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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON SEPTEMBER 25, 1998
REGISTRATION STATEMENT NOS. 333-58705, 333-58705-01
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
AMENDMENT NO. 2
TO
REGISTRATION STATEMENT
ON FORM S-3 UNDER
THE SECURITIES ACT OF 1933
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<TABLE>
<S> <C>
PATRIOT AMERICAN HOSPITALITY, INC. WYNDHAM INTERNATIONAL, INC.
(Exact Name of Registrant as Specified in its (Exact Name of Registrant as Specified in its
Charter) Charter)
DELAWARE DELAWARE
(State or Other Jurisdiction of Incorporation or (State or Other Jurisdiction of Incorporation or
Organization) Organization)
94-0358820 94-2878485
(I.R.S. Employer Identification No.) (I.R.S. Employer Identification No.)
1950 Stemmons Freeway 1950 Stemmons Freeway
Suite 6001 Suite 6001
Dallas, TX 75207 Dallas, TX 75207
(214) 863-1000 (214) 863-1000
(Address, Including Zip Code and Telephone Number, Including Area Code, of Registrant's Principal
Executive Office)
PAUL A. NUSSBAUM JAMES D. CARREKER
Chairman of the Board and Chief Executive Officer Chairman of the Board and Chief Executive Officer
Patriot American Hospitality, Inc. Wyndham International, Inc.
1950 Stemmons Freeway 1950 Stemmons Freeway
Suite 6001 Suite 6001
Dallas, TX 75207 Dallas, TX 75207
(214) 863-1000 (214) 863-1000
(Name, Address, Including Zip Code and Telephone Number, Including Area Code, of Agent for Service)
</TABLE>
--------------------------
Copies to:
GILBERT G. MENNA, P.C.
MARTIN CARMICHAEL III, P.C.
GOODWIN, PROCTER & HOAR LLP
EXCHANGE PLACE BOSTON, MA 02109-2881
(617) 570-1000
--------------------------
Approximate date of commencement of proposed sale to public:
As soon as practicable after this registration statement becomes effective.
--------------------------
If the only securities being registered on this form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. / /
If any of the securities being registered on this form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box. /X/
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. / /
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. / /
--------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SECTION 8(A), MAY
DETERMINE.
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<PAGE>
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY JURISDICTION IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL
PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH
JURISDICTION.
<PAGE>
SUBJECT TO COMPLETION
PRELIMINARY PROSPECTUS DATED ________, 1998
PATRIOT AMERICAN HOSPITALITY, INC.
4,000,000 SHARES OF COMMON STOCK
WYNDHAM INTERNATIONAL, INC.
4,000,000 SHARES OF COMMON STOCK
For purposes of this Prospectus, unless the context otherwise requires, (i)
the term "Corporation" includes Patriot American Hospitality, Inc., a Delaware
corporation, PAH GP, Inc. ("PAH GP"), PAH LP, Inc. ("PAH LP"), each of which is
a Delaware corporation and a wholly-owned subsidiary of Patriot American
Hospitality, Inc., a Delaware corporation, Patriot American Hospitality
Partnership, L.P., a Virginia limited partnership (the "Realty Partnership"),
and their respective subsidiaries, (ii) the term "Operating Company" includes
Wyndham International, Inc. (formerly known as Patriot American Hospitality
Operating Company), a Delaware corporation, and Wyndham International
Partnership, L.P. (formerly known as Patriot American Hospitality Operating
Partnership, L.P.), a Delaware limited partnership (the "Operating Partnership"
and, together with the Realty Partnership, the "Partnerships"), and their
respective subsidiaries, and (iii) the term "Companies" includes the Corporation
and the Operating Company. Shares of common stock ("Corporation Common Stock"),
$.01 par value, of the Corporation and shares of common stock ("Operating
Company Common Stock"), $.01 par value, of the Operating Company are "paired"
and trade as units consisting of one share of Corporation Common Stock and one
share of Operating Company Common Stock (the "Paired Common Stock").
This Prospectus relates to the offer and sale from time to time of up to an
aggregate of 4,000,000 shares of Paired Common Stock (hereinafter sometimes
referred to as the "Securities") by the Companies as more fully described in
"The Companies--Sales of Paired Common Stock with Price Adjustment
Mechanisms--UBS Transaction" and "Plan of Distribution." The specific number of
shares of Paired Common Stock to be sold and the public offering price per share
will be set forth in an accompanying prospectus supplement.
The Securities may be sold through underwriting syndicates represented by
one or more managing underwriters, or by one or more underwriters without a
syndicate. The number of Securities to be sold, the names of any underwriters
involved in the sale of such Securities, any applicable commissions or
discounts, and the net proceeds to the Companies from such sale will be set
forth in an accompanying Prospectus Supplement. See "Plan of Distribution."
The Paired Common Stock is listed on the New York Stock Exchange (the
"NYSE") under the symbol "PAH." On September 22, 1998, the reported closing sale
price of the Paired Common Stock on the NYSE was $14.4375 per share.
SEE "RISK FACTORS" BEGINNING ON PAGE 3 FOR CERTAIN FACTORS RELEVANT TO AN
INVESTMENT IN THE SHARES OF PAIRED COMMON STOCK.
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
------------------------
This Prospectus may not be used to consummate sales of shares of Paired
Common Stock unless accompanied by a Prospectus Supplement.
The date of this Prospectus is ______, 1998
<PAGE>
AVAILABLE INFORMATION
The Companies have filed with the Securities and Exchange Commission (the
"SEC" or "Commission") a Registration Statement on Form S-3 (the "Registration
Statement") under the Securities Act, with respect to the Securities. This
Prospectus, which constitutes part of the Registration Statement, omits certain
of the information contained in the Registration Statement and the exhibits
thereto on file with the Commission pursuant to the Securities Act and the rules
and regulations of the Commission thereunder. Statements contained in this
Prospectus as to the contents of any contract or other document referred to are
not necessarily complete, and in each instance reference is made to the copy of
such contract or other document filed as an exhibit to the Registration
Statement, each such statement being qualified in all respects by such
reference. The Registration Statement, including exhibits thereto, may be
inspected and copies obtained from the Commission at Room 1024, Judiciary Plaza,
450 Fifth Street, N.W., Washington, D.C. 20549, and at the following Regional
Offices of the Commission: 7 World Trade Center, 13th Floor, New York, New York
10048, and Northwestern Atrium Center, 500 West Madison Street, Suite 1400,
Chicago, Illinois 60661-2511. Copies of such material may be obtained from the
Public Reference Section of the Commission at Judiciary Plaza, 450 Fifth Street,
N.W., Washington, D.C. 20549, at prescribed rates. The Companies file
information electronically with the Commission, and the Commission maintains a
Web Site that contains reports, proxy and information statements and other
information regarding registrants (including the Companies) that file
electronically with the Commission. The address of the Commission's Web Site is
(http://www.sec.gov).
The Companies are subject to the informational requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and in
accordance therewith file reports and proxy statements and other information
with the Commission. Such reports, proxy statements and other information can be
inspected and copied at the locations described above. Copies of such materials
can be obtained by mail from the Public Reference Section of the Commission at
Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549 at
prescribed rates. In addition, reports, proxy and information statements and
other information concerning the Companies can be inspected at the offices of
the New York Stock Exchange (the "NYSE"), 20 Broad Street, New York, New York
10005.
Certain persons, including any underwriters, participating in the offering
made by any Prospectus Supplement may engage in transactions that stabilize,
maintain or otherwise affect the price of the Paired Common Stock. Such
transactions may include stabilizing the purchase of Paired Common Stock to
cover syndicate short positions and the imposition of penalty bids. For a
description of these activities, see the applicable Prospectus Supplement.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents are incorporated herein by reference:
Corporation and Operating Company (Nos. 001-09319, 001-09320)
1. Annual Report on Form 10-K of Patriot American Hospitality, Inc. and
Wyndham International, Inc. for the fiscal year ended December 31, 1997;
2. Quarterly Reports on Form 10-Q of Patriot American Hospitality, Inc. and
Wyndham International, Inc. for the fiscal quarters ended March 31, 1998 and
June 30, 1998;
3. Current Reports on Form 8-K of Patriot American Hospitality, Inc. and
Wyndham International, Inc. dated: (i) July 1, 1997 (filed July 11, 1997); (ii)
July 15, 1997 (filed July 21, 1997); (iii) July 22, 1997 (filed July 22, 1997);
(iv) September 17, 1997 (filed September 17, 1997); (v) September 30, 1997, as
amended (filed October 14, 1997 and October 28, 1997); (vi) September 30, 1997
(filed November 12, 1997); (vii) December 2, 1997 (filed December 4, 1997);
(viii) December 10, 1997 (filed December 10, 1997); (ix) January 5, 1998 (filed
January 13, 1998); (x) February 9, 1998 (filed February 12, 1998); (xi) March
23, 1998 (filed March 30, 1998); (xii) April 2, 1998 (filed April 8, 1998);
(xiii) April 20, 1998 (filed
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April 22, 1998); (xiv) May 27, 1998, as amended (filed May 27, 1998 and May 28,
1998); and (xv) June 2, 1998, as amended (filed June 17, 1998 and August 6,
1998); and
4. The description of the paired shares of Corporation Common Stock and
Operating Company Common Stock contained or incorporated by reference in Patriot
American Hospitality, Inc.'s and Wyndham International, Inc.'s Registration
Statement on Form 8-A, including any amendments thereto.
Patriot American Hospitality, Inc. (Patriot) (No. 001-13898)
1. Current Reports on Form 8-K of Patriot American Hospitality, Inc., dated:
(i) January 16, 1997, as amended (filed January 31, 1997, February 21, 1997,
April 8, 1997, April 9, 1997 and May 19, 1997); (ii) February 24, 1997 (filed
March 3, 1997); (iii) April 14, 1997, as amended (filed April 17, 1997 and April
18, 1997); and (iv) June 6, 1997 (filed June 7, 1997).
All other documents filed with the Commission by the Corporation or the
Operating Company pursuant to Section 13(a), 13(c), 14 or 15(d) of the Exchange
Act subsequent to the date of this Prospectus and prior to the termination of
the offering of the Securities are to be incorporated herein by reference and
such documents shall be deemed to be a part hereof from the date of filing of
such documents. Any statement contained in this Prospectus or in a document
incorporated or deemed to be incorporated by reference herein shall be deemed to
be modified or superseded for purposes of this Prospectus to the extent that a
statement contained herein or in any other subsequently filed document that also
is or is deemed to be incorporated by reference herein modifies or supersedes
such statement. Any statement so modified or superseded shall not be deemed,
except as so modified or superseded, to constitute a part of this Prospectus.
Any person receiving a copy of this Prospectus may obtain, without charge,
upon written or oral request, a copy of any of the documents incorporated by
reference herein, except for the exhibits to such documents. Written requests
should be mailed to 1950 Stemmons Freeway, Suite 6001, Dallas, TX 75207,
Attention: Shareholder Relations (Telephone No. (214) 863-1000).
This Prospectus and the documents incorporated herein by reference contain
forward looking statements within the meaning of Section 27A of the Securities
Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934,
as amended. The Companies' actual results could differ materially from those set
forth in the forward-looking statements. Certain factors that might cause such a
difference are discussed in the section entitled "Risk Factors" below.
No person has been authorized to give any information or to make any
representations other than those contained or incorporated by reference in this
Prospectus and, if given or made, such information or representations must not
be relied upon as having been authorized. Neither this Prospectus nor any
Prospectus Supplement constitutes an offer to sell or the solicitation of an
offer to buy any securities other than the securities described in this
Prospectus or an offer to sell or the solicitation of an offer to buy such
securities in any jurisdiction where or to any person to whom it is unlawful to
make such an offer or solicitation. Neither the delivery of this Prospectus or
any Prospectus Supplement nor any sale made hereunder or thereunder shall, under
any circumstances, create any implication that there has been no change in the
affairs of the Companies since the date hereof or thereof or that the
information contained or incorporated by reference herein or therein is correct
as of any time subsequent to its date.
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<PAGE>
RISK FACTORS
In addition to other information contained in or incorporated by reference
in this Prospectus, prospective investors should carefully consider the
following risk factors.
REAL ESTATE INVESTMENT TRUST TAX RISKS
The Corporation operates in a manner designed to permit it to qualify as a
real estate investment trust (a "REIT") under the Internal Revenue Code of 1986,
as amended (the "Code"), but no assurance can be given that the Corporation has
operated or will be able to continue to operate in a manner so as to qualify or
remain so qualified. Qualification as a REIT involves the application of highly
technical and complex provisions of the Code, for which there are only limited
judicial or administrative interpretations. The complexity of these provisions
is greater in the case of a REIT that owns hotels and leases them to an
operating company with which its stock is paired. Qualification as a REIT also
involves the determination of various factual matters and circumstances not
entirely within the Corporation's control or not susceptible to legal opinion.
Qualification of the Corporation as a REIT also generally depends on the REIT
qualification of Patriot American Hospitality, Inc., a Virginia corporation
("Patriot"), for periods prior to July 1, 1997, at which time Patriot merged
with the Corporation (formerly known as California Jockey Club), with the
Corporation being the surviving corporation (the "Cal Jockey Merger"). See
"Certain Federal Income Tax Considerations--REIT Qualification."
If the Corporation fails to qualify as a REIT, the Corporation will be
subject to federal income tax (including any applicable alternative minimum tax)
on its taxable income at corporate rates. In addition, unless entitled to relief
under certain statutory provisions and subject to the discussion below regarding
the impact if the Corporation failed to qualify as a REIT in 1983, the
Corporation also will be disqualified from re-electing REIT status for the four
taxable years following the year during which qualification is lost. Failure to
qualify as a REIT would reduce the net earnings of the Corporation available for
distribution to stockholders because of the additional tax liability to the
Corporation for the year or years involved. In addition, distributions would no
longer be required to be made. To the extent that distributions to stockholders
would have been made in anticipation of the Corporation's qualifying as a REIT,
the Corporation might be required to borrow funds or to liquidate certain of its
investments to pay the applicable tax. The failure to qualify as a REIT would
also constitute a default under certain debt obligations of the Corporation.
EXEMPTION FROM ANTI-PAIRING RULES; RECENT LEGISLATION LIMITS USE OF PAIRED
SHARE STRUCTURE
The Corporation's ability to qualify as a REIT is dependent upon its
continued exemption from the anti-pairing rules of Section 269B(a)(3) of the
Code. Section 269B(a)(3) of the Code would ordinarily prevent a corporation from
qualifying as a REIT if its stock is paired with the stock of a corporation
whose activities are inconsistent with REIT status, such as the Operating
Company. Subject to the discussion below regarding recent legislation, the
"grandfathering" rules governing Section 269B generally provide, however, that
Section 269B(a)(3) does not apply to a paired REIT if the REIT and its paired
operating company were paired on June 30, 1983. There are, however, no judicial
or administrative authorities interpreting the application of this
grandfathering rule in the context of a merger into a grandfathered REIT or
otherwise. Moreover, although the Corporation's and the Operating Company's
respective predecessors, California Jockey Club ("Cal Jockey") and Bay Meadows
Operating Company ("Bay Meadows"), were paired on June 30, 1983, if for any
reason Cal Jockey failed to qualify as a REIT in 1983 the benefit of the
grandfathering rule would not be available to the Corporation and the
Corporation would not qualify as a REIT for any taxable year.
The Corporation's ability to utilize the paired structure is limited as a
result of the Internal Revenue Service Restructuring and Reform Act of 1998 (the
"Reform Act"), which was signed into law by the President on July 22, 1998.
Included in the Reform Act is a freeze on the grandfathered status of paired
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<PAGE>
share REITs such as the Corporation. Under this legislation, the anti-pairing
rules provided in the Code apply to real property interests acquired after March
26, 1998 by the Companies, or by a subsidiary or partnership in which a ten
percent or greater interest is owned by the Companies (a "10-percent
subsidiary"), unless (1) the real property interests are acquired pursuant to a
written agreement that was binding on March 26, 1998 and at all times thereafter
or (2) the acquisition of such real property interests was described in a public
announcement or in a filing with the SEC on or before March 26, 1998. Under an
exception to the foregoing rule, a corporation subject to federal income
taxation will not be treated as a 10-percent subsidiary of the Corporation,
although it may nevertheless be treated as 10-percent subsidiary of the
Operating Company. In addition, the grandfathered status of any property under
the foregoing rules will be lost if a lease or renewal with respect to such
property is determined to exceed an arm's length rate. The Reform Act also
provides that a property held by the Companies that is not subject to the
anti-pairing rules will 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 (A) the
undepreciated cost of the property (prior to the improvement) or (B) in the case
of property acquired where there is a substituted basis, the fair market value
of the property on the date it was acquired by the Companies. There is an
exception for improvements placed in service before January 1, 2004 pursuant to
a binding contract in effect on December 31, 1999 and at all times thereafter.
The Reform Act generally permits the Corporation to continue its current method
of operations with respect to its existing assets. However, the legislation
restricts the ability of the Companies to operate newly acquired assets within
the paired share structure.
After passage of the Reform Act, the Companies considered various
alternatives, including a possible recapitalization or restructuring of its
operations, in response to the legislation. On September 16, 1998, the Companies
announced that their respective Boards of Directors had elected to maintain the
Companies' paired-share structure. The Companies will therefore remain subject
to the constraints of the paired share legislation, which will limit the
Companies' ability to acquire new assets or make substantial improvements to
existing properties that do not fall within the grandfathering rules described
above. The Companies intend to monitor their activities and operations on an
ongoing basis for purposes of complying with the new legislation and maintaining
the Company's REIT qualification. However, issues may arise under the
legislation with respect to which there is little or no authority or other
guidance.
Because certain corporate subsidiaries of a REIT are not treated as
10-percent subsidiaries, the legislation permits the Companies to hold newly
acquired assets in taxable subsidiaries, and the Companies intend to proceed
with future acquisition opportunities by establishing taxable subsidiaries on an
as-needed basis. The use of such a structure is subject to REIT income and
assets test limitations. Those income and asset test limitations could prevent
the Companies from making acquisitions or dispositions that might otherwise be
beneficial to the Companies, or could require the Companies to sell or otherwise
dispose of assets in unfavorable market conditions or in a transaction subject
to income tax, including the tax on built-in gains inherited from a
C-corporation. See "Federal Income Tax Considerations--REIT
Qualification--Built-In Gain Tax." Moreover, because the Corporation may not
hold 10% or more of the voting securities of a corporate issuer, voting control
of such subsidiaries will generally be held by the Operating Company or by
individual officers and/or directors of the Companies. In addition, the taxable
income generated by taxable subsidiaries would be subject to income taxes. See
"Certain Federal Income Tax Considerations--Effects of Compliance with REIT
Requirements."
There can be no assurance that the constraints imposed by the new
legislation and the REIT qualification requirements will not have an adverse
effect on the Companies.
POTENTIAL REALLOCATION OF INCOME
Due to the paired share structure, the Corporation, the Operating Company,
the Realty Partnership, the Operating Partnership, and their respective
subsidiary entities are and will be controlled by the same interests. As a
result, the Internal Revenue Service (the "IRS") could, pursuant to Section 482
of the
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Code, seek to distribute, apportion or allocate gross income, deductions,
credits or allowances between or among them if it determines that such
distribution, apportionment or allocation is necessary in order to prevent
evasion of taxes or to clearly reflect income. The Corporation would have to
take into account any such adjustments in determining whether it qualified as a
REIT. As a result, such adjustments could affect the Corporation's ability to
qualify as a REIT. In addition, any challenge to the pricing of intercompany
transactions could raise issues under recent legislation affecting paired share
companies and therefore could affect the Corporation's ability to qualify as a
REIT. See "--Real Estate Investment Trust Tax Risks--Exemption from Anti-Pairing
Rules; Recent Legislation Limits Use of Paired Share Structure."
ADVERSE EFFECTS OF REIT MINIMUM DISTRIBUTION REQUIREMENTS
In order to qualify as a REIT, the Corporation is generally required each
year to distribute to its stockholders at least 95% of its taxable income
(excluding any net capital gain). In addition, if the Corporation acquires
assets from a taxable C corporation in a merger or other tax-free transaction
(including the January 5, 1998 acquisition by merger of Wyndham Hotel
Corporation (the "Wyndham Acquisition") and the June 2, 1998 acquisition by
merger of Interstate Hotels Company (the "Interstate Merger")), and during the
ten-year period following such acquisition the Corporation disposes of any such
assets, then the Corporation will be required to distribute at least 95% of the
amount of any "built-in gain" attributable to such assets (determined as of the
date of the acquisition of the assets) that the Corporation recognizes in the
disposition, less the amount of any tax paid with respect to such recognized
built-in gain. See "Certain Federal Income Tax Considerations--REIT
Qualification--Built-In Gain Tax." The Corporation is subject to a 4%
nondeductible excise tax on the amount, if any, by which certain distributions
paid by it with respect to any calendar year are less than the sum of (i) 85% of
its ordinary income for that year, (ii) 95% of its capital gain net income for
that year, and (iii) 100% of its undistributed income from prior years.
Differences in timing between the recognition of taxable income and the
receipt of cash available for distribution and the seasonality of the hotel
industry could require the Corporation to borrow funds on a short-term basis to
meet the 95% distribution requirement or avoid the nondeductible excise tax.
Distributions by the Companies will be determined by their respective Board
of Directors and depend on a number of factors, including the amount of cash
available for distribution and the financial condition of the Companies, any
decision by either Board of Directors to reinvest funds rather than to
distribute such funds, capital expenditures, the annual distribution
requirements under the REIT provisions of the Code (in the case of the
Corporation) and such other factors as either Board of Directors deems relevant.
For federal income tax purposes, distributions paid to stockholders may consist
of ordinary income, capital gains (in the case of the Corporation), nontaxable
return of capital, or a combination thereof. The Companies will provide
stockholders with annual statements as to the taxability of distributions.
FAILURE TO MANAGE RAPID GROWTH AND INTEGRATE OPERATIONS; NEW BUSINESSES
The Corporation is currently experiencing a period of rapid growth. The
Companies are responsible for the management and operation of several new
businesses, including direct hotel management, branding and franchising and
thoroughbred racing, which were previously not part of the operations of
Patriot. In addition, the Companies may acquire other new businesses in the
future. The integration of departments, systems and procedures presents a
significant management challenge, and the failure to integrate new acquisitions
into existing management and operating structures could have a material adverse
effect on the results of operations and financial condition of the Corporation
and the Operating Company.
SUBSTANTIAL DEBT OBLIGATIONS; NO LIMITS ON INDEBTEDNESS; VARIABLE RATE DEBT
The Companies have obtained an unsecured revolving line of credit that
expires on July 18, 2000 (the "Revolving Credit Facility") and a series of term
loans that expire beginning January 31, 1999 through
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March 31, 2003 (the "Term Loans") from certain lenders. As of September 22,
1998, the Companies' combined debt was approximately $3.8 billion and the
Companies' ratio of combined debt to total market capitalization (without
adjustment for any shares of Paired Common Stock or cash currently on deposit as
collateral with the counterparties to the Price Adjustment Mechanisms (as
defined below)) was approximately 59%. The Companies also may borrow additional
amounts from the same or other lenders in the future, may assume debt in
connection with acquisitions, or may issue corporate debt securities in public
or private offerings. The Companies' organizational documents do not limit the
amount of indebtedness the Companies may incur. Further, substantially all of
the Companies' combined debt bears interest at a variable rate. Economic
conditions could result in higher interest rates, which could increase debt
service requirements on variable rate debt and could adversely affect the
Companies' ability to make distributions.
There can be no assurance that the Companies will be able to meet their debt
service obligations and, to the extent that they cannot, the Companies risk the
loss of some or all of their assets, including the hotels. Adverse economic
conditions could cause the terms on which borrowings become available to be
unfavorable. In such circumstances, if the Corporation or the Operating Company
is in need of funds to repay indebtedness in accordance with its terms or
otherwise, it could be required to liquidate one or more investments in
properties at times which may not permit realization of the maximum return on
such investments.
The foregoing risks associated with debt obligations of the Companies may
inhibit the ability of the Companies to raise capital in both the public and
private markets.
POSSIBLE ADVERSE EFFECTS OF FAILURE TO SPIN-OFF INTERSTATE'S THIRD-PARTY HOTEL
MANAGEMENT BUSINESS
On May 27, 1998, the Companies and Interstate Hotels Company ("Interstate")
entered into a settlement agreement (as amended on August 27, 1998, the
"Settlement Agreement") with Marriott International, Inc. ("Marriott") which
addressed certain claims asserted by Marriott in connection with Patriot's then
proposed merger with Interstate. The Settlement Agreement provided for the
dismissal of litigation brought by Marriott, and allowed Patriot's merger with
Interstate to close on June 2, 1998.
