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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
FOR ANNUAL AND TRANSITION REPORTS PURSUANT TO SECTIONS 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
(Mark One)
[X] JOINT ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from ____________ to ______________
Commission File Number 1-9319 Commission File Number 1-9320
PATRIOT AMERICAN HOSPITALITY, INC. WYNDHAM INTERNATIONAL, INC.
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(Exact name of registrant as specified (Exact name of registrant as specified
in its charter) in its charter)
Delaware 94-0358820 Delaware 94-2878485
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(State or other (I.R.S. Employer (State or other (I.R.S. Employer
jurisdiction of Identification No.) jurisdiction of Identification No.)
incorporation or incorporation or
organization) organization)
1950 Stemmons Freeway, Suite 6001 1950 Stemmons Freeway, Suite 6001
Dallas, Texas 75207 Dallas, Texas 75207
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(Address of principal (Zip Code) (Address of principal (Zip Code)
executive offices) executive offices)
(214) 863-1000 (214) 863-1000
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(Registrant's telephone number, (Registrant's telephone number,
including area code) including area code)
Securities registered pursuant to Section 12(b) of the Act:
Common Stock, par value New York Common Stock, par value New York
$0.01 per share Stock Exchange $0.01 per share Stock Exchange
- -------------------------------------- --------------------------------------
(Title of (Name of each Exchange (Title of (Name of each Exchange
each class) on which registered) each class) on which registered)
Securities registered pursuant to Section 12(g) of the Act:
none none
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X . No .
--- ---
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment of this Form 10-K. [ ]
The aggregate market value of the paired voting stock held by non-
affiliates of Patriot American Hospitality, Inc. and Wyndham International, Inc.
as of March 25, 1998 was $2,488,510,573, based upon a price of $26.3125 per
paired share.
As of March 25, 1998, there were 105,386,253 paired shares of Patriot
American Hospitality, Inc. and Wyndham International, Inc. common stock issued
and outstanding.
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DOCUMENTS INCORPORATED BY REFERENCE
The information called for by Part III is incorporated by reference to the
definitive joint proxy statement for the annual meetings of the stockholders of
Patriot and Wyndham International to be held on May 28, 1998, which will be
filed with the Securities and Exchange Commission not later than 120 days after
December 31, 1997.
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PATRIOT AMERICAN HOSPITALITY, INC. AND
WYNDHAM INTERNATIONAL, INC.
FORM 10-K ANNUAL REPORT
INDEX
FORM 10-K
REPORT
ITEM NO. PAGE
- -------- ---------
PART I
1. Business.................................................
2. Properties...............................................
3. Legal Proceedings........................................
4. Submission of Matters to a Vote of Security Holders......
PART II
5. Market Price for Registrant's Common Equity and Related
Stockholder Matters......................................
6. Selected Financial Data..................................
7. Managements' Discussion and Analysis of Financial
Condition and Results of Operations......................
8. Financial Statements and Supplementary Data..............
9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure......................
PART III
10. Directors and Executive Officers of the Registrant.......
11. Executive Compensation...................................
12. Security Ownership of Certain Beneficial Owners and
Management...............................................
13. Certain Relationships and Related Transactions...........
PART IV
14. Exhibits, Financial Statements and Schedules, and
Reports on Form 8-K......................................
SIGNATURES...................................................
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PART I
ITEM 1. BUSINESS
GENERAL DEVELOPMENT OF BUSINESS
The entity formerly known as Patriot American Hospitality, Inc.
(collectively with its subsidiaries, "Old Patriot"), a Virginia corporation, was
formed April 17, 1995 as a self-administered real estate investment trust
("REIT") for the purpose of acquiring equity interests in hotel properties. On
October 2, 1995, Old Patriot completed an initial public offering (the "Initial
Offering") of 29,210,000 shares of its common stock and commenced operations.
On July 1, 1997, Old Patriot merged with and into California Jockey Club
("Cal Jockey"), with Cal Jockey being the surviving legal entity (the "Cal
Jockey Merger"). Cal Jockey's shares of common stock are paired and trade
together with the shares of common stock of Bay Meadows Operating Company ("Bay
Meadows") as a single unit pursuant to a stock pairing agreement. In connection
with the Cal Jockey Merger, Cal Jockey changed its name to "Patriot American
Hospitality, Inc." ("Patriot") and Bay Meadows changed its name to "Patriot
American Hospitality Operating Company" ("Patriot Operating Company"). In
January 1998, as a result of the merger of Wyndham Hotel Corporation ("Old
Wyndham") with and into Patriot as discussed below, Patriot Operating Company
changed its name to Wyndham International, Inc. and is referred to herein,
collectively with its subsidiaries, as "Wyndham International." The term
"Companies" as used herein includes Patriot, Wyndham International and each of
their respective subsidiaries. Patriot and Wyndham International are both
Delaware corporations.
The Cal Jockey Merger was 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. For accounting purposes, Wyndham
International commenced its operations concurrent with the closing of the Cal
Jockey Merger on July 1, 1997.
The shares of common stock of Patriot ("Patriot Common Stock") and the
shares of common stock of Wyndham International ("Wyndham International Common
Stock") are paired on a one-for-one basis and may only be held or transferred in
units consisting of one share of Patriot Common Stock and one share of Wyndham
International Common Stock (the "Paired Shares"). In 1983, the Internal Revenue
Code of 1986, as amended (the "Code"), prohibited the pairing of shares between
a REIT and a management company, however, this rule does not apply to the
Companies because its Paired Share structure existed prior to the change in
regulations and is "grandfathered" under the Code.
Patriot, through its wholly owned subsidiary, PAH GP, Inc., is the sole
general partner and the holder of a 1.0% general partnership interest in Patriot
American Hospitality Partnership, L.P. (the "REIT Partnership"). In addition,
Patriot, through its wholly owned subsidiary, PAH LP, Inc., owned an approximate
85.3% limited partnership interest in the REIT Partnership as of December 31,
1997. The REIT Partnership was formed in connection with Old Patriot's Initial
Offering. Old Patriot contributed its assets to the partnership in exchange for
units of limited partnership interest ("OP Units") of the REIT Partnership.
Wyndham International owns a 1.0% general partnership interest and an
approximate 83.9% limited partnership interest in Patriot American Hospitality
Operating Partnership, L.P. (the "OpCo Partnership") as of December 31, 1997.
The OpCo Partnership was formed in connection with the Cal Jockey Merger. Bay
Meadows contributed its assets to the OpCo Partnership in exchange for OP Units
of the OpCo Partnership.
Collectively, the REIT Partnership and the OpCo Partnership are referred to
herein as the "Operating Partnerships." Subsequent to completion of the Cal
Jockey Merger and the transactions contemplated by the Cal Jockey Merger
Agreement, substantially all of the operations of Patriot and Wyndham
International have been conducted through the Operating Partnerships and their
subsidiaries.
During 1997, Patriot, either directly or through the REIT Partnership and
its subsidiaries, invested approximately $1.3 billion in the acquisition of 45
hotels with over 12,000 guest rooms. These acquisitions
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were financed primarily with funds drawn on the Companies' revolving credit
facility (and, prior to the Cal Jockey Merger, Old Patriot's line of credit
facility), a $350 million term loan, new mortgage financing of approximately
$237 million, the issuance of 5,629,172 OP Units of the Operating Partnerships
valued at approximately $130 million, the issuance of 1,719,535 Paired Shares
valued at approximately $38.5 million, and the assumption of mortgage debt in
the amount of approximately $34.3 million. Six of the hotels were acquired
through a like-kind exchange. In addition, Wyndham International acquired Grand
Heritage Hotels, Inc., a hotel management and marketing company, and PAH RSI,
LLC, a limited liability company that owned certain trade names and other hotel
management assets related to four of Patriot's resort properties. Wyndham
International also acquired an approximate 50% ownership interest in GAH-II,
L.P. ("GAH"), an affiliate of CHC International, Inc. and the Gencom American
Hospitality group of companies. The Companies completed a public offering of
10,580,000 Paired Shares in August 1997, two forward sale transactions with a
bank in November 1997 and sold 3,250,000 unregistered Paired Shares to a
financial institution in December 1997 which is subject to a one-year forward
stock purchase agreement. The net proceeds of these transactions were used
primarily to reduce outstanding indebtedness. In addition, the Companies
completed two direct placements of Paired Shares in order to redeem 2,000,033 OP
Units of the Operating Partnerships in November 1997.
RECENT DEVELOPMENTS
Merger with Wyndham Hotel Corporation
On January 5, 1998, pursuant to the Agreement and Plan of Merger dated as
of April 14, 1997, as thereafter amended (the "Wyndham Merger Agreement"),
between Patriot, Wyndham International and Wyndham Hotel Corporation ("Old
Wyndham"), Old Wyndham merged with and into Patriot, with Patriot being the
surviving corporation (the "Wyndham Merger").
As a result of the Wyndham Merger, Patriot acquired Old Wyndham's portfolio
of owned, leased or managed hotels consisting of 98 hotels operated by Old
Wyndham (including 16 Patriot hotels which were managed by Old Wyndham), as well
as eight franchised hotels, which in the aggregate contain approximately 25,900
rooms. The total purchase consideration of approximately $982 million consisted
of 21,594,188 Paired Shares and 4,860,876 shares of Series A Convertible
Preferred Stock of Patriot (which are convertible on a one-for-one basis into
Paired Shares), cash of approximately $339 million to repay debt and pay Wyndham
shareholders who elected to receive cash (which was financed with funds drawn on
the Companies' revolving credit facility (the "Revolving Credit Facility")), and
the assumption of approximately $54 million in debt.
Merger with WHG Casinos & Resorts, Inc.
On January 16, 1998, pursuant to an Agreement and Plan of Merger dated as
of September 30, 1997 (the "WHG Merger Agreement"), between Patriot, Wyndham
International and WHG Casinos & Resorts Inc. ("WHG"), a newly formed subsidiary
of Wyndham International merged with and into WHG with WHG being the surviving
corporation (the "WHG Merger"). As a result of the WHG Merger, Wyndham
International acquired the 570-room Condado Plaza Hotel & Casino, a 50% interest
in the 389-room El San Juan Hotel & Casino and a 23.3% interest in the 751-room
El Conquistador Resort & Country Club (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
the El Conquistador. By operation of the WHG Merger, WHG's outstanding equity
securities were exchanged for 5,004,690 Paired Shares. In addition, Wyndham
International assumed approximately $21.3 million of debt.
Other Recent Transactions
Holiday Inn. On January 13, 1998, Patriot, through the REIT Partnership,
acquired the 173-room Holiday Inn in Beachwood, Ohio for an aggregate purchase
price of approximately $14.5 million.
Buena Vista Palace Hotel. On January 14, 1998, Patriot, through the REIT
Partnership, acquired an aggregate 95% equity interest in the joint venture that
owns the 1,014-room Buena Vista Palace Hotel in Orlando, Florida for
approximately $141.6 million, including the assumption of approximately $50.3
million of mortgage debt. Patriot was also granted an option to acquire the
remaining 5% equity interest in the hotel. The hotel is also subject to a ground
lease and Wyndham International holds a participating loan in the amount of
$23.8 million (the "Participating Note").
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Proposed Acquisitions
CHC International, Inc. The Companies and CHC International, Inc. ("CHCI")
have entered into an Agreement and Plan of Merger dated as of September 30, 1997
(the "CHCI Merger Agreement"), providing, subject to regulatory approvals, for
the merger of the hospitality-related businesses of CHCI with and into Wyndham
International with Wyndham International 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 second quarter of 1998. As a result of the CHCI
Merger, Wyndham International, 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, 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. Wyndham has also agreed to
provide CHCI with a $7 million line of credit until such time as the CHCI Merger
is completed. By operation of the CHCI Merger, all issued and outstanding common
stock of CHCI will be exchanged for approximately 4,396,000 shares of Wyndham
International preferred stock, subject to certain adjustments.
Interstate Hotels Company. On December 2, 1997, the Companies and
Interstate Hotels Company ("Interstate") entered into an Agreement and Plan of
Merger (the "Interstate Merger Agreement"), pursuant to which Interstate will
merge with and into Patriot with Patriot being the surviving corporation (the
"Interstate Merger"). Pursuant to the Interstate Merger Agreement, stockholders
of Interstate will have the right to elect to convert each of their shares of
Interstate common stock into the right to receive either (i) $37.50 in cash,
subject to proration in certain circumstances (the "Interstate Cash
Consideration"), or (ii) a number of Paired Shares of Patriot and Wyndham common
stock based on an exchange ratio of 1.341 Paired Shares for each share of
Interstate common stock not exchanged for cash (the "Interstate Exchange
Ratio"). After the elections are made by stockholders of Interstate, proration
will be used to ensure that 40% of the outstanding shares of Interstate common
stock will be converted into the right to receive Interstate Cash Consideration
and that the remaining 60% of the outstanding shares of Interstate common stock
will be converted into the right to receive Paired Shares at the Interstate
Exchange Ratio, subject to adjustment in certain circumstances for the exercise
of dissenters' rights. "The special meetings of the stockholders of Patriot,
Wyndham International and Interstate at which approval of the Interstate Merger
will be sought were originally scheduled for March 30, 1998. On March 30, 1998,
Patriot, Wyndham International and Interstate each adjourned their respective
stockholders' meetings to April 2, 1998 at 1:00 p.m. (CST). Patriot, Wyndham
International and Interstate elected to convene and then adjourn their
respective stockholders' meetings without a formal vote so as to permit
additional time to negotiate with Marriott International, Inc. ("Marriott")
relating to certain issues Marriott has raised concerning Marriott-branded
hotels owned by Interstate. While Patriot and Marriott had entered into a non-
binding letter agreement in December 1997 regarding these matters, on March 30,
1998, Marriott filed a lawsuit in the United States District Court for the
District of Maryland seeking to enjoin the Interstate Merger until Interstate
complies with certain rights of notification and first refusal which Marriott
alleges would be triggered by the Interstate Merger."
As a result of the Interstate Merger, Patriot will acquire all of the
assets and liabilities of Interstate, including Interstate's portfolio of 222
owned, leased or managed hotels located in the United States, Canada, the
Caribbean and Russia. Of Interstate's portfolio, 41 hotels aggregating
approximately 11,928 rooms are owned or controlled by Interstate, 89 hotels
aggregating approximately 10,258 rooms are leased and 92 hotels aggregating
approximately 23,227 rooms are managed or subject to service agreements. Patriot
will also assume or refinance all of Interstate's existing indebtedness, which
totaled approximately $800 million as of December 31, 1997. In addition, Patriot
will buy out or assume certain options to purchase shares of common stock, par
value $0.01 per share, of Interstate ("Interstate Common Stock") and assume
certain severance obligations.
On March 23, 1998, the Companies announced that Interstate shareholders
receiving Paired Shares in the Interstate Merger will be entitled to receive
Patriot's regular quarterly dividend of $0.32 per share for the first quarter of
1998 and will be entitled to participate with all other Patriot shareholders in
a special distribution of accumulated earnings and profits from Patriot's
acquisition of Old Wyndham.
Arcadian International PLC. On January 20, 1998, Patriot announced in the
United Kingdom its intention to proceed with a takeover of Arcadian
International PLC ("Arcadian"), a company listed on the London Stock Exchange,
for cash consideration totaling (Pounds)92 million (or approximately $152
million at the exchange rate on February 5, 1998) (the "Arcadian Acquisition").
Arcadian is an owner, developer and operator of hotels in the United Kingdom and
continental Europe. Arcadian's portfolio currently includes 12 hotels with a
total of approximately 724 rooms throughout the United Kingdom, as well as
interests held in joint ventures with third parties. In connection with the
Arcadian Acquisition, Patriot will assume or refinance all of Arcadian's
existing indebtedness, which totaled approximately $77 million as of February 5,
1998.
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Patriot has also entered into agreements with the shareholders of Malmaison
Limited ("Malmaison"), a joint venture in which Arcadian holds a 34.6% interest,
to acquire the remaining interests in Malmaison not currently owned by Arcadian
for an aggregate purchase price of approximately $58.1 million, including the
assumption of approximately $23.6 million of indebtedness (the "Malmaison
Acquisition"). In connection with the Malmaison Acquisition, Patriot expects to
acquire (i) two hotels currently owned by Malmaison and one hotel which
Malmaison has agreed to acquire and (ii) two additional hotels currently under
development by Malmaison.
Golden Door Spa. In February 1998, the Companies signed a purchase contract
to acquire the Golden Door Spa in Escondido, California for a purchase price of
approximately $28 million. The purchase price is to be paid with a combination
of cash, OP Units of the Operating Partnerships and a short-term note.
SF Hotel Company, L.P. On March 23, 1998, the Companies entered into an
agreement to acquire all of the partnership interests in SF Hotel Company, L.P.
("Summerfield") for approximately $170 million. The purchase price is to be paid
with a combination of cash and issuance of a total of approximately 4,590,000 OP
Units of the Operating Partnerships and/or Paired Shares (the "Summerfield
Acquisition"). The final transaction price is subject to adjustment based on (i)
the market price of the Paired Shares through the end of 1998 and (ii)
achievement of certain performance criteria for the Summerfield portfolio
through 2001. As a result of the Summerfield Acquisition, the Companies will
acquire four Summerfield Suites/(R)/ hotels and lease or manage 33 Summerfield
Suites/(R)/ and Sierra Suites hotels/(R)/.
DESCRIPTION OF BUSINESS
As of March 25, 1998, Patriot, either directly or through the REIT
Partnership and other subsidiaries, owned interests in 118 hotels with an
aggregate of over 29,400 rooms (excluding one hotel closed for renovations). In
order for Patriot to qualify for favorable tax status as a real estate
investment trust ("REIT") under the Code, Patriot leases each of its hotels,
except the Crowne Plaza Ravinia Hotel and the Wyndham WindWatch Hotel, which are
separately owned through special purpose entities, to Wyndham International or
to other third party lessees (the "Lessees") who are responsible for operating
the hotels. Currently, Patriot leases 17 of its hotel investments to CHC Lease
Partners for staggered terms of ten to twelve 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
"Participating Leases"). Twelve of the hotels are leased to NorthCoast Hotels,
L.L.C. ("NorthCoast Lessee") under similar Participating Lease agreements. DTR
North Canton, Inc. (the "Doubletree Lessee") leases four hotels; and Metro
Hotels Leasing Corporation ("Metro Lease Partners") leases one hotel under
similar Participating Lease agreements. The Lessees, in turn, have entered into
separate agreements with hotel management entities (the "Operators") to manage
the hotels. The Crowne Plaza Ravinia Hotel and the Wyndham WindWatch Hotel
acquisitions were structured without lessees and are managed directly by Holiday
Inns, Inc. and Wyndham International, respectively. Wyndham International leases
81 hotels from Patriot pursuant to Participating Lease agreements which are
substantially similar to the Participating Lease agreements of the Lessees.
Wyndham International manages 68 of these hotels through certain of its hotel
management subsidiaries and has entered into separate management agreements with
hotel Operators to manage 13 of the hotels.
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, Los Angeles, Miami, Minneapolis, San Diego,
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. As of March 25, 1998, the owned
hotels include 106 full service hotels, seven resort hotels, four limited
service hotels and an executive conference center. All but six of the 118 hotels
are operated under franchise or brand affiliations with nationally recognized
hotel companies, including 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)/, Carefree/(R)/, Grand Heritage/(R)/,
Marriott/(R)/, Marriott Courtyard/(R)/, Sheraton/(R)/, Grand Bay/(R)/ and
ClubHouse/(R)/. Additionally, the Companies lease 13 hotels from third parties,
manage 58 hotels (excluding one hotel closed for renovations) for independent
owners and franchise eight hotels. Wyndham International currently leases from
Patriot 81 of the 118 hotels owned by Patriot. Patriot expects that
substantially all of its future acquisitions will be leased to Wyndham
International.
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In addition to leasing and managing hotels, Wyndham International is also
engaged in the business of conducting and offering pari-mutuel wagering on
thoroughbred horse racing, the principal business conducted by Bay Meadows prior
to the Cal Jockey Merger.
Patriot intends to continue to expand and diversity its hotel portfolio
through the acquisition of primarily full service commercial hotels and major
tourist hotels in major metropolitan areas and destination resorts or conference
centers. Patriot believes that market conditions remain favorable for the
acquisition of additional hotels and hotel portfolios and expects to continue
its aggressive acquisition activities. Additionally, Wyndham International
intends to continue to capitalize on opportunities to acquire hotel operators,
owners of hotel franchises or brands and independent hotel management companies.
The Companies generally seek investments in hotels where management believes
that profits can be increased by the introduction of more professional and
efficient management techniques, a change of franchise affiliation or the
injection of capital for market repositioning, renovating, or expanding a
property.
Competition
The hotel industry is highly competitive and the Companies' hotels are
subject to competition from other hotels for guests. Many of the Companies'
competitors may have substantially greater marketing and financial resources
than the Companies. Each of the Companies' hotels compete for guests primarily
with other similar hotels in its immediate vicinity and secondarily with other
similar hotels in its geographic market. Management believes that brand
recognition, location, the quality of the hotel and services provided, and price
are the principal competitive factors affecting the Companies' hotels.
Patriot and Wyndham International may compete for acquisition opportunities
with entities that have greater financial resources than the Companies or which
may accept more risk than the Companies. Competition may generally reduce the
number of suitable investment opportunities and increase the bargaining power of
property owners seeking to sell. Further, the Companies' management believes
that it will face competition for acquisition opportunities from entities
organized for purposes substantially similar to the objectives of Patriot or
Wyndham International.
While the Bay Meadows Racecourse (the "Racecourse"), when it is conducting
live racing, has had little direct competition from other tracks in the San
Francisco Bay Area, the Racecourse competes with off-track wagering facilities
in Northern California and telephone betting accounts being offered by off-track
wagering facilities in various states and foreign countries and other forms of
legalized gambling, particularly Indian gaming and others such as the California
State Lottery and local card clubs. In addition, the San Francisco Bay Area
annually has numerous sporting events, county fairs and other entertainment
attractions which compete with the Racecourse for the sports and entertainment
dollar. It is difficult to evaluate the competitive impact of these other forms
of entertainment and gambling on the operations of the Racecourse, other than to
say that they are significant.
Seasonality
The hotel industry is seasonal in nature. Revenue at certain of the
Companies' 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 the hotels may cause quarterly fluctuations in
Patriot's lease revenues and in Wyndham International's hotel-related revenues.
The Bay Meadows Racecourse operations are also subject to seasonal
variations. Historically, the Bay Meadows racing meet has commenced in August
each year and has ended in the following January.
Employees
As of March 25, 1998, Patriot employs 19 persons, including Messrs.
Nussbaum, Evans and Jones and Ms. Raymond, the executive officers of Patriot,
and retains appropriate support personnel to manage its operations in lieu of
retaining an advisor. Wyndham International employs approximately 30,000
persons, including Messrs. Carreker, Alibhai and Jones, the executive officers
of Wyndham International, and retains appropriate support personnel to manage
its operations, including operation of the 81 hotels leased from Patriot.
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Environmental Matters
Neither Patriot, Wyndham International, the REIT Partnership nor the OpCo
Partnership has been identified by the United States Environmental Protection
Agency or any similar state agency as a responsible or potentially responsible
party for, nor have they been the subject of any governmental proceedings with
respect to, any hazardous waste contamination. If Patriot, Wyndham International
or any of their respective subsidiaries were to be identified as a responsible
party, they would in most circumstances be strictly liable, jointly and
severally with other responsible parties, for environmental investigation and
clean-up costs incurred by the government and, to a more limited extent, by
private persons.
Phase I environmental site assessments are performed on all of the Patriot
hotels prior to acquisition. To date, these assessments have not revealed any
environmental liability or compliance concerns that management believes would
have a material adverse effect on the Companies' business, assets, results of
operations or liquidity. Based on the results of these assessments, the
Companies and their outside consultants believe that the Companies' overall
potential for environmental impairment is low.
Based upon the environmental reports described above, the Companies believe
that a substantial number of the hotels incorporate potentially asbestos-
containing materials. Under applicable current federal, state and local laws,
asbestos need not be removed from or encapsulated in a hotel unless and until
the hotel is renovated or remodeled. The Companies have asbestos operation and
maintenance plans for each property testing positive for asbestos.
Based upon the above-described environmental reports and testing, future
remediation costs are not expected to have a material adverse effect on the
results of operations, financial position or cash flows of Patriot or Wyndham
International and compliance with environmental laws has not had and is not
expected to have a material adverse effect on the capital expenditures, earnings
or competitive position of the Companies.
Tax Status
Cal Jockey has elected to be taxed as a REIT under Sections 856 through 860
of the Internal Revenue Code (the "Code") since 1983. Patriot, as the successor
to Cal Jockey in the Cal Jockey Merger, intends to continue to elect to be taxed
as a REIT. Patriot generally will not be subject to federal income tax on its
taxable net income that is distributed currently to its shareholders. If Patriot
fails to qualify as a REIT in any taxable year, Patriot will be subject to
federal income tax (including any applicable alternative minimum tax) on its
taxable income at regular corporate tax rates. However, even if Patriot
continues to qualify for taxation as a REIT, Patriot may be subject to certain
state and local taxes on its income and properties and federal income and excise
taxes under certain special circumstances.
Proposed Legislation Affecting The Paired Share Structure
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) 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 Wyndham International. The
"grandfathering" rules governing Section 296B generally provide, however, that
Section 296B(a)(3) does not apply to a paired REIT if the REIT and the paired
operating company were paired on June 30, 1983. Patriot's and Wyndham
International's respective precedessors, Cal Jockey and Bay Meadows, 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.
Patriot's exemption from the anti-pairing rules could be lost, or its
ability to utilize the paired structure could be revoked or limited, as a result
of future legislation. In this regard, on February 2, 1998, the Department of
Treasury released an explanation of the revenue proposals included in the
Clinton Administration's fiscal 1999 budget (the "Tax Proposals"). The Tax
Proposals, among other things, include a freeze on the grandfathered status of
paired share REITs such as Patriot. Under the Tax Proposals, Patriot and Wyndham
International would be treated as one entity with respect to properties acquired
on or after the date of the first Congressional committee action with respect to
such proposal and with respect to activities or services relating to such
properties that are undertaken or performed by one of the paired entities on or
after such date. The Tax Proposals would also prohibit REITs from holding stock
of a corporation possessing more than 10% of the vote or value of all classes
of stock of the corporation. This proposal would be effective with respect to
the stock acquired on or after the date of first Congressional committee action
with respect to the proposal; provided that the proposal would not apply to
stock acquired before such effective date if, on or after such date, the
subsidiary corporation engaged in a new trade or business or acquired
substantial new assets.
On March 26, 1998, William Archer, Chairman of the Ways and Means Committee
of the United States House of Representatives and William V. Roth, Jr., Chairman
of the Finance Committee of the United States Senate, introduced identical
legislation (the "Proposed Legislation") in both the House of Representatives
and the Senate to limit this "grandfathering rule." Under the Proposed
Legislation, the anti-pairing rules provided in the Code would apply to real
property interests acquired after March 26, 1998 by Patriot and Wyndham
International, or a subsidiary or partnership in which 10% or greater interest
is owned by Patriot or Wyndham International (collectively, the "REIT Group"),
unless (1) the real property interests are acquired pursuant to a written
agreement which is binding on March 26, 1998 and all times thereafter or (2) the
acquisition of such real property interests were described in a public
announcement or in a filing with the Securities and Exchange Commission on or
before March 26, 1998. In addition, the Proposed Legislation also provides that
a property held by Patriot or Wyndham International that is not subject to the
anti-pairing rules would become subject to such rules in the event of an
improvement placed in service after December 31, 1999 that changes the use of
the property and the cost of which is greater than 200 percent of (x) the
undepreciated cost of the property (prior to the improvement) or (y) in the case
of property acquired where there is a substantial basis, the fair market value
of the property on the day it was acquired by Patriot and Wyndham International.
There is an exception for improvements placed in service before January 1, 2004
pursuant to a binding contract in effect as of December 31, 1999 and at all
times thereafter.
The above discussion is based solely on the Tax Proposals and the Proposed
Legislation. The Proposed Legislation will not become effective unless it is
duly passed by Congress and signed by the President. It is impossible at this
time to determine all of the ramifications which could result from enactment of
the Proposed Legislation. However, Patriot believes that the previously
announced and pending acquisitions of Interstate, Arcadian and Summerfield are
unaffected by the Proposed Legislation and expects that such acquisitions will
be completed as currently scheduled.
PENDING ADOPTION OF AUTHORITATIVE STATEMENTS
Comprehensive Income
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 130 ("Statement 130"), "Reporting
Comprehensive Income." Statement 130 requires that all components of
comprehensive income and the ending accumulated balances for each item,
classified by their nature, be reported in the financial statements in the
period in which they are recognized. Statement 130 is effective for fiscal years
beginning after December 15, 1997. The Companies will be required to adopt
Statement 130 beginning with their interim financial statements for the first
quarter of 1998. Comparative financial statements for prior years presented in
these interim financial statements are required to be reclassified to conform to
the new Statement 130 presentation. Management does not anticipate that adoption
of Statement 130 reporting requirements will have a material impact on the
operating results or financial position of the Companies.
Segment Reporting
In June 1997, FASB issued SFAS No. 131 ("SFAS 131"), "Disclosures about
Segments of an Enterprise and Related Information". SFAS 131 specifies revised
guidelines for determining an entity's operating segments and the type and level
of financial information to be disclosed. SFAS 131 changes current practice by
establishing a new framework on which to base segment reporting, including the
determining of a segment and the financial information to be disclosed for each
segment, referred to as "management" approach. The management approach requires
that management identify "operating segments" based on the way that management
disaggregates the entity for making internal operating decisions. SFAS 131 is
effective for fiscal years beginning after December 15, 1997, and requires
restatement of information for earlier periods. Management is determining the
segments to be disclosed and intends to adopt the statement for the year ended
December 31, 1998.
ITEM 2. PROPERTIES
MARKET SEGMENTATION
Patriot classifies its hotels into four primary market segments: (i) full
service, (ii) limited service, (iii) resorts, and (iv) conference center.
As of December 31, 1997, Patriot owned 81 full service hotels aggregating
over 21,700 guest rooms, which target both business and leisure travelers,
including meetings and groups, who prefer a full range of facilities, services
and amenities. At year end, all but four of Patriot's full service hotels were
operated under franchise or brand affiliations with nationally recognized hotel
companies, including Crowne Plaza/(R)/, Radisson/(R)/, Ramada/(R)/, Hilton/(R)/,
Hyatt/(R)/, Four Points by Sheraton/(R)/, Holiday Inn/(R)/, Wyndham/TM/, Wyndham
Garden/(R)/, WestCoast/(R)/, Doubletree/(R)/, Embassy Suites/(R)/,
Carefree/(R)/, Grand Heritage/(R)/, Marriott/(R)/, Marriott Courtyard/(R)/,
Sheraton/(R)/, and Grand Bay/(R)/. Full service hotels generally offer a full
range of meeting and conference facilities and banquet space. Facilities
generally include restaurants and lounge areas, gift shops and recreational
facilities, including swimming pools. Full service hotels generally provide a
significant array of guest services, including room service, valet services and
laundry. Three of Patriot's hotels, the Bourbon Orleans Hotel in New Orleans the
Fairmount Hotel in San Antonio and the Park Shore Hotel in Honolulu, are luxury
hotels in major U.S. tourist markets.
9
<PAGE>
The Tremont House Hotel in Boston, operates as an upscale full service hotel in
a major U.S. market.
Patriot owns four limited service hotels aggregating 447 guest rooms, which
target both business and leisure travelers. Patriot's limited service hotels
consist of four Hampton Inns/(R)/. Limited service hotels generally have limited
or no meeting space. Hotels operating in this market segment generally seek to
minimize operational costs by offering only those basic services required by
travelers. Because they cater to both business and leisure travelers, limited
service hotels generally maintain relatively consistent occupancy on weekdays
and weekends.
As of December 31, 1997, Patriot owned five resort properties aggregating
978 guest rooms, including the Wyndham/TM/ Resort & Spa in Fort Lauderdale,
Florida (formerly the Bonaventure Resort & Spa) and the four Carefree/(R)/
resort properties which were acquired in January 1997. Resorts are designed to
offer unique destinations which appeal to today's sophisticated vacation
traveler and to blend with their environment, enhancing the natural surroundings
with design that fits the locale. Each resort's recreational activities are of
the highest caliber and are designed to capitalize on the natural attractions of
the location. Many offer a combination of golf, tennis, skiing, a health spa,
hiking or other sports.
Patriot owns one conference center with 250 guest rooms, which targets
corporate and other executive groups. Conference centers are distinguishable
from traditional full service hotels in that they are dedicated, designed and
equipped to handle all services for large meetings and conferences. Conference
centers typically offer state-of-the-art meeting and conference rooms, with a
full complement of business support services. Conference centers generally
include banquet and ballroom facilities, and restaurant and bar facilities. In
addition, facilities generally include a fitness center, swimming pool and
tennis courts. Because of the specialized nature of conference centers, there
are relatively few such properties in the U.S.
DESCRIPTION OF PROPERTIES
The following table sets forth certain information for the year ended
December 31, 1997 and 1996 with respect to the hotels Patriot owned as of
December 31, 1997. This information reflects actual operating results of the
hotels both prior and subsequent to acquisition by Patriot.
10
<PAGE>
<TABLE>
<CAPTION>
Total Revenue Average Occupancy
---------------------- -----------------
Number of Year Built/
Property Name Location Rooms Renovated 1997 1996 1997 1996
- ------------- -------- ----- --------- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
FULL SERVICE HOTELS:
Amassador West.................. Chicago, IL................. 219 1924 $ 8,387 $ 8,144 66.3% 66.2%
Bourbon Orleans Hotel (2)....... New Orleans, LA............. 216 1800s/1995 9,409 8,248 83.7 83.3
The Buttes...................... Tempe, AZ................... 353 1986 27,917 27,120 78.5 83.5
Crowne Plaza Ravinia Hotel (3).. Atlanta, GA................. 495 1986 23,617 24,237 69.9 71.0
Crowne Plaza Toledo............. Toledo, OH.................. 241 1985 7,804 7,224 63.5 63.1
Doubletree Allen Center (2)..... Houston, TX................. 341 1978/1984 14,236 13,207 67.6 67.2
Doubletree Hotel................ Des Plaines (Chicago), IL... 242 1969/1997 5,011 5,100 62.7 81.4
Doubletree Guest Suites (2)..... Glenview, IL................ 252 1988 10,277 8,705 80.3 75.7
Doubletree Hotel................ Minneapolis, MN............. 230 1986 6,177 6,084 61.0 68.7
Doubletree Hotel................ Tallahassee, FL............. 244 1977/1997 4,522 3,946 48.6 59.4
Doubletree Hotel (2)............ Tulsa, OK................... 417 1982 10,630 10,699 63.3 68.7
Doubletree Hotel................ Westminster (Denver), CO.... 180 1980/1992 6,244 5,566 74.1 73.4
Doubletree - Anaheim (2)........ Orange, CA.................. 454 1984 14,627 13,473 67.2 70.3
Doubletree - Miami Airport...... Miami, FL................... 266 1975/1997 4,660 4,499 56.4 53.4
Doubletree - Post Oak (2)....... Houston, TX................. 449 1982 22,598 19,942 75.7 72.2
Doubletree - Corporate Woods (2) Overland Park, KS........... 356 1982 15,734 14,674 73.0 75.5
Doubletree - St Louis (2)....... Chesterfield, MO............ 223 1984 13,404 12,341 73.2 74.1
Doubletree Park Place........... Minneapolis, MN............. 298 1981 9,912 11,049 66.1 73.9
Embassy Suites.................. Hunt Valley, MD............. 223 1985/1995 6,828 6,399 71.9 71.3
Fairmount Hotel................. San Antonio, TX............. 37 1906/1994 2,623 2,838 66.3 77.6
Four Points by Sheraton......... Saginaw, MI................. 156 1984 3,627 3,980 66.6 70.5
Grand Bay Hotel Coconut Grove(2) Miami, FL................... 178 1983 17,460 15,753 75.8 67.9
Del Mar Hilton.................. Del Mar (San Diego), CA..... 245 1989 9,660 8,209 74.9 69.8
Hilton Cleveland South.......... Independence, OH............ 191 1980/1994 9,345 8,117 66.5 69.2
Melbourne Airport Hilton........ Melbourne, FL............... 237 1986 6,595 6,004 70.3 65.8
Hilton Inn Myrtle Beach......... Myrtle Beach, SC............ 385 1974 16,254 14,797 72.8 69.3
Holiday Inn..................... San Angelo, TX.............. 148 1984/1994 3,251 3,124 67.6 71.3
Holiday Inn..................... San Francisco, CA........... 224 1964 8,355 7,636 87.7 87.3
Holiday Inn..................... Sebring, FL................. 148 1983/1995 2,806 2,510 56.8 55.2
Holiday Inn Aristocrat.......... Dallas, TX.................. 172 1925/1994 4,929 4,881 66.1 69.7
Holiday Inn Crockett............ San Antonio, TX............. 206 1909/1996 5,185 5,090 65.8 65.3
Holiday Inn Lenox............... Atlanta, GA................. 297 1987/1995 7,003 7,891 63.2 68.2
Holiday Inn Northwest Plaza..... Austin, TX.................. 193 1984/1994 5,808 6,222 72.4 79.6
Holiday Inn Northwest........... Houston, TX................. 193 1982/1994 3,461 3,046 64.4 62.7
Holiday Inn - YO Ranch.......... Kerrville, TX............... 200 1984 3,936 4,051 50.3 57.4
Holiday Inn Redmont Hotel....... Birmingham, AL.............. 112 1925/1991 1,538 1,735 49.5 53.2
Holiday Inn Westlake............ Beachwood, OH............... 266 1980 8,585 8,052 80.3 75.0
<CAPTION>
Average Daily Rate Revenue Per Available
(ADR) Room (REVPAR)(1)
------------------ ---------------------
Property Name Location 1997 1996 1997 1996
- ------------- -------- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Full Service Hotels:
Amassador West.................. Chicago, IL................. $110.69 $106.11 $ 73.44 $ 70.28
Bourbon Orleans Hotel (2)....... New Orleans, LA............. 133.69 120.17 111.94 100.16
The Buttes...................... Tempe, AZ................... 140.94 128.11 110.61 106.99
Crowne Plaza Ravinia Hotel (3).. Atlanta, GA................. 116.44 119.74 81.44 85.05
Crowne Plaza Toledo............. Toledo, OH.................. 83.96 79.08 53.29 49.91
Doubletree Allen Center (2)..... Houston, TX................. 102.58 91.96 69.30 61.80
Doubletree Hotel................ Des Plaines (Chicago), IL... 72.18 56.67 45.23 46.10
Doubletree Guest Suites (2)..... Glenview, IL................ 95.15 85.39 76.41 64.67
Doubletree Hotel................ Minneapolis, MN............. 93.81 77.31 57.21 53.12
Doubletree Hotel................ Tallahassee, FL............. 73.60 47.73 35.76 28.37
Doubletree Hotel (2)............ Tulsa, OK................... 69.39 63.03 43.92 43.29
Doubletree Hotel................ Westminster (Denver), CO.... 82.44 73.99 61.09 54.28
Doubletree - Anaheim (2)........ Orange, CA.................. 80.81 69.54 54.28 48.88
Doubletree - Miami Airport...... Miami, FL................... 67.56 71.71 38.12 38.26
Doubletree - Post Oak (2)....... Houston, TX................. 102.57 94.17 77.68 67.98
Doubletree - Corporate Woods (2) Overland Park, KS........... 97.34 88.01 71.02 66.47
Doubletree - St Louis (2)....... Chesterfield, MO............ 95.45 90.76 69.90 67.28
Doubletree Park Place........... Minneapolis, MN............. 79.24 72.67 52.38 53.67
Embassy Suites.................. Hunt Valley, MD............. 90.47 85.07 65.03 60.63
Fairmount Hotel................. San Antonio, TX............. 158.90 144.71 105.41 112.32
Four Points by Sheraton......... Saginaw, MI................. 59.38 62.95 39.52 44.36
Grand Bay Hotel Coconut Grove(2) Miami, FL................... 226.77 205.24 171.86 139.39
Del Mar Hilton.................. Del Mar (San Diego), CA..... 92.81 84.50 69.55 58.99
Hilton Cleveland South.......... Independence, OH............ 92.96 86.34 61.86 59.74
Melbourne Airport Hilton........ Melbourne, FL............... 66.03 61.56 46.42 40.53
Hilton Inn Myrtle Beach......... Myrtle Beach, SC............ 93.99 88.46 68.45 61.31
Holiday Inn..................... San Angelo, TX.............. 63.36 60.54 42.80 43.15
Holiday Inn..................... San Francisco, CA........... 84.98 72.95 74.50 63.72
Holiday Inn..................... Sebring, FL................. 63.14 57.78 35.86 31.91
Holiday Inn Aristocrat.......... Dallas, TX.................. 92.73 88.10 61.33 61.45
Holiday Inn Crockett............ San Antonio, TX............. 86.41 85.25 56.86 55.64
Holiday Inn Lenox............... Atlanta, GA................. 83.84 88.96 53.00 60.63
Holiday Inn Northwest Plaza..... Austin, TX.................. 85.03 83.75 61.59 66.65
Holiday Inn Northwest........... Houston, TX................. 59.61 54.69 38.38 34.31
Holiday Inn - YO Ranch.......... Kerrville, TX............... 75.35 66.18 37.93 38.01
Holiday Inn Redmont Hotel....... Birmingham, AL.............. 58.11 58.45 28.78 31.07
Holiday Inn Westlake............ Beachwood, OH............... 73.49 72.01 59.04 54.04
</TABLE>
See notes on page 13.
11
<PAGE>
<TABLE>
<CAPTION>
Total Revenue Average Occupancy
---------------------- -----------------
Number of Year Built/
Property Name Location Rooms Renovated 1997 1996 1997 1996
- ------------- -------- ----- --------- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
FULL SERVICE HOTELS - CONTINUED:
Holiday Inn Select.............. Farmers Branch (Dallas), TX. 374 1979/1994 $ 9,827 $ 10,271 63.0% 69.4%
Hyatt Newporter................. Newport Beach, CA........... 410 1962 22,686 19,940 74.7 74.6
Hyatt Regency................... Lexington, KY............... 365 1977/1992 13,007 12,457 61.3 63.2
Marriott Hotel.................. Troy, MI.................... 350 1990 21,010 18,815 77.8 78.2
Marriott Courtyard.............. Beachwood, OH............... 113 1986 3,591 3,159 79.1 83.8
The Mayfair Hotel............... St. Louis, MO............... 182 1925/1990 4,205 4,316 50.3 56.5
Omni Inner Harbour Hotel........ Baltimore, MD............... 707 1968 24,860 21,161 68.2 64.7
Park Shore Honolulu (4)......... Honolulu, HI................ 227 1968 -- -- -- --
Radisson Suites Town & Country.. Houston, TX................. 173 1986/1992 4,608 4,422 77.0 69.9
Radisson Hotel & Suites......... Dallas, TX.................. 198 1986/1994 5,274 5,278 72.2 72.4
Radisson Northbrook............. Northbrook, IL.............. 310 1976/1994 7,562 6,793 71.7 67.6
Radisson New Orleans Hotel...... New Orleans, LA............. 759 1924/1995 22,771 20,720 67.3 68.1
Radisson Suite Hotel............ Kansas City, KS............. 240 1931/1989 6,135 5,661 61.5 64.5
Radisson Overland Park.......... Overland Park, KS........... 190 1974 4,518 4,506 64.8 67.0
Radisson Hotel (2).............. Beachwood, OH............... 196 1968 5,846 5,634 74.8 80.6
Radisson Hotel.................. Akron, OH................... 130 1989 2,946 2,982 67.3 68.8
Radisson Riverwalk.............. Jacksonville, FL............ 322 1979/1996 10,453 9,507 81.1 77.7
Ramada Inn...................... San Francisco, CA........... 323 1962 7,616 7,419 89.7 90.7
Sheraton City Centre............ Washington, D.C............. 353 1969 13,976 12,604 69.4 64.7
Sheraton Gateway - Miami Airport Miami, FL................... 408 1976/1995 13,380 11,996 74.2 75.3
Sheraton Grand Hotel (2)........ Tampa, FL................... 324 1984 17,333 15,247 71.8 68.2
Tremont House................... Boston, MA.................. 322 1925/* 12,392 10,317 74.0 75.1
The Tutwiler.................... Birmingham, AL.............. 147 1913/1986 3,811 4,084 61.0 67.8
Union Station................... Nashville, TN............... 124 1986 3,749 3,571 53.2 56.1
WestCoast Gateway............... Seattle, WA................. 145 1990 2,970 2,726 84.8 83.4
WestCoast Hotel & Marina........ Long Beach, CA.............. 195 1978/1997 2,657 2,934 32.0 44.7
WestCoast Pickwick Hotel........ San Francisco, CA........... 189 1928/* 3,618 3,431 58.5 65.4
WestCoast Plaza Park Suites..... Seattle, WA................. 193 1928/* 6,813 6,479 76.1 73.3
WestCoast Roosevelt Hotel....... Seattle, WA................. 151 1929/1987 4,372 4,102 74.1 73.8
WestCoast Valley River Inn...... Eugene, OR.................. 257 1973 10,634 9,963 67.1 67.9
WestCoast Wenatchee Center Hotel Wenatchee, WA............... 147 1988/1994 4,136 4,229 57.3 64.1
Wyndham Bel Age Hotel........... Los Angeles, CA............. 200 1984 14,995 15,023 77.0 77.0
Wyndham Emerald Plaza (2)....... San Diego, CA............... 436 1991 19,798 17,980 76.0 74.1
Wyndham Franklin Plaza.......... Philadelphia, PA............ 758 1979 35,842 33,358 72.6 74.0
Wyndham Greenspoint Hotel (2)... Houston, TX................. 472 1985/1995 21,134 19,063 70.2 72.6
Wyndham Northwest Chicago....... Chicago, IL................. 408 1983 24,377 23,252 67.2 67.8
Wyndham Riverfront Hotel........ New Orleans, LA............. 202 1996 -- -- -- --
Wyndham WindWatch (4)........... Long Island, NY............. 360 1989 17,580 18,211 68.4 75.6
<CAPTION>
Average Daily Rate Revenue Per Available
(ADR) Room (REVPAR)(1)
------------------ ---------------------
Property Name Location 1997 1996 1997 1996
- ------------- -------- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
FULL SERVICE HOTELS - CONTINUED:
Holiday Inn Select.............. Farmers Branch (Dallas), TX. $ 79.09 $ 75.06 $ 49.86 $ 52.08
Hyatt Newporter................. Newport Beach, CA........... 111.28 98.54 83.11 73.50
Hyatt Regency................... Lexington, KY............... 89.47 84.22 54.82 53.23
Marriott Hotel.................. Troy, MI.................... 118.86 109.41 92.51 85.61
Marriott Courtyard.............. Beachwood, OH............... 97.25 80.44 76.89 67.44
The Mayfair Hotel............... St. Louis, MO............... 93.54 89.53 47.08 50.62
Omni Inner Harbour Hotel........ Baltimore, MD............... 99.08 91.38 67.61 59.10
Park Shore Honolulu (4)......... Honolulu, HI................ -- -- -- --
Radisson Suites Town & Country.. Houston, TX................. 87.32 83.09 67.28 58.11
Radisson Hotel & Suites......... Dallas, TX.................. 77.24 76.53 55.76 55.43
Radisson Northbrook............. Northbrook, IL.............. 76.95 68.00 55.16 45.98
Radisson New Orleans Hotel...... New Orleans, LA............. 87.82 81.08 59.06 55.17
Radisson Suite Hotel............ Kansas City, KS............. 81.96 73.37 50.43 47.34
Radisson Overland Park.......... Overland Park, KS........... 74.71 67.64 48.43 45.29
Radisson Hotel (2).............. Beachwood, OH............... 77.62 69.73 58.03 56.19
Radisson Hotel.................. Akron, OH................... 73.66 72.79 49.59 50.11
Radisson Riverwalk.............. Jacksonville, FL............ 71.81 68.28 58.26 53.07
Ramada Inn...................... San Francisco, CA........... 57.39 51.74 51.50 46.91
Sheraton City Centre............ Washington, D.C............. 121.29 115.19 84.16 74.56
Sheraton Gateway - Miami Airport Miami, FL................... 85.80 76.74 63.64 57.77
Sheraton Grand Hotel (2)........ Tampa, FL................... 102.39 93.75 73.54 63.98
Tremont House................... Boston, MA.................. 123.51 102.43 91.35 76.92
The Tutwiler.................... Birmingham, AL.............. 106.56 101.43 64.96 68.77
Union Station................... Nashville, TN............... 100.48 94.44 53.49 52.99
WestCoast Gateway............... Seattle, WA................. 60.37 55.55 51.17 46.31
WestCoast Hotel & Marina........ Long Beach, CA.............. 70.66 58.17 22.61 25.98
WestCoast Pickwick Hotel........ San Francisco, CA........... 79.01 66.82 46.23 43.71
WestCoast Plaza Park Suites..... Seattle, WA................. 116.23 114.38 88.48 83.82
WestCoast Roosevelt Hotel....... Seattle, WA................. 98.16 92.38 72.71 68.19
WestCoast Valley River Inn...... Eugene, OR.................. 92.79 88.76 62.23 60.24
WestCoast Wenatchee Center Hotel Wenatchee, WA............... 63.82 59.19 36.54 37.94
Wyndham Bel Age Hotel........... Los Angeles, CA............. 145.56 140.17 112.10 107.89
Wyndham Emerald Plaza (2)....... San Diego, CA............... 114.96 103.48 87.35 76.66
Wyndham Franklin Plaza.......... Philadelphia, PA............ 104.00 96.28 75.51 71.28
Wyndham Greenspoint Hotel (2)... Houston, TX................. 96.39 85.60 67.63 62.13
Wyndham Northwest Chicago....... Chicago, IL................. 111.39 102.85 74.88 69.74
Wyndham Riverfront Hotel........ New Orleans, LA............. -- -- -- --
Wyndham WindWatch (4)........... Long Island, NY............. 116.74 104.75 79.83 79.21
</TABLE>
See notes on the following page.
12
<PAGE>
<TABLE>
<CAPTION>
Total Revenue Average Occupancy
---------------------- -----------------
Number of Year Built/
Property Name Location Rooms Renovated 1997 1996 1997 1996
- ------------- -------- ----- --------- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
FULL SERVICE HOTELS CONTINUED:
Wyndham Garden - Las Colinas.... Dallas, TX.................. 168 1986 $ 5,917 $ 5,744 73.3% 72.6%
Wyndham Garden - Midtown........ Atlanta, GA................. 191 1987/1994 6,439 7,475 71.1 72.8
Wyndham Garden - Novi........... Detroit, MI................. 148 1988 4,671 4,308 76.5 75.9
Wyndham Garden Hotel............ Pleasanton, CA.............. 171 1985 5,748 4,775 82.3 73.5
Wyndham Garden - Wood Dale...... Chicago, IL................. 162 1986 5,578 5,282 71.1 71.4
The Garden at LaGuardia (6)..... New York, NY................ 229 1988 -- -- -- --
------ -------- -------- ---- ----
21,716 $781,250 $733,788 69.6% 70.7%
------ -------- -------- ---- ----
LIMITED SERVICE HOTELS:
Hampton Inn Jacksonville Airport Jacksonville, FL............ 113 1985 $ 2,277 $ 2,165 84.5% 86.1%
Hampton Inn..................... Rochester, NY............... 113 1986 2,348 2,202 75.2 74.2
Hampton Inn Cleveland Airport... North Olmsted, OH........... 113 1986 2,063 1,978 67.7 72.2
Hampton Inn..................... Canton, OH.................. 108 1985 1,597 1,535 68.7 68.5
------ -------- -------- ---- ----
447 $ 8,285 $ 7,880 74.1% 75.3%
------ -------- -------- ---- ----
RESORTS:
The Boulders.................... Scottsdale, AZ.............. 160 1985 $ 34,125 $ 53,444 72.4% 78.7%
Carmel Valley Ranch............. Carmel, CA.................. 100 1987 13,904 15,932 75.9 76.2
The Lodge at Ventana Canyon (2). Tucson, AZ.................. 49 1985/1995 12,952 12,298 68.1 68.0
The Peaks Resort & Spa.......... Telluride, CO............... 177 1992/1993 17,615 19,774 60.0 57.6
Wyndham Resort & Spa............ Ft. Lauderdale, FL.......... 492 1981/* 19,633 18,280 49.7 51.2
------ -------- -------- ---- ----
978 $ 98,229 $119,728 58.9% 59.7%
------ -------- -------- ---- ----
CONFERENCE CENTER:
Peachtree Conference Center..... Peachtree City (Atlanta), GA 250 $ 14,996 $ 15,086 58.8% 59.3%
------ -------- -------- ---- ----
Total/Weighted Average 23,391(7) $902,760 $876,482 69.1% 70.2%
====== ======== ======== ==== ====
<CAPTION>
Average Daily Rate Revenue Per Available
(ADR) Room (REVPAR)(1)
------------------ ---------------------
Property Name Location 1997 1996 1997 1996
- ------------- -------- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
FULL SERVICE HOTELS CONTINUED:
Wyndham Garden - Las Colinas.... Dallas, TX.................. $102.35 $100.47 $ 75.02 $ 72.95
Wyndham Garden - Midtown........ Atlanta, GA................. 98.99 107.94 70.41 78.59
Wyndham Garden - Novi........... Detroit, MI................. 82.43 74.83 63.05 56.77
Wyndham Garden Hotel............ Pleasanton, CA.............. 91.59 82.62 75.39 60.71
Wyndham Garden - Wood Dale...... Chicago, IL................. 93.10 86.76 66.17 61.97
The Garden at LaGuardia (6)..... New York, NY................ -- -- -- --
------- ------- ------- -------
$ 94.82 $ 87.05 $ 65.98 $ 61.54
------- ------- ------- -------
LIMITED SERVICE HOTELS:
Hampton Inn Jacksonville Airport Jacksonville, FL............ $ 62.81 $ 58.53 $ 53.09 $ 50.39
Hampton Inn..................... Rochester, NY............... 72.96 69.31 54.84 51.45
Hampton Inn Cleveland Airport... North Olmsted, OH........... 71.23 64.28 48.25 46.43
Hampton Inn..................... Canton, OH.................. 56.44 54.19 38.79 37.14
------- ------- ------- -------
$ 65.93 $ 61.66 $ 48.85 $ 46.46
------- ------- ------- -------
RESORTS:
The Boulders.................... Scottsdale, AZ.............. $326.91 $333.14 $236.55 $262.33
Carmel Valley Ranch............. Carmel, CA.................. 255.89 235.80 194.22 179.63
The Lodge at Ventana Canyon (2). Tucson, AZ.................. 216.40 184.85 147.26 125.67
The Peaks Resort & Spa.......... Telluride, CO............... 245.58 221.26 147.25 127.36
Wyndham Resort & Spa............ Ft. Lauderdale, FL.......... 106.07 92.50 52.76 47.33
------- ------- ------- -------
$201.54 $184.19 $118.63 $110.05
------- ------- ------- -------
CONFERENCE CENTER:
Peachtree Conference Center..... Peachtree City (Atlanta), GA $116.67 $117.28 $ 68.57 $ 69.52
------- ------- ------- -------
Total/Weighted Average $ 98.28 $ 90.22 $ 67.91 $ 63.34
======= ======= ======= =======
</TABLE>
______________________
(1) REVPAR is determined by dividing room revenue by available rooms for the
applicable period.
(2) This hotel is encumbered by mortgage indebtedness as of March 25, 1998.
(3) The Crowne Plaza Ravinia Hotel is owned by PAH Ravinia, Inc., an
unconsolidated subsidiary of Patriot. The hotel acquisition was
structured without a lessee.
(4) The Wyndham WindWatch Hotel is owned by PAH Windwatch, LLC, an
unconsolidated subsidiary of Patriot. The hotel acquisition was
structured without a lessee.
(5) Revenue and revenue statistical information is not available from the prior
owner of this hotel.
(6) Revenue statistical information not available because the hotel was out of
service for renovations or construction.
(7) Subsequent to December 31, 1997, the Companies acquired 27 additional
hotel properties with a total of over 6,000 guest rooms. As a result, as of
March 25, 1998, the Companies owned 118 hotels with an aggregate of over
29,400 guest rooms.
* Renovations are in progress at these hotels.
13
<PAGE>
HOTELS ACQUIRED BY PATRIOT SUBSEQUENT TO YEAR END:
<TABLE>
<CAPTION>
Year Ended December 31, 1997
---------------------------------------
Number Year Built/ Total Average
Property Name/Location of Rooms Renovated Revenue Occupancy ADR REVPAR
- ---------------------- -------- --------- ------- --------- --- ------
<S> <C> <C> <C> <C> <C> <C>
FULL SERVICE HOTELS:
Buena Vista Palace Hotel
Orlando, FL (1)................................. 1,014 1983/1997 $68,633 82.4% $139.84 $115.23
Snavely Holiday Inn
Beachwood, OH (2)............................... 173 1974 5,073 72.0 86.60 62.32
Wyndham Bristol Place Hotel
Toronto, Canada................................. 287 1974/* 10,160 75.2 116.41 87.57
Wyndham Garden Brookfield
Brookfield, IL.................................. 178 1990 5,223 75.7 74.83 56.63
Wyndham Garden - Charlotte
Charlotte, NC................................... 173 1989 5,165 71.6 83.39 59.71
Wyndham Garden - Commerce
Los Angeles, CA (3)............................. 201 1991 6,867 69.8 83.25 58.14
Wyndham Garden - Market Center
Dallas, TX...................................... 230 1968/1997 4,274 64.0 90.90 58.14
Wyndham Garden - Indianapolis
Indianapolis, IN................................ 171 1990 4,789 67.7 77.58 52.53
Wyndham Garden - Overland Park
Overland Park, KS............................... 181 1971/1997 3,649 60.3 78.53 47.34
Wyndham Garden - Schaumburg
Schaumburg, IL.................................. 188 1985 5,448 71.1 86.94 61.85
Wyndham Garden - Vinings
Atlanta, GA (2)................................. 159 1985 5,018 70.2 86.77 60.92
ClubHouse Inn - Albuquerque
Albuquerque, NM................................. 137 1987 2,229 63.8 65.14 41.54
ClubHouse Inn - Atlanta (Norcross)
Atlanta, GA (2)................................. 147 1988 2,222 57.3 68.76 39.39
ClubHouse Inn - Knoxville
Knoxville, TN (2)............................... 137 1989 2,247 63.7 57.29 42.89
ClubHouse Inn - Nashville Airport
Nashville, TN................................... 135 1988 2,401 71.5 65.74 47.01
ClubHouse Inn & Conference Center
Nashville, TN................................... 285 1991/* 6,350 71.5 75.11 53.68
ClubHouse Inn - Overland Park
Overland Park, KS (2)........................... 143 1988 2,916 76.7 70.05 53.74
ClubHouse Inn - Topeka
Topeka, KS...................................... 121 1986 2,100 74.3 61.90 45.99
ClubHouse Inn - Valdosta
Valdosta, GA.................................... 121 1988 2,079 79.0 57.27 45.24
ClubHouse Inn - Wichita
Wichita, KS (2)................................. 120 1985 2,226 76.7 63.69 48.85
ClubHouse Inn - Savannah
Savanna, GA..................................... 138 1989 2,163 69.8 59.98 41.89
ClubHouse Inn - Kansas City Airport
Kansas City, MO................................. 138 1992/* 2,622 71.9 65.37 47.01
ClubHouse Inn - Omaha
Omaha, NE (2)................................... 137 1991 2,686 73.3 70.26 51.49
ClubHouse Inn - Richardson
Richardson, TX.................................. 137 1996 2,198 58.9 71.20 41.91
ClubHouse Inn - St. Louis
St. Louis, MO................................... 142 1997 -- -- -- --
RESORTS:
Wyndham Rose Hall Resort
Montego Bay, Jamaica (3)........................ 489 1972/1997 $18,637 63.2% $ 83.17 $ 52.57
</TABLE>
14
<PAGE>
The Companies also acquired the following leasehold interests in connection
with the Wyndham Merger. These hotels are leased from unaffiliated third parties
under long-term lease agreements. The leasehold interests are held by special
purpose entities in which Patriot owns a 99% non-controlling ownership interest
and Wyndham International owns a 1% controlling ownership interest.
<TABLE>
<CAPTION>
Year Ended December 31, 1997
---------------------------------------
Number Year Built/ Total Average
Property Name/Location of Rooms Renovated Revenue Occupancy ADR REVPAR
- ---------------------- -------- --------- ------- --------- --- ------
<S> <C> <C> <C> <C> <C> <C>
LEASED HOTELS:
Wyndham Harbour Island
Tampa, FL (3)................................... 300 1986 $14,269 71.4% $113.86 $ 81.28
Wyndham Garden - Perimeter
Atlanta, GA..................................... 143 1987 3,643 64.7 82.71 53.48
Wyndham Garden - Bloomington
Minneapolis, MN................................. 209 1988 7,348 79.6 82.96 66.00
Wyndham Garden - Bothell
Seattle, WA..................................... 166 1989 5,471 76.9 83.57 64.25
Wyndham Garden - Chandler
Chandler, AZ.................................... 159 1987 5,652 82.5 90.59 74.76
Wyndham Garden - Naperville
Chicago, IL..................................... 143 1986 4,269 76.6 81.98 62.76
Wyndham Garden - Nashville Airport
Nashville, TN................................... 180 1987 5,329 74.2 83.62 62.04
Wyndham Garden - North Phoenix
Phoenix, AZ..................................... 166 1988 4,623 73.8 79.37 58.60
Wyndham Garden - North San Diego
San Diego, CA................................... 180 1989 6,735 85.5 89.18 76.25
Wyndham Garden - Phoenix Airport
Phoenix, AZ..................................... 210 1987 7,455 72.4 100.40 72.70
Wyndham Garden - Salt Lake City
Salt Lake City, UT.............................. 381 1985/* 13,523 70.8 96.35 67.51
Wyndham Garden - Seattle/Tacoma
Seattle, WA (3)................................. 204 1988 6,983 74.7 92.29 68.98
Wyndham Garden - Sunnyvale
San Jose, CA.................................... 180 1987 8,120 85.6 115.43 98.80
</TABLE>
(1) Patriot owns a 95% equity interest in the joint venture that owns this
hotel. The hotel is also encumbered by a ground lease, a $50.3 million
first lien mortgage note and a $23.8 million Participating Note held by
Wyndham International.
(2) This hotel is encumbered by mortgage indebtedness as of March 25, 1998.
(3) These hotels (and in the case of the Wyndham Rose Hall Resort, the golf
course adjacent to the hotel property) are subject to ground leases which,
including renewal options, expire between 2018 and 2077.
* Renovations are in progress at these hotels.
In addition, as a result of the Wyndham Merger, Patriot acquired one hotel
that is currently closed for renovation, investment interests in two additional
hotels, 42 hotels under management contracts and eight franchised hotels, which
in the aggregate contain approximately 13,900 guest rooms.
15
<PAGE>
HOTELS ACQUIRED BY WYNDHAM INTERNATIONAL SUBSEQUENT TO YEAR END:
<TABLE>
<CAPTION>
Year Ended December 31, 1997
----------------------------------------
Number Year Built/ Total Average
Property Name/Location of Rooms Renovated Revenue Occupancy ADR REVPAR
- ---------------------- -------- ----------- -------- --------- --- --------
RESORTS:
<S> <C> <C> <C> <C> <C> <C>
Condado Plaza Hotel & Casino
San Juan, Puerto Rico........................... 570 1959/1962 $12,465 82.0% $143.84 $117.97
</TABLE>
In addition, Wyndham International acquired a 50% equity interest in the
388-room El San Juan Hotel & Casino in Carolina, Puerto Rico and a 23.3% equity
interest in the 751-room El Conquistador Resort & Country Club in Las Croabas,
Puerto Rico in connection with the WHG Merger.
OPERATION OF THE HOTELS
As described in "Item 1 Description of Business," Patriot leases each of
the hotels, except the Crowne Plaza Ravinia Hotel and the Wyndham WindWatch
Hotel to Wyndham International or the Lessees pursuant to separate Participating
Leases. The Participating Leases have an average term of approximately five
years, with various expiration dates through 2008, subject to earlier
termination upon the occurrence of certain contingencies described in the
Participating Leases (including, particularly, irreparable damage or destruction
of the hotel, condemnation of the hotel property, failure to meet performance
goals, or disposition of the hotel). The variation of the lease terms is
intended to provide Patriot protection from the risk inherent in simultaneous
lease expirations.
In general, each Participating Lease requires the lessee of each hotel to
pay the greater of (i) Base Rent in a fixed amount or (ii) Participating Rent
based on percentages of room revenue, food and beverage revenue and other
revenue at each hotel leased by it, plus certain additional charges. In general,
Patriot is responsible for paying (i) real estate and personal property taxes on
the hotels (except to the extent that personal property associated with the
hotels is owned by the Lessee), (ii) casualty insurance on the hotels, (iii)
business interruption insurance on the hotels and (iv) ground rent with respect
to certain of the hotels. The lessees (including Wyndham International) are
required to pay for all liability insurance on the hotels it leases, with
extended coverage, including comprehensive general public liability, workers'
compensation and other insurance appropriate and customary for properties
similar to the hotels, with Patriot as an additional named insured.
Patriot carries comprehensive liability, fire, extended coverage and
business interruption insurance with respect to all of its hotels, with policy
specifications, insured limited and deductibles customarily carried for similar
properties. Patriot will carry similar insurance with respect to any other
properties developed or acquired in the future. Management of Patriot believes
its hotel investments are adequately insured in accordance with industry
standards.
Generally, the inventory required in the operation of the hotels is
transferred to the Lessee upon acquisition of the hotel. Upon termination of the
Participating Lease, the Lessee is obligated to surrender the related hotel
together with all such inventory to Patriot.
FRANCHISE AND BRAND AFFILIATIONS
As of December 31, 1997, all but four of Patriot's hotels are operated
under franchise or brand affiliations with nationally recognized hotel
companies. Franchisors and brand operators provide a variety of benefits for
hotels which include national advertising, publicity and other marketing
programs designed to increase brand awareness, training of personnel, continuous
review of quality standards and centralized reservation systems. The hotel
lessee is the licensee under the franchise agreement related to such hotel. The
hotel lessee is responsible for making all payments under the franchise
agreements to the franchisors. Franchise royalties and fees generally range from
1% to 10% of room revenue. The duration of the franchise agreements are varied,
but generally may be terminated upon prior notice and/or upon payment of certain
specified fees. However, the hotel lessees are not entitled to terminate the
franchise license for a hotel without prior written consent of Patriot.
16
<PAGE>
The franchise licenses generally specify certain management, operational,
record keeping, accounting, reporting and marketing standards and procedures
with which the hotel lessee must comply. The franchise licenses obligate the
hotel lessee to comply with the franchisors' standards and requirements with
respect to training of operational personnel, safety, maintaining specified
insurance, the types of services and products ancillary to guest room services
that may be provided by the lessees, display of signage, and the type, quality
and age of furniture, fixtures and equipment included in guest rooms, lobbies
and other common areas. Compliance with such standards may from time to time
require significant expenditures for capital improvements.
The franchisors have agreed that upon the occurrence of certain events of
default by a lessee under a franchise license, the franchisors will transfer the
franchise license for the hotel to Patriot (or its designee) or make other
arrangements to continue the hotel as part of the franchisor's system.
The lessees' rights related to branded hotels are generally contained in
the management agreements related to such hotels. The lessees do not pay
additional franchise royalties or fees other than those specified in the
management agreements for use of the brands. Generally, the lessees' rights to
use the brands terminate upon any termination of the applicable management
agreement.
MANAGEMENT OF THE HOTELS
The Lessees (including Wyndham International) have entered into management
contracts with the Operators to operate and manage each of the hotels leased
from Patriot. As of December 31, 1997, 31 of Patriot's hotels were managed by
operators affiliated with Wyndham International (as of March 25, 1998, 68 of
Patriot's hotels were managed by operators affiliated with Wyndham
International). The management agreements provide for management fees based upon
a percentage of total revenue at each of the hotels managed by them. The
management fees generally range from 1% to 5% of total revenues. Generally, in
the event of the termination of any of the Participating Leases with the hotel
lessees, the related management agreement also terminates. Generally, the
management agreements also provide for the subordination of certain management
fee payments to the Lessees' obligations pursuant to the Participating Leases.
MAINTENANCE AND IMPROVEMENTS
The Participating Leases obligate Patriot to establish annually a reserve
for capital improvements at the hotels leased to the Lessees (including the
periodic replacement and refurbishment of furniture, fixtures and equipment
("FF&E")). Patriot and the Lessees agree on the use of funds in these reserves,
and Patriot has the right to approve the Lessees' annual and long-term capital
expenditure budgets. The aggregate minimum amount of such reserves average 4.0%
of total revenue for the hotels. Patriot, at its election, may chose to expend
more than 4.0% on any hotel. Any unexpended amounts will remain the property of
Patriot upon termination of the Participating Leases. Otherwise, the Lessees are
required, at their own expense, to make repairs (other than capital repairs)
which may be necessary and appropriate to keep their leased hotels in good order
and repair.
BAY MEADOWS RACECOURSE
The Bay Meadows Racecourse is a horse race track located on approximately
174 acres of land in San Mateo, California which is used for Thoroughbred
racing. The principal Racecourse facilities include (i) the main one-mile dirt
horse race track with six furlongs and one and one-quarter mile chutes, inside
of which is a seven furlong turf course; (ii) the main structure which contains
a grandstand, a clubhouse and a turf club; (iii) a parking area; and (iv) a
barn and stable area situated on the track's infield area.
In connection with the Cal Jockey Merger, Patriot sold substantially all of
the land related to the Racecourse to an affiliate of PaineWebber Incorporated
("Paine Webber") for a purchase price of approximately $80.9 million (the
"PaineWebber Land Sale"). 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 (starting at $750,000 and
escalating to $1,250,000 over the term of the lease) Patriot has subleased the
Racecourse land and leased the related improvements to Wyndham International in
order to permit Wyndham International to continue horse racing operations at the
Racecourse through the term of Patriot's lease. The sublease is for a term of
seven years with annual payments due
17
<PAGE>
based on percentages of revenue generated. In addition, Patriot has leased
certain land adjacent to the Racecourse to Borders, Inc. for an initial term of
20 years (with fixed net annual rent starting at $279,000 and escalating to
$416,000 over the term of the lease). In connection with the sale, Patriot
assigned all of its rights and benefits under existing leases, contracts,
permits and entitlements related to the land sold (excluding the Borders Lease)
to the PaineWebber affiliate, and the PaineWebber affiliate assumed
substantially all of Patriot's development obligations including, but not
limited to, all obligations for on and off-site improvements and all obligations
under existing lease contracts. The parties have the option to renew such leases
upon their expiration under certain circumstances.
ITEM 3. LEGAL PROCEEDINGS
Except as described below, the Patriot, Wyndham International and their
respective subsidiaries are currently not subject to any material legal
proceedings or claims nor, to management's knowledge, are any material legal
proceedings or claims currently threatened.
On April 14, 1997, an action styled Kwalbrun v. James D. Carreker, et. al.,
was filed in the Delaware Court of Chancery in and for New Castle County (the
"Wyndham Stockholders' Litigation"), purportedly as a class action on behalf of
the Old Wyndham stockholders, against Old Wyndham, Old Patriot and the members
of the Board of Directors of Old Wyndham. The complaint alleged that the Old
Wyndham Board of Directors breached its fiduciary duties owed to Old Wyndham's
public stockholders in connection with the Board of Directors' approval of the
Wyndham Acquisition. In particular, the complaint alleged that the Wyndham
Merger was negotiated at the expense of Old Wyndham's public stockholders, and
that the Old Wyndham Board of Directors permitted Old Patriot to negotiate on
more favorable terms the acquisition of certain hotels from members and
affiliates of the Trammell Crow family (the "Crow Assets Acquisition"). Old
Patriot is alleged to have knowingly aided and abetted the alleged breach of
fiduciary duties. The complaint sought to enjoin, preliminarily and permanently,
consummation of the Wyndham Merger and the Crow Assets Acquisition under the
terms presently proposed and also sought unspecified damages. The parties to the
Wyndham Stockholders' Litigation have entered into a Memorandum of
Understanding, as amended, which sets forth the principal bases for settlement
which included providing certain additional disclosures to the stockholders of
Old Wyndham, Patriot and Wyndham International related to the Wyndham Merger.
The Memorandum of Understanding, as amended, and the proposed settlement are
contingent upon execution of an appropriate and satisfactory Stipulation of
Settlement (the "Stipulation") and related documents, and the approval of the
Delaware Court of Chancery. It is currently anticipated that the parties to the
Memorandum of Understanding, as amended, will enter into the formal Stipulation
and present such Stipulation to the Delaware Court of Chancery for approval
during the second quarter of 1998.
The Lessees and the Operators have advised Patriot that they currently are
not involved in any material litigation, other than routine litigation arising
in the ordinary course of business, substantially all of which is expected to be
covered by liability insurance.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On December 31, 1997, Patriot, Patriot Operating Company and Wyndham held
their stockholder meetings to, among other things, approve the merger of Wyndham
into Patriot. At the Patriot stockholders meeting, the following votes were cast
by stockholders: (i) Approval of Wyndham Merger For 48,244,283; Against
125,578; and Abstain 160,582; (ii) Approval of the amendment to the pairing
agreement between Patriot and Patriot Operating Company For 48,241,349; Against
117,195; and Abstain 171,899; and (iii) Approval of the amendment and
restatement of the Certificate of Incorporation For 48,218,580; Against 120,761
and Abstain 191,102. At the Patriot Operating Company stockholders meeting, the
following votes were cast by stockholders: (i) Approval of Wyndham Merger For
48,240,549; Against 116,674; and Abstain 173,220; (ii) Approval of the amendment
to the pairing agreement between Patriot and Patriot Operating Company For
48,233,413; Against 123,566; and Abstain 173,464; and (iii) Approval of the
amendment and restatement of the Certificate of Incorporation For 48,219,711;
Against 131,904 and Abstain 178,818.
18
<PAGE>
PART II
ITEM 5. MARKET PRICE FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
MARKET INFORMATION
On July 1, 1997, Old Patriot merged with and into Cal Jockey and Cal
Jockey changed its name to Patriot American Hospitality, Inc. 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 the quarterly high and
low sale prices per share as reported on the New York Stock Exchange ("NYSE") of
Old Patriot Common Stock (symbol "PAH") through July 1, 1997, and the
distributions paid by Old Patriot with respect to each such period. From and
after July 2, 1997, the following table sets forth the quarterly high and low
sale prices per share of the Paired Shares as reported on the NYSE (symbol
"PAH"). The sale prices and distributions in the table through July 1, 1997 have
been adjusted to reflect (i) Old Patriot's 2-for-1 stock split in March 1997,
(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 Companies' 1.927-
for-1 stock split in July 1997.
<TABLE>
<CAPTION>
Per Share
High (1) Low (1) Dividend (1)
------------------ ---------------- ------------------
1996:
<S> <C> <C> <C>
First Quarter............................................. $14.44 $12.88 $ 0.2400
Second Quarter............................................ $14.81 $13.19 $ 0.2400
Third Quarter............................................. $16.81 $14.00 $ 0.2400
Fourth Quarter............................................ $22.00 $16.25 $ 0.2625
1997:
First Quarter............................................. $26.38 $20.75 $ 0.2625
Second Quarter............................................ $23.75 $18.50 $ 0.3225 (2)
Third Quarter............................................. $32.13 $22.00 $ 0.2625
Fourth Quarter............................................ $34.50 $26.88 $ 0.3200 (3)
</TABLE>
- ---------------------
(1) Represents shares of Old Patriot Common Stock for periods through July 1,
1997, and Paired Shares for periods after July 1, 1997, except that
dividends have been paid only on shares of Patriot Common Stock for periods
after July 1, 1997. No dividends have been paid on shares of Wyndham
International Common Stock.
(2) Dividends paid for the second quarter of 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.
(3) On January 5, 1998, Patriot declared a dividend of $0.32 per common share
to holders of record as of January 8, 1998. A portion of this dividend will
be used to reduce 1997 REIT taxable income of Patriot.
HOLDERS
As of March 25, 1998, there were approximately 3,500 record holders of the
Companies' Paired Shares, including shares held in "street name" by nominees who
are record holders, and approximately 26,600 shareholders.
DIVIDENDS
Patriot intends to continue to make regular quarterly distributions to its
shareholders. The Board of Directors, in its sole discretion, determines the
actual distribution rate based on a number of factors, including the amount of
cash available for distribution, Patriot's financial condition, capital
expenditure requirements for Patriot's properties, the annual distribution
requirements under the REIT provisions of the Internal Revenue Code of 1986, as
amended (the "Code") and such other factors as the Board of Directors deems
relevant. Patriot's actual cash available for distribution is affected by a
number of factors, including changes in occupancy or ADR at its hotels.
19
<PAGE>
On March 23, 1998, the Companies announced that Interstate shareholders
receiving Paired Shares in the Interstate Merger will be entitled to receive
Patriot's regular quarterly dividend of $0.32 per share for the first quarter of
1998 and will be entitled to participate with all other Patriot shareholders in
a special distribution of accumulated earnings and profits from Patriot's
acquisition of Old Wyndham.
In order to maintain its qualification as a REIT, Patriot must make annual
distributions to its shareholders of at least 95% of its taxable income
(excluding net capital gains). Under certain circumstances, Patriot may be
required to make distributions in excess of cash available for distribution in
order to meet such distribution requirements. In such event, Patriot would seek
to borrow the amount of the deficiency or sell assets to obtain the cash
necessary to make distributions to retain its qualification as a REIT for
federal income tax purposes.
RECENT SALES OF UNREGISTERED SECURITIES
Since September 30, 1997, the Companies have issued equity securities in
private placements in reliance on an exemption from registration under Section
4(2) of the Securities Act of 1933, as amended (the "Securities Act") in the
amounts and for the consideration set forth below.
In October 1997, the REIT Partnership and the OpCo Partnership each issued
354,951 OP Units (with an aggregate value of approximately $8.3 million) to the
sellers of three hotels owned by affiliates of CHC Lease Partners as partial
consideration for the acquisition of these hotels by the REIT Partnership.
In December 1997, the REIT Partnership and the OpCo Partnership each issued
221,553 OP Units (with an aggregate value of approximately $6.4 million) to the
sellers of Wyndham Emerald Plaza as partial consideration for the acquisition of
that hotel by the REIT Partnership.
In December 1997, the Companies issued 3,250,000 Paired Shares to a
financial institution for aggregate consideration of approximately $93.6 million
in cash. The sale of the Paired Shares is subject to a price adjustment
agreement which matures in December 1998.
In February 1998, the Companies issued 4,900,000 Paired Shares to a
financial institution for aggregate consideration of approximately $121.8
million in cash. The sale of the Paired Shares is subject to a Purchase Price
Adjustment Mechanism which matures in February 1999.
ITEM 6. SELECTED FINANCIAL INFORMATION
The following tables set forth selected separate and combined historical
financial information for Patriot and Wyndham International. 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 and Wyndham International included elsewhere in this Annual Report on
Form 10-K.
20
<PAGE>
PATRIOT AND WYNDHAM INTERNATIONAL
SELECTED CONDENSED COMBINED HISTORICAL FINANCIAL DATA
<TABLE>
<CAPTION>
PERIOD
OCTOBER 2, 1995
YEAR ENDED DECEMBER 31, (INCEPTION OF
--------------------------------------------- OPERATIONS) THROUGH
1997 1996 DECEMBER 31, 1995
-------------------- --------------------- --------------------
(in thousands, except per share data)
OPERATING DATA:
<S> <C> <C> <C>
Total revenue...................................... $ 335,035 $ 76,493 $ 11,095
Income before income tax provision, minority
interests and extraordinary item.................. 4,142 44,813 7,064
Income before extraordinary item................... 362 37,991 6,096
Net (loss) income.................................. $ (2,172) $ 37,991 $ 5,359
PER SHARE DATA (1):
Basic earnings per share:
Income before extraordinary item.................. $ 0.01 $ 1.07 $ 0.21
Extraordinary item, net of minority interests..... (0.05) -- (0.03)
----------- --------- ---------
Net (loss) income per Paired Share................ $ (0.04) $ 1.07 $ 0.18
=========== ========= =========
Diluted Earnings Per Share......................... $ (0.04) $ 1.06 $ 0.18
=========== ========= =========
Dividends per Paired Share (2)..................... $ 1.1675 $ 0.9825 $ 0.24
=========== ========= =========
CASH FLOW DATA:
Cash provided by operating activities.............. $ 108,110 $ 61,196 $ 7,618
Cash used in investing activities.................. (1,193,079) (419,685) (306,948)
Cash provided by financing activities.............. 1,125,801 360,324 304,099
</TABLE>
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
------------------------------------------------------------------
1997 1996 1995
-------------------- -------------------- --------------------
(in thousands)
BALANCE SHEET DATA:
<S> <C> <C> <C>
Investment in real estate and related improvements
and land held for development, at cost, net....... $ 2,044,649 $ 641,825 $ 265,759
Total assets....................................... 2,507,853 760,931 324,224
Total debt......................................... 1,112,337 214,339 9,500
Minority interest in Operating Partnerships........ 220,177 68,562 41,522
Minority interest in consolidated subsidiaries..... 49,694 11,711 --
Stockholders' equity............................... 989,892 437,039 261,778
</TABLE>
<TABLE>
<CAPTION>
PERIOD
OCTOBER 2, 1995
(INCEPTION OF
YEAR ENDED DECEMBER 31, OPERATIONS)
------------------------------------------- THROUGH
1997 1996 DECEMBER 31, 1995
-------------------- -------------------- --------------------
(in thousands)
OTHER DATA:
<S> <C> <C> <C>
Funds from operations (3).......................... $ 111,542 $ 64,463 $ 9,798
Cash available for distribution (4)................ 94,396 55,132 8,603
Weighted average number of common shares and OP
Units outstanding (5)............................. 65,981 42,200 34,001
</TABLE>
See accompanying notes on page 23.
21
<PAGE>
PATRIOT
SELECTED CONDENSED CONSOLIDATED HISTORICAL FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
PERIOD
OCTOBER 2, 1995
YEAR ENDED DECEMBER 31, (INCEPTION OF
-------------------------------------------- OPERATIONS) THROUGH
1997 1996 DECEMBER 31, 1995
-------------------- -------------------- -------------------
OPERATING DATA:
<S> <C> <C> <C>
Total revenue...................................... $ 185,554 $ 76,493 $ 11,095
Income before minority interests and extraordinary
item.............................................. 3,769 44,813 7,064
Income before extraordinary item................... 382 37,991 6,096
Net (loss) income.................................. $ (2,152) $ 37,991 $ 5,359
PER SHARE DATA (1):
Basic earnings per share:
Income (loss) before extraordinary item........... $ 0.01 $ 1.07 $ 0.21
Extraordinary item, net of minority interests..... (0.05) -- (0.03)
----------- ---------- ----------
Net income (loss) per common share................ $ (0.04) $ 1.07 $ 0.18
=========== ========== ==========
Diluted Earnings Per Share......................... $ (0.04) $ 1.06 $ 0.18
=========== ========== ==========
Dividends per common share (2)..................... $ 1.1675 $ 0.9825 $ 0.24
=========== ========== ==========
</TABLE>
WYNHDAM INTERNATIONAL
SELECTED CONDENSED CONSOLIDATED HISTORICAL FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
DECEMBER 31,
1997
-----------------
OPERATING DATA:
<S> <C>
Total Revenue................................................................................. $ 204,134
Income before income tax provision and minority interests..................................... 373
Net loss...................................................................................... $ (20)
PER SHARE DATA (1):
Basic earnings per share...................................................................... $ --
=================
Diluted earnings per share.................................................................... $ --
=================
Dividends per common share (2)................................................................ $ --
=================
</TABLE>
See accompanying notes on following page.
22
<PAGE>
NOTES TO PATRIOT AND WYNDHAM INTERNATIONAL SELECTED FINANCIAL INFORMATION
(1) On January 30, 1997, the Old Patriot Board of Directors declared a 2-for-1
stock split effected in the form of a stock dividend 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 Wyndham
International declared a 1.927-for-1 stock split on their 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 the Paired Shares
and options to purchase Paired Shares have been restated to reflect the
impact of the Cal Jockey Merger and the above-described stock splits, as
applicable.
In addition, 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. The weighted average number of shares and
earnings per share amounts presented herein have been restated to reflect
the impact of Statement 128.
(2) Dividends paid for the year ended December 31, 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 Wyndham
International for the six months ended December 31, 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 ("FFO") 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 FFO on the same basis. Patriot and
Wyndham International have also made certain adjustments to FFO for real
estate related amortization expense and the write off of certain costs of
acquiring leaseholds. FFO 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. FFO 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 FF&E) and to pay real
estate and personal property taxes and casualty insurance. Management
believes that FFO is helpful to investors as a measure of 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 Wyndham International to
incur and service debt and to make capital expenditures.
(4) Cash available for distributions represents FFO, 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 limited partnership units of the Operating Partnerships ("OP
Units") used in the calculation is based on the equivalent number of Paired
Shares issuable upon redemption (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).
23
<PAGE>
ITEM 7. MANAGEMENTS' DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Certain statements in this Form 10-K constitute "forward-looking
statements" as that term is defined under the Private Securities Litigation
Reform Act of 1995 (the "Act"). The words "believe", "expect", "anticipate",
"intend", "estimate" and other expressions which are predictions of or indicate
future events and trends and which do not relate to historical matters identify
forward-looking statements. Readers are cautioned not to place undue reliance on
these forward-looking statements and to note that they speak only as of the date
hereof. Although forward-looking statements reflect management's good faith
beliefs, reliance should not be placed on forward-looking statements because
they involve known and unknown risks, uncertainties and other factors, which may
cause the actual results, performance or achievement of the Companies to differ
materially from anticipated future results, performance or achievements
expressed or implied by such forward-looking statements. The Companies undertake
no obligation to publicly update or revise any forward-looking statement,
whether as a result of new information, future events or otherwise. Certain
factors that might cause a difference include, but are not limited to, risks
associated with the Companies' rapid growth and its ability to integrate its
existing operations, departments and systems with those acquired in the Wyndham
Merger and the WHG Merger and those being acquired in the Interstate Merger;
risks associated with the adoption of legislation, regulations or administrative
interpretations which could adversely affect the Companies' paired share
structure; Patriot's dependence upon rental payments from Wyndham International
and the Lessees for substantially all of Patriot's income and the dependence
upon the abilities of Wyndham International, the Lessees and the Operators (as
such terms are defined herein) to manage the hotels; risks associated with the
hotel industry and real estate markets in general; and risks associated with
debt financing.
BACKGROUND
ORGANIZATION
The entity formerly known as Patriot American Hospitality, Inc.
(collectively with its subsidiaries, "Old Patriot"), a Virginia corporation, was
formed April 17, 1995 as a self-administered real estate investment trust
("REIT") for the purpose of acquiring equity interests in hotel properties. On
October 2, 1995, Old Patriot completed an initial public offering (the "Initial
Offering") of 29,210,000 shares of its common stock and commenced operations.
On July 1, 1997, Old Patriot merged with and into California Jockey Club
("Cal Jockey"), with Cal Jockey being the surviving legal entity (the "Cal
Jockey Merger"). Cal Jockey's shares of common stock are paired and trade
together with the shares of common stock of Bay Meadows Operating Company ("Bay
Meadows") as a single unit pursuant to a stock pairing agreement. In connection
with the Cal Jockey Merger, Cal Jockey changed its name to "Patriot American
Hospitality, Inc." ("Patriot") and Bay Meadows changed its name to "Patriot
American Hospitality Operating Company" (collectively with its subsidiaries,
"Patriot Operating Company"). Subsequent to year end, as a result of the merger
of Wyndham Hotel Corporation with and into Patriot as discussed below, Patriot
Operating Company changed its name to Wyndham International, Inc. and is
referred to herein, collectively with its subsidiaries, as "Wyndham
International". The term "Companies" as used herein includes Patriot, Wyndham
International and their respective subsidiaries.
