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(Commission File Number): 001-09319
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-------------------------
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
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Date of Report (Date of earliest event reported) : May 27, 1998
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PATRIOT AMERICAN HOSPITALITY, INC. WYNDHAM INTERNATIONAL, INC.
(Exact Name of Registrant as Specified in its Charter) (Exact Name of Registrant as Specified in its Charter)
DELAWARE DELAWARE
(State or Other Jurisdiction of (State or Other Jurisdiction of
Incorporation or Organization) Incorporation or 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, Texas 75207 Dallas, Texas 75207
(214) 863-1000 (214) 863-1000
(Address, Including Zip Code, and Telephone (Address, Including Zip Code, and Telephone
Number, Including Area Code, of Number, Including Area Code, of
Registrant's Principal Executive Offices) Registrant's Principal Executive Offices)
------------------------------ ------------------------------
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, Texas 75207 Dallas, Texas 75207
(214) 862-1000 (214) 863-1000
(Name, Address, Including Zip Code, and (Name, Address, Including Zip Code, and
Telephone Number, Including Area Code and Telephone Number, Including Area Code,
of Agent for Service) of Agent for Service)
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copies to:
GILBERT G. MENNA, P.C.
KATHRYN I. MURTAGH, ESQ.
Goodwin, Procter & Hoar LLP
Exchange Place
Boston, Massachusetts 02109-2881
(617) 570-1000
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Item 5. Other Events.
Background
On December 2, 1997 Patriot American Hospitality, Inc. ("Patriot") and
Wyndham International, Inc. ("Wyndham", and, together with Patriot and their
affiliates, the "Patriot Companies") signed an Agreement and Plan of Merger with
Interstate Hotels Company ("Interstate"), pursuant to which Interstate will
merge with and into Patriot, with Patriot being the surviving company (the
"Interstate Merger"). Prior to entering into the Agreement and Plan of Merger,
Patriot signed a non-binding letter of intent with Marriott International, Inc.
("Marriott") under which Marriott would consent to the Interstate Merger
pursuant to an arrangement allowing Patriot to convert ten Marriott-branded
hotels to the Wyndham brand in return for the execution by Patriot of ten
management contracts with Marriott for Interstate-owned hotels to be acquired by
Patriot. However, Marriott and the Patriot Companies were unable to reach a
definitive agreement as contemplated by the letter of intent. Marriott
subsequently filed suit against Interstate in United States District Court for
the District of Maryland (the "Maryland District Court") in March 1998 seeking
to block the merger. Patriot was subsequently joined as a party to this
litigation and counter-sued Marriott in the state court of Texas. The U.S. Court
of Appeals for the Fourth Circuit preliminarily enjoined the Interstate Merger
pending trial on the merits of Marriott's claims.
The Settlement Agreement
On May 27, 1998, Marriott, Interstate, Patriot and Wyndham issued a
press release, which is filed herewith as Exhibit 99.1, announcing the execution
of a definitive settlement agreement (the "Settlement Agreement"). In
conjunction with the execution of the Settlement Agreement, the Maryland
District Court lifted the injunction prohibiting the Interstate Merger and
stayed all litigation among the Patriot Companies, Interstate and Marriott while
retaining jurisdiction over the matter to enforce the parties' respective
obligations under the Settlement Agreement. The key features of the Settlement
Agreement are (i) the re-branding of ten Marriott hotels under the Wyndham name,
(ii) the assumption by Marriott of the management of ten Marriott hotels
currently managed by Interstate, and (iii) the divestiture by the Patriot
Companies within 180 days following June 2, 1998 (subject to extension upon
payment of certain fees by the Patriot Companies, as described below) of
Interstate's existing third-party management business. The principal provisions
of the Settlement Agreement are summarized below.
Exchange of Franchise and Management Agreements
The Settlement Agreement provides for the termination of franchise
agreements with respect to ten Marriott-branded hotels currently owned by
Interstate and the conversion of such hotels to the Wyndham brand (the
"Converted Hotels"). In return, the Patriot Companies will allow Marriott to
assume management of ten other Marriott-branded hotels currently owned by
Interstate for the term of the underlying franchise agreements (the "Submanaged
Hotels"). It
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is intended that the economic terms of this exchange effectively offset the
lost franchise fees that would have been earned by Marriott if the franchise
agreements on the Converted Hotels were maintained. The exchange of franchise
agreements and new management agreements will be completed over a period of
approximately 16 months and is subject to obtaining certain third-party
consents. The Interstate third-party management Company to be divested by the
Patriot Companies following the Interstate Merger ("NewCo") will form a
subsidiary to enter into primary management agreements to provide Wyndham
with management services with respect to the Submanaged Hotels. The NewCo
subsidiary will in turn enter into submanagement agreements with Marriott for
Marriott to provide such services on its behalf. Following the Interstate
Merger, approximately 92% of the outstanding shares of NewCo will be
distributed by Patriot to the then shareholders of the Patriot Companies, as
described below.
