLY AS NAME OR NAMES APPEAR HEREON, AND WHEN SIGNING
AS ATTORNEY, EXECUTOR, ADMINISTRATOR, TRUSTEE OR GUARDIAN, GIVE YOUR FULL TITLE
AS SUCH. IF SIGNATORY IS A CORPORATION, SIGN THE FULL CORPORATE NAME BY A DULY
AUTHORIZED OFFICER. IF SHARES ARE HELD JOINTLY EACH STOCKHOLDER NAMED SHOULD
SIGN.
Dated:
-----------------------------------------------------
- -----------------------------------------------------------
- -----------------------------------------------------------
VOTES MUST BE INDICATED (X) IN BLACK OR BLUE INK [X]
PLEASE SIGN, DATE AND RETURN THIS PROXY CARD PROMPTLY USING THE ENCLOSED
ENVELOPE.