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. Consequently, the historical financial information of Old Patriot
became the historical financial information for Patriot. For accounting
purposes, Wyndham International commenced its operations concurrent with the
closing of the Cal Jockey Merger on July 1, 1997. The financial statements have
been adjusted for the purchase method of accounting whereby the Bay Meadows
Racecourse ("Racecourse") facilities and related leasehold improvements owned by
Cal Jockey and Bay Meadows have been adjusted to estimated fair market value.
The excess purchase consideration over the estimated fair market value of the
assets acquired and the liabilities assumed was recorded as goodwill.
By operation of the Cal Jockey Merger, each issued and outstanding share of
common stock, no par value per share of Old Patriot ("Old Patriot Common Stock")
was converted into 0.51895 shares of common stock, par value $0.01 per share of
Patriot ("Patriot Common Stock") and 0.51895 shares of common stock, par value
$0.01 per share of Wyndham International ("Wyndham International Common Stock"),
which shares are paired and transferable only as a single unit (collectively,
shares of Patriot Common Stock and shares of Wyndham International Common Stock
are referred to herein as the "Paired Shares"). Each paired share of Cal
Jockey and
24
<PAGE>
Bay Meadows common stock remained outstanding and represented the same number of
Paired Shares of Patriot Common Stock and Wyndham International Common Stock.
In connection with the Cal Jockey Merger, Bay Meadows formed an operating
partnership, Patriot American Hospitality Operating Company Partnership, L.P.
(the "OpCo Partnership") into which Bay Meadows contributed its assets in
exchange for units of limited partnership interest ("OP Units") of the OpCo
Partnership, and Cal Jockey contributed certain of its assets to Patriot
American Hospitality Partnership, L.P. (the "REIT Partnership") in exchange for
OP Units of the REIT Partnership (collectively, the OpCo Partnership and the
REIT Partnership are referred to herein as the "Patriot Partnerships").
Subsequent to completion of the Cal Jockey Merger and the transactions
contemplated by the Cal Jockey Merger Agreement, substantially all of the
operations of Patriot and Wyndham International have been conducted through the
Patriot Partnerships and their subsidiaries.
In connection with the Cal Jockey Merger, Patriot and Wyndham International
increased the total number of shares authorized. The amounts of authorized
shares of Patriot and Wyndham International are as follows: (i) 100 million
shares of preferred stock, (ii) 650 million shares of common stock, and (iii)
750 million shares of excess stock (as defined in the amended and restated
charters of Patriot and Wyndham International).
THE COMPANIES
As of December 31, 1997, Patriot, through the REIT Partnership, PAH
Ravinia, Inc. ("PAH Ravinia"), PAH Windwatch, L.L.C. ("PAH Windwatch") and other
subsidiaries, owned interests in 91 hotels with an aggregate of over 23,300
guest rooms. The hotels are diversified by franchise or brand affiliation and
serve primarily major U.S. business centers, including Atlanta, Boston, Chicago,
Cleveland, Dallas, Denver, Houston, Los Angeles, Miami, Minneapolis, New York,
San Diego, 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 and prominent hotels in major tourist
destinations. The hotels include 81 full service hotels, five resort hotels,
four limited service hotels and an executive conference center. All but four of
the hotels are operated under franchise or brand affiliations with nationally
recognized hotel companies.
Patriot leases each of its hotels, except the Crowne Plaza Ravinia Hotel
and the Wyndham WindWatch Hotel, which are separately owned through special
purpose entities, to Wyndham International or to third party lessees (the
"Lessees") who are responsible for operating the hotels. As of December 31,
1997, 55 hotels were leased to Wyndham International and its affiliates and 34
hotels were leased to the Lessees. Patriot leased 17 of its hotel investments to
CHC Lease Partners for staggered terms of ten to twelve 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
"Participating Leases"). Twelve of the hotels were leased to NorthCoast Hotels,
L.L.C. ("NorthCoast Lessee") under similar Participating Lease agreements. In
addition, DTR North Canton, Inc. (the "Doubletree Lessee") leased four hotels;
and Metro Hotels Leasing Corporation ("Metro Lease Partners") leased one hotel
under similar Participating Lease agreements. The Lessees, in turn, have entered
into separate agreements with hotel management entities (the "Operators") to
manage the hotels. The Crowne Plaza Ravinia Hotel and the Wyndham WindWatch
Hotel acquisitions were structured without lessees and are managed directly by
Operators (as of December 31, 1997, Holiday Inns, Inc. and Wyndham Hotel
Corporation, respectively). Wyndham International manages 31 of its hotels
through certain of its hotel management subsidiaries and has entered into
separate management agreements with hotel Operators to manage 24 of its hotels.
In addition to leasing and managing hotels, Wyndham International 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, Wyndham International 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.
INVESTMENTS IN PROPERTIES
During the year ended December 31, 1997, Patriot acquired 41 hotels and
four resort properties for approximately $1.3 billion. These acquisitions were
financed primarily with funds drawn on the Companies'
25
<PAGE>
revolving credit facility (and, prior to the Cal Jockey Merger, Old Patriot's
line of credit facility), a $350 million term loan, the issuance of 5,629,172 OP
Units valued at approximately $130 million, the issuance of 1,719,535 Paired
Shares valued at approximately $38.5 million, the placement of approximately
$237 million in new mortgage debt and the assumption of other mortgage debt in
the amount of approximately $34.3 million.
In July 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
Incorporated ("PaineWebber") for a purchase price of approximately $80.9 million
(the "PaineWebber Land Sale"). 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 1997, six suitable hotels were
acquired using the proceeds from this restricted account. Patriot retained
ownership of the improvements located on the land, including the Racecourse and
its related facilities.
Simultaneous 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.
Patriot has subleased the Racecourse land and leased the related improvements to
Wyndham International in order to permit Wyndham International 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 connection with the sale, Patriot assigned
substantially all of its rights and benefits under existing leases, contracts,
permits and entitlements relating to the land sold to the PaineWebber affiliate,
and the PaineWebber affiliate assumed substantially all of Patriot's development
obligations including, but not limited to, all obligations for on and off-site
improvements and all obligations under existing lease and contracts. Pursuant to
the agreement, Patriot is obligated to fund up to $10.25 million of development
costs for new stables ($4 million of which Patriot has funded). The parties
have the option to renew such leases upon their expiration under certain
circumstances.
In August 1997, Wyndham International 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 approximately $23.75
million in cash. The Buena Vista Palace Hotel was owned by a joint venture
between Equitable Life Insurance Company, which owns a 55% interest and Hotel
Venture Partners, Ltd., a Florida limited partnership ("HVP"), which owns a 45%
interest. The loan is subordinated to a ground lease and a $50.3 million first
leasehold mortgage loan. Patriot acquired an aggregate 95% equity interest in
the hotel in January 1998 (see discussion below in "1998 Acquisitions and
Mergers").
In June 1997, Patriot loaned approximately $20.5 million to a partnership
affiliated with members of CHC Lease Partners relating to the Doubletree Hotel
in Glenview, Illinois. In July 1997, Patriot loaned approximately $25.6 million
to another partnership affiliated with members of CHC Lease Partners, relating
to the Sheraton Gateway Hotel in Miami (also known as the Sheraton River House
Hotel). Additionally, Patriot purchased two additional loans from a financial
institution on which partnerships affiliated with the members of CHC Lease
Partners were borrowers for an aggregate purchase price of $57 million. Each of
the four mortgage loans is secured by first priority liens on the respective
hotels. In connection with such loans, Patriot entered into a short-term
financing arrangement (the "Paine Webber Mortgage Financing") with an affiliate
of Paine Webber Real Estate Securities, Inc. ("Paine Webber Real Estate")
whereby such affiliate loaned Patriot $103 million to fund these transactions.
In September and October 1997, Patriot, through the REIT Partnership and certain
other subsidiaries, acquired the partnerships that own these four hotels.
BUSINESSES ACQUIRED
In August 1997, the 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 leased three hotels from Patriot
(the "Grand Heritage Acquisition"). The total purchase price for the Grand
Heritage Acquisition was approximately $22.5 million which was financed
primarily through the issuance of 931,972 Class A preferred OP Units of the OpCo
Partnership. Grand Heritage Hotels, Inc., directly and through certain of its
subsidiaries, owns 17 management contracts, five of which are related to hotels
leased by Wyndham International.
Effective September 1, 1997, Patriot acquired the leasehold interests
related to seven Patriot hotels which were previously leased by CHC Lease
Partners and re-leased such hotels to Wyndham International. Prior to such
acquisition, the management contracts with GAH-II, L.P. ("GAH"), an affiliate of
CHC International, Inc. ("CHCI") and the Gencom American Hospitality group of
companies ("Gencom"), along with the leaseholds related to the
26
<PAGE>
seven hotels were terminated. In a related transaction effective October 1,
1997, Patriot acquired one additional leasehold interest related to a Patriot
hotel previously leased to CHC Lease Partners and re-leased such hotel to
Wyndham International (and the hotel's management contract with CHCI was also
terminated prior to the acquisition). The aggregate purchase price of the eight
leasehold interests was approximately $52.8 million. Concurrently, Wyndham
International purchased an approximate 50% managing, controlling ownership
interest in GAH from affiliates of Gencom for a purchase price of approximately
$13.9 million. These transactions were financed with approximately $644,000 of
cash, and by issuing 2,388,932 paired OP Units of the REIT Partnership and the
OpCo Partnership and 476,682 preferred OP Units of the OpCo Partnership.
GAH, directly and through certain of its subsidiaries, owns 16 third-party
management contracts, and certain other hospitality management assets.
Concurrent with Wyndham International's purchase of its controlling interest in
GAH, Wyndham International also entered into a Hospitality Advisory, Asset
Management and Support Services Agreement with CHCI and GAH whereby Wyndham
International will provide certain hospitality advisory, asset management and
support services to certain CHCI and GAH subsidiaries for base fee aggregating
approximately $750,000 per month plus a percentage of excess cash flows of the
hotels.
STOCK SPLIT
On January 30, 1997, the Board of Directors of Old Patriot declared a
2-for-1 stock split on its shares of common stock effected in the form of a
stock dividend distributed on March 18, 1997 to shareholders of record on March
7, 1997.
On July 10, 1997, the respective Boards of Directors of Patriot and Wyndham
International 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
shareholders of record on July 15, 1997.
Unless otherwise indicated, all references herein 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 to reflect the impact of the 1.927-for-1 stock split. In
addition, all references herein 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 Old Patriot's 2-for-1 stock split distributed in March 1997
have been restated to reflect the impact of such stock split.
As a result of Old Patriot's 2-for-1 stock split in March 1997, the Cal
Jockey Merger and the 1.927-for-1 stock split in July 1997, the number of OP
Units outstanding and the OP Unit conversion factor has been adjusted to
re-establish a 1-for-1 exchange ratio of OP Units to common shares.
PATRIOT AMERICAN HOSPITALITY, INC.
Results of Operations: Quarter Ended December 31, 1997
Compared with Quarter Ended December 31, 1996
Patriot's Participating Lease revenue from the Lessees (including Wyndham
International) for the three months ended December 31, 1997, increased 159% from
$23,158,000 in 1996 to $59,889,000 in 1997. This increase is primarily due to
the acquisition of 45 hotel properties during 1997. Patriot owns 91 hotel
properties as of December 31, 1997 including two hotels that are separately
owned through special purpose entities. Interest and other income increased from
$188,000 in 1996 to $888,000 in 1997 which is primarily attributable to
additional investments in mortgage notes receivable and interest and dividend
income earned on cash investments. Additionally, for the three months ended
December 31, 1997, Patriot reported $1,469,000 of income related to the lease of
the Racecourse facility and land to Wyndham International.
For the three months ended December 31, 1997 as compared to the same period
for 1996, Patriot experienced similar increases in expenses as a result of the
acquisition of hotels discussed above.
27
<PAGE>
General and administrative expenses were $3,575,000 for the three months
ended December 31, 1997, compared to $1,227,000 for 1996. General and
administrative expenses include the amortization of unearned stock compensation
of $1,374,000 for 1997 and $438,000 for 1996. Additionally, Patriot incurred
expenses of $90,000 in 1997 (none in 1996) associated with evaluating properties
and companies to be acquired which were ultimately not purchased.
Ground lease expense increased from $364,000 to $2,124,000 for the three
months ended December 31, 1996 compared to the same period in 1997 as a result
of acquisition of properties subject to existing ground leases.
Real estate and personal property taxes and casualty insurance were
$6,739,000 for the three months ended December 31, 1997, compared to $2,698,000
for the three months ended December 31, 1996.
Interest expense for the three months ended December 31, 1997 was
$19,023,000 compared to $2,899,000 in 1996. Patriot's outstanding debt
obligations as of December 31, 1997 and 1996 were approximately $1,112,337,000
and $214,339,000, respectively. The primary components of interest expense for
the three months ended December 31, 1997 are $10,325,000 of interest related to
the Revolving Credit Facility and Term Loan, $6,419,000 of interest on mortgage
notes and the Old Line of Credit, $1,416,000 of amortization of deferred
financing costs and $863,000 of other interest related to other miscellaneous
notes and commitments payable. Interest expense for the three months ended
December 31, 1996 consists primarily of $2,587,000 of interest on the Old Line
of Credit, $158,000 of amortization of deferred financing costs and $154,000 of
other interest related to other miscellaneous notes and commitments payable.
Additionally, Patriot capitalized interest totaling $1,064,000 and $91,000 for
the three months ended December 31, 1997 and 1996, respectively, associated with
major renovations of certain hotel properties.
In connection with Patriot's acquisition of eight leasehold interests in
1997 for hotels that Patriot owns and leased to CHC Lease Partners, Patriot
recognized expense of $10,679,000 related to the cost of acquiring these
leasehold interests.
Depreciation and amortization expense was $18,413,000 for the three months
ended December 31, 1997 compared to $5,792,000 for the same period in 1996.
Patriot's share of income from unconsolidated subsidiaries was $1,527,000
for the fourth quarter of 1997 compared to $1,468,000 for the fourth quarter of
1996.
Minority's interest share of income in the REIT Partnership was $519,000
and $1,625,000 for the three months ended December 31, 1997 and 1996,
respectively. Minority's interest share of income in Patriot's other
consolidated subsidiaries was $306,000 for the fourth quarter of 1997 and
$53,000 for the fourth quarter of 1996.
As a result, the net income applicable to common shareholders was
$2,395,000 for the three months ended December 31, 1997 and $10,156,000 for the
three months ended December 31, 1996.
Results of Operations: Year Ended December 31, 1997
Compared with Year Ended December 31, 1996
Patriot's Participating Lease revenue from the Lessees (including Wyndham
International) for the year ended December 31, 1997 increased 134% from
$75,893,000 in 1996 to $177,659,000 in 1997. This increase is primarily due to
the acquisition of 45 hotel properties during 1997. Patriot owns 91 hotel
properties as of December 31, 1997 including two hotels that are separately
owned through special purpose entities. Interest and other income increased
from $600,000 in 1996 to $5,103,000 in 1997 which is primarily attributable to
additional investments in mortgage notes receivable and interest and dividend
income earned on cash investments. Additionally for the year ended December 31,
1997, Patriot reported $2,792,000 of income related to the lease of the
Racecourse facility and land to Wyndham International.
For the year ended December 31, 1997 as compared to the same period for
1996, Patriot experienced similar increases in expenses as a result of the
acquisition of hotels discussed above.
General and administrative expenses were $11,157,000 for the year ended
December 31, 1997, compared to $4,500,000 for 1996. General and administrative
expenses include the amortization of unearned stock
28
<PAGE>
compensation of $4,686,000 for 1997 and $1,068,000 for 1996. Additionally,
Patriot incurred expenses of $1,068,000 in 1997 and $173,000 in 1996 associated
with evaluating properties and companies to be acquired which were ultimately
not purchased.
Ground lease expense increased from $1,075,000 to $4,117,000 for the year
ended December 31, 1996 compared to the same period in 1997.
Real estate and personal property taxes and casualty insurance were
$17,958,000 for the year ended December 31, 1997, compared to $7,150,000 for the
year ended December 31, 1996.
Interest expense for the year ended December 31, 1997 was $51,000,000
compared to $7,380,000 in 1996. Patriot's outstanding debt obligations as of
December 31, 1997 and 1996 were approximately $1,112,337,000 and $214,339,000,
respectively. The primary components of interest expense for the year ended
December 31, 1997 are $33,750,000 of interest related to the Revolving Credit
Facility and Term Loan, $12,585,000 of interest on mortgage notes and the Old
Line of Credit, $2,581,000 of amortization of deferred financing costs and
$2,084,000 of other interest related to other miscellaneous notes and
commitments payable. Interest expense for the year ended December 31, 1996
consists primarily of $6,755,000 of interest on the Old Line of Credit, $431,000
of amortization of deferred financing costs and $194,000 of other interest
related to other miscellaneous notes and commitments payable. Additionally,
Patriot capitalized interest totaling $2,562,000 and $91,000 for the year ended
December 31, 1997 and 1996, respectively, associated with major renovations of
certain hotel properties.
In connection with Patriot's acquisition of eight leasehold interests in
1997 for hotels that Patriot owns and leased to CHC Lease Partners, Patriot
recognized expense of $54,499,000 related to the cost of acquiring these
leasehold interests.
Depreciation and amortization expense was $49,069,000 for the year ended
December 31, 1997, compared to $17,420,000 for the same period in 1996.
Patriot's share of income from unconsolidated subsidiaries was $6,015,000
for the year ended December 31, 1997, compared to $5,845,000 in 1996.
Minority's interest share of income in the REIT Partnership was $1,713,000
and $6,767,000 for the year ended December 31, 1997 and 1996, respectively.
Minority's interest share of income in Patriot's other consolidated subsidiaries
was $1,674,000 in 1997 and $55,000 in 1996.
Concurrent with the repayment of the Old Line of Credit, Patriot wrote off
the remaining balance of unamortized deferred financing costs associated with
the Old Line of Credit in the amount of $2,910,000. This amount, net of
$376,000 of minority interest share of the net loss, has been reported as an
extraordinary item.
As a result, net loss was $2,152,000 for the year ended December 31, 1997,
compared to net income of $37,991,000 for the year ended December 31, 1996.
Results of Operations: Year Ended December 31, 1996
Compared with the Period October 2, 1995 (inception of operations) through
December 31, 1995
Old Patriot completed its initial public offering of common stock on
October 2, 1995 and commenced operations with the acquisition of 20 hotels.
Because 1995 was a short fiscal year for Patriot, the operating results for the
year ended December 31, 1996 are not directly comparable to 1995. For the year
ended December 31, 1996, Patriot's Participating Lease revenue from the Lessees
was $75,893,000, compared $10,582,000 in 1995. Interest and other income was
$600,000 for the year ended December 31, 1996, compared to $513,000 in 1995. In
1995, interest and other income consisted primarily of interest earned on
invested cash balances resulting from the net proceeds of the initial public
offering.
For the year ended December 31, 1996 as compared to the period October 2,
1995 (inception of operations) through December 31, 1995, Patriot experienced
similar increases in expenses as a result of the short fiscal year for Patriot
in 1995, as discussed above.
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General and administrative expenses were $4,500,000 for the year ended
December 31, 1996, compared to $607,000 for 1995. General and administrative
expenses include the amortization of unearned stock compensation of $1,068,000
for 1996 and $71,000 for 1995.
Ground lease expense totaled $1,075,000 in 1996 (none in 1995). Real
estate and personal property taxes and insurance was $7,150,000 for 1996,
compared to $901,000 for 1995
Patriot reported $7,380,000 of interest expense for the year ended December
31, 1996, compared to $89,000 in 1995. Patriot's outstanding debt obligations as
of December 31, 1996 and 1995 were approximately $214,339,000 and $9,500,000,
respectively. Interest expense in 1996 consisted primarily of $6,755,000 of
interest incurred on the Revolving Credit Facility, the Old Line of Credit and
mortgage note balances outstanding and $431,000 of amortization of deferred
financing costs. Interest expense in 1995 consisted of $62,000 of interest
incurred on the Old Line of Credit balance and $27,000 of amortization of
deferred financing costs.
Depreciation and amortization expense was $17,420,000 for 1996, compared to
$2,590,000 for 1995.
Patriot's share of income from unconsolidated subsidiaries was $5,845,000
in 1996, compared to $156,000 in 1995.
Minority interest's share of income of the REIT Partnership was $6,767,000
for the year ended December 31, 1996, compared to $968,000 in 1995. Minority
interest's share of income of other consolidated Patriot subsidiaries was
$55,000 for 1996 (none in 1995).
Patriot reported extraordinary losses in 1995 totaling $737,000 (net of the
minority interest share of the loss) related to the pay-off of assumed mortgage
debt on hotel properties acquired.
As a result, net income was $37,991,000 for the year ended December 31,
1996, compared to net income of $5,359,000 for the period October 2, 1995
(inception of operations) through December 31, 1995.
WYNDHAM INTERNATIONAL, INC.
As of December 31, 1997, Wyndham International (formerly known as Patriot
Operating Company, or, prior to the Cal Jockey merger, Bay Meadows) leases 55
hotels from Patriot, managing 31 of those hotels, and manages 12 hotels for
third parties. In addition, Wyndham International operates the Bay Meadows
Racecourse. Subsequent to the Cal Jockey Merger in July 1997, the major portion
of the revenues of Wyndham International and Patriot have been derived from the
leasing and operation of hotels.
Results of Operations: Six Months Ended December 31, 1997
Concurrent with the closing of the Cal Jockey Merger, Wyndham International
began leasing four hotels from the REIT Partnership and commenced its hotel
management operations on July 1, 1997. During the remainder of the period
Wyndham International acquired the leases for 51 additional Patriot hotels. In
addition, Wyndham International acquired the hotel management operations of
Grand Heritage Hotels, Inc. and an approximate 50% controlling ownership
interest in GAH.
For the six months ended December 31, 1997, Wyndham International had room
revenues of $95,095,000 from the 55 hotels it leased during the period. Food
and beverage and telephone and other revenues were $72,632,000 for the period.
In addition, Wyndham International reported management fee and service fee
income of $7,088,000 for the six months ended December 31, 1997. Interest and
other income for the period includes $1,103,000 of interest income related to
the Subscription Notes.
Participating Lease payments and hotel operating expenses were $50,626,000
and $121,184,000, respectively. Direct operating costs of the management
company and service department were $1,216,000 for the period.
Total revenues from the Racecourse facility operations (including interest
and other income) were $26,344,000 for the six months ended December 31, 1997.
Total costs and expenses associated with the Racecourse
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operations (including marketing costs, general and administrative expenses and
depreciation and amortization expenses) were $24,245,000 for the six months
ended December 31, 1997.
Minority interest's share of loss in the OpCo Partnership was $29,000 for
the six months ended December 31, 1997. Minority interest's share of loss in
Wyndham International's other consolidated subsidiaries was $59,000 in 1997.
As a result, the net loss was $20,000 for the six months ended December 31,
1997.
STATISTICAL INFORMATION
During 1997, Patriot's portfolio of 91 owned hotels experienced strong
growth in both average daily rate ("ADR") and revenue per available room
("REVPAR") of approximately 8.9_% and 7.2%, respectively, while occupancy
remained relatively stable. Management attributes this growth to continued
marketing efforts throughout the portfolio on hotels that have been newly
renovated, and repositioned in certain cases, as well as to the current strength
of market conditions in the U.S. lodging industry. The following table sets
forth certain statistical information for Patriot's 91 owned hotels as of
December 31, 1997 and 1996 as if the hotels were owned at the beginning of the
periods presented.
<TABLE>
<CAPTION>
Occupancy ADR REVPAR
---------------------- --------------------------- --------------------------
1997 1996 1997 1996 1997 1996
-------- -------- --------- --------- -------- ---------
<S> <C> <C> <C> <C> <C> <C>
Hotels owned and leased to Wyndham
International........................ 69.7% 70.0% $ 103.58 $ 94.61 $ 72.20 $ 66.18
Hotels leased to third party Lessees.. 67.8 70.0 84.68 78.32 57.43 55.15
Unconsolidated subsidiaries........... 69.3 73.0 116.57 113.22 80.76 82.60
-------- -------- --------- --------- -------- ---------
Weighted average..................... 61.9% 70.2% $ 98.28 $ 90.22 $ 67.91 $ 63.34
</TABLE>
COMBINED LIQUIDITY AND CAPITAL RESOURCES
CASH FLOW PROVIDED BY OPERATING ACTIVITIES
The Companies' principal source of cash to fund operating expenses and
distributions to its shareholders is cash flow provided by operating activities.
Patriot's principal source of revenue is rent payments from the Lessees and
Wyndham International under the Participating Leases. Wyndham International's
principal source of cash flow is from the operation of the hotels it leases. The
Lessees' and Wyndham International's ability to make the rent payments to
Patriot is dependent upon their ability to efficiently manage the hotels and
generate sufficient cash flow from operation of the hotels.
Combined cash and cash equivalents as of December 31, 1997 were $47.4
million, including capital improvement reserves of $5 million. Combined cash
flows from operating activities of the Companies were $108.1 million for the
year ended December 31, 1997, which represent a combination of the collection of
rents under Participating Leases with third party Lessees and cash flows
generated by the hotels operated by Wyndham International.
Cash and cash equivalents for Patriot as of December 31, 1996 was $6.6
million, including capital improvement reserves of $2.5 million. Cash flows
from operating activities of Patriot were $61.2 million for the year ended
December 31, 1996, which primarily represent the collection of rents under
Participating Leases.
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CASH FLOWS FROM INVESTING AND FINANCING ACTIVITIES
During 1997, the Companies continued to experience rapid growth through the
merger and acquisition of hotel properties and management companies. These
transactions were funded with a combination of issuance and or assumption of
debt as well as sale of registered and unregistered securities.
Combined cash flows used in investing activities of the Companies were $1.2
billion for the year ended December 31, 1997, resulting primarily from the
merger and acquisition of hotel properties and management companies and the
renovation expenditures at certain hotels. Combined cash flows from financing
activities of $1.1 billion for the year ended December 31, 1997 were primarily
related to borrowings on the Revolving Credit Facility, the Term Loan and
mortgage notes and net proceeds from public and private placement of equity
securities, net of payments of dividends and distributions.
Patriot's cash flows used in investing activities were $419.7 million for
the year ended December 31, 1996, resulting primarily from the acquisition of
hotel properties. Cash flows from Patriot's financing activities of $360.3
million for the year ended December 31, 1996 were primarily related to
borrowings on the Old Line of Credit and net proceeds from public and private
placement of equity securities, net of payments of dividends and distributions.
On July 21, 1997, the Companies entered into a revolving credit facility
with Paine Webber Real Estate, The Chase Manhattan Bank ("Chase") and certain
other lenders for a 3-year unsecured revolving line of credit (the "Revolving
Credit Facility"). The original Revolving Credit Facility commitment was in the
amount of $700 million. In December 1997, the credit agreement was amended and
the commitment amount was increased to $900 million. 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 may also be used for 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 1.0% to 2.0% (depending on the Companies'
leverage ratio or investment grade ratings 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 Companies' leverage ratio). The weighted average interest
rate in effect for the Revolving Credit Facility for the period ended December
31, 1997 was 7.63% per annum.
In December 1997, Patriot entered into a $350 million unsecured term loan
(the "Term Loan") with Paine Webber Real Estate and Chase which matures January
31, 1999. The Term Loan was used to finance payments made in connection with the
acquisition of certain properties and has an interest rate equal to the interest
rate on the Revolving Credit Facility.
The Companies have entered into three interest rate swap arrangements to
swap floating rate LIBOR-based interest rates for fixed rate interest amounts as
a hedge against $375 million of the Revolving Credit Facility and Term Loan.
Each of the interest rate swaps covers $125 million of borrowings under the
Revolving Credit Facility and fixes the LIBOR portion of the Revolving Credit
Facility interest rate at 6.09%, 6.255%, and 6.044%, respectively. The interest
rate swap arrangements expire November 2002.
In August 1997, the Companies completed a public offering of 10,580,000
Paired Shares of common stock (including 1,380,000 Paired Shares issued upon
exercise of the underwriters' over-allotment option). The net proceeds of this
offering (less the underwriters' discount and expenses) of approximately $209.8
million were used primarily to reduce the outstanding debt under the Revolving
Credit Facility.
On November 7, 1997, Patriot entered into two forward sale transactions
with The Chase Manhattan Bank in the aggregate principal amount of $275 million.
The terms of the transactions provide that on June 2, 1998, either Chase will be
obligated to pay Patriot or Patriot will be obligated to pay Chase a cash
settlement amount based on the then current yield on 10-year U.S. Treasury
Notes. The forward sale transactions cover principal amounts of $175 million
with a forward yield of 6.0% and $100 million with a forward yield of 5.995%.
If the index price of the securities on June 1, 1998 is greater than the
"Forward Price" (which is to be calculated based on the forward yield rate and
the economic variables applicable to 10-year U.S. Treasury Notes), Patriot will
be obligated to pay Chase a cash settlement amount based on the spread between
the index price and the Forward Price times the principal amount. If the index
price is less than the Forward Price, Chase will be obligated to pay Patriot a
cash settlement amount based on the spread between the index price and the
Forward Price times the principal amount.
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<PAGE>
On November 13, 1997, pursuant to a letter agreement dated September 30,
1997, the 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 $27.7 million. In addition, pursuant to
a letter agreement dated September 30, 1997, the Companies sold 1,000,000 paired
shares to LaSalle Advisors Limited Partnership ("LaSalle"), as agent for certain
clients of LaSalle (the "LaSalle Direct Placement"), at a purchase price per
paired share of $27.625, or aggregate consideration of $27.6 million.
On September 30, 1997, the 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 December 31, 1997, the Companies sold 3,250,000 unregistered Paired
Shares to UBS Limited, an English corporation, for a purchase price per Paired
Share of $28.8125, or aggregate consideration of approximately $93.6 million. In
connection with this private placement, the Companies also entered into an
agreement with Union Bank of Switzerland, London Branch ("UBS") which provides
for an adjustment of the purchase price of the Paired Shares as of a specific
date. Because the Companies must periodically increase their equity base to
maintain financial flexibility and continue with their growth strategy,
management may utilize private placements of equity, in conjunction with a price
adjustment mechanism, as a means for the Companies to raise capital, while also
retaining the opportunity to adjust the pricing of the equity issuance during
the term of the agreement. The price adjustment agreement with UBS provides that
if the aggregate return on the 3,250,000 Paired Shares issued does not exceed
the calculated forward yield (which is based upon the three-month LIBOR rate
plus 1.40%) as measured from time to time, the Companies will be required to
issue to UBS additional Paired Share with a market value equivalent to the yield
deficiency. Conversely, if the aggregate return on the issued shares is in
excess of the calculated forward yield, a portion of the Paired Shares
originally issued by the Companies will be returned. In addition, the Companies
are required to register Paired Shares with the Securities and Exchange
Commission to settle its obligations under the agreement. Under certain market
conditions, UBS has the right to accelerate the settlement of all or a portion
of the transaction. The final settlement date is December 31, 1998. As of
December 31, 1997, the private placement of Paired Shares is accounted for as
equity and any subsequent adjustments in the share price will be reflected as an
adjustment to equity. Such early settlements may force the Companies to issue
Paired Shares at a depressed price to satisfy their obligation under the Forward
Contract. UBS-LB may also accelerate the settlement of the entire transaction
upon certain events of default under the Companies' indebtedness.
Additionally, in connection with a private placement of 4,900,000 Paired
Shares to NMS Services, Inc. ("NMS"), an affiliate of NationsBanc Montgomery
Securities LLC, the Companies entered into a Purchase Price Adjustment Mechanism
Agreement, dated as of February 26, 1998, with NMS (the "Price Adjustment
Agreement"), pursuant to which the parties agreed to adjust the purchase price
of the 4,900,000 Paired Shares on or prior to February 26, 1999 by the
difference between (i) the market price for the Paired Shares at the time of the
settlement and (ii) a reference price (the "Reference Price") based on the
closing price for the Paired Shares on February 25, 1998 plus a forward
accretion, minus an adjustment to reflect distributions on the Paired Shares
during the transaction period (such difference, the "Price Difference"). If the
Price Difference is positive, NMS agrees to deliver Paired Shares to the
Companies equal in value to the aggregate Price Difference. If the Price
Difference is negative, the Companies agree to deliver cash or additional Paired
Shares equal in value to the aggregate Price Difference to NMS. In the event
that the market price for the Paired Shares at the time of settlement is lower
than the Reference Price, the Companies will have to deliver cash or additional
Paired Shares to NMS, which would have diluting effects on the equity stock of
the Companies. Additionally, under certain adverse market conditions, NMS has
the right to accelerate the settlement of all or a portion of the obligation
under the Price Adjustment Agreement. Such early settlements may force the
Companies to issue Paired Shares at a depressed price, which may heighten the
diluting effects. NMS may also accelerate the settlement of the entire
transaction upon certain events of default under the Companies indebtedness.
Management believes that the Paired Shares have been undervalued in the
public markets since late 1997, primarily because of concerns regarding the
integration of the Companies' various acquisitions and possible legislative
action which may affect the paired share structure. Accordingly, management of
Patriot and Wyndham International has been generally unwilling to publicly issue
common equity at current price levels. Because the Companies must periodically
increase their equity base to maintain financial flexibility and continue their
growth strategy, management has utilized private placements of Paired Shares
coupled with price adjustment mechanisms as a means for the Companies to raise
needed equity capital, while also retaining the opportunity to re-price the
equity issuance during the term of the price adjustment agreement.
As of March 25, 1998, the Companies had approximately $815 million
outstanding under the Revolving Credit Facility and $350 million outstanding on
the Term Loan. As of such date, Patriot also had over $400 million of mortgage
debt outstanding that encumbered 23 hotels, resulting in total indebtedness of
approximately $1.6 billion. As of March 25, 1998, the availability of funds,
under the Revolving Credit Facility is approximately $75 million.
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<PAGE>
The Companies have obtained a commitment to amend the existing Revolving
Credit Facility to, among other things, provide approx. $1.45 billion in
additional financing. In addition, the Companies are evaluating other permanent
sources of capital, including the issuance of equity and long-term debt. It is
expected that additional common or preferred equity offerings will be used both
to acquire hotel properties and to limit the Companies' overall debt to market
capitalization ratio.
1998 ACQUISITIONS AND MERGERS
Wyndham Hotel Corporation
On April 14, 1997, Old Patriot entered into a merger agreement with Wyndham
Hotel Corporation ("Old Wyndham") which was later ratified by Patriot and
Wyndham International, (the "Wyndham Merger Agreement") which provided for the
merger of Old Wyndham with and into Patriot (the "Wyndham Merger"), with Patriot
being the surviving company. Concurrently, Old Patriot and CF Securities, L.P.
("CF Securities"), the principal stockholder of Old Wyndham, entered into a
stock purchase agreement (the "Stock Purchase Agreement"). The Merger Agreement
generally provided for the conversion of each outstanding share of common stock,
par value $0.01 per share, of Old Wyndham (the "Old Wyndham Common Stock"),
other than shares as to which the holder thereof elected to receive cash
(subject to proration), into the right to receive 1.372 Paired Shares (the
"Exchange Ratio"). The Wyndham Merger Agreement provided that, in lieu of
receiving Paired Shares in the Wyndham Merger, stockholders of Old Wyndham could
elect to receive cash (such election being referred to herein as a "Cash
Election" and such cash being referred to herein as "Cash Consideration") for
all or any portion of their shares of Old Wyndham Common Stock in an amount per
share equal to $42.80, subject to an aggregate availability of $100 million of
cash for all Cash Elections (including a Cash Election by CF Securities pursuant
to the Stock Purchase Agreement).
In November 1997, in connection with its merger with Patriot, Old Wyndham
commenced a fixed spread cash tender offer for all $100 million of its
outstanding 10 1/2% Senior Subordinated Notes due 2006 (the "Notes") and
commenced a solicitation of consents of a majority of the holders of the Notes
to eliminate or modify certain covenants and other provisions contained in the
indenture under which the Notes were issued. The purchase price for Notes
validly tendered and accepted for purchase was an amount based on a yield to the
first redemption date equal to a 75 basis point spread over the yield of the 6
1/2% U.S. Treasury Note due May 31, 2001 as of 3:00 p.m., EST, on the second
business day immediately preceding the expiration date of the tender offer, less
a consent payment of $20.00 per $1,000 principal amount. The tender offer
expired at Midnight, EST, on Friday, January 2, 1998.
On January 5, 1998, the Wyndham Merger was consummated. As a result of the
Wyndham Merger, Patriot acquired Old Wyndham's portfolio of owned, leased or
managed hotels consisting of 98 hotels operated by Old Wyndham (including 16
Patriot hotels which were managed by Old Wyndham), as well as eight franchised
hotels, which in the aggregate contain approximately 25,900 rooms. The total
purchase consideration of approximately $982 million consisted of 21,594,188
Paired Shares and 4,860,876 shares of Series A Convertible Preferred Stock of
Patriot (which are convertible on a one-for-one basis into Paired Shares), cash
of approximately $339 million to repay debt and pay Wyndham shareholders who
elected to receive cash (which was financed with funds drawn on the Revolving
Credit Facility), and the assumption of approximately $54 million in debt.
WHG Casinos & Resorts, Inc
On September 30, 1997, Patriot, Wyndham International and WHG Casinos &
Resorts Inc. ("WHG") entered into an Agreement and Plan of Merger (the "WHG
Merger Agreement") providing for the merger of a newly formed subsidiary of
Wyndham International with and into WHG with WHG being the surviving corporation
(the "WHG Merger"). On January 16, 1998, the WHG Merger was consummated. As a
result of the WHG Merger, Wyndham International acquired the 570-room Condado
Plaza Hotel & Casino, a 50% interest in the 389-room El San Juan Hotel & Casino
and a 23.3% interest in the 751-room El Conquistador Resort & Country Club (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 the El Conquistador. A total of
5,004,690 Paired Shares were issued in connection with the WHG Merger (valued at
approximately $138 million). In addition, Wyndham International assumed WHG's
outstanding debt of approximately $21.3 million.
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In January 1998, Patriot, through the REIT Partnership, acquired the
173-room Holiday Inn in Beachwood, Ohio for an aggregate purchase price of
approximately $14.5 million. In addition, Patriot acquired an aggregate 95%
equity interest in the Buena Vista Palace Hotel in Orlando, Florida for a total
purchase price of approximately $141.6 million, including the assumption of
approximately $50.3 million of indebtedness. As part of the agreement, Patriot
was also granted an option to acquire the remaining 5% equity interest in the
hotel.
POTENTIAL ACQUISITIONS
CHC International, Inc.
The Companies and CHC International, Inc. ("CHCI") have entered into an
Agreement and Plan of Merger dated as of September 30, 1997 (the "CHCI Merger
Agreement"), providing, subject to regulatory approvals, for the merger of the
hospitality-related businesses of CHCI with and into Wyndham International with
Wyndham International 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 second quarter of 1998. As a result of the CHCI Merger, Wyndham
International, 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,
leased by Wyndham International, 12 third-party management contracts, the Grand
Bay and Registry Hotels & Resorts proprietary brand names and certain other
hospitality management assets. Wyndham has also agreed to provide CHCI with a $7
million line of credit until such time as the CHCI Merger is completed. By
operation of the CHCI Merger, all issued and outstanding common stock of CHCI
will be exchanged for approximately 4,396,000 shares of Wyndham International
preferred stock, subject to certain adjustments.
Interstate Hotels Company
On December 2, 1997, Patriot, Wyndham International and Interstate Hotels
Company ("Interstate") entered into an Agreement and Plan of Merger (the
"Interstate Merger Agreement") providing for the merger of Interstate with and
into Patriot (the "Interstate Merger") with Patriot being the surviving company.
Pursuant to the Interstate Merger Agreement, stockholders of Interstate will
have the right to elect to convert each of their shares of Interstate common
stock into the right to receive either (i) $37.50 in cash, subject to proration
in certain circumstances (the "Interstate Cash Consideration"), or (ii) a number
of Paired Shares of Patriot and Wyndham common stock based on an exchange ratio
of 1.341 Paired Shares for each share of Interstate common stock not exchanged
for cash (the "Interstate Exchange Ratio"). After the elections are made by
stockholders of Interstate, proration will be used to ensure that 40% of the
outstanding shares of Interstate common stock will be converted into the right
to receive Interstate Cash Consideration and that the remaining 60% of the
outstanding shares of Interstate common stock will be converted into the right
to receive Paired Shares at the Interstate Exchange Ratio, subject to adjustment
in certain circumstances for the exercise of dissenters' rights. Patriot will
also assume or refinance all of Interstate's existing indebtedness, which
totaled approximately $800 million as of December 31, 1997. In addition,
Patriot will buy out or assume certain options to purchase Interstate common
stock held by certain Interstate employees and directors, and will assume
certain severance obligations in connection with the Interstate Merger. "The
special meetings of the stockholders of Patriot, Wyndham International and
Interstate at which approval of the Interstate Merger will be sought were
originally scheduled for March 30, 1998. On March 30, 1998, Patriot, Wyndham
International and Interstate each adjourned their respective stockholders'
meetings to April 2, 1998 at 1:00 p.m. (CST). Patriot, Wyndham International and
Interstate elected to convene and then adjourn their respective stockholders'
meetings without a formal vote so as to permit additional time to negotiate with
Marriott International, Inc. ("Marriott") relating to certain issues Marriott
has raised concerning Marriott-branded hotels owned by Interstate. While Patriot
and Marriott had entered into a non-binding letter agreement in December 1997
regarding these matters, on March 30, 1998, Marriott filed a lawsuit in the
United States District Court for the District of Maryland seeking to enjoin the
Interstate Merger until Interstate complies with certain rights of notification
and first refusal which Marriott alleges would be triggered by the Interstate
Merger."
On March 23, 1998, the Companies announced that Interstate shareholders
receiving Paired Shares in the Interstate Merger will be entitled to receive
Patriot's regular quarterly dividend of $0.32 per share for the first quarter of
1998 and will be entitled to participate with all other Patriot shareholders in
a special distribution of accumulated earnings and profits from Patriot's
acquisition of Old Wyndham.
Arcadian International PLC
On January 20, 1998, Patriot announced in the United Kingdom its intention
to proceed with a takeover of Arcadian International PLC ("Arcadian"), a company
listed on the London Stock Exchange, for cash consideration totaling (Pounds)92
million (or approximately $152 million at the exchange rate on February 5, 1998)
(the "Arcadian Acquisition"). Arcadian is an owner, developer and operator of
hotels in the United Kingdom and continental Europe. Arcadian's portfolio
currently includes 12 hotels with a total of approximately 724 rooms throughout
the United Kingdom, as well as interests held in joint ventures with third
parties. In connection with the Arcadian
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<PAGE>
Acquisition, Patriot will assume or refinance all of Arcadian's existing
indebtedness, which totaled approximately $77 million as of February 5, 1998.
Patriot has also entered into agreements with the shareholders of Malmaison
Limited ("Malmaison"), a joint venture in which Arcadian holds a 34.6% interest,
to acquire the remaining interests in Malmaison not currently owned by Arcadian
for an aggregate of approximately $58.1 million, including the assumption of
approximately $23.6 million of indebtedness (the "Malmaison Acquisition"). In
connection with the Malmaison Acquisition, Patriot expects to acquire (i) two
hotels currently owned by Malmaison and one hotel which Malmaison has agreed to
acquire and (ii) two additional hotels currently under development by Malmaison.
Golden Door Spa
In February 1998, the Companies signed a purchase contract to acquire the
Golden Door Spa in Escondido, California for a purchase price of approximately
$28 million. The purchase price is to be paid with a combination of cash, OP
Units of the Operating Partnerships and a short-term note.
SF Hotel Company, L.P.
On March 17, 1998, the Companies entered into an agreement to acquire all
of the partnership interests in SF Hotel Company, L.P. ("Summerfield") for
approximately $170 million. The purchase price is to be paid with a combination
of cash and issuance of a total of approximately 4,590,000 OP Units of the
Operating Partnerships and/or Paired Shares (the "Summerfield Acquisition"). The
final transaction price is subject to adjustment based on (i) the market price
of the Paired Shares through the end of 1998 and (ii) achievement of certain
performance criteria for the Summerfield portfolio through 2001. As a result of
the Summerfield Acquisition, the Companies will acquire four Summerfield
Suites/(R)/ hotels and lease or manage 33 Summerfield Suites/(R)/ and Sierra
Suites hotels/(R)/.
As part of its ongoing business, the Companies continually engage in
discussions with public and private real estate entities, including, without
limitation, current lessees of Patriot's hotels, regarding possible portfolio or
single asset acquisitions, as well as the acquisition of hotel leasing and
management operations. No assurances can be made that the Companies will
acquire any such acquisition opportunities.
RENOVATIONS AND CAPITAL IMPROVEMENTS
During 1997, the Companies completed approximately $82.2 million in total
capital improvements and renovations on various hotel properties. Approximately
$56.9 million of the total capital costs related to significant renovations at
certain of the hotel properties. These major renovations included upgrading the
quality of the furniture and fixtures in guest rooms, public meeting space and
lobby areas as well as adding additional rooms to certain of the hotels. Patriot
completed over $13.5 million of capital improvements during 1996 as well as
commenced and completed renovations at certain of the hotels. During 1996,
approximately $11.1 million of total capital improvement expenditures were
related to significant renovations at certain of the hotel properties which
included upgrading the rooms, public meeting space and lobby areas.
During 1997 for the 91 hotels owned as of December 31, 1997, Patriot has
incurred over $56.9 million related to renovations or completion of renovations
at a number of the hotels. Total renovations include approximately $22.9 million
related to the completion of major additions and renovations begun during 1996
at the Tremont House in Boston, Massachusetts; the Wyndham Resort & Spa in Fort
Lauderdale, Florida; and the WestCoast Long Beach Hotel and Marina in Long
Beach, California. The renovation of the Tremont House in Boston included the
construction of 32 additional guest rooms. Additionally, major renovations of
approximately $12.4 million began in late 1996 and have been completed at the
Holiday Inn - Miami Airport in Miami, Florida and the Holiday Inn in Des
Plaines, Illinois (both of which have now been converted to Doubletree brands);
and the Doubletree Hotel in Tallahassee, Florida. Renovations are in process and
expected to be completed during 1998 on the Doubletree Hotel at Allen Center in
Houston, Texas; the Radisson Hotel in Northbrook, Illinois; the Radisson Hotel
in Overland Park, Kansas; the Doubletree Guest Suites Hotel (formerly Luxeford
Suites Hotel) in Minneapolis, Minnesota, the Peachtree Conference Center in
Atlanta, Georgia and the Pickwick Hotel in San Francisco, California
(approximately $9.5 million was incurred as of December 31, 1997).
During 1998, management has budgeted over $188 million in capital
improvements and renovations of hotel properties to complete renovation of
hotels commenced in 1997 (discussed above), and to continue the enhancement of
existing hotels and hotels recently acquired.
36
<PAGE>
Pursuant to the Participating Leases, Patriot is obligated to establish a
reserve for each hotel for capital improvements, including the periodic
replacement or refurbishment of furniture, fixtures and equipment ("F, F & E").
The aggregate amount of such reserves average 4.0% of total revenue, with the
amount of such reserve with respect to each hotel based upon projected capital
requirements of such hotel. Management believes such amounts are sufficient to
fund recurring capital expenditures for the hotels. Capital expenditures,
exclusive of renovations, may exceed 4.0% of total revenues in a single year.
The budgeted capital improvements excluding renovations consist of upgrades
and replacements of soft goods and furniture and fixtures, upgrades of telephone
systems, and other equipment purchases and improvements which management
believes will continue to enhance and maintain the revenue-producing
capabilities of certain of the hotels. The budgeted renovations to certain of
the hotel properties include complete renovation of rooms, lobby, public areas
and meeting space by replacing existing soft and hard goods with a higher
quality of furnishings, with the intention of upgrading the overall quality of
the hotel facility. Management believes these renovations will enhance the
revenue-producing capabilities of these hotels and strengthen the hotels'
position in their respective markets.
The Companies attempt to schedule renovations and improvements during
traditionally lower occupancy periods in an effort to minimize disruption to the
hotel's operations. Therefore, management does not believe such renovations and
capital improvements will have a material effect on the results of operations of
the hotels. Capital expenditures will be financed through the capital
expenditure reserves, the Revolving Credit Facility or other financing sources
or with working capital.
PROPOSED LEGISLATION AFFECTING THE PAIRED SHARE STRUCTURE
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 Internal
Revenue Code (the "Code"). Section 269B(a)(3) 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 Wyndham
International. The "grandfathering" rules governing Section 296B generally
provide, however, that Section 296B(a)(3) does not apply to a paired REIT if the
REIT and the paired operating company were paired on June 30, 1983. Patriot's
and Wyndham International's respective precedessors, Cal Jockey and Bay Meadows,
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.
Patriot's exemption from the anti-pairing rules could be lost, or its
ability to utilize the paired structure could be revoked or limited, as a result
of future legislation. In this regard, on February 2, 1998, the Department of
Treasury released an explanation of the revenue proposals included in the
Clinton Administration's fiscal 1999 budget (the "Tax Proposals"). The Tax
Proposals, among other things, include a freeze on the grandfathered status of
paired share REITs such as Patriot. Under the Tax Proposals, Patriot and Wyndham
International would be treated as one entity with respect to properties acquired
on or after the date of the first Congressional committee action with respect to
such proposal and with respect to activities or services relating to such
properties that are undertaken or performed by one of the paired entities on or
after such date. The Tax Proposals would also prohibit REITs from holding stock
of a corporation possessing more than 10% of the vote or value of all classes
of stock of the corporation. This proposal would be effective with respect to
the stock acquired on or after the date of first Congressional committee action
with respect to the proposal; provided that the proposal would not apply to
stock acquired before such effective date if, on or after such date, the
subsidiary corporation engaged in a new trade or business or acquired
substantial new assets.
On March 26, 1998, William Archer, Chairman of the Ways and Means Committee
of the United States House of Representatives and William V. Roth, Jr., Chairman
of the Finance Committee of the United States Senate, introduced identical
legislation (the "Proposed Legislation") in both the House of Representatives
and the Senate to limit this "grandfathering rule." Under the Proposed
Legislation, the anti-pairing rules provided in the Code would apply to real
property interests acquired after March 26, 1998 by Patriot and Wyndham
International, or a subsidiary or partnership in which 10% or greater interest
is owned by Patriot or Wyndham International (collectively, the "REIT Group"),
unless (1) the real property interests are acquired pursuant to a written
agreement which is binding on March 26, 1998 and all times thereafter or (2) the
acquisition of such real property interests were described in a public
announcement or in a filing with the Securities and Exchange Commission on or
before March 26, 1998. In addition, the Proposed Legislation also provides that
a property held by Patriot or Wyndham International that is not subject to the
anti-pairing rules would become subject to such rules in the event of an
improvement placed in service after December 31, 1999 that changes the use of
the property and the cost of which is greater than 200 percent of (x) the
undepreciated cost of the property (prior to the improvement) or (y) in the case
of property acquired where there is a substantial basis, the fair market value
of the property on the day it was acquired by Patriot and Wyndham International.
There is an exception for improvements placed in service before January 1, 2004
pursuant to a binding contract in effect as of December 31, 1999 and at all
times thereafter.
The above discussion is based solely on the Tax Proposals and the Proposed
Legislation. The Proposed Legislation will not become effective unless it is
duly passed by Congress and signed by the President. It is impossible at this
time to determine all of the ramifications which could result from enactment of
the Proposed Legislation. However, Patriot believes that the previously
announced and pending acquisitions of Interstate, Arcadian and Summerfield are
unaffected by the Proposed Legislation and expects that such acquisitions will
be completed as currently scheduled.
YEAR 2000
The approach of the year 2000 has created a challenging problem for many
companies. The problem is the result of computer programs being written using
two digits rather than four to define the applicable year. Any of the Companies'
computer programs that have time-sensitive software may recognize the "00" as
the year 1900 rather than the year 2000. This could result in a major system
failure or miscalculations. The Companies are conducting comprehensive reviews
of their computer systems to identify the systems that could be affected by the
year 2000 and are developing an implementation plan to resolve the issue.
Required modifications to existing software and conversions to new software are
in progress to correct identified problems. Management anticipates that the year
2000 will not pose significant operations problems for the Companies once these
modifications and conversions are completed.
INFLATION
Operators of hotels in general possess the ability to adjust room rates
quickly. However, competitive pressures may limit Wyndham International's and
the Lessees' ability to raise room rates in the face of inflation.
SEASONALITY
The hotel industry is seasonal in nature. Revenues for certain of Patriot's
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 the hotels may cause quarterly fluctuations in the
Patriot Companies' revenues.
FUNDS FROM OPERATIONS
Combined Funds from Operations of the Companies (as defined and computed
below) was $33.4 million for the three months ended December 31, 1997 and $18.3
million for the three months ended December 31, 1996. Combined Funds from
Operations of the Companies was $111.5 million for the year ended December 31,
1997 and $64.5 million for the year ended December 31, 1996.
Management considers Funds from Operations to be a key measure of REIT
performance. 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, amortization of goodwill and amortization of management contracts and
trade names, and after adjustments for unconsolidated partnerships, joint
ventures and corporations. Adjustments for Patriot's unconsolidated subsidiaries
37
<PAGE>
are calculated to reflect Funds from Operations on the same basis. The Companies
have also made certain adjustments to Funds from Operations for real estate
related amortization and the write off of certain lease costs. 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.
The following reconciliation of net income to Funds from Operations
illustrates the difference between the two measures of operating performance for
the three months ended December 31, 1997 and 1996:
<TABLE>
<CAPTION>
Three Months Ended
December 31,
-------------------------------
1997 1996
----------- -----------
(in thousands)
<S> <C> <C>
Net income.............................................. $ 1,666 $10,156
Add:
Minority interest in the Operating Partnerships....... 375 1,625
Depreciation of buildings and improvements and
furniture, fixtures and equipment.................. 17,155 5,763
Amortization of goodwill.............................. 1,135 --
Amortization of management contracts and trade names.. 1,227 --
Amortization of franchise fees........................ 22 22
Amortization of capitalized lease costs............... -- 40
Cost of acquiring leaseholds.......................... 10,679 --
Adjustment for Funds from Operations of
unconsolidated subsidiaries:
Equity in earnings of unconsolidated subsidiaries..... (1,527) (1,468)
Funds from Operations of unconsolidated subsidiaries.. 2,698 2,196
------- -------
Funds from Operations................................... $33,430 $18,334
======= =======
Weighted average shares and OP Units outstanding:
Basic................................................. 82,030 50,131
======= =======
Diluted............................................... 84,600 51,076
======= =======
</TABLE>
The following reconciliation of net income (loss) to Funds from Operations
illustrates the difference between the two measures of operating performance for
the year ended December 31, 1997 and 1996:
<TABLE>
<CAPTION>
Year Ended
December 31,
-------------------------------
1997 1996
----------- -----------
(in thousands)
<S> <C> <C>
Net (loss) income....................................... $ (2,172) $37,991
Add:
Extraordinary loss from early extinguishment of debt.. 2,534 --
Minority interest in the Operating Partnerships....... 1,684 6,767
Depreciation of buildings and improvements and
furniture, fixtures and equipment.................. 47,694 17,302
Amortization of goodwill.............................. 1,851 --
Amortization of management contracts and trade names.. 1,696 --
Amortization of franchise fees........................ 88 88
Amortization of capitalized lease costs............... 102 116
Cost of acquiring leaseholds.......................... 54,499 --
Adjustment for Funds from Operations of unconsolidated
subsidiaries:
Equity in earnings of unconsolidated subsidiaries..... (6,015) (5,845)
Funds from Operations of unconsolidated subsidiaries.. 9,581 8,044
-------- -------
Funds from Operations................................... $111,542 $64,463
======== =======
Weighted average shares and OP Units outstanding:
Basic................................................. 64,160 41,662
======== =======
Diluted............................................... 65,981 42,200
======== =======
</TABLE>
38
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The independent auditors' reports, financial statements and financial
statement schedules listed in the accompanying index are filed as part of this
report. See Index to Financial Statements and Financial Statement Schedules on
page F-1.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
PART III
The information called for by this Part III is, in accordance with General
Instruction G(3) to Form 10-K, incorporated herein by reference to the
information contained in the Companies' definitive joint proxy statement for the
annual meeting of stockholders of Patriot and Wyndham International to be held
May 28, 1998, which will be filed with the Securities and Exchange Commission
not later than 120 days after December 31, 1997.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENTS AND SCHEDULES, AND REPORTS ON FORM 8-K
(a) The index to the audited financial statements and financial statement
schedules is included on page F-1 of this report. The financial statements
are included herein at pages F-1 through F-57. The following financial
statement schedules are included herein at pages F-51 through F-57:
Schedule III - Real Estate and Accumulated Depreciation for Patriot American
Hospitality, Inc.
Schedule IV - Mortgage Loans on Real Estate for Patriot American
Hospitality, Inc.
All other schedules for which provision is made in Regulation S-X are either
not required to be included herein under the related instructions or are
inapplicable or the related information is included in the footnotes to the
applicable financial statement and, therefore, have been omitted.
(b) Reports on Form 8-K for the quarter ended December 31, 1997:
Joint Current Report on Form 8-K, dated September 30, 1997 was filed with
the Securities and Exchange Commission on October 14, 1997 (and amended
October 28, 1997) with respect to Patriot's acquisition of ten hotels from
affiliates of Gencom and CHCI, Patriot's acquisition of eight leasehold
interests from affiliates of CHC Lease Partners, Wyndham International's
acquisition of an approximately 50% ownership interest in GAH and the
execution of the merger agreement between Patriot, Wyndham International and
CHCI.
Joint Current Report on Form 8-K, dated September 30, 1997 was filed with
the Securities and Exchange Commission on November 12, 1997 with respect to
the execution of the merger agreement between Patriot, Wyndham International
and WHG Resorts & Casinos Inc.
Joint Current Report on Form 8-K, dated December 2, 1997 was filed with the
Securities and Exchange Commission on December 4, 1997 with respect to the
execution of the merger agreement between Patriot, Wyndham International and
Interstate Hotels Company.
Joint Current Report on Form 8-K, dated December 10, 1997 was filed with the
Securities and Exchange Commission on December 10, 1997 with respect to
Patriot's acquisition of certain hotels.
39
<PAGE>
(c) Exhibits:
Exhibit
No. Description
- -------------------------------------------------------------------------------
3.1 Amended and Restated Certificate of Incorporation of Patriot American
Hospitality, Inc. ("Patriot"), incorporated by reference to Exhibit 3.1
to Patriot's and Wyndham International, Inc.'s Registration Statement
on Form S-4 filed January 13, 1998 (Nos. 333-44203 and 333-44203-01).
3.2 Amended and Restated Bylaws of Patriot (filed herewith)
3.3 Amended and Restated Certificate of Incorporation of Wyndham
International, Inc. ("Wyndham International"), (formerly known as
Patriot American Hospitality Operating Company) incorporated by
reference to Exhibit 3.3 to Patriot's and Wyndham International's
Registration Statement on Form S-4 filed January 13, 1998 (Nos. 333-
44203 and 333-44203-01).
3.4 Amended and Restated Bylaws of Wyndham International (filed herewith).
3.5 Certificate of Designations, Preferences and Rights of Patriot Series A
Convertible Preferred Stock, incorporated by reference to Exhibit 3.5
to Patriot's and Wyndham International's Form S-4/A filed February 13,
1998 (Nos. 333-44203 and 333-44203-01
4.1 Agreement (the "Pairing Agreement"), dated as of February 17, 1983 and
as amended February 18, 1988, between Bay Meadows Operating Company
("Bay Meadows") and California Jockey Club ("Cal Jockey") (formerly
known as 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 and 001-09320).
4.2 Amendment No. 2 to the Pairing Agreement, incorporated by reference to
Exhibit 4.2 to Patriot's and Patriot American Hospitality Operating
Company's ("Patriot Operating Company") Joint Registration Statement on
Form S-4 filed November 10, 1997 (Nos. 333-39875 and 333-39875-01).
4.3 Amendment No. 3 to the Pairing Agreement, incorporated by reference to
Exhibit 4.3 to Patriot's and Wyndham International's Form S-4/A filed
February 13, 1998 (Nos. 333-44203 and 333-44203-01).
4.4 Cooperation Agreement, dated as of December 18, 1997, between Patriot
and Wyndham International, incorporated by reference to Exhibit 4.4 to
Patriot's and Wyndham International's Form S-4/A filed February 13,
1998 (Nos. 333-44203 and 333-44203-01).
10.1 Agreement and Plan of Merger, dated as of February 24, 1997, as amended
and restated as of May 28, 1997, by and among Patriot, Patriot American
Hospitality Partnership, L.P., Cal Jockey and Bay Meadows, incorporated
by reference to Annex A to the Joint Proxy Statement/Prospectus
included in Cal Jockey's and Bay Meadows' Registration Statement on
Form S-4 filed May 30, 1997 (Nos. 333-28085 and 333-28085-01).
10.2 Agreement and Plan of Merger, dated as of April 14, 1997, between
Patriot and Wyndham Hotel Corporation (the "Wyndham Merger Agreement"),
incorporated by reference to Annex A to the Joint Proxy
Statement/Prospectus included in Patriot's and Patriot Operating
Company's Joint Registration Statement on Form S-4 filed November 10,
1997 (Nos. 333-39875 and 333-39875-01).
10.3 Amendment No. 1 to Wyndham Merger Agreement, dated as of November 3,
1997, incorporated by reference to Annex A to the Joint Proxy
Statement/Prospectus included in Patriot's and Patriot Operating
Company's Joint Registration Statements on Form S-4 filed November 10,
1997 (Nos. 333-39875 and 333-39875-01).
10.4 Amendment No. 2 to Wyndham Merger Agreement, dated as of December 9,
1997, incorporated by reference to Annex S-A to the Joint Proxy
Statement/Prospectus included in Patriot's and Patriot Operating
Company's Post-Effective Amendment to Form S-4 filed December 10, 1997
(Nos. 333-39875 and 333-39875-01).
10.5 Agreement and Plan of Merger, dated as of September 30, 1997, by and
among Patriot Operating Company, Patriot and CHC International, Inc.,
incorporated by reference to Exhibit 10.40 to Patriot's and Patriot
Operating Company's Joint Registration Statement on Form S-4 filed
November 10, 1997 (Nos. 333-39875 and 333-39875-01).
10.6 Agreement and Plan of Merger, dated as of September 30, 1997, by and
among WHG Resorts & Casinos Inc., Patriot, Patriot American Hospitality
Operating Company Acquisition Subsidiary and Patriot Operating Company,
incorporated by reference to Exhibit 2.1 to Patriot's and Patriot
Operating Company's Registration Statement on Form S-4 filed November
12, 1997 (Nos. 333-40041 and 333-40041-01).
10.7 Agreement and Plan of Merger, dated as of December 2, 1997, by and
among Interstate Hotels Company, Patriot and Wyndham International,
incorporated by reference to Annex A to the Joint Proxy
Statement/Prospectus included in Patriot's and Wyndham International's
Form S-4 filed January 13, 1998 (Nos. 333-44203 and 333-44203-01).
40
<PAGE>
Exhibit
No. Description
- -------------------------------------------------------------------------------
10.8 Second Amended and Restated Agreement of Limited Partnership of Patriot
American Hospitality Partnership, L.P. ("REIT Partnership Agreement"),
incorporated by reference to Exhibit 10.1 (1) to Cal Jockey's and Bay
Meadows' Registration Statement on Form S-4 filed May 30, 1997 (Nos.
333-28085 and 333-28085-01).
10.9 First Amendment to the REIT Partnership Agreement, incorporated by
reference to Exhibit 10.1 (2) to Cal Jockey's and Bay Meadows'
Registration Statement on Form S-4 filed May 30, 1997 (Nos. 333-28085
and 333-28085-01).
10.10 Third Amendment to the REIT Partnership Agreement, dated as of July 1,
1997, incorporated by reference to Exhibit 10.1 (4) to Patriot's and
Patriot Operating Company's Joint Registration Statement on Form S-4
filed November 10, 1997 (Nos. 333-39875 and 333-39875-01).
10.11 Fifth Amendment to the REIT Partnership Agreement (filed herewith).
10.12 Agreement of Limited Partnership of Patriot American Hospitality
Operating Partnership, L.P. dated as of June 27, 1997, ("Op Co
Partnership Agreement"), incorporated by reference to Exhibit 10.2 (1)
to Patriot's and Patriot Operating Company's Joint Registration
Statement on Form S-4 filed November 10, 1997 (Nos. 333-39875 and 333-
39875-01).
10.13 First Amendment to the Op Co Partnership Agreement, dated as of August
15, 1997, incorporated by reference to Exhibit 10.2 (2) to Patriot's
and Patriot Operating Company's Joint Registration Statement on Form S-
4 filed November 10, 1997 (Nos. 333-39875 and 333-39875-01).
10.14 Third Amendment to the Op Co Partnership Agreement (filed herewith).
10.15 Fifth Amendment to the Op Co Partnership Agreement (filed herewith).
10.16 Shareholders Agreement, dated as of December 2, 1997, by and among
Patriot, Patriot Operating Company, the shareholders of Interstate
Hotel Company named on the signature pages thereto, and Interstate
Hotels Company, incorporated by reference to Exhibit 10.1 to Patriot's
and Patriot Operating Company's Current Report on Form 8-K dated
December 2, 1997 and filed December 4, 1997 (Nos. 001-09319 and 001-
09320).
10.17 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's and Patriot Operating Company's Joint Registration Statement
on Form S-4 filed November 10, 1997 (Nos. 333-39875 and 333-39875-01).
10.18 Amended and Restated Credit Agreement, dated as of December 16, 1997,
among Patriot, Patriot American Hospitality Partnership, L.P., The
Chase Manhattan Bank, PaineWebber Real Estate Securities, Inc. and
various lenders identified therein, incorporated by reference to
Exhibit 10.2 to Patriot's and Wyndham International's Registration
Statement on Form S-4 filed January 13, 1998 (Nos. 333-44203 and 333-
44203-01).
10.19 Term Loan Agreement, dated as of December 16, 1997, among Patriot,
Patriot American Hospitality Partnership, L.P., The Chase Manhattan
Bank, PaineWebber Real Estate Securities, Inc. and various lenders
identified therein, incorporated by reference to Exhibit 10.3 to
Patriot's and Wyndham International's Registration Statement on Form S-
4 filed January 13, 1998 (Nos. 333-44203 and 333-44203-01).
10.20 Executive Employment Agreement, dated as of April 14, 1997, between
Patriot and James D. Carreker, incorporated by reference to Exhibit
10.20 to Patriot's and Patriot Operating Company's Joint Registration
Statement on Form S-4 filed November 10, 1997 (Nos. 333-39875 and 333-
39875-01).
10.21 Executive Employment Agreement, dated as of April 14, 1997, between
Patriot and Anne L. Raymond, incorporated by reference to Exhibit 10.21
to Patriot's and Patriot Operating Company's Joint Registration
Statement on Form S-4 filed November 10, 1997 (Nos. 333-39875 and 333-
39875-01).
10.22 Executive Employment Agreement, dated as of April 14, 1997, between
Patriot and Leslie V. Bentley, incorporated by reference to Exhibit
10.22 to Patriot's and Patriot Operating Company's Joint Registration
Statement on Form S-4 filed November 10, 1997 (Nos. 333-39875 and 333-
39875-01).
10.23 Executive Employment Agreement, dated as of April 14, 1997, between
Patriot and Stanley M. Koonce, Jr., incorporated by reference to
Exhibit 10.23 to Patriot's and Patriot Operating Company's Joint
Registration Statement on Form S-4 filed November 10, 1997 (Nos. 333-
39875 and 333-39875-01).
41
<PAGE>
Exhibit
No. Description
- -------------------------------------------------------------------------------
10.24 Executive Employment Agreement, dated as of April 14, 1997, between
Patriot and Paul A. Nussbaum (filed herewith).
10.25 Executive Employment Agreement, dated as of February 14, 1997, between
Patriot and William W. Evans III, as supplemented on April 14, 1997
(filed herewith).
10.26 Executive Employment Agreement, dated as of June 1997, between Patriot
and Paul Novak (filed herewith).
10.27 Executive Employment Agreement, dated as of October 1, 1997, between
Patriot Operating Company and Michael Grossman (filed herewith).
10.28 Executive Employment Agreement, dated as of October 1, 1997, between
Patriot Operating Company and Karim Alibhai (filed herewith).
10.29 Standstill Agreement, dated as of April 14, 1997, by and among Patriot
and CF Securities, L.P., incorporated by reference to Exhibit 10.9 to
Patriot's and Patriot Operating Company's Joint Registration Statement
on Form S-4 filed November 10, 1997 (Nos. 333-39875 and 333-39875-01).
10.30 Voting Agreement, dated as of April 14, 1997, by and among Patriot
and CF Securities, L.P., incorporated by reference to Exhibit 10.10 to
Patriot's and Patriot Operating Company's Joint Registration Statement
on Form S-4 filed November 10, 1997 (Nos. 333-39875 and 333-39875-01).
10.31 Voting Agreement, dated as of April 14, 1997, by and among Patriot
and Paul A. Nussbaum, incorporated by reference to Exhibit 10.11 to
Patriot's and Patriot Operating Company's Joint Registration Statement
on Form S-4 filed November 10, 1997 (Nos. 333-39875 and 333-39875-01).
10.32 Voting Agreement, dated as of April 14, 1997, by and among Patriot and
William W. Evans III, incorporated by reference to Exhibit 10.12 to
Patriot's and Patriot Operating Company's Joint Registration Statement
on Form S-4 filed November 10, 1997 (Nos. 333-39875 and 333-39875-01).
10.33 Voting Agreement, dated as of April 14, 1997, by and among Patriot and
Leslie V. Bentley, incorporated by reference to Exhibit 10.13 to
Patriot's and Patriot Operating Company's Joint Registration Statement
on Form S-4 filed November 10, 1997 (Nos. 333-39875 and 333-39875-01).
10.34 Voting Agreement, dated as of April 14, 1997, by and among Patriot and
James D. Carreker, incorporated by reference to Exhibit 10.14 to
Patriot's and Patriot Operating Company's Joint Registration Statement
on Form S-4 filed November 10, 1997 (Nos. 333-39875 and 333-39875-01).
10.35 Voting Agreement, dated as of April 14, 1997, by and among Patriot and
Stanley M. Koonce, Jr., incorporated by reference to Exhibit 10.15 to
Patriot's and Patriot Operating Company's Joint Registration Statement
on Form S-4 filed November 10, 1997 (Nos. 333-39875 and 333-39875-01).
10.36 Voting Agreement, dated as of April 14, 1997, by and among Patriot and
Anne L. Raymond, incorporated by reference to Exhibit 10.16 to
Patriot's and Patriot Operating Company's Joint Registration Statement
on Form S-4 filed November 10, 1997 (Nos. 333-39875 and 333-39875-01).
12.1 Statement regarding computation of ratios (filed herewith).
21.1 Significant Subsidiaries of Patriot and Wyndham International (filed
herewith).
23.1 Consent of Ernst & Young LLP (filed herewith).
24.1 Powers of Attorney (included on signature pages).
27.1 Financial Data Schedule of Patriot (filed herewith).
27.2 Financial Data Schedule of Wyndham International (filed herewith).
42
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities and
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.
Dated: March 30, 1998
PATRIOT AMERICAN HOSPITALITY, INC.
By:/s/ Paul A. Nussbaum
--------------------------
Paul A. Nussbaum
Chairman of the Board and
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant in the capacities and on the dates indicated.
Signature Capacities in which signed Date
--------- -------------------------- ----
/s/ Paul A. Nussbaum
- ---------------------------
Paul A. Nussbaum Chairman of the Board of Directors March 30, 1998
and Chief Executive Officer
(Principal Executive Officer)
/s/ William W. Evans III
- ---------------------------
William W. Evans III President, Chief Operating Officer March 30, 1998
and Director
/s/ Anne L. Raymond
- ---------------------------
Anne L. Raymond Executive Vice President and March 30, 1998
Chief Financial Officer
(Principal Financial Officer)
/s/ Lawrence S. Jones
- --------------------------
Lawrence S. Jones Executive Vice President and March 30, 1998
Treasurer (Principal Accounting
Officer)
/s/ John H. Daniels
- --------------------------
John H. Daniels Director March 30, 1998
/s/ John C. Deterding
- --------------------------
John C. Deterding Director March 30, 1998
/s/ Gregory R. Dillon
- --------------------------
Gregory R. Dillon Director March 30, 1998
/s/ Arch K. Jacobson
- --------------------------
Arch K. Jacobson Director March 30, 1998
/s/ James D. Carreker
- --------------------------
James D. Carreker Director March 30, 1998
/s/ Phillip J. Ward
- --------------------------
Phillip J. Ward Director March 30, 1998
/s/ Harlan R. Crow
- --------------------------
Harlan R. Crow Director March 30, 1998
43
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities and
Exchange Act of 1934, the registrant has duly caused the report to be signed on
its behalf by the undersigned thereunto duly authorized.
Dated: March 30, 1998
WYNDHAM INTERNATIONAL, INC.
By:/s/ James D. Carreker
--------------------------
James D. Carreker
Chairman of the Board and
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant in the capacities and on the dates indicated.
Signature Capacities in which signed Date
--------- -------------------------- ----
/s/ James D. Carreker
- -------------------------
James D. Carreker Chairman of the Board and Chief March 30, 1998
Executive Officer (Principal
Executive Officer)
/s/ Karim Alibhai
- -------------------------
Karim Alibhai President, Chief Operating Officer March 30, 1998
and Director
/s/ Lawrence S. Jones
- -------------------------
Lawrence S. Jones Executive Vice President and March 30, 1998
Treasurer (Principal Financial
Officer and Principal
Accounting Officer)
/s/ Paul A. Nussbaum
- -------------------------
Paul A. Nussbaum Director March 30, 1998
/s/ Arch K. Jacobson
- -------------------------
Arch K. Jacobson Director March 30, 1998
/s/ Leonard Boxer
- -------------------------
Leonard Boxer Director March 30, 1998
/s/ Russ Lyon, Jr.
- -------------------------
Russ Lyon, Jr. Director March 30, 1998
/s/ Burton C. Einspruch
- -------------------------
Burton C. Enspruch Director March 30, 1998
/s/ Sherwood Weiser
- -------------------------
Sherwood Weiser Director March 30, 1998
/s/ James C. Leslie
- -------------------------
James C. Leslie Director March 30, 1998
/s/ Susan T. Groenteman
- -------------------------
Susan T. Groenteman Director March 30, 1998
44
<PAGE>
PATRIOT AMERICAN HOSPITALITY, INC. AND
WYNDHAM INTERNATIONAL, INC.
INDEX TO FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES
<TABLE>
<CAPTION>
PAGE
----
HISTORICAL FINANCIAL INFORMATION
<S> <C>
COMBINED PATRIOT AMERICAN HOSPITALITY, INC. AND WYNDHAM INTERNATIONAL, INC.:
Report of Independent Auditors - Ernst & Young LLP.......................................................
Combined Balance Sheets as of December 31, 1997 and 1996.................................................
Combined Statements of Operations for the years ended December 31, 1997 and 1996 and the period
October 2, 1995 (inception of operations) through December 31, 1995....................................
Combined Statements of Shareholders' Equity for the years ended December 31, 1997 and 1996 and the
period October 2, 1995 (inception of operations) through December 31, 1995.............................
Combined Statements of Cash Flows for the years ended December 31, 1997 and 1996 and the period
October 2, 1995 (inception of operations) through December 31, 1995....................................
PATRIOT AMERICAN HOSPITALITY, INC. :
Consolidated Balance Sheets as of December 31, 1997 and 1996...........................................
Consolidated Statements of Operations for the years ended December 31, 1997 and 1996 and the period
October 2, 1995 (inception of operations) through December 31, 1995..................................
Consolidated Statements of Shareholders' Equity for the years ended December 31, 1997 and 1996 and
the period October 2, 1995 (inception of operations) through December 31, 1995.......................
Consolidated Statements of Cash Flows for the years ended December 31, 1997 and 1996 and the period
October 2, 1995 (inception of operations) through December 31, 1995..................................
WYNDHAM INTERNATIONAL, INC.
(FORMERLY KNOWN AS PATRIOT AMERICAN HOSPITALITY OPERATING COMPANY):
Consolidated Balance Sheet as of December 31, 1997.....................................................
Consolidated Statement of Operations for the six months ended December 31, 1997........................
Consolidated Statement of Shareholders' Equity for the six months ended December 31, 1997..............
Consolidated Statement of Cash Flows for the six months ended December 31, 1997........................
Notes to Financial Statements............................................................................
Financial Statement Schedules:
Schedule III - Real Estate and Accumulated Depreciation................................................
Schedule IV - Mortgage Loans on Real Estate............................................................
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT AUDITORS
Board of Directors and Shareholders
Patriot American Hospitality, Inc. and
Wyndham International, Inc.
We have audited (i) the accompanying consolidated balance sheets of
Patriot American Hospitality, Inc. as of December 31, 1997 and 1996, and the
related consolidated statements of operations, shareholders' equity and cash
flows for the years ended December 31, 1997 and 1996 and the period October 2,
1995 (inception of operations) through December 31, 1995; (ii) the accompanying
consolidated balance sheet of Wyndham International, Inc. (formerly known as
Patriot American Hospitality Operating Company) as of December 31, 1997, and the
related consolidated statement of operations, shareholders' equity and cash
flows for the six months ended December 31, 1997; and (iii) the accompanying
combined balance sheets of Patriot American Hospitality, Inc. and Wyndham
International, Inc. (the "Companies") as of December 31, 1997 and 1996, and the
related combined statements of operations, shareholders' equity, and cash flows
for the years ended December 31, 1997 and 1996 and the period October 2, 1995
(inception of operations) through December 31, 1995. Our audits also included
the financial statement schedules listed in the Index at Item 14(a). These
consolidated financial statements and schedules are the responsibility of the
Companies' management. Our responsibility is to express an opinion on these
financial statements and schedules 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, (i) the consolidated financial position of
Patriot American Hospitality, Inc. at December 31, 1997 and 1996, and the
consolidated results of its operations and its cash flows for the years ended
December 31, 1997 and 1996 and the period October 2, 1995 (inception of
operations) through December 31, 1995; (ii) the consolidated financial position
of Wyndham International, Inc. at December 31, 1997 and the consolidated results
of its operations and its cash flows for the six months ended December 31, 1997;
and (iii) the combined financial position of the Companies at December 31, 1997
and 1996, and the combined results of their operations and their cash flows for
the years ended December 31, 1997 and 1996 and the period October 2, 1995
(inception of operations) through December 31, 1995 in conformity with generally
accepted accounting principles. Also, in our opinion, the related financial
statement schedules, when considered in relation to the basic financial
statements taken as a whole, present fairly in all material respects the
information set forth therein.
/s/ Ernst & Young LLP
Dallas, Texas
February 9, 1998
<PAGE>
PATRIOT AMERICAN HOSPITALITY, INC. AND
WYNDHAM INTERNATIONAL, INC.
COMBINED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1997 1996
------------------ -------------------
ASSETS
<S> <C> <C>
Investment in real estate and related improvements and land held for
development, net of accumulated depreciation of $68,805 in 1997 and
$19,815 in 1996.......................................................... $ 2,044,649 $ 641,825
Cash and cash equivalents, including capital improvement reserves of $5,005
in 1997 and $2,458 in 1996............................................... 47,436 6,604
Accounts receivable......................................................... 54,693 5,351
Investment in unconsolidated subsidiaries................................... 11,802 11,291
Mortgage notes and other receivables from unconsolidated subsidiaries....... 76,419 72,209
Other mortgage notes and other receivables.................................. 12,983 --
Inventories................................................................. 10,450 1,648
Management contracts, net of accumulated amortization of $1,574............. 20,879 --
Trade names and franchise costs, net of accumulated amortization of $122.... 11,166 --
Deferred expenses, net of accumulated amortization of $2,097 in 1997 and
$750 in 1996............................................................. 21,417 3,063
Deferred acquisition costs.................................................. 52,500 15,394
Goodwill, net of accumulated amortization of $1,851......................... 126,007 --
Other assets, net of accumulated depreciation of $70 in 1997 and $18 in 1996 16,463 3,546
Income taxes receivable..................................................... 989 --
----------------- -----------------
Total assets......................................................... $ 2,507,853 $ 760,931
================= =================
LIABILITIES AND SHAREHOLDERS' EQUITY
Borrowings under line of credit facility, term loan and mortgage notes...... $ 1,112,337 $ 214,339
Accounts payable and accrued expenses....................................... 73,273 10,117
Dividends and distributions payable......................................... 27,636 13,129
Sales taxes payable......................................................... 5,616 --
Deposits.................................................................... 12,423 --
Due to unconsolidated subsidiaries.......................................... 7,255 6,034
Deferred income tax liability............................................... 9,550 --
Minority interest in the Operating Partnerships............................. 220,177 68,562
Minority interest in other consolidated subsidiaries........................ 49,694 11,711
Commitment and contingencies................................................ -- --
Shareholders' Equity:
Preferred stock (paired shares), $0.01 par value, authorized: 100,000,000
shares each; no shares issued and outstanding.......................... -- --
Excess stock (paired shares), $0.01 par value, authorized: 750,000,000
shares each; no shares issued and outstanding.......................... -- --
Common stock (paired shares), $0.01 par value, authorized: 650,000,000
shares each; issued and outstanding: 73,276,716 shares in 1997 and
43,613,496 shares in 1996.............................................. 1,466 436
Additional paid in capital............................................... 1,070,973 442,104
Unearned stock compensation, net of accumulated amortization of $5,825 in
1997 and $1,139 in 1996................................................ (13,116) (5,427)
Distributions in excess of retained earnings............................. (69,431) (74)
------------------ ------------------
Total shareholders' equity........................................... 989,892 437,039
----------------- -----------------
Total liabilities and shareholders' equity........................... $ 2,507,853 $ 760,931
================= =================
</TABLE>
See notes to financial statements.
F-3
<PAGE>
PATRIOT AMERICAN HOSPITALITY, INC. AND
WYNDHAM INTERNATIONAL, INC.
COMBINED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
PERIOD
OCTOBER 2, 1995
(INCEPTION OF
OPERATIONS)
YEARS ENDED THROUGH DECEMBER
DECEMBER 31, 31,
------------------------------ ------------------
1997 1996 1995
--------------- -------------- ------------------
<S> <C> <C> <C>
Revenue:
Participating lease revenue.................................. $ 127,033 $ 75,893 $ 10,582
Hotel revenue................................................ 167,727 -- --
Racecourse facility and land lease revenue................... 26,511 -- --
Management fee and service fee income........................ 7,088 -- --
Interest and other income.................................... 6,676 600 513
------------- ------------- ---------------
Total revenue.......................................... 335,035 76,493 11,095
------------- ------------- ---------------
Expenses:
Departmental costs-- hotel operations........................ 84,758 -- --
Racing facility operations................................... 21,620 -- --
Direct operating costs of management company and service
department................................................. 1,216 -- --
General and administrative................................... 17,181 4,500 607
Ground lease expense......................................... 4,117 1,075 --
Repair and maintenance....................................... 7,821 -- --
Utilities.................................................... 7,144 -- --
Interest expense............................................. 50,531 7,380 89
Real estate and personal property taxes and casualty
insurance................................................... 17,958 7,150 901
Marketing.................................................... 15,437 -- --
Management fees.............................................. 1,941 -- --
Cost of acquiring leaseholds................................. 54,499 -- --
Depreciation and amortization................................ 52,685 17,420 2,590
------------- ------------- ---------------
Total expenses......................................... 336,908 37,525 4,187
------------- ------------- ---------------
(Loss) income before equity in earnings of unconsolidated
subsidiaries, income tax provision, minority interests and
extraordinary item........................................... (1,873) 38,968 6,908
Equity in earnings of unconsolidated subsidiaries............ 6,015 5,845 156
------------- ------------- ---------------
Income before income tax provision, minority interests and
extraordinary item........................................... 4,142 44,813 7,064
Income tax provision......................................... (481) -- --
-------------- ------------- ---------------
Income before minority interests and extraordinary item......... 3,661 44,813 7,064
Minority interest in the Operating Partnerships.............. (1,684) (6,767) (968)
Minority interest in consolidated subsidiaries............... (1,615) (55) --
-------------- -------------- ---------------
Income before extraordinary item................................ 362 37,991 6,096
Extraordinary loss from early extinguishment of debt, net of
minority interest.......................................... (2,534) -- (737)
-------------- ------------- ---------------
Net (loss) income............................................... $ (2,172) $ 37,991 $ 5,359
============= ============= ===============
Basic earnings (loss) per common Paired Share:
Income before extraordinary item............................. $ 0.01 $ 1.07 $ 0.21
Extraordinary loss........................................... (0.05) -- (0.03)
------------- ------------- ---------------
Net (loss) income per common Paired Share.................. $ (0.04) $ 1.07 $ 0.18
============= ============= ===============
Diluted earnings (loss) per common Paired Share:
Income before extraordinary item............................. $ 0.01 $ 1.06 $ 0.21
Extraordinary loss........................................... (0.05) $ -- $ (0.03)
------------- ------------- ---------------
Net (loss) income per common Paired Share.................. $ (0.04) $ 1.06 $ 0.18
============= ============= ==============
</TABLE>
See notes to financial statements.
F-4
<PAGE>
PATRIOT AMERICAN HOSPITALITY, INC. AND
WYNDHAM INTERNATIONAL, INC.
COMBINED STATEMENTS OF SHAREHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
NUMBER OF SHARES DISTRIBU-
------------------------- UNEARNED TIONS IN
STOCK EXCESS OF
WYNDHAM COMMON PAID-IN COMPEN- RETAINED
PATRIOT INTERNATIONAL STOCK CAPITAL SATION EARNINGS TOTAL
----------- ------------- -------- ------------ --------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Issuance of shares, net of 29,210,000
offering expenses............ $ 292 $ 312,878 $ -- $ -- $ 313,170
Acquisition of interests from -- -- -- -- (19,357)
affiliates................... (19,357)
Predecessor basis of interests -- -- -- 1,840
acquired from affiliates..... -- 1,840
Issuance of OP Units to -- -- 9,363
non-affiliates............... 9,363 --
Minority interest at closing -- -- -- (41,670)
of Initial Offering.......... -- (41,670)
Issuance of shares to 121,870 40
employees and directors..... 1 1,461 (1,422) --
Net income..................... -- -- -- -- 5,359 5,359
Amortization of unearned stock -- -- -- -- 71
compensation................. 71
Common stock dividend
declared..................... -- -- -- -- (7,038) (7,038)
----------- -------- ------------ --------- ---------- -----------
Balance, December 31, 1995..... 29,331,870 293 264,515 (1,351) (1,679) 261,778
Issuance of shares, net of
offering expenses............ 13,916,186 139 181,253 -- -- 181,392
Issuance of shares to 365,440 37
employees and directors...... 4 5,177 (5,144) --
Redemption price of OP Units -- -- -- (8,841)
in excess of book value...... (8,841) --
Net income..................... -- -- -- -- 37,991 37,991
Amortization of unearned stock -- -- --
compensation................. -- 1,068 1,068
Common stock dividends
declared..................... -- -- -- -- (36,386) (36,386)
----------- -------- ------------ --------- ---------- -----------
Balance, December 31, 1996..... 43,613,496 436 442,104 (5,427) (74) 437,039
Issuance of shares for
mergers and acquisition of
properties................... 12,824,433 57,135,658 699 231,247 -- -- 231,946
Issuance of shares, net of
offering expenses............ 15,830,033 15,830,033 318 386,417 -- -- 386,735
Issuance of shares to
employees and directors...... 547,867 4,167 5 12,896 (12,839) -- 62
Forfeiture of unvested
employee stock grants........ (42,900) (42,900) -- (464) 464 -- --
Issuance of shares for
exercise of options.......... 314,967 310,938 6 2,301 -- -- 2,307
Issuance of shares to redeem
OP Units..................... 188,820 38,820 2 2,554 -- -- 2,556
Redemption price of OP Units
in excess of book value...... -- -- -- (6,082) -- -- (6,082)
Net loss....................... -- -- -- -- -- (2,172) (2,172)
Amortization of unearned stock
compensation................. -- -- -- -- 4,686 -- 4,686
Common stock dividends
declared..................... -- -- -- -- -- (67,185) (67,185)
----------- ------------ -------- ------------ --------- ---------- -----------
Balance, December 31, 1997..... 73,276,716 73,276,716 $ 1,466 $ 1,070,973 $ (13,116)$ (69,431) $ 989,892
========== ============ ======== ============ ========= ========== ===========
</TABLE>
See notes to financial statements.