The Settlement Agreement precludes Patriot from selling seven of the
Submanaged Hotels prior to the fifth anniversary of the Interstate Merger
without the consent of Marriott. Three other Submanaged Hotels are not subject
to such five-year restriction; the Harrisburg Marriott and the Atlanta Marriott
which can be sold at any time to an approved Marriott operator, so long as the
Marriott franchise is retained, and the Houston Marriott which can be sold at
any time with or without the Marriott franchise being retained. After the fifth
anniversary of the Interstate Merger and until the expiration of the applicable
Marriott franchise agreements, Patriot may sell the Submanaged Hotels subject to
certain restrictions and to a right of first refusal granted to Marriott to
purchase the Submanaged Hotels at the offer price received by Patriot from a
third party.
Continuation of Management of Certain Interstate Hotels
The Settlement Agreement provides that the current agreements with
respect to six additional Marriott-branded hotels, four of which are managed
by Interstate, one of which is managed by Wyndham and one of which is managed
by Marriott, (the "Status Quo Hotels") will remain in place. Consequently,
the five Status Quo Hotels managed by Interstate or Wyndham will be managed
by the subsidiary of NewCo which will be the successor by merger to
Interstate's current management company and the other Status Quo Hotel will
continue to be managed by Marriott. Conditioned upon receiving consent from
partners having an ownership interest in the Status Quo Hotels (which consent
shall be sought on a reasonable best efforts basis), Patriot will be subject
to sale restrictions and rights of first refusal in favor of Marriott with
respect to the Status Quo Hotels, except for the Troy Marriott and the
Tyson's Corner Marriott.
Termination of Management Agreements for the Submanaged Hotels
Pursuant to the Settlement Agreement, Marriott's submanagement
agreements with respect to the Submanaged Hotels may not be terminated prior to
the expiration of respective terms unless upon an occurrence of (i) a
territorial infringement (as defined in the applicable submanagement agreement)
by Marriott, (ii) a default by Marriott, or (iii) the failure to meet a
performance test based on revenue per available room (the "Revenue Index
Threshold") and
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operating profit (the "Operating Profit Threshold"). A failure of the
performance test will occur if a hotel managed by Marriott fails to meet the
Revenue Index Threshold and the Operating Profit Threshold in two out of any
three years. In the event that a Marriott submanagement agreement is terminated
by NewCo or its subsidiary due to a Marriott default or a failure of the
performance test, Marriott will nonetheless be entitled to a termination fee.
Upon termination of a Marriott submanagement agreement, the underlying Marriott
franchise agreement remains in effect unless it otherwise terminates or expires
on its own terms.
Formation of NewCo
Formation and Structure
The Settlement Agreement requires Patriot to spin-off 92% of the
common stock of a subsidiary of the Patriot Companies, following the
Interstate Merger, which would operate Interstate's existing third-party
management business (the "Spin-Off"). The Spin-Off will be accomplished
through the formation of a new entity, NewCo, 92% of the shares of the common
stock of which will be distributed to the Patriot Companies' shareholders, 4%
of the shares of common stock of which will be owned collectively by Patriot
and Wyndham, and 4% of the shares of the common stock of which will be
purchased by Marriott. Due to issues relating to legislation recently
proposed affecting paired-share real estate investment trusts ("REITs"),
unitholders in Patriot's operating partnership will receive cash in lieu of
NewCo shares in connection with the Spin-Off. In addition, holders of Patriot
unpaired preferred stock will receive cash in lieu of NewCo shares in an
effort to accommodate Marriott's desire that Patriot insiders own less than
9.9% of NewCo's outstanding common stock. See the discussion below under "The
Voting Agreement."