In addition to dismissal of the Marriott litigation, the Settlement
Agreement provides for three principal transactions: (i) the re-branding of ten
Marriott hotels under the Wyndham name, (ii) the assumption by Marriott of the
management of ten Marriott hotels formerly managed by Interstate for the
remaining term of the Marriott franchise agreement, and (iii) the divestiture by
the Companies by January 29, 1999 (subject to extension upon payment of certain
fees by the Companies) of the third-party management business which was operated
by Interstate (the "Spin-off"). The ten Marriott hotels are expected to be
converted to the Wyndham brand over the next approximately 15 months.
In the event that the Spin-off is completed after January 29, 1999, Marriott
will be entitled to receive 110% of the fees otherwise due under the
submanagement agreements with respect to the ten hotels Marriott will manage
pursuant to the submanagement arrangement described above. In addition, if the
Companies do not make all necessary government filings in connection with the
Spin-off by October 30, 1998 or the Spin-off is not completed by March 30, 1999,
the Companies will be subject to additional penalties. These additional
penalties include the right on the part of Marriott to purchase, subject to
third-party consents, the hotels to be submanaged by Marriott and six additional
Marriott hotels owned by the Companies at their then appraised values. Moreover,
the Companies, subject to any defenses they may have, would owe Marriott
liquidated damages with respect to the hotels converted to the Wyndham brand,
those to be submanaged by Marriott, and the six additional Marriott hotels
Marriott would have the option to purchase. The Companies also anticipate that
Marriott would require third-party owners of the Companies' Marriott-branded
hotels to choose an alternative manager for their hotels. As a result, each
respective hotel would either: (i) lose the Marriott brand, at which time the
Companies would have to compensate Marriott for any lost franchise fees or (ii)
terminate the management contract with the
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Companies and enter into a contract with an alternative manager. The Companies
would owe liquidated damages on any third-party Marriott-franchised hotel which
chooses to convert its brand.
POTENTIAL DILUTION AND LIQUIDITY EFFECTS OF THE PRICE ADJUSTMENT MECHANISMS
Because the Companies must periodically increase their equity base to
maintain financial flexibility and continue with their growth strategy, the
Companies have utilized private placements of equity in conjunction with a price
adjustment mechanism as a means to raise capital. The Companies have entered
into transactions with three counterparties involving the sale of an aggregate
of 13.3 million shares of Paired Common Stock, with related purchase price
adjustment mechanisms ("Price Adjustment Mechanisms"), as described in "The
Companies--Sales of Paired Common Stock with Price Adjustment Mechanisms."
Settlement under one or more of the Price Adjustment Mechanisms could have
adverse effects on the Companies' liquidity or dilutive effects on the
Companies' capital stock. As of September 22, 1998, one of the counterparties to
one of the Price Adjustment Mechanisms was entitled to require settlement of its
transaction (which settlement would also give one of the other two
counterparties the right to demand settlement of its transaction). See "The
Companies--Sales of Paired Common Stock with Price Adjustment Mechanisms--PWFS
Transaction" and "--UBS Transaction." If the reset price or unwind price (in the
case of the UBS and Nations transactions) or the market price (in the case of
the PWFS transaction) of the Paired Common Stock is less than the applicable
forward price or reference price on a given settlement date or interim
settlement or reset date, the Companies will be obligated to deliver cash or
additional shares of Paired Common Stock to effect such settlement, interim
settlement or reset. Delivery of cash would adversely affect the Companies'
liquidity, and delivery of shares would have dilutive effects on the capital
stock of the Companies. Moreover, settlement (whether by reason of a drop in the
price of the Paired Common Stock or otherwise) may force the Companies to issue
shares of Paired Common Stock at a depressed price, which may heighten the
dilutive effects on the capital stock of the Companies. The dilutive effect of a
stock settlement and the adverse liquidity effect of a cash settlement increase
significantly as the market price of the Paired Common Stock declines below the
applicable forward price or reference price. Furthermore, under certain
circumstances, the Companies may settle in shares of Paired Common Stock only if
a registration statement covering such shares is effective. There can be no
assurance that a registration statement with respect to any such shares will be
declared and remain effective. If the Companies settled all three transactions
in cash on September 22, 1998, they would be obligated to deliver to the
counterparties a total of approximately $320 million (without application of the
cash currently held as collateral by the counterparties) and would receive from
the counterparties a total of 13.3 million shares of Paired Common Stock plus
all shares of Paired Common Stock then held as collateral by the counterparties.
See "The Companies--Sales of Paired Common Stock with Price Adjustment
Mechanisms."
POTENTIAL CONFLICTS OF INTEREST BETWEEN THE CORPORATION AND THE OPERATING
COMPANY
The Corporation and the Operating Company are separate corporate entities
with separate Boards of Directors and executive officers. Although the Companies
have several of the same directors, a majority of the directors and officers of
each of the Corporation and the Operating Company do not serve as directors or
officers of the other company. In addition, the Corporation and the Operating
Company generally have different employees, separate creditors and are subject
to different state law licensing and regulatory requirements. Since the
consummation of the Wyndham Acquisition on January 5, 1998, the Companies have
also had separate Chairmen of the Board and Chief Executive Officers. As a
result, the interests of the Corporation Board and the Operating Company Board
may conflict, and such conflicts may possibly rise to disputes between the
Companies. The Corporation and the Operating Company have entered into the
Cooperation Agreement, dated December 18, 1997, between the Corporation and the
Operating Company (the "Cooperation Agreement"), which the Companies believe
will help decrease the possibility of disagreements. There can be no assurance,
however, that such disagreements will not arise. In addition, there can be no
assurance that the interests of the officers and/or directors of one company who
also serve
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as officers and/or directors of the other company will not conflict with their
interests as officers and/or directors of such other company or that their
actions as officers and/or directors of one company will not adversely affect
the interests of the other company. Any such disagreements or conflicts could
have a material adverse effect on the results of operations of the Corporation
and the Operating Company.
DEPENDENCE ON LESSEES AND PAYMENTS UNDER THE PARTICIPATING LEASES
The Corporation leases substantially all of its existing hotels to the
Operating Company and to lessees (the "Lessees") pursuant to separate
participating leases (the "Participating Leases"). The Corporation's ability to
make distributions to stockholders depends primarily upon the ability of the
Operating Company or the Lessees to make rent payments under the Participating
Leases (which is dependent primarily on the Operating Company's and the Lessees'
ability to generate sufficient revenues from those hotels which are leased to
them). A failure or delay to make such payments may be caused by reductions in
revenue from such hotels or in the net operating income of the Operating Company
or the Lessees or otherwise. Any failure or delay by the Operating Company or
the Lessees in making rent payments may adversely affect the Corporation's
ability to make distributions to stockholders.
LACK OF CONTROL OVER OPERATIONS OF CERTAIN HOTELS LEASED OR MANAGED BY THIRD
PARTIES
The Corporation is dependent on the ability of the Operating Company, the
Lessees and the hotel management entities that manage the hotels (the
"Operators") to manage the operations of hotels that are leased or operated by
them. Under the terms of the Participating Leases, the Corporation has the
authority to review annual budgets for the hotels which are leased to the
Lessees and to approve certain items. However, the Corporation is unable to
directly implement strategic business decisions with respect to the setting of
room rates, repositioning of a franchise, redevelopment of food and beverage
operations and certain similar decisions with respect to such hotels.
HOTEL INDUSTRY RISKS
OPERATING RISKS
The primary businesses of the Companies are buying, selling, leasing and
managing hotels, which are subject to operating risks common to the hotel
industry. These risks include, among other things, (i) competition for guests
from other hotels, a number of which may have greater marketing and financial
resources and experience than the Companies and the Lessees, (ii) increases in
operating costs due to inflation and other factors, which increases may not have
been offset in past years, and may not be offset in future years, by increased
room rates, (iii) dependence on business and commercial travelers and tourism,
which business may fluctuate and be seasonal, (iv) increases in energy costs and
other expenses of travel, which may deter travelers and (v) adverse effects of
general and local economic conditions. These factors could adversely affect the
ability of the Lessees and the Operating Company to generate revenues and to
make lease payments and therefore the Corporation's ability to make
distributions to stockholders. The Companies are also subject to the risk that
in connection with the acquisition of hotels and hotel operating companies it
may not be possible to transfer certain operating licenses, such as food and
beverage licenses, to the Lessees, the Operators or the Operating Company, or to
obtain new licenses in a timely manner in the event such licenses cannot be
transferred. Although hotels can provide alcoholic beverages under interim
licenses or licenses obtained prior to the acquisition of these hotels, there
can be no assurance that these licenses will remain in effect until the
Corporation or the Operating Company obtains new licenses or that new licenses
will be obtained. The failure to have alcoholic beverages licenses or other
operating licenses could adversely affect the ability of the affected Lessees,
Operators or the Operating Company to generate revenues and make lease payments
to the Corporation.
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OPERATING COSTS AND CAPITAL EXPENDITURES; HOTEL RENOVATION
Hotels, in general, have an ongoing need for renovations and other capital
improvements, particularly in older structures, including periodic replacement
or refurbishment of furniture, fixtures and equipment ("F, F & E"). Under the
terms of the Participating Leases, the Corporation is obligated to establish a
reserve to pay the cost of certain capital expenditures at its hotels and pay
for periodic replacement or refurbishment of F, F & E. If capital expenditures
exceed the Corporation's expectations, the additional cost could have an adverse
effect on the Corporation's cash available for distribution. In addition, the
Corporation may acquire hotels where significant renovation is either required
or desirable. Renovation of hotels involves certain risks, including the
possibility of environmental problems, construction cost overruns and delays,
uncertainties as to market demand or deterioration in market demand after
commencement of renovation and the emergence of unanticipated competition from
other hotels.
COMPETITION FOR HOTEL ACQUISITION OPPORTUNITIES
The Companies may be competing for investment opportunities with entities
that have substantially greater financial resources. These entities may
generally be able to accept more risk than the Companies can prudently manage,
including risks with respect to the creditworthiness of a hotel operator or the
geographic proximity of its investments. Competition may generally reduce the
number of suitable investment opportunities offered to the Companies and
increase the bargaining power of property owners seeking to sell.
Additionally, the Companies' ability to acquire additional hotels could be
negatively impacted by the paired share ownership structure because hotel
management companies, franchisees and others who historically approached Patriot
with acquisition opportunities in hopes of establishing lessee or management
relationships may not do so in the future out of concern that the Corporation
will rely primarily on the Operating Company to lease and/or manage the acquired
properties. Such persons may instead provide such acquisition opportunities to
hotel companies that will allow them to manage the properties following the
sale. This could have a negative impact on the Companies' acquisition activities
in the future.
SEASONALITY
The hotel industry is seasonal in nature. Revenues at certain hotels are
greater in the first and second quarters of a calendar year and at other hotels
in the second and third quarters of a calendar year. Seasonal variations in
revenue at hotels may cause quarterly fluctuations in the operating revenues of
the Operating Company and the lease revenues of the Corporation.
REAL ESTATE INVESTMENT RISKS
GENERAL RISKS
The Companies' investments will be subject to varying degrees of risk
generally incidental to the ownership of real property. The underlying value of
the Corporation's real estate investments and the Companies' income and ability
to make distributions to its stockholders will be dependent upon the ability of
the Lessees, the Operators and the Operating Company to operate the
Corporation's hotels in a manner sufficient to maintain or increase revenues and
to generate sufficient income in excess of operating expenses to make rent
payments under their leases with the Corporation. Income from the Corporation's
hotels may be adversely affected by changes in national economic conditions,
changes in local market conditions due to changes in general or local economic
conditions and neighborhood characteristics, changes in interest rates and in
the availability, cost and terms of mortgage funds, the impact of present or
future environmental legislation and compliance with environmental laws, the
ongoing need for capital improvements, particularly in older structures, changes
in real estate tax rates and other operating expenses, adverse changes in
governmental rules and fiscal policies, adverse changes in zoning laws, civil
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unrest, acts of God, including earthquakes and other natural disasters (which
may result in uninsured losses), acts of war and other factors which are beyond
the control of the Companies.
VALUE AND ILLIQUIDITY OF REAL ESTATE
Real estate investments are relatively illiquid. The ability of the
Corporation to vary its portfolio in response to changes in economic and other
conditions will therefore be limited. If the Corporation must sell an
investment, there can be no assurance that the Corporation will be able to
dispose of it in the time period it desires or that the sales price of any
investment will equal or exceed the amount of the Corporation's investment.
PROPERTY TAXES
The Companies' hotels and racing facilities are subject to real property
taxes. The real property taxes on hotel properties in which the Corporation
invests as well as the Corporation's racing facilities may increase or decrease
as property tax rates change and as the value of the properties are assessed or
reassessed by taxing authorities. If property taxes increase, the Companies'
ability to make distributions to its stockholders could be adversely affected.
CONSENTS OF GROUND LESSOR REQUIRED FOR SALE OF CERTAIN HOTELS
Certain of the Corporation's hotels and the land upon which the Bay Meadows
Racecourse (the "Racecourse") is situated are subject to ground leases with
third party lessors. In addition, the Corporation may acquire hotels in the
future that are subject to ground leases. Any proposed sale of a property that
is subject to a ground lease by the Corporation or any proposed assignment of
the Corporation's leasehold interest in the ground lease may require the consent
of third party lessors. As a result, the Corporation may not be able to sell,
assign, transfer or convey its interest in any such property in the future
absent the consent of such third parties, even if such transaction may be in the
best interests of the stockholders.
ENVIRONMENTAL MATTERS
The operating costs of the Companies may be affected by the obligation to
pay for the cost of complying with existing environmental laws, ordinances and
regulations, as well as the cost of complying with future legislation. Under
various federal, state and local environmental laws, ordinances and regulations,
a current or previous owner or operator of real property may be liable for the
costs of removal or remediation of hazardous or toxic substances on, under, or
in such property. Such laws often impose liability whether or not the owner or
operator knew of, or was responsible for, the presence of such hazardous or
toxic substances. In addition, the presence of hazardous or toxic substances, or
the failure to remediate such property properly, may adversely affect the
owner's ability to borrow by using such real property as collateral. Persons who
arrange for the transportation, disposal or treatment of hazardous or toxic
substances may also be liable for the costs of removal or remediation of such
substances at the disposal or treatment facility, whether or not such facility
is or ever was owned or operated by such person. Certain environmental laws and
common law principles could be used to impose liability for releases of
hazardous materials, including asbestos-containing materials ("ACMs"), into the
environment, and third parties may seek recovery from owners or operators of
real properties for personal injury associated with exposure to released ACMs or
other hazardous materials. Environmental laws may also impose restrictions on
the manner in which a property may be used or transferred or in which businesses
may be operated, and these restrictions may require expenditures. In connection
with the ownership and operation of any of the Corporation's hotels, the
Companies, the Lessees or the Operators may be potentially liable for any such
costs. The cost of defending against claims of liability or remediating
contaminated property and the cost of complying with environmental laws could
materially adversely affect the Corporation's results of operations and
financial condition. Phase I environmental site assessments ("ESAs") have been
conducted at substantially all of the Corporation's hotels and the Racecourse by
qualified independent environmental
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engineers. The purpose of Phase I ESAs is to identify potential sources of
contamination for which any of the Corporation's hotels or the Racecourse may be
responsible and to assess the status of environmental regulatory compliance. The
ESAs have not revealed any environmental liability or compliance concerns that
the Corporation believes would have a material adverse effect on its business,
assets, results of operations or liquidity, nor is the Corporation aware of any
such liability or concerns. Nevertheless, it is possible that these ESAs did not
reveal all environmental liabilities or compliance concerns or that material
environmental liabilities or compliance concerns exist of which the Corporation
is currently unaware. The Corporation has not been notified by any governmental
authority, and has no other knowledge of, any material noncompliance, liability
or claim relating to hazardous or toxic substances or other environmental
substances in connection with any of the hotels or the Racecourse.
UNINSURED AND UNDERINSURED LOSSES
Each of the Participating Leases specifies comprehensive insurance to be
maintained on each of the applicable leased hotels, including liability, fire
and extended coverage. The Corporation believes such specified coverage is of
the type and amount customarily obtained for or by an owner of hotels. Leases
for subsequently acquired hotels (including those leased to the Operating
Company) will contain similar provisions. However, there are certain types of
losses, generally of a catastrophic nature, such as earthquakes and floods, that
may be uninsurable or not economically insurable. The Board of Directors and
management of each of the Companies will use their discretion in determining
amounts, coverage limits and deductibility provisions of insurance, with a view
to maintaining appropriate insurance coverage on the investments of the
Corporation or the Operating Company, as the case may be, at a reasonable cost
and on suitable terms. This may result in insurance coverage that, in the event
of a substantial loss, would not be sufficient to pay the full current market
value or current replacement cost of the lost investment of the Corporation or
the Operating Company, as the case may be. Inflation, changes in building codes
and ordinances, environmental considerations, and other factors also might make
it infeasible to use insurance proceeds to replace the property after such
property has been damaged or destroyed. Under such circumstances, the insurance
proceeds received by the Corporation or the Operating Company might not be
adequate to restore its economic position with respect to such property.
ACQUISITION AND DEVELOPMENT RISKS
The Companies currently intend to pursue acquisitions of additional hotels
and hotel operating companies and, under appropriate circumstances, may pursue
development opportunities. Acquisitions entail risks that such acquired hotels
or hotel operating companies will fail to perform in accordance with
expectations and that estimates of the cost of improvements necessary to market,
acquire and operate properties will prove inaccurate as well as general risks
associated with any new real estate or operating company acquisition. In
addition, hotel development is subject to numerous risks, including risks of
construction delays or cost overruns that may increase project costs, new
project commencement risks such as receipt of zoning, occupancy and other
required governmental approvals and permits and the incurrence of development
costs in connection with projects that are not pursued to completion. The fact
that the Corporation generally must distribute 95% of its ordinary taxable
income in order to maintain its qualification as a REIT may limit the
Corporation's ability to rely upon lease income from its hotels or subsequently
acquired properties to finance acquisitions or new developments. As a result, if
debt or equity financing were not available on acceptable terms, further
acquisitions or development activities might be curtailed or the Corporation's
cash available for distribution might be adversely affected.
DEPENDENCE ON MANAGEMENT CONTRACTS
Management contracts are acquired, terminated, renegotiated or converted to
franchise agreements in the ordinary course of the Companies' business. While,
as of September 22, 1998, the average remaining term of the Companies'
management contracts was approximately 13 years, these management contracts
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generally may be terminated by the owner of the hotel property if the hotel
manager fails to meet certain performance standards, if the property is sold to
a third party, if the property owner defaults on indebtedness encumbering the
property and/or upon a foreclosure of the property. Other grounds for
termination of the Companies' upscale hotel management contracts include a hotel
owner's election to close a hotel and certain business combinations involving
the Companies in which the Companies' name or current management team does not
survive.
There can be no assurance that the Companies will be able to replace
terminated management contracts, or that the terms of renegotiated or converted
contracts will be as favorable as the terms that existed before such
renegotiation or conversion. The Companies also will be subject to the risk of
deterioration in the financial condition of a hotel owner and such owner's
ability to pay management fees to the Companies. In addition, in certain
circumstances, the Companies may be required to make loans to or capital
investments or advances in hotel properties in connection with management
contracts. A material deterioration in the operating results of one or more of
these hotel properties and/or a loss of the related management contracts could
adversely affect the value of the Companies' investment in such hotel
properties.
RISKS OF OPERATING HOTELS UNDER FRANCHISE OR BRAND AFFILIATIONS
Certain of the Corporation's hotels are operated under franchise or brand
affiliations. In addition, hotels in which the Corporation subsequently invests
may be operated pursuant to franchise or brand affiliations. The continuation of
the franchise licenses relating to the franchised hotels (the "Franchise
Licenses") is subject to specified operating standards and other terms and
conditions. The continued use of a brand is generally contingent upon the
continuation of the management agreement related to that hotel with the branded
Operator. Franchisors typically inspect licensed properties periodically to
confirm adherence to operating standards. Action on the part of any of the
Companies, the Lessees or the Operators could result in a breach of such
standards or other terms and conditions of the Franchise Licenses and could
result in the loss or cancellation of a Franchise License. It is possible that a
franchisor could condition the continuation of a Franchise License on the
completion of capital improvements which the Corporation's Board of Directors
determines are too expensive or otherwise unwarranted in light of general
economic conditions or the operating results or prospects of the affected hotel.
In that event, the Corporation's Board of Directors may elect to allow the
Franchise License to lapse which could under certain circumstance result in the
Corporation incurring significant costs for terminating such Franchise License.
In any case, if a franchise or brand affiliation is terminated, the Corporation
and the Lessee may seek to obtain a suitable replacement franchise or brand
affiliation, or to operate the hotel independent of a franchise or brand
affiliation. The loss of a franchise or brand affiliation could have a material
adverse effect upon the operations or the underlying value of the hotel covered
by the franchise or brand affiliation because of the loss of associated name
recognition, marketing support and centralized reservation systems provided by
the franchisor or brand owner.
THE COMPANIES
THE CORPORATION
The Corporation is a self-administered REIT under the Code. The Corporation
owns interests in a portfolio of hotels, including full service, resorts, suite
hotels, limited service hotels and conference centers. The portfolio is
diversified by franchise and brand affiliation with nationally recognized hotel
companies. A significant number of hotels are franchised under the Corporation's
proprietary brands, including Wyndham Hotels, Wyndham Hotels and Resorts,
Wyndham Gardens-Registered Trademark-, Wyndham Grand Heritage, Summerfield
Suites-Registered Trademark-, Sierra Suites-Registered Trademark-,
Carefree-Registered Trademark-, Malmaison and Clubhouse
Inns-Registered Trademark-. Other major franchises include Crowne
Plaza-Registered Trademark-, Holiday Inn-Registered Trademark-,
Doubletree-Registered Trademark-, Radisson-Registered Trademark-,
Ramada-Registered Trademark-, Hilton-Registered Trademark-,
Hyatt-Registered Trademark-, Sheraton, Four Points by
Sheraton-Registered Trademark-, Embassy Suites-Registered Trademark-,
Marriott-Registered Trademark-, Marriott Courtyard-Registered Trademark-,
Hampton Inn-Registered Trademark- and Grand Bay-Registered Trademark-. The
portfolio of hotels serve major U.S. business centers, including Atlanta,
Boston, Chicago,
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Cleveland, Dallas, Denver, Houston, Miami, San Francisco, Philadelphia and
Seattle. The portfolio also includes world-class resort hotels as well as hotels
in major tourist destinations, including Scottsdale and Tucson, Arizona; Carmel
and San Diego, California; Telluride, Colorado; San Juan, Puerto Rico; New
Orleans, Louisiana; and San Antonio, Texas. The portfolio also includes hotels
located in Europe, Canada and the Caribbean. In addition, the Corporation leases
land in San Mateo, California upon which the Racecourse is situated.
As part of their ongoing businesses, the Companies continually engage in
discussions with public and private real estate entities, including, without
limitation, current lessees of the Companies' hotels, regarding possible
portfolio or single asset acquisitions, as well as the acquisition of hotel
leasing and management operations. No assurances can be made that the Companies
will acquire any such acquisition opportunities. Additionally, the Companies
periodically evaluate their existing portfolio for possible divestiture of
non-core, non-proprietarily branded properties. No assurances can be made that
the Companies will divest any of these properties.
The Corporation conducts a substantial part of its operations through the
Realty Partnership, which owns, directly and through its subsidiaries, the
Corporation's interests in each of its hotels. Through PAH GP and PAH LP, the
Corporation holds the sole general partnership interest and a limited
partnership interest, respectively, in the Realty Partnership.
Since 1983, the shares of Corporation Common Stock have been paired and have
traded together with the shares of Operating Company Common Stock as a single
unit pursuant to a stock pairing agreement. The terms of the stock pairing
agreement are set forth in the Pairing Agreement, dated as of February 17, 1983
and amended from time to time thereafter, by and between the Corporation and the
Operating Company (the "Pairing Agreement"). Since the Cal Jockey Merger, the
Paired Common Stock has been listed on the NYSE under the symbol "PAH."
The Corporation's principal executive offices are located at 1950 Stemmons
Freeway, Suite 6001, Dallas, Texas 75207 and its telephone number at that
location is (214) 863-1000.
THE OPERATING COMPANY
The Corporation leases the majority of its hotels to the Operating Company.