F-5
<PAGE>
PATRIOT AMERICAN HOSPITALITY, INC. AND
WYNDHAM INTERNATIONAL, INC.
COMBINED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
PERIOD
OCTOBER 2, 1995
(INCEPTION OF
OPERATIONS)
YEARS ENDED THROUGH DECEMBER
DECEMBER 31, 31,
------------------------------ ------------------
1997 1996 1995
--------------- -------------- ------------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss) income............................................ $ (2,172) $ 37,991 $ 5,359
Adjustments to reconcile net (loss) income to net cash
provided by operating activities:
Depreciation............................................... 49,022 17,302 2,529
Amortization of unearned stock compensation................ 4,686 1,068 71
Amortization of deferred loan costs........................ 2,630 431 27
Amortization of lease inducement costs..................... 102 116 23
Amortization of management contracts and trade names....... 1,694 -- --
Amortization of goodwill................................... 1,851 -- --
Other amortization......................................... 118 118 61
Cost of acquiring leaseholds............................... 54,499 -- --
Payment of interest on notes receivable from
unconsolidated subsidiaries.............................. 5,001 4,833 --
Accrued interest receivable................................ (1,318) -- --
Issuance of common stock to directors...................... 61 37 --
Equity in earnings of unconsolidated subsidiaries.......... (6,015) (5,845) (156)
Minority interest in income of Operating Partnerships...... 1,684 6,767 968
Minority interest in income of other
consolidated subsidiaries................................ 1,615 55 --
Extraordinary items........................................ 2,534 -- 737
Changes in assets and liabilities:
Accounts receivable...................................... (18,176) -- --
Lease revenue receivable................................. (4,359) (3,091) (2,260)
Deferred expenses........................................ (24) -- (292)
Inventories.............................................. (2,736) -- --
Other assets............................................. (3,205) (1,003) (589)
Accounts payable and other accrued expenses.............. 18,685 2,741 1,140
Deposits................................................. 2,354 -- --
Due to unconsolidated subsidiaries....................... (421) (324) --
------------- ------------- ---------------
Net cash provided by operating activities.............. 108,110 61,196 7,618
------------- ------------- ---------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of hotel properties and related
working capital assets..................................... (939,234) (353,217) (260,665)
Improvements and additions to hotel properties............... (82,269) (21,889) (609)
Payment of merger related costs.............................. (9,045) -- --
Cash received in acquisition of hotel leases................. 14,192 -- --
Change in other assets....................................... -- 1,219 (150)
Deferred acquisition costs................................... (67,743) (14,797) (598)
Investment in unconsolidated subsidiaries.................... (1,574) -- (4,238)
Investment in mortgage notes and other receivables from
unconsolidated subsidiaries................................ (500) (31,400) (40,587)
Principal payments received on mortgage and other notes
receivable................................................. 139 399 --
Investment in other mortgage and other notes receivable...... (116,090) -- (101)
------------- ------------- ---------------
Net cash used in investing activities.................. (1,202,124) (419,685) (306,948)
------------- ------------- ---------------
</TABLE>
F-6
<PAGE>
PATRIOT AMERICAN HOSPITALITY, INC. AND
WYNDHAM INTERNATIONAL, INC.
COMBINED STATEMENTS OF CASH FLOWS - CONTINUED
(IN THOUSANDS)
<TABLE>
<CAPTION>
PERIOD
OCTOBER 2, 1995
(INCEPTION OF
OPERATIONS)
YEARS ENDED THROUGH DECEMBER
DECEMBER 31, 31,
------------------------------ ------------------
1997 1996 1995
--------------- -------------- ------------------
<S> <C> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings under line of credit facility
and mortgage notes......................................... 1,865,634 396,302 9,500
Repay borrowings under line of credit facility............... (1,001,880) (191,463) --
Payments to acquire interests of affiliates in the
Initial Hotels............................................. -- -- (18,879)
Payment of deferred loan costs............................... (24,471) (1,189) (361)
Prepayment penalties on assumed mortgage loans............... -- -- (174)
Payments for capital leases.................................. 644 -- --
Proceeds from issuance of common stock....................... 401,945 199,723 314,013
Payment of offering costs.................................... (15,519) (462) --
Proceeds from exercise of options to purchase common stock... 2,195 -- --
Contributions received from minority interest in
consolidated subsidiaries.................................. 35,829 11,656 --
Payments to redeem OP Units.................................. (63,826) (16,584) --
Dividends and distributions paid............................. (65,705) (37,659) --
------------- ------------- ---------------
Net cash provided by financing activities.............. 1,134,846 360,324 304,099
------------- ------------- ---------------
Net increase in cash and cash equivalents....................... 40,832 1,835 4,769
Cash and cash equivalents at beginning of period................ 6,604 4,769 --
------------- ------------- ---------------
Cash and cash equivalents at end of period...................... $ 47,436 $ 6,604 $ 4,769
============= ============= ===============
Supplemental disclosure of cash flow information:
Cash paid during the period for interest..................... $ 48,254 $ 6,938 $ --
============= ============= ===============
Cash paid during the period for income taxes................. $ 325 $ -- $ --
============= ============= ===============
</TABLE>
See notes to financial statements.
F-7
<PAGE>
PATRIOT AMERICAN HOSPITALITY, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------------------
1997 1996
--------------- ---------------
<S> <C> <C>
ASSETS
Investment in real estate and related improvements and land held for
development, net of accumulated depreciation of $67,501 in 1997
and $19,815 in 1996......................................................... $ 2,016,267 $ 641,825
Cash and cash equivalents, including capital improvement reserves of
$5,005 in 1997 and $2,458 in 1996........................................... 20,360 6,604
Lease revenue receivable...................................................... 12,105 5,351
Investment in unconsolidated subsidiaries..................................... 11,802 11,291
Mortgage notes and other receivables from unconsolidated subsidiaries......... 76,419 72,209
Notes and other receivables from Wyndham International........................ 42,946 --
Goodwill, net of accumulated amortization of $1,257........................... 87,999 --
Inventories................................................................... 1,306 1,648
Deferred expenses, net of accumulated amortization of $2,097 in 1997
and $750 in 1996............................................................ 21,417 3,063
Deferred acquisition costs.................................................... 21,374 15,394
Other assets, net of accumulated depreciation of $70 in 1997 and $18 in 1996.. 9,110 3,546
--------------- ---------------
Total assets................................................................ $ 2,321,105 $ 760,931
=============== ===============
LIABILITIES AND SHAREHOLDERS' EQUITY
Borrowings under line of credit facility, term loan and mortgage notes........ $ 1,112,337 $ 214,339
Subscription notes payable to Wyndham International........................... 12,875 --
Accounts payable and accrued expenses......................................... 28,572 10,117
Dividends and distributions payable........................................... 27,185 13,129
Due to unconsolidated subsidiaries............................................ 7,255 6,034
Minority interest in REIT Partnership......................................... 174,640 68,562
Minority interest in other consolidated subsidiaries.......................... 49,214 11,711
Commitments and contingencies................................................. -- --
Shareholders' equity:
Preferred stock, $0.01 par value; authorized: 100,000,000 shares;
no shares issued and outstanding............................................ -- --
Excess stock, $0.01 par value; authorized: 750,000,000 shares;
no shares issued and outstanding.............................................. -- --
Common stock, $0.01 par value; authorized: 650,000,000 shares;
shares issued and outstanding: 73,276,716 shares in 1997
and 43,613,496 shares in 1996............................................... 733 436
Paid-in capital............................................................... 990,821 442,104
Unearned stock compensation, net of accumulated amortization
of $5,825 in 1997 and $1,139 in 1996........................................ (13,116) (5,427)
Distributions in excess of retained earnings.................................. (69,411) (74)
--------------- ---------------
Total shareholders' equity.................................................... 909,027 437,039
--------------- ---------------
Total liabilities and shareholders' equity.................................... $ 2,321,105 $ 760,931
=============== ===============
</TABLE>
See notes to financial statements.
F-8
<PAGE>
PATRIOT AMERICAN HOSPITALITY, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
PERIOD
OCTOBER 2, 1995
(INCEPTION OF
OPERATIONS)
YEARS ENDED THROUGH DECEMBER
DECEMBER 31, 31,
------------------------------ ------------------
1997 1996 1995
--------------- -------------- ------------------
<S> <C> <C> <C>
Revenue:
Participating lease revenue.................................. $ 177,659 $ 75,893 $ 10,582
Racecourse facility and land lease revenue................... 2,792 -- --
Interest and other income.................................... 5,103 600 513
------------- ------------- ---------------
Total revenue.......................................... 185,554 76,493 11,095
------------- ------------- ---------------
Expenses:
General and administrative................................... 11,157 4,500 607
Ground lease expense......................................... 4,117 1,075 --
Interest expense............................................. 51,000 7,380 89
Real estate and personal property taxes and casualty
insurance.................................................. 17,958 7,150 901
Cost of acquiring leaseholds................................. 54,499 -- --
Depreciation and amortization................................ 49,069 17,420 2,590
------------- ------------- ---------------
Total expenses......................................... 187,800 37,525 4,187
------------- ------------- ---------------
(Loss) income before equity in earnings of unconsolidated
subsidiaries, minority interests and extraordinary item...... (2,246) 38,968 6,908
Equity in earnings of unconsolidated subsidiaries............ 6,015 5,845 156
------------- ------------- ---------------
Income before minority interests and extraordinary item......... 3,769 44,813 7,064
Minority interest in the REIT Partnership.................... (1,713) (6,767) (968)
Minority interest in consolidated subsidiaries............... (1,674) (55) --
-------------- -------------- ---------------
Income before extraordinary item................................ 382 37,991 6,096
Extraordinary loss from early extinguishment of debt, net of
minority interest.......................................... (2,534) -- (737)
-------------- ------------- ----------------
Net (loss) income............................................... $ (2,152) $ 37,991 $ 5,359
============== ============= ===============
Basic earnings (loss) per common share:
Income before extraordinary item............................. $ 0.01 $ 1.07 $ 0.21
Extraordinary loss........................................... (0.05) -- (0.03)
------------- ------------- ---------------
Net (loss) income per common share......................... $ (0.04) $ 1.07 $ 0.18
============= ============= ==============
Diluted earnings(loss) per common share:
Income before extraordinary item............................. $ 0.01 $ 1.06 $ 0.21
Extraordinary loss........................................... (0.05) -- (0.03)
------------- ------------- --------------
Net (loss) income per common share......................... $ (0.04) $ 1.06 $ 0.18
============= ============= ==============
</TABLE>
See notes to financial statements.
F-9
<PAGE>
PATRIOT AMERICAN HOSPITALITY, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
DISTRIBUTIONS
UNEARNED IN EXCESS OF
NUMBER OF COMMON PAID-IN STOCK RETAINED
SHARES STOCK CAPITAL COMPENSATION EARNINGS TOTAL
------ ----- ------- ------------ -------- -----
<S> <C> <C> <C> <C> <C> <C>
Issuance of shares, net of
offering expenses................ 29,210,000 $ 292 $ 312,878 $ -- $ -- $ 313,170
Acquisition of interests from
affiliates....................... -- -- (19,357) -- -- (19,357)
Predecessor basis of interests..... -- 1,840 -- -- 1,840
acquired from affiliates......... --
Issuance of OP Units to
non-affiliates................... -- -- 9,363 -- -- 9,363
Minority interest at closing
of Initial Offering.............. -- -- (41,670) -- -- (41,670)
Issuance of shares to
employees and directors.......... 121,870 1 1,461 (1,422) -- 40
Net income......................... -- -- -- -- 5,359 5,359
Amortization of unearned stock
compensation..................... -- -- -- 71 -- 71
Common stock dividend declared..... -- -- -- -- (7,038) (7,038)
---------- -------- ----------- ---------- ----------- -----------
Balance, December 31, 1995......... 29,331,870 293 264,515 (1,351) (1,679) 261,778
Issuance of shares, net of
offering expenses................ 13,916,186 139 181,253 -- -- 181,392
Issuance of shares to
employees and directors.......... 365,440 4 5,177 (5,144) -- 37
Redemption price of OP Units
in excess of book value.......... -- -- (8,841) -- -- (8,841)
Net income......................... -- -- -- -- 37,991 37,991
Amortization of unearned stock
compensation..................... -- -- -- 1,068 -- 1,068
Common stock dividends declared.... -- -- -- -- (36,386) (36,386)
---------- ----------- ----------- ---------- ----------- -----------
Balance, December 31, 1996......... 43,613,496 436 442,104 (5,427) (74) 437,039
Issuance of shares for mergers
and acquisition of
properties....................... 12,824,433 128 170,222 -- -- 170,350
Issuance of shares, net of
offering expenses................ 15,830,033 159 367,076 -- -- 367,235
Issuance of shares to
employees and directors.......... 547,867 5 12,896 (12,839) -- 62
Forfeiture of unvested
employee stock grants............ (42,900) -- (464) 464 -- --
Issuance of shares for
exercise of options.............. 314,967 3 2,192 -- -- 2,195
Issuance of shares to redeem
OP Units......................... 188,820 2 2,494 -- -- 2,496
Redemption price of OP Units
in excess of book value.......... -- -- (5,699) -- -- (5,699)
Net loss........................... -- -- -- -- (2,152) (2,152)
Amortization of unearned stock
compensation..................... -- -- -- 4,686 -- 4,686
Common stock dividends declared.... -- -- -- -- (67,185) (67,185)
---------- ----------- -------------- ---------- ----------- -----------
Balance, December 31, 1997......... 73,276,716 $ 733 $ 990,821 $ (13,116) $ (69,411) $ 909,027
========== =========== ============== ========== =========== ===========
</TABLE>
See notes to financial statements.
F-10
<PAGE>
PATRIOT AMERICAN HOSPITALITY, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
PERIOD
OCTOBER 2, 1995
(INCEPTION OF
OPERATIONS)
YEARS ENDED THROUGH DECEMBER
DECEMBER 31, 31,
------------------------------ ------------------
1997 1996 1995
--------------- -------------- ------------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss) income............................................ $ (2,152) $ 37,991 $ 5,359
Adjustments to reconcile net (loss) income to net cash
provided by operating activities:
Depreciation............................................... 47,694 17,302 2,529
Amortization of unearned stock compensation................ 4,686 1,068 71
Amortization of deferred loan costs........................ 2,630 431 27
Amortization of lease inducement costs..................... 102 116 23
Amortization of goodwill................................... 1,257 -- --
Other amortization......................................... 118 118 61
Cost of acquiring leaseholds............................... 54,499 -- --
Payment of interest on notes receivable from
unconsolidated subsidiaries.............................. 5,001 4,833 --
Accrued interest receivable................................ (550) -- --
Issuance of common stock to directors...................... 61 37 --
Equity in earnings of unconsolidated subsidiaries.......... (6,015) (5,845) (156)
Minority interest in income of REIT Partnership............ 1,713 6,767 968
Minority interest in income of other
consolidated subsidiaries................................ 1,674 55 --
Extraordinary items........................................ 2,534 -- 737
Changes in assets and liabilities:
Lease revenue receivable................................. (6,754) (3,091) (2,260)
Due from Wyndham International........................... 506 -- --
Deferred expenses........................................ (24) -- (292)
Other assets............................................. (2,383) (1,003) (589)
Accounts payable and other accrued expenses.............. 10,657 2,741 1,140
Due to unconsolidated subsidiaries....................... (421) (324) --
-------------- ------------- ---------------
Net cash provided by operating activities.............. 114,833 61,196 7,618
------------- ------------- ---------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of hotel properties and related
working capital assets..................................... (937,135) (353,217) (260,665)
Improvements and additions to hotel properties............... (82,269) (21,889) (609)
Changes in due from Wyndham International.................... (39,060) -- --
Changes in other assets...................................... -- 1,219 (150)
Deferred acquisition costs................................... (36,617) (14,797) (598)
Investment in unconsolidated subsidiaries.................... (1,574) -- (4,238)
Investment in mortgage notes and other receivables from
unconsolidated subsidiaries................................ (500) (31,400) (40,587)
Principal payments received on mortgage and other notes
receivable................................................. 139 399 --
Investment in other mortgage and other notes receivable...... (103,875) -- (101)
------------- ------------- ---------------
Net cash used in investing activities.................. (1,200,891) (419,685) (306,948)
-------------- ------------- ---------------
</TABLE>
F-11
<PAGE>
PATRIOT AMERICAN HOSPITALITY, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS - CONTINUED
(IN THOUSANDS)
<TABLE>
<CAPTION>
PERIOD
OCTOBER 2, 1995
(INCEPTION OF
OPERATIONS)
YEARS ENDED THROUGH DECEMBER
DECEMBER 31, 31,
------------------------------ ------------------
1997 1996 1995
--------------- -------------- ------------------
<S> <C> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings under line of credit facilities, term loan and
mortgage notes............................................. 1,865,634 396,302 9,500
Repay borrowings under line of credit facility............... (1,001,880) (191,463) --
Principal payments on subscription notes payable to
Wyndham International...................................... (16,070) -- --
Payments to acquire interests of affiliates in the
Initial Hotels............................................. -- -- (18,879)
Payment of deferred loan costs............................... (24,471) (1,189) (361)
Prepayment penalties on assumed mortgage loans............... -- -- (174)
Payments for capital leases.................................. 503 -- --
Proceeds from issuance of common stock....................... 382,754 199,723 314,013
Payment of offering costs.................................... (15,519) (462) --
Proceeds from exercise of options to purchase common stock... 2,195 -- --
Contributions received from minority interest in
consolidated subsidiaries.................................. 35,829 11,656 --
Payments to redeem OP Units.................................. (63,826) (16,584) --
Dividends and distributions paid............................. (65,335) (37,659) --
------------- ------------- ---------------
Net cash provided by financing activities.............. 1,099,814 360,324 304,099
------------- ------------- ---------------
Net increase in cash and cash equivalents....................... 13,756 1,835 4,769
Cash and cash equivalents at beginning of period................ 6,604 4,769 --
------------- ------------- ---------------
Cash and cash equivalents at end of period...................... $ 20,360 $ 6,604 $ 4,769
============= ============= ===============
Supplemental disclosure of cash flow information:
Cash paid during the period for interest..................... $ 48,254 $ 6,938 $ --
============= ============= ===============
</TABLE>
See notes to financial statements.
F-12
<PAGE>
WYNDHAM INTERNATIONAL, INC.
CONSOLIDATED BALANCE SHEET
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
DECEMBER 31,
1997
-----------------
ASSETS
<S> <C>
Current assets:
Cash and cash equivalents................................................................... $ 27,076
Accounts receivable......................................................................... 46,340
Subscription notes receivable from Patriot American Hospitality, Inc........................ 12,875
Inventories................................................................................. 9,144
Prepaid expenses and other current assets................................................... 5,227
---------------
Total current assets.................................................................... 100,662
Investment in furniture, fixtures and equipment, net of accumulated depreciation of $1,304....... 28,382
Mortgage notes and other receivables............................................................. 12,983
Receivables from prior owners.................................................................... 5,767
Management contracts, net of accumulated amortization of $1,574.................................. 20,879
Trade names and franchise costs, net of accumulated amortization of $122......................... 11,166
Deferred acquisition costs....................................................................... 31,126
Goodwill, net of accumulated amortization of $594................................................ 38,008
Other assets..................................................................................... 2,126
Income taxes receivable.......................................................................... 989
---------------
Total assets............................................................................ $ 252,088
===============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses....................................................... $ 19,203
Accrued liabilities......................................................................... 22,663
Dividends and distributions payable......................................................... 451
Participating lease payments payable to Patriot American Hospitality, Inc................... 9,519
Sales taxes payable......................................................................... 5,616
Deposits.................................................................................... 12,423
Notes and other amounts payable to Patriot American Hospitality, Inc........................ 42,946
---------------
Total current liabilities............................................................... 112,821
Deferred income tax liability.................................................................... 9,550
Other liabilities................................................................................ 2,835
Minority interest in OpCo Partnership............................................................ 45,537
Minority interest in other consolidated subsidiaries............................................. 480
Commitments and contingencies.................................................................... --
Shareholders' equity:
Preferred stock, $0.01 par value; authorized: 100,000,000 shares;
no shares issued and outstanding........................................................ --
Excess stock, $0.01 par value; authorized: 750,000,000 shares;
no shares issued and outstanding........................................................ --
Common stock, $0.01 par value; authorized: 650,000,000 shares;
issued and outstanding: 73,276,716 shares............................................... 733
Paid-in capital............................................................................. 80,152
Retained earnings/(deficit)................................................................. (20)
---------------
Total shareholders' equity.............................................................. 80,865
---------------
Total liabilities and shareholders' equity.............................................. $ 252,088
===============
</TABLE>
See notes to financial statements.
F-13
<PAGE>
WYNDHAM INTERNATIONAL, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
DECEMBER 31,
1997
-----------------
<S> <C>
Revenue:
Room revenue.................................................................................. $ 95,095
Other hotel revenue........................................................................... 72,632
Racecourse facility revenue................................................................... 26,344
Management fee and service fee income......................................................... 7,088
Interest and other income..................................................................... 2,975
---------------
Total revenue............................................................................. 204,134
---------------
Expenses:
Departmental costs -- hotel operations........................................................ 84,758
Racecourse facility operations................................................................ 24,245
Direct operating costs of management company and service department........................... 1,216
General and administrative.................................................................... 6,024
Repair and maintenance........................................................................ 7,821
Utilities..................................................................................... 7,144
Marketing..................................................................................... 15,437
Management fees............................................................................... 1,941
Depreciation and amortization................................................................. 3,616
Participating lease payments.................................................................. 50,626
Interest expense.............................................................................. 933
--------------
Total expenses ........................................................................... 203,761
---------------
Income before income tax provision and minority interests........................................ 373
Income tax provision.......................................................................... (481)
----------------
Loss before minority interests................................................................... (108)
Minority interest in OpCo Partnership......................................................... 29
Minority interest in other consolidated subsidiaries.......................................... 59
---------------
Net loss......................................................................................... $ (20)
================
Basic earnings per common share.................................................................. $ --
===============
Diluted earnings per common share................................................................ $ --
===============
</TABLE>
See notes to financial statements.
F-14
<PAGE>
WYNDHAM INTERNATIONAL, INC.
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
RETAINED
COMMON PAID-IN EARNINGS/
NUMBER OF SHARES STOCK CAPITAL (DEFICIT) TOTAL
<S> <C> <C> <C> <C>
Issuance of shares for mergers
and acquisition of properties... 57,135,658 $ 571 $ 61,025 $ -- $ 61,596
Issuance of shares, net of
offering expenses............... 15,830,033 159 19,341 -- 19,500
Issuance of shares to employees --
and directors................... 4,167 -- -- --
Forfeiture of unvested employee --
stock grants.................... (42,900) -- -- --
Issuance of shares for exercise --
of options...................... 310,938 3 109 112
Issuance of shares to redeem OP --
Units........................... 38,820 -- 60 60
Redemption price of OP Units
in excess of book value......... -- -- (383) -- (383)
Net loss.......................... -- -- -- (20) (20)
---------------- ----------- ----------- ----------- ------------
Balance, December 31, 1997........ 73,276,716 $ 733 $ 80,152 $ (20) $ 80,865
================ =========== =========== =========== ============
</TABLE>
See notes to financial statements.
F-15
<PAGE>
WYNDHAM INTERNATIONAL, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
DECEMBER 31,
1997
-------------------
<S> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss................................................................................... $ (20)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation........................................................................... 1,328
Amortization of management contracts and trade names................................... 1,694
Amortization of goodwill............................................................... 594
Accrued interest receivable............................................................ (768)
Minority interest in income of OpCo Partnership........................................ (29)
Minority interest in income of other consolidated subsidiaries......................... (59)
Changes in assets and liabilities:
Accounts receivable.................................................................... (18,176)
Inventories............................................................................ (2,736)
Other assets........................................................................... (822)
Accounts payable and other accrued expenses............................................ 8,028
Deposits............................................................................... 2,354
Participating lease payments payable to Patriot American Hospitality, Inc.............. 2,395
Other amounts payable to Patriot American Hospitality, Inc............................. (506)
-----------------
Net cash used in operating activities......................................... (6,723)
-----------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Improvements and additions to furniture and fixtures....................................... (2,099)
Payment of merger-related costs............................................................ (9,045)
Cash received upon acquisition of hotel leases............................................. 14,192
Investment in mortgage notes and other receivables......................................... (4,281)
-----------------
Net cash used in investing activities...................................... (1,233)
-----------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments received on subscription notes receivable......................................... 16,070
Capital leases............................................................................. 141
Net proceeds from issuance of common stock................................................. 19,191
Distributions paid......................................................................... (370)
-----------------
Net cash provided by financing activities..................................... 35,032
-----------------
Net increase in cash and cash equivalents....................................................... 27,076
Cash and cash equivalents at beginning of period................................................ --
-----------------
Cash and cash equivalents at end of period...................................................... $ 27,076
=================
Supplemental disclosure of cash flow information:
Cash paid during the period for income taxes............................................... $ 325
=================
</TABLE>
See notes to financial statements.
F-16
<PAGE>
PATRIOT AMERICAN HOSPITALITY, INC. AND
WYNDHAM INTERNATIONAL, INC.
NOTES TO FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
1. ORGANIZATION:
The entity formerly known as Patriot American Hospitality, Inc.
(collectively with its subsidiaries, "Old Patriot"), a Virginia corporation, was
formed April 17, 1995 as a self-administered real estate investment trust
("REIT") for the purpose of acquiring equity interests in hotel properties. On
October 2, 1995, Old Patriot completed an initial public offering (the "Initial
Offering") of 29,210,000 shares of its common stock and commenced operations.
On July 1, 1997, Old Patriot merged with and into California Jockey Club
("Cal Jockey"), with Cal Jockey being the surviving legal entity (the "Cal
Jockey Merger"). Cal Jockey's shares of common stock are paired and trade
together with the shares of common stock of Bay Meadows Operating Company ("Bay
Meadows") as a single unit pursuant to a stock pairing arrangement. In
connection with the Cal Jockey Merger, Cal Jockey changed its name to "Patriot
American Hospitality, Inc." ("Patriot") and Bay Meadows changed its name to
"Patriot American Hospitality Operating Company." Subsequent to year end, as a
result of the merger of Wyndham Hotel Corporation with and into Patriot as
discussed in Note 21 (see also Note 12), Patriot American Hospitality Operating
Company changed its name to "Wyndham International, Inc." and is referred to
herein, collectively with its subsidiaries, as "Wyndham International". The term
"Companies" as used herein includes Patriot, Wyndham International and their
respective subsidiaries. Patriot and Wyndham International are both Delaware
corporations.
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. Consequently, the historical financial information of Old Patriot
became the historical financial information for Patriot. For accounting
purposes, Wyndham International commenced its operations concurrent with the
closing of the Cal Jockey Merger on July 1, 1997. The financial statements have
been adjusted for the purchase method of accounting whereby the Bay Meadows
Racecourse ("Racecourse") facilities and related leasehold improvements owned by
Cal Jockey and Bay Meadows have been adjusted to estimated fair market value.
The excess purchase consideration over the estimated fair market value of the
assets acquired and the liabilities assumed was recorded as goodwill.
By operation of the Cal Jockey Merger, each issued and outstanding share of
common stock, no par value per share of Old Patriot ("Old Patriot Common Stock")
was converted into 0.51895 shares of common stock, par value $0.01 per share of
Patriot ("Patriot Common Stock") and 0.51895 shares of common stock, par value
$0.01 per share of Wyndham International ("Wyndham International Common Stock"),
which shares are paired and transferable only as a single unit (collectively,
shares of Patriot Common Stock and shares of Wyndham International Common Stock
are referred to herein as the "Paired Shares"). 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 Wyndham International Common
Stock.
In connection with the Cal Jockey Merger, Bay Meadows formed an operating
partnership, Patriot American Hospitality Operating Partnership, L.P. (the "OpCo
Partnership") into which Bay Meadows contributed its assets in exchange for
units of limited partnership interest ("OP Units") of the OpCo Partnership, and
Cal Jockey contributed certain of its assets to Patriot American Hospitality
Partnership, L.P. (the "REIT Partnership") in exchange for OP Units of the REIT
Partnership (collectively, the OpCo Partnership and the REIT Partnership are
referred to herein as the "Operating Partnerships"). Subsequent to completion of
the Cal Jockey Merger and the transactions contemplated by the Cal Jockey Merger
Agreement, substantially all of the operations of Patriot and Wyndham
International have been conducted through the Operating Partnerships and their
subsidiaries.
Patriot, through its wholly owned subsidiary, PAH GP, Inc., is the sole
general partner and the holder of a 1.0% general partnership interest in the
REIT Partnership. In addition, Patriot, through its wholly owned subsidiary, PAH
LP, Inc., owns an approximate 85.3% limited partnership interest in the REIT
Partnership as of December 31, 1997.
Wyndham International owns a 1.0% general partnership interest and an
approximate 83.9% limited partnership interest in the OpCo Partnership as of
December 31, 1997.
F-17
<PAGE>
PATRIOT AMERICAN HOSPITALITY, INC. AND
WYNDHAM INTERNATIONAL, INC.
NOTES TO FINANCIAL STATEMENTS - (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
At December 31, 1997, Patriot, through the REIT Partnership and other
subsidiaries, owned interests in 91 hotels with an aggregate of over 23,300
guest rooms. Patriot leases each of its hotels, except the Crowne Plaza Ravinia
Hotel and the Wyndham WindWatch Hotel, which are separately owned through
special purpose entities, to Wyndham International or to other third party
lessees (the "Lessees") who are responsible for operating the hotels. At
December 31, 1997, Patriot leased 17 of its hotel investments to CHC Lease
Partners for staggered terms of ten to twelve 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
"Participating Leases"). Twelve of the hotels were leased to NorthCoast Hotels,
L.L.C. ("NorthCoast Lessee") under similar Participating Lease agreements. DTR
North Canton, Inc. (the "Doubletree Lessee") leased four hotels; and Metro
Hotels Leasing Corporation ("Metro Lease Partners") leased one hotel under
similar Participating Lease agreements. The Lessees, in turn, have entered into
separate agreements with hotel management entities (the "Operators") to manage
the hotels. The Crowne Plaza Ravinia Hotel and the Wyndham WindWatch Hotel
acquisitions were structured without lessees and are managed directly by Holiday
Inns, Inc. and Wyndham Hotel Corporation, respectively. At December 31, 1997,
Wyndham International leased 55 hotels from Patriot pursuant to Participating
Lease agreements which are substantially similar to the Participating Lease
agreements of the Lessees. Wyndham International manages 31 of these hotels
through certain of its hotel management subsidiaries and has entered into
separate management agreements with hotel Operators to manage 24 of the hotels.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Principles of Consolidation
The separate consolidated financial statements include the accounts of
Patriot and Wyndham International, their respective wholly-owned subsidiaries,
and the partnerships, corporations and limited liability companies in which
Patriot or Wyndham International own at least 50% controlling interest. The
separate consolidated financial statements of Patriot and Wyndham International
have also been combined for purposes of financial statement presentation. All
significant intercompany accounts and transactions have been eliminated.
Investment in Real Estate and Related Improvements
The hotel properties are stated at cost. Depreciation is computed using the
straight-line method based upon estimated useful lives of the assets of 35 years
for the hotel buildings and improvements, 7 years for the Racecourse facility
and 5 to 7 years for furniture, fixtures and equipment. These estimated useful
lives are based on management's knowledge of the properties and the industry in
general.
The acquisition of affiliated interests in the 20 hotels acquired in
connection with Old Patriot's Initial Offering (the "Initial Hotels") has been
recorded at predecessor cost. In connection with the Initial Offering, cash
payments to acquire the interests of predecessor owners who were deemed to be
affiliates of Old Patriot have been reflected as a reduction of shareholders'
equity in the accompanying financial statements in 1995.
In accordance with Statement of Financial Accounting Standards No. 121,
Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
be Disposed Of, Patriot would record impairment losses on long-lived assets used
in operations when events and circumstances indicate that the assets might be
impaired and the undiscounted cash flows estimated to be generated by those
assets are less than the carrying amounts of those assets. No such impairment
losses have been recognized to date.
Repairs and maintenance of hotel properties owned by Patriot are paid by
the Lessees (including Wyndham International). Major renewals and betterments
are capitalized. Interest associated with borrowings used to finance substantial
hotel renovations is capitalized and amortized over the estimated useful life of
the assets. Interest of $2,562 and $91 was capitalized in 1997 and 1996,
respectively.
F-18
<PAGE>
PATRIOT AMERICAN HOSPITALITY, INC. AND
WYNDHAM INTERNATIONAL, INC.
NOTES TO FINANCIAL STATEMENTS - (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
Cash and Cash Equivalents
All highly liquid investments with an original maturity date of three
months or less when purchased are considered to be cash equivalents.
Investment in Unconsolidated Subsidiaries
Patriot's investments in PAH Ravinia, Inc. ("PAH Ravinia"), the entity
which owns the Crowne Plaza Ravinia Hotel, PAH Windwatch, L.L.C. ("PAH
Windwatch"), the entity which owns the Wyndham WindWatch Hotel, and PAH
Boulders, Inc. (PAH Boulders"), the entity which owns certain assets including
the right to receive certain royalty fees, are accounted for using the equity
method of accounting. Patriot owns an approximate 99% non-voting interest in
each of these entities. The voting interests of PAH Ravinia and PAH Windwatch
are owned by partnerships in which Patriot has a 4% interest. The voting
interests of PAH Boulders are held by the OpCo Partnership. Patriot's share of
the net income of PAH Ravinia, PAH Windwatch and PAH Boulders is included in
Patriot's statement of operations.
Inventories
Inventories consist of food, beverages, china, linen, glassware and
silverware and are stated at cost, which approximates market.
Management contracts, trade names and franchise costs
The costs associated with the acquisition of management contracts, trade
names and franchises have been recorded as deferred costs. Amortization of
management contracts is computed using the straight-line method over the term of
the related management agreements. Amortization of trade names and franchise
costs is computed using the straight-line method over estimated useful lives
ranging from 20 to 35 years.
Deferred Expenses
Deferred expenses consist of the following:
<TABLE>
<CAPTION>
December 31,
-------------------------------
1997 1996
--------------- --------------
<S> <C> <C>
Deferred loan costs............................................. $ 22,798 $ 1,550
Leasing costs................................................... -- 1,684
Franchise fees.................................................. 429 429
Organization costs.............................................. 150 150
Other........................................................... 137 --
------------ -------------
23,514 3,813
Less: accumulated amortization.................................. (2,097) (750)
------------ -------------
$ 21,417 $ 3,063
============ =============
</TABLE>
Deferred loan costs are amortized to interest expense on a straight-line
basis (which approximates the interest method) over the terms of the related
loans, which range from one to ten years. Deferred loan costs includes $4,132 of
fully-amortized costs associated with Patriot's old line of credit facility
which was repaid in July 1997 (see Note 7). Leasing costs are amortized to
participating lease revenue over the lives of the leases. Pursuant to the
acquisition of certain leaseholds and a merger agreement described in Note 4,
the remaining unamortized balance of leasing costs was written off in 1997.
Franchise costs are amortized using the straight-line method over the terms of
the related franchise agreements. Amortization of organization costs is computed
using the straight-line method over five years.
F-19
<PAGE>
PATRIOT AMERICAN HOSPITALITY, INC. AND
WYNDHAM INTERNATIONAL, INC.
NOTES TO FINANCIAL STATEMENTS - (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
Goodwill
Goodwill recognized in connection with the acquisition of certain
businesses is amortized utilizing the straight-line method over a period of 20
to 40 years. Under generally accepted accounting principles the maximum
amortization period is 40 years for intangible assets.
Other Assets
Leasehold improvements and furniture, fixtures and equipment related to the
Companies' corporate offices are carried at cost and amortized over estimated
useful lives of 5 to 7 years.
Deposits
Deposits represent cash received from guests for future hotel reservations
at the hotels that Wyndham International manages.
Revenue Recognition
The REIT Partnership leases its hotel properties to Wyndham International
and the Lessees pursuant to separate Participating Leases. In addition, the REIT
Partnership leases the Racecourse facilities to Wyndham International pursuant
to a separate lease agreement (see Note 3). Lease income is recognized when
earned under the related leases. Wyndham International operates and manages
hotel properties and the Racecourse facility. Hotel revenue, management fees,
service fees, Racecourse facility revenue and other income are recognized when
earned.
Stock Splits
On January 30, 1997, the Board of Directors declared a 2-for-1 stock split
on Old Patriot Common Stock effected in the form of a stock dividend distributed
on March 18, 1997 to shareholders of record on March 7, 1997.
In addition, on July 10, 1997, the respective Boards of Directors of
Patriot and Wyndham International 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 shareholders of record on July 15, 1997.
Unless otherwise indicated, all references in the combined and consolidated
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 combined and
consolidated 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 distributed in March 1997
have been restated to reflect the impact of such stock split.
As a result of the 2-for-1 stock split in March 1997, the Cal Jockey Merger
and the 1.927-for-1 stock split in July 1997, the number of OP Units outstanding
and the OP Unit conversion factor has been adjusted to re-establish a 1-for-1
exchange ratio of OP Units to common shares.
Earnings per Share
The Companies have adopted Statement of Financial Accounting Standards No.
128 "Earnings Per Share" ("Statement 128") for the year ended December 31, 1997.
Statement 128 specifies the computation, presentation and disclosure
requirements for basic earnings per share and diluted earnings per share.
Earnings per share disclosures for all periods presented have been calculated in
accordance with requirements of Statement 128. Basic earnings per share is
computed based upon the weighted average number of shares of common stock
outstanding during the period presented. Shares of common stock granted to
officers and employees of Patriot and Wyndham International
F-20
<PAGE>
PATRIOT AMERICAN HOSPITALITY, INC. AND
WYNDHAM INTERNATIONAL, INC.
NOTES TO FINANCIAL STATEMENTS - (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
are included in the computation only after the shares become fully vested.
Diluted earnings per share is computed based upon the weighted average number of
shares of common stock and dilutive common stock equivalents outstanding during
the periods presented. The diluted earnings per share computations also include
options to purchase common stock which were outstanding during the period. The
number of shares outstanding related to the options has been calculated by
application of the "treasury stock" method. See Note 11 for more detailed
disclosures regarding the applicable numerators and denominators used in the
earnings per share calculations.
Dividends
Patriot intends to pay regular quarterly dividends in order to maintain its
REIT status under the Internal Revenue Code. Payment of such dividends is
dependent upon receipt of distributions from the REIT Partnership.
Stock Compensation
The Companies account for their stock compensation arrangements under the
provisions of Accounting Principles Board Opinion No. 25, "Accounting for Stock
Issued to Employees" ("APB 25") and intend to continue to do so. See Note 15 for
a discussion of the Companies' stock compensation arrangements and pro forma
disclosure of the effect on income from operations and earnings per share of
such arrangements pursuant to the requirements of Financial Accounting Standards
Board Statement 123, "Accounting for Stock-Based Compensation" ("Statement
123").
Equity Transactions Subject to Price Adjustment
The Companies have entered into various equity transactions which are
subject to price adjustment agreements based upon the future fair market value
of the Companies' Paired Shares. The agreements generally provide for a
quarterly settlement mechanism involving either cash or the issuance or receipt
of additional Paired Shares. At each settlement date, the Companies will record
an adjustment to equity for the change in fair market value of the Companies'
Paired Shares subject to these price adjustment agreements.
Minority Interest in the Operating Partnerships
Minority interest in the Operating Partnerships includes adjustments for
the minority partners' share of the current period net income and certain other
adjustments for the issuance or redemption of OP Units.
Income Taxes
Patriot intends to continue to qualify to be taxed as a REIT under Sections
856 through 860 of the Internal Revenue Code. Under the Internal Revenue Code,
if certain requirements are met in a tax year, a corporation that is treated as
a REIT will generally not be subject to federal income tax with respect to
income which it distributes to its shareholders. Patriot has declared dividends
in excess of its taxable income for 1996 and 1995. Accordingly, no provision for
income taxes has been reflected in the statement of operations. For federal
income tax purposes, 1997 dividends amounted to $1.17 per share, none of which
was considered return of capital. In 1996, dividends amounted to $0.98 per
share, none of which was considered return of capital and in 1995, dividends
amounted to $0.24 per share, 26% of which was considered a return of capital.
Earnings and profits, which determine the taxability of dividends to
shareholders, differ from net income reported for financial reporting purposes
due to differences for federal tax purposes in the estimated useful lives used
to compute depreciation and the carrying value (basis) of the investment in
hotel properties. Additionally, certain costs associated with the Initial
Offering are treated differently for federal tax purposes than for financial
reporting purposes.
Wyndham International records its provision for income taxes in accordance
with Statement of Financial Accounting Standard No. 109 ("Statement 109"). Under
the liability method of Statement 109, deferred taxes are determined based on
the difference between the financial statements and tax bases of assets and
liabilities using enacted tax rates in effect in the years the differences are
expected to reverse. See Note 16.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
F-21
<PAGE>
PATRIOT AMERICAN HOSPITALITY, INC. AND
WYNDHAM INTERNATIONAL, INC.
NOTES TO FINANCIAL STATEMENTS - (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
Concentrations
With the exception of its investment in the Racecourse facility, Patriot
currently invests exclusively in hotel properties. The hotel industry is highly
competitive and Patriot's hotel investments are subject to competition from
other hotels for guests. Each of Patriot's hotels competes for guests primarily
with other similar hotels in its immediate vicinity and other similar hotels in
its geographic market. Patriot believes that brand recognition, location, the
quality of the hotel and services provided, and price are the principal
competitive factors affecting its hotel investments.
In 1997, 1996 and 1995, Patriot earned rents under the Participating Leases
of $177,659, $75,893 and $10,582, respectively (net of leasing cost amortization
of $102, $116 and $23, respectively), of which $52,714, $54,186 and $10,432 was
earned from the Participating Leases with CHC Lease Partners in 1997, 1996 and
1995, respectively. (In addition, Patriot earned rents under the Participating
Leases with Wyndham International of $50,626 in 1997. Such participating lease
revenue and the related expense has been eliminated in the combined statements
of operations.) Patriot must rely on Wyndham International and the Lessees to
generate sufficient cash flow from operation of the hotels to enable the Lessees
to meet rent obligations under the Participating Leases. (See also Note 3 for
discussion of the agreement to acquire certain affiliates of CHC Lease Partners
and, as a result, acquire the remaining 17 leasehold interests held by CHC Lease
Partners).
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
revenues at Patriot's hotels may cause quarterly fluctuations in Patriot's lease
revenues.
Reclassification
Certain prior year balances have been reclassified to conform to the
current year presentation.
Comprehensive Income
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 130 ("Statement 130"), "Reporting
Comprehensive Income." Statement 130 requires that all components of
comprehensive income and the ending accumulated balances for each item,
classified by their nature, be reported in the financial statements in the
period in which they are recognized. Statement 130 is effective for fiscal years
beginning after December 15, 1997. The Companies will be required to adopt
Statement 130 beginning with their interim financial statements for the first
quarter of 1998. Comparative financial statements for prior years presented in
these interim financial statements are required to be reclassified to conform to
the new Statement 130 presentation. Management does not anticipate that adoption
of Statement 130 reporting requirements will have a material impact on the
operating results or financial position of the Companies.
Segment Reporting
In June 1997, FASB issued SFAS No. 131 ("SFAS 131"), "Disclosures about
Segments of an Enterprise and Related Information". SFAS 131 specifies revised
guidelines for determining the entity's operating segments and the type and
level of financial information to be disclosed. SFAS 131 changes current
practice by establishing new framework on which to base segment reporting,
including the determining of a segment and the financial information to be
disclosed for each segment, referred to as "management" approach. The management
approach requires that management identify "operating segments" based on the way
that management disaggregates the entity for making internal operating
decisions. SFAS 131 is effective for the fiscal years beginning after December
15, 1997, and requires restatement of information for earlier periods.
Management is determining the segments to be disclosed and intends to adopt the
statement for the year ended December 31, 1998.
F-22
<PAGE>
PATRIOT AMERICAN HOSPITALITY, INC. AND
WYNDHAM INTERNATIONAL, INC.
NOTES TO FINANCIAL STATEMENTS - (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
3. INVESTMENTS IN REAL ESTATE AND RELATED IMPROVEMENTS AND LAND HELD FOR
DEVELOPMENT:
Investment in Real Estate and Related Improvements and Land Held for
Development consists of the following:
<TABLE>
<CAPTION>
As of
December 31,
As of December 31, 1997 1996
---------------------------------------------------------------- ------------
Patriot
---------------------------------------------- Patriot
Hotel Racecourse Wyndham Hotel
Properties Facility Total International Properties
------------- ------------ ------------ ------------- ------------
<S> <C> <C> <C> <C> <C>
Land.......................... $ 168,222 $ -- $ 168,222 $ -- $ 56,739
Land held for development..... 17,980 -- 17,980 -- --
Buildings and improvements.... 1,676,551 18,795 1,695,346 -- 540,755
Furniture, fixtures and
equipment.................. 187,705 517 188,222 29,686 64,146
Renovations in progress....... 13,998 -- 13,998 -- --
------------- ------------ ------------ ------------ ------------
2,064,456 19,312 2,083,768 29,686 661,640
Less: accumulated depreciation (66,122) (1,379) (67,501) (1,304) (19,815)
------------- ------------ ------------ ------------ ------------
$ 1,998,334 $ 17,933 $ 2,016,267 $ 28,382 $ 641,825
============= ============ ============ ============ ============
</TABLE>
Investments in Hotel Properties
During 1995, Old Patriot, through the REIT Partnership, acquired 21 hotels
for approximately $327,236 (including closing costs). These acquisitions were
financed primarily with net proceeds of the Initial Offering and $47,685 in OP
Units (including $38,322 in OP Units paid to affiliates). In connection with the
assumption and repayment of mortgage and other indebtedness on certain of these
properties, Patriot assumed $680 in unamortized deferred financing costs which
were written off upon repayment of the debt, and paid $174 in mortgage
prepayment penalties. These amounts have been reported as an extraordinary item
in the accompanying financial statements.
During 1996, Old Patriot acquired investments in 23 hotels for
approximately $372,147 (including closing costs and approximately $3,456 related
to the assumption of operating liabilities and acquisition costs). These
acquisitions were financed primarily with funds drawn on Old Patriot's line of
credit facility and the issuance of 600,703 OP Units valued at approximately
$16,391. In addition, the payment of a portion of the purchase price related to
the acquisition of six of the hotels, in the amount of $2,000, was paid in
February 1998. This amount is included in accounts payable and accrued expenses
at December 31, 1997 and 1996.
During 1997, Patriot, through the REIT Partnership and its subsidiaries,
invested approximately $1,331,459 in the acquisition of 45 hotels with a total
of approximately 12,000 guest rooms. These acquisitions were financed primarily
with funds drawn on Patriot's revolving credit facility (and Old Patriot's line
of credit), the $350,000 term loan, new mortgage financing in the amount of
$236,892, the issuance of 5,629,172 OP Units valued at approximately $130,137,
the issuance of 1,719,535 Paired Shares valued at approximately $38,492,
like-kind exchange of properties (see discussion below) and the assumption of
mortgage debt in the amount of approximately $34,263.
Like-Kind Exchange of Properties
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
Incorporated ("PaineWebber") for a purchase price of approximately $80,864 (the
"PaineWebber
F-23
<PAGE>
PATRIOT AMERICAN HOSPITALITY, INC. AND
WYNDHAM INTERNATIONAL, INC.
NOTES TO FINANCIAL STATEMENTS - (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
Land Sale"). 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 1997, six hotels were acquired using the
proceeds from this restricted account. Patriot retained ownership of the
improvements located on the land, including the Racecourse and its related
facilities.
Cal Jockey Merger
At the closing of the Cal Jockey Merger, 11,105,795 paired shares of
Cal Jockey and Bay Meadows were outstanding, resulting in total purchase
consideration for the transaction of approximately $190,188 (of which $130,516
related to Cal Jockey and $59,672 related to Bay Meadows). The estimated value
of the Cal Jockey and Bay Meadows paired shares was $33.00 per paired share
based on a conversion ratio of Old Patriot Common Stock into Paired Shares equal
to 0.51895, and the closing market price of Old Patriot's Common Stock on
October 30, 1996 (the date the Cal Jockey Merger Agreement was executed) of
$17.125.
Land Leases
Simultaneous 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. Patriot has subleased the Racecourse land and leased
the related improvements to a wholly owned subsidiary of Wyndham International
in order to permit Wyndham International 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 substantially all
of Patriot's development obligations including, but not limited to, all
obligations for on and off-site improvements and all obligations under existing
lease and contracts. Pursuant to the agreement, Patriot is obligated to fund up
to $10,250 of development costs for new stables ($4,000 of which has been funded
as of December 31, 1997). The parties have the option to renew such leases upon
their expiration under certain circumstances.
Land Held for Development
In connection with the acquisition of four resort properties, Patriot
acquired certain land held for development, including commercial and residential
land and construction in progress of single-family homes. Patriot recorded
proceeds of approximately $8,393 as a result of land sales for the year ended
December 31, 1997 which was recorded as a reduction in the basis of land held
for development. As part of the continued growth of the Companies, Patriot
intends to sell the land held for development to Wyndham International to
further develop.
4. OTHER BUSINESSES ACQUIRED:
Grand Heritage
In August 1997, Wyndham International acquired Grand Heritage Hotels,
Inc. a hotel management and marketing company, and other Grand Heritage
subsidiaries including Grand Heritage Leasing, L.L.C. which leased three hotels
from Patriot (the "Grand Heritage Acquisition"). The total purchase price for
the Grand Heritage Acquisition was approximately $22,500 which was financed
primarily through the issuance of 931,972 Class A preferred OP Units of Wyndham
International.
Grand Heritage Hotels, Inc., directly and through certain of its
subsidiaries, owns 17 management contracts, five of which are related to hotels
leased by Wyndham International.
F-24
<PAGE>
PATRIOT AMERICAN HOSPITALITY, INC. AND
WYNDHAM INTERNATIONAL, INC.
NOTES TO FINANCIAL STATEMENTS - (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
Gencom American Hospitality and CHC International, Inc.
Effective September 1, 1997, Patriot acquired the leasehold interests
related to seven Patriot hotels which were previously leased by CHC Lease
Partners and re-leased such hotels to Wyndham International. Prior to such
acquisition, the management contracts with GAH-II, L.P. ("GAH"), an affiliate of
CHC International, Inc. ("CHCI") and the Gencom American Hospitality group of
companies ("Gencom"), along with the leaseholds related to the seven hotels were
terminated. In a related transaction effective October 1, 1997, Patriot acquired
one additional leasehold interest related to a Patriot hotel previously leased
by CHC Lease Partners and re-leased such hotel to Wyndham International (the
hotel's management contract with CHCI was also terminated prior to the
acquisition). The aggregate purchase price of the eight leasehold interests was
approximately $52,766, which is reflected as a cost of acquiring leaseholds in
the accompanying statements of operations of Patriot. Concurrently, Wyndham
International 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 REIT Partnership and the OpCo
Partnership and 476,682 preferred OP Units of the OpCo Partnership.
GAH, directly and through certain of its subsidiaries, owns 16 third-
party management contracts, and certain other hospitality management assets.
Concurrent with Wyndham International's purchase of its controlling interest in
GAH, Wyndham International also entered into a Hospitality Advisory, Asset
Management and Support Services Agreement with CHCI and GAH whereby Wyndham
International will provide certain hospitality advisory, asset management and
support services to certain CHCI and GAH subsidiaries for a base fee aggregating
approximately $750 per month plus a percentage of excess cash flows of the
hotels. Wyndham International reported income of $2,944 in 1997 under the
provisions of this agreement (after elimination of $871 of income related to
GAH).
Patriot, Wyndham International and CHCI have also entered into an
Agreement and Plan of Merger dated as of September 30, 1997 (the "CHCI Merger
Agreement"), providing, subject to regulatory approvals, for the merger of the
hospitality-related businesses of CHCI with and into Wyndham International with
Wyndham International 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 second quarter of 1998. As a result of the CHCI Merger, Wyndham
International, 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,
12 third-party management contracts, 2 third-party lease contracts, the Grand
Bay and Registry Hotels & Resorts proprietary brand names and certain other
hospitality management assets. Wyndham International has also agreed to provide
CHCI with a $7,000 line of credit until such time as the CHCI Merger is
completed. As of December 31, 1997, Wyndham International had advanced a total
of $1,000 to CHCI pursuant to such line of credit arrangement (see Note 6).
By operation of the CHCI Merger, each issued and outstanding share of
common stock, par value $0.005 per share, of CHCI ("CHCI Shares") and certain
stock option rights will be converted into the right to receive shares of Series
A Redeemable Convertible Preferred Stock, par value $0.01 per share of Wyndham
International (the "Wyndham International Series A Preferred Stock") and shares
of Series B Redeemable Convertible Preferred Stock, par value $0.01 per share,
of Wyndham International (the "Wyndham International Series B Preferred Stock").
The formula for determining the exchange ratio of CHCI Shares for Wyndham
International Series A Preferred Stock and Wyndham International Series B
Preferred Stock is based on issuing an aggregate of approximately 4,396,000
shares of Wyndham International 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 of Patriot and
Wyndham International common stock after September 30, 1997. Generally, the
aggregate number of shares of Wyndham International preferred stock that each
shareholder shall have the right to receive pursuant to the CHCI
F-25
<PAGE>
PATRIOT AMERICAN HOSPITALITY, INC. AND
WYNDHAM INTERNATIONAL, INC.
NOTES TO FINANCIAL STATEMENTS - (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
Merger shall consist of, to the extent possible, an equal number of Wyndham
International Series A Preferred Stock and Wyndham International Series B
Preferred Stock.
In connection with the acquisition of GAH, preferred OP Units of the
OpCo 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, Wyndham
International may be obligated to pay the CHCI stockholders and a subsidiary of
Wyndham International may be obligated to pay a Gencom-related entity additional
consideration, in each case based upon the delivery and performance of certain
specified assets.
5. INVESTMENTS IN AND MORTGAGE NOTES RECEIVABLE FROM UNCONSOLIDATED
SUBSIDIARIES:
In December 1995, Patriot, through the REIT Partnership, acquired an
approximate 99% non-voting ownership interest in PAH Ravinia, a Virginia
corporation, for $4,458 and PAH Ravinia acquired the 495-room Crowne Plaza
Ravinia Hotel in Atlanta, Georgia.
As part of the financing for the acquisition of the Crowne Plaza
Ravinia Hotel, Patriot, through the REIT Partnership, advanced $40,500 to PAH
Ravinia, which is evidenced by two mortgage notes consisting of a $36,000 first
mortgage note and a $4,500 second mortgage note. The principal amount of both
notes is due November 28, 1998. Interest at an annual rate equal to 10.25% and
12.5% on the first and second mortgage notes, respectively, is payable monthly.
All amounts owing under the mortgage notes will become due upon a sale of the
hotel to a third party purchaser. The mortgage notes are collateralized by deeds
of trust on the Crowne Plaza Ravinia Hotel.
In September 1996, Patriot, through the REIT Partnership, acquired an
approximate 99% non-voting ownership interest in PAH Windwatch, a Delaware
limited liability company. Patriot's investment in PAH Windwatch of
approximately $6,217 is evidenced by a promissory note. PAH Windwatch acquired
the 362-room Wyndham WindWatch Hotel (formerly the Marriott WindWatch Hotel) in
Hauppauge (Long Island), New York for approximately $31,102.
As part of the financing for the acquisition of the Wyndham WindWatch
Hotel, Patriot, through the REIT Partnership, advanced PAH Windwatch $31,400
which is evidenced by a first lien mortgage note. The principal amount of the
note is due on August 31, 1999. Interest at an annual rate equal to 9% is
payable monthly. All amounts owed under the mortgage note will become due upon
the sale of the hotel to a third party purchaser. The mortgage note is
collateralized by a deed of trust on the Wyndham WindWatch Hotel.
In January 1997, in connection with the acquisition of four resort
properties, Patriot, through the REIT Partnership, contributed certain assets
associated with these resorts (including the right to receive certain royalty
fees) valued at $1,574 in exchange for an approximate 99% non-voting ownership
interest in PAH Boulders, Inc., a Virginia corporation. The controlling 1%
voting ownership interest in PAH Boulders, Inc. was held by certain executive
officers of Patriot. In October 1997, Wyndham International acquired this 1%
voting ownership interest for nominal consideration.
6. OTHER NOTES RECEIVABLE:
On August 1, 1997, Wyndham International 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 (the
"Participating Note"). The Participating Note has an outstanding principal
balance at December 31, 1997 of $8,664. The difference between the purchase
price of the Participating Note and the principal balance was recorded as
deferred acquisition cost. The Participating Note is subordinated to a ground
lease, a $50,300 first leasehold mortgage loan and a separate $8,500
participating loan and bears interest at a rate of 13% per annum. See Notes 12
and 21.
F-26
<PAGE>
PATRIOT AMERICAN HOSPITALITY, INC. AND
WYNDHAM INTERNATIONAL, INC.
NOTES TO FINANCIAL STATEMENTS - (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
On November 30, 1997, Wyndham International loaned $3,250 to a
partnership affiliated with certain former owners of Grand Heritage management
company who own the Broadview Hotel in Wichita, Kansas. The promissory note
accrues interest at a rate of 12.5% per annum. Monthly payments of interest at a
rate of 9.5% per annum are required. In addition, monthly interest payments at a
rate of 3.0% per annum are payable from excess cash flow (as defined in the note
agreement). The principal balance and all unpaid accrued interest are due on
November 30, 2000. As of December 31, 1997, the outstanding principal and
accrued interest balance of this note was $3,315.
In connection with the CHCI Merger agreement, Wyndham International has
advanced an aggregate of $1,000 to CHCI as of December 31, 1997. These advances
bear interest at a rate of 1% above the interest rate applicable to base rate
loans under the Companies' unsecured revolving credit facility (as such rate is
defined in the revolving credit facility agreement). Interest payments are
required monthly in arrears. The advances may be prepaid without penalty and are
due upon the closing of the CHCI Merger (see Note 4).
7. LINE OF CREDIT FACILITY, TERM LOAN AND MORTGAGE NOTES:
Outstanding borrowings under Patriot's line of credit facilities, term
loan and various mortgage notes consist of the following:
<TABLE>
<CAPTION>
December 31,
---------------------------
1997 1996
------------- -------------
<S> <C> <C>
Line of credit facilities ................................... $ 455,743 $ 192,339
Term Loan ................................................... 350,000 --
Paine Webber Mortgage Financing ............................. 103,000 --
Mortgage notes payable to Metropolitan Life Insurance
Company..................................................... 98,892 --
Other mortgage debt ......................................... 104,702 22,000
---------- ----------
$1,112,337 $ 214,339
========== ==========
</TABLE>
Line of Credit Facilities
Unsecured Revolving Credit Facility. On July 21, 1997, the Companies
entered into a revolving credit facility with Paine Webber Real Estate, The
Chase Manhattan Bank ("Chase") and certain other lenders for a 3-year unsecured
Revolving Credit Facility (the "Revolving Credit Facility"). The original
Revolving Credit Facility commitment was in the amount of $700,000, however, in
December 1997, this amount was increased 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 may also be used for 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 1.0% to 2.0% (depending on the Companies'
leverage ratio or investment grade ratings 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 Companies' leverage ratio). The weighted average interest rate
in effect for the Revolving Credit Facility for the period ended December 31,
1997 was 7.63% per annum. As of December 31, 1997, $455,743 was outstanding
under the Revolving Credit Facility.
The Revolving Credit Facility requires the Companies to maintain
certain financial ratios with respect to liquidity, loan to value and net worth
and imposes certain limitations on acquisitions. The Companies are in compliance
with such covenants at December 31, 1997. The unused commitment under the
Revolving Credit Facility at December 31, 1997 is $444,257, subject to certain
restrictions and provisions of the Revolving Credit Facility Agreement.
F-27
<PAGE>
PATRIOT AMERICAN HOSPITALITY, INC. AND
WYNDHAM INTERNATIONAL, INC.
NOTES TO FINANCIAL STATEMENTS - (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
The Companies have entered into three interest rate swap arrangements
to swap floating rate LIBOR-based interest rates for fixed rate interest amounts
as a hedge against $375,000 of the outstanding balance on the Revolving Credit
Facility. Each of the interest rate swaps covers $125,000 of borrowings under
the Revolving Credit Facility and fixes the LIBOR portion of the Revolving
Credit Facility interest rate at 6.09%, 6.255%, and 6.044%, respectively. The
interest rate swap arrangements expire November 2002. If the actual LIBOR rate
is less than the specified fixed interest rate, Patriot is obligated to pay the
differential interest amount, such amount being recorded as incremental interest
expense. If the LIBOR is greater than the specified fixed interest rate, the
differential interest amount is refunded to Patriot. Patriot paid $587 of net
incremental interest expense related to the interest rate swap arrangements in
1997.
Old Line of Credit. In connection with the Initial Offering, Old
Patriot obtained the Old Line of Credit, a revolving credit facility to fund the
acquisition of hotels, renovations and capital improvements to hotels and for
general working capital purposes. The Old Line of Credit was collateralized by a
first mortgage lien on certain of the hotels. The Old Line of Credit incurred
interest on outstanding balances at a rate per annum equal to the 30-day LIBOR
rate plus 1.90%. LIBOR was 5.56% at December 31, 1996 and 5.69% at December 31,
1995. The weighted average interest rate incurred by Patriot during 1996 and
1995 under this borrowing was 7.38% and 7.71%, respectively. The Old Line of
Credit was repaid with funds drawn on the Revolving Credit Facility in July
1997. In connection with the repayment of the Old Line of Credit, $2,910 of
unamortized deferred loan costs related to the Old Line of Credit were written
off. Such amount (net of the minority interest portion which equals $376) has
been reported as an extraordinary item in Patriot's consolidated statements of
operations.
Term Loan
Patriot has a $350,000 unsecured term loan with Paine Webber Real
Estate and Chase (the "Term Loan"). The Term Loan was used to finance payments
made in connection with the acquisition in December 1997 of certain hotel
properties, has an interest rate per annum equal to the interest rate on the
Revolving Credit Facility (7.96% at December 31, 1997), and matures January 31,
1999.
Paine Webber Mortgage Financing
In July 1997, Patriot entered into a short-term financing arrangement
(the "Paine Webber Mortgage Financing") with an affiliate of Paine Webber Real
Estate Securities, Inc. ("Paine Webber Real Estate") 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.
The weighted average interest rate incurred under this borrowing was 7.6% for
the period ended December 31, 1997. The proceeds of the Paine Webber Mortgage
Financing were used by Patriot to fund or acquire four mortgage loans to certain
partnerships affiliated with members of CHC Lease Partners. The Paine Webber
Mortgage Financing is secured by a collateral assignment of the first lien
mortgage loans encumbering four hotels (which have an aggregate net book value
as of December 31, 1997 of $122,786). In September and October 1997, Patriot,
through the REIT Partnership and certain other subsidiaries, acquired the four
partnerships that own the hotels securing these mortgage notes.
Metropolitan Life Insurance Company Mortgage Notes
In connection with the purchase of four hotels in September 1997,
Patriot obtained $98,892 of mortgage financing with Metropolitan Life Insurance
Company encumbering six hotels (which have an aggregate net book value as of
December 31, 1997 of $197,488). The loans bear interest at 8.08% per annum, and
require monthly payments of interest only until 1999. Thereafter, monthly
payments of principal and interest, in the amount of $755 are required until the
October 1, 2007 maturity date.
Other Mortgage Debt
Patriot, through the REIT Partnership and other subsidiaries, is
obligated under other mortgage notes with various banks and financial
institutions that, as of December 31, 1997, had outstanding balances totaling
$104,702. These notes are collateralized by mortgage liens on the property and
equipment of seven hotels (which have an
F-28
<PAGE>
PATRIOT AMERICAN HOSPITALITY, INC. AND
WYNDHAM INTERNATIONAL, INC.
NOTES TO FINANCIAL STATEMENTS - (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
aggregate net book value as of December 31, 1997 of $147,711). The notes
bear interest at rates ranging from 6.5% to 9.75% per annum and maturity dates
in 1998 through 2005. The weighted average interest rate incurred by Patriot
under these borrowings during the year ended December 31, 1997 was 7.35%.
Under the terms of the related loan agreements, principal amortization
and balloon payment requirements at December 31, 1997 are as follows for each of
the next five years:
Year Amount
---- ------
1998........................................ $ 160,132
1999........................................ 350,826
2000........................................ 457,521
2001........................................ 1,928
2002........................................ 2,090
2003 and thereafter......................... 139,840
-------------
$ 1,112,337
=============
Forward Sale Transaction
In addition, in November 1997, Patriot entered into two forward sale
transactions with The Chase Manhattan Bank in the aggregate principal amount of
$275,000. The terms of the transactions provide that on June 2, 1998, either
Chase will be obligated to pay Patriot or Patriot will be obligated to pay Chase
a cash settlement amount based on the then current yield on 10-year U.S.
Treasury Notes. The forward sale transactions cover principal amounts of
$175,000 with a forward yield of 6.0% and $100,000 with a forward yield of
5.995%. If the index price of the securities on June 1, 1998 is greater than the
"Forward Price" (which is to be calculated based on the forward yield rate and
the economic variables applicable to 10-year U.S. Treasury Notes), Patriot will
be obligated to pay Chase a cash settlement amount based on the spread between
the index price and the Forward Price times the principal amount. If the index
price is less than the Forward Price, Chase will be obligated to pay Patriot a
cash settlement amount based on the spread between the index price and the
Forward Price times the principal amount.
8. SUBSCRIPTION NOTES:
In order to effect the issuance of the paired shares of common stock
and OP Units which were issued in the Cal Jockey Merger, the REIT Partnership
subscribed for shares of Bay Meadows common stock (which became shares of
Wyndham International Common Stock) 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, the REIT Partnership similarly subscribed for OP
Units in the OpCo Partnership in an amount equal to the number of OP Units of
the REIT Partnership that were outstanding subsequent to the Cal Jockey Merger.
These subscriptions were funded through the issuance of promissory notes in the
aggregate amount of $58,901 (the "Subscription Notes") payable to Wyndham
International. The Subscription Notes, as amended, accrue interest at a rate of
8% per annum and mature December 31, 1998. As of December 31, 1997, the
Subscription Notes balance remaining outstanding was $12,875. The combined
statements of operations for the year ended December 31, 1997 reflect the
elimination of $1,103 of interest income and expense related to the Subscription
Notes.
F-29
<PAGE>
PATRIOT AMERICAN HOSPITALITY, INC. AND
WYNDHAM INTERNATIONAL, INC.
NOTES TO FINANCIAL STATEMENTS - (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
9. PARTICIPATING LEASES:
The REIT Partnership has leased the hotels under the Participating
Leases to Wyndham International and the Lessees through 2008. Minimum future
rental income under these non-cancelable operating leases for the next five
years and thereafter is as follows:
Rent Amount
------------------------------------
Wyndham
Year Lessees International
---- ------- -------------
1998.................. $ 57,410 $ 117,557
1999.................. 55,588 102,729
2000.................. 55,824 102,904
2001.................. 56,055 103,079
2002.................. 56,289 75,806
2003 and thereafter... 231,682 48,731
------------- -------------
$ 512,848 $ 550,806
============= =============
The Participating Leases obligate Patriot to establish a reserve for
capital improvements for the replacement and refurbishment of furniture,
fixtures and equipment and other capital expenditures. Patriot and the Lessees
(including Wyndham International) agree on the use of funds in these reserves,
and Patriot has the right to approve the Lessees' annual and long-term capital
expenditures budgets. Such reserve amount is to average 4.0% of total revenues
for the hotels. At December 31, 1997 and 1996, $5,005 and $2,458, respectively,
of cash is reserved for capital improvements, net of capital improvements made
to date.
Generally, Patriot is responsible for the payment of (i) real estate
and personal property taxes on its hotel investments (except to the extent that
personal property associated with the hotels is owned by the Lessees), (ii)
casualty insurance on the hotels and (iii) business interruption insurance on
the hotels. The Lessees are required to pay for all liability insurance on
Patriot's hotels, with extended coverage, including comprehensive general public
liability, workers' compensation and other insurance appropriate and customary
for properties similar to Patriot's hotels with Patriot as an additional named
insured.
In connection with the acquisition of its initial 20 hotel investments
in 1995, Patriot acquired the inventories for these hotels with an estimated
fair market value of $2,035. The inventories were transferred to CHC Lease
Partners for its use in the operation of the hotels. Under the Participating
Lease Agreements for these hotels, CHC Lease Partners was obligated to return an
equivalent inventory to Patriot at the end of the respective lease terms, less
$1,000. The $1,000 was considered a lease inducement and was recorded as a
reduction in inventory and an increase in deferred expenses. In connection with
the acquisition of one other hotel in 1996, Patriot recorded an additional lease
inducement of $685. These amounts were being amortized to Participating Lease
revenue on a straight-line basis over the lives of the leases. In connection
with the acquisition of eight leasehold interests from CHC Lease Partners in
September and October 1997, the remaining unamortized lease inducement balance
was written off as a cost of acquiring these leaseholds.
10. MANAGEMENT SERVICES AND RELATED REVENUES:
During 1997, in connection with the Grand Heritage Acquisition, the GAH
Acquisition and other transactions, Wyndham International entered into or
acquired management agreements for 43 hotels. As of December 31, 1997, Wyndham
International manages 31 of Patriot's hotels and 12 hotels owned by third
parties. Management fees earned for hotels owned by Patriot were $3,626 in 1997.
Income and expense for such fees have been eliminated in the accompanying
combined financial statements.
F-30
<PAGE>
PATRIOT AMERICAN HOSPITALITY, INC. AND
WYNDHAM INTERNATIONAL, INC.
NOTES TO FINANCIAL STATEMENTS - (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
11. COMPUTATION OF EARNINGS PER SHARE:
Basic and diluted earnings per share have been computed as follows:
Combined
<TABLE>
<CAPTION>
Period October 2, 1995
(inception of
Year Ended Year Ended operations) through
December 31, 1997 December 31, 1996 December 31, 1995
----------------------- ------------------------ ------------------------
Basic Diluted Basic Diluted Basic Diluted
----------- ----------- ----------- ------------ ----------- ------------
(in thousands, except per share amounts)
<S> <C> <C> <C> <C> <C> <C>
Income before extraordinary item....$ 362 $ 362 $ 37,991 $ 37,991 $ 6,096 $ 6,096
Extraordinary loss.................. (2,534) (2,534) -- -- (737) (737)
--------- --------- ---------- --------- ---------- ----------
Net (loss) income...................$ (2,172) $ (2,172) $ 37,991 $ 37,991 $ 5,359 $ 5,359
========= ========= ========== ========= ========== ==========
Weighted average number of Paired
Shares outstanding............... 54,201 54,201 35,400 35,400 29,213 29,213
========= ========= ========== ==========
Dilutive securities:
Effect of unvested stock grants.. 264 119
Dilutive options to purchase
Paired Shares.................. 274 16
--------- ----------
35,938 29,348
========= ==========
Earnings per Paired Share:
Income before extraordinary item.
$ 0.01 $ 0.01 $ 1.07 $ 1.06 $ 0.21 $ 0.21
Extraordinary loss............... (0.05) (0.05) -- -- (0.03) (0.03)
--------- --------- --------- -------- ---------- ----------
Net (loss) income................$ (0.04) $ (0.04) $ 1.07 $ 1.06 $ 0.18 $ 0.18
========= ========= ========= ========= ========== ==========
</TABLE>
The dilutive effect of unvested stock grants of 804 and options to
purchase common stock of 1,017 were not included in the computation of diluted
earnings per share for the year ended December 31, 1997 because they are
anti-dilutive.
F-31
<PAGE>
PATRIOT AMERICAN HOSPITALITY, INC. AND
WYNDHAM INTERNATIONAL, INC.
NOTES TO FINANCIAL STATEMENTS - (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
Period October 2, 1995
(inception of
Year Ended Year Ended operations) through
December 31, 1997 December 31, 1996 December 31, 1995
---------------------- ----------------------- ------------------------
Basic Diluted Basic Diluted Basic Diluted
----------- ---------- ---------- ----------- ----------- -----------
(in thousands, except per share amounts)
<S> <C> <C> <C> <C> <C> <C>
Income before extraordinary item....$ 382 $ 382 $ 37,991 $ 37,991 $ 6,096 $ 6,096
Extraordinary loss.................. (2,534) (2,534) -- -- (737) (737)
--------- --------- ---------- --------- ---------- ----------
Net (loss) income...................$ (2,152) $ (2,152) $ 37,991 $ 37,991 $ 5,359 $ 5,359
========= ========= ========== ========= ========== ==========
Weighted average number of common
shares outstanding............... 54,201 54,201 35,400 35,400 29,213 29,213
========= ========= ========== ==========
Dilutive securities:
Effect of unvested stock grants.. 264 119
Dilutive options to purchase
common stock................... 274 16
--------- ----------
35,938 29,348
========= ==========
Earnings per share:
Income before extraordinary item.
$ 0.01 $ 0.01 $ 1.07 $ 1.06 $ 0.21 $ 0.21
Extraordinary loss............... (0.05) (0.05) -- -- (0.03) (0.03)
--------- --------- --------- -------- ---------- ----------
Net (loss) income................$ (0.04) $ (0.04) $ 1.07 $ 1.06 $ 0.18 $ 0.18
========= ========= ========= ========= ========== ==========
</TABLE>
The dilutive effect of unvested stock grants of 804 and options to
purchase common stock of 1,017 were not included in the computation of diluted
earnings per share for the year ended December 31, 1997 because they are
anti-dilutive.
Wyndham International
<TABLE>
<CAPTION>
Year Ended
December 31, 1997
-----------------------
Basic Diluted
----------- ----------
(in thousands,
except per share amounts)
<S> <C> <C>
Net loss......................................................$ (20) $ (20)
========= =========
Weighted average number of common shares outstanding.......... 54,201 54,201
========= =========
Earnings per share:
Net loss...................................................$ (0.00) $ (0.00)
========= =========
</TABLE>
The dilutive effect of unvested stock grants of 804 and options to
purchase common stock of 1,017 were not included in the computation of diluted
earnings per share for the year ended December 31, 1997 because they are
anti-dilutive.
See Note 15 for a discussion of the impact of Statement 123
("Accounting for Stock-Based Compensation") on earnings per share.
F-32
<PAGE>
PATRIOT AMERICAN HOSPITALITY, INC. AND
WYNDHAM INTERNATIONAL, INC.
NOTES TO FINANCIAL STATEMENTS - (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
12. COMMITMENTS AND CONTINGENCIES:
Office Lease
Patriot had an agreement with an affiliate to provide Patriot with
office space and limited support personnel for Patriot's headquarters for an
annual fee of approximately $141 through February 1998. Pursuant to the merger
with Wyndham Hotel Corporation (see discussion below and Note 21), Patriot
terminated its agreement with the affiliate and entered into an agreement with
an affiliate of Wyndham Hotel Corporation to provide the Companies with office
space for the Companies' headquarters. The lease term is for a period of 10
years and requires annual rent payments of $1,197 through 2007.
Employment Agreements
The Companies have entered into employment agreements with each of
their respective executive officers. Generally, the agreements provide for
annual base compensation with any increases during the three-year term of the
agreement to be approved by the Compensation Committees of Patriot's or Wyndham
International's Board of Directors, as applicable.
Business Combinations
Wyndham Hotel Corporation. On April 14, 1997, Old Patriot entered into
a merger agreement with Wyndham Hotel Corporation ("Old Wyndham") which was
later ratified by Patriot and Wyndham International, (the "Wyndham Merger
Agreement") through which Old Wyndham will merge with and into Patriot (the
"Wyndham Merger"), with Patriot being the surviving company. Concurrently, Old
Patriot and CF Securities, L.P. ("CF Securities"), the principal stockholder of
Old Wyndham, entered into a stock purchase agreement (the "Stock Purchase
Agreement"). The Merger Agreement generally provides for the conversion of each
outstanding share of common stock, par value $0.01 per share, of Old Wyndham
(the "Old Wyndham Common Stock"), other than shares as to which the holder
thereof has elected to receive cash (subject to proration), into the right to
receive 1.372 Paired Shares. The 1.372 conversion ratio (the "Exchange Ratio")
was subject to certain adjustments based upon the average trading price of the
Companies' Paired Shares prior to the completion of the Wyndham Merger. The
Wyndham Merger Agreement provides that, in lieu of receiving Paired Shares in
the Wyndham Merger, stockholders of Old Wyndham could elect to receive cash
(such election being referred to herein as a "Cash Election" and such cash being
referred to herein as "Cash Consideration") for all or any portion of their
shares of Old Wyndham Common Stock in an amount per share equal to $42.80,
subject to an aggregate availability of $100,000 of cash for all Cash Elections
(including a Cash Election by CF Securities pursuant to the Stock Purchase
Agreement).
At December 31, 1997, Old Wyndham's portfolio of owned, leased or
managed hotels consisted of 97 hotels operated by Old Wyndham, as well as eight
franchised hotels, which in the aggregate contained over 25,500 rooms. Old
Wyndham's portfolio includes 88 upscale hotel properties and 17 midscale
properties operating under the ClubHouse brand. Pursuant to the Wyndham Merger
Agreement, Old Wyndham will merge with and into Patriot and the companies will
continue their operations within the paired share structure. Following the
Wyndham Merger, the 37 hotels owned or leased by Old Wyndham will be leased or
subleased by Patriot to Patriot Operating Company, whose name changed to Wyndham
International in connection with the Wyndham Merger.
The Wyndham Merger was subject to various closing conditions including
approval of the Wyndham Merger by the stockholders of Patriot, Wyndham
International and Old Wyndham. The stockholder meetings of Old Wyndham, Patriot
and Wyndham International were held on December 31, 1997, at which time the
Wyndham Merger was approved.
See Note 21.
WHG Casinos & Resorts, Inc. On September 30, 1997, Patriot, Wyndham
International and WHG Casinos & Resorts Inc. ("WHG") entered into an Agreement
and Plan of Merger (the "WHG Merger Agreement") providing for the merger of a
newly formed subsidiary of Wyndham International with and into WHG with WHG
being the
F-33
<PAGE>
PATRIOT AMERICAN HOSPITALITY, INC. AND
WYNDHAM INTERNATIONAL, INC.
NOTES TO FINANCIAL STATEMENTS - (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
surviving corporation (the "WHG Merger"). As a result of the WHG
Merger, Wyndham International will acquire the 570-room Condado Plaza Hotel &
Casino, a 50% interest in the 389-room El San Juan Hotel & Casino and a 23.3%
interest in the 751-room El Conquistador Resort & Country Club (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 the El Conquistador. Under the terms
of the WHG Merger Agreement, each share of WHG common stock generally will be
converted into the right to receive 0.784 Paired Shares of Patriot and Wyndham
International common stock, subject to certain adjustments related to the timing
of the closing of this transaction and the average closing price of the Paired
Shares over the ten trading days immediately preceding the third business day
prior to the WHG stockholders' meeting at which approval for the WHG Merger is
sought. In addition, each issued and outstanding share of WHG Series B
Convertible Preferred Stock will be converted into the right to receive that
number of Paired Shares that the holder of such share of WHG Series B
Convertible Preferred Stock would have the right to receive assuming conversion
of such share, together with any accrued and unpaid dividends thereon, into
shares of WHG common stock immediately prior to the effective time of the WHG
Merger. The special meeting of stockholders of WHG at which approval of the WHG
Merger will be sought is scheduled for January 16, 1998. See Note 21.
Interstate Hotels Company. On December 2, 1997, Patriot, Wyndham
International and Interstate Hotels Company ("Interstate") entered into an
Agreement and Plan of Merger (the "Interstate Merger Agreement") providing for
the merger of Interstate with and into Patriot (the "Interstate Merger") with
Patriot being the surviving company. Pursuant to the Interstate Merger
Agreement, stockholders of Interstate will have the right to elect to convert
each of their shares of Interstate common stock into the right to receive either
(i) $37.50 in cash, subject to proration in certain circumstances (the
"Interstate Cash Consideration"), or (ii) a number of Paired Shares of Patriot
and Wyndham common stock based on an exchange ratio of 1.341 Paired Shares for
each share of Interstate common stock not exchanged for cash (the "Interstate
Exchange Ratio"). After the elections are made by stockholders of Interstate,
proration will be used to ensure that 40% of the outstanding shares of
Interstate common stock will be converted into the right to receive Interstate
Cash Consideration and that the remaining 60% of the outstanding shares of
Interstate common stock will be converted into the right to receive Paired
Shares at the Interstate Exchange Ratio, subject to adjustment in certain
circumstances for the exercise of dissenters' rights. The special meetings of
stockholders of Patriot, Wyndham International and Interstate at which approval
of the Interstate Merger will be sought are scheduled for March 30, 1998. See
Note 21.
Potential Acquisitions
In August 1997, Wyndham International purchased the Participating Note
from National Resort Ventures, L.P., related to the 1,014-room Buena Vista
Palace Hotel in Orlando, Florida for approximately $23,750 in cash (see Notes 6
and 21). 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 November 1997, Patriot agreed to
acquire a 95% equity interest in the Buena Vista Palace Hotel for approximately
$141,600 including the assumption of an existing first leasehold mortgage with a
balance of approximately $50,300. As part of the agreement, Patriot also was
granted an option to acquire the remaining 5% equity interest in the hotel.
Contingencies
The Companies are currently not subject to any material legal
proceedings or claims nor, to management's knowledge, are any material legal
proceedings or claims currently threatened.
13. RELATED PARTY TRANSACTIONS:
Mortgage Notes and Other Receivables from Unconsolidated Subsidiaries
As described in Note 5, Patriot, through the REIT Partnership, loaned
$40,500 in the form of mortgage notes to PAH Ravinia as part of the financing
for PAH Ravinia's acquisition of the Crowne Plaza Ravinia Hotel.
F-34
<PAGE>
PATRIOT AMERICAN HOSPITALITY, INC. AND
WYNDHAM INTERNATIONAL, INC.
NOTES TO FINANCIAL STATEMENTS - (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
Patriot recognized $43 of interest income in both 1997 and 1996 and $3 of
interest income in 1995 related to such mortgage notes (excluding $4,280 of such
interest eliminated for financial reporting purposes in both 1997 and 1996 and
$351 in 1995). Patriot had aggregate receivables (including mortgage notes) of
$41,587 and $40,866 due from PAH Ravinia as of December 31, 1997 and 1996,
respectively.
Patriot through the REIT Partnership, also loaned $31,400 in the form
of a mortgage note to PAH Windwatch (see Note 5), as part of the financing for
PAH Windwatch's acquisition of the Wyndham WindWatch Hotel. Patriot recognized
$28 and $8 of interest income in 1997 and 1996, respectively, related to such
mortgage notes (excluding $2,810 and $754 of such interest eliminated for
financial reporting purposes). Patriot had aggregate receivables (including the
mortgage note) of $34,060 and $31,343 due from PAH Windwatch as of December 31,
1997 and 1996, respectively.
Acquisitions of Interests from Officers and Directors
In September and October 1997, in connection with certain transactions
with affiliates of Gencom and CHCI to acquire ten hotels, eight leasehold
interests and an investment interest in GAH (see Note 4), two of the Companies'
Executive Officers and one of the Directors received cash in the aggregate
amount of approximately $3,577 and a total of 2,544,308 OP Units of the
Operating Partnerships and 476,682 preferred OP Units of the OpCo Partnership
(with an aggregate value of approximately $70,238) as consideration for their
ownership interests in such assets acquired.
PAH RSI, L.L.C. and Wyndham International
In connection with the acquisition of four resort properties in January
1997, the REIT Partnership and certain of its subsidiaries acquired certain
assets relating to these resorts and then sold these assets to PAH RSI, L.L.C.
(a limited liability corporation which was owned and controlled by certain
executive officers of Patriot) for approximately $2,000. In addition, PAH RSI,
L.L.C. acquired from the REIT Partnership and certain of its subsidiaries
certain trade names and the right to receive royalty fees through the issuance
of a promissory note for $9,000, due January 17, 2002. Interest at an annual
rate of 13% is payable semi-annually commencing July 1, 1997. As of December 31,
1997, principal and accrued interest of approximately $9,598 was outstanding. In
October 1997, Wyndham International, through certain of its subsidiaries,
acquired the members' interests of PAH RSI, L.L.C. for approximately $143. As a
result, Wyndham International acquired the assets (including leasehold interests
for eight of Patriot's hotels) and assumed the liabilities of PAH RSI, L.L.C.
14. MINORITY INTERESTS:
Minority Interest in the Operating Partnerships
Pursuant to the Operating Partnerships' respective limited partnership
agreements, the common limited partners of the Operating Partnerships, including
certain affiliates of the Companies, received rights (the "Redemption Rights")
that enable them to cause the Operating Partnerships to redeem each pair of OP
Units (consisting of one OP Unit of the REIT Partnership and the one OP Unit of
the OpCo Partnership) in exchange for cash equal to the value of a Paired Share
(or, at the Companies' election, the Companies may purchase each pair of OP
Units offered for redemption for one Paired Share of common stock). In the case
of the OpCo Partnership's Class A preferred OP Units and Class C preferred OP
Units described below, each of these preferred OP Units may be redeemed for cash
equal to the value of a Paired Share (or, at Wyndham International's election,
Wyndham International may purchase each preferred OP unit offered for redemption
for one Paired Share of common stock). The Redemption Rights generally may be
exercised at any time after one year following the issuance of the OP Units. The
number of shares of common stock issuable upon exercise of the Redemption Rights
will be adjusted for share splits, mergers, consolidations or similar pro rata
transactions which would have the effect of diluting the ownership interests of
the limited partners of the Operating Partnerships or the shareholders of the
Companies.
F-35
<PAGE>
PATRIOT AMERICAN HOSPITALITY, INC. AND
WYNDHAM INTERNATIONAL, INC.
NOTES TO FINANCIAL STATEMENTS - (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
As a result of the 2-for-1 stock split in March 1997, the Cal Jockey
Merger and the 1.927-for-1 stock split in July 1997, the number of OP Units
outstanding and the OP Unit conversion factor was adjusted to re-establish a
one-for-one exchange ratio of OP Units to common shares.
The REIT Partnership had a total of 49,974,000 OP Units outstanding as
of December 31, 1997, of which 43,613,496 OP Units were held by Patriot and
5,035,700 OP Units and 1,324,804 Preferred OP Units were held by minority
partners, which represent the minority interest in the REIT Partnership.
During 1997, the REIT Partnership issued an additional 20,376 OP Units
valued at approximately $370 in connection with The Tutwiler Hotel acquisition,
and 2,590,197 OP Units valued at approximately $58,662 in connection with the
acquisition of the four resort properties. In accordance with their redemption
rights, during the first six months of 1997 certain partners elected to redeem a
total of 379,606 OP Units for a total of $14,441 in cash (based upon the market
price of Old Patriot Common Stock on the effective dates of the redemptions) and
150,000 shares of Old Patriot Common Stock (such amounts have not been adjusted
to reflect the stock splits and Cal Jockey Merger). As of June 30, 1997, the
REIT Partnership had 6,887,049 OP Units and 1,324,804 preferred OP Units
outstanding.
In connection with the Cal Jockey Merger, the holders of REIT
Partnership OP Units and preferred OP Units received OP Units and Class B
preferred OP Units of the OpCo Partnership in an amount equal to the number of
REIT Partnership units held by them at the closing of the Cal Jockey Merger.