NewCo will have two principal subsidiaries. The first subsidiary,
Interstate Hotels, LLC, will continue Interstate's current third-party
management operations, and its business will be limited to servicing existing
Interstate management contracts and renewals and extensions thereof. NewCo
will own an approximate 35% voting interest in Interstate Hotels, LLC and be
its sole managing member, and a subsidiary of the Patriot Companies will own
an approximate 65% non-voting interest. Interstate Hotels, LLC will be the
successor by merger to the current Interstate management entity and,
consequently, will hold all of Interstate's primary management assets. It is
currently anticipated that 191 hotels will be managed by NewCo, of which 36
are Marriott-branded hotels. This arrangement is intended to prevent Wyndham,
a major competitor of Marriott, from directly or indirectly managing
Marriott-branded hotels. The second principal subsidiary of NewCo, IHC II,
LLC, will be the entity which enters into the submanagement arrangement with
Marriott described above with respect to the Submanaged Hotels. NewCo will
own a 99.99% interest in IHC II, LLC and be its sole managing member, and
Marriott will own a 0.01% interest in IHC II, LLC which will give Marriott
certain consent rights over modifications and terminations of the
submanagement agreements with respect to the Submanaged Hotels. This
arrangement is intended to insulate Marriott from managing hotels directly
for Wyndham.
The Patriot Companies expect to file an initial filing with the
Securities and Exchange Commission with respect to the Spin-Off by early July
1998 (the "Initial SEC Filing") and
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complete the Spin-Off by the end of September 1998. Pursuant to the
Settlement Agreement, the Patriot Companies are required to file the Initial
SEC Filing by the earlier of (i) 90 days following the effective date of the
Interstate Merger (the "Effective Date"), or (ii) 120 days following the
Settlement Agreement; and complete the Spin-Off within 180 days following
June 2, 1998. If the Spin-Off is completed after 180 days following June 2,
1998, but within 240 days following June 2, 1998, Marriott will be entitled
to receive 110% of the fees otherwise due under the submanagement agreements
with respect to the Submanaged Hotels during the remaining term of such
agreements. In the event that the Patriot Companies do not file the Initial
SEC Filing by the required date or complete the Spin-Off by January 28, 1998,
the Patriot 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 Submanaged Hotels and the Status Quo
Hotels from Patriot at their then appraised value. Moreover, the Patriot
Companies, subject to any defenses they may have, would owe Marriott
liquidated damages with respect to the Converted Hotels, the Submanaged
Hotels and the Status Quo Hotels, and it is expected that Marriott would
require third-party owners of the Patriot 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
Patriot Companies would have to compensate Marriott for any lost franchise
fees or (ii) terminate the management contract with the Patriot Companies and
enter into contracts with an alternative manager. The Patriot Companies would
owe liquidated damages on any third-party Marriott-franchised hotel which
chooses to convert its brand.
The Settlement Agreement provides that the Patriot Companies and
Marriott will send a letter to each third-party owner of a Marriott-branded
hotel currently managed by Interstate outlining the terms of the settlement and
the Spin-Off. The letter will also explain that if the Spin-Off does not occur
by the required date, Marriott will consider the franchise agreement relating to
the third-party owned hotel to be in default and the third-party owner will be
required to find an operator to replace NewCo. Pursuant to the Settlement
Agreement, the Patriot Companies agreed to provide Marriott with an indemnity,
which protects Marriott in the event of any legal action by third-party owners
objecting to the Interstate Merger or the Spin-Off.
Marriott has agreed, as part of the Settlement Agreement, that it will
not exercise any rights it claims to have under its agreements with third-party
owners until January 28, 1999. If the Spin-Off has not occurred by such date,
Marriott will be entitled to exercise any rights to which it is entitled,
including the right to receive liquidated damages agreed to by Patriot in
connection with the Settlement Agreement. If the Spin-Off occurs on or before
January 28, 1999, Marriott will take no further action against Patriot with
respect to such claims.
NewCo will be a Maryland corporation and will initially have a nine
member Board of Directors. Wyndham and Marriott will each have the right to
elect two directors of NewCo until such time as the Patriot Companies, on the
one hand, or Marriott, on the other hand, own less than 50% of the percentage of
NewCo's shares of common stock owned by them immediately after the Spin-Off. In
addition, prior to the consummation of the Spin-Off, the
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Patriot Companies and Marriott will attempt to mutually agree to an amendment to
NewCo's charter such that either Wyndham or Marriott will forfeit its seat on
the Board of Directors of NewCo if the portfolio of hotels managed by the
Patriot Companies or Marriott respectively fails a certain performance
benchmark to be negotiated between Marriott and Patriot.