In addition to leasing hotels, the Operating Company provides management
services to other third party owners. The Operating Company also owns interests
in three resort hotels in Puerto Rico and is engaged in the business of
conducting and offering pari-mutual wagering on thoroughbred horse racing at the
Racecourse. As described above, shares of Operating Company Common Stock are
paired and trade together with the shares of Corporation Common Stock as a
single unit on the NYSE pursuant to the Pairing Agreement. The Operating Company
conducts a substantial portion of all of its operations through the Operating
Partnership, which owns, directly and through its subsidiaries, the Operating
Company's assets. The Operating Company holds the sole general partnership
interest and a limited partnership interest in the Operating Partnership.
The Operating Company's principal executive offices are located at 1950
Stemmons Freeway, Suite 6001, Dallas, Texas 75207 and its telephone number at
that location is (214) 863-1000.
SALES OF PAIRED COMMON STOCK WITH PRICE ADJUSTMENT MECHANISMS
The Companies have entered into transactions with three counterparties
involving the sale of an aggregate of 13.3 million shares of Paired Common
Stock, with related Price Adjustment Mechanisms, as described below.
NATIONS TRANSACTION. On February 26, 1998, the Companies entered into
transactions with a subsidiary of NationsBank Corporation (together with
NationsBanc Mortgage Capital Corporation, "Nations"). Pursuant to the terms of a
Purchase Agreement dated as of February 26, 1998 (the "Nations Purchase
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Agreement"), Nations purchased 4,900,000 shares of Paired Common Stock (the
"Initial Nations Shares") from the Companies at a purchase price of $24.8625 per
share (which reflected a 2.5% discount from $25.50, the last reported sale price
of the Paired Common Stock on February 25, 1998) for net proceeds of
approximately $121.8 million. The net proceeds were used by the Companies to
repay existing indebtedness. The Initial Nations Shares represent approximately
3.2% of the outstanding shares of Paired Common Stock as of the date of this
Prospectus.
In connection with the issuance of the Initial Nations Shares, the Companies
entered into a Purchase Price Adjustment Mechanism, dated as of February 26,
1998, with Nations (as amended on August 4, 1998, effective February 26, 1998,
the "Nations Price Adjustment Mechanism"). Pursuant to the Nations Price
Adjustment Mechanism, the Companies have agreed to effect certain purchase price
adjustments on or before February 25, 1999, in one or more transactions (each a
"Nations Settlement"), with respect to a number of shares of Paired Common Stock
equal to the number of Initial Nations Shares, by reference to a per paired
share price equal to $25.50 plus a forward accretion representing an imputed
return at LIBOR plus 150 basis points, minus an adjustment to reflect
distributions on shares of the Paired Common Stock (the "Nations Forward
Price"). The shares of Paired Common Stock to be delivered to or by Nations may
consist of shares of Paired Common Stock acquired under the Nations Purchase
Agreement or otherwise.
The Companies may effect a Nations Settlement by (i) delivering to Nations
shares of Paired Common Stock (the "Nations Settlement Shares") equal in value
(valued at the dollar volume weighted average price for shares of the Paired
Common Stock (as calculated pursuant to the Nations Price Adjustment Mechanism)
over a specific period of time (the "Nations Unwind Price")) to the Nations
Forward Price at the time of such Nations Settlement times the number of shares
subject to such Nations Settlement (the "Nations Settlement Amount") in exchange
for the number of shares subject to such Nations Settlement, (ii) delivering to
(or, in the event the Nations Unwind Price is greater than the Nations Forward
Price, receiving from) Nations a number of shares of Paired Common Stock equal
to the difference between the number of Nations Settlement Shares and the number
of shares subject to such Nations Settlement, or (iii) delivering to Nations
cash equal to the Nations Settlement Amount in exchange for a number of shares
of Paired Common Stock equal to the number of shares subject to such Nations
Settlement. If the Companies effect a settlement pursuant to clause (i) or (ii)
above, they must also pay a placement fee equal to 2% of the Nations Settlement
Amount. The Nations Price Adjustment Mechanism provides that shares may be
delivered in settlement only if (i) the Companies have on file with the SEC an
effective registration statement covering the sale by Nations of the shares to
be delivered, (ii) the Nations Unwind Price on the date of such settlement is
greater than or equal to $20.00 and (iii) no Mandatory Nations Unwind Event (as
defined below) has occurred and is continuing. There can be no assurance that a
registration statement with respect to such shares will be declared and remain
effective or that any of the other conditions to a stock settlement will be met.
See "Risk Factors-- Potential Dilution and Liquidity Effects of the Price
Adjustment Mechanisms." If such conditions are not met, the Companies generally
must deliver cash equal to the Nations Settlement Amount.
Under the Nations Price Adjustment Mechanism, on November 26, 1998 (the
"Nations Interim Settlement Date"), if the dollar volume weighted average price
for shares of the Paired Common Stock on the trading day immediately preceding
the Nations Interim Settlement Date (the "Nations Reset Price") is lower than
the Nations Forward Price calculated as of the Nations Interim Settlement Date,
the Companies must deliver to Nations a number of shares of Paired Common Stock
(the "Nations Interim Settlement Shares") equal in value (valued at the Nations
Reset Price) to the product of (i) the difference between the Nations Forward
Price and the Nations Reset Price times (ii) the number of the shares then
subject to the Nations Price Adjustment Mechanism (the "Nations Interim
Settlement Amount"). If Nations Interim Settlement Shares are delivered by the
Companies to Nations (other than as collateral), then (i) the Companies must pay
a placement fee equal to 2% of the product of the Nations Unwind Price and the
number of shares so delivered, and (ii) the Nations Forward Price will be
reduced in accordance with a formula set forth in the Nations Price Adjustment
Mechanism. The Nations Price Adjustment
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Mechanism provides that Nations Interim Settlement Shares may be delivered only
if the Companies have an effective registration statement on file with the SEC
covering the sale by Nations of the shares to be so delivered. If an effective
registration statement is not on file, the Companies must instead deliver cash
collateral equal to the Nations Interim Settlement Amount. There can be no
assurance that a registration statement with respect to such shares will be
declared and remain effective. See "Risk Factors--Potential Dilution and
Liquidity Effects of the Price Adjustment Mechanisms." As of the date of this
Prospectus, the Companies have delivered an aggregate of 2,375,000 shares of
Paired Common Stock and $179,000 as collateral to Nations.
On or after October 15, 1998, if the dollar volume weighted average price of
the Paired Common Stock for any two consecutive trading days does not equal or
exceed certain amounts (the "Nations Unwind Thresholds"), Nations has the right
to force a partial or complete settlement under the Nations Price Adjustment
Mechanism. The Nations Unwind Thresholds are $20.00 (33% settlement), $18.75
(67%) and $17.25 (100%). Moreover, Nations has the right to force a complete
settlement under the Nations Price Adjustment Mechanism at any time upon the
occurrence of any of the following (each a "Mandatory Nations Unwind Event"):
(i) default of the Companies with respect to certain indebtedness, (ii)
declaration by the Companies of bankruptcy or insolvency or failure to post
sufficient cash collateral, (iii) failure of the Companies to have caused a
registration statement covering the resale of the shares of Paired Common Stock
received by Nations under the Nations Purchase Agreement and Nations Price
Adjustment Mechanism to become effective on or before October 15, 1998, or (iv)
the sale or refinancing by the Companies of certain properties in which the net
proceeds of such sale or refinancing (up to the amount necessary to effect a
complete cash settlement) are not applied to a cash settlement under the Nations
Price Adjustment Mechanism. Finally, the Nations Price Adjustment Mechanism
provides that, upon the consummation of the sale or refinancing of certain
properties by the Companies with a third party, the Companies must apply the net
proceeds to the extent necessary to effect a complete cash settlement under the
Nations Price Adjustment Mechanism. The Companies have agreed to use all
commercially reasonable efforts to effect such a sale or refinancing.
As of the date of this Prospectus, the Companies intend to obtain debt
financing sufficient to settle the Nations transaction in cash. However, there
can be no assurance that such debt financing will be obtained.
PWFS TRANSACTION. On April 6, 1998, the Companies entered into transactions
with PaineWebber Incorporated ("PaineWebber") and PaineWebber Financial
Products, Inc. ("PWFS" and, together with PaineWebber, the "PaineWebber
Parties"). Pursuant to the terms of a Purchase Agreement dated as of April 6,
1998 (the "PaineWebber Purchase Agreement"), PaineWebber purchased 5,150,000
shares of Paired Common Stock (the "Initial PaineWebber Shares") from the
Companies at a purchase price of $27.01125 per share, which reflected a 2%
discount to the last reported sale price of the Paired Common Stock on April 3,
1998, for net proceeds of approximately $139.1 million. The net proceeds were
used by the Companies to repay existing indebtedness. The Initial PaineWebber
Shares represent approximately 3.5% of the outstanding shares of Paired Common
Stock as of the date of this Prospectus.
In connection with the issuance of the Initial PaineWebber Shares, the
Companies entered into a Purchase Price Adjustment Mechanism Agreement, dated as
of April 6, 1998, with PWFS (as amended on August 14, 1998, the "PaineWebber
Price Adjustment Agreement"). Pursuant to the PaineWebber Price Adjustment
Agreement, before October 15, 1998 (or April 6, 1999 if there is no effective
registration statement as described below on or before September 30, 1998), PWFS
may agree with the Companies at any time (or, on any of June 30, 1998 or
September 30, 1998 (each a "PW Reset Date"), the Companies may cause PWFS) to
sell some or all of the Initial PaineWebber Shares through one or more specified
methods (in each case a "PW Settlement"). At each PW Settlement, the purchase
price of the Initial PaineWebber Shares subject to the PW Settlement is adjusted
based upon the difference between (i) the proceeds (net of a negotiated resale
spread or underwriting discount) received by PWFS from the sale of the shares of
Paired Common Stock and (ii) a reference price (the "Reference Price") equal to
the closing
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price for a share of Paired Common Stock on April 3, 1998 plus a forward
accretion reflecting an imputed return at LIBOR plus 140 basis points, minus an
adjustment to reflect distributions on the Initial PaineWebber Shares prior to
the date of such PW Settlement (such difference, the "PW Price Difference"). If
the PW Price Difference is positive, PWFS is obligated to deliver shares of
Paired Common Stock or cash to the Companies equal in value to the aggregate PW
Price Difference. If the PW Price Difference is negative, the Companies are
obligated to deliver additional shares of Paired Common Stock equal in value
(net of a negotiated resale spread or underwriting discount, as the case may be)
to the aggregate PW Price Difference to PWFS. The PW Price Adjustment Agreement
provides that shares may be delivered in settlement only if the Companies have
on file with the SEC an effective registration statement covering the resale by
PWFS of the shares to be delivered. There can be no assurance that a
registration statement with respect to such shares will be declared and remain
effective. See "Risk Factors--Potential Dilution and Liquidity Effects of the
Price Adjustment Mechanisms."
In addition, within five business days following a PW Settlement or each PW
Reset Date, if the Reference Price times the number of shares subject to the
PaineWebber Price Adjustment exceeds the product of the closing price of the
Paired Common Stock as of such relevant date times the number of shares subject
to the PaineWebber Price Adjustment Agreement by more than $5,000,000 (such
excess amount, the "Collateral Amount"), the Companies are required to deliver
to PWFS a number of shares of Paired Common Stock (the "Collateral Shares")
equal in value (valued at the closing price of the Paired Common Stock on the
relevant date) to the Collateral Amount; provided, that if the resale by PWFS of
the shares to be so delivered is not covered by an effective registration
statement, then the Companies, at their option, must deliver to PWFS either (i)
a number of Collateral Shares equal in value to 125% of the Collateral Amount or
(ii) cash collateral equal to the Collateral Amount. The number of Collateral
Shares and/or amount of cash collateral held by PWFS will be adjusted every
other week. There can be no assurance that a registration statement with respect
to any Collateral Shares will be declared and remain effective. See "Risk
Factors--Potential Dilution and Liquidity Effects of the Price Adjustment
Mechanisms." As of the date of this Prospectus, the Companies have delivered an
aggregate of 8,071,658 shares of Paired Common Stock as Collateral Shares to
PWFS.
If the closing price of the Paired Common Stock on any trading day does not
equal or exceed $16.00, PWFS has the right to force a complete settlement under
the PaineWebber Price Adjustment Agreement. On August 25, 1998, the closing
price of the Paired Common Stock was $15.75; however, PWFS has not required any
settlement under the PaineWebber Price Adjustment Agreement to date. PWFS also
has the right to force a complete settlement under the PaineWebber Price
Adjustment Agreement if the Companies (i) are in default with respect to certain
specified indebtedness of the Companies, (ii) effect an early settlement, unwind
or liquidation of any transaction similar to the transaction with PWFS, or (iii)
fail to deliver to PWFS on or before September 30, 1998, an effective
registration statement covering the sale of the shares of Paired Common Stock
delivered to PWFS.
As of the date of this Prospectus, the Companies intend to use the proceeds
from the proposed sale of certain properties to settle the PWFS transaction in
cash. However, there can be no assurance that the properties will be sold or
that the proceeds from such sale will be sufficient to settle the PWFS
transaction.
UBS TRANSACTION. On December 31, 1997, the Companies entered into
transactions with UBS Limited and Union Bank of Switzerland, London Branch
(together with its successor, UBS AG, London Branch, "UBS" and, together with
Warburg Dillon Read, LLC, the "UBS Parties"). Pursuant to the terms of a
Purchase Agreement dated as of December 31, 1997 (the "UBS Purchase Agreement"),
UBS Limited purchased 3,250,000 shares of Paired Common Stock (the "Initial UBS
Shares") from the Companies at a purchase price of $28.8125 per share (the last
reported sale price of the Paired Common Stock on December 30, 1997) for
approximately $91.8 million in net proceeds. The net proceeds were used by the
Companies to repay existing indebtedness. The Initial UBS Shares represent
approximately 2.1% of the outstanding shares of Paired Common Stock as of the
date of this Prospectus. UBS received from the Companies a placement fee of 2%,
or approximately $1.9 million.
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In connection with the issuance of the Initial UBS Shares, the Companies
entered into a Forward Stock Contract, dated as of December 31, 1997, with UBS
(as amended on August 14, 1998 and September 11, 1998, the "Forward Stock
Contract"). Pursuant to the Forward Stock Contract, the Companies have agreed to
purchase on or before October 15, 1998, in one or more transactions (each a "UBS
Settlement"), from UBS a number of shares of Paired Common Stock equal to the
number of Initial UBS Shares, at a per paired share price equal to $28.8125 plus
a forward accretion reflecting an imputed return at LIBOR plus 140 basis points,
minus an adjustment to reflect distributions on shares of the Paired Common
Stock (the "UBS Forward Price"). The forward accretion component represents a
guaranteed rate of return to UBS. The shares of Paired Common Stock to be
delivered to or by UBS may consist of shares of Paired Common Stock acquired
under the UBS Purchase Agreement or otherwise.
The Companies may effect a UBS Settlement by (i) delivering to UBS shares of
Paired Common Stock (the "UBS Settlement Shares") equal in value (valued at the
daily average closing price for shares of the Paired Common Stock over a
specific period of time (the "UBS Unwind Price")) to the UBS Forward Price at
the time of such UBS Settlement times the number of shares of Paired Common
Stock subject to such UBS Settlement (the "UBS Settlement Amount") in exchange
for the number of shares subject to such UBS Settlement, (ii) delivering to (or,
in the event the UBS Unwind Price is greater than the UBS Forward Price,
receiving from) UBS a number of shares of Paired Common Stock equal to the
difference between the number of the UBS Settlement Shares and the number of
shares subject to such UBS Settlement, or (iii) delivering to UBS cash equal to
the UBS Settlement Amount in exchange for the shares subject to such UBS
Settlement. If the Companies make a UBS Settlement in shares of Paired Common
Stock, they must also pay to UBS (i) an unwind accretion fee (payable in cash or
shares) equal to 50% of the UBS Settlement Amount times the imputed return of
LIBOR plus 140 basis points over the period designated for such UBS Settlement
and (ii) a placement fee equal to 0.50% of the UBS Settlement Amount. The
Forward Stock Contract provides that shares may be delivered in settlement only
if the Companies have on file with the SEC an effective registration statement
covering the resale by UBS of the shares to be delivered. If an effective
registration statement is not on file, the Companies generally must deliver cash
equal to the UBS Settlement Amount, except that in the case of a mandatory early
settlement (discussed below), the Companies may deliver unregistered shares of
Paired Common Stock in an amount necessary to guarantee that UBS will receive
the UBS Settlement Amount in private resales of such shares. There can be no
assurance that a registration statement with respect to such shares will be
declared and remain effective. See "Risk Factors--Potential Dilution and
Liquidity Effects of the Price Adjustment Mechanisms."
The Forward Stock Contract provides that on each of March 31, 1998, June 30,
1998 and September 30, 1998 (each a "UBS Interim Settlement Date"), if the
closing price for shares of the Paired Common Stock on the trading day
immediately preceding such UBS Interim Settlement Date (the "UBS Reset Price")
is lower than the UBS Forward Price calculated as of the UBS Interim Settlement
Date, the Companies are required to deliver to UBS cash collateral equal to the
product of (i) the difference between the UBS Forward Price and the UBS Reset
Price, times (ii) the number of shares subject to the Forward Stock Contract
(the "UBS Interim Settlement Amount"). With the prior written consent of UBS,
the Companies may elect to deliver to UBS a number of shares of Paired Common
Stock (the "UBS Interim Settlement Shares") equal in value (valued at the UBS
Reset Price) to 125% of the UBS Interim Settlement Amount. The amount of cash
collateral or number of shares so held will be adjusted every other week. In
connection with the September 11 amendment to the Forward Stock Contract, the
Companies paid down $45,627,725 under the Forward Stock Contract through the
application of cash collateral that had previously been delivered to UBS
pursuant to the Forward Stock Contract. In addition, the Companies have
delivered an additional $4,671,875 to UBS as collateral.
If the average closing price of the Paired Common Stock for any two
consecutive trading days does not equal or exceed $11.00 (the "UBS Unwind
Threshold"), UBS has the right to force a complete settlement under the Forward
Stock Contract. UBS also has the right to force a complete settlement under
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the Forward Stock Contract if the Companies (i) are in default with respect to
certain financial and notice covenants under the Forward Stock Contract, (ii)
are in default under the Corporation's credit facility with Chase Manhattan
Bank, (iii) are in default with respect to certain specified indebtedness of the
Companies, (iv) declare bankruptcy or become insolvent or fail to post
sufficient cash collateral, (v) effect an early settlement, unwind or
liquidation of any transaction similar to the transaction with UBS, (vi) fail to
settle the transaction in cash simultaneously with the sale by the Companies of
certain property, or (vii) fail to deliver to UBS, on or before September 30,
1998, an effective registration statement covering the sale of the shares of
Paired Common Stock delivered to UBS.
Settlement under the Purchase Price Adjustment Mechanisms could have adverse
effects on the Companies' liquidity and/or dilutive effects on the Companies'
capital stock. See "Risk Factors--Potential Dilution and Liquidity Effects of
the Price Adjusment Mechanisms."
USE OF PROCEEDS
The net proceeds from the sale of Securities by UBS will be used to settle
the UBS transaction, as more specifically described in the Prospectus Supplement
relating to the offer and sale of any such Securities. Any proceeds in excess of
the amount required to effect any such settlement will be used by the Companies
as working capital or to pay down indebtedness (although such excess amounts are
not expected to be material). The net proceeds to the Companies from the sale of
the 3,250,000 shares of Paired Common Stock, after deducting discounts and
offering expenses, in the UBS transaction referred to under "The
Companies--Sales of Paired Common Stock with Price Adjustment Mechanisms--UBS
Transaction" were approximately $91.8 million. The Companies used the net
proceeds to repay outstanding indebtedness under their then existing $900
million revolving credit facility. The Companies' $900 million revolving credit
facility was due to expire in July 2000 and bore interest at LIBOR plus 100 to
200 basis points (depending on the Companies' leverage ratio or investment grade
ratings received from the rating agencies) or a customary alternate base rate
announced from time to time plus 0 to 50 basis points (depending on the
Companies' leverage ratio). Borrowings had been made under the credit facility
to repay borrowings by the Corporation's predecessor under a previous line of
credit.
DESCRIPTION OF CAPITAL STOCK
The rights of stockholders of the Corporation and the Operating Company are
governed by the Amended and Restated Certificate of Incorporation of the
Corporation (the "Corporation Charter") and the Amended and Restated Certificate
of Incorporation of the Operating Company (the "Operating Company Charter" and,
together with the Corporation Charter, the "Charters") and the Amended and
Restated Bylaws of the Corporation (the "Corporation Bylaws") and the Amended
and Restated Bylaws of the Operating Company (the "Operating Company Bylaws"
and, together with the Corporation Bylaws, the "Bylaws"). The rights of such
stockholders are also governed by the terms of the Pairing Agreement and the
Cooperation Agreement. The following discussion summarizes certain of the key
terms of the Charters, the Bylaws, the Pairing Agreement and the Cooperation
Agreement. This summary does not purport to be complete and is subject to and
qualified in its entirety by reference to the Pairing Agreement, the Cooperation
Agreement, the Charters and the Bylaws.
Under the Charters, each of the Corporation and the Operating Company has
the authority to issue 650,000,000 shares of Corporation Common Stock and
Operating Company Common Stock, respectively, 100,000,000 shares of preferred
stock, par value $.01 per share (the "Preferred Stock"), and 750,000,000 shares
of excess stock, par value $.01 per share (the "Excess Stock").
Issuances of shares of Corporation Common Stock, Operating Company Common
Stock and other equity securities of the Corporation and the Operating Company
are subject to the terms and conditions of the Pairing Agreement and the
Cooperation Agreement.
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COMMON STOCK
The holders of Common Stock are entitled to one vote per share on all
matters voted on by stockholders, including elections of directors. Except as
otherwise required by law, by the terms of Corporation Series A Preferred Stock
(see discussion below), by the Charters with respect to Excess Stock or as
provided in any resolution adopted by either of the Corporation Board or the
Operating Company Board with respect to any series of Preferred Stock, the
holders of Paired Common Stock exclusively possess all voting power. The
Charters do not provide for cumulative voting in the election of directors.
Subject to the terms of the Corporation Series A Preferred Stock and any
preferential rights of any outstanding series of Preferred Stock and the rights
of holders of Excess Stock, the holders of shares of Paired Common Stock are
entitled to such dividends as may be declared from time to time by the
Corporation Board and the Operating Company Board from funds available for such
purpose, and upon liquidation are entitled to receive pro rata all assets of the
Corporation and the Operating Company available for distribution to such
holders. All shares of Paired Common Stock will, when issued, be fully paid and
nonassessable, and the holders thereof will not have preemptive rights.
Holders of Paired Common Stock have no conversion, sinking fund or
redemption rights, or preemptive rights to subscribe for any securities of the
Corporation or the Operating Company.
Each of the Corporation and the Operating Company intends to furnish its
stockholders with annual reports containing audited consolidated financial
statements and an opinion thereon expressed by an independent public accounting
firm and quarterly reports for the first three quarters of each fiscal year
containing unaudited financial information.
Pursuant to the Delaware General Corporation Law (the "DGCL"), a merger or
consolidation involving either of the Corporation or the Operating Company
requires the approval of a majority of the outstanding shares of the constituent
corporation to the transaction entitled to vote on such a matter.
PREFERRED STOCK
Each of the Corporation Board and the Operating Company Board is authorized,
subject to the provisions of the Cooperation Agreement (see discussion below),
to provide for the issuance of shares of Preferred Stock in one or more series,
to establish the number of shares in each series and to fix the designation,
powers, preferences and rights of each such series and the qualifications,
limitations or restrictions thereof. Because each of the Corporation Board and
the Operating Company Board has the power to establish the preferences and
rights of each class or series of Preferred Stock, each such Board of Directors
may afford the holders of any series or class of Preferred Stock preferences,
powers and rights, voting or otherwise, senior to the rights of holders of
shares of Corporation Common Stock or Operating Company Common Stock,
respectively. The issuance of shares of Preferred Stock could have the effect of
delaying or preventing a change in control of the Corporation or the Operating
Company.
CORPORATION SERIES A PREFERRED STOCK
In connection with the Wyndham Acquisition, the Corporation issued 4,860,876
shares of Corporation Series A Preferred Stock to CF Securities, L.P., the
principal shareholder of Wyndham prior to the Wyndham Acquisition, which shares
have the rights and privileges set forth in the Certificate of Designation for
the Corporation Series A Preferred Stock (the "Certificate of Designation"). The
Corporation Series A Preferred Stock is a series designated out of the Preferred
Stock of the Corporation. The following is a summary of certain provisions of
the Corporation Series A Preferred Stock. This summary does not purport to be
complete and is subject to, and qualified in its entirety by, the provisions of
the Corporation Charter and the Certificate of Designation.