In addition, during 1997, the Operating Partnerships each issued
2,456,172 OP Units in connection with the acquisition of hotel properties, and
2,388,932 OP Units in connection with Patriot's acquisition of eight leasehold
interests from CHC Lease Partners and Wyndham International's acquisition of its
approximate 50% ownership interest in GAH and redeemed 6,298 OP Units. In
addition, the OpCo Partnership issued 931,972 Class A Preferred OP Units in
connection with the Grand Heritage Acquisition and 476,682 Class C Preferred OP
Units in connection with the acquisition of the approximate 50% ownership
interest in GAH.
On September 30, 1997, the Companies exercised their right to call
2,000,033 OP Units in each of the Operating 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 certain direct
placements of the Companies' Paired Shares (see Note 15).
As of December 31, 1997, the REIT Partnership had a total of 84,868,079
OP Units outstanding of which 73,276,716 OP Units were held by Patriot and
10,266,559 OP Units and 1,324,804 preferred OP Units were held by minority
partners, which represent the minority interest in the REIT Partnership. The
OpCo Partnership had a total of 86,276,733 OP Units outstanding as of December
31, 1997, of which 73,276,716 OP Units were held by Wyndham International and
10,266,559 OP Units, 931,972 Class A Preferred OP Units, 1,324,804 Class B
Preferred OP Units and 476,682 Class C Preferred OP Units were held by minority
partners, which represent the minority interest in the OpCo Partnership.
Minority Interest in Other Subsidiaries
Patriot has entered into a number of partnership agreements with DTR
PAH Holding, Inc. ("DTR"), an affiliate of Doubletree Hotels Corporation,
related to the acquisition of 11 hotels. The REIT Partnership owns an 85% to 90%
general partnership interest in each partnership and DTR owns a 15% to 10%
limited partnership interest in each partnership. The partnerships were formed
for the purpose of acquiring hotel properties. The financial position and
results of operations of each partnership is included in the consolidated
financial statements of Patriot. DTR's interest in the partnerships is included
in minority interest in other subsidiaries in the accompanying consolidated
financial statements.
During 1996, Patriot acquired five hotels through such partnerships
with DTR for approximately $83,300. The acquisitions were financed with a
combination of cash and funds drawn on the Old Line of Credit.
F-36
<PAGE>
PATRIOT AMERICAN HOSPITALITY, INC. AND
WYNDHAM INTERNATIONAL, INC.
NOTES TO FINANCIAL STATEMENTS - (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
During 1997, Patriot acquired six hotels through such partnerships with
DTR for approximately $182,900. The acquisitions were financed through a
combination of mortgage debt of $98,892, cash contributions to the partnerships
of approximately $58,342 by the REIT Partnership and approximately $10,658 by
DTR, and the issuance of 614,046 paired OP Units of the Operating Partnerships
(valued at approximately $15,000 based on the average market price of the
Companies' common stock for the 20 days prior to the closing of the
acquisition). The REIT Partnership's contributions were financed primarily with
funds drawn on the Revolving Credit Facility.
In addition, in July 1997, Patriot, through the REIT Partnership,
acquired 90% of the equity interests in four separate limited liability
companies which own four hotels with an aggregate of 705 guest rooms for an
aggregate purchase price of approximately $51,066. The REIT Partnership's
contribution was financed primarily with funds drawn on the Revolving Credit
Facility. One of the hotels is subject to a mortgage loan with a financial
institution with a principal balance of approximately $5,714 as of December 31,
1997.
15. SHAREHOLDERS' EQUITY:
Capital Stock
Patriot's and Wyndham International's respective Boards of Directors
have authorized the issuance of up to 100,000,000 shares of preferred stock in
one or more series. The number of shares in each series and the designation,
powers, preferences and rights of each such series and the qualifications,
limitations or restrictions thereof have not been established. As of December
31, 1997, no preferred stock was issued.
Old Patriot was initially capitalized through the issuance of 2,850
shares of no par value common stock to three of Old Patriot's executive officers
for which the executive officers paid nominal consideration. In connection with
the Initial Offering, Patriot declared an approximate 41-to-1 stock split of its
outstanding common shares, resulting in the issuance of an additional 115,900
shares of common stock to such executive officers. The aggregate value of $1,425
(based upon the initial public offering price of $12.00 per share), less cash
received of $3, was recorded as unearned stock compensation and is being
amortized over the three-year vesting period.
On October 2, 1995, Old Patriot completed the Initial Offering of
29,210,000 shares of its common stock (including 3,810,000 shares of common
stock issued upon exercise of the underwriters' over-allotment option). The
offering price of all shares sold was $12.00 per share, resulting in net
proceeds (less the underwriters' discount and other offering expenses) of
approximately $313,170.
In May 1996, Old Patriot sold an aggregate of approximately $40,000 of
equity securities in a private placement to an institutional investor that
purchased the securities on behalf of two owners. The securities consisted of
1,622,786 shares of common stock sold at $13.475 per share and 1,324,804 Class B
Preferred OP Units sold at $13.688 per unit. The common stock is of the same
class as Old Patriot's then-existing common stock and is entitled to the same
voting and dividend rights as all outstanding common stock, subject to certain
restrictions on the resale of the stock. The Class B Preferred OP Units are
entitled to quarterly distributions equal to 103% of the quarterly dividends
paid on the common stock (and, subsequent to the Cal Jockey Merger, Paired
Shares). Generally, three years following issuance, the Class B Preferred OP
Units may be converted into Paired Shares on a one-for-one basis (i.e., one
Paired Share for one Class B Preferred OP Unit), subject to certain limitations.
After 10 years, Patriot will have the right to exchange all the outstanding
Class B Preferred OP Units for Paired Shares on a one-for-one basis.
During the third quarter of 1996, Old Patriot completed a second public
offering of 12,293,400 shares of its common stock (including 1,293,400 shares of
common stock issued upon exercise of the underwriters' over-allotment option).
The offering price of all shares sold in this offering was $14.125 per share,
resulting in net proceeds (less the underwriters' discount and other offering
expenses) of approximately $160,222, of which approximately $151,963 was used to
reduce amounts outstanding under the Old Line of Credit.
F-37
<PAGE>
PATRIOT AMERICAN HOSPITALITY, INC. AND
WYNDHAM INTERNATIONAL, INC.
NOTES TO FINANCIAL STATEMENTS - (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
In August 1997, the Companies completed a public offering of 10,580,000
Paired Shares of common stock (including 1,380,000 Paired Shares issued upon
exercise of the underwriters' over-allotment option). The net proceeds of this
offering (less the underwriters' discount and expenses) of approximately
$209,795 were used primarily to reduce the outstanding debt under the Revolving
Credit Facility.
On November 13, 1997, pursuant to a letter agreement dated September
30, 1997, the 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 Companies sold 1,000,000 Paired
Shares to LaSalle Advisors Limited Partnership ("LaSalle"), as agent for certain
clients of LaSalle (the "LaSalle Direct Placement"), at a purchase price per
Paired Share of $27.625, or aggregate consideration of $27,625. The proceeds of
the PaineWebber Direct Placement and the LaSalle Direct Placement were used to
fund the Morgan Stanley Call (see Note 14).
On December 31, 1997, the Companies sold 3,250,000 unregistered Paired
Shares to UBS Limited, an English corporation, for a purchase price per Paired
Share of $28.8125, or aggregate consideration of approximately $93,641. In
connection with this private placement of equity, the Companies also entered
into an agreement with Union Bank of Switzerland, London Branch ("UBS") which
provides for an adjustment in the purchase price of the Paired Shares as of a
specific date. Because the Companies must periodically increase their equity
base to maintain financial flexibility and continue with their growth strategy,
management may utilize private placements of equity in conjunction with a price
adjustment mechanism, as a means for the Companies to raise capital, while also
retaining the opportunity to adjust the pricing of the equity issuance during
the term of the agreement. The price adjustment agreement with UBS provides that
if the aggregate return on the 3,250,000 Paired Shares issued does not exceed
the calculated forward yield (which is based upon the three-month LIBOR rate
plus 1.40%) as measured from time to time, the Companies will be required to
issue to UBS additional Paired Shares with a market value equivalent to the
yield deficiency. Conversely, if the aggregate return on the issued shares is in
excess of the calculated forward yield, a portion of the Paired Shares
originally issued by the Companies will be returned. In addition, the Companies
are required to register Paired Shares with the Securities and Exchange
Commission to settle its obligations under the agreement. Under certain market
conditions UBS has the right to accelerate the settlement of all or a portion of
the transaction. The final settlement date is December 31, 1998. As of December
31, 1997, the private placement of Paired Shares is accounted for as equity and
any subsequent adjustments in the share price will be reflected as an adjustment
to equity.
Cash Dividends and Stock Splits
On January 30, 1997, Old Patriot declared a 2-for-1 stock split
effected in the form of a stock dividend, which was distributed on March 18,
1997 to shareholders of record on March 7, 1997.
On December 26, 1997, Patriot declared a $0.32 per common share
dividend to holders of record on January 5, 1998. Patriot paid dividends of
$0.2625 per common share for each of the first three quarters of 1997. In
addition, in connection with the Cal Jockey Merger, Old Patriot also declared a
special dividend of $0.06 per common share payable to holders of record on June
27, 1997, which was paid on June 30, 1997. Concurrent with each of the dividend
declarations, the Operating Partnerships authorized distributions in the same
amount on outstanding OP Units. Old Patriot paid dividends of $0.24 per common
share for the fourth quarter of 1995 (its first quarter of operations) and for
the each of the first three quarters of 1996. Old Patriot paid dividends of
$0.2625 per common share for the fourth quarter of 1996.
Stock Incentive Plans
Old Patriot adopted the 1995 Incentive Plan and the Non-Employee
Directors' Incentive Plan in connection with its initial formation. In
connection with the Cal Jockey Merger, these stock incentive plans were amended
and adopted by the Companies. The 1995 Incentive Plan, as amended (the "1995
Incentive Plan"), and the Non-Employee Directors' Plan, as amended (the
"Directors' Plan"), were adopted for the purpose of (i) attracting and retaining
employees, directors and others, (ii) providing incentives to those deemed
important to the success of the Companies, and (iii) associating the interests
of these individuals with the interests of the Companies and their shareholders
through opportunities for increase stock ownership. As a result of the continued
growth of the Companies, Patriot and Wyndham International each adopted a 1997
Incentive Plan.
The 1995 Incentive Plan. Under the 1995 Incentive Plan, employees of
the Companies are eligible to receive stock options, stock awards or performance
shares, subject to certain restrictions. All awards under the 1995 Incentive
Plan are determined by the Compensation Committees of the respective Boards of
Directors and a
F-38
<PAGE>
PATRIOT AMERICAN HOSPITALITY, INC. AND
WYNDHAM INTERNATIONAL, INC.
NOTES TO FINANCIAL STATEMENTS - (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
maximum of 5,000,000 shares of common stock may be issued under the 1995
Incentive Plan. As of December 31, 1997, the maximum amount of available shares
under this plan have been issued.
The Directors' Plan. The Directors' Plan provides for the award of
stock options and stock awards to each eligible non-employee director of the
Companies. Each eligible director receives nonqualified options to purchase
15,000 Paired Shares upon their election to the Board of Directors of either
Patriot or Wyndham International. On the date of each annual meeting of the
Companies' shareholders, each non-employee director then in office receives an
additional grant of nonqualified options to purchase 5,000 Paired Shares, with
the maximum aggregate number of Paired Shares subject to options to be granted
to each non-employee director being 35,000. The exercise price of options will
be 100% of the fair market value of a Paired Share on the date of grant. The
exercise price may be paid in cash, cash equivalents acceptable to the
Compensation Committee, common stock or a combination thereof. Options granted
under the Directors' Plan are exercisable for ten years from the date of grant.
The Directors' Plan also provides for the annual award of common stock
to each eligible director in payment of one-half of the annual retainer of $13
payable to each such director. The number of shares awarded will be determined
based upon the fair market value of the stock at the date of the grant. Such
shares vest immediately upon grant and are non-forfeitable.
The 1997 Incentive Plans. The 1997 Incentive Plans provide for the
award of stock options, stock awards or performance shares to each eligible
employee and director of Patriot and Wyndham International. All awards under the
1997 Incentive Plans are determined by the Compensation Committees of the
respective Board of Directors of Patriot and Wyndham International. Under each
1997 Incentive Plan, the aggregate number of Paired Shares available for grants
of awards shall be the sum of (i) 3,000,000 Paired Shares plus (ii) 10% of any
future net increase in the total number of shares of paired common stock.
Under the Companies' 1997 Incentive Plans, each independent director
may elect to take all or a portion of his/her fees in the form of deferred
paired share units. In addition, the independent directors of Patriot and
Wyndham International will automatically be granted a non-qualified stock
option, immediately exercisable in full, to acquire 10,000 Paired Shares at an
exercise price per Paired Share equal to the fair market value of a Paired Share
on the date of grant. Option terms are fixed by the Compensation Committees and
may not exceed ten years from the date of grant.
Stock Grant Awards
During 1996, pursuant to the Directors' Plan and the Incentive Plan,
Old Patriot awarded 48,000 shares of common stock to its non-employee directors
and 314,800 shares of common stock to certain of its officers and employees. In
addition, the directors were granted 2,640 shares of common stock with an
aggregate value of $37 in payment of one-half of the annual retainer payable to
each director. Old Patriot recorded a total of $5,144 (the aggregate value of
Old Patriot's common stock based on the market price at the date of the award)
as unearned stock compensation in 1996, which is being amortized over the
vesting period of four years.
During 1997, pursuant to the Incentive Plans, the Board of Directors
awarded 547,867 Paired Shares of common stock to certain officers of the
Companies. The Companies recorded a total of $12,897 (the aggregate value of the
common stock based on the market price at the date of the award) as unearned
stock compensation in 1997, which is being amortized over the vesting periods of
one to five years. For 1997, 1996 and 1995, $4,686, $1,068 and $71,
respectively, of amortization of stock compensation related to stock grants
awarded to Patriot's directors, officers and certain employees is included in
general and administrative expense in the accompanying consolidated financial
statements.
Stock Option Awards
Upon completion of the Initial Offering in 1995, 1,000,000 options were
granted to the executive officers to purchase shares of Old Patriot common
stock. Each option is exercisable at an amount equal to the initial public
offering price of $12.00 per share. Of the options granted, 55,560 vested
immediately, while the remaining options
F-39
<PAGE>
PATRIOT AMERICAN HOSPITALITY, INC. AND
WYNDHAM INTERNATIONAL, INC.
NOTES TO FINANCIAL STATEMENTS - (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
become exercisable at various dates through January 1, 2005. In addition, each
eligible director who was a member of Old Patriot's Board as of September 27,
1995, was awarded nonqualified options to purchase 15,000 shares of common stock
on that date (each such director, a "Founding Director"). The options granted to
Founding Directors have an exercise price equal to the initial public offering
price of $12.00 per share and vested immediately.
During 1996, pursuant to the Directors' Plan and the Incentive Plan,
Old Patriot's Board of Directors granted stock options to purchase 30,000 shares
of common stock to Old Patriot's directors and stock options to purchase 355,600
shares of common stock to Old Patriot's officers and certain employees. The
exercise price of the options granted to the directors is $14.188 (the market
price of Old Patriot's common stock on May 23, 1996, the date of the grant). For
the officers and employees employed as of the grant date of April 19, 1996, the
exercise price of the options is $13.438 (the market price of Old Patriot's
common stock on the date of grant). For officers and employees hired subsequent
to April 19, 1996, the exercise price is equal to the market price of Old
Patriot's common stock on the employee's date of hire. The options to purchase
common stock vest annually over a period of seven years.
In connection with the acquisition of four resort properties in January
1997, certain former owners of the resorts who are also employees of Resorts
Services, Inc., the company which manages the resorts, were granted nonqualified
options to purchase an aggregate of 780,008 shares of Old Patriot Common Stock
at an exercise price of $19.125 (based on the market price of Old Patriot's
common stock on the date the purchase contract for the resorts was executed
after giving effect to the March 1997 and July 1997 stock splits and the Cal
Jockey Merger) as additional consideration for entering into the purchase and
sale agreement for the resort properties. The estimated fair value of the
options issued, in the aggregate amount of $3,266, was recorded as additional
purchase consideration for the acquisition of the resort properties. The options
to purchase common stock vest annually over a period of four years.
During the first quarter of 1997, one of the executive officers of
Patriot was granted nonqualified options to purchase an aggregate of 560,009
shares of common stock at an exercise price of $24.13 (based on the market price
of Old Patriot's Common Stock on the date of the grant after giving effect to
the March 1997 and July 1997 stock splits and the Cal Jockey Merger). These
options to purchase common stock vest annually over a period of three years.
During the second quarter of 1997, the Compensation Committee of Old
Patriot's Board of Directors awarded a two-tier option program for Patriot's
chief executive officer which is intended to be his sole equity award for the
next five years. The tier one award is a ten-year option to purchase 1,350,022
shares of common stock with an exercise price equal to $22.375 per share, the
fair market value of Old Patriot's Common Stock on the date of the grant (after
giving effect to the July 1997 stock split and the Cal Jockey Merger). The tier
two award is a ten-year premium priced option to purchase an aggregate of
1,250,020 shares of common stock. This grant has five equal tranches of 250,004
shares each with an increasing exercise price ranging from $24.61 to $36.04.
These options are not exercisable until April 1, 2002.
Additionally, during the second quarter of 1997, another executive
officer of Old Patriot was granted nonqualified options to purchase an aggregate
of 100,002 Paired Shares of common stock at an exercise price of $22.625 (based
on the market price of Old Patriot's common stock on the date of the grant after
giving effect to the July 1997 stock split and the Cal Jockey Merger). These
options to purchase common stock vest annually over a period of seven years.
During the third quarter of 1997, one of the executive officers of
Wyndham International was granted nonqualified options to purchase an aggregate
of 280,000 Paired Shares at an exercise price of $32.063 per Paired Share (based
on the market price of the Paired Shares on the date of the grant). These
options to purchase Paired Shares vest quarterly over a period of three years.
During the fourth quarter of 1997, the independent directors of Patriot
and Wyndham International were granted nonqualified options to purchase an
aggregate of 100,000 Paired Shares at an exercise price of $32.625 per
F-40
<PAGE>
PATRIOT AMERICAN HOSPITALITY, INC. AND
WYNDHAM INTERNATIONAL, INC.
NOTES TO FINANCIAL STATEMENTS - (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
Paired Share (based on the market price of the Paired Shares on the date of
grant). The options to purchase Paired Shares vested on the date of grant.
As of December 31, 1997, pursuant to the Directors' Plan, the 1995
Incentive Plan and the 1997 Incentive Plans, the Companies have authorized the
grant of options for up to 5,115,652 Paired Shares with exercise prices ranging
from $5.51 to $36.04 per Paired Share (1,289,688 of such options were vested).
During 1997, a total of 314,967 Paired Shares were issued pursuant to exercise
of options (at exercise prices ranging from $5.51 to $14.25) resulting in net
proceeds of $2,307.
The Companies have elected to follow APB 25 and related Interpretations
in accounting for its employee stock options because, as discussed below, the
alternative fair value accounting provided for under Statement 123 requires use
of option valuation models that were not developed for use in valuing employee
stock options. Under APB 25, because the exercise price of the Companies'
employee stock options equals the market price of the underlying stock on the
date of grant, no compensation expense is recognized.
Statement 123
Pro forma information regarding net income and earnings per share is
required by Statement 123, which also requires that the information be
determined as if the Companies had accounted for their compensatory employee
stock options under the fair value method of that Statement. The fair value for
these options was estimated at the date of grant using a Black-Scholes option
pricing model with the following weighted-average assumptions for 1997, 1996 and
1995, respectively: risk-free interest rates of 6.61%, 6.09% and 5.97%; dividend
yields of 6%; volatility factors of the expected market price of the Companies'
common stock of 0.389, 0.173 and 0.173, and a weighted average expected life of
the options of 6 years, 5 years and 4 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 Companies' employee 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 employee stock options that have vesting
periods and are non-transferable.
For purposes of pro forma disclosures, the estimated fair value of
the options is amortized to expense over the options' vesting period. The
Companies' pro forma information is as follows:
<TABLE>
<CAPTION>
1997 1996 1995
--------------- --------------- ---------------
<S> <C> <C> <C>
Pro forma net (loss) income........$ (4,949) $ 37,607 $ 5,193
Pro forma earnings per share:
Basic...........................$ (0.09) $ 1.06 $ 0.18
Diluted.........................$ (0.09) $ 1.04 $ 0.18
</TABLE>
F-41
<PAGE>
PATRIOT AMERICAN HOSPITALITY, INC. AND
WYNDHAM INTERNATIONAL, INC.
NOTES TO FINANCIAL STATEMENTS - (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
A summary of the Companies' stock option activity, and related
information for the years ended December 31 is as follows:
<TABLE>
<CAPTION>
1997 1996 1995
---------------------- ---------------------- ----------------------
Weighted Weighted Weighted
Average Average Average
Options Exercise Options Exercise Options Exercise
(000's) Price (000's) Price (000's) Price
---------- ----------- ----------- ---------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C>
Outstanding, beginning of year... 1,476 $ 12.39 1,090 $ 12.00 -- $ --
Granted.......................... 3,640 26.31 386 13.51 1,090 12.00
Exercised........................ (6) 13.83 -- -- -- --
Forfeited........................ (27) 13.79 -- -- -- --
--------- -------- --------- --------- --------- --------
Outstanding, end of year......... 5,083 $ 22.35 1,476 $ 12.39 1,090 $ 12.00
========= ========= ========= ========= ========= ========
Exercisable at end of year....... 972 $ 15.98 401 $ 12.00 -- $ 12.00
Weighted average fair value of
options granted during year... $ 4.28 $ 1.27 $ 1.19
</TABLE>
Exercise prices for compensatory options outstanding as of December 31,
1997 ranged from $12.00 to $36.04. The weighted average remaining contractual
life of those options was nine years. Exercise prices for compensatory options
outstanding as of December 31, 1996 ranged from $12.00 to $15.125. The weighted
average remaining contractual life of those options was nine years.
16. INCOME TAXES:
The income tax provision of Wyndham International for the six months
ended December 31, 1997 consists of the following:
<TABLE>
<S> <C>
Current:
Federal................................................................. $ 199
State................................................................... 130
---------------
Total current................................................................ 329
---------------
Deferred:
Federal................................................................. 136
State................................................................... 16
---------------
Total deferred............................................................... 152
---------------
Total income tax expense................................... $ 481
===============
</TABLE>
The reason for the difference between total tax expense and the amount
computed by applying the statutory Federal income tax rate of 34% to income
before income taxes, is as follows:
<TABLE>
<S> <C>
Tax at statutory rate........................................................ $ 127
State income taxes........................................................... 118
Non-deductible expenses...................................................... 236
---------------
Total income tax expense................................... $ 481
===============
</TABLE>
Deferred income taxes reflect the net tax effects of temporary
differences between the carrying amounts of
F-42
<PAGE>
PATRIOT AMERICAN HOSPITALITY, INC. AND
WYNDHAM INTERNATIONAL, INC.
NOTES TO FINANCIAL STATEMENTS - (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
assets and liabilities for financial reporting purposes and the amounts used for
income tax purposes. Significant components of Wyndham International's deferred
tax assets and liabilities as of December 31, 1997 are as follows:
<TABLE>
<S> <C>
Deferred tax assets:
Other non-current assets................................................ $ 89
---------------
Total deferred tax assets........................................... 89
Deferred tax liabilities:
Depreciation............................................................ (600)
Trade names............................................................. (959)
Management contracts.................................................... (7,937)
Other non-current liabilities........................................... (143)
---------------
Total deferred tax liabilities...................................... (9,639)
---------------
Net deferred income tax liability.......................... $ (9,550)
===============
</TABLE>
17. FAIR VALUE OF FINANCIAL INSTRUMENTS:
Statement of Financial Accounting Standards No. 107 requires
disclosures about the fair value for all financial instruments, whether or not
recognized, for financial statement purposes. Disclosures about fair value of
financial instruments is based on pertinent information available to management
as of December 31, 1997. Considerable judgment is necessary to interpret market
data and develop estimated fair value. Accordingly, the estimates presented
herein are not necessarily indicative of the amounts that could be realized on
disposition of the financial instruments. The use of different market
assumptions and/or estimation methodologies may have a material effect on the
estimated fair value amounts.
Management estimates the fair value of (i) accounts receivable,
accounts payable and accrued expenses approximate carrying value due to the
relatively short maturity of these instruments; (ii) the notes receivable
approximate carrying value based upon effective borrowing rates for issuance of
debt with similar terms and remaining maturities; and (iii) the borrowings under
the Revolving Credit Facility, Term Loan and various other mortgage notes
approximate carrying value because these borrowings accrue interest at floating
interest rates based on market or accrue interest at fixed rates which
approximate market rates.
F-43
<PAGE>
PATRIOT AMERICAN HOSPITALITY, INC. AND
WYNDHAM INTERNATIONAL, INC.
NOTES TO FINANCIAL STATEMENTS - (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
18. NON-CASH INVESTING AND FINANCING ACTIVITIES:
Patriot and Wyndham International
In connection with the acquisition of hotel properties, the following
assets were acquired, liabilities assumed and consideration given:
<TABLE>
<CAPTION>
1997 1996 1995
-------------- -------------- --------------
<S> <C> <C> <C>
Assets acquired:
Cash received upon acquisition of hotel leases.....$ (14,192) $ -- $ --
Accounts receivable................................ (27,108) 537 --
Inventories........................................ (6,408) 613 --
Goodwill........................................... (112,562) -- --
Other assets....................................... (6,531) 510 313
Trade names and management contracts............... (33,739) -- --
Deferred expenses (net of write-off of deferred
financing costs of $679 in 1995)................ -- 685 127
Liabilities assumed:
Accounts payable and accrued expenses..............$ 49,577 $ 4,195 $ (1,102)
Mortgage notes receivable.......................... 103,673 -- --
Capital lease obligation acquired.................. 503 -- --
Mortgage notes..................................... 34,244 -- --
Deferred income tax liability...................... 9,550 -- --
Consideration given:
Issuance of common stock, stock options and OP
Units...........................................$ 449,415 $ 16,391 $ 13,303
========== ========= ========
Other non-cash investing and financing activities:
Reclassification of deferred acquisition costs to
property costs..................................$ 30,637
==========
</TABLE>
Patriot
In connection with the acquisition of hotel properties, the following
assets were acquired, liabilities assumed and consideration given:
<TABLE>
<CAPTION>
1997 1996 1995
-------------- -------------- --------------
<S> <C> <C> <C>
Assets acquired:
Account receivable.................................$ (1,507) $ 537 $ --
Inventories........................................ -- 613 --
Goodwill........................................... (89,256) -- --
Other assets....................................... -- 510 313
Deferred expenses (net of write-off of deferred
financing costs of $679 in 1995)................ -- 685 127
Liabilities assumed:
Accounts payable and accrued expenses..............$ 7,517 $ 4,195 $ (1,102)
Mortgage notes receivable.......................... 103,673 -- --
Subscription notes payable, net of $38,461 of
acquisitions funded on behalf of Wyndham
International................................... 21,191 -- --
Capital lease obligation acquired.................. 503 -- --
Mortgage notes..................................... 34,244 -- --
Consideration given:
Issuance of common stock, stock options and OP
Units...........................................$ 340,794 $ 16,391 $ 13,303
========== ========= ========
Other non-cash investing and financing activities:
Reclassification of deferred acquisition costs to
property costs..................................$ 30,637
==========
Note receivable funded on behalf of Wyndham
International...................................$ 7,934
Deferred acquisition costs funded on behalf of
Wyndham International........................... 31,126
Equipment and improvements conveyed to Wyndham
International................................... 32,210
Acquisitions costs funded on behalf of Wyndham
International................................... 6,251
Due from Wyndham International.................... (77,521)
==========
</TABLE>
In connection with Old Patriot's investment in an unconsolidated
subsidiary in 1996, Old Patriot issued a promissory note payable to the
unconsolidated subsidiary in the amount of $6,217 which has been included in due
to unconsolidated subsidiaries in the accompanying financial statements.
F-44
<PAGE>
PATRIOT AMERICAN HOSPITALITY, INC. AND
WYNDHAM INTERNATIONAL, INC.
NOTES TO FINANCIAL STATEMENTS - (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
In connection with the Initial Offering and acquisition of the initial
20 hotels in 1995:
<TABLE>
<S> <C>
Predecessor basis of interests acquired from affiliates................. $ 1,840
Issuance of OP Units to non-affiliates.................................. 9,363
Distribution of note receivable as consideration........................ (479)
Minority interest at closing of the Initial Offering.................... (41,670)
Accrued Initial Offering costs.......................................... (843)
</TABLE>
Other non-cash investing and financing activities:
<TABLE>
<CAPTION>
1997 1996 1995
-------------- -------------- --------------
<S> <C> <C> <C>
Dividends and distributions declared and payable.....$ 27,572 $ 13,129 $ 8,154
Issuance of shares to employees and directors......... 62 37 37
Accrued acquisition and other costs................... -- 844 28
</TABLE>
Wyndham International
In connection with the Cal Jockey Merger, the acquisition of management
companies and the leasing of hotel properties, the following assets were
acquired, liabilities assumed and consideration given:
<TABLE>
<CAPTION>
1997
---------------
<S> <C>
Assets acquired:
Accounts receivable.......................................... $ (25,601)
Subscription notes receivable................................ (59,652)
Inventories.................................................. (6,408)
Goodwill..................................................... (29,557)
Other assets................................................. (6,531)
Equipment and improvements................................... (27,611)
Trade names.................................................. (11,287)
Management contracts......................................... (22,452)
Liabilities assumed:
Accounts payable and accrued expenses........................ 46,659
Due to Patriot............................................... 38,461
Deferred income tax liability................................ 9,550
Consideration given:
Issuance of common stock and OP Units........................ 108,621
-------------
Cash received upon acquisition of hotel leases............... $ 14,192
=============
Other non-cash investing and financing activities:
Notes receivable............................................. $ (7,934)
Deferred acquisition costs................................... (31,126)
Due to Patriot............................................... 39,060
=============
</TABLE>
F-45
<PAGE>
PATRIOT AMERICAN HOSPITALITY, INC. AND
WYNDHAM INTERNATIONAL, INC.
NOTES TO FINANCIAL STATEMENTS - (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
19. QUARTERLY FINANCIAL INFORMATION (UNAUDITED):
<TABLE>
<CAPTION>
Wyndham
Combined Patriot International
--------------------------- ---------------------------- ---------------
1997 1996 1997 1996 1997
------------- ------------- ---------------------------- ---------------
(in thousands, except per share amounts)
<S> <C> <C> <C> <C> <C>
FIRST QUARTER:
Total revenue........... $ 35,388 $ 12,463 $ 35,388 $ 12,463 $ --
Income before
extraordinary item.... $ 11,348 $ 7,128 $ 11,348 $ 7,128 $ --
Net income.............. $ 11,348 $ 7,128 $ 11,348 $ 7,128 $ --
Net income per
share/Paired Share:
Basic............... $ 0.26 $ 0.24 $ 0.26 $ 0.24 $ --
Diluted............. $ 0.25 $ 0.24 $ 0.25 $ 0.24 $ --
Weighted average
number of shares:
Basic............... 43,189 29,213 43,189 29,213
Diluted............. 44,554 29,469 44,554 29,469
SECOND QUARTER:
Total revenue........... $ 37,730 $ 18,007 $ 37,730 $ 18,007 $ --
Income before
extraordinary item.... $ 11,818 $ 8,683 $ 11,818 $ 8,683 $ --
Net income.............. $ 11,818 $ 8,683 $ 11,818 $ 8,683 $ --
Net income per
share/Paired Share:
Basic............... $ 0.27 $ 0.29 $ 0.27 $ 0.29 $ --
Diluted............. $ 0.26 $ 0.29 $ 0.26 $ 0.29 $ --
Weighted average
number of shares:
Basic............... 43,323 30,052 43,323 30,052
Diluted............. 44,970 30,346 44,970 30,346
THIRD QUARTER:
Total revenue........... $ 81,638 $ 22,677 $ 50,190 $ 22,677 $ 44,184
Income (loss) before
extraordinary item (1) $ (24,470) $ 12,024 $ (25,179) $ 12,024 $ 709
Net income (loss)....... $ (27,004) $ 12,024 $ (27,713) $ 12,024 $ 709
Net income (loss) per
share/Paired Share:
Basic............... $ (0.44) $ 0.31 $ (0.45) $ 0.31 $ 0.01
Diluted............. $ (0.44) $ 0.30 $ (0.45) $ 0.30 $ 0.01
Weighted average
number of shares:
Basic............... 61,647 39,039 61,647 39,039 61,647
Diluted............. 61,647 39,672 61,647 39,672 63,638
</TABLE>
F-46
<PAGE>
PATRIOT AMERICAN HOSPITALITY, INC. AND
WYNDHAM INTERNATIONAL, INC.
NOTES TO FINANCIAL STATEMENTS - (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
Wyndham
Combined Patriot International
--------------------------- ---------------------------- ---------------
1997 1996 1997 1996 1997
------------- ------------- ---------------------------- ---------------
(in thousands, except per share amounts)
<S> <C> <C> <C> <C> <C>
FOURTH QUARTER:
Total revenue........... $ 180,279 $ 23,346 $ 62,246 $ 23,346 $ 159,950
Income before
extraordinary item (2) $ 1,666 $ 10,156 $ 2,395 $ 10,156 $ (729)
Net income (loss)....... $ 1,666 $ 10,156 $ 2,395 $ 10,156 $ (729)
Net income (loss) per
share/Paired Share:
Basic............... $ 0.02 $ 0.24 $ 0.04 $ 0.24 $ (0.01)
Diluted............. $ 0.02 $ 0.23 $ 0.03 $ 0.23 $ (0.01)
Weighted average
number of shares:
Basic............... 68,287 43,171 68,287 43,171 68,287
Diluted............. 70,856 44,116 70,856 44,116 68,287
</TABLE>
- -----------------------------
(1) Income (loss) before extraordinary item for the third quarter of 1997
includes costs to acquire leaseholds, a non-recurring expense, in the
amount of $43,820 that was reported by Patriot.
(2) Income before extraordinary item for the fourth quarter of 1997 includes
costs to acquire leaseholds, a non-recurring expense, in the amount of
$10,679 that was reported by Patriot.
F-47
<PAGE>
PATRIOT AMERICAN HOSPITALITY, INC. AND
WYNDHAM INTERNATIONAL, INC.
NOTES TO FINANCIAL STATEMENTS - (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
20. PRO FORMA RESULTS OF OPERATIONS (UNAUDITED):
The following unaudited separate and combined pro forma results of
operations of Patriot and Wyndham International are presented as if (i) the
acquisition of the 91 hotels owned by Patriot as of December 31, 1997; (ii) the
Cal Jockey Merger and the related transactions; (iii) the replacement of Old
Line of Credit with the Revolving Credit Facility and the funding of the Term
Loan and other mortgage debt; (iv) the Grand Heritage Acquisition; (v) the
acquisition of eight leasehold interests and the approximate 50% investment
interest in GAH; and (vi) the private placements of equity securities and public
offering of the Companies' common stock which occurred during 1997 and 1996 had
occurred on January 1, 1996, and the hotels (except the Crowne Plaza Ravinia
Hotel and the Wyndham WindWatch Hotel) had been leased to Wyndham International
or the Lessees pursuant to the Participating Leases. The following unaudited pro
forma financial information is not necessarily indicative of what actual results
of operations of Patriot and Wyndham International 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.
PATRIOT AND WYNDHAM INTERNATIONAL
COMBINED PRO FORMA RESULTS OF OPERATIONS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------------------
1997 1996
--------------------------------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C>
Total revenue $ 821,758 $ 746,960
Net income.................................................................. 50,341 21,781
Basic earnings per Paired Share............................................. $ 0.70 $ 0.30
================= =================
Diluted earnings per Paired Share........................................... $ 0.68 $ 0.29
================= =================
Weighted average number of Paired Shares.................................... 72,477 72,477
Dilutive securities:
Effect of unvested stock grants........................................ 800 800
Dilutive options to purchase Paired Shares............................. 1,017 273
----------------- -----------------
Weighted average number of Paired Shares
and Paired Share equivalents outstanding.................................. 74,294 73,550
================= =================
</TABLE>
F-48
<PAGE>
PATRIOT AMERICAN HOSPITALITY, INC. AND
WYNDHAM INTERNATIONAL, INC.
NOTES TO FINANCIAL STATEMENTS - (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
PATRIOT
CONSOLIDATED PRO FORMA RESULTS OF OPERATIONS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------------------
1997 1996
--------------------------------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C>
Total revenue $ 292,135 $ 263,004
Net income.................................................................. 57,713 45,099
Basic earnings per share.................................................... $ 0.80 $ 0.62
================= =================
Diluted earnings per share.................................................. $ 0.78 $ 0.61
================= =================
Weighted average number of common shares.................................... 72,477 72,477
Dilutive securities:
Effect of unvested stock grants........................................ 800 800
Dilutive options to purchase Paired Shares............................. 1,017 273
----------------- -----------------
Weighted average number of common shares
and common share equivalents outstanding.................................. 74,294 73,550
================= =================
</TABLE>
WYNDHAM INTERNATIONAL
CONSOLIDATED PRO FORMA RESULTS OF OPERATIONS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------------------
1997 1996
--------------------------------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C>
Total revenue $ 749,119 $ 678,186
Net loss.................................................................... (7,372) (23,318)
Basic loss per share........................................................ $ (0.10) $ (0.32)
================= =================
Diluted loss per share...................................................... $ (0.10) $ (0.32)
================= =================
Weighted average number of common shares.................................... 72,477 72,477
================= =================
</TABLE>
F-49
<PAGE>
PATRIOT AMERICAN HOSPITALITY, INC. AND
WYNDHAM INTERNATIONAL, INC.
NOTES TO FINANCIAL STATEMENTS - (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
21. SUBSEQUENT EVENTS:
Businesses Acquired
Wyndham Merger. On January 5, 1998, the Wyndham Merger was consummated.
As a result of the Wyndham Merger, Patriot acquired Old Wyndham's portfolio of
owned, leased or managed hotels consisting of 98 hotels operated by Old Wyndham
(including 16 Patriot hotels which were managed by Old Wyndham), as well as
eight franchised hotels, which in the aggregate contain approximately 25,900
rooms. The total purchase consideration of approximately $982,000 consisted of
21,594,188 Paired Shares and 4,860,876 shares of Series A Convertible Preferred
Stock of Patriot (which are convertible on a one-for-one basis into Paired
Shares), cash of approximately $339,000 to repay debt and pay Wyndham
shareholders who elected to receive cash (which was financed with funds drawn on
the Revolving Credit Facility), and the assumption of approximately $54,000 in
mortgage debt.
WHG Merger. On January 16, 1998, the WHG Merger was consummated. As a
result of the WHG Merger, Wyndham International acquired the 570-room Condado
Plaza Hotel & Casino, a 50% interest in the 389-room El San Juan Hotel & Casino
and a 23.3% interest in the 751-room El Conquistador, as well as a 62% interest
in the management company for the three hotels and the Las Casitas Village at
the El Conquistador. A total of 5,004,690 Paired Shares were issued in
connection with the WHG Merger and approximately $21,327 of debt was assumed,
resulting in total purchase consideration of approximately $159,363.
Hotel Acquired
On January 14, 1998, Patriot, through the REIT Partnership, acquired an
aggregate 95% equity interest in the Buena Vista Palace Hotel in Orlando,
Florida for an aggregate purchase price of approximately $141,600, including the
assumption of approximately $50,300 of indebtedness. As part of the agreement,
Patriot was also granted an option to acquire the remaining 5% equity interest
in the hotel. In addition, the Participating Note held by Wyndham International
(see Note 6) was modified to reflect an outstanding principal balance of $23,750
(Wyndham International's acquisition price). The REIT Partnership leased the
hotel to Wyndham International pursuant to a three-year Participating Lease
agreement. The hotel is being managed by a third party Operator.
F-50
<PAGE>
PATRIOT AMERICAN HOSPITALITY, INC.
SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION
AS OF DECEMBER 31, 1997
(IN THOUSANDS)
<TABLE>
<CAPTION>
COST CAPITALIZED
INITIAL COST SUBSEQUENT TO ACQUISITION
--------------------- -------------------------
BUILDINGS AND
DESCRIPTION ENCUMBERANCES LAND IMPROVEMENTS LAND IMPROVEMENTS
- --------------------------------- ------------- ---- ------------- ---- ------------
<S> <C> <C> <C> <C> <C>
FULL SERVICE HOTELS:
AMASSADOR WEST
Chicago, Illinois................ $ -- $ 2,059 $ 11,856 $ -- $ 4
BOURBON ORLEANS HOTEL
New Orleans, Louisiana........... 13,500 1,942 14,209 171 984
THE BUTTES
Tempe, Arizona................... -- -- 55,297 1
CROWNE PLAZA TOLEDO
Toledo, Ohio..................... -- -- 16,082 177
DOUBLETREE ALLEN CENTER
Houston, Texas................... 11,156 2,280 24,707 -- 785
DOUBLETREE HOTEL
Des Plaines (Chicago), Illinois.. -- 1,903 5,555 -- 3,148
DOUBLETREE GUEST SUITES
Glenview, Illinois............... 20,500 3,237 19,709 -- 216
DOUBLETREE HOTEL
Minneapolis, Minnesota........... -- 1,650 15,895 -- 553
DOUBLETREE HOTEL
Tallahassee, Florida............. -- 2,127 7,779 -- 2,585
DOUBLETREE HOTEL
Tulsa, Oklahoma.................. 9,246 1,428 18,596 -- 31
DOUBLETREE HOTEL
Westminster (Denver), Colorado... -- 1,454 9,973 15 798
DOUBLETREE - ANAHEIM
Orange, California............... 13,467 2,464 23,297 -- 3
DOUBLETREE - MIAMI AIRPORT
Miami, Florida................... -- 3,808 7,052 -- 2,063
DOUBLETREE - POST OAK
Houston, Texas................... 29,748 4,441 43,672 -- 70
DOUBLETREE - CORPORATE WOODS
Overland Park, Kansas............ 21,909 3,317 38,088 -- 11
DOUBLETREE - ST. LOUIS
Chesterfield, Missouri........... 13,366 2,160 18,300 -- 3
DOUBLETREE PARK PLACE
Minneapolis, Minnesota........... -- 2,188 13,531 -- 918
EMBASSY SUITES
Hunt Valley, Maryland............ -- 529 13,872 6 301
FAIRMOUNT HOTEL
San Antonio, Texas............... -- 2,957 -- (20)
FOUR POINTS BY SHERATON
Saginaw, Michigan................ -- 773 6,451 8 248
GRAND BAY HOTEL COCONUT GROVE
Miami, Florida................... 25,200 3,066 28,442 -- --
DEL MAR HILTON
Del Mar (San Diego), California.. -- 1,900 11,435 20 532
<CAPTION>
GROSS AMOUNTS AT WHICH CARRIED
AT CLOSE OF PERIOD (a)
------------------------------
BUILDINGS AND ACCUMULATED YEAR DATE OF
LAND IMPROVEMENTS TOTAL DEPRECIATION(b)(c) BUILT ACQUISITION
---- ------------ ----- ------------- ----- -----------
<S> <C> <C> <C> <C> <C> <C>
FULL SERVICE HOTELS:
AMASSADOR WEST
Chicago, Illinois................ $ 2,059 $ 11,860 $ 13,919 $ 143 1924 1997
BOURBON ORLEANS HOTEL
New Orleans, Louisiana........... 2,113 15,193 17,306 941 1800s 1995
THE BUTTES
Tempe, Arizona................... -- 55,298 55,298 350 1986 1997
CROWNE PLAZA TOLEDO
Toledo, Ohio..................... -- 16,259 16,259 153 1985 1997
DOUBLETREE ALLEN CENTER
Houston, Texas................... 2,280 25,492 27,772 774 1978 1996
DOUBLETREE HOTEL
Des Plaines (Chicago), Illinois.. 1,903 8,703 10,606 262 1969 1996
DOUBLETREE GUEST SUITES
Glenview, Illinois............... 3,237 19,925 23,162 188 1988 1997
DOUBLETREE HOTEL
Minneapolis, Minnesota........... 1,650 16,448 18,098 375 1986 1997
DOUBLETREE HOTEL
Tallahassee, Florida............. 2,127 10,364 12,491 322 1977 1996
DOUBLETREE HOTEL
Tulsa, Oklahoma.................. 1,428 18,627 20,055 539 1982 1996
DOUBLETREE HOTEL
Westminster (Denver), Colorado... 1,469 10,771 12,240 455 1980 1996
DOUBLETREE - ANAHEIM
Orange, California............... 2,464 23,300 25,764 223 1984 1997
DOUBLETREE - MIAMI AIRPORT
Miami, Florida................... 3,808 9,115 12,923 290 1975 1996
DOUBLETREE - POST OAK
Houston, Texas................... 4,441 43,742 48,183 417 1982 1997
DOUBLETREE - CORPORATE WOODS
Overland Park, Kansas............ 3,317 38,099 41,416 364 1982 1997
DOUBLETREE - ST. LOUIS
Chesterfield, Missouri........... 2,160 18,303 20,463 175 1984 1997
DOUBLETREE PARK PLACE
Minneapolis, Minnesota........... 2,188 14,449 16,637 279 1981 1997
EMBASSY SUITES
Hunt Valley, Maryland............ 535 14,173 14,708 851 1985 1995
FAIRMOUNT HOTEL
San Antonio, Texas............... -- 2,937 2,937 191 1906 1995
FOUR POINTS BY SHERATON
Saginaw, Michigan................ 781 6,699 7,480 423 1984 1995
GRAND BAY HOTEL COCONUT GROVE
Miami, Florida................... 3,066 28,442 31,508 196 1983 1997
DEL MAR HILTON
Del Mar (San Diego), California.. 1,920 11,967 13,887 588 1989 1996
</TABLE>
See accompanying notes to this schedule on page F-56.
F-51
<PAGE>
PATRIOT AMERICAN HOSPITALITY, INC.
SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION
AS OF DECEMBER 31, 1997
(IN THOUSANDS)
<TABLE>
<CAPTION>
COST CAPITALIZED
INITIAL COST SUBSEQUENT TO ACQUISITION
--------------------- -------------------------
BUILDINGS AND
DESCRIPTION ENCUMBERANCES LAND IMPROVEMENTS LAND IMPROVEMENTS
- ---------------------------------- ------------- ---- ------------- ---- ------------
<S> <C> <C> <C> <C> <C>
HILTON CLEVELAND SOUTH
Independence, Ohio................ -- 2,760 12,264 29 1,013
MELBOURNE AIRPORT HILTON
Melbourne, Florida................ -- 1,502 6,391 -- 171
HILTON INN MYRTLE BEACH
Myrtle Beach, South Carolina...... -- 5,644 26,470 61 445
HOLIDAY INN
San Angelo, Texas................. -- 428 3,982 4 182
HOLIDAY INN
San Francisco, California......... -- -- 18,807 -- 3
HOLIDAY INN
Sebring, Florida.................. -- 626 2,387 7 336
HOLIDAY INN ARISTOCRAT
Dallas, Texas..................... -- 144 7,806 2 199
HOLIDAY INN CROCKETT
San Antonio, Texas................ -- 1,936 12,130 21 1,170
HOLIDAY INN LENOX
Atlanta, Georgia.................. -- -- 10,090 -- 298
HOLIDAY INN NORTHWEST PLAZA
Austin, Texas..................... -- 1,424 9,323 15 168
HOLIDAY INN NORTHWEST
Houston, Texas.................... -- 333 2,324 4 343
HOLIDAY INN - YO RANCH
Kerrville, Texas.................. -- 410 6,099 -- 134
HOLIDAY INN REDMONT
Birmingham, Alabama............... -- 227 2,151 2 48
HOLIDAY INN WESTLAKE
Beachwood, Ohio................... -- 2,843 14,218 -- 387
HOLIDAY INN SELECT
Farmers Branch (Dallas), Texas.... -- 3,045 15,786 33 1,379
HYATT NEWPORTER
Newport Beach, California......... -- -- 15,611 -- 1,254
HYATT REGENCY
Lexington, Kentucky............... -- -- 11,958 -- 1,169
MARRIOTT HOTEL
Troy, Michigan.................... -- 1,790 29,220 19 1,770
MARRIOTT COURTYARD
Beachwood, Ohio................... -- 1,510 7,553 -- 118
THE MAYFAIR HOTEL
St. Louis, Missouri............... -- 250 7,559 3 952
OMNI INNER HARBOUR HOTEL
Baltimore, Maryland............... -- 1,129 49,491 -- 341
PARK SHORE HONOLULU
Honolulu, Hawaii.................. -- -- 24,339 -- 45
RADISSON SUITES TOWN & COUNTRY
Houston, Texas.................... -- 655 9,725 7 317
<CAPTION>
GROSS AMOUNTS AT WHICH CARRIED
AT CLOSE OF PERIOD (a)
------------------------------
BUILDINGS AND ACCUMULATED YEAR DATE OF
LAND IMPROVEMENTS TOTAL DEPRECIATION(b)(c) BUILT ACQUISITION
---- ------------ ----- ------------- ----- -----------
<S> <C> <C> <C> <C> <C> <C>
HILTON CLEVELAND SOUTH
Independence, Ohio................ 2,789 13,277 16,066 823 1980 1995
MELBOURNE AIRPORT HILTON
Melbourne, Florida................ 1,502 6,562 8,064 45 1986 1997
HILTON INN MYRTLE BEACH
Myrtle Beach, South Carolina...... 5,705 26,915 32,620 446 1974 1997
HOLIDAY INN
San Angelo, Texas................. 432 4,164 4,596 263 1984 1995
HOLIDAY INN
San Francisco, California......... -- 18,810 18,810 224 1964 1997
HOLIDAY INN
Sebring, Florida.................. 633 2,723 3,356 162 1983 1995
HOLIDAY INN ARISTOCRAT
Dallas, Texas..................... 146 8,005 8,151 504 1925 1995
HOLIDAY INN CROCKETT
San Antonio, Texas................ 1,957 13,300 15,257 830 1909 1995
HOLIDAY INN LENOX
Atlanta, Georgia.................. -- 10,388 10,388 534 1987 1996
HOLIDAY INN NORTHWEST PLAZA
Austin, Texas..................... 1,439 9,491 10,930 604 1984 1995
HOLIDAY INN NORTHWEST
Houston, Texas.................... 337 2,667 3,004 157 1982 1995
HOLIDAY INN - YO RANCH
Kerrville, Texas.................. 410 6,233 6,643 58 1984 1997
HOLIDAY INN REDMONT
Birmingham, Alabama............... 229 2,199 2,428 52 1925 1997
HOLIDAY INN WESTLAKE
Beachwood, Ohio................... 2,843 14,605 17,448 194 1980 1997
HOLIDAY INN SELECT
Farmers Branch (Dallas), Texas.... 3,078 17,165 20,243 1,049 1979 1995
HYATT NEWPORTER
Newport Beach, California......... -- 16,865 16,865 802 1962 1996
HYATT REGENCY
Lexington, Kentucky............... -- 13,127 13,127 586 1977 1996
MARRIOTT HOTEL
Troy, Michigan.................... 1,809 30,990 32,799 1,925 1990 1995
MARRIOTT COURTYARD
Beachwood, Ohio................... 1,510 7,671 9,181 103 1986 1997
THE MAYFAIR HOTEL
St. Louis, Missouri............... 253 8,511 8,764 290 1925 1996
OMNI INNER HARBOUR HOTEL
Baltimore, Maryland............... 1,129 49,832 50,961 656 1968 1997
PARK SHORE HONOLULU
Honolulu, Hawaii.................. -- 24,384 24,384 231 1968 1997
RADISSON SUITES TOWN & COUNTRY
Houston, Texas.................... 662 10,042 10,704 631 1986 1995
</TABLE>
See accompanying notes to this schedule on page F-56.
F-52
<PAGE>
PATRIOT AMERICAN HOSPITALITY, INC.
SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION
AS OF DECEMBER 31, 1997
(IN THOUSANDS)
<TABLE>
<CAPTION>
COST CAPITALIZED
INITIAL COST SUBSEQUENT TO ACQUISITION
--------------------- -------------------------
BUILDINGS AND
DESCRIPTION ENCUMBERANCES LAND IMPROVEMENTS LAND IMPROVEMENTS
- --------------------------------- ------------- ---- ------------- ---- ------------
<S> <C> <C> <C> <C> <C>
RADISSON HOTEL & SUITES
Dallas, Texas.................... -- 1,011 8,276 10 258
RADISSON NORTHBROOK
Northbrook, Illinois............. -- 1,437 10,968 16 211
RADISSON NEW ORLEANS HOTEL
New Orleans, Louisiana........... -- 2,463 23,630 26 714
RADISSON SUITE HOTEL
Kansas, Kansas................... -- 914 10,341 -- 331
RADISSON OVERLAND PARK
Overland Park, Kansas............ -- 1,296 5,377 14 249
RADISSON HOTEL
Beachwood, Ohio.................. 5,713 2,226 11,129 -- 124
RADISSON HOTEL
Akron, Ohio...................... -- 1,136 5,678 -- 121
RADISSON RIVERWALK
Jacksonville, Florida............ -- 2,400 16,965 -- 180
RAMADA INN
San Francisco, California........ -- -- 15,853 -- 97
SHERATON CITY CENTRE
Washington, D.C.................. -- -- 34,244 -- 4
SHERATON GATEWAY - MIAMI AIRPORT
Miami, Florida................... 25,625 2,561 23,009 -- --
SHERATON GRAND HOTEL
Tampa, Florida................... 31,675 1,448 31,565 -- 164
TREMONT HOUSE
Boston, MA....................... -- 1,776 14,066 18 3,580
THE TUTWILER
Birmingham, Alabama.............. -- 1,444 8,124 16 282
UNION STATION
Nashville, Tennessee............. -- -- 7,512 -- 488
WESTCOAST GATEWAY
Seattle, Washington.............. -- 1,139 10,370 12 232
WESTCOAST HOTEL & MARINA
Long Beach, California........... -- -- 3,145 -- 1,487
WESTCOAST PICKWICK HOTEL
San Francisco, California........ -- 2,000 11,922 22 1,220
WESTCOAST PLAZA PARK SUITES
Seattle, Washington.............. -- 1,515 24,276 16 508
WESTCOAST ROOSEVELT HOTEL
Seattle, Washington.............. -- 882 14,870 9 439
WESTCOAST VALLEY RIVER INN
Eugene, Oregon................... -- 1,754 15,839 19 637
WESTCOAST WENATCHEE CENTER HOTEL
Wenatchee, Washington............ -- 650 6,736 7 196
WYNDHAM BEL AGE HOTEL
Los Angeles, California.......... -- 5,653 32,212 -- --
<CAPTION>
GROSS AMOUNTS AT WHICH CARRIED
AT CLOSE OF PERIOD (a)
------------------------------
BUILDINGS AND ACCUMULATED YEAR DATE OF
LAND IMPROVEMENTS TOTAL DEPRECIATION(b)(c) BUILT ACQUISITION
---- ------------ ----- ------------- ----- -----------
<S> <C> <C> <C> <C> <C> <C>
RADISSON HOTEL & SUITES
Dallas, Texas.................... 1,021 8,534 9,555 537 1986 1995
RADISSON NORTHBROOK
Northbrook, Illinois............. 1,453 11,179 12,632 304 1976 1997
RADISSON NEW ORLEANS HOTEL
New Orleans, Louisiana........... 2,489 24,344 26,833 1,495 1924 1995
RADISSON SUITE HOTEL
Kansas, Kansas................... 914 10,672 11,586 99 1931 1997
RADISSON OVERLAND PARK
Overland Park, Kansas............ 1,310 5,626 6,936 143 1974 1997
RADISSON HOTEL
Beachwood, Ohio.................. 2,226 11,253 13,479 152 1968 1997
RADISSON HOTEL
Akron, Ohio...................... 1,136 5,799 6,935 78 1989 1997
RADISSON RIVERWALK
Jacksonville, Florida............ 2,400 17,145 19,545 162 1979 1997
RAMADA INN
San Francisco, California........ -- 15,950 15,950 189 1962 1997
SHERATON CITY CENTRE
Washington, D.C.................. -- 34,248 34,248 120 1969 1997
SHERATON GATEWAY - MIAMI AIRPORT
Miami, Florida................... 2,561 23,009 25,570 163 1976 1997
SHERATON GRAND HOTEL
Tampa, Florida................... 1,448 31,729 33,177 222 1984 1997
TREMONT HOUSE
Boston, MA....................... 1,794 17,646 19,440 859 1925 1996
THE TUTWILER
Birmingham, Alabama.............. 1,460 8,406 9,866 257 1913 1996
UNION STATION
Nashville, Tennessee............. -- 8,000 8,000 93 1986 1997
WESTCOAST GATEWAY
Seattle, Washington.............. 1,151 10,602 11,753 525 1990 1996
WESTCOAST HOTEL & MARINA
Long Beach, California........... -- 4,632 4,632 193 1978 1996
WESTCOAST PICKWICK HOTEL
San Francisco, California........ 2,022 13,142 15,164 388 1928 1996
WESTCOAST PLAZA PARK SUITES
Seattle, Washington.............. 1,531 24,784 26,315 1,227 1985 1996
WESTCOAST ROOSEVELT HOTEL
Seattle, Washington.............. 891 15,309 16,200 756 1928 1996
WESTCOAST VALLEY RIVER INN
Eugene, Oregon................... 1,773 16,476 18,249 619 1973 1996
WESTCOAST WENATCHEE CENTER HOTEL
Wenatchee, Washington............ 657 6,932 7,589 342 1988 1996
WYNDHAM BEL AGE HOTEL
Los Angeles, California.......... 5,653 32,212 37,865 39 1984 1997
</TABLE>
See accompanying notes to this schedule on page F-56.
F-53
<PAGE>
PATRIOT AMERICAN HOSPITALITY, INC.
SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION
AS OF DECEMBER 31, 1997
(IN THOUSANDS)
<TABLE>
<CAPTION>
COST CAPITALIZED
INITIAL COST SUBSEQUENT TO ACQUISITION
--------------------- -------------------------
BUILDINGS AND
DESCRIPTION ENCUMBERANCES LAND IMPROVEMENTS LAND IMPROVEMENTS
- ----------------------------------- ------------- ---- ------------- ---- ------------
<S> <C> <C> <C> <C> <C>
WYNDHAM EMERALD PLAZA
San Diego, California.............. 35,000 5,551 60,462 -- --
WYNDHAM FRANKLIN PLAZA
Philadelphia, Pennsylvania......... -- -- 67,671 -- --
WYNDHAM GREENSPOINT HOTEL
Houston, Texas..................... 22,000 1,930 39,815 20 941
WYNDHAM NORTHWEST CHICAGO
Chicago, Illinois.................. -- 1,212 52,025 -- --
WYNDHAM RIVERFRONT HOTEL
New Orleans, Louisiana............. -- 2,774 28,023 -- --
WYNDHAM GARDEN - LAS COLINAS
Dallas, Texas...................... -- 1,884 16,963 -- --
WYNDHAM GARDEN HOTEL - MIDTOWN
Atlanta, Georgia................... -- 2,323 13,785 25 716
WYNDHAM GARDEN - NOVI
Detroit, Michigan.................. -- 555 10,401 -- --
WYNDHAM GARDEN HOTEL
Pleasanton, California............. -- 1,568 12,845 -- --
WYNDHAM GARDEN - WOODDALE
Chicago, Illinois.................. -- 2,266 12,939 -- --
THE GARDEN AT LAGUARDIA
New York, New York................. -- 1,800 16,443 -- --
LIMITED SERVICE HOTELS:
HAMPTON INN JACKSONVILLE AIRPORT
Jacksonville, Florida.............. -- 285 4,355 4 164
HAMPTON INN
Rochester, New York................ -- 104 7,829 2 348
HAMPTON INN CLEVELAND AIRPORT
North Olmsted, Ohio................ -- 236 5,483 2 389
HAMPTON INN
Canton, Ohio....................... -- 350 4,315 3 357
CONFERENCE CENTER:
PEACHTREE CONFERENCE CENTER
Peachtree City (Atlanta), Georgia.. -- 3,059 21,915 33 3,109
RESORTS:
THE BOULDERS
Scottsdale, Arizona................ -- 13,188 121,700 -- 844
CARMEL VALLEY RANCH
Carmel, California................. -- 4,764 14,704 -- 647
<CAPTION>
GROSS AMOUNTS AT WHICH CARRIED
AT CLOSE OF PERIOD (a)
------------------------------
BUILDINGS AND ACCUMULATED YEAR DATE OF
LAND IMPROVEMENTS TOTAL DEPRECIATION(b)(c) BUILT ACQUISITION
---- ------------ ----- ------------- ----- -----------
<S> <C> <C> <C> <C> <C> <C>
WYNDHAM EMERALD PLAZA
San Diego, California.............. 5,551 60,462 66,013 -- 1991 1997
WYNDHAM FRANKLIN PLAZA
Philadelphia, Pennsylvania......... -- 67,671 67,671 80 1979 1997
WYNDHAM GREENSPOINT HOTEL
Houston, Texas..................... 1,950 40,756 42,706 1,696 1985 1996
WYNDHAM NORTHWEST CHICAGO
Chicago, Illinois.................. 1,212 52,025 53,237 62 1983 1997
WYNDHAM RIVERFRONT HOTEL
New Orleans, Louisiana............. 2,774 28,023 30,797 34 1996 1997
WYNDHAM GARDEN - LAS COLINAS
Dallas, Texas...................... 1,884 16,963 18,847 20 1986 1997
WYNDHAM GARDEN HOTEL - MIDTOWN
Atlanta, Georgia................... 2,348 14,501 16,849 594 1987 1996
WYNDHAM GARDEN - NOVI
Detroit, Michigan.................. 555 10,401 10,956 12 1988 1997
WYNDHAM GARDEN HOTEL
Pleasanton, California............. 1,568 12,845 14,413 2 1985 1997
WYNDHAM GARDEN - WOODDALE
Chicago, Illinois.................. 2,266 12,939 15,205 18 1986 1997
THE GARDEN AT LAGUARDIA
New York, New York................. 1,800 16,443 18,243 20 1988 1997
LIMITED SERVICE HOTELS:
HAMPTON INN JACKSONVILLE AIRPORT
Jacksonville, Florida.............. 289 4,519 4,808 284 1985 1995
HAMPTON INN
Rochester, New York................ 106 8,177 8,283 510 1986 1995
HAMPTON INN CLEVELAND AIRPORT
North Olmsted, Ohio................ 238 5,872 6,110 361 1986 1995
HAMPTON INN
Canton, Ohio....................... 353 4,672 5,025 287 1985 1995
CONFERENCE CENTER:
PEACHTREE CONFERENCE CENTER
Peachtree City (Atlanta), Georgia.. 3,092 25,024 28,116 1,425 1984 1995
RESORTS:
THE BOULDERS
Scottsdale, Arizona................ 13,188 122,544 135,732 3,340 1985 1997
CARMEL VALLEY RANCH
Carmel, California................. 4,764 15,351 20,115 418 1987 1997
</TABLE>
See accompanying notes to this schedule on page F-56.
F-54
<PAGE>
PATRIOT AMERICAN HOSPITALITY, INC.
SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION
AS OF DECEMBER 31, 1997
(IN THOUSANDS)
<TABLE>
<CAPTION>
COST CAPITALIZED
INITIAL COST SUBSEQUENT TO ACQUISITION
--------------------- -------------------------
BUILDINGS AND
DESCRIPTION ENCUMBERANCES LAND IMPROVEMENTS LAND IMPROVEMENTS
- --------------------------------- ------------- ---- ------------- ---- ------------
<S> <C> <C> <C> <C> <C>
THE LODGE AT VENTANA CANYON
Tucson, Arizona, ................ 28,489 13,287 23,332 -- 235
THE PEAKS RESORT & SPA
Telluride, Colorado.............. -- 5,141 13,997 -- 467
WYNDHAM RESORT & SPA
Ft. Lauderdale, Florida.......... -- 2,134 16,448 23 7,163
RACECOURSE FACILITY:
BAY MEADOWS RACECOURSE
San Mateo, California............ -- -- 15,052 -- 3,743
------------ --------- ----------- -------- ----------
$ 306,594 $ 167,498 $ 1,639,048 $ 724 $ 56,298
============ ========= =========== ======== ==========
<CAPTION>
GROSS AMOUNTS AT WHICH CARRIED
AT CLOSE OF PERIOD (a)
------------------------------
BUILDINGS AND ACCUMULATED YEAR DATE OF
LAND IMPROVEMENTS TOTAL DEPRECIATION(b)(c) BUILT ACQUISITION
---- ------------ ----- ------------- ----- -----------
<S> <C> <C> <C> <C> <C> <C>
THE LODGE AT VENTANA CANYON
Tucson, Arizona, ................ 13,287 23,567 36,854 639 1985 1997
THE PEAKS RESORT & SPA
Telluride, Colorado.............. 5,141 14,464 19,605 451 1992 1997
WYNDHAM RESORT & SPA
Ft. Lauderdale, Florida.......... 2,157 23,611 25,768 779 1961 1996
RACECOURSE FACILITY:
BAY MEADOWS RACECOURSE
San Mateo, California............ -- 18,795 18,795 1,379 1934 1997
--------- ----------- ---------- -------
$ 168,222 $ 1,695,346 $1,863,568 $41,041
========= =========== ========== =======
</TABLE>
See accompanying notes to this schedule on following page.
F-55
<PAGE>
PATRIOT AMERICAN HOSPITALITY, INC.
NOTES TO SCHEDULE III
(IN THOUSANDS)
PERIOD
OCTOBER 2,
1995
YEAR ENDED YEAR ENDED THROUGH
DECEMBER 31, DECEMBER 31, DECEMBER 31,
(a) Reconciliation of Real Estate: 1997 1996 1995
------------ ------------ ------------
Balance at beginning of period $ 597,494 $ 242,132 $ --
Additions during period:
Acquisitions ................... 1,209,052 342,557 242,132
Improvements ................... 56,298 12,805 --
---------- ---------- ----------
Balance at end of period $1,863,568 $ 597,494 $ 242,132
========== ========== ==========
(b) Reconciliation of Accumulated
Depreciation:
Balance at beginning of period $ 12,048 $ 1,508 $ --
Depreciation for period 28,993 10,540 1,508
---------- ---------- ----------
Balance at end of period ........... $ 41,041 $ 12,048 $ 1,508
========== ========== ==========
(c) Depreciation is computed on buildings
and improvements based upon a useful
life of 35 years.
F-56
<PAGE>
PATRIOT AMERICAN HOSPITALITY, INC.
SCHEDULE IV -- MORTGAGE LOANS ON REAL ESTATE
AS OF DECEMBER 31, 1997
(IN THOUSANDS)
<TABLE>
<CAPTION>
PERIODIC
INTEREST MATURITY PAYMENT
DESCRIPTION RATE DATE TERMS
- -------------------------------- -------- ----------------- ---------------------
<S> <C> <C> <C>
Promissory note, collateralized by 10.25% November 28, 1998 Monthly payments of
a first lien deed of trust on the interest only are
Crowne Plaza Ravinia Hotel. required. Principal
payable in full at
maturity.
Promissory note, collateralized by 12.5% November 28, 1998 Monthly payments of
a second lien deed of trust on the interest only are
Crowne Plaza Ravinia Hotel. required. Principal
payable in full at
maturity.
Promissory note, collateralized by 9.0% August 31, 1999 Monthly payments of
a first lien deed of trust on the interest only are
Wyndham WindWatch Hotel. required. Principal
payable in full at
maturity.
<CAPTION>
PRINCIPAL
AMOUNT OF
LOANS
SUBJECT TO
FACE CARRYING DELINQUENT
PRIOR AMOUNT OF AMOUNT OF PRINCIPAL OR
DESCRIPTION LIENS MORTGAGES MORTGAGES (A) INTEREST
- -------------------------------- ------------- ------------- ------------- ------------
<S> <C> <C> <C> <C>
Promissory note, collateralized by None $ 36,000 $ 36,000 None
a first lien deed of trust on the
Crowne Plaza Ravinia Hotel.
Promissory note, collateralized by $ 36,000 4,500 4,500 None
a second lien deed of trust on the
Crowne Plaza Ravinia Hotel.
Promissory note, collateralized by None 31,400 31,102 None
a first lien deed of trust on the ------------- -------------
Wyndham WindWatch Hotel.
$ 71,900 $ 71,602
============= =============
</TABLE>
(a) Reconciliation of Mortgage Loans on Real Estate:
<TABLE>
<CAPTION>
Period
Year Year October 2, 1995
Ended Ended Through
December 31, December 31, December 31,
1997 1996 1995
------------ ------------ --------------
<S> <C> <C> <C>
Balance at beginning of period........... $ 71,602 $ 40,500 $ --
New mortgage loans....................... -- 31,400 40,500
Principal payments received.............. -- (298) --
------------ ------------ --------------
Balance at end of period................. $ 71,602 $ 71,602 $ 40,500
============ ============ ==============
</TABLE>
For federal income tax purposes, the aggregate cost of investments in mortgage
loans on real estate is the carrying amount as disclosed in the schedule.
F-57
<PAGE>
PATRIOT EXHIBIT INDEX FOR 10-K FOR YEAR ENDED DECEMBER 31, 1997
---------------------------------------------------------------
3.1 Amended and Restated Certificate of Incorporation of Patriot American
Hospitality, Inc. ("Patriot REIT"), incorporated by reference to Exhibit
3.1 to Patriot REIT's and Wyndham International, Inc.'s Registration
Statement on Form S-4 filed January 13, 1998 (Nos. 333-44203 and 333-44203-
01).
3.2 AMENDED AND RESTATED BYLAWS OF PATRIOT REIT (FILED HEREWITH).
3.3 Amended and Restated Certificate of Incorporation of Wyndham International,
Inc. ("Wyndham") (formerly known as Patriot American Hospitality Operating
Company), incorporated by reference to Exhibit 3.3 to Patriot REIT's and
Wyndham's Registration Statement on Form S-4 filed January 13, 1998 (Nos.
333-44203 and 333-44203-01).
3.4 AMENDED AND RESTATED BYLAWS OF WYNDHAM (FILED HEREWITH).
3.5 Certificate of Designations, Preferences and Rights of Patriot REIT Series
A Convertible Preferred Stock, incorporated by reference to Exhibit 3.5 to
Patriot REIT's and Wyndham's Form S-4/A filed February 13, 1998 (Nos. 333-
44203 and 333-44203-01).
4.1 Agreement (the "Pairing Agreement"), dated as of February 17, 1983 and as
amended February 18, 1988, between Bay Meadows Operating Company ("Bay
Meadows") and California Jockey Club ("Cal Jockey") (formerly known as 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 and 001-
09320).
4.2 Amendment No. 2 to the Pairing Agreement, incorporated by reference to
Exhibit 4.2 to Patriot REIT's and Patriot American Hospitality Operating
Company's ("Patriot Operating Company") Joint Registration Statement on
Form S-4 filed November 10, 1997 (Nos. 333-39875 and 333-39875-01).
4.3 Amendment No. 3 to the Pairing Agreement, incorporated by reference to
Exhibit 4.3 to Patriot REIT's and Wyndham's Form S-4/A filed February 13,
1998 (Nos. 333-44203 and 333-44203-01).
4.4 Cooperation Agreement, dated as of December 18, 1997, between Patriot REIT
and Wyndham, incorporated by reference to Exhibit 4.4 to Patriot REIT's and
Wyndham's Form S-4/A filed February 13, 1998 (Nos. 333-44203 and 333-44203-
01).
1
<PAGE>
10.1 Agreement and Plan of Merger, dated as of February 24, 1997, as amended
and restated as of May 28, 1997, by and among Patriot REIT, Patriot
American Hospitality Partnership, L.P., Cal Jockey and Bay Meadows,
incorporated by reference to Annex A to the Joint Proxy
Statement/Prospectus included in Cal Jockey's and Bay Meadows'
Registration Statement on Form S-4 filed May 30, 1997 (Nos. 333-28085 and
333-28085-01).
10.2 Agreement and Plan of Merger, dated as of April 14, 1997, between Patriot
REIT and Wyndham Hotel Corporation (the "Wyndham Merger Agreement"),
incorporated by reference to Annex A to the Joint Proxy
Statement/Prospectus included in Patriot REIT's and Patriot Operating
Company's Joint Registration Statement on Form S-4 filed November 10, 1997
(Nos. 333-39875 and 333-39875-01).
10.3 Amendment No. 1 to Wyndham Merger Agreement, dated as of November 3, 1997,
incorporated by reference to Annex A to the Joint Proxy
Statement/Prospectus included in Patriot REIT's and Patriot Operating
Company's Joint Registration Statement on Form S-4 filed November 10, 1997
(Nos. 333-39875 and 333-39875-01).
10.4 Amendment No. 2 to Wyndham Merger Agreement, dated as of December 9, 1997,
incorporated by reference to Annex S-A to the Joint Proxy
Statement/Prospectus included in Patriot REIT's and Patriot Operating
Company's Post-Effective Amendment to Form S-4 filed December 10, 1997
(Nos. 333-39875 and 333-39875-01).
10.5 Agreement and Plan of Merger, dated as of September 30, 1997, by and among
Patriot Operating Company, Patriot REIT and CHC International, Inc.,
incorporated by reference to Exhibit 10.40 to Patriot REIT's and Patriot
Operating Company's Joint Registration Statement on Form S-4 filed
November 10, 1997 (Nos. 333-39875 and 333-39875-01).
10.6 Agreement and Plan of Merger, dated as of September 30, 1997 by and among
WHG Resorts & Casinos Inc., Patriot REIT, Patriot American Hospitality
Operating Company Acquisition Subsidiary and Patriot Operating Company,
incorporated by reference to Exhibit 2.1 to Patriot REIT's and Patriot
Operating Company's Registration Statement on Form S-4 filed November 12,
1997 (Nos. 333-40041 and 333-40041-01).
10.7 Agreement and Plan of Merger, dated as of December 2, 1997, by and among
Interstate Hotels Company, Patriot REIT and Wyndham, incorporated by
reference to Annex A to the Joint Proxy Statement/Prospectus included in
Patriot REIT's and Wyndham's Form S-4 filed January 13, 1998 (Nos. 333-
44203 and 333-44203-01).
10.8 Second Amended and Restated Agreement of Limited Partnership of Patriot
American Hospitality Partnership, L.P. ("Realty Partnership Agreement"),
incorporated by reference to Exhibit 10.1(1) to Cal Jockey's and Bay
Meadows' Registration Statement on Form S-4 filed May 30, 1997 (Nos. 333-
28085 and 333-28085-01).
2
<PAGE>
10.9 First Amendment to the Realty Partnership Agreement, incorporated by
reference to Exhibit 10.1(2) to Cal Jockey's and Bay Meadows'
Registration Statement on Form S-4 filed May 30, 1997 (Nos. 333-28085 and
333-28085-01).
10.10 Third Amendment to Realty Partnership Agreement, dated as of July 1,
1997, incorporated by reference to Exhibit 10.1(4) to Patriot REIT's and
Patriot Operating Company's Joint Registration Statement on Form S-4
filed November 10, 1997 (Nos. 333-39875 and 333-39875-01).
10.11 FIFTH AMENDMENT TO REALTY PARTNERSHIP AGREEMENT (FILED HEREWITH)
10.12 Agreement of Limited Partnership of Patriot American Hospitality
Operating Partnership, L.P., dated as of June 27, 1997, ("Operating
Partnership Agreement"), incorporated by reference to Exhibit 10.2(1) to
Patriot REIT's and Patriot Operating Company's Joint Registration
Statement on Form S-4 filed November 10, 1997 (Nos. 333-39875 and 333-
39875-01).
10.13 First Amendment to Operating Partnership Agreement, dated as of August
15, 1997, incorporated by reference to Exhibit 10.2(2) to Patriot REIT's
and Patriot Operating Company's Joint Registration Statement on Form S-4
filed November 10, 1997 (No. 333-39875 and 333-39875-01).
10.14 THIRD AMENDMENT TO OPERATING PARTNERSHIP AGREEMENT (FILED HEREWITH)
10.15 FIFTH AMENDMENT TO OPERATING PARTNERSHIP AGREEMENT (FILED HEREWITH)
10.16 Shareholders Agreement, dated as of December 2, 1997, by and among
Patriot REIT, Patriot 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
REIT's and Patriot Operating Company's Current Report on Form 8-K dated
December 2, 1997 and filed December 4, 1997 (Nos. 001-09319 and 001-
09320).
10.17 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 REIT's and Patriot Operating Company's Joint Registration
Statement on Form S-4 filed November 10, 1997 (Nos. 333-39875 and 333-
39875-01).
10.18 Amended and Restated Credit Agreement, dated as of December 16, 1997,
among Patriot REIT, Patriot American Hospitality Partnership, L.P., The
Chase Manhattan Bank, PaineWebber Real Estate Securities, Inc. and
various lenders identified therein incorporated by reference to Exhibit
10.2 to Patriot REIT's and Wyndham's Registration Statement on Form S-4
filed January 13, 1998 (Nos. 333-44203 and 333-44203-01).
10.19 Term Loan Agreement, dated as of December 16, 1997, among Patriot REIT,
Patriot American Hospitality Partnership, L.P., The Chase Manhattan Bank,
PaineWebber Real Estate Securities, Inc. and various lenders identified
therein incorporated by reference to Exhibit 10.3 to Patriot REIT's and
Wyndham's Registration Statement on Form S-4 filed January 13, 1998 (Nos.
333-44203 and 333-44203-01).
3
<PAGE>
10.20 Executive Employment Agreement, dated as of April 14, 1997, between
Patriot REIT and James D. Carreker, incorporated by reference to Exhibit
10.20 to Patriot REIT's and Patriot Operating Company's Joint
Registration Statement on Form S-4 filed November 10, 1997 (Nos. 333-
39875 and 333-39875-01).
10.21 Executive Employment Agreement, dated as of April 14, 1997, between
Patriot REIT and Anne L. Raymond, incorporated by reference to Exhibit
10.21 to Patriot REIT's and Patriot Operating Company's Joint
Registration Statement on Form S-4 filed November 10, 1997 (Nos. 333-
39875 and 333-39875-01).
10.22 Executive Employment Agreement, dated as of April 14, 1997, between
Patriot REIT and Leslie V. Bentley, incorporated by reference to Exhibit
10.22 to Patriot REIT's and Patriot Operating Company's Joint
Registration Statement on Form S-4 filed November 10, 1997 (Nos. 333-
39875 and 333-39875-01).
10.23 Executive Employment Agreement, dated as of April 14, 1997, between
Patriot REIT and Stanley M. Koonce, Jr., incorporated by reference to
Exhibit 10.23 to Patriot REIT's and Patriot Operating Company's Joint
Registration Statement on Form S-4 filed November 10, 1997 (Nos. 333-
39875 and 333-39875-01).
10.24 EXECUTIVE EMPLOYMENT AGREEMENT, DATED AS OF APRIL 14, 1997, BETWEEN
PATRIOT REIT AND PAUL A. NUSSBAUM (FILED HEREWITH).
10.25 EXECUTIVE EMPLOYMENT AGREEMENT, DATED AS OF FEBRUARY 14, 1997, BETWEEN
PATRIOT REIT AND WILLIAM W. EVANS III, AS SUPPLEMENTED ON APRIL 14, 1997
(FILED HEREWITH).
10.26 EXECUTIVE EMPLOYMENT AGREEMENT DATED AS OF JUNE 1997, BETWEEN PATRIOT
REIT AND PAUL NOVAK (FILED HEREWITH).
10.27 EXECUTIVE EMPLOYMENT AGREEMENT, DATED AS OF OCTOBER 1, 1997, BETWEEN
PATRIOT OPERATING COMPANY AND MICHAEL GROSSMAN (FILED HEREWITH).
10.28 EXECUTIVE EMPLOYMENT AGREEMENT, DATED AS OF OCTOBER 1, 1997 BETWEEN
PATRIOT OPERATING COMPANY AND KARIM ALIBHAI (FILED HEREWITH).
10.29 Standstill Agreement, dated as of April 14, 1997, by and among Patriot
REIT and CF Securities, L.P., incorporated by reference to Exhibit 10.9
to Patriot REIT's and Patriot Operating Company's Joint Registration
Statement on Form S-4 filed November 10, 1997 (Nos. 333-39875 and 333-
39875-01).
10.30 Voting Agreement, dated as of April 14, 1997, by and among Patriot REIT
and CF Securities, L.P., incorporated by reference to Exhibit 10.10 to
Patriot REIT's and Patriot Operating Company's Joint Registration
Statement on Form S-4 filed November 10, 1997 (Nos. 333-39875 and 333-
39875-01).
10.31 Voting Agreement, dated as of April 14, 1997, by and among Patriot REIT
and Paul A. Nussbaum, incorporated by reference to Exhibit 10.11 to
Patriot REIT's and Patriot Operating Company's Joint Registration
Statement on Form S-4 filed November 10, 1997 (Nos. 333-39875 and 333-
39875-01).
10.32 Voting Agreement, dated as of April 14, 1997, by and among Patriot REIT
and William W. Evans III, incorporated by reference to Exhibit 10.12 to
Patriot REIT's and Patriot Operating Company's Joint Registration
Statement on Form S-4 filed November 10, 1997 (Nos. 333-39875 and 333-
39875-01).
10.33 Voting Agreement, dated as of April 14, 1997, by and among Patriot REIT
and Leslie V. Bentley, incorporated by reference to Exhibit 10.13 to
Patriot REIT's and Patriot Operating Company's Joint Registration
Statement on Form S-4 filed November 10, 1997 (Nos. 333-39875 and 333-
39875-01).
10.34 Voting Agreement, dated as of April 14, 1997, by and among Patriot REIT
and James D. Carreker, incorporated by reference to Exhibit 10.14 to
Patriot REIT's and Patriot Operating Company's Joint Registration
Statement on Form S-4 filed November 10, 1997 (Nos. 333-39875 and 333-
39875-01).
10.35 Voting Agreement, dated as of April 14, 1997, by and among Patriot REIT
and Stanley M. Koonce, Jr., incorporated by reference to Exhibit 10.15 to
Patriot REIT's and Patriot Operating Company's Joint Registration
Statement on Form S-4 filed November 10, 1997 (Nos. 333-39875 and 333-
39875-01).
10.36 Voting Agreement, dated as of April 14, 1997, by and among Patriot REIT
and Anne L. Raymond, incorporated by reference to Exhibit 10.16 to
Patriot REIT's and Patriot Operating Company's Joint Registration
Statement on Form S-4 filed November 10, 1997 (Nos. 333-39875 and 333-
39875-01).
12.1 STATEMENT REGARDING COMPUTATION OF RATIOS (FILED HEREWITH).
21.1 SIGNIFICANT SUBSIDIARIES OF PATRIOT REIT AND WYNDHAM (FILED HEREWITH).
23.1 CONSENT OF ERNST & YOUNG LLP (FILED HEREWITH).
24.1 POWERS OF ATTORNEY (INCLUDED ON SIGNATURE PAGES)
27.1 FINANCIAL DATA SCHEDULE OF PATRIOT REIT (FILED HEREWITH).
27.2 FINANCIAL DATE SCHEDULE OF WYNDHAM (FILED HEREWITH).
4
<PAGE>
EXHIBIT 3.2
AMENDED AND RESTATED
BYLAWS
OF
PATRIOT AMERICAN HOSPITALITY, INC.
ARTICLE I.
----------
DEFINITIONS
-----------
For purposes of these Bylaws, the following words shall have the meanings
set forth below:
(a) "Affiliate" of a Person shall mean (i) any Person that, directly
or indirectly, controls or is controlled by or is under common control with such
other Person, (ii) any Person that owns, beneficially, directly or indirectly,
5% or more of the outstanding capital stock, shares or equity interests of such
other Person or (iii) any officer, director, employee, partner or trustee of
such other Person or any Person controlling, controlled by or under common
control with such Person (excluding directors and Persons serving in similar
capacities who are not otherwise Affiliates of such Person). For the purposes of
this definition, the term "Person" shall mean, and includes, any natural person,
corporation, partnership, association, trust, limited liability company or any
other legal entity. For the purposes of this definition, "control" (including
the correlative meanings of the terms "controlled by" and "under common control
with"), as used with respect to any Person, shall mean the possession, directly
or indirectly, of the power to direct or cause the direction of the management
and policies of such Person, through the ownership of voting securities,
partnership interests or other equity interests.
(b) "Certificate" shall mean the Amended and Restated Certificate of
Incorporation of the Corporation, as amended from time to time.
<PAGE>
(c) "Corporation" shall mean Patriot American Hospitality, Inc.
(d) "DGCL" shall mean the Delaware General Corporation Law, as
amended from time to time.
(e) "Equity Stock" shall mean the common stock, par value $.01 per
share, and the preferred stock, par value $.01 per share of the Corporation and
the Operating Company.
(f) "Independent Director" shall mean a director of the Corporation
who is not (i) an officer or employee of the Corporation, (ii) a director or
officer of Operating Company or (iii) an Affiliate of (a) any lessee of any
property of the Corporation, (b) a subsidiary of the Corporation or (c) any
partnership that is an affiliate of the Corporation.
(g) "Operating Company" shall mean Wyndham International, Inc.
(formerly "Patriot American Hospitality Operating Company").
(h) "Public Announcement" shall mean: (i) disclosure in a press
release reported by the Dow Jones News Service, Associated Press or comparable
national news service, (ii) a report or other document filed publicly with the
Securities and Exchange Commission (including, without limitation, a Form 8-K)
or (iii) a letter or report sent to stockholders of record of the Corporation at
the time of the mailing of such letter or report.
ARTICLE II.
-----------
MEETINGS OF STOCKHOLDERS
------------------------
2.1 Places of Meetings. All meetings of the stockholders shall be held at
------------------
such place, either within or without the State of Delaware, as from time to time
may be fixed by the Board
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of Directors.
2.2 Annual Meetings. The annual meeting of the stockholders, for the
---------------
election of directors and transaction of such other business as may come
properly before the meeting, shall be held at such date and time as shall be
determined by the Board of Directors.
2.3 Special Meetings. A special meeting of the stockholders for any
----------------
purpose or purposes may be called at any time only by the Chairman of the Board
or by a majority of the Board of Directors. At a special meeting no business
shall be transacted and no corporate action shall be taken other than that
stated in the notice of the meeting.
2.4 Notice of Meetings; Adjournments. A written notice of each annual
--------------------------------
meeting stating the hour, date and place of such annual meeting shall be given
by the Secretary or an Assistant Secretary of the Corporation (or other person
authorized by these Bylaws or by law) not less than 10 days nor more than 60
days before the annual meeting, to each stockholder entitled to vote thereat and
to each stockholder who, by law or under the Certificate or under these Bylaws,
is entitled to such notice, by delivering such notice to him or her or by
mailing it, postage prepaid, addressed to such stockholder at the address of
such stockholder as it appears on the stock transfer books of the Corporation.
Such notice shall be deemed to be delivered when hand delivered to such address
or deposited in the mail so addressed, with postage prepaid.
Notice of all special meetings of stockholders shall be given in the same
manner as provided for annual meetings, except that the written notice of all
special meetings shall state the purpose or purposes for which the meeting has
been called.
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Notice of an annual meeting or special meeting of stockholders need not be
given to a stockholder if a written waiver of notice is signed before or after
such meeting by such stockholder or if such stockholder attends such meeting,
unless such attendance was for the express purpose of objecting at the beginning
of the meeting to the transaction of any business because the meeting was not
lawfully called or convened. Neither the business to be transacted at, nor the
purpose of, any annual meeting or special meeting of stockholders need be
specified in any written waiver of notice.
The Board of Directors may postpone and reschedule any previously scheduled
annual meeting or special meeting of stockholders and any record date with
respect thereto, regardless of whether any notice or public disclosure with
respect to any such meeting has been sent or made pursuant to this Section 2.4
or otherwise. In no event shall the Public Announcement of an adjournment,
postponement or rescheduling of any previously scheduled meeting of stockholders
commence a new time period for the giving of a stockholder's notice under
Section 2.9 of these Bylaws.