It is anticipated that Mr. W. Thomas Parrington, Interstate's Chief
Executive Officer, will continue in this capacity at NewCo and serve as a
director of NewCo, pursuant to a one-year employment agreement.
Pursuant to the Settlement Agreement, Patriot is required to ensure
that NewCo has a minimum initial capitalization of at least $50 million, current
assets at least equal to its current liabilities at the time of the Spin-Off and
total indebtedness which does not generate annual debt service in excess of
one-third of its earnings before interest expense, income taxes, depreciation
and amortization ("EBITDA") on a pro-forma basis. The Patriot Companies
currently estimate the value of the portion of the third-party management
business which will be spun-off to the Patriot Companies' shareholders to be
approximately $70 million (or approximately 3.2% of the gross value of the
Interstate Merger) and expect that NewCo will initially have no long-term debt.
It is anticipated that the Spin-Off will be completed on a taxable basis.
Accordingly, the receipt by the Patriot Companies' shareholders of NewCo shares
will be treated as a taxable dividend. The tax to the Patriot Companies'
shareholders, which otherwise would have been much larger, would be
substantially reduced by the fact that the Patriot Companies will retain
approximately 65% of the value of Interstate's existing third-party management
business following the Spin-Off.
Guaranties
The Settlement Agreement requires a number of guaranties. NewCo is
required to guarantee the performance of Interstate Hotels, LLC and IHC II, LLC.
Patriot is required to guarantee the payment to Marriott by IHC II, LLC of
certain fees in the event that certain Marriott franchise or management
agreements are terminated and with respect to the performance by IHC II, LLC of
certain obligations typical of an owner to a manager.
The Voting Agreement
The Settlement Agreement provides that Mr. Paul Nussbaum, Mr. James
Carreker, and certain trusts and other entities affiliated with Messrs. Milton
and David Fine (the "Inside Shareholders") will enter into a voting agreement
with NewCo (the "Voting Agreement") at the time of the Spin-Off. The Voting
Agreement will provide that the Inside Shareholders will vote their NewCo shares
at any NewCo shareholder meeting in the same proportion as all other
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unaffiliated shareholders of NewCo vote, so long as the Inside Shareholders and
a specified group of other NewCo shareholders (the "Other Shareholders"),
consisting primarily of executive officers and directors of the Patriot
Companies, collectively own more than 9.9% of NewCo's outstanding shares. In
addition, in an effort to accommodate Marriott's desire that Patriot insiders
own less than 9.9% of NewCo's outstanding common stock within 12 months
following the Spin-Off, the Voting Agreement requires the Inside Shareholders to
use reasonable efforts to sell or otherwise dispose of a sufficient number of
NewCo shares within one year following the Spin-Off so that the ownership of the
Inside Shareholders and the Other Shareholders of NewCo is less than 9.9% of
NewCo's outstanding shares. To the extent the Inside Shareholders have not sold
or dispose of a sufficient number of NewCo shares to get below the 9.9% level
within one year following the Spin-Off, NewCo will have the right to elect to
purchase from the Inside Shareholders the number of NewCo shares required so
that the Inside Shareholders and the Other Shareholders will own, collectively,
9.9% of the outstanding NewCo shares at a per share price equal to the average
closing price of the NewCo shares for the ten consecutive trading days
immediately preceding the date NewCo gives the Insider Shareholders written
notice of the intent to so purchase. Marriott has the right to require NewCo to
purchase the shares in the event NewCo does not elect to do so.
The Fine Family Shareholders Options
In connection with the Settlement Agreement, Patriot has entered
into put and call option arrangements with respect to 5,000,000 paired shares
of Patriot and Wyndham common stock (the "Paired Shares") that will be
received by various family trusts and partnerships controlled by the Chairman
of Interstate, Milton Fine, and members of his family (the "Fine Family
Shareholders"). Patriot will have the right to purchase all or any portion of
these shares for a period of 60 days, commencing on the Effective Date. If
Patriot elects to purchase any of such Paired Shares, the purchase price will
be the average per share closing price of the Paired Shares for the three
business days ending on the Effective Date, less $3.00 plus one third of the
increase in the market price of the Paired Shares, if any, from the Effective
Date to the date Patriot so elects. If the Effective Date does not occur on
or prior to June 2, 1998, the total number of Paired Shares subject to
Patriot's call option will be reduced by 333,333 Paired Shares per day until
the Effective Date. Patriot has granted to the Fine Family Shareholders a
concurrent put option with respect to these 5,000,000 Paired Shares. If the
Fine Family Shareholders elect to sell any of such Paired Shares to Patriot,
the purchase price will be the market price of the Paired Shares on the date
that the put option is exercised, less $7.00 plus one third of the increase
in the market price of the Paired Shares, if any, from the Effective Date to
the date the Fine Family Shareholders so elect.