Each share of Corporation Series A Preferred Stock is entitled to dividends
when, as and if declared and paid on the shares of Paired Common Stock in an
amount equal to the sum of the dividends paid on a
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share of Paired Common Stock. Dividends on the Corporation Series A Preferred
Stock will rank pari passu with dividends on the shares of Paired Common Stock.
The Corporation Series A Preferred Stock is entitled to one vote per share,
voting together as a class with the shares of the Corporation Common Stock, on
any matter submitted for a vote of the stockholders of the Corporation. The
Corporation Series A Preferred Stock is convertible at any time into shares of
Paired Common Stock on a one-for-one basis by the holders thereof, subject to
the Ownership Limit provisions set forth in the Charters. In addition, the
Corporation Series A Preferred Stock is mandatorily convertible at any time and
in any amount upon notice by the Corporation, provided that the amount so
converted will not cause a violation of the Ownership Limit provisions set forth
in the Charters.
Upon a liquidation, dissolution or winding up of the Corporation, each
holder of Corporation Series A Preferred Stock is entitled to receive, on a per
share basis, (i) the Dissolution Preference (as defined below) and (ii) a
ratable share, together with the holders of Corporation Common Stock, in the
assets of the Corporation available for distribution on the Corporation Common
Stock. The term "Dissolution Preference" means, as applicable, either (A) if the
Operating Company has previously been or is simultaneously liquidated, dissolved
or wound up, a preference equal to the amount per share of Operating Company
Common Stock which was or will be received by the holders of Operating Company
Common Stock upon the liquidation, dissolution or winding up of the Operating
Company or (B) if the Operating Company has not previously been or is not
simultaneously liquidated, dissolved or wound up, a preference per share equal
to an amount determined by an independent investment banker selected by the
Corporation Board (with the agreement of the majority holder of the Corporation
Series A Preferred Stock, if there is one at such time) to be equal to the then
current value of a share of Operating Company Common Stock, without regard to
the paired share structure of the Companies. If the Operating Company has been
previously liquidated, dissolved or wound up, then any Dissolution Preference
will accrue interest at the applicable federal rate from the date the
liquidating distributions were made on the Operating Company Common Stock unless
and until paid.
OPERATING COMPANY SERIES A PREFERRED STOCK AND SERIES B PREFERRED STOCK
On June 30, 1998, the Operating Company acquired the hospitality-related
business of CHC International, Inc. ("CHCI") through merger (the "CHCI Merger").
By operation of the CHCI Merger, each issued and outstanding CHCI share of
common stock and certain stock option rights were converted into the right to
receive shares of Operating Company Series A Preferred Stock and shares of
Operating Company Series B Preferred Stock. Generally, each CHCI stockholder has
the right to receive an equal number of shares of Operating Company Series A
Preferred Stock and shares of Operating Company Series B Preferred Stock.
Each share of Operating Company Series A Preferred Stock may be redeemed, at
the option of the holder, for cash equal to the value of a share of the Paired
Common Stock at the time of redemption (the "Redemption Value") at any time
following the first anniversary of the closing of the CHCI Merger. Each share of
Operating Company Series B Preferred Stock may also be redeemed, at the option
of the holder, for cash equal to the Redemption Value; however, such redemption
is restricted until the fifth anniversary of the closing of the CHCI Merger. The
Redemption Value may, at the Operating Company's option, be paid by the delivery
of one share of the Paired Common Stock for each share of Operating Company
Preferred Stock redeemed. Further, if the Operating Company fails to comply with
certain covenants, the Operating Company Preferred Stock may be redeemed, at the
option of the holder, for cash or, at the Operating Company's option, shares of
Paired Common Stock at the Redemption Value plus a premium. The dividend rate on
the shares of Operating Company Preferred Stock is equivalent to the dividend
rate on the shares of Paired Common Stock. Dividends on Operating Company Series
B Preferred Stock are subject to increase during the five years subsequent to
the closing of the CHCI Merger if the shares are transferred by the original
holder. If the dividends on the Operating Company Preferred Stock are not paid
when due, dividends will instead accrue at the rate of 115% per annum on a
compounded basis.
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Dividends on the Operating Company Preferred Stock will be preferential to
dividends on shares of Operating Company Common Stock. The Operating Company
Preferred Stock is redeemable at the Operating Company's option at the
Redemption Value. Except as required by law, the Operating Company Preferred
Stock will be non-voting.
Upon a liquidation, dissolution, or winding up of Operating Company, the
holders of the Operating Company Preferred Stock will be entitled to receive,
prior and in preference to any distribution of any of the assets or surplus
funds of the Operating Company to the holders of Operating Company Common Stock,
any stock not on a parity with the Operating Company Preferred Stock for
liquidation purposes or any stock ranking junior to the Operating Company Common
Stock, an amount equal to the greater of (i) $23.25, plus all accrued but unpaid
dividends, for each share of Operating Company Preferred Stock then held by
them, and (ii) the amount that a holder of a share of Operating Company
Preferred Stock would have received if such holder held the number of shares of
Operating Company Common Stock equal to the number of such shares of Operating
Company Preferred Stock.
EXCESS STOCK
Upon the violation of certain transfer restrictions contained in the
Charters, shares of any class or series of outstanding capital stock of the
Corporation and the Operating Company (collectively, "Equity Stock") will
automatically be converted into an equal number of shares of Excess Stock of the
Corporation or the Operating Company, as the case may be, and transferred to a
trust (a "Trust"). See "Restrictions on Transfer of Capital Stock." Such shares
of Excess Stock held in trust shall remain outstanding shares of stock of the
Corporation and the Operating Company and shall be held by the trustee of the
Trust (the "Trustee") for the benefit of a charitable beneficiary (a
"Beneficiary"). The Trustee and the Beneficiary shall be designated pursuant to
the terms of the Pairing Agreement. Each share of Excess Stock shall entitle the
holder to the number of votes the holder would have if such share of Excess
Stock was a share of Equity Stock of the same class or series from which such
Excess Stock was converted, on all matters submitted to a vote at any meeting of
stockholders. The Trustee, as record holder of the Excess Stock, shall be
entitled to vote all shares of Excess Stock. Each share of Excess Stock shall be
entitled to the same dividends and distributions (as to timing and amount) as
may be declared by the Corporation Board or the Operating Company Board, as the
case may be, as shares of the class or series of Equity Stock from which such
Excess Stock was converted. The Trustee of the Trust, as record holder of the
shares of the Excess Stock, shall be entitled to receive all dividends and
distributions and shall hold such dividends and distributions in trust for the
benefit of the Beneficiary of the Trust. Upon the sale of the shares of Excess
Stock to either a permitted transferee under the Charters (a "Permitted
Transferee") or to the Corporation or the Operating Company, as the case may be,
such shares of Excess Stock will be automatically converted into an equal number
of shares of Equity Stock of the same class or series from which such Excess
Stock was converted. Pursuant to the Pairing Agreement, the conversion of Equity
Stock of the Corporation or the Operating Company into Excess Stock, or the
conversion of Excess Stock of the Corporation or the Operating Company into
Equity Stock, requires conversion of the corresponding share of the Corporation
or the Operating Company, as the case may be.
THE PAIRING AGREEMENT
Under the Pairing Agreement, shares of Corporation Common Stock and
Operating Company Common Stock shall not be transferrable or transferred on the
books of such company unless a simultaneous transfer is made by the same
transferor to the same transferee of an equal number of shares of common stock
of the other company. Neither the Corporation nor the Operating Company may
issue shares of Corporation Common Stock or Operating Company Common Stock, as
the case may be, unless provision has been made for the simultaneous issuance or
transfer to the same person of the same number of shares of common stock of the
other company and for the pairing of such shares. Each certificate issued for
Corporation Common Stock or Operating Company Common Stock must be issued
"back-to-back"
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with a certificate evidencing the same number of shares of common stock of the
other company. Each certificate must bear a conspicuous legend on its face
referring to the restrictions on ownership and transfer under the Pairing
Agreement. The Pairing Agreement provides that each of the Corporation and the
Operating Company may issue shares of capital stock of any class or series
(other than Corporation Common Stock and Operating Company Common Stock),
irrespective of whether such shares are convertible into shares of Corporation
Common Stock and Operating Company Common Stock, without making provision for
the simultaneous issuance or transfer to the same person of the same number of
shares of that same class or series of capital stock of the other company and
for the pairing of such shares.
In addition, pursuant to the Pairing Agreement, neither the Corporation nor
the Operating Company may declare a stock dividend consisting in whole or in
part of Corporation Common Stock or Operating Company Common Stock, issue any
rights or warrants to purchase any shares of Corporation Common Stock or
Operating Company Common Stock or subdivide, combine or otherwise reclassify the
shares of Corporation Common Stock or Operating Company Common Stock unless the
other company simultaneously takes the same or equivalent action.
Pursuant to the Pairing Agreement, as desired from time to time, but no less
than once each calendar year, the Corporation and the Operating Company are
required to jointly arrange for the determination of the fair market value of
the Operating Company Common Stock outstanding on such valuation date. Such
valuation may be used from time to time by the Corporation and the Operating
Company to change the allocation between the companies of the net proceeds from
any issuance of paired equity. The Pairing Agreement may be terminated by the
Board of Directors of either the Corporation or the Operating Company upon 30
days written notice to the other company that such termination has been approved
by the affirmative vote of the holders of a majority of the outstanding shares
of common stock of the company seeking to terminate the agreement. In the event
the Pairing Agreement is terminated, the Corporation and the Operating Company
have agreed to cooperate to effect a separation of the paired shares of both
companies so as to permit the separate issuance and transfer thereof.
THE COOPERATION AGREEMENT
Although a paired share structure may result in stockholders of the paired
companies realizing certain economic benefits not realizable by stockholders of
companies not having a paired share structure, each paired company is a separate
corporate entity with a separate Board of Directors and different management
teams. Accordingly, the interests of the Board of Directors and management of
the paired companies may conflict and such conflicts may possibly rise to
disputes between the companies. Prior to the Cal Jockey Merger, Cal Jockey and
Bay Meadows experienced certain disagreements and disputes, some of which
resulted in litigation between the companies. The Corporation and the Operating
Company believe that these disagreements and disputes compromised the ability of
Cal Jockey and Bay Meadows to operate the companies in a manner designed to
maximize the potential economic benefits that could be realized for stockholders
of the paired companies. The Corporation and the Operating Company believe that
to increase the likelihood that the stockholders of the two Companies may fully
realize the economic benefits of the paired share structure, it is in the best
interests of the Companies and their respective stockholders that the risk of
potential conflicts between the two Companies be minimized. Accordingly, the
Corporation and the Operating Company have entered into the Cooperation
Agreement.
Under the terms of the Cooperation Agreement, the Corporation and Operating
Company are obligated to cooperate to the fullest extent possible in the conduct
of their respective operations and to take all necessary action to preserve the
paired share structure and to maximize the economic and tax advantages
associated therewith. One of the primary objectives of the Cooperation Agreement
is to set forth the understanding of the Companies that the Corporation shall
have the sole right and power to authorize, effect and control issuances of
paired equity (including securities convertible into paired equity) of the two
companies. The Cooperation Agreement provides for a number of corporate
governance mechanisms designed to accomplish this objective and the other
objectives set forth therein. These
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mechanisms include (i) the establishment of a cooperation committee that
normally considers and proposes the agenda listing the matters to be considered
at any joint meeting of the Corporation Board and the Operating Company Board,
(ii) the establishment of corporate matters categories and procedures for the
consideration and reconsideration of matters brought before the Corporation
Board and the Operating Company Board, (iii) the establishment of a hotel
acquisitions committee that is to analyze, evaluate and consider potential
acquisitions by the Companies of hotel properties and related assets, (iv)
provisions that govern the sole authority of the Corporation to authorize,
effect and control issuances of paired equity (including securities convertible
into paired equity) of the two companies, and (v) the establishment of an
unpaired equity committee that will have the sole authority to authorize and
approve issuances of unpaired equity by the Operating Company. Unless earlier
terminated at any time by the mutual consent of the Corporation and the
Operating Company, the Cooperation Agreement will terminate on the date that is
12 months after the date on which the Pairing Agreement is no longer in effect.
In the event of any termination of the Cooperation Agreement, neither the
Corporation nor the Operating Company (or any of its directors, officers,
employees or agents) will have any liability or further obligation to any other
party under the Cooperation Agreement.
TRANSFER AGENT
The transfer agent and registrar for the Paired Common Stock is American
Stock Transfer & Trust Company of New York, New York.
RESTRICTIONS ON TRANSFERS OF CAPITAL STOCK
For the Corporation to qualify as a REIT under the Code, among other things,
not more than 50% in value of its outstanding capital stock may be owned,
directly or indirectly, by five or fewer individuals (defined in the Code to
include certain entities) during the last half of a taxable year, and such
capital stock must be beneficially owned by 100 or more persons during at least
335 days of a taxable year of 12 months or during a proportionate part of a
shorter taxable year (in each case, other than the first such year). In
addition, the Corporation must meet certain requirements regarding the nature of
its gross income in order to qualify as a REIT. One such requirement is that at
least 75% of the Corporation's gross income for each year must consist of rents
from real property and income from certain other real property investments. The
rents received by Realty Partnership and its subsidiary partnerships from the
Lessees will not qualify as rents from real property if the Corporation owns,
actually or constructively, 10% or more of the ownership interests in any Lessee
within the meaning of Section 856(d)(2)(B) of the Code, the result of which
would be the loss of REIT status for the Corporation. See "Certain Federal
Income Tax Considerations--REIT Qualification."
In order to protect the Corporation against the risk of losing its status as
a REIT and to otherwise protect the Corporation from the consequences of a
concentration of ownership among its stockholders, the Charters provide, subject
to certain exceptions, that no single person (which includes a "group" of
persons) (other than an entity that is either a trust as described in Section
401(a) of the Code and exempt from tax under Section 501(a) of the Code or a
person that is registered under the Investment Company Act of 1940 (a
"Look-Through Entity")) may Beneficially Own or Constructively Own (as those
terms are defined below) in excess of 8.0% of the outstanding shares of any
class or series of Equity Stock of the Corporation or the Operating Company (the
"Ownership Limit"), unless the Ownership Limit is waived by the Board of
Directors of the relevant company in accordance with the Charters. Any transfer
of Equity Stock of the Corporation or the Operating Company that would (i)
result in any person or entity owning, directly or indirectly, shares of Equity
Stock of the Corporation or the Operating Company in excess of the Ownership
Limit, unless the Ownership Limit is waived by the Board of Directors of the
relevant corporation in accordance with the Charters, (ii) result in the capital
stock of the Corporation being beneficially owned (within the meaning of Section
856(a)(5) of the Code) by fewer than 100 persons within the meaning of Section
856(a)(5) of the Code, (iii) result in the Corporation being "closely held"
within the meaning of Section 856(h) of the Code or (iv) cause the Corporation
to own, actually or constructively,
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10% or more of the ownership interests in a tenant of the real property of the
Corporation or a subsidiary of the Corporation within the meaning of Section
856(d)(2)(B) of the Code, shall be void ab initio, and the intended transferee
will acquire no right or interest in such shares of Equity Stock. For purposes
of the Charters, "Beneficial Ownership" means, with respect to any individual or
entity, ownership of shares of Equity Stock equal to the sum of (i) the shares
of Equity Stock directly or indirectly owned by such individual or entity, (ii)
the number of shares of Equity Stock treated as owned directly or indirectly by
such individual or entity through the application of the constructive ownership
rules of Section 544 of the Code, as modified by Section 856(h)(1)(B) of the
Code, and (iii) the number of shares of Equity Stock which such individual or
entity is deemed to beneficially own pursuant to Rule 13d-3 under the Exchange
Act. The Charters provide that pension plans described in Section 401(a) of the
Code and mutual funds registered under the Investment Company Act of 1940 are
treated as Look-Through Entities that are subject to a 9.8% "Look-Through
Ownership Limit." Pension plans and mutual funds are among the entities that are
not treated as holders of stock under the "five or fewer" requirement and the
beneficial owners of such entities will be counted as holders for this purpose.
For purposes of computing the percentage of shares of any class or series of
Equity Stock of the Corporation or the Operating Company Beneficially Owned by
any person or entity, any shares of Equity Stock of the Corporation or the
Operating Company which are deemed to be Beneficially Owned by such person or
entity pursuant to Rule 13d-3 of the Exchange Act but which are not outstanding
shall be deemed to be outstanding. The terms "Beneficial Owner," "Beneficially
Owns" and "Beneficially Owned" shall have correlative meanings. Also for
purposes of the Charters, "Constructive Ownership" means ownership of shares of
Equity Stock by an individual or entity who is or would be treated as a direct
or indirect owner of such shares of Equity Stock through the application of
Section 318 of the Code, as modified by Section 856(d)(5) of the Code. The terms
"Constructive Owner," "Constructively Owns" and "Constructively Owned" shall
have correlative meanings.
Upon the occurrence of a purported transfer of shares that would result in a
violation of any of the foregoing transfer restrictions, that number of shares
that violate the transfer restrictions shall be automatically converted into an
equal number of shares of Excess Stock and transferred to a Trust for the
benefit of the Beneficiary, effective on the Trading Day (as defined below)
prior to the date of the purported transfer of such shares, and the record
holder of the shares of Equity Stock that are converted into shares of Excess
Stock (a "Prohibited Owner") shall submit such number of shares of Equity Stock
to the Corporation or the Operating Company, as the case may be, for
registration in the name of the Trustee. In the case of Equity Stock that is
paired, upon the conversion of a share of Equity Stock into a share of Excess
Stock, the corresponding paired share of that same class or series of Equity
Stock of the other company shall simultaneously be converted into a share of
Excess Stock; such shares of Excess Stock shall be paired and shall be
simultaneously transferred to a Trust. Upon the occurrence of such a conversion
of shares of any class or series of Equity Stock into an equal number of shares
of Excess Stock, such shares of Equity Stock shall be automatically retired and
canceled, without any action required by the Board of Directors of either of the
Corporation or the Operating Company, and shall thereupon be restored to the
status of authorized but unissued shares of the particular class or series of
Equity Stock from which such Excess Stock was converted and may be reissued as
that particular class or series of Equity Stock.
Shares of Equity Stock that are converted into shares of Excess Stock and
transferred to a Trust shall be held in trust for the exclusive benefit of the
Beneficiary. Shares of Excess Stock will remain issued and outstanding shares of
stock. Each share of Excess Stock shall be entitled to the same dividends and
distributions (as to both timing and amount) as may be declared by the
Corporation Board or the Operating Company Board, as the case may be, as shares
of the class or series of Equity Stock from which such Excess Stock was
converted. The Trustee, as record holder of the shares of Excess Stock, shall be
entitled to receive all dividends and distributions and shall hold all such
dividends or distributions in trust for the benefit of the Beneficiary. The
Prohibited Owner with respect to such shares of Excess Stock shall repay to the
Trust the amount of any dividends or distributions received by it (i) that are
attributable to any
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shares of Equity Stock that have been converted into shares of Excess Stock and
(ii) the record date of which was on or after the date that such shares were
converted into shares of Excess Stock. The Corporation and the Operating Company
shall take all measures that they determine reasonably necessary to recover the
amount of any such dividend or distribution paid to a Prohibited Owner,
including, if necessary, withholding any portion of future dividends or
distributions payable on shares of Equity Stock beneficially owned or
constructively owned by the person who, but for the restrictions on transfer,
would constructively own or beneficially own the shares of Excess Stock and, as
soon as reasonably practicable following receipt or withholding thereof, shall
pay over to the Trust for the benefit of the Beneficiary the dividends so
received or withheld, as the case may be.
In the event of any voluntary or involuntary liquidation of, or winding up
of, or any distribution of the assets of, the Corporation or the Operating
Company, each holder of shares of Excess Stock shall be entitled to receive,
ratably with each other holder of shares of Equity Stock of the same class or
series from which the Equity Stock was converted, that portion of the assets of
the Corporation or the Operating Company, as the case may be, that is available
for distribution to the holders of such class or series of Equity Stock. The
Trust shall distribute to the Prohibited Owner the amounts received upon such
liquidation, dissolution, or winding up, or distribution; provided, however,
that the Prohibited Owner shall not be entitled to receive amounts in excess of,
in the case of a purported transfer in which the Prohibited Owner gave value for
shares of Equity Stock and which transfer resulted in the conversion of the
shares into shares of Excess Stock, the price per share, if any, such Prohibited
Owner paid for the shares of Equity Stock (which, in the case of Equity Stock
that is paired, shall equal the price paid per share multiplied by the most
recent Valuation Percentage (as defined below)) and, in the case of a
non-transfer event or transfer in which the Prohibited Owner did not give value
for such shares (e.g., if the shares were received through a gift or devise) and
which non-transfer event or transfer, as the case may be, resulted in the
conversion of the shares into shares of Excess Stock, the price per share equal
to the Market Price (as defined below) on the date of such non-transfer event or
transfer. Any remaining amount in such Trust shall be distributed to the
Beneficiary.
Each share of Excess Stock shall entitle the holder to the number of votes
the holder would have, if such share of Excess Stock was a share of Equity Stock
of the same class or series from which such Excess Stock was converted, on all
matters submitted to a vote at any meeting of stockholders. The holders of
shares of Excess Stock converted from the same class or series of Equity Stock
shall vote together with the holders of such Equity Stock as a single class on
all such matters. The Trustee, as record holder of the shares of Excess Stock,
shall be entitled to vote all shares of Excess Stock. Any vote taken by a
Prohibited Owner prior to the discovery by the Corporation or the Operating
Company, as the case may be, that the shares of Equity Stock were exchanged for
shares of Excess Stock will be rescinded as void ab initio.
The Trustee shall have the exclusive and absolute right to designate one or
more Permitted Transferees of any and all shares of Excess Stock of the
Corporation or the Operating Company or both, in the case of Excess Stock that
is paired, to exercise its or their option with respect to such shares as
described below; provided, however, that (i) the Permitted Transferee so
designated purchases for valuable consideration (whether in a public or private
sale) the shares of Excess Stock (which, in the case of Excess Stock that is
paired, shall equal the price paid per share multiplied by the most recent
Valuation Percentage) and (ii) the Permitted Transferee so designated may
acquire such shares of Excess Stock without violating any of the aforementioned
transfer restrictions and without such acquisition resulting in the exchange of
such shares of Equity Stock so acquired for shares of Excess Stock and the
transfer of such shares of Excess Stock to a Trust. Upon the designation by the
Trustee of a Permitted Transferee, the Trustee shall cause to be transferred to
the Permitted Transferee that number of shares of Excess Stock of the
Corporation or the Operating Company, as the case may be, acquired by the
Permitted Transferee. Upon such transfer of the shares of Excess Stock to the
Permitted Transferee, such shares of Excess Stock shall be automatically
converted into an equal number of shares of Equity Stock of the same class and
series from which such Excess Stock was converted. In the case of Equity Stock
that is paired, upon the conversion of a share of Excess Stock into a share of
Equity Stock of the same class or series from which such Excess Stock was
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converted, the corresponding paired share of Excess Stock of the other company
shall simultaneously be converted into a share of Equity Stock of the same class
or series from which such Excess Stock was converted and such shares of Equity
Stock shall be paired. Upon the occurrence of such a conversion of shares of
Excess Stock into an equal number of shares of Equity Stock, such shares of
Excess Stock shall be automatically retired and canceled, without any action
required by the Corporation Board or the Operating Company Board, and shall
thereupon be restored to the status of authorized but unissued shares of Excess
Stock and may be reissued as such. The Trustee shall (i) cause to be recorded on
the stock transfer books of the Corporation or the Operating Company or both, in
the case of Excess Stock that is paired, that the Permitted Transferee is the
holder of record of such number of shares of Equity Stock and (ii) distribute to
the Beneficiary any and all amounts held with respect to the shares of Excess
Stock after making payment to the Prohibited Owner. If the transfer of shares of
Excess Stock to a purported Permitted Transferee shall violate any of the
aforementioned transfer restrictions including, without limitation, the
Ownership Limit or the Look-Through Ownership Limit, as the case may be, such
transfer shall be void ab initio as to that number of shares of Excess Stock
that causes the violation of any such restriction when such shares are converted
into shares of Equity Stock and the purported Permitted Transferee shall be
deemed to be a Prohibited Owner and shall acquire no rights in such shares of
Excess Stock. Such shares of Equity Stock shall be automatically re-converted
into Excess Stock and transferred to the Trust from which they were originally
sold. Such conversion and transfer to the Trust shall be effective as of the
close of trading on the Trading Day prior to the date of the transfer to the
purported Permitted Transferee and the provisions of the Charters regarding
compensation to a Prohibited Owner shall apply to such shares with respect to
any future transfer of such shares by the Trust.