When any meeting is convened, the presiding officer of the meeting may
adjourn the meeting if (a) no quorum is present for the transaction of business,
(b) the Board of Directors determines that adjournment is necessary or
appropriate to enable the stockholders to consider fully information that the
Board of Directors determines has not been made sufficiently or timely available
to stockholders or (c) the Board of Directors determines that adjournment is
otherwise in the best interests of the Corporation. When any annual meeting or
special meeting of stockholders is adjourned to another hour, date or place,
notice need not be given of the adjourned meeting, other than an announcement at
the meeting at which the adjournment is
4
<PAGE>
taken, of the hour, date and place to which the meeting is adjourned; provided,
however, that if the adjournment is for more than 30 days, or if after the
adjournment a new record date is fixed for the adjourned meeting, notice of the
adjourned meeting shall be given to each stockholder of record entitled to vote
thereat and each stockholder who, by law or under the Certificate or under these
Bylaws, is entitled to such notice.
2.5 Quorum. Except as otherwise required by the Certificate, any number of
------
stockholders together holding at least a majority of the outstanding shares of
capital stock entitled to vote with respect to the business to be transacted,
who shall be present in person or represented by proxy at any meeting duly
called, shall constitute a quorum for the transaction of business. If less than
a quorum shall be in attendance at the time for which a meeting shall have been
called, the meeting may be adjourned from time to time by a majority of the
stockholders present or represented by proxy.
2.6 Voting and Proxies. Stockholders shall have one vote for each share of
------------------
stock entitled to vote owned by them of record according to the stock transfer
books of the Corporation, unless otherwise provided by law or by the
Certificate. Stockholders may vote either in person or by written proxy, but no
proxy shall be voted or acted upon after three years from its date, unless the
proxy provides for a longer period. Proxies shall be filed with the secretary of
the meeting before being voted. Except as otherwise limited therein or as
otherwise provided by law, proxies shall entitle the persons authorized thereby
to vote at any adjournment of such meeting, but they shall not be valid after
final adjournment of such meeting. A proxy with respect to stock held in the
name of two or more persons shall be valid if executed by or on behalf of any
one of them unless at or prior to the exercise of the proxy
5
<PAGE>
the Corporation receives a specific written notice to the contrary from any one
of them. A proxy purporting to be executed by or on behalf of a stockholder
shall be deemed valid, and the burden of proving invalidity shall rest on the
challenger.
2.7 Action at Meeting. When a quorum is present, any matter before any
-----------------
meeting of stockholders shall be decided by the affirmative vote of the majority
of shares present in person or represented by proxy at such meeting and entitled
to vote on such matter, except where a larger vote is required by law, by the
Certificate or by these Bylaws. Any election by stockholders shall be determined
by a plurality of the votes of the shares present in person or represented by
proxy at the meeting and entitled to vote on the election of directors, except
where a larger vote is required by law, by the Certificate or by these Bylaws.
The Corporation shall not directly or indirectly vote any shares of its own
stock; provided , however, that the Corporation may vote shares which it holds
in a fiduciary capacity to the extent permitted by law.
2.8 Stockholder List. The officer or agent having charge of the stock
----------------
transfer books of the Corporation shall make, at least 10 days before every
annual meeting or special meeting of stockholders, a complete list of the
stockholders entitled to vote at the meeting or any adjournment thereof, in
alphabetical order, and showing the address of each stockholder and the number
of shares registered in the name of each stockholder. Such list shall be open to
the examination of any stockholder, for any purpose germane to the meeting,
during ordinary business hours, for a period of at least 10 days prior to the
meeting, either at a place within the city where the meeting is to be held,
which place shall be specified in the notice of the meeting, or, if not so
specified, at the place where the meeting is to be held. The list shall also
6
<PAGE>
be produced and kept at the hour, date and place of the meeting during the whole
time thereof, and may be inspected by any stockholder who is present.
2.9 Stockholder Proposals. In addition to any other applicable
---------------------
requirements, for business to be properly brought before an annual meeting by a
stockholder of record (both as of the time notice of such proposal is given by
the stockholder as set forth below and as of the record date for the annual
meeting in question) of any shares of capital stock entitled to vote at such
annual meeting, such stockholder shall: (i) give timely written notice as
required by this Section 2.9 to the Secretary of the Corporation and (ii) be
present at such meeting, either in person or by a representative. For the first
annual meeting following the end of the fiscal year ended December 31, 1996, a
stockholder's notice shall be timely if delivered to, or mailed to and received
by, the Corporation at its principal executive office not later than the close
of business on the 15th day following the day on which the Public Announcement
of the date of such annual meeting is first made by the Corporation. For all
subsequent annual meetings, a stockholder's notice shall be timely if delivered
to, or mailed to and received by, the Corporation at its principal executive
office not later than 90 days prior to the anniversary date of the immediately
preceding annual meeting (the "Anniversary Date"); provided, however, that in
the event the annual meeting is scheduled to be held on a date more than 30 days
before the Anniversary Date or more than 60 days after the Anniversary Date, a
stockholder's notice shall be timely if delivered to, or mailed to and received
by, the Corporation at its principal executive office not later than the close
of business on the later of (1) the 90th day prior to the scheduled date of such
annual meeting or (2) the 15th day following the day on which Public
Announcement of the date of such annual meeting is first made by the
Corporation.
7
<PAGE>
A stockholder's notice to the Secretary of the Corporation shall set forth
as to each matter proposed to be brought before an annual meeting: (i) a brief
description of the business the stockholder desires to bring before such annual
meeting and the reasons for conducting such business at such annual meeting,
(ii) the name and address, as they appear on the stock transfer books of the
Corporation, of the stockholder proposing such business, (iii) the class and
number of shares of the capital stock of the Corporation beneficially owned by
the stockholder proposing such business, (iv) the names and addresses of the
beneficial owners, if any, of any capital stock of the Corporation registered in
such stockholder's name on such books, and the class and number of shares of the
capital stock of the Corporation beneficially owned by such beneficial owners,
(v) the names and addresses of other stockholders known by the stockholder
proposing such business to support such proposal, and the class and number of
shares of the capital stock of the Corporation beneficially owned by such other
stockholders and (vi) any material interest of the stockholder proposing to
bring such business before such meeting (or any other stockholders known to be
supporting such proposal) in such proposal.
If the Board of Directors or a designated committee thereof determines that
any stockholder proposal was not made in a timely fashion in accordance with the
provisions of this Section 2.9 or that the information provided in a
stockholder's notice does not satisfy the information requirements of this
Section 2.9 in any material respect, such proposal shall not be presented for
action at the annual meeting in question. If neither the Board of Directors nor
such committee makes a determination as to the validity of any stockholder
proposal in the manner set forth above, the presiding officer of the annual
meeting shall determine whether the stockholder proposal was made in accordance
with the terms of this Section 2.9. If the
8
<PAGE>
presiding officer determines that any stockholder proposal was not made in a
timely fashion in accordance with the provisions of this Section 2.9 or that the
information provided in a stockholder's notice does not satisfy the information
requirements of this Section 2.9 in any material respect, such proposal shall
not be presented for action at the annual meeting in question. If the Board of
Directors, a designated committee thereof or the presiding officer determines
that a stockholder proposal was made in accordance with the requirements of this
Section 2.9, the presiding officer shall so declare at the annual meeting and
ballots shall be provided for use at the meeting with respect to such proposal.
Notwithstanding the foregoing provisions of this Section 2.9, a stockholder
shall also comply with all applicable requirements of the Securities Exchange
Act of 1934, as amended (the "Exchange Act"), and the rules and regulations
thereunder with respect to the matters set forth in this Section 2.9, and
nothing in this Section 2.9 shall be deemed to affect any rights of stockholders
to request inclusion of proposals in the Corporation's proxy statement pursuant
to Rule 14a-8 under the Exchange Act.
2.10 Inspectors of Elections. The Corporation shall, in advance of any
-----------------------
meeting of stockholders, appoint one or more inspectors to act at the meeting
and make a written report thereof. The Corporation may designate one or more
persons as alternate inspectors to replace any inspector who fails to act. If no
inspector or alternate is able to act at a meeting of stockholders, the
presiding officer shall appoint one or more inspectors to act at the meeting.
Any inspector may, but need not, be an officer, employee or agent of the
Corporation. Each inspector, before entering upon the discharge of his or her
duties, shall take and sign an oath faithfully to execute the duties of
inspector with strict impartiality and according to the best of
9
<PAGE>
his or her ability. The inspectors shall perform such duties as are required by
the DGCL, including the counting of all votes and ballots. The inspectors may
appoint or retain other persons or entities to assist the inspectors in the
performance of the duties of the inspectors. The presiding officer may review
all determinations made by the inspectors, and in so doing the presiding officer
shall be entitled to exercise his or her sole judgment and discretion and he or
she shall not be bound by any determinations made by the inspectors. All
determinations by the inspectors and, if applicable, the presiding officer,
shall be subject to further review by any court of competent jurisdiction.
2.11 Presiding Officer. The Chairman of the Board, if one is elected, or
-----------------
if not elected or in his or her absence, the President, shall preside at all
annual meetings or special meetings of stockholders and shall have the power,
among other things, to adjourn such meeting at any time and from time to time,
subject to Sections 2.4 and 2.5 of this Article II. The order of business and
all other matters of procedure at any meeting of the stockholders shall be
determined by the presiding officer.
ARTICLE III.
------------
DIRECTORS
---------
3.1 General Powers. Except as otherwise expressly provided by law, the
--------------
Certificate or these Bylaws, the property, affairs and business of the
Corporation shall be managed under the direction of the Board of Directors and
all of the powers of the Corporation shall be vested in such Board.
3.2 Number of Directors. The number of directors shall be fixed by
-------------------
resolution duly adopted from time to time by the Board of Directors.
10
<PAGE>
3.3 Election and Removal of Directors; Quorum.
-----------------------------------------
(a) Directors shall be elected and removed in the manner provided for
in Article V of the Certificate.
(b) Vacancies in the Board of Directors shall be filled in the manner
provided for in Article V of the Certificate.
(c) At any meeting of the Board of Directors, a majority of the
number of directors then in office shall constitute a quorum for the transaction
of business. However, if less than a quorum is present at a meeting, a majority
of the directors present may adjourn the meeting from time to time, and the
meeting may be held as adjourned without further notice, except that when any
meeting of the Board of Directors, either regular of special, is adjourned for
30 days or more, notice of the adjourned meeting shall be given as in the case
of the original meeting.
3.4 Meetings of Directors. Subject to the provisions of Article V of the
---------------------
Certificate, meetings of the Board of Directors shall be held at places within
or without the State of Delaware and at times fixed by resolution of the Board
of Directors, or upon call of the Chairman of the Board, and the Secretary of
the Corporation or officer performing the Secretary's duties shall give not less
than 24 hours' notice by letter, facsimile, telegraph or telephone (or in
person) of all meetings of the Board of Directors, provided that notice need not
be given of the annual meeting or of regular meetings held at times and places
fixed by resolution of the Board of Directors. Subject to the provisions of
Article V of the Certificate, meetings may be held at any time without notice if
all of the directors are present, or if those not present waive notice in
writing either before or after the meeting; provided, however, that
11
<PAGE>
attendance at a meeting for the express purpose of objecting at the beginning of
a meeting to the transaction of any business because the meeting is not lawfully
convened shall not be considered a waiver of notice.
3.5 Nominations. Nominations of candidates for election as directors of
-----------
the Corporation at any annual meeting may be made only (a) by, or at the
direction of, a majority of the Board of Directors or (b) by any holder of
record (both as of the time notice of such nomination is given by the
stockholder as set forth below and as of the record date for the annual meeting
in question) of any shares of the capital stock of the Corporation entitled to
vote at such annual meeting who complies with the timing, informational and
other requirements set forth in this Section 3.5. Any stockholder who has
complied with the timing, informational and other requirements set forth in this
Section 3.5 and who seeks to make such a nomination must be, or his, her or its
representative must be, present in person at the annual meeting. Only persons
nominated in accordance with the procedures set forth in this Section 3.5 shall
be eligible for election as directors at an annual meeting.
Nominations, other than those made by, or at the direction of, the Board of
Directors shall be made pursuant to timely notice in writing to the Secretary of
the Corporation as set forth in this Section 3.5. For the first annual meeting
following the end of the fiscal year ended December 31, 1996, a stockholder's
notice shall be timely if delivered to, or mailed to and received by, the
Corporation at its principal executive office not later than the close of
business on the 15th day following the day on which the Public Announcement of
the date of such annual meeting is first made by the Corporation. For all
subsequent annual meetings, a stockholder's notice shall be timely if delivered
to, or mailed to and received by, the
12
<PAGE>
Corporation at its principal executive office not less than 90 days prior to the
Anniversary Date; provided, however, that in the event the annual meeting is
scheduled to be held on a date more than 30 days before the Anniversary Date or
more than 60 days after the Anniversary Date, a stockholder's notice shall be
timely if delivered to, or mailed and received by, the Corporation at its
principal executive office not later than the close of business on the later of
(x) the 90th day prior to the scheduled date of such annual meeting or (y) the
15th day following the day on which Public Announcement of the date of such
annual meeting is first made by the Corporation.
A stockholder's notice to the Secretary of the Corporation shall set forth
as to each person whom the stockholder proposes to nominate for election or re-
election as a director: (1) the name, age, business address and residence
address of such person; (2) the principal occupation or employment of such
person; (3) the class and number of shares of the capital stock of the
Corporation which are beneficially owned by such person on the date of such
stockholder notice; and (4) the consent of each nominee to serve as a director
if elected. A stockholder's notice to the Secretary of the Corporation shall
further set forth as to the stockholder giving such notice: (a) the name and
address, as they appear on the stock transfer books of the Corporation, of such
stockholder and of the beneficial owners (if any) of the capital stock of the
Corporation registered in such stockholder's name and the name and address of
other stockholders known by such stockholder to be supporting such nominee(s);
(b) the class and number of shares of the capital stock of the Corporation which
are held of record, beneficially owned or represented by proxy by such
stockholder and by any other stockholders known by such stockholder to be
supporting such nominee(s) on the record date for the annual
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<PAGE>
meeting in question (if such date shall then have been made publicly available)
and on the date of such stockholder's notice; and (c) a description of all
arrangements or understandings between such stockholder and each nominee and any
other person or persons (naming such person or persons) pursuant to which the
nomination or nominations are to be made by such stockholder.
If the Board of Directors or a designated committee thereof determines that
any stockholder nomination was not made in accordance with the terms of this
Section 3.5 or that the information provided in a stockholder's notice does not
satisfy the informational requirements of this Section 3.5 in any material
respect, then such nomination shall not be considered at the annual meeting in
question. If neither the Board of Directors nor such committee makes a
determination as to whether a nomination was made in accordance with the
provisions of this Section 3.5, the presiding officer of the annual meeting
shall determine whether a nomination was made in accordance with such
provisions. If the presiding officer determines that any stockholder nomination
was not made in accordance with the terms of this Section 3.5 or that the
information provided in a stockholder's notice does not satisfy the
informational requirements of this Section 3.5 in any material respect, then
such nomination shall not be considered at the annual meeting in question. If
the Board of Directors, a designated committee thereof or the presiding officer
determines that a nomination was made in accordance with the terms of this
Section 3.5, the presiding officer shall so declare at the annual meeting and
ballots shall be provided for use at the meeting with respect to such nominee.
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Notwithstanding anything to the contrary in the second paragraph of this
Section 3.5, in the event that the number of directors to be elected to the
Board of Directors is increased and there is no Public Announcement by the
Corporation naming all of the nominees for director or specifying the size of
the increased Board of Directors at least 90 days prior to the Anniversary Date,
a stockholder's notice required by this Section 3.5 shall also be considered
timely, but only with respect to nominees for any new positions created by such
increase, if such notice shall be delivered to, or mailed to and received by,
the Corporation at its principal executive office not later than the close of
business on the 15th day following the day on which such Public Announcement is
first made by the Corporation.
No person shall be elected by the stockholders as a director of the
Corporation unless nominated in accordance with the procedures set forth in this
Section 3.5. Election of directors at an annual meeting need not be by written
ballot, unless otherwise provided by the Board of Directors or presiding officer
at such annual meeting. If written ballots are to be used, ballots bearing the
names of all the persons who have been nominated for election as directors at
the annual meeting in accordance with the procedures set forth in this Section
3.5 shall be provided for use at the annual meeting.
3.6 Voting.
------
(a) Except as provided in subsection (c) of this Section 3.6, the
action of the majority of the directors present at a meeting at which a quorum
is present shall be the action of the Board of Directors, unless a larger vote
is required for such action by the Certificate, these Bylaws or by law.
15
<PAGE>
(b) Any action required or permitted to be taken at any meeting of
the Board of Directors may be taken without a meeting if all members of the
Board of Directors consent thereto in writing. Such written consent shall be
filed with the records of the meetings of the Board of Directors and shall be
treated for all purposes as a vote at a meeting of the Board of Directors.
(c) Notwithstanding anything in these Bylaws to the contrary, (i) any
action pertaining to a sale or other disposition of any of the following hotels:
(1) Radisson New Orleans; (2) Bourbon Orleans; (3) North Dallas Holiday Inn; and
(4) San Angelo Holiday Inn and (ii) any other action pertaining to any
transaction involving the Corporation, including the purchase, sale, lease, or
mortgage of any real estate asset, entering into joint venture investments or
any other transaction, in which an advisor, director or officer of the
Corporation, or any Affiliate of any of the foregoing persons, has any direct or
indirect interest other than solely as a result of their status as a director,
officer, or stockholder of the Corporation, must be approved by a majority of
the directors, including a majority of the Independent Directors, even if the
Independent Directors constitute less than a quorum.
3.7 Manner of Participation. Directors may participate in meetings of the
-----------------------
Board of Directors by means of conference telephone or similar communications
equipment by means of which all directors participating in the meeting can hear
each other, and participation in a meeting in accordance herewith shall
constitute presence in person at such meeting for purposes of these Bylaws.
16
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3.8 Compensation. By resolution of the Board of Directors, directors may
------------
be allowed a fee and expenses for attendance at all meetings, but nothing herein
shall preclude directors from serving the Corporation in other capacities and
receiving compensation for such other services.
ARTICLE IV.
-----------
COMMITTEES
----------
4.1 Executive Committee. Subject to the provisions of the Certificate, the
-------------------
Board of Directors, by resolution duly adopted, may elect an Executive Committee
which shall consist of not less than two directors, including the Chairman of
the Board. If an Executive Committee is established, the members of such
committee shall serve until their successors are designated by the Board of
Directors, until removed, or until such committee is dissolved by the Board of
Directors. All vacancies that may occur in the Executive Committee shall be
filled by the Board of Directors.
When the Board of Directors is not in session, the Executive Committee, if
established, shall have all power vested in the Board of Directors by law, by
the Certificate, or by these Bylaws, except as otherwise provided in the DGCL.
The Executive Committee, if established, shall report at the next regular or
special meeting of the Board of Directors all action that the Executive
Committee may have taken on behalf of the Board of Directors since the last
regular or special meeting of the Board of Directors.
Meetings of the Executive Committee, if established, shall be held at such
places and at such times fixed by resolution of the Executive Committee, or upon
call of the Chairman of the Board. Not less than 12 hours' notice shall be given
by letter, facsimile, telegraph or telephone
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(or in person) of all meetings of the Executive Committee; provided, however,
that notice need not be given of regular meetings held at times and places fixed
by resolution of the Executive Committee and that meetings may be held at any
time without notice if all of the members of the Executive Committee are present
or if those not present waive notice in writing either before or after the
meeting; provided, further, that attendance at a meeting for the express purpose
of objecting at the beginning of a meeting to the transaction of any business
because the meeting is not lawfully convened shall not be considered a waiver of
notice. A majority of the members of the Executive Committee then serving shall
constitute a quorum for the transaction of business at any meeting of the
Executive Committee.
4.2 Compensation Committee. The Board of Directors, at its regular annual
--- ----------------------
meeting, shall designate a Compensation Committee which shall consist of two or
more non-employee directors. In addition, the Board of Directors at any time may
designate one or more alternate members of the Compensation Committee, who shall
be non-employee directors, who may act in place of any absent regular member
upon invitation by the chairman or secretary of the Compensation Committee.
With respect to bonuses, the Compensation Committee shall have and may
exercise the powers to determine the amounts annually available for bonuses
pursuant to any bonus plan or formula approved by the Board of Directors, to
determine bonus awards to executive officers and to exercise such further powers
with respect to bonuses as may from time to time be conferred by the Board of
Directors.
With respect to salaries, the Compensation Committee shall have and may
exercise the power to fix and determine from time to time all salaries of the
executive officers of the
18
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Corporation, and such further powers with respect to salaries as may from time
to time be conferred by the Board of Directors.
The Compensation Committee shall administer the Corporation's stock
incentive plans and from time to time may grant, consistent with the plans,
stock options and other awards permissible under such plans.
Vacancies in the Compensation Committee shall be filled by the Board of
Directors, and members of the Compensation Committee shall be subject to removal
by the Board of Directors at any time.
The Compensation Committee shall fix its own rules of procedure. A majority
of the number of regular members then serving on the Compensation Committee
shall constitute a quorum; and regular and alternate members present shall be
counted to determine whether there is a quorum. The Compensation Committee shall
keep minutes of its meetings, and all action taken by it shall be reported to
the Board of Directors.
4.3 Audit Committee. The Board of Directors, at its regular annual
---------------
meeting, shall designate an Audit Committee which shall consist of two or more
directors whose membership on the Audit Committee shall meet the requirements
set forth in the rules of the New York Stock Exchange, as amended from time to
time. Vacancies in the Audit Committee shall be filled by the Board of Directors
with directors meeting the requirements set forth above, giving consideration to
continuity of the Audit Committee, and members shall be subject to removal by
the Board of Directors at any time. The Audit Committee shall fix its own rules
of procedure and a majority of the members serving shall constitute a quorum.
The Audit Committee shall meet at least twice per year with both the internal
and the Corporation's
19
<PAGE>
outside auditors present at each meeting and shall keep minutes of its meetings
and all action taken shall be reported to the Board of Directors. The Audit
Committee shall review the reports and minutes of any audit committees of the
Corporation's subsidiaries. The Audit Committee shall review the Corporation's
financial reporting process, including accounting policies and procedures. The
Audit Committee shall examine the report of the Corporation's outside auditors,
consult with them with respect to their report and the standards and procedures
employed by them in their audit, report to the Board of Directors the results of
its study and recommend the selection of auditors for each fiscal year.
4.4 Nominating Committee. Subject to the provisions of the Certificate,
--------------------
the Board of Directors, by resolution duly adopted, may designate a Nominating
Committee which shall consist of three or more directors. The Nominating
Committee, if established, shall make recommendations to the Board of Directors
regarding nominees for election as directors by the stockholders at each annual
meeting of stockholders and make such other recommendations regarding tenure,
classification and compensation of directors as the Nominating Committee may
deem advisable from time to time. The Nominating Committee shall fix its own
rules of procedure and a majority of the members then serving shall constitute a
quorum.
4.5 Other Committees. In addition to such committees as may be established
----------------
by the Certificate and subject to the provisions of the Certificate, the Board
of Directors, by resolution adopted, may establish such other standing or
special committees of the Board of Directors as it may deem advisable, and the
members, terms and authority of such committees shall be as set forth in the
resolutions establishing the same.
20
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ARTICLE V.
OFFICERS
5.1 Election of Officers; Terms. Subject to the provisions of the
---------------------------
Certificate, the officers of the Corporation shall be elected by the Board of
Directors and shall include a Chairman of the Board, a President, one or more
Vice Presidents, a Secretary and a Treasurer or Chief Financial Officer. Other
officers, including Executive Vice Presidents and Senior Vice Presidents, may be
specified by the Board of Directors, and assistant and subordinate officers, may
from time to time be elected by the Board of Directors. Subject to the
provisions of the Certificate, all officers shall hold office until the next
annual meeting of the Board of Directors and until their successors are duly
elected and qualified. The Chairman of the Board shall be chosen from among the
directors. Any two officers may be combined in the same person as the Board of
Directors may determine.
5.2 Removal of Officers; Vacancies. Subject to the provisions of the
------------------------------
Certificate, any officer of the Corporation may be removed with or without
cause, at any time, by the Board of Directors. Vacancies shall be filled by the
Board of Directors.
5.3 Duties. The officers of the Corporation shall have such duties as
------
generally pertain to their offices, respectively, as well as such powers and
duties as are prescribed by law or are hereinafter provided or as from time to
time shall be conferred by the Board of Directors or as provided in the
Certificate. The Board of Directors may require any officer to give such bond
for the faithful performance of his or her other duties as the Board of
Directors may see fit.
21
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5.4 Duties of the Chairman of the Board. The Chairman of the Board shall
-----------------------------------
be the Chief Executive Officer of the Corporation and shall be responsible for
the execution of the policies of the Board of Directors, shall serve as the
Chairman of the Executive Committee (if one is established) and shall have
direct supervision over the business of the Corporation and its several
officers, subject to the ultimate authority of the Board of Directors. He or she
shall be a director, and, except as otherwise provided in these Bylaws or in the
resolutions establishing such committees or as provided in the Certificate, he
or she shall be ex officio a member of all committees of the Board of Directors.
He or she shall preside at all meetings of stockholders, the Board of Directors
and the Executive Committee. He or she may sign and execute in the name of the
Corporation share certificates, deeds, mortgages, bonds, contracts or other
instruments except in cases where the signing and the execution thereof shall be
expressly delegated by the Board of Directors or by these Bylaws to some other
officer or agent of the Corporation or shall be required by law otherwise to be
signed or executed. In addition, he or she shall perform all duties incident to
the office of the Chairman of the Board and Chief Executive Officer and such
other duties as from time to time may be assigned to him or her by the Board of
Directors.
5.5 Duties of the President. Unless the Board of Directors, by resolution
-----------------------
duly adopted, designates some other person to serve as the Chief Operating
Officer of the Corporation, the President shall serve as Chief Operating Officer
and shall have direct supervision over the business of the Corporation and its
several officers, subject to the authority of the Board of Directors and the
Chairman of the Board, and shall consult with and report to the aforementioned
officer. The President may sign and execute in the name of the
22
<PAGE>
Corporation deeds, mortgages, bonds, contracts or other instruments, except in
cases where the signing and the execution thereof shall be expressly delegated
by the Board of Directors or by these Bylaws to some other officer or agent of
the Corporation or shall be required by law otherwise to be signed or executed.
In addition, he or she shall perform all duties incident to the office of the
President and such other duties as from time to time may be assigned to him or
her by the Board of Directors or the Chairman of the Board.
5.6 Duties of the Vice Presidents. Each Vice President, if any, shall have
-----------------------------
such powers and duties as may from time to time be assigned to him or her by the
Chairman of the Board or the Board of Directors. When there shall be more than
one Vice President of the Corporation, the Board of Directors may from time to
time designate one of them to perform the duties of the President in the absence
of the President. Any Vice President may sign and execute in the name of the
Corporation deeds, mortgages, bonds, contracts or other instruments authorized
by the Board of Directors, except where the signing and execution of such
documents shall be expressly delegated by the Board of Directors or the Chairman
of the Board to some other officer or agent of the Corporation or shall be
required by law or otherwise to be signed or executed.
5.7 Duties of the Treasurer or Chief Financial Officer. The Treasurer or
--------------------------------------------------
Chief Financial Officer shall have charge and custody of and be responsible for
all funds and securities of the Corporation, and shall cause all such funds and
securities to be deposited in such banks and depositories as shall be designated
by the Board of Directors. He or she shall be responsible (i) for maintaining
adequate financial accounts and records in accordance with generally accepted
accounting practices, (ii) for the preparation of appropriate operating
23
<PAGE>
budgets and financial statements, (iii) for the preparation and filing of all
tax returns required by law and (iv) for the performance of all duties incident
to the office of Treasurer or Chief Financial Officer and such other duties as
from time to time may be assigned to him or her by the Board of Directors, the
Audit Committee or the Chairman of the Board. The Treasurer or Chief Financial
Officer may sign and execute in the name of the Corporation share certificates,
deeds, mortgages, bonds, contracts or other instruments, except where the
signing and execution of such documents shall be expressly delegated by the
Board of Directors or the Chairman of the Board to some other officer or agent
of the Corporation or shall be required by law or otherwise to be signed or
executed.
5.8 Duties of the Secretary. The Secretary shall act as secretary of all
-----------------------
meetings of the Board of Directors, all committees of the Board of Directors and
stockholders of the Corporation. He or she shall (i) keep and preserve the
minutes of all such meetings in permanent books, (ii) ensure that all notices
required to be given by the Corporation are duly given and served, (iii) have
custody of the seal of the Corporation and shall affix the seal or cause it to
be affixed to all share certificates of the Corporation and to all documents the
execution of which on behalf of the Corporation under its corporate seal is duly
authorized in accordance with law or the provisions of these Bylaws, (iv) have
custody of all deeds, leases, contracts and other important corporate documents,
(v) have charge of the books, records and papers of the Corporation relating to
its organization and management as a Corporation, (vi) see that all reports,
statements and other documents required by law (except tax returns) are
24
<PAGE>
properly filed and (vii) in general, perform all the duties incident to the
office of Secretary and such other duties as from time to time may be assigned
to him or her by the Board of Directors or the Chairman of the Board.
ARTICLE VI.
-----------
CAPITAL STOCK
-------------
6.1 Certificates. Each stockholder shall be entitled to a certificate of
------------
the capital stock of the Corporation in such form as may from time to time be
prescribed by the Board of Directors. Such certificate shall be signed by the
Chairman of the Board, the President or a Vice President and by the Treasurer or
an Assistant Treasurer, or the Secretary or an Assistant Secretary. The
Corporation seal and the signatures by the Corporation's officers, the transfer
agent or the registrar may be facsimiles. In case any officer, transfer agent or
registrar who has signed or whose facsimile signature has been placed on such
certificate shall have ceased to be such officer, transfer agent or registrar
before such certificate is issued, the certificate may be issued by the
Corporation with the same effect as if he or she were such officer, transfer
agent or registrar at the time of its issue. Every certificate for shares of
stock which are subject to a restriction on transfer (as provided in Article IV
of the Certificate) and every certificate issued when the Corporation is
authorized to issue more than one class or series of stock shall contain such
legend (as provided in Article IV of the Certificate or in a Certificate of
Designations) with respect thereto as is required by law.
25
<PAGE>
6.2 Pairing. Until the limitation on transfer provided for in the Pairing
-------
Agreement, dated as of February 17, 1983, by and between the Operating Company
and the Corporation (the "Pairing Agreement"), as amended from time to time in
accordance with the provisions thereof, shall be terminated:
(a) The shares of Equity Stock of the Corporation that are paired
pursuant to the Pairing Agreement shall not be transferable, and shall not be
transferred on the stock transfer books of the Corporation, except in accordance
with the provisions of as provided in the Pairing Agreement.
(b) Each certificate evidencing ownership of shares of Equity Stock
of the Corporation that are paired pursuant to the Pairing Agreement and issued
and not canceled prior to the Effective Time of the Restriction shall be deemed
to evidence a like number of shares of the same class or series of Equity Stock
of the Operating Company.
(c) A legend shall be placed on the face of each certificate
evidencing ownership of shares of Equity Stock of the Corporation that are
paired pursuant to the Pairing Agreement referring to the restrictions on
transfer set forth herein.
(d) Notwithstanding the foregoing, the Corporation may issue or
transfer shares of its Equity Stock to the Operating Company without regard to
the restrictions of this Section 6.2.
(e) To the extent that a paired share of Equity Stock of the
Corporation is converted into a share of excess stock, par value $.01 per share
(the "Excess Stock"), of the Corporation in accordance with the provisions of
Article IV of the Certificate, such share of Excess Stock of the Corporation,
together with the corresponding share of Excess Stock of the
26
<PAGE>
Operating Company, which has been converted from a share of Equity Stock of the
Operating Company in accordance with Article IV of the Certificate and the
Pairing Agreement, shall be automatically transferred to a trust established by
the Corporation and the Operating Company for such purpose in accordance with
Article IV of the Certificate.
6.3 Lost, Destroyed and Mutilated Certificates. Holders of the shares of
------------------------------------------
the Corporation shall immediately notify the Corporation of any loss,
destruction or mutilation of the certificate therefor, and the Board of
Directors may in its discretion cause one or more new certificates for the same
number of shares in the aggregate to be issued to such stockholder upon the
surrender of the mutilated certificate or upon satisfactory proof of such loss
or destruction, and the deposit of a bond in such form and amount and with such
surety as the Board of Directors may require.
6.4 Transfer of Stock. Subject to the restrictions on transfer of stock
-----------------
described in Section 6.2 of these Bylaws and Article IV of the Certificate, the
stock of the Corporation shall be transferable or assignable only on the stock
transfer books of the Corporation by the holder in person or by attorney on
surrender of the certificate for such shares duly endorsed and, if sought to be
transferred by attorney, accompanied by a written power of attorney to have the
same transferred on the stock transfer books of the Corporation. The Corporation
will recognize, however, the exclusive right of the person registered on its
stock transfer books as the owner of shares to receive dividends and to vote as
such owner.
6.5 Fixing Record Date. For the purpose of determining stockholders
------------------
entitled to notice of or to vote at any meeting of stockholders or any
adjournment thereof, or entitled to receive payment of any dividend, or to make
a determination of stockholders for any other
27
<PAGE>
proper purpose, the Board of Directors may fix in advance a date as the record
date for any such determination of stockholders, such date in any case to be not
less than 10 nor more than 60 days prior to the date on which the particular
action requiring such determination of stockholders, is to be taken. If no
record date is fixed for the determination of stockholders entitled to notice of
or to vote at a meeting of stockholders, or stockholders entitled to receive
payment of a dividend, the date on which notices of the meeting are mailed or
the date on which the resolution of the Board of Directors declaring such
dividend is adopted, as the case may be, shall be the record date for such
determination of stockholders. When a determination of stockholders entitled to
notice of or to vote at any meeting of stockholders has been made as provided in
this section, such determination shall apply to any adjournment thereof.
ARTICLE VII.
------------
INDEMNIFICATION
---------------
7.1 Definitions. For purposes of this Article VII:
-----------
(a) "Corporate Status" describes the status of a person who (i) in
the case of a Director, is or was a director of the Corporation and is or was
acting in such capacity, (ii) in the case of an Officer, is or was an officer,
employee or agent of the Corporation or is or was a director, officer, employee
or agent of any other corporation, partnership, joint venture, trust, employee
benefit plan or other enterprise that such Officer is or was serving at the
request of the Corporation and (iii) in the case of a Non-Officer Employee, is
or was an employee of the Corporation or is or was a director, officer, employee
or agent of any other corporation, partnership, joint venture, trust, employee
benefit plan or other enterprise that such Non-Officer Employee is or was
serving at the request of the Corporation;
28
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(b) "Director" means any person who serves or has served the
Corporation as a director on the Board of Directors;
(c) "Disinterested Director" means, with respect to each Proceeding
in respect of which indemnification is sought hereunder, a Director of the
Corporation who is not and was not a party to such Proceeding;
(d) "Expenses" means all reasonable attorneys' fees, retainers, court
costs, transcript costs, fees of expert witnesses, private investigators and
professional advisors (including, without limitation, accountants and investment
bankers), travel expenses, duplicating costs, printing and binding costs, costs
of preparation of demonstrative evidence and other courtroom presentation aids
and devices, costs incurred in connection with document review, organization,
imaging and computerization, telephone charges, postage, delivery service fees,
and all other disbursements, costs or expenses of the type customarily incurred
in connection with prosecuting, defending, preparing to prosecute or defend,
investigating, being or preparing to be a witness in, settling or otherwise
participating in, a Proceeding;
(e) "Non-Officer Employee" means any person who serves or has served
as an employee of the Corporation, but who is not or was not a Director or
Officer;
(f) "Officer" means any person who serves or has served the
Corporation as an officer appointed by the Board of Directors; and
(g) "Proceeding" means any threatened, pending or completed action,
suit, arbitration, alternate dispute resolution mechanism, inquiry,
investigation, administrative hearing or other proceeding, whether civil,
criminal, administrative, arbitrative or investigative.
29
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7.2 Indemnification of Directors and Officers. Subject to the operation of
-----------------------------------------
Section 7.4 of these Bylaws, each Director and Officer shall be indemnified and
held harmless by the Corporation to the fullest extent authorized by the DGCL,
as the same exists or may hereafter be amended (but, in the case of any such
amendment, only to the extent that such amendment permits the Corporation to
provide broader indemnification rights than such law permitted the Corporation
to provide prior to such amendment) against any and all Expenses, judgments,
penalties, fines and amounts reasonably paid in settlement that are incurred by
such Director or Officer or on such Director's or Officer's behalf in connection
with any threatened, pending or completed Proceeding or any claim, issue or
matter therein, which such Director or Officer is, or is threatened to be made,
a party to or participant in by reason of such Director's or Officer's Corporate
Status, if such Director or Officer acted in good faith and in a manner such
Director or Officer reasonably believed to be in or not opposed to the best
interests of the Corporation and, with respect to any criminal proceeding, had
no reasonable cause to believe his or her conduct was unlawful. The rights of
indemnification provided by this Section 7.2 shall exist as to a Director or
Officer after he or she has ceased to be a Director or Officer and shall inure
to the benefit of his or her heirs, executors, administrators and personal
representatives. Notwithstanding the foregoing, the Corporation shall indemnify
any Director or Officer seeking indemnification in connection with a Proceeding
initiated by such Director or Officer only if such Proceeding was authorized by
the Board of Directors.
7.3 Indemnification of Non-Officer Employees. Subject to the operation of
----------------------------------------
Section 7.4 of these Bylaws, each Non-Officer Employee may, in the discretion of
the Board of Directors, be indemnified by the Corporation to the fullest extent
authorized by the DGCL, as
30
<PAGE>
the same exists or may hereafter be amended (but, in the case of any such
amendment, only to the extent that such amendment permits the Corporation to
provide broader indemnification rights than such law permitted the Corporation
to provide prior to such amendment), against any and all Expenses, judgments,
penalties, fines and amounts reasonably paid in settlement that are incurred by
such Non-Officer Employee or on such Non-Officer Employee's behalf in connection
with any threatened, pending or completed Proceeding, or any claim, issue or
matter therein, which such Non-Officer Employee is, or is threatened to be made,
a party to or participant in by reason of such Non-Officer Employee's Corporate
Status, if such Non-Officer Employee acted in good faith and in a manner such
Non-Officer Employee reasonably believed to be in or not opposed to the best
interests of the Corporation and, with respect to any criminal proceeding, had
no reasonable cause to believe his or her conduct was unlawful. The rights of
indemnification provided by this Section 7.3 shall exist as to a Non-Officer
Employee after he or she has ceased to be a Non-Officer Employee and shall inure
to the benefit of his or her heirs, personal representatives, executors and
administrators. Notwithstanding the foregoing, the Corporation may indemnify any
Non-Officer Employee seeking indemnification in connection with a Proceeding
initiated by such Non-Officer Employee only if such Proceeding was authorized by
the Board of Directors.
Good Faith. Unless ordered by a court, no indemnification shall be provided
----------
pursuant to this Article VII to a Director, to an Officer or to a Non-Officer
Employee unless a determination shall have been made that such person acted in
good faith and in a manner such person reasonably believed to be in or not
opposed to the best interests of the Corporation and, with respect to any
criminal Proceeding, such person had no reasonable cause to believe his or
31
<PAGE>
her conduct was unlawful. Such determination shall be made by (a) a majority
vote of the Disinterested Directors, even though less than a quorum of the Board
of Directors, (b) if there are no such Disinterested Directors, or if a majority
of Disinterested Directors so direct, by independent legal counsel in a written
opinion or (c) by the stockholders of the Corporation.
7.4 Advancement of Expenses to Directors Prior to Final Disposition. The
---------------------------------------------------------------
Corporation shall advance all Expenses incurred by or on behalf of any Director
in connection with any Proceeding in which such Director is involved by reason
of such Director's Corporate Status within 10 days after the receipt by the
Corporation of a written statement from such Director requesting such advance or
advances from time to time, whether prior to or after final disposition of such
Proceeding. Such statement or statements shall reasonably evidence the Expenses
incurred by such Director and shall be preceded or accompanied by an undertaking
by or on behalf of such Director to repay any Expenses so advanced if it shall
ultimately be determined that such Director is not entitled to be indemnified
against such Expenses.
7.5 Advancement of Expenses to Officers and Non-Officer Employees Prior to
----------------------------------------------------------------------
Final Disposition. The Corporation may, in the discretion of the Board of
- -----------------
Directors, advance any or all Expenses incurred by or on behalf of any Officer
or Non-Officer Employee in connection with any Proceeding in which such Officer
or Non-Officer Employee is involved by reason of such Officer or Non-Officer
Employee's Corporate Status upon the receipt by the Corporation of a statement
or statements from such Officer or Non-Officer Employee requesting such advance
or advances from time to time, whether prior to or after final disposition of
such Proceeding. Such statement or statements shall reasonably evidence the
Expenses incurred by such Officer or Non-Officer Employee and shall be preceded
or accompanied by an
32
<PAGE>
undertaking by or on behalf of such Officer or Non-Officer Employee to repay any
Expenses so advanced if it shall ultimately be determined that such Officer or
Non-Officer Employee is not entitled to be indemnified against such Expenses.
7.6 Contractual Nature of Rights. The foregoing provisions of this Article
----------------------------
VII shall be deemed to be a contract between the Corporation and each Director
and Officer entitled to the benefits hereof at any time while this Article VII
is in effect, and any repeal or modification thereof shall not affect any rights
or obligations then existing with respect to any state of facts then or
theretofore existing or any Proceeding theretofore or thereafter brought based
in whole or in part upon any such state of facts. If a claim for indemnification
or advancement of Expenses hereunder by a Director or Officer is not paid in
full by the Corporation within (a) 60 days after the receipt by the Corporation
of a written claim for indemnification or (b) in the case of a Director, 10 days
after the receipt by the Corporation of documentation of Expenses and the
required undertaking, such Director or Officer may at any time thereafter bring
suit against the Corporation to recover the unpaid amount of the claim, and if
successful in whole or in part, such Director or Officer shall also be entitled
to be paid the expenses of prosecuting such claim. The failure of the
Corporation (including its Board of Directors or any committee thereof,
independent legal counsel, or stockholders) to make a determination concerning
the permissibility of such indemnification or, in the case of a Director,
advancement of Expenses, under this Article VII shall not be a defense to the
action and shall not create a presumption that such indemnification or
advancement is not permissible.
7.7 Non-Exclusivity of Rights. The rights to indemnification and
-------------------------
advancement of Expenses set forth in this Article VII shall not be exclusive of
any other right which any
33
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Director, Officer or Non-Officer Employee may have or hereafter acquire under
any statute, provision of the Certificate or these Bylaws, agreement, vote of
stockholders or Disinterested Directors or otherwise.
7.8 Insurance. The Corporation may maintain insurance, at its expense, to
---------
protect itself and any Director, Officer or Non-Officer Employee against any
liability of any character asserted against or incurred by the Corporation or
any such Director, Officer or Non-Officer Employee, or arising out of any such
person's Corporate Status, whether or not the Corporation would have the power
to indemnify such person against such liability under the DGCL or the provisions
of this Article VII.
ARTICLE VIII.
-------------
MISCELLANEOUS PROVISIONS
------------------------
8.1 Seal. The seal of the Corporation shall consist of a flat-faced
----
circular die, of which there may be any number of counterparts, on which there
shall be engraved the word "Seal" and the name of the Corporation.
8.2 Fiscal Year. The fiscal year of the Corporation shall end on such date
-----------
and shall consist of such accounting periods as may be fixed by the Board of
Directors.
8.3 Checks, Notes and Drafts. Checks, notes, drafts and other orders for
------------------------
the payment of money shall be signed by such persons as the Board of Directors
from time to time may authorize. When the Board of Directors so authorizes,
however, the signature of any such person may be a facsimile.
34
<PAGE>
8.4 Amendment of Bylaws.
-------------------
(a) Amendment by Directors. Except as provided otherwise by law,
----------------------
these Bylaws may be amended or repealed by the Board of Directors by the
affirmative vote of a majority of the directors then in office.
(b) Amendment by Stockholders. These Bylaws may be amended or
-------------------------
repealed at any annual meeting of stockholders, or special meeting of
stockholders called for such purpose, by the affirmative vote of at least two-
thirds of the shares present in person or represented by proxy at such meeting
and entitled to vote on such amendment or repeal, voting together as a single
class; provided, however, that if the Board of Directors recommends that
stockholders approve such amendment or repeal at such meeting of stockholders,
such amendment or repeal shall only require the affirmative vote of a majority
of the shares present in person or represented by proxy at such meeting and
entitled to vote on such amendment or repeal, voting together as a single class.
8.5 Voting of Stock Held. Unless otherwise provided by resolution of the
--------------------
Board of Directors or of the Executive Committee, if any, the Chairman of the
Board may from time to time appoint an attorney or attorneys or agent or agents
of the Corporation, in the name and on behalf of the Corporation, to cast the
vote that the Corporation may be entitled to cast as a stockholder or otherwise
in any other corporation, any of whose securities may be held by the
Corporation, at meetings of the holders of the shares or other securities of
such other corporation, or to consent in writing to any action by any such other
corporation; and the Chairman of the Board shall instruct the person or persons
so appointed as to the manner of casting such votes or giving such consent and
may execute or cause to be executed on behalf of
35
<PAGE>
the Corporation, and under its corporate seal or otherwise, such written
proxies, consents, waivers or other instruments as may be necessary or proper in
the premises. In lieu of such appointment, the Chairman of the Board may himself
or herself attend any meetings of the holders of shares or other securities of
any such other corporation and there vote or exercise any or all power of the
Corporation as the holder of such shares or other securities of such other
corporation.
36
<PAGE>
EXHIBIT 3.4
AMENDED AND RESTATED
BYLAWS
OF
WYNDHAM INTERNATIONAL, INC.
ARTICLE I.
----------
DEFINITIONS
-----------
For purposes of these Bylaws, the following words shall have the meanings
set forth below:
(a) "Affiliate" of a Person shall mean (i) any Person that, directly
or indirectly, controls or is controlled by or is under common control with such
other Person, (ii) any Person that owns, beneficially, directly or indirectly,
5% or more of the outstanding capital stock, shares or equity interests of such
other Person or (iii) any officer, director, employee, partner or trustee of
such other Person or any Person controlling, controlled by or under common
control with such Person (excluding directors and Persons serving in similar
capacities who are not otherwise Affiliates of such Person). For the purposes of
this definition, the term "Person" shall mean, and includes, any natural person,
corporation, partnership, association, trust, limited liability company or any
other legal entity. For the purposes of this definition, "control" (including
the correlative meanings of the terms "controlled by" and "under common control
with"), as used with respect to any Person, shall mean the possession, directly
or indirectly, of the power to direct or cause the direction of the management
and policies of such Person, through the ownership of voting securities,
partnership interests or other equity interests.
(b) "Certificate" shall mean the Amended and Restated Certificate of
Incorporation of the Corporation, as amended from time to time.
1
<PAGE>
(c) "Corporation" shall mean Wyndham International, Inc. (formerly
"Patriot American Hospitality Operating Company").
(d) "DGCL" shall mean the Delaware General Corporation Law, as
amended from time to time.
(e) "Equity Stock" shall mean the common stock, par value $.01 per
share, and the preferred stock, par value $.01 per share of the Corporation and
Patriot REIT.
(f) "Independent Director" shall mean a director of the Corporation
who is not (i) an officer or employee of the Corporation, (ii) a director or
officer of Patriot REIT or (iii) an Affiliate of (a) any lessee of any property
of the Corporation, (b) a subsidiary of the Corporation or (c) any partnership
that is an Affiliate of the Corporation.
(g) "Patriot REIT" shall mean Patriot American Hospitality, Inc.
(h) "Public Announcement" shall mean: (i) disclosure in a press
release reported by the Dow Jones News Service, Associated Press or comparable
national news service, (ii) a report or other document filed publicly with the
Securities and Exchange Commission (including, without limitation, a Form 8-K)
or (iii) a letter or report sent to stockholders of record of the Corporation at
the time of the mailing of such letter or report.
ARTICLE II.
-----------
MEETINGS OF STOCKHOLDERS
------------------------
2.1 Places of Meetings. All meetings of the stockholders shall be held at
------------------
such place, either within or without the State of Delaware, as from time to time
may be fixed by the Board of Directors.
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2.2 Annual Meetings. The annual meeting of the stockholders, for the
---------------
election of directors and transaction of such other business as may come
properly before the meeting, shall be held at such date and time as shall be
determined by the Board of Directors.
2.3 Special Meetings. A special meeting of the stockholders for any
----------------
purpose or purposes may be called at any time only by the Chairman of the Board
or by a majority of the Board of Directors. At a special meeting no business
shall be transacted and no corporate action shall be taken other than that
stated in the notice of the meeting.
2.4 Notice of Meetings; Adjournments. A written notice of each annual
--------------------------------
meeting stating the hour, date and place of such annual meeting shall be given
by the Secretary or an Assistant Secretary of the Corporation (or other person
authorized by these Bylaws or by law) not less than 10 days nor more than 60
days before the annual meeting, to each stockholder entitled to vote thereat and
to each stockholder who, by law or under the Certificate or under these Bylaws,
is entitled to such notice, by delivering such notice to him or her or by
mailing it, postage prepaid, addressed to such stockholder at the address of
such stockholder as it appears on the stock transfer books of the Corporation.
Such notice shall be deemed to be delivered when hand delivered to such address
or deposited in the mail so addressed, with postage prepaid.
Notice of all special meetings of stockholders shall be given in the same
manner as provided for annual meetings, except that the written notice of all
special meetings shall state the purpose or purposes for which the meeting has
been called.
Notice of an annual meeting or special meeting of stockholders need not be
given to a stockholder if a written waiver of notice is signed before or after
such meeting by such stockholder or if such stockholder attends such meeting,
unless such attendance was for the
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express purpose of objecting at the beginning of the meeting to the transaction
of any business because the meeting was not lawfully called or convened. Neither
the business to be transacted at, nor the purpose of, any annual meeting or
special meeting of stockholders need be specified in any written waiver of
notice.
The Board of Directors may postpone and reschedule any previously scheduled
annual meeting or special meeting of stockholders and any record date with
respect thereto, regardless of whether any notice or public disclosure with
respect to any such meeting has been sent or made pursuant to this Section 2.4
or otherwise. In no event shall the Public Announcement of an adjournment,
postponement or rescheduling of any previously scheduled meeting of stockholders
commence a new time period for the giving of a stockholder's notice under
Section 2.9 of these Bylaws.
When any meeting is convened, the presiding officer of the meeting may
adjourn the meeting if (a) no quorum is present for the transaction of business,
(b) the Board of Directors determines that adjournment is necessary or
appropriate to enable the stockholders to consider fully information that the
Board of Directors determines has not been made sufficiently or timely available
to stockholders or (c) the Board of Directors determines that adjournment is
otherwise in the best interests of the Corporation. When any annual meeting or
special meeting of stockholders is adjourned to another hour, date or place,
notice need not be given of the adjourned meeting, other than an announcement at
the meeting at which the adjournment is taken, of the hour, date and place to
which the meeting is adjourned; provided, however, that if the adjournment is
for more than 30 days, or if after the adjournment a new record date is fixed
for the adjourned meeting, notice of the adjourned meeting shall be given to
each
4
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stockholder of record entitled to vote thereat and each stockholder who, by law
or under the Certificate or under these Bylaws, is entitled to such notice.
2.5 Quorum. Except as otherwise required by the Certificate, any number
------
of stockholders together holding at least a majority of the outstanding shares
of capital stock entitled to vote with respect to the business to be transacted,
who shall be present in person or represented by proxy at any meeting duly
called, shall constitute a quorum for the transaction of business. If less than
a quorum shall be in attendance at the time for which a meeting shall have been
called, the meeting may be adjourned from time to time by a majority of the
stockholders present or represented by proxy.
2.6 Voting and Proxies. Stockholders shall have one vote for each share
------------------
of stock entitled to vote owned by them of record according to the stock
transfer books of the Corporation, unless otherwise provided by law or by the
Certificate. Stockholders may vote either in person or by written proxy, but no
proxy shall be voted or acted upon after three years from its date, unless the
proxy provides for a longer period. Proxies shall be filed with the secretary of
the meeting before being voted. Except as otherwise limited therein or as
otherwise provided by law, proxies shall entitle the persons authorized thereby
to vote at any adjournment of such meeting, but they shall not be valid after
final adjournment of such meeting. A proxy with respect to stock held in the
name of two or more persons shall be valid if executed by or on behalf of any
one of them unless at or prior to the exercise of the proxy the Corporation
receives a specific written notice to the contrary from any one of them. A proxy
purporting to be executed by or on behalf of a stockholder shall be deemed
valid, and the burden of proving invalidity shall rest on the challenger.
5
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2.7 Action at Meeting. When a quorum is present, any matter before any
-----------------
meeting of stockholders shall be decided by the affirmative vote of the majority
of shares present in person or represented by proxy at such meeting and entitled
to vote on such matter, except where a larger vote is required by law, by the
Certificate or by these Bylaws. Any election by stockholders shall be determined
by a plurality of the votes of the shares present in person or represented by
proxy at the meeting and entitled to vote on the election of directors, except
where a larger vote is required by law, by the Certificate or by these Bylaws.
The Corporation shall not directly or indirectly vote any shares of its own
stock; provided, however, that the Corporation may vote shares which it holds in
a fiduciary capacity to the extent permitted by law.
2.8 Stockholder List. The officer or agent having charge of the stock
----------------
transfer books of the Corporation shall make, at least 10 days before every
annual meeting or special meeting of stockholders, a complete list of the
stockholders entitled to vote at the meeting or any adjournment thereof, in
alphabetical order, and showing the address of each stockholder and the number
of shares registered in the name of each stockholder. Such list shall be open to
the examination of any stockholder, for any purpose germane to the meeting,
during ordinary business hours, for a period of at least 10 days prior to the
meeting, either at a place within the city where the meeting is to be held,
which place shall be specified in the notice of the meeting, or, if not so
specified, at the place where the meeting is to be held. The list shall also be
produced and kept at the hour, date and place of the meeting during the whole
time thereof, and may be inspected by any stockholder who is present.
2.9 Stockholder Proposals. In addition to any other applicable
---------------------
requirements, for business to be properly brought before an annual meeting by a
stockholder of record (both as
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of the time notice of such proposal is given by the stockholder as set forth
below and as of the record date for the annual meeting in question) of any
shares of capital stock entitled to vote at such annual meeting, such
stockholder shall: (i) give timely written notice as required by this Section
2.9 to the Secretary of the Corporation and (ii) be present at such meeting,
either in person or by a representative. For the first annual meeting following
the end of the fiscal year ended December 31, 1996, a stockholder's notice shall
be timely if delivered to, or mailed to and received by, the Corporation at its
principal executive office not later than the close of business on the 15th day
following the day on which the Public Announcement of the date of such annual
meeting is first made by the Corporation. For all subsequent annual meetings, a
stockholder's notice shall be timely if delivered to, or mailed to and received
by, the Corporation at its principal executive office not later than 90 days
prior to the anniversary date of the immediately preceding annual meeting (the
"Anniversary Date"); provided, however, that in the event the annual meeting is
scheduled to be held on a date more than 30 days before the Anniversary Date or
more than 60 days after the Anniversary Date, a stockholder's notice shall be
timely if delivered to, or mailed to and received by, the Corporation at its
principal executive office not later than the close of business on the later of
(1) the 90th day prior to the scheduled date of such annual meeting or (2) the
15th day following the day on which Public Announcement of the date of such
annual meeting is first made by the Corporation.
A stockholder's notice to the Secretary of the Corporation shall set forth
as to each matter proposed to be brought before an annual meeting: (i) a brief
description of the business the stockholder desires to bring before such annual
meeting and the reasons for conducting such business at such annual meeting,
(ii) the name and address, as they appear on the stock transfer books of the
Corporation, of the stockholder proposing such business, (iii) the class
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and number of shares of the capital stock of the Corporation beneficially owned
by the stockholder proposing such business, (iv) the names and addresses of the
beneficial owners, if any, of any capital stock of the Corporation registered in
such stockholder's name on such books, and the class and number of shares of the
capital stock of the Corporation beneficially owned by such beneficial owners,
(v) the names and addresses of other stockholders known by the stockholder
proposing such business to support such proposal, and the class and number of
shares of the capital stock of the Corporation beneficially owned by such other
stockholders and (vi) any material interest of the stockholder proposing to
bring such business before such meeting (or any other stockholders known to be
supporting such proposal) in such proposal.
If the Board of Directors or a designated committee thereof determines that
any stockholder proposal was not made in a timely fashion in accordance with the
provisions of this Section 2.9 or that the information provided in a
stockholder's notice does not satisfy the information requirements of this
Section 2.9 in any material respect, such proposal shall not be presented for
action at the annual meeting in question. If neither the Board of Directors nor
such committee makes a determination as to the validity of any stockholder
proposal in the manner set forth above, the presiding officer of the annual
meeting shall determine whether the stockholder proposal was made in accordance
with the terms of this Section 2.9. If the presiding officer determines that any
stockholder proposal was not made in a timely fashion in accordance with the
provisions of this Section 2.9 or that the information provided in a
stockholder's notice does not satisfy the information requirements of this
Section 2.9 in any material respect, such proposal shall not be presented for
action at the annual meeting in question. If the Board of Directors, a
designated committee thereof or the presiding officer determines that a
stockholder proposal was made in accordance with the requirements of this
8
<PAGE>
Section 2.9, the presiding officer shall so declare at the annual meeting and
ballots shall be provided for use at the meeting with respect to such proposal.
Notwithstanding the foregoing provisions of this Section 2.9, a stockholder
shall also comply with all applicable requirements of the Securities Exchange
Act of 1934, as amended (the "Exchange Act"), and the rules and regulations
thereunder with respect to the matters set forth in this Section 2.9, and
nothing in this Section 2.9 shall be deemed to affect any rights of stockholders
to request inclusion of proposals in the Corporation's proxy statement pursuant
to Rule 14a-8 under the Exchange Act.
2.10 Inspectors of Elections. The Corporation shall, in advance of any
-----------------------
meeting of stockholders, appoint one or more inspectors to act at the meeting
and make a written report thereof. The Corporation may designate one or more
persons as alternate inspectors to replace any inspector who fails to act. If no
inspector or alternate is able to act at a meeting of stockholders, the
presiding officer shall appoint one or more inspectors to act at the meeting.
Any inspector may, but need not, be an officer, employee or agent of the
Corporation. Each inspector, before entering upon the discharge of his or her
duties, shall take and sign an oath faithfully to execute the duties of
inspector with strict impartiality and according to the best of his or her
ability. The inspectors shall perform such duties as are required by the DGCL,
including the counting of all votes and ballots. The inspectors may appoint or
retain other persons or entities to assist the inspectors in the performance of
the duties of the inspectors. The presiding officer may review all
determinations made by the inspectors, and in so doing the presiding officer
shall be entitled to exercise his or her sole judgment and discretion and he or
she shall not be bound by any determinations made by the inspectors. All
determinations by
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the inspectors and, if applicable, the presiding officer, shall be subject to
further review by any court of competent jurisdiction.
2.11 Presiding Officer. The Chairman of the Board, if one is elected, or
-----------------
if not elected or in his or her absence, the President, shall preside at all
annual meetings or special meetings of stockholders and shall have the power,
among other things, to adjourn such meeting at any time and from time to time,
subject to Sections 2.4 and 2.5 of this Article II. The order of business and
all other matters of procedure at any meeting of the stockholders shall be
determined by the presiding officer.
ARTICLE III.
------------
DIRECTORS
---------
3.1 General Powers. The property, affairs and business of the Corporation
--------------
shall be managed under the direction of the Board of Directors and, except as
otherwise expressly provided by law, the Certificate or these Bylaws, all of the
powers of the Corporation shall be vested in such Board.
3.2 Number of Directors. The number of directors shall be fixed by
-------------------
resolution duly adopted from time to time by the Board of Directors.
3.3 Election and Removal of Directors; Quorum.
-----------------------------------------
(a) Directors shall be elected and removed in the manner provided for
in Article V of the Certificate.
(b) Vacancies in the Board of Directors shall be filled in the manner
provided for in Article V of the Certificate.
(c) At any meeting of the Board of Directors, a majority of the
number of directors then in office shall constitute a quorum for the transaction
of business. However, if
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less than a quorum is present at a meeting, a majority of the directors present
may adjourn the meeting from time to time, and the meeting may be held as
adjourned without further notice, except that when any meeting of the Board of
Directors, either regular of special, is adjourned for 30 days or more, notice
of the adjourned meeting shall be given as in the case of the original meeting.
3.4 Meetings of Directors. Subject to the provisions of Article V of the
---------------------
Certificate, meetings of the Board of Directors shall be held at places within
or without the State of Delaware and at times fixed by resolution of the Board
of Directors, or upon call of the Chairman of the Board, and the Secretary of
the Corporation or officer performing the Secretary's duties shall give not less
than 24 hours' notice by letter, facsimile, telegraph or telephone (or in
person) of all meetings of the Board of Directors, provided that notice need not
be given of the annual meeting or of regular meetings held at times and places
fixed by resolution of the Board of Directors. Subject to the provisions of
Article V of the Certificate, meetings may be held at any time without notice if
all of the directors are present, or if those not present waive notice in
writing either before or after the meeting; provided, however, that attendance
at a meeting for the express purpose of objecting at the beginning of a meeting
to the transaction of any business because the meeting is not lawfully convened
shall not be considered a waiver of notice.
3.5 Nominations. Nominations of candidates for election as directors of
-----------
the Corporation at any annual meeting may be made only (a) by, or at the
direction of, a majority of the Board of Directors or (b) by any holder of
record (both as of the time notice of such nomination is given by the
stockholder as set forth below and as of the record date for the annual meeting
in question) of any shares of the capital stock of the Corporation entitled to
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<PAGE>
vote at such annual meeting who complies with the timing, informational and
other requirements set forth in this Section 3.5. Any stockholder who has
complied with the timing, informational and other requirements set forth in this
Section 3.5 and who seeks to make such a nomination must be, or his, her or its
representative must be, present in person at the annual meeting. Only persons
nominated in accordance with the procedures set forth in this Section 3.5 shall
be eligible for election as directors at an annual meeting.
Nominations, other than those made by, or at the direction of, the Board of
Directors shall be made pursuant to timely notice in writing to the Secretary of
the Corporation as set forth in this Section 3.5. For the first annual meeting
following the end of the fiscal year ended December 31, 1996, a stockholder's
notice shall be timely if delivered to, or mailed to and received by, the
Corporation at its principal executive office not later than the close of
business on the 15th day following the day on which the Public Announcement of
the date of such annual meeting is first made by the Corporation. For all
subsequent annual meetings, a stockholder's notice shall be timely if delivered
to, or mailed to and received by, the Corporation at its principal executive
office not less than 90 days prior to the Anniversary Date; provided, however,
that in the event the annual meeting is scheduled to be held on a date more than
30 days before the Anniversary Date or more than 60 days after the Anniversary
Date, a stockholder's notice shall be timely if delivered to, or mailed and
received by, the Corporation at its principal executive office not later than
the close of business on the later of (x) the 90th day prior to the scheduled
date of such annual meeting or (y) the 15th day following the day on which
Public Announcement of the date of such annual meeting is first made by the
Corporation.
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<PAGE>
A stockholder's notice to the Secretary of the Corporation shall set forth
as to each person whom the stockholder proposes to nominate for election or re-
election as a director: (1) the name, age, business address and residence
address of such person; (2) the principal occupation or employment of such
person; (3) the class and number of shares of the capital stock of the
Corporation which are beneficially owned by such person on the date of such
stockholder notice; and (4) the consent of each nominee to serve as a director
if elected. A stockholder's notice to the Secretary of the Corporation shall
further set forth as to the stockholder giving such notice: (a) the name and
address, as they appear on the stock transfer books of the Corporation, of such
stockholder and of the beneficial owners (if any) of the capital stock of the
Corporation registered in such stockholder's name and the name and address of
other stockholders known by such stockholder to be supporting such nominee(s);
(b) the class and number of shares of the capital stock of the Corporation which
are held of record, beneficially owned or represented by proxy by such
stockholder and by any other stockholders known by such stockholder to be
supporting such nominee(s) on the record date for the annual meeting in question
(if such date shall then have been made publicly available) and on the date of
such stockholder's notice; and (c) a description of all arrangements or
understandings between such stockholder and each nominee and any other person or
persons (naming such person or persons) pursuant to which the nomination or
nominations are to be made by such stockholder.
If the Board of Directors or a designated committee thereof determines that
any stockholder nomination was not made in accordance with the terms of this
Section 3.5 or that the information provided in a stockholder's notice does not
satisfy the informational requirements of this Section 3.5 in any material
respect, then such nomination shall not be
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<PAGE>
considered at the annual meeting in question. If neither the Board of Directors
nor such committee makes a determination as to whether a nomination was made in
accordance with the provisions of this Section 3.5, the presiding officer of the
annual meeting shall determine whether a nomination was made in accordance with
such provisions. If the presiding officer determines that any stockholder
nomination was not made in accordance with the terms of this Section 3.5 or that
the information provided in a stockholder's notice does not satisfy the
informational requirements of this Section 3.5 in any material respect, then
such nomination shall not be considered at the annual meeting in question. If
the Board of Directors, a designated committee thereof or the presiding officer
determines that a nomination was made in accordance with the terms of this
Section 3.5, the presiding officer shall so declare at the annual meeting and
ballots shall be provided for use at the meeting with respect to such nominee.
Notwithstanding anything to the contrary in the second paragraph of this
Section 3.5, in the event that the number of directors to be elected to the
Board of Directors is increased and there is no Public Announcement by the
Corporation naming all of the nominees for director or specifying the size of
the increased Board of Directors at least 90 days prior to the Anniversary Date,
a stockholder's notice required by this Section 3.5 shall also be considered
timely, but only with respect to nominees for any new positions created by such
increase, if such notice shall be delivered to, or mailed to and received by,
the Corporation at its principal executive office not later than the close of
business on the 15th day following the day on which such Public Announcement is
first made by the Corporation.
No person shall be elected by the stockholders as a director of the
Corporation unless nominated in accordance with the procedures set forth in this
Section 3.5. Election of directors
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at an annual meeting need not be by written ballot, unless otherwise provided by
the Board of Directors or presiding officer at such annual meeting. If written
ballots are to be used, ballots bearing the names of all the persons who have
been nominated for election as directors at the annual meeting in accordance
with the procedures set forth in this Section 3.5 shall be provided for use at
the annual meeting.
3.6 Voting.
------
(a) Except as provided in subsection (c) of this Section 3.6, the
action of the majority of the directors present at a meeting at which a quorum
is present shall be the action of the Board of Directors, unless a larger vote
is required for such action by the Certificate, these Bylaws or by law.
(b) Any action required or permitted to be taken at any meeting of
the Board of Directors may be taken without a meeting if all members of the
Board of Directors consent thereto in writing. Such written consent shall be
filed with the records of the meetings of the Board of Directors and shall be
treated for all purposes as a vote at a meeting of the Board of Directors.
(c) Notwithstanding anything in these Bylaws to the contrary, any
action pertaining to any transaction involving the Corporation, including
entering into joint venture investments or any other transaction, in which an
advisor, director or officer of the Corporation, or any Affiliate of any of the
foregoing persons, has any direct or indirect interest other than solely as a
result of their status as a director, officer, or stockholder of the
Corporation, must be approved by a majority of the directors, including a
majority of the Independent Directors, even if the Independent Directors
constitute less than a quorum.
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3.7 Manner of Participation. Directors may participate in meetings of the
-----------------------
Board of Directors by means of conference telephone or similar communications
equipment by means of which all directors participating in the meeting can hear
each other, and participation in a meeting in accordance herewith shall
constitute presence in person at such meeting for purposes of these Bylaws.
3.8 Compensation. By resolution of the Board of Directors, directors may
------------
be allowed a fee and expenses for attendance at all meetings, but nothing herein
shall preclude directors from serving the Corporation in other capacities and
receiving compensation for such other services.
ARTICLE IV.
COMMITTEES
----------
4.1 Executive Committee. Subject to the provisions of the Certificate,
-------------------
the Board of Directors, by resolution duly adopted, may elect an Executive
Committee which shall consist of not less than two directors, including the
Chairman of the Board. If an Executive Committee is established, the members of
such committee shall serve until their successors are designated by the Board of
Directors, until removed, or until such committee is dissolved by the Board of
Directors. All vacancies that may occur in the Executive Committee shall be
filled by the Board of Directors.
When the Board of Directors is not in session, the Executive Committee, if
established, shall have all power vested in the Board of Directors by law, by
the Certificate, or by these Bylaws, except as otherwise provided in the DGCL.
The Executive Committee, if established, shall report at the next regular or
special meeting of the Board of Directors all action that the
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Executive Committee may have taken on behalf of the Board of Directors since the
last regular or special meeting of the Board of Directors.
Meetings of the Executive Committee, if established, shall be held at such
places and at such times fixed by resolution of the Executive Committee, or upon
call of the Chairman of the Board. Not less than 12 hours' notice shall be given
by letter, facsimile, telegraph or telephone (or in person) of all meetings of
the Executive Committee; provided, however, that notice need not be given of
regular meetings held at times and places fixed by resolution of the Executive
Committee and that meetings may be held at any time without notice if all of the
members of the Executive Committee are present or if those not present waive
notice in writing either before or after the meeting; provided, further, that
attendance at a meeting for the express purpose of objecting at the beginning of
a meeting to the transaction of any business because the meeting is not lawfully
convened shall not be considered a waiver of notice. A majority of the members
of the Executive Committee then serving shall constitute a quorum for the
transaction of business at any meeting of the Executive Committee.
4.2 Compensation Committee. The Board of Directors, at its regular annual
----------------------
meeting, shall designate a Compensation Committee which shall consist of two or
more non-employee directors. In addition, the Board of Directors at any time may
designate one or more alternate members of the Compensation Committee, who shall
be non-employee directors, who may act in place of any absent regular member
upon invitation by the chairman or secretary of the Compensation Committee.
With respect to bonuses, the Compensation Committee shall have and may
exercise the powers to determine the amounts annually available for bonuses
pursuant to any bonus plan or formula approved by the Board of Directors, to
determine bonus awards to executive officers
17
<PAGE>
and to exercise such further powers with respect to bonuses as may from time to
time be conferred by the Board of Directors.
With respect to salaries, the Compensation Committee shall have and may
exercise the power to fix and determine from time to time all salaries of the
executive officers of the Corporation, and such further powers with respect to
salaries as may from time to time be conferred by the Board of Directors.
The Compensation Committee shall administer the Corporation's stock
incentive plans and from time to time may grant, consistent with the plans,
stock options and other awards permissible under such plans.
Vacancies in the Compensation Committee shall be filled by the Board of
Directors, and members of the Compensation Committee shall be subject to removal
by the Board of Directors at any time.
The Compensation Committee shall fix its own rules of procedure. A majority
of the number of regular members then serving on the Compensation Committee
shall constitute a quorum; and regular and alternate members present shall be
counted to determine whether there is a quorum. The Compensation Committee shall
keep minutes of its meetings, and all action taken by it shall be reported to
the Board of Directors.
4.3 Audit Committee. The Board of Directors, at its regular annual
---------------
meeting, shall designate an Audit Committee which shall consist of two or more
directors whose membership on the Audit Committee shall meet the requirements
set forth in the rules of the New York Stock Exchange, as amended from time to
time. Vacancies in the Audit Committee shall be filled by the Board of Directors
with directors meeting the requirements set forth above, giving consideration to
continuity of the Audit Committee, and members shall be subject to removal
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by the Board of Directors at any time. The Audit Committee shall fix its own
rules of procedure and a majority of the members serving shall constitute a
quorum. The Audit Committee shall meet at least twice per year with both the
internal and the Corporation's outside auditors present at each meeting and
shall keep minutes of its meetings and all action taken shall be reported to the
Board of Directors. The Audit Committee shall review the reports and minutes of
any audit committees of the Corporation's subsidiaries. The Audit Committee
shall review the Corporation's financial reporting process, including accounting
policies and procedures. The Audit Committee shall examine the report of the
Corporation's outside auditors, consult with them with respect to their report
and the standards and procedures employed by them in their audit, report to the
Board of Directors the results of its study and recommend the selection of
auditors for each fiscal year.
4.4 Nominating Committee. Subject to the provisions of the Certificate,
--------------------
the Board of Directors, by resolution duly adopted, may designate a Nominating
Committee which shall consist of three or more directors. The Nominating
Committee, if established, shall make recommendations to the Board of Directors
regarding nominees for election as directors by the stockholders at each annual
meeting of stockholders and make such other recommendations regarding tenure,
classification and compensation of directors as the Nominating Committee may
deem advisable from time to time. The Nominating Committee shall fix its own
rules of procedure and a majority of the members then serving shall constitute a
quorum.
4.5 Other Committees. In addition to such committees as may be
----------------
established by the Certificate and subject to the provisions of the Certificate,
the Board of Directors, by resolution adopted, may establish such other standing
or special committees of the Board of
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Directors as it may deem advisable, and the members, terms and authority of such
committees shall be as set forth in the resolutions establishing the same.
ARTICLE V.
OFFICERS
5.1 Election of Officers; Terms. Subject to the provisions of the
---------------------------
Certificate, the officers of the Corporation shall be elected by the Board of
Directors and shall include a Chairman of the Board, a President, one or more
Vice Presidents, a Secretary and a Treasurer or Chief Financial Officer. Other
officers, including Executive Vice Presidents and Senior Vice Presidents, may be
specified by the Board of Directors, and assistant and subordinate officers, may
from time to time be elected by the Board of Directors. Subject to the
provisions of the Certificate, all officers shall hold office until the next
annual meeting of the Board of Directors and until their successors are duly
elected and qualified. The Chairman of the Board shall be chosen from among the
directors. Any two officers may be combined in the same person as the Board of
Directors may determine.
5.2 Removal of Officers; Vacancies. Subject to the provisions of the
------------------------------
Certificate, any officer of the Corporation may be removed with or without
cause, at any time, by the Board of Directors. Vacancies shall be filled by the
Board of Directors.
5.3 Duties. The officers of the Corporation shall have such duties as
------
generally pertain to their offices, respectively, as well as such powers and
duties as are prescribed by law or are hereinafter provided or as from time to
time shall be conferred by the Board of Directors or as provided in the
Certificate. The Board of Directors may require any officer to give such bond
for the faithful performance of his or her other duties as the Board of
Directors may see fit.
20
<PAGE>
5.4 Duties of the Chairman of the Board. The Chairman of the Board shall
-----------------------------------
be the Chief Executive Officer of the Corporation and shall be responsible for
the execution of the policies of the Board of Directors, shall serve as the
Chairman of the Executive Committee (if one is established) and shall have
direct supervision over the business of the Corporation and its several
officers, subject to the ultimate authority of the Board of Directors. He or she
shall be a director, and, except as otherwise provided in these Bylaws or in the
resolutions establishing such committees or as provided in the Certificate, he
or she shall be ex officio a member of all committees of the Board of Directors.
He or she shall preside at all meetings of stockholders, the Board of Directors
and the Executive Committee. He or she may sign and execute in the name of the
Corporation share certificates, deeds, mortgages, bonds, contracts or other
instruments except in cases where the signing and the execution thereof shall be
expressly delegated by the Board of Directors or by these Bylaws to some other
officer or agent of the Corporation or shall be required by law otherwise to be
signed or executed. In addition, he or she shall perform all duties incident to
the office of the Chairman of the Board and Chief Executive Officer and such
other duties as from time to time may be assigned to him or her by the Board of
Directors.
5.5 Duties of the President. Unless the Board of Directors, by resolution
-----------------------
duly adopted, designates some other person to serve as the Chief Operating
Officer of the Corporation, the President shall serve as Chief Operating Officer
and shall have direct supervision over the business of the Corporation and its
several officers, subject to the authority of the Board of Directors and the
Chairman of the Board, and shall consult with and report to the aforementioned
officer. The President may sign and execute in the name of the Corporation
deeds, mortgages, bonds, contracts or other instruments, except in cases where
21
<PAGE>
the signing and the execution thereof shall be expressly delegated by the Board
of Directors or by these Bylaws to some other officer or agent of the
Corporation or shall be required by law otherwise to be signed or executed. In
addition, he or she shall perform all duties incident to the office of the
President and such other duties as from time to time may be assigned to him or
her by the Board of Directors or the Chairman of the Board.
5.6 Duties of the Vice Presidents. Each Vice President, if any, shall
-----------------------------
have such powers and duties as may from time to time be assigned to him or her
by the Chairman of the Board or the Board of Directors. When there shall be more
than one Vice President of the Corporation, the Board of Directors may from time
to time designate one of them to perform the duties of the President in the
absence of the President. Any Vice President may sign and execute in the name of
the Corporation deeds, mortgages, bonds, contracts or other instruments
authorized by the Board of Directors, except where the signing and execution of
such documents shall be expressly delegated by the Board of Directors or the
Chairman of the Board to some other officer or agent of the Corporation or shall
be required by law or otherwise to be signed or executed.
5.7 Duties of the Treasurer or Chief Financial Officer. The Treasurer or
--------------------------------------------------
Chief Financial Officer shall have charge and custody of and be responsible for
all funds and securities of the Corporation, and shall cause all such funds and
securities to be deposited in such banks and depositories as shall be designated
by the Board of Directors. He or she shall be responsible (i) for maintaining
adequate financial accounts and records in accordance with generally accepted
accounting practices, (ii) for the preparation of appropriate operating budgets
and financial statements, (iii) for the preparation and filing of all tax
returns required by law and (iv) for the performance of all duties incident to
the office of Treasurer or Chief
22
<PAGE>
Financial Officer and such other duties as from time to time may be assigned to
him or her by the Board of Directors, the Audit Committee or the Chairman of the
Board. The Treasurer or Chief Financial Officer may sign and execute in the name
of the Corporation share certificates, deeds, mortgages, bonds, contracts or
other instruments, except where the signing and execution of such documents
shall be expressly delegated by the Board of Directors or the Chairman of the
Board to some other officer or agent of the Corporation or shall be required by
law or otherwise to be signed or executed.
5.8 Duties of the Secretary. The Secretary shall act as secretary of all
-----------------------
meetings of the Board of Directors, all committees of the Board of Directors and
stockholders of the Corporation. He or she shall (i) keep and preserve the
minutes of all such meetings in permanent books, (ii) ensure that all notices
required to be given by the Corporation are duly given and served, (iii) have
custody of the seal of the Corporation and shall affix the seal or cause it to
be affixed to all share certificates of the Corporation and to all documents the
execution of which on behalf of the Corporation under its corporate seal is duly
authorized in accordance with law or the provisions of these Bylaws, (iv) have
custody of all deeds, leases, contracts and other important corporate documents,
(v) have charge of the books, records and papers of the Corporation relating to
its organization and management as a Corporation, (vi) see that all reports,
statements and other documents required by law (except tax returns) are properly
filed and (vii) in general, perform all the duties incident to the office of
Secretary and
23
<PAGE>
such other duties as from time to time may be assigned to him or her by the
Board of Directors or the Chairman of the Board.
ARTICLE VI.
-----------
CAPITAL STOCK
-------------
6.1 Certificates. Each stockholder shall be entitled to a certificate of
------------
the capital stock of the Corporation in such form as may from time to time be
prescribed by the Board of Directors. Such certificate shall be signed by the
Chairman of the Board, the President or a Vice President and by the Treasurer or
an Assistant Treasurer, or the Secretary or an Assistant Secretary. The
Corporation seal and the signatures by the Corporation's officers, the transfer
agent or the registrar may be facsimiles. In case any officer, transfer agent or
registrar who has signed or whose facsimile signature has been placed on such
certificate shall have ceased to be such officer, transfer agent or registrar
before such certificate is issued, the certificate may be issued by the
Corporation with the same effect as if he or she were such officer, transfer
agent or registrar at the time of its issue. Every certificate for shares of
stock which are subject to a restriction on transfer (as provided in Article IV
of the Certificate) and every certificate issued when the Corporation is
authorized to issue more than one class or series of stock shall contain such
legend (as provided in Article IV of the Certificate or in a Certificate of
Designations) with respect thereto as is required by law.
6.2 Pairing. Until the limitation on transfer provided for in the Pairing
-------
Agreement, dated as of February 17, 1983, by and between Patriot REIT and the
Corporation (the "Pairing Agreement"), as amended from time to time in
accordance with the provisions thereof, shall be terminated:
24
<PAGE>
(a) The shares of Equity Stock of the Corporation that are paired
pursuant to the Pairing Agreement shall not be transferable, and shall not be
transferred on the stock transfer books of the Corporation, except in accordance
with the provisions of the Pairing Agreement.
(b) Each certificate evidencing ownership of shares of Equity Stock
of the Corporation that are paired pursuant to the Pairing Agreement and issued
and not canceled prior to the Effective Time of the Restriction shall be deemed
to evidence a like number of shares of the same class or series of Equity Stock
of Patriot REIT.
(c) A legend shall be placed on the face of each certificate
evidencing ownership of shares of Equity Stock of the Corporation that are
paired pursuant to the Pairing Agreement referring to the restrictions on
transfer set forth herein.
(d) Notwithstanding the foregoing, the Corporation may issue or
transfer shares of its Equity Stock to Patriot REIT without regard to the
restrictions of this Section 6.2.
(e) To the extent that a paired share of Equity Stock of the
Corporation is converted into a share of excess stock, par value $.01 per share
(the "Excess Stock"), of the Corporation in accordance with the provisions of
Article IV of the Certificate, such share of Excess Stock of the Corporation,
together with the corresponding share of Excess Stock of Patriot REIT, which has
been converted from a share of Equity Stock of Patriot REIT in accordance with
Article IV of the Amended and Restated Certificate of Incorporation of Patriot
REIT and the Pairing Agreement, shall be automatically transferred to a trust
established by the Corporation and Patriot REIT for such purpose in accordance
with Article IV of the Certificate.
25
<PAGE>
6.3 Lost, Destroyed and Mutilated Certificates. Holders of the shares of
------------------------------------------
the Corporation shall immediately notify the Corporation of any loss,
destruction or mutilation of the certificate therefor, and the Board of
Directors may in its discretion cause one or more new certificates for the same
number of shares in the aggregate to be issued to such stockholder upon the
surrender of the mutilated certificate or upon satisfactory proof of such loss
or destruction, and the deposit of a bond in such form and amount and with such
surety as the Board of Directors may require.
6.4 Transfer of Stock. Subject to the restrictions on transfer of stock
-----------------
described in Section 6.2 of these Bylaws and Article IV of the Certificate, the
stock of the Corporation shall be transferable or assignable only on the stock
transfer books of the Corporation by the holder in person or by attorney on
surrender of the certificate for such shares duly endorsed and, if sought to be
transferred by attorney, accompanied by a written power of attorney to have the
same transferred on the stock transfer books of the Corporation. The Corporation
will recognize, however, the exclusive right of the person registered on its
stock transfer books as the owner of shares to receive dividends and to vote as
such owner.
6.5 Fixing Record Date. For the purpose of determining stockholders
------------------
entitled to notice of or to vote at any meeting of stockholders or any
adjournment thereof, or entitled to receive payment of any dividend, or to make
a determination of stockholders for any other proper purpose, the Board of
Directors may fix in advance a date as the record date for any such
determination of stockholders, such date in any case to be not less than 10 nor
more than 60 days prior to the date on which the particular action requiring
such determination of stockholders, is to be taken. If no record date is fixed
for the determination of stockholders entitled to notice of or to vote at a
meeting of stockholders, or stockholders entitled to receive
26
<PAGE>
payment of a dividend, the date on which notices of the meeting are mailed or
the date on which the resolution of the Board of Directors declaring such
dividend is adopted, as the case may be, shall be the record date for such
determination of stockholders. When a determination of stockholders entitled to
notice of or to vote at any meeting of stockholders has been made as provided in
this section, such determination shall apply to any adjournment thereof.
ARTICLE VII.
------------
INDEMNIFICATION
---------------
7.1 Definitions. For purposes of this Article VII:
-----------
(a) "Corporate Status" describes the status of a person who (i) in
the case of a Director, is or was a director of the Corporation and is or was
acting in such capacity, (ii) in the case of an Officer, is or was an officer,
employee or agent of the Corporation or is or was a director, officer, employee
or agent of any other corporation, partnership, joint venture, trust, employee
benefit plan or other enterprise that such Officer is or was serving at the
request of the Corporation and (iii) in the case of a Non-Officer Employee, is
or was an employee of the Corporation or is or was a director, officer, employee
or agent of any other corporation, partnership, joint venture, trust, employee
benefit plan or other enterprise that such Non-Officer Employee is or was
serving at the request of the Corporation;
(b) "Director" means any person who serves or has served the
Corporation as a director on the Board of Directors;
(c) "Disinterested Director" means, with respect to each Proceeding
in respect of which indemnification is sought hereunder, a Director of the
Corporation who is not and was not a party to such Proceeding;
27
<PAGE>
(d) "Expenses" means all reasonable attorneys' fees, retainers, court
costs, transcript costs, fees of expert witnesses, private investigators and
professional advisors (including, without limitation, accountants and investment
bankers), travel expenses, duplicating costs, printing and binding costs, costs
of preparation of demonstrative evidence and other courtroom presentation aids
and devices, costs incurred in connection with document review, organization,
imaging and computerization, telephone charges, postage, delivery service fees,
and all other disbursements, costs or expenses of the type customarily incurred
in connection with prosecuting, defending, preparing to prosecute or defend,
investigating, being or preparing to be a witness in, settling or otherwise
participating in, a Proceeding;
(e) "Non-Officer Employee" means any person who serves or has served
as an employee of the Corporation, but who is not or was not a Director or
Officer;
(f) "Officer" means any person who serves or has served the
Corporation as an officer appointed by the Board of Directors; and
(g) "Proceeding" means any threatened, pending or completed action,
suit, arbitration, alternate dispute resolution mechanism, inquiry,
investigation, administrative hearing or other proceeding, whether civil,
criminal, administrative, arbitrative or investigative.
7.2 Indemnification of Directors and Officers. Subject to the operation
-----------------------------------------
of Section 7.4 of these Bylaws, each Director and Officer shall be indemnified
and held harmless by the Corporation to the fullest extent authorized by the
DGCL, as the same exists or may hereafter be amended (but, in the case of any
such amendment, only to the extent that such amendment permits the Corporation
to provide broader indemnification rights than such law permitted the
Corporation to provide prior to such amendment) against any and all Expenses,
judgments,
28
<PAGE>
penalties, fines and amounts reasonably paid in settlement that are incurred by
such Director or Officer or on such Director's or Officer's behalf in connection
with any threatened, pending or completed Proceeding or any claim, issue or
matter therein, which such Director or Officer is, or is threatened to be made,
a party to or participant in by reason of such Director's or Officer's Corporate
Status, if such Director or Officer acted in good faith and in a manner such
Director or Officer reasonably believed to be in or not opposed to the best
interests of the Corporation and, with respect to any criminal proceeding, had
no reasonable cause to believe his or her conduct was unlawful. The rights of
indemnification provided by this Section 7.2 shall exist as to a Director or
Officer after he or she has ceased to be a Director or Officer and shall inure
to the benefit of his or her heirs, executors, administrators and personal
representatives. Notwithstanding the foregoing, the Corporation shall indemnify
any Director or Officer seeking indemnification in connection with a Proceeding
initiated by such Director or Officer only if such Proceeding was authorized by
the Board of Directors.