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Item 7. Financial Statements and Exhibits.
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Exhibit
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99.1 Press Release by Patriot American Hospitality, Inc.
*99.2 Settlement Agreement, dated May 27, 1998, by and among Marriott
International, Inc., Interstate Hotels Corporation, Interstate Hotels Company,
Patriot American Hospitality, Inc. and Wyndham International, Inc.
*99.3 Form Submanagement Agreement
*99.4 Form Amendment to Tyson's Corner Management Agreement
*99.5 Form Letter to Third-Party Owners
*99.6 Form Newco Charter
*99.7 Form Newco Bylaws
*99.8 Form IHC II, LLC Operating Agreement
*99.9 Form Interstate Hotels, LLC Operating Agreement
*99.10 Form Voting Agreement
*99.11 Form Owners Agreement
*99.12 Form Lease between Patriot and Wyndham
*99.13 Form Primary Management Agreement between Wyndham and IHC II, LLC
*99.14 Form Guarantee
*99.15 Form of Settlement Agreement (Fine)
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* To be filed by amendment.
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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be filed on its behalf by the
undersigned thereunto duly authorized.
PATRIOT AMERICAN HOSPITALITY, INC.
Dated: May 27, 1998 By: /s/ William W. Evans III
-----------------------------
Name: William W. Evans III
Title: President and Chief Operating Officer
WYNDHAM INTERNATIONAL, INC.
By: /s/ William W. Evans III
------------------------------
Name: William W. Evans III
Title: Executive Vice President
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PATRIOT AMERICAN HOSPITALITY, INC. AND INTERSTATE HOTELS COMPANY
ANNOUNCE SETTLEMENT OF MARRIOTT LITIGATION
Merger of Patriot and Interstate Expected to be Completed Within Several Days;
Patriot Plans to Spin Off Interstate's Third Party Hotel Management Business
to Paired Shareholders
Dallas, Texas and Pittsburgh, Pennsylvania (May 27, 1998) - Patriot American
Hospitality, Inc. ("Patriot") and Wyndham International, Inc. ("Wyndham," and
together with Patriot, the "Patriot Companies"), whose shares are paired and
trade as a single unit (NYSE: PAH), and Interstate Hotels Company (NYSE: IHC)
jointly announced today that they have signed a definitive settlement agreement
(the "Settlement Agreement") with Marriott International, Inc. (NYSE:MAR) in
connection with actions brought by Marriott to enjoin Interstate's merger with
and into Patriot. The Settlement Agreement will take effect immediately and will
permit the Interstate merger to be completed promptly.
"We are very pleased to announce a settlement of this litigation, which will
allow the Interstate merger to proceed," said Paul A. Nussbaum, chairman and
chief executive officer of Patriot. "We believe we have come to an agreement
which satisfies our objectives and preserves for our shareholders, and those of
Interstate, the substantial benefits of this merger."
Based on the Settlement Agreement, the Patriot Companies expect to complete the
Interstate merger promptly and in any event prior to the June 7, 1998 date under
which, subject to certain conditions, either the Patriot Companies or Interstate
may terminate the Interstate merger agreement. Pursuant to the Interstate merger
agreement, each Interstate common share not converted into $37.50 in cash will
be converted into 1.341 paired shares of the Patriot Companies. In addition,
Interstate shareholders will receive at the time of the Interstate merger a cash
distribution of $0.429 on each Interstate share converted into paired shares.
Immediately prior to the signing of the Interstate merger agreement, Patriot and
Marriott entered into a non-binding letter of intent on December 1, 1997 which
provided for the Patriot Companies to terminate franchise agreements with
respect to ten Marriott-branded hotels currently owned by Interstate and to
convert such hotels to the Wyndham brand. In return, the Patriot Companies
agreed to allow Marriott to assume management of ten other Marriott-branded
hotels currently owned by Interstate for the term of the underlying franchise
agreements, with the additional management fees paid to Marriott effectively
offsetting the lost franchise fees resulting from the terminated franchise
agreements. The Settlement Agreement similarly provides for the termination of
ten franchise agreements on Marriott hotels owned by Interstate in exchange for
agreements for Marriott to submanage ten additional hotels under a structure
described below, but provides for the completion of this exchange over an
approximately 16-month period rather than the 33-month period provided in the
original letter of intent.