A Prohibited Owner shall be entitled to receive from the Trustee following
the sale or other disposition of such shares of Excess Stock the lesser of (i)
(a) in the case of a purported transfer in which the Prohibited Owner gave value
for shares of Equity Stock and which transfer resulted in the conversion of such
shares into shares of Excess Stock, the price per share, if any, such Prohibited
Owner paid for the shares of Equity Stock (which, in the case of Excess Stock
that is paired, shall be determined based on the Valuation Percentage) and (b)
in the case of a non-transfer event or transfer in which the Prohibited Owner
did not give value for such shares (e.g., if the shares were received through a
gift or devise) and which non-transfer event or transfer, as the case may be,
resulted in the conversion of such shares into shares of Excess Stock, the price
per share equal to the Market Price on the date of such non-transfer event or
transfer and (ii) the price per share (which, in the case of Excess Stock that
is paired, shall be determined based on the Valuation Percentage) received by
the Trustee from the sale or other disposition of such shares of Excess Stock.
Any amounts received by the Trustee in respect of such shares of Excess Stock
and in excess of such amounts to be paid the Prohibited Owner shall be
distributed to the Beneficiary.
Shares of Excess Stock shall be deemed to have been offered for sale by a
Trust to the Corporation or the Operating Company or both, in the case of Excess
Stock that is paired, or a designee of such company or companies, at a price per
share equal to the lesser of (i) the price per share (which, in the case of
Excess Stock that is paired, shall be determined based on the Valuation
Percentage) in the transaction that created such shares of Excess Stock (or, in
the case of devise, gift or non-transfer event, the Market Price at the time of
such devise, gift or non-transfer event) or (ii) the Market Price on the date
either company or both companies, in the case of Excess Stock that is paired,
accept such offer. Either company or both companies, in the case of Excess Stock
that is paired, shall have the right to accept such offer for a period of 90
days following the later of (a) the date of the non-transfer event or purported
transfer which results in such shares of Excess Stock or (b) the date on which
either company or both companies, in the case of Excess Stock that is paired,
determine in good faith that a transfer or non-transfer event resulting in
shares of Excess Stock has previously occurred, if either company or both
companies, in the case of Excess Stock that is paired, do not receive a notice
of such transfer or non-transfer event. In the case of Excess Stock that is
paired, neither the Corporation nor the Operating Company shall accept such an
offer with respect
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to its shares of Excess Stock without the agreement of the other company to
accept such offer with respect to the corresponding shares of its Excess Stock.
"Market Price" on any date shall mean the average of the Closing Price for
the five consecutive Trading Days ending on such date. "Closing Price" on any
date shall mean the last sale price, regular way, or, in case no such sale takes
place on such day, the average of the closing bid and asked prices, regular way,
in either case as reported in the principal consolidated transaction reporting
system with respect to securities listed or admitted to trading on the NYSE or,
if the shares of Equity Stock are not listed or admitted to trading on the NYSE,
as reported in the principal consolidated transaction reporting system with
respect to securities listed on the principal national securities exchange on
which the shares of Equity Stock are listed or admitted to trading or, if the
shares of Equity Stock are not listed or admitted to trading on any national
securities exchange, the last quoted price, or if not so quoted, the average of
the high bid and low asked prices in the over-the-counter market, as reported by
the National Association of Securities Dealers, Inc. Automated Quotation System
or, if such system is no longer in use, the principal other automated quotation
system that may then be in use or, if the shares of Equity Stock are not quoted
by any such organization, the average of the closing bid and asked prices as
furnished by a professional market maker making a market in the shares of Equity
Stock. In the case of Equity Stock that is paired, "Market Price" shall mean the
"Market Price" for a share of Paired Common Stock multiplied by a fraction
(expressed as a percentage) determined by dividing the value for such Equity
Stock most recently determined under the Pairing Agreement over the value of a
share of Paired Common Stock most recently determined under the Pairing
Agreement (the "Valuation Percentage"). "Trading Day" shall mean a day on which
the principal national securities exchange on which the shares of Equity Stock
are listed or admitted to trading is open for the transaction of business or, if
the shares of Equity Stock are not listed or admitted to trading on any national
securities exchange, shall mean any day other than a Saturday, a Sunday or a day
on which banking institutions in the State of New York are authorized or
obligated by law or executive order to close.
Any person or entity that acquires or attempts to acquire shares of Equity
Stock in violation of the aforementioned transfer restrictions, or any person or
entity that owned shares of Equity Stock that were transferred to a Trust, shall
immediately give written notice to the Corporation or the Operating Company or
both, in the case of Equity Stock that is paired, of such event and shall
provide such other information as the appropriate company or both companies, as
the case may be, may request to determine the effect, if any, of such violation
on the Corporation's status as a REIT.
Each person or entity that is an owner, actually or constructively, of
shares of Equity Stock and each person or entity that (including the stockholder
of record) is holding shares of Equity Stock for such an owner shall provide to
the Corporation or the Operating Company or both, in the case of Equity Stock
that is paired, a written statement or affidavit stating such information as the
appropriate company or both companies, as the case may be, may request to
determine the Corporation status as a REIT and to ensure compliance with the
Ownership Limit or the Look-Through Ownership Limit, as the case may be. In
addition, every person or entity that owns of record, actually or
constructively, more than 5%, or such lower percentages as required pursuant to
regulations under the Code, of the outstanding shares of any class or series of
Equity Stock of the Corporation or the Operating Company shall, within 30 days
after January 1 of each year, provide to the Corporation or the Operating
Company or both , in the case of Equity Stock that is paired, a written
statement or affidavit stating the name and address of such owner, the number of
shares of Equity Stock owned, actually or constructively, and a description of
how such shares are held.
All certificates representing shares of Equity Stock shall bear a legend
referring to the aforementioned transfer restrictions. The transfer restrictions
will continue to apply until the Corporation Board determines that it is no
longer in the best interests of the Corporation to attempt to qualify, or to
continue to qualify, as a REIT.
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The restrictions on transfer contained in the Charters could have the effect
of discouraging a takeover or other transaction in which holders of some, or a
majority, of shares of Equity Stock might receive a premium from their shares of
Equity Stock over the then prevailing Market Price or which such holders might
believe to be otherwise in their best interest.
CERTAIN FEDERAL INCOME TAX CONSIDERATIONS
The following is a general summary of certain provisions that currently
govern United States federal income tax treatment of the Corporation and its
U.S. Stockholders (as defined below in "--Federal Income Taxation of Holders of
Paired Shares--Taxation of Taxable U.S. Stockholders") as well as certain other
tax considerations for U.S. holders of Paired Common Stock (also referred to
herein as "Paired Shares"). The following discussion is based upon current
provisions of the Code, existing temporary and final regulations thereunder and
current administrative rulings and court decisions, all of which are subject to
change, possibly on a retroactive basis. See "Risk Factors--Real Estate
Investment Trust Tax Risks-- Exemption from Anti-Pairing Rules; Recent
Legislation Limits Use of Paired Share Structure" for a discussion of recent
legislation affecting the Companies' ability to utilize their paired share
structure and qualify as a REIT. No attempt has been made to comment on all
United States federal income tax consequences that may be relevant to
stockholders of the Companies. The tax discussion set forth below is included
for general information only. It is not intended to be, nor should it be
construed to be, legal or tax advice to any particular stockholder of the
Companies. References to the "Corporation" in this section regarding certain
federal income tax considerations include only Patriot American Hospitality,
Inc. and references herein to the "Operating Company" include only Wyndham
International, Inc. unless in either case the context otherwise requires.
THE FOLLOWING DISCUSSION MAY NOT APPLY TO PARTICULAR CATEGORIES OF HOLDERS
OF SHARES OF CORPORATION COMMON STOCK OR OPERATING COMPANY COMMON STOCK SUBJECT
TO SPECIAL TREATMENT UNDER THE CODE, SUCH AS INSURANCE COMPANIES, FINANCIAL
INSTITUTIONS, BROKER-DEALERS, TAX-EXEMPT ORGANIZATIONS, NON-U.S. STOCKHOLDERS
AND HOLDERS WHOSE SHARES WERE ACQUIRED PURSUANT TO THE EXERCISE OF AN EMPLOYEE
STOCK OPTION OR OTHERWISE AS COMPENSATION. STOCKHOLDERS OF THE COMPANIES ARE
URGED TO CONSULT THEIR TAX ADVISORS TO DETERMINE THEIR SPECIFIC TAX
CONSEQUENCES, INCLUDING ANY STATE, LOCAL OR OTHER TAX CONSEQUENCES.
REIT QUALIFICATION
GENERAL
If certain detailed conditions imposed by the provisions of the Code are
met, entities such as the Corporation that invest primarily in real estate and
that otherwise would be treated for federal income tax purposes as corporations
generally are not taxed at the corporate level on their "real estate investment
trust taxable income" or net capital gain that is currently distributed to
stockholders. This treatment substantially eliminates the "double taxation" on
earnings (i.e., at both the corporate and stockholder levels) that ordinarily
results from the use of corporations.
The Corporation has been operated in a manner intended to allow it to
qualify as a REIT. The Corporation intends to operate in the future in a manner
so that the Corporation will continue to qualify as a REIT. If the Corporation
fails to qualify as a REIT in any taxable year, the Corporation will be subject
to federal income taxation as if it were a domestic corporation, and the
Corporation's stockholders will be taxed in the same manner as stockholders of
ordinary corporations. In this event, the Corporation could be subject to
potentially significant tax liabilities, and the amount of cash available for
distribution to stockholders would be reduced and possibly eliminated. Unless
entitled to relief under certain Code provisions, and subject to the discussion
below regarding Section 269B(a)(3) of the Code, the Corporation also would be
disqualified from re-electing REIT status for the four taxable years following
the year during
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which qualification was lost. Failure of the Corporation's predecessor, Patriot,
to have qualified as a REIT also could cause the Corporation to be disqualified
as a REIT and/or subject the Corporation to significant tax liabilities.
Goodwin, Procter & Hoar LLP, special tax counsel to the Corporation, has
previously rendered an opinion to the Corporation to the effect that commencing
with the taxable year ending December 31, 1983 to the date of such opinion, the
Corporation has been organized and operated in conformity with the requirements
for qualification and taxation as a REIT under the Code, and that as of the date
of such opinion the Corporation's proposed method of operation will enable it to
continue to meet the requirements for qualification and taxation as a REIT under
the Code. Investors should be aware, however, that opinions of counsel are not
binding upon the IRS or any court. Goodwin, Procter & Hoar LLP's opinion is
based on various assumptions and is conditioned upon certain representations
made by the Corporation on or about the date of such opinion as to factual
matters, including representations regarding the nature of the Corporation's
properties and the future conduct of the Corporation's business. Any inaccuracy
in such assumptions and representations (including as a result of activities of
the Corporation subsequent to the date of the opinion) could adversely affect
this opinion. Qualification and taxation as a REIT depends upon the
Corporation's having met and continuing to meet, through actual annual operating
results, the distribution levels, stock ownership, and other various
qualification tests imposed under the Code. Goodwin, Procter & Hoar LLP has not
reviewed and will not review the Corporation's compliance with those tests.
Moreover, testing the Corporation's compliance with the REIT qualification
requirements involves the application of highly technical and complex Code
provisions, including the recently enacted paired share legislation, for which
there are only limited, if any, judicial or administrative interpretations. The
complexity of these provisions is greater in the case of a REIT that owns hotels
and leases them to a corporation with which its stock is paired. See "Risk
Factors--Real Estate Investment Trust Tax Risks." In addition, some of these
Code provisions, such as the provisions regarding the characterization of the
Corporation's property as other than "dealer property," and the characterization
of loans by the Corporation as debt for tax purposes, require factual
determinations not susceptible of legal opinion. The Code provisions requiring
the distribution of earnings and profits as determined for federal income tax
purposes (the "E&P") inherited from C corporations depends on the accurate
calculation of such amounts, which calculations could be challenged by the IRS.
The opinion of Goodwin, Procter & Hoar LLP necessarily relies on representations
from the Corporation and assumptions as to these factual determinations.
Finally, qualification as a REIT also depends on the determination of various
factual matters and circumstances not entirely within the Corporation's control.
Accordingly, no assurance can be given that the Corporation will satisfy the
REIT qualification tests on a continuing basis.
PAIRED SHARES; TAX LEGISLATION
Section 269B(a)(3) of the Code provides that if the shares of a REIT and a
non-REIT are paired, then the REIT and the non-REIT shall be treated as one
entity for purposes of determining whether either company qualifies as a REIT.
If Section 269B(a)(3) applied to the Corporation and the Operating Company, then
the Corporation then would not be eligible to be taxed as a REIT. Section
269B(a)(3) does not apply, however, if the shares of the REIT and the non-REIT
were paired on June 30, 1983 and the REIT was taxable as a REIT on June 30,
1983. As a result of this grandfathering rule, Section 269B(a)(3) does not apply
to the Corporation. There are, however, no judicial or administrative
authorities interpreting this grandfathering rule in the context of a merger
into a grandfathered REIT or otherwise, and this interpretation, as well as the
opinion of Goodwin, Procter & Hoar LLP regarding the Corporation's qualification
as a REIT, is based solely on the literal language of the statute. Moreover, if
for any reason the Corporation failed to qualify as a REIT in 1983, the benefit
of the grandfathering rule would not be available to the Corporation, and the
Corporation would not qualify as a REIT for any taxable year.
The Corporation's ability to utilize the paired structure is limited as a
result of the Reform Act, which was signed into law on July 22, 1998. The Reform
Act includes a freeze on the grandfathered status of paired share REITs such as
the Corporation and generally requires the Companies to modify their method
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of operations with respect to newly acquired assets. The Companies recently
announced that they have elected to maintain their paired-share structure
despite the anti-pairing rules contained in the Reform Act. Therefore, the
Companies will continue to be subject to the constraints of the new legislation,
which will limit the Companies' ability to acquire new assets or make
substantial improvements to existing properties. See "Risk Factors--Real Estate
Investment Trust Tax Risks--Exemption from Anti-Pairing Rules; -- Recent
Legislation Limits Use of Paired Share Structure."
There can be no assurance that other legislation effecting REIT
qualification or operations will not be enacted, and any such legislation could
have a material effect on the operations of the Companies.
POTENTIAL REALLOCATION OF INCOME
Due to the paired share structure, the Companies are controlled by the same
interests. As a result, the IRS could, pursuant to Section 482 of the Code, seek
to distribute, apportion or allocate gross income, deductions, credits or
allowances between or among them if it determines that such distribution,
apportionment or allocation is necessary in order to prevent evasion of taxes or
to clearly reflect income. See "Risk Factors--Real Estate Investment Trust Tax
Risks--Real Estate Investment Trust Tax Risks-- Potential Reallocation of
Income." In addition, any challenge to the pricing of intercompany transactions
could raise issues under recent legislation affecting paired share companies and
therefore could affect the Corporation's ability to qualify as a REIT. See "Risk
Factors--Real Estate Investment Trust Tax Risks-- Exemption from Anti-Pairing
Rules; Recent Legislation Limits Use of Paired Share Structure."
BUILT-IN GAIN TAX
Under certain circumstances, if the Corporation recognizes gain on the
disposition of an asset acquired from a C corporation (including the assets
acquired from Wyndham or Interstate) during the ten-year period beginning on the
date of the acquisition, then to the extent of the asset's "built-in gain"
(i.e., the excess of the fair market value of such asset at the time of
acquisition over its then tax basis), the Corporation will be subject to tax on
such gain at the highest regular corporate rate applicable, pursuant to Treasury
Regulations not yet promulgated. The Corporation would be required to distribute
95% of the excess of the amount of recognized built-in gain over the amount of
tax paid in order to maintain the Corporation's qualification as a REIT. The
foregoing assumes that the Corporation makes an election pursuant to IRS Notice
88-19 with respect to the acquisition. If the election is not made, the
aggregate amount of built-in gain with respect to each of the two mergers would
be subject to tax in the year of acquisition. The Corporation has made and will
generally make the election pursuant to the IRS Notice 88-19 if such election is
available.
CLASSIFICATION OF THE REALTY PARTNERSHIP AS A PUBLICLY TRADED PARTNERSHIP
Section 7704 of the Code treats certain "publicly traded partnerships" as
corporations. If the Realty Partnership were taxed as a corporation under these
rules, the Corporation would be disqualified as a REIT. A partnership is a
publicly traded partnership if interests in such partnership are either traded
on an established securities market or are "readily tradable on a secondary
market (or the substantial equivalent thereof)." The Realty Partnership relies
on restrictions on transfers and redemptions of limited partner interests in
order to avoid being taxed as a corporation under Section 7704 of the Code. The
Operating Partnership relies on similar restrictions to avoid taxation as a
corporation. There can be no assurance that efforts to avoid taxation as a
corporation under these provisions have been or will be successful.
EFFECTS OF COMPLIANCE WITH REIT REQUIREMENTS
INCOME TESTS
In general, in order to qualify as a REIT, the Corporation must derive at
least 95% of its gross income from real estate sources and certain passive
investments, and the Corporation must derive at least 75% of
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its gross income from real estate sources. Operating income derived from hotels
or a racetrack does not constitute qualifying income under the REIT
requirements. Accordingly, the Corporation generally leases its hotels to
lessees (including the Operating Company). Similarly, the Corporation has
subleased the land underlying the Racecourse and leased the related improvements
to the Operating Company. Rent derived from such leases will be qualifying
income under the REIT requirements, provided several requirements are satisfied.
Among other requirements, a lease may not have the effect of giving the
Corporation a share of the net income of the lessee, and the amount of personal
property leased under the lease must not exceed a defined low level. In
addition, all leases must also qualify as "true" leases for federal income tax
purposes (as opposed to service contracts, joint ventures or other types of
arrangements). There are, however, no controlling Treasury Regulations,
published rulings, or judicial decisions that discuss whether the Corporation's
leases constitute "true" leases. Therefore, there can be no complete assurance
that the IRS will not successfully assert a contrary position. The Corporation
(excluding certain corporate subsidiaries) also may not provide services, other
than customary services and de minimis non-customary services, to the lessees or
their subtenants.
Payments under a lease will not constitute qualifying income for purposes of
the REIT requirements if the Corporation owns, directly or indirectly, 10% or
more of the ownership interests in the relevant lessee. Constructive ownership
rules apply, such that, for instance, the Corporation is deemed to own the
assets of stockholders who own 10% or more in value of the stock of the
Corporation. The Charters are therefore designed to prevent a stockholder of the
Corporation from owning Corporation stock or Operating Company stock that would
cause the Corporation to own, actually or constructively, 10% or more of the
ownership interests in a lessee (including the Operating Company and the
Operating Partnership). Thus, the Corporation should never own, actually or
constructively, 10% or more of a lessee. However, because the relevant
constructive ownership rules are broad and it is not possible to monitor
continually direct and indirect transfers of Paired Shares, and because the
charter provisions referred to above may not be effective, no absolute assurance
can be given that such transfers, or other events of which the Corporation has
no knowledge, will not cause the Corporation to own constructively 10% or more
of one or more lessees at some future date.
The Corporation will from time to time engage in activities that generate
nonqualifying income. The Corporation's foreign investments could generate
foreign currency gains which also would not constitute qualifying income. In
addition, real estate assets acquired after March 26, 1998, that are not
grandfathered under the recently enacted paired share legislation generally
would generate nonqualifying income. The Corporation may reduce the amount of
nonqualifying income by holding such assets through corporate subsidiaries
subject to income tax. See "Risk Factors--Real Estate Investment Trust Tax
Risks--Exemption from Anti-Pairing Rules; Recent Legislation Limits Use of
Paired Share Structure." However, if the Operating Company also holds an
interest in any such taxable subsidiary, then the Corporation might be required
to take into account as nonqualifying income any revenues attributable to the
Operating Company's interest in such subsidiary. Under the paired share
legislation, nonqualifying income also generally includes interest income
received with respect to intercompany mortgage loans (including loans made to
the Operating Company or taxable subsidiaries), unless the rate of interest does
not exceed an arm's-length rate or certain grandfathering rules apply. The
Corporation intends to monitor and manage its activities and investments so that
the amount of nonqualifying income does not exceed applicable limits. There can
be no assurance, however, that these efforts will be successful.
ASSET TESTS
The REIT requirements limit the value of the non-real estate assets held by
the Corporation. The asset tests also prevent the Corporation from holding 10%
or more of the voting securities of a corporate issuer. Because of the
constraints imposed by recently enacted legislation, the Corporation might use
taxable corporate subsidiaries to hold newly acquired real estate assets. See
"Risk Factors--Real Estate Investment Trust Tax Risks--Exemption from
Anti-Paring Rules; Recent Legislation Limits Use of Paired Share Structure." The
stock and unsecured debt securities of any such subsidiary will be treated as a
non-
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real estate asset for REIT asset test purposes. However, the value of the stock
of such subsidiaries may be reduced through the use of mortgage loans made by
the Corporation to the subsidiary. In addition, because the Corporation may not
hold 10% or more of the voting securities of a corporate issuer, voting control
of such subsidiaries will generally be held by the Operating Company or by
individual officers and/ or directors of the Companies.
The asset tests must be satisfied at the close of each quarter (or, to the
extent not satisfied at the close of the quarter, within the 30-day period
following the close of the quarter). Although the Corporation holds and will
continue to hold substantial non real estate assets, and also holds or will hold
at times voting securities in excess of the 10% limit, the Corporation intends
to monitor its assets so that it does not hold assets in violation of the
applicable limits on the relevant testing dates (or the expiration of applicable
cure periods). There can be no assurance, however, that the IRS will not
challenge the Corporation's compliance with these tests. If the Corporation
holds assets in violation of applicable limits, it would be disqualified as a
REIT.
OTHER RESTRICTIONS
In addition to the considerations discussed above, the REIT requirements
impose a number of other restrictions on the operations of the Corporation. For
example, net income from sales of property sold to customers in the ordinary
course of business (other than inventory acquired by reason of certain
foreclosures) is subject to a 100% tax unless eligible for a certain safe
harbor. Minimum distribution requirements also generally require the Corporation
to distribute each year at least 95% of its taxable income for the year
(excluding any net capital gain). See "Risk Factors--Real Estate Investment
Trust Tax Risks--Adverse Effects of REIT Minimum Distribution Requirements."
There can be no assurance that other legislation affecting REIT
qualification or operations will not be enacted, and any such legislation could
have a material effect on the operations of the Companies.
TAXATION OF THE OPERATING COMPANY; CORPORATE SUBSIDIARIES
As C corporations under the Code, the Operating Company and its corporate
subsidiaries are subject to United States federal income tax on their taxable
income at corporate rates. Certain corporate subsidiaries of the Corporation and
the Realty Partnership also are subject to federal income tax. The Companies
might increase the use of taxable subsidiaries in order to make acquisitions of
real estate assets that would otherwise be subject to the recently enacted
anti-pairing rules. See "Risk Factors--Real Estate Investment Trust Tax
Risks--Exemption from Anti-Pairing Rules; Recent Legislation Limits Use of
Paired Share Structure."
STATE AND LOCAL TAXATION
The Companies and their stockholders or partners may be subject to state and
local taxes in various jurisdictions, including those in which it or they
transact business, own property or reside. The state and local tax treatment of
such entities or persons may not conform to the federal income tax consequences
discussed above. Consequently, stockholders should consult their own tax
advisors regarding the effect of state and local tax laws on the ownership of
Paired Shares.
FEDERAL INCOME TAXATION OF HOLDERS OF PAIRED SHARES
SEPARATE TAXATION
Notwithstanding that Paired Shares may only be transferred as a unit,
holders of Paired Shares will be treated for United States federal income tax
purposes as holding equal numbers of shares of Corporation Common Stock and of
Operating Company Common Stock. The tax treatment of distributions to
stockholders and of any gain or loss upon sale or other disposition of the
Paired Shares (as well as the
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amount of gain or loss) must therefore be determined separately with respect to
each share of Corporation Common Stock and each share of Operating Company
Common Stock contained within each Paired Share. The tax basis and holding
period for each share of Corporation Common Stock and each share of Operating
Company Common Stock also must be determined separately. Upon a taxable sale of
a Paired Share, the amount realized should be allocated between the Corporation
Common Stock and the Operating Company Common Stock based on their then-relative
values.