7.3 Indemnification of Non-Officer Employees. Subject to the operation of
----------------------------------------
Section 7.4 of these Bylaws, each Non-Officer Employee may, in the discretion of
the Board of Directors, be indemnified by the Corporation to the fullest extent
authorized by the DGCL, as the same exists or may hereafter be amended (but, in
the case of any such amendment, only to the extent that such amendment permits
the Corporation to provide broader indemnification rights than such law
permitted the Corporation to provide prior to such amendment), against any and
all Expenses, judgments, penalties, fines and amounts reasonably paid in
settlement that are incurred by such Non-Officer Employee or on such Non-Officer
Employee's behalf in connection with any threatened, pending or completed
Proceeding, or any claim, issue or matter therein, which such Non-Officer
Employee is, or is threatened to be made, a party to or
29
<PAGE>
participant in by reason of such Non-Officer Employee's Corporate Status, if
such Non-Officer Employee acted in good faith and in a manner such Non-Officer
Employee reasonably believed to be in or not opposed to the best interests of
the Corporation and, with respect to any criminal proceeding, had no reasonable
cause to believe his or her conduct was unlawful. The rights of indemnification
provided by this Section 7.3 shall exist as to a Non-Officer Employee after he
or she has ceased to be a Non-Officer Employee and shall inure to the benefit of
his or her heirs, personal representatives, executors and administrators.
Notwithstanding the foregoing, the Corporation may indemnify any Non-Officer
Employee seeking indemnification in connection with a Proceeding initiated by
such Non-Officer Employee only if such Proceeding was authorized by the Board of
Directors.
7.4 Good Faith. Unless ordered by a court, no indemnification shall be
----------
provided pursuant to this Article VII to a Director, to an Officer or to a Non-
Officer Employee unless a determination shall have been made that such person
acted in good faith and in a manner such person reasonably believed to be in or
not opposed to the best interests of the Corporation and, with respect to any
criminal Proceeding, such person had no reasonable cause to believe his or her
conduct was unlawful. Such determination shall be made by (a) a majority vote of
the Disinterested Directors, even though less than a quorum of the Board of
Directors, (b) if there are no such Disinterested Directors, or if a majority of
Disinterested Directors so direct, by independent legal counsel in a written
opinion or (c) by the stockholders of the Corporation.
7.5 Advancement of Expenses to Directors Prior to Final Disposition. The
---------------------------------------------------------------
Corporation shall advance all Expenses incurred by or on behalf of any Director
in connection with any Proceeding in which such Director is involved by reason
of such Director's Corporate Status within 10 days after the receipt by the
Corporation of a written statement from such
30
<PAGE>
Director requesting such advance or advances from time to time, whether prior to
or after final disposition of such Proceeding. Such statement or statements
shall reasonably evidence the Expenses incurred by such Director and shall be
preceded or accompanied by an undertaking by or on behalf of such Director to
repay any Expenses so advanced if it shall ultimately be determined that such
Director is not entitled to be indemnified against such Expenses.
7.6 Advancement of Expenses to Officers and Non-Officer Employees Prior to
----------------------------------------------------------------------
Final Disposition. The Corporation may, in the discretion of the Board of
- -----------------
Directors, advance any or all Expenses incurred by or on behalf of any Officer
or Non-Officer Employee in connection with any Proceeding in which such Officer
or Non-Officer Employee is involved by reason of such Officer or Non-Officer
Employee's Corporate Status upon the receipt by the Corporation of a statement
or statements from such Officer or Non-Officer Employee requesting such advance
or advances from time to time, whether prior to or after final disposition of
such Proceeding. Such statement or statements shall reasonably evidence the
Expenses incurred by such Officer or Non-Officer Employee and shall be preceded
or accompanied by an undertaking by or on behalf of such Officer or Non-Officer
Employee to repay any Expenses so advanced if it shall ultimately be determined
that such Officer or Non-Officer Employee is not entitled to be indemnified
against such Expenses.
7.7 Contractual Nature of Rights. The foregoing provisions of this
----------------------------
Article VII shall be deemed to be a contract between the Corporation and each
Director and Officer entitled to the benefits hereof at any time while this
Article VII is in effect, and any repeal or modification thereof shall not
affect any rights or obligations then existing with respect to any state of
facts then or theretofore existing or any Proceeding theretofore or thereafter
brought based in whole or in part upon any such state of facts. If a claim for
indemnification or
31
<PAGE>
advancement of Expenses hereunder by a Director or Officer is not paid in full
by the Corporation within (a) 60 days after the receipt by the Corporation of a
written claim for indemnification or (b) in the case of a Director, 10 days
after the receipt by the Corporation of documentation of Expenses and the
required undertaking, such Director or Officer may at any time thereafter bring
suit against the Corporation to recover the unpaid amount of the claim, and if
successful in whole or in part, such Director or Officer shall also be entitled
to be paid the expenses of prosecuting such claim. The failure of the
Corporation (including its Board of Directors or any committee thereof,
independent legal counsel, or stockholders) to make a determination concerning
the permissibility of such indemnification or, in the case of a Director,
advancement of Expenses, under this Article VII shall not be a defense to the
action and shall not create a presumption that such indemnification or
advancement is not permissible.
7.8 Non-Exclusivity of Rights. The rights to indemnification and
-------------------------
advancement of Expenses set forth in this Article VII shall not be exclusive of
any other right which any Director, Officer or Non-Officer Employee may have or
hereafter acquire under any statute, provision of the Certificate or these
Bylaws, agreement, vote of stockholders or Disinterested Directors or otherwise.
7.9 Insurance. The Corporation may maintain insurance, at its expense, to
---------
protect itself and any Director, Officer or Non-Officer Employee against any
liability of any character asserted against or incurred by the Corporation or
any such Director, Officer or Non-Officer Employee, or arising out of any such
person's Corporate Status, whether or not the Corporation would have the power
to indemnify such person against such liability under the DGCL or the provisions
of this Article VII.
32
<PAGE>
ARTICLE VIII.
-------------
MISCELLANEOUS PROVISIONS
------------------------
8.1 Seal. The seal of the Corporation shall consist of a flat-faced
----
circular die, of which there may be any number of counterparts, on which there
shall be engraved the word "Seal" and the name of the Corporation.
8.2 Fiscal Year. The fiscal year of the Corporation shall end on such
-----------
date and shall consist of such accounting periods as may be fixed by the Board
of Directors.
8.3 Checks, Notes and Drafts. Checks, notes, drafts and other orders for
------------------------
the payment of money shall be signed by such persons as the Board of Directors
from time to time may authorize. When the Board of Directors so authorizes,
however, the signature of any such person may be a facsimile.
8.4 Amendment of Bylaws.
-------------------
(a) Amendment by Directors. Except as provided otherwise by law,
----------------------
these Bylaws may be amended or repealed by the Board of Directors by the
affirmative vote of a majority of the directors then in office.
(b) Amendment by Stockholders. These Bylaws may be amended or
-------------------------
repealed at any annual meeting of stockholders, or special meeting of
stockholders called for such purpose, by the affirmative vote of at least two-
thirds of the shares present in person or represented by proxy at such meeting
and entitled to vote on such amendment or repeal, voting together as a single
class; provided, however, that if the Board of Directors recommends that
stockholders approve such amendment or repeal at such meeting of stockholders,
such amendment or repeal shall only require the affirmative vote of a majority
of the shares present
33
<PAGE>
in person or represented by proxy at such meeting and entitled to vote on such
amendment or repeal, voting together as a single class.
8.5 Voting of Stock Held. Unless otherwise provided by resolution of the
--------------------
Board of Directors or of the Executive Committee, if any, the Chairman of the
Board may from time to time appoint an attorney or attorneys or agent or agents
of the Corporation, in the name and on behalf of the Corporation, to cast the
vote that the Corporation may be entitled to cast as a stockholder or otherwise
in any other corporation, any of whose securities may be held by the
Corporation, at meetings of the holders of the shares or other securities of
such other corporation, or to consent in writing to any action by any such other
corporation; and the Chairman of the Board shall instruct the person or persons
so appointed as to the manner of casting such votes or giving such consent and
may execute or cause to be executed on behalf of the Corporation, and under its
corporate seal or otherwise, such written proxies, consents, waivers or other
instruments as may be necessary or proper in the premises. In lieu of such
appointment, the Chairman of the Board may himself or herself attend any
meetings of the holders of shares or other securities of any such other
corporation and there vote or exercise any or all power of the Corporation as
the holder of such shares or other securities of such other corporation.
34
<PAGE>
EXHIBIT 10.11
PATRIOT AMERICAN HOSPITALITY PARTNERSHIP, L.P.
FIFTH AMENDMENT TO
SECOND AMENDED AND RESTATED
AGREEMENT OF LIMITED PARTNERSHIP
This Fifth Amendment is made as of September 30, 1997 by PAH GP, Inc., a
Delaware corporation, as general partner (the "General Partner") of Patriot
American Hospitality Partnership, L.P., a Virginia limited partnership (the
"Partnership"), and as attorney-in-fact for each of the limited partners of the
Partnership (collectively, the "Limited Partners") for the purpose of amending
the Second Amended and Restated Agreement of Limited Partnership of the
Partnership dated as of April 11, 1997, as amended to date (the "Partnership
Agreement"). All capitalized terms used herein and not defined shall have the
respective meanings ascribed to them in the Partnership Agreement.
WHEREAS, it is necessary and desirable to impose certain restrictions on
the exercise of the redemption rights granted under the Partnership Agreement so
that the Partnership may avoid treatment as a publicly traded partnership, and
the General Partner is authorized pursuant to Article III and Section 8.05(f) of
the Partnership Agreement to make such amendments; and
WHEREAS, the General Partner desires to make certain other conforming
amendments in connection with the foregoing, which amendments may be made in the
General Partner's discretion pursuant to Section 11.01 of the Partnership
Agreement.
NOW, THEREFORE, the General Partner undertakes to implement the following
amendments to the Partnership Agreement:
Section 1. Amendments to Text of Partnership Agreement.
-------------------------------------------
A. Article I, Defined Terms, is amended to add the following definitions of
"Deferred Cash Amount," "Deferred Redemption Right," "LP Unit Percentage,"
"Notice 88-75," and "Private Transfer."
"DEFERRED CASH AMOUNT" means an amount of cash per Partnership Unit
equal to the value of the REIT Shares Amount on the Specified Redemption
Date. The value of the REIT Shares Amount on the date of such valuation
shall be determined in the manner provided in the definition of "Cash
Amount."
"DEFERRED REDEMPTION RIGHT" has the meaning provided in Section
8.05(i) hereof.
"LP UNIT PERCENTAGE" means a percentage of the total interests in
Partnership capital or Partnership profits determined without regard to
Partnership Units held by the General Partner and any other person related
to the General Partner within the
<PAGE>
meaning of Section 267(b) or 707(b)(1) of the Code (and after applying the
rules of Section 856(i) of the Code), all as determined under Regulations
Section 1.7704-1(k) and Section II.F of Notice 88-75 using any reasonable
method selected by the General Partner. Notwithstanding the foregoing, in
the event that the General Partner and the persons related to the General
Partner described above own 10% or less of the interests in the
Partnership's capital and profits, then the interests of the General
Partner and such persons shall not be disregarded in computing the LP Unit
Percentage.
"NOTICE 88-75" means IRS Notice 88-75, 1988-2 C.B. 386, regarding
certain safe harbors from treatment as a publicly traded partnership.
"PRIVATE TRANSFER" means a Transfer described in one of the following
clauses:
(i) A Transfer in which the basis of the Partnership Unit
in the hands of the transferee is determined, in whole or in part, by
reference to its basis in the hands of the transferor Partner or is
determined under Section 732 of the Code;
(ii) A Transfer at death;
(iii) A Transfer between members of a family as defined
under Section 267(c)(4) of the Code, (i.e., to the Partner's brother,
----
sister (by whole or half blood), spouse, ancestor or lineal
descendant);
(iv) A Transfer involving a distribution from a retirement
plan qualified under Section 401(a) of the Code; or
(v) A Transfer that, when aggregated with other Transfers
by the Partner during any 30 calendar day period, represents a
Transfer of Partnership Units representing an LP Unit Percentage of
more than five percent (5%).
The foregoing definition of "Private Transfer" is intended to include
only such Transfers as would be disregarded in determining whether
Partnership Units are readily tradable on a secondary market or the
substantial equivalent thereof pursuant to Treasury Regulations
Section 1.7704-1(e) (i), (ii), (iii), (v) and (vi) and pursuant to
Section II.B of Notice 88-75, and shall be construed and administered
in accordance therewith. The General Partner may modify this
definition of Private Transfer from time to time in its discretion to
ensure that the terms of the definition comply and continue to comply
with such requirements.
<PAGE>
B. Article I, Defined Terms, is amended to replace the definition of
"Redeeming Partner" with the following definition. All other terms defined in
Article I shall remain in full force and effect.
"REDEEMING PARTNER" has the meanings provided in Sections 8.05(a) and
8.05(i) hereof, as the context so requires.
C. Article VIII, Rights and Obligations of the Limited Partners, shall be
amended to replace the first phrase of the first sentence of Section 8.05(a)
with the following phrase:
"Subject to Sections 8.05(b) through 8.05(j),"
D. Article VIII, Rights and Obligations of the Limited Partners, shall be
amended to replace the final proviso of Section 8.05(e) with the following
proviso:
"provided, that any such redemption shall be effected by the
Partnership in the form of the Cash Amount or the Deferred Cash Amount
(as applicable) and shall be subject to any other restrictions imposed
on the exercise by a Limited Partner of the Redemption Right and
Deferred Redemption Right as set forth in this Section 8.05."
E. Article VIII, Rights and Obligations of the Limited Partners, shall be
amended to add paragraphs (i) and (j) to section 8.05, as follows:
(i) Deferred Redemption Rights. Subject to certain other
--------------------------
provisions of this Article VIII as provided below, each Limited Partner,
other than PAH LP, shall have the right (the "Deferred Redemption Right"),
on or after the first anniversary of the date on which he acquires
Partnership Units (or such later or earlier date as shall be determined in
the sole and absolute discretion of the General Partner at the time of the
issuance of the Partnership Units), to require the Partnership to redeem on
a Specified Redemption Date all or a portion of the Partnership Units held
by such Limited Partner at a redemption price equal to and in a form of the
Deferred Cash Amount to be paid by the Partnership. The Deferred
Redemption Right shall be exercised pursuant to a Notice of Redemption
delivered to the Partnership (with a copy to the General Partner) by the
Limited Partner who is exercising the Deferred Redemption Right (the
"Redeeming Partner"); provided, however, that the Partnership shall not be
obligated to satisfy such Redemption Right if the Company and/or the
General Partner elects to purchase the Partnership Units subject to the
Notice of Redemption pursuant to Section 8.05(b) (as modified by the next
succeeding paragraph of this Section 8.05(i)); and provided, further, that
no Limited Partner may deliver more than two Notices of Redemption during
each calendar year. A Limited Partner may not exercise the Deferred
Redemption Right for less than 1,000 Partnership Units or, if such Limited
Partner holds less than 1,000 Partnership Units, all of the Partnership
Units held by such Partner, unless the General Partner consents, in its
sole discretion. The
<PAGE>
Redeeming Partner shall have no right, with respect to any Partnership
Units so redeemed, to receive any distribution paid with respect to
Partnership Units if the record date for such distribution is on or after
the Specified Redemption Date.
The foregoing Deferred Redemption Right shall be subject to the provisions
of Section 8.05(b), reading "Deferred Redemption Right" for "Redemption
Right" and "Deferred Cash Amount" for "Cash Amount"; provided that if the
General Partner and/or the Company shall elect to exercise its right to
purchase Partnership Units under Section 8.05(b) with respect to a Notice
of Redemption under this Section 8.05(i), the General Partner and/or the
Company shall not be required to so notify the Redeeming Partner until five
Business Days prior to the Specified Redemption Date. The foregoing
Deferred Redemption Right shall also be subject to the provisions of
Sections 8.05(c), 8.05(d), 8.05(e), 8.05(f), 8.05(g) and 8.05(h), also
reading "Deferred Redemption Right" for "Redemption Right" and "Deferred
Cash Amount" for "Cash Amount" where the context requires. The foregoing
Deferred Redemption Right also shall be subject to Section 8.05(j).
The foregoing Deferred Redemption Right is intended to comply with the
requirements of Regulations Section 1.7704-1(f) and Section II.E.1 of
Notice 88-75 and shall be construed and administered in accordance
therewith. The General Partner may modify the Deferred Redemption Right
from time to time in its discretion to ensure that the terms of the
Deferred Redemption Right comply and continue to comply with such
requirements.
(j) Restrictions on Exercise of Redemption Right and Deferred
---------------------------------------------------------
Redemption Right.
----------------
(i) Notwithstanding the provisions of Sections 8.05(a) and
8.05(b), a Limited Partner shall be entitled to exercise the
Redemption Right only if the redemption or purchase of the Limited
Partner's Partnership Units would constitute a Private Transfer
(within the meaning of clause (v) of the definition of Private
Transfer).
(ii) Notwithstanding the provisions of Sections 8.05(i) and
8.05(b), a Limited Partner shall be entitled to exercise the Deferred
Redemption Right only if (x) the redemption or purchase of the Limited
Partner's Partnership Units would constitute a Private Transfer
(within the meaning of clause (v) of the definition of Private
Transfer) or (y) the number of Partnership Units to be purchased or
redeemed, when aggregated with other Transfers of Partnership Units
within the same taxable year of the Partnership (but not including
Private Transfers), would constitute an LP Unit Percentage of ten
percent (10%) or less.
<PAGE>
(iii) The General Partner may establish such policies and
procedures as it may deem necessary or desirable in its sole
discretion to administer the 10% LP Unit Percentage limit set forth in
subparagraph (ii) above, including without limitation imposing further
limitations on the number of Partnership Units with respect to which
the Deferred Redemption Right may be exercised to coordinate the
exercise of the Deferred Redemption Right with the limitations on
Transfers set forth in Section 9.02(e) and by establishing procedures
to allocate the ability to exercise the Deferred Redemption Right
among the Limited Partners and over the course of any taxable year.
(iv) The restrictions set forth in this Section 8.05(j)
shall continue in effect until such time as the Partnership is no
longer potentially subject to classification as a publicly traded
partnership, as defined in Section 7704 of the Code, in the absence of
such restrictions, as determined by the General Partner in its
discretion. The restrictions set forth in this Section 8.05(j),
together with the restrictions on the Transfer of Partnership Units
set forth in Section 9.02, are intended to limit transfers of
interests in the Partnership in such a manner as to permit the
Partnership to qualify for the safe harbors from treatment as a
publicly traded partnership set forth in both Treasury Regulations
Sections 1.7704-1(d), (e), (f) and (j) and Sections II.B, II.C.2 and
II.E.1 of Notice 88-75 and shall be construed and administered in
accordance therewith. The General Partner may modify the restrictions
set forth in this Section 8.05(j), and the provisions of Section 9.02,
from time to time in its discretion to ensure that the Partnership
complies and continues to comply with such requirements.
F. Article IX, Transfers of Limited Partnership Interests, shall be amended to
replace the first sentence of Section 9.02(a) with the following:
Subject to Sections 9.02(b) through 9.02(e), a Limited Partner may offer,
sell, assign, hypothecate, pledge or otherwise transfer all or any portion
of his Limited Partnership Interest or any of such Limited Partner's
economic rights as a Limited Partner, whether voluntarily (including by
exercise of any redemption or conversion rights) or by operation of law or
at judicial sale or otherwise (collectively, a "Transfer") with or without
the consent of the General Partner; provided however that upon Transfer of
--------
any Preferred Units, the holder thereof shall not be entitled to the
additional UBTI Adjuster distribution as set forth in Section 5.08(b).
G. Article IX, Transfers of Limited Partnership Interests, shall be amended to
redesignate Section 9.02(e) as Section 9.02(f) and to insert the following new
Section 9.02(e):
(e) No Limited Partner may effect a Transfer of its Limited
Partnership Interest, in whole or in part, unless (i) the Transfer is a
Private Transfer, (ii) the Transfer is a redemption or sale permitted by
the provisions of Section 8.05, or
<PAGE>
(iii) the Transfer satisfies both of the following tests, (x) when
aggregated with other Transfers of Partnership Units within the same
taxable year of the Partnership (but not including Private Transfers or
Transfers pursuant to exercises of the Deferred Redemption Right), the
Transfer would constitute an LP Unit Percentage of two percent (2%) or
less, and (y) when aggregated with other Transfers of Partnership Units
within the same taxable year of the Partnership (but not including Private
Transfers), the Transfer would constitute an LP Unit Percentage of ten
percent (10%) or less. The General Partner may establish such policies and
procedures as it may deem necessary or desirable in its sole discretion to
administer the 2% and 10% LP Unit Percentage limits set forth in the
foregoing subclause (iii) in the manner described in Section 8.05(j)(iii).
Solely for purposes of this Section 9.02(e), the term "Transfer" shall not
include (except as provided in the following clause) the mere pledge,
hypothecation or grant of a security interest in a Partnership Unit, but
shall include any transfer of a Partnership Unit within the meaning of
Treasury Regulations Section 1.7704-1(a)(3) (other than transfers that have
not been recognized by the Partnership) or any transaction treated as a
transfer for purposes of Notice 88-75. The restrictions set forth in this
Section 9.02(e) shall continue in effect until such time as the Partnership
is no longer potentially subject to classification as a publicly traded
partnership, as defined in Section 7704 of the Code, as determined by the
General Partner in its discretion.
Section 2. Effective Date. The amendments to the text of the Partnership
--------------
Agreement provided in Section 1 of this Fourth Amendment shall take effect as of
the date first set forth above. Except as amended by Section 1 of this Fourth
Amendment, the terms of the Agreement shall remain in full force and effect.
Section 3. Defined Terms. Capitalized terms used without definition in this
-------------
Fourth Amendment shall have the meanings set forth in the Partnership Agreement.
Section 4. Partnership Agreement. The Partnership Agreement and this Fourth
---------------------
Amendment shall be read together and shall have the same effect as if the
provisions of the Partnership Agreement and this Fourth Amendment were contained
in one document. Any provisions of the Partnership Agreement not amended by
this Fourth Amendment shall remain in full force and effect as provided in the
Partnership Agreement immediately prior to the date hereof.
[End of Page]
<PAGE>
IN WITNESS WHEREOF, the General Partner has executed this Fourth Amendment
as of the date first written above.
GENERAL PARTNER
PAH GP, INC.
/s/ William W. Evans III
------------------------
By: William W. Evans III
Its: President
LIMITED PARTNERS
By: PAH GP, Inc. as attorney-in-fact
for each of the Limited Partners
/s/ William W. Evans III
------------------------
By: William W. Evans III
Its: President
<PAGE>
EXHIBIT 10.14
PATRIOT AMERICAN HOSPITALITY OPERATING PARTNERSHIP, L.P.
THIRD AMENDMENT TO
AGREEMENT OF LIMITED PARTNERSHIP
This Third Amendment is made as of September 30, 1997 by Patriot American
Hospitality Operating Company, a Delaware corporation, as general partner (the
"General Partner") of Patriot American Hospitality Operating Partnership, L.P.,
a Delaware limited partnership (the "Partnership"), and as attorney-in-fact for
each of the limited partners of the Partnership (collectively, the "Limited
Partners") for the purpose of amending the Agreement of Limited Partnership of
the Partnership dated as of June 27, 1997, as amended to date (the "Partnership
Agreement"). All capitalized terms used herein and not defined shall have the
respective meanings ascribed to them in the Partnership Agreement.
WHEREAS, it is necessary and desirable to impose certain restrictions on
the exercise of the redemption rights granted under the Partnership Agreement so
that the Partnership may avoid treatment as a publicly traded partnership, and
the General Partner is authorized pursuant to Article III and Section 8.05(f) of
the Partnership Agreement to make such amendments; and
WHEREAS, the General Partner desires to make certain other conforming
amendments in connection with the foregoing, which amendments may be made in the
General Partner's discretion pursuant to Section 11.01 of the Partnership
Agreement.
NOW, THEREFORE, the General Partner undertakes to implement the following
amendments to the Partnership Agreement:
Section 1. Amendments to Text of Partnership Agreement.
-------------------------------------------
A. Article I, Defined Terms, is amended to add the following definitions of "LP
Unit Percentage" and "Private Transfer."
"LP UNIT PERCENTAGE" means a percentage of the total interests in
Partnership capital or Partnership profits determined without regard to
Partnership Units held by the General Partner and any other person related
to the General Partner within the meaning of Section 267(b) or 707(b)(1) of
the Code (and after applying the rules of Section 856(i) of the Code), all
as determined under Regulations Section 1.7704-1(k) using any reasonable
method selected by the General Partner. Notwithstanding the foregoing, in
the event that the General Partner and the persons related to the General
Partner described above own 10% or less of the interests in the
Partnership's capital and profits, then the interests of the General
Partner and such persons shall not be disregarded in computing the LP Unit
Percentage.
<PAGE>
"PRIVATE TRANSFER" means a Transfer described in one of the following
clauses:
(i) A Transfer in which the basis of the Partnership Unit
in the hands of the transferee is determined, in whole or in part, by
reference to its basis in the hands of the transferor Partner or is
determined under Section 732 of the Code;
(ii) A Transfer at death;
(iii) A Transfer between members of a family as defined
under Section 267(c)(4) of the Code, (i.e., to the Partner's brother,
----
sister (by whole or half blood), spouse, ancestor or lineal
descendant);
(iv) A Transfer involving a distribution from a retirement
plan qualified under Section 401(a) of the Code; or
(v) A Transfer that, when aggregated with other Transfers by
the Partner and any related persons (within the meaning of Section
267(b) or 707(b)(1) of the Code) during any 30 calendar day period,
represents a Transfer of Partnership Units representing an LP Unit
Percentage of more than two percent (2%).
The foregoing definition of "Private Transfer" is intended to include
only such Transfers as would be disregarded in determining whether
Partnership Units are readily tradable on a secondary market or the
substantial equivalent thereof pursuant to Treasury Regulations
Section 1.7704-1(e) (i), (ii), (iii), (v) and (vi), and shall be
construed and administered in accordance therewith. The General
Partner may modify this definition of Private Transfer from time to
time in its discretion to ensure that the terms of the definition
comply and continue to comply with such requirements.
B. Article I, Defined Terms, is amended to replace the definitions of
"Deferred Redemption Right" and "Redeeming Partner" with the following
definitions. All other terms defined in Article I shall remain in full force
and effect.
"DEFERRED REDEMPTION RIGHT" has the meaning provided in Section
8.05(i) hereof.
"REDEEMING PARTNER" has the meanings provided in Sections 8.05(a) and
8.05(i) hereof, as the context so requires.
C. Article VIII, Rights and Obligations of the Limited Partners, shall be
amended to replace the first phrase of the first sentence of Section 8.05(a)
with the following phrase:
<PAGE>
"Subject to Sections 8.05(b) through 8.05(j),"
D. Article VIII, Rights and Obligations of the Limited Partners, shall be
amended to
replace the final proviso of Section 8.05(e) with the following proviso:
"provided, that any such redemption shall be effected by the
Partnership in the form of the Cash Amount or the Deferred Cash Amount
(as applicable) and shall be subject to any other restrictions imposed
on the exercise by a Limited Partner of the Redemption Right and
Deferred Redemption Right as set forth in this Section 8.05."
E. Article VIII, Rights and Obligations of the Limited Partners, shall be
amended to add paragraphs (i) and (j) to section 8.05, as follows:
(i) Deferred Redemption Rights. Subject to certain other
--------------------------
provisions of this Article VIII as provided below, each Limited Partner
(other than the Company) shall have the right (the "Deferred Redemption
Right"), on or after the first anniversary of the date on which he acquires
Partnership Units (or such later or earlier date as shall be determined in
the sole and absolute discretion of the General Partner at the time of the
issuance of the Partnership Units), to require the Partnership to redeem on
a Specified Redemption Date all or a portion of the Partnership Units held
by such Limited Partner at a redemption price equal to and in a form of the
Deferred Cash Amount to be paid by the Partnership. The Deferred
Redemption Right shall be exercised pursuant to a Notice of Redemption
delivered to the Partnership (with a copy to the Company) by the Limited
Partner who is exercising the Deferred Redemption Right (the "Redeeming
Partner"); provided, however, that the Partnership shall not be obligated
to satisfy such Deferred Redemption Right if the Company elects to purchase
the Partnership Units subject to the Notice of Redemption pursuant to
Section 8.05(b) (as modified by the next succeeding paragraph of this
Section 8.05(i)); and provided, further, that no Limited Partner may
deliver more than two Notices of Redemption during each calendar year. A
Limited Partner may not exercise the Deferred Redemption Right for less
than 1,000 Partnership Units or, if such Limited Partner holds less than
1,000 Partnership Units, all of the Partnership Units held by such Partner,
unless the General Partner consents, in its sole discretion. The Redeeming
Partner shall have no right, with respect to any Partnership Units so
redeemed, to receive any distribution paid with respect to Partnership
Units if the record date for such distribution is on or after the Specified
Redemption Date.
The foregoing Deferred Redemption Right shall be subject to the provisions
of Section 8.05(b), reading "Deferred Redemption Right" for "Redemption
Right" and "Deferred Cash Amount" for "Cash Amount"; provided that if the
Company shall elect to exercise its right to purchase Partnership Units
under Section 8.05(b) with respect to a Notice of Redemption under this
Section 8.05(i), the Company shall not be required to so notify the
Redeeming Partner until five Business Days prior to the Specified
Redemption Date. The foregoing Deferred Redemption Right shall also be
subject to
<PAGE>
the provisions of Sections 8.05(c), 8.05(d), 8.05(e), 8.05(f), 8.05(g) and
8.05(h), also reading "Deferred Redemption Right" for "Redemption Right"
and "Deferred Cash Amount" for "Cash Amount" where the context requires.
The foregoing Deferred Redemption Right also shall be subject to Section
8.05(j).
The foregoing Deferred Redemption Right is intended to comply with the
requirements of Regulations Section 1.7704-1(f) and shall be construed and
administered in accordance therewith. The General Partner may modify the
Deferred Redemption Right from time to time in its discretion to ensure
that the terms of the Deferred Redemption Right comply and continue to
comply with such requirements.
(j) Restrictions on Exercise of Redemption Right and Deferred
---------------------------------------------------------
Redemption Right.
----------------
(i) Notwithstanding the provisions of Sections 8.05(a)
and 8.05(b), a Limited Partner shall be entitled to exercise the
Redemption Right only if the redemption or purchase of the Limited
Partner's Partnership Units would constitute a Private Transfer
(within the meaning of clause (v) of the definition of Private
Transfer).
(ii) Notwithstanding the provisions of Sections 8.05(i)
and 8.05(b), a Limited Partner shall be entitled to exercise the
Deferred Redemption Right only if (x) the redemption or purchase of
the Limited Partner's Partnership Units would constitute a Private
Transfer (within the meaning of clause (v) of the definition of
Private Transfer) or (y) the number of Partnership Units to be
purchased or redeemed, when aggregated with other Transfers of
Partnership Units within the same taxable year of the Partnership (but
not including Private Transfers), would constitute an LP Unit
Percentage of ten percent (10%) or less.
(iii) The General Partner may establish such policies and
procedures as it may deem necessary or desirable in its sole
discretion to administer the 10% LP Unit Percentage limit set forth in
subparagraph (ii) above, including without limitation by imposing
further limitations on the number of Partnership Units with respect to
which the Deferred Redemption Right may be exercised to coordinate the
exercise of the Deferred Redemption Right with the limitations on
Transfers set forth in Section 9.02(e) and by establishing procedures
to allocate the ability to exercise the Deferred Redemption Right
among the Limited Partners and over the course of any taxable year.
(iv) The restrictions set forth in this Section 8.05(j)
shall continue in effect until such time as the Partnership is no
longer potentially subject to classification as a publicly traded
partnership, as defined in Section
<PAGE>
7704 of the Code, in the absence of such restrictions, as determined
by the General Partner in its discretion. The restrictions set forth
in this Section 8.05(j), together with the restrictions on the
Transfer of Partnership Units set forth in Section 9.02, are intended
to limit transfers of interests in the Partnership in such a manner as
to permit the Partnership to qualify for the safe harbors from
treatment as a publicly traded partnership set forth in both Treasury
Regulations Sections 1.7704-1(d), (e), (f) and (j) and shall be
construed and administered in accordance therewith. The General
Partner may modify the restrictions set forth in this Section 8.05(j),
and the provisions of Section 9.02, from time to time in its
discretion to ensure that the Partnership complies and continues to
comply with such requirements.
F. Article IX, Transfers of Limited Partnership Interests, shall be amended to
replace the first phrase of Section 9.02(a) with the following phrase:
"Subject to Sections 9.02(b) through 9.02(e),"
G. Article IX, Transfers of Limited Partnership Interests, shall be amended to
redesignate Section 9.02(e) as Section 9.02(f) and to insert the following new
Section 9.02(e):
(e) No Limited Partner may effect a Transfer of its Limited
Partnership Interest, in whole or in part, unless (i) the Transfer is a
Private Transfer, (ii) the Transfer is a redemption or sale permitted by
the provisions of Section 8.05, or (iii) the Transfer satisfies both of the
following tests, (x) when aggregated with other Transfers of Partnership
Units within the same taxable year of the Partnership (but not including
Private Transfers or Transfers pursuant to exercises of the Deferred
Redemption Right), the Transfer would constitute an LP Unit Percentage of
two percent (2%) or less, and (y) when aggregated with other Transfers of
Partnership Units within the same taxable year of the Partnership (but not
including Private Transfers), the Transfer would constitute an LP Unit
Percentage of ten percent (10%) or less. The General Partner may establish
such policies and procedures as it may deem necessary or desirable in its
sole discretion to administer the 2% and 10% LP Unit Percentage limits set
forth in the foregoing subclause (iii) in the manner described in Section
8.05(j)(iii). Solely for purposes of this Section 9.02(e), the term
"Transfer" shall not include (except as provided in the following clause)
the mere pledge, hypothecation or grant of a security interest in a
Partnership Unit, but shall include any transfer of a Partnership Unit
within the meaning of Treasury Regulations Section 1.7704-1(a)(3) (other
than transfers that have not been recognized by the Partnership). The
restrictions set forth in this Section 9.02(e) shall continue in effect
until such time as the Partnership is no longer potentially subject to
classification as a publicly traded partnership, as defined in Section 7704
of the Code, as determined by the General Partner in its discretion.
H. Article XI, Amendment of Agreement, shall be amended to correct an
incorrect cross-reference by replacing Section 11.01(a) with the following:
<PAGE>
(a) any amendment affecting the operation of the Conversion
Factor or the Redemption Right (except as provided in Section 8.05(f) or
7.01(e) hereof) in a manner adverse to the Limited Partners;
Section 2. Effective Date. The amendments to the text of the Partnership
--------------
Agreement provided in Section 1 of this Second Amendment shall take effect as of
the date first set forth above. Except as amended by Section 1 of this Second
Amendment, the terms of the Agreement shall remain in full force and effect.
Section 3. Defined Terms. Capitalized terms used without definition in this
-------------
Second Amendment shall have the meanings set forth in the Partnership Agreement.
Section 4. Partnership Agreement. The Partnership Agreement and this Second
---------------------
Amendment shall be read together and shall have the same effect as if the
provisions of the Partnership Agreement and this Second Amendment were contained
in one document. Any provisions of the Partnership Agreement not amended by
this Second Amendment shall remain in full force and effect as provided in the
Partnership Agreement immediately prior to the date hereof.
[End of Page]
<PAGE>
IN WITNESS WHEREOF, the General Partner has executed this Second Amendment
as of the date first written above.
GENERAL PARTNER
PATRIOT AMERICAN HOSPITALITY
OPERATING COMPANY
/s/ Leslie Ng
-------------
By: Leslie Ng
Its: Senior Vice President
LIMITED PARTNERS
By: Patriot American Hospitality
Operating Company, as
attorney-in-fact for each of the
Limited Partners
/s/ Leslie Ng
-------------
By: Leslie Ng
Its: Senior Vice President
<PAGE>
EXHIBIT 10.15
PATRIOT AMERICAN HOSPITALITY OPERATING PARTNERSHIP, L.P.
FIFTH AMENDMENT TO
AGREEMENT OF LIMITED PARTNERSHIP
This Fifth Amendment is made as of September 30, 1997 by and among Patriot
American Hospitality Operating Company, a Delaware corporation, as general
partner (the "General Partner") of Patriot American Hospitality Operating
Partnership, L.P., a Delaware limited partnership (the "Partnership"), and as
attorney-in-fact for each of the limited partners of the Partnership
(collectively, the "Limited Partners"), and Karim Alibhai (the "Contributor")
for the purpose of amending the Agreement of Limited Partnership of the
Partnership dated June 27, 1997, as amended to date (the "Partnership
Agreement"). All capitalized terms used herein and not defined shall have the
respective meanings ascribed to them in the Partnership Agreement.
WHEREAS, the Contributor has made certain Capital Contributions to the
Partnership;
WHEREAS, the General Partner desires to accept such additional Capital
Contributions;
WHEREAS, in connection with such Capital Contributions the General Partner
desires to create a series of Class C Preferred Limited Partner Units of the
Partnership and to make certain conforming changes to the Partnership Agreement;
WHEREAS, the General Partner has determined that such amendment is not
adverse to the Limited Partners;
NOW, THEREFORE, the General Partner undertakes to implement the following
amendments to the Partnership Agreement pursuant to the authority granted to the
General Partner under Section 4.02(a) of the Partnership Agreement:
Section 1. Amendments to Text of Partnership Agreement.
-------------------------------------------
Article I, Defined Terms is amended to add the following definitions of "Class
C Preferred Unit" and "Class C Preferred Unit Holder" and to replace the
current definition of "Percentage Interest" with the definition of that term
described below. All other terms defined in Article I shall remain in full
force and effect.
"Class C Preferred Unit" means a limited partnership interest
represented by a fractional, undivided share of the Partnership Interests
of all Partners issued hereunder which has the rights, preferences and
other privileges designated herein. The allocation of Class C Preferred
Units among the Partners shall be set forth on Exhibit A, as may be amended
---------
from time to time.
<PAGE>
"Class C Preferred Unitholder" means a limited partner that holds
Class C Preferred Units.
"Percentage Interest" means the percentage ownership interest in the
Partnership of each Partner, as determined by dividing the Partnership
Units owned by a Partner (including any outstanding Preferred Units of any
series or class) by the total number of Partnership Units outstanding
(including any outstanding Preferred Units of any series or class). The
Percentage Interest of each Partner shall be as set forth on Exhibit A, as
---------
may be amended from time to time. For purposes of applying Section
5.01(a)(1)(v), however, a Partner's Percentage Interest shall not include
the number of any Class C Preferred Units held by the Partner. For
purposes of applying Section 5.02(a), a Partner's Percentage Interest shall
not include the number of any Class B or Class C Preferred Units held by
the Partner.
Section 4.02(d) of the Partnership Agreement is deleted and replaced with
the following:
(d) Exchange of Preferred Units.
---------------------------
(i) In the event the General Partner acquires Class B
Preferred Units from the Preferred Unitholders (in exchange for cash
or Company Shares), the Partnership shall, as soon as practicable
thereafter, exchange each Class B Preferred Unit held by the General
Partner for such number of Partnership Units which are not designated
as Preferred Units, as determined by the Conversion Factor then in
effect.
(ii) If REIT Class B Preferred Units are converted into
preferred stock of Patriot REIT, then the Class B Preferred Units
shall be converted into preferred stock of the Company having the same
designations, preferences and other rights as the Class B Preferred
Units, provided, however, that no such conversion will occur unless
the Company has the authority to issue such preferred stock.
Section 5.01(a) of the Partnership Agreement is deleted and replaced with
the following:
5.01 ALLOCATION OF PROFIT AND LOSS.
-----------------------------
(a) General. Profit and Loss of the Partnership for each fiscal
-------
year of the Partnership shall be allocated among the Partners as follows:
(1) Profit of the Partnership shall be allocated:
2
<PAGE>
(i) first, among the Class C Preferred Unitholders until
the excess of the Loss allocated to such Preferred Unitholders
under Section 5.01(a)(2)(iii), over the Profit allocated to such
Preferred Unitholders under this Section 5.01(a)(1)(i), is equal
to zero, in each case on a cumulative basis for all fiscal years
of the Partnership;
(ii) second, among the Class C Preferred Unitholders in
proportion to their respective Percentage Interests until the
excess of the Profit allocated to such Preferred Unitholders
under this Section 5.01(a)(1)(ii) over the Loss allocated to such
Preferred Unitholders under Section 5.01(a)(2)(i) is equal to the
distributions to such Preferred Unitholders under Section
5.02(a)(1), in each case on a cumulative basis for all fiscal
years of the Partnership;
(iii) third, among the Class A Preferred Unitholders until
the excess of the Loss allocated to the Class A Preferred
Unitholders under Section 5.01(a)(2)(ii), over the Profit
allocated to the Class A Preferred Unitholders under this Section
5.01(a)(1)(iii), is equal to zero, in each case on a cumulative
basis for all fiscal years of the Partnership;
(iv) fourth, among the Class A Preferred Unitholders in
proportion to their respective Percentage Interests until the
excess of the Profit allocated to the Class A Preferred
Unitholders under this Section 5.01(a)(1)(iv) over the Loss
allocated to the Class A Preferred Unitholders under Section
5.01(a)(2)(i) is equal to the distributions to such Class A
Preferred Unitholders under Section 5.02(a)(2), in each case on a
cumulative basis for all fiscal years of the Partnership; and
(v) thereafter, among the Partners in accordance with
their respective Percentage Interests.
(2) Loss of the Partnership shall be allocated:
(i) first, between the Class C Preferred Unitholders, as
a class, and the Partners other than the Class C Preferred
Unitholders, as a class, in proportion to the aggregate positive
Capital Account balances of the two classes of Partners (making
appropriate adjustments in the case of a Class C Preferred
Unitholder who also holds Partnership Units of another class, and
also, solely for purposes of this allocation, subtracting from
the aggregate Capital Account balance of the Class C Unitholders
an amount equal to the product of the Class C Preference Amount
and the number of Class C Preferred Units). Allocations of Loss
among the Class C Preferred Unitholders pursuant to this Section
5.01(a)(2)(i) shall
3
<PAGE>
be made in proportion to their respective Percentage Interests
until their Adjusted Capital Account balances contain only an
amount equal to the product of the Class C Preference Amount and
the number of such Preferred Units held by each such Unitholder.
Allocations of Loss among the Partners other than the Class C
Preferred Unitholders pursuant to this Section 5.01(a)(2)(i)
shall be made in accordance with their respective Percentage
Interests until the balances of their Adjusted Capital Accounts
are equal to zero (or, with respect to the Class A Preferred
Unitholders, their Adjusted Capital Account balances contain only
the Agreed Value of their Capital Contributions);
(ii) second, among the Class A Preferred Unitholders in
proportion to their respective Percentage Interests until the
balances of their Adjusted Capital Accounts are equal to zero;
and
(iii) third, among the Class C Preferred Unitholders in
proportion to their respective Percentage Interests until the
balances of their Adjusted Capital Accounts are equal to zero.
Section 5.02 of the Partnership Agreement is deleted and replaced with the
following:
5.02 OPERATING DISTRIBUTIONS.
-----------------------
(a) Except as otherwise provided in Section 5.06, cash available
for distribution by the Partnership shall be distributed as follows:
(1) First, if there are any Class C Preferred Units
outstanding on any record date for payment of a REIT Share dividend or
Company Share dividend, the General Partner shall distribute to the
Class C Preferred Unitholder(s) of record on such date (concurrently
with the payment of the applicable dividend), an amount with respect
to each Class C Preferred Unit equal to the Class C Preferred
Distribution Amount, plus the amount of any Special Class C
Distribution Amount then outstanding.
(2) Second, if there are any Class A Preferred Units
outstanding on any record date for payment of a REIT Share dividend,
the General Partner shall distribute to the Class A Preferred
Unitholder(s) of record on such date (concurrently with the payment of
such dividend) an amount with respect to each such Class A Preferred
Unit equal to the Class A Preferred Distribution Amount.
(3) Third, if there are any Class B Preferred Units
outstanding on any record date for payment of a Company Share
dividend, the
4
<PAGE>
General Partner shall distribute to the Class B Preferred
Unitholder(s) of record on such date (concurrently with the payment of
such distribution) an amount with respect to each such Class B
Preferred Unit equal to the Class B Preferred Distribution Amount.
(4) Fourth, the General Partner shall distribute any
remaining cash available for distribution on a quarterly (or, at the
election of the General Partner, more frequent) basis, in an amount
determined by the General Partner in its sole discretion, to the
Partners who are Partners on the Partnership Record Date for such
quarter (or other distribution period) in accordance with their
respective Percentage Interests on the Partnership Record Date. For
purposes of this Section 5.02(a)(4), Percentage Interests shall not
include any Class B or Class C Preferred Units, but shall include
Class A Preferred Units.
(b) In no event may a Partner receive a distribution of cash
with respect to a Partnership Unit if such Partner is entitled to receive a
dividend with respect to a Company Share or a REIT Share for which all or
part of such Partnership Unit has been or will be exchanged.
Section 5.08 of the Partnership Agreement is deleted and replaced with the
following:
5.08 ADDITIONAL DISTRIBUTIONS PROVISIONS AND DEFINITIONS RELATING TO
---------------------------------------------------------------
PREFERRED UNITS.
---------------
Notwithstanding any other provision to the contrary in this Agreement,
as long as there remain any Preferred Units outstanding (of any class or
series), the following additional distribution provisions and definitions
shall apply.
(a) "Class A Preferred Distribution Amount" shall mean, for any quarter or
other period with respect to which a REIT Share dividend is paid and a
distribution is required to be made pursuant to Section 5.02(a)(3), an
amount per Class A Preferred Unit equal to the amount of such dividend
per REIT Share. The General Partner agrees that, without the consent
of a majority of the Class A Preferred Unit Holders (such consent not
to be unreasonably withheld or delayed provided all Class A Preferred
Distribution Amounts are current), it will use reasonable efforts to
limit its borrowings from the REIT Partnership or other sources so
that the Partnership has at all times sufficient borrowing capacity to
discharge its obligations with respect to the Class A Preferred
Distribution Amounts.
(b) "Class B Preferred Distribution Amount" shall mean, for any quarter or
other period with respect to which a Company Share dividend is paid
and a
5
<PAGE>
distribution is required to be made pursuant to Section 5.02(a)(4), an
amount equal to such amount that if it were the sole amount
distributed on a Class B Preferred Unit pursuant to Section 5.02(a)(4)
for such quarter or other period would provide the Class B Preferred
Unitholder with a distribution on such Class B Preferred Unit equal to
103% of the corresponding Company Share dividend to be paid for such
quarter or other period. Notwithstanding the foregoing, the Class B
Preferred Distribution Amount with respect to any Class B Preferred
Unitholder shall not exceed the Class B Preferred Unitholder's Capital
Account balance (after reducing such balance to reflect the items
described in Regulations section 1.704-1(b)(ii)(2)(d)(4), (5) and (6)
and after increasing such Capital Account balance to reflect such
Class B Preferred Unitholder's shares of Partnership Minimum Gain and
Partner Nonrecourse Debt Minimum Gain), determined as of the date of
the relevant distribution.
(c) "Class C Preferred Distribution Amount" shall mean, for any quarter or
other period with respect to which a REIT Share dividend or a Company
Share dividend is paid, an amount per Class C Preferred Unit equal to
the amount of such dividend(s) per REIT Share and/or Company Share.
The Class C Preferred Distribution Amount shall be cumulative, and
shall be deemed to be in arrears and shall accrue if not distributed
by the Partnership at the time such REIT Share dividend or Company
Share dividend is paid. The Class C Preferred Distribution Amount
shall also be appropriately adjusted in the case of an event that
causes the Conversion Factor to be adjusted. In the event that a
dividend is paid with respect to REIT Shares or Company Shares in a
form that the adjustment provided by the foregoing sentence does not
address (for example, a distribution of shares of a subsidiary
corporation in a spinoff transaction), to the extent commercially
reasonable, the Class C Distribution Amount shall be made in the same
form as the dividend on REIT Shares or Company Shares, as applicable,
and otherwise shall be made in an alternate form, or in an amount of
cash, that provides economic value to the Class C Unitholders
substantially equivalent to the relevant dividend. The General
Partner agrees that, unless the condition is waived by Class C
Preferred Unitholders holding more than 50% of the Class C Preferred
Units (such consent not to be unreasonably withheld or delayed
provided all Class C Preferred Distribution Amounts and Special Class
C Distribution Amounts are current) it will use commercially
reasonable efforts to limit its borrowings from the REIT Partnership
or other sources so that the Partnership has at all times sufficient
borrowing capacity to discharge its obligations with respect to the
Class C Preferred Distribution Amount and the Special Class C
Distribution Amount, including without limitation the payment of
distributions in the amount of and at the time of the relevant REIT
Share and Company Share dividends.
6
<PAGE>
(d) "Special Class C Distribution Amount" shall mean, in the event that
the Partnership fails to distribute the full amount of the Class C
Preferred Distribution Amount for any period with respect to which a
REIT Share dividend or Company Share dividend is paid, an amount equal
to the difference between (x) the annual rate (calculated on the basis
of actual days elapsed from the date on which the relevant
distribution should have been made) of .15 (15%) times the Class C
Preferred Distribution Amount (which includes accrued but
undistributed amounts from prior periods) and (y) any partial
distribution of the Class C Preferred Distribution Amount actually
made with respect to such period.
(e) "Class C Preference Amount" shall mean $23.25 plus any accrued but
undistributed Class C Preferred Distribution Amount and plus any
accrued but undistributed Special Class C Distribution Amount.
Section 11.01(a) is replaced with the following:
(a) any amendment affecting the operation of the Conversion
Factor or the Redemption Right (except as provided in Section 8.05(f) or
7.01(e) hereof) in a manner adverse to the Limited Partners;
The following Section 11.03 is added to the Partnership Agreement:
11.03 VOTING RIGHTS OF CLASS C PREFERRED UNITHOLDERS.
----------------------------------------------
Notwithstanding the provisions of Section 11.02, the holders of record of
Class C Preferred Units shall be entitled to vote on any matter on which
Limited Partners are entitled to vote. In addition, the holders of Class C
Preferred Units shall have the right to vote as a separate class of
Partnership Units on the following, each of which shall require the consent
of holders of record of Class C Preferred Units representing more than 50%
of the Class C Preferred Units:
(a) Any amendment creating or resulting in any class of Units
with the right to receive distributions in priority to the distributions on
Class C Preferred Units, including without limitation priority as to time
of payment;
(b) Any amendment that would adversely affect the rights of the
Class C Preferred Unitholders to receive the distributions payable with
respect to the Class C Preferred Units hereunder;
(c) Any amendment that would materially and adversely alter the
Partnership's allocations of Profit and Loss with respect to Class C
Preferred Units; and
7
<PAGE>
(d) Any amendment that imposes on the Class C Preferred
Unitholders (in their capacity as such) any obligation to make Additional
Capital Contributions to the Partnership.
For purposes of clarifying the foregoing, the voting rights of the Class C
Preferred Unitholders shall not include any voting rights with respect to
amendments to the Agreement with respect to the issuance of interests in
the Partnership that are entitled to receive operating distributions in
parity to, or junior to the operating distributions with respect to Class C
Preferred Units, or with respect to the issuance of interests in the
Partnership that are entitled to liquidating distributions in preference to
liquidating distributions on Class C Preferred Units.
Section 2. Acceptance of Capital Contributions.
-----------------------------------
(a) The General Partner hereby accepts the Capital Contributions of the
Contributor. The Contributor is already a Limited Partner of the Partnership.
In consideration of such Capital Contributions and pursuant to Section
4.02(a)(i) of the Partnership Agreement, the General Partner hereby issues to
the Contributor the number of Class C Preferred Units listed on Schedule A
----------
attached hereto. The Agreed Value of the Capital Contributions of the
Contributor with respect to the Class C Preferred Units shall be equal to the
number of Class C Preferred Units issued to the Contributor, multiplied by the
average of the daily market price of Paired Shares for the ten consecutive
trading days immediately preceding the date of this Fifth Amendment, which
market price shall be determined in accordance with the procedures set forth in
the definition of "Cash Amount" in the Partnership Agreement.
(b) The issuance of such Class C Preferred Units shall become effective as
of the date of this Fifth Amendment, which will also be the date upon which such
issuances are recorded on the books and records of the Partnership.
Section 3. Amendment to Partnership Agreement. Pursuant to Article XI of
----------------------------------
the Partnership Agreement, the General Partner hereby amends the Partnership
Agreement by deleting Exhibit A in its entirety and replacing it with Exhibit A
--------- ---------
attached hereto.
Section 4. Defined Terms. Capitalized terms used without definition in this
-------------
Fifth Amendment shall have the meanings set forth in the Partnership Agreement.
Section 5. Partnership Agreement. The Partnership Agreement and this Fifth
---------------------
Amendment shall be read together and shall have the same effect as if the
provisions of the Partnership Agreement and this Fifth Amendment were contained
in one document.
[End of Page]
8
<PAGE>
IN WITNESS WHEREOF, the General Partner has executed this Fifth Amendment
as of the date first written above.
GENERAL PARTNER
PATRIOT AMERICAN HOSPITALITY
OPERATING COMPANY
/s/ Rex E. Stewart
------------------
By: Rex E. Stewart
Its: Chief Financial Officer
LIMITED PARTNERS
By: PATRIOT AMERICAN
HOSPITALITY OPERATING
COMPANY, as attorney-in-fact for
each of the Limited Partners, other
than the Contributor
/s/ Rex E. Stewart
------------------
By: Rex E. Stewart
Its: Chief Financial Officer
CONTRIBUTOR
/s/ Karim Alibhai
-----------------
Karim Alibhai
<PAGE>
Schedule A
----------
Class C Preferred
-----------------
Contributor Units
- ----------- -----
Karim Alibhai 476,682
<PAGE>
EXHIBIT 10.24
EXECUTIVE EMPLOYMENT AGREEMENT
This EXECUTIVE EMPLOYMENT AGREEMENT ("Agreement") is made as of the 14th
day of April, 1997, between Patriot American Hospitality, Inc., a Virginia
corporation ("Patriot"), and Paul A. Nussbaum ("Executive").
WHEREAS, Patriot and Executive are parties to an Employment Agreement dated
as of October 2, 1995 and an Agreement Not to Compete dated as of October 2,
1995 (the "October 1995 Agreements");
WHEREAS, Patriot and Executive intend to replace the October 1995
Agreements with this Agreement;
WHEREAS, Executive is currently serving as the Chairman of the Board and
Chief Executive Officer of Patriot;
WHEREAS, Patriot and Wyndham Hotel Corporation are entering into an
Agreement and Plan of Merger, dated as of the date hereof, which provides, upon
the terms and subject to the conditions thereof, for the merger (the "Merger")
of Wyndham Hotel Corporation with and into a successor by merger to Patriot
("New Patriot") (either Patriot or New Patriot shall hereinafter be known as the
"Company"), the outstanding common stock of which will be paired and
transferable only as a single unit with the common stock of Bay Meadows
Operating Company, a Delaware corporation, which shall, at the effective time of
the Merger be renamed Wyndham International ("Wyndham");
WHEREAS, Executive is desirous of committing himself to serve the Company
on the terms herein provided.
NOW, THEREFORE, in consideration of the mutual covenants and agreements
herein contained and other good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the parties agree as follows:
1. EMPLOYMENT. The initial term of this Agreement shall extend from April 14,
1997 (the "Commencement Date") until the fifth anniversary of the effective date
of the Merger. On the second anniversary of the effective date of the Merger and
every even-numbered anniversary date thereafter, the term of this Agreement
shall be automatically extended for an additional two (2) years unless either
party otherwise elects by notice in writing delivered to the other at least
ninety (90) days prior to the second anniversary or even-numbered anniversary
date thereafter. The term of this Agreement shall be subject to termination as
provided in Paragraph 7 and may be referred to herein as the "Period of
Employment."
2. POSITION AND DUTIES. During the Period of Employment, Executive shall serve
as the Chairman of the Board and Chief Executive Officer of the Company,
reporting to the Board of Directors of the Company (the "Board"), shall have
supervision and control over and responsibility for the day-to-day business and
affairs of the Company, and shall have such
<PAGE>
other powers and duties as may from time to time be prescribed by the Board,
provided that such duties are consistent with Executive's position or other
positions that he may hold from time to time. Should, during the Period of
Employment but after the effective date of the Merger, Executive not be
nominated to serve (or, if nominated, not be elected to serve) as a member of
the Board and as a Director of the Board of Directors of Wyndham, a Delaware
corporation, then Executive may, as provided in Subparagraph 7(f), terminate his
employment hereunder, which termination shall be deemed to be for Good Reason,
as defined in Subparagraph 7(f). Except as may be otherwise approved by the
Board, Executive shall devote substantially all his full working time and
efforts to the business and affairs of the Company. Notwithstanding the
foregoing, Executive may serve on other boards of directors or engage in
religious, charitable or other community activities as long as such services and
activities are disclosed to the Board and do not materially interfere with
Executive's performance of his duties to the Company as provided in this
Agreement. Subject to the provisions of Paragraph 5 below and the approval of
the Board, Executive may also engage in other business and receive compensation
therefor, so long as such activities do not materially interfere with
Executive's performance of his duties hereunder.
3. COMPENSATION AND RELATED MATTERS.
(A) BASE SALARY. Initially, Executive shall receive an annual base salary
("Base Salary") equal to the rate in effect immediately prior to the
Commencement Date. On July 1, 1997, Executive's Base Salary shall be increased
to an annual rate of Five Hundred Thousand Dollars and xx/100 Cents
($500,000.00). Thereafter, Executive's Base Salary shall be redetermined at
least thirty (30) days before each annual compensation determination date
established by the Company during the Period of Employment in an amount to be
fixed by the Board. The Base Salary, as redetermined, may be referred to herein
as "Adjusted Base Salary." The Base Salary or Adjusted Base Salary shall be
payable in substantially equal bi-weekly installments and shall in no way limit
or reduce the obligations of the Company hereunder.
(B) INCENTIVE COMPENSATION. In addition to Base Salary or Adjusted Base
Salary, Executive shall be eligible to receive, on or about the annual
compensation determination date established by the Company of each year, during
the Period of Employment, cash incentive compensation in an amount determined by
the Compensation Committee of the Board based on individual performance,
performance by the Company and total return to shareholders. The incentive
compensation potential shall be up to one hundred percent (100%) of Base Salary
or Adjusted Base Salary. Executive will also participate in such incentive
compensation plans as the Board shall determine.
(C) EXPENSES. Executive shall be entitled to receive prompt reimbursement
for all reasonable expenses incurred by him (in accordance with the policies and
procedures then in effect and established by the Company for its senior
executive officers) in performing services hereunder during the Period of
Employment, provided that Executive properly accounts therefor in accordance
with Company policy.
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<PAGE>
(D) OTHER BENEFITS. During the Period of Employment, Executive shall be
entitled to continue to participate in or receive benefits under all of the
Company's Employee Benefit Plans in effect on the date hereof, or under plans or
arrangements that provide Executive with at least substantially equivalent
benefits to those provided under such Employee Benefit Plans. As used herein,
"Employee Benefit Plans" include, without limitation, each pension and
retirement plan; supplemental pension, retirement and deferred compensation
plan; savings and profit-sharing plan; stock ownership plan; stock purchase
plan; stock option plan; life insurance plan; medical insurance plan; disability
plan; and health and accident plan or arrangement established and maintained by
the Company on the date hereof. To the extent that the scope or nature of
benefits described in this section are determined under the policies of the
Company based in whole or in part on the seniority or tenure of an employee's
service, Executive shall be deemed to have a tenure with the Company equal to
the actual time of Executive's service with Company plus the actual service by
Executive to any predecessor of the Company. During the Period of Employment,
Executive shall be entitled to participate in or receive benefits under any
employee benefit plan or arrangement which may, in the future, be made available
by the Company to its executives and key management employees, subject to and on
a basis consistent with the terms, conditions and overall administration of such
plan or arrangement. Nothing paid to Executive under the Employee Benefit Plans
presently in effect or any employee benefit plan or arrangement which may be
made available in the future shall be deemed to be in lieu of compensation
payable to Executive under Subparagraphs 3(a) and 3(b). Any payments or benefits
payable to Executive under a plan or arrangement referred to in this
Subparagraph 3(d) in respect of any calendar year during which Executive is
employed by the Company for less than the whole of such year shall, unless
otherwise provided in the applicable plan or arrangement, be prorated in
accordance with the number of days in such calendar year during which he is so
employed. Should any such payments or benefits accrue on a fiscal (rather than
calendar) year, then the proration in the preceding sentence shall be on the
basis of a fiscal year rather than calendar year.
(E) LIFE INSURANCE. The Company shall pay the premiums on, and maintain in
effect throughout the Period of Employment, a life insurance policy on the life
of Executive in an amount not less than the greater of (i) three (3) times the
sum of his then current Base Salary or Adjusted Base Salary plus the mid-point
of his bonus range or (ii) $2,000,000. Executive shall have the right to
designate the beneficiary under such policy.
(F) VACATIONS. Executive shall be entitled to the number of paid vacation
days in each calendar year determined by the Company from time to time for its
senior executive officers. Executive shall also be entitled to all paid holidays
given by the Company to its senior executive officers. To the extent that the
scope or nature of benefits described in this section are determined under the
policies of the Company based in whole or in part on the seniority or tenure of
an employee's service, Executive shall be deemed to have a tenure with the
Company equal to the actual time of Executive's service with Company plus the
actual service by Executive to the Previous Employer.
3
<PAGE>
(G) DISABILITY INSURANCE. The Company shall pay the premiums on, and
maintain in effect throughout the Period of Employment, long-term disability
insurance providing for payment of benefits at rates not less than 60% of
Executive's current Base Salary or Adjusted Base Salary.
(H) COMPARABILITY. Notwithstanding anything to the contrary in the
foregoing provisions of this Paragraph 3, Executive's Base Salary or Adjusted
Base Salary and benefits under Employee Benefit Plans or otherwise shall in no
event be less than the amounts and benefits paid or awarded to the Chairman of
the Board and Chief Executive Officer of Wyndham in connection with his
employment by Wyndham or its affiliates on and after the effective date of the
Merger, and the basis upon which incentive compensation is determined and
expenses are reimbursed in the case of Executive shall be the same as is the
case with respect to the Chairman of the Board and Chief Executive Officer of
Wyndham in connection with such employment.
4. BOARD SERVICE. Executive agrees to serve as a director of the Company and
Wyndham, if elected or appointed thereto, provided he is indemnified for serving
in such capacities as set forth in the Indemnification Agreement.
5. UNAUTHORIZED DISCLOSURE.
(A) CONFIDENTIAL INFORMATION. Executive acknowledges that in the course of
his employment with the Previous Employer or the Company (and, if applicable,
the predecessors of either of them), he has been allowed to become, and will
continue to be allowed to become, acquainted with the Company's and Wyndham's
business affairs, information, trade secrets, and other matters which are of a
proprietary or confidential-nature, including but not limited to the Company's,
Wyndham's and their respective predecessors' operations, business opportunities,
price and cost information, finance, customer information, business plans,
various sales techniques, manuals, letters, notebooks, procedures, reports,
products, processes, services, and other confidential information and knowledge
(collectively the "Confidential Information") concerning the Company's,
Wyndham's and their respective predecessors' business. The Company agrees to
provide on an ongoing basis such Confidential Information as the Company deems
necessary or desirable to aid Executive in the performance of his duties.
Executive understands and acknowledges that such Confidential Information is
confidential, and he agrees not to disclose such Confidential Information to
anyone outside the Company or Wyndham except as he deems reasonably necessary or
appropriate in connection with performing his duties on behalf of the Company.
Executive further agrees that he will not during employment and/or at any time
thereafter use such Confidential Information in competing, directly or
indirectly, with the Company or Wyndham. At such time as Executive shall cease
to be employed by the Company, he will immediately turn over to the Company all
Confidential Information, including papers, documents, writings, electronically
stored information, other property, and all copies of them provided to or
created by him during the course of his employment with the Company.
4
<PAGE>
(B) HEIRS, SUCCESSORS, AND LEGAL REPRESENTATIVES. The foregoing provisions
of this Paragraph 5 shall be binding upon Executive's heirs, successors, and
legal representatives. The provisions of this Paragraph 5 shall survive the
termination of this Agreement for any reason.
6. COVENANT NOT TO COMPETE. The provisions of this Paragraph 6 shall apply
during Executive's employment with the Company and for a period of three (3)
years commencing when the employment relationship has ended for any reason other
than death; provided, however, that the prohibition set forth in the second
sentence of this Paragraph 6 shall not apply in the case of termination of
employment solely as a result of the expiration of the Period of Employment
without extension. In consideration for Executive's employment by the Company
under the terms provided in this Agreement and as a means to aid in the
performance and enforcement of the terms of the Unauthorized Disclosure
provisions of Paragraph 5, Executive agrees that Executive will not, directly or
indirectly, as an owner, director, principal, agent, officer, employee, partner,
consultant, servant, or otherwise, carry on, operate, manage, control, or become
involved in any manner with any business, operation, corporation, partnership,
association, agency, or other person or entity which is in the business of
owning, operating, managing or granting franchise rights with respect to hotels,
motels or other lodging facilities in any area or territory in which the Company
or Wyndham conducts operations. Executive also agrees that Executive will not,
directly or indirectly, either for himself or for any other business, operation,
corporation, partnership, association, agency, or other person or entity, call
upon, compete for, solicit, divert, or take away, or attempt to divert or take
away any of the customers of the Company or Wyndham in any of the areas or
territories in which the Company or Wyndham conducts operations. Further,
Executive will not directly or indirectly solicit or induce any present or
future employee of the Company or Wyndham to accept employment with Executive or
with any business, operation, corporation, partnership, association, agency, or
other person or entity with which Executive may be associated, and Executive
will not employ or cause any business, operation, corporation, partnership,
association, agency, or other person or entity with which Executive may be
associated to employ any present or future employee of the Company or Wyndham
without providing the Company or Wyndham with ten (10) days' prior written
notice of such proposed employment. Should Executive violate the provisions of
this Paragraph, then in addition to all other rights and remedies available to
the Company or Wyndham at law or in equity, the duration of this covenant shall
automatically be extended for the period of time from which Executive began such
violation until he permanently ceases such violation. Notwithstanding the
foregoing, Executive shall be permitted to continue to engage in activities that
would otherwise be prohibited by this Paragraph 6 with respect to the interests
he currently owns in the properties described in Schedule I and attached hereto
and made a part hereof by this reference and to engage in such activities with
respect to any other hotel, motel or lodging facility that would be immaterial
to the operations of the Company or Wyndham in the area or territory in
question. Immateriality, for purposes of the foregoing sentence, shall be
determined in the sole discretion of the Board in good faith. Notwithstanding
anything to the contrary contained herein, Executive's acceptance of a position
with The Patriot Group or its subsidiaries or affiliates ("Patriot Group
Interests") after his termination of employment shall not be deemed to be a
violation of the foregoing non-compete provisions subject to the
5
<PAGE>
condition that Patriot Group Interests does not, during the period of
Executive's employment and the period of non-competition described in the first
sentence of this section, directly or indirectly form a hospitality operating
company (as opposed to making individual investments in hospitality properties).
7. TERMINATION. Executive's employment hereunder may be terminated without
any breach of this Agreement under the following circumstances:
(A) DEATH. Executive's employment hereunder shall terminate upon his
death.
(B) DISABILITY. If, as a result of Executive's incapacity due to physical
or mental illness, Executive shall have been absent from his duties hereunder on
a full-time basis for one hundred eighty (180) calendar days in the aggregate in
any twelve (12) month period, the Company may terminate Executive's employment
hereunder.
(C) TERMINATION BY COMPANY FOR CAUSE. At any time during the Period of
Employment, the Company may terminate Executive's employment hereunder for Cause
if such termination is approved by not less than two-thirds (2/3) of the entire
membership of the Board at a meeting of the Board called and held for such
purpose. For purposes of this Agreement "Cause" shall mean: (A) conduct by
Executive constituting a material act of willful misconduct in connection with
the performance of his duties, including, without limitation, misappropriation
of funds or property of the Company or any of its affiliates other than the
occasional, customary and de minimis use of Company property for personal
purposes; (B) criminal or civil conviction or conduct by Executive that would
reasonably be expected to result in material injury to the reputation of the
Company if he were retained in his position with the Company, including, without
limitation, conviction of a felony involving moral turpitude; or (C) continued,
deliberate non-performance by Executive of his duties hereunder (other than by
reason of Executive's physical or mental illness, incapacity or disability) and
such non-performance has continued for more than thirty (30) days following
written notice of such non-performance from the Board.
(D) TERMINATION BY COMPANY FOR PERFORMANCE REASONS. At any time during the
Period of Employment, the Company may terminate Executive's employment if (i)
such termination is approved by not less than two-thirds (2/3) of the entire
membership of the Board at a meeting of the Board called and held for such
purpose; and (ii) Executive has materially failed to perform his duties
hereunder or has violated, in material respects, the policies and procedures of
the Company and such failure or violation has continued for more than ninety
(90) days following written notice of such violation from the Board.
(E) TERMINATION WITHOUT CAUSE. At any time during the Period of
Employment, the Company may terminate Executive's employment hereunder without
Cause if such termination is approved by not less than two-thirds (2/3) of the
entire membership of the Board at a meeting of the Board called and held for
such purpose. Any termination by the Company of Executive's employment under
this Agreement which does not constitute a termination for
6
<PAGE>
Cause under Subparagraph 7(c), termination for performance under Subparagraph
7(d), or result from the death or disability of the Executive under Subparagraph
7(a) or (b) or result from the expiration of the Period of Employment without
extension, shall be deemed a termination without Cause.
(F) TERMINATION BY EXECUTIVE. At any time during the Period of Employment,
Executive may terminate his employment hereunder for any reason, including but
not limited to Good Reason. For purposes of this Agreement, "Good Reason" shall
mean that Executive has complied with the "Good Reason Process" (hereinafter
defined) following the occurrence of any of the following events: (A) a
substantial adverse change, not consented to by Executive, in the nature or
scope of Executive's responsibilities, authorities, powers, functions or duties
from the responsibilities, authorities, powers, functions or duties exercised by
Executive immediately prior to the Commencement Date; (B) any removal, during
the Period of Employment, of Executive from or, any failure by management to
nominate, or, if nominated, any failure by the stockholders to re-elect,
Executive to any of the positions indicated in Paragraph 2, except in connection
with a termination of Executive's employment; (C) an involuntary reduction in
Executive's Base Salary or Adjusted Base Salary or involuntary reduction in cash
incentive compensation plan (but not reduction in incentive compensation
appropriate for level of performance) except for across-the-board salary
reductions similarly affecting all or substantially all management employees;
(D) a breach by the Company of any of its other material obligations under this
Agreement and the failure of the Company to cure such breach within thirty (30)
days after written notice thereof by Executive; (E) the relocation of the
Company's offices at which Executive is principally employed or the relocation
of the offices of Executive's primary workgroup to a location more than thirty
(30) miles from such offices, or the requirement by the Company for Executive to
be based anywhere other than the Company's offices at such location on an
extended basis, except for required travel on the Company's business to an
extent substantially consistent with Executive's business travel obligations; or
(F) if for any reason the Chairman of the Board and Chief Executive Officer of
Wyndham ceases to serve in such capacity and Executive is not offered the
opportunity to fill such position on terms no less favorable to Executive than
those upon which the departing Chairman and Chief Executive Officer of Wyndham
was serving or, if Executive declines such offered position and such offered
position is filled by a person not approved by Executive. "Good Reason Process"
shall mean that (i) the Executive reasonably determines in good faith that a
"Good Reason" event has occurred; (ii) Executive notifies the Company in writing
of the occurrence of the Good Reason event; (iii) Executive cooperates in good
faith with the Company's efforts, for a period not less than ninety (90) days
following such notice, to modify Executive's employment situation in a manner
acceptable to Executive and Company; and (iv) notwithstanding such efforts, one
or more of the Good Reason events continues to exist and has not been modified
in a manner acceptable to Executive.
(G) NOTICE OF TERMINATION. Except for termination as specified in
Subparagraph 7(a), any termination of Executive's employment by the Company or
any such termination by Executive shall be communicated by written Notice of
Termination to the other party hereto.
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For purposes of this Agreement, a "Notice of Termination" shall mean a notice
which shall indicate the specific termination provision in this Agreement relied
upon.
(H) DATE OF TERMINATION. "Date of Termination" shall mean: (A) if
Executive's employment is terminated by his death, the date of his death; (B) if
Executive's employment is terminated on account of disability under Subparagraph
7(b), the date on which Notice of Termination is given; (C) if Executive's
employment is terminated by the Company under Subparagraph 7(c), (d) or (e),
thirty (30) days after the date on which a Notice of Termination is given; and
(D) if Executive's employment is terminated by Executive under Subparagraph
7(f), thirty (30) days after the date on which a Notice of Termination is given.
8. COMPENSATION UPON TERMINATION OR DURING DISABILITY.
(a) If Executive's employment terminates by reason of his death, the
Company shall, within ninety (90) days of death, pay in a lump sum amount to
such person as Executive shall designate in a notice filed with the Company or,
if no such person is designated, to Executive's estate, Executive's accrued and
unpaid Base Salary or, if applicable, his Adjusted Base Salary, to the date of
his death, plus his accrued and unpaid incentive compensation under Subparagraph
3(b). All unvested stock options and stock-based grants shall immediately vest
in Executive's estate or other legal representatives and become exercisable, and
Executive's estate or other legal representatives shall have one (1) year from
the Date of Termination, or remaining option term, if earlier, to exercise the
stock options. For a period of one (1) year following the Date of Termination,
the Company shall pay such health insurance premiums as may be necessary to
allow Executive's spouse and dependents to receive health insurance coverage
substantially similar to coverage they received prior to the Date of
Termination. In addition to the foregoing, any payments to which Executive's
spouse, beneficiaries, or estate may be entitled under any employee benefit plan
shall also be paid in accordance with the terms of such plan or arrangement.
Such payments, in the aggregate, shall fully discharge the Company's obligations
hereunder.
(b) During any period that Executive fails to perform his duties hereunder
as a result of incapacity due to physical or mental illness, Executive shall
continue to receive his accrued and unpaid Base Salary or, if applicable, his
Adjusted Base Salary and accrued and unpaid incentive compensation payments
under Subparagraph 3(b), until Executive's employment is terminated due to
disability in accordance with Subparagraph 7(b) or until Executive terminates
his employment in accordance with Subparagraph 7(f), whichever first occurs.
All unvested stock options and stock-based grants shall immediately vest and
become exercisable and Executive shall have one (1) year from the Date of
Termination, or remaining option term, if earlier, to exercise the stock
options. For a period of one (1) year following the Date of Termination, the
Company shall pay such health insurance premiums as may be necessary to allow
Executive, Executive's spouse and dependents to receive health insurance
coverage substantially similar to coverage they received prior to the Date of
Termination. Upon termination due to death prior to the termination first to
occur as specified in the preceding sentence, Subparagraph 8(a) shall apply.
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(c) If Executive's employment is terminated by Executive other than for
Good Reason as provided in Subparagraph 7(f), then the Company shall, through
the Date of Termination, pay Executive his accrued and unpaid Base Salary or, if
applicable, his Adjusted Base Salary at the rate in effect at the time Notice of
Termination is given. Thereafter, the Company shall have no further obligations
to Executive except as otherwise expressly provided under this Agreement,
provided any such termination shall not adversely affect or alter Executive's
rights under any employee benefit plan of the Company in which Executive, at the
Date of Termination, has a vested interest, unless otherwise provided in such
employee benefit plan or any agreement or other instrument attendant thereto.
(d) If Executive terminates his employment for Good Reason as provided in
Subparagraph 7(f) or if Executive's employment is terminated by the Company
without Cause as provides in subparagraph 7(e), then the Company shall, through
the Date of Termination, pay Executive his accrued and unpaid Base Salary or, if
applicable, his Adjusted Base-Salary at the rate in effect at the time Notice of
Termination is given and his accrued and unpaid incentive compensation under
Subparagraph 3(b). In addition, subject to signing by Executive of a general
release of claims in a form and manner satisfactory to the Company,
(i) the Company shall pay Executive, on the Date of Termination,
such additional amounts to which Executive may be entitled in accordance
with the Company's then current severance policies (the "Severance
Amount"), provided that, at a minimum, Executive shall be entitled to
receive an amount in a lump sum (the "Minimum Severance Amount") equal to
three (3) times the sum of Executive's Average Base Salary and Average
Incentive Compensation. For purposes of this Agreement, "Average Base
Salary" shall mean the average of the annual Base Salary or, if applicable,
Adjusted Base Salary received by Executive for each of the three (3)
immediately preceding fiscal years or such fewer number of complete fiscal
years as Executive may have been employed by the Company or any of Previous
Employer. For purposes of this Agreement, "Average Incentive Compensation"
shall mean the average of the annual incentive compensation under
Subparagraph 3(b) received by Executive for the three (3) immediately
preceding fiscal years or such fewer number of complete fiscal years as
Executive may have been employed by the Company or any of Previous
Employer. Notwithstanding the foregoing, in the event Executive terminates
his employment for Good Reason as provided in Subparagraph 7(f), he shall
be entitled to the Severance Amount or the Minimum Severance Amount only if
he provides the Notice of Termination provided for in Subparagraph 7(g)
within thirty (30) days after the occurrence of the event or events which
constitute such Good Reason as specified in clauses (A), (B), (C), (D), (E)
or (F) of Subparagraph 7(f);
(ii) in addition to any other benefits to which Executive may be
entitled in accordance with the Company's then existing severance policies,
the Company shall:
(a) for a period of three (3) years commencing on the Date of
Termination, provide Executive, at the Company's expense, with an
office, and
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related telephone and telefax facilities, and an assistant at a
location of Executive's choosing, provided that the office facilities
shall be comparable to Executive's office at the Company on the Date
of Termination;
(b) for a period of one (1) year commencing on the Date of
Termination, pay for the cost of executive outplacement services
selected by Executive for use in connection with obtaining alternate
employment; and
(c) for a period of one (1) year commencing on the Date of
Termination, pay such health insurance premiums as may be necessary to
allow Executive, Executive's spouse and dependents to continue to
receive health insurance coverage substantially similar to the
coverage they received prior to his termination of employment; and
(iii) Executive shall receive all the rights and benefits granted or
in effect with respect to Executive under the Company's employee stock
option or incentive plans and agreements with Executive pursuant thereto.
In addition to the foregoing, unless otherwise provided in the applicable
option or award agreement, all stock options and other stock-based awards
in which Executive otherwise would have vested if he would have remained
employed for a period of three (3) years commencing on the Date of
Termination shall immediately accelerate and become exercisable or
nonforfeitable as of the Date of Termination.
(e) If Executive's employment is terminated by the Company for Cause as
provided in Subparagraph 7(c) or for performance as provided in Subparagraph
7(d), then the Company shall, through the Date of Termination, pay Executive his
accrued and unpaid Base Salary or, if applicable, his Adjusted Base Salary at
the rate in effect at the time Notice of Termination is given and in case of
termination for performance as provided by Subparagraph 7(d), his accrued and
unpaid incentive compensation under Subparagraph 3(b). Thereafter, the Company
shall have no further obligations to Executive except as otherwise expressly
provided under this Agreement, provided any such termination shall not adversely
affect or alter Executive's rights under any employee benefit plan of the
Company in which Executive, at the Date of Termination, has a vested interest,
unless otherwise provided in such employee benefit plan or any agreement or
other instrument attendant thereto. Notwithstanding the foregoing and in
addition to whatever other rights or remedies the Company may have at law or in
equity, all stock options held by Executive shall immediately expire on the Date
of Termination if Executive's employment is terminated by the Company for Cause
as provided by Subparagraph 7(c).
(f) Regardless of the reason for termination, for a period of five (5)
years beginning on the Date of Termination, the Company will provide such
reasonable assistance and support to Executive as he shall reasonably require in
connection with the preparation and filing of tax returns, statements and forms
insofar as such returns, statements or forms relate to Executive's association
with the Company, Wyndham or any of their respective predecessors or affiliates.
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<PAGE>
At the Company's election, such assistance and support shall be provided by
either tax personnel from the Company or certified public accountants selected
and compensated by the Company.
(g) Nothing contained in the foregoing Subparagraphs 8(a) through 8(f)
shall be construed so as to affect Executive's rights or the Company's
obligations relating to agreements or benefits which are unrelated to
termination of employment.
9. PARACHUTE PAYMENT. The provisions of this Paragraph 9 set forth certain
terms of an agreement reached between Executive and the Company regarding
Executive's rights and obligations upon the occurrence of a Change in Control of
the Company. These provisions are intended to assure and encourage in advance
Executive's continued attention and dedication to his assigned duties and his
objectivity during the pendency and after the occurrence of any such event.
These provisions shall apply in lieu of, and expressly supersede, the provisions
of Subparagraph 8(d)(i) regarding severance pay upon a termination of
employment, if such termination of employment occurs within eighteen (18) months
after the occurrence of the first event constituting a Change in Control. These
provisions shall terminate and be of no further force or effect beginning
eighteen (18) months after the occurrence of a Change in Control.
(A) ESCROW. Within fifteen (15) days after the occurrence of the first
event constituting a Change in Control, the Company shall place funds in an
amount equal to the estimated Parachute Amount in escrow, pursuant to
arrangements that are mutually acceptable to the Company and Executive providing
for the payment of the Parachute Amount in the event Executive becomes entitled
thereto pursuant to Subparagraph 9(b)(i) (the "Escrow Arrangement"). The Escrow
Arrangement shall be maintained until the earlier of (A) eighteen (18) months
after the occurrence of the first event constituting a Change in Control or (B)
the payment to Executive of the Parachute Amount pursuant to the provisions of
Subparagraph 9(b)(i).
(B) CHANGE IN CONTROL. If within eighteen (18) months after the occurrence
of the first event constituting a Change in Control, Executive's employment
terminates for any reason other than (A) death, (B) his inability, due to
illness, accident, or other physical or mental incapacity, to perform his duties
for more than one hundred eighty (180) days during any twelve-month period, or
(C) his Voluntary Resignation ("Termination"), then:
(i) the Company shall pay Executive in a lump sum an amount equal
to the applicable Parachute Amount on the tenth (10th) day following
Executive's Termination; and
(ii) unless otherwise provided in the applicable option agreement or
award agreement, all stock options and other stock-based awards granted to
Executive by the Company shall immediately accelerate and become
exercisable or non-forfeitable as of the date of Change in Control, and
Executive shall be entitled to any other rights and benefits with respect
to stock-related awards, to the extent and upon the terms provided
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<PAGE>
in the employee stock option or incentive plan or any agreement or other
instrument attendant thereto pursuant to which such options or awards were
granted.
(C) GROSS UP PAYMENT.
(i) Excess Parachute Payment. If Executive incurs the tax (the
"Excise Tax") imposed by Section 4999 of the Internal Revenue Code of 1986
(the "Code") on "excess parachute payments" within the meaning of Section
280G(b)(1) of the Code, the Company will pay to Executive an amount (the
"Gross Up Payment") such that the net amount retained by Executive, after
deduction of any Excise Tax on the excess parachute payment and any
federal, state and local income tax (together with penalties and interest)
and Excise Tax upon the payment provided for by this Subparagraph 9(c)(i),
will be equal to the Parachute Amount.
(ii) Applicable Rates. For purposes of determining the amount of the
Gross Up Payment, Executive will be deemed to pay federal income taxes at
the highest marginal rate of federal income taxation in the calendar year
in which the Gross Up Payment is to be made and state and local income
taxes at the highest marginal rates of taxation in the state and locality
of Executive's residence on the date of Executive's Termination, net of the
maximum reduction in federal income taxes that could be obtained from
deduction of such state and local taxes.
(iii) Determination of Gross Up Payment Amount. The determination of
whether the Excise Tax is payable and the amount thereof will be based upon
the opinion of tax counsel selected by Executive and approved by the
Company, which approval will not be unreasonably withheld. If such opinion
is not finally accepted by the Internal Revenue Service (or state and local
taxing authorities), then appropriate adjustments to the Excise Tax will be
computed and additional Gross Up Payments will be made in the manner
provided by this Subparagraph (c).
(iv) Time For Payment. The Company will pay the estimated amount of
the Gross Up Payment in cash to Executive concurrent with Employee's
Termination. Executive and the Company agree to reasonably cooperate in the
determination of the actual amount of the Gross Up Payment. Further,
Executive and the Company agree to make such adjustments to the estimated
amount of the Gross Up Payment as may be necessary to equal the actual
amount of the Gross Up Payment, which in the case of Executive will refer
to refunds of prior overpayments and in the case of the Company will refer
to makeup of prior underpayments.
(D) DEFINITIONS. For purposes of this Paragraph 9, the following terms
shall have the following meanings:
"CHANGE IN CONTROL" shall mean an event which shall be deemed to have
occurred if (i) any "person" or "group" (as such terms are used in Sections
13(d) and
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14(d) of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), other than a trustee or other fiduciary holding securities under an
employee benefit plan of the Company, is or becomes the "beneficial owner"
(as defined in Rule 13d-3 promulgated under the Exchange Act), directly or
indirectly, of securities of the Company representing 25% or more of the
combined voting power of the Company's then outstanding securities; or (ii)
individuals who at the Commencement Date constitute the Board and any new
director (other than a director designated by a person who has entered into
an agreement with the Company to effect a transaction described in clauses
(i) or (iii) of this paragraph) whose election by the Board or nomination
for election by the Company's stockholders was approved by a vote of at
least eighty percent (80%) of the directors then still in office who either
were directors at the Commencement Date or whose election or nomination for
election was previously so approved, cease for any reason to constitute a
majority of the Board; or (iii) the stockholders of the Company approve a
merger or consolidation of the Company with or into any other corporation,
other than a merger or consolidation which would result in the voting
securities of the Company outstanding immediately prior thereto continuing
to represent (either by remaining outstanding or by being converted into
voting securities of the surviving entity) at least sixty percent (60%) of
the combined voting power of the voting securities of the Company or such
surviving entity outstanding immediately after such merger or
consolidation; or (iv) the stockholders of the Company approve a plan of
complete liquidation of the Company or an agreement for the sale or
disposition by the Company of all or substantially all the Company's
assets. Notwithstanding the foregoing, neither the merger of the Company
into California Jockey Club nor the merger of Wyndham International
Corporation into the Company shall be deemed to be a Change in Control.
"COMPANY" shall mean not only Patriot American Hospitality, Inc., but
also its successors by merger or otherwise.
"PARACHUTE AMOUNT" shall mean an amount equal to the greater of the
Severance Amount or the Minimum Severance Amount provided for in
Subparagraph 8(d)(i).
"VOLUNTARY RESIGNATION" shall mean any termination of Executive's
employment by his own act, unless such termination is for Good Reason
occurring within ninety (90) days prior to, or at any time after, the
occurrence of a Change in Control.
10. NOTICE. For purposes of this Agreement, notices and all other
communications provided for in the Agreement shall be in writing and shall be
deemed to have been duly given when delivered or mailed by United States
certified mail, return receipt requested, postage prepaid, addressed as follows:
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if to the Executive:
At his home address as shown
in the Company's personnel records;
if to the Company:
Patriot American Hospitality, Inc.
3030 LBJ Freeway, Suite 1500
Dallas, TX 75234
or to such other address as either party may have furnished to the other in
writing in accordance herewith, except that notices of change of address shall
be effective only upon receipt.
11. MISCELLANEOUS. No provisions of this Agreement may be modified, waived, or
discharged unless such waiver, modification, or discharge is agreed to in
writing and signed by Executive and such officer of the Company as may be
specifically designated by the Board. No waiver by either party hereto of, or
compliance with, any condition or provision of this Agreement to be performed by
such other party shall be deemed a waiver of similar or dissimilar provisions or
conditions at the same or at any prior or subsequent time. No agreements or
representations, oral or otherwise, express or implied, unless specifically
referred to herein, with respect to the subject matter hereof have been made by
either party which are not set forth expressly in this Agreement. The validity,
interpretation, construction, and performance of this Agreement shall be
governed by the laws of the State of Texas (without regard to principles of
conflicts of laws).