Another principal feature of the Settlement Agreement is the spin-off by Patriot
(the "Spin-
<PAGE>
Off"), within 180 days following June 2, 1998 (subject to extension under
certain circumstances), of a 35% interest in Interstate's existing third-party
hotel management business, as well as all future growth of that business.
Ninety-two percent of the shares of the company to be spun-off by Patriot, which
is expected to be named Interstate Hotel Management, Inc. ("NewCo"), will be
distributed to Patriot's shareholders, 4% will be owned collectively by the
Patriot Companies and the remaining 4% will be purchased and owned by Marriott
International.
NewCo will have two principal subsidiaries, the first of which will conduct
substantially all of Interstate's existing third-party management business.
NewCo will own an approximately 35% managing interest in this subsidiary and
Patriot will retain an approximately 65% non-voting ownership interest. This
arrangement is intended to prevent Wyndham, a major competitor of Marriott, from
directly or indirectly managing Marriott-branded hotels. It is currently
anticipated that upon completion of the Spin-Off, approximately 200 hotels will
be managed by this subsidiary, of which 43 will be Marriott-branded properties.
The second subsidiary of NewCo will contract with Wyndham to manage ten
additional Marriott-branded hotels. However, those services will be provided
through a submanagement arrangement with Marriott which is intended to insulate
Marriott from managing hotels directly for Wyndham.
In addition to the operation of its subsidiaries, NewCo also will seek to expand
the existing third-party management business by obtaining additional management
contracts from third-party hotel owners. These activities will be conducted
through NewCo, allowing those shareholders of the Patriot Companies who retain
their shares in NewCo to directly benefit from its growth.
According to James D. Carreker, chairman and chief executive officer of Wyndham,
the spin-off of Interstate's third-party management business will enable Wyndham
to focus its strategic and operational efforts on the management of proprietary
branded hotels while allowing Interstate to focus on third-party hotel
management. "Interstate's roots are in the third-party management business,
through which Interstate maintained relationships with various branded companies
and offered third-party owners the benefit of these relationships through
franchising," said Mr. Carreker. "The spin-off of Interstate's third-party
management business achieves two objectives: it allows Interstate to continue to
pursue the growth of this business through strong relationships with two major
branded companies, while retaining the benefit of this growth for our paired
shareholders through the ownership of NewCo common stock."
"We believe that the accretive impact of the merger will be relatively unchanged
as a result of the Settlement Agreement," Mr. Nussbaum said. "Specifically, we
expect that the effect of the spin-off will reduce Patriot's FFO per share by
approximately four cents in 1999, although Patriot's shareholders of record at
the time of the divestiture will receive shares of NewCo common stock in the
Spin-Off."
The Patriot Companies currently expect that the spin-off will be completed on a
taxable basis. Accordingly, the receipt by the Patriot Companies' shareholders
of NewCo shares will be
<PAGE>
treated as a taxable dividend. The tax to the Patriot Companies' shareholders,
which otherwise would have been much larger, will be substantially reduced by
the fact that Patriot will retain approximately 65% of the value of Interstate's
existing third-party management business following the Spin-Off through its
ownership interest in the NewCo subsidiary responsible for this business. The
Patriot Companies currently estimate that the value of the NewCo Spin-Off (net
of Patriot's retained interest in the existing management business) will be
approximately $70 million (or approximately 3.2% of the total value of the
Interstate merger). NewCo will initially have no long-term debt. On a per share
basis, it is anticipated that shareholders of the Patriot Companies will receive
a dividend in the form of shares of NewCo valued between $0.40 and $0.50 for
each paired share they hold as of the record date for the Spin-Off. However, the
actual value of the Spin-Off to paired shareholders will depend upon market
conditions and other factors at the time the Spin-Off is completed and there can
be no assurance with respect thereto. Due to issues relating to legislation
recently proposed affecting paired-share REITs, unitholders in Patriot's
operating partnership will receive cash in lieu of NewCo shares in connection
with the Spin-Off. In addition, holders of Patriot unpaired preferred stock will
receive cash in lieu of NewCo shares in an effort to accommodate Marriott's
desire that Patriot insiders own less than 9.9% of NewCo's outstanding common
stock within 12 months following the Spin-Off.