TAXATION OF TAXABLE U.S. STOCKHOLDERS
As used herein, the term "U.S. Stockholder" means a holder of Paired Shares
that for United States federal income tax purposes (A) is (i) a citizen or
resident of the United States, (ii) a corporation, partnership, or other entity
created or organized in or under the laws of the United States or any political
subdivision thereof, (iii) an estate, the income of which is subject to United
States federal income taxation regardless of its source or (iv) a trust, if a
court within the United States is able to exercise primary supervision over the
administration of the trust and one or more United States persons have the
authority to control all substantial decisions of the trust and (B) is not an
entity that has a special status under the Code (such as a tax-exempt
organization or a dealer in securities).
As long as the Corporation qualifies as a REIT, distributions made to the
Corporation's taxable U.S. Stockholders out of current or accumulated earnings
and profits (and not designated as capital gain dividends) will be taken into
account by such U.S. Stockholders as ordinary income and will not be eligible
for the dividends received deduction generally available to corporations. For
purposes of determining whether distributions on Corporation Common Stock are
out of current or accumulated earnings and profits, the earnings and profits of
the Corporation will be allocated first to the Corporation's outstanding
preferred stock (if any) and then allocated to the Corporation's Common Stock.
Subject to the discussion below regarding changes to the capital gain rates,
distributions that are designated as capital gain dividends will be taxed as
capital gains (to the extent they do not exceed the Corporation's actual net
capital gain for the taxable year) without regard to the period for which the
stockholder has held his or her Corporation Common Stock. However, corporate
stockholders may be required to treat up to 20% of certain capital gain
dividends as ordinary income. Distributions in excess of current and accumulated
earnings and profits will not be taxable to a stockholder to the extent that
they do not exceed the adjusted basis of the stockholder's Corporation Common
Stock, but rather will reduce the adjusted basis of such stock. To the extent
that such distributions in excess of current and accumulated earnings and
profits exceed the adjusted basis of a stockholder's Corporation Common Stock,
such distributions will be included in income as long-term capital gain (or
short-term capital gain if the Corporation Common Stock has been held for one
year or less), assuming the shares are a capital asset in the hands of the
stockholder. In addition, any distribution declared by the Corporation in
October, November or December of any year and payable to a stockholder of record
on a specified date in any such month shall be treated as both paid by the
Corporation and received by the stockholder on December 31 of such year,
provided that the distribution is actually paid by the Corporation during
January of the following calendar year.
Distributions from the Operating Company up to the amount of the Operating
Company's current or accumulated earnings and profits (less any earnings and
profits allocable to distributions on any preferred stock of the Operating
Company) will be taken into account by U.S. Stockholders as ordinary income and
generally will be eligible for the dividends-received deduction for corporations
(subject to certain limitations). Distributions in excess of the Operating
Company's current and accumulated earnings and profits will not be taxable to a
stockholder to the extent that they do not exceed the adjusted basis of the
stockholder's Operating Company Common Stock, but rather will reduce the
adjusted basis of such Operating Company Common Stock. To the extent that such
distributions exceed the adjusted basis of a stockholder's Operating Company
Common Stock they will be included in income as long-term capital gain (or
short-term capital gain if the Operating Company Common Stock has been held for
one year or less), assuming the shares are a capital asset in the hands of the
stockholder.
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The Corporation may retain and pay income tax on its net long-term capital
gains recognized during the taxable year. If the Corporation so elects for a
taxable year, its stockholders would include in income as capital gain their
proportionate share of such portion of the Corporation's net capital gains as
the Corporation may designate. Such retained capital gains may be further
designated by the Corporation as 20% rate gain, unrecaptured Section 1250 gain,
or 28% rate gain, as discussed below. Stockholders must account for their share
of such retained capital gains in accordance with such further designation; if
no such further designation is made, the retained capital gains are treated as
28% rate gain. A stockholder would be deemed to have paid its share of the tax
paid by the Corporation, which would be credited or refunded to the stockholder.
The stockholder's basis in its shares of Corporation Common Stock would be
increased by the amount of undistributed capital gains (less the capital gains
tax paid by the Corporation) included in the stockholder's capital gains.
Taxable distributions from the Corporation or the Operating Company and gain
or loss from the disposition of shares of Corporation Common Stock and Operating
Company Common Stock will not be treated as passive activity income and,
therefore, stockholders generally will not be able to apply any passive activity
losses (such as losses from certain types of limited partnerships in which the
stockholder is a limited partner) against such income. In addition, taxable
distributions from the Corporation or the Operating Company generally will be
treated as investment income for purposes of the investment interest deduction
limitations. Capital gain dividends, capital gains (other than short-term
capital gains) from the disposition of Paired Shares and actual or deemed
distributions from either company treated as such, including capital gains
(other than short-term capital gains) recognized on account of nontaxable
distributions in excess of a stockholder's basis or any deemed capital gain
distributions to a Corporation stockholder on account of retained capital gains
of the Corporation, will be treated as investment income for purposes of the
investment interest deduction limitations only if and to the extent the
stockholder so elects, in which case such capital gains will be taxed at
ordinary income rates to the extent of the election. The Corporation and the
Operating Company will notify stockholders after the close of the Companies'
taxable years as to the portions of the distributions attributable to that year
that constitute ordinary income, return of capital, and (in the case of the
Corporation) capital gain. Stockholders may not include in their individual
income tax returns any net operating losses or capital losses of the Corporation
or of the Operating Company.
The Taxpayer Relief Act of 1997 (the "Relief Act") altered the taxation of
capital gain income. Under the Relief Act, individuals, trusts and estates that
hold certain investments for more than 18 months may be taxed at a maximum
long-term capital gain rate of 20% on the sale or exchange of those investments.
Individuals, trusts and estates that hold certain assets for more than one year
but not more than 18 months may be taxed at a maximum mid-term capital gain rate
of 28% on the sale or exchange of those investments. However, the Internal
Revenue Service Restructuring Reform Act of 1998 eliminated the 18 month holding
period requirement, effective for taxable years ending after December 31, 1997,
and therefore the 20% long-term capital gains rates will generally apply to
capital assets held more than one year. The Relief Act also provided for a
maximum rate of 25% for "unrecaptured Section 1250 gain" for individuals, trusts
and estates, special rules for "qualified 5-year gain," as well as other changes
to prior law. The Relief Act allows the IRS to prescribe regulations on how the
Relief Act's new capital gain rates will apply to sales of capital assets by (or
interests in) "pass-thru entities," which include REITs such as the Corporation.
IRS Notice 97-64 sets forth guidance on certain of these issues pending the
release of regulations and provides, among other things, that a REIT may
designate a capital gains dividend as a 20% rate gain distribution, an
unrecaptured Section 1250 gain distribution, or a 28% rate gain distribution.
Absent any such designation, a capital gains dividend will be treated as a 28%
rate gain distribution. In general, the Notice provides that a REIT must
determine the maximum amounts which may be designated in each class of capital
gain dividends as if the REIT were an individual whose ordinary income is
subject to a marginal tax rate of at least 28%. Similar rules will apply in the
case of designated retained capital gains (see above discussion). The
Corporation will notify stockholders after the close of the Corporation's
taxable year as to the portions of the distributions attributable to that year
that constitute ordinary income,
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return of capital, and capital gain (and, with respect to capital gain
dividends, the portions constituting 20% rate gain distributions, unrecaptured
Section 1250 gain distributions, and 28% rate gain distributions). The
Corporation also will notify stockholders of the amounts of any designated
retained capital gains (including the amounts thereof constituting 20% rate
gain, unrecaptured Section 1250 gain, and 28% rate gain) and the Corporation's
taxes with respect to any designated retained capital gains. Final regulations
when issued may alter the rules of the temporary regulations. In addition, the
IRS has not prescribed regulations regarding the application of the new rates to
sale of interests in REITs such as the Corporation, and it remains unclear how
the new rules will affect such sales (if at all). Finally, the Internal Revenue
Service has not yet issued any guidance modifying the rule set forth in the
Notice to take into account the recent elimination of the 18 month holding
period required to be eligible for the preferential 20% capital gains rate.
Investors are urged to consult their own tax advisors with respect to the rules
contained in the Relief Act.
TAXATION OF STOCKHOLDERS ON THE DISPOSITION OF PAIRED SHARES
Subject to the discussion above regarding the Relief Act, in general, and
assuming the taxpayer has the same holding period for the Corporation Common
Stock and the Operating Company Common Stock that comprise his or her Paired
Share, any gain or loss realized upon a taxable disposition of Paired Shares by
a stockholder who is not a dealer in securities will be treated as long-term
capital gain or loss if the Paired Shares have been held for more than one year,
and otherwise as short-term capital gain or loss. In addition, any loss upon a
sale or exchange of Corporation Common Stock by a stockholder who has held such
stock for six months or less (after applying certain holding period rules), will
be treated as a long-term capital loss to the extent of distributions from the
Corporation or undistributed capital gains required to be treated by such
stockholder as long-term capital gain. All or a portion of any loss realized
upon a taxable disposition of Paired Shares may be disallowed if other Paired
Shares are purchased within 30 days before or after the disposition.
INFORMATION REPORTING REQUIREMENTS AND BACKUP WITHHOLDING
The Corporation and the Operating Company will each report to their U.S.
Stockholders and the IRS the amount of distributions paid during each calendar
year, and the amount of tax withheld, if any. Under the backup withholding
rules, a stockholder may be subject to backup withholding at the rate of 31%
with respect to distributions paid unless such holder (i) is a corporation or
comes within certain other exempt categories and, when required, demonstrates
this fact or (ii) provides a taxpayer identification number, certifies as to no
loss of exemption from backup withholding and otherwise complies with the
applicable requirements of the backup withholding rules. A stockholder who does
not provide the Corporation and the Operating Company with his, her or its
correct taxpayer identification number also may be subject to penalties imposed
by the IRS. Any amount paid as backup withholding will be creditable against the
stockholder's income tax liability. In addition, the Corporation may be required
to withhold a portion of capital gain distributions to any stockholders who fail
to certify their non-foreign status to the Corporation.
TAXATION OF TAX-EXEMPT STOCKHOLDERS
Tax-exempt entities, including qualified employee pension and profit sharing
trusts and individual retirement accounts ("Exempt Organizations"), generally
are exempt from federal income taxation. They are, however, subject to taxation
on their unrelated business taxable income ("UBTI"). Amounts distributed by the
Corporation to Exempt Organizations generally should not constitute UBTI, nor
should dividends paid by the Operating Company generally constitute UBTI.
However, if an Exempt Organization finances its acquisition of Paired Shares
with debt, a portion of its income from the Corporation and the Operating
Company will constitute UBTI pursuant to the "debt-financed property" rules.
Furthermore, social clubs, voluntary employee benefit associations, supplemental
unemployment benefit trusts, and qualified group legal services plans that are
exempt from taxation under paragraphs (7), (9), (17), and (20),
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respectively, section 501(c) of the Code are subject to different UBTI rules,
which generally will require them to characterize distributions from the
Corporation and the Operating Company as UBTI.
PLAN OF DISTRIBUTION
This Prospectus relates to the offer and sale from time to time of up to an
aggregate of 4,000,000 shares of Paired Common Stock by the Companies. Such
shares represent the 3,250,000 shares of Paired Common Stock purchased by UBS
pursuant to the UBS Purchase Agreement (the "Initial Shares") and up to an
additional 750,000 shares of Paired Common Stock that may be issued pursuant to
the Forward Stock Contract. See "The Companies--Sales of Paired Common Stock
with Purchase Price Adjustment Mechanisms--UBS Transaction." The Initial Shares
and any additional shares which may be offered and sold from time to time by the
Companies will constitute Securities under this Prospectus.
The sale or distribution of all or any portion of the Securities may be
effected from time to time by the Companies through UBS or any of its
broker-dealer affiliates, who may sell Securities through brokers or dealers or
in a distribution by one or more additional underwriters on a firm commitment or
best efforts basis, on the NYSE, in the over-the-counter market, on any other
national securities exchange on which shares of the Paired Common Stock are
listed or traded, in privately negotiated transactions or otherwise, at market
prices prevailing at the time of sale, at prices related to such prevailing
market prices or at negotiated prices. Except as described above, the Companies
will not receive any proceeds from sales of Securities.
The Forward Stock Contract does not specify the methods by which Securities
may be sold or distributed. In effecting sales, brokers or dealers engaged by
UBS may arrange for other brokers or dealers to participate. Any public offering
price and any discount or concessions allowed or reallowed or paid to dealers
may be changed from time to time. UBS may from time to time deliver all or a
portion of the Securities to cover a short sale or sales or upon the exercise,
settlement or closing of a call equivalent position or a put equivalent
position.
In connection with a sale of Paired Common Stock, the following information
will, to the extent then required, be provided in the Prospectus Supplement
relating to such sale or in a post-effective amendment to the registration
statement of which this Prospectus is a part: the number of shares of Paired
Common Stock to be sold, the purchase price, the public offering price, the
method of distribution, the name of any underwriter, agent or broker-dealer, and
any applicable commissions, discounts or other items constituting compensation
to such underwriters, agents or broker-dealers with respect to the particular
sale.
UBS and the broker-dealers participating in the distribution of the
Securities are "underwriters" within the meaning of the Securities Act and any
profit on the sale of the Securities by any of them, together with the returns
to UBS and the placement fees described above, will be regarded as underwriting
commissions under the Securities Act. UBS is entitled, under the UBS Purchase
Agreement, to indemnification against and contribution toward certain civil
liabilities, including liabilities under the Securities Act.
The Companies will pay all reasonable expenses in connection with the
registration of the Securities. Except as described in "The Companies--Sales of
Paired Common Stock with Price Adjustment Mechanisms," the applicable
underwriter will be responsible for any brokerage or underwriting commissions
and taxes of any kind (including, without limitation, transfer taxes) due to a
third party with respect to any disposition, sale or transfer of the Securities,
and legal, accounting and other expenses incurred by it.
In connection with the sale or distribution of the Securities, the rules of
the Commission permit any underwriter to engage in certain transactions that
stabilize the price of the Paired Common Stock. Such transactions may consist of
bids or purchases for the purpose of pegging, fixing or maintaining the price of
the Paired Common Stock.
If any underwriter creates a short position in the Paired Common Stock in
connection with the sale or distribution of the Securities--i.e., if the
underwriter sells more shares of Paired Common Stock than are
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set forth on the cover page hereof, such underwriter may reduce that short
position by purchasing shares of Paired Common Stock in the open market.
Any managing underwriter(s) may also impose a penalty bid on certain
underwriters and selling group members. This means that, if any managing
underwriter purchases shares of Paired Common Stock in the open market to reduce
any underwriter's short position, or to stabilize the price of the Paired Common
Stock, such managing underwriter may reclaim the amount of the selling
concession from any such underwriters and selling group members who sold those
Securities.
In general, purchases of a security for the purpose of stabilization or to
reduce a short position could cause the price of the security to be higher than
it might be in the absence of such purchases. The imposition of a penalty bid
might also have an effect on the price of a security to the extent that it were
to discourage resales of the security.
None of the Companies or any underwriter makes any representation or
prediction as to the direction or magnitude of any effect that any of the
transactions described above may have on the price of the Paired Common Stock.
In addition, none of the Companies or any underwriter makes any representation
that any underwriter will engage in any such transaction or that any such
transaction, once commenced, will not be discontinued without notice.
In order to comply with the securities laws of certain states, if
applicable, the shares of Paired Common Stock offered hereby will be sold in
such jurisdictions only through registered or licensed brokers or dealers.
LEGAL MATTERS
Certain legal matters, including the legality of the securities and federal
income tax considerations, have been passed upon for the Corporation and the
Operating Company by Goodwin, Procter & Hoar LLP, Boston, Massachusetts, as
corporate, securities and tax counsel.
EXPERTS
The (a) Combined Financial Statements of Patriot American Hospitality, Inc.
(the "Corporation") and Wyndham International, Inc. (the "Operating Company"),
as of December 31, 1997 and 1996 and for the years ended December 31, 1997 and
1996 and the period October 2, 1995 (inception of operations) through December
31, 1995, (b) the Consolidated Financial Statements of the Corporation as of
December 31, 1997 and 1996 and for the years ended December 31, 1997 and 1996
and the period October 2, 1995 (inception of operations) through December 31,
1995 and the related financial statement schedules, and (c) the Consolidated
Financial Statements of the Operating Company as of December 31, 1997 and for
the six months ended December 31, 1997 appearing in the Joint Annual Report on
Form 10-K of Patriot American Hospitality, Inc. and Wyndham International, Inc.
for fiscal year ended December 31, 1997, have been audited by Ernst & Young LLP,
independent auditors, as set forth in their report thereon included therein and
incorporated herein by reference. The Financial Statements of NorthCoast Hotels,
L.L.C. as of December 31, 1996 and the period April 2, 1996 (inception of
operations) through December 31, 1996 appearing in the Joint Current Report on
Form 8-K of Patriot American Hospitality, Inc. and Patriot American Hospitality
Operating Company dated July 1, 1997, have been audited by Ernst & Young LLP,
independent auditors, as set forth in their report thereon included therein and
incorporated herein by reference. The (a) Consolidated Financial Statements of
Resorts Limited Partnership as of and for the years ended December 31, 1996 and
1995, (b) the Financial Statements of CV Ranch Limited Partnership as of and for
the years ended December 31, 1996 and 1995, and (c) the Financial Statements of
Telluride Resort and Spa Limited Partnership as of and for the years ended
December 31, 1996 and 1995, appearing in Patriot's Current Report on Form 8-K,
dated January 16, 1997, as amended (filed January 31, 1997, February 21, 1997,
April 8, 1997, April 9, 1997, and May 19, 1997) have been audited by Ernst &
Young LLP, independent auditors, as set forth in their reports thereon included
therein and incorporated herein
37
<PAGE>
by reference. The (a) Consolidated Financial Statements of GAH-II, L.P. as of
December 31, 1996 and 1995 and for the years then ended, (b) the Financial
Statements of G.B.H. Joint Venture (d/b/a Grand Bay Hotel) as of December 31,
1996 and 1995 and for the years then ended, (c) the Financial Statements of
River House Associates (d/b/a Sheraton Gateway Hotel) as of December 31, 1996
and 1995 and for the years then ended, and (d) the Financial Statements of W-L
Tampa, Ltd. (the Sheraton Grand Hotel) as of December 31, 1996 and 1995 and for
the years then ended, appearing in the Joint Current Report on Form 8-K of
Patriot American Hospitality, Inc. and Patriot American Hospitality Operating
Company dated September 30, 1997, as amended (filed October 14, 1997 and October
28, 1997), have been audited by Ernst & Young LLP, independent auditors, as set
forth in their reports thereon included therein and incorporated herein by
reference. The (a) Consolidated Financial Statements of WHG Resorts & Casinos
Inc. as of June 30, 1997 and 1996, and for each of the three years in the period
ended June 30, 1997 and the related financial statement schedule, (b) the
Financial Statements of Posadas de San Juan Associates as of June 30, 1997 and
1996, and for each of the three years in the period ended June 30, 1997 and the
related financial statement schedule, (c) the Financial Statements of WKA El Con
Associates as of June 30, 1997 and 1996, and for each of the three years in the
period ended June 30, 1997, and (d) the Financial Statements of El Conquistador
Partnership L.P. as of March 31, 1997 and 1996, and for each of the three years
in the period ended March 31, 1997, appearing in the Joint Current Report on
Form 8-K of Patriot American Hospitality, Inc. and Wyndham International, Inc.
dated April 20, 1998 (filed April 22, 1998) have been audited by Ernst & Young
LLP, independent auditors, as set forth in their reports thereon included
therein and incorporated herein by reference. The (a) Consolidated Financial
Statements of SF Hotel Company, L.P. as of January 2, 1998 and January 3, 1997
and for the years then ended and (b) Combined Financial Statements of SC Suites
Summerfield Partnerships as of January 2, 1998 and January 3, 1997 and for the
years then ended, appearing in the Joint Current Report of Form 8-K of Patriot
American Hospitality, Inc. and Wyndham International, Inc. dated June 2, 1998,
as amended (filed June 17, 1998 and August 6, 1998), have been audited by Ernst
& Young LLP, independent auditors, as set forth in their reports thereon
included therein and incorporated herein by reference. Each of the above
referenced financial statements are incorporated herein by reference in reliance
upon such reports given upon the authority of such firm as experts in accounting
and auditing.
The Combined Financial Statements of Snavely Hotels as of December 31, 1996
and for the year then ended, the Combined Financial Statements of Minneapolis
Hotels as of December 31, 1996 and for the year then ended, and the combined
statement of Direct Revenue and Direct Operating Expenses for the Met Life
Hotels for the year ended December 31, 1996, included in the Report on Form 8-K
dated September 17, 1997, and the Financial Statements of SCP Inc. as of
December 31, 1996 and for the year then ended, included in the Report on Form
8-K/A No. 1 dated September 30, 1997, the financial statements of Royal Palace
Hotel Associates as of December 31, 1995 and 1996 and for the years then ended,
included in the Joint Current Report on Form 8-K dated December 10, 1997,
incorporated by reference in this Prospectus, and the consolidated financial
statements of Interstate Hotels Company as of December 31, 1995 and 1996 and for
each of the three years in the period ended December 31, 1996 included in the
Report on Form 8-K dated December 10, 1997, the financial statements of Sheraton
City Centre as of December 31, 1996 and for the year then ended and the
Statement of Direct Revenues and Direct Operating Expenses for the Wyndham
Emerald Plaza for the year ended December 31, 1996, included in the Current
Report on Form 8-K dated January 5, 1998, and (a) the Consolidated Financial
Statements Wyndham Hotel Corporation as of December 31, 1996 and 1997 and for
each of the three years in the period ended December 31, 1997, and (b) the
Consolidated Financial Statements of Interstate Hotels Company as of December
31, 1996 and 1997 and for each of the three years in the period ended December
31, 1997 included in Interstate's 1997 Annual Report on Form 10-K dated March
31, 1998, and the CHC Lease Partners financial statements as of December 31,
1996 and 1995 and for the year ended December 31, 1996 and the period inception
(October 2, 1995) through December 31, 1995, incorporated by reference in this
Prospectus, by reference to the Current Report on Form 8-K dated July 1, 1997,
and the CHC International, Inc. Hospitality Division financial statements as of
November 30, 1997 and 1996 and for each of the years ended November 30, 1995,
1996 and 1997 included in the Current Report on
38
<PAGE>
Form 8-K dated April 20, 1998, which is incorporated by reference herein have
been audited by PricewaterhouseCoopers LLP, independent accountants, as set
forth in their reports thereon. Each of the above-referenced financial
statements have been incorporated by reference herein in reliance upon the
authority of said firm as experts in accounting and auditing.
The combined financial statements of the Partnerships of Acquired Hotels as
of December 31, 1996 and 1995 and for each of the two years in the period ended
December 31, 1996, incorporated in this Prospectus by reference from the report
on Form 8-K/A No. 1 dated September 30, 1997 of Patriot American Hospitality,
Inc. and Patriot American Hospitality Operating Company have been audited by
Deloitte & Touche LLP, independent auditors, as stated in their report, which is
incorporated herein by reference, and has been so incorporated in reliance upon
the report of such firm given upon their authority as experts in accounting and
auditing.
The Financial Statements of Historic Hotel Partners of Birmingham Limited
Partnership as of December 31, 1994 and 1995 and for the years then ended, the
Financial Statements of Historic Hotel Partners of Chicago, Limited Partnership
as of December 31, 1996 and for the year then ended, and the Financial
Statements of Historic Hotel Partners of Nashville, Limited Partnership as of
December 31, 1996 and for the year then ended incorporated by reference in this
Prospectus, have been audited by Pannell Kerr Forster PC, independent auditors,
as set forth in their reports thereon. Each of the above-referenced financial
statements have been incorporated by reference herein in reliance upon the
authority of said firm as experts in accounting and auditing.
The Combined Financial Statements of the Crow Family Hotel Partnerships
incorporated in this Prospectus by reference from the Report on Form 8-K/A No. 1
dated September 30, 1997 of Patriot American Hospitality, Inc. and Patriot
American Hospitality Operating Company, have been audited by Arthur Andersen
LLP, independent public accountants, as indicated in their reports with respect
thereto, and are incorporated by reference herein in reliance upon the authority
of said firm as experts in accounting and auditing in giving such reports.
The financial statements of Arcadian International Limited (formerly
Arcadian International Plc) and subsidiary undertakings and Malmaison Limited
and subsidiary undertakings, incorporated in this Prospectus by reference from
the Report on Form 8-K/A No. 1 dated June 2, 1998 of Patriot American
Hospitality, Inc. and Wyndham International, Inc. have been audited by Arthur
Andersen, chartered accountants and registered auditors, as indicated in their
reports with respect thereto, and are incorporated herein in reliance upon the
authority of said firm as experts in accounting and auditing in giving such
reports.