12. VALIDITY. The invalidity or unenforceability of any provision or
provisions of this Agreement shall not affect the validity or enforceability of
any other provision of this Agreement, which shall remain in full force and
effect. The invalid portion of this Agreement, if any, shall be modified by any
court having jurisdiction to the extent necessary to render such portion
enforceable.
13. COUNTERPARTS. This Agreement may be executed in several counterparts, each
of which shall be deemed to be an original but all of which together will
constitute one and the same instrument.
14. ARBITRATION; OTHER DISPUTES. Any dispute or controversy arising under or
in connection with this Agreement shall be settled exclusively by arbitration in
Dallas, Texas, in accordance with the rules of the American Arbitration
Association then in effect. Judgment may be entered on the arbitrator's award in
any court having jurisdiction. Notwithstanding the above, the Company shall be
entitled to seek a restraining order or injunction in any court of competent
jurisdiction to prevent any continuation of any violation of Paragraph 5 or 6
hereof. Furthermore, should a dispute occur concerning Executive's mental or
physical
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<PAGE>
capacity as described in Subparagraphs 7(b) or 8(b), a doctor selected by
Executive and a doctor selected by the Company shall be entitled to examine
Executive. If the opinion of the Company's doctor and Executive's doctor
conflict, the Company's doctor and Executive's doctor shall together agree upon
a third doctor, whose opinion shall be binding. Any amount to which Executive is
entitled under this Agreement (including any disputed amount), which is not paid
when due, shall bear interest at a rate equal to the lesser of eighteen percent
(18%) per annum or the maximum lawful rate.
15. THIRD-PARTY AGREEMENTS AND RIGHTS. Executive represents to the Company
that Executive's execution of this Agreement, Executive's employment with the
Company and the performance of Executive's proposed duties for the Company will
not violate any obligations Executive may have to any employer or other party,
and Executive will not bring to the premises of the Company any copies or other
tangible embodiments of non-public information belonging to or obtained from any
such previous employment or other party.
16. LITIGATION AND REGULATORY COOPERATION. During and after Executive's
employment, Executive shall reasonably cooperate with the Company in the defense
or prosecution of any claims or actions now in existence or which may be brought
in the future against or on behalf of the Company which relate to events or
occurrences that transpired while Executive was employed by the Company;
provided, however, that such cooperation shall not materially and adversely
affect Executive or expose Executive to an increased probability of civil or
criminal litigation. Executive's cooperation in connection with such claims or
actions shall include, but not be limited to, being available to meet with
counsel to prepare for discovery or trial and to act as a witness on behalf of
the Company at mutually convenient times. During and after Executive's
employment, Executive also shall cooperate fully with the Company in connection
with any investigation or review of any federal, state or local regulatory
authority as any such investigation or review relates to events or occurrences
that transpired while Executive was employed by the Company. The Company shall
also provide Executive with compensation on an hourly basis calculated at his
final base compensation rate for requested litigation and regulatory cooperation
that occurs after his termination of employment, and reimburse Executive for all
costs and expenses incurred in connection with his performance under this
Paragraph 16, including, but not limited to, reasonable attorneys' fees and
costs.
17. OCTOBER 2, 1995 EMPLOYMENT AGREEMENT AND AGREEMENT NOT TO COMPETE. The
October 1995 Agreements between Executive and Company are hereby terminated.
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IN WITNESS WHEREOF, the parties have executed this Agreement effective on
the date and year first above written.
PATRIOT AMERICAN HOSPITALITY, INC.
By: /s/ Tom Lattin
---------------------------------
Its: President
---------------------------------
/s/ Paul A. Nussbaum
--------------------------------
Paul A. Nussbaum
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EXHIBIT 10.25
EMPLOYMENT AGREEMENT
--------------------
THIS EMPLOYMENT AGREEMENT (this "Agreement") is made and entered into as of
February 14, 1997, by and between PATRIOT AMERICAN HOSPITALITY, INC., a Virginia
corporation (the "Company"), and WILLIAM W. EVANS, III (the "Executive")
Recitals
A. The Company is a corporation operating as a self-administered real
estate investment trust.
B. The Company desires to employ the Executive, and the Executive desires
to accept employment with the Company, on the terms and provisions set forth in
this Agreement.
Agreement
NOW, THEREFORE, in consideration of the mutual covenants and agreements set
forth herein, and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto hereby agree as
follows:
1. Employment and Office. The Company shall employ the Executive, and
---------------------
the Executive agrees to be employed by the Company, in the capacity and office
of Office of the Chairman of the Company to serve for the Term (as hereinafter
defined), subject to earlier termination as hereinafter provided.
2. Term. The term of the Executive's employment under this Agreement
----
shall begin on March 1, 1997, or such earlier date as may be agreed upon by the
Executive and the Company, and shall continue until February 29, 2000 (the
"Initial Term"); provided, however, that, unless either party otherwise elects
by notice in writing delivered to the other at least 90 days prior to the end of
the Initial Term, or at least 90 days prior to December 31 of each subsequent
year, such term automatically shall be renewed for successive one-year terms (as
so extended, the "Term").
3. Duties and Responsibilities. The Executive shall devote substantially
---------------------------
all of his business time to the business of the Company as shall be reasonably
required in the performance of his duties and shall perform services consistent
with his office, as from time to time shall be assigned to him by the Chairman
(the "Chairman") of the Board of Directors of the Company (the "Board"). The
duties of the Office of the Chairman shall include identifying, negotiating and
closing corporate mergers and acquisitions, strategic planning, obtaining and
closing debt and equity financings, negotiating and closing other financial
transactions, and performing such other similar duties as may be determined by
the Chairman. The Executive shall have full authority and responsibility,
subject to the general direction, approval and control of the Chairman, in
connection with the performance of such duties. The Executive shall report
directly and solely to the Chairman.
<PAGE>
4. Compensation.
------------
(a) Base Salary. The Company shall initially pay the Executive an
-----------
annual base salary (the "Base Salary") of $300,000, to be paid in semi-monthly
payments. The Executive shall be eligible to be considered for periodic
increases in the Base Salary under the Company's normal policies and procedures
for Senior Executive (as defined below) salary increases, as currently
administered by the Compensation Committee of the Board. The Executive's Base
Salary shall not be reduced below the initial Base Salary at any time during the
Term without the consent of the Executive.
(b) Additional Compensation. In addition to the Base Salary, the
-----------------------
Company may from time to time pay the Executive other incentive compensation
(the "Incentive Compensation"), including, but not limited to, stock options,
appreciation rights and awards, incentive compensation, restricted stock or cash
bonuses, in accordance with existing or future incentive compensation plans of
the Company (the "Incentive Plans"). The Executive's cash bonus shall not be
less than 30% of the Base Salary for the first year of the Term. The Executive
shall, for each full or partial year during the Term, be eligible to participate
in all Incentive Plans available to other Senior Executive's of the Company, and
the Executive's participation shall be on terms no less favorable than those
generally applicable to other Senior Executives of the Company. For any partial
year during the Term, the Executive shall be entitled to a pro rata amount of
any Incentive Compensation that he would otherwise have been entitled to had he
been employed by the Company for the full year, regardless of whether such
Incentive Plan is by its terms only payable for full years or at specified
times.
(c) Senior Executives. For the purposes of this Agreement, "Senior
-----------------
Executives" shall mean the senior executive officers of the Company, including
the Chairman. The Executive shall be entitled to participate in all benefit and
compensation plans, and shall be entitled to all perquisites, received by the
Senior Executives generally or by the Chairman; provided, however, that the
Executive's compensation and participation in all such plans shall at all times
equal or exceed the compensation and participation in such plans of all other
officers and employees of the Company, including the Senior Executives, other
than the Chairman. The Executive shall not be entitled to access to the services
of Jet Solutions or other providers of corporate jet services to the Company.
5. Benefits. During the Term, the Executive shall be eligible to
--------
participate in each of the Company's present employee benefit plans, policies or
arrangements and any such plans, policies or arrangements that the Company may
maintain or establish during the Term and to receive all fringe benefits for
which his position makes him eligible in accordance with the Company's usual
policies and the terms and provisions of such plans, policies or arrangements;
provided, however, that the foregoing shall not be construed to create any
obligation on the part of the Company to establish or maintain the effectiveness
of any such plan, policy or arrangement, nor shall the foregoing be construed to
affect the Company's right to restrict, terminate or otherwise modify any such
plan, policy or arrangement, except that the Company shall provide the Executive
with at least the following:
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(a) The Company will provide Executive with term life insurance with
a face amount of $2,000,000. The Beneficiary of the term life insurance policy
will be the Executive's spouse or other person(s) as designated by the Executive
from time to time. The Company shall provide such insurance through any U.S.-
based life insurance company with a Best's rating of B+ or higher.
(b) The Company will provide Executive with disability insurance
providing for payment to the Executives of benefits at rates not less than 60%
of the sum of the Base Salary payable to the Executive for the period
immediately preceding the Executive's disability, which payments shall be
payable from the date the Executive ceases to be entitled to receive payment of
the Base Salary and the Incentive Compensation (or either thereof) and
continuing for so long as the Executive is disabled, or as otherwise terminable
pursuant to the Company's long term disability plan for the Senior Executives.
(c) The Company shall obtain and maintain insurance policies
providing executive liability and indemnification insurance coverage for the
Executive to the same extent and providing limits of liability, deductibles and
exclusions as are provided for the Company's Senior Executive officers and
outside directors. This covenant shall survive the expiration of the Term and
the termination of this Agreement or the Executive's employment hereunder, for
any reason.
(d) The Executive shall be entitled to all rights, benefits and
privileges to which other Senior Executives of the Company are entitled,
including, but not limited to, participation in any retirement, pension, profit-
sharing, insurance, hospital or other plans which may now be in effect or which
may hereafter be adopted by the Company (including dependent participation and
coverage). The Executive shall be entitled to and receive all fringe benefits,
including, but not limited to, club and professional memberships, automobile
leases and allowances and expense accounts, available to other Senior Executives
of the Company, and the Executive's participation shall be on terms no less
favorable than those generally applicable to other Senior Executives of the
Company.
6. Initial Stock.
-------------
(a) Issuance. Upon execution of this Agreement, the Company shall
--------
issue to the Executive 100,000 shares (the "Initial Stock") of the common stock,
no par value, of the Company (the "Common Stock"). The Initial Stock shall vest
and become nonforfeitable with respect to 25% of the number of shares of the
Initial Stock originally granted on each anniversary of this Agreement. The
Executive shall not be required to make any payment in connection with such
vesting. The Executive shall be entitled to all dividends and distributions made
in connection with the Initial Stock the effective dates of which occur during
the period commencing on the date of this Agreement and continuing with respect
to each share of Initial Stock until the divestiture of such share, if any.
3
<PAGE>
(b) Effect of Merger. Upon the effective date of the merger
----------------
contemplated in that certain Agreement and Plan of Merger among the Company,
California Jockey Club and Bay Meadows Operating Company (the "Merger
Agreement"), the Initial Stock shall be automatically converted into such a
number of paired shares (the "Paired Stock") as determined in accordance with
the conversion terms and provisions contained in the Merger Agreement applicable
to other outstanding shares of Common Stock. For the purposes of this Agreement,
all such converted shares shall be deemed Initial Stock.
7. Stock Options.
-------------
(a) Grant of Options; Vesting. Upon execution of this Agreement, the
-------------------------
Company shall grant to the Executive non-qualified stock options (the "Options")
to purchase 280,000 shares of the Common Stock. The Options shall vest and
become exercisable with respect to 8 1/3% of the number of shares of Common
Stock subject thereto quarterly on the first day of each quarter thereafter,
such that all of the Options have vested and are exercisable on or before the
third anniversary of this Agreement. The Options shall expire on the tenth
anniversary of the date of their grant. The exercise price per share for the
Options shall be the quoted closing price per share for the Common Stock on the
New York Stock Exchange on the business day immediately preceding the date of
this Agreement. Vested Options shall not terminate or otherwise be affected by
the termination, for any reason, of the Executive's employment under this
Agreement.
(b) Effect of Merger. Upon the effective date of the merger
----------------
contemplated in the Merger Agreement, the Options shall be automatically
converted into stock options for such a number of shares of the Paired Stock
with a corresponding exercise price as determined in accordance with the
conversion terms and provisions contained in the Merger Agreement applicable to
other outstanding options covering shares of Common Stock; provided, however,
that such options shall have rights no less favorable than the original Options.
For the purposes of this Agreement, all such converted options shall be deemed
Options.
8. Other Options and Awards. The Executive shall be eligible for future
------------------------
grants of stock options, stock appreciation rights, stock awards, dividend and
dividend equivalent rights, and similar incentive awards under the Incentive
Plans or otherwise (the "Future Grants"). The Options and the Initial Stock
shall not be deemed in lieu of or in satisfaction of such Future Grants.
9. Registration. All Initial Stock, Future Grants, and shares of Common
------------
Stock and Paired Stock issuable upon exercise of the Options and any Future
Grants (collectively, the "Executive's Stock") shall at all times, and at the
Company's expense, (i) be registered through the filing of Form S-8 registration
statements with the Securities and Exchange Commission, and (ii) be listed on
the securities exchange on which the Common Stock, the Paired Stock or such
other stock is then listed and traded. In the event that the Company, using
commercially reasonable efforts, has been unable to obtain such registration or
listing for all of the Executive's Stock, the Company shall be required to
purchase, at the written election
4
<PAGE>
of the Executive, all or part of such Executive's Stock, as may be determined by
the Executive (the "Put"). The Executive may exercise the Put as to all or any
portion of such shares, and in one or more groups and at one or more times, as
Executive may elect at any time within six (6) months following the issuance of
the applicable shares to Executive. The purchase price to be paid by the Company
for such shares of the Executive's Stock shall be (i) the exchange closing price
for such shares on the day the Executive delivers written notice to the Company
of his exercise of the Put, if shares of such stock are publicly traded, or (ii)
the fair market value of such shares determined as of the day the Executive
delivers written notice to the Company of his exercise of the Put, if shares of
such stock are not publicly traded. The foregoing notwithstanding, the fair
market value of such shares shall in all cases be determined as if such shares
were registered, and listed and traded on the applicable exchange, and no
discount shall be made on account of their not being registered, or listed and
traded on such exchange.
10. Office. The Company shall provide a private office suite (the
------
"Office") located in New York City, New York, or otherwise within reasonable
commuting distance from Darien, Connecticut, to the Executive for his use during
the Term. The Office shall be subject to the Executive's reasonable approval.
The Company shall provide and pay for all incidental expenses incurred in
connection with the Office, including, but not limited to, utilities, cleaning,
office administration, photocopier, facsimile, telephone and other office
equipment costs, insurance and parking. The Executive acknowledges and agrees
that he shall be available for travel up to five business days a week, as
reasonably required in order to perform his duties under this Agreement.
11. Staff. The Company shall provide the Executive with an executive
-----
assistant, who shall be a full time employee of the Company and who shall be
entitled to the same or substantially equivalent benefits as those provided to,
and shall be paid, including bonuses and other compensation, at a level
equivalent to the pay of (subject to reasonable adjustment to reflect cost of
living and salary variations between localities), other employees of the Company
in similar positions. The executive assistant may be assigned to work for one
or more of the Senior Executives officing at the New York City office. The
selection, hiring and termination of the Executive's executive assistant and any
replacement, shall be subject to the Executive's reasonable review and approval.
12. Indemnification.
---------------
(a) Scope of Indemnification. To the fullest extent permitted by the
------------------------
organizational documents or bylaws of the Company, or by resolutions of the
Board or, if greater, by applicable law, the Company shall indemnify the
Executive and hold him harmless against all costs, expenses, suits, actions,
fines, penalties, judgments, settlements, claims, excise taxes, and losses,
including, but not limited to, reasonable attorneys fees and costs, incurred by
the Executive arising out of or resulting from the Executive being made a party,
or being threatened to be made a party, to any action, suit or proceeding,
whether criminal, civil or administrative (a "Proceeding"), by reason of the
fact that he is or was a director, officer, or employee of the Company or of any
parent or subsidiary, whether direct or indirect, or
5
<PAGE>
affiliate of the Company (an "Affiliate"), or is or was serving at the request
of the Company or an Affiliate as a director, officer, employee, agent,
fiduciary or trustee of another corporation, partnership, trust, employee
pension or benefit plan, or other entity. The indemnification provided hereunder
shall survive the expiration of the Term and the termination of this Agreement,
for any reason, and the Executive ceasing to be a director, officer, employee,
agent, fiduciary or trustee of the Company, an Affiliate, an employee pension or
benefit plan, or other entity.
(b) Advances. To the fullest extent permitted by law, the Company
--------
shall advance to the Executive, within 15 days after delivery to the Company by
the Executive of a written request for advance, all costs and expenses
reasonably incurred by the Executive in connection with a Proceeding; provided,
however, that the Executive undertakes to repay the amount of such advances if
it shall thereafter be determined that such costs and expense are not subject to
indemnification hereunder.
13. Termination upon Death. In the event of the Executive's death, the
----------------------
Executive's employment under this Agreement shall terminate, and upon such
termination: (i) the Executive's estate or other legal representatives shall be
entitled to receive any accrued but unpaid compensation and benefits through the
date of death, including, but not limited to, pro rated cash bonus compensation;
(ii) the beneficiaries under the Executive's life insurance policies provided
for in Section 5 shall receive the proceeds therefrom; (iii) all unvested
Initial Stock, Options, Future Grants, other stock options, appreciation rights
and awards, incentive awards, and benefit and compensation plans shall
immediately vest in the Executive's estate or other legal representatives and
become nonforfeitable, and any restrictions thereon shall immediately lapse; and
(iv) for a period of one (1) year following the date of termination, the
Executive's spouse, dependents and other survivors shall receive medical and
related health benefit coverage under the existing Company plans pursuant to the
Consolidated Omnibus Budget Reconciliation Act of 1985, as amended ("COBRA"),
but at the same level as their respective participation prior to the Executive's
death, the cost of which shall be paid by the Company. Except as otherwise
provided herein, any continued rights and benefits the Executive may have under
employee benefit plans and programs of the Company upon death, if any, shall be
determined in accordance with the terms of such plans and programs.
14. Termination upon Disability. In the event of the Executive's
---------------------------
Disability (as hereinafter defined), the Executive's employment under this
Agreement may be terminated at the Company's election, by determination of the
Board, and upon such termination: (i) the Executive shall be entitled to receive
any accrued but unpaid compensation and benefits through the date of
termination, including, but not limited to, pro rated cash bonus compensation;
(ii) the Executive (or his estate or other legal representatives) shall be
entitled to the benefits and proceeds under the disability insurance policies
provided for in Section 5, to the extent provided in the policies; (iii) all
unvested Initial Stock, Options, Future Grants, other stock options,
appreciation rights and awards, incentive awards, and benefits and compensation
plans shall immediately vest in Executive and become nonforfeitable, and any
restrictions thereon shall immediately lapse; and (iv) for a period of one (1)
year following the
6
<PAGE>
date of termination, the Executive and his spouse, dependents and other
survivors shall receive medical and related health benefit coverage under the
existing Company plans pursuant to COBRA, but at same level as their respective
participation prior to the Executive's termination, the cost of which shall be
paid by the Company. Except as otherwise provided herein, any continued rights
and benefits the Executive may have under employee benefit plans and programs of
the Company upon termination for disability, if any, shall be determined in
accordance with the terms of such plans and programs. For the purpose of this
Agreement, "Disability" shall mean the failure of the Executive to substantially
perform his usual and customary duties as described in Section 3, for a period
of 180 consecutive days by reason of the physical or mental disability of the
Executive, confirmed by the Executive's regular physician, provided that such
physician's determination is reasonable under the circumstances and is supported
by a detailed report setting forth the basis for the physician's determination.
15. Termination With Cause; Voluntary Termination.
---------------------------------------------
(a) Termination with Cause. The Company may, by the determination of
----------------------
the Board, terminate the Executive's employment under this Agreement for Cause.
For the purposes of this Agreement, "Cause" shall mean, and shall be limited to,
the occurrence of any one or more of the following events:
(i) The deliberate or willful failure by the Executive (other
than by reason of the Executive's physical or mental illness, incapacity or
disability, or with the express approval of the Chairman or the Board) to
substantially perform his duties as described in Section 3, and the
continuation of such failure for a period of 30 days after delivery by the
Company to the Executive of written notice specifying the scope and nature
of such failure and its intention to terminate the Executive for Cause;
provided, however, that the failure of the Company or the Executive to
achieve or meet performance or incentive goals shall, in and of itself, not
constitute a failure of the Executive to perform his duties.
(ii) The intentional misappropriation by the Executive of funds
or property of the Company, other than the occasional, customary and de
minimis use of Company funds or property for personal purposes (e.g., the
use of the Executive's assistant to make reservations for non-business
travel).
(iii) The conviction of the Executive of committing a felony
involving moral turpitude, fraud or dishonesty.
(iv) Dishonesty of the Executive to the Company concerning any
material matter.
(v) A material breach by the Executive of any of Executive's
material obligations under this Agreement, and the continuation of such
breach for a period of
7
<PAGE>
30 days after delivery by the Company to the Executive of written notice
specifying the scope and nature of such breach and its intention to
terminate the Executive for Cause.
(vi) The election by the Company to discontinue the automatic
extension of the Term as provided in Section 2.
The Company may only exercise its right to terminate the Executive for
Cause through formal action of the Board at a properly noticed meeting thereof,
for which the Executive has received not less than 30 days' prior written notice
and at which the Executive is permitted to present argument on his behalf. The
foregoing action must occur and be completed within 180 days following the
Chairman or the Board first becoming aware of the occurrence of the last event
providing a basis for or otherwise significantly contributing to a determination
of Cause. The Board may suspend the Executive during the pendency of such
notice period, without any such suspension constituting the basis for a
Constructive Termination, provided that the Company continues the Executive's
entitlement to compensation and benefits pursuant to Sections 4 and 5 during
such suspension period.
(b) Voluntary Termination. The Executive may, for any reason,
---------------------
voluntarily terminate his employment under this Agreement upon 30 days' prior
written notice to the Company. For the purposes of this Agreement, "Voluntary
Termination" shall mean the Executive's voluntary termination of his employment
hereunder (including the election by the Executive to discontinue the automatic
extension of the Term as provided in Section 2), other than pursuant to a
Constructive Termination (as hereinafter defined).
(c) Effect of Termination. In the event the Executive's employment
---------------------
under this Agreement is terminated by the Company for Cause or by the Executive
through his Voluntary Termination, upon such termination: (i) the Executive
shall be entitled to receive any accrued but unpaid cash compensation and
benefits through the date of termination, excluding, however, any pro rated
Incentive Compensation; and (ii) all vested Initial Stock and Options shall
continue to be exercisable for their exercise term, as if the Executive had not
been terminated. Except as otherwise provided herein, any continued rights and
benefits the Executive may have under employee benefit plans and programs of the
Company upon termination for Cause or Voluntary Termination, if any, shall be
determined in accordance with the terms of such plans and programs.
16. Termination Without Cause; Constructive Termination.
---------------------------------------------------
(a) Termination Without Cause. The Company may, by the determination
-------------------------
of the Board, terminate the Executive's employment under this Agreement without
Cause upon 30 days' prior written notice to the Executive. Any termination by
the Company of the Executive's employment under this Agreement which does not
constitute a termination for Cause, or result from the death or Disability of
the Executive, shall be deemed a termination without Cause.
8
<PAGE>
(b) Constructive Termination. The Executive may terminate his
------------------------
employment under this Agreement upon the occurrence of any of the following
events, and such termination shall be deemed a "Constructive Termination" for
the purposes of this Agreement:
(i) The Executive ceases to hold the office and title of
Office of the Chairman.
(ii) The Executive ceases to report directly and solely to the
Chairman.
(iii) The Executive ceases to have the responsibilities
contemplated hereunder, or his responsibilities are otherwise materially
and involuntarily altered, diminished or reduced, as compared to those
established in this Agreement.
(iv) The Executive's compensation or benefits are materially
and involuntarily reduced, as compared to those established in this
Agreement.
(v) The Executive's place of employment is moved to a location
not within reasonable commuting distance from the Executive's current
residence in Darien, Connecticut without the Executive's consent.
(vi) The material failure of the Company to perform any of its
obligations under this Agreement, without limitation to or by the foregoing
enumerated events.
Notwithstanding the foregoing, Constructive Termination shall not
include acts which are cured by the Company within 30 days from receipt by the
Company of written notice from the Executive (the "Preliminary Notice of
Constructive Termination") identifying in reasonable detail the act or acts
constituting Constructive Termination. The Preliminary Constructive Termination
Notice shall be given by the Executive within 120 days after learning of the
last act which the Executive alleges constitutes Constructive Termination
hereunder or otherwise significantly contributes thereto. The Executive may only
exercise his right to terminate his employment through a Constructive
Termination within 30 days after the expiration of the Company's period to cure
such acts as set forth above. The Executive may suspend performance of his
obligations hereunder during such cure period, without any such suspension
constituting the basis for a Termination with Cause or being deemed a Voluntary
Termination, and during such period the Company shall continue the Executive's
entitlement to compensation and benefits pursuant to Sections 4 and 5.
(c) Effect of Termination. In the event the Executive's employment
---------------------
under this Agreement is terminated by the Company without Cause or by the
Executive following the occurrence of a Constructive Termination, upon such
termination: (i) the Executive shall be entitled to receive any accrued but
unpaid compensation and benefits through the date of
9
<PAGE>
termination; (ii) the Executive (or his estate or other legal representatives)
shall be entitled to the benefits and proceeds under the life insurance and
disability insurance policies provided for in Section 5 to the extend provided
in such policies; (iii) all unvested Initial Stock, Options, Future Grants,
other stock options, appreciation rights and awards, incentive awards, and
benefit and compensation plans shall immediately vest in Executive and become
nonforfeitable, and any restrictions thereon shall immediately lapse; (iv) for
one (1) year or the remainder of the Term, whichever is longer, the Executive
and his spouse, dependents and other survivors shall receive all benefits,
including, but not limited to, fringe benefits, life and disability insurance,
and medical and related health benefit coverage under the existing Company plans
pursuant to COBRA, but at the same level as their respective participation prior
to the Executive's termination, the cost of which shall be paid by the Company;
and (v) the Company shall pay to the Executive (or his estate or legal
representatives), within 30 days after the date of termination, a non-discounted
single lump sum amount, equal to (A) the Executive's Base Salary in effect as of
the date of termination plus the average annual Incentive Compensation and
Future Grants (or fair market value thereof for non-cash Incentive Compensation
and Future Grants) earned or paid to the Executive during the Term prior to the
date of termination, multiplied by (B) the greater of one (1) year or the
remaining length of the Term after the date of the termination. Except as
otherwise provided herein, any continued rights and benefits the Executive may
have under employee benefit plans and programs of the Company upon termination,
if any, shall be determined in accordance with the terms of such plans and
programs.
17. Change in Control. The Executive shall be entitled to the same
-----------------
privileges, rights and benefits as the Chairman in the event of a Change in
Control. For purposes of this Agreement, a "Change in Control" shall have the
definition of any equivalent term in the then applicable agreement between the
Chairman and the Company defining the Chairman's privileges, rights and benefits
with respect to a change in control of the Company.
18. No Offset; No Obligation to Mortgage. In the event of a termination
------------------------------------
of the Executive's employment, the Company shall not be entitled to offset any
amounts payable by the Executive to the Company against any amounts payable to
the Executive under this Agreement. The parties acknowledge and agree that the
Executive's actual damages in the event of a termination of his employment
hereunder would be difficult to quantify and determine, and that the amounts
payable to the Executive hereunder in such event are a reasonable estimate of
such damages. Furthermore, in the event of such termination, the Executive shall
be under no obligation to seek other employment or to otherwise mitigate his
damages, and no compensation, benefits or other amounts received by the
Executive in connection with his subsequent employment, if any, shall be offset
against or otherwise reduce the amounts payable to the Executive hereunder.
19. Certain Benefit Plans not Affected. Notwithstanding the provisions of
----------------------------------
this Agreement, the Executive's rights under any plan or arrangement of the
Company described in Section 280G(b)(6) of the Internal Revenue Code of 1986, as
amended, or any successor
10
<PAGE>
provision thereto, shall not be altered as a result of any acceleration or
vesting provision hereof.
20. Vacation. During the Term, the Executive shall be entitled each year
--------
to five (5) weeks' vacation, or such greater amount as other Senior Executives
of the Company are generally entitled, during which time his compensation shall
be paid in full.
21. Expense Reimbursement. The Company shall promptly pay, or reimburse
---------------------
the Executive for, at the Executive's election, all ordinary and reasonable
business expenses incurred by the Executive in connection with the performance
of his duties under this Agreement, provided that the Executive provides
reasonable documentation or verification of such expenses.
22. Other Activities. The Executive may engage in outside activities and
----------------
provide services to other parties, with or without compensation, provided that
such activities and services are disclosed to the Board and the Board does not
object in writing to such outside activities and services, and such outside
activities and services do not materially interfere with the Executive's
performance of his duties to the Company as provided in this Agreement.
23. Confidential Information and Cooperation.
----------------------------------------
(a) Confidential Information. As used in this Agreement,
------------------------
"Confidential Information" means information belonging to the Company which is
of value to the Company in the course of conducting its business and the
disclosure of which could reasonably result in a material competitive or other
disadvantage to the Company, and which has been obtained by the Executive solely
as a result of his employment with the Company. Confidential Information
includes, without limitation, financial information, reports, and forecasts;
inventions, improvements and other intellectual property; trade secrets; know-
how; designs, processes or formulae; software; market or sales information or
plans; customer lists; and business plans, prospects and opportunities (such as
possible acquisitions or dispositions of businesses or facilities) which have
been discussed or considered by the management of the Company. Confidential
Information includes information developed by the Executive in the course of the
Executive's employment by the Employer, as well as other information to which
the Executive may have access by reason of and during the Executive's
employment. Confidential Information also incudes the confidential information
of others with which the Company has a business relationship. Notwithstanding
the foregoing, Confidential Information does not include information in the
public domain, unless due to breach of the Executive's duties under Section
23(b).
(b) Confidentiality. The Executive understands and agrees that the
---------------
Executive's employment creates a relationship of confidence and trust between
the Executive and the Company with respect to all Confidential Information. At
all times, both during the Executive's employment with the Company and after its
termination, the Executive will keep in confidence and trust all such
Confidential Information, and will not use or disclose any such
11
<PAGE>
Confidential Information without the written consent of the Company, except as
may be necessary in the ordinary course of performing the Executive's duties to
the Company or as required by law.
(c) Documents, Records, Etc. All documents, records, data, apparatus,
-----------------------
equipment and other physical property, whether or not pertaining to Confidential
Information, which are furnished to the Executive by the Company or are produced
by the Executive in connection with the Executive's employment will be and
remain the sole property of the Company. The Executive will return to the
Company all such materials and property as and when requested by the Company. In
any event, the Executive will return all such materials and property immediately
upon termination of the Executive's employment for any reason.
(d) Nonsolicitation. During the Term, the Executive will refrain from
---------------
directly or indirectly employing, attempting to employ, recruiting or otherwise
soliciting, inducing or influencing any person to leave employment with the
Company (other than terminations of employment of subordinate employees
undertaken in the course of the Executive's employment with the Company). The
Executive understands that the restrictions set forth in this Section 23(d) are
intended to protect the Company's interest in its Confidential Information and
established employee, relationships and goodwill, and agrees that such
restrictions are reasonable and appropriate for this purpose.
(e) Third-Party Agreements and Rights. The Executive represents to
---------------------------------
the Company that the Executive's execution of this Agreement, the Executive's
employment with the Company and the performance of the Executive's proposed
duties for the Company will not violate any obligations the Executive may have
to any employer or other party, and the Executive will not bring to the premises
of the Company any copies or other tangible embodiments of non-public
information belonging to or obtained from any such previous employment or other
party.
(f) Litigation and Regulatory Cooperation. During and after the
-------------------------------------
Executive's employment, the Executive shall reasonably cooperate with the
Company in the defense or prosecution of any claims or actions now in existence
or which may be brought in the future against or on behalf of the Company which
relate to events or occurrences that transpired while the Executive was employed
by the Company; provided, however, that such cooperation shall not materially
and adversely affect the Executive or expose the Executive to an increased
probability of civil or criminal litigation. The Executive's cooperation in
connection with such claims or actions shall include, but not be limited to,
being available to meet with counsel to prepare for discovery or trial and to
act as a witness on behalf of the Company at mutually convenient times. During
and after the Executive's employment, the Executive also shall cooperate fully
with the Company in connection with any investigation or review of any federal,
state or local regulatory authority as any such investigation or review relates
to events or occurrences that transpired while the Executive was employed by the
Company. The Company shall also provide Executive with compensation on an
hourly basis calculated at his final base compensation rate for requested
litigation and regulatory cooperation that occurs
12
<PAGE>
after his termination of employment, and reimburse Executive for all costs and
expenses incurred in connection with his performance under this Section 23(f),
including, but not limited to, reasonable attorneys' fees and costs.
(g) Injunction. The Executive agrees that it would be difficult to
----------
measure any damages caused to the Company which might result from any breach by
the Executive of the promises set forth in Sections 23(b), (c) and (d), and that
in any event money damages would be an inadequate remedy for any such breach.
Accordingly, subject to Section 24 of this Agreement, the Executive agrees that
if the Executive breaches, or proposes to breach, any portion of Section 23(b),
(c) or (d), the Company shall be entitled, in addition to all other remedies
that it may have, to an injunction or other appropriate equitable relief to
restrain any such breach without showing or proving any actual damage to the
Company.
24. Arbitration of Disputes. Any controversy or claim arising out of or
-----------------------
relating to this Agreement or the breach thereof or otherwise arising out of the
Executive's employment or the termination of that employment (including, without
limitation, any claims of unlawful employment discrimination whether based on
age or otherwise) shall, to the fullest extent permitted by law, be settled by
arbitration in any forum and form agreed upon by the parties or, in the absence
of such an agreement, under the auspices of the American Arbitration Association
("AAA") in accordance with the Employment Dispute Resolution Rules of the AAA,
including, but not limited to, the rules and procedures applicable to the
selection of arbitrators. In the event that any person or entity other than the
Executive or the Company may be a party with regard to any such controversy or
claim, such controversy or claim shall be submitted to arbitration subject to
such other person or entity's agreement. Judgment upon the award rendered by
the arbitrator may be entered in any court having jurisdiction thereof. This
Section 24 shall be specifically enforceable. Notwithstanding the foregoing,
this Section 24 shall not preclude either party from pursuing a court action for
the sole purpose of obtaining a temporary restraining order or a preliminary
injunction in circumstances in which such relief is appropriate; provided that
any other relief shall be pursued through an arbitration proceeding pursuant to
this Section 24.
25. Executive's Legal Fees. Upon the execution of this Agreement, the
----------------------
Company shall pay to or on behalf of the Executive, the reasonable attorneys'
fees and costs incurred by Executive in the negotiation and drafting of this
Agreement, not to exceed $15,000.
26. Confidentiality; Public Disclosure. The terms and provisions of this
----------------------------------
Agreement shall be deemed confidential information, and prior to the
commencement of the Term, the Company will keep in confidence and trust the
terms and provisions of this Agreement and will not use or disclose any such
information without the written consent of the Executive, except as may be
necessary in the ordinary course of the Company's business, in connection with
its performance of its obligations hereunder, or as required by law. In addition
to the foregoing, the Company shall not make any public announcements or
disclosures, or issue and press releases relating to the Executive's employment
by the Company, without the prior written
13
<PAGE>
approval of the Executive thereof, including, but not limited to, the content,
timing and scope of such announcements, disclosures or releases.
27. Authorization. The Company represents and warrants to the Executive
-------------
that the person executing this Agreement on behalf of the Company has all
necessary power, right and authority to so execute this Agreement, and that all
requisite corporate action has been taken to authorize the execution of this
Agreement and the performance of all of the Company's obligations hereunder,
including, but not limited to, the granting of the Options and the issuance of
the Initial Stock, and none of the foregoing acts or obligations is in
contravention of the organizational documents or bylaws of the Company.
28. Notices. Any notice or request to be given hereunder to either party
-------
hereto shall be deemed effective only if in writing and either (1) delivered
personally to the Executive (in the case of a notice to the Executive) or to the
Corporate Secretary of the Company, or entities, or (2) sent by certified or
registered mail, postage prepaid, to the addresses set forth on the signature
page hereof or to such other address as either party may hereafter specify to
the other by notice similarly served, and in the case of any notice or request
being given to the Company, with a copy thereof being delivered in the manner
set forth above to Gilbert G. Menna, P.C., Goodwin, Procter & Hoar, Exchange
Place, Boston, Massachusetts 02109, and in the case of any notice or request
being given to the Executive, with a copy thereof being delivered in the manner
set forth above to Bruce B. Johnson, Esq., Otten, Johnson, Robinson, Neff &
Ragonetti, P.C., 950 17th Street, Suite 1600, Denver, Colorado 80202.
29. Assignment. This Agreement and the rights and obligations of the
----------
parties hereto, shall bind and inure to the benefit of each of the parties
thereto, and shall also bind and inure to the benefit of the Executive's heirs
and legal representatives and any successor or successors of the Company by
merger or consolidation and any assignee of all or substantially all of the
Company's business and properties; except as to any such successor or assignee
of the Company, neither this Agreement nor any duties, rights or benefits
hereunder may be assigned by the Company or by the Executive without the express
written consent of the other party hereto.
30. Governing Law and Interpretation. This Agreement shall be construed
--------------------------------
and enforced in accordance with the internal laws of the State of Delaware. The
Executive and the Company represent that this Agreement was negotiated at arm's
length with adequate opportunity by each to obtain advice and assistance of
counsel. The contra proferentum rule of construction shall not apply to the
benefit of either party in the event of a disagreement over interpretation or
application of the Agreement.
31. Litigation Costs. In the event that the Executive shall successfully
----------------
prosecute or defend a proceeding relating to the enforcement or interpretation
of any provision of this Agreement, in addition to any other relief awarded the
Executive in such action, the parties agree that the decision rendered shall
award the Executive all of his reasonable attorneys' fees, disbursements and
other costs incurred by the Executive in prosecuting such case.
14
<PAGE>
32. Modification. No modification or waiver of any provision hereof shall
------------
be made unless it be in writing and signed by both of the parties hereto.
33. Scope of Agreement. This Agreement constitutes the whole of the
------------------
agreement between the parties on the subject matter, superseding all prior oral
and written conversations, negotiations, understandings, and agreements in
effect as of the date of this Agreement.
34. Caption and Headings. The paragraph and section captions and heading
--------------------
used herein are for convenience only, and neither constitute a part of, nor
shall be used in the interpretation or construction of, this Agreement.
35. Severability. To the extent that any provision of this Agreement may
------------
be deemed or determined to be invalid or unenforceable for any reasons, such
invalidity or unenforceability shall not impair or affect any other provision,
and this Agreement shall be interpreted as to most fully give effect to its
terms and still be valid and enforceable.
15
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first above written above.
COMPANY:
PATRIOT AMERICAN HOSPITALITY, INC.,
a Virginia corporation
By: /s/ Paul A. Nussbaum
-----------------------------------
Name: Paul A. Nussbaum
Title: Chairman and Chief Executive
Officer
Address: 3030 LBJ Freeway
Suite 1500
Dallas, Texas 75234
EXECUTIVE:
/s/ William W. Evans, III
--------------------------------------
William W. Evans, III
Address:
24 Saddle Ridge Road
Darien, Connecticut 06820
16
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SUPPLEMENTAL EMPLOYMENT AGREEMENT
---------------------------------
This Supplemental Employment Agreement ("Supplemental Agreement") is made
as of April 14, 1997 between Patriot American Hospitality, Inc., a Virginia
corporation ("Patriot") and William W. Evans, III ("Executive").
WHEREAS, Patriot and Executive are parties to an Employment Agreement
("Employment Agreement") dated as of February 14, 1997;
WHEREAS, Section 17 of the Employment Agreement provides that Executive
shall be entitled to the same privileges, rights and benefits as the Chairman
and Chief Executive Officer ("Chairman") in the event of a Change in Control of
Patriot;
WHEREAS, Patriot and its Chairman have entered into an Employment Agreement
of even date herewith which provides its Chairman with certain benefits upon a
Change in Control of Patriot;
WHEREAS, Patriot desires to provide Executive with the same Change in
Control benefits made available to its Chairman by entering into this
Supplemental Agreement with Executive.
NOW, THEREFORE, in consideration of the mutual covenants and agreements
herein contained and other good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the parties agree as follows:
1. PARACHUTE PAYMENT. The provisions of this Paragraph 1 set forth certain
terms of an agreement reached between Executive and the Company regarding
Executive's rights and obligations upon the occurrence of a Change in Control of
the Company. These provisions are intended to assure and encourage in advance
Executive's continued attention and dedication to his assigned duties and his
objectivity during the pendency and after the occurrence of any such event.
These provisions shall apply in lieu of, and expressly supersede, the provisions
of Section 16 of the Employment Agreement regarding severance pay upon a
termination of employment, if such termination of employment occurs within
eighteen (18) months after the occurrence of the first event constituting a
Change in Control. These provisions shall terminate and be of no further force
or effect beginning eighteen (18) months after the occurrence of a Change in
Control.
(A) ESCROW. Within fifteen (15) days after the occurrence of the first
event constituting a Change in Control, the Company shall place funds in an
amount equal to the estimated Parachute Amount in escrow, pursuant to
arrangements that are mutually acceptable to the Company and Executive providing
for the payment of the Parachute Amount in the event Executive becomes entitled
thereto pursuant to Subparagraph 1(b)(i) (the "Escrow Arrangement"). The Escrow
Arrangement shall be maintained until the earlier of (A) eighteen (18) months
after the occurrence of the first event constituting a Change in Control or (B)
the
<PAGE>
payment to Executive of the Parachute Amount pursuant to the provisions of
Subparagraph 1(b)(i).
(B) CHANGE IN CONTROL. If within eighteen (18) months after the occurrence
of the first event constituting a Change in Control, Executive's employment
terminates for any reason other than (A) death, (B) his Disability (as defined
in the Employment Agreement), or (C) his Voluntary Termination (as defined in
the Employment Agreement) ("Termination"), then:
(i) the Company shall pay Executive in a lump sum an amount equal
to the applicable Parachute Amount on the tenth (10th) day following
Executive's Termination; and
(ii) the Initial Stock and all stock options and other stock-based
awards granted to Executive by the Company shall immediately vest,
accelerate and become exercisable and non-forfeitable, and any restrictions
thereon shall lapse, as of the date of Change in Control, and Executive
shall be entitled to any other rights and benefits with respect to stock-
related awards, to the extent and upon the terms provided in the employee
stock option or incentive plan or any agreement or other instrument
attendant thereto pursuant to which such options or awards were granted.
(C) GROSS UP PAYMENT.
(i) Excess Parachute Payment. If Executive incurs the tax (the
"Excise Tax") imposed by Section 4999 of the Internal Revenue Code of 1986
(the "Code") on "excess parachute payments" within the meaning of Section
280G(b)(1) of the Code, the Company will pay to Executive an amount (the
"Gross Up Payment") such that the net amount retained by Executive, after
deduction of any Excise Tax on the excess parachute payment and any
federal, state and local income tax (together with penalties and interest)
and Excise Tax upon the payment provided for by this Subparagraph 1(c)(i),
will be equal to the Parachute Amount.
(ii) Applicable Rates. For purposes of determining the amount of the
Gross Up Payment, Executive will be deemed to pay federal income taxes at
the highest marginal rate of federal income taxation in the calendar year
in which the Gross Up Payment is to be made and state and local income
taxes at the highest marginal rates of taxation in the state and locality
of Executive's residence on the date of Executive's Termination, net of the
maximum reduction in federal income taxes that could be obtained from
deduction of such state and local taxes.
(iii) Determination of Gross Up Payment Amount. The determination of
whether the Excise Tax is payable and the amount thereof will be based upon
the opinion of tax counsel selected by Executive and approved by the
Company, which approval will not be unreasonably withheld. If the position
contained in such opinion regarding the applicability of Excise Tax to all
or any portion of the payments
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hereunder is challenged or contested by the Internal Revenue Service or any
state or local taxing authority, then the Company may either (i) pay to the
Executive the Gross Up Payment required based on the position taken by the
Internal Revenue Service, or (ii) contest the position taken by the
Internal Revenue Service, at the Company's sole cost and expense. In the
event the Company elects to contest the position of the Internal Revenue
Service, the Company shall indemnify the Executive against all costs,
expenses and liabilities incurred by the Executive in connection therewith,
including, without limitation, penalties and interest assessed by the
Internal Revenue Service, and in the event that the Company does not
prevail in a final determination thereof, the Company shall pay to the
Executive the Gross Up Payment required based on the result of such
contest.
(iv) Time For Payment. The Company will pay the estimated amount of
the Gross Up Payment in cash to Executive concurrent with Employee's
Termination. Executive and the Company agree to reasonably cooperate in the
determination of the actual amount of the Gross Up Payment. Further,
Executive and the Company agree to make such adjustments to the estimated
amount of the Gross Up Payment as may be necessary to equal the actual
amount of the Gross Up Payment, which in the case of Executive will refer
to refunds of prior overpayments and in the case of the Company will refer
to makeup of prior underpayments.
(D) DEFINITIONS. For purposes of this Paragraph 1, the following terms
shall have the following meanings:
"CHANGE IN CONTROL" shall mean an event which shall be deemed to have
occurred if (i) any "person" or "group" (as such terms are used in Sections
13(d) and 14(d) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), other than a trustee or other fiduciary holding securities
under an employee benefit plan of the Company, is or becomes the
"beneficial owner" (as defined in Rule 13d-3 promulgated under the Exchange
Act), directly or indirectly, of securities of the Company representing 25%
or more of the combined voting power of the Company's then outstanding
securities; or (ii) individuals who at the Commencement Date constitute the
Board and any new director (other than a director designated by a person
who has entered into an agreement with the Company to effect a transaction
described in clauses (i) or (iii) of this paragraph) whose election by the
Board or nomination for election by the Company's stockholders was approved
by a vote of at least eighty percent (80%) of the directors then still in
office who either were directors at the Commencement Date or whose election
or nomination for election was previously so approved, cease for any reason
to constitute a majority of the Board; or (iii) the stockholders of the
Company approve a merger or consolidation of the Company with or into any
other corporation, other than a merger or consolidation which would result
in the voting securities of the Company outstanding immediately prior
thereto continuing to represent (either by remaining outstanding or by
being converted into voting securities of the surviving entity) at least
sixty percent (60%) of the combined
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<PAGE>
voting power of the voting securities of the Company or such surviving
entity outstanding immediately after such merger or consolidation; or (iv)
the stockholders of the Company approve a plan of complete liquidation of
the Company or an agreement for the sale or disposition by the Company of
all or substantially all the Company's assets. Notwithstanding the
foregoing, neither the merger of the Company into California Jockey Club
nor the merger of Wyndham International Corporation into the Company shall
be deemed to be a Change in Control.
"COMPANY" shall mean not only Patriot American Hospitality, Inc., but
also its successors by merger or otherwise.
"PARACHUTE AMOUNT" shall mean an amount equal to such additional
amounts to which Executive shall be entitled in accordance with the
Company's then current severance policies, provided, that at a minimum
Executive shall be entitled to receive an amount in a lump sum equal to
three (3) times the sum of Executive's Average Base Salary and Average
Incentive Compensation. For purposes of this Supplemental Agreement,
"Average Base Salary" shall mean the average of the annual Base Salary
received by Executive pursuant to Section 4(a) of the Employment Agreement
for each of the three (3) immediately preceding fiscal years or such fewer
number of complete fiscal years as Executive may have been employed by the
Company. For purposes of this Supplemental Agreement, "Average Incentive
Compensation" shall mean the average of the annual cash bonuses received by
Executive pursuant to Section 4(b) of the Employment Agreement for the
three (3) immediately preceding fiscal years or such fewer number of
complete fiscal years as Executive may have been employed by the Company.
2. NOTICE. For purposes of this Agreement, notices and all other
communications provided for in the Agreement shall be in writing and shall be
deemed to have been duly given when delivered or mailed by United States
certified mail, return receipt requested, postage prepaid, addressed as follows:
if to the Executive:
At his home address as shown
in the Company's personnel records;
if to the Company:
Patriot American Hospitality, Inc.
3030 LBJ Freeway, Suite 1500
Dallas, TX 75234
4
<PAGE>
or to such other address as either party may have furnished to the other in
writing in accordance herewith, except that notices of change of address shall
be effective only upon receipt.
3. MISCELLANEOUS. No provisions of this Agreement may be modified, waived, or
discharged unless such waiver, modification, or discharge is agreed to in
writing and signed by Executive and such officer of the Company as may be
specifically designated by the Board. No waiver by either party hereto of, or
compliance with, any condition or provision of this Agreement to be performed by
such other party shall be deemed a waiver of similar or dissimilar provisions or
conditions at the same or at any prior or subsequent time. No agreements or
representations, oral or otherwise, express or implied, unless specifically
referred to herein, with respect to the subject matter hereof have been made by
either party which are not set forth expressly in this Agreement. The validity,
interpretation, construction, and performance of this Agreement shall be
governed by the laws of the State of Delaware (without regard to principles of
conflicts of laws).
4. VALIDITY. The invalidity or unenforceability of any provision or
provisions of this Agreement shall not affect the validity or enforceability of
any other provision of this Agreement, which shall remain in full force and
effect. The invalid portion of this Agreement, if any, shall be modified by any
court having jurisdiction to the extent necessary to render such portion
enforceable.
5. EFFECT OF SUPPLEMENT. Except as expressly modified by this Supplemental
Agreement, the terms and provisions of the Employment Agreement shall remain in
full force and effect.
6. COUNTERPARTS. This Agreement may be executed in several counterparts, each
of which shall be deemed to be an original but all of which together will
constitute one and the same instrument.
IN WITNESS WHEREOF, the parties have executed this Supplemental Agreement
effective on the date and year first above written.
PATRIOT AMERICAN HOSPITALITY, INC.
By: /s/ Paul A. Nussbaum
------------------------------------
Paul A. Nussbaum
Chairman and Chief Executive Officer
/s/ William W. Evans, III
------------------------------------
William W. Evans, III
5
<PAGE>
EXHIBIT 10.26
EXECUTIVE EMPLOYMENT AGREEMENT
This EXECUTIVE EMPLOYMENT AGREEMENT ("Agreement") is made as of this
_________ day of June, 1997, between Patriot American Hospitality, Inc., a
Virginia corporation (the "Company"), and Paul Novak ("Executive").
WHEREAS, Patriot is desirous of engaging Executive as Executive Vice
President - Acquisitions and Development; and
WHEREAS, Executive is desirous of committing to serve the Company on the
terms herein provided.
NOW, THEREFORE, in consideration of the mutual covenants and agreements
herein contained and other good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the parties agree as follows:
1. EMPLOYMENT. The initial term of this Agreement shall extend from the date
hereof (the "Commencement Date") until the third anniversary of the Commencement
Date. The term of this Agreement shall be subject to termination as provided in
Paragraph 7 and may be referred to herein as the "Period of Employment."
2. POSITION AND DUTIES. During the Period of Employment, Executive shall serve
as Executive Vice President - Acquisitions and Development of the Company,
reporting to the Chairman of the Board of the Company (the "Chairman") on all
matters, shall have supervision and control over and responsibility for the day-
to-day business and affairs of those functions and operations of the Company
described on Schedule I attached hereto and made a part hereof by this reference
and shall have such other powers and duties as may from time to time be
prescribed by the Chairman, provided that such duties are consistent with
Executive's position or other positions that he may hold from time to time.
Executive shall devote his full working time and efforts to the business and
affairs of the Company. Notwithstanding the foregoing, Executive may serve on
other boards of directors or engage in religious, charitable or other community
activities as long as such services and activities are disclosed to the Chairman
and do not materially interfere with Executive's performance of his duties to
the Company as provided in this Agreement.
3. COMPENSATION AND RELATED MATTERS.
(A) BASE SALARY. Initially, Executive shall receive an annual base salary
("Base Salary") equal to the annual rate of Two Hundred Fifty Thousand Dollars
and xx/100 Cents ($250,000.00). Should the Company complete a Carnival
transaction or another transaction of a similar size prior to January 1, 1998,
Executive's Base Salary shall be increased to an annual rate of Two Hundred
Seventy-Five Thousand Dollars and xx/100 Cents ($275,000.00). Thereafter,
Executive's Base Salary shall be redetermined at least thirty (30) days before
each annual compensation determination date established by the Company during
the Period of Employment in an amount to be fixed by the Board. The Base
Salary, as redetermined, may
<PAGE>
be referred to herein as "Adjusted Base Salary." The Base Salary or Adjusted
Base Salary shall be payable in substantially equal bi-weekly installments and
shall in no way limit or reduce the obligations of the Company hereunder.
(B) INCENTIVE COMPENSATION. In addition to Base Salary or Adjusted Base
Salary, Executive shall be eligible to receive, on or about the annual
compensation determination date established by the Company of each year, during
the Period of Employment, cash incentive compensation in an amount determined by
the Compensation Committee of the Board based on individual performance,
performance by the Company and total return to shareholders. The incentive
compensation potential shall be up to eighty percent (80%) of Base Salary or
Adjusted Base Salary. For 1997, Executive shall be entitled to a minimum
incentive compensation of sixty percent (60%) of Base Salary, less any incentive
compensation that he receives from The Hampstead Group for services rendered in
1997 (other than distributions from investments). Executive will also
participate in such incentive compensation plans as the Board of Directors of
the Company ("Board") shall determine.
(C) EXPENSES. Executive shall be entitled to receive prompt reimbursement
for all reasonable expenses incurred by him (in accordance with the policies and
procedures then in effect and established by the Company for its senior
executive officers) in performing services hereunder during the Period of
Employment, provided that Executive properly accounts therefor in accordance
with Company policy.
(D) RESTRICTED STOCK GRANT. Upon execution of this Agreement, the Company
shall issue to Executive 60,000 shares of the common stock, no par value, of the
Company ("Common Stock"). Such shares shall vest and become nonforfeitable on a
ratable basis over five (5) years, on each anniversary of the date of grant.
(E) OPTION GRANT. Upon execution of this Agreement, the Company shall
issue to Executive a non-qualified stock option (the "Option") to acquire
100,000 shares of Common Stock. The Option shall vest and become exercisable
ratably over seven (7) years, on each anniversary of the date of grant. The
Option shall expire on the tenth anniversary of the date of grant. The exercise
price per share for the Option shall be the quoted closing price per share for
the Common Stock on the New York Stock Exchange on the date of execution of this
Agreement. If such date is not a business day, the price shall be determined as
of the immediately preceding business day.
(F) OTHER BENEFITS. During the Period of Employment, Executive shall be
entitled to continue to participate in or receive benefits under all of the
Company's Employee Benefit Plans in effect on the date hereof, or under plans or
arrangements that provide Executive with at least substantially equivalent
benefits to those provided under such Employee Benefit Plans. As used herein,
"Employee Benefit Plans" include, without limitation, each pension and
retirement plan; supplemental pension, retirement and deferred compensation
plan; savings and profit-sharing plan; stock ownership plan; stock purchase
plan; stock option plan; life insurance plan; medical insurance plan; disability
plan; and health and accident plan or
2
<PAGE>
arrangement established and maintained by the Company on the date hereof for
employees of the same status within the hierarchy of the Company. During the
Period of Employment, Executive shall be entitled to participate in or receive
benefits under any employee benefit plan or arrangement which may, in the
future, be made available by the Company to its executives and key management
employees, subject to and on a basis consistent with the terms, conditions and
overall administration of such plan or arrangement. Nothing paid to Executive
under the Employee Benefit Plans presently in effect or any employee benefit
plan or arrangement which may be made available in the future shall be deemed to
be in lieu of compensation payable to Executive under Subparagraphs 3(a) and
3(b). Any payments or benefits payable to Executive under a plan or arrangement
referred to in this Subparagraph 3(f) in respect of any calendar year during
which Executive is employed by the Company for less than the whole of such year
shall, unless otherwise provided in the applicable plan or arrangement, be
prorated in accordance with the number of days in such calendar year during
which he is so employed. Should any such payments or benefits accrue on a fiscal
(rather than calendar) year, then the proration in the preceding sentence shall
be on the basis of a fiscal year rather than calendar year.
(G) LIFE INSURANCE. The Company shall pay the premiums on, and maintain in
effect throughout the Period of Employment, a life insurance policy on the life
of Executive in an amount not less than the sum of the amount of Executive's
then current Base Salary or Adjusted Base Salary plus the mid-point of his bonus
range. Executive shall have the right to designate the beneficiary under such
policy.
(H) VACATIONS. Executive shall be entitled to the number of paid vacation
days in each calendar year determined by the Company from time to time for its
senior executive officers. Executive shall also be entitled to all paid
holidays given by the Company to its senior executive officers. Executive plans
to take vacation from August 2, 1997 through August 9, 1997 and from August 19,
1997 through August 28, 1997, and Executive will be paid for such vacation time.
(I) DISABILITY INSURANCE. The Company shall pay the premiums on, and
maintain in effect throughout the Period of Employment, long-term disability
insurance providing for payment of benefits at rates not less than 60% of
Executive's current Base Salary or Adjusted Base Salary.
4. UNAUTHORIZED DISCLOSURE.
(A) CONFIDENTIAL INFORMATION. Executive acknowledges that in the course of
his employment with the Company (and, if applicable, the predecessors of either
of them), he has been allowed to become, and will continue to be allowed to
become, acquainted with the Company's and Patriot American Hospitality Operating
Company's ("Affiliated Company's") business affairs, information, trade secrets,
and other matters which are of a proprietary or confidential-nature, including
but not limited to the Company's and Affiliated Company's and their respective
predecessors' operations, business opportunities, price and cost information,
3
<PAGE>
finance, customer information, business plans, various sales techniques,
manuals, letters, notebooks, procedures, reports, products, processes, services,
and other confidential information and knowledge (collectively the "Confidential
Information") concerning the Company's, Affiliated Company's and their
respective predecessors' business. The Company agrees to provide on an ongoing
basis such Confidential Information as the Company deems necessary or desirable
to aid Executive in the performance of his duties. Executive understands and
acknowledges that such Confidential Information is confidential, and he agrees
not to disclose such Confidential Information to anyone outside the Company or
the Affiliated Company except as he deems reasonably necessary or appropriate in
connection with performing his duties on behalf of the Company. Executive
further agrees that he will not during employment and/or at any time thereafter
use such Confidential Information in competing, directly or indirectly, with the
Company or the Affiliated Company. At such time as Executive shall cease to be
employed by the Company, he will make every effort to immediately turn over to
the Company all Confidential Information, including papers, documents, writings,
electronically stored information, other property, and all copies of them
provided to or created by him during the course of his employment with the
Company.
(B) HEIRS, SUCCESSORS, AND LEGAL REPRESENTATIVES. The foregoing provisions
of this Paragraph 4 shall be binding upon Executive's heirs, successors, and
legal representatives. The provisions of this Paragraph 4 shall survive the
termination of this Agreement for any reason.
5. COVENANT NOT TO COMPETE. The provisions of this Paragraph 5 shall apply
during Executive's employment with the Company and for a period of eighteen (18)
months or such longer period for which severance is payable under Paragraph 7
commencing when the employment relationship has ended for any reason other than
death; provided, however, that the prohibition set forth in the second sentence
of this Paragraph 5 shall not apply in the case of termination of employment
solely as a result of the expiration of the Period of Employment without
extension. In consideration for Executive's employment by the Company under the
terms provided in this Agreement and as a means to aid in the performance and
enforcement of the terms of the Unauthorized Disclosure provisions of Paragraph
4, Executive agrees that Executive will not, directly or indirectly, as an
owner, director, principal, agent, officer, employee, partner, consultant,
servant, or otherwise, carry on, operate, manage, control, or become involved in
any manner with any business, operation, corporation, partnership, association,
agency, or other person or entity which is in the business of owning, operating,
managing or granting franchise rights with respect to hotels, motels or other
lodging facilities in any area or territory in which the Company or Affiliated
Company conducts operations; provided, however, that the foregoing does not
prohibit Executive from owning up to one percent (1%) of the outstanding stock
of a publicly held corporation engaged in the hospitality business. Executive
also agrees that Executive will not, directly or indirectly, either for himself
or for any other business, operation, corporation, partnership, association,
agency, or other person or entity, call upon, compete for, solicit, divert, or
take away, or attempt to divert or take away any of the customers of the Company
or Affiliated Company in any of the areas or territories in which the Company or
Affiliated Company conducts operations. Further, Executive will not directly or
indirectly solicit or induce any present or future
4
<PAGE>
employee of the Company or Affiliated Company to accept employment with
Executive or with any business, operation, corporation, partnership,
association, agency, or other person or entity with which Executive may be
associated, and Executive will not employ or cause any business, operation,
corporation, partnership, association, agency, or other person or entity with
which Executive may be associated to employ any present or future employee of
the Company or Affiliated Company without providing the Company or Affiliated
Company with ten (10) days' prior written notice of such proposed employment.
Should Executive violate the provisions of this Paragraph, then in addition to
all other rights and remedies available to the Company or Affiliated Company at
law or in equity, the duration of this covenant shall automatically be extended
for the period of time from which Executive began such violation until he
permanently ceases such violation. Notwithstanding the foregoing, Executive
shall be permitted to continue to engage in activities that would otherwise be
prohibited by this Paragraph 5 with respect to the interests he currently owns
and which are described in Schedule II attached hereto and made a part hereof by
this reference and to engage in such activities with respect to any other hotel,
motel or lodging facility that would be immaterial to the operations of the
Company in the area or territory in question. Immateriality, for purposes of the
foregoing sentence, shall be determined in the sole discretion of the Board of
Directors in good faith. Notwithstanding anything to the contrary contained
herein, Executive's acceptance of a position with The Hampstead Group or its
subsidiaries or affiliates ("The Hampstead Group") after his termination of
employment shall not be deemed to be a violation of the foregoing non-compete
provisions.
6. TERMINATION. Executive's employment hereunder may be terminated without any
breach of this Agreement under the following circumstances:
(A) DEATH. Executive's employment hereunder shall terminate upon his
death.
(B) DISABILITY. If, as a result of Executive's incapacity due to physical
or mental illness, Executive shall have been absent from his duties hereunder on
a full-time basis for one hundred eighty (180) calendar days in the aggregate in
any twelve (12) month period, the Company may terminate Executive's employment
hereunder.
(C) TERMINATION BY COMPANY FOR CAUSE. At any time during the Period of
Employment, the Company may terminate Executive's employment hereunder for Cause
if such termination is approved by not less than two-thirds (2/3) of the entire
membership of the Board at a meeting of the Board called and held for such
purpose. For purposes of this Agreement "Cause" shall mean: (A) conduct by
Executive constituting a material act of willful misconduct in connection with
the performance of his duties, including, without limitation, misappropriation
of funds or property of the Company or any of its affiliates other than the
occasional, customary and de minimis use of Company property for personal
purposes; (B) criminal or civil conviction or conduct by Executive that would
reasonably be expected to result in material injury to the reputation of the
Company if he were retained in his position with the Company, including, without
limitation, conviction of a felony involving moral turpitude; or (C) continued,
deliberate non-performance by Executive of his duties
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<PAGE>
hereunder (other than by reason of Executive's physical or mental illness,
incapacity or disability) and such non-performance has continued for more than
thirty (30) days following written notice of such non-performance from the
Board.
(D) TERMINATION BY COMPANY FOR PERFORMANCE REASONS. At any time during the
Period of Employment, the Company may terminate Executive's employment if (i)
such termination is approved by not less than two-thirds (2/3) of the entire
membership of the Board at a meeting of the Board called and held for such
purpose; and (ii) Executive has materially failed to perform his duties
hereunder or has violated, in material respects, the policies and procedures of
the Company and such failure or violation has continued for more than ninety
(90) days following written notice of such violation from the Board.
(E) TERMINATION WITHOUT CAUSE. At any time during the Period of
Employment, the Company may terminate Executive's employment hereunder without
Cause if such termination is approved by not less than two-thirds (2/3) of the
entire membership of the Board at a meeting of the Board called and held for
such purpose. Any termination by the Company of Executive's employment under
this Agreement which does not constitute a termination for Cause under
Subparagraph 6(c), termination for performance under Subparagraph 6(d), or
result from the death or disability of the Executive under Subparagraph 6(a) or
(b), shall be deemed a termination without Cause. The termination of Executive's
employment as a result of the expiration of the Period of Employment without
extension shall also be deemed a termination without Cause.
(F) TERMINATION BY EXECUTIVE. At any time during the Period of Employment,
Executive may terminate his employment hereunder for any reason, including but
not limited to Good Reason. For purposes of this Agreement, "Good Reason" shall
mean that Executive has complied with the "Good Reason Process" (hereinafter
defined) following the occurrence of any of the following events: (A) a
substantial adverse change, not consented to by Executive, in the nature or
scope of Executive's responsibilities, authorities, powers, functions or duties
from the responsibilities, authorities, powers, functions or duties exercised by
Executive immediately prior to the Commencement Date; (B) any removal, during
the Period of Employment, of Executive from or, any failure by management to
nominate, or, if nominated, any failure by the Board to re-elect, Executive to
any of the positions indicated in Paragraph 2, except in connection with a
termination of Executive's employment; (C) an involuntary reduction in
Executive's Base Salary or Adjusted Base Salary or involuntary reduction in cash
incentive compensation plan (but not reduction in incentive compensation
appropriate for level of performance) except for across-the-board salary
reductions similarly affecting all or substantially all management employees;
(D) a breach by the Company of any of its other material obligations under this
Agreement and the failure of the Company to cure such breach within thirty (30)
days after written notice thereof by Executive; or (E) the relocation of the
Company's offices at which Executive is principally employed or the relocation
of the offices of Executive's primary workgroup to a location more than thirty
(30) miles from such offices, or the requirement by the Company for Executive to
be based anywhere other than the Company's offices at such location on an
extended basis, except for
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required travel on the Company's business to an extent substantially consistent
with Executive's business travel obligations. "Good Reason Process" shall mean
that (i) the Executive reasonably determines in good faith that a "Good Reason"
event has occurred; (ii) Executive notifies the Company in writing of the
occurrence of the Good Reason event; (iii) Executive cooperates in good faith
with the Company's efforts, for a period not less than ninety (90) days
following such notice, to modify Executive's employment situation in a manner
acceptable to Executive and Company; and (iv) notwithstanding such efforts, one
or more of the Good Reason events continues to exist and has not been modified
in a manner acceptable to Executive.
(G) NOTICE OF TERMINATION. Except for termination as specified in
Subparagraph 6(a), any termination of Executive's employment by the Company or
any such termination by Executive shall be communicated by written Notice of
Termination to the other party hereto. For purposes of this Agreement, a "Notice
of Termination" shall mean a notice which shall indicate the specific
termination provision in this Agreement relied upon.
(H) DATE OF TERMINATION. "Date of Termination" shall mean: (A) if
Executive's employment is terminated by his death, the date of his death; (B) if
Executive's employment is terminated on account of disability under Subparagraph
6(b), the date on which Notice of Termination is given; (C) if Executive's
employment is terminated by the Company under Subparagraph 6(c), (d) or (e),
thirty (30) days after the date on which a Notice of Termination is given; and
(D) if Executive's employment is terminated by Executive under Subparagraph
6(f), thirty (30) days after the date on which a Notice of Termination is given.
7. COMPENSATION UPON TERMINATION OR DURING DISABILITY.
(a) If Executive's employment terminates by reason of his death, the
Company shall, within ninety (90) days of death, pay in a lump sum amount to
such person as Executive shall designate in a notice filed with the Company or,
if no such person is designated, to Executive's estate, Executive's accrued and
unpaid Base Salary or, if applicable, his Adjusted Base Salary, to the date of
his death, plus his accrued and unpaid incentive compensation under Subparagraph
3(b). All unvested stock options and stock-based grants shall immediately vest
in Executive's estate or other legal representatives and become exercisable, and
Executive's estate or other legal representatives shall have one (1) year from
the Date of Termination, or remaining option term, if earlier, to exercise the
stock options. For a period of one (1) year following the Date of Termination,
the Company shall pay such health insurance premiums as may be necessary to
allow Executive's spouse and dependents to receive health insurance coverage
substantially similar to coverage they received prior to the Date of
Termination. In addition to the foregoing, any payments to which Executive's
spouse, beneficiaries, or estate may be entitled under any employee benefit plan
shall also be paid in accordance with the terms of such plan or arrangement.
Such payments, in the aggregate, shall fully discharge the Company's obligations
hereunder.
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(b) During any period that Executive fails to perform his duties hereunder
as a result of incapacity due to physical or mental illness, Executive shall
continue to receive his accrued and unpaid Base Salary or, if applicable, his
Adjusted Base Salary and accrued and unpaid incentive compensation payments
under Subparagraph 3(b), until Executive's employment is terminated due to
disability in accordance with Subparagraph 6(b) or until Executive terminates
his employment in accordance with Subparagraph 6(f), whichever first occurs.
All unvested stock options and stock-based grants shall immediately vest and
become exercisable and Executive shall have one (1) year from the Date of
Termination, or remaining option term, if earlier, to exercise the stock
options. For a period of one (1) year following the Date of Termination, the
Company shall pay such health insurance premiums as may be necessary to allow
Executive, Executive's spouse and dependents to receive health insurance
coverage substantially similar to coverage they received prior to the Date of
Termination. Upon termination due to death prior to the termination first to
occur as specified in the preceding sentence, Subparagraph 7(a) shall apply.
(c) If Executive's employment is terminated by Executive other than for
Good Reason as provided in Subparagraph 6(f), then the Company shall, through
the Date of Termination, pay Executive his accrued and unpaid Base Salary or, if
applicable, his Adjusted Base Salary at the rate in effect at the time Notice of
Termination is given. Thereafter, the Company shall have no further obligations
to Executive except as otherwise expressly provided under this Agreement,
provided any such termination shall not adversely affect or alter Executive's
rights under any employee benefit plan of the Company in which Executive, at the
Date of Termination, has a vested interest, unless otherwise provided in such
employee benefit plan or any agreement or other instrument attendant thereto.
(d) If Executive terminates his employment for Good Reason as provided in
Subparagraph 6(f) or if Executive's employment is terminated by the Company
without Cause as provides in subparagraph 6(e), then the Company shall, through
the Date of Termination, pay Executive his accrued and unpaid Base Salary or, if
applicable, his Adjusted Base Salary at the rate in effect at the time Notice of
Termination is given and his accrued and unpaid incentive compensation under
Subparagraph 3(b). In addition, subject to signing by Executive of a general
release of claims in a form and manner satisfactory to the Company,
(i) the Company shall pay Executive, on the Date of Termination,
such additional amounts to which Executive may be entitled in accordance
with the Company's then current severance policies (the "Severance
Amount"), provided that, at a minimum, Executive shall be entitled to
receive an amount in a lump sum (the "Minimum Severance Amount") equal to
the sum of Executive's Average Base Salary and Average Incentive
Compensation payable for twenty-four (24) months or the sum of Executive's
Average Base Salary and Average Incentive Compensation payable for the
remaining length of the original three-year term after the Date of
Termination, whichever is greater. For purposes of this Agreement, "Average
Base Salary" shall mean the average of the annual Base Salary or, if
applicable, Adjusted Base Salary received by Executive for each of the
three (3) immediately preceding fiscal years or
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such fewer number of complete fiscal years as Executive may have been
employed by the Company. For purposes of this Agreement, "Average Incentive
Compensation" shall mean the average of the annual incentive compensation
under Subparagraph 3(b) received by Executive for the three (3) immediately
preceding fiscal years or such fewer number of complete fiscal years as
Executive may have been employed by the Company. Notwithstanding the
foregoing, in the event Executive terminates his employment for Good Reason
as provided in Subparagraph 6(f), he shall be entitled to the Severance
Amount or the Minimum Severance Amount only if he provides the Notice of
Termination provided for in Subparagraph 6(g) within thirty (30) days after
the occurrence of the event or events which constitute such Good Reason as
specified in clauses (A), (B), (C), (D), (E) and (F) of Subparagraph 6(f);
(ii) in addition to any other benefits to which Executive may be
entitled in accordance with the Company's then existing severance policies,
the Company shall:
(a) for a period of six (6) months commencing on the Date of
Termination, pay for the cost of executive outplacement services
selected by Executive for use in connection with obtaining alternate
employment; and
(b) for a period of twenty-four (24) months commencing on the
Date of Termination, pay such health insurance premiums as may be
necessary to allow Executive, Executive's spouse and dependents to
continue to receive health insurance coverage substantially similar to
the coverage they received prior to his termination of employment; and
(iii) Executive shall receive all the rights and benefits granted or
in effect with respect to Executive under the Company's employee stock
option or incentive plans and agreements with Executive pursuant thereto.
In addition to the foregoing, unless otherwise provided in the applicable
option or award agreement, all stock options in which Executive otherwise
would have vested if he would have remained employed for a period of
eighteen (18) months or if termination of employment occurs within the
first eighteen (18) months of the Commencement Date, the remaining length
of the original three-year term, shall immediately accelerate and become
exercisable or nonforfeitable as of the Date of Termination, and all
restricted stock awards in which Executive otherwise would have vested if
he would have remained employed for a period of twenty-four (24) months or
if termination of employment occurs within the first twelve (12) months of
the Commencement Date, the remaining length of the original three-year,
shall immediately accelerate and become nonforfeitable as of the Date of
Termination.
(e) If Executive's employment is terminated by the Company for Cause as
provided in Subparagraph 6(c) or for performance as provided in Subparagraph
6(d), then the Company shall, through the Date of Termination, pay Executive his
accrued and unpaid Base Salary or, if applicable, his Adjusted Base Salary at
the rate in effect at the time Notice of Termination is
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given and in case of termination for performance as provided by Subparagraph
6(d), his accrued and unpaid incentive compensation under Subparagraph 3(b).
Thereafter, the Company shall have no further obligations to Executive except as
otherwise expressly provided under this Agreement, provided any such termination
shall not adversely affect or alter Executive's rights under any employee
benefit plan of the Company in which Executive, at the Date of Termination, has
a vested interest, unless otherwise provided in such employee benefit plan or
any agreement or other instrument attendant thereto. Notwithstanding the
foregoing and in addition to whatever other rights or remedies the Company may
have at law or in equity, all stock options held by Executive shall immediately
expire on the Date of Termination if Executive's employment is terminated by the
Company for Cause as provided by Subparagraph 6(c).
(f) Nothing contained in the foregoing Subparagraphs 7(a) through 7(e)
shall be construed so as to affect Executive's rights or the Company's
obligations relating to agreements or benefits which are unrelated to
termination of employment.
8. PARACHUTE PAYMENT. The provisions of this Paragraph 8 set forth certain
terms of an agreement reached between Executive and the Company regarding
Executive's rights and obligations upon the occurrence of a Change in Control of
the Company. These provisions are intended to assure and encourage in advance
Executive's continued attention and dedication to his assigned duties and his
objectivity during the pendency and after the occurrence of any such event.
These provisions shall apply in lieu of, and expressly supersede, the provisions
of Subparagraph 7(d)(i) regarding severance pay upon a termination of
employment, if such termination of employment occurs within eighteen (18) months
after the occurrence of the first event constituting a Change in Control. These
provisions shall terminate and be of no further force or effect beginning
eighteen (18) months after the occurrence of a Change in Control.
(A) ESCROW. Within fifteen (15) days after the occurrence of the first
event constituting a Change in Control, the Company shall place funds in an
amount equal to the estimated Parachute Amount in escrow, pursuant to
arrangements that are mutually acceptable to the Company and Executive providing
for the payment of the Parachute Amount in the event Executive becomes entitled
thereto pursuant to Subparagraph 8(b)(i) (the "Escrow Arrangement"). The Escrow
Arrangement shall be maintained until the earlier of (A) eighteen (18) months
after the occurrence of the first event constituting a Change in Control or (B)
the payment to Executive of the Parachute Amount pursuant to the provisions of
Subparagraph 8(b)(i).
(B) CHANGE IN CONTROL. If within eighteen (18) months after the occurrence
of the first event constituting a Change in Control, Executive's employment
terminates for any reason other than (A) death, (B) his inability, due to
illness, accident, or other physical or mental incapacity, to perform his duties
for more than one hundred eighty (180) days during any twelve-month period, or
(C) his Voluntary Resignation ("Termination"), then:
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(i) the Company shall pay Executive in a lump sum an amount equal
to the applicable Parachute Amount on the tenth (10th) day following
Executive's Termination; and
(ii) unless otherwise provided in the applicable option agreement or
award agreement, all stock options and other stock-based awards granted to
Executive by the Company shall immediately accelerate and become
exercisable or non-forfeitable as of the date of Change in Control, and
Executive shall be entitled to any other rights and benefits with respect
to stock-related awards, to the extent and upon the terms provided in the
employee stock option or incentive plan or any agreement or other
instrument attendant thereto pursuant to which such options or awards were
granted.
(C) GROSS UP PAYMENT.
(i) Excess Parachute Payment. If Executive incurs the tax (the
"Excise Tax") imposed by Section 4999 of the Internal Revenue Code of 1986
(the "Code") on "excess parachute payments" within the meaning of Section
280G(b)(1) of the Code, the Company will pay to Executive an amount (the
"Gross Up Payment") such that the net amount retained by Executive, after
deduction of any Excise Tax on the excess parachute payment and any
federal, state and local income tax (together with penalties and interest)
and Excise Tax upon the payment provided for by this Subparagraph 8(c)(i),
will be equal to the Parachute Amount.
(ii) Applicable Rates. For purposes of determining the amount of the
Gross Up Payment, Executive will be deemed to pay federal income taxes at
the highest marginal rate of federal income taxation in the calendar year
in which the Gross Up Payment is to be made and state and local income
taxes at the highest marginal rates of taxation in the state and locality
of Executive's residence on the date of Executive's Termination, net of the
maximum reduction in federal income taxes that could be obtained from
deduction of such state and local taxes.
(iii) Determination of Gross Up Payment Amount. The determination of
whether the Excise Tax is payable and the amount thereof will be based upon
the opinion of tax counsel selected by Executive and approved by the
Company, which approval will not be unreasonably withheld. If such opinion
is not finally accepted by the Internal Revenue Service (or state and local
taxing authorities), then appropriate adjustments to the Excise Tax will be
computed and additional Gross Up Payments will be made in the manner
provided by this Subparagraph (c).
(iv) Time For Payment. The Company will pay the estimated amount of
the Gross Up Payment in cash to Executive concurrent with Employee's
Termination. Executive and the Company agree to reasonably cooperate in the
determination of the actual amount of the Gross Up Payment. Further,
Executive and the Company agree to make such adjustments to the estimated
amount of the Gross Up Payment as may be
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necessary to equal the actual amount of the Gross Up Payment, which in the
case of Executive will refer to refunds of prior overpayments and in the
case of the Company will refer to makeup of prior underpayments.
(D) DEFINITIONS. For purposes of this Paragraph 8, the following terms
shall have the following meanings:
"CHANGE IN CONTROL" shall mean an event which shall be deemed to have
occurred if (i) any "person" or "group" (as such terms are used in Sections
13(d) and 14(d) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), other than a trustee or other fiduciary holding securities
under an employee benefit plan of the Company, is or becomes the
"beneficial owner" (as defined in Rule 13d-3 promulgated under the Exchange
Act), directly or indirectly, of securities of the Company representing 25%
or more of the combined voting power of the Company's then outstanding
securities; or (ii) individuals who at the Commencement Date constitute the
Board and any new director (other than a director designated by a person
who has entered into an agreement with the Company to effect a transaction
described in clauses (i) or (iii) of this paragraph) whose election by the
Board or nomination for election by the Company's stockholders was approved
by a vote of at least eighty percent (80%) of the directors then still in
office who either were directors at the Commencement Date or whose election
or nomination for election was previously so approved, cease for any reason
to constitute a majority of the Board; or (iii) the stockholders of the
Company approve a merger or consolidation of the Company with or into any
other corporation, other than a merger or consolidation which would result
in the voting securities of the Company outstanding immediately prior
thereto continuing to represent (either by remaining outstanding or by
being converted into voting securities of the surviving entity) at least
sixty percent (60%) of the combined voting power of the voting securities
of the Company or such surviving entity outstanding immediately after such
merger or consolidation; or (iv) the stockholders of the Company approve a
plan of complete liquidation of the Company or an agreement for the sale or
disposition by the Company of all or substantially all the Company's
assets. Notwithstanding the foregoing, neither the merger of the Company
with California Jockey Club nor the merger of the Company with Wyndham
Hotel Corporation shall be deemed a Change in Control for purposes of this
Agreement.
"PARACHUTE AMOUNT" shall mean an amount equal to the greater of the
Severance Amount or the Minimum Severance Amount provided for in
Subparagraph 7(d)(i).
"VOLUNTARY RESIGNATION" shall mean any termination of Executive's
employment by his own act, unless such termination is for Good Reason
occurring within ninety (90) days prior to, or at any time after, the
occurrence of a Change in Control.
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9. NOTICE. For purposes of this Agreement, notices and all other
communications provided for in the Agreement shall be in writing and shall be
deemed to have been duly given when delivered or mailed by United States
certified mail, return receipt requested, postage prepaid, addressed as follows:
if to the Executive:
At his home address as shown
in the Company's personnel records;
if to the Company:
Patriot American Hospitality, Inc.
3030 LBJ Freeway, Suite 1500
Dallas, TX 75234
Attn.: General Counsel
or to such other address as either party may have furnished to the other in
writing in accordance herewith, except that notices of change of address shall
be effective only upon receipt.
10. MISCELLANEOUS. No provisions of this Agreement may be modified, waived, or
discharged unless such waiver, modification, or discharge is agreed to in
writing and signed by Executive and such officer of the Company as may be
specifically designated by the Board. No waiver by either party hereto of, or
compliance with, any condition or provision of this Agreement to be performed by
such other party shall be deemed a waiver of similar or dissimilar provisions or
conditions at the same or at any prior or subsequent time. No agreements or
representations, oral or otherwise, express or implied, unless specifically
referred to herein, with respect to the subject matter hereof have been made by
either party which are not set forth expressly in this Agreement. The validity,
interpretation, construction, and performance of this Agreement shall be
governed by the laws of the State of Texas (without regard to principles of
conflicts of laws).
11. VALIDITY. The invalidity or unenforceability of any provision or
provisions of this Agreement shall not affect the validity or enforceability of
any other provision of this Agreement, which shall remain in full force and
effect. The invalid portion of this Agreement, if any, shall be modified by any
court having jurisdiction to the extent necessary to render such portion
enforceable.
12. COUNTERPARTS. This Agreement may be executed in several counterparts, each
of which shall be deemed to be an original but all of which together will
constitute one and the same instrument.
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13. ARBITRATION; OTHER DISPUTES. Any dispute or controversy arising under or
in connection with this Agreement shall be settled exclusively by arbitration in
Dallas, Texas, in accordance with the rules of the American Arbitration
Association then in effect. Judgment may be entered on the arbitrator's award in
any court having jurisdiction. Notwithstanding the above, the Company shall be
entitled to seek a restraining order or injunction in any court of competent
jurisdiction to prevent any continuation of any violation of Paragraph 4 or 5
hereof. Furthermore, should a dispute occur concerning Executive's mental or
physical capacity as described in Subparagraphs 7(b) or 7(b), a doctor selected
by Executive and a doctor selected by the Company shall be entitled to examine
Executive. If the opinion of the Company's doctor and Executive's doctor
conflict, the Company's doctor and Executive's doctor shall together agree upon
a third doctor, whose opinion shall be binding. Any amount to which Executive is
entitled under this Agreement (including any disputed amount), which is not paid
when due, shall bear interest at a rate equal to the lesser of eighteen percent
(18%) per annum or the maximum lawful rate.
14. THIRD-PARTY AGREEMENTS AND RIGHTS. Executive represents to the Company
that Executive's execution of this Agreement, Executive's employment with the
Company and the performance of Executive's proposed duties for the Company will
not violate any obligations Executive may have to any employer or other party,
and Executive will not bring to the premises of the Company any copies or other
tangible embodiments of non-public information belonging to or obtained from any
such previous employment or other party.
15. LITIGATION AND REGULATORY COOPERATION. During and after Executive's
employment, Executive shall reasonably cooperate with the Company in the defense
or prosecution of any claims or actions now in existence or which may be brought
in the future against or on behalf of the Company which relate to events or
occurrences that transpired while Executive was employed by the Company;
provided, however, that such cooperation shall not materially and adversely
affect Executive or expose Executive to an increased probability of civil or
criminal litigation. Executive's cooperation in connection with such claims or
actions shall include, but not be limited to, being available to meet with
counsel to prepare for discovery or trial and to act as a witness on behalf of
the Company at mutually convenient times. During and after Executive's
employment, Executive also shall cooperate fully with the Company in connection
with any investigation or review of any federal, state or local regulatory
authority as any such investigation or review relates to events or occurrences
that transpired while Executive was employed by the Company. The Company shall
also provide Executive with compensation on an hourly basis calculated at his
final base compensation rate for requested litigation and regulatory cooperation
that occurs after his termination of employment, and reimburse Executive for all
costs and expenses incurred in connection with his performance under this
Paragraph 15, including, but not limited to, reasonable attorneys' fees and
costs.
16. ASSIGNMENT. At the sole election of the Company, this Agreement may be
assigned by the Company to Patriot American Hospitality Operating Company.
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IN WITNESS WHEREOF, the parties have executed this Agreement effective on
the date and year first above written.
PATRIOT AMERICAN HOSPITALITY, INC.
By: /s/ Paul A. Nussbaum
---------------------------------
Its: Chairman and Chief Executive
Officer
/s/ Paul Novak
---------------------------------
Paul Novak
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SCHEDULE I TO EMPLOYMENT AGREEMENT
Title: Executive Vice President - Acquisitions and Development.
Reports directly to Chairman, Chief Executive Officer
Location: Dallas, Texas
Responsibility: Oversight of property acquisition and new development
activities.
<PAGE>
SCHEDULE II TO EMPLOYMENT AGREEMENT
A. Equity position in lodging related holdings of The Hampstead Group.
1. Bedrock Partners - ownership of 15 Wyndham Garden Hotels and 2 Wyndham
Hotels and Resorts and approximately 2.2 million shares of Wyndham
Hotel Corp. stock.
2. Bristol Hotel Company - ownership of approximately 33% of the stock of
this NYSE company.
B. Equity position in a hotel acquisition partnership with William. E. Simon
of Los Angeles, California.
1. Essex House Hotel - 81 rooms and suites in South Beach, Miami Beach,
Florida.
2. The Lafayette Hotel - 60+ rooms in South Beach, Miami Beach, Florida.
Note: Any future investments with this partnership would be presented to
the Company prior to individual investment seeking the Company's
approval and verification of no conflict of interest with the
Company.
<PAGE>
EXHIBIT 10.27
EXECUTIVE EMPLOYMENT AGREEMENT
This EXECUTIVE EMPLOYMENT AGREEMENT ("Agreement") is made as of the first
day of October, 1997, between Patriot American Hospitality Operating Company, a
Delaware corporation (the "Company"), and Michael Grossman ("Executive").
WHEREAS, Gencom Lessee, L.P., a Delaware limited partnership, has entered
into a Contribution Agreement with Patriot American Hospitality Operating
Company Partnership, L.P., a Delaware limited partnership (the "Operating
Partnership"), which provides, upon the terms and subject to the conditions
thereof, for the contribution of its interests in GAH-II, L.P., a Delaware
limited partnership, to the Operating Partnership;
WHEREAS, the Company is desirous of engaging Executive to serve as the
Executive Vice President of the Company and President and Chief Operating
Officer of the GAH Division of the Company effective upon the closing of the
Contribution Agreement; and
WHEREAS, Executive is desirous of committing to serve the Company on the
terms herein provided.
NOW, THEREFORE, in consideration of the mutual covenants and agreements
herein contained and other good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the parties agree as follows:
1. EMPLOYMENT. The initial term of this Agreement shall extend from the
effective closing date of the Contribution Agreement (the "Commencement Date")
until the third anniversary of the Commencement Date. On or before the second
anniversary of the Commencement Date and each even anniversary thereafter, the
term of this Agreement shall (i) be formally extended for an additional two (2)
years by mutual agreement of the Company and Executive; or (ii) this Agreement
shall expire in accordance with its terms. The term of this Agreement shall be
subject to termination as provided in Paragraph 6 and may be referred to herein
as the "Period of Employment."