The Settlement Agreement provides that the Patriot Companies will complete the
Spin-Off within 180 days of the merger, subject to extension upon payment of
certain fees by Patriot. In the event that the Spin-Off is not completed within
the time period set forth in the Settlement Agreement, the Settlement Agreement
provides that Marriott will retain all of its rights under its existing
franchise agreements, will be entitled to liquidated damages with respect to
Interstate's owned and managed Marriott-branded portfolio (subject to any
defenses Patriot may have), and may require third-party owners of Interstate's
Marriott-branded properties to choose an alternative manager for their hotels.
Additionally, if the Spin-Off is not timely completed, Patriot has agreed to
provide Marriott with the option to acquire certain of the Marriott-branded
hotels acquired by Patriot in the merger at their appraised value. The Patriot
Companies anticipate filing the requisite documents for the Spin-Off with the
Securities and Exchange Commission by early July, and expect to complete the
Spin-Off in advance of the date agreed to in the Settlement Agreement. However,
if the Spin-Off does not occur within the initial 180-day prescribed period,
these provisions of the Settlement Agreement could have a material adverse
effect on the Patriot Companies if consummation of the Spin-Off is not completed
on a timely basis. In addition, whether or not the Spin-Off is completed, the
Settlement Agreement contains certain restrictions on Patriot's ability to sell
certain of the hotels to be submanaged by Marriott and also provides rights of
first refusal in favor of Marriott to purchase all of the hotels to be
submanaged by Marriott at the offer price received by Patriot from a third party
during various periods following the merger.
In order to partially compensate Patriot for costs associated with the
Interstate merger, Patriot has also entered into put and call option
arrangements with respect to 5,000,000 paired shares of Patriot and Wyndham
common stock that will be received by various family trusts and partnerships
controlled by the Chairman of Interstate, Milton Fine, and members of his family
(the "Fine Family Shareholders"). Patriot will generally have the right to
purchase these
<PAGE>
shares for a period of 60 days after the Interstate merger for $3 per share
below the average price three days prior to the merger, subject to increase in
accordance with a specified formula. The number of paired shares subject to
Patriot's call option will be reduced on a daily basis if the Interstate merger
does not occur on or prior to June 2, 1998. Patriot has also granted the Fine
Family Shareholders a concurrent put option with respect to these 5,000,000
paired shares at a strike price of $7 per share below the market price on the
exercise date, subject to increase in accordance with a specified formula.
Shareholders desiring more detailed information about the Spin-Off are advised
to consult the Current Report on Form 8-K filed by Patriot today. The Form 8-K
will be provided free of charge to any shareholder who so requests by calling
Patriot's investor relations department at 214-863-4795. The Form 8-K is also
available on the SEC's world wide web site at http://www.sec.gov.
In connection with the Settlement Agreement, Patriot, Interstate and Marriott
have agreed that all litigation among them arising from the Interstate merger
will be stayed or dismissed and that the United States District Court for the
District of Maryland will retain jurisdiction over the matter to enforce the
parties' respective obligations under the Settlement Agreement.
About Patriot American Hospitality, Inc. and Wyndham International, Inc.
Based in Dallas, Texas, Patriot American Hospitality, Inc. (NYSE: PAH) is
currently the nation's second-largest hotel real estate investment trust (REIT)
with a portfolio comprised of 214 owned, managed, leased or franchised hotels
with more than 60,000 rooms. Wyndham International, Inc., comprised of the
Luxury Hotel Division, the Wyndham Hotel Group, and the Asset Management Group,
leases, manages and franchises primarily upscale hotel and resort properties
represented by its proprietary brands, and provides management services for
third-party owned hotels and resorts.
About Interstate Hotels Company
Based in Pittsburgh, Pennsylvania, Interstate Hotels Company is the largest
independent hotel management company in the United States. Interstate owns,
manages, leases or performs related services for a portfolio of 217 hotels
totaling 43,516 rooms. The Company owns or has a controlling interest in 42
hotels.
Forward-Looking Statements
This press release contains forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933 and Section 21E of the Securities
Exchange Act of 1934. Actual results and the timing of certain events could
differ materially from those set forth in the forward-looking statements. End