39
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATION IN CONNECTION WITH THIS OFFERING OTHER THAN THOSE CONTAINED IN
THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH OTHER INFORMATION OR REPRESENTATIONS
MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANIES OR ANY OTHER
PERSON. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER
SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS BEEN NO
CHANGE IN THE AFFAIRS OF THE COMPANIES SINCE THE DATE HEREOF OR THAT THE
INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO ITS DATE.
THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN
OFFER TO BUY ANY SECURITIES OTHER THAN THE REGISTERED SECURITIES TO WHICH IT
RELATES.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Available Information..................................................... 1
Incorporation of Certain Documents by Reference........................... 1
Risk Factors.............................................................. 3
The Companies............................................................. 12
Use of Proceeds........................................................... 18
Description of Capital Stock.............................................. 18
Restrictions on Transfers of Capital Stock................................ 23
Certain Federal Income Tax Considerations................................. 27
Plan of Distribution...................................................... 35
Legal Matters............................................................. 37
Experts................................................................... 37
</TABLE>
PATRIOT AMERICAN
HOSPITALITY, INC.
4,000,000 SHARES OF
COMMON STOCK
WYNDHAM
INTERNATIONAL, INC.
4,000,000 SHARES OF
COMMON STOCK
---------------
PROSPECTUS
---------------------
_____________, 1998
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.*
<TABLE>
<S> <C>
Registration fee.................................................. $ 45,179
Printing fees and expenses........................................ 15,000
Legal fees and expenses........................................... 50,000
Accounting fees and expenses...................................... 30,000
Miscellaneous..................................................... 10,000
---------
Total............................................................. $ 150,179
---------
---------
</TABLE>
- ------------------------
* Fees and expenses are estimated with the exception of the registration fee.
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Pursuant to Section 145 of the DGCL, each of the Corporation Charter and the
Operating Company Charter includes a provision which eliminates any personal
liability for a director to the Corporation or the Operating Company, as the
case may be, and to the stockholders, for monetary damages for breach of
fiduciary duty as a director, except for liability (i) for any breach of the
director's duty of loyalty to the Corporation or the Operating Company, as the
case may be, or to the stockholders, (ii) for acts or omissions not in good
faith or which involve intentional misconduct or a knowing violation of law,
(iii) in connection with certain unlawful dividend payments or stock redemptions
or repurchases or (iv) for any transaction from which such director derived an
improper personal benefit. In addition, the Corporation Charter and the
Operating Company Charter each provide that if the DGCL is amended to authorize
the further elimination or limitation of the personal liability of directors,
then the liability of a director of the Corporation or the Operating Company
shall be eliminated or limited to the fullest extent permitted by the DGCL, as
so amended.
Article VII of each of the Corporation Bylaws and the Operating Company
Bylaws provides for indemnification by the Corporation or the Operating Company,
as the case may be, of their respective officers, directors and the officers and
directors of their respective subsidiaries to the fullest extent permitted by
Section 145 of the DGCL, as amended from time to time and the Corporation and
the Operating Company may, by action of their respective Board of Directors,
indemnify all other persons the Corporation or the Operating Company may
indemnify under the DGCL.
ITEM 16. EXHIBITS.
<TABLE>
<C> <S>
4.1(1) Agreement (the "Pairing Agreement"), dated February 15, 1983 and as
amended February 18, 1988, between Bay Meadows Operating Company and
California Jockey Club (f/k/a Bay Meadows Realty Enterprises, Inc.), as
amended (incorporated by reference to Exhibit 4.3 to California Jockey
Club's and Bay Meadows Operating Company's Registration Statement on
Form S-2, and to Exhibit 4.2 to California Jockey Club's and Bay Meadows
Operating Company's Annual Report on Form 10-K for the year ended
December 31, 1987 (Nos. 001-09319 and 001-09320).
4.1(2) Amendment No. 2 to the Pairing Agreement (incorporated by reference to
Exhibit 4.2 to Patriot American Hospitality, Inc.'s and Wyndham
International, Inc.'s Registration Statement on Form S-4 (Nos. 333-39875
and 333-39875-01)).
</TABLE>
II-1
<PAGE>
<TABLE>
<C> <S>
4.1(3) Amendment No. 3 to the Pairing Agreement (incorporated by reference on
Exhibit 4.3 to Patriot American Hospitality, Inc.'s and Wyndham
International, Inc.'s Registration Statement on Form S-4 (Nos. 333-44203
and 333-44203-01)).
4.2 Cooperation Agreement, dated December 18, 1997, between Patriot American
Hospitality, Inc. and Wyndham International, Inc. (incorporated by
reference to Exhibit 4.4 to Patriot American Hospitality, Inc.'s and
Wyndham International, Inc.'s Registration Statement on Form S-4 (Nos.
333-44203 and 333-44203-01)).
*5.1 Opinion of Goodwin, Procter & Hoar LLP as to legality of securities being
offered.
*23.1 Consent of Goodwin, Procter & Hoar LLP (included in Exhibit 5.1).
*23.2 Consent of Ernst & Young LLP, Dallas, Texas.
*23.3 Consent of Ernst & Young LLP, Seattle, Washington.
*23.4 Consent of Ernst & Young LLP, Phoenix, Arizona.
*23.5 Consent of Ernst & Young LLP, Miami, Florida.
*23.6 Consent of Ernst & Young LLP, San Juan, Puerto Rico.
*23.6A Consent of Ernst & Young LLP, Wichita, Kansas.
*23.7 Consent of PricewaterhouseCoopers LLP, Pittsburgh, Pennsylvania.
*23.8 Consent of PricewaterhouseCoopers LLP, Dallas, Texas.
*23.9 Consent of PricewaterhouseCoopers LLP, Phoenix, Arizona.
*23.10 Consent of PricewaterhouseCoopers LLP, Tampa, Florida.
*23.11 Consent of Pannell Kerr Forster PC, Alexandria, Virginia.
*23.12 Consent of PricewaterhouseCoopers LLP, Miami, Florida.
*23.13 Consent of Deloitte & Touche LLP, Houston, Texas.
*23.14 Consent of Arthur Andersen LLP, Dallas, Texas.
*23.15 Consent of Arthur Andersen, London, United Kingdom.
24.1 Powers of Attorney (included on signature pages to the Registration
Statement).
99.1 Purchase Agreement, dated as of April 6, 1998, by and among Patriot
American Hospitality, Inc., Wyndham International, Inc., PaineWebber
Incorporated and PaineWebber Financial Products, Inc. (previously
filed).
99.2 Purchase Price Adjustment Mechanism Agreement, dated as of April 6, 1998,
by and among Patriot American Hospitality, Inc., Wyndham International,
Inc., PaineWebber Incorporated and PaineWebber Financial Products, Inc.
(incorporated by reference to Exhibit 10.3 to the Companies' Quarterly
Report on Form 10-Q for the quarter ended June 30, 1998) (Nos. 001-09319
and 001-09320).
99.3 Letter Agreement, dated July 30, 1998, by and among Patriot American
Hospitality, Inc., Wyndham International, Inc. and PaineWebber Financial
Products, Inc.
99.4 Letter Agreement, dated August 14, 1998, by and among Patriot American
Hospitality, Inc., Wyndham International, Inc. and PaineWebber Financial
Products, Inc. (incorporated by reference to Exhibit 10.4 to the
Companies' Quarterly Report on Form 10-Q for the quarter ended June 30,
1998) (Nos. 001-09319 and 001-09320).
99.5 Purchase Agreement, dated as of February 26, 1998, by and among Patriot
American Hospitality, Inc., Wyndham International, Inc., and NMS
Services, Inc. (incorporated by reference to Exhibit 10.5 to the
Companies' Quarterly Report on Form 10-Q for the quarter ended June 30,
1998) (Nos. 001-09319 and 001-09320).
</TABLE>
II-2
<PAGE>
<TABLE>
<C> <S>
99.6 Purchase Price Adjustment Mechanism, dated as of February 26, 1998, by and
among Patriot American Hospitality, Inc., Wyndham International, Inc.,
and NMS Services, Inc. (incorporated by reference to Exhibit 10.6 to the
Companies' Quarterly Report on Form 10-Q for the quarter ended June 30,
1998) (Nos. 001-09319 and 001-09320).
99.7 Amendment to Agreements, dated as of August 14, 1998, by and among Patriot
American Hospitality, Inc., Wyndham International, Inc. and NationsBanc
Mortgage Capital Corporation (incorporated by reference to Exhibit 10.7
to the Companies' Quarterly Report on Form 10-Q for the quarter ended
June 30, 1998) (Nos. 001-09319 and 001-09320).
99.8 Purchase Agreement, dated December 31, 1997, by and among Patriot American
Hospitality, Inc., Patriot American Hospitality Operating Company, UBS
Limited and Union Bank of Switzerland. (incorporated by reference to
Exhibit 10.8 to the Companies' Quarterly Report on Form 10-Q for the
quarter ended June 30, 1998) (Nos. 001-09319 and 001-09320).
99.9 Forward Stock Contract, dated as of December 31, 1997, by and among
Patriot American Hospitality, Inc., Patriot American Hospitality
Operating Company, and Union Bank of Switzerland. (incorporated by
reference to Exhibit 10.9 to the Companies' Quarterly Report on Form
10-Q for the quarter ended June 30, 1998) (Nos. 001-09319 and
001-09320).
99.10 Letter Agreement, dated as of August 14, 1998, by and among Patriot
American Hospitality, Inc., Wyndham International, Inc. and UBS AG,
London Branch (incorporated by reference to Exhibit 10.10 to the
Companies' Quarterly Report on Form 10-Q for the quarter ended June 30,
1998) (Nos. 001-09319 and 001-09320).
*99.11 Letter Agreement, dated September 11, 1998, by and among Patriot American
Hospitality, Inc., Wyndham International, Inc. and UBS AG, London
Branch.
*99.12 Letter, dated September 15, 1998, from PaineWebber Financial Products,
Inc. to Patriot American Hospitality, Inc. and Wyndham International,
Inc.
</TABLE>
- ------------------------
* Filed herewith
II-3
<PAGE>
ITEM 17. UNDERTAKINGS.
(a) The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made,
a post-effective amendment to this registration statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most
recent post-effective amendment thereof) which, individually or
in the aggregate, represent a fundamental change in the
information set forth in the registration statement.
Notwithstanding the foregoing, any increase or decrease in
volume of securities offered (if the total dollar value of
securities offered would not exceed that which was registered)
and any deviation from the low or high and of the estimated
maximum offering range may be reflected in the form of
prospectus filed with the Commission pursuant to Rule 424(b)
if, in the aggregate, the changes in volume and price represent
no more than 20 percent change in the maximum aggregate
offering price set forth in the "Calculation of Registration
Fee" table in the effective registration statement; and
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the registration
statement or any material change to such information in the
registration statement;
provided, however, that paragraphs (a)(1)(i) and (a)(1)(ii) herein do not apply
if the information required to be included in a post-effective amendment by
those paragraphs is contained in periodic reports filed with or furnished to the
Commission by the registrant pursuant to Section 13 or Section 15(d) of the
Securities Exchange Act of 1934 that are incorporated by reference in the
registration statement;
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be
deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time
shall be deemed to be the initial bona fide offering thereof; and
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
(b) The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing
of the registrant's annual report pursuant to Section 13(a) or 15(d) of
the Securities Exchange Act of 1934 that is incorporated by reference in
the Registration Statement shall be deemed to be a new registration
statement relating to the securities offered therein, and the offering
of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
(c) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling
persons of the registrant pursuant to the foregoing provisions, or
otherwise, the registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against
public policy as expressed in the Act and is, therefore, unenforceable.
In the event that a claim for indemnification against such liabilities
(other than the payment by the registrant of expenses incurred or paid
by a director, officer, or controlling person of the registrant in the
successful defense of any action, suit or proceeding) is asserted by
such director, officer or controlling person in connection with the
securities being registered, the registrant will, unless in the opinion
of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the
Securities Act of 1933 and will be governed by the final adjudication of
such issue.
II-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, each of the
Registrants has duly caused this Amendment No. 2 to be signed on its behalf by
the undersigned, thereunto duly authorized, in the City of Dallas, State of
Texas, September 25, 1998.
<TABLE>
<S> <C> <C> <C>
PATRIOT AMERICAN HOSPITALITY, INC. WYNDHAM INTERNATIONAL, INC.
By: /s/ PAUL A. NUSSBAUM /s/ JAMES D. CARREKER
---------------------------------------- ----------------------------------------
Paul A. Nussbaum James D. Carreker
Chairman of the Board, and Chief Chairman of the Board and Chief
Executive Officer Executive Officer
</TABLE>
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated, each of whom also constitutes and
appoints Paul A. Nussbaum and John P. Bohlmann and each of them singly, his true
and lawful attorney-in-fact and agent, for him, with full power of substitution
and resubstitution, for him and in his name, place and stead, in any and all
capacities, to sign any and all amendments to this Registration Statement and to
file the same and all exhibits thereto, and any other documents in connection
therewith with the Securities and Exchange Commission, granting unto each
attorney-in-fact and agent full power and authority to do and perform each and
every act and thing requisite and necessary to be done as fully to all intent
and purposes as he might or could do in person, hereby ratifying and confirming
all that each attorney-in-fact and agent or his substitute or substitutes may
lawfully do or cause to be done by virtue hereof.
<TABLE>
<CAPTION>
NAME TITLE DATE
- ------------------------------ ------------------------------ ---------------
<C> <S> <C>
Chairman of the Board of
Directors and Chief
/s/ PAUL A. NUSSBAUM Executive Officer, Patriot September 25,
- ------------------------------ American Hospitality, Inc. 1998
Paul A. Nussbaum (Principal Executive
Officer)
President, Chief Operating
/s/ WILLIAM W. EVANS III Officer and Director, September 25,
- ------------------------------ Patriot American 1998
William W. Evans III Hospitality, Inc.
Executive Vice President and
* Treasurer, Patriot American September 25,
- ------------------------------ Hospitality, Inc. (Principal 1998
Lawrence S. Jones Accounting Officer)
*
- ------------------------------ Director, Patriot American September 25,
John H. Daniels Hospitality, Inc. 1998
*
- ------------------------------ Director, Patriot American September 25,
John C. Deterding Hospitality, Inc. 1998
</TABLE>
II-5
<PAGE>
<TABLE>
<CAPTION>
NAME TITLE DATE
- ------------------------------ ------------------------------ ---------------
<C> <S> <C>
*
- ------------------------------ Director, Patriot American September 25,
Gregory R. Dillon Hospitality, Inc. 1998
*
- ------------------------------ Director, Patriot American September 25,
Arch K. Jacobson Hospitality, Inc. 1998
*
- ------------------------------ Director, Patriot American September 25,
James D. Carreker Hospitality, Inc. 1998
*
- ------------------------------ Director, Patriot American September 25,
Philip J. Ward Hospitality, Inc. 1998
*
- ------------------------------ Director, Patriot American September 25,
Harlan R. Crow Hospitality, Inc. 1998
- ------------------------------ Director, Patriot American
Milton Fine Hospitality, Inc.
By: /s/ PAUL A. NUSSBAUM
---------------------------
Paul A. Nussbaum
Attorney-in-Fact
</TABLE>
II-6
<PAGE>
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated, each of whom also constitutes and
appoints Paul A. Nussbaum and John P. Bohlmann and each of them singly, his true
and lawful attorney-in-fact and agent, for him, with full power of substitution
and resubstitution, for him and in his name, place and stead, in any and all
capacities, to sign any and all amendments to this Registration Statement and to
file the same and all exhibits thereto, and any other documents in connection
therewith with the Securities and Exchange commission, granting unto each
attorney-in-fact and agent full power and authority to do and perform each and
every act and thing requisite and necessary to be done as fully to all intent
and purposes as he might or could do in person, hereby ratifying and confirming
all that each attorney-in-fact and agent or his substitute or substitutes may
lawfully do or cause to be done by virtue hereof.
<TABLE>
<CAPTION>
NAME TITLE DATE
- ------------------------------ -------------------------- -------------------
<C> <S> <C>
Chairman of the Board of
Directors and Chief
* Executive Officer,
- ------------------------------ Wyndham International, September 25, 1998
James D. Carreker Inc. (Principal
Executive Officer)
/s/ PAUL A. NUSSBAUM
- ------------------------------ Director, Wyndham September 25, 1998
Paul A. Nussbaum International, Inc.
President, Chief Operating
* Officer and Director,
- ------------------------------ Wyndham International, September 25, 1998
Karim Alibhai Inc.
Executive Vice President
and Treasurer, Wyndham
* International, Inc.
- ------------------------------ (Principal Financial September 25, 1998
Lawrence S. Jones Officer and Principal
Accounting Officer)
*
- ------------------------------ Director, Wyndham September 25, 1998
Arch K. Jacobson International, Inc.
*
- ------------------------------ Director, Wyndham September 25, 1998
Leonard Boxer International, Inc.
*
- ------------------------------ Director, Wyndham September 25, 1998
Burton C. Einspruch, M.D. International, Inc.
</TABLE>
II-7
<PAGE>
<TABLE>
<CAPTION>
NAME TITLE DATE
- ------------------------------ -------------------------- -------------------
<C> <S> <C>
- ------------------------------ Director, Wyndham
Sherwood Weiser International, Inc.
*
- ------------------------------ Director, Wyndham September 25, 1998
James C. Leslie International, Inc.
*
- ------------------------------ Director, Wyndham September 25, 1998
Susan T. Groenteman International, Inc.
*
- ------------------------------ Director, Wyndham September 25, 1998
Rolf E. Ruhfus International, Inc.
*By: /s/ PAUL A. NUSSBAUM
- ------------------------------
Paul A. Nussbaum
Attorney-in-Fact
</TABLE>
II-8
<PAGE>
EXHIBIT INDEX
<TABLE>
<C> <S>
4.1(1) Agreement (the "Pairing Agreement"), dated February 15, 1983 and as
amended February 18, 1988, between Bay Meadows Operating Company and
California Jockey Club (f/k/a Bay Meadows Realty Enterprises, Inc.), as
amended (incorporated by reference to Exhibit 4.3 to California Jockey
Club's and Bay Meadows Operating Company's Registration Statement on
Form S-2, and to Exhibit 4.2 to California Jockey Club's and Bay Meadows
Operating Company's Annual Report on Form 10-K for the year ended
December 31, 1987 (Nos. 001-09319 and 001-09320).
4.1(2) Amendment No. 2 to the Pairing Agreement (incorporated by reference to
Exhibit 4.2 to Patriot American Hospitality, Inc.'s and Wyndham
International, Inc.'s Registration Statement on Form S-4 (Nos. 333-39875
and 333-39875-01)).
4.1(3) Amendment No. 3 to the Pairing Agreement (incorporated by reference on
Exhibit 4.3 to Patriot American Hospitality, Inc.'s and Wyndham
International, Inc.'s Registration Statement on Form S-4 (Nos. 333-44203
and 333-44203-01)).
4.2 Cooperation Agreement, dated December 18, 1997, between Patriot American
Hospitality, Inc. and Wyndham International, Inc. (incorporated by
reference to Exhibit 4.4 to Patriot American Hospitality, Inc.'s and
Wyndham International, Inc.'s Registration Statement on Form S-4 (Nos.
333-44203 and 333-44203-01)).
*5.1 Opinion of Goodwin, Procter & Hoar LLP as to legality of securities being
offered.
*23.1 Consent of Goodwin, Procter & Hoar LLP (included in Exhibit 5.1).
*23.2 Consent of Ernst & Young LLP, Dallas, Texas.
*23.3 Consent of Ernst & Young LLP, Seattle, Washington.
*23.4 Consent of Ernst & Young LLP, Phoenix, Arizona.
*23.5 Consent of Ernst & Young LLP, Miami, Florida.
*23.6 Consent of Ernst & Young LLP, San Juan, Puerto Rico.
*23.6A Consent of Ernst & Young LLP, Wichita, Kansas.
*23.7 Consent of PricewaterhouseCoopers LLP, Pittsburgh, Pennsylvania.
*23.8 Consent of PricewaterhouseCoopers LLP, Dallas, Texas.
*23.9 Consent of PricewaterhouseCoopers LLP, Phoenix, Arizona.
*23.10 Consent of PricewaterhouseCoopers LLP, Tampa, Florida.
*23.11 Consent of Pannell Kerr Forster PC, Alexandria, Virginia.
*23.12 Consent of PricewaterhouseCoopers LLP, Miami, Florida.
*23.13 Consent of Deloitte & Touche LLP, Houston, Texas.
*23.14 Consent of Arthur Andersen LLP, Dallas, Texas.
*23.15 Consent of Arthur Andersen, London, United Kingdom.
24.1 Powers of Attorney (included on signature pages to the Registration
Statement).
99.1 Purchase Agreement, dated as of April 6, 1998, by and among Patriot
American Hospitality, Inc., Wyndham International, Inc., PaineWebber
Incorporated and PaineWebber Financial Products, Inc. (previously
filed).
99.2 Purchase Price Adjustment Mechanism Agreement, dated as of April 6, 1998,
by and among Patriot American Hospitality, Inc., Wyndham International,
Inc., PaineWebber Incorporated and PaineWebber Financial Products, Inc.
(incorporated by reference to Exhibit 10.3 to the Companies' Quarterly
Report on Form 10-Q for the quarter ended June 30, 1998) (Nos. 001-09319
and 001-09320).
99.3 Letter Agreement, dated July 30, 1998, by and among Patriot American
Hospitality, Inc., Wyndham International, Inc. and PaineWebber Financial
Products, Inc.
</TABLE>
<PAGE>
<TABLE>
<C> <S>
99.4 Letter Agreement, dated August 14, 1998, by and among Patriot American
Hospitality, Inc., Wyndham International, Inc. and PaineWebber Financial
Products, Inc. (incorporated by reference to Exhibit 10.4 to the
Companies' Quarterly Report on Form 10-Q for the quarter ended June 30,
1998) (Nos. 001-09319 and 001-09320).
99.5 Purchase Agreement, dated as of February 26, 1998, by and among Patriot
American Hospitality, Inc., Wyndham International, Inc., and NMS
Services, Inc. (incorporated by reference to Exhibit 10.5 to the
Companies' Quarterly Report on Form 10-Q for the quarter ended June 30,
1998) (Nos. 001-09319 and 001-09320).
99.6 Purchase Price Adjustment Mechanism, dated as of February 26, 1998, by and
among Patriot American Hospitality, Inc., Wyndham International, Inc.,
and NMS Services, Inc. (incorporated by reference to Exhibit 10.6 to the
Companies' Quarterly Report on Form 10-Q for the quarter ended June 30,
1998) (Nos. 001-09319 and 001-09320).
99.7 Amendment to Agreements, dated as of August 14, 1998, by and among Patriot
American Hospitality, Inc., Wyndham International, Inc. and NationsBanc
Mortgage Capital Corporation (incorporated by reference to Exhibit 10.7
to the Companies' Quarterly Report on Form 10-Q for the quarter ended
June 30, 1998) (Nos. 001-09319 and 001-09320).
99.8 Purchase Agreement, dated December 31, 1997, by and among Patriot American
Hospitality, Inc., Patriot American Hospitality Operating Company, UBS
Limited and Union Bank of Switzerland. (incorporated by reference to
Exhibit 10.8 to the Companies' Quarterly Report on Form 10-Q for the
quarter ended June 30, 1998) (Nos. 001-09319 and 001-09320).
99.9 Forward Stock Contract, dated as of December 31, 1997, by and among
Patriot American Hospitality, Inc., Patriot American Hospitality
Operating Company, and Union Bank of Switzerland. (incorporated by
reference to Exhibit 10.9 to the Companies' Quarterly Report on Form
10-Q for the quarter ended June 30, 1998) (Nos. 001-09319 and
001-09320).
99.10 Letter Agreement, dated as of August 14, 1998, by and among Patriot
American Hospitality, Inc., Wyndham International, Inc. and UBS AG,
London Branch (incorporated by reference to Exhibit 10.10 to the
Companies' Quarterly Report on Form 10-Q for the quarter ended June 30,
1998) (Nos. 001-09319 and 001-09320).
*99.11 Letter Agreement, dated September 11, 1998, by and among Patriot American
Hospitality, Inc., Wyndham International, Inc. and UBS AG, London
Branch.
*99.12 Letter, dated September 15, 1998, from PaineWebber Financial Products,
Inc. to Patriot American Hospitality, Inc. and Wyndham International,
Inc.