2. POSITION AND DUTIES. During the Period of Employment, Executive shall serve
as Executive Vice President of the Company and President and Chief Operating
Officer of the GAH Division of the Company, reporting to the President and Chief
Operating Officer of the Company, shall have supervision and control over and
responsibility for the day-to-day business and affairs of those functions and
operations of the GAH Division of the Company and shall have such other powers
and duties as may from time to time be prescribed by the Chairman, provided that
such duties are consistent with Executive's position or other positions that he
may hold from time to time. Executive shall devote his full working time and
efforts to the business and affairs of the Company. Notwithstanding the
foregoing, Executive may serve on other boards of directors or engage in
religious, charitable or other community activities as long as such services and
activities are disclosed to the Chairman and do not materially interfere with
Executive's performance of his duties to the Company as provided in this
Agreement.
<PAGE>
3. COMPENSATION AND RELATED MATTERS.
(A) BASE SALARY. Initially, Executive shall receive an annual base salary
("Base Salary") of Two Hundred and Fifty Thousand Dollars and xx/100 Cents
($250,000.00). Thereafter, Executive's Base Salary shall be redetermined at
least thirty (30) days before each annual compensation determination date
established by the Company during the Period of Employment in an amount to be
fixed by the Board. The Base Salary, as redetermined, may be referred to herein
as "Adjusted Base Salary." The Base Salary or Adjusted Base Salary shall be
payable in substantially equal bi-weekly installments and shall in no way limit
or reduce the obligations of the Company hereunder.
(B) INCENTIVE COMPENSATION. In addition to Base Salary or Adjusted Base
Salary, Executive shall be eligible to receive, on or about the annual
compensation determination date established by the Company of each year, during
the Period of Employment, cash incentive compensation in an amount determined by
the Compensation Committee of the Board based on individual performance,
performance by the Company and total return to shareholders. The incentive
compensation potential shall be up to eighty percent (80%) of Base Salary or
Adjusted Base Salary. Executive will also participate in such incentive
compensation plans as the Board of Directors of the Company ("Board") shall
determine.
(C) EXPENSES. Executive shall be entitled to receive prompt reimbursement
for all reasonable expenses incurred by him (in accordance with the policies and
procedures then in effect and established by the Company for its senior
executive officers) in performing services hereunder during the Period of
Employment, provided that Executive properly accounts therefor in accordance
with Company policy.
(D) OTHER BENEFITS. During the Period of Employment, Executive shall be
entitled to continue to participate in or receive benefits under all of the
Company's Employee Benefit Plans in effect on the date hereof, or under plans or
arrangements that provide Executive with at least substantially equivalent
benefits to those provided under such Employee Benefit Plans. As used herein,
"Employee Benefit Plans" include, without limitation, each pension and
retirement plan; supplemental pension, retirement and deferred compensation
plan; savings and profit-sharing plan; stock ownership plan; stock purchase
plan; stock option plan; life insurance plan; medical insurance plan; disability
plan; and health and accident plan or arrangement established and maintained by
the Company on the date hereof for employees of the same status within the
hierarchy of the Company. To the extent that the scope or nature of benefits
described in this section are determined under the policies of the Company based
in whole or in part on the seniority or tenure of an employee's service,
Executive shall be deemed to have a tenure with the Company equal to the actual
time of Executive's service with Company plus the actual service by Executive
with GAH-II, L.P. (the "Previous Employer"). During the Period of Employment,
Executive shall be entitled to participate in or receive benefits under any
employee benefit plan or arrangement which may, in the future, be made available
by the Company to its executives and key management employees, subject to and on
a basis consistent with the terms, conditions and overall administration of such
plan or
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arrangement. Nothing paid to Executive under the Employee Benefit Plans
presently in effect or any employee benefit plan or arrangement which may be
made available in the future shall be deemed to be in lieu of compensation
payable to Executive under Subparagraphs 3(a) and 3(b). Any payments or benefits
payable to Executive under a plan or arrangement referred to in this
Subparagraph 3(d) in respect of any calendar year during which Executive is
employed by the Company for less than the whole of such year shall, unless
otherwise provided in the applicable plan or arrangement, be prorated in
accordance with the number of days in such calendar year during which he is so
employed. Should any such payments or benefits accrue on a fiscal (rather than
calendar) year, then the proration in the preceding sentence shall be on the
basis of a fiscal year rather than calendar year.
(E) LIFE INSURANCE. The Company shall pay the premiums on, and maintain in
effect throughout the Period of Employment, a life insurance policy on the life
of Executive in an amount not less than the sum of the amount of Executive's
then current Base Salary or Adjusted Base Salary plus the mid-point of his bonus
range. Executive shall have the right to designate the beneficiary under such
policy.
(F) VACATIONS. Executive shall be entitled to the number of paid vacation
days in each calendar year determined by the Company from time to time for its
senior executive officers. Executive shall also be entitled to all paid
holidays given by the Company to its senior executive officers. To the extent
that the scope or nature of benefits described in this section are determined
under the policies of the Company based in whole or in part on the seniority or
tenure of an employee's service, Executive shall be deemed to have a tenure with
the Company equal to the actual time of Executive's service with Company plus
the actual service by Executive to the Previous Employer.
(G) DISABILITY INSURANCE. The Company shall pay the premiums on, and
maintain in effect throughout the Period of Employment, long-term disability
insurance providing for payment of benefits at rates not less than 60% of
Executive's current Base Salary or Adjusted Base Salary.
4. UNAUTHORIZED DISCLOSURE.
(A) CONFIDENTIAL INFORMATION. Executive acknowledges that in the course of
his employment with the Previous Employer or the Company (and, if applicable,
the predecessors of either of them), he has been allowed to become, and will
continue to be allowed to become, acquainted with the Company's and Patriot
American Hospitality, Inc.'s ("Affiliated Company's") business affairs,
information, trade secrets, and other matters which are of a proprietary or
confidential nature, including but not limited to the Company's and Affiliated
Company's and their respective predecessors' operations, business opportunities,
price and cost information, finance, customer information, business plans,
various sales techniques, manuals, letters, notebooks, procedures, reports,
products, processes, services, and other confidential information and knowledge
(collectively the "Confidential Information") concerning the Company's,
Affiliated Company's and their respective predecessors' business.
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The Company agrees to provide on an ongoing basis such Confidential Information
as the Company deems necessary or desirable to aid Executive in the performance
of his duties. Executive understands and acknowledges that such Confidential
Information is confidential, and he agrees not to disclose such Confidential
Information to anyone outside the Company or the Affiliated Company except to
the extent that Executive deems such disclosure or use reasonably necessary or
appropriate in connection with performing his duties on behalf of the Company.
Executive further agrees that he will not during employment and/or at any time
thereafter use such Confidential Information (to the extent that it has not
become public) in competing, directly or indirectly, with the Company or the
Affiliated Company. At such time as Executive shall cease to be employed by the
Company, he will immediately turn over to the Company all Confidential
Information, including papers, documents, writings, electronically stored
information, other property, and all copies of them provided to or created by
him during the course of his employment with the Company (or, if applicable,
Previous Employer).
(B) HEIRS, SUCCESSORS, AND LEGAL REPRESENTATIVES. The foregoing provisions
of this Paragraph 4 shall be binding upon Executive's heirs, successors, and
legal representatives. The provisions of this Paragraph 4 shall survive the
termination of this Agreement for any reason.
5. COVENANT NOT TO COMPETE. The provisions of this Paragraph 5 shall apply
during Executive's employment with the Company and for a period of eighteen (18)
months or such longer period for which severance is payable under Paragraph 7
commencing when the employment relationship has ended for any reason other than
death; provided, however, that the prohibition set forth in the second sentence
of this Paragraph 5 shall not apply in the case of termination of employment
solely as a result of the expiration of the Period of Employment without
extension. In consideration for Executive's employment by the Company under the
terms provided in this Agreement and as a means to aid in the performance and
enforcement of the terms of the Unauthorized Disclosure provisions of Paragraph
4, Executive agrees that Executive will not, directly or indirectly, as an
owner, director, principal, agent, officer, employee, partner, consultant,
servant, or otherwise, carry on, operate, manage, control, or become involved in
any manner with any business, operation, corporation, partnership, association,
agency, or other person or entity which is in the business of owning, operating,
managing or granting franchise rights with respect to hotels, motels or other
lodging facilities in any area or territory in which the Company or Affiliated
Company conducts operations; provided, however, that the foregoing does not
prohibit Executive from owning up to one percent (1%) of the outstanding stock
of a publicly held corporation engaged in the hospitality business. Executive
also agrees that Executive will not, directly or indirectly, either for himself
or for any other business, operation, corporation, partnership, association,
agency, or other person or entity, call upon, compete for, solicit, divert, or
take away, or attempt to divert or take away any of the customers of the Company
or Affiliated Company in any of the areas or territories in which the Company or
Affiliated Company conducts operations. Further, Executive will not directly or
indirectly solicit or induce any present or future employee of the Company or
Affiliated Company to accept employment with Executive or with any business,
operation, corporation, partnership, association, agency, or other person or
entity with which Executive may be associated, and Executive will not employ or
cause any
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business, operation, corporation, partnership, association, agency, or other
person or entity with which Executive may be associated to employ any present or
future employee of the Company or Affiliated Company without providing the
Company or Affiliated Company with ten (10) days' prior written notice of such
proposed employment. Should Executive violate the provisions of this Paragraph,
then in addition to all other rights and remedies available to the Company or
Affiliated Company at law or in equity, the duration of this covenant shall
automatically be extended for the period of time from which Executive began such
violation until he permanently ceases such violation. Notwithstanding the
foregoing, Executive shall be permitted to continue to engage in activities that
would otherwise be prohibited by this Paragraph 5 with respect to the interests
he currently owns and which are described in Schedule I attached hereto and made
a part hereof by this reference and to engage in such activities with respect to
any other hotel, motel or lodging facility that would be immaterial to the
operations of the Company in the area or territory in question. Immateriality,
for purposes of the foregoing sentence, shall be determined in the sole
discretion of the Board of Directors in good faith. Notwithstanding anything to
the contrary contained herein, Executive's acceptance of a position with the
Gencom Group of companies or its subsidiaries or affiliates after his
termination of employment shall not be deemed to be a violation of the foregoing
non-compete provisions.
6. TERMINATION. Executive's employment hereunder may be terminated without any
breach of this Agreement under the following circumstances:
(A) DEATH. Executive's employment hereunder shall terminate upon his
death.
(B) DISABILITY. If, as a result of Executive's incapacity due to physical
or mental illness, Executive shall have been absent from his duties hereunder on
a full-time basis for one hundred eighty (180) calendar days in the aggregate in
any twelve (12) month period, the Company may terminate Executive's employment
hereunder.
(C) TERMINATION BY COMPANY FOR CAUSE. At any time during the Period of
Employment, the Company may terminate Executive's employment hereunder for Cause
if such termination is approved by a majority of the Board at a meeting of the
Board called and held for such purpose. For purposes of this Agreement "Cause"
shall mean: (A) conduct by Executive constituting a material act of willful
misconduct in connection with the performance of his duties, including, without
limitation, misappropriation of funds or property of the Company or any of its
affiliates other than the occasional, customary and de minimis use of Company
property for personal purposes; (B) criminal or civil conviction or conduct by
Executive that would reasonably be expected to result in material injury to the
reputation of the Company if he were retained in his position with the Company,
including, without limitation, conviction of a felony involving moral turpitude;
(C) continued, willful and deliberate non-performance by Executive of his
material duties hereunder (other than by reason of Executive's physical or
mental illness, incapacity or disability) and such non-performance has continued
for more than thirty (30) days following written notice of such non-performance
from the Board;
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or (D) a breach by Executive of any of the provisions contained in Paragraphs 4
and 5 of this Agreement.
(D) TERMINATION BY COMPANY FOR PERFORMANCE REASONS. At any time during the
Period of Employment, the Company may terminate Executive's employment if (i)
such termination is approved by a majority of the Board at a meeting of the
Board called and held for such purpose; and (ii) Executive has materially failed
to perform his duties hereunder or has violated, in material respects, the
policies and procedures of the Company and such failure or violation has
continued for more than ninety (90) days following written notice of such
violation from the Board.
(E) TERMINATION WITHOUT CAUSE. At any time during the Period of
Employment, the Company may terminate Executive's employment hereunder without
Cause if such termination is approved by a majority of the Board at a meeting of
the Board called and held for such purpose. Any termination by the Company of
Executive's employment under this Agreement which does not constitute a
termination for Cause under Subparagraph 6(c), termination for performance under
Subparagraph 6(d), or result from the death or disability of the Executive under
Subparagraph 6(a) or (b) shall be deemed a termination without Cause.
(F) TERMINATION BY EXECUTIVE. At any time during the Period of Employment,
Executive may terminate his employment hereunder for any reason, including but
not limited to Good Reason. For purposes of this Agreement, "Good Reason" shall
mean that Executive has complied with the "Good Reason Process" (hereinafter
defined) following the occurrence of any of the following events: (A) a
substantial diminution or other substantive adverse change, not consented to by
Executive, in the nature or scope of Executive's responsibilities, authorities,
powers, functions or duties from the responsibilities, authorities, powers,
functions or duties exercised by Executive immediately prior to the Commencement
Date; (B) any removal, during the Period of Employment, of Executive from or,
any failure by management to nominate, or, if nominated, any failure by the
Board to re-elect, Executive to any of the positions indicated in Paragraph 2,
except in connection with a termination of Executive's employment; (C) an
involuntary reduction in Executive's Base Salary or Adjusted Base Salary or
involuntary reduction in cash incentive compensation plan (but not reduction in
incentive compensation appropriate for level of performance) except for across-
the-board salary reductions similarly affecting all or substantially all
management employees; (D) a breach by the Company of any of its other material
obligations under this Agreement and the failure of the Company to cure such
breach within thirty (30) days after written notice thereof by Executive; (E)
the relocation of the Company's offices at which Executive is principally
employed or the relocation of the offices of Executive's primary workgroup to a
location more than thirty (30) miles from such offices, or the requirement by
the Company for Executive to be based anywhere other than the Company's offices
at such location on an extended basis, except for required travel on the
Company's business to an extent substantially consistent with Executive's
business travel obligations; or (F) any change in the identity of the person to
whom Executive directly reports; provided, however, that this clause (F) shall
cease to apply on and after the third anniversary of the Commencement Date.
"Good Reason Process" shall
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mean that (i) the Executive reasonably determines in good faith that a "Good
Reason" event has occurred; (ii) Executive notifies the Company in writing of
the occurrence of the Good Reason event; (iii) Executive cooperates in good
faith with the Company's efforts, for a period not less than ninety (90) days
following such notice, to modify Executive's employment situation in a manner
acceptable to Executive and Company; and (iv) notwithstanding such efforts, one
or more of the Good Reason events continues to exist and has not been modified
in a manner acceptable to Executive.
(G) NOTICE OF TERMINATION. Except for termination as specified in
Subparagraph 6(a), any termination of Executive's employment by the Company or
any such termination by Executive shall be communicated by written Notice of
Termination to the other party hereto. For purposes of this Agreement, a "Notice
of Termination" shall mean a notice which shall indicate the specific
termination provision in this Agreement relied upon.
(H) DATE OF TERMINATION. "Date of Termination" shall mean: (A) if
Executive's employment is terminated by his death, the date of his death; (B) if
Executive's employment is terminated on account of disability under Subparagraph
6(b), the date on which Notice of Termination is given; (C) if Executive's
employment is terminated by the Company under Subparagraph 6(c), (d) or (e),
thirty (30) days after the date on which a Notice of Termination is given; and
(D) if Executive's employment is terminated by Executive under Subparagraph
6(f), thirty (30) days after the date on which a Notice of Termination is given.
7. COMPENSATION UPON TERMINATION OR DURING DISABILITY.
(a) If Executive's employment terminates by reason of his death, the
Company shall, within ninety (90) days of death, pay in a lump sum amount to
such person as Executive shall designate in a notice filed with the Company or,
if no such person is designated, to Executive's estate, Executive's accrued and
unpaid Base Salary or, if applicable, his Adjusted Base Salary, to the date of
his death, plus his accrued and unpaid incentive compensation under Subparagraph
3(b). All unvested stock options and stock-based grants shall immediately vest
in Executive's estate or other legal representatives and become exercisable, and
Executive's estate or other legal representatives shall have one (1) year from
the Date of Termination, or remaining option term, if earlier, to exercise the
stock options. For a period of one (1) year following the Date of Termination,
the Company shall pay such health insurance premiums as may be necessary to
allow Executive's spouse and dependents to receive health insurance coverage
substantially similar to coverage they received prior to the Date of
Termination. In addition to the foregoing, any payments to which Executive's
spouse, beneficiaries, or estate may be entitled under any employee benefit plan
shall also be paid in accordance with the terms of such plan or arrangement.
Such payments, in the aggregate, shall fully discharge the Company's obligations
hereunder.
(b) During any period that Executive fails to perform his duties hereunder
as a result of incapacity due to physical or mental illness, Executive shall
continue to receive his accrued and unpaid Base Salary or, if applicable, his
Adjusted Base Salary and accrued and
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unpaid incentive compensation payments under Subparagraph 3(b), until
Executive's employment is terminated due to disability in accordance with
Subparagraph 6(b) or until Executive terminates his employment in accordance
with Subparagraph 6(f), whichever first occurs. All unvested stock options and
stock-based grants shall immediately vest and become exercisable and Executive
shall have one (1) year from the Date of Termination, or remaining option term,
if earlier, to exercise the stock options. For a period of one (1) year
following the Date of Termination, the Company shall pay such health insurance
premiums as may be necessary to allow Executive, Executive's spouse and
dependents to receive health insurance coverage substantially similar to
coverage they received prior to the Date of Termination. Upon termination due to
death prior to the termination first to occur as specified in the preceding
sentence, Subparagraph 7(a) shall apply.
(c) If Executive's employment is terminated by Executive other than for
Good Reason as provided in Subparagraph 6(f), then the Company shall, through
the Date of Termination, pay Executive his accrued and unpaid Base Salary or, if
applicable, his Adjusted Base Salary at the rate in effect at the time Notice of
Termination is given. Thereafter, the Company shall have no further obligations
to Executive except as otherwise expressly provided under this Agreement,
provided any such termination shall not adversely affect or alter Executive's
rights under any employee benefit plan of the Company in which Executive, at the
Date of Termination, has a vested interest, unless otherwise provided in such
employee benefit plan or any agreement or other instrument attendant thereto.
(d) If Executive terminates his employment for Good Reason as provided in
Subparagraph 6(f) or if Executive's employment is terminated by the Company
without Cause as provided in Subparagraph 6(e), then the Company shall, through
the Date of Termination, pay Executive his accrued and unpaid Base Salary or, if
applicable, his Adjusted Base-Salary at the rate in effect at the time Notice of
Termination is given and his accrued and unpaid incentive compensation under
Subparagraph 3(b). In addition, subject to signing by Executive of a general
release of claims (other than continuing rights under this Agreement) in a form
and manner satisfactory to the Company,
(i) the Company shall continue Executive's compensation at a rate
equal to the sum of Executive's Average Base Salary and Average Incentive
Compensation for the remaining term of the Agreement (but not less than
eighteen (18) months) (the "Minimum Severance Amount") or such longer
period provided by the Company's then current severance polices (the
"Severance Amount"); provided, however, that in the event Executive
commences any employment during the period of salary continuation, the
Company shall be entitled to set-off against the remaining amount of salary
continuation by the amount of any cash compensation received by Executive
from the new employer. Such salary continuation shall be payable in equal
installments, in advance, on a quarterly basis. The amount payable in each
quarter will not be subject to any set-off so long as Executive certifies
in writing prior to each quarterly payment that he has not accepted
employment with a new employer (including, without limitation, contract and
consulting engagements). Notwithstanding the foregoing, if
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the Executive breaches any of the provisions contained in Paragraphs 4 and
5 of this Agreement, all salary continuation payments shall immediately
cease. For purposes of this Agreement, "Average Base Salary" shall mean the
average of the annual Base Salary or, if applicable, Adjusted Base Salary
received by Executive for each of the three (3) immediately preceding
fiscal years or such fewer number of complete or partial fiscal years as
Executive may have been employed by the Company. For purposes of this
Agreement, "Average Incentive Compensation" shall mean the average of the
annual incentive compensation under Subparagraph 3(b) received by Executive
for the three (3) immediately preceding fiscal years or such fewer number
of complete or partial fiscal years as Executive may have been employed by
the Company. Notwithstanding the foregoing, in the event Executive
terminates his employment for Good Reason as provided in Subparagraph 6(f),
he shall be entitled to the Severance Amount or the Minimum Severance
Amount only if he provides the Notice of Termination provided for in
Subparagraph 6(g) within thirty (30) days after the occurrence of the event
or events which constitute such Good Reason as specified in clauses (A),
(B), (C), (D) and (E) of Subparagraph 6(f);
(ii) in addition to any other benefits to which Executive may be
entitled in accordance with the Company's then existing severance policies,
the Company shall:
(a) for a period of six (6) months commencing on the Date of
Termination, pay for the cost of executive outplacement services
selected by Executive for use in connection with obtaining alternate
employment; and
(b) for a period of one (1) year commencing on the Date of
Termination, pay such health insurance premiums as may be necessary to
allow Executive, Executive's spouse and dependents to continue to
receive health insurance coverage substantially similar to the
coverage they received prior to his termination of employment; and
(iii) Executive shall receive all the rights and benefits granted or
in effect with respect to Executive under the Company's employee stock
option or incentive plans and agreements with Executive pursuant thereto.
In addition to the foregoing, unless otherwise provided in the applicable
option or award agreement, all stock options and other stock-based awards
in which Executive otherwise would have vested if he would have remained
employed for a period of twenty-four (24) months or if termination of
employment occurs within the first twelve (12) months of the Commencement
Date, the remaining length of the original three-year term after the Date
of Termination commencing on the Date of Termination shall immediately
accelerate and become exercisable or nonforfeitable as of the Date of
Termination.
(e) If Executive's employment is terminated by the Company for Cause as
provided in Subparagraph 6(c) or for performance as provided in Subparagraph
6(d), then the Company shall, through the Date of Termination, pay Executive his
accrued and unpaid Base Salary or,
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if applicable, his Adjusted Base Salary at the rate in effect at the time Notice
of Termination is given and in case of termination for performance as provided
by Subparagraph 6(d), his accrued and unpaid incentive compensation under
Subparagraph 3(b). Thereafter, the Company shall have no further obligations to
Executive except as otherwise expressly provided under this Agreement, provided
any such termination shall not adversely affect or alter Executive's rights
under any employee benefit plan of the Company in which Executive, at the Date
of Termination, has a vested interest, unless otherwise provided in such
employee benefit plan or any agreement or other instrument attendant thereto.
Notwithstanding the foregoing and in addition to whatever other rights or
remedies the Company may have at law or in equity, all stock options held by
Executive shall immediately expire on the Date of Termination if Executive's
employment is terminated by the Company for Cause as provided by Subparagraph
6(c).
(f) If Executive's employment is terminated as a result of the expiration
of the Period of Employment without extension, then the Company shall, through
the Date of Termination, pay Executive his accrued and unpaid Base Salary or, if
applicable, his Adjusted Base Salary at the rate in effect at the time Notice of
Termination is given and his accrued and unpaid incentive compensation under
Subparagraph 3(b). Thereafter, the Company shall have no further obligations to
Executive except as otherwise expressly provided under this Agreement, provided
any such termination shall not adversely affect or alter Executive's rights
under any employee benefit plan of the Company in which Executive, at the Date
of Termination, has a vested interest, unless otherwise provided in such
employee benefit plan or any agreement or other instrument attendant thereto.
(g) Regardless the reason for termination, for a period of three (3) years
beginning on the Date of Termination, the Company will provide at the expense of
the Company such reasonable assistance and support to Executive as he shall
reasonably require in connection with the preparation and filing of tax returns,
statements and forms insofar as such returns, statements and forms relate to
Executive's association with the Company, Affiliated Company, Previous Employer
or any of their respective predecessors or affiliates. At the Company's
election, such assistance and support shall be provided by either tax personnel
of the Company or certified public accountants selected and compensated by the
Company.
(h) Nothing contained in the foregoing Subparagraphs 7(a) through 7(f)
shall be construed so as to affect Executive's rights or the Company's
obligations relating to agreements or benefits which are unrelated to
termination of employment.
8. PARACHUTE PAYMENT. The provisions of this Paragraph 8 set forth certain
terms of an agreement reached between Executive and the Company regarding
Executive's rights and obligations upon the occurrence of a Change in Control of
the Company. These provisions are intended to assure and encourage in advance
Executive's continued attention and dedication to his assigned duties and his
objectivity during the pendency and after the occurrence of any such event.
These provisions shall apply in lieu of, and expressly supersede, the provisions
of Subparagraph 7(d)(i) regarding severance pay upon a termination of
employment, if such
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termination of employment occurs within eighteen (18) months after the
occurrence of the first event constituting a Change in Control. These provisions
shall terminate and be of no further force or effect beginning eighteen (18)
months after the occurrence of a Change in Control.
(A) ESCROW. Within fifteen (15) days after the occurrence of the first
event constituting a Change in Control, the Company shall place funds in an
amount equal to the estimated Parachute Amount in escrow, pursuant to
arrangements that are mutually acceptable to the Company and Executive providing
for the payment of the Parachute Amount in the event Executive becomes entitled
thereto pursuant to Subparagraph 8(b)(i) (the "Escrow Arrangement"). The Escrow
Arrangement shall be maintained until the earlier of (A) eighteen (18) months
after the occurrence of the first event constituting a Change in Control or (B)
the payment to Executive of the Parachute Amount pursuant to the provisions of
Subparagraph 8(b)(i).
(B) CHANGE IN CONTROL. If within eighteen (18) months after the occurrence
of the first event constituting a Change in Control, Executive's employment
terminates for any reason other than (A) death, (B) his inability, due to
illness, accident, or other physical or mental incapacity, to perform his duties
for more than one hundred eighty (180) days during any twelve-month period or
(C) his Voluntary Resignation ("Termination"), then:
(i) the Company shall pay Executive in a lump sum an amount equal
to the applicable Parachute Amount on the tenth (10th) day following
Executive's Termination; and
(ii) unless otherwise provided in the applicable option agreement or
award agreement, all stock options and other stock-based awards granted to
Executive by the Company shall immediately accelerate and become
exercisable or non-forfeitable as of the date of Change in Control, and
Executive shall be entitled to any other rights and benefits with respect
to stock-related awards, to the extent and upon the terms provided in the
employee stock option or incentive plan or any agreement or other
instrument attendant thereto pursuant to which such options or awards were
granted.
(C) GROSS UP PAYMENT.
(i) Excess Parachute Payment. If Executive incurs the tax (the
"Excise Tax") imposed by Section 4999 of the Internal Revenue Code of 1986
(the "Code") on "excess parachute payments" within the meaning of Section
280G(b)(1) of the Code, the Company will pay to Executive an amount (the
"Gross Up Payment") such that the net amount retained by Executive, after
deduction of any Excise Tax on the excess parachute payment and any
federal, state and local taxes (together with penalties and interest) and
Excise Tax upon the payment provided for by this Subparagraph 8(c)(i), will
be equal to the Parachute Amount.
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(ii) Applicable Rates. For purposes of determining the amount of the
Gross Up Payment, Executive will be deemed to pay federal income taxes at
the highest marginal rate of federal taxation in the calendar year in which
the Gross Up Payment is to be made and state and local income taxes at the
highest marginal rates of taxation in the state and locality of Executive's
residence on the date of Executive's Termination, net of the maximum
reduction in federal income taxes that could be obtained from deduction of
such state and local taxes.
(iii) Determination of Gross Up Payment Amount. The determination of
whether the Excise Tax is payable and the amount thereof will be based upon
the opinion of tax counsel selected by Executive and approved by the
Company, which approval will not be unreasonably withheld. The costs of
obtaining the opinion of tax counsel shall be borne by the Company. If
such opinion is not finally accepted by the Internal Revenue Service (or
state and local taxing authorities), then appropriate adjustments to the
Excise Tax will be computed and additional Gross Up Payments will be made
in the manner provided by this Subparagraph (c).
(iv) Time For Payment. The Company will pay the estimated amount of
the Gross Up Payment in cash to Executive concurrent with Employee's
Termination. Executive and the Company agree to reasonably cooperate in the
determination of the actual amount of the Gross Up Payment. Further,
Executive and the Company agree to make such adjustments to the estimated
amount of the Gross Up Payment as may be necessary to equal the actual
amount of the Gross Up Payment, which in the case of Executive will refer
to refunds of prior overpayments and in the case of the Company will refer
to makeup of prior underpayments.
(D) DEFINITIONS. For purposes of this Paragraph 8, the following terms
shall have the following meanings:
"CHANGE IN CONTROL" shall mean an event which shall be deemed to have
occurred if (i) any "person" or "group" (as such terms are used in Sections
13(d) and 14(d) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), other than a trustee or other fiduciary holding securities
under an employee benefit plan of the Company, is or becomes the
"beneficial owner" (as defined in Rule 13d-3 promulgated under the Exchange
Act), directly or indirectly, of securities of the Company representing 25%
or more of the combined voting power of the Company's then outstanding
securities; or (ii) individuals who at the Commencement Date constitute the
Board and any new director (other than a director designated by a person
who has entered into an agreement with the Company to effect a transaction
described in clauses (i) or (iii) of this paragraph) whose election by the
Board or nomination for election by the Company's stockholders was approved
by a vote of at least eighty percent (80%) of the directors then still in
office who either were directors at the Commencement Date or whose election
or nomination for election was previously so approved, cease for any reason
to constitute a majority of the Board; or (iii) the
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stockholders of the Company approve a merger or consolidation of the
Company with or into any other corporation, other than a merger or
consolidation which would result in the voting securities of the Company
outstanding immediately prior thereto continuing to represent (either by
remaining outstanding or by being converted into voting securities of the
surviving entity) at least sixty percent (60%) of the combined voting power
of the voting securities of the Company or such surviving entity
outstanding immediately after such merger or consolidation; or (iv) the
stockholders of the Company approve a plan of complete liquidation of the
Company or an agreement for the sale or disposition by the Company of all
or substantially all the Company's assets.
"PARACHUTE AMOUNT" shall mean an amount equal to the greater of the
Severance Amount or the Minimum Severance Amount provided for in
Subparagraph 7(d)(i).
"VOLUNTARY RESIGNATION" shall mean any termination of Executive's
employment by his own act, unless such termination is for Good Reason.
9. NOTICE. For purposes of this Agreement, notices and all other
communications provided for in the Agreement shall be in writing and shall be
deemed to have been duly given when delivered or mailed by United States
certified mail, return receipt requested, postage prepaid, addressed as follows:
if to the Executive:
At his home address as shown
in the Company's personnel records;
if to the Company:
Patriot American Hospitality Operating Company
3030 LBJ Freeway, Suite 1500
Dallas, TX 75234
Attn.: General Counsel
or to such other address as either party may have furnished to the other in
writing in accordance herewith, except that notices of change of address shall
be effective only upon receipt.
10. MISCELLANEOUS. No provisions of this Agreement may be modified, waived, or
discharged unless such waiver, modification, or discharge is agreed to in
writing and signed by Executive and such officer of the Company as may be
specifically designated by the Board. No waiver by either party hereto of, or
compliance with, any condition or provision of this Agreement to be performed by
such other party shall be deemed a waiver of similar or
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dissimilar provisions or conditions at the same or at any prior or subsequent
time. No agreements or representations, oral or otherwise, express or implied,
unless specifically referred to herein, with respect to the subject matter
hereof have been made by either party which are not set forth expressly in this
Agreement. The validity, interpretation, construction, and performance of this
Agreement shall be governed by the laws of the State of Texas (without regard to
principles of conflicts of laws).
11. VALIDITY. The invalidity or unenforceability of any provision or
provisions of this Agreement shall not affect the validity or enforceability of
any other provision of this Agreement, which shall remain in full force and
effect. The invalid portion of this Agreement, if any, shall be modified by any
court having jurisdiction to the extent necessary to render such portion
enforceable.
12. COUNTERPARTS. This Agreement may be executed in several counterparts, each
of which shall be deemed to be an original but all of which together will
constitute one and the same instrument.
13. ARBITRATION; OTHER DISPUTES. In the event of any dispute or controversy
arising under or in connection with this Agreement, the parties shall first
promptly try in good faith to settle such dispute or controversy by mediation
under the Commercial Mediation Rules of the American Arbitration Association
before resorting to arbitration. In the event such dispute or controversy
remains unresolved in whole or in part for a period of thirty (30) days after it
arises, the parties will settle any remaining dispute or controversy exclusively
by arbitration in Dallas, Texas, in accordance with the rules of the American
Arbitration Association then in effect. Judgment may be entered on the
arbitrator's award in any court having jurisdiction. Notwithstanding the above,
the Company shall be entitled to seek a restraining order or injunction in any
court of competent jurisdiction to prevent any continuation of any violation of
Paragraph 4 or 5 hereof. Furthermore, should a dispute occur concerning
Executive's mental or physical capacity as described in Subparagraph 6(b), 6(c)
or 7(b), a doctor selected by Executive and a doctor selected by the Company
shall be entitled to examine Executive. If the opinion of the Company's doctor
and Executive's doctor conflict, the Company's doctor and Executive's doctor
shall together agree upon a third doctor, whose opinion shall be binding. Any
amount to which Executive is entitled under this Agreement (including any
disputed amount), which is not paid when due, shall bear interest at a rate
equal to the lesser of eighteen percent (18%) per annum or the maximum lawful
rate.
14. THIRD-PARTY AGREEMENTS AND RIGHTS. Executive represents to the Company
that Executive's execution of this Agreement, Executive's employment with the
Company and the performance of Executive's proposed duties for the Company will
not violate any obligations Executive may have to any employer or other party,
and Executive will not bring to the premises of the Company any copies or other
tangible embodiments of non-public information belonging to or obtained from any
such previous employment or other party.
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15. LITIGATION AND REGULATORY COOPERATION. During and after Executive's
employment, Executive shall reasonably cooperate with the Company in the defense
or prosecution of any claims or actions now in existence or which may be brought
in the future against or on behalf of the Company which relate to events or
occurrences that transpired while Executive was employed by the Company;
provided, however, that such cooperation shall not materially and adversely
affect Executive or expose Executive to an increased probability of civil or
criminal litigation. Executive's cooperation in connection with such claims or
actions shall include, but not be limited to, being available to meet with
counsel to prepare for discovery or trial and to act as a witness on behalf of
the Company at mutually convenient times. During and after Executive's
employment, Executive also shall cooperate fully with the Company in connection
with any investigation or review of any federal, state or local regulatory
authority as any such investigation or review relates to events or occurrences
that transpired while Executive was employed by the Company. The Company shall
also provide Executive with compensation on an hourly basis calculated at his
final base compensation rate for requested litigation and regulatory cooperation
that occurs after his termination of employment, and reimburse Executive for all
costs and expenses incurred in connection with his performance under this
Paragraph 15, including, but not limited to, reasonable attorneys' fees and
costs.
16. ASSIGNMENT. At the sole election of the Company, this Agreement may be
assigned by the Company to Patriot American Hospitality, Inc.
IN WITNESS WHEREOF, the parties have executed this Agreement effective on
the date and year first above written.
PATRIOT AMERICAN HOSPITALITY OPERATING
COMPANY
By: /s/ Paul A. Nussbaum
---------------------------------
Its: Chairman and Chief Executive
Officer
/s/ Michael Grossman
--------------------------------------
Michael Grossman
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EXHIBIT 10.28
EXECUTIVE EMPLOYMENT AGREEMENT
This EXECUTIVE EMPLOYMENT AGREEMENT ("Agreement") is made as of the first
day of October, 1997, between Patriot American Hospitality Operating Company, a
Delaware corporation (the "Company"), and Karim Alibhai ("Executive").
WHEREAS, Gencom Lessee, L.P. a Delaware limited partnership has entered
into a Contribution Agreement with Patriot American Hospitality Operating
Company Partnership, a Delaware limited partnership (the "Operating Company")
which provides, upon the terms and subject to the conditions thereof, for the
contribution of its interests in GAH-II, L.P., a Delaware limited partnership,
to the Operating Partnership;
WHEREAS, the Company is desirous of engaging Executive to serve as the
President and Chief Operating Officer of the Company effective upon the closing
of the Contribution Agreement; and
WHEREAS, Executive is desirous of committing to serve the Company on the
terms herein provided.
NOW, THEREFORE, in consideration of the mutual covenants and agreements
herein contained and other good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the parties agree as follows:
1. EMPLOYMENT. The initial term of this Agreement shall begin on the effective
closing date of the Contribution Agreement (the "Commencement Date") and end on
the third anniversary of the Commencement Date. On or before the second
anniversary of the Commencement Date (and each even anniversary thereof), the
term of this Agreement shall be extended for an additional two (2) years unless
either the Company or Executive provides written notice of its or his intent not
to extend the Agreement at least forty-five (45) days prior to such anniversary
date in which event this Agreement shall expire in accordance with its terms.
The term of this Agreement shall be subject to termination as provided in
Paragraph 6 and may be referred to herein as the "Period of Employment."
2. POSITION AND DUTIES. During the Period of Employment, Executive shall serve
as President and Chief Operating Officer of the Company, reporting solely to the
Chairman of the Board of the Company (the "Chairman"), shall have supervision
and control over and responsibility for the day-to-day business and affairs of
those functions and operations of the Company described on Schedule I attached
hereto and made a part hereof by this reference and shall have such other powers
and duties as may from time to time be prescribed by the Chairman, provided that
such duties are consistent with Executive's position or other positions that he
may hold from time to time. The Company shall take such action as necessary to
elect Executive as a Class II Director with an initial term expiring at the 1998
annual meeting. Executive shall serve as a member of the Transactions Committee
and the Cooperation Committee when such committees are formed. Executive shall
devote substantially his full working time and efforts to the business and
affairs of the Company. Notwithstanding the
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foregoing, Executive may serve on other boards of directors, engage in
religious, charitable or other community activities and oversee personal
investments and family business as long as such services and activities do not
materially interfere with Executive's performance of his duties to the Company
as provided in this Agreement.
3. COMPENSATION AND RELATED MATTERS.
(A) BASE SALARY. Initially, Executive shall receive an annual base salary
("Base Salary") of Three Hundred Fifty Thousand Dollars and xx/100 Cents
($350,000.00). Thereafter, Executive's Base Salary shall be redetermined at
least thirty (30) days before each annual compensation determination date
established by the Company during the Period of Employment in an amount to be
fixed by the Board, but may never be decreased except in connection with across-
the-board salary reductions similarly affecting all executives of the Company
and the Affiliated Company (as defined below). The Base Salary, as redetermined,
may be referred to herein as "Adjusted Base Salary." The Base Salary or Adjusted
Base Salary shall be payable in substantially equal bi-weekly installments and
shall in no way limit or reduce the obligations of the Company hereunder.
(B) INCENTIVE COMPENSATION. In addition to Base Salary or Adjusted Base
Salary, Executive shall be eligible to receive, on or about the annual
compensation determination date established by the Company of each year, during
the Period of Employment, cash incentive compensation in an amount determined by
the Compensation Committee of the Board based on individual performance,
performance by the Company and total return to shareholders. Such performance
criteria will be established by mutual agreement of Executive and the Company on
an annual basis. The incentive compensation potential shall be up to eighty
percent (80%) of Base Salary or Adjusted Base Salary; provided in no event will
such incentive compensation be less then $75,000 paid for each full year of
employment. Executive will also participate in such incentive compensation plans
as the Board of Directors of the Company ("Board") shall determine.
(C) EXPENSES. Executive shall be entitled to receive prompt reimbursement
for all reasonable expenses incurred by him (in accordance with the policies and
procedures then in effect and established by the Company for its senior
executive officers) in performing services hereunder during the Period of
Employment, provided that Executive properly accounts therefor in accordance
with Company policy.
(D) OPTION GRANT. On the Commencement Date, the Company shall issue to
Executive a non-qualified stock option (the "Option") to acquire 280,000 shares
of the paired common stock ("Paired Shares") of the Company and Patriot American
Hospitality, Inc. ("Affiliated Company"). The Option shall vest and become
exercisable with respect to 8 1/3% of the number of Paired Shares underlying the
Option quarterly on the first day of each calendar quarter thereafter, such that
all the Paired Shares underlying the Option have vested and are exercisable on
or before the third anniversary of the Commencement Date. The
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exercise price per Paired Share for the Option shall be the quoted closing price
per Paired Share on the New York Stock Exchange on the Commencement Date.
(E) OTHER BENEFITS. During the Period of Employment, Executive shall be
entitled to continue to participate in or receive benefits under all of the
Company's Employee Benefit Plans in effect on the date hereof, or under plans or
arrangements that provide Executive with at least substantially equivalent
benefits to those provided under such Employee Benefit Plans. As used herein,
"Employee Benefit Plans" include, without limitation, each pension and
retirement plan; supplemental pension, retirement and deferred compensation
plan; savings and profit-sharing plan; stock ownership plan; stock purchase
plan; stock option plan; life insurance plan; medical insurance plan; disability
plan; and health and accident plan or arrangement established and maintained by
the Company on the date hereof for employees of the same status within the
hierarchy of the Company. To the extent that the scope or nature of benefits
described in this section are determined under the policies of the Company based
in whole or in part on the seniority or tenure of an employee's service,
Executive shall be deemed to have a tenure with the Company equal to the actual
time of Executive's service with Company plus the actual service by Executive
with GAH-II, L.P. (the "Previous Employer"). During the Period of Employment,
Executive shall be entitled to receive all perquisites and fringe benefits
available to the President of Affiliated Company. During the Period of
Employment, Executive shall also be entitled to participate in or receive
benefits under any employee benefit plan or arrangement which may, in the
future, be made available by the Company to its executives and key management
employees, subject to and on a basis consistent with the terms, conditions and
overall administration of such plan or arrangement. Nothing paid to Executive
under the Employee Benefit Plans presently in effect or any employee benefit
plan or arrangement which may be made available in the future shall be deemed to
be in lieu of compensation payable to Executive under Subparagraphs 3(a) and
3(b). Any payments or benefits payable to Executive under a plan or arrangement
referred to in this Subparagraph 3(e) in respect of any calendar year during
which Executive is employed by the Company for less than the whole of such year
shall, unless otherwise provided in the applicable plan or arrangement, be
prorated in accordance with the number of days in such calendar year during
which he is so employed. Should any such payments or benefits accrue on a fiscal
(rather than calendar) year, then the proration in the preceding sentence shall
be on the basis of a fiscal year rather than calendar year.
(F) LIFE INSURANCE. The Company shall pay the premiums on, and maintain in
effect throughout the Period of Employment, a life insurance policy on the life
of Executive in an amount not less than the sum of the amount of Executive's
then current Base Salary or Adjusted Base Salary plus the mid-point of his bonus
range. Executive shall have the right to designate the beneficiary under such
policy.
(G) VACATIONS. Executive shall be entitled to the number of paid vacation
days in each calendar year determined by the Company from time to time for its
senior executive officers. Executive shall also be entitled to all paid holidays
given by the Company to its senior executive officers. To the extent that the
scope or nature of benefits described in this
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section are determined under the policies of the Company based in whole or in
part on the seniority or tenure of an employee's service, Executive shall be
deemed to have a tenure with the Company equal to the actual time of Executive's
service with Company plus the actual service by Executive to the Previous
Employer.
(H) DISABILITY INSURANCE. The Company shall pay the premiums on, and
maintain in effect throughout the Period of Employment, long-term disability
insurance providing for payment of benefits at rates not less than 60% of
Executive's current Base Salary or Adjusted Base Salary.
(I) INDEMNIFICATION AND DIRECTORS' AND OFFICERS' INSURANCE. During
Executive's employment, Executive shall receive the maximum indemnification
protection from the Company as permitted by applicable law and shall receive
directors' and officers' insurance coverage provided to any other director or
officer of the Company or the Affiliated Company.
4. UNAUTHORIZED DISCLOSURE.
(A) CONFIDENTIAL INFORMATION. Executive acknowledges that in the course of
his employment with the Previous Employer or the Company (and, if applicable,
the predecessors of either of them), he has been allowed to become, and will
continue to be allowed to become, acquainted with the Company's and Affiliated
Company's business affairs, information, trade secrets, and other matters which
are of a proprietary or confidential nature, including but not limited to the
Company's and Affiliated Company's and their respective predecessors'
operations, business opportunities, price and cost information, finance,
customer information, business plans, various sales techniques, manuals,
letters, notebooks, procedures, reports, products, processes, services, and
other confidential information and knowledge (collectively the "Confidential
Information") concerning the Company's, Affiliated Company's and their
respective predecessors' business. The Company agrees to provide on an ongoing
basis such Confidential Information as the Company deems necessary or desirable
to aid Executive in the performance of his duties. Executive understands and
acknowledges that such Confidential Information is confidential, and he agrees
not to disclose such Confidential Information to anyone outside the Company or
the Affiliated Company except to the extent that Executive deems such disclosure
or use reasonably necessary or appropriate in connection with performing his
duties on behalf of the Company. Executive further agrees that he will not
during employment and/or at any time thereafter use such Confidential
Information (to the extent it has not become public) in competing, directly or
indirectly, with the Company or the Affiliated Company. At such time as
Executive shall cease to be employed by the Company, he will immediately turn
over to the Company all Confidential Information, including papers, documents,
writings, electronically stored information, other property, and all copies of
them provided to or created by him during the course of his employment with the
Company (or, if applicable, Previous Employer).
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(B) HEIRS, SUCCESSORS, AND LEGAL REPRESENTATIVES. The foregoing provisions
of this Paragraph 4 shall be binding upon Executive's heirs, successors, and
legal representatives. The provisions of this Paragraph 4 shall survive the
termination of this Agreement for any reason.
5. COVENANT NOT TO COMPETE. The provisions of this Paragraph 5 shall apply
during Executive's employment with the Company and for a period of twenty-four
(24) months or such longer period for which severance is payable under Paragraph
7 commencing when the employment relationship has ended for any reason other
than death; provided, however, that the prohibition set forth in the second
sentence of this Paragraph 5 shall not apply in the case of termination of
employment solely as a result of the expiration of the Period of Employment
without extension. In consideration for Executive's employment by the Company
under the terms provided in this Agreement and as a means to aid in the
performance and enforcement of the terms of the Unauthorized Disclosure
provisions of Paragraph 4, Executive agrees that Executive will not, directly or
indirectly, as an owner, director, principal, agent, officer, employee, partner,
consultant, servant, or otherwise, carry on, operate, manage, control, or become
involved in any manner with any business, operation, corporation, partnership,
association, agency, or other person or entity which is in the business of
owning, operating, managing or granting franchise rights with respect to hotels,
motels or other lodging facilities in any area or territory in which the Company
or Affiliated Company conducts operations; provided, however, that the foregoing
does not prohibit Executive from owning up to one percent (1%) of the
outstanding stock of a publicly held corporation engaged in the hospitality
business; and provided, further, that the foregoing does not prohibit activities
in the hotel industry by Executive's family partnerships in which Executive does
not have a management role. Executive also agrees that Executive will not,
directly or indirectly, either for himself or for any other business, operation,
corporation, partnership, association, agency, or other person or entity, call
upon, compete for, solicit, divert, or take away, or attempt to divert or take
away any of the customers of the Company or Affiliated Company in any of the
areas or territories in which the Company or Affiliated Company conducts
operations. Further, Executive will not directly or indirectly solicit or induce
any present or future employee of the Company or Affiliated Company to accept
employment with Executive or with any business, operation, corporation,
partnership, association, agency, or other person or entity with which Executive
may be associated, and Executive will not employ or cause any business,
operation, corporation, partnership, association, agency, or other person or
entity with which Executive may be associated to employ any present or future
employee of the Company or Affiliated Company without providing the Company or
Affiliated Company with ten (10) days' prior written notice of such proposed
employment. Should Executive violate the provisions of this Paragraph, then in
addition to all other rights and remedies available to the Company or Affiliated
Company at law or in equity, the duration of this covenant shall automatically
be extended for the period of time from which Executive began such violation
until he permanently ceases such violation. Notwithstanding the foregoing,
Executive shall be permitted to continue to engage in activities that would
otherwise be prohibited by this Paragraph 5 with respect to the interests he
currently owns and which are described in Schedule II attached hereto and made a
part hereof by this reference and to engage in such activities with respect to
any other hotel, motel or lodging facility that would be immaterial to
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the operations of the Company in the area or territory in question.
Immateriality, for purposes of the foregoing sentence, shall be determined in
the sole discretion of the Board of Directors in good faith. Notwithstanding
anything to the contrary contained herein, Executive's acceptance of a position
with the Gencom Group of companies or affiliates, including any of the family-
owned business or establishment of his own business after his termination of
employment shall not be deemed to be a violation of the foregoing non-compete
provisions so long as Executive does not become an employee of or become
affiliated with a hospitality company that owns a brand that competes in any of
the business tiers of the Company. By way of illustration solely, as of the
Commencement Date, Executive would be deemed to violate the non-compete
provisions if he should become an employee of Promus, Hyatt or Starwood/Westin,
but Executive would not be deemed to violate the non-compete provisions if he
should become an employee of American General, Interstate or Microtel.
6. TERMINATION. Executive's employment hereunder may be terminated without any
breach of this Agreement under the following circumstances:
(A) DEATH. Executive's employment hereunder shall terminate upon his
death.
(B) DISABILITY. If, as a result of Executive's incapacity due to physical
or mental illness, Executive shall have been absent from his duties hereunder on
a full-time basis for one hundred eighty (180) calendar days in the aggregate in
any twelve (12) month period, the Company may terminate Executive's employment
hereunder.
(C) TERMINATION BY COMPANY FOR CAUSE. At any time during the Period of
Employment, the Company may terminate Executive's employment hereunder for Cause
if such termination is approved by a majority of the Board at a meeting of the
Board called and held for such purpose. For purposes of this Agreement "Cause"
shall mean: (A) conduct by Executive constituting a material act of willful
misconduct in connection with the performance of his duties, including, without
limitation, misappropriation of funds or property of the Company or any of its
affiliates other than the occasional, customary and de minimis use of Company
property for personal purposes; (B) criminal or civil conviction or conduct by
Executive that would reasonably be expected to result in material injury to the
reputation of the Company if he were retained in his position with the Company,
including, without limitation, conviction of a felony involving moral turpitude;
(C) continued, willful and deliberate non-performance by Executive of his
material duties hereunder (other than by reason of Executive's physical or
mental illness, incapacity or disability) and such non-performance has continued
for more than thirty (30) days following written notice of such non-performance
from the Board; or (D) a breach by Executive of any of the provisions contained
in Paragraphs 4 and 5 of this Agreement.
(D) TERMINATION BY COMPANY FOR PERFORMANCE REASONS. At any time during the
Period of Employment, the Company may terminate Executive's employment if (i)
such termination is approved by a majority of the Board at a meeting of the
Board called and held for such purpose; and (ii) Executive has materially failed
to perform his material duties
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hereunder or has violated, in material respects, the material policies and
procedures of the Company and such failure or violation has continued for more
than ninety (90) days following written notice of such violation from the Board.
(E) TERMINATION WITHOUT CAUSE. At any time during the Period of
Employment, the Company may terminate Executive's employment hereunder without
Cause if such termination is approved by a majority of the Board at a meeting of
the Board called and held for such purpose. Any termination by the Company of
Executive's employment under this Agreement which does not constitute a
termination for Cause under Subparagraph 6(c), termination for performance under
Subparagraph 6(d), or result from the death or disability of the Executive under
Subparagraph 6(a) or (b) shall be deemed a termination without Cause.
(F) TERMINATION BY EXECUTIVE. At any time during the Period of Employment,
Executive may terminate his employment hereunder for any reason, including but
not limited to Good Reason. For purposes of this Agreement, "Good Reason" shall
mean that Executive has complied with the "Good Reason Process" (hereinafter
defined) following the occurrence of any of the following events: (A) a
significant adverse change, not consented to in writing by Executive, in the
nature or scope of Executive's responsibilities, status, authorities, powers,
functions or duties from the responsibilities, status, authorities, powers,
functions or duties exercised by Executive immediately prior to the Commencement
Date; (B) any removal, during the Period of Employment, of Executive from or,
any failure by management to nominate, or, if nominated, any failure by the
Board to re-elect, Executive to any of the positions indicated in Paragraph 2,
except in connection with a termination of Executive's employment; (C) an
involuntary reduction in Executive's Base Salary or Adjusted Base Salary or
involuntary reduction in cash incentive compensation plan (but not reduction in
incentive compensation appropriate for level of performance) except for across-
the-board salary reductions similarly affecting all or substantially all
management employees; (D) a breach by the Company of any of its other material
obligations under this Agreement and the failure of the Company to cure such
breach within thirty (30) days after written notice thereof by Executive; (E) if
Paul A. Nussbaum ceases to serve as Chairman of the Affiliated Company and James
D. Carreker ceases to be Chairman of the Company; or (F) the relocation of the
Company's offices at which Executive is principally employed or the relocation
of the offices of Executive's primary workgroup to a location more than thirty
(30) miles from such offices, or the requirement by the Company for Executive to
be based anywhere other than the Company's offices at such location on an
extended basis, except for required travel on the Company's business to an
extent substantially consistent with Executive's business travel obligations;
provided however, that this clause (F) shall not apply to the initial relocation
from Houston, Texas to Dallas, Texas. "Good Reason Process" shall mean that (i)
the Executive reasonably determines in good faith that a "Good Reason" event has
occurred; (ii) Executive notifies the Company in writing of the occurrence of
the Good Reason event; (iii) Executive cooperates in good faith with the
Company's efforts, for a period not less than sixty (60) days following such
notice, to modify Executive's employment situation in a manner acceptable to
Executive and Company; and (iv) notwithstanding such efforts, one or more of the
Good
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Reason events continues to exist and has not been modified in a manner
acceptable to Executive.
(G) NOTICE OF TERMINATION. Except for termination as specified in
Subparagraph 6(a), any termination of Executive's employment by the Company or
any such termination by Executive shall be communicated by written Notice of
Termination to the other party hereto. For purposes of this Agreement, a "Notice
of Termination" shall mean a notice which shall indicate the specific
termination provision in this Agreement relied upon.
(H) DATE OF TERMINATION. "Date of Termination" shall mean: (A) if
Executive's employment is terminated by his death, the date of his death; (B) if
Executive's employment is terminated on account of disability under Subparagraph
6(b), the date on which Notice of Termination is given; (C) if Executive's
employment is terminated by the Company under Subparagraph 6(c), (d) or (e),
thirty (30) days after the date on which a Notice of Termination is given; and
(D) if Executive's employment is terminated by Executive under Subparagraph
6(f), thirty (30) days after the date on which a Notice of Termination is given.
7. COMPENSATION UPON TERMINATION OR DURING DISABILITY.
(a) If Executive's employment terminates by reason of his death, the
Company shall, within ninety (90) days of death, pay in a lump sum amount to
such person as Executive shall designate in a notice filed with the Company or,
if no such person is designated, to Executive's estate, Executive's accrued and
unpaid Base Salary or, if applicable, his Adjusted Base Salary, to the date of
his death, plus his accrued and unpaid incentive compensation under Subparagraph
3(b). All unvested stock options and stock-based grants shall immediately vest
in Executive's estate or other legal representatives and become exercisable, and
Executive's estate or other legal representatives shall have one (1) year from
the Date of Termination, or remaining option term, if earlier, to exercise the
stock options. For a period of one (1) year following the Date of Termination,
the Company shall pay such health insurance premiums as may be necessary to
allow Executive's spouse and dependents to receive health insurance coverage
substantially similar to coverage they received prior to the Date of
Termination. In addition to the foregoing, any payments to which Executive's
spouse, beneficiaries, or estate may be entitled under any employee benefit plan
shall also be paid in accordance with the terms of such plan or arrangement.
Such payments, in the aggregate, shall fully discharge the Company's obligations
hereunder.
(b) During any period that Executive fails to perform his duties hereunder
as a result of incapacity due to physical or mental illness, Executive shall
continue to receive his accrued and unpaid Base Salary or, if applicable, his
Adjusted Base Salary and accrued and unpaid incentive compensation payments
under Subparagraph 3(b), until Executive's employment is terminated due to
disability in accordance with Subparagraph 6(b) or until Executive terminates
his employment in accordance with Subparagraph 6(f), whichever first occurs.
All unvested stock options and stock-based grants shall immediately vest and
become exercisable and Executive shall have one (1) year from the Date of
Termination, or remaining
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option term, if earlier, to exercise the stock options. For a period of one (1)
year following the Date of Termination, the Company shall pay such health
insurance premiums as may be necessary to allow Executive, Executive's spouse
and dependents to receive health insurance coverage substantially similar to
coverage they received prior to the Date of Termination. Upon termination due to
death prior to the termination first to occur as specified in the preceding
sentence, Subparagraph 7(a) shall apply.
(c) If Executive's employment is terminated by Executive other than for
Good Reason as provided in Subparagraph 6(f), then the Company shall, through
the Date of Termination, pay Executive his accrued and unpaid Base Salary or, if
applicable, his Adjusted Base Salary at the rate in effect at the time Notice of
Termination is given. Thereafter, the Company shall have no further obligations
to Executive except as otherwise expressly provided under this Agreement,
provided any such termination shall not adversely affect or alter Executive's
rights under any employee benefit plan of the Company in which Executive, at the
Date of Termination, has a vested interest, unless otherwise provided in such
employee benefit plan or any agreement or other instrument attendant thereto.
(d) If Executive terminates his employment for Good Reason as provided in
Subparagraph 6(f) or if Executive's employment is terminated by the Company
without Cause as provided in Subparagraph 6(e), then the Company shall, through
the Date of Termination, pay Executive his accrued and unpaid Base Salary or, if
applicable, his Adjusted Base-Salary at the rate in effect at the time Notice of
Termination is given and his accrued and unpaid incentive compensation under
Subparagraph 3(b). In addition, subject to signing by Executive of a general
release of claims (other than continuing rights under this Agreement in a form
and manner satisfactory to the Company,
(i) the Company shall continue Executive's compensation at a rate
equal to the sum of Executive's Average Base Salary and Average Incentive
Compensation for the remaining term of the Agreement (but not less than
twenty-four (24) months) (the "Minimum Severance Amount") or such longer
period provided by the Company's then current severance polices (the
"Severance Amount"); provided, however, that in the event Executive
commences any employment during the period of salary continuation, the
Company shall be entitled to set-off against the remaining amount of salary
continuation by the amount of any cash compensation received by Executive
from the new employer. Such salary continuation shall be payable in equal
installments, in advance, on a quarterly basis. The amount payable in each
quarter will not be subject to any set-off so long as Executive certifies
in writing prior to each quarterly payment that he has not accepted
employment with a new employer (including, without limitation, contract and
consulting engagements). Notwithstanding the foregoing, if the Executive
breaches any of the provisions contained in Paragraphs 4 and 5 of this
Agreement, all salary continuation payments shall immediately cease. For
purposes of this Agreement, "Average Base Salary" shall mean the average of
the annual Base Salary or, if applicable, Adjusted Base Salary received by
Executive for each of the three (3) immediately preceding fiscal years or
such fewer number of complete or
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partial fiscal years as Executive may have been employed by the Company.
For purposes of this Agreement, "Average Incentive Compensation" shall mean
the average of the annual incentive compensation under Subparagraph 3(b)
received by Executive for the three (3) immediately preceding fiscal years
or such fewer number of complete or partial fiscal years as Executive may
have been employed by the Company. Notwithstanding the foregoing, in the
event Executive terminates his employment for Good Reason as provided in
Subparagraph 6(f), he shall be entitled to the Severance Amount or the
Minimum Severance Amount only if he provides the Notice of Termination
provided for in Subparagraph 6(g) within sixty (60) days after the
occurrence of the event or events which constitute such Good Reason as
specified in clauses (A), (B), (C), (D) and (E) of Subparagraph 6(f);
(ii) in addition to any other benefits to which Executive may be
entitled in accordance with the Company's then existing severance policies,
the Company shall:
(a) for a period of six (6) months commencing on the Date of
Termination, pay for the cost of executive outplacement services
selected by Executive for use in connection with obtaining alternate
employment; and
(b) for a period of one (1) year commencing on the Date of
Termination, pay such health insurance premiums as may be necessary to
allow Executive, Executive's spouse and dependents to continue to
receive health insurance coverage substantially similar to the
coverage they received prior to his termination of employment; and
(iii) Executive shall receive all the rights and benefits granted or
in effect with respect to Executive under the Company's employee stock
option or incentive plans and agreements with Executive pursuant thereto.
In addition to the foregoing, all stock options and other stock-based
awards in which Executive otherwise would have vested if he would have
remained employed for a period of twenty-four (24) months or the remaining
term of the Agreement, if longer, shall immediately accelerate and become
exercisable or nonforfeitable as of the Date of Termination.
(e) If Executive's employment is terminated by the Company for Cause as
provided in Subparagraph 6(c) or for performance as provided in Subparagraph
6(d), then the Company shall, through the Date of Termination, pay Executive his
accrued and unpaid Base Salary or, if applicable, his Adjusted Base Salary at
the rate in effect at the time Notice of Termination is given and in case of
termination for performance as provided by Subparagraph 6(d), his accrued and
unpaid incentive compensation under Subparagraph 3(b). Thereafter, the Company
shall have no further obligations to Executive except as otherwise expressly
provided under this Agreement, provided any such termination shall not adversely
affect or alter Executive's rights under any employee benefit plan of the
Company in which Executive, at the Date of Termination, has a vested interest,
unless otherwise provided in such employee benefit plan or any agreement or
other instrument attendant thereto. Notwithstanding the foregoing
10
<PAGE>
and in addition to whatever other rights or remedies the Company may have at law
or in equity, all stock options held by Executive shall immediately expire on
the Date of Termination if Executive's employment is terminated by the Company
for Cause as provided by Subparagraph 6(c).
(f) If Executive's employment is terminated as a result of the expiration
of the Period of Employment without extension, then the Company shall, through
the Date of Termination, pay Executive his accrued and unpaid Base Salary or, if
applicable, his Adjusted Base Salary at the rate in effect at the time Notice of
Termination is given and his accrued and unpaid incentive compensation under
Subparagraph 3(b). Thereafter, the Company shall have no further obligations to
Executive except as otherwise expressly provided under this Agreement, provided
any such termination shall not adversely affect or alter Executive's rights
under any employee benefit plan of the Company in which Executive, at the Date
of Termination, has a vested interest, unless otherwise provided in such
employee benefit plan or any agreement or other instrument attendant thereto.
(g) Regardless the reason for termination, for a period of three (3) years
beginning on the Date of Termination, the Company will provide at the expense of
the Company such reasonable assistance and support to Executive as he shall
reasonably require in connection with the preparation and filing of tax returns,
statements and forms insofar as such returns, statements and forms relate to
Executive's association with the Company, Affiliated Company, Previous Employer
or any of their respective predecessors or affiliates. At the Company's
election, such assistance and support shall be provided by either tax personnel
of the Company or certified public accountants selected and compensated by the
Company.
(h) Nothing contained in the foregoing Subparagraphs 7(a) through 7(f)
shall be construed so as to affect Executive's rights or the Company's
obligations relating to agreements or benefits which are unrelated to
termination of employment.
8. PARACHUTE PAYMENT. The provisions of this Paragraph 8 set forth certain
terms of an agreement reached between Executive and the Company regarding
Executive's rights and obligations upon the occurrence of a Change in Control of
the Company. These provisions are intended to assure and encourage in advance
Executive's continued attention and dedication to his assigned duties and his
objectivity during the pendency and after the occurrence of any such event.
These provisions shall apply in lieu of, and expressly supersede, the provisions
of Subparagraph 7(d)(i) regarding severance pay upon a termination of
employment, if such termination of employment occurs within eighteen (18) months
after the occurrence of the first event constituting a Change in Control. These
provisions shall terminate and be of no further force or effect beginning
eighteen (18) months after the occurrence of a Change in Control.
(A) ESCROW. Within fifteen (15) days after the occurrence of the first
event constituting a Change in Control, the Company shall place funds in an
amount equal to the estimated Parachute Amount in escrow, pursuant to
arrangements that are mutually acceptable to the Company and Executive providing
for the payment of the Parachute Amount in the event
11
<PAGE>
Executive becomes entitled thereto pursuant to Subparagraph 8(b)(i) (the "Escrow
Arrangement"). The Escrow Arrangement shall be maintained until the earlier of
(A) eighteen (18) months after the occurrence of the first event constituting a
Change in Control or (B) the payment to Executive of the Parachute Amount
pursuant to the provisions of Subparagraph 8(b)(i).
(B) CHANGE IN CONTROL. If within eighteen (18) months after the occurrence
of the first event constituting a Change in Control, Executive's employment
terminates for any reason other than (A) death, (B) his inability, due to
illness, accident, or other physical or mental incapacity, to perform his duties
for more than one hundred eighty (180) days during any twelve-month period or
(C) his Voluntary Resignation ("Termination"), then:
(i) the Company shall pay Executive in a lump sum an amount equal
to the applicable Parachute Amount on the tenth (10th) day following
Executive's Termination; and
(ii) all stock options and other stock-based awards granted to
Executive by the Company shall immediately accelerate and become
exercisable or non-forfeitable as of the date of Change in Control, and
Executive shall be entitled to any other rights and benefits with respect
to stock-related awards, to the extent and upon the terms provided in the
employee stock option or incentive plan or any agreement or other
instrument attendant thereto pursuant to which such options or awards were
granted.
(C) GROSS UP PAYMENT.
(i) Excess Parachute Payment. If Executive incurs the tax (the
"Excise Tax") imposed by Section 4999 of the Internal Revenue Code of 1986
(the "Code") on "excess parachute payments" within the meaning of Section
280G(b)(1) of the Code, the Company will pay to Executive an amount (the
"Gross Up Payment") such that the net amount retained by Executive, after
deduction of any Excise Tax on the excess parachute payment and any
federal, state and local taxes (together with penalties and interest) and
Excise Tax upon the payment provided for by this Subparagraph 8(c)(i), will
be equal to the Parachute Amount.
(ii) Applicable Rates. For purposes of determining the amount of the
Gross Up Payment, Executive will be deemed to pay federal income taxes at
the highest marginal rate of federal taxation in the calendar year in which
the Gross Up Payment is to be made and state and local income taxes at the
highest marginal rates of taxation in the state and locality of Executive's
residence on the date of Executive's Termination, net of the maximum
reduction in federal income taxes that could be obtained from deduction of
such state and local taxes.
(iii) Determination of Gross Up Payment Amount. The determination of
whether the Excise Tax is payable and the amount thereof will be based upon
the
12
<PAGE>
opinion of tax counsel selected by Executive and approved by the Company,
which approval will not be unreasonably withheld. The costs of obtaining
the opinion of tax counsel shall be borne by the Company. If such opinion
is not finally accepted by the Internal Revenue Service (or state and local
taxing authorities), then appropriate adjustments to the Excise Tax will be
computed and additional Gross Up Payments will be made in the manner
provided by this Subparagraph (c).
(iv) Time For Payment. The Company will pay the estimated amount of
the Gross Up Payment in cash to Executive concurrent with Employee's
Termination. Executive and the Company agree to reasonably cooperate in the
determination of the actual amount of the Gross Up Payment. Further,
Executive and the Company agree to make such adjustments to the estimated
amount of the Gross Up Payment as may be necessary to equal the actual
amount of the Gross Up Payment, which in the case of Executive will refer
to refunds of prior overpayments and in the case of the Company will refer
to makeup of prior underpayments.
(D) DEFINITIONS. For purposes of this Paragraph 8, the following terms
shall have the following meanings:
"CHANGE IN CONTROL" shall mean an event which shall be deemed to have
occurred if (i) any "person" or "group" (as such terms are used in Sections
13(d) and 14(d) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), other than a trustee or other fiduciary holding securities
under an employee benefit plan of the Company, is or becomes the
"beneficial owner" (as defined in Rule 13d-3 promulgated under the Exchange
Act), directly or indirectly, of securities of the Company representing 25%
or more of the combined voting power of the Company's then outstanding
securities; or (ii) individuals who at the Commencement Date constitute the
Board and any new director (other than a director designated by a person
who has entered into an agreement with the Company to effect a transaction
described in clauses (i) or (iii) of this paragraph) whose election by the
Board or nomination for election by the Company's stockholders was approved
by a vote of at least eighty percent (80%) of the directors then still in
office who either were directors at the Commencement Date or whose election
or nomination for election was previously so approved, cease for any reason
to constitute a majority of the Board; or (iii) the stockholders of the
Company approve a merger or consolidation of the Company with or into any
other corporation, other than a merger or consolidation which would result
in the voting securities of the Company outstanding immediately prior
thereto continuing to represent (either by remaining outstanding or by
being converted into voting securities of the surviving entity) at least
sixty percent (60%) of the combined voting power of the voting securities
of the Company or such surviving entity outstanding immediately after such
merger or consolidation; or (iv) the stockholders of the Company approve a
plan of complete liquidation of the Company or an agreement for the sale or
disposition by the Company of all or substantially all the Company's
assets.
13
<PAGE>
"PARACHUTE AMOUNT" shall mean an amount equal to the greater of the
Severance Amount or the Minimum Severance Amount provided for in
Subparagraph 7(d)(i).
"VOLUNTARY RESIGNATION" shall mean any termination of Executive's
employment by his own act, unless such termination is for Good Reason.
9. NOTICE. For purposes of this Agreement, notices and all other
communications provided for in the Agreement shall be in writing and shall be
deemed to have been duly given when delivered or mailed by United States
certified mail, return receipt requested, postage prepaid, addressed as follows:
if to the Executive:
At his home address as shown
in the Company's personnel records;
if to the Company:
Patriot American Hospitality Operating Company
3030 LBJ Freeway, Suite 1500
Dallas, TX 75234
Attn.: General Counsel
or to such other address as either party may have furnished to the other in
writing in accordance herewith, except that notices of change of address shall
be effective only upon receipt.
10. MISCELLANEOUS. No provisions of this Agreement may be modified, waived, or
discharged unless such waiver, modification, or discharge is agreed to in
writing and signed by Executive and such officer of the Company as may be
specifically designated by the Board. No waiver by either party hereto of, or
compliance with, any condition or provision of this Agreement to be performed by
such other party shall be deemed a waiver of similar or dissimilar provisions or
conditions at the same or at any prior or subsequent time. No agreements or
representations, oral or otherwise, express or implied, unless specifically
referred to herein, with respect to the subject matter hereof have been made by
either party which are not set forth expressly in this Agreement. The validity,
interpretation, construction, and performance of this Agreement shall be
governed by the laws of the State of Texas (without regard to principles of
conflicts of laws).
11. VALIDITY. The invalidity or unenforceability of any provision or
provisions of this Agreement shall not affect the validity or enforceability of
any other provision of this Agreement, which shall remain in full force and
effect. The invalid portion of this Agreement,
14
<PAGE>
if any, shall be modified by any court having jurisdiction to the extent
necessary to render such portion enforceable.
12. COUNTERPARTS. This Agreement may be executed in several counterparts, each
of which shall be deemed to be an original but all of which together will
constitute one and the same instrument.
13. ARBITRATION; OTHER DISPUTES. In the event of any dispute or controversy
arising under or in connection with this Agreement, the parties shall first
promptly try in good faith to settle such dispute or controversy by mediation
under the Commercial Mediation Rules of the American Arbitration Association
before resorting to arbitration. In the event such dispute or controversy
remains unresolved in whole or in part for a period of thirty (30) days after it
arises, the parties will settle any remaining dispute or controversy exclusively
by arbitration in Dallas, Texas, in accordance with the rules of the American
Arbitration Association then in effect. Judgment may be entered on the
arbitrator's award in any court having jurisdiction. Notwithstanding the above,
the Company shall be entitled to seek a restraining order or injunction in any
court of competent jurisdiction to prevent any continuation of any violation of
Paragraph 4 or 5 hereof. Furthermore, should a dispute occur concerning
Executive's mental or physical capacity as described in Subparagraph 6(b), 6(c)
or 7(b), a doctor selected by Executive and a doctor selected by the Company
shall be entitled to examine Executive. If the opinion of the Company's doctor
and Executive's doctor conflict, the Company's doctor and Executive's doctor
shall together agree upon a third doctor, whose opinion shall be binding. Any
amount to which Executive is entitled under this Agreement (including any
disputed amount), which is not paid when due, shall bear interest at a rate
equal to the lesser of eighteen percent (18%) per annum or the maximum lawful
rate.
14. THIRD-PARTY AGREEMENTS AND RIGHTS. Executive represents to the Company
that Executive's execution of this Agreement, Executive's employment with the
Company and the performance of Executive's proposed duties for the Company will
not violate any obligations Executive may have to any employer or other party,
and Executive will not bring to the premises of the Company any copies or other
tangible embodiments of non-public information belonging to or obtained from any
such previous employment or other party.
15. LITIGATION AND REGULATORY COOPERATION. During and after Executive's
employment, Executive shall reasonably cooperate with the Company in the defense
or prosecution of any claims or actions now in existence or which may be brought
in the future against or on behalf of the Company which relate to events or
occurrences that transpired while Executive was employed by the Company;
provided, however, that such cooperation in Executive's good faith opinion shall
not materially and adversely affect Executive or expose Executive to an
increased probability of civil or criminal litigation or materially interfere,
in Executive's good faith opinion, with Executive's personal and business
activities. Executive's cooperation in connection with such claims or actions
shall include, but not be limited to, being available to meet with counsel to
prepare for discovery or trial and to act as a witness on behalf of the Company
at mutually convenient times. During and after Executive's employment, to the
15
<PAGE>
extent that it does not materially interfere, in Executive's good faith opinion,
with Executive's personal and business activities, Executive also shall
cooperate fully with the Company in connection with any investigation or review
of any federal, state or local regulatory authority as any such investigation or
review relates to events or occurrences that transpired while Executive was
employed by the Company. The Company shall also provide Executive with
compensation on an hourly basis calculated at his final base compensation rate
for requested litigation and regulatory cooperation that occurs after his
termination of employment, and pay in advance upon request Executive for all
costs and expenses incurred in connection with his performance under this
Paragraph 15, including, but not limited to, reasonable attorneys' fees and
costs.
16. ASSIGNMENT. At the sole election of the Company, this Agreement may be
assigned by the Company to Patriot American Hospitality, Inc.
IN WITNESS WHEREOF, the parties have executed this Agreement effective on
the date and year first above written.
PATRIOT AMERICAN HOSPITALITY OPERATING
COMPANY
By: /s/ Paul A. Nussbaum
----------------------------------
Its: Chairman and Chief Executive
Officer
/s/ Karim Alibhai
----------------------------------
Karim Alibhai
16
<PAGE>
SCHEDULE I TO EXECUTIVE EMPLOYMENT AGREEMENT
Title: President and Chief Operating Officer
Reports directly to Chairman and Chief Executive
Officer
Location: Dallas, Texas
Responsibilities: The Chief Financial Officer of the Company and the GAH
Division will report to Executive. The group overseeing
asset management function for the Company will report
directly to Executive or at the election of Executive,
to the Chief Financial Officer of the Company.
<PAGE>
SCHEDULE II TO EXECUTIVE EMPLOYMENT AGREEMENT
Executive has ownership interests in Gencom Asset Management Services,
L.P., which provides asset management services to hotels. Executive also has
ownership interests in the following hotels:
<TABLE>
<CAPTION>
HOTEL CITY STATE
----- ---- -----
<S> <C> <C>
Crowne Plaza Miami Miami Florida
Days Inn Astrodome Houston Texas
Days Inn Austin Austin Texas
Days Inn Greenspoint Houston Texas
Days Inn Port Lavaca Houston Texas
Denton Radisson Denton Texas
Desjardins Registry Hotel Montreal Canada
Edmonton Sheraton Edmonton Canada
Four Points Dunwoody Atlanta Georgia
Hampton Inn Corpus Corpus Christi Texas
Hawthorne Suites Houston Texas
Holiday Inn Astrodome Houston Texas
Holiday Inn Galleria Houston Texas
Holiday Inn Stevens Point Stevens Point Wisconsin
Key Biscayne Grand Bay Key Biscayne Florida
Marriott Residence Houston Texas
Park Plaza Grand Bay Toronto Canada
Philadelphia Grand Bay Philadelphia Pennsylvania
Radisson Astrodome Houston Texas
Ramada Astrodome Houston Texas
Sheraton Acapulco Acapulco Mexico
Sheraton Astrodome Houston Texas
The Inn at Maingate Orlando Florida
</TABLE>
<PAGE>
EXHIBIT 12.1
RATIO OF EARNINGS TO FIXED CHARGES
PATRIOT AMERICAN HOSPITALITY, INC. AND
WYNDHAM INTERNATIONAL, INC.
(in thousands)
YEAR YEAR INCEPTION
ENDED ENDED THROUGH
12/31/97 12/31/96 12/31/95
-------- -------- --------
EARNINGS:
Income before minority interest $ 4,142 $ 44,813 $ 7,064
Add back: fixed charges 53,093 7,471 89
-------- -------- --------
$ 57,235 $ 52,284 $ 7,153
======== ======== ========
FIXED CHARGES:
Interest expense, including
amort of DLC $ 50,531 $ 7,380 $ 89
Capitalized interest 2,562 91 -
-------- -------- --------
$ 53,093 $ 7,471 $ 89
======== ======== ========
RATIO: 1.08 7.00 80.37
======== ======== ========
<PAGE>
EXHIBIT 21.1
Significant
Subsidiaries of
Patriot American Hospitality, Inc.
----------------------------------
<TABLE>
<S> <C>
Patriot American Hospitality Partnership, L.P. Virginia
1500 Canal Street Investors II, L.P. Delaware
Albuquerque C.I. Associates, L.P. Kansas
Atlanta American Hotel Investors, L.P. Delaware
Boulders Joint Venture Arizona
Bourbon Orleans Investors II, L.P. Delaware
City Centre Partnership, L.P. Delaware
CV Ranch L.P. Delaware
GHALP Partnership, L.P. Delaware
Glenview Hospitality, L.P. Delaware
Hotel Venture Partners, Ltd. Florida
Kansas City Hospitality, L.P. Delaware
Knoxville C.I. Associates, L.P. Tennessee
Marina Hospitality, L.P. Delaware
Melbourne Hospitality, L.P. Delaware
Omaha C.I. Associates, L.P. Kansas
Overland Park C.I. Associates, L.P. Kansas
PA Hunt Valley Investors, L.P. Virginia
PA Ravinia Partners Virginia
PA Troy Hospitality Investors, L.P. Delaware
PAH-Buttes L.L.C. Delaware
PAH GP, Inc. Delaware
</TABLE>
1
<PAGE>
<TABLE>
<S> <C>
PAH LP, Inc. Delaware
PAH Ventana Canyon, L.P. Delaware
PAH Windwatch, LLC Delaware
PAH-Akron, L.L.C. Delaware
PAH-Beachwood I, L.L.C. Delaware
PAH-Beachwood II, L.L.C. Delaware
PAH-BV Palace, L.P. Delaware
PAH-CI Holding, LLC Delaware
PAH-DT Allen Partners, L.P. Delaware
PAH-DT Chicago O'Hare Partners, L.P. Delaware
PAH-DT Miami Airport Partners, L.P. Delaware
PAH-DT Minneapolis Suites Partners, L.P. Delaware
PAH-DT Park Place Partners, L.P. Delaware
PAH-DT Tallahassee Partners, L.P. Delaware
PAH-Grand Bay Miami, L.P. Delaware
PAH-HVP General Partner Corp. Delaware
PAH-HVP Holding Corp. Delaware
PAH-River House, L.P. Delaware
PAH-Tampa, L.P. Delaware
PAH-Westlake LLC Delaware
Patriot Land Holding, LLC Delaware
Patriot Miami Note Holder, L.P. Delaware
Patriot Racetrack Land LLC Delaware
Richardson C.I. Associates, L.P. Texas
Royal Palace Hotel Associates Florida
</TABLE>
2
<PAGE>
<TABLE>
<S> <C>
Salt Lake City Partnership, L.P. Delaware
Savannah C.I. Associates, L.P. Georgia
St. Louis C.I. Associates, L.P. Missouri
Telluride Resort and Spa L.P. Delaware
Toledo Hotel Investors, L.P. Delaware
Topeka C.I. Associates, L.P. Kansas
Travis Real Estate Group Joint Venture Texas
WHC Atlanta GP, LLC Delaware
WHC Chicago, LLC Delaware
Wichita C.I. Associates III, L.P. Kansas
YO Hotel Investors, L.P. Delaware
</TABLE>
3
<PAGE>
Significant
Subsidiaries of
Wyndham International, Inc.
---------------------------
<TABLE>
<S> <C>
Bay Meadows Operating Company LLC Delaware
Carefree Management LLC Delaware
El Conquistador Partnership L.P. Delaware
Grand Heritage Hotels (Europe) Limited United Kingdom
Grand Heritage Hotels, Inc. Maryland
Grand Heritage Leasing LLC Maryland
Hotel Del Coronado Management Corporation Delaware
Isla Verde Tourism Parking Corporation Puerto Rico
Las Casitas Development Company I, S en C (S.E.) Puerto Rico
Marquis Hotel Associates Pennsylvania
MBAH, Inc. Texas
O-H Acquisition, Inc. Delaware
P.H.G., LLC Maryland
PAH Batterymarch Realty Company, LLC Delaware
PAH GAH Holdings, L.P. Delaware
PAH Leasing, LLC Delaware
PAH Stanly Holding LLC Delaware
PAH-Columbus Holding, Inc. Delaware
PAH-Franchise Holding, Inc. Delaware
PAH-Interest Holding, Inc. Delaware
PAH-IP Holding, Inc. Delaware
PAH-Pittsburgh CI Holding, Inc. Delaware
</TABLE>
4
<PAGE>
<TABLE>
<S> <C>
PAH-Westmont CI Holding, Inc. Delaware
PAH-WMC Holding, Inc. Delaware
PAH-Xerxes Holding, Inc. Delaware
Patriot American Hospitality Operating Partnership, L.P. Delaware
Patriot Bougainvillea Development Company, LLC Delaware
Patriot Grand Heritage, LLC Delaware
Patriot Holding LLC Delaware
Posadas de San Juan Associates New York
PSMB, Inc. California
PWMB, Inc. Delaware
Resorts Services, Inc. Arizona
Rose Hall Associates, Limited Partnership Texas
Salt Lake City Operating Partnership, L.P. Delaware
HEPC Garden Albuquerque, Inc. Texas
WH Interest, Inc. Texas
WHC Caribbean, Ltd. Jamaica
WHC Columbus Corporation Delaware
WHC Franchise Corporation Delaware
WHCMB Overland Park, Inc. Kansas
WHCMB Toronto, Inc. Canada
WHCMB Utah Private Club Corporation Utah
WHCMB, Inc. Delaware
WHG El Con Corp. Delaware
WHG Resorts & Casinos Inc. Delaware
WKA El Con Associates New York
</TABLE>
5
<PAGE>
<TABLE>
<S> <C>
WKA Development S.E. Puerto Rico
Williams Hospitality Group, Inc. Delaware
WIPC, LLC Delaware
Wyndham Hotels & Resorts (Aruba) N.V. Aruba
Wyndham Hotels & Resorts Management, Ltd. Bermuda
Wyndham IP Corporation Delaware
Wyndham Management Corporation Delaware
Wyndham Management II, LLC Delaware
Xerxes Limited Jamaica
</TABLE>
6
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in the (a) Joint Registration
Statement on Form S-3 (File No. 333-29671 and No. 333-29671-01) and related
Prospectus of Patriot American Hospitality, Inc. and Wyndham International, Inc.
(formerly Patriot American Hospitality Operating Company), (b) Joint
Registration Statement on Form S-8 (File No. 333-41927 and No. 333-41927-01) of
Patriot American Hospitality, Inc. and Wyndham International, Inc. (formerly
Patriot American Hospitality Operating Company), (c) Joint Registration
Statement on Form S-3 (File No. 333-39313 and No. 333-39313-01) and related
Prospectus of 1,681,793 paired shares of common stock of Patriot American
Hospitality, Inc. and Wyndham International, Inc. (formerly Patriot American
Hospitality Operating Company), (d) Joint Registration Statement on Form S-4
(File No. 333-44203 and No. 333-44203-01) of Patriot American Hospitality, Inc.
and Wyndham International, Inc., (e) Joint Registration Statement on Form S-8
(File No. 333-44197 and No. 333-44197-01) of Patriot American Hospitality, Inc.
and Wyndham International, Inc., and (f) Joint Registration Statement on Form S-
3 (File No. 333-28085 and No. 333-28085-01) and related Prospectus of
$1,000,000,000 of paired common stock and paired preferred stock of Patriot
American Hospitality, Inc. and Wyndham International, Inc. of our report dated
February 9, 1998, with respect to the financial statements and schedules of
Patriot American Hospitality, Inc. and Wyndham International, Inc. included in
this Form 10-K for the year ended December 31, 1997.
/s/ Ernst & Young LLP
Dallas, Texas
March 26, 1998
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEETS AS OF DECEMBER 31, 1997 AND 1996 AND THE
CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE YEARS ENDED DECEMBER 31, 1997 AND
1996 OF PATRIOT AMERICAN HOSPITALITY, INC., AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> 12-MOS 12-MOS
<FISCAL-YEAR-END> DEC-31-1997 DEC-31-1996
<PERIOD-START> JAN-01-1997 JAN-01-1996
<PERIOD-END> DEC-31-1997 DEC-31-1996
<CASH> 20,360 6,604
<SECURITIES> 0 0
<RECEIVABLES> 12,105 5,351
<ALLOWANCES> 0 0
<INVENTORY> 1,306 1,648
<CURRENT-ASSETS> 0 0
<PP&E> 2,083,768 661,640
<DEPRECIATION> 67,501 19,815
<TOTAL-ASSETS> 2,321,105 760,931
<CURRENT-LIABILITIES> 0 0
<BONDS> 0 0
0 0
0 0
<COMMON> 733 436
<OTHER-SE> 908,294 436,603
<TOTAL-LIABILITY-AND-EQUITY> 2,321,105 760,931
<SALES> 0 0
<TOTAL-REVENUES> 185,554 76,493
<CGS> 0 0
<TOTAL-COSTS> 0 0
<OTHER-EXPENSES> 136,800 30,145
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 51,000 7,380
<INCOME-PRETAX> 382 37,991
<INCOME-TAX> 0 0
<INCOME-CONTINUING> 0 0
<DISCONTINUED> 0 0
<EXTRAORDINARY> (2,534) 0
<CHANGES> 0 0
<NET-INCOME> (2,152) 37,991
<EPS-PRIMARY> (0.04) 1.07
<EPS-DILUTED> (0.04) 1.06
</TABLE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEET AS OF DECEMBER 31, 1997 AND THE CONSOLIDATED
STATEMENT OF OPERATIONS FOR THE SIX MONTHS ENDED DECEMBER 31, 1997 OF WYNDHAM
INTERNATIONAL, INC., AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JUL-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 27,076
<SECURITIES> 0
<RECEIVABLES> 46,340
<ALLOWANCES> 0
<INVENTORY> 9,144
<CURRENT-ASSETS> 100,662
<PP&E> 29,686
<DEPRECIATION> 1,304
<TOTAL-ASSETS> 252,088
<CURRENT-LIABILITIES> 112,821
<BONDS> 0
0
0
<COMMON> 733
<OTHER-SE> 80,132
<TOTAL-LIABILITY-AND-EQUITY> 252,088
<SALES> 167,727
<TOTAL-REVENUES> 204,134
<CGS> 0
<TOTAL-COSTS> 109,003
<OTHER-EXPENSES> 93,825
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 933
<INCOME-PRETAX> 373
<INCOME-TAX> (481)
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (20)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