</TABLE>
- ------------------------
* Filed herewith
<PAGE>
Exhibit 5.1
September 25, 1998
Patriot American Hospitality, Inc.
1950 Stemmons Freeway, Suite 6001
Dallas, TX 75207
Wyndham International, Inc.
1950 Stemmons Freeway, Suite 6001
Dallas, TX 75207
Re: Legality of Securities to be Registered
under Registration Statement on Form S-3
----------------------------------------
Ladies and Gentlemen:
This opinion is furnished in connection with the registration on Form
S-3 (the "Registration Statement") pursuant to the Securities Act of 1933, as
amended (the "Securities Act"), of 5,000,000 additional shares of common
stock, par value $.01 per share, of Patriot American Hospitality, Inc., a
Delaware corporation (the "Corporation"), and 5,000,000 additional shares of
common stock, par value $.01 per share, of Wyndham International, Inc., a
Delaware corporation (the "Operating Company" and, together with the
Corporation, the "Companies"), which shares are paired and trade as a single
unit (the "Registered Shares"), to be issued as described in the Registration
Statement.
In connection with rendering this opinion, we have examined the
Certificate of Incorporation of each of the Companies, as amended to the date
hereof and on file with the Secretary of State of the State of Delaware, the
Bylaws of each of the Companies, such records of the corporate proceedings of
the Companies as we deemed material, the Registration Statement and the
exhibits thereto, and such other certificates, receipts, records and
documents as we considered necessary for the purposes of this opinion. In our
examination, we have assumed the genuineness of all signatures, the legal
capacity of natural persons, the authenticity of all documents submitted to
us as certified, photostatic or facsimile copies, the authenticity of the
originals of such copies and the authenticity of telephonic confirmations of
public officials and others. As to facts material to our opinion, we have
relied upon certificates or telephonic confirmations of public officials and
certificates, documents, statements and other information of the Companies or
representatives or officers thereof.
<PAGE>
Patriot American Hospitality, Inc.
Wyndham International, Inc.
September 25, 1998
Page 2
We are attorneys admitted to practice in the Commonwealth of
Massachusetts. We express no opinion concerning the laws of any jurisdictions
other than the laws of the United States of America and the Delaware General
Corporation Law, and also express no opinion with respect to the blue sky or
securities laws of any state, including Delaware.
Based upon the foregoing, we are of the opinion that under the Delaware
General Corporation Law, pursuant to which the Companies are incorporated,
the Registered Shares, when issued in compliance with the terms described in
the Registration Statement, will be validly issued, fully paid and
nonassessable.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to the reference to us with respect to this
opinion under the heading "Legal Matters" in the Prospectus which is a part
of such Registration Statement.
Very truly yours,
GOODWIN, PROCTER & HOAR LLP
<PAGE>
EXHIBIT 23.2
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" in
Amendment No. 2 to the Joint Registration Statement on Form S-3 (Nos.
333-58705 and 333-58705-01) and the related Prospectus of Patriot American
Hospitality, Inc. and Wyndham International, Inc. (formerly Patriot American
Hospitality Operating Company) and to the incorporation by reference therein
of our reports (a) dated February 9, 1998 with respect to the Consolidated
Financial Statements and financial statement schedules of Patriot American
Hospitality, Inc., the Consolidated Financial Statements of Wyndham
International, Inc. and the Combined Financial Statements of Patriot American
Hospitality, Inc. and Wyndham International, Inc. included in the 1997 Joint
Annual Report on Form 10-K of Patriot American Hospitality, Inc. and Wyndham
International, Inc.; and (b) dated January 23, 1997 (except for Note 8, as to
which the date is September 30, 1997) with respect to the Consolidated
Financial Statements of GAH-II, L.P. for the years ended December 31, 1996
and 1995, included in the Joint Current Report on Form 8-K of Patriot
American Hospitality, Inc. and Patriot American Hospitality Operating Company
dated September 30, 1997, as amended, both filed with the Securities and
Exchange Commission.
/s/ ERNST & YOUNG LLP
Dallas, Texas
September 21, 1998
<PAGE>
EXHIBIT 23.3
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" in
Amendment No. 2 to the Joint Registration Statement on Form S-3 (Nos.
333-58705 and 333-58705-01) and the related Prospectus of Patriot American
Hospitality, Inc. and Wyndham International, Inc. (formerly Patriot American
Hospitality Operating Company) and to the incorporation by reference therein
of our report dated March 5, 1997 with respect to the Financial Statements of
NorthCoast Hotels, L.L.C. included in the Joint Current Report on Form 8-K
of Patriot American Hospitality, Inc. and Patriot American Hospitality
Operating Company dated July 1, 1997, filed with the Securities and Exchange
Commission.
/s/ ERNST & YOUNG LLP
Seattle, Washington
September 21, 1998
<PAGE>
EXHIBIT 23.4
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" in
Amendment No. 2 to the Joint Registration Statement on Form S-3 (Nos.
333-58705 and 333-58705-01) and the related Prospectus of Patriot American
Hospitality, Inc. and Wyndham International, Inc. (formerly Patriot American
Hospitality Operating Company) and to the incorporation by reference therein
of our reports (a) dated March 14, 1997 with respect to the Consolidated
Financial Statements of Resorts Limited Partnership included in the Current
Report on Form 8-K of Patriot American Hospitality, Inc., dated January 16,
1997, as amended; (b) dated February 13, 1997, with respect to the Financial
Statements of CV Ranch Limited Partnership included in the Current Report on
Form 8-K of Patriot American Hospitality, Inc., dated January 16, 1997, as
amended; and (c) dated February 12, 1997 with respect to the Financial
Statements of Telluride Resort and Spa Limited Partnership included in the
Current Report on Form 8-K of Patriot American Hospitality, Inc. dated
January 16, 1997, as amended, filed with the Securities and Exchange
Commission.
/s/ ERNST & YOUNG LLP
Phoenix, Arizona
September 21, 1998
<PAGE>
EXHIBIT 23.5
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We consent to the reference to our firm under the caption "Experts" in
Amendment No. 2 to the Joint Registration Statement on Form S-3 (Nos.
333-58705 and 333-58705-01) and the related Prospectus of Patriot American
Hospitality, Inc. and Wyndham International, Inc. (formerly Patriot American
Hospitality Operating Company) and to the incorporation by reference therein
of our reports (a) dated March 13, 1997 (except for the third paragraph of
Note 7, as to which the date is April 2, 1997) with respect to the Financial
Statements of G.B.H. Joint Venture (d/b/a Grand Bay Hotel) for the years
ended December 31, 1995 and 1996; (b) dated September 23, 1997 with respect
to the Financial Statements of River House Associates (d/b/a Sheraton Gateway
Hotel) for the years ended December 31, 1995 and 1996; and (c) dated
September 19,1997 with respect to the Financial Statements of W-L Tampa, Ltd.
(the Sheraton Grand Hotel) for the years ended December 31, 1995 and 1996;
all of which are included in the Joint Current Report on Form 8-K/A No.1 of
Patriot American Hospitality, Inc. and Patriot American Hospitality Operating
Company dated September 30, 1997, as amended, filed with the Securities and
Exchange Commission.
/s/ ERNST & YOUNG LLP
Miami, Florida
September 21, 1998
<PAGE>
EXHIBIT 23.6
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" in
Amendment No. 2 to the Joint Registration Statement on Form S-3 (Nos.
333-58705 and 333-58705-01) and the related Prospectus of Patriot American
Hospitality, Inc. and Wyndham International, Inc. and to the incorporation by
reference therein of our reports (a) dated August 7, 1997 (except for Note
18, as to which the date is September 17, 1997) with respect to the
Consolidated Financial Statements of WHG Resorts & Casinos Inc. and related
financial statement schedule; (b) dated August 7, 1997 with respect to the
Financial Statements of Posadas de San Juan Associates and related financial
statement schedule; (c) dated August 11, 1997 with respect to the Financial
Statements of WKA El Con Associates; and (d) dated May 2, 1997 with respect
to the Financial Statements of El Conquistador Partnership L.P.; all of which
are included in the Joint Current Report on Form 8-K of Patriot American
Hospitality, Inc. and Wyndham International, Inc. dated April 20, 1998, filed
with the Securities and Exchange Commission.
/s/ ERNST & YOUNG LLP
San Juan, Puerto Rico
September 21, 1998
<PAGE>
EXHIBIT 23.6A
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" in
Amendment No. 2 to the Joint Registration Statement on Form S-3 (Nos.
333-58705 and 333-58705-01) and the related Prospectus of Patriot American
Hospitality, Inc. and Wyndham International, Inc. and to the incorporation by
reference therein of our reports (a) dated March 4, 1998 with respect to the
Consolidated Financial Statements of SF Hotel Company, L.P.; and (b) dated
February 3, 1998 with respect to the Combined Financial Statements of SC
Suites Summerfield Partnerships; both of which are included in the Joint
Current Report on Form 8-K/A No. 1 of Patriot American Hospitality, Inc. and
Wyndham International, Inc. dated June 2, 1998, filed with the Securities and
Exchange Commission.
/s/ ERNST & YOUNG LLP
Wichita, Kansas
September 21, 1998
<PAGE>
EXHIBIT 23.7
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the reference to our firm under the caption "Experts" and
to the incorporation by reference in Amendment No. 2 to the Joint
Registration Statement on Form S-3 of Patriot American Hospitality, Inc. and
Wyndham International, Inc. of our reports (i) dated February 12, 1997,
except for Note 21, Note 22 and the last paragraph of Note 2, as to which the
date is December 1, 1997, on our audit of the consolidated financial
statements of Interstate Hotels Company as of December 31, 1995 and 1996, and
for the three years in the period ended December 31, 1996 included in the
Report on Form 8-K dated December 10, 1997; (ii) dated February 11, 1998,
except for Note 21, as to which the date is March 1, 1998, and Note 3, as to
which the date is March 30, 1998, on our audit of the consolidated financial
statements of Interstate Hotels Company as of December 31, 1996 and 1997, and
for the three years in the period ended December 31, 1997, included in the
Current Report on Form 8-K of Patriot American Hospitality, Inc. and Wyndham
International, Inc. dated April 20, 1998.
/s/ PricewaterhouseCoopers LLP
Pittsburgh, Pennsylvania
September 25, 1998
<PAGE>
EXHIBIT 23.8
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the reference to our firm under the caption "Experts" and
to the incorporation by reference in Amendment No. 2 to the Joint
Registration Statement on Form S-3 of Patriot American Hospitality, Inc. and
Wyndham International, Inc. of our reports (i) dated May 12, 1997, on our
audit of the Combined Financial Statements of the Minneapolis Hotels as of
and for the year ended December 31, 1996, included in the Current Report on
Form 8-K of Patriot American Hospitality, Inc. and Patriot American
Hospitality Operating Company dated September 17, 1997; (ii) dated June 27,
1997, on our audit of the Combined Statement of Direct Revenue and Direct
Operating Expenses of the Met Life Hotels for the year ended December 31,
1996, included in the Current Report on Form 8-K of Patriot American
Hospitality, Inc. and Patriot American Hospitality Operating Company dated
September 17, 1997; (iii) dated September 8, 1997, on our audit of the
Combined Financial Statement of the Snavely Hotels as of and for the year
ended December 31, 1996, included on the Current Report on Form 8-K of
Patriot American Hospitality, Inc. and Patriot American Hospitality Operating
Company dated September 17, 1997; (iv) dated December 12, 1997, on our audit
of financial statements of Sheraton City Centre as of and for the year ended
December 31, 1996, included in the Current Report on Form 8-K of Patriot
American Hospitality, Inc. and Wyndham International, Inc. dated January 5,
1998; (v) dated December 12, 1997, on our audit of the Statement of Direct
Revenue and Direct Operating Expenses of Wyndham Emerald Plaza for the year
ended December 31, 1996, included in the Current Report on Form 8-K of
Patriot American Hospitality, Inc. and Wyndham International, Inc. dated
January 5, 1998 and (vi) dated February 12, 1998, on our audit of Wyndham
Hotel Corporation as of December 31, 1996 and 1997, and for each of the three
years in the period ended December 31, 1997 included in the Current Report on
Form 8-K of Patriot American Hospitality, Inc. and Wyndham International,
Inc. dated April 20, 1998.
/s/ PricewaterhouseCoopers LLP
Dallas, Texas
September 25, 1998
<PAGE>
EXHIBIT 23.9
CONSENT OF INDEPENDENT ACCOUNTANT
We consent to the reference to our firm under the caption "Experts" and
to the incorporation by reference in Amendment No. 2 to the Joint
Registration Statement on Form S-3 of Patriot American Hospitality, Inc. and
Wyndham International, Inc. of our report dated March 7, 1997, except for note
12 as to which the date is October 7, 1997 on our audit of the Financial
Statements of SCP (Buttes), Inc., as of and for the year ended December 31,
1996, included in the Current Report on Form 8-K/A No. 1 of Patriot American
Hospitality, Inc. and Patriot American Hospitality Operating Company dated
September 30, 1997.
/s/ PricewaterhouseCoopers LLP
Phoenix, Arizona
September 25, 1998
<PAGE>
EXHIBIT 23.10
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the reference to our firm under the caption "Experts" and
to the incorporation by reference in Amendment No. 2 to the Joint
Registration Statement on Form S-3 of Patriot American Hospitality, Inc. and
Wyndham International, Inc. of our reports (i) dated January 17, 1997, except
for Note 7, as to which the date is November 25, 1997, on our audit of the
financial statements of Royal Palace Hotel Associates included in the Current
Report on Form 8-K of Patriot Hospitality, Inc. and Patriot American
Hospitality Operating Company dated December 10, 1997; (ii) dated January 23,
1998, on our audit of the financial statements of Royal Palace Hotel
Associates, included in the Current Report on Form 8-K of Patriot American
Hospitality, Inc. and Patriot American Hospitality Operating Company dated
June 2, 1998.
/s/ PricewaterhouseCoopers LLP
Tampa, Florida
September 25, 1998
<PAGE>
EXHIBIT 23.11
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" and
the incorporation by reference in Amendment No. 2 to the Joint Registration
Statement on Form S-3 and Prospectus of Patriot American Hospitality, Inc.
and Wyndham International, Inc. of our report dated March 1, 1996 on the
financial statements of Historic Hotel Partners of Birmingham, Limited
Partnership, our reports dated October 8, 1997 and February 28, 1997 on the
financial statements of Historic Hotel Partners of Chicago Limited
Partnership, and our reports dated October 8, 1997 and February 21, 1997 on
the financial statements of Historic Hotel Partners of Nashville Limited
Partnership.
/s/ Pannell Kerr Forster PC
Alexandria, Virginia
September 25, 1998
<PAGE>
EXHIBIT 23.12
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We hereby consent to the incorporation by reference in the Prospectus
constituting part of Amendment No. 2 to the Joint Registration Statement on
Form S-3 of Patriot American Hospitality, Inc. and Wyndham International,
Inc. (formerly Patriot American Hospitality Operating Company) of our reports
(a) dated February 27, 1998 relating to the financial statements of CHC
International Inc. Hospitality Division as of November 30, 1996 and 1997 and
for each of the years ended November 30, 1995, 1996 and 1997 which appears in
the Current Report on Form 8-K of Patriot American Hospitality, Inc. and
Wyndham International, Inc. dated April 20, 1998; and (b) dated February 13,
1997, except as to Note 4, which is as of March 18, 1997, relating to the
financial statements of CHC Lease Partners as of and for the year ended
December 31, 1996 and as of December 31, 1995 for the period inception
(October 2, 1995) through December 31, 1995 which appears in the Current Report
on Form 8-K of Patriot American Hospitality, Inc. and Patriot American
Hospitality Operating Company dated July 1, 1997. We also consent to the
reference to us under the heading "Experts" in such Prospectus.
/s/ PricewaterhouseCoopers LLP
Miami, Florida
September 25, 1998
<PAGE>
EXHIBIT 23.13
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in this Amendment No. 2 to
Registration Statement Nos. 333-58705 and 333-58705-01 of Patriot American
Hospitality, Inc. and Wyndham International, Inc. (formerly known as Patriot
American Hospitality Operating Company) of our report dated September 30,
1997 (relating to the financial statements of Partnerships of Acquired Hotels
as of December 31,1996 and 1995 and for each of the two years in the period
ended December 31,1996) appearing in the report on Form 8-K/A No. 1 dated
September 30, 1997 of Patriot American Hospitality, Inc. and Patriot American
Hospitality Operating Company and to the reference to us under the heading
"Experts" in the Prospectus, which is part of this Amendment No. 2 to the
Registration Statement.
/s/ Deloitte & Touche LLP
Houston, Texas
September 21, 1998
<PAGE>
EXHIBIT 23.14
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our
report dated September 17, 1997, on the combined financial statements of the
Crow Family Hotel Partnerships (and to all references to our Firm),
incorporated by reference in Amendment No. 2 to the Joint Registration
Statement on Form S-3 of Patriot American Hospitality, Inc. and Wyndham
International, Inc.
/s/ Arthur Andersen LLP
Dallas, Texas
September 21, 1998
<PAGE>
EXHIBIT 23.15
CONSENT OF CHARTERED ACCOUNTANTS AND REGISTERED AUDITORS
As Chartered Accountants and Registered Auditors, we hereby consent to the
incorporation by reference in Amendment No. 2 to the Joint Registration
Statement on Form S-3, Registration Statement Nos. 333-58705 and
333-58705-01, of Patriot American Hospitality, Inc. and Wyndham
International, Inc. of our reports dated July 22, 1998 and July 17, 1998,
respectively, of the financial statements of Arcadian International Limited
(formerly Arcadian International Plc) and subsidiary undertakings and
Malmaison Limited and subsidiary undertakings, which are included in the
Joint Current Report on Form 8-K/A of Patriot American Hospitality, Inc. and
Wyndham International, Inc., dated June 2, 1998.
/s/ Arthur Andersen
1 Surrey Street
London
WC2R 2PS
__ September 1998
<PAGE>
UBS AG
London Branch
100 Liverpool Street
London EC2M 2 RH
September 11, 1998
Patriot American Hospitality, Inc.
1950 Stemmons Freeway, Suite 6001
Dallas, Texas 75207
Attn: William W. Evans III
Wyndham International, Inc.
1950 Stemmons Freeway, Suite 6001
Dallas, Texas 75207
Attn: Leslie Ng
Ladies and Gentlemen:
Reference is made to that certain Forward Stock Contract, dated December 31,
1997 (the "Forward Agreement") between Patriot American Hospitality, Inc. (the
"REIT") and Patriot American Hospitality Operating Company (the "OPCO") and
Union Bank of Switzerland, London Branch ("UBS"), as such Forward Agreement may
have been amended through the date hereof (including the letter agreement dated
August 14, 1998, between the REIT and Wyndham International, Inc. (as successor
to the OPCO, each a "Company" and collectively, the "Companies") and Union Bank
AG, London Branch ("UB-LB"), as successor to UBS acting through its agent
Warburg Dillon Read, LLC.
This letter agreement between the Companies and UB-LB modifies and amends, in
part, certain of the terms and conditions in the Forward Agreement. Capitalized
terms not otherwise defined herein shall have the meanings ascribed to them
under the Forward Agreement, as amended.
As of August 26, 1998, the average closing price of the Paired Shares for two
consecutive Exchange Trading Days was equal to or below the Mandatory Unwind
Threshold and UB-LB in providing notice to the Companies that a Mandatory Unwind
Event has occurred. However, the amendments to the Forward Agreement contained
herein amend the Mandatory Unwind Threshold retroactively.
Notwithstanding the terms and conditions of the Forward Agreement, the Companies
and UB- LB agree as follows:
1. In the definition of "Mandatory Unwind Thresholds" that is contained within
Section II of the Forward Agreement, the term "$16.00" shall be replaced by the
term "$11.00". No Mandatory Unwind Event under clause (i) of the definition of
Mandatory Unwind Event shall
1
<PAGE>
be deemed to have occurred or be continuing under the Forward Agreement, as
hereby amended.
2. The cash collateral currently held by UB-LB in the amount of $45,627,725 will
be used on the date hereof to "buy down" the Forward Price. Accordingly, the
Forward Price will be reduced on the date hereof by $14.0393 ($45,627,725
divided by 3,250,000, the number of Underlying Shares), and the cash collateral
of $45,627,725 will be applied to fund the buy down on the date hereof.
3. The Companies covenant that they will give telephone notice (confirmed in
writing) at least fifteen (15) business days prior to the consummation of any
transaction (including without limitation an open market repurchase of Paired
Shares) that would result in UB-LB or any of its affiliates owning in excess of
5% of the Paired Shares (any such ownership interest an "Ownership Interest").
UB-LB agrees that such notice requirement shall be deemed to have been satisfied
by the public announcement of a transaction by the Companies, but only if a copy
of such announcement is delivered to UB-LB. UB-LB represents on the date hereof
that the Ownership Interest consists of 3,250,000 Paired Shares owned by UB-LB.
UB-LB covenants that it will notify the Companies in writing within two (2)
business days after the occurrence of any increase in the Ownership Interest,
except with respect to any increase arising from the operating of the Forward
Agreement (including without limitation, the delivery of Interim Settlement
Shares or Cash Collateral Shares). Failure to comply with this covenant shall
constitute a Mandatory Unwind Event under clause (ii) of "Mandatory Unwind
Event" in Section VI of the Forward Agreement. In making calculations under this
paragraph, the Companies shall be entitled to rely on share information provided
by UB-LB under this paragraph and will not be in breach of this covenant if any
share information so provided by UB-LB is inaccurate or incomplete.
4. The Companies covenant and agree that simultaneously with the consummation of
the sale of certain property interests as set forth on Exhibit A hereto (the
"Assets"), the Companies will effect a Physical Settlement under the Forward
Contract with respect to 100% of the Underlying Shares. The Companies represent
that they have granted no lien, pledge or security interest in the proceeds of
the sale of the Assets. Failure to comply with this covenant shall constitute a
Mandatory Unwind Event under clause (ii) of "Mandatory Unwind Event" in Section
VI of the Forward Agreement.
5. The Companies represent on the date hereof that no early settlement of any
Other Transaction has occurred or is being contemplated, and that no Financial
Covenant Default or other Event of Default has occurred, all within the meaning
and for the purposes of clause (ii) of "Mandatory Unwind Event" in Section VI of
the Forward Agreement.
For the avoidance of doubt, the failure of the Companies to deliver to UB-LB on
or before September 30, 1998, an effective registration statement as
contemplated by Section III.A.4. of the Forward Agreement shall constitute a
Mandatory Unwind Event (regardless of when the Companies may have filed such a
registration statement with the SEC), and nothing in this letter agreement shall
be construed to the contrary.
2
<PAGE>
Sincerely,
UBS AG, London Branch
By: /s/
-----------------------------------------
Name:
Title:
Date:
AGREED TO AND ACCEPTED
Patriot American Hospitality, Inc.
By: /s/
-----------------------------------------
Name:
Title:
Date:
Wyndham International, Inc.
By: /s/
-----------------------------------------
Name:
Title:
Date:
3
<PAGE>
PaineWebber Financial Products Inc.
1285 6th Avenue
New York NY 10019
September 15, 1998
Exhibit 99.12
Patriot American Hospitality, Inc.
1950 Stemmons Freeway, Suite 6001
Dallas, Texas 75207
Wyndham International, Inc.
1950 Stemmons Freeway, Suite 6001
Dallas, Texas 75207
Re: Purchase Price Adjustment Mechanism Agreement,
dated as of April 6, 1998, as amended on July 30, 1998
and August 14, 1998 (the "PaineWebber Agreement")
Gentlemen:
We understand that you wish to settle an amount not in excess of
$45,627,725 of your obligation under the Forward Stock Contract between you and
Union Bank of Switzerland, London Branch, dated December 31, 1998, as amended on
August 14, 1998 and September 11, 1998, solely by means of applying cash
collateral previously delivered under such Forward Stock Contract (together with
any interest earned thereon) (the "Partial UBS Settlement"). We hereby agree and
confirm that (i) the Partial UBS Settlement will not give rise to a Cross-
Default under Section 4.3 of the PaineWebber Agreement, and (ii) we will not
require you to settle all or part of your obligation under the PaineWebber
Agreement in connection with the Partial UBS Settlement. In all other respects,
the PaineWebber Agreement, and any right of PaineWebber arising in the past or
in the future to settle under the PaineWebber Agreement, either due to a
cross-default described in Section 4.3 of the PaineWebber Agreement or arising
or having arisen under any other provision of the PaineWebber Agreement, shall
remain in full force and effect.
Very truly yours,
PAINEWEBBER FINANCIAL PRODUCTS, INC.
By:/s/
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